An advisory and brokerage firm for senior housing and care operators expects transactions in the space to gather steam in the second half of 2021, with “greater near-term activity in skilled nursing,” according to a virtual investor meeting hosted by BMO Capital Markets that the bank recapped in a March 21 note.
But Blueprint Healthcare Real Estate Advisors, the advisory firm in question, also noted that buyer financing remains a challenge; and more permanent triple-net rent cuts could occur “if the pace of a recovery disappoints,” the March 21 note added.
Blueprint said in that meeting that it “is the busiest it has ever been, and expects a significant pick-up in deal flow into 2H21 after the COVID-induced pause,” with a greater pipeline in the near term for SNF transactions.
Some of that activity is tied to restructurings, according to the BMO note — and even though census and cash flows have deteriorated significantly from the pandemic, asset pricing for senior housing and SNFs has not significantly changed from pre-pandemic levels.
“Blueprint sees well-located SH assets in leading markets with strong operators as still commanding low-to-mid 5% cap rates on stabilized cash flows,” the note said. “Despite significant government support, SNF cap rates are also unchanged at 9-11%.”
Even though financing availability has decreased, with loan to values down about 20% to 50%, banks seem wiling to wait for “fundamentals to start to improve before making tougher decisions,” BMO observed in the note, and REITs have been behaving similarly.
“That said, we expect REITs to have to make more permanent rent cuts for struggling triple-net tenants with weaker rent coverage over the coming months,” the note added. “We generally see a quicker recovery in SNF occupancy than SH.”
During Skilled Nursing News’ virtual Payments, Policy, and Capital event in February, Blueprint senior director Amy Sitzman said that while she’s taken multiple calls from potential investors hoping to capitalize on a predicted wave of turmoil in post-acute and long-term care, they have found few suitable transactions.
“I’m not seeing people taking things to market that are in a dire need to sell thus far,” Sitzman said during the summit in February . “Not to say I don’t have any — I do have some — but the amount of interested people that want to see these facilities that are falling apart, or they think they’re going to fall apart, come to market haven’t really been happening.”