Strawberry Fields REIT (STRW) Targets U.S. Direct Listing

A Quick Take On Strawberry Fields REIT

Strawberry Fields REIT (STRW) has filed a registration statement for a direct listing of approximately 1.5 million registered shares of its common stock, according to an S-11 registration statement.

The firm acquires and operates triple-net leased healthcare facilities in the United States.

When we learn more information about the direct listing, including its proposed reference price, I’ll provide a final opinion.

Company

South Bend, Indiana-based Strawberry Fields was founded to acquire both skilled nursing, long-term acute care hospitals, and assisted living facilities for lease to healthcare service operators.

Management is headed by Chairman and CEO Moishe Gubin, who has been with the firm since inception and was previously Chief Financial Officer and manager of Infinity Healthcare Management, a manager of skilled nursing and other healthcare facilities.

The company’s 79 properties are located in the states of:

• Arkansas

• Illinois

• Indiana

• Kentucky

• Michigan

• Ohio

• Oklahoma

• Tennessee

• Texas

Strawberry Fields has booked a fair market value investment of $37.2 million as of December 31, 2021, from a large number of individual investors and entities.

Strawberry Fields’ Market & Competition

According to a 2021 market research report by IBISWorld, the U.S. nursing care facility market featured more than 35,200 businesses in 2021.

Most of the industry is characterized by freestanding facilities, with a small minority hospital-based.

The number of people in the United States aged 65 or over is expected to reach $95 million by 2060 versus 52 million in 2018. The availability of increased reimbursement is expected to increase the growth of the market.

Also, over 90% of skilled nursing facilities are also certified as nursing homes.

Major competitive or other industry participants include:

• Private equity funds

• Real estate developers

• Other REITs

• Other public and private real estate companies

• Private real estate investors

Strawberry Fields REIT Financial Performance

The company’s recent financial results can be summarized as follows:

• Growing topline revenue

• Reduced net operating income

• Increasing adjusted funds from operations

Below are relevant financial results derived from the firm’s registration statement:

Total Revenue
Period	Total Revenue
2021	$ 87,032,000
2020	$ 84,091,000
Net Operating Income (Loss)
Period
2021	$ 36,761,000
2020	$ 39,537,000
Net Income
Period	Net Income
2021	$ 8,419,000
2020	$ 11,888,000

(Source – SEC)

As of December 31, 2021, Strawberry Fields had $26.2 million in cash and $534.9 million in total liabilities.

Free cash flow during the twelve months ended December 31, 2021, was $44.8 million.

Strawberry Fields Direct Listing Details

Strawberry Fields intends to register approximately 1.5 million registered shares of its common stock in a direct listing offering.

The firm will not receive any proceeds from the direct listing. All proceeds will go to existing shareholders if and to the extent they choose to sell their stock. (Source – SEC)

Management’s presentation of the company roadshow is not available.

Regarding outstanding legal proceedings, management said it was subject to various legal claims related to a predecessor entity but which the current firm does have potential exposure due to indemnities. The company believes these claims are without merit and ‘will be resolved without a material adverse effect to the Company.’

The listed advisor for the direct listing is Cantor Fitzgerald & Co.

Commentary About Strawberry Fields’ Direct Listing

STRW is seeking to float its shares through a direct listing offering providing the option for existing shareholders to sell their shares on the open market.

The firm’s financials have produced increasing topline revenue, lowered net operating income but higher adjusted funds from operations.

Adjusted funds from operations for the twelve months ended December 31, 2021, was $43.9 million.

The firm currently plans to pay dividends on its shares that equal at least 90% of its net taxable income in order to comply with U.S. federal income tax law, but management did not estimate the initial figure.

It is difficult to estimate a distribution yield since we don’t know the number of shares that will be sold nor at what price they are expected to sell, due to the nature of a direct listing.

A March 2022 private market valuation placed a value of $9.23 per share.

The market opportunity for acquiring and operating healthcare facilities in the United States is large and is expected to grow substantially as the ‘baby boom’ generation retires in large numbers over the coming years.

Cantor is the advisor for the direct listing, and IPOs led by the firm over the last 12-month period have generated an average return of negative (76.6%) since their IPO. This is a bottom-tier performance for all major underwriters during the period.

The primary risk to the company’s outlook is the concentration of the properties it owns, which a majority are leased to related entities to senior management.

When we learn more about the direct listing’s expected reference price, I’ll provide a final opinion.

Expected Direct Listing Date: To be announced.