UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

 

☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2023

 

or

 

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

Commission File No. 001-41628

 

STRAWBERRY FIELDS REIT, INC.

(Exact name of registrant as specified in its charter)

 

Maryland		84-2336054
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

6101 Nimtz Parkway, South Bend, IN 46628

(Address of principal executive offices, including Zip Code)

 

Registrant’s telephone number, including area code: (574) 807-0800

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common stock Par value $0.0001 per share		STRW		NYSE American LLC

 

Securities registered pursuant to Section 12(g) of the Act:

None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

 

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

 

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

 

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act.) Yes ☐ No ☒

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter:$38,040,290

 

As of March 19, 2024, there were 6,474,175 shares of the registrant’s common stock outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the registrant’s Definitive Proxy Statement for the 2023 Annual Meeting of Shareholders (to be filed with the Securities and Exchange Commission no later than 120 days after the end of the registrant’s fiscal year end) are incorporated by reference in this Annual Report on Form 10-K in response to Part II, Item 5 and Part III, Items 10, 11, 12, 13 and 14.

 

 

 

TABLE OF CONTENTS

 

	PART I
Item 1.	Business	7
Item 1A.	Risk Factors	31
Item 1B.	Unresolved Staff Comments	31
Item 1C.	Cybersecurity	31
Item 2.	Properties	31
Item 3.	Legal Proceedings	32
Item 4.	Mine Safety Disclosures	32
	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	33
Item 6.	[Reserved]	33
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	46
Item 8.	Financial Statements and Supplementary Data	46
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosures	47
Item 9A.	Controls and Procedures	47
Item 9B.	Other Information	47
Item 9C.	Disclosure Regarding Foreign Jurisdictions That Prevent Inspections	47
	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	48
Item 11.	Executive Compensation	48
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	48
Item 13.	Certain Relationships and Related Transactions, and Director Independence	48
Item 14.	Principal Accountant Fees and Services	48
	PART IV
Item 15.	Exhibit and Financial Statement Schedules	49
Item 16.	Form 10-K Summary	50

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Certain statements in this Annual Report on Form 10-K are “forward-looking statements” within the meaning of the U.S. federal securities laws. Forward-looking statements provide our current expectations or forecasts of future events and are not statements of historical fact. This Form 10-K also contains forward-looking statements by third parties relating to market and industry data and forecasts; forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and uncertainties as the other forward-looking statements contained in this Form 10-K. These forward-looking statements include information about possible or assumed future events, including, among other things, discussion and analysis of our future financial condition, results of operations, Funds From Operations (“FFO”), our strategic plans and objectives, cost management, potential property acquisitions, anticipated capital expenditures (and access to capital), amounts of anticipated cash distributions to our stockholders in the future and other matters. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates” and variations of these words and other similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and/or could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements.

 

Forward-looking statements involve inherent uncertainty and may ultimately prove to be incorrect or false. Readers are cautioned to not place undue reliance on forward-looking statements. Except as otherwise may be required by law, we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or actual operating results. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to:

 

● risks and uncertainties related to the national, state and local economies, particularly the economies of Arkansas, Illinois, Indiana, Kentucky, Michigan, Ohio, Oklahoma, Tennessee and Texas, and the real estate and healthcare industries in general;

 

● availability and terms of capital and financing;

 

● the impact of existing and future healthcare reform legislation on our tenants, borrowers and guarantors;

 

● adverse trends in the healthcare industry, including, but not limited to, changes relating to reimbursements available to our tenants by government or private payors;

 

● competition in long-term healthcare industry and shifts in the perception of various types of long-term care facilities, including skilled nursing facilities;

 

● the impact of COVID-19 on our business and the business of our tenants and operators, including without limitation, increased costs and decreased occupancy levels experienced by operators of skilled nursing facilities;

 

● our tenants’ ability to make rent payments;

 

● our dependence upon key personnel whose continued service is not guaranteed;

 

● availability of appropriate acquisition opportunities and the failure to integrate successfully;

 

● ability to source target-marketed deal flow;

 

● ability to dispose of assets held for sale for the anticipated proceeds or on a timely basis, or to deploy the proceeds therefrom on favorable terms;

 

● fluctuations in mortgage and interest rates;

 

● changes in the ratings of our debt securities;

 

 

● risks and uncertainties associated with property ownership and development;

 

● the potential need to fund improvements or other capital expenditures out of operating cash flow;

 

● potential liability for uninsured losses and environmental liabilities;

 

● the outcome of pending or future legal proceedings;

 

● changes in tax laws and regulations affecting REITs;

 

● our ability to maintain our qualification as a REIT; and

 

● the effect of other factors affecting our business or the businesses of our operators that are beyond our or their control, including natural disasters, other health crises or pandemics and governmental action; particularly in the healthcare industry.

 

This list of risks and uncertainties, however, is only a summary of some of the most important factors and is not intended to be exhaustive. New risks and uncertainties may also emerge from time to time that could materially and adversely affect us.

 

GLOSSARY OF CERTAIN TERMS

 

The following is a glossary of certain terms used in this Form 10-K:

 

“ADA” means the Americans with Disabilities Act of 1990, as amended.

 

“ALF” means assisted living facility.

 

“Affordable Care Act” means the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010.

 

“BVI Company” means Strawberry Fields REIT, Ltd., a company organized under the laws of the British Virgin Islands. Upon the consummation of the formation transactions, the BVI Company became a wholly-owned subsidiary of the Operating Partnership.

 

“CAGR” means compound annual growth rate.

 

“Capitalization rate” means the ratio of a property’s operating income to its purchase price.

 

“CMS” means the Centers for Medicare and Medicaid Services, which administers Medicare, Medicaid and the State Children’s Health Insurance Program.

 

“Company” means Strawberry Fields REIT, Inc., a Maryland corporation.

 

“Dollars” or “$” means United States dollars.

 

“EBITDA” means earnings before interest, taxes, depreciation and amortization.

 

“EBITDAR” means earnings before interest, taxes, depreciation, amortization and rent.

 

“EBITDARM” means earnings before interest, taxes, depreciation, amortization, rent and management fees.

 

“GLA” or “gross leasable area” or means the area in any building that may be leased to tenants.

 

 

“HHS” means the U.S. Department of Health and Human Services.

 

“HIPAA” means the Health Insurance Portability and Accountability Act of 1996, as amended.

 

“HITECH Act” means the Health Information Technology for Economic and Clinical Health Act.

 

“HUD” means the U.S. Department of Housing and Urban Development, the federal government agency for housing and urban development.

 

“long-term acute care hospital” or “LTACH” means medical institutions in which patients requiring prolonged hospitalization (but who are stable) are given medical care and rehabilitation for several weeks. The operation of these institutions is subject to receipt of a suitable license.

 

“NIS” means New Israeli Shekels.

 

“Operating Partnership” means Strawberry Fields Realty LP, a Delaware limited partnership.

 

“OP units” means the units of limited partnership interests in the Operating Partnership.

 

“Predecessor Company” means Strawberry Fields REIT, LLC, an Indiana limited liability company. Prior to the consummation of the formation transactions, the Predecessor Company was the indirect owner of 73 of our properties.

 

“SNF” means a skilled nursing facility.

 

“Series A Bonds” means the Series A Bonds issued by the BVI Company, which were first offered to the public in Israel in 2015. The Series A Bonds were repaid in full during the year ended December 31, 2023.

 

“Series C Bonds” means the Series C Bonds issued by the BVI Company, which were first offered to the public in Israel on July 28, 2021. As of December 31, 2023, the Series C Bonds had an outstanding principal balance of approximately $60.8 million.

 

“Series D Bonds” means the Series D Bonds issued by the BVI Company, which were first offered to the public in Israel on June 19, 2023. In July 2023, the BVI Company issued an additional NIS 70.0 million ($19.2 million) in Series D Bonds. As of December 31, 2023, the Series D Bonds had an outstanding principal balance of approximately $42.2 million.

 

“TASE” means the Tel Aviv Stock Exchange Ltd.

 

“TRS” means taxable REIT subsidiary.

 

 

TENANT INFORMATION

 

This Annual Report on Form 10-K includes information regarding certain of our tenants that lease properties from us and are not subject to SEC reporting requirements.

 

The information related to our tenants contained or referred to in this Annual Report on Form 10-K was provided to us by such tenants. We have not verified this information through an independent investigation or otherwise. We have no reason to believe that this information is inaccurate in any material respect, but we cannot provide any assurance of its accuracy. We are providing this data for informational purposes only.

 

 

PART I

 

References in this Annual Report on Form 10-K to “we,” “our,” “us” and “the Company” refer to Strawberry Fields REIT, Inc., a Maryland corporation, together with its consolidated subsidiaries, Strawberry Fields Realty LP, a Delaware limited partnership, which we refer to in this Form 10-K as our Operating Partnership. We are the sole general partner of our Operating Partnership.

 

ITEM 1. Business

 

We are a self-managed and self-administered real estate company that specializes in the acquisition, ownership and triple-net leasing of skilled nursing facilities and other post-acute healthcare properties. As of the date of this Form 10-K, our portfolio consisted of 100 healthcare properties with an aggregate of 12,449 licensed beds. We hold fee title to 97 of these properties and hold three properties under long-term leases. These properties are located across Arkansas, Illinois, Indiana, Kentucky, Michigan, Ohio, Oklahoma, Tennessee and Texas. Our 100 properties comprise 109 healthcare facilities, consisting of 99 skilled nursing facilities, 8 assisted living facilities and 2 long-term acute care hospitals.

 

We generate substantially all of our revenues by leasing our properties to tenants under long-term leases primarily on a triple-net basis, under which the tenant pays the cost of real estate taxes, insurance and other operating costs of the facility and capital expenditures. Our properties are currently leased to 109 tenants under 32 lease agreements. Approximately 80.7% of our properties are held under a master lease which provides for cross default provisions, cross collateralization and diversification of risk. As of the date of this Form 10-K, our average remaining initial lease term is 6.4 years with average annual rent escalators of 2.7%. Most of our leases include two 5-year renewal options to extend the term.

 

We are entitled to monthly rent paid by the tenants and we do not receive any income or bear any expenses from the operation of such facilities. As of the date of this Form 10-K, the aggregate annualized average base rent for the expected life of the leases for our properties was approximately $102.3   million.

 

Each healthcare facility located at our properties is managed by a qualified operator with an experienced management team. As of the date of this Form 10-K, 64 facilities representing 67.3% of our annualized base rent are leased to and operated by related parties that are affiliates of Moishe Gubin, who is our Chairman and Chief Executive Officer and Michael Blisko, who is one of our directors. These properties are operated by affiliates of Infinity Healthcare Management (“Infinity Healthcare”), a healthcare consulting business, beneficially owned by Mr. Gubin and Mr. Blisko/. Infinity Healthcare and its affiliates are one of the largest groups of operators of skilled nursing facilities in the Midwest with over 10,000 beds. Our relationship with Infinity Healthcare provides us with unmatched insight into operating trends and industry developments. Additionally, our relationship with Infinity Healthcare provides us with operating flexibility with regard to evaluating potential new acquisitions or better understanding of operational issues pertaining to underperforming tenants.

 

Since January 2017 we have grown significantly through acquisitions, having purchased 52 properties, with an aggregate purchase price of approximately $335.1 million and weighted average lease yield of 15.0%. The weighted average lease yield is calculated as the annualized average annual base rent for the expected life of the leases divided by total purchase price. Since 2017, our aggregate annualized average base rent for the expected life of the leases for our properties has grown at an approximate 10.2% CAGR from $57.1 million in fiscal year 2017 to $102.3 million as of the date of this Form 10-K. In addition, our Adjusted EBITDA and FFO from 2018 to 2023 grew at an approximate 10.4% and 18.6% CAGR, respectively. During that period, we expanded our geographic footprint from six states to nine states.

 

From January 1, 2023, through March 19, 2024, we acquired 25 skilled nursing and assisted living facilities for a total cost of $108.0 million (including finder fees and leasehold improvements), which includes capitalized acquisition costs. In addition to these acquisitions, we leased two facilities which we expect to acquire in Q2 2024. These acquisitions and leases are expected to generate initial annual cash revenues of approximately $0.45 million.

 

 

Our management team has extensive experience in acquiring, owning, financing, operating and leasing skilled nursing facilities and other types of healthcare properties. The team is led by Moishe Gubin, our Chief Executive Officer and Chairman of our Board of Directors, Greg Flamion, our Chief Financial Officer, and Jeffrey Bajtner who serves as our Chief Investment Officer. Combined, this team has over 50 years of experience investing in real estate and particularly in healthcare related real estate and operating companies. Mr. Gubin began his career working at a skilled nursing operator in 1998 and developed in-depth knowledge of the business before purchasing his first skilled nursing facility in 2003. Mr. Gubin has successfully raised equity and debt capital to facilitate over 125 real estate related/healthcare related acquisitions totaling over $1.2 billion in gross investment. In addition, our management team has extensive experience as operators of, and healthcare consultants to, skilled nursing facilities, having managed and operated over 90 skilled nursing facilities, including 65 of our current tenants. We believe our management team’s unique experience across both skilled nursing operations and real estate and its extensive knowledge of the skilled nursing industry position us favorably to take advantage of healthcare investment opportunities. Additionally, our deep and broad relationships with industry operators have allowed us to identify and acquire skilled nursing facilities to which many of our competitors do not have access.

 

We have assembled a high quality and diversified portfolio of skilled nursing and other healthcare related facilities and we plan to continue to invest primarily in skilled nursing facilities and other healthcare facilities that primarily provide services to the elderly. We believe these asset classes provide potential for higher risk-adjusted returns compared to other forms of net-leased real estate assets due to the specialized expertise necessary to acquire, own, finance and operate these properties, which are factors that tend to limit competition among investors, owners, operators and finance companies. Additionally, our management team’s strong relationships in the industry have allowed us to acquire healthcare-related properties at valuations that achieve attractive lease yields, with the goal of generating strong returns for our stockholders over the long-term. As we continue to acquire additional properties and expand our portfolio, we expect to continue diversifying our portfolio by geography and by tenant, while also maintaining balance sheet strength and liquidity.

 

We elected to be taxed as a REIT for U.S. federal income tax purposes commencing with our taxable year ending December 31, 2022. We believe that we have been organized and have operated, and we intend to continue to operate, in a manner to qualify for taxation as a REIT. We operate through an umbrella partnership, commonly referred to as an UPREIT structure, in which substantially all of our properties and assets are held through Strawberry Fields Realty, L.P. (the “Operating Partnership”). We are the general partner of the Operating Partnership and own approximately 12.6% of the outstanding OP units. To maintain REIT status, we must meet certain organizational and operational requirements, including a requirement that we annually distribute to our stockholders at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains.

 

We generate revenues primarily by leasing healthcare-related properties to healthcare operators in triple-net lease arrangements, under which the tenant is solely responsible for the costs related to the property (including property taxes, insurance, maintenance and repair costs and capital expenditures). From time to time, we also extend loans to healthcare operators, generally secured by their receivables. We conduct and manage our business as one operating segment for internal reporting and internal decision-making purposes. We expect to grow our portfolio by pursuing opportunities to acquire additional properties that will be leased to a diverse group of local, regional and national healthcare providers, which may include new or existing skilled nursing operators. We also anticipate diversifying our portfolio over time, including by acquiring properties in different geographic markets, and in different asset classes. In addition, we actively monitor the clinical, regulatory, and financial operating results of our tenants, and work to identify opportunities within their operations and markets that could improve their operating results at our facilities. We communicate such observations to our tenants; however, we have no contractual obligation to do so. Moreover, our tenants have sole discretion with respect to the day-to-day operation of the facilities they lease from us, and how and whether to implement any observation we may share with them. We also actively monitor the overall occupancy, skilled mix, and other operating metrics of our tenants monthly.

 

 

We have replaced tenants in the past, and may elect to replace tenants in the future, if they fail to meet the terms and conditions of their leases with us. The replacement tenants may include tenants with whom we have had no prior landlord-tenant relationship as well as current tenants with whom we are comfortable expanding our relationships. In addition, we periodically reassess the investments we have made and the tenant relationships we have entered, and have selectively disposed of facilities or investments, or terminated such relationships, and we expect to continue making such reassessments and, where appropriate, taking such actions.

 

Our Industry

 

The skilled nursing industry has evolved to meet the growing demand for post-acute and custodial healthcare services generated by an aging population, increasing life expectancies and the trend toward shifting patient care to lower cost settings. We believe this evolution has led to a number of favorable improvements in the industry, as described below:

 

	●	Shift of Patient Care to Lower Cost Alternatives. The growth of the senior population in the United States continues to increase healthcare costs. In response, federal and state governments have adopted cost-containment measures that encourage the treatment of patients in more cost-effective settings such as SNFs, for which the staffing requirements and associated costs are often significantly lower than acute care hospitals, inpatient rehabilitation facilities and other post-acute care settings. As a result, SNFs are generally serving a larger population of higher-acuity patients than in the past. The same trend is impacting ALFs, which are now generally serving some patients who previously would have received services at SNFs.
	●	Significant Acquisition and Consolidation Opportunities. The skilled nursing industry is large and highly fragmented, characterized predominantly by numerous local and regional providers. We believe this fragmentation provides significant acquisition and consolidation opportunities.
	●	Widening Supply and Demand Imbalance. The number of SNFs has declined modestly over the past several years. According to the Valuation & Information Group, which provides appraisal and market reports for the industry, the nursing home industry is currently comprised of approximately 14,800 facilities, as compared with over 16,700 facilities as of December 2000. Supply of new facilities is limited due to certificate of need restrictions. 71% of states have certificate of need restrictions., We expect that the supply/demand imbalance in the skilled nursing industry will increasingly favor skilled nursing providers due to the shift of patient care to lower cost settings and an aging population to meet the growing need for post-acute healthcare.
	●	Increased Demand Driven by Aging Populations. As seniors account for a higher percentage of the total U.S. population, we believe the overall demand for skilled nursing services will increase. At present, the primary market demographic for skilled nursing services is individuals aged 75 and older. The 2020 U.S. Census reported that there were over 56 million people in the United States in 2020 over the age of 65. The U.S. Census estimates this group to be one of the fastest growing segments of the United States population, projecting that it will almost double between 2020 and 2060. According to the Centers for Medicare & Medicaid Services, nursing home care facilities and continuing care retirement expenditures are projected to grow from approximately $196.8 billion in 2020, which includes federal expenditures in response to the COVID-19 pandemic, to approximately $266 billion in 2028. Although skilled nursing and seniors housing occupancy rates have declined during the COVID-19 pandemic, we believe that these trends in population will support an increasing demand for skilled nursing services in the long-term, which in turn will likely support an increasing demand for the services provided within our properties.

 

 

Tenants and Operators

 

Our properties are currently leased to 109 tenants under 32 lease agreements. Our leases include 11 master lease agreements that cover 88 facilities leased to 88 tenants, with the remaining 21 leases each covering a single facility leased to one tenant. 65 of our tenants are related parties.

 

Each property is operated as a healthcare facility by a licensed operator, which may be the tenant or a separate operator. Each operator holds a license granted by state regulators to operate a specific type of facility. All the operators have experienced management teams and senior healthcare staff with substantial knowledge of their respective local markets. We target healthcare operators that are owned by principals with a history of quality care, and the demonstrated ability to successfully navigate in a changing healthcare operating environment. Certain operators are related parties.

 

We believe that each of the operators of our properties is primarily focused on serving the needs of the local community. Unlike operators that are part of a large national healthcare conglomerate, we believe the operators at our properties can manage their facilities more efficiently because they are not burdened by costly infrastructure and have the flexibility to rapidly adjust their cost structure to respond to changes in the reimbursement environment.

 

In order to operate efficiently and improve profitability, most of the operators at our facilities have engaged large consulting firms that specialize in healthcare and skilled nursing operations. These consulting firms provide advice and assistance on marketing, operating policies and procedures, billing, collections and regulatory compliance. The operators and consultants work together to develop and standardize best practices in the facilities, while operating in a cost-efficient manner. The operators at our properties primarily use one of nine principal consulting firms, including three firms that are part of Infinity Healthcare, a healthcare consulting business that is owned by the Moishe Gubin, who is our Chairman and Chief Executive Officer and Michael Blisko, who is one of our directors.

 

The tenants and operators of our properties have demonstrated the ability to generate consistent profitability despite the challenging markets in which they operate. In many cases, these tenants and operators have successfully optimized and stabilized underperforming skilled nursing facilities. While these tenants and operators have been successful, we expect to seek opportunities to diversify our tenant/operator mix through future acquisitions that will be leased to new operators.

 

 

The following table contains information regarding our healthcare facility portfolio by tenant, as of March 19, 2024.

 

Lessor/Company Subsidiary		Manager/ Tenant/ Operator		City		State		Property type		Number of licensed beds		Tenant Lease Expiration Year (1)		Rentable square feet				Percent leased				Annualized Lease Income (in $)				% of total Annualized Lease Income				Annualized lease income per SQF (in $)
Master Lease IN
1020 West Vine St, LLC		The Waters of Princeton II, LLC		Princeton		IN		SNF		95		2025			32,571				100	%			1,045,506				1.02	%			32.10
12803 Lenover Street Realty, LLC		The Waters of Dillsboro - Ross II, LLC		Dillsboro		IN		SNF		123		2025			67,851				100	%			1,353,656				1.32	%			19.95
1350 North Todd St, LLC		The Waters of Scottsburg II, LLC		Scottsburg		IN		SNF		99		2025			28,050				100	%			1,089,528				1.06	%			38.84
1600 East Liberty Street Realty, LLC		The Waters of Covington II, LLC		Covington		IN		SNF		119		2025			40,821				100	%			1,309,634				1.28	%			32.08
1601 Hospital Dr Realty, LLC		The Waters of Greencastle II, LLC		Greencastle		IN		SNF		100		2025			31,245				100	%			1,100,533				1.08	%			35.22
1712 Leland Drive Realty, LLC		The Waters of Huntingburg II, LLC		Huntingburg		IN		SNF		95		2025			45,156				100	%			1,045,506				1.02	%			23.15
2055 Heritage Dr Realty, LLC		The Waters of Martinsville II, LLC		Martinsville		IN		SNF		103		2025			30,060				100	%			1,133,549				1.11	%			37.71
3895 Keystone Ave Realty, LLC		The Waters of Indianapolis II, LLC		Indianapolis		IN		SNF		81		2025			25,469				100	%			891,432				0.87	%			35.00
405 Rio Vista Lane Realty, LLC		The Waters of Rising Sun II, LLC		Rising Sun		IN		SNF		58		2025			16,140				100	%			638,309				0.62	%			39.55
950 Cross Ave Realty, LLC		The Waters of Clifty Falls II, LLC		Madison		IN		SNF		138		2025			39,438				100	%			1,518,736				1.48	%			38.51
958 East Highway 46 Realty, LLC		The Water of Batesville II, LLC		Batesville		IN		SNF		86		2025			59,582				100	%			946,458				0.92	%			15.88
2400 Chateau Drive Realty LLC		The Waters of Muncie II, LLC		Muncie		IN		SNF		72		2025			22,350				100	%			792,384				0.77	%			35.45
Big H2O		The Waters of Newcastle II, LLC (2)		New Castle		IN		SNF		66		2025			24,860				100	%			726,352				0.71	%			29.22
Master Lease 253, Alton, Midwest
253 Bradington Drive, LLC		Bria of Columbia		Columbia		IL		SNF		119		2032			43,189				100	%			410,821				0.40	%			9.51
3523 Wickenhauser, LLC		Bria of Alton		Alton		IL		SNF		181		2032			44,840				100	%			624,862				0.61	%			13.94
727 North 17th St, LLC		Bria of Belleville		Belleville		IL		SNF		180		2032			50,650				100	%			621,410				0.61	%			12.27
107 South Lincoln Street  LLC		Bria of Smithton		Smithton
1623 West Delmar Ave, LLC		Bria of Godfrey		Godfrey		IL		SNF		68		2032			15,740				100	%			234,755				0.23	%			14.91
393 Edwardsville Road LLC		Bria of Wood River		Wood River		IL		SNF		106		2032			29,491				100	%			365,941				0.36	%			12.41
Master Lease Landmark
8200 National Ave Realty, LLC		Landmark of Midwest City Nursing and Rehab		Midwest City		OK		SNF		106		2032			39,789				100	%			1,072,382				1.05	%			26.95
8200 National Ave Realty, LLC		Landmark of Midwest City Hospital		Midwest City		OK		LTACH		31		2032			49,319				100	%			313,621				0.31	%			6.36
911 South 3rd St Realty LLC		Chalet Of Niles		Niles		MI		SNF		100		2032			31,895				100	%			1,011,681				0.99	%			31.72
1015 Magazine Street, LLC		Landmark of River City Rehabilitation and Nursing Center		Louisville		KY		SNF		92		2032			36,050				100	%			930,747				0.91	%			25.82
900 Gagel Avenue, LLC		Landmark of Iroquois Park Rehabilitation and Nursing Center		Louisville		KY		SNF		120		2032			36,374				100	%			1,214,018				1.18	%			33.38
308 West Maple Avenue, LLC		Landmark of Lancaster Rehabilitation and Nursing Center		Lancaster		KY		SNF		96		2032			42,438				100	%			971,214				0.95	%			22.89
1155 Eastern Parkway, LLC		Landmark of Louisville Rehabilitation and Nursing Center		Louisville		KY		SNF		252		2032			106,250				100	%			2,549,437				2.48	%			23.99
203 Bruce Court, LLC		Landmark of Danville Rehabilitation and Nursing Center		Danville		KY		SNF		90		2032			26,000				100	%			910,513				0.89	%			35.02
203 Bruce Court, LLC		Goldenrod Village Assisted Living Center		Danville		KY		ALF		16		2032			19,500				100	%			161,869				0.16	%			8.30
203 Bruce Court, LLC		Hillside Suites Independent Living Center		Danville		KY		Independent Living		0		2032			1,000								-				0.00	%			-
120 Life Care Way, LLC		Landmark of Bardstown Rehabilitation and Nursing Center		Bardstown		KY		SNF		100		2032			36,295				100	%			1,011,681				0.99	%			27.87
1033 North Highway 11, LLC		Landmark of Laurel Creek Rehabilitation and Nursing Center		Manchester		KY		SNF		106		2032			32,793				100	%			1,072,382				1.05	%			32.70
945 West Russell Street, LLC		Landmark of Elkhorn City Rehabilitation and Nursing Center		Elkhorn City		KY		SNF		106		2032			31,637				100	%			1,072,382				1.05	%			33.90
420 Jett Drive, LLC		Landmark of Breathitt County Rehabilitation and Nursing Center, LLC		Jackson		KY		SNF		120		2032			32,581				100	%			1,214,018				1.19	%			37.26
1253 Lake Barkley Drive, LLC		Landmark of Kuttawa, A Rehabilitation & Nursing Center		Kuttawa		KY		SNF		65		2032			37,892				100	%			657,593				0.64	%			17.35

 

 

Lessor/Company Subsidiary		Manager/ Tenant/ Operator		City		State		Property type		Number of licensed beds		Tenant Lease Expiration Year (1)		Rentable square feet				Percent leased				Annualized Lease Income (in $)				% of total Annualized Lease Income				Annualized lease income per SQF (in $)
Master Lease Ohio																							-
3090 Five Points Hartford Realty, LLC		Continent Healthcare Co - Hartford		Fowler		OH		SNF		54		2025			15,504				100	%			196,012				0.19	%			12.64
3121 Glanzman Rd Realty, LLC		Continent Healthcare Co - Toledo		Toledo		OH		SNF		84		2025			24,087				100	%			304,908				0.30	%			12.66
620 West Strub Rd Realty, LLC		Continent Healthcare Co - Sandusky		Sandusky		OH		SNF		50		2025			18,984				100	%			181,493				0.18	%			9.56
4250 Sodom Hutchings Road Realty, LLC		Continent Healthcare Co - Cortland		Cortland		OH		SNF		50		2025			14,736				100	%			181,493				0.18	%			12.32
Master Lease TN 1
115 Woodlawn Drive, LLC		Lakebridge a Waters Community, LLC		Johnson City		TN		SNF		109		2031			37,734				100	%			1,463,458				1.43	%			38.78
146 Buck Creek Road, LLC		Waters of Roan Highlands, LLC		Roan Mountain		TN		SNF		80		2031			30,139				100	%			1,074,097				1.05	%			35.64
704 5th Avenue East, LLC		Waters of Springfield, LLC		Springfield		TN		SNF		66		2031			19,900				100	%			886,130				0.87	%			44.53
2501 River Road, LLC		Waters of Cheatham, LLC		Ashland City		TN		SNF		80		2031			37,953				100	%			1,074,097				1.05	%			28.30
202 Enon Springs East, LLC		Waters of Smyrna, LLC		Smyrna		TN		SNF		91		2031			34,070				100	%			1,221,786				1.19	%			35.86
140 Technology Lane, LLC		Waters of Johnson City, LLC		Johnson City		TN		SNF		84		2031			34,814				100	%			1,127,802				1.10	%			32.40
835 Union Street, LLC		Waters of Shelbyville, LLC		Shelbyville		TN		SNF		96		2031			44,327				100	%			1,288,917				1.26	%			29.08
Master Lease TN 2
505 North Roan Street, LLC		Agape Rehabilitation & Nursing Center, A Water’s Community		Johnson City		TN		SNF		84		2031			27,100				100	%			1,628,910				1.59	%			60.11
14510 Highway 79, LLC		Waters of McKenzie, A Rehabilitation & Nursing Center		McKenzie		TN		SNF		66		2031			22,454				100	%			1,279,858				1.25	%			57.00
6500 Kirby Gate Boulevard, LLC		Waters of Memphis, A Rehabilitation & Nursing Center		Memphis		TN		SNF		90		2031			51,565				100	%			1,745,261				1.71	%			33.85
978 Highway 11 South, LLC		Waters of Sweetwater, A Rehabilitation & Nursing Center		Sweetwater		TN		SNF		90		2031			30,312				100	%			1,745,261				1.71	%			57.58
2830 Highway 394, LLC		Waters of Bristol, A Rehabilitation & Nursing Center		Bristol		TN		SNF		120		2031			53,913				100	%			2,327,014				2.26	%			43.16
Master Lease AR
5301 Wheeler Avenue, LLC		The Blossoms at Fort Smith		Fort Smith		AR		SNF		117		2028			41,490				100	%			821,950				0.80	%			19.81
414 Massey Avenue, LLC		The Blossoms at Mountain View Assisted Living		Mountain View		AR		ALF		32		2028			12,548				100	%			224,807				0.22	%			17.92
706 Oak Grove Street, LLC		The Blossoms at Mountain View		Mountain View		AR		SNF		97		2028			31,586				100	%			681,445				0.67	%			21.57
8701 Riley Drive, LLC		The Blossoms at Woodland Hills		Little Rock		AR		SNF		140		2028			61,543				100	%			983,530				0.96	%			15.98
1516 Cumberland Street, LLC		The Blossoms at Cumberland		Little Rock		AR		SNF		120		2028			82,328				100	%			843,025				0.82	%			10.24
5720 West Markham Street, LLC		The Blossoms at Midtown		Little Rock		AR		SNF		154		2028			56,176				100	%			1,081,883				1.06	%			19.26
2501 John Ashley Drive, LLC		The Blossoms at North Little Rock		Little Rock		AR		SNF		140		2028			65,149				100	%			983,530				0.96	%			15.10
1513 South Dixieland Road, LLC		The Blossoms at Rogers		Rogers		AR		SNF		110		2028			32,962				100	%			772,773				0.76	%			23.44
826 North Street, LLC		The Blossoms at Stamps		Stamps		AR		SNF		94		2028			30,924				100	%			660,370				0.65	%			21.35

 

 

