NOTE 3. REAL ESTATE AND LEASE INTANGIBLES

All of our properties are wholly-owned on a fee-simple basis. The following table provides certain summary information about our 32 farms as of December 31, 2014:

 

Property Name		Location		Date Acquired		Number of Farms				Total Acres				Farm Acres				Lease Expiration Date		Net Cost Basis(1)				Encumbrances
San Andreas		Watsonville, CA		6/16/1997			1				307				238			12/31/2020		$	4,826,248			$	4,220,586
West Gonzales		Oxnard, CA		9/15/1998			1				653				502			6/30/2020			12,406,298				21,473,134
West Beach		Watsonville, CA		1/3/2011			3				196				195			12/31/2023			8,979,337				4,111,433
Dalton Lane		Watsonville, CA		7/7/2011			1				72				70			11/1/2015			2,700,026				1,362,231
Keysville Road		Plant City, FL		10/26/2011			2				59				50			7/1/2016			1,232,260				—
Colding Loop		Wimauma, FL		8/9/2012			1				219				181			6/14/2018			3,925,704				—
Trapnell Road		Plant City, FL		9/12/2012			3				124				110			6/30/2017			4,106,218				2,655,000
38th Avenue		Covert, MI		4/5/2013			1				119				89			4/4/2020			1,449,670				650,552
Sequoia Street		Brooks, OR		5/31/2013			1				218				206			5/31/2028			3,521,564				1,503,888
Natividad Road		Salinas, CA		10/21/2013			1				166				166			10/31/2024			7,398,003				3,395,874
20th Avenue		South Haven, MI		11/5/2013			3				151				94			11/4/2018			1,884,981				970,250
Broadway Road		Moorpark, CA		12/16/2013			1				60				60			12/15/2023			2,935,348				1,455,375
Oregon Trail		Echo, OR		12/27/2013			1				1,895				1,640			12/31/2023			13,993,009				6,791,748
East Shelton		Willcox, AZ		12/27/2013			1				1,761				1,320			2/29/2024			7,760,059				3,250,336
Collins Road		Clatskanie, OR		5/30/2014			2				200				157			9/30/2024			2,532,950				—
Spring Valley		Watsonville, CA		6/13/2014			1				145				110			9/30/2016			5,882,738				2,862,237
McIntosh Road		Dover, FL		6/20/2014			2				94				78			6/30/2017			2,553,874				1,599,600
Naumann Road		Oxnard, CA		7/23/2014			1				68				64			7/31/2017			6,859,860				3,342,510
Sycamore Road		Arvin, CA		7/25/2014			1				326				322			10/31/2024			5,939,523				2,813,724
Wauchula Road		Duette, FL		9/29/2014			1				808				590			9/30/2024			13,772,371				8,155,762
Santa Clara Avenue		Oxnard, CA		10/29/2014			2				333				331			7/31/2015			24,497,797				12,128,121
Dufau Road		Oxnard, CA		11/4/2014			1				65				64			11/3/2017			6,099,925				3,675,000
							32				8,039				6,637					$	145,257,763			$	86,417,361

 

(1)

Consists of the initial acquisition price (including the costs allocated to both tangible and intangible assets, excluding those allocated to above- and below-market lease values), plus subsequent improvements and other capitalized costs associated with the properties, and adjusted for depreciation and amortization accumulated through December 31, 2014.

Real Estate

The following table sets forth the components of our investments in tangible real estate assets as of December 31, 2014 and 2013:

 

		2014				2013
Real estate:
Land and land improvements		$	122,999,316			$	63,944,307
Irrigation system			12,365,514				6,007,845
Buildings and improvements			11,447,308				7,487,051
Horticulture			1,559,340				1,038,850
Real estate, gross			148,371,478				78,478,053
Accumulated depreciation			(4,431,290	)			(3,166,870	)
Real estate, net		$	143,940,188			$	75,311,183

 

New Real Estate Activity

2014 New Real Estate Activity

During the year ended December 31, 2014, we acquired 11 new farms in 8 separate transactions, which are summarized in the table below.

