Ladies and gentlemen, thank you for standing by and welcome to the Gladstone Land Corporation’s Fourth Quarter and Year Ended December 31st, 2019 Earnings Call and Webcast. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]I would now like to introduce to today’s conference call, Mr. David Gladstone. You may begin.

Thank you, Kevin. 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 – you taking time to listen to our presentation. We will start with Michael LiCalsi. He is our General Counsel and Secretary. He is also the President of Gladstone Administration, which is the administrator for all the Gladstone funds.So, Michael, go ahead.

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 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 in our Forms 10-K and other documents we file with the SEC. You’ll find all these on our website, www.gladstonefarms.com, and specifically the Investor Relations page or on the SEC's website that’s www.sec.gov. And 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 any real estate and any impairment losses from property, plus depreciation and amortization of real estate assets. We will also discuss core FFO, which we generally define as FFO adjusted for certain nonrecurring 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. And we believe these are better indications of our operating results and allow better comparability of our period-over-period performance.We ask that you take the opportunity to visit our website, once again, www.gladstonefarms.com, sign up for our e-mail notification service, so that you can stay up-to-date on the company. You could also find us on Facebook, keyword there is The Gladstone Companies, and our own Twitter handle is @glatstonecomps.And today's call is an overview of our results. So we ask that you review our press release and Form 10-K, both issued yesterday for more detailed information. Again, you can find these on the Investor Relations page of our website.And with that, I'll turn the presentation back to David Gladstone.

Okay. Michael, thank you. We had another strong quarter wrapping up what was an interesting banner year. Our recent acquisitions have been a little higher yielding than those in the past and that has been coupled with the low fixed rate interest rates that we are able to lock in for the storms. This should result in a nice increase in our income going forward.We saw rents began to tick up and that upward movement of course in our regions we’re able to take advantage of that with our lease renewals as well as the built-in bumps that we have in our leases. This should add a good amount of additional income that will impact future earnings. We also had a strong increase in the amount of participation rents this year. It was a banner year for participations.Looking at our total farmland ownership, we currently own about 88,000 acres, 113 farms in ten different states and based on either the third-party appraisals. So the price we paid for the new farms, our farms had an estimated total fair value of about $885 million. More importantly, than the number of states that our farms are located in 24 – they are located in 24 different growing regions.Tenant farmers operating these farms are growing about 50 different types of crops. A great news is that our farms continue to be a 100% occupied at leased to 70 different tenants, all of whom are unrelated to us. I think, we now own a good number of farms in enough different regions with as many different farmers as we have and many different types of crops.So there is sufficient diversification to provide security for cash flows that are coming in and the dividends that we pass to our shareholders. I think we are there…

All right. Thank you, David, and good morning, everyone. I’ll begin by going over our balance sheet. During the fourth quarter, our total assets increased by about $60 million or 8% primarily to these new acquisitions which were funded through a combination of new fixed rate loans and cash proceeds received through equity issuances.From the – sorry – from a financing perspective, since the beginning of the fourth quarter, in addition to the proceeds from equity issuances as David mentioned earlier, we also secured seven new loans from four different lenders, for total proceeds of about $57 million. On a weighted average basis, these new loans will carry an effective interest rate of 3.35% and will be fixed for the next six years.From a leverage standpoint, on a fair value basis, our loan-to-value ratio on our total farmland holdings was about 54% at December 31. We are comfortable at this level, given the relative low-risk of high-quality farmland as an overall asset class.While interest rates continue to be somewhat volatile, over 99% of our borrowings are currently at fixed rates and on a weighted average basis these rates are fixed at 3.6% for another six years out. So we believe we are currently well protected on the debt side against any future interest rate hikes.And with the weighted average maturity of these borrowings being 10 plus years out, we also feel we're protected against any potential liquidity issues should another recession hit.Regarding upcoming debt maturities, we have about $26 million coming due over the next 12 months. However, about $15 million of that represents the maturities of three bullet loans coming due towards the end of this year and three properties collateralized in these loans that increased in value by a total of $2.3 million since their respective acquisitions. So…