Lessor/Company Subsidiary		Manager/ Tenant/ Operator		City		State		Property type		Number of licensed beds		Tenant Lease Expiration Year (1)		Rentable square feet				Percent leased				Annualized Lease Income (in $)				% of total Annualized Lease Income				Annualized lease income per SQF (in $)
Master Lease AR SF LLC
326 Lindley Lane, LLC		The Blossoms at Newport		Newport		AR		SNF		120		2029			49,675				100	%			850,639				0.83	%			17.12
2821 West Dixon Road, LLC		The Blossoms at West Dixon		Little Rock		AR		SNF		140		2029			42,825				100	%			992,412				0.97	%			23.17
2821 West Dixon Road, LLC		The Blossoms at West Dixon Assisted Living		Little Rock		AR		ALF		32		2029			7,557				100	%			226,837				0.22	%			30.02
552 Golf Links Road, LLC		The Blossoms at Hot Springs		Hot Springs		AR		SNF		152		2029			30,372				100	%			1,077,476				1.05	%			35.48
Master Lease IN 2 SF LLC
8400 Clearvista Place LLC		The Waters of Castleton SNF, LLC		Indianapolis		IN		SNF		114		2029			41,400				100	%			1,023,207				1.00	%			24.72
524 Anderson Road LLC		The Waters of Chesterfield SNF, LLC		Chesterfield		IN		SNF		60		2029			21,900				100	%			538,530				0.53	%			24.59
640 West Ellsworth Street LLC		The Waters of Columbia City SNF, LLC		Columbia City		IN		SNF		84		2029			30,462				100	%			753,942				0.74	%			24.75
11563 West 300 South LLC		The Waters of Dunkirk SNF, LLC		Dunkirk		IN		SNF		46		2029			19,800				100	%			412,873				0.40	%			20.85
5544 East State Boulevard LLC		The Waters of Fort Wayne SNF, LLC		Ft. Wayne		IN		SNF		77		2029			31,500				100	%			691,113				0.68	%			21.94
548 South 100 West LLC		The Waters of Hartford City SNF, LLC		Hartford City		IN		SNF		65		2029			22,400				100	%			583,407				0.57	%			26.04
2901 West 37th Avenue LLC		The Waters of Hobart SNF, LLC		Hobart		IN		SNF		110		2029			43,854				100	%			987,305				0.96	%			22.51
1500 Grant Street LLC		The Waters of Huntington SNF, LLC		Huntington		IN		SNF		85		2029			44,957				100	%			762,917				0.75	%			16.97
787 North Detroit Street LLC		The Waters of LaGrange SNF, LLC		Lagrange		IN		SNF		100		2029			31,133				100	%			897,550				0.88	%			28.83
981 Beechwood Avenue LLC		The Waters of Middletown SNF, LLC		Middletown		IN		SNF		60		2029			18,500				100	%			538,530				0.53	%			29.11
317 Blair Pike LLC		The Waters of Peru SNF, LLC		Peru		IN		SNF		130		2029			60,230				100	%			1,166,815				1.14	%			19.37
815 West Washington Street LLC		The Waters of Rockport SNF		Rockport		IN		SNF		60		2029			25,000				100	%			538,530				0.53	%			21.54
612 East 11th Street LLC		The Waters of Rushville SNF		Rushville		IN		SNF		98		2029			16,572				100	%			879,599				0.86	%			53.08
505 West Wolfe Street LLC		The Waters of Sullivan SNF		Sullivan		IN		SNF		93		2029			15,600				100	%			834,721				0.82	%			53.51
500 East Pickwick Drive LLC		The Waters of Syracuse SNF		Syracuse		IN		SNF		66		2029			26,000				100	%			592,383				0.58	%			22.78
300 Fairgrounds Road LLC		The Waters of Tipton SNF		Tipton		IN		SNF		150		2029			30,970				100	%			1,346,325				1.32	%			43.47
1900 Alber Street LLC		The Waters of Wabash SNF East		Wabash		IN		SNF		84		2029			29,762				100	%			753,942				0.74	%			25.33
1720 Alber Street LLC		The Waters of Wabash SNF West		Wabash		IN		SNF		44		2029			12,956				100	%			394,922				0.39	%			30.48
300 North Washington Street LLC		The Waters of Wakarusa SNF		Wakarusa		IN		SNF		133		2029			48,000				100	%			1,193,741				1.17	%			24.87
8400 Clearvista Place LLC		The Waters of Castleton ALF, LLC		Indianapolis		IN		ALF		54		2029			43,900				100	%			484,677				0.47	%			11.04
787 North Detroit Street LLC		The Waters of LaGrange ALF, LLC		Lagrange		IN		ALF		17		2029			20,756				100	%			152,583				0.15	%			7.35
612 East 11th Street LLC		The Waters of Rushville ALF, LLC		Rushville		IN		ALF		29		2029			11,048				100	%			260,289				0.25	%			23.56
505 West Wolfe Street LLC		The Waters of Sullivan ALF, LLC		Sullivan		IN		ALF		32		2029			10,400				100	%			287,216				0.28	%			27.62
300 North Washington Street LLC		The Waters of Wakarusa ALF, LLC		Wakarusa		IN		ALF		61		2029			48,630				100	%			547,505				0.54	%			11.26
Master Lease TX
1621 Coit Road Realty, LLC		Landmark of Plano Nursing and Rehab		Plano		TX		SNF		160		2033			74,718				100	%			723,520				0.71	%			9.68
5601 Plum Creek Drive Realty, LLC		Landmark of Amarillo Nursing and Rehab		Amarillo		TX		SNF		99		2033			90,046				100	%			447,678				0.44	%			4.97
2301 North Oregon Realty, LLC		Grace Point Wellness Center		El Paso		TX		SNF		182		2033			19,895				100	%			823,004				0.80	%			41.37

 

 

Lessor/Company Subsidiary		Manager/ Tenant/ Operator		City		State		Property type		Number of licensed beds		Tenant Lease Expiration Year (1)		Rentable square feet				Percent leased				Annualized Lease Income (in $)				% of total Annualized Lease Income				Annualized lease income per SQF (in $)
Individual Leases
Ambassador Nursing Realty, LLC		Ambassador Nursing and Rehab, LLC		Chicago		IL		SNF		190		2026			37,100				100	%			1,005,313				0.98	%			27.10
Momence Meadows Realty, LLC		Momence Meadows Nursing & Rehab Center, LLC		Momence		IL		SNF		140		2025			37,139				100	%			1,038,000				1.01	%			27.95
Oak Lawn Nursing Realty, LLC		Oak Lawn Respiratory and Rehab center, LLC		Oak Lawn		IL		SNF		143		2028			37,854				100	%			1,083,048				1.06	%			28.61
Forest View Nursing Realty, LLC		Forest View Rehab and Nursing center, LLC		Itasca		IL		SNF		144		2024			34,152				100	%			1,215,483				1.19	%			35.59
Lincoln Park Holdings, LLC		Lakeview Rehab and Nursing center, LLC		Chicago		IL		SNF		178		2031			34,362				100	%			1,260,000				1.23	%			36.67
Continental Realty, LLC		Continental Nursing and Rehab, LLC		Chicago		IL		SNF		208		2031			53,653				100	%			1,575,348				1.54	%			29.36
Westshire Realty, LLC		City View Multi care Center LLC		Cicero		IL		SNF		485		2025			124,020				100	%			1,788,365				1.75	%			14.42
Belhaven Realty, LLC		Belhaven Nursing and Rehab, LLC		Chicago		IL		SNF		221		2026			60,000				100	%			2,134,570				2.08	%			35.58
West Suburban Nursing Realty, LLC		West Suburban Nursing & Rehab Center, LLC		Bloomingdale		IL		SNF		259		2027			70,314				100	%			1,961,604				1.92	%			27.90
Niles Nursing Realty, LLC		Niles Nursing & Rehab, LLC		Niles		IL		SNF		304		2026			46,480				100	%			2,409,998				2.35	%			51.85
Parkshore Estates Nursing Realty, LLC		Parkshore Estates Nursing & Rehab Center, LLC		Chicago		IL		SNF		318		2024			94,018				100	%			2,454,187				2.40	%			26.10
Midway Neurological and Rehab Realty, LLC		Midway Neurological and Rehab Center, LLC		Bridgeview		IL		SNF		404		2026			120,000				100	%			2,547,713				2.49	%			21.23
516 West Frech St, LLC		Parker Nursing and Rehab, LLC		Streator		IL		SNF		102		2031			24,979				100	%			498,351				0.49	%			19.95
4343 Kennedy Drive, LLC		Hope Creek Nursing and Rehabilitation Center, LLC		East Moline		IL		SNF		245		2030			104,000				100	%			478,959				0.47	%			4.61
1316 North Tibbs Avenue Realty LLC		West Park a water community		Indianapolis		IN		SNF		89		2024			26,572				100	%			549,885				0.54	%			20.69
1585 Perry Worth Rd, LLC		Waters of Lebanon LLC		Lebanon		IN		SNF		64		2027			32,650				100	%			116,678				0.11	%			3.57
2301 North Oregon Realty, LLC		Specialty Hospital Management		El Paso		TX		LTACH		32		2029			24,660				100	%			1,050,853				1.03	%			42.61
9209 Dollarway Road, LLC		The Blossoms at White Hall		White Hall		AR		SNF		120		2029			45,771				100	%			843,022				0.82	%			18.42
9300 Ballard Rd Realty, LLC		Zahav of DesPlaines		Des Plaines		IL		SNF		231		2033			70,556				100	%			1,302,479				1.26	%			18.46
100 Netherland Lane, LLC		Waters of Kingsport		Kingsport		TN		SNF		67		2033			28,140				100	%			151,323				0.15	%			5.38
2648 Sevierville Road, LLC		Asbury Inc - Maryville		Maryville		TN		SNF		181		2033			49,810				100	%			302,647				0.30	%			6.08
Total/Average										12,449		2029			4,296,662				100.00	%			102,324,734				100.00	%			23.82

 

(1) The tenant and the operator are the same for each facility other than the 32 SNFs leased under the two Indiana master lease agreements and one SNF in Amarillo, Texas. In the case of these other facilities, the tenants are county hospitals which have entered into management agreements with the operators listed in the table. These arrangements permit the facilities to participate in a CMS program that pays higher Medicaid reimbursement rates for facilities associated with hospitals in underserved areas.

 

(2) The expiration dates do not reflect the exercise of any renewable options.

 

Related Party Tenants

 

As of March 19, 2024, we leased 65 of our facilities to tenants that are affiliates of: (i) Moishe Gubin who serves as Chairman of the Board and our Chief Executive Officer, (ii) Michael Blisko, who serves as one of our directors, and (iii) Ted Lerman, one of the controlling members of the Predecessor Company. As of March 19, 2024, approximately 67.3% of our annualized base rent is received from such related-party tenants. The failure of these tenants to fulfill their obligations under their leases or renew their leases upon expiration could have a material adverse effect on our business, financial condition and results of operations. In January 2023, affiliates of Moishe Gubin and Michael Blisko acquired the membership interests held by the affiliate of Ted Lerman in all of the related party tenants.

 

Rental income from leases with these related party tenants represented 67.3% of all rental income for the year ended December 31, 2023. We believe these affiliated relationships provide a strong alignment of interests between us and our tenants and offers us increased operating flexibility with regards to potentially replacing underperforming tenants or evaluating acquisitions in new states. As we continue to grow and expand our portfolio, we intend to develop new relationships with unrelated party tenants and operators in order to diversify our tenant base and reduce our dependence on related party and operators.

 

 

The following table contains information regarding tenant/operators that are related parties of the Company as March 19, 2024:

 

Manager/Tenant/Operators that are Related Parties
Lessor/Company Subsidiary		Manager/Tenant/Operator		Beneficial Owner Percentage in Tenant/Operator by Related Party
					Moishe Gubin/Gubin Enterprises LP				Michael Blisko/Blisko Enterprises LP
Master Lease Indiana
1020 West Vine Street Realty, LLC		The Waters of Princeton II LLC			49.49	%			50.1	%
12803 Lenover Street Realty LLC		The Waters of Dillsboro – Ross Manor II LLC			49.49	%			50.51	%
1350 North Todd Drive Realty, LLC		The Waters of Scottsburg II LLC			49.49	%			50.1	%
1600 East Liberty Street Realty LLC		The Waters of Covington II, LLC			49.49	%			50.51	%
1601 Hospital Drive Realty LLC		The Waters of Greencastle II LLC			49.49	%			50.51	%
1712 Leland Drive Realty, LLC		The Waters of Huntingburg II LLC			49.49	%			50.1	%
2055 Heritage Drive Realty LLC		The Waters of Martinsville II LLC			49.49	%			50.51	%
3895 South Keystone Avenue Realty LLC		The Waters of Indianapolis II LLC			49.49	%			50.51	%
405 Rio Vista Lane Realty LLC		The Waters of Rising Sun II LLC			49.49	%			50.51	%
950 Cross Avenue Realty LLC		The Waters of Clifty Falls II LLC			49.49	%			50.51	%
958 East Highway 46 Realty LLC		The Water of Batesville II LLC			49.24	%			50.51	%
2400 Chateau Drive Realty, LLC		The Waters of Muncie II LLC			49.49	%			50.51	%
The Big H2O, LLC		The Waters of New Castle II LLC			49.49	%			50.51	%
Master Lease Tennessee
115 Woodlawn Drive, LLC		Lakebridge, a Waters Community, LLC			50.00	%			50.00	%
146 Buck Creek Road, LLC		The Waters of Roan Highlands, LLC			50.00	%			50.00	%
704 5TH Avenue East, LLC		The Waters of Springfield, LLC			50.00	%			50.00	%
2501 River Road, LLC		The Waters of Cheatham, LLC			50.00	%			50.00	%
202 Enon Springs Road East, LLC		The Waters of Smyrna, LLC			50.00	%			50.00	%
140 Technology Lane, LLC		The Waters of Johnson City, LLC			50.00	%			50.00	%
835 Union Street, LLC		The Waters of Shelbyville, LLC			50.00	%			50.00	%
Master Lease Tennessee 2
505 North Roan Street, LLC		Agape Rehabilitation & Nursing Center, A Water’s Community, LLC			50.00	%			50.00	%
14510 Highway 79, LLC		Waters of McKenzie, A Rehabilitation & Nursing Center, LLC			50.00	%			50.00	%
6500 Kirby Gate Boulevard, LLC		Waters of Memphis, A Rehabilitation & Nursing Center, LLC			50.00	%			50.00	%
978 Highway 11 South, LLC		Waters of Sweetwater, A Rehabilitation & Nursing Center, LLC			50.00	%			50.00	%
2830 Highway 394, LLC		Waters of Bristol, A Rehabilitation & Nursing Center, LLC			50.00	%			50.00	%
Master Lease Indiana 2
8400 Clearvista Place LLC		The Waters of Castleton SNF, LLC			50.00	%			50.00	%
524 Anderson Road LLC		The Waters of Chesterfield SNF, LLC			50.00	%			50.00	%
640 West Ellsworth Street LLC		The Waters of Columbia City SNF, LLC			50.00	%			50.00	%
11563 West 300 South LLC		The Waters of Dunkirk SNF, LLC			50.00	%			50.00	%
5544 East State Boulevard LLC		The Waters of Fort Wayne SNF, LLC			50.00	%			50.00	%
548 South 100 West LLC		The Waters of Hartford City SNF, LLC			50.00	%			50.00	%
2901 West 37th Avenue LLC		The Waters of Hobart SNF, LLC			50.00	%			50.00	%
1500 Grant Street LLC		The Waters of Huntington SNF, LLC			50.00	%			50.00	%
787 North Detroit Street LLC		The Waters of LaGrange SNF, LLC			50.00	%			50.00	%
981 Beechwood Avenue LLC		The Waters of Middletown SNF, LLC			50.00	%			50.00	%
317 Blair Pike LLC		The Waters of Peru SNF, LLC			50.00	%			50.00	%
815 West Washington Street LLC		The Waters of Rockport SNF			50.00	%			50.00	%
612 East 11th Street LLC		The Waters of Rushville SNF			50.00	%			50.00	%
505 West Wolfe Street LLC		The Waters of Sullivan SNF			50.00	%			50.00	%
500 East Pickwick Drive LLC		The Waters of Syracuse SNF			50.00	%			50.00	%
300 Fairgrounds Road LLC		The Waters of Tipton SNF			50.00	%			50.00	%
1900 Alber Street LLC		The Waters of Wabash SNF East			50.00	%			50.00	%
1720 Alber Street LLC		The Waters of Wabash SNF West			50.00	%			50.00	%
300 North Washington Street LLC		The Waters of Wakarusa SNF			50.00	%			50.00	%
8400 Clearvista Place LLC		The Waters of Castleton ALF, LLC			50.00	%			50.00	%
787 North Detroit Street LLC		The Waters of LaGrange ALF, LLC			50.00	%			50.00	%
612 East 11th Street LLC		The Waters of Rushville ALF, LLC			50.00	%			50.00	%
505 West Wolfe Street LLC		The Waters of Sullivan ALF, LLC			50.00	%			50.00	%
300 North Washington Street LLC		The Waters of Wakarusa ALF, LLC			50.00	%			50.00	%
Individual Leases
Ambassador Nursing Realty, LLC		Ambassador Nursing and Rehabilitation Center II, LLC			40.00	%			40.00	%
Momence Meadows Realty, LLC		Momence Meadows Nursing and Rehabilitation Center, LLC			50.00	%			50.00	%
Oak Lawn Nursing Realty, LLC		Oak Lawn Respiratory and Rehabilitation Center, LLC			50.00	%			50.00	%
Forest View Nursing Realty, LLC		Forest View Rehabilitation and Nursing Center, LLC			50.00	%			50.00	%
Lincoln Park Holdings, LLC		Lakeview Rehabilitation and Nursing Center, LLC			40.00	%			40.00	%
Continental Nursing Realty, LLC		Continental Nursing and Rehabilitation Center, LLC			40.00	%			40.00	%
Westshire Nursing Realty, LLC		City View Multicare Center LLC			50.00	%			50.00	%
Belhaven Realty, LLC		Belhaven Nursing and Rehabilitation Center, LLC			50.00	%			50.00	%
West Suburban Nursing Realty, LLC		West Suburban Nursing and Rehabilitation Center, LLC			40.00	%			40.00	%
Niles Nursing Realty LLC		Niles Nursing & Rehabilitation Center, LLC			50.00	%			50.00	%
Parkshore Estates Nursing Realty, LLC		Parkshore Estates Nursing and Rehabilitation Center, LLC			50.00	%			50.00	%
Midway Neurological and Rehabilitation Realty, LLC		Midway Neurological and Rehabilitation Center, LLC			50.00	%			50.00	%
516 West Frech Street, LLC		Parker Rehab & Nursing Center, LLC			50.00	%			50.00	%
1316 North Tibbs Avenue Realty LLC		Westpark A Waters Community, LLC			50.00	%			50.00	%
1585 Perry Worth Road LLC		The Waters of Lebanon LLC			50.00	%			50.00	%
100 Netherland Lance LLC		The Waters of Kingsport LLC			50.00	%			50.00	%

 

 

We monitor the creditworthiness of our tenants by evaluating the ability of the tenants to meet their lease obligations to us based on the tenants’ financial performance, including the evaluation of any guarantees of tenant lease obligations. The primary basis for our evaluation of the credit quality of our tenants (and more specifically the tenants’ ability to pay their rent obligations to us) is the tenants’ lease coverage ratios. These coverage ratios compare (i) earnings before interest, income taxes, depreciation, amortization and rent (“EBITDAR”) to rent coverage, and (ii) earnings before interest, income taxes, depreciation, amortization, rent and management fees (“EBITDARM”) to rent coverage. We utilize a standardized 5% management fee when we calculate lease coverage ratios. We obtain various financial and operational information from our tenants each month. We regularly review this information to calculate the above-described coverage metrics, to identify operational trends, to assess the operational and financial impact of the changes in the broader industry environment (including the potential impact of government reimbursement and regulatory changes), and to evaluate the management and performance of the tenants’ operations. These metrics help us identify potential areas of concern relative to our tenants’ credit quality and ultimately the tenants’ ability to generate sufficient liquidity to meet their ongoing obligations, including their obligations to continue paying contractual rents due to us and satisfying other financial obligations to third parties, as prescribed by our triple-net leases.

 

Geographic Diversification

 

As of March 19, 2024, our portfolio of 100 properties is broadly diversified by geographic location across nine U.S. states, comprising Arkansas, Illinois, Indiana, Kentucky, Michigan, Ohio, Oklahoma, Tennessee and Texas.

 

The following table contains information regarding our healthcare facility portfolio by geography, as of March 19, 2024:

 

State		Number of Properties			Facility Type		Licensed Bed Count				Annualized Average Base Rent (Amounts in $000s)				% of Total Annualized Average Base Rent
Indiana		34			34 SNFs 5 ALFs			3,240				30,881				30.2	%
Illinois		20			20 SNFs			4,226			$	25,011				24.4	%
Tennessee		14			14 SNFs			1,304				17,317				16.9	%
Arkansas		13			12 SNFs 2 ALFs			1,568				11,044				10.8	%
Kentucky		10			10 SNFs 1 ALF			1,163				11,766				11.5	%
Texas		3			3 SNFs 1 LTACH			473				3,045				3.0	%
Oklahoma		1			1 SNFs 1 LTACH			137				1,386				1.4	%
Ohio		4			4 SNFs			238				864				0.8	%
Michigan		1			1 SNF			100				1,012				1.0	%
Totals		100			99 SNFs 2 LTACHs 8 ALFs			12,449			$	102,326				100.0	%

 

 

Competitive Strengths

 

We believe that the following competitive strengths provide a solid foundation for the sustained growth of our business and successful execution of our business strategies:

 

Diversified Portfolio. We have a portfolio that is diversified in terms of both geography and tenant composition. As of March 19, 2024, our portfolio is comprised of 100 healthcare-related properties with a total of 12,449 licensed beds located throughout Arkansas, Illinois, Indiana, Kentucky, Michigan, Ohio, Oklahoma, Tennessee and Texas. We believe that our geographic diversification limits the potential impact of any regulatory, reimbursement, competitive dynamic or other changes in any single market on the overall performance of our portfolio. We lease our properties to 109 tenants, with no single tenant accounting for more than 2.5% of our annualized base rent. This diversification limits our exposure for any single tenant that encounters financial or operational difficulties.

 

Protected Markets. In eight of the nine states in which we operate, we benefit from CON laws that require state approval for the construction and expansion of certain types of healthcare facilities. These laws represent significant barriers to entry and limit competition in these markets.

 

Demonstrated Ability to Identify and Structure Accretive Acquisition Opportunities. Our management team has long-standing relationships in the skilled nursing and post-acute industries. Through their experience in acquiring these types of facilities, we have the proven ability to identify and complete complex and accretive transactions. Additionally, because many of our acquisitions are off-market opportunities sourced through our management team’s network of industry relationships, we believe we do not typically compete with larger healthcare-focused real estate companies for acquisitions as they tend to focus on larger, platform acquisition opportunities. As a result, we have consistently acquired assets at attractive valuations and believe we can continue to identify these types of opportunities to expand our portfolio.

 

Significant Experience Acquiring Underperforming Assets. Although we primarily seek to acquire properties that have had consistent profitability, we may also acquire underperforming properties if we believe that the underlying facilities can become successful through better management. Our management team’s prior experience as operators gives it the ability to evaluate these types of facilities and their potential for improved revenue enhancement and increased operating efficiencies. We will consider the acquisition of underperforming properties if they are available at attractive valuations and provide us with significant upside potential once their new operators have successfully stabilized and optimized their operations. If we acquire underperforming properties, we would expect to lease them to tenants and operators that have significant turnaround experience and support from experienced consultants.

 

 

Experienced and Adept Operators. We have strong and long-standing relationships with operators and their principals who have significant experience in operating successful skilled nursing facilities. These operators and their principals have a strong track record of operating in challenging markets where operators are subject to increased regulatory issues and significant competition. Additionally, these operators and their principals have learned to successfully operate facilities in which most of the revenue is earned from providing services to patients covered by Medicaid which are subject to lower reimbursement rates than other revenue sources.

 

Consulting Firms Provide Additional Resources for the Operators of our Facilities. Most of the operators of our facilities utilize the services of experienced healthcare consulting firms to provide them with expert advice and assistance with their operations. We believe these consulting firms provide the operators with additional expertise and resources that materially enhance their ability to operate efficiently and to meet applicable regulatory requirements.

 

Close Relationships with Tenants, Operators and Consultants Provide Enhanced Oversight, Market Intelligence and Strong Alignment of Interests. The nature of our close relationships with the tenants and operators of our properties and their consulting firms allows us to maintain close communication and obtain early knowledge of potential issues faced by our tenants, enabling us to address those issues that affect us as the lessor. These relationships also provide us with intelligence on the markets in which we own properties and assistance in locating new and replacement tenants. Additionally, the consulting firms assist us without charge in evaluating potential acquisitions and operators. This assistance provides us with insight into local market trends, which is particularly valuable for new markets. These relationships also provide a strong alignment of interests between our interests as a property owner and our tenants’ interests.

 

Well-Structured, Long-Term, Triple-Net Leases Generate Predictable and Growing Rental Income Streams. Most of our owned properties are leased to tenants under long-term, non-cancellable, triple-net leases, pursuant to which the tenants are responsible for all maintenance and repairs, insurance and taxes associated with the leased properties and the business conducted at the properties. As of December 31, 2023, 100% of the gross leasable area of our facilities was leased with an average remaining lease term of 6.4 years. Our leases generally have terms that range from 10 to 20 years with two five-year extensions, and annual rent escalators of 1% to 3% per year, which provides us with a steady and growing cash rental stream. Additionally, our leases are structured to provide us with key credit support and have credit enhancement provisions that may include non-refundable security deposits of up to 6 months, personal and corporate guarantees and cross-default provisions under our master leases. Approximately 72.9% of our total annualized rental revenue is generated through our 11 master leases that have cross-default and cross-collateralization provisions.

 

Seasoned Management Team with Significant Experience. Moishe Gubin, our Chairman and Chief Executive Officer, has over 25 years of operating and real estate experience in the skilled nursing and long-term care industries. Prior to founding the Predecessor Company, Mr. Gubin worked as an operator of skilled nursing facilities and built a strong operational knowledge base that has been incorporated into the day-to-day management of our current portfolio. Additionally, Mr. Gubin has significant acquisition experience having completed over 125 healthcare-related facilities with an aggregate investment amount of over $1.2 billion since 2003. Mr. Gubin also has significant experience accessing debt capital markets to fund growth, having raised over $310 million of publicly traded bonds that are listed on the Tel Aviv Stock Exchange. We believe that the diverse operational and financial background and expertise of our management team gives us the ability to successfully manage our portfolio and sustain our growth.

 

 

Our Business and Growth Strategies

 

Our objective is to generate attractive returns for our stockholders over the long term through dividends and capital appreciation. Key elements of our strategy include the following:

 

Acquire Additional Healthcare Properties in Concentrated Geographic Areas. We plan to invest primarily in real estate used as skilled nursing facilities and other healthcare facilities that provide services to the elderly, where our management team has substantial experience and relationships. We believe these facilities have the potential to provide higher risk-adjusted returns compared to other forms of net-leased real estate assets due to the specialized expertise necessary to acquire, own, finance and manage these properties, which are factors that tend to limit competition among investors, owners, operators and finance companies. We will seek to acquire properties in states where we believe we can build regional density in order to create competitive advantages and drive operational and cost efficiencies.

 

Negotiate Well-Structured Net Leases. Our primary ownership structure is a facility purchase with a long-term triple-net lease with the healthcare operator. We seek to structure our leases with lease terms of 10 years with tenant options to extend the lease for an additional period of 5 to 10 years and rent escalators that provide a steadily growing cash rental stream. Our lease structures are designed to provide us with credit support for our rents, including, in certain cases, lease deposits, covenants regarding liquidity, and various provisions for cross-default. We believe these features help insulate us from variability in operator cash flows and enable us to minimize our expenses while we continue to build our portfolio.

 

Leverage Existing and Develop New Operator Relationships. relationships in the healthcare industry through which we have sourced our existing portfolio, and we intend to continue to expand our portfolio by leveraging these existing relationships. Sixty-five of our properties are leased to related parties. One of our goals is to reduce our dependence on related party tenants in order to diversify our tenant base. Although we expect to continue to lease properties to related party tenants in markets in which the related party tenants have substantial experience and operations, we intend to lease properties in other markets to unrelated tenants if we are able to identify qualified operators. Additionally, we will consider leasing properties to unrelated parties in markets in which related parties operate if we are able to identify qualified operators that are willing to lease properties on terms that are no less favorable than those available from related parties.

 

Utilize Prudent Investment Underwriting Criteria. We have adopted what we believe to be a thorough investment underwriting process based on careful analysis and due diligence with respect to both the healthcare real estate and the healthcare service operations. We seek to make investments in healthcare properties that have the following attributes: well-located, visible to traffic, in good physical condition with predictable future capital improvement needs and with attractive prospects for future profitability.

 

Monitor the Performance of our Facilities and Industry Trends. We carefully monitor the financial and operational performance of our tenants and of the specific facilities in which we invest through a variety of methods, such as reviews of periodic financial statements, and regular meetings with the facility operators. Pursuant to the terms of our leases, our tenants are required to provide us with certain periodic financial statements and operating data.

 

 

Utilize Targeted Leverage in Our Investing Activities. We seek to utilize a targeted level of leverage that is appropriate in light of market conditions, future cash flows, the creditworthiness of tenants and future rental rates. We will seek to achieve a ratio of debt to asset fair market value in the range of 45% to 55%. However, our charter and bylaws do not limit the amount of debt that we may incur and our board of directors has not adopted a policy limiting the total amount of our borrowings.

 

Policy for the Acquisition and Sale of Properties

 

In considering these performance targets, readers should bear in mind that targeted performance for each acquisition is not a guarantee, projection, forecast or prediction and is not necessarily indicative of future results. These performance targets are as of the date hereof and may change in the future. The performance targets are based on an assumption that economic, market and other conditions will not deteriorate and, in some cases, will improve. These performance targets are also based on estimates and assumptions about performance believed to be reasonable under the circumstances, but actual realized returns of our investments will depend on, among other factors, the ability to consummate attractive investments, future operating results, the value of the assets and market conditions at the time of disposition, any related transaction costs and the timing and manner of sale, all of which may differ from the assumptions and circumstances on which targeted returns are based. We believe the performance targets are reasonable, but readers should keep in mind that this investment involves a high degree of risk and they should purchase these securities only if they can afford a complete loss of their investment.

 

We believe our management team’s depth of experience in healthcare real estate, operations and finance provides us with unique perspective in underwriting potential investments. Our real estate underwriting process focuses on both real estate and healthcare operations. The process includes a detailed analysis of the facility and the financial strength and experience of the tenant and its management. Key factors that we consider in the underwriting process include the following:

 

● the current, historical and projected cash flow and operating margins of each tenant and at each facility;

 

● the ratio of our tenants’ operating earnings both to facility rent and to facility rent plus other fixed costs, including debt costs;

 

● the quality and experience of the tenant and its management team;

 

● construction quality, condition, design and projected capital needs of the facility and property condition assessments;

 

● competitive landscape;

 

● drivers of healthcare-related needs;

 

● the location of the facility;

 

● local economic and demographic factors and the competitive landscape of the market;

 

● licensure and accreditation;

 

● the effect of evolving healthcare legislation and other existing and future regulations and compliance with such regulations on our tenants’ profitability and liquidity; and

 

● the payor mix of private, Medicare and Medicaid patients at the facility.

 

 

We also require tenants to furnish property and operator-level financials, among other data, on a monthly basis; we evaluate individual and portfolio property performance, liquidity metrics, lease and debt coverage, occupancy, planned capital expenditures, and other measures; and we conduct in- person visits to each facility in the portfolio at least two times per year. We believe our underwriting process enables us to acquire desirable properties with strong tenants that will support our ability to deliver attractive risk-adjusted returns to our stockholders.

 

The policy does not limit the authority of our board of directors to change or deviate from the policy as it sees fit from time to time. Changes to the policy do not require stockholder approval.

 

Our management does not have a fixed policy relating to the sale of properties. Accordingly, each potential sale opportunity will be examined on its merits in view of the business opportunity involved.

 

Our Leases

 

As of March 19, 2024, all of our healthcare properties were subject to lease agreements. Our leases have a weighted-average annualized lease income per leased square foot of $23.81, and a weighted-average remaining lease term of approximately 6.4 years.

 

To our knowledge, except as noted below, none of our current tenants are in default under any of the leases.

 

Each of our properties is leased under a separate lease agreement, although 11 groups of properties, covering a total of 88 facilities, are subject to 11 master lease agreements. Each master lease agreement provides that the tenants under the master lease are jointly and severally liable for the obligations of all of the other tenants under such master lease. We entered into these master lease agreements in order to facilitate financing the underlying properties. Rental income under these master leases represents a substantial portion of our rental income.

