Gladstone Land Corporation
GLADSTONE LAND Corp (Form: 10-Q, Received: 08/08/2017 16:23:14)
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549  
______________________________________________
FORM 10-Q
______________________________________________
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2017
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM                      TO                     
COMMISSION FILE NUMBER: 001-35795   
____________________________________________
GLADSTONE LAND CORPORATION
(Exact name of registrant as specified in its charter)
______________________________________________
MARYLAND
 
54-1892552
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
1521 WESTBRANCH DRIVE, SUITE 100
MCLEAN, VIRGINIA 22102
(Address of principal executive offices, including zip code)
(703) 287-5800
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)   
______________________________________________
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES   ý     NO   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES   ý     NO   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. 
Large accelerated filer
 
¨
  
Accelerated filer
 
x
 
 
 
 
 
 
Non-accelerated filer
 
¨  
(Do not check if a smaller reporting company)
 
 
 
 
 
 
 
 
 
Smaller reporting company
 
¨  
 
Emerging growth company
 
x
 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES   ¨     NO   ý .
The number of shares of the registrant’s Common Stock, $0.001 par value per share, outstanding as of August 7, 2017 , was 12,011,757 .


Table of Contents

GLADSTONE LAND CORPORATION
FORM 10-Q FOR THE QUARTER ENDED
JUNE 30, 2017
TABLE OF CONTENTS  
 
 
PAGE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Table of Contents

PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GLADSTONE LAND CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per-share data)
(Unaudited)
 
 
June 30, 2017
 
December 31, 2016
ASSETS
 
 
 
Investments in real estate, net
$
405,222

 
$
326,311

Lease intangibles, net
5,905

 
2,000

Cash and cash equivalents
2,766

 
2,438

Deferred financing costs related to borrowings under line of credit, net
217

 
239

Other assets, net
2,910

 
2,997

TOTAL ASSETS
$
417,020

 
$
333,985

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
LIABILITIES:
 
 
 
Borrowings under lines of credit
$
35,050

 
$
16,550

Mortgage notes and bonds payable, net
236,941

 
190,797

Series A cumulative term preferred stock, par value $0.001 per share; $25.00 per share liquidation preference; 2,000,000 shares authorized, 1,150,000 shares issued and outstanding as of June 30, 2017, and December 31, 2016, net (1)
27,773

 
27,655

Accounts payable and accrued expenses
4,684

 
2,801

Due to related parties, net (2)
836

 
751

Other liabilities, net
7,260

 
7,654

Total liabilities
312,544

 
246,208

Commitments and contingencies (3)

 

EQUITY:
 
 
 
Stockholders’ equity:
 
 
 
Common stock, $0.001 par value; 18,000,000 shares authorized, 11,850,624 shares issued and outstanding as of June 30, 2017; 18,000,000 shares authorized, 10,024,875 shares issued and outstanding as of December 31, 2016
12

 
10

Additional paid-in capital
109,020

 
90,082

Accumulated deficit
(15,941
)
 
(13,402
)
Total stockholders’ equity
93,091

 
76,690

Non-controlling interests in the Operating Partnership
11,385

 
11,087

Total equity
104,476

 
87,777

TOTAL LIABILITIES AND EQUITY
$
417,020

 
$
333,985


(1)  
Refer to Note 5, “Mandatorily-Redeemable Preferred Stock,” for additional information.
(2)  
Refer to Note 6, “Related-Party Transactions,” for additional information.
(3)  
Refer to Note 8, “Commitments and Contingencies,” for additional information.
The accompanying notes are an integral part of these condensed consolidated financial statements.

3


GLADSTONE LAND CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per-share data)
(Unaudited)
 
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
OPERATING REVENUES:
 
 
 
 
 
 
 
Rental revenue
$
5,994

 
$
4,241

 
$
11,742

 
$
7,921

Tenant recovery revenue
2

 
3

 
4

 
6

Total operating revenues
5,996

 
4,244

 
11,746

 
7,927

OPERATING EXPENSES:
 
 
 
 
 
 
 
Depreciation and amortization
1,599

 
1,335

 
3,071

 
2,312

Property operating expenses
242

 
172

 
490

 
384

Acquisition-related expenses
37

 
25

 
46

 
120

Management fee (1)
530

 
385

 
924

 
773

Incentive fee (1)
76

 
159

 
427

 
159

Administration fee (1)
219

 
179

 
445

 
391

General and administrative expenses
387

 
395

 
834

 
794

Total operating expenses
3,090

 
2,650

 
6,237

 
4,933

OPERATING INCOME
2,906

 
1,594

 
5,509

 
2,994

OTHER INCOME (EXPENSE):
 
 
 
 
 
 
 
Other income

 
9

 
185

 
103

Interest expense
(2,193
)
 
(1,487
)
 
(4,349
)
 
(2,741
)
Distributions attributable to mandatorily-redeemable preferred stock
(458
)
 

 
(917
)
 

Total other expense
(2,651
)
 
(1,478
)
 
(5,081
)
 
(2,638
)
NET INCOME
255

 
116

 
428

 
356

Less net income attributable to non-controlling interests
(28
)
 
(8
)
 
(49
)
 
(14
)
NET INCOME ATTRIBUTABLE TO THE COMPANY
$
227

 
$
108

 
$
379

 
$
342

EARNINGS PER COMMON SHARE:
 
 
 
 
 
 
 
Basic and diluted
$
0.02

 
$
0.01

 
$
0.03

 
$
0.03

WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING:
 
 
 
 
 
 
 
Basic and diluted
11,850,624

 
9,992,941

 
11,127,199

 
9,992,941


(1)  
Refer to Note 6, “Related-Party Transactions,” for additional information.
The accompanying notes are an integral part of these condensed consolidated financial statements.


4


GLADSTONE LAND CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(In thousands, except share data)
(Unaudited)
 
 
Common Stock
 
 
 
 
 
 
 
 
 
Number
of Shares
 
Par Value
 
Additional
Paid-in Capital
 
Accumulated
Deficit
 
Non-
Controlling
Interests
 
Total
Equity
Balance at December 31, 2015
9,992,941

 
$
10

 
$
86,892

 
$
(8,895
)
 
$

 
$
78,007

Net income

 

 

 
342

 
14

 
356

Proceeds from issuance of common stock, net

 

 
(4
)
 

 
(26
)
 
(30
)
Distributions

 

 

 
(2,436
)
 
(122
)
 
(2,558
)
Issuance of OP Units as consideration in real estate acquisitions, net

 

 

 

 
6,452

 
6,452

Adjustment to non-controlling interests resulting from changes in ownership of the Operating Partnership

 

 
607

 

 
(607
)
 

Balance at June 30, 2016
9,992,941

 
$
10

 
$
87,495

 
$
(10,989
)
 
$
5,711

 
$
82,227

 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2016
10,024,875

 
$
10

 
$
90,082

 
$
(13,402
)
 
$
11,087

 
$
87,777

Net income

 

 

 
379

 
49

 
428

Proceeds from issuance of common stock, net
1,825,749

 
2

 
19,563

 

 

 
19,565

Distributions

 

 

 
(2,918
)
 
(376
)
 
(3,294
)
Adjustment to non-controlling interests resulting from changes in ownership of the Operating Partnership

 

 
(625
)
 

 
625

 

Balance at June 30, 2017
11,850,624

 
$
12

 
$
109,020

 
$
(15,941
)
 
$
11,385

 
$
104,476


The accompanying notes are an integral part of these condensed consolidated financial statements.


