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Edited Transcript of LAND earnings conference call or presentation 9-Aug-18 12:30pm GMT

Q2 2018 Gladstone Land Corp Earnings Call

Mclean Sep 8, 2018 (Thomson StreetEvents) -- Edited Transcript of Gladstone Land Corp earnings conference call or presentation Thursday, August 9, 2018 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David John Gladstone

Gladstone Land Corporation - Founder, Chairman, CEO & President

* Erich Hellmold

Gladstone Land Corporation - Assistant General Counsel

* Lewis Parrish

Gladstone Land Corporation - CFO & Assistant Treasurer

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Conference Call Participants

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* John James Massocca

Ladenburg Thalmann & Co. Inc., Research Division - Associate

* Lisa Springer

Singular Research, LLC - Research Analyst

* Robert Chapman Stevenson

Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Gladstone Land Corporation's Second Quarter Ended June 30, 2018 Earnings Call and Webcast. (Operator Instructions) As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, David Gladstone. Please go ahead, sir.

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David John Gladstone, Gladstone Land Corporation - Founder, Chairman, CEO & President [2]

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All right. Thank you, Jonathan. Thank you for that nice introduction, and welcome to the quarterly conference call for Gladstone Land. And thank you all for calling in, again, today. We appreciate the time we talk with you and listen to the presentation that we have, and we always enjoy talking to you all on the phone and hope you get some good questions in this time.

If you're in the Washington, D.C. area, please visit us. We're located in a nearby suburb called McLean, Virginia and if you have a chance to come by, you'll see some great team members at work. We have about 66 people who's members of the company now and something over $2.4 billion in assets under management. I'm going to start with Erich. Erich Hellmold, he is our Associate General Counsel. And Erich, why don't you read your part?

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Erich Hellmold, Gladstone Land Corporation - Assistant General Counsel [3]

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Thanks, David. Good morning, everybody. Today's report may include forward-looking statements under the Securities Act of 1933 and the Securities Exchange Act of 1934, including those regarding our future performance. These forward-looking statements involve certain risks and uncertainties that are based upon our current plans, which we believe to be reasonable. Many factors may cause our actual results to be materially different from any future results expressed or implied by these forward-looking statements, including all risk factors in our forms 10-Q, 10-K and other documents we file with the SEC. Those can be found on our website, www.gladstoneland.com, specifically, the Investor Relations page or on the SEC's website at www.sec.gov. We undertake no obligation to publicly update or revise any of these forward-looking statements whether as a result of new information, future events or otherwise, except required by law.

Today, we'll discuss FFO, which is funds from operations. FFO is a non-GAAP accounting term defined as net income, excluding the gains or losses from the sale of real estate and any impairment losses from property, plus depreciation and amortization of real estate assets. We'll also discuss core FFO or CFFO, which we generally define as FFO adjusted for certain nonrecurring revenues and expenses, and adjusted FFO or AFFO, which further adjusts core FFO for certain noncash items, such as converting GAAP rents to normalized cash rents. We believe these are better indications of our operating results and allow better comparability of our period-over-period performance.

Please take the opportunity to visit our website, www.gladstoneland.com and sign up for our e-mail notification service, so you can stay up-to-date on the company. You can also find us on Facebook, keyword, The Gladstone Companies, and we even have our own Twitter, @GladstoneComps. Today's call is an overview of our results, so we ask you to review our press release and 10-Q both issued yesterday for more detailed information. Again, those can be found on the Investor Relations page of our website.

Now I'll turn it back to David.

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David John Gladstone, Gladstone Land Corporation - Founder, Chairman, CEO & President [4]

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Thanks, Erich. Good report. Before the report on some of the details and events this quarter, I want to give a brief overview on the nature of our business. The business plan that we have for this company is to invest in farmland, which is often called an alternate asset and that's because farmland assets are considered to be relatively illiquid, you don't just go out and buy or sell a farm every day. And while this underlying asset may be relatively illiquid, our stockholders investment in the stock is not since you can call your broker and buy that on NASDAQ under the symbol LAND. This company is also a natural resource company because farmland is classified as a natural resource. These types of investments like farmland tend to have low correlations to the overall stock market, which we believe is one of the many benefits of owning the stock.

Our business plan is to own high-quality farmland and lease it to top tier farmers. We typically don't farm any of these ourselves, but rather lease the properties to unrelated farmers. Our business plan is to invest in farms, growing a variety of high-value fresh produce that are grown on annual row crops. And our secondary focus is to buy and lease farms, growing more permanent crops. And these permanent crops are the ones grown on trees and bushes and vines, such as almonds, apples, blueberries, cherries, grapes, pistachios. These are crops that are planted once and then harvested over many years, which is not like strawberries or lettuce or other row crops that we -- our farmers produce. Those are planted once, maybe twice a year, and then replanted every year.