 

The following table summarizes information concerning the master lease agreements as of March 19, 2024 (dollars in thousands):

 

Master Lease Agreements
Master Lease Name		States			Facilities Count				GLA				Annualized Average Base Rent ($000s)				% of Total Annualized Average Base Rent
Master Lease Indiana 1 (1)		IN				13				463,593			$	13,592				13.3	%
Master Lease Indiana 2 (1) IN						24				705,730			$	16,623				16.2	%
Master Lease Central Illinois 1		IL				3				205,060			$	1,657				1.6	%
Master Lease Central Illinois 2		IL				2				45,231				601				.6	%
Master Lease Landmark		TX/OK/ MI/IL/KY				14				740,212			$	14,164				13.8	%
Master Lease Ohio		OH				4				73,311			$	864				.8	%
Master Lease Tennessee 1 (1)		TN				7				238,937			$	8,136				8.0	%
Master Lease Tennessee 2 (1)		TN				5				185,344			$	8,726				8.5	%
Master Lease Arkansas 1		AR				9				414,706			$	7,053				6.9	%
Master Lease Arkansas 2		AR				4				130,429			$	3,147				3.1	%
Master Lease Texas		TX				3				184,659			$	1,994				1.95	%
Total (11)						88				3,387,212			$	76,557				74.8	%

 

(1) The tenants under the two master leases in Indiana and the two Tennessee master leases are affiliated with Moishe Gubin, who is our Chairman and Chief Executive Officer and Michael Blisko, who is one of our directors. See “Item 1. Business—Our Leases.”

 

 

The following table summarizes information concerning the lease agreements that are not subject to a master lease agreement as of March 19, 2024 (dollars in thousands):

 

Individual Leases
Lessor		State			Facility Type			Rentable Sq. Ft.				Annualized Average Base Rent ($000s)				% of Total Annualized Average Base Rent
Ambassador Nursing Realty, LLC		Illinois			SNF				37,100			$	1,005				1.0	%
Momence Meadows Realty, LLC		Illinois			SNF				37,139			$	1,038				1.0	%
Oak Lawn Nursing Realty, LLC		Illinois			SNF				37,854			$	1,083				1.1	%
Forest View Nursing Realty, LLC		Illinois			SNF				34,152			$	1,215				1.2	%
Lincoln Park Holdings, LLC		Illinois			SNF				34,362			$	1,260				1.2	%
Continental Nursing Realty, LLC		Illinois			SNF				53,653			$	1,575				1.5	%
Westshire Nursing Realty, LLC		Illinois			SNF				124,020			$	1,788				1.7	%
Belhaven Realty, LLC		Illinois			SNF				60,000			$	2,135				2.1	%
West Suburban Nursing Realty, LLC		Illinois			SNF				70,314			$	1,962				1.9	%
Niles Nursing Realty LLC		Illinois			SNF				46,480			$	2,410				2.4	%
Parkshore Estates Nursing Realty, LLC		Illinois			SNF				94,018			$	2,454				2.4	%
Midway Neurological and Rehabilitation Realty, LLC		Illinois			SNF				120,000			$	2,548				2.5	%
516 West Frech Street, LLC		Illinois			SNF				24,979			$	498				0.5	%
4343 Kennedy Drive, LLC		Illinois			SNF				104,000			$	479				0.5	%
1316 North Tibbs Avenue Realty, LLC		Indiana			SNF				26,572			$	550				0.5	%
1585 Perry Worth Rd, LLC		Indiana			SNF				32,650			$	117				0.1	%
9300 Ballard Rd Realty, LLC		Illinois			SNF				70,556			$	1,302				1.3	%
2301 North Oregon Realty, LLC		Texas			LTACH				24,660			$	1,050				1.0	%
9209 Dollarway Road, LLC		Arkansas			SNF				45,771			$	843				0.8	%
100 Netherland Lane LLC		Tennessee			SNF				28,140				151				0.2	%
2648 Sevierville Road LLC		Tennessee			SNF				49,810				303				0.3	%
Total (21)									1,156,230			$	25,766				25.2	%

 

Investment and Financing Policies

 

Our properties are located in 9 states and we intend to continue to acquire properties in other states throughout the United States. Our investment objectives are to increase cash flow, provide quarterly cash dividends, maximize the value of our properties and acquire properties with cash flow growth potential. We intend to invest primarily in SNFs and seniors housing, including ALFs and we may determine in the future to expand our investments to include medical office buildings, long-term acute care hospitals and inpatient rehabilitation facilities. Although our portfolio currently consists primarily of owned real property, future investments may include first mortgages, mezzanine debt and other securities issued by, or joint ventures with, REITs or other entities that own real estate consistent with our investment objectives.

 

Competition

 

The market for making investments in healthcare properties is highly fragmented, and increased competition makes it more challenging for us to identify and successfully capitalize on opportunities that meet our investment objectives. In acquiring and leasing healthcare properties, we compete with private equity funds, real estate developers, REITs, other public and private real estate companies and private real estate investors, many of whom have greater financial resources than we have. We also face competition in leasing or subleasing available facilities to prospective tenants.

 

 

Regulation

 

Healthcare Regulatory Matters

 

The following discussion describes certain material healthcare laws and regulations that may affect our operations and those of our tenants/operators. Although there is presently no Federal regulation on the lessor itself from Federal government agencies that regulate and inspect the operators and no regulation of the lessor in the States in which we own real property, our tenants (the operators of skilled nursing facilities, long-term acute care hospitals and other healthcare providers) are subject to extensive federal, state and local government healthcare laws and regulations. These laws and regulations include requirements related to licensure, conduct of operations, ownership of the facilities operation, addition or expansion of facilities and services, prices for services, billing for services and the confidentiality and security of health-related information. Different properties within our portfolio may be more or less subject to certain types of regulation, some of which are specific to the type of facility or provider. These laws and regulations are wide-ranging and complex, may vary or overlap from jurisdiction to jurisdiction, and are subject frequently to change. Compliance with these regulatory requirements can increase operating costs and, thereby, adversely affect the financial viability of our tenants/operators’ businesses. Our tenants/operators’ failure to comply with these laws and regulations could adversely affect their ability to successfully operate our properties, or receive reimbursement for services rendered within them, which could negatively impact their ability to satisfy their contractual obligations to us. Our leases will require the tenants/operators to comply with all applicable laws, including healthcare laws.

 

Our tenants are subject directly to healthcare laws and regulations, because of the broad nature of some of these restrictions, such as the Anti-Kickback Statute discussed below. We intend for all of our business activities and operations to conform in all material respects with all applicable laws and regulations, including healthcare laws and regulations. We expect that the healthcare industry will continue to face increased regulation and pressure in the areas of fraud, waste and abuse, cost control, healthcare management and provision of services.

 

Healthcare Reform Measures. The Affordable Care Act changed how healthcare services are covered, delivered and reimbursed through expanded coverage of uninsured individuals, reduced growth in Medicare program spending, reductions in Medicare and Medicaid reimbursement, including but not limited to, Disproportionate Share Hospital, or DSH payments, and expanding efforts by governmental and private third party payors to tie reimbursement to quality and efficiency. In addition, the law reformed certain aspects of health insurance, contains provisions intended to strengthen fraud and abuse enforcement, and encourage the development of new payment models, including the creation of Accountable Care Organizations, or ACOs. The status of the Affordable Care Act is subject to substantial uncertainty due to proposals to terminate or modify its provisions. We are not able to predict the effect of such changes on our business since the nature of any changes is undetermined. However, any changes that result in a decrease in payments made on behalf of patients are likely to reduce the income that our tenants receive from the operation of facilities at our properties.

 

Sources of Revenue and Reimbursement. Our tenants and operators receive payments for patient services from the federal government under the Medicare program, state governments under their respective Medicaid or similar programs, managed care plans, private insurers and directly from patients. Medicare is a federal program that provides certain hospital and medical insurance benefits to persons age 65 and over, some disabled persons, persons with end-stage renal disease and persons with Lou Gehrig’s Disease. Medicaid is a federal-state program, administered by the states pursuant to certain conditions imposed by the Federal government, which provides hospital and medical benefits to qualifying individuals who are unable to afford healthcare. Generally, revenues for services rendered to Medicare patients are determined under a prospective payment system, or PPS. CMS annually establishes payment rates for the PPS for each applicable facility type and level of care provided.

 

 

Amounts received under Medicare and Medicaid programs are generally significantly less than established facility gross charges for the services provided and may not reflect the provider’s costs. Healthcare providers generally offer discounts from established charges to certain group purchasers of healthcare services, including private insurance companies, employers, health maintenance organizations, or HMOs, preferred provider organizations, or PPOs and other managed care plans. These discount programs generally limit a provider’s ability to increase revenues in response to increasing costs. Patients are generally not responsible for the total difference between established provider gross charges and amounts reimbursed for such services under Medicare, Medicaid, HMOs, PPOs and other managed care plans, but are responsible to the extent of any exclusions, deductibles or coinsurance features of their coverage. The amount of such exclusions, deductibles and coinsurance continues to increase. Collection of amounts due from individuals is typically more difficult than from governmental or third-party payers takes considerably longer and often requires the involvement of, and payment to, third parties to collect.

 

Payments to providers are being increasingly tied to quality and efficiency. These initiatives include requirements to report clinical data and patient satisfaction scores, reduced Medicare payments to hospitals based on “excess” readmission rates as determined by CMS, denial of payments under Medicare, Medicaid and some private payors for services resulting from a hospital or facility-acquired condition, or HAC, and reduced Medicare payments to hospitals with high risk-adjusted HAC rates. Certain provider types, including, but not limited to, inpatient rehabilitation facilities and long-term acute care hospitals, are subject to specific limits and restrictions on eligibility for admissions which, in turn, affect reimbursement at these facilities.

 

The amounts of program payments received by our tenants/operators can be changed from time to time by legislative or regulatory actions and by determinations by agents for the programs. Level of payment has also been impacted by the Federal budget sequestration which automatically reduces payments as a result of funding limitations. The Medicare and Medicaid statutory framework is subject to administrative rulings, interpretations and discretion that affect the amount and timing of reimbursement made under Medicare and Medicaid. Federal healthcare program reimbursement changes may be applied retroactively under certain circumstances. In recent years, the federal government has enacted various measures to reduce spending under federal healthcare programs. In April 2018, CMS announced as part of its patient driven payment model (“PDPM”) a skilled-nursing preferred payor system (“SNF-PPS”) intended to reduce administrative burden, and foster innovation to improve care and quality for patients. CMS estimates the program of payment redesign and policy changes would increase Medicare payments to SNFs by 2.4% ($850 million) during 2019.

 

In addition, many states have enacted, or are considering enacting, measures designed to reduce their Medicaid expenditures and change private healthcare insurance, and states continue to face significant challenges in maintaining appropriate levels of Medicaid funding due to state budget shortfalls. Many States have also sought to control costs by implementing a variety of alternative care and payment models authorized under Federal Medicaid waivers and such models often impose new or enhanced administrative requirements on health care providers as a condition of payment. Further, non-government payers may reduce their reimbursement rates in accordance with payment reductions by government programs or for other reasons. Healthcare provider operating margins may continue to be under significant pressure due to the deterioration in pricing flexibility and payor mix, as well as increases in operating expenses that exceed increases in payments under the Medicare and Medicaid programs.

 

 

Anti-Kickback Statute. A section of the Social Security Act known as the “Anti-Kickback Statute” prohibits, among other things, the offer, payment, solicitation or acceptance of remuneration, directly or indirectly, in return for referring an individual to a provider of services for which payment may be made in whole or in part under a federal healthcare program, including the Medicare or Medicaid programs. Courts have interpreted this statute broadly and held that the Anti-Kickback Statute is violated if just one purpose of the remuneration is to generate referrals, even if there are other lawful purposes. The Affordable Care Act provides that knowledge of the Anti-Kickback Statute or specific intent to violate the statute is not required in order to violate the Anti-Kickback Statute. Violation of the Anti-Kickback Statute is a crime, punishable by fines of up to $25,000 per violation, five years imprisonment, or both. Violations may also result in civil and administrative liability and sanctions, including civil penalties of up to $50,000 per violation, liability under the False Claims Act, exclusion from participation in federal and state healthcare programs, including Medicare and Medicaid, and additional monetary penalties in amounts treble to the underlying remuneration.

 

There are a limited number of statutory exceptions and regulatory safe harbors for categories of activities deemed protected from prosecution under the Anti-Kickback Statute. Currently, there are statutory exceptions and safe harbors for various activities, including the following: certain investment interests, space rental, equipment rental, practitioner recruitment, personnel services and management contracts, sale of practice, referral services, warranties, discounts, employees, managed care arrangements, investments in group practices, freestanding surgery centers, ambulance replenishing and referral agreements for specialty services. The safe harbor for space rental arrangements requires, among other things, that the aggregate rental payments be set in advance, be consistent with fair market value and not be determined in a manner that takes into account the volume or value of any referrals. The fact that conduct or a business arrangement does not fall within a safe harbor does not necessarily render the conduct or business arrangement illegal under the Anti-Kickback Statute. However, such conduct and business arrangements may lead to increased scrutiny by government enforcement authorities.

 

Many states have laws similar to the Anti-Kickback Statute that regulate the exchange of remuneration in connection with the provision of healthcare services, including prohibiting payments to physicians for patient referrals. The scope of these state laws is broad because they can often apply regardless of the source of payment for care. These statutes typically provide for criminal and civil penalties, as well as potential loss of facility licensure and eligibility for reimbursement by government payors.

 

We intend to use commercially reasonable efforts to structure our arrangements, including any lease/operating arrangements involving facilities in which local physicians are investors, so as to satisfy, or meet as closely as possible, safe harbor requirements. The safe harbors are narrowly structured, and there are not safe harbors available for every type of financial arrangement that we or our tenants/operators may enter. Although it is our intention to fully comply with the Anti-Kickback Statue, as well as all other applicable state and federal laws, we cannot assure you that all of our arrangements or the arrangements of our tenants/operators will meet all the conditions for a safe harbor. There can be no assurance regulatory authorities enforcing these laws will determine our financial arrangements or the financial relationships of our tenants/operators comply with the Anti-Kickback Statute or other similar laws and such regulatory authorities or private qui tam relators bringing actions on behalf of government entities in exchange for a portion of any recovery may allege non-compliance and seek financial or other penalties.

 

Stark Law. The Social Security Act also includes a provision commonly known as the “Stark Law.” The Stark Law is a strict liability statute that prohibits a physician from making a referral to an entity furnishing “designated health services” paid by Medicare or Medicaid if the physician or a member of the physician’s immediate family has a financial relationship with that entity unless an exception to the law is met. Designated health services include, among other services, inpatient and outpatient hospital services, clinical laboratory services, physical therapy services and radiology services. The Stark Law also prohibits entities that provide designated health services from billing the Medicare and Medicaid programs for any items or services that result from a prohibited referral and requires the entities to refund amounts received for items or services provided pursuant to the prohibited referral. Sanctions for violating the Stark Law are imposed without consideration to intent and include denial of payment, civil monetary penalties of up to $15,000 per prohibited service provided for failure to return amounts received in a timely manner, and exclusion from the Medicare and Medicaid programs. The statute also provides for a penalty of up to $100,000 for a circumvention scheme. Failure to refund amounts received pursuant to a prohibited referral may also constitute a false claim and result in additional penalties under the False Claims Act, which is discussed in greater detail below.

 

 

There are exceptions to the self-referral prohibition for many of the customary financial arrangements between physicians and providers, including employment contracts, leases and recruitment agreements. There is also an exception for a physician’s ownership interest in an entire hospital, as opposed to an ownership interest in a hospital department if such ownership interests and capacity were in place as of March 23, 2010. Unlike safe harbors under the Anti-Kickback Statute, an arrangement must comply with every requirement of a Stark Law exception, or the arrangement will be in violation of the Stark Law. Through a series of rulemakings, CMS has issued final regulations implementing the Stark Law. While these regulations were intended to clarify the requirements of the exceptions to the Stark Law, it is unclear how the government will interpret many of these exceptions for enforcement purposes and even an inadvertent failure to comply with the strict requirements, such as assuring a signature, can result in imposition of penalties under certain circumstances.

 

Although there is an exception for a physician’s ownership interest in an entire hospital, the Affordable Care Act prohibits newly created physician-owned hospitals from billing for Medicare patients referred by their physician owners. As a result, the law effectively prevents the formation after December 31, 2010 of new physician-owned hospitals that participate in Medicare and Medicaid. While the Affordable Care Act grandfathers existing physician-owned hospitals, it does not allow these hospitals to increase the percentage of physician ownership and significantly restricts their ability to expand services.

 

Many states also have laws similar to the Stark Law that prohibit certain self-referrals. The scope of these state laws is broad because they can often apply regardless of the source of payment for care, and little precedent exists for their interpretation or enforcement. These statutes typically provide for criminal and civil penalties, as well as loss of facility licensure.

 

Although our lease agreements will require tenants to comply with the Stark Law, we cannot offer assurance that the arrangements entered into by us or by our tenants/operators will be found to be in compliance with the Stark Law or similar state laws.

 

The False Claims Act. The federal False Claims Act prohibits knowingly making or presenting any false claim for payment to the federal government. The government may use the False Claims Act to prosecute Medicare and other government program fraud in areas such as coding errors, billing for services not provided, submitting false cost reports and failing to report and repay an overpayment within 60 days of identifying the overpayment or by the date a corresponding cost report is due, whichever is later. The False Claims Act defines the term “knowingly” broadly. Although simple negligence will not give rise to liability under the False Claims Act, submitting a claim with reckless disregard to its truth or falsity or failing to correct an error within specified period of time constitutes a “knowing” submission.

 

The False Claims Act contains qui tam, or whistleblower, provisions that allow private individuals to bring actions on behalf of the government alleging that the defendant has defrauded the federal government. Whistleblowers under the False Claims Act may collect a portion of the government’s recovery, which serves as an incentive to bring claims which then must be defended whether or not they have merit. Every entity that receives at least $5 million annually in Medicaid payments must have written policies for all employees, contractors or agents, providing detailed information about false claims, false statements and whistleblower protections under certain federal laws, including the False Claims Act, and similar state laws.

 

In some cases, whistleblowers and the federal government have taken the position, and some courts have held, that providers who allegedly have violated other statutes, such as the Anti-Kickback Statute and the Stark Law, have thereby submitted false claims under the False Claims Act. The Affordable Care Act clarifies this issue with respect to the Anti-Kickback Statute by providing that submission of claims for services or items generated in violation of the Anti-Kickback Statute constitutes a false or fraudulent claim under the False Claims Act. If a defendant is found liable under the False Claims Act, the defendant may be required to pay three times the actual damages sustained by the government, additional civil penalties of up to $10,000 per false claim, plus reimbursement of the fees of counsel for the whistleblower.

 

 

Many states have enacted similar statutes preventing the presentation of a false claim to a state government, and we expect more to do so because the Social Security Act provides a financial incentive for states to enact statutes establishing state level liability.

 

Other Fraud & Abuse Laws. There are various other fraud and abuse laws at both the federal and state levels that cover false claims and false statements and these may impact our business. For example, the Civil Monetary Penalties law authorizes the imposition of monetary penalties against an entity that engages in a number of prohibited activities. The penalties vary by the prohibited conduct, but include penalties of $10,000 for each item or service, $15,000 for each individual with respect to whom false or misleading information was given, and treble damages for the total amount of remuneration claimed. The prohibited actions include, but are not limited to, the following:

 

● knowingly presenting or causing to be presented, a claim for services not provided as claimed or which is otherwise false or fraudulent in any way;

 

● knowingly giving or causing to be giving false or misleading information reasonably expected to influence the decision to discharge a patient;

 

● offering or giving remuneration to any beneficiary of a federal healthcare program likely to influence the receipt of reimbursable items or services; arranging for reimbursable services with an entity which is excluded from participation from a federal healthcare program; or knowingly or willfully soliciting or receiving remuneration for a referral of a federal healthcare program beneficiary.

 

Any violations of the Civil Monetary Penalties Law by management or our tenants/operators could result in substantial fines and penalties and could have an adverse effect on our business.

 

HIPAA Administrative Simplification and Privacy and Security Requirements. HIPAA, as amended by the HITECH Act, and its implementing regulations create a national standard for protecting the privacy and security of individually identifiable health information (called “protected health information”). Compliance with HIPAA is mandatory for covered entities, which include healthcare providers such as tenants/operators of our facilities. Compliance is also required for entities that create, receive, maintain or transmit protected health information on behalf of healthcare providers or that perform services for healthcare providers that involve the disclosure of protected health information, called “business associates.”

 

Covered entities must report a breach of protected health information that has not been secured through encryption or destruction to all affected individuals without unreasonable delay, but in any case, no more than 60 days after the breach is discovered. Notification must also be made to HHS and, in the case of a breach involving more than 500 individuals, to the media. In the final rule issued in January, 2013, HHS modified the standard for determining whether a breach has occurred by creating a presumption that any non-permitted acquisition, access, use or disclosure of protected health information is a breach unless the covered entity or business associate can demonstrate that there is a low probability that the information has been compromised, based on a risk assessment.

 

 

Covered entities and business associates are subject to civil penalties for violations of HIPAA of up to $1.5 million per year for violations of the same requirement. In addition, criminal penalties can be imposed not only against covered entities and business associates, but also against individual employees who obtain or disclose protected health information without authorization. The criminal penalties range up to $250,000 and up to 10 years imprisonment. In addition, state Attorneys General may bring civil actions for HIPAA violations, HHS must conduct periodic HIPAA compliance audits of covered entities and business associates. If any of our tenants/operators are subject to an investigation or audit and found to be in violation of HIPAA, such tenants/operators could incur substantial penalties, which could have a negative impact on their financial condition. Our tenants/operators may also be subject to more stringent state law privacy, security and breach notification obligations. Enforcement of HIPAA and the Health Information Technology for Economic and Clinical Health (HITECH) Act, which substantially augmented the requirements under HIPAA have become increasingly stringent and the penalties for non-compliance have become increasingly harsh.

 

Licensure, Certification and Accreditation. Healthcare property construction and operation are subject to numerous federal, state and local regulations relating to the adequacy of medical care, equipment, personnel, operating policies and procedures, maintenance of adequate records, fire prevention, rate-setting and compliance with building codes and environmental protection laws. The requirements for licensure, certification and accreditation are subject to change and, in order to remain qualified, it may become necessary for our tenants/operators to make changes in their facilities, equipment, personnel and services.

 

Facilities in our portfolio will be subject to periodic inspection by governmental and other authorities to assure continued compliance with the various standards necessary for licensing and accreditation. We will require our healthcare properties to be properly licensed under applicable state laws. Except for provider types not eligible for participation in Medicare and Medicaid, we expect our tenant/operators to participate in the Medicare and Medicaid programs and, where applicable, to be accredited by an approved accrediting organization which is also often a requirement for Medicare certification. The loss of Medicare or Medicaid certification would result in our tenants/operators that operate Medicare/Medicaid-eligible providers from receiving reimbursement from federal healthcare programs. The loss of accreditation, where applicable, would result in increased scrutiny by CMS and likely the loss of payment from non-government payers which often condition participation and payment on participation in the Medicare program.

 

In some states, the construction or expansion of healthcare properties, the acquisition of existing facilities, the transfer or change of ownership and the addition of new beds or services may be subject to review by and prior approval of, or notifications to, state regulatory agencies under a Certificate of Need, or CON program. Such laws generally require the reviewing state agency to determine the public need for additional or expanded healthcare properties and services and have begun to expect some level of revenue from enforcement action in their budget planning. Some states in which we operate have also adopted limitations on the opening of new skilled nursing facilities. See “Item 1. Business – Skilled nursing facility industry Business in the United States.” The requirements for licensure, certification and accreditation also include notification or approval in the event of the transfer or change of ownership or certain other changes. Further, federal programs, including Medicare, must be notified in the event of a change of ownership or change of information at a participating provider. Failure by our tenants/operators to provide required federal and state notifications, obtain necessary state licensure and CON approvals could result in significant penalties as well as prevent the completion of an acquisition or effort to expand services or facilities. We may be required to provide ownership information or otherwise participate in certain of these approvals and notifications.

 

Antitrust Laws. The federal government and most states have enacted antitrust laws that prohibit certain types of conduct deemed to be anti-skilled nursing facilities. These laws prohibit price fixing, concerted refusal to deal, market allocation, monopolization, attempts to monopolize, price discrimination, tying arrangements, exclusive dealing, acquisitions of competitors and other practices that have, or may have, an adverse effect on competition. Violations of federal or state antitrust laws can result in various sanctions, including criminal and civil penalties. Antitrust enforcement in the healthcare industry is currently a priority of the Federal Trade Commission and the Antitrust Division of the Department of Justice. We intend to operate so that we and our tenants/operators are in compliance with such federal and state laws, but future review by courts or regulatory authorities could result in a determination that could adversely affect the operations of our tenants/operators and, consequently, our operations. In addition to enforcement by Federal and State agencies, in an effort to control health care costs, private payors such as employee welfare benefit plans administered by or for employers or unions have become increasing aggressive in bringing actions against providers alleging violations of antitrust laws.

 

 

Healthcare Industry Investigations. Significant media and public attention has focused in recent years on the healthcare industry. The federal government is dedicated to funding additional federal enforcement activities related to healthcare providers and preventing fraud and abuse. Our tenants/operators will engage in many routine healthcare operations and other activities that could be the subject of governmental investigations or inquiries. For example, our tenants/operators will likely have significant Medicare and Medicaid billings, numerous financial arrangements with physicians who are referral sources, and joint venture arrangements involving physician investors. In recent years, Congress and the States have increased the level of funding for fraud and abuse enforcement activities. It is possible that governmental entities could initiate investigations or litigation in the future and that such proceedings could result in significant costs and penalties, as well as adverse publicity. It is also possible that our executives could be included in governmental investigations or litigation or named as defendants in private litigation.

 

Governmental agencies and their agents, such as the Medicare Administrative Contractors, fiscal intermediaries and carriers, as well as the HHS-OIG, CMS and state Medicaid programs, may conduct audits of our tenants/operator’s operations. Private payers may conduct similar post-payment audits, and our tenants/operators may also perform internal audits and monitoring. Many of these audits employ the use of statistical sampling and extrapolation whereby a small number of claims are reviewed but adverse results are applied against a provider’s claims for long periods of time. Depending on the nature of the conduct found in such audits and whether the underlying conduct could be considered systemic such that results are extrapolated, the resolution of these audits which can often require substantial repayments could have a material, adverse effect on our portfolio’s financial position, results of operations and liquidity.

 

Under the Recovery Audit Contractor, or RAC program, CMS contracts with RACs on a contingency basis to conduct post-payment reviews to detect and correct improper payments in the fee-for-service Medicare program, to managed Medicare plans and in the Medicaid program. CMS has also initiated a RAC prepayment demonstration program in 11 states. CMS also employs Medicaid Integrity Contractors, or MICs to perform post-payment audits of Medicaid claims and identify overpayments. In addition to RACs and MICs, the state Medicaid agencies and other contractors have increased their review activities. Aside from the costs associated with responding to a myriad of requests for substantiation of services, should any of our tenants/operators be found out of compliance with any of these laws, regulations or programs, our business, our financial position and our results of operations could be negatively impacted.

 

Environmental Matters

 

A wide variety of federal, state and local environmental and occupational health and safety laws and regulations affect healthcare property operations. These complex federal and state statutes, and their enforcement, involve a myriad of regulations, many of which involve strict liability on the part of the potential offender. Some of these federal and state statutes may directly impact us. Under various federal, state and local environmental laws, ordinances and regulations, an owner of real property or a secured lender, such as us, may be liable for the costs of removal or remediation of hazardous or toxic substances at, under or disposed of in connection with such property, as well as other potential costs relating to hazardous or toxic substances (including government fines and damages for injuries to persons and adjacent property). The cost of any required remediation, removal, fines or personal or property damages and the owner’s or secured lender’s liability therefore could exceed or impair the value of the property, and/or the assets of the owner or secured lender. In addition, the presence of such substances, or the failure to properly dispose of or remediate such substances, may adversely affect the owner’s ability to sell or rent such property or to borrow using such property as collateral which, in turn, could reduce our revenues.

 

 

Prior to closing any property acquisition or loan, we ordinarily obtain Phase I environmental assessments in order to attempt to identify potential environmental concerns at the facilities. These assessments will be carried out in accordance with an appropriate level of due diligence and will generally include a physical site inspection, a review of relevant federal, state and local environmental and health agency database records, one or more interviews with appropriate site-related personnel, review of the property’s chain of title and review of historic aerial photographs and other information on past uses of the property. We may also conduct limited subsurface investigations and test for substances of concern where the results of the Phase I environmental assessments or other information indicates possible contamination or where our consultants recommend such procedures.

 

Americans with Disabilities Act

 

Our properties must comply with Title III of the ADA to the extent that such properties are “public accommodations” as defined by the ADA. The ADA may require removal of structural barriers to access by persons with disabilities in certain public areas of our properties where such removal is readily achievable. Many States and localities have similar requirements that are in addition to, and sometime more stringent than, Federal requirements. We believe the existing properties are in substantial compliance with the ADA and that we will not be required to make substantial capital expenditures to address the requirements of the ADA. However, noncompliance with the ADA or a comparable State or local requirement could result in imposition of fines or an award of damages to private litigants. The obligation to make readily achievable accommodations is an ongoing one, and we will continue to assess our properties and to make alterations as appropriate in this respect.

 

Emerging Growth Company Status

 

We are an “emerging growth company,” as defined in the JOBS Act, and we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We have not yet made a decision as to whether we will take advantage of any or all of these exemptions. If we do take advantage of any of these exemptions, we do not know if some investors will find common stock less attractive as a result. The result may be a less active trading market for common stock and our stock price may be more volatile.

 

In addition, the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of the extended transition period for adopting new or revised accounting standards available to emerging growth companies.

 

We will remain an “emerging growth company” until the earliest to occur of (i) the last day of the fiscal year during which our total annual revenue equals or exceeds $1.07 billion (subject to adjustment for inflation), (ii) the last day of the fiscal year following the fifth anniversary of the first sale of shares pursuant to a registration statement filed under the Securities Act, (iii) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt or (iv) the date on which we are deemed to be a “large accelerated filer” under the Exchange Act.

 

Human Capital Resource Management

 

As of December 31, 2023, we had 9 full-time employees. Our employees are primarily located at our corporate office in Chicago. Our employees are not members of any labor union, and we consider our relations with our employees to be satisfactory.

 

We endeavor to maintain workplaces that are free from discrimination or harassment on the basis of color, race, sex, national origin, ethnicity, religion, age, disability, sexual orientation, gender identification or expression or any other status protected by applicable law. The basis for recruitment, hiring, development, training, compensation and advancement at the Company is qualifications, performance, skills and experience. We believe our employees are fairly compensated, and compensation and promotion decisions are made without regard to gender, race and ethnicity. Employees are routinely recognized for outstanding performance.

 

Insurance

 

We require our tenants to maintain general liability, professional liability, all risks and other insurance coverages and to name us as an additional insured under these policies. We believe that the policy specifications and insured limits are appropriate given the relative risk of loss, the cost of the coverage and industry practice.

 

Available Information

 

We file annual, quarterly and current reports, proxy statements and other information with SEC. The SEC maintains an internet site that contains these reports, and other information about issuers, like us, which file electronically with the SEC. The address of that site is http://www.sec.gov. We make available our reports on Form 10-K, 10-Q, and 8-K (as well as all amendments to these reports), and other information, free of charge, on the Investor Relations section of our website at www.strawberryfieldsreit.com. The information found on, or otherwise accessible through, our website is not incorporated by reference into, nor does it form a part of, this report or any other document that we file with the SEC.

 

 

ITEM 1A. Risk Factors

 

Not applicable.

 

ITEM 1B. Unresolved Staff Comments

 

Not applicable.

 

ITEM 1C. Cybersecurity

 

Our management recognizes the critical importance of addressing cybersecurity threats and risks to our business and operations. Therefore, we have established a comprehensive framework to assess and manage material risks arising from cybersecurity threats.

 

Our Information Security Officer (“ISO”) and the Cybersecurity Incident Response Team (“IRT”) are responsible for assessing and managing cybersecurity risks. The IRT is comprised of individuals with expertise in information security, technology, legal and risk management. The IRT monitors cybersecurity incidents and potential threats. It liaises with external cybersecurity experts and industry partners to stay current on emerging threats and best practices. The diverse expertise of the IRT members enables comprehensive risk assessment and swift responses to mitigate the potential impact of breaches or other cybersecurity incidents.

 

We actively engage consultants, outside counsel and other technology experts to enhance our cybersecurity risk management processes. We perform regular assessments and evaluations of the effectiveness of our cybersecurity measures. In addition to third party engagements, we maintain rigorous oversight of cybersecurity risks associated with our use of third party service providers. Vendor management processes are employed to evaluate vendors’ cybersecurity practices, assess risk position and implement measures to mitigate potential threats arising from these external relationships.

 

The Board of Directors has been designated to oversee cybersecurity risk management. Its members possess diverse expertise, which enables them to effectively evaluate the adequacy of our cybersecurity measures and challenge management’s approach when necessary. The Information Security Officer provides regular updates to our chief executive officer and Board of Directors on cybersecurity risks, ongoing initiatives, incidents, response activities and strategies. The Board of Directors acknowledges cybersecurity as a strategic risk and a priority for the Company. The Board of Directors is actively involved in the oversight of our cybersecurity risk management efforts, ensuring alignment with our overall business objectives.

