Our Investment Thesis

The Healthcare Realty Opportunity

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SHR is looking to capitalize on current market conditions and a variety of long-term factors, including historical high yield performance compared to other real estate asset classes, stifled compensation, advantageous demographics, positive impact of emerging trends in a still highly fragmented industry.

TIMING

MARKET

DEMOGRAPHICS

Competition

Fragmented Industry

Yield Dynamics

Execution is Key

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WHY WORK WITH SCP & CO?
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Since its inception in 2002, SCP& CO has completed eighty transactions totaling $1.8+ billion of aggregate transaction volume.  Over half of the firm’s transactions have been platform acquisitions, financings, or add-on’s for SCP& CO’s Principals’ buyout control investment vehicles.

ARE YOU LOOKING TO SELL, BUY OR MAYBE DISCUSS YOUR OPTIONS?

COVID – 19 Creates Discounted Buying Opportunity

1) Near-term trends driven by COVID-19 impact will result in a challenging 2021 for most operators, which will create value-add buying opportunities for properties

2) COVID-19 buying opportunity is created by census decline, expense increases and staffing challenges

3) Early signs of recovery as census appears to be bottoming

We support evolving models that can enhance cash flows above traditional REIT models with the expectation of more consistent rental streams while lowering risk

1) Shift in Operations

a) Clinical complexity continues to increase
b) PDPM creates incentives for quality outcomes versus old model focus on delivery of therapy
c) Reduces importance of urban location with meaningful therapy.  Levels playing field to acuity and outcome driven performance
d) Shorter length of stays counterbalanced by higher reimbursement in first 20 days of stay

2) New Clinical Model (One Medical, Oak Street and Others)

3) Physical Plant Evolution – Utilization of Vacant Space

4) Addressing affordability in Senior Housing
a) Hotel conversions
b) Re-thinking building design in post-COVID environment

After declining census resulting from low birth rates of the Silent Generation, the favorable shift in demographics in the United States should provide long-term growth in census for the industry and drive SNF occupancy beyond capacity in the next decade

1) The Baby Boomer population is approximately 72 million and began turning 75 in 2016, marking the start of a seismic demographic shift that SHR believes will place upward pressure on SNF utilization and demand

2) Supply of facilities and beds to meet increasing future demand is limited due to Certificate of Need (CON) and bed moratorium restrictions. 86% of states have a moratorium on new beds or CON restrictions

3) The number of SNF beds currently under construction account for only 0.6% of existing inventory

4) Based on current market capacity and anticipated absorption rates, the skilled nursing industry should reach near 100% occupancy sometime between 2025 and 2030

The largest buyers in the industry are currently on the sidelines due to current market conditions

1) As a result of “bad bets” on thinly capitalized tenant operators and the unexpected COVID-19 pandemic, current incumbent REITs are not competitive in the acquisition markets for the near term

2) Current share prices of publicly traded REITs are unfavorable for issuance of new equity, thus reducing growth appetite for the lowest cost of capital buyers in the market

3) Near term focus of publicly traded REITs has shifted to stabilization of existing portfolio and divestitures.

The SNF industry’s publicly traded players own just 11% of total supply, providing SHR with a sizable opportunity to capitalize on the inefficiencies that are inherent to the remaining 89% of the market

1) The SNF industry is a large and fragmented sector with over 15,000 facilities and over 1.6 million licensed beds1

2) Vast majority of Senior Housing and SNFs are owned by smaller, regionally-focused investors and individuals that are often less sophisticated in their property and portfolio management1

3) Many SNF properties are currently owned directly by the underlying operators, which often seek liquidity through sale/leaseback transactions with trusted landlord relationships

SNFs have historically provided a compelling yield advantage over comparable property sectors, which may provide an arbitrage opportunity for managers that are able to prudently manage the risks related to government reimbursements and navigate state-specific regulatory environments