Annual report pursuant to Section 13 and 15(d)

Real Estate and Intangible Assets

v3.20.4
Real Estate and Intangible Assets
 12 Months Ended
Dec. 31, 2020
Real Estate [Abstract]  
Real Estate and Intangible Assets REAL ESTATE AND INTANGIBLE ASSETS
All of our properties are wholly-owned on a fee-simple basis, except where noted. The following table provides certain summary information about the 137 farms we owned as of December 31, 2020 (dollars in thousands, except for footnotes):
Location No. of Farms Total
Acres		 Farm Acres
Net Cost Basis(1)
Encumbrances(2)
California(3)
55 25,197 23,531 $ 621,549  $ 378,419 
Florida 23 20,770 16,256 209,732  130,068 
Arizona(4)
6 6,280 5,228 58,837  19,843 
Colorado 12 32,773 25,577 48,353  30,549 
Washington 3 1,384 1,001 39,467  25,475 
Nebraska 9 7,782 7,050 30,672  19,296 
Michigan 15 962 682 11,950  7,079 
Texas 1 3,667 2,219 8,328  5,117 
Maryland 4 759 693 6,308  3,728 
Oregon 3 418 363 6,127  3,898 
South Carolina 3 597 447 3,812  2,259 
North Carolina 2 310 295 2,245  1,206 
Delaware 1 180 140 1,274  753 
Totals 137 101,079 83,482 $ 1,048,654  $ 627,690 
(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 $3.6 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 certain of our properties. As of December 31, 2020, this investment had a net carrying value of approximately $1.2 million and is included within Other assets, net on the accompanying Consolidated Balance Sheets.
(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 $1.6 million as of December 31, 2020 (included in Lease intangibles, net on the accompanying Consolidated Balance Sheets).
Real Estate
The following table sets forth the components of our investments in tangible real estate assets as of December 31, 2020 and 2019 (dollars in thousands):
December 31, 2020 December 31, 2019
Real estate:
Land and land improvements $ 713,333  $ 583,247 
Permanent Plantings 202,420  107,941 
Irrigation and drainage systems 141,408  108,222 
Farm-related facilities 28,146  20,665 
Other site improvements 10,132  7,180 
Real estate, at gross cost 1,095,439  827,255 
Accumulated depreciation (49,236) (35,174)
Real estate, net $ 1,046,203  $ 792,081 
Real estate depreciation expense on these tangible assets was approximately $14.9 million and $11.2 million for the years ended December 31, 2020 and 2019, respectively.
Included in the figures above are amounts related to improvements made on certain of our properties paid for by our tenants but owned by us, or tenant improvements. As of December 31, 2020 and 2019, we recorded tenant improvements, net of accumulated depreciation, of approximately $2.0 million and $2.2 million, respectively. We recorded both depreciation expense and additional lease revenue related to these tenant improvements of approximately $304,000 and $292,000 during the years ended December 31, 2020 and 2019, respectively.
Intangible Assets and Liabilities
The following table summarizes the carrying value of certain lease intangible assets and the related accumulated amortization as of December 31, 2020 and 2019 (dollars in thousands):
December 31, 2020 December 31, 2019
Lease intangibles:
Leasehold interest – land $ 3,498  $ 3,498 
In-place leases 1,968  2,293 
Leasing costs 1,640  2,066 
Tenant relationships 127  414 
Lease intangibles, at gross cost 7,233  8,271 
Accumulated amortization (3,501) (3,444)
Lease intangibles, net $ 3,732  $ 4,827 
Total amortization expense related to these lease intangible assets, including amounts charged to amortization expense due to lease terminations, was approximately $1.7 million and $1.6 million for the years ended December 31, 2020 and 2019, respectively.
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, 2020 and 2019 (dollars in thousands):
  December 31, 2020 December 31, 2019
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)
$ 308  $ (154) $ 111  $ (41)
Below-market lease values and other deferred revenues(2)
(908) 336  (886) 257 
$ (600) $ 182  $ (775) $ 216 
(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.
Total amortization related to above-market lease values and lease incentives was approximately $203,000 and $128,000 for the years ended December 31, 2020 and 2019, respectively. Total accretion related to below-market lease values and other deferred revenues was approximately $113,000 and $172,000 for the years ended December 31, 2020 and 2019, respectively.
