Gladstone Land Corporation (LANDO) Q3 2017 Earnings Report, Transcript and Summary

Good day ladies and gentlemen and welcome to the Gladstone Land Corp’s Third Quarter Earnings Call and webcast. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session and instructions will be provided at that time [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to introduce your host for today’s conference Chairman and CEO, David Gladstone. Sir?

Thank you for that nice introduction. And this is quarterly conference call of Gladstone Land and thank you all for calling in today. We really appreciate you taking time out of your day to listen to our presentation. We always enjoy talking to folks on the phone and hopefully we get a lot of questions today so that we can inform you about all the things going on. You know you’re always welcome to come visit us if you’re in the Washington, D.C. area. We are located nearby suburb called McLean, Virginia. And if you have a chance to come by, you will see a great team at work while you see some of them here, many of them on the road looking at different things out there. We have about 60 people and manage over $2 billion now. So we’re going to start 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?

Thanks, David. Today's report may include forward-looking statements of the Securities Act 1933 and the Securities Exchange Act of 1934, including those regarding to our future performance. These forward-looking statements necessarily 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 we include in our Forms 10-Q and 10-K and other documents that we filed with the SEC. These can be found on our website, www.gladstoneland.com, specifically the Investor Relations page of that website, on the SEC's Web site at www.sec.gov. Now the company undertakes no obligations 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 today we will also discuss some FFO terms now is funds from operations. 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 from property, plus depreciation and amortization of real estate assets. We will also discuss core FFO or CFFO, and that generally adjusts FFO for certain other non-recurring revenues and expenses, also AFFO which further adjusts CFFO for certain non-cash items. And you can find a description of all these FFO family of terms on page 41 of our 10-Q that we filed yesterday. We believe the FFO discussions give us a better indication of our operating results and allow better comparability of our period-over-period performance. If you take the opportunity to visit our website gladstoneland.com, sign-up for our e-mail notification service that will allow you to stay up-to-date on our company. You’ll also find just a couple of other pointers as well, Facebook including and the keyword there is The Gladstone Companies. We now have our Twitter handle that’s @GladstoneComps. And today’s call is an overview of our results. So we simply ask that you review our press release and Form 10-Q, again those were issued yesterday. Those will give you a lot more detailed information. Again, those can be found on our Investor Relations page of our Web site. So with that, I will give the time back to David Gladstone.

