NORWALK, CT – April 9, 2019 – After plunging 18% in 2017, the average price per bed for skilled nursing facilities fell by another 5% to $77,500 per bed in 2018, the lowest level recorded since 2014, according to new acquisition data from Irving Levin Associates. Investors have clearly backed away from the unsustainable valuation levels seen in 2015 and especially in 2016, when the average price per bed nearly reached $100,000 per bed. Plus, certain industry headwinds became far more pronounced in 2018, resulting in more caution from buyers.
“In many ways, 2018 was a tough year for skilled nursing facilities,” stated Stephen Monroe, Editor of The Skilled Nursing Acquisition & Investment Report. “Medicare Advantage programs have eaten into both reimbursement and lengths of stay, and that, coupled with labor and occupancy pressures, has made it a difficult environment to operate in.” Indeed, many of the skilled nursing facilities that sold in 2018 were on the older side and struggling with cash flow. In addition, several large operators failed to make lease payments to their REIT landlords, caused by both increased industry headwinds and insufficient lease coverage made worse by annual escalators. This caused several large portfolio dispositions and realignments that helped bring the average price per bed down for the sector.
Relatively cheap and abundant capital brought buyers to the table for these value-add acquisitions but at the same time pushed the average cap rate down to 12.1%, from 12.3% in 2017. “This is still within the historical norms for skilled nursing cap rates, which have usually hovered between 12% and 13%, but given the operational risks facing the industry, the decline was surprising,” added Ben Swett, Associate Editor of the Report.
Despite the lower prices, M&A activity reached an unprecedented level with senior care deals (of which skilled nursing accounted for about 50%) numbering 426 in 2018, about 100 more than in 2017 and more than 60 higher than the previous record set in 2015 of 365 deals. Clearly, many buyers may have marked 2018 as a bottom for the skilled nursing industry. Spending was not as strong in 2018, totaling just $13.6 billion, down from $15.9 billion in 2017 and $25.6 billion in 2014, the record-high. However, it is the number of deals rather than the total dollars that is a better signifier of market health. All of the market statistics will appear in the just-published report from Irving Levin Associates, The Skilled Nursing Acquisition & Investment Report, First Edition, 2019.
The Skilled Nursing Acquisition & Investment Report, First Edition, 2019, contains statistics on the skilled nursing facility merger and acquisition markets in more than 30 charts and graphs, including prices per bed, capitalization rates and income multiples, in more than 175 pages. The Report also includes transaction information on each of the 202 publicly announced skilled nursing acquisitions in 2018, and industry sources on the active operators, lenders and brokers in the market. The Skilled Nursing Acquisition & Investment Report, First Edition, 2019 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 M&A markets.