Gladstone Land Corporation (LANDO) Q3 2016 Earnings Report, Transcript and Summary

Good day ladies and gentlemen, and welcome to the Gladstone Land Corporation Third Quarter 2016 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 conference call over to David Gladstone. Please go ahead sir.

All right. Thank you, Abergele for the nice introduction. This is David Gladstone, and welcome to the quarterly conference call for Gladstone Land. We thank all of you for calling in today; we appreciate your ability to listen to our presentation, and I always enjoy talking to you on the phone, and hope we have some good questions at the end of the day. Perhaps we should have mid-quarter calls, and do a little extra to give you an update but we haven't decided to do that. So hopefully we have a lot of good questions at the end of this, and we can fill you in on things that you may not have heard us cover during this presentation. Feel free that when you're in the Washington DC area, we're located in a nearby suburb, so stop by and say hello, and you'll see some of the great team that we have working here; we have over 60 people now. We have in excess of $2 billion in assets across all of our public companies. And so we will start with Michael LiCalsi. Michael is the General Counsel and Secretary; he also serves as the President of Gladstone Administration, which is the administrator for all the Gladstone funds. So Michael, you are up.

Good morning, everyone. Our report today may include forward-looking statements within the meaning of the Securities Act of 1933, and Securities Exchange Act of 1934, including those with regard to the Company's future performance. Now 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 Risk Factors listed in our forms 10-K and 10-Q that we file with the SEC, and those all can be found on our website gladstoneland.com and on the SEC's website at sec.gov. And 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, we will discuss Funds from Operations or FFO. The 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, plus depreciation and amortization of real estate assets. The National Association of REITs has endorsed FFO as one of the non-GAAP accounting standards that can be used in discussing REITs. We may also discuss two other FFO measures, one core FFO or CFFO, which adjusts FFO for certain non-recurring charges such as acquisition-related costs. And two, adjusted FFO or AFFO, which further adjusts CFFO for certain non-cash items such as converting GAAP rents to cash rents. We believe these metrics improve comparability of our results period-over-period. And to stay up-to-date on the latest news involving Gladstone Land and our other affiliated public funds, please follow us on Twitter; username GladstoneComps and on Facebook, keywords, The Gladstone Companies; and please also go to our general website to see more information about this company and our other affiliated publicly traded funds at www.gladstone.com. Now today's reports from our President and CFO will be an overview of our operations and performance. So we encourage all listeners to read yesterday's press release and Form 10-Q filing, which include a wealth of information for our investors, and you can find them all at our website, www.gladstoneland.com. Now, I will turn the presentation back to David Gladstone.

