Gladstone Land Corp (LAND) 2017 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Gladstone Land's quarterly shareholder call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to David Gladstone. You may begin.

All right. Thank you, Liane. Nice introduction. This is David Gladstone, and welcome to the quarterly conference call for Gladstone Land, and again thank you all for calling in. We really appreciate you taking time out of your day to listen to our presentation. We always enjoy talking on the phone to folks, and we hope we have some good questions at the end of the day.

Please feel free to come and visit us if you're ever in the Washington, D.C. area, we're located in nearby suburb called McLean, Virginia. And if you have a chance to come by, you'll see some of the great team that we have working here, many of them on the road. We have about 60 team members here now, manage over $2 billion in assets across the 4 public funds that we have.

We're going to start today with Michael LiCalsi, he is our General Counsel and Secretary and also serves as President of Gladstone Administration, which is the administrator for all the Gladstone funds, including this one.

Michael?

Good morning, everyone. Today's report may include forward-looking statements of the Securities Act 1933, and the Securities Exchange Act of 1934, including those with regard to our future performance. These statements involve certain risks and uncertainties that are based on our current plans, which we believe to be reasonable. Many factors may cause our actual results to be materially different from any future results expressed or implied by these forward-looking statements, including all the risk factors listed in our Forms 10-K and 10-Q that we filed with the SEC, and they can be found on our website GladstoneLand.com, SEC's website as well, www.sec.gov. We undertake no obligation to publicly update or revise any of these forward-looking statements whether as a result of new information, future events or otherwise, except as required by law.

And in our report today as a REIT, real estate investment trust, we'll discuss funds from operations or FFO. FFO is a non-GAAP accounting term defined as net income, excluding the gains or losses from the sale of real estate and any impairment losses, plus depreciation and amortization of real estate assets. The National Association of REITs has endorsed FFO as one of the non-GAAP accounting standards that can be used in discussing REIT performance. We may also discuss core FFO or CFFO, which adjusts FFO per certain nonrecurring charges, such as acquisition related costs. And we also will talk about adjusted FFO or AFFO, that further adjusts CFFO for certain noncash items, such as converting GAAP rents to normalized cash rents. And we believe these metrics improve comparability of our results period-over-period and provide investors with additional insight as to how our management measures our ongoing performance.

And to stay up to date on the latest news involving Gladstone Land and our affiliated public funds, follow us on Twitter, username GladstoneComps; and on Facebook, keywords The Gladstone Companies. And for more information about our family of companies in general, please visit our general website www.gladstone.com.

Now today's report from David and Lewis, our CEO and CFO, will be an overview of our operations and performance. Therefore, we encourage everyone to read the press release and Form 10-Q released yesterday, and both of these can be found on our website GladstoneLand.com.

Now with that, I turn the presentation back to our President, David Gladstone.

Okay, Michael. Nice report of explaining all the things that people need to know about this report, and our stockholders on this presentation.

We started this year, 2017, already acquired $97 million in new farms. These span across 4 different states, including a multitude of different crops, a significant portion which are organic crops. But before we get into the details and these other events, I'd like to give you a brief overview of our -- of the nature of our business and the overall market environment.

As most of you know, this business is defined as an asset management of alternate assets, because the assets we own, these farms are considered to be illiquid. What makes us different from most of the alternate asset managers and this company is that it's publicly traded. We've asked some experts in the asset management business what segment they think we're in, and they seem to think that even though we are REIT that we are classified as a natural resource segment. Along with timber REITs and owning oil wells and mines and the likes, we are in that segment. We chose to be a REIT so that our stockholders can get cash dividend before we have to pay any taxes; that is, we get a deduction for that. So this makes us a publicly traded company, a good one for dividends.

Our business consist of owning high quality farmland and leasing it to top-tier farmers. We don't farm any of the land ourselves and thus don't take any direct farming risk. We pride ourselves only acquiring the best farms and leasing them to the best farmers. We are a real estate partner to many of our farmers, we're not their competitors. Our investment focus is in farms and locations where farmers are favorable -- are able to grow a variety of high-value annual row crop, such as berries and vegetables. We generally only purchase irrigated crop land with great soil and plenty of access to water.

And the farms that we lease, our farmers are typically among the largest and best farmers of any other regions that we're in. We prefer to keep the same farmer on the property as long as possible, because they know the nuances of operating that particular farm. Our objective is to be a long-term real estate partner for all of our farmers so they know and have farms as long as they really want to stay on them.

