On September 29th, 2022, Ben Swett, Editor of The SeniorCare Investor, spoke with two expert panelists on the skilled nursing M&A market, and why values continue to skyrocket. Mr. Swett was joined by Laca Wong-Hammond, Managing Director and Head of M&A at Lument, and Toby Siefert, Managing Director of Senior Living Investment Brokerage, to make sense of this market, the opportunities within it and the risks.
Mr. Swett kicked off the webinar by asking the panelists if the average price per bed, which currently sits at $118,000 per bed, will continue to rise as it has during the previous four quarters. Ms. Wong-Hammond discussed how inflation has caused everything to increase in price, from real estate and labor to the price of lumber and other materials. The skilled nursing market was not saved from the price increases, and will continue to be impacted as prices across the board continue to rise.
However, even with the skyrocketing values within the industry, both Ms. Wong-Hammond and Mr. Siefert were still impressed by the strength of the SNF market after two years of challenges. After very few “cap rate deals” during 2020 and 2021, they are finally making a return, and buyers inside and outside of the industry should be interested.
But who are these buyers entering the scene? According to Mr. Siefert, many of the buyers he has seen are no different from pre pandemic, and those that are new tend to have established relationships within the space, such as CEOs or CFOs who have already worked with organizations or buyers that were part of a larger provider and are branching off on their own, granting them access to additional capital. Ms. Wong-Hammond agreed with Mr. Siefert, calling it a “web of connectivity.”
The two panelists also opened up on the “sellers’ mindset” in the current economy. Ms. Wong-Hammond stated that the current environment is beneficial to a seller because of four reasons. Number one being momentum and the relatively high pricing floor that has been established. Number two is equity; substantial capital is out there chasing deals and now is a time to take advantage of that. Her third reason was revenues, which are still being bolstered by government support, a nice convergence that is not going to last forever. Her last reason to sell right now was debt. A permanent refinance at 5% is still very attractive. Although there has been a sharp increase in the past couple of months, debt is still relatively cheap. Mr. Siefert also explained that some non-stabilized facilities can expect to see six to seven bids if they are to sell in the environment we are in today.
Mr. Swett wrapped up the webinar with a question about the rest of 2022 and the future of SNFs in 2023. According to the LevinPro LTC database, M&A transactions within long-term care are currently on pace to break an all time record. But owners of struggling facilities may flood the M&A market as owners of strong operations wait for interest rates to drop and values to rebound. That dynamic would cause the average price per bed to fall drastically.
Finally for skilled nursing facility owners that are looking to sell their facilities today, our panelists’ advice was to go to market with a healthy operation with some upside potential. If owner/operators were to show positive momentum as the facility goes to market, it would make a large difference in appealing to buyers. Mr. Siefert’s final piece of advice was to reduce agency staffing and increase the star rating to satisfy the lenders. He also recommends having a succession plan by training a manager to help acquirers ease into the transition.
The panelists covered even more in the hour-long discussion, delving into topics like which are the “good” and “bad” states to do SNF deals in, how buyers can maximize their revenue potential, and the outlook on 2023 and beyond. To listen to the discussion, you can view the webinar here.
