NIC Notes

Insights in Seniors Housing & Care

By: NIC  |  July 01, 2015

Growth & Exit Strategies for the Smaller Skilled Nursing Operator

Economic Trends  |  Ideas and Discussion


Moderator: Chris Urban, Managing Director, Ambrose Capital Group, Inc.

Stephen Graham, Principal, Infinium Healthcare
Kelly Sheehy, Managing Director, Formation Capital, LLC

By: Ben Stamp, Health Care REIT

Given the current operating environment where skilled nursing properties are increasingly challenged, smaller operators are faced with deciding if this is the time to go big or go home. This article specifically addresses the operator with 10 or fewer properties who is grappling with possibly selling now or capitalizing for future growth.

At the NIC Forum, a panel focused on the question that many smaller skilled nursing operators are currently facing – whether to sell now in the current market with attractive property pricing or continue to grow their property portfolio through acquisition and development while the cost of capital is still low. The skilled nursing sector has changed significantly over the past ten years with respect to licensing, government reimbursement and technology, and has required many operators to adjust their operations accordingly but has also created exceptional opportunities for small skilled nursing operators to grow their businesses. The panel discussed how not all operators, however, are suited to or are willing to put in the effort and time to adapt to the skilled nursing sector that continues to change, and for these operators, now can be an excellent time to exit the business via a sale to a third party. 

Stephen Graham, Principal, Infinium Healthcare stated "It's important as operators, to be critical of what your strenghts and weaknesses are. Then look at what change is coming and if you are positioned to take advantage of that change when compared to the competition or if it is better to let someone else run the business."

The second half of the panel discussion focused on the best strategies for small skilled nursing operators to exit the business through a sale. Stephen Graham and Kelly Sheehy spoke to the three main drivers of valuation that potential buyers will look at:

  • physical plant characteristics;
  • market demographics; and
  • care focus and clinical history

Mr. Sheehy noted that of those three, clinical and care focus is the most crucial, and if an operator has had any historical issues on the clinical side, it is an immediate red flag to any potential buyer. The panel also discussed the potential for a smaller operator to capitalize some of their business with a sale-lease back to a buyer such as a REIT or refinancing their properties via agency debt. They discussed the importance of reporting that documents the operational performance of the asset(s) (including a complexity of financial statements, historical census data, etc.) if an operator wants to take this route and mentioned that REITs will typically only consider skilled nursing sale-lease backs from operators with five or more properties.

Finally, if an operator is looking to exit, the panel discussed the value of hiring a consultant or broker to assist in marketing the asset(s) and in executing the transaction(s), especially if the operator doesn’t have previous experience selling skilled nursing assets.


About NIC

The National Investment Center for Seniors Housing & Care (NIC) is a nonprofit 501(c)(3) organization whose mission is to support access and choice for America’s seniors by providing data, analytics, and connections that bring together investors and providers.

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