Strawberry Fields REIT, Inc. (STRW) Earnings Call Transcript & Summary

Good morning. My name is Matthew, and I'll be your conference operator today. I'd like to welcome everyone to the Strawberry Fields REIT Second Quarter 2025 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I would now like to turn the conference over to Jeff Bajtner.

Thank you, and welcome to Strawberry Fields REIT's Q2 2025 Earnings Call. I am the Chief Investment Officer, and joining me today on the call are Moishe Gubin, our Chairman and CEO; and Greg Flamion, our CFO. Earlier today, the company issued its Q2 2025 earnings results, which are available on the company's Investor Relations website. Participants should be aware that this call is being recorded, and listeners are advised that any forward-looking statements made on today's call are based on management's current expectations, assumptions and beliefs about Strawberry Fields REIT's business and the environment in which it operates. These statements may include projections regarding future financial performance, dividends, acquisitions, investments, returns, financings and may or may not reference other matters affecting the company's business or the businesses of its tenants, including factors that are beyond its control. Additionally, references will be made during this call to non-GAAP financial results. Investors are encouraged to review these non-GAAP financial measures as well as the explanation and reconciliation of these measures to the comparable GAAP results included on the non-GAAP measure reconciliation page in our investor presentation. And now on to discussing Strawberry Fields REIT and our Q2 2025 performance. I wanted to start by sharing some key highlights. During the quarter, the company collected 100% of its contractual rent. On April 4, the company completed the acquisition for a skilled nursing facility with 112 licensed beds near Houston, Texas. The acquisition was for $11.5 million, and the company funded the acquisition utilizing cash from the balance sheet. The facility was added to the master lease of an existing third-party operator and the initial annual base rents are $1.3 million and are subject to 3% annual rent increases. On May 22, the company entered into a $59 million purchase agreement for 9 skilled nursing facilities located in Missouri. Eight of the facilities will be added to the existing master lease of our tenant, the TAI Group, and the 9th facility will be added to another of our tenants master leases Reliant Care Group. Combined, these facilities will have an initial annual base rent of $6.1 million and are subject to 3% annual rent increases. The company closed the acquisition on July 1, 2025, and funded the acquisition utilizing working capital. On June 24, the company issued ILS 312 million in Series B bonds on the Tel Aviv Stock Exchange, which is approximately $90 million. The bonds are unsecured and were issued at par with a fixed interest rate of 6.70%. Subsequent to this issuance, $30 million was used to pay down existing secured bank debt that had a higher interest rate. By making this paydown, the company will be saving approximately 100 basis points. A couple of other items I wanted to mention. During the quarter, the company continued to pay its quarterly dividend and on June 30, made a payment of $0.14 a share. For the upcoming quarter, we are excited to announce that the Board of Directors has approved increasing the dividend to $0.16 a share. This increase represents a 14% increase in the dividend payment and the company continues to maintain its dividend payout ratio below 50%. On the acquisition front, we closed on a couple of deals since the quarter end. The first was a $59 million acquisition in Missouri that I mentioned earlier in my remarks. The second was closed earlier this week for an 80-bed skilled nursing facility near McLoud, Oklahoma. The acquisition was for $4.25 million, which the company funded utilizing cash from the balance sheet. The facility was added to an existing master lease for a tenant of ours in Oklahoma and the initial base rents are $425,000 and subject to 3% annual rent increases. I would now like to have Greg Flamion, our Chief Financial Officer, discuss the quarter end financials.

