Strawberry Fields REIT, Inc.

Good morning. My name is Tom and I will be your conference operator today. I would like to welcome everyone to the Strawberry Fields REIT year end 2024 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, you have to press the star key followed by the number one on your telephone keypad. I would now like to turn the conference over to Jeff Beitner, Chief Investment Officer. Sir, please go ahead.

Thank you and welcome to Strawberry Fields REIT's year-end 2024 earnings call. I am the Chief Investment Officer of the company, and I focus on acquisitions, growing a company's operator base, and investor relations. On the call with me today are Marge Rubin, our Chairman and CEO, and Greg Flanagan, our CFO. On Thursday, the company issued its year-end 2024 results, which is available on the company's investor relations website. Participants should be aware that this call is being recorded and listeners are advised that any forward-looking statements made on today's call are based on management's current expectations, assumptions, and beliefs about strawberry field streets. dividends, acquisitions, investments, returns financing, and may or may not reference other matters affecting the company's business or the businesses of its tenants, including factors that are beyond its control. Additionally, references will be made during this call to non-GAAP financial results. Investors are encouraged to review these non-GAAP financial measures, as well as explanation and reconciliation of these measures to the comparable GAAP results included on the non-GAAP measure reconciliation page in our investor presentation. And now on to discussing Strawberry Fields Week and our 2024 performance. As we look back at 2024, a big takeaway is the work the team completed and growing the portfolio. also working with existing tenants on renewing existing leases to the company as stable cash flows into the foreseeable future. I'd like to point out some of the numbers which detail this growth. During the year, the company acquired $130.3 million of real estate, growing the portfolio from 109 facilities in nine states to 124 facilities in 10 states. Fed-wise, this translates from 12,449 beds to 14,186 beds, which is approximately a 14% increase. Through these acquisitions, the company has grown its tenant base from 10 operators to 14. Additionally, the company's base rents increased from $84 million in 2023 to $104 million in 2024. We expect that number to be around $130 million in 2025. As it relates to our existing tenants' leases, master leases were renegotiated for new 10-year terms, which will ensure rents into 2034. We also had a few individual leases that matured and were re-tenanted by an existing tenant into their master lease. Currently, 88% of our facilities are tied to master leases. For 2025, the company has six leases that mature, four in Ohio and two in Illinois. We are pleased to announce that the tenant for the Ohio facilities has exercised the renewal option for the next five years. With these renewed leases and new acquisitions, our average lease term has increased from 4.6 years at the beginning of 2024 to a healthy 7.4 years at the end of the year. It is important to note that this average lease term is based on the initial 10-year lease term of the lease. Almost all of our leases include at least two five-year options to extend. As it relates to this past year, I wanted to share some key highlights. During the year, the company collected 100% of its contractual rents. As we discussed in last quarter's earnings call, in July, the company filed a registration statement on Form S3 with the Securities and Exchange Commission. In August, the company established an ATM program. Due to this program, the company began selling shares to the public for the first time as we initially went public through a direct listing. In December, the company followed up to the ATM program with their first underwritten public offering of approximately 3.34 million shares of pound stock for total gross proceeds of $35 million. In December, the company completed an acquisition with an unaffiliated seller with respect to eight healthcare facilities located in Missouri, our 10th state. The purchase price for the facilities was $87.5 million. The facilities are currently leased Under the master lease, the tenants currently pay annual rent on a triple net basis. The eight facilities are comprised of 1,111 beds. In December, the company entered into a personal agreement for six healthcare facilities with 354 licensed beds located in Kansas. The purchase price of the facilities was $34 million. The facilities are leased under a triple net master lease agreement to a group of third-party tenants. The initial restart is for 10 years and includes two five-year options. The company closed the acquisition on January 2, 2025. This acquisition brought the company into its 11th state and increased the overall portfolio to 130 facilities and 14,540 beds. Subsequent to quarter end, our board of directors authorized a cash dividend of $0.14 a share. The dividend will be payable on March 31st, 2025 to shareholders of record on Monday, March 17th, 2025. This dividend will be our 10th consecutive quarter of paying dividends and continues to represent the company's philosophy of showing the market that our dividends can be relied upon. I would now like to have Greg Flamian, our Chief Financial Officer, discuss the year-end financials.

