INVESTMENTS IN JOINT VENTURES

6 Months Ended

Jun. 30, 2020

INVESTMENTS IN JOINT VENTURES

INVESTMENTS IN JOINT VENTURES

NOTE 7. INVESTMENTS IN JOINT VENTURES

The Company’s Investment in Joint Ventures were as follows as of June 30, 2020 and December 31, 2020:

	As of
	June 30, 2020		December 31, 2019
Land JV	$	48,864,662	$	48,864,662
Mitigation Bank JV		6,894,426		6,872,006
Total Investments in Joint Ventures	$	55,759,088	$	55,736,668

Land JV. The Investment in Joint Ventures on the Company’s consolidated balance sheets includes the Company’s ownership interest in the Land JV. We have concluded the Land JV is a variable interest entity and is accounted for under the equity method of accounting as the Company is not the primary beneficiary as defined in FASB ASC Topic 810, Consolidation. The significant factors related to this determination include, but are not limited to, the Land JV being jointly controlled by the members through the use of unanimous approval for all material actions. Under the guidance of FASB ASC 323, Investments-Equity Method and Joint Ventures, the Company uses the equity method to account for the JV Investment.

The following table provides summarized financial information of the Land JV as of June 30, 2020 and December 31, 2019:

	As of
	June 30, 2020		December 31, 2019
	($000's)		($000's)
Assets, cash and cash equivalents	$	816	$	15,066
Assets, prepaid expenses		190		61
Assets, investment in land assets		14,667		17,058
Total Assets	$	15,673	$	32,185
Liabilities, accounts payable, deferred revenue	$	227	$	987
Equity	$	15,446	$	31,198
Total Liabilities & Equity	$	15,673	$	32,185

The following table provides summarized financial information of the Land JV for the three and six months ended June 30, 2020. There was no activity for the three and six months ended June 30, 2019.

	Three Months Ended		Six Months Ended
	June 30, 2020		June 30, 2020
	($000's)		($000's)
Revenues	$	680	$	7,826
Direct Cost of Revenues		269		3,375
Operating Income	$	411	$	4,451
Other Operating Expenses	$	137	$	274
Net Income	$	274	$	4,177

The Company’s share of the Land JV’s net income was zero for the three and six months ended June 30, 2020. Pursuant to ASC 323, certain adjustments are made when calculating the Company’s share of net income, including adjustments required to reflect the investor’s share of changes in investee’s capital to reflect distributions from the venture. Additionally, basis differences are also considered. The Company recorded the retained interest in the Land JV of approximately $48.9 million at the estimated fair market value based on the relationship of the $97.0 million sales price of the 66.5% equity interest to the 33.5% retained interest. The Land JV recorded the assets contributed by the Company at carry-over basis pursuant to ASC 845 which states that transfers of nonmonetary assets to should typically be recorded at the transferor’s historical cost basis. Accordingly, the Company’s basis difference in the 33.5% retained equity interest will be evaluated each quarter upon determining the Company’s share of the Land JV’s net income. No adjustment was required for the three and six months ended June 30, 2020.

Mitigation Bank. The mitigation bank transaction completed in June 2018 consists of the sale of a 70% interest in the Mitigation Bank JV. The purchaser of the 70% interest in the Mitigation Bank JV is comprised of certain funds and accounts managed by an investment advisor subsidiary of BlackRock, Inc. (“BlackRock”). The Company retained an approximately 30% non-controlling interest in the Mitigation Bank JV. A third-party was retained by the Mitigation Bank JV as the day-to-day manager of the Mitigation Bank property, responsible for the maintenance, generation, tracking, and other aspects of wetland mitigation credits. The approximately $6.9 million Investments in Joint Ventures included on the Company’s consolidated balance sheets is comprised of the fair market value of the 30% retained interest in the Mitigation Bank JV.

The Mitigation Bank JV intends to engage in the creation and sale of both federal and state wetland mitigation credits. These credits will be created pursuant to the applicable permits that have been or will be issued to the Mitigation Bank JV from the federal and state regulatory agencies that exercise jurisdiction over the awarding of such credits, but no assurances can be given as to the ultimate issuance, marketability or value of the credits. The Mitigation Bank JV received the permit from the state regulatory agency on June 8, 2018 (the “State Permit”). The state regulatory agency may award up to 355 state credits under the State Permit. On August 6, 2018, the state regulatory agency awarded the initial 88.84 credits under the State Permit. Receipt of the remaining federal permit is anticipated to occur prior to the end of 2020.

