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LTC Properties Inc (NYSE:LTC)
Q1 2019 Earnings Call
May. 10, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the LTC Properties' First Quarter 2019 Analyst and Investor Conference Call. All participants will be in a listen-only mode. (Operator Instructions)

After today's presentation, there will be an opportunity to ask questions. (Operator Instructions).

Before management begins its presentation, please note 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 31, 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'd now like to turn the conference over to Wendy Simpson, Chief Executive Officer. Please go ahead.

Wendy Simpson -- Chairman, Chief Executive Officer & President

Thank you, Chad and welcome everybody to LTC's First Quarter 2019 Conference Call. Joining me today are Pam Kessler, our CFO; and Clint Malin, our Chief Investment Officer. After our 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, and 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 market into -- pour money into the marketplace, at what we believe, are unreasonable valuation 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 and I believe our current initiatives will allow LTC to build even stronger portfolio with solid regional operators, with whom we can grow into the future.

Now, I'll turn the call over to Pam.

Pam Kessler -- Executive Vice President, Chief Financial Officer & Secretary

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 1. I 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 the 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 collectability thresholds for recording straight line rent.

Under the new guidance, we performed an analysis of the collectability of all rent owed to us on our leases through maturity and determined that it was not 65% to 75% probable that we will collect 90% to 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 a straight-line rent and lease incentive balances associated with these pieces.

Further, the new guidance does not provide 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 1, 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 about $9.6 million of cash rent received from Anthem, Thrive, Senior Care and Preferred Care as contra expense on the income statement.

Now I'll get into our quarterly results. Revenues decreased $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 tax due rent that was accrued in outstanding at December 31, 2018. Additionally, they paid property tax impounds for the first quarter, but have not paid rent to-date in 2019.

NAREIT 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 pay-off 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 1st, 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 to $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 $3.5 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 continued to fund the LTC's $0.19 per share monthly dividend.

At March 31st, we owned two properties under development with remaining commitments totaling $15.3 million and two properties under renovation 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 shelf 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 and adjusted -- and annualized adjusted fixed charge coverage ratio of 4.9 times and a debt to enterprise value of just over 27%.

Now I'll turn the call back to Wendy.

Wendy Simpson -- Chairman, Chief Executive Officer & President

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 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. We are also preparing for the trans -- 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. As such, we issued notice of default and demand for payments to Thrive and (inaudible) 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. So it will likely delay 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. As a result, we are pursuing a sale initiative to market the majority of LTC properties currently operated by preferred. The remaining properties continue to be operated by an affiliate of Preferred Care released 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 per share and $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.

Clint Malin -- Executive Vice President & Chief Investment Officer

Thank you, Wendy. I'll begin my remarks with the 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 at 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 for 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 totaled 180 independent living, assisted living and memory care units in Clovis, California from Frontier Management and Generations. The new master lease was a 10-year term with an initial -- with 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 of 7.4% and the JV is consolidated on our books. English Meadows' Abingdon 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 (inaudible) and 12%, 4% current pay thereafter.

Now I'd like to update you on the progress of communities under development. As discussed on our last call, Boonespring 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, is at 10% occupancy as of this week. The community is being operated by Tealwood 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 earlier this year. The community will be operated by Fields as part of a larger campus. The campus already includes a building with 89 independent living units currently operated by Fields, and which we invested to a real estate joint venture in August of 2018.

Moving now to the portfolio numbers. Q4 trailing 12-month EBITDARM and EBITDAR coverage using your 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 is stabilized in our 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 CNS 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 pipeline. 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.

Wendy Simpson -- Chairman, Chief Executive Officer & President

Thank you, Pam and Clint. We are continuing to execute on our plans, 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.

Questions and Answers:

Operator

Thank you. (Operator Instructions) The first question comes from Chad Vanacore with Stifel. Please go ahead.

Chad Vanacore -- Stifel, Nicolaus & Company, Inc. -- Analyst

Thanks. So 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? And then what do you think the right underwriting standards on skilled nursing are for you right now?

Clint Malin -- Executive Vice President & Chief Investment Officer

Well, it's -- I'll take your last point on skilled nursing. We still look to underwrite skilled nursing at a 1.5 times coverage with a 5% management fee. So 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. So that's what would be on skilled.