 

Property Name		Property Location		Acquisition Date				Total Acreage				Number of Farms				Primary Crop(s)		Lease Term		Renewal Options		Total Purchase Price				Acquisition Costs				Annualized Straight- line Rent(1)				Debt Issued / Encumbrances
Collins Road		Clatskanie, OR			5/30/2014				200				2			Blueberries		10.3 years		3 (5 years each)		$	2,591,333			$	60,869	(4)		$	181,172			$	—
Spring Valley		Watsonville, CA			6/13/2014				145				1			Strawberries, Misc. Vegetables and Lilies		2.3 years		None			5,900,000				49,582	(4)			270,901				2,862,237	(6)
McIntosh Road		Dover, FL			6/20/2014				94				2			Strawberries		3.0 years		1 (3 years) /None(2)			2,666,000				60,939	(4)			133,154				1,599,600	(7)
Naumann Road		Oxnard, CA			7/23/2014				68				1			Strawberries and Raspberries		3.0 years		1 (3 years)			6,888,500				91,103	(4)			329,667				3,342,510	(6)
Sycamore Road		Arvin, CA			7/25/2014				326				1			Misc. Vegetables and Grain		1.3 years		None(3)			5,800,000				44,434	(4)			184,304				2,813,724	(6)
Wauchula Road		Duette, FL			9/29/2014				808				1			Strawberries, Misc. Vegetables, and Melons		10.0 years		2 (5 years each)			13,765,000				132,555	(5)			888,439				8,259,000	(7)
Santa Clara Avenue		Oxnard, CA			10/29/2014				333				2			Strawberries and Misc. Vegetables		0.8 years		1 (2 years)			24,592,000				100,603	(4)			1,231,422				12,128,121	(6)
Dufau Road		Oxnard, CA			11/4/2014				65				1			Strawberries and Misc. Vegetables		3.0 years		1 (3 years)			6,125,600				61,474	(4)			304,607				3,675,000	(7)
									2,039				11									$	68,328,433			$	601,559			$	3,523,666			$	34,680,192

 

(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 a separate tenant leasing each of the property’s 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. In aggregate, we incurred $21,409 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 as of December 31, 2014, in relation to all properties pledged as collateral under the facility.

(7)	Represents new debt issued under various facilities; see Note 5, “Borrowings.”

As noted in the table above, certain acquisitions during the year ended December 31, 2014, were accounted for as business combinations in accordance with ASC 805, as there was a leasing history on the property or a lease in place that we assumed upon acquisition. As such, the fair value of all assets acquired and liabilities assumed were determined in accordance with ASC 805, and all acquisition-related costs were expensed as incurred, other than those costs that directly related to reviewing or assigning leases we assumed upon acquisition, which were capitalized as part of leasing costs. For acquisitions accounted for as asset acquisitions under ASC 360, the acquisition-related costs were capitalized and included as part of the fair value allocation of the identifiable tangible assets acquired. Further, for those transactions treated as asset acquisitions, none of the purchase price was allocated to intangible assets or liabilities; however, direct costs we incurred in connection with originating the new leases on the properties were capitalized.

 

We determined the fair value of acquired assets and liabilities assumed related to the properties acquired during the year ended December 31, 2014, to be as follows:

 

