Attached files
| file | filename |
|---|---|
| 8-K - 8-K - ENSIGN GROUP, INC | d622047d8k.htm |
| EX-3.1 - EX-3.1 - ENSIGN GROUP, INC | d622047dex31.htm |
| EX-4.1 - EX-4.1 - ENSIGN GROUP, INC | d622047dex41.htm |
| EX-99.2 - EX-99.2 - ENSIGN GROUP, INC | d622047dex992.htm |
 1
November 7, 2013
Exhibit 99.1 |
 2
Forward-Looking Statements This
presentation contains forward-looking statements that are based on management’s current expectations, assumptions and beliefs about
its business, financial performance, operating results, the industry in which it operates and other
future events. Forward-looking statements can often be identified by words such as
“anticipates,” “expects,” “intends,” “plans,” “predicts,” “believes,” “seeks,” “estimates,” “may,” “will,”
“should,” “would,” “could,” “potential,” “continue,”
“ongoing,” similar expressions, and variations or negatives of these words. These forward-
looking statements include, but are not limited to, statements regarding the anticipated timing,
structure, benefits and tax treatment of the proposed separation of Ensign’s healthcare
business and its real estate business, and future financing plans, business strategies, growth
prospects and operating and financial performance. They are not guarantees of future results and
are subject to risks, uncertainties and assumptions that could cause actual results to differ
materially and adversely from those expressed in any forward-looking statement.
Moreover, we do not intend to “stand still” or otherwise abate our acquisition program
during the pendency of the transaction, and references to our property counts, capitalization,
financial condition and similar statements may change as a result of acquisitions or expenditures made
prior to the effective date of the transaction. Risks and uncertainties related to the proposed
spin-off include: our ability to obtain all necessary consents and approvals and satisfy
all conditions to the spin-off, including the receipt of a private letter ruling from the Internal Revenue
Service to the effect that the spin-off will be tax-free; the ability to expand the healthcare
and real estate businesses following the spin-off; and the potential diversion of
management’s attention from traditional business concerns. Other risks and uncertainties relate to our
business, our industry and our common stock and include: reduced prices and reimbursement rates
for our services; our ability to acquire, develop, manage or improve facilities; our ability to
manage increasing borrowing costs as we incur additional indebtedness to fund the acquisition
and development of facilities; our ability to access capital on a cost-effective basis to continue to successfully implement our
growth strategy; our ability to maintain operating margins and profitability while growing and
managing an increasing number of facilities; competition from other companies in the
acquisition, development and operation of facilities; and the application of existing or proposed
government regulations, or the adoption of new laws and regulations, that could limit our business
operations or require us to incur significant expenditures. You should not place undue reliance
on any forward-looking statements and are encouraged to review our periodic filings with
the Securities and Exchange Commission, including our Form 10-K filed on February 13, 2013 and our
Form 10-Q filed on November 7, 2013, for a more complete discussion of the risks and other
factors that could affect our business, prospects and any forward-looking statements.
Except as required by the federal securities laws, we disclaim any obligation to publicly update or
revise any forward-looking statements, whether as a result of new information, future
events or changing circumstances or for any other reason. |
 Select
Management Team 3
Christopher Christensen
President and Chief Executive Officer, The Ensign Group, Inc.
Suzanne Snapper
Chief Financial Officer, The Ensign Group, Inc.
Gregory Stapley
President and Chief Executive Officer, CareTrust REIT, Inc.
|
 Separation
Creates Two Superior Business Platforms On November 7, 2013, The Ensign Group
announced plans to separate its Healthcare and Real Estate businesses into
two publicly traded companies through a tax-free spin-off transaction
The transaction is expected to close in Q1 2014
4
Operations
Real Estate
The Ensign Group, Inc.
Spin-Off
CareTrust REIT, Inc.
