Gladstone Land Corporation (LANDO) Q4 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Gladstone Land Corporation's Fourth Quarter ended December 31, 2015, Earnings Call and Webcast. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. David Gladstone. Sir, you may begin.

Well thank you and welcome to the quarterly conference call of Gladstone Land. This is David Gladstone. And thank you Kelly for that nice introduction and thanks to all of you for getting on the line today. We really appreciate you calling in. We always enjoy the time with you and hope we have a lot of good questions at the end of this presentation. We wish we have more time to talk with you and explain how well we're doing but it seems to be only once a quarter that we have these calls. By the way, if you are ever in the Washington DC area, we are located in nearby suburb called McLean Virginia and if you have a chance, come by, and say hello, you will see a great team in action. We have about 60 some members here now and we manage almost $2 billion in assets across our four companies that are publicly traded, so not a very small shop anymore. We start with Michael LiCalsi, he is our General Counsel and Secretary and he also serves as a President of Gladstone Administration, which is the administrator to all of the Gladstone funds, including this one. Michael?

Good morning everyone. This report that you are about to hear may include forward-looking statements within the meaning of the Securities Act of 1933, and Securities Exchange Act of 1934, including statements with regard to the future performance of the company. These forward-looking statements involve certain risks and uncertainties that are based on our current plan, which we believe to be reasonable, and there are many factors that may cause our actual results to be materially different from any future results expressed or implied by these forward-looking statements including all the Risk Factors listed in our Forms 10-K and 10-Q that we file with the SEC and they can be found on our website www.gladstoneland.com and on the SEC's website at www.sec.gov. The Company undertakes 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. And in our report today, as a Real Estate Investment Trust or REIT, we plan to discuss Funds From Operations or FFO. FFO is a non-GAAP accounting term defined as net income, excluding gains or losses from the sale of real estate and any impairment losses, plus depreciation and amortization of real estate assets. And the National Association of REITs has endorsed FFO as one of the non-GAAP standards that we can use in discussing REITs. And we'll also be discussing core FFO or CFFO, which adjusts FFO for certain non-recurring charges and adjusted funds from operations or AFFO, which further adjusts CFFO for certain non-cash items. And we believe these metrics improve comparability of our results period-over-period. And please review our Annual Report on Form 10-K filed yesterday with the SEC for a more detailed description of FFO, CFFO, and AFFO. And now the reports from our President and CFO, you are about to hear will be an overview of our operations and performance. We encourage all listeners to read yesterday's press release and the Form 10-K which includes a wealth of information for our investors. You can find them all at our website gladstoneland.com. And to stay up-to-date on the latest news involving Gladstone Land and our other public affiliated funds, please follow us on Twitter, username GladstoneComps; and Facebook, keywords, The Gladstone Companies. And you can go to our general website as well to see more information about this company and our other affiliated publicly traded funds at www.gladstone.com. And now, I will turn the presentation back over to David Gladstone.

