Ensign Clocks Another Record Quarter, Makes Progress on New Structure for Owned Real Estate

Skilled nursing giant The Ensign Group (Nasdaq: ENSG) continues to see patient flows revert back to normal trends, as momentum from its bolstered first quarter occupancies continues into the second quarter.

The San Juan Capistrano, Calif.-based provider on Wednesday reported ‘record’ operating results for the second financial quarter ending June 30 — with adjusted earnings of 89 cents per share.

Ensign’s leaders are not overly concerned by current labor challenges, seeing some of those impediments as temporary. And, they are bullish on growth, including in their owned real estate segment.


As of late July 27, Ensign operated 240 facilities, including 209 skilled nursing facilities, 9 senior living communities and 22 campus operations. About 35% of the portfolio consisted of owned real estate.

Although Ensign has a history of spin-offs, there are no plans to spin out the owned real estate portfolio into a separate public entity. But, the company is working on a structure that will provide better visibility into the value of the real estate.

Occupancy Growth, Variant Vigilance


Arizona and Colorado markets have already returned to pre-COVID occupancy levels, but the company remains “vigilant” in light of a potential virus resurgence attributed to the delta variant, Ensign CEO and Director Barry Port said during an earnings call on Thursday.

The federal government’s extended public health emergency to Oct. 18, which keeps regulatory forms of assistance in place for skilled nursing facilities, will help clinical teams, Port said, along with vaccine availability, testing, infection control procedures and treatment protocols.

Ensign increased its earnings guidance from $3.55-$3.67 per share to $3.54-$3.66 per share after logging quarterly revenues of $638.5 million, up 9% in the second quarter of 2020.

“We’re particularly pleased that we achieved sequential growth and occupancies from the first to the second quarter, which is especially impressive given that we always expect a seasonal deep decrease in occupancies in the summer months,” said Port.

Same-store occupancy improved 170 basis points from Q1 2021, while transitioning community occupancy increased 150 basis points.

“As the pent up demand for health care services in our markets has continued to increase our managed care, skilled mix days and managed care average, daily census improved again for an impressive fourth consecutive quarter,” added Port.

No Spin-Off Plans for Real Estate Segment

Ensign created a new reporting segment as of the 2020 fourth quarter, which is composed of skilled nursing and senior living properties owned by Ensign and leased to Ensign affiliates and other operators, including 31 senior living communities leased to The Pennant Group (Nasdaq: PNTG).

The Pennant Group spun off from Ensign in October 2019 in a bid to separate the company’s home health, hospice, and senior living holdings.

Keetch considers Ensign’s real estate segment to be a “key differentiator” in the market.

“We envision a structure that not only creates better visibility into the demonstrable value of our own real estate, but also will provide us with an efficient vehicle for future acquisitions of properties that could be operated by Ensign affiliates or other third parties,” Keetch added during the call.

The branch allows Ensign to grow via transactions with potential third-party operators that the company would not have considered in the past, Keetch said.

For Q2 2021, Ensign reported $16 million in rental revenue and $13.7 million in funds from operations (FFO) from the real estate segment. The FFO represents a 10.5% increase from the prior year quarter.

A public real estate spin-off company is not anticipated for Ensign’s real estate segment, Keetch said, adding that the company is “dotting all the i’s and crossing all the t’s” to create a structure that will increase shareholder visibility and allow access to both the public and private markets in future.

“We made significant progress during the quarter in our effort to create a structure that will allow us to better demonstrate the growing value in our own real estate,” he said.

Deal flow expected to increase

Deal flow is expected to pick up at the end of the year and into 2022, Keetch said, with distressed facilities holding on a bit longer with the federal government’s state of emergency extension.

That’s coupled with owners wanting to get a deal done before the end of the tax year.

In Q2 2021, Ensign acquired eight SNFs across Texas, Washington and Colorado during the second quarter, the largest being 140-bed Boulder Canyon Health and Rehabilitation in Boulder, Colo.

Keetch expects another “handful” of prospective deals to close this year, along with additional opportunities in the fall.

“As we mentioned our release yesterday, we have over $340 million in available capital,” he noted. “In addition, we have 75 completely unlevered real estate assets. We continue to work on unlocking some equity value in a handful of our owned and unlevered real estate assets through long-term, fixed-rate HUD financing.”

The pace of Q2 2021 acquisition beat the expectations of analysts with Stifel, and they are optimistic about what is in store.

“We are confident in the investment pipeline and execution, adding to future growth as newly-acquired operations get turned around,” they wrote in a note issued Wednesday.

Staffing Expectations

Staffing concerns have become acute throughout the senior care industry, with worker shortages among the pain points. Port considers child care issues and the lure of enhanced unemployment benefits to be “transitory factors” when it comes to recruitment and retention of nursing home workers.

“Some of these pressures [are] being lifted in states that have ended certain unemployment benefits, like in Arizona where operators saw an almost immediate increase in the labor pool,” noted Port.

Ensign’s in-house nurse aid training program also brought 150 certified nursing assistants (CNAs) into the workforce in the last five months, Port said. The company promoted 22 nurses to director of nursing roles through nursing leadership development programs.

“The enormous potential in our existing portfolio, and the tremendous acquisition opportunities on the horizon, gives us confidence that we’re well positioned to not only rebound to our pre COVID path, but to accelerate our growth,” Port said.

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