Senior Living News Wire

The senior housing market saw a record year of activity in 2011, with billions of dollars of acquisitions, joint ventures, and RIDEA-structured partnerships that served to consolidate the industry. And while the market has cooled down, the action isn’t over, said industry experts during a November panel hosted by The SeniorCare Investor and the American Seniors Housing Association.

With all the consolidation frenzy, did the M&A market become “overheated”? asked panel moderator Stephen Monroe, editor of The SeniorCare Investor.

To one panelist, there’s no such thing as a market that’s too hot.

“I don’t think there’s ever a risk of being overheated,” said Patrick Hurst, national director of Houlihan Lokey’s Healthcare Group. “I think you’re going to see a lot more M&A occurring, and a lot of consolidation for operational efficiencies that the market’s changing.”

He mentioned “dramatic” changes in reimbursements, such as the 11.1% Medicare cuts implemented in October, that he says will cause consolidation on the skilled nursing side.

“The conversation is more of a merger, an exchange of stock because capital markets aren’t there to finance it completely,” said Hurst, adding that consolidation by “best practices” would make providers more efficient in their markets.

“I think you’ll see consolidation continue,” agreed Gray Hampton, managing director of Bank of America Merrill Lynch. “As [operators] look for ways to grow the business, the logical way to do so is to pursue scale.”

At this point, most of the big deals have been done, but for REITs to stay on track, they’ll have to keep buying.

“There’s skepticism about the ability of large REITs to continue to grow,” said Jerry Doctrow, an analyst with Stifel, Nicolaus, & Co. ”I think we’re going to continue to see big deals. They need big deals to grow.”

However, there might not be any more spectacular deals, like HCP’s $6.1 billion sale-leaseback of more than 300 HCR Manorcare properties, or Ventas purchasing Nationwide Health Properties for $7.4 billion.

“Most of the headline deals that are gonna happen, happened at this point,” said Jon Santemma, managing director at Jefferies & Company. “Smaller deals are more likely to go to smaller, more creative REITs that aren’t competing with big REITs for must-have assets.”

And, he continued, there’s a focus a smaller REIT can bring to the table that a larger trust can’t, which sometimes enables them to get deals at more attractive rates.

Others agreed, noting that cap rates have risen to about 10 or 11%.

“Pricing has come off over the summer, and spreads have gapped out,” said Matthew Lustig, CEO of Lazard Freres & Co., who pointed to demand currently outpacing supply. “It’s a very selective lending market at the moment.”

The panel’s analyst noted that dynamic market pricing will likely continue to settle down.

“In hindsight, some might think [the deals] were too aggressively priced… people are skeptical of growth for growth’s sake,” said Doctrow. “But there is some discipline in the market place; I don’t see it going wild.”

View the Evening with Wall Street and Seniors Housing panel here.

Written by Alyssa Gerace

It might be closing time for dozens of assisted living facilities in Florida as state legislators prepare to increase regulatory oversight in response to statewide industry scandals exposed by the Miami Herald earlier this year, and a Grand Jury report criticized the state for for not doing enough to enforce existing regulations.

In September, the newspaper’s multi-part investigative series led Florida’s Senate to release a report calling for both increased and reorganized ALF regulatory oversight that may effectively shut down smaller facilities who are unable to cope with the financial burden of more regulations.

The costs associated with the increased regulation could force about 60% of Florida’s 192 assisted living facilities to close their doors, according to an Orlando Business Journals article.

Nearly two-thirds of facilities have 20 or fewer beds, and it’s these ones that are at risk for closing, according to Pat Lange, executive director of the Florida Assisted Living Association (FALA).

“It’s a possibility that could happen if regulations became such that it was financially too burdensome to continue to operate,” Lange told SHN, although she added that the idea of more than 100 facilities actually closing down was “sensationalistic.”

The FALA doesn’t know what the state legislators will mandate when sessions begin on Jan. 10, and has yet to see any bills about regulation or enforcement.

It might be more important to ensure existing regulations are followed rather than creating more, Lange said.

“The real bottom line is, we need better enforcement and better cooperation between facilities and organizations that provide oversight,” she said. “It’s the enforcement that’s the problem that has allowed some of these things to happen, because the agencies for healthcare administration is the regulatory body. It’s their responsibility to enforce the regulations that do exist and have been in existence.”

While enforcement may be key, it’s likely there will also be some new rules, and Lange hopes they will help the industry rather than harm it.