Pricing in general, as Wendy mentioned in her prepared remarks, we've seen things stay in the market a little bit longer, because of the disconnect on pricing. And we've seen some buildings come back around for the second or third time. So given that, we seem very selective and patient waiting for the opportunity for those pricing to drop. We found an opportunity like the Abingdon campus in Virginia where we found a unique opportunity with a regional based operator, a newer properties that was stabilized.

Chad Vanacore -- Stifel, Nicolaus & Company, Inc. -- Analyst

All right. And then 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?

Clint Malin -- Executive Vice President & Chief Investment Officer

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 where we had a decline over the last year or so, but with the change in PDPM, the provider tax 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.

Chad Vanacore -- Stifel, Nicolaus & Company, Inc. -- Analyst

All right, thanks.

Clint Malin -- Executive Vice President & Chief Investment Officer

Thank you.

Wendy Simpson -- Chairman, Chief Executive Officer & President

Thank you, Chad.

Operator

The next question comes from Michael Carroll with RBC Capital Markets. Please go ahead.

Mike Carroll -- RBC Capital Markets Corporation -- Analyst

Yeah, thank you. I guess Wendy or Clint, I wanted to see if you 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?

Clint Malin -- Executive Vice President & Chief Investment Officer

We talked about it on our last call. It's about in the 1.25 range.

Mike Carroll -- RBC Capital Markets Corporation -- Analyst

And that's EBITDAR?

Clint Malin -- Executive Vice President & Chief Investment Officer

EBITDAR after 5% management fee.

Mike Carroll -- RBC Capital Markets Corporation -- Analyst

Okay. And how has that portfolio been performing over the past few quarters? I guess, can you give us some idea of where occupancy is trending in skill mix and if there's any issues with labor trends?

Clint Malin -- Executive Vice President & Chief Investment Officer

It's been pretty stable. So really no noticable difference on the last few quarters. So from an occupancy to mix simple stable.

Mike Carroll -- RBC Capital Markets Corporation -- Analyst

Okay. and then could we talk a little bit about Preferred? I know you're working with them potentially selling some assets and/or releasing those assets. I guess how is that going to work within the master lease? Do you have like a rent credit already kind of decided for the proceeds of those potential sales? How are you working through that?

Clint Malin -- Executive Vice President & Chief Investment Officer

I mean that's what we have to work through with Preferred Care is we sold this -- majority of the assets 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.

Mike Carroll -- RBC Capital Markets Corporation -- Analyst

Okay.

Clint Malin -- Executive Vice President & Chief Investment Officer

So that would need to be negotiated.

Mike Carroll -- RBC Capital Markets Corporation -- Analyst

Okay. And then I guess finally, if you are -- 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?

Clint Malin -- Executive Vice President & Chief Investment Officer

It's a function of cash flow at the communities. I mean, that's the main driver right now and why they haven't paid the rents to us in 2019.

Mike Carroll -- RBC Capital Markets Corporation -- Analyst

Okay are you still recording $1 million of GAAP rent from Thrive in 2019? Is that still the expectation?

Wendy Simpson -- Chairman, Chief Executive Officer & President

No, we are not currently recording any rent from Thrive for 2019. We have in our guidance $1 million more toward the back half of the year for that portfolio.

Mike Carroll -- RBC Capital Markets Corporation -- Analyst

Okay. So no rent is being recorded in 1Q and 2Q and maybe you have $1 million in the second half of 2019?

Wendy Simpson -- Chairman, Chief Executive Officer & President

Correct.

Mike Carroll -- RBC Capital Markets Corporation -- Analyst

Okay, great. Thank you.

Clint Malin -- Executive Vice President & Chief Investment Officer

Thank you.

Operator

The next question comes from Rich Anderson with SMBC Nikko. Please go ahead.

Richard Anderson -- SMBC Nikko Securities America Inc. -- Analyst

Thanks, good morning. So just a closed 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 written through April, that you're sort of making -- taking a shot at. Can you explain, is that upside then to 2019 if you are able to pull that off?

