GLADSTONE LAND Corp 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS All statements contained herein, other than historical facts, may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements may relate to, among other things, future events or our future performance or financial condition. In some cases, you can identify forward-looking statements by terminology such as “may,” “might,” “believe,” “will,” “provided,” “anticipate,” “future,” “could,” “growth,” “plan,” “intend,” “expect,” “should,” “would,” “if,” “seek,” “possible,” “potential,” “likely,” or the negative of such terms or comparable terminology. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our business, financial condition, liquidity, results of operations, funds from operations or prospects to be materially different from any future business, financial condition, liquidity, results of operations, funds from operations or prospects expressed or implied by such forward-looking statements. For further information about these and other factors that could affect our future results, please see the captions titled “Forward-Looking Statements” and “Risk Factors” in this report and our Annual Report on Form 10-K for the year ended December 31, 2019 (the “Form 10-K”). We caution readers not to place undue reliance on any such forward-looking statements, which are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this Quarterly Report on Form 10-Q (the “Quarterly Report”), except as required by law. All references to “we,” “our,” “us” and the “Company” in this Quarterly Report mean Gladstone Land Corporation and its consolidated subsidiaries, except where it is made clear that the term refers only to Gladstone Land Corporation. OVERVIEW General We are an externally-managed, agricultural real estate investment trust (“REIT”) that is engaged in the business of owning and leasing farmland. We are not a grower of crops, nor do we typically farm the properties we own. We currently own 127 farms comprised of 93,999 acres located across 13 states in the U.S. We also own several farm-related facilities, such as cooling facilities, packinghouses, processing facilities, and various storage facilities. We conduct substantially all of our activities through, and all of our properties are held, directly or indirectly, by, Gladstone Land Limited Partnership (the “Operating Partnership”). Gladstone Land Corporation controls the sole general partner of the Operating Partnership and currently owns, directly or indirectly, 100.0% of the units of limited partnership interest in the Operating Partnership (“OP Units”). In addition, we have elected for Gladstone Land Advisers, Inc. (“Land Advisers”), a wholly-owned subsidiary of ours, to be treated as a taxable REIT subsidiary (“TRS”). Gladstone Management Corporation (our “Adviser”) manages our real estate portfolio pursuant to an advisory agreement, and Gladstone Administration, LLC (our “Administrator”), provides administrative services to us pursuant to an administration agreement. Our Adviser and our Administrator collectively employ all of our personnel and directly pay their salaries, benefits, and general expenses. Impact of COVID-19 on our Business and Operations The novel coronavirus (“COVID-19”) pandemic continues to evolve and is currently impacting most countries, communities, and markets. Global recessionary conditions are currently expected for the remainder of 2020 as a direct result of the COVID-19 pandemic, although the actual impact and duration are unknown. Much of the United States economy continues to slowly re-open, but at the same time, the COVID-19 pandemic is intensifying in many areas of the country. As a result, some jurisdictions have rolled back reopening plans, and more widespread reinstatement of directives and mandates requiring businesses to again curtail or cease normal operations remains a possibility. The extent to which the COVID-19 pandemic may impact and may further impact our business, financial condition, liquidity, results of operations, or prospects depends on numerous evolving factors that are out of our control and that we are not able to predict at this time, including, but not limited to: (i) the nature, duration, and scope of the pandemic; (ii) governmental, business, and individuals’ actions that have been and continue to be taken in response to the pandemic; (iii) the impact on economic activity from the pandemic (including the effect on market rental rates and farmland values, if any) and actions taken in response; (iv) the effect on our tenants and their farming operations, including any disruptions that would impact their ability to make rental payments to us (including, but not limited to, labor shortages and supply chain disruptions); and (v) the impact on credit markets and our ability to continue to secure debt financing. 33 Table of Contents We do not believe that the ongoing COVID-19 pandemic has materially affected our operations or those of our tenants at this point in time. Most of our farmers initially experienced increased sales volumes and higher-than-average prices because the pandemic led the public to stockpile food and other necessities. However, such volumes and prices have recently returned to more normalized levels, though overall demand and pricing remains above that of the prior year. In July 2020, we granted extensions of up to 123 days to two tenants who owed semi-annual rental payments totaling approximately $343,000. These payments were originally scheduled to be paid on July 1, 2020, and the rent deferrals we granted to these tenants extended the new due dates to be on or before November 1, 2020, with all other terms of the existing lease agreements remaining unchanged. Additional time was granted to these tenants due to delays in payments owed to them from their respective processors, which were primarily caused by the strict government-mandated lockdowns in the state of Michigan in response to COVID-19. These rental payments were collected in full in October 2020, and we have not received any further requests from tenants seeking relief as a result of COVID-19. While we do not currently anticipate any additional requests from tenants for rent deferrals, if we do receive additional rent relief requests in the future from tenants that have directly been materially and adversely impacted by the ongoing COVID-19 pandemic, as assessed by us, in exchange for granting any such relief, we intend to seek certain terms in exchange for granting such relief, if any, including, but not limited to, extended lease terms, increased rent, and near-term rent deferral repayments. In addition, if we were to grant any rent deferrals or modifications, we anticipate that any such agreements would include partial payments in exchange for rent deferrals of varying terms, with all deferred amounts to be paid back to us over a specified, short-term period. At this time, we are unable to quantify the success of any tenant’s financial prospects, the amount of any future relief requests from tenants, or the outcome of any future relief package negotiations, if such relief is granted. In addition, while public equity markets have experienced significant volatility lately, we do not believe there will be a credit freeze in agricultural lending in the near term that will have a material adverse impact on us. Further, we are in compliance with all of our debt covenants, and we believe we currently have adequate liquidity to cover all near-term debt obligations and operating expenses. We currently expect values of our farmland portfolio to remain stable, and with the exception of the rent deferrals granted to the two aforementioned tenants in July 2020, we expect rental payments to continue to be paid on time for at least the foreseeable future. However, we will continue to monitor the overall situation and our portfolio and may take actions that alter our business operations as may be required by federal, state, or local authorities or that we determine are in the best interests of our personnel, tenants, or stockholders. There can be no assurance that our business and financial and operational results will not be impacted by the COVID-19 pandemic or that we will be able to pay distributions to our stockholders in the future at the same rate, or at all. Portfolio Diversity Since our initial public offering in January 2013 (the “IPO”), we have expanded our portfolio from 12 farms leased to 7 different, unrelated tenants to a current portfolio of 127 farms leased to 75 different, unrelated third-party tenants who