GLADSTONE LAND Corp - Annual Report: 2019 (Form 10-K)

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•	our business strategy;

•	our ability to implement our business plan, including our ability to continue to expand both geographically and by crop type;

•	pending and future transactions;

•	our projected operating results;

•	our ability to obtain future financing arrangements on favorable terms;

•	estimates relating to our future distributions;

•	estimates regarding potential rental rate increases and occupancy rates;

•	our understanding of our competition and our ability to compete effectively;

•	market and industry trends;

•	estimates of future operating expenses, including payments to our Adviser and Administrator (each as defined herein) under the terms of our 2020 Advisory Agreement and our Administration Agreement (each as defined herein), respectively;

•	our compliance with tax laws, including our ability to maintain our qualification as a real estate investment trust (“REIT”) for federal income tax purposes;

•	the impact of technology on our operations and business, including the risk of cyberattacks, cyberliability, or potential liability for breaches of our privacy or information security systems;

•	projected capital expenditures; and

•	use of proceeds and availability of our lines of credit, long-term borrowings, current and future stock offerings, and other future capital resources, if any.

•	our ability to successfully complete pending and future property acquisitions;

•	general volatility of the capital markets and the market price of our capital stock;

•	failure to maintain our qualification as a REIT and risks of changes in laws that affect REITs;

•	risks associated with negotiation and consummation of pending and future transactions;

•	changes in our business and investment strategy;

•	the adequacy of our cash reserves and working capital;

•	our failure to successfully integrate and operate acquired properties and operations;

•	defaults upon or non-renewal of leases by tenants;

•	decreased rental rates or increased vacancy rates;

•	the degree and nature of our competition, including other agricultural REITs;

•	availability, terms, and deployment of capital, including the ability to maintain and borrow under our line of credit, arrange for long-term mortgages on our properties, and raise equity capital;

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•	our Adviser’s and our Administrator’s ability to identify, hire, and retain highly-qualified personnel in the future;

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

•	changes in real estate and zoning laws and increases in real property tax rates;

•	changes in governmental regulations, tax rates, and similar matters;

•	environmental liabilities for certain of our properties and uncertainties and risks related to natural disasters or climactic changes impacting the regions in which our tenants operate; and

•	the loss of any of our key officers, such as Mr. David Gladstone, our chairman, president, and chief executive officer, Mr. Terry Lee Brubaker, our vice chairman and chief operating officer, or Mr. Lewis Parrish, our chief financial officer and assistant treasurer.

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Owning Farms and Farm-Related Real Estate for Income.  We own and intend to acquire additional farms and farm-related properties and lease them to independent and corporate farming operations, including sellers who desire to continue farming the land after we acquire the property from them. We expect to hold most acquired properties for many years and to generate stable and increasing rental income from leasing these properties.

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Owning Farms and Farm-Related Real Estate for Appreciation.  We intend to lease acquired properties over the long term. However, from time to time, we may sell one or more properties if we believe it to be in the best interests of our stockholders and best to maintain the overall value of our farmland portfolio. Potential purchasers may include real estate developers desiring to develop the property, financial purchasers seeking to acquire property for investment purposes, or farmers who have operated or seek to operate the land. Accordingly, we will seek to acquire properties that we believe have potential for long-term appreciation in value.

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Continue Expanding our Operations Geographically.  Our properties are currently located in 10 states across the U.S., and we expect that we will acquire properties in other farming regions of the U.S. in the future. While our primary regions of focus are the Pacific West and the Southeastern regions of the United States, we believe other regions of the U.S., such as the Northwest and Mid-Atlantic regions, offer attractive locations for expansion, and, to a lesser extent, we also expect to seek farmland acquisitions in certain regions of the Midwest, as well as other areas in the U.S.

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Continue Expanding our Crop Varieties. Currently, the majority of tenants who farm our properties grow annual row crops dedicated to fresh produce, such as berries (e.g., strawberries and raspberries) and fresh vegetables (e.g., tomatoes, lettuce, and bell peppers). We have also expanded further into certain permanent crops (e.g., almonds, pistachios, blueberries, and wine grapes) and, to a lesser extent, commodity crops (e.g., corn and beans). We will seek to continue our recent expansion into other permanent crops and, to a lesser extent, commodity crops, while maintaining our focus on annual row-crop farms growing fresh produce.

•	Using Leverage.  To maximize our number of investments, we intend to borrow through loans secured by long-term mortgages on our properties, and we may also borrow funds on a short-term basis or incur other indebtedness.

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Water availability.  Availability of water is essential to farming. We seek to purchase properties with ample access to water through an operating well on site or rights to use a well or other source that is located nearby. Additionally, we may, in the future, consider acquiring properties that rely on rainfall for water if the tenant on that property mitigates the drought risk by purchasing drought insurance. Typically, leases on properties that would rely on rainfall would be longer term in nature.

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Soil composition. In addition to water, for farming efforts to be successful, the soil must be suitable for growing crops. We will not buy or finance any real property that does not have soil conditions that we believe are favorable for growing the crops farmed on the property, except to the extent that a portion of an otherwise suitable property, while not favorable for growing the crops farmed on the property, may be utilized to build structures used in the farming business, such as cooling facilities, packinghouses, distribution centers, greenhouses, and storage facilities.

•	Location. Farming also requires optimal climate and growing seasons. We typically seek to purchase properties in locations that take advantage of climate conditions that are needed to grow fresh produce row crops. We intend to continue to expand throughout the U.S. in locations with productive farmland and financially sound farming tenants.

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Price.  We intend to purchase and finance properties that we believe are a good value and that we will be able to rent profitably for farming over the long term. Generally, the closer a property is located to urban developments, the higher the value of the property. As a result, properties that are currently located in close proximity to urban developments are likely to be too expensive to justify farming over an extended period of time, and, therefore, we are unlikely to invest in such properties.

