Valuing Senior Living Facilities – Pro-Forma vs. Actual Financials – by Jason Punzel
As brokers, Senior Living Investment Brokerage, Inc. reviews financial statements on hundreds of facilities every year. We typically look at the trailing 3-12 months of financials to help determine the value of the senior living community, along with the price per unit of sales comparables.
When preparing an Offering Memorandum to market a property, we rely on the trailing actual financials versus using a pro-forma financial statement. It is very easy to make assumptions based upon the market (i.e. 92% occupancy, 40% margin, 3% rent growth, etc.) and apply it to a given facility that is not performing well to try and show the facility’s potential. However, if it was easy to achieve the pro-forma, the current owner would have already done it.
We have found it more realistic to value a facility based upon the actual financials, while highlighting upside opportunities for a potential buyer. The potential buyer is going to develop their own 10-year discounted cash flow analysis based upon their own assumptions and plans for the given facility thus a pro-forma developed by a Seller will be of little value to them.
There are a few exceptions. When there is a new facility, or large expansion, and the facility is in the lease-up process, it makes sense to develop a pro-forma financial statement. In this case, the trailing financials do not represent the near term future as the facility is moving towards a stabilization point. This is a much different situation than a facility that has a track record of performing at a given level and without major changes, will probably continue to perform at a similar level.
For more information about analyzing the financials of your senior living community, contact Jason Punzel at 630-858-2501 or firstname.lastname@example.org.