Strawberry Fields REIT (AMEX:STRW) reported third-quarter financial results on Friday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
Strawberry Fields REIT collected 100% of its contractual rents and completed significant acquisitions, including a hospital campus and a skilled nursing facility.
The company has a robust acquisition pipeline of $400 million, with $123 million expected to close by year-end, aligning with their annual target of $100 to $150 million.
Q3 revenue increased by 4.5% year-over-year, driven by property acquisitions, but net income was significantly impacted by a $24.6 million foreign currency transaction loss.
The company maintains a strong financial position with a projected AFFO of $74.5 million and a net debt to net asset ratio of 48%.
Management expressed optimism for future growth, with plans to close additional acquisitions and maintain a consistent dividend payout.
Full Transcript
Jeffrey Bajtner (Chief Investment Officer)
Q3 2026 earnings call. I am the Chief Investment Officer, and joining me today on the call are Moishe Gubin, our chairman and CEO, and Greg Flamion, our CFO. Yesterday evening the company issued its Q3 2026 earnings results, which are available on the company’s Investor Relations website. Participants should be aware that this call is being recorded, and listeners are advised that any forward-looking statements made on today’s call are based on management’s current expectations, assumptions, and beliefs about Strawberry Fields REIT’s business and the environment in which it operates.
These statements may include projections regarding future financial performance, dividends, acquisitions, investments, returns, financings, and may or may not reference other matters affecting the company’s business or the businesses of its tenants, including factors that are beyond its control. Additionally, references will be made during this call to non-GAAP financial results. Investors are encouraged to review these non-GAAP financial measures, as well as explanation and reconciliation of these measures to the comparable GAAP results included on the Non-GAAP Measure Reconciliation page at the back of our investor presentation.
And now onto discussing Strawberry Fields REIT and our Q3 2026 performance. I wanted to start by sharing some key highlights for the quarter. During the quarter, the company collected 100% of its contractual rents. On September 9, 2026, the company completed the earlier announced acquisition of a hospital campus comprising a licensed 60-bed hospital, 99-bed skilled nursing facility, and ancillary medical office buildings near Kansas City, Missouri.
The purchase price was $10.4 million, and the company funded the acquisition from the balance sheet. The hospital campus was added to an existing master lease of a tenant in Missouri with initial base rents of $1.04 million and subject to 3% annual rent increases. Subsequent to quarter end, on November 1, 2026, the company entered into a purchase agreement for a 99-bed skilled nursing facility in Angola, Indiana, for $15 million. The company will fund the acquisition with $14 million from the balance sheet, and the seller will take $1 million in OP units.
The facility will be added to an existing master lease for our tenant in Indiana. Initial base rents will be $1.5 million and will be subject to 3% annual increases. The acquisition is expected to close before year end. As I mentioned in last quarter’s call, we have been very busy on the deal front. Our pipeline currently has $400 million of deals, of which we anticipate closing $123 million before year end. Assuming we do get these deals closed, we will have closed over $130 million of acquisitions in 2026, which falls right in the middle of our target acquisitions for the year of $100 to $150 million. Yesterday the board of directors approved the Q4 2026 dividend, which will be 17 cents a share.
The dividend will be paid on December 30th to shareholders of record on December 16th. I would now like to have Greg Flamion, our Chief Financial Officer, discuss the quarter-end financials.
Greg Flamion (Chief Financial Officer)
Thank you, Jeff, and welcome everyone to the Strawberry Fields REIT third quarter earnings call. Let’s start with the Q3 balance sheet. Total assets were $844.1 million, a decrease of $41.1 million, or 4.6%, compared to December 31, 2025. The year-over-year decline in assets was driven by lower fixed assets and cash balances at the end of the year. On the liabilities and equity side, lower debt balances were driven by third-quarter bond redemptions.
Equity was lower year over year, primarily due to a decline in accumulated comprehensive income related to foreign currency translation adjustments and offset by ATM common stock sales. Continuing now to the consolidated statement of income for the nine months ending September 30, 2026, revenue was $120 million, up $5.1 million compared to September 30, 2025. This represents a 4.5% increase, which was driven by the timing and integration of properties acquired in 2025. While we experienced higher revenues, the income growth was offset by higher depreciation, which was driven by new property acquisitions. General and administrative expenses were also higher due to higher closing costs, corporate salaries, and other operating expenses.
These increases were offset by lower amortization expense. Looking at other expenses, the company recognized a $24.6 million foreign currency transaction loss resulting from the exchange rate differences associated with the redemption of its three shekel-denominated bond series during the third quarter of 2026. As a result, year to date, net income was $3.7 million compared to $24.5 million for the nine months ended September 30, 2025. Excluding the foreign currency transaction loss, year-to-date net income would have been approximately $28.3 million, an increase of $3.7 million, or 15.2%, over the comparable period in 2025.
While reported net income declined year over year, underlying earnings increased primarily due to the contributions from properties acquired during 2025. Going now to the next slide, we will review the quarterly income statement comparison for the third quarter of 2026 versus the third quarter of 2025. Third quarter 2026 revenue was $40 million, an increase of $0.3 million compared to the third quarter of 2025. Operating expenses were $0.6 million lower than the prior-year period. Lower amortization expense and property tax expense were partially offset by higher general and administrative expenses.
The company reported a net loss of $14.8 million for the quarter, primarily due to a $24.6 million foreign currency transaction loss recognized in connection with the redemption of the shekel-denominated bond series mentioned earlier. Excluding the foreign currency transaction loss, third quarter net income would have been approximately $9.8 million, representing an increase of approximately $1.0 million, or 11%, compared to the third quarter of 2025.
