Welcome to the LTC Properties First Quarter 2019 Analyst and Investor Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Before management begins its presentation, please know that today's comments, including the question-and-answer session, may include forward-looking statements, subject to risks and uncertainties that may cause actual results and events to differ materially. These risks and uncertainties are detailed in LTC Properties filings with the Securities and Exchange Commission from time to time, including the company's most recent 10-K dated December 31st, 2018.
LTC undertakes no obligation to revise or update these forward-looking statements to reflect events or circumstances after the date of this presentation. Please note, this event is being recorded. I would now like to turn the conference over to Wendy Simpson, Chief Executive Officer. Please go ahead.
Thank you, Chad, welcome everybody to LTC's First Quarter 2019 conference call. Joining me today are Pamela Kessler, our CFO, and Clint Malin, our Chief Investment Officer. After a few introductory remarks, I'll turn the call over to Pam, who will discuss our financial results and the impact of a new accounting standard. I'll come back with an update on four of our operators and give guidance. Clint will follow with a discussion of our portfolio and operator performance, then I'll conclude our prepared remarks with a brief wrap-up before the question-and-answer session. Although there has not been any meaningful change in industry dynamics since we last spoke with you in March, we remain optimistic with LTC's ability to capture future opportunities when a positive market shift becomes more permanent.
While we are actively building our pipeline and evaluating multiple opportunities, closing transactions has been slower than we would like as a pricing disconnect remains between buyers and sellers. As long as private equity continues to pour money into the marketplace at what we believe are unreasonable valuations and risk, this discount is likely to continue. However, as we did in 2018, we are strategically assessing this market to monetize some of our properties. That said, we are making good progress in several areas, I believe our current initiatives will allow LTC to build an even stronger portfolio with solid regional operators with whom we can grow into the future. Now I'll turn the call over to Pam.
Thank you, Wendy. Before I discuss our quarterly results, I'd like to explain the impact of recent accounting changes, specifically the adoption of ASC 842 that became effective on January 1st. I'd note that the impact of the new lease accounting guidance reduced the comparability of results between quarters. New lease accounting guidance requires that we record the property tax escrows we collect from our tenants as revenue with a corresponding expense. Accordingly, first quarter 2019 results include property tax revenue and expense, while the prior year comparative period does not. Under the new guidance, straight-line rent is written off to contra revenue rather than expense as under previous guidance.
During the quarter, we transitioned the senior living communities operated by Frontier to a new operator and wrote off $1.9 million of straight-line rent related to the terminated Frontier lease to contra revenue in accordance with the new lease accounting guidance. The new guidance also sets higher collectibility thresholds for recording straight-line rent. Under the new guidance, we performed an analysis of the collectibility of all rent owed to us on our leases through maturity and determined that it was not 65%-75% probable that we would collect 90%-95% or substantially all of the lease obligations due from Anthem, Thrive, Senior Care, and Preferred Care through the end of their respective leases. Accordingly, we wrote off the straight-line rent and lease incentive balances associated with these leases.
Further, the new guidance does not provide for general reserves for straight-line rent, so we wrote off our 1% general straight-line rent reserve. These balances totaled $42.8 million and were written off to equity effective January 1st, as required by the transition guidance. Under the new lease accounting guidance, collections of rent subsequent to the straight-line rent write-off are considered recoveries of amounts previously written off and are recognized as a contra expense rather than rental revenue until the cumulative amount of the recovery recognized equals the amount of the straight-line rent written off. Thus, we recognized $9.6 million of cash rent received from Anthem, Thrive, Senior Care, and Preferred Care as contra expense on the income statement. I'll get into our quarterly results.
