Gladstone Land Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Borrowings

Borrowings

12 Months Ended

Dec. 31, 2016

Debt Disclosure [Abstract]

Borrowings

BORROWINGS

Our borrowings as of December 31, 2016 and 2015 are summarized below:



	Carrying Value as of						As of December 31, 2016
	December 31, 2016			December 31, 2015			Stated Interest Rates⁽¹⁾ (Range; Wtd Avg)	Maturity Dates (Range; Wtd Avg)
Mortgage notes and bonds payable:
Fixed-rate mortgage notes payable	$	142,860,529		$	107,423,157		2.90%–3.94%; 3.25%	5/1/2020–11/1/2041; June 2030
Variable-rate mortgage notes payable	—			2,185,000			N/A	N/A
Fixed-rate bonds payable	49,348,500			33,025,000			2.38%–3.29%; 2.94%	7/30/2018–8/22/2023; October 2020
Total mortgage notes and bonds payable	192,209,029			142,633,157
Deferred financing costs – mortgage notes and bonds payable	(1,412,017		)	(1,054,222		)	N/A	N/A
Mortgage notes and bonds payable, net	$	190,797,012		$	141,578,935

Variable-rate revolving lines of credit	$	16,550,000		$	100,000		3.11%	4/5/2024

Total borrowings, net	$	207,347,012		$	141,678,935


⁽¹⁾	Where applicable, stated interest rates are before interest patronage (as described below).

The weighted-average interest rate charged on the above borrowings, excluding the impact of deferred financing costs and before any interest patronage, or refunded interest, was 3.27% for the year ended December 31, 2016, as compared to 3.44% for the year ended December 31, 2015 and 3.63% for the year ended December 31, 2014. 2015 interest patronage from our Farm Credit CFL Notes Payable (as defined below), which was received during the three months ended March 31, 2016, resulted in a 16.1% 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 2016 on our Farm Credit Notes Payable.

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 Term Note"). The Prior MetLife Term Note 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, 2018 (the "Prior MetLife Line of Credit," and, together with the Prior MetLife Term Note, the "Prior MetLife Facility"). The Prior MetLife Line of Credit bore interest at an annual rate equal to the three-month LIBOR plus 3.00%.

On May 9, 2014, we closed on a facility with MetLife that replaced the Prior MetLife Facility. The new facility with MetLife consisted of a $100.0 million long-term note payable (the “2015 MetLife Term Note”) and a $25.0 million revolving equity line of credit (the “2015 MetLife Line of Credit” and, together with the 2015 MetLife Term Note, the “New MetLife Facility”). Similar to the Prior MetLife Facility, under the New MetLife Facility, we were generally allowed to 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.

On October 5, 2016, we amended the New MetLife Facility to, among other changes, increase the overall size of the facility from $125.0 million to $200.0 million (the "2016 Amendment"). Pursuant to the 2016 Amendment, the New MetLife Facility now consists of the 2015 MetLife Term Note, the 2015 MetLife Line of Credit, a $50.0 million long-term note payable (the "2016 MetLife Term Note," and together with the 2015 MetLife Term Note, the "MetLife Term Notes"), the terms of which are pari passu with those of the 2015 MetLife Term Note, and a $25.0 million revolving equity line of credit (the "2016 MetLife Line of Credit," and together with the 2015 MetLife Line of Credit, the "MetLife Lines of Credit"), the terms of which are pari passu to those of the 2015 MetLife Line of Credit.

Among other changes, the 2016 Amendment:


•	increased the overall loan-to-value ratio on the underlying properties pledged as collateral under the New MetLife Facility from 58% to 60%;


•	reduced the blended interest rate on all previously-disbursed amounts under the 2015 MetLife Term Note by 19 basis points;


•	extended the fixed-rate term of the 2015 MetLife Term Note by 76 months, through January 5, 2027; and


•	extended the draw period under the 2015 MetLife Term Note by one year, through December 31, 2018.

Simultaneous with the closing of the 2016 Amendment, we drew approximately $21.6 million under the 2016 MetLife Term Note, with $21.0 million of the proceeds being used to repay the balance previously outstanding under the 2015 MetLife Line of Credit.

The following table summarizes the terms of the New MetLife Facility as of December 31, 2016:

Issuance

Aggregate

Commitment

Maturity

Dates

Principal

Outstanding

Interest Rate Terms

Undrawn

Commitment

MetLife Term Notes

$150,000,000

⁽¹⁾

1/5/2029

107,489,466

3.16%, fixed for 10 years

⁽²⁾

40,979,806

⁽³⁾

MetLife Lines of Credit

50,000,000

4/5/2024

16,550,000

3-month LIBOR + 2.25%

⁽⁴⁾

33,450,000

⁽³⁾

Total principal outstanding

124,039,466


⁽¹⁾	If the aggregate commitment under this facility is not fully utilized by December 31, 2018, MetLife has the option to be relieved of its obligations to disburse the additional funds under the MetLife Term Notes.


