Stephen M. Monroe, Partner
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NORWALK, CT – March 12, 2009 – After hitting an all-time high in 2007, the average price paid per bed for skilled nursing facilities dropped significantly in 2008, according to a new report on the seniors housing and care M&A market to be published by Irving Levin Associates, Inc., a research and publishing firm that tracks mergers and acquisitions in the seniors housing and health care markets. The skilled nursing industry began its recovery five years ago from the deep financial problems originating at the end of the 1990s that resulted in many corporate bankruptcies. In recent years, prices were pushed up as reimbursement levels stabilized, especially with regard to Medicare, and more investors came into the market, including private equity firms looking for attractive real estate returns. This came to an end in 2008 with the contraction of the credit markets.

The average sales price for skilled nursing facilities dropped by 18% in 2008 to $45,500 per bed, according to Levin’s report, The Senior Care Acquisition Report, Fourteenth Edition. Despite this decline, the average price per bed in 2008 was still higher than the average price in both 2004 and 2005. Although some of the decline can be explained by the increase in the cost of capital and the shortage of lenders in the market as the year progressed, most of the decline was the result of less attractive and less profitable skilled nursing facilities available in the market for sale. “As the economy and capital markets began to deteriorate, sellers of higher-quality properties were not willing to part with them at lower prices,” stated Stephen M. Monroe, editor of the Report.

In the assisted living market, after record prices paid in 2007, the average price paid fell by 21% in 2008 to $124,900 per unit. The volume of transactions declined significantly and, like the skilled nursing market, the overall quality of the communities sold was lower than in 2007, contributing to the decline in per-unit prices. “So many high-quality properties came on the market in 2006 and 2007 that by 2008, as the capital markets deteriorated, many sellers decided to stay on the sidelines. Still, the average price paid in 2008 was not too much lower than in 2006,” stated Mr. Monroe. “In addition, capitalization rates across the board increased in 2008, and this contributed to lower values as well,” continued Mr. Monroe.

The independent living community market had the largest decline in prices, with the average price per unit plunging more than 30% from 2007’s record level to just $118,100 per unit in 2008. “This market had the smallest volume of transactions in several years and the average price paid in 2008 was not a reflection of a drastic deterioration in the market. Rather, there just weren’t many of the “A” properties sold and very few portfolios were sold as well. In fact, there just was not much activity all,” stated Mr. Monroe.

The dollar value of all publicly announced seniors housing and care mergers and acquisitions plummeted in 2008 to approximately $1.8 billion. This compares with $22.6 billion in 2006 and $16.6 billion in 2007. In both 2006 and 2007, there were several corporate mergers and take-private transactions valued at more than $1.0 billion each, while in 2008 the largest transaction was just $300.0 million. “The tone of the market has certainly changed, and much of the capital that fueled the bull market from 2005 through 2007 has disappeared, at least for now,” stated Mr. Monroe. “But it will return.”

The Senior Care Acquisition Report, Fourteenth Edition, contains statistics on the skilled nursing facility, assisted living and retirement housing merger and acquisition market, including prices per bed or unit, capitalization rates and income multiples, in more than 170 pages. The statistics are based on more than $1.5 billion of seniors housing and care asset sales in 2008. It also includes transaction information on each of the publicly announced senior care, home health care and hospice acquisitions in 2008. The Senior Care Acquisition Report, Fourteenth Edition, may be purchased for $595. For more information, or to order the report, call 800-248-1668. Irving Levin Associates, Inc. was established in 1948 and has headquarters in Norwalk, Connecticut. The company publishes research reports and newsletters, and maintains databases on the health care and senior housing markets.

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