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)

9 Months Ended

Sep. 30, 2014

Summary Information of Twenty-Nine Farms

The following table provides certain summary information about our 29 farms as of September 30, 2014:


			Number						Lease
		Date	of		Total		Farmable		Expiration	Net Cost
Property Name	Location	Acquired	Farms		Acres		Acres		Date	Basis⁽¹⁾		Encumbrances
San Andreas	Watsonville, CA	6/16/1997		1		307		237	12/31/2020	$	4,836,147	$	3,250,940
West Gonzales	Oxnard, CA	9/15/1998		1		653		502	6/30/2020		12,241,930		16,539,852
West Beach	Watsonville, CA	1/3/2011		3		196		195	12/31/2023		8,406,970		3,166,864
Dalton Lane	Watsonville, CA	7/7/2011		1		72		70	10/31/2015		2,706,126		1,049,269
Keysville Road	Plant City, FL	10/26/2011		2		59		50	7/1/2016		1,230,757		—
Colding Loop	Wimauma, FL	8/9/2012		1		219		181	6/14/2018		3,924,951		—
Trapnell Road	Plant City, FL	9/12/2012		3		124		110	6/30/2017		4,146,807		2,655,000
38th Avenue	Covert, MI	4/5/2013		1		119		89	4/4/2020		1,451,684		501,093
Sequoia Street	Brooks, OR	5/31/2013		1		218		206	5/31/2028		3,156,674		1,158,381
Natividad Road	Salinas, CA	10/21/2013		1		166		166	10/31/2024		7,417,364		2,615,699
20th Avenue	South Haven, MI	11/5/2013		3		151		94	11/4/2018		1,901,569		747,343
Broadway Road	Moorpark, CA	12/16/2013		1		60		60	12/15/2023		2,957,471		1,121,014
Oregon Trail	Echo, OR	12/27/2013		1		1,895		1,640	12/31/2023		14,011,872		5,231,398
East Shelton	Willcox, AZ	12/27/2013		1		1,761		1,320	2/29/2024		7,798,747		2,503,597
Collins Road	Clatskanie, OR	5/30/2014		2		200		157	9/30/2024		2,560,286		—
Spring Valley	Watsonville, CA	6/13/2014		1		145		110	9/30/2016		5,914,002		2,204,660
McIntosh Road	Dover, FL	6/20/2014		2		94		78	6/30/2017		2,560,062		1,599,600
Naumann Road	Oxnard, CA	7/23/2014		1		68		64	7/31/2017		6,879,182		2,574,595
Sycamore Road	Arvin, CA	7/25/2014		1		326		322	10/31/2024		5,954,079		2,167,293
Wauchula Road	Duette, FL	9/29/2014		1		808		590	9/30/2024		13,888,500		8,259,000

				29		7,641		6,241		$	113,945,180	$	57,345,598

⁽¹⁾

Consists of the initial acquisition price (including the costs allocated to both tangible and intangible assets), plus subsequent improvements and other capitalized costs associated with the properties, and adjusted for depreciation and amortization accumulated through September 30, 2014.

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 September 30, 2014, and December 31, 2013:


	September 30, 2014			December 31, 2013
Real estate:
Land and land improvements	$	93,340,610		$	63,944,307
Irrigation system		11,592,166			6,007,845
Buildings and improvements		10,626,156			7,487,051
Horticulture		1,559,339			1,038,850

Real estate, gross		117,118,271			78,478,053
Accumulated depreciation		(3,934,269	)		(3,166,870	)

Real estate, net	$	113,184,002		$	75,311,183

Weighted Average Amortization Period for Intangible Assets Acquired and Liabilities Assumed

The following table shows the weighted-average amortization period, in years, for the intangible assets acquired and liabilities assumed in connection with the new properties acquired during the nine months ended September 30, 2014 and 2013:


Intangible Assets and Liabilities	2014		2013
In-place leases		3.7		—
Leasing commissions		6.3		12.7
Customer relationships		6.9		—
Above-market leases		3.0		—
Below-market leases		1.5		—

All intangible assets and liabilities		4.2		12.7

Pro-Forma Condensed Consolidated Statements of Operations as Properties Acquired

The table below reflects pro-forma financials for all farms acquired, regardless of whether they were treated as asset acquisitions or business combinations.


