GLADSTONE LAND Corp - Quarter Report: 2019 June (Form 10-Q)

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, 2019



¨	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)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.001 par value per share	LAND	The Nasdaq Stock Market, LLC
6.375% Series A Cumulative Term Preferred Stock, $0.001 par value per share	LANDP	The Nasdaq Stock Market, LLC

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 every Interactive Data File required to be submitted 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 such files). Yes ý No ¨

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



Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨	Smaller reporting company	x
		Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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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 6, 2019, was 20,810,067.

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GLADSTONE LAND CORPORATION

FORM 10-Q FOR THE QUARTER ENDED

JUNE 30, 2019

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		PAGE
PART I	FINANCIAL INFORMATION

ITEM 1.	Financial Statements (Unaudited):

	Condensed Consolidated Balance Sheets as of June 30, 2019, and December 31, 2018	3

	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2018	4

	Condensed Consolidated Statements of Equity for the three and six months ended June 30, 2019 and 2018	5

	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018	7

	Notes to Condensed Consolidated Financial Statements	9

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	48

ITEM 4.	Controls and Procedures	48

PART II	OTHER INFORMATION

ITEM 1.	Legal Proceedings	49

ITEM 1A.	Risk Factors	49

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49

ITEM 3.	Defaults Upon Senior Securities	49

ITEM 4.	Mine Safety Disclosures	49

ITEM 5.	Other Information	49

ITEM 6.	Exhibits	50

SIGNATURES		52

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PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GLADSTONE LAND CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per-share data)

(Unaudited)



	June 30, 2019			December 31, 2018
ASSETS
Investments in real estate, net	$	587,969		$	538,953
Lease intangibles, net	5,039			5,686
Cash and cash equivalents	28,705			14,730
Other assets, net	7,010			5,750
TOTAL ASSETS	$	628,723		$	565,119

LIABILITIES AND EQUITY
LIABILITIES:
Borrowings under lines of credit	$	100		$	100
Notes and bonds payable, net	350,144			335,788
Series A cumulative term preferred stock, $0.001 par value; $25.00 per share liquidation preference; 2,000,000 shares authorized, 1,150,000 shares issued and outstanding as of June 30, 2019, and December 31, 2018, net	28,241			28,124
Accounts payable and accrued expenses	9,134			9,152
Due to related parties, net	364			945
Other liabilities, net	9,386			9,957
Total liabilities	397,369			384,066
Commitments and contingencies (Note 7)

EQUITY:
Stockholders’ equity:
Series B cumulative redeemable preferred stock, $0.001 par value; $25.00 per share liquidation preference; 6,500,000 shares authorized; 2,636,068 shares issued and outstanding as of June 30, 2019; 1,144,393 shares issued and outstanding as of December 31, 2018	3			1
Common stock, $0.001 par value; 91,500,000 shares authorized; 20,532,770 shares issued and outstanding as of June 30, 2019; 17,891,340 shares issued and outstanding as of December 31, 2018	21			18
Additional paid-in capital	263,249			202,053
Distributions in excess of accumulated earnings	(31,919		)	(25,826		)
Total stockholders’ equity	231,354			176,246
Non-controlling interests in Operating Partnership	—			4,807
Total equity	231,354			181,053

TOTAL LIABILITIES AND EQUITY	$	628,723		$	565,119

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

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GLADSTONE LAND CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per-share data)

(Unaudited)



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2019			2018			2019			2018
OPERATING REVENUES:
Lease revenues	$	8,362		$	6,634		$	16,192		$	13,328
Other operating revenues	—			4,760			—			7,311
Total operating revenues	8,362			11,394			16,192			20,639
OPERATING EXPENSES:
Depreciation and amortization	2,936			2,242			5,533			4,430
Property operating expenses	586			318			1,403			746
Base management fee	974			754			1,879			1,411
Administration fee	250			275			556			549
General and administrative expenses	469			367			1,018			921
Other operating expenses	—			5,140			—			7,498
Total operating expenses	5,215			9,096			10,389			15,555
Credits to fees from Adviser	(974		)	(174		)	(1,543		)	(174		)
Total operating expenses, net of credits to fees	4,241			8,922			8,846			15,381
OTHER INCOME (EXPENSE):
Other income	48			9			874			323
Interest expense	(3,543		)	(2,815		)	(6,996		)	(5,646		)
Dividends declared on Series A cumulative term preferred stock	(458		)	(458		)	(916		)	(916		)
Gain (loss) on dispositions of real estate assets, net	13			—			(19		)	—
Property and casualty loss, net	(7		)	—			(7		)	(129		)
Loss on write-down of crop inventory	—			(1,060		)	—			(1,060		)
Total other expense, net	(3,947		)	(4,324		)	(7,064		)	(7,428		)
NET INCOME (LOSS)	174			(1,852		)	282			(2,170		)
Net (income) loss attributable to non-controlling interests	(1		)	110			(3		)	131
NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY	173			(1,742		)	279			(2,039		)
Dividends declared on Series B cumulative redeemable preferred stock	(893		)	(3		)	(1,494		)	(3		)
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	(720	)	$	(1,745	)	$	(1,215	)	$	(2,042	)

LOSS PER COMMON SHARE:
Basic and diluted	$	(0.04	)	$	(0.11	)	$	(0.07	)	$	(0.14	)
WEIGHTED-AVERAGE SHARES OF COMMON STOCK OUTSTANDING:
Basic and diluted	18,641,738			15,506,512			18,336,975			14,736,400

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

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GLADSTONE LAND CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(In thousands, except share data)

(Unaudited)



	Six Months Ended June 30, 2019
	Series B Preferred Stock				Common Stock			Additional Paid-in Capital			Distributions in Excess of Accumulated Earnings			Total Stockholders’ Equity			Non- Controlling Interests			Total Equity
	Number of Shares		Par Value		Number of Shares	Par Value		Additional Paid-in Capital			Distributions in Excess of Accumulated Earnings			Total Stockholders’ Equity			Non- Controlling Interests			Total Equity
Balance at December 31, 2018	1,144,393		$	1	17,891,340	$	18	$	202,053		$	(25,826	)	$	176,246		$	4,807		$	181,053
Issuance of Series B Preferred Stock, net	1,499,075		2		—	—		33,458			—			33,460			—			33,460
Redemptions of Series B Preferred Stock	(7,400	)	—		—	—		(166		)	—			(166		)	—			(166		)
Redemption of OP Units	—		—		570,879	1		4,714			—			4,715			(4,715		)	—
Issuance of common stock, net	—		—		2,070,551	2		23,147			—			23,149			—			23,149
Net income	—		—		—	—		—			279			279			3			282
Dividends—Series B Preferred Stock	—		—		—	—		—			(1,494		)	(1,494		)	—			(1,494		)
Distributions—OP Units and common stock	—		—		—	—		—			(4,878		)	(4,878		)	(52		)	(4,930		)
Adjustment to non-controlling interests resulting from changes in ownership of the Operating Partnership	—		—		—	—		43			—			43			(43		)	—
Balance at June 30, 2019	2,636,068		$	3	20,532,770	$	21	$	263,249		$	(31,919	)	$	231,354		$	—		$	231,354

	Three Months Ended June 30, 2019
	Series B Preferred Stock				Common Stock			Additional Paid-in Capital			Distributions in Excess of Accumulated Earnings			Total Stockholders’ Equity			Non- Controlling Interests			Total Equity
	Number of Shares		Par Value		Number of Shares	Par Value		Additional Paid-in Capital			Distributions in Excess of Accumulated Earnings			Total Stockholders’ Equity			Non- Controlling Interests			Total Equity
Balance at March 31, 2019	1,891,709		$	2	18,462,219	$	18	$	223,480		$	(28,731	)	194,769			$	—		$	194,769
Issuance of Series B Preferred Stock, net	751,159		1		—	—		16,755			—			16,756			—			16,756
Redemptions of Series B Preferred Stock	(6,800	)	—		—	—		(153		)	—			(153		)	—			(153		)
Issuance of common stock, net	—		—		2,070,551	3		23,167			—			23,170			—			23,170
Net income	—		—		—	—		—			174			174			—			174
Dividends—Series B Preferred Stock	—		—		—	—		—			(893		)	(893		)	—			(893		)
Distributions—OP Units and common stock	—		—		—	—		—			(2,469		)	(2,469		)	—			(2,469		)
Balance at June 30, 2019	2,636,068		$	3	20,532,770	21		263,249			(31,919		)	231,354			$	—		$	231,354

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

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GLADSTONE LAND CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Continued)

(In thousands, except share data)

(Unaudited)



	Six Months Ended June 30, 2018
	Series B Preferred Stock			Common Stock			Additional Paid-in Capital			Distributions in Excess of Accumulated Earnings			Total Stockholders’ Equity			Non- Controlling Interests			Total Equity
	Number of Shares	Par Value		Number of Shares	Par Value		Additional Paid-in Capital			Distributions in Excess of Accumulated Earnings			Total Stockholders’ Equity			Non- Controlling Interests			Total Equity
Balance at December 31, 2017	—	$	—	13,791,574	$	14	$	129,705		$	(19,802	)	$	109,917		$	8,034		$	117,951
Issuance of Series B Preferred Stock, net	20,280	—		—	—		455			—			455			—			455
Redemption of OP Units	—	—		251,267	—		2,028			—			2,028			(2,549		)	(521		)
Issuance of common stock, net	—	—		1,981,031	2		23,601			—			23,603			—			23,603
Net loss	—	—		—	—		—			(2,039		)	(2,039		)	(131		)	(2,170		)
Dividends—Series B Preferred Stock	—	—		—	—		—			(3		)	(3		)	—			(3		)
Distributions—OP Units and common stock	—	—		—	—		—			(3,919		)	(3,919		)	(245		)	(4,164		)
Adjustment to non-controlling interests resulting from changes in ownership of the Operating Partnership	—	—		—	—		(683		)	—			(683		)	683			—
Balance at June 30, 2018	20,280	$	—	16,023,872	$	16	$	155,106		$	(25,763	)	$	129,359		$	5,792		$	135,151

	Three Months Ended June 30, 2018
	Series B Preferred Stock			Common Stock			Additional Paid-in Capital			Distributions in Excess of Accumulated Earnings			Total Stockholders’ Equity			Non- Controlling Interests			Total Equity
	Number of Shares	Par Value		Number of Shares	Par Value		Additional Paid-in Capital			Distributions in Excess of Accumulated Earnings			Total Stockholders’ Equity			Non- Controlling Interests			Total Equity
Balance at March 31, 2018	—	$	—	15,216,199	$	15	$	145,990		$	(21,950	)	$	124,055		$	7,913		$	131,968
Issuance of Series B Preferred Stock, net	20,280	—		—	—		455			—			455			—			455
Redemption of OP Units	—	—		243,567	—		1,965			—			1,965			(2,086		)	(121		)
Issuance of common stock, net	—	—		564,106	1		6,887			—			6,888			—			6,888
Net loss	—	—		—	—		—			(1,742		)	(1,742		)	(110		)	(1,852		)
Dividends—Series B Preferred Stock	—	—		—	—		—			(3		)	(3		)	—			(3		)
Distributions—OP Units and common stock	—	—		—	—		—			(2,068		)	(2,068		)	(116		)	(2,184		)
Adjustment to non-controlling interests resulting from changes in ownership of the Operating Partnership	—	—		—	—		(191		)	—			(191		)	191			—
Balance at June 30, 2018	20,280	$	—	16,023,872	$	16	$	155,106		$	(25,763	)	$	129,359		$	5,792		$	135,151

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

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GLADSTONE LAND CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



	For the Six Months Ended June 30,
	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	282		$	(2,170	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	5,533			4,430
Amortization of debt issuance costs	299			289
Amortization of deferred rent assets and liabilities, net	(157		)	(180		)
Bad debt expense	6			31
Loss on dispositions of real estate assets, net	19			—
Property and casualty loss	7			129
Loss on write-down of crop inventory	—			1,060
Changes in operating assets and liabilities:
Crop inventory and other assets, net	21			(237		)
Accounts payable and accrued expenses and Due to related parties, net	(1,344		)	317
Other liabilities, net	(410		)	813
Net cash provided by operating activities	4,256			4,482
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of new real estate assets	(48,004		)	(5,036		)
Capital expenditures on existing real estate assets	(5,549		)	(11,356		)
Proceeds from dispositions of real estate assets	—			132
Change in deposits on real estate acquisitions and investments, net	(1,050		)	(300		)
Net cash used in investing activities	(54,603		)	(16,560		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred and common equity	61,394			25,113
Offering costs	(4,521		)	(935		)
Payments for redemptions of OP Units	—			(521		)
Redemption of Series B Preferred Stock	(166		)	—
Borrowings from mortgage notes and bonds payable	18,072			2,733
Repayments of mortgage notes and bonds payable	(4,247		)	(3,777		)
Borrowings from lines of credit	14,900			9,100
Repayments of lines of credit	(14,900		)	(15,600		)
Payments of financing fees	(115		)	(225		)
Dividends paid on Series B cumulative redeemable preferred stock	(1,165		)	—
Distributions paid on common stock	(4,878		)	(3,919		)
Distributions paid to non-controlling interests in Operating Partnership	(52		)	(246		)
Net cash provided by financing activities	64,322			11,723
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	13,975			(355		)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	14,730			2,938
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	28,705		$	2,583

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

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GLADSTONE LAND CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(In thousands)

(Unaudited)



	For the Six Months Ended June 30,
	2019		2018
NON-CASH OPERATING, INVESTING, AND FINANCING INFORMATION:
Operating lease right-of-use assets included in Other assets, net	$	198	$	—
Operating lease liabilities included in Other liabilities, net	169		—
Real estate additions included in Accounts payable and accrued expenses and Due to related parties, net	2,465		4,120
Loss on dispositions of real estate assets, net included in Accounts payable and accrued expenses and Due to related parties, net	—		8
Real estate additions included in Other liabilities, net	—		136
Stock offering and OP Unit issuance costs included in Accounts payable and accrued expenses and Due to related parties, net	99		194
Financing fees included in Accounts payable and accrued expenses and Due to related parties, net	20		2
Lender holdback on loan issuance	498		—

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

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GLADSTONE LAND CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1. BUSINESS AND ORGANIZATION

Business and Organization

Gladstone Land Corporation (the “Company”) is an agricultural real estate investment trust (“REIT”) that was re-incorporated in Maryland on March 24, 2011, having been originally incorporated in California on June 14, 1997. Upon the pricing of our initial public offering on January 29, 2013, our shares of common stock began trading on the Nasdaq Global Market (“Nasdaq”) under the symbol “LAND.” 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. As we currently control the sole general partner of the Operating Partnership and own, directly or indirectly, all of the units of limited partnership interest in the Operating Partnership (“OP Units”), the financial position and results of operations of the Operating Partnership are consolidated within our financial statements. As of June 30, 2019, and December 31, 2018, the Company owned 100.0% and approximately 96.9%, respectively, of the outstanding OP Units (see Note 8, “Equity,” for additional discussion regarding OP Units).

Gladstone Land Advisers, Inc. (“Land Advisers”), a Delaware corporation and a subsidiary of ours, was created to collect any non-qualifying income related to our real estate portfolio and to perform certain small-scale farming business operations. We have elected for Land Advisers to be treated as a taxable REIT subsidiary (“TRS”) of ours. Since we currently own 100% of the voting securities of Land Advisers, its financial position and results of operations are consolidated within our financial statements.

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 (see Note 6, “Related-Party Transactions,” for additional discussion regarding our Adviser and Administrator).

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 statement 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, 2018, as filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 26, 2019 (the “Form 10-K”). The results of operations for the three and six months ended June 30, 2019, 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.

