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)

6 Months Ended

Jun. 30, 2019

The following table provides certain summary information about the 90 farms we owned as of June 30, 2019 (dollars in thousands, except for footnotes):



Location	No. of Farms	Total Acres	Farm Acres	Net Cost Basis⁽¹⁾		Encumbrances⁽²⁾
California	35	11,617	10,670	$	287,911	$	182,840
Florida	22	17,184	12,981	153,871		96,543
Arizona⁽³⁾	6	6,280	5,228	56,031		22,008
Colorado	10	31,448	24,513	41,503		24,968
Nebraska	3	3,254	2,701	12,803		8,476
Michigan	7	962	682	12,723		2,740
Washington	1	746	417	8,573		5,145
Texas	1	3,667	2,219	8,363		5,280
Oregon	3	418	363	6,189		3,312
North Carolina	2	310	295	2,304		1,238
	90	75,886	60,069	$	590,271	$	352,550

⁽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. Includes Investments in real estate, net (excluding improvements paid for by the tenant) and Lease intangibles, net; plus net above-market lease values and lease incentives 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 $2.3 million of debt issuance costs related to notes and bonds payable, included in Notes and bonds payable, net on the accompanying Condensed Consolidated Balance Sheet.

⁽³⁾

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 $2.4 million as of June 30, 2019 (included in Lease intangibles, net on the accompanying Condensed Consolidated Balance Sheet).

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 June 30, 2019, and December 31, 2018 (dollars in thousands):



	June 30, 2019			December 31, 2018
Real estate:
Land and land improvements	$	435,866		$	417,310
Irrigation and drainage systems	80,891			71,583
Horticulture	73,136			48,894
Farm-related facilities	20,249			18,510
Other site improvements	6,740			6,707
Real estate, at gross cost	616,882			563,004
Accumulated depreciation	(28,913		)	(24,051		)
Real estate, net	$	587,969		$	538,953

Carrying Value of Lease Intangibles and Accumulated Amortization for Each Intangible Asset or Liability Class

The following table summarizes the carrying values of certain lease intangible assets and the related accumulated amortization as of June 30, 2019, and December 31, 2018 (dollars in thousands):



	June 30, 2019			December 31, 2018
Lease intangibles:
Leasehold interest – land	$	3,498		$	3,498
In-place leases	2,046			2,046
Leasing costs	1,964			1,963
Tenant relationships	414			414
Lease intangibles, at cost	7,922			7,921
Accumulated amortization	(2,883		)	(2,235		)
Lease intangibles, net	$	5,039		$	5,686

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 June 30, 2019, and December 31, 2018 (dollars in thousands):



	June 30, 2019						December 31, 2018
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⁾	$	216		$	(84	)	$	126		$	(18	)
Below-market lease values and other deferred revenue⁽²⁾	(917		)	279			(917		)	202
	$	(701	)	$	195		$	(791	)	$	184


⁽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.


⁽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.

Schedule of Asset Acquisitions, by Acquisition

During the six months ended June 30, 2019, we acquired five new farms, which are summarized in the table below (dollars in thousands):



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⁾		New Long-term Debt
Somerset Road	Lincoln, NE	1/22/2019	695	1	Popcorn & edible beans	4.9 years	1 (5 years)	$	2,400	$	33	$	126	$	1,440
Greenhills Boulevard⁽³⁾	Madera, CA	4/9/2019	928	1	Pistachios	10.6 years	2 (5 years)	28,550		141		1,721		17,130
Van Buren Trail⁽⁴⁾	Van Buren, MI	5/29/2019	159	1	Blueberries & cranberries	10.6 years	2 (5 years)	2,682		24		206		—
Blue Star Highway⁽⁴⁾	Allegran & Van Buren, MI	6/4/2019	357	1	Blueberries	10.6 years	2 (5 years)	5,100		29		390		—
Yolo County Line Road⁽⁴⁾	Yolo, CA	6/13/2019	542	1	Olives for olive oil	14.6 years	1 (5 years)	9,190		68		624		—
			2,681	5				$	47,922	$	295	$	3,067	$	18,570


⁽¹⁾	Includes approximately $18,000 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⁾	Annualized straight-line rent is based on the minimum cash rental payments guaranteed under the applicable lease, as required under GAAP, and excludes contingent rental payments, such as participation rents.


⁽³⁾	Lease provides for a 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.


⁽⁴⁾	See Note 11, “Subsequent Events—Financing Activity,” for information on loans secured by these properties that were obtained subsequent to June 30, 2019.

