Good day, ladies and gentlemen, and welcome to the Gladstone Land Corporation’s First Quarter Ended March 31, 2019 Earnings and Webcast Conference Call. 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.

Alright. Thank you, Lorene. 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 taking time to listen to questions that you give us and we think you would get a lot of information out of our presentation. We always start with our lawyer, Erich Hellmold, who’s going to give the invitation to listen. Go-ahead Erich.

Thanks, David and good morning. 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 upon 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 in our Forms 10-Q, 10-K, and other documents we filed with the SEC. Those can be found on our website www.gladstonefarms.com, specifically the Investor Relations page or on the SEC's website. 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 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 or CFFO, which we generally define as FFO adjusted for certain non-recurring revenues and expenses, and adjusted FFO or AFFO, which further adjusts core FFO for certain non-cash items such as converting GAAP rents to normalized cash rents. We believe these are better indications of our operating results and allow better comparability of our period-over-period performance. Please take the opportunity to visit our website www.gladstonefarms.com, and sign up for our email notification service so you can stay up to date on the company. You can also find us on Facebook. Keyword, The Gladstone Companies. And we have our own Twitter handle @gladstonecomps. Today's call is an overview of our results, so we ask you review our press release and Form 10-Q both issued yesterday for more detailed information. Those can also be found on our Investor Relations page of our website. Now, I'll turn the presentation back to David.

Okay. You’re in for treat today. We’ve decided to leave out of these quarterly calls to stockholders, the history of the company, and the basic operation strategy. So, we are streamlining it down just to make sure you get the basics. Much of that stuff about the history, as well as the basic operations on our website and we hope you go to the website and read all about us and we are at GladstoneLand.com. This quarter, our acquisitions got off to a really slow start. Couple of our acquisitions were delayed for minor reasons. I think we’ll pick those up in this quarter, but the second quarter has already started off okay and our current backlog of potential acquisitions of farms is – well as strong as we’ve ever seen. So, we’re hoping to have some really strong results for you in the coming months. We were successful in releasing front, we now have 100% occupied, so great shape. Looking at the total farm land ownership, we currently have 87 farms in 10 states with about 75,000 acres. The value of these farms is about $649 million. Our farms are located in 21 different growing regions and we grow over 40 different crop types. Our farms are leased to 64 different tenants all of whom are unrelated to us. Now, let’s move over to some recent activity. During the quarter, we acquired one small farm in Nebraska for about $2 million and that grows popcorn and edible beans and right after the quarter end, we bought a large pistachio farm in California for about $29 million. Overall, the initial net yield on these farms was about 6.6% and leases on both of the farms also contained certain provisions such as annual escalations or participation rents. That should push the…

Alright, thank you David, and good morning everyone. I'll begin by discussing our balance sheet. During the first quarter, our total assets increased by about $10 million or 2%, primarily due to cash proceeds received from sales of our Series B Preferred Stock, as well as the one new farm we acquired during the quarter, which was funded through a combination of new fixed rate, borrowings, and proceeds from a preferred stock sales. From a financing perspective, in addition to proceeds from equity issuances, we also secured that one loan from a new lender and it will carry an effective interest rate of 4.7% that is fixed for the next 4.7 years. From a leverage standpoint, on a fair value basis, our loan-to-value ratio on our total farmland holdings was about 50% at March 31. We were comfortable at this level given the relative low risk of high-quality farmland as an overall asset class. While interest rates continue to be volatile, over 98% of our borrowings are currently at fixed rates and our on a weighted average basis these rates are fixed at 3.57% for another six years out. So, we believe we are currently well protective on the desk side against any further interest rate hikes. Regarding upcoming debt maturities, we have about $31 million coming due over the next 12 months. However, about $22 million of that represents the maturities of [three bullet loans coming due] either at the end of 2019 or in the beginning of 2020. Given that the three properties collateralizing these loans have increased in value by an aggregate $2.2 million since their respective acquisition, we don’t expect to have any problems refinancing each of these loans with either the current lender or potentially new lenders. So, moving those maturities, we only have about…

Good report, Lewis. Our list of potential farms to buy is extremely healthy today. It's nearing 200 million, so we hope to be in very good shape. I'll go out on a limb, and say we'll probably be over $800 million, and if we got all of it closed, we'd be $850 million in 2019. And I'm hopeful that we hit the magic number that I like so much in 2020, which is $1 billion. So that gives you a heads up of where we're going. And just a few final points I'd like to make; as most of you know, our fund specializes in farms that grow fresh fruits and vegetables and farms that grow nuts and other tree crops like apples, cherries, figs. One reason for this is, we believe these farmlands growing crops that contribute to healthy lifestyles such as fruits and vegetables and nuts, mirror the trends that we see in the marketplace, and that it will continue and switch toward more healthy foods. Currently, over 85% of our total revenues comes from farms that are growing these types of food, and that you can find in either the produce or the nut section of your local grocery store. We consider these foods to be among the healthier type of foods, and we're seeing a growing trend toward organic. And among these foods’ groups, that’s especially true of produce section of your grocery store, you see that growing and a whole section is devoted out now to organically grown. In addition, over 40% of our fresh produce acreage is either organic or transitioning to become organic. That's over 20% of our permanent crops. That is the nuts and those things on trees or organic. The organic sector continues to be a strong growth area. In addition,…

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

Hi, good morning guys. David, can you provide an update off of the 8-K that you guys filed on the RTS Orchard transaction and when that's part – when that's supposed to close and if it's in multiple parts or one transaction as a whole?

Yes. We've got Q1, and then there's probably a Q4 coming up. I'm sorry Q2…

Q3 and Q4.

It keeps slipping. Q3 and Q4 is where we are expecting those two pieces to close.

Okay. So, roughly half each – is it roughly divided in half, or is it skewed?

That's right. No, it's…

Okay. Alright. And the $29 million pistachio acquisition in the second quarter was not part of that, that's a totally separate transaction, is that correct?

Different transaction. Love those pistachios.

Okay. And then in terms of the Series B preferred, so, you know you guys have issued – year-to-date, I think its roughly sort of $25 million. You're targeting $150 million and then listing thereafter. What are you guys thinking in terms of the overall sort of limitations of preferred in the capital stack? If you're $150 million there then, I think the Series A is, call it roughly $30 million or something like that? You guys would be $180 million, if my math is correct there, of preferred, which is a sizeable percentage of your equity?

Yes. That that should do it. Although – it's not coming in as you know, quickly, so it probably won't get to that $150 million until maybe 2021. We might do it in 2020, but I doubt it. So, the goal is to keep that coming in at a slow rate, and it's doing about $5 million a month, and as a result of that coming in at a slow pace, we can put it to work pretty quickly, rather than having an offering that gives us $20 million, $30 million, $40 million all at once. And on the one hand, it's more expensive than common stock on this. On the other hand, I think that common stock is grossly undervalued. I know most Presidents say that and I agree with that as far as our stocks are concerned. But I'm trying to protect our common stockholders for another year or two, and then we can raise some more stock in the commons area.

But the listing wouldn't occur until you hit the $150 million. The public listing?

That's right.

Okay.

The document says, when we get to $150 million, we will list within a year. And if we never get to the $150 million at the end of five years, we will list. We could list a day. We have enough sold. It's more like $55 million or so is sold. So, $55 million preferred stock will trade, it won't trade as well as $150 million, and we have in our other companies, many of the buyers of preferred stock and they're all looking at this, but they don't want to go in until it's out there listed and running.

Okay. And then, I mean in terms of percentage of the overall cap stack, I mean Lewis, is it – call it somewhere between 20% and 25% that's going to be preferred heavy. Is that -- do you bring that down over time by issuing common and issuing – and debt or you know is a 20%, 25 % preferred slug in the capital stack something that you guys are comfortable with long term?

I'm comfortable with that. I see this asset as so stable and long term and paying as agreed, that I don't mind a little extra leverage compared to some of the folks that are out there, simply because of the stability and value of the asset that's holding it all up.

Okay. But is there an upper bandwidth. I mean is – with the Series B, you list at $150 million. Do you then start a Series C of non-traded preferred, and start ratcheting it up? I mean there are some people out there that have preferred, you know, effective – with preferred effective leverage 75%, 80%, 90% of their market cap?

Well that certainly doesn't fit with what we're doing. But over time, I'm hopeful that we can balance that out, so everybody feels comfortable with it. I think if we demonstrate, as we have over the last five years, that these assets are very strong in terms of getting money coming into the company, then we can look at the outflow and determine how we want to set it up. Do we want to set it up in common, because it does pay a dividend, or do we want to do it in preferred?

Okay. And then last one for me, how are you guys – I mean, a lot of concentration here in pistachios. What is it about that crop that leads you to be comfortable with the concentration that you guys will, by year-end, have in pistachio, if the RTS transaction closes?

Well first of all, you know, those trees last hundred years. So, as a result, we like the fact that you don't have to plant them every year. And most people take out one or two trees that aren't performing well and put in others, but there's not this wholesale change of the asset base in pistachios. The other thing is the uses of pistachios are putting them into more and more things, I think you can eat granola today without having pistachios in them, and certainly, a lot of the cookie people are putting pistachios in. So, as a result, pistachios are very strong in the marketplace today in terms of usage. They're even stronger than some, say walnuts. Walnuts are coming along again. But pistachios have taken over, and if you look at the world, Iran used to have most of pistachios, and they still grow a lot. But that's about the only place we compete with. And California has the pistachio strength that you'll never see in any other part of the world, I don't think, and they're growing lots of them. So, it's you don't want everybody to plant pistachios, simply because that would bring on too many. But right now, it seems to be working just fine.

Okay. Thanks guys.

Next question.

