Good day, ladies and gentlemen, and welcome to the Gladstone Land Corporation Third Quarter Ended September 30, 2018 Call and Webcast. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. David Gladstone. Sir, you may begin.

Thank you, Joelle, and nice introduction. And welcome to the quarterly conference call for Gladstone Land. And thank you all for calling in today. We really appreciate getting together with you over the phone and nice of to take the time to listen to our presentation. And we always enjoy telling you over the phone or any other way we could what we are doing. And hopefully, get some good questions. Feel free to come by and visit us if you're in the Washington, D.C. area. We're located in a nearby suburb called McLean, Virginia. And if you have a chance, come by, you'll see some of the great team members here. We have about 66 team members here now. And we manage about $2.5 billion in assets across our four public funds. I'm going to start with Michael LiCalsi. He is the General Counsel and Secretary and also serves as the President of Gladstone Administration, which is the administrator for all the Gladstone funds including this one. Michael?

Thanks, David, and good morning everybody. Today's report may include forward-looking statements under the Securities Act of 1933 and the Securities Exchange Act of 1934, including those regarding our future performance. These forward-looking 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 risk factors listed in on our Forms 10-Q, 10-K and other documents that we file with the SEC. Those can be found on the Investor Relations page of our Web site which is www.gladstoneland.com. You can also find them on the SEC's Web site which is www.sec.gov. Now 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. Today we will also discuss FFO, which 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'll also discuss core FFO, which we generally define as FFO adjusted for certain non-recurring revenues and expenses. We'll also discuss adjusted FFO which further adjusts core FFO for certain non-cash items such as converting GAAP rents to normalized cash rents. And we believe these are better indications of our operating results and allow better comparability of our period-over-period performance. We ask that everybody take the opportunity to visit our Web site, once again, www.gladstoneland.com, sign-up for our e-mail notification service, so you can stay up-to-date on the company. You can also find us on Facebook, keyword there is The Gladstone Companies. And on Twitter, the handle there is @GladstoneComps. And today's call is simply an overview of our results. So, we ask everyone to review our press release and Form-10Q both issued yesterday for more detailed information. Again, you can find these on the Investor Relations page of our Web site. And with that, I'll turn the presentation back over to David Gladstone.

Thank you, Michael. That's good information for our shareholders. And before I get into the details of this quarter, let me give a brief overview of our businesses. Most of you know this company invest in farmland which is often called an alternative asset. And that's because these assets that we are investing in are considered to be relatively illiquid. While the underlying asset may be relatively illiquid, your investment in the stock is not since it's traded on NASDAQ under the symbol LAND, L-A-N-D. But I think this company is essentially a natural resource company by category because it's investing in farmland. And these farmland investments tend to have low correlations to the overall stock market, which we believe is one of the many benefits of owning farmland. Our business consists of owning high-quality farmland and leasing it to tenants that we consider to be good experienced farmers. We typically don't farm any of the land ourselves, but rather lease the properties to unrelated third-party farmers. Our primary investment focus is on farms and farm operators that are growing a variety of high-value fresh produce annual row crops with a secondary focus on farms growing more permanent crops. And those permanent crops are grown on bushes such as blueberries, trees, and vines, such as almonds, apples, cherries, grapes, and pistachios. These type of crops are planted once and then harvested over many years. We like the fresh produce area and also the nut segment because they typically provide greater returns than other crop types. We look to buy crop land that is irrigated and has plenty of access to good water. We also look for farms that have excellent soil. In addition, we try to find farmers to lease these properties who are typically among the most well established…

All right. Thank you, David, and good morning, everybody. I'll begin by discussing our balance sheet. During the third quarter, our total assets increased by about $35 million or 7%, due to our recent acquisitions, partially offset by the one farm in Oregon that we sold. Our acquisitions were ultimately funded through a combination of new the fixed rate borrowings, proceeds from sales of our Series B preferred stock and the sale proceeds from that farm that we sold. From a financing perspective, in addition to the proceeds, from a Series B, we secured about $28.1 million of new long-term borrowings from three different lenders, including one new lender. On a weighted average basis, these new borrowings carry an effective interest rate of 4.15%, which is fixed for the next 7.5 years. In addition, we had $16 million of bonds scheduled to expire during the quarter, we were able to refinance all of them with the existing lender through the issuance of $17.4 million of new bonds. The increased financing was made possible by the appreciation and value of the underlying collateral, which in total increased by about 9% since their purchases in three years ago. Compared to the old bonds, the weighted averages interest rate on the new bonds was about 180 basis points higher probably due to increase in interest rates, but also as a result of us extending the fixed rate term of the new bonds. From a leverage standpoint on a fair value basis, our loan to value ratio on our total farmland holdings was about 57% in September 30. And if you were to include the Series B preferred stock into leverage bucket, that figure would only increase to 58%. We are comfortable with both of these levels, giving the relative low risk of quality…