The operating agreement of the Mitigation Bank JV (the “Operating Agreement”) executed in conjunction with the mitigation bank transaction stipulates that the Company shall arrange for sales of the Mitigation Bank JV’s mitigation credits to unrelated third parties totaling no less than $6 million of revenue to the Mitigation Bank JV, net of commissions, by the end of 2020, utilizing a maximum of 60 mitigation credits (the “Minimum Sales Requirement”). The Operating Agreement stipulates that if the Minimum Sales Requirement is not achieved, then BlackRock has the right, but is not required, to cause the Company to purchase the number of mitigation credits necessary to reach the Minimum Sales Requirement (the “Minimum Sales Guarantee”). The Company estimates the fair value of the Minimum Sales Guarantee to be approximately $100,000 which was recorded as a reduction in the gain on the transaction and is included in Accrued and Other Liabilities in the Company’s consolidated balance sheet.

Additionally, the Operating Agreement provides BlackRock the right to cause the Company to purchase a maximum of 8.536 mitigation credits per quarter (the “Commitment Amount”) from the Mitigation Bank JV at a price equal to 60% of the then fair market value for mitigation credits (the “Put Right”). The Put Right is applicable even if the Mitigation Bank JV has not yet been awarded a sufficient number of mitigation credits by the applicable federal and state regulatory agencies. Further, in any quarter that BlackRock does not exercise its Put Right, the unexercised Commitment Amount for the applicable quarter may be rolled over to future calendar quarters. However, the Operating Agreement also stipulates

that any amount of third-party sales of mitigation credits will reduce the Put Rights outstanding on a one-for-one basis, if the sales price of the third-party sales equals or exceeds the prices stipulated by the Put Right. Further, any sales of mitigation credits to third parties at the requisite minimum prices in a quarter that exceeds the quarterly amount of the Put Right will reduce the Put Rights in future calendar quarters on a one-for-one basis. The maximum potential of future payments for the Company pursuant to the Put Right is approximately $27 million. The Company estimates the fair value of the Put Right to be approximately $200,000, which was recorded as a reduction in the gain on the transaction and is included in Accrued and Other Liabilities in the Company’s consolidated balance sheet.

In March 2020, BlackRock exercised its Put Right and put 20 mitigation credits to the Company, which the Company purchased for approximately $1.5 million, or approximately $75,000 per credit. In December 2019, BlackRock exercised its Put Right and put 25 mitigation credits to the Company, which the Company purchased for approximately $1.9 million, or approximately $75,000 per credit. The credits acquired were included as an increase to Mitigation Credits on the accompanying consolidated balance sheets as of June 30, 2020 and December 31, 2019, respectively. The Company evaluated the impact of the exercised Put Right on the fair value of the Company’s investment in the Mitigation Bank JV as of June 30, 2020 and December 31, 2019 of approximately $6.9 million, and on the fair value of the mitigation credits purchased as of June 30, 2020 and December 31, 2019, noting no impairment. The Company evaluates its estimates of fair value on an ongoing basis; however, actual results may differ from those estimates. See Note 24, “Subsequent Events” for additional Put Right exercised in July 2020.

The following tables provide summarized financial information of the Mitigation Bank JV as of June 30, 2020 and December 31, 2019:

	As of
	June 30, 2020		December 31, 2019
	($000's)		($000's)
Assets, cash and cash equivalents	$	1,905	$	4,015
Assets, prepaid expenses		41		19
Assets, investment in mitigation credit assets		1,477		1,521
Assets, property, plant, and equipment		16		17
Total Assets	$	3,439	$	5,572
Liabilities, accounts payable, deferred mitigation credit sale revenue	$	19	$	39
Equity	$	3,420	$	5,533
Total Liabilities & Equity	$	3,439	$	5,572

The following table provides summarized financial information of the Mitigation Bank JV for the three and six months ended June 30, 2020 and 2019:

	Three Months Ended				Six Months Ended
	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
	($000's)		($000's)		($000's)		($000's)
Revenues	$	12	$	—	$	1,878	$	47
Direct Cost of Revenues		1		—		81		4
Operating Income	$	11	$	—	$	1,797	$	43
Other Operating Expenses	$	72	$	56	$	148	$	127
Net Income	$	(61)	$	(56)	$	1,649	$	(84)

The Company’s share of the Mitigation Bank JV’s net income was zero for the three and six months ended June 30, 2020 and 2019. Pursuant to ASC 323, certain adjustments are made when calculating the Company’s share of net income, including adjustments required to reflect the investor’s share of changes in investee’s capital to reflect distributions from the venture. Additionally, basis differences are also considered. The Company recorded the initial retained interest in the Mitigation Bank JV of approximately $6.8 million in June 2018 at the estimated fair market value based on the relationship of the $15.3 million sales price of the 70% equity interest to the 30% retained interest. The Mitigation Bank JV recorded the assets contributed by the Company at carry-over basis pursuant to ASC 845 which states that transfers of nonmonetary assets to should typically be recorded at the transferor’s historical cost basis. Accordingly, the Company’s basis difference in the 30% retained equity interest will be evaluated each quarter upon determining the Company’s share of the Mitigation Bank JV’s net income.