Okay, Michael, good report. We are ending 2016 on a very strong note. Don't like to give forward-looking statements, but it looks like 2016 will be a great year for us. I would like to give you a brief overview of the nature of our business before we get into the numbers. Our business consists solely of owning high quality farmland and leasing it to top tier farmers. We don't farm any of the land ourselves, and thus don't take any direct risk. However, as you might know, many of the farmers that we will mention in our report rent our farmland and buy crop insurance from the Federal Government that protects them against potential losses. So thanks to the United States taxpayer, many of the farmers who buy the insurance can if their crop fails get back enough money to plant for the next crop year and that helps us too. So thanks here; hats off to the US taxpayer. Farmers who lease our farms too are in the top tier of the largest and best farmers in the growing regions that we are in, and we prefer to keep the same farmer on the property for as long as possible because they tend to know the nuances of operating a particular farm. Our objective is to be the long-term real estate partner for all of our farmers so that they know they have the farm for as a long a term as they want. Most of the farms are located where farmers are able to grow high value annual crops. These are row crops such as berries and vegetables, where our investment focus will continue to be. However, over the past year we've taken advantage of some lowland prices in the Midwest where we have found some excellent investment opportunities. We also furthered our expansion by buying farms to grow permanent crops, these are such as almonds, and pistachios orchards, and we have taken advantage of some of those higher yielding investment opportunities with great tenants. But you should expect the large majority of the farmland portfolio will continue to lease to farmers to grow fresh produce. Currently about 90% of our total crop revenue comes from farms that are growing foods that you would find either in the produce section or the nut section of your local grocery store. We consider these foods to be among the healthiest type foods out there and we're seeing a growing trend toward organic in some of these sectors as well. Almost all the geographic regions where our farms are located continue to experience steady appreciation in both the underlying land values and the rents charged on the lands, partly because we usually are only purchasing irrigated crop land with great soil, plenty of access to water and allowing farmers to grow a high variety of high value crops. We currently own about 34,000 acres, in 57 different farms, 7 states in the US, and the acreage we own is among the highest quality farmland and the strong rental market places in the United States. We also own some farm buildings such as cooler facilities, packing houses, and processing facilities, that we have been able to earn some rental on as well. We have a couple of different lease structures that we offer our tenants. We've been extremely successful with our leasing strategy as we have been able to average an increase in rental rates of over 17% on all our lease renewals that we had over the past three years, all of that without incurring anything downtime on the farms. Now the trend, this is sort of a megatrend that we are seeing, is a steady decrease in the number of farms in our growing regions as they are being sold and converted into suburban uses. And if I had to point to one thing that's driving up rental rates, I'd say it's this, farms in these regions where our farms are located is relatively finite, there is no new farms being developed, because no trees to cut down, no land that can be converted in these areas, and all of this arable land is currently being farmed or it has already been converted to farms, and now it is being converted to other uses such as housing, schools, factories; and once it goes in that direction it doesn't ever come back out. California alone has been losing about 100,000 acres of farmland per year for many years now. This causes farms that are left like the ones we own to be highly sought after and they've been rented for decades without ever being vacant. And speaking of California, we continue to closely monitor the drought situation there. Conditions throughout the state are noticeably better this year at this time than last year at this time. And this percentage of areas that are in the designated drought zone has been reduced by about 50% from last year. Whenever we are buying a farm, as you would imagine, as part of our due diligence and really I can't stress this enough, we always spend a lot of time determining the water conditions on each of the farms that we look at to make sure the farm will have plenty of water for the long term. We want to know that the water