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Note 8 - Investments, Including Investments Accounted for Using the Equity Method

3 Months Ended

Mar. 31, 2021

Notes to Financial Statements

Investment [Text Block]

NOTE 8. INVESTMENTS, INCLUDING INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

Short-term Investments

Short-term investments consist of certificates of deposit, U.S. Treasury securities, and corporate bonds. Certificates of deposit, U.S. Treasury securities and corporate bonds held by UCS are classified as held to maturity, mature in less than twelve months, and are reported at amortized cost which approximates fair value. Other corporate bonds are classified as trading and reported at fair value, with any unrealized holding gains and losses during the period included in earnings. For the three months ended March 31, 2021, losses on redemptions of U.S. Treasury securities held to maturity were $23,904.

		*March 31,*				*December 31,*
		*2021*				*2020*

Certificates of deposit		$	417,625			$	1,035,827
Corporate bonds available for sale			-				1,020,000
U.S. Treasury notes and corporate bond			4,942,094				4,994,848

Total		$	5,359,719			$	7,050,675

Marketable Equity Securities

Our marketable equity securities are publicly traded stocks measured at fair value using quoted prices for identical assets in active markets and classified as Level 1 within the fair value hierarchy, with the exception of our DFH shares (see Note 9 below). Our marketable equity securities are held by UCS and Boston Omaha. Marketable equity securities as of March 31, 2021 and December 31, 2020 are as follows:

						*Gross*
						*Unrealized*				*Fair*
		*Cost*				*Gain (Loss)*				*Value*

Marketable equity securities, March 31, 2021		$	43,684,885			$	100,305,854			$	143,990,739

Marketable equity securities, December 31, 2020		$	68,205,548			$	(4,169,066	)		$	64,036,482

U.S. Treasury Trading Securities

We classify our investments in debt securities that are bought and held principally for the purpose of selling them in the near term as trading securities. Our debt securities classified as trading are carried at fair value in the consolidated balance sheets, with the change in fair value during the period included in earnings. Interest income is recognized at the coupon rate. Debt securities classified as trading as of March 31, 2021 and December 31, 2020 are as follows:

Gross

Unrealized

Fair

Cost

Gain (Loss)

Value

U.S. Treasury securities, March 31, 2021
$ 54,494,536 $ 4,724 $ 54,499,260

U.S. Treasury securities, December 31, 2020
$ 37,766,133 $ 1,812 $ 37,767,945

U.S. Treasury Securities held in Trust

Yellowstone's U.S. treasury securities held in the Trust Account are carried at fair value in the consolidated balance sheets, with the change in fair value during the period included in earnings. Interest income is recognized at the coupon rate.

Long-term Investments

Long-term investments consist of certificates of deposit having maturity dates in excess of twelve months, U.S. Treasury securities, and certain equity investments. The certificates of deposit and U.S. Treasury securities have maturity dates ranging from 2022 through 2023. We have the intent and the ability to hold the certificates of deposit and U.S. Treasury securities to maturity. Certificates of deposit and U.S. Treasury securities are stated at amortized cost which approximates fair value and are held by UCS.

Long-term investments consist of the following:

March 31,

December 31,

2021

2020

U.S. Treasury securities, held to maturity
$ 283,126 $ 286,015

Preferred stock
104,019 104,019

Voting common stock of CBT Holding Corporation
19,058,485 19,058,485

Total
$ 19,445,630 $ 19,448,519

Equity Investments

During May 2018, we invested $19,058,485 in voting common stock of CB&T Holding Corporation, which we refer to as “CBT,” the privately held parent company of Crescent Bank & Trust. Our investment represents 14.99% of CBT’s outstanding common stock. CBT is a closely held corporation, whose majority ownership rests with one family.

During January 2018, we exchanged our convertible note receivable from Breezeway Homes, Inc., which we refer to as “Breezeway,” for 31,227 shares of preferred stock. The preferred stock is noncumulative and has a dividend rate of $.2665 per share, should dividends be declared. The preferred stock has one vote per share and is convertible into whole shares of common stock, determined according to the conversion formula contained in Breezeway’s amended and restated articles of incorporation. In addition, our investment provides us with a multi-year right to sell insurance and/or warranty products through Breezeway's software platform to its customers.

We reviewed our investments as of March 31, 2021 and concluded that no impairment to the carrying value was required.

