Gladstone Land Corporation Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Real Estate and Intangible Assets (Tables)

Real Estate and Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2018

During the nine months ended September 30, 2017, we acquired 14 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⁽¹⁾	Renewal Options	Total Purchase Price		Acquisition Costs		Annualized Straight-line Rent⁽²⁾			Net Long-term Debt
Citrus Boulevard	Martin, FL	1/12/2017	3,748	1	Organic Vegetables	7.0 years	3 (5 years)	$	54,000	$	80	$	2,926		$	32,400
Spot Road⁽³⁾	Yuma, AZ	6/1/2017	3,280	4	Melons and Alfalfa Hay	8.6 years	1 (10 years) & 1 (2 years)	27,500		88		1,673			15,300
Poplar Street	Bladen, NC	6/2/2017	310	2	Organic Blueberries	9.6 years	1 (5 years)	2,169		49		122		⁽⁴⁾	1,301
Phelps Avenue	Fresno, CA	7/17/2017	847	4	Pistachios and Almonds	10.3 years	1 (5 years)	13,603		43		681		⁽⁴⁾	8,162
Parrot Avenue⁽⁵⁾	Okeechobee, FL	8/9/2017	1,910	1	Misc. Vegetables	0.5 years	None	9,700		67		488			5,820
Cat Canyon Road⁽⁶⁾	Santa Barbara, CA	8/30/2017	361	1	Wine Grapes	9.8 years	2 (5 years)	5,375		112		322			3,225
Oasis Road	Walla Walla, WA	9/8/2017	746	1	Apples, Cherries, and Wine Grapes	6.3 years	None	9,500		45		480		⁽⁴⁾	5,460
			11,202	14				$	121,847	$	484	$	6,692		$	71,668


⁽¹⁾	Where more than one lease was assumed or executed, represents the weighted average lease term on the property.


⁽²⁾	Annualized straight-line rent is based on the minimum cash rental payments guaranteed under the lease, as required under GAAP, and excludes contingent rental payments, such as participation rents.

⁽³⁾

Includes two farms (1,368 total acres) acquired through a leasehold interest, with the State of Arizona as the lessor. These state leases expire in February 2022 (485 total acres) and February 2025 (883 total acres). In addition, in connection with the acquisition of this property, we assumed four in-place leases with us as the lessor or sublessor. Three of these leases are agricultural leases, with one lease expiring on June 30, 2019, and two leases expiring on September 15, 2026. The fourth lease is a residential lease that expires on September 30, 2019.


⁽⁴⁾	These leases provide for a variable rent component based on the gross crop revenues earned on the respective properties. The figures above represent only the minimum cash guaranteed under the respective leases.

⁽⁵⁾

In connection with the acquisition of this property, we executed a 6-year, follow-on lease with a new tenant that begins upon the expiration of the 7-month lease assumed at acquisition. The follow-on lease includes two, 6-year extension options and provides for minimum annualized straight-line rents of approximately $542,000. In addition, in connection with the execution of the follow-on lease, as amended, we committed to providing up to $2.5 million of capital for certain irrigation and property improvements. As stipulated in the follow-on lease, we will earn additional rental income on the total cost of the improvements as disbursements are made by us at a rate commensurate with the annual yield on the farmland (as determined by each year's minimum cash rent per the follow-on lease).


⁽⁶⁾	In connection with the acquisition of this property, we committed up to $4.0 million of capital to fund the development of additional vineyard acreage on the property. As stipulated in the lease agreement, we will earn additional rental income on the total cost of the project as the capital is disbursed by us at rates specified in the lease.

The following table provides certain summary information about our 82 farms as of September 30, 2018 (dollars in thousands, except for footnotes):



Location	No. of Farms	Total Acres	Farm Acres	Net Cost Basis⁽¹⁾		Encumbrances⁽²⁾
California	31	8,435	7,655	$	218,056	$	154,098
Florida	22	17,184	12,981	155,219		97,480
Arizona⁽³⁾	6	6,280	5,228	52,488		22,513
Colorado	10	31,448	24,513	41,421		24,499
Nebraska	2	2,559	2,101	10,504		7,050
Washington	1	746	417	8,980		5,281
Oregon	3	418	363	5,980		3,494
Michigan	5	446	291	4,938		2,821
North Carolina	2	310	295	2,333		1,270
	82	67,826	53,844	$	499,919	$	318,506

⁽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 Sheet.


⁽²⁾	Excludes approximately $2.3 million of debt issuance costs related to mortgage notes and bonds payable, included in Mortgage notes and bonds payable, net on the accompanying Condensed Consolidated Balance Sheet.

⁽³⁾

Includes two farms in which we own a leasehold interest via ground leases with the State of Arizona that expire in February 2022 and February 2025, respectively. In total, these two farms consist of 1,368 total acres and 1,221 farm acres and had an aggregate net cost basis of approximately $2.8 million as of September 30, 2018 (included in Lease intangibles, net on the accompanying Condensed Consolidated Balance Sheet).