Revenues decreased to $6 million this quarter compared to a year ago due to $9.6 million of rent received from Anthem, Thrive, Senior Care, and Preferred Care recognized as a contra expense rather than revenue, a $1.7 million reduction due to properties sold in 2018, $1.9 million of straight-line rent written off due to the Frontier lease termination, and $1.6 million due to Thrive's failure to pay first quarter 2019 rent. These decreases were partially offset by $4.3 million in property tax revenue, $2.3 million in revenue from acquisitions, completed development, and capital improvement projects, $777,000 in increased rent from Anthem, Preferred Care, and Senior Care, and $1.4 million in deferred rent received from Thrive. During the first quarter, Thrive paid $1.4 million of deferred rent and $740,000 of past due rent that was accrued and outstanding at December 31st, 2018.
Additionally, they paid property tax impounds for the first quarter but have not paid rent to date in 2019. FFO was $0.75 per diluted share in the 2019 first quarter, compared with $0.75 last year. Excluding one-time items, FFO was $0.77 per diluted share this quarter, compared with $0.75 last year. The increase was primarily due to higher contra expense, representing recoveries of amounts previously written off, and a $454,000 increase in unconsolidated joint venture income, resulting from additional interest related to the payoff of a mezzanine loan on a property in Fort Myers, Florida, as well as lower interest expense, partially offset by lower revenues. Net income available to common shareholders was flat compared to the prior year first quarter, due mainly to changes in revenues, contra expense, and unconsolidated joint venture income previously discussed, and lower interest expense offset by property tax expense.
The contra expense line item titled Recoveries of Amounts Previously Written Off represents $9.6 million of cash rent received from Anthem, Thrive, Preferred Care, and Senior Care that under the new lease accounting guidance is considered a recovery of straight-line rent that was written off as of January 1, 2019, in accordance with the transition guidance. Interest expense decreased $362,000 from the prior year related to the repayment of debt under our senior unsecured notes. In the 2019 first quarter, as I mentioned, we recognized $4.3 million in property tax expense in accordance with the new lease accounting guidance. In the prior year, property tax escrows were not required to be recognized as income and expense. G&A decreased $226,000 due to lower accrued incentive compensation, partially offset by an increase in performance-based stock compensation vesting, legal expense, and higher payroll taxes in 2019.
We are currently estimating G&A to be in the $4.5 million-$4.6 million range per quarter through the remainder of this year. During the first quarter of 2019, we funded a mezzanine loan that was originated in the fourth quarter of last year for the development of an independent living, assisted living, and memory care community in Atlanta and acquired an assisted living and memory care community in Abingdon, Virginia. Clint will provide additional details shortly. We also funded $7.2 million in development and capital improvement projects on properties we own and $1.5 million under mortgage loans. During the first quarter, we received $3.4 million related to the prepayment of the mezzanine loan I discussed earlier, which was accounted for as an investment in unconsolidated joint ventures.
We borrowed $34.9 million under our line of credit to fund acquisitions and capital commitments, paid $4.2 million in scheduled principal paydowns on our senior unsecured notes, and continue to fund LTC's $0.19 per share monthly dividend. At March 31, we owned two properties under development with remaining commitments totaling $15.3 million and two properties under renovations with remaining commitments totaling $4.9 million. We also have remaining commitments under mortgage loans of $15.7 million related to expansions and renovations on seven properties in Michigan and $1.7 million remaining under a preferred equity commitment. Our balance sheet remains strong and provides us with substantial flexibility and the capacity to fund our current and long-term growth initiatives.
We have just over $453 million available under our line of credit, $98 million under our SHOP agreement with Prudential, and $200 million under our ATM program, providing LTC with total liquidity of approximately $751 million. We expect to remain true to our conservative capital allocation strategy, which has served us well. Our long-term debt to maturity profile remains well matched to our projected free cash flow, helping moderate future refinancing risk, and we have no significant long-term debt maturities over the next five years. At the end of the first quarter, our credit metrics remained well matched to the healthcare REIT industry average, with debt to annualized adjusted EBITDA for real estate of 4.4 times, an annualized adjusted fixed charge coverage ratio of 4.9 times, and a debt to enterprise value of just over 27%. I'll turn the call back to Wendy.
