Strawberry Fields (STRW) Q4 2025: AFFO Jumps 29.8% as Master Lease Expansion Drives Portfolio Scale

2026-02-20 | By EarningsIQ Research

Disciplined portfolio growth and master lease execution powered Strawberry Fields’ best year since inception. The REIT delivered robust AFFO and EBITDA expansion, maintained full rent collection, and signaled a strong acquisition pipeline for 2026. With sector-leading payout discipline and a pure-play skilled nursing focus, management is positioning for continued accretive growth despite industry cost and regulatory headwinds.

Summary

• Master Lease Expansion Unlocks Scale: Plug-and-play acquisitions and disciplined underwriting fuel growth and rent stability.
• Capital Allocation Remains Conservative: Low payout ratio and ample liquidity enable opportunistic asset growth.
• Pipeline and Demographics Support Forward Growth: Acquisition targets and aging population trends underpin long-term runway.

Performance Analysis

Strawberry Fields delivered a breakout year, with AFFO (Adjusted Funds From Operations, a recurring cash flow proxy for REITs) up 29.8% and adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization, a measure of operating profitability) rising 38.2% year-over-year. Revenue climbed 32.4%, reflecting the integration of $112 million in new acquisitions and the re-tenanting of the Kentucky portfolio, which locked in a stable 10-year master lease with annual escalators.

Portfolio growth was driven by disciplined dealmaking—each new facility was either added to existing master leases or structured with terms that align with Strawberry’s 10% acquisition cap rate hurdle. Despite higher depreciation and interest expenses from new assets, net income advanced and the company ended the year with a conservative net debt to net asset ratio of 49.5%. The dividend was raised 14% mid-year, yet the payout ratio remains low at 46%, allowing significant retained cash for reinvestment.

• Rent Collection Remains Pristine: The company collected 100% of contractual rents in 2025, underscoring tenant health and lease structure strength.
• Portfolio Value and Diversification: Asset base reached $885 million, with 143 facilities across 10 states and a $1.5 billion lease valuation.
• Acquisition Pipeline Robust: Management cited a $250 million deal pipeline and expects to deploy $100–$150 million annually.

Importantly, Strawberry’s “pure play” skilled nursing model (SNF, facilities focused on post-acute and long-term care) and focus on master leases insulate the portfolio from operator volatility and regulatory reimbursement swings.

Executive Commentary

Strategic Positioning

1. Master Lease Leverage and Portfolio Expansion

Strawberry Fields’ “plug-and-play” strategy—adding facilities to existing master leases—streamlines deal execution and reduces integration risk. The Kentucky re-tenanting and Missouri acquisitions exemplify this approach, allowing for rapid scaling without renegotiating lease terms. This structure supports stable rent collection and attractive coverage ratios, with portfolio-wide rent coverage at 2.07x and EBITDAR (Earnings Before Interest, Taxes, Depreciation, Amortization, Rent, and Management Fees, a tenant health metric) at 1.6x.

2. Capital Discipline and Dividend Policy

Management continues to prioritize a low dividend payout ratio—currently 46% of AFFO—preserving $40 million in annual free cash flow for debt paydown and acquisitions. The board raised the dividend by 14% in 2025 but remains cautious, aiming for steady, predictable increases that build investor trust and support future capital needs.

3. Acquisition Pipeline and Market Opportunity

With a $250 million pipeline and a target to deploy $100–$150 million annually, Strawberry is positioned to capitalize on sale-leaseback activity and regional operator consolidation. Management’s disciplined underwriting (10% cap rate, 1.25x day-one coverage) remains intact despite rising asset prices, especially in the Midwest and Heartland states.

4. Pure-Play Skilled Nursing Focus

Strawberry’s commitment to skilled nursing facilities (over 90% of portfolio) differentiates it from diversified healthcare REITs. This focus aligns with long-term demographic trends (“Silver Tsunami”) and positions the company to benefit from rising demand, while maintaining operational simplicity and underwriting consistency.

5. Balance Sheet Optimization and Debt Management

Refinancing initiatives in 2026 aim to extend maturities and reduce currency risk, with new lines of credit and term loans expected to provide $100 million+ in liquidity. Management is actively managing currency exposure on its Tel Aviv-issued bonds and expects refinancing to smooth out the maturity profile over the next five years.

Key Considerations

Strawberry Fields’ 2025 results reflect a REIT executing on its core strategy, but investors should weigh both the durability and scalability of its model as sector dynamics evolve.

Key Considerations:

• Rent Coverage and Tenant Health: Portfolio-wide rent coverage above 2x supports stable cash flows, but ongoing monitoring is warranted as reimbursement and labor dynamics shift.
• Acquisition Discipline vs. Market Pricing: Management’s 10% cap rate hurdle could limit growth if asset prices remain elevated, especially for high-quality facilities.
• Dividend Flexibility: The low payout ratio preserves capital for growth, but rising AFFO may increase pressure for larger dividend hikes over time.
• Geographic and Operator Diversification: Largest state exposure is Indiana, but overall state and operator diversity is improving, reducing concentration risk.
• Balance Sheet Readiness: Upcoming refinancing and new credit lines will be critical to sustaining acquisition momentum and managing currency risk.

Risks

Key risks include regulatory changes to Medicare and Medicaid reimbursement, sharp increases in skilled nursing labor costs, and potential valuation headwinds if acquisition cap rates compress further. While Strawberry’s lease structures shield it from direct operator performance swings, sector-wide shocks or government policy shifts could eventually impact rent coverage and asset values. Currency risk remains a factor due to Tel Aviv bond issuance, though management is actively managing maturities and refinancing plans.

Forward Outlook

For Q1 2026, Strawberry Fields guided to:

• Continued AFFO per share growth above 2025 levels
• Acquisitions in the $100–$150 million range for the full year

For full-year 2026, management maintained its annual growth target and expects:

• Stable rent collection and high coverage ratios
• Dividend growth consistent with historical patterns

Management highlighted several factors that will shape results:

• Sale-leaseback deals are likely to remain the primary source of acquisitions
• Refinancing and credit facility expansion will support deal execution and liquidity

Takeaways

Strawberry Fields’ Q4 and FY25 results underscore the power of disciplined, accretive growth in a niche REIT model.

• Master Lease Model Drives Resilience: Plug-and-play acquisitions and stable tenant performance underpin robust cash flow and rent collection.
• Capital Allocation Remains Conservative: Low payout ratio and balance sheet flexibility support continued portfolio expansion without sacrificing dividend safety.
• Long-Term Growth Hinges on Acquisition Pipeline Execution: Investors should watch for continued discipline as asset prices rise and sector headwinds persist.

Conclusion

Strawberry Fields delivered its strongest year yet, combining rapid AFFO growth, full rent collection, and conservative capital management. The company’s pure-play skilled nursing focus and disciplined acquisition approach position it well for further value creation, though investors should remain mindful of sector and macro risks as the growth story continues.

Industry Read-Through

Strawberry Fields’ results reinforce the resilience of master lease-driven skilled nursing REITs, even as broader healthcare real estate faces reimbursement and labor volatility. The focus on disciplined underwriting and low payout ratios may become a template for other REITs seeking to balance growth and risk. Sector participants should note the intensifying competition for quality SNF assets and the rising prominence of sale-leaseback transactions as operators seek capital. Demographic tailwinds remain a key industry driver, but disciplined capital allocation and lease structuring will separate leaders from laggards as the cycle matures.

STRW Real Estate Healthcare REIT Skilled Nursing Dividend Master Lease Acquisitions Pipeline