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Edited Transcript of LAND earnings conference call or presentation 8-May-19 12:30pm GMT

Q1 2019 Gladstone Land Corp Earnings Call

Mclean May 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Gladstone Land Corp earnings conference call or presentation Wednesday, May 8, 2019 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

* 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 First Quarter Ended March 31, 2019, Earnings and Webcast Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce to your host for today's conference, Mr. David Gladstone. Sir?

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

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All right, thank you, Lauren. Nice introduction. And this is David Gladstone and welcome to the quarterly conference call for Gladstone Land, and thank you all for calling in today. We always appreciate taking time to listen to our questions that you give us and we think you would get a lot of information out of our presentation. We always start with our lawyer. Erich Hellmold is going to give the invitation to listen. Go ahead, Erich.

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

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Thanks, David, and good morning. Today's report may include forward-looking statements under the Securities Act of 1933 and 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.gladstonefarms.com, specifically the Investor Relations page, or on the SEC's website. 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 as required by law.

Today, we will 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.gladstonefarms.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 have our own Twitter handle, @gladstonecomps. Today's call is an overview of our results, so we ask you to review our press release and Form 10-Q, both issued yesterday, for more detailed information. Those can also be found on our Investor Relations page of our website.

Now I'll turn the presentation back to David.

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

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Okay. You're in for a treat today. We've decided to leave out of these quarterly calls of stockholders -- quarterly calls to stockholders, the history of the company and the basic operation strategy. So we're streamlining it down just to make sure you get the basics. Much of that stuff about the history as well as the basic operation is on my website. And I hope you go to the website and read all about us, and we are at gladstoneland.com.

This quarter out a -- acquisitions got off to a really slow start, couple of our acquisitions were delayed for minor reasons. I think we'll pick those up in this quarter. But the second quarter has already started off okay and our current backlog of potential acquisitions of farms is as well as strong as we've ever seen. So we're hoping to have some really strong results for you in the coming months. We were successful and really seeing in front. We now have 100% occupied, so great shape.

Looking at the total farmland ownership, we currently have 87 farms in 10 states with about 75,000 acres. The value of these farms is about $649 million. Our farms are located in 21 different growing regions and we grow over 40 different crop types. Our farms are leased to 64 different tenants, all of whom are unrelated to us.

Now let's move over to some recent activity. During the quarter, we acquired 1 small farm in Nebraska for about $2 million and that grows popcorn and edible beans. And right after the quarter end, we bought a large pistachio farm in California for about $29 million. Overall, the initial net yield on these farms was about 6.6% and leases on both of the farms also contained certain provisions such as annual escalations or participation rents. That should push the figure much higher.

On the leasing front, we continue to have quite a bit of leasing activity on our existing properties. Overall during and after the quarter, we either executed new leases or extended the existing leases on 10 of our properties. In total, new leases will result in a small increase in the minimum fixed cash rents and in addition, 3 of the new leases including -- include a participation rent component, whereas only 1 in the prior leases did. I like these participating rents. Last year, that is ending 12-31-2018, we had about $1.2 million of participation rents and we're hopeful that will be even more in this year that we're in.

As of today, our farms are 100% leased and we don't have any leases expiring over the next 6 months. We do have 2 leases expiring in December of this year. It's about 2% of our total minimum annualized rent, so we're not too worried about that, but we're working on it. We do have some leases scheduled to expire in 2020 and we've began negotiations with the both existing and potential new tenants on more significant -- these are more significant larger farms. And one of them, we now have 3 groups that are behind to be on that farm. We expect to be able to renew all the leases that are coming up, and we'll have some more progress report for you on our next call certainly and maybe along the way.

Now our capital raising efforts during the quarter. Since quarter end, we raised about $25 million in new proceeds through the sale of our nontraded Series B preferred stock. And just as a reminder, we plan to list that Series B preferred stock on Nasdaq within 1 year of the completion of the offering. We're trying to raise $150 million, and done very well in the first 9 months. Everybody will get liquidity and then we'll have a preferred stock that trades on a regular basis.