5


GLADSTONE LAND CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
 
For the Six Months Ended June 30,
 
 
2017
 
2016
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
Net income
 
$
428

 
$
356

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
3,071

 
2,312

Amortization of deferred financing costs
 
236

 
70

Amortization of deferred rent assets and liabilities, net
 
(115
)
 
(85
)
Allowance for doubtful accounts
 

 
51

Changes in operating assets and liabilities:
 
 
 
 
Other assets
 
48

 
10

Accounts payable, accrued expenses and due to related parties
 
1,318

 
522

Other liabilities
 
(307
)
 
3,729

Net cash provided by operating activities
 
4,679

 
6,965

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
Acquisition of new real estate
 
(82,950
)
 
(34,376
)
Capital expenditures on existing real estate
 
(1,624
)
 
(7,883
)
Change in deposits on real estate acquisitions and investments, net
 
(565
)
 
(367
)
Net cash used in investing activities
 
(85,139
)
 
(42,626
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
Proceeds from issuance of equity
 
20,722

 

Offering costs
 
(1,225
)
 
(252
)
Borrowings from mortgage notes and bonds payable
 
49,001

 
24,813

Repayments on mortgage notes and bonds payable
 
(2,568
)
 
(420
)
Borrowings from lines of credit
 
38,000

 
17,300

Repayments on lines of credit
 
(19,500
)
 
(2,900
)
Payment of financing fees
 
(348
)
 
(78
)
Distributions paid on common stock
 
(2,918
)
 
(2,436
)
Distributions paid to non-controlling interests in Operating Partnership
 
(376
)
 
(122
)
Payment of contingent consideration
 

 
(700
)
Net cash provided by financing activities
 
80,788

 
35,205

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
 
328

 
(456
)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
 
2,438

 
2,533

CASH AND CASH EQUIVALENTS AT END OF PERIOD
 
$
2,766

 
$
2,077

NON-CASH INVESTING AND FINANCING INFORMATION:
 
 
 
 
Issuance of non-controlling interests in operating partnership in conjunction with acquisitions
 
$

 
$
6,452

Real estate additions included in Other assets
 
15

 

Real estate additions included in Accounts payable, accrued expenses and due to related parties
 
647

 
1,485

Real estate additions included in Other liabilities
 
33

 
624

Common stock offering and OP Unit issuance costs included in Accounts payable, accrued expenses and due to related parties
 
140

 
14

Financing fees included in Accounts payable, accrued expenses and due to related parties
 
45

 
8

The accompanying notes are an integral part of these condensed consolidated financial statements.

6


GLADSTONE LAND CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BUSINESS
Business
Gladstone Land Corporation is an agricultural real estate investment trust (“REIT”) that was re-incorporated in Maryland on March 24, 2011 , having been previously re-incorporated in Delaware on May 25, 2004 , and having been originally incorporated in California on June 14, 1997 . We are primarily in the business of owning and leasing farmland, and we conduct substantially all of our operations through a subsidiary, Gladstone Land Limited Partnership (the “Operating Partnership”), a Delaware limited partnership. The Company owned 89.1% and 87.4% of the limited partnership interests in the Operating Partnership ("OP Units") as of June 30, 2017 , and December 31, 2016 , respectively (see Note 7, "Equity," for additional discussion regarding OP Units).
Subject to certain restrictions and limitations, and pursuant to contractual agreements, our business is managed by Gladstone Management Corporation (the “Adviser”), a Delaware corporation, and administrative services are provided to us by Gladstone Administration, LLC (the “Administrator”), a Delaware limited liability company. Our Adviser and Administrator are both affiliates of ours (see Note 6, "Related-Party Transactions," for additional discussion regarding our Adviser and Administrator).
All further references herein to “we,” “us,” “our” and the “Company” refer, collectively, to Gladstone Land Corporation and its consolidated subsidiaries, except where indicated otherwise.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Information
Our interim financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q in accordance with Article 10 of Regulation S-X. Accordingly, certain disclosures accompanying annual financial statements prepared in accordance with GAAP are omitted. In the opinion of our management, all adjustments, consisting solely of normal recurring accruals, necessary for the fair statement of financial statements for the interim period have been included. The interim financial statements and accompanying notes should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2016 , as filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 21, 2017 (the “Form 10-K”). The results of operations for the three and six months ended June 30, 2017 , are not necessarily indicative of the results that may be expected for other interim periods or for the full fiscal year.
Use of Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could materially differ from those estimates.
Reclassifications
Certain line items on the accompanying Condensed Consolidated Statement of Operations and Condensed Consolidated Statement of Cash Flows for the three and six months ended June 30, 2016 , have been reclassified to conform to the current period’s presentation. These reclassifications had no impact on previously-reported stockholders’ equity, net income or net change in cash and cash equivalents.
Non-controlling Interests
Non-controlling interests are interests in the Operating Partnership not owned by us. We evaluate whether non-controlling interests are subject to redemption features outside of our control. As of both June 30, 2017 , and December 31, 2016 , the non-controlling interests in the Operating Partnership are redeemable at the option of the holder for cash or, at our election, shares of our common stock and thus are reported in the equity section of the accompanying Condensed Consolidated Balance Sheet but separate from stockholders’ equity. The amounts reported for non-controlling interests on the accompanying Condensed Consolidated Statement of Operations represent the portion of income from the Operating Partnership not attributable to us. At the end of each reporting period, we determine the amount of equity (at book value) that is allocable to non-controlling interests based upon the respective ownership interests. To reflect the non-controlling interests' equity interest in the Company, an

7


adjustment is made to non-controlling interests, with a corresponding adjustment to paid-in capital, as reflected on the accompanying Condensed Consolidated Statements of Equity.
Critical Accounting Policies
The preparation of financial statements in accordance with GAAP requires management to make judgments that are subjective in nature in order to make certain estimates and assumptions, and our application of these accounting policies involves the exercise of judgment regarding the use of assumptions as to future uncertainties. A summary of our significant accounting policies is provided in Note 2 to our consolidated financial statements included in our Form 10-K. There were no material changes to our significant accounting policies during the six months ended June 30, 2017 .
Recently-Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2014-09, "Revenue from Contracts with Customers (Topic 606)" ("ASU 2014-09"), which was amended in March 2016 by ASU 2016-08, "Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)" ("ASU 2016-08"), in April 2016 by ASU 2016-10, "Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing" ("ASU 2016-10"), in May 2016 by ASU 2016-12, "Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients" ("ASU 2016-12"), and in December 2016 by ASU 2016-20, "Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers" ("ASU 2016-20"). ASU 2014-09, as amended, supersedes or replaces nearly all GAAP revenue recognition guidance and establishes a new, control-based revenue recognition model, changes the basis for deciding when revenue is recognized over time or at a point in time and will expand disclosures about revenue. In July 2015, the FASB issued ASU 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date," which deferred the effective date of ASU 2014-09, as amended. ASU 2014-09, as amended, is now effective for annual reporting periods beginning after December 15, 2017, and interim periods within those years, with early adoption permitted for annual reporting periods beginning after December 15, 2016, and interim periods within those years. We do not believe ASU 2014-09 will have a material impact on our results of operations or financial condition, as the primary impact of this update is related to common area maintenance and other material tenant reimbursements, whereas the majority of our revenue is from rental income pursuant to net-lease agreements, with very little being attributed to tenant recoveries.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842): An Amendment of the FASB Accounting Standards Codification” (“ASU 2016-02”). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the leases is effectively a financed purchase by the lessee, which classification determines whether lease expense is recognized based on an effective interest method or on a straight-line basis, respectively, over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months, regardless of the classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. ASU 2016-02 supersedes the previous leasing standard, ASC 840, “Leases,” and is effective on January 1, 2019, with early adoption permitted. We expect our legal expenses (included in General and administrative expenses on our Condensed Consolidated Statements of Operations) to increase marginally, as the new standard requires us to expense indirect leasing costs that were previously capitalized; however, we do not expect ASU 2016-02 to materially impact our condensed consolidated financial statements, as we currently only have two operating ground lease arrangements with terms greater than one year for which we are the lessee.
In January 2017, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") No. 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business" ("ASU 2017-01"), which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting, including acquisitions and disposals. ASU 2017-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. We have early adopted ASU 2017-01, effective October 1, 2016. As a result of our adoption of ASU 2017-01, we anticipate that most of our farmland acquisitions will be treated as asset acquisitions under Accounting Standards Codification ("ASC") 360, which will result in a lower amount of acquisition-related costs being expensed on our condensed consolidated statements of operations, as the majority of those costs will be capitalized and included as part of the fair value allocation of the purchase price.