We like the fresh produce segment of the market, which is growing produce you'd see in the produce section of the grocery store. Typically, these farms provide greater returns and have less volatility than other crops, such as annual crops of corn and wheat.

Looking to buy cropland that is irrigated, that's what we look for each time, access to water. We also look for farms with excellent soil. In addition, the farmers we lease to are usually among the most well-established farmers in the growing regions where farms are located.

We prefer to keep the same farmer on the property for as long as possible because they know the nuances of operating that particular farm. Our objective is to be a long-term real estate partner with the farmers so that they know they have the farm for as long as they want it. Currently, about 85% of our total revenue comes from farms that are growing the types of foods you find in either produce or nut sections of your local grocery store. We consider these foods to be among the healthier type of foods that we're seeing in farmland and the trend it seems to me is toward organic and certainly toward the produce section of the grocery store.

We have several large organic farms. We have organic farms and orchards in California, organic blueberries in North Carolina, large organic potato farm in Colorado. We have organic vegetables in Florida, just to name a few. Currently, our CFO tells me that over 40% of the fresh produce acreage is either organic or transitioning to become organic, and about 25% of the permanent crops acreage fall into this organic category. We believe the organic section will continue to be a strong growing area. In addition, over 90% of our produce is GMO-free.

We currently own about 67,000 acres on 79 farms in 9 states across the U.S. valued at about $560 million. And across our farmland holdings, we now own farms in 18 different growing regions. Our farms grow about 40 different crop types, and our farms are leased to 53 different tenants, all of whom are unrelated to us.

Diversification is extremely important to us. We believe a well-diversified portfolio of farms, growing lots of different crops by farmers, by many different farmers, provide additional security for our stockholders and also for our dividends.

We only have a few farms growing grain, crops like corn, wheat and soybean because grain prices are just too low today to make a reasonable profit in the United States. There continues to be too much grain in the world markets these days and as a result, growers of these grain crops are continuing to have difficulty selling their grains at a profit. We own a few farms in the Midwest, but the majority of these farms are growing things like organic potatoes.

The trend we continue to see in most of our growing regions is a steady decrease in the number of farms as they're being sold and converted to suburban or urban usage. That's probably the main thing that I'd point to regarding factors that continue to drive up the long-term land values in most of our farming regions. In many of these areas, we're in the -- the number of acres of farms in these regions is relatively finite, and California is a case in point as there are very few if any new farms being developed. There are no trees to cut down, no more land that can be converted to farms. All the arable land in many of these regions is already being farmed, but now it's being converted and some of these to uses such as housing, schools, factories and once they get converted into those uses, they almost always come back to -- never come back to farming.

Water availability is another factor that drives rental rates and land values. Farmers are fallowing land where water is too difficult or expensive to obtain, and that's driving up the rents and prices of lands with good wells and access to multiple water sources. And that's why whenever we're buying a farm, water availability is always one of the first things to look at. We spend a huge amount of time and effort in our due diligence phase determining water conditions, just to make sure that the farmers will have plenty of water for their long-term use. We want to know that the water availability is sufficient enough to withstand any drought. In the last California drought, we did not see any significant reduction in the production or rents on our farm.

And one more thing, as you all may have heard, there's some wildfires spreading through the northern part of California. These fires are up in the mountains. They're far north of where we have our farms. Many, many miles away and pose no threat to our farmers.

Finally, one of the factors driving farmland values is inflation. The government printing so many dollars and while government tells us that there has been very little inflation, recently anyone buying food can tell you that food prices, especially fresh food prices, have been going up steadily. But think about this, inflation in food prices is really good for us and our farmers because they can charge more for their crops and make more money, and of course, this is good for our land values because it allows us to earn more rent on the farms.

Now about some recent activity. We didn't have any new acquisitions to report in this quarter, but we did have a nice transaction take place just after the quarter-end.

We sold a farm in Oregon to an existing tenant for about $20.5 million, and we rolled those proceeds into an acquisition of 5 new farms in Florida for $37.4 million. So the capital gained from selling the farm was not one that we had to pay taxes on because we used that 1031 Exchange in the IRS has to invest in the new farm. So as (technical difficulty) out of equity into the company is about $8 million worth, and that will be earning a nice return for us in the new farm.

