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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 JUNE 30, 2019
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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common stock, $0.001 par value per share
 
LAND
 
The Nasdaq Stock Market, LLC
6.375% Series A Cumulative Term Preferred Stock, $0.001 par value per share
 
LANDP
 
The Nasdaq Stock Market, LLC
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 every Interactive Data File required to be submitted 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 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
¨
 
  
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. ¨


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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 6, 2019, was 20,810,067.


Table of Contents

GLADSTONE LAND CORPORATION
FORM 10-Q FOR THE QUARTER ENDED
JUNE 30, 2019
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, 2019
 
December 31, 2018
ASSETS
 
 
 
Investments in real estate, net
$
587,969

 
$
538,953

Lease intangibles, net
5,039

 
5,686

Cash and cash equivalents
28,705

 
14,730

Other assets, net
7,010

 
5,750

TOTAL ASSETS
$
628,723

 
$
565,119

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

 
$
100

Notes and bonds payable, net
350,144

 
335,788

Series A cumulative term preferred stock, $0.001 par value; $25.00 per share liquidation preference; 2,000,000 shares authorized, 1,150,000 shares issued and outstanding as of June 30, 2019, and December 31, 2018, net
28,241

 
28,124

Accounts payable and accrued expenses
9,134

 
9,152

Due to related parties, net
364

 
945

Other liabilities, net
9,386

 
9,957

Total liabilities
397,369

 
384,066

Commitments and contingencies (Note 7)

 

 
 
 
 
EQUITY:
 
 
 
Stockholders’ equity:
 
 
 
Series B cumulative redeemable preferred stock, $0.001 par value; $25.00 per share liquidation preference; 6,500,000 shares authorized; 2,636,068 shares issued and outstanding as of June 30, 2019; 1,144,393 shares issued and outstanding as of December 31, 2018
3

 
1

Common stock, $0.001 par value; 91,500,000 shares authorized; 20,532,770 shares issued and outstanding as of June 30, 2019; 17,891,340 shares issued and outstanding as of December 31, 2018
21

 
18

Additional paid-in capital
263,249

 
202,053

Distributions in excess of accumulated earnings
(31,919
)
 
(25,826
)
Total stockholders’ equity
231,354

 
176,246

Non-controlling interests in Operating Partnership

 
4,807

Total equity
231,354

 
181,053

 
 
 
 
TOTAL LIABILITIES AND EQUITY
$
628,723

 
$
565,119

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

3

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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,
 
2019
 
2018
 
2019
 
2018
OPERATING REVENUES:
 
 
 
 
 
 
 
Lease revenues
$
8,362

 
$
6,634

 
$
16,192

 
$
13,328

Other operating revenues

 
4,760

 

 
7,311

Total operating revenues
8,362

 
11,394

 
16,192

 
20,639

OPERATING EXPENSES:
 
 
 
 
 
 
 
Depreciation and amortization
2,936

 
2,242

 
5,533

 
4,430

Property operating expenses
586

 
318

 
1,403

 
746

Base management fee
974

 
754

 
1,879

 
1,411

Administration fee
250

 
275

 
556

 
549

General and administrative expenses
469

 
367

 
1,018

 
921

Other operating expenses

 
5,140

 

 
7,498

Total operating expenses
5,215

 
9,096

 
10,389

 
15,555

Credits to fees from Adviser
(974
)
 
(174
)
 
(1,543
)
 
(174
)
Total operating expenses, net of credits to fees
4,241

 
8,922

 
8,846

 
15,381

OTHER INCOME (EXPENSE):
 
 
 
 
 
 
 
Other income
48

 
9

 
874

 
323

Interest expense
(3,543
)
 
(2,815
)
 
(6,996
)
 
(5,646
)
Dividends declared on Series A cumulative term preferred stock
(458
)
 
(458
)
 
(916
)
 
(916
)
Gain (loss) on dispositions of real estate assets, net
13

 

 
(19
)
 

Property and casualty loss, net
(7
)
 

 
(7
)
 
(129
)
Loss on write-down of crop inventory

 
(1,060
)
 

 
(1,060
)
Total other expense, net
(3,947
)
 
(4,324
)
 
(7,064
)
 
(7,428
)
NET INCOME (LOSS)
174

 
(1,852
)
 
282

 
(2,170
)
Net (income) loss attributable to non-controlling interests
(1
)
 
110

 
(3
)
 
131

NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY
173

 
(1,742
)
 
279

 
(2,039
)
Dividends declared on Series B cumulative redeemable preferred stock
(893
)
 
(3
)
 
(1,494
)
 
(3
)
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
$
(720
)
 
$
(1,745
)
 
$
(1,215
)
 
$
(2,042
)
 
 
 
 
 
 
 
 
LOSS PER COMMON SHARE:
 
 
 
 
 
 
 
Basic and diluted
$
(0.04
)
 
$
(0.11
)
 
$
(0.07
)
 
$
(0.14
)
WEIGHTED-AVERAGE SHARES OF COMMON STOCK OUTSTANDING:
 
 
 
 
 
 
 
Basic and diluted
18,641,738

 
15,506,512

 
18,336,975

 
14,736,400

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

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GLADSTONE LAND CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(In thousands, except share data)
(Unaudited)
 
 
Six Months Ended June 30, 2019
 
Series B Preferred Stock
 
Common Stock
 
Additional
Paid-in 
Capital
 
Distributions
in Excess of
Accumulated
Earnings
 
Total
Stockholders’
Equity
 
Non-
Controlling
Interests
 
Total
Equity
 
Number
of Shares
 
Par
Value
 
Number
of Shares
 
Par
Value
 
 
 
 
 
Balance at December 31, 2018
1,144,393

 
$
1

 
17,891,340

 
$
18

 
$
202,053

 
$
(25,826
)
 
$
176,246

 
$
4,807

 
$
181,053

Issuance of Series B Preferred Stock, net
1,499,075

 
2

 

 

 
33,458

 

 
33,460

 

 
33,460

Redemptions of Series B Preferred Stock
(7,400
)
 

 

 

 
(166
)
 

 
(166
)
 

 
(166
)
Redemption of OP Units

 

 
570,879

 
1

 
4,714

 

 
4,715

 
(4,715
)
 

Issuance of common stock, net

 

 
2,070,551

 
2

 
23,147

 

 
23,149

 

 
23,149

Net income

 

 

 

 

 
279

 
279

 
3

 
282

Dividends—Series B Preferred Stock

 

 

 

 

 
(1,494
)
 
(1,494
)
 

 
(1,494
)
Distributions—OP Units and common stock

 

 

 

 

 
(4,878
)
 
(4,878
)
 
(52
)
 
(4,930
)
Adjustment to non-controlling interests resulting from changes in ownership of the Operating Partnership

 

 

 

 
43

 

 
43

 
(43
)
 

Balance at June 30, 2019
2,636,068

 
$
3

 
20,532,770

 
$
21

 
$
263,249

 
$
(31,919
)
 
$
231,354

 
$

 
$
231,354

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2019
 
Series B Preferred Stock
 
Common Stock
 
Additional
Paid-in 
Capital
 
Distributions
in Excess of
Accumulated
Earnings
 
Total
Stockholders’
Equity
 
Non-
Controlling
Interests
 
Total
Equity
 
Number
of Shares
 
Par
Value
 
Number
of Shares
 
Par
Value
 
 
 