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•	The comparable value of similar real property in the same general area of the prospective property, to the extent possible.

•	The comparable real estate rental rates for similar properties in the same general area of the prospective property.

•	Alternative uses for the property to determine if there is another use for the property that would give it higher value, including potential future conversion to urban or suburban uses, such as commercial or residential development.

•	The assessed value as determined by the local real estate taxing authority.

•	Experience.  We believe that experience is the most significant characteristic when determining the creditworthiness of a tenant. Therefore, we seek to rent our properties to farmers that have an extensive track record of farming their property and particular crops successfully.

•	Financial Strength.  We seek to rent to farming operations that have financial resources to invest in planting and harvesting their crops. We generally require annual financial statements of new tenants to evaluate the financial capability of the tenant and its ability to perform its obligations under the lease.

•	Adherence to Quality Standards.  We seek to lease our properties to those farmers that are committed to farming in a manner that will generate high-quality crops. We intend to identify such commitment through their track records of selling produce into established distribution chains and outlets.

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Lease Provisions that Enhance and Protect Value. When appropriate, our Adviser attempts to include lease provisions that require our consent to specified tenant activity or require the tenant to satisfy specific operating tests. These provisions may include, for example, requiring the tenant to meet operational or financial covenants or to indemnify us against environmental and other contingent liabilities. We believe that these provisions serve to protect our investments from adverse changes in the operating and financial characteristics of a tenant that may impact its ability to satisfy its obligations to us or that could reduce the value of our properties. Our Adviser generally also seeks covenants requiring tenants to receive our consent prior to any change in control of the tenant.

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Credit Enhancement. To mitigate risk and enhance the likelihood of tenants satisfying their lease obligations, our Adviser may also seek cross-default provisions if a tenant has multiple obligations to us or seek a letter of credit or a guaranty of lease obligations from each tenant’s corporate affiliates, if any. We believe that these types of credit enhancements, if obtained, provide us with additional financial security.

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Diversification. Our Adviser will seek to diversify our portfolio to avoid dependence on any one particular tenant, geographic location, or crop type. By diversifying our portfolio, our Adviser intends to reduce the adverse effect on our portfolio of a single underperforming investment or a downturn in any particular geographic region. Many of the areas in which we purchase or finance properties are likely to have their own microclimates and, although they appear to be in close proximity to one another, generally will not be similarly affected by weather or other natural occurrences at the same time. We currently own properties in 10 different states across the U.S., and over time, we expect to expand our geographic focus to other areas of the Southeast, Pacific Northwest, Midwest, and Mid-Atlantic. We will

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•	invest 50% or more of our total assets in a single property at the time of investment;

•	invest in real property owned by our Adviser, any of its affiliates or any entity in which our Adviser or any of its affiliates have invested;

•	invest in commodities or commodity futures contracts, with this limitation not being applicable to futures contracts when used solely for the purpose of hedging in connection with our ordinary business of investing in properties and making mortgage loans;

•	invest in contracts for the sale of real estate unless the contract is in recordable form and is appropriately recorded in the chain of title;

•	issue equity securities on a deferred payment basis or other similar arrangement;

•	grant warrants or options to purchase shares of our stock to our Adviser or its affiliates;

•	engage in trading, as compared with investment activities, or engage in the business of underwriting, or the agency distribution of, securities issued by other persons;

•	invest more than 5% of the value of our assets in the securities of any one issuer if the investment would cause us to fail to maintain our qualification as a REIT;

•	invest in securities representing more than 10% of the outstanding securities (by vote or value) of any one issuer if the investment would cause us to fail to maintain our qualification as a REIT; or

•	acquire securities in any company holding investments or engaging in activities prohibited in the foregoing clauses.

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•	acquire from or sell to any of our officers or directors, the employees of our Adviser or Administrator, or any entity in which any of our officers, directors, or such employees has an interest of more than 5%, any assets or other property;

•	borrow from any of our directors or officers, the employees of our Adviser or Administrator, or any entity in which any of our officers, directors, or such employees has an interest of more than 5%; or

•	engage in any other transaction with any of our directors or officers, the employees of our Adviser or Administrator, or any entity in which any of our directors, officers, or such employees has an interest of more than 5%.

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the material facts relating to the common directorship or interest and as to the transaction are disclosed to our Board of Directors or a committee of our Board, and our Board or the committee in good faith authorizes the contract or transaction by the affirmative vote of a majority of the directors not interested in the contract or transaction, even if the disinterested directors do not constitute a quorum of the Board or committee;

•	the fact of the common directorship or interest is disclosed to our stockholders entitled to vote on the contract or transaction, and the contract or transaction is approved or ratified by a majority of the votes cast by the stockholders entitled to vote on the matter, other than shares owned of record or beneficially by the interested director, corporation or entity; or

•	the contract or transaction is fair and reasonable to us as of the time authorized, approved or ratified by the Board of Directors, a committee or the stockholders.

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•	finds, evaluates, presents, and recommends to us a continuing series of real estate investment opportunities consistent with our investment policies and objectives;

•	provides advice to us and acts on our behalf with respect to the negotiation, acquisition, financing, refinancing, holding, leasing, and disposition of real estate investments;

•	enters into contracts to purchase real estate on our behalf in compliance with our investment procedures, objectives, and policies, subject to approval of our Board of Directors, where required;

•	takes the actions and obtains the services necessary to effect the negotiation, acquisition, financing, refinancing holding, leasing, and disposition of real estate investments; and

•	provides day-to-day management of our real estate activities and other administrative services.

