Gladstone Land Corporation
GLADSTONE LAND Corp (Form: 10-Q, Received: 11/07/2017 16:13:51)
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549  
FORM 10-Q

(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 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
 
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 (§ 232.405 of this chapter) 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
x
 
 
 
 
 
 
Emerging growth company
¨  
 
 
 
 
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 November 6, 2017 , was 13,637,938 .


Table of Contents

GLADSTONE LAND CORPORATION
FORM 10-Q FOR THE QUARTER ENDED
SEPTEMBER 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)
 
 
September 30, 2017
 
December 31, 2016
ASSETS
 
 
 
Investments in real estate, net
$
444,390

 
$
326,311

Lease intangibles, net
5,796

 
2,000

Cash and cash equivalents
3,758

 
2,438

Deferred financing costs related to borrowings under line of credit, net
209

 
239

Other assets, net
2,407

 
2,997

TOTAL ASSETS
$
456,560

 
$
333,985

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
LIABILITIES:
 
 
 
Borrowings under lines of credit
$
5,100

 
$
16,550

Mortgage notes and bonds payable, net
290,234

 
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 September 30, 2017, and December 31, 2016, net
27,831

 
27,655

Accounts payable and accrued expenses
4,382

 
2,801

Due to related parties, net (1)
984

 
751

Other liabilities, net
9,043

 
7,654

Total liabilities
337,574

 
246,208

Commitments and contingencies (2)

 

EQUITY:
 
 
 
Stockholders’ equity:
 
 
 
Common stock, $0.001 par value; 98,000,000 shares authorized, 13,485,025 shares issued and outstanding as of September 30, 2017; 18,000,000 shares authorized, 10,024,875 shares issued and outstanding as of December 31, 2016
13

 
10

Additional paid-in capital
126,848

 
90,082

Accumulated deficit
(17,801
)
 
(13,402
)
Total stockholders’ equity
109,060

 
76,690

Non-controlling interests in the Operating Partnership
9,926

 
11,087

Total equity
118,986

 
87,777

TOTAL LIABILITIES AND EQUITY
$
456,560

 
$
333,985


(1)  
Refer to Note 6, “Related-Party Transactions,” for additional information.
(2)  
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 September 30,
 
For the Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
OPERATING REVENUES:
 
 
 
 
 
 
 
Rental revenue
$
6,561

 
$
4,467

 
$
18,302

 
$
12,388

Tenant recovery revenue
3

 
2

 
8

 
8

Total operating revenues
6,564

 
4,469

 
18,310

 
12,396

OPERATING EXPENSES:
 
 
 
 
 
 
 
Depreciation and amortization
2,051

 
1,432

 
5,123

 
3,744

Property operating expenses
257

 
161

 
747

 
545

Acquisition-related expenses
22

 
123

 
68

 
243

Management fee (1)
523

 
385

 
1,446

 
1,158

Incentive fee (1)
261

 
22

 
688

 
181

Administration fee (1)
211

 
184

 
656

 
575

General and administrative expenses
374

 
356

 
1,208

 
1,150

Total operating expenses
3,699

 
2,663

 
9,936

 
7,596

Credits to fees from Adviser (1)
(54
)
 

 
(54
)
 

Total operating expenses, net of credits to fees
3,645

 
2,663

 
9,882

 
7,596

OPERATING INCOME
2,919

 
1,806

 
8,428

 
4,800

 
 
 
 
 
 
 
 
OTHER INCOME (EXPENSE):
 
 
 
 
 
 
 
Other income
4

 
2

 
190

 
106

Interest expense
(2,634
)
 
(1,554
)
 
(6,984
)
 
(4,297
)
Distributions attributable to mandatorily-redeemable preferred stock
(458
)
 
(219
)
 
(1,375
)
 
(219
)
Loss on disposal of real estate asset
(78
)
 

 
(78
)
 

Total other expense
(3,166
)
 
(1,771
)
 
(8,247
)
 
(4,410
)
NET (LOSS) INCOME
(247
)
 
35

 
181

 
390

Plus (less) net loss (income) attributable to non-controlling interests
26

 
(3
)
 
(23
)
 
(16
)
NET (LOSS) INCOME ATTRIBUTABLE TO THE COMPANY
$
(221
)
 
$
32

 
$
158

 
$
374

(LOSS) EARNINGS PER COMMON SHARE:
 
 
 
 
 
 
 
Basic and diluted
$
(0.02
)
 
$
0.00

 
$
0.01

 
$
0.04

WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING:
 
 
 
 
 
 
 
Basic and diluted
12,271,925

 
10,018,331

 
11,512,968

 
10,001,466


(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

 

 

 
374

 
16

 
390

Proceeds from issuance of common stock, net
31,934

 

 
350

 

 

