# Strawberry Fields REIT, Inc. (STRW) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Strawberry Fields REIT, Inc.'s 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1782430/000149315225010144/form10-k.htm
Accession: 0001493152-25-010144
Filing date: 2025-03-13
Report date: 2024-12-31
Extracted from Item 7 to the first post-MD&A boundary after HTML sanitization.
Confidence: high

Company profile: /company/STRW/
All MD&A years: /company/STRW/mda/
Previous year: /company/STRW/mda/fy2023/ (FY 2023)
Next year: /company/STRW/mda/fy2025/ (FY 2025)

ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The
discussion below contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially
from those anticipated in these forward-looking statements as a result of various factors, including those which are discussed in the
section titled “Risk Factors.” Also see “Statement Regarding Forward-Looking Statements” preceding Part I.

The
following discussion and analysis should be read in conjunction with our accompanying consolidated financial statements and the notes
thereto.

Overview

Strawberry
Fields REIT, Inc. (the “Company”) is engaged in the ownership, acquisition, financing and triple-net leasing of skilled nursing
facilities and other post-acute healthcare properties. As of the date of this Form 10-K, our portfolio consists
of 130 healthcare facilities with an aggregate of 14,540 licensed beds. We hold fee title to 119 of these properties and hold one property
under a long-term lease. These properties are located in Arkansas, Illinois, Indiana, Kansas, Kentucky, Michigan, Missouri, Ohio, Oklahoma,
Tennessee and Texas. We generate substantially all our revenues by leasing our properties to tenants under long-term leases primarily
on a triple-net basis, under which the tenant pays the cost of real estate taxes, insurance and other operating costs of the facility
and capital expenditures. Each healthcare facility located at our properties is managed by a qualified operator with an experienced management
team.

We
employ a disciplined approach in our investment strategy by investing in healthcare real estate assets. We seek to invest in assets that
will provide attractive opportunities for dividend growth and appreciation in asset value, while maintaining balance sheet strength and
liquidity, thereby creating long-term stockholder value. We expect to grow our portfolio by diversifying our investments by tenant, facility
type and geography.

We
are entitled to monthly rent paid by the tenants and we do not receive any income or bear any expenses from the operations of such facilities.
As of the date of this report, the aggregate annualized average base rent under the leases for our properties was approximately $134.8
million.

We
elect to be taxed as a REIT for U.S. federal income tax purposes commencing with our taxable year ending December 31, 2022. We are organized
in an UPREIT structure in which we own substantially all of our assets and conduct substantially all of our business through the Operating
Partnership. We are the general partner of the Operating Partnership and as of the date of the report own approximately 22.1% of the
outstanding OP units.

34

Recent
Developments

On
March 25, 2024, the Company entered into a purchase agreement for a property comprised of a 68-bed skilled nursing facility and 10
bed assisted living facility near Georgetown, Indiana. The Company closed on the property on May 31, 2024, for $5.83 million in an
all cash transaction. The facility was leased to Infinity, a related party operator. On June 1st, 2024, the facility was
added to the IN Master Lease in the second amendment to the master lease.

On
April 1, 2024, the Company renewed the IN Master Lease (original expiration date July 31, 2025) for 10 years with two 5 years options
and added to the lease one more entity that was not part of the original lease. The base rent for the first year is $15.5 million with
3% annual escalations. On June 1, 2024, a second amendment was filed with this Master Lease to include the new property purchased in
Georgetown, Indiana.

On
April 30, 2024, the company sold a property 107 South Lincoln Street to The Village of Smithton, a municipality in Illinois and paid
off the existing mortgage. The building was sold to the municipality for $1. The Company paid $1.2 million in related debt and closing
fees for this transaction.

On
July 12, 2024, the Company filed a Registration Statement on Form S-3 with the Securities and Exchange Commission (“SEC”).
On August 1, 2024, the SEC declared the Registration Statement effective. In connection with the Registration Statement the Company established
an at-the-market equity program (the “ATM Program”). The ATM Program will allow the Company to issue and sell to the public
from time to time, at the Company’s discretion, newly issued shares of common stock. The ATM Program is expected to provide the
Company with additional financing flexibility and intends to use the net proceeds from the ATM Program to increase stock liquidity and
facilitate growth.

On
August 5, 2024, the Company issued 145.6 million NIS in Series A Bonds on the Tel Aviv stock exchange (“TASE”), which is
approximately $37.1 million. The bonds are unsecured, were issued at par and have a fixed interest rate of 6.97%. Repayment of the bond
principal, at 6% of the principal, was paid in 2024 and will be paid in 2025, with the remaining
88% due in 2026. Interest payments will be due concurrent with the principal payments on September 30th of the years 2024, 2025 and 2026.
In addition, the investors in Series D bond were offered to exchange their holdings with certificates of Series A bonds at a conversion
rate of 1.069964 bond A for each certificate of bond D. In September 2024, 47.2 million NIS ($12.7 million USD) Series D bonds have been
exchanged for 50.6 million NIS ($13.6 million) Series A bonds.

