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Rhizome Partners REIT Position


tlee19802
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Hi,

 

I came across Rhizome Partners previously on JW Mays, which did well for me.  Based on their investor letter, I found out that they have a substantial triple net healthcare REIT position.  At Rhizome's cost, the REIT trades at a 10% pro-forma 2015 dividend yield.  The letter cited a 60-100% upside based on their cost.  Rhizome thinks it is trading cheaply due to forced selling and because the company has yet to pay a dividend (but will start soon).  I screened the public REITs and I can't reverse engineer this name.  Anyone have any insight?

 

They seem to take concentrated positions.  Maybe a good fund to clone?

Rhizome_Partners_Letter_Q3_2014.pdf

Rhizome_Partners_Tearsheet_Q3_2014.pdf

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Caretrust REIT, googled "healthcare" "reit" "spin-off"

 

CareTrust REIT, Inc. Announces Completion of Spin-Off From The Ensign Group, I

http://investor.caretrustreit.com/releasedetail.cfm?ReleaseID=852011

 

http://investor.caretrustreit.com/releasedetail.cfm?ReleaseID=876716

 

he special dividend of approximately $132.0 million, or approximately $5.88 per share, will be paid on December 10, 2014, to stockholders of record on October 31, 2014 in a combination of cash and shares of CareTrust common stock. The amount of cash distributed will be approximately $33.0 million, with the remainder distributed in shares.

 

 

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If CTRE is the company, seems like they just finished paying the $5.88 per share in dividends, part in cash and part in shares. The share issuance added 9.0mm new shares bringing the total share count to 31.4mm shares.  Based on the numbers from the investor presentation and the recent Cross Healthcare acquisition, the company should generate about $31 mm in AFFO.  CTRE stated that they will pay out ~80% of the AFFO as dividend.  This gets me to ~$0.79 per share in dividend or a 6.3% dividend yield based on today’s close at $12.49.  According to Rhizome's letter, they bought the shares at a 8% dividend yield which implies the shares have appreciated more than 25% since Rhizome bought it. 

 

In addition, CTRE still has some excess cash of ~$50mm by the end of December after paying the $33mm of cash dividend and $12mm for the Cross Healthcare acquisition.  This means that CTRE can probably do about another $100mm of acquisitions without raising equity.  The new acquisitions should be accretive to earnings as it can be funded from excess cash.  I can see CTRE adding $6.5mm of AFFO through acquisitions.  This would equate to $1.21 in AFFO and $0.97 per share in dividends which imply a 7.8% dividend at today's closing price of $12.49 per share.  The Comps are trading below 6% dividend yield, which translates into another 30% upside on CTRE and more if you collect the dividends.

 

Any thoughts on CTRE and is anyone else in on this name? 

 

Investor presentation - http://investor.caretrustreit.com/common/download/download.cfm?companyid=AMDA-2C54HL&fileid=777610&filekey=A1510F3B-9945-4B9D-B238-8B4B613A590B&filename=CareTrust_Investor_Deck_Q2_2014_Release.pdf

 

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