All right. Thank you, thank you. We are doing a good job here. This quarter was a good strong quarter. We closed out the year, the wonderful year. But let me talk about a few things before I get to that you need to know more about the market environment and the nature of our business. Our business consists solely of growing and owning farmland and leasing it to independent and corporate farmers. We don't farm any of these ourselves and thus we don't take any of the growing risks. Obviously if they don't gross a crop, they can't pay the rent, but we are not directly related to the growing risk that they have. The independent farmers we lease to who are usually in the top 10% or 20% of the largest and best farmers in any of the farming areas that we go into and we generally prefer to keep the same farm owner as a tenant on the property as far as long as possible as they tend to know the nuances of farming that particular piece of land. Our objective is to be long-term real estate partners for our farmers, so they know they have the farm for the long-term. Most of our portfolio and investment focus continues to be in locations where farmers are able to grow high-value annual crops and these row crops. And these are such things, as berries and vegetables, and in the Midwest would be the potatoes and corn. During 2015, we also further diversified our portfolio by taking strong investment opportunities in other crop types, including some almonds. We've done some corn, potatoes, and barley in California, Arizona, and Nebraska, which represents an expansion into a new region for us. The geographic regions where our farms are located continue to experience a steady appreciation in both the underlying land values and the rents charged on the land, partly because we only purchased irrigated cropland with great soil and plenty access to water and it allows farmers to grow a variety of very high-value crops. We're very upbeat regarding the drought release provided by the recent rains and snow and this was caused by what they call El Nino. It's brought a lot of good work to California this winter. The Sierra Snowpack, which accounts for a third of the state's total water, is currently between 106% and 120% of normal across the state compared with just 23% of normal a year ago. Several locations are reporting snowpack's with depth and water content at the highest level since 2005. In addition, the Monterey Santa Cruz region where eight of our farms are located has received a 150% of normal amount of rainfall. This El Nino effect is expected to continue through the spring, probably as late as April may be even May, especially in Southern California, which normally gets most significant rainfalls between March and May. Now, let me get back to the portfolio of farms that we have. We currently own 16,810 acres on 43 farms, six states in the United States. We also own some cooling facilities and several other structures onsite. These are critical to the farming operations on these properties. However, investors in this company should expect a bulk of the assets and we're talking about 90% of farmland is leased to farmers to grow fresh food. That you can find mostly in the produce section of your local grocery store. You know these, they are berries, peppers, tomatoes, potatoes, corn, beans those kinds of things that you see in the produce section. We have two types of leases that we offer to our farmers. First, we have a pure fixed rate lease usually with built-in annual escalation clauses or a market reset somewhere along the way. And to this extent we also have participating leases where we charge a slightly lower cash basis rent on a monthly basis, and then a percentage of the growth sales of the crop on the land. The second type of leases are more for corps that have variable revenues from year-to-year, such as almonds and pistachios. And we have been extremely successful with our leasing strategy today. We've been able to average an increase in rental rates of over 16% of our lease renewal since the IPO we had. Generally, rental rates are good enough by the following factors. Farmland, especially high quality farmland near urban regions is decreasing in number and it's been driven up by demand for the remaining farms. The second, people adopt healthier lifestyles and switch to healthier diet, and they're also growing demands then for fruits and vegetables and nuts, which drive up the demand for farmland, such as ours that can produce these corps. This is particularly true of organic farms. We have some organic farmers and farms out there and others that are in the process of converting their farm, our farm to farm that they're farming into organic ground. Third, I think the thing it most pushes things now is population increase. There is a lot of upward pressure on being pushed to value of farmland, because global food demand is increasing while the supply of farmland is decreasing on a per capita basis. And finally, the buying power of the dollar inside the United States is going down as the government prints billions of dollars more, so that just drives up the price of all the produce that's coming off of our land. And I've also have to point to one thing, I'd say that the amount of farms in the region where our farms is relatively finite, there is really no new farms being developed in most of these areas, because the irritable land is currently being farmed or it has already been converted to suburban use. The trend we're seeing as a steady decrease in the number of farms in our growing regions and