Strawberry Fields REIT, Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing; the financial comparisons below are for full-year 2022 versus full-year 2021, not Q4 alone. The company owns and triple-net leases skilled nursing and other post-acute healthcare properties. At year-end it reported 79 properties across nine states, with approximately 10,351 licensed beds. The filing’s property data in places reflects different measurement dates or facility counts.
Key financial metrics
| Metric | 2022 | 2021 | Change / note |
|---|---|---|---|
| Rental revenue | $92.5 million | $87.0 million | Up 6.3% |
| Income from operations | $49.9 million | $36.8 million | Derived operating margin: approximately 54.0%, versus 42.2% |
| Net income | $16.4 million | $8.4 million | Up $8.0 million; includes non-cash and unusual items noted below |
| Net income attributable to common stockholders | $1.9 million; $0.31 per share | $0.4 million; $0.07 per share | Most 2022 net income was attributable to noncontrolling interests |
| NAREIT FFO | $45.0 million | $32.1 million | Up approximately 40%; non-GAAP measure |
| Adjusted FFO | $51.1 million | $43.9 million | Up approximately 16%; non-GAAP measure as defined by the company |
| Cash from operating activities | $50.9 million | $44.8 million | Up $6.1 million |
| Cash and restricted cash | $45.7 million total | $52.1 million | Year-end 2022 included $20.2 million unrestricted cash and $25.5 million restricted cash |
| Total debt, gross | $456.8 million | $504.2 million | Down $47.4 million; debt includes fixed- and variable-rate borrowings |
| Total assets / equity | $547.0 million / $49.4 million | $570.0 million / $35.1 million | Balance-sheet totals at December 31 |
Material changes versus 2021
- Rental revenue increased primarily because of six properties acquired in 2021 and tenant reimbursement of additional property taxes; a $1.1 million write-off of straight-line rent receivable partly offset the increase.
- Operating cash flow rose, while investing cash outflow fell substantially as property acquisitions declined. Investing activity included a net $9.6 million increase in notes receivable.
- Financing cash flow turned to a $47.2 million outflow, including approximately $106.0 million of bond principal repayments and $33.2 million of senior-debt repayments, partly offset by $105.0 million of new bank borrowing.
- Net income benefited from a $5.6 million credit for recovery of previously reserved Massachusetts loans and foreclosed property proceeds. It was reduced by a $10.9 million foreign-currency transaction loss associated largely with repayment of Series B Bonds. 2021 included a $3.8 million gain on real estate sales.
- In 2022 the company elected REIT tax treatment beginning with the 2022 tax year. Its common stock began OTCQX trading in September 2022 and moved to NYSE American in February 2023.
Debt, liquidity, and distributions
- At December 31, 2022, gross debt comprised approximately $275.8 million of HUD-guaranteed loans, $105.2 million of bank loans, and $75.8 million of Series A and C bonds. The Series B Bonds were repaid during 2022.
- The bank facility was variable-rate, based on one-month SOFR plus 3.5%, with a 4% floor; its rate was 7.68% at year-end. It is secured by 21 properties and has a March 2027 balloon payment. The company estimated that a 100-basis-point increase in one-month SOFR, with variable debt unchanged, would reduce annual cash flow by about $1.05 million.
- Management reported compliance with financial and administrative debt covenants at year-end. The company identified balloon obligations of $44.9 million under Series C Bonds in 2026 and $86.0 million under the commercial bank loan in 2027; refinancing or repayment is not assured.
- Management said it expects operating cash flow to cover debt service and REIT distribution requirements. It cited operating cash flow, borrowings, potential equity or debt offerings, and mortgage financing as sources for liquidity and growth. No formal earnings or FFO guidance was provided.
- The company paid approximately $0.6 million in common dividends in 2022. In March 2023, the board approved a $0.11-per-share dividend. REIT status generally requires annual distributions of at least 90% of REIT taxable income, subject to the applicable tax rules; actual dividends remain subject to board discretion, cash needs, and debt covenants.
Management commentary, risks, and unusual items
- Management’s stated strategy is to acquire healthcare properties, grow geographic and tenant diversity, maintain liquidity, and target debt of 45%–55% of asset fair market value. This is a target, not a guarantee; the charter does not cap borrowings.
- Related-party concentration is material: related-party tenants accounted for approximately 64% of 2022 rental income and annualized base rent as of March 2023. The CEO and a director have interests in many of these tenants. The company says it intends to diversify its tenant base.
- Six central Illinois facilities experienced tenant default in 2022 after operating losses. Unaffiliated tenants took over under new leases from July 2022 at lower aggregate average rent, approximately $2.3 million per year versus $2.7 million previously. One facility closed in February 2023, but the master-lease rent continued to be paid. The filing reported no tenants delinquent on rent as of its filing date.
- COVID-19 had not materially harmed the company’s financial performance, according to management, but tenants faced labor shortages, higher agency costs, and occupancy/admissions pressure. Government pandemic support programs expired during 2022. Tenant performance remains exposed to occupancy, labor costs, and Medicare and Medicaid reimbursement changes.
- Other principal risks include interest rates, foreign-exchange movements because bond debt is denominated in Israeli shekels, tenant credit and rent collection, healthcare regulation and reimbursement, refinancing and balloon payments, environmental or uninsured losses, and maintaining REIT qualification.
- Pending litigation includes state-court claims related to predecessor-company acquisitions. The company and defendants consider the claims without merit and expect no material adverse effect, but the outcome is uncertain. The company is also pursuing recovery of Massachusetts loan balances after foreclosures and auctions.
- The auditor gave an unqualified opinion on the consolidated financial statements. Management concluded disclosure controls were effective; management’s internal-control assessment and auditor attestation were omitted under the transition provisions for newly public companies.
Important facts for investors to verify
- Tenant rent coverage, occupancy, liquidity, and ability to pay rent—especially among related-party tenants representing roughly 64% of rent.
- Refinancing plans and covenant headroom for the 2026 Series C and 2027 bank-loan balloon payments, and exposure to variable rates and shekel exchange rates.
- Whether reported FFO and adjusted FFO translate into sustainable cash available after debt service, required reserves, capital needs, and distributions; these non-GAAP measures are not cash flow or GAAP net income.
- Collection prospects and recoverable value for the $19.4 million of notes receivable, including uncollateralized balances and Massachusetts foreclosure recoveries.
- Progress on reducing related-party reliance, the effects of the Illinois tenant transition and facility closure, and developments in the pending acquisition-related litigation.