Thank you, Jeff, and welcome, everyone, to the Strawberry Fields REIT Second Quarter 2025 Earnings Call. Let's begin with the financial position for the quarter. Total assets are $897 million, an increase of $261 million or 41.1% compared to Q2 2024. The asset growth was driven by 3 factors: our 2024 to 2025 real estate acquisitions, the re-tenanting of the Landmark master lease and the Kentucky master lease as well as proceeds from our new bond series issued in late June. The additional cash on the balance sheet was used as a source of funds for the Missouri acquisition that closed in July 2025. On the liabilities and equity side, we saw corresponding increases due to the financing used for the acquisitions and foreign currency translation losses and other comprehensive income. As mentioned before, in July, we acquired 9 properties in Missouri for $59 million. This slide shows a pro forma balance sheet detailing the impact of this transaction. The acquisition strengthens our regional footprint and supports our long-term growth strategy. Year-to-date revenue through June was $75.2 million, up $18.1 million compared to the same time frame last year. That's a 31.7% increase that was driven by timing and integration of the 24 properties that we occurred over that time period and the landmark to Kentucky master lease retenanting that began in January 2025. While we experienced higher revenues, the income growth is offset by higher depreciation, amortization and interest expense, which is driven by new property acquisitions. This results into a year-to-date net income of $15.7 million or $0.28 per share compared to $13 million or $0.26 per share in Q2 2024. Our quarterly performance has drivers consistent with those discussed in our full year results. Revenue growth increased by $8.6 million due to acquisitions and lease retenanting activity. Expenses increased through depreciation, amortization and interest expense. The quarterly net income is $8.7 million which represents an EPS of $0.16 per share. This compares to an income of $7 million in 2024 with an EPS of $0.14 per share. Finally, I'd like to end my presentation with some financial highlights. Projected 2025 AFFO is $73.4 million, up 31.5% versus 2024. The projected 2025 AFFO represents a 13.6% 2020 to 2025 compound annual growth rate. Projected adjusted EBITDA is $125.4 million, a 38.4% increase year-over-year. This represents a 13.5% 2020 to 2025 compound annual growth rate. Our net debt to net asset ratio currently sits at 49.1%. As of June 30, our dividend was $0.14 a share, representing a 5.3% yield. Our AFFO payout ratio remains at 44.1%, providing our shareholders with a healthy dividend while allowing the company room to make acquisitions. These results reflect disciplined execution to our company strategy and a continued focus on shareholder value. With that, I'll turn it back over to Jeff Bajtner, who will walk us through our portfolio highlights.

Thank you, Greg. I would now like to present the portfolio highlights of our collective portfolio. These numbers include the recent acquisitions in Missouri at the beginning of July and also the acquisition that we closed earlier this week in Oklahoma. The company now has 141 total facilities that we own. That is 15,418 beds. Our total asset value at acquisition is $1.1 billion. Currently, we have 16 consultants advising to our operators. Our weighted average lease term is 7.4 years. Our portfolio's EBITDARM rent coverage as of May 2025 is 1.98x. Our net debt-to-AEBITDA ratio is 5.6x. We are -- we continue to be proud of our rent collection. That's 100%. And as a final point, our pipeline is currently -- our acquisition pipeline is currently in excess of $300 million. I would now like to hand over the microphone to Moishe Gubin, our Chairman and CEO, as he continues the presentation.