Thank you, Pam. I'd like to provide an update on Senior Care Centers, Thrive, Anthem, and Preferred Care, and then discuss our updated guidance. We've had a lot of work to do and progress is being made. I'll begin with Senior Care Centers, which is working its way through the bankruptcy court. The court recently approved an extension through July 2nd for Senior Care to affirm their leases and also approved the transfer of a number of properties owned by other landlords out of the portfolio. Should we get our properties back, we are prepared to quickly transition them to a different operator. Senior Care is current on their 2019 rent and escrows with us and has been able to make some property improvements during the ongoing bankruptcy process. They are also preparing for the transition to the PDPM model.
Coverage in the Senior Care portfolio was flat quarter-over-quarter on a trailing 12-month basis. Regarding the Thrive portfolio Pam mentioned, Thrive caught up on their 2018 rent as well as the deferred rent owed to us. While Thrive has paid their 2019 escrows with us, they have not paid any rent thus far in 2019. We issued notice of default and demand for payments to Thrive and its guarantors on April 5th, which requires payment of approximately $2.6 million of past due rent through April. We are continuing to evaluate all options related to the Thrive portfolio and recently engaged a broker to market our Jacksonville, Florida building. We have entered into LOIs with two strong regional operating partner candidates for the other five properties. We will keep you apprised of our progress. Anthem has paid monthly rent and escrows to date in 2019.
For our forecasting, we have projected Anthem's 2019 rent to be approximately 45% higher than in 2018. We plan to revisit appropriate rent levels associated with the portfolio as we go forward. Any revision in contractual rent cannot realistically be calculated until all of the properties have been stabilized for a period of time. It will likely be late in 2020 before we have greater visibility on stabilized rents going forward for Anthem. Preferred Care operates 23 properties for LTC. We continue to work cooperatively with them to accommodate Preferred Care's interest in reducing the number of LTC-owned properties under their operation. We are pursuing a sale initiative to market the majority of LTC properties currently operated by Preferred. The remaining properties could continue to be operated by an affiliate of Preferred Care, re-leased to another operator, marketed for sale, or a combination of these options.
Before I turn the call over to Clint, I'd like to provide an update on our 2019 guidance. Assuming no additional investment activity, asset sales, financing, or equity issuances, FFO is now expected to be between $3.02-$3.04 per share for the full year, which is $0.02 higher at the midpoint than our prior guidance due to our implementation of the new lease accounting standard, ASC 842. Over to Clint.
Thank you, Wendy. I'll begin my remarks with previously disclosed lease transition related to our Bakersfield and Vacaville, California buildings, formerly operated by Brookdale Senior Living. Our new master lease agreement with an affiliate of Fields Senior Living became effective May 1 upon license issuance by the state of California. Master lease with Fields provides them with a purchase option and includes a $3 million capital commitment from us at a 7% yield. Fields has 12 months from lease commencement to utilize these funds. The annualized GAAP rent for 2019 from the Bakersfield and Vacaville communities is expected to be $2.6 million. Our relationship with Fields now includes four properties. We have also transitioned two senior housing communities, which total 180 independent living, assisted living, and memory care units in Clovis, California from Frontier Management to Generations.
The new master lease with a 10-year term with an annual initial cash rent of $2.9 million, which is the same as the rent we were collecting from Frontier. The master lease rents are fixed for five years and include certain credit enhancements. The agreement also includes a purchase option for Generations, which can be exercised beginning in 2024. Based in Portland, Oregon, Generations is a regionally focused senior living company operating five communities in four Western states. During the quarter, as previously announced, we closed a $16.9 million real estate joint venture acquisition with an affiliate of English Meadows Senior Living Communities, a new relationship for us. LTC contributed $16 million in cash for a 95% interest in the real estate joint venture. The initial lease rate is 7.4%, and the JV is consolidated on our books.
