Welcome to the Gladstone Land Corporation First Quarter 2017 Earnings Conference Call and Webcast. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the floor over to David Gladstone. Please go ahead, sir.

All right. Thank you, Karen. Nice introduction. This is David Gladstone and welcome to the quarterly conference call for Gladstone Land and thank you all for calling in today. We always appreciate talking to you and have time to listen to presentation and ask good questions. We want to work together and please you by doing good job plus get some good questions. And please feel free when you come to visit us here in the Washington, D.C. area, we're located in nearby suburban McLean, Virginia. Just stop by and say hello. You will see some of the people here. We have about 65 members of the team now. And we manage a little over $2 billion in assets across these 4 public companies. One of them obviously is this. We always start out with Michael LiCalsi, he is our General Counsel and Secretary and he also serves as President of Gladstone Administration which is the administrator of all the Gladstone funds. So Michael, take it away.

Good morning, everyone. Today's report may include forward-looking statements within the meaning of the Securities Act of 1933, 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 in these forward-looking statements, including all risk factors listed on our forms 10-Q and 10-Q that we filed with the SEC. These all can be found in our website 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 investment trust, we will also discuss funds from operations or FFO. FFO is a non-GAAP accounting term defined as net income, excluding the gains and losses from the sale of real estate and any impairment losses plus depreciation and amortization of real estate assets. The National Association of REITs is endorsed FFO as one of the non-GAAP standards that can be used in discussion of REITs. We may also discuss 2 other FFO measures, #1, core FFO or CFFO which adjusts FFO for certain nonrecurring charges, such as acquisition-related costs. And the second is adjusted FFO or AFFO which further adjusts CFFO for certain noncash 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 it's other affiliated public funds, please follow us on Twitter, username GladstoneComps and on Facebook keywords, the Gladstone Companies. Please also go to our general website to see more information about our companies, that's 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-Q filing and again those can be found on our website, gladstoneland.com. Now I'll turn the presentation back to our President, David Gladstone.

Okay, Michael, thank you. Thank you, you've gotten us up to date on all of the things that we need to do at the beginning. By the way, we started off 2017 with a big bang by closing our largest acquisition. This acquisition is a large organic farm in Florida that we acquired for $54 million. But before I get into the details of these events, I would like to just give a brief overview of the nature of our business and the overall market environment. All of you know, most of you know, our business consists of owning high-quality farm land that is leased to top-tier farmers. We don't farm any of the land ourselves and thus don't take any direct marketing risk in terms of farms not producing as well as they should. We pride ourselves on only acquiring the best farms and leasing them to the best farmers. Our investment focus is farms located in farmable -- in farm areas able to grow a variety of high value row crops, such as berries or vegetables. We generally only purchase irrigated cropland, with great soil and plenty of access to water. And partially because of this, almost all of the geographic regions where our farms are located continue to experience steady appreciation in both underlying land value as well as the rent charges on those. And the farmers we lease our farms to are typically the largest and best farmers in any of the growing regions that we're in. We prefer to keep the same farmer on the property for as long as possible because they begin to know all the nuances of operating on that particular farm. And our objective is to be the long term real estate partner of all of these farmers that we deal…

Okay. Good morning, everybody. I will begin by discussing our balance sheet. During the first quarter, our total assets increased by about $53 million or 16% mainly due to a new farm acquisition which was ultimately funded through a combination of new fixed-rate borrowings and our recent common offering. During the quarter, we incurred 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 3 to 7 years. We also raised about $20 million in an overnight common offering. These proceeds were initially used to pay down our line of credit, though we expect to redraw a portion of the line in connection with the upcoming acquisitions. From an overall leverage standpoint, on a fair value basis and including our term preferred stock in the debt bucket, our loan-to-value ratio was 58% at March 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 90% of our total borrowings is currently at fixed rates. And on a weighted average basis, these rates are fixed for another 7 years out, so we believe we're pretty well protected on the debt side against any near term interest-rate hikes. The overall weighted average affective interest rate on our borrowings is currently about 3.1%, down 10 basis points from a year ago. Credit remains readily available to us and we continue to be able to borrow money on favorable terms. In regarding our upcoming debt maturities, only 2% of our total debt outstanding or about $5 million is coming due over the next 12 months. Now I'll move on to our operating results. First I will note that net income for…

