Skilled Healthcare Presentation
Transcript of Skilled Healthcare Presentation
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Credit SuisseNovember, 2011
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The following information contains, or may be deemed to contain, forward-looking statements, including but not limited to 2011 revenue, EDITDAR, EBITDA and EPSguidance. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may notoccur in the future. The future results of the company may vary from the results expressed in, or implied by, the following forward-looking statements, possibly to amaterial degree. For a discussion of some of the important factors that could cause the companys results to differ from those expressed in, or implied by, the followingforward-looking statements, please refer to the companys latest annual report on Form 10-K for the year ended December 31, 2010 filed with the Securities and ExchangeCommission (including sections entitled Risk Factors and Managements Discussion and Analysis of Financial Condition and Results of Operations containedtherein) and in our subsequent reports on Form 10-Q and Form 8-K. Any forward-looking statements are made only as of the date of this presentation. Skilled Healthcaredisclaims any obligation to update or revise any forward-looking statements. Investors are cautioned not to place undue reliance on these forward-looking statements.
Note: References made in these materials and related presentations to Skilled Healthcare, the Company, we, us and our refer to Skilled Healthcare Group,Inc. and each of its wholly-owned companies.
Safe Harbor Statement
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Industry LandscapeHealthcare Providers
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Favorable Demographic Trends
Source: AHCA.
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40.246.8
54.863.9
72.177.5 81.2
13.0% 14.5%16.3%
18.3% 19.8% 19.9% 20.0%
2010E 2015E 2020E 2025E 2030E 2035E 2040E
65+ Population % of Total Population
(Population, in millions)
65+ Population Growth
5.8 6.36.6 7.2
8.7
11.5
14.2
1.8%1.9% 1.9% 2.0%
2.3%
2.9%
3.5%
2010E 2015E 2020E 2025E 2030E 2035E 2040E
85+ Population % of Total Population
(Population, in millions)
85+ Population Growth
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SNFs offer skilled medical care and custodial care in a cost efficient setting
Cost ofpatientservice
Severity of patient illnessYellow sections in which we are involved High
High
Low
Low
AssistedLiving
HomeHealth
Adult DayCare
OutpatientRehab
Hospice
IRFLTAC
Acute CareHospital
InpatientRehab
SNF
Note: Bubbles are an approximation of relative industry size.
SNFs Provide a More Affordable Option
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Shift of Patient Care to Lower Cost Alternatives
SNFs deliver effective clinical outcomes at reduced costs Increased Medicare funding for treatment of high-acuity patients
Lower staffing requirements and associated costs
60% rule driving high-acuity patients from in-patient rehab facilities toSNFs
Short stay outlier policy shifting patients from LTACs to SNFs
Shorter length of staysfor SNFs
SNFs Are Lower Cost Setting
Source: Medpac
Comparison of per Case Rates SNF IRF LTACTracheotomy with Vent $10,051 $26,051 $115,463
Respiratory with Vent 7,897 26,051 74,689
Joint Replacement 6,165 17,135 67,104
Hip Fracture 10,618 18,487 44,633
Stroke 8,905 34,196 31,496
Average $8,727 $24,384 $66,677
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Company Overview
Skilled Healthcare Group, Inc. (NYSE: SKH)
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Diversified Health Care Portfolio
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Long-Term Care
101 Skilled nursing & assistedliving facilities
74% ownership
High-acuity focus driving industry-leading quality mix & EBITDAmargins
Care operations in 7 states
Long-Term Care 97 skilled nursing & assisted living affiliate facilities
operated
5 skilled nursing facilities leased to a third party operator
Award-winning quality care
76.5% property ownership
High-acuity focus driving quality mix & EBITDA margins
Providing care in 8 states
Rehabilitation Therapy Providing physical, speech, and occupational therapy
177 contracts
36% affiliated
64% unaffiliated
Partner vs. vendor approach
Hospice Providing palliative and supportive care to people and
their families who are facing an incurable disease
Providing care in 6 states
AZ, CA, ID, MT, NM, NV
Home Health Care Providing professional in-home skilled medical care
Medicare-certified
Providing care in 6 states
AZ, CA, ID, MT, NM, NV
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Expanding Geographic Footprint
Texas22 facilities,
22% of revenue
Iowa2 facilities,
1% of revenue
Montana & Idaho3% of revenue
Des Moines
Kansas City
San Antonio
Las Vegas
Eureka
(leased)
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Houston
California 31 facilities(26 operated & 5 leased),
36% of revenue
Kansas & Missouri33 facilities,17% of revenue
New Mexico10 facilities,
12% of revenue
Nevada3 facilities,8% of revenue
Davenport
Los Angeles
Arizona1% of revenue
Dallas
Billings
Phoenix
Boise
Albuquerque
Note: States represent approximate % of revenue as of September 30, 2011. The Company has a hospice joint venture with Gentiva in
the Kansas/Missouri market.
* The Omaha, Nebraska facility began operating on April 1, 2011 as such there is no revenue for period ended 03/31/11.
