Ventas (VTR) completed the spinoff of its skilled nursing facilities into the brand new Care Capital Properties (CCP) yesterday. Shareholders should have received 1 share of CCP for every 4 VTR shares owned. The new company is set to join the S&P 400 Midcap index and will be replacing Omnicare which is in the process of being acquired by CVS Health Corp (CVS). Ventas will remain in the S&P 500 index, so be aware that forced selling could be a factor here.
As usual, company leadership was effusive in their praise of the transaction. Here is what Ventas’ Chairman & CFO Debra Cafaro had to say about the spin’s completion:
This is an exciting day for Ventas as we launch CCP as a pure-play SNF REIT with a great team, strong balance sheet and customer relationships and significant market opportunity in the large fragmented skilled nursing market…At the same time, we are elevating Ventas for a successful future as one of the top REITs globally. Ventas expects to have an enhanced growth profile, superior cost of capital, outstanding portfolio operated principally by top tier operators and care providers and industry leading net operating income derived from private pay sources. We will also maintain our diversification, scale and strong balance sheet. We look forward to driving value creation through best-in-class financial and operating results, a deep and experienced management team focused on shareholders and customers, a well-articulated and executed capital allocation strategy and compelling dividend growth.
It’s always all roses in the beginning. Yield focused shareholders will be happy because the combined dividend is expected to grow by at least 10% with Ventas paying $0.73 per share and CCP $0.57 per share or $0.1425 per share on a pre-spin basis.
The new company is a ‘pure play’ in the skilled nursing space with over 90% of its facilities focused on that market. It seems investors are interested in and rewarding increasing levels of specialization. The skilled nursing space is highly fragmented and many expect CCP to grow and consolidate the market via focused acquisitions. CCP has 335 facilities spread out across the US and its tenant base is more diversified than many other operators. That said, it’s still a ‘pure play’, which means it is heavily exposed to the nuances of its niche for both the good and the bad. While the demographic picture looks great (the US is aging), there is always risk on the payment side. This Seeking Alpha piece is quite bullish and lays out the overall story nicely. It also points to Omega Healthcare Investors (OHI) as a pure play comp in the space.
With the completion of this spinoff, the Summer of Spin is finally winding down. It’s been a fun ride!
Disclosure: Author holds no position in any stock mentioned.