8


NOTE 3. REAL ESTATE AND INTANGIBLE ASSETS
All of our farms are owned on a fee-simple basis, except where noted. The following table provides certain summary information about our 65 farms as of June 30, 2017 (dollars in thousands, except for footnotes):
Location
 
No. of Farms
 
Total Acres
 
Farm Acres
 
Net Cost Basis (1)
 
Encumbrances (2)
California
 
22
 
6,713
 
6,240
 
$
182,226

 
$
137,868

Florida
 
16
 
9,315
 
7,664
 
107,960

 
64,800

Colorado
 
9
 
30,170
 
23,257
 
42,140

 
25,227

Arizona (3)
 
6
 
6,280
 
5,228
 
40,748

 
23,314

Oregon
 
4
 
2,313
 
2,003
 
19,568

 
12,927

Nebraska
 
2
 
2,559
 
2,101
 
10,708

 
6,602

Michigan
 
4
 
270
 
183
 
2,993

 
1,653

North Carolina
 
2
 
310
 
295
 
2,317

 
1,301

 
 
65
 
57,930
 
46,971
 
$
408,660

 
$
273,692


(1)  
Consists of the initial acquisition price (including the costs allocated to both tangible and intangible assets acquired and liabilities assumed), plus subsequent improvements and other capitalized costs associated with the properties, and adjusted for accumulated depreciation and amortization. Includes Investments in real estate, net (excluding improvements paid for by the tenant) and Lease intangibles, net; plus net above-market lease values included in Other assets; and less net below-market lease values, deferred revenue and unamortized tenant improvements included in Other liabilities, each as shown on the accompanying Condensed Consolidated Balance Sheet.
(2)  
Excludes approximately $1.7 million of deferred financing costs related to mortgage notes and bonds payable included in Mortgage notes and bonds payable, net on the accompanying Condensed Consolidated Balance Sheet.
(3)  
Includes two farms in which we own a leasehold interest via ground leases with the State of Arizona that expire in February 2022 and February 2025, respectively. In total, these two farms consist of 1,368 total acres and 1,221 farm acres and had a net cost basis of approximately $3.5 million as of June 30, 2017 (included in Lease intangibles, net on the accompanying Condensed Consolidated Balance Sheet).
Real Estate
The following table sets forth the components of our investments in tangible real estate assets as of June 30, 2017 , and December 31, 2016 (dollars in thousands):
 
 
June 30, 2017
 
December 31, 2016
Real estate:
 
 
 
 
Land and land improvements
 
$
332,035

 
$
265,985

Irrigation systems
 
45,829

 
33,969

Buildings
 
16,805

 
14,671

Horticulture
 
18,870

 
17,759

Other improvements
 
5,472

 
4,993

Real estate, at cost
 
419,011

 
337,377

Accumulated depreciation
 
(13,789
)
 
(11,066
)
Real estate, net
 
$
405,222

 
$
326,311

Real estate depreciation expense on these tangible assets was approximately $1.4 million and $2.7 million for the three and six months ended June 30, 2017 , respectively, and $1.1 million and $1.9 million for the three and six months ended June 30, 2016 , respectively.
Included in the figures above are amounts related to improvements on certain of our properties paid for by our tenants but owned by us, or tenant improvements. As of each of June 30, 2017 , and December 31, 2016 , we recorded tenant improvements, net of accumulated depreciation, of approximately $1.8 million . We recorded both depreciation expense and additional rental revenue related to these tenant improvements of approximately $53,000 and $89,000 for the three and six months ended June 30, 2017 , respectively, and $31,000 and $62,000 for the three and six months ended June 30, 2016 , respectively.

9


Intangible Assets and Liabilities
The following table summarizes the carrying values of lease intangible assets and the related accumulated amortization as of June 30, 2017 , and December 31, 2016 (dollars in thousands):
 
 
June 30, 2017
 
December 31, 2016
Lease intangibles:
 
 
 
 
Leasehold interest – land
 
$
3,498

 
$

In-place leases
 
1,675

 
1,481

Leasing costs
 
1,540

 
1,086

Tenant relationships
 
668

 
706

Lease intangibles, at cost
 
7,381

 
3,273

Accumulated amortization
 
(1,476
)
 
(1,273
)
Lease intangibles, net
 
$
5,905

 
$
2,000

Total amortization expense related to these lease intangible assets was approximately $210,000 and $348,000 for the three and six months ended June 30, 2017 , respectively, and $198,000 and $375,000 for the three and six months ended June 30, 2016 , respectively.
The following table summarizes the carrying values of certain lease intangible assets or liabilities included in Other assets and Other liabilities, respectively, on the accompanying Condensed Consolidated Balance Sheets and the related accumulated amortization or accretion, respectively, as of June 30, 2017 , and December 31, 2016 (dollars in thousands).
 
 
June 30, 2017
 
December 31, 2016
Intangible Asset or Liability
 
Deferred
Rent Asset
(Liability)
 
Accumulated
(Amortization)
Accretion
 
Deferred
Rent Asset
(Liability)
 
Accumulated
(Amortization)
Accretion
Above-market lease values (1)
 
$
35

 
$
(18
)
 
$
19

 
$
(14
)
Below-market lease values and deferred revenue (2)
 
(800
)
 
91

 
(785
)
 
61

 
 
$
(765
)
 
$
73

 
$
(766
)
 
$
47


(1)  
Above-market lease values are included as part of Other assets in the accompanying Condensed Consolidated Balance Sheets, and the related amortization is recorded as a reduction of rental income.
(2)  
Below-market lease values and deferred revenue are included as a part of Other liabilities in the accompanying Condensed Consolidated Balance Sheets, and the related accretion is recorded as an increase to rental income.
Total amortization related to above-market lease values and deferred revenue was approximately $2,000 and $4,000 for the three and six months ended June 30, 2017 , respectively, and $2,000 and $3,000 for the three and six months ended June 30, 2016 , respectively. Total accretion related to below-market lease values and deferred revenue was approximately $15,000 and $30,000 for the three and six months ended June 30, 2017 , respectively, and $7,000 and $15,000 for the three and six months ended June 30, 2016 , respectively.
New Real Estate Activity
Until our adoption of ASU 2017-01, which clarified the definition of a business, certain acquisitions during the prior-year period were accounted for as business combinations in accordance with ASC 805, as there was a prior leasing history on the property. As such, the fair value of all assets acquired and liabilities assumed were determined in accordance with ASC 805, and all acquisition-related costs were expensed as incurred, other than those costs directly related to reviewing or assigning leases that we assumed upon acquisition, which were capitalized as part of leasing costs. Upon our early adoption of ASU 2017-01, effective October 1, 2016, most acquisitions, including those with a prior leasing history, are now generally treated as an asset acquisition under ASC 360. For acquisitions accounted for as asset acquisitions under ASC 360, all acquisition-related costs were capitalized and included as part of the fair value allocation of the identifiable tangible and intangible assets acquired, other than those costs that directly related to originating new leases we executed upon acquisition, which were capitalized as part of leasing costs.
In addition, total consideration for acquisitions may include a combination of cash and equity securities, such as OP Units. When OP Units are issued in connection with acquisitions, we determine the fair value of the OP Units issued based on the number of units issued multiplied by the closing price of the Company’s common stock on the date of acquisition.