Now in the process of these sales, we've paid certain sales commissions and broker-dealer fees to our wholly-owned subsidiary Gladstone Securities. That's a wholly-owned securities of Gladstone Capital -- of Gladstone Management. This is an affiliated broker dealer because our parent company owns it and it's a conduit for this offering as it pays out almost all of the fees to other unrelated third parties involved in the offering, such as the participating broker-dealers and the wholesalers. Today, it has paid out about 94% of the fees that we've earned in Gladstone Securities to third parties who are helping us sell it. They're not related to us.

And again, the point of the Series B is to allow us to grow our portfolio at a steady pace. We have money coming in every month from this. This pace is without having to quit as many common -- sell as many common shares and which you know immediately dilutes the value of the common stock. We look at the Series B preferred stock as a way to augment our long-term capital needs and it also produced a preferred stock that has some ability to raise money going forward.

Well, that's enough on the operations. Let's go over to Chief Financial Officer, Lewis Parrish, to talk about your numbers. Lewis?

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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, everyone. I'll begin by discussing our balance sheet. During the first quarter, our total assets increased by about $10 million or 2% primarily due to cash proceeds received from sales of our Series B preferred stock, as well as the 1 new farm we acquired during the quarter which is funded through a combination of new fixed-rate borrowings and proceeds from our preferred stocks sales. From a financing perspective, in addition to the proceeds from equity issuances, we also secured about one loan from a new lender and it will carry an effective interest rate of 4.7%, and that is fixed for the next 4.7 years.

From a leverage standpoint, on a fair value basis, our loan-to-value ratio on our total farmland holdings was about 50% at March 31. We're comfortable at this level given the relative low risk of high-quality farmland as an overall asset class. While interest rates continue to be volatile, over 98% of our borrowings are currently at fixed rates. And on a weighted average basis, these rates are fixed at 3.57% for another 6 years out. So we believe we are currently well protected on the debt side against any further interest rate hikes.

Regarding upcoming debt maturities, we have about $31 million coming due over the next 12 months. However, about $22 million of that represents the maturities of 3 bullet loans (technical difficulty) due either at the end of 2019 or the beginning of 2020. And given that the 3 properties collateralizing these loans have increased in value by an aggregate $2.2 million since their respective acquisitions, we don't expect to have any problems refinancing each of these loans with either the current lender or potentially new lenders. So removing those maturities, we only have about $9 million of amortizing principle payments coming due over the next 12 months or little less than 3% of our total debt outstanding.

Now I'll move on to our operating results. First to note that we had net income for the quarter of about $108,000 and we had a net loss to common shareholders of about $493,000 or $0.03 per common share. Compared to the prior quarter, our adjusted FFO increased by about $186,000 or 8%, while AFFO per share remained flat at $13.03 per share equally in the common distributions declared in each quarter.

From a cash earnings perspective, while rental income from fixed base rents increased slightly from the prior quarter, our total rental revenues decreased by 3% and that was just due to the amount of participation rents that we recorded during Q4 of last year as those will generally get recorded during the quarters 3 and 4 of each fiscal year. Core operating expenses decreased by about $32,000 or 2%. We continue to incur higher property operating expenses due to ongoing cost to rent generators to power newly drilled wells and additional repairs and maintenance expenses we performed on one of our properties, as well as one final payment made related to getting certain permits in place on another one of our properties.

The delivery of the new generators was delayed from our initial expectations, which led to the continuation of these costs. However, the first batch of generators was delivered to the property in April, another one is getting delivered next week, and then the final delivery is scheduled to take place in June. And the permitting issue on our other property has now been fully resolved. So we hope to be able to show a reduction in our property operating expenses for Q2 with a return to a more normalized amount coming in the third quarter.

