This guide provides a clear framework to help you understand what your SNF is truly worth.
The Core Financial Metrics of SNF Valuation
You’ll need to understand how buyers evaluate your facility’s profitability. For SNFs, standard EBITDA isn’t the whole story. Two other metrics are more important.
EBITDAR and SDE
EBITDAR (Earnings Before Interest, Taxes, Depreciation, Amortization, and Rent) is the primary metric used in SNF valuation. It standardizes financial performance for facilities with different leasing structures.
Seller’s Discretionary Earnings (SDE) is often used for smaller, owner-operated facilities. It starts with net income and adds back owner-specific expenses to show the total financial benefit to you as the owner.
The Normalization Process
We know that opening your books can feel invasive, but transparency here is key to maximizing value. To prepare your financials for buyers, you need to “normalize” them by adjusting for non-recurring expenses to show your true profitability (see our step-by-step guide). This creates a clear picture of the facility’s ongoing financial health.
Example of Normalization: Your SNF has a reported net income of $750,000. You pay your son a $150,000 salary for a job that would typically cost $80,000, and you also had a one-time $100,000 roof repair. Your normalized earnings would be $750,000 + $70,000 (salary adjustment) + $100,000 (roof repair) = $920,000.
Key Valuation Benchmarks for Skilled Nursing Facilities
Once you have a normalized earnings figure, you can apply industry benchmarks to estimate value. These benchmarks come in two primary forms multiples and capitalization rates.
Understanding SNF Valuation Multiples
Multiples are applied to your normalized earnings to reach an estimated enterprise value. These multiples change based on market conditions, your facility’s size, and its location.
| Metric | Typical Multiple Range |
|---|---|
| SDE Multiple | 1.30x – 3.09x |
| EBITDAR Multiple | ~7.7x (derived from cap rate) |
The Role of Capitalization Rates (Cap Rates)
A capitalization rate, or “cap rate,” represents the expected rate of return on an investment. In SNF valuations, a typical cap rate is around 13%. The EBITDAR multiple is simply the inverse of the cap rate (1 / 0.13 = ~7.7x). A higher cap rate signals higher perceived risk and results in a lower valuation for your facility.
Valuation in Action: If your SNF generates $1,000,000 in normalized EBITDAR, applying a 7.7x multiple gives it an estimated enterprise value of $7,700,000.
Operational Factors That Drive Your SNF’s Valuation
Your financials are only part of the equation. Sophisticated buyers will analyze your operations to find opportunities for growth and to identify potential risks.
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Occupancy and Census Data: A facility with high occupancy is like a fully booked hotel—it signals stability and high demand to buyers. With the national average around 82%, facilities that consistently perform above this benchmark are highly attractive. Low occupancy isn’t a deal-breaker, but you’ll need a clear plan to improve it.
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Payer Mix and Revenue Quality: A diversified payer mix that balances Medicare, Medicaid, and private pay is ideal. If you rely too heavily on a single payer source, buyers may see that as a risk.
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Quality Scores and Compliance: Strong clinical outcomes, especially those measured by programs like Medicare’s Value-Based Purchasing (VBP), directly increase your facility’s value. A solid history of navigating compliance is also essential.
The SovDoc Advantage: Maximizing Your Exit
Achieving the best valuation requires more than good numbers—it requires a compelling story and a structured process.
Building a Compelling Narrative
We help you frame your facility’s strengths—such as improving quality scores or a strong management team—into a growth narrative that resonates with buyers. This story shows them not just what your SNF is worth today, but what it could be worth in their hands.
Running a Competitive Process
Accepting the first offer you receive is rarely your best move. A competitive sale process managed by an experienced advisor ensures you receive multiple bids, giving you the leverage to secure the best possible terms. Understanding how to select the right M&A advisor is the first step.
The market for SNFs is constantly shifting. Curious what your facility is worth today? Get your customized value estimate before Q4 market shifts →
Frequently Asked Questions
What are the key financial metrics used to value a Skilled Nursing Facility (SNF)?
The primary financial metrics used to value an SNF are EBITDAR (Earnings Before Interest, Taxes, Depreciation, Amortization, and Rent), which standardizes financial performance for facilities with different leasing structures, and Seller’s Discretionary Earnings (SDE), which is often used for smaller, owner-operated facilities by showing the total financial benefit to the owner.
How does the normalization process impact the valuation of an SNF?
Normalization adjusts financials by accounting for non-recurring expenses and owner-specific costs to reflect the true ongoing profitability of the SNF. For example, adjusting excessive owner salaries or one-time repairs can increase the normalized earnings, providing buyers with a clearer and more accurate picture of the facility’s financial health.
What is the typical valuation multiple range applied to SNF earnings?
For SNFs, typical valuation multiples range from 1.30x to 3.09x for Seller’s Discretionary Earnings (SDE) and about 7.7x for EBITDAR, which is derived from a typical capitalization rate (cap rate) of around 13%. These multiples are applied to normalized earnings to estimate the enterprise value of the facility.
What operational factors influence the value of a Skilled Nursing Facility?
Operational factors such as occupancy and census data, payer mix and revenue quality, and quality scores and compliance significantly influence an SNF’s valuation. High occupancy rates above the national average (around 82%) indicate stability, a diversified payer mix reduces risk, and strong clinical outcomes plus compliance with regulations add to the facility’s attractiveness to buyers.
How can owners maximize the value of their SNF before selling?
Owners can maximize value by building a compelling narrative that highlights strengths like improving quality scores or a strong management team, running a competitive sale process to attract multiple bids, and working with experienced M&A advisors. This approach not only improves the facility’s perceived worth but also ensures better terms and price in the sale.