Okay, Michael. Thank you. 2017 has been a big year for us so far and I think by the end of the year we will be much stronger with already put a $123 million in new farms and these acquisitions are across six different states including the multitude of different crops with significant portion which are organic. Before I jump into the details, I just want to give a brief overview of the nature of our business. As most of you know, the funds that we invest today are defined as asset. We are an asset manager but we are an alternate asset manager. And that’s because we consider -- our assets are considered illiquid. May experts in the business also classify us as being a natural resource segment along with timber REITs for example or companies that may be in oil wells, coal mines, gas pipelines, those kinds of things. We are not in any of those but we are classified in the natural resource area. What makes us very different from most of the alternate asset managers is that we are publicly traded which provides our stockholders with liquidity since they can buy and sell the stock any time they like. And we chose to be a real estate investment trust so that our stockholders can get a cash dividend that have not already been taxed, so after-tax distribution. Our business consists of owning high-quality farm land leased to top tier farmers. We typically don’t own any of the land ourselves and thus generally don’t take any direct farming risk. We pride ourselves in only acquiring the best farms, highest priced farms and leasing them to the strongest farmers. We are really a real estate partner for farmers and we are not their competitors. Our investments focus on farms that are located where farmers are able to grow a variety of high value annual row crop such berries and vegetables. We also now have purchased some crops that are tree crops, bush crops, vine crops so we're getting away from some of the row crops. We generally only purchase irrigated crop land with a great soil and we have to have plenty of access to water, we're not dependent on rain to throw up on land. And the farmers released too, these are farmers that are typically among the largest and best farmers in a growing region that we're in. We prefer to keep the same farm on the property for as long as possible because they know all the nuances of operating that particular farm so we want to keep them there and make the most of those farms. Our objective is to be the long term real estate partner for those farmers so long as they have the farm they can keep it forever as long as they pay the rent. A large majority of our farmland is leased to farmers to grow fresh produce and that makes us stand out from a lot of people that look at farmland and you should expect us to continue to do that. About 85% of our total revenue comes from rents on farms that are growing food, you can find in either produce or nut section of your local grocery store. We consider these foods to be among the healthy type foods and they seem to be a growing trend toward organic and among these foods. And I’d like to point out that currently over a third of our fresh produce acreage is either organic or transitioning to organics since that would be a strong growth area. Currently have about 63,000 acres on 73 farms, nine states across the U.S. valued at about $533 million the acreages on some of the highest quality farmland and strongest farmers in the United States. We also own a small amount of farm buildings such as cooler facilities, packing houses, process facilities we some box, one box barn and they're able to earn higher rents on those cause they are buildings and they do depreciate but you look at our list of assets and you're going to see now and in the future a majority of our investments being in actual farmland. The trend we continue to see most among the growing regions is steady decrease in the number of farms as they are being converted to suburban or urban uses and that's probably the main thing that I'd like to regard point to regarding factors that continue to drive land valuations up most in our farming regions. The amount of farms in these regions is relatively finite especially in California as there's no new farms being developed and no trees to cut down and no land to plough and start over, as all of the farmland is all of the land in the area has been converted to farms if it can go to farms. All the arable land in many of these regions is already being farmed so this no more, no place to start over. But now some of these farms are being converted to other uses such as housing and schools and factories and once it gets converted obviously it never goes back to farming. California for example's been losing about 58,000 acres of farmland to development each year for many years now. This causes the farms we own to be highly sought after by farmers they can rent it for decades without ever being vacant. Water availability is another factor that drives rental rates and land values, farmers are not renting land where water is too difficult or expensive to obtain and it's driving up the rent prices of land with good wells and access to multiple sources of water. And that's why whenever we buy a farm we're always spending a lot of time and effort and due diligence in our phase of looking at these farms to determine the water condition, make sure that that farm will have plenty of water in the long term. We want to know that water availability is sufficient enough to withstand the extraordinary situations such as what happened in California with the recent drought and this is a prudent – this is prudence paid off to us as we didn't see any significant reduction in the production or rents on our farms in California as a result of the drought, which is now over. It will be back one day, but we think we're in good shape to handle any of that. I’d also like to mention that we had no significant damage on any of our California or Florida farms also the reason wildfires in California or the hurricane that hit Florida. We don't have any farms near Houston or Puerto Rico. So we’re fortunate to come out unscathed invite of all the recent natural disasters that has impacted part of the U.S. However, just as you're aware most of our farmers have insurance on their crops and we have insurance on our buildings for things like earthquakes, floods, hurricanes and the like. So we’re pretty much in good shape and so our farmers. Finally one other factor driving up online values is inflation or reduction in value of the dollar due to the government training, so many of them. And government would tell you that there is little or no inflation, but anyone buying food will tell you that food prices have been going up steadily, especially in the produce section of the grocery store. However, inflation in food prices is good for us and our farmers because the farmer makes no money and in turn we can increase the value of our rents on our farms. We've not been a major investor in farms growing grain crops like corn, wheat or soybean because grain prices are just too low today. You can't make a reasonable profit right now in the United States in corn. It’s just too much grain in the world markets these days