availability is sufficient enough to withstand situations such as the ones going on in California. Believe it or not, this is not the first time California has had a drought. They have gone through this many times in the last 50 years. We only select properties that have been irrigated and overall water availability in place at the time we buy the farm, and partly because of this time and effort we spend analyzing the farm before we buy it, our California farms continue to have significant access to water on-site, with on-site wells or water turnouts from the city has been the case throughoutthis drought for our farms. For example; cities in California like Watsonville and Oxon Art have built water processing plants that purify the effluent water coming from the city so that it can be used for farming. We have turnouts on our farms and we also have wells that we can use for irrigation. So our farmers can either turn on the wells, or turn on the – I guess turn on both. I have never seen that, but I guess they could do that if they wanted to. Water access and availability is another factor driving up rental rates and land prices. Farmers are not farming land where water is too difficult or expensive to obtain. They are just leaving it fallow. This drives up the rent and the prices though all the land like the ones we have with wells and multiple sources of water. So we're in a good position. Now let me turn to some details of the recent activity; we were very, very active this quarter. We purchased nine new farms totally over 10,000 acres, about $40 million of purchases, on a weighted average basis, the initial cash yield on these acquisitions is about 4.7%. And while overall are straight line, its yield was about 4.8%. So we started off a little low, but we get very low cost loans in order to buy these with. Some of these leases contain CPI adjustments and market rents resets that we expect will push the figure higher as time goes on and inflation continues to move up. And after the quarter end we acquired a 20-acre almond orchard in California for about $7 million. The cash yield on the farm was fixed at about 5%, however, in this case, and this is true of many of the permanent farms like trees that grow nuts and fruits, it also contains a variable rent component that will allow us to share in the gross revenues earned on the farm. So we will get our 5% return on our purchase price plus a share of the revenue, and we expect the crop share component will push the next year’s cash yield to about 8% and then continue to increase afterwards because the orchard will reach maturity and producing almonds in the next few years. So it is a great investment. We believe that a wider spread portfolio provides added security to investors, and this quarter is a good example of how we have continued to diversify the farms we own. The farms we acquired this quarter are in three different states and growing a variety of different crops. So across our portfolio now we own farms in 15 different growing regions growing over 35 different crop types, and they are leased to 40 different tenants, all of whom are unrelated to us and this is just perfect diversification as we go forward and continue to diversify our purchases. We renewed one lease during the quarter at an annual rental rate of about 20% increase. However as part of the lease we did agree to take on the property taxes. The property taxes are not much, but they are going to lower the increase to about 9%. So we don't have any more leases expiring in 2016, but we have nine leases that will expire in the second half of 2017. So we will be talking to you about those as we go forward next year. We have already begun negotiations with some of the current tenants and expect to be renew all of the leases; maybe at modest increases right now and rent without incurring any downtime on any of the farms. No guarantee that we are going to be able to do that, but that is what I expect and hope you continue to believe in us. Our other 2016 lease renewal results at about 18% increase in rents combined with our 2015 lease renewals, which resulted in an average rental increase of over 15%. We believe our 2016 renewals underscore the trend that we continue to see in the areas where our farms are located; and that is the demand for prime farmland and the rents they command is continuing to increase. We issued about $29 million of 5 year term preferred stock a few months ago at a coupon of 6.375%. This probably looks expensive to you at first glance, but when we leverage that with our cheap borrowing sources and acquiring new farms, we still are able to get a great return on our equity. And most importantly, it allows us to continue to grow the company. That's enough for the business discussion. Now I am going to turn it over to the Chief Financial Officer, Lewis Parrish, and Lewis, go ahead and talk about the financials.

