Moishe Gubin, CEO for Strawberry Fields REIT, sees the Midwest as a region particularly favorable for its business model.

In the last six months, the real estate investment trust (REIT) based in South Bend, Indiana, has enjoyed rapid expansion in the region, particularly in Missouri with a deal for eight skilled nursing facilities announced in December, and another deal for nine properties in May.

Strawberry Fields generally grows by adding properties under a master lease, especially if the assets justify entering a new market.

Looking ahead, Gubin said that the “pure play” SNF has a strong acquisition pipeline with more properties expected to be added under master leases.

The REIT’s assets are currently broken down as 92% skilled nursing facilities, 7% assisted living and 1% hospitals, but that mix might change with Gubin considering adding medical office buildings (MOBs) and long term acute care hospitals (LTACHs) to the mix. 

“The exciting thing for me is, our LTACH tenant is putting together an investor team to back them, and they want us to go find more properties for them to go into. There are other LTACHs that are struggling in the country, so they want to take that group and take the show on the road,” said Gubin.

Strawberry Fields’ portfolio includes 141 health care facilities, with 129 skilled nursing facilities, 10 assisted living facilities, and two long-term acute care hospitals. The facilities are across Arkansas, Illinois, Indiana, Kansas, Kentucky, Michigan, Missouri, Ohio, Oklahoma, Tennessee and Texas.

Gubin spoke with Skilled Nursing News about recent deals, what’s next for his company, and his own perspective on the current financial landscape for the nursing home sector.

This article has been edited for length and clarity.

Tell us a little bit more about the recent deal to acquire nine skilled nursing facilities in Missouri.

The last big deal we did towards the end of last year was a Missouri deal. Now we’re going head first into Missouri. We weren’t originally. We did eight in Missouri in December, we’re doing nine six months later. We have one more Missouri property that we have locked up that we’re going to close on – we didn’t announce it yet, typically we don’t announce deals until we close them. The middle of the country is good for our business.

Usually if it’s a big enough portfolio and we have a master lease, we go and grow in a new place. Otherwise, we do a onesie but it has to already be where we have a master lease, so we can add it to the master lease; that’s part of our model. We have 16 total leases.

SNN: The sellers in the state, are they regional owner-operators? Larger operators?

Gubin: These two deals are almost exactly opposite. The first deal was someone who recapitalized his business for growth, and he did a sale lease back. He sold assets to American Healthcare REIT, and then we bought from American Healthcare REIT. This seller has been there forever … he knows the properties and he’s a Missouri operator. His family’s from Missouri.

The second deal is a third generation nursing home operator but he lives on the East Coast, running a portfolio of about 14, 15 buildings. He’s only selling us nine and maybe once other things stabilize we’ll own all of them.

So what else is on the horizon for Strawberry Fields?

We got a really robust pipeline. We got a couple other deals that are going to close, that are going to get added to master leases. We’re not pushing anything. We have 92% skilled nursing in our portfolio. We call ourselves a pure play, SNF health care REIT. The other 7% is assisted living and 1% hospital.

The exciting thing for me is, our long-term care hospital (LTACH) tenant is putting together an investor team to back them, and they want us to go find more properties for them to go into. They’re really successful in what they’re doing as our tenants. There are other LTACHs that are struggling in the country, so they want to take that group and take the show on the road.

I’d like to buy more LTACHs for them. It’s a tiny segment of our portfolio, but it’d be nice to just have that. I know there’s been consolidation in that world.

The other thing I’m looking at is maybe medical office buildings (MOB) again. The last one that we owned, we sold a few years ago.

Now we’re seeing MOB products in the marketplace in our price range. If we do buy, we’re buying in areas where we have nursing homes. The nursing home operator can lend maintenance support. We want to buy in markets where we have nursing home tenants that are willing to take a little bit of a concession on rent in exchange for managing the MOB day to day repairs … there’s a synergy there that we could tap into. We’ll see how it plays out.

Anything else you want to mention about the financial landscape right now for the nursing home sector?

It comes down to the two different ways of reimbursement. One is cost based, and one is price based. When it comes to the states that are price based, those nursing homes are struggling. That’s typical when there’s a rising interest rate environment. On the way up, your margins are getting compressed, and on the way down, your income is expanding.

It takes years in certain states that do price-based reimbursement for nursing homes to catch up, because their budget isn’t strong enough to have an increase to cover the increase of cost. There was the shock of Covid to the cost of nursing homes, and what you see in the States is, that shock can’t be met with fixing the budget immediately and giving an increase to states that are seeing worse performance because they just don’t have the money to cover cost.

The states themselves don’t have the money to cover the increase of costs to reimburse nursing homes. The cost-based states are formulaic. They take the costs, and then they do a cost report, and then a year and a half later, you have the new rate.