With Strong Financials and Patient Mix, Ensign Looks to Flex Real Estate Muscle Outside of Operations

Nursing home operator The Ensign Group (Nasdaq: ENSG), fresh off of a year of solid operational results that prompted another complete return of federal aid, on Thursday indicated a growing push to capitalize on the value of its owned real estate.

The San Juan Capistrano, Calif.-based operator reported net income of $46.3 million in the fourth quarter of 2020 and $170.5 million for the year total — while returning $33 million more in federal aid designed to help skilled nursing operators weather the COVID-19 pandemic during the period.

Ensign also began reporting out separate performance metrics for its group of 95 real estate assets, 64 of which the company’s affiliates operate. The remaining 31 are leased to the Pennant Group (Nasdaq: PNTG), the home health, hospice, and senior living operator that spun off from Ensign in the fall of 2019.


“Our goal in separating this real estate business from our operations is to demonstrate the enormous inherent value that these real estate assets have and will have over time,” Ensign chief investment officer Chad Keetch said during the company’s fourth-quarter 2020 earnings call.

The reporting change belies a bigger push to expand the real estate side of the business at Ensign, which itself spun out CareTrust REIT (Nasdaq: CTRE) as a separate landlord entity for its buildings in 2014.

“At the same time, we are narrowing in on a framework that will go even further to demonstrate the true value of this real estate, while allowing us to stay legally and culturally connected to the assets,” Keetch said. “This strategic structure would enable us to more aggressively pursue and acquire attractive assets, including accretive acquisitions for Ensign and also some operations that, for one reason or another, are not a good fit for Ensign to operate — such as operations that are in markets where we don’t currently have available leadership.”


The company is still mulling its options for such a move, though Keetch said it would be based on the lessons that management learned during the CareTrust spinoff — and that traditional sale-leasebacks to other landlords were not part of the strategy.

“As we look to ways to apply those lessons, our priorities are to protect our culture and to make sure that we and our real estate partner remain unified in our joint mission to protect the health of the operator first, and in doing so, ultimately create long-term value in the real estate,” Keetch said.

The earnings report came shortly after the company announced the purchase of a SNF in San Antonio, in a transaction effective February 1.

Ensign, which is technically the parent company of the Ensign group of companies that provide skilled nursing, senior living, rehabilitative and other health care services, also reported “a marked improvement in patient volumes, especially with high acuity and skilled patients” from the second to the third quarter and from the third quarter to the fourth quarter.

Specifically, Ensign saw a 7.2% and 10.8% increase in Medicare census from the second to the third quarter and from the third to the fourth quarter, sequentially, for its same-store and transitioning portfolio. It also saw an increase in managed care census of 6.2% and 5.7%, from the second to the third quarter and from the third to the fourth quarter, sequentially, for its same store and transitioning portfolio.

“This improvement in our admissions trends not only gives us great confidence that we can continue to perform well as the pandemic stubbornly persists in many of our largest markets, but it also gives us confidence that we are in an excellent position to see occupancies normalize to pre-pandemic levels even while the pandemic continues to impact us and our patients,” Ensign CEO Barry Port said in the press release announcing the results.

Ensign’s results do not include any of the federal relief funds granted to skilled nursing providers under the CARES Act; it returned $33 million such funds in the fourth quarter and $5 million in January, after sending back about $109 million in such funds in July 2020.

The strong fourth-quarter results — the GAAP $46.3 million in net income constituted an increase of 69.1% over the prior year quarter — stemmed from a range of factors, according to the company: ongoing improvements in skilled mix across the portfolio, improved admissions trends, more frequent and broader COVID testing, increased managed care revenues, cost-saving initiatives, improved cash collections, the suspension of sequestration and improved Medicaid funding in certain states.

“During this latest and most significant surge in COVID-19 positivity rates we’ve seen to date, especially in Texas, Arizona, and California, we saw an increase in skilled mix,” Port said in the release. “However, unlike in prior quarters where COVID surges were accompanied by occupancy declines, during the fourth quarter we saw occupancies remain flat. While we have ground to make up to get back to pre-COVID occupancies, the increase in our skilled mix has more than made up for the temporary decline in occupancy.”

Ensign also reaffirmed its 2021 guidance: annual earnings per share of $3.44 to $3.56 per diluted share and annual revenue of $2.62 billion to $2.69 billion.

“We remain confident that we can achieve this guidance as we begin to see the positive impact of the vaccination efforts and begin to realize the enormous upside in our newly acquired operations, coupled with the opportunistic acquisitions on the horizon,” Port said. “But more importantly, we believe, when this pandemic is behind us, that our operations are primed to rebuild occupancies and to continue to gain additional market share as a result of the deepened relationships with acute care providers and other healthcare partners.”

The company also acquired several SNFs in the fourth quarter and after that time period ended — three in Texas and three in California.

“Given the uniqueness of transitioning during a pandemic and the extra time that we’ve had to prepare for each of these, we feel an extra measure of confidence that these operations are poised to contribute to our overall results very soon,” Keetch said. “We are still being very selective and are keeping plenty of dry powder on hand for what we believe will be an attractive buyer’s market on the horizon.”

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