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

Annual report pursuant to Section 13 and 15(d)

Commitments and Contingencies

Commitments and Contingencies

12 Months Ended

Dec. 31, 2019

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

COMMITMENTS AND CONTINGENCIES

Operating Obligations

In connection with the execution of certain lease agreements, we have committed to provide capital improvements on certain of our farms, which are summarized in the table below (dollars in thousands):



Farm Location	Farm Gross Acreage	Total Commitment			Obligated Completion Date⁽¹⁾	Amount Expended or Accrued as of December 31, 2019
Ventura, CA	413	$	1,000		Q1 2020	$	664
Madera, CA	928	500		⁽²⁾	Q1 2020	402
Hillsborough, FL	55	2,250		⁽²⁾	Q2 2021	—
Cochise, AZ	1,761	1,820		⁽²⁾⁽³⁾	Q4 2021	—
Cochise, AZ	1,239	1,360		⁽²⁾⁽⁴⁾	Q4 2021	—
Van Buren, MI	119	150			Q4 2021	—
Columbia, OR	200	1,800		⁽²⁾	Q3 2024	1,146
Collier & Hendry, FL	5,630	2,000		⁽²⁾	Q2 2025	—
Salinas, CA	324	100			Q4 2025	1


⁽¹⁾	Our obligation to provide capital to fund these improvements does not extend beyond these respective dates.


⁽²⁾	Pursuant to contractual agreements, we will earn additional rent on the cost of these capital improvements as the funds are disbursed by us.


⁽³⁾	Pursuant to the agreement, we will only earn additional rent if the total amount of capital improvements exceeds $1.3 million


⁽⁴⁾	Pursuant to the agreement, we will only earn additional rent if the total amount of capital improvements exceeds $860,000

Ground Lease Obligations

In connection with two farms acquired on June 1, 2017, through a leasehold interest, we assumed two ground lease arrangements under which we are the lessee (with the State of Arizona as the lessor). These two operating ground leases expire in February 2022 and February 2025, and neither lease contains any extension, renewal, or termination options. Upon our adoption of ASU 2016-02 on January 1, 2019, we recognized an operating lease right-of-use asset of approximately $218,000 and an operating lease liability of approximately $213,000 as a result of these ground leases. These values were determined by discounting the respective future minimum lease payments using a discount rate equivalent to treasury rates with similar terms plus a spread ranging from 2.47% to 2.53%.

As of December 31, 2019, we recorded the following as a result of these operating ground leases (dollars in thousands, except for footnotes):



Operating lease right-of-use assets⁽¹⁾	$	178
Operating lease liabilities⁽²⁾	$	172

Weighted-average remaining lease term (years)	4.6
Weighted-average discount rate	4.20		%


⁽¹⁾	Operating lease right-of-use assets are shown net of accrued lease payments of approximately $6,000 and are included within Other assets, net on the accompanying Consolidated Balance Sheet.


⁽²⁾	Included within Other liabilities, net on the accompanying Consolidated Balance Sheet.

As a result of these ground leases, we recorded lease expense (included within Property operating expenses on the accompanying Consolidated Statement of Operations and Comprehensive Income) of approximately $50,000 and $48,000 during the years ended December 31, 2019 and 2018, respectively. Future lease payments due under the remaining non-cancelable terms of these leases as of December 31, 2019 and 2018, are as follows (dollars in thousands):



	Future Lease Payments⁽¹⁾
Period	December 31, 2019			December 31, 2018
2019	$	—		$	47
2020	47			47
2021	47			47
2022	30			30
2023	30			30
Thereafter	31			31
Total undiscounted lease payments	185			232
Less: imputed interest	(13		)	—
Present value of lease payments	$	172		$	232


⁽¹⁾	Annual lease payments are set at the beginning of each year to then-current market rates (as determined by the State of Arizona). The amounts shown above represent estimated amounts based on the lease rates currently in place.

Litigation

In the ordinary course of business, we may be involved in legal proceedings from time to time. We are not currently subject to any material known or threatened litigation.