Impairment of Real Estate Assets

We account for the impairment of our tangible and identifiable intangible real estate assets in accordance with Accounting Standards Codification (“ASC”) 360, “Property, Plant, and Equipment” (“ASC 360”), which requires us to periodically review the carrying value of each property to determine whether indicators of impairment exist. If circumstances support the

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possibility of impairment, we prepare a projection of the total undiscounted future cash flows of the specific property (without interest charges), including proceeds from disposition, and compare them to the net book value of the property to determine whether the carrying value of the property is recoverable. If the carrying amount is more than the aggregate undiscounted future cash flows, we would recognize an impairment loss to the extent the carrying value exceeds the estimated fair value of the property.

We evaluate our entire portfolio each quarter for any impairment indicators and perform an impairment analysis on those select properties that have an indication of impairment. As of June 30, 2019, and December 31, 2018, we concluded that none of our properties were impaired. There have been no impairments recognized on our real estate assets since our inception.

Crop Inventory and Crop Sales

Crop Inventory

From October 17, 2017, through July 31, 2018, Land Advisers operated a 169-acre farm located in Ventura County, California, under a short-term lease (see Note 6, “Related-Party Transactions—TRS Lease Assumption” for further discussion on this lease assignment). Costs incurred by Land Advisers in operating the farm generally consisted of growing costs (including the costs of land preparation, plants, fertilizers and pesticides, and labor costs), harvesting and selling costs (including labor costs for harvesting, packaging and cooling costs, and sales commissions), and certain overhead costs (including management/oversight costs). Due to certain market conditions during the six months ended June 30, 2018 (primarily the existence of bumper crops in all of the strawberry-growing regions within California), we were unable to sell all of the crops and therefore assessed the market value of such unsold crops to be zero. Accordingly, we wrote down the cost of crop inventory to its estimated net realizable value of zero and recorded a loss during the six months ended June 30, 2018, of approximately $1.1 million, included within Loss on write-down of crop inventory on the accompanying Condensed Consolidated Statements of Operations.

Crop Sales

Revenue from the sale of harvested crops was recognized when the harvested crops had been delivered to the facility and title had transferred and were recorded using the market price on the date of delivery. Accumulated costs were charged to cost of products sold (based on percentage of gross revenue from sales) as the related crops were harvested and sold.

Revenue from the sale of harvested crops and accumulated costs allocated to the crops sold during the three and six months ended June 30, 2018, are shown in the following table (dollars in thousands, except for footnotes):



	Three Months Ended June 30, 2018			Six Months Ended June 30, 2018
Sales revenue⁽¹⁾	$	4,760		$	7,306
Cost of sales^(2)(3)(4)	(5,140		)	(7,498		)


⁽¹⁾	Included within Other operating revenues on the accompanying Condensed Consolidated Statements of Operations.


⁽²⁾	Included within Other operating expenses on the accompanying Condensed Consolidated Statements of Operations.


⁽³⁾	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.

⁽⁴⁾

Excludes the allocation of a fee earned by our Adviser from Land Advisers of approximately $94,000 and $161,000 during the three and six months ended June 30, 2018, respectively, which is included within Management Fee on the accompanying Condensed Consolidated Statements of Operations (see Note 6, “Related-Party Transactions—TRS Fee Arrangements—TRS Expense Sharing Agreement” for further discussion on this fee).

The lease to Land Advisers expired on July 31, 2018, after which we leased the farm to a new, unrelated third-party tenant under a 10-year lease that commenced on August 1, 2018.

Income Taxes

We have operated and intend to continue to operate in a manner that will allow us to qualify as a REIT under the Sections 856-860 of the Internal Revenue Code of 1986, as amended (the “Code”). As a REIT, we generally are not subject to federal corporate income taxes on amounts that we distribute to our stockholders (except income from any foreclosure property), provided that, on an annual basis, we distribute at least 90% of our REIT taxable income (excluding net capital gains) to our stockholders and meet certain other conditions. As such, in general, as long as we qualify as a REIT, no provision for federal income taxes will be necessary, except for taxes on undistributed REIT taxable income and taxes on the income generated by a TRS (such as Land Advisers), if any. From October 17, 2017, through July 31, 2018, Land Advisers, which is subject to federal and state income taxes, assumed the operations on one of our farms in California (see Note 6, “Related-Party Transactions—TRS Lease Assumption”). There was no taxable income or loss from Land Advisers for the tax year ended December 31, 2018, nor was there any for the six months ended June 30, 2019.

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Should we have any taxable income or loss in the future, we will account for any income taxes in accordance with the provisions of ASC 740, “Income Taxes,” using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized based on differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases (including for operating loss, capital loss, and tax credit carryforwards) and are calculated using the enacted tax rates and laws expected to be in effect when such amounts are realized or settled. In addition, we will establish valuation allowances for tax benefits when we believe it is more-likely-than-not (defined as a likelihood of more than 50%) that such assets will not be realized.

Reclassifications

On the accompanying Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2019, operating rental revenue has been reclassified to be displayed in accordance with ASU 2016-02 (as defined below), which was adopted on January 1, 2019, and acquisition-related expenses have been reclassified to be included within general and administrative expenses. These reclassifications had no impact on previously-reported net income (loss), equity, or net change in cash and cash equivalents.

Recently-Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”), which was amended in each of March, April, May, and December of 2016. ASU 2014-09, as amended, supersedes or replaces nearly all GAAP revenue recognition guidance and establishes a new, control-based revenue recognition model, changes the basis for deciding when revenue is recognized over time or at a point in time and will expand disclosures about revenue. We adopted ASU 2014-09 on January 1, 2018, using the modified retrospective method, under which the cumulative effect of initially applying the guidance was recognized at the date of initial application. Our adoption of ASU 2014-09 did not have a material impact on our results of operations or financial condition, as the primary impact of this update is related to common area maintenance and other material tenant reimbursements, whereas the majority of our revenue is from rental income pursuant to net-lease agreements, with very little being attributed to tenant recoveries. The impact of ASU 2014-09 did not take effect until the new leasing standard (ASU 2016-02, as defined below) became effective on January 1, 2019.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842): An Amendment of the FASB Accounting Standards Codification” (“ASU 2016-02”), which supersedes the previous leasing standard, ASC 840, “Leases.” 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 lease 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 similarly to operating leases under the previous leasing standard. The new standard requires lessors to account for leases using an approach that is substantially equivalent to that under the previous standard for sales-type leases, direct financing leases, and operating leases. We adopted ASU 2016-02 on January 1, 2019, using the modified retrospective method, under which we recorded the cumulative effect of applying the new guidance as of the adoption date. We also elected the package of practical expedients permitted under the transition guidance (which included that: (i) an entity need not reassess whether any expired or existing contracts are or contain leases, (ii) an entity need not reassess the lease classification for any expired or existing leases, and (iii) an entity need not reassess initial direct costs for any existing leases), the land easement practical expedient to carry forward existing accounting treatment on existing land easements, and the lease and non-lease component combined practical expedient. In addition, we elected the short-term lease exception, which allows us to account for leases with a term of 12 months or less similar to existing operating leases. We currently have two operating ground lease arrangements with terms greater than one year for which we are the lessee. See Note 7, “Commitments and Contingencies—Ground Lease Obligations,” for further discussion on the impact of our adoption of ASU 2016-02 and the assumptions used in determine the related right-of-use asset and lease liability.

NOTE 3. REAL ESTATE AND INTANGIBLE ASSETS

All of our properties are wholly-owned on a fee-simple basis, except where noted. The following table provides certain summary information about the 90 farms we owned as of June 30, 2019 (dollars in thousands, except for footnotes):

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

⁽¹⁾

Consists of the initial acquisition price (including the costs allocated to both tangible and intangible assets acquired and liabilities assumed), plus subsequent improvements and other capitalized costs associated with the properties, and adjusted for accumulated depreciation and amortization. Includes Investments in real estate, net (excluding improvements paid for by the tenant) and Lease intangibles, net; plus net above-market lease values and lease incentives included in Other assets, net; and less net below-market lease values and other deferred revenue included in Other liabilities, net; each as shown on the accompanying Condensed Consolidated Balance Sheets.


⁽²⁾	Excludes approximately $2.3 million of debt issuance costs related to notes and bonds payable, included in Notes and bonds payable, net on the accompanying Condensed Consolidated Balance Sheet.

⁽³⁾

Includes two farms in which we own a leasehold interest via ground leases with the State of Arizona that expire in February 2022 and February 2025, respectively. In total, these two farms consist of 1,368 total acres and 1,221 farm acres and had an aggregate net cost basis of approximately $2.4 million as of June 30, 2019 (included in Lease intangibles, net on the accompanying Condensed Consolidated Balance Sheet).

Real Estate

The following table sets forth the components of our investments in tangible real estate assets as of June 30, 2019, and December 31, 2018 (dollars in thousands):



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

Real estate depreciation expense on these tangible assets was approximately $2.6 million and $4.9 million for the three and six months ended June 30, 2019, respectively, and $2.0 million and $3.9 million for the three and six months ended June 30, 2018, respectively.

Included in the figures above are amounts related to improvements made on certain of our properties paid for by our tenants but owned by us, or tenant improvements. As of June 30, 2019, and December 31, 2018, we recorded tenant improvements, net of accumulated depreciation, of approximately $2.2 million and $2.4 million, respectively. We recorded both depreciation expense and additional lease revenue related to these tenant improvements of approximately $72,000 and $146,000 for the three and six months ended June 30, 2019, respectively, and approximately $74,000 and $150,000 for the three and six months ended June 30, 2018, respectively.

Intangible Assets and Liabilities

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

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

Total amortization expense related to these lease intangible assets was approximately $326,000 and $650,000 for the three and six months ended June 30, 2019, respectively, and approximately $253,000 and $546,000 for the three and six months ended June 30, 2018, respectively.

The following table summarizes the carrying values of certain lease intangible assets or liabilities included in Other assets, net or Other liabilities, net, respectively, on the accompanying Condensed Consolidated Balance Sheets and the related accumulated amortization or accretion, respectively, as of June 30, 2019, and December 31, 2018 (dollars in thousands):



	June 30, 2019						December 31, 2018
Intangible Asset or Liability	Deferred Rent Asset (Liability)			Accumulated (Amortization) Accretion			Deferred Rent Asset (Liability)			Accumulated (Amortization) Accretion
Above-market lease values and lease incentives⁽¹⁾	$	216		$	(84	)	$	126		$	(18	)
Below-market lease values and other deferred revenue⁽²⁾	(917		)	279			(917		)	202
	$	(701	)	$	195		$	(791	)	$	184


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


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

Total amortization related to above-market lease values and lease incentives was approximately $33,000 and $66,000 for the three and six months ended June 30, 2019, respectively, and approximately $2,000 and $4,000 for the three and six months ended June 30, 2018, respectively. Total accretion related to below-market lease values and other deferred revenue was approximately $39,000 and $77,000 for the three and six months ended June 30, 2019, respectively, and approximately $17,000 and $34,000 for the three and six months ended June 30, 2018, respectively.

Acquisitions

Upon our adoption of ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,” on October 1, 2016, most acquisitions, including those with a prior leasing history, are generally treated as an asset acquisition under ASC 360. For acquisitions accounted for as asset acquisitions under ASC 360, all acquisition-related costs, other than those costs that directly related to either originating new leases we execute upon acquisition or reviewing in-place leases we assumed upon acquisition, are capitalized and included as part of the fair value allocation of the identifiable tangible and intangible assets acquired or liabilities assumed. Upon our adoption of ASU 2016-02 on January 1, 2019, costs that directly related to either negotiating and originating new leases or reviewing assumed leases (generally, external legal costs) are expensed as incurred, whereas these costs were generally capitalized as part of leasing costs under the previous leasing standard. 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. Unless otherwise noted, all properties acquired during 2019 and 2018 were accounted for as asset acquisitions under ASC 360.

2019 Acquisitions

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



Property Name	Property Location	Acquisition Date	Total Acreage	No. of Farms	Primary Crop(s)	Lease Term	Renewal Options	Total Purchase Price		Acquisition Costs⁽¹⁾		Annualized Straight-line Rent⁽²⁾		New Long-term Debt
Somerset Road	Lincoln, NE	1/22/2019	695	1	Popcorn & edible beans	4.9 years	1 (5 years)	$	2,400	$	33	$	126	$	1,440
Greenhills Boulevard⁽³⁾	Madera, CA	4/9/2019	928	1	Pistachios	10.6 years	2 (5 years)	28,550		141		1,721		17,130
Van Buren Trail⁽⁴⁾	Van Buren, MI	5/29/2019	159	1	Blueberries & cranberries	10.6 years	2 (5 years)	2,682		24		206		—
Blue Star Highway⁽⁴⁾	Allegran & Van Buren, MI	6/4/2019	357	1	Blueberries	10.6 years	2 (5 years)	5,100		29		390		—
Yolo County Line Road⁽⁴⁾	Yolo, CA	6/13/2019	542	1	Olives for olive oil	14.6 years	1 (5 years)	9,190		68		624		—
			2,681	5				$	47,922	$	295	$	3,067	$	18,570


⁽¹⁾	Includes approximately $18,000 of aggregate external legal fees associated with negotiating and originating the leases associated with these acquisitions, which costs were expensed in the period incurred.


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


⁽³⁾	Lease provides for a participation rent component based on the gross crop revenues earned on the farm. The rent figure above represents only the minimum cash guaranteed under the lease.


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

During the three and six months ended June 30, 2019, we recognized operating revenues of approximately $503,000 and $527,000, respectively, and net income of approximately $218,000 and $220,000, respectively, related to the above acquisitions.

2018 Acquisitions

During the six months ended June 30, 2018, we acquired two new farms, which are summarized in the table below (dollars in thousands, except for footnotes):



Property Name	Property Location	Acquisition Date	Total Acreage	No. of Farms	Primary Crop(s)	Lease Term	Renewal Options	Total Purchase Price		Acquisition Costs		Annualized Straight-line Rent⁽¹⁾		New Long-term Debt
Taft Highway⁽²⁾	Kern, CA	1/31/2018	161	1	Potatoes and Melons	N/A	N/A	$	2,945	$	32	$	—	$	1,473
Cemetery Road	Van Buren, MI	3/13/2018	176	1	Blueberries	9.6 years	None	2,100		39		150		1,260
			337	2				$	5,045	$	71	$	150	$	2,733


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


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

During the three and six months ended June 30, 2018, in the aggregate, we recognized operating revenues of approximately $41,000 and $49,000, respectively, and a net loss of approximately $23,000 and $28,000, respectively, related to the above acquisitions.

Purchase Price Allocations

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



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

Acquired Intangibles and Liabilities

The following table shows the weighted-average amortization periods (in years) for the intangible assets acquired and liabilities assumed in connection with new real estate acquired during the six months ended June 30, 2018. There were no intangible

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assets acquired or liabilities assumed in connection with new real estate acquired during the six months ended June 30, 2019:



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

Significant Existing Real Estate Activity

Leasing Activity

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

PRIOR LEASES⁽¹⁾

NEW LEASES⁽²⁾

Farm
Locations

Number

Leases

Total

Farm

Acres

Total

Annualized

Straight-line

Rent⁽³⁾

# of Leases

with

Participation

Rents

Lease

Structures

(# of NNN

/ NN)⁽⁴⁾

Total
Annualized
Straight-line
Rent⁽³⁾

Wtd. Avg.

Term
(Years)

# of Leases
with
Participation
Rents

Lease
Structures
(# of NNN
/ NN)⁽⁴⁾

AZ, CA,
FL, MI, NE

6,817

3,385

10 / 5

3,648

3.9

10 / 5


⁽¹⁾	Includes a farm that was previously vacant.


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


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


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

See Note 11, “Subsequent Events—Leasing Activity” for additional leasing activity that occurred subsequent to June 30, 2019.

Project Completion

During the year ended December 31, 2018, we replaced 23 irrigation pivots on one of our properties in Colorado at a total cost of approximately $1.4 million. Pursuant to a lease amendment executed during the six months ended June 30, 2019, in connection with this project, we will earn additional straight-line rental income of approximately $117,000 per year throughout the remaining term of the lease, which expires on February 28, 2021.

