Gladstone Land Corp (LAND) 2016 Q4 法說會逐字稿

Good morning ladies and gentlemen and welcome to the Gladstone Lane Corporation fourth quarter and year-end December 31, 2016 earnings call and webcast. My name is Brian and I'll be operator today.

(Operator Instructions)

It is now my pleasure to turn the conference over to Mr. David Gladstone. Sir the floor is yours.

Thank you Brian and that is a nice introduction. This is David Gladstone and welcome to the quarterly conference call for Gladstone Land. Thanks to all of you for calling in today. We appreciate you taking time out of your day to listen to our presentation. We always enjoy talking to you and hope to have some good questions from you at the end of this dictation.

Please feel free to come by and visit us if you are in the Washington, DC area. We are located in a nearby suburb called McLean, Virginia. And if you have a chance come by you will see a great team at work. We have about 65 members of the team now, and we manage just over $1 billion in assets across all of our funds and companies.

Will start with Michael LiCalsi. He's our General Counsel and Secretary. He also serves as President of Gladstone Administration. Which is the administrator for all the Gladstone funds including this one. Michael.

Good morning everyone.

Our report today may include forward-looking statements as defined as Securities Act of 1933. The Securities Exchange act of 1934 including those with regard to the Company's future performance. Forward-looking statement involves certain risks and uncertainties that are based in our current plan which we believe to be reasonable.

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 risk factors listed on our Forms 10-K and 10-Q. Which were filed with the SEC. These can be found on our website www.gladstoneland.com and on the SEC's website of www.sec.gov.

This 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.

In our reports today as a real estate investment trust we will discuss funds from operations or FFO. The FFO is a non-GAAP accounting term defined as net income. Excluding the gains or losses from the sale of real estate, many impairment losses, plus depreciation amortization of real assets.

National Association of REITs has endorsed FFO as more than non-GAAP standards that can be used in the discussion of REITs. We also discussed two other FFO measures. One would be core FFO or CFFO which adjusts FFO for certain nonrecurring charges such as acquisition related costs.

The second is adjusted FFO or AFFO which further adjust CFFO for certain non-cash items such as converting GAAP rents to cash rents. We believe these metrics improved compared any of our results period over period.

To stay up to date on the latest news evolving Gladstone land, and our other affiliated public funds lease follow us on Twitter. The username GladstoneComp and on Facebook keywords The Gladstone Companies. Please also go to our general website to see more information about this fund, and our other affiliated publicly traded funds at www.Gladstone.com.

Today's reports from our President and CFO will be a overview of our operations and performance. We encourage everyone to read yesterday's press release and Form 10-K filing. Which includes a wealth of information for our investors. You can find them all on our website Gladstoneland.com.

Now turn the presentation back over to David Gladstone.

Okay Michael, thank you.

We ended 2016 as you all saw in the numbers yesterday on a very strong note, and we continue momentum, I think so far in 2017. 2016 mark the biggest year and to date in the form of acquisitions. And January right after the year end we closed our largest single acquisition.

Let me say this, before I get started say a few details about the events we have. I'd like to give a brief overview of the nature of our business. As you all know our business consists of owning high-quality farmland, and leasing it to top-tier farmers.

We don't farm any of the land ourselves, and thus we don't take any of the direct farming risks. And many of the farmers that rent our farmland buy crop insurance from the federal government so to protect them against potential losses. So if their crops fail the farmers who buy the insurance can get back enough money to plant the next year's crop. That benefits us as well and so thank you very much US taxpayers for helping with our insurance.

We're extremely selective in our investments, and we pride ourselves only acquiring the best farms and leasing them to the best farmers. Our investment focus is in farms located were farmers are able to grow a variety of high-value annual growth crop such as berries and vegetables.

We usually only purchase irrigated cropland with great soil and plenty of access to water. Partially because of this, almost all the geographic regions where we have farms located continue to experience steady income increase. As well as underlying value of the stock, and the rents that charged on the land continue to go up.

As evidence of this, we manage an average increase of rental rates of about 17 % on all the lease renewals over the past four years. All without incurring any downtime. This is what happens when you have high-value crops on high-value land such as berries, vegetables, and even the nuts farms that we own.

