The availability of funds from institutional investors is extremely high right now, and the ripe is ripe for senior living owners and operators to take advantage of that, according to Brian Pyhel, director and high yield analyst at investment management firm BlackRock.
“There is a lot of capital waiting to be put to work, all of which makes it a very good time to borrow for senior living operators,” Pyhel told attendees last month during the 2021 Ziegler LeadingAge National Virtual Senior Living CFO Workshop. “There’s just too many dollars right now chasing too few investments.”
He offered several pieces of advice for operators when it comes to how they can best acquire this funding for improvements and acquisitions they’re looking to make. The biggest factors BlackRock takes into account when considering an investment often include what kind of a deal it is as well as an operator’s acuity mix, he said.
“While we do buy all types, we tend to favor entities that fall on the lower end of the healthcare spectrum,” he said, adding that this is mostly reflective of the current challenges around skilled nursing.
The firm also looks to understand whether an entity can manage its way through a cycle and has a good plan in place for a project.
“When we see that a management team can effectively convey a compelling, thoughtful reason as to why they’re raising this capital, to us as investors that goes a long way,” Pyhel said.
Entities that are BBB-rate or below should have a reserve fund if they are looking to borrow, he noted, and he encouraged chief financial officers to share how they handle their leverage, specifically debt-to-net operating income or debt-to-cash flow. Information on the point at which census breaks even, the minimum level of cash needed to operate and information on any new entrants to the market or new expansions on the horizon near a facility’s location also are key to any discussions around borrowing.
“That type of nuance is very helpful for an investor,” he said.