Okay. Thank you. Good report. I know everybody wants to know what the acquisitions are going to look like in 2020. And everybody has built their model. We have one too trying to figure out the acquisitions is always difficult.2020 started out slow, much like last year, but overall, our list of potential farms to buy remains healthy. So we hope to continue to be very active and be able to report positive news to you as the year goes forward. But as you know, there is no guarantee on anything closing, but just so happens they come to fruition during periods of time like this.And just a few final points. We are investing in farmland that’s growing across that contributes to healthy lifestyle such as fruits, vegetables and nuts and following the trend that we are seeing in the market today. Currently, about 85% of our total revenue comes from farms that are growing the type of foods you can find in either the produce section or the nuts section of your local grocery store.We consider these foods to be among the healthiest type of foods out there and we are seeing a growing trend toward organics among these foods. Over 45% of our fresh produce acreage is either organic or transitioning to become organic, and about 10% of our permanent crops that acreage falls into the organic category.We believe the organic section will continue to be a strong growing area in addition over 95% of our portfolio is GMO free. Another major reason why our business strategy is to focus on farmland growing fresh produce is due to the effect of inflation in that area. According to the Bureau of Labor Statistics, the overall annual food CPI generally keeps pace with inflation.However, over the past 40 years, the…

[Operator Instructions] Our first question comes from Rob Stevenson with Janney.

Hi, good morning guys. Could you talk about how your major crop exposures break down today? How much of the – either by revenue or acreage is soybeans, blueberries, strawberries, corn, potatoes, et cetera?

Lewis, would you go ahead?

So, I think revenue is a more important indicator than acreage, because I mean, one acre of strawberries in California is not equivalent in value or revenues as one acre of corn in the West Coast. So, from a revenue standpoint, we are probably about just under 20% Pistachios right now.And we had that large $70 million acquisition at the end of 2019 that really bumped that up a bit. Second and third is probably a tie between prime strawberry ground and a miscellaneous vegetables ground by about 18% each there. And then, after that, you are probably looking at almonds, right around 10%.

Okay. Very helpful. Thank you. In terms of 2019, how much of the revenues were participating versus contractual?

Percentage-wise I’d have to – I think I have to calculate, $2.3 million over $40.6 million or so.

Okay. That’s perfect. I can do that – we can do the math here. And then…

5%, 6%.

Okay. How much is left on the Series B? You guys said that it was almost sold out. And would you guys start another series of non-traded preferred? Or does this basically tap you out in terms of the preferred you want in the capital structure for now?

We got about less than 5% I think…

Little under $10 million.

Under $10 million left to sell and it’s going really quick. It’s become a great place to sell stock in this non-traded area. I think we are going to put together a fee and look at that again. I am not sure how much or when, but that’s on our plate to consider again, but mainly because it’s relatively cheap to sell.We don’t have quite as difficult at the time of finding shareholders. They come in at a nice pace. And we can generally find farms at the same pace that we are raising the money. It also keeps us from diluting the common shares.I am a big believer that the common shares should be much higher priced than they are today considering the fact that you got a hard asset underneath that was – I don’t know, it’s as old as they are if you want to think about it that way and it’s not going anywhere. So, the base of the production for these fruits and vegetables is pretty good.So my feeling is that we should protect the common shareholder as much as possible from dilution. I don’t know how much we could all stand in terms of preferred versus common and we will certainly watch that. I don’t feel like we should have more than one-to-one kind of ratio leverage. But we’ll just have to see how that comes out.

Okay. So your impact at this time is not – I mean, there is some REITs out there that have gotten on the non-traded preferred bandwagon where there are effective leverage using the – including the preferred is like, 80%, 90%. And so, dramatically overleveraged when you include the preferred. I mean, how are you guys thinking about preferred in part of the capital stack?

Yes, we are – not anywhere close to 80%. I generally think of it is a sort of one-to-one ratio at this point in time. This could be some big changes in both the marketplace today and for common and preferred stock that could change that ratio pretty quick.If all of a sudden, people are willing to give us preferred stock at a 3% yield, I am afraid, we’d be selling a lot more preferred stock. Right now, I think it’s going to be about one-to-one. That’s my guess.

Okay. And then, could you talk in a little bit more detail about the lease termination and the subsequent re-leasing of the property in Arizona? Why does the previous tenant bail and did you already have a relationship with the new tenant? And what’s the difference between the old and the new rent?

It’s about $1 million in difference.

I think the – on a gross rent basis, the new rent – the new lease is a little bit less. But as David mentioned, these are the leases that we changed from a single net structure to a partial net. So, a lot of the operating expenses we have been incurring should be going away and after you consider those in, I forget these – on those particular leases, but I want to say it’s around $300,000 increase from those alone.