Hello, and thank you for attending our end of year earnings call. 2024 has been a year of significant portfolio expansion for Strawberry Fields Reef, including the acquisition of our Kansas properties on January 2nd, 2025. We have increased our portfolio by 19.3%, bringing the overall facility count to 130 facilities. This expansion has strengthened our financial position, driving substantial growth in net fixed asset-related accounts and increasing total assets by 27.7% to $170 million. In addition to the financial growth, this expansion has enhanced our risk diversification across states and operators as we have entered into two new states and established partnerships with new operators. Additionally, cash and cash equivalents, both restricted and unrestricted, increased due to the financing of the Kansas acquisition and higher reserves associated with financing activities.

Our 2024 year growth was supported by multiple funding sources, including $118 million in bond issuances, a new $59 million mortgage facility with Popular Bank, a $33 million equity raise and proceeds from our after the market program as well as rental income. The company also strategically reduced debt by paying down $24 million on a higher interest loan. Collectively, these financing activities led to a 23.6% increase in total liabilities, or $134.5 million, while equity rose $36 million, representing a 76.8% year-over-year increase. Moving to the profit and loss statement, 2024 was also a year of strong profit growth for Strawberry Fields Reef.

Revenue increased by $17.3 million, or 17.3%, driven by full-year contributions of the Indiana 2 Master Lease, which was acquired in Q3 2023, as well as revenue from additional acquisitions completed throughout 2024. Total expenses rose by $3.4 million, or 6.5%, primarily due to higher depreciation and monetization costs, along with increased general and administrative expenses. Interest expense also grew by $8.2 million, or 33.4%, reflecting the additional expenses incurred to finance the company's portfolio growth. Despite these increases, revenue growth outpaced expenses, resulting in a net income of 26.5 million. This is an increase of 6.3 million or 30.9% compared to the prior year. Moving to the financial highlights slide. Our strong operational performance resulted in an adjusted AFFO of $55.8 million and an adjusted EBITDA of $90.6 million. These metrics demonstrated year-over-year growth with a compound annual growth rate of 12.6% and 8.2% respectively. Despite our strategic emphasis on portfolio expansion, we remain committed to delivering value to our shareholders. In 2024, the company increased its dividend from $0.12 per share at the beginning of the year to $0.14 per share by year-end. This represents a 16.6% increase in the annual dividend distribution per share and a 5.3% dividend yield with an AFFO payout of 49.5%. And with this, Moisture Group will continue the presentation with additional 2024 portfolio highlights.

Thank you.

Thank you, Greg. Thank you, Zach. I'm just going to team up over the slides. For me, the underlying conversation is the maturity of our company and how we continue to go from, you know, originally a mountain pop, you know, founded by Michael and you know, company to turning into a publicly traded company and heading our way towards getting widely held, adding liquidity to the stock. And so I guess for me, the biggest highlight of the year was actually doing our first real public offering, bringing in some institutional shareholders and getting admitted into their most notable companies. And for us to grow on that and build on that is what we're looking to do. Our portfolio is 130 facilities in 11 states. Jeff said earlier about 14,540 beds.

We compare these things to about 15 different groups. And I also just said our wall went up to about 7.2.

All of our leases are built that same exact way, which are 10-year leases and two 5-year leases. So that will support the high end. People are not going to renew these things when there's six, seven years left. So we're going to keep working on that and growing that.

Our trend is a good number. They're on the chart showing how we stand. That's how it appears.

We're basically in the same area as everybody else. Our base rent, growth rate, 7.5%, which is pretty good. And we've got a 10% rent. We're very proud of.

The growth rate on the base rent.

And like we said earlier, we expect that number to be close to $130 million in 2025.

We were relatively unknown. and trading few shares by appointment at the beginning of 2024. And as the year went on, our volume increased and our stock started to grow. And then we did an offering and the stock went down. And today, our stock price, I believe, is trading over $12 a share. And hopefully it'll continue It'll continue its rise. I mean, our real goal for today's purpose is for us to be treated like all of our peers, and that's being traded at a multiple 13, 14 times our FFO, and we hope to get there, God willing. Our linear return versus our peers, as you can tell, I mean, this is probably the ugly graph, but And part of that is us going to conferences on a regular basis, going to happy meetings, investors, meeting with analysts, and getting the story out there so that the stock could trade. We'd like to continue to sell shares through the ATM. Our real range of our debt is remunerated. And our dividend yield is right, right, right around 5%. And we're happy with that as well. I know there's people out there that are having a hard time hearing us. We're doing the best we can over here. So hopefully whatever I miss, you'll ask in the question and we'll be able to answer it. You know, we're proud of the fact that we're, you know, really the only pure play skilled nursing healthcare we have there this graph we were able to see that we're close to 91 percent of our portfolio is Um, and, uh, we're going to continue doing exactly what we've been doing all along.

