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

Good day and thank you for standing by. Welcome to the Strawberry Fields Fourth Quarter and Year-End 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. At this time, I would like to turn the conference over to Mr. Jeff Bajtner, Chief Investment Officer. You may begin.

Thank you, and welcome to Strawberry Fields REIT's year-end 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. Yesterday, the company issued its year-end 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 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 2025 performance. I want to start by sharing some key highlights for the year. Throughout 2025, the company collected 100% of its contractual rents. This is something we are very proud of as collecting our rents year in, year out shows our disciplined investment approach works. On January 1, 2025, the company retenanted its 10 Kentucky properties, formerly part of the Landmark master lease. The new tenant, Hill Valley has a strong background in operating skilled nursing facilities and was a great fit for this portfolio. The new rents -- the new base rents are $23.3 million a year and are subject to annual increases of 2.5%. The initial lease term is 10 years with four 5-year extension options. Also in January, the company entered the state of Kansas by acquiring 6 facilities consisting of 354 beds for $24 million. The company entered into a new triple net master lease with Willie and Michelle Novotny of AdvenaCare (sic) [ Advena Healthcare ] for an initial 10-year term that included two 5-year extension options. In June, the company issued ILS 312 million in Series B Bonds on the Tel Aviv Stock Exchange, which is approximately $89.5 million. The bonds are unsecured and were issued at par with a fixed interest rate of 6.7%. This was the company's sixth series completed on the Tel Aviv Stock Exchange since the company was founded in 2015, and we look forward to maintaining this long-standing relationship that Moishe has grown into future series. In July, the company completed the $59 million acquisition of 9 skilled nursing facilities comprised of 686 beds located in Missouri. Eight of the facilities were leased to the Tide Group led by Brian Ramos, and were added to its existing master lease the company entered into in August of 2024. The ninth facility was leased to an affiliate of Reliant Care Group, led by Rick and Nick DeStefane and were added to their master lease the company assumed in December 2024. This deal highlights the company's goal to grow its master leases. When there is a deal in an existing state or with an existing operator, it is very easy for the company to get the deal done. It's almost like plug and play as we do not need to renegotiate the lease or other terms with our tenant. We can simply add the new facility to the existing master lease and business goes on as usual. During 2025, the company continued to pay a dividend of around 5%. We started in Q1 with a dividend of $0.14 a share. And in August, the Board of Directors increased the dividend by $0.02 to $0.16 a share, which represented a 14% increase. As a final point, as we detailed in our earnings release yesterday and as both Moishe and Greg will discuss further, 2025 was the best year the company has had since its inception. Over the last 5 years, the company has had 13-plus percent growth of the adjusted FFO, adjusted EBITDA and the average base rents. I believe that these numbers reflect the success of the company's disciplined investment approach and our ability to close on deals that are accretive to the balance sheet. I would now like to have Greg Flamion, our Chief Financial Officer, discuss the year-end financials.

Thank you, Jeff, and welcome, everyone, to the Strawberry Fields fourth quarter earnings call. Let's begin with a look at our balance sheet. Total assets are $885 million, an increase of $97.9 million or 12.4% compared to December 31, 2024. Our asset growth was driven by a couple of key factors. First, our recent real estate acquisitions. This includes $112 million of acquisitions in 2025. Second is the retenanting of key leases, namely the Landmark master lease into the Kentucky master lease. On the liabilities and equity side, increases were driven by financing activity associated with our acquisitions, along with the impact of foreign currency translation adjustments. Together, both of these factors contributed to the overall growth in our debt balances. Equity decline, reflecting lower other comprehensive income, driven again by the foreign currency translation adjustments. Continuing now to the consolidated statement of income. 2025 revenue was $155 million, up $37.9 million compared to December 31, 2024. This represents a 32.4% increase, which was driven by the timing and integration of properties acquired in 2024 and 2025 and the Landmark to Kentucky master lease retenanting that began in January 2025. While we experienced higher revenues, the income growth was offset by higher depreciation, amortization and interest expense which is driven by new property acquisitions. This results in a year-to-date net income of $33.3 million or $0.60 per share compared to $26.5 million or $0.57 per share in 2024. Finally, I'd like to end my presentation with some financial highlights. Our 2025 AFFO is $72.5 million. This is a growth of 29.8% versus 2024 and represents a 13.3% compound annual growth rate. The 2025 adjusted EBITDA is $125.3 million, this represents a 38.2% increase compared to 2024 and a 13.5% compound annual growth rate. Our net debt to net asset ratio currently sits at 49.5%. As of December 31, 2025, our dividend was $0.16 a share, representing a 4.9% yield and AFFO payout of 46%. This concludes the financial portion of the earnings call presentation. I'll now turn it back to Jeff, who will walk us through additional portfolio highlights.

