Mozart Healthcare finalized the acquisition of two facilities in Montana representing the first part of a staggered closing which will include two additional assets and a total of 538 licensed beds following HUD debt assumption.  The portfolio will be leased to a regional operator with extensive operational experience in the state.  The seller was a publicly traded REIT and were represented by Chris Hyldahl and Gideon Orion of Blueprint Healthcare Real Estate Advisors.

Mozart Healthcare acquired Fairview Nursing and Rehab in Toledo, Ohio. The 108 bed SNF will be leased to a regional operator with extensive experience in the state. This represents the third transaction Mozart has closed in the state as part of a planned expansion within Ohio.

PRESS RELEASE:

Mozart Healthcare acquired Sunrise Nursing and Rehab Center, a 119 bed Skilled Nursing Facility in San Antonio, TX . The facility was leased to Mozart Healthcare by a national operator since Q3 2017. Due to the significant capital investment over the last 8 months as well as the operational improvements made by the operator, Mozart Healthcare had achieved the necessary value to exercise their purchase option. This purchase represents a continued expansion into Texas for Mozart Healthcare, who now have 6 facilities in Texas.

As multiple skilled nursing tenants struggle to pay their real estate investment trust (REIT) landlords, a Chicago-based real estate management company is looking to change the model of skilled nursing leases by getting operators to see it as a partner.

For Mozart Healthcare, the goal is to be “on the ground with our operators,” CEO and co-founder Archie Shkop told Skilled Nursing News.

His brother and co-founder Ben Shkop, who serves as chief operating officer, agreed.

“We want to be viewed as a business partner who happens to get their distributions in the form of a rent check,” he said.

Away from REIT model

Over the last few years, multiple skilled nursing tenants have struggled to pay the REITs that own their buildings.

HCR ManorCare notably declared bankruptcy and had to be taken over by its landlord, Quality Care Properties (NYSE: QCP), before finding a buyer in hospital chain ProMedica. Signature Healthcare has struggledto pay its landlords Omega Healthcare Investors, Inc. (NYSE: OHI) and Sabra Health Care REIT (Nasdaq: SBRA), while Omega’s tenant Orianna is in the middle of bankruptcy proceedings.

In Ben Shkop’s view, the REIT model of leasing has forced SNF operators into rents and structures that are never allowed to be profitable, which keeps them from running the operating business the way it should be run.

“There’s a disconnect between the people that are buying the real estate and the people that are operating the actual nursing home,” he said. “If you have a disconnect with those two, you are setting yourself up for failure.”

Mozart currently works with seven different nursing home operators, and the company is hoping to double in size by the end of this year. It has locations in Ohio, Texas, and Michigan, and aims to expand to the West Coast shortly.

When they assess operators, the Shkops try to go beyond pro formas to stress-test for every adverse event, Archie Shkop said.

“We’re buying facilities and business valuations with the understanding that things are going to go wrong,” he said. “We need to make sure that operators have significant coverage ratio and the capital to sustain tough times.”

Though capitalization rate has historically been considered the basis for lease structures, lease coverage is the primary focus for Mozart, Ben Shkop said.

“We want to understand what it’s going to take to make the nursing home successful, and that is the basis for our rent discussion,” he said.

Having that understanding — and maintaining a sense of partnership — requires operators to provide “a tremendous amount of information,” Archie said. This could include daily census, their case mix index roster, and survey information, among other updates.

Mozart’s purchase options for tenants are usually eight to 10 years out, with leases about 10 to 15 years, Archie said. Building improvements are a key part of this strategy, as Mozart tries to incentivize operators to make improvements by framing the decision as a way of bolstering their potential asset — and not merely sprucing up their landlord’s property.

“The operators of the future understand that less is more,” Ben Shkop said in an email to SNN. “Mozart is looking to align themselves with operators who want to focus on targeted regional growth, as opposed to the national operator model which has proven disastrous for our industry.”

With the timeline of their leases and the fact that the company was founded in 2016, it remains to be seen how the deals will play out. Still, the firm has seen targeted lease coverage ratios, Ben noted, and the Shkops are bullish on the industry as a whole, he added. He predicted a rebound for the industry starting in about 2024, which will benefit experienced operators.

“As the baby boomers age and the clinical complexities of SNF patients continue to rise, many of the large corporations that are not involved in day-to-day patient care are going to have to hand over those operations to the actual caregivers who’ve been waiting decades for the opportunity to care for their own patients,” he said.

Written by Maggie Flynn

READ MORE: skillednursingnews.com

Mozart Healthcare is on the move in the Old Northwest. Last month, the company acquired a 145-unit mid-rise independent living community last month in Allen Park, Michigan (Detroit MSA), in a transaction led by Ben Firestone and Michael Segal of Blueprint Healthcare Real Estate Advisors. Now, the firm, which is headed by Benjamin and Archie Shkop, has added two more skilled nursing facilities in Ohio to its portfolio. These recent deals were the fifth and sixth acquisitions for Skokie, Illinois-based Mozart, which was founded in 2016.

The Ohio facilities were built in the 1990s in major metro areas and feature good physical plants. They were, however, deemed to be non-core by the not-for-profit seller, which decided to focus on its core businesses outside of the skilled nursing market. In an all-cash transaction, Mozart paid approximately $65,000 per bed for the two facilities, which will be leased to an Ohio-based operator. Chad Elliot and Kevin Laidlaw of Lancaster Pollard handled the Ohio transaction.

READ MORE: Irving Levin Associates