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: 2021 $ 664  $ (26)
2022 623  43 
2023 589  35 
2024 523  25 
2025 438  25 
Thereafter 895  316 
$ 3,732  $ 418 
Acquisitions
2020 Acquisitions
During the year ended December 31, 2020, 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)		 Lease
Term		 Renewal
Options		 Total
Purchase
Price
Acquisition
Costs(1)
 
Annualized
Straight-line
Rent(2)
County Road 18 Phillips, CO 1/15/2020 1,325 2 Sugar beets, edible beans, potatoes, & corn 6.0 years None $ 7,500  $ 39  $ 416 
Lamar Valley Chase, NE 5/7/2020 678 1 Potatoes, edible beans, & corn 6.7 years
2 (5 years)
 3,500  42  204 
Driver Road(3)
Kern, CA 6/5/2020 590 1 Pecans 4.7 years
2 (10 years)
 14,169  52  784 
Mt. Hermon Wicomico & Caroline, MD, and Sussex, DE 8/31/2020 939 5 Sod & vegetables 10.0 years
2 (5 years)
 7,347  226  432 
Firestone Avenue(4)(5)(6)
Fresno, CA 9/3/2020 2,534 3 Pistachios and misc. organic & conventional vegetables 1.2 years
2 (5 years)
 31,833  131  1,734 
West Lost Hills(4)(7)(8)
Fresno, CA 10/1/2020 801 1 Pistachios 1.1 years
4 (3 years)
 31,827  77  1,752 
Tractor Road Bamberg & Orangeburg, SC 10/23/2020 597 3 Sod 9.5 years None 3,765  72  244 
American Ave Fresno, CA 12/11/2020 236 1 Current: Table grapes; Future: Almonds 19.9 years
1 (5 years)
 3,600  50  241 
Round Mountain Ventura, CA 12/15/2020 368 3 Misc. vegetables 1.6 years None 20,750  64  949 
West Sierra Tulare, CA 12/17/2020 4,642 1 Almonds, pomegranates (conventional & organic), pistachios, and oats 9.9 years
1 (10 years)
 61,500  107  3,886 
Eight Mile Road(9)
San Joaquin, CA 12/24/2020 1,036 2 Conventional & organic blueberries 10.0 years
3 (5 years)
 34,300  81  2,030 
Rock Road(9)
Whatcom, WA 12/24/2020 638 2 Blueberries 10.0 years
3 (5 years)
 31,700  74  1,885 
Fountain Springs(4)
Tulare, CA 12/31/2020 160 1 Citrus (mandarins & lemons) 7.8 years
2 (5 years)
 4,200  50  252 
14,544 26 $ 255,991  $ 1,065     $ 14,809 
(1)Includes approximately $75,000 of aggregate external legal fees associated with negotiating and originating the leases associated with these acquisitions, which costs were expensed in the period incurred.
(2)Unaudited; 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)The lease provides for an initial term of 14.7 years and includes six tenant termination options throughout the initial term. The lease term stated above represents the term through the first available termination option, and the annualized straight-line rent amount represents the rent guaranteed through the noncancellable term of the lease.
(4)Lease provides for an annual participation rent component based on the gross crop revenues earned on the farm. The rent figure above represents only the minimum cash guaranteed under the lease.
(5)Lease provides for an initial term of 8.2 years but also includes an annual tenant termination option should the tenant become physically unable to continue farming operations on the property, effective as of the end of the then-current lease year (as defined within the lease). The lease term stated above represents the term through the first available termination option, and the annualized straight-line rent amount represents the rent guaranteed through the noncancellable term of the lease.
(6)In connection with the acquisition of this property, we also acquired an ownership interest in a related LLC, the sole purpose of which is to own and maintain a pipeline conveying water to this and other neighboring properties. Our acquired ownership, which equated to a 12.5% interest in the LLC, was valued at approximately $280,000 at the time of acquisition and is included within Other assets, net on the accompanying Consolidated Balance Sheets. See “Investments in Unconsolidated Entities” below for further information on our aggregate ownership interest in this LLC.
(7)Lease provides for an initial term of 3.1 years but also includes an annual tenant termination option should the tenant become physically unable to continue farming operations on the property, effective as of the end of the then-current lease year (as defined within the lease). The lease term stated above represents the term through the first available termination option, and the annualized straight-line rent amount represents the rent guaranteed through the noncancellable term of the lease.
