Gladstone Land Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Related-Party Transactions

Related-Party Transactions

12 Months Ended

Dec. 31, 2016

RELATED-PARTY TRANSACTIONS

We are externally managed pursuant to contractual arrangements with our Adviser and our Administrator, which collectively employ all of our personnel and pay their salaries, benefits and general expenses directly. Effective February 1, 2013, we entered into amended and restated agreements with our Advisor for management advisory services (the "Advisory Agreement") and with our Administrator for administration services (the "Administration Agreement"). The management advisory and administrative services and fees under both of these agreements are described below.

Advisory Agreement

Base Management Fee

Pursuant to the Advisory Agreement, we pay an annual base management fee equal to 2.0% percentage of our adjusted stockholders’ equity, which is defined as our total stockholders’ equity at the end of each quarter less the recorded value of any preferred stock we may issue.

Incentive Fee

Pursuant to the Advisory Agreement, we also pay an additional quarterly incentive fee based on funds from operations (as defined in the Advisory Agreement). For purposes of calculating the incentive fee, our funds from operations, before giving effect to any incentive fee (our “Pre-Incentive Fee FFO”), will include any realized capital gains or losses, less any distributions paid on our preferred stock, but will not include any unrealized capital gains or losses. The incentive fee will reward our Adviser if our Pre-Incentive Fee FFO for a particular calendar quarter exceeds a hurdle rate of 1.75% (7.0% annualized) of our total stockholders’ equity at the end of the quarter. Our Adviser will receive 100% of the amount of the Pre-Incentive Fee FFO for the quarter that exceeds the hurdle rate but is less than 2.1875% of our total stockholders’ equity at the end of the quarter (8.75% annualized) and 20% of the amount of our Pre-Incentive Fee FFO that exceeds 2.1875% for the quarter.

For the year ended December 31, 2016, our Adviser earned an incentive fee of $349,550. There was no net incentive fee earned by our Adviser for either of the years ended December 31, 2015 or 2014, as our Pre-Incentive Fee FFO did not exceed the hurdle rate.

Administration Agreement

Pursuant to the Administration Agreement, we pay for our allocable portion of the Administrator’s expenses incurred while performing services to us, including, but not limited to, rent and the salaries and benefits expenses of our Administrator’s employees, including our chief financial officer, treasurer, chief compliance officer, general counsel and secretary (who also serves as our Administrator’s president, general counsel and secretary) and their respective staffs. From February 1, 2013, through June 30, 2014, our allocable portion of these expenses was generally derived by multiplying that portion of the Administrator’s expenses allocable to all funds managed by the Adviser by the percentage of our total assets at the beginning of each quarter in comparison to the total assets of all funds managed by our Adviser.

As approved by our Board of Directors, effective July 1, 2014, our allocable portion of the Administrator’s expenses is now generally derived by multiplying our Administrator’s total expenses by the approximate percentage of time the Administrator’s employees perform services for us in relation to their time spent performing services for all companies serviced by our Administrator under similar contractual agreements. This change in methodology resulted in an increase in the fee we paid to our Administrator of approximately 137% for the six months ended December 31, 2014, as compared to the first six months of fiscal year 2014 and an increase of 135% for the six months ended June 30, 2015, as compared to the respective prior-year period.

The following table summarizes the management fees, incentive fees and associated credits and the administration fees reflected in our accompanying Consolidated Statements of Operations:



	For the Years Ended December 31,
	2016		2015			2014
Management fee⁽¹⁾⁽²⁾	$	1,541,768	$	1,343,384		$	1,079,534
Incentive fee⁽¹⁾⁽²⁾	349,550		—			—
Credits from voluntary, irrevocable waiver by Adviser’s board of directors⁽²⁾⁽³⁾	—		(320,905		)	—
Net fees due to our Adviser	$	1,891,318	$	1,022,479		$	1,079,534
Administration fee⁽¹⁾⁽²⁾	$	771,255	$	679,590		$	442,584


⁽¹⁾	Pursuant to the Advisory and Administration Agreements, respectively.


⁽²⁾	Reflected as a line item on our accompanying Consolidated Statements of Operations.


⁽³⁾	The credit received from our Adviser for the three months ended March 31, 2015, was attributable to a finder’s fee earned by our Adviser in connection with a farm we acquired during the three months ended March 31, 2015, which fee was granted to us as a one-time, voluntary and irrevocable waiver to be applied against the fees we pay to our Adviser.

Related Party Fees Due

Amounts due to related parties on our accompanying Consolidated Balance Sheets as of December 31, 2016 and 2015 were as follows:



	December 31, 2016			December 31, 2015
Management fee due to Adviser	$	383,452		$	362,373
Incentive fee due to Adviser	168,627			—
Other due to Adviser⁽¹⁾	2,304			13,140
Total due to Adviser	554,383			375,513
Administration fee due to Administrator	202,381			190,080
Other due from Administrator⁽¹⁾	(5,968		)	—
Total due to Administrator	196,413			190,080
Total due to related parties⁽²⁾	$	750,796		$	565,593


⁽¹⁾	Other fees due to or from related parties primarily relate to miscellaneous general and administrative expenses paid by our Adviser or Administrator on our behalf or by us on our Adviser's or Administrator's behalf.


⁽²⁾	Reflected as a line item on our accompanying Consolidated Balance Sheets.

- Definition

The entire disclosure for related party transactions. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates.

+ References + Details