The farm we sold was one we purchased back in 2013 for about $13.9 million. The CFO tells us we achieved about a 20% IRR on the original investment in the farm. And the price we sold it at represented a 22% premium over the current value where we had it valued on our books. In addition, the lease we put in place is one -- a new acquisition will provide us with about $1.4 million worth of rental income per year than we were getting from the Oregon farm. That was a great transaction pulled off by Bill Frisbie, who covers the East Coast for us. So even though we don't usually like to sell any of our farms, sometimes the price is good enough and the transaction makes a lot of sense for us.

We did have 1 farm come back to us last quarter -- last year. We had 2 to farmers that died and the remaining family members really didn't give us back the lease until the very last days of planting crops in the Oxnard area. So they gave us the lease back and we stood to lose about $600,000 in rental income because there was all the farmers in the area already had all their plans in place and felt it was too late to add additional acreage to their process. So we had to pay -- we would have to pay the property tax, the cost to clean up and all of that added together, probably around $700,000, and so we were missing the lease as well. So it was about $1.3 million we were looking at in terms of lost revenue or expenses.

So instead of doing nothing and losing that money, we made the decision to take the risk of operating the farms ourselves since when I was in the business, we farmed large farms in Oxnard, and our Managing Director in Oxnard, Bill Reiman, has been a longtime farmer of strawberries in the region. So Bill did a great job in getting the crop planted and getting us off to a good start. Unfortunately, he met -- we met with the weather started to be poor, there was a late frost, lots of rain, which delayed the initial harvest of strawberries in Oxnard. Now strawberry farmers in Oxnard live on the ability to be the first to market each year with strawberries. But due to the weather, it -- all the farmers, including us, missed the window, then the spring provided ideal growing conditions for everybody on the West Coast, which led to the existence of a bumper crop for all the farmers. But the fresh marketplace just couldn't handle quite that much, so much at the market ending early because people had all they needed and the freezers, people like some of the makers of processed strawberries they put them in freezers, and the freezers closed early door -- their doors early due to the reaching capacity. And so we couldn't find anyone to buy a lot of the crop that we had on our farm at the end of the season, along with just about everybody else in Oxnard.

So in the end, instead of just having a loss of $1.3 million, by leaving the property vacant, we ended up losing about $1.4 million, trying to farm it. So now you know why I don't like being a grower. In 1997 to 2004, those 7 years, I was in the growing business and grew in Oxnard, and about every fourth or fifth year, was a bad one, like the one we just experienced. We happened to select the year that was a bad year, and that's the only we farmed. So the good news here is that there is no need to worry about having to step into that role again on this farm because we leased the farm to another grower for the next 10 years. And the new lease is about 3% higher than our prior lease. So we're in great shape there, that event's gone. And while Bill Reiman and I are licking our wounds over having made that choice, we're off to the races. We're moving on. About 3% of our total minimum annualized rent is from leases expiring in 2018. We've begun negotiating with our tenants. We expect to be able to renew all the leases on time with the existing tenants and no downtime on any of the farms. We also think we're close to finalizing a long-term lease on the small California farm we bought back in January that remains partially vacant. So we hope to get back to 100% occupied in the next -- well, before we see you next time.

And while our FFO failed to cover the dividend this quarter by a small amount, most of that was caused by trying to be a farmer again. For the first time in about 3 years, we missed it by about $0.028 per share. We do think the outlook remains positive and I don't see any reason why we won't make that up pretty much during the rest of the 6 months of the year.

The new revenue coming in from our large Florida acquisition that we mentioned that we purchased, the additional rent coming in from the farm that we previously operated, which is at a higher rate, and we also have the leases that we expect to have signed up on that sole vacant part of the farm in California.

But most of all, before the year-end, we'll have participating rents that are supposed to be coming in. With -- I would say those are all coming in the fourth quarter, though, and we expect as much as $1 million in additional rents to come in from those. We also have additional revenues from the new acquisitions. We believe we'll be able to cover the dividend with AFFO and maybe even more for the year-end and hope to have rent enough to raise the -- a bit more our dividend.

In short, we're still on track to have our income be greater than the dividends. And we again seek to increase the dividends in our October meeting and maybe we have to put it off until January. But on a strong footing, and I think, we can still going forward in a good way.

We are raising equity. Our efforts to raise additional equity, we have several sales of our new nontraded Series B Preferred Stock. We're off to a good run. It obviously takes a long time to get those done. The ideas from this new Series B Preferred Stock that it will come in, in smaller amounts. Think we've got about $2.5 million so far. And it comes in a rate and an amount that we can handle and put it work pretty quickly. When you do these overnight offerings, you end up with a lot of cash quickly and you got to make sure you've got some place to put it pretty quick or it has a damaging effect on the dividend. The Series B Preferred Stock is not going to hurt us. We'll get it coming in, and I think it'll take care of a lot of the acquisitions we want.