The increase in property operating expenses was offset by a decrease in our aggregate related party fees, which was driven by a credit granted to us by our advisor during the current quarter. We also recognized additional income during the current quarter due to interest patronage received on certain of our borrowings from farm credit. However, this was offset by the drive on earnings caused by dividends owed on new issuances of our Series B preferred stock as we weren't able to invest those proceeds until right after quarter end. However, this money is now being put to work so we don't anticipate this being the case for the second quarter.

Now I'll move on to net asset value. We had 29 farms revalued for the quarter, all via independent third-party appraisals. We got a slight increase in the overall value about $168,000, but overall it's relatively flat. As of March 31, our farms were valued at about $620 million, all of which was valued based on either third-party appraisals or the actual purchase prices. And based on these updated evaluations and including the fair value of our debt and all of our preferred stock, our net asset value per share at March 31 was $12.30, which is down by $0.58 or 4.5% from last quarter.

The primary drivers of this decrease were decreases in longer-term market interest rates, interest rates, which increased the fair value of our fixed rate long-term borrowings as well as ongoing capital increments we're making on certain of our farms, the values of which won't be reflected in the farm's credit values until the respective projects are complete.

And turning to liquidity, including 1 unencumbered property and availability on our lines of credit, we currently have about $38 million of dry powder, which translates into roughly $60 million of buying power for straight cash acquisitions. But we also have the ability and intent to issue new OP Units as consideration for purchases, if the opportunity arises. And we're now generally completing 2 closings per month of the Series B preferred stock, so we expect to receive additional proceed through future sales of that as well.

Finally, we have ample availability under our largest borrowing facility and we continue to be in discussions with potential new lenders for either additional facilities or individual borrowings. But overall, credit generally remains readily available to us, and we have plenty of room and ability to continue borrowing and buying new farms that meet our investor criteria.

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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Good report, Lewis. Our list of potential farms to buy is extremely healthy today. It's nearing $200 million. So we hope to be in a very good shape. I'll go out on a limb and say we'll probably be over $800 million, and if we got all of it closed, it would be $850 million in 2019. And I'm hopeful that we hit the magic number that I like so much in 2020, which is $1 billion. So that give you a heads up of where we're going.

And just a few final points I'd like to make. As most of you know, our fund specializes in farms that grow fresh fruits and vegetables and farms that grow nuts, and other tree crops like apples, cherries, figs. One reason for this is we believe these farmlands growing crops that contribute to healthy lifestyle such as fruits and vegetables and not to mirror the trends that we see in the marketplace, and that it will continue and switch toward more healthy foods.

Currently, over 85% of our total revenues comes from farms that are growing these types of food and that you can find in either the produce of the nut section of your local grocery store. We consider these foods to be among the healthier type of foods and we're seeing a growing trend toward organic. And among these -- and among these food groups, that's especially true of produce section of your grocery store. You see that growing and a whole section is devoted out now to organically grown.

In addition, over 40% of our fresh produce acreage is either organic or transitioning to become organic. That's over 20% of our permanent crops, that is the nuts and those things on trees are organic. The organic sector continues to be a strong growth area. In addition, over 95% of our portfolio is GMO-free. We've got a few farms in the Midwest that's got little bit of GMO in it, but now that's being watered down as we're not doing more GMO.

Another major reason why our business strategy is to focus -- is focused on farmland growing fresh produce is due to the effect of inflation on particular segment. According to the Bureau of Labor Statistics, the overall annual CPI generally keeps pace with inflation. However, over the past 20 years, the fresh fruits and vegetable segment of the crop has outpaced the total food CPI by a multiple of 1.7x, so inflation is heavier in the fresh food side.

And while our prices of commodity crops are typically more volatile and susceptible to competition from other parts of the world, fresh produce is mostly insulated from global volatility, mainly because the crops are generally consumed locally within a short timeframe after being harvested. Ultimately, we believe that farmland is GMO-free and growing healthier crops such as fruits and vegetables. They're going to continue to outperform the overall farmland market in terms of both cash returns and long-term value appreciation.

