GLADSTONE LAND Corp - Quarter Report: 2016 June (Form 10-Q)

(Check one):

Large accelerated filer

Accelerated filer

Non-accelerated filer

x (Do not check if a smaller reporting company)

Smaller reporting company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

______________________________________________

FORM 10-Q

______________________________________________

(Mark One)



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2016



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 001-35795

______________________________________________

GLADSTONE LAND CORPORATION

(Exact name of registrant as specified in its charter)

______________________________________________



MARYLAND		54-1892552
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1521 WESTBRANCH DRIVE, SUITE 100 MCLEAN, VIRGINIA		22102
(Address of principal executive offices)		(Zip Code)

(703) 287-5800

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

______________________________________________

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ý NO ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ý NO ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO ý.

The number of shares of the registrant’s Common Stock, $0.001 par value per share, outstanding as of August 1, 2016, was 10,024,875.

Table of Contents

GLADSTONE LAND CORPORATION

FORM 10-Q FOR THE QUARTER ENDED

JUNE 30, 2016

TABLE OF CONTENTS



		PAGE
PART I	FINANCIAL INFORMATION

ITEM 1.	Financial Statements (Unaudited):

	Condensed Consolidated Balance Sheets as of June 30, 2016, and December 31, 2015	3

	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2016 and 2015	4

	Condensed Consolidated Statements of Equity for the six months ended June 30, 2016, and the year ended December 31, 2015	5

	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and 2015	6

	Notes to Condensed Consolidated Financial Statements	7

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	38

ITEM 4.	Controls and Procedures	38

PART II	OTHER INFORMATION

ITEM 1.	Legal Proceedings	39

ITEM 1A.	Risk Factors	39

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39

ITEM 3.	Defaults Upon Senior Securities	39

ITEM 4.	Mine Safety Disclosures	40

ITEM 5.	Other Information	40

ITEM 6.	Exhibits	41

SIGNATURES		42

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GLADSTONE LAND CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)



	June 30, 2016			December 31, 2015
ASSETS
Investments in real estate, net	$	268,581,945		$	221,783,425
Lease intangibles, net	2,033,221			1,763,541
Cash and cash equivalents	2,077,250			2,532,522
Deferred financing costs related to borrowings under line of credit, net	124,410			132,495
Other assets, net	2,368,283			2,472,042
Total assets	$	275,185,109		$	228,684,025
LIABILITIES AND EQUITY
LIABILITIES:
Mortgage notes and bonds payable, net	$	165,973,676		$	141,578,935
Borrowings under line of credit	14,500,000			100,000
Accounts payable and accrued expenses	3,945,411			3,495,339
Due to related parties⁽¹⁾	736,121			565,593
Other liabilities	7,802,760			4,937,439
Total liabilities	192,957,968			150,677,306
Commitments and contingencies⁽²⁾
EQUITY:
Stockholders’ equity:
Common stock, $0.001 par value; 20,000,000 shares authorized; 9,992,941 shares issued and outstanding as of June 30, 2016, and December 31, 2015	9,993			9,993
Additional paid-in capital	87,494,872			86,892,095
Accumulated deficit	(10,988,919		)	(8,895,369		)
Total stockholders’ equity	76,515,946			78,006,719
Non-controlling interests in operating partnership	5,711,195			—
Total equity	82,227,141			78,006,719
TOTAL LIABILITIES AND EQUITY	$	275,185,109		$	228,684,025


⁽¹⁾	Refer to Note 5, “Related-Party Transactions,” for additional information.


⁽²⁾	Refer to Note 7, “Commitments and Contingencies,” for additional information.

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

GLADSTONE LAND CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2016			2015			2016			2015
OPERATING REVENUES:
Rental revenue	$	4,241,612		$	2,780,456		$	7,921,085		$	5,402,783
Tenant recovery revenue	2,829			3,397			6,032			6,794
Total operating revenues	4,244,441			2,783,853			7,927,117			5,409,577
OPERATING EXPENSES:
Depreciation and amortization	1,334,973			711,803			2,311,683			1,503,435
Property operating expenses	158,578			156,405			338,781			362,170
Acquisition-related expenses	24,648			178,016			119,872			348,697
Management fee⁽¹⁾	385,586			328,392			772,740			624,140
Incentive fee⁽¹⁾	158,877			—			158,877			—
Administration fee⁽¹⁾	179,377			177,852			391,237			308,788
General and administrative expenses	408,365			336,714			839,691			734,068
Operating expenses before credits from Adviser	2,650,404			1,889,182			4,932,881			3,881,298
Credits to fees from Adviser⁽¹⁾	—			—			—			(320,905		)
Total operating expenses, net of credits to fees	2,650,404			1,889,182			4,932,881			3,560,393
OPERATING INCOME	1,594,037			894,671			2,994,236			1,849,184
OTHER INCOME (EXPENSE):
Other income	8,643			1,593			103,284			21,023
Interest expense	(1,486,820		)	(947,362		)	(2,741,668		)	(1,896,731		)
Property and casualty recovery, net	—			20,809			—			20,809
Total other expense	(1,478,177		)	(924,960		)	(2,638,384		)	(1,854,899		)
NET INCOME (LOSS)	115,860			(30,289		)	355,852			(5,715		)
Less net income attributable to non-controlling interests	(8,047		)	—			(13,623		)	—
NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY	$	107,813		$	(30,289	)	$	342,229		$	(5,715	)
EARNINGS (LOSS) PER COMMON SHARE:
Basic and diluted	$	0.01		$	(0.00	)	$	0.03		$	(0.00	)
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING
Basic and diluted	9,992,941			8,439,855			9,992,941			8,098,681


⁽¹⁾	Refer to Note 5, “Related-Party Transactions,” for additional information.

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

GLADSTONE LAND CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED)



	Common Stock									Non-
	Number			Additional			Accumulated			Controlling			Total
	of Shares	Par Value		Paid-in Capital			Deficit			Interests			Equity
Balance at December 31, 2014	7,753,717	$	7,754	$	65,366,309		$	(5,404,735	)	$	—		$	59,969,328
Net income	—	—		—			568,545			—			568,545
Proceeds from issuance of common stock, net	2,239,224	2,239		21,525,786			—			—			21,528,025
Distributions	—	—		—			(4,059,179		)	—			(4,059,179		)
Balance at December 31, 2015	9,992,941	$	9,993	$	86,892,095		$	(8,895,369	)	$	—		$	78,006,719
Net income	—	—		—			342,229			13,623			355,852
Offering costs	—	—		(3,867		)	—			(25,500		)	(29,367		)
Distributions	—	—		—			(2,435,779		)	(122,137		)	(2,557,916		)
Issuance of OP Units as consideration in real estate acquisitions, net	—	—		—			—			6,451,853			6,451,853
Adjustment to non-controlling interests resulting from changes in ownership of the Operating Partnership	—	—		606,644			—			(606,644		)	—
Balance at June 30, 2016	9,992,941	$	9,993	$	87,494,872		$	(10,988,919	)	$	5,711,195		$	82,227,141

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

GLADSTONE LAND CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



	For the Six Months Ended June 30,
	2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	355,852		$	(5,715	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	2,311,683			1,503,435
Amortization of deferred financing costs	69,726			43,927
Amortization of deferred rent assets and liabilities, net	(84,813		)	(125,739		)
Property and casualty recovery, net	—			(20,809		)
Allowance for doubtful accounts	50,820			—
Changes in operating assets and liabilities:
Other assets	9,941			22,071
Accounts payable, accrued expenses and due to related parties	521,763			330,717
Other liabilities	3,029,581			(141,877		)
Net cash provided by operating activities	6,264,553			1,606,010
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of new real estate	(34,375,908		)	(35,279,105		)
Capital expenditures on existing real estate	(7,883,458		)	(1,589,150		)
Decrease in restricted cash	—			132,741
Deposits on future acquisitions	(150,000		)	(200,000		)
Deposits applied against real estate investments	(416,725		)	(350,000		)
Deposits refunded	200,000			100,000
Insurance proceeds received capitalized as real estate additions	—			20,809
Net cash used in investing activities	(42,626,091		)	(37,164,705		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of equity	—			14,895,206
Offering costs	(251,710		)	(877,768		)
Borrowings from mortgage notes payable	24,813,000			25,450,280
Repayments on mortgage note payable	(419,596		)	(206,475		)
Net borrowings from (repayments on) line of credit	14,400,000			(1,200,000		)
Payment of financing fees	(77,512		)	(116,333		)
Distributions paid on common stock	(2,435,779		)	(1,846,850		)
Distributions paid to non-controlling interests in Operating Partnership	(122,137		)	—
Net cash provided by financing activities	35,906,266			36,098,060
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(455,272		)	539,365
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	2,532,522			2,619,342
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	2,077,250		$	3,158,707
NON-CASH INVESTING AND FINANCING INFORMATION:
Issuance of non-controlling interests in operating partnership in conjunction with acquisitions	$	6,451,853		$	—
Real estate additions included in Accounts payable, accrued expenses and due to related parties	1,485,479			1,421,863
Real estate additions included in Other liabilities	623,808			—
Real estate additions removed from Other liabilities	700,000			—
Common stock offering and OP Unit issuance costs included in Accounts payable, accrued expenses and due to related parties	13,598			259,776
Financing fees included in Accounts payable, accrued expenses and due to related parties	7,912			14,382

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

GLADSTONE LAND CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1. BUSINESS

Business

Gladstone Land Corporation is a real estate investment trust (“REIT”) that was re-incorporated in Maryland on March 24, 2011, having been previously re-incorporated in Delaware on May 25, 2004, and having been originally incorporated in California on June 14, 1997. We are primarily in the business of owning and leasing farmland, and we conduct substantially all of our operations through a subsidiary, Gladstone Land Limited Partnership (the “Operating Partnership”), a Delaware limited partnership. The Company owned 93.1% and 100.0% of the limited partnership interests in the Operating Partnership ("OP Units") as of June 30, 2016, and December 31, 2015, respectively (see Note 6, "Equity," for additional discussion regarding OP Units).

Subject to certain restrictions and limitations, and pursuant to contractual agreements, our business is managed by Gladstone Management Corporation (the “Adviser”), a Delaware corporation, and administrative services are provided to us by Gladstone Administration, LLC (the “Administrator”), a Delaware limited liability company. Our Adviser and Administrator are both affiliates of ours.

All further references herein to “we,” “us,” “our” and the “Company” refer, collectively, to Gladstone Land Corporation and its consolidated subsidiaries, except where indicated otherwise.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Interim Financial Information

Our interim financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q in accordance with Article 10 of Regulation S-X. Accordingly, certain disclosures accompanying annual financial statements prepared in accordance with GAAP are omitted. In the opinion of our management, all adjustments, consisting solely of normal recurring accruals, necessary for the fair presentation of financial statements for the interim period have been included. The interim financial statements and accompanying notes should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 23, 2016 (the “Form 10-K”). The results of operations for the three and six months ended June 30, 2016, are not necessarily indicative of the results that may be expected for other interim periods or for the full fiscal year.

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could materially differ from those estimates.

Reclassifications

Certain line items on the Condensed Consolidated Balance Sheet as of December 31, 2015, the Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2015, and the Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2015, have been reclassified to conform to the current period’s presentation. These reclassifications had no impact on previously-reported stockholders’ equity, net income or net change in cash and cash equivalents.

Non-controlling Interests

Non-controlling interests are interests in the Operating Partnership not owned by us. We evaluate whether non-controlling interests are subject to redemption features outside of our control. As of June 30, 2016, the non-controlling interests in the Operating Partnership are redeemable for cash or, at our option, shares of our common stock and thus are reported in the equity section of the Condensed Consolidated Balance Sheet but separate from stockholders’ equity. The amount reported for non-controlling interests on the Condensed Statement of Operations represents the portion of income from the Operating Partnership not attributable to us.

Table of Contents

Critical Accounting Policies

The preparation of financial statements in accordance with GAAP requires management to make judgments that are subjective in nature in order to make certain estimates and assumptions, and the application of these accounting policies involves the exercise of judgment regarding the use of assumptions as to future uncertainties. A summary of our significant accounting policies is provided in Note 2 to our consolidated financial statements included in our Form 10-K. There were no material changes to our significant accounting policies during the six months ended June 30, 2016.

Recently-Issued Accounting Pronouncements

In April 2015, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, “Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”), which simplifies the presentation of debt issuance costs. ASU 2015-03 requires the presentation of debt issuance costs on the balance sheet as a deduction from the carrying amount of the related debt liability instead of a deferred financing cost. ASU 2015-03 is effective for annual periods beginning after December 15, 2015, and we adopted this provision during the three months ended March 31, 2016. As of both June 30, 2016, and December 31, 2015, we had unamortized deferred financing costs related to mortgage notes and bonds payable of approximately $1.1 million, which costs have been reclassified from Deferred financing costs, net, as reported on the Consolidated Balance Sheet as of December 31, 2015, in the Form 10-K, to Mortgage notes and bonds payable, net on the accompanying Condensed Consolidated Balance Sheets. All periods presented have been retroactively adjusted.

The following table summarizes the retrospective adjustment and the overall impact on the previously-reported consolidated financial statements:



	As of December 31, 2015
	As Previously Reported		Retrospective Application
Deferred financing costs related to mortgage notes and bonds payable⁽¹⁾	$	1,054,222	$	—
Mortgage notes and bonds payable, net	142,633,157		141,578,935


⁽¹⁾	Included as part of Deferred financing costs, net, as reported on the Consolidated Balance Sheet in the Form 10-K.

In August 2015, the FASB issued ASU No. 2015-15, “Interest—Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements” (“ASU 2015-15”), which codifies an SEC staff announcement that entities are permitted to defer and present debt issuance costs related to line of credit arrangements as assets. ASU 2015-15 was effective immediately. As of each June 30, 2016, and December 31, 2015, we had unamortized deferred financing costs of approximately $0.1 million related to our line of credit, and we will continue to present debt issuance costs related to line of credit arrangements as an asset on the accompanying Condensed Consolidated Balance Sheets.

On January 1, 2016, we adopted accounting guidance under Accounting Standards Codification (“ASC”) Topic 810, “Consolidations: Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities,” (“ASC 810”), which modifies the analysis we must perform to determine whether we should consolidate certain types of legal entities. The guidance does not amend the existing disclosure requirements for variable interest entities (“VIEs”) or voting interest model entities, but it modifies the requirements to qualify as a voting interest model entity. Under the revised guidance, our Operating Partnership will qualify as a VIE; however, as we already consolidate the Operating Partnership in our balance sheets, the identification of our Operating Partnership as a VIE has no impact on our consolidated financial statements. There were no other legal entities qualifying under the scope of the revised guidance that were consolidated as a result of the adoption of this guidance. In addition, there were no other voting interest model entities under prior existing guidance determined to be VIEs under the revised guidance.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842): An Amendment of the FASB Accounting Standards Codification” (“ASU 2016-02”). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the leases is effectively a financed purchase by the lessee, which classification determines whether lease expense is recognized based on an effective interest method or on a straight-line basis, respectively, over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months, regardless of the classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. ASU 2016-02 supersedes the previous leasing standard, ASC 840, “Leases,” and is effective on January 1, 2019, with early

Table of Contents

adoption permitted. We are currently evaluating the overall impact of ASU 2016-02. We expect our legal expenses to increase marginally, as the new standard requires us to expense indirect leasing costs that were previously capitalized; however, we do not expect ASU 2016-02 to materially impact our consolidated financial statements, as we do not currently have any lease arrangements for which we are the lessee.

