Although not as hot as the assisted living and retirement housing acquisition markets, the nursing home acquisition market surged last year and continues with strong demand and, perhaps, an even stronger supply of assets available for sale. However, a significant spike in interest rates or bad news on the Medicare reimbursement front could send values, and investor interest, down rather quickly.
But what about an earnings miss? Today, Manor Care announced that earnings for the second quarter 2005 would be nearly 20% lower than analysts’ estimates, which is a huge discrepancy. A little more than one-half of the shortfall was blamed on a more than 100 basis point drop in occupancy from the near-record level in the first quarter, with the rest coming from a few unusual items including higher than normal stock-based compensation expense. There was no explanation for the occupancy drop, and no other companies have reported second quarter results, so we do not know if this is a one-company event or not. If not, then the nursing home acquisition market may be in for a minor setback, as buyers and investors begin to question the strength of the industry’s recent cash flow. We had heard through the rumor mill that Mariner Health Care’s earnings this year were not quite what its buyer had expected, which could have some ramifications for the skilled nursing facilities acquisition market as well. And with bids for Beverly Enterprises due at the end of this week, the handful of serious buyers still left must be looking over their shoulders, wondering what Beverly’s second quarter results will look like--something they have not had a peek at yet. The logic would run that if industry leader Manor Care’s occupancy suffered a hit, why would others not have a similar problem, and should bid prices be shaved a bit as a hedge? Stay tuned.
Related links:
Read the press release from Manor Care
Get the inside scoop on senior care M&A at The SeniorCare Investor
Information on health care M&A activity, including nursing home acquisitions
Access to back issues with articles on Manor Care, see Index links for The SeniorCare Investor
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