Equity Method Investments

3 Months Ended

Mar. 31, 2024

Equity Method Investments and Joint Ventures [Abstract]

Equity Method Investments

Note 6 – Equity Method Investments

In November 2018, CPFH LLC, of which the Company holds a 25% share, was formed to purchase certain real estate assets among partners in a joint venture. In March 2020, HGC Origination I LLC and HGC Funding I LLC were formed as joint ventures with a partner for purposes of conducting business relating to the sourcing, origination and funding of loans to debt purchasing clients. In April 2022, KNFH LLC, of which the Company holds a 25% share, was formed to purchase certain real estate assets and machinery and equipment among partners in a joint venture. In December 2022, DHC8 LLC, of which the Company holds a 13.33% share was formed to provide funding and receive principal and interest payments as a result of the initial investment. In May 2023, HGC MPG Funding LLC, of which the Company holds a 25% share, was formed as a joint venture with a partner for purposes of conducting business relating to the sourcing, origination and funding of loans to debt purchasing clients. In December 2023, KNFH II LLC, of which the Company holds a 25% share, was formed to purchase certain real estate assets and machinery and equipment among partners in a joint venture. CPFH LLC, KNFH LLC, DHC8 LLC and KNFH II LLC are joint ventures formed in connection with the Company’s Industrial Assets division, whereas HGC Origination I LLC, HGC Funding I LLC, and HGC MPG Funding LLC were formed in connection with the Financial Assets division. The Company has significant influence over the operations and financial policies of each of its equity method investments.

In accordance with ASC 326, the Company performs a review of notes receivable on a quarterly basis for each of its specialty lending investments. During the three months ended March 31, 2024, the Company recorded no material adjustments for its share of the joint venture’s reduction to the provision for credit losses. As of March 31, 2024, the Company's share of the allowance for credit losses was approximately $0.9 million, which was primarily related to HGC Origination I LLC and HGC MPG Funding LLC. As of March 31, 2024, the Company has incurred no actual credit losses through its equity method investments.

Based on the nature of our equity method investments, the joint venture entities' revenues and gross profit are not materially different and furthermore, operating income and net income have no material differences. The table below details the Company’s joint venture revenues and earnings during the three months ended March 31, 2024 and 2023 (in thousands):

	March 31,
	2024			2023
Revenues and gross profit:
KNFH LLC	$	—		$	440
DHC8 LLC		321			445
KNFH II LLC		—			—
HGC Origination I LLC and HGC Funding I LLC		1,140			1,297
HGC MPG Funding LLC		1,241			—
Total revenues and gross profit	$	2,702		$	2,182
Operating income (loss) and net income (loss):
KNFH LLC		—			(10	)
DHC8 LLC		268			378
KNFH II LLC		(44	)		—
HGC Origination I LLC and HGC Funding I LLC		1,134			1,304
HGC MPG Funding LLC		1,241			—
Total operating income and net income	$	2,599		$	1,672

The table below details the summarized components of assets and liabilities of the Company’s joint ventures, as of March 31, 2024 and December 31, 2023 (in thousands):

	March 31,		December 31,
	2024		2023
Assets:
KNFH LLC	$	—	$	292
DHC8 LLC		4,700		7,061
KNFH II LLC		8,306		8,150
HGC Origination I LLC and HGC Funding I LLC		27,174		28,389
HGC MPG Funding LLC		36,413		38,081
Total assets	$	76,593	$	81,973
Liabilities:
KNFH LLC	$	—	$	289
DHC8 LLC		1,080		1,102
KNFH II LLC		4,000		4,000
HGC Origination I LLC and HGC Funding I LLC		1,244		10
HGC MPG Funding LLC		—		—
Total liabilities	$	6,324	$	5,401