 
 
Balance at March 31, 2019
1,891,709

 
$
2

 
18,462,219

 
$
18

 
$
223,480

 
$
(28,731
)
 
194,769

 
$

 
$
194,769

Issuance of Series B Preferred Stock, net
751,159

 
1

 

 

 
16,755

 

 
16,756

 

 
16,756

Redemptions of Series B Preferred Stock
(6,800
)
 

 

 

 
(153
)
 

 
(153
)
 

 
(153
)
Issuance of common stock, net

 

 
2,070,551

 
3

 
23,167

 

 
23,170

 

 
23,170

Net income

 

 

 

 

 
174

 
174

 

 
174

Dividends—Series B Preferred Stock

 

 

 

 

 
(893
)
 
(893
)
 

 
(893
)
Distributions—OP Units and common stock

 

 

 

 

 
(2,469
)
 
(2,469
)
 

 
(2,469
)
Balance at June 30, 2019
2,636,068

 
$
3

 
20,532,770

 
21

 
263,249

 
(31,919
)
 
231,354

 
$

 
$
231,354


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

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GLADSTONE LAND CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Continued)
(In thousands, except share data)
(Unaudited)
 
Six Months Ended June 30, 2018
 
Series B Preferred Stock
 
Common Stock
 
Additional
Paid-in 
Capital
 
Distributions
in Excess of
Accumulated
Earnings
 
Total
Stockholders’
Equity
 
Non-
Controlling
Interests
 
Total
Equity
 
Number
of Shares
 
Par
Value
 
Number
of Shares
 
Par
Value
 
 
 
 
 
Balance at December 31, 2017

 
$

 
13,791,574

 
$
14

 
$
129,705

 
$
(19,802
)
 
$
109,917

 
$
8,034

 
$
117,951

Issuance of Series B Preferred Stock, net
20,280

 

 

 

 
455

 

 
455

 

 
455

Redemption of OP Units

 

 
251,267

 

 
2,028

 

 
2,028

 
(2,549
)
 
(521
)
Issuance of common stock, net

 

 
1,981,031

 
2

 
23,601

 

 
23,603

 

 
23,603

Net loss

 

 

 

 

 
(2,039
)
 
(2,039
)
 
(131
)
 
(2,170
)
Dividends—Series B Preferred Stock

 

 

 

 

 
(3
)
 
(3
)
 

 
(3
)
Distributions—OP Units and common stock

 

 

 

 

 
(3,919
)
 
(3,919
)
 
(245
)
 
(4,164
)
Adjustment to non-controlling interests resulting from changes in ownership of the Operating Partnership

 

 

 

 
(683
)
 

 
(683
)
 
683

 

Balance at June 30, 2018
20,280

 
$

 
16,023,872

 
$
16

 
$
155,106

 
$
(25,763
)
 
$
129,359

 
$
5,792

 
$
135,151

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2018
 
Series B Preferred Stock
 
Common Stock
 
Additional
Paid-in 
Capital
 
Distributions
in Excess of
Accumulated
Earnings
 
Total
Stockholders’
Equity
 
Non-
Controlling
Interests
 
Total
Equity
 
Number
of Shares
 
Par
Value
 
Number
of Shares
 
Par
Value
 
 
 
 
 
Balance at March 31, 2018

 
$

 
15,216,199

 
$
15

 
$
145,990

 
$
(21,950
)
 
$
124,055

 
$
7,913

 
$
131,968

Issuance of Series B Preferred Stock, net
20,280

 

 

 

 
455

 

 
455

 

 
455

Redemption of OP Units

 

 
243,567

 

 
1,965

 

 
1,965

 
(2,086
)
 
(121
)
Issuance of common stock, net

 

 
564,106

 
1

 
6,887

 

 
6,888

 

 
6,888

Net loss

 

 

 

 

 
(1,742
)
 
(1,742
)
 
(110
)
 
(1,852
)
Dividends—Series B Preferred Stock

 

 

 

 

 
(3
)
 
(3
)
 

 
(3
)
Distributions—OP Units and common stock

 

 

 

 

 
(2,068
)
 
(2,068
)
 
(116
)
 
(2,184
)
Adjustment to non-controlling interests resulting from changes in ownership of the Operating Partnership

 

 

 

 
(191
)
 

 
(191
)
 
191

 

Balance at June 30, 2018
20,280

 
$

 
16,023,872

 
$
16

 
$
155,106

 
$
(25,763
)
 
$
129,359

 
$
5,792

 
$
135,151


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

6

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GLADSTONE LAND CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
 
For the Six Months Ended June 30,
 
 
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
Net income (loss)
 
$
282

 
$
(2,170
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
5,533

 
4,430

Amortization of debt issuance costs
 
299

 
289

Amortization of deferred rent assets and liabilities, net
 
(157
)
 
(180
)
Bad debt expense
 
6

 
31

Loss on dispositions of real estate assets, net
 
19

 

Property and casualty loss
 
7

 
129

Loss on write-down of crop inventory
 

 
1,060

Changes in operating assets and liabilities:
 
 
 
 
Crop inventory and other assets, net
 
21

 
(237
)
Accounts payable and accrued expenses and Due to related parties, net
 
(1,344
)
 
317

Other liabilities, net
 
(410
)
 
813

Net cash provided by operating activities
 
4,256

 
4,482

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
Acquisition of new real estate assets
 
(48,004
)
 
(5,036
)
Capital expenditures on existing real estate assets
 
(5,549
)
 
(11,356
)
Proceeds from dispositions of real estate assets
 

 
132

Change in deposits on real estate acquisitions and investments, net
 
(1,050
)
 
(300
)
Net cash used in investing activities
 
(54,603
)
 
(16,560
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
Proceeds from issuance of preferred and common equity
 
61,394

 
25,113

Offering costs
 
(4,521
)
 
(935
)
Payments for redemptions of OP Units
 

 
(521
)
Redemption of Series B Preferred Stock
 
(166
)
 

Borrowings from mortgage notes and bonds payable
 
18,072

 
2,733

Repayments of mortgage notes and bonds payable
 
(4,247
)
 
(3,777
)
Borrowings from lines of credit
 
14,900

 
9,100

Repayments of lines of credit
 
(14,900
)
 
(15,600
)
Payments of financing fees
 
(115
)
 
(225
)
Dividends paid on Series B cumulative redeemable preferred stock
 
(1,165
)
 

Distributions paid on common stock
 
(4,878
)
 
(3,919
)
Distributions paid to non-controlling interests in Operating Partnership
 
(52
)
 
(246
)
Net cash provided by financing activities
 
64,322

 
11,723

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
 
13,975

 
(355
)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
 
14,730

 
2,938

CASH AND CASH EQUIVALENTS AT END OF PERIOD
 
$
28,705

 
$
2,583



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

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GLADSTONE LAND CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
(Unaudited)

 
 
For the Six Months Ended June 30,
 
 
2019
 
2018
NON-CASH OPERATING, INVESTING, AND FINANCING INFORMATION:
 
 
 