and storage facilities in the Midwest, for example, are all packed. As a result, growers of these growing crops are continuing to have a lot of difficulty. As long as the current situation continues, we’ll stay out of the market for grain producing farmland until the prices of the crops go back to prices in which would make an essence the farmland come down in price. One of those two have to happen before we can consider getting into the market again, it could be a few years from now. But when good farmland reaches a low enough price or farm prices come back up, we may advice some or few of those farms growing grains but that's not our focus today. Now, about some recent activity. During quarter we’ve acquired seven new farms totaling about 3,900 acres in California, Florida and Washington State. And Washington State was a new one for us. But in total of all of those seven farms we spend about $38 million. In addition, after the quarter end, we added onto one of the Colorado farms by buying a small adjacent farm for just under $1 million. Crops grown on these new farms include almonds, apples, cabbages, cherries, pistachios, wine grapes. Just makes it hungry listening to that list. On a weighted average basis the initial cash yield of these new farms is about 5% and on straight line basis about 5.2%. However a couple of these new laces include sharing components that should push the return figures higher, i.e. we get a percentage of the crop when it's sold. Across the farm land holdings we now own in 18 different growing regions, about 39 different crop types and they’re leased to 50 different tenants, all of one whom is unrelated to us which I'll touch on in minutes. But this is important to us and we believe a well diversified portfolio of farms growing lots of different types of crops provides additional security to our stockholders and to our dividend payments as well. During the quarter we also renewed two leases that were expiring in 2017, in total rents the new leases about [$163] less than the prior leases but that situation on those two farms is really unique. We’ve ever had this happen to us. And this is really the only related party that we are going to talk about. Two owners of the farming operations that were ramping these two farms, they were previously leased to them and unfortunately two well wonderful farmers guys and the operations passed on to their states obviously. Our management team continue to run in the operation but the family really didn’t -- without the two patriots, so the families didn’t really want to go forward. It’s making pretty good size best seven year in planting crops even though they were doing well. But the family wanted to sell the business and they began trying to sell it. It was late in the season and while trying to sell the farm they stopped paying rent to us. We did get one family that is renting one of the crops and they realized part of the depreciation or discount in the rent. They had to pick it up late in the season and they were putting vegetables in. The buyers were not buying the operation that they were in. And so we took back our property and we let them off the lease even though it’s been about $6,700 per acre on the property, and getting it ready to plant. And at that point it was the last two weeks of planting, you need to have any farm and we were not able to find someone that would take the farm with just two weeks notice at acceptable rents. We had people that had wanted it but they weren’t willing to pay a decent amount. So we determined the best thing to do is for us just the farming. Remember I come out of the business, in fact I’ve farmed many of the farms in Oxnard where this farm is. And Bill Reiman, our man in Oxnard lives just down the road from this farm. So he spent most of his prior history in the farming business and actually farming strawberries in Oxnard. So we are farming this one farm in our taxable REIT subsidiary until next summer at which time we plan to lease it out to another third-party tenant. And we have a number of people who want it. They just didn’t want to take it on in that kind of pressure cooker that they were in. So current expectations is we’ll make a net profit, my guess here is about $18,000 an acre, so we many have paying a few income tax on the profits that we make there. We also purchased catastrophic insurance as we call it. So if something happens to the crop we will at least get all the money back that we are going to spend planting and harvesting, I guess there won’t be much harvesting if there is a tragedy. But you could something awful happen and some kind of glider or something, but anyway we’ve insured against that. So we are not going to lose any money on this. The only question is how much we’re going to make. My projection is we’ll make more than enough to cover our rent and our initial capital invested in the farm. And if we’re really the good farmers, we think we are, we’ll make a pretty decent profit. But long story short, all of the farms remain [indiscernible] percent leased including the one we leased to our tax REIT subsidiary and there is no down time on any of these renewals we executed during the year. And one important distinction from other REITs, we didn’t have to pay anything to -- or any kind of leasing conditions or tenant improvements and any of those kind of things in any of our renewals. So it’s really a different business from that perspective. Looking ahead, we only have five leases expiring in 2018 and a total makes up about 6% of our total annualized rent, so I think we're in excellent shape. Overall demand for prime farmland like we're talking about growing vegetables or berries is really stable to strong and almost all of the growing areas that we're located in this is mostly along the East Coast and the West Coast. That's mostly California, mostly Florida today. We do have some farms in the Midwest that grow some non-grain crops but you should look forward to us being in California and Florida or Oregon up the West Coast, up the East Coast is where we're going to be strong. Florida in particular is coming off a very strong year in berries and vegetables so we expect that farmers down there to be in really good shape. And finally during the quarter we completed a small overnight offering of common stock, we raised about $13 million the stock price did take a hit before we're able to launch the offering causing the offering price to be further below our net asset value which has the largest shareholders I really hate to do because I think it’s too detrimental to our share price, but we had several farms identified that we believed would be accretive to shareholders and to our dividend so we didn’t have to, didn't want to walk away from them. So we went ahead and did the stock offering, the size was very small and as limited as possible in order to not to dilute the existing shareholders but even that small offering had an impact on our earnings per share as there was more shares outstanding, that took us down a little bit for this quarter. But that's really enough of the business side of it, I'm going to turn it over to Lewis, Lewis is our CFO and he's going to walk you through the numbers.