The old tenant really wasn’t a very good farmer. We thought they were farmer and they have plenty of money. So they were credit-wise pretty strong. So, we signed a lease in which was very favorable to one respect in terms of terms and outlook. But it wasn’t very good in terms of what we assumed in terms and it’s the only lease where we’ve done this and we did it because they are so strong.They, for some reason, just couldn’t make a go of it and they had been doing it for a while, but it just turned out they wanted to quit. And so, we said, what you are going to do about your lease? You got three more years of the lease. And they said, we will just work out a payment to you and so they paid us the $3 million to kill the lease.While we were going through all of this, we were lining up people to take their place on a more standard lease. I think the only difference in this new lease versus leases that we have with others is that we are paying the taxes. It’s not as big a deal, because the taxes in Arizona are pretty low. But I think the next time we lease it after this, we will get rid of that as well. But we are not ready to throw this guy out.He seems to be strong, I don’t know. It’s – they got – there is financial strength and there is operating strength. And while the prior tenant had financial strength, they didn’t have farming strength. And then that’s where we made our mistake. And I think we are in good shape now to not fall back into that problem. And we won’t have any others that are like that.

Hey, Rob, just to clarify my numbers earlier or actually I have to correct them. We were about $400,000 to $500,000 on the new lease we have $400,000 to $500,000 left on the gross rent. But on a net rent, coming – or net income coming into us it should be about even, the new lease versus the old lease.

Okay. That was perfect. Thank you guys. Appreciated.

Other questions, operator?

Our next question comes from Ben Zucker with Aegis Capital.

Good morning guys. And thanks for taking my questions and then nice to see the stock moving higher. I guess, just to quickly follow-up on that lease termination payment, I just want to make sure that that $3 million fee is going to be recorded as leased revenue in 1Q 2020. So we should definitely be expecting a bit of a spike there from the normal level. Is that correct?

Yes.

Yes.

Okay. Great. Let’s see. You touched on your appetite for new acquisitions a little bit even though the pipeline is taking a little bit of time to come in. Maybe thinking about participation rents, this might be getting a little ahead of ourselves since we won’t see these again until the second half of 2020.But I am just curious, was there anything that you would characterize as kind of extraordinary about the harvest season in 2019? And maybe phrase differently, is there any reason to think these 2019 participation numbers can be achieved again on a go forward basis? I know you guys were intentionally adding leases with this kind of feature throughout the year.So I am just trying to strip out how much of the year-over-year increase was from more leases having participation features versus maybe an unusually strong harvests?

We like participation because it gets us a little extra money in good years. And this was a very good year for a lot of people in the business. But the other part of that is that, in some cases, I have encouraged to folks to go out and say, you had a good year.Do you want to pay us that amount if you have another good year or would you rather bump up the fixed payment and get myself from, say, an old 5.5% to 6.5% and see how much I got to give up in participation rents. Our ability to pay shareholders is really based on our ability to get fixed income coming in.And I am willing to trade-off some upside for steady payments coming in and that’s just the way we run our company, because after all, if you think about this company, it’s what Warren Buffet would call a snowball at the top of the hill and you roll the snowball down and of course it gets bigger and bigger as it goes down the hill.And I think that’s what we are aiming for here. The only problem with Warren is he never told us how much snow was on the hill and he didn’t tell how steep the hill was that he is looking for to use his analogy further. If you use that analogy going forward, the hill is not extremely steep. We are going to continue to build at a slow pace and put good deals on the long-term and there is not that much snow on the hill related to how much you can take out of a farmer in terms of rent.So both of those push down the size of the hill and the amount of snow and therefore how fast you can grow and I think the best thing for us is to sometimes trade in, especially in a good year like we just had some of those payments, or just steady payments of leases and hopefully that works out better for shareholders and dividends.

That’s actually really interesting. I never kind of approach it from that angle of kind of gamesmanship like that. So, are those kinds of conversations, are those active dialogues going on now that these farmers have recently delivered a big participation rent. So it’s possible that throughout the year, we see some leases migrate over to higher fixed rates.

Yes. They are conversations. This is a bad time for most farmers, because they are in a heat of getting their farms ready to – the guys in Florida are working full time pulling strawberries and beans and peppers and those kind of things. It’s a big season for them. And the people in California don’t want to talk about much of anything other than where they are going to plant.How much - they are doing their planograms if you want to think about it that way of where certain crops are going to be and how much they are going to do. So, they are in the planning mode for the year that’s coming on pretty strong now.Because all of the – all the berries are planted and so, as a result they are moving along and they are hoping that the trees are going to harvest – provide the harvest a huge amounts. I think these nut trees and some of the fruit trees, as you know we have lot of different fruit trees now.And so, I think those are going to help us level out the years and make things that are not so wedded to high amounts coming in every year. Although the nut trees have been very, very strong and we’ve got the ones up north that are coming in strong as well. Because we had a lot of new plants there. I am just looking at this and it’s a way to level it all out and make it come in, so that we never ever miss a dividend.