NOTE 3. REAL ESTATE AND INTANGIBLE ASSETS

All of our properties are wholly owned on a fee-simple basis. The following table provides certain summary information about our 47 farms as of June 30, 2016:



		Date	Number of	Total	Farm	Lease Expiration		Net Cost
Property Name	Location	Acquired	Farms	Acres	Acres	Date		Basis⁽¹⁾		Encumbrances⁽²⁾
San Andreas	Watsonville, CA	6/16/1997	1	307	238	12/31/2020		$	4,766,850	$	5,419,371
West Gonzales	Oxnard, CA	9/15/1998	1	653	502	6/30/2020		12,087,278		27,572,207
West Beach	Watsonville, CA	1/3/2011	3	196	195	12/31/2023		9,284,807		5,279,214
Dalton Lane	Watsonville, CA	7/7/2011	1	72	70	10/31/2020		2,678,229		1,749,149
Keysville Road	Plant City, FL	10/26/2011	2	61	56	6/30/2020		1,239,809		897,600
Colding Loop	Wimauma, FL	8/9/2012	1	219	181	6/14/2018		3,900,918		2,640,000
Trapnell Road	Plant City, FL	9/12/2012	3	124	110	6/30/2017		3,862,689		2,522,250
38th Avenue	Covert, MI	4/5/2013	1	119	89	4/4/2020		1,255,879		835,331
Sequoia Street	Brooks, OR	5/31/2013	1	218	206	5/31/2028		3,091,791		1,931,041
Natividad Road	Salinas, CA	10/21/2013	1	166	166	10/31/2024		8,952,970		4,360,413
20th Avenue	South Haven, MI	11/5/2013	3	151	94	11/4/2018		1,851,986		1,245,832
Broadway Road	Moorpark, CA	12/16/2013	1	60	46	12/15/2023		2,875,864		1,868,748
Oregon Trail	Echo, OR	12/27/2013	1	1,895	1,640	12/31/2023		13,879,837		8,720,826
East Shelton	Willcox, AZ	12/27/2013	1	1,761	1,320	2/29/2024		7,778,747		4,173,538
Collins Road	Clatskanie, OR	5/30/2014	2	200	157	9/30/2024		2,368,937		1,681,874
Spring Valley	Watsonville, CA	6/13/2014	1	145	110	9/30/2022		5,746,921		3,675,205
McIntosh Road	Dover, FL	6/20/2014	2	94	78	6/30/2017	⁽³⁾	2,453,449		1,519,620
Naumann Road	Oxnard, CA	7/23/2014	1	68	66	7/31/2017		6,793,670		4,291,892
Sycamore Road	Arvin, CA	7/25/2014	1	326	322	10/31/2024		6,848,715		3,612,914
Wauchula Road	Duette, FL	9/29/2014	1	808	590	9/30/2024		13,581,735		7,536,338
Santa Clara Avenue	Oxnard, CA	10/29/2014	2	333	331	7/31/2017		24,170,815		15,572,904
Dufau Road	Oxnard, CA	11/4/2014	1	65	64	11/3/2017		6,031,400		3,675,000
Espinosa Road	Salinas, CA	1/5/2015	1	331	329	10/31/2016		16,358,539		10,178,000
Parrish Road	Duette, FL	3/10/2015	1	419	412	6/30/2025		4,188,751		2,374,680
Immokalee Exchange	Immokalee, FL	6/25/2015	2	2,678	1,644	6/30/2020		15,526,274		9,360,000
Holt County	Stuart, NE	8/20/2015	1	1,276	1,052	12/31/2018		5,441,699		3,301,000
Rock County	Bassett, NE	8/20/2015	1	1,283	1,049	12/31/2018		5,428,714		3,301,000
Bear Mountain	Arvin, CA	9/3/2015	3	854	841	1/9/2031		26,094,518		9,979,735
Corbitt Road	Immokalee, FL	11/2/2015	1	691	390	12/31/2021		3,777,909		3,714,880
Reagan Road	Willcox, AZ	12/22/2015	1	1,239	875	12/31/2025		5,678,064		3,723,000
Gunbarrel Road	Alamosa, CO	3/3/2016	3	6,191	4,730	2/28/2021		25,326,491		15,531,000
Calaveras Avenue	Coalinga, CA	4/5/2016	1	453	442	10/31/2025		15,401,510		9,282,000
			47	23,456	18,395			$	268,725,765	$	181,526,562

⁽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 and Lease intangibles, net; plus net above-market lease values included in Other assets; and less net below-market lease values, deferred revenue and unamortized tenant improvements included in Other liabilities, each as shown on the accompanying Condensed Consolidated Balance Sheet.


⁽²⁾	Excludes approximately $1.1 million of deferred financing costs related to mortgage notes and bonds payable included in Mortgage notes and bonds payable, net on the accompanying Condensed Consolidated Balance Sheet.


⁽³⁾	There are two leases in place on this property, one expiring on June 30, 2017, and the other expiring on June 30, 2019.

Table of Contents

Real Estate

The following table sets forth the components of our investments in tangible real estate assets as of June 30, 2016, and December 31, 2015:



	June 30, 2016			December 31, 2015
Real estate:
Land and land improvements	$	213,659,402		$	192,020,381
Irrigation systems	30,615,816			21,849,508
Buildings	14,623,118			11,184,647
Horticulture	13,679,327			1,490,695
Other improvements	4,575,516			1,872,606
Real estate, at cost	277,153,179			228,417,837
Accumulated depreciation	(8,571,234		)	(6,634,412		)
Real estate, net	$	268,581,945		$	221,783,425

Real estate depreciation expense on these tangible assets was $1,136,838 and $1,936,822 for the three and six months ended June 30, 2016, respectively, and $539,125 and $1,051,639 for the three and six months ended June 30, 2015, respectively.

Included in the figures above are amounts related to improvements on certain of our properties paid for by our tenants but owned by us, or tenant improvements. As of June 30, 2016, and December 31, 2015, we recorded tenant improvements, net of accumulated depreciation, of $1,733,422 and $1,302,009, respectively. We recorded both depreciation expense and additional rental revenue related to these tenant improvements of $30,753 and $61,537 during the three and six months ended June 30, 2016, respectively, and $10,825 and $9,021 for the three and six months ended June 30, 2015, respectively.

Intangible Assets and Liabilities

The following table summarizes the carrying values of lease intangible assets and the related accumulated amortization as of June 30, 2016, and December 31, 2015:



	June 30, 2016			December 31, 2015
Lease intangibles:
In-place leases	$	1,607,932		$	1,225,955
Leasing costs	939,676			677,112
Tenant relationships	886,743			886,743
Lease intangibles, at cost	3,434,351			2,789,810
Accumulated amortization	(1,401,130		)	(1,026,269		)
Lease intangibles, net	$	2,033,221		$	1,763,541

Total amortization expense related to these lease intangible assets was $198,135 and $374,861 for the three and six months ended June 30, 2016, respectively, and $172,678 and $451,796 for the three and six months ended June 30, 2015, respectively.

The following table summarizes the carrying values of certain lease intangible assets or liabilities included in Other assets and Other liabilities, respectively, on the accompanying Condensed Consolidated Balance Sheets and the related accumulated amortization or accretion, respectively, as of June 30, 2016, and December 31, 2015.



	June 30, 2016						December 31, 2015
	Deferred Rent Asset			Accumulated (Amortization)			Deferred Rent Asset			Accumulated (Amortization)
Intangible Asset or Liability	(Liability)			Accretion			(Liability)			Accretion
Above-market lease values⁽¹⁾	$	19,528		$	(10,795	)	$	19,528		$	(7,540	)
Below-market lease values and deferred revenue⁽²⁾	(202,579		)	37,867			(202,579		)	23,205
	$	(183,051	)	$	27,072		$	(183,051	)	$	15,665


⁽¹⁾	Above-market lease values are included as part of Other assets in the accompanying Condensed Consolidated Balance Sheets, and the related amortization is recorded as a reduction of rental income.


⁽²⁾	Below-market lease values and deferred revenue are included as a part of Other liabilities in the accompanying Condensed Consolidated Balance Sheets, and the related accretion is recorded as an increase to rental income.

Table of Contents

Total amortization related to above-market lease values and deferred revenue was $1,627 and $3,255 for the three and six months ended June 30, 2016, respectively, and $5,395 and $10,790 for the three and six months ended June 30, 2015, respectively. Total accretion related to below-market lease values and deferred revenue was $7,331 and $14,662 for the three and six months ended June 30, 2016, respectively, and $52,590 and $107,733 for the three and six months ended June 30, 2015, respectively.

New Real Estate Activity

Certain acquisitions during the periods presented were accounted for as business combinations in accordance with ASC 805, as there was a prior leasing history on the property. 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, all acquisition-related costs were capitalized and included as part of the fair value allocation of the identifiable tangible assets acquired, other than those costs that directly related to originating new leases we executed upon acquisition, which were capitalized as part of leasing costs.

In addition, total consideration for acquisitions may include a combination of cash and equity securities, such as OP Units. When OP Units are issued in connection with acquisitions, we determine the fair value of the OP Units issued based on the number of units issued multiplied by the closing price of the Company’s common stock on the date of acquisition.

2016 New Real Estate Activity

During the six months ended June 30, 2016, we acquired four new farms in two separate transactions, which are summarized in the table below.

Number

Total

Annualized

New

Property

Acquisition

Total

Primary

Lease

Renewal

Purchase

Acquisition

Straight-line

Long-term

Name

Location

Date

Acreage

Farms

Crop(s)

Term

Options

Price

Costs

Rent⁽¹⁾

Debt Issued

Gunbarrel Road⁽²⁾

Alamosa, CO

3/3/2016

6,191

Organic Potatoes

5 years

1 (5 years)

25,735,815

93,585

⁽³⁾

1,590,614

15,531,000

Calaveras Avenue

Coalinga, CA

4/5/2016

453

Pistachios

10 years

1 (5 years)

15,470,000

38,501

⁽⁴⁾

773,500

⁽⁵⁾

9,282,000

6,644

41,205,815

132,086

2,364,114

24,813,000


⁽¹⁾	Annualized straight-line amount is based on the minimum cash rental payments guaranteed under the lease, as required under GAAP.


⁽²⁾	As partial consideration for the acquisition of this property, we issued 745,879 OP Units, constituting an aggregate fair value of approximately $6.5 million as of the acquisition date.


⁽³⁾	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 $4,670 of direct leasing costs in connection with this acquisition.


⁽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⁾	This lease provides for a variable rent component based on the gross crop revenues earned on the property. The figure above represents only the minimum cash rents guaranteed under the lease.

We determined the fair value of assets acquired and liabilities assumed related to the property acquired during the six months ended June 30, 2016, to be as follows:



	Land and Land				Irrigation		Other				In-place		Leasing		Total Purchase
Property Name	Improvements		Buildings		Systems		Improvements		Horticulture		Leases		Costs		Price
Gunbarrel Road	$	16,755,814	$	3,438,291	$	2,830,738	$	2,079,102	$	—	$	381,977	$	249,893	$	25,735,815
Calaveras Avenue	3,615,436		—		424,112		—		11,430,452		—		—		15,470,000
	$	20,371,250	$	3,438,291	$	3,254,850	$	2,079,102	$	11,430,452	$	381,977	$	249,893	$	41,205,815

The allocation of the purchase price for the property acquired during the six months ended June 30, 2016, is preliminary and may change during the measurement period if we obtain new information regarding the assets acquired or liabilities assumed at the acquisition date.

Table of Contents

Below is a summary of the total operating revenues and earnings recognized on the property acquired during the three and six months ended June 30, 2016:



		For the three months ended June 30, 2016				For the six months ended June 30, 2016
	Acquisition	Operating				Operating
Property Name	Date	Revenues		Earnings⁽¹⁾		Revenues		Earnings⁽¹⁾
Gunbarrel Road	3/3/2016	$	397,654	$	72,522	$	521,653	$	93,597
Calaveras Avenue	4/5/2016	183,865		76,565		183,865		76,565
		$	581,519	$	149,087	$	705,518	$	170,162


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

2015 New Real Estate Activity

During the six months ended June 30, 2015, we acquired four new farms in three separate transactions, which are summarized in the table below.



Property	Property	Acquisition	Total	Number of	Primary	Lease	Renewal	Total Purchase		Acquisition			Annualized Straight-line		Long-term
Name	Location	Date	Acreage	Farms	Crop(s)	Term	Options	Price		Costs			Rent⁽¹⁾		Debt Issued
Espinosa Road⁽²⁾	Salinas, CA	1/5/2015	331	1	Strawberries	1.8 years	None	$	16,905,500	$	89,885	⁽³⁾	$	778,342	$	10,178,000
Parrish Road	Duette, FL	3/10/2015	419	1	Strawberries	10.3 years	2 (5 years)	3,913,280		103,610		⁽³⁾	251,832		2,374,680
Immokalee Exchange	Immokalee, FL	6/25/2015	2,678	2	Misc. Vegetables	5.0 years	2 (5 years)	15,757,700		152,571		⁽³⁾	960,104		9,360,000
			3,428	4				$	36,576,480	$	346,066		$	1,990,278	$	21,912,680


⁽¹⁾	Annualized straight-line amount is based on the minimum cash rental payments guaranteed under the lease.


⁽²⁾	In connection with this acquisition, our Adviser earned a finder’s fee of $320,905, which the Adviser fully credited back to us during the six months ended June 30, 2015. See Note 5, “Related-Party Transactions” for further discussion on this fee.


⁽³⁾	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 $7,225 of direct leasing costs in connection with these acquisitions.

We determined the fair value of assets acquired and liabilities assumed related to the properties acquired during the six months ended June 30, 2015, to be as follows:



	Land and Land		Buildings and		Irrigation		In-place		Leasing		Tenant		Total Purchase
Property Name	Improvements		Improvements		System		Leases		Costs		Relationships		Price
Espinosa Road	$	15,852,466	$	84,478	$	497,401	$	246,472	$	43,894	$	180,789	$	16,905,500
Parrish Road	2,403,064		42,619		1,299,851		54,405		77,449		35,892		3,913,280
Immokalee Exchange	14,410,840		273,107		515,879		229,406		148,691		179,777		15,757,700
	$	32,666,370	$	400,204	$	2,313,131	$	530,283	$	270,034	$	396,458	$	36,576,480

Below is a summary of the total operating revenues and earnings recognized on the properties acquired during the three and six months ended June 30, 2015:



		For the three months ended June 30, 2015					For the six months ended June 30, 2015
	Acquisition	Operating					Operating
Property Name	Date	Revenues		Earnings⁽¹⁾			Revenues		Earnings⁽¹⁾
Espinosa Road	1/5/2015	$	194,585	$	101,813		$	380,802	$	198,871
Parrish Road	3/10/2015	62,958		21,770			77,174		28,949
Immokalee Exchange	6/25/2015	—		(1,223		)	—		(1,223		)
		$	257,543	$	122,360		$	457,976	$	226,597


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

Table of Contents

Acquired Intangibles and Liabilities

The following table shows the weighted-average amortization period, in years, for the intangible assets acquired and liabilities assumed in connection with new real estate acquired as part of business combinations during the six months ended June 30, 2016 and 2015:



	Weighted-Average Amortization Period (in Years)
Intangible Assets and Liabilities	2016	2015
In-place leases	5.1	4.1
Leasing costs	5.1	6.1
Tenant relationships	—	9.5
All intangible assets and liabilities	5.1	6.3

Pro-Forma Financials

During the six months ended June 30, 2016 and 2015, we acquired three farms and four farms, respectively, in transactions that qualified as business combinations. The following table reflects pro-forma consolidated financial information as if each farm acquired as part of a business combination was acquired on January 1 of the respective prior fiscal year. In addition, pro-forma earnings have been adjusted to assume that acquisition-related costs related to these farms were incurred at the beginning of the previous fiscal year.