•	our Adviser has determined that the total cost of the property does not exceed its determined value; and

•	our Adviser has provided us with a representation that the property, in conjunction with our other investments and proposed investments, is reasonably expected to fulfill our investment objectives and policies as established by our Board of Directors then in effect.

•	any acquisition which at the time of investment would have a cost exceeding 50% of our total assets; and

•	transactions that involve conflicts of interest with our Adviser (other than reimbursement of expenses in accordance with the 2020 Advisory Agreement).

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•	significant time lag between commencement of development and commercial productivity for permanent crop development farms subjects us to greater risks due to fluctuations in the general economy and adverse weather conditions;

•	expenditure of money and time on development that may not be completed;

•	inability to achieve rental rents per acre at newly-developed farms to make the properties profitable;

•	higher than estimated costs, including labor and planting, irrigation or other related costs; and

•	possible delays in development due to a number of factors, including weather, labor disruptions, regulatory approvals, acts of terror or other acts of violence, or acts of God (such as fires, earthquakes, or floods).

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•	responsibility and liability for the cost of removal or remediation of hazardous substances released on our properties, which may include herbicides and pesticides, generally without regard to our knowledge of or responsibility for the presence of the contaminants;

•	liability for the costs of removal or remediation of hazardous substances at disposal facilities for persons who arrange for the disposal or treatment of these substances; and

•	potential liability for claims by third parties for damages resulting from environmental contaminants.

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•	our Adviser may realize substantial compensation on account of its activities on our behalf and may be motivated to approve acquisitions solely on the basis of increasing its compensation from us;

•	our agreements with our Adviser are not arm’s-length agreements, which could result in terms in those agreements that are less favorable than we could obtain from independent third parties;

•	we may experience competition with our affiliates for potential financing transactions; and

•	our Adviser and other affiliates, such as Gladstone Capital, Gladstone Commercial and Gladstone Investment, could compete for the time and services of our officers and directors and reduce the amount of time they are able to devote to management of our business.

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Our articles of incorporation prohibit ownership of more than 3.3% of the outstanding shares of our capital stock by one person, except for certain qualified institutional investors, which are limited to holding 9.8% of our common stock. As of December 31, 2019, David Gladstone, our chairman, chief executive officer, and president, owned approximately 11.0% of our common stock, and the Gladstone Future Trust, for the benefit of Mr. Gladstone’s children, owns approximately 3.2% of our common stock, in each case pursuant to an exception approved by our Board of Directors and in compliance with our charter. In addition, the David and Lorna Gladstone Foundation, of which David Gladstone is the CEO and Chairman, owns 1.0% of our common stock. The ownership restriction may discourage a change of control and may deter individuals or entities from making tender offers for our capital stock, which offers might otherwise be financially attractive to our stockholders or which might cause a change in our management.

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Our Board is divided into three classes, with the term of the directors in each class expiring every third year. At each annual meeting of stockholders, the successors to the class of directors whose term expires at such meeting will be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. After election, a director may only be removed by our stockholders for cause. Election of directors for staggered terms with limited rights to remove directors makes it more difficult for a hostile bidder to acquire control of us. The existence of this provision may negatively impact the price of our securities and may discourage third-party bids to acquire our securities. This provision may reduce any premiums paid to stockholders in a change in control transaction.

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The Control Share Acquisition Act provides that “control shares” of a Maryland corporation acquired in a “control share acquisition” have no voting rights except to the extent approved by the corporation’s disinterested stockholders by a vote of two-thirds of the votes entitled to be cast on the matter. Shares of stock owned by interested stockholders, that is, by the acquirer, by officers or by directors who are employees of the corporation, are excluded from shares entitled to vote on the matter. “Control shares” are voting shares of stock that would entitle the acquirer to exercise voting power in electing directors within one of three increasing ranges of voting power. The control share acquisition statute does not apply (a) to shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction or (b) to acquisitions approved or exempted by the charter or bylaws of the corporation. Our bylaws contain a provision exempting from the Control Share Acquisition Act any and all acquisitions of our common stock by David Gladstone or any of his affiliates. This statute could have the effect of discouraging offers from third parties to acquire us and increasing the difficulty of successfully completing this type of offer by anyone other than Mr. Gladstone or any of his affiliates.

•	Certain provisions of Maryland law applicable to us prohibit business combinations with:

•	any person who beneficially owns 10% or more of the voting power of our common stock, referred to as an “interested stockholder;”

•	an affiliate of ours who, at any time within the two-year period prior to the date in question, was an interested stockholder; or

•	an affiliate of an interested stockholder.

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•	we would not be allowed a deduction for distributions to stockholders in computing our taxable income;

•	we would be subject to federal income tax at regular corporate rates and might need to borrow money or sell assets to pay any such tax;

•	we also could be subject to increased state and local taxes and, for taxable years ended on or before December 31, 2017, the federal alternative minimum tax; and

•	unless we are entitled to relief under statutory provisions, we would be disqualified from taxation as a REIT for the four taxable years following the year during which we ceased to qualify.

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•	85% of our ordinary income for that year;

•	95% of our capital gain net income for that year; and

•	100% of our undistributed taxable income from prior years.

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•	whether your investment is consistent with the applicable provisions of the Employee Retirement Income Security Act (“ERISA”), or the Code;

•	whether your investment will produce unrelated business taxable income to the benefit plan; and

•	your need to value the assets of the benefit plan annually.

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(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. Specifically, includes Investments in real estate, net (excluding improvements paid for by the tenant) and Lease intangibles, net; plus net above-market lease values, lease incentives, and net investments in special-purpose LLCs included in Other assets, net; and less net below-market lease values and other deferred revenue included in Other liabilities, net; each as shown on the accompanying Consolidated Balance Sheets.

(2)	Excludes approximately $3.1 million of debt issuance costs related to notes and bonds payable, included in Notes and bonds payable, net on the accompanying Consolidated Balance Sheet.

