Monthly Archives: February 2019

February 18, 2019
Jason Punzel

How does trending cash flow determine the value of a Senior Living Community?

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How does trending cash flow determine the value of a Senior Living Community? – by Jason Punzel

When determining the value of a Senior Living Community, a buyer will look at many factors including location, age, size, acuity type, etc.  However, the most important factor is cash flow.  Many sellers may wonder, “how does trending cash flow determine the value of a Senior Living Community.”  An asset is worth its future cash flow plus its future sale price, discounted back to today’s value.   One of the best ways to predict the future is by analyzing what the community is currently producing and what it has produced in the past.   The more consistent a community’s financials over the past several years, the more confident a buyer will be that it will continue to do so and willing to pay more for the community.

Challenges:

Often, a community will go through some financial struggles.   If an owner fixes the problem and increases cash flow over an extended period of time, most buyers will give the owner credit for its current higher cash flow and base the purchase price on the most recent history.  However, when there is not a long track record of consistent cash flow, the potential buyer will analyze if the higher cash flow will continue.  There are several key questions they will ask and analyze:

  1. Is the community’s new rents and occupancy similar to the market?
  2. Does the physical structure warrant market rate rents and occupancy?
  3. Did the community increase occupancy via Medicaid or by offering steep incentives/temporary discounts?

Typically, a minimum of three months of consistent cash flow is needed to maximize the price.  However, 12 months is ideal.  If a seller can clearly demonstrate what they did to fix the problem, sometimes even a shorter amount of time is needed.  Additionally, the new cash flow will have to continue through the marketing, due diligence and closing timeline.  This typically takes 3-5 months.

Conclusion:

If a potential buyer determines that the new financials will realistically continue, a higher price is warranted.  However, if the new financials are just a cyclical event or was achieved by using Medicaid or steep rental discounts, it will be difficult to achieve the higher sales price and a longer track record may be required.

For more information on what your Senior Living Community might be worth, contact Jason Punzel at 630-858-2501 x 233 or punzel@slibinc.com.

February 15, 2019
Matt Alley

ASHA Annual Meeting Recap

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In late January, the SLIB team attended the 2019 ASHA annual meeting (American Seniors Housing Association). While it was great to be away from the polar vortex that hit the Chicago and St. Louis areas, we didn’t enjoy the best of weather in Southern California, but it was better than the historical cold snap at home.

The SLIB team also attended the eCap Healthcare Summit and will be attending the NIC Spring Conference next week in San Diego.  Please contact me if you will be attending the NIC Spring Conference.

At the ASHA annual meeting, we sat in on some great roundtable discussions and met with a lot of groups. I wanted to share a few takeaways:

1. Should we be concerned about overdevelopment in the seniors housing space? Overdevelopment was a big topic at the ASHA annual meeting, and I think it is the biggest risk to the acquisition market moving forward.  This is obviously a market-to-market (and sometimes, submarket-to-submarket) risk.  If the area that an owner has a seniors housing facility becomes overdeveloped in the future, census levels will obviously suffer and valuations will go down.

2. Who are the active buyers and sellers in today’s market? While there is some skepticism on how new development will impact the current market, there is still a great deal of variety in buyers. REITs, private equity, owner-operators and even some “mom and pops” have been interested in purchasing properties and growing their portfolio.  The sellers have been very diverse as well.  “Mom and pops” are still very active sellers, but we have seen more regional and national owners look to take advantage of the market and either sell their entire portfolio or divest of a couple of properties that don’t match their strategic vision.

3. What are the most important metrics that buyers are using in today’s market? Cap rates, another big topic at the ASHA annual meeting, are the most important metric when valuing a cash flowing property.  The difficulty comes in valuing a property that is underperforming.  In those cases, a potential new operator will put together a pro forma and land on a rate of return that they’re comfortable with.  Those deals typically see a wide range in offer prices.

4. Are there different buyers for different seniors housing asset classes? Yes, absolutely.  Institutional groups typically chase larger, higher quality assets with consistent cash flow.  Their low cost of funds has driven owner-operators down the acquisition spectrum to the smaller assets that may be underperforming.