Large majority of our farmland is leased to farmers to grow fresh produce and you should expect that to continue. About 85%, maybe as much as 90% of the total crop revenues coming from the farms that we have and lease are growing foods that you'd find in either the produce or the nut section of your local grocery store. We consider these foods to be among the healthy type foods and we're seeing a growing trend toward organic among these sectors.

And I'd like to point out that currently over 35% of our fresh produce acreage is either organic or in transition to be organic. We currently own 59,000 acres more or less in 69 different farms, 8 states across the United States, valued at about $507 million. The acreage we own is among the highest quality farmland and the strongest rental markets in the U.S. We also own small amount of farm buildings, such as cooling facilities, packinghouses and processing plants. We are able to rent those and earn on those as well. But you should expect that a large majority of our investments will be in actual farmland; that is the dirt that they grow farm products in.

We tend to continue to see our growing regions' steady decrease in the number of farms as they're being sold or converted to suburban use. And if I had to point out a few things that are driving up rental rates, I would say the amount of farms in many of the regions that we own farms is relatively finite as there's no new farms being developed, there's no trees to cut down, no open land that they can plant. So it can't be converted to farms. So all the arable land and a lot of the areas that we're in are farmed and now it's being converted a small amount of the time, such as -- into such things as housing, school, factories. And once it gets converted, of course, it's not going back to farmland. California is a good example. They've been losing about 50,000 acres of farmland per year for many, many years now. This causes the farms that we own to be highly sought-after, and they've been rented for decades without being vacant.

The other aspect of the increase in farmland values is inflation, of course, reduced value of the dollar and due to printing so many of them. So that's made our properties go up. And the government will tell you that there is no or little inflation. Anyone buying food can tell you that food prices are going up. Inflation is good, inflation in food prices are really good for our farmers and good for our farmland values.

Water access is another thing that makes our farms valuable. It's one of the factors that drive up the rental rates. Farmers fallow land where there is -- water is too difficult. We've seen a couple of that during the last big drought, not any of ours but some that didn't have a lot of water. So it's difficult to obtain good farms with good water, and that's driving up rent prices of the land with good wells and access to multiple sources of water.

Just to let you know, whenever we buy a farm, we always spend a huge amount of time and effort and due diligence. In that due diligence phase, simply determine water conditions to make sure that the farms we have, have plenty of water for the long term. We want to know that water availability is sufficient enough to withstand any extraordinary situation, such as what happened in California over the recent drought. And just as a side note, we did not see any significant reductions in the production of rents of our farms in California as a result of the drought, and today just as you know, there is the snow packs in the mountains in California. It's still very large, it may be as much as 1.5 years or 2 years supply of water. So while the recent drought in California is now over, we're confident that the water supply on the farms should be enough should another drought occur.

The point of this part of the discussion is to emphasize that our business strategy is to own farms that grow vegetables, berries and a few nut trees that we have, and some orchards with nuts and pistachios and almonds. We've not been a major investor in the grain crops like corn, wheat, and soybeans. Growers of these grain crops are continuing to have a lot of difficulty, because there's too much grain in the markets these days and the storage facilities are all packed full, and even areas that don't normally store a grain are having to fill up with grain.

Because the world markets are awash in grains, grain prices are just too low to make a profit in U.S. right now. As long as this situation is continuing, we'll stay out of the market until prices of crops go up and the price of farmland comes down. One of those two has to happen or we're not going to go into business. I think one of those will happen in the coming months and maybe couple of years. When good farmland reaches low enough amount, we may buy a few of these type farms, but that's not our emphasis today.

Now about some recent activity. During the quarter, we acquired 6 new farms totaling about 3,600 acres. These farms are in Arizona and North Carolina. North Carolina was a new state for us, we hadn't been there. We spent about $30 million on these new farms, in addition after the quarter, and we bought 4 more farms totaling about 847 acres in California for about $14 million. Crops grown on these new farms include almonds, organic blueberries, some melons, pistachios and strawberries on a weighted average basis. And Lewis will go over this a lot more. The new farms are averaging about 5.2% and straight-line rents are about [5.6%]. However, some of these new leases include revenue sharing components that should push the return figures higher in the future years.

