The SHB Interview: Rick Matros CEO, Sabra Health Care REIT

Head of publicly traded investment firm mixes opportunistic approach with a rebellious style.

By Jeff Shaw

To say Rick Matros is not like most CEOs in the seniors housing industry would be a grand understatement.

Matros founded and leads Sabra Health Care REIT (NASDAQ: SBRA), the seventh largest owner of seniors housing in the country with 182 properties totaling 18,756 beds/units as of the first-quarter, according to the company. 

But Matros isn’t all business. He often attends meetings in short sleeves with his tattoos showing. He’s a die-hard sports fan and a self-professed comic book geek. He even produces films on the side, from horror movies to documentaries. The production company is named, appropriately enough, Sabra Films. The Sabra name has personal importance to Matros. It’s a double reference: In Arabic, it refers to the prickly fruit of a cactus, which reflects his personality, jokes Matros. In Hebrew, it’s a reference to a native-born Israeli Jew. Although Matros was born in the United States, so not himself a “sabra,” he’s highly active in Jewish organizations and charities.

Sabra Health Care REIT was born in 2010, when Matros was CEO of Sun Healthcare Group. (Matros became CEO of Sun Healthcare in 2001 and led the company out of bankruptcy a year later). Matros saw value in separating Sun’s operations from the real estate, so he formed Sabra to handle the ownership side of things and took the reins himself.

Sun Healthcare was exclusively involved in skilled nursing, but as Sabra underwent the transformation from a private firm to a publicly traded REIT the company began to diversify its portfolio. Currently, skilled nursing properties account for approximately 55 percent of its portfolio and private pay seniors housing represents about 45 percent. However, that’s about to change.

In May, Sabra made a big splash when it announced that it had agreed to acquire Care Capital Properties (NYSE: CCP), a skilled nursing company spun off by Ventas in 2015 in order to separate the riskier healthcare assets dependent on government reimbursement from the giant REIT’s private pay portfolio. 

The acquisition of CCP by Sabra is expected to close in the third quarter of this year, at which time the combined company is expected to have a pro forma market capitalization of $7.4 billion. The acquisition will boost Sabra’s portfolio to nearly 11 times its original size when the company started in 2010.

Seniors Housing Business interviewed Matros to learn more about that acquisition, his take on the changing skilled nursing sector and his unusual interests outside the seniors housing industry.

 

Seniors Housing Business: You were CEO of Sun Healthcare Group from 2001 until the formation of Sabra in 2010, at which point you became Sabra’s CEO. So, in essence, you haven’t changed companies in nearly 20 years. That longevity is rare in the REIT world. How do you explain your long tenure in this space?

Rick Matros: I like building companies. In the case of Sun, it was restructuring the company out of bankruptcy. I’ve also done several startups. It’s fun. When it doesn’t seem like building something is a possibility, that’s when I start getting antsy.

SHB: What’s keeping you at Sabra, then?

Matros: Building the company has really been fun so far. Obviously, the CCP merger announcement takes it to a whole other level. 

One of the joys comes from building culture, which is an important component of a company’s success. When you’ve got employees across many states and different layers of employment, it’s very hard to do that. You want all of them to feel they have value.

With Sabra there’s real joy to be had with this family. Professionally and economically, it’s very satisfying.

I spent 30 years on the operating side. I was ready for something new. Also, running a REIT is not as all-consuming as an operating company, so that gives me more time to pursue interests and spend more time with our granddaughters.

SHB: Walk me through the foundation of Sabra.

Matros: When we were restructuring Sun out of bankruptcy, we sold a lot of assets. Before the bankruptcy, that company owned 100 percent of its assets. 

After the recession hit, we looked for places to continue to grow with acquisitions. The value of that real estate was not being captured in the company. I was looking at what we could do to get full value for the shareholders.

I joined the board of a REIT at that time. I wanted to really understand if that might be a good path for Sun to go down. After some time on that board, I decided that if we could create a REIT at Sun, we could create that value for our shareholders.

The day the split happened, the two separate companies were each worth as much as the one was the day before, so the shareholders clearly agreed with the strategy.

