Strawberry Fields REIT LLC (STRW) Q3 2026 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the Strawberry Fields REIT Third Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jeff Bajtner. Sir, please go ahead.

Good afternoon, and welcome to Strawberry Fields REIT's 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 the 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 on to discussing Strawberry Fields REIT and our Q3 2026 performance. I want 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 in 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 in 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 of these deals 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 acquisition for the year of $100 million to $150 million. Yesterday, the Board of Directors approved the Q4 2026 dividend, which will be $0.17 a share. The dividend will be paid on December 30 to shareholders of record on December 16. I would now like to have Greg Flamion, our Chief Financial Officer, discuss the quarter end financials.

Thank you, Jeff, and welcome, everyone, to the Strawberry Fields the 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 9 months ending September 2026. 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 of 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 3 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 9 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 on to the next slide, we will now 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 3 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 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.

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 as 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 5.4x. Our portfolio -- on the portfolio, 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.

All right. 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 like 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 $1 million 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 I'll 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 as we had -- because we -- 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 3 bond issuances. And the reason we paid off the 3 bond issuance 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, a bond 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 of interest of currency exchange, the interest rate in Israel is about 1 point or 1.5 points higher than what we ended up taking, which I think was at September 30 was 6.66% was the interest rate, I believe, on that money versus 8.5% in Israel. And so we basically saved the 2 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's just -- it moves it into 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 onetime event. In the grand scheme of things, the way I'm looking at it is we replaced with 5-year money at SOFR 2.75, which was 2 points cheaper almost than what we would have been in a fixed and a fixed product, which would have had a prepayment penalty. And so we amortize it over 5 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 6 years, our AFFO, our growth rate is over 11%, 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 it just talks about our portfolio growth. Again, this is based on what we -- is our -- a 10 cap value on our rents is really what it is. Still a 13% growth rate, which is good. Reality is as we probably are doing ourselves at disservice and it's probably more value than we're saying. And that's -- 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 6 years is still pretty good. Our stock price is holding up. Unfortunately, yesterday, there was a stock, 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. Most of the long-time 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 keep doing what we're doing. And hopefully, that's succeeding. Slide 9 just basically talks about what the between us and them. And we're trading at a 9.5 multiple. Meanwhile, our peer -- our closest peer is trading almost double which is painful for us every time I see this. And 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, disciplined how we buy as we've spoken to a lot of you folks, it's pretty wash on 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 a consistent return for our shareholders. And we expect that to continue. On the next slide, we just talk about our stock performance. But even more important really is our true return at over 10%. I think that kind of follows the value of the AFFO per share as well. So at least we're not lagging behind that, like 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 -- and our AFFO is growing at 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 -- we're above where we started, but hopefully, on a bigger chart, you'll see the growth rate has been good in the stock and hopefully, it continues to improve. Again, we're going to be at REIT week World, week, whatever it's called in 2 weeks from now in San in Atlanta. And last year, we were at that was when people were swimming out our name of the hallways and people are telling us with 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 not -- I 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. Oddly enough, the one deal that we made came with a nursing home, hospital and MOB. But all the next deals that we're going to close by the end of the year are all SNFs. On the next slide, just the same thing, pure comparison, our AFFO 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, $130 million -- probably $120 million or $130 million in the next 2 months. And we're using our own cash. We're not raising any equity. 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 good. And again, that's why our AFFO 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 from -- for this quarter. The AFFO 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 this slide out of this deck because at one point, we're worried about the bullet. But at this point now, '26 ends the year quiet, '27, '28, very little -- 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 2, 1-year renewals and it has a bond renewal. At this point, 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 the 10 cap, net assets were at 48% leverage with a net debt to EBITDA of 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're -- we have a little throughput issue that we have to work ourselves through and God willing, that will 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 the HUD debt as opposed to conventional or Israeli debt. On the next slide, as I've been saying in 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, 2 of the deals that we have are going to be 2 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 is going to be Indiana, the state we're ready to get, 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 -- so that -- I think we were at 42%. Once this transaction is done and sometime first quarter, I think that number is going to drop pretty good. Next slide, Slide 16, just given statistics of the facilities averaging 77%. I talked about how that doesn't really matter. And I'll just gloss over this slide and go to 17. On 17, we're just basically talking about how -- what our map looks like and percentages of facility types, so but it hasn't changed really quarter-over-quarter, and it remains the same. The way we buy that we've talked about over the years is 10% cash-on-cash return day 1 before leverage, and we had 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, we can model 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 are -- that won't really hit the take, but we did a couple of deals where we increased the rent and then paid something out to our tenants. So that will increase revenue. And we got a couple of other smaller things just cleaning up the portfolio a little bit to the positive, that will increase our revenue. On our last 2 slides, the first one is just basically showing 9 months ended AFFO or net income through FFO to AFFO. So look at the net income, it's really down depreciation and amortization, but it gets you FFO. Again, that's because of the foreign currency. But then once the straight-line rent and then loss of foreign currency, your AFFO gets to be $55.879 million, which is $2.5 million higher than $25 million. And EBITDA, again, net income, adding back the depreciation and interest expense keeps you below. But when you want to 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, 9 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 8.5 caps or 8.75 caps. And basically, what this is telling you that we're marking our whole balance sheet to -- not our balance sheet, we're marking like all these presentations to a 10 cap. And we're showing net assets at $1.467 billion, 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 $1.673 billion, and therefore, our net debt to net asset is 42%. So 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 8.5 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 Instructions] Our first question is going to come from the line of Gaurav Mehta with Alliance Global Partners.