On
August 30, 2024, the Company completed the acquisition for two skilled nursing facilities with 254 licensed beds near San Antonio, Texas.
The acquisition was for $15.25 million. The Company funded the acquisition utilizing cash from the balance sheet. The facilities are
leased to the Tide Health Group, a 3rd party operator. The properties are leased in the Texas Master Lease 2, which includes
an annual base rent of $1.5 million dollars with 3% annual rent increases and an initial term of 10 years with two options of 5 year
extensions.

On September 25, 2024, the Company completed the acquisition of a property
comprised of an 83-bed skilled nursing facility and 25 bed assisted living facility near Nashville, Tennessee. The acquisition was for
$6.7 million and the Company funded the acquisition by assuming $2.8 million of existing debt on the facilities, $3.1 million in common
stock to the seller, and transferring $0.8 million of other assets to the seller. The property was leased to Infinity, a related party
operator. The property annual rent is $670 thousand dollars and the property was added to the Tennessee Master Lease 1.

On October 8, 2024, the Company entered into a Purchase and Sale Agreement
with an unaffiliated seller with respect to eight healthcare facilities located in Missouri. The purchase price for the facilities was
$87,500,000, payable at the closing. The facilities are currently leased under a master lease agreement to a group of third-party tenants.
Under the master lease, the tenants currently pay annual rent on a triple net basis. The eight facilities are comprised of 1,111 licensed
beds. The Company purchased the facilities utilizing cash from the balance sheet and funds provided by a third-party lender. The Company
closed the acquisition on December 20, 2024.

On
October 11, 2024 the Company acquired an 86-bed skilled nursing facility in Indianapolis, Indiana. The acquisition was for $6.0 million
and the Company funded the acquisition utilizing cash from its balance sheet. The facility was added to an existing master lease with
Infinity of Indiana.

On
October 14, 2024, the BVI Company issued additional Series C bonds with a par value of NIS 62.0 million ($16.6 million). The bonds
were issued at a price of 99.3% to par.

On
December 5, 2024, priced an underwritten public offering of 3,333,334 shares of its common stock for total gross proceeds (before underwriters’
discounts and commissions and offering expenses) of approximately $35 million.

On
December 20, 2024, the Company entered into an Asset Purchase Agreement with an unaffiliated seller for the purchase of six healthcare
Facilities located in Kansas. The purchase price for the Facilities was $24,000,000, payable at the closing. The Facilities will be leased
under a new 10-year master lease agreement to a group of third-party tenants. Under the master lease, (i) the tenants will be on a triple
net basis (ii) the tenants have 2 five-year options to extend the lease. The tenants operate the Facilities as five skilled nursing facilities
and one assisted living facility. The six facilities are comprised of 354 licensed beds. The Company closed the acquisition on January 2, 2025.

On
December 31, 2024 the Company completed the acquisition of a 100-bed skilled nursing
facility in Oklahoma for $5.0 million. Under the lease, the tenants initial annual rents are $500,000 on a triple net basis. As of the
date of this report, none of the Company’s tenants are delinquent on the payment of rent, and there have been no requests to amend
the terms of their respective leases to reduce current or future lease payments.

Related
Party Tenants

As
a landlord, the Company does not control the operations of its tenants, including related party tenants, and is not able to cause its
tenants to take any specific actions to address trends in occupancy at the facilities operated by its tenants, other than to monitor
occupancy and income of its tenants, discuss trends in occupancy with tenants and possible responses, and, in the event of a default,
to exercise its rights as a landlord. However, Moishe Gubin, our Chairman and Chief Executive Officer, and Michael Blisko, one of our
directors, as the controlling members of 67 of our tenants and related operators, have the ability to obtain information regarding these
tenants and related operators and cause the tenants and operators to take actions, including with respect to occupancy.

Results
of Operations

Operating
Results

Year
Ended December 31, 2024 Compared to Year Ended December 31, 2023:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,","","","Increase /","","","Percentage"],["(dollars in thousands)","","2024","","","2023","","","(Decrease)","","","Difference"],["Rental revenues","","$","117,058","","","$","99,805","","","$","17,253","","","","17.3","%"],["Expenses:"],["Depreciation","","","29,031","","","","26,207","","","","2,824","","","","10.8","%"],["Amortization","","","4,657","","","","3,028","","","","1,629","","","","53.8","%"],["Loss on real estate investment impairment","","","-","","","","2,451","","","","(2,451",")","","","100.0","%"],["General and administrative expenses","","","6,851","","","","5,662","","","","1,189","","","","21.0","%"],["Property and other taxes","","","14,489","","","","14,459","","","","30","","","","0.2","%"],["Facility rent expenses","","","727","","","","559","","","","168","","","","30.1","%"],["Total Expenses","","","55,755","","","","52,366","","","","3,389","","","","6.5","%"],["Interest expense, net","","","32,603","","","","24,443","","","","8,160","","","","33.4","%"],["Amortization of interest expense","","","657","","","","560","","","","97","","","","17.3","%"],["Mortgage Insurance Premium","","","1,548","","","","1,671","","","","(123",")","","","(7.9",")%"],["Total Interest Expenses","","","34,808","","","","26,674","","","","8,134","","","","30.5","%"],["Other income (loss)"],["Other income (loss)","","","10","","","","(983",")","","","(973",")","","","99","%"],["Foreign currency transaction gain","","","-","","","","462","","","","(462",")","","","100","%"],["Net Income","","","26,505","","","","20,244","","","","6,261","","","","30.9","%"],["Net income attributable to non-controlling interest","","","(22,410",")","","","(17,748",")","","","(4,662",")","","","26.3","%"],["Net Income attributable to common stockholders","","","4,095","","","","2,496","","","","1,599","","","","64.1","%"],["Basic and diluted income per common share","","$","0.57","","","$","0.39","","","","0.18","","","","46.2","%"]]
[[/GREPCENT_TABLE]]