Property Name		Land and Land Improvements				Buildings and Improvements				Irrigation System				Horticulture(1)				In-place Leases				Leasing Costs(2)				Customer Relationships				Above- (Below)- Market Leases				Total Acquisition Cost
Collins Road		$	1,252,388			$	682,385			$	—			$	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				33,592				537,254				—				34,674				18,041				27,966				45,674				2,667,275
Naumann Road			6,219,293				433,087				71,586				—				75,520				41,012				54,786				—				6,895,284
Sycamore Road			5,840,750				—				67,000				—				48,670				7,364				—				(160,184	)			5,803,600
Wauchula Road			8,466,185				1,904,941				3,521,229				—				—				5,200				—				—				13,897,555
Santa Clara Avenue			23,672,902				163,140				187,314				—				310,119				30,353				229,372				—				24,593,200
Dufau Road			5,859,721				3,021				88,827				—				71,654				32,778				52,720				19,529				6,128,250
		$	58,857,451			$	3,225,947			$	4,674,065			$	520,993			$	669,210			$	223,831			$	455,857			$	(144,957	)		$	68,482,397

 

(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 year ended December 31, 2014, that were accounted for as business combinations under ASC 805 totaled $21,409.

Below is a summary of the total operating revenues and earnings recognized on the properties acquired during the year December 31, 2014:

 

Property Name		Acquisition Date		Operating Revenues(1)				Earnings(2)
Collins Road		5/30/2014		$	106,658			$	33,303
Spring Valley		6/13/2014			148,996				81,073
McIntosh Road		6/20/2014			58,021				(22,902	)(3)
Naumann Road		7/23/2014			145,337				104,726
Sycamore Road		7/25/2014			80,328				39,574
Wauchula Road		9/29/2014			226,978				101,794
Santa Clara Avenue		10/29/2014			212,078				73,833
Dufau Road		11/4/2014			48,229				32,807
				$	1,026,625			$	444,208

 

(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. The property was immediately re—leased to a new tenant at similar rental rates.

 

2013 New Real Estate Activity

During the year ended December 31, 2013, we acquired nine new farms in seven separate transactions, which are summarized in the table below.

 

Property Name		Property Location		Acquisition Date				Total Acreage				Number of Farms				Primary Crop(s)		Lease Term		Renewal Options		Total Purchase Price				Acquisition Costs				Annualized Straight- line Rent(1)
38th Avenue		Covert, MI			4/5/2013				119				1			Blueberries		7 years		1 (7 years)		$	1,341,000			$	38,200	(4)		$	87,286
Sequoia Street		Brooks, OR			5/31/2013				218				1			Blueberries		15 years		3 (5 years each)			3,100,000				108,211	(4)			193,617
Natividad Road		Salinas, CA			10/21/2013				166				1			Strawberries & Raspberries		2 years(3)		None(3)			7,325,120				47,850	(5)			439,575
20th Avenue		South Haven, MI			11/5/2013				151				3			Blueberries		5 years		1 (5 years)			1,985,000				34,479	(4)			129,755
Broadway Road		Moorpark, CA			12/16/2013				60				1			Lemons(2)		10 years		1 (10 years)			3,000,000				27,528	(4)			171,958
Oregon Trail		Echo, OR			12/27/2013				1,895				1			Corn, Onions & Potatoes		10 years		3 (5 years each)			13,855,000				213,458	(4)			758,480
East Shelton		Willcox, AZ			12/27/2013				1,761				1			Corn & Dry edible beans		10 years		None			6,700,000				50,691	(4)			290,284
									4,370				9									$	37,306,120			$	520,417			$	2,070,955

 

(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)	Beginning in 2015, this property will be farmed for blueberries and avocados.

(3)

Upon acquisition of the property, we assumed a lease with two years remaining on it. T his lease originally provided for one, three-year extension option; however, the right to this option was waived by the tenant. In connection with assuming this lease, we recorded a below-market lease liability of $161,547. In addition, the Company executed a nine-year, follow-on lease with a separate tenant to commence at the expiration of the assumed lease. T he follow-on lease includes one, five-year renewal option and provides for prescribed rent escalations over the term of the lease, with annualized, straight-line rents of $413,476.

(4)	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.

(5)	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 $4,915 of direct leasing costs in connection with this acquisition.

All of the acquisitions in the table above were purchased using proceeds from the January 2013 IPO (as defined in Note 6, “Stockholders’ Equity—2013 Initial Public Offering”); thus, no additional debt was issued to finance either transaction.

