Strawberry Fields(STRW) - 2023 Q3 - Quarterly Report

PART I Financial Information Condensed Financial Statements This section presents Strawberry Fields REIT's unaudited condensed consolidated financial statements, including balance sheets, income, equity, and cash flow statements, with detailed notes Condensed Consolidated Balance Sheets As of September 30, 2023, the company's total assets grew to $629.8 million from $547.0 million at the end of 2022, primarily driven by an increase in real estate investments Condensed Consolidated Balance Sheet Highlights (in $000's) | Account | September 30, 2023 (unaudited) | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $629,820 | $547,000 | | Real estate investments, net | $525,527 | $438,911 | | Cash and cash equivalents | $9,540 | $20,197 | | Total Liabilities | $575,922 | $497,616 | | Bonds, net | $104,170 | $74,412 | | Notes payable and other debt | $439,024 | $381,003 | | Total Equity | $53,898 | $49,384 | Condensed Consolidated Statements of Income and Comprehensive Income For the nine months ended September 30, 2023, net income increased significantly to $14.5 million from $9.3 million year-over-year, largely due to a positive swing in foreign currency transaction gains Income Statement Summary (in $000's, except per share data) | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Rental revenues | $74,325 | $68,972 | $25,771 | $24,235 | | Income from operations | $35,063 | $37,710 | $13,056 | $17,501 | | Net income | $14,525 | $9,272 | $4,704 | $9,250 | | Net income attributable to common stockholders | $1,782 | $1,020 | $589 | $1,018 | | Basic and diluted income per common share | $0.28 | $0.17 | $0.09 | $0.17 | Condensed Consolidated Statements of Equity Total equity increased from $49.4 million at December 31, 2022, to $53.9 million as of September 30, 2023, driven by net income and foreign currency translation gains, partially offset by dividends Changes in Total Equity (in $000's) | Description | Amount | | :--- | :--- | | Balance, December 31, 2022 | $49,384 | | Dividends (9 months) | ($2,100) | | Non-controlling interest distributions (9 months) | ($15,155) | | Net change in foreign currency translation (9 months) | $7,244 | | Net income (9 months) | $14,525 | | Balance, September 30, 2023 | $53,898 | Condensed Consolidated Statements of Cash Flows For the first nine months of 2023, operating activities generated $42.0 million, investing activities used $113.6 million, and financing activities provided $60.9 million, resulting in a $10.7 million net decrease in cash Cash Flow Summary for Nine Months Ended September 30 (in $000's) | Cash Flow Category | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $42,006 | $37,421 | | Net cash used in investing activities | ($113,550) | ($8,469) | | Net cash provided by (used in) financing activities | $60,860 | ($43,850) | | Decrease in cash and cash equivalents | ($10,684) | ($14,898) | Notes to Condensed Consolidated Financial Statements The notes detail business operations, accounting policies, and financial items, including 2023 property acquisitions, an impairment loss, debt portfolio specifics, related-party transactions, and subsequent events - The company's portfolio consists of 98 healthcare properties with 12,203 licensed beds, primarily under triple-net leases[21] - On August 25, 2023, the company acquired 24 healthcare facilities in Indiana for a total purchase price of $102.0 million[73] - A loss on real estate investment impairment of approximately $2.5 million was recorded during the nine-month period ended September 30, 2023, due to the closure of a facility in southern Illinois[76] - Subsequent to the quarter's end, the company paid off the remaining balance of its Series A Bonds on November 8, 2023, and the Board approved a dividend of $0.12 per share for Q4 2023[182][183] Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes the company's financial performance, covering property acquisitions, debt financing, operating results, liquidity, capital resources, and non-GAAP reconciliations Results of Operations Q3 2023 rental revenues rose 6.3% to $25.8 million, but net income fell 49.1% to $4.7 million; nine-month rental revenues grew 7.8% to $74.3 million, with net income up 56.7% to $14.5 million Comparison of Q3 2023 vs. Q3 2022 (in $000's) | Metric | Q3 2023 | Q3 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Rental revenues | $25,771 | $24,235 | 6.3% | | General and administrative expenses | $1,560 | $730 | 113.7% | | Net income | $4,704 | $9,250 | (49.1%) | Comparison of Nine Months 2023 vs. 2022 (in $000's) | Metric | Nine Months 2023 | Nine Months 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Rental revenues | $74,325 | $68,972 | 7.8% | | Foreign currency transaction gain (loss) | $81 | ($10,932) | 100.7% | | Net Income | $14,525 | $9,272 | 56.7% | Liquidity and Capital Resources As of September 30, 2023, the company held $35.0 million in cash, with total debt at $543.2 million, facing significant balloon payments in 2026-2028 - As of September 30, 2023, the company had cash and cash equivalents and restricted cash of $35.0 million[224] - Total indebtedness was approximately $543.2 million, consisting of $273.3 million in HUD guaranteed debt, $104.2 million in bonds, and $165.7 million in commercial mortgage loans[228] - The company has significant future balloon payments, including $49.9 million for Series C Bonds and $35.2 million for Series D Bonds in 2026, $86.1 million for a commercial loan in 2027, and $60.7 million for another commercial loan in 2028[229] Funds From Operations (FFO) For the nine months ended September 30, 2023, FFO was $35.8 million and AFFO was $37.9 million, showing increases from the prior year FFO and AFFO Reconciliation (in $000's) | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net income | $14,525 | $9,272 | $4,704 | $9,250 | | Funds from Operations (FFO) | $35,791 | $30,929 | $11,995 | $16,342 | | Funds from Operations, as Adjusted (AFFO) | $37,929 | $36,361 | $11,469 | $10,866 | Quantitative and Qualitative Disclosures About Market Risk The company's primary market exposure is interest rate risk, with $165.7 million in variable-rate debt, and also faces foreign currency risk from Israeli Shekel-denominated bonds - The company's primary market risk is interest rate risk, with $165.7 million (30.3% of total debt) being floating rate debt tied to SOFR[259] - A 100 basis point increase in the one-month SOFR would decrease the company's annual cash flow by approximately $1.6 million[259] - The company is exposed to foreign currency exchange rate risk between the Israeli Shekel and the U.S. Dollar due to its bonds traded on the Tel Aviv Stock Exchange[260] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2023[262] - No change in internal control over financial reporting occurred during the quarter that has materially affected, or is reasonably likely to materially affect, the company's internal control[263] PART II Other Information Legal Proceedings The company is involved in ongoing litigation regarding property acquisitions, with management believing claims are without merit and will not materially affect financial condition - The company is involved in a legal proceeding in Pulaski County, Arkansas, where plaintiffs allege fraud and breach of contract related to the Predecessor Company's acquisition of properties[265] - Management and the named defendants believe the claims are without merit and intend to vigorously defend the litigation, believing the matter will be resolved without a material adverse effect to the Company[267] Unregistered Sales of Equity Securities and Use of Proceeds In Q3 2023, the company issued 63,658 common shares in exchange for OP Units via a private placement under Section 4(a)(2) of the Securities Act - During the quarter ended September 30, 2023, the Company issued an aggregate of 63,658 shares of common stock in exchange for an equivalent number of OP Units[269]