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

Real Estate and Intangible Assets

9 Months Ended

Sep. 30, 2024

All of our properties are wholly-owned on a fee-simple basis, except where noted. The following table provides certain summary information about the 168 farms we owned as of September 30, 2024 (dollars in thousands, except for footnotes):


Location	No. of Farms	Total Acres	Farm Acres	Acre-feet of Water Assets	Net Cost Basis(1)		Encumbrances(2)
California(3)(4)(5)	63	34,844	32,321	53,787	$	847,368	$	370,471
Florida	25	18,720	13,891	0	166,313		77,194
Washington	6	2,520	2,004	0	57,008		15,550
Arizona(6)	6	6,320	5,333	0	50,509		11,814
Colorado	12	32,773	25,577	0	45,669		13,992
Nebraska	9	7,782	7,050	0	30,053		9,912
Oregon(7)	6	898	736	0	29,192		11,013
Michigan	23	1,892	1,245	0	20,290		13,516
Texas	1	3,667	2,219	0	8,045		—
Maryland	6	987	863	0	7,980		4,218
South Carolina	3	597	447	0	3,474		2,100
Georgia	2	230	175	0	2,250		1,600
North Carolina	2	310	295	0	2,086		—
New Jersey	3	116	101	0	2,057		1,203
Delaware	1	180	140	0	1,285		677
	168	111,836	92,397	53,787	$	1,273,579	$	533,260

(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 and Lease intangibles, net; plus long-term water assets and related acquisition costs, 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 deferred revenue attributable to tenant-funded improvements included in Other liabilities, net; each as shown on the accompanying Condensed Consolidated Balance Sheets.

(2)Excludes approximately $2.6 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 September 30, 2024, this investment had a net carrying value of approximately $885,000 and is included within Other assets, net on the accompanying Condensed Consolidated Balance Sheets.

(4)Includes eight acres in which we own a leasehold interest via a ground lease with a private individual that expires in December 2040 and five acres in which we own a leasehold interest via a ground sublease with a California municipality that expires in December 2041. As of September 30, 2024, these two ground leases had a net cost basis of approximately $661,000 and are included in Lease intangibles, net on the accompanying Condensed Consolidated Balance Sheets.

(5)Includes 48,309 acre-feet of water stored with Semitropic Water Storage District, located in Kern County, California, and 5,478 surplus water credits in our account with Westlands Water District, located in Fresno County, California. See “—Investments in Water Assets” below for additional information.

(6)Includes two farms consisting of 1,368 total acres and 1,221 farm acres in which we own leasehold interests via two ground leases with the State of Arizona that expire in February 2025 and February 2032, respectively. As of September 30, 2024, these ground leases had an aggregate net cost basis of approximately $126,000 and are 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 September 30, 2024, this investment had a net carrying value of approximately $4.7 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 September 30, 2024, and December 31, 2023 (dollars in thousands):


	September 30, 2024		December 31, 2023
Real estate:
Land and land improvements	$	791,130	$	792,277
Permanent plantings	352,455		359,131
Irrigation and drainage systems	170,841		168,545
Farm-related facilities	50,154		50,517
Other site improvements	13,480		13,272
Real estate, at cost	1,378,060		1,383,742
Accumulated depreciation	(163,134)		(142,212)
Total real estate, net	$	1,214,926	$	1,241,530

Real estate depreciation expense on these tangible assets was approximately $8.5 million and $25.6 million for the three and nine months ended September 30, 2024, respectively, and approximately $9.0 million and $26.7 million for the three and nine months ended September 30, 2023, respectively.

Intangible Assets and Liabilities

The following table summarizes the carrying values of certain lease intangible assets and the related accumulated amortization as of September 30, 2024, and December 31, 2023 (dollars in thousands):


	September 30, 2024		December 31, 2023
Lease intangibles:
Leasehold interest – land	$	3,372	$	4,295
In-place lease values	2,425		2,470
Leasing costs	2,945		3,017
Other(1)	141		141
Lease intangibles, at cost	8,883		9,923
Accumulated amortization	(4,939)		(5,141)
Lease intangibles, net	$	3,944	$	4,782

(1)Other includes tenant relationships and acquisition-related costs allocated to miscellaneous lease intangibles.

Total amortization expense related to these lease intangible assets was approximately $318,000 and $838,000 for the three and nine months ended September 30, 2024, respectively, and approximately $244,000 and $752,000 for the three and nine months ended September 30, 2023, 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 September 30, 2024, and December 31, 2023 (dollars in thousands):


	September 30, 2024				December 31, 2023
Intangible Asset or Liability	Deferred Rent Asset (Liability)		Accumulated (Amortization) Accretion		Deferred Rent Asset (Liability)		Accumulated (Amortization) Accretion
Above-market lease values(1)	$	695	$	(178)	$	695	$	(121)
Below-market lease values(2)	(1,944)		1,016		(1,944)		624
Lease incentives and other deferred revenue, net(3)	14,719		(2,049)		675		(126)
	$	13,470	$	(1,211)	$	(574)	$	377

(1)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, net on the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income.

