The Ensign Group is sitting on more than $1 billion in reserves, with company officials saying Thursday they are eager to continue on a growth trajectory fueled by leadership availability and geographic logic.
California-based Ensign notched ever closer to pre-pandemic occupancy levels in the third quarter, hitting 79.5% at facilities it has held for at least a year. On a call with investors, CEO Barry Port said he was confident the existing portfolio would soon meet or exceed its pre-COVID mark of 80.1% occupancy, especially as the company is seeing the return of traditional, seasonal admissions this fall.
Higher census and sustainable demand for skilled care were two factors that led Ensign to boost its guidance for the year, projecting earnings of $4.73 to $4.79 per diluted share, up from $4.70 to $4.78 per diluted share. That’s an increase of 15% over 2022 results and is 30.8% higher than in 2021.
In the third quarter alone, Ensign picked up six new operations and four real estate holdings. Deals include two skilled nursing facilities in South Carolina, two in Washington, and one each in Colorado and Kansas. Together, they add 621 new skilled beds to the Ensign portfolio, which now totals 296 operations in 13 states.
In the Washington transaction, Ensign’s Standard Bearer acquired real estate and leased a share of the property to a third-party tenant.
“We have seen many transactions similar to the one closed in Washington that have been presented to us in the past and are anxious to utilize this new strategy to do more deals we likely would have missed out on before implementing this approach,” said Chief Investment Officer Chad A. Keetch (pictured).
Of 51 facilities it considers “newly acquired,” Ensign reported skilled care represented 26.1% of all days; that’s relatively high but still below the broader portfolio’s 30.7%.
That means there is still “enormous upside” as Ensign continues to transition those operations and align the facilities with the company’s core operating principles. Keetch made clear that Ensign is looking at a steady pipeline of expansion opportunities but remains selective.
“We have another busy fall and winter ahead of us and are preparing for even more growth in 2024,” he said, noting that higher interest rates are pushing more sellers to market. “However, as we always remind you, we do not set arbitrary growth goals and will remain true to our disciplined acquisition strategy, only growing when we have the right leaders in place and the pricing is right.”
Keetch noted the company has more than $1 billion in dry powder ready to invest, much of it in cash or a revolving line. The company has little debt and hasn’t leveraged much of its real estate in recent months, due to higher interest rates that drive up financing options.
But that means Ensign’s costs of entry on new deals may be lower than competitors’. Still, the company is not rushing into massive portfolio deals, noting that those continue to include more distressed properties.
But Keetch said Ensign would likely continue its expansion by grabbing up well-positioned “onesie-twosie deals.”
The development of internal CEOs ready to head new Ensign facilities is also churning along, Keetch noted, calling them a bedrock of the company’s development into a skilled nursing juggernaut.
“The biggest factor … is the leadership and having leaders in our pipeline that are waiting for those opportunities. And obviously geography is important as well. We want to stay in the states we’re in as a first priority,” Keetch said, noting that hospital system partnerships help them scale up across a single market.
“The next [high-priority opportunities] would be in states that we’re not in but are close by,” he added. “There are a few new states that could potentially happen at the end of this year or early next. We take those very seriously. It’s a lot of work to go into a new state, but that’s definitely on the horizon.”
No staffing rule impact through 2024
One thing not dictating Ensign’s growth is the proposed federal staffing mandate, Chief Financial Officer Suzanne Snapper said.
She noted that the company didn’t expect to feel any effects from the rule this year or next, even if it is finalized in 2024. Instead, she observed that reimbursement policies meant to adjust for COVID challenges and staffing concerns had boosted rates in many states, with those coming as inflation started to cool.
Company officials said wage inflation had slowed, while retention has already started to improve. While Ensign affiliates have submitted an estimated 1,000 comments on the rule, Keetch said the company’s efforts are focused on shaping the rule — not necessarily defeating it.
Affiliates are also positioning their facilities to be the “employer of choice” in each market. And across the portfolio, Ensign has reduced agency staff by 55% since December, Port added.
“If and when there is an adjustment to how the federal government decides we should staff on a building-by-building basis, if our people systems aren’t where they ought to be, then that becomes more challenging,” Keetch said. “The silver lining of this whole noise around this proposed rule is it gives us impetus and a rally cry to kind of focus on making sure we’re the best and being great partners to our employees.”
For additional coverage of the earnings call, see the McKnight’s Business Daily.
