Sun Healthcare Group Splitting In Two

May 26, 2010

Yesterday, Sun Healthcare Group announced that it will be splitting the company in two, with a Propco/Opco structure.  Basically, Sun will be spinning out to shareholders the operating company, which will keep the Sun Healthcare name, and the 93 properties that are currently owned by Sun will stay with the "Propco" company, which will be renamed Sabra Health Care REIT, converting to REIT status effective January 1, 2011.  These 93 properties

 will be leased to the operating company, which will continue to operate all 205 facilities.  Both resulting companies will be publicly traded.  The purpose of this restructuring is to enhance shareholder value, and while there should be some increased value in the short term (perhaps 10% to 25%), it will really be more of a long-term play with the new REIT able to grow in ways that the legacy Sun could not.  Rick Matros, the current CEO of Sun, will become the CEO of the REIT, while Bill Mathies, the president of the SunBridge Healthcare Corporation subsidiary, will become CEO of the spun off operating company.  There are a lot of things that have to happen between now and the end of the year, including an public equity offering to pay off some debt, but we don't see any problems.  We will have more on this in the upcoming June issue of The SeniorCare Investor, including the proposed IPO of yet another new REIT, Legacy Healthcare Properties Trust, and whether any of this will have an impact on the REIT rumors for HCR Manor Care.



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