Why Senior Living Investors Could Pay Top Dollar for SNFs

Last month’s record-setting disposition price for a portfolio of skilled nursing facilities (SNFs) may be a bellwether, signaling that more senior living players may soon be paying premium prices for post-acute assets, a recent analysis suggests.

Sabra Health Care REIT, Inc. (Nasdaq: SBRA) in late June agreed to acquire four SNFs in Maryland for $234 million, equating to a price of $345,100 per bed. In 2014, the national average price per SNF bed was $76,500, according to industry data collected by Irving Levin Associates.

While some suggest this record-setting purchase price may signal the onset of a “new world order” by setting a precedent for future SNF acquisitions, the deal adds to a trend of more transaction activity between for-profit and not-for-profit senior care providers, according to a recent analysis from Ziegler, a Chicago-based specialty investment bank focused in the senior living, health care, education and religion sectors.


Whereas most for-profit providers are targeting growth and new development via independent, assisted living and memory care, a number of investors and operators are focusing on an “aggressive post-acute care strategy and are investing significant dollars to make it happen,” said Lisa McCracken, senior vice president of Senior Living Research and Development at Ziegler.

A pattern emerging in the not-for-profit sector, where providers are divesting free-standing SNFs to focus more on the spectrum of services as provided by continuing care retirement communities (CCRCs), offers for-profit investors the opportunity to capitalize on this “pruning” of assets.

“So, even when you look at some of the multi-site providers in the not-for-profit space, some of them are divesting their free-standing assisted living or skilled nursing facilities to better focus on the CCRCs,” McCracken tells SHN. “Plus, there are a lot of for-profit owners and operators that have the equity to pay for well-run nursing homes, and they are eager to acquire.”


In 2014, there were roughly 25 not-for-profit SNF dispositions to the for-profit sector, compared to just under 10 in 2013, according to Ziegler data. Year-to-date in 2015, there have already been more than 20.

“The increasing pressures put forth with health care reform make it more and more difficult for smaller free-standing nursing homes to compete in the market,” McCracken says. “Scale and the ability to negotiate contracts is increasingly important.”

Looking at the broader senior housing and care market last year, 2014 shattered records for acquisition volume, topping more than $25 billion during the full year, according to data compiled by Irving Levin Associates in January.

The huge per-unit purchase price paid by Sabra to acquire those four SNFs last month, which boasted an overall high occupancy at 95% and a high acuity resident mix that included post-surgical, ventilator and dialysis patients, is a sign that investors are willing to pay a premium on certain SNF portfolios.

“Last year was a banner year for volume and acquisition prices and, if the recent Sabra acquisition is a sign that buyers are willing to pay top-dollar for strong facilities in high-quality markets, there may be more to come,” said McCracken.

Written by Jason Oliva

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