Investment in Unconsolidated Joint Ventures

3 Months Ended

Mar. 31, 2024

Investment in Unconsolidated Joint Ventures

Investment in Unconsolidated Joint Ventures

3. Investment in Unconsolidated Joint Ventures

We have preferred equity investments in two joint ventures. 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 both: 1) the power to direct the activities that most significantly affect the JVs’ economic performance, and 2) the right to receive benefits from the VIE or the obligation to absorb losses of the VIE that could be significant to the VIE. 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	Type		Total		Contractual		Number
	of	of		Preferred		Cash		of		Carrying
State	Properties	Investment		Return		Portion		Beds/ Units		Value
Washington	ALF/MC	Preferred Equity	(1)	12	%	7	%	95	$	6,340	(1)
Washington	ILF/ALF	Preferred Equity	(2)	14	%	8	%	267		13,000	(2)
Total (3)								362	$	19,340

(1) Our investment represents 15.5% of the 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% with an IRR ranging between 12% to 14%, depending upon timing of redemption. We have the option to require the JV partner to purchase our preferred equity interest at any time between August 17, 2031 and December 31, 2036.

(2) Our investment represents 11.6% of the estimated total investment. The preferred equity investment earns an initial cash rate of 8% with an IRR of 14%. The JV partner has the option to buy out our investment at any time after August 31, 2023 at the IRR rate. Also, we have the option to require the JV partner to purchase our preferred equity interest at any time between August 31, 2027 and, upon project completion and leasing the property, prior to the end of the first renewal term of the lease.

(3) Subsequent to March 31, 2024, we originated a $12,700 mortgage loan to a current operator in order to acquire a skilled nursing and assisted living campus in Texas. The mortgage loan is secured by this property. In accordance with GAAP, this mortgage loan was determined to be an acquisition, development and construction (“ADC”) loan and will be accounted for as an unconsolidated JV. The campus was built in 2017 and includes 78 units (48 skilled nursing and 30 assisted living) and 104 licensed beds (70 skilled nursing and 34 assisted living). The five-year mortgage loan is interest only at a current rate of 9.15%.

The following table summarizes our capital contributions, income recognized, and cash interest received related to our investments in unconsolidated joint ventures during the three months ended March 31, 2024 and 2023 (in thousands):

	Type
	of		Capital		Income		Cash Income		Non-cash
Year	Properties		Contribution		Recognized		Earned		Income Accrued
2024	ALF/MC	$	—	$	112	$	112	$	—
	ILF/ALF (1)		—		264		—		264
Total		$	—	$	376	$	112	$	264
2023	ALF/MC	$	—	$	112	$	—	$	112
	UDP (1)		—		264		—		264
Total		$	—	$	376	$	—	$	376

(1) The JV developed and owns a 267-unit ILF and ALF in Washington. The development project was completed during the fourth quarter of 2023.