Bridge the Gap: Healing Ink Tattoos, REIT Culture and More: An Interview with Sabra CEO Rick Matros

Thanks for having me. I appreciate it.

Sure. So I went to grad school in gerontology and took my first job as an activity director in a nursing home. Actually, we were double hatters back then — I was activities and social services. You don't do that anymore, but back then I got my administrator's license. The first job I had, the company went bankrupt on my third week. Not like a bankruptcy today; we had debtor-in-possession financing, all this. We had no payroll, and I was 23 and like, 'What the hell?' But I really liked it, actually. My whole background had been psychosocial, and I still to this day never had a business course. I just had this acclamation for that I didn't know I had. So after that, I pursued turnaround opportunities and things like that, and wound up with a company that was pretty entrepreneurial. Culturally, it was a good fit for me. The guy who was running it sort of took me under his wing. Then we got acquired by a really large company, and that was very traditional, top-down, buttoned-up corporate culture. I didn't wear Brooks Brothers; I liked European, had earrings, my hair was long. It was tough. I did pretty well there, but I just couldn't breathe. I made a promise to myself that if I was ever in a position to have some level of leadership, everything would always be about the culture. Our business is a mission-driven business, and if you don't have a culture where everybody who comes to work every day — no matter their position — believes they bring value to the business and that you don't think you're any better than they are, because you're not, you maybe have this position and make more money, but that doesn't make you a better human being. So I looked for those opportunities, and they usually wound up in the realms of bankruptcy. That's really what I did. Culture was always the centerpiece of everything I try to do because that's the only thing that can differentiate you from the guy down the street you're competing with. I did a couple of bankruptcies, grew those companies, and actually left the industry about 20 years ago after I sold the last one we had turned around. I got into the dental business and the traumatic brain injury business, started two other companies. Then, remember about PPS, there were a lot of bankruptcies, so I started getting contacted. I went into some healthcare, got them out of bankruptcy, built them. About nine years ago, we created Sabra, the REIT. We spun it out of Sun, took all the real estate, separated the two companies. I decided to jump over to the REIT primarily because I'd given my life to operations, and operations, as you guys know, is 24/7. By then, I'd been getting involved in a lot of other causes and organizations important to myself and my wife, and we knew we'd have grandkids coming. I wanted to have more time. At a REIT, you're really kind of a deal shop. I went from 30,000 employees to seven in one day going from Sun to the REIT, which for most people is enough reason to make the change. In nine years, we've gone from $700 million in assets to $7 billion, and from seven employees to 32. That's it. One of the joys of being at Sabra is, when you've got tens of thousands of employees, no matter how hard you try, it's hard to have that culture consistent throughout. You've got a lot of local leadership, everybody's got their own styles, it's a constant challenge. But at Sabra, we pretty much have almost everybody in one place, and it's not that many. The way we structured it, we outsource all traditional corporate functions — legal, HR, IT, payroll. We don't do anything. The only people that work at Sabra are the ones focused on that mission: investment specialists, asset managers, finance, that kind of stuff. I've been able to do everything I always wanted to do for my employees. Everybody gets equity in the company. No one's on the clock. Two-thirds of our workforce is millennial, so that kind of culture suits that group. We've had the same senior and middle management team since day one; no one's left the company. Two-thirds of the workforce is female. It's been great. In December, I take all the employees to Cabo for a couple of days just to have fun and be thankful for the year. There's no education, no agenda. All my employees get invited to every one of our quarterly board dinners. There's no difference in benefits for anybody ever. Everything is kind of the same. It's really been fun.

Sure. One, I think, is don't be afraid to fail. You learn more from failure anyway, but you just can't be afraid. It doesn't mean you take thoughtless risks; you can take thoughtful risk. What's really the downside if it's thoughtful risk? It's not going to destroy the business or anything. But it's important if you really want to have that mindset, you've got to be in a culture and a company that actually supports that mindset. That's really critical because that's what builds people's confidence over a period of time — 'Man, I messed up, but I'm going to learn from it and be better for it.' That part's really cool. The other is just really staying humble. You see people that become successful, and they just think they're the smartest person in the room. For me, I always surround myself with people who are smarter than me, have completely different skill sets. I think you can't — if you're successful at all, everybody that's got any level of success, whether in sports or academics or whatever, has a healthy ego, but that doesn't mean you can't be humble. I think that humbleness is important. When you lose that, you lose sight of what makes things work. In our business, if you're not humble, stuff happens all the time, and you're responsible for people's lives. If you're fortunate enough to have any level of success, you have to be self-aware enough to make sure you don't let that stuff get to your head. So those are just some guiding principles.