Pam Kessler -- Executive Vice President, Chief Financial Officer & Secretary

So the $1.4 million that we received this year, because of the new accounting guidance, it is showing as rented in that contract expense line item. Recoveries of past amount is written off and that is part of the $0.02 increase in guidance, is including that revenue.

Wendy Simpson -- Chairman, Chief Executive Officer & President

I think Rich is asking and welcome back, Rich. I think Rich is asking the default (multiple speakers).

Clint Malin -- Executive Vice President & Chief Investment Officer

Yeah, so Rich on the $2.6 million for the first four months, we -- 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. That's something that we're working through Thrive in regard to how we would resolve that.

Richard Anderson -- SMBC Nikko Securities America Inc. -- Analyst

All right. But if you're successful, then there would be upside to FFO, that's not in guidance right now?

Pam Kessler -- Executive Vice President, Chief Financial Officer & Secretary

That is right.

Clint Malin -- Executive Vice President & Chief Investment Officer

That's correct.

Richard Anderson -- SMBC Nikko Securities America Inc. -- Analyst

Okay. Just a couple net items here. Pam, you said there was a loan pay off. I think you said $3.4 million. Where is that in the income statement?

Pam Kessler -- Executive Vice President, Chief Financial Officer & Secretary

Unconsolidated joint ventures.

Richard Anderson -- SMBC Nikko Securities America Inc. -- Analyst

Okay, so it's not supposedly... excuse me?

Pam Kessler -- Executive Vice President, Chief Financial Officer & Secretary

I'm sorry, so going forward, that line item will be about $400,000, $500,000 net.

Richard Anderson -- SMBC Nikko Securities America Inc. -- Analyst

Okay. I got you. Right. And then Clint, you mentioned a mezz loan origination in the first quarter, but I don't see it lifted on your investment table on page 5?

Clint Malin -- Executive Vice President & Chief Investment Officer

It's originated in -- of course in 2018. We funded...

Pam Kessler -- Executive Vice President, Chief Financial Officer & Secretary

Yes, it showed last year.

Clint Malin -- Executive Vice President & Chief Investment Officer

So it was funded in this year, but originated last year. (multiple speakers) loan origination list on the Atlanta, Georgia location.

Richard Anderson -- SMBC Nikko Securities America Inc. -- Analyst

Got you. Okay, thank you very much. And then last one from me. Obviously, this lease accounting is kind of goofy, is the best word I can come up with, but no fault of your own. But the $9.6 million of sort of, carved out contra-revenue 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, and so we'll have a repeating line item there now for the rest of this year?

Pam Kessler -- Executive Vice President, Chief Financial Officer & Secretary

Yes. That is exactly correct. There is -- the one-time item in there is Thrive's payment, the $1.4 million. And since they are not paying right now, I wouldn't expect that to go forward, but all those opportunities are on a cash basis. So as we collect the cash, their rent will be reflected in that contra-expense line item.

Richard Anderson -- SMBC Nikko Securities America Inc. -- Analyst

All right. All right. So -- but once you get to the full $42 million, does that sort of -- does that say, that's the end of the leases, and you kind of started -- start over again, because you'll get quickly the $42 million at even a pace less $1.4 million?

Pam Kessler -- Executive Vice President, Chief Financial Officer & Secretary

Yes, yes. That is correct. And it actually is only that straight-line portion that we wrote-off that is -- that's been in there. So that's $31.5 million, and currently if everybody is paying like they paid this quarter, we get there by the end of the year.

Wendy Simpson -- Chairman, Chief Executive Officer & President

Let's start with happy dance (ph) which is we have new operators in the Thrive property and Thrive is not paying us back rent anymore. So the new operator's rent will go up into the rev line.

Pam Kessler -- Executive Vice President, Chief Financial Officer & Secretary

Exactly that goes back up to revenue.

Wendy Simpson -- Chairman, Chief Executive Officer & President

That makes it even more clear for everybody.

Pam Kessler -- Executive Vice President, Chief Financial Officer & Secretary

So, yes, clear as much.

Wendy Simpson -- Chairman, Chief Executive Officer & President

And (multiple speakers) They only relate to these operators. So if you do right, then these properties go to new operators under a new lease, that revenue is reflected backup in rental income.

