Monthly Archives: October 2019

October 22, 2019
Jason Punzel

Selling Seniors Housing Communities – Pro Forma vs. Actual Financials

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Selling Seniors Housing Communities – Pro Forma vs. Actual Financials – by Jason Punzel

When selling seniors housing communities, many owners question how buyers evaluate pro forma vs. actual financials.  Every operating asset is worth the future cash flow it will produce, plus the exit sales price, discounted back to today’s value.   One of the best ways to predict future cash flow is by analyzing what the community is currently producing and what it has produced in the past.   The more consistent a community has produced cash flow in the past, the more confident a buyer will be that it will in the future.  Thus, they will pay more for the community because it will be perceived as lower risk (thus a lower cap rate).

However, often times a community, or any business, will go through financial ups and downs.   For example, if a property has an occupancy rate below market (70%) the NOI of the property is probably very low or may even be negative.  However, the property still has value.  Depending on the quality and location of the property, it may have the potential to achieve a market occupancy rate, and therefore be worth significantly more than simply using the Cap Rate method to determine its value.

A buyer must identify what changes need to take place (capital expenditures, a new marketing plan, a new administrator, etc.), along with the time, cost and likeliness of success to determine the potential future net operating income.  Thus, a buyer will utilize a pro forma financial statement to determine what it could be worth in the future, and the cost and risk involved getting there.

Pricing:

Typically, we see properties that are operating significantly below the market getting sold at a price somewhere between its current state (current NOI/Cap Rate) and its pro forma value (pro forma NOI/Cap Rate).  The new buyer must be rewarded for solving problems and taking the risks involved in turning around a property.  However, the current owner will not sell unless they think they are getting a fair price for giving up the future upside.

A creative structure we have used in this scenario is an Earn Out.   This is where a base price is set for the property.  Then post closing, the buyer will pay the seller additional sums of money when certain milestones are achieved (usually occupancy based).   This allows the seller to receive additional proceeds, but also gives the buyer a low initial cost basis minimizing financing expenses.

Conclusion:

If pro forma financials are based upon realistic assumptions, the seller will achieve some of the future, upside value at sale.  However, the buyer will also need to be compensated for the time, money and risk they are taking to achieve the greater future value.

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.

October 8, 2019
Matt Alley

When is the Best Time to List a Seniors Housing or Nursing Home Community?

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When Is the Best Time to List a Seniors Housing or Nursing Home Community? – by Matthew Alley

I’m often asked when is the best time of year to list a seniors housing or nursing home asset?  We are all used to residential real estate agents telling us to list in the Spring while the weather is starting to change (at least for us Northerners).

Does it Matter for Seniors Housing Communities?

Yes and no.  While there is not the seasonality in the seniors housing market as there is in the residential market, there are good and less optimal times for getting buyers’ (even institutional buyers’) attention.

I would argue that we are entering into one of those sweet spots as we get into the middle of October.  Typically, Senior Living Investment Brokerage has its highest volume of listings in September and October. Early Fall is typically the best time to list seniors housing or skilled nursing assets.

Why is that?

During the Labor Day / beginning of October time frame, Buyers have made it through the Summer and are looking to deploy capital before the end of the year.  They are hoping to make one last push to meet their aggressive beginning of the year expansion goals.

With a typical 3-4 month closing period, now is as good of a time as any to consider listing your property with Senior Living Investment Brokerage. We can help you procure the right Buyer, whether your community is in a primary market or rural market, who can close the transaction prior to year-end.  Many Buyers are looking to “get money out the door” by December 31st and this may give you an advantage in coercing those groups into making a more aggressive bid than they would in the middle of the year.

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.