Gladstone Land Corporation (LANDO) Q4 2016 Earnings Report, Transcript and Summary

Good day ladies and gentlemen, and welcome to the Gladstone Land Corporation’s Fourth Quarter and Year End December 31, 2016 Earnings Call and Webcast. My name is Brian and I’ll be your operator for today’s conference. At this time, all participants are in a listen-only mode. Following management’s prepared remarks we will host a question-and-answer session and our instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. It is now my pleasure to hand the conference over to Mr. David Gladstone. Sir the floor is yours.

Thank you Brian, that’s a nice introduction. This is David Gladstone and welcome to the quarterly conference call for Gladstone Land. Thanks to all of you for calling in today; we appreciate you taking time out of your day to listen to our presentation. We always enjoy talking to you and hope to have some good questions from you at the end of this presentation. Please feel free to come by and visit us if you are in the Washington, D.C. area, we are located in a nearby suburb called McLean, Virginia. And if you have chance to come by, you’ll see a great team at work and we have about 65 members of the team now, we manage just over $1 billion in assets across all of our funds and companies. We’ll start now with Michael LiCalsi, he is our General Counsel and Secretary, he also serves as the President of Gladstone Administration, which is the administrator for all the Gladstone funds, including this one. Michael?

Good morning, everyone. Our report today may include forward-looking statements as defined in the Securities Act of 1933, the Securities Exchange Act of 1934, including those with regard to the Company’s future performance. And forward-looking statements involve certain risks and uncertainties that are based on our current plan, which we believe to be reasonable. 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 which are filed with the SEC. And these can be found on our website, www.gladstoneland.com and on the SEC’s website, at www.sec.gov. This 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 standards that we can used in discussion of REITs. We also discussed two other FFO measures, one would be core FFO or CFFO, which adjusts FFO for certain non-recurring charges such as acquisition-related costs. And the second is adjusted FFO or AFFO, which further adjusts CFFO for certain non-cash items, such as converting GAAP rents to cash rents. And 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 fund 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 everyone to read yesterday’s press release and Form 10-K filing which includes a wealth of information for our investors, and you can find them all in our website, gladstoneland.com. Now, I will turn the presentation back over to David Gladstone.

