The Ensign Group, Inc. (ENSG) Q4 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to The Ensign Group, Inc. Fourth Quarter Fiscal Year 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this call may be recorded. I'll 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 10-K and accompanying 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 2 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 5:00 p.m. 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. Expect -- except as required by federal securities laws, Ensign and its affiliates do not undertake to publicly update or revise any forward-looking statements where changes arise as a result of new information, future events, changing circumstances or for any other reason. In addition, as 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 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 10-K. 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're 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 from 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 year quarter to 81.3%; adjusted consolidated EBITDAR was $40.5 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 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; a substantial cost 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 time frame; and the short-term drag on our 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 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 the concerted effort to move all of our facilities into the 4- and 5-star categories under CMS' 5-star rating program. We're 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 facilities sporting 4- and 5-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 1- and 2-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 8 home health, 6 hospice agencies and 9 urgent care operations. As we've often reminded you, we naturally expect a temporary 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 2 separate and independent publicly traded companies: Ensign and CareTrust REIT. This process has taken 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 results 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 onetime benefit to our shareholders, but rather to create 2 separate platforms that can generate substantial value for shareholders of both resulting companies for many years to come. As with the IPO in 2007, we believe the long-term value creation from this 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 10 skilled nursing and assisted living facilities through the first 3 quarters of 2013, we took a much needed breather from our acquisition pace during the quarter as we continued to digest our recent acquisitions, to implement our CIA requirements and to 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 though of you that have been following the Ensign story for years well know, in 2003, Ensign owned the real estate of only 5 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 a majority of its 119 properties, pushing the percentage of owned facilities in the portfolio to 81%. Following the spin, we'll be we will be much better equipped financially and clinically [ph] than we were in 2003 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 acquisitions 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 than 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 Sloan Lake's 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 enhanced our desire to pursue other all-skilled facilities that will add another service offering in several of our markets. We also learned some lessons in that 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 an underserved market for retail urgent care centers. To date, we've opened and acquired 9 urgent care clinics, all in the Greater Seattle market, with 3 more locations currently built out. And with that, I'll hand it back to Christopher.

Thanks, Chad. As we've mentioned in previous calls, our consistent success is achieved through the aggregate effects 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 belief that compliance and quality outcomes are precursors to outstanding financial performance, we've continued our concerted effort to move all of our facilities into the 4- and 5-star categories under CMS' 5-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 skill mix. As we see a shift from traditional Medicare patients to managed care, we have focused 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 comparable 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're 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 improvements 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 transitioning 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've 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%, as 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 that we expect, we have redoubled our efforts to ensure a more effective transition process and have begun to see improvements in the fourth quarter, and we're confident that the trend will continue into 2014. All of these things and others combined to impact 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 3 examples, and we believe that there are many, many others. At St. Joseph Villa in Salt Lake City, Utah, Executive Director, Ben Ovricson [ph], along with Director of Nursing Shea Picket [ph], have grown there subacute skilled nursing services and expanded their acute behavioral unit called the Marian Center. These changes have truly transformed their facility into one of the most respected healthcare institutions in the Greater Salt Lake area. As a result, St. Joseph's skilled days mix in their SNF are up 267 basis points, and their revenue is up more than 16%. The combined EBIT of the SNF and Marian Center is up 63%. At Arbor Glen Care Center in Glendora, California, Executive Director Steve Powell [ph], with Director of Nursing and COO Evangeline Caroza [ph], have aggressively leveraged their impeccable survey record and outstanding customer service ratings to become a beacon for the community. Qualitatively, they have fought for Special Focus Facility status, the CMS' highest 5-star rating, to become the facility of choice in that market in a short span of 2 years. This has translated into an increase in their skill mix revenue, which was up 310 basis points over 60%. Their total revenue was 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 Luce 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 an industrial medicine outpatient program. These efforts have resulted in an increase in skill mix 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 Ensign's continued growth and performance. With that, I'll hand it to Suzanne to provide more detail on the company's financial performance. Suzanne?

Thank you, Christopher, and good morning, everyone. Detailed financials for the year and fourth quarter are contained in our 10 K 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 a 12.6% increase; same-store overall revenue increased $5.7 million or 3.4%; same-store skilled mix days increased 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 points 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 revenues, with $2.74 to $2.81 in diluted adjusted earnings per share. These projections are based on diluted weighted average share -- 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 acquired, exclusion of start-up 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 spin transactions. We often anticipate that we'll be updating our earnings per share guidance following the spin transaction. The 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 on skill mix, the influence of the general economy on our census and staffing, the short-term impacts of our acquisition activities and other factors. We'd be happy to answer any specific questions you may have later in the call. And now I'll turn it back over to Christopher. Christopher?