Thank you, Greg. Our portfolio highlights are as follows: Currently, our portfolio has 143 facilities located in 10 states, which comprises 16,602 (sic) [ 15,602 ] licensed beds. The total value of our portfolio at acquisition is $1.1 billion. But if you take the value of our portfolio based on the leases, that amount is closer to $1.5 billion. There are 17 consultants advising to our operators. Our weighted average lease term is 7.2 years. I am happy to report that our tenants continue to do well and our EBITDARM rent coverage as of November 30 was 2.07. Our net debt to AEBITDA is 5.7. As I mentioned earlier, we continue to collect 100% of our rents. And as a final point, our acquisition pipeline remains strong at $250 million. As Moishe and I have mentioned in the past, for us to close on a deal, it has to meet our disciplined investment approach, which is a 10 cap at acquisition. And with that, I pass it on to Moishe Gubin, our Chairman and CEO, to continue the presentation.

Okay. Thank you, Jeff. As Jeff mentioned, this was a great year for our -- best year we've ever had. And it was a great year for our AFFO growth, where we had 13.3 which is the average growth rate over the last 6 years. But proudly from $38 million to $72 million. These are really good numbers that we're very proud of. On the next slide, we got base rent again, 13.4% growth rate, almost double like the last one, very similar numbers from [ $75,000 ] in 2020 to [ $142,675 ]. These are good numbers that we're very happy with. And on the next slide, we talk about our stock price, which in December, we hit an all-time high. We've got to $14 a share. And we're still way undervalued. We believe that our stock value is close to $18, $19, $20 a share. Our stock is still straggling behind our peers. But we figure we'll keep doing what we're doing fundamentally, strong business and God-willing, eventually everything will get caught up to us. You could see on the next slide how the AFFO multiples for us, we're at the lowest of everybody at 9.5x and CareTrust or even Sabra is at 12.8x and CareTrust is at almost 20x. They're doing real good. We're happy for them. They're good people. The return on the stock a 30% return this year. That's pretty good. We're happy about that, though we feel that when the market truly gets to where we're supposed to be, we'll see a nicer pop than 30%. That being said, the next slide, our AFFO payout ratio continues to be the lowest, where we're paying out of 47% or close to 47% of our AFFO using the rest of the money to pay down debt as a placeholder, but to be able to use it to buy more assets. Our dividend yield is still the pack at CareTrust, NHI and us at 5%. And we feel that that's a good place to be, especially when we're able to go take the money, put the money out the door at a 10 cap where we get to -- get a blended return at this point, we're a blended return of about 17% to 18%, which is what it's been. And we're very happy about that. Really, it's a very calm portfolio, collecting our rents, doing what we're doing, growing when we can. We're still anticipating guidance of being able to grow $100 million to $150 million a year. We hope to beat that, and we had a deal that we -- that fell through that we were going to announce [ $90 million ] deal. I was so happy to go get that and get it out of the way earlier in the year, but that fell apart, unfortunately. But God willing, we will be able to hit our targets of between $100 million, $150 million this year. The next slide really just talks about how we're still the pure-play skilled nursing facility, health care REIT. We were recently at a convention, and we asked investors and others if they thought we were doing the right thing, and everybody across the board says, no, you keep doing what you're doing, it's a pure play, people will gravitate towards you. So we feel like we're going to just keep sticking with our guns and how we do things and while we're buying, and we should be able to continue staying above 90% in skilled nursing facilities. The next slide really just talks about the coverage, our rent coverages, over 2x rent is pretty good. We're happy with that. And hopefully, that will continue. Our AFFO per share growth, you could see we're the highest, proud of that as well, 12.8% over the last 5 years. It's good. We're running a nice clean business, as you guys know, and we expect things to be able to stay the same or improve going forward. On this Slide 12. We're just showing how our debt maturity schedule is currently in the next few weeks. Me and the team are heading to Israel. And at the same time, we should be announcing that we are entering into a term sheet with a bank for the unsecured line of credit and term loan, which we talked about over the last few years. So we expect in the next 45 to 60 days to be able to have most of our debt cleaned up and pushed off to have almost equal maturities over the next 4 or 5 years. And so we're really happy about that. I've been pushing that for a while. We will have a bunch of availability under our line of credit once it's done to over $100 million. So it will help us -- actually, most important thing that will probably help us with is that it will be able to tell potential investors that we'll tell them that, look, we have cash. We are able to get a deal done. So if you're worried about our growth, besides looking at our previous history where we've been growing nicely year-over-year, they'll be able to say, okay, they have the cash to be able to grow. I want to try to get rid of all these impediments that the stock will have less pressure to not improve. Slide 13 has become my favorite slide. This just shows how diversified we are by state, where the largest concentration is Indiana, which is our best state, which is good situation to be in. Everybody else is in the low double digits. And you see it's pretty evenly dispersed throughout the states. And by consultants in the states. So this is good. Hopefully, this is the year we'll add maybe 1 or 2 more states, and that will be great, and we'll continue to diversify this pie graph. Lastly for me, Slide 14. This just shows you -- I'm color blind, but I know that basically, what we do has been where we bring in regional operators, and the color should indicate that through all of our operators and portfolios, we're growing, and we're staying in little pockets of -- by each state, and hopefully, that will continue. And things are going great. The bottom pie graph just continues to drive home the point of how we're the pure-play SNF healthcare REIT and we're going to continue to stay the same way that we are. Okay. And with that, I'll hand it back to the operator for any questions. I want to thank everybody again for joining us today and we'll answer whatever questions that anybody has.

