We have reported, in our latest edition of The Senior Care Acquisition Report, that 2005 was a record year for average prices paid in the assisted living and independent living acquisition markets. One of the major contributing factors was the large number of portfolio sales, and the relatively high quality of the assets in most of those portfolios. In the assisted living market, the average price per unit sold jumped 48% from $95,100 in 2004 to $140,300 in 2005. But when the market is split between portfolio sales (three or more properties) and the others, there was a huge difference in 2005. Last year, the average price per unit for assisted living portfolios was just over $181,000 per unit, while the rest of the ALF market had an average price of just $83,000 per unit.
For several years, investors and appraisers have been talking of the “portfolio effect” in the acquisition market, whereby a buyer will pay up to a 10% premium for a group of assets compared with just one property, everything else being equal. Obviously, with the nearly $100,000 per unit difference between portfolio sales and single property sales in the 2005 assisted living market, there was something going on besides just size, although size still matters. The real driving force was the quality of many of these portfolios, with very high net operating incomes per unit. The independent living market experienced a similar pricing disparity, although not quite as extreme with a $53,000 per unit difference between portfolio sales and single property sales.
The acquisition market continues to be strong in 2006, and although companies such as Brookdale Senior Living and American Retirement Corporation have been active, the average prices paid so far are below what we saw in 2005. While portfolio sales reigned in 2005, the prices paid may reign for a while as well.
Related links:
Goldman Mature Market Report
For more articles on the senior care acquisition market, see Index links for The SeniorCare Investor
Get the inside scoop on senior care M&A at The SeniorCare Investor
Database of health care M&A transactions, including senior care acquisitions
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