 

We continuously strive to strengthen our cybersecurity measures to protect our systems and data from evolving threats. To date, cybersecurity incidents and risks have not materially affected us, including our business strategy, results of operations, or financial condition.

 

ITEM 2. Properties

 

We hold fee title to 97 of these properties and hold three property under a long-term lease. These properties are located across Arkansas, Illinois, Indiana, Kentucky, Michigan, Ohio, Oklahoma, Tennessee and Texas. Our 100 properties comprise 109 healthcare facilities, consisting of the following:

 

● 99 stand-alone skilled nursing facilities;

 

● two dual-purpose facilities used as both skilled nursing facilities and long-term acute care hospitals; and

 

● eight assisted living facilities.

 

Information regarding our properties as of December 31, 2023, are included in Item 15. “Exhibits and Financial Statement Schedules—Schedule III. Real Estate and Accumulated Depreciation” of this Annual Report on Form 10-K.

 

As of December 31, 2023, almost all of our properties are leased under long-term, triple-net leases. The following table displays the expiration of the annualized contractual cash rental income under our lease agreements as of December 31, 2023:

 

Lease Expirations
Year of Lease Expiration (1)		Number of Leases Facilities			GLA of Leases Expiring				Percent of Portfolio GLA				Annualized Base Rent				Percentage of Total Annualized Base Rent				Annualized Base Rent Per Sq. Ft.
2024		3				154,742				3.67	%			4,219,554				4.31	%		$	27.27
2025		19				698,063				16.55	%			17,281,846				17.64	%		$	24.76
2026		4				263,580				6.25	%			8,097,593				8.26	%		$	30.72
2027		3				102,964				2.44	%			2,078,281				2.12	%		$	20.18
2028		9				414,706				9.83	%			7,053,312				7.20	%		$	17.01
Thereafter		69				2,584,657				61.26	%			59,262,131				60.48	%		$	22.93
Total		107				4,218,712				100.0	%		$	97,992,717				100.0	%		$	23.23

 

(1) The year of each lease expiration is based on current contract terms.

 

 

ITEM 3. Legal Proceedings

 

We are not currently a party to any material legal proceedings, that are not covered by insurance and expected to be resolved within policy limits, other than the following:

 

In March 2020, Joseph Schwartz, Rosie Schwartz and certain companies owned by them filed a complaint in the U.S. District Court for the Northern District of Illinois against Moishe Gubin, Michael Blisko, the Predecessor Company and 21 of its subsidiaries, as well as the operators of 17 of the facilities operated at our properties. The complaint was related to the Predecessor Company’s acquisition of 16 properties located in Arkansas and Kentucky that were completed between May 2018 and April 2019 and the attempt to purchase an additional five properties located in Massachusetts. The complaint was dismissed by the Court in 2020 on jurisdictional grounds. The plaintiffs did not file an appeal with respect to this action, and the time for an appeal has expired.

 

In August 2020, Joseph Schwartz, Rosie Schwartz and several companies controlled by them filed a second complaint in the Circuit Court in Pulaski County, Arkansas. The second complaint had nearly identical claims as the federal case, but was limited to matters related to the Predecessor Company’s acquisition of properties located in Arkansas. The sellers, which were affiliates of Skyline Health Care, had encountered financial difficulties and requested the Predecessor Company to acquire these properties. The defendants have filed an answer denying the plaintiffs’ claims and asserting counterclaims based on breach of contract. This case has been dismissed without prejudice.

 

In January 2021, Joseph Schwartz, Rosie Schwartz and certain companies owned by them filed a third complaint in Illinois state court in Cook County, Illinois, which has nearly identical claims to the initial federal case, but was limited to claims related to the Kentucky and Massachusetts properties. The complaint has not been properly served on any of the defendants, and, accordingly, the defendants did not responded to the complaint. Instead, the defendants filed a motion to quash service of process. On January 11, 2023, the Cook County Circuit Court entered an order granting such motion, quashing service of process on all defendants. In March 2023, the plaintiffs filed a new complaint and again attempted to serve it on the defendants. It is the defendants’ position that service was (once again, potentially) defective and sought a dismissal of the matter for want of prosecution by Joseph Schwartz, Rosie Schwartz and certain companies owned by them. The dismissal was granted, but has been appealed to the Illinois Appellate Court, with no substantive movement on the matter to date.

 

In each of these complaints, the plaintiffs asserted claims for fraud, breach of contract and rescission arising out of the defendants alleged failure to perform certain post-closing obligations under the purchase contracts. We have potential direct exposure for these claims because the subsidiaries of the Predecessor Company that were named as defendants are now subsidiaries of the Operating Partnership. Additionally, the Operating Partnership is potentially liable for the claims made against Moishe Gubin, Michael Blisko and the Predecessor Company pursuant to the provisions of the contribution agreement, under which the Operating Partnership assumed all of the liabilities of the Predecessor Company and agreed to indemnify the Predecessor Company and its affiliates for such liabilities. We and the named defendants believe that the claims set forth in the complaints are without merit. The named defendants intend to vigorously defend the litigation and to assert counterclaims against the plaintiffs based on their failure to fulfill their obligations under the purchase contracts, interim management agreement, and operations transfer agreements. We believe this matter will be resolved without a material adverse effect to the Company.

 

As noted above, the March 2020 and January 2021 complaints also related to the Predecessor Company’s planned acquisition of five properties located in Massachusetts. A subsidiary of the Predecessor Company purchased loans related to these properties in 2018 for a price of $7.74 million with the expectation that the subsidiaries would acquire title to the properties and the loans would be retired. The subsidiary subsequently advanced $3.1 million under the loans to satisfy other liabilities related to the properties. The planned acquisition/settlement with the sellers/owners and/borrowers was not consummated because the underlying tenants of the properties surrendered their licenses to operate healthcare facilities on these properties.

 

The Predecessor Company intends to institute legal proceedings to collect the outstanding amount of these loans and to assert related claims against the sellers and their principals for the unpaid principal balances as well as protective advances and collection costs. In connection with enforcing their rights, in July 2022, the Company foreclosed, and (as lender) sold four of the five properties at auction for the total amount of $4.4 million. In December 2022, the Company took title on the fifth property with an estimated fair value of $1.2 million.

 

ITEM 4. Mine Safety Disclosures

 

Not applicable.

 

 

PART II

 

ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Common Equity

 

On September 23, 2022, our common stock commenced trading on the OTCQX market operated by the OTC Markets Group, Inc., under the symbol “STRW”. On February 22, 2023, our common stock commenced trading on the NYSE American market, also under the symbol “STRW”.

 

The following table sets forth, for the periods indicated, the high and low sales prices for our common stock as reported for each quarter of 2023. This information reflects inter-dealer prices, without retail mark-up, markdown or commission and may not represent actual transactions.

 

		High				Low
Quarter Ended March 31, 2023		$	9.25			$	5.79
Quarter Ended June 30, 2023		$	7.89			$	5.79
Quarter Ended September 30, 2023		$	7.41			$	6.09
Quarter Ended December 31, 2023		$	7.99			$	5.93

 

As of March 19, 2024, 812 stockholders of record owned 6,474,175 issued and outstanding shares of common stock. This number of stockholders of record does not represent the actual number of beneficial owners of our common stock because shares of our common stock are also held in “street name” by securities brokers and others for the benefit of beneficial owners who may vote the shares.

 

In addition, as of March 19, 2024, the Operating Partnership had 45,373,615 outstanding OP Units held by 10 limited partners other than the Company. No public trading market exists for the OP Units.

 

To maintain REIT status, we are required each year to distribute to stockholders at least 90% of our annual REIT taxable income after certain adjustments. All distributions will be made by us at the discretion of our board of directors and will depend on our financial position, results of operations, cash flows, capital requirements, debt covenants (which include limits on distributions by us), applicable law, and other factors as our board of directors deems relevant.

 

Distributions with respect to our common stock can be characterized for federal income tax purposes as taxable ordinary dividends, non-dividend distributions or a combination thereof. Following is the characterization of our annual cash dividends on common stock for 2023:

 

(dollars in thousands)
Common Stock
Ordinary dividend		$	2,572
Non-dividend distributions		$	265
Capital Gain Distribution		$	35
Total taxable distribution		$	2,872

 

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

During 2023, affiliates of the Company purchased 9,176 shares of our common stock in the open market at an average price per share of $6.95 and an aggregate repurchase cost of $63,751.

 

During 2023, the Company converted 127,953 OP Units into shares of common stock.

 

On November 9, 2023 the Board of Directors authorized the repurchase of up to $5 million of the Company’s common stock. As of December 31st, 2023 the Company purchased 5,953 shares of common stock at an average price per share of $7.84 and an aggregate repurchase priced of $46,000. All common shares repurchased in the program have been retired and are now held as unissued shares available for use and reissuance for purpose as and when determined by the Board.

 

The following table sets forth information regarding the Company’s repurchase of shares of its outstanding common stock during the three months ended December 31, 2023.

 

Period		Number of Shares				Average Price Paid Per Share				Cumulative Number of Shares Purchased as Part of Publicly Announced Plans or Programs				Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs
October 1-31, 2023			-				-				-				-
November 1-30, 2023			-				-				-				-
December 1-31, 2023			5,953			$	7.84				5,953			$	4,954,000
Total			5,953			$	7.84				5,953			$	4,954,000

 

Securities Authorized for Issuance under Equity Compensation Plans

 

The information required by Item 5 is incorporated by reference to our Definitive Proxy Statement for our 2024 annual stockholders’ meeting.

 

ITEM 6. [Reserved]

 

 

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The discussion below contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those which are discussed in the section titled “Risk Factors.” Also see “Statement Regarding Forward-Looking Statements” preceding Part I.

 

The following discussion and analysis should be read in conjunction with our accompanying consolidated financial statements and the notes thereto.

 

Overview

 

Strawberry Fields REIT, Inc. (the “Company”) is engaged in the ownership, acquisition, financing and triple-net leasing of skilled nursing facilities and other post-acute healthcare properties. Currently, our portfolio consists of 100 healthcare properties with an aggregate of 12,449 licensed beds. We hold fee title to 97 of these properties and hold three properties under long-term leases. These properties are located in Arkansas, Illinois, Indiana, Kentucky, Michigan, Ohio, Oklahoma, Tennessee and Texas. We generate substantially all our revenues by leasing our properties to tenants under long-term leases primarily on a triple-net basis, under which the tenant pays the cost of real estate taxes, insurance and other operating costs of the facility and capital expenditures. Each healthcare facility located at our properties is managed by a qualified operator with an experienced management team.

 

We employ a disciplined approach in our investment strategy by investing in healthcare real estate assets. We seek to invest in assets that will provide attractive opportunities for dividend growth and appreciation in asset value, while maintaining balance sheet strength and liquidity, thereby creating long-term stockholder value. We expect to grow our portfolio by diversifying our investments by tenant, facility type and geography.

 

We are entitled to monthly rent paid by the tenants and we do not receive any income or bear any expenses from the operations of such facilities. As of the date of this report, the aggregate annualized average base rent under the leases for our properties was approximately $102.3 million.

 

We elect to be taxed as a REIT for U.S. federal income tax purposes commencing with our taxable year ending December 31, 2022. We are organized in an UPREIT structure in which we own substantially all of our assets and conduct substantially all of our business through the Operating Partnership. We are the general partner of the Operating Partnership and as of the date of the report own approximately 12.6% of the outstanding OP units.

 

 

Recent Developments

 

On May 1, 2023, the Operating Partnership paid $15.6 million to redeem 1,454,308 OP units granted to the sellers of five properties in Tennessee and one in Kentucky the Company acquired in 2021. In connection with this payment, the Company contributed $0.7 million to the Operating Partnership and was issued 65,455 OP units.

 

On June 19, 2023, the BVI Company completed an initial offering of Series D Bonds with a par value of NIS 82.9 million ($22.9 million). The Series D Bonds were issued at par and the interest rate is 9.1%. During July 2023, the BVI Company issued additional Series D Bonds with a par value of NIS 70.0 million and raised a gross amount of $19.2 million (NIS 69.8 million). The Bonds were issued at a price of 99.7%.

 

On August 25, 2023, the Company acquired 24 healthcare facilities (19 properties) located in Indiana (the “Indiana Facilities”) for $102.0 million. The Indiana Facilities are comprised of 19 skilled nursing facilities with 1,659 licensed beds and five assisted living facilities with 193 beds, of which 29 beds are licensed. Annualized straight line rent for the facilities is expected to equal $12.7 million representing a weighted average lease yield of 12.4%.

 

On October 30, 2023 the Company entered into a lease agreement to re-tenant the three skilled nursing facilities located in Texas. The lease is for 10 years with annual escalations of 2.5%. The lease commenced on December 1, 2023.

 

On November 8, 2023, the Company paid off the remaining balance of the Series A Bonds, subject to a $900 prepayment penalty because the Bonds were repaid before the scheduled maturity date of July 2024.

 

On December 12, 2023 the Company entered into a lease for two skilled nursing facilities with 226 licensed beds near Johnson City, Tennessee. The lease includes a purchase option which the Company intends to exercise once certain conditions precedent are met. The lease commenced on January 1, 2024.

 

On February 8 2024, the BVI Company issued additional Series D Bonds with a par value of NIS 100.0 million and raised a gross amount of $26.7 million (NIS 98.0 million). The Bonds were issued at a price of 106.3%.

 

 

On February 20, 2024 the Company entered into a new, replacement master lease for the properties included in the Indiana acquisition completed in August of 2023. The tenant remains a group of tenants affiliated with two of the Company’s directors, Moishe Gubin and Michael Blisko. The new master lease has an initial term of ten years and is subject to 2 five-year extensions. The initial annual base rent for the properties is $14.5 million dollars and is subject to annual increases of 3%. In connection with the new master lease, the existing purchase option held by the tenant, which was granted by the prior owner of the properties, of $127.0 million was terminated. Consideration for the termination of the purchase option and inducement for entering into the new, replacement master lease was $18.0 million paid to the tenants. The $18.0 million payment was funded by cash and the proceeds from the additional Series D Bond issuance in February 2024.

 

As of the date of this report, none of the Company’s tenants are delinquent on the payment of rent, and there have been no requests to amend the terms of their respective leases to reduce current or future lease payments.

 

Related Party Tenants

 

As a landlord, the Company does not control the operations of its tenants, including related party tenants, and is not able to cause its tenants to take any specific actions to address trends in occupancy at the facilities operated by its tenants, other than to monitor occupancy and income of its tenants, discuss trends in occupancy with tenants and possible responses, and, in the event of a default, to exercise its rights as a landlord. However, Moishe Gubin, our Chairman and Chief Executive Officer, and Michael Blisko, one of our directors, as the controlling members of 64 of our tenants and related operators, have the ability to obtain information regarding these tenants and related operators and cause the tenants and operators to take actions, including with respect to occupancy.

 

Results of Operations

 

Operating Results

 

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022:

 

		Year Ended December 31,								Increase /				Percentage
(dollars in thousands)		2023				2022				(Decrease)				Difference
Revenues:
Rental revenues		$	99,805			$	92,543			$	7,262				7.8	%
Expenses:
Depreciation			26,207				25,530				677				2.7	%
Amortization			3,028				3,028				-				-
Loss on real estate investment impairment			2,451				-				2,451				100	%
General and administrative expenses			5,662				6,012				(350	)			(5.8	)%
Property and other taxes			14,459				13,131				1,328				10.1	%
Facility rent expenses			559				532				27				5.1	%
Credit for doubtful accounts			-				(5,636	)			5,636				100	%
Total Expenses			52,366				42,597				9,769				22.9	%
Interest expense, net			24,443				20,507				3.936				19.2	%
Amortization of interest expense			560				504				56				11.1	%
Mortgage Insurance Premium			1,671				1,704				33				1.9	%
Total Interest Expenses			26,674				22,715				3,959				17.4	%
Other (loss) income
Other (loss) income			(983	)			120				(1,103	)			(919.2	)%
Foreign currency transaction gain (loss)			462				(10,932	)			11,394				104.2	%
Net Income			20,244				16,419				3,825				23.3	%
Net income attributable to non-controlling interest			(17,748	)			(14,567	)			3,181				21.8	%
Net Income attributable to common stockholders			2,496				1,852				644				34.8	%
Basic and diluted income per common share		$	0.39			$	0.31				-				-

 

 

Rental revenues: Rental revenues during 2023 increased by $7.3 million or 7.8% compared to fiscal year 2022, The additional rental income arising from the renegotiation of certain leases, the receipt of rent from the acquisition of 24 facilities and additional property taxes being reimbursed by the tenants.

 

Depreciation and Amortization: Increase in depreciation of $0.7 million or 2.7% from fiscal year 2022 to fiscal year 2023 is primarily due to $102.0 million of new real estate investments in the third quarter of 2023.

 

Loss on real estate investment impairment: In February 2023, one facility under one of our Southern Illinois master leases was closed. The closure was made at the request of the tenant and was mainly for efficiency reasons. This facility was leased under a master lease with two other facilities. The closure did not result in any reduction in the aggregate rent payable under the master lease, which has been paid without interruption. As a result of the closure, the Company is seeking to sell the property. Since the facility is no longer licensed to operate as a skilled nursing facility, the Company wrote off its remaining book value.

 

General and Administrative Expense: The decrease in general and administrative expenses of $(0.4) million or 5.8% during fiscal year 2023 compared to fiscal year 2022 is primarily due to lower operating expenses incurred in the year ended December 31, 2023

 

Property and other Taxes: The increase in property taxes of $1.3 million or 10.1% during fiscal year 2023 compared to fiscal year 2022 is primarily due was primarily due to increases in real estate taxes and franchise taxes partially as a result of the acquisition of the Indiana Facilities.

 

Credit for Doubtful Accounts: During 2022, the Company recognized $5.6 million in income from the recovery of a written off asset relating to the successful foreclosure of mortgages held by the Company on properties located in Massachusetts.

 

Interest expense, net: The increase in interest expense of $3.9 million or 19.2% from Fiscal year 2022 to fiscal year 2023 is primarily related to additional interest payments for Series D Bonds, a second commercial bank loan facility obtained in connection with the acquisition of the Indiana Facilities, increases in the floating rate on the Company’s commercial bank loan facilities and additional interest on Series C Bonds that were issued in 2023.

 

Foreign Currency Transaction Gain (Loss): Our bond indebtedness is denominated in NIS. As a result, we are subject to potential foreign currency transaction loss due to changes in the value of the U.S. dollar relative to the New Israel Shekel. In 2022, we recorded a foreign currency transaction loss of $10.9 million in connection with the repayment of the Series B Bonds in 2022. There was a gain of $0.5 million in foreign currency transactions for 2023.

 

Other (loss) income: The increase in other loss of $1.0 million was the result of a fee paid to an investment banking firm in connection with the cancellation of an agreement with respect to a proposed financing transaction.

 

Net Income: The increase in net income from $16.4 million during the year ended December 31, 2022 to $20.2 million in the year ended December 31, 2023 is primarily due to increases in rental revenue (net of increase in real estate taxes) and the decline in foreign currency losses offset by an impairment loss, the decline in credit for doubtful accounts, and an increase in interest expense

 

Liquidity and Capital Resources

 

To qualify as a REIT for federal income tax purposes, we are required to distribute at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains, to our stockholders on an annual basis. Accordingly, we intend to make, but are not contractually bound to make, regular quarterly dividends to common stockholders from cash flow from operating activities. All such dividends are at the discretion of our board of directors.

 

As of December 31, 2023, we had cash and cash equivalents and restricted cash and equivalents of $37.8 million. We also had the ability to offer additional Series C Bonds from the current outstanding of $60.8 loan up to $170.6 million and the ability to offer additional Series D Bonds from the current outstanding of $42.2 million up to $121.9 million is subject to compliance with covenants and market conditions.

 

 

Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain our assets and operations, make distributions to our stockholders and other general business needs. Our primary sources of cash include operating cash flows and borrowings. Our primary uses of cash include funding acquisitions and investments consistent with our investment strategy, repaying principal and interest on any outstanding borrowings, making distributions to our equity holders, funding our operations and paying accrued expenses.

 

Our long-term liquidity needs consist primarily of funds necessary to pay for the costs of acquiring additional healthcare properties and principal and interest payments on our debt. We expect to meet our long-term liquidity requirements through various sources of capital, including future equity issuances or debt offerings, net cash provided by operations, long-term mortgage indebtedness and other secured and unsecured borrowings.

 

We may utilize various types of debt to finance a portion of our acquisition activities, including long-term, fixed-rate mortgage loans, variable-rate term loans and secured revolving lines of credit. As of December 31, 2023, on a consolidated basis, we had total indebtedness of approximately $539.1 million, consisting of $271.4 million in HUD guaranteed debt, $102.9 million in net Series C Bonds and Series D Bonds outstanding and $164.8 million in commercial mortgages. Under our Bonds and our commercial mortgages, we are subject to continuing covenants, and future indebtedness that we may incur, may contain similar provisions. In the event of a default, the lenders could accelerate the timing of payments under the debt obligations, and we may be required to repay such debt with capital from other sources, which may not be available on attractive terms, or at all, which would have a material adverse effect on our liquidity, financial condition, results of operations and ability to make distributions to our stockholders.

 

Our debt arrangements may require us to make a lump-sum or “balloon” payment at maturity. Our ability to make the balloon payments due under our existing and future indebtedness will depend on our working capital at the time of repayment, our ability to obtain additional financing or our ability to sell any property securing such indebtedness. At the time the balloon payment is due, we may or may not be able to refinance the existing financing on terms as favorable as the original bond or loan or sell any related property at a price sufficient to make the balloon payment. In addition, balloon payments and payments of principal and interest on our indebtedness may leave us with insufficient cash to pay the distributions that we are required to pay to qualify and maintain our qualification as a REIT.

 

Through 2027 there are four balloon payment obligations consisting of two payments of $52.6 million and $37.1 million due under the Series C Bonds and Series D bond in 2026, respectively and payments of $86.0 million and $60.7 million due under our two commercial bank term loans due in 2027 and 2028. We may also obtain additional financing that contains balloon payment obligations. These types of obligations may materially adversely affect us, including our cash flows, financial condition and ability to make distributions.

 

The Company believes that its overall level of indebtedness is appropriate for the Company’s business in light of its cash flow from operations and value of its properties and is generally typical for owners of multiple healthcare properties. The Company expects to generate sufficient positive cash flow from operations to meet its ongoing debt service obligations and the distribution requirements for maintaining REIT status.

 

 

Cash Flows

 

The following table presents selected data from our consolidated statements of cash flows:

 

		Years Ended December 31,
		2023				2022
(dollars in thousands)
Net cash provided by operating activities		$	54,944			$	50,926
Net cash used in investing activities			(106,348	)			(10,101	)
Net cash provided by (used in) financing activities			43,458				(47,249	)
Net decrease in cash and cash equivalents and restricted cash and cash equivalents			(7,946	)			(6,424	)
Cash and cash equivalents, and restricted cash and cash equivalents beginning of year			45,704				52,128
Cash and cash equivalents and restricted cash and cash equivalents, end of year		$	37,758			$	45,704

 

Net cash provided by operating activities increased $4.0 million for the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily due to an increase of $6.9 million increase in accounts payable and accrued liabilities.

 

Cash used in investing activities for the year ended December 31, 2023, primarily consisted of a net increase in investment properties in the amount of $108.1 million and a decrease in notes receivable of $1.7 million. The decrease of $10.1 million during the year ended December 31, 2022 is due to an increase in note receivable of $9.6 million..

 

Cash flows generated from financing activities for the year ended December 31, 2023 were primarily comprised of $52.4 million in new bond proceeds, REIT dividends of $2.9 million, a $20.6 million in distributions to the non-controlling interest holders and $69.2 million new borrowings under a mortgage loan facility. These amounts were offset by $24.0 million in principal bond payments, and $14.0 million of repayment of senior debt. Cash flows used in financing activities for the year ended December 31, 2022 were primarily comprised of $106 million in principal bond payments, REIT dividends of $0.6 million, a $10.9 million in distributions to the non-controlling interest holders and a decrease of $33.2 million in senior debt offset by a $105.0 million new borrowings under a mortgage loan facility.

 

Indebtedness

 

Mortgage Loans Guaranteed by HUD

 

As of December 31, 2023, we had non-recourse mortgage loans of $271.4 million from third party lenders that were guaranteed by HUD.

 

Each loan is secured by first mortgages on certain specified properties, interests in the leases for these properties and second liens on the operator’s assets. In the event of default on any single loan, the loan agreement provides that the applicable lender may require the tenants for the property securing the loan to make all rental payments directly to the lender. In exchange for the HUD guarantee, we pay HUD, on an annual basis, 0.65% of the principal balance of each loan as mortgage insurance premium, in addition to the interest rate denominated in each loan agreement. As a result, the overall average interest rate paid with respect to the HUD guaranteed loans as of December 31, 2023, was 3.97% per annum (including the mortgage insurance payments). The loans have an average maturity of 22 years.

 

 

Commercial Bank Term Loan

 

On March 21, 2022, the Company closed a mortgage loan facility with a commercial bank pursuant to which the Company borrowed approximately $105 million. The facility provides for monthly payments of principal based on a 20-year amortization with a balloon payment due in March 2027. The rate is based on the one-month Secured Overnight Financing Rate (“SOFR”) plus a margin of 3.5% and a floor 4% (as of the December 31, 2023 the rate was 8.84%). As of December 31, 2023, total outstanding principal amount was $98.8 million. This loan is collateralized by 21 properties owned by the Company. The loan proceeds were used to repay the Series B Bonds and prepay commercial loans not secured by HUD guarantees. The Company recognized a foreign currency transaction loss of approximately $10.1 million in connection with the repayment of the Series B Bonds during the year ended December 31, 2022.

 

On August 25, 2023, the Company closed a mortgage loan facility with a commercial bank pursuant to which the Company borrowed approximately $66 million. The facility provides for monthly payments of interest and payment of principal will start on August 2024 based on a 20-year amortization with a balloon payment due in August 2028. The rate is based on the one-month Secured Overnight Financing Rate (“SOFR”) plus a margin of 3.5% and a floor of 4% (as of the December 31, 2023, the rate was 8.84%). As of December 31, 2023, total outstanding principal amount was $66 million. This loan is collateralized by 19 properties owned by the Company. The loan proceeds were used to acquire the Indiana facilities.

 

Both credit facilities are subject to financial covenants which are consist of (i) a covenant that the ratio of the Company’s indebtedness to its EBITDA cannot exceed 8.0 to 1, (ii) a covenant that the ratio of the Company’s net operating income to its debt service before dividend distribution is at least 1.20 to 1.00 for each fiscal quarter as measured pursuant to the terms of the loan agreement (iii) a covenant that the ratio of the Company’s net operating income to its debt service after dividend distribution is at least 1.05 to 1.00 for each fiscal quarter as measured pursuant to the terms of the loan agreement, and (iii) a covenant that the Company’s GAAP equity is at least $20,000,000. As of December 31, 2023, the Company was in compliance with the loan covenants.

 

Outstanding Bond Debt

 

As of December 31, 2023, the Company had outstanding Series C Bonds and Series D Bonds.

 

Series A Bonds

 

In November 2015, the Company, through a subsidiary, issued Series A Bonds in the face amount of NIS 265.2 million ($68 million) and received the net amount after issuance costs of NIS 251.2 million ($64.3 million). Since then the Company extended the series amount twice in September 2016 and May 2017 and received a combined net amount of $30.1 million. The Series A Bonds had an original interest rate of 6.4% per annum. The Series A Bonds were paid off on November 8, 2023.

 

Series C Bonds

 

In July 2021, the BVI Company completed an initial offering of Series C Bonds with a par value of NIS 208.0 million ($64.7 million). The Series C Bonds were issued at par. During February 2023, the BVI Company issued additional Series C Bonds in the face amount of NIS 40.0 million ($11.2 million) and raised a net amount of NIS 38.1 million ($10.7 million). These Series C Bonds were issued at a price of 95.25%.

 

 

As of December 31, 2023, the outstanding principal amount of the Series C Bonds was NIS 220.5 million ($60.7 million).

 

The Series C Bonds are traded on the TASE.

 

Series D Bonds

 

In June 2023, the BVI Company completed an initial offering of Series D Bonds with a par value of NIS 82.9 million ($22.9 million). The Series D Bonds were issued at par. During August 2023, the BVI Company issued additional Series D Bonds in the face amount of NIS 70.0 million ($19.3 million) and raised a net amount of NIS 152.9 million ($42.2 million). These Series D Bonds were issued at a price of 99.7%. As of December 31, 2023, the Series D Bonds had an outstanding principal balance of approximately NIS 152.9 ($42.2 million).

 

Summary of fixed and variable loans:

 

		December 31,
		2023				2022
		(Amounts in $000s)
Fixed rate loans		$	374,335			$	351,566
Variable rate loans			164,810				105,225
Gross Notes Payable and other Debt		$	539,145			$	456,791

 

Funds From Operations (“FFO”)

 

The Company believes that net income as defined by GAAP is the most appropriate earnings measure. We also believe that funds from operations (“FFO”), as defined in accordance with the definition used by the National Association of Real Estate Investment Trusts (“NAREIT”), and adjusted funds from operations (“AFFO”) are important non-GAAP supplemental measures of our operating performance. Because the historical cost accounting convention used for real estate assets requires straight-line depreciation (except on land), such accounting presentation implies that the value of real estate assets diminishes predictably over time. However, since real estate values have historically risen or fallen with market and other conditions, presentations of operating results for a REIT that use historical cost accounting for depreciation could be less informative. Thus, NAREIT created FFO as a supplemental measure of operating performance for REITs that excludes historical cost depreciation and amortization, among other items, from net income, as defined by GAAP. FFO is defined as net income, computed in accordance with GAAP, excluding gains or losses from real estate dispositions, plus real estate depreciation and amortization. AFFO is defined as FFO excluding the impact of straight-line rent, above-/below-market leases, non-cash compensation and certain non-recurring items. For the year ended December 31, 2023 and 2022, we excluded as non-recurring items a gain in the amount of $0.5 million and a loss of $10.9 million, respectively, in reclassification of foreign currency transactions the Company recorded with respect to foreign currency fluctuations that the Company realized at the time of bond principal payment. We believe that the use of FFO, combined with the required GAAP presentations, improves the understanding of our operating results among investors and makes comparisons of operating results among REITs more meaningful. We consider FFO and AFFO to be useful measures for reviewing comparative operating and financial performance because, by excluding the applicable items listed above, FFO and AFFO can help investors compare our operating performance between periods or as compared to other companies.

 

While FFO and AFFO are relevant and widely used measures of operating performance of REITs, they do not represent cash flows from operations or net income as defined by GAAP and should not be considered an alternative to those measures in evaluating our liquidity or operating performance. FFO and AFFO also do not consider the costs associated with capital expenditures related to our real estate assets nor do they purport to be indicative of cash available to fund our future cash requirements. Further, our computation of FFO and AFFO may not be comparable to FFO and AFFO reported by other REITs that do not define FFO in accordance with the current NAREIT definition or that interpret the current NAREIT definition or define AFFO differently than we do.

 

 

The following table reconciles our calculations of FFO and AFFO for the years ended December 31, 2023 and 2022, to net income, the most directly comparable GAAP financial measure (in thousands):

 

FFO and AFFO:

 

		Year Ended December 31,
		2023				2022
Net income		$	20,244			$	16,419
Depreciation and amortization			29,235				28,558
Funds from Operations			49,479				44,977
Adjustments to FFO:
Credit for doubtful accounts(1)			-				(5,636	)
Straight-line rent			(30	)			(272	)
Straight-line rent receivable write-off(2)			230				1,075
Contact cancellation expense for proposed financing(3)			1,000				-
Loss on real estate impairment (4)			2,451				-
Foreign currency transaction (gain) loss			(462	)			10,932
Funds from Operations, as Adjusted		$	52,668			$	51,076

 

(1) During the year ended December 31, 2022, the Company recovered $4.4 million in cash with respect to foreclosure sales of assets in Massachusetts. In addition, the Company recognized $1.2 million with respect to a foreclosed property in Massachusetts.

 

(2) The Company recognized a loss of $1,075,000 in the second quarter of 2022 due to the write-off of straight-line rent receivables related to the Southern Illinois facilities

 

(3) The Company incurred a non-recurring expense of $1.0 million in the second quarter of 2023 in connection with the cancellation of a contract with an investment banking firm related to a proposed financing.