	For the Nine Months Ended September 30,
	2014			2013
	*(Unaudited)*			*(Unaudited)*
Operating Data:
Total operating revenue	$	6,113,996		$	4,466,815
Total operating expenses		(4,023,811	)		(2,605,718	)
Other expenses		(1,770,316	)		(1,463,264	)

Net income before income taxes		319,869			397,833
Provision for income taxes		(20,103	)		(262,746	)

Net income	$	299,766		$	135,087

Share and Per Share Data:
Earnings per share of common stock—basic and diluted	$	0.05		$	0.02

Weighted average common shares outstanding—basic and diluted		6,555,539			6,182,088

Carrying Value of Intangible Assets and Accumulated Amortization

The following table summarizes the carrying value of lease intangible assets and the accumulated amortization for each intangible asset class as of September 30, 2014, and December 31, 2013:


	September 30, 2014					December 31, 2013
	Lease Intangibles		Accumulated Amortization			Lease Intangibles		Accumulated Amortization
	Lease Intangibles		Accumulated Amortization			Lease Intangibles		Accumulated Amortization
In-place leases	$	664,603	$	(321,993	)	$	397,728	$	(241,697	)
Leasing costs		303,917		(66,866	)		146,558		(34,727	)
Customer relationships		250,371		(68,854	)		93,187		(49,985	)

	$	1,218,891	$	(457,713	)	$	637,473	$	(326,409	)

Aggregate Amortization Expense

The aggregate amortization expense for the remainder of 2014 and each of the five succeeding fiscal years and thereafter is as follows:


Period		Estimated Amortization Expense
Period		Estimated Amortization Expense
For the remaining three months ending December 31:	2014	$	76,130
For the fiscal years ending December 31:	2015		283,854
	2016		162,905
	2017		74,354
	2018		32,269
	2019		29,350
	Thereafter		102,316

		$	761,178

Summarizes Lease Expirations by Year for Properties with Leases

The following table summarizes the lease expirations by year for our properties with leases in place as of September 30, 2014:


Year	Number of Expiring Leases		Expiring Leased Acreage		% of Total Acreage			Rental Revenue for the Nine Months Ended September 30, 2014		% of Total Rental Revenue


2014 ⁽¹⁾		1		0		0.0	%	$	22,980		0.5	%
2015		1		72		0.9	%		106,875		2.2	%
2016		2		204		2.7	%		132,522		2.7	%
2017		3		286		3.8	%		297,611		6.2	%
2018		2		370		4.8	%		192,669		4.0	%
2019		0		0		0.0	%		—		0.0	%
Thereafter		12		6,709		87.8	%		4,075,376		84.4	%

Totals		21		7,641		100.0	%	$	4,828,033		100.0	%

⁽¹⁾	Includes a surface area lease on a portion of one property leased to an oil company that is renewed on a year-to-year basis.

Future Operating Lease Payments from Tenants under Non-Cancelable Leases

Future operating lease payments from tenants under all non-cancelable leases, excluding tenant reimbursement of expenses, for the remainder of 2014 and each of the five succeeding fiscal years and thereafter as of September 30, 2014, are as follows:


Period		Tenant Lease Payments
Period		Tenant Lease Payments
For the remaining three months ending December 31:	2014	$	1,823,917
For the fiscal years ending December 31:	2015		7,234,704
	2016		7,861,282
	2017		7,305,647
	2018		6,848,874
	2019		6,885,678
	Thereafter		19,447,671

		$	57,407,773

Summary of Geographic Locations of Properties

The following table summarizes the geographic locations of our properties with leases in place as of September 30, 2014 and 2013:


	As of and For the Nine Months Ended September 30, 2014												As of and For the Nine Months Ended September 30, 2013
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		11		1,993		26.1	%	$	3,260,272		67.5	%		6		1,228		62.4	%	$	2,408,110		84.2	%
Oregon		4		2,313		30.3	%		775,438		16.1	%		1		218		11.1	%		64,539		2.2	%
Florida		9		1,304		17.1	%		384,861		8.0	%		6		402		20.4	%		345,113		12.1	%
Arizona		1		1,761		23.0	%		217,899		4.5	%		0		0		0.0	%		—		0.0	%
Michigan		4		270		3.5	%		189,563		3.9	%		1		119		6.1	%		42,673		1.5	%

		29		7,641		100.0	%	$	4,828,033		100.0	%		14		1,967		100.0	%	$	2,860,435		100.0	%

2014 New Real Estate Activity [Member]

Summarized Information of Acquisition of Properties

During the nine months ended September 30, 2014, we acquired eight new farms in six separate transactions, which are summarized in the table below.