[Operator Instructions] First question will come from the line of Richard Anderson with Cantor Fitzgerald.

Great quarter. So if I could ask a sort of mathematical question first. The EBITDARM with an M coverage of 2.07x, what does that equate to on a DAR basis in your mind?

So one of you guys want to answer that? Or do you want me to answer that?

I could get to that in 1 second. Do you want to go to the next question? I'll get it for you.

Another mathematical one, and then I got a bigger picture one for Moishe. But what -- with the very attractive payout ratio of 47%, what does that equate to from a free cash flow available to you after dividend, which is 0 cost of capital, essentially. And where do you see that sort of growing to over the course of time? And what are the pressures on you to have to raise the dividend to maintain some sort of standard as it relates to dividend payout?

So the number is right around $40 million after everything said and done, that we are stockpiling. But the pressure based on REIT rules, I mean, we're at about 100% of distribution. So like we have room if we wanted to hold back. But as we make more money, we're trying to build up a following in the marketplace that says, okay, we can trust these guys that every year, they're the same or more. And so we want to have an annual increase every year. The bigger fights in the Board meetings have been how much the increase should be, whether it be $0.01, $0.02 or more. And again, I'm actually the one who is pushing not to go crazy on the dividend from the point of view of because if God forbid, we're not able to meet it one time, I don't want to be erratic and then lower it. And I want to be able to always be relied upon that you'll know that the dividend, if you're investing in our company, you know you're going to get at least this or more going forward annually. And so that's what I've been protective of and so far, we've been doing it exactly that way for 4 years at this point almost, I think, and it's been good. And so that $40 million equates to being able to buy usually $80 million and whatever else we need to supplement with, we could supplement well. First of all, since we're paying down a bunch of debt every year. We could draw on the debt to keep our -- because our leverage today is below 50% or right around 50%, and we could then still draw on those lines and ratchet back up to 50% and draw on that to be able to close deals. So I think I answered it. Good to hear your voice, Rich.