as they are being sold to build homes, apartments, office, schools, industrial buildings, those kind of things. And once they're converted to suburban uses, they really never go back to being farmed. Now, this causes the farms we own to be highly sought after and they've been rented for decades without ever being vacant. And now some details about the recent history. While during the quarter we invested $10 million in two new farms at a weighted average cap rate that is the yield that we're getting in terms of rent on the money we spent to buy the farms of about 5.6%. One of the farms is in Florida, the other is in Arizona, we have combined 15 wells on these sites, it's just plenty of water for these sites that these farms that we just bought. Water availability is paramount to our business. We say this every time and we're extremely diligent in only selecting farms with ample access to water. Since year-end, we've also entered into an agreement to acquire two new farms totaling 6,600 and some acres of farmland with total purchase price of about $41 million. We expect to close on both of these farms over the next couple of months. We also have some other farms under non-binding letter of intent. However we still continue to look at diligent process for these properties and there is really no guarantee that any of them will close, but we're pretty hopeful on a couple of those. And during the quarter we raised about $8 million in the small offering. We really don't like to do offerings when the stock price is so low. However we needed this to continue our growth and close on the farms that we had in our backlog and we purchased those now and otherwise we really like to terminate the farm purchases and walk away if we couldn't raise any money. And we didn't really want to do that, it sends a bad signal into the marketplace. All of these farms that we're purchasing were accreted even though we paid yearly for the money that we raised, but we kept the offering small so not to dilute the existing shareholders any more than we had to. As most of you know I'm the largest shareholders and I certainly don't enjoy diluting myself with new shares, but the need continues to grow and grow this company and these farms were accretive to the purchases that to the sale of the stock that we made. And now, I would like to highlight some of the progress we've made in farm portfolio since January 1, 2015. For the year, we invested $76 million during the year and we acquired 11 new farms and added 8,771 acres of new farmland to our portfolio of farms. The initial weighted average cap rate or the yield on these was about 5.1%. However, once certain improvements are completed, estimated rent participation and take account we expect overall cap rate or the yield in 2015 acquisitions to be around 6.5% for the future years. We renewed five leases that were coming due at an average increase of 15.6%. We expanded into our Sixth state by entering into the Midwest a new region for us. We increased our tenant base from 30 to 38 different tenants that we get great diversification there. All of these unrelated as we don't have any related tenants where we are owners or relationships there other than the rent that we charge. And we maintain 100% occupancy on our entire portfolio and that's been the case since the inception of the company. Now let's talk about one of the things I would like to talk about and that's the net asset value. As most of you know we don't usually do that but during the quarter we updated the valuation on 15 of our farms, eight of which were valued internally, and seven of which were reappraised by independent appraisers. The aggregate of these farms increased by over $10 million or about 8% from their prior valuation which was between 7 and 15 months ago. And the majority of this value appreciation over 70% of it came from valuation as determined by third-party appraisals, so this wasn't an internal job; this was really professionals doing that. As of December 31, 2015, our portfolio of farms was valued at about $285 million with 73% of the value based on third-party appraisals, or the actual purchase price, and 27% of the total or about $92 million was determined through internal valuation process. However the amount of value internally is about 95% of the amount or about $89 million is supported by third-party appraisals performed between 15 and 35 months ago. So it wasn't like we just invented everything. So the difference of about $4 million represented an increase in value since that time. Based on these new valuations, the net asset value per share at December 31, 2015, is $14.20 per share that's up $0.56 from September 30, 2015, and this is despite the offering in the quarter which was about over $900,000 or $0.09 per share of capital improvements made on some of the properties during the quarter the forecast of which has not yet been included in the corresponding increase of the properties at fair value. So once these projects are completed, we have properties reappraised, and we expect to capture a significant portion of not all of these costs through the value appreciation. We expect our net asset value to continue ticking upward on a regular basis as values of farmlands appreciate due in part to increasing rents in surrounding farms of our growing area increasing in price as they are taken over and turned into suburban type of things such as schools and other items. Well that's enough. Let's go to the Chief Financial Officer who has a whole lot more numbers than I just gave you. Lewis?