 

(4) Loss on real estate investment impairment: In February 2023, one facility under one of our Southern Illinois master leases was closed. The closure was made at the request of the tenant and was mainly for efficiency reasons. This facility was leased under a master lease with two other facilities. The closure did not result in any reduction in the aggregate rent payable under the master lease, which was paid without interruption. As a result of the closure, the Company is seeking to sell the property. Since the facility is no longer licensed to operate as a skilled nursing facility, the Company wrote off its remaining book value.

 

Dividend Plans

 

We are required to pay dividends in order to maintain our REIT status and we expect to make quarterly dividend payments in cash with the annual dividend amount no less than 90% of our annual REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains.

 

Critical Accounting Policies

 

The preparation of consolidated financial statements in conformity with generally accepted accounting principles, or GAAP, in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management considers accounting estimates or assumptions critical in either of the following cases:

 

● the nature of the estimates or assumptions is material because of the levels of subjectivity and judgment needed to account for matters that are highly uncertain and susceptible to change; and

 

● the effect of the estimates and assumptions is material to the consolidated financial statements.

 

Management believes the current assumptions used to make estimates in the preparation of the consolidated financial statements are appropriate and not likely to change in the future. However, actual experience could differ from the assumptions used to make estimates, resulting in changes that could have a material adverse effect on our consolidated results of operations, financial position and/or liquidity. These estimates will be made and evaluated on an on-going basis using information that is available as well as various other assumptions believed to be reasonable under the circumstances.

 

The following presents information about our critical accounting policies including the material assumptions used to develop significant estimates. Since the Company was recently formed and just completed the formation transactions, certain of these critical accounting policies contain discussion of judgments and estimates that have not yet been required by management but that it believes may be reasonably required of it to make in the future.

 

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of our Operating Partnership and its wholly owned subsidiaries, and all material intercompany transactions and balances are eliminated in consolidation.

 

From inception, we continually evaluate all of our transactions and investments to determine if they represent variable interests subject to the variable interest entity, or VIE, consolidation model and then determine which business enterprise is the primary beneficiary of its operations. We make judgments about which entities are VIEs based on an assessment of whether (i) the equity investors as a group, if any, do not have a controlling financial interest, or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support. We consolidate investments in VIEs when we are determined to be the primary beneficiary. This evaluation is based on our ability to direct and influence the activities of a VIE that most significantly impact that entity’s economic performance.

 

For investments not subject to the variable interest entity consolidation model, we will evaluate the type of rights held by the limited partner(s) or other member(s), which may preclude consolidation in circumstances in which the sole general partner or managing member would otherwise consolidate the limited partnership. The assessment of limited partners’ or members’ rights and their impact on the presumption of control over a limited partnership or limited liability corporation by the sole general partner or managing member should be made when an investor becomes the sole general partner or managing member and should be reassessed if (i) there is a change to the terms or in the exercisability of the rights of the limited partners or members, (ii) the sole general partner or member increases or decreases its ownership in the limited partnership or corporation, or (iii) there is an increase or decrease in the number of outstanding limited partnership or membership interests.

 

Our ability to assess correctly our influence or control over an entity at inception of our involvement or on a continuous basis when determining the primary beneficiary of a VIE affects the presentation of these entities in our consolidated financial statements. Subsequent evaluations of the primary beneficiary of a VIE may require the use of different assumptions that could lead to identification of a different primary beneficiary, resulting in a different consolidation conclusion than what was determined at inception of the arrangement.

 

Revenue Recognition

 

We recognize rental revenue for operating leases on a straight-line basis over the lease term when collectability is reasonably assured and the tenant has taken possession or controls the physical use of a leased asset. For assets acquired subject to leases, we recognize revenue upon acquisition of the asset provided the tenant has taken possession or control of the physical use of the leased asset. If the lease provides for tenant improvements, we determine whether the tenant improvements, for accounting purposes, are owned by the tenant or us. When we are the owner of the tenant improvements, the tenant is not considered to have taken physical possession or have control of the physical leased asset until the tenant improvements are substantially completed.

 

When the tenant is the owner of the tenant improvements, any tenant improvement allowance funded is treated as a lease incentive and amortized as a reduction of revenue over the lease term. The determination of ownership of the tenant improvements is subject to significant judgment. If our assessment of the owner of the tenant improvements for accounting purposes were different, the timing and amount of our revenue recognized would be impacted.

 

We monitor the liquidity and creditworthiness of our tenants and operators on a continuous basis to determine the need for an allowance for doubtful accounts, including an allowance for operating lease straight-line rent receivables, for estimated losses resulting from tenant defaults or the inability of tenants to make contractual rent and tenant recovery payments. This evaluation considers industry and economic conditions, property performance, credit enhancements and other factors. For straight-line rent amounts, our assessment is based on income recoverable over the term of the lease. We exercise judgment in establishing allowances and consider payment history and current credit status in developing these estimates. These estimates may differ from actual results, which could be material to our consolidated financial statements. As of December 31, 2023 and 2022 we determined that no allowance was necessary to cover the potential loss of rent from our tenants.

 

 

Real Estate Investments

 

We make estimates as part of our allocation of the purchase price of acquisitions (whether an asset acquisition acquired via purchase/leaseback or a business combination via an asset acquired from the current lessor) to the various components of the acquisition based upon the relative fair value of each component for asset acquisitions and at fair value of each component for business combinations. In making estimates of fair values for purposes of allocating purchase prices of acquired real estate, we utilize a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data. We also consider information obtained about each property as a result of our pre-acquisition due diligence, marketing and leasing activities in estimating the fair value of the tangible and intangible assets acquired. The most significant components of our allocations are typically the allocation of fair value to land and buildings and, for certain of our acquisitions, in-place leases and other intangible assets. In the case of the fair value of buildings and the allocation of value to land and other intangibles, the estimates of the values of these components will affect the amount of depreciation and amortization we record over the estimated useful life of the property acquired or the remaining lease term. In the case of the value of in-place leases, including the assessment as to the existence of any above-or below-market in-place leases, our management makes its best estimates based on the evaluation of the specific characteristics of each tenant’s lease. Factors considered include estimates of carrying costs during hypothetical expected lease-up periods, market conditions and costs to execute similar leases. These assumptions affect the amount of future revenue that we will recognize over the remaining lease term for the acquired in-place leases. The values of any identified above-or below-market in-place leases are based on the present value of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease, or for below-market in-place leases including any bargain renewal option terms. Above-market lease values are recorded as a reduction of rental income over the lease term while below-market lease values are recorded as an increase to rental income over the lease term. The recorded values of in-place lease intangibles are recognized in amortization expense over the initial term of the respective leases.

 

We evaluate each purchase transaction to determine whether the acquired assets meet the definition of a business. Transaction costs related to acquisitions that are not deemed to be businesses are included in the cost basis of the acquired assets, while transaction costs related to acquisitions that are deemed to be businesses are expensed as incurred.

 

Asset Impairment

 

Real estate asset impairment losses are recorded when events or changes in circumstances indicate the asset is impaired and the estimated undiscounted cash flows to be generated by the asset are less than its carrying amount. Management assesses the impairment of properties individually and impairment losses are calculated as the excess of the carrying amount over the fair value of assets to be held and used, and carrying amount over the fair value less cost to sell in instances where management has determined that we will dispose of the property. In determining fair value, we use current appraisals or other third-party opinions of value and other estimates of fair value such as estimated discounted future cash flows.

 

Factors That May Influence Future Results of Operations

 

Our revenues are primarily derived from rents we earn pursuant to the lease agreements we enter into with our tenants. Our tenants operate in the healthcare industry, generally providing nursing and medical care to patients. The capacity of our tenants to pay our rents is dependent upon their ability to conduct their operations at profitable levels. We believe that the business environment of the industry segments in which our tenants operate is generally positive for efficient operators. However, our tenants’ operations are subject to economic, regulatory and market conditions that may affect their profitability, which could impact our results of operations. Accordingly, we actively monitor certain key factors, including changes in those factors that we believe may provide early indications of conditions that may affect the level of risk in our lease portfolio.

 

 

Key factors that we consider in underwriting prospective tenants and borrowers and in monitoring the performance of existing tenants include, but are not limited to, the following:

 

● the current, historical and projected cash flow and operating margins of each tenant and at each facility;

 

● the ratio of our tenants’ operating earnings both to facility rent and to facility rent plus other fixed costs, including debt costs;

 

● the quality and experience of the tenant and its management team;

 

● construction quality, condition, design and projected capital needs of the facility;

 

● the location of the facility;

 

● local economic and demographic factors and the competitive landscape of the market;

 

● the effect of evolving healthcare legislation and other regulations on our tenants’ profitability and liquidity;

 

● the payor mix of private, Medicare and Medicaid patients at the facility; and

 

● whether such tenants are related parties.

 

One of our goals is to reduce our dependence on related party tenants in order to diversify our tenant base. Although we expect to continue to lease properties to related party tenants in markets in which the related party tenants have substantial experience and operations, we intend to lease properties in other markets to unrelated tenants if we are able to identify qualified operators. Additionally, we will consider leasing properties to unrelated parties in markets in which related parties operate if we are able to identify qualified operators that are willing to lease properties on terms that are no less favorable than those available from related parties.

 

We also actively monitor the credit risk of our tenants. The methods we use to evaluate a tenant’s liquidity and creditworthiness include reviewing certain periodic financial statements, operating data and clinical outcomes data of the tenant. Over the course of a lease, we also have regular meetings with the facility management teams. Through these means we are able to monitor a tenant’s credit quality.

 

Certain business factors, in addition to those described above that directly affect our tenants, which in turn will likely materially influence our future results of operations:

 

● the financial and operational performance of our tenants;

 

● trends in the cost and availability of capital, including market interest rates, which our prospective tenants may use for their working capital financing;

 

● reductions in reimbursements from Medicare, state healthcare programs and commercial insurance providers that may reduce our tenants’ profitability and our lease rates; and

 

● competition from other financing sources.

 

 

Inflation

 

We are exposed to inflation risk as income from long-term leases are a main source of our cash flows from operations. For our leased properties, we expect there to be provisions in the majority of our leases that will protect us from the impact of inflation. These provisions may include rent escalators, and leases that are triple-net. However, due to the long-term nature of the anticipated leases, among other factors, the leases may not re-set frequently enough to cover inflation.

 

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

 

Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. In pursuing our business and investment objectives, we expect that the primary market risk to which we will be exposed is interest rate risk.

 

We may be exposed to the effects of interest rate changes primarily as a result of long-term debt used to acquire properties. As of December 31, 2023, we had $60.8 million net outstanding under our Series C Bonds, which bear interest at a fixed rate of 5.7% per annum, $42.2 million outstanding under our Series D Bonds, which bear interest at a fixed rate of 9.1% per annum, and $436.2 million in senior debt notes, of which $164.8 million (37.78% of total debt) bear interest at variable rate equal to one month SOFR plus a margin. At December 31, 2023, one month SOFR was 5.34%. Assuming no increase in the amount of our variable interest rate debt, if one-month SOFR increased 100 basis points, our annual cash flow would decrease by approximately $1.6 million. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs. To achieve our objectives, we may borrow at fixed rates or variable rates. We also may enter into derivative financial instruments such as interest rate swaps and caps in order to mitigate our interest rate risk on a related financial instrument.

 

In addition to changes in interest rates, the value of our future investments is subject to fluctuations based on changes in local and regional economic conditions, change in currency rates between the Israeli Shekel and the U.S. Dollar and changes in the creditworthiness of tenants/operators, which may affect our ability to refinance our debt if necessary.

 

ITEM 8. Financial Statements and Supplementary Data

 

See the Index to Consolidated Financial Statements on page F-1 of this report.

 

 

ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

 

None.

 

ITEM 9A. Controls and Procedures

 

Our management, under the supervision and with the participation of our principal executive and financial officer, is responsible for and has evaluated the effectiveness of our disclosure controls and procedures in ensuring that the information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including ensuring that such information is accumulated and communicated to our company’s management, as appropriate, to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive and financial officer have concluded that such disclosure controls and procedures were effective as of December 31, 2023 (the end of the period covered by this Annual Report).

 

Management’s Annual Report on Internal Control Over Financial Reporting

 

This report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of our independent registered public accounting firm due to a transition period established by rules of the SEC for newly public companies.

 

Limitations on Controls

 

Our system of internal control over financial reporting was designed to provide reasonable assurance regarding the preparation and fair presentation of published financial statements in accordance with accounting principles generally accepted in the United States. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Changes in Internal Control over Financial Reporting

 

There was no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 9B. Other Information

 

During the fourth quarter of 2023, no director or officer adopted any insider trading arrangement contemplated by 17 CFR Section 229.408.

 

The Company has adopted a Code of Business Conduct & Ethics, which contains insider trading policies and procedures governing the purchase, sale, and/or other dispositions of the Company’s securities by directors, officers and employees, or the registrant itself, that have been designed to promote compliance with insider trading laws, rules and regulations, and the NYSE American’s listing standards.

 

ITEM 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections

 

Not applicable.

 

 

PART III

 

ITEM 10. Directors, Executive Officers and Corporate Governance

 

The information required under Item 10 is incorporated herein by reference to our definitive proxy statement to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2023 in connection with our 2024 Annual Meeting of Stockholders.

 

ITEM 11. Executive Compensation

 

The information required under Item 11 is incorporated herein by reference to our definitive proxy statement to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2023 in connection with our 2024 Annual Meeting of Stockholders.

 

ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

The information required under Item 12 is incorporated herein by reference to our definitive proxy statement to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2023 in connection with our 2024 Annual Meeting of Stockholders.

 

The following table discloses the number of outstanding options, warrants and rights granted to participants by the Company under the equity compensation plans, as well as the number of securities remaining available for future issuance under these plans as of December 31, 2023.

 

		Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)				Weighted average exercise price of outstanding options, warrants and rights (b)				Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders			-				-				225,100
Equity compensation plans not approved by security holders			-				-				-
Total			-				-				225,100

 

ITEM 13. Certain Relationships and Related Transactions, and Director Independence

 

Additional information required under Item 13 is incorporated herein by reference to our definitive proxy statement to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2023 in connection with our 2024 Annual Meeting of Stockholders.

 

ITEM 14. Principal Accountant Fees and Services

 

The information required under Item 14 is incorporated herein by reference to our definitive proxy statement to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2023 in connection with our 2024 Annual Meeting of Stockholders.

 

 

PART IV

 

ITEM 15. Exhibit and Financial Statement Schedules

 

Financial Statements

 

(1) Consolidated Financial Statements:

 

See Index to Consolidated Financial Statements at page F-1.

 

(2) Financial Statement Schedules

 

Schedule III: Real Estate and Accumulated Depreciation

 

Note: All other schedules have been omitted because the required information is presented in the financial statements and the related notes or because the schedules are not applicable.

 

(3) Exhibits:

 

The exhibits listed in the accompanying index to exhibits are filed as part of, or incorporated by reference into, this Annual Report.

 

EXHIBIT INDEX 

 

Exhibit		Description
3.1		Articles of Amendment and Restatement of Strawberry Fields REIT, Inc., incorporated herein by reference to Exhibit 3.1 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission as of July 12, 2022.
3.2		Amended and Restated Bylaws of Strawberry Fields REIT, Inc., incorporated herein by reference to Exhibit to the Registration Statement on Form 10 filed with the Securities and Exchange Commission as of July 12, 2022.
4.1*		Description of Capital Stock
10.1		Deed of Trust dated April 23, 2018, between Strawberry Fields REIT, LTD and Mishmeret Trust Services Company Ltd. .incorporated herein by reference to Exhibit 10.1 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission as of July 12, 2022.
10.2		Deed of Trust dated November 24, 2015, between Strawberry Fields REIT, LTD and Mishmeret Trust Services Company Ltd., incorporated herein by reference to Exhibit 10.2 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission as of July 12, 2022.
10.3		Deed of Trust dated July 27, 2021 between Strawberry Fields REIT, LTD and Mishmeret Trust Services Company Ltd., incorporated herein by reference to Exhibit 10.3 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission as of July 12, 2022.
10.4		First Amended and Restated Agreement of Limited Partnership dated June 1, 2021 of Strawberry Fields Realty LP, incorporated herein by reference to Exhibit 10.4 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission as of July 12, 2022.

 

 

10.5		Contribution Agreement dated June 8, 2021 between Strawberry Fields REIT, Inc., Strawberry Fields REIT, LLC and of Strawberry Fields Realty LP., incorporated herein by reference to Exhibit 10.5 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission as of July 12, 2022.
10.6		Tax Protection Agreement effective as of June 8, 2021 among Strawberry Fields Realty LP, Strawberry Fields REIT, Inc. and Strawberry Fields REIT, LLC., incorporated herein by reference to Exhibit 10.6 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission as of July 12, 2022.
10.7		Strawberry Fields REIT, Inc. 2021 Equity Incentive Plan, incorporated herein by reference to Exhibit 10.7 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission as of July 12, 2022.
10.8		Term Loan and Security Agreement dated March 18, 2022, by and among Strawberry Fields Realty LP and certain subsidiaries thereof named as Borrowers, and Popular Bank, as Agent and Lender., incorporated herein by reference to Exhibit 10.8 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission as of July 12, 2022.
10.9		Indemnification Agreement effective January 13, 2020 between the Company and Essel Bailey incorporated herein by reference to Exhibit 10.1 to the Form 10-Q filed with the Securities and Exchange Commission as of September 8, 2022.
10.10		Indemnification Agreement effective January 13, 2020 between the Company and Jack Levine Bailey incorporated herein by reference to Exhibit 10.2 to the Form 10-Q filed with the Securities and Exchange Commission as of September 8, 2022.
10.11		Indemnification Agreement effective January 13, 2020 between the Company and Michael Blisko incorporated herein by reference to Exhibit 10.3 to the Form 10-Q filed with the Securities and Exchange Commission as of September 8, 2022.
10.12		Indemnification Agreement effective January 13, 2020 between the Company and Moishe Gubin incorporated herein by reference to Exhibit 10.4 to the Form 10-Q filed with the Securities and Exchange Commission as of September 8, 2022.
10.13		Indemnification Agreement effective January 13, 2020 between the Company and Reid Shapiro incorporated herein by reference to Exhibit 10.5 to the Form 10-Q filed with the Securities and Exchange Commission as of September 8, 2022.
10.14		Deed of Trust dated June 19, 2023, between Strawberry Fields REIT, LTD and Mishmeret Trust Services Company Ltd. .incorporated herein by reference to Exhibit 10.9 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission as of July 12, 2022.
*21.1		List of Subsidiaries of the Registrant
*31.1		Certification of Chief Executive Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*31.2		Certification of Chief Financial Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
**32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		Inline XBRL Instance Document
101.SCH		Inline XBRL Taxonomy Schema
101.CAL		Inline XBRL Taxonomy Calculation Linkbase
101.DEF		Inline XBRL Taxonomy Definition Linkbase
101.LAB		Inline XBRL Taxonomy Label Linkbase
101.PRE		Inline XBRL Taxonomy Presentation Linkbase
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

* Filed herewith.

 

** Furnished herewith.

 

+ Management contract or compensatory plan or arrangement.

 

ITEM 16. Form 10-K Summary

 

None.

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	STRAWBERRY FIELDS REIT, INC.
	By:	/s/ Moishe Gubin
		Moishe Gubin
		Chairman and Chief Executive Officer
	Dated: March 19, 2024

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Name		Title		Date
/s/ Moishe Gubin		Chairman and Chief Executive Officer (Principal Executive Officer)		March 19, 2024
Moishe Gubin
/s/ Greg Flamion		Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)		March 19, 2024
Greg Flamion
/s/ Michael Blisko		Director		March 19, 2024
Michael Blisko
/s/ Essel Bailey		Director		March 19, 2024
Essel Bailey
/s/ Jack Levine		Director		March 19, 2024
Jack Levine
/s/ Reid Shapiro		Director		March 19, 2024
Reid Shapiro

 

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

	Page
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 400) with respect to Strawberry Fields REIT, Inc.	F-2
Consolidated Balance Sheets as of December 31, 2023 and 2022	F-3
Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2023 and 2022	F-4
Consolidated Statements of Equity for the years ended December 31, 2023 and 2022	F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2023	F-6
Notes to Consolidated Financial Statements	F-8
Schedule III: Real Estate and Accumulated Depreciation as of December 31, 2023	F-37

 

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and Members of Strawberry Fields REIT, INC.

 

Opinion on the Consolidated Financial Statements

 

We have audited the accompanying consolidated balance sheets of Strawberry Fields REIT, Inc., (the “Company”) as of December 31, 2023 and 2022 and the related consolidated statements of income and comprehensive income, equity and cash flows, for the years then ended, and the related notes to the consolidated financial statements and financial statement schedule III (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2023 and 2022, and the consolidated results of its operations and its cash flows for the years then, in conformity with accounting principles generally accepted in the United States of America.

 

Supplemental Information

 

Financial statement schedule III (“Schedule III”) has been subjected to audit procedures performed in conjunction with the audit of the Company’s consolidated financial statements. Schedule III is the responsibility of the Company’s management. Our audit procedures included determining whether Schedule III reconciles to the consolidated financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in Schedule III. In forming our opinion on Schedule III, we evaluated whether Schedule III, including its form and content, is presented in conformity with the rules and regulations of the Securities and Exchange Commission (“SEC”). In our opinion, Schedule III is fairly stated, in all material respects, in relation to the consolidated financial statements as a whole.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

(PCAOB ID: 400)

HACKER, JOHNSON & SMITH PA

We have served as the Company’s auditor since 2019.

 

Tampa, Florida

 

March 19, 2024

 

 

STRAWBERRY FIELDS REIT, Inc. and Subsidiaries

 

CONSOLIDATED BALANCE SHEETS

(Amounts in $000’s, except share data)

 

		2023				2022
		December 31,
		2023				2022
Assets
Real estate investments, net		$	518,314			$	438,911
Cash and cash equivalents			12,173				20,197
Restricted cash and equivalents			25,585				25,507
Straight-line rent receivable, net			23,334				23,534
Right of use lease asset			1,542				1,833
Goodwill, other intangible assets and lease rights			8,604				11,632
Deferred financing expenses			6,035				5,791
Notes receivable, net			17,706				19,419
Other assets			3,502				176
Total Assets		$	616,795			$	547,000
Liabilities
Accounts payable and accrued liabilities		$	16,907			$	13,723
Bonds, net			100,294				74,412
Notes payable and other debt			436,192				381,003
Operating lease liability			1,542				1,833
Other liabilities			14,587				10,892
Non-controlling interest redemption liability			-				15,753
Total Liabilities		$	569,522			$	497,616
Commitments and Contingencies (Notes 8 and 14)
Equity
Common stock, $.0001 par value, 500,000,000 shares authorized, 6,487,856 and 6,365,856 shares issued and outstanding in 2023 and 2022			-				-
Preferred stock, $.0001 par value, 100,000,000 shares authorized, no shares issued and outstanding			-				-
Additional paid in capital		$	5,746			$	5,792
Accumulated other comprehensive income			529				386
Retained earnings			1,232				1,608
Total Stockholders’ Equity		$	7,507			$	7,786
Non-controlling interest		$	39,766			$	41,598
Total Equity		$	47,273			$	49,384
Total Liabilities and Equity		$	616,795			$	547,000

 

See accompanying notes to consolidated financial statements.

 

 

STRAWBERRY FIELDS REIT, Inc. and Subsidiaries

 

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Amounts in $000’s, except share data)

 

		2023				2022
		Year Ended December 31,
		2023				2022
Revenues
Rental revenues		$	99,805			$	92,543
Expenses:
Depreciation		$	26,207				25,530
Amortization			3,028				3,028
Loss on real estate investment impairment			2,451				-
General and administrative expenses			5,662				6,012
Property taxes			14,459				13,131
Facility rent expenses			559				532
Credit for doubtful accounts			-				(5,636	)
Total expenses		$	52,366			$	42,597
Income from operations			47,439				49,946
Interest expense, net		$	(24,443	)		$	(20,507	)
Amortization of deferred financing costs			(560	)			(504	)
Mortgage insurance premium			(1,671	)			(1,704	)
Total interest expense		$	(26,674	)		$	(22,715	)
Other income (loss):
Foreign currency transaction gain (loss)			462				(10,932	)
Other (loss) income			(983	)			120
Total other loss			(521	)			(10,812	)
Net income		$	20,244			$	16,419
Less:
Net income attributable to non-controlling interest			(17,748	)			(14,567	)
Net income attributable to common shareholders			2,496				1,852
Other comprehensive income:
Gain due to foreign currency translation			1,624				14,256
Reclassification of foreign currency transaction (gains) losses			(462	)			10,932
Comprehensive income attributable to non-controlling interest			(1,019	)			(22,347	)
Comprehensive income		$	2,639			$	4,693
Net income attributable to common stockholders		$	2,496			$	1,852
Basic and diluted income per common share		$	.39			$	.31
Weighted average number of common stock outstanding			6,365,196				6,008,953

 

See accompanying notes to consolidated financial statements.

 

 

STRAWBERRY FIELDS REIT, Inc. and Subsidiaries

 

CONSOLIDATED STATEMENTS OF EQUITY

(Amounts in $000’s, except share data)

 

		Number of Common Shares				Additional Paid-in Capital				Accumulated other comprehensive income (loss)				Retained Earnings				Non-controlling interest				Total
Balance, December 31, 2021			5,849,746			$	4,327			$	(2,455	)		$	393			$	32,785			$	35,050
Issuance of common shares in exchange for OP units			516,110				-				-				-				-				-
Reallocation of non-controlling interest			-				1,465				-				-				(1,465	)			-
Dividends			-				-				-				(637	)			-				(637	)
Non-controlling interest distributions			-				-				-				-				(10,883	)			(10,883	)
Net change in foreign currency translation			-				-				2,841				-				22,347				25,188
Reclassification of non-controlling interest to non-controlling interest redemption liability			-				-				-				-				(15,753	)			(15,753	)
Net Income			-				-				-				1,852				14,567				16,419
Balance, December 31, 2022			6,365,856			$	5,792			$	386			$	1,608			$	41,598			$	49,384
Balance			6,365,856			$	5,792			$	386			$	1,608			$	41,598			$	49,384
Issuance of common shares in exchange for OP units			127,953				-				-				-				-				-
Common stock retirement			(5,953	)			(46	)			-				-								(46	)
Dividends											-				(2,872	)			-				(2,872	)
Non-controlling interest distributions			-				-				-				-				(20,599	)			(20,599	)
Net change in foreign currency translation			-				-				143				-				1,019				1,162
Net Income			-				-				-				2,496				17,748				20,244
Balance, December 31, 2023			6,487,856			$	5,746			$	529			$	1,232			$	39,766			$	47,273
Balance			6,487,856				5,746				529				1,232				39,766				47,273

 

See accompanying notes to consolidated financial statements.

 

 

STRAWBERRY FIELDS REIT, Inc. and Subsidiaries

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in $000’s)

 

		Year Ended December 31,
		2023				2022
Cash flows from operating activities:
Net income		$	20,244			$	16,419
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			29,235				28,558
Impairment of real estate asset			2,451				-
Amortization of bond issuance costs			558				1,160
Amortization of deferred financing costs			560				504
(Increase) decrease in other assets			(3,326	)			289
Amortization of right of use asset			291				231
Foreign currency transaction (gain) loss			(462	)			10,932
Foreign currency translation adjustments			(1,395	)			971
Credit for doubtful accounts due to recovery of foreclosed real estate			-				(1,200	)
Decrease (increase) in straight-line rent receivables			200				(272	)
Increase (decrease) increase in accounts payable and accrued liabilities and other liabilities			6,879				(6,435	)
Repayment of operating lease liability			(291	)			(231	)
Net cash provided by operating activities		$	54,944			$	50,926
Cash flow from investing activities:
Purchase of Real estate investments		$	(108,061	)		$	(513	)
Decrease (Increase) in notes receivable			1,713				(9,588	)
Net cash used in investing activities		$	(106,348	)		$	(10,101	)
Cash flows from financing activities:
Proceeds from senior debt, net of discount		$	69,208			$	105,000
Deferred financing costs			(804	)			(1,469	)
Proceeds from issuance of bonds, net of issuance costs			52,381				-
Repayment of bonds			(24,038	)			(106,012	)
Repayment of senior debt			(14,019	)			(33,248	)
Repayment of non-controlling interest redemption liability			(15,753	)			-
Non-controlling interest distributions			(20,599	)			(10,883	)
Payment of dividends			(2,872	)			(637	)
Common stock retirement			(46	)			-
Net cash provided by (used in) financing activities		$	43,458			$	(47,249	)
Decrease in cash and cash equivalent and restricted cash and equivalents		$	(7,946	)		$	(6,424	)
Cash and cash equivalents and restricted cash and equivalents at the beginning of the year		$	45,704			$	52,128
Cash and cash equivalents and restricted cash and equivalents at the end of the year		$	37,758			$	45,704

 

 

STRAWBERRY FIELDS REIT, Inc. and Subsidiaries

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in $000’s)

 

		Year Ended December 31,
		2023				2022
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest		$	24,389			$	21,629
Supplemental schedule of noncash activities:
Accumulated other comprehensive income:
Foreign currency translation adjustments		$	1,162			$	25,188
Increase in real estate investments due to non-cash recovery of foreclosed real estate		$	-			$	1,200
Reclassification of non-controlling interest to non-controlling interest redemption liability		$	-			$	15,753

 

See accompanying notes to consolidated financial statements.

 

 

STRAWBERRY FIELDS REIT, INC. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1. Business

 

Overview

 

The Company

 

STRAWBERRY FIELDS REIT Inc. (the “Company”) is a Maryland corporation formed in July 2019. The Company commenced operations on June 8, 2021, following the completion of the formation transactions described below. The Company conducts its business through a traditional UPREIT structure in which substantially all of its assets are owned by subsidiaries of Strawberry Fields Realty, LP, a Delaware limited partnership formed in July 2019 (the “Operating Partnership”). The Company is the general partner of the Operating Partnership.

 

The Company completed the formation transactions on June 8, 2021. In connection with the formation transaction, the Company, the Operating Partnership and Strawberry Fields REIT, LLC (the “Predecessor Company” or “Predecessor”) entered into a contribution agreement, pursuant to which the Predecessor Company contributed all of its assets to the Operating Partnership, and the Operating Partnership assumed all of its liabilities. In exchange, the Operating Partnership issued limited partnership interests designated as common units (the “OP units”) to the Predecessor Company, which immediately distributed them to its members and beneficial owners. The Company offered certain of the holders of these OP units the opportunity to exchange their OP units for shares of common stock of the Company on a one-for-one basis. The Company limited the number of OP units that could be exchanged by some of the holders so that such holders would not become beneficial owners of more than 9.8% of the outstanding shares of the Company in violation of the ownership limitations set forth in the Company’s charter. As of December 31, 2023 and 2022, the Company is the owner of approximately 12.6% and 12.0 % of the outstanding OP units, respectively. The formation transactions were accounted for at historical cost.

 

As the sole general partner of the Operating Partnership, the Company has the exclusive power under the partnership agreement to manage and conduct the business affairs of the Operating Partnership, subject to certain limited approval and voting rights of the limited partners. The Company may cause the Operating Partnership to issue additional OP units in connection with property acquisitions, compensation or otherwise. The Company became a publicly traded entity on September 21, 2022.

 

As of December 31, 2023, the Company owned 97 properties and leased one property that it in turn subleased to a tenant that operates the facility.

 

Basis of Presentation

 

The Company maintains its accounting records on an accrual basis in accordance with generally accepted accounting principles in the United States of America (“GAAP”).

 

These consolidated financial statements are presented in U.S. dollars.

 

Variable Interest Entity

 

The Company consolidates the Operating Partnership, a variable interest entity (“VIE”) in which the Company is considered the primary beneficiary. The primary beneficiary is the entity that has (i) the power to direct the activities that most significantly impact the entity’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could be significant to the VIE.

 

Non-Controlling Interest

 

A non-controlling interest is defined as the portion of the equity in an entity not attributable, directly or indirectly, to the primary beneficiary. Non-controlling interests are required to be presented as a separate component of equity on a consolidated balance sheet. Accordingly, the presentation of net income is modified to present the income attributed to controlling and non-controlling interests. The non-controlling interest on the Company’s consolidated balance sheets represents OP units not held by the Company and represents approximately 87.4 % and 88.0 % of the outstanding OP Units issued by the Operating Partnership as of December 31, 2023 and 2022, respectively. The holders of these OP units are entitled to share in cash distributions from the Operating Partnership in proportion to their percentage ownership of OP units. Net income is allocated to the non-controlling interest based on the weighted-average of OP units outstanding during the year.

 

Fiscal Year End

 

The Company has adopted a fiscal year end of December 31.

 

 

STRAWBERRY FIELDS REIT, INC. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2. Summary of Significant Accounting Policies

 

Use of Estimates

 

Management is required to make estimates and assumptions in the preparation of the consolidated financial statements in conformity with GAAP. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results may differ from management’s estimates.

