Ensign Group Inc (ENSG) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Ensign Group ink fourth quarter fiscal year 2013 Earnings Conference Call.

(Operator Instructions)

As a reminder, this call may be recorded. I will now introduce your host for today's conference, Chad Keetch, Executive Vice President of Ensign Group. You may begin.

Thank you, Ashley, and welcome everyone. Thank you for joining us today.

We filed our 10K and a company press release yesterday. In addition CareTrust REIT, Inc filed an amended form 10 addressing our plan to separate our healthcare business and our real estate business into two distinct publicly traded companies which we will discuss in more detail today.

All of these disclosures are available on the investor relations section of our website at www.ensigngroup.net. A replay of this call will also be available there until 5 PM Pacific on Friday, March 7, 2014.

As you know, we will always begin with a few housekeeping matters. First, any forward-looking statements made today are based on management's current expectations, assumptions and beliefs about our business, and the environment in which we operate. These statements are subject to risks and uncertainties that could cause our actual results to materially differ from those expressed or implied on the call.

Listeners should not place undue reliance on forward-looking statements and are encouraged to review our SEC filings for a more complete discussion of factors that could impact our results. Except as required by federal security laws, Ensign and its affiliates do not undertake to publicly update or revise any forward-looking statements were changes arise as a result of new information, future events, changing circumstances, or for any other reason. In addition, at any Ensign operation we may mention today is operated by a separate independent operating subsidiary that has its own management, employees, and assets.

References to the consolidated company and its assets and activities as well as the use of terms we, us, our, and similar verbiage, are not meant to imply that the Ensign Group Inc has a direct operating assets, employees or revenue, or that any of the various operations, the service center, the real estate subsidiaries, or our captive insurance subsidiaries are operated by the same entity.

Also we supplement our GAAP reporting with non-GAAP metrics. When viewed together with our GAAP results, we believe that these measures can provide a more complete understanding of our business. But they should not be relied upon to the exclusion of GAAP reports.

A GAAP to non-GAAP reconciliation is available in yesterday's press release and in the 10K. On our call today, we will be discussing Ensign's fourth quarter and 2013 year end operation results, as well as the spinoff transaction we disclosed last quarter. As a result, our call today may be a little longer than usual, and we thank you all in advance for joining us today.

And with that, I will turn over the call to Christopher Christensen our President and CEO. Christopher?

Thanks, Chad. Good morning, everyone.

We are pleased to report another record quarter with revenues of $237 million on a GAAP basis, representing a 12.6% increase over the prior year quarter. This reversal was in spite of the many challenges we faced throughout the year. Highlights for the quarter included adjusted earnings per share climbed 25% sequentially to $0.70 per share for the quarter and grew 4.5% over the prior year quarter.

Same-store skilled mix days grew by 40 basis points to 28% of revenues in the quarter. Same-store occupancy grew by 41 basis points over the prior quarter to 81.3%. Adjusted consolidated EBITDAR was $45 million an increase of 9.4% over the prior year quarter.

Consolidated revenues were up 12.6% over the prior year quarter to a record $237 million and up 9.9% to a record $904.6 million in the year. And finally, same-store revenues increased by $5.7 million or 3.4% over the prior year quarter.

While the improvements were significant, they were not quite a large enough to make up for our second and third quarter results. Some of the challenges we faced in the second and third quarter continued into the fourth quarter, including the distractions resulting from executing the strategic separation of our real estate and healthcare operations which has required significant effort from our leadership team.

The substantial costs and organizational effort associated with implementing the terms of the Corporate Integrity Agreement, which required a significant number of training hours that we were required to complete in a compressed timeframe and the short-term drag on earnings created by larger than usual start up losses at a few of our newly acquired facilities.

Despite those continuing challenges in the quarter, we were still able to achieve a record quarterly results in non-GAAP earnings. Although many of these challenges remain, our improvement demonstrates that we can do much, much better. And we expect to take the momentum we generated in the fourth quarter into 2014 and beyond.

On our current operating front, we see many positive developments and opportunities on the horizon. For example, we continue a concerted effort to move all of our facilities into the four and five star categories under CMS' is five-star rating program. We are pleased to report significant improvements in compliance and quality of care across the organization and as we always remind you compliance and quality outcomes are precursors to outstanding financial performance.

As a result of these efforts, the number of Ensign skilled nursing facility supporting four and five star ratings grew from 19% in 2009 to 57% as of the end of the fourth quarter in 2013. And remember that most of these facilities were one and two star operations at the time of acquisition.

As we indicated last quarter, since 2011, we have acquired 37 skilled nursing and assisted living operations, as well as eight home health, six hospice agencies, and nine urgent care operations. As we've often reminded you, we naturally expected temperately hit to our short-term earnings following a flurry of acquisitions. While some of these transitions have gone slower than we expected, we believe we have turned a corner with most of our transitioning operations and expect to see an improvement in our long-term organic growth and performance in 2014.