All right. That's a nice report. This company just keeps getting better every quarter as we continue to execute our plan of just steady increasing. We're selectively investing over $350 million in new farm assets since we came public in 2013 and expect to continue adding farms to that figure. Our backlog is remaining very strong. We currently have 2 farms of about $30 million under signed purchase and sale agreements. Expecting to close that later this quarter. Under the signed letters of intent, we have pretty good number, but I hate to give you numbers on that because we never know when those are going to fall out between the time that we have a letter of intent and we have a purchase agreement. We currently have the ability to close on all of these farms without a need for additional capital as some of the purchases will involve the issuance of additional OP units as consideration. However, we still continue to do the due diligence on some of these properties and there's certainly no guarantee that after the due diligence that we can't get together and close on it. As you know, an increase in the number of farms that your company owns comes -- that gives us greater diversification and protection for investors and we also expect better earnings from doing that. As most people know, our farms specialize in farms that grow fresh fruits and vegetables and historically have avoided investing in farm land that grows traditional commodity crops, such as corn and soybean and wheat. One reason is we believe in investing in farmland that grows crops that contribute to healthier lifestyles, such as fruits, vegetables and nuts. In addition, more than 90% of our portfolio is GMO-free and we're continue expanding our ownership in…

[Operator Instructions]. Our first question comes from the line of Rob Stevenson with Janney.

You've got about 10% of your leases rolling in the reminder of '17. Could you talk about where you think those go from a rent standpoint, sort of flat, slightly down, slightly up, meaningfully up? What's the sort of thought at that point?

Well, it is awfully hard. I'd say in Florida they are going up and in California, at some of the farms we have in California, probably going to be flat or maybe a little up. But it's not a strong time to be increasing rents even though our properties are good. But I wouldn't put a lot of inflation in there for this group of leases even though I'm hopeful that we can negotiate the right numbers. We just started that. And we get a little bit of pushback from some of the California people and the Florida people seem to be doing very well right now, they had a good season.

Okay. And of your major sort of 3 or 4 crops that are grown on your land today which are the ones that got the most inflation in them and what's got the most deflation in terms of value of the crops these days?

I would say the berries side of the business is still extremely strong. Strawberries, I'm happy to say, all of you out there are eating plenty of strawberries and that's helping us out. They've moved along well. Blueberries have moved along well, although blueberries last year, they had a bumper crop. I think it was mostly in Georgia and they ended up not doing very well in that part of the country. Blueberries, they start out in Florida and then California and Georgia and it moves on up to East Coast to North Carolina and into New Jersey and then up into Michigan. And those crops were a little bit excessive last year. So we had a little bit of slowdown. We don't have any farms in Georgia or North Carolina or even New Jersey. So as a result, we're not impacted, our farmers were not impacted. Although I must admit, many of the farmers we have are big and they are in all of the regions. So berry crop is very strong. We think the almond crop is going to be good this year. And perhaps pistachios -- we have some pistachio orchards, but almonds look like they're going to be very strong this year. And I'd say the vegetables, depending on which vegetable are okay, but not highly inflated. But we don't have any in which they are going down. We don't see anybody saying, "Well I just got a dump these," other than the example I used in blueberries. We're not in the tomato business and have avoided really tomatoes simply because the guys in Mexico are producing a lot of tomatoes and they tend to dump it on the marketplace and drive down the price of tomatoes. So couple of the tomato farmers having pretty poor. We'd love to be in more onions. We tried to buy an onion farm in Georgia. We didn't get it. It was bid up by a very large producer of onions and decided not to step into that one. But it's a marketplace that's going up and down like every marketplace, but seems to be traditionally on the way up most of the time.

Is there anything, akin to the orange blight, et cetera that's impacting crops from a health standpoint, especially the orchards and stuff like that that take longer to grow these days?

You know there's nothing out there that we're worried about today. You always have pest in the field and you also have pest on the trees. The almond trees seem to be good, the pistachios trees are good as long as they are strong and healthy. They are absolutely beautiful in the springtime when the blooms come in. Strawberries are strong right now. And I think we'll have a good strawberry crop. I don't see anything out there that's blighting the crops at all right now. I'm sure there is something some place, a nematode or in the root somewhere that somebody's worried about, but generally speaking, it's sporadic. It's not like it is in Florida with oranges where the orange trees are dying and they can't find out -- find something to kill the bug that's killing the trees. But other than that, I would say that everything's pretty static right now.