10


2017 New Real Estate Activity
During the six months ended June 30, 2017 , we acquired seven new farms in three separate transactions, which are summarized in the table below (dollars in thousands).
Property
Name
 
Property
Location
 
Acquisition
Date
 
Total
Acreage
 
No. of
Farms
 
Primary
Crop(s)
 
Lease
Term (1)
 
Renewal
Options
 
Total
Purchase
Price
 
Acquisition
Costs (2)
 
Annualized
Straight-line
Rent (3)
 
New
Long-term
Debt
Citrus Boulevard
 
Martin, FL
 
1/12/2017
 
3,748
 
1
 
Organic Vegetables
 
7 years
 
3 (5 years)
 
$
54,000

 
$
80

 
$
2,926

 
$
32,400

Spot Road (4)
 
Yuma, AZ
 
6/1/2017
 
3,280
 
4
 
Melons and Alfalfa Hay
 
8.2 years
 
1 (10 years) & 1 (2 years)
 
27,500

 
88

 
1,673

 
15,300

Poplar Street
 
Bladen, NC
 
6/2/2017
 
310
 
2
 
Organic Blueberries
 
9.6 years
 
1 (5 years)
 
2,169

 
49

 
122

(5)  
1,301

 
 
 
 
 
 
7,338
 
7
 
 
 
 
 
 
 
$
83,669

 
$
217

 
$
4,721

 
$
49,001


(1)  
Where more than one lease was assumed or executed, represents the weighted-average lease term on the property.
(2)  
Unless noted otherwise, acquisitions were accounted for as asset acquisitions under ASC 360.
(3)  
Annualized straight-line amount is based on the minimum cash rental payments guaranteed under the lease, as required under GAAP.
(4)  
Includes two farms ( 1,368 total acres) acquired through a leasehold interest, with the State of Arizona as the lessor. These state leases expire in February 2022 ( 485 total acres) and February 2025 ( 883 total acres). In addition, in connection with the acquisition of this property, we assumed four in-place leases with us as the lessor or sublessor. Three of these leases are agricultural leases, with one lease expiring on June 30, 2019 , and two leases expiring on September 15, 2026 . The fourth lease is a residential lease that expires on September 30, 2019 . If either of the state leases is not renewed upon its expiration, the subleases on the respective acreage shall terminate automatically.
(5)  
This lease provides for a variable rent component based on the gross crop revenues earned on the property. The figure above represents only the minimum cash rents guaranteed under the lease.
The allocation of the purchase price for the farm acquired during the six months ended June 30, 2017 , is as follows (dollars in thousands, except for footnotes):
Property Name
 
Land and Land Improvements
 
Buildings
 
Irrigation Systems
 
Other Improvements
 
Horticulture
 
Leasehold Interest – Land
 
In-place Leases
 
Leasing Cost
 
Total Purchase Price
Citrus Boulevard
 
$
52,375

 
$
178

 
$
1,447

 
$

 
$

 
$

 
$

 
$

 
$
54,000

Spot Road (1)
 
12,354

 
1,897

 
8,584

 
455

 

 
3,488

 
254

 
468

 
27,500

Poplar Street
 
1,110

 
48

 
305

 

 
706

 

 

 

 
2,169

 
 
$
65,839

 
$
2,123

 
$
10,336

 
$
455

 
$
706

 
$
3,488

 
$
254

 
$
468

 
$
83,669

(1)  
In connection with the acquisition of this property, we recorded an above-market lease value of approximately $15,000 related to one agricultural lease assumed and a below-market lease value of approximately $15,000 related to the residential lease assumed.
Below is a summary of the total operating revenues and earnings (loss) recognized on the property acquired during the three and six months ended June 30, 2017 (dollars in thousands):
 
 
 
 
For the three months ended June 30, 2017
 
For the six months ended June 30, 2017
Property Name
 
Acquisition Date
 
Operating
Revenues
 
Earnings (Loss)
 
Operating
Revenues
 
Earnings (Loss)
Citrus Boulevard
 
1/12/2017
 
$
732

 
$
430

 
$
1,377

 
$
810

Spot Road
 
6/1/2017
 
141

 
(5
)
 
141

 
(5
)
Poplar Street
 
6/2/2017
 
10

 
4

 
10

 
4

 
 
 
 
$
883

 
$
429

 
$
1,528

 
$
809


11


2016 New Real Estate Activity
During the six months ended June 30, 2016 , we acquired four new farms in two separate transactions, which are summarized in the table below (dollars in thousands, except for footnotes).
Property
Name
 
Property
Location
 
Acquisition
Date
 
Total
Acreage
 
No. of
Farms
 
Primary
Crop(s)
 
Lease
Term
 
Renewal
Options
 
Total
Purchase
Price
 
Acquisition
Costs
 
Annualized
Straight-line
Rent
(1)
 
Net
Long-term
Debt Issued
Gunbarrel Road (2)
 
Saguache, CO
 
3/3/2016
 
6,191
 
3
 
Organic Potatoes
 
5 years
 
1 (5 years)
 
$
25,736

 
$
119

(3)  
$
1,591

 
$
15,531

Calaveras Avenue
 
Fresno, CA
 
4/5/2016
 
453
 
1
 
Pistachios
 
10 years
 
1 (5 years)
 
15,470

 
39

(4)  
774

(5)  
9,282

 
 
 
 
 
 
6,644
 
4
 
 
 
 
 
 
 
$
41,206

 
$
158

 
$
2,365

 
$
24,813

(1)  
Annualized straight-line amount is based on the minimum cash rental payments guaranteed under the lease, as required under GAAP.
(2)  
As partial consideration for the acquisition of this property, we issued 745,879 OP Units, constituting an aggregate fair value of approximately $6.5 million as of the acquisition date. We incurred $25,500 of legal costs in connection with the issuance of these OP Units.
(3)  
Acquisition accounted for as a business combination under ASC 805. In aggregate, $4,670 of these costs were direct leasing costs incurred in connection with these acquisitions.
(4)  
Acquisition accounted for as an asset acquisition under ASC 360.
(5)  
This lease provides for a variable rent component based on the gross crop revenues earned on the property. The figure above represents only the minimum cash rents guaranteed under the lease.
The allocation of the purchase price for the farms acquired during the six months ended June 30, 2016 , were as follows (dollars in thousands):
Property Name
 
Land and Land
Improvements
 
Buildings and
Improvements
 
Irrigation
System
 
Other
Improvements
 
Horticulture
 
In-place
Leases
 
Leasing
Costs
 
Total Purchase Price
Gunbarrel Road
 
$
16,756

 
$
3,438

 
$
2,831

 
$
2,079

 
$

 
$
382

 
$
250

 
$
25,736

Calaveras Avenue
 
3,615

 

 
424

 

 
11,431

 

 

 
15,470

 
 
$
20,371

 
$
3,438

 
$
3,255

 
$
2,079

 
$
11,431

 
$
382

 
$
250

 
$
41,206


Below is a summary of the total operating revenues and loss recognized on the properties acquired during the three and six months ended June 30, 2016 (dollars in thousands, except for footnotes):
 
 
 
 
For the three months ended June 30, 2016
 
For the six months ended June 30, 2016
Property Name
 
Acquisition
Date
 
Operating Revenues
 
Loss (1)
 
Operating Revenues
 
Loss (1)
Gunbarrel Road
 
3/3/2016
 
$
398

 
$
(51
)
 
$
522

 
$
(152
)
Calaveras Avenue
 
4/5/2016
 
184

 
(3
)
 
184

 
(3
)
 
 
 
 
$
582

 
$
(54
)
 
$
706

 
$
(155
)

(1)  
Includes approximately $5,000 and $89,000 of non-recurring acquisition-related costs during the three and six months ended June 30, 2016 , respectively.
Acquired Intangibles and Liabilities
The following table shows the weighted-average amortization period, in years, for the intangible assets acquired and liabilities assumed in connection with new real estate acquired during the six months ended June 30, 2017 and 2016 :
 
 
Weighted-Average
Amortization Period
(in Years)
Intangible Assets and Liabilities
 
2017
 
2016
Leasehold interest – land
 
6.9
 
0.0
In-place leases
 
9.1
 
5.1
Leasing costs
 
9.2
 
5.1
Above-market lease values
 
2.1
 
0.0
Below-market lease values and deferred revenue
 
2.3
 
0.0
All intangible assets and liabilities
7.3
 
5.1

12


Pro-Forma Financials
During the six months ended June 30, 2016 , we acquired three farms that qualified as business combinations. No farms were acquired during the six months ended June 30, 2017 that were treated as business combinations. The following table reflects pro-forma consolidated financial information as if each farm acquired during the six months ended June 30, 2016 , as part of a business combination was acquired on January 1, 2015. In addition, pro-forma earnings have been adjusted to assume that acquisition-related costs related to these farms were incurred at the beginning of the previous fiscal year (dollars in thousands, except share and per-share amounts).
 