And the farmers we leased our farms to typically are the largest and best farmers in any of the growing regions that we are in. We prefer to keep the same farmer on the property as long as possible, because they tend to know the nuances of operating that particular farm. Our objective as always is to be the long-term real estate partner for all of our farmers so that they know they have that farm that they are on for as long as they want it.

We have recently taken advantage of some depressed land prices in the Midwest. We've been able to find some nice investment opportunities.

We've also furthered our expansion into the West Coast farms that grow permanent crops. These are almond orchards, and pistachio orchards that we own now. These provide for higher-yielding investment opportunities.

But you should expect a large majority of our farmland will continue to be leased to farmers that grow fresh produce. Currently about 90% of our total crop revenues come from farms that are growing foods that you find in either the produce or the nut section of your local grocery stores. We consider these foods to be among the healthier types of foods, and we're seeing growing trend towards organic among the sectors which we are following very close.

We currently, as of today on about 54,000 acres on 59 farms in seven states across the United States with a value of about $455 million. The acreage we own is among the highest quality farmland and the strongest rental markets in the United States. We also own some farming buildings that are on these properties. Such as cooling facilities, and packing houses, and processing facilities that we're able to earn some rent on. But almost all of our dollars are in the form of the farmland itself.

The trend we continue to see in our growing regions is steady decreasing the number of farm acres as they are being sold and converted to suburban uses. I'd point to one thing that is driving the rental rates in our farms. I'd have to say it's this, the amount of farms in these regions is relatively finite, and there are no new farms being developed in these areas.

There's no trees to cut down, no swamps to drain. There's just no more land that can be converted to farms.

And all the arable land is already being farmed in these areas. But now it's being converted to other uses. Such as housings, school, factories, and once it gets converted it really never comes back to farming.

California is a good example of this. We've seen California lose about 100,000 acres as reported by the government. Every year, for many years now, losing at the suburban uses again.

This causes the farms that we own in California to be highly sought after. As they've been farmed and rented for decades without ever being vacant. Speaking of California, conditions through out the state are drastically better this time than last year.

Due to the record participation. A year ago about 64% of the states surface area was classified as being under extreme drought conditions. Now that figure has dropped to less than 2%.

Overall the snow pack levels that are in the mountains there are the highest levels in the past 20 years. Because of precipitation totals are doubled the norm. Wells, reservoirs and lakes across the state have been filled or recharged. So farmers across the state are in great shape today.

Water access and availability is another factor driving up rental rates and land prices. Farmers are following land where water is too difficult -- or fallowing land where water is too difficult or expensive to obtain. Driving up rents and prices of land with good wells and multiple sources of water.

Whenever we buy farms we're always spending a large amount of time and our due diligence phase of looking at these farm. Simply determining the water conditions and making sure the farms will have plenty of water for the long-term. Through this drought none of our farms had those problem.

We want you to know that water availability is sufficient enough to withstand any situations that happen in California. And that really happen from time to time everywhere in the United States.

Just as a side note, drought happens in every area of the United States. A few years ago it was in Texas, and it's been in virtually every place at one time or another. So well water and access to water is critical to our decision-making.

Now let me go over some details of recent activity. We had another quarter as we purchased two new farms. Good quarter totaling about $18 million on a weighted average basis.

The initial cash on these acquisitions was about 5.6%. While overall the straight-line rents were about 5.7%. However, one of these leases does contain a variable rent component that will allow us to share in the gross revenue earned on the farm.

This revenue sharing payment won't begin until the end of 2018. So, expect the actual yields on these acquisitions to increase significantly at that time, and that assumes of course that they have a good crop. Since quarter end we've also acquired a 37 acre farm in Florida that grows organic vegetables.

The initial cash yield on this was about 5% in the straight-lines about 5.3%. The acquisition of this farm underscores another trend that we're seeing, and that is the increase in organic crops and fresh produce base. And I'd like to point out currently at about 30% of our fresh produce acreage is either organic or transitioning to organic.

We've always believed and continue to strive for a well diversified list of farms. Providing added security to investors. And across the portfolio we now in 15 different growing regions that grow 35 different crop types, and their leased of 40 different tenants.

