Document

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



¨	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.

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GLADSTONE LAND CORPORATION

FORM 10-Q FOR THE QUARTER ENDED

JUNE 30, 2019

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		PAGE
PART I	FINANCIAL INFORMATION

ITEM 1.	Financial Statements (Unaudited):

	Condensed Consolidated Balance Sheets as of June 30, 2019, and December 31, 2018	3

	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2018	4

	Condensed Consolidated Statements of Equity for the three and six months ended June 30, 2019 and 2018	5

	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018	7

	Notes to Condensed Consolidated Financial Statements	9

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	48

ITEM 4.	Controls and Procedures	48

PART II	OTHER INFORMATION

ITEM 1.	Legal Proceedings	49

ITEM 1A.	Risk Factors	49

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49

ITEM 3.	Defaults Upon Senior Securities	49

ITEM 4.	Mine Safety Disclosures	49

ITEM 5.	Other Information	49

ITEM 6.	Exhibits	50

SIGNATURES		52

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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.

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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		Additional Paid-in Capital			Distributions in Excess of Accumulated Earnings			Total Stockholders’ Equity			Non- Controlling Interests			Total Equity
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		Additional Paid-in Capital			Distributions in Excess of Accumulated Earnings			Total Stockholders’ Equity			Non- Controlling Interests			Total Equity
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		Additional Paid-in Capital			Distributions in Excess of Accumulated Earnings			Total Stockholders’ Equity			Non- Controlling Interests			Total Equity
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		Additional Paid-in Capital			Distributions in Excess of Accumulated Earnings			Total Stockholders’ Equity			Non- Controlling Interests			Total Equity
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.

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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

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

6,817

3,385

10 / 5

3,648

3.9

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