 
For the three months ended June 30, 2016
 
For the six months ended June 30, 2016
 
 
(Unaudited)
 
(Unaudited)
Operating Data:
 
 
 
 
Total operating revenue
 
$
4,244

 
$
7,927

Net income attributable to the company
 
$
93

 
$
101

Share and Per-share Data:
 
 
 
 
Earnings per share of common stock – basic and diluted
 
$
0.01

 
$
0.01

Weighted-average common shares outstanding – basic and diluted
 
9,992,941

 
9,992,941

The pro-forma consolidated results are prepared for informational purposes only. They are not necessarily indicative of what our consolidated financial condition or results of operations actually would have been assuming the acquisitions had occurred at the beginning of the previous fiscal year, nor do they purport to represent our consolidated financial position or results of operations for future periods.
Significant Existing Real Estate Activity
Lease Extensions and Renewals
During the six months ended June 30, 2017 , we extended or renewed eight separate leases on seven different farms in California and Florida that had leases expiring in either 2017 or 2018 . In total, these leases were renewed for additional terms ranging between one and five years and for total annualized rents of approximately $1.1 million , representing a decrease of approximately $4,000 (approximately 0.3% ) from that of the prior leases. These renewals were executed without incurring any downtime on the respective farms, and no leasing commissions or tenant improvements were incurred in connection with these renewals.
Portfolio Diversification and Concentrations
Diversification
The following table summarizes the geographic locations, by state, of our properties with leases in place as of June 30, 2017 and 2016 (dollars in thousands):
 
 
As of and For the Six Months Ended June 30, 2017
 
As of and For the Six Months Ended June 30, 2016
State
 
Number
of
Farms
 
Total
Acres
 
% of
Total
Acres
 
Rental
Revenue
 
% of Total
Rental
Revenue
 
Number
of
Farms
 
Total
Acres
 
% of
Total
Acres
 
Rental
Revenue
 
% of Total
Rental
Revenue
California
 
22
 
6,713
 
11.6%
 
$
5,728

 
48.8%
 
19
 
4,029
 
17.2%
 
$
4,502

 
56.8%
Florida
 
16
 
9,315
 
16.1%
 
3,143

 
26.8%
 
13
 
5,094
 
21.7%
 
1,539

 
19.4%
Colorado
 
9
 
30,170
 
52.1%
 
1,345

 
11.4%
 
3
 
6,191
 
26.4%
 
522

 
6.6%
Oregon
 
4
 
2,313
 
4.0%
 
589

 
5.0%
 
4
 
2,313
 
9.9%
 
585

 
7.4%
Arizona
 
6
 
6,280
 
10.8%
 
512

 
4.3%
 
2
 
3,000
 
12.8%
 
358

 
4.5%
Nebraska
 
2
 
2,559
 
4.4%
 
290

 
2.5%
 
2
 
2,559
 
10.9%
 
290

 
3.7%
Michigan
 
4
 
270
 
0.5%
 
125

 
1.1%
 
4
 
270
 
1.1%
 
125

 
1.6%
North Carolina
 
2
 
310
 
0.5%
 
10

 
0.1%
 
 
 
—%
 

 
—%
TOTALS
 
65
 
57,930
 
100.0%
 
$
11,742

 
100.0%
 
47
 
23,456
 
100.0%
 
$
7,921

 
100.0%

13


Concentrations
Credit Risk
As of June 30, 2017 , our farms were leased to 44 different, third-party tenants, with certain tenants leasing more than one farm. One unrelated tenant ("Tenant A") leases five of our farms, and aggregate rental revenue attributable to Tenant A accounted for approximately $2.1 million , or 18.1% of the rental revenue recorded during the six months ended June 30, 2017 . In addition, Dole Food Company (“Dole”) leases two of our farms, and aggregate rental revenue attributable to Dole accounted for approximately $1.5 million , or 12.6% of the rental revenue recorded during the six months ended June 30, 2017 . If either Tenant A or Dole fail to make rental payments or elect to terminate their respective leases, and the properties cannot be re-leased on satisfactory terms, there could be a material adverse effect on our financial performance and ability to continue operations. No other individual tenant represented greater than 10.0% of the total rental revenue recorded during the six months ended June 30, 2017 .
Geographic Risk
As of June 30, 2017 , 22 of the 65 farms we owned were located in California, 16 farms were located in Florida and 9 farms were located in Colorado. Further, our California, Florida, and Colorado farms accounted for approximately $5.7 million ( 48.8% ), $3.1 million ( 26.8% ), and $1.3 million ( 11.4% ), respectively, of the rental revenue recorded during the six months ended June 30, 2017 . Though we seek to continue to further diversify geographically, as may be desirable or feasible, should an unexpected natural disaster occur where our properties are located, there could be a material adverse effect on our financial performance and ability to continue operations. No other single state accounted for more than 10.0% of the total rental revenue recorded during the six months ended June 30, 2017 .
NOTE 4. BORROWINGS
Our borrowings as of June 30, 2017 , and December 31, 2016 are summarized below (dollars in thousands):
 
 
Carrying Value as of
 
As of June 30, 2017
 
 
June 30, 2017
 
December 31, 2016
 
Stated Interest
Rates (1)
(Range; Wtd Avg)
 
Maturity Dates
(Range; Wtd Avg)
Mortgage notes and bonds payable:
 
 
 
 
 
 
 
 
Fixed-rate mortgage notes payable
 
$
157,121

 
$
142,861

 
2.90%–4.41%; 3.32%
 
5/1/2020–11/1/2041; October 2029
Fixed-rate bonds payable
 
81,521

 
49,348

 
2.38%–3.63%; 3.10%
 
7/30/2018–1/12/2024; May 2021
Total mortgage notes and bonds payable
 
238,642

 
192,209

 
 
 
 
Deferred financing costs – mortgage notes and bonds payable
 
(1,701
)
 
(1,412
)
 
N/A
 
N/A
Mortgage notes and bonds payable, net
 
$
236,941

 
$
190,797

 
 
 
 
 
 
 
 
 
 
 
 
 
Variable-rate revolving lines of credit
 
$
35,050

 
$
16,550

 
3.40%
 
4/5/2024
 
 
 
 
 
 
 
 
 
Total borrowings, net
 
$
271,991

 
$
207,347

 
 
 
 
 
(1)  
Where applicable, stated interest rates are before interest patronage (as described below).
The weighted-average interest rate charged on the above borrowings, excluding the impact of deferred financing costs and before any interest patronage, or refunded interest, was 3.28% and 3.27% for the three and six months ended June 30, 2017 , respectively, and 3.25% and 3.27% for the three and six months ended June 30, 2016 , respectively. In addition, 2016 interest patronage from our Farm Credit CFL Notes Payable and the Farm Credit West Notes Payable (each as defined below), which we received and recorded during the six months ended June 30, 2017, resulted in a 17.2% reduction (approximately 61 basis points) to the stated interest rates on such borrowings.
MetLife Borrowings
MetLife Facility
On May 9, 2014, we closed on a credit facility (the "MetLife Facility") with Metropolitan Life Insurance Company (“MetLife”) that originally consisted of a $100.0 million long-term note payable (the “2015 MetLife Term Note”) and a $25.0 million revolving equity line of credit (the “2015 MetLife Line of Credit”). As amended on October 5, 2016, the overall size of the

14


MetLife Facility was increased from $125.0 million to $200.0 million (the "2016 Amendment"). Pursuant to the 2016 Amendment, the MetLife Facility now consists of the 2015 MetLife Term Note, the 2015 MetLife Line of Credit, a $50.0 million long-term note payable (the "2016 MetLife Term Note" and, together with the 2015 MetLife Term Note, the "MetLife Term Notes"), the terms of which are pari passu with those of the 2015 MetLife Term Note, and a $25.0 million revolving equity line of credit (the "2016 MetLife Line of Credit" and, together with the 2015 MetLife Line of Credit, the "MetLife Lines of Credit"), the terms of which are pari passu to those of the 2015 MetLife Line of Credit.
The following table summarizes the pertinent terms of the MetLife Facility as of June 30, 2017 (dollars in thousands):
Issuance
 