	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2016		2015			2016		2015
	(Unaudited)		(Unaudited)			(Unaudited)		(Unaudited)
Operating Data:
Total operating revenue	$	4,244,441	$	2,834,979		$	7,927,117	$	5,629,607
Net income attributable to the company	$	92,512	$	(293,259	)	$	101,372	$	517,789
Share and Per-share Data:
Earnings per share of common stock – basic and diluted	$	0.01	$	(0.03	)	$	0.01	$	0.06
Weighted-average common shares outstanding – basic and diluted	9,992,941		9,060,314			9,992,941		9,060,314

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 February 1, 2016, we completed certain irrigation improvements on Sycamore Road to increase overall water availability at a total cost of $993,319. As stipulated in the lease agreement with our tenant, we will earn additional rent on the total cost commensurate with the annual yield on the farmland, which will result in additional straight-line rental income of $53,550 per year throughout the remaining lease term.

On February 8, 2016, we renewed the lease with the tenant occupying one of our McIntosh Road farms, which was set to expire on June 30, 2016. The lease was renewed for an additional three years, through June 30, 2019, with annualized, straight-line rental income of $63,000, representing a 17.9% increase over that of the previous lease.

On April 5, 2016, we reimbursed the tenant occupying Wauchula Road for $569,607 of costs incurred to construct certain irrigation improvements on the farm. As stipulated in the lease, beginning with the three months ending June 30, 2016, we will earn an additional $92,634 of annualized, straight-line rental income on this farm throughout the remaining lease term.

On April 5, 2016, we reimbursed the tenant occupying Parrish Road for $500,000 of our portion of the costs incurred to construct certain irrigation improvements on the farm. As stipulated in the lease, beginning with the three months ending June 30, 2016, we will earn an additional $139,073 of annualized, straight-line rental income on this farm throughout the remaining lease term. In addition, in connection with our acquisition of Parrish Road in March 2015, we committed to providing $745,000

Table of Contents

as additional compensation and reimbursements of certain costs, contingent upon the approval by a local water management district of increases in certain water permits on the property. These water permits were approved on June 28, 2016, and we remitted $745,000 to the tenant, who was also the seller of the property, on June 30, 2016.

Portfolio Diversification and Concentrations

Diversification

The following table summarizes the geographic locations, by state, of our properties with leases in place as of June 30, 2016 and 2015:



	As of and For the Six Months Ended June 30, 2016								As of and For the Six Months Ended June 30, 2015
	Number of	Total	% of Total		Rental		% of Total Rental		Number of	Total	% of Total		Rental		% of Total Rental
State	Farms	Acres	Acres		Revenue		Revenue		Farms	Acres	Acres		Revenue		Revenue
California	19	4,029	17.2	%	$	4,502,644	56.8	%	15	2,722	23.7	%	$	3,712,894	68.7	%
Florida	13	5,094	21.7	%	1,539,217		19.4	%	12	4,401	38.4	%	820,834		15.2	%
Oregon	4	2,313	9.9	%	584,962		7.4	%	4	2,313	20.2	%	583,763		10.8	%
Colorado	3	6,191	26.4	%	521,653		6.6	%	—	—	—	%	—		—	%
Arizona	2	3,000	12.8	%	358,051		4.5	%	1	1,761	15.4	%	161,935		3.0	%
Nebraska	2	2,559	10.9	%	289,815		3.7	%	—	—	—	%	—		—	%
Michigan	4	270	1.1	%	124,743		1.6	%	4	270	2.3	%	123,357		2.3	%
	47	23,456	100.0	%	$	7,921,085	100.0	%	36	11,467	100.0	%	$	5,402,783	100.0	%

Concentrations

Credit Risk

As of June 30, 2016, our farms were leased to 35 different, third-party tenants, with certain tenants leasing more than one farm. Dole Food Company (“Dole”) leases two of our farms, and aggregate rental revenue attributable to Dole accounted for approximately $1.5 million, or 18.6% of the rental revenue recorded during the six months ended June 30, 2016. If Dole fails to make rental payments or elects to terminate its leases, and the properties cannot be re-leased on satisfactory terms, there could 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 six months ended June 30, 2016.

Geographic Risk

19 of our 47 farms owned as of June 30, 2016, are located in California, and 13 farms are located in Florida. As of June 30, 2016, our farmland in California accounted for 4,029 acres, or 17.2% of the total acreage we owned. Furthermore, these farms accounted for approximately $4.5 million, or 56.8% of the rental revenue recorded during the six months ended June 30, 2016. However, these farms are spread across three of the many different growing regions within California. As of June 30, 2016, our farmland in Florida accounted for 5,094 acres, or 21.7% of the total acreage we owned, and these farms accounted for approximately $1.5 million, or 19.4%, of the rental revenue recorded during the six months ended June 30, 2016. 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 six months ended June 30, 2016.

Table of Contents

NOTE 4. BORROWINGS

Our borrowings as of June 30, 2016, and December 31, 2015, are summarized below:



						As of June 30, 2016							As of December 31, 2015
Issuer	Type of Issuance	Date(s) of Issuance	Initial Commitment	Maturity Date(s)		Principal Outstanding			Stated Interest Rate⁽¹⁾		Undrawn Commitment		Principal Outstanding			Stated Interest Rate⁽¹⁾		Undrawn Commitment
MetLife	Mortgage Note Payable	5/9/2014	100,000,000	1/5/2029	⁽²⁾	$	87,470,194		3.35%		12,529,806	⁽³⁾	$	87,470,194		3.35%		12,529,806
MetLife	Line of Credit	5/9/2014	25,000,000	4/5/2024		14,500,000			2.88%		10,500,000	⁽³⁾	100,000			2.58%		24,900,000
Farm Credit⁽⁴⁾	Mortgage Notes Payable	9/19/2014 – 4/4/2016	31,467,880	10/1/2016 – 11/1/2040		30,487,368			3.45%	⁽⁵⁾	—		21,456,963			3.42%	⁽⁵⁾	—
Farmer Mac	Bonds Payable	12/11/2014 – 3/3/2016	125,000,000	12/22/2016 – 2/24/2023	⁽⁶⁾	49,069,000			2.93%		75,763,000	⁽⁷⁾	33,706,000			2.87%		41,294,000
Total outstanding principal						181,526,562							142,733,157
Debt issuance costs						(1,052,886		)					(1,054,222		)
Total mortgage notes and bonds payable, net						$	180,473,676						$	141,678,935


⁽¹⁾	Where applicable, represents the weighted-average, blended rate on the respective borrowing facilities as of each June 30, 2016, and December 31, 2015.


⁽²⁾	If facility is not fully utilized by December 31, 2017, MetLife has the option to be relieved of its obligations to disburse the additional funds under the loan.


⁽³⁾	Based on the properties that were pledged as collateral under the MetLife Facility, as of June 30, 2016, the maximum additional amount we could draw under the facility was approximately $7.1 million.


⁽⁴⁾	Includes borrowings from Farm Credit CFL and Farm Credit West, each as defined below.


⁽⁵⁾	Rate is before interest patronage. 2015 interest patronage (as described below) received resulted in a 16.1% reduction to the stated interest rate on such borrowings.


⁽⁶⁾	If facility is not fully utilized by December 11, 2018, Farmer Mac has the option to be relieved of its obligations to purchase additional bonds under the facility.


⁽⁷⁾	At each of June 30, 2016, there was no additional availability to draw under this facility, as no additional properties had been pledged as collateral.

The weighted-average interest rate charged on all of our borrowings, excluding the impact of deferred financing costs and before any interest patronage, or refunded interest, was 3.25% and 3.27% for the three and six months ended June 30, 2016, respectively, and 3.57% and 3.56% for the three and six months ended June 30, 2015, respectively. 2015 interest patronage from all Farm Credit Notes Payable (as defined below), which patronage was received during the three months ended March 31, 2016, resulted in a 16.1% reduction to the stated interest rates on such borrowings. We are unable to estimate the amount of patronage to be received, if any, related to interest accrued during 2016 on our Farm Credit Notes Payable.

MetLife Facility

On May 9, 2014, we closed on a facility with Metropolitan Life Insurance Company (“MetLife”) that consists of a $100.0 million long-term note payable that is scheduled to mature on January 5, 2029 (the “MetLife Note Payable”), and a $25.0 million revolving equity line of credit that is scheduled to mature on April 5, 2024 (the “MetLife Line of Credit” and, together with the MetLife Note Payable, the “MetLife Facility”). As amended on September 3, 2015, advances under the MetLife Note Payable bear interest at a fixed rate of 3.35% per annum, plus an unused line fee of 0.20% on undrawn amounts, and interest rates for subsequent disbursements will be based on prevailing market rates at the time of such disbursements. The interest rates on advances and subsequent disbursements will be subject to adjustment every five years. If the full commitment amount of $100.0 million is not drawn by December 31, 2017, MetLife has the option to be relieved of its obligation to disburse the additional funds under this loan. Advances under the MetLife Line of Credit bear interest at a variable rate equal to the three-month LIBOR plus a spread of 2.25%, with a minimum annualized rate of 2.50%, plus an unused fee of 0.20% on undrawn amounts. The interest rate spread on borrowings under the MetLife Line of Credit will be subject to adjustment on April 5, 2017. As of June 30, 2016, we were in compliance with all covenants under the facility.

Farm Credit Notes Payable

Farm Credit CFL Notes Payable

From time to time since September 19, 2014, we, through certain subsidiaries of our Operating Partnership, have entered into various loan agreements with Farm Credit of Central Florida, FLCA (“Farm Credit CFL”). As of June 30, 2016, we have approximately $21.2 million of aggregate borrowings outstanding to Farm Credit CFL that bear interest (before interest patronage) at a weighted-average rate of 3.42% per annum. 2015 interest patronage from Farm Credit CFL borrowings resulted in a 16.1% reduction to the stated interest rates on such borrowings. As of June 30, 2016, we were in compliance with all covenants applicable to these borrowings.

Table of Contents

Farm Credit West Note Payable

On April 4, 2016, in connection with the acquisition of Calaveras Avenue on April 5, 2016, we, through a subsidiary of our Operating Partnership, closed on a loan from Farm Credit West, FLCA ("Farm Credit West"), for approximately $9.3 million. The mortgage note is scheduled to mature on November 1, 2040, and will bear interest (before interest patronage) at a fixed rate of 3.54% per annum through April 30, 2021, thereafter converting to a variable rate to be determined by Farm Credit West unless another fixed rate is established.

As of June 30, 2016, we have approximately $9.3 million of aggregate borrowings outstanding to Farm Credit West that bear interest (before interest patronage) at a rate of 3.54% per annum, and we were in compliance with all covenants applicable to these borrowings.

Farmer Mac Facility

On December 5, 2014, we, through certain subsidiaries of our Operating Partnership, entered into a bond purchase agreement (the “Bond Purchase Agreement”) with Federal Agricultural Mortgage Corporation (“Farmer Mac”) and Farmer Mac Mortgage Securities Corporation (the “Bond Purchaser”), for a secured note purchase facility that provides for bond issuances up to an aggregate principal amount of $75.0 million (the “Farmer Mac Facility”). On June 16, 2016, we entered into an amendment to increase the maximum borrowing capacity under the Farmer Mac Facility from $75.0 million to $125.0 million and extend the term of the Bond Purchase Agreement by two years, to December 11, 2018.

On March 3, 2016, in connection with the acquisition of Gunbarrel Road, we completed the issuances of two bonds under the Farmer Mac Facility: (i) an $11.1 million, seven-year, interest-only bond with a fixed interest rate of 3.08% throughout its term, and (ii) a $4.4 million, seven-year, amortizing bond with a fixed interest rate of 2.98% throughout its term.

As of June 30, 2016, we were in compliance with all covenants under the facility.

Debt Service – Aggregate Maturities

Scheduled principal payments of our aggregate mortgage notes and bonds payable as of June 30, 2016, for the succeeding years are as follows:



		Scheduled
Period		Principal Payments
For the remaining six months ending December 31:	2016	$	4,360,136
For the fiscal years ending December 31:	2017	4,399,175
	2018	20,399,431
	2019	8,021,734
	2020	17,710,108
	Thereafter	112,135,978
		$	167,026,562

Fair Value

As of June 30, 2016, the aggregate fair value of our long-term, fixed-rate mortgage notes and bonds payable was approximately $168.8 million, as compared to an aggregate carrying value of $165.0 million. The fair value of our long-term, fixed-rate mortgage notes and bonds payable is valued using Level 3 inputs under the hierarchy established by ASC 820-10, “Fair Value Measurements and Disclosures,” and is calculated based on a discounted cash flow analysis, using discount rates based on management’s estimates of market interest rates on long-term debt with comparable terms. Due to their short-term nature and the lack of changes in market credit spreads, the aggregate fair value of our short-term, variable-rate mortgage notes and bonds payable as of June 30, 2016, is deemed to approximate their aggregate carrying value of approximately $2.0 million. Further, due to the revolving nature of the MetLife Line of Credit and the lack of changes in market credit spreads, its fair value as of June 30, 2016, is deemed to approximate its carrying value of $14.5 million.

NOTE 5. 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. Both our Adviser and Administrator

Table of Contents

are affiliates of ours, as their parent company is owned and controlled by Mr. David Gladstone, our chairman and chief executive officer. In addition, two of our executive officers, Mr. Gladstone and Mr. Terry Brubaker (our vice chairman and chief operating officer), serve as directors and executive officers of each of our Adviser and Administrator. Mr. Michael LiCalsi, our general counsel and secretary, serves as our Administrator’s president.

The current advisory agreement with our Adviser (the “Advisory Agreement”) and the current administration agreement with our Administrator (the “Administration Agreement”) became effective February 1, 2013. A summary of each of these agreements is provided in Note 4 to our consolidated financial statements included in our Form 10-K. There were no material changes to either agreement during the six months ended June 30, 2016.

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



	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2016		2015		2016		2015
Management fee⁽¹⁾⁽²⁾	$	385,586	$	328,392	$	772,740	$	624,140
Incentive fee⁽¹⁾⁽²⁾	158,877		—		158,877		—
Credits from voluntary, irrevocable waiver by Adviser’s board of directors⁽²⁾⁽³⁾	—		—		—		(320,905		)
Net fees due to our Adviser	$	544,463	$	328,392	$	931,617	$	303,235
Administration fee⁽¹⁾⁽²⁾	$	179,377	$	177,852	$	391,237	$	308,788


⁽¹⁾	Pursuant to the Advisory and Administration Agreements, accordingly, each of which became effective on February 1, 2013.


⁽²⁾	Reflected as a line item on our accompanying Condensed 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 Condensed Consolidated Balance Sheets as of June 30, 2016, and December 31, 2015, were as follows:



	June 30, 2016		December 31, 2015
Management fee due to Adviser	$	385,586	$	362,373
Incentive fee due to Adviser	158,877		—
Other due to Adviser⁽¹⁾	12,281		13,140
Total due to Adviser	556,744		375,513
Administration fee due to Administrator	179,377		190,080
Total due to Administrator	179,377		190,080
Total due to related parties⁽²⁾	$	736,121	$	565,593


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


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

NOTE 6. EQUITY

Stockholders’ Equity

As of each June 30, 2016, and December 31, 2015, there were 20,000,000 shares of common stock, par value $0.001 per share, authorized and 9,992,941 shares issued and outstanding.

Non-Controlling Interests in Operating Partnership

We consolidate our Operating Partnership, which is a majority-owned partnership. As of June 30, 2016, and December 31, 2015, we owned approximately 93.1% and 100.0%, respectively, of the outstanding OP Units.

On or after 12 months after becoming a holder of OP Units, each limited partner, other than the Company, has the right, subject to the terms and conditions set forth in the partnership agreement of the Operating Partnership, to require the Operating Partnership to redeem all or a portion of such units in exchange for cash or, at the Company’s option, shares of our common

Table of Contents

stock on a one-for-one basis. The cash redemption per OP Unit would be based on the market price of our common stock at the time of redemption. A limited partner will not be entitled to exercise redemption rights if the delivery of common stock to the redeeming limited partner would breach restrictions on the ownership of common stock imposed under our charter and other limitations thereof.

