It was recently announced that Ventas is attempting to acquire the assets of Atria Senior Living for $3.1B or $230,000 per unit. The deal is comprised of a large stock offering, assumption of debt and a small amount of cash. I am not a “bigger is better” advocate and I don’t say that as sour grapes. The cap rate on the deal is between 6% and 6.5%, so say the experts.
Bottom line: someone has to pay and that will be none other than the residents of these affected Atria Communities. Back when Todd Barker and I first started Senior Solutions Management Group in 2004, cap rates were super low and per unit prices were at unprecedented rates. We would run numbers that in some cases dictated we would have to raise rates by 30% to 50% just to make the debt payment.
As I mentioned in my last blog there are many communities, especially independent living communities, now owned by the bank. Anyone remember a company called Sun West? It is mighty tough to please your residents, their families and loved ones, some asset manager that has never run a long term care community, let alone the investors and Wall Street.
We have always set very realistic expectations with our owners to try and achieve a balance between good care and customer service and a competitive return on investment. It’s not easy and we are certainly by no means perfect. Sometimes we get it right and sometimes we don’t but we have never ever compromised care for profit. This economy doesn’t make the job any easier.
The level of acuity we see today at admission is getting higher by the day. The residents are between 85 and 90 or older. They need care, some more than others, but as a company I would estimate more than 50% of our residents need more than moderate care. Their money can only go so far and to have to cover a moderate profit to the board room makes for an interesting business model.
I will be interested to see how this all plays out. I like the fact that I can talk with the boss or the property owner and get a fair and honest answer. Sometimes they don’t always tell you what you want to hear but at least they know your name and appreciate your business. Choice is a great privilege. Be sure you make the right one.