Aggregate
Commitment
 
Maturity
Dates
 
Principal
Outstanding
 
Interest Rate Terms
 
Undrawn
Commitment
 
MetLife Term Notes
 
$
150,000

(1)  
1/5/2029
 
$
105,608

 
3.16%, fixed for 10 years
(2)  
$
40,980

(3)  
MetLife Lines of Credit
 
50,000

 
4/5/2024
 
35,050

 
3-month LIBOR + 2.25%
(4)  
14,950

(3)  
Total principal outstanding
 
 
 
$
140,658

 
 
 
 
  
 
(1)  
If the aggregate commitment under the MetLife Facility is not fully utilized by December 31, 2018 , MetLife has the option to be relieved of its obligations to disburse the additional funds under the MetLife Term Notes.
(2)  
Represents the blended interest rate as of June 30, 2017 . Interest rates for subsequent disbursements will be based on then-prevailing market rates. The interest rate on all then-outstanding disbursements will be subject to adjustment on January 5, 2027 . Through December 31, 2018 , the MetLife Term Notes are also subject to an unused fee of 0.20% on undrawn amounts.
(3)  
Based on the properties that were pledged as collateral under the MetLife Facility, as of June 30, 2017 , the maximum additional amount we could draw under the facility was approximately $8.6 million .
(4)  
The interest rate on the MetLife Lines of Credit is subject to a minimum annualized rate of 2.50% , plus an unused fee of 0.20% on undrawn amounts. The interest rate spread will be subject to adjustment on October 5, 2019 . As of June 30, 2017 , the interest rate on the MetLife Lines of Credit was 3.40% .
As of June 30, 2017 , we were in compliance with all covenants under the MetLife Facility.
Individual MetLife Notes
In May 2017, we also entered into two new loan agreements with MetLife (collectively, the "Individual MetLife Notes"), the terms of which are summarized in aggregate in the table below (dollars in thousands):
Date of Issuance
 
Amount
 
Maturity Date
 
Principal Amortization
 
Interest Rate Terms
5/31/2017
 
$15,300
(1)  
2/14/2022 & 2/14/2025
 
28.6 years
 
3.55% & 3.85%, fixed throughout their respective terms
(1)  
Proceeds from these notes were used for the acquisition of a new property.
As of June 30, 2017 , we were in compliance with all covenants applicable to the Individual MetLife Notes.
Farm Credit Notes Payable
Interest patronage, or refunded interest, on borrowings from Farm Credit associations is recorded upon receipt and is included in Other income on our Condensed Consolidated Statements of Operations. Receipt of interest patronage typically occurs in the first half of the calendar year following the year in which the respective interest payments are made.
Farm Credit CFL Notes Payable
From time to time since September 19, 2014, we, through certain subsidiaries of our Operating Partnership, have entered into various loan agreements with Farm Credit of Central Florida, FLCA ("Farm Credit CFL"). We did not enter into any new loan agreements with Farm Credit CFL during the six months ended June 30, 2017 .
The following table summarizes, in the aggregate, the pertinent terms of the eight loans outstanding from Farm Credit CFL (collectively, the "Farm Credit CFL Notes Payable") as of June 30, 2017 (dollars in thousands):
Dates of Issuance
 
Maturity Dates
 
Principal
Outstanding
 
Stated Interest Rate (1)
 
9/19/2014 – 7/1/2016
 
5/1/2020 – 10/1/2040
 
$
22,019

 
3.47%
(2)  
 
(1)  
Represents the weighted-average, blended rate (before interest patronage) on the respective borrowings as of June 30, 2017 .
(2)  
Rate is before interest patronage, as discussed below.

15


In April 2017, we received interest patronage of approximately $124,000 related to interest accrued on the Farm Credit CFL Notes Payable during the year ended December 31, 2016, which resulted in a 15.8% reduction (approximately 55 basis points) to the stated interest rates on such borrowings. In March, 2016, we received interest patronage related to the Farm Credit CFL Notes Payable of approximately $94,000 .
As of June 30, 2017 , we were in compliance with all covenants applicable to the Farm Credit CFL Notes Payable.
Farm Credit West Notes Payable
From time to time since April 4, 2016, we, through certain subsidiaries of our Operating Partnership, have entered into various loan agreements with Farm Credit West, FLCA ("Farm Credit West"). We did not enter into any new loan agreements with Farm Credit West during the six months ended June 30, 2017 .
The following table summarizes, in the aggregate, the pertinent terms of the two loans outstanding from Farm Credit West (collectively, the "Farm Credit West Notes Payable") as of June 30, 2017 (dollars in thousands):
Dates of Issuance
 
Maturity Dates
 
Principal Outstanding
 
Stated Interest Rate (1)
 
4/4/2016 – 10/13/2016
 
11/1/2040 – 11/1/2041
 
$
12,892

 
3.66%
(2)  
 
(1)  
Represents the weighted-average, blended rate (before interest patronage) on the respective borrowings as of June 30, 2017 .
(2)  
Rate is before interest patronage, as discussed below.
In February 2017, we received interest patronage of approximately $59,000 related to interest accrued on the Farm Credit West Notes Payable during the year ended December 31, 2016 , which resulted in a 21.3% reduction (approximately 76 basis points) to the stated interest rates on such borrowings. We did not receive any patronage related to the Farm Credit West Notes Payable during the prior year.
As of June 30, 2017 , we were in compliance with all covenants applicable to the Farm Credit West Notes Payable.
CF Farm Credit Note Payable
In June 2017, we, through a certain subsidiary of our Operating Partnership, entered into a loan agreement (the "CF Farm Credit Note Payable") with Cape Fear Farm Credit, ACA ("CF Farm Credit"), the terms of which are summarized in the table below (dollars in thousands):
Date of Issuance
 
Amount
 
Maturity Date
 
Principal Amortization
 
Interest Rate Terms (1)
6/14/2017
 
$1,301
(2)  
7/1/2022
 
40.2 years
 
4.41%, fixed throughout its term
(1)  
Stated rate is before interest patronage.
(2)  
Proceeds from this note were used for the acquisition of a new property.
As of June 30, 2017 , we were in compliance with all covenants applicable to the CF Farm Credit Note Payable.
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”). On June 16, 2016, we amended the Farmer Mac Facility to increase the maximum borrowing capacity from $75.0 million to $125.0 million and extend the term of the Bond Purchase Agreement by two years, to December 11, 2018 .
During the six months ended June 30, 2017 , we issued four bonds for gross proceeds of approximately $32.4 million , the terms of which are summarized, in the aggregate, in the table below (dollars in thousands):
Date of Issuance
 
Gross Proceeds
 
Maturity Dates
 
Principal Amortization
 
Interest Rate Terms
1/12/2017
 
$
32,400

(1)  
1/10/2020 – 1/12/2024
 
None
 
2.80% – 3.63%, fixed throughout their respective terms
(1)  
Proceeds from these bonds were used for the acquisition of a new property.