This is just a secure way to augment our long-term debt needs as it has a fixed coupon and it allows us to lock in the spreaded sheet on the new investments we identified or acquired with these securities.

Well, enough of me rambling on, I'll turn it over to our Chief Financial Officer, Lewis Parrish. He's to talk to you about the real numbers here.

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Lewis Parrish, Gladstone Land Corporation - CFO & Assistant Treasurer [5]

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All right. Thank you, David, and good morning, everybody. I'll begin with our balance sheet. During the second quarter, our total assets only increased by about $2 million as no new acquisitions were added to the books during the quarter. Proceeds from equity issuances during the quarter were mostly used to pay down existing indebtedness, which led to an increase in our total equity and a slight decrease to our total liabilities.

From a financing perspective, during and subsequent to the quarter, we obtained a total of about $34 million of new long-term borrowings from 3 existing lenders. On a weighted average basis, these borrowings carry an effective interest rate of 4.18%, which is fixed for the next 6.9 years.

Also during and subsequent to the quarter, as David mentioned, we raised about $2.5 million of net proceeds through the sales of the Series B Preferred Stock and about $7 million of net proceeds through the sales of common stock, most of which came through the ATM Program. From an overall leverage standpoint, on a fair value basis, and including all preferred stock in the debt bucket, our loan-to-value ratio in our total farmland holdings was about 57% at June 30. And we're comfortable at this level, given the relative low risk of high-quality farmland as an overall asset class.

While interest rate volatility remains -- continues to be a concern of ours, practically, all of our borrowings are currently at fixed rates and on a weighted-average basis, these rates are fixed at 3.43% for the next -- for another 6-plus years out. So we believe we're currently pretty well protected on the debt side against further interest rate hikes. And while interest rates are rising, credit does remain readily available to us, and we continue to be able to borrow money on terms that make the overall economics work for us.

Regarding upcoming debt maturities, we currently have about $15 million coming due over the next 12 months. However, about $7 million of that represents the maturities of 2 bullet loans that we're currently in negotiations with the existing lender to refinance.

So removing those maturities, we only have about $8 million of amortizing principal payments coming due over the next 12 months or less than 3% of our total debt outstanding.

Now I'll move on to our operating results. But first I'll note that we had a net loss for the quarter of about $1.8 million or $0.11 per common share. Our adjusted FFO for the quarter decreased by about $243,000 or 12.4% from Q1. The main driver of this decrease was the receipt of about $314,000 of interest patronage or refunded interest on our loans with various farm credit associations, which patronage is generally received once a year. Partially offsetting this decrease was a slight increase in cash rents during the current quarter and small decreases in both property operating expenses and interest expense.

Moving on to our per share numbers. Earnings from adjusted FFO for the quarter was $0.105 per share, which is -- was a decrease of about $0.027 per share from the prior quarter. Our AFFO per share numbers were further impacted by the 10% increase in the weighted average number of shares outstanding during the quarter as the new shares issued in connection with the March offering were outstanding for the full quarter without the proceeds being used towards any new investments during the quarter.

As David mentioned, this was the first time in the past 11 quarters, where AFFO did not cover the dividend, but we do hope to get back on track during Q3. And now I'll move on to net asset value. During the quarter, we updated valuations of -- on 22 of our farms, 17 of which were revalued by independent third-party farmland appraisers, 4 of which were valued internally and 1 of which was valued at the sales price. In the aggregate, these updated valuations resulted in overall increase of about $6.1 million or 4.3% from their prior valuations.

As of June 30, our farms were valued at about $543 million with over 93 percentage of value based on third-party appraisals or the actual purchase or sales price. And of the $37 million valued internally, about 97% of it or $36 million is supported by third-party appraisals performed between 12 and 35 months ago.

Based on these updated valuations, and including the fair value of our debt and all of our preferred stock, our net asset value per share at June 30, was $13.51, which is down $0.06 per share from last quarter.

The primary driver of this decrease continues to be ongoing capital improvements we're making on certain of our farms, the value of which won't be reflected in the farm's fair values until the respective projects are complete. However, this was largely offset by the appreciation of value of the farms that were revalued during the quarter. And I note that for majority of these ongoing capital projects, we are earning additional rental income as the funds are disbursed by us.

Turning to liquidity. We currently have about $19 million of dry powder, which translates into roughly $40 million of buying power for straight cash acquisitions. We also have the ability and intent to issue new OP Units as consideration for purchases should the opportunity arise. We also have ample availability under our 2 largest borrowing facilities and are continuously reaching out to new lenders, so we have plenty of room and ability to continue borrowing and buying new farms that meet our investment criteria. And with that, I'll turn the program back over to David.