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Concentrated network of SNF/ALF affiliates
Urban/suburban cluster market focus
8,814 SNF beds
1,308 ALF units
Growth opportunity for home health care in
existing SNF markets
SNF/ALF Locations
SNF/Hospice/Home Care Locations
Hospice/Home Care Locations
Omaha
Nebraska*1 facility
0% of revenue
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Outstanding Recognition for High Quality Focus
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71 facilities were awarded Bronze National Quality Awards from the AHCA/NCAL
within last 3 years.
- 13 facilities were awarded the Bronze National Quality Award
in 2011.
3 facilities were awarded Silver National Quality Awards from the AHCA/NCAL within
the last 2 years.
- 2 facilities were awarded the Silver National Quality Award in 2011.
Fort Worth Center of Rehabilitation
- Opened in July 2010
- 2nd new state-of-the-art skilled
nursing development
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Industry-Leading Real Estate Ownership Skilled Healthcare owns an INDUSTRY-LEADING 76.5% of its
facilities Ownership provides greater operating and financial flexibility
Ownership eliminates exposure to rising rents
Ability to accelerate build-out of Express RecoveryTM units
Consistent reinvestment in facilities
Access to capital / high leveragability of real estate
Ability to easily manage and sell facilities
67%
8% 3%
SKH ENSG KND SUNH
Owned Facilities
Note: KND ownership represents SNF facility ownership, JPMorgan
report 12/15/09. SUNH ownership reflects recent spin-off.
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76.5%
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New Developments Raise BarFor Industry Standard
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Skilled Nursing Facilities
Baylor Healthcare System alliance offersthe right to build on Baylor acute campuses
2 state-of-the-art facilities with high-acuity capabilities
Dallas, TX 128-bed SNF
Fort Worth, TX 128-bed SNF
Selectively targeting other markets to accommodate SNF high-acuity
patients
Assisted Living Facilities Completed 2 developments of 41 units each in Ottawa and Tonganoxie, Kansas
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Innovative Express Recovery Units
Dedicated unit in a skilled nursing facility- 61 units with 2,197 beds at Q3 2011
Focus on high-acuity, short-term stay
Lower cost than LTACs & IRFs, high quality care
Specialty Variations in Select Markets Renew tm
A Rehabilitation Unit Designed for Women
Pulmonary Advantage tmA Respiratory Specialty Unit
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Financial & Operating Performance
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Expanding Revenue Mix
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80%
11% 7%2%
Revenue by Segment Q3 2011
Skilled Nursing & Assisted LivingHallmark Rehabilitation
HospiceHome Care
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High-Acuity Focus Drives Quality & Skilled Mix
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Skilled Healthcare is an industry leader in skilled and quality mix percentages
Express Recovery tmUnitsDrive Skilled Mix
25.1%
12.9%
Skilled Mix
ERU Non-ERUSource: Based on public filings, available data for each of the reported periods as of 09/30/2011.
* Peer average includes the weighted average for SUNH, KND, and ENSG for each for the reported periods.
Skilled Mix
22.6% 22.5% 24.5% 23.5% 22.7%
20.1% 19.9%
21.9% 21.5%20.9%
Q3'10 Q4'10 Q1'11 Q2'11 Q3'11Skilled Healthcare Peer Avg.*
Quality Mix
68.5% 69.1%72.1% 71.5% 70.8%
58.6% 58.3%
62.3% 61.8% 61.4%
Q3'10 Q4'10 Q1'11 Q2'11 Q3'11Skilled Healthcare Peer Avg.*
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Stable Occupancy Trends
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Occupancy in the skilled nursing affiliate facilities has remained steady in adifficult economic environment
SNF Occupancy(1)
83.4% 82.9% 83.8% 82.5% 83.0%
Q3'10* Q4'10* Q1'11 Q2'11 Q3'11
(1) Occupancy based on available beds. Note: Occupancy excludes ALFs.
* Occupancy excludes Fort Worth Center of Rehabilitation which opened in July 2010.
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Solid Operating Performance
Adjusted EBITDA(1)($ in millions)($ in millions)
2011 vs. 2010 growth: 5.8% 2011 vs. 2010 growth: 6.6%
$634.6
$733.3$759.8
$820.2$868
2007 2008 2009 2010 2011E
$98.9$109.8 $110.9
$121.5$129.5
2007 2008 2009 2010 2011E
(1) Adjusted for special charges and non-recurring/non- operating items. See reconciliation of Adjusted EBITDA for the respective periods
referenced in our regulatory filings listed on our Web site.
(2) 2011 represents the mid-point of the updated numbers per the 2011 guidance issued on September 8, 2011.
Revenue
22
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Sustained Margin Advantage Over Peers
Note: EBITDA adjusted for non-recurring and non-operating charges for SKH. See reconciliation of EBITDA for the respective periods
referenced in our regulatory filings listed on our Web site. Source: Based on public filings and Q3 2011 company press releases.
* Peer average includes the weighted average for SUNH, KND, and ENSG for each for the reported periods.
