Gladstone Land Corp (LAND) 2017 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Gladstone Land Corporation's Third Quarter Earnings Call and Webcast. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to introduce your host for today's conference, Chairman and CEO, David Gladstone. Sir?

All right, thank you for that nice introduction. And this is a quarterly conference call for Gladstone Land, and thank you all for calling in today. We really appreciate you taking time out of your day to listen to our presentation. We always enjoy talking to folks on the phone and hopefully we get a lot of nice questions today, so that we can inform you about all the things going on. You know, you're always welcome to come visit us, if you're in the Washington, D.C. area. We're located nearby suburb called McLean, Virginia. And if you have a chance to come by, you'll see a great team at work, while you see some of them here, many of them are on the road, looking at different things out there. And we have about 60 people and manage over $2 billion now. So we're going to start with Michael LiCalsi, he's our General Counsel and Secretary. He also serves as the President of Gladstone Administration, which is the administrative for all the Gladstone funds, including this one. Michael?

Thanks, David. Today's report may include forward-looking statements under Securities Act of 1933 and Securities Exchange Act of 1934, including those regarding our future performance. And these statements necessarily 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 that we include in our Forms 10-Q, 10-K and other documents that we file with the SEC, these can be found on our website www.gladstoneland.com specifically, the investor relations page of that website or on the SEC's website at www.sec.gov.

Our company undertakes no obligations to update -- publicly update or revise any of these forward-looking statements whether as a result of new information, future events or otherwise, except as required by law. And today, we'll also discuss some FFO terms, now it's funds from operations. 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 from property, plus depreciation and amortization of real estate assets. We'll also discuss core FFO or CFFO and that generally adjust FFO for certain other non-recurring revenues and expenses. Also AFFO, which further adjusts CFFO for certain noncash items. Then you can find a further description of all these FFO family of terms on page 41 of our 10-Q that we filed yesterday. We believe the FFO discussions give us a better indication of our operating results and allows better comparability of our period-over-period performance. Please take the opportunity to visit our website gladstoneland.com, sign-up for our e-mail notification service that'll allow you to stay up to date on our company. You could also find us at couple of other places as well, Facebook including, and the keyword there is the Gladstone companies. We even have our own Twitter handle, that's @GladstoneComps. And today's call is an overview of our results. So we simply ask that you review our press release and Form 10-Q again those were issued yesterday, those will give you a lot more detailed information. Again, those can be found on our Investor Relations page of our website.

So with that, I will give the baton back to David Gladstone.