During the nine months ended September 30, 2018, we acquired ten 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		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
Owl Hammock⁽³⁾	Collier & Hendry, FL	7/12/2018	5,630	5	Vegetables and Melons	7.0 years	2 (5 years)	37,350		192		2,148		22,410
Plantation Road	Jackson, FL	9/6/2018	574	1	Peanuts and Melons	2.3 years	None	2,600		35		142		1,560
Flint Avenue	Kings, CA	9/13/2018	194	2	Cherries	15.3 years	1 (5 years)	6,850		58		523		4,110
			6,735	10				$	51,845	$	356	$	2,963	$	30,813


⁽¹⁾	Annualized straight-line rent is based on the minimum cash rental payments guaranteed under the 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.

⁽³⁾

In connection with the acquisition of this property, we committed to providing up to $2.0 million of capital for certain irrigation and property improvements. As stipulated in the lease, we will earn additional rental income on the total cost of the improvements as disbursements are made by us at a rate commensurate with the annual yield on the farmland (as determined by each year's minimum cash rent per the follow-on lease).

Summary of Components of Investments in Real Estate

The following table sets forth the components of our investments in tangible real estate assets as of September 30, 2018, and December 31, 2017 (dollars in thousands):



	September 30, 2018			December 31, 2017
Real estate:
Land and land improvements	$	389,333		$	356,316
Irrigation systems	65,427			50,282
Buildings	18,507			18,191
Horticulture	39,320			34,803
Other improvements	6,750			6,551
Real estate, at gross cost	519,337			466,143
Accumulated depreciation	(22,269		)	(16,657		)
Real estate, net	$	497,068		$	449,486

Carrying Value of Lease Intangibles and Accumulated Amortization for Each Intangible Asset or Liability Class

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 September 30, 2018, and December 31, 2017 (dollars in thousands):



	September 30, 2018						December 31, 2017
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⁾	$	26		$	(11	)	$	26		$	(5	)
Below-market lease values and other deferred revenue⁽²⁾	(823		)	176			(823		)	125
	$	(797	)	$	165		$	(797	)	$	120


⁽¹⁾	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 rental income.


⁽²⁾	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 rental income.

The following table summarizes the carrying values of certain lease intangible assets and the related accumulated amortization as of September 30, 2018, and December 31, 2017 (dollars in thousands):



	September 30, 2018			December 31, 2017
Lease intangibles:
Leasehold interest – land	$	3,498		$	3,498
In-place leases	1,957			1,451
Leasing costs	2,009			1,490
Tenant relationships	439			439
Lease intangibles, at cost	7,903			6,878
Accumulated amortization	(2,074		)	(1,386		)
Lease intangibles, net	$	5,829		$	5,492

Fair Value of Assets Acquired and Liabilities Assumed Related to Property Acquired

The allocation of the aggregate purchase price for the farms acquired during each of the nine months ended September 30, 2018 and 2017 is as follows (dollars in thousands):



Acquisition Period	Land and Land Improvements		Irrigation & Drainage Systems		Horticulture		Buildings		Other Improvements		Leasehold Interest – Land		In-place Leases		Leasing Costs		Net Below-Market Leases			Total Purchase Price
2018 Acquisitions	$	44,749	$	1,548	$	4,288	$	123	$	—	$	—	$	626	$	511	$	—		$	51,845
2017 Acquisitions	89,614		11,534		12,611		2,804		824		3,488		487		508		(23		)	121,847

Weighted Average Amortization Period for Intangible Assets Acquired and Liabilities Assumed

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 nine months ended September 30, 2018 and 2017:



	Weighted-Average Amortization Period (in Years)
Intangible Assets and Liabilities	2018	2017
Leasehold interest – land	0.0	6.9
In-place leases	7.0	6.3
Leasing costs	7.1	8.8
Above-market lease values	0.0	2.1
Below-market lease values and deferred revenue	0.0	4.7
All intangible assets and liabilities	7.1	7.0

Summary of Geographic Locations of Properties

The following table summarizes the geographic locations, by state, of our farms with leases in place as of September 30, 2018 and 2017 (dollars in thousands):



	As of and For the Nine Months Ended September 30, 2018						As of and For the Nine Months Ended September 30, 2017
State	Number of Farms	Total Acres	% of Total Acres	Rental Revenue		% of Total Rental Revenue	Number of Farms	Total Acres	% of Total Acres	Rental Revenue		% of Total Rental Revenue
California⁽¹⁾	31	8,435	12.4%	$	9,880	46.3%	27	7,921	12.8%	$	8,749	47.8%
Florida	22	17,184	25.3%	5,790		27.1%	17	11,225	18.2%	4,839		26.5%
Colorado	10	31,448	46.4%	2,057		9.7%	9	30,170	48.8%	2,018		11.0%
Arizona	6	6,280	9.3%	1,425		6.7%	6	6,280	10.2%	1,114		6.1%
Oregon	3	418	0.6%	765		3.6%	4	2,313	3.7%	887		4.8%
Washington	1	746	1.1%	596		2.8%	1	746	1.2%	31		0.2%
Nebraska	2	2,559	3.8%	435		2.0%	2	2,559	4.2%	435		2.4%
Michigan	5	446	0.7%	270		1.3%	4	270	0.4%	187		1.0%
North Carolina	2	310	0.4%	115		0.5%	2	310	0.5%	42		0.2%
TOTALS	82	67,826	100.0%	$	21,333	100.0%	72	61,794	100.0%	$	18,302	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 four of these growing regions.