INVESTMENT IN JOINT VENTURES

12 Months Ended

Dec. 31, 2020

INVESTMENT IN JOINT VENTURES

INVESTMENT IN JOINT VENTURES

NOTE 8. INVESTMENT IN JOINT VENTURES

The Company’s investment in joint ventures were as follows as of December 31, 2020 and December 31, 2019 (in thousands):

	As of
	December 31, 2020		December 31, 2019
Land JV	$	41,765	$	48,865
Mitigation Bank JV		6,912		6,872
Total Investment in Joint Ventures	$	48,677	$	55,737

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 Land JV investment.

During the year ended December 31, 2020, the Company recognized an impairment on its retained interest in the Land JV totaling $7.1 million which is included in investment in joint ventures on the consolidated balance sheet. The $7.1 million impairment on the retained interest in the Land JV is the result of a re-forecast of the anticipated undiscounted future cash flows to be received by the Company based on the estimated timing of future land sales from the Land JV. As the timing of land sales is a significant estimate, the Company deems that there is at least a remote possibility that this estimate could change in the near term.

The following table provides summarized financial information of the Land JV as of December 31, 2020 and December 31, 2019 (in thousands):

	As of
	December 31, 2020		December 31, 2019
Assets, Cash and Cash Equivalents	$	802	$	15,066
Assets, Prepaid Expenses		117		61
Assets, Investment in Land Assets		5,658		17,058
Total Assets	$	6,577	$	32,185
Liabilities, Accounts Payable, Accrued Expenses, Deferred Revenue	$	228	$	987
Equity	$	6,349	$	31,198
Total Liabilities & Equity	$	6,577	$	32,185

The following table provides summarized financial information of the Land JV for the years ended December 31, 2020 and 2019 (in thousands). There was no activity for the year ended December 31, 2018.

	Year Ended
	December 31, 2020		December 31, 2019
Revenues	$	65,446	$	14,635
Direct Cost of Revenues		(13,012)		(1,268)
Operating Income	$	52,434	$	13,367
Other Operating Expenses		(462)		(90)
Net Income	$	51,972	$	13,277

The Company’s share of the Land JV’s net income was zero for the years ended December 31, 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 retained interest in the Land JV of $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 year ended December 31, 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 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 $6.9 million investment 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 2021.

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 $6.0 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”). Subsequent to December 31, 2020, the Company has had active discussion with BlackRock regarding the Minimum Sales Guarantee. Based on those discussions, the Company currently anticipates that the Minimum Sales Guarantee payment would be paid to BlackRock in the latter half of 2021. The Company is also in discussion with BlackRock regarding the Company’s potential buyout of BlackRock’s position in the Mitigation Bank JV, the timing of which could occur in the latter half of 2021. There can be no assurances regarding the likelihood, timing, or final terms of such potential buyout.

During June 2018, upon closing the Mitigation Bank JV, the Company estimated the fair value of the Minimum Sales Guarantee at $0.1 million 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. As of December 31, 2020, the Company considers the $0.1 million reasonable as upon payment of the Minimum Sales Guarantee, the Company will obtain mitigation credits, or the right to such credits, which would be recorded as an asset at the time of payment.

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 initial maximum potential of future payments for the Company pursuant to the Put Right was $27.0 million. The Company estimates the fair value of the Put Right to be $0.2 million, 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.

During the year ended December 31, 2020, BlackRock exercised its Put Right and put 48 mitigation credits to the Company inclusive of (i) 20 mitigation credits acquired during the three months ended March 31, 2020 totaling $1.5 million, or $75,000 per credit, (ii) 20 mitigation credits acquired during the three months ended September 30, 2020 totaling $1.5 million, or $75,000 per credit, and (iii) 8 mitigation credits acquired during the three months ended December 31, 2020 totaling $0.6 million, or $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 $1.9 million, or $75,000 per credit. The credits acquired were included as an increase to mitigation credits on the accompanying consolidated balance sheets as of December 31, 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 of $6.9 million and on the fair value of the mitigation credits purchased as of December 31, 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.

The following tables provide summarized financial information of the Mitigation Bank JV as of December 31, 2020 and 2019 (in thousands):

	As of
	December 31, 2020		December 31, 2019
Assets, Cash and Cash Equivalents	$	1,890	$	4,015
Assets, Prepaid Expenses		20		19
Assets, Investment in Mitigation Credit Assets		1,409		1,521
Assets, Property, Plant, and Equipment—Net		14		17
Total Assets	$	3,333	$	5,572
Liabilities, Accounts Payable, Accrued Liabilities, Deferred Mitigation Credit Sale Revenue	$	17	$	39
Equity	$	3,316	$	5,533
Total Liabilities & Equity	$	3,333	$	5,572

The following table provides summarized financial information of the Mitigation Bank JV for the years ended December 31, 2020, 2019 and 2018 (in thousands).

	Year Ended
	December 31, 2020		December 31, 2019		December 31, 2018
Revenues	$	4,109	$	1,922	$	—
Direct Cost of Revenues		(167)		(76)		—
Operating Income	$	3,942	$	1,846	$	—
Other Operating Expenses		(175)		(197)		(117)
Net Income	$	3,767	$	1,649	$	(117)

The Company’s share of the Mitigation Bank JV’s net income was zero for the years ended December 31, 2020, 2019, and 2018. 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 $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.