How have skilled nursing valuations changed, and when (if ever) will we get back to normal? Those were a couple of key questions in our November 19th webinar titled “Valuing SNFs During The Pandemic.” Our Managing Editor, Steve Monroe, hosted a panel with panelists Laca Wong-Hammond, Managing Director of M&A at Lument, Dan Booth, Chief Operating Officer of Omega Healthcare Investors, and David Reis, Chief Executive Officer of Senior Care Development, in which they discussed a range of topics on how the skilled nursing M&A market has been affected by COVID-19. Another question may be how has the business not changed?
First, looking at the prices paid for skilled nursing facilities, we have already recorded a steady drop in the average from $93,000 per bed in 2019 to a low of $75,200 per bed in the time from January 21st (the first positive COVID-19 case in the U.S.) to September 30th. That has, of course, been the result of diminished operations and increased risk in the sector, but also is correlated to the caliber of facilities sold during the pandemic.
Usually, facilities that were already struggling before 2020 have owners more willing to sell now, at a discount. Other operators that were previously stabilized have so far been more inclined to wait out the storm (and the federal aid) before making the decision to sell. These factors will likely combine for an average price per bed well below recent historical levels. The 26th Edition of The Senior Care Acquisition Report will have the full year results early next year, with every statistic you could need.
Cap rates, operating margins, NOI per bed, these will also probably be affected too, and the webinar highlighted how those metrics have already changed. But just how permanent some of these new expenses and lower operating margins may be means that underwriters may have to use new methods to value properties. How does federal stimulus factor into valuations, if at all? If 2020 financials are a wash, then is 2019 performance even relevant if it may not be achievable in the future?
Skilled nursing cap rates have historically hovered between 12.0% and 13.5% for most of the 21st century, and have proven to be remarkably stable despite changes in borrowing costs, outside economic factors and increased complexity in the business. Could the pandemic break that consistency? So far, the answer is no.
Finally, who have the buyers and sellers been in 2020, and what has brought them to the table in the skilled nursing market at a time of intense media glare, consumer fear, aging inventory and increased operational risk, just to name a few. Surprisingly, interest has been stronger than one may think, and the buyer profile is remarkably similar to that in 2019.
To learn more about this market, check out the webinar here.
