Annual report pursuant to Section 13 and 15(d)

Real Estate and Intangible Assets (Tables)

v3.19.3.a.u2
Real Estate and Intangible Assets (Tables)
12 Months Ended
Dec. 31, 2019
Property, Plant and Equipment [Line Items]  
Summary Information About Real Estate Properties
The following table provides certain summary information about the 111 farms we owned as of December 31, 2019 (dollars in thousands, except for footnotes):
Location
 
No. of Farms
 
Total Acres
 
Farm Acres
 
Net Cost Basis(1)
 
Encumbrances(2)
California(3)
 
42
 
14,830
 
13,610
 
$
420,537

 
$
261,957

Florida
 
23
 
20,770
 
16,256
 
211,132

 
133,327

Arizona(4)
 
6
 
6,280
 
5,228
 
55,941

 
22,427

Colorado
 
10
 
31,448
 
24,513
 
42,125

 
27,089

Nebraska
 
8
 
7,104
 
6,402
 
27,439

 
17,246

Michigan
 
15
 
962
 
682
 
12,408

 
7,646

Texas
 
1
 
3,667
 
2,219
 
8,335

 
5,227

Washington
 
1
 
746
 
417
 
8,302

 
5,052

Oregon
 
3
 
418
 
363
 
6,266

 
3,840

North Carolina
 
2
 
310
 
295
 
2,284

 
1,238

 
 
111
 
86,535
 
69,985
 
$
794,769

 
$
485,049

(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. Specifically, includes Investments in real estate, net (excluding improvements paid for by the tenant) and Lease intangibles, net; plus net above-market lease values, lease incentives, and net investments in special-purpose LLCs 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 Consolidated Balance Sheets.
(2) 
Excludes approximately $3.1 million of debt issuance costs related to notes and bonds payable, included in Notes and bonds payable, net on the accompanying Consolidated Balance Sheets.
(3) 
Includes ownership in a special-purpose LLC that owns a pipeline conveying water to one of our properties. As of December 31, 2019, this investment had a carrying value of approximately $587,000 and is included within Other assets, net on the accompanying Consolidated Balance Sheet.
(4) 
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 $2.1 million as of December 31, 2019 (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, 2019 and 2018 (dollars in thousands):
 
 
December 31, 2019
 
December 31, 2018
Real estate:
 
 
 
 
Land and land improvements
 
$
583,247

 
$
417,310

Irrigation and drainage systems
 
108,222

 
71,583

Horticulture
 
107,941

 
48,894

Farm-related facilities
 
20,665

 
18,510

Other site improvements
 
7,180

 
6,707

Real estate, at gross cost
 
827,255

 
563,004

Accumulated depreciation
 
(35,174
)
 
(24,051
)
Real estate, net
 
$
792,081

 
$
538,953

Carrying Value of Lease Intangibles and Accumulated Amortization for Each Intangible Asset or Liability Class
The following table summarizes the carrying value of certain lease intangible assets and the related accumulated amortization as of December 31, 2019 and 2018 (dollars in thousands):
 
 
December 31, 2019
 
December 31, 2018
Lease intangibles:
 
 
 
 
Leasehold interest – land
 
$
3,498

 
$
3,498

In-place leases
 
2,293

 
2,046

Leasing costs
 
2,066

 
1,963

Tenant relationships
 
414

 
414

Lease intangibles, at gross cost
 
8,271

 
7,921

Accumulated amortization
 
(3,444
)
 
(2,235
)
Lease intangibles, net
 
$
4,827

 
$
5,686

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 Consolidated Balance Sheets and the related accumulated amortization or accretion, respectively, as of December 31, 2019 and 2018 (dollars in thousands):
 
 
December 31, 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)
 
$
111

 
$
(41
)
 
$
126

 
$
(18
)
Below-market lease values and other deferred revenues(2)
 
(886
)
 
257

 
(917
)
 
202

 
 
$
(775
)
 