Investment in Unconsolidated Affiliates

We have various investments in equity method affiliates, whose businesses are in home building, real estate, real estate services, and asset management. Our interest in these affiliates ranges from 5.6% to 30%. Two of the investments in affiliates, Logic Real Estate Companies, LLC and 24^th Street Holding Company, LLC, having a combined carrying amount of $560,579 on March 31, 2021, are managed by an entity controlled by a member of our board of directors.

Dream Finders Homes, Inc.

In late December 2017, we invested $10 million in non-voting common units of Dream Finders Holdings LLC, which we refer to as “DFH”, the parent company of Dream Finders Homes, LLC, a national home builder with operations in Colorado, Florida, Georgia, Maryland, North Carolina, South Carolina, Texas and northern Virginia. During the first quarter of 2020, we obtained additional non-voting shares of DFH which increased our ownership in the company to approximately 5.6%. As a result, we began applying the equity method of accounting for our investment in DFH prospectively from January 1, 2020, the date we obtained the additional shares.

In May 2019, our subsidiary BOC DFH, LLC invested an additional $12 million in DFH through the purchase of preferred units. DFH was required to pay to us a mandatory preferred return of at least 14% per annum on such preferred units and 25% of our preferred units were convertible, at our option, into non-voting common units after May 29, 2020 and the remaining preferred units were convertible, at our option, into non-voting common units after May 29, 2021. The mandatory 14% preferred return increased if the preferred units purchased were not redeemed or converted within one year of purchase. Also, we obtained additional beneficial conversion terms if the preferred units were not redeemed by May 29, 2021. During 2020, DFH redeemed all $12 million of the preferred units purchased in May 2019.

On January 20, 2021, Dream Finders Homes, Inc. announced the pricing of its initial public offering of 9,600,000 shares of Class A common stock at the initial public offering price of $13.00 per share. Shares of Class A common stock began trading on the NASDAQ Global Select Market under the symbol “DFH” on Thursday, January 21, 2021. Concurrent with the closing of the initial public offering, all of the outstanding non-voting common units and Series A preferred units of DFH were converted into shares of Class A common stock of Dream Finders Homes, Inc., and all of the outstanding common units of DFH LLC were converted into shares of Class B common stock of Dream Finders Homes, Inc. As a result, our previous equity interest in DFH was converted into 4,681,099 shares of DFH Class A common stock, which are no longer accounted for under the equity method but marked to market each reporting period consistent with the other publicly traded equity securities we hold. In addition, one of our subsidiaries purchased 120,000 shares of DFH Class A common stock at $13.00 per share in the initial public offering. At March 31, 2021, our total investment in DFH, based on its closing price on such date, was valued at over $115 million, before applying any required fair value adjustments or discounts related to the lack of marketability associated with our lock-up period.

24th Street Fund I & 24th Street Fund II

During 2020, we invested a total of $6,000,000 in two funds, 24th Street Fund I, LLC, and 24th Street Fund II, LLC, that are managed by 24th Street Asset Management LLC, a subsidiary of 24th Street Holding Company, LLC, which we currently own approximately 49.9% of both directly and indirectly through our ownership in Logic. The funds will focus on opportunities within secured lending and direct investments in commercial real estate.

The following table is a reconciliation of our investments in equity affiliates as presented in investments in unconsolidated affiliates on our consolidated balance sheets, together with combined summarized financial data related to the unconsolidated affiliates:

March 31,

December 31,

2021

2020

Beginning of period
$ 20,913,896 $ 771,805

Additional investment in unconsolidated affiliates
- 16,000,000

Distributions received
(1,598,623 ) (1,433,480 )

Reclassificaton of investment in affiliate to marketable securities (12,880,147 ) -

Equity in income of unconsolidated affiliates
140,297 5,575,571

End of period
$ 6,575,423 $ 20,913,896

Combined summarized financial data for these affiliates is as follows:

March 31,

2021

2020

Revenue
$ 9,416,765 $ 191,751,459

Gross profit
6,637,948 25,787,988

Income from continuing operations
20,713 7,382,036

Net (loss) income
$ (453,471 ) $ 6,517,748

Note Receivable from Affiliate

On October 2, 2020, we provided an unsecured term loan of $20,000,000 to Dream Finders Holdings, LLC to be used in expanding DFH's footprint in the Southeast United States. The effective interest rate on the term loan is approximately 14% with a scheduled maturity of May 1, 2021. Monthly interest payments began on November 1, 2020 and were scheduled to continue on the first day of each month until May 1, 2021. On January 25, 2021, DFH repaid the note receivable in full including the future scheduled interest payments prior to the maturity of the note. The total prepayment, including future scheduled interest, was $20,567,776.