35

Rental
revenues: Rental revenues during 2024 increased by $17.2 million or 17.3% compared to fiscal year 2023, The additional rental income
arising from the renegotiation of certain leases and the receipt of rent from the acquisition of 15 properties and additional property
taxes being reimbursed by the tenants.

Depreciation
and Amortization: Increase in depreciation of $2.8 million or 10.8% from fiscal year 2023 to fiscal year 2024 is primarily due to
year over year depreciation from the Indiana 2 Master Lease and $119.8 million of new real estate investments in 2024. This was offset
by other fully depreciated assets in 2024. Amortization increased $1.6 million or 53.8% due to the $24 million in acquisitions of purchase
options in 2024.

Loss
on real estate investment impairment: In February 2023, one facility under one of our Southern Illinois master leases was closed.
The closure was made at the request of the tenant and was mainly for efficiency reasons. This facility was leased under a master lease
with two other facilities. The closure did not result in any reduction in the aggregate rent payable under the master lease, which has
been paid without interruption. As a result of the closure, the Company sought to sell the property. Since the facility is no longer
licensed to operate as a skilled nursing facility, the Company wrote off its remaining book value. Subsequently, the property was sold
in 2024.

General
and Administrative Expense: The decrease in general and administrative expenses of $1.2 million or
21.0% during fiscal year 2024 compared to fiscal year 2023 is primarily the result of higher insurance, higher legal, higher corporate
salaries and other expenses.

Interest
expense, net: The increase in interest expense of $8.1 million or 33.4% from fiscal year 2023 to fiscal year 2024 is primarily related to larger
bond balances and a second commercial bank loan facility obtained in connection with the acquisition of the Indiana Facilities.

Other income (loss): In 2023, the other loss of $1.0 million was the result of a
fee paid to an investment banking firm in connection with the cancellation of an agreement with respect to a proposed financing transaction.

Net
Income: The increase in net income from $20.2 million during the year ended December
31, 2023 to $26.5 million in the year ended December 31, 2024 is primarily due to increases in rental revenue (net of increase in real
estate taxes), lower losses on real estate and other losses, offset by higher depreciation, amortization, general and administrative and
interest expenses.

Liquidity
and Capital Resources

To
qualify as a REIT for federal income tax purposes, we are required to distribute at least 90% of our REIT taxable income, determined
without regard to the dividends paid deduction and excluding any net capital gains, to our stockholders on an annual basis. Accordingly,
we intend to make, but are not contractually bound to make, regular quarterly dividends to common stockholders from cash flow from operating
activities. All such dividends are at the discretion of our board of directors.

As
of December 31, 2024, we had cash and cash equivalents and restricted cash and equivalents
of $93.7 million. We also had the ability to offer additional Series A Bonds from the current outstanding of $88.5 million up to $150.8 million. Series C Bonds from the current outstanding
of $73.3 up to $172.7 million and the ability to offer additional Series D Bonds from the current outstanding of $51.5 million up to $123.4
million is subject to compliance with covenants and market conditions.

36

Liquidity
is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain
our assets and operations, make distributions to our stockholders and other general business needs. Our primary sources of cash include
operating cash flows and borrowings. Our primary uses of cash include funding acquisitions and investments consistent with our investment
strategy, repaying principal and interest on any outstanding borrowings, making distributions to our equity holders, funding our operations
and paying accrued expenses.

Our
long-term liquidity needs consist primarily of funds necessary to pay for the costs of acquiring additional healthcare properties and
principal and interest payments on our debt. We expect to meet our long-term liquidity requirements through various sources of capital,
including future equity issuances or debt offerings, net cash provided by operations, long-term mortgage indebtedness and other secured
and unsecured borrowings.

We
may utilize various types of debt to finance a portion of our acquisition activities, including long-term, fixed-rate mortgage loans,
variable-rate term loans and secured revolving lines of credit. As of December 31, 2024, on a consolidated basis, we had total indebtedness of approximately
$673.9 million, consisting of $262.2 million in HUD guaranteed debt, $213.3 million in gross Series A, C, and D bonds outstanding and $198.4 million in commercial
mortgages. Under our Bonds and our commercial mortgages, we are subject to continuing covenants, and future indebtedness that we may incur,
may contain similar provisions. In the event of a default, the lenders could accelerate the timing of payments under the debt obligations,
and we may be required to repay such debt with capital from other sources, which may not be available on attractive terms, or at all,
which would have a material adverse effect on our liquidity, financial condition, results of operations and ability to make distributions
to our stockholders.

Our
debt arrangements may require us to make a lump-sum or “balloon” payment at maturity. Our ability to make the balloon payments
due under our existing and future indebtedness will depend on our working capital at the time of repayment, our ability to obtain additional
financing or our ability to sell any property securing such indebtedness. At the time the balloon payment is due, we may or may not be
able to refinance the existing financing on terms as favorable as the original bond or loan or sell any related property at a price sufficient
to make the balloon payment. In addition, balloon payments and payments of principal and interest on our indebtedness may leave us with
insufficient cash to pay the distributions that we are required to pay to qualify and maintain our qualification as a REIT.

Through
2027 there are six balloon payment obligations consisting of three payments
of $83.0 million, $68.2 million and $48.4 million due under the Series A Bonds, Series C Bonds and Series D bonds in 2026, respectively,
and payments of $86.1 million, $36.6 million and $52.5 million due under our three commercial bank term loans due in 2027, 2028, and 2029.
We may also obtain additional financing that contains balloon payment obligations. These types of obligations may materially adversely
affect us, including our cash flows, financial condition and ability to make distributions.

The
Company believes that its overall level of indebtedness is appropriate for the Company’s business in light of its cash flow from
operations and value of its properties and is generally typical for owners of multiple healthcare properties. The Company expects to
generate sufficient positive cash flow from operations to meet its ongoing debt service obligations and the distribution requirements
for maintaining REIT status.

37

Cash
Flows

The
following table presents selected data from our consolidated statements of cash flows:

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["","","2024","","","2023"],["(dollars in thousands)"],["Net cash provided by operating activities","","$","59,330","","","$","54,944"],["Net cash used in investing activities","","","(136,776",")","","","(106,348",")"],["Net cash provided by financing activities","","","133,344","","","","43,458"],["Net increase (decrease) in cash and cash equivalents and restricted cash and cash equivalents","","","55,898","","","","(7,946",")"],["Cash and cash equivalents, and restricted cash and cash equivalents beginning of year","","","37,758","","","","45,704"],["Cash and cash equivalents and restricted cash and cash equivalents, end of year","","$","93,656","","","$","37,758"]]
[[/GREPCENT_TABLE]]

Net cash provided by operating activities increased $4.4 million for the
year ended December 31, 2024 compared to the year ended December 31, 2023, primarily due to an increase of $6.3 million in net
income and $4.5 million increase in depreciation and amortization, offset by a smaller increase in accounts payable and an increase in
receivables.

Cash
used in investing activities increased by $30.4 million for the year ended December 31, 2024 primarily due to a $29.8 million
increase in cash used for property acquisitions in real estate and lease rights. Notes receivable decrease was also $0.6 million
lower than 2023.

Cash flows generated from financing activities increased by $89.9 million
for the year ended December 31, 2024. The increase was caused by $64.3 million in bond proceeds, a $33.0 million equity raise and no repayments
for non-controlling interest redemption. This was offset by $23.4 million in additional senior debt repayments.

Indebtedness

Mortgage
Loans Guaranteed by HUD

As
of December 31, 2024, we had non-recourse mortgage loans of $262.2 million from third
party lenders that were guaranteed by HUD.

Each
loan is secured by first mortgages on certain specified properties, interests in the leases for these properties and second liens on
the operator’s assets. In the event of default on any single loan, the loan agreement provides that the applicable lender may require
the tenants for the property securing the loan to make all rental payments directly to the lender. In exchange for the HUD guarantee,
we pay HUD, on an annual basis, 0.65% of the principal balance of each loan as mortgage insurance premium, in addition to the interest
rate denominated in each loan agreement. As a result, the overall average interest rate paid with respect to the HUD guaranteed loans
as of December 31, 2024, was 3.91% per annum (including the mortgage insurance payments).
The loans have an average maturity of 22 years.

38

Commercial
Bank Term Loans

On March 21, 2022, the Company closed a mortgage loan facility with a commercial
bank pursuant to which the Company borrowed approximately $105 million. The facility provides for monthly payments of principal and interest based on a 20-year amortization with a balloon payment
due in March 2027. The rate is based on the one-month Secured Overnight Financing Rate (“SOFR”) plus a margin of 3.5% and
a floor 4% (as of the December 31, 2024 the rate was 7.99%). As of December 31, 2024, total outstanding principal amount was $95.1 million.
This loan is collateralized by 21 properties owned by the Company. The loan proceeds were used to repay the Series B Bonds and prepay
commercial loans not secured by HUD guarantees. The Company recognized a foreign currency transaction loss of approximately $10.1 million
in connection with the repayment of the Series B Bonds during the year ended December 31, 2022.

On August 25, 2023, the Company closed a mortgage loan facility with a commercial
bank pursuant to which the Company borrowed approximately $66 million. The facility provides for monthly payments of interest and payment
of principal and interest thereafter, will start on August 2024 based on a 20-year amortization with a balloon payment due in August 2028.
The rate is based on the one-month SOFR plus a margin of 3.5% and a floor of 4% (as of the December 31, 2024, the rate was 7.99%). As
of December 31, 2024, total outstanding principal amount was $41.6 million. This loan is collateralized by 19 properties owned by the
Company. The loan proceeds were used to acquire the Indiana facilities.