Regardless of the rights described above, the Operating Partnership will not have an obligation to issue cash to a unitholder upon a redemption request if the Company elects to redeem the OP Units for shares of its common stock. When a non-Company unitholder redeems an OP Unit, non-controlling interest in the Operating Partnership is reduced, and stockholders’ equity is increased.

The Operating Partnership is required to make distributions on each OP Unit in the same amount as those paid on each share of the Company’s common stock, with the distributions on the OP Units held by the Company being utilized to make distributions to the Company’s common stockholders.

As of June 30, 2016, there were 745,879 OP Units held by non-controlling limited partners.

Distributions

The distributions to common stockholders declared by our Board of Directors and paid by us during the six months ended June 30, 2016 and 2015 are reflected in the table below.



Fiscal Year	Declaration Date	Record Date	Payment Date	Distributions per Common Share
2016	January 12, 2016	January 22, 2016	February 2, 2016	$	0.04000
	January 12, 2016	February 18, 2016	February 29, 2016	0.04000
	January 12, 2016	March 21, 2016	March 31, 2016	0.04000
	April 12, 2016	April 22, 2016	May 2, 2016	0.04125
	April 12, 2016	May 19, 2016	May 31, 2016	0.04125
	April 12, 2016	June 17, 2016	June 30, 2016	0.04125
		Six Months Ended June 30, 2016		$	0.24375

2015	January 13, 2015	January 23, 2015	February 3, 2015	$	0.03500
	January 13, 2015	February 18, 2015	February 27, 2015	0.03500
	January 13, 2015	March 20, 2015	March 31, 2015	0.03500
	April 14, 2015	April 24, 2015	May 4, 2015	0.04000
	April 14, 2015	May 19, 2015	May 28, 2015	0.04000
	April 14, 2015	June 19, 2015	June 30, 2015	0.04000
		Six Months Ended June 30, 2015		$	0.22500

The same amounts were paid as distributions on each OP Unit held by non-controlling limited partners of the Operating Partnership as of the above record dates.

We will provide information related to the federal income tax characterization of our 2016 distributions in an IRS Form 1099-DIV, which will be mailed to our stockholders in January 2017.

Registration Statement

We filed a universal registration statement on Form S-3 (File No. 333-194539) with the SEC on March 13, 2014, which the SEC declared effective on April 2, 2014. This universal registration statement permits us to issue up to an aggregate of $300.0 million in securities, consisting of common stock, senior common stock, preferred stock, subscription rights, debt securities and depository shares, including through separate, concurrent offerings of two or more of such securities. As of June 30, 2016, we have issued 2,156,080 shares of common stock for gross proceeds of $23.3 million under this universal registration statement. Additionally, subsequent to June 30, 2016, we sold $31,934 shares of our common stock under the ATM Program (as defined below, under "At-the-Market Program") pursuant to this universal registration statement.

Table of Contents

At-the-Market Program

On August 7, 2015, we entered into equity distribution agreements with Cantor Fitzgerald & Co. and Ladenburg Thalmann & Co., Inc. (each a “Sales Agent”), under which we may issue and sell, from time to time and through the Sales Agents, shares of our common stock up to $30.0 million (the “ATM Program”). During the six months ended June 30, 2016, no shares were issued or sold under the ATM Program. Through June 30, 2016, we have issued and sold 32,627 shares of our common stock at an average sales price of $9.19 per share for gross proceeds of approximately $300,000 and net proceeds of $295,000. See Note 9, "Subsequent Events," for discussion on shares sold under the ATM Program subsequent to June 30, 2016.

NOTE 7. COMMITMENTS AND CONTINGENCIES

Operating Obligations

Upon acquiring Espinosa Road in January 2015, we assumed an eminent domain lawsuit brought by the California Department of Transportation (“CalTrans”) against the previous owner of the property for approximately 4.5 acres of nonfarmable land. CalTrans had offered $160,000 to the previous owner as payment for the 4.5 acres; however, this offer was rejected by the previous owner. Upon acquiring the property, we informed CalTrans of our intention to accept this offer of $160,000 as fair compensation for the 4.5 nonfarmable acres. On May 3, 2016, the matter was settled in our favor, and on July 5, 2016, we received the $160,000 payment from CalTrans. See Note 9, "Subsequent Events" for further discussion on this settlement.

In connection with the lease we executed upon our acquisition of Bear Mountain in September 2015, we agreed to fund the development of the property into an almond orchard. The development will include the removal of 274 acres of old grape vineyards, the installation of a new irrigation system, including the drilling of three new wells, and the planting of over 800 acres of new almond trees. The project is estimated to cost approximately $7.8 million and is expected to be completed during the three months ending September 30, 2016. As stipulated in the lease, we will earn additional rent on the total cost of the development project commensurate with the yield on the initial acquisition and based on the timing of related cash disbursement made by us. As of June 30, 2016, we have expended or accrued approximately $7.1 million related to this project; however, we are unable to estimate the total amount of additional rent to be earned related to this project at this time.

Litigation

We are not currently subject to any material known or threatened litigation.

NOTE 8. EARNINGS (LOSS) PER SHARE OF COMMON STOCK

The following table sets forth the computation of basic and diluted earnings per common share for the three and six months ended June 30, 2016 and 2015, computed using the weighted average number of shares outstanding during the respective periods. The non-controlling limited partners’ outstanding OP Units (which may be redeemed for shares of common stock) have been excluded from the diluted earnings per share calculation, as there would be no effect on the amounts since the non-controlling limited partners’ share of income would also be added back to net income. Net income figures are presented net of non-controlling interests in the earnings per share calculations.



	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2016		2015			2016		2015
Net income (loss) attributable to the Company	$	107,813	$	(30,289	)	$	342,229	$	(5,715	)
Weighted average number of common shares outstanding – basic and diluted	9,992,941		8,439,855			9,992,941		8,098,681
Earnings (loss) per common share – basic and diluted	$	0.01	$	0.00		$	0.03	$	0.00

For the three and six months ended June 30, 2016, the weighted-average number of OP Units held by non-controlling limited partners was 745,879 and 491,788, respectively. There were no OP Units held by anyone other than the Company during 2015.

Table of Contents

NOTE 9. SUBSEQUENT EVENTS

Investing and Financing Activity

On July 1, 2016, we acquired one farm in St. Lucie County, Florida (“Orange Avenue”), for approximately $5.1 million. The property is comprised of 401 acres of farmland and will be farmed for miscellaneous vegetables. At closing, we executed a new seven-year, partial-net lease with a new tenant that includes two, seven-year extension options. The lease provides for minimum annualized, straight-line rents of approximately $291,000. We will account for this acquisition as an asset acquisition in accordance with ASC 360.

In connection with the acquisition of Orange Avenue, on July 1, 2016, we closed on a loan from Farm Credit CFL for approximately $3.1 million. The mortgage note is scheduled to mature on June 1, 2023, and will bear interest (before interest patronage) at a fixed rate of 3.78% per annum throughout its term.

CalTrans Settlement

On July 5, 2016, we received payment of approximately $164,000 (including $4,000 of accrued interest) from CalTrans in connection with the settlement of an eminent domain lawsuit for 4.5 acres of nonfarmable land on Espinosa Road. As cash settlement did not occur until after June 30, 2016, the portion of this payment allocated to our cost basis of the 4.5 nonfarmable acres, which was approximately $156,000, is included in Investments in real estate, net on our Condensed Consolidated Balance Sheet as of June 30, 2016.

ATM Program

Subsequent to June 30, 2016, through the date of this filing, we have sold 31,934 shares of our common stock at an average sales price of $11.29 per share under the ATM Program for gross proceeds of approximately $360,000 and net proceeds of approximately $355,000.

Distributions

On July 12, 2016, our Board of Directors declared the following monthly cash distributions to common stockholders:



Record Date	Payment Date	Distribution per Common Share
July 22, 2016	August 2, 2016	$	0.04125
August 22, 2016	August 31, 2016	0.04125
September 21, 2016	September 30, 2016	0.04125
Total:		$	0.12375

The same amounts will be paid as distributions on each OP Unit held by non-controlling limited partners of the Operating Partnership as of the above record dates.

Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

All statements contained herein, other than historical facts, may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements may relate to, among other things, future events or our future performance or financial condition. In some cases, you can identify forward-looking statements by terminology such as “may,” “might,” “believe,” “will,” “provided,” “anticipate,” “future,” “could,” “growth,” “plan,” “intend,” “expect,” “should,” “would,” “if,” “seek,” “possible,” “potential,” “likely” or the negative of such terms or comparable terminology. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our business, financial condition, liquidity, results of operations, funds from operations or prospects to be materially different from any future business, financial condition, liquidity, results of operations, funds from operations or prospects expressed or implied by such forward-looking statements and include, but are not limited to:


•	Changes in our industry, interest rates or the general economy;


•	Natural disasters or climactic changes impacting the regions in which our tenants operate;


•	The degree and nature of our competition;


•	Failure to maintain our qualification as a REIT;


•	Changes in our business strategy; and


•	Loss of our key personnel.

For further information about these and other factors that could affect our future results, please see the caption titled “Risk Factors” in our Annual Report on Form 10-K (the “Form 10-K”) for the year ended December 31, 2015, which we filed with the Securities and Exchange Commission (the “SEC”) on February 23, 2016. We caution readers not to place undue reliance on any such forward-looking statements, which are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this Quarterly Report on Form 10-Q (the “Quarterly Report”), except as required by law.

All references to “we,” “our,” “us” and the “Company” in this Quarterly Report mean Gladstone Land Corporation and its consolidated subsidiaries, except where it is made clear that the term refers only to Gladstone Land Corporation.

OVERVIEW

General

We are an externally-managed real estate investment trust (“REIT”) that is engaged primarily in the business of owning and leasing farmland; we are not a grower, nor do we farm the properties we own. We currently own 48 farms comprised of 23,857 acres across seven states in the U.S. (Arizona, California, Colorado, Florida, Michigan, Nebraska and Oregon). We also own several farm-related facilities, such as cooling facilities, box barns, packinghouses, processing facilities and various storage facilities. These farms and facilities are leased to 35 different, unrelated tenants that are either independent or corporate farming operations. We intend to acquire more farmland in these and other states in our regions of focus that is already or will be leased to farmers, and we expect that most of our future tenants will also be independent or corporate farming operations that are unrelated to us. We also expect to acquire more property related to farming, such as cooling facilities, freezer buildings, packinghouses, box barns, silos, storage facilities, greenhouses, processing plants and distribution centers. We generally lease our properties on a triple-net basis, an arrangement under which, in addition to rent, the tenant is required to pay the related taxes, insurance costs (including drought insurance if we were to acquire properties that depend upon rainwater for irrigation), maintenance and other operating costs. We may also elect to sell farmland at certain times, such as when the land could be developed by others for urban or suburban uses.

We were incorporated in 1997, primarily for the purpose of operating strawberry farms through our former subsidiary, Coastal Berry Company, LLC (“Coastal Berry”), an entity that provided growing, packaging, marketing and distribution of fresh berries and other agricultural products. We operated Coastal Berry as our primary business until 2004, when it was sold to Dole Food Company (“Dole”). Since 2004, our operations have consisted of leasing our farms to third-party tenants. We do not currently intend to enter into the business of growing, packing or marketing farmed products; however, if we do so in the future, we expect that it would be through a taxable REIT subsidiary (“TRS”).

We conduct substantially all of our investment activities through, and all of our properties are held, directly or indirectly, by, Gladstone Land Limited Partnership (the “Operating Partnership”). Gladstone Land Corporation controls the Operating

Table of Contents

Partnership as its sole general partner and currently owns approximately 93.1% of the units of limited partnership interest in the Operating Partnership (“OP Units”).

We intend to continue to lease our farms and farm-related facilities to independent or corporate farming operations that sell their products through national corporate marketers-distributors. We expect to continue to earn rental and interest income from our investments.

Gladstone Management Corporation (our “Adviser”) manages our real estate portfolio pursuant to an advisory agreement, and Gladstone Administration, LLC (our “Administrator”) provides administrative services to us pursuant to an administration agreement. Our Adviser and our Administrator collectively employ all of our personnel and pay directly their salaries, benefits and general expenses.

Leases

General

Most of our agricultural leases are on a triple-net basis and have original terms ranging from 3 to 10 years for farms growing row crops and 5 to 15 years for farms growing permanent crops, often with options to extend the lease further. Rent is generally payable to us up front on either an annual or semi-annual basis. Further, most of our leases contain provisions that provide for annual increases in the rental amounts payable by the tenants, often referred to as escalation clauses. The escalation clauses may specify fixed dollar amount or percentage increases each year, or it may be variable, based on standard cost of living or inflation indices. In addition, some leases that are longer-term in nature may require a regular survey of comparable land rents, with the rent owed per the lease being adjusted to reflect then-current market rents. We also have leases that include variable rents based on the success of the harvest each year. In these types of agreements, we will generally require the lease to include the guarantee of a minimum amount of rental income that satisfies our investment return criteria. Currently, our 48 farms are leased under agricultural leases with original terms ranging from 3 to 15 years, with 31 farms leased on a pure triple-net basis, and 17 farms leased on a partial-net basis, with the landlord responsible for all or a portion of the related property taxes. Additionally, four of our farms are leased under agreements that include a variable rent component.

We monitor our tenants’ credit quality on an ongoing basis by, among other things, periodically conducting site visits of the properties to ensure farming operations are taking place and to assess the general maintenance of the properties. To date, we have not identified any changes to credit quality of our tenants, and all tenants continue to pay pursuant to the terms of their respective leases.

Lease Expirations

Farm leases are often short-term in nature, so in any given year, we may have multiple leases up for renewal or extension. As of January 1, 2016, we had two agricultural leases that were originally due to expire in 2016. We have renewed one of these leases for an additional three years at an annualized, straight-line rental rate representing an increase of 17.9% over that of the previous lease. This lease was renewed prior to its expiration and with the existing tenant, thus incurring no downtime on the farm.

We have one remaining agricultural lease due to expire in 2016. We have begun negotiations with the existing tenant on the farm, and we anticipate renewing the lease prior to its expiration. Further, given the current market conditions in the region where the farm is located, we expect to be able to renew the lease at a higher rental rate than that of the existing lease. However, there can be no assurance that we will be able to renew the lease at a rate favorable to us, if at all, or be able to find a replacement tenant, if necessary.

The following table summarizes the lease expirations by year for our properties with leases in place as of June 30, 2016:



	Number of Expiring		Expiring Leased	% of Total	Rental Revenue for the Six Months Ended		% of Total Rental
Year	Leases		Acreage	Acreage	June 30, 2016		Revenue
2016	3	⁽¹⁾	331	1.4%	$	405,203	5.1%
2017	8		647	2.8%	1,088,380		13.7%
2018	5		2,929	12.4%	469,870		5.9%
2019	1		37	0.2%	30,218		0.4%
2020	6		3,890	16.6%	2,128,649		26.9%
2021	3		6,882	29.3%	647,505		8.2%
Thereafter	15		8,740	37.3%	3,151,260		39.8%
Totals	41		23,456	100.0%	$	7,921,085	100.0%

Table of Contents

⁽¹⁾

Includes: (i) the agricultural lease mentioned above, (ii) a surface area lease on a portion of one property leased to an oil company that is renewed on a year-to-year basis, for which we recorded $16,032 of rental revenue during the six months ended June 30, 2016, and (iii) a residential lease on one of our properties that is not expected to be renewed upon its expiration in 2016 and for which no rental revenue was recorded during the six months ended June 30, 2016.

Recent Developments

Investment, Leasing and Other Portfolio Activity

Property Acquisitions

Since April 1, 2016, we have acquired two farms in two 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⁾
Calaveras Avenue	Coalinga, CA	4/5/2016	453	1	Pistachios	10 years	1 (5 years)	$	15,470,000	$	38,501	⁽²⁾	$	773,500	⁽³⁾
Orange Avenue	Fort Pierce, FL	7/1/2016	401	1	Vegetables	7 years	2 (7 years)	5,100,000		13,464		⁽²⁾	291,173
			854	2				$	20,570,000	$	51,965		$	1,064,673


⁽¹⁾	Annualized straight-line amount is based on the minimum cash rental payments guaranteed under the lease, as required under GAAP.


