Strawberry Fields Sees Skilled Nursing Opportunity in $37M Skyline Portfolio

Strawberry Fields REIT LLC acquired nine skilled nursing facilities in Arkansas from the Skyline Group and, in a separate deal, one facility in Kentucky — for a combined purchase price of $42.4 million for the 10 facilities.

The South Bend-based Strawberry Fields, a real estate investment trust (REIT) that specializing in nursing homes and other health care properties, financed the acquisition with an issuance of $33 million in secured corporate debt.

The purchase price for the Arkansas portfolio was $37.98 million, with an additional $4.45 million for the Kentucky facility.

The Arkansas properties include 1,004 skilled nursing beds located throughout the state, with a census ranging from 70% to 73% occupancy.

The nine-SNF portfolio deal in Arkansas closed last Wednesday, Strawberry Fields chairman, CEO, and founder Moishe Gubin told Skilled Nursing News. The REIT is working toward buying five other Skyline facilities in the state, as well as eight total properties formerly owned by the distressed operator in Kentucky and Massachusetts.

The Skyline chain emerged from seemingly nowhere to eventually buy more than 100 buildings across the country. Earlier this year, the chain collapsed in Nebraska, Kansas, South Dakota and Pennsylvania, after running out of funds to run the facilities.

In  2016, Skyline had purchased the nine Arkansas facilities from AdCare Health Systems Inc. after being brought in as manager on April 1, 2016.  The company brought in Gubin and his partner Michael Blisko — the principals of Infinity Health Care Management, which provides consulting to long-term care facilities in several states, including Arkansas — as managers when it first began running into issues in other states, Gubin said.

“We took over April 26 under a management agreement,” Gubin told SNN. “Even now we’re under a management agreement because the state hasn’t issued a new license yet.”

Taking over distressed properties is a risky venture, and the problems that Infinity faced in Arkansas were similar to those faced by Mission Health Communities when it took over 15 former Skyline facilities in Kansas. In Arkansas, vendors wouldn’t deliver goods and services if they didn’t receive their checks, and Skyline had bounced so many checks to utilities that Infinity had to pay using wire transfers, Gubin said.

“All of this while their bookkeeping and accounting was a mess and the flow of funds was a mess, because they had working capital loans that were all in default, and the banks didn’t want to increase their exposure and lend more money,” he added.

After four months of Infinity operating the buildings, however, the SNFs are now “in substantial compliance,” though there are still some big-picture issues — particularly as Infinity deals with employees who lost insurance for a period of months despite having deductions taken out of their paychecks.

While Strawberry Fields will own the facilities, Gubin will have some overlapping ownership of the operator — typically unique to each individual facility — and the consulting company Infinity, which works with the operators in the facilities. The properties will operate under the Waters brand; Strawberry Fields has 18 Waters facilities in Indiana, 12 in Tennessee, and when all Arkansas transactions are complete, there will be 14 Waters facilities in that state.

The Arkansas master lease agreements includes a commitment by the operators to provide more than $2 million in building improvements over the next two years.

“Typically our first order of business is to safeguard the residents, and typically when operators are struggling like Skyline was, the first thing they stop doing is the maintenance to their properties,” Gubin told SNN. “So a lot of the starting-point money is not aesthetic, but infrastructural.”

The Kentucky facility, previously owned by AHF/Kentucky-Iowa, Inc., is located in Louisville and has 120 beds. It was purchased from a non-profit entity and was added to Strawberry Fields’ existing master lease with the Landmark Group. That facility has around 90% occupancy with 15% to 20% census mix.

Written by Maggie Flynn