We Need A Spinoff Stat! Ventas Sets August 17th For Care Capital Spinoff

A new REIT is coming shortly to sate investor’s income needs. The board of directors at ‘diversified’ health care REIT operator Ventas (VTR) approved the spinoff of its acute care and skilled nursing facilities into a new REIT named Care Capital Properties. On August 17th, shareholders as of August 10th will receive one share of Care Capital for every 4 Ventas shares owned. The new company will trade on the NYSE under the ticker ‘CCP’. A ‘When-Issued’ market for the companies will be in place after the date of record.

Ventas’ former president, Raymond Lewis, will become CEO of the new company which will own 355 triple net leased skilled nursing facilities and other healthcare assets. At the time of the announcement, CCP’s first full year NOI was forecasted to be between $315-320m and FFO to be between $240-245m. Geographically, the company’s assets are spread out across the US in 38 different states, although the bulk appear to be in the Eastern half of the US. According to the WSJ, CCP carries more risk than traditional health care REITs because its customers pay via Medicare and health insurance providers and those can benefits can be cut. On the other hand, demand is growing and the higher risk leads to higher returns and investors these days are apparently still starving for higher yields.

The space is also quite fragmented and could benefit from consolidation. A dedicated public company with scale like CCP could be a real driver behind a consolidation force. Mr. Lewis noted this during the spin announcement, when he said that “with a focus on the highly fragmented post-acute/SNF market, SpinCo will have the necessary size, balance sheet strength and access to capital to pursue significant consolidation opportunities.” Another spinco ready to go shopping from Day 1. Nice. Some of CCP’s dry powder won’t be available though as the Form 10 notes the company will raise $1.3b of debt as part of the spin. All of the proceeds will go to Ventas which will use the cash to pay down debt. Ah, the price of independence.

April’s spinoff announcement was coupled with Ventas’ $1.75b purchase of hospital company Ardent and represents a new focus area for the parent company. Ventas’ assets will still be ‘diversified’ within the health care space and its growth profile is expected to be a bit better. Additionally, the spinoff should enable the two companies to pay a higher overall dividend, by about 10%. Although the news tandem sent shares soaring, the stock has come down a bit over the ensuing months. Lets see what the future brings.

Disclosure: Author holds no position in any stock mentioned.