All these tenants unrelated so us. We don't have any ownership in any those farms, and can't dictate what rents we receive from them. And I just say that this is really good diversification and protects our shareholders if something awful happens.

We have nine leases expiring in the second half of 2017. These leases make up about 10% of our total annualized revenue. We begun negotiation with current tenants, and expect to be able to renew all the leases with some increases in rent without incurring any downtime on the farms.

However, there's no guarantee that these farmers will sign up. But my bet is they all will.

In 2016 lease renewals resulted in 23% increase in rent, and combined with her 2015 lease renewals which resulted in an average rental increase of over 15%. We just believe that 2016 renewals underscored a trend that's continued in the areas that we're located in. That's the demand for prime farmland, and the rents they command is continue to increase.

The sentiment seems to be shared by farmers in all the areas as well. We know them well. Since I was in the business renting a lot of farms when we were growing a lot of strawberries and vegetables.

And now I'd like to highlight some of the progress we've made on our farmland portfolio since January 1, 2016. We invested $100 million in acquisition of 15 new farms.

The initial weighted average cash yield on these farms is 5.2%. However, once revenue-sharing payments begin, we expect to get an overall cap rate of about 6% on these farms.

The new long-term debt we've put on these farms has a weighted average affective interest rate of just over 3% at 3.06% which is fixed for the next five to 10 years. We've renewed two leases that were coming due at an average increase of 23%, and we maintained 100% occupancy on all of our farms during that year and going forward.

That's really enough of the business discussion. I'm going to turn over to Chief Financial Officer, Lewis Parrish to talk to you about the numbers. Lewis.

All right thank you David and good morning everybody. I'll begin by discussing our balance sheet. During the fourth quarter a total assets increased by about $18 million or 6% mainly due to our new farm acquisitions.

Which were funded primarily with the combination of new fixed-rate borrowings and new OP initiatives. During the quarter we incurred an additional $30 million of new long-term borrowings, and expected weight average affective interest rate of 3.16%. These rates are fixed for the next 10 years.

We also amended our credit facility with our largest lender MetLife. Through the amendment we increase the overall size of the facility to $200 million, and we reduce the interest rate on about $86 million of term borrowings by 19 basis points. Resulting in annual savings of over $163,000.

The new rate on all term note borrowings under the MetLife facility is now 3.16%, and that rate is fixed for the next 10 years as well. Subsequent to quarter end we obtained an additional $32 million of new long-term borrowings at an average interest rate of 3.3%, and these rates are fixed for the next three to seven years.

From an overall leverage standpoint, using the fair value of our portfolio and including our term preferred stock in the debt bucket, our loan-to-value ratio was 59% at December 31. We're comfortable with this level given the low risk of farm as an overall asset class.

Our interest rate volatility remains a concern of ours. Over 85% of our total indebtedness is currently at fixed rates and on a weighted average basis these rates are fixed for another seven years out. So we believe we are pretty well protected on the debt side against any near-term interest rate hikes.

The overall weighted average affective interest rate in our filings is currently 3.12%, and this is down 7 basis points from a year ago. We continue to be able to borrow money at favorable rates, and furthered diversifying our lending base has provided us with even greater access to cheaper sources of capital. And regarding our up coming debt maturities only 2% of our total debt outstanding, or about $5 million, is coming due over the next 12 months.

Now I'll talk about our operating results. First I'll note that net income for the quarter was approximately $83,000 or $0.01 per share. Our operating revenues increased by over 10% from last quarter, primarily due to our recent acquisitions.

I'd also like to point out that when compared to the same quarter last year, our rental revenues on the same property basis increased by over 7%. And that's mostly due to the leases on those properties being renewed at higher rates. As well as additional income earned on capital improvements made on some of our existing farms.

But the point for us is that overall for our properties, we still are not seeing the widespread decline of rents that you're hearing about in certain other parts of the US. And that's primarily due to the locations of our properties, their soil and irrigation quality, and the types of crops grown on them.