Future Minimum Lease Payments

We account for all of our leasing arrangements in which we are the lessor as operating leases. The majority of our leases are subject to fixed rental increases, and a small subset of our lease portfolio includes lease payments based on an index, such as the consumer price index (“CPI”). In addition, several of our leases contain participation rent components based on the gross revenues earned on the respective farms. Most of our leases also include tenant renewal options; however, these renewal options are generally based on then-current market rates and are therefore typically excluded from the determination of the minimum lease term. Our leases do not generally include tenant termination options.

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

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


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

Portfolio Diversification and Concentrations

Diversification

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



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


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

Concentrations

Credit Risk

As of June 30, 2019, our farms were leased to 64 different, unrelated third-party tenants, with certain tenants leasing more than one farm. One unrelated third-party tenant (“Tenant A”) leases five of our farms, and aggregate lease revenue attributable to Tenant A accounted for approximately $2.2 million, or 13.6%, of the total lease revenue recorded during the six months ended June 30, 2019. If Tenant A fails to make rental payments, elects to terminate its leases prior to their expirations, or does not renew its leases (and we cannot re-lease the farms 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 lease revenue recorded during the six months ended June 30, 2019.

Geographic Risk

Farms located in California and Florida accounted for approximately $7.9 million (48.8%) and $4.7 million (29.0%), respectively, of the total lease revenue recorded during the six months ended June 30, 2019. 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 our total lease revenue recorded during the six months ended June 30, 2019.

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NOTE 4. BORROWINGS

Our borrowings as of June 30, 2019, and December 31, 2018, are summarized below (dollars in thousands):



	Carrying Value as of						As of June 30, 2019
	June 30, 2019			December 31, 2018			Stated Interest Rates⁽¹⁾ (Range; Wtd Avg)	Maturity Dates (Range; Wtd Avg)
Notes and bonds payable:
Fixed-rate notes payable	$	261,821		$	247,249		3.16%–5.70%; 3.97%	6/1/2020–12/1/2043; November 2031
Fixed-rate bonds payable	90,629			90,877			2.80%–4.57%; 3.55%	12/11/2019–9/13/2028; November 2022
Total notes and bonds payable	352,450			338,126
Debt issuance costs – notes and bonds payable	(2,306		)	(2,338		)	N/A	N/A
Notes and bonds payable, net	$	350,144		$	335,788

Variable-rate revolving lines of credit	$	100		$	100		4.59%–4.84%; 4.72%	4/5/2024

Total borrowings, net	$	350,244		$	335,888


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

As of June 30, 2019, the above borrowings were collateralized by 87 farms with an aggregate net book value of approximately $573.2 million. The weighted-average interest rate charged on the above borrowings (excluding the impact of debt issuance costs and before any interest patronage, or refunded interest) was 3.93% for each of the three and six months ended June 30, 2019, respectively, and 3.60% and 3.56% for three and six months ended June 30, 2018, respectively. In addition, 2018 interest patronage from our Farm Credit Notes Payable (as defined below), which we recorded during the three months ended March 31, 2019, resulted in a 21.2% reduction (approximately 95 basis points) to the stated interest rates on such borrowings. We are unable to estimate the amount of interest patronage to be received, if any, related to interest accrued during 2019 on our Farm Credit Notes Payable.

As of June 30, 2019, we were in compliance with all covenants applicable to the above borrowings.

MetLife Borrowings

MetLife Facility

On May 9, 2014, we closed on a credit facility (the “MetLife Facility”) with Metropolitan Life Insurance Company (“MetLife”). As a result of subsequent amendments, the MetLife Facility currently consists of an aggregate of $200.0 million of term notes (the “MetLife Term Notes”) and $75.0 million of revolving equity lines of credit (the “MetLife Lines of Credit”). The following table summarizes the pertinent terms of the MetLife Facility as of June 30, 2019 (dollars in thousands, except for footnotes):

Issuance

Aggregate

Commitment

Maturity

Dates

Principal

Outstanding

Interest Rate Terms

Undrawn

Commitment

MetLife Term Notes

200,000

⁽¹⁾

1/5/2029

124,283

3.30%, fixed through 1/4/2027

⁽²⁾

64,374

⁽³⁾

MetLife Lines of Credit

75,000

4/5/2024

100

3-month LIBOR + 2.00%–2.25%

⁽⁴⁾

74,900

⁽³⁾

Total principal outstanding

124,383


⁽¹⁾	If the aggregate commitment under this facility is not fully utilized by December 31, 2019, MetLife has the option to be relieved of its obligation to disburse the additional funds under the MetLife Term Notes.

⁽²⁾

Represents the blended interest rate as of June 30, 2019. Interest rates for subsequent disbursements 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 are also subject to an unused fee ranging from 0.10% to 0.20% on undrawn amounts (based on the balance drawn under the MetLife Term Notes).


⁽³⁾	Based on the properties that were pledged as collateral under the MetLife Facility, as of June 30, 2019, the maximum additional amount we could draw under the facility was approximately $20.5 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). The interest rate spreads will be subject to adjustment on October 5, 2019.

Farm Credit Notes Payable

From time to time since September 2014 through June 30, 2019, we, through certain subsidiaries of our Operating Partnership, have entered into various loan agreements (collectively, the “Farm Credit Notes Payable”) with eight different Farm Credit

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associations (collectively, “Farm Credit”). During the six months ended June 30, 2019, we entered into the following loan agreement with Farm Credit (dollars in thousands):

Issuer

Date of

Issuance

Amount

Maturity

Date

Principal

Amortization

Interest Rate Terms⁽¹⁾

Premier Farm Credit, FLCA

2/7/2019

1,440

11/1/2043

25.0 years

5.45%, fixed through October 31, 2023 (variable thereafter)


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

Interest patronage, or refunded interest, on our borrowings from the various Farm Credit associations is generally recorded upon receipt and is included within Other income on our Condensed Consolidated Statements of Operations. Receipt of interest patronage typically occurs in the first half of the calendar year following the calendar year in which the respective interest payments are made. During the three months ended March 31, 2019, we recorded interest patronage of approximately $700,000 related to interest accrued on loans from Farm Credit during the year ended December 31, 2018, which resulted in a 21.2% reduction (approximately 95 basis points) to the stated interest rates on such borrowings.

Prudential Note Payable

On June 17, 2019, we entered into a loan agreement with PGMI Real Estate Finance, LLC (“Prudential”), the terms of which are summarized in the following table as of June 30, 2019 (dollars in thousands):



Date of Issuance	Amount		Maturity Date	Principal Amortization	Interest Rate Terms
6/17/2019	$	17,130	7/1/2029	25.0 years	4.00%, fixed throughout term

Debt Service – Aggregate Maturities

Scheduled principal payments of our aggregate notes and bonds payable as of June 30, 2019, for the succeeding years are as follows (dollars in thousands):



Period		Scheduled Principal Payments
For the remaining six months ending December 31:	2019	$	8,108
For the fiscal years ending December 31:	2020	28,177
	2021	16,544
	2022	39,327
	2023	33,099
	2024	24,189
	Thereafter	203,006
		$	352,450

Fair Value

ASC 820 provides a definition of fair value that focuses on the exchange (exit) price of an asset or liability in the principal, or most advantageous, market and prioritizes the use of market-based inputs to the valuation. ASC 820-10, “Fair Value Measurements and Disclosures,” establishes a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:


•	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.

As of June 30, 2019, the aggregate fair value of our long-term, fixed-rate notes and bonds payable was approximately $355.6 million, as compared to an aggregate carrying value (excluding unamortized related debt issuance costs) of approximately $352.5 million. The fair value of our long-term, fixed-rate notes and bonds payable is valued using Level 3 inputs under the hierarchy established by ASC 820-10 and is calculated based on a discounted cash flow analysis, using discount rates based on

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management’s estimates of market interest rates on long-term debt with comparable terms. Further, due to the revolving nature of the MetLife Lines of Credit and the lack of changes in market credit spreads, their aggregate fair value as of June 30, 2019, is deemed to approximate their aggregate carrying value of $100,000.

NOTE 5. SERIES A TERM PREFERRED STOCK

In August 2016, we completed a public offering of 6.375% Series A Cumulative Term Preferred Stock, par value $0.001 per share (the “Series A Term Preferred Stock”), at a public offering price of $25.00 per share. As a result of this offering (including the underwriters’ exercise of their option to purchase additional shares to cover over-allotments), we issued a total of 1,150,000 shares of the Series A Term Preferred Stock for gross proceeds of approximately $28.8 million and net proceeds, after deducting underwriting discounts and offering expenses borne by us, of approximately $27.6 million. The Series A Term Preferred Stock is traded under the ticker symbol “LANDP” on Nasdaq.

Generally, we were not permitted to redeem shares of the Series A Term Preferred Stock prior to September 30, 2018, except in limited circumstances to preserve our qualification as a REIT. Since September 30, 2018, we have been permitted to redeem the shares at a redemption price of $25.00 per share, plus any accumulated and unpaid dividends up to, but excluding, the date of redemption. The shares of the Series A Term Preferred Stock have a mandatory redemption date of September 30, 2021, and are not convertible into our common stock or any other securities. As of June 30, 2019, no shares of Series A Term Preferred Stock have been redeemed.

We incurred approximately $1.2 million in total offering costs related to this issuance, which have been recorded net of the Series A Term Preferred Stock as presented on the accompanying Condensed Consolidated Balance Sheets and are being amortized over the mandatory redemption period as a component of interest expense on the accompanying Condensed Consolidated Statements of Operations. The Series A Term Preferred Stock is recorded as a liability on our accompanying Condensed Consolidated Balance Sheets in accordance with ASC 480, “Distinguishing Liabilities from Equity,” which states that mandatorily-redeemable financial instruments should be classified as liabilities. In addition, the related dividend payments are treated similarly to interest expense on the accompanying Condensed Consolidated Statements of Operations.

As of June 30, 2019, the fair value of our Series A Term Preferred Stock was approximately $29.9 million, as compared to the carrying value (exclusive of unamortized offering costs) of approximately $28.8 million. The fair value of our Series A Term Preferred Stock is valued using Level 1 inputs under the hierarchy established by ASC 820-10, “Fair Value Measurements and Disclosures,” and is calculated based on the closing per-share price as of June 30, 2019, of $25.98.

For information on the dividends declared by our Board of Directors and paid by us on the Series A Term Preferred Stock during the six months ended June 30, 2019 and 2018, see Note 8, “Equity—Distributions.”

NOTE 6. RELATED-PARTY TRANSACTIONS

Our Adviser and Administrator

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 are affiliates of ours, as their parent company is owned and controlled by David Gladstone, our chairman, chief executive officer, and president. In addition, two of our executive officers, Mr. Gladstone and Terry Brubaker (our vice chairman and chief operating officer), serve as directors and executive officers of each of our Adviser and Administrator, and Michael LiCalsi, our general counsel and secretary, serves as our Administrator’s president, general counsel, and secretary. We have entered into an investment advisory agreement with our Adviser, as amended from time to time (the “Advisory Agreement”), and an administration agreement with our Administrator (the “Administration Agreement”). A summary of the compensation terms for each of the Advisory Agreement and the Administration Agreement is below.

Advisory Agreement

Pursuant to the Advisory Agreement, our Adviser is compensated in the form of a base management fee and, each as applicable, an incentive fee, a capital gains fee, and a termination fee. Each of these fees is described below. See Note 11, “Subsequent Events—Amendment to Advisory Agreement,” for a discussion of an amendment to the Advisory Agreement, which will impact the calculations of the base management fee and the incentive fee beginning with the three months ending September 30, 2019.

Base Management Fee

A base management fee is paid quarterly and is calculated as 2.0% per annum (0.50% per quarter) of the prior calendar quarter’s total adjusted equity, which, through the three months ended June 30, 2019, was defined as total equity plus total mezzanine equity, if any (each as reported on our balance sheet), adjusted to exclude unrealized gains and losses and certain

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other one-time events and non-cash items (“Total Adjusted Equity”). During the three and six months ended June 30, 2019, our Adviser granted us non-contractual, unconditional, and irrevocable waivers, which were applied as credits against the base management fees for the respective periods, as detailed in the table below under “—Related-Party Fees.”

Incentive Fee

An incentive fee is calculated and payable quarterly in arrears if the Pre-Incentive Fee FFO for a particular quarter exceeds a hurdle rate of 1.75% (7.0% annualized) of the prior calendar quarter’s Total Adjusted Equity. For purposes of this calculation, Pre-Incentive Fee FFO is defined in the Advisory Agreement as FFO (also as defined in the Advisory Agreement) accrued by the Company during the current calendar quarter (prior to any incentive fee calculation for the current calendar quarter), less any dividends paid on preferred stock securities that are not treated as a liability for GAAP purposes. Our Adviser will receive: (i) no incentive fee in any calendar quarter in which the Pre-Incentive Fee FFO does not exceed the hurdle rate; (ii) 100% of the 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 (iii) 20% of the amount of the Pre-Incentive Fee FFO, if any, that exceeds 2.1875% in any calendar quarter (8.75% annualized).

Capital Gains Fee

A capital gains-based incentive fee will be calculated and payable in arrears at the end of each fiscal year (or upon termination of the Advisory Agreement). The capital gains fee shall equal: (i) 15% of the cumulative aggregate realized capital gains minus the cumulative aggregate realized capital losses, minus (ii) any aggregate capital gains fees paid in prior periods. For purposes of this calculation, realized capital gains and losses will be calculated as (x) the sales price of the property, minus (y) any costs to sell the property and the then-current gross value of the property (which includes the property’s original acquisition price plus any subsequent, non-reimbursed capital improvements). At the end of each fiscal year, if this figure is negative, no capital gains fee shall be paid.

Termination Fee

In the event of our termination of the Amended Advisory Agreement for any reason, a termination fee would be payable to the Adviser equal to three times the sum of the average annual base management fee and incentive fee earned by the Adviser during the 24-month period prior to such termination.

Administration Agreement

Pursuant to the Administration Agreement, we pay separately for our allocable portion of the Administrator’s overhead expenses incurred while performing its obligations to us, including, but not limited to, rent and the salaries and benefits expenses of our Administrator’s employees, including our chief financial officer, treasurer, chief compliance officer, general counsel and secretary (who also serves as our Administrator’s president, general counsel, and secretary), and their respective staffs. Our allocable portion of the Administrator’s expenses is generally derived by multiplying our Administrator’s total expenses by the approximate percentage of time the Administrator’s employees perform services for us in relation to their time spent performing services for all companies serviced by our Administrator under similar contractual agreements.

TRS Lease Assumption

On October 17, 2017, Land Advisers entered into an Assignment and Assumption of Agricultural Lease (the “Assigned TRS Lease”) with the previously-existing tenant on a 169-acre farm located in Ventura County, California. The Assigned TRS Lease, as amended, expired on July 13, 2018. In addition, in connection with the initial operations on the farm, on October 17, 2017, Land Advisers issued a 1.7 million unsecured promissory note to the Company that matured in July 31, 2018, and bore interest at a rate equal to the prime rate plus a spread of 5.0% per annum. All inter-company amounts related to the Assigned TRS Lease and the promissory note were eliminated in consolidation, and, as a result, no rental or interest income from Land Advisers was recorded by us on the Consolidated Statements of Operations during the three or six months ended June 30, 2018. Effective August 1, 2018, this farm was leased to a new, unrelated third-party tenant under a 10-year lease.

TRS Fee Arrangements

In connection with the assumption of the Assigned TRS Lease, in exchange for services provided by our Adviser to Land Advisers, our Adviser and Land Advisers entered into an Expense Sharing Agreement (the “TRS Expense Sharing Agreement”). In addition, to account for the time our Administrator’s staff spends on activities related to Land Advisers, we adopted a policy wherein a portion of the fee paid by the Company to our Administrator pursuant to the Administration Agreement would be allocated to Land Advisers (the “TRS Administration Fee Allocation”). No such fees were incurred during the three or six months ended June 30, 2019.