 
350

Distributions

 

 

 
(3,676
)
 
(234
)
 
(3,910
)
Issuance of OP Units as consideration in real estate acquisitions, net

 

 

 

 
11,708

 
11,708

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

 

 
2,133

 

 
(2,133
)
 

Balance at September 30, 2016
10,024,875

 
$
10

 
$
89,375

 
$
(12,197
)
 
$
9,357

 
$
86,545

 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2016
10,024,875

 
$
10

 
$
90,082

 
$
(13,402
)
 
$
11,087

 
$
87,777

Net income

 

 

 
158

 
23

 
181

Proceeds from issuance of common stock, net
3,410,150

 
3

 
38,420

 

 

 
38,423

Distributions

 

 

 
(4,557
)
 
(568
)
 
(5,125
)
Issuance of OP Units as consideration in real estate acquisitions, net

 

 

 

 

 

Redemption of OP Units
50,000

 

 
404

 

 
(2,674
)
 
(2,270
)
Adjustment to non-controlling interests resulting from changes in ownership of the Operating Partnership

 

 
(2,058
)
 

 
2,058

 

Balance at September 30, 2017
13,485,025

 
$
13

 
$
126,848

 
$
(17,801
)
 
$
9,926

 
$
118,986


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 Nine Months Ended September 30,
 
 
2017
 
2016
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
Net income
 
$
181

 
$
390

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
5,123

 
3,744

Amortization of deferred financing costs
 
366

 
135

Amortization of deferred rent assets and liabilities, net
 
(189
)
 
(129
)
Allowance for doubtful accounts
 

 
72

Loss on disposal of real estate asset
 
78

 

Changes in operating assets and liabilities:
 
 
 
 
Other assets
 
492

 
(153
)
Accounts payable, accrued expenses, and due to related parties
 
541

 
(273
)
Other liabilities
 
1,079

 
4,126

Net cash provided by operating activities
 
7,671

 
7,912

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
Acquisition of new real estate
 
(120,985
)
 
(69,174
)
Capital expenditures on existing real estate
 
(3,438
)
 
(10,126
)
Proceeds from sale of real estate
 

 
156

Change in deposits on real estate acquisitions and investments, net
 
(865
)
 
(617
)
Net cash used in investing activities
 
(125,288
)
 
(79,761
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
Proceeds from issuance of equity
 
40,421

 
360

Offering costs
 
(1,962
)
 
(242
)
Payment for redemption of OP Units
 
(2,270
)
 

Borrowings from mortgage notes and bonds payable
 
104,590

 
28,953

Repayments on mortgage notes and bonds payable
 
(4,663
)
 
(2,606
)
Borrowings from lines of credit
 
52,500

 
44,700

Repayments on lines of credit
 
(63,950
)
 
(22,300
)
Proceeds from issuance of mandatorily-redeemable preferred stock
 

 
28,750

Payment of financing fees
 
(604
)
 
(1,292
)
Distributions paid on common stock
 
(4,557
)
 
(3,676
)
Distributions paid to non-controlling interests in Operating Partnership
 
(568
)
 
(234
)
Payment of contingent consideration
 

 
(700
)
Net cash provided by financing activities
 
118,937

 
71,713

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
 
1,320

 
(136
)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
 
2,438

 
2,533

CASH AND CASH EQUIVALENTS AT END OF PERIOD
 
$
3,758

 
$
2,397

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

 
$
11,763

Real estate additions included in Other assets
 
15

 

Real estate additions included in Accounts payable, accrued expenses, and due to related parties
 
1,140

 
390

Loss on disposal of real estate asset included in Accounts payable, accrued expenses, and due to related parties
 
23

 

Real estate additions included in Other liabilities
 
506

 
809

Common stock offering and OP Unit issuance costs included in Accounts payable, accrued expenses, and due to related parties
 
237

 
31

Financing fees included in Accounts payable, accrued expenses, and due to related parties
 
54

 
59

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 (the "Company") 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 91.7% and 87.4% of the limited partnership interests in the Operating Partnership ("OP Units") as of September 30, 2017 , and December 31, 2016 , respectively (see Note 7, "Equity," for additional discussion regarding OP Units). In addition, we have elected for Gladstone Land Advisers, Inc. ("Land Advisers"), a Delaware corporation and a wholly-owned subsidiary of ours, to be taxed as a taxable REIT subsidiary ("TRS").
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 nine months ended September 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 nine months ended September 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 September 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