Good morning, everybody. We'll begin by discussing our balance sheet. During the third quarter, our total assets increased by about $41 million or 15%, mainly due to new farm acquisitions, which were funded primarily with new fixed rate debt and proceeds from the term preferred issuance that David just mentioned. In connection with certain farm acquisitions during the quarter, we acquired an additional $4 million of new long-term borrowings at an expected weighted average effective interest rate of 3.1% and the rates are fixed for the next seven years. Subsequent to quarter end, we obtained an additional $25 million of new long term borrowings at a weighted average interest rate of 3.2% and these rates are fixed for the next ten years. $21 million of these new borrowings were used to pay down our variable rate line of credit. We also amended our credit facility with MetLife, and through the amendment, we expanded the overall size of the facility from 125 million to 200 million and we reduced the interest rate on about $86 million of term borrowings by 19 basis points, which resulted in annual savings of over $163,000. The new rate on our current term note borrowings under the MetLife facility is now 3.16%. That rate is fixed for the next 10 years. In addition, we also have certain properties that were pledged under the facility reappraised and increased the overall loan to value ratio from 58% to 60%. And together these two events resulted in about $28 million of additional borrowing availability for us. From an overall leverage standpoint, when we use the fair value of our portfolios and if we include the term preferred stock in our debt bucket, our loan to value ratio was 58% at September 30, and we are comfortable with this level given the relative low risk of farmland as an overall asset class. While interest rate volatility remains a concern of ours about 97% of our total indebtedness is currently at fixed rates, and on a weighted average basis these rates are fixed for another five years out. So we believe we are pretty well protected against any near term interest rate hikes. The overall weighted average effective interest rate on our borrowings is currently 3.06%, and that is down by about 11 basis points from a year ago. We continue to decrease our overall borrowing costs and further diversifying our lending base has provided us with even greater access to cheaper sources of capital. And regarding our upcoming debt maturities only about 2.4% of our total debt outstanding about $4.7 million is coming due over the next 12 months. And now we will move on to our operating results. First I will note that net income for the quarter was about $35,000 or $0.0 per share on a rounded basis. For the sixth consecutive quarter, we have continued to grow our adjusted FFO as it increased by 7% over the prior quarter. Our operating revenues increased by over 5% from the last quarter primarily due to our recent acquisitions. I’d also like to point out that when compared to the same quarter last year, our rental revenues on a same property basis increased by over 7% and that was mostly due to the leases on those properties being renewed at higher rates as well as additional income earned on capital improvements made on some of our existing farms. Going into detail on the expense side, our core operating expenses which strips out depreciation and amortization, acquisition-related expenses and any fee credits received decreased by about 14% from last quarter, or about $182,000. This is mainly due to a higher performance based incentive fee earned by our advisor during the last quarter than in the current quarter. This fee is earned based on our pre-incentive fee FFO surpassing a required hurdle rate. Just a quick note on our related party fees, our management fee is calculated based on the cost basis of the company stockholder’s equity as it appears on our balance sheet and our incentive fee is based on FFO as defined by NAREIT. So neither of these fee recalculations is tied to our net asset value which we will be discussing in just a bit. Continuing on with our expenses, if you exclude the incentive fee from each quarter, our core operating expenses decreased by 4% from last quarter or about $45,000. The majority of this change took place within the G&A expense line item, as we recorded about $64,000 of bad debt expense last quarter related to a lease that we terminated early. And we also incurred lower stockholder related expenses this quarter. These decreases were partially offset by higher professional fees incurred during the current quarter and those are mainly accounting fees related to recent acquisitions and third-party appraisal fees for having certain properties pledged under the MetLife facility reappraised. Moving onto our per share numbers, earnings from adjusted FFO for the quarter were $0.143 per share. This represents a 6% increase from last quarter and fully covered our distribution of $0.124 per share. This is the fourth consecutive quarter in which we've covered our dividend with AFFO and we expect this to continue to be the case in the future. Now I will move onto net asset value; during the quarter we updated valuations on 18 of our farms, five of which were valued internally, and 13 of which we had reappraised by independent third party appraisers. In aggregate, these updated evaluations resulted in an increase of about $2.5 million over their prior valuations. And a majority of this increase, about 70% of it came from valuations as determined by those third-party appraisals. As of September 30, 2016 our farms were valued at about $380 million, with 83% of this value based on either third-party appraisals or the actual purchase price, and 17% of the total value or about $66 million was determined internally. However of this amount valued internally 98% of it or about $65 million was supported by appraisals performed between 14 and 29 months ago. Basically on these updated valuations our net asset value-per-share at September 30 remained flat at $13.68. This is due to the appreciation of our portfolio being offset by the distributions we paid out to our shareholders as well as issuing OP units at prices slightly below our NAV of $13.68. while there maybe some quarter-over-quarter volatility, over the long term, we expect that our net asset values will trend upwards as the value of our farmland portfolio appreciates due in part to increasing rents and neighboring farms increasing in price. Turning to liquidity; we currently have about $31 million of available funds and our current buying power for straight cash acquisitions is about $75 million. However, this figure does not factor in our ability to issue new OP units as consideration for purchases. And we recently expanded the sizes of our two largest borrowing facilities, so we have plenty of room to continue borrowing and buying new farms. We are looking forward to closing out the year on a high note, and with the continued stabilization of our operating expenses, we expect that you'll see additional revenues arising from new acquisitions and lease renewals have a more direct and positive impact on our bottom line thus enhancing the dividend coverage ability provided by our AFFO. And with that I'll turn the program back over to David.