We continue to make progress on our plan to separate our healthcare business and our real estate business into two separate and independent publicly traded companies, Ensign and CareTrust REIT. This process has taken an intensive organizational effort over the past many months and as some of you will remember the last time we experienced a temporary flattening in our result was in the midst of the disruption we experienced during the quarters leading up to our IPO in 2007.

That short-term leveling in our previously consistent and steady performance ramp was followed by tremendous growth in almost every performance metric in 2008 and 2009. We also want to emphasize that our goal in the spinoff has never been to produce a one-time benefit to our shareholders but rather to create two separate platforms that can generate substantial value for shareholders of both resulting companies from many years to come.

As with the IPO in 2007, we believe the long-term value creation from the strategic transaction will more than make up for any near-term flattening. We are confident that the unique way we are structuring this will further strengthen our ability to pursue our proven operating strategy for many years to come, and leaves us in a position to repeat the same steady and consistent performance we achieved following our IPO beginning immediately.

Before we discuss a few more key operational items, I'll have Chad discuss our outlook for growth. Chad?

Thank you, Christopher.

After acquiring a 10 skilled nursing and assisted living facilities through the first three quarters of 2013, we took a much needed breather from our acquisition pace during the quarter, as we continue to digest our recent acquisitions, to implement our CIA requirements, and the work on our plan to separate our healthcare business and our real estate business.

As indicated last quarter, following the spinoff, Ensign will continue executing our existing business model and growth strategy, which will still include the purchase of real estate assets while also continuing to selectively enter into long-term leases. As those of you that have been following the Ensign story for years well know, in 2003 Ensign owned the real estate of owning five of its 41 skilled nursing and assisted living facilities, representing a real estate ownership percentage of only 12%. In the 10 years that followed, Ensign acquired the real estate in the majority of its 119 properties pushing the percentage of owned facilities in the portfolio to 81%.

Following this spin, we will be much better equipped financially and clinically that we were in 2013 to repeat this pattern. We are currently seeing an unprecedented number of very attractive acquisition opportunities and we expect to complete additional facility and real estate acquisitions before the end of the first quarter of this year.

In addition, we currently have a number of transactions lined up that would close after the spin. Several of which, if successful, include real estate that Ensign would purchase and own.

While we will always look to acquire underperforming assets, we will also continue to seek and acquire performing assets in new and existing markets. We are seeing an increased number of performing acquisition opportunities, some of them larger portfolios at attractive prices. Ensign has completed many strategic acquisition of performing assets in the past in both new and existing markets, all with very positive results.

Not only have these strategic purchases been accretive to earnings in a shorter amount of time then in an opportunistic setting, we also believe that there are many things that we have learned and can continue to learn from other quality operators as we seek to become the best healthcare providers in all our markets. In our last call, we discussed our newly developed Sloans Lake Rehabilitation and Care Center; a 42-bed, all private, Medicare skilled nursing facility located just west of downtown Denver Colorado. The success of this new project has enhance our desire to pursue other all skill facilities that will add another service offering in several of our markets.

We also learned some lessons in the process; including the fact that we are healthcare operators and not developers. As a result, we are in the process of creating strategic alliances with a carefully selected top-notch developer that will allow us to develop and operate resort quality healthcare facilities that are carefully designed to cater to the evolving demands of the growing population of baby boomers, providing yet another lever we can pull in the near future.

While we are in the early stages of this process, we expect to open our first facility with our strategic partner as soon as this year with more to follow in 2015. Lastly, our urgent care centers, Immediate Clinic, continue to open start up centers and to look for existing urgent care clinics in what we believe to be and underserved market for retail urgent care centers. To date, we have opened inquiry nine urgent care clinics, all on the greater Seattle market with three more locations currently build out.

And with that, I'll hand it back to Christopher.

Thanks, Chad.

As I've mentioned in previous calls our consistent success is achieved through the aggregate effect of dozens of small victories across the organization. Similarly our relatively flat performance in 2013 has resulted from a number of small challenges rather than any one factor.

However, the tireless efforts of our outstanding field leaders began to bear fruit in the fourth quarter and due to our collective efforts that gives us great confidence that we can continue to overcome these challenges in 2014. First, in recognition of our deep-rooted believe that compliance and quality outcomes are precursors to outstanding financial performance, we continue to concerted effort to move all of our facilities into the four and five star categories under CMS Five Star rating program.

Second, the influence of the ACOs and managed care organizations are expanding into several of our markets. Our local leaders have added a number of top-notch business development experts to take a more comprehensive and multi market business development approach with our acute-care partners in each of our markets. These efforts, together with our clinical and regulatory improvements, will continue to drive future increases in occupancy and skilled mix.

