Quarterly report pursuant to Section 13 or 15(d)

Note 4 - Mortgage Loan Receivable

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Note 4 - Mortgage Loan Receivable
6 Months Ended
Jun. 30, 2022
Notes to Financial Statements  
Financing Receivables [Text Block]

Note 4 – Loans Receivable

 

Mortgage Loan

 

The Company funded a $30 million nine-month mortgage loan to Hero Diversified Associates, Inc. (“HDAI”) on October 29, 2021. The Company determined that HDAI meets the definition of a VIE because the equity investors do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The Company consolidates a VIE in accordance with Accounting Standards Codification (“ASC”) 810, Consolidation, when it is the primary beneficiary of such VIE. Based on a number of factors, including that the Company does not have the power to direct the VIE’s activities that most significantly impact the VIE’s economic performance, the Company determined that it does not have a controlling financial interest and is not the primary beneficiary. The Company is required to reconsider its evaluation of whether to consolidate a VIE each reporting period, based upon changes in the facts and circumstances pertaining to the VIE. Our maximum exposure to a loss on the HDAI loan is $30 million.

 

The collateral for the loan includes a first-lien mortgage on a cultivation and processing facility in Erie, Pennsylvania. The loan bears interest at 12.25% and is structured to convert to a twenty-year sale leaseback, unless a specific provision in the loan agreement is satisfied prior to July 29, 2022. Refer to Note 14 - "Subsequent Events" for details of the conversion. HDAI funded a $2.8 million interest reserve at closing. The interest reserve is applied toward their monthly interest payments. As of  June 30, 2022., the aggregate principal amount outstanding on the mortgage loan was $30.0 million and there is approximately $0.3 million remaining in the interest reserve which is recorded as a liability on the accompanying Consolidated Balance Sheets.

 

Loan Receivable

 

The Company funded a $5.0 million unsecured loan to Bloom Medicinals on June 10, 2022. The loan initially bears interest at a rate of 10.25% and is structured to increase by 0.225% on each anniversary of the disbursement date. The loan can be prepaid at any time without penalty and matures on June 30, 2026. The loan is cross defaulted with the lease agreement. As of  June 30, 2022, the aggregate principal amount outstanding on the unsecured loan receivable was $5.0 million.