 

Principles of Consolidation

 

The accompanying consolidated financial statements include the accounts of the Company, the Operating Partnership and its wholly-owned subsidiaries. Intercompany transactions and balances have been eliminated upon consolidation.

 

Cash and Cash Equivalents

 

Cash and cash equivalents consist of cash on hand and short-term investments with original maturities of three months or less when purchased.

 

The Company’s cash, cash equivalents and restricted cash and cash equivalents periodically exceed federally insurable limits. The Company monitors the cash balances in its operating accounts and adjusts the cash balances as appropriate; however, these cash balances could be impacted if the underlying financial institutions fail or are subject to other adverse conditions in the financial markets. To date, the Company has experienced no loss or lack of access to the cash in its operating accounts. On December 31, 2023 and 2022, the Company had $22,727,000 and $40,652,000, respectively, on deposit in excess of federally insured limits.

 

Restricted Cash and Cash Equivalents

 

Restricted cash primarily consists of amounts held by mortgage lenders to provide for real estate tax expenditures, tenant improvements, capital expenditures and security deposits, as well as escrow accounts related to principal and interest payments on bonds.

 

Real Estate Depreciation

 

Real estate costs related to the acquisition and improvement of properties are capitalized and depreciated over the expected life of the asset on a straight-line basis. Repair and maintenance costs are charged to expense as incurred and significant replacements and betterments are capitalized. Repair and maintenance costs include all costs that do not extend the useful life of the real estate asset. The Company considers the period of future benefit of an asset to determine its appropriate useful life. Expenditures for tenant improvements are capitalized and amortized over the shorter of the tenant’s lease term or expected useful life. The Company anticipates the estimated useful lives of its assets by class to be generally as follows:

 Schedule of Assets Useful Lives

Building and improvements		7-45 years
Equipment and personal property		2-18 years

 

 

STRAWBERRY FIELDS REIT, INC. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2. Summary of Significant Accounting Policies (cont.)

 

Real Estate Valuation

 

The Company makes estimates as part of its allocation of the purchase price of acquisitions to the various components of the acquisition based upon the fair value of each component. In determining fair value, the Company uses current appraisals or other third-party valuations. The most significant components of these allocations are typically the allocation of fair value to land and buildings and, for certain of its acquisitions, in place leases and other intangible assets. In the case of the fair value of buildings and the allocation of value to land and other intangibles, the estimates of the values of these components will affect the amount of depreciation and amortization the Company records over the estimated useful life of the property acquired or the remaining lease term. In the case of the value of in place leases, the Company makes best estimates based on the evaluation of the specific characteristics of each tenant’s lease. Factors considered include estimates of carrying costs during hypothetical expected lease up periods, market conditions and costs to execute similar leases. These assumptions affect the amount of future revenue that the Company will recognize over the remaining lease term for the acquired in place leases.

 

The Company evaluates each purchase transaction to determine whether the acquired assets meet the definition of a business. Transaction costs related to acquisitions that are not deemed to be businesses are included in the cost basis of the acquired assets, while transaction costs related to acquisitions that are deemed to be businesses are expensed as incurred. All of the Company’s acquisitions of investment properties qualified as asset acquisitions during the years ended December 31, 2023 and 2022.

 

Revenue Recognition

 

Rental income from operating leases is generally recognized on a straight-line basis over the terms of the leases. Substantially all of the Company’s leases contain provisions for specified annual increases over the rents of the prior year and are generally computed in one of three methods depending on specific provisions of each lease as follows:

 

	(i)	a specified annual increase over the prior year’s rent, generally between 1.0% and 3.0%;
	(ii)	a calculation based on the Consumer Price Index; or
	(iii)	specific dollar increases.

 

Contingent revenue is not recognized until all possible contingencies have been eliminated. The Company considers the operating history of the lessee and the general condition of the industry when evaluating whether all possible contingencies have been eliminated and have historically, and expect in the future, to not include contingent rents as income until received. The Company follows a policy related to rental income whereby the Company considers a lease to be non-performing after 60 days of non-payment of past due amounts and does not recognize unpaid rental income from that lease until the amounts have been received.

 

Rental revenues relating to non-contingent leases that contain specified rental increases over the life of the lease are recognized on the straight-line basis. Recognizing income on a straight-line basis requires us to calculate the total non-contingent rent containing specified rental increases over the life of the lease and to recognize the revenue evenly over that life. This method results in rental income in the early years of a lease being higher than actual cash received, creating a straight-line rent receivable asset included in our accompanying consolidated balance sheets. At some point during the lease, depending on its terms, the cash rent payments eventually exceed the straight-line rent which results in the straight-line rent receivable asset decreasing to zero over the remainder of the lease term. The Company assesses the collectability of straight-line rent in accordance with the applicable accounting standards and reserve policy. If the lessee becomes delinquent in rent owed under the terms of the lease, the Company may provide a reserve against the recognized straight-line rent receivable asset for a portion, up to its full value, that the Company estimates may not be recoverable.

 

 

STRAWBERRY FIELDS REIT, INC. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2. Summary of Significant Accounting Policies (Cont.)

 

Revenue Recognition (cont.)

 

Capitalized above-market lease values are amortized as a reduction of rental income over the remaining terms of the respective leases. Capitalized below-market leases are accreted to rental income over the remaining terms of the respective leases and expected below-market renewal option periods.

 

The Company reports revenues and expenses within our triple-net leased properties for real estate taxes that are escrowed and obligations of the tenants in accordance with their respective lease with us.

 

Gain from sale of real estate investments was recognized when control of the property is transferred, and it is probable that substantially all consideration will be collected.

 

Allowance for Doubtful Accounts

 

The Company evaluates the liquidity and creditworthiness of its tenants, operators and borrowers on a monthly and quarterly basis. The Company’s evaluation considers industry and economic conditions, individual and portfolio property performance, credit enhancements, liquidity and other factors. The Company’s tenants, borrowers and operators furnish property, portfolio and guarantor/operator-level financial statements, among other information, on a monthly or quarterly basis; the Company utilizes this financial information to calculate the lease or debt service coverages that it uses as a primary credit quality indicator. Lease and debt service coverage information is evaluated together with other property, portfolio and operator performance information, including revenue, expense, net operating income, occupancy, rental rate, reimbursement trends, capital expenditures and EBITDA (defined as earnings before interest, tax, depreciation and amortization), along with other liquidity measures. The Company evaluates, on a monthly basis or immediately upon a significant change in circumstance, its tenants’, operators’ and borrowers’ ability to service their obligations with the Company.

 

The Company maintains an allowance for doubtful accounts for straight-line rent receivables resulting from tenants’ inability to make contractual rent and tenant recovery payments or lease defaults. For straight-line rent receivables, the Company’s assessment is based on amounts estimated to be recoverable over the lease term.

 

Impairment of Long-Lived Assets and Goodwill

 

The Company assesses the carrying value of real estate assets and related intangibles (“real estate assets”) when events or changes in circumstances indicate that the carrying value may not be recoverable. The Company tests its real estate assets for impairment by comparing the sum of the expected future undiscounted cash flows to the carrying value of the real estate assets. The expected future undiscounted cash flows are calculated utilizing the lowest level of identifiable cash flows that are largely independent of the cash flows of other assets and liabilities. If the carrying value exceeds the expected future undiscounted cash flows, an impairment loss will be recognized to the extent that the carrying value of the real estate assets is greater than their fair value.

 

Goodwill is tested for impairment at least annually based on certain qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its’ carrying value. Potential impairment indicators include a significant decline in real estate values, significant restructuring plans, current macroeconomic conditions, state of the equity and capital markets or a significant decline in the Company’s market capitalization. If the Company determines that it is more likely than not that the fair value of a reporting unit is less than its’ carrying value, the Company applies the required two-step quantitative approach. The quantitative procedures of the two-step approach (i) compare the fair value of a reporting unit with its carrying value, including goodwill, and, if necessary, (ii) compare the implied fair value of reporting unit goodwill with the carrying value as if it had been acquired in a business combination at the date of the impairment test. The excess fair value of the reporting unit over the fair value of assets and liabilities, excluding goodwill, is the implied value of goodwill and is used to determine the impairment amount, if any. The Company has selected the fourth quarter of each fiscal year to perform its annual impairment test.

 

 

STRAWBERRY FIELDS REIT, INC. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2. Summary of Significant Accounting Policies (Cont.)

 

Concentrations of Credit Risk

 

Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash and cash equivalents, notes receivable and operating leases on owned properties. These financial instruments are subject to the possibility of loss of carrying value as a result of the failure of other parties to perform according to their contractual obligations or changes in market prices which may make the instrument less valuable. Cash and cash equivalents, restricted cash and equivalents are held with various financial institutions. From time to time, these balances exceed the federally insured limits. These balances are maintained with high quality financial institutions which management believes limits the risk.

 

With respect to notes receivable, the Company obtains various collateral and other protective rights, and continually monitor these rights, in order to reduce such possibilities of loss. In addition, the Company provides reserves for potential losses based upon management’s periodic review of our portfolio.

 

On December 31, 2023, the Company held four notes receivable with an outstanding balance of $17.7 million. The notes have maturities ranging from 2024 through 2046, and interest rates ranging from 2% to 11.25%. One of the notes is collateralized by tenants accounts receivable. All other notes receivable are uncollateralized as of December 31, 2023. As of December 31, 2022 the Company held five notes receivable with an outstanding balance of $19.4 million.

 

Market Concentration Risk

 

As of December 31, 2023 and 2022, the Company owned 97 and 78 properties and leases 1 property, respectively, in 9 states, and 34 facilities (15 in 2022) or 34.6% of its total properties in Indiana (which include 3,240 skilled nursing and assisted living beds or 26.6% of the Company’s total beds) and 20 facilities (20 in 2022) or 20.4% of its total properties located in Illinois (which include 4,226 skilled nursing beds or 34.6% of the Company’s total beds). Since tenant revenue is primarily generated from Medicare and Medicaid, the operations of the Company are indirectly subject to the administrative directives, rules and regulations of federal and state regulatory agencies, including, but not limited to, Centers for Medicare and Medicaid Services, and the Department of Health and Aging in all states in which the Company operates. Such administrative directives, rules and regulations, including budgetary reimbursement funding, are subject to change by an act of Congress, the passage of laws by the state regulators or an administrative change mandated by one of the executive branch agencies. Such changes may occur with little notice or inadequate funding to pay for the related costs, including the additional administrative burden, to comply with a change.

 

Debt and Capital Raising Issuance Costs

 

Costs incurred in connection with the issuance of equity interests are recorded as a reduction of additional paid-in capital. Debt issuance costs related to debt instruments, excluding line of credit arrangements, are deferred, recorded as a reduction of the related debt liability, and amortized to interest expense over the remaining term of the related debt liability utilizing the interest method. Deferred financing costs related to line of credit arrangements are deferred, recorded as an asset and amortized to interest expense over the remaining term of the related line of credit arrangement utilizing the interest method.

 

Penalties incurred to extinguish debt and any remaining unamortized debt issuance costs, discounts and premiums are recognized as income or expense in the consolidated statements of income at the time of extinguishment.

 

Segment Reporting

 

Accounting guidance regarding disclosures about segments of an enterprise and related information establishes standards for the manner in which public business enterprises report information about operating segments. The Company’s investment decisions in health care properties, and resulting investments are managed as a single operating segment for internal reporting and for internal decision-making purposes. Therefore, the Company has concluded that it operates as a single segment.

 

Basic and Diluted Income Per Common Share

 

The Company calculates basic income per common share by dividing net income attributable to common stockholders by the weighted average number of common shares outstanding during the year. At December 31, 2023 and 2022, there were 45,373,615 and 46,890,541 OP units, respectively, outstanding which were potentially dilutive securities. During the years ended December 31, 2023, and 2022 the assumed conversion of the OP units had no impact on basic income per share.

 

 

STRAWBERRY FIELDS REIT, INC. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2. Summary of Significant Accounting Policies (Cont.)

 

Beds, Units, Occupancy and Other Measures

 

Beds, units, occupancy and other non-financial measures used to describe real estate investments included in these notes to the consolidated financial statements are presented on an unaudited basis and are not subject to audit by the Company’s independent auditors in accordance with the standards of the Public Company Accounting Oversight Board.

 

Foreign Currency Translation and Transactions

 

Assets and liabilities denominated in foreign currencies that are translated into U.S. dollars use exchange rates in effect at the end of the period, and revenues and expenses denominated in foreign currencies that are translated into U.S. dollars use average rates of exchange in effect during the related period. Gains or losses resulting from translation are included in accumulated other comprehensive income, a component of equity on the consolidated balance sheets.

 

Gains or losses resulting from foreign currency transactions are translated into U.S. dollars at the rates of exchange prevailing at the dates of the transactions. The effects of transaction gains or losses, if any, are included in other income (loss), in the consolidated statements of income.

 

Fair Value Measurement

 

The Company measures and discloses the fair value of nonfinancial and financial assets and liabilities utilizing a hierarchy of valuation techniques based on whether the inputs to a fair value measurement are considered to be observable or unobservable in a marketplace. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. This hierarchy requires the use of observable market data when available. These inputs have created the following fair value hierarchy:

 

● Level 1—quoted prices for identical instruments in active markets;

 

● Level 2—quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and

 

● Level 3—fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

 

The Company measures fair value using a set of standardized procedures that are outlined herein for all assets and liabilities which are required to be measured at fair value. When available, the Company utilizes quoted market prices from an independent third-party source to determine fair value and classifies such items in Level 1. In instances where a market price is available, but the instrument is in an inactive or over-the-counter market, the Company consistently applies the dealer (market maker) pricing estimate and classifies the asset or liability in Level 2. If quoted market prices or inputs are not available, fair value measurements are based upon valuation models that utilize current market or independently sourced market inputs, such as interest rates, option volatilities, credit spreads and/or market capitalization rates. Items valued using such internally generated valuation techniques are classified according to the lowest level input that is significant to the fair value measurement. As a result, the asset or liability could be classified in either Level 2 or Level 3 even though there may be some significant inputs that are readily observable. Internal fair value models and techniques used by the Company include discounted cash flow valuation models.

 

 

STRAWBERRY FIELDS REIT, INC. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2. Summary of Significant Accounting Policies (Cont.)

 

Real Estate Investments – Held for Sale

 

At December 31, 2023 and 2022, the Company had one property included in real estate investments which was held for sale and carried at the lower of their net book value or fair value on a non-recurring basis on the consolidated balance sheets. The Company’s real estate investments held for sale were classified as Level 3 of the fair value hierarchy.

 

Stock-Based Compensation

 

The Company accounts for share-based payment awards in accordance with ASC Topic 718, Compensation – Stock Compensation (“ASC 718”). ASC 718 requires that the cost resulting from all share-based payment transactions be recognized in the consolidated financial statements. ASC 718 requires all entities to apply a fair value-based measurement method in accounting for share-based payment transactions. The Company recognizes share-based payments over the vesting period.

 

Recent Accounting Pronouncements

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 is intended to improve financial reporting by requiring timelier recognition of credit losses on loans and other financial instruments held by financial institutions and other organizations. The amendments in ASU 2016-13 eliminate the “probable” initial threshold for recognition of credit losses in current accounting guidance and, instead, reflect an entity’s current estimate of all expected credit losses. Previously, when credit losses were measured under current accounting guidance, an entity generally only considered past events and current conditions in measuring the incurred loss. The amendments in ASU 2016-13 broaden the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually.

 

Upon adoption of ASU 2016-13, the Company is required to reassess its financing receivables, including leases and notes receivable, and expects that application of ASU 2016-13 may result in the Company recognizing credit losses at an earlier date than would otherwise be recognized under current accounting guidance. On October 16, 2019, the FASB approved ASU 2019-10 which extends the effective date of ASU 2016-13 to January 1, 2023, for smaller reporting companies. Adoption of ASU 2016-13 on January 1, 2023, was not material to the Company’s consolidated financial position and results of operations.

 

 

STRAWBERRY FIELDS REIT, INC. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 3. Restricted Cash and Equivalents

 

The following table presents the Company’s cash and equivalents and escrow deposits:

 Schedule of Restricted Cash and Equivalents and Escrow Deposits

		2023				2022
		December 31,
		2023				2022
		(amounts in $000’s)
Escrow with trustee		$	-			$	2,287
MIP escrow accounts			794				745
Other escrow and debt deposits			737				781
Property tax and insurance escrow			6,842				5,243
Interest and expense reserve bonds escrow			3,924				2,276
HUD replacement reserves			13,288				14,175
Total restricted cash and equivalents		$	25,585			$	25,507

 

Escrow with trustee - The Company transfers funds to the trustee for its Series C Bonds and Series D bonds to cover principal and interest payments prior to the payment date.

 

MIP escrow accounts - The Company is required to make monthly escrow deposits for mortgage insurance premiums on the HUD guaranteed mortgage loans.

 

Other escrow and debt deposits – The Company funds various escrow accounts under certain of its loan agreements, primarily to cover debt service on underlying loans,

 

Property tax and insurance escrow - The Company funds escrows for real estate taxes and insurance under certain of its loan agreements.

 

Interest and expense reserve bonds escrow - The indentures for the Series C Bonds and Series D Bonds require the funding of a six-month interest reserve as well as an expense reserve. See Note 7 - Notes Payable and Other Debt.

 

HUD replacement reserves - The Company is required to make monthly payments into an escrow for replacement and improvement of the project assets covered by HUD guaranteed mortgage loans. A portion of the replacement reserves are required to be maintained until the applicable loan is fully paid.

 

NOTE 4. Real Estate Investments, net

 

Real estate investments consist of the following:

 Schedule of Real Estate Investment

		Estimated
		Useful Lives		December 31,
		Useful Lives		2023				2022
		(Years)		(Amounts in $000’s)
Buildings and improvements		7-45		$	576,044			$	495,215
Equipment and personal property		2-18			97,359				78,524
Land		-			64,309				60,010
Real estate investments, gross					737,712				633,749
Less: accumulated depreciation					(219,398	)			(194,838	)
Real estate investments, net				$	518,314			$	438,911

 

For the years ended December 31, 2023 and 2022, total depreciation expense were $26.2 million and $25.5 million, respectively.

 

 

STRAWBERRY FIELDS REIT, INC. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 4. Real Estate Investments, net (cont.)

 

Acquisition of Properties

 

On August 25, 2021, the Company acquired five properties located in Tennessee and one in Kentucky (the “Tennessee/Kentucky Properties”) for an aggregate acquisition cost of $81.0 million, which was paid through the issuance of 1,545,217 OP units valued at $16,997,000, including 90,909 of OP units paid to the broker valued at $1 million and a cash payment of $63,990,000. Moishe Gubin, our Chairman and Chief Executive Officer, agreed to purchase the OP units issued to the sellers either at cost or fair market value (whichever is higher) 12 months after the closing at the option of the sellers. The properties contain skilled nursing facilities of approximately 223,000 square feet and 515 beds. The Company financed a portion of the cash portion of the purchase price from the net proceeds received by the Company from the sale of Series C Bonds in Israel. The Company leased the five Tennessee facilities to related parties under a new Tennessee master lease, and the one Kentucky property to an unrelated third party under the existing Landmark master lease. On May 1, 2023, the Operating Partnership paid $15.6 million to redeem 1,454,308 OP units granted to the sellers of five properties in Tennessee and one in Kentucky the Company acquired in 2021. In connection with this payment, the Company contributed $0.7 million to the Operating Partnership and was issued 65,455 OP units.

 

On January 3, 2023, the Company acquired a property located in Kentucky for an aggregate cost of $6.0 million, including $1 million in finder fees and $0.7 million in leasehold improvements, which was paid in cash. This property contains a skilled nursing facility with 120 licensed beds and approximately 34,824 square feet. Concurrently with the closing of the acquisition, we added the property to an existing master lease with an unaffiliated third-party operator. The lease has an initial term of 10 years, with two 5-year extension options. The initial annualized base rent of the master lease was increased by $0.6 million.

 

On August 25, 2023, the Company acquired 24 healthcare facilities (19 properties) located in Indiana (the “Indiana Facilities”) for $102.0 million. The Indiana Facilities are comprised of 19 skilled nursing facilities with 1,659 licensed beds and five assisted living facilities with 193 beds, of which 29 beds are licensed. Annualized straight line rent for the facilities is expected to equal $12.7 million representing a weighted average lease yield of 12.4%. Effective March 1, 2023 the company commenced a new master lease for these facilities. Please refer to the section Note 14 Subsequent Events for additional details of the lease.

 

The Company acquired the Indiana Facilities utilizing the Company’s working capital, which included $19.2 million in proceeds from our sale of additional Series D Bonds, together with funds to be borrowed under a new $66.0 million credit facility from a commercial bank. The credit facility has a 5-year term, at a floating rate of SOFR plus 3.5% and is interest-only for the initial 12 months. The Company also made a loan of $6.5 million to the sellers, which will be payable within 60 days of the closing.

 

The Indiana Facilities are currently leased under a master lease agreement dated November 1, 2022, between the sellers and a group of tenants affiliated with two of the Company’s directors, Moishe Gubin and Michael Blisko. Under the master lease, the tenants are required to pay annual rent, on a triple net basis, commencing on November 1, 2022, in the amount of $9.5 million, which amount is subject to annual increases set forth in the master lease. The master lease has an initial term of seven years. The tenants have three options to extend the lease. The first option is for three years, the two remaining options are for five years each. The tenants have an option to buy the properties during the sixth or seventh year of the lease for $127.0 million. The material terms of the master lease were not modified as a result of the purchase. The tenants operate the Indiana Facilities as skilled nursing and assisted living facilities.

 

On December 12, 2023 the Company entered into a lease for two skilled nursing facilities with 226 licensed beds near Johnson City, Tennessee. The lease includes a purchase option which the Company intends to exercise once certain conditions precedent are met. The lease commenced on January 1, 2024.

 

Re-tenant of Real Estate Properties

 

On October 30, 2023 the Company entered into a lease agreement to re-tenant the three skilled nursing facilities located in Texas. The lease is for 10 years with annual escalations of 2.5%. The lease commenced on December 1, 2023.

 

Dispositions of Assets

 

In February 2023 one of the SNF’s owned by the Company in Southern Illinois was closed. The closure was a result of the tenant request and mainly for efficiency reasons. This SNF is under a master lease with 2 other facilities and the full amount of the rental payments under the master lease are continuing to be paid. Additionally, the operator continues to be responsible for ensuring the building is secure and paying utilities, real estate taxes and insurance bills.

 

 

STRAWBERRY FIELDS REIT, INC. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 4. Real Estate Investments, net (cont.)

 

Other Properties

 

In December 2022, the Company, through one of its subsidiaries, took title on a property in Massachusetts through a foreclosure. See note 2 above. As of December 31, 2023, the property is carried at estimated fair value of $1.2 million and is included in real estate investments in the accompanying consolidated balance sheets.

 

NOTE 5. Intangible Assets and Goodwill

 

Intangible assets consist of the following goodwill, Certificate of Need (“CON”) licenses and lease rights:

 Schedule of Intangible Assets and Goodwill

		Goodwill including CON Licenses				Lease Rights				Total
		(Amounts in $000’s)
Balances, December 31, 2021
Gross		$	1,323			$	54,577			$	55,900
Accumulated amortization			-				(41,240	)			(41,240	)
Net carrying amount		$	1,323			$	13,337			$	14,660
Amortization for the year ended December 31, 2022			-				(3,028	)			(3,028	)
Balances, December 31, 2022
Gross		$	1,323			$	54,577			$	55,900
Accumulated amortization			-				(44,268	)			(44,268	)
Net carrying amount		$	1,323			$	10,309			$	11,632
Amortization for the year ended December 31, 2023		$	-				(3,028	)			(3,028	)
Balances, December 31, 2023
Gross		$	1,323			$	54,577			$	55,900
Accumulated amortization			-				(47,296	)			(47,296	)
Net carrying amount		$	1,323			$	7,281			$	8,604

 

Estimated amortization expense for all finite-lived intangible assets for each of the future years ending December 31, is as follows:

 Schedule of Estimated Amortization Expenses

		Amortization of Lease Rights
		(Amounts in $000’s)
2024		$	3,028
2025			3,028
2026			675
2027			461
2028			89
Total		$	7,281

 

 

STRAWBERRY FIELDS REIT, INC. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 6. Leases

 

As of December 31, 2023, the Company had leased 98 properties to tenant/operators in the States of Illinois, Indiana, Michigan, Ohio, Texas, Kentucky, Tennessee, Oklahoma and Arkansas. As of December 31, 2022 the company leased 79 properties. In both December 31, 2023 and 2022 all of the Company’s healthcare facilities were leased. Most of these facilities are leased on a triple-net basis, meaning that the lessee (i.e., operator of the facility) is obligated under the lease for all expenses of the property in respect to insurance, taxes and property maintenance, as well as the lease payments.

 

The following table provides additional information regarding the properties owned/leased for the periods indicated:

 Schedule of Properties Own and Leased Information

		December 31,
		2023				2022
Cumulative number of properties			98				79
Cumulative number of operational beds			12,201				10,332

 

The following table provides additional information regarding the properties/facilities leased by the Company as of December 31, 2023:

 Schedule of Additional Information on Properties Facilities Leased

State		Number of Operational Beds/Units				Owned by Company				Leased by Company				Total
Illinois			4,226				20				-				20
Indiana			3,240				33				1				34
Michigan			100				1				-				1
Ohio			238				4				-				4
Tennessee			1,056				12				-				12
Kentucky			1,163				10				-				10
Arkansas			1,568				13				-				13
Oklahoma			137				1				-				1
Texas			473				3				-				3
Total properties			12,201				97				1				98
Facility Type
Skilled Nursing Facilities			11,865				96				1				97
Long-Term Acute Care Hospitals(1)			63				2				-				2
Assisted Living Facility			273				8				-				8
Total facilities			12,201				106				1				107

 

(1)	Each property is comprised of a skilled nursing facility and long-term acute care hospital.

 

As of December 31, 2023, total future minimum rental revenues for the Company’s tenants are as follows:

 Schedule of Future Minimum Rental Revenues

Year		Amount
(Amounts in $000’s)
2024		$	93,923
2025			86,439
2026			69,687
2027			70,250
2028			66,360
Thereafter			148,589
Total		$	535,248

 

 

STRAWBERRY FIELDS REIT, INC. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 6. Leases (cont.)

 

The following table provides summary information regarding the number of operational beds associated with a property leased by the Company and subleased to third-party operators:

 Schedule of Property Leases to Third Parties

		December 31,
		2023				2022
Number of facilities leased and subleased to third-parties			1				1
Number of operational beds			68				68

 

Right of use assets and operating lease liabilities are disclosed as separate line items in the consolidated balance sheets and are valued based on the present value of the future minimum lease payments at lease commencement. As the Company’s leases do not provide an implicit rate, the Company used its incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense is recognized on a straight-line basis over the lease term. The Company’s operating lease obligation is for one skilled nursing facility. The lease expires on March 1, 2028 and has two five-year renewal options. The lease is a triple net lease, which requires the Company to pay real and personal property taxes, insurance expenses and all capital improvements. The Company subleases the building as part of the Indiana master lease. Based on the sublease with the Company’s tenant, the tenant is required to pay real and personal property taxes, insurance expenses and all capital improvements.

 

The components of lease expense and other lease information are as follows (dollars in thousands):

 Schedule of Components of Lease Expense

		Years ended December 31,
		2023				2022
Operating lease cost		$	405			$	392

 

		As of December 31,
		2023				2022
Operating lease right of use asset		$	1,542			$	1,833
Operating lease liability		$	1,542			$	1,833
Weighted average remaining lease term-operating leases (in years)			4.25				5.25
Weighted average discount rate			4.1	%			4.1	%

 

Future minimum operating lease payments under non-cancellable leases as of December 31, 2023, reconciled to the Company’s operating lease liability presented on the consolidated balance sheets:

 Schedule of Future Minimum Lease Payments On Non-Cancellable Leases

		(Amounts in $000s)
2024		$	397
2025			397
2026			397
2027			397
2028			99
Total		$	1,687
Less Interest			(145	)
Total operating lease liability		$	1,542

 

Other Properties leased by the Company

 

The Company, through one of its subsidiaries, leases its office spaces from a related party. Rental expense under the leases for the year ended December 31, 2023 and 2022, was $209,000 and $203,500, respectively.

 

 

STRAWBERRY FIELDS REIT, INC. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 7. Notes Payable and Other Debt

 

Notes Payable and Other Debt consist of the following:

 Schedule of Notes Payable and Other Debt

		Weighted Interest Rate at December 31, 2023				December 31,
						2023				2022
			(Amounts in $000s)
HUD guaranteed bank loans			3.26	%		$	271,340			$	275,778
Bank loans			8.84	%			164,810				105,225
Series A (2022 Only), Series C and Series D Bonds			7.00	%			102,995				75,788
Gross Notes Payable and other Debt						$	539,145			$	456,791
Debt issuance costs							(2,659	)			(1,376	)
Net Notes Payable and other Debt						$	536,486			$	455,415

 

Principal payments on the Notes Payable and Other Debt payable through maturity are as follows (amounts in $000s):

 Schedule of Notes Payable and Other Debt Payables Maturity

Year Ending December 31
2024		$	18,549
2025			19,929
2026			103,575
2027			97,333
2028			70,455
Thereafter			229,304
Total Principal Payments on Notes Payable and Other Debt		$	539,145

 

Debt Covenant Compliance

 

As of December 31, 2023 and 2022, the Company was party to approximately 41 and 40 outstanding credit related instruments, respectively. These instruments included credit facilities, mortgage notes, bonds and other credit obligations. Some of the instruments include financial covenants. Covenant provisions include, but are not limited to, debt service coverage ratios, and minimum levels of EBITDA (defined as earnings before interest, tax, and depreciation and amortization) or EBITDAR (defined as earnings before interest, tax, depreciation and amortization and rental expense). Some covenants are based on annual financial metric measurements, and some are based on quarterly financial metric measurements. The Company routinely tracks and monitors its compliance with its covenant provisions. As of December 31, 2023, the Company was in compliance with all financial and administrative covenants.

 

 

STRAWBERRY FIELDS REIT, INC. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 7. Notes Payable and Other Debt (cont.)

 

Senior Debt—Mortgage Loans Guaranteed by HUD

 

As of December 31, 2023 and 2022, the Company had HUD guaranteed mortgage loans from financial institutions of $271million and $276 million, respectively. These loans were secured by first mortgage liens on the applicable properties, assignments of rent and second liens on the operator’s assets. The Company pays HUD annual mortgage insurance premiums of 0.65% of the loan balances in addition to the interest rate. As a result, the overall interest rate paid by the Company with respect to the HUD guaranteed loans as of December 31, 2023 and 2022 was 3.93 %    and 3.88%, respectively (including the mortgage insurance premium).

 

Bank loans/repayment of Series B Bonds

 

On March 21, 2022, the Company closed a mortgage loan facility with a commercial bank pursuant to which the Company borrowed approximately $105 million. The facility provides for monthly payments of principal based on a 20-year amortization with a balloon payment due in March 2027. The rate is based on the one-month Secured Overnight Financing Rate (“SOFR”) plus a margin of 3.5% and a floor of 4% (as of December 31, 2023 the rate was 8.84%). As of December 31, 2023 and December 31, 2022, total outstanding was $98.8 million and $102.4 million, respectively. This loan is collateralized by 21 properties owned by the Company. The new loan proceeds were used to repay the Series B Bonds and prepay certain bank loans not secured by HUD guaranteed mortgages. The Company recognized a foreign currency transaction loss of approximately $10.1 million in connection with the repayment of the Series B Bonds during the year ended December 31, 2022.

 

On August 25, 2023, the Company closed a mortgage loan facility with a commercial bank pursuant to which the Company borrowed approximately $66 million. The facility provides for monthly payments of interest only for the first 12 months and principal based on a 20-year amortization with a balloon payment due in August 2028. The rate is based on the one-month Secured Overnight Financing Rate (“SOFR”) plus a margin of 3.5% and a floor of 4% (as of the December 31, 2023, the rate was 8.84%). As of December 31, 2023, total outstanding was $66 million. This loan is collateralized by 19 properties owned by the Company. The new loan proceeds were used to acquire the Indiana Facilities.

 

Both credit facilities financial covenants consist of (i) a covenant that the ratio of the Company’s indebtedness to its EBITDA cannot exceed 8.0 to 1, (ii) a covenant that the ratio of the Company’s net operating income to its debt service before dividend distribution is at least 1.20 to 1.00 for each fiscal quarter as measured pursuant to the terms of the loan agreement (iii) a covenant that the ratio of the Company’s net operating income to its debt service after dividend distribution is at least 1.05 to 1.00 for each fiscal quarter as measured pursuant to the terms of the loan agreement, and (iii) a covenant that the Company’s GAAP equity is at least $20,000,000. As of December 31, 2023 the Company is in compliance with the loan covenants.