16


The following table summarizes, in the aggregate, the terms of the 13 bonds outstanding under the Farmer Mac Facility as of June 30, 2017 (dollars in thousands):
Dates of Issuance
 
Initial Commitment
 
Maturity Dates
 
Principal Outstanding
 
Stated
Interest
Rate (1)
 
Undrawn Commitment
 
12/11/2014–1/12/2017
 
$
125,000

(2)  
7/30/2018–1/12/2024
 
$
81,521

 
3.10%
 
$
42,343

(3)  
(1)  
Represents the weighted-average interest rate as of June 30, 2017 .
(2)  
If the Farmer Mac Facility is not fully utilized by December 11, 2018 , Farmer Mac has the option to be relieved of its obligations to purchase additional bonds under the facility.
(3)  
As of June 30, 2017 , there was no additional availability to draw under the Farmer Mac Facility, as no additional properties had been pledged as collateral.
As of June 30, 2017 , we were in compliance with all covenants under the Farmer Mac Facility.
Debt Service – Aggregate Maturities
Scheduled principal payments of our aggregate mortgage notes and bonds payable as of June 30, 2017 , for the succeeding years are as follows (dollars in thousands):
Period
 
Scheduled
Principal Payments
For the remaining six months ending December 31:
2017
 
$
2,751

For the fiscal years ending December 31:
2018
 
21,867

 
2019
 
9,471

 
2020
 
27,243

 
2021
 
5,596

 
2022
 
19,042

 
Thereafter
 
152,672

 
 
 
$
238,642

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:
Level 1  — inputs that 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; and
Level 3 — inputs are generally unobservable and significant to the fair value 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
As of June 30, 2017 , the aggregate fair value of our long-term, fixed-rate mortgage notes and bonds payable was approximately $234.0 million , as compared to an aggregate carrying value (excluding unamortized related debt issuance costs) of $238.6 million . The fair value of our long-term, fixed-rate 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. 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 June 30, 2017 , is deemed to approximate their aggregate carrying value of approximately $35.1 million
NOTE 5. MANDATORILY-REDEEMABLE PREFERRED STOCK
On August 17, 2016 , we completed a public offering of 1,000,000 shares of 6.375% Series A Cumulative Term Preferred Stock, par value $0.001 per share (the "Term Preferred Stock"), at a public offering price of $25.00 per share. Simultaneous with the closing of the offering and on the same terms and conditions, the underwriters exercised in full their option to purchase an

17


additional 150,000 shares of the Term Preferred Stock to cover over-allotments. As a result of this offering, we issued a total of 1,150,000 shares of the Term Preferred Stock for gross proceeds of approximately $28.8 million and net proceeds, after deducting underwriting discounts and offering expenses borne by us, of approximately $27.6 million . These proceeds were used to repay existing indebtedness, to fund new property acquisitions and for other general corporate purposes. The Term Preferred Stock is traded under the ticker symbol, "LANDP," on the NASDAQ Global Market. The Term Preferred Stock is not convertible into our common stock or any other securities.
Generally, we may not redeem shares of the Term Preferred Stock prior to September 30, 2018 , except in limited circumstances to preserve our qualification as a REIT. On or after September 30, 2018 , we may redeem the shares at a redemption price of $25.00 per share, plus any accumulated and unpaid dividends to, but excluding, the date of redemption. The shares of the Term Preferred Stock have a mandatory redemption date of September 30, 2021 . We incurred approximately $1.2 million in total offering costs related to this issuance, which have been recorded net of the Term Preferred Stock as presented on the accompanying Condensed Consolidated Balance Sheet, and we will amortize these costs over the redemption period, which ends on September 30, 2021 .
The Term Preferred Stock is recorded as a liability on our accompanying Condensed Consolidated Balance Sheet in accordance with ASC 480, "Distinguishing Liabilities from Equity," which states that mandatorily redeemable financial instruments should be classified as liabilities. In addition, the related dividend payments are treated similar to interest expense in the accompanying Condensed Consolidated Statement of Operations.
As of June 30, 2017 , the fair value of our Term Preferred Stock was approximately $29.9 million , as compared to the carrying value, exclusive of offering costs, of $28.8 million . The fair value of our Term Preferred Stock is valued using Level 1 inputs under the hierarchy established by ASC 820-10, "Fair Value Measurements and Disclosures," and is calculated based on the closing share price as of June 30, 2017 , of $25.98 .
The dividends to preferred stockholders declared by our Board of Directors and paid by us during the six months ended June 30, 2017 , are reflected in the table below. The Term Preferred Stock was not outstanding during the prior-year period.
Declaration Date
 
Record Date
 
Payment Date
 
Dividend per Preferred Share
January 10, 2017
 
January 20, 2017
 
January 31, 2017
 
$
0.1328125

January 10, 2017
 
February 16, 2017
 
February 28, 2017
 
0.1328125

January 10, 2017
 
March 22, 2017
 
March 31, 2017
 
0.1328125

April 11, 2017
 
April 21, 2017
 
April 28, 2017
 
0.1328125

April 11, 2017
 
May 19, 2017
 
May 31, 2017
 
0.1328125

April 11, 2017
 
June 21, 2017
 
June 30, 2017
 
0.1328125

Six months ended June 30, 2017
 
$
0.7968750

NOTE 6. RELATED-PARTY TRANSACTIONS
We are externally managed pursuant to contractual arrangements with our Adviser and our Administrator, which collectively employ all of our personnel and pay their salaries, benefits and general expenses directly. Both our Adviser and Administrator are affiliates of ours, as their parent company is owned and controlled by David Gladstone, our chairman and chief executive officer. In addition, two of our executive officers, Mr. Gladstone and Terry Brubaker (our vice chairman and chief operating officer), serve as directors and executive officers of each of our Adviser and Administrator, and Michael LiCalsi, our general counsel and secretary, serves as our Administrator’s president.
The advisory agreement with our Adviser that was in effect through March 31, 2017 (the “Advisory Agreement”), and the current administration agreement with our Administrator (the “Administration Agreement”) each became effective February 1, 2013. A summary of each of these agreements is provided in Note 6 to our consolidated financial statements included in our Form 10-K.
On April 11, 2017 , we entered into a Second Amended and Restated Investment Advisory Agreement (the "Amended Advisory Agreement") with our Adviser that became effective beginning with the three months ended June 30, 2017 . Our entrance into the Amended Advisory Agreement was approved unanimously by our board of directors, including, specifically, our independent directors.
In addition, on April 11, 2017 , we entered into an agreement with Gladstone Securities, LLC, ("Gladstone Securities"), effective beginning with the three months ended June 30, 2017 , for it to act as our non-exclusive agent to assist us with arranging financing for our properties (the "Financing Arrangement Agreement"). Gladstone Securities is a privately-held broker-dealer registered with the Financial Industry Regulatory Authority and insured by the Securities Investor Protection

18


Corporation. Gladstone Securities is an affiliate of ours, as its parent company is owned and controlled by David Gladstone, our chairman and chief executive officer. Mr. Gladstone also serves on the board of managers of Gladstone Securities.
A summary of the compensation terms for each of the Amended Advisory Agreement and the Financing Arrangement Agreement follows.
Amended Advisory Agreement
Pursuant to the Amended Advisory Agreement, effective beginning with the three months ended June 30, 2017 , our Adviser is compensated in the form of a base management fee and, each as applicable, an incentive fee, a capital gains fee and a termination fee. Each of these fees is described below.
Base Management Fee
A base management fee will be paid quarterly and will be calculated as 2.0% per annum ( 0.50% per quarter) of the prior calendar quarter's total adjusted equity, which is defined as total equity plus total mezzanine equity, if any, each as reported on our balance sheet, adjusted to exclude unrealized gains and losses and certain other one-time events and non-cash items ("Total Equity").
Incentive Fee
An incentive fee will be calculated and payable quarterly in arrears if the Pre-Incentive Fee FFO (as defined below) for a particular quarter exceeds a hurdle rate of 1.75% ( 7.0% annualized) of the prior calendar quarter's Total Equity. For purposes of this calculation, Pre-Incentive Fee FFO is defined in the Amended Advisory Agreement as FFO (as defined in the Amended Advisory Agreement) accrued by the Company during the current calendar quarter (prior to any incentive fee calculation for the current calendar quarter), less any dividends paid on preferred stock securities that are not treated as a liability for GAAP purposes. Our Adviser will receive: (i) no Incentive Fee in any calendar quarter in which the Pre-Incentive Fee FFO does not exceed the hurdle rate; (ii) 100% of the Pre-Incentive Fee FFO with respect to that portion of such Pre-Incentive Fee FFO, if any, that exceeds the hurdle rate but is less than 2.1875% in any calendar quarter ( 8.75% annualized); and (iii) 20% of the amount of the Pre-Incentive Fee FFO, if any, that exceeds 2.1875% in any calendar quarter ( 8.75% annualized).
Capital Gains Fee
A capital gains-based incentive fee will be calculated and payable in arrears at the end of each fiscal year (or upon termination of the Amended Advisory Agreement). The capital gains fee shall equal: (i) 15% of the cumulative aggregate realized capital gains minus the cumulative aggregate realized capital losses, minus (ii) any aggregate capital gains fees paid in prior periods. For purposes of this calculation, realized capital gains and losses will be calculated as (x) the sales price of the property minus (y) any costs to sell the property and the then-current gross value of the property (which includes the property's original acquisition price plus any subsequent, non-reimbursed capital improvements). At the end of each fiscal year, if this figure is negative, no capital gains fee shall be paid.
Termination Fee
In the event of our termination of the Amended Advisory Agreement for any reason (with 120 days’ prior written notice and the vote of at least two-thirds of our independent directors), a termination fee would be payable to the Adviser equal to three times the sum of the average annual base management fee and incentive fee earned by the Adviser during the 24 -month period prior to such termination.
Financing Arrangement Agreement
In connection with the Financing Arrangement Agreement, Gladstone Securities may, from time to time, solicit the interest of various agricultural or commercial real estate lenders and/or recommend to us third-party lenders offering credit products or packages that are responsive to our needs. We will pay Gladstone Securities a financing fee in connection with the services it provides to us for securing financing on our properties. Depending on the size of the financing obtained, the maximum amount of the financing fee, which will be payable upon closing of the respective financing, will range from 0.5% to 1.0% of the amount of financing obtained. The amount of the financing fee may be reduced or eliminated as determined by us and Gladstone Securities after taking into consideration various factors, including, but not limited to, the involvement of any third-party brokers and market conditions. During the three months ended June 30, 2017 , total financing fees paid to Gladstone Securities represented approximately 0.01% of the total financing secured during the period.