7


non-controlling interests based upon the respective ownership interests. To reflect the non-controlling interests' equity interest in the Company, an 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 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 nine months ended September 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 each of March, April, May, and December of 2016. 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. As deferred by the FASB in July 2015, ASU 2014-09, as amended, is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those years. We will adopt this guidance for our annual and interim periods beginning January 1, 2018, and expect to use the modified retrospective method, under which the cumulative effect of initially applying the guidance is recognized at the date of initial application. We do not expect ASU 2014-09 to 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 lease 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, Accounting Standards Codification ("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 August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments" ("ASU 2016-15"), which clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows, with the objective of reducing the existing diversity in practice related to certain cash flow issues. ASU 2016-15 is effective for annual periods beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. We will adopt this guidance for our annual and interim periods beginning January 1, 2018. We do not expect the adoption of ASU 2016-15 to have a material impact on our condensed consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows (Topic 230): Restricted cash (a consensus of the FASB Emerging Issues Task Force)" ("ASU 2016-18"), which requires the statement of cash flows to explain the change during the period in the total of cash, cash equivalents, and amounts described as restricted cash or restricted cash equivalents. Under ASU 2016-18, amounts described as restricted cash and restricted cash equivalents will be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This guidance is effective for us beginning January 1, 2018, with early adoption permitted. We do not expect the adoption of ASU 2016-18 to have a material impact on our condensed consolidated financial statements.
In January 2017, the FASB issued ASU 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

8


annual periods beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. We adopted ASU 2017-01, effective October 1, 2016, and, as a result of our early adoption, all of our farmland acquisitions since our adoption have been treated as asset acquisitions under ASC 360, which has resulted in a lower amount of acquisition-related costs being expensed on our condensed consolidated statements of operations, as the majority of those costs have been capitalized and included as part of the fair value allocation of the respective purchase prices. We anticipate that the majority of our future acquisitions will continue to be treated as asset acquisitions under ASC 360, resulting in similar treatment of acquisition-related costs.
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 72 farms as of September 30, 2017 (dollars in thousands, except for footnotes):
Location
 
No. of Farms
 
Total Acres
 
Farm Acres
 
Net Cost Basis (1)
 
Encumbrances (2)
California
 
27
 
7,921
 
7,156
 
$
202,181

 
$
145,819

Florida
 
17
 
11,225
 
9,027
 
117,549

 
76,072

Colorado
 
9
 
30,170
 
23,257
 
41,812

 
24,686

Arizona (3)
 
6
 
6,280
 
5,228
 
40,570

 
23,166

Oregon
 
4
 
2,313
 
2,003
 
19,755

 
12,528

Nebraska
 
2
 
2,559
 
2,101
 
10,667

 
6,602

Washington
 
1
 
746
 
417
 
9,525

 
5,460

Michigan
 
4
 
270
 
183
 
2,965

 
1,602

North Carolina
 
2
 
310
 
295
 
2,308

 
1,301

 
 
72
 
61,794
 
49,667
 
$
447,332

 
$
297,236

(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 and deferred revenue included in Other liabilities, each as shown on the accompanying Condensed Consolidated Balance Sheet.
(2)  
Excludes approximately $1.9 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 $3.3 million as of September 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 September 30, 2017 , and December 31, 2016 (dollars in thousands):
 
 
September 30, 2017
 
December 31, 2016
Real estate:
 
 
 
 
Land and land improvements
 
$
356,015

 
$
265,985

Irrigation systems
 
48,750

 
33,969

Buildings
 
17,790

 
14,671

Horticulture
 
30,967

 
17,759

Other improvements
 
6,244

 
4,993

Real estate, at cost
 
459,766

 
337,377

Accumulated depreciation
 
(15,376
)
 
(11,066
)
Real estate, net
 
$
444,390

 
$
326,311

Real estate depreciation expense on these tangible assets was approximately $1.7 million and $4.4 million for the three and nine months ended September 30, 2017 , respectively, and $1.2 million and $3.2 million for the three and nine months ended September 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 September 30, 2017 , and December 31, 2016 , we recorded tenant improvements, net of accumulated depreciation, of approximately $2.2 million and $1.8 million , respectively. We recorded both depreciation expense and additional rental revenue related to these tenant improvements of approximately $61,000 and $150,000 for the

9


three and nine months ended September 30, 2017 , respectively, and $31,000 and $98,000 for the three and nine months ended September 30, 2016 , respectively.
Intangible Assets and Liabilities
The following table summarizes the carrying values of lease intangible assets and the related accumulated amortization as of September 30, 2017 , and December 31, 2016 (dollars in thousands):
 
 
September 30, 2017
 
December 31, 2016
Lease intangibles:
 
 
 
 
Leasehold interest – land
 
$
3,498

 
$

In-place leases
 
1,523

 
1,481

Leasing costs
 
1,511

 
1,086

Tenant relationships
 
439

 
706

Lease intangibles, at cost
 
6,971

 
3,273

Accumulated amortization
 
(1,175
)
 
(1,273
)
Lease intangibles, net
 
$
5,796

 
$
2,000

Total amortization expense related to these lease intangible assets was approximately $390,000 and $739,000 for the three and nine months ended September 30, 2017 , respectively, and $207,000 and $582,000 for the three and nine months ended September 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 September 30, 2017 , and December 31, 2016 (dollars in thousands).
 
