Ensign Sees 25.7% Gain in Skilled Nursing Income, Announces Three More Acquisitions

The Ensign Group (Nasdaq: ENSG) turned in yet another positive quarter, seeing occupancy gains throughout its skilled nursing portfolio and planning future growth — but with an eye toward selectivity.

The Mission Viejo, Calif.-based operator logged skilled occupancy of 77.3% in the third quarter of 2018, an increase of 165 basis points over the previous year; for transitioning skilled properties, which consist of buildings that the company picked up in 2015 and 2016, that figure was 75.0%, up 281 basis points from the year before.

The skilled nursing segment pulled in total income of $46.4 million during the quarter, up 25.7% from the same time last year.


In touting his company’s results on a call with investors and analysts, CEO Christopher Christensen said the numbers reflect Ensign’s ongoing strategy of buying underperforming properties and improving operations by installing trusted local leaders.

“They also demonstrate the enormous potential that remains in our overall portfolio and into the future as we continue our growth strategy,” Christensen said.

Part of the company’s strength has come from its choosiness when looking at potential acquisition targets. Ensign has the finances to support hundreds of millions in more purchases, according to Christensen, but doesn’t execute anywhere near that amount.


“Our operational leaders have been extremely picky and have consummated a small fraction of the opportunities that they’ve evaluated,” he said.

Chief financial officer Suzanne Snapper also opened a window into how the recent changes to Medicare reimbursements have affected Ensign’s finances. Under the SNF Value-Based Purchasing (VBP) Program, which took effect on October 1, SNFs will automatically lose 2% of their Medicare funding; they can then earn that amount back by hitting certain quality benchmarks. But the potential for reimbursement declines has been offset by an increase in the overall Medicare market basket rate for the fiscal year, bringing a net reimbursement boost of about 1.8% across the portfolio, Snapper said.

Snapper was less specific about Ensign’s outlook for the Patient-Driven Payment Model, set to take effect next fall, though she did note that the company’s ongoing transition to providing certain higher-acuity services will likely set it up for success going forward.

“Revenue will maybe decline a little bit as a result of the impact, but we also would expect to have some cost savings associated with that,” she said. “As you know, it’s pretty a big change for the industry as a whole, and so we’re continuing to go through it.”

Christensen predicted that the company would substantially increase group and concurrent therapy under the new system; while the PDPM caps those services at 25% of a resident’s total therapy hours, Christensen noted that the company only provides about 2% of rehab therapy in that setting — Ensign’s employees have indicated that group therapy can be better than individual services for certain residents.

“In those cases, it will be easy at the local level to make that move quickly. I don’t know that it becomes 25%. Again, it won’t be a target for us. But it definitely goes beyond 2%,” he said.

New pickups

Ensign’s earnings call came on the same day the company announced three new property pickups, led by a post-acute retirement campus in Ottawa, Kan. with 93 skilled nursing beds, along with 71 assisted living and 24 independent living units. Rock Creek of Ottawa had previously been owned by a non-profit operator, according to Ensign, with occupancy of 66% at the time of acquisition. Ensign conducted the sale through Gateway Healthcare Inc., its Midwestern portfolio subsidiary.

The operator also snapped up a pair of SNFs in Idaho through Pennant Healthcare Inc., its Pacific Northwestern subsidiary: Creekside Transitional Care and Rehabilitation in Meridian, and Bennett Hills Rehabilitation and Care Center in Gooding. The two properties have a total of 183 nursing beds, with an additional 21 assisted living units at the Creekside location; they were 67% full as of Thursday.

Across the portfolio, and including a group of four senior living facilities in Texas, Ensign paid an average of $40,000 per bed for the properties.

The new pickups, which include both the real estate and the operations, fall somewhere between the typical low-performing SNFs that Ensign targets for turnarounds and fully stable facilities, according to executive vice president Chad Keetch.

“They’re not all stabilized. They are better assets, especially for the price that we paid, but we don’t acquire too many assets that are what would call stabilized,” Keetch said. “These also are not complete turnarounds that are in a disastrous state from a regulatory and census and physical plant perspective. So these are better than our very difficult turnarounds, but these are not high-performing assets that we paid top dollar for.”

Ensign now controls a total of 188 skilled nursing facilities across the country, along with 56 standalone assisted and independent living properties.

Written by Alex Spanko

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