Investment in Unconsolidated Joint Ventures

9 Months Ended

Sep. 30, 2021

Investment in Unconsolidated Joint Ventures

Investment in Unconsolidated Joint Ventures

3.	Investment in Unconsolidated Joint Ventures

We had a preferred equity investment in an unconsolidated joint venture (“JV”) that owned four communities located in Arizona, providing independent living, assisted living and memory care services. During 2020, the JV sold the four properties comprising the JV and received liquidation proceeds totaling $17,848,000. As a result of this transaction, we incurred $620,000 of losses during the nine months ended September 30, 2020 and an additional $138,000 during the fourth quarter of 2020.

During 2020, we provided preferred capital contribution commitments to two joint ventures (“JVs”). We determined that each of these JVs meets the accounting criteria to be considered a variable interest entity (“VIE”). We are not the primary beneficiary of the JVs as we do not have the power to direct the activities that most significantly affect the JVs’ economic performance. However, we do have significant influence over the JVs. Therefore, we have accounted for the JVs using the equity method of accounting. The following table provides information regarding these preferred equity investments (dollar amounts in thousands):

Type

Total

Contractual

Number

Preferred

Cash

Carrying

State

Properties

Investment

Return

Portion

Beds/ Units

Value

Washington

UDP

Preferred Equity

⁽¹⁾

—

6,340

⁽¹⁾

Washington

UDP

Preferred Equity

⁽²⁾

—

13,000

⁽²⁾

Total

—

19,340

(1)

Invested $6,340 of preferred equity in an entity that will develop and own a 95-unit ALF and MC in Washington and withheld $1,425 as a reserve. Our investment represents 15.5% of the estimated total investment. The preferred equity investment earns an initial cash rate of 7% increasing to 9% in year four until the internal rate of return (“IRR”) is 8%. After achieving an 8% IRR, the cash rate drops to 8% until achieving an IRR ranging between 12% to 14%.

(2)

Invested $13,000 of preferred equity in an entity that will develop and own a 267-unit ILF and ALF in Washington and withheld $3,777 as a reserve. Our investment represents 11.6% of the estimated total investment. The preferred equity investment earns an initial cash rate of 8% until achieving an IRR ranging between 12% and 14%.

The following table summarizes our capital contributions, income recognized, and cash interest received related to our investments in unconsolidated joint ventures for the nine months ended September 30, 2021 and 2020 (in thousands):


	Type
	of			Capital			Income		Cash Interest
Year	Properties			Contribution			Recognized		Earned
2021	UDP	⁽¹⁾	$	—		$	337	$	300
	UDP	⁽²⁾		8,000	⁽²⁾		704		616
Total			$	8,000		$	1,041	$	916

2020	ALF/MC/ILF	⁽³⁾	$	58	⁽³⁾	$	231	$	231
	UDP	⁽¹⁾		6,340	⁽¹⁾		56		18
Total			$	6,398		$	287	$	249

(1)	During 2020, we provided a total preferred equity investment of $6,340 to a JV for the development of a 95-unit ALF and MC.

(2)

During 2021, we funded the remaining $8,000 related to a $13,000 preferred equity investment commitment in an entity that will develop and own a 267-unit ILF and ALF in Washington. Additionally, we withheld $2,324 from the $8,000 funding for a total reserve of $3,777 related to this preferred equity investment.

(3)	Relates to our preferred equity investment in Arizona discussed above. During 2020, the properties comprising the JV were sold.