All right. Thank you, Jeff. Hi, everybody. I finally get the fun task of doing the Peacock walking around over here talking how good that we're doing. As you're saying on Page 6, you can see how our projected 2025 AFFO was over $73 million. I previously predicted $75 million. We might still hit that. But in the meantime, our projection today is $73.4 million. Our projected 2025 versus 2024 AFFO growth is over 31%. Our growth rate from the last 5 years being a 13.6% growth rate. Our projected 2025 EBITDA, I don't really look at this number, it was $125 million (sic) [ $125.4 million ] That's also growing at a nice clip, year-over-year, 38% and over the last 5 years, also 13.5% growth. Our net debt to net assets, super proud, less than 50%. And that's after raising debt. Our stock price is still in the dumps and as such, we weren't selling equity during the second quarter. And to fund our growth that we needed to do, we took on debt, and we brought our net debt to net assets to be still below 50%. Our dividend yield as of June 30 was 5%. And as Jeff said earlier, the Board of Directors today approved -- or yesterday approved a dividend increase from $0.14 to $0.16, which puts our dividend yield, I think, at today's price about 6.4%. So our projected AFFO payout ratio is still under 50% which comparatively to our peers is better than everybody. Okay. On Slide 7, you see our beautiful graph that from 2020 to 2025, like I said earlier, just 2 minutes ago, was a 13.6% growth rate, $38 -- close to $39 million to $73 million. And that's really a testament to how we buy everything. As you all know, our disciplined investor approach has us earning a 10% cash-on-cash unlevered return on day 1, and that should continue. We don't plan on changing how we buy and what we buy. Next slide. This slide, just simply similar to the growth rate like the AFFO, our base rent, we hit -- we're projecting to hit for 2025 over $135 million top line rent. Super proud of that. We need to keep growing, obviously, to catch up to our peers. Next slide. This, unfortunately, is our stock price. It's part of our slides because God willing, in future quarters, we're going to be able to do a victory laugh as we hopefully start hitting highs. Our year high, I think, is $12.90. And right now, we're somewhere near a low for the year for absolute no reason. Our returns are better. Our -- we continue to be able to make good investments with no bad debt. So on Slide 10, like I was just saying about our stock price, on one side, unfortunately, our 1-year total return versus our peers has -- we've become the bottom. And in our AFFO trading multiples, you see we're being traded a lot lower than our peers. I'm hoping at some point, the investment public realizes what a deal our stock is, and our stock starts trading closer at least to the next tier of LTC, Omega and Sabra to be the mid-12x, which should put our stock price probably somewhere at $14, $15 a share. Next slide. On Slide 11, you see our payout ratio. We're the lowest comparatively to our peers, at 44%. Even once we increase the dividend, I think we still stay below 50%. So we have 2x coverage of our dividend. Our dividend yield at 5.3% is the low -- is at the low end. But like I said, once we increase the dividend payout only third quarter, but for the second quarter, we'll be closer to 6.4%, and that's hopefully before the stock hopefully moves a little higher. Next slide. As we've talked about in previous quarters, we are the pure play -- closest pure-play SNF real estate investment trust out there, but over 91% of our portfolio is skilled nursing facilities. What used to be most similar peer to us is CareTrust, and now they are at 50.9%. And so we're not -- there's nobody even close to us. And we believe that the nursing home market, the SNF world, is a great area for us to be in. I mean, we have expertise, which mitigates risk for tenants going bad, which we haven't had. And it's one of the only businesses that is most of our tenants revenue stream comes from the government which is protected. Medicaid, they're not doing anything to the Medicaid program, even though it was scared most recently but that didn't play out to be anything important. And again, we always tell people like how our business is a need-based business as opposed to a lot of the other REITs are want-based business. If mom needs to be in a nursing home, you put mom in a nursing home. In the want-based business, assisted living, if you can't sell your house, they don't move into assisted living or retail or all the other kinds of REITs, maybe with the exceptions of like the REITs for prisoners and all that, but post offices. But for the most part, most REITs are wants, retail, multifamily. In this case, we're a need. And we think we're supposed to be. With my background and my management team's background being in the nursing home space previously, it provides a good support for our company for -- if there's