Sabra only had one tenant at that time in Sun, which was later acquired by Genesis HealthCare. More than other opportunities I’ve pursued in my career, we started out in a pretty tough situation. Building something out of that bankruptcy and creating value was irresistible to me. That’s how all that happened.

Diversifying the portfolio

SHB: What happened over the next seven years?

Matros: During that period, we went from one tenant to 30 tenants. Our portfolio went from 100 percent skilled nursing to 55 percent, with the other 45 percent in standard seniors housing. We developed a capital pipeline with a partner that builds a lot of seniors housing facilities.

With the CCP merger, we’ll be 11 times the size from where we started just years ago. Because of the way we structured the company, we were able to grow from eight to 15 people. That’s the whole company.

SHB: There are only 15 employees at Sabra?

Matros: When we spun off from Sun, the only people I wanted in the company are those tied to our core competencies. Everything else is outsourced: legal, HR, technology. It’s all with outside firms. That allows us to be pretty slim and more entrepreneurial. As we grow, we don’t have to add as many people because we don’t have to have all those departments that our peers have.

I knew the direction we wanted to go, and we can function that way.

SHB: How would you describe Sabra’s investment strategy?

Matros: We’re really opportunistic. I don’t believe in five-year business plans. They box in your thinking. If you make the right decisions on a regular basis, that will create opportunities. 

Last year, for example, we only did $155 million in acquisitions. We’re opportunistic but disciplined. We’re not going to buy something just to buy something.

People ask, “How big can Sabra be in three years?” We could grow our acquisitions by $1 billion, but it depends on the opportunities. We’re well known in the capital markets. We have the right story to tell, and we’re able to access the capital we need to execute.

SHB: Does Sabra invest exclusively in seniors housing, or is your portfolio diversified? For example, has Sabra invested in medical office or the life sciences sector?

Matros: At this point we’re almost exclusively skilled nursing, assisted living, independent living and memory care. We have one hospital, but those opportunities don’t come up very often. 

In terms of medical office properties, we think they’re really pricey right now. There will come a point in time they will be less pricey, and we’ll reconsider at that point. Life sciences is a whole different asset class to us, so we’re not looking at it.

For us, the path to grow is simple. There are so many opportunities across the seniors spectrum, both in terms of existing assets and about $500 million in development we’re working on. We can still grow nicely and keep it simple. Maybe someday we can expand into other asset classes, but for now we’re content.

SHB: Obviously, the biggest recent news about Sabra is the agreement to acquire Care Capital Properties. I know that transaction has yet to close, but can you share with us the strategy behind that planned acquisition?

Matros: Our largest tenant, Genesis, is still 33 percent of our portfolio. This acquisition reduces Genesis to 11 percent of our portfolio, and no tenant will be larger than 11 percent. This really diversifies our tenant base so we’re not overexposed to any one tenant.

Operators go through ups and downs, so it’s nice for us. If our operating partners have issues, we can work through that because we don’t have so much exposure to them. 

The deal is so accretive. It gives us a chance to work with CCP’s operating tenants, to help rightsize them so we have a portfolio that’s very healthy. There’s also an opportunity for value creation with tenants that have struggled. Some of those tenants are very good operators, and we can help them work through their issues.

Committed to skilled nursing

SHB: While so many of the REITs are distancing themselves from the skilled nursing sector, this acquisition would highly increase your skilled nursing portfolio. What do you see in skilled nursing that the other REITs don’t?

Matros: Some people asked if we were changing our strategy because before this acquisition we were moving toward private pay seniors housing (independent living, assisted living and memory care). We’re still going to diversify, but the benefits of this deal were so important, they more than overwhelmed the negative perception of increasing our skilled nursing portfolio by 16 percent.

It’s a great asset class. I spent most of my career in post-acute care, including hospice and rehab hospitals. I have an operational background. Our tenants are operators. We know the business inside and out, and we think the future is bright. 