One, I think it's somewhat — my wife says I'm a mental millennial. I think it's a compliment. But a couple of things: when we bring them in and talk about the job, I try to meet everybody before they get their offers. We talk about having an environment that is collaborative. We really trust them. They're not on the clock. We want them to be able to have balance in their lives, which is a really big issue for them. There are cycles where in any business it's 24/7, but then it's not. If you want to take a couple of days off and go hang with whatever, we don't care. Having a culture where they know they can make some of those decisions as long as they get the job done really helps. The organizational structures are there to keep some semblance of order, but that doesn't mean you have to go up and down to get things done. That sort of cross-communication — just go and talk to whoever you want whenever you want in the company. It's the same thing with having employees at the board dinners. I'm not going to be paranoid about my board members talking to whoever they want in the company. Most people that have been around for a long time aren't used to that. My board members weren't. But for younger individuals, people in their 20s and early 30s, to have that kind of exposure and trust — I think that's really what it is. It's exposure and trusting. I'll sit around and talk to them about whatever, doesn't even have to be about the business. Sometimes they just go through some crap and want to talk about it, and sometimes it's easier to talk to someone that's older that isn't your parent. We have a small enough group, so why not do all that stuff? You read about leaders struggling with actually taking on the problems of your team a lot of times. You almost have to be a psychologist.

No, that's a really good point. I think my — I was a psych major in college and kind of psych in gerontology in graduate school. I think that has really helped me a lot. It's helped me to trust my instincts. You can look at deals and things, you've got all these numbers, but at the end of the day, you've got to just feel like it's right. It's the same thing when I interview people that come onto the team. I don't want to have a conversation with them about their abilities because they've already interviewed two other people, so I know they're technically competent. I just want to have a conversation so I can get some sense from a chemistry perspective if they could fit in the culture. There are some people that flourish in environments that are more prescriptive, and there's nothing wrong with that, but if that's what you best function in, you're just not going to make it with us. So that's where I think it's helped me with a lot of that stuff.

I think a couple of things. I practice yoga every day. I never miss a day, whether I'm on the road or not. That actually helps a lot. I don't just love tattoos — I've been getting tattooed for 30 years — but I'm involved with a project called Healing Ink, where we bring really well-known tattoo artists from the States to Israel every year, and they tattoo survivors of terror attacks and IDF vets that have physical wounds and PTSD. The same group was just in Virginia in December for the one-year anniversary of the massacre there. We had tattoos at the Pulse disco in Orlando where the shootings were. It's a way for people to reclaim their bodies and heal in a way they didn't think they could. There's a point to all this. No love story ends. Being involved — I know a lot of tattooers, we're really good friends. It's the opposite of the City Bank conference I just came from or the Welles conference last year. The groups I interact with couldn't be more different. It helps keep you fresh. We were in Israel with the group in November, and one of the tattooers, his name is Southpaw, was playing these songs. I said, 'Oh, that's from the Baby's new album.' They were like, 'What?' Everybody there was in their 20s and 30s. I make recommendations to my kids all the time. I buy new music every week, and that really helps. I never understood how people hit a certain point and don't listen to anything after that. I love music, so every week I look at everything new that's coming out and pick stuff.

Yeah, check it out. It's Healing Ink. You'll see really cool stuff, the story, videos. You guys will cry.

Yeah, I get there a lot. I work with a lot of different groups there.

It's hard to say. You can't pick your favorite child. It's usually my most recent, but this one is actually one of my favorites. It's the sacrificing — you got Abraham, Isaac, the lamb, the angel. There's a lot going on, a little story there. This was done by Waseem Razoo, who's got a tattoo shop in the old city in Jerusalem. It's the oldest tattoo business in the world. His family started it in the year 1300 in Egypt, and it's been passed down from generation to generation — over 700 years.