Thanks, Suzanne. We'd like to spend an additional few minutes to give you an update on our plan to separate our healthcare business and our real estate business into 2 separate publicly traded companies. Before I turn the time over to Greg Stapley, who will serve as the CEO for CareTrust REIT, I want to just emphasize a few points. First, we want to be clear that our first and most pressing priority from the beginning of our discussions has been to ensure that, when the dust settles, the separation would result in 2 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 onetime benefit to our shareholders, but rather to create a second separate platform which, with the very strong one we already have in place, would 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 similar, we believe that this is the first time where a spinoff has been done in a tax-free manner and where 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 growths. 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 than 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 the facing the operational considerations with which Ensign is confronted as 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 have been able to pursue as one company. These are just highlights and only a few of many other reasons that we have 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 dignifying long-term care in the eyes of the world. And with that, I'll turn the time over to Greg to provide a more detailed update and to add some more details of the transaction from the real estate company's perspective. Greg?

Thanks, Christopher. Hi, everyone. Since the filing of our Form 10 back in November, we've made tremendous progress to bringing the spin and creation of CareTrust to fruition. Yesterday, we filed an updated draft to our Form 10 with the SEC. It includes additional carve out -- 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 expenses, interest expense and other forward-looking information in the MD&A section starting on approximately Page 70 of the revised Form 10. Although the Form 10 still contains a few blanks, we believe that the revisions made to date are generally responses to the SEC's comments to our original filing, and they should significantly advance the ball. I'd refer you to the revised Form 10 for the updates and a more complete description of the proposed transaction. In addition, we're pleased to report that one of the key gating items for the spin, the issuance of an 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 execute the spin on a tax-free basis to our shareholders. We received the fax copy of the ruling from the IRS yesterday, but it's not official until we receive the actual hard copy in the mail. However, this is a very positive development. This was one of several significant hurdles we needed to clear before the spin and we're pleased to have it almost behind us. We have also tentatively finalized the post-spin capital structure for CareTrust and Ensign. The new structure leaves, as Christopher said, Ensign health enabled 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-time lending partners who'll be instrumental in the capitalization of the REIT. You can find information on the REIT's initial capitalization in the Form 10's MD&A as well. Perhaps more importantly, and really excited about this, we successfully on-boarded 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 experience at Ernst & Young [indiscernible]; also at Sunstone Hotels, a lodging REIT; and at Nationwide Health Properties, the $7 billion healthcare REIT that was acquired by Ventas in 2011. Bill is here today. And we're excited to have him on the team, and he's already adding tremendous value daily. We have also committed 2 of the 3 independent board members we've initially named to serve on CareTrust's Board of Directors. David Lindahl is Managing Director of HPSI, a well-known 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 experienced and outstanding business leaders have signed on to join us in this endeavor. In addition, we're pleased to report that several other highly qualified candidates who 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 rent 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 2 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 the 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 its biggest advantage will be our healthy landlord-tenant relationship with Ensign. Ensign is one of the industry's premier operating companies and a true trophy tenant. As I've said before, both CareTrust will be completely independent and will not be Ensign's financing arm that some have assumed. We believe that our Ensign pedigree, together with Ensign's strong track record of operating performance and clinical excellence, will provide CareTrust with a solid and multifaceted foundation on which to build into the future. So with respect to the spin, there are many details yet to be addressed. We currently project that the timing of the actual spinoff will slip slightly from our previously announced end of Q1 target into the early part of Q2. But that said, we think we're starting to see the light at the end of the tunnel and we 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 spinoff. And though I -- you can't really do it justice here in a brief earnings call, I just want to say what a pleasure and honor it's been to work with my colleagues here at Ensign. Many of you know that I handed off my General Counsel role to Bev Wittekind a few years ago, and as expected, she's done a terrific job. I also have another great successor in Chad Keetch, who's now stepping into the industry relations, acquisitions and investor relations roles I filled here. In both cases, I leave these functions in stronger hands than they've been in, and I'm confident that both Bev and Chad will serve the company, its partners and shareholders as well as -- or 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 awarding 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 Greg. I mean we will obviously be working together in 2 separate companies for many, many years to come, but -- and I'm sure you'll hear a lot of this outside of the public forum, but I think he knows how grateful we all have been to him for what he's done here over the last 14.5 years since 1999. And we'll 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] Our first question comes from Kevin Campbell of Avondale Partners.

Greg, I want to say I enjoyed working with you and following you over the years too. So hopefully, we'll stay in touch with CareTrust.

Thanks, Kevin. Look forward to it.

