PACS Group (NYSE: PACS), a publicly traded senior care operator fresh off its Wall Street debut in April, is making a huge splash with its latest acquisition. The company announced plans to buy the operations of 53 skilled nursing facilities (SNFs) and assisted living (AL) facilities across eight states, significantly exceeding analyst expectations for its 2024 growth.
Expanding the Footprint
The acquisition, which is expected to close in Q3 2024, will add a whopping 24% more facilities to PACS’ portfolio, bringing the total to 271. This is a major leap from the 21 facilities analysts at Stephens Inc. predicted PACS would acquire in 2024.
PACS’ Playbook: Acquisitions and Local Leadership
PACS has made a name for itself by acquiring struggling senior care facilities and implementing a turnaround strategy focused on empowering local leadership. The company believes this approach, along with its experience with large portfolio acquisitions, will allow for a smooth integration of the Prestige facilities.
Betting on Regional Growth
Another key factor in PACS’ acquisition decisions is regional favorability. Derick Apt, CFO of PACS, explained, “The Prestige acquisition exemplifies our growth model in action. We target acquisitions, big or small, where the PACS operating model can thrive in the local markets.”
Financials: Focus on EBITDA and Occupancy
The deal is structured as a triple net lease, meaning PACS will be responsible for property taxes, building insurance, and maintenance costs for 37 of the facilities through a joint venture it owns a 25% stake in. The upfront cost for PACS will be around $15 million for this ownership stake.
Analysts like Scott Fidel at Stephens Inc. believe the acquisition presents a significant opportunity to improve occupancy rates and drive synergies. The Prestige facilities were operating at much lower occupancy levels compared to PACS’ existing portfolio and industry averages.
Fidel expects the deal to meaningfully contribute to PACS’ existing $80 million to $100 million+ embedded EBITDA (earnings before interest, taxes, depreciation, and amortization) harvesting opportunity from acquired facilities.
Competition Heats Up: PACS vs. Ensign
With the acquisition, PACS will now directly compete with The Ensign Group (Nasdaq: ENSG) across eight states. This could lead to a battle for market share, especially considering Ensign’s generally higher occupancy rates in some of the acquired areas.
Looking Ahead: Challenges and Opportunities
While there’s a clear opportunity to improve occupancy rates at the Prestige facilities, the success of PACS’ turnaround strategy will depend on its ability to address the specific challenges that led to the lower occupancy in the first place.
This acquisition signals PACS’ aggressive growth strategy and its confidence in its ability to turn around underperforming senior care facilities. The coming months will reveal how effectively PACS can integrate these new facilities and navigate the competitive landscape.