 
September 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 and lease incentives (1)
 
$
46

 
$
(21
)
 
$
19

 
$
(14
)
Below-market lease values and deferred revenue (2)
 
(823
)
 
108

 
(785
)
 
61

 
 
$
(777
)
 
$
87

 
$
(766
)
 
$
47

(1)  
Above-market lease values and lease incentives 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 lease incentives was approximately $4,000 and $7,000 for the three and nine months ended September 30, 2017 , respectively, and $2,000 and $5,000 for the three and nine months ended September 30, 2016 , respectively. Total accretion related to below-market lease values and deferred revenue was approximately $17,000 and $47,000 for the three and nine months ended September 30, 2017 , respectively, and $9,000 and $24,000 for the three and nine months ended September 30, 2016 , respectively.
Acquisitions
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 Acquisitions
During the nine months ended September 30, 2017 , we acquired 14 new farms in seven 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 (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
 
7.0 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
 
8.6 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

Phelps Avenue
 
Fresno, CA
 
7/17/2017
 
847
 
4
 
Pistachios and Almonds
 
10.3 years
 
1 (5 years)
 
13,603

 
43

 
681

(5)  
8,162

Parrot Avenue (6)
 
Okeechobee, FL
 
8/9/2017
 
1,910
 
1
 
Misc. Vegetables
 
0.5 years
 
None
 
9,700

 
64

 
488

 
5,820

Cat Canyon Road (7)
 
Santa Barbara, CA
 
8/30/2017
 
361
 
1
 
Wine Grapes
 
9.8 years
 
2 (5 years)
 
5,375

 
67

 
322

 
3,225

Oasis Road
 
Walla Walla, WA
 
9/8/2017
 
746
 
1
 
Apples, Cherries, and Wine Grapes
 
6.3 years
 
None
 
9,500

 
45

 
480

(5)  
5,460

 
 
 
 
 
 
11,202
 
14
 
 
 
 
 
 
 
$
121,847

 
$
436

 
$
6,692

 
$
71,668

(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)  
Leases also provide for a variable rent component based on the gross crop revenues earned on the property. The figures above represent only the minimum cash rents guaranteed under the respective leases.
(6)  
In connection with the acquisition of this property, we executed a 6 -year, follow-on lease with a new tenant that begins upon the expiration of the 7 -month lease assumed at acquisition. The follow-on lease includes two , 6 -year extension options and provides for minimum annualized straight-line rents of approximately $542,000 . In addition, in connection with the execution of the follow-on lease, we committed to providing up to $1.0 million of capital for certain irrigation and property improvements. As stipulated in the follow-on lease, we will earn additional rent income on the total cost of the improvements as disbursements are made by us at a rate commensurate with the annual yield on the farmland (as determined by each year's minimum cash rent per the follow-on lease).
(7)  
In connection with the acquisition of this property, we committed up to $4.0 million of capital to fund the development of additional vineyard acreage on the property. As stipulated in the lease agreement, we will earn additional rental income on the total cost of the project as the capital is disbursed by us at rates specified in the lease.
During the three and nine months ended September 30, 2017 , in the aggregate, we recognized operating revenues of approximately $1.5 million and $3.0 million , respectively, and earnings of approximately $341,000 and $1.2 million , respectively, related to the above acquisitions.


11


2016 Acquisitions
During the nine months ended September 30, 2016 , we acquired 13 new farms in seven 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

Orange Avenue
 
St. Lucie, FL
 
7/1/2016
 
401
 
1
 
Vegetables
 
7 years
 
2 (7 years)
 
5,100

 
38

(4)  
291

 
3,120

Lithia Road
 
Hillsborough, FL
 
8/11/2016
 
72
 
1
 
Strawberries
 
5 years
 
None
 
1,700

 
38

(3)  
97

 
1,020

Baca County (6)
 
Baca, CO
 
9/1/2016
 
7,384
 
5
 
Grass Hay
and Alfalfa
 
4 years
 
1 (5 years)
 
6,323

 
73

(4)  
384

 

Diego Ranch (7)
 
Stanislaus, CA
 
9/14/2016
 
1,357
 
1
 
Almonds
 
3 years
 
3 (5 years) & 1 (3 years)
 
13,997

 
64

(3)  
621

 

Nevada Ranch
 
Merced, CA
 
9/14/2016
 
1,130
 
1
 
Almonds
 
3 years
 
3 (5 years) & 1 (3 years)
 
13,232

 
42

(3)  
574

 