5. What is the optimal size for acquisitions? Typically, the larger the offering, the better.  Institutional groups have a lot of equity to deploy and if they can deploy it in ten $30 million transactions as opposed to thirty $10 million transactions, groups will typically prefer fewer transactions.  One-off or small portfolio transactions have a different pool of buyers, which tends to be less institutional and requires a broker to have a greater knowledge of the individual market and its individual buyers.

6. With pricing strong in today’s market, why are some owners making a decision to hold? The current market conditions have hastened the time frame for owners that had a planned exit strategy in the next 12-24 months.  That being said, some owners are trying to increase their portfolio’s profitability and increase value in that way.  Even if cap rates see a modest increase, a major increase in profitability will still see the owner come out ahead by waiting to sell.

7. What does the increase in development do to cap rates moving forward?  It adds a level of risk moving forward.  Anything that adds risk – whether it be development, reimbursement or labor risk among others – will naturally push cap rates up.

8. Where do you see the market headed over the next 12-24 months? In the near-term, it should be strong – cap rates are still higher than most other asset classes, interest rates are low and institutional equity needs to be placed.  Further into the future, overdevelopment, government reimbursement changes, interest rate increases, increased regulation, increased tax rates and the housing market could cause a bit of a pullback in pricing.  That being said, I still think the seniors housing space is better equipped to handle this uncertainty than other asset classes.

If you have any questions on the topic of this post or would like a confidential valuation of part or all of your seniors housing portfolio, please contact Matthew Alley at 630-858-2501 ext. 225 or alley@slibinc.com.

February 11, 2019
Editorial Team

Recent Seniors Housing Sales and News

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SLIB has had a successful start to 2019! Here are some recent highlights, closings and news from the last few weeks:

Closed: $15.5M+ SNF Sold in Tuscaloosa MSA, Alabama

SLIB’s first closing of the year involved a 182 bed SNF. Forest Manor is well regarded in the local market and has a well maintained physical plant. The $15.5M+ transaction closed January 4th, 2019. Bradley Clousing, Toby Siefert and Daniel Geraghty handled the transaction. Inquire for more details or view our press release here.

Featured: McKnight’s Long Term Care News Discusses Lending Environment with Jeff Binder 

In January, McKnight’s Long Term Care News published an article featuring SLIB’s Jeff Binder discussing today’s lending environment for SNF operators. Read the article here, and contact Jeff Binder with any questions.

Closed: $15.75M+ AL/IL/MC Sold in Atlanta MSA, Georgia

SLIB arranged the successful sale of a 125 unit AL/MC/IL asset for $15,750,000 in the greater Atlanta area. The first building houses 32 assisted living and 32 memory care units, while the second building houses 61 independent living units. The property earned an EBITDAR of $1.3M+ at the time of sale. The transaction closed January 23rd. Bradley Clousing handled the transaction. For more details, view our press release here.

Featured: Seniors Housing Business Latest Issue with Jason Punzel 

This February, NREI released the latest issue of Seniors Housing Business. Jason Punzel shared insights on investment strategy in today’s market in the article, “Buy, Sell or Hold.”  Read the article here, and contact Jason Punzel with any questions.

Closed: $13.6M SNF Sold in Reno, Nevada

SLIB closed a competitive bid process for a 174 bed SNF in Reno. The sale included vacant land on-site that could be used for future expansion. This facility earned more than $1.5M in EBITDAR, in spite of bed occupancy averaging between 60-65%. Matthew Alley, Jason Punzel, Brad Goodsell and Vince Viverito handled the transaction, which closed February 1st. For more details on the transaction, view our press release here.

Closed: 100+ Bed SNF Sold in East Texas

SLIB arranged the transaction of a 100+ bed SNF in Camp County of East Texas. This deal leveraged SLIB’s nationwide and local expertise as the purchaser is a mid-sized owner-operator located in Texas. There were some regulatory issues at the facility, which the Buyer hopes to correct and build census. Matthew Alley handled the transaction, which closed February 1st. For more details, view our press release here.

Closed: ALP Sold in Upstate New York

SLIB successfully secured a buyer for an ALP in Upstate New York. According to Dave Balow, who arranged the transaction, “Due to the limited supply of ALP beds in NY, and the high margins present for each ALP resident, demand for ALP beds in NY is extremely high.” For more details on the transaction, which closed February 1st, view our press release here.

For more information on any of these transactions, or if you want to know what your Seniors Housing Community may be worth, please contact our brokerage team at 630-858-2501.