English Meadows Abbey Green Campus, which opened in 2015, is a 74-unit assisted living and memory care community in Virginia. Also this quarter, we funded a $6.8 million mezzanine loan that was originated in the fourth quarter 2018 for the construction of Corso Atlanta, a nine-acre campus in the Buckhead area of Atlanta that includes 82 independent living units, 75 assisted living units, 26 memory care units, and 21 independent living cottages. The campus, which is expected to open in the winter of 2020, will be operated by Atlanta-based Village Park Senior Living, a new operating partner for us. The five-year mezzanine loan bears interest at 12%, with 8% current pay during the first 46 months of the loan, with the balance accruing to the note and 12% current pay thereafter. Now I'd like to update you on the progress of communities under development.
As discussed on our last call, Boon Spring of Boone County, a skilled nursing center in Kentucky, opened and accepted its first two residents in early February. Occupancy as of this week is 45%, which is ahead of pro forma. Hamilton House, our 110-unit independent living, assisted living, and memory care development project in Wisconsin, opened a few weeks ago and is at 10% occupancy as of this week. The community is being operated with Fields Senior Living . Our remaining development project, Weatherly Court, a 78-unit assisted living and memory care community in Oregon, is expected to open on schedule later this year. The community will be operated by Field as part of a larger campus. The campus already includes a building with 89 independent living units currently operated by Fields, in which we invested through a real estate joint venture in August of 2018. Moving now through the portfolio numbers.
Q4 trailing 12 months, EBITDARM and EBITDAR coverage using a 5% management fee was 1.42 times and 1.21 times respectively for our assisted living portfolio, and 1.79 times and 1.29 times respectively for our skilled nursing portfolio. Thrive has been excluded from our assisted living portfolio numbers as we stopped accruing contractual rent for Thrive starting in 2019. Our coverage has stabilized, and there are several industry events that could help drive coverage going forward, including PDPM, which takes effect October 1, and the proposed provider tax bill in Texas that could be a positive for the for-profit skilled nursing industry and for LTC. A similar provider tax bill was recently signed by the governor of New Mexico. It takes effect July 1 and includes a fairly substantial rate increase. While the bill needs to go to CMS for approval, there are no anticipated issues.
Given the current approval process, actual payments are not expected until later this year or early 2020, but will be retroactive to July 1. Lastly, I'd like to briefly comment on our pipelines. As Wendy mentioned, while we are patiently waiting for pricing to rationalize, we are working on building our pipeline through an ongoing focus on strategically identifying quality growth-oriented operating partners and newer assets. We are continuing to see some opportunities for smaller, stabilized private pay assets where prices have come down a bit, and have also found some interesting opportunities to invest in new skilled nursing centers that would meet our underwriting standards and strategy of attracting new operating partners should we decide to pursue them. Now I'll turn things back to Wendy.
Thank you, Pam and Clint. We are continuing to execute on our plan, identifying strategic assets for purchase or sale, successfully resolving current portfolio challenges, and building and maintaining a portfolio with embedded growth characteristics that will serve LTC well into future years. When the current cycle turns, I am very confident we will be ready to move quickly with a solid foundation based on a more diversified asset and operator base. While the pace of change is fairly slow at the moment, we remain on solid ground. I am very optimistic about our future and our ability to build sustained value for LTC, our partners, and our investors over the long term. Again, thank you for your participation today. Chad, we are now ready to take questions.
Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Chad Vanacore with Stifel. Please go ahead.
Thanks. Clint, you mentioned that maybe pricing is not in the LTC zone currently. What kind of pricing and maybe shift in pricing have you seen over the past few months? What do you think the right underwriting standards on skilled nursing are for you right now?
