Investor Sentiment At The NIC Conference

March 29, 2017, Steve Monroe, Senior Care Investor - Last week’s 60 Seconds with Steve video greeted everyone attending the NIC Conference in San Diego and asked what the sentiment might be during the conference.  In years past, you could tell we were in a bull market with all the deal making going on in public, the exuberance of the crowds and the general noise level.  Although the stated attendance was approximately 1,500, it did seem a little smaller than that, without the usual crowds in the lobby bar for one last nightcap and another round of industry gossip.

The overall sentiment was one of caution, and this was especially true in the skilled nursing side of the business (see today’s 60 Seconds video).  As we all know, the American Health Care Act of 2017 was never brought to a vote, but that does not mean that Medicaid block grants will be dropped from the GOP’s agenda.  States have pretty much had a blank federal check for Medicaid costs, as long as they paid their portion as well.  The problem is that the growth in Medicaid spending is just not sustainable, by the states or the federal government.  

Whether it is curtailed by block grants or some other mechanism, the skilled nursing sector has to come to grips with the fact that something is going to happen to reimbursement, and that something is not nice annual increases.  As managed care plans gain more traction with states’ Medicaid budgets, you will see tighter reimbursement combined with shifting some SNF patients to other levels of care, such as assisted living or home health.  In other words, Medicaid managed care plans want to make money, and the way to do that is to spend the money they receive on cheaper alternatives, or fewer people.

On the seniors housing side, the talk was all about labor, and that labor costs were going to be much higher than general inflation and would most likely increase at a faster pace than the ability to increase monthly rental rates in private-pay communities.  And this in a year when new community openings will be high, competing for the limited number of trained staff.  And then there is that issue of occupancy.

The bright note, at least for buyers and developers, was that there appeared to be an overwhelming number of lenders, mortgage brokers and other investors competing for your deals.  So while there is no shortage of capital available, and the cost is still quite low on a relative basis, it was a little unclear how discerning that capital has become.  We hear that the lending markets are tightening, but it did not look that way in San Diego.  The bottom line, however, is that most people we spoke with think 2017 will be a tough year, with some spillover into 2018 possible.