 
Operating lease right-of-use assets included in Other assets, net
 
$
198

 
$

Operating lease liabilities included in Other liabilities, net
 
169

 

Real estate additions included in Accounts payable and accrued expenses and Due to related parties, net
 
2,465

 
4,120

Loss on dispositions of real estate assets, net included in Accounts payable and accrued expenses and Due to related parties, net
 

 
8

Real estate additions included in Other liabilities, net
 

 
136

Stock offering and OP Unit issuance costs included in Accounts payable and accrued expenses and Due to related parties, net
 
99

 
194

Financing fees included in Accounts payable and accrued expenses and Due to related parties, net
 
20

 
2

Lender holdback on loan issuance
 
498

 



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

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GLADSTONE LAND CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BUSINESS AND ORGANIZATION
Business and Organization
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 originally incorporated in California on June 14, 1997. Upon the pricing of our initial public offering on January 29, 2013, our shares of common stock began trading on the Nasdaq Global Market (“Nasdaq”) under the symbol “LAND.” 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. As we currently control the sole general partner of the Operating Partnership and own, directly or indirectly, all of the units of limited partnership interest in the Operating Partnership (“OP Units”), the financial position and results of operations of the Operating Partnership are consolidated within our financial statements. As of June 30, 2019, and December 31, 2018, the Company owned 100.0% and approximately 96.9%, respectively, of the outstanding OP Units (see Note 8, “Equity,” for additional discussion regarding OP Units).
Gladstone Land Advisers, Inc. (“Land Advisers”), a Delaware corporation and a subsidiary of ours, was created to collect any non-qualifying income related to our real estate portfolio and to perform certain small-scale farming business operations. We have elected for Land Advisers to be treated as a taxable REIT subsidiary (“TRS”) of ours. Since we currently own 100% of the voting securities of Land Advisers, its financial position and results of operations are consolidated within our financial statements.
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, 2018, as filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 26, 2019 (the “Form 10-K”). The results of operations for the three and six months ended June 30, 2019, 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.
Impairment of Real Estate Assets
We account for the impairment of our tangible and identifiable intangible real estate assets in accordance with Accounting Standards Codification (“ASC”) 360, “Property, Plant, and Equipment” (“ASC 360”), which requires us to periodically review the carrying value of each property to determine whether indicators of impairment exist. If circumstances support the

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possibility of impairment, we prepare a projection of the total undiscounted future cash flows of the specific property (without interest charges), including proceeds from disposition, and compare them to the net book value of the property to determine whether the carrying value of the property is recoverable. If the carrying amount is more than the aggregate undiscounted future cash flows, we would recognize an impairment loss to the extent the carrying value exceeds the estimated fair value of the property.
We evaluate our entire portfolio each quarter for any impairment indicators and perform an impairment analysis on those select properties that have an indication of impairment. As of June 30, 2019, and December 31, 2018, we concluded that none of our properties were impaired. There have been no impairments recognized on our real estate assets since our inception.
Crop Inventory and Crop Sales
Crop Inventory
From October 17, 2017, through July 31, 2018, Land Advisers operated a 169-acre farm located in Ventura County, California, under a short-term lease (see Note 6, “Related-Party Transactions—TRS Lease Assumption” for further discussion on this lease assignment). Costs incurred by Land Advisers in operating the farm generally consisted of growing costs (including the costs of land preparation, plants, fertilizers and pesticides, and labor costs), harvesting and selling costs (including labor costs for harvesting, packaging and cooling costs, and sales commissions), and certain overhead costs (including management/oversight costs). Due to certain market conditions during the six months ended June 30, 2018 (primarily the existence of bumper crops in all of the strawberry-growing regions within California), we were unable to sell all of the crops and therefore assessed the market value of such unsold crops to be zero. Accordingly, we wrote down the cost of crop inventory to its estimated net realizable value of zero and recorded a loss during the six months ended June 30, 2018, of approximately $1.1 million, included within Loss on write-down of crop inventory on the accompanying Condensed Consolidated Statements of Operations.
Crop Sales
Revenue from the sale of harvested crops was recognized when the harvested crops had been delivered to the facility and title had transferred and were recorded using the market price on the date of delivery. Accumulated costs were charged to cost of products sold (based on percentage of gross revenue from sales) as the related crops were harvested and sold.
Revenue from the sale of harvested crops and accumulated costs allocated to the crops sold during the three and six months ended June 30, 2018, are shown in the following table (dollars in thousands, except for footnotes):
 
 
Three Months Ended June 30, 2018
 
Six Months Ended June 30, 2018
Sales revenue(1)
 
$
4,760

 
$
7,306

Cost of sales(2)(3)(4)
 
(5,140
)
 
(7,498
)
(1) 
Included within Other operating revenues on the accompanying Condensed Consolidated Statements of Operations.
(2) 
Included within Other operating expenses on the accompanying Condensed Consolidated Statements of Operations.
(3) 
Excludes rent expense owed to the Company and interest expense owed on a loan from the Company to Land Advisers, both of which expenses were eliminated in consolidation.
(4) 
Excludes the allocation of a fee earned by our Adviser from Land Advisers of approximately $94,000 and $161,000 during the three and six months ended June 30, 2018, respectively, which is included within Management Fee on the accompanying Condensed Consolidated Statements of Operations (see Note 6, “Related-Party Transactions—TRS Fee Arrangements—TRS Expense Sharing Agreement” for further discussion on this fee).
The lease to Land Advisers expired on July 31, 2018, after which we leased the farm to a new, unrelated third-party tenant under a 10-year lease that commenced on August 1, 2018.
Income Taxes
We have operated and intend to continue to operate in a manner that will allow us to qualify as a REIT under the Sections 856-860 of the Internal Revenue Code of 1986, as amended (the “Code”). As a REIT, we generally are not subject to federal corporate income taxes on amounts that we distribute to our stockholders (except income from any foreclosure property), provided that, on an annual basis, we distribute at least 90% of our REIT taxable income (excluding net capital gains) to our stockholders and meet certain other conditions. As such, in general, as long as we qualify as a REIT, no provision for federal income taxes will be necessary, except for taxes on undistributed REIT taxable income and taxes on the income generated by a TRS (such as Land Advisers), if any. From October 17, 2017, through July 31, 2018, Land Advisers, which is subject to federal and state income taxes, assumed the operations on one of our farms in California (see Note 6, “Related-Party Transactions—TRS Lease Assumption”). There was no taxable income or loss from Land Advisers for the tax year ended December 31, 2018, nor was there any for the six months ended June 30, 2019.

