The Health Care M&A Monthly: Senior Care Acquisition Prices Regain Their Footing

The 2001 numbers for the senior care facilities acquisition market are in. While we will preview some of them here, the majority of data and analysis appear in the seventh edition of Irving Levin’s The Senior Care Acquisition Report.
After declining for two years in a row, the average price per bed to acquire skilled nursing facilities finally reversed its downward trend in 2001. The per-bed price of $38,026 rose 4% over the previous year’s figure of $36,580, which was the lowest level this measure had hit since 1994. Higher Medicare rates certainly contributed to an increase in the profitability and valuation of the facilities during the past year.
As the chart below indicates, the median price per bed has changed very little; in fact, except for 1999 when it soared to $38,000, the median price has hovered persistently around the $33,000 mark.
The average price per bed for an assisted living facility rose 3.5% in 2001 to $85,500 per unit, shown on page 3. Any rise in price, particularly in the face of overbuilding and bankruptcies, may be attributed to the fact that nearly two-thirds of the properties sold in 2001 were built in the past 10 years, and many of these had occupancy rates of 90% or more. The median price per unit rose 30% to just over $79,000. Buyers and their bankers by and large avoided the older, less desirable facilities.
Independent living facilities registered the largest prices for 2001. The average price per unit rose by 1% to $97,400 while the median soared by 30% to over $101,000 per unit. Almost all had occupancy rates of 90% or better, and virtually all were built in the last 15 years.
Whether these upward ticks will blossom into a trend during the remainder of 2002 is uncertain. Affecting that outcome will be such factors as a number of states revisiting Medicaid reimbursements, Washington’s debate over the fate of "temporary" Medicare rate increases due to expire in October, not to mention the expected appearance of more distressed assisted living facilities on the market this year. Add to that the incredible shrinking pool of lenders, and we anticipate that pricing and leverage will be tight for the foreseeable future.