Number

Total

Annualized

Property

Acquisition

Total

Primary

Lease

Renewal

Purchase

Acquisition

Straight-line

Name

Location

Date

Acreage

Farms

Crop(s)

Term

Options

Price

Costs

Rent⁽¹⁾

Collins Road

Clatskanie, OR

5/30/2014

200

Blueberries

10.3 years

3 (5 years each)

2,591,333

60,870

⁽⁴⁾

181,172

Spring Valley

Watsonville, CA

6/13/2014

145

Strawberries

2.3 years

None

5,900,000

50,896

⁽⁴⁾

270,901

⁽⁶⁾

McIntosh Road

Dover, FL

6/20/2014

Strawberries

3.0 years

1 (3 years) / None⁽²⁾

2,666,000

60,676

⁽⁴⁾

133,154

⁽⁷⁾

Naumann Road

Oxnard, CA

7/23/2014

Strawberries

3.0 years

1 (3 years)

6,888,500

91,103

⁽⁴⁾

329,668

⁽⁶⁾

Sycamore Road

Arvin, CA

7/25/2014

326

Vegetables

1.3 years

None⁽³⁾

5,800,000

44,434

⁽⁴⁾

184,304

⁽⁶⁾

Wauchula Road

Duette, FL

9/29/2014

808

Strawberries

10.0 years

2 (5 years each)

13,765,000

123,500

⁽⁵⁾

888,439

⁽⁷⁾

1,641

37,610,833

431,479

1,987,638

⁽¹⁾

Annualized straight-line amount is based on the minimum rental payments required per the lease and includes the amortization of any above-market and below-market lease values recorded.

⁽²⁾

This property has separate tenants leasing each of the two farms. One lease provides for one 3-year renewal option, while the other does not include a renewal option.

⁽³⁾

Upon acquisition of this property, we assumed the in-place lease, which expires October 31, 2015. In addition, we executed a 9-year, follow-on lease with a new tenant that commences November 1, 2015. Under the terms of the follow-on lease, the tenant has one 3-year renewal option, and annualized, straight-line rents will be $311,760.

⁽⁴⁾

Acquisition accounted for as a business combination under ASC 805. As such, all acquisition-related costs were expensed as incurred, other than direct leasing costs, which were capitalized. We incurred $17,558 of direct leasing costs in connection with these acquisitions.

⁽⁵⁾

Acquisition accounted for as an asset acquisition under ASC 360. As such, all acquisition-related costs were capitalized and allocated among the identifiable assets acquired.

⁽⁶⁾

Acquisition funded through a draw on our New MetLife Credit Facility. Amount represents property’s proportionate share of the total borrowings outstanding under the New MetLife Credit Facility in relation to all properties pledged as collateral under the facility.

⁽⁷⁾

Represents new debt issued from Farm Credit (as defined in Note 5, “Borrowings—Farm Credit Notes Payable”).

Fair Value of Acquired Assets and Liabilities Assumed Related to Properties Acquired

We determined the fair value of acquired assets and liabilities assumed related to the properties acquired during the nine months ended September 30, 2014, to be as follows:


Property Name	Land and Land Improvements		Buildings		Irrigation System		Site Improvements		Horticulture⁽¹⁾		In-place Leases		Leasing Commissions⁽²⁾		Customer Relationships		Above (Below)- Market Leases			Total Acquisition Cost
Collins Road	$	1,252,387	$	555,667	$	—	$	126,719	$	520,993	$	45,086	$	71,085	$	24,796	$	—		$	2,596,733
Spring Valley		5,576,138		5,781		200,855		—		—		83,487		17,998		66,217		(49,976	)		5,900,500
McIntosh Road		1,970,074		30,745		537,254		2,846		—		34,674		18,041		27,966		45,675			2,667,275
Naumann Road		6,219,293		416,148		71,586		16,939		—		75,520		41,011		54,786		—			6,895,283
Sycamore Road		5,840,750		—		67,000		—		—		48,670		7,364		—		(160,184	)		5,803,600
Wauchula Road		8,460,516		1,790,922		3,519,032		112,830		—		—		5,200		—		—			13,888,500

	$	29,319,158	$	2,799,263	$	4,395,727	$	259,334	$	520,993	$	287,437	$	160,699	$	173,765	$	(164,485	)	$	37,751,891

⁽¹⁾

Horticulture acquired on Collins Road consists of various types of blueberry bushes.

⁽²⁾

Leasing commissions represent the allocable portion of the purchase price, as well as direct costs that were incurred related to reviewing and assigning leases we assumed upon acquisition. Direct leasing costs incurred in connection with properties acquired during the nine months ended September 30, 2014, that were accounted for as business combinations under ASC 805 totaled $17,558.

