Quarterly report pursuant to Section 13 or 15(d)

Real Estate and Intangible Assets

v3.23.1
Real Estate and Intangible Assets
 3 Months Ended
Mar. 31, 2023
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 169 farms we owned as of March 31, 2023 (dollars in thousands, except for footnotes):
Location No. of Farms Total
Acres		 Farm Acres Acre-feet
of Water
Net Cost Basis(1)
Encumbrances(2)
California(3)(4)(5)
63 34,844 32,321 45,000 $ 862,632  $ 399,914 
Florida 26 22,606 17,639 0 222,844  101,171 
Washington 6 2,529 1,997 0 63,332  21,005 
Arizona(6)
6 6,320 5,333 0 53,760  12,544 
Colorado 12 32,773 25,577 0 46,302  15,086 
Nebraska 9 7,782 7,050 0 30,718  11,897 
Oregon(7)
6 898 736 0 29,724  11,647 
Michigan 23 1,892 1,245 0 23,704  14,036 
Texas 1 3,667 2,219 0 8,157  4,878 
Maryland 6 987 863 0 8,082  4,406 
South Carolina 3 597 447 0 3,610  2,170 
Georgia 2 230 175 0 2,709  1,667 
North Carolina 2 310 295 0 2,151  — 
New Jersey 3 116 101 0 2,110  1,256 
Delaware 1 180 140 0 1,306  707 
169 115,731 96,138 45,000 $ 1,361,141  $ 602,384 
(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 Total real estate, net (excluding improvements paid for by the tenant) and Lease intangibles, net; plus long-term water assets, net above-market lease values, lease incentives, and 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 Condensed Consolidated Balance Sheets.
(2)Excludes approximately $3.3 million of debt issuance costs related to notes and bonds payable, included in Notes and bonds payable, net on the accompanying Condensed Consolidated Balance Sheets.
(3)Includes ownership in a special-purpose LLC that owns a pipeline conveying water to certain of our properties. As of March 31, 2023, this investment had a net carrying value of approximately $1.0 million and is included within Other assets, net on the accompanying Condensed Consolidated Balance Sheets.
(4)Includes five acres in which we own a leasehold interest via a ground sublease with a California municipality that expires in December 2041. The ground sublease had a net cost basis of approximately $715,000 as of March 31, 2023 (included in Lease intangibles, net on the accompanying Condensed Consolidated Balance Sheets).
(5)Includes 45,000 acre-feet of water stored with Semitropic Water Storage District, located in Kern County, California. See “—Investments in Water Assets” below for additional information on this water.
(6)Includes two farms in which we own a leasehold interest via ground leases with the State of Arizona that expire in February 2025 and February 2032, respectively. In total, these two ground leases consist of 1,368 total acres and 1,221 farm acres and had an aggregate net cost basis of approximately $627,000 as of March 31, 2023 (included in Lease intangibles, net on the accompanying Condensed Consolidated Balance Sheets).
(7)Includes ownership in a special-purpose LLC that owns certain irrigation infrastructure that provides water to two of our farms. As of March 31, 2023, this investment had a net carrying value of approximately $4.8 million and is included within Other assets, net on the accompanying Condensed Consolidated Balance Sheets.
Real Estate
The following table sets forth the components of our investments in tangible real estate assets as of March 31, 2023, and December 31, 2022 (dollars in thousands):
March 31, 2023 December 31, 2022
Real estate:
Land and land improvements $ 845,684  $ 845,779 
Permanent plantings 358,259  358,249 
Irrigation and drainage systems 165,673  165,438 
Farm-related facilities 48,760  48,690 
Other site improvements 13,385  14,238 
Real estate, at cost 1,431,761  1,432,394 
Accumulated depreciation (115,578) (106,966)
Total real estate, net $ 1,316,183  $ 1,325,428 
Real estate depreciation expense on these tangible assets was approximately $8.9 million and $8.1 million for the three months ended March 31, 2023 and 2022, respectively.
Included in the table 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 March 31, 2023, and December 31, 2022, we recorded tenant improvements, net of accumulated depreciation, of approximately $2.9 million and $3.0 million, respectively. We recorded both depreciation expense and additional lease revenue related to these tenant improvements of approximately $148,000 and $103,000 for the three months ended March 31, 2023 and 2022, respectively.
Intangible Assets and Liabilities
The following table summarizes the carrying values of certain lease intangible assets and the related accumulated amortization as of March 31, 2023, and December 31, 2022 (dollars in thousands):
March 31, 2023 December 31, 2022
Lease intangibles:
Leasehold interest – land $ 4,295  $ 4,295 
In-place lease values 2,763  2,763 
Leasing costs 3,144  3,088 
Other(1)
141  133 
Lease intangibles, at cost 10,343  10,279 
Accumulated amortization (4,825) (4,577)
Lease intangibles, net $ 5,518  $ 5,702 
(1)Other consists primarily of acquisition-related costs allocated to miscellaneous lease intangibles.
