Strawberry Fields REIT: Cultivating Growth and Value in Skilled Nursing Real Estate (NYSEAMERICAN:STRW) - STRW Stock Research Report

## Executive Summary / Key Takeaways * Disciplined Growth in a Niche Market: Strawberry Fields REIT (STRW) is a self-managed, "pure play" skilled nursing facility (SNF) REIT, leveraging a highly disciplined underwriting and operational model to acquire and triple-net lease healthcare properties. This approach, characterized by strict 10% unlevered cap rate and 1.25x rent coverage targets, has driven consistent portfolio expansion and 100% rent collection. * Robust Financial Performance & Outlook: The company reported strong Q2 2025 rental revenue of $37.86 million (up 29.3% YoY) and projects full-year 2025 AFFO of $67.3 million (20% YoY growth) and Adjusted EBITDA of $128.8 million (12.2% YoY growth), based on Q1 annualization and excluding future acquisitions. This conservative guidance underscores significant upside potential from an active acquisition pipeline. * Strategic Capital Allocation & Low Payout: STRW maintains a low AFFO payout ratio of 46.2%, significantly below peers, enabling substantial capital retention for accretive acquisitions. The company strategically utilizes a mix of cash, bank debt, Israeli bonds, and OP units, while aiming for an unsecured line of credit to optimize its capital structure and avoid dilutive equity issuance below NAV. * Competitive Strengths & Industry Tailwinds: STRW's self-managed model and regional focus provide operational agility and cost efficiency, allowing it to compete effectively against larger, more diversified healthcare REITs. The company benefits from strong demographic tailwinds (aging baby boomers) and an anticipated improving regulatory environment, which are expected to support continued demand and stable reimbursement. * Undervalued Asset with Significant Upside: Management believes the stock is undervalued, trading below its estimated NAV of $13 per share and at a lower AFFO multiple than peers. The combination of consistent AFFO per share growth (10% over five years) and a solid dividend yield (4.63%) suggests a compelling total return proposition for investors. ## The Cultivation of a Specialized Healthcare REIT Strawberry Fields REIT (NYSEAMERICAN:STRW) operates as a self-administered real estate investment trust, specializing in the ownership, acquisition, financing, and triple-net leasing of skilled nursing facilities (SNFs) and other post-acute healthcare properties. This focused business model positions STRW as a "pure play SNF REIT," with over 90% of its portfolio dedicated to skilled nursing. The company's strategy revolves around generating stable, predictable rental income by shifting the operational and maintenance burdens to its tenants through long-term, triple-net leases. The healthcare real estate sector, particularly skilled nursing, is underpinned by powerful demographic trends. The aging baby boomer population creates a fundamental and growing social need for elder care, making demand for SNFs less susceptible to economic fluctuations than other real estate sectors. Management anticipates an improving regulatory environment under a new administration, potentially leading to less aggressive enforcement and more stable reimbursement policies, which would further support the industry's operational landscape. STRW's core differentiation lies in its disciplined underwriting and hands-on operational model, which serves as its proprietary approach to asset management. This involves a rigorous review of three years of tenant financials, ensuring a minimum 1.25x rent coverage on day one, and targeting a 10% unlevered return on acquisitions. The company's self-managed structure fosters direct relationships with operators, with properties visited at least twice annually, and a nurse consultant reviewing every survey. This meticulous approach has consistently resulted in 100% rent collection and efficient cost control, with total annual G&A overhead remaining below $2 million. This operational rigor provides a significant competitive edge, enabling STRW to identify off-market deals and maintain strong asset performance. The company's journey began over two decades ago with founders Moishe Gubin and Michael Blisko, who built a portfolio of 33 facilities before establishing Strawberry Fields REIT in 2015. Since becoming a publicly traded REIT in 2022, STRW has strategically diversified its portfolio beyond its initial concentration. By June 30, 2025, the company owned 121 properties and leased one, totaling 122 facilities across 11 states, encompassing over 14,750 operational beds. This expansion has been deliberate, focusing on adding assets to existing master leases or acquiring large enough portfolios to establish new ones, thereby enhancing portfolio stability and extending its weighted average remaining lease term (WALT) to over seven years. ## Financial Strength and Strategic Expansion STRW's disciplined strategy has translated into robust financial performance. For the three months ended June 30, 2025, rental revenues surged to $37.86 million, a 29.3% increase year-over-year, primarily driven by new property acquisitions and lease renewals. Net income attributable to common stockholders for the quarter was $1.96 million, up significantly from $0.94 million in the prior year, reflecting higher rental income despite increased depreciation, amortization, and interest expenses. The six months ended June 30, 2025, saw rental revenues of $75.19 million, a 31.7% increase from the prior year, with net income attributable to common stockholders reaching $3.54 million.

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The company's profitability metrics underscore its operational efficiency. STRW boasts a TTM Gross Profit Margin of 80.24%, an Operating Profit Margin of 53.68%, and an EBITDA Margin of 83.09%. These figures compare favorably to larger peers like Welltower (TICKER:WELL), which reported a 38% Gross Profit Margin and 15% Operating Profit Margin in 2024, and Ventas (TICKER:VTR) with 43% and 14% respectively. Omega Healthcare Investors (TICKER:OHI), a direct SNF peer, reported a 99% Gross Profit Margin and 63% Operating Profit Margin in 2024, indicating strong performance in the specialized SNF sector. STRW's EBITDARM coverage was approximately 1.9x in Q1 2025, aligning with large peers like Omega, demonstrating healthy tenant performance.