⁽²⁾	Acquisition will be accounted for as an asset acquisition under ASC 360. As such, all acquisition-related costs will be capitalized and allocated among the identifiable assets acquired. The figures above represent only the costs paid or accrued for as of the date of this filing.


⁽³⁾	This lease provides for a variable rent component based on the gross crop revenues earned on the property. The figure above represents only the minimum cash rents guaranteed under the lease.

Existing Properties

Since April 1, 2016, the following significant events occurred with regard to our already-existing properties:


•	Wauchula Road. On April 5, 2016, we reimbursed the tenant for $569,607 of costs incurred to construct certain irrigation improvements on the farm. As stipulated in the lease, beginning with the three months ending June 30, 2016, we will earn an additional $92,634 of annualized, straight-line rental income on this farm throughout the remaining lease term.

•

Parrish Road. On April 5, 2016, we reimbursed the tenant $500,000, which represented our portion of the costs incurred to construct certain irrigation improvements on the farm. As stipulated in the lease, beginning with the three months ending June 30, 2016, we will earn an additional $139,073 of annualized, straight-line rental income on this farm throughout the remaining lease term. In addition, in connection with our acquisition of the property in March 2015, we committed to providing $745,000 as additional compensation and reimbursements of certain costs, contingent upon the approval by a local water management district of increases in certain water permits on the property. These water permits were approved on June 28, 2016, and we remitted $745,000 to the tenant, who was also the seller of the property, on June 30, 2016.

•

Espinosa Road. On July 5, 2016, we received payment of approximately $164,000 (including $4,000 of accrued interest) from the California Department of Transportation ("CalTrans") in connection with the settlement of an eminent domain lawsuit for 4.5 acres of nonfarmable land on Espinosa Road (the "CalTrans Settlement"). The portion of this payment allocated to our cost basis of the 4.5 nonfarmable acres was approximately $156,000.

Financing Activity

Farm Credit

Farm Credit CFL

During the three months ended March 31, 2016, we received interest patronage, or refunded interest, from Farm Credit of Central Florida, FLCA (“Farm Credit CFL”), representing a 16.1% refund of the interest accrued on all borrowings from Farm Credit CFL during the year ended December 31, 2015. This interest patronage reduced the interest rates on our borrowings from Farm Credit CFL during the year ended December 31, 2015, from a weighted-average stated interest rate of 3.42% to a weighted-average effective interest rate of 2.87%. We are unable to estimate the amount of interest patronage to be received, if any, related to interest accrued during 2016 on our Farm Credit CFL borrowings.

On July 1, 2016, we closed on a loan from Farm Credit CFL for approximately $3.1 million. Terms of this note are summarized in the following table:

Table of Contents



Date of Issuance	Initial Commitment		Maturity Date	Principal Amortization	Interest Rate Terms⁽¹⁾
7/1/2016	$	3,120,000	6/1/2023	36 years	3.78% fixed throughout term


⁽¹⁾	Rate represents the stated interest rate, before interest patronage.

Proceeds from this note were used in the acquisition of Orange Avenue.

Farm Credit West

On April 4, 2016, we closed on a loan from Farm Credit West, FLCA (“Farm Credit West”), for approximately $9.3 million. Terms of this note are summarized in the following table:



Date of Issuance	Initial Commitment		Maturity Date	Principal Amortization	Interest Rate Terms⁽¹⁾
4/4/2016	$	9,282,000	11/1/2040	24 years	3.54% fixed through 4/30/2021, variable thereafter


⁽¹⁾	Rate represents the stated interest rate, before interest patronage.

Proceeds from this note were used in the acquisition of Calaveras Avenue.

Farmer Mac

On June 16, 2016, we, through certain subsidiaries of ours, entered into an amendment to the bond purchase agreement (the "Bond Purchase Agreement") with Federal Agricultural Mortgage Corporation ("Farmer Mac") and Farmer Mac Mortgage Securities Corporation, a wholly-owned subsidiary of Farmer Mac, regarding a secured note purchase facility (the "Farmer Mac Facility"). The amendment increased the maximum borrowing capacity under the Farmer Mac Facility from $75.0 million to $125.0 million and extended the term of the Bond Purchase Agreement by two years, to December 11, 2018. Other than the increase in the maximum borrowing capacity and extension, the terms of the Bond Purchase Agreement remained unchanged.

At-the-Market Program

On August 7, 2015, we entered into equity distribution agreements with Cantor Fitzgerald & Co. and Ladenburg Thalmann & Co., Inc. (each a “Sales Agent”), under which we may issue and sell, from time to time and through the Sales Agents, shares of our common stock up to $30.0 million (the “ATM Program”). No shares were sold under the ATM Program during the three or six months ended June 30, 2016; however, subsequent to June 30, 2016, through the date of this filing, we sold 31,934 shares of our common stock at an average sales price of $11.29 per share for gross proceeds of approximately $360,000 and net proceeds of $355,000. To date, we have sold 64,561 shares of our common stock at an average sales price of $10.23 per share under the ATM Program for gross proceeds of approximately $660,000 and net proceeds of $650,000.

Table of Contents

Portfolio Diversity

Since our initial public offering in January 2013 (the “IPO”), we have expanded our original portfolio of 12 farms leased to 7 different, unrelated tenants to a current portfolio of 48 farms leased to 35 different, unrelated tenants. While our focus remains in farmland suitable for growing fresh produce annual row crops, such as berries and vegetables, we have also begun to diversify our portfolio into farmland suitable for other crop types, including permanent crops, consisting primarily of almonds, pistachios and blueberries, and certain commodity crops, consisting primarily of corn and beans. The following table summarizes the different sources of revenues for our properties with leases in place as of and for the six months ended June 30, 2016 and 2015:



											Annualized GAAP
	As of and For the					As of and For the					Rental Revenue as of
	Six Months Ended June 30, 2016					Six Months Ended June 30, 2015					June 30, 2016
Revenue Source	Total Farmable Acres	% of Total Farmable Acres	Rental Revenue		% of Total Revenue	Total Farmable Acres	% of Total Farmable Acres	Rental Revenue		% of Total Revenue	Total Rental Revenue		% of Total Revenue
Annual row crops – fresh produce⁽¹⁾	9,313	50.6%	$	5,406,186	68.2%	6,903	78.2%	$	4,324,577	80.0%	$	11,233,522	65.7%
Annual row crops – commodity crops⁽²⁾	7,347	40.0%	767,447		9.7%	1,460	16.5%	220,281		4.1%	1,625,399		9.5%
Subtotal – Total annual row crops	16,660	90.6%	6,173,633		77.9%	8,363	94.7%	4,544,858		84.1%	12,858,921		75.2%
Permanent crops⁽³⁾	1,735	9.4%	919,267		11.6%	466	5.3%	280,284		5.2%	2,370,201		13.9%
Subtotal – Total crops	18,395	100.0%	7,092,900		89.5%	8,829	100.0%	4,825,142		89.3%	15,229,122		89.1%
Facilities and other⁽⁴⁾	—	—	828,185		10.5%	—	—	577,641		10.7%	1,855,536		10.9%
Total	18,395	100.0%	$	7,921,085	100.0%	8,829	100.0%	$	5,402,783	100.0%	$	17,084,658	100.0%


⁽¹⁾	Includes berries and other fruits, such as melons, raspberries and strawberries, and vegetables, such as cabbage, carrots, celery, cilantro, cucumbers, edamame, green beans, lettuce, mint, onions, peas, peppers, potatoes, radicchio, spinach and tomatoes.


⁽²⁾	Includes alfalfa, barley, corn, edible beans, grass, popcorn, soybeans and wheat.


⁽³⁾	Includes almonds, avocados, blueberries, lemons and pistachios.


⁽⁴⁾	Consists primarily of rental revenue from: (i) farm-related facilities, such as coolers, packinghouses, distribution centers, residential houses for tenant farmers and other farm-related buildings; (ii) a surface area lease with an oil company on a small parcel of one of our properties; and (iii) unimproved or nonfarmable acreage on certain of our farms.

Our acquisition of 36 farms since our IPO has also allowed us to further diversify our portfolio geographically. The following table summarizes the different geographic locations of our properties with leases in place as of and for the six months ended June 30, 2016 and 2015:



											Annualized GAAP
	As of and For the					As of and For the					Rental Revenue as of
	Six Months Ended June 30, 2016					Six Months Ended June 30, 2015					June 30, 2016⁽¹⁾
State	Total Acres	% of Total Acres	Rental Revenue		% of Total Rental Revenue	Total Acres	% of Total Acres	Rental Revenue		% of Total Rental Revenue	Total Rental Revenue		% of Total Rental Revenue
California	4,029	17.2%	$	4,502,644	56.8%	2,722	23.7%	$	3,712,894	68.7%	$	9,545,819	55.9%
Florida	5,094	21.7%	1,539,217		19.4%	4,401	38.4%	820,834		15.2%	3,206,821		18.8%
Oregon	2,313	9.9%	584,962		7.4%	2,313	20.2%	583,763		10.8%	1,169,924		6.8%
Colorado	6,191	26.4%	521,653		6.6%	—	—	—		—	1,590,614		9.3%
Arizona	3,000	12.8%	358,051		4.5%	1,761	15.4%	161,935		3.0%	742,363		4.3%
Nebraska	2,559	10.9%	289,815		3.7%	—	—	—		—	579,630		3.4%
Michigan	270	1.1%	124,743		1.6%	270	2.3%	123,357		2.3%	249,487		1.5%
	23,456	100.0%	$	7,921,085	100.0%	11,467	100.0%	$	5,402,783	100.0%	$	17,084,658	100.0%


⁽¹⁾	Annualized GAAP rental revenue is based on the minimum rental payments required per the leases in place as of June 30, 2016, and includes the amortization of any above-market lease values or accretion of any below-market lease values, deferred revenue and tenant improvements.

Table of Contents

Our Adviser and Administrator

We are externally managed pursuant to a contractual investment advisory arrangement (the “Advisory Agreement”) with our Adviser, under which our Adviser directly employs certain of our personnel and pays their payroll, benefits and general expenses directly, and our Administrator provides administrative services to us pursuant to a separate administration agreement with our Administrator (the “Administration Agreement”). Both our Adviser and Administrator are affiliates of ours, as their parent company is owned and controlled by Mr. David Gladstone, our chairman and chief executive officer. In addition, two of our executive officers, Mr. Gladstone and Mr. Terry Brubaker (our vice chairman and chief operating officer), serve as directors and executive officers of each of our Adviser and Administrator. Mr. Michael LiCalsi, our general counsel and secretary, also serves as our Administrator’s president. A summary of each of these agreements is provided in Note 4 to our consolidated financial statements in our 2015 Form 10-K. There were no material changes to either of these agreements during the six months ended June 30, 2016.

Critical Accounting Policies

The preparation of our financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) requires management to make judgments that are subjective in nature to make certain estimates and assumptions. Application of these accounting policies involves the exercise of judgment regarding the use of assumptions as to future uncertainties, and, as a result, actual results could materially differ from these estimates. A summary of our significant accounting policies is provided in Note 2 to our consolidated financial statements in our 2015 Form 10-K. There were no material changes to our critical accounting policies during the six months ended June 30, 2016.

RESULTS OF OPERATIONS

A comparison of our operating results for the three and six months ended June 30, 2016 and 2015 is below:



	For the Three Months Ended June 30,
	2016			2015			$ Change			% Change
Operating revenues:
Rental revenues	$	4,241,612		$	2,780,456		$	1,461,156		52.6%
Tenant recovery revenue	2,829			3,397			(568		)	(16.7)%
Total operating revenues	4,244,441			2,783,853			1,460,588			52.5%
Operating expenses:
Depreciation and amortization	1,334,973			711,803			623,170			87.5%
Property operating expenses	158,578			156,405			2,173			1.4%
Acquisition-related expenses	24,648			178,016			(153,368		)	(86.2)%
Management and incentive fees, net of fee credits	544,463			328,392			216,071			65.8%
Administration fee	179,377			177,852			1,525			0.9%
General and administrative	408,365			336,714			71,651			21.3%
Total operating expenses	2,650,404			1,889,182			761,222			40.3%
Operating income	1,594,037			894,671			699,366			78.2%
Other income (expense)
Other income	8,643			1,593			7,050			442.6%
Interest expense	(1,486,820		)	(947,362		)	(539,458		)	56.9%
Property and casualty recovery, net	—			20,809			(20,809		)	(100.0)%
Total other expense	(1,478,177		)	(924,960		)	(553,217		)	59.8%
Net income (loss)	115,860			(30,289		)	146,149			(482.5)%
Less net income attributable to non-controlling interests	(8,047		)	—			(8,047		)	N/A
Net income (loss) attributable to the Company	$	107,813		$	(30,289	)	$	138,102		(455.9)%

N/A = Not Applicable

Table of Contents



	For the Six Months Ended June 30,
	2016			2015			$ Change			% Change
Operating revenues:
Rental revenues	$	7,921,085		$	5,402,783		$	2,518,302		46.6%
Tenant recovery revenue	6,032			6,794			(762		)	(11.2)%
Total operating revenues	7,927,117			5,409,577			2,517,540			46.5%
Operating expenses:
Depreciation and amortization	2,311,683			1,503,435			808,248			53.8%
Property operating expenses	338,781			362,170			(23,389		)	(6.5)%
Acquisition-related expenses	119,872			348,697			(228,825		)	(65.6)%
Management and incentive fees, net of fee credits	931,617			303,235			628,382			207.2%
Administration fee	391,237			308,788			82,449			26.7%
General and administrative	839,691			734,068			105,623			14.4%
Total operating expenses	4,932,881			3,560,393			1,372,488			38.5%
Operating income	2,994,236			1,849,184			1,145,052			61.9%
Other income (expense)
Other income	103,284			21,023			82,261			391.3%
Interest expense	(2,741,668		)	(1,896,731		)	(844,937		)	44.5%
Property and casualty recovery, net	—			20,809			(20,809		)	(100.0)%
Total other expense	(2,638,384		)	(1,854,899		)	(783,485		)	42.2%
Net income (loss)	355,852			(5,715		)	361,567			(6,326.6)%
Less net income attributable to non-controlling interests	(13,623		)	—			(13,623		)	N/A
Net income (loss) attributable to the Company	$	342,229		$	(5,715	)	$	347,944		(6,088.3)%

N/A = Not Applicable

Operating Revenues

Rental revenues increased for both the three and six months ended June 30, 2016, as compared to the respective prior-year periods, primarily as a result of acquiring new farms, as well as our ability to renew existing leases at higher rental rates and earning additional revenue on capital improvements made to certain properties. For the three and six months ended June 30, 2016, we recorded approximately $1.1 million and $1.7 million, respectively, of rental revenue attributable to 11 new farms that we acquired since June 30, 2015. In addition, during the three and six months ended June 30, 2016, we recorded additional rental revenue of approximately $240,000 and $574,000, respectively, over that of the respective prior-year periods attributable to the farms we acquired during the prior-year periods, primarily due to owning these farms for the full periods. On a same-property basis, which includes only the properties owned for the entirety of both periods presented, rental revenues increased by approximately $108,000, or 3.9%, and $211,000, or 4.3%, for the three and six months ended June 30, 2016, respectively, primarily due to our ability to renew existing leases at higher rates and earning additional revenue on capital improvements constructed on certain properties.

Tenant recovery revenue, which represents real estate taxes and insurance premiums paid on certain of our properties that, per the leases, are required to be reimbursed by the tenant, remained relatively flat for both the three and six months ended June 30, 2016, as compared to the respective prior-year periods. Corresponding amounts were also recorded as property operating expenses during the respective periods.

