Investors loved riding along with real estate magnate Abraham Gosman as he made a $480 million personal fortune as a major owner of nursing homes. Now, as the 68-year-old Boston dealmaker moves to budget hotels, investors aren't so sure they have the stomach for the trip. On Jan. 4, Gosman's Meditrust, the nation's biggest health-care real estate investment trust, paid $3 billion to buy La Quinta Inns. And over the next few trading days, selling drove down the share price by 5%. It closed on Jan. 7 at 34 11/16. Suddenly, says Sutro & Co. analyst Craig Silvers, "a boring, reliable REIT became much more volatile."
Gosman dismisses the initial drop and says La QuintawillboostMedi- trust's cash flow by 15%. But La Quinta, with 270 hotelsin28 states, is viewed as more vulnerable to recessions than Meditrust's nursing homes. Another source of investor anxiety: La Quinta's largest shareholder, the Bass family, opted for cash for its shares instead of Meditrust stock.
Even so, Gosman still has a strong record. Meditrust's earnings grew by more than 20% since 1996, vs. about 15% for his peers.