On Tuesday, May 1, nVent (NVT) began trading on the NYSE. It opened at $21 and but rallied and is currently trading in the $25 range. So much for indiscriminate selling! I think its fairly valued at current levels and wouldn’t be a buyer unless there was significant sell off. To view my analysis which includes a comp table and discussion of management incentives, click here.
Apergy (APY), a Dover (DOV) spin-off, began trading on Weds, May 9th. APY is an upstream energy services company which is benefiting from the continued oil price recovery (management expects 36% EBITDA growth in 2018). It looked cheap in the when-issued market, but has rallied since regular way trading began. It is trading around $39, and I believe fair value is closer to $45. Check out my analysis here.
CorePoint (CPLG), a La Quinta (LQ) spin-off will begin trading on May 31. Congrats to Andrew Walker of Rangeley Capital who recently won the Ira Sohn Contest pitching La Quinta (LQ) and its CorePoint spin-off (will occur in Q2). Here is the investment thesis and the accompanying slide deck. Quick summary: implied price of the spin-off looks cheap due to a variety of factors but the most important of which is that management is incentivized to sandbag numbers to minimize a tax liability (the spin-off is taxable)
Spirit Realty Capital (SRC) will be spinning off Spirit MTA REIT (SMTA) June 1 (May 18 is the record date). Check out Clark Street Value’s write-ups here and here to get an overview of the situation. Quick summary: SRC is spinning off its “toxic waste” to borrow a Joel Greenblatt phrase. Once the toxic waste has been spun off, “new SRC” will have the potential to re-rate to a higher valuation (16.0x FFO vs. current 10.5x FFO) more in-line with its triple net lease peers (O, NNN, STOR). We need to do some additional work, but this looks like an interesting set up.
Other Spin-off News and Analysis
Ashford Inc. (AINC) – Great summary by Greenhaven Road Capital in their Q1 2018 letter on the AINC investment thesis. AINC originally was created when Ashford Hospitality Trust (AHT) and Ashford Hospitality Prime (AHP) spun out their hotel management company into a separate NYSE listed company called Ashford Inc (AINC). Quick summary: Management of AINC is very sketchy but has designed the Ashford company complex to funnel money to AINC. Similar to the RMR spin-off story.
DDR Corp (DDR) – Excellent article on Seeking Alpha about DDR. DDR, a shopping center REIT, is planning to spin off a portfolio of 50 assets (38 continental US assets and 12 Puerto Rico assets) into a separate public traded company which will eventually be liquidated. The CEO of DDR has been buying stock aggressively which always bodes well.
Podcast of the Week
Joel Greenblatt interviewed by Barry Ritholtz on his Masters of Business Podcast. This was a great interview. What you will learn:
- Whether Greenblatt thinks spin-offs still work
- How Greenblatt negotiated seed capital from Michael Milken
- How Greenblatt decided on the title You Can Be a Stock Market Genius and the title that he almost chose instead
- Much, much more