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Should we have any taxable income or loss in the future, we will account for any income taxes in accordance with the provisions of ASC 740, “Income Taxes,” using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized based on differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases (including for operating loss, capital loss, and tax credit carryforwards) and are calculated using the enacted tax rates and laws expected to be in effect when such amounts are realized or settled. In addition, we will establish valuation allowances for tax benefits when we believe it is more-likely-than-not (defined as a likelihood of more than 50%) that such assets will not be realized.
Reclassifications
On the accompanying Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2019, operating rental revenue has been reclassified to be displayed in accordance with ASU 2016-02 (as defined below), which was adopted on January 1, 2019, and acquisition-related expenses have been reclassified to be included within general and administrative expenses. These reclassifications had no impact on previously-reported net income (loss), equity, or net change in cash and cash equivalents.
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. We adopted ASU 2014-09 on January 1, 2018, using the modified retrospective method, under which the cumulative effect of initially applying the guidance was recognized at the date of initial application. Our adoption of ASU 2014-09 did not 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. The impact of ASU 2014-09 did not take effect until the new leasing standard (ASU 2016-02, as defined below) became effective on January 1, 2019.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842): An Amendment of the FASB Accounting Standards Codification” (“ASU 2016-02”), which supersedes the previous leasing standard, ASC 840, “Leases.” 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 similarly to operating leases under the previous leasing standard. The new standard requires lessors to account for leases using an approach that is substantially equivalent to that under the previous standard for sales-type leases, direct financing leases, and operating leases. We adopted ASU 2016-02 on January 1, 2019, using the modified retrospective method, under which we recorded the cumulative effect of applying the new guidance as of the adoption date. We also elected the package of practical expedients permitted under the transition guidance (which included that: (i) an entity need not reassess whether any expired or existing contracts are or contain leases, (ii) an entity need not reassess the lease classification for any expired or existing leases, and (iii) an entity need not reassess initial direct costs for any existing leases), the land easement practical expedient to carry forward existing accounting treatment on existing land easements, and the lease and non-lease component combined practical expedient. In addition, we elected the short-term lease exception, which allows us to account for leases with a term of 12 months or less similar to existing operating leases. We currently have two operating ground lease arrangements with terms greater than one year for which we are the lessee. See Note 7, “Commitments and Contingencies—Ground Lease Obligations,” for further discussion on the impact of our adoption of ASU 2016-02 and the assumptions used in determine the related right-of-use asset and lease liability.
NOTE 3. REAL ESTATE AND INTANGIBLE ASSETS
All of our properties are wholly-owned on a fee-simple basis, except where noted. The following table provides certain summary information about the 90 farms we owned as of June 30, 2019 (dollars in thousands, except for footnotes):

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Location
 
No. of Farms
 
Total Acres
 
Farm Acres
 
Net Cost Basis(1)
 
Encumbrances(2)
California
 
35
 
11,617
 
10,670
 
$
287,911

 
$
182,840

Florida
 
22
 
17,184
 
12,981
 
153,871

 
96,543

Arizona(3)
 
6
 
6,280
 
5,228
 
56,031

 
22,008

Colorado
 
10
 
31,448
 
24,513
 
41,503

 
24,968

Nebraska
 
3
 
3,254
 
2,701
 
12,803

 
8,476

Michigan
 
7
 
962
 
682
 
12,723

 
2,740

Washington
 
1
 
746
 
417
 
8,573

 
5,145

Texas
 
1
 
3,667
 
2,219
 
8,363

 
5,280

Oregon
 
3
 
418
 
363
 
6,189

 
3,312

North Carolina
 
2
 
310
 
295
 
2,304

 
1,238

 
 
90
 
75,886
 
60,069
 
$
590,271

 
$
352,550

(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 and lease incentives included in Other assets, net; and less net below-market lease values and other deferred revenue included in Other liabilities, net; each as shown on the accompanying Condensed Consolidated Balance Sheets.
(2) 
Excludes approximately $2.3 million of debt issuance costs related to notes and bonds payable, included in 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 an aggregate net cost basis of approximately $2.4 million as of June 30, 2019 (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, 2019, and December 31, 2018 (dollars in thousands):
 
June 30, 2019
 
December 31, 2018
Real estate:
 
 
 
Land and land improvements
$
435,866

 
$
417,310

Irrigation and drainage systems
80,891

 
71,583

Horticulture
73,136

 
48,894

Farm-related facilities
20,249

 
18,510

Other site improvements
6,740

 
6,707

Real estate, at gross cost
616,882

 
563,004

Accumulated depreciation
(28,913
)
 
(24,051
)
Real estate, net
$
587,969

 
$
538,953

Real estate depreciation expense on these tangible assets was approximately $2.6 million and $4.9 million for the three and six months ended June 30, 2019, respectively, and $2.0 million and $3.9 million for the three and six months ended June 30, 2018, respectively.
Included in the figures above are amounts related to improvements made on certain of our properties paid for by our tenants but owned by us, or tenant improvements. As of June 30, 2019, and December 31, 2018, we recorded tenant improvements, net of accumulated depreciation, of approximately $2.2 million and $2.4 million, respectively. We recorded both depreciation expense and additional lease revenue related to these tenant improvements of approximately $72,000 and $146,000 for the three and six months ended June 30, 2019, respectively, and approximately $74,000 and $150,000 for the three and six months ended June 30, 2018, respectively.
Intangible Assets and Liabilities
The following table summarizes the carrying values of certain lease intangible assets and the related accumulated amortization as of June 30, 2019, and December 31, 2018 (dollars in thousands):

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June 30, 2019
 
December 31, 2018
Lease intangibles:
 
 
 
 
Leasehold interest – land
 
$
3,498

 
$
3,498

In-place leases
 
2,046

 
2,046

Leasing costs
 
1,964

 
1,963

Tenant relationships
 
414

 
414

Lease intangibles, at cost
 
7,922

 
7,921

Accumulated amortization
 
(2,883
)
 
(2,235
)
Lease intangibles, net
 
$
5,039

 
$
5,686

Total amortization expense related to these lease intangible assets was approximately $326,000 and $650,000 for the three and six months ended June 30, 2019, respectively, and approximately $253,000 and $546,000 for the three and six months ended June 30, 2018, respectively.
The following table summarizes the carrying values of certain lease intangible assets or liabilities included in Other assets, net or Other liabilities, net, respectively, on the accompanying Condensed Consolidated Balance Sheets and the related accumulated amortization or accretion, respectively, as of June 30, 2019, and December 31, 2018 (dollars in thousands):
 
 
June 30, 2019
 
December 31, 2018
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)
 
$
216

 
$
(84
)
 
$
126

 
$
(18
)
Below-market lease values and other deferred revenue(2)
 
(917
)
 
279

 
(917
)
 
202

 
 
$
(701
)
 
$
195

 
$
(791
)
 
$
184

(1) 
Net above-market lease values and lease incentives are included as part of Other assets, net on the accompanying Condensed Consolidated Balance Sheets, and the related amortization is recorded as a reduction of Lease revenue on the accompanying Condensed Consolidated Statements of Operations.
(2) 
Net below-market lease values and other deferred revenue are included as a part of Other liabilities, net on the accompanying Condensed Consolidated Balance Sheets, and the related accretion is recorded as an increase to Lease revenue on the accompanying Condensed Consolidated Statements of Operations.
Total amortization related to above-market lease values and lease incentives was approximately $33,000 and $66,000 for the three and six months ended June 30, 2019, respectively, and approximately $2,000 and $4,000 for the three and six months ended June 30, 2018, respectively. Total accretion related to below-market lease values and other deferred revenue was approximately $39,000 and $77,000 for the three and six months ended June 30, 2019, respectively, and approximately $17,000 and $34,000 for the three and six months ended June 30, 2018, respectively.
Acquisitions
Upon our adoption of ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,” on October 1, 2016, most acquisitions, including those with a prior leasing history, are generally treated as an asset acquisition under ASC 360. For acquisitions accounted for as asset acquisitions under ASC 360, all acquisition-related costs, other than those costs that directly related to either originating new leases we execute upon acquisition or reviewing in-place leases we assumed upon acquisition, are capitalized and included as part of the fair value allocation of the identifiable tangible and intangible assets acquired or liabilities assumed. Upon our adoption of ASU 2016-02 on January 1, 2019, costs that directly related to either negotiating and originating new leases or reviewing assumed leases (generally, external legal costs) are expensed as incurred, whereas these costs were generally capitalized as part of leasing costs under the previous leasing standard. 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. Unless otherwise noted, all properties acquired during 2019 and 2018 were accounted for as asset acquisitions under ASC 360.
2019 Acquisitions