Thank you, David. Good morning everybody. I will begin our discussion with our portfolio activity and the balance sheet. We required two new farms during the quarter adding about $10 million in new assets to our books at a weighted average net cap rate that's rental income net of any property expenses we're responsible for such as real estate taxes of 5.6%. Our first acquisition was a 691 acre farm in Florida that we acquired for $4 million. We executed a six-year lease with a leading national grower and produce marketer that will yield a going-in cash cap rate of 5.3% and an overall or straight-line cap rate of 5.6%. This property will be farmed for a variety of vegetables and has six wells onsite. Our other acquisition was a 1,239 acre farm in Arizona that we purchased for $6 million. We executed an agreement with the tenant who has farming operations across the country for a five-year lease that will yield a going-in cash cap rate of 5.1% and a straight-line cap rate of 5.6%. This property will primarily be growing corn, as well as other vocational corps and has nine wells onsite. No leases were renewed or extended during quarter but subsequent to year-end we renewed one lease that was originally scheduled to expire later in 2016 at an annual rental increase of 18%. Combined with our 2015 lease renewals, this resulted in average rental increases of over 15%. We believe this underscores the trend we continue to see in areas where our farms are located, as the demand for prime farmlands, such as ours, as well as values of such farmlands and the rents they command is continuing to increase. And the sentiment seems to be shared by the tenant farmers in these areas as well. We only have one additional agricultural lease set to expire in 2016 and we began negotiations with the current tenant and expect to be able to renew the lease at an increased rate without any downtime. Moving on to our balance sheet. During the fourth quarter our total assets increased by $11 million about 5% due primarily to new farm acquisitions which were funded through a combination of debt and equity. We obtained about $8 million in new borrowings during the quarter at a weighted average interest rate of 3.1%. The majority of this debt, or about $6 million, represents long-term borrowings with rates that are fixed for the next six to seven years. And we also raised about $7 million in net proceeds in a small common offering in December, as David mentioned earlier. Most of these proceeds went towards paying down our line of credit. And now on to our operating results. For the second straight quarter every single per share metrics increased significantly over the prior quarter. And that was due to our operating revenues increasing by about 11%, while our operating expenses decreased by about 3%. Our operating expenses have began to stabilize over the past several quarters which allows us to increase our margins as our acquisitions and lease renewals drive our revenues higher. In fact over the past five quarters our operating revenues have increased by an average of 10% per quarter, while our operating expenses have increased by an average of just 1%. Going a bit more in detail our core operating expenses which strips out depreciation and amortization expense, acquisition-related expenses, and any fee credits received, decreased by about $45,0000 from last quarter. This was primarily a result of decreases in insurance expense due to lower overhead premiums that begin in September and in property operating expenses that's specifically real estate taxes. Just a quick note on real estate taxes. We had leases on two of our properties become effective on November 1 that reverted the burden for real estate taxes to the tenant. And beginning in 2016, four of our other farms were placed into land conservation acts, which should further reduce our annual property tax burden. We recorded about $137,000 of property tax expenses during Q4. But based on our current portfolio of properties, going forward we expect our quarterly tax burden to be reduced to approximately $91,000. And just a reminder, before taking a quick look at our per share numbers, core FFO is FFO adjusted for certain one-time charges such as acquisition-related costs and AFFO further adjusts core FFO for certain non-cash items such as converting GAAP rents to cash rents. Per share earnings from core FFO and AFFO for the quarter were $0.133 and $0.125 respectively, each fully covering our distributions of $0.12 per share. Further, these figures represent increases of over 18% and 21% respectively from the previous quarter. This equates to an improvement in core FFO and AFFO of $0.02 per share and $0.022 per share respectively from last quarter. For the year, our per share earnings from core FFO and AFFO were $0.442 and $0.398 respectively, compared to distributions of $0.465. Turning to liquidity. We currently have about $3 million of cash on hand and $21 million of availability under our MetLife facility. After factoring in certain operating obligations, we estimate that our current buying power is about $25 million beyond the deals we currently have signed up under purchase agreements. We also have plenty of room to leverage up on our borrowing facilities to replace new property to them. And we've been in discussions with certain of our lenders for either new facilities or expansions of the existing facilities. However, there is no guarantee that any of these discussions will materialize. We also have an ATM program in place that we hope will eventually provide us with additional capital to deploy towards new deals. Regarding our upcoming debt maturities, only 3% of our total debt outstanding, about $4 million is coming due throughout 2016. This includes a $1.5 million normal amortizing payment on our MetLife mortgage note that's due in July, and about $2 million of short-term borrowings that comes due later in the year. However, we expect to refinance about $1.5 million of this before its maturity. Heading into 2016, we believe we are beginning to achieve economies of scale resulting in some stabilization of our operating expenses. And moving forward, we expect that you will see additional revenues arising from new acquisitions and lease renewals have a more direct and positive impacts on our bottom-line. And with that, I will turn the program back over to David.

