Strawberry Fields REIT (NYSEAMERICAN:STRW) Chairman, CEO and founder Moishe Gubin outlined the skilled nursing facility real estate investment trust’s growth strategy, lease structure and demographic outlook, emphasizing recurring rent collections and a disciplined acquisition model.
Gubin said the company owns 142 buildings, up from its first nursing home acquisition in 2003 and approximately 33 buildings in 2015. The company has grown its assets at an annual rate of roughly 8% to 9%, he said, investing between $100 million and $150 million annually across a real estate portfolio he placed at $1.6 billion.
The company is a “pure play” skilled nursing facility, or SNF, REIT, according to Gubin. It reported annualized rent of approximately $143 million and more than 15,000 licensed beds. Strawberry Fields is listed on both the New York Stock Exchange and the Tel Aviv Stock Exchange, and Gubin said it has traded publicly in New York for more than four years.
Long-Term, Triple-Net Lease Model
Gubin said Strawberry Fields typically uses 10-year leases with two five-year renewal options and 3% annual rent escalators. He said the company has collected 100% of its rents annually for the past eight years.
The leases are triple net, meaning operators are responsible for property-level operating expenses and regulatory matters. Gubin said this structure limits the REIT’s direct exposure to the operational pressures facing skilled nursing operators, including labor shortages and wage inflation.
“We don’t suffer the burden of the profits and losses,” Gubin said in response to an analyst question. “Our leases are absolute.”
Still, he said the company closely monitors tenant performance because profitable operators are important to maintaining resident care and rent payments. Strawberry Fields reviews operator financial statements monthly, visits properties twice a year and monitors capital expenditures, he said.
Gubin said tenant rent coverage stood above 2x, or closer to 2.25x. New transactions generally begin with rent coverage near 1.25x, which can reduce the portfolio average as the company adds properties, he added.
Growth, Demographics and Supply Constraints
Gubin described skilled nursing as a needs-based business supported by an aging U.S. population. He said the company’s investment premise is tied to baby boomers reaching ages where a portion will require care in facilities.
He also pointed to regulatory barriers that can limit new supply. States generally require approval through certificate-of-need, or CON, processes before a new nursing home can be built, he said. Unlike multifamily properties, where competitors can potentially develop nearby units more readily, nursing homes cannot simply be constructed next to existing facilities without state permission, according to Gubin.
The company concentrates its acquisitions in areas where it has established portfolios and can place properties into master leases, he said. Under a master lease, multiple facilities are leased together, helping support rent payments across a portfolio even if one or more individual properties face challenges.
- Sixteen operator groups manage the company’s territories, according to Gubin.
- No single operator accounts for more than 25% of revenue, he said.
- The company’s weighted average lease term is between seven and eight years, reflecting its preference for longer-duration income streams.
Gubin said Strawberry Fields has maintained a consistent underwriting approach over time, focusing on operators’ financial capacity, management experience and ability to maintain rent payments. He characterized the company’s growth as “feast or famine” at times because management will not alter its acquisition standards simply to sustain a particular pace of deals.
Financing and Capital Allocation
Strawberry Fields recently closed a $200 million line of credit, which Gubin said gives it greater flexibility to fund acquisitions before arranging permanent financing. The facility carries an interest rate of SOFR plus 275 basis points, he said.
Gubin said the company’s net debt-to-EBITDA was below 6x and its leverage was below 50%, which he estimated closer to 43% depending on property valuation assumptions. He also said the company refinanced debt maturities and does not face a significant maturity until 2029; that debt includes two one-year extension options.
Addressing interest-rate risk, Gubin said a one-percentage-point increase in rates would add roughly $3 million of expense on $330 million of debt priced at SOFR plus 275 basis points. He compared that amount with approximately $75 million in free cash flow before the company’s current-year activity.
Gubin said the REIT had just under $74 million in adjusted funds from operations, or AFFO, a cash-flow metric commonly used by REITs. He said the company distributes about half of its cash flow through dividends and retains the remainder for growth, while also paying down $20 million to $25 million of debt annually.
That retained capital and debt capacity can support approximately $100 million of annual acquisitions without issuing shares, Gubin said. At a 10% capitalization rate, he said, those acquisitions could generate about $10 million of additional income, with estimated debt costs of $3 million to $4 million.
Valuation and Trading Liquidity
Gubin said Strawberry Fields traded at about 10.5 times AFFO, compared with an average of 15.9 times for REITs generally. He attributed the discount primarily to limited stock liquidity rather than operating performance.
The company has completed one offering in the past four years and has roughly 13 million shares in the public float, he said. Daily trading volume was approximately $600,000 to $700,000, which he said can make it difficult for larger institutional investors to build or exit positions.
“Our stock is a stock that people buy and hold,” Gubin said, adding that he views it as suited to long-term investors and family offices.
About Strawberry Fields REIT (NYSEAMERICAN:STRW)
Strawberry Fields REIT, Inc is a healthcare real estate investment trust that owns and manages properties used primarily by skilled nursing and other long-term care operators. The company generates revenue mainly by leasing its healthcare facilities to tenants under long-term, generally triple-net lease agreements, under which tenants are typically responsible for property operating expenses, maintenance and taxes.
The company’s portfolio is focused on healthcare properties in the United States, with an emphasis on skilled nursing facilities and related senior-care real estate.