As noted in the table above, certain acquisitions during the year ended December 31, 2013, were accounted for as business combinations in accordance with ASC 805, as there was a leasing history on the property or a lease in place that we assumed upon acquisition. As such, the fair value of all assets acquired and liabilities assumed were determined in accordance with ASC 805, and all acquisition-related costs were expensed as incurred, other than those costs that directly related to reviewing or assigning leases we assumed upon acquisition, which were capitalized as part of leasing costs. For acquisitions accounted for as asset acquisitions under ASC 360, the acquisition-related costs were capitalized and included as part of the fair value allocation of the identifiable tangible assets acquired. Further, for those transactions treated as asset acquisitions, none of the purchase price was allocated to intangible assets; however, direct costs we incurred in connection with originating the new leases on the properties were capitalized.

 

We determined the fair value of acquired assets and liabilities assumed related to the properties acquired during the year ended December 31, 2013, to be as follows:

 

Property Name		Land and Land Improvements				Buildings and Irrigation Improvements				System				Horticulture(1)				In-place Leasing				Leases Costs(2)				Below- Market Leases				Total Acquisition Cost
38th Avenue		$	646,522			$	42,660			$	239,768$				446,408			$	—			$	3,842			$	—			$	1,379,200
Sequoia Street			2,494,911				279,496				424,268				—				—				9,535				—				3,208,210
Natividad Road			7,186,774				19,199				144,915				—				110,753				29,941				(161,547	)			7,330,035
20th Avenue			805,677				281,160				441,415				488,604				—				2,623				—				2,019,479
Broadway Road			2,851,353				50,114				22,727				103,334				—				—				—				3,027,528
Oregon Trail			12,941,092				—				1,118,640				—				—				8,726				—				14,068,458
East Shelton			6,175,702				131,434				441,573				—				—				1,982				—				6,750,691
		$	33,102,031			$	804,063			$	2,833,306			$	1,038,346			$	110,753			$	56,649			$	(161,547	)		$	37,783,601

 

(1)	Horticulture acquired on 38th Avenue and 20th Avenue consists of various types of high-bush variety blueberry bushes. Horticulture acquired on Broadway Road consits of an orchard of lemon trees.

(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 year ended December 31, 2014, that were accounted for as business combinations under ASC 805 totaled $21,408.

Below is a summary of the total operating revenues and earnings recognized on the properties acquired during the year December 31, 2013:

 

Property Name		Acquisition Date		Revenues Operating(1)				Earnings(2)
38th Avenue		4/5/2013		$	64,494			$	35,996
Sequoia Street		5/31/2013			112,944				83,262
Natividad Road		10/21/2013			86,510				63,133
20th Avenue		11/5/2013			20,184				6,919
Broadway Road		12/16/2013			7,396				3,713
Oregon Trail		12/27/2013			10,195				10,154
East Shelton		12/27/2013			3,715				3,283
				$	305,438			$	206,460

 

(1)	Includes the amortization of any 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.

 

Acquired Intangibles and Liabilities

For acquisitions treated as business combinations, the purchase price was allocated to the identifiable intangible assets and liabilities in accordance with ASC 805. No purchase price was allocated to any intangible assets or liabilities related to acquisitions treated as asset acquisitions under ASC 360; however, the direct costs we incurred in connection with originating new leases or reviewing existing leases were capitalized over the lives of the respective leases. 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 years ended December 31, 2014 and 2013:

 

Intangible Assets and Liabilities		2014				2013
In-place leases			2.2				2.0
Leasing commissions			5.1				7.0
Tenant relationships			4.7				—
Above-market lease values			3.0				—
Below-market lease values			1.5				2.0
All intangible assets and liabilities			3.3				2.9

