Ladies and gentlemen, thank you for standing by and welcome to the Gladstone Land Corporation Second Quarter ended 6/30/2020 Earnings Call and Webcast. (Operator Instructions). I would now like to introduce to today's conference call Mr. David Gladstone. You may begin sir.

Okay. Thank you, Kevin for that nice introduction. This is David Gladstone and welcome to the quarterly conference call for Gladstone Land. Thank you all for calling in today. We appreciate you taking time out of your day to listen to our presentation. We're going to start with Michael LiCalsi, he is our General Counsel and Secretary. And he is also the President of Gladstone Administration, which is the administrator for all the Gladstone funds. Michael, why don't you go.

Thanks, David. Good morning, everybody. Today's report may include forward-looking statements under the Securities Act of 1933, 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 and 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 that we listed in our Forms 10-K and 10-Q of the documents we filed with the SEC can find them all on our website, which is www.gladstonefarms.com, specifically the Investor Relations page on that website could also go to the SEC's website at 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. And today, we will discuss FFO, which is funds From operations and FFO was 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, we generally define as FFO adjusted for certain non-recurring revenues and expenses. And then adjusted FFO which further adjusts core FFO for certain non-cash items such as converting GAAP rents to normalized cash rents. In all, we believe these are better indications of our operating results and allows better comparability our period over period performance. Now, please take the opportunity to visit our website once again gladstonefarms.com, sign up for email 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 at @gladstonecomps. Today's call Is an overview of our results. So we ask that you review our press release and Form 10-Q, both of which were issued yesterday for more detailed information. Again, you can find them on the Investor Relations page of our website. With that, I'll turn the presentation back to David Gladstone. David?

Okay. Thank you, Michael. When it comes to buying additional farms, things are still moving a bit slow for us. We are seeing significantly more opportunities than we did earlier in the year, we expect the activity to pick up for us. We have four farms with the purchase agreements signed, but we are in due diligence and they may fall out somewhere along the way, it's about $70 million there. We have four more farms, which are -- We are negotiating a PSA and some of those are probably drop out, but that's about $80 million. So, we are lining up things hopefully many of those can close with for the end of the year. I know many of the farmers have been extremely busy because sales in grocery stores have been up strong and that's where most of our tenants sell their crops. We invested about $21 million in new farms during the quarter. Operations on our farms remained strong and our team continues to have success releasing our existing farms at increased rental rates. We believe these increased rental rates are indicative of the continued strong demand that we're seeing for farms that we own and products are grown on our farms. One thing to remember about the first quarter, it's when we received an early lease termination payment that is one of our tenants wanted to get out of their lease and we said that's fine but we need to be paid and they paid us about $3 million, this was a large long-term lease. This $3 million is a non-recurring event, of course all of you know that and we immediately leased the farm out to a different grower under a new long-term lease. So two things that you should keep in mind when you're…

All right, thank you David and good morning to everyone. Again, with our balance sheet during the second quarter, our total assets increased by about $16 million primarily due to new farm acquisitions and proceeds from equity issuances. From a financing perspective, we can carry about $16 million of new long-term borrowings during the quarter at a weighted average rate of 2.81%, which is fixed for the next nine plus years. On the equity side, during and subsequent to the quarter ended June 30th, we've raised about $6 million of net proceeds through sales of our common stock under the ATM program. We also started selling our Series C Preferred Stock during the second quarter after completing the offering of the Series B Preferred Stock during the first quarter. So far, we've raised about $6 million of net proceeds from sales of the Series C Preferred Stock. As with the Series B, our plan with the Series C Preferred Stock is to sell it in small amounts over the course of the next several years. So they were better able to timely acquisition of farms with the proceeds as they come in. And just to remind everyone in the process of selling the Series B and now the Series C Preferred Stock, we do pay certain commissions and fees to the Gladstone Securities and affiliated broker dealer of ours. However, Gladstone securities is just a conduit this offering as it pays out about 94% of these fees to other third parties including brokers and wholesalers who are helping to sell the shares. In the rest of the fees kept by Gladstone Securities that remaining 6%, these amounts are used to cover various expenses related to selling the stock, which were actually greater than the fees retained by Gladstone Securities. And…