Um, yeah. Also pretty good number to improve. It's been for a while. It's been for a while. provided a double-digit return for our investors.

And we expect that we should have to continue to do that.

Our business is so solid and stable that, really, if we just stopped doing what we're doing, we'd be able to just dividend out twice as much as we have. as we're doing now. And, you know, we just continue to connect all of our events and run a really, really strong company. And, of course, our objective is to keep growing as long as we can grow the way we want to grow.

We've told the marketplace exactly how to buy, and we remain committed to buying exactly that way. And that's what we're doing, and hopefully we will continue to do that.

Um, just for financial purposes, our debt and securities. You know, we're, we're, we're moving in 20, uh, 2025. Uh, to clean up some of our debt by bringing in less expensive debt. Our shares well, um, to self. Pay down debt. That should be good for all of us.

Um, we still look to our exit on the debt side of things. Hello. We'll see where that lands. This is really what I'm trying to do. This podcast here shows you that we've diversified our portfolio by state and by operator, where nobody is higher than 28% of our portfolio, and that's going to continue to shrink. As we continue to grow, and this is for me, this is really good because when we started years ago, it was one operator in one state, and then it became one operator in two states. And then as we started getting more, more, more folks in now related party leases are probably 50% and still shrinking. So the folks that like their related party leases, that's, you know, I'm sorry, but we're going to continue to diminish those, you know, to shrink those down. And to the folks that don't like that as much, um, you should be happy to know that we're continuing to meet with outside, uh, newer tenants. Not related to to draw a portfolio, but that this is what our map looks like. Um, you know, there's still playing in Missouri. Um, and, uh, Tennessee, Mississippi, Alabama. Georgia. Ohio. So we have what to do in the Midwest, but that's really, really where we are now. If we found a deal tomorrow for 20 facilities and, you know, in Colorado, we would, you know, the deal would make sense and it fits in our box, we would buy. The reality is, is really we're Midwest, and we're going to keep growing in circle and the nucleus to be able to, you know, keep us moving along in life.

That's about it. We'll open the floor for questions.

Certainly. Ladies and gentlemen, the floor is now open for questions. If you would like to ask a question at this time, please press star 1 on your telephone keypad.

We do ask if listening on speakerphone this morning that you pick up your handset while asking your question to provide optimal sound quality. Once again, please press star 1 on your telephone keypad at this time. If you wish to join the queue to ask a question, please hold a moment while we pull for questions. And the first question this morning is coming from Gaurav Mehta from Alliance Global Partners. Gaurav, your line is... is live. Please go ahead. Thank you. Good morning. Good morning. I wanted to ask... ... ... ... ... ... I mean, consistently from all corners of the country. I mean, as Mike said, we're only going to be growing in a new state if it makes sense. I mean, there's a sizable approach. There's a sizable approach. There's a sizable approach. There's a sizable approach. to those days. Our portfolio right now is about $350 million. And our details have been much higher. It's actually going to be a lot lower. We're going to have to do these after-sales. We're going to have to do these after-sales. So that's all. We're going to have to start off this week in San Diego. $150 million this year. And hopefully more. But we already have, I think, most likely lined up probably close to $80, $90 million for ready It's only the beginning of March, so hopefully this year will be a banner year as far as growth. Again, it's controlled growth because it has to fit our box doing business the way we do business.

Okay, great.

As a follow up, you know, as you look to grow your company 25, how should we think about your leverage expectations?

So again, our our our mandate has been between 45 and 55. That's equity. And that's market cap at this point. And I would expect I would expect to be part of the low end of that range. real determinant i mean that was one of the things i'm proud of from 2024 was that it proved that we were able that we're able to you know we have an open market for selling equity we have an open debt market obviously in israel for us and we have banks in america that are willing to lend to us so there's a lot of different choices right everything every every you know cash has a has a price to it uh you know depending on where things are um you know, we're looking to take out the best option for us. You know, most of the things that we do, it's flexible. So even if I close on where today it makes sense to take on debt, right, tomorrow equity goes up, I could take on equity and pay down debt or, you know, vice versa. And so, you know, again, so I have all the confidence today as a person, as a human being, and as a group, you know, I have all the confidence in our ability to, you know, to bring in the cash needed for a deal to get closed. And again, we want to be, you know, probably south of 50% of debt. And so, but, you know, again, we have all the options available to us.

