Good day ladies and gentlemen and welcome to the Gladstone Land's quarterly shareholder call. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to turn the conference floor over to David Gladstone. You may begin, sir.

All right. Thank you Leanne. Nice introduction. This is David Gladstone and welcome to the quarterly conference call for Gladstone Land and again thank you all for calling in. We really appreciate you taking time out of your day to listen to our presentation. We always enjoy talking on the phone to folks and we hope we have some good questions at the end of the day. Please feel free to come and visit us if you are ever in the Washington, D.C. area. We are located in a nearby suburb called McLean, Virginia. And if you have a chance to come by, you will see some of the great team that we have working here, many of them on the road. But we have about 60 team members here now. We manage over $2 billion in assets across the four public funds that we have. We are going to start today with Michael LiCalsi. He is our General Counsel and Secretary. He also serves as President of Gladstone Administration, which is the administrator for all the Gladstone funds, including this one. Michael?

Good morning everyone. Today's report may include forward-looking statements of the Securities Act 1933 and the Securities Exchange Act of 1934, including those with regard to our future performance. These statements involve certain risks and uncertainties that are based on our current plans, which we believe to be reasonable. Many factors may cause our actual results to be materially different from any future results expressed or implied by these forward-looking statements, including all the risk factors listed in our Forms 10-K and 10-Q that we filed with the SEC and they can be found on our website, gladstoneland.com, SEC's website as well, www.sec.gov. We undertake no obligation to publicly update or revise any of these forward-looking statements whether as a result of new information, future events or otherwise, except as required by law. And in our report today as a REIT, real estate investment trust, we will discuss funds from operations or FFO. Now 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. Now the National Association of REITs has endorsed FFO as one of the non-GAAP accounting standards that can be used in discussing REIT performance. We may also discuss core FFO or CFFO, which adjusts FFO for certain nonrecurring charges such as acquisition related costs. And we also will talk about adjusted FFO or AFFO. Now that further adjusts CFFO for certain noncash items such as converting GAAP rents to normalized cash rents. And we believe these metrics improve comparability of our results period-over-period and provide investors with additional insight as to how our management measures our ongoing performance. And to stay up-to-date on the latest news involving Gladstone Land and our affiliated public funds, follow us on Twitter, username GladstoneComps and on Facebook, keywords, The Gladstone Companies. And for more information about our family of companies in general, please visit our general website, www.gladstone.com. Now today's report from David and Lewis, our CEO and CFO, will be an overview of our operations and performance. Therefore, we encourage everyone to read the press release and Form 10-Q released yesterday and both of these can be found on our website, gladstoneland.com. Now with that, I turn the presentation back to our President, David Gladstone.

Okay. Michael, nice report of explaining all the things that people need to know about this report and our stockholders on this presentation. We started this year, 2017, already acquired $97 million in new farms. These span across four different states, including a multitude of different crops, a significant portion of which are organic crops. But before we get into the details and these other events, I would like to give you a brief overview of the nature of our business and the overall market environment. As most of you know, this business is defined as an asset management of alternate assets, because the assets we own, these farms, are considered to be illiquid. What makes us different from most of the alternate asset managers and this company is that it's publicly traded. We have asked some experts in the asset management business what segment they think we are in and they seem to think that even though we are REIT that we are classified as a natural resource segment. So along with timber REITs and owning oil wells and mines and the likes, we are in that segment. We chose to be a REIT so that our stockholders can get cash dividend before we have to pay any taxes, that is, we get a deduction for that. So this makes us, a publicly traded company a good one for dividends. Our business consists 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 farming risk. We pride ourselves only on acquiring the best farms and leasing them to the best farmers. We are a real estate partner to many of our farmers. We are not their competitors. Our investment focus is in farms,…

All right. Good morning everybody. I will begin by discussing our balance sheet. During the second quarter, our total assets increased by about $30 million or 8% due to our new farm acquisitions, which were funded ultimately through a combination of new fixed rate borrowings and the common offering we completed in March. During the quarter, we obtained an additional $17 million of new long term borrowings from one existing lender and one new lender. And on a weighted average basis, these new borrowings carry an effective interest rate at 3.8%, which is fixed for the next seven plus years. And subsequent to quarter-end, we obtained an additional $14 million of new long term borrowings. On a weighted-average basis, these new borrowings carry an effective interest rate at 3.6%, which is fixed for the next six plus years. Also subsequent to quarter-end, we raised about $2 million through our common ATM program. 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 just under 61% at June 30. We are 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 87% of our total borrowings is currently at fixed rates. And on a weighted average basis, these rates are fixed for another 6.5 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 long term borrowings is currently about 3.2%, which is up slightly, about eight basis points from a year ago. Overall, while interest rates have risen, credit remains readily available to us and we continue to be able to…