Okay, Michael, thank you. 2017 is a big year for us so far and I think by the end of the year, we'll be much stronger. We've already put $123 million in new farms. And these acquisitions are across 6 different states, including a multitude of different crops, a significant portion, which are organic. Before I jump into the details, I just want to hit brief overview of the nature of our business, as most of you know, these funds that we invest today are defined as asset. We're an asset manager but we're an alternate asset manager and that's because we consider -- our assets are considered illiquid. Many experts in the business also classify us as being a natural resource segment along with timber REITs for example or companies that may be in oil wells, coal mines, gas pipelines, those kind of things. We are not in any of those but we are classified in the natural resource area. What makes us very different from most of the alternate asset managers is that we are publicly traded, which provides our stockholders with liquidity, since they can buy and sell the stock anytime they like. And we chose to be a real estate investment trust, so that our stockholders can get the cash dividends that have not already been taxed, so were after tax distribution. Our business consist of owning high quality farmland leased to top tier farmers. We typically don't farm any of the land ourselves and thus generally don't take any direct farming risk. We pride ourselves in only acquiring the best farms, highest priced farms and leasing them to the strongest farmers. We are really a real estate partner for farm -- farmers and we're not their competitors. Our investments focus on farms that are located where farmers are able to grow a variety of high-value annual row crops, such as berries and vegetables. We also now have purchased some crops that are tree crops, bush crops, vine crops. So we are getting away from some of the row crops. We generally only purchase irrigated crop land with great soil and we have to have plenty of access to water, we're not dependent on rain to grow our farmland. And the farmers we lease to, these are farmers that are typically among the largest and best farmers in a growing region that we're in. We prefer to keep the same farmer on a property for as long as possible because they know all the nuances of operating that particular farm, so we want to keep them there and they'll make the most of those farms. Our objective is to be the long-term real estate partner for those farmers, so as long as they have the farm, they can keep it forever as long as they pay the rent. A large majority of our farmland has leased to farmers to grow fresh produce and that makes us stand out from a lot of people that look at farmland and you should expect us to continue to do that. About 85% of our total revenue comes from rents on farms that are growing food. You can find in either produce or nut section of your local grocery store. We consider these foods to be among the healthy type foods and they seem to be a growing trend toward organic and among these foods. And I'd like to point out that currently over 1/3 of our fresh produce acreage is either organic or transitioning toward organic, since that could be a strong growth area. Currently have about 63,000 acres on 73 farms, 9 states across the U.S., valued at about $533 million. We believe the acreage is on in some of the highest quality farmland and the strongest farmers in the United States. We also own a small amount of farm buildings, such as cooler facilities, packinghouses, process facilities, we have some box -- 1 box barn, and we're able to earn higher rents on those because they are buildings and they do depreciate. But you look at our list of assets and you're going to see now and in the future, a majority of our investments being in actual farmlands. The trend we continue to see most among the growing regions is steady decrease in the number of farms as they are being converted to suburban or urban uses. And that's probably the main thing that I'd like to regard -- point to regarding the factors that continue to drive land valuations up, most in our farming regions. The amount of farms in these regions is relatively finite, especially in California. As there's no new farms being developed and no trees to cut down and no land to plow and start over, as all of the farmland is -- all of the land in the areas had been converted to farms, if it can go to farms. All the arable land in many of these regions is already being farmed, so there's no more -- no place to start over. But now some of these farms are being converted to other uses, such as housing and schools and factories and once it gets converted, obviously, it never goes back to farming. California for example has been losing about 50,000 acres of farmland to development each year, for many years now and this causes the farms we own to be highly sought-after by farmers and they've been rented for decades without ever being vacant. Water availability is another factor that drives rental rates and land values. Farmers are not renting land where water is too difficult or expensive to obtain and that's driving up the rent prices of land with good wells and access to multiple sources of water. And that's why whenever we buy a farm, we're always spending a lot of time and effort and due diligence in our phase of looking at these farms to determine the water conditions to make sure that, that farm will have plenty of water in the long-term. We want to know that water availability is sufficient enough to withstand the extraordinary situations, such as what happened in California with the recent drought and this is a prudent -- this is prudence paid off to us, as we didn't see any significant reduction and the production of rents on our farms in California as a result of the drought, which is now over, it'll be back one day, but we think we're in good shape to handle any of that. I'd also like to mention that we had no significant damage on any of our California or Florida farms as a result of the recent wildfires in California or the hurricane that hit Florida. And we don't have any farms near Houston or Puerto Rico, so we're fortunate to come out unscathed in light of all the recent natural disasters that has impacted part of the U.S. However, just as you're aware, most of our farmers have insurance on their crops, and we have insurance on our buildings for things like earthquakes, floods, hurricanes and alike. So we're pretty much in good shape and so are our farmers.

Finally, one other factor driving our farmland values is inflation or the reduction in value of the dollar due to the government printing so many of them. And the government will tell you that there's little or no inflation but anyone buying food will tell you that food prices have been going up steadily, especially, in the produce section of the grocery store. However, the inflation in food prices is good for us and our farmers because the farmer makes more money and in turn we can increase the value of our rents on our farms.

