With plans to launch an in-house real estate investment trust (REIT) in the coming months, The Ensign Group will look to continue its work as a “turnaround organization” that takes troubled operations and transforms them into state-of-the-art facilities.
That’s according to Ensign CEO Barry Port, who shared his priorities for 2022 during a presentation at the Stephens Annual Investment Conference in Nashville on Thursday.
“Our focus, our strategic direction for 2022 isn’t anything earth-shattering. This is a very local business, this type of health care is very personal, very intimate, and it takes a really focused leadership to ensure that it caters to that local health care market,” he said. “As our leaders prepare for the upcoming year, we’re really focused on fundamentals and getting back to fundamentals.”
Ensign Chief Investment Officer Chad Keetch added that the real estate environment is prime for the company to grow in 2022 and felt that a captive REIT will better show Ensign’s operational prowess.
“As fellow operators, I think we can bring things to the table that would just be difficult for a traditional REIT to provide and being on the frontlines together, dealing with everything that we need to as operators will make us a true real estate partner and not just someone that is looking to essentially finance growth and collect rent,” he explained.
After CareTrust REIT’s spinoff several years ago, Ensign continued to buy real estate and, as of last month, the company has acquired 100 owned assets over time. As it looks at different approaches coming out of COVID, Keetch said forming a captive REIT “checked a lot of boxes” for the company.
“There’s an ability to create a lot of equity value in real estate as you take a sleepy skilled nursing facility that’s mostly Medicaid and it becomes a dynamic skilled nursing facility. There’s a lot of value that we create in that real estate,” Keetch said. “Back in 2014, we had about 95 assets that we acquired and we did a spin off of what is now CareTrust REIT.”
He felt that keeping the real estate in-house with a captive REIT will help Ensign avoid any sort of big capital gain tax, and will allow the company to better highlight its real estate business.
Keetch expects Ensign to formally create the REIT early in the first quarter of next year.
“One of the things we’re excited about is that Ensign is going to great lengths to actually provide a third party valuation that we will provide periodically as we continue to grow that real estate and that should be something that we make available as part of our annual filings and quarterly filings as well,” he said.
Keetch expects these disclosures will reveal the difference between what Ensign paid for assets and what they’re worth now to be significant.
While the first U.S. case of the omicron variant was confirmed by the Centers for Disease Control and Prevention (CDC) this week, Port didn’t expect the variant to have a huge impact on Ensign’s operations at this time.
“There has been a recent pickup in community prevalence of COVID in certain markets in the Midwest in particular and in some other areas, but that really hasn’t translated into our environment and we haven’t seen a similar pickup,” Port said.
Likewise, Ensign didn’t experience a big hit to its occupancy in the third quarter after the emergence of the delta variant and Port emphasized that high vaccination rates amongst Ensign’s employees and patients combined with heightened infection control protocols as reasons why.
“For us, omicron is certainly worrisome, it certainly puts the health care system potentially on its heels, especially from an acute standpoint, but we feel pretty confident that we have begun to really adapt to this environment,” Port explained. “I think our overall expectation is that our occupancy will continue to have slow and steady improvement from our low in December … and we expect that slow and steady approval will continue into early next year.”
While it remains to be seen what pandemic trends will carryover to next year as recovery continues, it’s clear that Ensign’s patient acuity has settled at a level that’s higher than it was before the pandemic. As a result, the company is becoming increasingly geared toward sicker patients at a higher rate than ever before.
“Our operators have always had this focus of moving as high up the acuity chain as they can to be that critical access point for their hospital partners to make sure that they don’t get stuck having to care for complex needs and we feel like we can do that very well in a well-adapted skilled nursing setting with the right nurses, training and leadership to make sure the outcomes are what they ought to be,” Port said. “We’ve settled at a higher level than we saw back in, let’s say, February of last year and I think we expect that to continue.”
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