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STRW's strategic expansion continued into 2025 with several key acquisitions. On January 1, 2025, the company re-tenanted 10 Kentucky properties into a new master lease, adding $23.3 million in annual base rent. This was followed by the acquisition of six Kansas facilities for $24 million on January 2, 2025, adding $2.4 million in annual rents. Subsequent acquisitions in Oklahoma ($5 million) and Texas ($11.5 million) further expanded the portfolio and increased annual rents. Post-quarter end, on July 1, 2025, STRW acquired nine Missouri SNFs for $59 million, adding $6.1 million in annual rents, and strategically used $2 million in OP units as consideration, a testament to its flexible acquisition financing. The company's capital allocation strategy is designed for accretive growth. STRW maintains a low AFFO payout ratio of 46.2%, significantly below the average of its peers, allowing it to retain substantial capital for reinvestment into its robust acquisition pipeline. This strategy has driven a ~14% AFFO CAGR from 2019 to 2025 and a 10% AFFO per share growth over the last five years. For 2025, STRW projects full-year AFFO of $67.3 million and Adjusted EBITDA of $128.8 million, both based on Q1 annualization and excluding future acquisitions, suggesting considerable upside potential. The company aims for $100 million to $200 million in acquisitions for 2025, with $100 million expected by mid-year.

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## Capital Structure, Competitive Landscape, and Outlook STRW's capital structure is prudently managed, with total indebtedness of approximately $794.1 million as of June 30, 2025. This includes $258.2 million in HUD-guaranteed debt, $323.3 million in Israeli bonds, and $165.8 million in commercial mortgage loans. The company aims to maintain a debt-to-market cap leverage ratio between 45% and 55%, currently at 51%. For a recent $60 million acquisition, STRW utilized a blended funding approach: $20 million cash, $30 million from a conventional bank loan (SOFR + 300 bps), and $10 million from Israeli bond debt (approx. 6.25% rate), resulting in an estimated blended cost in the low sixes. The company is actively exploring establishing an unsecured line of credit ($200 million to $500 million) to enhance flexibility and reduce reliance on secured debt, with a long-term goal of having only 39% of its debt secured by HUD. In the competitive landscape, STRW positions itself as a specialized, operationally agile player. While larger, more diversified healthcare REITs like Welltower (TICKER:WELL) and Ventas (TICKER:VTR) benefit from scale and broader market exposure, STRW's self-managed model and regional focus provide distinct advantages. Its rigorous underwriting and direct operator relationships lead to superior cost control and a deeper understanding of local market dynamics, enabling it to secure off-market deals and maintain high rent collection rates. Compared to Omega Healthcare Investors (TICKER:OHI), a direct SNF peer, STRW's self-management potentially offers greater control over property operations and stronger customer loyalty, though OHI's larger portfolio may provide an edge in capital access and market share. STRW's TTM Debt/Equity ratio of 0.07 is notably lower than WELL's 0.52, VTR's 1.28, and OHI's 1.07, indicating a more conservative balance sheet. Despite its strengths, STRW faces certain risks. Its regional concentration, particularly in Illinois (28.6% of beds) and Indiana (23.1% of beds), exposes it to local economic downturns or adverse regulatory changes, though diversification efforts are ongoing. Interest rate risk is also present, with 20.5% of its total debt being variable-rate; a 100 basis point increase in SOFR could reduce annual cash flow by $1.6 million. Legal proceedings related to past acquisitions, though vigorously defended by management as meritless, represent a potential distraction. Furthermore, foreign investors in the Israeli bond market sometimes require additional education on the stability of the U.S. nursing home business model due to cultural differences in elder care. The outlook for STRW remains positive, driven by its disciplined growth strategy and favorable industry trends. Management's conservative 2025 guidance, which excludes future acquisitions, provides a strong baseline for potential outperformance. The company's commitment to a low AFFO payout ratio ensures continued capital availability for accretive investments, while its strategic approach to financing aims to optimize its cost of capital. ## Conclusion Strawberry Fields REIT presents a compelling investment thesis rooted in its specialized focus, disciplined operational model, and strategic growth. By concentrating on the resilient skilled nursing sector and employing rigorous underwriting, STRW consistently delivers strong financial performance and maintains a robust acquisition pipeline. The company's self-managed structure and regional expertise provide a competitive advantage, fostering strong tenant relationships and efficient cost control that translate into superior margins and consistent rent collection. With a conservative balance sheet, a strategic approach to capital allocation, and a commitment to accretive growth, STRW is well-positioned to capitalize on the demographic tailwinds driving demand for skilled nursing facilities. While the stock currently trades at a discount to its intrinsic value and peer multiples, the combination of consistent AFFO per share growth and a healthy dividend yield offers a significant total return opportunity. As STRW continues to execute its strategy of disciplined expansion and capital optimization, it stands to unlock substantial value for shareholders, making it a noteworthy consideration for discerning investors in the healthcare REIT space.