I'll begin by discussing our balance sheet. During the third quarter our total assets increased by about $40 million or 9% due to our new farm acquisitions which were ultimately funded through a combination of new fixed rate borrowings and common equity raised during the quarter through the September offering and sales to our ATM. David already went into details about the asset side, I'll focus on the financing side here. Since June 30th we've obtained additional $56 million in new long term borrowings from three new lenders and five existing lenders. On a weighted average basis these new borrowings carry an effective interest rate of 3.7% which is fixed for the next nine years. In addition to the small common offering David mentioned earlier, we also sold about $6 million of common stock through our ATM program during the quarter. 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 about 60% at September 30th and we're comfortable at this level given the relative low risk of farmland within overall asset class. While interest rate and volatility remains a concern of ours about 98% of our total borrowings is currently at fixed rate 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 and our long term borrowings is currently about 3.16% which is up by about 10 basis points from a year ago. While interest rates have risen credit remains readily available to us, we continue to be able to borrow money on terms that made the overall economics work for us. Regarding our upcoming debt maturities we have about $24 million coming due over the next 12 months, however about $16 million of that represents the maturities of three bullet loans that we expect to refinance with the existing lender. So removing those maturities we only have about $8 million of amortizing principal payments coming due over the next 12 months, which is about 3% of our total debt outstanding. And now I'll move on to our operating results, first I’ll note that we had a net loss for the quarter of approximately $247,000 or about $0.18 per share. Our operating revenues increased by about $568,000 or 9% 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 about 1.4%. On average the leases we've renewed during 2017, increased by a little under 1%, so the increases in the same property comparison is mostly due to additional income earned on the capital improvements made on some of those farms. Our core operating expenses, which excludes depreciation and amortization and acquisition related expenses increased by about $171,000 from the prior quarter primarily driven by a higher performance based incentive fee earned by our advisors during the current quarter. Excluding related party fees, our core operating expenses remained relatively flat increased by only $2,000 from last quarter. Moving on to our per share numbers, earnings from adjusted FFO for the quarter $0.139 per share, which was a decrease of about 2/10 of a cent or about 1.6% from the previous quarter. And this was, of course, due to the additional shares issued in September offerings. As we continue to put these proceeds to work by reinvesting them into new acquisitions, we expect you all again see further growth in our AFFO per share. But I'd like to point out that this quarter still marks the eighth consecutive quarter in which AFFO has fully covered our dividend and we expect this to continue to be the case in the future. Now move on to net asset value. During the quarter we updated evaluations on thirteen of our farms all of which we had appraised by independent third-party farmland appraisers. In the aggregate, these updated valuations resulted in a net increase of about $0.5 million or about 1% over their prior valuations. As of September 30, our farms were valued at about $532 million with 73% of this value based on these third-party appraisals or the actual purchase price. And of the $144 million that was valued internally, about 98% of it or $141 million is supported by third-party appraisals performed between 15 and 36 months ago. Based on these updated valuations and including the fair value of our debt and term preferred stock, our net asset value per share at September 30 was $14.15, which is about a 2% decrease from last quarter and most of that was due to the additional shares we issued in connection with the September equity offering. While maybe some quarter-over-quarter volatility over the long term, we expect our net asset value to trend upwards as a value of our farmland portfolio appreciates due in part the increasing rents and neighboring farms increasing in price. Turning to liquidity, we currently have about $15 million of available funds in our current buying power for straight cash acquisitions is about $35 million. However this figure does not factor in our ability to issue new OP units as consideration for purchases. We also have plenty of room under our two largest borrowing facilities and we are continuously reaching out to new lenders. So we have plenty of room in ability to continue borrowing in buying new farms that meet our investment criteria. With that I’ll turn the program back over to David.

Nice report Lewis. This company continues to get better every quarter as we continue to execute our plan. You all know we’ve invested about $425 million in new farms and assets since the IPO in 2013. Just going to continue to add to that figure, we've got a good list of acquisitions. Currently have two properties for about $9 million under sign purchase agreements. Expect those two acquisitions to be completed before the end of the year. We also have some other farms that are in the pipeline, but it's really too early to say regarding whether those transactions will get done in this quarter or next quarter. We currently have enough capital by all of these farms without any need for additional capital. Some of the purchases are expected to involve some issuance of OP units as consideration. We always have plenty of room and get the farmer and the people involved in that, and the company as well. However we are still continuing our due diligence process on many of these properties. And as always, there’s no guarantee that any of them will close. As you know with the increase in the number of farms we own, it comes a greater diversification and protection for our investors. So we’ve set better earnings. As most people know our fund specializes in farms and more recently we’ve gone into the nut and tree corps, and we have some cherries and apples and different things as well. We’ve historically avoided all the heavy farmland that grows traditional commodity crops such as corn, soybean and wheat. One reason for this is we believe farmland growing crops that contribute to health and lifestyle such as fruits and vegetables and nuts is going to be around for a long time as people continue to switch to the more healthy foods. In addition more than 90% of our portfolio is GMO-free. We’re continuing to expanding our ownership of organic farmland through both new acquisitions and conversions of existing farmland to organic ground. We also like fresh produce segment because it’s typically providing greater returns and has less volatility than other crops. According to the Bureau of Labor Statistics, the overall annual CPI generally keeps pace with inflation. So we look at that and over the last 20 years in fresh fruits and vegetable segment as a food category has increased at a rate of about 1.7 times the CPI. So while prices of commodity crops are more volatile and susceptible to global supply and demand, fresh produce is insulated from global volatility mainly because crops are generally consumed locally and within a short time after being harvested. It's the unpredictability nature of grain prices and other commodity crops that prevents us from weighing our farmland holdings heavily in farms that grow traditional commodity crops. Currently have about 10%, may be 15% of total value of our farms invested in farmland growing corn, wheat, soybean where each is a special situation. We’re not out in the middle of the farmland buying big crops there. At this point in the farming cycle for grains it’s difficult for farmers to make much money when the corn prices are as low as they are today. But at some certain price, investing in farms growing corn may be viable for us, however we do expect this to be a drag on earnings as rents for these farmlands, the few that we have tickle down in price over the years and ultimately has to do that. We believe that farmland that’s GMO-free and growing healthy crops such as fruits and vegetables and nuts are going to continue to outperform the overall farmland market in terms of both cash returns as well as long-term appreciation. Our leases that have share of the crop should come on strong. We’re actually expecting one of these payments to come in hopefully this quarter and that would be a nice announcement for us to make. And we always touch on the economy. In the terms of the economic outlook, in general farmland like ours continues to perform well compared to other asset classes, despite some recent downturns in certain Midwestern grain regions. The NCREIF index, the Farmland Index they have, which is about 699 properties worth about $8.1 billion just continues to go along very strong. For the last 10 years it’s been about 13.1% compared to 8.7% for the S&P, I hope one day we'd look like the index cause that would be quite nice. Farmland has provided investors with a safe haven during turbulent times in the financial market place, both land prices and food prices especially for fresh produce that continue to rise steadily and most of all I'd say this for the one hundredth time farmland has historically been an excellent hedge against inflation. Well I'm going to skip over to distributions as you know we recently raised our dividend again, it was a small one but like to keep that tradition going of raising the dividend every quarter, no guarantee but over the past 34 months we've raised the dividend eight times resulting in an overall increase of about 47 in a monthly distribution rate to shareholders over this time. This is a reflection of the wonderful job the team has done and achieved here buying farms and managing farms. As you know I'm the largest shareholder and I'm loving the increase in dividends. 2013 we paid 57 consecutive monthly distributions to shareholders $3.25 in total distribution. Paying distributions to our shareholders is paramount to our business we are in essence a dividend paying company. We project good production and income growth for the next year 2017, and even into 2018 if our expectations are met we'll be able to increase the dividend again. Stock price is currently about $13.92 which is well below, not well below but below our net asset value thus we hope our stock price will rise in the future so that we trade at least at or above the net asset value so if you're buying the stock today you're getting a small discount from this maybe net asset value of about $14.15 and stock's trading at $13.92 and along the way you're getting a $0.0441 per share per month cash dividend that's about 3.7-3.8% yield. This yield is only slightly lower than the average return for all the REIT index, that's a 190 REITs but we're often compared to the timber REITs which is a number of those asset and they trade at about 3.36% so I think we're a good alternative to many of the timber REITs. Please remember of course that purchasing stock in a company like this is really a long term investment in farmland, it is an part of an asset investment just like gold except it's an active investment with cash flows to investors. We always love to point out that Warren Buffet's comment that he'd rather have the farmland in the US than all the gold in the world and we obviously agree with Warren as we don’t own any gold. We expect inflation particularly in food sector to be strong, we expect values underlying farmland to increase as a result and we expect this is especially true in the fresh produce side of the business as people in the US are trending more towards these kind of foods. It's a good way to look at our farmland on this, the first hedge against inflation for both food prices and other areas of the economy and second for those looking for an asset that doesn’t necessarily correlate to the stock market, we believe this stock is one of those. So if you like what we're doing please buy some stock and keep eating fresh vegetables and fruits and now we'll have some questions, so James if you'll come on we'll get some questions from people that are listening.