Finally, I’d like to end my presentation with some financial highlights. Our 2026 projected AFFO is $74.5 million, representing an 11.1% compound annual growth rate. The 2026 projected AFFO per share growth is 10.1%. The 2026 adjusted EBITDA is $129.5 million, representing a 14% compound annual growth rate. Our yield on leases is 14.3%, and the company’s net debt to net asset ratio currently sits at 48%. As of September 30, 2026, our dividend was $0.17 a share, representing a 5.3% yield and an AFFO payout of 50.2%.
This concludes the financial portion of the earnings call presentation. I’ll now turn it back over to Jeff Bajtner, who will walk us through additional portfolio highlights.
Jeffrey Bajtner (Chief Investment Officer)
Thank you, Greg. Looking at our portfolio highlights, our portfolio currently has 145 facilities located in 10 states. These facilities are comprised of 15,655 licensed beds. Our total asset value at acquisition is $1.1 billion. Currently, our portfolio has 16 consultants advising the operators. The weighted average lease term is 6.8 years, and we’re proud to report our tenants continue to do better and better each quarter, and our rent coverage is currently at 2.24x.
Our net debt to adjusted EBITDA is 5.4. We continue to collect 100% of our rent, and as I mentioned earlier, we have an acquisition pipeline of $400 million, of which $123 million we expect to close before year end. And with that, I’ll hand it over to Moishe Gubin, our chairman and CEO, to continue with the presentation.
Moishe Gubin (Chief Executive Officer)
All right, thank you. Thank you, Jeff. I want to start, before I present the rest of the slide deck, I want to just go back to Slide 4 and just talk about, if you look at our quarter year over year, our numbers are good. It’s relatively flat, and our net income would have beat last year’s third quarter by about a million dollars if it wasn’t for the foreign currency transaction loss. And I want to add a little color because I’m sure the folks that are out there are going to want to ask about it, so might as well just talk about it now.
The foreign currency transaction loss was an accumulation that, for those that are good at accounting here, we accumulated OCI over the years, and the actual expense already found its way into interest expense throughout the years because every quarter we mark our balance sheet to the spot price of the shekel to dollar. And when this quarter ended, during that quarter we had paid off three bond issuances, and the reason we paid off the three bond issuances is because the bond market, you price at the day of the market.
And we just had the bad luck of the days that we went to price the market—you know, a bomb hit or something in Israel or whatever occurred—which ended up causing the interest rate to be too high of a rate on the bond. So as a good custodian of our company, we had a backup plan all along and we ended up taking, instead of the rate that was being quoted in Israel, even though we would have saved this $24 million in currency exchange, the interest rate in Israel is about a point or a point and a half higher than what we ended up taking, which I think at September 30th was 6.66% was the interest rate, I believe, on that money versus eight and a half in Israel. And so we basically saved the two points on the interest expense and had to then realize this currency loss, which was already in our retained earnings.
That’s why, if you go to the balance sheet, the equity didn’t change. It just moves it from an OCI, which would have been expensed as other comprehensive loss, to now be on our regular income statement above the line. And that’s what this is. So to anybody concerned about it, it’s a one-time event in the grand scheme of things. The way I’m looking at it is, you know, we replaced it with five-year money at 275, which was two points cheaper, almost, than what we would have been in a fixed product, which would have had a prepayment penalty.
And so we amortized it over five years. This $24 million turns out to be less than 1%. We end up ahead of the game. That being said, I’m going to go on with Slide 6, and I’ll also start by saying thank you, everybody, for joining us today. Happy with where we are, happy to present that we’re going to be—which Jeff brought up already—that we should end this year ahead of budget as far as buying. It happens to be, unfortunately, it’s at the end of the year as opposed to the beginning of the year. So the full financial results next year should be killer compared to this year and previous year.
That being said, if you look over the last six years, our AFFO, our growth rate is over 11% and you see it went from $43 million to $74 million. And we like that; that hopefully should continue to grow. The next slide after that just talks about our portfolio growth. Again, this is based on what is our 10 cap value on our rents is really what it is. It’s still a 13% growth rate, which is good. Reality is we probably are doing ourselves a disservice and it’s probably more value than we’re saying.
And we’ll look at the non-GAAP spreadsheet at the end of the presentation. But even so, being conservative at a 13% growth rate over the last six years is still pretty good. Our stock price is holding up. Unfortunately, yesterday there was a stock crash, which wasn’t great. I think we ended the day close to $12.60, $12.70, something like that. But otherwise we’re holding our own. We feel we’re really undervalued. At some point we hope that we get recognized and the stock price goes up.
We’re going to keep doing what we’re doing though. You know, most of the longtime shareholders that exist are holders, not sellers, and they’re happy with the growth and happy with what we’re doing. Get a lot of compliments and I’ll keep doing what we’re doing and hopefully that’s succeeding. Slide 9 just basically talks about what the difference between us and them is. And we’re trading at a nine and a half multiple. Meanwhile, our closest peer is trading almost double, which is painful for us every time I see this. But we’re going to keep pushing, and we’re going to bring in better yields, we’re going to bring in better returns. We’re going to keep doing what we’re doing. We’re committed to the disciplined growth, the discipline—how we buy.