Yes. I appreciate that. And I am sure your shareholders do, as well, I think the dividend is kind of the most important part of the story. Lastly, real quickly and kind of coming back to the capital stack and following up on the preferred stock, look, now that you – I understood the rationale of going with the preferred stock beforehand, because you have revised the management agreement.So as that preferred stock wasn’t counting towards the fee which may require on properties with preferred stock and debt kind of accretive just by way of circumventing the management fee. Under the new management fee though, it doesn’t really matter what’s your equity capital source is, the fee is tied to gross assets.In light of that, as we go forward, now that the stock is higher, so we could be issuing at a premium to NAV albeit some temporary earnings dilution just by way of the share count going up. But because your common equity cost of capital is meaningfully lower than the preferred at 6%, is that potentially – now that your stock price higher becoming the more attractive source of capital for acquiring new farms as we go forward in 2020? Or why wouldn’t that be?

Of course, as I mentioned before, if all of a sudden, we can sell preferred stock at a much lower rate, you are going to tend toward preferred and if the common stock gets down to where some of the REITs are, you know, some of the REITs are paying 1% or 2% on their common stock. If we hit that level, we will use the common stock be wonderful to raise money then.I think this is a balancing act, Ben, that you spend your time thinking about where they want to raise it with the one entity or not and we get all the debt that we can possibly get, because it’s at such low rates. Some of the rates that we have, because we have a participation in the profits of the farm banks, we had a three quarters of a point or a point back every year, because the farm banks are so profitable.They share the money with the people who are borrowing from them. So, I don’t know at the end of the day, you tell me where rates are and I can probably pencil out where I think we would be perhaps.

I am not smart enough to that.

Neither mine. And so, that’s why I am giving you this vague answer which is dependent upon what rates are going to be down the road and we just have to look at that every time we get ready to borrow some money, get ready to sell some common stock. I am just astounded at how much money you can raise in the non-traded area.And I don’t want to become addicted like two or three of the REITs are. And dependent on that because I think it could go away just as fast as the stock market. Hopefully that answers.

Understood. Well, I appreciate your comments. Congratulations on a strong 2019 and I am looking forward to 2020.

Me too. Who is up next?

Our next question comes from James Villard with Ladenburg Thalmann.

Good morning guys.

Good morning.

Good morning.

Yes, just one quick question from me is, on that $125 million participation rents, how much of that was budgeted in your numbers and how should we really think about that going forward?

I think it’s slightly about what we had projected not incredibly, but in terms of what we had – I guess, publicly stated on any calls is, we didn’t want to oversell ourselves, I think we were saying it will be slightly more than the prior years, which is 1.2. It came in slightly above what we were projecting. I don’t think we are at a point where we were ready to give out any projections for 2020.We are hoping for a kind of a repeat performance. We have seven farms following out of the group and some farms coming in. As I said on the call, on a net basis, we have one addition to the group. But as they get diluted there could be some lease changes in structure. So, not ready to say whether it will be more, less or equal to where it is continuing to 2019.

Yes. Fair enough, fair enough.

As you look at the list of farms where we have participation rents, there are some that didn’t perform and we didn’t get much out of them and there are others that overperformed and I’d say, generally speaking, they all overperformed where we thought they were going to be. And they were only two maybe that were really low compared to where we thought they were going to be.And that’s the reason for not emphasizing that area much is because you are dependent on growing crops and as everyone will tell you in this business, the real difficulty is, if you want to think about it in factory terms, your plant is growing bush or tree and it’s outside, not inside.So, as a result, you got a lot variables to take into account. And I am just not for higher risk even though it might mean more money, the year is good.

Okay. Is any of that commodity-driven?

Well, if you think about it, there are some commodity like variations in all crops. If you have one of the strawberry majors with a low crop yield, that means all the others get higher prices. So, it just depends on which farm or that’s why we are so intent on finding good farmers, is that you got to have a regularity to the production.But all of them, not as much as say, corn or wheat or soybeans, but all of the crops are like that – and have some variation in them depending on the market. And if you look at corn though, corn competes with – corn is coming – corn and soy coming out of Brazil. You got the Ukraine, actually and Russia produce a lot of corn and wheat.So, all of those are very difficult to know how much they are going to produce. Sometime ago, the corn crops in Ukraine failed and corn went to $8.50 a bushel and it’s currently under $4 now, maybe a little more. But it’s dependent on one wins and one loses. Quite frankly we can only eat and use so much corn and so as a result, it’s a finite demand in a variable production.And I don’t want to be in that business unless I had some way of – if we owned a pig farm, obviously you could grow a lot of corn. But we don’t own any of those kind of protein operations.

Yes, great color. Appreciated and congrats on the year.

Okay. Well, thank you for your questions. Do we have any more questions?

I am not showing any further questions at this time.

All right. That’s the end of the presentation and we’ll see you next quarter. That’s the end of this call.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect.