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Tuesday, Mar 19, 2024
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Ensign Raises $40M To Buy Nursing Homes

Armed with $40 million in financing, nursing home operator Ensign Group Inc. is looking to buy more facilities in the coming year.

“We see a strong acquisition market going into the first quarter,” said Gregory Stapley, executive vice president for the healthcare company.

Mission Viejo-based Ensign has bought 16 facilities during the past 12 months, Stapley said, including four it announced last week.

The company continues to “be active seekers of acquisition opportunities,” he said.

Last month, Ensign got more money to make deals when it struck a five-year, $40 million loan with a unit of General Electric Co.’s finance arm through the mortgaging of six of its facilities.

The company is “reloaded and ready to acquire,” said Eric Gommel, a Baltimore-based analyst with Stifel, Nicolaus & Co., in a research note.

“We believe this is a positive headline as it provides evidence that Ensign’s lenders are comfortable with the company’s operations and reimbursement environment,” Gommel said.

Ensign now has 77 facilities in California and six other Western states with about 9,000 workers companywide.

Its nursing homes serve short-term patients after surgeries, strokes or other events, as well as some long-term residents.

Medicare, the federal healthcare program for the elderly, and Medicaid, which is for the poor and disabled, make up 75% of Ensign’s $540 million in yearly sales.

The company pays cash for facilities that are in distress and turns them around.

“We’ve been able to create a lot of value by finding properties that were underperforming and undervalued,” Stapley said.

Ensign owns 46 of its facilities, which also include rehabilitation centers, assisted living centers and hospices. It leases the rest. Twenty-one of its owned facilities don’t have any debt.

Stapley said the company plans to target facilities in the Western U.S. to keep its locations fairly close together.

“We have long felt that we did not want to go leapfrogging across the country,” he said.

Stapley calls the company a “flat organization.” Ensign gives authority at the nursing home level to chief executives and chief operating officers, he said.

“That pair really is responsible for the work of the company,” Stapley said.

Ensign doesn’t have “a bunch of regional managers, divisional vice presidents or anything else,” he said.

“We believe Ensign’s success is based on a completely different paradigm than its for-profit peers. (Ensign) focuses on quality facilities at the local level,” said Brian Williams, an analyst with Avondale Partners LLC, a Nashville, Tenn.-based investment bank, in a report.

Ensign is a simple success story that largely was due to its management team and local leaders, Williams said.

“Of course, simple stories are the easiest to tell, yet they are the hardest to create,” he said.

Smallest

Ensign is the smallest of Orange County’s three publicly traded nursing home operators. The others are Sun Healthcare Group Inc. of Irvine with 206 facilities, and Foothill Ranch-based Skilled Healthcare Group Inc. with 99 facilities.

Ensign was founded in 1999 and went public in 2007, raising $60 million.

So far this year, Ensign’s shares have been caught in a downturn among the sector. At recent check, its shares were down 20% since the start of the year with a recent market value of about $290 million.

Skilled’s shares are down 20% with a market value of $270 million. Sun’s stock is flat with a market value of $400 million.

“We still debate whether we should have been public or should be public,” Stapley said. “(There’s) a lot of brain damage that comes with being public.”

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