Okay. Thank you, Lewis. This company just continues to get better. It's really outstanding. The main points to this report is to tell you that we continue to execute our plan. Of course, we invested about $191 million in new farm assets since our IPO and that doesn't include the appreciation they had, and as well as our other farms that we're reviewing and expect to close in the coming months. With the increase in the portfolio of farms, greater diversification, and protection for investors, we also expect better earnings as time goes on from internal growth. As most people know, our funds specialize in farms that grow fresh fruits and vegetables. That produce section of your grocery store is what you'd see in our farms. And we have historically avoided investing heavily in farmland that grows traditional commodity crops. The major reason for this is we believe investing in farmland, growing crops that contribute to healthy lifestyle such as fruits, vegetables, and nuts. In addition, 90% of our portfolio actually more than that, 90% is GMO free. And we are rapidly expanding our ownership of organic farmland through both the acquisition and conversion of existing farmland into organic ground. However, the recent decrease in corn and corn land values, we have began to look at some properties that grow corn, potatoes, and some of the Midwest vegetables complemented by vegetables on a portion of the property that we recently brought in Nebraska and Arizona. But the unpredictability nature of corn prices and other commodity corps will prevent us from rating our farmland too heavily in that area. Currently, less than 10% of the total value of our portfolio is invested in farmland growing any kind of corn, wheat or soybeans and we believe this to be a good mix. Farmers just can't make much money with corn prices where they are today, bushel is about $3.65. Ultimately we believe farmland that's GMO free and growing healthy crops such as fruits and vegetables and nuts is going to outperform the overall farmland market in terms of both cash returns, as well as long-term value appreciation. As an agricultural real estate company, it's our responsibility to know these marketplaces, and we take pride in having built the foundation of our company across healthy sector of the agricultural industry and believe it's one of our company's core strength. In terms of economic outlook, farmland continues to perform extremely well compared to other asset classes. There's the NCREIF index farmland, which is made up about 667 agricultural properties worth somewhere around $6.7 billion and had a total annual return of 10.4% in 2015 and has averaged an average annual return of 14.3% over the past 10 years, compared to about 9.1% for the S&P index. Farmland has provided investors with a safe haven during recent turbulence in the financial marketplace. It's both land prices and food prices, especially fresh produce that continue to rise steadily. And most of all, farmland has historically been an excellent hedge against inflation. Not all farmland is the same. According to the Department of Agriculture, farmland that grows corn earns about $200 in rent per acre in the Midwest, where farmland that grows strawberries in the west or down in Florida or even in New Jersey is about $39,000 in rent per acre. Certainly, in Southern California that's the high point. So every acre of strawberries you need about 19.5 acres of corn farmland to get the same return according to the Department of Agriculture. So the number of acres are not nearly as important as the revenue per acre. For example, farmer growing corn on a 1,000 acres pay rent of about $200,000 a year, whereas a strawberry farmer only need about 51 acres, would only need to own about 51 acres of strawberry land to get the same amount of rent. We specialize in high rent, high quality farms that differentiates us from most of the farms owners and farmlands in United States. And one other thing, bushel strawberries today would sell for probably $50 a bushel in round numbers, whereas corn might get near $4 a bushel and that's not even counting the fact that you get many more bushels per acre in strawberries than you would any of the corn products. So our business thesis is very straightforward. There are more people in the world every year, people have to eat, farmers need farmland to grow food. Farmland today is being converted to non-farm uses, so there is less farmland to grow food. There is generally no replenishment of farmland or no more trees to cut down and turn into farmland certainly, in areas where we're farming in California and Florida. The buying power of the dollar, at least inside the United States continues to decrease and this pushes up prices. Therefore, farmland is becoming more valuable every year and it's certainly a limited supply. We increase our distribution rates during the year twice to stockholders and resulted in about a 33% in a monthly distribution rate to shareholders. And this January, our Board voted to maintain a monthly cash distribution rate of $0.04 per common share per month for the first quarter of 2016. I think we can raise this distribution in the coming year at least that's my hope. Since our IPO we've made 36 consecutive monthly distributions to shareholders totaling $2.36 per share in distributions, paying distributions to our shareholders is paramount to our business, we are dividend paying machine. We projected strong production and income growth for 2016 and our expectations are net. We hopefully will be able to increase the dividends again in the near future. As the largest shareholders, I certainly like working hard here and increasing the distribution. I like receiving dividends as much as anybody else does and so let's see what we can do this year. Our stock is currently trading at $8.24, which is significantly below our net asset value per share. Thus, we are hopeful that the stock price will rise during the year. So if you buy stock today you're getting a discount from our estimated net asset value of about 42%, so you're buying $14.20 worth of assets to just $8.24, it's an incredible price. And along the way, you are getting $0.04 per share per month in cash distributions while you wait for us to continue to grow, that's a 5.8% yield on your money while you're waiting for us to continue to grow this and that's way higher than the average return that you get from the entire REIT index today. So, please remember that purchasing stock in this company is long-term investment. This is not an Internet Company that's going to explode overnight. It's a type of asset just like gold except that it's an active asset and has cash flow to investors. We always love to point out that Warren Buffet's comment that we rather have all the farmland in the U.S. then all the gold in the world, we obviously agree with Warren. Next item. We do expect inflation particularly in produce section could be strong as it's been in the past and we expect the values of farmland to increase as a result. I think it's a good way to look at farmland REIT as a hedge against inflation in both food prices as been in other areas. And for those looking for an asset it doesn't correlate to the stock market, I think this is it. So now we will stop and have some questions from our loyal stockholders and analysts who follow our wonderful company. So operator, if you could come on, and please give us some help and listeners to, so they can ask questions.

