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, 2017

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%