During the six months ended June 30, 2018, we acquired two 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		Annualized Straight-line Rent⁽¹⁾		New Long-term Debt
Taft Highway⁽²⁾	Kern, CA	1/31/2018	161	1	Potatoes and Melons	N/A	N/A	$	2,945	$	32	$	—	$	1,473
Cemetery Road	Van Buren, MI	3/13/2018	176	1	Blueberries	9.6 years	None	2,100		39		150		1,260
			337	2				$	5,045	$	71	$	150	$	2,733


⁽¹⁾	Annualized straight-line rent is based on the minimum cash rental payments guaranteed under the applicable lease, as required under GAAP, and excludes contingent rental payments, such as participation rents.


⁽²⁾	Farm was purchased with no lease in place at the time of acquisition.

Subsequent to June 30, 2019, through the date of this filing, we have acquired two 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⁾
San Juan Grade Road⁽³⁾	Monterey, CA	7/11/2019	324	1	Strawberries & vegetables	0.3 years	None	$	9,000	$	62	$	575
West Citrus Boulevard⁽⁴⁾	Martin, FL	7/22/2019	3,586	1	Water retention	8.4 years	2 (10 years)	57,790		434		3,696
			3,910	2				$	66,790	$	496	$	4,271


⁽¹⁾	Acquisitions will be accounted for as asset acquisitions in accordance with ASC 360. The figures above represent only costs paid or accrued for as of the date of this filing.


⁽²⁾	Annualized straight-line rent is based on the minimum cash rental payments guaranteed under the applicable lease, as required under GAAP, and excludes contingent rental payments, such as participation rents.


⁽³⁾	In connection with the acquisition of this property, we executed a 6-year, follow-on lease with a new tenant that begins upon the expiration of the 4-month lease executed on the date of acquisition. The follow-on lease includes one, 4-year extension option and provides for minimum annualized straight-line rents of approximately $606,000.


⁽⁴⁾	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.

Recognized Identified Assets Acquired and Liabilities Assumed In Asset Acquisitions

The allocation of the aggregate purchase price for the farms acquired during each of the six months ended June 30, 2019 and 2018 is as follows (dollars in thousands):



Acquisition Period	Land and Land Improvements		Irrigation & Drainage Systems		Horticulture		Farm-related Facilities		In-place Leases		Leasing Costs		Total Purchase Price
2019 Acquisitions	$	18,209	$	4,022	$	23,989	$	1,702	$	—	$	—	$	47,922
2018 Acquisitions	3,256		582		961		123		76		47		5,045

Schedule of Acquired Finite-Lived Intangible Assets by Major Class

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 six months ended June 30, 2018. There were no intangible assets acquired or liabilities assumed in connection with new real estate acquired during the six months ended June 30, 2019:



		Weighted-Average Amortization Period (in Years)
Intangible Assets and Liabilities		2018
Leasehold interest – land		0
In-place leases		9.6
Leasing costs		9.6
Above-market lease values		0
Below-market lease values and deferred revenue		0
All intangible assets and liabilities		9.6

Summary of Leasing Activity

The following table summarizes certain leasing activity that occurred on our existing properties during the six months ended June 30, 2019 (dollars in thousands, except footnotes):

PRIOR LEASES⁽¹⁾

NEW LEASES⁽²⁾

Farm
Locations

Number

Leases

Total

Farm

Acres

Total

Annualized

Straight-line

Rent⁽³⁾

# of Leases

with

Participation

Rents

Lease

Structures

(# of NNN

/ NN)⁽⁴⁾

Total
Annualized
Straight-line
Rent⁽³⁾

Wtd. Avg.

Term
(Years)

# of Leases
with
Participation
Rents

Lease
Structures
(# of NNN
/ NN)⁽⁴⁾

AZ, CA,
FL, MI, NE

6,817

3,385

10 / 5

3,648

3.9

10 / 5


⁽¹⁾	Includes a farm that was previously vacant.


⁽²⁾	In connection with certain of these leases, we committed to provide aggregate capital of up to $420,000 for certain improvements on these farms.


⁽³⁾	Annualized straight-line rent is based on the minimum cash rental payments guaranteed under the applicable leases (presented on an annualized basis), as required under GAAP, and excludes contingent rental payments, such as participation rents.


⁽⁴⁾	“NNN” refers to leases under triple-net lease arrangements, and “NN” refers to leases under partial-net lease arrangements. For a description of each of these types of lease arrangements, see “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview—Leases—General.”

