Ventas Spin-Off Launches, Pursues $900 Million Pipeline

Ventas Inc. (NYSE: VTR) has now officially spun off the majority of its skilled nursing assets into a new real estate investment trust that began trading Tuesday on the New York Stock Exchange. The new entity, Care Capital Properties Inc. (NYSE: CCP), is pursuing a $900 million pipeline and is looking to grow in key markets to drive and ultimately benefit from consolidation, CEO Raymond J. Lewis told SHN.

Ventas, one of the “Big Three” senior housing REITs, first announced the spin-off in April. The intention was to keep larger skilled nursing operating players such as Kindred (NYSE: KND) in the Ventas portfolio, while freeing up CCP to pursue more deals at the local and regional level in the highly fragmented skilled nursing sector.

CCP is not wasting any time in pursuing that strategy. Of its acquisitions in the works, deals representing about $210 million are in the late stages, finishing due diligence and documentation, Lewis said. About $235 million in transactions are in the middle stage and $445 million are in the early stage.

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Expected lease yield is between 7% and 9%.

Pursuit of a new pipeline

The properties under consideration are located in states across the country, including California, Iowa and Massachusetts. Currently, the portfolio consists of 355 properties in 37 states, and spans 42 operating companies.

“If you look at our portfolio, there are some markets, in the Southeast for instance, where we have opportunity to expand our presence,”  Lewis said. “Florida has a strong reimbursement environment. We would like to do business in those types of states.”

Lewis declined to estimate the total dollar value of transactions that could be expected this year and next, but said that CCP plans to provide some acquisitions guidance as part of its fourth quarter earnings. He hopes to announce some transaction completions in the next few months.

Along with Omega Healthcare Investors Inc. (NYSE: OHI), CCP is one of only two major pure-play skilled nursing REITs in the mainstream market. This should help CCP gain traction at this early stage of skilled nursing consolidation, Lewis said.

“We’re seeing a lot of deal flow, and as one of two pure-play SNF REITs, many are interested in having a relationship with us,” he said. “There’s a tremendous opportunity for us to provide capital to these operators to acquire properties and grow their businesses.”

The $120 billion opportunity

The overall SNF marketplace represents $120 billion, he stressed, with about 75% of properties being the regional and local operators that are the target customers for CCP. Only about 16% of the overall market is owned by REITs.

“I think SNFs are consolidating in their local markets now, and I think you’ll see more of them coming together, at least initially,” he said. “That’s the first part of the game. I think there’s a lot of opportunity for that to occur before we may start seeing some of the larger operators consolidating and coming together.”

Over the long-term, SNFs are well-positioned to be increasingly valuable players as the U.S. health care system evolves, he said.

For instance, changes in Medicare payment policy could lead more patients who currently would be admitted to a speciality hospital or inpatient rehab facility to instead receive that care in the lower-cost SNF setting.

“I think you will see an increase in patients migrating [to SNFs] and that will improve profitability in those buildings and make them more valuable,” Lewis said.

CCP shares were up on the first day of regular trading, opening at $34.05 and closing at $35.58. The new company’s leaders rang the closing bell on the NYSE.

Ventas shareholders received one CCP share for every four Ventas shares.

Written byTim Mullaney

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