Yes. And Jeff, you got an answer for the DAR?

Yes. Our EBITDAR coverage is 1.6.

Okay. And then last for me, Moishe. the news out there today on Medicare Advantage sort of flat for next year. Wondering what your exposure is to MA in the portfolio? And what concerns you might have that fee-for-service Medicare to the extent you have any major exposure is kind of a risk to the industry, if not necessarily directly at you?

Yes. So that's a good question. In talking about context of Strawberry, we don't have any shop in our portfolio. We don't have any of our rents that are predicated on results of our tenants and our rent changing up or down as bonus rent or not bonus rent. So we don't have -- we don't suffer from that at all. And the fact that the coverage is 1.6, like Jeff said, is an EBITDAR. And I would have thought it was -- would have been a little bit lower, but actually, I'm happy that's 1.6, 2.07 is the number we're actually looking at. But the point is that we don't have any of those risks in our portfolio. And because of the master leases individual facilities that might be marginal, the overall portfolio, every one of our tenants are doing well. So a lot of these things are just -- they happen 1 year, and then next year, they'll raise the number for the increase to make up for the year before. So I'm not too worried about it. Some of the others REITs that are out there, they're more connected to the operator as far as the operator results, and they'll probably suffer a little bit. But in the grand scheme of things, it will bounce back. This has been the way it's gone. Not even into administrator -- administration-to-administration, year-to-year is the same administration that's gone because they realize the operators can't live. They rely on Medicare to help supplement the shortfall that Medicaid has and as time has gone on, they've squeezed that the operator makes less and the operators are okay with that. I guess, today, where it is, but it's still -- it's -- they work in tandem and when the nursing homes get squeezed too much from the government, they're not -- where it's short, right? They go back and then the government fixes it. And so I'm not too worried in the grand scheme of things. Again, we're in an industry -- we talked about the Silver Tsunami that we're in an industry where we're a necessary business that the nursing homes need to take care of people and people need to be taken care of. The nursing homes are the least expensive model to be able to take care of people. And so -- and we provide the role as the REIT to be the landlord and provide the capital. So somebody that's an operator doesn't have to put the money in and buy the real estate. And we have a very simple model that's been working so effectively for so many years, and that should hopefully continue.

Next question is coming from the line of Gaurav Mehta with Alliance Global Partners.

I wanted to -- balance sheet for the 2026 debt maturing. Where do you expect the new rates to be compared with the maturing debt?

So we modeled out that the line of credit debt is going to come back in at SOFR 2.70 about. SOFR 2.65, 2.75 right around there and that the bond debt is going to come in around 6.25%. So assuming we pay off the conventional that today is sitting at 3 -- SOFR 3.25, let's say, is a blended. So that will go from a sulfur 3.25 to we'll say probably 50 basis points about that on that. It was like $160 million or so or whatever that number is. And then for the bond debt, we'll see a savings of a drop. It's not a big savings, but it will extend the maturity out 4, 5 years, nice and clean. And it also -- at this point, it will be helpful for refinancing that because then I don't have to deal with the currency. Right now, the dollar is weak and the shekel is strong. And so I need to kick that can down the road so that I'm not stuck using dollars to pay off shekel debt. And so because in the grand scheme of things, the shekel will drop at some point and the dollar will strengthen, it's inevitable. And when that happens, we'll make a bunch of money on the currency exchange, too.

All right. That's great. Great color. Second question on the 4Q financials in the G&A. Was there any onetime items that you guys reported? And then going forward, the run rate for AFFO per share, is 4Q the right number?

Greg, do you want to answer that?

Sure. So yes, in the G&A, we did have, let's just say, a onetime item. We had some additional payroll that came through in Q4 due to additional executive compensation. So that was a little bit higher than what we were expecting to come in, I guess, from earlier on in the year. However, looking -- I guess, looking at the payroll going forward, we think that it's not going to be -- we don't expect any further increases going into 2026.