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During the six months ended June 30, 2019, we acquired five new farms, 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
 
Renewal
Options
 
Total
Purchase
Price
 
Acquisition
Costs
(1)
 
Annualized
Straight-line
Rent
(2)
 
New
Long-term
Debt
Somerset Road
 
Lincoln, NE
 
1/22/2019
 
695
 
1
 
Popcorn &
edible beans
 
4.9 years
 
1
(5 years)
 
$
2,400

 
$
33

 
$
126

 
$
1,440

Greenhills Boulevard(3)
 
Madera, CA
 
4/9/2019
 
928
 
1
 
Pistachios
 
10.6 years
 
2
(5 years)
 
28,550

 
141

 
1,721

 
17,130

Van Buren Trail(4)
 
Van Buren, MI
 
5/29/2019
 
159
 
1
 
Blueberries
& cranberries
 
10.6 years
 
2
(5 years)
 
2,682

 
24

 
206

 

Blue Star Highway(4)
 
Allegran &
Van Buren, MI
 
6/4/2019
 
357
 
1
 
Blueberries
 
10.6 years
 
2
(5 years)
 
5,100

 
29

 
390

 

Yolo County Line Road(4)
 
Yolo, CA
 
6/13/2019
 
542
 
1
 
Olives for
olive oil
 
14.6 years
 
1
(5 years)
 
9,190

 
68

 
624

 

 
 
 
 
 
 
2,681
 
5
 
 
 
 
 
 
 
$
47,922

 
$
295

 
$
3,067

 
$
18,570

(1) 
Includes approximately $18,000 of aggregate external legal fees associated with negotiating and originating the leases associated with these acquisitions, which costs were expensed in the period incurred.
(2) 
Annualized straight-line rent is based on the minimum cash rental payments guaranteed under the applicable lease, as required under GAAP, and excludes contingent rental payments, such as participation rents.
(3) 
Lease provides for a participation rent component based on the gross crop revenues earned on the farm. The rent figure above represents only the minimum cash guaranteed under the lease.
(4) 
See Note 11, “Subsequent Events—Financing Activity,” for information on loans secured by these properties that were obtained subsequent to June 30, 2019.
During the three and six months ended June 30, 2019, we recognized operating revenues of approximately $503,000 and $527,000, respectively, and net income of approximately $218,000 and $220,000, respectively, related to the above acquisitions.
2018 Acquisitions
During the six months ended June 30, 2018, we acquired two new farms, 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)
 
New
Long-term
Debt
Taft Highway(2)
 
Kern, CA
 
1/31/2018
 
161
 
1
 
Potatoes and Melons
 
N/A
 
N/A
 
$
2,945

 
$
32

 
$

 
$
1,473

Cemetery Road
 
Van Buren, MI
 
3/13/2018
 
176
 
1
 
Blueberries
 
9.6 years
 
None
 
2,100

 
39

 
150

 
1,260

 
 
 
 
 
 
337
 
2
 
 
 
 
 
 
 
$
5,045

 
$
71

 
$
150

 
$
2,733

(1) 
Annualized straight-line rent is based on the minimum cash rental payments guaranteed under the applicable lease, as required under GAAP, and excludes contingent rental payments, such as participation rents.
(2) 
Farm was purchased with no lease in place at the time of acquisition.
During the three and six months ended June 30, 2018, in the aggregate, we recognized operating revenues of approximately $41,000 and $49,000, respectively, and a net loss of approximately $23,000 and $28,000, respectively, related to the above acquisitions.
Purchase Price Allocations
The allocation of the aggregate purchase price for the farms acquired during each of the six months ended June 30, 2019 and 2018 is as follows (dollars in thousands):
Acquisition Period
 
Land and Land
Improvements
 
Irrigation &
Drainage Systems
 
Horticulture
 
Farm-related
Facilities
 
In-place
Leases
 
Leasing
Costs
 
Total
Purchase
Price
2019 Acquisitions
 
$
18,209

 
$
4,022

 
$
23,989

 
$
1,702

 
$

 
$

 
$
47,922

2018 Acquisitions
 
3,256

 
582

 
961

 
123

 
76

 
47

 
5,045

Acquired Intangibles and Liabilities
The following table shows the weighted-average amortization periods (in years) for the intangible assets acquired and liabilities assumed in connection with new real estate acquired during the six months ended June 30, 2018. There were no intangible

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assets acquired or liabilities assumed in connection with new real estate acquired during the six months ended June 30, 2019:
 
 
Weighted-Average
Amortization Period
(in Years)
Intangible Assets and Liabilities
 
2018
Leasehold interest – land
 
0
In-place leases
 
9.6
Leasing costs
 
9.6
Above-market lease values
 
0
Below-market lease values and deferred revenue
 
0
All intangible assets and liabilities
9.6
Significant Existing Real Estate Activity
Leasing Activity
The following table summarizes certain leasing activity that occurred on our existing properties during the six months ended June 30, 2019 (dollars in thousands, except footnotes):
 
 
 
 
PRIOR LEASES(1)
 
NEW LEASES(2)
Farm
Locations
Number
of
Leases
Total
Farm
Acres
 
Total
Annualized
Straight-line
Rent(3)
# of Leases
with
Participation
Rents
Lease
Structures
(# of NNN
/ NN)(4)
 
Total
Annualized
Straight-line
Rent
(3)
Wtd. Avg.
Term
(Years)
# of Leases
with
Participation
Rents
Lease
Structures
(# of NNN
/ NN)
(4)
AZ, CA,
FL, MI, NE
15
6,817
 
$
3,385

1
10 / 5
 
$
3,648

3.9
3
10 / 5
(1) 
Includes a farm that was previously vacant.
(2) 
In connection with certain of these leases, we committed to provide aggregate capital of up to $420,000 for certain improvements on these farms.
(3) 
Annualized straight-line rent is based on the minimum cash rental payments guaranteed under the applicable leases (presented on an annualized basis), as required under GAAP, and excludes contingent rental payments, such as participation rents.
(4) 
“NNN” refers to leases under triple-net lease arrangements, and “NN” refers to leases under partial-net lease arrangements. For a description of each of these types of lease arrangements, see “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview—Leases—General.”
See Note 11, “Subsequent Events—Leasing Activity” for additional leasing activity that occurred subsequent to June 30, 2019.
Project Completion
During the year ended December 31, 2018, we replaced 23 irrigation pivots on one of our properties in Colorado at a total cost of approximately $1.4 million. Pursuant to a lease amendment executed during the six months ended June 30, 2019, in connection with this project, we will earn additional straight-line rental income of approximately $117,000 per year throughout the remaining term of the lease, which expires on February 28, 2021.
Future Minimum Lease Payments
We account for all of our leasing arrangements in which we are the lessor as operating leases. The majority of our leases are subject to fixed rental increases, and a small subset of our lease portfolio includes lease payments based on an index, such as the consumer price index (“CPI”). In addition, several of our leases contain participation rent components based on the gross revenues earned on the respective farms. Most of our leases also include tenant renewal options; however, these renewal options are generally based on then-current market rates and are therefore typically excluded from the determination of the minimum lease term. Our leases do not generally include tenant termination options.
The following table summarizes the future lease payments to be received under non-cancelable leases as of June 30, 2019, and December 31, 2018 (dollars in thousands):