As of June 30, 2019, we had recorded the following as a result of these operating ground leases (dollars in thousands, except for footnotes):



Operating lease right-of-use assets⁽¹⁾	$	198
Operating lease liabilities⁽²⁾	$	169

Weighted-average remaining lease term (years)	5.1
Weighted-average discount rate	4.20		%


⁽¹⁾	Operating lease right-of-use assets are shown net of accrued lease payments of approximately $30,000 and are included within Other assets, net on the accompanying Condensed Consolidated Balance Sheet.


⁽²⁾	Included within Other liabilities, net on the accompanying Condensed Consolidated Balance Sheet.

The following table sets forth the components of our lease revenues for the three and six months ended June 30, 2019 and 2018 (dollars in thousands, except for footnotes):



	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2019		2018		2019		2018
Fixed lease payments⁽¹⁾	$	8,332	$	6,632	$	16,105	$	13,303
Variable lease payments⁽²⁾	30		2		87		25
Lease revenues, net⁽³⁾	$	8,362	$	6,634	$	16,192	$	13,328


⁽¹⁾	Fixed lease payments include contractual rents under lease agreements with tenants recognized on a straight-line basis over the respective lease terms and includes the amortization of above-market lease values and lease incentives and the accretion of below-market lease values and other deferred revenue.

⁽²⁾

Variable lease payments include reimbursements of certain property operating expenses by tenants and participation rents, which are generally based on a percentage of the gross crop revenues earned on the farm. Participation rents are generally recognized when all contingencies have been resolved and when actual results become known or estimable, enabling us to estimate and/or measure our share of such gross revenues. During the three and six months ended June 30, 2019, we recorded reimbursements of certain property operating expenses by tenants of approximately $30,000 and $60,000, respectively, and participation rents of approximately $0 and $27,000, respectively. During the three and six months ended June 30, 2018, we recorded reimbursements of certain property operating expenses by tenants approximately $2,000 and $8,000, respectively, and participation rents of approximately $0 and $17,000, respectively.


⁽³⁾	Reflected as a line item on our accompanying Condensed Consolidated Statements of Operations.

Future Lease Payments to be Received

The following table summarizes the future lease payments to be received under non-cancelable leases as of June 30, 2019, and December 31, 2018 (dollars in thousands):



	Future Lease Payments⁽¹⁾
Period	June 30, 2019		December 31, 2018
2019	$	14,703	$	30,290
2020	31,478		26,917
2021	23,889		20,980
2022	23,221		19,775
2023	22,827		19,413
Thereafter	85,436		59,934
	$	201,554	$	177,309


⁽¹⁾	Excludes variable rent payments, such as potential rent increases that are based on CPI or future contingent rents based on a percentage of the gross revenues earned on the respective farms.

Summary of Geographic Locations of Properties

The following table summarizes the geographic locations (by state) of our farms owned and with leases in place as of and for the six months ended June 30, 2019 and 2018 (dollars in thousands):



	As of and For the six months ended June 30, 2019						As of and For the six months ended June 30, 2018
State	Number of Farms	Total Acres	% of Total Acres	Lease Revenue		% of Total Lease Revenue	Number of Farms	Total Acres	% of Total Acres	Lease Revenue		% of Total Lease Revenue
California⁽¹⁾	35	11,617	15.3%	$	7,906	48.8%	29	8,241	13.0%	$	6,065	45.5%
Florida	22	17,184	22.6%	4,689		29.0%	16	10,980	17.3%	3,530		26.5%
Colorado	10	31,448	41.4%	1,411		8.7%	10	31,450	49.7%	1,372		10.3%
Arizona	6	6,280	8.3%	1,077		6.7%	6	6,280	9.9%	959		7.2%
Texas	1	3,667	4.8%	263		1.6%	—	—	—%	—		—%
Oregon	3	418	0.6%	257		1.6%	4	2,313	3.7%	618		4.6%
Washington	1	746	1.0%	245		1.5%	1	746	1.2%	242		1.8%
Nebraska	3	3,254	4.3%	162		1.0%	2	2,559	4.0%	290		2.2%
North Carolina	2	310	0.4%	93		0.6%	2	310	0.5%	82		0.6%
Michigan	7	962	1.3%	89		0.5%	5	446	0.7%	170		1.3%
TOTALS	90	75,886	100.0%	$	16,192	100.0%	75	63,325	100.0%	$	13,328	100.0%


⁽¹⁾	According to the California Chapter of the American Society of Farm Managers and Rural Appraisers, there are eight distinct growing regions within California; our farms are spread across five of these growing regions.