All right. Nice report, Lewis. This company just continues to get better every quarter, as we continue to execute on our business plan. Just then looking at our acquisition outlook, we have invested about $400 million in new farms since 2013's public offering and we expect to continue adding farms to this figure as our list of possible acquisitions remain strong. We currently have four properties for about $31 million under signed purchase agreements and we expect three of these acquisitions to be completed during the current quarter, with the fourth one probably closing in the early fourth quarter. We also have about $15 million of other farms that we hope to sign under purchase agreements. We have moved along on our due diligence there. It's a little too early to say whether that timing on the transactions will happen soon or not. We currently have cash and borrowing power, as Lewis covered, to close all of these farms without any need for additional capital and some of the purchases are expected to involve the issuance of additional operating partnership units, at least that's what we have negotiated. However, we still continue the due diligence process and they have to meet our stringent standards. There's no guarantee that any of them will close. As you know, with an increase in the number of farms that we own, comes greater diversification and protection for our investors and we like to do that. As most people know, our fund specializes in farms that grow fresh fruits and vegetables and we have historically avoided investing heavily in farmland that grows traditional commodity crops. One reason for this is, we believe investing in farmland growing crops that contribute to healthy lifestyle such as fruits and vegetables and nuts. That just seems to us to…

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

Good morning guys. David, was there any sort of read through on the leases where you had the tiny roll down in terms of either geographic concentration or particular crop types? Or was it just isolated instance?

They were isolated. Florida is doing extremely well. We are up very strong in Florida, about 8% in rents down there. We had a couple of farms and Oxnard was probably the place that got the slowest start last year. And so when farmers don't make as much money as they expect, they always come in and want a little change to theirs and we took a little bit of a haircut. The renewal actually increased over 3% in the strawberry farms, but a couple of farms were a little bit lower. So I don't expect this to be a big deal. I am still hoping to raise the dividend next quarter.

Okay. And then in the stuff that you just did in the quarter and then the stuff that's in the pipeline, any particular concentration geographically or crop wise?

No. We hit all of the places again. The only new one, as I mentioned, was North Carolina and that was new for us. We did some blueberries there. A very nice farm and we are actually talking to a couple of other blueberry farm owners there about doing another transaction. So we like North Carolina. It's got great growing ground there and most people think about North Carolina as being peanut town and it is. It's got a lot of peanuts and tobacco, but there's also a lot of veggie growers there. So we will probably see some more out of North Carolina. But all the above, we like the areas going up the West Coast. We would like to do more in Washington and Oregon. So we would like to see that more. And obviously Arizona and California, of course, is really the vegetable, you can't call it the breadbasket of the vegetables but it is the vegetable center of the world. I think 90% of the strawberries come out of California and maybe the same for the lettuce side of it. So we are in all of those areas. We love it. We love Florida. It's a good growing area. So I just count on us doing more of the same.

Okay. And then just lastly, what are your thoughts these days on wine grapes?

We like the business. Unfortunately, it's very expensive to buy anything that's doing wine grapes. Every time these Internet companies, somebody makes another 200 millionaires in Silicon Valley. They all think they have to go up to the wine country and buy a farm and grow grapes and they pay ridiculous prices for it. I wished I owned a lot there because we would be selling. They are paying ridiculous prices. Maybe once there's a bust in the Internet bubble, we will see a little bit of change in those prices. This happened once before. So right now, yes, if we found the right situation, we would do wine grapes or even table grapes for that matter. We have got a couple of table grape things that we are looking at, but nothing firm enough to talk about.

Okay. Thanks guys.

Next question please?

Your next question is from John Roberts with Hilliard Lyons. Your line is open.

Good morning David.

Good morning John.

Just wondering a bit, adding on to the last question about your pipeline. If we could just get some more color on that? And sort of what you are expecting in cap rates, et cetera?

I don't know. Lewis, where do you think the cap rates are? I don't have them down.

They are all in our target range, 5%, 6%, in that range for the year one in initial cap rates. As David mentioned, we have four deals that are currently signed under contracts for about $31 million, located in four different states. Three of them should close this quarter with one slipping probably to early Q4. And they are all within our target cap rate range.

Great. Thanks.

Okay. Next question?

Your next question is from Jeffrey Briggs with Singular Research. Your line is open.

Good morning guys.

Good morning.

So my question has to do with how you guys look at the distribution sort of as a percentage of cash flow thing. Because I know that you have basically had it covered with cash flow for maybe seven quarters or so now. Is there a target that you guys use in terms of you want to distribute X percent of cash flow as the dividend? Or is it just something that's more determined by feel as you go?