TRS Expense Sharing Agreement

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Pursuant to the TRS Expense Sharing Agreement, our Adviser was responsible for maintaining the day-to-day operations on the farm leased to Land Advisers from October 17, 2017, through July 31, 2018. In exchange for such services, Land Advisers compensated our Adviser through reimbursement of certain expenses incurred by our Adviser, including Land Advisers’ pro-rata share of our Adviser’s payroll and related benefits (based on the percentage of each employee’s time devoted to matters related to Land Advisers in relation to the time such employees devoted to all affiliated funds, collectively, advised by our Adviser) and general overhead expenses (based on the total general overhead expenses incurred by our Adviser multiplied by the ratio of hours worked by our Adviser’s employees on matters related to Land Advisers to the total hours worked by our Adviser’s employees).

Costs incurred by our Adviser, while payable by Land Advisers, were initially accumulated and deferred and then allocated to costs of sales as the related crops were harvested and sold. During the three and six months ended June 30, 2018, approximately $94,000 and $161,000, respectively, of the total accumulated costs incurred by our Adviser was allocated to the costs of crops sold and is included within Base management fee on the accompanying Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2018. In addition, during the three months ended June 30, 2018, our Adviser granted Land Advisers a non-contractual, unconditional, and irrevocable waiver to be applied against a portion of the fees incurred by our Adviser on behalf of Land Advisers pursuant to the TRS Expense Sharing Agreement.

TRS Administration Fee Allocation

Under to the TRS Administration Fee Allocation, a portion of the fee owed by us to our Administrator under the Administration Agreement was allocated to Land Advisers based on the percentage of each employee’s time devoted to matters related to Land Advisers in relation to the total time such employees devoted to the Company.

During the three and six months ended June 30, 2018, approximately $17,000 and $30,000, respectively, of the administration fee paid by us was allocated to Land Advisers. This allocation is included within Administration fee on the accompanying Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2018.

Gladstone Securities

On April 11, 2017, we entered into an agreement with Gladstone Securities for it to act as our non-exclusive agent to assist us with arranging financing for our properties (the “Financing Arrangement Agreement”). Gladstone Securities is a privately-held broker-dealer and a member of the Financial Industry Regulatory Authority and the Securities Investor Protection Corporation. Gladstone Securities is an affiliate of ours, as its parent company is owned and controlled by Mr. Gladstone, who also serves on the board of managers of Gladstone Securities.

Financing Arrangement Agreement

We pay Gladstone Securities a financing fee in connection with the services it provides to us for securing financing on our properties. Depending on the size of the financing obtained, the maximum amount of the financing fee, which is payable upon closing of the respective financing, ranges from 0.5% to 1.0% of the amount of financing obtained. The amount of the financing fee may be reduced or eliminated as determined by us and Gladstone Securities after taking into consideration various factors, including, but not limited to, the involvement of any unrelated third-party brokers and general market conditions. We paid total financing fees to Gladstone Securities of approximately $26,000 and $28,000 during the three and six months ended June 30, 2019, respectively, and approximately $2,000 during each of the three and six months ended June 30, 2018. Through June 30, 2019, the total amount of financing fees paid to Gladstone Securities represented approximately 0.12% of the total financings secured since the Financing Arrangement Agreement has been in place.

Dealer-Manager Agreement

On January 10, 2018, we entered into a dealer-manager agreement, which was amended and restated on May 31, 2018 (the “Dealer-Manager Agreement”), with Gladstone Securities, whereby Gladstone Securities serves as our exclusive dealer-manager in connection with the offering of our Series B Preferred Stock (as defined in Note 8, “Equity—Series B Preferred Stock”). Pursuant to the Dealer-Manager Agreement, Gladstone Securities provides certain sales, promotional, and marketing services to us in connection with the offering of the Series B Preferred Stock, and we generally will pay Gladstone Securities: (i) selling commissions of up to 7.0% of the gross proceeds from sales of Series B Preferred Stock in the offering (the “Selling Commissions”), and (ii) a dealer-manager fee of 3.0% of the gross proceeds from sales of Series B Preferred Stock in the offering (the “Dealer-Manager Fee”). Gladstone Securities may, in its sole discretion, remit all or a portion of the Selling Commissions and may also reallow all or a portion of the Dealer-Manager Fees to participating broker-dealers and wholesalers in support of the offering. The terms of the Dealer-Manager Agreement were approved by our board of directors, including all of its independent directors.

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During the three and six months ended June 30, 2019, we paid total Selling Commissions and Dealer-Manager Fees to Gladstone Securities in connection with sales of the Series B Preferred Stock of approximately $1.7 million and $3.3 million, respectively, of which approximately $1.6 million and $3.1 million, respectively, were then remitted by Gladstone Securities to unrelated third-parties involved in the offering, including participating broker-dealers and wholesalers. During each of the three and six months ended June 30, 2018, we paid total Selling Commissions and Dealer-Manager Fees to Gladstone Securities of $50,000, of which approximately $47,000 was remitted to unrelated third-parties involved in the offering. Through June 30, 2019, approximately 94.0% of the total Selling Commissions and Dealer-Manager Fees paid to Gladstone Securities have been remitted to unrelated third-parties involved in the offering.

Total Selling Commissions and Dealer-Manager Fees paid to Gladstone Securities are netted against the gross proceeds received from sales of the Series B Preferred Stock and are included within Additional paid-in capital on the accompanying Condensed Consolidated Balance Sheets.

Related-Party Fees

The following table summarizes related-party fees paid or accrued for and reflected in our accompanying condensed consolidated financial statements (dollars in thousands):



	For the Three Months Ended June 30,							For the Six Months Ended June 30,
	2019			2018				2019			2018
Base management fee⁽¹⁾⁽²⁾	$	974		$	754		⁽³⁾	$	1,879		$	1,411		⁽³⁾
Credits from non-contractual, unconditional, and irrevocable waiver granted by Adviser’s board of directors⁽²⁾	(974		)	(174		)		(1,543		)	(174		)
Total fees to our Adviser, net	$	—		$	580			$	336		$	1,237

Administration fee⁽¹⁾⁽²⁾	$	250		$	275		⁽⁴⁾	$	556		$	549		⁽⁴⁾

Selling Commissions and Dealer-Manager Fees⁽¹⁾⁽⁵⁾	$	1,659		$	50			$	3,313		$	50
Financing fees⁽¹⁾⁽⁶⁾	26			2				28			2
Total fees to Gladstone Securities	$	1,685		$	52			$	3,341		$	52


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


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


⁽³⁾	Includes the allocation of approximately $94,000 and $161,000 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 three and six months ended June 30, 2018, respectively, as further described above under “TRS Expense Sharing Agreement.”


⁽⁴⁾	Includes the portion of administration fee that was allocated to Land Advisers (approximately $17,000 and $30,000 for the three and six months ended June 30, 2018, respectively), as further described above under “TRS Administration Fee Allocation.”


⁽⁵⁾	Included within Additional paid-in capital on the accompanying Condensed Consolidated Balance Sheets. Through June 30, 2019, Gladstone Securities has remitted approximately 94.0% of these fees to unrelated third-parties involved in the offering (including participating broker-dealers and wholesalers).

⁽⁶⁾

Included within Notes and bonds payable, net on the Condensed Consolidated Balance Sheets and amortized into Interest expense on the Condensed Consolidated Statements of Operations. Through June 30, 2019, the total amount of financing fees paid to Gladstone Securities represented approximately 0.12% of the total financings secured during since the Financing Arrangement Agreement has been in place.

Related-Party Fees Due

Amounts due to related parties on our accompanying Condensed Consolidated Balance Sheets as of June 30, 2019, and December 31, 2018, were as follows (dollars in thousands):

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	June 30, 2019			December 31, 2018
Due from Gladstone Securities⁽¹⁾	$	—		$	20

Base management fee	974			736
Capital gains fee⁽²⁾	—			(150		)
Credits to fees⁽³⁾	(974		)	(44		)
Other⁽⁴⁾	18			63
Total due to Adviser	18			605
Administration fee	250			340			⁽⁵⁾
Total due to Administrator	250			340
Selling Commissions and Dealer-Manager Fees	96			—
Due to Gladstone Securities	96			—
Total due to related parties⁽⁶⁾	$	364		$	945


⁽¹⁾	Other amounts due from Gladstone Securities represent 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. At December 31, 2018, such amounts are included within Other assets, net on our accompanying Condensed Consolidated Balance Sheets.


⁽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 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 three months ended June 30, 2019, and December 31, 2018, were granted as non-contractual, unconditional, and irrevocable waivers to be applied as credits against the base management fee.


⁽⁴⁾	Other amounts 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, 2018, includes premium payments for certain insurance policies made by our Adviser on our behalf.


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

NOTE 7. COMMITMENTS AND CONTINGENCIES

Operating Obligations

In connection with the execution of certain lease agreements, we have committed to provide capital improvements on certain of our farms, which are summarized in the table below (dollars in thousands):



Farm Location	Farm Gross Acreage	Total Commitment			Expected Completion Date	Amount Expended or Accrued as of June 30, 2019
Marion, OR	218	$	250	⁽¹⁾	Q3 2019	$	235
Santa Barbara, CA	361	4,000		⁽¹⁾	Q1 2020	1,553
Madera, CA	928	500		⁽¹⁾	Q2 2020	61
Columbia, OR	200	1,800		⁽¹⁾	Q4 2020	1,023
Collier & Hendry, FL	5,630	2,000		⁽¹⁾	Q2 2025	—


⁽¹⁾	Pursuant to contractual agreements, we will earn additional rent on the cost of these capital improvements as the funds are disbursed by us.

Ground Lease Obligations

In connection with two farms acquired on June 1, 2017, through a leasehold interest, we assumed two ground lease arrangements under which we are the lessee (with the State of Arizona as the lessor). These two operating ground leases expire in February 2022 and February 2025, and neither lease contains any extension, renewal, or termination options. Upon our adoption of ASU 2016-02 on January 1, 2019, we recognized an operating lease right-of-use asset of approximately $218,000 and an operating lease liability of approximately $213,000 as a result of these ground leases. These values were determined by discounting the respective future minimum lease payments using a discount rate equivalent to treasury rates with similar terms plus a spread ranging from 2.47% to 2.53%.

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

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

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


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


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

As a result of these ground leases, we recorded lease expense (included within Property operating expenses on the accompanying Condensed Consolidated Statement of Operations) of approximately $15,000 and $27,000 during the three and six months ended June 30, 2019, respectively, and approximately $12,000 and $24,000 during the three and six months ended June 30, 2018, respectively. Future lease payments due under the remaining non-cancelable terms of these leases as of June 30, 2019, and December 31, 2018, are as follows (dollars in thousands):



	Future Lease Payments⁽¹⁾
Period	June 30, 2019			December 31, 2018
2019	$	—		$	47
2020	47			47
2021	47			47
2022	30			30
2023	30			30
Thereafter	31			31
Total undiscounted lease payments	185			232
Less: imputed interest	(16		)	—
Present value of lease payments	$	169		$	232


⁽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.

Litigation

In the ordinary course of business, we may be involved in legal proceedings from time to time. We are not currently subject to any material known or threatened litigation.

NOTE 8. EQUITY

Amendment to Articles of Incorporation

On January 10, 2018, we filed with the Maryland Department of Assessments and Taxation Articles Supplementary to reclassify and designate 6,500,000 shares of our authorized and unissued shares of capital stock as shares of Series B Preferred Stock (as defined below). The reclassification decreased the number of shares classified as common stock from 98,000,000 to 91,500,000.

Stockholders’ Equity

As of June 30, 2019, there were 6,500,000 shares of Series B Preferred Stock (as defined below), par value $0.001 per share, authorized, with 2,636,068 shares issued and outstanding worth an aggregate liquidation value of approximately $65.9 million; and 91,500,000 shares of common stock, par value $0.001 per share, authorized, with 20,532,770 shares issued and outstanding. As of December 31, 2018, there were 6,500,000 shares of Series B Preferred Stock (as defined below), par value $0.001 per share, authorized, with 1,144,393 shares issued and outstanding worth an aggregate liquidation value of approximately $28.6 million; and 91,500,000 shares of common stock, par value $0.001 per share, authorized, with 17,891,340 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, 2019, and December 31, 2018, we owned 100.0% and approximately 96.9%, respectively, of the outstanding OP Units.

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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 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.

Information related to OP Units tendered for redemption is provided in the table below:



	Three months ended June 30,							Six months ended June 30,
Fiscal Year	OP Units Tendered for Redemption	Shares of Common Stock Issued	OP Units Redeemed with Cash	Aggregate Cash Payment		Aggregate Cash Paid per OP Unit		OP Units Tendered for Redemption	Shares of Common Stock Issued	OP Units Redeemed with Cash	Aggregate Cash Payment		Aggregate Cash Paid per OP Unit
2019	0	0	0	$	—	$	—	570,879	570,879	0	$	—	$	—
2018	253,182	243,567	9,615	121,000		12.54		290,682	251,267	39,415	521,000		13.21

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-controlling unitholder redeems OP Units and the Company elects to satisfy that redemption through the issuance of common stock, 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, 2019, and December 31, 2018, there were 0 and 570,879 OP Units held by non-controlling limited partners outstanding, respectively. See Note 11, “Subsequent Events—Acquisition Activity,” for information regarding the issuance of OP Units in connection with the acquisition of a farm in Martin, Florida, subsequent to June 30, 2019.

Registration Statement

On March 30, 2017, we filed a universal registration statement on Form S-3 (File No. 333-217042) with the SEC (the “2017 Registration Statement”) to replace our previous registration statement, which expired on April 1, 2017. The 2017 Registration Statement, which was declared effective by the SEC on April 12, 2017, permits us to issue up to an aggregate of $300.0 million in securities, consisting of common stock, preferred stock, warrants, debt securities, depository shares, subscription rights, and units, including through separate, concurrent offerings of two or more of such securities. Through June 30, 2019, we have issued a total of 7,466,581 shares of common stock (excluding 1,215,565 shares of common stock issued in exchange for certain OP Units that were tendered for redemption) for gross proceeds of approximately $91.9 million, and 2,643,468 shares of Series B Preferred Stock (as defined below) for gross proceeds of approximately $65.1 million under the 2017 Registration Statement.

2018 Equity Issuances

Series B Preferred Stock

On May 31, 2018, we filed a prospectus supplement with the SEC for a continuous public offering of up to 6,000,000 shares of our newly-designated 6.00% Series B Cumulative Redeemable Preferred Stock (the “Series B Preferred Stock”) at an offering price of $25.00 per share for gross proceeds of up to $150.0 million and expected net proceeds, after deducting dealer-manager fees, selling commissions, and estimated expenses of the offering payable by us, of up to approximately $131.3 million, assuming all shares of the Series B Preferred Stock are sold in the offering. The Series B Preferred Stock is being offered on a continuous, “reasonable best efforts” basis by Gladstone Securities, the dealer-manager for the offering. See Note 6, “Related-Party Transactions—Gladstone Securities—Dealer-Manager Agreement,” for a discussion of the fees and commissions to be paid to Gladstone Securities in connection with the offering of the Series B Preferred Stock.

During the six months ended June 30, 2019, we sold 1,499,075 shares of the Series B Preferred Stock for gross proceeds of approximately $37.0 million and net proceeds (after deducting selling commissions and dealer-manager fees borne by us) of approximately $33.7 million. In addition, 7,400 shares of the Series B Preferred Stock were tendered for redemption at a cash redemption price of $22.50 per share. As a result, we paid a total redemption price of approximately $166,000 to redeem and retire these shares. As of June 30, 2019, excluding selling commissions and dealer-manager fees, we have incurred approximately $995,000 of total costs related to this offering, which are initially recorded as deferred offering costs (included

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within Other assets, net on the accompanying Condensed Consolidated Balance Sheets) and are applied against the gross proceeds received from the offering through additional paid-in capital as shares of the Series B Preferred Stock are sold. See Note 11, “Subsequent Events—Equity Activity—Series B Preferred Stock,” for sales of Series B Preferred Stock completed subsequent to June 30, 2019.