any issues needed strength and support from us. Next slide. Just comparatively to our peers, again, this is going to become not a good data set because as they move away from SNFs and they are who they are. This will -- this should change. But in the meantime, our EBITDARM coverage is close to 2. That continues to improve. Most recently, all of our Missouri portfolio, July 1 got a major increase to the rates. Tennessee, same thing as expected. And so our -- and I'm not sure a couple of other states but we should see an increase in the EBITDARM coverage ratio. And we're right in the middle of the pack. As far as the AFFO share growth. I think that's the big difference. An investor that's out there that's just looking at dividends, and they're not looking at the total return, they may not realize how great of investment this is. When you take a look at our AFFO share growth compared to the peers, we're at an 11% growth rate where most of the others are at a negative growth. You take that $11.1 growth in AFFO per share and you add to the dividend yield, we're talking about a 16% to 17% return for the average investor buying our stock today. And that's without the upside of the stock being traded at such a low value. So we feel that's a very attractive stock to own. Next slide. This is one of my favorite slides where we talked already about the payout ratio, and we just talked about the AFFO share growth. This just puts it to you showing you the growth over the last 5 years, just year-over-year from $1.11 to $1.27, $0.16 on $1.11 is close to 14% for the year. So it's positive, and we're really proud of our company. Next slide. On Slide 15, we're kind of aging out of this slide as well. Our company today, we're morphing into similar territory as our peers, still at a 50% debt, like we talked about before, and our range target range of 45% to 55%. But if you look at this chart, you see how the bonds have taken over as being our largest source of debt. I love the Israeli market. And the Israeli market seems to love us in return. We just did a successful bond raise in the second quarter that we were oversubscribed by almost 3x. And because the dollar was so weak, we took more money so that we could pay down American debt that was in dollar denomination. And we didn't recognize -- we recognize the unrealized capital gain on the currency exchange because we were able to pay off at a very good exchange rate, which, once everything settles in 3 years, whatever it is, we should recognize north of a $10 million currency exchange benefit. I know in this quarter because of the dollar becoming weak, or weaker on our balance sheet, you'll notice a decrease in equity, which is based off of the recognized loss on currency. But in reality, we're way in the money, and I expect all of that to go away and turn positive and actually we'll realize net income from the currency at some point. That being said, HUD is 34%, 35% and the banks are minimally getting smaller. We do have expectation. I know last quarter, one of the analysts asked and we've answered, and we're on target to do exactly what I said earlier, which is we're going to refinance bond Series C, D and A in the next 12 months. And whatever the marketplace can absorb in Israel because of size, and we're going to do staggered maturities so that we don't have in the future maturity date of too much in one time. But then whatever we don't do in the Israeli market, we will do in a conventional unsecured credit line with one of the banks. And so hopefully, by the end of '26, we should be in a nice spot between HUD, bonds and banks. And similar to where we're at, maybe 1/3, 1/3, 1/3. I'd like to get the HUD debt to be a little higher. But in the meantime, we're still in the same range of 1/3, 1/3, 1/3 with the banks being the low end of that 22% and the bonds being the high end at 43%. Next slide. Slide 16 has become my favorite slide. If you look at it, it's -- we've diversified our portfolio by state and by consultants, by rent. And today, with the anomaly of Indiana being 25%, which is 1 tenant and 2 master -- I think 2 master leases, outside of them, everybody else is below 18% as a percentage and as a group. And we're going to continue to diversify and we're going to continue to keep growing the wedge here that's other and the wedge there is Missouri. We're not growing Illinois. We're not growing Kentucky at this point. Tennessee God willing, Indiana, God willing and new states God willing as well. And so this is really nice. Like we've talked about before, when we started this 10 years ago, 11 years ago in the form that it is now. We were 2 states with 1 operator, and now we're a lot more states with altogether at 16 master leases. And thank God, it's gone very well. Last slide that I'm presenting is 17, that just shows you the map. We're growing. We're growing, 141 properties. It's exciting times for us. And with that, I believe I'm handing it back to Jeff.