On
December 19, 2024, the Company closed a mortgage loan facility with a commercial bank pursuant to which the Company borrowed
approximately $59 million. The facility provides for monthly payments of interest and payment of principal will start on January
2026 based on a 20-year amortization with a balloon payment due in December 2029. The rate and interest is based on the one-month
Secured Overnight Financing Rate SOFR plus a margin of 3.0% and a floor of 4% (as of the December 31, 2024, the rate
was 7.49%). As of December 31, 2024, total outstanding principal amount was $59 million. This loan is collateralized by 8 properties
owned by the Company. The loan proceeds were used to acquire the Missouri facilities.

The two credit facilities closed in March 21, 2022 and August 25, 2023
are subject to financial covenants which are consist of (i) a covenant that the ratio of the Company’s indebtedness to its EBITDA
cannot exceed 8.0 to 1, (ii) a covenant that the ratio of the Company’s net operating income to its debt service before dividend
distribution is at least 1.20 to 1.00 for each fiscal quarter as measured pursuant to the terms of the loan agreement (iii) a covenant
that the ratio of the Company’s net operating income to its debt service after dividend distribution is at least 1.05 to 1.00 for
each fiscal quarter as measured pursuant to the terms of the loan agreement, and (iii) a covenant that the Company’s GAAP equity
is at least $20,000,000. As of December 31, 2024, the Company was in compliance with the loan covenants.

The
credit facility closed on December 19, 2024 is subject to financial covenants which consist of (i) a covenant that the ratio of the
Company’s indebtedness to its EBITDA cannot exceed 8.0 to 1, (ii) a covenant that the ratio of the Company’s net
operating income to its debt service before dividend distribution is at least 1.25 to 1.00 for each fiscal quarter as measured
pursuant to the terms of the loan agreement (iii) a covenant that the ratio of the Company’s net operating income to its debt
service after dividend distribution is at least 1.05 to 1.00 for each fiscal quarter as measured pursuant to the terms of the loan
agreement, and (iii) a covenant that the Company’s GAAP equity is at least $30,000,000. As of December 31, 2024, the Company
was in compliance with the loan covenants.

Outstanding
Bond Debt

As of December 31, 2024, the Company had outstanding Series A, Series C
Bonds and Series D Bonds.

Series
A Bonds

In
November 2015, the Company, through a subsidiary, issued Series A Bonds in the face amount of NIS 265.2 million ($68 million) and received
the net amount after issuance costs of NIS 251.2 million ($64.3 million). Since then the Company extended the series amount twice in
September 2016 and May 2017 and received a combined net amount of $30.1 million. The Series A Bonds had an original interest rate of
6.4% per annum. The Series A Bonds were paid off on November 8, 2023.

Series
A Bonds

In
August 2024, Strawberry Fields, Inc completed, directly, an initial offering on the Tel Aviv Stock Exchange (“TASE”) of Series
A Bonds with a par value of NIS 145.6 million ($37.1 million). The series A Bonds were issued at par. Offering and issuance costs of
approximately $1.0 million were incurred at closing. In December 2024, the Inc company issued an additional NIS 145.6 million ($38.1
million) in Series A Bonds.

Exchange
of Series D Bonds for Series A Bonds

In
September 2024 the Company made an exchange tender offer of outstanding Series D Bonds for Series A Bonds. The interest rate on Series
D Bonds is 9.1% per annum. The exchange offer rate was 1.069964 Series A Bonds per Series D Bonds. As a result of this offer, 47,245,161
NIS Series D Bonds ($12.7 million) were exchanged for 50,550,621 NIS Series A Bonds ($13.6 million).

As
of December 31, 2024 the outstanding balance of the Series A Bonds was NIS 322.8 million ($88.5 million), given the August 2024
issuance, the September 2024 exchange of Series D bonds for Series A bonds, as well as the additional bond issuance in December
2024.

The
Series A Bonds are traded on the TASE.

Series
C Bonds

In
July 2021, the BVI Company completed an initial offering of Series C Bonds with a par value of NIS 208.0 million ($64.7 million). The
Series C Bonds were issued at par. During February 2023, the BVI Company issued additional Series C Bonds in the face amount of NIS 40.0
million ($11.2 million) and raised a net amount of NIS 38.1 million ($10.7 million). These Series C Bonds were issued at a price of 95.25%. In October 2024, the BVI company issued an additional NIS
62.0 million ($16.6 million) in Series C Bonds. The bonds were issued at 99.3%.

39

As
of December 31, 2023, the outstanding principal amount of the Series C Bonds was NIS 267.5 million ($73.3 million).

The
Series C Bonds are traded on the TASE.

Series
D Bonds

In June 2023, the BVI Company completed an initial offering of Series D Bonds
with a par value of NIS 82.9 million ($22.9 million). The Series D Bonds were issued at par. During August 2023, the BVI Company issued
additional Series D Bonds in the face amount of NIS 70.0 million ($19.2 million) and raised a net amount of NIS 152.9 million ($42.1 million).
These Series D Bonds were issued at a price of 99.7%. On February 8, 2024, the BVI Company issued additional NIS 98.2 million ($25.7 million)
Series D Bonds. These Series D Bonds were issued at a price of 106.3%.