That's very good Lewis. The first-half of the year started off a little slow and acquisition front specialty act -- activity really begin to pick up for us in the third quarter. And looking at our list of possible acquisitions, it looks like that momentum is going to carry us through the fourth quarter as well and probably into 2019. Currently have four properties or about $20 million undersigned purchase agreements. And we're going through due diligence. We expect most of these acquisitions to be completed before the end of the year. Although one, two of them might slip over into 2019. We expect to be able to close these farms without the need for additional equity capital. But as there's no guarantee that any of them are close but usually they take a little bit of extra time and finally get to the finish line. Just a few final points, as most of you know, our fund specializes in farms that grow fresh fruits and vegetables and some farms that grow nuts and other tree 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, mirrors the trends that we're seeing in the marketplace today and that is people continuing to switch toward more healthy foods. Another major reason for our business strategy is to focus on farmland growing fresh produces due to the fact of inflation on that particular segment. According to the Bureau of Labor Statistics, the overall annual food CPI generally keeps pace with inflation. However, over the past 20 years the fresh fruit and vegetable segment of the food category has outpaced the total CPI by a multiple of 1.7 times. And while prices of commodity crops are typically more…

Thank you. [Operator Instructions] Our first question comes from Lisa Springer with Singular Research. Your line is now open.

Thank you. Good morning. My question is, what are the factors you consider when you're contemplating the sale of a property? And should we think of property sales as being a rare event for the company?

Yes, we're not in the business of selling. The only reason we sold the one that we had out in Oregon was that the tenant that we had, and that tenant had bought the tenant that we originally started out with, had farms all around us. And it really seemed much more logical for them to have that farm as well. Plus, I have to at admit, at some price just about every farm we got is going to be sold. If you offer us a billion dollars for the company you can have that as well. At the end of the day, we're in the business of making money for our shareholders, and that was a great opportunity for us to sell that and move it down to Florida. We actually bought a much bigger farm down there with the profits and a little more equity that we put in in order to close that. So, our goal is not to sell to other farmers, but rather to hold on and continue to increase the dividends to our shareholders. And one day, I know some of you may know about our farm that we've got in Oxnard, and it's an incredible farm. It's about 600 acres. You can walk from the farm in two minutes to the ocean and beach. If I could get that zoned correctly we'd have an enormous winner. But as you know, in California it's very hard to get anything zoned for housing. But probably someday in the future someone will figure out how to do that and we'll make a few, I don't know -- a lot of money on that one. But Lisa, you're exactly right, we're not in the business of selling, and it's going to be rare that we're going to be selling properties.

Okay. Thank you.

Next question.

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

Good morning, everyone.

Good morning.

So, could you maybe provide a little more color on some of the leasing activity that occurred during and subsequent to quarter end? I mean, it seemed like there's a lot of moving pieces there. Some rent rollups, some rent roll-downs. Just maybe specifically with Ventura and Hillsboro, what maybe caused those lease agreements to change?

Well, Lewis is on top of that. I want you to speak to that one, Lewis.

So the one farm in Ventura, it was -- we just removed about 26 acres of hillside acres that were determined to be not farmable. And when we executed the lease initially that acreage was included into the leased acreage. But after a year of trying it just didn't -- too hilly there. So it wasn't a reduction in the rental rate per acre, we just removed some acres out of the lease.

And just so you know, John, we're probably going to end up planting trees on that hillside as opposed to trying to farm it for strawberries or any others.

And Chisel [ph], the operator, just wasn't able to get financing in line for this growing season. So, it has previously been rented out. At strawberry rates we found a tenant to take it on immediately for the next coming season for at veggie rates just under a one-year lease, so well we have to give us enough time to market it out to other strawberry growers and time for next season, so hopefully we'll be able to get that one back up to strawberry rates next summer and that farmer farm is right in the strawberry area. So we should be able to get somebody. You have to hit him just right John because they can't take it in the middle of the season. You can't go out and get the plants and put them in the ground mid-season, you have to do it at the beginning of the season and everybody does their plans months and months in advance of planting anything because they have to go get the plants from most of the plants are grown in Shasta area of California. So it's a whole process so sometimes we get out of sync with the timing of strawberries or whatever they're planting.

Okay. It sounds like kind of a temporary lease roll down and then you expected to come back up maybe next year so maybe execution is -- I'm getting a new strawberry tenant in there.

Yes, that's right. And then, is there something specific going on in kind of ambient [ph] and county Michigan, I know that it's both where you have the one tenant you ran into some credit issues and then also another set of kind of lease adjustments going on there, is that specific to the geography or is that just a coincidence that all that's happening in the same area?

Well, that's a big blueberry area and it's one of the better areas to grow blueberries in and blueberries have gone up and down in value and some of these guys just got whipsawed by too many blueberries coming in from the east coast. And as a result, they didn't make any money and then they can't get a loan from a bank because they can't pay back the bank loan that they've got for the inventory. We've got a couple of tenants that are hopefully going to pick up this we had to step into this one area and take over the farm and we'll get somebody to its dormant now obviously it's wintertime and we will hopefully have somebody in place when the farm is ready to come back up in the springtime. But yes, that's a difficult area I know just about everybody up there it had some kind of problems growing.