As we see a shift from traditional Medicare patient to manage care, we have focus heavily on an effort to enhance our managed care admissions and our managed care contracting team. As many of you know, we have been operating under Arizona's Medicaid Managed Care program for several years with great success. And we are rolling out a comfortable approach in several other states, including the expected change to a similar program in Texas.

This quarter we are pleased to report that our same-store managed-care days were up 417 basis points and same-store managed care revenue was up over 405 basis points as compared to the prior year quarter. As we've said many times before, we value these managed care relationships and we plan to continue growing this business as we seek to grow our skilled mix.

We are also pleased to report that our budding home health hospice and urgent care businesses are also beginning to mature and we expect our investments to start producing significant returns in 2014. While we experienced some challenges in our home health and hospice collections in the past, we've made improvement in 2013 and believe that our steady efforts to establish these new services as well as programs -- excuse me, as well as progress in our transition and newly acquired operations are beginning to pay off, and that we will see dramatic improvements in these operations in 2014 and beyond.

As we discussed the last quarter, we have substantial organic upside within the company's existing portfolio. We started to see growth in our 42 transitioning and newly acquired facilities with an increase of 58 basis points in our transitioning and newly acquired facilities to 71.1% and an increase of 120 basis points at our newly acquired facilities to 65.7%. That's compared to the third quarter.

These improvements together with the 41 basis point climb in same-store occupancy to 81.3% grew sequential consolidated occupancy to 78%. While several of our transitioning facilities have been much slower to show the improvements then we expect, we have redoubled our efforts to ensure more effective transition process and have begun to see improvements in the fourth quarter and we are confident that the trend will continue into 2014.

All of these things and others combined to impacted the quarter, but in each case we see both short-term improvements and long-term opportunities in the future. Some facilities have already started seeing positive results from these efforts. I'll just mention three examples and we believe that there are many, many others.

At St. Joseph's Villa in Salt Lake City Utah, Executive Director, Brad Alderson, along with Director of Nursing, Shay Pickett, have grown their sub acute skilled nursing services and expanded their acute behavioral unit called the Merrion Center. These changes have truly transformed their facilities into one of the most respected healthcare institutions in the greater Salt Lake area. As a result St. Joseph's skilled days mix and their SNF are up 267 basis points, and the revenue is up more than 16%. The combined EBIT of SNF and Merrion center is up 63%.

At Arbor Glen Care Center in Glendora California, Executive Director Steve Powell with Director of Nursing and COO, Evangeline Caroso, have aggressively leveraged their impeccable survey record and outstanding customer service radius to become a beacon for the community. Qualitatively they have fought for special focus facility status to CMS' highest five star rating to become the facility of choice in that market in the short span of two years. This has translated into an increase in their skilled mix revenue which is up 310 basis points to over 60%. There total revenue is up almost 23% and their EBIT has jumped almost 101% over the same quarter in 2012.

Finally, at Park Manor Rehab Center in Walla Walla Washington, Executive Director, Serge Newberry, and Director of Nursing, Julie Loose, have cemented their operation as the clear facility of choice in that competitive market. The leadership team at Park Manor has responded to the Walla Walla community by introducing a much needed aqua therapy program and industrial medicine outpatient program. These efforts have resulted in an increase in skill mixed revenue of 240 basis points and an increase in occupancy of 814 basis points.

In summary, we continue to have many levers we can pull as we continue making the improvements necessary to resume our ramp in 2014. We hope that you will see, as we do, the clear path to success that lies ahead. And why we remain enthusiastic about our future and our prospects for Ensgn's continued growth and performance.

With that I'll hand it to Suzanne to provide more detail on the company's financial performance.

Thank you, Christopher, and good morning everyone.

Detailed financials for the year and fourth-quarter are contained in our 10K and press release filed yesterday. Highlights for the quarter ended December 31, 2013 as compared to the quarter ended December 31, 2012 include record quarter revenue at $237 million on a GAAP basis, or 12.6% increase.

Same-store overall revenue increased $5.7 million or 3.4%. Same-store skilled mix days increase to 40 basis points to 28%. Same-store occupancy increased 41 basis points to 81.3%. Which resulted in an overall record quarter on a non-GAAP basis of $0.70. As for the other key data point at December 31, cash and cash equivalents were $65.8 million and net cash from operations was $35.7 million. As always we provide a reconciliation of GAAP to non-GAAP results in yesterday's release.

We have seen many reasons to be positive about 2014. Accordingly our annual guidance is $1.01 billion to $1.025 billion in revenue, with $2.74 to $2.81 in diluted adjusted earnings per share. These projections are based on diluted weighted average shares common shares outstanding at approximately 22.7 million.