Operating Expenses

Depreciation and amortization expenses increased for the three and six months ended June 30, 2016, as compared to the respective prior-year periods, as a result of the additional farms we acquired, as mentioned above, and additional site improvements constructed on existing properties since June 30, 2015. For the three and six months ended June 30, 2016, we recorded additional depreciation and amortization expense of approximately $546,000 and $766,000, respectively, as a result of the 11 farms we acquired since June 30, 2015. In addition, during the three and six months ended June 30, 2016, we recorded additional depreciation and amortization expense of approximately $59,000 and $169,000, respectively, over that of the respective prior-year periods attributable to the farms we acquired during the prior-year periods, primarily due to owning these farms for the full periods. On a same-property portfolio basis, depreciation and amortization expense increased by

Table of Contents

approximately $18,000, or 2.5%, for the three months ended June 30, 2016, due to capital improvements made on certain of those properties and decreased by approximately $126,000, or 9.9%, for the six months ended June 30, 2016, primarily as a result of certain lease intangible amortization periods expiring.

Property operating expenses consist primarily of real estate taxes, insurance expense and other overhead expenses paid for certain of our properties. Property operating expenses remained relatively flat for the three months ended June 30, 2016, and decreased for the six months ended June 30, 2016, as compared to the respective prior-year periods. The decrease for the six months ended June 30, 2016, was primarily due to a decrease in aggregate property tax expense on our overall portfolio, as well as lower repairs and maintenance expenses incurred on certain of our properties. During the three months ended December 31, 2015, two of our partial-net leases converted to pure, triple-net leases, and, beginning in 2016, certain of our properties were entered into land conservation contracts under the California Land Conservation Act, restricting the land to agricultural use and reducing the property tax assessments on those properties. For the three and six months ended June 30, 2016, we accrued approximately $122,000 and $265,000, respectively, of real estate taxes related to certain of our farms, which included the recognition of certain prior-period supplemental taxes as a result of stepped-up tax assessments of those properties after our acquisitions of them, as compared to approximately $133,000 and $284,000 during the respective prior-year periods.

Acquisition-related expenses generally consist of legal fees and fees incurred for third-party reports prepared in connection with potential acquisitions and the related due diligence analyses. Acquisition-related expenses decreased for the three and six months ended June 30, 2016, as compared to the respective prior-year periods, primarily due to the differences in accounting treatment of such expenses incurred in connection with the properties acquired during each of the respective periods (acquisition-related costs that are incurred as part of a transaction accounted for as a business combination are expensed as incurred, while acquisition-related costs that are incurred as part of a transaction accounted for an asset acquisition are capitalized and allocated among the identifiable tangible assets acquired), as well as due to closing on a larger number of separate acquisitions during the prior-year period. In connection with the four farms acquired during the six months ended June 30, 2016, we incurred approximately $132,000 of aggregate acquisition-related costs. Of this amount, during the three and six months ended June 30, 2016, approximately $5,000 and $89,000, respectively, was expensed as incurred, while $39,000 and $43,000, respectively, was capitalized and allocated among the assets acquired. In addition, in connection with the farms we acquired during the six months ended June 30, 2016, approximately $2,000 of the acquisition-related costs incurred was expensed during prior periods. For the four farms acquired during the six months ended June 30, 2015, we incurred approximately $346,000 of aggregate acquisition-related costs. Of this amount, during the three and six months ended June 30, 2015, approximately $156,000 and $339,000, respectively, was expensed as incurred, while $5,000 and $7,000, respectively, was capitalized and allocated among the assets acquired. In addition, in connection with the farms we acquired during the six months ended June 30, 2015, approximately $8,000 of the acquisition-related costs incurred was expensed during prior periods, and $1,000 was expensed during subsequent periods.

The aggregate fees to our Adviser, including both the management and incentive fees, increased for both the three and six months ended June 30, 2016, as compared to the respective prior-year periods. For the three and six months ended June 30, 2016, the gross management fee increased by approximately $57,000 and $149,000, respectively, primarily due to additional common equity raised over the prior 12 months. Since June 30, 2015, we have raised approximately $21.5 million of net proceeds from follow-on common stock offerings, increasing the base (the cost basis of our common stockholders' equity) on which the management fee is calculated. In addition, in connection with one of our acquisitions during the three months ended March 31, 2015, our Adviser earned a finder's fee of approximately $321,000, which the Adviser applied as a credit to the management fee for the three months ended March 31, 2015. Our Adviser also earned an incentive fee of approximately $159,000 during the three months ended June 30, 2016, due to our pre-incentive fee funds from operations exceeding the required hurdle rate of our total stockholders' equity at the end of the quarter, as stipulated in our Advisory Agreement. The increase in our pre-incentive fee funds from operations was primarily due to an increase in rental revenues earned on properties acquired during and subsequent to the six months ended June 30, 2015, coupled with a decrease in operating expenses other than depreciation and amortization expense. No incentive fee was earned in either prior-year period.

The administration fee paid to our Administrator remained relatively flat for the three months ended June 30, 2016, and increased for the six months ended June 30, 2016, as compared to the respective prior-year periods. The increase for the six months ended June 30, 2016, was primarily due to us using a higher share of our Administrator’s resources in relation to those used by other funds engaged by our Administrator during the three months ended March 31, 2016.

General and administrative expenses increased for both the three and six months ended June 30, 2016, as compared to the respective prior-year periods, primarily as a result of additional legal costs incurred related to obtaining certain permits on one of our California properties and completing the CalTrans Settlement on Espinosa Road, increased state filing fees, additional costs associated with updating the valuations of certain of our farms and additional advertising and marketing expenses incurred during the current-year periods. These increases were partially offset by lower overhead insurance expense. In addition, during the three months ended June 30, 2016, we wrote off approximately $64,000 of deferred rent asset balances

Table of Contents

related to a lease on one of our Florida properties that we expect to terminate prior to its expiration. We expect this early termination and the re-leasing of this property to occur during the three months ending September 30, 2016; however, if the current lease is terminated early, there can be no guaranty that we will be able to re-lease this property on terms favorable to us, or at all.

Other Income (Expense)

Other income, which consists primarily of interest earned on short-term investments and interest patronage received from Farm Credit CFL, increased for the three and six months ended June 30, 2016, as compared to the respective prior-year periods, primarily due to additional interest patronage received from Farm Credit CFL. During the three months ended March 31, 2016, we received approximately $94,000 from Farm Credit CFL of interest patronage related to interest accrued during 2015, compared to $15,000 of interest patronage received during the prior-year period. The receipt of this interest patronage resulted in a 16.1% decrease in our effective interest rate on our aggregate borrowings from Farm Credit CFL during the year ended December 31, 2015.

Interest expense increased for both the three and six months ended June 30, 2016, as compared to the respective prior-year periods, primarily due to increased overall borrowings. The weighted-average balance of our aggregate borrowings for the three and six months ended June 30, 2016, was approximately $178.8 million and $163.6 million, respectively, as compared to $103.5 million and $104.0 million, respectively, for the respective prior-year periods. Including interest patronage received on our Farm Credit CFL borrowings, the overall effective interest rate charged on our aggregate borrowings, excluding the impact of deferred financing costs, was 3.3% and 3.2% for the three and six months ended June 30, 2016, respectively, as compared to 3.6% and 3.5% for the respective prior-year periods.

During the three months ended June 30, 2015, we received additional insurance proceeds as a result of a fire on one of our properties in California. This claim was closed during the three months ended September 30, 2015.

LIQUIDITY AND CAPITAL RESOURCES

Overview

Since our IPO in January 2013, we have invested approximately $229.8 million into 36 new farms, and we have expended or accrued an additional $14.6 million for capital improvements on existing properties. Our current short- and long-term sources of funds include cash and cash equivalents, cash flows from operations, borrowings, including the undrawn commitments available under the MetLife Facility and the Farmer Mac Facility, and issuances of additional equity securities. Our current available liquidity is approximately $8.2 million, consisting of $2.8 million in cash and, based on the current level of collateral pledged, $5.4 million of availability under the MetLife Facility, subject to compliance with covenants. Further, we are currently in discussions with certain of our lenders regarding modifications to existing credit facilities that would result in an increase to the aggregate liquidity available to us.

As of June 30, 2016, our total-debt-to-total-capitalization ratio, at book value, was 68.8%, which is up from 64.7% as of December 31, 2015. However, on a fair value basis, our total-debt-to-total capitalization ratio as of June 30, 2016, was 55.3%, which is up from 50.2% as of December 31, 2015 (see “Non-GAAP Financial Information—Net Asset Value” below for an explanation of our fair value process). We are currently exploring additional options for further access to capital, including negotiations with certain of our lenders.

Future Capital Needs

Our short- and long-term liquidity requirements consist primarily of making distributions to stockholders to maintain our qualification as a REIT, funding our general operating costs, making principal and interest payments on outstanding borrowings and funding new farmland acquisitions and other investments consistent with our investment strategy. We intend to use a significant portion of our available liquidity to purchase additional farms and farm-related properties. Our pipeline of potential acquisitions remains healthy, as we continue to actively seek and evaluate acquisitions of additional farms that satisfy our investment criteria. We currently have five properties under either a signed purchase and sale agreement or a signed, non-binding letter of intent for an aggregate proposed purchase price of approximately $62.2 million, a portion of which is expected to be paid in OP Units. We currently have the capital required to complete these transactions, and we expect them all to be consummated during the second half of the year. We also have many other properties that are in various other stages of our due diligence process. However, all potential acquisitions will be subject to our due diligence investigation of such properties, and there can be no assurance that we will be successful in identifying or acquiring any properties in the future.

Table of Contents

We believe that our current and short-term cash resources will be sufficient to fund our distributions to stockholders, service our debt and fund our current operating costs in the near term. We expect to meet our long-term liquidity requirements through various sources of capital, including future equity issuances (including OP Units through our Operating Partnership as consideration for future acquisitions), long-term mortgage indebtedness and bond issuances and other secured and unsecured borrowings.

Cash Flow Resources

The following table summarizes total cash flows for operating, investing and financing activities for the six months ended June 30, 2016 and 2015:



	For the Six Months Ended June 30,
	2016			2015			$ Change			% Change
Net change in cash from:
Operating activities	$	6,264,553		$	1,606,010		$	4,658,543		290.1%
Investing activities	(42,626,091		)	(37,164,705		)	(5,461,386		)	14.7%
Financing activities	35,906,266			36,098,060			(191,794		)	(0.5)%
Net change in Cash and cash equivalents	$	(455,272	)	$	539,365		$	(994,637	)	(184.4)%

Operating Activities

The majority of cash from operating activities is generated from the rental payments we receive from our tenants, which is first used to fund our property-level operating expenses, with any excess cash being primarily used for principal and interest payments on our borrowings, management fees to our Adviser, administrative fees to our Administrator and other corporate-level expenses. The increase in cash provided by operating activities during the six months ended June 30, 2016, as compared to the prior-year period, was primarily due to additional rental payments received from farms we have acquired during the past 12 months, particularly prepaid rent received on the four farms acquired during the six months ended June 30, 2016. This increase was partially offset by increases in certain operating expenses as a result of increased acquisition activity, as well as an increase in cash paid for interest due to increased borrowings during the six months ended June 30, 2016.

Investing Activities

The increase in cash used in investing activities during the six months ended June 30, 2016, as compared to the prior-year period, was primarily due to additional capital improvements made on existing properties during the six months ended June 30, 2016, which exceeded that of the prior-year period by approximately $6.3 million, partially offset by a decrease in cash paid for acquisitions of new real estate during the six months ended June 30, 2016, which was approximately $1.0 million less than that of the prior-year period.

Financing Activities

The decrease in cash provided by financing activities during the six months ended June 30, 2016, as compared to the prior-year period, was primarily due to the proceeds received from a public offering we completed during the three months ended June 30, 2015, and increased aggregate distributions paid on our common stock and OP Units held outside of the Company, due in part to additional OP Units being issued as partial consideration in connection with a property acquired during the three months ended March 31, 2016. Partially offsetting this overall decrease was an increase in our net borrowings during the six months ended June 30, 2016, which exceeded that of the prior-year period by approximately $14.7 million.

Debt Capital

MetLife Facility

Under our credit facility with Metropolitan Life Insurance Company ("MetLife"), which consists of a $100.0 million long-term note payable (the "MetLife Note Payable") and a $25.0 million revolving equity line of credit (the "MetLife Line of Credit" and, together with the MetLife Note Payable, the "MetLife Facility"), the MetLife Note Payable bears interest at a fixed rate of 3.35% per annum, plus an unused line fee of 0.20% on undrawn amounts, and interest rates for subsequent disbursements will be based on prevailing market rates at the time of such disbursements. The interest rates on the current balance and any subsequent disbursements will be subject to adjustment on August 31, 2020. If the full commitment amount of $100.0 million is not drawn by December 31, 2017, MetLife has the option to be relieved of its obligation to disburse the additional funds under this loan. Advances under the MetLife Line of Credit bear interest at a variable rate equal to the three-month LIBOR plus

Table of Contents

a spread of 2.25%, with a minimum annualized rate of 2.50%, plus an unused fee of 0.20% on undrawn amounts. The interest rate spread on borrowings under the MetLife Line of Credit will be subject to adjustment on April 5, 2017.

Currently, there is approximately $85.9 million outstanding under the MetLife Note Payable that bears interest at a fixed rate of 3.35% per annum and $19.5 million outstanding under the MetLife Line of Credit that bears interest at a rate of 2.90% per annum. While approximately $19.6 million of the full commitment amount remains undrawn, based on the current level of collateral pledged, we currently have approximately $5.4 million of availability under the MetLife Facility.

In addition, we have been in discussions with MetLife to expand the MetLife Facility and modify certain terms of the agreement that would result in additional borrowing availability based on the current collateral pool. We expect to complete this expansion and modification during the three months ending September 30, 2016; however, there can be no assurance that we will be able to enter into any agreement with terms favorable to us, or at all.

Farm Credit Notes Payable

Farm Credit CFL Notes Payable

Since September 19, 2014, we have closed on nine separate loans with Farm Credit CFL for an aggregate amount of approximately $25.3 million. We currently have $24.2 million outstanding under the Farm Credit CFL Notes Payable that bear interest at an expected weighted-average effective rate (net of expected interest patronage) of 2.50% and have a weighted-average maturity date of March 2030. While we do not currently have any additional availability under our program with Farm Credit CFL based on the properties currently pledged as collateral, we may enter into additional borrowing agreements with Farm Credit CFL in connection with certain potential new acquisitions.

Additionally, we have been in discussions with and have received a non-binding term sheet from Farm Credit CFL for a new borrowing facility that would provide us with additional borrowing availability based on our existing collateral pledged under our existing borrowings with them. However, there can be no assurance that we will be able to enter into any agreements with terms favorable to us, or at all.

Farm Credit West Note Payable

On April 4, 2016, we closed on a loan with Farm Credit West for approximately $9.3 million that bears interest at an expected effective interest rate (net of expected interest patronage) of 2.79% and has a maturity date of November 1, 2040. While we do not currently have any additional availability under our program with Farm Credit West based on the property currently pledged as collateral, we expect to enter into additional borrowing agreements with Farm Credit West in connection with certain potential new acquisitions.

Farmer Mac Facility

On December 5, 2014, we entered into an agreement with Farmer Mac that provides for bond issuances up to an aggregate amount of $75.0 million, which amount was increased to $125.0 million, pursuant to an amendment entered into on June 16, 2016. To date, we have issued aggregate bonds of approximately $49.2 million under the facility, and we currently have $49.0 million outstanding that bear interest at a weighted-average interest rate of 2.93% and have a weighted-average maturity date of September 2020. While approximately $75.8 million of the full commitment balance remains undrawn, we currently have no additional availability under the Farmer Mac Facility based on the current level of collateral pledged. However, we expect to pledge certain potential new property acquisitions as collateral under the Farmer Mac Facility to utilize some or all of this remaining commitment balance. If we have not issued bonds such that the aggregate bond issuances total $125.0 million by December 11, 2018, Farmer Mac has the option to be relieved of its obligation to purchase additional bonds under this facility.