So basically, Gaurav, what -- the onetime event is I finally got a raise. I've been paid $300,000 a year for the last 15 years or something like that. And they finally gave me -- compensation committee decided to give me a raise to $700,000, which I think I'm still way underpaid. It doesn't make a difference to me. But the reality is I think in the fourth quarter, they recorded somewhere between -- and it went back. They did retroactively to like 18 months. So I think they recorded about $1 million or $1.1 million in a onetime thing. Our go forward, we ended up the year with an AFFO of $1.30. We should beat that easily in '26.

Our next question coming from the line of Mark Smith with Lake Street.

I wanted to ask first about the acquisition pipeline. Have you seen any changes in this pipeline, either in volume or valuations? And is the only real potential impediment to continue to grow through acquisitions, really just access to capital? Or any thoughts on kind of continued growth through acquisitions in your pipeline would be great.

So I'll answer that, and then Jeff will add to it, give me a little time to think because he's not as fast on his feet as I am. So the starting point is we've never had an impediment as far as cash. We are confident and we know that debt markets -- and I don't want to sell equity at such a cheap price. But reality is we keep track of what NAV is and worst-case scenario if we had to sell equity above NAV, it's still accretive. It's just not -- it doesn't feel right doing it, but point is, we could always do that. We've -- over the years, we've stayed very disciplined, as you guys know, and lately, the deals that I'm seeing personally are sale-leaseback deals, seems to be a ton of that. And so this year, most likely, which could be a little bit different. It's the same math but a little bit different of an operator where it's going to be the same operator in the spot that we could tell somebody historically, this is what they're doing, and this is how they're operating. This is how much money they're making and then we're going to rebalance them to 1.25, which is how we underwrite to. And then as opposed to what we typically had done, not that we were averse to sale leasebacks, we typically were just buying and then re-tenanting. In this case, it's going to be a little bit easier on one side and the fact that you'll have people that have been the operators there for many years, it's -- that's what I'm seeing. And Jeff, do you want to add to that?

I mean I think, Moishe is dead on with his view on it. I mean it's not an issue with access to capital. I mean the deals are coming in day in, day out. I mean they're coming in from across the country. But as we said in the past, we're in our 10 states. I mean, to add to our existing 10 states, it's very easy to grow the master lease. But finding a new state to go into, we need a sizable acquisition. And valuation right now, it's -- prices have gone up significantly. I mean, especially -- I mean, I'd say last year, it was on the East Coast. This year, we're seeing in the heartland of the country, I mean, you're seeing prices per bed go to their highest levels that they may have ever been. And for us, with our disciplined approach, I mean, we're sticking to our guns. And if the deal makes sense, the deal makes sense. I mean, Moishe has always said, if a deal pencils out, we're going to close it. So that's been the approach that we've been going at. I mean, since -- I've been with Moishe for about 5 years now, and there hasn't been a deal we haven't closed. So we're always looking, and we're always looking at different ways we can grow, but it all goes back to the basics. It's 10 cap acquisition, 1.25 coverage on day 1. So I mean, as we enter 2026, we're excited to see what's going to come our way. The sale leasebacks have been very front and center for us. And we look forward to seeing everyone next quarter, and we'll hopefully have some deals to report then as well.

Perfect. The other question that I had was really around occupancy sitting here, like, I think you guys said like 76%. Just kind of curious, your comfort level at that rate and where you maybe see that moving and impact to the model as occupancy maybe moves up or down?