Going into detail on the expense side our core operating expenses, which strips out depreciation and amortization expense and acquisition related expenses, increased by about $108,000 or 10% from last quarter. This increase was mainly due to a higher performance-based incentive fee earned by our advisor during the quarter. Partially offset by decreases in certain G&A expenses.

The incentive fee was earned based on our pre-incentive fee FFO surpassing a required hurdle rate. In just a quick note on our related party fees. Our measurement fee is calculated based on the cost basis of the company's stock holders equity as it appears on our balance sheet.

Our incentive fee is based on FFO as defined by NAREIT. So neither these fee calculations is tied to our net assets value which we will be discussing later.

Continuing on with our expenses. If you exclude the incentive fee from each quarter. Our core operating expense decreased by 4% from last quarter or about $39,000.

The majority of this change took place in the G&A expense line item as we incurred additional third party appraisal fees of about $27,000 in the prior quarter related to updating the valuations of certain of our farms. And we also recorded about $21,000 of bad debt expense last quarter related to lease we terminated earlier.

Moving onto our per-share numbers. Earnings from adjusted FFO for the quarter where $13.08 per share. This represents the fifth consecutive quarter which we covered our dividend with AFFO. We expect this to continue to be the case in the future.

Now I will move on to net asset value. During the quarter we updated evaluations on eight of our farms. Five of which were valued internally, and three which we have appraised by independent third-party appraisals.

In aggregate these updated evaluations resulted in an increase of about $3 million over there prior evaluations. And most of this increase came from evaluations that determined by the third party appraisals.

As of December 31, 2016 our farmland portfolio was valued at about $401 million with 77% of this value based on either third-party appraisals or the actual purchase price. And 23% of the total value were $93 million determined internally. However, of the amount valued internally 98% of it or about $91 million is supported by appraisals performed 15 months and 34 months ago.

Based on these updated evaluations our net asset value increased by 3.9% up to $14.21 per share at December 31. This is due to the appreciation of our portfolio. As well as a decrease in the fair value of our fixed-rate filings as market interest rate rose significantly in the quarter.

While there may be some quarter over quarter volatility over the long term we expect that our net asset value will trend upwards as the value of our farmland portfolio appreciates due in part the increasing rents and neighboring farms increasing in price.

Turning to liquidity we have the ability to close on a couple more small deals, but we are pretty close to being maxed out in terms of available funds. And we're recurrently exploring a few different options for additional access to capital.

We recently expanded the sizes of our to largest borrowing facilities. So we still have plenty room to continue borrowing and buying new farms.

Looking to build on the momentum gained from a strong end of 2016, and with the continued stabilization of our operating expenses, we expect that you'll see additional revenues arising from new acquisitions and lease renewals and a more direct and positive impact on our bottom line. Thus enhancing the dividend coverage ability provided by AFFO.

And without that I'll turn the program back over to David.

Very good, very good Lewis.

This Company just continues to get better every quarter. As we continue to execute our plan. We invested over $350 million in new farms since 2013, and expect to continue adding to that figure as our backlog remains very strong.

Currently we have three properties that's worth about $42 million to be purchased, and these are under signed letters of intent. It doesn't mean we are going to close them but it does mean we got pretty good close view of what's going to come in.

Some of these purchases will involve the issuance of additional OP units in consideration. That's becoming very popular for some of the buyers, but we're also looking to issue perhaps some preferred stock to cover the equity portion. So please stay tuned as we try to figure out the best way of solving the acquisition problem.

As you know, with an increase in the number of farms we own, it becomes greater diversification and protection for investors. We also expect better earnings. However, we still continue our due diligence process on these properties that I just mentioned -- the three -- and there's no guarantee that any of them will close. But my best guess is that they will.

As most people know, our funds specialize in farms that grow fresh fruit and vegetables, and we have historically avoided investing heavily in farmland that grows traditional commodity crops such as corn and wheat. One reason for this is we believe investing in farmland growing crops that contributed to a healthier lifestyle such as fruits and vegetables and nuts.

In addition, more than 90% of our portfolio is GMO free. We are continuing to expand our ownership in organic farmland with new acquisitions as well as converting some of the existing farms into organic ground. We also like fresh produce segment because it provides greater returns and less volatility than other type crops.

According to the Bureau of Labor Statistics, the fresh fruits and vegetables segment of the food category has increased prices that are rate of 1.7 times greater than the increase in the overall annual food [CPI]. So, from that standpoint, we like inflation because it helps our farmers and it helps us add to our rental income.

Our prices of commodity crops are more volatile and susceptible to global supply and demand. Fresh produce is somewhat insulated from the global volatility, because all the crops are generally consumed here in the United States within a very short timeframe.

Corn farmers are going through some very difficult tough times now. In the Midwest farmers lands have gone down in prices. So we're sympathetic and wish we could help, but we can't grow strawberries in the middle of the farmland out there.

It is unpredictable nature of grain prices and other commodity crops that will prevent us from ever weighting our farmland portfolio to heavily farms the group traditional commodity crops. We want to have some. Currently about 10% of our total value of our farms are invested in farmland growing corn, wheat, soybeans, and we believe that's a good mix.

At this point in the forming cycle it's just really difficult for farmers to make much money when they grow corn, and the corn prices are so low as they are today. Ultimately we believe that farmland that is GMO free and growing healthy crops such as fruits and vegetables and nuts are going to continue to outperform the overall farmland market as they have in the past. In terms of both cash, returns and long-term value appreciation.

The farmland real estate company that we are, we really take pride in building a foundation of company across the healthier sector of the agricultural industry. And believe it's one of our Company's core strengths.

In terms of the economic outlook in general farmland continues to perform extremely well compared to other classes of access. Despite some recent downturns in certain Midwestern grain regions. The farmland there -- the NCREIF Index these are the people that have the farmland index -- is currently made up of 743 agricultural properties worth approximately $8 billion.

And a total annual return of 7.1% in 2016, and is averaged in annual return of 13.1% over the past 10 years compared to the S&P which was 8.7%. By the way, during that 10 years there were no down years in terms of growing negative. As you remember S&P's done that a few times.

Farmland has provided investors with a safe haven during turbulent times in the financial marketplace. As both land prices and food prices, especially fresh produce, have continued to rise steadily. And most of all, farmland is historically been an excellent hedge against inflation.

However, not all farmland is the same. According to the Department of Agriculture farmland in the Midwest that grows corn may earn an investor $200 an acre in rent. Whereas in California farmland that grow strawberries is about $3,900 in rent per acre.

So for every acre of strawberries you need about 20 acres of corn farmland to get the same return in rents. All investors in farmland should remember that, the number of acres is not nearly as important as a revenue per acre. We specialize in high rent, high quality farms, that's what differentiates us from most of the farmers out there.

We are very optimistic that President Trump will work with Congress toward the pragmatic solution to some the agriculture issues. Including water supply, environmental regulations, and international trade. He's already promised to eliminate the waters on the US rule. Which are unfairly restricts use by farmers of certain bodies of water -- every little stream that goes around your property for example.

And he's appointed a pro-farming administrator of the EPA, and the same at the department of agriculture. So hopefully we'll see some good things coming out of Congress.

As you know, we recently raise our dividend again to $4.03 per share per month over the past two years. We've raised the dividend five times resulting in an overall increase of 4 3% in our monthly distribution rate to shareholders over that time period. This is a reflection of a nice job our Management team has done at finding high quality farms that continue to appreciate in value and paired with strong tenants who are reliable in their rental payments to us.

In 2013 we made 48 consecutive monthly distributions to shareholders -- that since 2013 -- and total of about [$2.85] per share of total distributions. Paying distributions to our shareholders is our paramount part of our business. We are as they say, dividend paying company, that's our goal.

We projected good production and income growth for 2017. If our expectations are met we hope to be able to increase the dividend again in the near future. As the largest shareholder of the Company I'm working hard to increase distributions. I certainly like receiving dividends as much as anybody does.

Currently the stock price is at $12.49. Which is significantly below our net asset value thus we hope our stock price will rise in the near future. So if you buy the stock today you're getting a discount from our estimated net value of farmland. That's about 12%. Buying it $12.49 you're getting $14.21 an assets. What a wonderful purchase in today's marketplace, and along the way you're getting $4.03 per share per month in cash distribution which is about 4.1% yield.

And in talking to some of the brokerage houses they're saying the REIT index today is currently paying about $3.09 in yield. So even better than the REIT index. In closing, please remember that purchasing this stock in this Company is a long-term investment.

It's not going to pop tomorrow because of something. It's part of an asset investment like gold. Except it's an active investment with cash flow to investors.

I know I said this a few times, but we always love to point out Warren Buffet's comment that he would rather have all the farmland in the United States than all the gold in the world. We obviously agree with Warren on this one.

We expect inflation particularly in the food sectors to be strong, and we expect value of farmland to increase as a result. And we expect this especially true of fresh produce in the food sector. And the people in the US are trending towards eating more healthier foods.

I think it's a good way to look at our farm rate is a hedge against inflation in food prices and other areas. And it's those looking for an asset that doesn't correlate with the stock market. Well this is one that meets that goal.

Now we have some questions. Will get our operator on board to tell you how to do that. Please come on board Brian.

Thank you, sir.

(Operator Instructions)

Our first question will come from Rob Stevenson with Janney. Please proceed.

Good morning, guys.

David, how are you thinking about the common equity today? I know in your remarks a few minutes ago you talked about the discount to NAV. But you know REITs generally trade at discounts to NAV, and microcap REITs generally trade at wider discounts to NAV. You guys have had a heck of a run in the stock price over the last 12 months. And $12.50 is a lot better than the $8 that it was trading at year ago.

How are you thinking about, as you look to finance the next batch of acquisitions? Common equity would not only get you larger market cap, but greater liquidity as well, and solve some other issues. A 14% discount to NAV doesn't seem all that huge, given where REITs normally trade. How are you guys contemplating that internally versus preferred?

Well, thank you, Rob, for being a great supporter of ours. We appreciate all of that. And I guess I'm just averse to take dilution when I know the real underlying value is. But we haven't ruled that out. But on the other hand, we talked about some convertible preferred might get us a much lower coupon, which would be very delightful for us to have. I know common is the lowest coupon we could probably get at 4.1%. Again, it's always a balancing act, and we look at this as we look at everything: what is going to be best for shareholders over the long term? We haven't ruled out anything. Just been thinking about these and not quite ready to pull the trigger. But I know when we do, we'll be calling your firm for help on this.

Okay, and of the three properties for roughly $42 million that you talked about having under letter of intent at this point, how substantial is that OP units, or would that OP unit issuance be? Is it 10% or closer to 50%? Not exact numbers, but help me understand how much of a magnitude that OP unit contribution could be on that $42 million purchase price if you go ahead with those deals?

It's closer, a little less than 10% at this point in time. And it changes as people warm up to the idea of having a tax-free exchange. So we'll just have to wait and see when those finally close what the number is.

You know, the nice thing about the OP units is they're usually at a higher price than the current price of the stock. So we've been able to avoid some dilution by having OP units that are higher strike price when they convert to common. So we like that, and we like to sell more of it, but a lot of people like cash as opposed to OP units.

Okay, while we're on the subject of OP units: Lewis, how much -- have you seen any substantial amount of OP units converted into common in order to sell, of the deals that you've done over the last couple of years?

None have been yet. We haven't quite reached the one-year mark of when we issued our first OP units. That is coming up soon, but we are not expecting -- definitely not a significant amount, if any at all, to be converted.

Okay. All right. Thanks, guys; I appreciate it.

Our next question will come from the line of James Fleischmann with Kennebec Capital. Please proceed.

Good morning. I have two quick questions.

Also on the OP units: do they receive the same distribution as the common?

Yes, they do.

Okay; and my second question is, on seeking Alpha. There was a posting on January 11, which was reviewing LAND; quite favorable article. And somewhere in the comments there was a comment from one David Gladstone. And I just wanted to confirm that, that was actually you, Mr. Gladstone, and not someone impersonating you.

That's true.

Okay; thank you.

Our next question will come from the line of John Massocca with Ladenburg Thalmann. Please proceed.

Morning everyone.

So, can you just walk us through maybe the genesis of South Florida acquisition you guys did in the first quarter here? How did you guys come about that opportunity? And are there any other opportunities you think out there, once you sort out your capital stack to do further larger acquisitions like the one in South Florida?

That was a unique situation from a farmer that we've known for a long time. We're very active in Florida. Bill Frisbie, here in the office, I think spends more time in Florida than he does here, because he's down there working with the farmers. So we know lots of farmers there. In addition, many of the farmers in Florida are the same ones that are in California, which we've known for many years, and have competed with them when we owned strawberries, strawberry farming. As a result, there is a group of farmers that see us as a tremendous benefit for them as a way to get liquidity in the land that they own, put it into the business part, where they earn much more than they could if they were renting the farms out, for example. And as a result they're warming up to the idea that we can be their long-term partner, and in fact will sign very long-term leases should they want those. That one happens to have a pretty long-term lease on it with extensions.

Okay, oops; sorry.

The second part of that question was, are there other large transactions? Yes, some of them are in California and are very large; and others are more in line with what we do. I think the worst thing we'd want to do is get one or two very large farms and put ourselves at risk. As you know, when we started this our only tenant on day one was Dole. And we felt a little bit uneasy there, although I've known the Dole people forever and a day, and they are good people. You just never want to have so much in one area. So we've been careful in trying to have a diversified tenant base, where we have no relationships with them other than those tenant relationships.

So, again, I think there's opportunities out there. In fact, I know of several very large ones, but we're not going to try to take those on until we become much larger.

Okay; that makes sense.

And then under that same vein, the recent USDA survey that came out, there's been some kind of suggestions amongst analysts that there might be some consolidation going on in the farming space. Are you guys seeing that amongst your tenants or potential tenants? And do you think there's this consolidation to provide an acquisition opportunities for land?

The consolidation started many years ago in the Midwest. As a farmer used to be able to make a living on hundred acres, now if they don't have 3,000, 4,000, 5,000 acres they can't make a living on that in the Midwest. And it's transferred into all the other areas. For example, in the strawberry business there are three or four now very large strawberry growers, and as a result of that they dominate the main places that strawberries are sold, which is the grocery stores and the big-box grocery stores as well. So as a result, I think this is just a natural thing to happen, and we want to take advantage of that by being the real estate part of those transactions. For example, the farmer A wants to buy farmer B. He may not have the money to do the farm, but we can easily buy the farm and he can buy the business. And we've done several of those transactions. So I think we're a helpful catalyst in helping this happen.

It's happening in large part in the Midwest, because some of the farmers are just not making a living; they're actually losing money. I think someone told me this year that generally corn farmers are losing $100 to $200 an acre. I think they make it up in some of the other crops, but it's really rough times for them. A lot of the banks are now not lending as much as they used to in the Midwest. This is not true in our farming areas. California and Arizona and Oregon are still very strong on the West Coast. And certainly Florida, and moving up the East Coast, there are some very strong farms. We are hopeful of buying a few farms in three or four of the Eastern states and making a stake there.

And we're now getting phone calls from people who want to get out of the farming business, but don't want to have to pay the tax on the real estate. We're working with some young farmers and some other farmers who want to aggregate farms, and get those farms under their control by buying the farms and leasing it to the new farmer.

Anyway, I think you're going to see that. It's just the natural progression. Right now, if our memory is correct, the average age of a farmer is 58. Many of them have no one to take over the farm. Their children have gone off to college, and have become lawyers and nurses and whatever. They're not going back to the farm. We buy those farms from mom and dad who are retiring, and many of the farms now are not even farmed. They're just rented out. So we love to get those. We just become the new landlord, and I think there's a lot going on in the business. I think our farm company will be one of the largest over the next 10 years.

Okay, that's it for me. Thanks so much.

Thank you sir.

(Operator Instructions)

One moment for additional or follow-up questions.

I'm showing no additional questions at this time. So now it's my pleasure to hand the conference back over to Mr. David Gladstone for closing comments or remarks. Sir?

Okay; thank you very much. We appreciate you all tuning in, and we'll see you next quarter. That the end of this conference call.

Ladies and gentlemen thank you for your participation in today's conference. This does conclude the program. You may disconnect. Everybody have a wonderful day.