Acquisition Market Continues to be on Fire for Nursing Homes

Despite low occupancy rates and uncertainty around federal funding, experts say the market for nursing homes has not slowed, as buyers want to get in on the frenzy and are willing to pay near stabilized rates to do so.

Some, like Symphony Care Network, with a portfolio that totals more than 30 properties throughout Illinois, Indiana, Wisconsin and Michigan, are finding opportunities with smaller, single operators looking to partner up or get out of the business altogether.

The Chicago-based operator was recently part of a transaction to acquire two skilled nursing facilities (SNFs) and one supportive living facility in Chicago for $48.95 million, Chicago-based specialty investment bank Ziegler announced last month.

“I think that you’re running into situations where a family-owned operator got hit with COVID-19 and are saying to themselves that they’d like to attach themselves to a larger organization or that it’s time to get out and that’s part of the frenzy in the market,” Michael Munter, Symphony Care Network chief operating officer, told Skilled Nursing News.

He has seen the market inundated with operators looking to sell that are tired, exhausted and financially drained coming out of the pandemic.

“A lot of these owner/operators, particularly the ones that we’re interested in acquiring, have no interest in selling to someone that’s unnamed,” Munter said. “It is very much their baby and it might have been in their family for one, two, perhaps even three generations.”

Other operators prefer to start from scratch rather than acquiring an old facility at full price.

Charleston, W. Va.-based Stonerise, a leading operator with 17 transitional and skilled nursing care centers throughout the state, plans to open a brand new SNF in 2022.

“When I look at the national market, I’m fascinated by the transactions I’m seeing and reading about with some of the aggressive numbers I’m seeing,” CEO Larry Pack said. “I have some concerns going forward.”

He admitted to not being as bullish on the SNF market as others in the industry as he felt some of the lessons learned over the course of the pandemic, such as the need for private rooms, need to be priorities for operators.

He’ll be a little more cautious than others about approaching the market moving forward.

“One of my concerns is how do we make the transition as an industry from 1970 to 1980 buildings to the ones that are needed today, that’s a big question that I have not seen, read or heard any answers that give me comfort,” Pack said.

PE pushing price per bed

Operators like Symphony and Stonerise aren’t the only ones looking to expand as Jason Dopoulos, managing principal at White Oak Healthcare Partners, told SNN that the most active buyers on the market have been in private equity.

A subset of White Oak Healthcare Finance, White Oak Healthcare Partners is a lender in healthcare industry, including SNFs. 

Dopoulos said he can lend up to $250 million on any given transaction and will continue to pursue deals in the nursing home sector. And he’s got plenty of competition. 

“I think it’s been pretty well said by the real estate investment trusts (REITs) that they aren’t big on SNFs,” he explained. “What I’ve seen with these portfolio transactions is that the private real estate buyers have been able to bid higher than a lot of these REITs have in terms of how they structure their transactions with their tenants.”

The most aggressive buyers have been the private equity family offices, Dopoulos added.

SNN readers predicted private equity would be the biggest buyer of skilled nursing assets in 2020.

A prime example of this was with Genesis Healthcare, which announced its plan leave the NYSE and accept a $50 million investment from private firm ReGen Healthcare after years as a staple in the skilled nursing industry.

“[PE groups] have been the most prolific buyers we’ve seen. It’s been more private capital buyers, or PE groups, than it’s been the operators,” Dopoulos said. “I’ve seen operators actively looking for deals but typically, outside of bigger groups, they’ll also partner with a capital provider which many times is family equity or private office. I’ve seen a big trend in that.”

He added that the pricing push has been fueled by private capital on the landlord-side.

Market shows no signs of slowing

Jason Stroiman, president and CEO of Evans Senior Investments, told SNN that in his 18 years representing sellers with the real estate brokerage firm, he’s never seen such a robust mergers and acquisitions (M&A) market for SNFs. 

“It’s fascinating because buyers are willing to pay 100% of stabilized value,” he said. 

The Chicago-based senior housing and skilled nursing mergers-and-acquisitions firm recently represented the seller, an independent owner/operator who wanted to exit the long-term care industry, in a deal for Rochester Manor + Villa, a 122-bed skilled nursing facility in Pennsylvania, which sold for $9.2 million ($64,000 price per functional bed). 

At the time of marketing the offer, census at the facility was averaging 69% with a net operating loss of $1 million. Still, six competitive offers were made within 30 days of going to market. 

Similarly, a 204-bed SNF in Indiana, Providence Anderson, sold at 60% occupancy. 

“Every deal we’re working on right now is below 75% occupancy,” Henry Fuller, senior associate at ESI, said. “In the last six months, the interest level has dramatically increased. When we’re going to market we’re putting deals together in under three weeks and typically have a minimum of six offers and as many as 10 to 15.”

Health services deals broke records over the last 12 months, analysis from PwC showed, and though deal volume fell slightly in long-term care, it remains the most frequently targeted subsector. 

“We anticipate this trend to continue,” the report said. 

With 352 transactions, the fourth quarter of 2020 was the highest ever recorded for health services deals for PwC. That mark was then eclipsed by the first quarter of this year, which tallied 426 transactions — a more than 20% increase.

The market frenzy comes as the industry is still reeling from a tough year that saw the average price per unit for SNFs drop by 14% from $93,000 in 2019 to $79,700 in 2020, according to a Senior Care Acquisition Report released by Irving Levin Associates in February.

Numbers look much stronger for nursing homes this year as total price per bed rose to $90,700 in the first quarter of 2021, according to a report released from professional services firm JLL, reaching the second-highest price ever recorded for the sector.

Dopoulos added that the acquisition market has caught fire for nursing homes — quicker than the performance has recovered — and in terms of price per bed the market is the hottest he’s ever seen. 

“You’re seeing smaller owner/operators who just survived COVID, saying they are done and going to sell,” he said. “These bigger groups recognize that with their systems in place, they’re okay with paying up for what they think they can do.”