Yes. I wanted to talk -- actually, I don't know if you're able to talk about this with the spinoff, but I'm curious about sort of your thoughts on CareTrust and the outlook for growth. How should we think about that relative to Ensign's sort of current projections for 2013 versus 2014? Is there any way to sort of -- should we think about those being fairly comparable? Or is the FFO numbers that you've given in the Form 10 for 2012, sort of, should we expect sort of similar numbers out of the gate for CTRE?

You know what, it's the -- I'm glad you asked that question, Kevin. The FFO numbers and things that you looked at, the historicals that you to see in there, are just -- I don't know how to put this, except they don't really have any bearing to reality. They -- you're basically taking a business that's sort of a biz [ph] inside a business and carving it out. And in terms of where that business will go in the future, the historical rents that we're -- we've allocated over to the property business, I won't call it the REIT because it's not yet, but it will be allocated over to the property business versus the rents that go to the property business we'll start with out of the gate are completely different. And so you really -- starting from that point, you really can't go anywhere in terms of, FF&Os. 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 sort of come up with your own model for this. In terms of how much we can grow in the future, that's anybody's guess. Here at Ensign, we've been very contrarian. When the market's 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 kind of have the same organic growth levers that the operating company has. And so if we elect to sit on the sidelines and we're perfectly willing to do that if we think pricing is off in the marketplace, we just might not grow for a while. And then there'll be spurts when we absolutely do, just as we have at Ensign. If you want to sort of put a box around it, I will tell you that here at Ensign, if you look at our acquisition history, 2 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'll see lots and lots of opportunities at the REIT. Second, I would remind you that, historically, if you kind of look at Ensign over the past 6 or 7 years, we've averaged of between 30 and -- well, we've actually got a range of between about $30 million and $115 million, $120 million a year, and acquisitions average 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 and -- but we see a big future for the REIT.

Right. And have any of the sort of terms of the leases that you had proposed 3 months ago when we first sort of talked about this in terms of the lengths of them and costs of living adjustments and things like that, has any of that changed from what you guys were looking at sort of 3 months ago to where you are today?

The basic terms of the leases have not changed. The thing that may change -- and this is not done yet, so I -- we don't have numbers in the Form 10. We had originally projected that we would have 5 leases -- 5 master leases, and it looks like there may be more. When the smoke clears, as we sort of sort these out by age of building, 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. So -- 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 performance because the accounting performance 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 sort of 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 changed?

That's 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. It think that's what drove sort of the revenue upside versus where we were modeling. But can you, a, talk about your decision to do that? And then b, does it really have a meaningful impact on the bottom line? Because a lot of the times, the acquisitions you're acquiring are underperforming facilities. So is it neutral on the bottom line and just beneficial on the top, or...

Yes, yes, it's -- 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'll have a pretty good idea within 30 days or so. But so the answer to your -- the second part of your question is, you're right. There's not much of impact on earnings with the new acquisitions. In some ways, I wish maybe we'd left them out. The reason we included them is because there are 2 or 3 that we think will close rather early in the year. And we thought that since we 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 sort of wish I hadn't said that in announcing the earnings, but felt that, because we knew -- we felt like they were going to happen, that we ought to include them.

Yes.

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

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

One other question, I think the Form 10 has pro forma balance sheet so you can look at the debt and cash for CTRE, but we have the same numbers for Ensign sort of pro forma for the spin?

So you -- there's actually a 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? So...

No, this would all be Ensign.

Our next question comes from Robert Mains of Stifel. Robert M. Mains - Stifel, Nicolaus & Co., Inc., Research Division: To build on the last question, how do you delineate between the type of asset that you would see Ensign owning versus one that CareTrust owns and would then lease to Ensign, going forward?

Look, the short answer is, if Ensign can do it, Ensign will do it. We'll -- I think the transactions you'll see CareTrust do with, obviously this could change, but the transactions you'll see CTR do -- or CareTrust REIT do with Ensign would be generally transactions we're not able to do ourselves or transactions we don't want to -- we don't have interest in operating the entire portfolio. So in that case, CareTrust will buy all the real estate and find another operator to operate the facility that we're not -- 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 can do this acquisition, but maybe we should throw it over to CareTrust." It -- there won't be much of that.

Robert, it's Greg. I was just going to add, that in terms of the ones that are in the pipeline right now, basically, it's just a matter of anytime you're in an IPO type situation, the council is that the company sort of needs you to stand still. And because we're auditing, doing this carve out financial audits quarter-by-quarter, and as you saw, we don't have Q4 in yet, leases got a knot [ph] -- we sort of had to put a box around which facilities we're 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. Robert M. Mains - Stifel, Nicolaus & Co., Inc., Research Division: Okay. But if -- am I simplifying too much to say that it sounds to me, going forward that, the assets that Ensign would've owned before this was announced, you will continue to own? And it sounds like the ones that you would -- 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 operated assets for Ensign, or am I reading too much into it?