Okay Michael, thank you. We ended 2016, as you all saw in the numbers yesterday, on a very note and continue the momentum, I think, so far in 2017. 2016 marked the biggest year and today for – in the form of acquisitions and January right after the year-end we closed our largest single acquisition. And let me say this, before I get started say a few details about the events that we have. I’d like to give a brief overview of the nature of our business. As you all know our business consist of owning high-quality farmland and leasing it to top tier farmers. We don’t farm any of the land ourselves, and thus we don’t take any direct farming risk. And many of the farmers that rent our farmland buy crop insurance from the Federal Government so to protect them against potential losses. So if their crops fail, the farmers who buy the insurance can get back enough money to plant the next year’s crop and that benefits us as well. And so thank you very much to you as taxpayers for helping with that insurance. We are extremely selective in our investments and we are proud of ourselves only acquiring the best farms and leasing to the best farmers. Our investment focus is in farms located where farmers are able to grow a variety of high value annual row crops such as berries and vegetables. We usually, only purchase irrigated crop land with great soil and plenty of access to water, and partially because of this almost all the geographic regions where we have farms located, continue to experience steady income increase, as well as underlying values of the stock. And the rents that are charged on the land continue to go up. As evidence of this we managed an average increase of rental rates of about 17% on all the lease renewals over the past four years all without incurring any downtime. This is what happens when you have high-value crops on high-value land such as berries, vegetables and even the nuts, the nut farms that we own. And the farmers we leased our farms to typically are the largest and best farmers in any of the growing regions that we’re in. And we prefer to keep the same formula on the property as long as possible, because they tend to know the nuances of operating that particular farm. Our objective, as always, is to be the long-term real estate partner for all of our farmers, so that they know they have that farm of their own for as long as they want it. We have recently taken advantage of some depressed land prices in the Midwest, where we’ve been able to find to some nice investment opportunities. We’ve also furthered our expansion in the west coast farms that grow permanent crops. These are almond, orchids and pistachio orchids that we own now. These provide for a higher yielding investment opportunities. But you should expect that a large majority of our farmland will continue to be leased to farmers that grow fresh produce. Currently about 90% of our total crop revenues come from farms that are growing foods that you’d find in either the produce or the nut section of your local grocery stores. We consider these foods to be among the healthier types of foods and we’re seeing growing trend toward organic among these sectors which we’re following very close. We currently, as of today, own about 54,000 acres on 59 farms and seven states across the United States with a value of about $455 million. And the acreage we own is among the highest quality farmland and the strongest rental markets in the United States. We also own some farming buildings that are on these properties such as, cooling facilities, and packing houses, and processing facilities, that we are able to earn some rent on, but almost all of our dollars in the form of the farmland itself. The trend we continue to see in our growing regions is steady decrease in the number of farm acres, as they are being sold and converted to suburban uses. And if I have point to one thing that’s driving the rental rates in our farms, I’d have to say it’s this, the amount of farms in these regions is relatively finite and there are no new farms being developed in these areas, there’s no trees to cut down, no swamps to drain, there’s just no more land that can be converted to farms. And all the arable land is already being farmed in these areas, but now it’s being converted to other uses, such as housing, schools, factories and once it gets converted it really never comes back to farming. California is a good example of this, we’ve seen California lose about 100,000 acres as reported by the government every year for many years now, losing it to suburban uses again. This causes the farms that we own in California to be highly sought after as they’ve been farmed and rented for decades without ever being vacant. Speaking of California, conditions throughout the state are drastically better this time than last year due to the record participation. A