Business

9 Months Ended

Sep. 30, 2022

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Business

NOTE 1. Business

Overview

The Company

STRAWBERRY FIELDS REIT Inc. (the “Company”) is a Maryland corporation formed in July 2019. The Company commenced operations on June 8, 2021, following the completion of the formation transactions described below. The Company conducts its business through a traditional UPREIT structure in which substantially all of its assets are owned by subsidiaries of Strawberry Fields Realty, LP, a Delaware limited partnership formed in July 2019 (the “Operating Partnership”). The Company is the general partner of the Operating Partnership.

The Company completed the formation transactions on June 8, 2021. In connection with the formation transaction, the Company, the Operating Partnership and Strawberry Fields REIT, LLC (the “Predecessor Company” or “Predecessor”) entered into a contribution agreement, pursuant to which the Predecessor Company contributed all of its assets to the Operating Partnership, and the Operating Partnership assumed all of its liabilities. In exchange, the Operating Partnership issued limited partnership interests designated as common units (the “OP units”) to the Predecessor Company, which immediately distributed them to its members and beneficial owners. The Company offered certain of the holders of these OP units the opportunity to exchange their OP units for shares of common stock of the Company on a one for one basis. The Company limited the number of OP units that could be exchanged by some of the holders so that such holders would not become beneficial owners of more than 9.8% of the outstanding shares of the Company in violation of the ownership limitations set forth in the Company’s charter. Following the completion of the formation transactions, and a few other transactions, the Company became the owner of approximately 11.3 % and 11.0% of the outstanding OP units as of September 30, 2022 and December 31, 2021, respectively. The formation transactions were accounted for at historical cost.

As the sole general partner of the Operating Partnership, the Company has the exclusive power under the partnership agreement to manage and conduct the business affairs of the Operating Partnership, subject to certain limited approval and voting rights of the limited partners. The Company may cause the Operating Partnership to issue additional OP units in connection with property acquisitions, compensation or otherwise. The Company became a publicly traded entity on September 21, 2022.

As of September 30, 2022, the Company owned 78 properties and leased one property that it in turn subleased to a tenant.

Predecessor Company

The Predecessor Company, Strawberry Fields, REIT LLC, was an Indiana limited liability company organized on August 4, 2014.

The Predecessor Company primarily invested in real estate serving the healthcare industry in the United States. The Predecessor Company through its subsidiaries owned skilled nursing facilities, assisted nursing facilities, long-term acute care hospitals, and other healthcare related properties in the States of Illinois, Indiana, Michigan, Texas, Ohio, Tennessee, Kentucky, Oklahoma, and Arkansas. Prior to the formation transactions, the Predecessor Company owned 72 properties and leased one property that was subleased by the Predecessor Company to a tenant.

STRAWBERRY FIELDS REIT, Inc. and Subsidiaries and Predecessor

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. Business (Cont.)

Interim Consolidated Financial Statements

The accompanying unaudited, consolidated financial statements of the Company have been prepared in accordance with GAAP for interim financial information, and the Securities and Exchange Commission (“SEC”) rules for interim financial reporting. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with GAAP have been omitted pursuant to such rules and regulations. However, in the opinion of management, the accompanying interim consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the Company’s consolidated financial position as of September 30, 2022, and the consolidated results of operations and cash flows for the periods presented. The consolidated results of operations for interim periods are not necessarily indicative of the results of operations to be expected for any subsequent interim period or for the fiscal year ending December 31, 2022.

Variable Interest Entity

The Company consolidates the Operating Partnership, a variable interest entity (“VIE”) in which the Company is considered the primary beneficiary. The primary beneficiary is the entity that has (i) the power to direct the activities that most significantly impact the entity’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could be significant to the VIE.

Non-Controlling Interest

A non-controlling interest is defined as the portion of the equity in an entity not attributable, directly or indirectly, to the primary beneficiary. Non-controlling interests are required to be presented as a separate component of equity on a consolidated balance sheets. Accordingly, the presentation of net income is modified to present the income attributed to controlling and non-controlling interests. The non-controlling interest on the Company’s consolidated balance sheets represents OP units not held by the Company and represents approximately 88.7% and 89% of the outstanding OP Units issued by the Operating Partnership as of September 30, 2022 and December 31, 2021, respectively. The holders of these OP units are entitled to share in cash distributions from the Operating Partnership in proportion to their percentage ownership of OP units. Net income is allocated to the non-controlling interest based on the weighted-average of OP units outstanding during the period.

STRAWBERRY FIELDS REIT, Inc. and Subsidiaries and Predecessor

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. Business (Cont.)

Basis of Presentation

The Company maintains its accounting records on an accrual basis in accordance with generally accepted accounting principles in the United States of America (“GAAP”).

The following summary of the Predecessor Company’s Consolidated Statement of Income for the periods from January 1, 2021, through June 7, 2021, and the Company’s Statement of Income for the period from June 8, 2021, to September 30, 2021. These amounts are included in the accompanying Consolidated Statements of Income herein for the nine month period ended September 30, 2021.

Interim Consolidated Financial Statements

(Amounts in $000’s)

	Predecessor			SF REIT, INC.
	January 1, 2021 through June 7, 2021			June 8, 2021 through September 30, 2021			TOTAL
Revenues
Rental revenues	$	35,440		$	28,611		$	64,051
Expenses:
Depreciation	$	10,303		$	7,552		$	17,855
Amortization		1,323			948			2,271
General and administrative expenses		1,928			2,746			4,674
Property taxes		4,039			3,853			7,892
Facility rent expenses		217			386			603
Provision for doubtful accounts		93			-			93
Total expenses	$	17,903		$	15,485		$	33,388
Income from operations		17,537			13,126			30,663
Interest expense, net	$	(8,769	)	$	(6,710	)	$	(15,479	)
Amortization of deferred financing costs		(132	)		(95	)		(227	)
Mortgage insurance premium		(691	)		(603	)		(1,294	)
Total interest expense	$	(9,592	)	$	(7,408	)	$	(17,000	)
Other income (loss)
Gain from sale of real estate investments		3,842			-			3,842
Foreign currency transaction loss		(6,844	)		(1,931	)		(8,775	)
Net income	$	4,943		$	3,787		$	8,730
Less net income attributable to non-controlling interest	$	-			(3,368	)		(3,368	)
Net Income attributable to Predecessor Company		-			-			(4,943	)
Net income attributable to common stockholders	$	-		$	419			419

STRAWBERRY FIELDS REIT, Inc. and Subsidiaries and Predecessor

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS