Industry Insights

2017 Long-Term Care & Senior Housing M&A Update

September 2017
Author:  Austin Propst

Austin Propst

Director

Corporate Finance

Health Care

910 E. St. Louis Street, Suite 200
P.O. Box 1190
Springfield, MO 65801-1190 (65806)

Springfield
417.865.8701

In the first half of 2017, values in the long-term care (LTC) merger and acquisition (M&A) market remained near record levels. With 151 transactions through June 30, the market continues to reap the benefits of strong valuation metrics and low debt costs. According to Irving Levin Associates, Inc., capitalization rates for both skilled nursing facilities (SNF) and combined assisted living and independent living facilities (AL/IL) improved over the last 12 months (LTM) ended June 2017, decreasing by 30 basis points each to 11.9 percent and 7.55 percent, respectively. The price per bed for SNFs for LTM ended June 2017 remained stable from 2016 with a historically high value of $97,900. The price per unit over the same period for AL fared better, with a 12 percent increase over 2016 to $216,700, while IL valuations remained stable at a slightly decreased amount of $222,200 per unit.

Regional Outlook

The links below offer a graphical representation of activity by BKD region.

East Region LTC M&A Activity

North Region LTC M&A Activity

South Region LTC M&A Activity

Although the sector saw a decrease in deal count compared to the first half of 2016, several megadeals bolstered the sector’s transaction value in the first two quarters of 2017, specifically in the second quarter. With a total value of $4 billion, Sabra Health Care REIT, Inc.’s acquisition of Care Capital Properties accounted for 41 percent of the second quarter’s $9.7 billion in transaction value and 36 percent of the year’s transaction value of $11.2 billion, thus far. The next megadeal, at $2.6 billion, was announced by Columbia Pacific Advisors, LLC, an investment firm with ownership interests in more than 300 senior living communities. The target was Hawthorn Retirement Group, a developer, owner and operator of senior living communities with 55 properties across 20 states and two Canadian provinces.

Although large deals driven by real estate investment trusts and financial buyers are still present in today’s market, the sector is flush with regional strategic buyers purchasing small portfolios or one property at a time, looking to expand and diversify. With the low debt cost—coupled with improving capitalization rates and higher-than-average price-per-unit/bed valuations—it’s a good time for buyers and sellers of LTC properties, big and small alike.

Deal Volume

Deal Value

Valuation Metrics

Source: Irving Levin Associates, Inc.

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