Notes Receivable
 6 Months Ended
Jun. 30, 2017
Notes Receivable  
Notes Receivable

Note 6—Notes Receivable

 

In August 2015, the Company introduced an agricultural lending product aimed at farmers as a complement to the Company's business of acquiring and owning farmland and leasing it to farmers (the “FPI Loan Program”).  Under the FPI Loan Program, the Company makes loans to third-party farmers (both tenant and non-tenant) to provide financing for working capital requirements and operational farming activities, farming infrastructure projects, and for other farming and agricultural real estate related projects. The Company seeks to make loans that are collateralized by farm real estate and in principal amounts of $500,000 or more at fixed interest rates with maturities of up to three years. The Company expects the borrower to repay the loans in accordance with the loan agreements based on farming operations and access to other forms of capital, as permitted.  

 

Notes receivable are stated at their unpaid principal balance and include unamortized direct origination costs and accrued interest through the reporting date, less any allowance for losses and unearned borrower paid points. 

 

As of June 30, 2017 and December 31, 2016, the Company had the following notes receivable:

 

 

 

 

 

 

 

 

 

 

 

 

($ in thousands)

 

 

 

Principal Outstanding as of

 

Maturity

Loan

    

Payment Terms

 

June 30, 2017

    

December 31, 2016

    

Date

Mortgage Note(1)

 

Principal & interest due at maturity

 

$

1,800

 

$

1,800

 

1/15/2017

Mortgage Note (2)

 

Principal & interest due at maturity

 

 

240

 

 

980

 

3/16/2022

Mortgage Note (2)

 

Principal due at maturity & interest due monthly

 

 

2,194

 

 

 -

 

3/16/2022

Mortgage Note

 

Principal & interest due at maturity

 

 

1,647

 

 

 -

 

4/27/2018

 Total outstanding principal

 

 

5,881

 

 

2,780

 

 

Points paid, net of direct issuance costs

 

 

(16)

 

 

(4)

 

 

Interest receivable (net prepaid interest)

 

 

95

 

 

67

 

 

 Total notes and interest receivable

 

$

5,960

 

$

2,843

 

 

(1)

In January 2016, the maturity date of the note was extended to January 15, 2017 with year one interest received at the time of the extension and principal and remaining interest due at maturity.  The Company is currently in negotiations to extend the terms with the borrower. The Company currently believes that collectability is reasonably assured.

(2)

The original note was renegotiated and a second note was entered into simultaneously with the borrower during the three months ended March 31, 2017. The notes include mortgages on two additional properties in Colorado that include repurchase options for the properties at a fixed price that are exercisable between the second and fifth anniversary of the notes by the borrower.

 

The collateral for the mortgage notes receivable consists of real estate and improvements present on such real estate.

 

Fair Value

 

FASB ASC 820-10 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is 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 to the valuation methodology are quoted prices for identical assets or liabilities in active markets.

·

Level 2—Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets and inputs that are observable or can be substantially corroborated for the asset or liability, either directly or indirectly.

·

Level 3—Inputs to the valuation methodology are unobservable, supported by little or no market activity and are significant to the fair value measurement.

 

The fair value of notes receivable is valued using Level 3 inputs under the hierarchy established by GAAP and is calculated based on a discounted cash flow analysis, using interest rates based on management’s estimates of market interest rates on mortgage notes receivable with comparable terms whenever the interest rates on the notes receivable are deemed not to be at market rates. As of June 30, 2017 and December 31, 2016, the fair value of the notes receivable was $6.0 million and $2.8 million, respectively.