Equity Method Investment

3 Months Ended

Mar. 31, 2021

Equity Method Investments and Joint Ventures [Abstract]

Equity Method Investments and Joint Ventures Disclosure

Note 5. Equity Method Investment

Our initial $0.9 million investment in the operating company, Timber Ridge OpCo, held by our Taxable REIT Subsidiary (“TRS”) arose in conjunction with the acquisition of a CCRC from LCS-Westminster Partnership III, LLP, in January 2020. We structured our arrangement with our JV partner, LCS Timber Ridge LLC, to be compliant with the provisions of the REIT Investment Diversification and Empowerment Act of 2007 (“RIDEA”). Accordingly, the TRS holds our 25% equity interest in Timber Ridge OpCo, which permits the TRS to engage in activities and share in cash flows that would otherwise be non-qualifying income under the REIT gross income test. As part of our investment, we provided Timber Ridge OpCo a revolving credit facility of up to $5.0 million of which no funds have been drawn.

We account for our investment in Timber Ridge OpCo under the equity method since we are not the primary beneficiary of Timber Ridge OpCo as our participating rights do not give us the power to direct the activities that most significantly impact Timber Ridge OpCo’s economic performance. Our equity share in the losses of Timber Ridge OpCo during three months ended March 31, 2021 and 2020, was $0.8 million and $0.4 million, respectively. During first quarter of 2021, we received $0.3 million in cash distributions from Timber Ridge OpCo. Under the equity method, we decrease the carrying value of our investment for losses in the entity and distributions to NHI for cumulative amounts up to and including our basis plus any commitments to fund operations. As of March 31, 2021, we have recognized our share of Timber Ridge OpCo’s operating losses in excess of our initial investment. These cumulative losses of $3.3 million in excess of our original basis are included in “Accounts payable and accrued expenses” in our Condensed Consolidated Balance Sheet as of March 31, 2021. Our commitments are currently limited to the additional $5.0 million under the revolving credit facility.