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David John Gladstone, Gladstone Land Corporation - Founder, Chairman, CEO & President [6]

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Thank you, Lewis. Good presentation. While the first half of the year started off slowly for the acquisition front that is, our list of possible acquisitions is strong. We're expecting to be much more active in the remaining part of 2018 and hopefully, very strong during 2019. We currently have 3 properties to about $33 million under signed purchase agreements and we're expecting these acquisitions to be completed sometime in the next few months. We expect to be able to close these farms without the need for additional equity capital. However, we're still continuing our due diligence process on these new farms and there is no guarantee that any of them will become our farms. Sometimes you find things that you didn't expect to find and we walk away from it, but right now it looks pretty positive.

We also have several other farms that we hope to have signed agreements on, but it's a little early to start counting those and putting them into -- in the list of the pipeline coming. And just one final point. As most of you know, our fund specializes in farms that grow fresh fruits, vegetables, some farms that grow nuts and other tree crops, cherries, for example. One of the reasons for this is we believe the investing in farmland growing crops contributing to the healthy lifestyle, such as fruits and vegetables and nuts mirror the trends that we're seeing in the marketplace. And that's really, as people continue to switch to those kind of produce, rather than into the less healthy areas. Another major reason why our business strategy is to focus on farmland growing fresh produce is due to the effect of inflation on the particular segment.

According to the Bureau of Labor Statistics, the overall annual food CPI generally keeps pace with inflation. However, over the last 20 years, the fresh fruit and vegetable segment category, that is about 1.7x faster growing than the CPI. So we're in good shape and in a good place for the future for us.

And while prices of commodity crops are typically more volatile and susceptible to global supplies and demand, fresh produce is highly insulated from the global volatility mainly because the crops are generally consumed locally and within the short time after being harvested.

Ultimately, we believe farmland is, and especially GMO-free is growing healthier crops, such as fruits and vegetables and nuts are going to continue to outperform the overall farmland market in terms of both cash returns and long-term appreciation. Overall, demand for prime farmland growing berries and vegetables remains stable to strong in almost all of the areas of farms that we're located in and this is mostly along the West Coast, including California, Oregon, Washington and the East Coast, especially, Florida and now, we're in North Carolina. There are some good farms in Georgia. We just haven't closed on any in that area yet. All of those farmland areas with the exception of the Oxnard area are coming off really good years. The farmland overall continues to be performing extremely well compared to other asset classes. Despite some of the recent downturns in certain regions, the NCREIF Farmland Index, which is currently made up of about $8.5 billion worth of agricultural properties, has averaged an annual return of 14.9% over the past 15 years compared with 9.1% for the S&P and quite frankly, there were no down years during those 15 years for the farmland whereas there was some pretty severe downturns in the S&P. And you should know that farmland indexes never had a negative year. So let's keep that in mind. Even during the grand recession, farmland generally has provided investors with a safe haven during turbulent times in the financial marketplace.

And I'll say this for the hundredth time, farmland historically has been the hedge against inflation. I notice one of the analysts emphasizes that, and thank you for doing that. Distributions. As you know, we recently raised our dividend again to $0.04435 per share per month. Over the past 43 months, we've raised our dividend 11x, resulting in an overall increase of about 48% in the month, monthly distribution rate to shareholders over this time, and this is reflected in the wonderful job our team has done in finding and managing high quality farms paired with strong tenants who are reliable in their rental payments. Our goal is to continue to increase the dividend rate and outpace inflation. As you know, I'm the largest shareholder and I'm definitely liking these dividends. And I've put a lot of the shares that I own, I don't think they get counted anymore, in some trust for children and in a foundation that we run. Since 2013, we've made 66 consecutive monthly distributions to shareholders, totaling about $3.64 per total distribution. Paying distributions to our shareholders is paramount. We are, in essence, a dividend paying company. And keep that in mind, we are not a technology company that's going to double overnight. But this is the consistent returns that you're looking for if you're a dividend lover.

Our stock is currently trading at $12.81, which is below our net asset value. Thus, we're hopeful the stock price will rise in the near future so that trade -- we trade at above our net asset value. So if you buy the stock today, you're getting a discount from the estimated net asset value and the discount's about 4.5%. So you're buying at $13.51 -- you're buying $13.51 of net assets for $12.81, and along the way, you'll get $0.04435 per share per month in cash distribution. So we're about 1.15% yield. Yield is slightly lower than the average return you can get from the entire REIT index, which is currently about 4.5%, but when compared with timber REITs, which are trading on an average of about 3.64%, that's the only other natural resource REIT, I think our stock offers a nice alternative and upside.

