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, 2017

Debt Disclosure [Abstract]

Borrowings

BORROWINGS

Our borrowings as of December 31, 2017 and 2016 are summarized below (dollars in thousands):



	Carrying Value as of						As of December 31, 2017
	December 31, 2017			December 31, 2016			Stated Interest Rates⁽¹⁾ (Range; Wtd Avg)	Maturity Dates (Range; Wtd Avg)
Mortgage notes and bonds payable:
Fixed-rate mortgage notes payable	$	208,469		$	142,861		3.16%–4.70%; 3.62%	6/1/2020–11/1/2041; May 2029
Fixed-rate bonds payable	84,519			49,348			2.38%–4.05%; 3.13%	7/30/2018–8/30/2024; June 2021
Total mortgage notes and bonds payable	292,988			192,209
Deferred financing costs – mortgage notes and bonds payable	(1,986		)	(1,412		)	N/A	N/A
Mortgage notes and bonds payable, net	$	291,002		$	190,797

Variable-rate revolving lines of credit	$	10,000		$	16,550		3.60%	4/5/2024

Total borrowings, net	$	301,002		$	207,347


⁽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 3.38% for the year ended December 31, 2017, as compared to 3.27% for the year ended December 31, 2016, and 3.44% for the year ended December 31, 2015. In addition, 2016 interest patronage from our Farm Credit CFL Notes Payable (as defined below), which we received and recorded during the six months ended June 30, 2017, resulted in a 17.2% reduction (approximately 61 basis points) 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 2017 on our Farm Credit Notes Payable.

Metlife Borrowings

MetLife Facility

On May 9, 2014, we closed on a credit facility (the “MetLife Facility”) with Metropolitan Life Insurance Company (“MetLife”) that originally consisted of a $100.0 million long-term note payable (the “2014 MetLife Term Note”) and a $25.0 million revolving equity line of credit (the “2014 MetLife Line of Credit”). On October 5, 2016, we executed an amendment with MetLife to increase the overall size of the MetLife Facility from $125.0 million to $200.0 million (the “2016 Amendment”). Pursuant to the 2016 Amendment, the MetLife Facility consisted of the 2014 MetLife Term Note, the 2014 MetLife Line of Credit, a $50.0 million long-term note payable (the “2016 MetLife Term Note,” and together with the 2014 MetLife Term Note, the “MetLife Term Notes”), the terms of which are pari passu with those of the 2014 MetLife Term Note, and a $25.0 million revolving equity line of credit (the “2016 MetLife Line of Credit,” and together with the 2014 MetLife Line of Credit, the “MetLife Lines of Credit”), the terms of which are pari passu to those of the 2014 MetLife Line of Credit. On December 15, 2017, we executed an additional amendment with MetLife to further increase the size of the MetLife Facility from $200.0 million to $275.0 million (the “2017 Amendment”). Pursuant to the 2017 Amendment, the 2016 MetLife Term Note was increased from $50.0 million to $100.0 million, and the 2016 MetLife Line of Credit was increased from $25.0 million to $50.0 million. In addition, the 2017 Amendment extended the draw period under each of the MetLife Term Notes by an additional year, through December 31, 2019, and adjusted the unused fee on all borrowings under the MetLife Facility from a flat fee of 0.20% on undrawn amounts to a sliding fee (ranging from 0.10% to 0.20%) based on the balance drawn under each individual note. As a result of the 2016 Amendment and the 2017 Amendment, the MetLife Facility now consists of an aggregate of $200.0 million of term notes and $75.0 million of revolving equity lines of credit.

The following table summarizes the terms of the MetLife Facility as of December 31, 2017 (dollars in thousands, except for footnotes):

Issuance

Aggregate

Commitment

Maturity

Dates

Principal

Outstanding

Interest Rate Terms

Undrawn

Commitment

MetLife Term Notes

200,000

⁽¹⁾

1/5/2029

131,210

3.30%, fixed through 1/4/2027

⁽²⁾

63,530

^(3),(4)

MetLife Lines of Credit

75,000

4/5/2024

10,000

3-month LIBOR + 2.25%

⁽⁵⁾

65,000

⁽³⁾

Total principal outstanding

141,210


⁽¹⁾	If the aggregate commitment under this facility is not fully utilized by December 31, 2019, 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, 2017. 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, 2019, the MetLife Term Notes are also subject to an unused fee ranging from 0.10% to 0.20% on undrawn amounts (based on the balance drawn under the notes).


⁽³⁾	Based on the properties that were pledged as collateral under the MetLife Facility, as of December 31, 2017, the maximum additional amount we could draw under the facility was approximately $8.0 million.


⁽⁴⁾	Net of amortizing principle payments of approximately $5.3 million.


⁽⁵⁾	The interest rate on the MetLife Lines of Credit is subject to a minimum annualized rate of 2.50%, plus an unused fee ranging from 0.10% to 0.20% on undrawn amounts (based on the balance drawn under the lines of credit). The interest rate spread will be subject to adjustment on October 5, 2019. As of December 31, 2017, the interest rate on the MetLife Lines of Credit was 3.60%.

