Good day, ladies and gentlemen. And welcome to the Gladstone Land June 30th, 2019 Quarterly Shareholders 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 be given at that time. [Operator Instructions] As a reminder, today's conference is being recorded.I would now like to turn the call over to Mr. David Gladstone. Sir, you may begin.

Okay. Thank you, Victor. It's nice introduction. And this is David Gladstone and welcome to the quarterly conference call for Gladstone Land, and thank you all for calling in today. We will start with Erich; Erich Hellmold is our Assistant General Counsel. 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 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 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.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, which we generally define as FFO adjusted for certain non-recurring revenues and expenses, and adjusted FFO, 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 that you review our press release and Form 10-Q both issued yesterday for more detailed information. Again, those can also be found on our Investor Relations page of our website.Now, I'll turn the presentation back to David Gladstone.

All right, Erich. Thank you. As of today we've acquired $112 million worth of farms and our current backlog of potential farms to acquire remain very strong. With these acquisitions which are part of higher yielding than in the past, together with our ability to lock-in low interest rates in our long-term farm mortgage, we think these new acquisitions are going to result in a nice boost to the bottom line.In addition, we are seeking rent to tick up and the team is lowering our property operating expense. We are also hearing some good news with regard to the crop yields on our farms. We expect strong results from our participation rents in the next few months. Looking at our total farm land ownership, we currently own about 80,000 acres around 92 farms in 10 different states across the United States. And these farms are valued at about $735 million. And more important than the number of States our farms are in, we're in 22 different growing regions. Each of these growing regions has their own number of farmers. We've got about 40 different crops in these farms that we're in now.Great news is that our farms are 100% occupied. They all paying their rent and leased to 64 different tenants, all of whom are unrelated to us. During the quarter ending June 30, 2019, we acquired four new farms for about $46 million that grow a variety of crops such as pistachios, blueberries, cranberries and olives. Lewis, when did we close that fig orchard? Was that last first quarter?

Q4, I believe.

Okay. Since the quarter end, we've acquired two more farms for about $67 million. One of these is strawberry and vegetable farm and the other farm is one that is pretty unique in that farm. We're retaining water and cleaning it up, so this will help the water around the Everglades in the river that runs through the Everglades. So it's a bit different but just so you know if for some reason that rent stopped and we got the farm back, the farmer next to this piece of property is a person that's in our portfolio. And he said he would like to take that farm if we ever get it back because it's organic.Overall, the initial net yield on these farms is about 6% and all of these leases contain certain provisions such as annual escalations. And in some cases participation rents that should push that figure even higher that is the 6% that we're talking about. On the leasing front, during and after the quarter end, we either executed new leases or extend existing leases on about five of the properties. In total, the new leases will result in an increase in the minimum fixed cash rent of about $294,000 or 21% over the prior releases. The two leases expiring through the rest of 2019 make up about 2% of our total minimum annualized rent.We do have several leases scheduled to expire in 2020, and we've begun negotiating all of those now. With the increase seen from our recent lease renewals and based on what we're hearing through negotiations, we're optimistic that the ability that we're able to renew all of these leases with no decreases in the rents. And hopefully, we'll even pick up some increases. We won't know that until the leases have been signed.…

All right. Thank you, David. And good morning, everyone. I began by going over our balance sheet. During the second quarter, our total assets increased by about $53 million, or 9% primarily due to new acquisitions which are funded through cash proceeds received through our new equity issuances and fixed rate borrowings. From a financing perspective since the beginning of the second quarter in addition to the proceeds from equity issuances as David mentioned earlier, we also secured seven new loans including loans from two new lenders for a total of about $70 million in proceeds.On weighted average basis these new loans will carry an effective interest rate of 4% and will be fixed for the next nine years. From leverage standpoint on a fair value basis, our loan to value ratio and our total farm land holdings was about 49% at June 30th. We're very 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 essentially all of our borrowings are currently at fixed rates and on a weighted average basis, these rates are fixed at 3.65% for another six plus years out. So we believe we are currently well protected on the debt side against any future interest rate volatility.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 acquisitions, we don't expect to have any problems refinancing each of these loans with either current lenders or potentially new lenders.So moving those…

Okay, nice report, Lewis. And just a few final points. Currently over 85% of our total revenue comes from farms that are growing the types of food that you can find in either the produce section of a nut section or your local grocery store. We've made our bet on this side and we consider these foods to be among the healthiest type foods out there. And we're seeing growing trend toward organic and other type of foods. And this is especially true of the produce section your grocery store. For us, over 40% of our fresh produce acreage is either organic or in the process of becoming organic. And our permanent crops acreage falls into the organic care and 20% of our organic crops are permanent crops.And we believe the organic section is going to continue to be a strong growing area. In addition over 95% of our portfolio is GMO free. Another major reason why our business or business strategy is to focus on farmland growing fresh produce is due to the effect of inflation on the 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 fruits and vegetables segment of the food category has outperformed the total food CPI by a multiple of 1.6x.We must skip ahead now to the overall demand for prime farmland continues to be strong. It's stable in almost all the areas and in other areas that we're seeing a pretty good uptick. Where our farms are located this is particularly true. As you know, our farmland is primarily in California, Oregon and Washington, on the West Coast as well as the East Coast especially Florida. And overall our farmland continues to perform extremely well…

[Operator Instructions]And our first question will come from line Rob Stevenson from Janney. You may begin.