As we’ve spoken to a lot of you folks, it’s pretty wash, rinse, repeat how we do business here. And as Jeff said earlier, again, we have all of our rents being collected. So our portfolio is performing. Our dividend, like we announced, is staying flat for this quarter. But we’re proving that we’re consistent, a consistent return for our shareholders. And we expect that to continue. On the next slide, we’ll just talk about our stock performance. But even more important really is our true return at over 10%. I mean, I think that kind of follows the value of the AFFO per share as well. So at least we’re not lagging behind that—meaning the market is discounting us at a multiple—but at the end of the day it’s staying consistent with what the stock price is growing at, that same 10% clip, because at least our AFFO is growing the same 10% clip.
So from that point of view, at least that’s good. And the stock price performance, as you see over here, we’re above where we started, but hopefully on a bigger chart you’ll see the growth rate’s been good in the stock and hopefully it continues to improve again. We’re going to be at, we’re going to be at wheat week, Wheat world, whatever it’s called, in two weeks from now in San Antonio and in Atlanta. And last year, we were at that, it was when people were screaming out our name in the hallways and people were telling us we’re the unicorn, keep doing what we’re doing.
I was actually very positively feeling about that. So now when we talk to people, I’m always proud of what we have. But the fact is we’re over 90% skilled nursing. And exactly what we’re still doing and continually growing in the skilled nursing space. You know, oddly enough, the one deal that we made came with a nursing home, a hospital and MOB. But all the next deals that we’re going to close by the end of the year are all SNF, all SNFs. On the next slide, just the same thing: peer comparison. Our FFO payout still remains way below everybody else, and that’s giving us—we’re doing all these deals without raising any equity. So we’re going to close, like Jeff said, I think $120 million, $120 million, $130 million, probably $120 million or $130 million in the next two months. And we’re using our own cash. We’re not raising any equity. You know, we can’t dilute our shareholders when the stock price is down.
So anyone owning our shares today is just going to make more money tomorrow without us diluting anybody. So the per-share growth is going to be, you know, good. And again, that’s why our AFFO per-share growth rate is higher than all of our peers, which is the slide to the right. On the next slide, again, this payout ratio, as Greg said earlier, is right around 50%. And we announced that it’s going to stay that way at this point for this quarter. The FFO per-share growth again is over 10%.
And again that matches almost exactly what the stock appreciated over the last 12 months with the same 10.1% growth rate. So again, at least the marketplace is not lowering our multiple. So that’s a positive. I’ve always been the optimist, for good or bad. Next slide just talks about our debt. We’re past this now at this point. So I mean maybe we’ll take the slide out of this deck, because at one point we were worried about the bullet. But at this point now, ’26 ends the year quiet. ’27, ’28, very little—you know, it’s the same amortization. It’s about $20 million of principal being paid down a year, maybe a drop more. ’29 is the next bullet, which has two one-year renewals, and it has bond renewal.
At this point, you know, the Israeli market wasn’t good in the last couple of deals, even though they like to claim that they did good by me, because everyone else would have been even worse. But to my point of view is I’m stronger than everybody else. We should have gotten treated a little better. So when this thing renews, most likely we probably just pay it off and move towards an exit of the Israeli market. But we’ll see what happens. It could be the market gets super strong and whatever I just said, I’ll have to eat my words.
That being said, there’s a slide later that talks about what valuation you want to put—net assets—but based on a 10 cap, net assets read 48% leverage with a net debt to EBITDA 5.4%. Those are good numbers. Blended interest rate of 5.8%. So super strong. We still like HUD. We’re working our way still through the HUD world to be able to take a bunch of our buildings to HUD. At this point we have a little throughput issue that we have to work ourselves through, and God willing that’ll happen in the next few quarters, in which case hopefully by the end of ’27 we should be able to have maybe another $100 million sitting in HUD debt as opposed to conventional or Israeli debt.
On the next slide, as I’ve been saying the last few years, it has become one of my favorite slides, where it just shows you how diversified we are with our rents, and we’re diversified by states. That’s going to continue. The deals that we’re doing now, two of the deals that we have are going to be two new states. I think we’ve announced one of them is Florida and the other one we didn’t announce yet. And then everything else is going to be Indiana is the state we’re already in, of course, and Texas, which we’re already in.
So all good. And all of the deals that we’re doing now are going to be third-party operators. Nothing, nothing. So I think we were at 42%. Once this transaction is done, sometime first quarter I think that number is going to drop pretty good. Next slide, Slide 16, just giving statistics of the facilities averaging 77%. I’ve talked about how that doesn’t really matter, and I’ll just gloss over this slide and go to 17. Then on 17 we’re just basically talking about what our map looks like and percentages of facility types. So good. It hasn’t changed really quarter over quarter and it remains the same. You know, the way we buy, like we’ve talked about over the years, is 10% cash-on-cash return day one before leverage.
Then we add a little leverage which increases our return. And all the deals that we’re doing today are all the 10 cap purchases. So all the math is exactly what we’ve told everybody. So anybody modeling our financials, you can model, you know, the $130 million or so that fully next year will add up to about $13 million of rent increase. And we got a couple of other deals that won’t really hit the tape, but we did a couple of deals where we increased the rent and then paid something out to our tenants, so that’ll increase revenue.
And we got a couple other smaller things, just cleaning up the portfolio a little bit to the positive. That’ll increase our power revenue. On our last two slides, the first one is just basically showing nine months ended AFFO or net income through FFO to AFFO. So look at the net income. It’s really depreciation and amortization that gets you to FFO. Again, that’s because of the foreign currency. But then once the straight-line rent and the loss of foreign currency, your AFFO gets to be $55,879,000, which is $2.5 million higher than 25. And EBITDA—again, net income adding back the depreciation, interest expense—keeps you below.