Richard Anderson -- SMBC Nikko Securities America Inc. -- Analyst

Okay. And then 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? I mean how would you describe that transition?

Wendy Simpson -- Chairman, Chief Executive Officer & President

Yes, we do have the LOIs and we don't have -- and so things are going well, but you know how things go. The transfer up -- transfer agreements in this is getting life insured and all that sort of thing is very labor intensive.

Richard Anderson -- SMBC Nikko Securities America Inc. -- Analyst

And so -- all of those four, only Thrive is the one that's not current on the rents. Is that correct?

Wendy Simpson -- Chairman, Chief Executive Officer & President

Yes.

Richard Anderson -- SMBC Nikko Securities America Inc. -- Analyst

Okay, all right. Thanks so much.

Wendy Simpson -- Chairman, Chief Executive Officer & President

Thanks, Rich.

Operator

The next question comes from Todd Stender with Wells Fargo. Please go ahead.

Todd Stender -- Wells Fargo Securities, LLC -- Analyst

Thanks. The two facilities in Clovis, they -- if I have them right, are the at the Carmel Villages, those two assets?

Clint Malin -- Executive Vice President & Chief Investment Officer

That's correct Todd.

Todd Stender -- Wells Fargo Securities, LLC -- Analyst

They look like they were stabilized just last year. Can you kind of describe what transition -- what prompted the transition and maybe how those are performing?

Clint Malin -- Executive Vice President & Chief Investment Officer

I think they were stabilized by our definition of rolling in to stabilize the amount of time that lapsed. There was still a lag on our overall occupancy in those communities and Frontier had some challenges. I mean, they help to work with us on this, they have focuses elsewhere. And we have found a different operating company to come in and see an opportunity, the Clovis community. So we were successful in transitioning to another operator. We think we'll be able to drive growth in occupancy.

Todd Stender -- Wells Fargo Securities, LLC -- Analyst

So no change in rent rates, right, same rental rate? It was just the purchase option, was that kind of a sweetener to just get a new operator in there at the same rate?

Clint Malin -- Executive Vice President & Chief Investment Officer

It was the -- the rent is fixed for five years, but the initial rent is same as we had with Frontier. The first option was a sweetener, but we got some increased credit enhancements currently on the short-term for that. So it was a win-win for, I think LTC Generations and Frontier. And it gives us the opportunity to work with Generations. We've been talking to you for a number of years and hopefully, we see more growth opportunities moving forward to Generations.

Todd Stender -- Wells Fargo Securities, LLC -- Analyst

Okay, thank you. And then if this -- the recently developed SNF in Kentucky with Carespring. So that was kind of the only reference I had to see how long it takes to SNF to maybe to 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?

Clint Malin -- Executive Vice President & Chief Investment Officer

We're looking at 18-month, 24-month period on lease-up. But as I mentioned in my comments, they are actually ahead of budget right now and as of this week, they are 45% occupancy at that our nursing center. We are excited about the traction that Carespring have been able to get. They are strong regional operator in that marketplace. I have a lot of relationships with hospitals and managed care providers, and they've done a great job in leasing up that property ahead of pro forma currently.

Todd Stender -- Wells Fargo Securities, LLC -- Analyst

And that was -- I don't have in front of me, probably should. What's that lease-up expectation or the yield, I should say, is that 8.5%, did I get that right?

Clint Malin -- Executive Vice President & Chief Investment Officer

Yes, that's correct.

Todd Stender -- Wells Fargo Securities, LLC -- Analyst

Great. And thanks. And 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?

Clint Malin -- Executive Vice President & Chief Investment Officer

Sure, no problem. It is a triple net lease between the operating company and the real estate joint venture. The --our real estate joint venture partner is common ownership interest to lessee. So this was a situation where the operator was in a lease with another capital provider and they funded some operating losses, started the building. So basically, we've been able to credit that funding they had on the operating -- on the start-up of the operating losses to actual value on the real estate side.

Todd Stender -- Wells Fargo Securities, LLC -- Analyst

All right, great. Thanks Clint.