year-ago about 64% of the state’s surface area was classified as being under extreme drought conditions. Now that figure has dropped to less than 2%. Overall, the snowpack levels that are in the mountains there are the highest levels in the past 20 years because of the precipitation totals are double the norm and the wells, reservoirs and lakes across the state have been filled and recharged, so farmers across the state are in great shape today. Water access and availability is another factor driving up rental rates and land prices farmers are following land where water is too difficult are fallowing land where water is too difficult or expensive to obtain driving up rents and prices of the land with good wells and multiple sources of water. Whenever we buy a farm we’re always spending a large amount of time and our due diligence phase of looking at these on farms, simply determining the water conditions and making sure the farms will have plenty of water for the long-term. Through this drought none of our farms had those problems. We want you to know that water availability is sufficient enough to withstand any situations that happened in California and that really happen from time to time everywhere in the United States. Just as a side note, drought happens in every area of the United States. A few years ago it was in Texas and it’s been in virtually every place at one time or another, so well water and access to water is critical to our decision-making. Now let me go over some details of recent activity. We had another quarter as we purchased two new farms, good quarter, totaling about $18 million on a weighted average basis, the initial cash on these acquisitions was about 5.6%, while overall the straight-line rents were about 5.7%, however, one of these leases does contain of variable rent component that will allow us to share in the gross revenue earned on the farm. This revenue sharing payment won’t begin until the end of 2018. So expect actual yields on these acquisitions to increase significantly at that time and that assumes of course that they have a good crop. And since quarter end we’ve also acquired a 37 acre farm in Florida that grows organic vegetables. The initial cash yield on this was about 5% and the straight line is about 5.3%. The acquisition of this farm underscores another trend that we’re seeing and that is the increase in organic crops and fresh produce space. And I’d like to point out currently about 35% of our fresh produce acreage is either organic or transitioning to organic. We’ve always believed and we’ll continue to strive for well diversified list of farms providing added security to investors. And across the portfolio we now own 15 different growing – we are now in 15 different growing regions that grow 35 different crop types and there are at least 40 different tenants. All of these tenants are unrelated to us, we don’t have any ownership in any of those farms and can’t dictate what rents that we receive from them. And I just say that this is really good diversification and protects our shareholders if something awful happen. We have nine leases expiring in the second half of 2017 these leases make up about 10% of our total annualized revenue. We’ve begun negotiation with current tenants and expect to be able to renew all the leases, with some increases in rent without incurring any downtime on the farms. However, there’s no guarantee these farmers will sign up, but my bet is they all will. In 2016, lease renewals resulted a 23% increase in rent and combined with our 2015 lease renewals which resulted in an average rental increase of over 15%, we just believe the 2016 renewals underscore the trend that’s continued in the areas that were located in. That’s the demand for prime farmland and the rents they command is continuing to increase. The sentiment seems to be shared by farmers in all the areas as well. And we know them well since I was in the business renting a lot of farms when we were growing a lot of strawberries and vegetables. And now I’d like to highlight some of the progress we’ve made on our farmland portfolio. Since January 1, 2016, we invested $100 million on the acquisition of 15 new farms, the initial weighted average cash yield on these farms is 5.2%, however, once revenue share and payments begin, we expect to get an overall cap rate of about 6% on these farms. The new long-term debt we put on these farms has a weighted average effective interest rate of just over 3% at 3.06%, which is fixed for the next five to ten years. We renewed two leases that were coming due at an average increase of 23 % and we maintain 100% occupancy on all of our farms during that year and going forward. That’s really enough of the business discussion I’m going to turn it over to Chief Financial Officer, Lewis Parrish, to talk to you about the numbers. Lewis.

