Gladstone Land Corp (LAND) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Gladstone Land Corporation's fourth-quarter and year-end December 31, 2014, earnings call and webcast. (Operator Instructions). As a reminder, today's conference is being recorded.

I would now like to turn the conference over to Mr. David Gladstone. Sir, you may begin.

All right. Thank you, Candace. That was a nice introduction, and welcome all of you to the conference call for Gladstone Land. This is David Gladstone. Appreciate you calling in. We love to have these meetings, and we wish we could do them once a month, but we only do them once a quarter. So you have an open invitation that if you're in the Washington, DC area to come by and say hello. We are in a suburban area called McLean, Virginia, and you have an open invitation to stop by and see us here. You'll see some great team members at work. It's about 60 people here now. We no longer are small, and we're managing about $1.7 billion in assets.

We'll begin with Michael LiCalsi, our General Counsel and Secretary, who also serves as President of Administration. Michael?

Good morning, everyone. This report you are about to hear may include forward-looking statements within the Securities Act of 1933, the Securities Exchange Act of 1934, including statements with regard to the Company's future performance. These forward-looking statements involve certain risks and uncertainties that are based on our current plan, which we believe to be reasonable, and there are many factors that may cause our actual results to be materially different from any future results expressed or implied by these forward-looking statements, including all the items listed under the caption, Risk Factors, in our Form 10-K and 10-Q that we file with the SEC.

And these can be found on our website, www.gladstoneland.com, and on the SEC's website at www.sec.gov. The Company undertakes 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 in our report today, as a Real Estate Investment Trust, or REIT, we plan to discuss funds from operations or FFO. FFO is a non-GAAP accounting term defined as net income, excluding gains or losses from the sale of real estate and he any impairment losses, plus depreciation and amortization of real estate assets. The National Association of REITs, or NAREIT, has endorsed FFO as one of the non-GAAP standards that we can use in discussion of REITs. Please review our Form 10-K filed yesterday with the SEC for a more detailed description of FFO.

The report from our President and CFO that you are about to here is an overview of our operations and performance. We encourage all listeners to read yesterday's press release and the Annual Report on Form 10-K filed with the SEC yesterday, which includes a wealth of information for our investors. You can find them all at our website, www.gladstoneland.com, and the SEC's website, sec.gov.

To stay up-to-date on the latest news involving Gladstone Land and our other publicly traded funds, please follow us on Twitter, username GladstoneComps, and on Facebook, keywords The Gladstone Companies. And you can go to our general website to see more information about this Company and our other affiliated publicly traded funds at www.gladstone.com.

And now I will turn the presentation back over to David Gladstone.

All right, Michael. We had a strong quarter to close out the first full year as a public company. But before I get into the net results, I'll just briefly do an overview of the nature of our business.

The business consists solely of owning farmland and leasing it to independent corporate farmers. We don't farm the land ourselves, just the farmers that we lease it to, and thus we are not taking on a direct farming risk. Most of the farms we own are concentrated in locations where farms are able to grow high-value annual row crops such as berries and vegetables so we're in the produce side. And if you think about us, we're in the produce section of your grocery store; that's where those products go.

There's some needed coverage in the past few months about declining values of Midwest farmland that is growing corn and other grains. However, that sector is not part of our primary focus. The geographic regions where our fruit and vegetable farms are located have continued to experience steady appreciation in both underlying value and the value of the rents charged on the land. We currently own 8,370 acres across 33 farms. 15 are in California, nine in Florida, four in Michigan, four in Oregon, and one in Arizona. We also own three cooling facilities that are on some of these farms and some other structures that are really critical to the farming operation.

However, investors should expect the bulk of our assets to be in the farmland itself and that are leased to the farmers to grow food. Generally we intend to enter into leases that are three to seven years. However, when we lease properties that grow longer term crops such as blueberries, which might last for 20 to 30 years, we anticipate entering into longer-term leases such as 10 or more years. Most farmland leases are typically for short-term periods because the landlords seek to increase the rent frequently. The farms we own are highly sought after and have been rented for many years without being vacant.

