The skilled nursing facility industry, as defined by the U.S. Census Bureau (NAICS 623110), consists of companies primarily engaged in providing inpatient nursing and rehabilitative services. The care is generally provided for an extended period of time to individuals requiring nursing care. These establishments have a permanent core staff of registered or licensed practical nurses who, along with other staff, provide nursing and continuous personal care services. In 2018, the skilled nursing facilities industry generated an estimated $181 billion in revenue.
Skilled nursing facilities are increasingly a localized business. Most of their business comes from a small number of regional hospitals, and residents generally do not want to be far from family and their home. Plus, smaller regional operators are often better suited to respond to their local regulatory environment, which varies significantly state-by-state. Nationwide chains can struggle to parse the laws that apply in to one facility, but not the other.
Trends on the skilled nursing facility industry are largely driven by baby-boomers and changes to Medicare and Medicaid. A few of the most significant changes are:
- Regulatory changes brought on the Patient Protection and Affordable Care Act of 2010, aka ObamaCare, are in a state of upheaval, spearheaded by the efforts of President Trump. This uncertain regulatory environment will present challenges for operators of skilled nursing facilities
- Other regulatory changes targeted at “entitlement programs” have put Medicare and Medicaid under question. This plus increased reimbursement pressure will present further challenges for skilled nursing facilities operators as Medicare and Medicaid account for 75% skilled nursing facility revenue
- Due in large part to the aging population of baby-boomers, demand for skilled nursing facilities is expected to grow. Revenue is similarly expected to grow.
- While there are a few large, publicly traded companies in the skilled nursing facility market, none have a significant market share. As described below, the skilled nursing facility market is a highly fragmented, highly localized industry.
Key Performance Metrics
The following are performance metrics that managers in the skilled nursing facility industry use to benchmark their performance against others in the industry:
- Average Occupancy – approximately 82% nationwide
- Number of certified beds – approximately 1.8 million nationwide
- Patient days – approximately 519 million nation-wide
- Patient days per patient
- Revenue per patient day
Summary of Valuation Approaches
There are four commonly accepted valuation methods that should be considered when valuing a skilled nursing facility. These methods are:
- Asset-based valuation: This method calculates a business’s equity value as the fair market value of a company’s assets less the fair market value of its liabilities. This approach is also sometimes referred to as a “cost based approach”; that is, the business’s value is equal to the cost of acquiring its physical assets. This approach is seldom used for a skilled nursing facility being valued as a going concern because the value of a retail business is more closely related to its earnings and cash flow.
- Income approach to value (capitalization of earnings): This method is most applicable to companies that face predictable and constant growth in earnings and have a long history of operations. The business value under this method is equal to the cash flow projection for one year divided by a capitalization rate (i.e. the appropriate discount rate less the predicted growth rate).
- Income approach to value (discounted cash flow): The value of equity utilizing this method is equal to the present value of free cash flows available to equity holders over the life of the business. This method works well for both established companies with low growth rates as well as new companies with higher rates of growth, but requires predicting changes in future cash flows.
- Market approach to value: This method utilizes market indications of value based on metrics from guideline publicly traded skilled nursing facility companies and privately held businesses. The financial metrics of public companies or those of private transactions can be used to create valuation multiples that are then used to calculate business value.
The following benchmarking data is based on studies from various skilled nursing facility companies:
|Operating Profit %||
Net Income before Taxes %
|Sales / Fixed Assets||
Availability of Publicly Traded Comparable Companies
Most skilled nursing facilities are privately held companies. For those that are publically-traded, the availability of financial data makes it possible to compare a subject company to industry benchmarks and apply industry multiples. When valuing a skilled nursing facilities, however, it is important to use benchmarks and multiples based on companies that are similar to the subject company.
The top five publicly traded U.S. skilled nursing facility companies, ranked by market capitalization, are:
- The Ensign Group, Inc.
- Brookdale Senior Living Inc.
- National HealthCare Corporation
- Civitas Solutions, Inc.
- Capital Senior Living Corporation
- Genesis Healthcare, Inc.
- Diversicare Healthcare Services, Inc.
- Five Star Senior Living Inc.
- Regional Health Properties, Inc.
The trailing twelve month price to earnings ratio of these companies range from negative (not meaningful) to 30.4. The trailing price to sales ratios range from 0.33 to 1.25.
Availability of Private Purchase Transactions
In addition to publicly traded skilled nursing facilities, data regarding privately held companies can provide a useful benchmark when valuing a business. However, these benchmark market multiples are generally too variable to be useful without further analysis. As with selecting publicly traded guideline companies, care should be given to select private transactions that share similarities with the subject company. The financial metrics of a potential guideline transaction should be compared with those of the subject. Specific factors that are unique for each company must be considered. Additionally, industry economic conditions also vary over time, which can affect skilled nursing facility businesses as investment opportunities.
 IBISWorld (publicly available report excerpts)
 IBISWorld (publicly available report excerpts)
 National Investment Center for Senior Housing & Care
 Risk Management Association (RMA), Annual eStatement Studies