Rick Matros, CEO of Sabra Healthcare REIT (Nasdaq: SBRA), has seen financing come back in a much bigger way for senior housing, compared to nursing homes. Lenders are a lot more selective, and facilities are still recovering from the pandemic years.

In terms of the types of financing, particularly with the U.S. Department of Housing and Urban Development (HUD), Matros said the program runs at “a snail’s pace” – when available.

“We call it the most expensive, cheap capital you can get because it’s so difficult to manage, and the administrative hurdles are just terrible. To me, they are the epitome of government bureaucracy. They just can’t get out of their own way,” Matros told Skilled Nursing News.

In our December RETHINK podcast, the Sabra CEO spoke about financing in the sector, why the staffing mandate is a nonstarter, and discussed a staggering number of technology pilots the REIT is spearheading to help its operator tenants with everything from addressing falls to smart labor management, better lighting, air circulation systems, and remotely monitoring vitals.

Matros also discussed Medicaid rates, and why decent percentages may have an expiration date.

Highlights of the podcast, edited for length and clarity, are below.

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SNN: Let’s talk about financing in the skilled nursing space. What challenges have you seen to financing in the industry, and what might be expected for the new year?

Matros: So generally, financing just hasn’t come back very much for skilled nursing, it’s come back a lot more for seniors housing. There’s just not much available skilled nursing financing. There is HUD availability, but HUD at its best is extremely slow, and it’s even slower now.

You combine the slowness with the fact that, understandably, they’re also going to be a lot more selective, given how many operators are still recovering from the pandemic, and it leaves operators who need financing in a tough spot outside of the REITs, obviously.

How might the federal staffing mandate affect financing in the skilled nursing sector? Can stiffer regulations on staffing impact lending in the space?

Well, I don’t think the staffing mandate is going to happen. I think it’s a non-issue. We’ve got the lawsuit, and this Chevron decision should make it even easier to beat it, although we thought we had all the facts on our side to begin with. We’ve got a legislative path as well.

I think the operators that would get hurt are the more traditional, mom-and-pop kind of Medicaid shop, traditional long-term care operators. They’re not on the right path. If that’s your strategy, if it is to stay a traditional long-term care provider, you’re probably not going to make it in the long run regardless of the staffing mandate.

Do you think HUD will expand their program to incentivize improvements in quality and care models for nursing homes? I know the Moving Forward coalition was pushing for this, and HUD lending was rising at the beginning of the year.

I don’t have that expectation. It’s a program that moves at a snail’s pace. We call it the most expensive, cheap capital you can get because it’s so difficult to manage, and the administrative hurdles are just terrible. To me, they are the epitome of government bureaucracy. They just can’t get out of their own way. It’d be nice to think about, but I have zero expectation and if I’m wrong, then I can be happily surprised.

You’ve said that Medicaid rates are a positive sign for nursing homes. Do you expect this trend to continue?

I think they’ve pretty much done their job in most states, not all states, obviously. One of the silver linings of the pandemic was … the underfunding of Medicaid became apparent to states during the pandemic, when operators were just closing their doors.

A lot of states really stepped up with F-MAP [federal medical assistance percentage] funding. Some of them made it permanent. Now you’ve got inflation from 2021 and 2022 that are catching up with the state formulas for Medicaid. My expectation is we probably have one more year of outsized Medicaid rates; I don’t think they’re going to be as high next summer. In 2026 it’ll start coming back down.

Last February, Sabra sold a sizable SNF portfolio at $200,000 per bed, almost double the national average, and other deals since. Anything you can say about future investments or divestitures looking toward 2025?

Over the last couple of years, there’s several groups of private buyers out there that are operators and they’ve been looking to grow portfolios. A strategic buyer can pay more for a facility than an operator, than a REIT can, because we’re just buying the real estate. For them, the value of the deal wasn’t just in the value of the facility itself or the operations of the facility, but the revenue that facility would generate from their other businesses. Not only Sabra, but some of our peers as well, were able to get some pretty incredible prices for the portfolios that we sold.

For us, we’re pretty much done with all that. It’ll be an ordinary course of business. We have a couple things that aren’t nearly that big that we’re working on, but not much left. After that, it’ll be what you’ve seen historically when everything was more normalized, which is, every once in a while you prune a facility or two here and there.

How does Sabra plan to leverage technology and innovation with assets?

The primary thing that we’re doing is introducing pilot programs with different kinds of technologies to our operators, so we can try different things. There’s so much out there. You’ve got some percentage of those products that are going to get rolled up into other products. You’ve got some percentage of those technologies that are just going to go out of business because there’s so much competition.

We’ve already done over 60 different pilots with different technologies. It’s everything from addressing the issues with falls, to smart labor management to better lighting and air circulation systems to monitoring vitals remotely. Our hope is that with all these pilots that we’re doing, that we’ll be able to ascertain which have been the most effective for our operators, and then share with all of our operators which products work better than other products for whatever modality we’re talking about. We’ve got resources dedicated just to that because it’s critical for us to help our operators get to another level from a technological perspective. Health care has been so far behind other spaces historically with technology. And long-term care is even more so.

This podcast is called the RETHINK podcast. What should leaders, government agencies and the public rethink about the skilled nursing sector?

In terms of [government] leadership, they need to start thinking about what they’re going to do to address the access crisis that has already started happening, and involves so many different things in so many levels, from [certificate of need] to the cost of building a skilled nursing facility; the industry is so regulated and there are so many hurdles.

At the operator level, look outside your four walls. What are the opportunities out there with insurers, with health care systems, with [institutional special needs plans] I-SNPs? We’re not just a straightforward Medicaid and Medicare business any longer. We’ve got to look to partnerships. What can you do to be more innovative, to make your facilities more welcoming?

To listen to the complete episode, click below:

Rethink Podcast: Rick Matros, CEO of Sabra Healthcare REIT