Good morning, guys. David, what are the crops that you acquired on the $112 million of acquisitions in the second and third quarter?

I'm just looking at the list.

One strawberry and vegetable farm and then that water retention farm.

But you just want the ones after the quarter end.

Yes. I mean those as well. I mean just trying to figure out what you're buying in terms of crops at this point. I mean is it any nut sticking with the fruits and berries, any row crops in there et cetera.

What we've acquired so far this year it's been a mixture. As we just said that subsequent to quarter end we had one strawberry and vegetable farm which fits right in with our where our focus has been since the IPO. During the quarter, we acquired some more permanent plantings, pistachios, berries, cranberries and that olive orchard. Looking at our backlog of farms, we're looking at today to buy it, it continues to be a mixture of row crops and permit plantings.

We're all fairly straight from the --until we started buying some of the tree crops. We aren't really straight from that idea. As you know, we've had some blueberries in the portfolio a long time and those are permanent crops. So that was our first foray into permanent crops. We now have a whole list of items that we own in that permanent crop area. But it's still not more than about 40% of our portfolio. That's quarter end --we can -- I thought all of those were listed in that -- they are in the K, sorry, we'll get you; we'd get an update list out.

Okay. I mean I was just curious as to know I mean especially with some of the feed crops and nuts being probably more impacted by China, and not buying any more agricultural goods at least at this point than others. And that's generally a focus of investors at this point.

You're onto something there because about a third of the almond crop in the United States was purchased by China. I don't know if they're still hungry for the almonds or not, but mostly the almonds are being used for almond milk and other things. The candy people use a lot of almonds, but you should know that most of our almonds are in the area of organic. And they're very expensive and in addition to being very expensive, they're not really sold to China. So we're less impacted because we're heavily in the organic side of the almond business and when our next farm comes in we'll have a lot of almonds in the portfolio. I'm sorry, go ahead and ask your question.

Rob, just one more point on your last question. You mentioned also feed crops; we might have 3% to 5% of our portfolio in that. And one more point on the nut crops. From global prices of nut crops are on the rise with what we're seeing. We're not prepared to give a number but we are optimistic that will come through with our amount of participation rents that we will be reporting over the next two quarters.

Okay. In terms of what are you guys seeing out there for pricing on farms? I mean if you were going to buy a farm two years ago versus today is that farm value higher at what you'd have to pay, about the same, how do you sort of categorize what you've seen in sort of saying, what would equivalently be like a same farm type of number over the last couple of years?

If we look at our -- I mean just the appreciation, we see on our portfolio and you can also look back this up with the data that the USDA points out. In the regions we are -- in the regions we're focusing in generally we are seeing a year-over-year price increases. And how much, it might not be -- it's more in California than it is in Nebraska for example. But generally in California, the West Coast, the states that David mentioned in Florida, we are seeing a steady if not muted in some areas that still say appreciation.

Okay. And then in terms of the actual farmers own balance sheets at this point. I mean how are they faring today versus the last couple of years in your view?

They're fine. They've continued to sell their produce and continue to move along. We've not seen any diminution as you would see and say Iowa where the farmer is having a lot of problems because they're in corn or soy or wheat, all of which have had tremendous drops in the price of those. You might know also that if some of the corn farmers would convert over to organic, it's probably 2x or 3x higher price, there's higher expenses and different ways of getting to market. So many of the farmers are reluctant to go into something as new as organic.We've looked at a couple of situations and we may end up doing something in the Midwest if we could figure out how to convert them to organic. And it's not easy. So we will see how that works out but generally speaking we have a couple of farms. One farm in Arizona that does some corn that actually sold right there in that area to the farmers that raise beef and some of the dairies, but generally speaking we're in good shape. For example, we're in Colorado. We have organic potatoes. They're one of the largest potato farms in the United States. The organic potatoes sell for much higher price than regular potatoes. Nobody can taste the difference and I'm not sure there's any reason to eat organic potatoes, but generally speaking there you are and some of these people also have long-term contracts with manufacturers, French fries for example that some people are starting to demand organic fries.So I think we're on the right area, Rob, by being in organic and healthy foods. So I think we're in the good area of farming now.