 
 
 
 
 
 
16,988
 
13
 
 
 
 
 
 
 
$
81,558

 
$
413

 
$
4,332

 
$
28,953

(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, $9,520 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)  
Leases provide for a variable rent component based on the gross crop revenues earned on the property. The figures above represent only the minimum cash rents guaranteed under the respective leases.
(6)  
As partial consideration for the acquisition of this property, we issued 125,677 OP Units, constituting an aggregate fair value of approximately $1.5 million as of the acquisition date. We incurred approximately $8,235 of legal costs in connection with the issuance of these OP Units.
(7)  
As partial consideration for the acquisition of this property, we issued 343,750 OP Units, constituting an aggregate fair value of approximately $3.9 million as of the acquisition date. We incurred approximately $21,710 of legal costs in connection with the issuance of these OP Units.
During the three and nine months ended September 30, 2016 , in the aggregate, we recognized operating revenues of approximately $770,000 and $1.5 million , respectively, and losses of of approximately $42,000 and $196,000 , respectively, related to the above acquisitions (which loss figures include approximately $128,000 and $229,000 , respectively, of non-recurring acquisition-related costs).
Purchase Price Allocations
The allocation of the aggregate purchase price for the farms acquired during each of the nine months ended September 30, 2017 and 2016 is as follows (dollars in thousands):
Acquisition Period
 
Land and
Land
Improvements
 
Buildings
 
Irrigation
System
 
Other
Improvements
 
Horticulture
 
Leasehold
Interest –
Land
 
In-place
Leases
 
Leasing
Costs
 
Net Below-Market Leases
 
Total
Purchase
Price
2017 Acquisitions
 
$
89,614

 
$
2,804

 
$
11,534

 
$
824

 
$
12,611

 
$
3,488

 
487

 
$
508

 
$
(23
)
 
$
121,847

2016 Acquisitions
 
59,038

 
3,691

 
4,952

 
2,079

 
11,431

 

 
501

 
448

 
(582
)
 
81,558


12


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 nine months ended September 30, 2017 and 2016 :
 
 
Weighted-Average
Amortization Period
(in Years)
Intangible Assets and Liabilities
 
2017
 
2016
Leasehold interest – land
 
6.9
 
In-place leases
 
6.3
 
8.7
Leasing costs
 
8.8
 
10.6
Above-market lease values
 
2.1
 
Below-market lease values and deferred revenue
 
4.7
 
20.9
All intangible assets and liabilities
7.0
 
14.0
Pro-Forma Financials
During the nine months ended September 30, 2016 , we acquired six farms that qualified as business combinations. No farms were acquired during the nine months ended September 30, 2017 that were treated as business combinations. The following table reflects pro-forma consolidated financial information as if each farm acquired during the nine months ended September 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 September 30, 2016
 
For the nine months ended September 30, 2016
 
 
(Unaudited)
 
(Unaudited)
Operating Data:
 
 
 
 
Total operating revenue
 
$
4,718

 
$
13,286

Net income attributable to the company
 
$
212

 
$
594

Share and Per-share Data:
 
 
 
 
Earnings per share of common stock – basic and diluted
 
$
0.02

 
$
0.06

Weighted-average common shares outstanding – basic and diluted
 
10,018,331

 
10,001,466

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 nine months ended September 30, 2017 , we executed ten separate leases on nine 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 $2.2 million , representing a decrease of approximately $167,000 (approximately 7.0% ) 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.
Project Completion
In connection with the lease we executed upon our acquisition of an 854 -acre farm in California in September 2015, we agreed to fund the development of the property into an almond orchard. The development included the removal of 274 acres of old grape vineyards, the installation of a new irrigation system, including the drilling of four new wells, and the planting of over 800 acres of new almond trees. As of September 30, 2017 , the development project had been completed at a total cost of approximately $8.4 million , and, as a result, we expect to receive approximately $5.2 million of additional rent throughout the term of the lease, which expires January 9, 2031.

13


Portfolio Diversification and Concentrations
Diversification
The following table summarizes the geographic locations, by state, of our properties with leases in place as of September 30, 2017 and 2016 (dollars in thousands):
 
 
As of and For the Nine Months Ended September 30, 2017
 
As of and For the Nine Months Ended September 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
 