14.5% 14.6% 15.5%16.5% 15.8% 15.6%
9.1%
8.2%
9.5%
8.9%
9.6%
8.9%
Q2'10 Q3'10 Q4'10 Q1'11 Q2'11 Q3'11
Adjusted EBITDA Margins - YTD 2011
Skilled Healthcare Peer Avg.*
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$131
$151
$354
$495
$139
$157
$359
$525
$146$162
$369
$557
$151
$169
$379
$578
$154 $175
$388
$633
Medicaid Private Other Managed Care Medicare
2007 2008 2009 2010 YTD 2011 (as of 09/30/2011)
High Acuity Model Driving Higher Revenues
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Improving Revenue PPDs(SNFs only, before eliminations)
28.8% 22.8% 10.0% 38.4%As % of SNF revenue (as of 09/30/2011):
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Strong Operating Cash Flow($ millions)
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$30.0
$45.0
$60.0
$75.0
$90.0
2008 2009 2010* YTD Q3 2011
$67.5$74.9
$88.8
$66.2
*2010 has been adjusted for legal settlement charges which occurred in Q310.
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Continuous Business Reinvestment
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Routine CapEx as% of Total Revenues:
Total Capital Expenditures: $65.2 $117.8 $73.0 $41.2 $73.1 $24.7
1.3% 1.4% 2.5% 2.7% 1.8% 3.8%
7.0 8.818.5 20.3 14.3 10.33.4
4.512.8 8.7
5.60.7
11.8 16.1
18.37.2
7.90.1
43.0
88.423.4
5.045.3
13.6
$0.00
$20.00
$40.00
$60.00
$80.00
$100.00
$120.00
$140.00
2006 2007 2008 2009 2010 YTD Q3 2011
AcquisitionsDevelopmentsERURoutine CapEx
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Improving Debt Covenants
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Debt StructureTerm Loan - $360 million, due April 2016
Revolver - $100 million, due April 2015
11% Notes - $130 million, due June 2014
All-in interest rate of ~ 7.8% (09/30/11) Leverage ratio (09/30/11) 3.5X
maximum debt covenant ratio 5.4X
Fixed charge coverage ratio (09/30/11) 3.5X minimum debt covenant ratio 1.5X
Term Loan 11% Notes Other Revolver
$352
$130
$10 $0
Long-term Debt Structure($ millions, 9/30/11)
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Reimbursement Update
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Medicare CMS issued a Medicare rate cut of 11.1% effective October 1, 2011
Decrease in therapy business from elimination of group therapy and OMRA.
Medicaid Average rate = $154 PPD for Q3 2011
FY 2012 Rate Environment
43.0%2.5%
51.8%
91.2%
5.2% 6.3%
0%20%40%
60%80%
100%
Q3 2010 Q3 2011
% of Medicare Patient Days in RUG Categories
Non-RehabRehab (ex-Upper 9)Upper 9 Rehab
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2011 Guidance Full Year($ millions, except EPS)
Note: Guidance as of 09/08/11. The Company undertakes no obligation to update this guidance.
Guidance assumes: Decline in skilled nursing Medicare revenue of approximately $7.0 million for the fourth quarter of 2011 due to
the CMS rate reduction.
Combined decrease in revenue and increase in expense for rehabilitation therapy of approximately $3.5 million forthe fourth quarter of 2011.
Other state Medicaid revenue reductions of approximately $1.0 million for the fourth quarter of 2011 as a result
of state rate reductions.
Of an anticipated combined negative annualized impact of approximately $45 million from the aforementioned
CMS final rule and from Medicaid reductions, the Company expects to be able to mitigate approximately $15
million on an annualized basis through a combination of enterprise-wide cost savings and productivity
improvements in its rehabilitation therapy business. A portion of the cost savings will be effective immediately and
the remainder will be phased in through the end of the Company's fiscal year 2012. The Company anticipates
that approximately $2.0 million of the projected $15 million mitigation will be realized during the fourth quarter
of 2011.
No additional Medicare or Medicaid rate reductions.
2011 capital expenditures of approximately $15 million to $18 million.
Average interest rate on outstanding debt of approximately 8%.
An effective tax rate of 38.5%.
No material acquisitions, developments or divestitures.
No goodwill or intangible asset impairment charge, excluding the goodwill and long-lived asset impairment charge
recognized in Q3 2011.
No material variations in the Company's occupancy and skilled mix from what the Company experienced through
the second quarter, adjusted for seasonal trends typically experienced in the second half of the year.
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LOW HIGH
Revenue $865.0 $870.0
EBITDAR $147.0 $150.0
EDITDA $128.0 $131.0
EPS $1.07 $1.12
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Summary
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Strong reputation for providing high quality patient care with favorable clinical outcomes
Attractive industry fundamentals
Integrated SNF / Rehab model with emphasis on high-acuity patients
Diversified healthcare portfolio
Superior operating and financial performance
Significant facility ownership with strong underlying value
Strategic focus on referral relationships in local markets and regional payor networks
Proven acquisition and development strategy
Experienced and proven management team
Strong risk management protocol
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Questions & Answers