Well, I guess to take your last point on skilled nursing, we still have looked to underwrite skilled nursing at a 1.5 times coverage with a 5% management fee. That continues to be a requirement for us. We also are looking to invest in newer properties, and what we've seen over the last year have been a lot of older properties in the market, and it's not been our focus. Given that, we're just being very selective and patient waiting for the opportunities for some of those pricing to drop.
We found some opportunities like the Abingdon Campus in Virginia, where we found a unique opportunity with a regional-based operator, a newer property that was stabilized.
All right. Just thinking about coverage on your overall portfolio, how should we expect coverage to shift over the next 12 months versus where they have been?
Well, on the assisted living portfolio, I would think that would maintain fairly stable is what we've seen. I haven't seen a lot of changes on that. On skilled, we have had a decline over the last year or so, with the change in PDPM, the provider tax that I mentioned in New Mexico, and some increased performance, we hope that will start to trend upward as we go forward into 2019 and 2020.
All right. Thank you.
Thank you.
Thank you, Chad.
The next question comes from Michael Carroll with RBC Capital Markets. Please go ahead.
Yeah. Thank you. I guess Wendy or Clint, I wanted to see if we could talk a little bit about Senior Care Centers, and I believe Wendy said that the coverage ratio was flat compared to the prior period. Can you tell us what that coverage ratio is?
We talked about it on our last call. It's about in the 1.25 range.
That's EBITDAR?
EBITDAR after a 5% management fee.
Okay. How has that portfolio been performing over the past few quarters? I guess can you give us some idea of where occupancy is trending, skill mix, and if there's any issues with labor trends?
It's been fairly stable, so really no noticeable difference on the last few quarters. From occupancy to mix, been pretty stable.
Can we talk a little bit about Preferred? I know you're working with them, potentially selling some assets and/or re-leasing those assets. I guess, how is that going to work within the master lease? Do you have a rent credit already kind of decided for the proceeds of those potential sales? How are you working through that?
I mean, that's something we have to work through with Preferred Care. If we sold the majority of the assets and had a few remaining, we'd have to negotiate what that ongoing rent would be for those properties that would remain in the portfolio, if it remains with Preferred Care.
Okay.
That would be to be negotiated.
Okay. I guess, finally, as you're looking at the current issues with Thrive, it's pretty good that they paid the rent back for 2018. I guess, what's the expectations for 2019? Have they given you any reasons why they haven't paid the 2019 rents yet?
It's a function of cash flow at the communities. I mean, that's the main driver right now in why they haven't paid the rents to us in 2019.
Okay. Are you still recording $1 million of GAAP rent from Thrive in 2019? Is that still the expectation?
No, we're not currently recording any rent from Thrive for 2019. We have in our guidance $1 million more towards the back half of the year for that portfolio.
Okay. No rents being recorded in 1 Q and 2 Q, and maybe you have $1 million in the second half of 2019?
Correct.
Okay, great. Thank you.
Thank you.
The next question comes from Rich Anderson with SMBC Nikko, please go ahead.
Thanks. Good morning. Just to close the loop on Thrive, you mentioned just $1 million in your guidance, which is no change, but you also talked about this $2.6 million past due rent through April, that you're sort of taking a shot at. Can you explain, is that upside then to 2019 if you were able to pull that off?
The $1.4 million that we received this year, because of the new accounting guidance, it is showing as rent. It's in that contra expense line item, recoveries of past amounts written off. That is part of the $0.02 increase in guidance, is including that as revenue.
I think Rich is asking, and welcome back, Rich, about the default notice that we sent them.
Rich, on the $2.6 million for the first four months, this is part of the negotiation that we're working through with Thrive on this transition. We have guarantees associated with this lease, and obviously, don't want to negotiate in public on it. That's something that we're working through with Thrive in regard to how we would resolve that.
If you're successful, then there would be upside to FFO that's not in guidance right now.
That is correct.
That is correct.
Okay. Just a couple nit items here. Pam, you said there was a loan payoff, I think you said $3.4 million. Where is that in the income statement?