The offering of the Series B Preferred Stock will terminate on the date that is the earlier of either June 1, 2023 (unless terminated earlier or extended by our Board of Directors), or the date on which all 6,000,000 shares offered are sold (the “Termination Date”). There is currently no public market for shares of the Series B Preferred Stock; however, we intend to apply to list the Series B Preferred Stock on Nasdaq or another national securities exchange within one calendar year after the offering’s Termination Date, though there can be no assurance that a listing will be achieved in such timeframe, or at all.

Common Stock

Secondary Offering

On June 20, 2019, we completed a public offering of 2,000,000 shares of our common stock at a public offering price of $11.73 per share (the “June 2019 Offering”). The June 2019 Offering settled on June 24, 2019, and resulted in gross proceeds of approximately $23.5 million and net proceeds (after deducting underwriting discounts and direct offering expenses borne by us) of approximately $22.3 million. See Note 11, “Subsequent Events—Equity Activity—June 2019 Offering Over-allotment,” for information regarding the underwriters’ exercise of a portion of the over-allotment option in connection with the June 2019 Offering.

At-the-Market Program

On August 7, 2015, we entered into equity distribution agreements (commonly referred to as “at-the-market agreements,” or our “Sales 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 having an aggregate offering price of up to $30.0 million (the “ATM Program”). During the six months ended June 30, 2019, we issued and sold 70,551 shares of our common stock at an average sales price of $12.65 per share under the ATM Program for gross proceeds of approximately $893,000 and net proceeds (after deducting offering expenses borne by us) of approximately $879,000. Through June 30, 2019, we have issued and sold a total of 1,666,142 shares of our common stock at an average sales price of $12.86 per share for gross proceeds of approximately $21.4 million and net proceeds of approximately $21.1 million.

Distributions

The per-share distributions to preferred and common stockholders declared by our Board of Directors and paid by us (except as noted) during the three and six months ended June 30, 2019 and 2018 are reflected in the table below.



	For the Three Months Ended June 30,				For the Six Months Ended June 30,
Issuance	2019		2018		2019		2018
Series A Term Preferred Stock⁽¹⁾	$	0.3984375	$	0.3984375	$	0.7968750	$	0.7968750
Series B Preferred Stock⁽²⁾	0.375		0.125		0.750		0.125
Common Stock⁽³⁾	0.13350		0.13290		0.26685		0.26565


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


⁽²⁾	Of the dividends declared on the Series B Preferred Stock by our Board of Directors on April 9, 2019, approximately $330,000 was paid (as scheduled) by us on July 5, 2019. The resulting dividend payable is included within Accounts payable and accrued expenses on the accompanying Condensed Consolidated Balance Sheets as of June 30, 2019.


⁽³⁾	The same amounts were paid as distributions on each OP Unit held by non-controlling limited partners of the Operating Partnership.

NOTE 9. LEASE REVENUES

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



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

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


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

NOTE 10. LOSS PER SHARE OF COMMON STOCK

The following table sets forth the computation of basic and diluted loss per common share for the three and six months ended June 30, 2019 and 2018, computed using the weighted average number of shares outstanding during the respective periods. Net loss figures are presented net of non-controlling interests in the earnings per share calculations. The non-controlling limited partners’ outstanding OP Units (which may be redeemed for shares of common stock) have been excluded from the diluted loss per share calculation, as there would be no effect on the amounts since the non-controlling limited partners’ share of loss would also be added back to net loss.



	Three months ended June 30,						Six months ended June 30,
	2019			2018			2019			2018
	(Dollars in thousands, except per-share amounts)
Net loss attributable to common stockholders	$	(720	)	$	(1,745	)	$	(1,215	)	$	(2,042	)
Weighted average shares of common shares outstanding – basic and diluted	18,641,738			15,506,512			18,336,975			14,736,400
Loss per common share – basic and diluted	$	(0.04	)	$	(0.11	)	$	(0.07	)	$	(0.14	)

The weighted-average number of OP Units held by non-controlling limited partners was 0 and 215,499 for the three and six months ended June 30, 2019, respectively, and 913,552 and 945,236 for the three and six months ended June 30, 2018, respectively.

NOTE 11. SUBSEQUENT EVENTS

Acquisition Activity

Subsequent to June 30, 2019, through the date of this filing, we have acquired two farms, which are summarized in the table below (dollars in thousands, except for footnotes):



Property Name	Property Location	Acquisition Date	Total Acreage	No. of Farms	Primary Crop(s) / Use	Lease Term	Renewal Options	Total Purchase Price		Acquisition Costs⁽¹⁾		Annualized Straight-line Rent⁽²⁾
San Juan Grade Road⁽³⁾	Monterey, CA	7/11/2019	324	1	Strawberries & vegetables	0.3 years	None	$	9,000	$	62	$	575
West Citrus Boulevard⁽⁴⁾	Martin, FL	7/22/2019	3,586	1	Water retention	8.4 years	2 (10 years)	57,790		434		3,696
			3,910	2				$	66,790	$	496	$	4,271


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


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


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


⁽⁴⁾	As partial consideration for the acquisition of this property, we issued 288,303 OP Units, constituting an aggregate fair value of approximately $3.3 million as of the acquisition date.

Leasing Activity

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

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PRIOR LEASES

NEW LEASES

Farm
Locations

Number

Leases

Total

Farm

Acres

Total

Annualized

Straight-line

Rent⁽¹⁾

# of Leases

with

Participation

Rents

Lease

Structures

(# of NNN

/ NN)⁽²⁾

Total
Annualized
Straight-line
Rent⁽¹⁾

Wtd. Avg.

Term
(Years)

# of Leases
with
Participation
Rents

Lease
Structures
(# of NNN
/ NN)⁽²⁾

547

143

0 / 1

156

6.0

0 / 1


⁽¹⁾	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.


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

Financing Activity

Subsequent to June 30, 2019, through the date of this filing, we have secured the following new financings (dollars in thousands):

Issuer

Date of

Issuance

Amount

Maturity

Date

Principal

Amortization

Interest Rate Terms⁽¹⁾

Rabo AgriFinance, LLC⁽²⁾

7/10/2019

5,514

6/1/2029

25.0 years

One-month LIBOR plus 1.750%

GreenStone Farm Credit Services

7/11/2019

1,609

8/1/2044

25.0 years

5.00%, fixed through June 30, 2029 (variable thereafter)

GreenStone Farm Credit Services

7/11/2019

3,060

8/1/2044

25.0 years

5.00%, fixed through June 30, 2029 (variable thereafter)

Farm Credit West, FLCA

7/11/2019

5,400

5/1/2044

24.5 years

4.24%, fixed through July 31, 2026 (variable thereafter)

Farm Credit of Central Florida, ACA

7/22/2019

31,850

7/1/2027

25.2 years

5.05%, fixed throughout term

Farm Credit of Central Florida, ACA

7/22/2019

5,850

7/1/2027

None
(interest only)

5.05%, fixed throughout term


⁽¹⁾	Stated rate is before refunded interest, or interest patronage (as described further in Note 4, “Borrowings,” in the accompanying notes to our condensed consolidated financial statements).


⁽²⁾	In connection with this loan, we entered into an interest rate swap agreement that will result in an effective fixed interest rate of 4.04% for this loan throughout its term.

Gladstone Securities earned total financing fees of approximately $81,000 in connection with securing the above financings.

Equity Activity

Series B Preferred Stock

Subsequent to June 30, 2019, through the date of this filing, we have sold 229,294 shares of the Series B Preferred Stock for gross proceeds of approximately $5.7 million and net proceeds of approximately $5.2 million. Total Selling Commissions and Dealer-Manager Fees earned by Gladstone Securities as a result of these sales was approximately $527,000 (of which approximately $499,000 was remitted by Gladstone Securities to unrelated third-parties involved in the offering, such as participating broker-dealers and wholesalers).

June 2019 Offering Over-allotment

On July 16, 2019, the underwriters exercised a portion of the over-allotment option in connection with the June 2019 Offering, and, as a result, we issued an additional 277,297 shares of our common stock. The over-allotment settled on July 18, 2019, and resulted in gross proceeds of approximately $3.3 million and net proceeds (after deducting underwriting discounts and direct offering expenses borne by us) of approximately $3.1 million.

Distributions

On July 9, 2019, our Board of Directors declared the following monthly cash distributions to holders of our preferred and common stock:

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Issuance	Record Date	Payment Date	Distribution per Share
Series A Term Preferred Stock:	July 22, 2019	July 31, 2019	$	0.1328125
	August 20, 2019	August 30, 2019	0.1328125
	September 17, 2019	September 30, 2019	0.1328125
Total Series A Term Preferred Stock Distributions:			$	0.3984375

Series B Preferred Stock:	July 24, 2019	August 2, 2019	$	0.125
	August 22, 2019	August 30, 2019	0.125
	September 24, 2019	October 3, 2019	0.125
Total Series B Preferred Stock Distributions:			$	0.375

Common Stock:	July 22, 2019	July 31, 2019	$	0.04455
	August 20, 2019	August 30, 2019	0.04455
	September 17, 2019	September 30, 2019	0.04455
Total Common Stock Distributions:			$	0.13365

The same amounts paid to common stockholders 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.

Amendment to Advisory Agreement

On July 9, 2019, we amended our previously-existing Advisory Agreement (as amended, the “Amended Advisory Agreement”), which was approved unanimously by our board of directors, including our independent directors. Under the Amended Advisory Agreement, the definition of Total Equity therein was revised to exclude preferred equity from both the Base Management Fee and Incentive Fee calculations, effective beginning with the fee calculations for the three months ending September 30, 2019. All other terms of our previously-existing Advisory Agreement remained the same.

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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. For further information about these and other factors that could affect our future results, please see the captions titled “Forward-Looking Statements” and “Risk Factors” in this report and our Annual Report on Form 10-K for the year ended December 31, 2018 (the “Form 10-K”). 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, agricultural real estate investment trust (“REIT”) that is engaged in the business of owning and leasing farmland. We are not a grower of crops, nor do we typically farm the properties we own. We currently own 92 farms comprised of 79,796 acres located across 10 states in the U.S. We also own several farm-related facilities, such as cooling facilities, packinghouses, processing facilities, and various storage facilities.

We conduct substantially all of our 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 sole general partner of the Operating Partnership and currently owns, directly or indirectly, approximately 98.6% of the units of limited partnership interest in the Operating Partnership (“OP Units”). In addition, we have elected for Gladstone Land Advisers, Inc. (“Land Advisers”), a wholly-owned subsidiary of ours, to be treated as a taxable REIT subsidiary (“TRS”).

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.

Portfolio Diversity

Since our initial public offering in January 2013 (the “IPO”), we have expanded our portfolio from 12 farms leased to 7 different, unrelated tenants to a current portfolio of 92 farms leased to 64 different, unrelated tenants. While our focus remains in farmland suitable for growing fresh produce annual row crops, we have also diversified our portfolio into farmland suitable for other crop types, including permanent crops (e.g., almonds, blueberries, pistachios, and wine grapes) and, to a lesser extent, certain commodity crops (e.g., beans and corn). The following table summarizes the different geographic locations (by state) of our farms owned and with leases in place as of and for the six months ended June 30, 2019 and 2018 (dollars in thousands):

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


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

Leases

General

Most of our leases are on a triple-net basis, an arrangement under which, in addition to rent, the tenant is required to pay the related taxes, insurance costs, maintenance, and other operating costs. Our leases generally have original terms ranging from 3 to 10 years for farms growing row crops and 5 to 15 years for farms growing permanent crops (in each case, often with options to extend the lease further). Rent is generally payable to us in advance on either an annual or semi-annual basis, with such rent typically subject to periodic escalation clauses provided for within the lease. Currently, 70 of our farms are leased on a pure, triple-net basis, 18 farms are leased on a partial-net basis (with us, as landlord, responsible for all or a portion of the related property taxes), and 4 farms leased on a gross basis (with the landlord responsible for the related property taxes, insurance, and maintenance on the property). Additionally, 23 of our farms are leased under agreements that include a participation rent component based on the gross revenues earned on the respective farms.

Lease Expirations

Agricultural leases are often short-term in nature, so in any given year, we may have multiple leases up for extension or renewal. The following table summarizes the lease expirations by year for the farms owned and with leases in place as of June 30, 2019 (dollars in thousands):



Year	Number of Expiring Leases		Expiring Leased Acreage	% of Total Acreage	Lease Revenues for the Six Months Ended June 30, 2019		% of Total Lease Revenues
2019	2		4,906	6.5%	$	358	2.2%
2020	13	⁽¹⁾	33,031	43.5%	3,663		22.6%
2021	11		8,921	11.8%	1,252		7.7%
2022	4		330	0.4%	459		2.9%
2023	6		5,846	7.7%	2,302		14.2%
Thereafter	29		22,845	30.1%	8,091		50.0%
Other⁽²⁾	7		7	—%	67		0.4%
Totals	72		75,886	100.0%	$	16,192	100.0%


⁽¹⁾	Subsequent to June 30, 2019, one lease originally scheduled to expire during 2020 was amended and extended through 2025. See Note 11, “Subsequent Events—Leasing Activity,” within the notes to our accompanying condensed consolidated financial statements for additional information on this lease extension.


⁽²⁾	Consists of ancillary leases (e.g., oil, gas, and mineral leases, telecommunications leases, etc.) with varying expirations on certain of our farms.

We currently have two agricultural leases scheduled to expire within the next six months, and we have several agricultural leases scheduled to expire during 2020. We are currently in discussions with the existing tenants on all of these farms, as well as other potential tenants, and we anticipate being able to renew each of the leases at their respective current market rental rates without incurring any downtime on any of the farms. We currently anticipate the lease renewals on these farms to be at rental

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rates that are either equal to or higher than that of the respective current leases. Regarding all upcoming lease expirations, there can be no assurance that we will be able to renew the existing leases or execute new leases at rental rates favorable to us, if at all, or be able to find replacement tenants, if necessary.

Recent Developments

Portfolio Activity

Property Acquisitions

Since April 1, 2019, through the date of this filing, we have acquired six farms, which are summarized in the table below (dollars in thousands, except for footnotes):



Property Name	Property Location	Acquisition Date	Total Acreage	No. of Farms	Primary Crop(s) / Use	Lease Term	Renewal Options	Total Purchase Price		Acquisition Costs⁽¹⁾		Annualized Straight-line Rent⁽²⁾
Greenhills Boulevard⁽³⁾	Madera, CA	4/9/2019	928	1	Pistachios	10.6 years	2 (5 years)	$	28,550	$	141	$	1,721
Van Buren Trail	Van Buren, MI	5/29/2019	159	1	Blueberries & cranberries	10.6 years	2 (5 years)	2,682		24		206
Blue Star Highway	Allegran & Van Buren, MI	6/4/2019	357	1	Blueberries	10.6 years	2 (5 years)	5,100		29		390
Yolo County Line Road	Yolo, CA	6/13/2019	542	1	Olives for olive oil	14.6 years	1 (5 years)	9,190		68		624
San Juan Grade Road⁽⁴⁾	Monterey, CA	7/11/2019	324	1	Strawberries & vegetables	0.3 years	None	9,000		62		575
West Citrus Boulevard⁽⁵⁾	Martin, FL	7/22/2019	3,586	1	Water retention	8.4 years	2 (10 years)	57,790		434		3,696
			5,896	6				$	112,312	$	758	$	7,212

⁽¹⁾

Acquisitions were accounted for as asset acquisitions in accordance with Accounting Standards Codification 360, “Property, Plant, and Equipment.” As such, all acquisition-related costs (other than external legal fees associated with negotiating and originating the leases associated with the acquisitions, which costs were expensed in the period incurred) were capitalized and allocated among the identifiable assets acquired. 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 lease, as required under GAAP, and excludes contingent rental payments, such as participation rents.