Please remember that purchasing the stock is a long-term investment. I think investments in stock really has 2 parts. It's similar to gold, in that the asset is dirt. It's intrinsic value there is limited only about what you can get in terms of crop -- growing crops there. And obviously, the upside is some kind of urban or suburban conversion. And unlike gold and other alternative assets, it's an active asset with cash flows to the investor. We don't believe we're a bond substitute because we keep increasing the dividend and the value of the assets continue to go up.

I said it a few times, I'll just point it out one more time before I stop saying it, Warren Buffett's comment that, you'd rather have all the farmland in the U.S. than the gold in the world. I understand that his son's a large landholder in the U.S. as well and we obviously agree with the Buffetts on this one. We're heavy in U.S. farmland and don't really plan to go outside the U.S.

We do expect inflation, particularly the food sector to grow, and we expect values in the underlying farmland to increase as a result. We expect this to be especially true in the fresh produce section as people in the U.S. are trending toward eating more healthy food. I think a good way to look at the farmland fund is it's a hedge against inflation in both food prices and other areas and second, looking at the assets that it doesn't correlate to the overall stock market, I believe that's the good points that we're talking about here.

So if you like what we're doing, please buy some stock, keep eating fresh fruits and vegetables and nuts. And now I'll stop and the operator will come on and give you instructions on how to ask us some questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Rob Stevenson from Janney.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [2]

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The -- I believe the lease on the strawberry farm started August 1. Is there going to wind up being any negative adjustment to the third quarter for the month of July from operating net this...

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Lewis Parrish, Gladstone Land Corporation - CFO & Assistant Treasurer [3]

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For net operating income basis, it's about 3% higher from the lease that was on the property prior to our TRS. Obviously, as we mentioned, we'll only get 2/3 of that benefit for the third quarter, but it will be slightly up.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [4]

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Okay. So -- but there won't be really any drag. There's not another -- there is not anymore lost inventory or anything else like that, that winds up hitting in July, rather than all of it hit in the second quarter?

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Lewis Parrish, Gladstone Land Corporation - CFO & Assistant Treasurer [5]

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There is no additional inventory to write off, but there -- I mean, we might have a few invoices trickling in just related to cleanup costs on the farm, but I mean, we don't expect anything significant to come through.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [6]

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Okay. And then, when you take a look at the go forward run rate, I mean, is it -- obviously, there's a lot of noise in the second quarter even with -- even if you exclude the strawberry stuff. I mean, what should we be thinking -- how should we be thinking about the third quarter? Does that mirror more like the first quarter or is it somewhere in between or more like the sort of core FFO from the second quarter? In terms of helping us figure out, like what's going to wind up hitting from both the revenue and expense standpoint as we go into the back half of the year. What can you tell us about that?

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Lewis Parrish, Gladstone Land Corporation - CFO & Assistant Treasurer [7]

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It's going to be, I'd say, somewhere in between the first and second, maybe different from each of them. I mean, we'll have the additional revenues from the new Florida farm, which as David said, about $1.4 million greater than what we were getting for the farm we sold. We'll have the new lease on the farm previously operated by our TRS. New acquisitions that we expect to close on and as well as the lease that we hope to have signed up on that one farm that's partially vacant, and I guess, another fact would be the revenue-sharing components, but those probably won't come into play until Q4.

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David John Gladstone, Gladstone Land Corporation - Founder, Chairman, CEO & President [8]

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Rob, we don't, obviously, divulge the projections we've given to the Board or internally, but my guess is, we're going to be stronger.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [9]

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Okay. I just wanted to make sure that there wasn't anything that they were not thinking about that winds up impacting the third quarter either dramatically to the plus or the negative side that would wind up moving things around more than a penny or 2.

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David John Gladstone, Gladstone Land Corporation - Founder, Chairman, CEO & President [10]

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Well, the plus, obviously, is the new leases. There aren't any big negatives coming. So you -- we should be fine, and I just think it's going to be a plus.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [11]

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Okay. And then, when you're out there talking about people for lease renewals, et cetera, for next year, et cetera, any sort of sense that -- and I know that you guys don't have much in the way of exposure to corn, wheat and soybean, but just in terms of the crops that you do have exposure to, how much is -- are the tariffs and the trade war stuff coming into their thought process and how they go forward and what they plan for the year ahead, and how much, et cetera, and what their likelihood to take on more land or give back land and farm less land. How is that sort of playing out in your market?