Unconsolidated joint ventures.
Okay. It's not explicitly Excuse me?
I'm sorry. Going forward, that line item will be about $400, $500,000 less because of the payoff.
Okay. Got you. All right. Clint, you mentioned a mezz loan origination in the first quarter, but I don't see it listed on your investment table on page five.
Well, it was originated in 2018.
Yes, it closed last year.
It was funded in this year, but originated last year.
Oh, okay.
If you look on page five, it's the last on the loan origination list on the Atlanta, Georgia location.
Got you. Okay, thank you very much. Last one from me. Obviously, this lease accounting is kind of goofy. It's the best word I can come up with, but no fault of your own. The $9.6 million of sort of carved out contra revenue or expense or whatever you call it, how repeatable is that in terms of going forward as we think about setting up our numbers for the rest of the year? Are you basically taking the $42 million write-off that you mentioned and just biting into that as you collect rent, we'll have a repeating line item there now for the rest of this year?
Yes, that is exactly correct. The one-time item in there is Thrive's payment, the $1.4 million.
Okay.
Since they are not paying right now, I wouldn't expect that to go forward. All those operators are on a cash basis, as we collect the cash, their rent will be reflected in that contra expense line item.
All right. Once you get to the full $42 million, does that say that's the end of the leases, and you kind of start over again? You'll get quickly to that $42 million at even a pace less $1.4 million.
Yes. That is correct. It actually is only the straight line portion that we wrote off.
Okay
is reflected in there. That's $31.5 million. Currently, if everybody's paying like they paid this quarter, we get there by the end of the year.
Okay.
Let's talk the happy dance, which is we have new operators in the Thrive properties.
Thrive is not paying us back rent anymore, so the new operator's rent will go up into the rent line.
Exactly. That goes back up to revenue. That is correct.
That makes it even more clear for everybody.
Yeah. Yeah. Clear as mud.
Clear as mud. The same with Senior.
That is it. Yes.
If we get the properties back and
They only relate to these operators.
Right.
To the extent that these properties go to new operators under a new lease, that revenue is reflected back up in rental income.
Okay. Wendy, you're speaking as if converting the Thrive assets to another operator or other operators is close to very likely or something like that? How would you describe-
Yeah
that transition?
We do have the LOIs.
Yeah.
Things are going well. You know how things go.
Right.
The transfer ops, transfer agreements, and getting licensure and all that sort of thing is very labor intensive.
Of all those four, only Thrive is the one that's not current on the rent. Is that correct?
Yes.
Okay. All right. Thanks so much.
Thanks, Rich.
The next question comes from Todd Stender with Wells Fargo. Please go ahead.
Thanks. The two facilities in Clovis, if I have them right, are they the Carmel Village? Are those two assets?
That's correct, Todd.
They look like they were stabilized just last year. Can you describe what prompted the transition and maybe how those are performing?
I think they were stabilized by our definition of rolling them in to stabilize because of the amount of time that lapsed. There was still a lag on overall occupancy at those communities, and Frontier had some challenges. They helped to work with us on this. They had focuses elsewhere, and we had found a different operating company to come in and see an opportunity at the Clovis community. We were successful in transitioning to another operator who we think will be able to drive growth and occupancy.
No change in rent, right? Same rental rate. It was just the purchase option. Was that a kind of a sweetener to just get a new operator in there at the same rate?
The rent is fixed for five years, but the initial rent's the same as we had with Frontier. The purchase option was a sweetener, but we got some increased credit enhancements currently on the short term for that. It was a win-win for, I think, LTC, Generations, and Frontier. It gives us the opportunity to work with Generations, who we've been talking to for a number of years, and hopefully we see more growth opportunities moving forward with Generations.
Okay, thank you. Then the SNF, the recently developed SNF in Kentucky, with Carespring. That was kind of the only reference I had to see how long it takes a SNF to maybe lease up, and that took about 19 months. Can you describe or maybe talk about the lease-up period to achieve stabilized occupancy for this latest one?