Pro-Forma Information

We acquired 11 farms during the year ended December 31, 2014, and 9 farms during the year ended December 31, 2013. The following table reflects pro-forma consolidated financial information as if the properties were acquired at the beginning of the previous period. 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 Years Ended December 31,
		2014				2013
		(Unaudited)				(Unaudited)
Operating Data:
Total operating revenue		$	8,547,496			$	9,113,902
Total operating expenses			(6,287,653	)			(5,183,279	)
Other expenses			(2,902,815	)			(2,760,914	)
Net income before income taxes			(642,972	)			1,169,708
Provision for income taxes			(26,502	)			(1,519,730	)
Net income		$	(669,474	)		$	(350,022	)
Share and Per-share Data:
Earnings per share of common stock - basic and diluted		$	(0.09	)		$	(0.05	)
Weighted average common shares outstanding - basic and diluted			7,563,060				7,443,197

The pro-forma consolidated results are prepared for informational purposes only. They are not necessarily indicative of what our consolidated financial condition or results of operations actually would have been assuming the acquisitions had occurred at the beginning of the respective previous periods, nor do they purport to represent our consolidated financial position or results of operations for future periods.

Significant Existing Real Estate Activity

On January 20, 2014, we completed the work for the expansion and upgrade of the cooling facility on Trapnell Road, for which we agreed to incur the costs, up to a maximum of $450,000. We expended a total of $446,108 in connection with this project, and, in accordance with the lease amendment executed on October 21, 2013, we will earn additional rental income on the costs incurred related to this project at an initial annual rate of 8.5% of the total cost, with prescribed rental escalations provided for in the lease.

On March 27, 2014, we executed a lease with a new tenant to occupy West Beach that commenced on November 1, 2014, as the lease term with the current tenants on the property expired on October 31, 2014. The new lease term is for 9 years, through December 31, 2023, and provides for prescribed rent escalations over its life, with minimum annualized straight-line rental income of $540,469, representing a 20.7% increase over that of the current lease.

On June 17, 2014, we extended the lease with the tenant occupying San Andreas, which was originally set to expire in December 2014. The lease was extended for an additional 6 years, through December 2020, and provides for rent escalations over its life, with minimum annualized, straight-line rental income of $566,592, representing a 31.3% increase over that of the previous lease.

 

In July 2014, we completed an irrigation upgrade project on 1,761 acres of farmland near Willcox, Arizona, for which we rehabilitated several of the 13 existing wells on the property, in addition to adding two new wells. The total cost of this project was approximately $1.2 million, of which $336,000 was expected at acquisition and accounted for in the rental stream included in the original lease. To account for the additional costs incurred, on October 22, 2014, we executed a lease amendment with the current tenant on the property to provide for an additional $37,791 of annualized, straight-line rent.

Involuntary Conversions and Property and Casualty Recovery

In April 2014, two separate fires occurred on two of our properties, partially damaging a structure on each property. One occurred on 20^th Avenue, on which the majority of a residential house was destroyed by a fire. We determined the carrying value of the portion of the residential house damaged by the fire to be $94,243. The second fire occurred on West Gonzales and damaged a portion of the cooling facility on the property. We determined the carrying value of the portion of the cooling facility damaged by the fire to be approximately $138,494. Thus, we wrote down the carrying value of these properties on the accompanying Consolidated Balance Sheets by these respective amounts, and, in accordance with ASC 605, we also recorded a corresponding property and casualty loss, which is included in Property and casualty recovery, net on the accompanying Consolidated Statements of Operations.

