Skilled Nursing M&A Crystal Ball 2018: Top Players’ Predictions

After a 2017 that saw a change in presidential administrations, continuing occupancy pressures, declarations that the industry is in a historic downward spiral, and the most sweeping tax overhaul in a generation, players in the skilled nursing mergers-and-acquisitions world might be wondering if 2018 could possibly bring even more turmoil.

Earlier this week, Skilled Nursing News took a shot at predicting the biggest trends for 2018. Today, we’re asking active members of the senior housing finance community for their takes on what the next 12 months will hold in the world of SNF sales, acquisitions, and operations.

“The combination of wage pressures, in conjunction with shortening length of stay and the mix shift from Medicare to managed care, will continue to put pressure on bottom lines. As a result, more ‘mom and pops’ will be forced to sell and larger players will continue to divest non-core assets. The owner/operators with regional concentration and a strong clinical product will have numerous opportunities to snatch up these divestitures.” — Michael Gehl, Chief Investment Officer, Housing & Healthcare Finance, LLC


“In 2018, I believe we will continue to see larger players in the space shed non-core and underperforming facilities. The mostly active buyers for these assets will be privately held landlords with regional/local tenant relationships as well as owner/operators.

With continued pressure on reimbursement and wages, some tenants may also begin to have trouble meeting their lease obligations, specifically if they have above-market lease escalations. In this scenario there are three options landlords should be prepared to face in 2018: Tenants may seek rent relief, [landlords should] be prepared to find a replacement tenant, and/or consider the sale of such facility. Innovative and outcome-focused operators will continue to be successful.” — Ross Sanders, First Vice President, Institutional Properties/National Senior Housing, CBRE Capital Markets

“With the increasing pressures in the post-acute skilled nursing space, we expect that existing providers will continue to take a hard look at their ability to compete in this space. We expect that consolidation will continue and that providers will look to right-size their unit mix based on their changing market conditions. Last, as a sector, we need to develop creative ways to work together to address the labor shortages. Without qualified staff, the ability to offer high-quality skilled care will be challenged.” — Lisa McCracken, Director, Senior Living Research and Development, Ziegler 


“There is no doubt that the skilled nursing environment is undergoing a painful transformation right now as the industry shifts away from large national operators to more regionally focused groups. Those owners and operators that invest in their physical plants to repurpose the facilities to meet the expectations of their future residents will win over the long-term, as the building stock of skilled nursing facilities in the U.S. continues to age.

The staffing issue remains the biggest threat to the industry over the short and long term – we continue to see a prevalence of agency staffing around the country, even in robust urban markets. Reimbursement pressures in the form of increased penetration by managed care networks and the constant threat to government entitlement programs (Medicaid and Medicare) loom over 2018 as well. Skilled nursing owners/operators that can survive these pressure points will blossom in the long term, as the inevitable demographic tidal wave will ‘raise all boats.’” — Kris Lowes, Director, Evans Senior Investments

“We anticipate the 2018 skilled nursing landscape will face new challenges relating to shifts in reimbursement systems, the regulatory landscape, labor constraints, and aging physical plants. Those challenges, however, will be tempered by the opportunities they create, particularly for those willing to embrace the changes. Investors now have the opportunity to acquire SNF assets at relatively low values on a price-per-bed basis. Strong investment yields continue to attract new entrants to the space, and we believe private and patient capital will win in this market.” — Ben Firestone, Senior Managing Director and Founding Partner, Blueprint Healthcare Real Estate Advisors

“The new Medicare system will provide an entirely new focus on acuity, CMI-based [case mix index] reimbursement, with top rates as high as $1,500 per patient day. This will have a dramatic effect on the use of nursing care and therapy rooms, and admissions. Managed Medicaid and Medicare will continue to grow throughout the U.S., particularly in urban markets. This will continue to put downward pressure on lengths of stay for Medicare and on daily bed rates for both Medicaid and Medicare. Patient days will continue to slide a bit, as more residents choose assisted living over skilled nursing care.

REITs and public companies will continue to divest of their skilled nursing facilities — particularly facilities that will be most adversely affected by managed care and the new Medicare reimbursement system.

There is still a great need and demand for skilled nursing facilities, especially for those seeking to build a network to attract managed care and provide purchasing power.” — Mark L. Myers, Executive Managing Director, Institutional Property Advisors

Written and Compiled by Alex Spanko

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