Yes. So I'll answer that. I mean we've talked about this before. We -- I know that there's REIT analysts and folks that look at a bunch of different -- multifamily and other things across the board. In the health care space, the occupancy is not a great gauge of how our portfolio is doing. We're in states and I've talked about this before, like we're in Oklahoma. In Oklahoma, the average occupancy for the whole state is like 50%. And rightfully or wrongfully, they wanted in Oklahoma that they should have a nursing home local for every county as an example, similar to Indiana, the same way. But Indiana, the average occupancy is like 70% compared to 50% in Oklahoma. But they did it because they don't want people that wanted to visit their mother in a nursing home that they should be driving an hour every day to go visit mom. And so you have certain states. So we're in states where -- in the Midwest that are known as low occupancy places. Now Illinois occupancy averages like in the 90% or high 80s, same with Kentucky, 85%, but Arkansas is a low number. And our operators are doing great there. They're way beating the trend and the state average. Indiana is -- right around how Indiana runs is how our -- maybe a little bit lower actually in our tenants' operations. So that being said and again, our revenue is not based on -- because in our case, our -- we're showing 100% occupied because every building that we have has been leased out and we get paid a rent no matter how full they are, but that's just a color I just want to provide you. I don't know if that helps you or hurts you, but that's -- we expect -- our portfolio is now probably right around or the same or higher than it was before COVID. So it's taken a bunch of years to recover. And we're okay with it. I mean we're really looking more at rent coverage more than the occupancy of the tenant.

I would add to that is we're underwriting the -- I would add that as we're underwriting the portfolio. So they aren't -- I mean, their occupancy may have been in the 60s. And now 4 or 5 years later, their occupancy has gone up, which is ultimately -- I mean it's helping their bottom line, giving higher rent coverage. But as Moishe was saying, I mean, the likelihood of them being in other, I'd say, verticals of real estate, net lease, multifamily, 100% is very important. In this particular case, it's a little less important. It's more just -- it goes down to the operations.

And it sounds like the big thing to look at is really the rent collected at 100%. And you can continue to do that even at occupancy in some states, it's as low as 50%.

Yes, because when we buy it, we're buying it off of -- we're not buying it off of what could be. We're buying it off of today, where does the deal play out as far as coverage. And I guess that's the difference between us and maybe multifamily where multifamily, they want to charge market rents and they're assuming something and they're giving a vacancy rate of 5% or something and then they're buying off of that and then they have to build into that. We're not buying into that. We're charging the rent. That's a mathematical formula off of what we're paying. And we're praying every day that our tenants do great and raise occupancy because the more coverage they have, the more certainty we have, we'll get our rent. The more certainty we have that we're going to get our rent, the more certain we are that we can pay a dividend and buy more assets. And the more we do that, the more we know that we're going to make more money and wash, rinse, repeat, wash, rinse, repeat and keep doing it. And that's been what we've done, and that's been effective and successful, and we want to keep doing that.

Excellent. And I know from your presentation, it seems like the demographic trends that you guys call out gives us a long runway before we need to really worry about the occupancy dropping off because of just demographic trends and aging out.

Yes. the transcript is not going to catch the fact that all 3 of us started bobbing our head, yes, exactly what you just said...

I was thinking of Silver Tsunami...

It's -- reality is if you're really a prognosticator, right, our tenants should as long as the government doesn't decide to start being anti-geriatric folks, there is absolutely no reason why our tenants won't like have coverages like way in excess of 2, 3, 4 times because 10 years from now, we're still making our 10 cap return with annual inflationary increases and they're going to be making outside of what the cost of the work is but their cost of cap -- their cost of occupancy to be able to have the space to be able to run the nursing home, right? That's going to stay relatively flat other than small inflationary increases, but they should have their occupancy go up through the roof certainly in bigger cities. I don't know if Bardstown, Kentucky is going to now -- happens to be that building is like relatively -- well, that's maybe a bad example, like Elkhorn County, like place is full. But the other places where they're running 60%, 70%, 80% or 50% in Oklahoma, that number ratchets up to 70%, 80%, 90%, our coverage is going to be through the roof. And that's really what we want. We want everyone -- we want the country to have nursing homes that take care of the residents, and they're able to take care of the residents when they make money. And for them to make money, they need a landlord that's not too onerous and takes -- buys properties effectively at the right pricing and gives them a rent that they could live with. And that's the model we have.

And I'm showing no further questions in the Q&A queue at this time. I will now turn the call back over to Jeff for any closing comments.

I'd like to thank everyone for joining us on this call. We appreciate you joining us. We appreciate your support. If anybody has any questions, or would like to reach out, could send us an e-mail at [email protected], and we look forward to seeing you again next quarter. Have a great weekend.

This concludes today's conference call. Thank you for your participation. You may now disconnect.