Under the MetLife Facility, we are generally allowed to borrow up to 60% of the aggregate of the lower of cost or the appraised value of the pool of agricultural real estate pledged as collateral. Our continuing ability to borrow under the MetLife Facility is subject to our ongoing compliance with various affirmative and negative covenants (as further described below), including with respect to liens, indebtedness, mergers, and asset sales.

In connection with obtaining the MetLife Facility, as amended, and the subsequent pledging of properties under the facility, through December 31, 2017, we have incurred total loan origination fees of approximately $658,000 (including approximately $213,000 and $225,000 for the 2017 Amendment and the 2016 Amendment, respectively) and additional financing costs (consisting of legal fees and administrative fees) of approximately $713,000. In addition, approximately $299,000 of unamortized deferred financing costs associated with a prior credit facility we had with MetLife were further deferred and are being amortized over the term of the MetLife Facility.

As of December 31, 2017, the MetLife Facility was collateralized by 33 farms with an aggregate book value of approximately $187.4 million.

Individual MetLife Notes

In May 2017, we also entered into two new loan agreements with MetLife (collectively, the “Individual MetLife Notes”), the terms of which are summarized in the aggregate in the table below (dollars in thousands):



Date of Issuance	Amount		Maturity Date	Principal Amortization	Interest Rate Terms
5/31/2017	$15,300	⁽¹⁾	2/14/2022 & 2/14/2025	28.6 years	3.55% & 3.85%, fixed throughout their respective terms


⁽¹⁾	Proceeds from these notes were used for the acquisition of a new property.

The Individual MetLife Notes have a loan-to-value ratio of 60% of the underlying agricultural real estate. Our agreement with MetLife for the Individual MetLife Notes contains various affirmative and negative covenants (as further described below), including with respect to liens, indebtedness, mergers, and asset sales.

In connection with the Individual MetLife Notes, we incurred total loan origination fees of approximately $38,000 and additional financing costs (including legal fees and administrative fees) of approximately $38,000.

As of December 31, 2017, the Individual MetLife Notes were collateralized by four farms with an aggregate book value of approximately $28.2 million.

Both of our agreements with MetLife (including the MetLife Facility and the Individual MetLife Notes) require 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 to MetLife under each of the agreements are guaranteed by us and each subsidiary of ours that owns a property pledged as collateral pursuant to the respective loan documents. As of December 31, 2017, we were in compliance with all covenants under each of the agreements with MetLife.

Farm Credit Notes Payable

From time to time since September 2014, we, through certain subsidiaries of our Operating Partnership, have entered into various loan agreements with certain Farm Credit associations, including Farm Credit of Central Florida, FLCA (“Farm Credit CFL”), Farm Credit West, FLCA (“Farm Credit West”), Cape Fear Farm Credit, ACA (“CF Farm Credit”), Farm Credit of Florida, ACA (“Farm Credit FL”), and Northwest Farm Credit Services, FLCA (“NW Farm Credit,” and, collectively, with the other Farm Credit associations, “Farm Credit”). During the year ended December 31, 2017, we entered into the following loan agreements with Farm Credit (dollars in thousands):

Issuer

Date of

Issuance

Amount⁽¹⁾

Maturity

Date

Principal

Amortization

Stated Interest Rate Terms⁽²⁾

CF Farm Credit

6/14/2017

1,301

7/1/2022

40.2 years

4.41%, fixed throughout its term

Farm Credit CFL⁽³⁾

7/13/2017

5,472

8/1/2022

28.4 years

4.47%, fixed throughout term

Farm Credit West

7/17/2017

8,162

5/1/2037

20.0 years

4.31%, fixed through 7/31/2024, variable thereafter

Farm Credit FL

8/9/2017

5,820

3/1/2037

19.5 years

4.70%, fixed through 2/29/2024, variable thereafter

NW Farm Credit

9/8/2017

5,460

9/1/2024

39.6 years

4.41%, fixed throughout its term

Farm Credit West

12/20/2017

3,555

11/1/2037

20.0 years

4.67%, fixed through 12/31/2027, variable thereafter


⁽¹⁾	Proceeds from these notes were used to fund new acquisitions, to repay existing indebtedness, and for other general corporate purposes.


⁽²⁾	Stated rate is before interest patronage, as discussed below.


⁽³⁾	In July 2017, we amended four existing loan agreements with Farm Credit CFL to increase the loan amounts and adjust the principal amortization and interest rate terms as shown in the table above. The amount presented in the table above represents the total additional funds advanced under the four loans. The new terms of each of these four loans are pari passu with one another.

In addition, on November 30, 2017, in connection with the sale of Colding Loop, we repaid a Farm Credit CFL mortgage note collateralized by the property in the amount of approximately $2.6 million, plus all accrued interest. The mortgage note bore interest at a fixed rate of 2.90% (which was fixed through April 30, 2018) and was originally scheduled to mature on May 1, 2030. There was no prepayment penalty incurred in connection with the early repayment.

