August 21, 2018
Jason Punzel

Valuing Senior Living Facilities – Pro-Forma vs. Actual Financials

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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.

Conclusion:

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.

Contact Information:

For more information about analyzing the financials of your senior living community, contact Jason Punzel at 630-858-2501 or punzel@slibinc.com.