Senior living business tends to have residents stay for long durations often running into years. Hence resulting in steady and recurring annual income. In such instances where occupancy has stabilized, we use the capitalization method to value the asset. For leasing facilities, we can value the business by valuing the facility land & building using the cost approach and deducting from total asset value obtained from the income approach.
Deutsche Wohnen, one of Germany’s largest landlords, acquired 30 units in two distinct manners, Part A of 13 units involved the acquisition of the complete business i.e. the property and the operations While Part B of 17 units only involved the acquisition of the property which was leased out to operators to have cashflow stability. To derive the fair value of these two assets separately, we use the capitalization method of valuation.
Starting with Part A, annualizing their revenues post the acquisition and apply the stated 5% EBITDA margin to get the income of 6 mn. As the property was also acquired, we will add the net lease income to give us a net operating income of 18.5 mn Applying a cap rate of 4.5% for German senior housing businesses we get the fair value of Part A is Euro 411 mn For Part B, the annualized lease rentals of the leased properties are 15 mn.
After deducting costs, we get the net lease income as Euro 14.6 mn The cap rates for senior nursing properties is 5.5% and results in a fair value of Part B as Euro 266 mn The Combined Valuations of Part A + Part B gives us a transaction value of Euro 677 mn
