The SeniorCare Investor hosted their 2nd Quarter Investor Call on July 24th, bringing together key players from the Seniors Housing and Skilled Nursing sectors. This event provided a platform for leaders to share important industry updates and present relevant case studies on recent transactions.
For those who couldn't attend, you can listen to the full conversation here: 2nd Quarter Investor Call Recording
Representing Evans Senior Investments (ESI), our Director, Hank Fuller, shared insights into the current market dynamics within the skilled nursing industry. He also presented a case study on a 5-property Southeast Skilled nursing portfolio transaction that ESI closed last year. Here are the key points Hank covered:
ESI Case Study - SNF Portfolio Transaction Overview
5-Property Skilled Nursing Portfolio in the Southeast United States
Ownership: Regional Owner-Operator
Years Built: 1973, 1996, 2005, 2006, 2011
Beds/Units: 690 SNF Beds/32 AL Units
Occupancy: 80%
Sale Price: $99,000,000, or $137,000 per bed
In-Place NOI: $4,492,784
Cap Rate: 5%
SNF Pricing Trends
On the call, Hank discussed the potential for an increase in the average price per bed for skilled nursing facilities in 2024. Hank highlighted that this expected rise is closely tied to record reimbursement levels, which generally suggests a strong market trend.
"I think we may see the average price per bed for skilled nursing facilities tick up in 2024. A lot of this has to do with the record levels of reimbursement, obviously very state-by-state dependent. However, we've seen the capital markets really stabilize. There's not as much uncertainty there, and margin improvement has helped boost the price per bed."
At the end of Hank's presentation, he touches on two other factors fueling this trend:
Vertical Integration
The Rise of the Regional Operator
Owner Takeaway: Given the potential for increased prices per bed, supported by record reimbursement levels, stabilized capital markets, and the benefits of vertical integration and regional operators, it may be a good time for owners to evaluate the current value of their skilled nursing facilities.
Staffing and Financial Health
Transitioning to the operational side, the ongoing staffing crisis, a major concern in the industry, is showing signs of improvement. While many communities still rely on agency staff, the associated costs with this have significantly decreased, suggesting a trend towards stabilization. Hank highlighted this development, stating,
"We certainly have seen staffing stabilized. It's definitely getting better. Most communities we're looking at today are not agency free. I would say less than 10-15% of the communities we look at today are agency free. However, we've seen communities that were spending north of $500,000 to $1,000,000 in agency costs annually come down to a much more normal level that we were looking at pre-pandemic."
Owner Takeaway: As staffing costs decrease, there's an opportunity to move towards more sustainable operations. Owners can consider reinvesting these savings into areas that improve care quality and operational efficiency. This is an ideal time to evaluate how these funds can enhance the overall health of your community.
Shift in Buyer Focus
We are seeing a major shift in buyer focus. Instead of just looking at current cash flow, buyers are increasingly interested in the potential improvements they can implement. This shift reflects a trend towards strategic investment. Hank elaborated,
"Historically what buyers cared about was in-place existing cash flow and how much was it in applying a cap rate to that. However, we have seen that the number of buyers and operators in the space has increased as well as a lack of available acquisition opportunities, so buyers are actually paying for what they believe they can do in the first two years under their operations."
4 Main Areas of Focus for Buyers Right Now:
Census Recovery
Specialty Program Implementation
Medicare Market Share Expansion
Cost Structure Reduction
Owner Takeaway: With buyers now focused on potential improvements rather than just current cash flow, it’s important to highlight your property's growth opportunities. This shift means buyers are willing to invest in properties with untapped potential, making it a great time to showcase planned improvements and future value-add opportunities.
For a deeper dive into the current market trends and expert insight provided we encourage you to watch the full recording of the call: 2nd Quarter Investor Call Recording
ESI's Valuation Services
For those interested in understanding the current market value of their properties, ESI's market valuation services are at your disposal. Whether you're considering divesting or simply want an updated opinion of value, we are happy to run the numbers for you. Feel free to reach out at any time to get started via acquisitions@evanssenior.com.