The Dealmakers Forum E-Newsletter, November 26, 2014 - Record senior living price in Utah

 

Bringing You Senior Care M&A Deals and News
 

November 26, 2014 Issue:

Seniors Housing Weekly Update: 60 Seconds with Steve Monroe
Being Thankful For Care GiversThose care givers taking care of our elderly desire our thanks............. Read More   

 

 

Recent Senior Care M&A Deals
Long-Term Care    
Acquirer Target Price
Non-traded REIT Senior living community in Utah $68 million

 

 

Deal of the Week 

We have written extensively about the bad timing involved with opening senior living communities in the 2008 to 2010 period, which caused several owners to either default, restructure their construction debt or sell. But it is always a great story when we hear of a community that opened in 2010, and after a little struggle in the early years, hit stabilization for the assisted living (74 units), memory care (24 units) and skilled nursing/ rehab (40 units) in 2013, with the independent living units (108) hitting their stride late last year and now at 99%. Overall community occupancy has stabilized at 97%, which is remarkable for any community but great for a rental CCRC that opened in 2010.

 

The community is located in Utah and happens to be in the third largest county in the state that had an 80% increase in the 85 and over population from 2000 to 2010. This can be a difficult type of property to sell, however, where the 40-unit skilled nursing and rehab component generates 45% of the revenues and is only private pay and Medicare. And pricing can be difficult because one has to decide whether to use a blended cap rate or internal rate of return for the various components. Plus, a buyer had to look at the margins of the various components to see if there was room for improvement, and it looks like there may be. The overall operating margin is about 25%, and given there is no Medicaid in the rehab facility, and that IL margins should be close to 40%, there may be some room to move the needle a bit. A non-traded REIT was the purchaser, paying $68.0 million, or $276,400 per unit, which may be the highest price paid for a senior care asset in Utah. Based on 2014 estimated cash flow, it looks like the cap rate was between 5.1% and 5.5%, but perhaps just over 6.0% on 2015 estimated cash flow. This is after a 6% management fee ($850,000), and when this number gets high, some buyers discount this significantly when calculating what their true cap rate is. Any way you look at it, this was an aggressively priced deal, but one with a lot of interest, at least from the financial buyers. The prize is a state-of-the-art community in a strong market that has obvious local appeal. But as the residents age and start needing the SNF component, we wonder how that will impact the financial dynamic of what if currently a short-term rehab facility with most customers coming from outside the CCRC. But at 97% or higher occupancy with the ability to push rates, it may not matter. Evans Senior Investments took on the assignment with the owners and beat the early estimates of what this community might sell for. And the record may stand for a while.........................Want to read more news? Click here for a free trial to The SeniorCare Investor and download the current issue today

 

Financing of the Week

A few months ago, we wrote of a growing trend of life insurance companies getting involved in the seniors housing finance world, and how a life insurance company provided a $20 million loan to Stave Properties, LLC to refinance a 188-unit seniors housing community in Tucson, Arizona. This week it was announced that through its correspondent relationship with a life insurance company, NorthMarq Capital secured a $9.4 million loan to refinance a new 40-unit/40-bed memory care community in Visalia, California. The loan, a cash-out refinance, came with a 6-year term, 25-year amortization and a fixed-rate in the low 4s. The community, Laurel Court at Quail Park, is a new addition to the Quail Park assisted living community in Visalia, which is operated by Seattle-based Living Care Lifestyles. The life insurance company, although not named, has worked with NorthMarq in the past, and plans to increase its senior living portfolio even more in the near future. Stuart Oswald, working out of NorthMarq’s Seattle office, led the transaction.........................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 the last five months, we have been working to create a database solely of new senior living development projects. The database goes back to early 2013, and covers new construction, renovation and expansion projects, with metrics like development costs, unit size/breakdown, state, developer, operator, etc… To debut this new resource, we decided to look at all recorded assisted living communities, stand-alone memory care communities and combined assisted living/memory care communities from the past couple years to determine their average size and cost per unit. Traditional AL facilities with no memory care component average around 74 units per community. Anecdotally, this seems to be right on point, as we have spoken to developers and operators who say this number is just big enough to be efficient but small enough to still be manageable. Stand-alone memory care communities are on average much smaller with about 46 units, which makes sense as most of these communities offer a “boutique-feel” and Alzheimer’s and dementia residents require more attention and resources, making large memory care institutions less viable. Combined assisted living/memory care communities typically feature 90 units, with two-thirds of the rooms often reserved for assisted living. Since memory care is almost always sectioned off in a secured area of the property or building, these combined communities are more like two separate ones, thus explaining the higher unit average. The numbers can vary (being as high as 164 units for combined AL/MC or as low as 15 units for AL/MC) based on the land and the local market, but many developers seem to have found a model that works........................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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