[Operator Instructions]. Our first question comes from the line of John Roberts with Hilliard Lyons. Your line is open.

Couple of little things here. You and Lewis said you renewed five leases in 2015 and that was with the average lease rate of 15%; is that right?

Yes.

Okay. And then in that $25 million in buying capacity, does that include the debt payment that required you made during the year?

Yes.

Okay.

It also includes the fact that this is after paying $41 million for the two big farms that we're buying.

Okay, super. Any development beginning to encroach on any of the farms because I know that's where the upside is obviously?

Yes, well obviously the ones are our in the Midwest is going to be a while before we get to those. But the ones in California and Florida both have -- well the housing marketplace is doing very well these days. So somewhere down the road hopefully we would be approached by a builder who wants to buy the property. We don't have -- we have one small piece that's right up against the city limits and that might get bought in the near-term. But we really don't have anything that set up for this year and next year, this is more a farming operation than it is, a real estate development operation

Sure, okay.

Arizona, as you all know, at some point in time, they just keep gobbling away at farmland. It's over 100,000 acres of farm land goes out in California every two years according to the statistics that California keeps. Nobody else think to keep those but we watch it happen.

Yes, understand and that's obviously where the big money is made. So basically you're looking at nothing for the next two to three years and probably beyond that?

I would say unless this small piece gets purchased in the next one or two years, there is really nothing on the horizon that I know. We've had people talk to us about it. But I just think it's too early to start talking about something like that.

Okay, that's good color. And finally, David, a big picture sort of question here. You guys are sitting with a debt-to-equity rate significantly above any other REIT or most of the REITs at this point. Do you feel that given sort of farmland is you feel that's more of a hard asset and that it can support that type of debt that may be the office or apartment or retail to not support?

You take all of the REITs out there. As you know, John, most of them are development oriented. That is they buy properties that are still half empty and try to rent them up and lots of others have I'd say higher risk profile, much higher risk profile, in some cases than we do. I would look back over the last 30 years in California and the properties have been rented. So and the rents only have gone down once that was when the depression came and then there has been a couple of times that they've been flat for one-year. But generally speaking rents have gone up. No doubt there will be some downturns from time to time but these are pieces of land that people need to grow crops on and without them there is no crop. So they're going to be rented, the real question is what will they be rented for and as I mentioned over the last 30 years, at least in California, we've not seen rents go down. So from my perspective this is like an annuity. And how much should you leverage an annuity that pays and pays and pays, we're going to obviously leverage it substantial -- to an substantial amount, whereas I think in most of the real estate investment trust, which you put us into for this comparison there are lot of development people in there with a lot of risk. And as you know apartment buildings come and go depending on the price of buying a house and I just don't see any comparison whatsoever. There is none of the real estate investments trust that I know out there that have the same kind of economic base that we do in the farmland.

Okay, great. Thanks David.

Next question?

Our next question comes from the line of Rob Stevenson with Janney. Your line is open.

Good morning. This is Venkat in for Rob. It looks like there has been a quarter-over-quarter decline in the portfolio cap rate about 30 basis points using the appraisal assumptions and 50 using the internal valuation assumptions. Just curious which markets and crop types are you guys seeing cap rates declining?

Well it's not decline, it's that we buy new properties that are at significant cap rates lower than the existing portfolio. So every time we buy a new farm and you average that in, you're going to end up with a lowering. So there is none that I know of we have not had crop rents going down. So I think it's all based on how much we buy. So if we stop buying and just let the farm set there, you see a steady increase year after year. But as long as we do, what we want to do which is buy more new farms we put lower our cap rates because your purchase price is at lower than the increase that goes on in a piece of property over time.

Okay. And then thinking about the acquisition announcing for the $41 million of announced acquisitions. Were you guys think you can currently price the different stock at NAV discount?

Yes, we're not going out into the marketplace with preferred stock. And so as a result we have enough equity to close on the two properties that we've talked about plus we will have then borrowing power about $25 million under our line of credit. And what we've been told by the three or four different lenders that we go to. So this is all going to be bought with existing equity and not raising new equity in order to close these that we're talking about two farms plus the additional $25 million.

Okay, great. Thank you.

Okay. Next question please.

Our next question comes from the line of John Massocca with Ladenburg Thalmann. Your line is open.

So just looking at the NAV valuation it seems like third-party appraisals were higher this quarter versus last is that just cyclical, I know you guys like to have each property appraised by third-party at certain intervals. So was there something intentional on your part to seek out more third-party appraisals this quarter?