(8)In connection with the acquisition of this property, we also acquired an ownership interest in a related LLC, the sole purpose of which is to own and maintain a pipeline conveying water to this and other neighboring properties. Our acquired ownership, which equated to a 12.5% interest in the LLC, was valued at approximately $294,000 at the time of acquisition and is included within Other assets, net on the accompanying Consolidated Balance Sheets. See “Investments in Unconsolidated Entities” below for further information on our aggregate ownership interest in this LLC.
(9)These two properties were acquired as part of a single transaction. In addition, in connection with the acquisition of these properties, we committed to provide up to $3.0 million as additional compensation for a cold storage facility subject to a ground lease, contingent upon the approval by local municipal entity. We are currently unable to estimate when or if this approval will be obtained.

During the year ended December 31, 2020, in the aggregate, we recognized operating revenues of approximately $2.5 million and net income of approximately $984,000 related to the above acquisitions.
2019 Acquisitions
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)
Somerset Road Lincoln, NE 1/22/2019 695 1 Popcorn & edible beans 4.9 years
1 (5 years)
 $ 2,400  $ 33  $ 126 
Greenhills Boulevard(3)
Madera, CA 4/9/2019 928 1 Pistachios 10.6 years
2 (5 years)
 28,550  141  1,721 
Van Buren Trail Van Buren, MI 5/29/2019 159 2 Blueberries & cranberries 10.6 years
2 (5 years)
 2,682  26  206 
Blue Star Highway Allegran & Van Buren, MI 6/4/2019 357 8 Blueberries 10.6 years
2 (5 years)
 5,100  30  390 
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 
San Juan Grade Road(4)
Monterey, CA 7/11/2019 324 1 Strawberries & vegetables 0.3 years None 9,000  68  632 
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 
Sutter Avenue
(Phase I)(3)(6)
Fresno, CA 8/16/2019 1,011 1 Pistachios 8.2 years
2 (5 years)
 33,000  146  2,106 
Las Posas Road(7)
Ventura, CA 8/28/2019 413 3 Sod & vegetables 3.3 years
1 (2 years)
 21,320  111  1,283 
Withers Road(8)
Napa, CA 8/29/2019 366 1 Wine grapes 10.3 years
2 (10 years)
 32,000  84  2,256 
Highway 17(9)
Hayes, NE 10/7/2019 2,561 3 Corn, soybeans, & edible beans 0.2 years None 9,690  44  489 
Indian Highway(10)
Hayes & Hitchcock, NE 10/7/2019 1,289 2 Corn, soybeans, & edible beans 0.3 years None 5,000  36  788 
Sutter Avenue
(Phase II)(3)(6)
Fresno, CA 11/1/2019 1,099 1 Pistachios 8.0 years
2 (5 years)
 37,000  73  2,365 
13,330 26 $ 252,722  $ 1,376  $ 16,682 
(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)Unaudited; 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 an annual 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 this property (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, and 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. Our acquired ownership in the LLC is included within Other assets, net on the accompanying Consolidated Balance Sheets. See “Investments in Unconsolidated Entities” below for further information on our aggregate ownership interest in this LLC.
(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. Subject to such approval, we 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. See below, under “Significant Existing Real Estate Activity—Property Add-on,” for additional information on the subsequent approval of additional vineyard plantings.
(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.
During the year ended December 31, 2019, in the aggregate, we recognized operating revenues of approximately $6.8 million and net income of approximately $2.4 million related to the above acquisitions.
Purchase Price Allocations
The allocation of the aggregate purchase price for the farms acquired during each of the years ended December 31, 2020 and 2019 is as follows (dollars in thousands):
Assets (Liabilities) Acquired 2020 Acquisitions 2019 Acquisitions
Land and Land Improvements $ 124,870  $ 164,681 
Permanent plantings 93,751  58,240 
Irrigation & Drainage Systems 26,837  26,184 
Farm-related Facilities 6,620  2,080 
Other Site Improvements 2,699  358 
In-Place Leases 395  560 
Leasing Costs 250  117 
Above-market Lease Values(1)
54  — 
Below-market Lease Values(2)
(58) (85)
Investment in LLC(1)
573  587 
Total Purchase Price $ 255,991  252,722 
(1)Included within Other assets, net on the accompanying Consolidated Balance Sheets.
