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Investment in Unconsolidated Joint Ventures | 9 Months Ended
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Sep. 30, 2020
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 that owned four communities located in Arizona, providing independent living, assisted living and memory care services. During the fourth quarter of 2019, the JV signed a contract to sell the four properties comprising the JV (“Properties”). The contract was subject to standard due diligence and other contingencies to close, all of which were met in January 2020. Accordingly, based on the information available to us regarding alternatives and courses of action, we performed a recoverability test on the carrying value of our preferred equity investment and concluded that a portion of our preferred equity investment will not be recoverable. Therefore, we recorded an other than temporary impairment loss from investment in unconsolidated joint ventures of $5,500,000 and wrote our preferred equity investment down to its estimated fair value at December 31, 2019. Upon sale of the Properties, we received partial liquidation proceeds totaling $17,758,000 during the second and third quarters of 2020. During the nine months ended September 30, 2020, we incurred an additional $620,000 of loss. We anticipate receiving additional proceeds of $729,000 through March 31, 2021. During the nine months ended September 30, 2020, we provided preferred capital contribution commitments to 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 VIEs as we do not have both: 1) the power to direct the activities that most significantly affect the VIE’s 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 accounted for the joint venture investments using the equity method of accounting. The following table provides information regarding these preferred equity investments: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Type | ​ | Type | ​ | Total | ​ | ​ | Contractual | ​ | ​ | Number | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | of | ​ | of | ​ | Preferred | ​ | ​ | Cash | ​ | ​ | of | ​ | ​ | Investment | ​ | ​ | Carrying | ​
State | ​ | Properties | ​ | Investment | ​ | Return | ​ | ​ | Portion | ​ | ​ | Beds/ Units | ​ | ​ | Commitment | ​ | ​ | Value | ​
Washington | ​ | UDP | ​ | Preferred Equity | (1) | 12 | % | ​ | 7 | % | ​ | — | ​ | $ | — | (1) | $ | 6,340 | (1)
Washington | ​ | UDP | ​ | Preferred Equity | (2) | 12 | % | ​ | 8 | % | ​ | — | ​ | ​ | 13,000 | (2) | ​ | - | (2)
Total | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | — | ​ | $ | 13,000 | ​ | $ | 6,340 | ​
(1) | Invested $6,340 of preferred equity in an entity that will develop a 95-unit ALF/MC in Washington. 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% with an IRR ranging between 12% to 14%.
​
(2) | Entered into a preferred equity agreement in an entity that will develop and own a 267-unit ILF/ALF in Washington. Our investment represents 11.6% of the estimated total investment. Upon the satisfaction of certain conditions which are projected to be met by year-end, LTC will invest $13,000 into the entity. The preferred equity investment will earn an initial cash rate of 8% and a 12% IRR.
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, 2020 and 2019 (in thousands):
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Type | ​ | ​ | ​
​ | ​ | of | ​ | ​ | Capital | ​ | ​ | Income | ​ | ​ | Cash Interest | ​
Year | ​ | Properties | ​ | ​ | Contribution | ​ | ​ | Recognized | ​ | ​ | Received | ​
2020 | ​ | ALF/MC/ILF | (1) | $ | 58 | (1) | $ | 231 | (1) | $ | 231 | (1)
​ | ​ | UDP | ​ | ​ | 6,340 | (2) | ​ | 56 | (2) | ​ | 18 | (2)
Total | ​ | ​ | ​ | $ | 6,398 | ​ | $ | 287 | ​ | $ | 249 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
2019 | ​ | ALF/MC/ILF | ​ | $ | 394 | (1) | $ | 614 | (1) | $ | 1,166 | (1)
​ | ​ | ALF/ILF/MC | (3) | ​ | — | (3) | ​ | 955 | (3) | ​ | 979 | (3)
​ | ​ | ALF/MC | (4) | ​ | — | (4) | ​ | 404 | (4) | ​ | 432 | (4)
Total | ​ | ​ | ​ | $ | 394 | ​ | $ | 1,973 | ​ | $ | 2,577 | ​
(1) | Relates to our preferred equity investment in Arizona discussed above with a total preferred return of 15%. During the nine months ended September 30, 2020, the properties comprising the JV were sold.
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(2) | During the third quarter of 2020, we provided a total preferred equity investment of $6,340 to a JV for the development of a 95-unit ALF and MC.
​
(3) | We had a $2,900 mezzanine loan commitment for a 99-unit seniors housing community in Florida with a total preferred return of 15%. The mezzanine loan was an ADC arrangement which we determined it to have characteristics similar to a jointly-owned arrangement and recorded it as an unconsolidated joint venture. Since interest payments were deferred and no interest was recorded for the first twelve months of the loan, we used the effective interest method in accordance with GAAP to recognize interest income and recorded the difference between the effective interest income and cash interest income to the loan principal balance. During the third quarter of 2019, the mezzanine loan was paid off.
​
(4) | We had a $3,400 mezzanine loan commitment for the development of a 127-unit seniors housing community in Florida with a total preferred return of 15%. The mezzanine loan was an ADC arrangement which we determined it to have characteristics similar to a jointly-owned arrangement and recorded it as an unconsolidated joint venture. During the first quarter of 2019, the mezzanine loan was paid off.

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- Definition The entire disclosure for equity method investments and joint ventures. Equity method investments are investments that give the investor the ability to exercise significant influence over the operating and financial policies of an investee. Joint ventures are entities owned and operated by a small group of businesses as a separate and specific business or project for the mutual benefit of the members of the group. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 323 -URI http://asc.fasb.org/topic&trid=2196965 + Details
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