grow over 50 different types of crops on our farms. While our focus remains in farmland suitable for growing fresh produce annual row crops, we have also diversified our portfolio into farmland suitable for other crop types, including permanent crops (e.g., almonds, blueberries, pistachios, and wine grapes) and, to a lesser extent, certain commodity crops (e.g., beans and corn). The acquisition of additional farms since our IPO has also allowed us to further diversify our portfolio geographically. The following table summarizes the different geographic locations (by state) of our farms owned and with leases in place as of and for the nine months ended September 30, 2020 and 2019 (dollars in thousands): 34 Table of Contents As of and For the nine months ended September 30, 2020 As of and For the nine months ended September 30, 2019 State Number of Farms Total Acres % of Total Acres Lease Revenue % of Total Lease Revenue Number of Farms Total Acres % of Total Acres Lease Revenue % of Total Lease Revenue California (1) 46 17,954 19.4% $ 22,153 52.9% 41 13,731 16.8% $ 13,872 51.0% Florida 23 20,770 22.4% 10,006 23.9% 23 20,770 25.5% 7,785 28.6% Arizona 6 6,280 6.8% 4,272 10.2% 6 6,280 7.7% 1,609 5.9% Colorado 12 32,773 35.4% 2,501 6.0% 10 31,448 38.5% 2,126 7.8% Nebraska 9 7,782 8.4% 1,159 2.7% 3 3,254 4.0% 264 1.0% Michigan 15 962 1.0% 554 1.3% 15 962 1.2% 259 1.0% Oregon 3 418 0.5% 395 0.9% 3 418 0.5% 386 1.4% Washington 1 746 0.8% 368 0.9% 1 746 0.9% 383 1.4% Texas 1 3,667 4.0% 337 0.8% 1 3,667 4.5% 394 1.4% North Carolina 2 310 0.3% 120 0.3% 2 310 0.4% 125 0.5% Maryland 4 759 0.8% 35 0.1% — — —% $ — —% Delaware 1 180 0.2% 7 —% — — —% $ — —% TOTALS 123 92,601 100.0% $ 41,907 100.0% 105 81,586 100.0% $ 27,203 100.0% (1) According to the California Chapter of the American Society of Farm Managers and Rural Appraisers, there are eight distinct growing regions within California; our farms are spread across six of these growing regions. We believe that our geographic diversity mitigates our exposure to certain economic issues (including those as a result of COVID-19) in any one geographic market or area. Leases General Most of our leases are on a triple-net basis, an arrangement under which, in addition to rent, the tenant is required to pay the related taxes, insurance costs, maintenance, and other operating costs. Our leases generally have original terms ranging from 3 to 10 years for farms growing row crops and 7 to 15 years for farms growing permanent crops (in each case, often with options to extend the lease further). Rent is generally payable to us in advance on either an annual or semi-annual basis, with such rent typically subject to periodic escalation clauses included within the lease. Currently, 94 of our farms are leased on a pure, triple-net basis, 30 farms are leased on a partial-net basis (with us, as landlord, responsible for all or a portion of the related property taxes), and 3 farms are leased on a single-net basis (with us, as landlord, responsible for the related property taxes, as well as certain maintenance, repairs, and insurance costs). Additionally, 33 of our farms are leased under agreements that include a variable rent component, called “participation rents,” that are based on the gross revenues earned on the respective farms. Lease Expirations Agricultural leases are often shorter term in nature (relative to leases of other types of real estate assets), so in any given year, we may have multiple leases up for extension or renewal. The following table summarizes the lease expirations by year for the farms owned and with leases in place as of September 30, 2020 (dollars in thousands): Year Number of Expiring Leases (1) Expiring Leased Acreage % of Total Acreage Lease Revenues for the Nine Months Ended September 30, 2020 % of Total Lease Revenues 2020 2 23,978 25.9% $ 826 2.0% 2021 9 8,935 9.6% 1,911 4.6% 2022 4 550 0.6% 1,081 2.6% 2023 11 6,266 6.8% 4,492 10.7% 2024 5 6,243 6.7% 1,716 4.1% Thereafter 46 46,629 50.4% 29,018 69.2% Other (2) 6 — —% 2,863 6.8% Totals 83 92,601 100.0% $ 41,907 100.0% (1) Certain lease agreements encompass multiple farms. 35 Table of Contents (2) Consists of ancillary leases (e.g., oil, gas, and mineral leases, telecommunications leases, etc.) with varying expirations on certain of our farms. In addition, includes a net amount of approximately $2.8 million of lease revenue recorded as a result of an early lease termination on one of our properties (see below, under “ Recent Developments—Portfolio Activity—Existing Properties—Leasing Activity—Lease Termination ” for additional information). We currently have three agricultural leases scheduled to expire within the next six months (all located in Colorado). We are currently in negotiations with the existing tenants on each of the farms, as well as other potential tenants, and we anticipate being able to renew each of the leases at their respective current market rental rates without incurring any downtime on any of the farms. Overall, we currently anticipate the rental rates on these lease renewals to remain relatively flat compared to the respective existing leases. Regarding all upcoming lease expirations, there can be no assurance that we will be able to renew the existing leases or execute new leases at rental rates favorable to us, if at all, or be able to find replacement tenants, if necessary. Recent Developments Portfolio Activity Property Acquisitions Since July 1, 2020, through the date of this filing, we have acquired 12 farms, which are summarized in the table below (dollars in thousands, except for footnotes): Property Name Property Location Acquisition Date Total Acreage No. of Farms Primary Crop(s) Lease Term Renewal Options Total Purchase Price Acquisition Costs (1) Annualized Straight-line Rent (2) Mt. Hermon Wicomico & Caroline, MD, and Sussex, DE 8/31/2020 939 5 Sod & vegetables 10.0 years 2 (5 years) $ 7,346 $ 211 $ 432 Firestone Avenue (3)(4)(5) Fresno, CA 9/3/2020 2,534 3 Pistachios and misc. organic & conventional vegetables 1.2 years 2 (5 years) 31,833 74 1,734 West Lost Hills Road (3)(6)(7) Fresno, CA 10/1/2020 801 1 Pistachios 1.1 years 4 (3 years) 31,828 52 1,560 Tractor Road Bamberg & Orangeburg, SC 10/23/2020 597 3 Sod 9.5 years None 3,765 48 244 4,871 12 $ 74,772 $ 385 $ 3,970 (1) Includes approximately $38,000 of aggregate external legal fees associated with negotiating and originating the leases associated with these acquisitions, which costs were expensed in the period incurred. The figures above represent only costs paid or accrued for as of the date of this filing. (2) Annualized straight-line rent is based on the minimum cash rental payments guaranteed under the applicable leases, as required under GAAP, and excludes contingent rental payments, such as participation rents. (3) Lease provides for a participation rent component based on the gross crop revenues earned on the farm. The rent figure above represents only the minimum cash guaranteed under the lease. (4) Lease provides for an initial term of 8.2 years but also includes an annual tenant termination option, effective as of the end of the then-current lease year (as defined within the lease). The lease term stated above represents the term through the first available termination option, and the annualized straight-line rent amount represents the rent guaranteed through the noncancellable term of the lease. (5) In connection with the acquisition of this property, we also acquired an ownership interest in a related LLC, the sole purpose of which is to own and maintain a pipeline conveying water to this and other neighboring properties. Our acquired ownership, which equated to a 12.5% interest in the LLC, was valued at approximately $280,000 at the time of acquisition and is included within Other assets, net on the accompanying Condensed Consolidated Balance Sheets. See Note 3, “ Real Estate and Intangible Assets—Investments in Unconsolidated Entities ,” within the accompanying notes to our condensed consolidated financial statements for further information on our aggregate ownership interest in this LLC. (6) Lease provides for an initial term of 3.1 years but also includes an annual tenant termination option, effective as of the end of the then-current lease year (as defined within the lease). The lease term stated above represents the term through the first available termination option, and the annualized straight-line rent amount represents the rent guaranteed through the noncancellable term of the lease. (7) In connection with the acquisition of this property, we also