But when you add back the foreign currency and the straight-line rent, you end up with an adjusted EBITDA that’s $3.5 million higher than it was last year, nine months ended. So that’s pretty good. The next slide, or the last slide, which I like that we put this in here, because if you guys are following skilled nursing at all, you see that a lot of the deals from the other guys are at eight and a half caps or eight and three-quarter caps. And basically what this is telling you is that we’re marking all these presentations to a 10 cap, and we’re showing net assets at a million four sixty-seven, let’s say. And then we’re saying that our net debt to net asset is 48%.
But really we could be using the low end of this and saying really our net assets is really a billion six seventy-three, and therefore our net debt to net asset is 42%. So to the folks that are out there that are looking for a lower net debt to net asset, really you can hang your hat on saying that a cap rate of 8.75% is not unreasonable, especially when you see all these other deals—CareTrust and the other guys are doing—that are at eight and a half caps or even lower.
So with that, I want to thank everybody for joining us and I want to pass it back to the operator.
OPERATOR
Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment while we compile our Q&A roster. Our first question is going to come from the line of Gaurav Mehta with Alliance Global Partners. Your line is open. Please go ahead.
Gaurav Mehta (Analyst)
Thank you. I wanted to go back to your comments around the $140 million portfolio that you guys are looking to acquire in the next couple of months. Can you maybe talk about where you expect your leverage to be after closing that portfolio and how should we think about capacity to make more acquisitions in ’27 after that portfolio?
Moishe Gubin (Chief Executive Officer)
Yeah. Hi, Gaurav, thank you. Thank you for joining us. And thank you, as always. That’s a good question you’re asking. We model out to be below 50% in our portfolio once all of these deals close, using current cash and raising our debt a little bit to be able to fund everything. So we should, when all these deals close, hopefully by 12/31, still be below 50%. And just to remind you, like we’ve always gave guidance to say that our policy is between 45% and 55%. And so, you know, 50% is fine. And again, if we really look to, you know, lower cap rate and like the last thing I said in the presentation, we’re probably closer to 40%–45% at an eight and three-quarter cap.
Gaurav Mehta (Analyst)
Thanks for that color. The second question I have is on the pipeline. You mentioned $400 million of the pipeline. Can you maybe provide a breakdown on what’s in that pipeline? Are you looking at more portfolios, and then what kind of impact have you seen of higher rates on your pipeline?
Moishe Gubin (Chief Executive Officer)
So I really should let Jeff answer that, but I’ll just take away some of his thunder. The biggest part of the pipeline: we have a deal that’s very, very likely to get done and it’s going to be a really sizable deal. So assuming we can get that deal under contract, then you’re talking about a first-quarter deal that will meet majority of our—or more than our—budget for the year, and then everything the rest of the year will be gravy. I don’t want to make anyone crazy today, but the reality is, assuming we go under contract, you’d have to base an assumption on where our stock price goes to see whether or not we’re going to end up doing a capital raise for a portion of it. It would seem like most likely we would do a capital raise because of the leverage. But that’s kind of what’s coming down the pike. So when we speak next, or maybe some of you individually, we’ll have conversations as soon as we get something under contract, because that would be one that we would have to announce and it has to do the regular traditional audit because it’s a bigger portfolio acquisition.
So that’s the gist of the first bigger deal that’s pretty likely to occur. And with that, I’ll give it to Jeff for him to talk further about the pipeline and the deals that we’re working on.
Jeffrey Bajtner (Chief Investment Officer)
Thank you, Moishe. Notice we’re heading towards year-end. We’re working on three or four deals. One of them we announced: it’s the skilled nursing facility in Angola. One of them, also announced or Moishe mentioned in his comments, is going to be down in Florida. And then there’s another portfolio, a sizable portfolio, that we’re looking at as well. And these have all been deals that—well, a few of them have been deals that we’ve been working on since the beginning of the year.
But it’s just a matter of the deals play themselves out and they have a life of their own. But we are working very hard and diligently to get them closed before year-end. So total, as I mentioned in my remarks, it’s roughly about $123 million of deals that we’re aiming for to close before 12/31.
Moishe Gubin (Chief Executive Officer)
Yeah, likely though from 1Q ’27—I mean, maybe I’m getting ahead of ourselves, and I thought that’s what Gaurav was asking—is I think for 1Q ’27, based on that total pipeline, there’s a likelihood that I know we have one deal that’s like near Houston, smaller deal, and then we have a couple of other things. But then we have this big deal, and if we pull off this big deal, that should be a nice change that’ll bring us over $2 billion in assets based on market value.
And it should be—I don’t know about a game changer, because everything is a 10 cap, you know, basically a 10. This one is going to have a little bit of a different metric—a longer lease, a smaller cap rate—and then when you blend it out over the life of the—it’s a 10 cap minimum. But that being said, it should be an exciting first quarter, and it’ll change us just by making us a little bit larger, and hopefully that happens. I’m excited about that.
Gaurav Mehta (Analyst)
All right. Thank you. That’s all I had.
Moishe Gubin (Chief Executive Officer)
Thank you. Be well.
OPERATOR
Thank you. Our next question is going to come from the line of Richard Anderson with Cantor Fitzgerald. Your line is open. Please go ahead.