Yeah, I've got like five from him. He's just an awesome dude. He's a Christian Arab living in the old city.

Yeah, so a couple of things. One, we're a little bit different than our peers in that I've spent my whole life as an operator. My CFO's from the operating side. My whole asset management team are operators. That's not typical of a REIT. Most REIT asset managers are super smart MBAs from the financial market. We speak the same language and understand the ups and downs. From a cultural perspective, when I was on the operating side, I had leases of every REIT, so I knew who I'd like to work with and who I didn't. So it's easier for us to get involved in doing some different things with them. Outside of that, we are the first REIT in the behavioral space. We're in the addiction space. The addiction space is brand new, very young. We just formed our first two relationships on the addiction side. Fortunately, our country — too many years too late — policy is changing. There's a level of awareness that mental health issues are real and addiction issues are diseases. Those are spaces that are relatively new to us. No one else is really in them. It's a little bit hard to grow in them because there aren't that many tried and true operators, so it's going to take a while. In the addiction space, there's a lot going on with different models. Everybody hears about 12-step, but there's a really high recidivism rate. Is that program as effective? You guys are in the business — how many times do you think you can put a cookie-cutter program together that's going to be good for everybody? We're trying to align with operators that are taking a different look at things, having things like we would do in our facilities, whether skilled or senior housing, where you tailor things specific to the needs of an individual. We're really excited about being in those two spaces and hopefully being a good capital partner that will result in some good for folks.

Yeah, I think at some point. You are seeing that in the behavioral space where you've got the complete age range that get treated. I do think you'll see that. I think it's a ways off, but look, the opioid addiction brought a whole different level of awareness. The only problem I have with the whole thing — and let this be my political statement — is because it hit middle-class white America. No one cared about the crack epidemic because it was inner-city. I'm glad it's all happening now, but that kind of stuff is always interesting to me. Yeah, soccer moms have opioid addictions, so we better put a lot of money into it. There's a lot of truth to that statement. It's needed. I wish we'd get to a point where everybody's treated with the same level of importance in terms of services.

Yeah, otherwise what's the point?

Yeah, so it's really only been in more recent years that our industry's been viewed as a valid career path for well-educated people. I think it's incumbent upon those of us that have experienced it to go to other schools that are trying to do that sort of thing and invest some time. I do classes every year at the gerontology school beyond just speaking and mentoring. Students need to see that they can have viable careers, and not just viable careers, but a job where you really make a difference in people's lives. One of the things I always loved about being a nursing home administrator is you get out of school at 23 or 24 years old and you're running your own business. You have to learn everything — clinical stuff, business stuff, marketing stuff. You've got all different kinds of employees with different skill sets. It doesn't matter who you work for; you are the leader in that organization, and you're imprinting it. How many other jobs give you that? None. If you're someone with an independent streak or want to be a little more entrepreneurial, what a great environment to do that in. There are so many levels on which it should be really attractive to people. For the new generation that really likes to have that independence and kind of want to do it the way they want to do it — you still have to work within the framework, obviously — but I think there are some really good opportunities there. I think we all need to spend time doing that kind of outreach and showing people they can have a really fulfilling professional career.

Yeah, and plus other countries are so far behind. You've got huge demographic issues like in Asia. One of the things we see at the USC school is there are a ton of international students, and they really do. We're not here just to serve the elderly in our country; you want to serve the elderly period. To the extent you can do anything to impart something to students that are coming here from other countries, I think that's really important as well.

For us, it's all about focusing on growth. We did a merger a couple of years ago. There was a lot of noise associated with it; we knew there would be, but we were trying to reposition the company and get it to be a little bigger and stronger. We finished the repositioning about the end of first quarter last year. The rest of last year was focused on the balance sheet. We delivered our first two investment-grade bond offerings, and that was part of the result of that merger — getting to investment grade. We redid our credit facility; we have a billion free on the line. We finished basically all that repositioning. So now it's let's really focus on growth, plus keeping it simple. The street — we're public — the street doesn't like noise. We had noise for about 18 months. They'd rather have bad news because they can model bad news; you can't model noise. So we're trying to stay away from all that value creation stuff and just do more predictable, stable kinds of things. But it's all about growth for us.