| Question: |
What is the fee structure of The Farmland Company? |
| Answer: |
The Farmland Company and the Manager entered into a management agreement whereby the Manager will provide certain services to The Farmland Company in consideration for a management fee (the “Management Fee”) and, if applicable, a success fee (the “Success Fee”). The Management Fee will be as follows:
Class Amount Invested Fee
Class A Shares Less than $1 million Fee 1.75%
Class B Shares $1 million – $5 million Fee 1.50%
Class C Shares Greater than $5 million Fee 1.25%
and will be calculated and payable monthly in arrears as to 1/12th of eligible fee. Referral fees, if any, will be paid by the Manager from amounts from the Management Fee.
In addition, the Manager will be entitled to a Success Fee based upon returns in excess of a 6% (the “hurdle”) rate of return. The Success Fee payable to the Manager will be paid at year end, once every three years by the shareholders of record on that date. The Success Fee will be paid only on the portion of returns in excess of a 6% compound annual rate of return during the term of their holding. The Success Fee will be paid in Common Shares of The Farmland Company to the manager and those Common Shares shall remain invested in The Farmland Company.
· A compound annual return of less than 6% will result in a 0% Success Fee.
· A compound annual return of 6% or more will result in a Success Fee of 20% of the gain in excess of the hurdle. |
| Question: |
What are my liquidity options? When is the earliest date that I could liquidate my investment in The Farmland Company? |
| Answer: |
The liquidity feature in The Farmland Company has been designed with the intention of both aligning the long-term investment thesis of Canadian farmland as well as providing increased liquidity compared to traditional farm ownership. You may request that The Farmland Company repurchase your Common Shares. Any such repurchase will be subject to restrictions and limitations, including the following:
· No redemptions for 36 months
· After 36 months at a 20% discount to NAV
· After 48 months at a 15% discount to NAV
· Sometime after 72 months The Farmland Company intends to find a buyer for 100 percent of the outstanding Common Shares.
Redemptions are limited to a maximum of 10% of the outstanding shares annually and will be offered on a “best efforts” basis.
The Farmland Company will endeavor, on a best efforts’ basis, to find a buyer for an investor’s Common Shares if extenuating circumstances arise prior to 36 months (A discount of 25 percent of NAV will apply). |
| Question: |
Is there a maximum number of shares that The Farmland Company can repurchase in any given year? |
| Answer: |
In the ordinary course, the total maximum number of Common Shares that can be repurchased (for all investors) in any given year will not exceed 10% of the total outstanding Common Shares in terms of value as at the beginning of such year. Note, however, that The Farmland Company reserves the right to discontinue repurchasing of Common Shares in any given year in certain extraordinary circumstances. These limits have been put in place to protect The Farmland Company from any “run” on capital which could force the liquidation of farmland properties to fund Common Share repurchases. |
| Question: |
How is Net Asset Value (NAV) calculated and how often? |
| Answer: |
NAV is defined as the fair market value of the total assets, less all liabilities, of The Farmland Company. Fair market value of each individual property in the portfolio will be determined on an annual basis by third party appraisers. Given that Ontario farmland typically has only one crop cycle per year, The Farmland Company has chosen to recalculate the NAV on an annual and on a trailing basis. Based on the long-term average appreciation of farmland, a 5.5% return (the 100-year compound annual growth rate or CAGR for Ontario farmland is 5.6%) is assumed between appraisals and accrued monthly for the purpose of calculating the NAV each month. |
| Question: |
Are there cash distributions under The Farmland Company? |
| Answer: |
The Farmland Company will endeavor to make one annual distribution. Each year, it is expected that The Farmland Company will assess the company’s cash flow, set aside appropriate reserves to fund anticipated liabilities and acquisitions, and make a distribution to shareholders. Investors will have the option to receive distributions from The Farmland Company in the form of cash. Cash distributions will be classified as a reduction in paid up capital. This tax-free distribution will reduce the adjusted cost base of the Common Shares. |
| Question: |
What role does debt leverage have in The Farmland Company? |
| Answer: |
The Farmland Company has provisions for the use of debt up to a limit of 30% of total asset value. This provision is intended to enable AGinvest to manage working capital and to facilitate farmland purchases; however, The Farmland Company is expected to continue to maintain modest debt levels (less than 30%) over time; 35% debt leverage is permitted after 36 months on a temporary basis to allow for distributions. Leverage must be reduced to less than 30% within 12 months of any distribution. |
| Question: |
How does The Farmland Company deal with the risk profile of Ontario farmland investment? |
| Answer: |
The Farmland Company endeavors to purchase prime Ontario farmland using a proprietary due diligence system which is intended to mitigate risk and provide additional certainty that the “buy” is carried out correctly. AGinvest attempts to reduce investment risk by purchasing farmland at or below appraised value and carrying out optimization strategies to improve the lands productivity characteristics. Once farmland is purchased correctly and optimized to its fullest extent, AGinvest works to preserve the value of existing investment properties by monitoring operations and farming practices, as steps to further decrease the risk of the overall land portfolio. |
| Question: |
How does The Farmland Company offer the advantage of the Capital Gains Exemption? |
| Answer: |
The Farmland Company’s innovative investment and operational model opens a unique opportunity for both investors and farmland owners to utilize their lifetime exemption for tax-free capital gains. As a shareholder in The Farmland Company, you become a shareholder in a company that actively manages and markets crop production on premium Ontario farmlands. This approach entitles up to 49 investors, capital gains exemption benefits on the eventual sale of their Common Shares. The Canada Revenue Agency includes your taxable capital gain (50 percent of the total gain) as income for tax purposes but allows an offsetting deduction when calculating taxable income. Our farmland ownership plans, therefore, can achieve after-tax rates of return comparable to the pre-tax rate of return for traditional plans.
The Canada Revenue Agency has the right to challenge any company’s position that it is conducting an active business. AGinvest is confident that the use of the AGinvest Grower Agreement will result in the income generated by The Farmland Company to be considered active business income. If the Canada Revenue Agency successfully challenges The Farmland Company position that the company is operating an active business, the shareholders may not be eligible for the Capital Gains exemption. |
| Question: |
What is the maximum Capital Gains Exemption available? |
| Answer: |
Each Canadian citizen or permanent resident of Canada is entitled to a capital gains exemption on qualified gains arising from dispositions. The Canada Revenue Agency refers to the exemption as a capital gains deduction, whereby the capital gain — which is 50 percent of the total gain — is still included as income for tax purposes. However, an offsetting deduction from net income is allowed when you are calculating taxable income. The total of your capital gains deductions on gains arising from dispositions in 2020 of qualifying capital property has increased to $441,692 (one half of an increased lifetime capital gains exemption or LCGE increased by indexation to $883,384 for 2020). |
| Question: |
How is the Investment committee (IC) selected? |
| Answer: |
This three-member committee consists of at least one investor from AGinvest Farmland Two Inc. The fund will rely on committee members from AG Farmland One until it has a suitable group of investors in AG2 that can be called upon to be part of the committee.
The other two members must be invested in an AGinvest farmland product and only one of the three members can be a part of the management company (AGinvest Properties Canada Inc.) |
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