Thank you, Moishe. This marks the end of the company's prepared remarks. I would now like to hand it back to the operator who will be presenting questions to us from our analysts. Thank you so much.

[Operator Instructions] Your first question is coming from Barry Oxford from Colliers.

Moishe, when you look at your tenant base, I know you collected 100% of the rents. But do you have a tenant or 2 that you might have on a watchlist currently? Or is the health of your tenants all pretty strong at this particular juncture?

That's a good question, Barry. I would say that our -- if there's any weakness in our portfolio, it's not a facility or operator, it's more the state. And right now, State of Illinois, which used to be our biggest part of our portfolio now is smaller, thankfully. Illinois still is the laggard. That has to do with reimbursement and staffing still, which is like an old topic, but no one really talked about anymore, which thankfully because [indiscernible] Might to defend it. But they're still paying the rent and they have a coverage over 1, but they're not -- that's still our struggling space today. We're retenanting a few of those properties at similar rent than what we're getting now. It will increase our wallet by a drop because we'll reset them for 10 years. But I don't -- we don't really have anyone that's really struggling that's more of a watch than what we do to begin with. I mean just to give you an idea for our way of asset managing, the asset managers are typically keeping an eye on surveys. We have a nurse consultant that's reviewing surveys from all of our tenants facilities, and we're constantly monitoring what's going on there, and then we're in touch with the operators when there's a problem and we push to get results. And if we have to even offer help with our nurse consultant helping them, it hasn't happened, but we offer. And so we're keeping an eye on survey stuff. As far as financial spreads, we're doing that on a regular monthly basis when we get the data. And so everyone's watched the same way. But I guess the real eye today is the push from the associations in Illinois to push for the reimbursement to improve. And it's just the perfect storm. It's price-based reimbursement, so you need to -- you have to live within a budget, and then they put pressure on operators with union contracts and other things, which -- I'm pro-union, happens to be. But regardless, the unions over there have gotten a higher base wage than everywhere else in our portfolio. And so the reimbursement has to catch up to it. So I think that answers your question. We're watching what's going on. We don't have anything ranger danger, but we have stuff that we're -- our eyes on. And I'm not too worried. Things will work out, God willing.

Right, right. But you touched on reimbursements, and you talked -- touched on the expenses. But is there some overriding concerns about Medicaid and how much they're going to bump?

So again, the program -- the Medicaid program is administered basically in 2 ways. It's either price-based or cost base. So -- and to be specific to our portfolio, really, Illinois is the only price-based state. And from that point of view, Illinois has historically always taken care of elderly and Medicaid program. And there's no real pressure on them. There's no pressure, of course, to cut anything, but the pressure is for them to keep up when there's rising costs. And historically, Illinois was always a little slower on the uptick. And so I would expect -- I mean, rates have gone up. Don't get me wrong. When I first started this business, I think we have one of our buildings out here that I was part of the operations. We were getting $90 a day or $94 a day as a Medicaid rate. I think today, our average Medicaid rates are between $250 and $300. And that's 20 years later. So I don't know what that equals if somebody could figure out the math. But I think that's a pretty good clip as far as increased costs and increased revenue. I'm not too worried. At the end of the day, the reimbursement, the legislature based on price-based reimbursement, the only way it works is the state legislators have to go down to Springfield and then they have to allocate more resources and their constituents and their districts are all pushing, and we're pushing as an association. Any chance we get to talk to the politicians because they're the only ones that can do it. It's not an active Congress. It's an active state legislature. And so I'm certain everything will work out. It's a blue state and the blue states always are better for caring for people as far as finding the money to fund these things. And I'm not too worried. It's an item -- you brought the question up, so I gave you an answer. But reality is this is -- I'm not losing any sleep over this.

Right, right. And last one for me, switching gears. You have a decent acquisition pipeline right now. But given where your stock price is, how do you think about your cost of capital? And how do you think about financing future acquisitions without getting too far out on the debt metrics?

Yes. That's probably the most popular question I get when I talk to investors. I mean that really is because there's -- the parameters that you want to stay within that you don't want to upset the average investor that's looking for us to be within a certain range on things. If all things were equal and I had nothing to worry about, and I knew that there was a brand of investors out there that would support my stock because our returns are going to be better than the next guy, then I would push our debt level higher. Our range is 45%, 55%. But my background in real estate, there was times where I was 80% levered in my portfolio 20 years ago. We haven't been near there in many, many years. But I guess push comes to shove, some point down the road, if the leverage really got to a point that it was like at 55% and we had a sweet deal, I probably end up selling equity cheap or take a mix of equity and debt because I really want to respect the investor marketplace. I mean I work for the shareholders regardless, but the investor marketplaces make or break in the long run of our company's stock and how we're looked at by you guys, the analysts and by the investors themselves. So I don't want to lose that trust, and I don't want to lose the faith that they may have of us doing things responsibly in a normal range. So today, we don't got to worry about it. 50% leverage, which gives us an ability just even if we got to our own 55% internal limit gives us enough room to add a bunch of debt if we needed to. And all of our banks and all of our lending has us 65% leverage, which we're never going to get to. I mean, I can't see myself ever really doing that because that's like hitting like the ripcord that half the people that want to own our stock a certain way, would have to dump our stock because we would get out of the parameters that most people are comfortable with. And that I don't want to do that. So I think that answers your question. I -- this is a better question to ask if we end up finding a deal for $200 million, $300 million and the stock is still trading at $11, which is terrible. But if that would happen and then you say to me, Moishe, what are you going to do? And then I'm going to tell you, Barry, I'm going to make your work and we'll probably end up taking equity and we shouldn't. But I think that's the move to make sure that everybody stays happy with us.