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David John Gladstone, Gladstone Land Corporation - Founder, Chairman, CEO & President [12]

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If you look across all of the markets, and I'll be more general, I don't think we're going to get hurt much by any tariffs. There's obviously going to be some tariffs on some of the food stuffs, and so you're going to see apples and perhaps pretty sure we'll have some on almonds. Most of our almonds, or a lot of them are organic, and they don't go to the Chinese, but the rest of the almonds will have some kind of hit, maybe not a lot. And second of all, we've had some cherries. The cherries have been under -- the crops' mostly gone in the cherries that we grow, but the -- that our farmers grow, but the cherries that -- for next year, we'll probably get some hit there. We don't have a lot in cherries. So we're not going to be a big hit to us. I don't know, I don't think they sell many pistachios to China, but I have to go look at that. We should run that to ground. We just got the list of things. I didn't see anything in there that was going to hit us hard. We don't have a lot of farms, obviously, in the big crops that are going to be hit. I don't know how all of that's going to shake out. My guess is, the folks in Europe are going to blink pretty soon, but we don't have much going to Europe and the Chinese are going to hold out as long as they can because the differential is huge. But hopefully, agriculture will be at the top of the list. The President keeps talking about agriculture when he talks to the Chinese, but it's mostly about the grain crops. So who knows, it's an unknown, but I think the impact to us is going to be slight and the reason its impact is slight to us is the farmer, while they may not be making what they wanted to make, the bottom line is they're going to pay their rent. And they're not going to come in and say, hey, you go to cut your rent because I'm not making this much money. We're going to say, you got to have that -- that's on your balance sheet and P&L for the foreseeable future. Sure, in 2 or 3 years, if we're still tied up in something like this, then it will have an impact, but nothing in the current quarters. I only see out about 6 months, maybe 9 months, at the most, and I see nothing coming like that.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [13]

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Okay. All right. And then the only other question for me, the different -- the fact that you guys are only 99.8% occupancy, is that the strawberry farm or is that something -- some other small asset or part of an asset that keeps you from being 100% occupied.

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Lewis Parrish, Gladstone Land Corporation - CFO & Assistant Treasurer [14]

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That's the one farm we acquired in January that we bought for the first time without a lease in place. We put a short-term lease on it on about 35 acres, but the remaining 100 acres or so remains vacant. But that's the farm that we expect to have a long-term lease signed up on shortly.

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Operator [15]

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Our next question comes from the line of John Massocca from Ladenburg Thalmann.

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John James Massocca, Ladenburg Thalmann & Co. Inc., Research Division - Associate [16]

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So if we kind of look at the nation-wide USDA numbers, it seems like farm income and land values -- and farmland values are moving in opposite direction. In your kind of opinion, David, what do you think is driving these trends? And are you seeing these trends in your specific growing regions? And I'm kind of commenting on national trends.

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David John Gladstone, Gladstone Land Corporation - Founder, Chairman, CEO & President [17]

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Yes. National trends are dominated, obviously, by the grain people, and I think, those folks are living in la-la land because they can't make money, but the price of the farm still remains reasonably high. If you look at Iowa farmland as an example, they haven't really gone down that much, maybe 5%, 8%. And just frankly, I don't know why anybody would buy a farm to lose money. The old joke in the business is how do you make a small fortune in farming and that is start out with a large fortune. So the bottom line is a lot of people are in trouble in the Midwest. I'm not seeing any of that in the other areas. There was a little bit in Oxnard last year as people were cutting back on how much they were going to put into Oxnard. Oxnard is a strange marketplace, in that you've got to be first to market. And you never know when you're going to get hit. And so every 3, 4, 5 years, you're going to have a year in which you get some losses, and so some people were not willing to take that any -- take that risk anymore. And so prices went down a little bit. I think they're pretty stable now, but heck, I don't know. I know, we've got one large farm out there that Dole rents from us, and Dole has been going out of the business since they've got a new owner. And so as a result, we've got another group that wants to rent it, and we're currently negotiating price. And that doesn't come up until 2020. So we got a while to wait on that. But I haven't seen any deep discount there. Oxnard is one of those places that's getting water coming in to the farmland area by the new process. They've put in a new processing plant, it's massive, and they're running pipes out to the farms. So we'll have some of our farms in Oxnard with not only our own wells that we have in place, but also be able to have a turnout from the city that takes the excess water from the city -- not excess, all of the flushing and the water that's coming out, they run it through a processing plant and then they send it out of the farmland. It's perfectly good water. It's potable water, but most people feel like where it's come from, it's repugnant, and they won't drink it. So as a result, they ship it out to the farmers and we pay for it. We're doing that in Watsonville very successfully. I just don't think as long as you've got a good farm that's got good dirt and good water, the prices aren't going to go down as long as you're growing crops like we're growing on ours. And so, John, I think, everything is hunky-dory at this point.