$
216

 
$
(791
)
 
$
184

(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 Lease revenue on the accompanying Consolidated Statements of Operations and Comprehensive Income.
(2) 
Net below-market lease values and other 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 Lease revenue on the accompanying Consolidated Statements of Operations and Comprehensive Income.
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 lease revenue from the amortization of above-market lease values and lease incentives or accretion of above-market lease values and other deferred revenues for each of the five succeeding fiscal years and thereafter is as follows (dollars in thousands):
Period
 
Estimated
Amortization
Expense
 
Estimated Net
Increase (Decrease)
to Lease Revenue
For the fiscal years ending December 31:
2020
 
$
1,374

 
$
137

 
2021
 
1,062

 
113

 
2022
 
780

 
115

 
2023
 
692

 
108

 
2024
 
624

 
89

 
Thereafter
 
295

 
(3
)
 
 
 
$
4,827

 
$
559

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, 2019 and 2018 is as follows (dollars in thousands):
Acquisition Period
 
Land and
Land
Improvements
 
Irrigation & drainage
Systems
 
Horticulture
 
Farm-related
Facilities
 
Other Site
Improvements
 
In-place
Leases
 
Leasing
Costs
 
Below-Market Leases(1)
 
Investment in LLC(2)
 
Total
Purchase
Price
2019 Acquisitions
 
$
164,681


$
26,184


$
58,240


$
2,080


$
358


560

 
$
117

 
$
(85
)
 
$
587

 
$
252,722

2018 Acquisitions
 
72,508

 
4,313

 
13,288

 
123

 

 
763

 
526

 
(95
)
 

 
91,426

(1) 
Included within Other liabilities, net on the accompanying Consolidated Balance Sheets.
(2) 
Included within Other assets, net on the accompanying Consolidated Balance Sheets.
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 years ended December 31, 2019 and 2018:
 
 
Weighted-Average
Amortization Period (in Years)
Intangible Assets and Liabilities
 
2019
 
2018
In-place leases
 
1.9
 
5.9
Leasing costs
 
3.0
 
6.9
Below-market lease values and other deferred revenue
 
2.5
 
1.1
All intangible assets and liabilities
 
2.1
 
6.0

Operating Leases of Lessor, Leasing Activity
The following table summarizes certain leasing activity that occurred on our existing properties during the year ended December 31, 2019 (dollars in thousands, except footnotes):
 
 
 
 
PRIOR LEASES
 
NEW LEASES(1)
Farm
Locations
Number
of
Leases
Total
Farm
Acres
 
Total
Annualized
Straight-line
Rent(2)
# of Leases
with
Participation
Rents
Lease
Structures
(# of NNN
/ NN)(3)
 
Total
Annualized
Straight-line
Rent
(2)
Wtd. Avg.
Term
(Years)
# of Leases
with
Participation
Rents
Lease
Structures
(# of NNN
/ NN)(3)
AZ, CA, FL, MI, NE, TX
24
16,955
 
$
9,543

3
14 / 10
 
$
10,795

6.4
3
11 / 13
The following table summarizes the leasing activity that occurred on our existing properties subsequent to December 31, 2019, through the date of this filing (dollars in thousands):
 
 
 
 
PRIOR LEASES
 
NEW LEASES
Farm
Locations
Number
of
Leases
Total
Farm
Acres
 
Total
Annualized
Straight-line
Rent(1)
# of Leases
with
Participation
Rents
Lease
Structures
(# of NNN
/ NN / N)(2)
 
Total
Annualized
Straight-line
Rent
(1)
Wtd. Avg.
Term
(Years)
# of Leases
with
Participation
Rents
Lease
Structures
(# of NNN
/ NN / N)
(2)
AZ, CA, NC, & NE
7
6,452
 