Unfortunately, it's more by feel. I ask Lewis how much I can pay out and he gives me the number and then we take a little bit off of that, because we don't want to get too far ahead and have to ever cover the dividend with a return on capital. But that's our goal, is just to continue to push the earnings up and push the dividend along with it. We have to distribute 90% of income anyway. So why not go closer to a 100%. It's a steady income. We have seen very steady income over, I have been in the business since 1997 and you just continue to see steady growth. Yes, there's certain areas, sometimes when Oxnard comes in late, they don't make as much money as they should and then it moves up the coast and the guys in Watsonville and Salinas make a lot of money that year, because theirs came in early. And everybody moans and groans about paying rent, but they know they got to pay rent. And so we go forward with them. And I just don't think there is any way of losing a lot of money in this business. But I could be wrong, some catastrophe could happen. But I just don't see it these days.

Okay. Thank you.

Next question.

[Operator Instructions]. Your next question is from Daniel Donlan with Ladenburg Thalmann. Your line is open.

This is actually John Massocca, on for Dan. Good morning everyone.

Good morning.

So could you may be walk us through the details of the revenue sharing arrangement at the Fresno County farm you closed subsequent to quarter-end? And can you be more specifically, when will kind of the revenue sharing portion of the lease payment hit? Is it going to be annually or quarterly?

No, it's annually. You get the crop in, you know how much money you have made and then you get a percentage of that. What's our percentage on that? Do you remember?

20%.

20%. So we get 20% of revenue. It's off the top. And so it's a nice way to do it. And it's hard to do it any other way, because when they are shelling almonds, for example, you know exactly how many they shelled and you know what the revenue is. So it's easily identifiable. But it's once a year and as soon as some of the crops that we have in the almond area are newer crops and it takes a little while, about three years for them to start producing almonds when they are new trees. So you don't get any revenue share during that period. You still get your base cash rent. And then when they start to produce, they might produce for the next 20 or 30 years. So it's a good crop to be in.

And John, just to answer your question about timing, with the deal we closed after quarter end, our first revenue sharing payment will come in Q4 of 2018.

Okay. And I am assuming those are mature trees. I mean, it just seems like given the press release and the fact that you are getting revenue sharing that quickly?

Yes. The one we just bought was all mature trees.

Okay. And then roughly what percentage of the portfolio has these revenue sharing agreements in the lease? And is there kind of a cap to how much of the portfolio you want to have exposure to revenue sharing?

There's five farms. I don't know the percentage. I don't think we have it on our list here, the percent. But there are five of the farms, what is that? That's just the total. I don't have it. Maybe we can put that up on the website or certainly have it next time we have a talk. I love revenue sharing, but I don't want to do revenue sharing if I have to take a lower number, a lower percentage for a return on a current basis. Right now, we are a wonderful little company, growing at a great pace and we have a chance to build ourselves up to a couple billion dollars. And then I would like to do more in the revenue sharing then. But I think in the early years, you are cutting off their early dividend payments if you take too much in revenue sharing, because the revenue sharing guys want you to cut the rent on a current basis and take more on the back end. So you start to take farming risk. And I don't want to ever miss a dividend.

Just to add onto that. All of the rents we have recorded to-date, none of that includes any revenue sharing. Our first revenue sharing payment will come online in Q4 of this year. And as those come online, we will delineate those out in the Q, separate those, which is the base rent and revenue sharing portion.

Okay. That makes sense. And then maybe the broader view, have you seen particularly California farms any complaints from tenants about labor shortages or any concern there?

Yes. Labor has always been a problem. As you know, I own the largest, one of the largest strawberry vegetable farms and eventually sold it in 2004, but kept the land. So labor has been a problem forever. We had 5,500 Mexican-American workers, wonderful people, hardworking, but they are getting a little older and lower number of people are coming in. Trump administration has said that they will make sure that the Mexican workers can come into the farms out of Mexico. So we have not seen any hesitation there. They have issued green cards to all of those people coming in. At our farms and this is true of most of the big farms, the people working are pretty much permanent. When Bush had to close the borders after 9/11, a lot of the farmers suffered greatly. We did not in our farm, because about 70%-some of our workers were pretty much permanent. You have a long growing season in the strawberry business and you plant vegetables on the off season periods. So we kept people working long term. And it was just a wonderful thing. We paid them. I mean, the average worker was making much more than minimum wage at the time in California. And so it's a good business. We provided both health insurance, life insurance, dental insurance and all of that was free to our workers, which is very unusual. But workers are critical to growing strawberries and most of the vegetables. They have got some new technology. We are financing our farms that does cabbages and they have a new way of planting cabbages. It used to be a lot of people in the farm who are going out there and planting cabbages. They now have a machine. It's new and it looked like…

No, that's fine. That was some good color there on the current situation. And then, that's it for me. Also, thank you guys.

Okay. Next question?

I am showing no further questions. I would like to turn the call back to David Gladstone for any further remarks.

Okay. The meeting is over. I won't ramble on anymore. We appreciate you all calling in and we will see you next quarter. That's the end of the call.