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John James Massocca, Ladenburg Thalmann & Co. Inc., Research Division - Associate [18]

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Understood. And then maybe can you provide some color on the disposition you completed in Oregon. Who is this existing tenant that wanted to buy the property? And it didn't sound like this would be something that you're going to do a lot of going forward. But is there a market potentially for more capital recycling as you move forward?

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David John Gladstone, Gladstone Land Corporation - Founder, Chairman, CEO & President [19]

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Probably not. That was a specific case in which the farmer that we had as our tenant, sold out to a tenant that has farms on, I think, 3 sides of our farm. And that tenant wanted to buy that farm. Economically, they can probably make more money out of it than non -- than some other tenant. And they just kept raising the price and finally, we said, okay, we can make another $8 million. We can -- we don't have to pay tax on it because we're buying another farm and use that as the equity. And so we did. And that became a very nice transaction because of that. I can't imagine there are that many farms that we have that are going to -- under that kind of situations where the existing farmer just wants it in the worse way and is willing to pay up. They're great farmers, and they became our tenant once they bought our tenant, obviously. So we knew them very well and I've known them for years and they own a lot of property. We tried to swap it out for something else, but it ended up being a better deal this way. I'd prefer never to sell any of the properties, but I know one day that large farm we have in Oxnard, it's about 600-some acres, it's just too close to L.A. It's 1 hour and 20 minutes from L.A. Someday it's going to get zoned or some buyer's going to know they can get it zoned because they know all the people that approve the zoning, and they're going to be willing to pay 4 or 5x what we paid for. So I know those will happen going forward, I wish they wouldn't because I think we have a great dividend paying and having one big hit every now and then is fun to look at. But it just means you got to work harder to find another farm.

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John James Massocca, Ladenburg Thalmann & Co. Inc., Research Division - Associate [20]

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Understood. And then kind of lastly, on kind of the balance sheet side, if you look at the 2 different kind of pieces of debt you guys raised subsequent to quarter-end, there was almost a 100 basis point spread between the 2, even though they were same term, obviously, entered into around the same time period. What's kind of driving it? Is it the interest patronage on the one in Florida or is it something with loan-to-value, just any color there?

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Lewis Parrish, Gladstone Land Corporation - CFO & Assistant Treasurer [21]

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As you said, it is the interest patronage and farm credit, the stated rates are anywhere between 50 to 100 basis points higher than the effective rate after getting that patronage or refund back. On an effective interest rate basis after the patronage, we expect the loans from farm credit to be probably in line, if not a little bit lower than the farm at McLean.

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Operator [22]

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(Operator Instructions) Our next question comes from the line of Lisa Springer from Singular Research.

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Lisa Springer, Singular Research, LLC - Research Analyst [23]

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I wanted to ask you about the acquisitions that are in the pipeline. I'm wondering, should we anticipate that those are going to be in the regions where you already have a strong presence or would we maybe see you expanding geographically?

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David John Gladstone, Gladstone Land Corporation - Founder, Chairman, CEO & President [24]

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Let's see, I'm looking at the list now, 3 are in California. I'm just trying to look where they are. Those are a little bit outside, a little bit north of where we are, and we've got one in Texas, which is the first time we'd be in Texas. The others, almonds in California and little bit of citrus, but mostly vegetable in California. So I would say, yes, most of them are in our zone of where we're looking and trying to do. We've got some different crops, which bring on different discussions. If you do figs, for example, the fig trees last about 100 years, and we've also looked at some olive trees, those only last a couple of thousand years. So you plant them once. It's looking a little far out for me to keep up with those.

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Lisa Springer, Singular Research, LLC - Research Analyst [25]

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Okay. Do you do avocados, by the way, I'm just curious?

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David John Gladstone, Gladstone Land Corporation - Founder, Chairman, CEO & President [26]

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Yes, we've got a few avocados, but quite frankly, Mexico -- I'll say this about it, the avocados in California, if you can find them and eat them, they're wonderful. The ones coming out of Mexico are good, but not as good and the ones coming out of Peru are good as well. But the basic crop that you see in the grocery stores are mostly Mexican or Peruvian. There are some other places that grow, but quite frankly, those are where most of them come from. We're not going to Mexico anytime soon. I can't quite figure out what's going on in Mexico. We've seen some of the crops in Mexico get taken over by the cartel and I'm not working for the cartel. So that's the other side of that.

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Operator [27]

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This does conclude the question-and-answer session of today's program. I'd like to hand the program back to David Gladstone for any further remarks.

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David John Gladstone, Gladstone Land Corporation - Founder, Chairman, CEO & President [28]

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All right. Thank you all for calling in. We enjoyed the questions that you asked. Hopefully have more than that next time and that's the end of this call.

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Operator [29]

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Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.