Okay. Nice report Lewis. Currently, I think the farmers who grow produce sold to the grocery stores are flat out working night and day as much as possible, so they can make as much money as they can and it's -- it's impacting our ability to buy more farms. The farmers out busy working on the farm, they doesn't have time to spend time negotiating contracts in those kind of things. In addition, when doing our due diligence on titles and other legal records, many of the government offices are just closed, so we can't close on our loan, not knowing whether there is leans out there or problems on the property. So it's taking longer to determine the title, if the title is clean or if there are other problems with the property. Also the offices of some of the mortgage lenders who finance our acquisitions are not fully staffed, our people in the office, so it just takes a little longer to do everything. But we are seeing a good amount of opportunities coming our way, now it's just taking a bit longer to -- than normal to get things through the system that we put it through what we call that due diligence. Couple of points to make, we believe investing in farmland, growing crops, contributes to -- growing crops that contribute to a healthy lifestyle such as fruits and vegetables and nuts. Follow the trend we're seeing in the market today, currently, about 85% of our total revenue comes from farms that are growing, the type of foods you find in either produce section or the nut section of your local grocery store. We consider these foods to be among the healthier type foods and we continue to see a growing trend toward organic among those…

[Operator Instructions]. Our first question comes from Craig Kucera with B Riley FBR.

Craig, we can't hear you.

Sorry about that. I am here, hi. Well, I just wanted to ask, you mentioned that you're seeing more opportunities than you were earlier this year, do you have any sense of what you would attribute that to was..?

Yeah, the farmers are busy as can be and so as a result I don't get out of the farm as long as they're farming. So they're out there in the farm backing up the truck and getting as much stuff in the truck and take it to town as they possibly can. They are very, very busy right now. So that's been a problem and then the local governments and their reaction to the coronavirus should we say the Chinese virus has been extreme in terms of shutting down things. So there has been problems in getting people to do what you need to do to get something purchased. The lawyers are all there. We can get the lawyers to work, but some of the government workers and some of the others that are in our need to find out things just aren't in the shop, so it takes a little time to get that done. So, I think we are now getting to the point where some of the things that we started, even last year are coming through and I think this will be a good quarter, maybe not as good as we had hoped, but by the time year income so we should have done a pretty good job of buying this year.

You have another question, Craig?

Yes, yes, I do actually. I was going to ask it sounds like there's a lot of sort of the procedural and institutional channel it was just related to Covid. Has that impacted pricing at all or is that remain fairly steady?

Although it's fairly steady, grocery store prices are up about 10% especially and may be more in the produce section. I don't know [indiscernible]. We get some information from the Department of Agriculture, but it's spotty. They do a good job of bringing together the prices that are going from field to the buyer, but we don't know how much the stores are marking up the product and sometimes marking it down in order to flow it through they have, but there is a lot of strawberries and blueberries in the marketplace today and sometimes they use the strawberry as a marketing mechanism to get the buyer to come into the store because the buyer of strawberries tends to buy four times more produce than anybody else. So when you look in the newspaper, you'll see the discounting on strawberries in order to make somebody come in and buy strawberries, but at the same time buy all the other things that they buy in the fresh fruit section.

Got it. So, I feel like earlier this year you felt that even though there was an initial spike in sort of pricing that it [indiscernible] last sounds like things are may be up 10% based on your commentary, does that lead you to be a little bit more confident about be seeing some rising percentage rent in the back half of this year?

I hope so. I love percentage rents. It's the easy way for us to participate in the farming operation rather than owning the farm. I think it's just a good way to get another bite at the apple, no pun intended.

Got it. So just based on the commentary you had on some of the opportunities you're looking at, I think you mentioned you had four farms that we're a little closer to maybe closing at about $70 million and another four for $80 million, would you handicap what you think you're going to close by year-end of that $150 million?

Oh, you're doing your projections again, aren't you? I think we will close the four farms with $70 million, how much we get with the $80 million I don't know. And we may have -- we've got a couple of people that say they now want to close before year-end and we only have anything from them other than a good discussion going.

Got it.

Craig, no way of handicapping that you just never know.

That's fair. And you mentioned using both the units. I know you don't have a tremendous amount of OP Units outstanding. But are any of the potential acquisitions you're looking at our OP Units coming up in the discussion?

There are always in the discussion and we push it pretty hard, but I don't know. It's hard to sell OP Units to somebody for their farm because many of the people are want to buy another farm and you can't use the OP Units for that. So they're usually like any business that's dependent on real estate, they need the cash to buy the next whatever next farm next warehouse whatever they're buying.

Well that makes sense. And you mentioned CapEx. Can you remind us of what you expect your CapEx budget will be for the rest of the year?

Lewis, what you got.

So most of the -- we don't, we don't -- we are not disclosing that CapEx cap for the rest of the year, but most of the projects that we have been doing so far for the first half of the year are nearing completion. So, we do think you'll see depressed amounts through the third and fourth quarters versus what they were in the first half of the year.

Got it. And one more from me, I know, earlier this summer, you were looking at the walnut that business. Have you come to a conclusion on whether or not that's a business that fits for Gladstone Land?

Well, we have some, but not a lot. It's a little worrisome on the walnut side, it's a good product, but I don't know we've go back and forth on those and if you sell me a farm cheap enough we will - we will be in the business, but not going to pay off. Walnuts are a little hard to forecast right now.

All right, sounds good. That's it from me. Thanks guys.

Okay, next question.

Our next question comes from James Villard with Ladenburg Thalmann.

Good morning, guys.

Good morning.

Good morning.

As we move into Q3, has the transit -- transaction trouble you guys with -- you've mentioned about local government has that improved in Q2 and we see..

It's better now. Yeah ahead.

Finish James.

Yeah. And as you move in the back half of 2020 do you expect there'd be some pent-up acquisitions?

I wish I knew, I think people are thinking about it. I think at Covid-19 push somebody over the -- some people over the edge and they now want to sell a farm and get some liquidity and just rent rather than have a lot of capital tied up in land, they don't know what tomorrow will bring in terms of this China virus that we are fighting. I just don't know. You know it's really hard in this business because there is unlike if you're in the real estate business line wholesale, there is no way. This is all done retail. Our people are out actually talking to the pharma that owns it rather than talking to the broker who is [indiscernible]. Many of the real estate companies as you probably know are all based on brokers in the field and there're list of the products, you get 10 bids, ours are knocking on doors and talking to people and somebody heard from Joe [indiscernible] that Joe is selling his land and renting it back and they want to know how we do that. So, there is a lot of a lot of shoe leather put into getting these things done and a lot of discussions in educating people because it's not well known how this works in the farming business.

Yeah. I understand that. Just one more question from me, are you all I guess when you look at -- when you're dealing with these farmers who are looking for a little liquidity, are you competing with Federal rateprograms that are just coming online. I guess in the wake of this this Chinese virus?

I don't know. Do we have any competition with any of the farming products, I don't think so. And they really have a chance to borrow money from the farm credit in those kind of people or insure some of their products. It's not a very well organized. There are parts of Department of Agriculture that are extremely well organized. The disposition of farms and financing our farms unless you look at the farm credit people or Farmer Mac are not as well organized as other -- other products out there. I mean if you got a warehouse or there are lot of buyers that will buy warehouses today. So, I think we are in the early stages of it being organized and if we can just capture part of the $1.7 billion that we see out there we'll be very happy

That's all for me. Thanks for the color.

Next question?

[Operator Instructions]. And I'm not showing any further questions at this time.

Okay, we're all just -- one question was asked of us why aren't we issuing more common stock and it's cheap compared to where it was and quite frankly I think it's still undervalued. We should be a $20 stock given the -- given the asset value and strength of our assets that we're holding and given the consistency of getting paid over and over, no matter what. I mean this is the worst recession I've ever been through and these farmers continue to sell and it is only one phrase to set that your mind as people got to eat. So as a result, as long as the products keep coming and they do, their farms are not going to stop producing. It's great place for us to be. So that's the end until next time. So, we will see you next quarter. And thank you very much for calling in.

Ladies and gentlemen, that concludes today's presentation. You may now disconnect and have a wonderful day.