Borrowings |
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Borrowings |
BORROWINGS
We generally borrow at a rate of 60% of the value of the underlying agricultural real estate, and, except as noted below, the amounts borrowed are not generally guaranteed by the Company. Our borrowings as of December 31, 2019 and 2018 are summarized below (dollars in thousands):
As of December 31, 2019, the above borrowings were collateralized by certain farms with an aggregate net book value of approximately $794.8 million. The weighted-average interest rate charged on the above borrowings (excluding the impact of debt issuance costs and before any interest patronage, or refunded interest) was 3.95% for the year ended December 31, 2019, as compared to 3.70% for the year ended December 31, 2018. In addition, 2018 interest patronage from our Farm Credit Notes Payable (as defined below), which we received and recorded during the three months ended March 31, 2019, resulted in an 21.2% reduction (approximately 95 basis points) to the stated interest rates on such borrowings. We are unable to estimate the amount of interest patronage to be received, if any, related to interest accrued during 2019 on our Farm Credit Notes Payable.
Our loan agreements generally contain various affirmative and negative covenants, including with respect to liens, indebtedness, mergers, and asset sales, and customary events of default. These agreements may also require that we satisfy certain financial covenants at the end of each calendar quarter or year. Some of these financial covenants include, but are not limited to, staying below a maximum leverage ratio and maintaining a minimum net worth value, rental-revenue-to-debt ratio, current ratio, and fixed charge coverage ratio. As of December 31, 2019, we were in compliance with all covenants applicable to the above borrowings.
MetLife Borrowings
MetLife Facility
On May 9, 2014, we closed on a credit facility (the “MetLife Facility”) with Metropolitan Life Insurance Company (“MetLife”). As a result of subsequent amendments, as of December 31, 2019, the MetLife Facility consisted of an aggregate of $200.0 million of term notes (the “MetLife Term Notes”) and $75.0 million of revolving equity lines of credit (the “MetLife Lines of Credit”).
During the year ended December 31, 2019, we drew the following amounts on the MetLife Term Notes (dollars in thousands):
The following table summarizes the pertinent terms of the MetLife Facility as of December 31, 2019 (dollars in thousands, except for footnotes):
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. Amounts owed to MetLife under the agreement are guaranteed by us and each subsidiary of ours that owns a property pledged as collateral pursuant to the loan documents.
Farm Credit Notes Payable
From time to time since September 2014 through December 31, 2019, we, through certain subsidiaries of our Operating Partnership, have entered into various loan agreements (collectively, the “Farm Credit Notes Payable”) with 10 different Farm Credit associations (collectively, “Farm Credit”). During the year ended December 31, 2019, we entered into the following loan agreements with Farm Credit (dollars in thousands):
Interest patronage, or refunded interest, on our borrowings from Farm Credit is generally recorded upon receipt and is included within Other income on our Consolidated Statements of Operations and Comprehensive Income. Receipt of interest patronage typically occurs in the first half of the calendar year following the calendar year in which the respective interest payments are made. During the three months ended March 31, 2019, we recorded interest patronage of approximately $700,000 related to interest accrued on loans from Farm Credit during the year ended December 31, 2018, which resulted in a 21.2% reduction (approximately 95 basis points) to the stated interest rates on such borrowings.
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 respective loan documents.
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. As subsequently amended, the Bond Purchase Agreement provided for bond issuances up to an aggregate amount of $125.0 million (the “Farmer Mac Facility”) through December 11, 2018, after which date the Bond Purchaser had the option to continue buying new bonds issued under the Farmer Mac Facility.
During the year ended December 31, 2019, we amended and restated two bonds totaling approximately $13.9 million that were previously issued under the Farmer Mac Facility and were originally scheduled to mature on December 11, 2019, and January 6, 2020, respectively. The pertinent terms of the two amended and restated bonds are summarized in the table below (dollars in thousands):
No prepayment penalties were incurred in connection with these amendments, and all other material items of the amended and restated bonds remained unchanged.
Pursuant to the Bond Purchase Agreement, bonds issued by us to the Bond Purchaser will be secured by a security interest in loans originated by us (pursuant to a pledge and security agreement), which, in turn, will be collateralized by first liens on agricultural real estate owned by subsidiaries of ours. The bonds issued generally have a maximum aggregate, effective loan-to-value ratio of 60% of the underlying agricultural real estate, after giving effect to certain overcollateralization obligations.
Prudential Note Payable
During the year ended December 31, 2019, we entered into a loan agreement with PGMI Real Estate Finance, LLC (“Prudential”), the terms of which are summarized in the following table (dollars in thousands):
Rabo Notes Payable
During the year ended December 31, 2019, we, through certain subsidiaries of our Operating Partnership, entered into the following loan agreements with Rabo AgriFinance, LLC (“Rabo”):
Diversified Financial Note Payable
During the year ended December 31, 2019, we entered into a loan agreement with Diversified Financial Services, LLC (“Diversified Financial”) to finance approximately $1.1 million of irrigation improvements we funded on one of our properties in Colorado (See Note 3, “Real Estate and Lease Intangibles—Significant Existing Real Estate Activity—Project Completions”). The following table summarizes the pertinent terms of our term loan from Diversified Financial (dollars in thousands):
Debt Service – Aggregate Maturities
Scheduled principal payments of our aggregate notes and bonds payable as of December 31, 2019, for the succeeding years are as follows (dollars in thousands):
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:
As of December 31, 2019, the aggregate fair value of our long-term, fixed-rate notes and bonds payable was approximately $484.7 million, as compared to an aggregate carrying value (excluding unamortized related debt issuance costs) of approximately $484.9 million. The fair value of our long-term, fixed-rate notes and bonds payable is valued using Level 3 inputs under the hierarchy established by ASC 820-10 and is determined by 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, 2019, is deemed to approximate their aggregate carrying value of $100,000.
Interest Rate Swap Agreements
To hedge our exposure to variable interest rates, during the year ended December 31, 2019, we entered into various interest rate swap agreements in connection with certain of our mortgage financings. In accordance with these swap agreements, we will pay our counterparty a fixed rate interest rate on a quarterly basis and receive payments from our counterparty equivalent to the respective stipulated floating rates. We have adopted the fair value measurement provision for these financial instruments, and the aggregate fair value of our interest rate swap agreements is recorded in Other assets, net or Other liabilities, net, as appropriate, on our accompanying Consolidated Balance Sheets. Generally, in the absence of observable market data, we will estimate the fair values of our interest rate swaps using estimates of certain data points, including estimated remaining life, counterparty credit risk, current market yield, and interest rate spreads of similar securities as of the measurement date. As of December 31, 2019, our interest rate swaps were valued using Level 2 inputs.
In addition, we have designated our interest rate swaps as cash flow hedges, and we record changes in the fair values of the interest rate swap agreements to accumulated other comprehensive income on the Consolidated Balance Sheets. We record changes in fair value on a quarterly basis, using current market valuations at quarter end. We had not entered into any interest rate swap agreements prior to the year ended December 31, 2019. The following table summarizes our interest rate swaps as of December 31, 2019 (dollars in thousands):
The following table presents the amount of loss recognized in comprehensive income within our consolidated financial statements for the year ended December 31, 2019 (dollars in thousands):
The following table summarizes certain information regarding our derivative instruments as of December 31, 2019 (dollars in thousands):
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