Overall demand for primary farmland growing fruits and vegetables remains very stable and very strong in many places. And this is mostly along the West Coast including most of California, Oregon and Washington and the East Coast, especially Florida. Farmland overall continues to perform extremely well compared to other asset classes. Despite some of the downturn in certain regions, the NCREIF [and] this is the index of farmland, which is currently made up of about $10.4 billion worth of agricultural properties, has an average annual return over the last 15 years of 14.7% and that compares very favorably with the 6.9% in S&P index.

And you should know that during these 15 years, the farmland index has never had a negative year like the 2 years S&P had during the great recession. Farmland has generally provided investors with a safe haven during turbulent times in financial marketplace and both land prices and food prices, especially for fresh produce, have continued to rise steadily.

As you know, we recently raised our dividend again to $4.45 per share per month. That's a rate of about $0.534 per year run rate. Over the past 52 months, we've raised our dividend 14x resulting in an overall increase of 48% in our month's -- in our monthly distribution rate to shareholders over this timeframe. And this is a reflection of the wonderful accomplishments of the team here and the agricultural experts, the financial people. They're all very experienced at finding and managing high-quality farms paired with strong tenants generally reliable in their rental payments.

Our goal is to continue to increase the dividend at a rate that outpaces inflation. I think we're doing a good job of that. As you know, I'm the largest shareholder and I'm definitely liking these dividend increases. In 2013, we made 75 -- since 2013, we made 75 consecutive monthly distributions to stockholders totaling $0.404, so -- I'm sorry, $4.04 per share total distributions. Paying distributions to our shareholders is the paramount important thing for this business. We are in essence a dividend paying company. We're not out to set records on stock prices, but stock prices doing okay. We were at about $13.54 at our current distribution run rate where the stock is priced today at about $12.50 a share. That's a 4.27% return on investment paid out in dividends and this is right in line with the average yield across the entire REIT index today. But when you consider the relative stability of the underlying assets, you're investing in on our stock.

I just think that stock offers a wonderful alternative to those who are worried about inflation and price changes. We do have a preferred stock that has little over a 6.1% return and we also are doing our Series B, which pays 6%. So all of this is looking extremely good now in terms of the base of this company.

Please remember that purchasing stock in this company is a long-term investment in farmland. I think an investment in our stock really has 2 parts. It's similar to gold in that it is an asset that doesn't go away. It's dirt that has an intrinsic value because there is a limited amount of it and it's being used up by urban development. And unlike gold, it's attractive investment because it has cash flow to investors and we believe this is better than a bond fund because it keeps increasing the dividend.

We expect inflation, particularly in the food sector, and we expect it to grow and we expect the values of the underlying farm land to increase as a result, with especially true in fresh produce section as been demonstrated by the last 15 years. So I think it's just a good way to look at our farmland first as a hedge against inflation, both in food prices and other areas; and second, we're looking for an asset that doesn't correlate to the overall stock market and we believe this is the one.

So if you like what we're doing, please buy some stock and keep eating fresh fruits and vegetables and nuts. And now, the operator will come on and give the instructions on how to ask 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 Rob Stevenson with 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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David, can you provide update off the 8-K that you guys filed on the RTS Orchard transaction and when that's supposed to close? And if it's in multiple parts or 1 transaction as a whole?

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David John Gladstone, Gladstone Land Corporation - Founder, Chairman, CEO & President [3]

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Yes. We've got Q1 and then there is probably a Q4 coming up -- I'm sorry, Q2.

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Lewis Parrish, Gladstone Land Corporation - CFO & Assistant Treasurer [4]

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Q3.

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David John Gladstone, Gladstone Land Corporation - Founder, Chairman, CEO & President [5]

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Q3?

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Lewis Parrish, Gladstone Land Corporation - CFO & Assistant Treasurer [6]

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Q3 and Q4.

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David John Gladstone, Gladstone Land Corporation - Founder, Chairman, CEO & President [7]

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Q4, it keeps slipping. Q3 and Q4 is where we are expecting those 2 pieces to close.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [8]

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Okay. Is it roughly half each -- is it roughly divided in half or is it skewed?

