Gladstone Land Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Real Estate and Intangible Assets (Tables)

Real Estate and Intangible Assets (Tables)

12 Months Ended

Dec. 31, 2020

Summary Information About Real Estate Properties

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).

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, 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

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, 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

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.

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:	2021	$	664	$	(26)
	2022	623		43
	2023	589		35
	2024	523		25
	2025	438		25
	Thereafter	895		316
		$	3,732	$	418

Schedule of Asset 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, 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.

Recognized Identified 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, 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.

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, 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

Future Operating Lease Payments from Tenants under Non-Cancelable Leases

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