And John, you probably just on the other on the other farm in the same county, you probably saw this in the queue. But we did, that we did execute a renewal for that lease and as you refer to the cash rents are down but we -- that's another situation where we change the rent structure from just a fixed cash to a lower fixed cash rent amount in exchange for a crop share component. So we're hoping that that will bridge a majority maybe not quite all but at least the majority of the gap there.

Understood and then kind of on the positive side. Maybe what drove the lease termination and the rent roll up in Santa Cruz was definitely you guys kind of expected or was that just kind of fortuitous?

So that was one [indiscernible] it's a new tenant we had I mean I think properties rents in that area have increased at a pretty decent rate, so we were just able to get a new tenant that was willing to pay more and the existing tenant was willing to step away they're going to try a new farming methodology there, the hydroponics for raspberries, so it's just a good price for both us and for the gift situation for the old tenant too.

I had several people asked me about that. If you go online to Gladstone farms and look at that farm, you'll see it's right in the middle of a lot of houses. So I don't know, if we'll ever sell it to a housing developer but it is prime property for that to happen.

Understood. And then have all of these different kinds of movements and leasing activity were those factored in your updated NAV and was that know kind of at the timely appraisers we are going to the portfolio?

No, we have had the Michigan and the Florida farms, they were praised recently and I mean this isn't a long-term change in the market rent for the market cap rates, so that it wouldn't have impacted David the sales comps valuation approach still -- is still supports the values that were there and on the positive side note domain that was also not factored in yet. But they I think these all these properties will come up for appraisals over the next three or four quarters, so any change in market trend we will capture them then.

Okay. And then, with regards to kind of revenue sharing rent how should we kind of expect 4Q trend versus 3Q. I mean, is the bulk of it going to come -- have already come in through yours or going to be decent amount more in 4Q, you just kind of generally speaking?

Well, I think there will be a decent amount in Q4, but it won't be the same as the 900 thousands that we've got today.

Understood. That's it for me. Thank you guys very much.

Okay, next question.

Thank you. [Operator Instructions] Our next question comes from Sean Sharad [ph], a Private Investor. Your line is open.

Good morning, thank you, and appreciate the opportunity to ask a question. It's good to hear the solid results here for Q3. I'm interested in understanding more on how you view the ability of the fun to perform relative to inflation in an increasing interest rate environment. My understanding is that most of the enterprise value is debt funded. You can speak to this generally if you prefer, but a specific point is how you view the cost of service debt with higher interest rates, since that challenges the ability to fund the outperform inflation, is there an interest rate threshold where you viewed as preferable to accelerate debt reduction rather than increasing dividend distributions?

Well, that's what you're matching up all the time that we live on the spread. And what happens when interest rates go up that we have to use when we're buying something, it depresses the amount that you can pay for it. And properties do go down in value. when interest rates go up. As far as looking at on the future, most of the mortgages that we use, and that's what most of our debt is, it's in mortgages, they're all matching long-term. So we're locking in the spread for 5, 7, 10 years and don't have any problems there unless, of course, the tenant has a problem but at the end of the day, we're not we're not subject to the movements of interest rate with regard to our existing but when renegotiate, we have to take into account what the mortgages and can we pay the mortgage and it's always something that you're looking at every time you do a transaction and every time a new release comes up, you're trying to match it and make sure that you're always ahead of the curve and given the fact that they are moving interest rates up because we mortgages do typically follow whatever's going on in the 10 year Treasury every time they bump that up a little bit, it just means that properties have to pay more rent or they can't get sold to people like us that depends on the spread and today it hasn't heard us that much but at that some rate everything hurts I can remember used to make loans to small businesses at another company I ran and we did it based on prime and prime we were doing five points over prime and prime move from under he was under. I think it was 7% to 18%. So five over prime was a bit stiff for anybody to pay, and obviously you got a problem at that point in time. Now, those loans were all variable. So we lived and died right with the interest races as they moved, hours are fixed now. So we try to lock it in for the long-term. And that's the goal is to lock them in and hopefully, in seven years the property is going up in value, and people are paying more, but there's certainly no bet that is one of the bets that everybody makes by owning our stock.

So you don't see any preference towards reducing the debt as long as you think you have the spread, is that -- I have that right what you said David here.

That is right. If you can make a spread, you're going to do the next day, or you're going to do the next transaction. If you can't make the spread, you have to walk away. So if somebody tells you, gee, I'm not going to sell this farm for that price, because I think it's worth more and you just look at that and say to yourself so, I can't make the numbers work. I can't make enough money for my shareholder, so I'm not going to take any equity and put it into that transaction. I'm going to move on to the next form.

Thank you.

Okay, we have any other questions?

I'm not showing any further questions at this time. I would now like to turn the call back over to David Gladstone for any closing remarks?

Well, thank you very much. We appreciate everybody calling in and we look to talk to you next quarter. That's the end of this call.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program and you may all disconnect. Everyone have a great day.