Healthcare REIT HCP, Inc. (NYSE:PEAK) announced a planned spinoff of its skilled-nursing and post-acute care properties earlier in 2016, and the transaction has now been finalized. The company announced that the shares of the new REIT, Quality Care Properties, or QCP, will be distributed to shareholders on Monday, October 31. Here are the finalized details of the spinoff, and what investors should expect in the weeks ahead.
HCP's spinoff: The one-minute version
HCP has a large portfolio of healthcare properties, which include senior housing, post-acute/skilled nursing, life science, and medical office properties. Over the past year or so, the company's post-acute/skilled nursing properties, most of which are run by HCR ManorCare, have performed poorly.
The problems started in 2015 when the Justice Department accused HCR ManorCare of false Medicare reimbursement claims, and then got worse when industry headwinds caused the company's fixed-charge coverage to plunge to less than 100%, meaning that it wasn't even earning enough to cover expenses.
Although the fears seem to have been a bit overblown, one thing was, and is, certain: the HCR ManorCare assets don't fit into HCP's vision of what it wants its real estate portfolio to be. So along with its first-quarter earnings report, HCP announced that it would be spinning off the HCR ManorCare assets and a few other properties into QCP.
The idea behind the spinoff is simple: HCP wants a stable, high-quality portfolio of private-pay healthcare properties, which it will have after the HCR ManorCare assets are spun off. This will give the company greater asset quality, more stability, and better financial flexibility, as a result.
QCP, on the other hand, will have a management team whose sole focus will be on maximizing the value of its properties. The company has said that, once the spinoff is complete, QCP will have certain strategies at its disposal that aren't practical or available while still a part of HCP.
The final details
HCP recently announced that its Board of Directors has approved the spinoff of QCP, and along with the announcement, gave a timetable of when everything will actually take place. The company also confirmed that the stock symbol QCP will belong to the new REIT.
For every five shares of HCP investors own as of the close of business on Monday, October 24, 2016, investors will be entitled to one share of QCP common stock. The actual distribution of shares is expected to occur a week later, on October 31. Investors don't need to do anything in order to receive their QCP shares -- the distribution will occur automatically.
It's worth mentioning that the day after the spinoff's record date (October 25), HCP shares will begin to trade without the value of QCP's assets incorporated into the share price. In other words, during the period of time between the record date and the date when QCP shares actually arrive in your brokerage account, your investment's value may look considerably lower than it actually is.
What to expect after the spinoff is completed
Trading of QCP shares will begin trading on a "when issued" basis a few days prior to the record date, so shareholders will be able to get a good idea of what each REIT's post-spinoff share prices could be.
After the spinoff has been completed, I would expect a little more volatility than usual in the short term, as both companies get used to operating independently. However, as I've said before, I believe this spinoff is an excellent move by HCP, and shareholders who hang onto both HCP and QCP should be handsomely rewarded in the long run.