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Future Lease Payments(1)
Period
 
June 30, 2019
 
December 31, 2018
2019
 
$
14,703

 
$
30,290

2020
 
31,478

 
26,917

2021
 
23,889

 
20,980

2022
 
23,221

 
19,775

2023
 
22,827

 
19,413

Thereafter
 
85,436

 
59,934

 
 
$
201,554

 
$
177,309

(1) 
Excludes variable rent payments, such as potential rent increases that are based on CPI or future contingent rents based on a percentage of the gross revenues earned on the respective farms.
Portfolio Diversification and Concentrations
Diversification
The following table summarizes the geographic locations (by state) of our farms owned and with leases in place as of and for the six months ended June 30, 2019 and 2018 (dollars in thousands):
 
 
As of and For the six months ended June 30, 2019
 
As of and For the six months ended June 30, 2018
State
 
Number
of
Farms
 
Total
Acres
 
% of
Total
Acres
 
Lease
Revenue
 
% of Total
Lease
Revenue
 
Number
of
Farms
 
Total
Acres
 
% of
Total
Acres
 
Lease
Revenue
 
% of Total
Lease
Revenue
California(1)
 
35
 
11,617
 
15.3%
 
$
7,906

 
48.8%
 
29
 
8,241
 
13.0%
 
$
6,065

 
45.5%
Florida
 
22
 
17,184
 
22.6%
 
4,689

 
29.0%
 
16
 
10,980
 
17.3%
 
3,530

 
26.5%
Colorado
 
10
 
31,448
 
41.4%
 
1,411

 
8.7%
 
10
 
31,450
 
49.7%
 
1,372

 
10.3%
Arizona
 
6
 
6,280
 
8.3%
 
1,077

 
6.7%
 
6
 
6,280
 
9.9%
 
959

 
7.2%
Texas
 
1
 
3,667
 
4.8%
 
263

 
1.6%
 
 
 
—%
 

 
—%
Oregon
 
3
 
418
 
0.6%
 
257

 
1.6%
 
4
 
2,313
 
3.7%
 
618

 
4.6%
Washington
 
1
 
746
 
1.0%
 
245

 
1.5%
 
1
 
746
 
1.2%
 
242

 
1.8%
Nebraska
 
3
 
3,254
 
4.3%
 
162

 
1.0%
 
2
 
2,559
 
4.0%
 
290

 
2.2%
North Carolina
 
2
 
310
 
0.4%
 
93

 
0.6%
 
2
 
310
 
0.5%
 
82

 
0.6%
Michigan
 
7
 
962
 
1.3%
 
89

 
0.5%
 
5
 
446
 
0.7%
 
170

 
1.3%
TOTALS
 
90
 
75,886
 
100.0%
 
$
16,192

 
100.0%
 
75
 
63,325
 
100.0%
 
$
13,328

 
100.0%
(1) 
According to the California Chapter of the American Society of Farm Managers and Rural Appraisers, there are eight distinct growing regions within California; our farms are spread across five of these growing regions.
Concentrations
Credit Risk
As of June 30, 2019, our farms were leased to 64 different, unrelated third-party tenants, with certain tenants leasing more than one farm. One unrelated third-party tenant (“Tenant A”) leases five of our farms, and aggregate lease revenue attributable to Tenant A accounted for approximately $2.2 million, or 13.6%, of the total lease revenue recorded during the six months ended June 30, 2019. If Tenant A fails to make rental payments, elects to terminate its leases prior to their expirations, or does not renew its leases (and we cannot re-lease the farms 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 lease revenue recorded during the six months ended June 30, 2019.
Geographic Risk
Farms located in California and Florida accounted for approximately $7.9 million (48.8%) and $4.7 million (29.0%), respectively, of the total lease revenue recorded during the six months ended June 30, 2019. 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 our total lease revenue recorded during the six months ended June 30, 2019.

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NOTE 4. BORROWINGS
Our borrowings as of June 30, 2019, and December 31, 2018, are summarized below (dollars in thousands):
 
Carrying Value as of
 
As of June 30, 2019
 
June 30, 2019
 
December 31, 2018
 
Stated Interest
Rates(1)
(Range; Wtd Avg)
 
Maturity Dates
(Range; Wtd Avg)
Notes and bonds payable:
 
 
 
 
 
 
 
Fixed-rate notes payable
$
261,821

 
$
247,249

 
3.16%–5.70%; 3.97%
 
6/1/2020–12/1/2043; November 2031
Fixed-rate bonds payable
90,629

 
90,877

 
2.80%–4.57%; 3.55%
 
12/11/2019–9/13/2028; November 2022
Total notes and bonds payable
352,450

 
338,126

 
 
 
 
Debt issuance costs – notes and bonds payable
(2,306
)
 
(2,338
)
 
N/A
 
N/A
Notes and bonds payable, net
$
350,144

 
$
335,788

 
 
 
 
 
 
 
 
 
 
 
 
Variable-rate revolving lines of credit
$
100

 
$
100

 
4.59%–4.84%; 4.72%
 
4/5/2024
 
 
 
 
 
 
 
 
Total borrowings, net
$
350,244

 
$
335,888

 
 
 
 
 
(1) 
Where applicable, stated interest rates are before interest patronage (as described below).
As of June 30, 2019, the above borrowings were collateralized by 87 farms with an aggregate net book value of approximately $573.2 million. The weighted-average interest rate charged on the above borrowings (excluding the impact of debt issuance costs and before any interest patronage, or refunded interest) was 3.93% for each of the three and six months ended June 30, 2019, respectively, and 3.60% and 3.56% for three and six months ended June 30, 2018, respectively. In addition, 2018 interest patronage from our Farm Credit Notes Payable (as defined below), which we recorded during the three months ended March 31, 2019, resulted in a 21.2% reduction (approximately 95 basis points) to the stated interest rates on such borrowings. We are unable to estimate the amount of interest patronage to be received, if any, related to interest accrued during 2019 on our Farm Credit Notes Payable.
As of June 30, 2019, we were in compliance with all covenants applicable to the above borrowings.
MetLife Borrowings
MetLife Facility
On May 9, 2014, we closed on a credit facility (the “MetLife Facility”) with Metropolitan Life Insurance Company (“MetLife”). As a result of subsequent amendments, the MetLife Facility currently consists of an aggregate of $200.0 million of term notes (the “MetLife Term Notes”) and $75.0 million of revolving equity lines of credit (the “MetLife Lines of Credit”). The following table summarizes the pertinent terms of the MetLife Facility as of June 30, 2019 (dollars in thousands, except for footnotes):
Issuance
 