For those trying to understand the concept here, our farms are like owning an apartment building in a highly desirable location. But unlike an apartment building constructed, there are no new farms next doors being constructed. The supply of farms in our region is relatively finite. There are no new farms being developed. Most of these are in areas that are rented for many, many years. The trend we are seeing is steady increase in the number of farms in our growing regions as they are being sold to build homes, apartment buildings, offices, schools, and industrial buildings. And once they are converted to serve urban uses, they never really go back to farms.

For our properties with short-term leases, we will be required to frequently renew the leases upon expiration. We expect that to generally be able to renew those leases with the same farmers as resident, bringing in a new farmer. And we believe this strategy also will permit us to increase our rental rates on a frequent basis. We've been successful with this strategy to date, as evidenced by 2014 lease renewals, which were able to increase at an average of about 25%, a little over 25%.

When we enter into long-term leases, we seek to place provisions in the leases such as escalation clauses that provide for fixed increases in the amount of rent, such as an annual escalation of 2% or 3%.

And then in addition to that, we have periodic market resets to the rent based on local rental rates. So if the rental rates in the area have increased faster than the 2% or 3%, then the rent goes up to that. Fortunately all of ours don't have the ability to go down when that periodic market reset comes in. So they're stuck with the 2% to 3% until such time as the lease expires.

And just a footnote on our leasing practices. Generally we prefer to keep the same tenant on the property for as long as possible. Our objective is to be a long-term real estate partner for all of our tenants. We don't want to switch them out every year or two; we want to keep the same people in business.

And now I'd like to touch on our recent activity, the highlights of progress we've made in the past year. Since September 2014 -- that's the quarter ending September 2014 -- we acquired three new strawberry vegetable farms in Ventura County, California, and just last month we acquired another strawberry and vegetable farm in Monterey, California. So we acquired these farms for an aggregate purchase price of about $48 million at an overall weighted average initial cap rate of 4.3.

Now that's a little bit low, but now three of these four leases are leases we assumed in the acquisitions, and they will expire in the next five to 20 months. So we expect by 2017, once the new leases are renewed at the more -- well, I think at a higher price -- and the properties are placed in certain agricultural tax exempt contracts, these properties will be earning a cap rate well above 5% and leverage yield over 8%. All these farms are prime strawberry ground, vegetable ground, with ample water on site.

For the second straight quarter, we were able to add new lenders to our lending base. We closed on a $75 million borrowing facility with Farmer Mac; that's a government agency. And giving a total of three lenders now, we feel we're in very good shape having a diversification of lenders.

And in January, we hired a director in the Midwest to look for vegetables and farms -- vegetable farms in that region. We're looking for not grains again; we're looking for things like green beans that are sold to somebody like Libby or sweet corn, melons, potatoes -- all of these going into the produce section rather than being the hard grain variety.

And now to highlight some of the progress we've made since January 1, 2014. Well, we invested $85 million during the last 12 months into 12 new farms and increased our overall acreage by 40%. We've fully deployed the remaining proceeds from 2013 to IPO in September of 2014 follow-on offering. And the total value of our farmland portfolio increased by $94 million to $210 million as of today. At December 31, that was $193 million. So we're at $210 million now versus the $94 million that we paid for it.

We increased the rents in 2014 lease renewals by an average of over 25%, and we also just executed another lease renewal on one of the properties that we acquired in 2014, since the lease when we bought it has expired, and we increased our cash rent by over 31%.

Our annualized operating revenue increased by 78% to the current run rate of about $11 million a year. We have retained 100% occupancy on all of our farms, and that is a testament to how dear these farms are to the farmers. We increased our lending base from just one lender to three and more than tripled our overall borrowing capacity and greatly broaden the range of financing options available to us.

We also have a few banks that are looking at some of our transactions, and we expect that somewhere along the way we will probably pick up some more potential lenders.

Our marketing activity has been gaining significant traction, and our list of possible acquisitions continues to grow at a very nice pace. At this point in time, we have submitted some nonbinding letters of intent out in five properties worth about $43 million, and we're trying to continue our diligence on those and those properties and hope to enter into signed purchase agreements and sale agreements on several of them in the very near future and hope to close those during certainly the next six months.

And now I'll talk about our favorite part of the call, the net asset values. Most of the REITs don't provide the value of their properties. However, we intend to provide these update evaluations on a quarterly basis. As a quick summary here, the valuation policy, we generally use purchase price if the property was acquired within the prior 12 months, and we have each property appraised by an independent third-party at least once every three years. And these independent third parties are specialized people that do nothing but value and appraise properties in the farmland area. They have their own association, and so these are really skilled people in this area.

In between those appraisal periods, the valuation will be determined internally by our full-time valuation officer using updated market and property specific information. During the fourth quarter, we updated values of nine farms, all of which were valued internally. In total, these farms increased by $2.4 million or about 6% from their prior valuation, which was between 12 and 15 months ago.

As of December 31, 2014, our portfolio was valued at $193 million with 70% of this value based on either third-party appraisals or actual purchase price. And 30% of the total value or about $58 million was determined internally. However, of the amount valued internally, 95% of that amount, or about $55 million, was supported by third-party appraisals performed between 12 and 24 months ago. So it wasn't just something we picked out of the air. We had a lot to go on there.

And the difference represents the increase in value since that time. This schedule of valuations is discussed in far more detail in our Form 10-K that was filed yesterday. And when we substitute these new values for the book value or the carrying values of our properties and the financial statements in that 10-K, we come up with a new net worth number that moves from $60 million at book value to $108 million in current value. That is the appreciation that has occurred. And remember, many of these properties have just recently been purchased, so no increase in value of those properties have been reflected in our valuations yet. That's to be in the future.

Using this net worth number, our net asset value per share at December 31, 2014, is now $13.94. That's up $0.17 from $13.77 per share at September 30. So one quarter up by a good over 20%.

Most of this was driven by the appreciation in the value of our farms that we valued during the quarter. Up until this quarter, we had one continuing drag on our net asset value, and that was that we had been paying out more in distribution than our earnings or our FFO. However, for the first time since our IPO, our funds from operations -- that's our earnings -- for December 31, 2014, quarter was fully covered by the -- covering the distributions, and we expect this to be the case on all future quarters.

So, we believe we have now passed the startup period of our development and are now on to the growth phase. Over time we expect our net asset value to increase as our farmland values appreciate due to the rents going up on the farms and our growing area increasing in price. And our stock unfortunately is currently trading at $10.87, which is significantly below our net asset value. Thus, we are hopeful the stock price will rise this year. So if you are buying stock today, you are getting a discount from our estimated net asset value of about 22%. So you are buying $13.94 in assets for just $10.87. This is a wonderful opportunity for you to buy some really strong assets.

As most of you know, we recently increased the distribution by 16.7% to a current annual run rate of $0.42 per share. And speaking of distributions, we get our money to work from borrowing from our lenders -- as we get that money to work that we borrow from our lenders, we will have the difference between what we pay the borrower and the amount we received in rents, and we can use that to increase our dividend.

We have been buying properties with all debt now, and we're leveraged up about 50%, borrowing money at 50% stockholders' equity. So we'll cross that line a little bit later, hopefully, and I think current stockholders, including those who purchased on the IPO, should be very happy that we expect 2015 to be even better than 2014, as we have leases increasing in rent payment, as well as the appreciation of the land values. However, as we all know, no guarantee that any of this will happen, but we are pretty bullish about the future for this one.

I look at this farmland REIT as a way to hedge against inflation and food prices and other inflation items that are in the economy. I think it's really a much better hedge than buying gold. For those looking at assets that don't correlate to the stock market, this Company is it.

Well, that's enough on the business side, and now I will turn it over to the Chief Financial Officer, Lewis Parrish. And Lewis, go ahead.

Thank you, David, and good morning, everybody. As you all know, we officially became a REIT during the third quarter, and we made what should be our final tax payment during Q4. All 2014 taxes were state taxes owed to California, and beginning with the first quarter of 2015, we do not expect to incur any further income taxes.

And now I'll discuss the financial results, beginning with our portfolio and the balance sheet. We acquired three new farms during the quarter and one farm subsequent to year-end, adding about $48 million of new assets to our books that will provide us with $2.3 million of additional cash revenue per year. The initial cap rate on these acquisitions in aggregate is 4.2%. However, with all the leases we assumed on these deals expiring within three years from now, and as certain of these farms are placed into tax saving contracts, we expect the cap rate on these deals to be over 5% within the next couple of years.

We didn't have any lease renewals during the quarter. However, we just recently renewed a lease on one property we acquired during 2014 that was scheduled to expire in 2016. The new lease was for six years and will provide for an increase in annualized GAAP revenues of over 21% compared to that of the lease we assumed at acquisition.

We're continuing to diversify our portfolio of properties and the tenants on our farms. Over the past year, we have increased our tenant base from 16 different growers to 30 today, all of which are unrelated to us. A year ago, over 66% of our annual revenue came from one single tenant, whereas today that number is down to just 30%.

And while the majority of our farms and rental operations remain concentrated in California, our reliance on income from those farms continues to decrease. As of December 31, 2014, 67% of our revenues came from California compared to 84% a year ago.

However, investors should remember the California is very large. There are many different growing regions in the state, and we own farms in three of them that are as far apart from each other as from Virginia to Georgia. As such, we will continue to look at new properties in California.

We have also become more diversified with regards to crop type, as we now own eight farms that growth permanent crops, as well as a couple of farms that grow grains. And while we intend to further diversify our portfolio, our primary focus for the time being remains in fresh produce row crops.

During the fourth quarter, our total assets increased by $31 million, or about 26%, due to new property acquisitions, and these acquisitions were funded almost entirely with new debt. And speaking of new debt, we closed on a new $75 million borrowing facility with Farmer Mac during the quarter, which will provide us with access to cheaper debt at an effective LTV of 60%. In December we issued $3.7 million of bonds under this facility, and just last month we issued an additional $10.2 million. Each of these borrowings, which are non-amortizing, will bear interest at fixed rates of 3.25% for five years.

For our discussion on operating results, I'm going to talk about both funds from operations, or FFO, and adjusted funds from operations, or AFFO, which we define as FFO adjusted for certain non-cash items and nonrecurring charges, which we believe makes it a more useful comparison metric period over period.

Earnings from FFO and AFFO were $0.094 and $0.159, respectively, each fully covering the distribution of $0.09 per share. Compared to the September 30 quarter, our FFO increased by $0.01 per share and our AFFO increased by $0.04 per share. This was largely driven by our operating revenues, which increased by 32% over the prior quarter, which was in turn driven by the acquisitions over the past several months.

46% of these increase was driven by our fourth-quarter acquisitions and 44% was from our Q3 acquisitions being held for a full quarter. The increase in our operating expenses was almost entirely driven by increases in depreciation and amortization expense and in acquisition-related expenses, both of which were results of increased acquisition and due diligence activities. However, if you remove these two items, our operating expenses increased by only $30,000 or 3%.

And just a quick update on the property and casualty line item. The net recovery we have recorded to date is based on insurance proceeds actually received. Repairs on one of the properties -- [the core] in Oxnard, California -- are essentially complete, while repairs on the other property are expected to begin later this year. However, we are still in discussions with one of the insurance companies, and we expect to receive at least another $36,000 during the first half of 2015, which will be recorded as an addition to the recovery line item upon receipt.

Turning to liquidity, we currently have about $3 million of cash on hand and $7.3 million of availability under our MetLife facility. In addition, we have about $6 million of properties that we are currently working with certain lenders on pledging. Based on this overall availability and assuming all unpledged properties are pledged at an LTV of 60%, our total buying power today is about $30 million. And regarding our future capital requirements, we have about $522,000 of principal repayments coming due throughout the remainder of 2015.

Going into 2015, we are very excited about the traction we're gaining and the acquisitions we have closed over the past year. We continue to anticipate strong growth in the upcoming year and hopefully being able to pass the results of this growth on to our shareholders.

And with that, I will turn the program back over to David.

Okay, Lewis. Good report. I think the main point of this report is to tell you that we are executing our plan as we told you we'd do. Since our IPO, we have used the proceeds and invested the proceeds from our IPO and follow-on. We have availability today to continue acquiring more farms through the summer. We are currently looking at different ways to access the capital marketplace and continue our growth and a very nice list of potential properties, and we're interested in acquiring.

With the increase in the portfolio of the farms comes much greater diversification than we had at the beginning, and protection is there for investors from that diversification, and we also expect some very good earnings as evidenced by the recent increase in our monthly distributions.

We anticipate that many of the farms we purchase will be acquired from farmers or agricultural companies, and they or other farmers will simultaneously lease those farmers from us. That's been the normal course of business since we started.

We also expect that many of the farms we acquire will be purchased from farm owners that don't want to farm the property anymore but rather lease the property to a farmer. So about 38% of the farms in the US are owned by individuals, but not farmed by the owner, and they rent the land to different farmers. In that situation, we intend to put our own place in place soon after buying the property or simultaneously with acquiring the farm, and that always helps us in the long term.

A couple of points to make. People often ask us about the drought in California and its effect on the water availability for our farms. There is a drought in parts of the state, but all the farms that we own have wells on site, and so far the wells have been doing fine.

In a number of the communities like Watsonville, California, they have large processing plants -- in fact, they have two large processing plants that take the effluent from the city and convert that into good water that can be used to grow crops. It is potable water and could -- you could drink it, but I think that's not something people in Watsonville are going to do. So we use it on the farms. Oxnard has finished their plant. Now must run the pipes out to the farms. I think that will happen in the next year.

In addition, many of you have heard the northern part of the state receives substantial participation this winter, which has helped recharge primary aquifers and aqueducts in that area.

The other question you may ask is why we are not investing in corn or other hard grains. And the reason is that price variability is something that is very hard for us to judge. Corn is about $3.90 a bushel today, and now it was at -- and now it is $3.90, and it was as high as $8.50 just a few seasons back. These kind of variations in price really distort the ability of the farmer to figure out how they're going to make money, and it's very difficult in that business. So we've stayed away from that and stayed at what we know best, which is produce area.

We believe that investments in US farmlands have performed extremely well in the last 10 plus years compared to other asset classes, and farmland has provided investors with a safe haven during the recent turbulence in the financial marketplace. This is evidenced by the continued increase in price in fruits and vegetables. Somebody told me that lettuce was up 11% last year. That's all being seen in the grocery stores, and as the farmers are able to increase their prices, so are we in terms of rent on the farmland.

And most of all farmland historically has been an excellent hedge against inflation. You can look at it over and over again, and that's our business thesis. It's very straightforward. There are more people in the world every year. More people have to eat more food. Farmers need farmland to grow food. Farmland is converted to nonfarm uses, so there's less farmland to grow food. So there's no replenishment of farmland, and there's no more trees to cut down and turn into farmland where our farms are, for example.

So farmland is becoming more valuable every year, and it pushes up the price of food, and also we're able to charge more for the land that we own. I'm sure some day one of our farms will be sold to a developer, but don't look for that over the next 10 years. We tend to buy farms that are going to be farms for the long period.

In January of 2015, the Board voted to increase the monthly distributions by 16.7% to $0.035 per common share for the first quarter of 2015. As of today, we've made 24 consecutive monthly distributions to shareholders for a total payout of $1.89 per share since our IPO in January 2013. And during our first year as a public company, we did pay out $1.47 per share of earnings and profits from prior years when I owned the Company, and we were operating buying a few farms here and there. So that money got paid out. We are now running at about $0.42 in terms of what we're operating at today.

We're projecting strong production and income growth in 2015. And if our expectations are met, we hope to be able to increase the distributions again sometime this year. I am after all the largest stockholder, and I'm working hard to increase the distributions. I like those monthly dividends.

With the stock price now at about $10.87, the distribution run rate on stock is currently just a little below 4%, about 3.9%. And the entire REIT index is trading at about 3.7%, so we are now past that mark. We are above the average of all the REITs out there, and we hope to be able to increase the dividend further as we move forward this year.

Please remember that purchasing this stock is a long-term investment in farmland. It is in part an asset investment, just like gold. The only difference, of course, is that it's an active asset rather than a passive one like gold.

We expect inflation of food to be strong, especially in the produce area, and so the value of our farmland should increase. That's our business model, and it seems to be working for us today.

So with that, if we have some questions from our loyal stockholders and analysts who follow this wonderful Company, we'd like the operator to come on and tell them how they can ask their questions.

(Operator Instructions). John Roberts, Hilliard Lyons.

First question, I had the same issue here that I had with a commercial in that you provided in your press release an -- you didn't break out the line items in the income statement. Is there restatements in earlier quarters that will make it so that if I subtract the first three quarters from the fourth it won't line up?

No, there was no restatement. If you would take the numbers in the 10-K and subtract out the year-to-date numbers from the 9/30 10-K, it should give you the Q4 numbers.

Right.

Why don't we do this, John? We will do what we did in commercial, is we will put those in our Q&A section on the website, and that way you and everybody else can pick them up.

Super. I appreciate that, David. How is the pipeline looking?

Well, I think it's very strong, but I would warn you that deals fall out sometimes. We can get pretty far along, and we are pretty far along on a couple of them. I think they are going to close. I don't know what we'll do this quarter; it should be okay. I think the first six months are going to be strong, but it's always up in the air. When you're this small and every closing has a big impact, it's really hard to forecast earnings and dividends. But my guess is this year we should be able to increase the dividend again, and earnings should go up because we closed more deals.

Okay. And how is the Midwest -- do you have any deals pending there, looking like you're coming up with some?

We do. We have a couple. We have a very large potato farm that we're looking at in Colorado. We're looking at some interesting farms in Ohio where we're working with one of the large farmers out there. It's very early. The fellow who we hired out there used to work for US Bank, and he used to buy farms for individuals who wanted to own the farms and have the company -- I'm sorry, US Trust. And US Trust will help individuals that they manage their money to buy farms. So he used to do that, and he'd struck out on his own, and we convinced him to be part of our team.

So it's a little early for us to judge him or judge what we're going to find out there. He has been talking with some green bean guys. They grow green beans for Del Monte or Libby, I forget which, and that's an interesting business as well. So we're looking at some produce that wouldn't go into the produce department. It would go into canning. So we're looking at a little different mix of things that might happen there.

Super. And finally, Lewis mentioned you got about $30 million in capacity. Any thoughts on what you'd do once you hit that number? Because you've got to be -- if you got a few farms, you're probably going to go through that in the first quarter to second quarter.

We're looking at a number of different subordinated debts, I guess you could call them, or more like preferred stock, something in that area that we might place. We thought about doing an underwriting, but I don't want to do a large one because I don't like the dilution at the price that we're in.

Yes, I wouldn't assume you'd want to sell stock at these prices.

Yes. It's a tough thing. Do you want to grow or do you want to sit? And so we've got to figure out a way to continue to get the equity money. We've got the debt money in place, so that's no problem anymore. The question is, how do we fund the debt side. Do we fund it in with small loans, or do we fund it with preferred stock -- or do we fund it with preferred stock? We have not determined that yet.

Greg. Well, thanks, David.

Okay, next question.

(Operator Instructions). [Elliot Knight], [Knight Advisors].

Following on the previous question about debt and funding, do you have a figure in mind that you consider the maximum amount of debt with which you are comfortable? Debt as a percent of the capitalization?

Yes, we talked about this a few times, and generally it's about 60%. As you are in the early stages of your growth, it is almost required that you take on a little bit more debt. Over time that should drop under 50%, as we get bigger and are able to get long-term debt.

All right. I think I heard you say you are looking at way -- in answer to the previous question -- you're looking at ways to fund debt. I don't understand. Debt is debt. I don't understand what you meant by funding debt, if I heard it correctly.

Yes, some of the lenders that lend to us won't lend 60% against the value of the property. So what we would have to do to supplement that is get short-term debt from some other source, like MetLife. So that's what I meant by that.

Okay.

Sorry I didn't explain it in more detail.

Good. Thank you very much.

Okay, next question.

(Operator Instructions). [Amit Nahawli], Oppenheimer.

My question pertains to how large do you see the pipeline going forward, and do you see cap rates compressing, or do you them static at this point?

Yes, hard to know about cap rates, other than in the area that we've been in, cap rates have been in the 4.5% to 5.5% range, sometimes a 6% a range for just ever and a day. I go back to 1997, when I bought the first farm, and have been studying the marketplace in California and Florida more extensively. I'm not as knowledgeable as our Midwest person is on what goes on in the Midwest, but we generally agree that those are the ranges in terms of cap rates.

Really hard to know about the -- I wished I could predict how much we are going to close.

I do know we look at a lot of things. Sometimes the cap rate is just too low, and the farmer or the person who owns the farm is trying to sell something at a very high price. We find back East in places like Delmarva, which is Delaware-Maryland-Virginia area, prices are ridiculous. They are set for equestrian or folks who are gentlemen farmers and don't really care about making money.

So, we find it hard to compete in places like that. But if you're looking in North Carolina or New Jersey, you can usually find farms that are reasonably priced. We are looking at one very close in Georgia right now.

So, sometimes at the backlog falls down. And if you think about a backlog, it's like a huge funnel. At the top of the funnel, you have all of the things coming in, and we have many, many farms that are in that level. Then as you begin to eliminate them, they fall into the midsection where you're doing some of your due diligence, and you either find that you like what you see or you don't like what you see. And when you see something you don't like, it goes out of the funnel, and then you drop down to those half a dozen that you are very interested in trying to close and you're working on those full-time. And that tends to be a pretty good-sized number right now. Much higher than it was a year, a year and half ago.

So we think we're kind of like what Warren Buffett would call a snowball at the top of the hill. As it rolls down the hill, it just keeps getting bigger and bigger, as we get better known in all of the areas out there, and I think the pipeline will open up substantially.

As a footnote to that, as we get bigger, my guess is that we will start to buy some of the farms with upreach shares. That is the farmer can exchange his or her farm for shares of the company. They still enjoy the dividends that we're paying out, so they get dividends in lieu of rent payments. And at the same time, it's a tax-free exchange.

So they move from being a farmer that owns one farm to a person that owns stock in our Company, haven't paid any new taxes on that exchange, and now they have huge diversification. They can sell off some of the shares and take a partial income, or they can put some of the shares in a trust for their children or give it to their charity.

So we look at that, and that should be very strong for us as time goes on. Haven't done any of those yet, but we've had a few inquiries. So we're beginning to work on that as we get bigger.

Other questions?

Thank you and I'm showing no further questions at this time. I'd like to turn the conference back over to Mr. Gladstone for any further remarks.

Okay. Well, we appreciate all of you calling in, and if you do have questions, you can always email them in, and we will try to answer them over email. And sometimes we deal with some of the analysts over the phone, but mostly it's email back and forth. And some of the questions are fairly detailed, and as a result, we put those details in our question and answer section so that anybody doing due diligence on our Company can find out that information that we've given out that might be different from what we've -- or not answered in one of these question-and-answer sessions.

So that's the end of this, and we thank you all for calling in, and we will see you next quarter.

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