Richard Anderson (Analyst)
Hey, thanks. Good morning or afternoon, wherever you are. So I’m curious, Moishe, if you have any thoughts about midterm elections’ impact on kind of oversight from politicians in the skilled nursing space. And, you know, you all want the same thing, good quality care for your residents, but there could be, you know, needling for property owners like yourselves. So I’m just curious if you’ve got your antennas up at all with a new political landscape in front of us now.
Moishe Gubin (Chief Executive Officer)
Yeah. Hi, Rich.
Richard Anderson (Analyst)
And by the way, let me just finish the thought and how that might change—you’ve got a lot of stuff in front of you potentially—but how that might change the pipeline going forward. Sorry. Thank you.
Moishe Gubin (Chief Executive Officer)
You’re welcome. I appreciate the question. I could tell you that right away, I don’t want to give away what we didn’t announce yet, but one of our portfolios that we’re buying—this is the bigger deal that, God willing, we close before the end of the year—is in a state that the blue person, the blue won on that deal, and they’ve already announced that they’re going to raise the Medicaid rate for nursing homes for that state. So, like, right away there’s a boon—financially, there’s a boon—which is not unusual over the years when it’s Democrat-led government in that state.
Typically, the trade-off’s been more money to pay to the nursing homes, and the trade-off to that is a lot more regulation—not in the sense of more regulation, but more supervision of that regulation. Historically, Illinois—or at least the city of Chicagoland, where it’s blue and the rest of the state is actually red—but city of Chicago, you know, the revenue is usually there. But the way they regulate has been aggressive, really aggressive to the operator, and very quick to fine. And it’s been like that. And I’ve seen that. I’ve been—I’m a historian, I study. This is the main business I’ve been in since my career started as an accounts payable bookkeeper in a nursing home right around the beginning of ’98.
And this is the way it’s always been. The Republicans will leave you alone but try to lower your rates, and the Democrats will raise your rates but not leave you alone. And so a good operator really doesn’t care much either way—would prefer more revenue—but really wants to take care of the residents, which is the way I was as an operator, and now as a landlord, I’m trying to find tenants and push for the tenants to give good care, though I don’t have control over the care they give.
So, yeah, this was a midterm election that I think to some benefits. Collins losing in Maine—she was a huge proponent with Elizabeth Warren that they wanted to attack REITs, healthcare REITs, and owning nursing homes. And with her being out of the picture, that should also improve a little bit of the gusto from the Senate to go attack REITs or, you know, equity funds that own the real estate in the nursing home world and hospital world. So that should be an improvement.
But, you know, for us, fundamentally, the way I ended up being where we are at Strawberry Fields REIT is I found myself graduating college and taking a job in bookkeeping at a nursing home, not knowing I would fall in love with wanting to take care of people. And I was always in hospitality before that, you know, with the catering business in New York and all. But from that minute on of where I started working at the nursing home and caring for people, it’s always been—anyway, philosophically—you know, we’re doing, and similar at my bank, we’re doing good by the world at the same time we’re making money doing it.
But we’re not looking to not do good and try to find money by not—you know, hopefully you guys understand me. I mean, I’m not too articulate today. But at the end of the day, I’m a big, big—you know, in our case, we’re a big fan of when we find the tenants and do what we do, care is number one anyway. And I don’t really think, Rich, at the end of the day, if you sum it all up, I think the benefits are already coming in. That’s going to be good stuff. But we know already the negatives are going to be where it’s going to be more, you know, more regulation and more enforcement of the regulation and more fines. But, God willing—you know, they say the more things change, the more things stay the same. That’s probably one of the quotes you can use for one of the articles you write.
But that’s basically what ends up happening, right? The person who gives good care is going to be fine. And we’re not avoiding any states more than we’ve already been avoiding—meaning I don’t look at deals in Massachusetts, Connecticut, New York, California—and we still avoid states where there’s not enough population. Like, we’re not going to buy in Alaska, we’re not going to buy in Hawaii, we’re not going to buy in, like, Wyoming if there’s only, you know, only X amount of facilities in the state.
So we’re limited to where we could have a big enough portfolio. So. All right, I hope I answered you. I’m sorry I didn’t.
Richard Anderson (Analyst)
Yeah, yeah. Just give those politicians some soup and you’ll be fine. So the other question I have is, just looking at the map of all the different assets on page 17 of your deck and you’re moving into Florida. So I’m just looking at the cluster in the Midwest, but then you have some stuff on the outskirts. Is there any kind of asset recycling opportunities here, and maybe with one intention being to build a greater presence in Florida? I’m just curious how you’re thinking about all that on a go-forward basis.
Moishe Gubin (Chief Executive Officer)
Yeah, so that’s a good question and it’s a point that I should have made and I didn’t. So our portfolio that we’re buying that we didn’t announce exactly—hopefully in the fourth quarter, in the next month or two—is in the Midwest in a state that we’re not in, and it’s a new operator. So that’ll fill in the cluster in the middle. And in the Florida deal, it’s a sale-leaseback, and the guy who’s selling has been in the nursing home business for 30, 40 years.
And part of this arrangement is once we close this transaction, it’s expected that they have six other buildings in Florida, or they have an ability to buy six more buildings in Florida, where we would buy it and then lease a 10-minute master lease. So we didn’t expect it to be a one-off. The reason why we were able to do a one-off, you know, as a starting point before getting to a bigger is because Infinity, which, as you guys know, I’m a related party to in some ownership, at least not in operations, is now based in Florida, been there for between five and 10 years. And the corporate nursing and the corporate operation team, they’re all Floridians, and so they, you know, a bunch of them are from the Tampa area and the others live, you know, South Florida, Fort Lauderdale and Miami.
