Sun Healthcare Looks To Find Value In Its Real Estate

Sun Healthcare Group Inc. (SUNH) recently announced their intention to split the company into two – a real estate operating company (Sabra Health Care REIT) and a nursing care/healthcare services company (Sun Healthcare Group). The transaction is expected to be completed in the fourth quarter of this year and the company plans to raise additional capital through an equity offering prior to the spinoff date. According to management, the idea behind the spinoff is for Sabra to better realize the full value of the company’s vast real estate portfolio while the operating company will be able to pursue its growth strategies without as much debt. Sun’s current CEO, Richard Matros, will become CEO of Sabra while William Mathies, currently president of subsidiary SunBridge Healthcare Corp. and COO of Sun’s operating subsidiaries will run the Sun Healthcare Group.

While there is still plenty of time and news to be released before this becomes a reality, it is never too early to start thinking about a transaction’s potential risks and opportunities. Off the top of my head…depending on your macro view, real estate (the REIT) is either a great segment to be invested with or is to be avoided like the plague. It should be possible to dig deeper into the company and look at the various geographic regions where their real estate is located. Obviously, there are some legislative changes occurring in the healthcare industry whose effect on the operating company will need to be assessed. Looking closer at the transaction, the transfer of debt and changing of the capital structure could potentially unlock value as well. I also find it interesting that the CEO of the overall company chose to head up the REIT. I am sure there is a lot more to talk about and we will provide updates as the transaction date approaches or as additional information is released.

Disclosure: Author has no position in any stock mentioned