Equity Capital

Including approximately $29.3 million reserved for issuance under our ATM Program, we currently have the ability to raise up to $276.4 million of additional equity capital through the sale and issuance of securities that are registered under our registration statement on Form S-3 (File No. 333-194539) in one or more future offerings. However, in the future, we may be limited in the amount of securities we may sell on Form S-3 should the market value of our common stock held by non-affiliates decrease below $75.0 million, as has been the case at certain times during the past 12 months. As we are currently above the $75.0 million threshold, this limitation will not impact us until the next measurement period, which will be when we file our 2016 Form 10-K. However, there can be no assurance that we will be above the $75.0 million threshold at that time.

In addition, we have the ability to, and may in the future, issue additional OP Units to third parties as consideration in future property acquisitions.

Table of Contents

Off-Balance Sheet Arrangements

As of June 30, 2016, we did not have any material off-balance sheet arrangements.

NON-GAAP FINANCIAL INFORMATION

Funds from Operations, Core Funds from Operations and Adjusted Funds from Operations

The National Association of Real Estate Investment Trusts (“NAREIT”) developed funds from operations (“FFO”) as a relative non-GAAP supplemental measure of operating performance of an equity REIT to recognize that income-producing real estate historically has not depreciated on the same basis determined under GAAP. FFO, as defined by NAREIT, is net income (computed in accordance with GAAP), excluding gains or losses from sales of property and impairment losses on property, plus depreciation and amortization of real estate assets, and after adjustments for unconsolidated partnerships and joint ventures. We further present core FFO (“CFFO”) and adjusted FFO (“AFFO”) as additional non-GAAP financial measures, as we believe both CFFO and AFFO improve comparability on a period-over-period basis and are more useful supplemental metrics for investors to use in assessing our operational performance on a more sustainable basis than FFO. We believe that net income is the most directly-comparable GAAP measure to each FFO, CFFO and AFFO.

We calculate CFFO by adjusting FFO for the following items:

•

Acquisition-related expenses. Acquisition-related expenses (i.e., due diligence costs) are incurred for investment purposes and do not correlate with the ongoing operations of our existing portfolio. Further, due to the inconsistency in which these costs are incurred and how they are treated for accounting purposes, we believe the exclusion of these expenses improves comparability of our results on a period-to-period basis.


•	Acquisition-related accounting fees. Certain auditing and accounting fees we incur are directly related to acquisitions and vary depending on the number and complexity of acquisitions completed during a period. Due to the inconsistency in which these costs are incurred, we believe the exclusion of these expenses improves comparability of our results on a period-to-period basis.


•	Other adjustments. We will adjust for certain non-recurring charges and receipts and will explain such adjustments accordingly.

Further, we calculate AFFO by adjusting CFFO for the following items:

•

Cash rent adjustment. This adjustment removes the effects of straight-lining rental income, as well as the amortization related to above-market lease values and accretion related to below-market lease values, deferred revenue and tenant improvements, resulting in rental income reflected on a modified accrual cash basis. In addition to these adjustments, beginning with the three months ended June 30, 2015, we modified our calculation in our definition of AFFO to provide greater consistency and comparability due to the period-to-period volatility in which cash rents are received. To coincide with our tenants’ harvest seasons, our leases typically provide for cash rents to be paid at various points throughout the lease year, usually annually or semi-annually. As a result, cash rents received during a particular period may not necessarily be comparable to other periods or represent the cash rents indicative of a given lease year. Therefore, we have adjusted AFFO to normalize the cash rent received pertaining to a lease year over that respective lease year on a straight-line basis, resulting in cash rent being recognized ratably over the period in which the cash rent is earned. We will apply the same modified definition of AFFO for all prior-year periods presented to provide consistency and better comparability.


•	Amortization of deferred financing costs. The amortization of costs incurred to obtain financing is excluded from AFFO, as it is a non-cash expense item.

Table of Contents

The following table provides a reconciliation of our FFO, CFFO and AFFO for the three and six months ended June 30, 2016 and 2015 to the most directly-comparable GAAP measure, net income (loss), and a computation of diluted FFO, CFFO and AFFO per share, computed using the weighted-average number of total shares (including shares of our common stock and OP Units held by non-controlling limited partners) outstanding during the respective periods.



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2016			2015			2016			2015
Net income (loss)	$	115,860		$	(30,289	)	$	355,852		$	(5,715	)
Plus: Real estate and intangible depreciation and amortization	1,334,973			711,803			2,311,683			1,503,435
FFO available to common stockholders and OP Unit holders	1,450,833			681,514			2,667,535			1,497,720
Plus: Acquisition-related expenses	24,648			178,016			119,872			348,697
Plus: Acquisition-related accounting fees	12,900			13,750			27,400			48,750
(Minus) plus: Other one-time (receipts) charges, net⁽¹⁾	—			(20,809		)	—			(331,749		)
CFFO available to common stockholders and OP Unit holders	1,488,381			852,471			2,814,807			1,563,418
Net adjustment for cash rents	(66,606		)	(158,449		)	(169,363		)	(255,044		)
Plus: Amortization of deferred financing costs	35,372			22,902			69,726			43,927
AFFO available to common stockholders and OP Unit holders	$	1,457,147		$	716,924		$	2,715,170		$	1,352,301

Weighted-average common shares outstanding – basic and diluted	9,992,941			8,439,855			9,992,941			8,098,681
Weighted-average OP Units outstanding⁽²⁾	745,879			—			491,788			—
Weighted-average total shares outstanding	10,738,820			8,439,855			10,484,729			8,098,681

Diluted FFO per weighted-average total share	$	0.14		$	0.08		$	0.25		$	0.18
Diluted CFFO per weighted-average total share	$	0.14		$	0.10		$	0.27		$	0.19
Diluted AFFO per weighted-average total share	$	0.14		$	0.08		$	0.26		$	0.17


⁽¹⁾	2015 adjustments consist of the removal of (i) a credit we received from our Advisor related to a new property acquisition during the three months ended March 31, 2015, (ii) repairs incurred as a result of a fire that were expensed during the three months ended March 31, 2015, and (iii) insurance proceeds received during the three months ended June 30, 2015, as a result of the same fire.


⁽²⁾	Includes only OP Units held by third parties. As of June 30, 2016, there were 745,879 OP Units held by non-controlling limited partners, representing 6.9% of all OP Units issued and outstanding. There were no OP Units held by anyone other than the Company during 2015.

FFO, CFFO and AFFO do not represent cash flows from operating activities in accordance with GAAP, which, unlike FFO, CFFO and AFFO, generally reflects all cash effects of transactions and other events in the determination of net income, and should not be considered an alternative to net income as an indication of our performance or to cash flows from operations as a measure of liquidity or ability to make distributions. Comparisons of FFO, CFFO and AFFO, using the NAREIT definition for FFO and the definitions above for CFFO and AFFO, to similarly-titled measures for other REITs may not necessarily be meaningful due to possible differences in the definitions used by such REITs.

Diluted funds from operations (“Diluted FFO”), diluted core funds from operations (“Diluted CFFO”) and diluted adjusted funds from operations (“Diluted AFFO”) per share are FFO, CFFO and AFFO, respectively, divided by the weighted-average number of total shares (including shares of our common stock and OP Units held by non-controlling limited partners) outstanding on a fully-diluted basis during a period. We believe that diluted earnings per share is the most directly-comparable GAAP measure to each Diluted FFO, CFFO and AFFO per share.

We believe that FFO, CFFO and AFFO and Diluted FFO, CFFO and AFFO per share are useful to investors because they provide investors with a further context for evaluating our FFO, CFFO and AFFO results in the same manner that investors use net income and EPS in evaluating net income. In addition, because many REITs provide FFO, CFFO and AFFO and Diluted FFO, CFFO and AFFO per share information to the investment community, we believe these are useful supplemental measures when comparing us to other REITs.

Table of Contents

Net Asset Value

The following table provides certain summary information about our 47 farm properties held as of June 30, 2016.



		Date	No. of	Total	Farm	Net Cost		Prior Fair		Current Fair
Property Name	Location	Acquired	Farms	Acres	Acres	Basis⁽¹⁾		Value⁽²⁾		Value
San Andreas	Watsonville, CA	6/16/1997	1	307	238	$	4,766,850	$	13,600,000	$	13,600,000	⁽⁵⁾
West Gonzales	Oxnard, CA	9/15/1998	1	653	502	12,087,278		53,000,000		53,000,000		⁽⁵⁾
West Beach	Watsonville, CA	1/3/2011	3	196	195	9,284,807		11,860,000		11,860,000		⁽⁵⁾
Dalton Lane	Watsonville, CA	7/7/2011	1	72	70	2,678,229		3,172,000		3,172,000		⁽⁴⁾
Keysville Road	Plant City, FL	10/26/2011	2	61	56	1,239,809		1,582,000		1,582,000		⁽⁴⁾
Colding Loop	Wimauma, FL	8/9/2012	1	219	181	3,900,918		4,457,000		4,457,000		⁽⁴⁾
Trapnell Road	Plant City, FL	9/12/2012	3	124	110	3,862,689		4,856,000		4,856,000		⁽⁴⁾
38th Avenue	Covert, MI	4/5/2013	1	119	89	1,255,879		1,476,000		1,478,000		⁽⁴⁾
Sequoia Street	Brooks, OR	5/31/2013	1	218	206	3,091,791		3,352,000		3,483,000		⁽⁴⁾
Natividad Road	Salinas, CA	10/21/2013	1	166	166	8,952,970		8,500,000		8,500,000		⁽⁵⁾
20th Avenue	South Haven, MI	11/5/2013	3	151	94	1,851,986		2,195,000		2,195,000		⁽⁴⁾
Broadway Road	Moorpark, CA	12/16/2013	1	60	46	2,875,864		3,524,000		3,524,000		⁽⁴⁾
Oregon Trail	Echo, OR	12/27/2013	1	1,895	1,640	13,879,837		14,740,000		14,740,000		⁽⁴⁾
East Shelton	Willcox, AZ	12/27/2013	1	1,761	1,320	7,778,747		8,330,000		8,330,000		⁽⁵⁾
Collins Road	Clatskanie, OR	5/30/2014	2	200	157	2,368,937		2,901,000		2,901,000		⁽⁴⁾
Spring Valley	Watsonville, CA	6/13/2014	1	145	110	5,746,921		6,925,000		6,925,000		⁽⁵⁾
McIntosh Road	Dover, FL	6/20/2014	2	94	78	2,453,449		2,722,000		2,725,000		⁽⁴⁾
Naumann Road	Oxnard, CA	7/23/2014	1	68	66	6,793,670		7,048,000		7,048,000		⁽⁴⁾
Sycamore Road	Arvin, CA	7/25/2014	1	326	322	6,848,715		7,733,000		7,733,000		⁽⁵⁾
Wauchula Road	Duette, FL	9/29/2014	1	808	590	13,581,735		16,800,000		16,800,000		⁽⁵⁾
Santa Clara Avenue	Oxnard, CA	10/29/2014	2	333	331	24,170,815		26,694,000		26,694,000		⁽⁴⁾
Dufau Road	Oxnard, CA	11/4/2014	1	65	64	6,031,400		6,383,000		6,383,000		⁽⁴⁾
Espinosa Road	Salinas, CA	1/5/2015	1	331	329	16,358,539		18,212,000		18,212,000		⁽⁴⁾
Parrish Road	Duette, FL	3/10/2015	1	419	412	4,188,751		7,000,000		7,000,000		⁽⁵⁾
Immokalee Exchange	Immokalee, FL	6/25/2015	2	2,678	1,644	15,526,274		15,757,700		15,975,000		⁽⁴⁾
Holt County	Stuart, NE	8/20/2015	1	1,276	1,052	5,441,699		5,504,000		5,504,000		⁽³⁾
Rock County	Bassett, NE	8/20/2015	1	1,283	1,049	5,428,714		5,504,000		5,504,000		⁽³⁾
Bear Mountain	Arvin, CA	9/3/2015	3	854	841	26,094,518		18,922,500		22,176,000		⁽⁵⁾⁽⁶⁾
Corbitt Road	Immokalee, FL	11/2/2015	1	691	390	3,777,909		3,760,000		3,760,000		⁽³⁾
Reagan Road	Willcox, AZ	12/22/2015	1	1,239	875	5,678,064		5,700,000		5,700,000		⁽³⁾
Gunbarrel Road	Alamosa, CO	3/3/2016	3	6,191	4,730	25,326,491		25,884,991		25,884,991		⁽³⁾
Calaveras Avenue	Coalinga, CA	4/5/2016	1	453	442	15,401,510		—		15,470,000		⁽³⁾
			47	23,456	18,395	$	268,725,765	$	318,095,191	$	337,171,991

⁽¹⁾


⁽²⁾	As reported in our Quarterly Report on Form 10-Q for the three months ended March 31, 2016.


⁽³⁾	Valued at the agreed-upon purchase price.


⁽⁴⁾	Represents values as determined by our internal valuation process, as described below.


⁽⁵⁾	Represents values as determined by third-party appraisals performed between October 2015 and April 2016.


⁽⁶⁾	Value excludes approximately $3.9 million of capitalized costs incurred related to the development of an almond orchard on the property. The property will be re-appraised upon completion of the project, which is expected to be during the three months ending September 30, 2016.

Real estate companies are required to record real estate using the historical cost basis of the real estate, adjusted for accumulated depreciation and amortization, and, as a result, the carrying value of the real estate does not typically change as the fair value of the assets change. Thus, a difficulty in owning shares of an asset-based company is determining the fair value of the assets so that stockholders can see the value of the assets increase or decrease over time. For this reason, we believe determining the fair value of our real estate assets is useful to our investors.

Table of Contents

Determination of Fair Value

Our Board of Directors reviews and approves the valuations of our properties pursuant to a valuation policy approved by our Board of Directors (the “Valuation Policy”). Such review and approval occurs in three phases: (i) prior to its quarterly meetings, the Board of Directors receives written valuation recommendations and supporting materials that are provided by professionals of the Adviser and Administrator, with oversight and direction from the chief valuation officer, who is also employed by the Administrator (collectively, the “Valuation Team”); (ii) the valuation committee of the Board of Directors (the “Valuation Committee”), which is comprised entirely of independent directors, meets to review the valuation recommendations and supporting materials; and (iii) after the Valuation Committee concludes its meeting, it and the chief valuation officer present the Valuation Committee’s findings to the entire Board of Directors so that the full Board of Directors may review and approve the fair values of our properties in accordance with the Valuation Policy. Further, on a quarterly basis, the Board of Directors reviews the Valuation Policy to determine if changes thereto are advisable and also reviews whether the Valuation Team has applied the Valuation Policy consistently.

Per the Valuation Policy, our valuations are derived based on the following:

•

For properties acquired within 12 months prior to the date of valuation, the purchase price of the property will generally be used as the current fair value unless overriding factors apply. In situations where OP Units are issued as partial or whole consideration in connection with the acquisition of a property, the fair value of the property will generally be the lower of: (i) the agreed-upon purchase price between the seller and the buyer (as shown in the purchase and sale agreement or contribution agreement and using the agreed-upon pricing of the OP Units, if applicable), or (ii) the value as determined by an independent, third-party appraiser.

•

For real estate we acquired more than one year prior to the date of valuation, we determine the fair value either by relying on estimates provided by independent, third-party appraisers or through an internal valuation process. In addition, if significant capital improvements take place on a property, we will typically have those properties reappraised upon completion of the project by an independent, third-party appraiser. In any case, we intend to have each property valued by an independent, third-party appraiser at least once every three years, with interim values generally being determined by our internal valuation process.

