Despite ongoing worries about census and long-term reputational damage wrought by COVID-19, a trio of experienced skilled nursing investors said Wednesday that opportunities in the sector remain attractive — even at full price.
Owners with empty beds or near-empty bank accounts are recognizing the crisis is temporary, meaning rock-bottom pricing that surfaced during the pandemic’s darkest days is drying up, according to speakers at NIC’s latest online Leadership Huddle.
“Deals are starting to get back on track as they were,” said Ben Reisman, senior vice president of finance at TL Management. “You still have a lot of people who believe in the industry. It is around to stay (and) all these programs gave operators cash, so they’re not desperate. You’re not going to sell low, right?”
Reisman was joined on the call by Wendy Simpson, chairman and CEO of LTC Properties, and Colleen Blumenthal, COO of HealthTrust.
Simpson said she was “amazed” by the interest when LTC Properties recently listed a nursing home for sale in a state where it has a small footprint.
“It’s strange to me that there is no reduction in price,” Simpson said. “I think the industry is more interested in the operator now than the asset itself … The right operator at the right service level does work.”
She said LTC Properties — and likely other REITs with triple-net leases — is looking for properties into which its successful operating partners could expand. She cited Ignite Medical Resorts, a rehab-focused LTC partner, that could benefit if elective surgeries rebound significantly in future months and years.
Reisman and Simpson said they were not threatened by the way the pandemic propelled patients toward home care. While Blumenthal noted skilled nursing had already been losing occupancy at a rate of about 7,000 beds per year pre-COVID, only some of that loss could be attributed to home health gains.
Simpson said skilled nursing providers must conduct and share outcomes-based studies that show their “tricked-out gyms” get patients better, faster than in-home exercises can.
M&A normalcy in 2022?
Reisman added that operators should share lessons learned from the pandemic, highlight investments made for improvement and ensure that referral partners pass that information on to patients.
“I think a lot of the fear can go away if we do a good job of communicating that,” he said.
Blumenthal also emphasized the recent emphasis on private rooms and asked her peers if the market would support extensive restructuring for singles.
Reisman and Simpson said Medicaid rates need to improve to make single rooms sustainable as a larger share of the market. Otherwise, investors who wish to derive value while reducing bed numbers will have to rely on Medicare-covered rehab referrals or private-pay patients.
While they expect mergers and acquisitions normalcy to return some time in 2022, the speakers predicted deals would remain limited by financing constraints for now.
Reisman said well-resourced parties with established ties to lenders will remain able to close transactions. But what those transactions look like may be quite different than in the boom years predating COVID-19. He predicted investors will have to settle for more acquisitions of individual properties or small clusters of buildings.
“It’s going to be a challenge to take over a large group of homes,” he said.
