| Investment in Unconsolidated Joint Ventures |
4. | Investment in Unconsolidated Joint Ventures |
We have a preferred equity investments in one joint venture and an acquisition, development and construction (“ADC”) loan. We determined that each of these JVs meet 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. During 2025, we received $15,962,000, including a 13% exit IRR of $2,962,000, from the redemption of our preferred equity investment in a joint venture that owns a 267-unit independent and assisted living community in Washington. The following table provides information regarding our unconsolidated joint venture investments at June 30, 2025 (dollar amounts in thousands): | | | | | | | | | | | | | | | | | | | Type | | Type | | Total | | | Contractual | | | Number | | | | | | | of | | of | | Preferred | | | Cash | | | of | | | Carrying | | State | | Properties | | Investment | | Return | | | Portion | | | Beds/ Units | | | Value | | Texas | | SNF | | Senior Loan | (1) | 9.2 | % | | 9.2 | % | | 104 | | $ | 11,453 | (1) | Washington | | SH | | Preferred Equity | (2) | 12.0 | % | | 9.0 | % | | 109 | | | 6,340 | (2) | Total | | | | | | | | | | | | 213 | | $ | 17,793 | |
| (1) | Represents a $12,700 mortgage loan, which is comprised of $11,164 funded at origination during the three months ended June 30, 2024, an interest reserve of $750 and a capital expenditure reserve of $786. In accordance with GAAP, this mortgage loan was determined to be an ADC loan and is accounted for as an unconsolidated JV. The five-year mortgage loan is interest-only at a current rate of 9.15%. |
| (2) | 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 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. |
The following table summarizes our capital contributions, income recognized, and cash interest received related to our investments in unconsolidated joint ventures during the six months ended June 30, 2025 and 2024 (in thousands): | | | | | | | | | | | | | | | Type | | | | | | | | | | | | | of | | | Income | | | Cash Income | | | Non-cash | | Year | | Properties | | | Recognized | | | Earned | | | Income Accrued | | 2025 | | SNF | | $ | 589 | | $ | 589 | | $ | — | | | | SH | | | 289 | | | 289 | | | — | | | | SH (1) | | | 3,226 | (1) | | 3,172 | (1) | | 54 | | Total | | | | $ | 4,104 | | $ | 4,050 | | $ | 54 | | | | | | | | | | | | | | | 2024 | | SNF | | $ | 295 | | $ | 196 | | $ | — | | | | SH | | | 225 | | | 225 | | | — | | | | SH (1) | | | 527 | | | — | | | 527 | | Total | | | | $ | 1,047 | | $ | 421 | | $ | 527 | |
| (1) | During 2025, our preferred equity investment in a JV that owns a 267-unit ILF and ALF in Washington was redeemed for $15,962, which included a 13% exit IRR of $2,962. |
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