Okay and then a couple for Lewis. In terms of the $0.69 hit to NAV quarter-over-quarter, you mentioned that a chunk of that was the debt mark-to-market. Can you quantify how much of that, was that versus the additional capital raising and other factors that led to it, if it's not [Multiple Speakers]

Sorry. The bulk of that decrease was the debt fair value and I believe that was $0.39 or $0.40 of it by itself.

Okay. That's helpful. And then how much was a generators costing you and then how much lower should third quarter expenses on that be relative to second quarter as a result?

So the generators by themselves were about $200,000 in the second quarter. And I believe that was $125,000 or so less than what it was in the first quarter. In the first quarter, we also had about a $50,000 payment to get a permit finalized. And that also went away. I'm not sure that so we were about $200,000 for the second quarter. I'm not sure we'll see that go completely to zero for Q3, but it should be cut down pretty significantly.

Okay. And then last one for me. What are you guys thinking about in terms of the limits that you're willing to go with the Series B preferred in the capital stock?

That maxes out at $150 million; $150 million is where it maxes out.

Okay and even it and you're willing to go that high even at the current market cap, so it's not a situation where you're thinking that it's 20% of your overall capital stock or anything while you're at this and then grow into it? That you'd be willing to go to 150 on that.

It's growing. We do about $3 million every two weeks, so we'll be out of the $150 million over the next year. We should be finished by next summer this time. Okay, next question.

And our next question comes from the line of John Massocca from Ladenburg Thalmann. You may begin.

Good morning. So is the transaction you disclosed back in April with RTS orchard is that still in the pipeline today? And if so, kind of how close maybe are you to closing that transaction?

Yes. It's on a pipeline. We do, as you know, it's expected to close in two phases. And the first phase in Q3; second phase in Q4 and we are -- we still are expecting the first phase of closing in Q3.

Okay. And lastly what's the distribution between the two phases? I mean are they about equal in terms of cost?

Roughly half and half.

Okay. And then on a more kind of general kind of acquisition side. You saw some pretty robust, the 6% kind of initial cap rate you guys had on acquisitions completed in 2Q in subsequent to quarter end or maybe a little higher than they have been in past quarters. Is that kind of indicative of a general kind of trajectory and where farm land cap rates are going or was that kind of deal specific especially given kind of in 3Q there were some unique transactions?

I say generally speaking if you look at where we are then the tree crops are higher yielding in terms of yield to us than the ground crops. And so when we close more tree crops than ground crops, you're going to see that continue to go up. On the other hand, ground crops don't have as much risk so as a result you sort of trade-off that. I'd say the ground crops are averaging 5% in a quarter to 5.5% now. And the tree crops are usually much higher.

Very helpful. And then with the in place portfolio you saw some pretty robust rent increases on renewals and re-leasing. Is that a trend we should continue to expect into 2020 or was that kind of unique to the specific leases in the core?

These rents are really hard to project out. We got two more to do this year. And those are about 2% of our total revenue. So I don't expect much of a change there, maybe it bumps up a little bit. We've got about 13 in 2020 and I would say half of those are sort of already locked in, people want them, so there's probably five or six that we haven't even touched in terms of negotiation. But all of those farms are in good areas with good tenants.So we can hope that they move up. And I think they will. I just don't know how much. We've seen rents come up in all of the areas now. Oxnard was a little bit slow and has been for some time. It seems to be coming back and we've got one large farm there that I think will get done this year. And I think it'll go up. It's been farmed forever in a day. It's just a matter of how much you can get from the farmer and strawberries and vegetables are doing very well in terms of what the consumer will pay for them. As you probably know that all of them --and this is across the board.If you look at your Sunday supplement, you'll find that strawberries are discounted heavily by the grocery stores. And they usually put a big picture of the strawberry box in the Sunday supplement. It turns out that the person who buys those usually will buy four times more produce than other people going to the store. So all the grocery stores are pitching that person that likes those strawberries to come into their store. And sometimes the stores will bargain hard in order to get something that they can discount a lot. And other times they will go ahead and pay up for it.I go to the grocery store every Saturday to see who won grocery stores that week because it's such an important part of our portfolio. And there are some new entrants and it's being interesting to see which way prices go. There's also a lot of work going on to automate some of the purchases, automate some of the plantings that are in as well as some of the pickings that have to go on. It's a very moving marketplace. But at the same time it's within very narrow area. So there's not a lot of overall change. It just changes a little bit one year up and a little next year down. Any more questions?End of Q&A

I'm actually showing no further questions at this time. I like to turn the call back to David Gladstone for closure remarks.

Thank you very much for listening in. And asking questions and we'll see you next quarter. That's the end of this.

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