NOTE 5. BORROWINGS

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

 

																		As of March 31, 2015												As of December 31, 2014
Issuer		Type of Issuance				Dates of Issuance				Initial Commitment				Maturity Date(s)				Principal Outstanding				Stated Interest Rate(1)				Undrawn Commitment				Principal Outstanding				Stated Interest Rate(1)				Undrawn Commitment
MetLife		Mortgage Note Payable					5/9/2014				100,000,000				1/5/2029			$	66,331,998				3.61	%			33,668,002	(2)			66,331,998				3.61	%			33,668,002	(2)
MetLife		Line of Credit					5/9/2014				25,000,000				4/5/2024				11,800,000				2.76	%			13,200,000	(2)			4,000,000				2.75	%			21,000,000	(2)
Farm Credit		Mortgage Notes Payable					9/19/2014– 3/10/2015				14,888,280				5/1/2020– 8/1/2034				14,681,805				3.48	% (3)			—				12,410,363				3.53	% (3)			—
Farmer Mac		Bonds Payable					12/11/2014				75,000,000				12/11/2019– 1/6/2020	(4)			13,853,000				3.25	%			61,147,000	(5)			3,675,000				3.25	%			71,325,000	(5)
															Totals:			$	106,666,803							$	108,015,002			$	86,417,361							$	125,993,002

 

(1)	Represents the weighted-average, blended rate on the respective borrowing facilities as of each March 31, 2015, and December 31, 2014.

(2)	Based on the properties that were pledged as collateral as of March 31, 2015, and December 31, 2014, approximately $7.5 million and $ 13.8 million, respectively, of the undrawn commitment was available for us to draw.

(3)	Rate is before interest repatriation. 2014 interest patronage received resulted in a reduction to our effective interest rate of 12.7%.

(4)	If facility 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.

(5)	At each March 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 effective interest rate charged on all of our borrowings, excluding the impact of deferred financing costs and before any interest repatriation, was 3.6% and 3.5% for the three months ended March 31, 2015 and 2014, respectively.

MetLife Credit Facility

On May 9, 2014, we closed on a mortgage loan facility and revolving line of credit with Metropolitan Life Insurance Company (“MetLife”) for an aggregate amount of up to $125.0 million (the “MetLife Credit Facility”), which replaced our prior facility with MetLife. The MetLife Credit Facility consists of a $100.0 million long-term note payable (the “MetLife Note Payable”) and a $25.0 million revolving equity line of credit (the “MetLife Line of Credit”). Under the 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 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 March 31, 2015, there was approximately $66.3 million outstanding under the MetLife Note Payable that bore interest at a blended rate of 3.61% per annum.

The 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 MetLife Line of Credit will be subject to adjustment in April 2017. As of March 31, 2015, there was $11.8 million outstanding under the MetLife Line of Credit that bore interest at a rate of 2.76% per annum.

The continuing ability to borrow under the 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 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 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%.

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

 

Amounts owed under the 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 MetLife Credit Facility was used to repay amounts owed under our prior facility with MetLife, for which no early termination penalties or fees were incurred. In connection with obtaining the MetLife Credit Facility and the subsequent pledging of properties under the facility, as of March 31, 2015, we have incurred aggregate financing costs of $614,611, including loan origination fees of $220,500. In addition, $298,614 of unamortized deferred financing costs associated with our prior facility with MetLife was further deferred and are being amortized over the term of our MetLife Credit Facility.

As of March 31, 2015, the following properties were pledged as collateral under the 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 and Santa Clara Avenue. With these properties pledged as collateral, as of March 31, 2015, we had the ability to draw an additional $7.5 million under the MetLife Credit Facility.

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, and on September 29, 2014, we obtained an additional loan for approximately $8.3 million (collectively, the “2014 Farm Credit Notes Payable”). In addition, on March 10, 2015, we obtained an additional loan for approximately $2.4 million (the “2015 Farm Credit Note Payable,” and, together with the 2014 Farm Credit Notes Payable, the “Farm Credit Notes Payable”). As of March 31, 2015, after scheduled principal amortization on certain of the loans, aggregate borrowings from Farm Credit were approximately $14.7 million.

The 2014 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 2015 Farm Credit Note Payable, which is non-amortizing, is scheduled to mature on May 1, 2020, and will bear interest (before interest repatriation) at a fixed rate of 3.20% per annum throughout its term. 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:

 

•

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

 

•

a maximum leverage ratio of equal to or less than 65%.

As of March 31, 2015, 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.

Proceeds from the Farm Credit Notes Payable were invested into the acquisition of new farms and to repay amounts owed under the MetLife Line of Credit. In connection with the Farm Credit Notes Payable, as of March 31, 2015, we have incurred aggregate financing costs of $151,157, including loan origination fees of $93,053.

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

Subsequent to March 31, 2015, we obtained two additional loans from Farm Credit. See Note 9, “Subsequent Events,” for further discussion on these loans.

 

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 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. On January 5, 2015, we issued an additional bond under the Farmer Mac Facility, for which we received proceeds of approximately $10.2 million. These bond issuances are scheduled to mature on December 11, 2019, and January 6, 2020, respectively. Each of these issuances, which are both non-amortizing over their respective five-year terms, will bear interest at a fixed rate of 3.25% per annum throughout their terms.

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 March 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 the bond issuances were used to acquire additional farms, repay amounts owed under the MetLife Line of Credit and for other general corporate purposes. In connection with the Farmer Mac Facility, we incurred aggregate financing costs of $47,295. As of March 31, 2015, Dufau Road and Espinosa Road were pledged as collateral under the Farmer Mac Facility.

 

Debt Service – Aggregate Maturities

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

 

				Scheduled
Period				Principal Payments
For the remaining nine months ending December 31,		2015		$	522,443
For the fiscal years ending December 31:		2016			2,947,300
		2017			2,866,043
		2018			2,787,631
		2019			6,386,962
		2020			15,191,622
		Thereafter			75,964,802
				$	106,666,803

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 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 March 31, 2015, the aggregate fair value of our mortgage notes and bonds payable was approximately $95.0 million, as compared to an aggregate carrying value of $94.9 million. Due to the revolving nature of our MetLife Line of Credit and the lack of changes in market credit spreads, its fair value as of March 31, 2015, is deemed to approximate its carrying value of $11.8 million.