We've not been a major investor in farms growing grain crops like corn, wheat or soybean because grain prices are just too low today, now there is a -- we can't make a reasonable profit right now in the United States in corn. There's just too much grain in the world markets these days and storage facilities in the Midwest, for example, are all packed. As a result, grower of these grain crops are continuing to have a lot of difficulty. As long as the current situation continues, we'll stay out of the market for grain producing farmland and total prices of the crops go back to prices and which would make in essence the farmland come down in price. One of those 2 have to happen before we can consider getting into the market again, it could be a few years from now but when good farmland reaches the low enough price or farm prices come back up, we may buy some -- a few of those farms growing grains but that's not our focus today. Now about some recent activity. During the quarter, we acquired 7 new farms, totaling about 3,900 acres in California, Florida and Washington state. And Washington state was a new one for us. But in total of all of those 7 farms, we spent about $38 million. In addition, after the quarter end, we added on to 1 of the Colorado farms by buying a small adjacent farm for just under a $1 million. Crops grown on these new farms, include almonds, apples, cabbages, cherries, pistachios, wine grapes, just makes you hungry listening to that list. On a weighted average basis, the initial cash yield of these new farms is about 5% and on a straight-line basis, about 5.2%. However, couple of these new leases, include sharing components that should push the return figures higher that is, we get a percentage of the crop, when it's sold. Across the farmland holdings, we now own an 18 different growing regions, about 39 different crop types and there are at least a 50 different tenants, all of one and whom is unrelated to us, which I'll touch on in a minute. But this is important to us and we believe a well-diversified portfolio of farms growing lots of different types of crops provides additional security to our stockholders and to our dividend payments as well. During the quarter, we also renewed 2 leases that were expiring in 2017, in total rents, the new lease is about a $163 less than the prior leases but that situation on those 2 farms is really unique. We haven't -- ever had this happen to us. And this is really the only related party that we're going to talk about. The 2 owners of the farming operation that we're renting these 2 farms, they were previously leased to them and unfortunately, 2 well wonderful farmers died and the operations passed on to their states, obviously. Our management team continued to running the operation but the family really didn't, without the 2 patriarchs of the families didn't really want to go forward. It's making pretty good size debts every year and planting crops even though they were doing well. But the family wanted to sell the business and they began trying to sell it, it was late in the season and when trying to sell the farm, they stopped paying rent to us. We did get 1 family, that is renting one other crops and therein lies part of the depreciation or discount in the rent. They had to pick it up late in the season and they're putting vegetables in. The buyers were not buying the operation that they are in and so we took back the property and we let them off the lease even though it's been about 70 -- $6700 per acre on the property and getting it ready to plant. And at that point, it was the last 2 weeks of planting, you need to have it in around and we're not able to find someone that would take the farm with just 2 weeks’ notice at acceptable rents. So we had people that wanted it but they weren't willing to pay a decent amount. So we determined the best thing to do is for us just to farm it. Remember, I come out of the business, in fact, I farmed many of the farms in Oxnard, where this is farm is, and Bill Reiman, our man in Oxnard lives just down the road from this farm, so he spent most of his prior history in the farming business, in actually farming strawberries and Oxnard. So we're farming this 1 farm in our taxable REIT subsidiary, until next summer at which time we plan to lease it out to another third-party tenant and we have a number of people who wanted, they just didn't want to take it on in that kind of pressure cooker that they were in. So current expectation is we'll make a net profit, I guess, is about $18,000 an acre, so we may had end up paying a few income tax is on the profits that we make there. We also purchase, just so you know, catastrophic insurance as we call it. So if something happens to the crop, we'll at least get all the money back that we're going to spend planting and harvesting, my guess, there won't be much harvesting, if there's a tragedy. But you could have something awful happen and some kind of light or something. But at any rate, we have insured against that, so we're not going to lose any money on this. The only question is, how much we're going to make. My projections is, we'll make more than enough to cover our rent and our initial capital invested in the farm and if we're really the good farmers, we think we are, we'll make a pretty decent profit. But long story short, all of the farms remain a 100% leased, including the one we leased to our taxable REIT subsidiary and there was no downtime on any of these renewals we executed during the year. And one important distinction from other REITs, we didn't have to pay anything to any kind of leasing commissions or tenant improvements in any of those kind of things, in any of our renewal. So it's really a different business from that perspective.

Looking ahead, we only have 5 leases expiring in 2018. A total of -- makes up about 6% of our total annualized rents. So I think we're in excellent shape. Overall demand for prime farmland, like we are talking about growing vegetables or berries, is really stable to strong in almost all of the growing areas that we're located in. This is mostly along the East Coast and the West Coast. As mostly California, mostly Florida today. We do have some farms in the Midwest, that grow some non-grain crops but you should look forward to us and being in California and Florida or Oregon, up the West Coast, up the East Coast is where we're going to be strong. Florida, in particular, is coming off a very strong year in berries and vegetables. So we expect the farmers down there to be in really good shape.

And finally, during the quarter, we completed a small overnight offering of common stock. We raised about $13 million of stock price, did take a hit before we're able to launch the offering causing the offering price to be further below our net asset value, and which is -- which has the largest shareholders, I really hate to do because I think it's too detrimental to our share price. But we had several farms identified that we believe would be accretive to shareholders and to our dividend, so we didn't have to -- didn't want to walk away from them. So we went ahead and did the stock offering. The size was very small, and it is limited as possible in order to not to dilute the existing shareholders but even that small offering had an impact on our earnings per share, as there was more shares outstanding, that took us down a little bit for this quarter.

Well, that's really enough with the business side. I'm going to turn it over to Lewis. Lewis is our CFO and he's going to walk you through the numbers.

All right. Good morning, everybody. I'll begin by discussing our balance sheet. During the third quarter, our total assets increased by about $40 million or 9% due to our new farm acquisitions, which were ultimately funded through a combination of new fixed-rate borrowings and common equity raise during the quarter for the September offering and sales through our ATM. David already went through the detail about the asset side, so I'll focus on the financing side here.

Since June 30, we've obtained an additional $56 million of new long-term borrowings from 3 new lenders and 5 existing lenders. On a weighted average basis, these new borrowings carry an effective interest rate of 3.7%, which is fixed for the next 9 years. And in addition to this wealth common offering, David mentioned earlier, we also sold about $6 million of common stock through our ATM Program during the quarter.

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 about 60% at September 30. And 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, about 98% of our total borrowings is currently at fixed rates. And on a weighted average basis, these rates are fixed for another 7 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 in our long-term borrowings is currently about 3.16%, which is up by about 10 basis points from a year ago. While interest rates have risen, credit remains readily available to us, we continue to be able to borrow money on terms that make the overall economics work for us.

Regarding our upcoming debt maturities, we have about $24 million coming due over the next 12 months. However, about $16 million of that represents the maturities of 3 bullet loans that we expect to refinance with the existing lender. So removing those maturities, we only have about $8 million of amortizing principal payments coming due over the next 12 months, which is about 3% of our total debt outstanding.

And now, I'll move on to our operating results. First, I'll note that we had a net loss for the quarter of approximately $247,000 or about $1.08 per share. Our operating revenues increased by about $568,000 or 9% 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 a same property basis increased by about 1.4%. On average, the leases we've renewed during 2017, increased by a little under 1%. So the increases in the same property comparison is mostly due to additional income earned or in capital improvements made on some of those farms.

Our core operating expenses, which excludes depreciation and amortization and acquisition-related expenses, increased by about $171,000 from the prior quarter, primarily driven by a higher performance-based incentive fee earned by our adviser during the current quarter. Excluding related party fees, our core operating expenses remained relatively flat, increased to mainly $2,000 from last quarter.

Moving onto our per-share numbers. Earnings from adjusted FFO for the quarter, $13.9 per share, which was a decrease of about $0.002 or about 1.6% from the previous quarter. And this was of course due to the additional shares issued in the September offering. As we continue to put these proceeds to work by reinvesting them into new acquisitions, we expect you will again see further growth in our AFFO per share. But I'd like to point out that this quarter has still marked the 8th consecutive quarter, which AFFO has fully covered our dividend and we expect this to continue to be the case in the future.

Now I'll move on to net asset value. During the quarter, we updated the valuations on 13 of our farms, all of which we had appraised by independent third-party firm and appraisers. In the aggregate, these updated valuations resulted in a net increase of about $0.5 million or about 1% over their prior valuations. As of September 30, our farms were valued at about $532 million, with 73% of this value based on either third-party appraisals or the actual purchase price. And of the $144 million that was valued internally, about 98% of it or $141 million is supported by a third-party appraisals performed between 15 and 36 months ago. Based on these updated valuations and including the fair value of our debt and term preferred stock, our net asset value per share at September 30 was $14.15, which is about a 2% decrease from last quarter and most of that was due to the additional shares we issued in connection with the September equity offering. 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 $15 million of available funds and our current buying power for straight cash acquisitions is about $35 million. However, this figure does not factor in our ability to issue new OP units as consideration for purchases. We also have plenty of room under our 2 largest borrowing facilities, when we are continuously reaching out to 2 new lenders. So we have plenty of room and ability to continue borrowing and buying new farms that meet our investment criteria.

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

Nice report, Lewis. This company continues to get better every quarter, as we continue to execute our plan. As you all know, we have invested about $425 million in new farms and assets since the IPO in 2013. Just going to continue to add to that figure, a list of -- we've got a good list of acquisitions. Currently have 2 properties for about $9 million under signed purchase agreements. We expect those 2 acquisitions to be completed before the end of the year. We also have some other farms that are in the pipeline, but it's really too early to say regarding whether those transactions will get done in this quarter or next quarter. Currently have enough capital to buy all of these farms without any need for additional capital, as some of the purchases are expected to involve some issuance of OP units as consideration. We always like to do that and get it to the farmer and the people involved in the company as well.

However, we're still continuing our due diligence process on many of these properties and as always, there's no guarantee that any of them will close. As you know, with the increase in the number of farms we own, it comes a greater diversification and protection for investors, so we expect better earnings from it as well.

As most people know, our fund specializes in farms and more recently, we've gone into the nut and tree crops and we have some cherries and apples and different things as well. We've historically avoided all the heavy farmland that grows traditional commodity crops, such as corn, soybean and wheat. One reason for this is, we believe farmland growing corps that contribute to health and lifestyle, such as fruits and vegetables and nuts, is going to be around for a long time as people continue to switch to the more healthy foods.

