Some investors are most concerned about the recovery of skilled nursing, among a wide range of industries, including those outside the healthcare space.
HilltopSecurities, in a December survey, found that around 65% of its respondents named skilled nursing as an area of concern for investment in 2022, with seniors just behind at 60%, followed by project finance, higher education, student housing, charter schools and healthcare.
The results are surprising given the industry’s robust M&A market in 2021, but Hilltop Senior Managing Director Yaffa Rattner said investors’ outlook is changing from the M&A market to the bond market – respondents were composed of these.
The outlook generally does not overlap between the bond market and M&A; participants have different drivers for their investment decisions, Yaffa said.
“The objective of the institutional bond investor is to ensure that principal and declared interest payments on bonds are made on time and in full and that bond defaults are avoided,” Yaffa explained. . “Typically, the bond investor does not want to own the asset and their analysis often focuses on net operating income and liquidity.”
M&A investors will look at the same opportunity with a “different lens,” Yaffa told Skilled Nursing News. The sector has seen a significant increase in mergers and acquisitions – an October report from Irving Levin Associates found there were 107 deals in the third financial quarter, compared to just 60 in the same period in 2020 .
Hilltop’s survey participants are independent analysts, high-yield project attorneys, and other “market intelligence providers.” The Dallas, Texas-based investment banking firm is part of Hilltop Holdings (NYSE: HTH).
Coupled with concerns about the skilled nursing industry, investors in the survey said they were less inclined to add SNF exposure to their portfolio, compared to more generalized healthcare facilities and nursing homes. elderly.
“[SNFs] are particularly vulnerable to changes in occupancy while simultaneously being exposed to the expense pressures associated with labor shortages, given their staff-to-resident ratios and other operating costs,” noted Yaffa.
Only 10% of participants mentioned skilled nursing as an area of interest. More than 35% and 45% expressed an interest in retirement homes and health care, respectively.
“Liquidity pressures” are more easily triggered in the NFC industry, he said, with reimbursements driven by government payers – revenue is collected after service. This is in addition to lower occupancy and staffing expenses.
Retirement homes, on the other hand, “generally” have higher margins and lower staff ratios, Yaffa added: “SNFs have higher staff ratios, which means they could be more affected. by labor shortages and rising personnel costs.”