Strawberry Fields REIT, Inc. (STRW) FY 2022 MD&A

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. Currently, our portfolio consists of 79 healthcare properties with an aggregate
of 10,351 licensed beds. We hold fee title to 78 of these properties and hold one property under a long-term lease. These properties
are located in Arkansas, Illinois, Indiana, Kentucky, Michigan, 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 December 31, 2022, the aggregate annualized average base rent under the leases for our properties was approximately $82.5 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 12.0% of the
outstanding OP units.

Recent
Developments

COVID-19
Update

The
pandemic caused by the coronavirus known as COVID-19 has not had a material adverse effect on the Company’s financial performance,
results of operations, liquidity or access to financing. However, the Company’s operations and financial performance are dependent
on the ability of its tenants to meet their lease obligations to the Company.

To
the Company’s knowledge and based on information provided to the Company by our tenants, the financial effects of the pandemic
on the Company’s tenants have increased operating costs resulting from the implementation of safety protocols and procedures our
tenants are taking to prevent and mitigate the potential outbreak and spread of COVID-19 at their facilities. Our tenants are also experiencing
labor shortages resulting in limited admissions, reduced occupancy and higher agency expenses. The Company believes that the declines
in occupancy were primarily due to declining referrals as a result of hospitals postponing elective surgeries as well as patients’
concerns regarding the risk of infection from COVID-19.

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As
a result of the COVID-19 pandemic, our tenants have received financial support under several government programs. These programs consisted
of forgivable loans under Paycheck Protection Program, grants to operators under the Coronavirus Aid, Relief and Economic Security (CARES)
Act in an amount equal to 2% of their historical annual revenues, accelerated payments under Medicare, and increased funding for Medicaid
patients by some state governments. The financial support provisions of the CARES Act expired during 2022.

The
Company’s management does not expect that the discontinuation of these government programs will have a material adverse effect
on the tenants’ ability to pay rent for four reasons. First, the Company’s management believes that most nursing home residents
in the United States have received vaccines for COVID-19, which have been effective in preventing serious illness. Second, occupancy
significantly increased between April 2021 and March 2023. Third, most of the Company’s tenants have the ability to maintain profitability
notwithstanding the decrease in revenues because approximately 85% to 90% of their operating costs are variable items (such as labor
costs, food, drugs and supplies, including personal protection equipment and cleaning supplies) that can be reduced when occupancy decreases.

To
the Company’s knowledge, its tenants are complying with all applicable governmental requirements and guidelines for addressing
the risks posed by COVID-19. Although there have been a limited number of confirmed cases of COVID-19 at the facilities operated by the
Company’s tenants, to its knowledge, other than our tenants operated under two master leases for a combine six facilities in central
Illinois, these cases have not had a material impact on any of the operators.

Other
Recent Developments

On
April 4, 2022, we were notified that the tenants under the master leases for 6 facilities located in central Illinois intended to default
with respect to their lease agreements due to operating losses. The tenants indicated that their operating losses were due in part to
decreased occupancy caused by COVID-19. The tenants are affiliates of Steven Blisko, who is the brother of Michael Blisko, one of our
directors. These leases provided for a combined rent of $225,000 per month, or $2.7 million per year. All payments due under these leases
were paid through mid-June 2022. On July 1, 2022, the Company entered into new lease agreements with an unaffiliated third-party operator
to lease these properties. The new leases have terms of 10 years each and provide for a combined average base rent of $180,000 per month,
or $2.3 million per year over the life of the leases. The Company recognized a loss of approximately $1,075,000 in the second quarter
of 2022 due to the write-off of straight-line rent receivable related to the former leases.

In
October 2022, the Company extended a line of credit in the amount of $2.5 million to the new tenants for the Southern Illinois properties.
This line of credit is secured by accounts receivable of the tenants. The line of credit bears interest at the greater of the prime rate
or 4% per annum, plus margin of 2.75%. The maturity date of the line of credit is August 31, 2024.

On
January 3, 2023, the Company acquired the underlying property for $6.0 million, including $1 million in finder fees and $0.7
million in leasehold improvements, which was paid in cash. This property contains a skilled nursing facility with 120 licensed beds
and approximately 34,824 square feet. Concurrently with the closing of the acquisition, we added the property to an existing master
lease with an unaffiliated third-party operator. The lease has an initial term of 10 years, with two 5-year extension options.
The initial annualized base rent is $600,000 with 3% annual rent escalation. In addition, the loan made
in August 2022 to the seller was repaid at closing.

