Post-Ensign Spinoff, Pennant Faces Senior Housing Headwinds

In its first full quarter as a publicly traded entity, The Pennant Group (Nasdaq: PNTG) posted strong revenues in both of its service segments. But its senior housing portfolio lagged slightly due to transitional headwinds and the Eagle, Idaho-based company will spend 2020 on assisting its operating partners in unlocking the revenue potential of the portfolio, its executives said Thursday.

Pennant Group, which spun off from Mission Viejo, California-based The Ensign Group (Nasdaq: ENSG) last year, has a blended portfolio of 50 senior housing communities and 60 home health and hospice agencies.

“We see a lot of opportunity for improvement in our senior housing portfolio. And so we don’t expect a lot of capital to be going toward senior housing this year,” Pennant Group CEO Danny Walker said during the company’s Q4 2019 earnings call on Thursday.

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Pennant reported full-year 2019 revenues of $338.5 million, an 18.3% increase year-over-year, when its assets were part of The Ensign Group. Fourth quarter revenues totaled $89.5 million, a 18.8% improvement over Q4 2018.

Pennant’s home health and hospice segment drove performance with $206.6 million in revenue, a 22.2% increase over the previous year. Quarterly revenues totaled $55.1 million — a 24.7% jump.

Senior housing revenues improved 12.7% in 2019 to $131.9 million, while Q4 revenues totaled $34.4 million, a 10.3% year-over-year. Pennant also saw a 70 basis point improvement in senior housing occupancy, to 80.2% for the full year and 81.1% in the fourth quarter, and revenue per occupied room (RevPOR) improved 2.5% over 2018.

Despite the positive numbers, Pennant’s senior living margins declined more than 600 basis points to 33.9%, based on transition-related headwinds, RBC Capital Markets Analysts Frank Morgan, Ben Hendrix and Anton Hie wrote in a note to investors.

Walker acknowledged that there is still work to do, post spin off, to give operators the necessary tools to drive revenue, as well as complete the operational transition from from Ensign to Pennant.

“We’ve had to realign each of those segments related to how they cluster. We continued to have some challenges related to just getting everybody settled in with their new cluster partners and leadership,” he said.

Pennant made no changes to its 2020 guidance. Total revenue is anticipated to be in the range of $376 million to $386 million, the midpoint of which represents an increase of 12.5% over the midpoint of its full-year 2019 revenue.

The company also said it would remain disciplined with its acquisition opportunities, but Walker indicated that any capital being deployed would be on the home health and hospice side.

“We continue to be very, very focused on helping our senior living team transition effectively and realize the potential that exists in the portfolio,” he said.

Pennant Group stock ended trading Thursday down 8%, to $25.76 per share.

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