“We have talked to a number of legislators and expressed our concerns that they be thoughtful when considering regulations,” she said. “We need to make sure that we don’t do things that will create unfunded mandates and make it more difficult for this industry, which serves about 83,000 Florida residents, to function.”

A Miami-Dade Grand Jury report blasted Florida for not cracking down on assisted living facilities involved in the Miami Herald investigation.

“Revoke the licenses. Impose the fines. Hit the offenders where it hurst the most, in their pockets,” says the report, released Dec. 8.

The Grand Jury placed blame on the Florida Agency for Health Care Administration for not doing enough to enforce regulations, saying there needs to be a better system of enforcement and accountability.

“With a growing elderly population and an ever increasing number of licensed facilities, there is clearly a need for improved interagency communication and a need for a lead agency,” the report says. “AHCA should be that agency.”

View the Grand Jury’s recommendations here.

Written by Alyssa Gerace

Carol Galante, current acting Federal Housing Administration commissioner, made it one step closer Tuesday to holding a permanent spot in FHA’s chief position.

A Senate committee voted Tuesday in favor of making Carol Galante’s position permanent, following her nomination from President Obama in October. The decision now goes to a full Senate vote.

The Senate Committee on Banking, Housing and Urban Affairs approved Galante’s nomination Tuesday in a 13 to 9 vote. Sen. Jim DeMint (R-S.C.) opposed the nomination citing Galante’s lack of vision and sense of urgency in changing the FHA’s course. All democratic committee members voted in favor of her nomination.

Galante has served as acting commissioner of the FHA since July, and previously held the position of deputy assistant secretary for multifamily housing at the Department of Housing and Urban Development.

Written by Elizabeth Ecker

Clinton Group, Inc., the investment manager for Clinton Magnolia Master Fund, Ltd. and one of the largest investors in Sun Healthcare Group, Inc. (NASDAQ:SUNH) are calling for the company’s sale in a Dec. 12 letter to Sun’s board of directors.

“We are proud owners of the Company and believe the stock is significantly undervalued,” the letter reads, going on to point out 11.1% cuts to Medicare reimbursement rates that have “severely impacted” Sun and its peers.

“While we believe that management responded briskly with a risk mitigation plan that has been effectively communicated to investors, the stock price continues to languish and fails to reflect the true value of Sun’s operations. We believe the time has come to sell the company to a larger industry participant,” says the letter.

Sun maintains “sufficient liquidity” with a cash position of $91 million, according to Clinton’s evaluations, and the investor says the debt market is open to Sun for refinancing.

However, Sun’s stock price fell more than 75% in 2011, and nearly 10% since Aug. 1, 2011, says Clinton, “leaving the company with a market capitalization of less than $75 million” in a market that is “pessimistic about the Company’s ability to achieve its projections and thrive as an independent company.”

Sun would be more valuable in the hands of a larger industry player than can reduce overhead, lower operating costs, and deal with the regulatory and political environment, the letter goes on to say, concluding that the best way for the “Board of Directors to maximize value for shareholders is for the Company to embark on a targeted sale process, aiming to sell the Company in the first half of 2012.”

The letter ends with Clinton advising the Board of Directors to “hire an investment banking advisor and solicit interest through a targeted sale process,” citing “compelling” opportunity.

Clinton’s CEO Joseph De Perio and senior portfolio manager George Hall co-signed the letter.

Written by Alyssa Gerace

The Ensign Group, Inc. (NASDAQ:ENSG), the parent company of the Ensign group of skilled nursing, rehabilitative care services, hospice care, and assisted living companies, announced on Dec. 5 that is has acquired a Nevada skilled nursing facility for an undisclosed sum.

Located in Reno, Nevada, 99-bed Rosewood Rehabilitation Center had a 69% occupancy rate at the time of the acquisition, which was effective on Dec. 1.

The acquisition was “strategic” to expand Ensign’s presence in the area, according to Cory Monette, President of Ensign’s Northern California-based Northern Pioneer Healthcare, a subsidiary of which will operate Rosewood.

The facility was formerly operated by the Morton family for five years, and its sale was prompted by the pending retirement of long-time administrator Tom Morton.

Rosewood is expected to be operationally accretive to Ensign’s earnings in 2012; an Ensign holding subsidiary purchased Rosewood with cash.

The acquisition brings Ensign’s portfolio to 101 health care facilities, three hospice communities, and four home health business in 10 states, and the group confirmed that it is actively seeking additional acquisition opportunities.

Written by Alyssa Gerace