Various methodologies were used, both by the appraisers and in our internal valuations, to determine the fair value of our real estate on an “As Is” basis, including the sales comparison, income capitalization (or a discounted cash flow analysis) and cost approaches of valuation. In performing their analyses, the appraisers (i) performed site visits to the properties, (ii) discussed each property with our Adviser and reviewed property-level information, including, but not limited to, property operating data, prior appraisals (as available), existing lease agreements, farm acreage, location, access to water and water rights, potential for future development and other property-level information, and (iii) reviewed information from a variety of sources about regional market conditions applicable to each of our properties, including, but not limited to, recent sale prices of comparable farmland, market rents for similar farmland, estimated marketing and exposure time, market capitalization rates and the current economic environment, among others. In performing our internal valuations, we will consider the most recent appraisal available and use similar methodologies in determining an updated fair value. We will also obtain updated market data related to the property, such as updated sales and market rent comparisons and market capitalization rates, and perform an updated assessment of the tenants’ credit risk profiles, among others. Sources of this data may come from market inputs from recent acquisitions of our own portfolio of real estate, recent appraisals of properties we own that are similar in nature and in the same region (as applicable) as the property being valued, market conditions and trends we observe in our due diligence process and conversations with appraisers, brokers and farmers.

A breakdown of the methodologies used to value our properties and the aggregate value as of June 30, 2016, determined by each method is shown in the table below:



Valuation Method	No. of Farms	Total Portfolio Fair Value			% of Total Fair Value
Purchase Price	8	$	61,822,991		18.3%
Internal Valuation	25	119,425,000		⁽¹⁾	35.4%
Third-party Appraisal	14	155,924,000			46.3%
Total	47	$	337,171,991		100.0%


⁽¹⁾	95.0% of this valuation, or approximately $113.4 million, is supported by values as determined by third-party appraisals performed between January 2013 and June 2015. The difference of $6.0 million represents the net appreciation of those properties since the time of such appraisals, as determined according to our Valuation Policy.

Some of the significant assumptions used by appraisers and the Valuation Team in valuing our portfolio as of June 30, 2016, include land values per farmable acre, market rental rates per farmable acre and capitalization rates, among others. These

Table of Contents

assumptions were applied on a farm-by-farm basis and were selected based on several factors, including comparable land sales, surveys of both existing and current market rates, discussions with other brokers and farmers, soil quality, size, location and other factors deemed appropriate. A summary of these significant assumptions is provided in the following table:



	Appraisal Assumptions			Internal Valuation Assumptions
	Range (Low - High)	Weighted Average		Range (Low - High)	Weighted Average
Land Value (per farmable acre)	$4,630 – $105,000	$	59,499	$8,854 – $100,705	$	47,738
Market Rent (per farmable acre)	$260 – $3,700	$	2,555	$452 – $5,019	$	2,281
Market Capitalization Rate	3.12% – 5.00%	3.91%		3.37% – 6.50%	4.51%

The table above applies only to the farmland portion of our portfolio and exclude assumptions made relating to farm-related property, such as cooling facilities and box barns, and other structures on our properties, including residential housing and horticulture, as their aggregate value was considered to be insignificant in relation to that of the farmland.

Our Valuation Team reviews the appraisals, including the significant assumptions and inputs used in determining the appraised values, and considers any developments that may have occurred since the time the appraisals were performed. Developments considered that may have an impact on the fair value of our real estate include, but are not limited to, changes in tenant credit profiles; changes in lease terms, such as expirations and notices of non-renewals or to vacate; and potential asset sales, particularly those at prices different from the appraised values of our properties.

Management believes that the purchase prices of the farms acquired during the previous 12 months, the most recent appraisals available for the farms acquired prior to the previous 12 months that were not valued internally, which appraisals were performed between the periods of October 2015 and April 2016, and the farms that were valued internally during the previous 12 months, fairly represent the current market values of the properties as of June 30, 2016, and, accordingly, did not make any adjustment to these values.

A quarterly roll-forward of the change in our portfolio value for the three months ended June 30, 2016, from the prior value basis as of December 31, 2015, is provided in the table below:



Total portfolio fair value as of March 31, 2016			$	318,095,191
Plus acquisitions:
Calaveras Avenue	$	15,470,000
Total acquisitions for the three months ended June 30, 2016			15,470,000
Plus value appreciation (depreciation):
38th Avenue	2,000
Sequoia Street	131,000
McIntosh Road	3,000
Immokalee Exchange	217,300
Bear Mountain	3,253,500
Total net appreciation for the three months ended June 30, 2016			3,606,800
Total portfolio fair value as of June 30, 2016			$	337,171,991

In addition, using a discounted cash flow analysis, management determined that the fair value of all encumbrances on our properties as of June 30, 2016, was approximately $185.3 million, as compared to a carrying value (excluding unamortized related debt issuance costs) of $181.5 million.

Calculation of Estimated Net Asset Value

To provide our stockholders with an estimate of the fair value of our real estate assets, we intend to estimate the fair value of our farm properties, expressed in terms of net asset value (“NAV”) per share, and provide that to our stockholders on a quarterly basis. NAV is a non-GAAP, supplemental measure of financial position of an equity REIT and is calculated as total equity, adjusted for the increase or decrease in fair value of our real estate assets and encumbrances relative to their respective costs bases. Estimated NAV is then divided by our total shares outstanding to calculate the estimated NAV per share.

The fair values presented above and their usage in the calculation of net asset value per share presented below have been prepared by, and is the responsibility of, management. PricewaterhouseCoopers LLP has neither examined, compiled nor performed any procedures with respect to the fair values or the calculation of net asset value per share, which utilizes information that is not disclosed within the financial statements, and, accordingly, does not express an opinion or any other form of assurance with respect thereto.

Table of Contents

As of June 30, 2016, we estimate our NAV per share to be $13.68, as detailed below:



Total assets	$	275,185,109
Less: net cost basis of tangible real estate and intangible lease assets⁽¹⁾	(270,623,900		)
Plus: estimated fair value of property portfolio⁽²⁾	337,171,991
Estimated fair value of total assets				$	341,733,200
Total liabilities	192,957,968
Less: net cost basis of intangible lease liabilities⁽³⁾	(1,898,135		)
Less: book value of aggregate borrowings⁽⁴⁾	(181,526,562		)
Plus: fair value of aggregate borrowings⁽⁵⁾	185,290,326
Estimated fair value of total liabilities				194,823,597
Estimated NAV				$	146,909,603
Shares outstanding⁽⁶⁾				10,738,820
Estimated NAV per share				$	13.68


⁽¹⁾	Adjusted for $8,734 of net above-market lease values, included in Other assets on the accompanying Condensed Consolidated Balance Sheet.


⁽²⁾	Per current value basis presented in the table above.


⁽³⁾	Adjusted for $164,713 of net below-market lease values and deferred revenue and $1,733,422 of unamortized tenant improvements, both included in Other liabilities on the accompanying Condensed Consolidated Balance Sheet.


⁽⁴⁾	Excludes $1,052,886 of deferred financing costs related to mortgage notes and bonds payable included in Mortgage notes and bonds payable, net on the accompanying Condensed Consolidated Balance Sheet.


⁽⁵⁾	Valued using a discounted cash flow model.


⁽⁶⁾	Includes 745,879 OP Units held by non-controlling limited partners, representing 6.9% of all OP Units issued and outstanding.

A quarterly roll-forward in the estimated NAV per share for the three months ended June 30, 2016, is provided below:



Estimated NAV per share as of March 31, 2016				$	13.87
Plus net income				0.01
Plus change in valuations:
Net change in unrealized appreciation of farmland portfolio⁽¹⁾	$	0.12
Net change in unrealized fair value of borrowings	(0.20		)
Net change in valuations				(0.08		)
Less distributions				(0.12		)
Estimated NAV per share as of June 30, 2016				$	13.68

⁽¹⁾

The net change in unrealized appreciation of farmland portfolio consists of three components: (i) an increase of $0.34 due to the net appreciation in value of nine farms that were valued during the three months ended June 30, 2016, (ii) an increase of $0.12 due to the aggregate depreciation and amortization expense recorded during the three months ended June 30, 2016, and (iii) a decrease of $0.34 due to capital improvements made on certain properties that have not yet been considered in the determination of the respective properties’ estimated fair values.

Comparison of estimated NAV, using the above definition, to similarly-titled measures for other REITs, may not necessarily be meaningful, due to possible differences in the calculation or application of the definition of NAV used by such REITs. In addition, the trading price of our common shares may differ significantly from our most recent estimated NAV per share calculation. For example, while we estimated the NAV per share as of June 30, 2016, to be $13.68 per the calculation above, the closing price of our common stock on June 30, 2016, was $11.06, and it has subsequently traded between $10.89 and $11.50 per share.

While management believes the values presented reflect current market conditions, the ultimate amount realized on any asset will be based on the timing of such dispositions and the then-current market conditions. There can be no assurance that the ultimate realized value upon disposition of an asset will approximate the estimated fair value above.

We intend to report any adjustments to the estimated NAV, as well as to the values of our properties, in this section on a quarterly basis, but in no case less than annually. However, the determination of estimated NAV is subjective and involves a number of assumptions, judgments and estimates, and minor adjustments to these assumptions, judgments or estimates may have a material impact on our overall portfolio valuation. In addition, many of the assumptions used are sensitive to market conditions and can change frequently. Changes in the market environment and other events that may occur during our ownership of these properties may cause the values reported above to vary from the actual fair value that may be obtained in the open market.

Table of Contents



ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market-sensitive instruments. The primary market risk that we believe we are and will be exposed to is interest rate risk. Certain of our existing leases contain escalations based on market indices, and certain of our existing borrowings are subject to variable interest rates. Further, the interest rates on certain of our fixed-rate borrowings are either fixed for a finite period before converting to variable rate or are subject to periodic adjustments. Although we seek to mitigate this risk by structuring certain provisions into many of our leases, such as escalation clauses or adjusting the rent to prevailing market rents at two- to three-year intervals, these features do not eliminate this risk. To date, we have not entered into any derivative contracts to attempt to manage our exposure to interest rate fluctuations.

As of June 30, 2016, the fair value of our fixed-rate borrowings outstanding, which accounted for 90.9% of our total indebtedness, at cost, as of June 30, 2016, was approximately $168.8 million. However, interest rate fluctuations may affect the fair value of our fixed-rate borrowings. If market interest rates had been one percentage point lower or higher than those rates in place as of June 30, 2016, the fair value of our fixed-rate borrowings would have increased or decreased by approximately $6.1 million or $5.8 million, respectively.

There have been no material changes in the quantitative and qualitative market risk disclosures for the three months ended June 30, 2016, from that disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, as filed with the SEC on February 23, 2016.



ITEM 4.	CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of June 30, 2016, our management, including our chief executive officer and chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, the chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of June 30, 2016, in providing a reasonable level of assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable SEC rules and forms, including providing a reasonable level of assurance that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our chief executive officer and our chief financial officer, as appropriate to allow timely decisions regarding required disclosure. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated can provide only reasonable assurance of necessarily achieving the desired control objectives, and management was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2016, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II – OTHER INFORMATION



Item 1.	Legal Proceedings

We are not currently subject to any material legal proceedings, nor, to our knowledge, are any such material legal proceedings threatened against us.



Item 1A.	Risk Factors

Our business is subject to certain risks and events that, if they occur, could adversely affect our financial condition and results of operations and the trading price of our securities. For a discussion of these risks, please refer to this section and the section captioned “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2015, filed by us with the U.S. Securities and Exchange Commission on February 23, 2016. The risks described below and in our Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may materially and adversely affect our business, financial condition and/or operating results in the future.

We may enter into tax protection agreements in the future if we issue OP Units in connection with the acquisition of properties, which could limit our ability to sell or otherwise dispose of certain properties.

Our Operating Partnership may enter into tax protection agreements in connection with issuing OP Units to acquire additional properties which could provide that if we dispose of any interest in the protected acquired property prior to a certain time, we will indemnify the other party for its tax liabilities attributable to the built-in gain that exists with respect to such property. Therefore, although it may be in our stockholders’ best interests that we sell one of these properties, it may be economically prohibitive for us to do so if we are a party to such a tax protection agreement. While we do not currently have any of these tax protection agreements in place currently, we cannot guarantee that we will not enter into such agreements in the future.

Our redemption of OP Units could result in the issuance of a large number of new shares of our common stock and/or force us to expend significant cash, which may limit our funds necessary to make distributions on our common stock.

As of the date of this Quarterly Report, third parties owned approximately 6.9% of the outstanding OP Units. Following any contractual lock-up provisions, including the one-year mandatory holding period, a non-controlling limited partner of our Operating Partnership may require us to redeem the OP Units it holds for cash. At our election, we may satisfy the redemption through the issuance of shares of our common stock on a one-for-one basis. However, the limited partners’ redemption right may not be exercised if and to the extent that the delivery of the shares upon such exercise would result in any person violating the ownership and transfer restrictions set forth in our charter. If a large number of OP Units were redeemed, it could result in the issuance of a large number of new shares of our common stock, which could dilute our existing stockholders’ ownership. Alternatively, if we were to redeem a large number of OP Units for cash, we may be required to expend significant amounts to pay the redemption price, which may limit our funds necessary to make distributions on our common stock. Further, if we do not have sufficient cash on hand at the time the OP Units are tendered for redemption, we may be forced to sell additional shares of our common stock in order to raise cash, which could cause dilution to our existing stockholders and adversely affect the market price of our common stock.



Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

Sales of Unregistered Securities

None.

Issuer Purchases of Equity Securities

None.



Item 3.	Defaults Upon Senior Securities

Not applicable.

Table of Contents



Item 4.	Mine Safety Disclosures

Not applicable.



Item 5.	Other Information

None.

Table of Contents



Item 6.	Exhibits

EXHIBIT INDEX



Exhibit Number		Exhibit Description
3.1		Articles of Incorporation of the Registrant, incorporated by reference to Exhibit 3.1 to Pre-Effective Amendment No. 2 to the Registration Statement on Form S-11 (File No. 333-183965), filed November 2, 2012.
3.2		Amended and Restated Bylaws of the Registrant, incorporated by reference to Exhibit 3.2 to Pre-Effective Amendment No. 3 to the Registration Statement on Form S-11 (File No. 333-183965), filed November 15, 2012.
4.1		Form of Common Stock Certificate of the Registrant, incorporated by reference to Exhibit 4.1 to Pre-Effective Amendment No. 4 to the Registration Statement on Form S-11 (File No. 333-183965), filed December 27, 2012.
10.1		Amendment No. 1 to AgVantage® Bond Purchase Agreement, dated June 16, 2016, by and among Gladstone Lending Company, LLC, as Issuer, Farmer Mac Mortgage Securities Corporation, as Bond Purchaser, and Federal Agricultural Mortgage Corporation, as Guarantor, incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K (File No. 001-35795), filed June 20, 2016.
11		Computation of Per Share Earnings from Operations (included in the notes to the unaudited financial statements contained in this Report).
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
101.INS***		XBRL Instance Document
101.SCH***		XBRL Taxonomy Extension Schema Document
101.CAL***		XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB***		XBRL Taxonomy Extension Label Linkbase Document
101.PRE***		XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF***		XBRL Definition Linkbase



***	Attached as Exhibit 101 to this Quarterly Report on Form 10-Q are the following materials, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets as of June 30, 2016, and December 31, 2015, (ii) the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2016 and 2015, (iii) the Condensed Consolidated Statements of Equity for the six months ended June 30, 2016, and the year ended December 31, 2015, (iv) the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and 2015 and (vi) the Notes to the Condensed Consolidated Financial Statements.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



	Gladstone Land Corporation

Date: August 2, 2016	By:	/s/ Lewis Parrish
		Lewis Parrish
		Chief Financial Officer and Assistant Treasurer

Date: August 2, 2016	By:	/s/ David Gladstone
		David Gladstone
		Chief Executive Officer and Chairman of the Board of Directors