19


Related-Party Fees
The following table summarizes certain related-party fees paid or accrued for and reflected in our accompanying Condensed Consolidated Statements of Operations (dollars in thousands):
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Management fee (1)(2)
$
530

 
$
385

 
$
924

 
$
773

Incentive fee (1)(2)
76

 
159

 
427

 
159

Net fees due to our Adviser
$
606

 
$
544

 
$
1,351

 
$
932

Administration fee (1)(2)
$
219

 
$
179

 
$
445

 
$
391

Financing Fees to Gladstone Securities (3)
$
2

 
$

 
$
2

 
$


(1)  
Pursuant to the Advisory and Administration Agreements, respectively.
(2)  
Reflected as a line item on our accompanying Condensed Consolidated Statements of Operations.
(3)  
Included in Mortgage notes and bonds payable, net on the Condensed Consolidated Balance Sheets and amortized into Interest expense on the Condensed Consolidated Statements of Operations.
Related-Party Fees Due
Amounts due to related parties on our accompanying Condensed Consolidated Balance Sheets as of June 30, 2017 , and December 31, 2016 , were as follows (dollars in thousands):
 
 
June 30, 2017
 
December 31, 2016
Management fee due to Adviser
 
$
530

 
$
384

Incentive fee due to Adviser
 
76

 
169

Other due to Adviser (1)
 
11

 
2

Total due to Adviser
 
617

 
555

Administration fee due to Administrator
 
219

 
202

Other due from Administrator (1)
 

 
(6
)
Total due to Administrator
 
219

 
196

Total due to related parties (2)
 
$
836

 
$
751


(1)  
Other fees due to or from related parties primarily relate to miscellaneous general and administrative expenses paid by our Adviser or Administrator on our behalf or by us on our Adviser's or Administrator's behalf.
(2)  
Reflected as a line item on our accompanying Condensed Consolidated Balance Sheets.
NOTE 7. EQUITY
Stockholders’ Equity
As of June 30, 2017 , there were 18,000,000 shares of common stock, par value $0.001 per share, authorized, with 11,850,624 shares issued and outstanding. As of December 31, 2016 , there were 18,000,000 shares of common stock, par value $0.001 per share, authorized, with 10,024,875 shares issued and outstanding.
Non-Controlling Interests in Operating Partnership
We consolidate our Operating Partnership, which is a majority-owned partnership.  As of June 30, 2017 , and December 31, 2016 , we owned approximately 89.1% and 87.4% , respectively, of the outstanding OP Units.
On or after 12 months after becoming a holder of OP Units, each limited partner, other than the Company, has the right, subject to the terms and conditions set forth in the partnership agreement of the Operating Partnership, to require the Operating Partnership to redeem all or a portion of such units in exchange for cash or, at the Company’s option, shares of our common stock on a one-for-one basis.   The cash redemption per OP Unit would be based on the market price of our common stock at the time of redemption.  A limited partner will not be entitled to exercise redemption rights if the delivery of common stock to the redeeming limited partner would breach restrictions on the ownership of common stock imposed under our charter and other limitations thereof.

20


Regardless of the rights described above, the Operating Partnership will not have an obligation to issue cash to a unitholder upon a redemption request if the Company elects to redeem the OP Units for shares of its common stock.  When a non-Company unitholder redeems an OP Unit, non-controlling interest in the Operating Partnership is reduced, and stockholders’ equity is increased.
The Operating Partnership is required to make distributions on each OP Unit in the same amount as those paid on each share of the Company’s common stock, with the distributions on the OP Units held by the Company being utilized to make distributions to the Company’s common stockholders.
As of both June 30, 2017 , and December 31, 2016, there were 1,449,258 OP Units held by non-controlling limited partners. In addition, as of June 30, 2017 , 745,879 OP Units held by non-controlling limited partners had been held for the required period of 12 months and thus were eligible to be redeemed for either cash or shares of our common stock.
Distributions
The distributions to common stockholders declared by our Board of Directors and paid by us during the six months ended June 30, 2017 and 2016 are reflected in the table below.
Fiscal Year
 
Declaration Date
 
Record Date
 
Payment Date
 
Distributions per
Common Share
2017
 
January 10, 2017
 
January 20, 2017
 
January 31, 2017
 
$
0.04300

 
 
January 10, 2017
 
February 16, 2017
 
February 28, 2017
 
0.04300

 
 
January 10, 2017
 
March 22, 2017
 
March 31, 2017
 
0.04300

 
 
April 11, 2017
 
April 21, 2017
 
April 28, 2017
 
0.04350

 
 
April 11, 2017
 
May 19, 2017
 
May 31, 2017
 
0.04350

 
 
April 11, 2017
 
June 21, 2017
 
June 30, 2017
 
0.04350

 
 
 
 
Six Months Ended June 30, 2017
 
$
0.25950

 
 
 
 
 
 
 
 
 
2016
 
January 12, 2016
 
January 22, 2016
 
February 2, 2016
 
$
0.04000

 
 
January 12, 2016
 
February 18, 2016
 
February 29, 2016
 
0.04000

 
 
January 12, 2016
 
March 21, 2016
 
March 31, 2016
 
0.04000

 
 
April 12, 2016
 
April 22, 2016
 
May 2, 2016
 
0.04125

 
 
April 12, 2016
 
May 19, 2016
 
May 31, 2016
 
0.04125

 
 
April 12, 2016
 
June 17, 2016
 
June 30, 2016
 
0.04125

 
 
 
 
Six Months Ended June 30, 2016
 
$
0.24375

The same amounts were paid as distributions on each OP Unit held by non-controlling limited partners of the Operating Partnership as of the above record dates.
We will provide information related to the federal income tax characterization of our 2017 distributions in an IRS Form 1099-DIV, which will be mailed to our stockholders in January 2018.
Registration Statement
We filed a universal registration statement on Form S-3 (File No. 333-194539) with the SEC on March 13, 2014 (the "2014 Registration Statement"), which the SEC declared effective on April 2, 2014. The 2014 Registration Statement, which was scheduled to expire on April 1, 2017, permitted us to issue up to an aggregate of $300.0 million in securities, consisting of common stock, senior common stock, preferred stock, subscription rights, debt securities and depository shares, including through separate, concurrent offerings of two or more such securities. We issued a total of 4,013,763 shares of common stock and 1,150,000 shares of preferred stock for aggregate gross proceeds of approximately