NOTE 5. BORROWINGS

Our borrowings as of December 31, 2015 and 2014 are summarized below:

 

												As of December 31, 2015												As of December 31, 2014
Issuer		Type of Issuance		Date(s) of Issuance		Initial Commitment		Maturity Date(1)				Principal Outstanding				Stated Interest Rate(2)				Undrawn Commitment				Principal Outstanding				Stated Interest Rate(2)				Undrawn Commitment
MetLife		Mortgage Note Payable		5/9/2014		100,000,000			1/5/2029(3)			$	87,470,194				3.35	%			12,529,806	(4)			66,331,998				3.61	%			33,668,002	(4)
MetLife		Line of Credit		5/9/2014		25,000,000			4/5/2024				100,000				2.58	%			24,900,000	(4)			4,000,000				2.75	%			21,000,000	(4)
Farm Credit		Mortgage Notes Payable		9/19/2014–11/2/2015		22,185,880			4/9/2031				21,456,963				3.42	%(5)			—				12,410,363				3.53	%(5)			—
Farmer Mac		Bonds Payable		12/11/2014		75,000,000			7/24/2019(6)				33,706,000				2.87	%			41,294,000	(7)			3,675,000				3.25	%			71,325,000	(7)
									Totals:			$	142,733,157							$	78,723,806			$	86,417,361							$	125,993,002

 

(1)	Where applicable, represents the weighted-average maturity date.

(2)	Where applicable, represents the weighted-average, blended rate on the respective borrowing facilities as of each December 31, 2015, and December 31, 2014.

(3)	If facility not fully utilized by December 31, 2017, MetLife has the option to be relieved of its obligations to disburse the additional funds under the loan.

(4)	Based on the properties that were pledged as collateral under the MetLife Facility as of each December 31, 2015, and December 31, 2014, approximately $8.9 million and $13.8 million, respectively, of the aggregate undrawn commitment under the facility was available for us to draw.

(5)	Rate is before interest patronage (as described below). 2014 interest patronage received resulted in a 12.7% refund of the interest accrued on such borrowings during the year ended December 31, 2014.

(6)	If facility is not fully utilized by December 11, 2016, Farmer Mac has the option to be relieved of its obligations to purchase additional bonds under the facility.

(7)	At each of December 31, 2015, and December 31, 2014, there was no additional availability to draw under this facility, as no additional properties had been pledged as collateral.

The weighted-average interest rate charged on all of our borrowings, excluding the impact of deferred financing costs and before any interest patronage, or refunded interest, was 3.4% for the year ended December 31, 2015, as compared to 3.6% for each of the years ended December 31, 2014 and 2013. 2014 interest patronage from our Farm Credit (as defined below) borrowings, which patronage was received during the three months ended June 30, 2015, resulted in a 12.7% reduction to the stated interest rate on such borrowings. We are unable to estimate the amount of patronage to be received, if any, related to interest accrued during 2015 on our Farm Credit borrowings.

MetLife Credit Facility

On December 30, 2010, we executed a loan agreement with Metropolitan Life Insurance Company (“MetLife”) in an amount not to exceed $45.2 million, pursuant to a long-term mortgage promissory note that was scheduled to mature on January 5, 2026 (the “Prior MetLife Note Payable”). The Prior MetLife Note Payable accrued interest at a rate of 3.50% per year and also included a commitment fee of 0.20% on any undrawn amounts.

On May 23, 2012, we obtained a $4.8 million revolving line of credit with MetLife that was scheduled to mature on April 5, 2017 (the “Prior MetLife Line of Credit,” and, together with the Prior MetLife Note Payable, the “Prior MetLife Credit Facility”). The Prior MetLife Line of Credit was collateralized by a mortgage on San Andreas and bore interest at an annual rate equal to the three-month LIBOR plus 3.00%.

 

On May 9, 2014, we closed on a new facility with MetLife that replaced the Prior MetLife Credit Facility. The new facility with MetLife consists of a $100.0 million long-term note payable that is scheduled to mature on January 5, 2029 (the “New MetLife Note Payable”), and a $25.0 million revolving equity line of credit that is scheduled to mature on April 5, 2024 (the “New MetLife Line of Credit” and, together with the New MetLife Note Payable, the “New MetLife Credit Facility”). Similar to the Prior MetLife Credit Facility, under the New MetLife Credit Facility, we may generally borrow up to 58% of the aggregate of the lower of cost or the appraised value of the pool of agricultural real estate pledged as collateral.

