Strawberry in the First Quarter: Parent Funding Reduces 2026 Maturities While Indiana Lease Coverage Relies on UPL

Strawberry opened 2026 with assets generating more rent and more NOI, meaning net operating income from rented properties, but the quarter is mainly a financing read rather than a revenue read. Rental revenue rose to $36.0 million, NOI rose to $34.7 million, and management FFO increased slightly to $21.4 million. At the same time, the company entered the rest of 2026 with large short-term maturities, a roughly $239.9 million deficit between current liabilities and current assets, and practical dependence on funding routed through Strawberry Inc.. Part of the pressure was funded after quarter-end through a debt issuance by Strawberry Inc. and a partial early redemption of the company's Series C bonds. The Indiana 2 appraisal adds the quality point: rent in the portfolio increased, the value declined to $147.1 million, and lease coverage is 1.34 only when UPL payments are included. Excluding those Medicaid supplemental payments, coverage falls to 0.37. The current picture is therefore an asset business that is still working, with a financing year that must close on time and a key Indiana tenant that depends on a regulatory reimbursement layer.

Operations Work, Debt Cost Sets the Profit

Strawberry is a U.S. income-producing real estate company that owns skilled nursing facilities, rehabilitation medical properties, and acute or long-term care centers in the United States. As of the quarter's publication date, it owns 133 income-producing properties in which 143 medical facilities operate across ten states. This is a long-term lease business with medical operators, so the important points are tenant coverage, collateral value, short-term debt, and access to financing markets.

The operating core is still strong. Rental revenue rose 10.2% year over year, mainly because of properties acquired during 2025. NOI increased 11.3%, while property rental and operating costs declined slightly. The 2025 assets are already adding rent, which is the main positive operating explanation in the quarter.

The gap starts below NOI. Net financing expenses rose from $8.0 million to $15.3 million, and net income fell from $24.0 million to $20.6 million. Part of the gap comes from exchange-rate effects and debt added in 2025. Management FFO, which adjusts for exchange-rate effects, shows a small increase to $21.4 million, so the quarter does not point to rent weakness. It points to a more expensive debt structure with currency sensitivity.

After quarter-end, a material accounting pressure was added: an approximately 11% move in the dollar-shekel rate through the signing date increased reported financing expenses by about $42 million. That is not an immediate cash outflow of the same size, but it explains why shekel debt at a dollar-reporting company can move profit more than the improvement in the assets.

2026 Maturities Moved Through the Parent

At the end of March 2026, the company had current assets of $59.1 million against current liabilities of about $299.0 million. The deficit mainly reflects 2026 maturities: Series C, Series D, current parent-company loans, loans from U.S. financial institutions, and other financial liabilities. Against this stand $52.3 million of cash and short-term deposits, more than $285 million of unencumbered assets, a 12-month support commitment from the parent and Strawberry Inc., and a new funding route at the Strawberry Inc. level.

The action already completed reduces part of the pressure. Strawberry Inc. completed a May 2026 bond issuance with a par amount of about NIS 162.7 million and provided the proceeds to the company as a back-to-back loan. The proceeds funded a partial early redemption of Series C with NIS 146.4 million par value, for total consideration of NIS 149.2 million. After the redemption, Series C will have NIS 101.4 million par value remaining for repayment in July 2026.

The debt did not disappear from the system. It partly moved one layer up. The company provided a guarantee to the trustee of Strawberry Inc.'s bonds, and the loan to the company was made on a back-to-back basis. This is therefore refinancing through the company above it, not an equity injection that erases risk. The proposed U.S. bank facility of up to $300 million is also asset-based and conditional: a $100 million secured loan, a $100 million revolving facility expandable to $200 million, interest at SOFR plus 2.75% with a 5.50% minimum, and final credit approval and due diligence still required.

For creditors, the implication is clear: the assets provide a basis for financing, but 2026 depends on additional financing actions. If the facility closes, the current-liability deficit will mostly look like a maturity-timing issue. If it is delayed, Series D, the remaining Series C, and the parent-company loans will bring liquidity back to the center of the discussion.

Indiana 2 Shows Where Lease Coverage Comes From

The Indiana 2 appraisal appendix is where the rent quality appears, not only the rent level. The portfolio includes 19 properties under The Waters name in Indiana, 1,821 operating beds, and 801.6 thousand square feet. The March 31, 2026 value was set at $147.1 million, down from $150.3 million before the appraisal.

The direction of rent and value is not intuitive. Year 1 contractual rent rose from $15.0 million to $15.4 million. At the same time, stabilized lease coverage fell from 1.51 to 1.34, and the capitalization rate, yield rate, and terminal capitalization rate increased to 10.50%, 13.00%, and 11.25%. When tenant coverage weakens and capital markets require a higher yield, a rent increase is not enough to preserve value.

The sharp disclosure is UPL, Indiana Medicaid supplemental payments. In the appraisal, stabilized lease coverage is 1.34 including UPL, but only 0.37 excluding UPL. That turns UPL from regulatory background into a component supporting rent coverage. The appraisal also notes that Indiana is changing its UPL system gradually from 2024 through 2027, and that the exact facility-level impact is uncertain.

This is not a reason to write off the portfolio's value. U.S. healthcare property tenants operate inside government reimbursement systems, and UPL can be part of the normal model. The unusual part here is the quantification: without UPL, the tenant does not cover rent at the valuation level. The checkpoint for Indiana is therefore not only occupancy or contractual rent. It is the operator's continued ability to receive the reimbursement layer that makes the rent payable.

Conclusion

Strawberry's first quarter strengthens the operation and sharpens the financing risk. The assets are producing more NOI, and management FFO remained relatively stable. Net income and operating cash flow are already absorbing the cost of debt, currency, and payables movement, and the rest of the year depends more on refinancing than on another quarter of rent.

The partial early redemption of Series C shows that Strawberry Inc. still has access to the Israeli debt market. It is not enough by itself. The rest of 2026 requires additional financing, preferably through the bank facility, without relying too heavily on asset sales or expensive terms. In parallel, Indiana 2 needs to keep showing that UPL supports lease coverage while the Indiana system changes.

The current read is a reasonable asset business inside a dense refinancing year. Higher NOI provides a base, unencumbered assets provide flexibility, and parent-company funding reduced part of the immediate risk. The next few quarters will be decided by the financing close, the repayment of the remaining Series C and Series D, and whether Indiana lease coverage remains strong enough without a favorable surprise in UPL payments.