Ensign Group Buys Office Building in California

The Ensign Group (Nasdaq: ENSG) this week announced the acquisition of a new office building for its Service Center employees.

The 115,000-square-foot space in San Juan Capistrano, Calif. will replace a leased space in Mission Viejo, Calif., where the skilled nursing provider is currently based.

“After considering dozens of possibilities over the last 18 months, we determined that owning the Service Center made the most sense financially and operationally,” president and CEO Christopher Christensen said in a statement announcing the deal.

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The San Juan Capistrano building is about 92% full, according to the Ensign Group, and the provider will continue to lease out an unspecified portion of the office space to third-party tenants once its Service Center operations move in. Its Ensign Services, Inc. subsidiary will enter into a lease with the parent company once its existing lease in Mission Viejo expires next year.

“With this ownership, we not only expect to save millions of dollars in future rental increases for decades to come, but we are most excited about the ability this will give us to continue to attract and retain the best and brightest Service Center leaders,” Christensen said.

Ensign paid for the building with cash from its revolving credit line, with a plan to land long-term financing by the third quarter of this year.

The company — which has 184 SNFs nationwide — has been something of a bright spot in a long-term care industry that has struggled with cratering occupancy, increasing regulatory pressures, and staffing troubles. On its fourth-quarter 2017 earnings call back in February, for instance, executive vice president Chad Keetch touted Ensign’s strategy of turning around lower-performing SNF properties, with more acquisitions to come in 2018.

“We continue to believe that the dynamics in our industry, while sometimes challenging, are not nearly as difficult as many are led to believe as a result of these self-imposed challenges that follow creative financial engineering,” Keetch said, pointing to other deals in the space that, in his view, had inflated cap rates and lease coverages.

The COO of key Ensign landlord CareTrust REIT (Nasdaq: CTRE) pointed to the provider’s decentralized model — in which individual local operators have wide latitude to make independent decisions, with the backing of the central office staff — as a reason for its success.

“They don’t put their name on anything,” Dave Sedgwick said at an industry conference earlier this year. “They don’t brand [as] Ensign Group. Many of the staff at the facilities don’t know the term ‘Ensign Group.’ It’s that local of an approach to it.”

Written by Alex Spanko

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