(3)	Includes ownership in a special-purpose LLC that owns a pipeline conveying water to one of our properties. As of December 31, 2019, this investment was valued at approximately $587,000 and is included within Other assets, net on the accompanying Consolidated Balance Sheet.

(4)

Includes two farms in which we own a leasehold interest via ground leases with the State of Arizona that expire in February 2022 and February 2025, respectively. In total, these two farms consist of 1,368 total acres and 1,221 farm acres and had an aggregate net cost basis of approximately $2.1 million as of December 31, 2019 (included in Lease intangibles, net on the accompanying Consolidated Balance Sheet).

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•	there were 13 registered holders of record and approximately 17,012 beneficial owners of our common stock; and

•	other than those owned by the Company, there was one other holder of record and beneficial owner of our OP Units. After a mandatory one-year holding period, our OP Units are redeemable at the option of the holder for cash or, at our election, shares of our common stock on a one-for-one basis.

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•	we owned 113 farms comprised of 87,860 total acres across 10 states in the U.S.;

•	our occupancy rate (based on gross acreage) was 100.0%, and our farms were leased to 70 different, unrelated third-party tenants growing over 45 different types of crops;

•	the weighted-average remaining lease term across our agricultural real estate holdings was 6.9 years; and

•	the weighted-average term to maturity of our notes and bonds payable was 10.4 years, and the weighted-average remaining fixed-price term of our borrowings was 6.0 years, with an expected weighted-average effective interest rate of 3.60% over that term.

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

(1)	Certain lease agreements encompass multiple farms.

(2)	Includes two leases that were renewed for five years each subsequent to December 31, 2019 (see “Recent Developments—Portfolio Activity—Existing Properties—Leasing Activity” below for a summary of these and other recent leasing activities).

(3)	Consists of ancillary leases (e.g., oil, gas, and mineral leases, telecommunications leases, etc.) with varying expirations on certain of our farms.

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(1)	Includes approximately $76,000 of aggregate external legal fees associated with negotiating and originating the leases associated with these acquisitions, which were expensed in the period incurred.

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

(3)	Leases provide for a participation rent component based on the gross crop revenues earned on the respective farms. The rent figures above represent only the minimum cash guaranteed under the respective leases.

(4)

In connection with the acquisition of this property, we executed a six-year, follow-on lease with a new tenant that will commence upon the expiration of the four-month lease executed on the date of acquisition. The follow-on lease includes one, four-year extension option and provides for minimum annualized straight-line rents of approximately 606,000. In connection with the follow-on lease, we committed to provide up to $100,000 for certain irrigation improvements on the property.

(5)	As partial consideration for the acquisition of this property, we issued 288,303 OP Units, constituting an aggregate fair value of approximately 3.3 million as of the acquisition date.

(6)

In connection with the acquisition of Sutter Avenue (which occurred in two phases), we also acquired an ownership in a related LLC, the sole purpose of which is to own and maintain a pipeline conveying water to this and other neighboring properties. On August 16, 2019, we acquired an 11.75% ownership interest in the LLC that was valued at approximately $280,000 at the time of acquisition. On November 1, 2019, we acquired an additional 13.25% interest in the LLC that was valued at approximately $307,000 at the time of acquisition. As our investment in the LLC is deemed to constitute “significant influence,” we have accounted for this investment under the equity method. From the commencement of our ownership in the LLC through December 31, 2019, there was no material income or loss recognized by the LLC; thus, no net income or loss was recorded by us during the year ended December 31, 2019. Our combined 25.0% ownership interest in the LLC, valued at approximately $587,000 as of December 31, 2019, is included within Other assets, net on the accompanying Consolidated Balance Sheet.

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(7)	In connection with this acquisition, we executed two separate lease agreements with two different, unrelated third-party tenants. The lease term of 3.3 years represents the weighted-average term of the two leases. In addition, pursuant to one of these lease agreements, we committed to provide up to $1 million for certain irrigation improvements on the property.

(8)

In connection with the acquisition of this property, we committed to provide up to approximately 4.0 million as additional compensation, contingent upon the County of Napa approving the planting of additional vineyards on up to 47 acres of the property by February 25, 2020. We are currently unable to estimate when this approval will be obtained, if at all. If approval is obtained, we have also committed to contribute up to 40,000 per approved acre for the development of such vineyards. As provided for in the lease, we will earn additional rent on all of the aforementioned costs, if any, incurred by us.

(9)

In connection with the acquisition of this property, we executed a 10-year, follow-on lease with a new, unrelated third-party tenant that will commence upon the expiration of the three-month lease executed on the date of acquisition. The follow-on lease provides for minimum annualized straight-line rents of approximately $630,000, plus a participation rent component based on the gross revenues earned on the farm. In addition, the farm is expected to be converted to organic farmland by the second half of 2021.

(10)

In connection with this acquisition, we executed a four-month leaseback agreement with the seller that provides for a fixed, one-time rental payment of $250,000. In addition, we also executed a 10-year, follow-on lease with a new, unrelated third-party tenant that will commence upon the expiration of the four-month leaseback agreement. The follow-on lease provides for minimum annualized straight-line rents of approximately $372,000, plus a participation rent component based on the gross revenues earned on the farm. In addition, the farm is expected to be converted to organic farmland by the second half of 2021.

(1)	In connection with certain of these leases, we committed to provide capital for certain improvements on these farms. See Note 7, “Commitments and Contingencies—Operating Obligations” in the accompanying notes to our consolidated financial statements for additional information on certain of these commitments.

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

(3)	“NNN” refers to leases under triple-net lease arrangements, “NN” refers to leases under partial-net lease arrangements, and “N” refers to leases under single-net lease arrangements, in each case, as described above under “Leases—General.”