Exchange
of Series D Bonds for Series A Bonds

In September 2024 the Company made an exchange tender offer of outstanding Series D Bonds for Series A Bonds. The
interest rate on Series D Bonds is 9.1% per annum. The exchange offer rate was 1.069964 Series A Bonds per Series D Bonds. As a result
of this offer, 47,245,161 NIS Series D Bonds ($12.7 million) were exchanged for 50,550,621 NIS Series A Bonds ($13.6 million).

As of December 31 2024, the Series D Bonds had an outstanding principal
balance of approximately NIS 187.2 ($51.5 million).

Summary
of fixed and variable loans:

[[GREPCENT_TABLE]]
[["","","December 31,"],["","","2024","","","2023"],["","","(Amounts in $000s)"],["Fixed rate loans","","$","475,494","","","$","374,335"],["Variable rate loans","","","198,441","","","","164,810"],["Gross Notes Payable and other Debt","","$","673,935","","","$","539,145"]]
[[/GREPCENT_TABLE]]

Funds
From Operations (“FFO”)

The
Company believes that net income as defined by GAAP is the most appropriate earnings measure. We also believe that funds from operations
(“FFO”), as defined in accordance with the definition used by the National Association of Real Estate Investment Trusts (“NAREIT”),
and adjusted funds from operations (“AFFO”) are important non-GAAP supplemental measures of our operating performance. Because
the historical cost accounting convention used for real estate assets requires straight-line depreciation (except on land), such accounting
presentation implies that the value of real estate assets diminishes predictably over time. However, since real estate values have historically
risen or fallen with market and other conditions, presentations of operating results for a REIT that use historical cost accounting for
depreciation could be less informative. Thus, NAREIT created FFO as a supplemental measure of operating performance for REITs that excludes
historical cost depreciation and amortization, among other items, from net income, as defined by GAAP. FFO is defined as net income,
computed in accordance with GAAP, excluding gains or losses from real estate dispositions, plus real estate depreciation and amortization.
AFFO is defined as FFO excluding the impact of straight-line rent, above-/below-market leases, non-cash compensation and certain non-recurring
items. For the year ended December 31, 2023, we excluded as non-recurring items a gain in the amount of $0.5 million
in reclassification of foreign currency transactions the Company recorded with respect to foreign currency fluctuations that the Company
realized at the time of bond principal payment. We believe that the use of FFO, combined with the required GAAP presentations, improves
the understanding of our operating results among investors and makes comparisons of operating results among REITs more meaningful. We
consider FFO and AFFO to be useful measures for reviewing comparative operating and financial performance because, by excluding the applicable
items listed above, FFO and AFFO can help investors compare our operating performance between periods or as compared to other companies.

While
FFO and AFFO are relevant and widely used measures of operating performance of REITs, they do not represent cash flows from operations
or net income as defined by GAAP and should not be considered an alternative to those measures in evaluating our liquidity or operating
performance. FFO and AFFO also do not consider the costs associated with capital expenditures related to our real estate assets nor do
they purport to be indicative of cash available to fund our future cash requirements. Further, our computation of FFO and AFFO may not
be comparable to FFO and AFFO reported by other REITs that do not define FFO in accordance with the current NAREIT definition or that
interpret the current NAREIT definition or define AFFO differently than we do.

40

The
following table reconciles our calculations of FFO and AFFO for the years ended December 31, 2024 and 2023, to net income, the most directly
comparable GAAP financial measure (in thousands):

FFO
and AFFO:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2024","","","2023"],["Net income","","$","26,505","","","$","20,244"],["Depreciation and amortization","","","33,688","","","","29,235"],["Funds from Operations","","","60,193","","","","49,479"],["Adjustments to FFO:"],["Straight-line rent","","","(4,368",")","","","(30",")"],["Straight-line rent receivable write-off(1)","","","-","","","","230"],["Contact cancellation expense for proposed financing(2)","","","-","","","","1,000"],["Loss on real estate impairment (3)","","","-","","","","2,451"],["Foreign currency transaction gain","","","-","","","","(462",")"],["Funds from Operations, as Adjusted","","$","55,825","","","$","52,668"]]
[[/GREPCENT_TABLE]]

(1)
In 2023 the Company recognized a loss of $0.2 million due to the write-off
of straight-line rent receivables related to the Southern Illinois facilities.

(2)
In 2023 the Company incurred a non-recurring expense of $1.0 million in
the second quarter of 2023 in connection with the cancellation of a contract with an investment banking firm related to a proposed financing.

(3) Loss
on real estate investment impairment: In February 2023, one facility under one of our Southern Illinois master
leases was closed. The closure was made at the request of the tenant and was mainly for efficiency reasons. This facility was leased under
a master lease with two other facilities. The closure did not result in any reduction in the aggregate rent payable under the master lease,
which was paid without interruption. As a result of the closure, the Company is seeking to sell the property. Since the facility is no
longer licensed to operate as a skilled nursing facility, the Company wrote off its remaining book value.