Across our farmland holdings, we now own 17 different -- we're in 17 different growing areas. That's a good diversification, growing over 36 different crop types, and we are leasing to 44 different tenants, all of whom are related -- unrelated to us. This is important to us and we believe the well-diversified portfolio of farms growing lots of different crops and crops provided this added security for stockholders and hopefully secures the point of our dividend.

During the quarter, since quarter-end, we extended and/or renewed 9 leases -- is it 9 or 8? 9 leases and they were going to expire in either 2017 or 2018, where the increase in some of the areas and decreases -- [some of the] decreases in others. Lewis will hit that a little later.

So the farms are rented and there was never any downtime. We always had a farmer lined up. There is a story about one of our farms that was expiring this year. Two of the owners of the farm's operation died, very sad story, the farms in their states. The management team running the operations wanted to cut back on the amount of farms. So they only renewed one of the leases. We're currently negotiating with a new tenant on the other farm. And the outcome of that, we'll tell you next time. I don't want to interrupt our discussions with the potential farmer, but he says he wants it, he's actually got deep ladder on the farm. So I think that will be leased by the time we talk to you next time.

At this point, with the lease renewals that we have signed, we're up about 1.2% over the prior months and that's about $22,000 a year. Not much but not that many leases. Looking ahead, we only have 4 leases that are expiring in 2018, and in total they only make up about 3% of our total annualized rents. I think we're in excellent shape for the next 18 months.

Overall, demand for prime farmland growing berries and vegetables is still good, where our farms are located. This is mostly along the west coast of Florida and in California. And the farms in the Midwest are growing some non-grain crops, they are good. Florida, by the way, had its very best year in a long time. It was a very strong year for Florida in the vegetables and berry area.

Well, that's enough of the business discussion. I'm going to turn it over to the Chief Financial Officer, Lewis Parrish, to talk about the deep dive in the numbers.

All right. Good morning, everybody. I'll begin by discussing our balance sheet. During the second quarter, our total assets increased by about $30 million, or 8% due to our new farm acquisitions, which were funded ultimately through a combination of new fixed-rate borrowings and the common offering we completed in March. During the quarter, we obtained an additional $17 million of new long-term borrowings from one existing lender and one new lender. And on our weighted-average basis, these new borrowings carry an effective interest rate at 3.8%, which is fixed for the next 7 plus years.

And subsequent to quarter-end, we obtained an additional $14 million of new long-term borrowings. On a weighted-average basis, these new borrowings carry an effective interest rate at 3.6%, which is fixed for the next 6 plus years. Also subsequent to quarter end, we raised about $2 million through our common ATM program. From an overall leverage standpoint, on a fair value basis and including our term preferred stock in the debt bucket, our loan-to-value ratio was just under 61% at June 30. We're comfortable at this level given the relative low risk of farmland as an overall asset class.

While interest rate volatility remains a concern of ours, over 87% of our total borrowings is currently at fixed rates. And on a weighted average basis, these rates are fixed for another 6.5 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 effective interest rate on our long-term borrowings is currently about 3.2%, which is up slightly, about 8 basis points from a year ago. Overall, while interest rates have risen, credit remains readily available to us and we continue to be able to borrow money on terms that make the overall economics work for us.

Regarding upcoming debt maturities, we have about $16 million coming due over the next 12 months. However, about $9 million of that is due to the maturity of a bullet loan that we expect to refinance with the existing lender. So removing that maturity, we only have about $6 million of amortizing principal payments coming due over the next 12 months -- over next 12 months, which is about 2% of our total debt outstanding.

And now I'll move on to our operating results. First, I'll note that net income for the quarter was approximately $255,000, or [about $1.09] per share. Our operating revenues increased by 4% from last quarter, primarily due to our recent acquisitions. However, as these acquisitions were both completed in the last month of the quarter, we expect to see a more significant impact from them in the third -- in Q3. I'd also like to point out that when compared to the same quarter last year, our rental revenues on a same property basis increased by about 2.5%. That's mostly due to the leases on certain of 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, as David mentioned, is that overall we still are not seeing the widespread decline of rents on our properties that you're hearing about in certain Midwestern regions of the U.S. That's primarily due to the locations of our farms, their soil, irrigation quality and longer growing seasons and the types of crops grown on them.