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(1)

On borrowings from the various Farm Credit associations, we receive interest patronage, or refunded interest, which is typically received in the calendar year following the year in which the related interest expense was accrued. The expected effective interest rates reflected in the table above are the interest rates net of expected interest patronage, which is based on either historical patronage actually received (for pre-existing lenders whom we have received interest patronage from) or indications from the respective lenders of estimated patronage to be paid (for new lenders). See Note 4, “Borrowings,” in the accompanying notes to our consolidated financial statements for additional information on interest patronage received in current and prior years.

(2)

Approximately $498,000 of this funding was held back by the lender until certain irrigation improvements on the property were completed and is included within Other assets on the accompanying Consolidated Balance Sheet as of December 31, 2019. We currently expect these irrigation improvements to be completed during the three months ending March 31, 2020, at which point these funds will be released to us pursuant to an escrow holdback agreement.

(3)	Loans were issued as variable-rate loans but were effectively fixed through our entry into interest rate swap agreements with the lender (as counterparty). See Note 4, “Borrowings—Interest Rate Swap Agreements,” in the accompanying notes to our consolidated financial statements for further discussion on these agreements.

(4)	Loans disbursed under the MetLife Facility. The Interest rates on these new disbursements were blended with the existing interest rate on the previously-outstanding balance under the MetLife Term Notes.

(5)	Loan originally issued as a variable-rate loan and was converted to a fixed-rate loan effective September 1, 2019.

(6)	Represent amendments to bonds previously issued under the Farmer Mac Facility.

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(1)	Net of selling commissions and dealer-manager fees borne by us. Aggregate selling commissions and dealer-manager fees paid to Gladstone Securities as a result of these sales was approximately $9.5 million (of which approximately $8.9 million was remitted by Gladstone Securities to unrelated third-parties involved in the offering, such as participating broker-dealers and wholesalers).

(1)	Includes the underwriters’ exercise of the over-allotment option in connection with each offering.

(2)	Net of underwriting commissions and discounts.

(1)	Net of underwriter commissions and discounts.

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(1)	Actual figures calculated pursuant to the agreements with our Adviser in place during the respective periods.

(2)	Calculated as if the 2020 Advisory Agreement had been in place as of January 1, 2017.

•	no Incentive Fee in any calendar quarter in which our Pre-Incentive Fee FFO does not exceed the hurdle rate of 1.75% (7.0% annualized);

•	100% of the amount of our Pre-Incentive Fee FFO with respect to that portion of such Pre-Incentive Fee FFO, if any, that exceeds the hurdle rate but is less than 2.1875% in any calendar quarter (8.75% annualized); and

•	20% of the amount of our Pre-Incentive fee FFO, if any, that exceeds 2.1875% in any calendar quarter (8.75% annualized).

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▪	Same-property basis represents farms owned as of December 31, 2017, and were not vacant at any point during either period presented.

▪	Properties acquired or disposed of are farms that were either acquired or disposed of at any point subsequent to December 31, 2017. From January 1, 2018, through December 31, 2019, we acquired 39 new farms (including one farm that we acquired without a lease in place and was mostly vacant during a majority of the year ended December 31, 2018) and disposed of one farm; and

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Vacant or self-operated properties represent farms that were either vacant (either wholly or partially) at any point during either period presented or operated by a wholly-owned subsidiary of ours. We had two farms that were vacant for a portion of the year December 31, 2019, and we had two farms that were either vacant or leased to Land Advisers during a portion of the year ended December 31, 2018.

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(1)	Tenant reimbursements generally represent tenant-reimbursed property operating expenses on certain of our farms, including property taxes, insurance premiums, and other property-related expenses. Corresponding amounts were also recorded as property operating expenses during the respective periods.

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(1)	Represents certain operating expenses (property taxes, insurance premiums, and other property-related expenses) paid by us that, per the respective leases, are required to be reimbursed to us by the tenant. Corresponding amounts were also recorded as lease revenues during the respective periods.

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(1)	Reflected as a line item on our accompanying Consolidated Statements of Operations and Comprehensive Income.

(2)	Represent non-contractual, unconditional, and irrevocable waivers granted to us by our Adviser.

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(1)	Includes share redemptions during the applicable time period.

(2)	Includes shares issued as a result of underwriters exercising their over-allotment options.

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Acquisition- and disposition-related expenses. Acquisition- and disposition-related expenses (including due diligence costs on acquisitions not consummated and certain auditing and accounting fees incurred that were directly related to completed acquisitions or dispositions) are incurred for investment purposes and do not correlate with the ongoing operations of our existing portfolio. Further, certain auditing and accounting fees incurred vary depending on the number and complexity of acquisitions or dispositions completed during the period. Due to the inconsistency in which these costs are incurred and how they have historically been treated for accounting purposes, we believe the exclusion of these expenses improves comparability of our operating results on a period-to-period basis.

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Rent adjustments. This adjustment removes the effects of straight-lining rental income, as well as the amortization related to above-market lease values and lease incentives and accretion related to below-market lease values, other deferred revenue, and tenant improvements, resulting in rental income reflected on a modified accrual cash basis. In addition to these adjustments, we also modify the calculation of cash rents within 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

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•	Amortization of debt issuance costs. The amortization of costs incurred to obtain financing is excluded from AFFO, as it is a non-cash expense item that is not directly related to the operating performance of our properties.

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(1)	Represents our pro-rata share of depreciation expense recorded in unconsolidated entities during the period.

(2)	Consists of net property and casualty (recoveries) losses recorded and the cost of related repairs expensed during each period as a result of the damage to certain irrigation improvements and, for the year ended December 31, 2018, only, the net impact of the Incremental TRS Operations.