During
February 2023, the Company issued an additional NIS 40.00 million in par value of Series C Bonds and received a gross
amount of $10.73 million (NIS 38.1 million). The debentures were issued at a price of 95.25%.

In
February 2023 one of the SNF’s owned by the Company in Southern Illinois was closed. The closure was a result of the tenant request
and mainly for efficiency reasons. This SNF is under a master lease with 5 other facilities and the full amount of the rental
payment under the master lease are continuing to be paid.

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As
of the date of this report, none of the Company’s tenants are delinquent on the payment of rent, and none of them have requested
the Company to amend the terms of their 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 41 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, 2022 Compared to Year Ended December 31, 2021:

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Rental
revenues: Rental revenues during 2022 increased by $5.5 million or 6.3% compared to fiscal year 2021 due to the six new
properties acquired in August of 2021. This increase was offset by a one-time loss of $1.1 million in the second quarter of 2022
due to the write-offs of straight-line rent receivables related to certain defaulted leases. Additionally, revenue was increased by
$1.9 million due to additional property taxes being reimbursed by the tenants.

Depreciation
and Amortization: Increase in depreciation of $1.07 million or 4.4% from fiscal year 2021 to fiscal year 2022 is primarily due
to $64.1 million of new real estate investments in the third quarter of 2021.

General
and Administrative Expense: Decrease in general and administrative expenses of $0.3 million or 4.5% during fiscal year 2022
compared to fiscal year 2021 is primarily due to no stock-based compensation expense in 2022. In 2021, $250,000 of stock-based
compensation was recognized.

Property
and other Taxes: The increase in property taxes of $2.5 million or 23.6% during fiscal year 2022 compared to fiscal year 2021 is
primarily due to increases in real estate taxes on gross leased properties and Tennessee franchise taxes paid in 2022.

(Credit)
Provision for Doubtful Accounts: During 2022, the Company recognized $5.6 million in income from the successful foreclosure of mortgages
held by the Company on properties located in Massachusetts with respect to loans written off on December 31, 2021. The decrease in the
provision for doubtful accounts of $10.8 million is primarily related to this recovery.

Interest
expense, net: The decrease in interest expense of $0.8 million or 3.6% from Fiscal year 2021 to fiscal year 2022 is primarily
related to lower amount of bond principal and decline in total debt.

Gain
from Sale of Real Estate Investments: There were no gains from the sale of real estate during 2022 because there were no asset dispositions
during this year.

Foreign
Currency Transaction Loss: Our bond indebtedness is denominated in NIS. As
a result, we are subject to potential foreign currency transaction loss due to changes in the value of the U.S. dollar relative to
the New Israel Shekel. In 2022, we recorded a foreign currency transaction loss of $10.9 million in
connection with the repayment of the Series B Bonds in 2022

Net
Income: The increase in net income from $8.4 million during the year ended December 31, 2021 to $16.4 million in the year ended
December 31, 2022 is mainly due to increases in rental revenue (net of increase in real estate taxes) and recoveries of provisions made during fiscal year 2021 offset by the
increase in foreign currency transaction losses of $2.2 million, and the absence of the $3.8 million in gain from sale of real
estate investments recorded in 2021.

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, 2022, we had cash and cash equivalents and restricted cash and equivalents of $45.7 million. We also had the ability
to offer additional Series C Bonds from the current outstanding of $55.69 million up to $179 million subject to compliance with covenants
and market conditions.

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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, 2022, on a consolidated basis, we had total indebtedness
of approximately $456.8 million, consisting of $275.8 million in HUD guaranteed debt, $75.8 million in net Series A Bonds and Series
C Bonds outstanding and $105.2 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 two balloon payment obligations consisting of a payment of $44.9 million due under the Series C Bonds in 2026 and a payment
of $86.0 million due under our commercial bank term loan due in 2027. 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

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Cash
Flows

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

Net
cash provided by operating activities increased $6.1 million for the year ended December 31, 2022 compared to the year
ended December 31, 2021, primarily due to an increase of $8 million in net income.