 

Series A Bonds

 

In November 2015, the Company, through a subsidiary, issued Series A Bonds in the face amount of NIS 265.2 million ($68 million) and received the net amount after issuance costs of NIS 251.2 million ($64.3 million). Since then the Company extended the series amount twice in September 2016 and May 2017 and received a combined net amount of $30.1 million. The Series A Bonds had an original interest rate of 6.4% per annum. The bond was paid off on November 8, 2023.

 

 

STRAWBERRY FIELDS REIT, INC. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 7. Notes Payable and Other Debt (cont.)

 

Series C Bonds

 

In July 2021, the BVI Company completed an initial offering on the Tel Aviv Stock Exchange (“TASE”) of Series C Bonds with a par value of NIS 208.0 million ($64.7 million). These Series C Bonds were issued at par. Offering and issuance costs of approximately $1.7 million were incurred at closing. In February 2023, the BVI Company issued an additional NIS 40.0 million ($19.2 million) in Series C Bonds. At December 31, 2023 and December 31st, 2022 the total Series C Bond outstanding was $60.8 and $55.6 million, respectively.

 

Interest

 

The Series C Bonds initially bore interest at a rate of 5.7% per annum. In July 2021, Standard & Poor’s provided an initial rating for the Series C Bonds of ilA+.

 

Interest on the Series C Bonds is payable semi-annually in arrears on July 31 and January 31 of each year. The interest rate may increase if certain financial ratios are not achieved, as discussed below

 

Payment Terms

 

The principal amount of the Series C Bonds is payable in five annual installments due on July 31 of each of the years 2022 through 2026. The first four principal payments are equal to 6% of the original principal amount of the Series C Bonds, and the last principal payments is equal to the outstanding principal amount of the Series C Bonds.

 

Financial Covenants

 

Until the date of full repayment of the Series C Bonds, the BVI Company must comply with certain financial covenants described below. The application of the covenants is based on the financial statements of the BVI Company as prepared under the IFRS accounting method. The financial covenants are as follows:

 

● The stockholders’ equity of the BVI Company may not be less than $230 million.

 

● The ratio of the consolidated stockholders’ equity of the BVI Company to its total consolidated balance sheet may not be less than 25%.

 

● The ratio of the adjusted net financial debt to adjusted EBITDA of the BVI Company (for the past four quarters) may not exceed 12.

 

● The ratio of the outstanding amount of the Series C Bonds to the fair market value of the collateral may not exceed 75%.

 

Dividend Restrictions

 

The indenture for the Series C Bonds limits the amount of dividends that may be paid by the BVI Company to its stockholders. The BVI Company may not make any distribution unless all of the following conditions are fulfilled (with all amounts calculated under IFRS):

 

● The distribution amount may not exceed 80% of the net profit after tax that is recognized in the most recent consolidated financial statements of the BVI Company, less profits or losses arising from a change in accounting methods, net revaluation profits/losses (that have not yet been realized) arising from a change in the fair value of the assets with respect to the fair value in prior reporting period.

 

● The ratio of the consolidated stockholders’ equity of the BVI Company to its total consolidated balance sheet may not be less than 30%.

 

 

STRAWBERRY FIELDS REIT, INC. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 7. Notes Payable and Other Debt (cont.)

 

Series C Bonds (Cont.)

 

Dividend Restrictions (Cont.)

 

● The distributable profits for which no distribution was performed in a specific year will be added to the following quarters.

 

● The BVI Company’s equity at the end of the last quarter, before the distribution of dividends, less the dividends distributed, may not be less than $250 million.

 

● The BVI Company meets the financial conditions described above, and the Company is not in violation of all and/or any of its material undertakings to the holders of the Series C Bonds.

 

Increase in Interest Rate

 

In the event that:

 

(i) the stockholders’ equity of BVI Company (excluding minority interests) is less than $250 million;

 

(ii) the ratio of the adjusted net financial debt to adjusted EBITDA (for the latest four quarters) exceeds 11;

 

(iii) the ratio of the consolidated equity of the BVI Company to total consolidated assets of the BVI Company is below 27%; or

 

(iv) the ratio of outstanding amount of the Series C Bonds to the fair market value of the collateral for the Series B Bonds exceeds 75%,

 

then, in each case, the interest on the Series C Bonds will increase by an additional 0.5% annually, but only once with respect to each failure to meet these requirements. Compliance with these financial covenants is measured quarterly.

 

Additionally, if a decline in the rating of the Series C Bonds should take place, then for each single ratings decrease, the interest will be increased by 0.25% per year, up to a maximum increment of 1.25% annually.

 

In any case, the total increase in the interest rate as a result of the above adjustments will not exceed 1.5% per year. The increases in the interest rate will also be reversed if the BVI Company regains compliance.

 

Security

 

The Series C Bonds are secured by first mortgage liens on eight properties. In addition, the Series C Bonds are also secured by interest and expenses reserves. The BVI Company has agreed not to pledge its assets pursuant to a general lien without obtaining the prior consent of the holders of the Series C Bonds, provided that the BVI Company is entitled to register specific liens on its properties and also to provide guarantees and its subsidiaries are entitled to register general and specific liens on their assets.

 

Under the terms of the indenture for the Series C Bonds, the BVI Company can take out properties from the collateral (in case of HUD refinancing) or to add properties and increase the Series C Bonds as long as the ratio of outstanding amount of the Series C Bonds to fair market value of the collateral is not more than 65%. In addition, starting from July 1, 2023, if the fair market value of the collateral is below 55%, the BVI Company can request to release collateral so the fair market value will increase to 55%.

 

 

STRAWBERRY FIELDS REIT, INC. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 7. Notes Payable and Other Debt (cont.)

 

Series C Bonds (cont.)

 

Additional Bonds

 

The BVI Company can issue additional Series C Bonds at any time not to exceed a maximum of NIS630 million (or $192 million).

 

Redemption Provisions

 

The BVI Company may, at its discretion, call the Series C Bonds for early repayment. In the event of the redemption of all of the Series C Bonds, the BVI Company would be required to pay the highest of the following amounts:

 

●	the market value of the balance of the Series C Bonds in circulation which will be determined based on the average closing price of the Series B Bonds for thirty (30) trading days before the date on which the board of directors resolves to undertake the early redemption;
●	the par value of the Series C Bonds available for early redemption in circulation (i.e., the principal balance of the Series C Bonds plus accrued interest until the date of the actual early redemption); or
●	the balance of the payments under the Series C Bonds (consisting of future payments of principal and interest), when discounted to their present value based on the annual yield of the Israeli government bonds plus an “additional rate.” The additional rate will be 3.0% per annum for early repayment as of December 31, 2023.

 

Change of Control

 

The holders of a majority of the Series C Bonds may accelerate the outstanding balance of the Bonds if the control of the BVI Company is transferred, directly or indirectly, unless the transfer of control is approved by the holders of a majority of the Series C Bonds.

 

For the purpose of this provision, a transfer of control means a change of control of the BVI Company such that the BVI Company has a controlling stockholder that is not any of the “controlling stockholders” and/or is in the hands of any of their immediate family members (including through trusts that the controlling stockholders and/or any of their immediate family members are the beneficiaries under and/or are their managers). In this regard, “control” is defined in the Israeli Companies Law.

 

For purposes of the Series C Bonds, the “controlling stockholders” of the BVI Company are deemed to be Moishe Gubin and Michael Blisko.

 

 

STRAWBERRY FIELDS REIT, INC. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 7. Notes Payable and Other Debt (cont.)

 

Series D Bonds

 

In June 2023, the BVI Company completed an initial offering on the Tel Aviv Stock Exchange (“TASE”) of Series D Bonds with a par value of NIS 82.9 million ($22.9 million). These Series D Bonds were issued at par. Offering and issuance costs of approximately $0.6 million were incurred at closing. In July 2023, the BVI Company issued an additional NIS70 million ($19.2 million) in Series D Bonds. Total outstanding Series D bonds as of December 31, 2023 was NIS152.9 million ($42.2 million). In February 8, 2024 the BVI Company issued an additional NIS 100 million ($27.2) in series D bond.

 

Interest

 

The Series D Bonds initially bore interest at a rate of 9.1% per annum. In June 2023, Standard & Poor’s provided an initial rating for the Series D Bonds of ilA.

 

Interest on the Series D Bonds is payable semi-annually in arrears on March 31 and September 30 of each year. The interest rate may increase if certain financial ratios are not achieved, as discussed below.

 

Payment Terms

 

The principal amount of the Series D Bonds is payable in three annual installments due on September 30 of each of the years 2024 through 2026. The first two principal payments are equal to 6% of the original principal amount of the Series D Bonds, and the last principal payments is equal to the outstanding principal amount of the Series D Bonds.

 

Financial Covenants

 

Until the date of full repayment of the Series D Bonds, the BVI Company must comply with certain financial covenants described below. The application of the covenants is based on the financial statements of the BVI Company as prepared under the IFRS accounting method. The financial covenants are as follows:

 

● The stockholders’ equity of the BVI Company may not be less than $230 million.

 

● The ratio of the Condensed Consolidated stockholders’ equity of the BVI Company to its total Condensed Consolidated balance sheet may not be less than 25%.

 

● The ratio of the adjusted net financial debt to adjusted EBITDA of the BVI Company (for the past four quarters) may not exceed 12.

 

Dividend Restrictions

 

The indenture for the Series D Bonds limits the amount of dividends that may be paid by the BVI Company to its stockholders. The BVI Company may not make any distribution unless all of the following conditions are fulfilled (with all amounts calculated under IFRS):

 

● The distribution amount may not exceed 80% of the net profit after tax that is recognized in the most recent Condensed Consolidated financial statements of the BVI Company, less profits or losses arising from a change in accounting methods, net of revaluation profits/losses (that have not yet been realized) arising from a change in the fair value of the assets with respect to the fair value in the prior reporting period.

 

● The ratio of the consolidated stockholders’ equity of the BVI Company to its total consolidated balance sheet may not be less than 30%.

 

● The distributable profits for which no distribution was performed in a specific year will be added to the following quarters.

 

● The BVI Company’s equity at the end of the last quarter, before the distribution of dividends, less the dividends distributed, may not be less than $250 million.

 

● The BVI Company meets the financial conditions described above, and the BVI Company is not in violation of all and/or any of its material undertakings to the holders of the Series D Bonds as of December 31, 2023.

 

 

STRAWBERRY FIELDS REIT, INC. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 7. Notes Payable and Other Debt (cont.)

 

Series D Bonds (Cont.)

 

Increase in Interest Rate

 

In the event that:

 

(i) the stockholders’ equity of the BVI Company (excluding minority interests) is less than $250 million;

 

(ii) the ratio of the adjusted net financial debt to adjusted EBITDA (for the latest four quarters) exceeds 11;

 

(iii) the ratio of the consolidated equity of the BVI Company to total consolidated assets of the BVI Company is below 27%; or

 

then, in each case, the interest on the Series D Bonds will increase by an additional 0.5% annually, but only once with respect to each failure to meet these requirements. Compliance with these financial covenants is measured quarterly.

 

Additionally, if a decline in the rating of the Series D Bonds should take place, then for each single ratings decrease, the interest will be increased by 0.25% per year, up to a maximum increment of 1.25% annually.

 

In any case, the total increase in the interest rate as a result of the above adjustments will not exceed 1.5% per year. The increases in the interest rate will also be reversed if the BVI Company regains compliance.

 

Security

 

The BVI Company has committed not to pledge its assets under general liens without obtaining the consent in advance of the Bond holders. Nevertheless, the BVI Company is entitled to register specific liens on its properties and also to provide guarantees; and its subsidiaries are entitled to register liens, including general and specific, on their assets.

 

Additional Bonds

 

The BVI Company can issue additional Series D Bonds at any time not to exceed a maximum outstanding of NIS 450 million (or $124 million).

 

Redemption Provisions

 

The BVI Company may, at its discretion, call the Series D Bonds for early repayment. In the event of the redemption of all of the Series D Bonds, the BVI Company would be required to pay the highest of the following amounts:

 

●	the market value of the balance of the Series D Bonds in circulation which will be determined based on the average closing price of the Series D Bonds for thirty (30) trading days before the date on which the board of directors resolves to undertake the early redemption;
●	the par value of the Series D Bonds available for early redemption in circulation (i.e., the principal balance of the Series D Bonds plus accrued interest until the date of the actual early redemption); or
●	the balance of the payments under the Series D Bonds (consisting of future payments of principal and interest), when discounted to their present value based on the annual yield of the Israeli government bonds plus an “additional rate.” The additional rate will be 1.0% per annum for early repayment performed by September 30, 2024, and 3.0% thereafter.

 

Change of Control

 

The holders of a majority of the Series D Bonds may accelerate the outstanding balance of the Bonds if the control of the BVI Company is transferred, directly or indirectly, unless the transfer of control is approved by the holders of a majority of the Series D Bonds.

 

For purposes of the Series D Bonds, the “controlling stockholders” of the BVI Company are deemed to be Moishe Gubin and Michael Blisko.

 

For the purpose of this provision, a transfer of control means a change of control of the BVI Company such that the BVI Company has a controlling stockholder that is not any of the “controlling stockholders” and/or is in the hands of any of their immediate family members (including through trusts that the controlling stockholders and/or any of their immediate family members are the beneficiaries under and/or are their managers). In this regard, “control” is defined in the Israeli Companies Law.

 

 

STRAWBERRY FIELDS REIT, INC. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 8. Commitments and Contingencies

 

Commitments

 

The Company guarantees from time-to-time obligations of its wholly-owned subsidiaries.

 

Contingencies 

 

The Company’s operating results and financial condition are dependent on the ability of its tenants to meet their lease obligations to us.

 

We are not currently a party to any material legal proceedings, that are not covered by insurance and expected to be resolved within policy limits, other than the following:

 

In March 2020, Joseph Schwartz, Rosie Schwartz and certain companies owned by them filed a complaint in the U.S. District Court for the Northern District of Illinois against Moishe Gubin, Michael Blisko, the Predecessor Company and 21 of its subsidiaries, as well as the operators of 17 of the facilities operated at our properties. The complaint was related to the Predecessor Company’s acquisition of 16 properties located in Arkansas and Kentucky that were completed between May 2018 and April 2019 and the attempt to purchase an additional five properties located in Massachusetts. The complaint was dismissed by the Court in 2020 on jurisdictional grounds. The plaintiffs did not file an appeal with respect to this action, and the time for an appeal has expired.

 

In August 2020, Joseph Schwartz, Rosie Schwartz and several companies controlled by them filed a second complaint in the Circuit Court in Pulaski County, Arkansas. The second complaint had nearly identical claims as the federal case, but was limited to matters related to the Predecessor Company’s acquisition of properties located in Arkansas. The sellers, which were affiliates of Skyline Health Care, had encountered financial difficulties and requested the Predecessor Company to acquire these properties. The defendants have filed an answer denying the plaintiffs’ claims and asserting counterclaims based on breach of contract. This case has been dismissed without prejudice.

 

In January 2021, Joseph Schwartz, Rosie Schwartz and certain companies owned by them filed a third complaint in Illinois state court in Cook County, Illinois, which has nearly identical claims to the initial federal case, but was limited to claims related to the Kentucky and Massachusetts properties. The complaint has not been properly served on any of the defendants, and, accordingly, the defendants did not responded to the complaint. Instead, the defendants filed a motion to quash service of process. On January 11, 2023, the Cook County Circuit Court entered an order granting such motion, quashing service of process on all defendants. In March 2023, the plaintiffs filed a new complaint and again attempted to serve it on the defendants. It is the defendants’ position that service was (once again, potentially) defective and sought a dismissal of the matter for want of prosecution by Joseph Schwartz, Rosie Schwartz and certain companies owned by them. The dismissal was granted, but has been appealed to the Illinois Appellate Court, with no substantive movement on the matter to date.

 

In each of these complaints, the plaintiffs asserted claims for fraud, breach of contract and rescission arising out of the defendants alleged failure to perform certain post-closing obligations under the purchase contracts. We have potential direct exposure for these claims because the subsidiaries of the Predecessor Company that were named as defendants are now subsidiaries of the Operating Partnership. Additionally, the Operating Partnership is potentially liable for the claims made against Moishe Gubin, Michael Blisko and the Predecessor Company pursuant to the provisions of the contribution agreement, under which the Operating Partnership assumed all of the liabilities of the Predecessor Company and agreed to indemnify the Predecessor Company and its affiliates for such liabilities. We and the named defendants believe that the claims set forth in the complaints are without merit. The named defendants intend to vigorously defend the litigation and to assert counterclaims against the plaintiffs based on their failure to fulfill their obligations under the purchase contracts, interim management agreement, and operations transfer agreements. We believe this matter will be resolved without a material adverse effect to the Company.

 

As noted above, the March 2020 and January 2021 complaints also related to the Predecessor Company’s planned acquisition of five properties located in Massachusetts. A subsidiary of the Predecessor Company purchased loans related to these properties in 2018 for a price of $7.74 million with the expectation that the subsidiaries would acquire title to the properties and the loans would be retired. The subsidiary subsequently advanced $3.1 million under the loans to satisfy other liabilities related to the properties. The planned acquisition/settlement with the sellers/owners and/borrowers was not consummated because the underlying tenants of the properties surrendered their licenses to operate healthcare facilities on these properties.

 

The Predecessor Company intends to institute legal proceedings to collect the outstanding amount of these loans and to assert related claims against the sellers and their principals for the unpaid principal balances as well as protective advances and collection costs. In connection with enforcing their rights, in July 2022, the Company foreclosed, and (as lender) sold four of the five properties at auction for the total amount of $4.4 million. In December 2022, the Company took title on the fifth property with an estimated fair value of $1.2 million.

 

 

STRAWBERRY FIELDS REIT, INC. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 9. Equity Incentive Plan

 

The Company has adopted the 2021 Equity Incentive Plan (the “Plan”). The Plan permits the grant of both options qualifying under Section 422 of the Internal Revenue Code (“incentive stock options”) and options not so qualifying, and the grant of stock appreciation rights, stock awards, incentive awards, performance units, and other equity-based awards. A total of 250,000 shares have been authorized to be granted under the Plan.

 

As of December 31, 2023, and 2022, 225,100 shares were available for grant. No shares were issued during the years ended December 31, 2023 and 2022.

 

NOTE 10. Stockholders’ Equity and Distributions

 

The Company elected and qualified to be treated as a REIT commencing with the taxable year ending December 31, 2022. U.S. federal income tax law requires that a REIT distribute annually at least 90% of its net taxable income, excluding net capital gains, and that it pays tax at regular corporate rates to the extent that it annually distributes less than 100% of its net taxable income, including net capital gains. In addition, a REIT is required to pay a 4% nondeductible excise tax on the amount, if any, by which the distributions that it makes in a calendar year are less than the sum of 85% of its ordinary income, 95% of its capital gain net income and 100% of its undistributed income from prior years.

 

On November 9, 2023 the Board of Directors authorized the repurchase of up to $5 million of the Company’s common stock. As of December 31st, 2023 the Company purchased 5,953 shares of common stock at an average price per share of $7.84 and an aggregate repurchase priced of $46,000.

 

As of December 31, 2023, there were a total of 6,487,856 shares of common stock issued and outstanding. The outstanding shares were held by a total of approximately 812 stockholders of record, including certain affiliates of the Company who held 938,722 of these shares.

 

At December 31, 2023 there were 45,373,615 OP units outstanding. Under the terms of the Operating Partnership agreement, such holders have the right to request the redemption of their OP units, in cash. If a holder requests redemption, the Company will have the option of issuing shares of common stock to the requesting holder instead of cash. In addition, OP unit holders are required to obtain Company approval prior to the sale or transfer of any or all of such OP unit holders’ interest.

 

In addition, the Company has reserved a total of 45,373,615 shares of common stock that may be issued, at the Company’s option, upon redemption of the OP units outstanding as of December 31, 2023.

 

 

STRAWBERRY FIELDS REIT, INC. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 11. Related Party Transactions and Economic Dependence

 

The following entities and individuals are considered to be Related Parties:

 

Moishe Gubin	Chairman of the Board
Michael Blisko	Director
Nahman Eingal	Former Chief Financial Officer
Operating entities	See list below

 

Lease Agreements with Related Parties

 

As of December 31, 2023 and 2022, each of the Company’s facilities were leased and operated by separate tenants. Each tenant is an entity that leases the facility from one of the Company’s subsidiaries and operates the facility as a healthcare facility. The Company had 64 tenants out of 107 who were related parties as of December 31, 2023 and 41 tenants out of 79 who were related parties as of December 31, 2022. Most of the lease agreements are triple net leases.

 

On April 4, 2022, an affiliated tenant in Illinois notified the Company of its intent to default with respect to two master lease agreements. Each lease included three nursing home facilities with a combined rent of $225,000 per month, or $2.7 million annually. Default occurred on June 30, 2022, and the Company recognized a loss of $1,075,000 due to the write-offs of straight-line rent receivables during the year ended December 31, 2022. On July 1, 2022, the Company entered into new lease agreements with an unaffiliated third-party operator to lease these properties. The new leases have terms of 10 years each and provide for a combined average base rent of $180,000 per month, or $2.3 million per year, on average, over the life of the leases. In February 2023 one facility under this master lease was closed. The closure was a result of the tenant request and mainly for efficiency reasons. This facility is under a master lease with 5 other facilities and the rent payment is continuing with no interruption and at the same amount.

 

The following table sets forth details of the lease agreements in force between the Company and its subsidiaries and lessees that are related parties:

 Schedule of Related Party Transactions

							(1)(2)				(1)(2)
						Related Party Ownership in Manager/Tenant/ Operator (1) (2)
State		Lessor/ Company Subsidiary		Tenant/ Operator		Moishe Gubin/Gubin Enterprises LP				Michael Blisko/Blisko Enterprises LP				Average annual rent over life of lease				Annual Escalation				% of total rent				Lease maturity		Extension options
		Master Lease Indiana
IN		1020 West Vine Street Realty, LLC		The Waters of Princeton II, LLC			49.49	%			50.51	%		$	1,045,506				3.00	%			1.07	%		8/1/2025		2 five year
IN		12803 Lenover Street Realty LLC		The Waters of Dillsboro – Ross Manor II LLC			49.49	%			50.51	%			1,353,655				3.00	%			1.39	%		8/1/2025		2 five year
IN		1350 North Todd Drive Realty, LLC		The Waters of Scottsburg II LLC			49.49	%			50.51	%			1,089,527				3.00	%			1.12	%		8/1/2025		2 five year
IN		1600 East Liberty Street Realty LLC		The Waters of Covington II LLC			49.49	%			50.51	%			1,309,634				3.00	%			1.35	%		8/1/2025		2 five year
IN		1601 Hospital Drive Realty LLC		The Waters of Greencastle II LLC			49.49	%			50.51	%			1,100,532				3.00	%			1.13	%		8/1/2025		2 five year
IN		1712 Leland Drive Realty, LLC		The Waters of Huntingburg II LLC			49.49	%			50.51	%			1,045,506				3.00	%			1.07	%		8/1/2025		2 five year
IN		2055 Heritage Drive Realty LLC		The Waters of Martinsville II LLC			49.49	%			50.51	%			1,133,548				3.00	%			1.16	%		8/1/2025		2 five year
IN		3895 South Keystone Avenue Realty LLC		The Waters of Indianapolis II LLC			49.49	%			50.51	%			891,431				3.00	%			0.92	%		8/1/2025		2 five year
IN		405 Rio Vista Lane Realty LLC		The Waters of Rising Sun II LLC			49.49	%			50.51	%			638,309				3.00	%			0.66	%		8/1/2025		2 five year
IN		950 Cross Avenue Realty LLC		The Waters of Clifty Falls II LLC			49.49	%			50.51	%			1,518,735				3.00	%			1.56	%		8/1/2025		2 five year
IN		958 East Highway 46 Realty LLC		The Waters of Batesville II LLC			49.49	%			50.51	%			946,458				3.00	%			0.97	%		8/1/2025		2 five year
IN		2400 Chateau Drive Realty, LLC		The Waters of Muncie II LLC			49.49	%			50.51	%			792,383				3.00	%			0.81	%		8/1/2025		2 five year
IN		The Big H2O LLC		The Waters of New Castle II LLC			49.49	%			50.51	%			726,351				3.00	%			0.75	%		8/1/2025		2 five year

 

 

STRAWBERRY FIELDS REIT, INC. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 11. Related Party Transactions and Economic Dependence (cont.)

 

Lease Agreements with Related Parties (cont.)

 

							(1)(2)				(1)(2)
						Related Party Ownership in Manager/Tenant/ Operator (1) (2)
State		Lessor / Company Subsidiary		Tenant/ Operator		Moishe Gubin/Gubin Enterprises LP				Michael Blisko/Blisko Enterprises LP				Average annual rent over life of lease				Annual Escalation				% of total rent				Lease maturity		Extension options
		Master Lease Tennessee
TN		115 Woodlawn Drive, LLC		Lakebridge, a Waters Community, LLC			50.00	%			50.00	%			1,514,820				3.00	%			1.55	%		8/1/2031		2 five year
TN		146 Buck Creek Road, LLC		The Waters of Roan Highlands, LLC			50.00	%			50.00	%			1,111,794				3.00	%			1.14	%		8/1/2031		2 five year
TN		704 5th Avenue East, LLC		The Waters of Springfield, LLC			50.00	%			50.00	%			917,230				3.00	%			0.94	%		8/1/2031		2 five year
TN		2501 River Road, LLC		The Waters of Cheatham, LLC			50.00	%			50.00	%			1,111,794				3.00	%			1.14	%		8/1/2031		2 five year
TN		202 Enon Springs Road East, LLC		The Waters of Smyrna, LLC			50.00	%			50.00	%			1,264,666				3.00	%			1.30	%		8/1/2031		2 five year
TN		140 Technology Lane, LLC		The Waters of Johnson City, LLC			50.00	%			50.00	%			1,167,384				3.00	%			1.20	%		8/1/2031		2 five year
TN		835 Union Street, LLC		The Waters of Shelbyville, LLC			50.00	%			50.00	%			1,334,153				3.00	%			1.37	%		8/1/2031		2 five year
		Master Lease Tennessee 2
TN		505 North Roan, LLC		Agape Rehabilitation & Nursing Center, A Water’s Community LLC			50.00	%			50.00	%			1,628,910				3.00	%			1.67	%		7/1/2031		2 five year
TN		14510 Highway 79, LLC		Waters of McKenzie, A Rehabilitation & Nursing Center, LLC			50.00	%			50.00	%			1,279,858				3.00	%			1.31	%		7/1/2031		2 five year
TN		6500 Kirby Gate Boulevard, LLC		Waters of Memphis, A Rehabilitation & Nursing Center, LLC			50.00	%			50.00	%			1,745,261				3.00	%			1.79	%		7/1/2031		2 five year
TN		978 Highway 11 South, LLC		Waters of Sweetwater, A Rehabilitation & Nursing Center, LLC			50.00	%			50.00	%			1,745,261				3.00	%			1.79	%		7/1/2031		2 five year
TN		2830 Highway 394, LLC		Waters of Bristol, A Rehabilitation & Nursing Center, LLC			50.00	%			50.00	%			2,327,014				3.00	%			2.38	%		7/1/2031		2 five year

 

 

STRAWBERRY FIELDS REIT, INC. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 11. Related Party Transactions and Economic Dependence (cont.)

 

Lease Agreements with Related Parties (cont.)

 

							(1)(2)				(1)(2)
						Related Party Ownership in Manager/Tenant/ Operator (1) (2)
State		Lessor/ Company Subsidiary		Tenant/ Operator		Moishe Gubin/Gubin Enterprises LP				Michael Blisko/Blisko Enterprises LP				Average annual rent over life of lease				Annual Escalation		% of total rent				Lease maturity				Extension options
		Master Lease Indiana 2
IN		8400 Clearvista Place LLC		The Waters of Castleton SNF, LLC			50.00	%			50.00	%			804,694			Varies(3)(4)			0.83	%			2029			One 3 years and two 5 years
IN		524 Anderson Road LLC		The Waters of Chesterfield SNF, LLC			50.00	%			50.00	%			423,523			Varies(3)(4)			0.43	%			2029			One 3 years and two 5 years
IN		640 West Ellsworth Street LLC		The Waters of Columbia City SNF, LLC			50.00	%			50.00	%			592,933			Varies(3)(4)			0.61	%			2029			One 3 years and two 5 years
IN		11563 West 300 South LLC		The Waters of Dunkirk SNF, LLC			50.00	%			50.00	%			324,701			Varies(3)(4)			0.33	%			2029			One 3 years and two 5 years
IN		5544 East State Boulevard LLC		The Waters of Fort Wayne SNF, LLC			50.00	%			50.00	%			543,522			Varies(3)(4)			0.56	%			2029			One 3 years and two 5 years
IN		548 South 100 West LLC		The Waters of Hartford City SNF, LLC			50.00	%			50.00	%			458,817			Varies(3)(4)			0.47	%			2029			One 3 years and two 5 years
IN		2901 West 37th Avenue LLC		The Waters of Hobart SNF, LLC			50.00	%			50.00	%			776,459			Varies(3)(4)			0.80	%			2029			One 3 years and two 5 years
IN		1500 Grant Street LLC		The Waters of Huntington SNF, LLC			50.00	%			50.00	%			599,991			Varies(3)(4)			0.62	%			2029			One 3 years and two 5 years
IN		787 North Detroit Street LLC		The Waters of LaGrange SNF, LLC			50.00	%			50.00	%			705,872			Varies(3)(4)			0.72	%			2029			One 3 years and two 5 years
IN		981 Beechwood Avenue LLC		The Waters of Middletown SNF, LLC			50.00	%			50.00	%			423,523			Varies(3)(4)			0.43	%			2029			One 3 years and two 5 years
IN		317 Blair Pike LLC		The Waters of Peru SNF, LLC			50.00	%			50.00	%			917,634			Varies(3)(4)			0.94	%			2029			One 3 years and two 5 years
IN		815 West Washington Street LLC		The Waters of Rockport SNF			50.00	%			50.00	%			423,523			Varies(3)(4)			0.43	%			2029			One 3 years and two 5 years
IN		612 East 11th Street LLC		The Waters of Rushville SNF			50.00	%			50.00	%			691,755			Varies(3)(4)			0.71	%			2029			One 3 years and two 5 years

 

 

STRAWBERRY FIELDS REIT, INC. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 11. Related Party Transactions and Economic Dependence (cont.)

 

Lease Agreements with Related Parties (cont.)

 

							(1)(2)				(1)(2)
						Related Party Ownership in Manager/Tenant/ Operator (1) (2)
State		Lessor/ Company Subsidiary		Tenant/ Operator		Moishe Gubin/Gubin Enterprises LP				Michael Blisko/Blisko Enterprises LP				Average annual rent over life of lease				Annual Escalation		% of total rent				Lease maturity				Extension options
IN		505 West Wolfe Street LLC		The Waters of Sullivan SNF			50.00	%			50.00	%			656,461			Varies(3)(4)			0.67	%			2029			One 3 years and two 5 years
IN		500 East Pickwick Drive LLC		The Waters of Syracuse SNF			50.00	%			50.00	%			465,876			Varies(3)(4)			0.48	%			2029			One 3 years and two 5 years
IN		300 Fairgrounds Road LLC		The Waters of Tipton SNF			50.00	%			50.00	%			1,058,808			Varies(3)(4)			1.09	%			2029			One 3 years and two 5 years
IN		1900 Alber Street LLC		The Waters of Wabash SNF East			50.00	%			50.00	%			592,933			Varies(3)(4)			0.61	%			2029			One 3 years and two 5 years
IN		1720 Alber Street LLC		The Waters of Wabash SNF West			50.00	%			50.00	%			310,584			Varies(3)(4)			0.32	%			2029			One 3 years and two 5 years
IN		300 North Washington Street LLC		The Waters of Wakarusa SNF			50.00				50.00	%			938,810			Varies(3)(4)			0.96	%			2029			One 3 years and two 5 years
IN		8400 Clearvista Place LLC		The Waters of Castleton ALF, LLC			50.00				50.00	%			381,171			Varies(3)(4)			0.39	%			2029			One 3 years and two 5 years
IN		787 North Detroit Street LLC		The Waters of LaGrange ALF, LLC			50.00				50.00	%			119,998			Varies(3)(4)			0.12	%			2029			One 3 years and two 5 years
IN		612 East 11th Street LLC		The Waters of Rushville ALF, LLC			50.00				50.00	%			204,703			Varies(3)(4)			0.21	%			2029			One 3 years and two 5 years
IN		505 West Wolfe Street LLC		The Waters of Sullivan ALF, LLC			50.00				50.00	%			225,879			Varies(3)(4)			0.23	%			2029			One 3 years and two 5 years
IN		300 North Washington Street LLC		The Waters of Wakarusa ALF, LLC			50.00				50.00	%			430,582			Varies(3)(4)			0.44	%			2029			One 3 years and two 5 years

 

 

STRAWBERRY FIELDS REIT, INC. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 11. Related Party Transactions and Economic Dependence (cont.)