acquired a 12.5% ownership interest in a related LLC, the sole purpose of which is to own and maintain a pipeline conveying water to this and other neighboring properties. Existing Properties Property Add-on In connection with the acquisition of a 366-acre vineyard located in Napa, California (“Withers Road”), on August 28, 2019, we committed to provide up to approximately $4.0 million as additional compensation, contingent upon the County of Napa approving the planting of additional vineyards on up to 47 acres of the property by February 25, 2020 (the “Permit Deadline”). In addition, if approval was obtained, we also committed to contribute up to $40,000 per approved acre for the development of such vineyards. While approval of the additional plantings was not received from the County of Napa by the Permit Deadline, in March 2020, we executed an agreement with the tenant on Withers Road to extend the Permit Deadline until August 24, 2020. In April 2020, we received notification from the County of Napa informing us that it had approved of additional vineyard plantings on 38.7 acres of the property. As such, in May 2020, we paid additional compensation related to this acquisition of 36 Table of Contents approximately $3.2 million. As a result, and pursuant to a lease amendment, we will earn additional straight-line rental income of approximately $335,000 per year throughout the remaining term of the lease, which expires on December 31, 2029. We will also earn additional rent on any of the aforementioned development costs as they are incurred by us. Leasing Activity The following table summarizes certain leasing activity that has occurred on our existing properties since July 1, 2020, through the date of this filing (dollars in thousands, except for footnotes): PRIOR LEASES NEW LEASES Farm Locations Number of Leases Total Farm Acres Total Annualized Straight-line Rent (1) # of Leases with Participation Rents Lease Structures (# of NNN / NN / N) (2) Total Annualized Straight-line Rent (1) Wtd. Avg. Term (Years) # of Leases with Participation Rents Lease Structures (# of NNN / NN / N) (2) CA & FL 4 616 $ 1,759 — 2 / 2 / 0 $ 1,796 5.3 — 3 / 1 / 0 (1) Annualized straight-line rent is based on the minimum cash rental payments guaranteed under the applicable leases (presented on an annualized basis), as required under GAAP, and excludes contingent rental payments, such as participation rents. (2) “NNN” refers to leases under triple-net lease arrangements, “NN” refers to leases under partial-net lease arrangements, and “N” refers to leases under single-net lease arrangements, in each case, as described above under “ Leases—General .” Financing Activity Debt Activity Since July 1, 2020, through the date of this filing, we have incurred the following new, long-term borrowings (dollars in thousands, except for footnotes; for further discussion on certain defined terms used below, refer to Note 4, “ Borrowings ,” within the accompanying notes to our condensed consolidated financial statements): Lender Date of Issuance Principal Amount Maturity Date Principal Amortization Stated Interest Rate Expected Effective Interest Rate (1) Interest Rate Terms Farm Credit of the Virginias, ACA 8/31/2020 $ 4,481 9/1/2030 25.0 years 3.99% 3.24% Fixed throughout term PGIM Real Estate Finance, LLC 10/1/2020 19.042 7/1/2028 25.0 years 2.47% 2.47% Fixed throughout term PGIM Real Estate Finance, LLC 10/1/2020 19.096 7/1/2028 25.0 years 2.45% 2.45% Fixed throughout term AgAmerica Lending, LLC 10/23/2020 2.259 1/1/2028 30.0 years 3.50% 3.50% Fixed throughout term (1) On borrowings from the various Farm Credit associations, we receive interest patronage, or refunded interest, which is typically received in the calendar year following the year in which the related interest expense was accrued. The expected effective interest rates reflected in the table above are the interest rates net of expected interest patronage, which is based on either historical patronage actually received (for pre-existing lenders whom we have received interest patronage from) or indications from the respective lenders of estimated patronage to be paid (for new lenders). See Note 4, “ Borrowings ,” in the accompanying notes to our condensed consolidated financial statements for additional information on interest patronage received in current and prior years. Equity Activity Series C Preferred Stock On April 3, 2020, we filed a new prospectus supplement (which superseded and replaced a previously-filed prospectus supplement) with the SEC for a continuous public offering (the “Series C Offering”) of up to 26,000,000 shares of our newly-designated 6.00% Series C Cumulative Redeemable Preferred Stock (the “Series C Preferred Stock”). Under the Series C Offering, we may sell up to 20,000,000 shares of our Series C Preferred Stock on a “reasonable best efforts” basis through Gladstone Securities at an offering price of $25.00 per share (the “Primary Series C Offering”) and up to 6,000,000 additional shares of our Series C Preferred Stock pursuant to our dividend reinvestment plan (the “DRIP”) to those holders of the Series C Preferred Stock who do not elect to opt-out of such plan. Assuming all shares of the Series C Preferred Stock are sold in both the Primary Series C Offering and through the DRIP, we expect the Series C Offering to result in gross proceeds of up to $636.5 million and net proceeds, after deducting selling commissions, dealer-manager fees, and estimated expenses of the offering payable by us, of up to approximately $591.5 million. We intend to use the net proceeds from the Series C Offering to repay existing indebtedness, to fund future acquisitions, and for other general corporate purposes. See Note 6, “ Related-Party Transactions—Gladstone Securities—Series C Dealer-Manager Agreement ,” within the accompanying notes to our condensed consolidated financial statements for more details on the dealer-manager agreement entered into with Gladstone Securities in connection with the Series C Offering. 37 Table of Contents The following table summarizes the sales of our Series C Preferred Stock that occurred since July 1, 2020, through the date of this filing (dollars in thousands, except per-share amounts and footnotes): Number of Shares Sold (1) Weighted-average Sales Price per Share Gross Proceeds Net Proceeds (2) 493,355 $ 24.86 $ 12,265 $ 11,224 (1) Excludes shares issued pursuant to the DRIP. From July 1 through the date of this filing, we issued approximately 56 shares of the Series C Preferred Stock pursuant to the DRIP. (2) Net of selling commissions and dealer-manager fees borne by us. Aggregate selling commissions and dealer-manager fees paid to Gladstone Securities as a result of these sales was approximately $1.1 million (of which approximately $1.0 million was remitted by Gladstone Securities to unrelated third-parties involved in the offering, such as participating broker-dealers and wholesalers). The Primary Series C Offering will terminate on the date (the “Series C Termination Date”) that is the earlier of either June 1, 2025 (unless terminated earlier or extended by our Board of Directors), or the date on which all 20,000,000 shares in the Primary Series C Offering are sold. There is currently no public market for shares of the Series C Preferred Stock; however, we intend to apply to list the Series C Preferred Stock on Nasdaq or another national securities exchange within one calendar year after the Series C Termination Date, though there can be no assurance that a listing will be achieved in such timeframe, or at all. Common Stock At-the-Market Program On May 12, 2020, we terminated the Prior ATM Program (as defined in Note 8, “ Equity—Equity Issuances—Common Stock—At-the-Market-Program ,” within the accompanying notes to our condensed consolidated financial statements) and entered into new equity distribution agreements with Virtu Americas, LLC, and Ladenburg & Co., Inc. (each a “Sales Agent”), under which we may issue and sell, from time to time and through new Sales Agents, shares of our common stock having an aggregate offering price of up to $100.0 million (the “Current ATM Program,” and collectively with the Prior ATM Program, the “ATM Programs”). The following table summarizes the activity under the Current ATM Program from July 1, 2020, through the date of this filing (dollars in thousands): Number of Shares Sold Weighted-average Offering Price per Share Gross Proceeds Net Proceeds (1) 526,016 $ 16.13 $ 8,483 $ 8,398 (1) Net of underwriter commissions and discounts. Follow-on Offering