Strawberry Fields REIT – with an existing portfolio of 74 standalone skilled nursing facilities – is planning to go public. The company filed documents with the U.S. Securities and Exchange Commission on Monday, detailing its intention to grow in its health care markets.
Strawberry Fields REIT is a self-administered real estate investment trust with a growing portfolio that includes ownership, acquisition, development and leasing of skilled nursing and other health care-related properties.
In addition to its 74 standalone skilled nursing facilities, the REIT’s portfolio consists of four dual-purpose facilities, used as both SNFs and long-term acute hospitals (LTACs) and three assisted living facilities, according to its S-11 filing.
Strawberry Fields REIT properties are located across Arkansas, Illinois, Indiana, Kentucky, Michigan, Ohio, Oklahoma, Tennessee and Texas.
“We plan to invest primarily in real estate used [by SNFs and other healthcare facilities],” the filing notes. “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.”
Its goal is to increase its portfolio of properties through the purchase of additional healthcare properties at attractive prices with a targeted annual rate of return on equity in the range of 17%-20%.
The company’s listing is expected to take place after the SEC completes its review process and the Registration Statement is declared effective, subject to market and other conditions.
Strawberry Fields sees value in SNF market
Most recently, Strawberry Fields announced the acquisition of six SNFs in Kentucky and Tennessee last August for the purchase price of $81 million.
While other REITs expressed hesitancy at current pricing in the skilled nursing market last August, Josh Blisko, an investment advisor with Strawberry Fields, expected Strawberry Fields’ activity to pick up.
“Like always we’re out there. We love the space, we’re focused on SNFs,” he told SNN in an interview last August. “Our bread and butter is definitely SNFs and we’re looking to grow the portfolio in the next 18 to 24 months as more and more portfolios come to market.”
Strawberry Fields generates essentially all of its revenues by leasing properties to tenants under long-term leases on a triple-net basis, under which the tenant pays the cost of real estate taxes, insurance and other operating costs of the facility, according to the filing. Its leases generally have terms that range from 10 to 20 years, with two five year extensions with annual rent escalators of 1% to 3% per year – providing the company with a steady and growing cash rental stream.
Additionally its leases are structured to provide key credit support and have credit enhancement positions, and approximately 70.5% of its total annualized rental revenue is generated through its master leases.
Strawberry Fields leases to 83 tenants with no tenant accounting for more than 3.1% of its annualized base rent.
The company has grown through acquisitions over the years, having purchased 51 properties since January 2015, with an aggregate purchase price of approximately $385.9 million.
The SEC filing also provided other insights into the performance of the Strawberry Fields portfolio.
The REIT’s occupancy reached 69.4% in March 2022 – up from 68.9% from February – but still down 5.54% from March 2020 numbers.
Its portfolio had normalized EBITDARM and normalized EBITDAR coverage ratios of 2.44x and 1.78x, respectively, for the twelve month period ending Nov. 30, 2021, which is based on internally prepared financial results of its tenants. Strawberry Fields’ 2021 EBITDA came out to $59,316 compared to $66,292 in 2020.
The REIT’s aggregate annualized average base rent has grown at an approximate 21.4% compound annual growth rate (CAGR) from $25.9 million at December 31, 2015 to $82.8 million as of Monday, during which time its geographic footprint expanded from six states to nine states.”
Strawberry Fields expects “potential probability” that the SNF industry will improve due to the lack of growth across the industry and increased demand, according to its SEC filing.
Its skilled nursing footprint makes up 98% of the overall rent it collects.
Eight of the nine states that Strawberry Fields operates in have certificate of need laws, which the company sees as a potential barrier to entry for others looking to invest in the space – further inflating the value of SNFs for the REIT.
“CON programs aim to control health care costs by restricting duplicative services and determining whether new capital expenditures meet a community need. We believe these laws create barriers to entry for new operators in CON states and limit competition for existing owners and operators,” according to the filing.
Strawberry Fields plans to continue to acquire properties in states where it believes it can build regional density in order to create competitive advantages and drive operational and cost efficiencies.
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