Will start with a significant cash account and credit
facilities to facilitate growth
Focus will be on geographic expansion, new tenant
relationships and asset class diversification
Strong financial profile: strong tenant operating
performance and attractive rent coverage
CareTrust will establish itself with a solid foundation
of quality seniors housing assets, with a goal of
becoming a leading diversified healthcare REIT
Long-tenured and successful management team
Home health and ancillary services businesses
as a platform for growth
Strong financial performance with dependable
cash flows and liquidity
Proven ability to grow existing business through
acquisitions and improvements in operating
performance
A leading provider of skilled nursing care |
 Ensign Has a
History of Financial and Operating Success Business Overview
As of June 30, 2013, operated 118 facilities, 9 home health
and 7 hospice operations, and 5 urgent care centers located
in 11 states
–
Owns 95 facilities and operates an additional 23 facilities
through long-term lease arrangements
–
In addition, develops and operates urgent care centers
Ensign has a strong track record of acquiring and integrating
turnaround opportunities
–
Improves operations through increased occupancy, quality
mix and acuity shift
Long-tenured and successful management team has been an
integral part of Ensign’s business strategy
USD in Millions
6 mo. 6/30/13
6 mo. 6/30/12
% Change
FY 2012
FY 2011
Number of Facilities
118
105
12.4%
108
102
Number of Operational Beds & Units
13,135
11,972
9.7
12,198
11,702
Revenue
$438
$406
7.9
$825
$758
Adjusted EBITDAR
(1)
74
72
2.8
142
130
Adjusted Net Debt
(2)
/ LTM Adj. EBITDAR
2.4x
2.2x
2.3x
2.1x
Selected Financial and Operational Metrics
Operated Facilities
SNFs, ALFs & ILFs
Home Health & Hospice
Urgent Care Clinics
5
Note:
EBITDAR is a non-GAAP measure and represents net income before (a) interest
expense, net, (b) provision for income taxes, (c) depreciation and (d) facility rent expense. See
Appendix for a reconciliation of GAAP to non-GAAP financial measures.
1.
Reflects Adjusted EBITDAR and excludes expenses which are infrequent in nature and
are variable in nature, or do not represent current cash expenditures.
2.
Rent capitalized at 8.0x.
3.
Adjusted to reflect $48 million payment in October 2013 related to the U.S.
Department of Justice (DOJ) settlement. (3) |
 Separation
Creates Two Very Attractive Opportunities for Investors
6
Pro Forma Overview
119 SNF, ALF and ILF properties
–
94 to be leased from CareTrust
9 Home Health and 7 Hospice operations
6 urgent care centers
Ample cash flow to fund growth
Pro Forma Overview
Initial ownership of 97 SNF, ALF and ILF properties
(CareTrust will own and operate 3 ILFs)
–
Portfolio consists of ~84% SNF campuses and
~12% ALF campuses
Owned facilities leased to Ensign pursuant to long-
term Master Lease Agreements
Attractive ~1.85x initial rent coverage ratio supports a
secure rent stream
Approximately $59 million in annual rental revenue
Proven operating business will continue to deliver:
Cohesive business model and operating strategy
Geographic diversity
Significant organic growth potential
Strong financial performance
Anticipate that no funded debt allows dry powder for
company to continue growth strategy
Track record of acquisitions and integration drives
industry leading growth
New real estate business expects to focus on:
Growth from acquisitions and new tenant relationships
Asset class diversification (e.g., ALFs, ILFs, MOBs,
IRFs and LTACHs)
Access to more and lower-cost capital
Ample cash and liquidity
Leverage in line with peers
“Triple-Net”
lease structures
Stable dividend to start, with potential to grow along
with the business |
 Separation
Highlights Ensign’s Embedded Real Estate Value Source:
FactSet.
Note:
Skilled Nursing Index includes: ENSG, KND and SKH.
Healthcare REIT Index includes: AVIV, HCN, HCP, LTC, NHI, OHI, SBRA and VTR.
