Gladstone Land Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Real Estate and Intangible Assets (Tables)

Real Estate and Intangible Assets (Tables)

12 Months Ended

Dec. 31, 2017

Property, Plant and Equipment [Line Items]

The following table provides certain summary information about our 73 farms as of December 31, 2017 (dollars in thousands, except for footnotes):



Location	No. of Farms	Total Acres	Farm Acres	Net Cost Basis⁽¹⁾		Encumbrances⁽²⁾
California	28	8,080	7,308	$	208,774	$	152,860
Florida	16	11,006	8,846	114,225		73,264
Colorado	10	31,450	24,513	42,409		25,579
Arizona⁽³⁾	6	6,280	5,228	41,341		23,333
Oregon	4	2,313	2,003	19,806		12,978
Nebraska	2	2,559	2,101	10,626		6,602
Washington	1	746	417	9,386		5,412
Michigan	4	270	183	2,936		1,659
North Carolina	2	310	295	2,361		1,301
	73	63,014	50,894	$	451,864	$	302,988

⁽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 deferred revenue included in Other liabilities, net, each as shown on the accompanying Consolidated Balance Sheet.


⁽²⁾	Excludes approximately $2.0 million of deferred financing costs related to mortgage notes and bonds payable included in Mortgage notes and bonds payable, net on the accompanying Consolidated Balance Sheet.

⁽³⁾

Includes two farms in which we own a leasehold interest via ground leases with the State of Arizona that expire in February 2022 and February 2025, respectively. In total, these two farms consist of 1,368 total acres and 1,221 farm acres and had a net cost basis of approximately $3.2 million as of December 31, 2017 (included in Lease intangibles, net on the accompanying Consolidated Balance Sheet).

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 December 31, 2017 and 2016 (dollars in thousands):



	December 31, 2017			December 31, 2016
Real estate:
Land and land improvements	$	356,316		$	265,985
Irrigation systems	50,282			33,969
Buildings	18,191			14,671
Horticulture	34,803			17,759
Other site improvements	6,551			4,993
Real estate, at cost	466,143			337,377
Accumulated depreciation	(16,657		)	(11,066		)
Real estate, net	$	449,486		$	326,311

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 and Other liabilities, respectively, on the accompanying Consolidated Balance Sheets and the related accumulated amortization or accretion, respectively, as of December 31, 2017, and 2016 (dollars in thousands).



	December 31, 2017						December 31, 2016
Intangible Asset or Liability	Deferred Rent Asset (Liability)			Accumulated (Amortization) Accretion			Deferred Rent Asset (Liability)			Accumulated (Amortization) Accretion
Above-market lease values and lease incentives⁽¹⁾	$	26		$	(5	)	$	19		$	(14	)
Below-market lease values and deferred revenue⁽²⁾	(823		)	125			(785		)	61
	$	(797	)	$	120		$	(766	)	$	47


⁽¹⁾	Net above-market lease values and lease incentives are included as part of Other assets, net on the accompanying Consolidated Balance Sheets, and the related amortization is recorded as a reduction of rental income.


⁽²⁾	Net below-market lease values and deferred revenue are included as a part of Other liabilities, net on the accompanying Consolidated Balance Sheets, and the related accretion is recorded as an increase to rental income.

The following table summarizes the carrying value of lease intangibles and the accumulated amortization for each intangible asset or liability class as of December 31, 2017 and 2016 (dollars in thousands):



	December 31, 2017			December 31, 2016
Lease intangibles:
Leasehold interests – land	$	3,498		$	—
In-place leases	1,451			1,481
Leasing costs	1,490			1,086
Tenant relationships	439			706
Lease intangibles, at cost	6,878			3,273
Accumulated amortization	(1,386		)	(1,273		)
Lease intangibles, net	$	5,492		$	2,000

Summary of Estimated Aggregate Amortization Expense and Estimated Net Impact on Rental Income

The estimated aggregate amortization expense to be recorded related to in-place lease values, leasing costs, and tenant relationships and the estimated net impact on rental income from the amortization of above-market lease values and lease incentives or accretion of above-market lease values and deferred revenue for each of the five succeeding fiscal years and thereafter is as follows (dollars in thousands):