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

Good morning.

Good morning.

So, just touching again on the potential of Fresno County acquisition that you have under purchase and sale agreement. Is there, I know it's kind of, maybe certain things you can't comment on, but are you contemplating – participating interest potentially being part of the lease structure for those acquisitions, and maybe just kind of roughly should the cap rates you expect, be largely in-line with some of the prior acquisitions, notably the one you closed here in 2Q?

It's really hard to say where you end up in these. But generally speaking, tree crops have a higher interest rate or higher payment out than any other farm. So, as a result, we like it for that reason, and I just look at this and I keep saying to myself, how many do we want? I would like to have more almonds; I'd like to have some walnuts. So, those areas of the nuts are really terrific areas for long-term value. We've been looking at or we have a lot of different trees, but if you look at trees like cherries, and apples and oranges, they don't have nearly the strength that you see on the nut side of the business. And so, we've got a few; figs for example are very long – long, long life and there are other trees that have even longer life. So, we're looking at that. We have to study each one of them, particularly you have to look at the market, where are you going to sell these things that you're buying. For example, when we looked at figs, we were dealing with the largest fig grower in the United States, and probably the world, and he's been at it for 30, 40 years, and we feel very comfortable that he's going to be able to sell these figs either as dried and things like Fig Newtons. We've also looked at some other crops that are long lived. And I just think tree crops are a wonderful part of a portfolio, and I'm hopeful that we can get more of those, as time goes on. But John, I don't know how to answer your question.

That was helpful though, the color. And then maybe one last thing, could this transaction potentially involve OP units?

We only have one on my list that are going to give us some OP units, and that's a farm in Florida. We will do about 6% of the purchase pricing OP units. Once that – and this is another reason to get big, is that once you get up around $1 billion in assets and you're making good money, more people will take OP units than have in the past. I think all of our people that have taken OP units have converted and sold. I mean they really wanted cash at the end of the day. They made good money. They got in at a time when the price of the stock was less, and they've been able to sell it at a much higher price. So, I would hold that out to people who are thinking about OP units that most people have been winners, not only in terms of getting a tax-free exchange, but also in selling the stock, the underlying stock from the OP units. I think we bought back one for cash, but everybody else was sold in the marketplace. And while it put some pressure on the stock. I don't know – we're sort of exempt from all of the things that are going on in China, and all those kinds of those things. The only crop that really is bothered by China, is the almond crop. We don't sell any strawberries to China. And so, as a result, we're just not looking at all of those things that are going on in terms of tariffs as being problem for us. So, as we look at the world today, I just think we're going to continue to do what we're doing, which is diversifying the crops. We even have one guy that does…

Understood. Yes, no – appreciate the color. You did touch on the Midwest briefly, and I know it isn't a huge portion of your portfolio today, but was there any impact on any of your tenants as a result of kind of the rough winter weather we saw in 1Q?

No, we were lucky. The floods, as well as the rough winter didn't bother any of ours. We were on high ground. Years ago, I looked at a farm next to the Mississippi River, and the guys swore to me that when the Mississippi overflowed, it wouldn't bother his farm, and a couple of months later it overflowed and I had a picture of him standing next to the farm, which was published in the newspaper with his farm underwater. We did have one farm in North Carolina, in which, when that storm came through, it was in blueberries and it went up about a foot on the blueberry, which is a six-foot plant. And so, it didn't really bother them. They couldn't get in to do some of the work they wanted on the farm. But nonetheless, it didn't bother anybody. So, we've been lucky in terms of having farm to having been bothered by floods. We certainly have had no farm that has been anywhere close to the fires, that have happened in California. So, as of today, we should count our lucky stars, because we don't have a problem. Just as a footnote, we do have insurance, and our farmers have insurance. So, if a hurricane goes through Florida and blows away something, we'd probably be covered by the insurance. And so, I think we've covered six ways to [Sunday], but there's always something out there that you haven't counted on, and I know it's out there waiting for me, and I just have to be ready for it. John, any other questions?

And then just one kind of quick detail question on some of that leasing activity in the quarter. Was the $420,000 of improvements that were made on some of the new – as a result of some of the new leases, are those going to be generating additional rental revenue, or are those maybe more traditional [PI dollars]?

Those were [PI dollars], mainly because the two farms that we re-leased and got to a good farmer were taking over from somebody who didn't treat the vines very – the plants very well. And as a result, they needed a lot of trimming, they needed a lot of dirt pulled up around them. So, as a result, we put up the money to do that, in order to get this wonderful tenant, who looks like he's going to be a great paying tenant to come in and take over those two small properties.

Understood. Thank you so much for all the color. That's it from me.

Okay. Anybody else got a question?

I'm not showing any further questions at this time. So, I'd like to turn the call back to you, Mr. Gladstone, for any closing remarks.

Okay. Well we thank you all for calling in and hopefully at next meeting, we'll have some more good news for you. That's the end of this call.

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