Real estate investment trust (:REIT) Newcastle Investment Corp. (NCT) announced a public offering of 40 million shares of its common stock. With the proceeds, the company mainly plans to purchase senior housing properties.

Moreover, Newcastle plans to award the underwriters an option to acquire up to an additional 6 million shares of common stock for 30 days. This is, however, conditioned on the adjustment for the 3-for-1 reverse stock split declared by the company.

Notably, Citigroup (C), BofA Merrill Lynch – part of Bank of America Corp. (BAC), and Credit Suisse Securities (USA) LLC, a subsidiary of Credit Suisse Group AG (CS) are acting as the joint book-running managers of this offering.

As a matter of fact, Newcastle, which operates two different businesses – senior housing and real estate debt & golf portfolio -- has plans to spin off its senior housing business to form a publicly traded healthcare REIT, New Senior Investment Group (:SNR). The spin-off is expected to occur in the third or fourth quarter of the current year.

Newcastle continues to make opportunistic investments. During the second quarter, the company purchased nine properties for $214 million, investing $199 million of equity in senior housing properties.

In fact, the unit being considered for a spin-off, New Senior, enjoyed ownership of 95 senior housing properties as of Jun 30, 2014. This aggregates to a total portfolio worth of $1.8 billion and $700 million of invested equity. And adding feathers to the cap is the acquisition pipeline worth over $1 billion, with $130 million of properties under contract.

In Conclusion

While the dilutive impact from the share offering cannot be avoided, we believe that the move is a strategic fit considering the promising returns offered by these senior housing properties.

In fact, the second quarter saw the New Senior portfolio reaping a 15% property-level levered yield. With the U.S. 70+ population estimated to escalate more quickly than any other age group, along with the supply-demand imbalance in the industry, we foresee a solid rate of growth for this unit in the future.

Newcastle currently carries a Zacks Rank #3 (Hold).

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