Strawberry Fields REIT, Inc.: Form 10-Q for the period ended Mar 31, 2025

Cash Flows (continued)

Net cash provided by operating activities for the three months ended March 31, 2025, was $19.0 million. This is comprised of net earnings of $7.0 million, depreciation and amortization of $11.3 million and a decrease in accounts payable, accrued liabilities and other liabilities of $1.9 million. These amounts were offset by an increase in straight-line rent of $1.5 million. Net cash provided by operating activities for the three months ended March 31, 2024, was $2.1 million. It was comprised of net earnings of $6.0 million and depreciation and amortization of $8.1 million, offset by a decrease in accounts payable and accrued liabilities and other liabilities of $8.1 million, an increase in other assets, and amortization of right of use assets.

Cash used for investing activities for the three months ended March 31, 2025 was $28.7 million. The consists of $29.0 million in real estate investments offset by a slight decrease in notes receivable. Cash used for investing activities for the three months ended March 31, 2024 mostly consists of a $18.0 million purchase of the replacement Indiana master lease. These properties were acquired in an acquisition completed in August of 2023.

Cash flows used for financing activities for the three months ended March 31, 2025 was $12.8 million dollars. The balance includes funds for $6.0 million in non-controlling interest distributions, $3.3 million in repayment of senior debt, $2.0 million for the repayment of notes payable, $2.0 million for OP unit retirements and $1.7 million in dividend payments on common stock. These cash outflows were offset by $2.2 million in ATM proceeds received in the quarter. Cash flows provided by financing activities for the three months ended March 31, 2024, were primarily comprised of $25.7 million proceeds from the issuance of Series D Bonds offset by $5.4 million for the distributions to non-controlling interest and the repayment of senior debt.

Indebtedness

Mortgage Loans Guaranteed by HUD

As of March 31, 2025, we had non-recourse mortgage loans of $260.2 million from third party lenders that were guaranteed by HUD.

Each loan is secured by first mortgages on certain specified properties, interests in the leases for these properties and second liens on the operator’s assets. In the event of default on any single loan, the loan agreement provides that the applicable lender may require the tenants for the property securing the loan to make all rental payments directly to the lender. In exchange for the HUD guarantee, we pay HUD, on an annual basis, 0.65% of the principal balance of each loan as mortgage insurance premium, in addition to the interest rate denominated in each loan agreement. As a result, the overall average interest rate paid with respect to the HUD guaranteed loans as of March 31, 2025, was 3.91% per annum (including the mortgage insurance payments). The loans have an average maturity of 22.0 years.

Commercial Bank Term Loans

On March 21, 2022, the Company closed a mortgage loan with a commercial bank pursuant to which the Company borrowed approximately $105 million. The loan agreement provides for monthly payments of principal and interest based on a 20-year amortization with a balloon payment due in March 2027. The rate is based on the one-month Secured Overnight Financing Rate (“SOFR”) plus a margin of 3.5% and a floor of 4% (as of March 31, 2025, rate was 7.91%). As of March 31, 2025 and December 31, 2024, total outstanding principal amount was $94.1 million and $95.1 million, respectively. This loan is collateralized by 21 properties owned by the Company.

On August 25, 2023, the Company closed a mortgage loan facility with a commercial bank pursuant to which the Company borrowed approximately $66 million. The facility is an interest only facility for the first 12 months and beginning in the second year monthly payments of principal and interest based on a 20-year amortization schedule with a balloon payment due in August 2028. The rate is based on the one-month SOFR plus a margin of 3.5% and a floor of 4% (as of March 31, 2024, the rate was 7.91%). On December 17, 2024 the company paid down $24 million dollars of the outstanding loan. As of March 31, 2025 and December 31, 2024, total amounts outstanding were $41.3 million and $41.6 million, respectively. This facility loan is collateralized by and was used for the acquisition of 19 properties (24 facilities).