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

Good morning, guys. And sorry if I missed this, but what markets and what sort of crops were the two farms that had negative mark to market in the quarter?

Those were the two that we mentioned at the beginning somewhere in the middle were the two families and both of those were strawberries at the time. We leased one of the farms to veggie growers. So that sort of put it down or on that market, on that brand because those guys -- both them are right in the middle of an auction our plain and good farms is just we got caught at exactly the wrong time on that.

And then what do you guys expect the return to be on the incremental investment on the almond archery?

So we're earning 5.25% for the first few years in that lease. One sit switches over to a crop of anything, which I believe begins in 2020. The base rate goes down to 4% plus a significant portion of the gross proceeds.

And then in terms of the fourth quarter acquisitions, I mean you guys did announce one transaction for just under $1 million. Is there a significant amount that you guys expect to close or most of the stuff that you guys are working through right now is probably in early ‘18 close?

We've got two purchase agreements that we're trying to grind through now in terms of the due diligence that's about $9 million. So I expect those to close, they may not, but they're closed in this quarter. And unlikely any of the others that we have going through this will get dine this quarter, might hit one, but most of them will be in ‘18.

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

I was little confused on those leases you’re releasing with the farmers died at both of the farms. Is that right?

Well, the farmers owned a company together. And the company was the tenant on the two farms. And unfortunately both of those gentlemen have died. And now most of it -- most of that farming operation has been sold off at a huge discount unfortunately for the farmers. And we have two farms, one of the farms we rented very quickly to another farmer in the area. He does vegetables, so it's not as critical that he got his farm planted right away. And on the other farm, which is the strawberry farm. If you're going to plant strawberries you had to have done it within, probably, two weeks of when we took over the farm. And that was not possible to get a lot of the steady farmers out there. For example, one of the farmers said he couldn't do the farm because it was already stretched in plastic that was brown and they like to use white or maybe that is black, I don't remember. But the farm was set up for particular kind of strawberry, and we were lucky enough to be able to find those plants and get them in the ground within the two weeks. And that's a testament really to the guy who we have an Oxnard. He is a long time farmer there and he pulled together all of the pieces and we got it planted. And now we're watching them grow and obviously taking care of them with irrigation and all of the things which we have to do to get a crop done.

I thought maybe you were doing that David because I know you did that before.

Well I knew what he was doing but he is really carried the ball. I know a lot of the farmers out there. We got one of the farmers that is good at managing farms and he came in, he is going to run that part of it for us. We are really not doing any of it. Obviously we are getting others to do it. You can get people to actually operate your farm for a fixed fee. And so, we did that. And then on the selling side, we’ve got relationship with a sales group, actually two sales groups that are going to take the product beginning probably early January, may be end of December and start selling the crop as well. So that will be the telling point when we start selling. In average in that area is above 31,000 per acre. When I ran my farms and Bill Reiman our man in Oxnard ran his farms, and we were doing about 55,000 per acre. So we expect to beat the average significantly. And if we only do the average, we will make a small profit obviously pay for everything that we’ve got in the ground to get all of that money back. We are going to spend about a 1.7 million in plantings and harvesting. And as you know I’ve mentioned the fact that we have insurance such that if the whole farm for some reason didn’t go, we’ll get our 1.7 million back. That cost us about $70,000 to make that debt which I just got comfortable doing that. I never borrow insurance before and neither did Bill Reiman. So we’ve sort of doubled down I guess as we get over and get more cautious. And so that should -- if that comes in, we’ll make a good profit. Also I just mentioned before is that we have some share money coming in that could be $300,000-$400,000, currently closer to $300,000 then $400,000 in the next month. And we will have a press release on that and that will literate any of the down stroke that we’ve had here.

And David as far as the leases go, they’re three year leases according to the press release, is that right?