The following table summarizes, in the aggregate, the pertinent terms of the loans outstanding from Farm Credit (collectively, the “Farm Credit Notes Payable”) as of December 31, 2017 (dollars in thousands, except for footnotes):



Issuer	# of Loans Outstanding	Dates of Issuance	Maturity Dates	Principal Outstanding		Stated Interest Rate⁽¹⁾
Farm Credit CFL	7	9/19/2014 – 7/13/2017	6/1/2020 – 10/1/2040	$	24,664	4.29%	⁽²⁾
Farm Credit West	4	4/4/2016 – 12/20/2017	5/1/2037 – 11/1/2041	24,222		4.02%	⁽³⁾
CF Farm Credit	1	6/14/2017	7/1/2022	1,301		4.41%	⁽⁴⁾
Farm Credit FL	1	8/9/2017	3/1/2037	5,820		4.70%	⁽⁴⁾
NW Farm Credit	1	9/8/2017	9/1/2024	5,412		4.41%	⁽⁴⁾
Total	14			$	61,419


⁽¹⁾	Represents the weighted-average, blended rate (before interest patronage, as discussed below) on the respective borrowings as of December 31, 2017.


⁽²⁾	In April 2017, we received interest patronage of approximately $124,000 related to interest accrued on loans from Farm Credit CFL during the year ended December 31, 2016, which resulted in a 15.8% reduction (approximately 55 basis points) to the stated interest rates on such borrowings. In March 2016, we received interest patronage related to loans from Farm Credit CFL of approximately $94,000.


⁽³⁾	In February 2017, we received interest patronage of approximately $59,000 related to interest accrued on loans from Farm Credit West during the year ended December 31, 2016, which resulted in a 21.3% reduction (approximately 76 basis points) to the stated interest rates on such borrowings. We did not receive any patronage related to loans from Farm Credit West during the prior year.


⁽⁴⁾	To date, no interest patronage has been received or recorded associated with these loans, as they were not outstanding prior to 2017.

Interest patronage, or refunded interest, on our borrowings from the various Farm Credit associations is recorded upon receipt and is included in Other income on our Consolidated Statements of Operations. Receipt of interest patronage typically occurs in the first half of the calendar year following the year in which the respective interest payments are made.

Loans from Farm Credit will generally have a loan-to-value ratio of 60% of the underlying agricultural real estate. Our agreements with Farm Credit contain 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 certain 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. In addition, certain amounts owed under the Farm Credit Notes Payable, limited to 12 months of principal and interest due under certain of the loans, are guaranteed by us pursuant to the loan documents. As of December 31, 2017, we were in compliance with all covenants applicable to the Farm Credit Notes Payable.

In connection with the Farm Credit Notes Payable, through December 31, 2017, we have incurred total loan origination fees of approximately $276,000 and additional financing costs (consisting of legal fees and administrative fees) of approximately $306,000.

As of December 31, 2017, the Farm Credit Notes Payable were collateralized by 22 farms with an aggregate book value of approximately $95.6 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 initially provided 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, 2017, we issued five bonds for gross proceeds of approximately $35.6 million, the terms of which are summarized in the aggregate in the table below (dollars in thousands):



Dates of Issuance	Gross Proceeds			Maturity Dates	Principal Amortization	Interest Rate Terms
1/12/2017-8/30/2017	$	35,625	⁽¹⁾	1/10/2020 – 8/30/2024	None	2.80% – 4.05%, fixed throughout their 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 14 bonds outstanding under the Farmer Mac Facility as of December 31, 2017 (dollars in thousands):



Dates of Issuance	Initial Commitment			Maturity Dates	Principal Outstanding		Stated Interest Rate⁽¹⁾	Undrawn Commitment
12/11/2014–8/30/2017	$	125,000	⁽²⁾	7/30/2018–8/30/2024	$	84,519	3.13%	$	39,118	⁽³⁾


⁽¹⁾	Represents the weighted-average interest rate as of December 31, 2017.


⁽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, 2017, 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, 2017, we were in compliance with all covenants under the Farmer Mac Facility.

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, 2017, we have incurred aggregate financing costs, which include legal fees and administrative fees, of approximately $506,000.

As of December 31, 2017, the Farmer Mac Facility was collateralized by 13 farms with an aggregate book value of approximately $139.8 million.

Rabo Note Payable

On October 13, 2017, in connection with the acquisition of JJ Road, we closed on a term loan from Rabo AgriFinance, LLC (“Rabo”), for $540,000 (the “Rabo Note Payable”). The loan is scheduled to mature on October 1, 2022, and will bear interest at a fixed rate of 4.59% per annum throughout its term.

Debt Service – Aggregate Maturities

Scheduled principal payments of our aggregate mortgage notes and bonds payable as of December 31, 2017, for the succeeding years are as follows (dollars in thousands):



For the Years Ended December 31,	Scheduled Principal Payments
2018	$	23,434
2019	11,065
2020	26,495
2021	7,259
2022	36,541
Thereafter	188,194
	$	292,988

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, 2017, the aggregate fair value of our long-term, fixed-rate mortgage notes and bonds payable was approximately $284.8 million, as compared to an aggregate carrying value (excluding unamortized related debt issuance costs) of approximately $293.0 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, 2017, is deemed to approximate their aggregate carrying value of $10.0 million.