And so this, as a one-off, it was basically a hedge bet because I went to Michael and I said, Michael, we have this deal. It’s basically something we wouldn’t even look at. And he says, well, do the deal if my numbers work and worst-case scenario the team here can manage it because we live here and everyone knows Florida. Even though we don’t operate in Florida today, we know the Florida landscape, so that was why we’re willing to do this. This would be our first real one-off, but it’s a hedge bet, so that’s how we look at it.
But I’m really hoping that this ends up being a master lease of seven facilities in the next, you know, 18 months. You’re welcome. Thank you.
OPERATOR
Thank you. Our next question is going to come from the line of Mark Smith with Lake Street. Your line is open. Please go ahead.
Mark Smith (Analyst)
Hi, guys. First off, just a question on kind of P&L. G&A came in a little lower than we’d expected this quarter. Is that sustainable, or will we see that kind of come back up here in the coming quarters?
Moishe Gubin (Chief Executive Officer)
Greg, can you add more color? But I think, I think if you were comparing it to, what was it for, was it last year around this time was when the company gave me stock options. I assume, I assume there’s two things in the G&A. There’s—or I’m not assuming, I know there’s at least two things in the G&A. One is financing costs from doing the line of credit, and that was the second quarter. So if you look at last quarter, we had a bunch of money in there that was really a one-time event.
And then if you look against last year, you would see a compensation that was a catch-up and it’s lower now. I think Greg can probably expand on what I just said and maybe give even more color.
Greg Flamion (Chief Financial Officer)
Yeah, we don’t expect to have, I guess, any of these one-off events in December. So I would expect G&A to kind of be in line with where we’re at right now, I guess in regard to Q3, so that helps you out with your analysis. But again, we don’t expect anything going forward that should be higher than where we’re at right now, I guess in regard to the rate for next quarter.
Mark Smith (Analyst)
Okay. And then second question that I had was just curious if you guys can talk at all about this potential transaction in Arkansas, maybe selling off some of these facilities. Any insights you can give us on, you know, if that’s going to go through and potential impact?
Moishe Gubin (Chief Executive Officer)
Yeah, so that’s a good—that’s, yeah, that’s another thing I glossed over accidentally. So that transaction was, you know, it’s an option that we gave the tenant. We usually don’t give options. We have one other option out there, and I think they’ve been tenants right now for six years, maybe a little longer at this point. And so the deal that we made at the time—so when we bought those facilities, we bought those facilities at a relatively inexpensive price with the turnaround of me and my partner Michael fixing these facilities.
So we were the operator at the time, and we didn’t get compensated, you know, other than the net income from the operator point of view. And we took these buildings that we got a great deal on and we worked hard and turned them around and made them worth a lot more. And we were able to then pass it along to the next guy who’s a current tenant. And they’ve done a fantastic job there. And so, you know, they’ve been waiting patiently for the legal issue that’s been outstanding between the people who sold it to Strawberry, and we beat those guys in court.
Now it’s been three times. They got one last appeal for like the Supreme Court or something. But they lost fair and square. And when they lost the last time, it gave the ability for our current operator to exercise their option. They lined up financing. They’re cashing out like between $50 and $100 million on this transaction. So they’re going to pass off—they’re going to buy it from us and they’re going to have a nice cash out and good for them.
They’ve worked hard; they’ve done a good job. And it’s partially those proceeds from that—we’re doing a 1031 so that we don’t have to pay, because otherwise we’d have to dividend out all the capital gains. The true capital gain is around $60 million on this deal. And that $60 we’re going to parlay into using cash to buy the deals that we’re closing. So it’s imminent. We’re waiting for one letter, one last letter to come in from the government to allow the transaction, which is going to come.
Just question is timing. We’ve been waiting already two weeks for it. And there’s a likelihood the deal closes next week. When the deal closes next week, I think at this point I don’t even know if we have to do an 8-K because we announced today talking about it. Right. But it’s going to—it was in the 10-Q. Once that deal closes, that money is going to be sitting there waiting to be spent on the new deals. And when you dent it all together, everything we did, we’re still going to net out with a higher rent number going forward than what we have now. So with all the deals coming in versus getting paid off on that deal, through modeling it out, you’d probably take the current number and probably add, I don’t know, like $3, $4 million of additional rent or something like that is going to be the change all-in. So it’ll be strong. And then we get rid of an option that’s been haunting me that someone’s going to exercise.
And now, you know, we’ve got one last option—I think it’s like $28 million or something like that in Southern Illinois. And that’s probably—those guys are making a lot of money, so that’s probably going to happen, I assume, in ’27 sometime. But we expect to buy, you know, higher than the range or the top end of the range of $150 million in ’27. And in the grand scheme of things, you know, we’ll just—I think Rich used the word cycle through, or whatever the word was, recycle.
We’ll get rid of properties that we’ve had that have an option to go into properties that don’t have an option. Most likely. I can’t say that I’m not going to give an option to somebody if the deal makes sense. But yeah, we’re poised to keep chugging along positively and to the same or better than what we’ve been.
Mark Smith (Analyst)
Okay, great. Thank you.
Moishe Gubin (Chief Executive Officer)
Thank you, Mark.
OPERATOR
Our next question is going to come from the line of John Masoka with B. Riley Securities. Your line is open. Please go ahead.