Acquisitions anticipated to be closed by the end of the second quarter, exclusion of acquisition related costs and amortization costs related to the intangible assets declared, exclusion of start of losses at newly created operations, exclusion of expenses related to the separation of the healthcare and real estate businesses, tax rate at our historical average of approximately 38.5%, including anticipated Medicaid reimbursement rate increases net of the provider tax, and excluding the impact of the spend transaction.

We also anticipate that we'll be updating our earnings per share guidance following this spend transaction but revenue guidance will not be materially affected. In giving these numbers I'd like to remind you again that our business can be lumpy from quarter to quarter.

This is largely attributable to variations in reimbursement systems, delays and changes in state budgets, the seasonality and occupancy (inaudible), the influence of the general economy on census and staffing, the short-term impact of our acquisition activities and other factors.

We'd be happy to enter any specific questions you have later on the call and now I'll turn it back over to Christopher. Christopher?

Thanks, Suzanne.

We like to spend additional few minutes to give you an update on our plan to separate our healthcare business and our real estate business into two separate publicly traded companies. Before I turn the call over to Gregg Stapley who will served as CEO for CareTrust REIT, I want to just emphasize a few points.

First we want to be clear that our first and pressing priority from the beginning of our discussions has been to ensure that when the dust settles, the separation would result in two very healthy companies that will generate long-term value to our shareholders. This priority has been our guiding principle throughout this process.

We also want to emphasize that our goal in the spinoff has never been to produce a one-time benefit to our shareholders, but rather to create a second separate platform which, with the very strong when we already have in place, will generate enormous value for shareholders of both resulting companies for many years to come.

Unlike other transactions that have occurred in our industry, which on their surface may seem a similar, we believe that this is the first time where a spinoff has been done in a tax-free manner and were the operator and the real estate company were both left with healthy balance sheets and plenty of runway for both near-term and long-term growth. We have taken great care in structuring a transaction that would safeguard our ability to provide the highest quality healthcare services, while also finding a way to use the tremendous value we have created in our real estate to further benefit our partners and shareholders over time. And remember, we have a much better balance sheet in each organization then we had in 2003 when we did the same thing.

In addition to continuing our same growth strategy Ensign expects to benefit from CareTrust's ability to close on larger portfolio transactions that historically have been difficult for Ensign to pursue. In contrast, CareTrust will have the flexibility to carry the Ensign banner into many new geographies without facing the operational considerations with which Ensign is confronted is a healthcare operator. For example, CareTrust will be able to partner with multiple operators, including Ensign to pursue larger portfolio transactions. As a result, we expect this new platform to help us acquire facilities that we may not been have been able to pursue as one company.

These are just highlight, and only a few of many of the reasons that we've decided to pursue this transaction. We're excited for the opportunity we will have to add an additional platform to extend Ensign's mission of dignified long-term care in the eyes of the world.

And with that I'll turn the time over to Gregg to provide a more detailed update and to add some more details of the transaction from the real estate companies perspective. Greg?

Thanks, Christopher, and high everyone.

Since the filing of our form 10 back in November, we've made tremendous progress toward bringing the spin and creation of CareTrust to fruition.

Yesterday we filed an updated draft of our form 10 with the SEC. They include additional carve out information -- it includes additional information about the transaction as well as pro forma financial information based on Q3 2013 carve out financials for the property business. We expect to update the pro forma financials again with Q4 numbers in the next draft.

Please remember that the pro forma financials are only an accounting method of presenting carve out historical financials and not a projection of what will happen in the future.

For more useful data, including a better look at CareTrust's current post spin projections, you will find forecasted rental revenues, G& A expense, interest expense, and other forward-looking information in the MD&A section starting, at approximately page 70 of the revised form 10. Although the form 10 contains a few blanks, we believe that the revisions made to date are generally responsive to the SEC's comments to our original filing. And they should significantly advanced the ball. I'd refer you to the revised form 10 for the updates in a more complete description of the composed transaction.

In addition, we are pleased to report that one of the key gating items for the spin the issuance of IRS private letter ruling appears to be imminent. The PLR contains the basic rulings we need from the IRS to proceed with the assurance that we'll be able to exercise the spin on a tax-free basis of our shareholders. We received a faxed copy of the ruling from the IRS yesterday. But it's not official until we see the actual hard copy in the mail. However, this is a very positive development.

This is one of several significant hurdles we needed to clear before the spin and we are pleased to have it almost behind us. We have also tentatively finalized the post spin capital structure for CareTurst and Ensign. The new structure leads, as Christopher said, Ensign healthy and able to execute its business model without interruption and simultaneously gives CareTrust sufficient assets and capital availability to get off to a good start.

Among other things, it includes a $260 million bond issue revolving credit facilities for each of Ensign and CareTrust in the face amount of $150 million each, and a $50 million loan commitment from one of our long-term lending partners who will be instrumental for the capitalization of the REIT. You can find information on the REIT's initial capitalization in the form 10 and MD&A, as well.