Initial advances under the New MetLife Note Payable bore interest at a fixed rate of 3.50% per annum, plus an unused line fee of 0.20% on undrawn amounts, and interest rates for subsequent disbursements were based on prevailing market rates at the time of such disbursements. The interest rates on the initial advance and any subsequent disbursements were to be subject to adjustment every three years. If the full commitment amount of $100.0 million was not drawn by December 31, 2017, MetLife had the option to be relieved of its obligation to disburse the additional funds under this loan. We may not repay the note prior to maturity, except on one of the interest rate adjustment dates. Advances under the New MetLife Line of Credit initially bore interest at a variable rate equal to the three-month LIBOR plus a spread of 2.50%, with a minimum annualized rate of 2.75%, plus an unused fee of 0.20% on undrawn amounts. The interest rate spread on borrowings under the New MetLife Line of Credit was to be subject to adjustment in April 2017.

On September 3, 2015, in connection with the acquisition of Bear Mountain, we drew $21.1 million under the MetLife Note Payable and also amended the New MetLife Credit Facility. The $21.1 million disbursement will bear interest at a fixed rate of 3.35% per annum for five years, thereafter repricing to then-current market rates. Among other changes, the amendment:

 

•

reduced the blended interest rate on all previously-disbursed amounts under the New MetLife Note Payable by 26 basis points, from 3.61% to 3.35%;

 

•

extended the fixed-rate term of the New MetLife Note Payable by 44 months, through August 2020;

 

•

extended the interest-only portion of the New MetLife Note Payable by an additional six months, to July 2016;

 

•

extended the draw period under the New MetLife Note Payable by one year, through December 2017;

 

•

reduced the interest rate spread on the New MetLife Line of Credit by 25 basis points, from 2.50% to 2.25%; and

 

•

reduced the minimum interest rate floor on the New MetLife Line of Credit by 25 basis points, from 2.75% to 2.50%.

Similar to the Prior MetLife Credit Facility, the continuing ability to borrow under the New MetLife Credit Facility will be subject to our ongoing compliance with various affirmative and negative covenants, including with respect to liens, indebtedness, mergers and asset sales. The New MetLife Credit Facility also requires that we satisfy financial covenants on a consolidated basis at the end of each calendar quarter, including:

 

•

a debt-to-asset-value ratio of equal to or less than sixty-five percent (65%);

 

•

a net worth value in excess of $50,000,000;

 

•

a debt-to-two-times-net-worth ratio of equal to or less than 0.65; and

 

•

a rental-revenue-to-debt ratio of equal to or greater than 5.0%.

Amounts owed under the New MetLife Credit Facility are guaranteed by us and each subsidiary of ours that owns a property pledged as collateral pursuant to the loan documents. As of December 31, 2015, we were in compliance with all covenants under the facility.

A portion of the proceeds from the New MetLife Credit Facility was used to repay amounts owed under the Prior MetLife Credit Facility. No early termination penalties or fees were incurred in connection with the repayment of the Prior MetLife Credit Facility. In connection with obtaining the New MetLife Credit Facility and the subsequent pledging of properties under the facility, through December 31, 2015, we have incurred loan fees of $220,500 and aggregate financing costs, which includes legal fees, origination fees and administrative fees, of $659,329. In addition, $298,614 of unamortized deferred financing costs associated with our Prior MetLife Credit Facility was further deferred and are being amortized over the term of our New MetLife Credit Facility.

As of December 31, 2015, the following properties were pledged as collateral under the New MetLife Credit Facility: San Andreas, West Gonzales, West Beach, Dalton Lane, 38^th Avenue, Sequoia Street, Natividad Road, 20^th Avenue, Broadway Road, Oregon Trail, East Shelton, Collins Road, Spring Valley, Naumann Road, Sycamore Road, Santa Clara Avenue and Bear Mountain.

 

As of December 31, 2015, there is approximately $87.5 million outstanding under the New MetLife Note Payable that bears interest at a fixed rate of 3.35% per annum and $0.1 million outstanding under the New MetLife Line of Credit that bears interest at a rate of 2.58% per annum. While approximately $37.4 million of the full commitment amount remains undrawn, based on the current level of collateral pledged, as of December 31, 2015, we have approximately $8.9 million of aggregate availability under the New MetLife Credit Facility. Subsequent to December 31, 2015, our availability to borrow under the New MetLife Credit Facility was increased by approximately $12.5 million due to updated appraisals on certain of our properties that serve as collateral under the facility resulting in increased valuations. See Note 10, “Subsequent Events,” for further discussion on this increased availability.

