The Price of Profitability in Skilled Nursing

The Price of Profitability in Skilled Nursing

For the fifth year in a row, there has been a perfect correlation between the average price per bed and the expense ratio of those skilled nursing facilities sold, according to the 23rd Edition of The Senior Care Acquisition Report. This makes perfect sense but does not always happen when you have skilled nursing facilities in good markets that are mismanaged, usually on the expense side, but often combined with low Medicare utilization. Even though the operating margin (the inverse of the expense ratio) is important and can impact value in the acquisition market, it is the absolute level of cash produced at the facility that is always the most important factor. If there is a low expense... Read More »
Seniors Housing Expense Ratios Rise

Seniors Housing Expense Ratios Rise

With seniors housing (which includes independent living and assisted living) prices rising and cap rates shrinking in 2017, we would accordingly expect a decrease in the average expense ratio. That was not the case, as we recorded a 30-basis point increase from 72.1% in 2016 to 72.4% in 2017, according to the 23rd Edition of The Senior Care Acquisition Report. We are now approaching the average expense ratio seen during the Great Recession, when it averaged 73%. The industry has certainly improved significantly operationally since the Great Recession, but what has changed has been the increased acuity at both assisted living and independent living communities. Increased care costs, and... Read More »
40-Year Old SNFs: Obsolete or an Opportunity?

40-Year Old SNFs: Obsolete or an Opportunity?

The aging of the skilled nursing industry is becoming a growing concern for investors in that space. Facilities built 40 years ago and over comprise a significant portion of the skilled nursing beds in the country, and many believe they are outdated and would require too much capex to modernize and attract the Medicare and private pay populations. Nevertheless, plenty of buyers still see opportunity. But what do they see that others don’t? That is the question we tried to answer in our webinar entitled, “The 40-Year Old SNF: Part II,” a sequel to our 2016 discussion. Our Editor, Steve Monroe, was the moderator, joined by Alan Plush of HealthTrust, Chad Buchanan of Tryko Partners and Andrew... Read More »
Seniors Housing Expense Ratios Rise

Seniors Housing Cap Rate Spread Narrows

One would expect that in bull markets, the seniors housing (independent and assisted living) cap rate would fall, while the 10-year treasury rate would rise, making the spread between the two smaller, and vice versa for bear markets. But we have been in an historically low interest rate period throughout most of 2017, while at the same time in the midst of a continued bull market for seniors housing, highlighted by record-high prices and record-low cap rates. Per the 23rd Edition of The Senior Care Acquisition Report. The spread between the cap rate and 10-year Treasury Rate fell from 640 basis points in 2016 to 520 basis points in 2017, tied for the lowest seen in the last decade. That... Read More »
To Build, or To Buy

To Build, or To Buy

One thing on the minds of many is that in these heady times in senior care M&A and development, investors are faced with a dilemma: whether to build, or buy (or both). Ben Swett here filling in for Steve Monroe, who is currently wandering around the Argentum conference in San Diego. One thing on the minds of many there is that in these heady times in senior care M&A and development, investors are faced with a dilemma: whether to build, or buy (or both). Buying existing properties comes with its obvious benefits, like cash flow and local brand recognition. But, what a senior wants in a community has changed over the years, meaning that those properties built 10, 20 or 50 years ago... Read More »
Go Big Or Go Small In Seniors Housing?

Go Big Or Go Small In Seniors Housing?

Did size matter when it came to pricing a seniors housing (independent living and assisted living) community? Yes, it did, as the difference in average cap rates from the smallest communities (under 50 units) and the larger communities (90 units and above) grew to its widest gulf ever recorded (back to 2003) at 180 basis points, tying 2015’s difference, according to the 23rd Edition of The Senior Care Acquisition Report. Generally speaking, the smaller the community, the fewer economies of scale and the harder it is to generate significant cash flow, especially since the loss of one or two residents can have a more significant impact on the bottom line. Larger communities, including most... Read More »