EBITDA Multiple: 14.4x
(Healthcare REIT Index)
EBITDA Multiple: 6.7x
(Skilled Nursing Index)
Comparison of Healthcare REIT and SNF Valuation Multiples —
Last 5 Years
Average: 14.1x
Average: 5.2x
7
In addition to delivering strong performance over the years, Ensign has accumulated
a significant amount of quality real estate that will become the foundation
for CareTrust 0x
6x
12x
18x
2008
2009
2010
2011
2012
2013 |
 Compelling
Rationale for Separation Drives Shareholder Value 8
Strategic Direction and Focus
More efficient execution of divergent business models and strategies
Independent establishment of strategic priorities, growth strategies and financial
objectives Focus on distinct business objectives allows a more direct
alignment of management incentives Investor Transparency and Access to
Capital Greater visibility into relative financial and operating
performance Separate “currency”
which can be used to facilitate acquisition opportunities
Access to a broader range of capital to fund future growth
Sector-Specific Investors and Research Coverage
Appeal to a more focused shareholder base
Attract coverage by additional industry-specific analysts
Differentiate
as
two
sector-specific
“pure
play”
companies
“Shared Attributes” |
 9
Strong
Operating
Performance
Leadership-centric business model
Proven track record of financial and operating performance
Established business model and operating strategy that offers potential for tremendous
value creation
Unique operating structure that empowers employees to drive quality care
Differentiated
Growth Strategy
Continued focus on execution of its established and successful growth strategy
Consistently makes accretive acquisitions and improves performance of target operations
over time
Attractive
Financial Profile
Strong financial performance with stable cash flows and liquidity
Lowest peer group leverage with no funded debt
Industry Leading
Management
Continuity, as only one key executive will transition to the real estate business
Ensign Continues as a Proven Operator with a Focus
on Core Operations and Growth |
 Ensign Will
Operate a Well Diversified Portfolio of Businesses Across a Broad Geographic
Footprint 10
Significant white space to grow the portfolio
119 SNFs, ALFs & ILFs
9 Home Health & 7 Hospice
6 Urgent Care Clinics
6
6
3
36
13
12
5
6
5
27
Note:
As of November 1, 2013.
# |
 Ensign
Represents THE Growth Story in the SNF Sector 11
Revenue
Adjusted EBITDAR
(2)
(2)
(1)
$411
$469
$542
$650
$758
$825
2007
2008
2009
2010
2011
2012
$60
$73
$87
$107
$130
$142
2007
2008
2009
2010
2011
2012
15.0%
1.9%
6.6%
KND
SKH
18.6%
(1.5%)
1.3%
KND
SKH
EBITDAR is a non-GAAP measure and represents net income before (a) interest expense, net, (b)
provision for income taxes, (c) depreciation and (d) facility rent expense. See Appendix for a
reconciliation of GAAP to non-GAAP financial measures.
Reflects Adjusted EBITDAR and excludes expenses which are infrequent in nature and are variable in
nature, or do not represent current cash expenditures. Revenue and Adjusted EBITDAR reflects only KND’s Nursing Center Division.
Note:
1.
2.
2007 – 2012 Revenue CAGR
2007 – 2012 Adjusted EBITDAR CAGR |
 Ensign’s
Proven Track Record of Successful Acquisitions 12
Annual Facilities Growth
Acquisition Track Record
Strong track record of acquiring, operating
and integrating under-performing assets
Focused on improving operating
efficiencies and increasing the mix of
higher-acuity residents to drive value
Estimated Timing
1
st
Quarter
5
th
Quarter
Improvement
EBITDAR Margin
11.0%
14.2%
320 bps
Occupancy
71.1%
74.3%
320 bps
Skilled Mix (Rev)
31.6%
38.8%
720 bps
Quality Mix (Rev)
48.8%
51.9%
310 bps
Note:
Acquisition Track Record based on an average for all SNF acquisitions from 2001
through May 1, 2012 measuring five quarters of operating performance. Annual
Facility Acquisitions Transitioned Facilities
57
61
63
77
82
102
108
4
2
14
5
20
6
10
61
63
77
82
102
108
118
2007
2008
2009
2010
2011
2012
6/30/2013
YTD |
 Ensign has a
Long-Tenured and Successful Management Team 13
Christopher Christensen
President, Chief Executive Officer and Director of The Ensign Group, Inc.