27
 
7,921
 
12.8%
 
$
8,749

 
47.8%
 
21
 
6,516
 
19.3%
 
$
6,986

 
56.4%
Florida
 
17
 
11,225
 
18.2%
 
4,839

 
26.5%
 
15
 
5,567
 
16.5%
 
2,408

 
19.4%
Colorado
 
9
 
30,170
 
48.8%
 
2,018

 
11.0%
 
8
 
13,575
 
40.1%
 
951

 
7.7%
Arizona
 
6
 
6,280
 
10.2%
 
1,114

 
6.1%
 
2
 
3,000
 
8.9%
 
544

 
4.4%
Oregon
 
4
 
2,313
 
3.7%
 
887

 
4.8%
 
4
 
2,313
 
6.8%
 
877

 
7.1%
Nebraska
 
2
 
2,559
 
4.2%
 
435

 
2.4%
 
2
 
2,559
 
7.6%
 
435

 
3.5%
Michigan
 
4
 
270
 
0.4%
 
187

 
1.0%
 
4
 
270
 
0.8%
 
187

 
1.5%
North Carolina
 
2
 
310
 
0.5%
 
42

 
0.2%
 
 
 
—%
 

 
—%
Washington
 
1
 
746
 
1.2%
 
31

 
0.2%
 
 
 
—%
 

 
—%
TOTALS
 
72
 
61,794
 
100.0%
 
$
18,302

 
100.0%
 
56
 
33,800
 
100.0%
 
$
12,388

 
100.0%
Concentrations
Credit Risk
As of September 30, 2017 , our farms were leased to 49 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 $3.2 million , or 17.7% of the rental revenue recorded during the nine months ended September 30, 2017 . In addition, Dole Food Company (“Dole”) leases two of our farms, and aggregate rental revenue attributable to Dole accounted for approximately $2.2 million , or 12.2% of the rental revenue recorded during the nine months ended September 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 nine months ended September 30, 2017 .
Geographic Risk
As of September 30, 2017 , 27 of the 72 farms we owned were located in California, 17 farms were located in Florida and 9 farms were located in Colorado. Further, our California, Florida, and Colorado farms accounted for approximately $8.7 million ( 47.8% ), $4.8 million ( 26.5% ), and $2.0 million ( 11.0% ), respectively, of the rental revenue recorded during the nine months ended September 30, 2017 . Our 27 California farms are spread across four of the many different growing regions within the state. 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 nine months ended September 30, 2017 .

14


NOTE 4. BORROWINGS
Our borrowings as of September 30, 2017 , and December 31, 2016 are summarized below (dollars in thousands):
 
 
Carrying Value as of
 
As of September 30, 2017
 
 
September 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
 
$
207,618

 
$
142,861

 
2.90% 4.47%; 3.59%
 
6/1/2020 11/1/2041; April 2029
Fixed-rate bonds payable
 
84,518

 
49,348

 
2.38% 4.05%; 3.13%
 
7/30/2018 8/30/2024; June 2021
Total mortgage notes and bonds payable
 
292,136

 
192,209

 
 
 
 
Deferred financing costs – mortgage notes and bonds payable
 
(1,902
)
 
(1,412
)
 
N/A
 
N/A
Mortgage notes and bonds payable, net
 
$
290,234

 
$
190,797

 
 
 
 
 
 
 
 
 
 
 
 
 
Variable-rate revolving lines of credit
 
$
5,100

 
$
16,550

 
3.55%
 
4/5/2024
 
 
 
 
 
 
 
 
 
Total borrowings, net
 
$
295,334

 
$
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 3.44% and 3.33% for the three and nine months ended September 30, 2017 , respectively, and 3.29% and 3.27% for the three and nine months ended September 30, 2016 , respectively. In addition, 2016 interest patronage from our Farm Credit Notes Payable (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 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 second $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.
On September 19, 2017 , we drew approximately $27.5 million on the MetLife Term Notes, which was used to repay a portion of the balance outstanding under the MetLife Lines of Credit. The interest rate on the new disbursement was 3.85% per annum (which rate is fixed through January 4, 2027 ) and was blended with the existing interest rate on the previously-outstanding balance under the MetLife Term Notes.

15


The following table summarizes the pertinent terms of the MetLife Facility as of September 30, 2017 (dollars in thousands, except for footnotes):
Issuance
 
Aggregate
Commitment
 
Maturity
Dates
 
Principal
Outstanding
 
Interest Rate Terms
 
Undrawn
Commitment
 
MetLife Term Notes
 
$
150,000

(1)  
1/5/2029
 
$
131,210

 
3.30%, fixed through 1/4/2027
(2)  
$
13,530

(3),(4)  
MetLife Lines of Credit
 
50,000

 
4/5/2024
 
5,100

 
3-month LIBOR + 2.25%
(5)  
44,900

(3)  
Total principal outstanding
 
 
 
$
136,310

 
 
 
 
  
 