Our core operating expenses, which excludes depreciation and amortization and acquisition-related expenses, decreased by about $211,000 from the prior quarter. It's driven primarily by decreases in related party fees and certain G&A expenses. The aggregate amount of fees paid to related parties decreased by about $146,000 from the prior quarter, driven by a lower performance-based incentive fee earned by our adviser during the quarter. Excluding these related party fees, our core operating expenses still decreased by about $59,000 and that was mainly due to writing off costs last quarter that related to an old registration statement that expired in Q1.

Moving onto our per-share numbers. Earnings from adjusted FFO for the quarter was $14.01 per share, which was a 1.7% increase over the previous quarter. Our AFFO per share was impacted by the equity offering we completed in March, as there was essentially a 3-month drag on earnings before we were able to reinvest those proceeds into new acquisitions in June. However, this quarter still marked the 7th consecutive quarter in which our dividend has been fully covered with AFFO. And with the addition of our recent acquisitions, we expect to see even stronger earnings in the future.

And now we'll move on to net asset value. During the quarter, we updated the valuations on 21 of our farms, 6 of which were valued internally in accordance with our valuation policy and 15 of which we had re-appraised by independent third-party farmland appraisers. In aggregate, these updated valuations resulted in an increase of about $2.7 million over their prior valuations. Majority of this came from valuations as determined by the third-party appraisals. As of June 30, our farms were valued at about $493 million, with 68% of its value based on either third-party appraisals or the actual purchase price. And of the $155 million we valued internally, about 99% of it or a $153 million is supported by third-party appraisals performed between 13 and 33 months ago. As you know, we have a valuation team here at the company that values our farms, and these valuations must be signed off on by the Board of Directors.

Now based on these updated valuations and including the fair value of our debt and term preferred stock, our net asset value per share remained relatively flat from the prior quarter, decreasing by $0.01 to $14.46 per share at June 30. While there may be some quarter-over-quarter volatility, over the long-term, we expect our net asset value to trend upwards as the value of our farmland portfolio appreciates due in part to increasing rents and neighboring farms increasing in price.

Turning to liquidity. We currently have about $13 million of available funds and our current buying power for straight cash acquisitions is about $30 million. However, this figure does not factor in our ability to issue new OP units as consideration for purchases. We also recently expanded the sizes of our 2 largest borrowing facilities, and we are continually reaching out to new lenders. So we have plenty of room and ability to continue borrowing and buying new farms.

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

All right. Nice report, Lewis. This company just continues to get better every quarter, as we continue to execute on our business plan.

Just then looking at our acquisition outlook, we've invested about $400 million in new farms since 2013 public offering and we expect to continue adding farms to this figure. As our list of possible acquisitions remain strong, we currently have 4 properties for about $31 million under signed purchase agreements and we expect 3 of these acquisitions to be completed during the current quarter, with a fourth one probably closing in early fourth quarter. We also have about $15 million of other farms that we hope to sign under purchase agreements. We've moved along on our due diligence there. It's little too early to say whether that timing on the transactions will happen soon or not.

We currently have cash and borrowing power, as Lewis covered, to close all of these farms without any need for additional capital, and some of the purchases are expected to involve the issuance of additional operating partnership units, at least that's what we've negotiated. However, we still continue the due diligence process, and they have to meet our stringent standards. There's no guarantee that any of them will close.

As you know, with an increase in the number of farms that we own comes greater diversification and protection for our investors and we like to do that. As most people know, our final -- our fund specializes in farms that grow fresh fruits and vegetables, and we historically avoided investing heavily in farmland that grows traditional commodity crops. One reason for this is we believe investing in farmland growing crops that contribute to healthy lifestyle, such as fruits and vegetables and nuts. That just seems to us to be the right place to be. In addition, more than 90% of our portfolio is GMO-free. We continue to expand our ownership in organic farmland both in new acquisitions as well as conversion of some of the farms to organic ground.

We also like fresh produce segment because it provides greater returns with less volatility than other crop types. According to the Bureau of Labor Statistics, fresh fruits and vegetable segment of the food category has increased at a rate of about 1.7x greater than the increase in the overall annual food CPI. And while prices of commodity crops are more volatile and susceptible to global supply and demand, fresh produce is highly insulated from the global volatility because crops are generally consumed locally and within a short time of being harvested. It's unpredictable nature of grain prices and commodity crops that prevents us from weighing in heavily on farmland that's in the Midwest growing crops that are related to the commodity area. Currently only about 10% of 15% of the value of farmland is growing wheat, corn or soybeans, and we believe that to be a good mix. At this point in the farming cycle, grains are just really difficult for farmers to make much money, when corn prices are as low as they are today. But at some certain price, investing in corn ground maybe a viable business, just not for us yet.

