Quarterly report pursuant to Section 13 or 15(d)

Real Estate and Intangible Assets (Tables)

v3.8.0.1
Real Estate and Intangible Assets (Tables)
9 Months Ended
Sep. 30, 2017
Summary Information of Farms
The following table provides certain summary information about our 72 farms as of September 30, 2017 (dollars in thousands, except for footnotes):
Location
 
No. of Farms
 
Total Acres
 
Farm Acres
 
Net Cost Basis(1)
 
Encumbrances(2)
California
 
27
 
7,921
 
7,156
 
$
202,181

 
$
145,819

Florida
 
17
 
11,225
 
9,027
 
117,549

 
76,072

Colorado
 
9
 
30,170
 
23,257
 
41,812

 
24,686

Arizona(3)
 
6
 
6,280
 
5,228
 
40,570

 
23,166

Oregon
 
4
 
2,313
 
2,003
 
19,755

 
12,528

Nebraska
 
2
 
2,559
 
2,101
 
10,667

 
6,602

Washington
 
1
 
746
 
417
 
9,525

 
5,460

Michigan
 
4
 
270
 
183
 
2,965

 
1,602

North Carolina
 
2
 
310
 
295
 
2,308

 
1,301

 
 
72
 
61,794
 
49,667
 
$
447,332

 
$
297,236

(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 included in Other assets; and less net below-market lease values and deferred revenue included in Other liabilities, each as shown on the accompanying Condensed Consolidated Balance Sheet.
(2) 
Excludes approximately $1.9 million of deferred financing 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 a net cost basis of approximately $3.3 million as of September 30, 2017 (included in Lease intangibles, net on the accompanying Condensed Consolidated Balance Sheet).
During the nine months ended September 30, 2017, we acquired 14 new farms in seven 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(1)
 
Renewal
Options
 
Total
Purchase
Price
 
Acquisition
Costs(2)
 
Annualized
Straight-line
Rent(3)
 
New
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(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

 
1,673

 
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

 
64

 
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

 
67

 
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

(5) 
5,460

 
 
 
 
 
 
11,202
 
14
 
 
 
 
 
 
 
$
121,847

 
$
436

 
$
6,692

 
$
71,668

(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 rent 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.
During the three and nine months ended September 30, 2017, in the aggregate, we recognized operating revenues of approximately $1.5 million and $3.0 million, respectively, and earnings of approximately $341,000 and $1.2 million, respectively, related to the above acquisitions.

2016 Acquisitions
During the nine months ended September 30, 2016, we acquired 13 new farms in seven 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)
 
Net
Long-term
Debt Issued
Gunbarrel Road (2)
 
Saguache, CO
 
3/3/2016
 
6,191
 
3
 
Organic Potatoes
 
5 years
 
1 (5 years)
 
$
25,736

 
$
119

(3) 
$
1,591

 
$
15,531

Calaveras Avenue
 
Fresno, CA
 
4/5/2016
 
453
 
1
 
Pistachios
 
10 years
 
1 (5 years)
 
15,470

 
39

(4) 
774

(5) 
9,282

Orange Avenue
 
St. Lucie, FL
 
7/1/2016
 
401
 
1
 
Vegetables
 
7 years
 
2 (7 years)
 
5,100

 
38

(4) 
291

 
3,120

Lithia Road
 
Hillsborough, FL
 
8/11/2016
 
72
 
1
 
Strawberries
 
5 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 years
 
1 (5 years)
 
6,323

 
73

(4) 
384

 

Diego Ranch(7)
 
Stanislaus, CA
 
9/14/2016
 
1,357
 
1
 
Almonds
 
3 years
 
3 (5 years) & 1 (3 years)
 
13,997

 
64

(3) 
621

 

Nevada Ranch
 
Merced, CA
 
9/14/2016
 
1,130
 
1
 
Almonds
 
3 years
 
3 (5 years) & 1 (3 years)
 
13,232

 
42

(3) 
574

 

 
 
 
 
 
 
16,988
 
13
 
 
 
 
 
 
 
$
81,558

 
$
413

 
$
4,332

 
$
28,953

(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) 
Leases 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) 
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.
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, 2017, and December 31, 2016 (dollars in thousands):
 
 
September 30, 2017
 
December 31, 2016
Real estate:
 
 
 
 
Land and land improvements
 
$
356,015

 
$
265,985

Irrigation systems
 
48,750

 
33,969

Buildings
 
17,790

 
14,671

Horticulture
 
30,967

 
17,759

Other improvements
 
6,244

 
4,993

Real estate, at cost
 
459,766

 
337,377

Accumulated depreciation
 
(15,376
)
 
(11,066
)
Real estate, net
 
$
444,390

 
$
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 lease intangible assets and the related accumulated amortization as of September 30, 2017, and December 31, 2016 (dollars in thousands):
 
 
September 30, 2017
 
December 31, 2016
Lease intangibles:
 
 
 
 
Leasehold interest – land
 
$
3,498

 
$

In-place leases
 
1,523

 
1,481

Leasing costs
 
1,511

 
1,086

Tenant relationships
 
439

 
706

Lease intangibles, at cost
 
6,971

 
3,273

Accumulated amortization
 
(1,175
)
 
(1,273
)
Lease intangibles, net
 
$
5,796

 
$
2,000

Total amortization expense related to these lease intangible assets was approximately $390,000 and $739,000 for the three and nine months ended September 30, 2017, respectively, and $207,000 and $582,000 for the three and nine months ended September 30, 2016, respectively.
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 Condensed Consolidated Balance Sheets and the related accumulated amortization or accretion, respectively, as of September 30, 2017, and December 31, 2016 (dollars in thousands).
 