Okay, Lewis. Nice report, good financials coming along, this company just continues to get better and better every quarter, and we continue to execute our growth plan. In the backlog, we selectively invested in over $287 million in new farms and assets since 2013 and we continue to have a good backlog going forward. So we expect to be adding to that figure as our backlog remains very strong. We currently have one property for about $13 million under signed purchase agreement, and we expect to close that – I hope it is later this quarter, and we have over $50 million in farms under signed letters of intent, and we hope to sign up a few more of those soon, and the closing expected in the first quarter really of 2017. We currently have the ability to close on all of these farms without a need for additional capital and some of the purchase will involve some issuance of OP units. However, we still continue our due diligence on these farms and these properties and so as a result there is no guarantee that we will end up closing on them. I have a strong feeling that they are going to close, but nothing we can guarantee. With the increase in the number of bonds we own, comes greater diversification and protection for investors, and we also expect it to point to better earnings as well. As most people know, our fund specializes in farms that grow fresh fruits and vegetables, and we have historically avoided being heavily in farmland that grows traditional commodity crops such as corn and wheat. One reason for this is we believe investing in farmland growing crops that contribute to a healthier lifestyle such as fruits and vegetables, as we have mentioned before the nuts that we are in now. In addition, more than 90% of our portfolio is GMO free. We do have a little corn that has some GMO, but we will continue expanding our ownership in organic farmland through both new acquisitions and conversions of existing farms into organic ground. We also like the fresh produce segment because it provides greater returns and less volatility than other type of crops. According to the Bureau of Labor statistics, the fresh fruits and vegetables segment of the food category has increased at a rate of 1.7 times greater than the increase in the overall annual food CPI, and while prices of commodity crops are more volatile and susceptible to global supply of demand and sales, fresh produce is highly insulated from global volatility because crops are, well, they are grown locally and consumed locally within a very short timeframe. It is that unpredictable nature of grain prices and other commodity crops that will prevent us from ever weighting our farmland portfolio too heavily in farms that grow traditional commodity crops. Currently, less than 10% of the total value of our portfolio is invested in farmland growing corn, wheat or soybean, those are the three primary volatile crops, and we believe this is just a great mix. At this point in the farming cycle, farmers can't make much money when they are growing corn as the corn prices are extremely low today. Ultimately we believe that a farmland that is GMO free and growing healthier crops such as fruits and vegetables and nuts are going to continue to outperform the overall farm market in terms of both cash returns and long-term value and appreciation. As a farmland real estate company it is our responsibility to be in the know with these markets, and I think we are glued into keeping up with them. We really take pride in having built a foundation of our company across the healthiest sectors of the agricultural industry and believe it's one of the company's core strengths. In terms of the economic outlook, in general farm land continues to perform extremely well compared other asset classes. The NCREIF index which is the farmland index that everybody follows, it currently has 729 agricultural properties worth about $7.8 billion and had a total annual return of 10.4% in 2015 and has been averaging about 14.3% over the past three years compared with a S&P at 9.1. All of our farms, I think all of them are in or most of them are in that 729 properties. So, we're part of that index. Farmland has provide investors with the safe haven during the recent turbulence in the financial marketplace, as both land prices and food prices, especially fresh product have continued to rise steadily. And most of all, farmland has historically been an excellent hedge against inflation. However, as you all know, farmland and not all farmland is created equal; according to the Department of Agriculture farmland that grows corn, earns about $200 in rent per acre in the Midwest whereas California farmland growing strawberries would earn about $3900 in rent per acre. So, for every acre of strawberries, you need about 20 acres of corn farmland to get the same returns. The number of acres is not nearly as important in determining revenue per acre; as the revenue per acre. Said another way someone owns a 1000 acres of corn land could receive rent of about $200,000 year, whereas we only need about 51 acres of strawberry land to earn the same amount of rent. You all know, we specialize in these higher rent high quality farmlands and that's what differentiates us from most of the farm owners in the United States. We are very optimistic that the president elect Trump will work with the Congress to work pragmatic solutions to the key agricultural issues, including water supply, environmental regulations and international trade. He's already promised to eliminate the water of the US rule which unfairly restricts the use of water by farmers in certain bodies of water that are on their own land. And he has said he'll appoint a pro farm administrative of the EPA and hopefully of the department of agriculture. We recently raised our dividend again to $4.25 per share per month. Over the past 22 months, we've raised our dividend four times resulting in overall increase of 42% in a monthly distribution rate to shareholders over this timeframe. I think this reflects a very nice job, the team that's working on buying farmland has continued to do. Since 2013, we've made 45 consecutive monthly distributions to shareholders totaled $2.73 per share and total distribution. Paying distributions through our stockholders is paramount in our business plan. We are as we say a dividend paying company. We projected good production in income growth for the rest of 2016 and I think 2017 will show a similar kind of result. And if our expectations are met, we hope to be able to increase the dividend again in the near future. As the largest shareholder, I'm working hard to increase the distributions, I like receiving dividends as much as anybody does. Our stock is currently trading at about $10.60 a share, significantly below the net asset value, that's we're hopeful the stock price will rise in the near future. So, if you buy the stock today, you're getting a wonderful discount from our estimated net asset value, it's about 23%. But buying stock today, you're getting $13.68 of assets for $10.60 is just a wonderful purchase in the marketplace today. And along the way, you'll be getting a dividend $4.25 per share per month in cash distributions or about 4.8% yield on today's stock price. This yield is little bit higher than a average return you'd get on the entire REIT index if you were buying the REIT index today. That's about 4.6% according to the numbers that I have. So, in closing, please remember to purchase stock in this company as a long-term investment in farmland. It's not part of the get rich quick tomorrow morning, it's an asset that you'd invest in just like gold except it has an active investment in cash flows to investors as opposed to gold which doesn't. We always love to point out that Warren Buffett's comment that he'd rather have all the farmland in the US than all the gold in the world, we obviously agree with Warren on that one. We expect inflation particularly in the food sector to be strong. We expect the values of farmland to increase as a result. We expect especially true in fresh produce sector, like we're in as people in the US are trending for eating more healthy food. I think a good way to look at our farmland REIT is it's a hedge against inflation and food prices and other areas. And for those looking for an asset that doesn't correlate to the stock market, I think this one as it continues to grow will certainly meet that. Now we'll have some questions from our loyal stockholders and some of the analysts that have come on and I think we can get some good questions. So, operator would you come on and please tell them how to make their questions.