Summary of Total Revenue and Earnings Recognized on Properties Acquired

Below is a summary of the total revenue and earnings recognized on the properties acquired during the three and nine months ended September 30, 2014:


		For the Three Months Ended					For the Nine Months Ended
		September 30, 2014					September 30, 2014
Property Name	Acquisition Date	Rental Revenue⁽¹⁾		Earnings ⁽²⁾			Rental Revenue⁽¹⁾		Earnings⁽²⁾
Collins Road	5/30/2014	$	45,293	$	10,662		$	61,365	$	18,940
Spring Valley	6/13/2014		67,725		36,366			81,270		44,700
McIntosh Road	6/20/2014		20,549		(41,294	)⁽³⁾		24,733		(40,343	)⁽³⁾
Naumann Road	7/23/2014		62,920		44,514			62,920		44,514
Sycamore Road	7/25/2014		34,252		22,052			34,252		22,052
Wauchula Road	9/29/2014		4,868		4,868			4,868		4,868

		$	235,607	$	77,168		$	269,408	$	94,731

⁽¹⁾

Includes the amortization of any above- and below-market lease values recorded.

⁽²⁾

Earnings are calculated as net income less interest expense (if debt was issued to acquire the property), income taxes and any acquisition-related costs that are required to be expensed if the acquisition is treated as a business combination under ASC 805.

⁽³⁾

Includes $43,328 of lease intangibles that were written off during the three months ended September 30, 2014, related to the termination of a lease in September 2014 that we had assumed upon acquisition.

2013 New Real Estate Activity [Member]

Summarized Information of Acquisition of Properties

During the nine months ended September 30, 2013, we acquired two new farms in two separate transactions, which are summarized in the table below.

Number

Total

Annualized

Property

Acquisition

Total

Primary

Lease

Renewal

Purchase

Acquisition

Straight-line

Name

Location

Date

Acreage

Farms

Crop(s)

Term

Options

Price

Costs

Rent⁽¹⁾

38th Avenue

Covert, MI

4/5/2013

119

Blueberries

7.0 Years

1 (7 years)

1,341,000

38,200

⁽²⁾

87,286

Sequoia Street

Brooks, OR

5/31/2013

218

Blueberries

15.0 Years

3 (5 years each)

3,100,000

108,210

⁽²⁾

193,617

337

4,441,000

146,410

280,903

⁽¹⁾

Annualized straight-line amount is based on the minimum rental payments required per the lease and includes the amortization of any above-market or below-market lease values recorded.

⁽²⁾

Transaction accounted for as an asset acquisition under ASC 360; therefore, acquisition-related costs were capitalized and allocated among the assets acquired.

Fair Value of Acquired Assets and Liabilities Assumed Related to Properties Acquired

We determined the fair value of acquired assets and liabilities assumed related to the properties acquired during the nine months ended September 30, 2013, to be as follows:


Property Name	Land and Land Improvements		Buildings		Irrigation System		Horticulture⁽¹⁾		Leasing Commissions⁽²⁾		Total Assets Acquired


38th Avenue	$	647,431	$	42,720	$	240,105	$	447,035	$	3,842	$	1,381,133
Sequoia Street		2,494,911		279,496		424,268		—		9,535		3,208,210

	$	3,142,342	$	322,216	$	664,373	$	447,035	$	13,377	$	4,589,343

⁽¹⁾

Horticulture acquired on the 38th Avenue property consists of various types of high-bush variety blueberry bushes.

⁽²⁾

None of the purchase price was allocated to any intangibles; however, we incurred $ 13,377 of direct leasing costs in connection with the properties acquired during the nine months ended September 30, 2013.

Summary of Total Revenue and Earnings Recognized on Properties Acquired

Below is a summary of the total revenue and earnings recognized on the properties acquired during the nine months ended September 30, 2013:


			For the Three Months Ended September 30, 2013				For the Nine Months Ended September 30, 2013
Property Name	Acquisition Date		Rental Revenue		Earnings⁽¹⁾		Rental Revenue		Earnings⁽¹⁾
Property Name	Acquisition Date		Rental Revenue		Earnings⁽¹⁾		Rental Revenue		Earnings⁽¹⁾
38th Avenue		4/5/2013	$	21,821	$	12,377	$	42,673	$	23,674
Sequoia Street		5/31/2013		48,404		37,587		64,539		49,645

			$	70,225	$	49,964	$	107,212	$	73,319

⁽¹⁾	Earnings are calculated as net income less interest expense (if debt was issued to acquire the property), income taxes and any acquisition-related costs that are required to be expensed if the acquisition is treated as a business combination under ASC 805.