All right, thank you David and good morning everybody. I begin by discussing our balance sheet. During the fourth quarter our total assets increased by about $18 million or 6% mainly due to our new farm acquisitions, which were funded primarily with a combination of new fixed rate borrowings and new OP unit issuances. During the quarter, we incurred an additional $30 million of new long-term borrowings and expected weighted average effective interest rate of 3.16%. And these rates are fixed for the next ten years. We also amended our credit facility with our largest lender, MetLife. Through the amendment we increased the overall size of the facility to $200 million and we reduced the interest rate on about $86 million of term borrowings by 19 basis points, resulting in annual savings of over $163,000. The new rate on all term note borrowings under the MetLife facility is now 3.16%, net rate is fixed for the next 10 years, as well. And subsequent to quarter end we obtained an additional $32 million of new long-term borrowings at an average interest rate of 3.3% and these rates are fixed for the next three years to seven years. From an overall leverage standpoint, using the fair value of our portfolio and including our term preferred stock into debt bucket, our loan-to-value ratio was 59% at December 31. And we’re comfortable at this level given the relative low risk of farmland as an overall asset class. While interest rate volatility remains a concern of ours, over 845% of our total indebtedness is currently at fixed rates and on a weighted average basis these rates are fixed for another seven years out. So we believe we are pretty well-protected on the debt side against any near-term interest rate hikes. The overall weighted average effective interest rate on our bowings is currently 3.12% and this is down seven basis points from a year-ago. We continue to be able to borrow money at favorable rates 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 2% of our total debt outstanding or about $5 million is coming due over the next 12 months. And now I’ll talk about our operating results. First, I’ll note the net income for the quarter was approximately $83,000 or $0.1 per share. Our operating revenues increased by over 10% from 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. But the point for us is that overall for our properties we still are not seeing the wide spread decline of rents that you are hearing about in certain of the other parts of U.S. and that’s primarily due to the locations of our properties, their soil and irrigation quality and the types of crops grown on them. Going into detail on the expense side our core operating expenses, which strips out depreciation and amortization expense and acquisition-related expenses increased by about $108,000 or 10% from last quarter. This increase was mainly due to a higher performance-based incentive fee earned by our advisor during the quarter partially offset by decreases in certain G&A expenses. The incentive fee was earned based on our pre-incentive fee, FFO, surpassing a required hurdle rate. And just a quick note in our related party fees, our management fee is calculated based on the cost basis of the company’s stockholder’s equity as it appears our balance sheet. And our incentive fee is based on FFO as defined by NAREIT, so neither of these fee calculations is tied to our net asset value which we’ll be discussing later. 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 $39,000. The majority of this change took place in the G&A expense – line item, as we incurred additional third-party appraisal fees of about $27,000 in the prior quarter, related to updating the valuations of certain of our farms. And we also recorded about $21,000 of bad debt expense last quarter related to a lease we terminated early. Moving onto our per share numbers, earnings from adjusted FFO for the quarter were $13.8 per share. And this represents fifth consecutive quarter which we’ve covered our dividend with AFFO. We expect this to continue to be the case in the future. And now we’ll move onto net asset value. During the quarter we updated the valuations on eight of our farms, five of which were valued internally, and three of which we had appraised by independent third-party appraisers. In aggregate, these updated valuations resulted in an increase of about $3 million over their prior valuations and most of this increase came from valuations that’s determined by the third-party appraisals. As of December 31, 2016 our Farmland portfolio was valued at about $401 million, with 77% of this value based on either third-party appraisals or the actual purchase price. And 23% of the total value, or $93 million was determined internally. However, of the amount valued internally, 98% of it or about $91 million is supported by appraisals performed between 15 months and 34 months ago. Based on these updated valuations, our net asset value increased by 3.9%, up to $14.21 per share at December 31, this was due to the appreciation of our portfolio, as well as a decrease in the fair value of our fixed-rate borrowings as market interest rates rose significantly during the quarter. While there may be some quarter-over-quarter volatility, over the long-term, we expect that our net asset value 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 have the ability to close on a couple more small deals, but we are a pretty close to being maxed out in terms of available funds and we’re currently exploring a few different options for additional access to capital. We recently expanded the sizes of our two largest borrowing facilities, so we still have plenty of room to continue borrowing and buying new farms. We’re looking to build on the momentum gained from a strong end of 2016 and with a 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 AFFO. And with that I’ll turn the program back over to David.