Thank you. [Operator Instructions] Our first question come from Rob Stevenson with Janney. Your line is open.

Good morning. This is Venn Caden for Rob. Lewis, you've previously mentioned that we'd start to see stabilization and operating expenses. And I think it's a 159,000 in 2Q and a 160,000 in 3Q. Is that a more normalized figure going forward? I know you had mentioned there are some bad debt in the numbers and some professional fees?

Right. There, I think what we have now is a pretty good run rate for going forward at our current portfolio sits. However, in Q1 and slightly in Q2, we will have slightly higher census due to additional state tax filing fees and the annual shareholder meeting. But for Q4, you should expect a pretty similar run rate.

Okay, thank you. And David, you touched on this during your remarks. Just curious from a policy perspective, you'd mentioned the water of the US rule. Are there any other significant piece of legislation that we should be following which's going to like it significantly affect the factor going forward?

Yes. I don’t know of any other than EPA. They have so many rules and regulations, unfortunately some of those regulations are California regulations and those probably won't change. But there are if they get the right people and the EPA perhaps they can eliminate some of the restrictions on the farmers that especially in the Mid-West and the East Coast. But unfortunately, I think California is all governed by Jerry Brown and the people in the legislature there. So, probably won't be a lot of changes there.

Okay, thank you. That's it for me.

Okay. Next question, please.

Thank you. Our next question comes from John Roberts of Hilliard Lyons. Your line is open.

Good morning, David.

Good morning.

Just wondered, obviously had a very active Q3. I was just wondering if there are any specific reasons for that activity or that it just was it just by accident there are but it happened stance that all those farms can upper one.