I wanted to go back to your comments around the $120 million portfolio that you 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?

Yes. Gaurav, thank you for joining us, and thank you, as always, for -- 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 end the -- we should -- when all these deals close, hopefully, by 12/31, we should still be below the 50%. And just to remind you, like we've always gave guidance to say that we're looking -- our policy is between 45% and 55%. And so 50% is fine. And again, if we really look to lower cap rate and like the last thing I said in the presentation, right, we're probably closer to 45% at 8.75% cap.

Thanks for that color. 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?

So I really -- I should let Jeff answer that, but I'll just take away some of this thunder and I'll just -- the biggest part of that portfolio 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 work, we can get that deal on the contract, then you're talking about first quarter 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 like the reality is assuming we go on the contract, you 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 pipe. So when we speak next or maybe some of you individually, we'll have conversations with as soon as we get something on the 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 -- and that's pretty likely that it will 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.

Thank you, Moishe. No, we're heading towards year-end. We're working on 3 or 4 deals. One of them is we announced it's the skilled nursing facility in Angola. One of them also Mike announced or Mike mentioned in his comments that it's going to be done 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.

Yes. Likely, though, for first quarter of '20 -- I mean maybe I'm getting ahead of ourselves, and I thought that's what Gaurav was asking is I think for first quarter of '27 based on that total pipeline, there's a likelihood that -- I know we have one deal that's like Houston, a smaller deal, and then we have a couple of other things, but then we have this big deal. And if we pull up this big deal -- that will be -- that should be a nice change that will bring us over $2 billion in assets based on market value and it should be -- I don't know a game changer because everything is a 10 cap. Basically, this one is going to have a different -- a little bit of different of a metric, a longer lease, a smaller cap rate. And then when you blend it out over the life of, it's a 10 cap minimum. But that being said, it should be an exciting first quarter, and it will change us just by making us a little bit larger. And hopefully, that happens. I'm excited about that.

Our next question is going to come from the line of Richard Anderson with Cantor Fitzgerald.

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 all want the same thing, good quality care for your residents, but they could be needling from -- for property owners like yourselves. So I'm just curious if you've got your antennas up at all with the new political landscape in front of us now.

Yes. Hi, Rich.

And by the way, let me just finish the thought and how that might change -- you got a lot of stuff in front of you potentially, but how that might change the pipeline going forward. Sorry.

Yes. I appreciate the question. I could tell you that right away, one of I don't want to give away what we didn't announce yet. So -- but one of our portfolios that we're buying, this is a bigger deal that God ruling would close before the end of the year, is in a state that the blue person and the blue one 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 boom financially, there's a boom, which is not unusual. Over the years, when blue states or when it's Democrat-led government in that state, typically, the trade-off has 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 in more supervision of that regulation. So -- so historically, Illinois or reach the city of Chicago land where it's blue and the rest of the Congress state is actually red. But city Chicago, the revenue is usually there -- yes, basically, but the way they regulate has been aggressive, really aggressive to the operator and very quick to find. And it's been like that. And I've seen that -- I'm a history and I study -- this is the main business I've been in since my career started as an accounts payable bookkeeper in a nursing home in 1990 right around the beginning of 1998 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. We prefer more revenue, but really wants to take care of the residents and -- 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, but I don't have control over the care they give. So yes, 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 want to attack REITs, health care 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 equity funds that own the real estate in the nursing home world in the hospital world. So that should be an improvement. But for us, fundamentally, the way I ended up being where we are in strawberry is I found myself graduating college and taking a job as the bookkeeping in 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 with the catering business in New York and all. But from that minute on where I started working at the nursing home and like caring for people, like it's always been anyway, philosophically, we're doing -- and some by thing, 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 -- hopefully, you guys understand me. I'm not too articulate today. But the end of the day is I'm a big, big -- in our case, we're a big fan of when we find the tenants and do what we do is care is #1 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, more regulation and more enforcement of the regulation and more fines. So -- but God willing, they say the more things change more things stay the same. That's probably one of the quotes you can use for one of your articles right. But that's basically what ends up happening, right? The person who gives good care is going to be fine. And yes, 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 and 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 x amount of facilities in the state. So we're limited to where we can have a big enough portfolio -- so all right. I hope I answered you. I'm sorry, I didn't.