In addition more than 90% of our portfolio is GMO-free. We're continually expanding our ownership of organic farmland through both new acquisition and conversions of existing farmland to organic ground. We also like fresh produce segment because it's typically providing greater returns and has less volatility than other crops.

According to the Bureau of Labor Statistics, the overall annual CPI general -- generally keeps pace with inflation. So we will look at that and over the last 20 years in fresh fruits and vegetables segment, as a food category has increased at a rate of about 1.7x the CPI. So while prices of commodity crops are more volatile and susceptible to global supply and demand, fresh produce is insulated from global volatility, mainly because the crops are generally consumed locally and within a short time after being harvested. It's the unpredictability nature of grain prices and other commodity crops that prevents us from currently weighting our farmland holdings heavily in farms that grow traditional commodity crops. Currently have about 10% maybe 15% total value of our farms invested in farmland growing corn, wheat, soybean, where each is a special situation, we're not out in the middle of the farmland buying big crops there. At this point, in the farming cycle for grains, it's difficult for farmers to make much money, when the corn price is as low as they are today. But at some certain price, investing in farms growing corn may be valuable for us. However, we do expect this to be a drag on earnings as rents for these farmlands, the few that we have to go down and price over the years, it ultimately has to do that.

We believe the farmland that's GMO-free and growing healthy crops, such as fruits and vegetables and nuts are going to continue to outperform the overall farmland market in terms of both cash, REITs as long -- as well as long-term appreciation. Our leases that have share of the crop should come on strong. We're actually expecting one of these payments to come in. We hopefully this quarter and that would be a nice announcement for us to make. And we always touch on the economy, the terms of the economic outlook in general farmland like ours continues to perform well compared to other asset classes, despite some recent downturns in certain Midwest and grain regions. The NCREIF index, the farmland index they have, which is about 699 properties worth about $8.1 billion just continues to go along very strong for the last 10 years, it's been about 13.1% compared to 8.7% for the S&P. I hope one day, we'd look like the index because that would be quite nice.

Farmland has provided investors with the safe haven during turbulent times in the financial marketplace, both land prices and food prices, especially for our fresh produce. They've continued to rise steadily. And most of all, I'd say this for the 100th time, farmland has historically been an excellent hedge against inflation.

Well, I'm going to skip over to distributions, as you know, we recently raised our dividend again, it was a small one but like to keep that tradition going of raising the dividend every quarter. No guarantee, but over the past 34 months, we've raised the dividend 8x, resulting in an overall increase of about 47 in our monthly distribution rate to shareholders over this time. This is a reflection of the wonderful job the team has done and achieved here buying farms and managing farms. As you know, I'm the largest shareholder and I'm loving the increase in dividends. That's 2013, we have made 57 consecutive monthly distributions to shareholders $3.25 in total distributions. Paying distributions to our shareholders is paramount to our business. We are in essence of dividend paying company. We project good production and income growth for the next year 2017 and even into 2018, if our expectations are met, we hope we'll be able to increase the dividend again.

Stock price is currently about $13.92, which is well below -- not well below, but below our net asset value. Thus, we hope our stock price will rise in the future so that we trade at least at or above the net asset value. So if you're buying the stock today, you're getting a small discount from the estimated net asset value of about $14.15 and stock's trading at $30.92. And along the way, you're getting a $4.41 per share per month cash dividend, that's about 3.7%, 3.8% yield. This yield is only slightly lower than the average return for all the REIT index, that's a 190 REITs. What we offer them compared to the timber REITs, which there is a number of those out there and they trade at about 3.36%. So I think we're good alternative to any of the timber REITs.

Please remember, of course, that purchasing stock in a company like this is really a long-term investment in farmlands. It is in part of an asset investment just like gold expect that it's an active investment with cash flows to investors. We always love to point out that Warren Buffett's comment, "he'd rather have all the farmland in the U.S. than all the gold in the world", and we obviously agree with Warren on this, we don't own any gold. We expect inflation particularly in food sector to be strong. We expect values underlying farmland to increase as a result and we expect this especially true in the fresh produce side of the business as people in the U.S. are trending more toward these kind of foods.

I think it's a good way to look at our farmland fund as the first hedge against inflation for both food prices and other areas of the economy. And second, for those looking for an asset that doesn't necessarily correlate to the stock market, we believe this stock is one of those. So if you like what we're doing, please buy some stock and keep eating fresh vegetables and fruits and now we will have some questions.