(2)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, net on the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income.

(3)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, net on the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income. Other deferred revenue primarily is primarily attributable to tenant-funded improvements and is 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, net on the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income.

Total amortization related to above-market lease values was approximately $19,000 and $57,000 for the three and nine months ended September 30, 2024, respectively, and approximately $19,000 and $58,000 for the three and nine months ended September 30, 2023, respectively. Total accretion related to below-market lease values was approximately $203,000 and $392,000 for the three and nine months ended September 30, 2024, respectively, and approximately $42,000 and $131,000 for

the three and nine months ended September 30, 2023, respectively. Total net accretion (amortization) related to lease incentives and other deferred revenue, net was approximately $456,000 and $(201,000) for the three and nine months ended September 30, 2024, respectively, and approximately $(36,000) and $(73,000) for the three and nine months ended September 30, 2023, respectively.

Acquisitions

We did not acquire any new farms during either of the three or nine months ended September 30, 2024 or 2023.

Property Sale

On January 11, 2024, we completed the sale of a 3,748-acre farm in Martin County, Florida, for approximately $65.7 million. Including closing costs, we recognized a net gain on the sale of approximately $10.4 million.

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 September 30, 2024, our aggregate ownership interest in the Fresno LLC and the Umatilla LLC was 50.0% and 20.5%, 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.

We recorded an aggregate gain (loss) of approximately $28,000 and $(143,000) during the three and nine months ended September 30, 2024, respectively, and an aggregate loss of approximately $24,000 and $84,000 during the three and nine months ended September 30, 2023, respectively (included in Gain (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 the Umatilla LLC. As of September 30, 2024, and December 31, 2023, our combined ownership interest in the Fresno LLC and the Umatilla LLC had an aggregate carrying value of approximately $5.6 million and $5.8 million, respectively, and is included within Other assets, net on the accompanying Condensed Consolidated Balance Sheets.

Investments in Water Assets

Semitropic Water Storage District Banked Water

In connection with the acquisition of certain farmland located in Kern County, California, in 2021, 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. Subsequently in 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.

In addition, since the initial acquisition, additional contracts to purchase banked water held by SWSD were conveyed to us by one of our tenants as partial consideration for rent payments owed. The following table summarizes the total acre-feet of banked water obtained through exercising these contracts as of September 30, 2024 (dollars in thousands):


Period Acquired	Acre-feet of Banked Water Available to Purchase per Contract	Acre-feet of Banked Water Purchased(1)	Value Attributed to Contract(2)		Cost to Exercise Contract		Total Carrying Value of Banked Water Purchased
Three months ended December 31, 2023	1,003	1,003	$	401	$	61	$	463
Three months ended March 31, 2024	2,306	2,306	923		141		1,064
Total	3,309	3,309	$	1,324	$	202	$	1,527

(1)All contracts to purchase additional banked water were exercised in the same quarter in which the respective contract was conveyed to us.

(2)Represents noncash income received during the respective periods. The straight-line impact of these receipts is included within Lease revenue, net on the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income.

All banked water acquired was recognized at cost, including the subsequent cost to execute the contracts and any administrative fees necessary to transfer the water to our banked water account. As of September 30, 2024, the 48,309 acre-feet of banked water held by SWSD was recognized as a long-term water asset and had an aggregate carrying value of approximately $35.5 million (included within Other assets, net on our Condensed Consolidated Balance Sheets).

Westlands Water District Groundwater Credits

In addition, from May 2023 through March 2024, we elected to participate in a groundwater recharge program established by Westlands Water District (“WWD”), a water district located in Fresno County, California. Under the program, WWD paid for surplus surface water to be delivered to individual landowners’ properties with district-approved groundwater recharge facilities, also known as “water banks.” The landowner was allowed to keep 50% of the net amount of groundwater credits generated under the program (after allowing for certain leave-behind and evaporative losses), and the remaining 50% was used to recharge the aquifer and retained by WWD. Delivery of water under this program was subject to surplus water availability at WWD’s discretion. WWD terminated the program for the 2024 water year effective March 5, 2024. Through September 30, 2024, we have recognized 2,660 acre-feet of water credits, which represents 50% of the total net water credits generated and confirmed by WWD under the program as of such date. As of September 30, 2024, these water credits were recognized as a long-term water asset and had an aggregate carrying value of approximately $753,000 (included within Other assets, net on our Condensed Consolidated Balance Sheets). In addition, as a result of being granted these water credits in exchange for transferring and storing this surplus water on behalf of WWD, we recognized approximately $0 and $453,000 of non-cash revenue during the three and nine months ended September 30, 2024, respectively, which represents the estimated fair value of the water credits obtained during the period. No such revenue was recorded during either of the prior-year periods.