(3)	Represents OP Units held by non-controlling OP Unitholders during the respective periods.

•

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 via a full appraisal at least once every three years, with interim values generally being determined by either: (i) a restricted appraisal (a “desk appraisal”) performed by an independent, third-party appraiser, or (ii) our internal valuation process.

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(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 paid for by us that were associated with the properties, and adjusted for accumulated depreciation and amortization.

(2)	Appraisals performed between March 2019 and December 2019.

Note:	Figures in the table above apply only to the farmland portion of our portfolio and exclude assumptions made relating to farm-related facilities (e.g., cooling facilities), and other structures on our properties (e.g., residential housing), as their aggregate value was considered to be insignificant in relation to that of the farmland.

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(1)	Per Net Cost Basis as presented in the table above.

(2)	Per Current Fair Value as presented in the table above.

(3)	Includes the principal balances outstanding of all long-term borrowings (consisting of notes and bonds payable) and the Series A Term Preferred Stock.

(4)	Long-term notes and bonds payable were valued using a discounted cash flow model. The Series A Term Preferred Stock was valued based on its closing stock price as of December 31, 2019.

(5)	Valued at the security’s liquidation value, as discussed above.

(6)	Includes 20,936,658 shares of common stock and 288,303 OP Units held by non-controlling OP Unitholders.

(1)

The net change in unrealized fair value of our farmland portfolio consists of three components: (i) an increase of $0.06 per share due to the net appreciation in value of the farms that were valued during the three months ended December 31, 2019, (ii) an increase of $0.18 per share due to the aggregate depreciation and amortization expense recorded during the three months ended December 31, 2019, and (iii) a decrease of $0.17 per share due to capital improvements made on certain farms that have not yet been considered in the determination of the respective farms’ estimated fair values.

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(1)	Included within Other operating revenue on the accompanying Consolidated Statements of Operations and Comprehensive Income.

(2)

Included within Other operating expenses on the accompanying Consolidated Statements of Operations and Comprehensive Income. Excludes rent expense owed to the Company and interest expense owed on a loan from the Company to Land Advisers, both of which expenses were eliminated in consolidation. Also excludes the allocation of a fee earned by our Adviser from Land Advisers of approximately $176,000 during the year ended December 31, 2018, which is included within Base management fee on the accompanying Consolidated Statements of Operations and Comprehensive Income (see Note 6, “Related-Party Transactions—TRS Fee Arrangements—TRS Expense Sharing Agreement” for further discussion on this fee).

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(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. Specifically, includes Investments in real estate, net (excluding improvements paid for by the tenant) and Lease intangibles, net; plus net above-market lease values, lease incentives, and net investments in special-purpose LLCs included in Other assets, net; and less net below-market lease values and other deferred revenue included in Other liabilities, net; each as shown on the accompanying Consolidated Balance Sheets.

(2)	Excludes approximately $3.1 million of debt issuance costs related to notes and bonds payable, included in Notes and bonds payable, net on the accompanying Consolidated Balance Sheets.

(3)	Includes ownership in a special-purpose LLC that owns a pipeline conveying water to one of our properties. As of December 31, 2019, this investment had a carrying value of approximately $587,000 and is included within Other assets, net on the accompanying Consolidated Balance Sheet.

(4)

Includes two farms in which we own a leasehold interest via ground leases with the State of Arizona that expire in February 2022 and February 2025, respectively. In total, these two farms consist of 1,368 total acres and 1,221 farm acres and had an aggregate net cost basis of approximately $2.1 million as of December 31, 2019 (included in Lease intangibles, net on the accompanying Consolidated Balance Sheet).

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(1)	Net above-market lease values and lease incentives are included as part of Other assets, net on the accompanying Consolidated Balance Sheets, and the related amortization is recorded as a reduction of Lease revenue on the accompanying Consolidated Statements of Operations and Comprehensive Income.

(2)	Net below-market lease values and other deferred revenue are included as a part of Other liabilities, net on the accompanying Consolidated Balance Sheets, and the related accretion is recorded as an increase to Lease revenue on the accompanying Consolidated Statements of Operations and Comprehensive Income.

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(1)	Includes approximately $76,000 of aggregate external legal fees associated with negotiating and originating the leases associated with these acquisitions, which were expensed in the period incurred.

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

(3)	Leases provide for a participation rent component based on the gross crop revenues earned on the respective farms. The rent figures above represent only the minimum cash guaranteed under the respective leases.

(4)

In connection with the acquisition of this property, we executed a six-year, follow-on lease with a new tenant that will commence upon the expiration of the four-month lease executed on the date of acquisition. The follow-on lease includes one, four-year extension option and provides for minimum annualized straight-line rents of approximately 606,000. In connection with the follow-on lease, we committed to provide up to $100,000 for certain irrigation improvements on the property.

(5)	As partial consideration for the acquisition of this property, we issued 288,303 OP Units, constituting an aggregate fair value of approximately $3.3 million as of the acquisition date.

(6)

In connection with the acquisition of Sutter Avenue (which occurred in two phases), we also acquired an ownership in a related LLC, the sole purpose of which is to own and maintain a pipeline conveying water to this and other neighboring properties. On August 16, 2019, we acquired an 11.75% ownership interest in the LLC that was valued at approximately $280,000 at the time of acquisition. On November 1, 2019, we acquired an additional 13.25% interest in the LLC that was valued at approximately $307,000 at the time of acquisition. As our investment in the LLC is deemed to constitute “significant influence,” we have accounted for this investment under the equity method. From the commencement of our ownership in the LLC through December 31, 2019, there was no material income or loss recognized by the LLC; thus, no net income or loss was recorded by us during the year ended December 31, 2019. Our combined 25.0% ownership interest in the LLC, which had an aggregate carrying value of approximately $587,000 as of December 31, 2019, is included within Other assets, net on the accompanying Consolidated Balance Sheet.