There are regulatory changes and reimbursement changes, and that creates angst among those who don’t understand the business. We understand there are headwinds right now, but we’re still really bullish on skilled nursing. If you look at our portfolio, our operators generally do really well. 

There are always going to be winners and losers. We know good operators because we did it ourselves. If you look at our non-Genesis portfolio, occupancy has actually gone up. We’re well above industry average. It’s really all about the operator.

It’s going to be a real struggle for the mom-and-pops. There’s definitely a component of the sector that will get hit. But the operators we have in our portfolio and the operators that CCP has, they’re smart, good operators.

SHB: Regarding the seniors housing portfolio, Sabra’s middle of the pack as far as size for publicly traded REITs. Do you like your current size and position in the marketplace? What are your plans for future growth?

Matros: One of the benefits of the pocket we’re in, the small deals are still meaningful to us. When you’re in the Big Three, it’s hard to drive earnings with acquisitions.

I don’t have a goal to get to $10 billion or $15 billion or $30 billion in portfolio size. If we can make small deals and be opportunistic, it will take us where it takes us. The journey is so much fun. That’s very much what it’s about.

Last year was important to us specifically because it wasn’t a huge year of acquisitions. We weren’t going to pay a premium just to grow. 

The message we sent the market was that we were going to be really disciplined, even if it meant we weren’t going to grow. We’re not going to just jump at stuff. We’re going to be strategic. If that means you have a light year, you have a light year.

SHB: You worked in a variety of healthcare sectors before landing in seniors housing with Sun then Sabra. What were the benefits of staying in healthcare your whole career, but touching on several subsectors?

Matros: I’ve been in most of the subsectors, and it afforded me ways to be creative. It might sound hokey, but we affect people’s lives. I volunteered at a nursing home in college, and later started as an activity director. It’s really rewarding. 

I understand people like to be in a tech company, doing widgets or whatever, but there’s a whole human connection here that motivates me. Even being on the REIT side, I don’t impact people’s lives as directly but I still feel like I can do it. 

We’re not just about aggregating assets. That operating partner is crucial. If we feel the operator doesn’t take the care of its residents seriously, we won’t take the deal even if we like the asset.

A different type of CEO

SHB: It’s rare to see a CEO of a big company highlight his favorite sports teams in a bio. How did you end up being such a huge fan of the Los Angeles Lakers and University of Southern California Trojans?

Matros: I went to USC for grad school in gerontology. Once I moved out here, I became a die-hard Trojan. 

All my kids went to USC, so it’s been part of my whole adult life. I’m on the board of the gerontology school.

When I moved here, the Lakers had Kareem Abdul-Jabbar, and then later had Earvin ‘Magic’ Johnson, so I just fell in love. I’ve been a season ticket holder for 26 years.

SHB: Tell me about Sabra Films.

Matros: That’s a bad habit I have. My son-in-law played the oldest kid on “Home Improvement.” He came to me one day and said he wants to produce a horror film. I read the script, I liked it, and wished him luck. He said, “I need more than luck. I was hoping you’d write the check.”

Right now we’re doing a documentary on the Los Angeles Lakers. After that I’m out.

I’ve got my two passion projects and then I’m done with it. There will be no more Sabra Films. All told there will be seven different projects I did. That’s enough.

Israel it’s my biggest passion outside of family and pro-Israel political advocacy is where I spend most of my time when I’m not running Sabra.

SHB: What’s something people in the industry would be surprised to learn about you?

Matros: One is I’m a comic book geek. But the primary thing is I love tattoos. I have about 30. As you can imagine, even if I had a lot less I’d still be the most tattooed CEO in seniors housing. I’ve been getting them for about 30 years.

SHB: How do people react to that?

Matros: I don’t hide it. The tattoos show. So when I meet with my investors they see them. They’re all cool about it. I’ve been around long enough that I can do what I want to do. They have to show up in their “uniform,” their suit, and I’m across the table in short sleeves with my tattoos showing.

I think that’s why everyone wears bright-colored socks now. That’s the one thing they can do. They have to wear those blue suits, but they can have bright, polka dot socks. They’re saying, “I can express myself, you know!”

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