Preparation is the key to entering your exit strategy

In most cases, desired or not, the sale of a seniors housing property is the ultimate end to ownership. The preparation for this event is varied, but in most instances, the more time preparing for a sale, the smoother the transaction and higher the pricing. More so than any other sector of real estate, confidentiality is key.

Word of a potential sale can increase anxiety in both staff and residents. When handled appropriately, a sale can be kept quiet, without jeopardizing confidentiality or limiting adequate exposure to the market. 

Financial Preparation:

Without question, the No. 1 driver in the analysis of any transaction is the financial profile. While external forces, such as competition and the economy, can certainly impact the performance of a property, there are many things an owner can do from a financial perspective to positively position the facility for a sale. 

The key is to tackle manageable items and not to lose focus on potentially unobtainable tasks. 

Increased census often is the foundation for improved financial performance. Methods on how to boost census warrant their own article or articles. However, it is important to grow census the correct way. Buyers will scrutinize in‐place rents during due diligence. If concessions are offered as a means to increase census, it is important to focus on short‐ term options rather than burden the property (buyer) with long‐term below market rents, which will negatively impact the value. We have seen many owners empower their executive directors / admission staffs to make decisions regarding the types of concessions to offer prospective residents. The inherent value of these options is usually different from prospect to prospect. For some, the benefit of assistance with the actual move may be enough to complete the sale, while others may require a monetary incentive. Even when proceeding down this path, there are great options outside of long‐term rent reductions, such as reduced entry fee, free cable or other service, etc.  

The clarity and consistency of financial, census, and staffing information will play an important role in the sales process. In today's world of increased due diligence over multiple levels (buyer, appraiser, lender), irregularities in documentation and inconsistency between various types of reports can raise a red flag that can heighten the scrutiny given a particular transaction. There are a few things to keep in mind when considering this part of a transaction: 

•            Consistency – data crossing multiple time periods should be consistent to allow these periods to be compared; information needs to be consistent across reports, i.e. census information on the financials should correlate to the same information in other reports. 

•            Comprehensive – the amount of information required to satisfy the various eyes performing due diligence can vary. The more complete and accessible your records, the easier it will be to compile the requested information for a prospective buyer. Request a due diligence list from a broker, lender, or other source prior to proceeding to get an idea of what may be required of you to produce.

•            Costs – non‐recurring or extraordinary costs can often be removed from the financial profile, enhancing EBITDA. For instance, legal fees associated with navigating the CON process for an expansion or the development fees associated with the project. Keep track of any expense that is unlikely to occur again in the normal course of business. It is also important to monitor how you are handling your capital costs. Be prepared to provide documentation and support to any such cost.

•            Timing – the quicker financial data is available post the end of the reporting period the more acceptable to the market. As data becomes stale, so does interest.   

Physical Plant: First impressions – we are convinced they make a difference. Due to confidentiality we typically limit on‐site tours of properties we are selling. Often, interested prospective buyers will perform a drive‐by assessment to get a feel for the asset. This evaluation is limited to the condition of the exterior of the facility, the grounds, parking lot, and in some instances the lobby/entryway. Often utilizing maintenance staff, altering existing maintenance scheduling, and making selective capital investment can greatly enhance the aesthetic appeal of a property. While this checklist may seem simple, it is common for us to arrive at our initial meeting with a prospective seller with many of these items needing to be addressed.  

Finally, we suggest having a series of “friends” tour the property with you as part of the preparation process. This group could consist of your lender, attorney, accountant, etc. — the make‐up of this group is not as important as the candid feedback they will provide. 

Accompany each of them as they tour the building and grounds, ask them for their opinion on the condition of the property ‐ from items needing attention, to the presence of any odors, etc. A couple of tours will be sufficient.  

Typically we do not expect, or advise, sellers to embark on a significant capital project dealing with aesthetic improvement, i.e., painting, carpeting, new furniture, etc. unless the existing component is in a state of disrepair. Instead of a full renovation, focus on areas that need to be updated or repaired. Capital should be directed to more critical areas that either 

1. Bring the facility into regulatory compliance

2. Provide a competitive advantage necessary to increase performance prior to a sale, or

3. Support the enhancement of the “first impression." 

Support Team: Perhaps the most overlooked component when preparing to sell is the coordination of the owner's professional support team: accountant, attorney, broker and lender. Each of these individuals can play a key role in the sale's process. Prior to discussing the potential for a sale, we suggest discussing with them the importance of confidentiality.  

•            Accountant – in addition to any assistance they provide in compiling and organizing the financial records of the facility, we suggest reviewing the tax implications of the sale prior to beginning the process. 

•            Attorney – we suggest engaging an attorney comfortable with and knowledgeable of the long‐term care sector.  

•            Broker – while bias in this selection, utilizing an experienced long‐term care broker will allow for additional assistance in estimating market value and ultimately constructing a competitive bidding process to maximize pricing. 

•            Lender – is your debt assumable? Are there any prepayment penalties associated with your loan?  

Whatever the motivation, proper preparation can not only expedite the sales process, but also enhance the chances of a successful sale. Focus on realistic goals prior to the sale – getting caught up in the unrealistic can be counterproductive and elevate stress. Relying on others to help navigate the process can often be beneficial in remaining focused, calm, and confident in your decisions. 

Jeff Binder is the Managing Director of Senior Living Investment Brokerage, Inc. in St. Louis.