⁽²⁾	Represents the blended interest rate as of December 31, 2016. Interest rates for subsequent disbursements will be based on then-prevailing market rates. The interest rate on all then-outstanding disbursements will be subject to adjustment on January 5, 2027. Through December 31, 2018, the MetLife Term Notes are also subject to an unused fee of 0.20% on undrawn amounts.


⁽³⁾	Based on the properties that were pledged as collateral under the New MetLife Facility, as of December 31, 2016, the maximum additional amount we could draw under the facility was approximately $22.3 million.


⁽⁴⁾	The interest rate on the MetLife Lines of Credit is subject to a minimum annualized rate of 2.50%, plus an unused fee of 0.20% on undrawn amounts. The interest rate spread will be subject to adjustment on October 5, 2019. As of December 31, 2016, the interest rate on the MetLife Lines of Credit was 3.11%.

Our continuing ability to borrow under the New MetLife Facility is subject to our ongoing compliance with various affirmative and negative covenants, including with respect to liens, indebtedness, mergers and asset sales. The New MetLife Facility also requires that we satisfy financial covenants on a consolidated basis at the end of each calendar quarter, including staying below a maximum debt-to-asset-value ratio and maintaining a minimum net worth value and rental-revenue-to-debt ratio. Amounts owed under the New MetLife 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, 2016, we were in compliance with all covenants under the New MetLife Facility.

In connection with obtaining the New MetLife Facility, as amended, and the subsequent pledging of properties under the facility, through December 31, 2016, we have incurred total loan fees of approximately $446,000 (including $225,000 related to the 2016 Amendment) and aggregate financing costs, which includes legal fees, origination fees and administrative fees, of approximately $1.2 million. In addition, approximately $299,000 of unamortized deferred financing costs associated with the Prior MetLife Facility were further deferred and are being amortized over the term of the New MetLife Facility.

As of December 31, 2016, the MetLife Facility was collateralized by 33 farms with an aggregate book value of approximately $186.1 million.

Farm Credit Notes Payable

Farm Credit CFL 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 CFL”). During the year ended December 31, 2016, we entered into one loan agreement with Farm Credit CFL, the terms of which are summarized below:



Date of Issuance	Loan Amount			Maturity Date	Principal Amortization	Interest Rate Terms⁽¹⁾
7/1/2016	$	3,120,000	⁽²⁾	6/1/2023	36.0 years	3.78%, fixed throughout term


⁽¹⁾	Rates represent the stated interest rates, before interest patronage. 2015 interest patronage received resulted in a 16.1% refund of the interest accrued on such borrowings during the year ended December 31, 2015.


⁽²⁾	Proceeds from this loan were used for the acquisition of a new property.

The following table summarizes, in the aggregate, the terms of the eight loans outstanding from Farm Credit CFL (collectively, the "Farm Credit CFL Notes Payable") as of December 31, 2016:



Dates of Issuance	Maturity Dates	Principal Outstanding		Stated Interest Rate⁽¹⁾
9/19/2014 – 7/1/2016	5/1/2020–10/1/2040	$	22,309,645	3.48%	⁽²⁾


⁽¹⁾	Represents the weighted-average, blended rate on the respective borrowings as of December 31, 2016.


⁽²⁾	Rate is before interest patronage. 2015 interest patronage received resulted in a 16.1% reduction to the stated interest rate on such borrowings.

Our agreement with Farm Credit CFL also contains various affirmative and negative covenants, including with respect to liens, indebtedness, mergers and asset sales. Loans from Farm Credit CFL will generally have a loan-to-value ratio of 60% of the underlying agricultural real estate. The Farm Credit CFL Notes Payable also require us to satisfy financial covenants on a consolidated basis at the end of each calendar year, including maintaining a minimum net worth value and staying below a maximum leverage ratio. In addition, certain amounts owed under the Farm Credit CFL 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, 2016, we were in compliance with all covenants.

In connection with the Farm Credit CFL Notes Payable, through December 31, 2016, we have incurred total loan fees of $131,000 and aggregate financing costs, which includes legal fees, origination fees and administrative fees, of $252,000.

As of December 31, 2016, the Farm Credit CFL Notes Payable were collateralized by 12 farms with an aggregate book value of approximately $37.5 million.

Farm Credit West Note Payable

From time to time since April 4, 2016, we, through certain subsidiaries of our Operating Partnership, have entered into various loan agreements with Farm Credit West, FLCA ("Farm Credit West"). During the year ended December 31, 2016, we entered into two separate loan agreements with Farm Credit West, the terms of which are summarized in the aggregate below:



Dates of Issuance	Loan Amount			Maturity Dates	Principal Amortization	Interest Rate Terms⁽¹⁾
4/4/2016	$	9,282,000	⁽²⁾	11/1/2040	24.5 years	3.54%, fixed through 4/30/2121, variable thereafter


⁽¹⁾	Rates represent the stated interest rates, before interest patronage.