So Jane, if you come on, we'll get some questions from people that are listening.

(Operator Instructions) Our first question comes from Rob Stevenson with Janney.

I am sorry, if I missed this, but what markets and what type of crops were the 2 farms that had negative mark-to-market in the quarter?

Those were the 2 that we mentioned at the beginning, somewhere in the middle, were the 2 families and both of those were strawberries at the time. We leased one of the farms to a veggie grower. So that sort of put a downer on that market, on that ramp because vegetables from (inaudible). Yes, so both of them are right in the middle of the Oxnard plain and good farms is just we got caught at exactly the wrong time on that one.

Okay. And then what do you guys expect to return to be on the incremental investment on the almond orchid?

So we're earning 5.25% for the first few years in that lease. Once it switches over to a crop-sharing payment, which I begin -- which I believe begins in 2020. The base rate goes down to 4% plus a significant portion of the gross proceeds.

Okay. And then in terms of the fourth quarter acquisitions, I mean, you guys did announce the 1 transaction for just under a $1 million. Is there a significant amount that you guys expect to close? Or most of the stuff that you guys are working through right now is probably an early '18 close?

We've got 2 purchase agreements that we're trying to grind through now in terms of the due diligence, that's about $9 million. So I expect those to close, they may not, but they'll close in this quarter. And unlikely any of the others that we have going through the fund, this will get done in this quarter, might hit one, but most of them will be in '18.

Our next question comes from John Roberts with Hilliard Lyons.

I was a little confused on those 2 leases, you're re-leasing with -- farmers died at both of the farms, is that right?

Well, the farmers owned a company together. And the company was the tenant on the 2 farms. And unfortunately, both of those gentlemen have died, and now most of it -- most of that farming operation has been sold off at a huge discount unfortunately for the farmers. And 2 farms, one of the farms we rented very quickly to another farmer in the area. He does vegetables. So it's not as critical that he got his farm planted right away. And on the other farm, which is the strawberry farm. If you're going to plant strawberries, you had to have done it within probably 2 weeks of when we took over the farm and that was not possible to get a lot of the steady farmers out there. For example, one of the farmer's said, he couldn't do the farm because it was already stretched in plastic that was brown and they like to use white or maybe they use black, I don't remember. But the farm was set up for a particular kind of strawberry and we were lucky enough to be able to find those plants and get them in the ground within the 2 weeks. And that's a testament really to the guy who we have in Oxnard. He is a longtime farmer there and he pulled together all of the pieces and we got it planted and now we are watching them grow and obviously taking care of them with the irrigation and all of the things that you have to do to get a crop done.

I thought maybe you were doing that David because I know you did that before.

Well, I knew what he was doing but he has really carried the ball. I know a lot of the farmers out there. We got one of the farmers that is good at managing farms and he came in, he's going to run that part of it for us. We're really not doing any of it, obviously, we're getting others to do it. You can farm -- you can get people to actually operate your farm for a fixed fee. And so we did that and then on the selling side, we've got a relationship with the sales group, actually 2 sales groups, that are going to take the product beginning probably early January, may be end of December and start selling the crop as well. So that will be the telling point when we start selling. The average in that area is about 31,000 per acre. When I ran my farms and when Bill Reiman, our man in Oxnard ran his farms and we were doing about 55,000 per acre. So we expect to beat the average significantly and if we only do the average, we will make a small profit, obviously, pay for everything that we got in the ground, get all of that money back. We're going to spend about $1.7 million in plantings and harvestings. And as you know, I mentioned the fact that we have insurance, such that, if the whole farm, for some reason didn't go, we get our $1.7 million back and that cost us about $70,000 to make that bid, which I just felt comfortable doing that. I never bought insurance before and neither did Bill Reiman. And so we sort of double down, I guess, as we get older, we get more cautious. And so that should -- if that comes in, we'll make a good profit. Also, I just mentioned of course is that we have some share money coming in, that could be $300,000, $400,000 probably little closer to $300,000 than $400,000 in the next month, and we'll have a press release on that. And that will literate any of the downstroke that we've had here.

And David, as far as the leases go, there are 3-year leases, according to the press release? Is that right?