Farm Credit Notes Payable

From time to time since September 19, 2014, we, through certain subsidiaries of our Operating Partnership, have entered into various loan agreements with Farm Credit of Central Florida, FLCA (“Farm Credit”). Loans from Farm Credit will generally have a loan-to-value ratio of 60% of the underlying agricultural real estate. Pertinent terms of each of these loans (collectively, the “Farm Credit Notes Payable”) are summarized in the table below:

 

												As of December 31, 2015
Date of Issuance		Initial Commitment				Maturity Date		Principal Amortization		Interest Rate Terms(1)		Balance Outstanding				Interest Rate(1)
9/19/2014		$	1,599,600			8/1/2034		20 years		3.52%, fixed through 7/31/2018; variable thereafter (1-mo LIBOR + 2.875%)		$	1,519,620				3.52	%
9/19/2014			2,655,000			8/1/2034		20 years		3.52%, fixed through 7/31/2018; variable thereafter (1-mo LIBOR + 2.875%)			2,522,250				3.52	%
9/29/2014			8,259,000			8/1/2034		20 years		3.54%, fixed through 11/1/2017; variable thereafter (1-mo LIBOR + 2.875%)			7,742,813				3.54	%
3/10/2015			2,374,680			5/1/2020		None		3.20%, fixed throughout term			2,374,680				3.20	%
4/9/2015			897,600			6/1/2020		None		3.20%, fixed throughout term			897,600				3.20	%
5/8/2015			2,640,000			5/1/2030		None(2)		2.90%, fixed through 4/30/2018; variable thereafter (1-mo LIBOR + 3.00%)			2,640,000				2.90	%
11/2/2015			2,256,000			10/1/2040		25 years		3.86%, fixed through 11/30/2021; variable thereafter (1-mo LIBOR + 2.875%)			2,256,000				3.86	%
11/2/2015			1,504,000			10/1/2016		None		Variable (1-mo LIBOR + 3.00%)			1,504,000				3.25	%
		$	22,185,880									$	21,456,963				3.42	%

 

(1)	Rates represent the stated interest rates, before interest patronage. 2014 interest patronage received resulted in a 12.7% refund of the interest accrued on such borrowings during the year ended December 31, 2014.

(2)	Interest only through April 30, 2018. Note converts to a 20-year amortization thereafter.

Our agreement with Farm Credit contains various affirmative and negative covenants, including with respect to liens, indebtedness, mergers and asset sales. The Farm Credit Notes Payable also require us to satisfy financial covenants on a consolidated basis at the end of each calendar year, including having:

 

•

a net worth value in excess of $50,000,000; and

 

•

a maximum leverage ratio of equal to or less than sixty-five percent (65%).

Certain amounts owed under the Farm Credit Notes Payable, limited to 12 months of principal and interest due under the loans, are guaranteed by us pursuant to the loan documents. As of December 31, 2015, we were in compliance with all covenants.

The proceeds from the Farm Credit Notes Payable were invested into the acquisition of various new farms during the years ended December 31, 2014 and 2015. In connection with the Farm Credit Notes Payable, through December 31, 2015, we have incurred total loan fees of $120,351 and aggregate financing costs, which includes legal fees, origination fees and administrative fees, of $223,620.

As of December 31, 2015, the following properties were pledged as collateral under the Farm Credit Notes Payable: Keysville Road, Colding Loop, Trapnell Road, McIntosh Road, Wauchula Road, Parrish Road and Corbitt Road.

Farmer Mac Facility

On December 5, 2014, we, through certain subsidiaries of our Operating Partnership, entered into a bond purchase agreement (the “Bond Purchase Agreement”) with Federal Agricultural Mortgage Corporation (“Farmer Mac”) and Farmer Mac Mortgage Securities Corporation (the “Bond Purchaser”), for a secured note purchase facility that provides for bond issuances up to an aggregate principal amount of $75.0 million (the “Farmer Mac Facility”).

 

Pursuant to the Bond Purchase Agreement, we may, from time to time, issue one or more bonds to the Bond Purchaser that will be secured by a security interest in one or more loans originated by us (pursuant to the Pledge and Security Agreement described below), which, in turn, will be collateralized by first liens on agricultural real estate owned by subsidiaries of ours. The interest rate for each bond issuance will be based on prevailing market rates at the time of such issuance, and prepayment of each bond issuance will not be permitted unless otherwise agreed upon by all parties to the Bond Purchase Agreement. The bonds issued will have a maximum aggregate, effective loan-to-value ratio of 60% of the underlying agricultural real estate, after giving effect to the overcollateralization obligations described below. If we have not issued bonds to the Bond Purchaser such that the aggregate bond issuances total $75.0 million by December 11, 2016, Farmer Mac has the option to be relieved of its obligation to purchase additional bonds under this facility.