Perhaps more importantly and we're really excited about this, we've successfully on-boated Bill Wagner as the new CFO for the REIT. Bill has long and deep experience in REITs in general and healthcare REITs in particular, as his resume includes significant experian at Ernst and Young Kenneth Leventhal, also at Sunstone Hotels, a lodging REIT, and at Nationwide Health Properties, the $7 billion healthcare REIT, acquired by Ventas in 2011.

Bill is here today. We are excited to have him on the team and he has already adding tremendous value daily. We have also committed two of the three independent board members to serve on CareTrust Board of Directors. Dave Lindahl is Managing Director of HPSI, a well-known a GPO serving healthcare and institutional clients nationwide. And Gary Sabin is the Chairman and CEO of Excel Trust, a very successful retail and office REIT based in San Diego.

Both have much to contribute and we're excited that these expensed an outstanding business leaders have signed on to join us in this endeavor. In addition we are pleased to report that several other highly qualified candidates have expressed interest in being a part of CareTrust and we look forward to completing the board roster very soon.

We would remind you that the capitalization, the grant, and everything else we've done to structure this transaction has almost nothing to do with the actual fair value of the assets and everything to do with our plan and intent to create two healthy platforms for growth. In addition, it has almost nothing to do with any incidental value inherent in the spin itself and again, everything to do with a far greater value we see on the horizon as CareTrust and Ensign both grow and thrive and return value to shareholders over the long haul.

In that vein, we also remind you that CareTrust, that it's biggest advantage will be are healthfully landlord-tenant relationship with Ensign. Ensign is one of the industry's premier operating companies and a true trophy tenant. As I have said before, both CareTrust will be completely independent and will not be Ensign financing arm as some have assumed. We believe that our Ensign pedigreed together with Ensign strong track record of operating performance in critical excellence will provide CareTrust with a solid a multifaceted foundation on which to build into the future.

So with respect to this spin, there are many details yet to be addressed. We currently project that the time of the actual spin-off will slip slightly from our previously announced end of Q1 target into the early part of Q2. But that said, we think were starting to see the light at the end of the tunnel and remain firmly committed to getting there.

Finally, just as a personal note, it appears that this will be my last earnings call here at Ensign before the spin-off. And though I can't really do it justice here in a brief earnings call, I just want to say what a pleasure and honor it has been to work with my colleagues here at Ensign. Many of you know that I handed off my General Counsel role to Bev Witterkind a few years ago, and as expected she's done a terrific job.

I also have another great successor in Chad Keetch who is now stepping into the industry relations, acquisition and investor relations roles I've filled here. In both cases I leave these functions in stronger hands than they been in. And I am confident that both Bev and Chad will serve the company its partners and shareholders as well as -- actually better than I have.

In addition, I also want to mention how much I've enjoyed interacting with the many analysts and investors we've been privileged to have follow us here at Ensign. These interactions have been tremendously rewarding for me and I hope that you will all continue to follow and invest in CareTrust and Ensign, and that my association with each of you will continue.

And with that I'll turn the call back to Christopher.

Thanks Greg. This isn't really goodbye to Gregg.

I mean will obviously be working together in two separate companies for many years to come. And I'm sure he'll hear a lot of this outside the public forum. But he knows how grateful we all have been to him for what he's done here over the last 14 and a half years, since 1999, and will miss his daily influence even though we'll be working very closely together and are grateful for all he's done to help us achieve what we've achieved here at Ensign.

With that, I'll turn the time or the call over to Ashley and ask you to initiate the question and answer session.

(Operator Instructions)

Kevin Campbell, Avondale Partners.

Good morning. And Greg, I want to say I enjoyed working with you and following you over the years, too. So hopefully will stay in touch with CareTrust.

Thanks, Kevin. Look forward to it.

Yes. I wanted to talk, actually -- and I don't know if you're able to talk about this with the spin-off -- but I'm curious about your thoughts on CareTrust and the outlook for growth.

How should we think about that relative to Ensign's current projections for 2013 versus 2014? Is there any way -- should we think about those being fairly comparable? Or is the FFO numbers that you've given in the Form 10 for 2012 -- should we expect similar numbers out of the gate for CTRE?

I'm glad you asked that question, Kevin.

The FFO numbers and things that you looked at were the historicals that you see in there are just -- I don't know how to put this except that they don't have any bearing to reality.

You're basically taking a business that's sort of fits inside a business, and carving it out. And in terms of where that business will go in the future, the historical ramps that we've allocated over to the property business -- I won't call it the REIT, because it is not yet -- but will be allocated over the property business versus the rent property business we'll start with out of the gate, are completely different.