Cash
used in investing activities for the year ended December 31, 2022 primarily consisted of a net increase in notes receivable of $9.6
million, of which $8.0 million is a result of a note purchased related to our Arkansas properties and a loan of $2 million made to
an unaffiliated nursing home operator in Illinois. The decrease of $48.2 million compared to the year ended December 31, 2021 is due
to the decrease in real estate purchases partially offset by changes in notes receivables.

Cash
flows used in financing activities for the year ended December 31, 2022 were primarily comprised of $106 million in principal bond
payments, REIT dividends of $0.6 million, a $10.9 million in distribution to the non-controlling interest holders and a decrease of
$33.2 million in senior debt offset by a $105.0 million new borrowings under a mortgage loan facility. Cash flows generated from
financing activities for the year ended December 31, 2021 were primarily comprised of $63 million in new bond proceeds and proceeds
from the sale of bonds held by a subsidiary of $1.7 million. These amounts were offset by $22.4 million in principal bond payments,
$17.2 million of repayment of senior debt and payment of preferred dividends by the Predecessor Company of $1.5 million.

Indebtedness

Mortgage
Loans Guaranteed by HUD

As
of December 31, 2022, we had non-recourse mortgage loans of $275.8 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, 2022, was 3.88% per annum (including the mortgage insurance payments). The loans have an average maturity of 25.0
years.

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Commercial
Bank Term Loan

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 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 of 4%
(as of the December 31, 2022 the rate was 7.68%). As of December 31, 2022, total outstanding principal amount was $102.39 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.

The
new credit facility financial covenants 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, 2022, the Company was in compliance with the loan covenants.

Other
Debt

As
of December 31, 2022 and 2021, the Company had $0 and $1.4 million, respectively, in outstanding amounts due under notes
due to sellers of properties.

Outstanding
Bond Debt

As
of December 31, 2022, the Company had outstanding Series A Bonds and Series C Bonds.

Series
A Bonds

In
November 2015, Strawberry Fields REIT, Ltd., a wholly owned subsidiary of the Company (“BVI Company”) issued Series A
Bonds in the face amount of New Israeli Shekels (“NIS”) 265.2 million ($68 million) and received the net amount, after
issuance costs, NIS 251.2 million ($64.3 million). During September 2016, the BVI Company issued additional Series A Bonds in the
face amount of NIS 70.0 million ($18.6 million) and raised a net amount of NIS 70.8 million ($18.8 million). These Series A Bonds
were issued at a premium of 103.6%. During May 2017, the BVI Company issued additional Series A Bonds in the face amount of NIS 39.0
million ($10.7 million) and raised a net amount of NIS 40.9 million ($11.3 million). These Series A Bonds were issued at a price of
105.9%.

A
portion of the Series A Bonds have been repurchased by a subsidiary of the BVI Company. As of December 31, 2022, the aggregate principal
amount of the Series A Bonds was NIS 74.9 million ($21.2 million). As of December 31, 2022, we held NIS 3.7 million ($1.0 million) of
these Bonds that we have repurchased. On July 4, 2022, Standard & Poor’s upgraded the rating on Bond A from ilA- to ilA, and
interest rate was decreased from 6.9% to 6.4%.

The
Series A Bonds are traded on the Tel Aviv Stock Exchange Ltd. (“TASE”).

Series
C Bonds

In
July 2021, the 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%.

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As
of December 31, 2022, the outstanding principal amount of the Series C Bonds was NIS 195.5 million ($55.6 million).

The
Series C Bonds are traded on the TASE.

Summary
of fixed and variable loans:

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, 2022 and 2021, we excluded as non-recurring items the amount of $10.9 million
and $8.8 million, respectively, in reclassification of foreign currency transaction losses 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.

The following table reconciles our calculations of FFO and AFFO for the
years ended December 31, 2022 and 2021, to net income, the most directly comparable GAAP financial measure (in thousands):

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FFO
and AFFO:

(1)
During the year ended December 31, 2022, the Company recovered $4.4 million in cash with respect to foreclosure sales of assets in
Massachusetts. In addition, the Company recognized $1.2 million with respect to a foreclosed property in Massachusetts.

(2)
The Company recognized a loss of $1,075,000 in the second quarter of 2022 due to the write-off of straight-line rent receivables
related to the Southern Illinois facilities

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.

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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, 2022 and 2021 we determined that no allowance was necessary to cover the potential
loss of rent from our tenants.

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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.

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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.

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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.