Flying in the face of “contrarian” analysts who “signed its death certificate,” the skilled nursing industry continues to attract attention and dollars from investors, with per-bed prices tripling since 2003, a new report states.
The median SNF sold for $94,600 per bed in 2016, a gain of 42% from 2015, according to a report released Wednesday by Irving Levin Associates, a firm that tracks data on health care mergers and acquisitions. On an average basis, SNF bed prices have doubled in the last five years and tripled over the last decade, with 12% and 15% gains in 2015 and 2016, respectively.
As builders construct new SNFs designed to accommodate rehabilitation and other higher-acuity services, operators and investors have been willing to write fatter checks in order to beat competitors that may have older physical plants, Irving Levin noted.
“There has also been an uptick in new development of skilled nursing facilities that look more like rehab hospitals than SNFs,” the report reads. “This is what the buyers want, not the old custodial care facilities of the past.”
The Norwalk, Conn.-based firm’s analysis tracked with what a variety of experts told Skilled Nursing News in recent weeks: Spooked by regulations or looking to diversify, major real estate investment trusts (REITs) have increasingly trimmed their portfolios in recent years, but mid-sized buyers have stepped in to capitalize on what they perceive to be a strong growth market.
At face value, this can seem a bit counterintuitive. Of the three pillars that comprise the long-term care marketplace — independent living, assisted living, and skilled nursing — SNFs would seem to have the bleakest outlook, Irving Levin postulates.
“It is the one with the oldest average age of its real estate, with the most regulations, the one that relies on government funding, and it is the one that is the most labor and operationally intensive,” the report reads. “In short, it is the most difficult business of the three sectors, with more detractors than the other two combined, yet it continues to set records in the market.”
But numbers don’t lie. Operators have seen increased cash flow in recent years as they learn to adapt to new Medicare payment models, and with the rise of high-acuity design, buyers have rushed to enter the market: There were 21 SNFs that sold for more than $150,000 per bed in 2016, Irving Levin reported, along with 69 more than topped out at $125,000 per bed.
Still, the new analysis sounds the alarm about some trends, including declines in Medicare profitability and the general uncertainty surrounding Medicaid and the health care system at large amid Congress’s attempts to repeal and replace the Affordable Care Act.
“Buyer demand, however, remains strong for skilled nursing facilities, so there is an obvious difference of opinion regarding where that sector will be heading,” the report reads.
Written by Alex Spanko