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)

6 Months Ended

Jun. 30, 2018

During the six months ended June 30, 2017, we acquired seven new farms, which are summarized in the table below (dollars in thousands).



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⁾			Net 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
			7,338	7				$	83,669	$	217	$	4,721		$	49,001


⁽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 rent 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.


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

The following table provides certain summary information about our 75 farms as of June 30, 2018 (dollars in thousands, except for footnotes):



Location	No. of Farms	Total Acres	Farm Acres	Net Cost Basis⁽¹⁾		Encumbrances⁽²⁾
California	29	8,241	7,465	$	211,344	$	147,559
Florida	16	10,980	8,822	115,376		72,782
Arizona⁽³⁾	6	6,280	5,228	49,956		22,677
Colorado	10	31,450	24,513	41,752		24,509
Oregon	4	2,313	2,003	19,863		11,934
Nebraska	2	2,559	2,101	10,545		6,602
Washington	1	746	417	9,115		5,325
Michigan	5	446	291	4,989		2,786
North Carolina	2	310	295	2,342		1,270
	75	63,325	51,135	$	465,282	$	295,444

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


⁽²⁾	Excludes approximately $2.0 million of debt issuance 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 $2.9 million as of June 30, 2018 (included in Lease intangibles, net on the accompanying Condensed Consolidated Balance Sheet).

During the six months ended June 30, 2018, we acquired two new farms, which are summarized in the table below (dollars in thousands):



Property Name	Property Location	Acquisition Date	Total Acreage	No. of Farms	Primary Crop(s)	Lease Term	Renewal Options	Total Purchase Price		Acquisition Costs⁽¹⁾		Annualized Straight-line Rent⁽²⁾		New Long-term Debt
Taft Highway⁽³⁾	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	N/A	2,100		39		150		1,260
			337	2				$	5,045	$	71	$	150	$	2,733


⁽¹⁾	Unless noted otherwise, acquisitions were accounted for as asset acquisitions under ASC 360.


⁽²⁾	Annualized straight-line rent is based on the minimum cash rental payments guaranteed under the lease, as required under GAAP.


⁽³⁾	Farm was purchased with no lease in place at the time of acquisition. On May 10, 2018, we entered into a new, short-term lease for a portion of the farm. The new lease is scheduled to expire on September 30, 2018, and provides for annualized straight-line rent of approximately $27,000.

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 June 30, 2018, and December 31, 2017 (dollars in thousands):



	June 30, 2018			December 31, 2017
Real estate:
Land and land improvements	$	360,576		$	356,316
Irrigation systems	62,158			50,282
Buildings	18,463			18,191
Horticulture	35,928			34,803
Other improvements	6,687			6,551
Real estate, at gross cost	483,812			466,143
Accumulated depreciation	(20,538		)	(16,657		)
Real estate, net	$	463,274		$	449,486

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 and the related accumulated amortization as of June 30, 2018, and December 31, 2017 (dollars in thousands):



	June 30, 2018			December 31, 2017
Lease intangibles:
Leasehold interest – land	$	3,498		$	3,498
In-place leases	1,404			1,451
Leasing costs	1,526			1,490
Tenant relationships	439			439
Lease intangibles, at cost	6,867			6,878
Accumulated amortization	(1,789		)	(1,386		)
Lease intangibles, net	$	5,078		$	5,492

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 Condensed Consolidated Balance Sheets and the related accumulated amortization or accretion, respectively, as of June 30, 2018, and December 31, 2017 (dollars in thousands):



	June 30, 2018						December 31, 2017
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		$	(9	)	$	26		$	(5	)
Below-market lease values and other deferred revenue⁽²⁾	(823		)	159			(823		)	125
	$	(797	)	$	150		$	(797	)	$	120


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


⁽²⁾	Below-market lease values and other deferred revenue are included as a part of Other liabilities, net on 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 six months ended June 30, 2018 and 2017 is as follows (dollars in thousands):



Acquisition Period	Land and Land Improvements		Buildings		Irrigation & Drainage Systems		Other Improvements		Horticulture		Leasehold Interest – Land		In-place Leases	Leasing Costs		Total Purchase Price
2018 Acquisitions	$	3,256	$	123	$	582	$	—	$	961	$	—	76	$	47	$	5,045
2017 Acquisitions	65,839		2,123		10,336		455		706		3,488		254	468		83,669

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 six months ended June 30, 2018 and 2017:



	Weighted-Average Amortization Period (in Years)
Intangible Assets and Liabilities	2018	2017
Leasehold interest – land	0.0	6.9
In-place leases	9.6	9.1
Leasing costs	9.6	9.2
Above-market lease values	0.0	2.1
Below-market lease values and deferred revenue	0.0	2.3
All intangible assets and liabilities	9.6	7.3

Summary of Geographic Locations of Properties

The following table summarizes the geographic locations, by state, of our farms with leases to unrelated third-party tenants in place as of June 30, 2018 and 2017 (dollars in thousands):



	As of and For the Six Months Ended June 30, 2018						As of and For the Six Months Ended June 30, 2017
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⁽¹⁾	29	8,241	13.0%	$	6,061	45.5%	22	6,713	11.6%	$	5,728	48.8%
Florida	16	10,980	17.3%	3,530		26.5%	16	9,315	16.1%	3,143		26.8%
Colorado	10	31,450	49.7%	1,372		10.3%	9	30,170	52.1%	1,345		11.4%
Arizona	6	6,280	9.9%	955		7.2%	6	6,280	10.8%	512		4.3%
Oregon	4	2,313	3.7%	618		4.6%	4	2,313	4.0%	589		5.0%
Nebraska	2	2,559	4.0%	290		2.2%	2	2,559	4.4%	290		2.5%
Washington	1	746	1.2%	242		1.8%	—	—	—%	—		—%
Michigan	5	446	0.7%	170		1.3%	4	270	0.5%	125		1.1%
North Carolina	2	310	0.5%	82		0.6%	2	310	0.5%	10		0.1%
TOTALS	75	63,325	100.0%	$	13,320	100.0%	65	57,930	100.0%	$	11,742	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 four of these growing regions.