We're looking at 18 to 24-month period on lease-up, but as I mentioned in my comments, they're actually ahead of budget right now, and as of this week, they're at 45% occupancy at that nursing center. We're excited about the traction that Carespring has been able to get. They are a strong regional operator in that marketplace, have a lot of relationships with hospitals and managed care providers. They've done a great job in leasing up that property ahead of pro forma currently.
I don't have it in front of me. I probably should. What's that lease-up expectation or the yield, I should say? Is that eight and a half? Do I have that right?
Yeah, correct.
Okay, great. Thanks. Then last one, the facility in Virginia you just acquired, is that a triple net lease? I know you talked about a joint venture. You've got the bulk of the investment there, about 95%. Can you talk about the ownership structure there and what prompted the JV?
Sure, no problem. It is a triple net lease between the operating company and the real estate joint venture. Our real estate joint venture partner is a common ownership interest to the lessee. This was a situation where the operator was in a lease with another capital provider, they funded some operating losses to start up the building. Basically, we've been able to credit that funding they had on the startup of the operating losses to actual value on the real estate side.
All right, great. Thanks, Clint.
Thank you. I appreciate it.
The next question will be from Daniel Bernstein with Capital One. Please go ahead, Daniel. Perhaps your line is muted on your end.
Yes, I was muted. I'll say good morning again.
Good morning.
Good morning. I don't have much. I just wanted to ask about Thrive. What gives you confidence that when you transition to other operators, that those operators are going to be able to generate more cash flow and rent than what the properties are doing now? Is there something specific with the operators in terms of maybe regional concentration or something else that would give you confidence that those assets can do better than what they're doing now?
Sure, I think that's a great question, Dan. Thank you. The Thrive portfolio right now is spread out pretty diversified on a geographic basis, and this included because we put some of the Clarity Point buildings into the Thrive portfolio. We found some regionally based operators that we think will be better focused geographically on this portfolio. Thrive is obviously still more in a startup phase. They've done a lot of development projects, and the operating companies that we're working with, they have existing seasoned operations. We think it'll be good for their portfolio, and they just have a more stabilized platform to work from.
Okay. In terms of the actual pipeline that's out there, it didn't sound like cap rates have moved any higher to meet your investment hurdles. I guess you're still finding plenty of private equity out there. I just wanted a little bit more color on maybe the types of assets that you're seeing, the price points, and maybe whether it's leaning more towards seniors or skilled. Probably, I know this is all in one question, but are you seeing any value add opportunities as well?
I would say, Dan, more of the opportunities we're seeing are on the private pay side than skilled. As I mentioned in my prepared remarks, we have identified a skilled opportunity, that would be newer properties, which we find very interesting. Majority what we're seeing is on the private pay side, anywhere from one-off assets to some portfolios. There's a combination of value add. On the value add, people are looking for pricing that is based on stabilized as opposed to value add. That's what we're seeing. Cap rates still with private equity, as Wendy mentioned in her comments, is still very strong. Since we're focused on investing on a triple net basis as opposed to a RIDEA structure, when the cap rates are compressed in the six to sevens, it's hard to make that work with coverage at our lease rates beneath the house.
Okay. That's all I have. Thank you.
Thank you.
Thanks, Dan.
If you have a question, please press star then one. The next question comes from Karin Ford with MUFG Securities. Please go ahead.
Hi there. Good morning. I wanted to ask about potential disposition cap rates. I guess you're not collecting rent on Jacksonville currently, so no cap rate there. On potential asset sales from the Preferred portfolio, what should we expect on just a range on cap rates?
We're running that process right now that we have packages out. It's hard to give an exact cap rate right now on where that will end up, but we have packages out and waiting for offers to come in in the next probably 30-45 days in that portfolio. We can provide an update on what we're seeing on that on the next call. Right now, what we've seen in general, pricing has been pretty strong on skilled assets. We're hopeful that we'll come across with a strong number. When it relates to the Preferred Care assets, this is not something new when we're looking at selling these assets.