So you really -- starting from that point you really can't go anywhere in terms of FFO. So no. Don't use 2012 numbers for anything. You're really going to have to dig into the MD&A and sort of look at the projected rent, the projected expenses, and those things, to come up with your own model for this.

In terms of how much we can grow in the future? That's anybody's guess.

You know here at Ensign we've been very contrarian. When the market has been frothy, as it is in some sectors right now, we've sat on the sidelines and just worked on organic growth. The REIT doesn't have the same organic growth levers that the operating Company has.

And so if we elect to sit on the sidelines -- and we are perfectly willing to do that if we think pricing is off in the marketplace -- we just might not grow for while. And then there will be spurts where we absolutely do, just as we have at Ensign.

If you want to put a box around it, I will tell you that here at Ensign, if you look at our acquisition history, two things are important in my mind. First, for every deal we do here, 12, 15, 20 deals are turned away. So we see lots and lots and lots of opportunities and we expect that we will see lots and lots of opportunities at the REIT.

Second, I would remind you that, historically, if you look at Ensign over the past six or seven years, we actually had a range in between about $30 million and $115 million, $120 million a year. And acquisitions averaged about $58 million, $60 million a year. And out of the gate, from what really amounts to a standing start, I would hope that we could achieve at least the average within the first 12 to 18 months.

Beyond that, a lot depends on the market. A lot depends on rates. But we see a big future for the REIT.

Great.

And have any of the terms of the leases that you had proposed three months ago when we first started talking about this, in terms of the length of them and cost-of-living adjustments and things like that -- has any of that changed from what you guys were looking at three months ago to where you are today?

Yes. The basic terms of the leases have not changed. But the thing that may change, and this is not done yet so we don't have numbers in the Form 10. We had originally projected that we would have five leases, five master leases.

It looks like there may be more when the smoke clears, as we sort these out by age of building and geography and some other criteria that we've got to sit down and dig through to make sure that everything lines up and works correctly. But beyond that, the leases are basically the same.

Yes. I would say, if you're looking for projected revenues, what we've previously disclosed is pretty consistent. And that's one of the reasons why you can't use those accounting pro formas; because the accounting pro forma is only the revenue line item -- only includes buildings that were in at that point in time. And so it doesn't give you a full year of data.

And so that's why Greg pointed you to the MD&A to really look at what the projections of the REIT will be.

Okay. And if I recall, the terms of the leases were 12 to 20 years and the renewal options were at Ensign's options. Is that still the case or has any of that change?

No. That is the same.

Okay. That's great. And Suzanne, maybe you could talk about guidance. You guys chose for this time to include some acquisitions in guidance, where historically I think you haven't.

I think that's what drove the revenue upside versus what we were modeling. But can you, A, talk about your decision to do that; and then, B, does that really have a meaningful impact on the bottom line? Because a lot of the times, acquisitions you are acquiring are underperforming facilities. So is it -- a future on the bottom line and just beneficial on the top?

Yes. That's a good question.

I will tell you this is a much more difficult year to provide guidance because of the spin and because we didn't know exactly the timing of the spin even though we feel like we have a pretty good idea within 30 days or so.

So the answer to the second part of your question is, you are right; not much of an impact on our earnings. With the new acquisitions, in some ways I wish maybe we left them out. The reason we included them is because there are two or three that we think will close rather early in the year. And we thought that since you already know about them we should include them in the guidance.

But in the end, the numbers from those acquisitions are not significant. And, so as I said, I wish I hadn't said that and announcing the earnings. But felt that because we knew -- we felt that they were going to happen, that we ought to include them.

Yes. And I'll just sort of add that we are in a little bit of a unique spot this time, because some of these deals probably would've closed but for the spin and they're waiting for the transaction to be consummated. So that adds an additional level of certainty.

But I think your point, Kevin, is exactly on point on the EPS side of it.

One other question -- I think the Form 10 had pro forma balance sheets, so you can look at the debt and cash for CTRE. But do we have the same numbers for Ensign pro forma for the spin?

So they're actually pro forma P&L in there as well for Ensign, so it has both. It goes through CareTrust and then it goes through Ensign, but it just carves out depreciation and interest on the Ensign side.

Okay. Great. I'll keep digging. And then last question.

These acquisitions that are in guidance -- are those likely to be part of CTRE? That the ownership of the facilities, or as you mentioned some deals going forward could be owned by Ensign?

No. These would all be Ensign.

Okay. Great.

All right. That's all I have; thank you very much.

Thanks, Kevin.

Rob Mains, Stifel.

Thanks. Good morning.

To build on the last question, how do delineate between the type of asset that you would see Ensign owning versus one that CareTrust owns and would then leads to Ensign going forward?

The short answer is, if Ensign can do it, Ensign will do it.

I think the transactions you'll see CareTrust do with -- obviously this could change -- but the transactions you see CTR do or CareTrust REIT do with Ensign would be generally transactions we are not able to do ourselves, or transactions we don't want to -- we're not interested in operating the entire portfolio.