Very good, very good Lewis. This company just continues to get better every quarter as we continue to execute our plan. We’ve invested over $350 million in new farms since 2013 and expect to continue adding to that figure as our backlog remains very strong. Currently we have three properties and it’s worth about $42 million to be purchased these are under signed letters of intent, that means we’re going to close them, but it does mean we’ve got a pretty good close view of what’s going to come in. Some of these purchases will involve the issuance of additional OP units, in consideration that’s becoming very popular for some of the buyers, but we also are looking to issue perhaps some preferred stock to cover the equity portion. So please stay tune as we try to figure out the best way of solving the acquisition problem. As you know, with an increase in the number of farms we own becomes greater diversification and a protection for investors we also expect better earnings. However, we still continue our due diligence process on these properties, that I just mentioned, the three. And there’s no guarantee that any of them will close, but my best guess is that they will. As most people know, our funds specialize in farms that grow fresh fruits and vegetables and we have historically avoided investing 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 contributed to a healthier lifestyle such as fruits, and vegetables and nuts. In addition, more than 90% of our portfolio is GMO-free and we are continually expanding our ownership in organic farmland both with new acquisitions, as well as converting some of the existing farms into organic ground. We also like fresh produce segment because it provides greater returns and less volatility than other type crops. According to the Bureau of Labor Statistics, the fresh fruits and vegetables segment of the food category has increased prices at a rate of 1.7 times greater than the increase in the overall, annual food CPI. So from that standpoint, we like inflation because it helps our farmers and helps us add to our rental income. While prices of commodity crops are more volatile and susceptible to global supply and demand, fresh produce is somewhat insulated from the global volatility because all the crops are generally consumed here in the United States within a very short timeframe. Corn farmers are going through some very difficult tough times now. And the Midwest farmers, lands have gone down in prices. So we are sympathetic and wish we could help, but you can’t grow strawberries in the middle of the farmland out there. It is unpredictable nature of grain prices and other commodity crops that will prevent us from whatever waiting our farmland portfolio too heavily in farms that grow traditional commodity crops. We want to have some, currently about 10% of our total value of our farms, are invested in farmland growing corn, wheat, soybeans and we believe that’s a good mix. At this point in the farming cycle is just really difficult for farmers to make much money when they grow corn and the corn prices are so low as they are today. Ultimately we believe that farmland, that is GMO free and growing healthy crops such as fruits, and vegetables, and nuts are going to continue to outperform the overall farmland market as they have in the past, in terms of both cash returns and long-term value appreciation. The farmland real estate company that we are, we really take pride in building a foundation of company across the healthier sector of the agricultural industry and believe it’s one of our company’s core strengths. In terms of the economic outlook, in general, farmland continues to perform extremely well compared to other classes of assets, despite some recent downturns in certain Midwestern grain regions, the farmland there, the NCREIF index, these are the people that have the farmland index, is currently made up of 743 agricultural properties worth approximately $8 billion and a total annual return of 7.1% in 2016, and is averaged an annual return of 13.1% over the past 10 years, compared to the S&P which was 8.7%. And by the way, during that 10 years there were no down years in terms of going negative. As you remember S&P has done that a few times. Farmland has provided investors with a safe haven during turbulent times in the financial marketplace as both land prices and food prices, especially fresh produce have continued to rise steadily and most of all farmland has historically been an excellent hedge against inflation. However, not all farmland is the same, according to the Department of Agriculture, farmland in the Midwest that grows corn may earn an investor $200 an acre in rent, whereas in California a farmland that grows strawberries earns about $3,900 in rent per acre. So for every acre of strawberries you need about 20 acres of corn farmland to get the same return in rents. All investors in farm land should remember that the number of acres is not nearly as important as the revenue per acre. We specialize in high rent, high quality farms that’s what differentiates us from most of the farmers out there. We’re very optimistic that President Trump will work with Congress toward a pragmatic solution to some of the agricultural issues, including water supply, environmental regulations and international trade. He has already promised to eliminate the Waters on the U.S. rule which unfairly restricts the use by farmers of certain bodies of water, every little stream that goes around your property, for example. And he’s appointed a pro-farming administrator of the EPA and the same at the Department of Agriculture. So hopefully we’ll see some good things coming out of Congress. As you know we recently raised our dividend again to $4.3 per share, per month. Over the past two years we’ve raised the dividend five times resulting in an overall increase of 43% and a monthly distribution rate to shareholders over that time period. This is a reflection of the nice job, our management team has done at finding high quality farms and that continue to appreciate in value paired with strong tenants who are reliable in their rental payments to us. In 2013, we made 48 consecutive monthly distributions to the shareholders that sense 2013. And total of about $2.85 per share of total distributions paying distributions to our shareholders is our paramount part of our business. We are as they say, a dividend paying company, that’s our goal. We project a good production and income growth for 2017 and if our expectations are myth we hope to be able to increase the dividend again in the near future. As the largest shareholder of the company I’m working hard to increase distributions. I certainly like receiving dividends as much as anybody does. Currently the stock price is at $12.49 which is significantly below our net asset value. Thus we hope our stock price will rise in the near future. So if you buy the stock today you’re getting a discount from our estimated net value of farmland that’s about 12%, buying at $14.21 – buying at $12.49, you’re getting to $14.21 in assets. What a wonderful purchase in today’s marketplace. And along the way you’re getting $4.3 per share, per month in cash distribution, which is about a 4.1% yield. And in talking to some of the brokerage houses they’re saying their REIT indexes today currently paying about $3.9 in yield, so we are even better than the REIT indexes. In closing, please remember that purchasing this stock and this company is a long-term investment. It’s not going to pop tomorrow because of something. It’s part of an asset investment like gold except it’s an active investment with cash flow to investors. Now I said this a few times, but we always love to point out that Warren Buffett’s comment that he’d rather have all the farmland in the United States than all the gold in the world, we obviously agree with Warren on this one. We expect inflation, particularly in the food sector to be strong and we expect values of farmland to increase as a result. And we expect this to especially true a fresh produce in the food sector and the people in the U.S. are trending towards eating more, healthier foods. I think it’s a good way to look at our farmland rate as it hedged against inflation in both food prices and other areas and it’s those looking for an asset that doesn’t correlate with the stock market well. This is one that meets that goal. Now we have some questions so we’ll get our operator on board to tell you how to do that. Please come on board Brian.