In October 2020, we completed a public offering of our common stock. The following table summarizes the details of the offering, including the underwriters’ full exercise of the over-allotment option in connection of the offering (dollars in thousands, except per-share amounts): Number of Shares Sold Weighted-average Offering Price per Share Gross Proceeds Net Proceeds (1) 1,897,500 $ 14.40 $ 27,324 $ 26,094 (1) Net of underwriter discounts and commissions. We used the proceeds received from this offering to repay existing indebtedness, fund property acquisitions, and for other general corporate purposes. LIBOR Transition The majority of our debt is at fixed rates, and we currently have very limited exposure to variable-rate debt based upon the London Interbank Offered Rate (“LIBOR”), which is anticipated to be phased out during late 2021. LIBOR is currently expected to transition to a new standard rate, the Secured Overnight Financing Rate (“SOFR”), which will incorporate certain overnight repo market data collected from multiple data sets. The current intent is to adjust the SOFR to minimize the differences between the interest that a borrower would be paying using LIBOR versus what it will be paying SOFR. We are currently monitoring the transition and cannot yet assess whether SOFR will become a standard rate for variable-rate debt. However, as our lines of credit with MetLife are currently based upon one-month LIBOR, we expect we will need to renegotiate this agreement in the future. Assuming that SOFR replaces LIBOR and is appropriately adjusted, we expect the transition to result in a minimal impact to our overall operations. Our Adviser and Administrator 38 Table of Contents We are externally managed pursuant to contractual arrangements with our Adviser and our Administrator (both affiliates of ours), which collectively employ all of our personnel and pay their salaries, benefits, and general expenses directly. The investment advisory agreement with our Adviser that was in effect through March 31, 2017, and the current administration agreement with our Administrator (the “Administration Agreement”) each became effective February 1, 2013. The advisory agreement with our Adviser that was in effect through June 30, 2019 (the “Prior Advisory Agreement”), was amended and restated on July 9, 2019 (as amended, the “2019 Advisory Agreement”), and again amended and restated on January 14, 2020 (as amended, the “2020 Advisory Agreement,” and, together with the Prior Advisory Agreement and the 2019 Advisory Agreement, the “Advisory Agreements”). The Administration Agreement and each of the Advisory Agreements were approved unanimously by our board of directors, including our independent directors. A summary of the compensation terms for each of the Advisory Agreements and the Administration Agreement is below. Advisory Agreements Pursuant to each of the Prior Advisory Agreement (which was in effect from April 1, 2017, through June 30, 2019), the 2019 Advisory Agreement (which was in effect from July 1, 2019, through December 31, 2019), and the 2020 Advisory Agreement (which has been in effect since January 1, 2020), our Adviser is compensated in the form of a base management fee and, each as applicable, an incentive fee, a capital gains fee, and a termination fee. Our Adviser does not charge acquisition or disposition fees when we acquire or dispose of properties, as is common in other externally-managed REITs. The 2019 Advisory Agreement modified the calculation of the base management and incentive fees to exclude preferred equity from such calculations, while the capital gains and termination fees remained unchanged. The 2020 Advisory Agreement revised and replaced the previous calculation of the base management fee, which was previously based on equity, with a calculation based on gross real estate assets (in each case, as further described below), while all other fees remained unchanged. The base management and incentive fees are described below. For information on the capital gains and termination fees, refer to Note 6, “Related-Party Transactions—Our Adviser and Administrator—Advisory Agreements,” within the accompanying notes to our condensed consolidated financial statements. Base Management Fee Pursuant to the Prior Advisory Agreement, a base management fee was paid quarterly and was calculated as 2.0% per annum (0.50% per quarter) of the calendar quarter’s total adjusted equity, which was defined as total equity plus total mezzanine equity, if any (each as reported on our balance sheet), adjusted to exclude unrealized gains and losses and certain other one-time events and non-cash items (“Total Adjusted Equity”). Pursuant to the 2019 Advisory Agreement, a base management fee was paid quarterly and was calculated as 2.0% per annum (0.50% per quarter) of the prior calendar quarter’s total adjusted common equity, which was defined as common stockholders’ equity plus non-controlling common interests in the Operating Partnership, if any (each as reported on our balance sheet), adjusted to exclude unrealized gains and losses and certain other one-time events and non-cash items (“Total Adjusted Common Equity”). Under the 2020 Advisory Agreement, a base management fee is paid quarterly and is calculated at an annual rate of 0.50% (0.125% per quarter) of the prior calendar quarter’s “Gross Tangible Real Estate,” defined as the gross cost of tangible real estate owned by us (including land and land improvements, irrigation and drainage systems, horticulture, farm-related facilities, and other tangible site improvements), prior to any accumulated depreciation, and as shown on our balance sheet or the notes thereto for the applicable quarter. Relevant to prior agreements with our Adviser, which calculated the management fee based on an equity component, management believes the updated fee calculation pursuant to the 2020 Advisory Agreement provides for a more direct correlation between the fee paid to our Adviser and the assets our Adviser is responsible for managing. The following table compares what the historical base management fee has been on an actual basis for the years ended December 31, 2019, 2018, and 2017, versus what it would have been had the 2020 Advisory Agreement been in place during each of those years (dollars in thousands): For the Years Ended December 31, 2019 2018 2017 Actual gross base management fee (1) $ 3,623 $ 2,837 $ 2,041 Hypothetical gross base management fee (2) 3,150 2,433 2,010 Hypothetical increase (decrease) in base management fee $ (473) $ (404) $ (31) (1) Actual figures calculated pursuant to the agreements with our Adviser in place during the respective periods. (2) Calculated as if the 2020 Advisory Agreement had been in place as of January 1, 2017. In addition, had the 2019 Advisory Agreement been in place during the three and nine months ended September 30, 2020, the hypothetical base management fee would have been approximately $862,000 and $2.6 million, respectively, as compared to the 39 Table of Contents actual base management fee calculated under the 2020 Advisory Agreement of approximately $1.1 million and $3.2 million, respectively. We are unable to project the impact of the 2020 Advisory Agreement on the base management fee going forward and how it might compare to that of the 2019 Advisory Agreement or the Prior Advisory Agreement, as we are unable to estimate the amount of equity to be issued or new tangible assets to be acquired in future periods. During the three and nine months ended September 30, 2019, our Adviser granted us certain non-contractual, unconditional, and irrevocable waivers (as discussed further below, under “ —Results of Operations—Operating Expenses—Related-Party Fees ”), which were applied as credits against the base management fee for the period. We did not have any such waivers for the three or nine months ended September 30, 2020. Incentive Fee Pursuant to the Prior Advisory Agreement, an incentive fee was calculated and payable quarterly in arrears if the Pre-Incentive Fee FFO for a particular quarter exceeded a hurdle rate of 1.75% (7.0% annualized) of the prior calendar quarter’s Total Adjusted Equity. Under each of the 2019 Advisory Agreement and the 2020 Advisory Agreement, an incentive fee was and is calculated and payable quarterly in arrears if the Pre-Incentive Fee FFO for a particular quarter exceeds a hurdle rate of 1.75% (7.0% annualized) of the prior calendar quarter’s Total Adjusted Common Equity. For purposes of the calculation of the Incentive Fee, Pre-Incentive Fee FFO was defined in each of the Advisory Agreements as FFO (also as defined in each of the Advisory Agreements) accrued by the Company during the current calendar quarter (prior to any incentive fee calculation for the current calendar quarter), less any dividends paid on preferred stock securities that were not treated as a liability for GAAP purposes. Our Adviser would receive: (i) no Incentive Fee in any calendar quarter in which the Pre-Incentive Fee FFO did not exceed the hurdle rate; (ii) 100% of the Pre-Incentive Fee FFO with respect to that portion of such Pre-Incentive Fee FFO, if any, that exceeded the hurdle rate but was less than 2.1875% in any calendar quarter (8.75% annualized); and (iii) 20% of the amount of the Pre-Incentive Fee FFO, if any, that exceeds 2.1875% in any calendar quarter (8.75% annualized). Critical Accounting Policies The preparation of our financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) requires management to make judgments that are subjective in nature to make certain estimates and assumptions. Application of these accounting policies involves the exercise of judgment regarding the use of assumptions as to future uncertainties, and, as a result, actual results could materially differ from these estimates. A summary of our significant accounting policies is provided in Note 2 to our consolidated financial statements in our Form 10-K. There were no material changes to our critical accounting policies during the nine months ended September 30, 2020. Smaller Reporting Company Status We currently qualify as a “smaller reporting company” under Rule 12b-2 of the Exchange Act, which is defined as a company with a public equity float of less than $250 million or less than $100 million in annual revenues for the previous year and no public float. Companies can also qualify as a smaller reporting company if they have annual revenues of less than $100 million for the previous year and a public float of less than $700 million. As a smaller reporting company, we have reduced disclosure requirements for our public filings, including the reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. RESULTS OF OPERATIONS For the purposes of the following discussions on certain operating revenues and expenses: • With regard to the comparison between the three months ended September 30, 2020 versus 2019: ◦ Same-property basis represents farms owned as of June 30, 2019, and were not vacant at any point during either period presented; ◦ Properties acquired or disposed of are farms that were either acquired or disposed of at any point subsequent to June 30, 2019. From July 1, 2019, through September 30, 2020, we acquired 37 new farms and did not have any farm dispositions; and ◦ Vacant or self-operated properties represent farms that were either vacant (either wholly or partially) or operated by a wholly-owned subsidiary of ours at any point during either period presented. We did not have any vacant farms during either of the three months ended September 30, 2020 or 2019. • With regard to the comparison between the nine months ended September 30, 2020 versus 2019: 40 Table of Contents ◦ Same-property basis represents farms owned as of December 31, 2018, and were not vacant at any point during either period presented; ◦ Properties acquired or disposed of are farms that were either acquired or disposed of at any point subsequent to December 31, 2018. From January 1, 2019, through September 30, 2020, we acquired 38 new farms and did not have any farm dispositions; and ◦ Vacant or self-operated properties represent farms that were either vacant (either wholly or partially) or operated by a wholly-owned subsidiary of ours at any point during either period presented. We had two farms that were vacant for a portion of the nine months ended September 30, 2019. A comparison of our operating results for the three and nine months ended September 30, 2020 and 2019 is below (dollars in thousands): For the Three Months Ended September 30, 2020 2019 $ Change % Change Operating revenues: Lease revenue: Fixed lease payments $ 12,838 $ 10,131 $ 2,707 26.7% Variable lease payments – participation rents 1,132 848 284 33.5% Variable lease payments – tenant reimbursements 19 33 (14) (42.4)% Total operating revenues 13,989 11,012 2,977 27.0% Operating expenses: Depreciation and amortization 3,909 3,419 490 14.3% Property operating expenses 287 536 (249) (46.5)% Base management and incentive fees, net of credits 1,899 862 1,037 120.3% Administration fee 344 311 33 10.6% General and administrative expenses 419 447 (28) (6.3)% Total operating expenses, net of credits 6,858 5,575 1,283 23.0% Operating income 7,131 5,437 1,694 31.2% Other income (expense): Other income 323 62 261 421.0% Interest expense (5,202) (4,401) (801) 18.2% Dividends declared on Series A Term Preferred Stock (458) (458) — —% Loss on dispositions of real estate assets, net (195) (134) (61) 45.5% Property and casualty recovery, net 1 17 (16) (94.1)% Loss from investments in unconsolidated entities (19) — (19) NM Total other expense, net (5,550) (4,914) (636) 12.9% Net income 1,581 523 1,058 202.3% Net income attributable to non-controlling interests (13) (6) (7) 116.7% Net income attributable to the Company 1,568 517 1,051 203.3% Aggregate dividends declared on and charges related to Series B and Series C Preferred Stock (2,405) (1,161) (1,244) 107.1% Net loss attributable to common stockholders $ (837) $ (644) $ (193) 30.0% NM = Not Meaningful 41 Table of Contents For the Nine Months Ended September 30, 2020 2019 $ Change % Change Operating revenues: Lease revenue: Fixed lease payments $ 37,450 $ 26,236 $ 11,214 42.7% Variable lease payments – participation rents 1,206 874 332 38.0% Variable lease payments – tenant reimbursements 441 93 348 374.2% Lease termination income, net 2,810 — 2,810 NM Total operating revenues 41,907 27,203 14,704 54.1% Operating expenses: Depreciation and amortization 12,010 8,952 3,058 34.2% Property operating expenses 1,525 1,939 (414) (21.4)% Base management and incentive fees, net of credits 5,314 1,199 4,115 343.2% Administration fee 1,084 866 218 25.2% General and administrative expenses 1,462 1,465 (3) (0.2)% Total operating expenses, net of credits 21,395 14,421 6,974 48.4% Operating income 20,512 12,782 7,730 60.5% Other income (expense): Other income 1,668 937 731 78.0% Interest expense (15,155) (11,396) (3,759) 33.0% Dividends declared on Series A Term Preferred Stock (1,375) (1,375) — —% Loss on dispositions of real estate assets, net (861) (154) (707) 459.1% Property and casualty recovery, net 68 10 58 580.0% Income from investments in unconsolidated entities 7 — 7 NM Total other expense, net (15,648) (11,978) (3,670) 30.6% Net income 4,864 804 4,060 505.0% Net income attributable to non-controlling interests (52) (9) (43) 477.8% Net income attributable to the Company 4,812 795 4,017 505.3% Aggregate dividends declared on and charges related to Series B and Series C Preferred Stock (6,793) (2,655) (4,138) 155.9% Net loss attributable to common stockholders $ (1,981) $ (1,860) $ (121) 6.5% NM = Not Meaningful Operating Revenues Lease Revenue The following table provides a summary of our lease revenues during the three and nine months ended September 30, 2020 and 2019 (dollars in thousands): 42 Table of Contents For the Three Months Ended September 30, For the Nine Months Ended September 30, 2020 2019 $ Change % Change 2020 2019 $ Change % Change Same-property basis: Fixed lease payments $ 8,870 $ 8,673 $ 197 2.3% $ 23,936 $ 23,308 $ 628 2.7% Participation rents 1,132 848 284 33.5% 1,206 874 332 38.0% Lease termination income, net — — — —% 2,810 — 2,810 —% Total – Same-property basis 10,002 9,521 481 5.1% 27,952 24,182 3,770 15.6% Properties acquired or disposed of 3,968 1,458 2,510 172.2% 13,317 2,752 10,565 383.9% Vacant or self-operated properties — — — —% 197 176 21 11.9% Tenant reimbursements (1) 19 33 (14) (42.4)% 441 93 348 374.2% Total Lease revenue $ 13,989 $ 11,012 $ 2,977 27.0% $ 41,907 $ 27,203 $ 14,704 54.1% (1) Tenant reimbursements generally represent tenant-reimbursed property operating expenses on certain of our farms, including property taxes, insurance premiums, and other property-related expenses. Corresponding amounts were also recorded as property operating expenses during the respective periods. Same-property Basis – 2020 compared to 2019 Lease revenue from fixed lease payments increased for each of the three and nine months ended September 30, 2020, primarily due to recent lease renewals and amendments at net higher rental rates, as well as