Dividend
Plans

We
are required to pay dividends in order to maintain our REIT status and we expect to make quarterly dividend payments in cash with the
annual dividend amount no less than 90% of our annual REIT taxable income, determined without regard to the dividends paid deduction
and excluding any net capital gains.

Critical
Accounting Policies

The
preparation of consolidated financial statements in conformity with generally accepted accounting principles, or GAAP, in the United
States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting period. Management considers accounting estimates or assumptions critical in either of the following cases:

●
the nature of the estimates or assumptions is material because of the levels of subjectivity and judgment needed to account for matters
that are highly uncertain and susceptible to change; and

●
the effect of the estimates and assumptions is material to the consolidated financial statements.

Management
believes the current assumptions used to make estimates in the preparation of the consolidated financial statements are appropriate and
not likely to change in the future. However, actual experience could differ from the assumptions used to make estimates, resulting in
changes that could have a material adverse effect on our consolidated results of operations, financial position and/or liquidity. These
estimates will be made and evaluated on an on-going basis using information that is available as well as various other assumptions believed
to be reasonable under the circumstances.

The
following presents information about our critical accounting policies including the material assumptions used to develop significant
estimates. Since the Company was recently formed and just completed the formation transactions, certain of these critical accounting
policies contain discussion of judgments and estimates that have not yet been required by management but that it believes may be reasonably
required of it to make in the future.

41

Principles
of Consolidation

The
consolidated financial statements include the accounts of our Operating Partnership and its wholly owned subsidiaries, and all material
intercompany transactions and balances are eliminated in consolidation.

From
inception, we continually evaluate all of our transactions and investments to determine if they represent variable interests subject
to the variable interest entity, or VIE, consolidation model and then determine which business enterprise is the primary beneficiary
of its operations. We make judgments about which entities are VIEs based on an assessment of whether (i) the equity investors as a group,
if any, do not have a controlling financial interest, or (ii) the equity investment at risk is insufficient to finance that entity’s
activities without additional subordinated financial support. We consolidate investments in VIEs when we are determined to be the primary
beneficiary. This evaluation is based on our ability to direct and influence the activities of a VIE that most significantly impact that
entity’s economic performance.

For
investments not subject to the variable interest entity consolidation model, we will evaluate the type of rights held by the limited
partner(s) or other member(s), which may preclude consolidation in circumstances in which the sole general partner or managing member
would otherwise consolidate the limited partnership. The assessment of limited partners’ or members’ rights and their impact
on the presumption of control over a limited partnership or limited liability corporation by the sole general partner or managing member
should be made when an investor becomes the sole general partner or managing member and should be reassessed if (i) there is a change
to the terms or in the exercisability of the rights of the limited partners or members, (ii) the sole general partner or member increases
or decreases its ownership in the limited partnership or corporation, or (iii) there is an increase or decrease in the number of outstanding
limited partnership or membership interests.

Our
ability to assess correctly our influence or control over an entity at inception of our involvement or on a continuous basis when determining
the primary beneficiary of a VIE affects the presentation of these entities in our consolidated financial statements. Subsequent evaluations
of the primary beneficiary of a VIE may require the use of different assumptions that could lead to identification of a different primary
beneficiary, resulting in a different consolidation conclusion than what was determined at inception of the arrangement.

Revenue
Recognition

We
recognize rental revenue for operating leases on a straight-line basis over the lease term when collectability is reasonably assured
and the tenant has taken possession or controls the physical use of a leased asset. For assets acquired subject to leases, we recognize
revenue upon acquisition of the asset provided the tenant has taken possession or control of the physical use of the leased asset. If
the lease provides for tenant improvements, we determine whether the tenant improvements, for accounting purposes, are owned by the tenant
or us. When we are the owner of the tenant improvements, the tenant is not considered to have taken physical possession or have control
of the physical leased asset until the tenant improvements are substantially completed.

When
the tenant is the owner of the tenant improvements, any tenant improvement allowance funded is treated as a lease incentive and amortized
as a reduction of revenue over the lease term. The determination of ownership of the tenant improvements is subject to significant judgment.
If our assessment of the owner of the tenant improvements for accounting purposes were different, the timing and amount of our revenue
recognized would be impacted.

We
monitor the liquidity and creditworthiness of our tenants and operators on a continuous basis to determine the need for an allowance
for doubtful accounts, including an allowance for operating lease straight-line rent receivables, for estimated losses resulting from
tenant defaults or the inability of tenants to make contractual rent and tenant recovery payments. This evaluation considers industry
and economic conditions, property performance, credit enhancements and other factors. For straight-line rent amounts, our assessment
is based on income recoverable over the term of the lease. We exercise judgment in establishing allowances and consider payment history
and current credit status in developing these estimates. These estimates may differ from actual results, which could be material to our
consolidated financial statements. As of December 31, 2024 and 2023 we determined that no allowance was necessary to cover the potential
loss of rent from our tenants.