Total amortization expense related to these lease intangible assets was approximately $252,000 and $266,000 for the three months ended March 31, 2023 and 2022, 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 Condensed Consolidated Balance Sheets and the related accumulated amortization or accretion, respectively, as of March 31, 2023, and December 31, 2022 (dollars in thousands):
  March 31, 2023 December 31, 2022
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)
$ 4,691  $ (734) $ 4,702  $ (585)
Below-market lease values and other deferred revenue(2)
(2,010) 562  (2,010) 518 
$ 2,681  $ (172) $ 2,692  $ (67)
(1)Net 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 Lease revenue on the accompanying Condensed 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 Condensed Consolidated Balance Sheets, and the related accretion is recorded as an increase to Lease revenue on the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income.
Total amortization related to above-market lease values and lease incentives was approximately $159,000 and $82,000 for the three months ended March 31, 2023 and 2022, respectively. Total accretion related to below-market lease values and other deferred revenue was approximately $44,000 and $45,000 for the three months ended March 31, 2023 and 2022, respectively.
Acquisitions
We did not acquire any new farms during either of the three months ended March 31, 2023 or 2022.
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 limited liability company (the “Fresno LLC”), the sole purpose of which is to own and maintain a pipeline conveying water to our and other neighboring properties. In addition, in connection with the acquisition of certain farmland located in Umatilla County, Oregon, we also acquired an ownership in a related limited liability company (the “Umatilla LLC”), the sole purpose of which is to own and maintain an irrigation system providing water to our and other neighboring properties.
As of March 31, 2023, our aggregate ownership interest in the Fresno LLC and the Umatilla LLC was 50.0% and 20.4%, respectively. As our investments in the Fresno LLC and Umatilla LLC are both deemed to constitute “significant influence,” we have accounted for these investments under the equity method.
During the three months ended March 31, 2023 and 2022, we recorded an aggregate loss of approximately $27,000 and $29,000, respectively (included in Loss from investments in unconsolidated entities on our Condensed Consolidated Statements of Operations and Comprehensive Income), which represents our pro-rata share of the aggregate loss recognized by the Fresno LLC and Umatilla LLC. As of both March 31, 2023, and December 31, 2022, our combined ownership interest in the Fresno LLC and Umatilla LLC had an aggregate carrying value of approximately $5.8 million and is included within Other assets, net on the accompanying Condensed Consolidated Balance Sheets.
Investments in Water Assets
In connection with the acquisition of certain farmland located in Kern County, California, we also acquired three contracts to purchase an aggregate of 45,000 acre-feet of banked water held by Semitropic Water Storage District (“SWSD”), a water storage district located in Kern County, California, at a fixed price. The contracts to purchase the banked water could not readily be net settled by means outside of the contracts, and all rights and obligations associated with the purchase contracts were transferred to us at acquisition of the related farmland. We were not required to purchase a specific amount, or any, of the 45,000 acre-feet of water.
During the year ended December 31, 2021, we executed all three contracts to purchase all 45,000 acre-feet of banked water for an aggregate additional cost of approximately $2.8 million. The purchased banked water was recognized at cost, including any administrative fees necessary to transfer the water to our banked water account. While we may, in the future, sell the banked water to an unrelated third party for a profit, our current intent is to hold the water for the long-term for future use on our farms. There is no amount of time by which we must use the water held by SWSD.
As of March 31, 2023, the investment in banked water had a carrying value of approximately $34.0 million, which includes the subsequent cost to execute the contracts, and is included within Other assets, net on our Condensed Consolidated Balance Sheets.
Portfolio Concentrations
Credit Risk
As of March 31, 2023, our farms were leased to various different, unrelated third-party tenants, with certain tenants leasing more than one farm. No individual tenant represented greater than 10% of the total lease revenue recorded during the three months ended March 31, 2023.
Geographic Risk
Farms located in California and Florida accounted for approximately $13.6 million (64.2%) and $3.7 million (17.5%), respectively, of the total lease revenue recorded during the three months ended March 31, 2023. 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 climate 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, droughts, or hurricanes that occurred in those respective regions. See “—California Floods” below for a discussion on damage caused on certain of our farms by the recent floods that occurred in California. No other single state accounted for more than 10% of the total rental revenue recorded during the three months ended March 31, 2023.
California Floods
In January 2023, periods of heavy rainfall in California resulted in floods that impacted several areas of the state, including regions where certain of our farms are located. As a result of the flooding, one of our farms in the Central Valley suffered damage to certain structures located on the farm. We are still in the process of assessing the damage; however, as of March 31, 2023, we estimated the carrying value of the structures on this property damaged by the floods to be approximately $855,000. As such, during the three months ended March 31, 2023, we wrote down the carrying value of these structures and also recorded a corresponding property and casualty loss, included within Property and casualty (loss) recovery, net on our Condensed Consolidated Statements of Operations and Comprehensive Income. We currently expect the damage to be fully covered by either insurance or the tenant’s obligations pursuant to the lease. Certain of our other farms in California suffered minor damage as a result of the floods, but no other farms were materially impacted.
Impairment
We evaluate our entire portfolio each quarter for any impairment indicators and perform an impairment analysis on those select properties that have an indication of impairment. As of March 31, 2023, and December 31, 2022, we concluded that none of our properties were impaired. There have been no impairments recognized on our real estate assets since our inception.