Strawberry Fields REIT, Inc. LD Micro 20th Annual Main Event Conference

Take it away. Thank you.

Let's start with how many people in this room are shareholders of my company? Nobody. Perfect. My Chief Operating Officer. So far, every meeting we've had is with people that are already shareholders, so it's been peaceful. I'm not trying to sell, so I guess this is the first time I'm trying to sell. My name is Moishe Gubin, like she said. I am the CEO, Chairman, and founder of Strawberry Fields. We're listed on the New York Stock Exchange on the ticker STRW. Our company, I'm hoping you guys know the REIT space, but just basically the REIT space versus regular stocks. They're taxed differently, where it's based on your tax rate, not on a corporate tax rate, so there's no double taxation. Simple. REITs, we have to distribute 90% of our net income.

Fortunately, since it's real estate, we have a lot of depreciation, so there's a lot of leftover cash outside of paying the dividend. A REIT is not allowed to have more than five. Actually, anyone wants to know more about REITs, talk to me afterwards. I could give you all the rules. I'm a CPA. Jeff, who's here, is also a CPA. Our company basically starts with my background, which is my first job out of college was working at a nursing home in 1998. I started in an accounts payable, payroll, bookkeeping role. Worked my way through the financial end of the business and found myself moving to the Midwest, right after 9/11, with my family. I was running 17 nursing homes in the Midwest for an organization as a Director of Budgeting. My background is basically the financial end of the business.

I found my partner while I was doing that, and together we bought our first nursing home October 31st, 2003. I'll go through the slide deck, and then all of this will somehow come together, as long as you stay awake for the next 25 minutes or so. Our company, really strong cash flows. All of our leases are 10-year leases with two 5-year renewals, 3% annual escalators. We've collected 100% of our rents year in, year out for the last 8 years. If you understand the REIT space, which I'm not sure everyone does, but once you understand that everybody's on an even playing field of what a REIT is, then you have to pick which industry you want to kind of be, or you want to blend a portfolio to be different industries. Our industry is one of the only industries where it's a needs-based business.

Everything else is want-based. Something happens, you want to have this, you want to have that. You want to go into that technology, so you need that space for that want. The nursing home space is something that's a need. God forbid someone gets sick, they've got to be put in a nursing home. It's not where anyone wants to be, per se, but it's where you have to put them there. Our whole business is premised on the baby boomers, and the need for a nursing home to take care of them, and for a real estate company that owns the real estate to lease to these nursing home operators. That's what this is all premised about. The cash flows that the operators get.

We're triple net leases, so we don't suffer any of the risk of all the regulatory stuff and all that. The residents themselves are coming in. They're being paid for. Majority, like 90% of the revenue is coming from the government between Medicare and Medicaid. Built into the law of the Social Security Act in the '70s is the reimbursement model for the nursing home. As long as they're running well, they are geared to be always profitable because that's the way the program was created. My background, I started working in the nursing homes. I fell in love with the business. I fell in love with actually, I used to roll the residents out myself to get cigarettes. It's either you really belong in that business, you like people, and you take care of people.

The people that just do it to make a living, really, it's not really meant for them. Our track record, like I said, bought the first building in 2003. From there, we got up to about 33 buildings in 2015, and since then we're up to 142 buildings. We're growing at about a growth rate of about 8% to 9% of assets by buildings and gross dollars. On $1.6 billion of real estate, we're spending about between $100 million and about $150 million a year. That's been the way it goes. I'm under the gun as far as time to speak, but if anyone wanted to go through it, the math really, it's all math. We make X amount of money. From that money, we have to distribute out about 50%, so our payout ratio is one of the lowest in the industry.

With the leftover money, we use that. We lever it up at lower than 50% leverage, and we're able to grow about $100 million a year. Wash, rinse, repeat, doing this for 20-something years, and that's how it kind of goes. We feel that this is an industry, of course, that's going to continue to be strong and actually continue to strengthen. As the baby boomers age in America, everyone knows, at some point, there's a percentage that need to be taken care of in a facility, and there's no new facilities because the cost of construction is too high. Because there's not an ability to grow the supply, and the demand is going to continue to increase, usually for those economics majors, supply and demand meet over there, and it takes up capacity, and usually, that's a good return.

Again, we're on the New York Stock Exchange as well as the Tel Aviv Stock Exchange. We've been traded publicly now for over four years on the New York Exchange. We have an active pipeline Company snapshot. Like I said, I started it in 2003. I was there day one. I've bought every single asset myself. I've been there since the beginning, and until the shareholders decide that they don't want me anymore, I'll continue to work. I'm happy to go to work every single day. We realized recently on a family trip that really my natural habitat is behind a desk somewhere working. I really have no other hobbies, unfortunately. That being said, Pure Play SNF, we have today about annualized rent of about $143 million. We have over 15,000 licensed beds. We've collected our rents year in, year out.

Really that goes to how we run business. Everything is done in a very personalized, friendly way. We're not cutthroat like a lot of the other REITs that are out there, which were started by investment bankers and lawyers. We're actually accountants that started working in nursing homes and dealing with residents, and this is what we do. That same way of doing business and why we're in the business is really why I think we're so successful in how we do it, is because everybody that we deal with is done in a friendly way. Even if somebody has an issue, I deal with them personally. We're able to usually resolve anything that goes on, and that's why we're able to collect 100% of our rents the last eight, nine years straight.

Most recently, a big deal for us as part of our evolution of how we grow our company is we closed on a $200 million line of credit. That basically is going to make it that going forward, whenever we need to do a deal, we're able to draw on the line. It used to be that I have to stockpile cash, spend the cash, and then find the way to refinance it. Now we're just able to use the line of credit and then pay back the line, find permanent financing, or at some point, depending on how our stock trades, use the ATM or do an equity offering to go and lower our debt. Right now, our total debt, if you look on the chart here, we're under six times for a net debt to EBITDA.

On a debt to total leverage for us, depending on what cap rate you want to assign to the assets, we're below 50%. I think we're closer to 43% because the peers that are out there are buying things on an eight cap, eight and a half cap. We're putting everything on our books at a 10 cap. It's basically lowering the value by a couple of hundred million dollars of embedded equity that we're not recording. Again, we're at lower of cost or market, which is GAAP accounting. We're recording everything on our-- If you've read our balance sheet, you wouldn't know that we have over a billion dollars of value on top of what we have it on our books for, because we're showing a net depreciated value. With that, we have just under $74 million of AFFO.

For those of you that don't know that term, that's basically free cash flow. In the REIT world, real estate stuff, they use FFO. We don't really use NOI. We don't really use EBITDA. We use AFFO, and that's also the metric that all the REITs that are out there, if you guys are REIT people, the average REIT today is trading at 15.9 times your AFFO. We're traded at 10 and a half, which unfortunately, I don't have a catalyst to tell you of why you should buy it today because it's going to get to the 15.9. I just believe in my heart that at some point the market's going to catch up because we're running a very clean business year in, year out. We're going to celebrate 23 years, which is the group.