The COVID-19 pandemic led to a significant variation of impact across senior living and care providers, but across the nation, the sector can expect to see an escalation of mergers, affiliations, acquisitions and closures over the next several years, according to speakers Wednesday at the 2021 Ziegler LeadingAge National Virtual Senior Living CFO Workshop.
“We have a record number of acquisition and affiliations going on right now,” Ziegler President and CEO Dan Hermann said, adding that the firm currently is involved in about 25 acquisitions and affiliation situations, equally split between nonprofit and for-profit owner/operators.
Hermann noted that given the record low cost of capital right now, larger, stronger providers who are in a solid position to expand appear to be in an even better position financially coming out of COVID, and they are the most likely to be searching for acquisitions right now.
“At the same time, a number of smaller organizations are facing challenges in their markets, in particular if they’re in competitive metro markets where the for-profit side is continuing to emerge as a threat,” he said.
Ziegler Managing Director Sarkis Garabedian echoed Hermann’s comments that stronger operators are getting stronger amid the pandemic, whereas weak operators have gotten weaker. In fact, fourth-quarter data gathered by Ziegler from more than 80 senior living and care borrowers showed that operators in the 75% quartile reported more cash on hand at the end of 2020 than at the end of 2019.
“The strongest operators benefited from the Paycheck Protection Program and stimulus funds and managed expenses well, while the weaker operators continue to face occupancy headwinds, increased expenses and had to use most if not all of their stimulus funds to cover expenses,” Garabedian said.
What has surprised him most, however, has been the success of virtual tours and the recovery that already is taking place for some senior living operators.
“Some operators did have to put capital plans on hold, though few have completely cancelled, and while pre-sales were somewhat impacted, we’re already starting to see an uptick,” Garabedian said. “There’s been virtually no material deterioration to projects under construction.”