Thank you sir. [Operator Instructions] Our first question will come from the line of Rob Stevenson with Janney. Please proceed.

Hi good morning guys. David how are you thinking about the common equity today? I mean, I know in your remarks a few minutes ago you talked about the discount to NAV. But REITs generally trade at discounts to NAV, and Microcap REITs generally trade at wider discounts to NAV. You guys have had a heck of a run in the stock price, over the last 12 months. And $12.50 is a lot better than the $8 that was trading at year ago. How are you thinking about as you look to finance the next batch of acquisition? Common equity would not only get you larger market cap, but greater quantity as well and solve some other issues. A 14% discount to NAV doesn’t seem all that huge given where REITs normally trade. How are you guys sort of contemplating that internally versus preferred?

Well, thank you Rob for being a great supporter of ours. We appreciate all of that. And I guess I’m just averse to taking dilution when I know the real underlying values. But we haven’t ruled it out. But on the other hand we’ve talked about some convertible preferred might get us a much lower coupon, which would be very delightful for us to have. I know common is the lowest coupon we could probably get at 4.1%. But again it’s always a balancing act and we look at this as we look at everything. What do we think is going to be best for our shareholders over the long-term? We haven’t ruled out anything just been thinking about these and not quite ready to pull the trigger, but I know when we do we’ll be calling your firm for help on this.

Okay. And of the three properties for roughly $42 million that you talked about having under letter of intent at this point, how substantial is that OP unit or would that OP unit issuance be, is it 10% or closer to 50? I mean not exact numbers but help me understand sort of how much of a magnitude that OP unit contribution could be on that $42 million purchase price if you go ahead with those deals?

It’s closer, a little less than 10% at this point in time and it changes as people warm up to the idea of having a tax-free exchange. So we’ll just have to wait and see when those finally close, what that number is. And the nice thing about the OP units is they’re usually at a higher price than the current price of the stock. So we’ve been able to avoid some dilution by having OP units that are higher strike price when they convert to common. So we like that and we like to sell more of it but a lot of people like cash as opposed to OP units.

Okay. While we’re on the subject of OP units, Lewis, I mean, how much – have you seen any substantial amount of OP units converted into common in order to sell of the deals that you’ve done over the last couple years?

None have been yet. We haven’t quite reached the one year marker when we issued our first OP units is coming up soon. But we’re not expecting, definitely not significant amount if any at all to be converted.

Okay. All right thanks guys I appreciate it.

Okay, next question.

Thank you. Our next question will come from the line of James Fishman [ph] with [indiscernible]. Please proceed.

Good morning. I have two quick questions. Also on the OP units, do they receive the same distribution as the common?

Yes. Yes they do.

Okay. And my second question is on Seeking Alpha, there was a posting on January the 11 which was reviewing LAND quite favorable article. And somewhere in the comments there was a comment from one David Gladstone, and I just wanted to confirm that that was actually you Mr. Gladstone and not someone impersonating you.

That’s true.

Okay, thank you

Next question.

Thank you. Our next question will come from the line of John Massocca with Ladenburg Thalmann. Please proceed.

Good morning every one.

Good morning.

So can you kind of walk us through maybe the genesis of the South Florida acquisition you guys did in the first quarter here? How did you guys come about that opportunity? And are there any other opportunities you think out there kind of once you – kind of sort out your capital stack to do further kind of larger acquisitions like the one in South Florida?