Yes well. We started out with a three year lease. Well, on the farm that we leased to the people who is doing vegetables, that is a three year lease, and that’s a little bit lower than we can get with strawberries. So we take out a little bit of a back there. On the other hand of the spectrum the farm that we are doing, we leased it to the family because they thought they were going to take one of the two farms from us. And then of course as time went on they decided that they had to walk away from it because nobody was paying that much for farm that they had and the people who did it -- who did buy the farm were Northern farmers and wanted the Santa Maria and Watsonville farm down in Oxnard. It will change you will see the two or three people that we have now are very interested in this. You will see in the summer when we start negotiating -- after summer in the spring when we start negotiating you will see that farm get leased up pretty quick.

That was a little confusing because you said both leases were three years. And on the three year lease to the farmers doing the vegetables, I would assume at the end of that lease you are going to re-lease that to somebody doing strawberries and get a higher price?

We should get a higher price when it comes out but I don’t want to speculate. We wanted to go ahead and do that. And the guy who is doing it is a very successful farmer, does a lot of vegetables in the area. So he will pay us a good amount of money. But we just won’t get strawberries.

Thank you, our next question comes from Jeffrey Briggs with Singular Research. Your line is open.

David, thanks for taking the question. This is a sort of a general question in regards to you know things like the wildfires and the hurricanes and stuff like that and obviously you guys have mentioned that, it has a direct impact on the farms you guys own, but the question is to do it, when things like that occur does that have any you know either near or long term effect on either the market value of properties like that that are in or outside of that area, do you think sometimes it sure there are still other farms that get maybe wiped out that never go back to farming or you know if there's any sort of historical trend you seeing when things like that happen.

No if you think about it, the worst that can happen to you is really if you own tree crops or vine crops. Some of the vineyards up in Napa did catch on fire and burn and that meant that those vines probably will never produce and they'll have to replant. That's an expensive process and some people have insurance against it and some don't. So those people will get hurt. The other end of the spectrum for tree crops is that you rarely have tree crops that have ever burnt so I don’t expect those folks to get hurt. From our standpoint all of the stuff that's planted on the flat land you don't have to worry about fires coming out to the flatland, it's not going to happen, it's only when you get closer to the mountains where there's lots of brush that can burn and winds those Santa Anna winds that blow so hot and blow all of that stuff across. So you're not going to see it in strawberries or vegetables being burned out. We worried a little bit about all the rains down in Florida but as it turned out when the Florida rains came from the hurricane they just filled up the ditch beside the row and you couldn’t go in the farmland for a day or two as the water had to seep through and go back down to the aquifer but other than that and we have that every now and then in California as well, what will happen is the rains will come in the fall and you can't really get out into the farmland at that point in time, so you have to wait for it to dissipate. So I don't know of anybody who's ever been burned out and never went back to farming, so that would seem to be way out of perspective. They usually just have to plant again. But maybe there are some, I haven't investigated all of the situations in the Napa and the vine area but it is one of those kind of things where people did get hurt. Other question?

Thank you. Our next question comes from John Massocca with Ladenburg Thalmann. Your line is open.

So, given the kind of activity around Dole, California operations I know your two leases to them don't expire till June 2020 [indiscernible] June 2020, what's your view on them possibly selling their operations at those farms to another operator or how much control. Would you have any control to stop them from doing that? And are they currently operating at both of those farms?

They are operating at one of the farms. The other one, they have put in a much stronger strawberry group that's in the southern one. And we expect Dole to leave. They’ve announced that they’re cutting back and they're probably going to lead the fresh strawberry area, and maybe they keep one farm in some place, but we expect both of them. The one in Watsonville that is such a wonderful farm and has been farmed for years and years in berries that it will go very fast, in fact, we have people that wanted, but Dole is on the hook until 2020. They’ve acknowledged that they're going to be on the hook till 2020. So we have no worries about them. As you probably know, Dole is trying to go public again. And I think they're trying to remove some of the variability in their earnings by getting out of the fresh berry side of the business. So we have the big farm and Oxnard and we have a number of people that want that we are currently talking to people, Dole has said they will leave if we find somebody that wants it. So we're not waiting until 2020 to try to lease it. We will have -- we do have one the sub tenant on the Dole farm, wants the farm. So we pretty much could move that one today in the south and Oxnard. But we don't want to -- don't want to go to quick, make sure we access our return to year and there is a chance that we can get someone that wants to farm even more than the one that's subleasing in that.

I think as you look to grow the portfolio here, I mean, when you look at different growing markets, you guys were in versus maybe some new markets. What's more attractive for investment you think you want to expand to get more geographic diversity or do you think you could really boast up in some of your existing markets?