John Masoka (Analyst)
Good afternoon. Maybe just kind of following up on the tenant purchase option. The $60 million number you quoted, is that like net proceeds ex of any kind of, you know, debt that needs to be paid off, or is that just kind of actual gain you’re making on the transaction? Just trying to think about what number to kind of use from that transaction as kind of a source of proceeds for the $123 million.
Moishe Gubin (Chief Executive Officer)
Yeah, the—yeah, the purchase price, and thank you for joining us, John. The purchase price for that deal is $90 million. That’s been the option since the beginning. So out of $90 million, we have $6 million in debt on the properties altogether. So our net cash is going to be $83 million. Out of $83 million we’re going to buy the deals that we announced. One deal is going to be $14 million in cash out the door. One deal is $21 million cash out the door.
And then lastly the remainder of that cash plus a little bit of debt is going to be for the last deal out the door. And that should leave us with enough cash to pay our dividend in December, close all those deals, have enough money for us to end the year with ample cash, and ability to still borrow against our line to do more deals in ’27.
John Masoka (Analyst)
And so I guess I’ve been thinking about maybe the $123 million in terms of sources for those proceeds for those transactions. Do you feel that between that disposition and kind of existing debt availability you could, you know, address those potential acquisitions, or do you think you need additional new debt?
Moishe Gubin (Chief Executive Officer)
No. So, actually, interestingly enough, the deal that we’re doing in the new state we’re going into, the reimbursement for that state requires—doesn’t require is not the right word—but for reimbursement to remain the same for the tenant, so the tenant-to-be wants, you know, they’re relying on that, you know, the current revenue number based on, you know, the revenues generated is decided by the state and the feds, through Medicare, Medicaid. You know, private pay, even if it’s 10% or 15%, is still an immaterial number.
You know, the rest of the house is paid for either by the state or the feds. And so reimbursement by state varies. And this state actually has a component, which most states do, but they usually have a flat number in the capital component that allows for interest by a landlord or tenant to get included as an expense, an allowable expense for capital. So the tenant-to-be said to us that they need us to put about 53% leverage on the assets that we’re buying so that their reimbursement rate doesn’t drop.
So I was glad to do it because I manage the balance sheet off of the aggregate, not off of the individual assets. So it’s perfectly fine to do so. We’re going to be borrowing about $43 million on that transaction. So you got to take that $43 plus, like I said, $83 is $126. $126 is more than enough for us to meet all of these deals by end of ’26.
John Masoka (Analyst)
Okay, I appreciate all that math. And then maybe kind of bigger picture, as you think about where interest rates have moved—and I know you kind of traditionally have had this return threshold, or this kind of day-one cap rate you’ve targeted that seems a little bit agnostic to moves in interest rates—but as interest rates have moved up, I mean, does that give you some power thinking about investments in ’27 to go beyond that 10% cash cap rate, or do you think it’s just, you know, you know, given what you’re—
Moishe Gubin (Chief Executive Officer)
Good. Good. Yeah. No, I mean, your question is good. We, we, we literally, we had a board meeting yesterday and that came up in conversation where—right. So this has come up multiple times over the years, you know, and I don’t know, all of you guys listening to this call, what your backgrounds are and stuff like, but in life, you have a choice. You can either stick with what’s working, proven time and over time, a model that works, or you adapt and you evolve.
So really the answer is there’s a balance between all of that. So in our case, because of, you know, the perm financing and HUD and the ability to have, you know, fixed financing with the bond debt, and then you have the conventional that’s variable rate, you know, when you get through everything—like if you look at Slide 14—you know, our blended interest rate for all of it is 5.8. So for us to buy at a 10 cap, you know, the 10 return on day one, and then when you add in, you know, the benefit of, you know, let’s say the blended is 5.8—right?
So you’re able to, you know—I’m satisfied. Again, I answer to the shareholders and the board—you know, we work together in our directorate—but I’m satisfied with that yield. And that’s what we’ve been doing over the years. The benefit from what you suggested—and you’re right—is that we probably could squeeze, maybe a little bit more rent or we could squeeze a little bit lower in a price somewhere. But you know, we’re happy with the ability to close, you know, because it’s a balancing act to the seller. The seller says, I want this amount of money. They don’t give a damn what my cap rate is or how I’m buying. They want X amount of money. Right. So we’re happy closing, you know, like we said, like the 100 to 150 mark, because doing that is non-dilutive to the shareholders.
I don’t have to raise equity for us to keep growing at that pace. And that presents a good yield to our shareholders. Between that growth and our dividend, we feel it’s a compelling investment at 16% when you put those two together. So I don’t need to squeeze out. And I like the benefit of knowing that we’re reliable, that we’re going to close the 100–150 every year. And that model’s been working for us. So I don’t know if I sound indecisive—I’m really not. It’s just, we debate this because it’s a good business philosophy or theory debate, which is, do you keep evolving because you should evolve, but do you keep changing and then therefore, you know, it’s not exactly—sellers in the market that know how you buy, right?
They’re not going to necessarily come to you if you’re wishy-washy or you change your pricing matrix. They can’t trust. They could call Moshe and say, hey Moshe, I got a deal for you. I know your math, you know, it’s making X and this is how much I want. Pay me and let’s close, right? I would lose that and I would lose a little bit of the stability of how we buy and, you know, the amount of volume we’re able to buy. But that’s really as much color as I could give you. Your question is something that comes up in conversation at the board level, you know, a couple times a year, and then conversationally just amongst people it comes up more often than less often because when the rates go up, they say you should raise it. And then when rates go down, no one ever says you should lower it. And so we just go and do what we do. And for me, you know, being consistent and kicking off returns to the shareholders consistently at a high double digits has been—why screw with the model is basically the argument, that other way, right?
It’s like why mess with it? You know, it’s going great. So I don’t know, hopefully I did okay with your answering you.
OPERATOR
Our next question is going to come from the line of Ken Billingsley with Compass Point Research and Trading. Your line is open. Please go ahead.
Ken Billingsley (Analyst)
Thank you. I wanted to follow up on the expense answer you have. I just want to clarify: when you talked about third quarter being a run rate, I know you said fourth quarter we could extrapolate to that, but would that be like an annualized number we should be looking at on the current local business?
Moishe Gubin (Chief Executive Officer)
Yeah, we—by the way, Greg will answer that. But I’ll just—we’ve told people before, like we’re at almost full employment. You know, as these properties come on, we have to add one asset manager to the mix, and at some point maybe we got to add, you know, like a paralegal or maybe a clerical person. But you’re talking about a total increase in labor costs of, you know, maybe 250 a year, maybe 300 a year. It’s not a big number. And as far as the current labor, we’ve been sticking with—I think, I think—what did I do last year? A 15 bonus? Yeah. So everyone, instead of raises—and I give raises based on market—but other than that, you know, we’re still running relatively flat. As far as, you know, we make more money, we’re giving 15 bonuses to everybody. And it’s clean. It’s clean. And, you know, that probably will move up, you know, market. You know, the people on this call—me, Jeff, Greg—you know, at some point those are all increases somewhere built into there.
But other than that, our space where we are and all the costs of how we run our business is—we run very lean and we don’t expect any of that to change. We’re not looking to buy or rent, you know, an expensive office space somewhere. We’re peacefully in our spaces where we are. And it’s okay. Greg, you want to add to that?
Greg Flamion (Chief Financial Officer)
Yeah, I’ll just be a little bit more specific. I guess last quarter we were a little bit less than $2 million. Looking at that number, I don’t see anything that’s gonna materially move the needle on that number. So if you guys are looking for a G&A for Q4, I’d look at $2 million.
Moishe Gubin (Chief Executive Officer)
Sorry, Greg. I would add to that. You have to add Moishe has a $700,000 bonus.
Greg Flamion (Chief Financial Officer)
Okay, well then maybe not. You’re getting it either way.
Moishe Gubin (Chief Executive Officer)
And I didn’t even know. God bless you all. Take the money. Thank you.
Ken Billingsley (Analyst)
So as you’re talking amongst yourself, just to clarify: so about $2 million a quarter would be a safe bet, assuming though that as you do these acquisitions there is going to be some incremental increase. But a starting point of about $2 million would be about accurate.
Greg Flamion (Chief Financial Officer)
Yeah. Starting point, about $2 million would be about accurate. I don’t see—again, we’re not planning on having new loans or anything else like that in Q4 that would necessitate the cost that we saw in Q2. So again, I would go with the $2 million number as of right now.
Ken Billingsley (Analyst)
And I know you’ve talked a lot about the acquisitions, so more of a specific question: on the ones you’re looking to close for the fourth quarter, what are some of the risks to the closing? Is there risk to the actual closing of the deals? Or, if anything, is it more of a risk of timing?
Moishe Gubin (Chief Executive Officer)
No, it’s—on the Florida deal, that’s timing; ready to go. On the Indiana deal, that’s also timing; ready to go. On the other deal, there’s two things left to the diligence. One of them is me visiting the property, and I would plan on going next week. And the second one is a little bit more detail to the financial statements. So the financial statements have already been spread and all the numbers work, but somebody on our tenant side wanted a little bit more detail on some of the financial.
But the expectation is that they don’t expect to find anything that’s going to make the deal not occur. But there is something on that deal that can still—I mean, I could go there on Monday and find the places to be disgusting, you know, decrepit facilities, in which case if I don’t feel good about it, we don’t do the deal. No matter how good the deal is, I generally—we won’t do it. I have to feel good about what we own. But that’s about it.
Ken Billingsley (Analyst)
And the addition of these wouldn’t likely need you to increase expense structure at least with the closing of these. That’s rolled into where you are right now.
Moishe Gubin (Chief Executive Officer)
No, no, no, because again we’re using the cash that we already have. The asset managers we currently have are going to absorb these properties, and there’s going to be a drop—legal. There’s a little bit of closing costs that go with, but that’s usually under FAS 91. I think we take that and we spread it over the life of the lease of 10 years. So it doesn’t really—there’s not a one-time hit generally for that. So no, you’ll just have an increased revenue number, a little bit increase of interest expense only because, like I said, there’s that $43 million that we’re going to take for that one deal, and that 43 is going to be, you know, so 265, something like that—so 270. 265. But other than that there’s nothing other than that. It’s—top line is based on those deals and the bottom line is not affected other than that interest on that $43 million.
Ken Billingsley (Analyst)
Great. Good luck to the end of the year.
Moishe Gubin (Chief Executive Officer)
Thank you so much. Thank you.
OPERATOR
Thank you. And I would now like to hand the conference back over to Jeff Beitner for closing remarks.
Jeff Beitner
Thank you so much. I’d like to thank everyone for joining us today. We appreciate all the questions, and at the back of the presentation there are our email addresses, so if you have any questions, please feel free to reach out, and I wish everybody a wonderful weekend. Thank you, everybody.
OPERATOR
This concludes today’s conference call. Thank you for participating. And you may now disconnect.
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