(2)Included within Other liabilities, net on the accompanying Consolidated Balance Sheets.
Acquired Intangibles and Liabilities
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, 2020 and 2019:
Weighted-Average
Amortization Period (in Years)
Intangible Assets and Liabilities 2020 2019
In-place lease values 4.6 1.9
Leasing costs 8.3 3.0
Above-market lease values and lease incentives 10.0 0.0
Below-market lease values and other deferred revenue 1.3 2.5
All intangible assets and liabilities 5.9 2.1
Significant Existing Real Estate Activity
Property Add-on
In connection with the acquisition of Withers Road, 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 (the “Permit Deadline”). In addition, if approval was obtained, we also committed to contribute up to $40,000 per approved acre for the development of such vineyards. While approval of the additional plantings was not received from the County of Napa by the Permit Deadline, in March 2020, we executed an agreement with the tenant on Withers Road to extend the Permit Deadline until August 24, 2020.
In April 2020, we received notification from the County of Napa informing us that it had approved of additional vineyard plantings on 38.7 acres of the property. As such, in May 2020, we paid additional compensation related to this acquisition of approximately $3.2 million. As a result, and pursuant to a lease amendment, we will earn additional straight-line rental income of approximately $335,000 per year throughout the remaining term of the lease, which expires on December 31, 2029. We will also earn additional rent on any of the aforementioned development costs as they are incurred by us.
Investments in Unconsolidated Entities
In connection with the acquisition of certain farmland located in Fresno County, California, we also acquired an ownership in a related LLC, the sole purpose of which is to own and maintain a pipeline conveying water to our and other neighboring properties. As of December 31, 2020, our aggregate ownership interest in the LLC was 50.0%. As our investment in the LLC is deemed to constitute “significant influence,” we have accounted for this investment under the equity method.
During the year ended December 31, 2020, we recorded a loss of approximately $4,000 (included on our Condensed Consolidated Statements of Operations and Comprehensive Income as Income from investments in unconsolidated entities), which represented our pro-rata share of the loss recognized by the LLC. Prior to fiscal year 2020, we had not recorded any material income or loss related to our ownership interest in the LLC. Our combined ownership interest in the LLC, which had an aggregate carrying value of approximately $1.2 million and $587,000 as of December 31, 2020 and 2019, respectively, is included within Other assets, net on the accompanying Condensed Consolidated Balance Sheets.
Future Minimum Lease Payments
We account for all of our leasing arrangements in which we are the lessor as operating leases. The majority of our leases are subject to fixed rental increases, and a small subset of our lease portfolio includes lease payments based on an index, such as the consumer price index (“CPI”). In addition, several of our leases contain participation rent components based on the gross revenues earned on the respective farms. Most of our leases also include tenant renewal options; however, these renewal options are generally based on then-current market rental rates and are therefore typically excluded from the determination of the minimum lease term. Our leases do not generally include tenant termination options.
The following tables summarize the future lease payments to be received under noncancellable leases as of December 31, 2020 (dollars in thousands):
Period Tenant
Lease Revenue
For the fiscal years ending December 31, 2021 $ 59,079 
2022 54,697 
2023 53,332 
2024 47,880 
2025 44,144 
Thereafter 149,930 
$ 409,062 
Portfolio Concentrations
Credit Risk
As of December 31, 2020, our farms were leased to 81 different, unrelated third-party tenants, with certain tenants leasing more than one farm. No individual tenant represented greater than 10.0% of the total lease revenue recorded during the year ended December 31, 2020.
Geographic Risk
Farms located in California and Florida accounted for approximately $31.5 million (55.3%) and $13.3 million (23.4%), respectively, of the total lease revenue recorded during the year ended December 31, 2020. Though we seek to continue to further diversify geographically, as may be desirable or feasible, should an unexpected natural disaster (such as an earthquake, wildfire, or flood) occur or climactic change impact the regions where our properties are located, there could be a material adverse effect on our financial performance and ability to continue operations. None of our farms in California or Florida have been materially impacted by the recent wildfires or hurricanes that occurred in those respective regions. No other single state accounted for more than 10.0% of the total rental revenue recorded during the year ended December 31, 2020.