What we did this time is that MetLife said if you would like to borrow some money on your existing properties please have and I think we selected three that they thought three to five that they thought that were good candidates because they were watching the price of everything as well. And so we went out with those. So we did an additional five that we probably normally wouldn't except that we were given that notice by MetLife. So that's what probably it's substantial although. These areas depending on volumes, just to give you an example, if you get a good piece of property like strawberries you are producing 66,000 pounds of berries per year on that acre of strawberries compare that with corn of about 9.2000 pounds of corn. So these are extremely fertile and great growing areas, great times you can grow for six to eight months on many of these properties whereas corn is sort of once a year with some cover crops. These are just extraordinary high value situations and they are under tremendous demand by everybody who is in the berry or corn or sweet corn may be, but corn or vegetable business. And I just can't emphasize enough how our strategy is so different from most people who go after farms and that we're in the high-value high return crops. So the NAV is moving because these are the best properties in the United States may be anywhere in the world.

Okay. That makes sense. And then and it's probably little far out, you guys may be you're just in beginning of discussions. But the 2016 renewal at Espinosa Road, do you think you're going to see kind of roll up similar to what you saw in '15 or is it just too far out to tell, sorry '15 for all of your other properties renewed?

Lewis, you're close to that than I'm, what do you think? We're guessing of course, but what's your guess.

And we're just beginning negotiations with the current tenant. But we do expect and we are hopeful at least in expecting of an increase that would be in line with what we've done in the past.

Okay. Perfect. And then lastly I -- sorry if you gave this color already, but what -- for the farms on your purchase agreement, what kind of crops are being grown on this property?

Want to answer that, Lewis.

We have one pistachio farm. There is already a production. And we also have a potato and other rotational vegetable farm.

Thank you. [Operator Instructions]. Our next question comes from the line of Robert Sennott with Seaver Hill Capital. Your line is open.

Congratulations on your quarter and your year-end. Can you talk --

That could be year.

I know, I know. Congratulations. And I love the way you command your turf, literally and figuratively.

Good fun.

Yes. Can you talk to the NAV GAAP between the $14.20 and the last non-sales price of your stock at about $8.25, meaning 42% difference between the NAV and what the stock last traded for? What is your take? What's your teams take on the GAAP and why it exists and why it's such a large GAAP? Isn't that one of the largest GAAPs in REIT as far as NAV and actual sales stock price?

Yes. The real problem -- and there are couple of them in here. First of all, I don't know that anybody else in the business does an evaluation of their properties and put that out. They make assumptions and come up with an NAV based on revenue and what category they are in, such as industrial or apartments. And so this is a real time evaluation. And that 42% GAAP represents a couple of misconceptions about the company. First of all, it's not a traditional REIT by any means of it. It's just so different that people are just getting used to the idea that you can actually have a farmland real estate investment trust that becomes partners with farmers out there and allows them to get liquidity by selling to us and then continuing to farm it. So there is a newness about it that has got some people to fuddle about what it is and how it works. And it's really hard to get the word out, because you need a lot of face time in order to get out and talk to people. The second thing that's going on here is that all of the real estate investment trusts are down substantially and you can look across any of the categories and find them down. They are not down as you mentioned nearly as much as we are, but that just provides you with an excellent buying opportunity to buy the stock backup to the $10 and $12 range, which would sort of get it in the range of where others are trading. I can't answer anything other than that. I think the yields compared to others in the field is substantial and okay and I don't see any difference from the yield that we're yielding at today versus the entire REIT index, it's higher than the entire REIT index. And so as a result, I don't think its yield oriented, I think it's just perception. There is also the fact and we all have to agree to this is that we're small. And some people don't like to buy small size real estate investment trust. They don't trust their judgment. They want to invest in the larger ones that have billions of dollars of assets. We will get there. And what I think people should realize is this discount of 42% as you mentioned is going to go away overtime from two things. First of all, the net asset value I don't think will go down, it will go up. And in addition to that, if we can increase the distributions again this year and next year and people see that we're doing it on a regular basis I think at the end of the day the stock price will begin to move more towards the norm in the real estate marketplace to a much smaller discount. But I don't have a good answer other than those.

Okay. Thank you, David. And one final question. The small property in California that you referenced that might be close to being perhaps developed as residential property, is that Dalton Lane?

No, comment.

Okay. Thank you, David.