Both of the assets were insured, either by us or the tenant, at the time of the fires. As a result of the fire on 20^th Avenue, insurance proceeds of $61,500 were recovered during the year ended December 31, 2014. Thus, in accordance with ASC 450, during the year ended December 31, 2014, we recorded this recovery as an offset to the property and casualty loss we recorded earlier in the year, and such recovery is included as part of Property and casualty recovery, net on the accompanying Consolidated Statements of Operations. In connection with the fire on West Gonzales, insurance proceeds of $434,200 were recovered during the year ended December 31, 2014; thus, we recorded this amount as an offset to the property and casualty loss we recorded earlier in the year, and such recovery is included as part of Property and casualty recovery, net on the accompanying Consolidated Statements of Operations. We expect to recover at least an additional $35,648 for these repairs, and we have received confirmation from the insurer regarding payment of at least this amount. Thus, we have recorded this expected recovery as a receivable and a corresponding liability, included in Other assets and Other liabilities, respectively, on the accompanying Consolidated Balance Sheets. We will recognize this amount and any other insurance recoveries as a gain upon receipt. We continue to assess the total amount expected to be recovered for each of these events, as well as the collectability of such amounts; thus, no further offsets to the property and casualty loss we recorded earlier in the year have been recorded at this time.

Repairs are still ongoing on West Gonzales, and, during the year ended December 31, 2014, we expended $496,784 in repairs and upgrades to the cooler as a result of the fire. Of this amount, $407,096 was capitalized as a real estate addition, and $89,688 was recorded as repairs and maintenance expense, included in Property operating expense on the accompanying Consolidated Statements of Operations. Repairs on 20^th Avenue are expected to begin in 2015.

 

Intangible Assets and Liabilities

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

 

		2014								2013
		Lease Intangibles				Accumulated Amortization				Lease Intangibles				Accumulated Amortization
In-place leases		$	869,207			$	(263,428	)		$	397,728			$	(241,697	)
Leasing costs			357,210				(80,617	)			146,558				(34,727	)
Tenant relationships			501,670				(66,467	)			93,187				(49,985	)
		$	1,728,087			$	(410,512	)		$	637,473			$	(326,409	)
		Deferred Rent Asset (Liability)				Accumulated (Amortization) Accretion				Deferred Rent Liability				Accumulated Accretion
Above-market lease values		$	65,203			$	(9,027	)		$	—			$	—
Below-market lease values			(371,707	)			162,194				(260,356	)			114,469
		$	(306,504	)		$	153,167			$	(260,356	)		$	114,469

The estimated aggregate amortization expense to be recorded related to in-place leases, leasing costs and tenant relationships and the estimated net impact on rental income from the amortization of above- and below-market lease values for each of the five succeeding fiscal years and thereafter is as follows:

 

Period		Estimated Amortization Expense				Estimated Net Increase (Decrease) in Rental Revenue
For the fiscal years ending December 31:     2015		$	676,448			$	171,636
2016			289,465				(5,284	)
2017			161,781				(13,015	)
2018			41,254				—
2019			38,542				—
Thereafter			110,085				—
		$	1,317,575			$	153,337

 

Lease Expirations

The following table summarizes the lease expirations by year for our properties with leases in place as of December 31, 2014:

 

Year		Number of Expiring Leases				Expiring Leased Acreage				% of Total Acreage				Rental Revenue for the Year Ended December 31, 2014				% of Total Rental Revenue
2015(1)			4				405				5.0	%		$	386,642				5.4	%
2016			2				204				2.5	%			217,331				3.0	%
2017			7				351				4.4	%			424,737				5.9	%
2018			3				370				4.6	%			364,803				5.1	%
2019			0				0				0.0	%			—				0.0	%
Thereafter			12				6,709				83.5	%			5,776,805				80.6	%
Totals			28				8,039				100.0	%		$	7,170,318				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 Lease Payments

Future operating lease payments from tenants under all non-cancelable leases, excluding tenant reimbursement of expenses, for each of the five succeeding fiscal years and thereafter as of December 31, 2014, are as follows:

 

Period		Tenant Lease Payments
For the fiscal years ending December 31:     2015		$	7,735,500
2016			8,205,815
2017			7,494,621
2018			6,882,291
2019			6,919,095
Thereafter			19,581,336
		$	56,818,658

In accordance with the lease terms, substantially all operating expenses are required to be paid by the tenant; however, we would be required to pay real estate property taxes on the respective parcels of land in the event the tenants fail to pay them. The aggregate annual real estate property taxes for all parcels of land owned by us as of December 31, 2014, are approximately $997,000. As of December 31, 2014, due to the terms of certain of our leases, we are responsible for approximately $457,000 of this annual amount.