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David John Gladstone, Gladstone Land Corporation - Founder, Chairman, CEO & President [9]

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That's right. No, it's half.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [10]

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Okay, all right. And of the $29 million pistachio acquisition in the second quarter was not part of that, that's a totally separate transaction. Is that correct?

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David John Gladstone, Gladstone Land Corporation - Founder, Chairman, CEO & President [11]

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Different transaction, love those Pistachios.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [12]

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Okay. And then in terms of the Series B preferred, so you guys have issued year-to-date, I think it's roughly sort of $25 million. You're targeting $150 million and then listing thereafter. I mean what are you guys thinking in terms of the overall sort of limitations of preferred in the capital stack? If you are $150 million there and then I think the Series A is call it roughly $30 million or something like that, you guys would be $180 million, if my math is correct there, of preferred which is a sizeable percentage of your equity?

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David John Gladstone, Gladstone Land Corporation - Founder, Chairman, CEO & President [13]

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Yes. That should do us, although it's not coming in as you know quickly. So it probably won't get to that $150 million until maybe 2021. We might do it in 2020, but I doubt it. So the goal is to keep that coming in at a slow rate and it's doing about $5 million a month. And as a result of that coming in at a slow pace, we can put it to work pretty quickly rather than having an offering that gives us $20 million, $30 million, $40 million all at once.

And on the one hand, it's more expensive than common stock. On the other hand, I think the common stock is grossly undervalued. I know most presidents say that. And I agree with that as far as our stock is concerned, but I am trying to protect our common stockholders for another year or 2, and then we can raise some more stock in the commons area.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [14]

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But the listing wouldn't occur until you hit the $150 million, the public listing?

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David John Gladstone, Gladstone Land Corporation - Founder, Chairman, CEO & President [15]

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That's right. That's right. If the document says when we get to a $150 million, we will list within a year and if we never get to the $150 million at the end of 5 years, we'll list -- we could list today. We have enough sold, it's more like $30 million…

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Lewis Parrish, Gladstone Land Corporation - CFO & Assistant Treasurer [16]

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$55 million.

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

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$55 million or so is sold. So $55 million preferred stock will trade. It won't trade as well as the $150 million. And we have in our other companies many of this buyers of preferred stock and they are all looking at this, but they don't want to go in until it's out there listed and running.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [18]

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Okay. And then I mean in terms of percentage of the overall cap stack, I mean Lewis had called it somewhere between 20%, 25%, that's going to be preferred heavy. Is that -- do you bring that down overtime by issuing common and issuing in debt? Or is the 20%, 25% preferred slug in the capital stack something that you guys are comfortable with long term?

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

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I'm comfortable with that. I see this asset is so stable and long term and paying as agreed that I don't mind a little extra leverage compared to some of the folks that are out there, simply because of the stability and the value of the asset that's holding it all up.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [20]

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Okay. But is there an upper bandwidth? I mean is -- if the Series B, you listed $150 million, do you then start a Series C of non-triggered preferred and start ratcheting it up? I mean there is some people out there that have preferred effective -- with preferred effective leverage, 75%, 80%, 90% of their market cap.

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David John Gladstone, Gladstone Land Corporation - Founder, Chairman, CEO & President [21]

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Well, that certainly doesn't fit with what we're doing, but overtime I'm hopeful that we can balance that out so everybody feels comfortable with it. I think if we demonstrate as we have over the last 5 years that these assets are very strong in terms of getting money coming into the company, then we can look at the outflow and determine how we want to set it out. Do we want to set it up in common because it does pay a dividend or do we want to do in preferred?

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [22]

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Okay. And then last one from me. I mean, how you guys -- I mean lot of concentration here in pistachios. What is it about that crop that leads you to be comfortable with the concentration that you guys will by year-end have in pistachio of the RTS transaction clauses?

