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Friday, September 24, 2010

Sunrise Senior Living: Interview CEO: SUN Healthcare group

On Sept 20,2010 excerpts from interview of Richard K Matros, CEO, SUN Healthcare Group. I donot have access to the complete transcript I am just looking at the excerpts and thought there are some points which need to be highlighted..

So the company became very healthy. As we did those acquisitions, those acquisitions owned a lot of the real estate. In our business, real estate has really never been a driver of value. In other words, companies in our business tend to be valued on how the business does, how well you execute the business model, because the nursing home business, much like hospitals, is a pretty complex business, with the exception of the 2005 to 2007 period, when the CMBS market was hot and real estate was driving everything.

So for a brief period of time, real estate was driving nursing home transactions for those nursing home companies that owned a significant portion of the real estate. A lot of companies in the business lease most of their assets; every company has a different mix of owned and leased assets. So we were sitting here with a pretty good book of business on the real estate side, and last year I was focusing on how best to monetize that real estate because we never thought we would get value recognition for it. And with the CMBS market turning down along with everything else in the recession, we really looked at that as a blip. We don't believe real estate on a go-forward basis will be a driver for our sector, as it hasn't been for the last 30 years. Also from a timing perspective, because of the recession, and even though we have been acquisitive by nature, there just hasn't been much product out there; there has been really nothing to buy. So it gave us an opportunity to look at other ways to enhance shareholder value. We focused on the real estate, we focused on how best to monetize the real estate, at the same time making sure that the operating company would be as healthy on a go-forward basis as it was today so that anything we did to monetize that real estate wouldn't impair the operating company's ability to grow. Once we satisfied ourselves that that would be the case, we focused on the best way, again, to monetize the real estate. Our determination was that the best way was to essentially break the company into two publicly held companies, one being a health care REIT and one being an operating company.

I dont know if I have got it all wrong.. but the CEO of SUN Healthcare Group is quite confident that Healthcare companies get valued for how the business does, how well you execute the business model and not on the real estate that is held by the company. The CEO of SUN Healthcare believes real estate on a go-forward basis will NOT be a driver for healthcare sector, as it hasn't been for the last 30 years.

SRZ has always believed in not owning the real estate. It has always been proactive in having Venture partners and is focussed on management of properties and brand building. I am certain leasing a property provides a lot of tax benefits. I see the SUNHealthcare CEO statement as a confirmation of the steps taken by SRZ in repairing its balance sheet. Once the debt is out of the books SRZ will be lean, mean and attractive.

Please note these are my personal views based on pubicly available information link to excerpts from the interview


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