 

Portfolio Diversification and Concentrations

Diversification

The following table summarizes the geographic locations of our properties with leases in place as of December 31, 2014 and 2013:

 

		As of and For the Year Ended December 31, 2014																				As of and For the Year Ended December 31, 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			14				2,391				29.7	%		$	4,778,579				66.6	%			8				1,454				24.2	%		$	3,362,020				83.5	%
Oregon			4				2,313				28.8	%			1,080,105				15.1	%			2				2,113				35.2	%			123,138				3.0	%
Florida			9				1,304				16.2	%			759,398				10.6	%			6				402				6.7	%			454,135				11.3	%
Arizona			1				1,761				21.9	%			299,785				4.2	%			1				1,761				29.4	%			3,715				0.1	%
Michigan			4				270				3.4	%			252,451				3.5	%			4				270				4.5	%			84,679				2.1	%
			32				8,039				100.0	%		$	7,170,318				100.0	%			21				6,000				100.0	%		$	4,027,687				100.0	%

Concentrations

Credit Risk

All of our farms are leased to unrelated, third-party tenants. Two of our farms are leased to the same tenant, Dole Food Company (“Dole”). As of December 31, 2014, 960 acres were leased to Dole, representing 11.9% of the total acreage we owned. Furthermore, aggregate rental income attributable to Dole accounted for approximately $2.9 million, or 40.4%, of the rental revenue recorded during the year ended December 31, 2014. Rental income from Dole accounted for 66.2% of the total rental revenue recorded during the year ended December 31, 2013. In addition, a separate tenant accounted for approximately 10.6% of the total rental revenue recorded during the year ended December 31, 2014. If either of these tenants fails to make rental payments or elects to terminate either of their leases, and the land cannot be re-leased on satisfactory terms, there would be a material adverse effect on our financial performance and ability to continue operations. No other individual tenant represented greater than 10.0% of the total rental revenue recorded during the years ended December 31, 2014 or 2013.

Geographic Risk

14 of our 32 farms owned as of December 31, 2014, are located in California. As of December 31, 2014, our farmland in California accounted for 2,391 acres, or 29.7% of the total acreage we owned. Furthermore, these farms accounted for approximately $4.8 million, or 66.6%, of the rental revenue recorded during the year ended December 31, 2014. Rental revenue from our farms in California accounted for 83.5% of the total rental income recorded by us during the year ended December 31, 2013. However, our farms are spread across 3 of the many different growing regions within California. In addition, our farms in Oregon accounted for approximately 15.1% of the rental revenue recorded during the year ended December 31, 2014, and our farms in Florida accounted for approximately 10.6% and 11.3% of the rental revenue recorded during the years ended December 31, 2014 and 2013, respectively. Though we seek to continue to further diversify geographically, as may be desirable or feasible, should an unexpected natural disaster occur where our properties are located, there could be a material adverse effect on our financial performance and ability to continue operations. No other single state accounted for more than 10.0% of the total rental revenue recorded during the years ended December 31, 2014 or 2013.

 

Active Purchase and Sale Agreements

As of December 31, 2014, we were entered into the following purchase agreements:

 

Date Entered Into		Gross Acres				State				Primary Crop(s)				Purchase Price
9/29/2014			63				CA				Strawberries			$	3,800,000	(1)
12/17/2015			331				CA				Strawberries				16,964,021	(2)
			394											$	20,764,021

 

(1)	Agreement was terminated on January 20, 2015, and the related deposit of $100,000, which deposit is included in Other Assets on our Consolidated Balance Sheet as of December 31, 2014, was returned to us.

(2)	Acquisition was completed on January 5, 2015. See Note 10, “Subsequent Events,” for further discussion on the acquisition of this property.