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David John Gladstone, Gladstone Land Corporation - Founder, Chairman, CEO & President [23]

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Well, first of all, those trees last 100 years. So as a result, we like the fact that you don't have to plant them every year. And most people take out 1 or 2 trees that aren't performing well and put in others, but there's not this wholesale change of the asset base in pistachios. The other thing is the users of pistachios are putting them into more and more things. I think you can eat granola today without having pistachios and certainly, a lot of the cookie people are putting pistachios in.

So as a result, pistachios are very strong in the market place today in terms of usage. They're even stronger than some, say, walnuts. Walnuts are coming along again, but pistachios have taken over. And if you look at the world, Iran used to have most of pistachios and they still grow a lot, but that's about the only place we compete with. And California has the pistachios strength that you will never see in any other part of the world, I don't think. And they're growing lots of them. So it's -- you don't want to everybody to plant pistachios simply because that would bring on too many, but right now it seems to be working just fine.

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Operator [24]

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(Operator Instructions) Our next question comes from John Massocca with Ladenburg Thalmann.

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John James Massocca, Ladenburg Thalmann & Co. Inc., Research Division - Associate [25]

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So just touching again on the potential Fresno County acquisition that you have under purchase and sale agreement, is there -- I know it's kind of maybe certain things you can't comment on, but are you contemplating participating interest potentially being part of the lease structure for those acquisitions? And maybe just kind of roughly should the cap rates you expect be largely in line with some of the prior acquisitions, notably the one you closed here in 2Q?

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

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It's really hard to say on where you end up in these. But generally speaking, tree crops have a higher interest rate or higher payment out than any other of the farm. So as a result, we like it for that reason. And I just look at this and I keep saying to myself, how many do we want? I would like to have more almonds. I'd like to have some walnuts. So those areas of the nuts are really terrific areas for long-term value. We've been looking at -- well, we have a lot of different trees, but if you look at trees like cherries and apples and oranges, they don't have nearly the strength that you see on the nut side of the business.

And so we've got a few. Figs, for example, are very long, long, long life, and there are other trees that have even longer life. So we're looking at that. We have to study each one of them, particularly you have to look at the market. Where are you going to sell these things that you're buying? For example, when we looked at figs, we were dealing with the largest fig grower in the United States and probably the world. And he's been at it for 30, 40 years. And we feel very comfortable that he's going to be able to sell these figs either as dried and in things like fig newtons. We've also looked at some other crops that are long lived. And I just think tree crops are a wonderful part of a portfolio and I'm hopeful that we can get more of those as time goes on. But, John, I don't know how to answer your question.

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John James Massocca, Ladenburg Thalmann & Co. Inc., Research Division - Associate [27]

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That was helpful though with the color. And then maybe one last thing, could this transaction potentially involves OP Units?

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

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We only have 1 on my list that going to give us some OP Units, and that's a farm in Florida. We'll do about 6% of the purchase price in OP Units. And once that -- and this is another reason to get big is that once you get up around $1 billion in assets and you're making good money, more people will take OP Units than have in the past. I think all of our people that have taken OP Units have converted and sold. I mean they really wanted cash at the end of the day. They made good money. They got in at a time when the price of the stock was less and they've been able to sell it at a much higher price.

So I would hold that out to people who are thinking about OP Units that most people have been winners, not only in terms of getting a tax free exchange but also in selling the stock -- the underlying stock from the OP Units. I think we bought back one for cash, but everybody else was sold in the marketplace. And while it put some pressure on the stock, I don't know, we are sort of exempt from all of the things that are going on in China and all of those kinds of things. The only crop that really is bothered by China is the almond crop. We don't sell any strawberries to China. And so as a result, we're just not looking at all of these things that are going on in terms of tariffs as being a problem for us. So as we look at the world today, I just think we're going to continue to do what we're doing, which is diversifying the crops.

We even have 1 guy that does mint. I never put that down as a list, but he grows mint. He grind it up and bakes it and makes it into a syrup and sells it to some of the chewing gum people. So we are looking at all the crops across everything. And if I could ever figure out how to do something in the Midwest, as we all know the Midwest people have -- well, there's been more bankruptcies of farmers in the Midwest that are growing corn and wheat and soy than any time in the past except for the Great Recession that we had in the '29 and '30.

