
The Consistency of Skilled Nursing Facility Expense Ratios
Just like the average cap rate, the average expense ratio in the skilled nursing market for facilities sold has been very consistent. For the past five years, it has had a low of 88.2% and a high of 88.7%, for a very small 50 basis point spread, according to the 2017 Senior Care Acquisition Report. It was 88.5% in 2015 and 88.6% in 2016, just to show the consistency. Obviously, this excludes expenses such as interest, depreciation, amortization, taxes and rent. When these are all included, it is clear to see why the skilled nursing industry complains to their elected representatives as well as CMS that it is difficult to make money. And future cuts to Medicaid (as promised by both the... Read More »Cash Flow Drives Record Skilled Nursing Prices
We have written several times in recent years that reports of the “death of the skilled nursing facility” have been greatly exaggerated. That is clearly evident in the record-high prices we have recorded in the sector, soaring to an average of $99,200 per bed in 2016 (up from the previous record of $85,900 per bed in 2015) and to a median of $94,660 per unit (from $66,500 per bed in 2015), according to the Senior Care Acquisition Report. But this pricing peak contradicts a normally reliable indicator of the market’s health. As we have always stated, it is the absolute level of net operating income (NOI, and interchangeable with EBITDA) that drives value in the market. From 2011 through... Read More »Gross Income Multiple Falls For Seniors Housing Deals
A popular multiple that investors use to measure the value of a seniors housing and care property is the Gross Income Multiple (GIM). So, as prices have stayed consistently near record-highs for seniors housing (independent living and assisted living) properties, how much were buyers paying with respect to the properties’ revenues? In 2016, according to the 22nd Edition of The Senior Care Acquisition Report, the average GIM fell 15 basis points to 3.75x from the 3.9x recorded in both 2014 and 2015, widely considered the height of the seniors housing bull market. The median fell by a larger degree (30 basis points) and to a level not seen since 2011, when it was also 3.2x. Understandably,... Read More »