Clint Malin -- Executive Vice President & Chief Investment Officer

Thank you. I appreciate it.

Operator

The next question will be from Daniel Bernstein with CapitalOne. Please go ahead. Please go ahead, Daniel, perhaps, your line is muted on your end.

Daniel Bernstein -- CapitalOne -- Analyst

Yes, I was muted. So I'll say good morning again. Good morning. I don't have much. I just want to ask about Thrive and 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 it's something else that would give you confidence that those assets can do better than what they are doing now?

Clint Malin -- Executive Vice President & Chief Investment Officer

Sure. And I think it's a great question, Dan. Thank you. The Thrive portfolio right now is spread out pretty diversified on a planned geographic basis and this included, because we put some of (inaudible) buildings into the Thrive portfolio. So we found some regionally based operators that we think will be better focused geographically on this, on the portfolio and Thrive obviously still more in a start-up phase. They've done a lot of development projects and the operating companies that we're working with, they have existing seasoned operations. So we think it will be good for their portfolio, and they just have more stabilized platform to work from.

Daniel Bernstein -- CapitalOne -- Analyst

Okay and then 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. Are you still -- 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 toward seniors or skilled? Probably -- I know this is all in one question, but are you seeing any value-add opportunities as well?

Clint Malin -- Executive Vice President & Chief Investment Officer

I would say, Dan, more of the opportunities we're seeing are on the private pay than skilled. As I mentioned in my prepared remarks, we have identified a skilled opportunity that will be newer properties, which we find very interesting. But majority what we're seeing is on the private pay side anywhere from one-off assets to some portfolios. There is a combination of value-add, but on the value-add people looking for pricing that is based on stabilized as opposed to value-add. So that's where we are seeing cap rates still with private equity as Wendy mentioned in her comments, it's still very strong. And since we're focused on investing on a triple-net basis as opposed to her idea of structure, when the cap rates are compressed in the 6% to 7% (ph), it's hard to make that work with coverage at our lease rates beneath the house.

Daniel Bernstein -- CapitalOne -- Analyst

That's all I have thank you.

Clint Malin -- Executive Vice President & Chief Investment Officer

Thank you.

Operator

(Operator Instructions). The next question comes from Karin Ford with MUFG Securities, please go ahead.

Karin Ford -- Mitsubishi MUFG -- Analyst

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, but on potential asset sales from the preferred portfolio, what should we expect just a range on cap rates?

Clint Malin -- Executive Vice President & Chief Investment Officer

We are running through that process right now. So we are backing this out. It's hard to give a 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 days to 45 days in that portfolio, so we can provide an update on what we're seeing on the next call. But right now, what you've seen in Gen, pricing has been pretty strong on Fields assets. And so we're hopeful that, we'll come across this strong number. We've looked at, it relates to the Preferred Care assets. There is nothing new. we're looking at selling these assets. We actually approach 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. So when it comes to the Preferred Care portfolio, it's something we've been looking at for a number of years.

Karin Ford -- Mitsubishi MUFG -- Analyst

And how big could the disposition volume be later this year?

Clint Malin -- Executive Vice President & Chief Investment Officer

(multiple speakers) So I can't give that number right now, but we do have -- as Wendy you mentioned, the majority of Preferred Care portfolio, that will be on the market and then we also have the Jacksonville community, which you mentioned being marketed.

Karin Ford -- Mitsubishi MUFG -- Analyst

Okay, great and last question, just on the Wisconsin development that opened. You said it was 10% occupied. It look like you deferred the rent inception from 2Q '19 to 2Q '20. Can you just talk about that?

Pam Kessler -- Executive Vice President, Chief Financial Officer & Secretary

We did. It's related to the new lease accounting standard that requires an investment of 65% to 75% probability that you will collect 90% to 95% (multiple speakers) of all the cash flows through maturity of the lease and given that, that is a property and 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 collectability, certainty through the end of the lease, which I would imagine that stabilization. We could probably be more prepared to make that assessment. So during the lease-up period, we will not be recording straight-line rent on that. Excuse me, Karin.

Karin Ford -- Mitsubishi MUFG -- Analyst

Sorry.