Period		Estimated Amortization Expense		Estimated Net Increase to Rental Income
For the fiscal years ending December 31:	2018	$	1,037	$	60
	2019	978		62
	2020	911		61
	2021	744		60
	2022	516		33
	Thereafter	1,306		401
		$	5,492	$	677

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

The allocation of the aggregate purchase price for the farms acquired during each of the years ended December 31, 2017 and 2016 is as follows (dollars in thousands):



Acquisition Period	Land and Land Improvements		Buildings		Irrigation Systems		Other Improvements		Horticulture		Leasehold Interest – Land		In-place Leases	Leasing Costs		Net Below-Market Leases			Total Purchase Price
2017 Acquisitions	$	92,516	$	2,805	$	11,844	$	835	$	16,213	$	3,488	486	$	508	$	(23	)	$	128,672
2016 Acquisitions	73,351		3,690		5,199		2,248		14,868		—		501	447		(582		)	99,722

Weighted Average Amortization Period for Intangible Assets Acquired and Liabilities Assumed

The following table shows the weighted-average amortization period, in years, for the intangible assets acquired and liabilities assumed in connection with new real estate acquired during the years ended December 31, 2017 and 2016:



	Weighted-Average Amortization Period (in Years)
Intangible Assets and Liabilities	2017	2016
Leasehold interest – land	6.9	0
In-place leases	6.3	8.7
Leasing costs	8.8	11.6
Above-market lease values and lease incentives	5.4	0
Below-market lease values and deferred revenue	4.7	20.9
All intangible assets and liabilities	7.0	14.2

Pro-Forma Condensed Consolidated Statements of Operations as Properties Acquired

In addition, pro-forma earnings have been adjusted to assume that acquisition-related costs related to these farms were incurred at the beginning of the previous fiscal year. No farms were acquired during the year ended December 31, 2017, that were treated as business combinations.



	For the years ended
	December 31, 2016		December 31, 2015
(Dollars in thousands, except per-share amounts)	(Unaudited)		(Unaudited)
Operating Data:
Total operating revenue	$	18,206	$	13,552
Net income (loss) attributable to the company	901		(419		)
Share and Per-share Data:
Earnings (loss) per share of common stock – basic and diluted	$	0.09	$	(0.05	)
Weighted-average common shares outstanding – basic and diluted	10,007,350		8,639,397

Future Operating Lease Payments from Tenants under Non-Cancelable Leases

Future operating rental payments owed from tenants under all non-cancelable leases (excluding tenant reimbursement of certain expenses) for each of the five succeeding fiscal years and thereafter as of December 31, 2017, are as follows (dollars in thousands):



Period		Tenant Rental Payments
For the fiscal years ending December 31:	2018	$	25,974
	2019	25,334
	2020	22,755
	2021	16,630
	2022	16,089
	Thereafter	56,572
		$	163,354

Summary of Geographic Locations of Properties

The following unaudited table summarizes the geographic locations, by state, of our properties with leases in place as of December 31, 2017 and 2016 (dollars in thousands):



	As of and For the Year Ended December 31, 2017						As of and For the Year Ended December 31, 2016
State	No. of Farms	Total Acres	% of Total Acres	Rental Revenue		% of Total Rental Revenue	No. of Farms	Total Acres	% of Total Acres	Rental Revenue		% of Total Rental Revenue
California	28	8,080	12.8%	$	12,006	47.8%	22	6,713	13.3%	$	9,829	56.8%
Florida	16	11,006	17.5%	6,585		26.2%	15	5,567	11.0%	3,293		19.0%
Colorado	10	31,450	49.9%	2,704		10.8%	9	30,170	59.6%	1,453		8.4%
Arizona	6	6,280	10.0%	1,572		6.3%	2	3,000	5.9%	729		4.2%
Oregon	4	2,313	3.7%	1,189		4.7%	4	2,313	4.6%	1,172		6.8%
Nebraska	2	2,559	4.0%	580		2.3%	2	2,559	5.1%	580		3.4%
Michigan	4	270	0.4%	249		1.0%	4	270	0.5%	250		1.4%
Washington	1	746	1.2%	152		0.6%	—	—	—%	—		—%
North Carolina	2	310	0.5%	74		0.3%	—	—	—%	—		—%
	73	63,014	100.0%	$	25,111	100.0%	58	50,592	100.0%	$	17,306	100.0%

