We have still not figured out how The Ensign Group continues to outperform the rest of the skilled nursing industry when so many companies and providers are still hurting, with many of them still not able to make lease payments in full. For the past year, we have wondered if the only way to perform as well as they have is to cook the books, so to speak. That idea was discarded, and while we know they operate their model with each facility run by a mini-CEO with full local decision-making responsibilities and run it successfully, we continue to scratch our heads and wonder why others can’t do what they do. It just must be the culture, but obviously, one that needs to be mimicked by others, hard as that may be to do.
Ensign posted yet another GAAP profit for the third quarter, totaling $48.3 million, or 9.8% more than last year’s third quarter. The third quarter EBITDAR margin was 18.1%, which anyone would pine for. The company’s G&A expense is only 5.7% or revenues, which is about where it should be. But all of this is being accomplished with what we would consider to be low occupancy of 73.5% in the third quarter across 211 facilities.
Occupancy, however, has been increasing steadily. Overall, census has increased by 280 basis points since the third quarter last year. Same-facility occupancy increased by the same amount to 74.4%. We can only imagine what will happen if and when they get census above 80%, because many others struggle financially at that low level of occupancy. And, their 27 “transitioning” facilities posted a 440-basis point increase in census. Ensign tends to buy underperforming facilities with relatively low occupancy. And then turn them around.
The company has already spun off a large portion of its owned real estate several years ago into CareTrust REIT. Despite this, they now own 95 of their 245 facilities, 72 of which are unlevered. On October 21, the Board approved a plan to form a new captive REIT to help the company continue its growth. While the current intent is not to spin it off into a publicly-traded company, we certainly suspect that will be the end result in several years’ time. And we are sure they will find plenty of acquisition opportunities during the next two years (and more) where other providers just can’t deal with the census and labor problems.
Oh, and the share price jumped 10%. You don’t see that too often in our sector.