42

Real
Estate Investments

We
make estimates as part of our allocation of the purchase price of acquisitions (whether an asset acquisition acquired via purchase/leaseback
or a business combination via an asset acquired from the current lessor) to the various components of the acquisition based upon the
relative fair value of each component for asset acquisitions and at fair value of each component for business combinations. In making
estimates of fair values for purposes of allocating purchase prices of acquired real estate, we utilize a number of sources, including
independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market
data. We also consider information obtained about each property as a result of our pre-acquisition due diligence, marketing and leasing
activities in estimating the fair value of the tangible and intangible assets acquired. The most significant components of our allocations
are typically the allocation of fair value to land and buildings and, for certain of our acquisitions, in-place leases and other intangible
assets. In the case of the fair value of buildings and the allocation of value to land and other intangibles, the estimates of the values
of these components will affect the amount of depreciation and amortization we record over the estimated useful life of the property
acquired or the remaining lease term. In the case of the value of in-place leases, including the assessment as to the existence of any
above-or below-market in-place leases, our management makes its best estimates based on the evaluation of the specific characteristics
of each tenant’s lease. Factors considered include estimates of carrying costs during hypothetical expected lease-up periods, market
conditions and costs to execute similar leases. These assumptions affect the amount of future revenue that we will recognize over the
remaining lease term for the acquired in-place leases. The values of any identified above-or below-market in-place leases are based on
the present value of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s
estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable
term of the lease, or for below-market in-place leases including any bargain renewal option terms. Above-market lease values are recorded
as a reduction of rental income over the lease term while below-market lease values are recorded as an increase to rental income over
the lease term. The recorded values of in-place lease intangibles are recognized in amortization expense over the initial term of the
respective leases.

We
evaluate each purchase transaction to determine whether the acquired assets meet the definition of a business. Transaction costs related
to acquisitions that are not deemed to be businesses are included in the cost basis of the acquired assets, while transaction costs related
to acquisitions that are deemed to be businesses are expensed as incurred.

Asset
Impairment

Real
estate asset impairment losses are recorded when events or changes in circumstances indicate the asset is impaired and the estimated
undiscounted cash flows to be generated by the asset are less than its carrying amount. Management assesses the impairment of properties
individually and impairment losses are calculated as the excess of the carrying amount over the fair value of assets to be held and used,
and carrying amount over the fair value less cost to sell in instances where management has determined that we will dispose of the property.
In determining fair value, we use current appraisals or other third-party opinions of value and other estimates of fair value such as
estimated discounted future cash flows.

Factors
That May Influence Future Results of Operations

Our
revenues are primarily derived from rents we earn pursuant to the lease agreements we enter into with our tenants. Our tenants operate
in the healthcare industry, generally providing nursing and medical care to patients. The capacity of our tenants to pay our rents is
dependent upon their ability to conduct their operations at profitable levels. We believe that the business environment of the industry
segments in which our tenants operate is generally positive for efficient operators. However, our tenants’ operations are subject
to economic, regulatory and market conditions that may affect their profitability, which could impact our results of operations. Accordingly,
we actively monitor certain key factors, including changes in those factors that we believe may provide early indications of conditions
that may affect the level of risk in our lease portfolio.

43

Key
factors that we consider in underwriting prospective tenants and borrowers and in monitoring the performance of existing tenants include,
but are not limited to, the following:

●
the current, historical and projected cash flow and operating margins of each tenant and at each facility;

●
the ratio of our tenants’ operating earnings both to facility rent and to facility rent plus other fixed costs, including debt
costs;

●
the quality and experience of the tenant and its management team;

●
construction quality, condition, design and projected capital needs of the facility;

●
the location of the facility;

●
local economic and demographic factors and the competitive landscape of the market;

●
the effect of evolving healthcare legislation and other regulations on our tenants’ profitability and liquidity;

●
the payor mix of private, Medicare and Medicaid patients at the facility; and

●
whether such tenants are related parties.

One
of our goals is to reduce our dependence on related party tenants in order to diversify our tenant base. Although we expect to continue
to lease properties to related party tenants in markets in which the related party tenants have substantial experience and operations,
we intend to lease properties in other markets to unrelated tenants if we are able to identify qualified operators. Additionally, we
will consider leasing properties to unrelated parties in markets in which related parties operate if we are able to identify qualified
operators that are willing to lease properties on terms that are no less favorable than those available from related parties.

We
also actively monitor the credit risk of our tenants. The methods we use to evaluate a tenant’s liquidity and creditworthiness
include reviewing certain periodic financial statements, operating data and clinical outcomes data of the tenant. Over the course of
a lease, we also have regular meetings with the facility management teams. Through these means we are able to monitor a tenant’s
credit quality.

Certain
business factors, in addition to those described above that directly affect our tenants, which in turn will likely materially influence
our future results of operations:

●
the financial and operational performance of our tenants;

●
trends in the cost and availability of capital, including market interest rates, which our prospective tenants may use for their working
capital financing;

●
reductions in reimbursements from Medicare, state healthcare programs and commercial insurance providers that may reduce our tenants’
profitability and our lease rates; and

●
competition from other financing sources.

44

Inflation

We
are exposed to inflation risk as income from long-term leases are a main source of our cash flows from operations. For our leased properties,
we expect there to be provisions in the majority of our leases that will protect us from the impact of inflation. These provisions may
include rent escalators, and leases that are triple-net. However, due to the long-term nature of the anticipated leases, among other
factors, the leases may not re-set frequently enough to cover inflation.