$
3,687

4
5 / 0 / 2
 
$
3,556

6.7
5
5 / 2 / 0
(1) 
Annualized straight-line rent is based on the minimum cash rental payments guaranteed under the leases (presented on an annualized basis), as required under GAAP, and excludes contingent rental payments, such as participation rents.
(2) 
“NNN” refers to leases under triple-net lease arrangements, “NN” refers to leases under partial-net lease arrangements, and “N” refers to leases under single-net lease arrangements For a description of each of these types of lease arrangements, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview—Leases—General.”
Future Operating Lease Payments from Tenants under Non-Cancelable Leases
The following tables summarize the future lease payments to be received under non-cancelable leases as of December 31, 2019 and 2018 (dollars in thousands):
As of December 31, 2019
 
As of December 31, 2018
Period
 
Tenant
Lease
Revenue
 
Period
 
Tenant
Lease
Revenue
For the fiscal years ending December 31,
2020
 
$
46,483

 
For the fiscal years ending December 31,
2019
 
$
30,290

 
2021
 
40,799

 
 
2020
 
26,917

 
2022
 
38,793

 
 
2021
 
20,980

 
2023
 
39,351

 
 
2022
 
19,775

 
2024
 
34,080

 
 
2023
 
19,413

 
Thereafter
 
125,137

 
 
Thereafter
 
59,934

 
 
 
$
324,643

 
 
 
 
$
177,309

Summary of Geographic Locations of Properties
The following table summarizes the geographic locations (by state) of our farms owned and with leases in place as of December 31, 2019 and 2018 (dollars in thousands):
 
 
As of and For the Year Ended December 31, 2019
 
As of and For the Year Ended December 31, 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)
 
42
 
14,830
 
17.1%
 
$
21,701

 
53.3%
 
33
 
10,147
 
13.8%
 
$
13,672

 
46.6%
Florida
 
23
 
20,770
 
24.0%
 
11,115

 
27.3%
 
22
 
17,184
 
23.5%
 
8,133

 
27.7%
Colorado
 
10
 
31,448
 
36.3%
 
2,857

 
7.0%
 
10
 
31,448
 
42.9%
 
2,743

 
9.3%
Arizona
 
6
 
6,280
 
7.3%
 
2,219

 
5.5%
 
6
 
6,280
 
8.6%
 
2,045

 
7.0%
Nebraska
 
8
 
7,104
 
8.2%
 
665

 
1.6%
 
2
 
2,559
 
3.5%
 
580

 
2.0%
Texas
 
1
 
3,667
 
4.2%
 
527

 
1.3%
 
1
 
3,667
 
5.0%
 
60

 
0.2%
Oregon
 
3
 
418
 
0.5%
 
515

 
1.3%
 
3
 
418
 
0.6%
 
893

 
3.0%
Washington
 
1
 
746
 
0.9%
 
506

 
1.2%
 
1
 
746
 
1.1%
 
718

 
2.4%
Michigan
 
15
 
962
 
1.1%
 
429

 
1.1%
 
5
 
446
 
0.6%
 
370

 
1.3%
North Carolina
 
2
 
310
 
0.4%
 
158

 
0.4%
 
2
 
310
 
0.4%
 
148

 
0.5%
 
 
111
 
86,535
 
100.0%
 
$
40,692

 
100.0%
 
85
 
73,205
 
100.0%
 
$
29,362

 
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 six of these growing regions.
2019 New Real Estate Activity  
Property, Plant and Equipment [Line Items]  
Summary Information About Real Estate Properties
During the year ended December 31, 2019, we acquired 26 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) / Use
 
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
 
Van Buren, MI
 
5/29/2019
 
159
 
2
 
Blueberries
& cranberries
 
10.6 years
 
2
(5 years)
 
2,682

 
26

 
206

 
1,609

Blue Star Highway
 
Allegran &
Van Buren, MI
 
6/4/2019
 
357
 
8
 
Blueberries
 
10.6 years
 
2
(5 years)
 
5,100

 
30

 
390

 
3,060

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

 
68

 
624

 
5,514

San Juan Grade Road(4)
 