Ultimately we believe that farmland and GMO-free farmland that's growing healthier crops such as fruits and vegetables are going to continue to outperform the overall farmland market, in terms of both cash returns and long-term value appreciation. As a farmland natural resource company, it's our responsibility to know those kind of things and we take pride in having built the foundation of this company across the healthier sector of the agricultural industry and we believe our company's core strength is in that area.

In terms of the economic outlook in general, farmland like ours continues to perform extremely well compared to other asset classes, despite some recent downturns and certain Midwestern grain regions. There is a group called NCREIF and they have farmland index, which currently is made up of 745 agricultural properties worth about $8.1 billion and it had a total annual return of 7.1% in 2016 and has averaged an annual return of 13.1% over the past 10 years compared to the 8.7% for the S&P. So that's our -- our desire is to be much more like the NCREIF index over the long term.

Farmland has provided investors with the safe haven during these turbulent times of financial marketplace, as both land prices and food prices especially in the fresh produce area have continued to rise steadily. And most of all, I'd say that for the 100th time farmland has 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 earns about $200 per acre in rent, whereas California farmland that grows something as strong as strawberries earns 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 amount of rent in the front door. Just keep in mind that the number of acres is not nearly as important as the revenue per acre. We specialize in the higher rent, higher quality farms and that's what differentiates us from a lot of people who look at farmland.

As you know, we recently raised the dividend again last quarter to $0.044 per share per month. Overall, over the past 31 month, we've raised dividend 7x resulting in overall increases of about 47% in the monthly distribution rate to our shareholders. This is a reflection of the wonderful effort our team has made in finding high-quality farmland that continues to appreciate in value paired with strong tenants who are reliable in their rent payments.

As all of you know, we're 100% occupied and have been that way since forever. Since 2013, we've made 54 consecutive monthly distributions to shareholders totaling $3.11 per share in total distributions. Paying distributions to our shareholders is paramount to our business. We classify ourselves as a dividend paying stock. We're projecting good production and income growth for the rest of 2017. And if our expectations are met, we hope to be able to increase the dividend again in the near future as our goal continues to increase the dividend at a rate that outpaces inflation.

As the largest shareholder, I'm working hard to increase the distribution and I certainly like receiving dividends as much as anyone else does. Our stock is currently trading at $12.80, which is significantly below our net asset value. Thus, hopeful that the stock price will rise in the near future. So if you buy the stock today, you're getting a discount from our estimated net asset value of about 11%, you're getting $14.46 of net asset value for just $12.80. It's just a wonderful purchase today, because along the way, you're getting $0.044 per share per month in cash distributions. It's about a 4.1% yield, and the yield is slightly higher than the average return you get on the entire REIT index today, which is currently about 3.9%.

Please remember that purchasing this stock though is a long-term investment. It's not a technology stock that's going to pop up at some moment in time. It is in part an asset investment just like gold, expect that it's an active investment with cash flows to investors, rather than being passive as goal is. We always like to point out and let's say it again this time Warren Buffett's comment that he'd rather have all the farmland in the U.S. than gold in the world. Obviously, we agree with Warren on that one.

We expect inflation, particularly in the food sector, to be strong. People have to eat, we need farmland to grow food. So we expect the values of farmland to increase as a result. We expect this to especially be true in the fresh produce sector. People in the U.S. are trending toward eating more healthy foods, and think this is a good way to look at our farmland fund as the first hedge against inflation in both food prices and other areas. And second, for those looking for an asset that doesn't necessarily correlate to the overall stock market, then this is it. So if you like what you're -- what we're doing here, please buy some stock and also keep eating fresh berries and vegetables and nuts, and we'll all have a happy ending at this one.

Now, will the operator please come on. We'd like some questions from our loyal stockholders for this wonderful company.

(Operator Instructions) And your first question is from Rob Stevenson with Janney.

David, on the -- was there any read through on the leases, where you had the tiny roll down in terms of either geographic concentration or particular crop types? Or was it just a isolated instance?

