Ensign Group Breaks the 200-Building Mark as Skilled Nursing Income Climbs 31%

The Ensign Group (Nasdaq: ENSG) announced the acquisition of the 200th skilled nursing facility in its rapidly expanding portfolio, while also reporting yet another round of sunny quarterly earnings results — which saw the operator boost overall skilled nursing income by 31.1% from this time last year.

The San Juan Capistrano, Calif.-based operator picked up both the real estate and operations of the The Terrace at Mount Ogden, a 114-bed skilled nursing facility in Ogden, Utah. In keeping with the provider’s strategy of turning around underperforming facilities, The Terrace had occupancy of about 50% at the time of the acquisition; day-to-day operations will fall to Milestone Healthcare LLC, Ensign’s operating subsidiary in the Beehive State.

Terms of the deal were not disclosed. In the same announcement, Ensign also noted the recent acquisition of a Tucson, Ariz. hospice agency and an assisted living property in Orange, Calif.; those deals brought the company’s total of senior living properties and hospice agencies to 57 and 28, respectively.

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Ensign CEO Barry Port emphasized that the company isn’t done expanding, saying in a statement that his team remains on the lookout for both stable and “struggling” SNF assets to acquire.

Part of that appetite stems from a desire to capitalize on ongoing distress in the industry, chief investment officer Chad Keetch said on a Friday call with investors and analysts.

“Transactions that were done several years ago, that we think where too aggressive and have turned out to be too aggressive, have led to a lot of distressed operators,” Keetch said. “They’re having trouble covering rent increases and escalators, and so that’s led to several pretty notable bankruptcies that are out there amongst some larger regional operators. That’s one factor — probably the biggest factor. We think there’s a lot more of that coming as well.”

The milestone news came the same day that Ensign reported a string of upbeat earnings numbers, including that 31% rise in skilled nursing income from the second quarter of 2018 and occupancy gains for its recently-acquired and same-store SNFs of 375 and 272 basis points, respectively.

Among those transitioning properties, Ensign additionally reported a robust gain of 24.3% in managed care revenue from the prior year quarter — typically a cause of concern for operators who find themselves squeezed by lower managed care reimbursements and shorter lengths of stay.

“While we are pleased with our progress, we have only begun to approach our potential in about half of the states in which we operate, not to mention the tremendous opportunities from our disciplined acquisition strategy,” Port said.

Despite strife elsewhere in the industry — and among its publicly traded peers with similarly large footprints — Ensign has continued to buck the trend and log steady financial and acquisition growth in recent years, which management consistently attributes to its decentralized operational strategy. Instead of a top-down structure, Ensign generally allows its regional affiliates to operate autonomously, with a centralized back-office operation providing billing and other bureaucratic support.

“We hope that these results will continue to show that even in a period where occupancies across the industry are down, we are able to consistently drive results across all payor types, including Medicaid, Medicare, managed care, and private pay,” Port said. “Thanks to our distinctive local leadership model and our disciplined real estate investments and acquisitions, we are confident that this performance is sustainable over the long term.”

Ensign also emphasized that the company remains on track to spin off its home health, hospice, and senior living business lines into a separate company known as The Pennant Group by October 1. The company first announced plans to bifurcate its operations back in May, with executives claiming that widespread Wall Street skepticism about SNF care had artificially deflated the value of its other assets.

“There are people that don’t really like our profession, that don’t like our industry, and they like our model and they like the results we achieve,” former CEO and current executive chairman Christopher Christensen, who left the CEO post in a planned transition on May 30, said earlier this year. “This gives them a chance to invest in Ensign and what we believe in and how we operate and the fundamentals and the way we acquire — the contrarian acquisition model we tend to follow. It gives them a chance to do that without necessarily coming into an industry that they’re uncomfortable with.”

The Ensign entity will retain the 79 real estate assets it currently owns, leasing out 28 senior living facilities to Pennant once the deal closes — while also sharing resident data across the two entities. The company claims it will “remain the leading consolidator in its highly fragmented core skilled nursing business,” according to its earnings release, with a continued focus on acquiring both the operations and real estate associated with SNFs.

“As we look to our past and what we have been able to accomplish with our real estate, we are very excited about the opportunities we have to unlock the value in our owned real estate,” Keetch said. “We are constantly evaluating our options and looking forward to creating a structure that will ensure both cultural and operational alignment.”

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