⁽³⁾	Lease provides for a participation rent component based on the gross crop revenues earned on the farm. The rent figure above represents only the minimum cash guaranteed under the lease.


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


⁽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.

Existing Properties

Leasing Activity

The following table summarizes the leasing activity that has occurred on our existing properties since April 1, 2019, through the date of this filing (dollars in thousands, except footnotes):

PRIOR LEASES

NEW LEASES

Farm
Locations

Number

Leases

Total

Farm

Acres

Total

Annualized

Straight-line

Rent⁽¹⁾

# of Leases

with

Participation

Rents

Lease

Structures

(# of NNN

/ NN)⁽²⁾

Total
Annualized
Straight-line
Rent⁽¹⁾

Wtd. Avg.

Term
(Years)

# of Leases
with
Participation
Rents

Lease
Structures
(# of NNN
/ NN)⁽²⁾

AZ, CA, FL

2,989

1,384

2 / 3

1,678

4.9

2 / 3


⁽¹⁾	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.


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

Financing Activity

Debt Activity

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Issuer

Date of

Issuance

Amount

Maturity

Date

Principal

Amortization

Interest Rate Terms⁽¹⁾

PGMI RE Finance, LLC

6/17/2019

17,130

7/1/2029

25.0 years

4.00%, fixed throughout term

Rabo AgriFinance, LLC⁽²⁾

7/10/2019

5,514

6/1/2029

25.0 years

One-month LIBOR plus 1.750%

GreenStone Farm Credit Services

7/11/2019

1,609

8/1/2044

25.0 years

5.00%, fixed through June 30, 2029 (variable thereafter)

GreenStone Farm Credit Services

7/11/2019

3,060

8/1/2044

25.0 years

5.00%, fixed through June 30, 2029 (variable thereafter)

Farm Credit West, FLCA

7/11/2019

5,400

5/1/2044

24.5 years

4.24%, fixed through July 31, 2026 (variable thereafter)

Farm Credit of Central Florida, ACA

7/22/2019

31,850

7/1/2027

25.2 years

5.05%, fixed throughout term

Farm Credit of Central Florida, ACA

7/22/2019

5,850

7/1/2027

None
(Interest only)

5.05%, fixed throughout term


⁽¹⁾	Stated rate is before refunded interest, or interest patronage (as described further in Note 4, “Borrowings,” in the accompanying notes to our condensed consolidated financial statements).


⁽²⁾	In connection with this loan, we entered into an interest rate swap agreement that will result in an effective fixed interest rate of 4.04% for this loan throughout its term.

Equity Activity

Series B Preferred Stock

On May 31, 2018, we filed a prospectus supplement with the U.S. Securities and Exchange Commission (the “SEC”) for a continuous public offering of up to 6,000,000 shares of our newly-designated 6.00% Series B Cumulative Redeemable Preferred Stock (the “Series B Preferred Stock”) at an offering price of $25.00 per share for gross proceeds of up to $150.0 million and expected net proceeds (after deducting dealer-manager fees, selling commissions, and estimated expenses of the offering payable by us) of up to approximately $131.3 million, assuming all shares of the Series B Preferred Stock are sold in the offering. The Series B Preferred Stock is being offered on a continuous, “reasonable best efforts” basis by Gladstone Securities, LLC, our dealer-manager for the offering. See Note 6, “Related-Party Transactions—Gladstone Securities—Dealer-Manager Agreement,” within the accompanying notes to our condensed consolidated financial statements for more details on the Dealer-Manager Agreement.

From April 1, 2019, through the date of this filing, we sold 980,453 shares of the Series B Preferred Stock for gross proceeds of approximately $24.2 million and net proceeds (after deducting selling commissions and dealer-manager fees borne by us) of approximately $22.1 million. Aggregate selling commissions and dealer-manager fees paid to Gladstone Securities as a result of these sales were approximately $2.2 million (of which approximately $2.1 million was remitted by Gladstone Securities to unrelated third-parties involved in the offering, such as participating broker-dealers and wholesalers). In addition, in June 2019, 6,800 shares of the Series B Preferred Stock were tendered for redemption at a cash redemption price of $22.50 per share. As such, we paid a total redemption price of $153,000 to redeem and retire these shares.

The offering of the Series B Preferred Stock will terminate on the date that is the earlier of either June 1, 2023 (unless terminated earlier or extended by our Board of Directors), or on the date on which all 6,000,000 shares offered are sold (the “Termination Date”). There is currently no public market for shares of the Series B Preferred Stock; however, we intend to apply to list the Series B Preferred Stock on Nasdaq or another national securities exchange within one calendar year after the Termination Date, though there can be no assurance that a listing will be achieved in such timeframe, or at all.

Common Stock

Secondary Offering

In June 2019, we completed a public offering of our common stock at a public offering price of $11.73 per share, and in July 2019, the underwriters exercised a portion of the over-allotment offering in connection with the offering (the “June 2019 Offering”). The June 2019 Offering resulted in the issuance of an aggregate of 2,277,297 new shares of common stock (including 277,297 shares issued as a result of the underwriters exercising a portion of their over-allotment option) of our common stock for gross proceeds of approximately $26.7 million and net proceeds (after deducting underwriting discounts and offering expenses borne by us) of approximately $25.4 million.

At-the-Market Program

On August 7, 2015, we entered into equity distribution agreements (“Sales 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 having an aggregate offering price of up to $30.0 million (the “ATM Program”).

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From April 1, 2019, through the date of this filing, we issued and sold 70,551 shares of our common stock under the ATM Program at an average sales price of $12.65 per share for gross proceeds of approximately $893,000 and net proceeds (after deducting offering expenses borne by us) of approximately $879,000. To date, we have issued and sold a total of 1,666,142 shares of our common stock at a weighted-average sales price of $12.86 per share under the ATM Program for gross proceeds of approximately $21.4 million and net proceeds of approximately $21.1 million.

LIBOR Transition

The majority of our debt is at fixed rates, and we currently have very limited exposure to variable-rate debt based upon the London Interbank Offered Rate (“LIBOR”), which is anticipated to be phased out during late 2021. LIBOR is currently expected to transition to a new standard rate, the Secured Overnight Financing Rate (“SOFR”), which will incorporate certain overnight repo market data collected from multiple data sets. The current intent is to adjust the SOFR to minimize the differences between the interest that a borrower would be paying using LIBOR versus what it will be paying SOFR. We are currently monitoring the transition and cannot yet assess whether SOFR will become a standard rate for variable-rate debt. However, as our lines of credit with MetLife are currently based upon one-month LIBOR, we expect we will need to renegotiate this agreement in the future. Assuming that SOFR replaces LIBOR and is appropriately adjusted, we expect the transition to result in a minimal impact to our overall operations.

Our Adviser and Administrator

We are externally managed pursuant to contractual arrangements with our Adviser and our Administrator (both affiliates of ours), which collectively employ all of our personnel and pay their salaries, benefits, and general expenses directly. The investment advisory agreement with our Adviser, as amended (the “Advisory Agreement”), and the administration agreement with our Administrator (the “Administration Agreement”) each became effective February 1, 2013. On July 9, 2019, we amended our previously-existing Advisory Agreement (as amended, the “Amended Advisory Agreement”), which was approved unanimously by our board of directors, including, specifically, our independent directors.

A summary of the compensation terms for the Advisory Agreement is provided in Note 6, “Related-Party Transactions,” within the accompanying notes to our condensed consolidated financial statements. A discussion of the changes to the fee calculations pursuant to the Amended Advisory Agreement is below.

Amendment to Advisory Agreement

Under the Amended Advisory Agreement, the definition of Total Equity therein was revised to exclude preferred equity from both the base management fee and incentive fee calculations, effective beginning with the fee calculations for the three months ending September 30, 2019.

We expect this amendment to result in a decrease to our gross base management fee in future periods, as the previous base management fee calculation also calculated a fee on preferred equity securities that were not treated as a liability for GAAP purposes, whereas all preferred equity securities (including those treated as temporary or permanent equity for GAAP purposes) will be excluded from the calculation of the base management fee under the Amended Advisory Agreement. In addition, we expect that the potential for our Adviser to earn an incentive fee will be higher in future periods, as an incentive fee was previously earned when Pre-Incentive Fee FFO (as defined in the Advisory Agreement) exceeded a certain hurdle rate of total equity (as reported on our balance sheet), whereas, under the Amended Advisory Agreement, Pre-Incentive Fee FFO will be compared against total common equity (including common OP Units, but excluding all preferred equity securities).

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 Form 10-K. There were no material changes to our critical accounting policies during the six months ended June 30, 2019.

Smaller Reporting Company Status

We currently qualify as a “smaller reporting company” under Rule 12b-2 of the Exchange Act, which is defined as a company with a public equity float of less than $250 million or less than $100 million in annual revenues for the previous year and no public float. Companies can also qualify as a smaller reporting company if they have annual revenues of less than $100 million for the previous year and a public float of less than $700 million. As a smaller reporting company, we have reduced disclosure

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requirements for our public filings, including the reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements.

RESULTS OF OPERATIONS

For the purposes of the following discussions on certain operating revenues and expenses:


•	With regard to the comparison between the three months ended June 30, 2019 versus 2018:


◦	Same-property basis represents farms owned as of March 31, 2018, 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 March 31, 2018. From April 1, 2018, through June 30, 2019, we acquired 16 new farms and disposed of one farm; and

◦

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 (in which case no rental revenue would have been recognized on our consolidated statements of operations). During the three months ended June 30, 2018, we had one farm that was mostly vacant, and one of our farms was leased to Land Advisers (as revenue from rents owed to us by Land Advisers was eliminated upon consolidation).


•	With regard to the comparison between the six months ended June 30, 2019 versus 2018:


◦	Same-property basis represents properties 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 June 30, 2019, we acquired 18 new farms (including one farm that we acquired without a lease in place and was mostly vacant during a majority of the six months ended June 30, 2018) and disposed of one farm; and

◦

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 (in which case no rental revenue would have been recognized on our consolidated statements of operations). We had two farms that were vacant for a portion of the six months ended June 30, 2019, and one of our farms was leased to Land Advisers during the six months ended June 30, 2018.

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A comparison of our operating results for the three and six months ended June 30, 2019 and 2018 is below (dollars in thousands):



	For the Three Months Ended June 30,
	2019			2018			$ Change			% Change
Operating revenues:
Lease revenues:
Fixed lease payments	$	8,332		$	6,632		$	1,700		25.6%
Variable lease payments	30			2			28			1,400.0%
Total lease revenues	8,362			6,634			1,728			26.0%
Other operating revenues	—			4,760			(4,760		)	NM
Total operating revenues	8,362			11,394			(3,032		)	(26.6)%
Operating expenses:
Depreciation and amortization	2,936			2,242			694			31.0%
Property operating expenses	586			318			268			84.3%
Base management fee, net of credits	—			580			(580		)	(100.0)%
Administration fee	250			275			(25		)	(9.1)%
General and administrative expenses	469			367			102			27.8%
Other operating expenses	—			5,140			(5,140		)	NM
Total operating expenses, net of credits	4,241			8,922			(4,681		)	(52.5)%
Operating income	4,121			2,472			1,649			66.7%
Other income (expense):
Other income	48			9			39			433.3%
Interest expense	(3,543		)	(2,815		)	(728		)	25.9%
Dividends declared on Series A Term Preferred Stock	(458		)	(458		)	—			—%
Gain on dispositions of real estate assets, net	13			—			13			NM
Property and casualty loss, net	(7		)	—			(7		)	NM
Loss on write-down of inventory	—			(1,060		)	1,060			NM
Total other expense, net	(3,947		)	(4,324		)	377			(8.7)%
Net income (loss)	174			(1,852		)	2,026			NM
Net (income) loss attributable to non-controlling interests	(1		)	110			(111		)	NM
Net income (loss) attributable to the Company	173			(1,742		)	1,915			NM
Dividends declared on Series B Preferred Stock	(893		)	(3		)	(890		)	NM
Net loss attributable to common stockholders	$	(720	)	$	(1,745	)	$	1,025		(58.7)%

NM = Not Meaningful

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	For the six months ended June 30, 2019
	2019			2018			$ Change			% Change
Operating revenues:
Lease revenues:
Fixed lease payments	$	16,105		$	13,303		$	2,802		21.1%
Variable lease payments	87			25			62			248.0%
Total lease revenues	16,192			13,328			2,864			21.5%
Other operating revenues	—			7,311			(7,311		)	NM
Total operating revenues	16,192			20,639			(4,447		)	(21.5)%
Operating expenses:
Depreciation and amortization	5,533			4,430			1,103			24.9%
Property operating expenses	1,403			746			657			88.1%
Base management fee, net of credits	336			1,237			(901		)	(72.8)%
Administration fee	556			549			7			1.3%
General and administrative expenses	1,018			921			97			10.5%
Other operating expenses	—			7,498			(7,498		)	NM
Total operating expenses, net of credits	8,846			15,381			(6,535		)	(42.5)%
Operating income	7,346			5,258			2,088			39.7%
Other income (expense):
Other income	874			323			551			170.6%
Interest expense	(6,996		)	(5,646		)	(1,350		)	23.9%
Dividends declared on Series A Term Preferred Stock	(916		)	(916		)	—			—%
Loss on dispositions of real estate assets, net	(19		)	—			(19		)	NM
Property and casualty loss, net	(7		)	(129		)	122			(94.6)%
Loss on write-down of inventory	—			(1,060		)	1,060			NM
Total other expense, net	(7,064		)	(7,428		)	364			(4.9)%
Net income (loss)	282			(2,170		)	2,452			NM
Net (income) loss attributable to non-controlling interests	(3		)	131			(134		)	NM
Net income (loss) attributable to the Company	279			(2,039		)	2,318			NM
Dividends declared on Series B Preferred Stock	(1,494		)	(3		)	(1,491		)	NM
Net loss attributable to common stockholders	$	(1,215	)	$	(2,042	)	$	827		(40.5)%

NM = Not Meaningful

Operating Revenues



Same-property Analysis (dollars in thousands)
	For the Three Months Ended June 30,							For the Six Months Ended June 30,
Lease revenues—Fixed lease payments:	2019		2018		$ Change		% Change	2019		2018		$ Change		% Change
Same-property basis	$	6,465	$	6,436	$	29	0.5%	$	12,668	$	12,581	$	87	0.7%
Properties acquired or disposed of	1,653		192		1,461		760.9%	2,989		432		2,557		591.9%
Vacant or self-operated properties	214		4		210		5,250.0%	448		290		158		54.5%
Total fixed lease payments	$	8,332	$	6,632	$	1,700	25.6%	$	16,105	$	13,303	$	2,802	21.1%

On a same-property basis, lease revenues from fixed lease payments increased for each of the three and six months ended June 30, 2019, as compared to the respective prior-year periods, primarily due to additional revenue earned on recent capital improvements completed on certain of our properties, partially offset by decreases in the fixed base rent component of certain of our recent lease renewals. Fixed lease payments from properties acquired or disposed of increased for each of the three and six months ended June 30, 2019, as compared to the respective prior-year periods, primarily due to additional revenues earned on new farms acquired subsequent to December 31, 2017, partially offset by the loss of revenue from a farm that was sold in

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July 2018. Fixed lease payments from vacant or self-operated properties increased for each of the three and six months ended June 30, 2019, as compared to the respective prior-year periods, primarily due to the revenue earned during 2019 on two farms that were either vacant or operated by Land Advisers during 2018, as each of these farms were fully leased during the entirety of the six months ended June 30, 2019.

The following table summarizes the lease revenues recognized from variable lease payments during the three and six months ended June 30, 2019 and 2018 (dollars in thousands):



	For the Three Months Ended June 30,							For the Six Months Ended June 30,
	2019		2018		$ Change		% Change	2019		2018		$ Change		% Change
Participation rents⁽¹⁾	$	—	$	—	$	—	—%	$	27	$	17	$	10	58.8%
Tenant recovery revenue⁽²⁾	30		2		28		1,400.0%	60		8		52		650.0%
Total variable lease payments	$	30	$	2	$	28	1,400.0%	$	87	$	25	$	62	248.0%


⁽¹⁾	Participation rents are generally based on a percentage of the gross revenues earned on the respective farms.


