CIBC Bank USA closed several acquisition and refinancing loans for skilled nursing assets in the last month as Matthew Tyler, managing director of health care at CIBC, said it continues to see operators looking for new banking relationships coming out of COVID-19.
He sat down with Skilled Nursing News to share what he looks for in a SNF partner when assessing lending strategies.
Tyler said that operators continue to look to reposition new acquisitions and restabilize homes that were adversely impacted through the pandemic.
When making deals, CIBC looks at historical and projected operating cash flow of a facility, excluding stimulus, and the ability of that cash flow to repay debt when originating loans during COVID-19.
It evaluates each sponsor and opportunity on a case-by-case basis with primary focus on character, capital being brought into the deal, quality measures, growth and more.
Tyler said that with rising bed prices coupled with the staffing and occupancy challenges that operators have faced for the past 18 months, regional operators have looked to expand and new operators have moved into skilled nursing which he expects could lead to more industry consolidation moving forward.
This interview has been edited for length and clarity.
How has CIBC’s approach to the SNF market changed over the course of COVID-19?
Our approach to the industry did not change a great deal through COVID-19. We never paused lending in 2020.
When our clients are repositioning new acquisitions or when they are restabilizing homes that were adversely impacted through the pandemic, we continue to work hand-in-hand with them to evaluate projections and ensure a common understanding of capital needs.
We have grown on our reputation for being a long-term partner who understands the challenges, downturns and risks that can arise in skilled nursing. CIBC is relationship-focused and our clients have been with us for years, many for over a decade and longer.
What are you seeing from the SNF market right now and where do you see it going from here?
There is a lot of capital in the market and there has been a lot of activity, which has resulted in rising bed prices and consolidation. The support that nursing facilities received from state and federal government via stimulus payments during the pandemic has likely made skilled nursing a more appealing asset class for investors within the health care sector.
Certain operators have incentive to sell as they can no longer justify a poor return on investment in a high-risk environment that is only becoming more complex by the year. Just in the last five years, the industry has seen increased acuity, increased federal audits, and implementation of managed care strategies, all of which led to declining revenue, a transition away from fee for service, and a combination of increased staffing costs and nursing shortages.
The rising bed prices, coupled with occupancy and infection control challenges through the pandemic, have caused certain operators to exit. This exit has opened the door for more sophisticated and agile providers to expand operations, and also for new operators to get into the business.
It remains to be seen if the new operators acquiring facilities have the financial resources to weather the challenges the industry is facing. If not, it may ultimately lead to even more consolidation over time.
What are some trends you are seeing in the SNF industry right now?
I believe the trends everyone is most focused on are census rebound and staffing costs. There is intense staffing competition for nursing, which is leading to rising wages. The impact to providers is further compounded by the prevalence of staffing agencies which additionally increase nursing costs and can result in less consistent delivery of care.
There is intense competition for census as well. Census challenges seem to be more market-based, as opposed to staffing challenges which are nationwide and not exclusive to healthcare. Some of our clients have also become bed-locked at facilities in certain markets, where they could increase census tomorrow if they could find enough nurses to care for the residents.
CIBC is advising our clients to remain intensely focused on admissions and recruitment. We encourage our operators to think outside of the box as it relates to recruitment, as well as continually enhancing their corporate culture to increase retention.
How do you think the staffing shortage and vaccine mandate will impact the SNF market going forward?
The skilled nursing vaccine mandate should have far less impact than some initially feared, considering the recent announcements that the mandate will apply to all healthcare providers as well as large employers in non-healthcare settings. CIBC continues to encourage our clients to help educate their vaccine hesitant staff with information delivered by trusted sources.
As far as staffing shortages, CIBC has seen an improving staffing situation in certain markets where the enhanced unemployment benefits ended earlier this year, and we are now watching to see the impact through the rest of the country as the remaining enhanced benefits have expired. As I mentioned earlier, thinking creatively and being focused on culture has been a benefit to our clients.
What is your expectation for government funding for SNFs going forward? How does that factor into the deals you’re making?
Skilled nursing is a critical component of the continuum of care, and this was affirmed by government stimulus, which has kept facilities operating during the pandemic.
The expectation or promise of government funding has not impacted loans that CIBC has originated during the existence of COVID-19. We instead look to the historical and projected operating cash flow of a facility, excluding stimulus, and the ability of that cash flow to repay debt. CIBC evaluates each [potential client] and opportunity on a case-by-case basis with primary focus on character, capital being brought into the deal, sufficiently sized front and back office teams, health surveys, quality measures, and pragmatic growth.
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