Your next question is coming from Kyle Katorincek from Janney.

Just pigging-back on Barry's question. Just trying to get an impact of potential reduction in provider taxes at the state level in the way that Medicare -- or Medicaid is financed?

It's good to hear your voice as well. Yes, that's another -- that's a good question. Really, our portfolio, we're only really affected, I believe, in Indiana. Indiana, I think, max out on the IGT or UPL, depending on how you want to call it, in the federal matching. Very much as it pertains to the program that they're referring to. So Indiana happens to be our strongest state. We have coverages over 2. Tenant does real well. The relationships with the hospitals there are really strong. And there's a lot of upside still. But that -- they're actually our weakest census state, though I've told the investor public over the years, previous meetings, how we're an efficiency -- our tenants are an efficiency business, not an occupancy business like a lot of other REITs because most of the expenses on our tenants are variable and minimally fixed, whereas the other REITs are mainly fixed and minimally variable. So that being said, there's so much room for that tenant to increase bottom line, even though they're really our best performing state financially. But there's so much room for them, and they'd be able to absorb. And I don't know if I want this on the record and some politician hear says that, well, Moishe said, that they can absorb a cut. But the reality is that's really our effect in our portfolio. And that doesn't mean that we don't buy into a state and a new state with a new portfolio that can be affected by something over here. But you keep in mind that the starting point -- these are good talking points by politicians but the reality is that most of these programs were created for rural states that have rural communities that I don't know. Did I lose you people or did I...

I can still hear you.

I'm sorry. Yes, my screen went blank. I thought maybe I lost power or something. So like I was saying, so like the programs were created to bring revenue to -- they wanted hospitals in smaller -- if you needed to go to a hospital, they don't want you driving half an hour or 45 minutes or an hour to somewhere else. Same with the nursing home, they didn't want you -- if your mom is in a nursing home, you have to show up an hour each way to a nursing home and somewhere else. They wanted a nursing home like per county. So it wouldn't be too far. So even though the politicians have good talking points and are -- this is a good topic to talk about. The reality is that the underlying point that they want to accomplish is they want to have health care local to where people are and they want to meet the needs. So states like Indiana, which is why they're using the most of it, you have counties with 5,000 people in them like Jasper County or Roselawn or other counties that are -- Newton County, like these are counties that have minimal -- not even 50,000 people, maybe 20,000 people, and they want them to have a nursing home nearby that they don't have to show up far away. So again, I don't think in the grand scheme of things, these kind of changes are really going to happen. I think the changes that the government wants that will end up doing and rightfully is make sure that the people that are supposed to be on the Medicaid or the ones that are on Medicaid. It wasn't meant for legal aliens, it wasn't meant for a bunch of other people that are -- I remember when I first started in this business, right, you had to prove that you're a citizen. And even that you had to prove that you were sick, and you had to get some kind of assessment of preadmission screening that really proved out if you were under 65 that you were eligible and deserving. And now they became so loose that you have all kinds of people that can get on there. So Kyle, I don't know if I answered your question. I think I did. I believe at the end of the day, a lot of this stuff, which is healthy discussion, but in reality, unless they really want to go to a point where people really can't visit mom, it will be so far away, I can't really see them really destroying it like terrible. And if there is a little bit of a cut, the one place that can take the cut is the place that would get the cut. So I think that's the answer.

Okay. I appreciate it. And then one last one for me. You mentioned Tennessee and one other state had major increases to rates. How much did they increase over prior rates?