(7)	In connection with this acquisition, we executed two separate lease agreements with two different, unrelated third-party tenants. The lease term of 3.3 years represents the weighted-average term of the two leases. In addition, pursuant to one of these lease agreements, we committed to provide up to $1.0 million for certain irrigation improvements on the property.

(8)

In connection with the acquisition of this property, we committed to provide up to approximately $4.0 million as additional compensation, contingent upon the County of Napa approving the planting of additional vineyards on up to 47 acres of the property by February 25, 2020. We are currently unable to estimate when this approval will be obtained, if at all. If approval is obtained, we have also committed to contribute up to 40,000 per approved acre for the development of such vineyards. As provided for in the lease, we will earn additional rent on all of the aforementioned costs, if any, incurred by us.

(9)

In connection with the acquisition of this property, we executed a 10-year, follow-on lease with a new, unrelated third-party tenant that will commence upon the expiration of the three-month lease executed on the date of acquisition. The follow-on lease provides for minimum annualized straight-line rents of approximately $630,000, plus a participation rent component based on the gross revenues earned on the farm. The farm is expected to be converted to organic farmland by the second half of 2021. In addition, the incoming tenant intends to construct a building on a portion of the property to act as its headquarters, and pursuant to the follow-on lease, we are obligated to purchase the building from the tenant at a price approximately equal to the total construction cost. Construction of this building has not yet begun, and we are unable to estimate the total cost of the building at this time. As stipulated in the follow-on lease, we will earn additional rent on the total construction cost of the building as disbursements are made by us

(10)

In connection with this acquisition, we executed a four-month leaseback agreement with the seller that provides for a fixed rental payment of $250,000. In addition, we also executed a 10-year, follow-on lease with a new, unrelated third-party tenant that will commence upon the expiration of the four-month leaseback agreement. The follow-on lease provides for minimum annualized straight-line rents of approximately $372,000, plus a participation rent component based on the gross revenues earned on the farm. In addition, the farm is expected to be converted to organic farmland by the second half of 2021.

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

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

(3)

In connection with the acquisition of this property, we committed to provide up to $2.0 million of capital for certain irrigation and property improvements. As stipulated in the lease, we will earn additional rental income on the total cost of the improvements as disbursements are made by us at a rate commensurate with the annual yield on the farmland (as determined by each year's minimum cash rent per the lease).

(4)	Leases provide for a participation rent component based on the gross crop revenues earned on the respective farms. The rent figures above represent only the minimum cash guaranteed under the respective leases.

(5)	Purchase price is net of a $100,000 credit provided to us by the seller.

(6)

Lease provided for an initial rent payment of approximately $471,000 to be paid upon commencement of the lease, with all subsequent annual rent payments to be participation rents based on the gross revenues earned on the farm. In accordance with GAAP, the initial rent payment (which represents the only cash rental payment guaranteed under the lease) is being recognized over the full term of the lease, including all tenant renewal options (which management believes to represent the minimum lease term, as defined by GAAP).

(1)	Included within Other liabilities, net on the accompanying Consolidated Balance Sheets.

(2)	Included within Other assets, net on the accompanying Consolidated Balance Sheets.

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(1)	In connection with certain of these leases, we committed to provide capital for certain improvements on these farms. See Note 7, “Commitments and Contingencies—Operating Obligations” for additional information on certain of these commitments.

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

(3)	“NNN” refers to leases under triple-net lease arrangements, and “NN” refers to leases under partial-net lease arrangements. For a description of each of these types of lease arrangements, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview—Leases—General.”

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

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(1)	Where applicable, stated interest rates are before interest patronage (as described below).

(1)	The interest rates on these new disbursements were blended with the existing interest rate on the previously-outstanding balance under the MetLife Term Notes.

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(1)

Represents the blended interest rate as of December 31, 2019. Interest rates for subsequent disbursements, if any, will be based on then-prevailing market rates. The interest rate on all then-outstanding disbursements will be subject to adjustment on January 5, 2027. Through December 31, 2019, the MetLife Term Notes were also subject to an unused fee ranging from 0.10% to 0.20% on undrawn amounts (based on the balance drawn under the notes).

(2)	As the aggregate commitment under this facility was not fully utilized by December 31, 2019, MetLife had the option to be relieved of its obligations to disburse the additional funds under the MetLife Term Notes.

(3)	Based on the properties that were pledged as collateral under the MetLife Facility, as of December 31, 2019, the maximum additional amount we could draw under the facility was approximately $22.9 million.

(4)	The interest rate on the MetLife Lines of Credit is subject to a minimum annualized rate of 2.50%, plus an unused fee ranging from 0.10% to 0.20% on undrawn amounts (based on the balance drawn under each line of credit).

(1)	Stated rate is before interest patronage, as described below.

(2)	Loan originally issued as a variable-rate loan and was converted to a fixed-rate loan effective September 1, 2019.

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(1)

Approximately $498,000 of this funding was held back by the lender until certain irrigation improvements on the property were completed and is included within Other assets on the accompanying Consolidated Balance Sheet as of December 31, 2019. We currently expect these irrigation improvements to be completed during the three months ending March 31, 2020, at which point these funds will be released to us pursuant to an escrow holdback agreement.

(1)	In connection with securing this loan and to hedge our exposure to the above variable interest rate, we entered into an interest rate swap agreement in which we agreed to pay a fixed interest rate to our counterparty of 4.04% through June 1, 2029. See “—Interest Rate Swap Agreements” below for additional information on this swap agreement.