So I just think there is opportunities out there, and we have to study and work, and we've got a good people here who love to dig into these different crops. And we'd like to go to different areas. For example, we bought some blueberries in North Carolina. We've got 2 new farms of blueberries in Michigan. These are interesting crops in that the maintenance is the problem. You got to maintain the blueberry farms and that means taking out some of the blueberry bushes. Headlines today, there is a blueberry that blooms twice a year. That would mean that every crop could get twice as much off the crop if it's replanted. But nobody is replanting yet because it hasn't been -- nobody has done much with that one and it's just out a year.

So it's constantly changing and our people here are constantly working on things like that. And you look at all of these crops that we've got, I think we're so well diversified both in geographic areas as well as crops as well as tenants. I think we've got a great -- and my goal is to grow the company to the size that will mirror the NCREIF Index because that's been a phenomenal return to shareholders over the years. And if we could get to that, it would be just terrific as a place to invest. It's great today, but we're going to make it better as we keep buying things. John, other questions?

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John James Massocca, Ladenburg Thalmann & Co. Inc., Research Division - Associate [29]

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Understood, yes -- no, appreciate the color. You did touch on the Midwest briefly and I know it isn't a huge portion of your portfolio today. But was there any impact on any of your tenants as a result of kind of the rough winter weather we saw in 1Q?

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David John Gladstone, Gladstone Land Corporation - Founder, Chairman, CEO & President [30]

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No, we were lucky. The floods as well as the rough winter didn't bother any of ours. We were on high ground. Years ago, I looked at a farm next to the Mississippi River and the guy swore to me that when the Mississippi overflowed, it wouldn't bother his farm. And a couple of months later, it overflowed and I had a picture of him standing next to the farm, which was published in the newspaper with his farm underwater.

We did have 1 farm in North Carolina in which when that storm came through, it was in blueberries and it went up about a foot on the blueberry, which is a 6-foot plant. And so it didn't really bother them. They couldn't get in to do some of the work they wanted on the farm, but nonetheless, it didn't bother anybody. So we've been lucky in terms of having farms that haven't been bothered by floods. We certainly have had no farm that has been anywhere close to the fires that have happened in California. So as of today, we should count our lucky stars because we don't have a problem.

Just as a footnote, we do have insurance and our farmers have insurance. So if a hurricane goes through Florida and blows away something, we'd probably be covered by the insurance. And so I think we covered 6 ways to Sunday, but there's always something out there that you haven't counted on, and I know it's out there waiting for me and I just have to be ready for it. John, any other questions?

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John James Massocca, Ladenburg Thalmann & Co. Inc., Research Division - Associate [31]

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And then just one kind of quick detail question on some of that leasing activity in the quarter. Was the $420,000 of improvements that were made on some of the new -- as a result of some of the new leases, are those going to be generating additional rental revenue or are those maybe more traditional PI dollars?

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David John Gladstone, Gladstone Land Corporation - Founder, Chairman, CEO & President [32]

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Those were PI dollars mainly because the 2 farms that we re-leased and got to a good farmer were taking over from somebody who didn't treat the vines -- the plants very well and as a result, they needed a lot of trimming, they needed a lot of dirt pulled up around them. So as a result, we put up the money to do that in order to get this wonderful tenant who looks like he's going be a great paying tenant to come in and take over those 2 small properties.

Okay. Anybody else got a question?

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Operator [33]

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I'm not showing any further questions at this time. So I'd like to turn the call back to you Mr. Gladstone for any closing remarks.

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David John Gladstone, Gladstone Land Corporation - Founder, Chairman, CEO & President [34]

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Okay. Well, we thank you all for calling in. And hopefully, at next meeting, we'll have some more good news for you. That's the end of this call.

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Operator [35]

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Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program and you may all disconnect. Everyone have a wonderful day.