Yes, well. We started out with a 3-year lease to the farm -- well, on the farm that we lease to the people who is doing vegetables, that is a 3-year lease, and that's a little bit lower than we can get with strawberries. So we've taken a little bit of a bath there. On the other end of the spectrum, the farm that we're doing, we leased it to the family because they thought they were going to take 1 of the 2 farms from us and then of course as time went on, they decided that they had to walk away from it because nobody was really paying that much for the farm that they had and the people who did it -- who did buy the farm or northern farmers and wanted the Santa Maria and the Watsonville farm, but not the ones down in Oxnard. It'll change, you'll see the 2 or 3 people that we have now are very interested in this. So you will see in the summer, when we start negotiating -- not the summer, in the spring, when we start negotiating, you'll see that farm get leased up pretty quick.

Thanks, that was a little confusing because you said, both leases were 3 years. And on the 3-year lease to the farmer doing the vegetables, I would assume at the end of that lease, you're going to re-lease that to somebody doing strawberries and get a higher price?

We should get a higher price when it comes up, but I don't want to speculate. We are -- we wanted to go ahead and do that. And the guy who is doing it is a very successful farmer, does a lot of vegetables in the area. So he will pay us a good amount of money but we just won't get strawberry rents. It's about 5% maybe as much as 8% of what we could get for strawberries.

Our next question comes from Jeffrey Briggs with Singular Research.

It's just sort of a general question in regards to things like the wildfires and the hurricanes and stuff like that. And obviously maybe you guys have mentioned that, it hasn't directly impacted any of the farms you guys own. But the question has to do with, when things like that occur, does that have any either near or long-term effect on either the market value of properties like that, that are either in or outside of that area? Do you think sometimes get -- are there farms that get may be wiped out that never fill back the farming? Or is there any sort of historical trends you've seen when things like that happen?

No. If you think about it, the worst that can happen to you is really if you own tree crops or vine crops. Some of the vineyards up in Napa did catch on fire and burn. And that meant that those vines probably will never produce and they'll have to replant. That's an expensive process and some people have insurance against it and some don't. So those people will get hurt. The others end of the spectrum for tree crops is that, you rarely have tree crops that have ever burned. So I don't expect those folks to get hurt. From our standpoint, all of the stuff that's planted on the flatland, you don't have to worry about fires coming out into the flatland, it's not going to happen, it's only when you get closer to the mountains, where there is lots of brush that can burn and winds, those Santa Ana winds that blow so hot and blow all of that stuff across. So you're not going to see it in strawberries or vegetables being burned up. We worried a little bit about all that rains down in Florida but as it turned out, when the Florida rains came from the hurricane, they just filled up to ditch beside the row and you couldn't go in the farmland for a day or 2 as the water had to seep through and go back down to the aquifer but other than that -- and we have that every now and then in California as well the -- what will happen as the rains will come in the fall and you can't really get out into the farmland at that point in time. So you have to wait for it to dissipate. So I don't know of anybody who has ever been burned out and never went back to farming. That would seem to be way out of perspective. They usually just have to plant again. But maybe there are some. I haven't investigated all of the situations in the Napa in the wine area, but it is one of those kinds of situations where people did get hurt.

Our next question comes from John Massocca with Ladenburg Thalmann.

So given the kind of activity around Dole and its California operations, I know you have -- your 2 leases to them don't expire until June 2020 or at least the first ones expires till June 2020. I mean, what's your view on them possibly selling their operations at those farms to another operator? Or how much control -- would you be able to control to stop them from doing that? And are they currently operating at both of those farms?

They are operating at one of the farms. The other one they have put in a much stronger strawberry group that's in the southern one. And we expect Dole to leave, they've announced that they're cutting back and they're probably going to leave the fresh strawberry area, maybe they keep one farm someplace but we expect both of them. The one in Watsonville, that is such a wonderful farm, and it has been farmed for years and years in berries, that it will go very fast, in fact, we have people that want it but Dole is on the hook until 2020. They have acknowledged that they're going to be on the hook till 2020. So we have no worries about them. As you probably know, Dole is trying to go public again and I think they're trying to remove some variability in their earnings by getting out of the fresh berry side of the business. So we have the big farm in Oxnard and we have a number of people that want that. We are currently talking to people. Dole has said, they will leave, if we find somebody that wanted. So we're not waiting until 2020 try to lease it, we will have -- we do have one, the subtenant on the Dole farm wants the farm. So we pretty much could move that one today in the South and Oxnard. But we don't want to go too quick. We want to make we maximize our return to year-end, there is a chance that we could get someone that wants the farm even more than the ones that subleasing it now.

Makes sense. And kind of just -- as you look to grow the portfolio here, I mean when you look at different growing markets that you guys are in versus maybe some new markets. I mean, what's more attractive for investment you think you'd want to expand to get more geographic diversity? Or do you think you could really bulk up in some of your existing markets?

Yes. We can do both. And we'll do both. We are not expanding as much as we probably could in Oxnard. Oxnard competes heavily with Mexico for fresh berries and it's one of those situations in which Oxnard is a little slower to get there. And so as a result, we have decided we're going to let some of the farms go to veggies for a while and then we'll come back to strawberries as the crops come back there. But every place else is really open. We like Florida. We like -- we have new farms in North Carolina. We're looking at 2 more farms in North Carolina. We're hopeful to close in New Jersey. I don't know whether we will make it this quarter or not, but hopefully. And then we've got a couple of more blueberries to do in Western Michigan. All of those are perking along, but we're also now talking to people in Apple Country in New York and we're getting known in a lot of places that we weren't known before. And it's quite gratifying to have people who want to do business with you because you are as steady as a rock in terms of being there for them when they need it. So we would see both those areas up and down each coast to continue to grow and different states continuing to grow. We expect to do something in Georgia in the near future. And then on the Midwest, we're looking at a number of farms that we like that are not corn, and so as a result, we will have several transactions in the Midwest either this quarter or certainly next year and continuing to grow. One of the most difficult problems that we run into is that we have to go slow in terms of getting farms lined up to close because we don't want to promise we're going to close on something and then not be able to raise the money. So we're trying to figure out ways like the ATM Program, where we can, on a regular basis raise additional equity. We can get plenty of debt. Debt is our least problem, but raising the equity money is our biggest problem because most of the people who want to do an underwriting, want to do $50 million or $75 million, which would just crush our ability to pay the dividend. So we're not willing to give up the dividend in order to raise major amounts of money. And as a result, it throws us into this conundrum of do we go out for an offering now because we've got 10 properties in the pipeline or do we wait until they become a lot firm or before we try to do that. And if we wait, does that mean we might hit a snag and not be able to better the offering. So it's conundrum, we're working on right now and John, I hope to have a solution to that to announce maybe by the end of the year.

Okay. And then certainly you mentioned some forwards, and just kind of a follow-up. What is kind of the general size of your pipeline that stands today?

Size.

As David said, we've got $9 million under PSAs. Been looking at deals in other phases, LOIs and farms that are close to LOIs. Probably have another $30 million to $35 million there. But of course, they are not as close. So it's less certainty and probably further along than the current quarter we're in right now.

(Operator Instructions) Our next question comes from Robert Sennott with Seaver Hill Capital.

Looking for information on the 1280-acre farm in Colorado, it was purchased. I understand, it was a hay farm or is a hay farm. Can you provide some color on that?

Yes. The difference is it's a hay farm but it's organic and what's no need about it, it's an extremely high demand as people are demanding organic beef and organic everything else. So we have a lock on a pretty good-sized market there. Those products are shipped all over and it's been in farmland for ever in a day and is really solid at this point of time. And they took a lot of OP Units. So they're in the equity side of the business as well. So that's the -- key there is that it's organic and going into the organic feed lots and that's a big plus.

Yes, it seems extremely profitable as far as hay goes. So congratulations on that acquisition.

Yes, we've had a number of people that have been interested in buying it and I don't know why we got it and somebody else didn't grab it. But it is exactly as you say, it's a very profitable business.

Great. And one other thing, I know that you folks sometimes go to the market and you had an overnight raise of capital. Is there any way that you could maybe let existing shareholders participate in that with some sort of formal announcement of offering going forward? I thought about that bringing...

Yes. Those are called rights offerings and I did 2 of those many years ago and absolutely were destroyed in stock price. The shorts come in and they come in, in big lots and they just hammer the stock down because they know they'd able to take the -- and this was before the recession. We kind of saw the recession coming and said it was time to bulk up an equity, so that we could survive the recession. And we just were hammered. It was horrible. I had 3 underwriters that were assuring me that they could get it done and they all failed. So I'm not much on trying to get it to anybody. The only way you can get it is if you're in one of the groups that is going to be in the transaction. So it's really hard to do it any other way, and I'm sorry, I wish there was because I think it's very disappointing not to be able to offer it to everybody.

I'm not showing any further questions in queue. So I'd like to turn it back over to Mr. Gladstone for closing remarks.

All right. Thank you all for hanging on and go out there and buy a lot of fruits and vegetables because we want to see the stock price go up. Thank you very much. That's the end of this discussion.

Thank you, ladies and gentlemen. That does conclude today's conference. Thank you very much for you participation. You may all disconnect and have a wonderful day.