⁽²⁾	Tenant recovery revenues 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.

Participation rents earned during each of the six months ended June 30, 2019 and 2018 were earned on two blueberry farms located in North Carolina. The increase in tenant recovery revenue for the three and six months ended June 30, 2019, as compared to the respective prior-year periods, was due to additional contractual reimbursements of property taxes on certain of our farms.

Other operating revenues primarily represent revenue earned from sales of harvested crops on a farm that was operated by Land Advisers from October 17, 2017, until July 31, 2018, at which time the farm was leased to a new, unrelated third-party tenant under a 10-year lease.

Operating Expenses



Same-property Analysis (dollars in thousands)
	For the Three Months Ended June 30,							For the Six Months Ended June 30,
Depreciation and amortization:	2019		2018		$ Change		% Change	2019		2018		$ Change		% Change
Same-property basis	$	2,467	$	2,198	$	269	12.2%	$	4,714	$	4,237	$	477	11.3%
Properties acquired or disposed of	440		21		419		1,995.2%	703		79		624		789.9%
Vacant or self-operated properties	29		23		6		26.1%	116		114		2		1.8%
Total depreciation and amortization	$	2,936	$	2,242	$	694	31.0%	$	5,533	$	4,430	$	1,103	24.9%

Depreciation and amortization expense on a same-property basis increased for each of the three and six months ended June 30, 2019, as compared to the respective prior-year periods, primarily as a result of additional depreciation on site improvements completed on certain properties subsequent to December 31, 2017, partially offset by the expiration of certain lease intangible amortization periods subsequent to December 31, 2017. Depreciation and amortization expense on properties acquired or disposed of increased for each of the three and six months ended June 30, 2019, as compared to the respective prior-year periods, primarily due to the additional depreciation and amortization expense incurred on the new farms acquired subsequent to December 31, 2017. Depreciation and amortization expense from vacant or self-operated properties remained relatively flat for each of the three and six months ended June 30, 2019, as compared to the respective prior-year periods.



Same-property Analysis (dollars in thousands)
	For the Three Months Ended June 30,								For the Six Months Ended June 30,
Property operating expenses:	2019		2018		$ Change			% Change	2019		2018		$ Change			% Change
Same-property basis	$	531	$	285	$	246		86.3%	$	1,241	$	672	$	569		84.7%
Properties acquired or disposed of	19		—		19			—%	62		9		53			588.9%
Vacant or self-operated properties	6		31		(25		)	(80.6)%	40		57		(17		)	(29.8)%
Tenant-reimbursed property operating expenses⁽¹⁾	30		2		28			1,400.0%	60		8		52			650.0%
	$	586	$	318	$	268		84.3%	$	1,403	$	746	$	657		88.1%


⁽¹⁾	Represents certain operating expenses (real estate taxes, insurance premiums, and other property-operating 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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Property operating expenses consist primarily of real estate taxes, repair and maintenance expense, insurance premiums, and other miscellaneous operating expenses paid for certain of our properties. Property operating expenses on a same-property basis increased for each of the three and six months ended June 30, 2019, as compared to the respective prior-year periods. These increases were primarily driven by temporary generator rental costs for newly-drilled wells on one of our properties and, during the six months ended June 30, 2019, only, additional expenses incurred related to obtaining certain permits on one of our California properties. We currently expect to incur a minimal amount of expense related to generator rentals during the third quarter of 2019 and none in the fourth quarter. Property operating expenses on properties acquired or disposed of increased for each of the three and six months ended June 30, 2019, as compared to the respective prior-year periods, primarily due to additional miscellaneous property-operating expenses incurred on certain of the new farms we acquired subsequent to December 31, 2017. Property operating expenses on vacant or self-operated properties decreased for each of the three and six months ended June 30, 2019, as compared to the respective prior-year periods, primarily due to real estate taxes paid by us during 2018 for certain vacant or self-operated properties, which taxes are now the contractual responsibility of respective tenants on those farms. The increase in tenant-reimbursed property operating expenses for each of the three and six months ended June 30, 2019, as compared to the respective prior-year periods, was due to additional property taxes paid by us on certain of our properties, for which the tenant is contractually obligated to reimburse us per the respective leases.

The base management fee to our Adviser, net of any credits, decreased for each of the three and six months ended June 30, 2019, as compared to the respective prior-year periods, primarily due to increased fee credits during the current-year periods. For the three and six months ended June 30, 2019, the gross base management fee increased by approximately $220,000 and $468,000, respectively, as compared to the respective prior-year periods, primarily due to additional equity raised since January 1, 2018. From January 1, 2018, through June 30, 2019, we have raised approximately $126.4 million of net proceeds (net of both direct costs and allocated indirect costs and net of redemptions) through sales of our Series B Preferred Stock, follow-on common stock offerings, and our ATM Program, all of which increased the base on which the base management fee is calculated. In addition, during the three and six months ended June 30, 2019, our Adviser granted us non-contractual, unconditional, and irrevocable waivers of approximately $974,000 and $1.5 million, respectively, to be applied against the base management fee.

The administration fee paid to our Administrator decreased for the three months ended June 30, 2019, and remained relatively flat for the six months ended June 30, 2019, as compared to the respective prior-year periods. The decrease in the administration fee for the three months ended June 30, 2019, was primarily due to us using a lower share of our Administrator’s resources in relation to those used by other funds and affiliated companies serviced by our Administrator.

General and administrative expenses, which consist primarily of professional fees, director fees, stockholder-related expenses, overhead insurance, acquisition-related costs for investments no longer being pursued, and other miscellaneous expenses, increased for each of the three and six months ended June 30, 2019, as compared to the respective prior-year periods, primarily driven by higher professional fees (specifically, increased auditing and accounting-related expenses), partially offset by decreases in acquisition-related costs expensed and bad debt expense.

Other operating expenses represent the portion of growing costs, harvesting and selling costs, and certain overhead costs allocated to the costs of crops sold on a farm that was operated by Land Advisers from October 17, 2017, until July 31, 2018. During the three and six months ended June 30, 2018, we allocated approximately $5.1 million and $7.5 million, respectively, of costs to the crops sold during the respective periods (excluding the allocation of fees earned by our Adviser from Land Advisers of approximately $94,000 and $161,000, respectively). Additionally, our Adviser granted Land Advisers a non-contractual, unconditional, and irrevocable waiver of approximately $174,000 to be applied against a portion of the fees incurred by our Adviser on behalf of Land Advisers pursuant to the TRS Expense Sharing Agreement. Effective August 1, 2018, the farm was leased to a new, unrelated third-party tenant under a 10-year lease.

Other Income (Expense)

Other income, which generally consists of interest patronage received from Farm Credit (as defined in Note 4, “Borrowings,” in the accompanying notes to our condensed consolidated financial statements) and interest earned on short-term investments, increased for each of the three and six months ended June 30, 2019, as compared to the respective prior-year periods. The increase for the three months ended June 30, 2019, was driven by contractual payments received from a potential buyer of one of our farms pursuant to a reinstated sale agreement to keep the purchase option open. Such amounts are nonrefundable and are recognized as income upon receipt. The increase for the six months ended June 30, 2019, was primarily driven by additional interest patronage received from Farm Credit (due to increased borrowings from Farm Credit). During the six months ended June 30, 2019, we recorded approximately $700,000 of interest patronage from Farm Credit related to interest accrued during 2018, compared to approximately $323,000 of interest patronage recorded during the prior-year period. The receipt of interest patronage received from Farm Credit during 2019 resulted in a 21.2% decrease (approximately 95 basis points) to our effective interest rate on our aggregate borrowings from Farm Credit during the year ended December 31, 2018. In addition, during the six months ended June 30, 2019, we recognized $110,000 of income as a result of accumulated deferred

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revenue related to a sale agreement for one of our farms that was terminated. Payments received from the potential buyer of the farm were initially deferred and recognized as income upon termination of the agreement.

Interest expense increased for each of the three and six months ended June 30, 2019, as compared to the respective prior-year periods, primarily due to increased overall borrowings. The weighted-average principal balance of our aggregate borrowings (excluding our Series A Term Preferred Stock) outstanding for the three and six months ended June 30, 2019, was approximately $345.0 million and $340.6 million, respectively, as compared to approximately $296.4 million and $300.8 million for the respective prior-year periods. Including interest patronage received on certain of our Farm Credit borrowings, the overall effective interest rate charged on our aggregate borrowings (excluding the impact of debt issuance costs) was 3.93% and 3.43% for the three and six months ended June 30, 2019, respectively, as compared to 3.59% and 3.35% for the respective prior-year periods.

During each of three and six months ended June 30, 2019, we paid aggregate distributions on our Series A Term Preferred Stock (which distributions are treated similar to interest expense) of approximately $458,000 and $916,000, respectively. The same amounts were paid in each of the respective prior-year periods.

During the three months ended June 30, 2019, we recorded a net gain on the sale of certain unused irrigation pivots on one of our farms. During the six months ended June 30, 2019, this gain was offset by a net loss we recorded related to the disposal of certain irrigation improvements on one of our farms.

The net property and casualty losses incurred during each of the three and six months ended June 30, 2019, and during the six months ended June 30, 2018, related to natural disasters that damaged certain irrigation improvements on two of our properties. For the loss incurred during each of the three and six months ended June 30, 2019, we estimated the aggregate carrying value of the damaged improvements to be approximately $74,000, and we have received insurance recoveries related to these damaged improvements of approximately $67,000. We have recognized the net loss of approximately $7,000 as a property and casualty loss during each of the three and six months ended June 30, 2019. For the loss incurred during the six months ended June 30, 2018, we estimated the aggregate carrying value of the damaged improvements to be approximately $129,000, and we recognized the write-down in the carrying value of the assets as a property and casualty loss during the six months ended June 30, 2018.

The loss on write-down of crop inventory recorded during each of the three and six months ended June 30, 2018, was the result of unsold crops on the farm operated by Land Advisers. Due to certain market conditions during 2018, we were unable to sell all of the crops and therefore assessed their market value to be zero as of June 30, 2018. Accordingly, we wrote down the cost of crop inventory to its estimated market value of zero and recorded a loss during the three and six months ended June 30, 2018, of approximately $1.1 million.

LIQUIDITY AND CAPITAL RESOURCES

Overview

Since our IPO in January 2013, we have invested approximately $619.7 million in 82 new farms, and we have expended or accrued an additional $35.6 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, as defined below under “—Debt Capital”), and issuances of additional equity securities. Our current available liquidity is approximately $48.1 million, consisting of approximately $25.2 million in cash on hand and, based on the current level of collateral pledged, approximately $22.9 million of availability under the MetLife Facility (subject to compliance with covenants).

As of June 30, 2019, our total-debt-to-total-capitalization ratio (including our Series A Term Preferred Stock as debt), at book value, was 62.0%, which is down from 66.8% as of December 31, 2018. However, on a fair value basis, our total-debt-to-total capitalization ratio (including our Series A Term Preferred Stock as debt) as of June 30, 2019, was 55.9%, which is down from 57.4% as of December 31, 2018 (see “Non-GAAP Financial Information—Net Asset Value” below for an explanation of our fair value process).

Future Capital Needs

Our short- and long-term liquidity requirements consist primarily of making distributions to stockholders (including to non-controlling OP Unitholders, if any) to maintain our qualification as a REIT, funding our general operating costs, making principal and interest payments on outstanding borrowings, making dividend payments on our Series A Term Preferred Stock and Series B Preferred Stock, and, as capital is available, funding new farmland and farm-related acquisitions consistent with our investment strategy.

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We believe that our current and short-term cash resources will be sufficient to fund our distributions to stockholders (including non-controlling OP Unitholders), service our debt, pay dividends on our Series A Term Preferred Stock and Series B Preferred Stock, 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, but not limited to, shares of common stock through our ATM Program, OP Units through our Operating Partnership as consideration for future acquisitions, and shares of our Series B Preferred Stock), long-term mortgage indebtedness and bond issuances, and other secured and unsecured borrowings.

We intend to use a significant portion of any current and future available liquidity to purchase additional farms and farm-related facilities. We continue to actively seek and evaluate acquisitions of additional farms and farm-related facilities that satisfy our investment criteria, and our pipeline of potential acquisitions remains healthy. We have several properties under signed purchase and sale agreements that we hope to consummate during 2019. We also have many other properties that are in various other stages of our due diligence process, including several properties under signed, non-binding letters of intent. 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.

Cash Flow Resources

The following table summarizes total net cash flows from operating, investing, and financing activities for the six months ended June 30, 2019 and 2018 (dollars in thousands):



	For the Six Months Ended June 30,
	2019			2018			$ Change			% Change
Net change in cash from:
Operating activities	$	4,256		$	4,482		$	(226	)	(5.0	)%
Investing activities	(54,603		)	(16,560		)	(38,043		)	229.7	%
Financing activities	64,322			11,723			52,599			448.7	%
Net change in Cash and cash equivalents	$	13,975		$	(355	)	$	14,330		(4,036.6	)%

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. Cash provided by operating activities decreased for the six months ended June 30, 2019, as compared to the prior-year period, primarily due to the timing of certain rental receipts and increased property operating expenses (driven by temporary generator rental costs for newly-drilled wells on one of our properties) incurred during the six months ended June 30, 2019, partially offset by additional rental payments received from recent acquisitions.

Investing Activities

The increase in cash used in investing activities during the six months ended June 30, 2019, as compared to the prior-year period, was primarily due to an increase in aggregate cash paid for acquisitions of new farms and capital improvements on existing farms during the six months ended June 30, 2019, which was approximately $37.2 million more than the prior-year period.

Financing Activities

The increase in cash provided by financing activities during the six months ended June 30, 2019, as compared to the prior-year period, was primarily due to an increase in net borrowings by approximately $21.4 million and issuances of Series B Preferred Stock and common stock by an aggregate of approximately $32.7 million for the six months ended June 30, 2019, from that of the prior-year period.

Debt Capital

MetLife

As amended on December 15, 2017, our facility with Metropolitan Life Insurance Company (“MetLife”) consists of a total of $200.0 million of term notes and $75.0 million of revolving equity lines of credit (the “MetLife Facility”). In aggregate, we currently have approximately $122.0 million outstanding under the term notes that bears interest at a blended fixed rate of 3.30% per annum (which rate is fixed until January 5, 2027) and $100,000 outstanding under the lines of credit that currently

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bears interest at a weighted-average rate of 4.72% (which rates are variable). While approximately $139.3 million of the full commitment amount under the MetLife Facility remains undrawn (including amortizing principal payments made on the term notes), based on the level of collateral pledged, we currently have approximately $22.9 million of availability under the MetLife Facility. In addition, we are currently in discussions with MetLife to extend the draw period applicable to the term notes under the facility, which is currently scheduled to expire on December 31, 2019, though we cannot guarantee that we will be able to extend this facility on terms favorable to us, or at all.

Farmer Mac

As amended on June 16, 2016, our agreement with Federal Agricultural Mortgage Corporation (“Farmer Mac”) provided for bond issuances up to an aggregate amount of $125.0 million (the “Farmer Mac Facility”) by December 11, 2018, after which Farmer Mac had the option to be relieved of its obligation to purchase additional bonds under this facility. As of December 11, 2018, we had issued aggregate bonds of approximately $108.7 million under the Farmer Mac Facility, and Farmer Mac is not obligated to purchase the remaining unissued bonds. We are currently in discussions with Farmer Mac to both expand the size of the facility and extend the borrowing period; however, there is no guarantee that we will be able to reach terms favorable to us, if at all. We currently have $90.6 million of bonds outstanding under the facility that bear interest at a weighted-average interest rate of 3.55% (which rates are fixed throughout the bonds’ respective terms) and have a weighted-average maturity date of November 2022.