Monterey, CA
 
7/11/2019
 
324
 
1
 
Strawberries
& vegetables
 
0.3 years
 
None
 
9,000

 
68

 
632

 
5,400

West Citrus Boulevard(5)
 
Martin, FL
 
7/22/2019
 
3,586
 
1
 
Water
retention
 
8.4 years
 
2
(10 years)
 
57,790

 
516

 
3,696

 
37,700

Sutter Avenue I(3)(6)
 
Fresno, CA
 
8/16/2019
 
1,011
 
1
 
Pistachios
 
8.2 years
 
2
(5 years)
 
33,000

 
146

 
2,106

 
16,500

Las Posas Road(7)
 
Ventura, CA
 
8/28/2019
 
413
 
3
 
Sod & vegetables
 
3.3 years
 
1
(2 years)
 
21,320

 
111

 
1,283

 
12,792

Withers Road(8)
 
Napa, CA
 
8/29/2019
 
366
 
1
 
Wine grapes
 
10.3 years
 
2
(10 years)
 
32,000

 
84

 
2,256

 
19,254

Highway 17(9)
 
Hayes, NE
 
10/7/2019
 
2,561
 
3
 
Corn, soybeans, & edible beans
 
0.2 years
 
None
 
9,690

 
44

 
489

 
5,739

Indian Highway(10)
 
Hayes &
Hitchcock, NE
 
10/7/2019
 
1,289
 
2
 
Corn, soybeans, & edible beans
 
0.3 years
 
None
 
5,000

 
36

 
788

 
3,045

Sutter Avenue II(3)(6)
 
Fresno, CA
 
11/1/2019
 
1,099
 
1
 
Pistachios
 
8.0 years
 
2
(5 years)
 
37,000

 
73

 
2,365

 
25,500

 
 
 
 
 
 
13,330
 
26
 
 
 
 
 
 
 