So in that case, CareTrust would buy all of the real estate and find another operator to operate the facilities that we don't feel capable of operating, maybe because of a geographical concern or some other concern.

But Ensign is going to continue to do what it's done in the past. So we know there won't be any -- Well, gosh, we could do this acquisition but maybe we should throw it over to CareTrust. There won't be much of that.

Rob, it's Greg.

I was just going to add -- in terms of the ones that are in the pipeline right now, basically it's just a matter of -- anytime you are in an IPO-type situation, the counsel is that the Company needs to stand still. And because we are auditing -- doing these carve-out financial audits quarter by quarter -- and you saw we don't have Q4 in yet. We just got to not -- we have to put a box around which facilities were going to come over and leave it there.

So we said -- I think we said last November that anything that was to be acquired after that was going to stay with Ensign

Okay. Am I simplifying too much to say that it sounds to me, going forward the assets that Ensign would've owned before this was announced; you'll continue to own. And it sounds like the ones that CareTrust would buy and lease to Ensign would be ones that you probably wouldn't have been involved with in the past.

So on the margin this creates more of a pipeline of operating assets for Ensign? Or am I reading too much into it?

That is exactly right.

Okay.

I got a numbers question for Suzanne, and then maybe looking -- I'm probably missing something that's really simplistic. But if I look at Q3 to Q4, both consolidated and to same-store, the skilled mix was on a consolidated basis, flat; was up a little bit same-store for days, but it was down for revenues. And I know it you've got rate increases sequentially.

How is the math working out that the skilled mix deteriorates?

Yes. So it's a shift from Medicare to managed care, which then creates your days to still go up, but then your revenue to go down.

Okay. And then just one question -- (multiple speakers)

That's really helpful.

And then one follow-up, specifically about the managed-care payers. As you know, there's been a lot of grumbling in the industry about length of stay compression with managed care. What are you seeing on Medicare versus managed care, length of stay in terms of, is one of them moving down faster than the other?

Yes. Look. There's no question that managed-care days are generally shorter.

But our managed-care stays -- excuse me not days. But I'll also tell you that there are two things that I don't hear talked about too much.

One -- even though our managed-care rates are generally lower than our Medicare rates, oftentimes our costs are also lower. Or there are contracts wherein the managed-care organization absorbs some of the cost that we generally are responsible for with a typical Medicare resident.

So even though the days -- that's one of the cool things is that in our skilled days are increasing, even though the length of stay is decreasing; which means that we're having more admissions than ever before. And I think bodes well for our future as we continue to embrace those managed-care relationships.

Okay. I'm sorry, but I have one follow-up to that, because that answer made me think of another question.

You said the cost can be lower. Can you do things like concurrent group therapies in the managed-care setting that it doesn't pay to do in traditional fee-for-service?

No. I probably -- I didn't give you a long enough to answer on that. There are carve-outs though, for instance.

We follow the same guidelines with our Medicare Advantage plan residents as we do Medicare residents. But there are other things that sometimes managed-care contracts agree to pay for that we are responsible for with Medicare residents.

Okay.

Specialty equipment, or sometimes even excess therapy sometimes is excluded; and other things like that.

Got it.

Certain medications that are outside the norm, and we would be responsible for that with a typical -- with every Medicare resident.

Fair enough. That's all I had. Thank you.

Ryan Halsted, Wells Fargo.

Thanks. Good morning.

I guess as it relates to Ensign post-spin, you've mentioned you are evaluating opportunities to acquire larger, higher-performing assets. Is the thought that, going forward there is a unique opportunity to be a consolidator of the market? Or is there still a strategy there where you feel Ensign can drive some growth in terms of driving skill mix and what you've been doing historically?

Yes. You know it's a good question.

I think we have created maybe the misunderstanding that we are just turnaround acquirers. And I think we're turnaround acquirers when performing asset valuations get above the place that we feel comfortable acquiring.

One of the reasons that we've mentioned that in this call is because we are seeing better -- at least better for buyers -- better valuations or lower valuations on performing assets in certain markets. And we'd like to take advantage of that opportunity as long as it's open for us. And we feel pretty confident that we'll be able to do that this year with what we see.

Okay. That's helpful.

As far as guidance, going back to the growth, you mentioned acquisitions. How about as far as the recently acquired and the integrated portion of your portfolio, as well as the home health, hospice, urgent care -- any sense of what percentage of growth or what proportion of the growth you are expecting from those?

That is a good question. I don't know that I have the answer for that.

I will tell you that the urgent care and home health and hospice will grow at a more rapid pace. But obviously they represent a much smaller portion of our overall business. But they will outpace skilled nursing and assisted living in terms of percentage growth by a pretty significant margin.