Yes. We can do both and we’ll do both. We are not expanding as much as we probably could and Oxnard -- Oxnard competes heavily with Mexico for fresh berries. And it’s one of those situations in which Oxnard is a little slower to get there. And as a result we decided we're going to let some of the farms go to veggies for a while and then we'll come back to strawberries as the crops come back there but every place else is really open. We like Florida, we like -- we have new farms in North Carolina. We're looking at two more farms in North Carolina. We’re hopefuls to close in New Jersey. I don't know whether we'll make it this quarter or not, but hopefully. And then we've got a couple of more blueberries to do in Western Michigan. All of those are perking along, but we're also now talking to people and Apple Country in New York. And we're getting known in a lot of places that we weren't known before. And it’s quite gratifying to have people who want to do business with you because you are as steady as a rock in terms of being there for them when they need it. So we would see both those areas up and down. East Coast continued to grow and different states continuing to grow. We expect to do something in Georgia in the near future. And then on the Midwest, we're looking at a number of farms that we like that are not corn. And so as a result, we will have several transactions in the Midwest either this quarter or certainly next year and continuing to grow. One of the most difficult problems that we run into is that we have to go slow in terms of getting farms wind up to close because we don’t want to promise we are going to close on something and then not be able to raise the money. So we are trying to figure out ways like the ATM program where we can on a regular basis raise additional equity. We can get plenty of debt. Debt is our least problem but raising the equity money is our biggest problem because most of the people who want to do an underwriting want to do $50 million or $75 million which we just crushed our ability to pay the dividend. So we are not willing to give up the dividend in order to raise major amounts of money. And as a result, it throws us into this conundrum of do we go out for an offering now because we’ve got 10 properties in the pipeline or do we wait until it become a lot firm to go for we try to do that. And if we wait, does that mean we might hit a snag and not be able to move the offering. So it’s conundrum we are working on right now. And John I hope to have a solution to that now may be by the end of the year.

And then so you mentioned look forward go for, what is kind of the general of your pipeline as it stands today?

As David said, we got 9 million under PSAs and looking at deals and other phases, LOIs and farms that have closed LOIs, probably another 30 million to 35 million to add. But of course they are not as closed, so it’s less certainty and probably further along than the critical way we’re in right now.

[Operator Instructions] Our next question comes from Robert Sinnott with Silver Hill Capital. Your line is open.

Yes, good morning David. Looking for information on the 1,280 acre farm in Colorado it was purchase, I understand it was a hay farm or is a hay farm. Can you provide some color on that?

Yes, the difference is, this is a hay farm but it’s organic. And what’s unique about it is, it’s in the extremely high demand as people were demanding organic beans and organic everything else. So we have a lock on a pretty good sized market there. Those products are shipped all over and it’s been in farmland forever in a day and it’s really solid at this point in time as they took a lot of Operator units. So they are in the equity side of the business as well. So that’s the key there is that it’s organic and going into the organic feed locks and that’s a big plus.

That seems to be extremely profitable as far as hay goes. So congratulations on acquisition.

Yes, we’ve had a number of people that have been interested in buying, I don’t why we got it and somebody else didn’t grab it. But it is exactly as you say it’s a very profitable.

And one other thing, I know that you folks sometimes go to the market and had an overnight raise of capital. Is there any way that you could may be let existing shareholders participate in that with some sort of formal announcement of offering going forward, thought about that bringing it?

Yes, those are called rights offerings and I did two of those many years ago and absolutely we're destroyed in stock price, the shorts come in and they come-in in big lots and they just hammer the stock down cause they know they'll be able to take the, and this was before the recession we kind of saw the recession coming and said it was time to bulk up in equity so that we can survive the recession and we just were hammered. It was horrible, I had three underwriters that were assuring me that they could get it done and they all failed, so I'm not much on trying to get it to anybody the only way you can get it is if you’re in one of the groups that is going to be in the transaction so it's really hard to do it any other way and I'm sorry I wish there was because I think it’s very disappointing not to be able to offer it to everybody.

I'm not showing any further questions in queue so I'd like to turn it back over to Mr. Gladstone for closing remarks.

All right. Thank you all for hanging on and go out and buy a lot of fruits and vegetable cause we want to see the stock price go up. Thank you very much.