Buyers’ SNF opportunity
The recent trends of the 10-year Treasury Rate and the average skilled nursing facility cap rates have provided a lot of flexibility for buyers in how they price their acquisitions and negotiate with lenders. After rising from its low in 2012, the average 10-year rate was slowing increasing through 2014 and then dropped a bit in 2015 to a three-year low. But, for the past four years, the 10-year Treasury rate, which has long been thought of as “risk-free,” has averaged 2.5% or lower, or more than 200 basis points lower than during the last market peak of 2006 to 2007. What is interesting to follow is the spread between the 10-year rate and the average skilled nursing cap rate. Nearly 10... Read More »
Media Bias Against SNFs Again
The New York Times is at it again, and the reporters don’t want to do some simple math. Well, well, it looks like The New York Times is at it again. Two weeks ago it had a sensationalist story about residents “held” in nursing facilities. Last weekend, they continued on the theme of the disabled being confined in nursing facilities and ready to go home. The gist of the story was that home and community based care is what the elderly and disabled want (true), and that it is cheaper to boot (not so true). In fact, they cited Washington State as claiming that they can care for seven people at home for the cost of one person in a nursing facility. Really? The Washington Medicaid daily... Read More »
Age before location
Highlighting a growing issue for the country’s aging skilled nursing facility inventory, a facility’s regional advantage may not matter much for owners of facilities in high barrier-to-entry markets looking to maximize value. Surprisingly, the Northeast region, because of its higher average income, property values and barriers to entry, saw the highest average cap rate of any region in 2015, at 13.3%. This is up 70 basis points from the average in 2014 of 12.6%, and up 90 basis points from 2013, when the region averaged the lowest cap rate in the country. Conversely, the North Central region, which has seen tremendous growth in skilled nursing development (buoyed by Mainstreet’s pipeline),... Read More »
Changes at HCP, Brookdale, Genesis
Earnings season brings more than just earnings to the surface for some companies. What can I say? It has been quite a week, and we are only at Wednesday. On Monday subscribers received my initial take on HCP’s announcement about spinning out its HCR ManorCare portfolio into a new REIT. Maybe management thought it was necessary, but I really think we are going to be hearing some negative news in the future, and if so, it will make HCP’s decision look better. Just look at the performance of Genesis Health in the first quarter, which sent its share price plummeting by 20% yesterday. One problem is that with the HCR portfolio representing more than 25% of HCP’s revenues, with it gone,... Read More »
The weight of the cap rate
In the last couple of years, we have started looking at cap rates based on the size of properties and portfolios acquired. In weighting cap rates by size, we avoid the issue of the cap rate for a 180-bed facility sale being weighted the same as the cap rate for a 60-bed facility sale. Some people believe that a weighted average cap rate is more reflective of a true cap rate average because the dollar value of the portfolios and larger facilities sold can dominate the overall market. But in the last 15 years (as long as we have been tracking it), there has largely been no significant difference between the weighted and un-weighted average cap rate, just that in peak value years, the... Read More »Schedule a demo
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