⁽²⁾	Proceeds from this note were used for the acquisition of a new property.

The following table summarizes, in the aggregate, the terms of the two loans outstanding from Farm Credit West (collectively, the "Farm Credit West Notes Payable") as of December 31, 2016:



Dates of Issuance	Maturity Dates	Principal Outstanding		Stated Interest Rate⁽¹⁾
4/4/2016 – 10/13/2016	11/1/2040-11/1/2041	$	13,061,418	3.66%	⁽²⁾


⁽¹⁾	Represents the weighted-average, blended rate on the respective borrowings as of December 31, 2016.


⁽²⁾	Rate is before interest patronage.

Our agreements with Farm Credit West contain various affirmative and negative covenants, including with respect to liens, indebtedness, mergers and asset sales. Loans from Farm Credit West will generally have a loan-to-value ratio of 60% of the underlying agricultural real estate. The Farm Credit West Notes Payable also require us to satisfy financial covenants at the end of each calendar year, including maintaining a minimum current ratio and net worth value and staying below a maximum leverage ratio. As of December 31, 2016, we were in compliance with all covenants.

In connection with the Farm Credit West Notes Payable, through December 31, 2016, we have incurred total loan fees of approximately $33,000 and aggregate financing costs, which includes legal fees, origination fees and administrative fees, of approximately $64,000.

As of December 31, 2016, the Farm Credit West Notes Payable were collateralized by two farms with an aggregate book value of approximately $21.7 million.

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”). On June 16, 2016, we entered into an amendment to increase the maximum borrowing capacity under the Farmer Mac Facility from $75.0 million to $125.0 million and extend the term of the Bond Purchase Agreement by two years, to December 11, 2018.

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 generally 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.

During the year ended December 31, 2016, we issued three bonds for gross proceeds of approximately $16.6 million, the terms of which are summarized in the aggregate in the table below:



Dates of Issuance	Gross Proceeds			Maturity Dates	Principal Amortization	Interest Rate Terms
3/3/2016–8/22/2016	$	16,551,000	⁽¹⁾	2/24/2023–8/22/2023	None–9.7 years	2.87%–3.08%, fixed throughout respective terms


⁽¹⁾	Proceeds from these bonds were used for the acquisition of new properties.

The following table summarizes, in the aggregate, the terms of the nine bonds outstanding under the Farmer Mac Facility as of December 31, 2016:

Dates of Issuance

Initial Commitment

Maturity Dates

Principal Outstanding

Stated

Interest

Rate⁽¹⁾

Undrawn Commitment

12/11/2014–8/22/2016

$125,000,000

⁽²⁾

7/30/2018–8/22/2023

49,348,500

2.94%

74,743,000

⁽³⁾


⁽¹⁾	Represents the weighted-average interest rate as of December 31, 2016.


⁽²⁾	If facility is not fully utilized by December 11, 2018, Farmer Mac has the option to be relieved of its obligations to purchase additional bonds under the facility.


⁽³⁾	As of December 31, 2016, there was no additional availability to draw under this facility, as no additional properties had been pledged as collateral.

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 staying below a maximum leverage ratio and maintaining a minimum fixed charge coverage ratio and a tangible net worth. As of December 31, 2016, 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.

In connection with the Farmer Mac Facility, through December 31, 2016, we have incurred aggregate financing costs, which include legal fees and administrative fees, of approximately $190,000.

As of December 31, 2016, the Farmer Mac Facility was collateralized by 11 farms with an aggregate book value of approximately $80.4 million.

Debt Service – Aggregate Maturities

Scheduled principal payments of our aggregate mortgage notes and bonds payable as of December 31, 2016, for the succeeding years are as follows:



Period		Scheduled Principal Payments
For the fiscal years ending December 31:	2017	$	5,319,053
	2018	21,299,607
	2019	8,903,854
	2020	18,575,013
	2021	5,026,008
	Thereafter	133,085,494
		$	192,209,029

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, "Fair Value Measurements and Disclosures," 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 that 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; and


•	Level 3 — inputs are generally unobservable and significant to the fair value 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.

As of December 31, 2016, the aggregate fair value of our long-term, fixed-rate mortgage notes and bonds payable was approximately $191.8 million, as compared to an aggregate carrying value of $192.2 million. The fair value of our long-term, fixed-rate mortgage notes and bonds payable is valued using Level 3 inputs under the hierarchy established by ASC 820-10 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. Further, due to the revolving nature of the MetLife Lines of Credit and the lack of changes in market credit spreads, their aggregate fair value as of December 31, 2016, is deemed to approximate their aggregate carrying value of approximately $16.6 million.