Pam Kessler -- Executive Vice President, Chief Financial Officer & Secretary

We were getting clarification on 842 all the way up. So if we decide Tealwood, we can start doing straight-line rent in 2022. We pick up all the prior straight -- all of a sudden we get this big list.

Karin Ford -- Mitsubishi MUFG -- Analyst

And it's currently written.

Pam Kessler -- Executive Vice President, Chief Financial Officer & Secretary

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 determined future revenue as collectible. But as the rule which is written, you go back and recapture all of that straight-line rent. So that would be a enormous pickup that makes no sense. But...

Karin Ford -- Mitsubishi MUFG -- Analyst

Just want to clarify. Yeah right into the circle, yes. I suspect, given the difficulties. the reach we've had in implementing the new lease accounting standard and kind of the things that have cropped up by -- I think I (inaudible) consequences, I suspect the fact that we will be issuing clarifications on certain things because it -- this was the -- it is not clear, a lot of the ramifications of implementing all parts of this new rule.

And just to clarify, it was always intended in that deal that Tealwood would not start paying cash rent until stabilization or are we -- we're just going to booking straight-line or...?

Pam Kessler -- Executive Vice President, Chief Financial Officer & Secretary

They have deferred a certain amount of deferred rent credit, yes.

Karin Ford -- Mitsubishi MUFG -- Analyst

I See. Okay.

Pam Kessler -- Executive Vice President, Chief Financial Officer & Secretary

I mean that's almost all lease caps and they don't start paying that one. You have a certain amount of free rent and deferred rent. And so under the old guidance, we would have been recording straight-line rent at Seattle. That's what we always did under the old guidance at what was prescribed.

Karin Ford -- Mitsubishi MUFG -- Analyst

Got you. And there's -- so there's no change to the agreement you had with Tealwood on that front?

Pam Kessler -- Executive Vice President, Chief Financial Officer & Secretary

No.

Karin Ford -- Mitsubishi MUFG -- Analyst

Okay, great. Thanks.

Operator

The next question is a follow-on from Rich Anderson with SMBC Nikko. Please go ahead.

Richard Anderson -- SMBC Nikko Securities America Inc. -- Analyst

Thanks. Sorry, I think there is a 90% to 95% chance I'm having a cocktail tonight. I just have one question, a follow-up, Pam. You mentioned the some amount of one-time-ish in the $9.6 million, is there any one-time-ish type of number in the property tax that you carve out now?

Pam Kessler -- Executive Vice President, Chief Financial Officer & Secretary

No, there is not and it's $1.4 million that's in the recovery of that contra-expense line item. That's the Thrive deferred rent we received this quarter, that I'm not anticipating as getting that again. We've actually called it a non-recurring item on our FFO a reconciliation. So there -- every else should be, all things being equal to this quarter, should be similar asset back.

Richard Anderson -- SMBC Nikko Securities America Inc. -- Analyst

Right, right. So property taxes would just kind of grow as they normally would?

Pam Kessler -- Executive Vice President, Chief Financial Officer & Secretary

Yeah property tax is a recurrent -- will be a recurring item. I guarantee that we d be changing their mind on that one.

Richard Anderson -- SMBC Nikko Securities America Inc. -- Analyst

All right. All right. Thanks very much.

Operator

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.

Wendy Simpson -- Chairman, Chief Executive Officer & President

Thank you, Chad and thank you everyone who has listened to our comments and we look forward to updating you as we approach the end of the second quarter. Have a great day. Have a great weekend.

Operator

And thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Duration: 45 minutes

Call participants:

Wendy Simpson -- Chairman, Chief Executive Officer & President

Pam Kessler -- Executive Vice President, Chief Financial Officer & Secretary

Clint Malin -- Executive Vice President & Chief Investment Officer

Chad Vanacore -- Stifel, Nicolaus & Company, Inc. -- Analyst

Mike Carroll -- RBC Capital Markets Corporation -- Analyst

Richard Anderson -- SMBC Nikko Securities America Inc. -- Analyst

Todd Stender -- Wells Fargo Securities, LLC -- Analyst

Daniel Bernstein -- CapitalOne -- Analyst

Karin Ford -- Mitsubishi MUFG -- Analyst

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