Co-founder and President of Ensign since 1999 and Chief Executive Officer
since April 2006
Member of the board of directors since 1999
Prior to joining Ensign, served as acting Chief Operating Officer of Covenant
Care, Inc., a California-based provider of long-term care
Suzanne Snapper
Chief Financial Officer of The Ensign Group, Inc.
Chief
Financial
Officer
since
2009
and
Vice
President
–
Finance
since
2007
Prior to joining Ensign, Ms. Snapper spent 10 years as a senior manager at KPMG
LLP, where her practice included providing audit services for public
companies in the technology, transportation and quick serve restaurant
industries Ms. Snapper is a certified public accountant
Ensign has a unique operating structure and quality employees down
to the facility level |
 CareTrust
Will Establish Itself With a Solid Foundation
of
Quality
Seniors
Housing
Assets
14
Strong
Underlying
Portfolio
High-quality initial tenant with an industry-leading management team
Well-maintained real estate assets spread across diverse geographies
Differentiated
Growth Strategy
Ability to pursue acquisitions and new tenant relationships suitable for a healthcare
REIT Expects to focus on geographic expansion and tenant base and asset class
diversification Attractive
Financial Profile
Access to more and lower-cost capital
Ample liquidity at close of spin-off
Attractive ~1.85x initial rent coverage ratio
Industry Leading
Management
Retains continuity as Greg Stapley, co-founder and Executive Vice President of Ensign,
becomes President and Chief Executive Officer of CareTrust
Will benefit from management’s strong industry experience and relationship with the
primary tenant
Leverage the industry experience of Christopher Christensen, Ensign’s President and
Chief Executive Officer, who will join the Board of CareTrust for a transitional
period |
 CareTrust
Starts With a Proven Portfolio of Assets Across a Broad Geographical Footprint
15
97 owned Skilled Nursing, Assisted Living, and Independent Living facilities
with more than 10k operational beds and units across 10 states
27
97 SNFs, ALFs & ILFs (owned)
ILFs (owned & operated)`
Note:
As of November 1, 2013. |
 CareTrust
Benefits From Management’s Direct Industry Experience and Strong Tenant
Relationships 16
Gregory Stapley
President and Chief Executive Officer of CareTrust REIT, Inc.
Co-founder
and
Executive
Vice
President,
Vice
President
and
General
Counsel,
and
Secretary of The Ensign Group, Inc.
During his 14 years at Ensign, Mr. Stapley was instrumental in assembling the real
estate portfolio that will be transferred to CareTrust in the
spin-off Previously
a
Partner
at
the
Phoenix
law
firm
Jennings,
Strouss
&
Salmon
PLC,
where
his practice emphasized real estate and business transactions and government
relations |
 Master Lease
Agreement Terms 17
Lease
Structure
Five
separate
long-term
“Triple-Net”
Master
Lease
Agreements
Tenants will be responsible for maintenance, capital expenditures, property taxes, insurance
and other expenses at the leased properties
All Master Leases will be cross-defaulted and guaranteed by Ensign
Terms and
Termination
Master
Leases,
each
with
its
own
pool
of
properties
(will
have
varying
maturities
of
12
–
20
years, diversity in property geography and two or three 5-year extensions)
CareTrust consent will be required for tenants to sublease, assign, encumber, transfer or
dispose of any leased property
Rent Terms
Fixed base rent for each Master Lease (initially based on the trailing twelve months of
operating margins of the leased properties)
Years 1 and 2 annual rent expected to be approximately $59 million
Annual rent escalators, commencing in the third year of initial term, based on Consumer Price
Index (0% floor and 2.5% annual cap)
Capital
Expenditure
Tenants will be required to maintain the assets in good condition and repair
At
the
tenant’s
option,
CareTrust
will
fund
improvements
up
to
an
aggregate
of
20%
of
its
initial
investment in the property
Other
Customary financial covenants (e.g., debt, distributions, reporting, coverage ratio)
Certain rights of first offer and other consent rights |
 Expected
Transaction Mechanics and Timing 18
Ensign
will
accomplish
the
separation
by
distributing
all
of
the
outstanding
shares
of
CareTrust common stock to Ensign stockholders on a pro rata basis
Number of Ensign shares owned prior to Spin-Off will not change as a result of
the Spin-Off CareTrust will effect an earnings and profits purge shortly
after the Spin-Off Expected Timing
Action
November 2013
Announce Transaction
File Form 10 (and Information Statement) with the SEC
Q1 2014
Receive private letter ruling from the IRS
Form 10 declared effective by the SEC
Financing transactions
Distribution of CareTrust common stock to Ensign stockholders |
 19
Appendix |
 Reconciliation
of GAAP to Non-GAAP Financial Measures USD in Millions
6 mo. 6/30/13
6 mo. 6/30/12
FY 2012
FY 2011
Net income (loss)
($0.1)
$25.1
$39.8
$47.7
Net (income) loss attributable to noncontrolling interests
0.3
0.3
0.8
--
Loss from discontinued operations
1.8
0.2
--
--
Interest expense, net
6.0
5.9
12.0
13.5
Provision for income taxes
4.8
15.6
24.2
29.5
Depreciation and amortization
16.4
13.9
28.5
23.3
EBITDA
$29.2
$61.0
$105.3
$114.0
Facility
rent
–
cost
of
services
6.7
6.7
13.3
13.7
EBITDAR
$35.9
$67.7
$118.6
$127.7
EBITDA
$29.2
$61.0
$105.3
$114.0
Charges
related
to
the
U.S.
Government
inquiry
(1)
33.0
--
15.0
--
Legal costs
(2)
1.0
0.9
2.0
1.5
Settlement of class action lawsuit
(3)
0.6
2.6
2.6
--
Impairment
of
goodwill
and
other
indefinite
lived
intangibles
(4)
--
--
2.2
--
Urgent
care
center
losses
(5)
1.4
0.0
0.5
--
(Earnings)
losses
at
skilled
nursing
facility
not
at
full
operation
(6)
1.3
--
--
--
Acquisition
related
costs
(7)
0.2
0.1
0.3
0.5
Costs
incurred
to
recognize
income
tax
credits
(8)
0.1
0.2
0.6
--
Rent
related
to
non-core
business
items
above
(9)(10)
0.5
0.4
0.9
--
Adjusted EBITDA
$67.3
$65.2
$129.4
$116.0
Facility
rent
–
cost
of
services
6.7
6.7
13.3
13.7
Less:
rent
related
to
non-core
business
items
above
(9)(10)
(0.5)
(0.4)
(0.9)
--
Adjusted EBITDAR
$73.5
$71.5
$141.8
$129.7
20
1.
Estimated liability related to Ensign’s efforts to achieve a global, company-wide, resolution
of any claims connected to the U.S. Department of Justice (DOJ) investigation.
2.
Legal costs incurred in connection with the ongoing investigation into the billing and reimbursement
processes of some of Ensign’s subsidiaries being conducted by the DOJ.
3.
Settlement of a class action lawsuit regarding minimum staffing requirements in the state of
California. 4.
Impairment charges recorded at DRX, which we attribute to a decline in the estimated fair value of
redeemable noncontrolling interest. 5.
Losses incurred at newly opened urgent care centers (excluding rent, depreciation, interest and income
taxes), which are not already excluded through the net loss attributable to noncontrolling
interests. 6.
(Earnings) losses incurred at one newly constructed skilled nursing facility which began operations
during the first quarter of 2013, excluding rent, depreciation, interest and income taxes.
7.
Costs incurred to acquire an operation, which are not capitalizable.
8.
Costs incurred to recognize income tax credits which contributed to a decrease in effective tax rate.
9.
For the 6 months ended 6/30/2013 and 6/30/2012, rent related to newly opened urgent care centers and
one newly constructed skilled nursing facility which began operations during the first quarter
of 2013, not included in items (5) and (6) above. 10.
For the full years 2012 and 2011, rent related to urgent care operations, not included in item (5)
above and straight-line rent amortization at one facility, for which the Company had begun
construction activities, but had not commenced operations of a skilled nursing facility. |
 21 |