Already a major player in the skilled nursing space The Ensign Group (Nasdaq: ENSG) is looking to take an aggressive approach to the acquisition market moving forward — with an eye on new states and distressed operations.
The San Juan Capistrano, Calif.-based Ensign announced the formation of a captive real estate investment trust (REIT) on Oct. 21, which Chad Keetch, Ensign’s CIO and executive vice president, said will open new pathways for the company to pursue, such as buying and leasing to third party operators, expanding into new states, partnering with other real buyers and more.
“A captive REIT provides us with additional acquisition opportunities, gives us more flexibility in the use and access to capital and enables our collective acquisition team … to strategically focus on value creation through real estate investing,” he said during Ensign’s third-quarter earnings call on Thursday.
While the new organizational structure will allow Ensign to take the next step with its real estate business, when asked whether it was their intention to use the in-house REIT for acquisitions going forward, Keetch said Ensign’s relationships with other REITs will remain strong.
“We value those relationships highly,” he said. “CareTrust (Nasdaq: CTRE), we have a long history with them, and two of the assets this quarter were new leases with them so we expect that relationship to continue to grow.”
Keetch added that Omega Healthcare Investors (NYSE: OHI), NHI (NYSE: NHI), and LTC Properties (NYSE: LTC) have all been great partners. Ensign recently did its first deal with Sabra (NYSE :SBRA) and he hopes that deal will be the beginning of more to come.
“Leases can represent a really good way for us to finance our growth and they have access to deals we don’t,” he said. “That said, we like to own real estate and we prefer to own it if we can, particularly with distressed assets.”
Adding Skilled Nursing Assets
Keetch expects Ensign to be very opportunistic in its approach to acquisitions while remaining disciplined.
“We have some visibility into the next quarter or two and we are seeing an increased number of deal opportunities,” he said. “We are gearing up for what we hope to be a good growth year on the acquisition front.”
The company continued to return all of the provider relief funds (PRF) it received and with five new acquisitions for the quarter, 17 operations have been added to the organization during the year.
Recent Ensign skilled nursing acquisitions include Sedona Trace Health and Wellness Center, a 119-bed SNF in Austin, Texas; Cedar Pointe Health and Wellness Center, a 122-bed SNF in Cedar Park, Texas; River Pointe Of Trinity Health and Rehabilitation Center, a 98-bed SNF in Trinity, Texas; Park Village Healthcare and Rehabilitation, a 150-bed SNF in De Soto, Texas; and Skyline Transitional Care Center, an 80-bed SNF in Boise, Idaho.
Business is Booming
Ensign saw occupancies continue to improve and skilled revenue and managed care revenues increased throughout the quarter.
“We were particularly pleased that we achieved sequential growth in occupancy for the fourth consecutive quarter and managed care census has grown five quarters in a row,” Ensign CEO and Director Barry Port said during the call. “From the low point of our pandemic period census, which we hit in December of 2020, our same store and transitioning operations have already improved census by over 51%.”
Port referenced Ensign’s turnaround of Somerset Subacute and Care, located in San Diego, which was acquired by Ensign in 2015 and at the time struggled to maintain occupancy but last year experienced record occupancy results.
The provider increased its earnings guidance from $3.55 to $3.67 per share to $3.60 to $3.68 after logging quarterly revenues of $668.5 million, up 11.6% from the previous quarter.
Ensign’s growth for the quarter beat the expectations of analysts with Stifel, and they expect that to continue on through the end of the year.
“We expect the strong organic and external growth to continue while the newly formed captive REIT offers a new avenue of growth,” they wrote in a note issued Thursday. “Valuation relative to historical and projected growth looks very attractive.”
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