We don’t know what is in the water out west (well, yes, we do) that makes The Pennant Group and its former parent, The Ensign Group, so successful. As readers know, Ensign returned the federal CARES Act funds they had received and posted another good quarter. Taking in COVID patients at its nursing facilities, and the higher rates that come with that, certainly helped.
But the spin-off Pennant Group also had a solid quarter, when its seniors housing friends did not fare as well. But Pennant’s home health and hospice business performed quite well, as did most of that sector, benefitting from the desire to be treated at home when institutional care seemed a bit riskier.
Home health and hospice make up about 65% of revenues, with senior living the remaining 35%. But senior living makes up 46% of EBITDAR, and while it declined in the third quarter from its record second quarter performance, year over year it was up slightly. We just have not been hearing this from any of the other publicly traded companies or the REITs.
Senior living operations did suffer from the industry-wide occupancy decline, but not as much as many others. Occupancy dropped by 170 basis points sequentially, and year over year it declined by 280 basis points to 76.8%. That is about where much of the rest of the industry is today, but they all started the year at a much higher occupancy level, as much as 500 to 800 basis points higher than Pennant.
And just like Ensign, management keeps on increasing its earnings guidance, when most companies in this industry have abandoned any thought of providing guidance to investors with so much uncertainty surrounding the pandemic and a possible vaccine. For fiscal year 2020, earnings per share guidance was increased by about 4%, while they also provided guidance for next year, implying about a 20% increase over 2020.
Obviously, the strength of the home health and hospice business is helping, but senior living has not been a drag. We are going to have to call Pennant the Energizer Bunny 2.0 if they keep this up. Meanwhile, its share price has nearly doubled since June 30.