Farm Credit

Since September 2014, we have closed on 28 separate loans with nine different Farm Credit associations (for additional information, see Note 4, “Borrowings,” in the accompanying notes to our condensed consolidated financial statements) for an aggregate amount of approximately $162.0 million (the “Farm Credit Notes Payable”). We currently have approximately $151.6 million outstanding under the Farm Credit Notes Payable that bear interest at an expected weighted-average effective interest rate (net of expected interest patronage) of 3.89% (which rates are fixed, on a weighted-average basis, until January 2026) and have a weighted-average maturity date of September 2036. While we do not have any additional availability under any of our Farm Credit programs based on the properties currently pledged as collateral, we expect to enter into additional borrowing agreements with existing and new Farm Credit associations in connection with certain potential new acquisitions in the future.

Equity Capital

The following table provides information on equity sales that have occurred since January 1, 2019, through the date of this filing (dollars in thousands, except per-share amounts):



Type of Issuance	Number of Shares Sold	Weighted-average Offering Price Per Share		Gross Proceeds		Net Proceeds⁽¹⁾
Series B Preferred Stock⁽²⁾	1,728,369	$	24.72	$	42,728	$	38,888
Common Stock – Secondary Offering⁽³⁾	2,277,297	11.73		26,713		25,401
Common Stock – ATM Program	70,551	12.65		893		879


⁽¹⁾	Net of selling commissions and dealer-manager fees or underwriting discounts (in each case, as applicable).


⁽²⁾	Includes 6,800 shares that were redeemed by us during the three months ended June 30, 2019.


⁽³⁾	Includes the underwriters’ exercise of a portion of the over-allotment option.

Our 2017 Registration Statement (as defined in Note 8, “Equity—Registration Statement”) permits us to issue up to an aggregate of $300.0 million in securities (including approximately $29.3 million originally reserved for issuance under our ATM Program and up to $150.0 million reserved for issuance of shares of the Series B Preferred Stock), consisting of common stock, preferred stock, warrants, debt securities, depository shares, subscription rights, and units, including through separate, concurrent offerings of two or more of such securities. To date, we have issued approximately $95.1 million of common stock and approximately $70.2 million of Series B Preferred Stock under the 2017 Registration Statement.

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

Off-Balance Sheet Arrangements

As of June 30, 2019, we did not have any material off-balance sheet arrangements.

NON-GAAP FINANCIAL INFORMATION

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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 as 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 of our operational performance, 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 these additional performance metrics provide investors with additional insight to how management measures our ongoing performance, as each of CFFO and AFFO (and their respective per-share amounts) are used by management and our board of directors, as appropriate, in assessing overall performance, as well as in certain decision-making analysis, including, but not limited to, the timing of acquisitions and potential equity raises (and the type of securities to offer in any such equity raises), the determination of any fee credits, and declarations of distributions on our common stock. We believe that net income is the most directly-comparable GAAP measure to each of FFO, CFFO, and AFFO.

Specifically, we believe that FFO is helpful to investors in better understanding our operating performance, primarily because its calculation excludes depreciation and amortization expense on real estate assets, as we believe that GAAP historical cost depreciation of real estate assets is generally not correlated with changes in the value of those assets, particularly with farmland real estate, the value of which does not diminish in a predictable manner over time, as historical cost depreciation implies. Further, we believe that CFFO and AFFO are helpful in understanding our operating performance in that it removes certain items that, by their nature, are not comparable on a period-over-period basis and therefore tend to obscure actual operating performance. In addition, we believe that providing CFFO and AFFO as additional performance metrics allows investors to gauge our overall performance in a manner that is more similar to how our performance is measured by management (including their respective per-share amounts), as well as by analysts and the overall investment community.

We calculate CFFO by adjusting FFO for the following items:

•

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 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 a 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.

Other adjustments. We will adjust for certain non-recurring charges and receipts and will explain such adjustments accordingly. During the three months ended June 30, 2018, we modified our definitions of CFFO and AFFO to exclude the net incremental impact of the farming operations conducted through Land Advisers, as we do not anticipate this to be an ongoing aspect of our core operations. As such, we believe the exclusion of these amounts improves comparability of our operating results on a period-to-period basis and will apply the same modified definitions of CFFO and AFFO for all prior-year periods presented to provide consistency and better comparability.

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

•

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 may not necessarily be comparable to other periods or represent the cash rents indicative of a given lease year. Therefore, we further adjust 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.


•	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.

We believe the foregoing adjustments aid our investors’ understanding of our ongoing operational performance.

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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 of Diluted FFO, CFFO, and AFFO per share. Because many REITs provide 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.

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.

The following table provides a reconciliation of our FFO, CFFO, and AFFO for the three and six months ended June 30, 2019 and 2018 to the most directly-comparable GAAP measure, net income (loss), and a computation of diluted FFO, CFFO, and AFFO per share, 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 (dollars in thousands, except per-share amounts):



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2019			2018			2019			2018
Net income (loss)	$	174		$	(1,852	)	$	282		$	(2,170	)
Less: Dividends declared on Series B Preferred Stock	(893		)	(3		)	(1,494		)	(3		)
Net loss available to common stockholders and OP Unitholders	(719		)	(1,855		)	(1,212		)	(2,173		)
Plus: Real estate and intangible depreciation and amortization	2,936			2,242			5,533			4,430
Plus: (Gains) losses on dispositions of real estate assets, net	(13		)	—			19			—
FFO available to common stockholders and OP Unitholders	2,204			387			4,340			2,257
Plus: Acquisition- and disposition-related expenses	14			—			153			144
Plus: Other charges, net⁽¹⁾	7			1,348			10			1,403
CFFO available to common stockholders and OP Unitholders	2,225			1,735			4,503			3,804
Net rent adjustment	(40		)	(163		)	(5		)	(414		)
Plus: Amortization of debt issuance costs	150			146			299			289
AFFO available to common stockholders and OP Unitholders	2,335			1,718			4,797			3,679

Weighted-average common stock outstanding—basic and diluted	18,641,738			15,506,512			18,336,975			14,736,400
Weighted-average common OP Units outstanding⁽²⁾	0			913,551			215,499			945,236
Weighted-average total common shares outstanding	18,641,738			16,420,063			18,552,474			15,681,636

Diluted FFO per weighted-average total common share	$	0.12		$	0.02		$	0.23		$	0.14
Diluted CFFO per weighted-average total common share	$	0.12		$	0.11		$	0.24		$	0.24
Diluted AFFO per weighted-average total common share	$	0.13		$	0.10		$	0.26		$	0.23


⁽¹⁾	Consists of net property and casualty losses recorded and the cost of related repairs expensed during each period as a result of the damage and, for the three and six months ended June 30, 2018, only, the net impact of the Incremental TRS Operations.


⁽²⁾	Represents OP Units held by unrelated third parties during the respective periods.

Net Asset Value

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, one challenge is determining the fair value of the real estate in order to allow stockholders to see the value of the real estate increase or decrease over time, which we believe is useful to our investors.

Determination of Fair Value

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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 generally 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 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.

Various methodologies were used, both by the appraisers and in our internal valuations, to determine the fair value of our real estate, including the sales comparison, income capitalization (or a discounted cash flow analysis), and cost approaches of valuation. In performing their analyses, the appraisers typically (i) conducted site visits to the properties (where full appraisals were performed), (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, 2019, determined by each method is shown in the table below (dollars in thousands, except in footnotes):



Valuation Method	Number of Farms	Total Acres	Farm Acres	Net Cost Basis⁽¹⁾		Current Fair Value		% of Total Fair Value
Purchase Price	16	14,458	10,574	$	134,261	$	134,303	20.1%
Third-party Appraisal⁽²⁾	74	61,428	49,495	456,010		533,203		79.9%
Total	90	75,886	60,069	$	590,271	$	667,506	100.0%


⁽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 September 2018 and June 2019.

Some of the significant assumptions used by appraisers and the Valuation Team in valuing our portfolio as of June 30, 2019, include land values per farmable acre, market rental rates per farmable acre and the resulting net operating income (“NOI”) at the property level, and capitalization rates, among others. These 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,

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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:



	Range (Low - High)	Weighted Average
Land Value (per farmable acre)	$680 – $87,500	$	33,020
Market NOI (per farmable acre)	$250 – $4,600	$	3,043
Market Capitalization Rate	3.75% – 8.25%	4.28%

Note: Figures in the table above apply only to the farmland portion of our portfolio and exclude assumptions made relating to farm-related property (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.

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 and the most recent appraisals available for the farms acquired prior to the previous 12 months fairly represent the current market values of the properties as of June 30, 2019, 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, 2019, from the prior value basis as of March 31, 2019, is provided in the table below (dollars in thousands):



Total portfolio fair value as of March 31, 2019			$	620,434
Plus: Acquisition of four new farms during the three months ended June 30, 2019			45,522
Plus net value appreciation during the three months ended June 30, 2019:
27 farms valued via third-party appraisals	$	1,550
Total net appreciation for the three months ended June 30, 2019			1,550
Total portfolio fair value as of June 30, 2019			$	667,506

Management also determined fair values of all of its long-term borrowings and preferred stock. Using a discounted cash flow analysis, management determined that the fair value of all long-term encumbrances on our properties as of June 30, 2019, was approximately $355.6 million, as compared to a carrying value (excluding unamortized related debt issuance costs) of approximately $352.5 million. In addition, using the closing stock price as of June 30, 2019, the fair value of the Series A Term Preferred stock was determined to be approximately $29.9 million, as compared to a carrying value (excluding unamortized related issuance costs) of approximately $28.8 million. Finally, pursuant to Financial Industry Regulatory Authority Rule 2310(b)(5), with the assistance of a third-party valuation expert, we determined the estimated value of our Series B Preferred Stock to be $25.00 per share as of June 30, 2019 (see Exhibit 99.1 to this Form 10-Q).

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 farms and farm-related properties and provide an estimated net asset value (“NAV”) 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 long-term borrowings (including any preferred stock required to be treated as debt for GAAP purposes) relative to their respective costs bases. Further, we calculate NAV per common share by dividing NAV by our total common shares outstanding (consisting of our common stock and OP Units held by non-controlling limited partners).

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 common 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.

As of June 30, 2019, we estimate the NAV per common share to be $11.61. A reconciliation of NAV to total equity, which we believe is the most directly-comparable GAAP measure, is provided below (dollars in thousands, except per-share data):

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Total equity per balance sheet				$	231,354
Fair value adjustment for long-term assets:
Less: net cost basis of tangible and intangible real estate holdings⁽¹⁾	$	(590,271	)
Plus: estimated fair value of real estate holdings⁽²⁾	667,506
Net fair value adjustment for real estate holdings				77,235
Fair value adjustment for long-term liabilities:
Plus: book value of aggregate long-term indebtedness⁽³⁾	381,200
Less: fair value of aggregate long-term indebtedness⁽³⁾⁽⁴⁾	(385,466		)
Net fair value adjustment for long-term indebtedness				(4,266		)
Estimated NAV				304,323
Less: fair value of Series B Preferred Stock⁽⁵⁾				(65,902		)
Estimated NAV available to common stockholders and OP Unitholders				$	238,421
Total common shares and OP Units outstanding⁽⁶⁾				20,532,770
Estimated NAV per common share and OP Unit				$	11.61


⁽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 June 30, 2019.


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


⁽⁶⁾	Includes 20,532,770 shares of common stock and no OP Units held by non-controlling limited partners.

A quarterly roll-forward in the estimated NAV per common share for the three months ended June 30, 2019, is provided below



Estimated NAV per common share as of March 31, 2019				$	12.30
Less net loss available to common stockholders and OP Unitholders				(0.04		)
Plus net change in valuations:
Net change in unrealized fair value of farmland portfolio⁽¹⁾	$	0.04
Net change in unrealized fair value of long-term indebtedness	(0.40		)
Net change in valuations				(0.36		)
Less distributions				(0.13		)
Less dilutive effect of equity issuances				(0.16		)
Estimated NAV per common share as of June 30, 2019				$	11.61

⁽¹⁾

The net change in unrealized fair value of farmland portfolio consists of three components: (i) an increase of $0.08 due to the net appreciation in value of farms that were valued during the three months ended June 30, 2019, (ii) an increase of $0.16 due to the aggregate depreciation and amortization expense recorded during the three months ended June 30, 2019, and (iii) a decrease of $0.20 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 and estimated NAV per common share, using the definitions above, 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 common share calculation. For example, while we estimated our NAV per common share to be $11.61 as of June 30, 2019, based on the calculation above, the closing price of our common stock on June 30, 2019, was $11.53.

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. Further, 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.

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ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This Item is not applicable to smaller reporting companies.



ITEM 4.	CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of June 30, 2019, 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, 2019, 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, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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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 the section captioned, “Item 1A. Risk Factors,” in our Form 10-K. There have been no material changes to risks associated with our business or investment in our securities from those previously set forth in the report described above.



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.



Item 4.	Mine Safety Disclosures

Not applicable.



Item 5.	Other Information

None.

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Item 6.	Exhibits

EXHIBIT INDEX



Exhibit Number			Exhibit Description
3.1			Articles of Incorporation, 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 on November 2, 2012.
3.2			Amended and Restated Bylaws, 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 on November 15, 2012.
3.3			Articles Supplementary establishing the 6.375% Series A Cumulative Term Preferred Stock, incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K (File No. 001-35795), filed on August 11, 2016.
3.4			Articles of Amendment, incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K (File No. 001-35795), filed on July 12, 2017.
3.5			Articles Supplementary establishing the 6.00% Series B Cumulative Redeemable Preferred Stock, incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K (File No. 001-35795), filed on May 31, 2018.
4.1			Form of Common Stock Certificate, 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 on December 27, 2012.
4.2			Form of Indenture, incorporated by reference to Exhibit 4.2 to the Registration Statement on Form S-3 (File No. 333-217042), filed on March 30, 2017.
4.3			Form of Certificate for 6.375% Series A Cumulative Term Preferred Stock, incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K (File No. 001-35795), filed on August 11, 2016.
4.4			Form of Certificate for 6.00% Series B Cumulative Redeemable Preferred Stock, incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K (File No. 001-35795), filed on May 31, 2018.
10.1			Agreement of Purchase and Sale (Sutter Avenue Coalinga CA – East Parcels/Phase I), dated April 19, 2019, by and between Gladstone Land Corporation and RTS Orchards, LLC*.
10.2			Agreement of Purchase and Sale (Sutter Avenue Coalinga CA – East Parcels/Phase II), dated April 19, 2019, by and between Gladstone Land Corporation and RTS Orchards, LLC*.
10.3			Agreement of Purchase and Sale (West Citrus Boulevard Stuart FL), dated May 10, 2019, by and between West Citrus Boulevard Stuart FL, LLC, and Caulkins Citrus Company, Ltd.
10.4			Third Amended and Restated Investment Advisory Agreement, dated July 9, 2019, by and between Gladstone Land Corporation and Gladstone Management Corporation, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 001-35795), filed on July 10, 2019.
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).
99.1			Estimated Value Methodology for Series B Cumulative Redeemable Preferred Stock at June 30, 2019 (filed 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

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*	Certain information in this exhibit has been redacted pursuant to Item 601(b)(10) of Regulation S-K and the Company agrees to furnish to the Securities and Exchange Commission a complete copy of the exhibit, including the redacted portions, upon request.
***	Attached as Exhibit 101 to this Quarterly Report on Form 10-Q are the following materials, formatted in eXtensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheets as of June 30, 2019, and December 31, 2018, (ii) the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2018, (iii) the Condensed Consolidated Statements of Equity for the three months ended June 30, 2019 and 2018, (iv) the Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2019 and 2018, and (v) the Notes to the Condensed Consolidated Financial Statements.

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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 7, 2019	By:	/s/ Lewis Parrish
		Lewis Parrish
		Chief Financial Officer and Assistant Treasurer

Date: August 7, 2019	By:	/s/ David Gladstone
		David Gladstone
		Chief Executive Officer and Chairman of the Board of Directors