Aggregate
Commitment
 
Maturity
Dates
 
Principal
Outstanding
 
Interest Rate Terms
 
Undrawn
Commitment
 
MetLife Term Notes
 
$
200,000

(1) 
1/5/2029
 
$
124,283

 
3.30%, fixed through 1/4/2027
(2) 
$
64,374

(3) 
MetLife Lines of Credit
 
75,000

 
4/5/2024
 
100

 
3-month LIBOR + 2.00%–2.25%
(4) 
74,900

(3) 
Total principal outstanding
 
 
 
$
124,383

 
 
 
 
  
 
(1) 
If the aggregate commitment under this facility is not fully utilized by December 31, 2019, 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 as of June 30, 2019. 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, 2019, the MetLife Term Notes are also subject to an unused fee ranging from 0.10% to 0.20% on undrawn amounts (based on the balance drawn under the MetLife Term Notes).
(3) 
Based on the properties that were pledged as collateral under the MetLife Facility, as of June 30, 2019, the maximum additional amount we could draw under the facility was approximately $20.5 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 ranging from 0.10% to 0.20% on undrawn amounts (based on the balance drawn under each line of credit). The interest rate spreads will be subject to adjustment on October 5, 2019.
Farm Credit Notes Payable
From time to time since September 2014 through June 30, 2019, we, through certain subsidiaries of our Operating Partnership, have entered into various loan agreements (collectively, the “Farm Credit Notes Payable”) with eight different Farm Credit

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associations (collectively, “Farm Credit”). During the six months ended June 30, 2019, we entered into the following loan agreement with Farm Credit (dollars in thousands):
Issuer
 
Date of
Issuance
 
Amount
 
Maturity
Date
 
Principal
Amortization
 
Interest Rate Terms(1)
Premier Farm Credit, FLCA
 
2/7/2019
 
$
1,440

 
11/1/2043
 
25.0 years
 
5.45%, fixed through October 31, 2023 (variable thereafter)
 
(1) 
Stated rate is before interest patronage, as described below.
Interest patronage, or refunded interest, on our borrowings from the various Farm Credit associations is generally recorded upon receipt and is included within 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 calendar year in which the respective interest payments are made. During the three months ended March 31, 2019, we recorded interest patronage of approximately $700,000 related to interest accrued on loans from Farm Credit during the year ended December 31, 2018, which resulted in a 21.2% reduction (approximately 95 basis points) to the stated interest rates on such borrowings.
Prudential Note Payable
On June 17, 2019, we entered into a loan agreement with PGMI Real Estate Finance, LLC (“Prudential”), the terms of which are summarized in the following table as of June 30, 2019 (dollars in thousands):
Date of Issuance
 
Amount
 
Maturity Date
 
Principal Amortization
 
Interest Rate Terms
6/17/2019
 
$
17,130

 
7/1/2029
 
25.0 years
 
4.00%, fixed throughout term
Debt Service – Aggregate Maturities
Scheduled principal payments of our aggregate notes and bonds payable as of June 30, 2019, for the succeeding years are as follows (dollars in thousands):
Period
 
Scheduled
Principal Payments
For the remaining six months ending December 31:
2019
 
$
8,108

For the fiscal years ending December 31:
2020
 
28,177

 
2021
 
16,544

 
2022
 
39,327

 
2023
 
33,099

 
2024
 
24,189

 
Thereafter
 
203,006

 
 
 
$
352,450

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, 2019, the aggregate fair value of our long-term, fixed-rate notes and bonds payable was approximately $355.6 million, as compared to an aggregate carrying value (excluding unamortized related debt issuance costs) of approximately $352.5 million. The fair value of our long-term, fixed-rate notes and bonds payable is valued using Level 3 inputs under the hierarchy established by ASC 820-10 and is calculated based on a discounted cash flow analysis, using discount rates based on

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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, 2019, is deemed to approximate their aggregate carrying value of $100,000.
NOTE 5. SERIES A TERM PREFERRED STOCK
In August 2016, we completed a public offering of 6.375% Series A Cumulative Term Preferred Stock, par value $0.001 per share (the “Series A Term Preferred Stock”), at a public offering price of $25.00 per share. As a result of this offering (including the underwriters’ exercise of their option to purchase additional shares to cover over-allotments), we issued a total of 1,150,000 shares of the Series A 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. The Series A Term Preferred Stock is traded under the ticker symbol “LANDP” on Nasdaq.
Generally, we were not permitted to redeem shares of the Series A Term Preferred Stock prior to September 30, 2018, except in limited circumstances to preserve our qualification as a REIT. Since September 30, 2018, we have been permitted to 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 Series A Term Preferred Stock have a mandatory redemption date of September 30, 2021, and are not convertible into our common stock or any other securities. As of June 30, 2019, no shares of Series A Term Preferred Stock have been redeemed.
We incurred approximately $1.2 million in total offering costs related to this issuance, which have been recorded net of the Series A Term Preferred Stock as presented on the accompanying Condensed Consolidated Balance Sheets and are being amortized over the mandatory redemption period as a component of interest expense on the accompanying Condensed Consolidated Statements of Operations. The Series A Term Preferred Stock is recorded as a liability on our accompanying Condensed Consolidated Balance Sheets 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 similarly to interest expense on the accompanying Condensed Consolidated Statements of Operations.
As of June 30, 2019, the fair value of our Series A Term Preferred Stock was approximately $29.9 million, as compared to the carrying value (exclusive of unamortized offering costs) of approximately $28.8 million. The fair value of our Series A 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 June 30, 2019, of $25.98.
For information on the dividends declared by our Board of Directors and paid by us on the Series A Term Preferred Stock during the six months ended June 30, 2019 and 2018, see Note 8, “Equity—Distributions.”
NOTE 6. RELATED-PARTY TRANSACTIONS
Our Adviser and Administrator
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, chief executive officer, and president. 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, general counsel, and secretary. We have entered into an investment advisory agreement with our Adviser, as amended from time to time (the “Advisory Agreement”), and an administration agreement with our Administrator (the “Administration Agreement”). A summary of the compensation terms for each of the Advisory Agreement and the Administration Agreement is below.
Advisory Agreement
Pursuant to the Advisory Agreement, 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. See Note 11, “Subsequent Events—Amendment to Advisory Agreement,” for a discussion of an amendment to the Advisory Agreement, which will impact the calculations of the base management fee and the incentive fee beginning with the three months ending September 30, 2019.
Base Management Fee
A base management fee is paid quarterly and is calculated as 2.0% per annum (0.50% per quarter) of the prior calendar quarter’s total adjusted equity, which, through the three months ended June 30, 2019, was 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