additional rents earned on recent capital improvements completed on certain of our farms. These increases were partially offset by the renewals of certain other leases, in which we decreased the fixed base rent component in exchange for adding a participation rent component into the lease structure. Lease revenue from participation rents increased for each of the three and nine months ended September 30, 2020. During the three months ended September 30, 2020, we recognized participation rents from three farms totaling 1,286 farm acres, as compared to six farms totaling 3,701 farm acres in the prior-year period. During the nine months ended September 30, 2020, we recognized participation rents on eight farms totaling 3,865 farm acres, as compared to eight farms totaling 3,996 acres in the prior-year period. During the nine months ended September 30, 2020, we received an early lease termination payment from an outgoing tenant on a property of approximately $3.0 million, which we recognized as additional lease revenue upon receipt, less a net balance of approximately $165,000 of aggregate prepaid rent and deferred rent assets balances that were written off against this amount. For further discussion on this lease termination, see above, under “ Overview—Recent Developments—Portfolio Activity—Existing Properties—Leasing Activity—Lease Termination .” Other – 2020 compared to 2019 Lease revenue from properties acquired or disposed of increased for each of the three and nine months ended September 30, 2020, primarily due to additional revenues earned on new farms acquired subsequent to December 31, 2018. Lease revenue for vacant or self-operated properties increased for the nine months ended September 30, 2020, primarily due to additional revenues earned during 2020 on farms that were vacant for a portion of 2019. As compared to the respective prior-year periods, tenant reimbursement income decreased slightly for the three months ended September 30, 2020, and increased for the nine months ended September 30, 2020. The increase for the nine months ended September 30, 2020, was due to additional contractual reimbursements of property taxes and other operating costs. Tenant reimbursements during the nine months ended September 30, 2020, also included payments made by a tenant on our behalf (pursuant to the lease agreement) to an unconsolidated entity of ours that conveys water to the respective property. Operating Expenses Depreciation and Amortization The following table provides a summary of the depreciation and amortization expense recorded during the three and nine months ended September 30, 2020 and 2019 (dollars in thousands): 43 Table of Contents For the Three Months Ended September 30, For the Nine Months Ended September 30, 2020 2019 $ Change % Change 2020 2019 $ Change % Change Same-property basis $ 2,996 $ 3,029 $ (33) (1.1)% $ 8,281 $ 7,867 $ 414 5.3% Properties acquired or disposed of 913 390 523 134.1% 3,623 976 2,647 271.2% Vacant or self-operated properties — — — —% 106 109 (3) (2.8)% Total depreciation and amortization $ 3,909 $ 3,419 $ 490 14.3% $ 12,010 $ 8,952 $ 3,058 34.2% Depreciation and amortization expense on a same-property basis decreased for the three months ended September 30, 2020, as compared to the prior-year period, primarily due to the expiration of certain lease intangible amortization periods or tangible depreciation periods subsequent to June 30, 2019, partially offset by additional depreciation on site improvements completed on certain properties subsequent to June 30, 2019. Depreciation and amortization expense on a same-property basis increased for the nine months ended September 30, 2020, as compared to the prior-year period, primarily due to accelerated amortization expense recognized due to an early lease termination (see above, under “ Overview—Recent Developments—Portfolio Activity—Existing Properties—Leasing Activity—Lease Termination ”), as well as additional depreciation on site improvements completed on certain properties subsequent to December 31, 2018, and partially offset by the expiration of certain lease intangible amortization periods subsequent to December 31, 2018. Depreciation and amortization expense on properties acquired or disposed of increased for each of the three and nine months ended September 30, 2020, as compared to the respective prior-year periods, primarily due to the additional depreciation and amortization expense incurred on the new farms acquired subsequent to December 31, 2018. Depreciation and amortization expense on vacant or self-operated properties for the nine months ended September 30, 2020, remained flat when compared to the prior-year period. Property-operating Expenses Property operating expenses consist primarily of real estate taxes, repair and maintenance expense, insurance premiums, and other miscellaneous operating expenses paid for certain of our properties. In addition, from approximately July 2018 through June 2019, we incurred additional expenses related to temporary generator rental costs to power newly-drilled wells on one of our properties. During the second half of 2019, these wells were connected to permanent power sources, and the generators were no longer needed. The following table provides a summary of the property-operating expenses recorded during the three and nine months ended September 30, 2020 and 2019 (dollars in thousands): For the Three Months Ended September 30, For the Nine Months Ended September 30, 2020 2019 $ Change % Change 2020 2019 $ Change % Change Same-property basis $ 244 $ 444 $ (200) (45.0)% $ 981 $ 1,751 $ (770) (44.0)% Properties acquired or disposed of 24 59 (35) (59.3)% 87 78 9 11.5% Vacant or self-operated properties — — — —% 16 17 (1) (5.9)% Tenant-reimbursed property operating expenses (1) 19 33 (14) (42.4)% 441 93 348 374.2% Total Property operating expenses $ 287 $ 536 $ (249) (46.5)% $ 1,525 $ 1,939 $ (414) (21.4)% (1) Represents certain operating expenses (property taxes, insurance premiums, and other property-related expenses) paid by us that, per the respective leases, are required to be reimbursed to us by the tenant. Corresponding amounts were also recorded as lease revenues during the respective periods. Same-property Basis – 2020 compared to 2019 Property operating expenses decreased for each of the three and nine months ended September 30, 2020, primarily due to additional costs incurred during the prior-year period for the above-referenced generator rentals and for obtaining certain permits on one of our California properties. Other – 2020 compared to 2019 Property operating expenses on properties acquired or disposed of decreased for the three months ended September 30, 2020, and remained relatively flat for the nine months ended September 30, 2020. The decrease for the three months ended September 30, 2020, was primarily due to additional legal fees incurred during the prior-year period related to negotiating and originating leases on new acquisitions. Property operating expenses on vacant or self-operated properties remained flat for the nine months ended September 30, 2020, as compared to the prior-year period. As compared to the respective prior-year periods, tenant reimbursement expense decreased slightly for the three months ended September 30, 2020, and increased for the nine months ended September 30, 2020. The increase for the nine months ended September 30, 2020, was due to additional property taxes paid by us on certain of our properties and miscellaneous operating 44 Table of Contents costs incurred by us in connection with our ownership interest in an unconsolidated entity. In both situations, the respective tenants are contractually obligated to reimburse us under the terms of the respective leases. Related-Party Fees Certain fee calculations changed pursuant to amendments to the agreements with our Adviser that were approved on July 9, 2019, and January 14, 2020. For a discussion of the changes to these fees, see above, under “ Overview—Our Adviser and Administrator—Advisory Agreements .” The following table summarizes the base management, incentive, and capital gains fees due to our Adviser, in each case, as applicable, net of the respective credits, for the three and nine months ended September 30, 2020 and 2019 (dollars in thousands): For the Three Months Ended September 30, For the Nine Months Ended September 30, 2020 2019 $ Change % Change 2020 2019 $ Change % Change Base management fee, gross (1) $ 1,078 $ 862 $ 216 25.1% $ 3,159 $ 2,741 $ 418 15.2% Credits granted by Adviser’s board of directors applied against the base management fee (2) — — — —% — (1,542) 1,542 (100.0)% Base management fee, net 1,078 862 216 25.1% 3,159 1,199 1,960 163.5% Incentive fee, gross (1) 821 — 821 —% 2,155 — 2,155 —% Credits granted by Adviser’s board of directors applied against the incentive fee (2) — — — —% — — — —% Incentive fee, net 821 — 821 —% 2,155 — 2,155 —% Capital gains fee, gross (1) — — — —% — — — —% Credits granted by Adviser’s board of directors applied against the capital gains fee (2) — — — —% — — — —% Capital gains fee, net — — — —% — — — —% Total fees to Adviser, gross 1,899 862 1,037 120.3% 5,314 2,741 2,573 93.9% Total credits granted by Adviser’s board of directors (1) — — — —% — (1,542) 1,542 (100.0)% Total fees to Adviser, net $ 1,899 $ 862 $ 1,037 120.3% $ 5,314 $ 1,199 $ 4,115 343.2% (1) Reflected as a line item on our accompanying Consolidated Statements of Operations and Comprehensive Income. (2) Represent non-contractual, unconditional, and irrevocable waivers granted to us by our Adviser. The base management fee increased during each of the three and nine months ended September 30, 2020, as compared to the respective prior-year periods, primarily due to a change in the calculation of the base management fee. For each of the three and nine months ended September 30, 2020, the base management fee was calculated as 0.125% (0.5% per annum) of the respective prior calendar quarter’s Gross Tangible Real Estate, which base was increased due to a large volume of acquisitions during 2019, whereas the base management fee for each of the three and nine months ended September 30, 2019, was calculated as 0.5% (2.0% per annum) of the Total Adjusted Equity as of the end of the respective prior calendar quarters. See above, under “ Overview—Our Adviser and Administrator—Advisory Agreements—Base Management Fee ,” for further discussion on the calculation of the base management fee for each period. In addition, our Adviser granted us a non-contractual, unconditional, and irrevocable waiver to be applied against the base management fee during the nine months ended September 30, 2019. Our Adviser earned an incentive fee during each of the three and nine months ended September 30, 2020, due to our Pre-Incentive Fee FFO (as defined in the respective agreement with our Adviser) exceeding the required hurdle rate of the applicable base during each of the first and third quarters of fiscal year 2020. No incentive fee was earned by our Adviser during either of the three or nine months ended months ended September 30, 2019. Our Adviser did not earn a capital gains fee during either of the three or nine months ended September 30, 2020 or 2019, as we did not sell any of our properties during any period presented. The administration fee paid to our Administrator increased for each of the three and nine months ended September 30, 2020, as compared to the respective prior-year periods, primarily due to hiring additional personnel and us using a higher overall share of our Administrator’s resources in relation to those used by other funds and affiliated companies serviced by our Administrator. Other Operating Expenses General and administrative expenses consist primarily of professional fees, director fees, stockholder-related expenses, overhead insurance, acquisition-related costs for investments no longer being pursued, and other miscellaneous expenses. Compared to the respective prior-year periods, general and administrative expenses decreased for the three months ended September 30, 2020, and remained relatively flat for the nine months ended September 30, 2020. The decrease for the three 45 Table of Contents months ended September 30, 2020, was primarily due to lower professional fees, partially offset by increased stockholder-related expenses. Other Income (Expense) Other income, which generally consists of interest patronage received from Farm Credit (as defined in Note 4, “ Borrowings ,” in the accompanying notes to our condensed consolidated financial statements) and interest earned on short-term investments, increased for each of the three and nine months ended September 30, 2020, as compared to the respective prior-year periods, primarily driven by additional interest patronage received from Farm Credit (due to increased borrowings from Farm Credit). During the three months ended March 31, 2020, we recorded approximately $1.3 million of interest patronage from Farm Credit related to interest accrued during 2019, compared to approximately $700,000 of interest patronage recorded during the three months ended March 31, 2019. The receipt of interest patronage received from Farm Credit during 2020 resulted in a 20.4% decrease (approximately 98 basis points) to our effective interest rate on our aggregate borrowings from Farm Credit during the year ended December 31, 2019. During the three months ended September 30, 2020, we also received approximately $306,000 of interest patronage from Farm Credit, as certain Farm Credit associations paid a portion of the 2021 interest patronage (which relates to interest accrued during 2020) early. In addition, during the three and nine months ended September 30, 2019, we recognized approximately $53,000 and $208,000, respectively, of additional income as a result of accumulated deferred revenue related to a sale agreement for one of our farms that was terminated and a commission rebate received in connection with a property acquired during the period. Interest expense increased for each of the three and nine months ended September 30, 2020, as compared to the respective prior-year periods, primarily due to increased overall borrowings. The weighted-average principal balance of our aggregate borrowings (excluding our Series A Term Preferred Stock) outstanding for the three and nine months ended September 30, 2020, was approximately $496.9 million and $487.2 million, respectively, as compared to approximately $420.9 million and $367.7 million for the respective prior-year periods. Excluding interest patronage received on certain of our Farm Credit borrowings and the impact of debt issuance costs, the overall effective interest rate charged on our aggregate borrowings was 4.03% and 3.99% for the three and nine months ended September 30, 2020, respectively, as compared to 4.03% and 3.97% for the respective prior-year periods. During each of the three and nine months ended September 30, 2020, we paid aggregate distributions on our Series A Term Preferred Stock (which distributions are treated similar to interest expense) of approximately $458,000 and $1.4 million, respectively. The same amounts were paid in each of the respective prior-year periods. During each of the three and nine months ended September 30, 2020 and 2019, we recorded net losses on dispositions of real estate assets primarily due to the disposal of certain irrigation improvements on certain of our farms, partially offset by net gains recognized on the sale of irrigation pivots on two of our farms that were replaced. The net property and casualty recovery recorded during the nine months ended September 30, 2020, and each of the three and nine months ended September 30, 2019, related to insurance recoveries received for certain irrigation improvements that were damaged due to natural disasters during 2019. During the three and nine months ended September 30, 2020, we recognized (loss) income in an unconsolidated entity of approximately $(19,000) and $7,000, respectively. We acquired an interest in this entity during the three months ended September 30, 2019, during which period no income or loss was recognized. During the three and nine months ended September 30, 2020, the aggregate dividends paid on our Series B Preferred Stock and Series C Preferred Stock increased over that of the respective prior-year periods due to additional shares issued and outstanding during each of the current-year periods. In addition, during the three and nine months ended September 30, 2020, we also wrote off approximately $44,000 of offering costs related to redemptions of our Series B Preferred Stock. LIQUIDITY AND CAPITAL RESOURCES Overview Our current short- and long-term sources of funds include cash and cash equivalents, cash flows from operations, borrowings (including the undrawn commitments available under the New MetLife Facility), and issuances of additional equity securities. Our current available liquidity is approximately $57.9 million, consisting of approximately $33.7 million in cash on hand and, based on the current level of collateral pledged, approximately $24.2 million of availability under the MetLife Facility (subject to compliance with covenants). 