As occupancy declines, managed care grows, and payment models change, larger skilled nursing portfolio deals are cropping up in the mergers and acquisitions landscape.
Skilled nursing players are taking notice.
“We also continue to see opportunities involving several larger well-known portfolios of skilled nursing assets, and we expect to participate in the marketing process with some of these larger sellers,” The Ensign Group (Nasdaq: ENSG) executive vice president Chad Keetch said in the first-quarter earnings call.
A variety of factors are forcing the larger players, such as the publicly traded real estate investment trusts (REITs) to re-examine their current model, Christopher Hyldahl, senior managing director at Blueprint Healthcare Real Estate Advisors, told Skilled Nursing News in an e-mail.
“One, the landscape is changing,” he said. “The reimbursement system continues to evolve and there’s a lot of uncertainty there. Occupancy is down. And these big players are coming under regulatory scrutiny.”
Another factor is the rise of regional buyers in the skilled nursing space; the market has demonstrated “regional clusters with the right relationships” are crucial, Hyldahl said.
“Knowing a space, knowing the people in that space, and knowing it all well, leads to success,” he told SNN. “You can’t take the time to acquire that intrinsic knowledge if you’re in hundreds of different regions. When you lose sight of the market at that local level, you’re not going to succeed.”
Jeffrey Davis, the president and founder of Cambridge Realty Capital Companies, agreed that the evolving skilled nursing landscape is a contributor to the larger portfolios coming onto the market. The headwinds of the landscape and the resulting selloffs are not new, but it could be a factor in why portfolios of eight or more properties — Hyldahl’s definition of a large portfolio — or with a value of more than $50 million — Davis’ definition — are coming up for sale.
“I don’t see any kind of slowdown in terms of what’s started maybe 18 months or two years ago, primarily with the REITs… in their severely weaning their portfolios off of SNFs or changing their mixes,” Davis said.
One side effect of that weaning is that the assets for sale may not be the most desirable.
“Typically the portfolios that come on the market are not portfolios that are performing fabulously,” Davis noted. “In that world, your brokers always come up with a strategy of how different operators can change performance… in reality, most of the portfolios are not great-performing portfolios, and they have different degrees of stress in them.”
The value of assets is highly market-specific, Hyldahl said, stressing the need to match the right buyer to the right offering.
But bundling properties together can have benefits, both Davis and Hyldahl agreed.
“In most instances, critical mass with operating synergies yields a higher price than selling a single building, to the tune of a 10% to 15% increase,” Hyldahl said.
Written by Maggie Flynn