(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 obligation to disburse the additional funds under the MetLife Term Notes.
(2)  
Represents the blended interest rate on the MetLife Term Notes as of September 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 September 30, 2017 , the maximum additional amount we could draw under the facility was approximately $12.9 million .
(4)  
Net of amortizing principal payments of approximately $5.3 million .
(5)  
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 September 30, 2017 , the interest rate on the MetLife Lines of Credit was 3.55% .
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 the 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 September 30, 2017 , we were in compliance with all covenants applicable to the MetLife Borrowings.
Farm Credit Notes Payable
From time to time since September 2014, we, through certain subsidiaries of our Operating Partnership, have entered into various loan agreements with certain Farm Credit associations, including Farm Credit of Central Florida, FLCA ("Farm Credit CFL"), Farm Credit West, FLCA ("Farm Credit West"), Cape Fear Farm Credit, ACA ("CF Farm Credit"), Farm Credit of Florida, ACA ("Farm Credit FL"), and Northwest Farm Credit Services, FLCA ("NW Farm Credit," and, collectively, with the other Farm Credit associations, "Farm Credit"). During the nine months ended September 30, 2017 , we entered into the following loan agreements with Farm Credit (dollars in thousands):
Issuer
 
Date of Issuance
 
Amount (1)
 
Maturity Date
 
Principal Amortization
 
Interest Rate Terms (2)
Farm Credit CFL (3)
 
7/13/2017
 
$
5,472

 
8/1/2022
 
28.4 years
 
4.47%, fixed throughout term
Farm Credit West
 
7/17/2017
 
8,162

 
5/1/2037
 
20.0 years
 
4.31%, fixed through 7/31/2024, variable thereafter
CF Farm Credit
 
6/14/2017
 
1,301

 
7/1/2022
 
40.2 years
 
4.41%, fixed throughout its term
Farm Credit FL
 
8/9/2017
 
5,820

 
3/1/2037
 
19.5 years
 
4.70%, fixed through 2/29/2024, variable thereafter
NW Farm Credit
 
9/8/2017
 
5,460

 
9/1/2024
 
39.6 years
 
4.41%, fixed throughout its term
(1)  
Proceeds from these notes were used to fund new acquisitions, to repay existing indebtedness, and for other general corporate purposes.
(2)  
Stated rate is before interest patronage, as discussed below.
(3)  
During the three months ended September 30, 2017 , we amended four existing loan agreements with Farm Credit CFL to increase the loan amounts and adjust the principal amortization and interest rate terms as shown in the table above. The amount presented in the table above represents the total additional funds advanced under the four loans. The new terms of each of these four loans are pari passu with one another.

16


The following table summarizes, in the aggregate, the pertinent terms of the loans outstanding from Farm Credit (collectively, the "Farm Credit Notes Payable") as of September 30, 2017 (dollars in thousands, except for footnotes):
Issuer
 
# of Loans
Outstanding
 
Dates of Issuance
 
Maturity Dates
 
Principal
Outstanding
 
Stated Interest
Rate (1)
 
Farm Credit CFL
 
8
 
9/19/2014 – 7/13/2017
 
6/1/2020 – 10/1/2040
 
$
27,472

 
4.15%
(2)  
Farm Credit West
 
3
 
4/4/2016 – 7/17/2017
 
5/1/2037 – 11/1/2041
 
21,054

 
3.91%
(3)  
CF Farm Credit
 
1
 
6/14/2017
 
7/1/2022
 
1,301

 
4.41%
(4)  
Farm Credit FL
 
1
 
8/9/2017
 
3/1/2037
 
5,820

 
4.70%
(4)  
NW Farm Credit
 
1
 
9/8/2017
 
9/1/2024
 
5,460

 
4.41%
(4)  
Total
 
14
 
 
 
 
 
$
61,107

 
 
 
 
(1)  
Represents the weighted-average, blended rate (before interest patronage, as discussed below) on the respective borrowings as of September 30, 2017 .
(2)  
In April 2017, we received interest patronage of approximately $124,000 related to interest accrued on loans from Farm Credit CFL 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 loans from Farm Credit CFL of approximately $94,000 .
(3)  
In February 2017, we received interest patronage of approximately $59,000 related to interest accrued on loans from Farm Credit West 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 loans from Farm Credit West during the prior year.
(4)  
To date, no interest patronage has been received or recorded associated with these loans, as they were not outstanding during 2016.
Interest patronage, or refunded interest, on our 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.
As of September 30, 2017 , we were in compliance with all covenants applicable to the Farm Credit Notes 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 nine months ended September 30, 2017 , we issued five bonds for gross proceeds of approximately $35.6 million , the terms of which are summarized, in the aggregate, in the table below (dollars in thousands):
Date of Issuance
 
Gross
Proceeds (1)
 
Maturity Dates
 
Principal Amortization
 
Interest Rate Terms
1/12/2017-8/30/2017
 
$
35,625

(1)  
1/10/2020 – 8/30/2024
 
None
 
2.80% – 4.05%, fixed throughout their respective terms
(1)  
Proceeds from these bonds were used for the acquisitions of new properties.
The following table summarizes, in the aggregate, the terms of the 14 bonds outstanding under the Farmer Mac Facility as of September 30, 2017 (dollars in thousands):
Dates of Issuance
 