Yes. Yes, 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 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.

Yes. 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 2 is in the Midwest in a state that we're not in, and it's a new operator. So that will fill in the cluster in the middle. And in the Florida deal, the -- 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 6 other buildings in Florida or they have an ability to buy 6 more buildings in Florida where we would buy it and then lease a tenant in a master lease. So we didn't expect it to be a one-off. The reason why we were able to do a one-off as a starting point before getting to a bigger is because Infinity, which as you guys know, as I'm a related party to and some in ownership, at least not in operations, is now based in Florida, been there for between 5 and 10 years. And the corporate nursing and the corporate operation team, they're all Floridians. And so they -- a bunch of them are from Tampa area and the others live 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 the 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 will 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 7 facilities in the next 18 months.

And our next question is going to come from the line of Mark Smith with Lake Street.

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?

Greg can add more color, but I think if you were comparing it to what was it -- was it last year around this time was when the company gave me stock options. I assume there's 2 things in the G&A. There's -- or I'm not assuming. I know there's at least 2 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 onetime event. And then if you look at 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 you even more color.

Yes. 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 with -- 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. So...

Okay. And then second question that I have 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 if that's going to go through and potential impact?

Yes. So that's a good -- yes, that's another thing I lost over accidentally. So that transaction was it's an option that we gave the tenant, and we usually don't give options. That's that option. We have one other option out there. And I think they've been tenants right now for like 6 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 and 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 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 that along to the next guy who's a carton tenant, and they've done a fantastic job there. And so 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 announcement 3 times. They got one last appeal for like a Supreme Court or something. But they lost Baron 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 million and $100 million on this transaction. So they're going to pay us off. They're going to buy it from us and they're going to have a nice cash. 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 million 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 a question is timing. We've been waiting already 2 weeks for it. And there's a likelihood the deal closes next week. And 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. But it's -- once that deal closes, that money is going to be sitting there waiting to be spent on the new deals. And when you net 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 of that deal, you're modeling it out, you probably put -- take the current number and probably add, I don't know, like $3 million, $4 million of additional rent or something like that is going to be the change all in. So it will be strong. I mean it's -- and then we get rid of an option that's been hunting me that someone is going to exercise and now 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 higher than the range or the top end of the range of $150 million in '27. And in the grand scheme of things, we'll just -- I think Rich used the word cycle through or whatever the word was to 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 yes, we're poised to keep chugging along positively and to the same or better than what we've been.

Our next question is going to come from the line of John Massocca with B. Riley Securities.

Maybe 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 debt that needs to be paid off? Or is that just kind of the 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 deal that you quoted earlier?

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 we're -- our net cash is going to be $83 million. And of $83 million, we're going to buy in 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.

And so I guess thinking about maybe the $123 million in terms of sources for those -- the proceeds for those transactions, do you feel that between that disposition and kind of existing debt availability, you could address those potential acquisitions? Or do you think you need -- and then some additional new debt.

So actually, interestingly enough, the deal that we're doing in the new state we're going into, the reimbursement for that state requires -- it doesn't require, it's not the right word. But for reimbursement to remain the same for the tenant. So the tenant to be wants -- they're relying on that the current revenue number based on -- the revenue is generated is decided by the state and the Feds through Medicare and Medicaid. Private pay even if it's 10% or 15% is still an immaterial number. 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 million plus, plus like I said, $83 million is $126 million. $126 million is more than enough for us to meet all of these deals by end of '26.

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 1 cap rate you've targeted. It 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 given what you -- go ahead.