Okay. And then given your comments about the discount to NAV, where do you guys turn once you're done acquiring these couple of farms that you have the capital for now? Do you turn to preferreds, do you look to do something else more creatively to raise capital? How do you make acquisitions at the back half of the year if the stock doesn't bounce up here?

Yes, we're probably end up going down the preferred route. I just can't stomach selling common stock at this price so as a result, it would be really hard to do an offering. So we will probably do some more preferred. As you know, we have some out now. So the idea will do some preferred. We've looked at a number of other alternatives. I hate to say this, I don't like a lot of debt. We're about 1:1 or a little more than 1:1 now. And given the steadiness of the rents coming in we feel comfortable with that. Taking us to 2:1 or 3:1 would be not acceptable. So I think we're looking at long term preferred would be the way to look at the marketplace in the future. Right now, we have enough money probably take us what, Lewis, through July, August, some place in there? So we're in good shape for the immediate future.

Our next question comes from the line of Jeffrey Briggs with Singular Research.

Looks like a nice pickup with the farm in Florida. The question I have has to do with your comments on sort of the land in the Midwest and the more commodity crop. Knowing that your model is to stick with high-value crops that you can command good amount of rent per acre on. You mentioned that if prices on some of the more Midwest land got so far out of whack, you may jump in there at some point. So the question is, knowing this is kind of out of the norm of what you do, what would that sort of thing look like? What would the scenario have to be for that to make sense to you? And is that something you would do as sort of like a cyclical buy where you would plan to sell it when the cycle went up? Or is it something that you would acquire at a good price and hold for the long term? I know that's not a big part of your operation so I don't want to spend a lot of time on it.

Well, let me explain what we do. Because prices of corn did hit a high and people are still bullish on corn coming back, prices of farmland haven't dipped very much. We think if they could dip, we could turn the corn land into vegetable land. We could grow sweetcorn which is sold into the produce section. There was a shortage of popcorn for a while. We could do that obviously, but more importantly we can do vegetables. You can grow green beans in the Midwest and sell them to some of the big canning companies and make a very good amount of money if you don't have to pay a lot for the land. So if land came down, it's been down from, I don't know $10 million to $12 million, it's now $8 million to $10 million and some farms are going for $6 million. We're starting to reach a point that we can grow vegetables in the Midwest and maybe some other things that -- we have a huge potato farm in the Midwest and it grows organic potatoes and they are sold at a premium price because they are organic. If we can get the land cheap enough, we can grow potatoes and vegetables that can make good amount of money. So yes, we would buy corn land, but we wouldn't use it for corn in the traditional sense. We'd use it for things like sweetcorn and vegetables.

Okay. That makes a lot more sense because -- based on sort of my recent introduction to the company, it didn't seem like that would be something you guys would do, but that does make sense.

Now you know the plan.

In terms of -- I know we talked about this a little bit. Just the amount of runway you have in terms of available debt to do the acquisitions you already have on the plate through the end of the year. If you got everything, including all the [indiscernible] how much equity, including whether it's preferred or common, would you need to raise to complete all that and sort of keep the target LTV?

We're obviously good for right now. And the guess is that you'd need another tranche of preferred stock in order to get it all the way through on all of the things that we're thinking about. So talking about $100 million to $150 million worth of purchases, we'd need to do that preferred issue.

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

You guys amended the advisory agreement subsequent to quarter end. It didn't look like a lot changed. Can you go over maybe what did change between the new amended advisory agreement and the prior advisory agreement?

Yes, what happened there and probably should have spent some time on that. We looked at what we're doing in our other REIT and it had matched itself up with the other externally managed REITs in terms of its document. And we thought to ourselves it's probably a good idea to have both of the REITs with the same operating agreement or fee agreement, simply because a number of lawsuits over the years have occurred in which the manager has had one way of doing business with one group and another. I know Merrill Lynch, for years, got sued because they treated their institutional investors different from their mutual fund investors and there was a big lawsuit over that, that sort of established how things were. So we just felt like it was time to make the changes to land. One of the things that we pulled out as we did in commercial and our other REIT, is that we pulled out the sale of any land from being part of the initial fee and set it up as a separate fee item. As you know, we really do not plan on ever selling any of our land. This is a buy and hold kind of situation. So that was a good idea. In case we do sell something, it wouldn't jack up the fee, the investment advisory fee. We have some kind of separate way of looking at it. So that was the main thing. We also changed a number of other minor things. And Lewis, would you want to go through couple of pieces?