We actually approached Preferred Care a number of years ago, prior to them filing bankruptcy, and even during the course of the bankruptcy, to strategically work with them on recycling capital and selling assets back to them. When it comes to the Preferred Care portfolio, it's something we've been looking at for a number of years.
How big could the disposition volume be later this year? Do you know if there's a number?
It's also just being rented back, I can't give that number right now, but we do have, as Wendy mentioned, the majority of Preferred Care portfolio that will be on the market. We also have the Jacksonville community, which you mentioned, that's being marketed.
Okay, great. Last question, just on the Wisconsin development that opened. You said it was 10% occupied. It looked like you deferred the rent inception from 2Q '19 to 2Q '20. Can you just talk about that?
We did. It's related to the new lease accounting standard that requires an assessment of a 65%-75% probability that you'll collect 90%-95%.
You can mathematically figure it out.
Yes. Of all the cash flows through maturity of the lease. Given that that is a property in lease-up and we don't have visibility into the exact date of stabilization, we have decided that we will not record straight line rent on that property until we have that collectibility certainty through the end of the lease, which I would imagine at stabilization, we could probably be more prepared to make that assessment. During the lease-up period, we will not be recording straight line rent on that.
I just have to add to that.
Excuse me, Karin.
Sorry.
We were getting clarification on 842 all the way up. If we decide Tealwood, we can start doing straight line rent in 2022.
We pick up all the prior straight. Let's say all of a sudden we get this big hit.
Yes. As it's currently written.
Yes
I'm not sure how well it was thought through.
Because common sense would say that you would straight line from that point that you've determined future revenue.
Right
is collectible. As the rule is written, you go back and recapture all that straight line rent. That would be an enormous pickup. That makes no sense.
Just had to clarify that because it's not clear.
I don't write the rules.
Yeah. Right. It's so clear. Yeah. I suspect given the difficulties the REITs have had in implementing the new lease accounting standard and kind of the things that have cropped up, I think the law of unintended consequences, I suspect the FASB will be issuing clarifications on certain things because it was not clear, a lot of the ramifications of implementing all parts of this new rule.
Just to clarify, it was always intended in that deal that Tealwood would not start paying cash rent until stabilization? You were just going to be booking straight line or?
They have a certain amount of deferred rent credits. Yes.
I see. Okay.
That's in almost all leaseups. They don't start paying day one. You have a certain amount of free rent and deferred rent. Under the old guidance, we would have been recording straight line rent [at CFO]. That's what we always did. Under the old guidance, that's what was prescribed.
Got you. There's no change to the agreement you had with Tealwood on that front?
No.
Okay, great. Thanks.
The next question is a follow-up from Rich Anderson with SMBC Nikko. Please go ahead.
Thanks. Sorry. I think there's a 90%-95% chance I'm having a cocktail tonight.
Me too. Me too.
I just have one question follow-up. Pam, you mentioned some amount of one-timish in the $9.6 million. Is there any one-timish type of number in the property tax that you carve out now?
No, there's not. It's $1.4 million that's in the recovery, that contra expense line item. That's the Thrive deferred rent that we received this quarter, that I'm not anticipating us getting that again. We've actually called it a non-recurring item on our FFO reconciliation.
Yep.
Everything else should be, all things being equal to this quarter, should be similar absent that.
Right. Property tax will just kind of grow as they normally would.
Yeah. Property tax will be a recurring item.
Yeah. Right.
I don't see them not be changing their mind on that one.
All right. Thanks very much.
Ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to Wendy Simpson for any closing remarks.
Thank you, Chad. Thank you everyone who has listened to our comments. We look forward to updating you, as we approach the end of the second quarter. Have a great day and a great weekend.
Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.