They were isolated. Florida is doing extremely well. We are up very strong in Florida, about 8% in our rents down there. We had a couple of farms and Oxnard was probably the place that got the slowest start last year. And so when farmers don't make as much money as they expect, they always come in and want a little change to theirs. And we took a little bit of a haircut, the renewal actually increased over 3% in the strawberry farms, but a couple of farms were a little bit lower. So I don't expect this to be a big deal. I'm still hoping to raise the dividend next quarter.

Okay. And then in the stuff that you just did in the quarter and then the stuff that's in the pipeline, any particular concentration geographically or crop wise?

No. We hit all of the places again. The only new one, as I mentioned, was North Carolina, and that was new for us. We did some blueberries there. A very nice farm and we're actually talking to a couple of other blueberry farm owners there about doing another transaction. So we like North Carolina. It's got great growing ground there and most people think about North Carolina as being peanut town and it is. It's got a lot of peanuts and tobacco, but there's also a lot of veggie growers there, so that we'll probably see some more out of North Carolina. But all the above, we like the areas going up the west coast, we'd like to do more in Washington and Oregon. So we'd like to see that more. And obviously Arizona and California of course is the -- is really the vegetable -- you can't call it the breadbasket of the vegetables but it is the vegetable center of the world. I think 90% of the strawberries come out of California, and maybe the same for the lettuce side of it. So we're in all of those areas. We love it, we love Florida, it's a good growing area. So I just count on us doing more of the same.

Okay. And then just lastly, what are your thoughts these days on wine grapes?

We like the business. Unfortunately, it's very expensive to buy anything that's doing wine grapes. Every time these Internet companies, somebody makes another 200 millionaires in Silicon Valley, they all think they have to go up to the wine country and buy a farm and grow grapes, and they pay ridiculous prices for it. I wished I owned a lot there, because we'd be selling, they're paying ridiculous prices. Maybe once there's a bust in the Internet bubble, we'll see a little bit of change in those prices. This happened once before. So right now, yes, if we found the right situation, we would do wine grapes or even table grapes for that matter. We've got a couple of table grape things that we're looking at, but nothing firm enough to talk about.

Your next question is from John Roberts with Hilliard Lyons.

Just wondering a bit, adding on to the last question about your pipeline. If we could just get some more color on that, and what you're expecting in cap rates, et cetera.

Lewis, where do you think the cap (technical difficulty)? I don't have them down.

They're all in our target range, 5%, 6% in that range for the year one in initial cap rates. As David mentioned, we have 4 deals that are currently under -- signed under contracts for about $31 million, located in 4 different states, 3 of them should close this quarter with 1 slipping probably to early Q4. But -- and they're all within our target cap rate range.

Your next question is from Jeffrey Briggs with Singular Research.

So my question has to do with how you guys look at the distribution? Is it a percentage of cash flow thing? Because I know that you've basically had it covered with cash flow for maybe 7 quarters or so now. Is there a target that you guys use in terms of you want to distribute X percent of cash flow as the dividend? Or is it just something that's more of -- determined by field as you go?

Unfortunately, it's more by field and I ask Lewis how much I can pay out and he gives me the number and then we take a little bit off of that, because we don't want to get too far ahead and have to ever cover the dividend with a return on capital. But that's our goal, is just to continue to push the earnings up and push the dividend along with it. We have to distribute 90% of income anyway, so why not go closer to a 100%. It's a steady income. We've seen very steady income over -- I've been in the business since 1997, and you just continue to see steady growth. Yes, there's certain areas sometimes when Oxnard comes in late, they don't make as much money as they should. And then it moves up the coast and the guys in Watsonville and Salinas make a lot of money that year, because theirs came in early. And everybody moans and groans about paying rent, but they know they got to pay rent, and so we go forward with them. And I just don't think there is any way of losing a lot of money in this business, but I could be wrong, some catastrophe could happen. But I just don't see it these days.

(Operator Instructions) And your next question is from Daniel Donlan with Ladenburg Thalmann.

This is actually John Massocca on for Dan. So could you may be walk us through the details of the revenue-sharing arrangement at the Fresno County farm you closed subsequent to quarter-end? And can you be more specifically -- when will kind of the revenue-sharing portion of the lease payment hit? Is it going to be annually or quarterly?

No, it's annually. You get the crop in, you know how much money you've made and then you get a percentage of that. What's our percentage on that? Do you remember?

20%.