$
252,722

 
$
1,376

 
$
16,682

 
$
154,683

(1) 
Includes approximately $76,000 of aggregate external legal fees associated with negotiating and originating the leases associated with these acquisitions, which were expensed in the period incurred.
(2) 
Annualized straight-line rent is based on the minimum cash rental payments guaranteed under the respective leases, as required under GAAP, and excludes contingent rental payments, such as participation rents.
(3) 
Leases provide for a participation rent component based on the gross crop revenues earned on the respective farms. The rent figures above represent only the minimum cash guaranteed under the respective leases.
(4) 
In connection with the acquisition of this property, we executed a six-year, follow-on lease with a new tenant that will commence upon the expiration of the four-month lease executed on the date of acquisition. The follow-on lease includes one, four-year extension option and provides for minimum annualized straight-line rents of approximately 606,000. In connection with the follow-on lease, we committed to provide up to $100,000 for certain irrigation improvements on the property.
(5) 
As partial consideration for the acquisition of this property, we issued 288,303 OP Units, constituting an aggregate fair value of approximately $3.3 million as of the acquisition date.
(6) 
In connection with the acquisition of Sutter Avenue (which occurred in two phases), we also acquired an ownership in a related LLC, the sole purpose of which is to own and maintain a pipeline conveying water to this and other neighboring properties. On August 16, 2019, we acquired an 11.75% ownership interest in the LLC that was valued at approximately $280,000 at the time of acquisition. On November 1, 2019, we acquired an additional 13.25% interest in the LLC that was valued at approximately $307,000 at the time of acquisition. As our investment in the LLC is deemed to constitute “significant influence,” we have accounted for this investment under the equity method. From the commencement of our ownership in the LLC through December 31, 2019, there was no material income or loss recognized by the LLC; thus, no net income or loss was recorded by us during the year ended December 31, 2019. Our combined 25.0% ownership interest in the LLC, which had an aggregate carrying value of approximately $587,000 as of December 31, 2019, is included within Other assets, net on the accompanying Consolidated Balance Sheet.
(7) 
In connection with this acquisition, we executed two separate lease agreements with two different, unrelated third-party tenants. The lease term of 3.3 years represents the weighted-average term of the two leases. In addition, pursuant to one of these lease agreements, we committed to provide up to $1.0 million for certain irrigation improvements on the property.
(8) 
In connection with the acquisition of this property, we committed to provide up to approximately $4.0 million as additional compensation, contingent upon the County of Napa approving the planting of additional vineyards on up to 47 acres of the property by February 25, 2020. We are currently unable to estimate when this approval will be obtained, if at all. If approval is obtained, we have also committed to contribute up to 40,000 per approved acre for the development of such vineyards. As provided for in the lease, we will earn additional rent on all of the aforementioned costs, if any, incurred by us.
(9) 
In connection with the acquisition of this property, we executed a 10-year, follow-on lease with a new, unrelated third-party tenant that will commence upon the expiration of the three-month lease executed on the date of acquisition. The follow-on lease provides for minimum annualized straight-line rents of approximately $630,000, plus a participation rent component based on the gross revenues earned on the farm. The farm is expected to be converted to organic farmland by the second half of 2021. In addition, the incoming tenant intends to construct a building on a portion of the property to act as its headquarters, and pursuant to the follow-on lease, we are obligated to purchase the building from the tenant at a price approximately equal to the total construction cost. Construction of this building has not yet begun, and we are unable to estimate the total cost of the building at this time. As stipulated in the follow-on lease, we will earn additional rent on the total construction cost of the building as disbursements are made by us
(10) 
In connection with this acquisition, we executed a four-month leaseback agreement with the seller that provides for a fixed rental payment of $250,000. In addition, we also executed a 10-year, follow-on lease with a new, unrelated third-party tenant that will commence upon the expiration of the four-month leaseback agreement. The follow-on lease provides for minimum annualized straight-line rents of approximately $372,000, plus a participation rent component based on the gross revenues earned on the farm. In addition, the farm is expected to be converted to organic farmland by the second half of 2021.
2018 New Real Estate Activity  
Property, Plant and Equipment [Line Items]  
Summary Information About Real Estate Properties
During the year ended December 31, 2018, we acquired 13 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
 
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

 
197

 
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

 
61

 
523

 
4,110

Sunnyside Avenue(4)
 
Madera, CA
 
11/1/2018
 
951
 
1
 
Figs and Pistachios
 
8.0 years
 
2 (5 years)
 
23,000

 
65

 
1,237

 
13,800

Bunker Hill(5)
 
Hartley, TX
 
11/20/2018
 
3,667
 
1
 
Chip Potatoes
 
1.1 years
 
None
 
8,400

 
37

 
356

 
5,280

Olsen Road(4)(6)
 
Merced, CA
 
12/6/2018
 
761
 
1
 
Almonds
 
0.9 years
 
3 (5 years) & 1 (3 years)
 
8,181

 
45

 
25

 

 
 
 
 
 
 
12,114
 
13
 
 
 
 
 
 
 
$
91,426

 
$
511

  
$
4,581

 
$
49,893

 
(1) 
Annualized straight-line rent is based on the minimum cash rental payments guaranteed under the respective leases, 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 provide 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 lease).
(4) 
Leases provide for a participation rent component based on the gross crop revenues earned on the respective farms. The rent figures above represent only the minimum cash guaranteed under the respective leases.
(5) 
Purchase price is net of a $100,000 credit provided to us by the seller.
(6) 
Lease provided for an initial rent payment of approximately $471,000 to be paid upon commencement of the lease, with all subsequent annual rent payments to be participation rents based on the gross revenues earned on the farm. In accordance with GAAP, the initial rent payment (which represents the only cash rental payment guaranteed under the lease) is being recognized over the full term of the lease, including all tenant renewal options (which management believes to represent the minimum lease term, as defined by GAAP).