 
September 30, 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)
 
$
46

 
$
(21
)
 
$
19

 
$
(14
)
Below-market lease values and deferred revenue(2)
 
(823
)
 
108

 
(785
)
 
61

 
 
$
(777
)
 
$
87

 
$
(766
)
 
$
47

(1) 
Above-market lease values and lease incentives are included as part of Other assets in the accompanying Condensed Consolidated Balance Sheets, and the related amortization is recorded as a reduction of rental income.
(2) 
Below-market lease values and deferred revenue are included as a part of Other liabilities in the accompanying Condensed Consolidated Balance Sheets, and the related accretion is recorded as an increase to rental income.
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, 2017 and 2016 is as follows (dollars in thousands):
Acquisition Period
 
Land and
Land
Improvements
 
Buildings
 
Irrigation
System
 
Other
Improvements
 
Horticulture
 
Leasehold
Interest –
Land
 
In-place
Leases
 
Leasing
Costs
 
Net Below-Market Leases
 
Total
Purchase
Price
2017 Acquisitions
 
$
89,614

 
$
2,804

 
$
11,534

 
$
824

 
$
12,611

 
$
3,488

 
487

 
$
508

 
$
(23
)
 
$
121,847

2016 Acquisitions
 
59,038

 
3,691

 
4,952

 
2,079

 
11,431

 

 
501

 
448

 
(582
)
 
81,558

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 nine months ended September 30, 2017 and 2016:
 
 
Weighted-Average
Amortization Period
(in Years)
Intangible Assets and Liabilities
 
2017
 
2016
Leasehold interest – land
 
6.9
 
In-place leases
 
6.3
 
8.7
Leasing costs
 
8.8
 
10.6
Above-market lease values
 
2.1
 
Below-market lease values and deferred revenue
 
4.7
 
20.9
All intangible assets and liabilities
7.0
 
14.0
Pro-Forma Condensed Consolidated Statements of Operations as Properties Acquired
The following table reflects pro-forma consolidated financial information as if each farm acquired during the nine months ended September 30, 2016, as part of a business combination was acquired on January 1, 2015. 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 (dollars in thousands, except share and per-share amounts).
 
 
For the three months ended September 30, 2016
 
For the nine months ended September 30, 2016
 
 
(Unaudited)
 
(Unaudited)
Operating Data:
 
 
 
 
Total operating revenue
 
$
4,718

 
$
13,286

Net income attributable to the company
 
$
212

 
$
594

Share and Per-share Data:
 
 
 
 
Earnings per share of common stock – basic and diluted
 
$
0.02

 
$
0.06

Weighted-average common shares outstanding – basic and diluted
 
10,018,331

 
10,001,466

Summary of Geographic Locations of Properties
The following table summarizes the geographic locations, by state, of our properties with leases in place as of September 30, 2017 and 2016 (dollars in thousands):
 
 
As of and For the Nine Months Ended September 30, 2017
 
As of and For the Nine Months Ended September 30, 2016
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
 
27
 
7,921
 
12.8%
 
$
8,749

 
47.8%
 
21
 
6,516
 
19.3%
 
$
6,986

 
56.4%
Florida
 
17
 
11,225
 
18.2%
 
4,839

 
26.5%
 
15
 
5,567
 
16.5%
 
2,408

 
19.4%
Colorado
 
9
 
30,170
 
48.8%
 
2,018

 
11.0%
 
8
 
13,575
 
40.1%
 
951

 
7.7%
Arizona
 
6
 
6,280
 
10.2%
 
1,114

 
6.1%
 
2
 
3,000
 
8.9%
 
544

 
4.4%
Oregon
 
4
 
2,313
 
3.7%
 
887

 
4.8%
 
4
 
2,313
 
6.8%
 
877

 
7.1%
Nebraska
 
2
 
2,559
 
4.2%
 
435

 
2.4%
 
2
 
2,559
 
7.6%
 
435

 
3.5%
Michigan
 
4
 
270
 
0.4%
 
187

 
1.0%
 
4
 
270
 
0.8%
 
187

 
1.5%
North Carolina
 
2
 
310
 
0.5%
 
42

 
0.2%
 
 
 
—%
 

 
—%
Washington
 
1
 
746
 
1.2%
 
31

 
0.2%
 
 
 
—%
 

 
—%
TOTALS
 
72
 
61,794
 
100.0%
 
$
18,302

 
100.0%
 
56
 
33,800
 
100.0%
 
$
12,388

 
100.0%