In one fell swoop, Richard “Rick” Matros made more than $200 million for shareholders of Irvine-based nursing home operator Sun Healthcare Group Inc. in 2010.
In November, he split off Sun’s real estate holdings as Irvine-based Sabra Health Care REIT Inc., which now owns buildings housing Sun’s operations.
Matros, Sun’s former leader, heads Sabra as chief executive.
As of late December, Sun and Sabra had a combined market value of some $770 million, compared to a market value of $550 million for Sun just before the split became official.
“We feel great about it,” Matros said.
Sabra hopes to make more money for shareholders as it “executes on its business plan” and buys real estate, he said.
Sabra was the second largest of two spinoffs in the county last year, after June’s split of Santa Ana-based First American Corp. into title insurer First American Financial Corp. and CoreLogic Inc., both of Santa Ana.
But First American’s split hasn’t paid off like Sun’s.
As of late December, First American and CoreLogic had a combined market value of $3.7 million, also about $200 million more than its former unified company had before the split.
But percentagewise, First American shareholders have seen a 5% gain, vs. 40% for Sun’s.
Sun’s split was “a whole different animal,” Matros said.
“It’s probably fair to say that there might have been some skeptics out there, but I was very bullish all along,” he said.
Sabra, which had a recent market value of about $460 million, owns about 85 healthcare buildings leased to Sun, which had a recent market value of about $310 million.
Future Plans
The plan for Sabra is to expand beyond Sun by buying other medical buildings.
The company’s “building a pipeline with more things for us to look at than we would have thought this early on,” Matros said.
Sabra plans to take its time with acquisitions, according to Matros.
“We don’t want to do deals just to do deals,” he said. “The first deal really sends a message.”
The process of splitting off Sabra was “complex,” Matros said.
Matros first introduced the idea to Sun’s management team and board in late 2009, he said. The company made its plans official in May.
“I’m not sure we knew what to expect because there hadn’t been anything done like this in our sector since 1998,” Matros said.
That’s when Louisville, Ky.-based nursing home operator Vencor Inc. spun off its real estate as Ventas Inc., a Chicago healthcare real estate investment company.
“For a deal that was complex—more complex than I’d ever done—it’s unbelievable how well everything went,” Matros said.
Sabra has emerged as a smaller, niche player among medical real estate investment trusts, which pass along most of their profits to shareholders.
Larger companies in the sector include HCP Inc., a Long Beach company with a recent market value of $10.6 billion, Ventas at $7.7 billion, Health Care REIT Inc. of Toledo, Ohio at $6 billion and Newport Beach’s Nationwide Health Properties Inc. at $4.3 billion.
The appeal to investors is “that there’s not a lot of small-cap healthcare REITs anymore,” said Robert Mains, an analyst with Morgan, Keegan & Co., a Memphis investment bank.
“If they can have a fairly robust acquisition pace, they can grow earnings faster than other (real estate investors),” Mains said.
The company first plans to focus on buying other nursing home and assisted senior living buildings, according to Matros.
“Because I’ve been in the business for longer than I can remember, I really know an awful lot of the operators in both the (nursing home) and senior housing sectors,” he said. “I know a lot of the smaller guys who are looking for financing.”
Matros joined Sun in 2001, shortly before it emerged from bankruptcy reorganization. Sun and several of its competitors filed for bankruptcy after the federal government slashed Medicare payments for nursing homes in the 1990s.