Okay. And Laf, you're up. Okay, thank you. That's all I have. You're welcome. Thank you, Gaurav. Thank you. Your next question is coming from Rob Stevenson from Jenny. Rob, your lineup is live. Please go ahead. Good morning, guys. The sound keeps coming in and out.

Did you say about 20 of AFFO for 2025? Was that what the number was that you guys gave?

Yeah. Yeah, I think that's a number that I can certainly hit. I... I would expect it. Okay. It's the end of the lease. It's mature. And the tenant already said that they do not plan on staying in the property. So we're actively pursuing, um, a new tenant for that one asset. But other than that, these are one asset out of 130 assets. It's one of the most likely it will end up not being in a because I don't think it's, I think it's going to be a new operator. It's not going to be, it's not going to be somebody that we already leased to. And so, and so it'll stay a standalone, but it'll probably be, and it'll be a new 10 year or two, five years. I would expect that we could be able to do the, The Medicaid percentage went up noticeably quarter over quarter.

Is that just the acquisitions or is something else driving that and is sort of 75, 76% where this should be going forward in your mind?

You know, we don't audit. Our tenants don't have audited financials and we don't audit what they submit to us. We gather it and pass it along. And we don't really we don't really for that specific for that specific metric. We're not really auditing that, you know, it's not it's not as important to us. I could I can try to go and, you know, dig in the numbers in the next couple of days and get back to you, Rob. Um, I don't, I don't, um, I don't know if it's, I don't know if it's just the reclass of, you know, before hospice or something that now they're coding as Medicaid, you know, um, so I'd have to get back to you because it's not something that we spend too much time in our asset management. Really. Uh, we, we spread the numbers and we put it into format and we present it, but it's not something that we really know. And I don't want to BS you. That's not my style, as you know.

Okay. Um, and then, um, In terms of the shares and all outstanding, what were the diluted shares and units outstanding for the fourth quarter as well as for the full year? The release only had the share count, but not the units.

So you want to answer that?

Our diluted shares... At your end were roughly 12.1 million shares in our OP units were 43.4 million shares. So we had a total of 55.9 million shares.

Okay. And how significant was the ATM issuance in the fourth quarter? In the fourth quarter, we didn't know. Okay, guys, thanks this morning. Thank you. Thank you. When you think about financing future activity, do you give any thought to dispositions playing any kind of role at all. I'm looking at your map here, and you have some assets that are a bit far afield from your core cluster. Is that something you're thinking about, or are those sort of planets there for a potential to grow in Places like, you know, South Texas or, you know, New Mexico area or something like that. Well, this is an interesting question. So, you know, the thing about our map is what we own. It's not whatever. Our tenants operate. And so some of our tenants fill in the map pretty good with stuff that they're leasing from other vendors.

I'm not catching that last part, but that's okay. That was a good point.

Your tenants themselves kind of fill in the gaps. And then my last question.

you got a few on Medicaid and government and, you know, budget and all that sort of stuff. Do you have, is it keeping you up at night or, you know, where, where do you, where do you land on all the politics behind field nursing these days?

Well, you know, you know, my background was as an operator. I mean, I haven't been involved with operations in probably 10 years or 11 years, but I'm still really in tune with what's going on. I'm still in a bunch of, groups and I get a lot of data. Um, and you know, I, most of, most of, uh, I mean, at least in the last few days, um, I think, I think, I think the Trump just announced that they're going to be now eliminating or working on eliminating all the civil money penalties that are, that are, you know, cause it doesn't really police the facilities just by charging that money. You know, that doesn't make them somehow improve their operation. Um, That being said, you know, most of the conversation in the marketplace that I hear of, the conversation that people still are most concerned about is the reimbursement. It's not on the, it's the net, you know, that flies around that causes the biggest trouble is the regulations. And you have to be regulated. It's that kind of business that, you know, you need someone to be policing, you know, making sure people are taken care of. This is our most precious commodity is our, you know, ancestry, our parents, our grandparents. That being said, I think the biggest worry out there is still the funding, not really the regulation, even though the regulation is a net flying around.

And I think most people are optimistic that on the downside protection uh most people are not expecting any any negative for reimbursement and hopeful on the upside that um that coming from Barry Oxford from Collier's. Barry, your line is live. Please go ahead.

Great. Thanks, guys. Getting back to the tenets, the one that is moving out, it seems like you guys got a pretty good beat on releasing that.