You're on to something. It's happen stance. We don’t we would like to close one every month and make it nice and level but unfortunately the world doesn't work that way. And when you're small as we are, every transaction of course has a big impact on where we are going. And so, we are still in that age of needing to get more deals done. And I think you'll see maybe Q4 won't be quite as great as Q1 in 2017 but 2017's Q1 looks like it's going be a whopper but John Lewis could fly it as well. And it's always hard to know. But I think we're onto something now, we've got a good backlog and the funnel is it's not huge but it's big enough to take care of us for the first couple of quarters next quarter, next month, next year.

You think that price is a good pricing or is it just a lot of deals falling into your lap all the ones?

Well, we see a lot of deals and I think we are on the radar screen for all the brokers and even a lot of the farmers. We get calls from farmers who want to sell us their farm and sometimes they want to lease it back and sometimes they have somebody that's going to lease it. But in those situations, it's always a matter of price. Some of the people just can't believe that their farm is not worth a gazillion dollars and it's really hard to negotiate with somebody who starts that with an extremely high price. And we're pretty good at being able to put together information about farms that have sold in the area and even some of the numbers we have from farms that are close to us. And so, we're able to show them that their numbers aren’t realistic and so far they still haven’t those people that we've negotiated with many of them just can't believe that they're going to get what we're offering for it. But ultimately they got to sell. As we've mentioned many times on the phone, most of the farmland in the United States is still owned by independent farmers or people who just own it and are living off the rents. And that's going to change maybe not in my lifetime but over the next 50 years you're going to have some tremendous changes in the farmland area. So, I think at long-term a company like ours even in the next 10 years is going to do extremely well.

Right. Thanks, David.

Okay. Next question?

[Operator Instructions].

Abigail, we need some questions.

And we do have a question from the line of Robert Sinnott with Silver Hill Capital. Your line is open.

Good morning, David.

Good morning.

Hey. Congratulations on another strong quarter. I think your company is terrifically to own land. With just a couple of clicks of a mouse you can buy into very productive farmland yielding a very good return, conservative return. So, thank you for that opportunity.

We aim to please, I'm a large shareholder, so I'm a believer.

I am too. Can you talk to, David, can you talk to the 64,000 I believe bad debt, non-performance I take on some sort of relief. Can you analyze that a little bit more how that happens?

Oh sure, Lewis is, sure that many times Lewis Parrish talk about.

Those are lease on one of our fold of properties that in just wanted to retire early. So, we let him out of the lease about two years early. It was the $54,000 was just differed rent asset that it built up on the books. So, we in connection with the early termination we had to write that off. I think we had about $20,000 more of the total differed rent asset was $84,000, 64 was written off last quarter and about 20 was written off this quarter. Well, we've already released that property to a new tenant. So, there is no vacancy.

Right. How -- in the future how could you avoid a loss like that?

Trying to pick the young farmers, unfortunately they're hard to find and this sell off had finally just worn out and farming. A great farmer understood the land is as good as anybody can and tremendous ability but he was a point in time and just needed to walk away from it. We could have held him to it, made him pay it for the next two years, we could have probably stored it a little bit on that a long-term. And probably could have gotten some money out of him for terminating early. But we just we don’t try to play the game that way. Farmers are a separate group of people in this world and they all remember things that you've done or haven’t done and so we try to make sure that we stay above board with all of our farmers and support them.

Yes. Thanks David and Lewis for the explanation. I'm sure the farmer that you get in there is going to be or will be as productive as the land can be and you'll do fine on it going forward.

Oh, the new farmer's very strong, we've known him for a long time and the land is right in the middle of a good area, so that it would be very reasonable to assume that we could lease it out again should something happen to this fellow.

Okay. Thank you, for your perspective of that. Thanks.

Okay. Abigail, you got anybody else wants to ask the question?

I'm showing no further questions at this time. I'd like to turn the call back to David Gladstone for closing remarks.

Well, shucks. We're disappointed that no more questions have come on board. So, now you've got to wait till next quarter. Thank you, very much. 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 great day.