On September 25, 2024, the Company acquired a property, located in Tennessee. As part of the acquisition of the property the Company assumed a $2.8 million dollar loan that previously existed on the property. The loan bears a fixed 6.25% annual interest rate. The loan term matures on April 23, 2026.

On December 19, 2024, the Company closed a mortgage loan facility with a commercial bank pursuant to which the Company borrowed approximately $59 million. The facility provides for monthly payments of interest and payment of principal and interest will start on January 2026 based on a 20-year amortization with a balloon payment due in December 2029. The rate is based on the one-month SOFR plus a margin of 3.0% and a floor of 4% (as of the March 31, 2025, the rate was 7.41%). As of March 31, 2025 and December 31, 2024, total outstanding principal amount was $59 million. This loan is collateralized by 8 properties owned by the Company. The loan proceeds were used to acquire the Missouri facilities. See note 4 of the financial statements included in Part I to this Form 10-Q.

The two credit facilities closed in March 21, 2022 and August 25, 2023 are subject to financial covenants which consist of (i) a covenant that the ratio of the Company’s indebtedness to its EBITDA cannot exceed 8.0 to 1, (ii) a covenant that the ratio of the Company’s net operating income to its debt service before dividend distribution is at least 1.20 to 1.00 for each fiscal quarter as measured pursuant to the terms of the loan agreement (iii) a covenant that the ratio of the Company’s net operating income to its debt service after dividend distribution is at least 1.05 to 1.00 for each fiscal quarter as measured pursuant to the terms of the loan agreement, and (iii) a covenant that the Company’s GAAP equity is at least $20,000,000. As of March 31, 2025, the Company was in compliance with the loan covenants.

The credit facility that closed on December 19, 2024 is subject to financial covenants which consist of (i) a covenant that the ratio of the Company’s indebtedness to its EBITDA cannot exceed 8.0 to 1, (ii) a covenant that the ratio of the Company’s net operating income to its debt service before dividend distribution is at least 1.25 to 1.00 for each fiscal quarter as measured pursuant to the terms of the loan agreement (iii) a covenant that the ratio of the Company’s net operating income to its debt service after dividend distribution is at least 1.05 to 1.00 for each fiscal quarter as measured pursuant to the terms of the loan agreement, and (iii) a covenant that the Company’s GAAP equity is at least $30,000,000 As March 31, 2025, the Company was in compliance with the loan covenants.

Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. In pursuing our business and investment objectives, we expect that the primary market risk to which we will be exposed is interest rate risk.

We may be exposed to the effects of interest rate changes primarily as a result of long-term debt used to acquire properties. As of March 31, 2025, we had $86.8 million outstanding under our Series A Bonds, which bear interest at a fixed 6.97% per annum, we had $71.9 million outstanding under our Series C Bonds, which bear interest at a fixed rate of 5.7% per annum, $50.5 million outstanding under our Series D Bonds, which bear interest at a fixed rate of 9.1% per annum, and $506.3 million in senior debt notes, of which $194.4 million (27.2% of total debt) are floating rate debt, which bears interest at a variable rate equal to one-month SOFR plus a margin. At March 31, 2025, one month SOFR was 4.41%. Assuming no increase in the amount of our variable interest rate debt, if one-month SOFR increased 100 basis points, our annual cash flow would decrease by approximately $1.9 million. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs. To achieve our objectives, we may borrow at fixed rates or variable rates. We also may enter into derivative financial instruments such as interest rate swaps and caps in order to mitigate our interest rate risk on a related financial instrument.

In addition to changes in interest rates, the value of our future investments is subject to fluctuations based on changes in local and regional economic conditions, change in currency rates between the Israeli Shekel and the U.S. Dollar and changes in the creditworthiness of tenants/operators, which may affect our ability to refinance our debt if necessary.

Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is processed, recorded, summarized and reported within the time periods specified in the SEC’s rules and regulations and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As of March 31, 2025, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, regarding the effectiveness of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective, at the reasonable assurance level, as of March 31, 2025.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended March 31, 2025, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.