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. |
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