 

Lease Agreements with Related Parties (cont.)

 

							(1)(2)				(1)(2)
						Related Party Ownership in Manager/Tenant/ Operator (1) (2)
State		Lessor/ Company Subsidiary		Manager/ Tenant/ Operator		Moishe Gubin/Gubin Enterprises LP				Michael Blisko/Blisko Enterprises LP				Average Annual rent over life of lease				Annual Escalation				% of total rent				Lease maturity		Extension options
IL		516 West Frech Street, LLC		Parker Rehab & Nursing Center, LLC			50.00	%			50.00	%			498,351				Varies between $12,000 and $24,000 annually				0.51	%		3/31/2031		None
IN		1316 North Tibbs Avenue Realty, LLC		Westpark A Waters Community, LLC			50.00	%			50.00	%			549,885				3.00	%			0.56	%		6/1/2024		2 five year
IL		Ambassador Nursing Realty, LLC		Ambassador Nursing and Rehabilitation Center II, LLC			40.00	%			40.00	%			1,005,313				3.00	%			1.03	%		2/28/2026		2 five year
IL		Momence Meadows Realty, LLC		Momence Meadows Nursing and Rehabilitation Center, LLC			50.00	%			50.00	%			1,038,000				None				1.07	%		12/30/2025		None
IL		Forest View Nursing Realty, LLC		Forest View Rehabilitation and Nursing Center, LLC			50.00	%			50.00	%			1,215,483				3.00	%			1.25	%		12/1/2024		2 five year
IL		Lincoln Park Holdings, LLC		Lakeview Rehabilitation and Nursing Center, LLC			40.00	%			40.00	%			1,260,000				None				1.29	%		5/31/2031		None
IL		Continental Nursing Realty, LLC		Continental Nursing and Rehabilitation Center, LLC			40.00	%			40.00	%			1,575,348				None				1.62	%		3/1/2031		None
IL		Westshire Nursing Realty, LLC		City View Multicare Center, LLC			50.00	%			50.00	%			1,788,365				3.00	%			1.84	%		9/1/2025		2 five year
IL		Belhaven Realty, LLC		Belhaven Nursing and Rehabilitation Center, LLC			50.00	%			50.00	%			2,134,570				3.00	%			2.19	%		2/28/2026		2 five year
IL		West Suburban Nursing Realty, LLC		West Suburban Nursing and Rehabilitation Center, LLC			40.00	%			40.00	%			1,961,604				None				2.01	%		11/1/2027		None
IN		1585 Perry Worth Road, LLC		The Waters of Lebanon, LLC			50.00	%			50.00	%			116,678				3.00	%			0.12	%		6/1/2027		2 five year
IL		Niles Nursing Realty LLC		Niles Nursing & Rehabilitation Center LLC			50.00	%			50.00	%			2,409,998				3.00	%			2.48	%		2/28/2026		2 five year
IL		Parkshore Estates Nursing Realty, LLC		Parkshore Estates Nursing and Rehabilitation Center, LLC			50.00	%			50.00	%			2,454,187				3.00	%			2.52	%		12/1/2024		2 five year
IL		Midway Neurological and Rehabilitation Realty, LLC		Midway Neurological and Rehabilitation Center, LLC			50.00	%			50.00	%			2,547,713				3.00	%			2.62	%		2/28/2026		2 five year
IL		Oak Lawn Nursing Realty, LLC		Oak Lawn Respiratory and Rehab center, LLC			50.00	%			50.00	%		$	637,092				None				0.65	%		6/1/2031		None

 

 

STRAWBERRY FIELDS REIT, INC. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 11. Related Party Transactions and Economic Dependence (cont.)

 

Lease Agreements with Related Parties (cont.)

 

(1)	The interests of the two listed related parties are not held through any commonly owned holding companies. Mr. Gubin’s interests are held directly/indirectly by Gubin Enterprises LP. Mr. Blisko’s interests are held by Blisko Enterprises LP and New York Boys Management, LLC.
(2)	Each of the tenants is a limited liability company. The percentages listed reflect the owners’ percentage ownership of the outstanding membership interests in each tenant.
(3)	For the initial two years of the lease there is no escalation, commencing with year three the escalation will be 22.3%, year four the escalation will be 22.8% and for years 5 through maturity the annual escalation will be 2%.
(4)	The tenants have an option to buy the properties after 6 years for $127 million.

 

Guarantees from Related Parties

 

As of December 31, 2023 and 2022, Mr. Gubin and Mr. Blisko were not parties to any guarantees of any debt of the Company and its subsidiaries.

 

Balances with Related Parties

 Schedule of Balances with Related Parties

		2023				2022
		December 31,
		2023				2022
		(amounts in $000s)
Straight-line rent receivable		$	18,921			$	11,591
Tenant portion of replacement reserve		$	9,683			$	10,227
Notes receivable		$	7,075			$	7,816

 

Payments from Related Parties

 Schedule of Payments From and to Related Parties

		2023				2022
		Years ended December 31,
		2023				2022
		(amounts in $000s)
Rental income received from related parties		$	56,988			$	54,386

 

 

STRAWBERRY FIELDS REIT, INC. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 11. Related Party Transactions and Economic Dependence (cont.)

 

Other Related Party Relationships

 

On December 31, 2023 and 2022, the Company had approximately $1.2 million and $4.7 million, respectively, on deposit with OptimumBank. Mr. Gubin is the Chairman of the Board of OptimumBank.

 

On June 14, 2022, the Company purchased a 7% note receivable with an outstanding balance of $8 million from Infinity Healthcare Management, a company controlled by Mr. Blisko and Mr. Gubin. The note is interest only with a balloon payment due July 1, 2024. The note receivable is due from certain unaffiliated tenants.

 

NOTE 12. Income Taxes

 

The Company elected and qualified to be taxed as a REIT for federal income tax purposes.

 

As a REIT, the Company generally is not subject to federal income tax on its net taxable income that it distributes currently to its stockholders. Under the Code, REITs are subject to numerous organizational and operational requirements, including a requirement that they distribute each year at least 90% of their REIT taxable income, determined without regard to the deduction for dividends paid and excluding any net capital gains. If the Company fails to qualify for taxation as a REIT in any taxable year and does not qualify for certain statutory relief provisions, the Company’s income for that year will be taxed at regular corporate rates, and the Company would be disqualified from taxation as a REIT for the four taxable years following the year during which the Company ceased to qualify as a REIT. Even if the Company qualifies as a REIT for federal income tax purposes, it may still be subject to state and local taxes on its income and assets and to federal income and excise taxes on its undistributed income.

 

The Company follows accounting guidance relating to accounting for uncertainty in income taxes, which sets out a consistent framework to determine the appropriate level of tax reserves to maintain for uncertain tax positions.

 

A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than fifty percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-than-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgment. Management is not aware of any uncertain tax positions that would have material effect on the Company’s consolidated financial statements.

 

 

STRAWBERRY FIELDS REIT, INC. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 13. Fair Value of Financial Instruments

 

The Company is required to disclose the fair value of financials instruments for which it is practicable to estimate that value. The fair value of short-term financial instruments such as cash and cash equivalents, restricted cash, accounts payable and accrued expenses approximate their carrying value on the consolidated balance sheets due to their short-term nature. The Company’s foreclosed real estate is recorded at fair value on a non-recurring basis and is included in real estate investments on the consolidated balance sheets. Estimates of fair value are determined based on a variety of information, including the use of available appraisals, estimates of market values by licensed appraisers or local real estate brokers and knowledge and experience of management. The fair values of the Company’s remaining financial instruments that are not reported at fair value on the consolidated balance sheets are reported below:

Schedule of Fair Value on the Consolidated Balance Sheets 

					December 31,
					2023								2022
(amounts in $000s)		Level			Carrying Amount				Fair Value				Carrying Amount				Fair Value
Notes payable, other debt, and bonds		3			$	539,145				533,055			$	455,415				454,523
Notes receivable		3			$	17,706				17,460			$	19,419				18,479

 

The fair value of the notes payable, other debt, bonds and notes receivable are estimated using a discounted cash flow analysis.

 

NOTE 14. Subsequent Events

 

On February 8 2024, the BVI Company issued additional Series D Bonds with a par value of NIS 100.0 million and raised a net amount of $26.7 million (NIS 98.2 million). The Bonds were issued at a price of 106.3%.

 

On February 20, 2024 the Company entered into a new, replacement master lease for the properties included in the Indiana acquisition completed in August of 2023. The tenant remains a group of tenants affiliated with two of the Company’s directors, Moishe Gubin and Michael Blisko. The new master lease has an initial term of ten years and is subject to 2 five-year extensions. The initial annual base rent for the properties is $14.5 million dollars and is subject to annual increases of 3%. In connection with the new master lease, the existing purchase option held by the tenant, which was granted by the prior owner of the properties, of $127.0 million was terminated. Consideration for the termination of the purchase option and inducement for entering into the new, replacement master lease was $18.0 million paid to the tenants. The $18.0 million payment was funded by cash and the proceeds from the additional Series D Bond issuance in February 2024.

 

NOTE 15. Financing Income (Expenses), Net

Schedule of Financing Income (Expenses), Net 

		2023				2022
		Year ended December 31,
		2023				2022
		(Amounts in $000’s)
Financing expenses
Interest expenses with respect to bonds		$	(6,669	)		$	(7,062	)
Interest expenses on loans from banks and others			(18,693	)			(14,071	)
Interest expenses with respect to leases			(73	)			(80	)
Other financing expenses (including related parties), net			(275	)			(95	)
Total financing expenses		$	(25,710	)		$	(21,308	)
Financing income		$	1,267			$	801
Interest Expense, Net		$	(24,443	)		$	(20,507	)

 

 

STRAWBERRY FIELDS REIT, INC. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  

STRAWBERRY FIELDS REIT, Inc. and Subsidiaries

Schedule III

Real Estate and Accumulated Depreciation

 

Property		Location			Property			Land				lease assets				SEC Schedule, 12-28, Real Estate Companies, Investment in Real Estate and Accumulated Depreciation, Initial Cost of Furniture Fixtures And Equipment				Land				lease assets				SEC Schedule, 12-28, Real Estate Companies, Investment in Real Estate and Accumulated Depreciation, Gross Amount Of Furniture Fixtures And Equipment				Total				Depreciation				Construction				Acquired
								Initial Cost to Company												Gross Amount at Which Carried at Close of Period
												Building and												Building and
												Improvements				Furniture,								Improvements				Furniture,
												and				fixtures,								and				fixtures,
					Type of							Intangible				and								Intangible				and								Accumulated				Date of				Date
Property		Location			Property			Land				lease assets				equipment				Land				lease assets				equipment				Total				Depreciation				Construction				Acquired
1020 West Vine St, LLC		IN			SNF			$	73,704				5,373,301				552,994			$	73,704				5,373,301				552,994				5,999,999				2,014,053				1968				5/1/2015
12803 Lenover Street Realty, LLC		IN			SNF				749,235				11,715,266				707,200				749,235				11,715,266				707,200				13,171,701				5,261,743				1898				12/28/2012
1600 East Liberty Street Realty, LLC		IN			SNF				226,684				8,613,047				684,202				226,684				8,613,047				684,202				9,523,933				3,670,929				1973				12/28/2012
1601 Hospital Dr Realty, LLC		IN			SNF				374,029				6,536,475				574,959				374,029				6,536,475				574,959				7,485,463				2,809,600				1981				12/28/2012
2055 Heritage Dr Realty, LLC		IN			SNF				397,029				6,567,012				592,208				397,029				6,567,012				592,208				7,556,249				2,960,970				1978				12/28/2012
3895 Keystone Ave Realty, LLC		IN			SNF				905,829				5,401,715				465,715				905,829				5,401,715				465,715				6,773,259				2,354,758				1985				12/28/2012
405 Rio Vista Lane Realty, LLC		IN			SNF				851,889				3,190,949				277,894				851,889				3,190,949				277,894				4,320,732				1,845,377				1965				12/28/2012
950 Cross Ave Realty, LLC		IN			SNF				1,055,229				8,223,435				793,445				1,055,229				8,223,435				793,445				10,072,109				3,733,139				1972				12/28/2012
958 East Highway 46 Realty, LLC		IN			SNF				1,424,142				12,353,018				494,464				1,424,142				12,353,018				494,464				14,271,624				4,798,322				1975				12/28/2012
1350 North Todd St, LLC		IN			SNF				76,959				3,151,485				371,556				76,959				3,151,485				371,556				3,600,000				1,876,239				1976				12/28/2012
1712 Leland Drive Realty, LLC		IN			SNF				158,995				5,399,959				441,046				158,995				5,399,959				441,046				6,000,000				2,517,249				1977				5/1/2015
253 Bradington Drive, LLC		IL			SNF				533,575				6,030,915				535,510				533,575				6,030,915				535,510				7,100,000				3,288,680				1993				4/1/2011
1621 Coit Road Realty, LLC		TX			SNF				1,466,005				6,428,360				771,979				1,466,005				6,428,360				771,979				8,666,344				3,628,307				1977				7/1/2015
8200 National Ave Realty, LLC		OK			SNF/LTACH				1,941,555				8,519,002				781,484				1,941,555				8,519,002				781,484				11,242,041				3,194,366				1989				7/1/2015
2301 North Oregon Realty, LLC		TX			SNF/LTACH				460,109				9,224,188				1,017,263				460,109				9,224,188				1,017,263				10,701,560				3,841,287				1970				7/1/2015
5601 Plum Creek Drive Realty, LLC		TX			SNF/LTACH				1,110,560				8,585,477				694,019				1,110,560				8,585,477				694,019				10,390,056				3,783,211				1985				7/1/2015
107 South Lincoln Street LLC		IL			SNF				69,401				3,401,111				488,487				-				-				-				-				-				1974				11/26/2014
1623 West Delmar Ave, LLC		IL			SNF				369,094				2,188,077				257,828				369,094				2,188,077				257,828				2,814,999				1,220,542				1962				11/26/2014
393 Edwardsville Road LLC		IL			SNF				251,415				3,426,747				387,838				251,415				3,426,747				387,838				4,066,000				1,816,879				1971				11/26/2014
911 South 3rd St Realty LLC		MI			SNF				289,936				4,022,959				387,105				289,936				4,022,959				387,105				4,700,000				1,911,642				1969				5/22/2015
516 West Frech St, LLC		IL			SNF				85,518				1,697,527				266,955				85,518				1,697,527				266,955				2,050,000				1,720,303				1974				9/28/2011
1316 North Tibbs Avenue Realty LLC		IN			SNF				323,226				2,940,959				335,816				323,226				2,940,959				335,816				3,600,001				1,588,690				1976				6/1/2014

 

 

Property		Location			Property			Land				lease assets				SEC Schedule, 12-28, Real Estate Companies, Investment in Real Estate and Accumulated Depreciation, Initial Cost of Furniture Fixtures And Equipment				Land				lease assets				SEC Schedule, 12-28, Real Estate Companies, Investment in Real Estate and Accumulated Depreciation, Gross Amount Of Furniture Fixtures And Equipment				Total				Depreciation				Construction				Acquired
								Initial Cost to Company												Gross Amount at Which Carried at Close of Period
												Building and												Building and
												Improvements				Furniture,								Improvements				Furniture,
												and				fixtures,								and				fixtures,
					Type of							Intangible				and								Intangible				and								Accumulated				Date of				Date
Property		Location			Property			Land				lease assets				equipment				Land				lease assets				equipment				Total				Depreciation				Construction				Acquired
3090 Five Points Hartford Realty, LLC		OH			SNF				114,614				1,348,246				155,890				114,614				1,348,246				155,890				1,618,750				1,286,468				1950				8/1/2015
3121 Glanzman Rd Realty, LLC		OH			SNF				211,543				2,977,780				329,427				211,543				2,977,780				329,427				3,518,750				1,802,967				1959				8/1/2015
620 West Strub Rd Realty, LLC		OH			SNF				140,266				2,785,910				192,574				140,266				2,785,910				192,574				3,118,750				1,655,313				1978				8/1/2015
4250 Sodom Hutchings Road Realty, LLC		OH			SNF				41,548				581,176				96,026				41,548				581,176				96,026				718,750				645,233				1975				8/1/2015
Ambassador Nursing Realty, LLC		IL			SNF				2,344,176				5,891,870				991,190				2,344,176				5,891,870				991,190				9,227,236				4,030,513				1976				4/1/2008
Momence Meadows Realty, LLC		IL			SNF				185,405				5,861,271				703,325				185,405				5,861,271				703,325				6,750,001				3,888,263				1974				8/2/2006
Oak Lawn Nursing Realty, LLC		IL			SNF				808,226				3,388,277				403,497				808,226				3,388,277				403,497				4,600,000				2,506,459				1964				4/30/2012
Forest View Nursing Realty, LLC		IL			SNF				392,245				6,288,479				819,276				392,245				6,288,479				819,276				7,500,000				2,850,300				1975				11/25/2013
Lincoln Park Holdings, LLC		IL			SNF				4,322,851				6,815,753				861,396				4,322,851				6,815,753				861,396				12,000,000				2,994,356				1973				11/26/2014
Continental Realty, LLC		IL			SNF				3,392,263				6,659,835				720,666				3,392,263				6,659,835				720,666				10,772,764				4,960,374				1976				4/2/2008
Westshire Realty, LLC		IL			SNF				356,185				22,165,811				2,253,929				356,185				22,165,811				2,253,929				24,775,925				10,001,998				1974				7/26/2013
Belhaven Realty, LLC		IL			SNF				2,298,858				7,026,385				924,756				2,298,858				7,026,385				924,756				10,249,999				6,144,461				1985				6/1/2006
West Suburban Nursing Realty, LLC		IL			SNF				1,061,095				11,501,970				1,336,935				1,061,095				11,501,970				1,336,935				13,900,000				6,874,212				1975				11/2/2007
Niles Nursing Realty, LLC		IL			SNF				3,115,279				21,168,943				1,715,779				3,115,279				21,168,943				1,715,779				26,000,001				9,744,838				1974				8/25/2012
Parkshore Estates Nursing Realty, LLC		IL			SNF				450,232				18,186,687				1,747,280				450,232				18,186,687				1,747,280				20,384,199				6,931,505				1975				2/5/2015
Midway Neurological and Rehab Realty, LLC		IL			SNF				1,436,736				15,856,182				1,707,081				1,436,736				15,856,182				1,707,081				18,999,999				11,700,105				1972				4/1/2005
115 Woodlawn Drive, LLC		TN			SNF				1,130,269				9,411,746				930,933				1,130,269				9,411,746				930,933				11,472,949				3,391,512				1995				8/1/2016
146 Buck Creek Road, LLC		TN			SNF				829,555				6,907,704				683,254				829,555				6,907,704				683,254				8,420,513				2,489,183				1997				8/1/2016
704 5th Avenue East, LLC		TN			SNF				684,383				5,698,856				563,684				684,383				5,698,856				563,684				6,946,923				2,053,576				1964				8/1/2016
2501 River Road, LLC		TN			SNF				829,555				6,907,704				683,254				829,555				6,907,704				683,254				8,420,513				2,489,183				1964				8/1/2016
202 Enon Springs East, LLC		TN			SNF				943,619				7,857,513				777,201				943,619				7,857,513				777,201				9,578,333				2,831,446				1974				8/1/2016
140 Technology Lane, LLC		TN			SNF				871,033				7,253,089				717,416				871,033				7,253,089				717,416				8,841,538				2,613,643				2007				8/1/2016
835 Union Street, LLC		TN			SNF				995,467				8,289,244				819,904				995,467				8,289,244				819,904				10,104,615				2,987,020				1962				8/1/2016
308 West Maple Avenue, LLC		KY			SNF				995,467				8,289,244				819,904				995,467				8,289,244				819,904				10,104,615				2,987,020				1970				8/1/2016
Big H2O - Land Rising Sun		IN							772,847				-				-				772,847				-				-				772,847				-								12/1/2012
1585 Perry Worth, LLC		IN			SNF				98,516				820,342				81,142				98,516				820,342				81,142				1,000,000				252,175				1967				7/17/2017
1155 Eastern Parkway, LLC		KY			SNF				1,147,712				18,894,131				1,708,157				1,147,712				18,894,131				1,708,157				21,750,000				5,314,614				1973				9/1/2017
1015 Magazine Street, LLC		KY			SNF				2,750,000				3,060,000				690,000				2,750,000				3,060,000				690,000				6,500,000				3,067,130				1981				5/1/2018
5301 Wheeler Avenue, LLC		AR			SNF				400,000				3,147,874				877,500				400,000				3,147,874				877,500				4,425,374				2,114,491				1967				8/29/2018
414 Massey Avenue, LLC		AR			SNF				125,000				845,359				240,000				125,000				845,359				240,000				1,210,359				588,788				1994				8/29/2018
706 Oak Grove Street, LLC		AR			SNF				300,000				2,641,399				727,500				300,000				2,641,399				727,500				3,668,899				1,652,599				1965				8/29/2018
8701 Riley Dr., LLC		AR			SNF				950,000				3,295,319				1,050,000				950,000				3,295,319				1,050,000				5,295,319				2,924,477				1979				8/29/2018
1516 Cumberland Street, LLC		AR			SNF				325,000				3,313,843				900,000				325,000				3,313,843				900,000				4,538,843				1,830,482				1971				8/29/2018
5720 West Markham Street, LLC		AR			SNF				600,000				4,069,851				1,155,000				600,000				4,069,851				1,155,000				5,824,851				1,893,030				1973				8/29/2018
2501 John Ashley Dr.,LLC		AR			SNF				550,000				3,695,319				1,050,000				550,000				3,695,319				1,050,000				5,295,319				3,110,291				1969				8/29/2018
1513 S. Dixieland Road, LLC		AR			SNF				275,000				3,060,608				825,000				275,000				3,060,608				825,000				4,160,608				1,786,912				1968				8/29/2018
826 North Street, Stamps, LLC		AR			SNF				225,000				2,625,428				705,000				225,000				2,625,428				705,000				3,555,428				1,493,959				1971				8/29/2018
900 Gagel Avenue, LLC		KY			SNF				1,250,000				2,390,000				360,000				1,250,000				2,390,000				360,000				4,000,000				1,560,890				1970				8/30/2018
120 Life Care Way, LLC		KY			SNF				200,000				5,863,133				750,000				200,000				5,863,133				750,000				6,813,133				2,040,178				1974				2/19/2019
1033 North Highway 11, LLC		KY			SNF				450,000				5,976,921				795,000				450,000				5,976,921				795,000				7,221,921				1,997,941				1978				2/19/2019
945 West Russell Street, LLC		KY			SNF				350,000				6,076,921				795,000				350,000				6,076,921				795,000				7,221,921				1,843,841				1979				2/19/2019
9209 Dollarway Road, LLC		AR			SNF				500,000				5,450,000				900,000				500,000				5,450,000				900,000				6,850,000				2,611,255				2001				3/27/2019

 

 

Property		Location			Property			Land				lease assets				SEC Schedule, 12-28, Real Estate Companies, Investment in Real Estate and Accumulated Depreciation, Initial Cost of Furniture Fixtures And Equipment				Land				lease assets				SEC Schedule, 12-28, Real Estate Companies, Investment in Real Estate and Accumulated Depreciation, Gross Amount Of Furniture Fixtures And Equipment				Total				Depreciation				Construction				Acquired
								Initial Cost to Company												Gross Amount at Which Carried at Close of Period
												Building and												Building and
												Improvements				Furniture,								Improvements				Furniture,
												and				fixtures,								and				fixtures,
					Type of							Intangible				and								Intangible				and								Accumulated				Date of				Date
Property		Location			Property			Land				lease assets				equipment				Land				lease assets				equipment				Total				Depreciation				Construction				Acquired
727 North 17th St, LLC 3523 Wickenhauser, LLC		IL			SNF				613,116				3,856,645				663,640				613,116				3,856,645				663,640				5,133,401				1,494,310				1969, 1971				1/1/2019
326 Lindley Lane, LLC		AR			SNF				250,000				2,917,353				720,000				250,000				2,917,353				720,000				3,887,353				1,393,649				2001				4/10/2019
2821 West Dixon Road, LLC		AR			SNF				400,000				4,817,873				354,000				400,000				4,817,873				354,000				5,571,873				2,232,328				1950				4/10/2019
552 Golf Links Road, LLC		AR			SNF				500,000				3,511,981				912,000				500,000				3,511,981				912,000				4,923,981				1,804,188				1978				4/10/2019
9300 Ballard Road, LLC		IL			SNF				285,000				12,467,584				1,470,053				285,000				12,467,584				1,391,952				14,144,536				4,008,960				1974				6/28/2019
Land in Covington		KY			N/A				94,922				-				-				94,922				-				-				94,922				-				N/A				11/6/2015
2400 Chateau Drive Realty, LLC		IN			SNF				327,804				2,538,755				283,441				327,804				2,538,755				283,441				3,150,000				748,392				1972				11/13/2019
203 Bruce Court, LLC		KY			SNF				150,000				3,755,896				477,000				150,000				3,755,896				477,000				4,382,896				1,354,433				1972				6/1/2020
4343 Kennedy Drive LLC		IL			SNF				1,650,000				1,615,000				735,000				1,650,000				1,615,000				735,000				4,000,000				895,354				2009				10/1/2020
505 North Roan Street, LLC		TN			SNF				650,000				10,171,216				504,000				650,000				10,171,216				504,000				11,325,216				1,031,028				2005				8/25/2021
14510 Highway 79, LLC		TN			SNF				525,000				5,117,868				396,000				525,000				5,117,868				396,000				6,038,868				784,702				1969				8/25/2021
6500 Kirby Gate Boulevard, LLC		TN			SNF				1,250,000				17,345,000				405,000				1,250,000				17,345,000				405,000				19,000,000				1,376,258				2015				8/25/2021
978 Highway 11 South, LLC		TN			SNF				250,000				9,965,900				540,000				250,000				9,965,900				540,000				10,755,900				1,060,140				1966				8/25/2021
2830 Highway 394, LLC		TN			SNF				475,000				27,625,000				900,000				475,000				27,625,000				900,000				29,000,000				2,110,678				2017				8/25/2021
1253 Lake Barkley Drive, LLC		KY			SNF				175,000				4,496,940				195,000				175,000				4,496,940				195,000				4,866,940				741,121				1968				8/25/2021
1123 Rockdale		MA			Vacant				-				1,200,000				-				-				1,200,000				-				1,200,000				-
420 Jett Drive, LLC		KY			SNF				100,000				4,700,000				1,200,000				100,000				4,700,000				1,200,000				6,000,000				397,409				1971				1/5/2023
8400 Clearvista Place, LLC		IN			ALF				199,550				4,939,068				1,140,000				199,550				4,939,068				1,140,000				6,278,618				128,388				1985				8/25/2023
8400 Clearvista Place, LLC		IN			SNF				199,550				2,504,532				270,000				199,550				2,504,532				270,000				2,974,082				43,672				1985				8/25/2023
524 Anderson Road, LLC		IN			SNF				182,300				2,522,236				600,000				182,300				2,522,236				600,000				3,304,536				76,831				1984				8/25/2023
640 West Ellsworth Street, LLC		IN			SNF				36,300				3,750,050				840,000				36,300				3,750,050				840,000				4,626,350				110,609				1957				8/25/2023
11563 West 300 South LLC		IN			SNF				47,200				2,026,277				460,000				47,200				2,026,277				460,000				2,533,477				55,493				1969				8/25/2023
5544 East State Boulevard, LLC		IN			SNF				492,800				2,978,021				770,000				492,800				2,978,021				770,000				4,240,821				94,999				1964				8/25/2023
548 South 100 West, LLC		IN			SNF				86,000				2,843,914				650,000				86,000				2,843,914				650,000				3,579,914				78,190				1973				8/25/2023
2901 West 37th Avenue, LLC		IN			SNF				702,800				4,255,515				1,100,000				702,800				4,255,515				1,100,000				6,058,315				125,861				1974				8/25/2023
1500 Grant Street, LLC		IN			SNF				118,700				3,712,725				850,000				118,700				3,712,725				850,000				4,681,425				110,786				1968				8/25/2023
787 North Detroit Street, LLC		IN			ALF				50,400				4,457,159				1,000,000				50,400				4,457,159				1,000,000				5,507,559				121,242				1970				8/25/2023
787 North Detroit Street, LLC		IN			SNF				50,400				800,885				85,000				50,400				800,885				85,000				936,285				19,841				1978				8/25/2023
981 Beechwood Avenue, LLC		IN			SNF				29,600				2,674,936				600,000				29,600				2,674,936				600,000				3,304,536				72,753				1974				8/25/2023
317 Blair Pike, LLC		IN			SNF				72,800				5,787,027				1,300,000				72,800				5,787,027				1,300,000				7,159,827				170,950				1966				8/25/2023
815 West Washington Street, LLC		IN			SNF				44,100				2,660,436				600,000				44,100				2,660,436				600,000				3,304,536				78,754				1966				8/25/2023
612 East 11th Street, LLC		IN			ALF				49,650				4,367,758				980,000				49,650				4,367,758				980,000				5,397,408				128,943				1967				8/25/2023
612 East 11th Street, LLC		IN			SNF				49,650				1,402,542				145,000				49,650				1,402,542				145,000				1,597,192				34,479				1967				8/25/2023
505 West Wolfe Street, LLC		IN			ALF				86,100				4,105,930				930,000				86,100				4,105,930				930,000				5,122,030				96,432				1970				8/25/2023
505 West Wolfe Street, LLC		IN			SNF				110,200				1,492,219				160,000				110,200				1,492,219				160,000				1,762,419				23,790				1970				8/25/2023
500 East Pickwick Drive, LLC		IN			SNF				206,500				2,768,489				660,000				206,500				2,768,489				660,000				3,634,989				73,426				1986				8/25/2023
300 Fairgrounds Road, LLC		IN			SNF				94,500				6,666,839				1,500,000				94,500				6,666,839				1,500,000				8,261,339				197,104				1977				8/25/2023
1900 Alber Street, LLC		IN			SNF				819,000				2,967,350				840,000				819,000				2,967,350				840,000				4,626,350				92,839				1969				8/25/2023
1720 Alber Street, LLC		IN			SNF				360,000				1,623,326				440,000				360,000				1,623,326				440,000				2,423,326				49,430				1970				8/25/2023
300 North Washington Street, LLC		IN			SNF				90,050				5,905,004				1,330,000				90,050				5,905,004				1,330,000				7,325,054				138,164				1984				8/25/2023
300 North Washington Street, LLC		IN			ALF				90,050				2,964,561				305,000				90,050				2,964,561				305,000				3,359,611				62,463				2000				8/25/2023
Total								$	64,378,105			$	603,616,917			$	73,753,977			$	64,308,704			$	600,215,806			$	73,187,389			$	737,711,900			$	219,397,676

 

 

STRAWBERRY FIELDS REIT, INC. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The changes in total real estate and accumulated depreciation are as follows (in thousands):

 

		2023				2022
		For the year ended December 31,
		2023				2022
Cost
Balance at beginning of the year		$	633,749				632,036
Acquisitions			108,061				1,713
Disposals/other			(4,098	)			-
Balance at end of the year		$	737,712				633,749
Accumulated Depreciation
Balance at beginning of the year		$	194,838				169,308
Depreciation			26,207				25,530
Dispositions/other			(1,647	)			-
Balance at end of the year		$	219,398				194,838
Net Real Estate		$	518,314				438,911

 

The unaudited aggregate net tax value of real estate assets for federal income tax purposes as of December 31, 2023 is estimated to be $532,953,138.

 

(1) The cost of building and improvements is depreciated on a straight-line basis over the estimated useful lives of the buildings and improvements, ranging primarily from 3 to 35 years. The cost of intangible lease assets is depreciated on a straight-line basis over the initial term of the related leases, ranging primarily from 3 to 20 years. The cost of furniture, fixtures and equipment are depreciated on a straight-line basis over the estimated useful lives of the furniture, fixtures and equipment, ranging primarily from 2 to 15 years. See Note 4 to the consolidated financial statements for information on useful lives used for depreciation and amortization.

 

(2) LTACH — long-term acute care hospital, SNF — skilled nursing facility, and ALF — assisted living facility.