Rob, that's exactly right. Robert M. Mains - Stifel, Nicolaus & Co., Inc., Research Division: ; Okay. I got a numbers question for Suzanne. And I may be looking at -- I'm probably missing something that's really simplistic, but if I look at Q3 to Q4, both consolidated and in the same-store, the skill mix was, on a consolidated basis, flat. It was up a little bit same-store for days, but it was down for revenues. And I know you got rate increases sequentially. It -- how is the math working out that the skill mix deteriorates?

Yes, 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. Robert M. Mains - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And then just one question on...

We would love to bridge that, Rob, if you want, later on... Robert M. Mains - Stifel, Nicolaus & Co., Inc., Research Division: Okay. No, that's really helpful. Then just 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 lengths 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 managed care stays, excuse me, not days. But I'll also tell you that the 2 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 costs that we generally are responsible for with a typical Medicare resident. So even though the days -- that's kind of one of the cool things, that our skilled days are increasing even though the length of stay is decreasing, which means 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. Robert M. Mains - Stifel, Nicolaus & Co., Inc., Research Division: Okay. I'm sorry, I have one follow-up to that because that answer made me think of another question. You said that costs can be lower. Can you do things like concurrent group therapies in the managed care setting that it sort of doesn't pay to do in traditional fee for service?

No, I probably -- I -- there's probably, I didn't give you a long enough 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're responsible for with the -- with Medicare residents. Specialty equipment or, sometimes even, excess therapy sometimes is excluded, and other things like that. Certain medications that are outside the norm and we would be responsible for that with a typical -- with every Medicare resident.

Our next question comes from Ryan Halsted of Wells Fargo.

I guess, as it relates to Ensign post-spin, you've mentioned you're evaluating opportunities to acquire larger higher performing assets. I guess, is the thought that, going forward, is there 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?

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 valuation get above the place that we feel comfortable acquiring. One of the reasons that we've mentioned that in this call is because we're seeing a 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's 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, I guess, the start-up costs that you could expect from some of the newer deals. Is there any other cost headwinds that you would point out, anything, I guess, incremental from the Corporate Integrity Agreement? Can you just remind us how much, I guess, incremental you're 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 $1 million or $2 million in '14 over '13. 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 '14 and '13.

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

Yes, so this would require 0 front-end capital, other than sort of the cash flow hit that you take while you're starting to fill the beds and getting your Medicare certification process completed. But these would be sort of lease-type transactions where the rent doesn't commence until the project's completed.

So on a per project basis, Ryan, you're probably talking about $0.75 million we probably absorb 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 would be a little more, but that's probably the average.

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

Well, as I mentioned, we have 1 that we expect to start in 2014, and 4 or 5 after that.

Our next question comes from Dana Hambly of Stephens.

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's yet to close is included in the guidance?

Oh, you're talking about the how much is attributed to the sort of the acquisitions?

Yes, yet to close that you think you'd be closing here in the next couple of months.

So as -- I think I would assign -- in terms of revenue annualized revenue, is that what you're asking?

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

It -- look, if it were to -- 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're going to close, obviously, there'll be a whole lot more. We're probably talking about $20 million to $25 million.

Okay, very helpful, and just maybe can 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.

Yes, we -- well, we expect to revert back to the way we've been for many, many years. And we'd be disappointed if we didn't grow by a couple hundred basis points in overall occupancy, and we'd be disappointed if we didn't grow by about the same number in skilled mix. Although, we used 2 different numbers. So I guess I should clarify: 200 basis points in days.

Okay, okay, that's helpful. And I was curious, so you -- I heard you talk about acquiring -- or looking at more performing assets than we've talked about in the past. And I think, in the past, a reason you would shy away is just they're too competitive, pricing is too expensive for your tastes. What and obviously that's changed a little bit, and 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're not seeing as much competition for -- 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're talking about in our numbers, but we're 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. We -- and we can pay a fair price and take care of these operations the way they want us to, where they've been for 20, 30, 40 years. We've seen a couple of those lately. So I guess I credit the operators out in the field that have built up a trusting relationship with their competitors.

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 4x or 5x?

5x would be high. I think, for the right -- I don't know if I'd say a number, Dana, but I -- but for the right opportunity, if we could see a path to get back to a number we're more comfortable with quickly, I think we'd do it, but we'd have to see a pretty quick path to getting back there.

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. I appreciate your help on the call. And I 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're 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 all disconnect. Everyone, have a great day.