Strawberry Fields REIT, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual report, not a standalone fourth-quarter earnings report; the filing does not provide a clear standalone Q4 financial-results comparison. Financial amounts below are U.S. dollars unless noted.
Business context
The company is a healthcare REIT focused on owning and triple-net leasing skilled nursing and other post-acute healthcare properties. At year-end it reported 98 properties owned or leased; its portfolio description elsewhere in the filing reports 100 properties and 109 facilities, reflecting differing dates and definitions. As of March 2024, it reported 100 properties, 12,449 licensed beds and operations in nine states. Revenue is primarily contractual rent; tenants generally pay property operating costs and capital expenditures.
Financial and operating highlights
| Metric | 2023 | 2022 | Change / context |
|---|---|---|---|
| Rental revenue | $99.8 million | $92.5 million | Up 7.8%, reflecting lease changes, acquired facilities and reimbursed property taxes |
| Income from operations | $47.4 million | $49.9 million | Down 5.0%; 2023 included $2.5 million impairment, while 2022 benefited from a $5.6 million doubtful-account recovery |
| Net income | $20.2 million | $16.4 million | Up 23.3%; 2023 net income included a $0.5 million foreign-currency gain versus a $10.9 million loss in 2022 |
| Net income attributable to common stockholders | $2.5 million | $1.9 million | Basic and diluted EPS: $0.39 versus $0.31 |
| FFO / AFFO | $49.5 million / $52.7 million | $45.0 million / $51.1 million | Non-GAAP supplemental measures; AFFO includes specified adjustments and is not cash flow available for distribution |
| Cash from operating activities | $54.9 million | $50.9 million | Increase primarily reflected higher accounts payable and accrued liabilities |
| Cash and restricted cash | $37.8 million | $45.7 million | Includes $25.6 million restricted; unrestricted cash was $12.2 million |
| Total debt, gross | $539.1 million | $456.8 million | Net debt carrying amount was $536.5 million after issuance costs |
Operating income was approximately 47.5% of rental revenue in 2023, versus 54.0% in 2022; the comparison is affected by the 2022 recovery and 2023 impairment. Total interest expense was $26.7 million, up 17.4%. Total assets were $616.8 million and total equity was $47.3 million at year-end; stockholders’ equity was $7.5 million, with $39.8 million of non-controlling interest. The filing reports no clear standalone current-liquidity ratio.
Material changes versus 2022
- The company acquired 19 Indiana properties containing 24 healthcare facilities for $102.0 million in August 2023. Initial straight-line rent was expected to be $12.7 million annually; the acquisition was partly debt-financed.
- Gross debt rose by approximately $82.4 million. The company issued Series C and D bonds, drew a $66 million variable-rate bank loan for the Indiana acquisition, and repaid the Series A Bonds in November.
- Variable-rate bank debt carried an 8.84% rate at December 31, 2023. HUD-guaranteed debt was approximately $271.4 million, with an overall rate of about 3.9% including mortgage insurance.
- Investing cash outflow increased to $106.3 million, mainly from property acquisitions. Financing cash flow turned positive, primarily due to new debt and bond proceeds.
- The company recorded a $2.5 million impairment after a Southern Illinois facility closed. Master-lease rent continued without interruption, and the company was seeking to sell the property.
Outlook, risks and unusual items
Management’s stated strategy is to continue acquiring healthcare properties, diversify tenants and geographies, maintain liquidity and balance-sheet strength, and make quarterly cash distributions as approved by the board. The filing gives no specific earnings, FFO, acquisition or dividend guidance. Management says it expects operating cash flow to cover debt service and REIT distribution requirements. Its targeted debt-to-asset fair-market-value range is 45%–55%, not a forecast or guarantee.
- Related-party concentration: Affiliates of the CEO and a director operate or lease a substantial portion of the portfolio. The filing states that related-party tenants account for 67.3% of annualized base rent; it also reports $57.0 million of related-party rental income against $99.8 million total rental revenue for 2023. Investors should reconcile the different measures and dates. The company says it intends to reduce this dependence.
- Post-year-end lease transaction: In February 2024, the Indiana properties received a replacement 10-year master lease with initial annual rent of $14.5 million and 3% annual increases. The tenant remains affiliated with directors. The company paid the tenants $18.0 million to terminate a prior $127 million purchase option and secure the replacement lease, funded with cash and bond proceeds.
- Refinancing and interest-rate exposure: Debt maturities include significant principal payments in 2026–2028, including balloon obligations. The company estimates a 100-basis-point increase in one-month SOFR would reduce annual cash flow by about $1.6 million, assuming variable-rate debt is unchanged. It reported compliance with debt covenants at year-end.
- Currency and bond risk: Series C and D bonds are denominated in Israeli shekels. Exchange-rate movements affect reported results and cash requirements. The Series D Bonds carry a 9.1% fixed coupon. Additional Series D bonds were issued after year-end.
- Tenant and industry risks: Rent depends on operators’ ability to pay, which may be affected by labor and operating costs, occupancy, Medicare/Medicaid reimbursement, regulation, licensing and healthcare enforcement. Triple-net leases do not eliminate tenant credit risk or potential property costs if a tenant defaults.
- Contingencies: The company describes ongoing litigation arising from predecessor-company property transactions, including a matter dismissed and appealed in Illinois. Management believes the claims are without merit and expects no material adverse effect. It also describes Massachusetts loan recoveries and foreclosures; one foreclosed property remained on the books at an estimated $1.2 million.
- Other items: A $1.0 million investment-banking contract-cancellation expense and a $2.5 million impairment were excluded from AFFO adjustments. The company reported effective disclosure controls, but management’s internal-control assessment and auditor attestation were not included under a transition exemption. The independent auditor issued an unqualified opinion on the financial statements.
Most important facts for investors to verify
- Reconcile the portfolio counts and reporting dates, and confirm the current property, facility and licensed-bed totals.
- Review related-party tenant exposure, lease coverage and guarantees, and reconcile the stated 67.3% annualized-rent concentration with reported rental income.
- Assess the $18.0 million Indiana lease payment, its funding, the new $14.5 million rent terms, and the related-party approval and governance process.
- Check debt maturities, balloon-payment refinancing plans, covenant headroom and sensitivity to SOFR and shekel exchange rates.
- Evaluate whether operating cash flow can support debt service, planned acquisitions and distributions, recognizing that restricted cash is not freely available.
- Track tenant rent coverage, reimbursement and occupancy trends, property closures, the impairment and disposition plans, and the status of the disclosed litigation.
- Compare GAAP earnings and cash flow with FFO/AFFO and dividends; these non-GAAP measures do not represent cash available for distribution.