The 2 major changes were the base management fee we brought in the OP units portion of the equity. We think that makes sense since it is essentially equity used to buy properties that we're managing. We just brought that into the equation. That's going to be offset because the incentive fee will be decreased by the increase in the management fee. And as David mentioned, the break out of the capital gains fee, it was originally built into the incentive fee. So it essentially was 20%. We brought that out separately and reduced it down to 15%.

Okay. Because the base management fee will offset -- will be offset by a decrease in incentive fee, you wouldn't really expect -- I mean we'll run it through our model, but you wouldn't really expect there to be much of a change in G&A because of this?

Right. The overall expenses, we expect to remain pretty similar.

Okay. And then more on the kind of portfolio side. I know last quarter you guys said you had $42 million under LOI. And that's a number that can move around a lot as deals kind of come and go, but in terms of the near term pipeline versus that $42 million number, how have things changed? Is there less in the pipeline, is there more in the pipeline? Any color you can provide there would be great.

The current thing is what we have 3 properties that are worth about $43 million that are either purchase agreements or pretty much agreed to and we're putting leases together or their purchase agreement is done. So we would expect those, assuming due diligence, we would expect those to come out. Right now in LOIs, it is about $31 million. So altogether it is about $74 million in the pipeline that could close by year-end. I would expect the $43 million to close in this quarter, although one of them flipped a little bit the other day. And then the $31 million or so would close before year-end. Again, this is very, very tentative. So don't say that this is going to be x dollars by year-end because we never really realize what's going to happen until we get something all the way down the road and then it's pretty easy to predict. So that's the general overview.

Our next question comes from the line of Robert Sennot from Seaver Hill Capital.

A question for you. I know you just said that you are prone not to consider selling any of your parcels -- your farm parcels. But there is a parcel that I am looking at right now online from your website, Dalton Lane in Watsonville, California that is directly contiguous to hundreds of homes and I haven't seen this location in person, but if you look at the amount of homes that are built on a similar parcel, it has to be in the hundreds of home. If you take an average lot cost in California, probably in that location, you're looking at, at least $100,000 for a builder to carry a lot like that. Small acreage too because of California zoning regulations. You could easily garner, I don't know, back to the envelope, $10 million, $15 million, $20 million of non-dilutive money. Have you folks really considered parcels like this, you have 2 or 3 prime parcels.

Robert, you're taking away my best raspberries that I have got out there today. But you're right. It's right in the middle of the area. There is a farm next door that we have been trying to buy for a long time. If we get that, it would really be an ideal for a builder. But ideal is only at the lower end. The houses that are around that are at the lower end, so it's not quite as developable as you would like. You would like to be like the one we have down in Oxnard which is over 500 acres that you can walk into the beach in. And if we could get that changed into housing, it would be worth $1 million dollars an acre. So yes that's one that we're waiting for. But I would like to pick up that other property before I try something like that. And yes, if it made a lot of economic sense, we would entertain an offer from a builder who wanted to buy, but right now we're not out shopping it.

David, I don’t mean to put you on the spot on this call, but it's a point of curiosity that I have about some of your prime parcels because it would seem like you could raise capital that way in a much more efficient way. One thing I've learned, especially in real estate is do not get married to a parcel, do not fall in love with it. You have some sort of separation process where it becomes profitable.

I know you know this, but in California in order to get something zoned, it's got to be inside the city limits. Now the one in Dalton Lane is inside the city limits, but the one down in Oxnard is not. And it would be an impossibility to get that thing zoned because they make you put it on the docket for everyone to vote on. I know you know California voting takes you a 1/2 hour to do that because it's got 30 or 40 items on it. So we're not counting, we're not counting any of that and sure I would love for a developer to show up and take that one or a piece of property in Florida and say we're going to develop it, we will give you X dollars and that would be 3x of what we paid. That would be wonderful thing and we'd do it. But I'm not wedded to anything other than making money for my shareholders.

I understand David and I appreciate the job that you and your team do. I just wanted to ask that question on the call. It's something that is of value that you have in your portfolio that I hope someday you will exercise.

If a developer shows up, we will negotiate.

I see no further questions in the queue at this time. I'd like to turn the conference back to David Gladstone for any closing comments.

All right. Thank you all for calling in and really this was a wonderful call. We had a lot of good questions and I enjoy answering questions as best we can. Some of them make us make some really long term guesses which are hard to do. But that's the end of this call and we will talk to you next quarter.

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. And you may now disconnect. Everyone, have a great day.