That was a unique situation from a farmer that we’ve known for a long time. We are very active in Florida. Bill Frisbie here in the office, I think, spends more time in Florida than he does here because he’s down there working with the farmers. So we know lots of farmers there. In addition many of the farmers in Florida are the same ones that are in California which we’ve known for many years and have competed with them when we own strawberries, strawberry farming. And so as a result, there is a group of farmers that see us as a tremendous benefit for them as a way to get liquidity in the land that they own, put it into the business part where they earn much more than they could if they were renting the farms out, for example, and as a result they’re warming up to the idea that we can be their long-term partner. And in fact will sign very long-term leases should they want those. And that one happens to have a pretty long-term lease on it with the extensions.

Okay and then kind of that.

The second part of that question, is are there other large transactions? Yes some of them are in California and are very large and others are more in line with what we do. I think the worst thing we’d want to do is get one or two very large farms and put ourselves at risk, because when we started this our only tenant on day one was Dole. And so we felt a little bit uneasy there although I’ve known the Dole people forever in a day and they’re good people. You just never want to have so much in one area. So we’ve been careful in trying to have a diversified tenant base where we have no relationships with them other than those tenant relationships. So again, I think, there’s opportunities out there in fact I know of several very large ones, but we’re not going to try to take those on until we become much larger

Okay, that makes sense. And then somewhere in that same vein, that’s recent USDA survey that came out there have been some kind of suggestions amongst the analysts who have been reading it that there might be some consolidation going on in the farming space. Are you guys seeing that amongst tenants or potential tenants? And do you think there’s this consolidation should provide acquisition opportunities for Land?

The consolidation started many years ago in the Midwest as a farmer used to be able to make a living on a 100 acres. Now if they don’t have 3,000, 4,000, 5,000 acres, they can’t make a living on that in the Midwest. And it’s transferred into all the other areas. For example, in the strawberry business there are three or four very large strawberry growers. And as a result of that they dominate the main places that strawberries are sold which is the grocery stores and the big box grocery stores as well. So as a result, I think, this is just a natural thing to happen. And we want to take advantage of that by being the real-estate part of those transactions. For example, if farmer A wants to buy farmer B, he may not have the money to do the farm but we could easily buy the farm and he can buy the business and we’ve done several of those transactions. So I think we’re a helpful catalyst in helping this happen. It’s happening in large part in the Midwest because some of the farmers are just not making a living, they’re actually losing money. And I think someone told me this year that generally corn farmers are losing $100 to $200 an acre. I think they make it up in some of the other crops, but it’s really rough times for them and lot of the banks are now not lending as much as they used to in the Midwest. This is not true in our farming areas, California, and Arizona and Oregon are still very strong on the West Coast and certainly Florida and moving up the East Coast there’s some very strong farms, who are hopeful of buying a few farms in three or four of the eastern states and making a stake there. And we’re now getting phone calls from people who want to get out of the farming business, but don’t want to have to pay the tax on the real estate. So we’re working with some young farmers and some other farmers who want to aggregate farms and get those farms under their control by buying the farms and leasing it to the new farmer. Anyway, I think, that you’re going to see that. It’s just a natural progression. Right now if my memory is correct the average age of a farmer is 58 and many of them have no one to take over the farm, their children have gone off to college and become lawyers, and nurses, and whatever. And they’re not going back to the farm. And we buy those farms from mom and dad who are retiring. And many of the farms now are not even farmed they’re just rented out. So we love to get those we just become the new landlord. And I think there’s a lot going on in the business. And I think our farm company will be one of the largest over the next ten years.

Okay that’s it for me thank you much.

Okay next question please.

Thank you sir. [Operator Instructions] I’m showing no additional questions at this time. So now it’s my pleasure to hand the conference back over to Mr. David Gladstone for closing comments and remarks. Sir?

Okay thank you very much. We appreciate you all tuning in. And we’ll see you next quarter. That’s the end of this conference call.

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