2017 New Real Estate Activity

Property, Plant and Equipment [Line Items]

Summary Information of Farms

During the year ended December 31, 2017, we acquired 16 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⁽¹⁾	Renewal Options	Total Purchase Price		Acquisition Costs⁽²⁾		Annualized Straight-line Rent⁽³⁾			New Long-term Debt Issued
Citrus Boulevard	Martin, FL	1/12/2017	3,748	1	Organic Vegetables	7.0 years	3 (5 years)	$	54,000	$	80	$	2,926		$	32,400
Spot Road⁽⁴⁾	Yuma, AZ	6/1/2017	3,280	4	Melons and Alfalfa Hay	8.6 years	1 (10 years) & 1 (2 years)	27,500		88		1,672			15,300
Poplar Street	Bladen, NC	6/2/2017	310	2	Organic Blueberries	9.6 years	1 (5 years)	2,169		49		122		⁽⁵⁾	1,301
Phelps Avenue	Fresno, CA	7/17/2017	847	4	Pistachios and Almonds	10.3 years	1 (5 years)	13,603		43		681		⁽⁵⁾	8,162
Parrot Avenue⁽⁶⁾	Okeechobee, FL	8/9/2017	1,910	1	Misc. Vegetables	0.5 years	None	9,700		67		488			5,820
Cat Canyon Road⁽⁷⁾	Santa Barbara, CA	8/30/2017	361	1	Wine Grapes	9.8 years	2 (5 years)	5,375		112		320			3,225
Oasis Road	Walla Walla, WA	9/8/2017	746	1	Apples, Cherries, and Wine Grapes	6.3 years	None	9,500		45		484		⁽⁵⁾	5,460
JJ Road	Baca, CO	10/2/2017	1,280	1	Grass Hay	4.3 years	1 (5 years)	900		26		52			540
Jayne Avenue	Fresno, CA	12/15/2017	159	1	Organic Almonds	19.9 years	2 (5 years)	5,925		44		364		⁽⁵⁾	3,555
			12,641	16				$	128,672	$	554	$	7,109		$	75,763


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


⁽²⁾	Unless noted otherwise, acquisitions were accounted for as asset acquisitions under ASC 360.


⁽³⁾	Annualized straight-line amount is based on the minimum cash rental payments guaranteed under the lease, as required under GAAP.

⁽⁴⁾

Includes two farms (1,368 total acres) acquired through a leasehold interest, with the State of Arizona as the lessor. These state leases expire in February 2022 (485 total acres) and February 2025 (883 total acres). In addition, in connection with the acquisition of this property, we assumed four in-place leases with us as the lessor or sublessor. Three of these leases are agricultural leases, with one lease expiring on June 30, 2019, and two leases expiring on September 15, 2026. The fourth lease is a residential lease that expires on September 30, 2019. If either of the state leases is not renewed upon its expiration, the subleases on the respective acreage shall terminate automatically.


⁽⁵⁾	Leases also provide for a variable rent component based on the gross crop revenues earned on the property. The figures above represent only the minimum cash rents guaranteed under the respective leases.

⁽⁶⁾

In connection with the acquisition of this property, we executed a 6-year, follow-on lease with a new tenant that begins upon the expiration of the 7-month lease assumed at acquisition. The follow-on lease includes two, 6-year extension options and provides for minimum annualized straight-line rents of approximately $542,000. In addition, in connection with the execution of the follow-on lease, we committed to providing up to $1.0 million of capital for certain irrigation and property improvements. As stipulated in the follow-on lease, we will earn additional 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).