Are there any other tenants looking out into 26 that you're concerned about? I know you collected 100% of rent this quarter. Overall, not really. The weak state for... ... ... ... ... ... deep pockets. So, you know, most of our people have made money and ride the wave. When the market is down, you know, is that they have to deal with all the pockets to be able to withstand it and then ride the wave the opposite direction, which hopefully happens sooner than later. So with that being said, you know, I'm not really too worried. I'm worried about that, you know, that region, which is at this point, maybe then the end of the year.

Okay. Okay. Perfect. And then last question for me, given the growth that you have in a portfolio for 2025 and maybe doing 150, maybe even more acquisitions, how should we think about the G&A as we're kind of modeling that out for 25?

So for G&A, I think I said this in my last year's or last quarter's comments. At this point, our G&A is exactly what you see for fourth quarter G&A is basically what our normal run rate should be going forward by quarter. The only thing that's still out there is my pay, where there's been a bunch of discussion amongst the board members and the compensation committee about compensating me more in line with the market. I'm not pushing it. I honestly don't care. I'm a large shareholder. And it's a labor of love as much as it is a livelihood. And so I would say to you that if you wanted a model for, you know, I'm going to call it worst case, but that's not really worst case, assuming that you had me sign some kind of employment agreement. You want to model it out. You'd be adding to the G&A, you know, maybe a million to a million dollars a year. It's not a huge, huge number. It's a bigger number than what we've been running. I think we'd still be running leaner than all of our competitors, all of our peers. But that's the only thing else. There's no G&A. There's no other expected cost increases anywhere in our area.

you know, our cost profile of the DNA expense. Perfect. Thanks, guys. Appreciate it. You're welcome. Thank you, Barry. Yep. Thank you. Your next question is coming from Mark Smith from Lake Shore. Mark, your line is live. Please go ahead. Hi, guys. First question for me was just any update or thoughts on the integration of the newly acquired properties. You know, I knew you guys were, you know, more rapid pace here recently. Yeah, no, it's seamless. A lot of times together outside of... I mean, that's part of our routine is we make friends with people we do business with. Um, and so we, so, yeah, so it's. The 1st month. You know, just a little bit of a coordination of the wire. Instructions of the, but now. Everything set up to get our 1st of the month or 2nd of the month, like every other tenant. And, um. and we absorbed all the CAPEX schedules and really, it's really not a, it's seamless. There was no hiccup, you know, at all. And we don't expect there to be a hiccup at all. I actually, a little bit more because now I have to go spend a little bit more time in St. Louis, Missouri to cultivate cultivate the relationship even further. Really really there's there's I don't I don't want to sound overconfident, but the reality is there's really nothing that we can't get done here.

I feel confident as far as raising money, as far as if we need a lot of money, that's not even at this point something that would hold us back. And as far as organization, we hired a third asset manager a bit ago and now we have three active full-time asset managers for a portfolio of 130, which is a good number. Um, this year, most likely we'd have to hire another asset manager at some point, but it's not, it's not, it's not a material number. Uh, and then same thing in accounting is strong and we're trying to look for paralegal for the, for the attorney, but other it's immaterial numbers, uh, but yeah, thanks for the question.

Okay. The only other question for me is just, you guys already talked about kind of how you buy no change in, in plans and structure there. I'm curious. So as we think about the pipeline, are you seeing any changes in kind of the deals that you're looking at, whether that be size or, you know, structure that maybe others are pushing for any changes in the pipeline?

Well, that's been our whole approach to this business is that we haven't changed our approach, like our structure of the deals. As I mentioned earlier, the 10K buyers was 125 coverage on the day one. 2023, we bought $108 million of real estate. Last year, we bought $130 million of real estate. As long as the deals make sense and the deals that we've been seeing right now do make sense, we'll

Yeah, keep in mind, we're, I would say just to add to what Josh said, I mean, we have been seeing a lot more, it seems like a lot more to me, more sale leaseback opportunities where before it was outright sales. because the last two deals we did, you know, up to one and a quarter, we can take a little bit less so that they can have a little bit more, you know, a little bit less uneasy around the collar for them, you know, on the rent number. So they get, you know, they get paid less and they have less rent. And so I guess that's the one barrier that we've seen to answer your question. Okay. Great. Thank you. Thank you. Thank you. And there are no further questions in queue at this time. I would now like to turn the floor back to management for closing remarks. I guess I'll close it out. I appreciate the interest. You guys know we're transparent folks.

And we look forward to the interaction. Have a very good day, everybody.

Thank you. Thank you. Thank you. This does conclude today's conference call. You may disconnect at this time and have a wonderful day. Thank you once again for your participation.