Any other questions?

Our next question comes from the line of Jim Kennedy with Marathon Capital. Your line is open.

Good. I want to add to the congratulations for a job well done over the last couple of years. David, kind of a longer term strategy question for you. Do we know currently and do you delineate the leases based on the size of the Say Corporation or farmer? So obviously, you have some national and/or international consumers or users of these crops, be they in the end product in the cans or whatever frozen. Is there a strategy longer term to make sure we've got a balance of say smaller crops or whatever versus the larger leasers?

I want to emphasize again that when we are buying a piece of property and if we're talking to a tenant about leasing it, this -- that would be a high-class tenant. And that necessarily have to be someone as good as Dole. Dole is one of our large tenants, Driscoll, which is a dominant player in the strawberry business, and others, that are great. Wishnatsky down in Florida is a great grower of many organic berries, blues, as well as our strawberry. So these tenants are really first-class tenants. And we only want to travel with them during these stages, because we don't want to have to go through the downturn of particular farmer. So we're choosing our tenants very carefully at this point when we're larger, we may be able to take a little more risk on the tenant side. But right now, we're trying to stay away from that. We have back some smaller earlier stage, I'll call them tenant. All of these are farmers that know their crop and know their land. We would not say back our corn farmers that's deciding to grow strawberries that would be insane to think that they knew how to do it and vice versa. They're running strawberry growers that would backed up grow corn either. So at the end of the day, what we are always looking for is a highly talented, knowledgeable about the crop, and knowledgeable about the way to grow that crop. When I sold the growing operation that I had to Dole years back, I would say the best thing that they got out of that was the 4,500 Mexican-American workers that knew exactly how to grow those crops. And these were really talented people, plus an office that knew how to do all of the other things that are necessary to get a crop. This is the key part of any kind of growing operation is to make sure that you got really great growers. So as we look at the longer term, the answer is yes, we will eventually spread up a little bit, take on some smaller tenants that might be taking little more risk. But in the early years, I don't want to ever come to you and say one of our tenants has failed and we had missed a season of rent, I don't think that would happen given the properties we have. But just don't want to take the risk at this point in time. We want to come to you every quarter and say we are 100% rented, everything is going as planned. We may have -- I think we swapped out two tenants over the last three or four years in which we put in a new tenant, an old tenant. And it was primarily, because they wanted to get out of the business and go do something else. So we do that.

Okay. Conversely, and I guess the other part of the question is, are we at risk at all that we are somewhat concentrated with a large percentage of the portfolio to any one entity, be it a Dole or whatever? I can see the advantages of that, but there is also risk and concentration.

What's the amount, Lewis that Dole is our largest tenant? I think we are down under 30%.

We are definitely under 30%.

30%. And obviously, we started out with them as our only tenant. So they are getting smaller and smaller and on the one hand just like you say I hate that because they're great tenants, pay like clockwork and a wonderful company if you looked at go from a perspective of what they do. I mean they have a portfolio of things from bananas in Honduras to lettuce and they're probably 30% or 40% of the lettuce marketplace. So they are big growers and very strong and we met with the management team out there several times. And there are others, and even if you take Driscoll for example, probably a $1 billion company in terms of revenue and dominates a number of areas in the berry area, Naturipe is a great berry grower. So we deal with these people that we know very well and our friend and employer in California has been in the business most of his life he knows, most of these people. I know him from the time I was a grower. So these are relationships and these are smaller markets than you would think of it. You think about it probably 80% of the growing areas in the United States are not oriented to our fruits and vegetables. So as a result you've got -- we've got to figure out how we're going to conquer other areas as well. As been told we're in the almond business, we're getting in the pistachio business, we've done some corn down in Arizona, and that corn crop in Arizona is used almost exclusively in that small valley, which is wonderful growing area and wonderful buyers of the corn right there. So it never leaves the valley. So at the end of the day, we just picking and choosing to be certain in these early years. We'll get a little more risk oriented as we get up around a $1 billion or so in assets.

Okay. Thank you very much.

Any other question?

Thank you. I'm showing no further questions at this time. I would like to turn the call back to Mr. Gladstone for closing remarks.

All right, we thank you all for tuning in again. It was a great year. Last quarter was a good quarter. This is a phenomenal company and if you ever want to buy a company that has great income potential over the next 10 years, please sign up for this one. Thank you all and that's the end of this call.

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