Okay.

On EBITDA, I know you mentioned the startup costs that you could expect from some of the newer deals. Is there any other cost headwinds that you would point out? Anything incremental from the Corporate Integrity Agreement? Can you just remind us how much incremental you are expecting in 2014? And is that expected to increase over time? Or is it pretty much a straight line from here?

Yes. That's another good question.

I think that we would anticipate -- and part of this is related to our growth and part of it's related to some lessons that we learned. I would anticipate that we would grow by another million or two in 2014 over 2013.

And that's mostly because of changes we made throughout the year in 2013 that weren't there for the entire year. So that's the big difference between 2014 and 2013.

Okay.

And then lastly, you talked about -- some of the development opportunities, the all-skilled development opportunities -- which sounds interesting. How much capital would be required from Ensign on a typical project like this? And how do these compare from a margin profile with what you've been operating up to this point?

Yes. So this would require zero front-end capital other than the cash flow hit that you take while you are starting to fill the beds and getting your Medicare certification process completed. But these would be lease-type transactions, where the rent doesn't commence until the project is completed.

So on a per project basis, Ryan, you're probably talking about three-quarters of a million we've probably absorbed in loss for each operation before we turn the corner. In a great case it could be less than that, and in an awful case it could be a little more; but that is probably the average.

Okay. And how about a sense of just how many of these opportunities you are looking at right now?

Well, as I mentioned, we have one that we expect to start in 2014, and four or five after that.

All right. Great. Thank you.

Dana Hambly, Stephens.

Hello. Thank you. Good morning.

On the revenue -- it was a good deal higher than I think anyone was looking for, and I think you said it was insignificant. Would you break out exactly how much acquired revenue that is yet to close is included in the guidance?

Are you talking about how much is attributed to the acquisitions?

Yes. Yet to close -- that you think you'll be closing here in the next couple of months.

So I think I would assign -- in terms of revenue -- annualized revenue?

Right.

Is that what you are asking?

Yes. I'm just trying to get a sense -- it was a good deal higher than what anyone was looking for -- I appreciate that probably not much of an impact on EPS, but just trying to fetch out what kind of the core growth is.

These are obviously going to be late in the year, so you can't -- if I were to say what the impact is for the remainder of the year from the acquisitions that we feel confident we are going to close, obviously there will be a whole lot more. We are probably talking about $20 million to $25 million.

Okay. Very helpful. Thanks.

Maybe could you talk about some of the core drivers? What's going to drive this double-digit growth? What are you looking for in occupancy, skilled mix? I think you've given a good idea on what pricing should look like this year.

We expect to revert back to the way we've been for many years. And we be disappointed if we didn't grow by a couple hundred basis points in overall occupancy. And we be disappointed if we didn't grow by about the same number in skilled mix. Although we used two different numbers, so I guess I should clarify -- 200 basis points in days.

Okay. That's helpful.

And I was curious -- I heard you talk about acquiring or looking at more performing assets then we talked about in the past. And I think in the past a reason you would shy away is, it's too competitive; pricing is too expensive for your tastes. Obviously, that's changed a little bit. Care to venture a guess why that has changed?

Well, I'm glad you asked the question that way.

It would be completely a guess, but it seems like a lot of the larger acquirers are either leaving our market or aren't as interested as they've been in the past in performing assets. And so we are not seeing as much competition -- at least for some of the things that we're looking at.

I'll also tell you, in a couple of cases -- and these aren't the ones that we are talking about in our numbers -- but we are seeing some medium-sized operators that have come to us and who deeply care about their operations and they're not putting them out to bid.

And I hope I don't jinx it by saying this, but we want to pay them a fair price; but if we don't have to go into this crazy bidding market, and we can pay a fair price and take care of these operations the way they would want us to, or they been for 20, 30, 40 years -- we've seen a couple of those lately.

So I guess credit the operators out in the field that have built up a trusting relationship with their competitors.

Okay. Thank you.

And then just final one for me -- historically you've maintained a very low leverage on the balance sheet. Would you -- coming out of the gate, you've been out of the market for a while. Would you be willing to take the leverage up for the right deals? Maybe go four or five times?

Five would be high. I think, for the right -- I don't know if I'd say a number, Dana -- but for the right opportunity, if we could see a path to get back to a number we are more comfortable with quickly, I think we'd do it. But we'd have to see a pretty quick path to getting back there.

Okay. Great. Thank you.

I'm not showing any further questions in queue; I'd like to turn the call back over to Christopher for any further remarks.

Well, thank you, Ashley. Appreciate your help on the call and appreciate everybody's time. And again, as always, we appreciate your trust in us and appreciate the effort that the analysts make in reviewing our financials and our performance and helping others to understand who we are trying to be.

But thank you for your time on this call.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may now disconnect. Everyone have a great day.