NOTE 5. BORROWINGS

Our borrowings as of December 31, 2014 and 2013 are summarized below:

 

														As of December 31, 2014												As of December 31, 2013
Issuer		Type of Issuance		Date of Issuance		Initial Commitment				Maturity Date				Principal Outstanding				Stated Interest Rate				Undrawn Commitment				Principal Outstanding				Stated Interest Rate				Undrawn Commitment
MetLife		Mortgage Note Payable		12/30/2010		$	45,200,000				1/5/2026			$	—				N/A			$	—			$	43,054,165	(1)			3.50	%		$	—
MetLife		Line of Credit		5/23/2012			4,785,000				4/5/2017				—				N/A				—				100,000	(1)			3.25	%			4,685,000
MetLife		Mortgage Note Payable		5/9/2014			100,000,000				1/5/2029				66,331,998				3.61	%(2)			33,668,002	(3)			—				N/A				—
MetLife		Line of Credit		5/9/2014			25,000,000				4/5/2024				4,000,000				2.75	%			21,000,000	(3)			—				N/A				—
Farm Credit		Mortgage Note Payable		9/19/2014			2,655,000				8/1/2034				2,655,000				3.52	%(4)			—				—				N/A				—
Farm Credit		Mortgage Note Payable		9/19/2014			1,599,600				8/1/2034				1,599,600				3.52	%(4)			—				—				N/A				—
Farm Credit		Mortgage Note Payable		9/29/2014			8,259,000				8/1/2034				8,155,763				3.54	%(4)			—				—				N/A				—
Farmer Mac		Bond Payable		12/11/2014			75,000,000				12/11/2019				3,675,000				3.25	%(5)			71,325,000	(6)			—				N/A				—
											Totals:			$	86,417,361							$	125,993,002			$	43,154,165							$	4,685,000

 

(1)	Indebtedness was fully repaid with the proceeds from the New MetLife Credit Facility, as defined below, and was terminated on May 9, 2014.

(2)	Represents the blended rate on the borrowings as of December 31, 2014.

(3)	Based on the properties that were pledged as collateral as of December 31, 2014, approximately $13.8 million of the remaining availability was available for us to draw.

(4)	Rate is before interest repatriation and is fixed through July 2017.

(5)	Rate is fixed through December 2019.

(6)	As of 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 effective interest rate charged on all of our borrowings, excluding the impact of deferred financing costs and before any interest repatriation, was 3.6% for each of the years ended December 31, 2014 and 2013 and 3.7% for the year ended December 31, 2012.

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. As of December 31, 2013, there was no remaining balance available under the Prior MetLife Note Payable.

 

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%. Proceeds from the Prior MetLife Line of Credit were used to repay a $3.3 million revolving line of credit facility that we had entered into with Rabo Agrifinance in November 2002.

On May 9, 2014, we closed on a new mortgage loan facility and a new revolving line of credit MetLife for an aggregate amount of up to $125.0 million (the “New MetLife Credit Facility”), which replaced the Prior MetLife Credit Facility. The New MetLife Credit Facility consists of a $100.0 million long-term note payable (the “New MetLife Note Payable”) and a $25.0 million revolving equity line of credit (the “New MetLife Line of Credit”). Under the New MetLife Credit Facility, we may borrow up to 58% of the aggregate of the lower of cost or the appraised value of the real property pledged as collateral.

The New MetLife Note Payable is scheduled to mature on January 5, 2029, and we may not repay the note prior to maturity, except on one of the interest rate adjustment dates. Initial advances bear interest at a fixed rate of 3.50% per annum, plus an unused fee of 0.20% on undrawn amounts, and interest rates for subsequent disbursements are based on prevailing market rates at the time of such disbursements. The interest rates on the initial advance and any subsequent disbursements will be subject to adjustment every three years. If we have not drawn the full commitment amount of $100.0 million by December 31, 2016, MetLife has the option to be relieved of its obligation to disburse the additional funds under this loan. As of December 31, 2014, there was approximately $66.3 million outstanding under the New MetLife Note Payable that bore interest at a blended rate of 3.61% per annum.

The New MetLife Line of Credit is scheduled to mature on April 5, 2024, and advances will initially bear 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 will be subject to adjustment in April 2017. As of December 31, 2014, there was $4.0 million outstanding under the New MetLife Line of Credit that bore interest at a rate of 2.75% per annum.

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:

 

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

 

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

 

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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%.

As of December 31, 2014, we were in compliance with all covenants.

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.

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, as of December 31, 2014, we have incurred loan fees of $220,500 and aggregate financing costs, which includes legal fees, origination fees and administrative fees, of $614,646. 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, 2014, 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, Spring Valley, Naumann Road, Sycamore Road and Santa Clara Avenue. With these properties pledged as collateral, as of December 31, 2014, we had the ability to draw an additional $13.8 million under the New MetLife Credit Facility. Subsequent to December 31, 2014, Collins Road was also pledged to the New MetLife Credit Facility, which provided us with approximately $1.6 million of additional availability.

 

Farm Credit Notes Payable

On September 19, 2014, we, through certain subsidiaries of our Operating Partnership, closed on two loans from Farm Credit of Central Florida, FLCA (“Farm Credit”), in the aggregate amount of approximately $4.2 million. In addition, on September 29, 2014, we obtained an additional loan for approximately $8.3 million. As of December 31, 2014, aggregate borrowings from Farm Credit were approximately $12.4 million. (collectively, the “Farm Credit Notes Payable”).

The Farm Credit Notes Payable are scheduled to mature on August 1, 2034, and will bear interest (before interest repatriation) at a blended fixed rate of 3.53% per annum through July 31, 2017; thereafter, the interest rate will be equal to the one-month LIBOR, plus 2.875%. The original principal amounts borrowed from Farm Credit equaled approximately 60% of the aggregate appraised value of the real properties pledged as collateral under the Farm Credit Notes Payable.

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:

 

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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%).

As of December 31, 2014, we were in compliance with all covenants.

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.

The proceeds from the Farm Credit Notes Payable were invested into the acquisition of three new farms during the three months ended September 30, 2014. In connection with the Farm Credit Notes Payable, we incurred loan fees of $78,211 and aggregate financing costs, which includes legal fees, origination fees and administrative fees, of $126,640.

As of December 31, 2014, the following properties were pledged as collateral under the Farm Credit Notes Payable: Trapnell Road, McIntosh Road and Wauchula 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 collateralized 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 secured by first liens on agricultural real estate owned by subsidiaries of ours. The interest rate for each bond issuances 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.

On December 11, 2014, we completed an initial issuance under the Farmer Mac Facility, for which we received proceeds of approximately $3.7 million (the “Initial Issuance”). The Initial Issuance, which is non-amortizing and has a term of five years, will bear interest at a fixed rate of 3.25% per annum throughout its term.

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:

 

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a maximum leverage ratio of not more than 65%;

 

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a minimum fixed charge coverage ratio of 1.4; and

 

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

As of December 31, 2014, 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 the Initial Issuance were used to repay amounts owed under the New MetLife Line of Credit and for other general corporate purposes. In connection with the Farmer Mac Facility, we incurred aggregate financing costs, which include legal fees and administrative fees, of $41,781. As of December 31, 2014, only Dufau Road was pledged as collateral under the Farmer Mac Facility.

Subsequent to December 31, 2014, we issued an additional bond under the Farmer Mac Facility, for which we received proceeds of approximately $10.2 million, which proceeds were used to acquire a property that was simultaneously pledged as collateral under the facility. See Note 10, “Subsequent Events,” for further discussion on the bond issuance and property acquisition.

Debt Service—Aggregate Maturities

Scheduled principal payments of our aggregate borrowings as of December 31, 2014, for each of the five succeeding fiscal years and thereafter are as follows:

 

Period		Scheduled Principal Payments
For the fiscal years ending December 31:     2015		$	625,680
2016			2,947,300
2017			2,866,043
2018			2,787,631
2019			6,386,962
Thereafter			70,803,745
		$	86,417,361

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:

 

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

 

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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;

 

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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 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, 2014, the aggregate fair value of our mortgage notes and bonds payable was approximately $82.0 million, as compared to an aggregate carrying value of $82.4 million. Due to the revolving nature of our New MetLife Line of Credit and the lack of changes in market credit spreads, its fair value as of December 31, 2014, is deemed to approximate its carrying value of $4.0 million.