(2)	In connection with securing these loans, we entered into two interest rate swap agreements in which we agreed to pay a fixed interest rate to our counterparty of 3.67% through October 1, 2029. See “—Interest Rate Swap Agreements” below for additional information on these swap agreements.

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•	Level 1 — inputs that are based upon quoted prices (unadjusted) for identical assets or liabilities in active markets;

•	Level 2 — inputs are based upon quoted prices for similar assets or liabilities in active or inactive markets or model-based valuation techniques, for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

•	Level 3 — inputs are generally unobservable and significant to the fair value measurement. These unobservable inputs are generally supported by little or no market activity and are based upon management’s estimates of assumptions that market participants would use in pricing the asset or liability.

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(1)	Pursuant to the agreements with the respective related-party entities, as discussed above.

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

(3)	Includes the allocation of approximately $176,000 of the total accumulated costs incurred by our Adviser as a result of the crops harvested and sold on the farm operated by Land Advisers during the year ended December 31, 2018, as further described above under “TRS Expense Sharing Agreement.”

(4)	Includes the portion of administration fee that was allocated to Land Advisers (approximately $57,000 for the year ended December 31, 2018), as further described above under “TRS Administration Fee Allocation.”

(5)	Included within Additional paid-in capital on the accompanying Consolidated Balance Sheets.

(6)

Included within Notes and bonds payable, net on the Consolidated Balance Sheets and amortized into Interest expense on the Consolidated Statements of Operations and Comprehensive Income. Through December 31, 2019, the total amount of financing fees paid to Gladstone Securities represented approximately 0.14% of the total financings secured since the Financing Arrangement Agreement has been in place.

(1)	Represents costs for certain sales, promotional, or marketing services related to the offering of the Series B Preferred Stock paid for by us on behalf of Gladstone Securities. Such amounts are included within Other assets, net on our accompanying Consolidated Balance Sheet.

(2)	The credit to the capital gains fee as of December 31, 2018, was a result of capital losses recorded in connection with dispositions of certain real estate assets during the year ended December 31, 2018, which resulted in a reduction of the capital gains fee accrued for earlier in fiscal year 2018.

(3)	The credits received from our Adviser during the year ended December 31, 2018, were granted as non-contractual, unconditional, and irrevocable waivers to be applied as a credit against the base management fee.

(4)	Other fees due to or from our Adviser primarily relate to miscellaneous general and administrative expenses either paid by our Adviser on our behalf or by us on our Adviser’s behalf. The balance owed to our Adviser as of December 31, 2019, included miscellaneous general and administrative expenses.

(5)	Includes approximately $9,000 owed by Land Advisers to our Administrator as of December 31, 2018, in accordance with the TRS Administration Fee Allocation, as discussed above.

(6)	Represents the cumulative accrued but unpaid portion of prior Administration fees that are scheduled to be paid during the three months ending September 30, 2020, which is the quarter following our Administrator’s fiscal year end.

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

(1)	Our obligation to provide capital to fund these improvements does not extend beyond these respective dates.

(2)	Pursuant to contractual agreements, we will earn additional rent on the cost of these capital improvements as the funds are disbursed by us.

(3)	Pursuant to the agreement, we will only earn additional rent if the total amount of capital improvements exceeds $1.3 million

(4)	Pursuant to the agreement, we will only earn additional rent if the total amount of capital improvements exceeds $860,000

(1)	Operating lease right-of-use assets are shown net of accrued lease payments of approximately $6,000 and are included within Other assets, net on the accompanying Consolidated Balance Sheet.

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

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(1)	Annual lease payments are set at the beginning of each year to then-current market rates (as determined by the State of Arizona). The amounts shown above represent estimated amounts based on the lease rates currently in place.

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(1)	Based on the closing stock price of the Company’s common stock on the date of issuance.

(1)	Net of selling commissions and dealer-manager fees borne by us.

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(1)	Includes the underwriters’ exercise of the over-allotment option in connection with each offering.

(2)	Net of underwriting commissions and discounts.

(1)	Net of underwriting commissions and discounts.

(1)	Treated similar to interest expense on the accompanying Consolidated Statements of Operations and Comprehensive Income.

(2)	Of the dividends declared on the Series B Preferred Stock by our Board of Directors on October 8, 2019, approximately $594,000 was paid (as scheduled) by us on January 3, 2020. The resulting dividend payable is included within Accounts payable and accrued expenses on the accompanying Consolidated Balance Sheets as of December 31, 2019.

(3)	The same amounts were paid as distributions on each OP Unit held by non-controlling OP Unitholders.

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

(2)

Variable lease payments include participation rents, which are generally based on a percentage of the gross crop revenues earned on the farm, and reimbursements of certain property operating expenses by tenants. Participation rents are generally recognized when all contingencies have been resolved and when actual results become known or estimable, enabling us to estimate and/or measure our share of such gross revenues. During the years ended December 31, 2019 and 2018, we recorded participation rents of approximately $2.3 million and $1.2 million respectively, and reimbursements of certain property operating expenses by tenants of approximately $198,000 and $40,000, respectively.

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

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

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

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

(2)	“NNN” refers to leases under triple-net lease arrangements, “NN” refers to leases under partial-net lease arrangements, and “N” refers to leases under single-net lease arrangements For a description of each of these types of lease arrangements, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview—Leases—General.”

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(1)	Net of Selling Commissions and Dealer-Manager Fees or underwriting commissions and discounts (in each case, as applicable)

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(1)	The aggregate cost for land, buildings, improvements and horticulture for federal income tax purposes is approximately $844.3 million.

(2)	The Company computes depreciation using the straight-line method over the shorter of the estimated useful life or 39 years for buildings and improvements, the shorter of the estimated useful life or 40 years for horticulture, 5 to 10 years for equipment and fixtures and the shorter of the useful life or the remaining lease term for tenant improvements.

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