Yes. No, I mean, your question is good. We literally -- we had a Board meeting yesterday, and that came up in conversation where -- so this has come up multiple times over the years. 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, which -- so really, the answer is there's a balance between all of that, right? So in our case, in our case, because of the perm financing in HUD and the ability to have fixed financing with the bond debt and then you have the conventional that's variable rate, when you get through everything, like if you look at Slide 14, our blended interest rate for all of it is 5.8%. So for us to buy at a 10 cap, the 10% return on day 1 and then when you add in the benefit of -- okay, the blended is 5.8%, right? So you're able to -- I'm satisfied. And again, I answer to the shareholders and the Board, we work together in our director. 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 probably could squeeze maybe a little bit more rent or we could squeeze a little bit lower on the price somewhere. But we're happy with the ability to close because it's a balancing act to the seller. The seller says, I want this amount of money, they don't give it them what my cap rate is or how I'm buying. They want x amount of money, right? So we're happy closing the -- like we said, like $100 to $150 mark because doing that is nondilutive 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 2 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 has been working for us. So I don't know if I sound indecisive. I'm really not. It 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, 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're not going to be -- they can't trust that they could call Moishe and say, Moishe, I got a deal for you. I know your math. 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 the amount of volume we're able to buy. So -- but that's really as much color as I can give you. It's like that's -- your question is something that comes up in conversation Board level a couple of times a year and then conversation just amongst people comes up more often than less often because when rates go up, they say you should raise it. And then when rates go down, no one ever says we should lower it. And so we just go and do what we do -- and for me, being consistent and kicking off returns to the shareholders consistently at high double digits has been wise true with the model is basically the argument that other way, right? It's like why mess with it? It's going great. So I don't know. Hopefully, I did okay with your answering you?

Our next question is going to come from the line of Ken Billingsley with Compass Point Research & Trading.

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 book of business?

Yes. We -- by the way, Greg will answer that, but I'll just -- we've told people before, like we're at almost full employment. As these properties come on, we have to add one asset manager to the mix. And at some point, maybe we got to add like a paralegal or maybe a clerical person. But you're talking about a total increase in labor costs of 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 what did I do last year, a 15% bonus.

Yes.

So everyone instead of raises, and I give raises based on market. But other than that, we're still running relatively flat as far as -- we make more money. We're giving 15% bonuses to everybody, and it's clean. It's clean. And that probably will move up market -- the people on this call, me, Jeff, Greg, 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 there's no -- we don't expect any of that to change. We're not looking to buy rent and like an expensive office space somewhere. Like we're peacefully in our spaces where we are, and it's okay. Greg, do you want to add to that?

Yes. I'll just be a little bit more specific. I guess last quarter, it was -- we were a little bit less than $2 million. Looking at that number for Q4, I don't see anything that was -- that's going to 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.

Sorry, Greg, I would add to that. You have to add Moishe has a $700,000 bonus.

And I didn't even know. God bless you all. Take the money.

So as you're talking about, just to clarify, so about $2 million a quarter would be I think that assuming though that as you do these acquisitions, there is going to be some incremental increase, but at a starting point of about $2 million would be about accurate?

Yes, about $2 million will 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 -- and again, I would go with the $2 million number as of right now.

And I know you've talked a lot about the acquisition. So more of a specific question on the ones you're looking to close for fourth quarter. What are some of the risks to the closing? Is there a risk to the actual closing of the deal? Or if anything, is it more of a risk of timing?

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 2 things left to the diligence. One of them is me visiting the property, and I 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 wanted on the -- on our tenant side wanted a little bit more detail on some of the financial. So -- but the expectation is that they don't expect to find anything that's going to make the deal not occur. So -- but there is something on that deal that can still -- and I could go there on Monday and find the places to be discussing the corrected 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.

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?

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 of legal. There's a little bit of closing costs that go, but that's usually under FA 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 onetime hit generally for that. So no, you just have an increased revenue number, a little bit of 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 million is going to be SOFR 265, something like that, SOFR 270, 265. But other than that, there's nothing -- other than that, it's all -- it's top line is based on those deals and the bottom line is not affected other than the interest on that $43 million.

Thank you. And I would now like to hand the conference back over to Jeff Bajtner for closing remarks.

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 e-mail addresses. If you have any questions, please feel free to reach out. And I wish everybody a wonderful weekend.

Thank you, everybody.

This concludes today's conference call. Thank you for participating, and you may now disconnect.