The Dealmakers Forum E-Newsletter, July 31, 2013 - Five Star Quality Care Reports Q2 Earnings, Price Per Unit Paid in the Seniors Housing Market and Cap Rate, Best-Performing Skilled Nursing Stock

 

Bringing You Senior Care M&A Deals and News
 

July 31, 2013 Issue:

 

Seniors Housing Weekly Update: 60 Seconds with Steve Monroe
Five Star Quality Care Reports Q2 Earnings. While cash flow and occupancy numbers were of concern, the company is divesting 11 properties with an annualized loss of $7.2 million. Read More

 

Recent Senior Care M&A Deals

Long-Term Care

Acquirer

Target

Price

Cornerstone Core Properties REIT, Inc.

Heritage Woods of Aledo

$8,600,000

Mosaic Management Services, Inc.

Canyon Rim Manor

$900,000

Morningside Development Group

Oceanside Senior Living Community

$7,700,000

 

Deal of the Week

In what may be the largest sale of a skilled nursing facility, both in terms of dollar amount and number of beds, as well as the largest HUD assumption in this sector, an affiliate of Robinson Management purchased a 524-bed skilled nursing facility in New York for approximately $120 million, or $229,000 per bed. While assuming $66 million of HUD debt secured by a single asset may be extraordinary, there were a few other aspects of the deal that set it apart. First of all, the buyer created a Delaware Statutory Business Trust (DSBT) to complete the acquisition and assume the HUD mortgage, and it is believed to be the first time that HUD has allowed a DSBT to be the borrower on a HUD-guaranteed loan. In addition, as part of the transaction, the buyer issued a $32 million promissory note to the seller which will mature when the HUD debt matures. Not only will the not-for-profit seller be able to use the cash flow from these payments to fund local activities such as performing arts programming, a summer camp and other activities, but when the loan matures in 45 years, ownership of the nursing facility will revert back to the seller. By then the buyer may not care, but what a benefit to the not-for-profit seller, which was formed in 1948. New York-based Robinson Management manages approximately 15 nursing facilities with 3,000 beds. None of this would have happened if not for attorney Mark Zafrin of Michelman & Robinson (no relation to Robinson Management), who put together the structure to allow this transaction to move through the TPA process at HUD. Well done...... Want to read more news? Click here for a free trial to The SeniorCare Investor and download the current issue today

 

Stat of the Week

In 2011, there was a perfect correlation between the average price per unit paid in the seniors housing market and the cap rate, decreasing from $228,900 per unit for those deals with a cap rate of 7% and lower down to $99,700 per unit for those with a cap rate of 11% and higher. While the correlation wasn’t as perfect in 2012, it was similar. Those acquisitions with a cap rate of 7% and lower had an average price of $188,700 per unit, while those with an 11% or higher cap rate came in at an average price of just $73,900 per unit. The rest of the market, 8%, 9% and 10% cap rate transactions, had average prices of $149,600, $130,100 and $136,600 per unit, respectively......Want to read more news? Click here for a free trial to The SeniorCare Investor and download the current issue today

 

Stock of the Week

So far this year, The Ensign Group has been the best-performing skilled nursing stock, with a 42% year-to-date price increase, and it is up 9.5% in July alone. The stock hit a new high of $39.18 on July 24 and has remained within $1.00 of that since then. Part of the attraction is that the company continues to grow by acquisition, and these are usually single-asset purchases where there is significant upside. In the second quarter alone Ensign closed on half a dozen deals, all of which were expected to be accretive in 2013. One problem for investors is that the stock is thinly traded, with average daily volume close to 50,000 shares, which in today’s world is nothing. But the price keeps going up. Although not announced yet, we expect second quarter results to be out in the next week or so.....Want to read more news? Click here for a free trial to The SeniorCare Investor and download the current issue today

 

Frontline Attack Piece

Last night, Frontline’s “Life and Death in Assisted Living” aired on PBS. While we will have some comments on the piece later in the day, we have been under the impression the story started as a broader look at assisted living (some would say an investigation into it) that evolved into more of a piece on Emeritus and quality of care as news of the jury verdict and award in California came to light earlier this year. It appears that investors may have braced a little for the reaction to what we know will be a negative story, with Emeritus down 8% since July 18 and down 5% year-to-date when all the other seniors housing stocks are up for the year. But most PBS watchers are not Emeritus investors, so we do not expect any dramatic swing after the airing. That said, we hope Emeritus has its PR staff working overtime, as we do not expect a pretty picture to be painted if the previews are any indication......Want to read more news? Click here for a free trial to The SeniorCare Investor and download the current issue today

 

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