How to do it ... financing in the age of Trump
1. Anticipate eased regulations. One benefit could be labor-related.
“Any improvement in the regulatory environment that potentially increases productivity for direct care staff would be a positive,” says Imran Javaid, managing director at BMO Harris Bank.
Anthony Luzzi, president of Sims Mortgage Funding, similarly, notes that reform creating a potentially “less burdensome operating environment.”
The new order could strongly favor regional providers, according to David Sharp, managing director, real estate at MidCap Financial Services LLC.
“Several providers feel that regulations will ease and more focus can be shifted to providing better care,” says Sharp. He also notes that possible changes to the Affordable Care Act could allow operators “to provide more appropriate insurance coverage for employees.”
Chad Elliott, managing director of mergers and acquisitions at Lancaster Pollard, sees skilled care networks narrowing and urges providers to “be in front of that reality,” sooner than later.
2. A strong recovery, as well as immigration tightening, could exacerbate an already challenging staff shortage issue.
Javaid urges providers to amp up efforts in vocational training and certification programs as well as college recruitment.
Jeff Binder, managing director at Senior Living Brokerage, says staffing is “at the forefront” of client concerns right now.
“Retaining quality staff will continue to be costly,” he says, “Progressive thinking on attracting and keeping staff will be needed to not only contain costs, but constant turnover is a proven negative influencer on resident satisfaction.”
It's not only about salary. Binder says while higher wages can undoubtedly place increased pressure on the short-term financial profile, “attractive compensation packages, enhanced benefits and a positive culture can possibly minimize the tremendous costs of employee turnover.”
3. If economic forecasts continue to improve, providers can think more about undertaking capital improvements.
“While interest rates are rising, they are still low by historical standards and this provides an opportunity for operators to be strategic with their capital needs to benefit in the long-term,” says Binder, who sees the coming months creating “an active acquisition market that could allow owners to dispose of non-core assets while pricing hovers at near record levels. Conversely, attractive costs of capital could allow an opportunity to strategically acquire in an effort to increase scale.”
Still, experts urge providers to avoid taking on big debt.
“Long-term care asset prices have risen sharply during 2016, with an average of just under $100,000 per bed,” explains Sharp. “An easy mistake to make right now would be paying too much for an asset despite supporting comparable sales data.”
But caution is needed when looking at interest rates. For long-term care, which has “notoriously low margins,” according to Javaid, “excessive variable rate leverage could be the undoing for many providers.”
4. Stay focused on the big picture.
“We are in a turbulent political environment. With all three branches of the federal government controlled by a single party, the opportunity for significant change will be present for at least the next two to four years,” Luzzi predicts.
Many advisors say providers should explore new partnerships.
Steven Anderson, managing director at Capital One Commercial Banking, recommends working with insurers.
“It's more important than ever for care providers to solidify their relationships with their payers, and make sure that their organization and infrastructure is right-sized for the new environment,” he says.