20%. So we get 20% of revenue. It's off the top, and so it's a nice way to do it and it's hard to do it any other way, because when they're shelling almonds, for example, you know exactly how many they shelled and you know what the revenue is. So it's easily identifiable. It's once a year and as soon as some of the crops that we have in the almond area are newer crops and it takes a little while, about 3 years for them to start producing almonds when they are new trees. So you don't get any revenue share during that period, you still get your base cash rent. And then when they start to produce, they might produce for the next 20 or 30 years. So it's a good crop to be in.

And John, just to answer your question about timing. With the deal we closed after quarter end, our first revenue-sharing payment will come in Q4 of 2018.

Okay. And those are -- I'm assuming those are mature trees. I mean, it just seems like given the press release and the fact [that you're getting revenue sharing that quickly].

Yes. The one we just bought was all mature trees.

Okay. And then roughly what percentage of the portfolio has these revenue sharing agreements in the lease? And is there kind of a cap to how much of the portfolio you want to have exposure to revenue sharing?

There's 5 farms. I don't know the percentage. I don't think we have it on our list here, the percent. But there are 5 of the farms, what is that? I don't have it. Maybe we can put that up on the website or certainly have it next time we have a talk. I love revenue sharing, but I don't want to do revenue sharing if I have to take a lower number, a lower percentage for a return on a current basis. Right now, we are a wonderful little company, growing at a great pace, and we have a chance to build ourselves up to a couple billion dollars. And then I would like to do more in the revenue sharing then. But I think in the early years, you're cutting off the early dividend payments if you take too much in revenue sharing, because the revenue sharing guys want you to cut the rent on a current basis and take more on the back end. So you start to take farming risk, and I don't want to ever miss a dividend.

Just to add onto that. All of the rents we've recorded to date, none of that includes any revenue sharing. Our first revenue-sharing payment will come online in Q4 of this year. And as those come online, we'll delineate those out in the queue, separate those, which is the base rent and revenue sharing portion.

Okay. And then maybe the broader view, have you had -- have you seen, particularly California farm, any complaints from tenants about labor shortages or any concern there?

Yes, labor has always been a problem. As you know, I own the largest -- one of the largest strawberry vegetable farms, and eventually sold it in 2004, but kept the land. So labor has been a problem forever. We had 5,500 Mexican-American workers, wonderful people, hardworking, but they're getting a little older and less -- lower number of people are coming in. Trump administration has said that they will make sure that the Mexican workers can come into the farms out of Mexico. So we've not seen any hesitation there. They've issued green cards to all of those people coming in. At our farms, and this is true of most of the big farms, the people working are pretty much permanent. When Bush had the cut -- closed the boarders after 9/11, a lot of the farmers suffered greatly. We did not in our farm, because about 70-some percent of our workers were pretty much permanent. You have a long growing season in the strawberry business and you plant vegetables on the off-season periods, so we kept people working long term, and it was just a wonderful thing, we paid them. I mean, the average worker was making much more than minimum wage at the time in California, and so it's a good business. We provided both health insurance, life insurance, dental insurance, and all of that was free to our workers, which is very unusual. But workers are critical to growing strawberries in most of the vegetables. They've got some new technology, we're financing our farms that does cabbages and they have a new way of planting cabbages. It used to be a lot of people in the farm, we're going out there and planting cabbages. They now have a machine, it's new and it looked like it can plant enormous number of plants in a very rapid pace, with only one worker on the machine. So you can imagine how that will change that business planters, you don't need the planters; still need them for harvesting. They have some harvesting machines but they're not very good. Anyway, as you know, in our other business, our buyout business, we have a machine that actually helps harvest almonds. And on the almond trees, they shake them and cash them and that kind of stuff. It is a definite problem still and there is a lot of people trying to invent things. We've got a family in Florida, who's put a lot of money into a strawberry picking machine. It's very slow today, so it's going to take a while to get that at the pace that you can see pickers. Everyone have some fun, buy your strawberries in the little plastic box, take them out and see if you can put them back in, because there is an art form to putting those strawberries in the box. It's an interesting technique that they have. Anyway, I don't know if I answered your question or not, I mean...

No, no, that's fine. That was some good color there on the current situation. And then, that's it for me.

I'm showing no further questions. I would like to turn the call back to David Gladstone for any further remarks.

Okay. The meeting is over. I won't ramble on anymore. We appreciate you all calling in, and we'll see you next quarter. That's the end of the call.

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