Initial Commitment
 
Maturity Dates
 
Principal Outstanding
 
Stated
Interest
Rate (1)
 
Undrawn Commitment
 
12/11/2014–8/30/2017
 
$
125,000

(2)  
7/30/2018–8/30/2024
 
$
84,519

 
3.13%
 
$
39,118

(3)  
(1)  
Represents the weighted-average interest rate as of September 30, 2017 .
(2)  
If the balance of 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 September 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 September 30, 2017 , we were in compliance with all covenants under the Farmer Mac Facility.

17


Debt Service – Aggregate Maturities
Scheduled principal payments of our aggregate mortgage notes and bonds payable as of September 30, 2017 , for the succeeding years are as follows (dollars in thousands):
Period
 
Scheduled
Principal Payments
For the remaining three months ending December 31:
2017
 
$
601

For the fiscal years ending December 31:
2018
 
23,433

 
2019
 
11,060

 
2020
 
26,484

 
2021
 
7,242

 
2022
 
36,089

 
Thereafter
 
187,227

 
 
 
$
292,136

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 September 30, 2017 , the aggregate fair value of our long-term, fixed-rate mortgage notes and bonds payable was approximately $286.3 million , as compared to an aggregate carrying value (excluding unamortized related debt issuance costs) of $292.1 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 September 30, 2017 , is deemed to approximate their aggregate carrying value of $5.1 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 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 up 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 mandatory redemption period, which ends on September 30, 2021 .

18


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 September 30, 2017 , the fair value of our Term Preferred Stock was approximately $29.8 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 per-share price as of September 30, 2017 , of $25.93 .
The dividends to preferred stockholders declared by our Board of Directors and paid by us during the nine months ended September 30, 2017 and 2016 are reflected in the table below.
Fiscal Year
 
Declaration Date
 
Record Date
 
Payment Date
 
Dividend per
Preferred Share
 
2017
 
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

 
 
 
July 11, 2017
 
July 21, 2017
 
July 31, 2017
 
0.1328125

 
 
 
July 11, 2017
 
August 21, 2017
 
August 31, 2017
 
0.1328125

 
 
 
July 11, 2017
 
September 20, 2017
 
September 29, 2017
 
0.1328125

 
 
 
Nine months ended September 30, 2017
 
$
1.1953125

 
 
 
 
 
 
 
 
 
 
 
2016
 
September 12, 2016
 
September 21, 2016
 
September 30, 2016
 
$
0.190364583

(1)  
 
 
Nine months ended September 30, 2016
 
$
0.190364583

 
(1)  
Represents the cumulative dividend from (but excluding) the date of original issuance through the month ended September 30, 2016.

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 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.

19


A summary of the compensation terms for each of the Amended Advisory Agreement and the Financing Arrangement Agreement is below.
In addition, subsequent to September 30, 2017 , the existing lease on one of our farms was assigned by the tenant to our TRS. See Note 10, "Subsequent Events," for further discussion on this transaction.
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 Adjusted Equity").
Incentive Fee
An incentive fee will be calculated and payable quarterly in arrears if the Pre-Incentive Fee FFO for a particular quarter exceeds a hurdle rate of 1.75% ( 7.0% annualized) of the prior calendar quarter's Total Adjusted Equity. For purposes of this calculation, Pre-Incentive Fee FFO is defined in the Amended Advisory Agreement as FFO (also 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 general market conditions. During each of the three and nine months ended September 30, 2017 , the total amount of financing fees paid to Gladstone Securities represented approximately 0.1% of the total financings secured since the Financing Arrangement Agreement has been in place.

20


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 September 30,
 
For the Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Management fee (1)(2)
$
523

 
$
385

 
$
1,446

 
$
1,158

Incentive fee (1)(2)
261

 
22

 
688

 
181

Credits from voluntary, irrevocable waiver granted by Adviser’s board of directors (2)(3)
(54
)
 

 
(54
)
 

Net fees due to our Adviser
$
730

 
$
407

 
$
2,080

 
$
1,339

Administration fee (1)(2)
$
211

 
$
184

 
$
656

 
$
575

Financing Fees to Gladstone Securities (4)
$
28

 
$

 
$
30

 
$

(1)  
Pursuant to the Advisory and Administration Agreements, respectively.
(2)  
Reflected as a line item on our accompanying Condensed Consolidated Statements of Operations.
(3)  
The credit received from our Advisor for the three and nine months ended September 30, 2017 , was granted as a voluntary, irrevocable waiver to be applied against the incentive fee payable to the Advisor.
(4)  
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