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other one-time events and non-cash items (“Total Adjusted Equity”). During the three and six months ended June 30, 2019, our Adviser granted us non-contractual, unconditional, and irrevocable waivers, which were applied as credits against the base management fees for the respective periods, as detailed in the table below under “—Related-Party Fees.”
Incentive Fee
An incentive fee is 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 Advisory Agreement as FFO (also as defined in the 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 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, 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.
Administration Agreement
Pursuant to the Administration Agreement, we pay separately for our allocable portion of the Administrator’s overhead expenses incurred while performing its obligations to us, including, but not limited to, rent and the salaries and benefits expenses of our Administrator’s employees, including our chief financial officer, treasurer, chief compliance officer, general counsel and secretary (who also serves as our Administrator’s president, general counsel, and secretary), and their respective staffs. Our allocable portion of the Administrator’s expenses is generally derived by multiplying our Administrator’s total expenses by the approximate percentage of time the Administrator’s employees perform services for us in relation to their time spent performing services for all companies serviced by our Administrator under similar contractual agreements.
TRS Lease Assumption
On October 17, 2017, Land Advisers entered into an Assignment and Assumption of Agricultural Lease (the “Assigned TRS Lease”) with the previously-existing tenant on a 169-acre farm located in Ventura County, California. The Assigned TRS Lease, as amended, expired on July 13, 2018. In addition, in connection with the initial operations on the farm, on October 17, 2017, Land Advisers issued a 1.7 million unsecured promissory note to the Company that matured in July 31, 2018, and bore interest at a rate equal to the prime rate plus a spread of 5.0% per annum. All inter-company amounts related to the Assigned TRS Lease and the promissory note were eliminated in consolidation, and, as a result, no rental or interest income from Land Advisers was recorded by us on the Consolidated Statements of Operations during the three or six months ended June 30, 2018. Effective August 1, 2018, this farm was leased to a new, unrelated third-party tenant under a 10-year lease.
TRS Fee Arrangements
In connection with the assumption of the Assigned TRS Lease, in exchange for services provided by our Adviser to Land Advisers, our Adviser and Land Advisers entered into an Expense Sharing Agreement (the “TRS Expense Sharing Agreement”). In addition, to account for the time our Administrator’s staff spends on activities related to Land Advisers, we adopted a policy wherein a portion of the fee paid by the Company to our Administrator pursuant to the Administration Agreement would be allocated to Land Advisers (the “TRS Administration Fee Allocation”). No such fees were incurred during the three or six months ended June 30, 2019.
TRS Expense Sharing Agreement

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Pursuant to the TRS Expense Sharing Agreement, our Adviser was responsible for maintaining the day-to-day operations on the farm leased to Land Advisers from October 17, 2017, through July 31, 2018. In exchange for such services, Land Advisers compensated our Adviser through reimbursement of certain expenses incurred by our Adviser, including Land Advisers’ pro-rata share of our Adviser’s payroll and related benefits (based on the percentage of each employee’s time devoted to matters related to Land Advisers in relation to the time such employees devoted to all affiliated funds, collectively, advised by our Adviser) and general overhead expenses (based on the total general overhead expenses incurred by our Adviser multiplied by the ratio of hours worked by our Adviser’s employees on matters related to Land Advisers to the total hours worked by our Adviser’s employees).
Costs incurred by our Adviser, while payable by Land Advisers, were initially accumulated and deferred and then allocated to costs of sales as the related crops were harvested and sold. During the three and six months ended June 30, 2018, approximately $94,000 and $161,000, respectively, of the total accumulated costs incurred by our Adviser was allocated to the costs of crops sold and is included within Base management fee on the accompanying Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2018. In addition, during the three months ended June 30, 2018, our Adviser granted Land Advisers a non-contractual, unconditional, and irrevocable waiver to be applied against a portion of the fees incurred by our Adviser on behalf of Land Advisers pursuant to the TRS Expense Sharing Agreement.
TRS Administration Fee Allocation
Under to the TRS Administration Fee Allocation, a portion of the fee owed by us to our Administrator under the Administration Agreement was allocated to Land Advisers based on the percentage of each employee’s time devoted to matters related to Land Advisers in relation to the total time such employees devoted to the Company.
During the three and six months ended June 30, 2018, approximately $17,000 and $30,000, respectively, of the administration fee paid by us was allocated to Land Advisers. This allocation is included within Administration fee on the accompanying Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2018.
Gladstone Securities
On April 11, 2017, we entered into an agreement with Gladstone Securities 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 and a member of the Financial Industry Regulatory Authority and the Securities Investor Protection Corporation. Gladstone Securities is an affiliate of ours, as its parent company is owned and controlled by Mr. Gladstone, who also serves on the board of managers of Gladstone Securities.
Financing Arrangement Agreement
We 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 is payable upon closing of the respective financing, ranges 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 unrelated third-party brokers and general market conditions. We paid total financing fees to Gladstone Securities of approximately $26,000 and $28,000 during the three and six months ended June 30, 2019, respectively, and approximately $2,000 during each of the three and six months ended June 30, 2018. Through June 30, 2019, the total amount of financing fees paid to Gladstone Securities represented approximately 0.12% of the total financings secured since the Financing Arrangement Agreement has been in place.
Dealer-Manager Agreement
On January 10, 2018, we entered into a dealer-manager agreement, which was amended and restated on May 31, 2018 (the “Dealer-Manager Agreement”), with Gladstone Securities, whereby Gladstone Securities serves as our exclusive dealer-manager in connection with the offering of our Series B Preferred Stock (as defined in Note 8, “Equity—Series B Preferred Stock”). Pursuant to the Dealer-Manager Agreement, Gladstone Securities provides certain sales, promotional, and marketing services to us in connection with the offering of the Series B Preferred Stock, and we generally will pay Gladstone Securities: (i) selling commissions of up to 7.0% of the gross proceeds from sales of Series B Preferred Stock in the offering (the “Selling Commissions”), and (ii) a dealer-manager fee of 3.0% of the gross proceeds from sales of Series B Preferred Stock in the offering (the “Dealer-Manager Fee”).  Gladstone Securities may, in its sole discretion, remit all or a portion of the Selling Commissions and may also reallow all or a portion of the Dealer-Manager Fees to participating broker-dealers and wholesalers in support of the offering. The terms of the Dealer-Manager Agreement were approved by our board of directors, including all of its independent directors.

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During the three and six months ended June 30, 2019, we paid total Selling Commissions and Dealer-Manager Fees to Gladstone Securities in connection with sales of the Series B Preferred Stock of approximately $1.7 million and $3.3 million, respectively, of which approximately $1.6 million and $3.1 million, respectively, were then remitted by Gladstone Securities to unrelated third-parties involved in the offering, including participating broker-dealers and wholesalers. During each of the three and six months ended June 30, 2018, we paid total Selling Commissions and Dealer-Manager Fees to Gladstone Securities of $50,000, of which approximately $47,000 was remitted to unrelated third-parties involved in the offering. Through June 30, 2019, approximately 94.0% of the total Selling Commissions and Dealer-Manager Fees paid to Gladstone Securities have been remitted to unrelated third-parties involved in the offering.
Total Selling Commissions and Dealer-Manager Fees paid to Gladstone Securities are netted against the gross proceeds received from sales of the Series B Preferred Stock and are included within Additional paid-in capital on the accompanying Condensed Consolidated Balance Sheets.
Related-Party Fees
The following table summarizes related-party fees paid or accrued for and reflected in our accompanying condensed consolidated financial statements (dollars in thousands):
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
 
Base management fee(1)(2)
$
974

 
$
754

(3) 
$
1,879