Other Groundwater Credits

During 2023 and 2024, we also entered into various other agreements with certain third parties (including local water districts and private individuals) to either buy water directly, buy a portion of other water districts’ surface water allocations in future years in which allocations are granted, or to store surface water on others’ behalf in one of our groundwater recharge facilities in exchange for a portion of the net groundwater credits produced and recognized by the respective water district. Through September 30, 2024, we have obtained 2,819 acre-feet of water credits as a result of these agreements, which were recognized as a long-term water asset with an aggregate carrying value of approximately $535,000 (included within Other assets, net on our Condensed Consolidated Balance Sheets).

Total Long-term Water Assets

As of September 30, 2024, and December 31, 2023, we owned a total of 53,787 acre-feet and 46,400 acre-feet, respectively, of long-term water assets, and our investments in these assets had an aggregate carrying value of approximately $36.8 million and $34.6 million, respectively, and are included within Other assets, net on our Condensed Consolidated Balance Sheets.

We have invested approximately $1.4 million to construct groundwater recharge facilities on two of our farms, which is included within Real estate, at cost on our Condensed Consolidated Balance Sheets. In addition, through September 30, 2024, we have invested an additional $3.3 million in the aggregate in connection with these agreements that are expected to result in additional groundwater credits in the future; however, the amount and timing of these credits, if any, is currently unknown and is dependent upon and subject to the recognition of such credits by the respective water districts, in their sole discretion. Such costs are held in a deferred asset account (also included within Other assets, net on our Condensed Consolidated Balance Sheets) until the related net water credits become estimable and are recognized by the respective water district, at which time the costs would be reclassed to investments in long-term water assets.

Portfolio Concentrations

Credit Risk

As of September 30, 2024, 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 nine months ended September 30, 2024.

Geographic Risk

Farms located in California and Florida accounted for approximately $43.3 million (68.1%) and $9.1 million (14.3%), respectively, of the total lease revenue recorded during the nine months ended September 30, 2024. We seek to continue to further diversify geographically, as may be desirable or feasible. If an unexpected natural disaster (such as an earthquake, wildfire, flood, or hurricane) occurs or climate change impacts the regions where our properties are located, there could be a material adverse effect on our financial performance and ability to continue operations. To date, none of our farms have been materially impacted by natural disasters. See “—California Floods” and “—Southeastern U.S. Hurricanes” below for a discussion on damage caused on certain of our farms by the January 2023 floods that occurred in California and by the hurricanes that occurred in the Southeastern U.S. in September and October 2024. Besides California and Florida, no other single state accounted for more than 10.0% of the total lease revenue recorded during the nine months ended September 30, 2024.

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, and we estimated the carrying value of such structures to be approximately $855,000. As such, during the year ended December 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, net on our Condensed Consolidated Statements of Operations and Comprehensive Income. Certain of our other farms in California suffered minor damage as a result of the floods, but no other farms were materially impacted.

In addition, in February 2024, certain parts of California, particularly the southern part of the state, experienced a “one-in-one-thousand year” rainfall event, as atmospheric river storms caused widespread flooding and mudslides in multiple areas. Certain of our farms suffered minor damage as a result of the storms, but no farms were materially impacted.

Southeastern U.S. Hurricanes

In September and October 2024, Hurricanes Helene and Milton caused widespread destruction across many states in the Southeastern U.S., including areas where several of our farms are located.

As a result of Hurricane Helene in September 2024, one of our farms in Georgia suffered damage to certain permanent plantings on the farm, and we estimated the carrying value of such plantings to be approximately $275,000. As such, during the three months ended September 30, 2024, we wrote down the carrying value of these plantings and also recorded a corresponding property and casualty loss, included within Property and casualty loss, net on our Condensed Consolidated Statements of Operations and Comprehensive Income. Certain of our other farms in the region suffered minor damage as a result of Hurricane Helene, but no other farms were materially impacted.

As a result of Hurricane Milton in October 2024, a portion of a cooling facility located on one of our farms in Florida suffered minor water damage. We are unable to estimate the extent of the damage at this time; however, we do not expect the cost of repairs to be material, and we expect the damage to be fully covered by insurance. We are still assessing the overall impact of Hurricane Milton. While planting may be slightly delayed, we do not expect any material impact to our farms or our tenants’ operations as a result of Hurricane Milton.

Impairment

We evaluate our entire portfolio each quarter for any impairment indicators and perform an impairment analysis on those select properties and water assets that have an indication of impairment. If this analysis indicates that the carrying value may not be recoverable, an impairment loss is recorded in earnings equal to the amount by which the carrying value exceeds the fair value of the asset. During the three months ended September 30, 2024, as a result of shortening our assumed holding periods for certain farms, we recognized an aggregate impairment charge of approximately $2.1 million on portions of four properties (encompassing a total of 11 farms) located in Allegan and Van Buren, Michigan, due to the estimated fair values being lower than the respective carrying values. Our estimates of fair value were determined based on expected sales prices per certain agreements entered into subsequent to September 30, 2024 (see Note 11, “Subsequent Events—Portfolio Activity—Dispositions,” for further discussion on the potential sale of these farm). We did not record any impairment charges during 2023.