Pertinent terms of each of the bonds issued under the Farmer Mac Facility are summarized in the table below:

 

												As of December 31, 2015
Date of Issuance		Amount				Maturity Date		Principal Amortization		Interest Rate Terms		Balance Outstanding				Interest Rate
12/11/2014		$	3,675,000			12/11/2019		None		3.25%, fixed throughout term		$	3,675,000				3.25	%
1/5/2015			10,178,000			1/6/2020		None		3.25%, fixed throughout term			10,178,000				3.25	%
6/25/2015			9,360,000			7/30/2018		None		2.60%, fixed throughout term			9,360,000				2.60	%
8/20/2015			3,301,000			8/17/2018		None		2.375%, fixed throughout term			3,301,000				2.38	%
8/20/2015			3,301,000			8/17/2018		None		2.375%, fixed throughout term			3,301,000				2.38	%
12/22/2015			3,210,000			12/22/2022		None		3.29%, fixed throughout term			3,210,000				3.29	%
12/22/2015			681,000			12/22/2016		2 years		Variable (1-mo LIBOR + 1.50%)			681,000				1.91	%
		$	33,706,000									$	33,706,000				2.87	%

Our ability to borrow under the Farmer Mac Facility is subject to our ongoing compliance with a number of customary affirmative and negative covenants, as well as financial covenants, including:

 

•

a maximum leverage ratio of not more than 65%;

 

•

a minimum fixed charge coverage ratio of 1.4; and

 

•

a minimum tangible net worth in excess of $50,000,000 (plus a certain percentage of future equity offerings).

As of December 31, 2015, we were in compliance with all covenants.

In connection with the Bond Purchase Agreement, on December 5, 2014, we also entered into a pledge and security agreement (the “Pledge and Security Agreement”) in favor of the Bond Purchaser and Farmer Mac, which provides for us to pledge, as collateral for bonds issued pursuant to the Farmer Mac Facility, all of our respective right, title, and interest in mortgage loans made by us, which, among other things, must have at all times a value of not less than 110% of the aggregate principal amount of the outstanding bonds held by the Bond Purchaser.

The Bond Purchase Agreement and the Pledge Agreement include customary events of default, the occurrence of any of which, after any applicable cure period, would permit the Bond Purchaser and Farmer Mac to, among other things, accelerate payment of all amounts outstanding under the Farmer Mac Facility and to exercise its remedies with respect to the pledged collateral, including foreclosure and sale of the agricultural real estate underlying the pledged mortgage loans.

Proceeds from bonds issued under the Farmer Mac Facility were invested into the acquisition of new farms. In connection with the Farmer Mac Facility, through December 31, 2015, we have incurred aggregate financing costs, which include legal fees and administrative fees, of $153,478.

As of December 31, 2015, the following properties were pledged as collateral under the Farmer Mac Facility: Dufau Road, Espinosa Road, Immokalee Exchange, Holt County, Rock County and Reagan Road.

 

Debt Service – Aggregate Maturities

Scheduled principal payments of our aggregate borrowings as of December 31, 2015, for each of the five succeeding fiscal years and thereafter are as follows:

 

				Scheduled
Period				Principal Payments
For the fiscal years ending December 31:		2016		$	4,431,648
		2017			3,697,482
		2018			19,688,041
		2019			7,301,188
		2020			16,980,080
		Thereafter			90,634,718
				$	142,733,157

Fair Value

ASC 820 provides a definition of fair value that focuses on the exchange (exit) price of an asset or liability in the principal, or most advantageous, market and prioritizes the use of market-based inputs to the valuation. ASC 820-10 establishes a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

 

•

Level 1 — inputs are based upon quoted prices (unadjusted) for identical assets or liabilities in active markets;

 

•

Level 2 — inputs are based upon quoted prices for similar assets or liabilities in active or inactive markets or model-based valuation techniques, for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities;

 

•

Level 3 — inputs are generally unobservable and significant to the fair valuation measurement. These unobservable inputs are generally supported by little or no market activity and are based upon management’s estimates of assumptions that market participants would use in pricing the asset or liability.

The fair value of the mortgage notes and bonds payable is valued using Level 3 inputs under the hierarchy established by ASC 820-10, “Fair Value Measurements and Disclosures,” and is calculated based on a discounted cash flow analysis, using discount rates based on management’s estimates of market interest rates on long-term debt with comparable terms.

As of December 31, 2015, the aggregate fair value of our long-term mortgage notes and bonds payable was approximately $139.7 million, as compared to an aggregate carrying value of $140.4 million. Due to the lack of changes in market credit spreads, the aggregate fair value of our short-term mortgage notes and bonds payable as of December 31, 2015, is deemed to approximate their aggregate carrying value of approximately $2.2 million. Further, due to the revolving nature of the New MetLife Line of Credit and the lack of changes in market credit spreads, its fair value as of December 31, 2015, is deemed to approximate its carrying value of $0.1 million.