⁽⁷⁾	In connection with the acquisition of this property, we committed up to $4.0 million of capital to fund the development of additional vineyard acreage on the property. As stipulated in the lease agreement, we will earn additional rental income on the total cost of the project as the capital is disbursed by us at rates specified in the lease.

2016 New Real Estate Activity

Property, Plant and Equipment [Line Items]

Summary Information of Farms

During the year ended December 31, 2016, we acquired 15 new farms in nine separate transactions, which are summarized in the table below (dollars in thousands, except for footnotes).



Property Name	Property Location	Acquisition Date	Total Acreage	No. of Farms	Primary Crop(s)	Lease Term	Renewal Options	Total Purchase Price		Acquisition Costs			Annualized Straight-line Rent⁽¹⁾			New Long-term Debt Issued
Gunbarrel Road ⁽²⁾	Saguache, CO	3/3/2016	6,191	3	Organic Potatoes	5.0 years	1 (5 years)	$	25,736	$	119	⁽³⁾	$	1,591		$	15,531
Calaveras Avenue	Fresno, CA	4/5/2016	453	1	Pistachios	10.0 years	1 (5 years)	15,470		38		⁽⁴⁾	774		⁽⁵⁾	9,282
Orange Avenue	St. Lucie, FL	7/1/2016	401	1	Vegetables	7.0 years	2 (7 years)	5,100		38		⁽⁴⁾	291			3,120
Lithia Road	Hillsborough, FL	8/11/2016	72	1	Strawberries	5.0 years	None	1,700		38		⁽³⁾	97			1,020
Baca County⁽⁶⁾	Baca, CO	9/1/2016	7,384	5	Grass Hay and Alfalfa	4.0 years	1 (5 years)	6,323		73		⁽⁴⁾	384			—
Diego Ranch⁽⁷⁾	Stanislaus, CA	9/14/2016	1,357	1	Almonds	3.0 years	3 (5 years) & 1 (3 years)	13,996		64		⁽³⁾	621			—
Nevada Ranch	Merced, CA	9/14/2016	1,130	1	Almonds	3.0 years	3 (5 years) & 1 (3 years)	13,232		42		⁽³⁾	574			—
Central Avenue	Fresno, CA	10/13/2016	197	1	Almonds	10.0 years	2 (5 years)	6,500		29		⁽⁴⁾	325			3,900
Horse Creek⁽⁸⁾	Baca, CO	12/28/2016	16,595	1	Grass Hay and Alfalfa	4.0 years	1 (5 years)	11,665		55		⁽⁴⁾	717			—
			33,780	15				$	99,722	$	496		$	5,374		$	32,853


⁽¹⁾	Annualized straight-line amount is based on the minimum cash rental payments guaranteed under the lease, as required under GAAP.


⁽²⁾	As partial consideration for the acquisition of this property, we issued 745,879 OP Units, constituting an aggregate fair value of approximately $6.5 million as of the acquisition date. We incurred $25,500 of legal costs in connection with the issuance of these OP Units.


⁽³⁾	Acquisition accounted for as a business combination under ASC 805. In aggregate, $9,520 of these costs were direct leasing costs incurred in connection with these acquisitions.


⁽⁴⁾	Acquisition accounted for as an asset acquisition under ASC 360.


⁽⁵⁾	Lease also provides for a variable rent component based on the gross crop revenues earned on the property. The figure above represents only the minimum cash rents guaranteed under the lease.


⁽⁶⁾	As partial consideration for the acquisition of this property, we issued 125,677 OP Units, constituting an aggregate fair value of approximately $1.5 million as of the acquisition date. We incurred approximately $8,235 of legal costs in connection with the issuance of these OP Units.


⁽⁷⁾	As partial consideration for the acquisition of this property, we issued 343,750 OP Units, constituting an aggregate fair value of approximately $3.9 million as of the acquisition date. We incurred approximately $21,710 of legal costs in connection with the issuance of these OP Units.


⁽⁸⁾	As partial consideration for the acquisition of this property, we issued 233,952 OP Units, constituting as aggregate fair value of approximately $2.6 million as of the acquisition date. We incurred $7,675 of legal costs in connection with the issuance of these OP Units.