The SeniorCare Investor: Skilled Nursing M&A Market Surges-

Despite Obvious Risks, There Is No Shortage Of Buyers
 
We are not sure what is going on in the skilled nursing acquisition market, but the volume of transactions that closed in August was the highest of the year.  With six of the sales at prices over $70,000 per bed, this is not a case of sellers running scared or buyers looking for bargains, however that may be defined in skilled nursing these days.  It is confirmation that for all the problems that skilled nursing has faced, and will continue to face, there is still a need for the services provided, and that need will continue to grow despite the movement towards home and community based care.
In the largest sale of the month, but one that came without a price, Washington-based Prestige Care, Inc. is acquiring eight skilled nursing facilities with 629 beds and one assisted living facility with 26 units from Eagle Healthcare.  Seven of the properties are in Washington and the other two are in Oregon and Idaho.  Founded in 1985, Prestige Care owns, operates or manages 29 independent, assisted living and memory care communities, plus 21 skilled nursing facilities before this acquisition, which should close on October 1.
In a sale/leaseback transaction, and the highest-priced deal of the month, LTC Properties (NYSE: LTC) has purchased two skilled nursing facilities with 288 beds in Ohio from Carespring Health Care Management for $54.0 million, or $187,500 per bed.  One is located in Cincinnati and was built in 2009, while the other is in Dayton and was built in 2010.  LTC will be leasing these properties to Carespring with an initial cash yield of 8.5% and a GAAP yield of 10.1%.  The initial term is 15 years with five-year renewals, and annual escalators of the lesser of 2.25% for the first seven years and 2.50% for the remainder of the term, or a calculation based on the CPI.  This represents one of the highest prices we have seen in the skilled nursing sector, but we might as well get used to it.  These newly built skilled nursing facilities, in good Medicare and managed care markets, are going to be cost effective providers of high levels of subacute care, competing with LTACs and inpatient rehab facilities.  If they can deliver the goods, their values will remain quite high……………….Want to read more? Click here for a free trial to The SeniorCare Investor and download the current issue today