46 Table of Contents Future Capital Needs Our short- and long-term liquidity requirements consist primarily of making distributions to stockholders (including to non-controlling OP Unitholders, if any) to maintain our qualification as a REIT, funding our general operating costs, making principal and interest payments on outstanding borrowings, making dividend payments on our Series A Term Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock, and, as capital is available, funding new farmland and farm-related acquisitions consistent with our investment strategy. Notwithstanding the current COVID-19 pandemic, we believe that our current and short-term cash resources will be sufficient to fund our distributions to stockholders (including non-controlling OP Unitholders), service our debt, pay dividends on our Series A Term Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock, and fund our current operating costs in the near term. We expect to meet our long-term liquidity requirements through various sources of capital, including future equity issuances (including, but not limited to, shares of common stock through our ATM Program, OP Units through our Operating Partnership as consideration for future acquisitions, and shares of our Series C Preferred Stock), long-term mortgage indebtedness and bond issuances, and other secured and unsecured borrowings. While public equity markets have experienced significant volatility lately, based on discussions with our lenders, we do not believe there will be a credit freeze in the near term. We are in compliance with all of our debt covenants under our respective credit facilities, and we believe we currently have adequate liquidity to cover all near-term debt obligations and operating expenses. We intend to use a significant portion of any current and future available liquidity to purchase additional farms and farm-related facilities. We continue to actively seek and evaluate acquisitions of additional farms and farm-related facilities that satisfy our investment criteria, and despite the current COVID-19 pandemic, our pipeline of potential acquisitions remains healthy. We have several properties under signed purchase and sale agreements or non-binding letters of intent that we hope to consummate over the next six months. We also have many other properties that are in various other stages of our due diligence process. However, all potential acquisitions will be subject to our due diligence investigation of such properties, and there can be no assurance that we will be successful in identifying or acquiring any properties in the future. Cash Flow Resources The following table summarizes total net cash flows from operating, investing, and financing activities for the nine months ended September 30, 2020 and 2019 (dollars in thousands): For the Nine Months Ended September 30, 2020 2019 $ Change % Change Net change in cash from: Operating activities $ 11,593 $ 13,902 $ (2,309) (16.6)% Investing activities (75,620) (209,950) 134,330 (64.0)% Financing activities 56,794 185,310 (128,516) (69.4)% Net change in Cash and cash equivalents $ (7,233) $ (10,738) $ 3,505 (32.6)% Operating Activities The majority of cash from operating activities is generated from the rental payments we receive from our tenants, which is first used to fund our property-level operating expenses, with any excess cash being primarily used for principal and interest payments on our borrowings, management fees to our Adviser, administrative fees to our Administrator, and other corporate-level expenses. Cash provided by operating activities decreased for the nine months ended September 30, 2020, as compared to the prior-year period, primarily due to increases in the amounts of fees paid to our Adviser and interest payments made, partially offset by an early lease termination payment of approximately $3.0 million received from the outgoing tenant on four of our farms in Arizona and additional rental payments received from recent acquisitions during the nine months ended September 30, 2020. As of the date of this filing, with the exception of the aforementioned requests for short-term rent deferrals (both of which have since been paid), we have not received any additional requests from tenants seeking rent relief as a result of COVID-19. Further, we currently expect rental payments to generally continue to be paid on time for at least the foreseeable future. However, there can be no assurance that our business and financial and operational results will not be impacted by the COVID-19 pandemic or that we will be able to pay distributions to our stockholders in the future at the same rate, or at all. Investing Activities The decrease in cash used in investing activities during the nine months ended September 30, 2020, as compared to the prior-year period, was primarily due to a decrease in aggregate cash paid for acquisitions of new farms and capital improvements on 47 Table of Contents existing farms during the nine months ended September 30, 2020, which was approximately $134.3 million less than the prior-year period. Financing Activities The decrease in cash provided by financing activities during the nine months ended September 30, 2020, as compared to the prior-year period, was primarily due to a decrease in net borrowings of approximately $95.0 million and less net cash proceeds from equity issuances (including the Series B Preferred Stock, the Series C Preferred Stock, and our common stock) of approximately $27.9 million for the nine months ended September 30, 2020, as compared to that of the prior-year period. Debt Capital New MetLife Facility As amended on February 20, 2020, the New MetLife Facility currently consists of the $75.0 million New MetLife Term Note and the $75.0 million MetLife Lines of Credit. We currently have no outstanding balance on the New MetLife Term Note and $100,000 outstanding under the MetLife Lines of Credit. While $149.9 million of the full commitment amount under the New MetLife Facility remains undrawn, based on the current level of collateral pledged, we currently have approximately $24.2 million of availability under the New MetLife Facility. The draw period for the New MetLife Term Note expires on December 31, 2022, after which time MetLife has the option to be relieved of its obligation to disburse any additional undrawn funds under the New MetLife Term Note. Farmer Mac Facility As amended on June 16, 2016, our agreement with Federal Agricultural Mortgage Corporation (“Farmer Mac”) provided for bond issuances up to an aggregate amount of $125.0 million (the “Farmer Mac Facility”) by December 11, 2018, after which Farmer Mac had the option to be relieved of its obligation to purchase additional bonds under this facility. As of December 11, 2018, we had issued aggregate bonds of approximately $108.7 million under the Farmer Mac Facility, and Farmer Mac is not obligated to purchase the remaining unissued bonds. However, since December 11, 2018, we have refinanced three bonds previously issued under the Farmer Mac Facility for total proceeds of approximately $22.0 million, which equaled the aggregate value of the previously-issued bonds. We expect to continue to be able to refinance existing bonds under the facility as they mature (so long as we remain in compliance with the applicable covenants, as we currently are), though Farmer Mac is under no obligation to do so. We are also continuing discussions with Farmer Mac for other borrowing opportunities, including expanding the size of the existing facility and extending its borrowing period; however, there is no guarantee that we will be able to reach terms favorable to us, if at all. Farm Credit and Other Lenders Since September 2014, we have closed on 39 separate loans with 11 different Farm Credit associations (for additional information on these associations, see Note 4, “ Borrowings ,” within the accompanying notes to our condensed consolidated financial statements). We also currently have borrowing relationships with several other agricultural lenders and are continuously reaching out to other lenders to establish prospective new relationships. While we do not have any additional availability under any of these programs based on the properties currently pledged as collateral, we expect to enter into additional borrowing agreements with existing and new lenders in connection with certain potential new acquisitions in the future. In addition, we currently have one farm appraised at approximately $1.6 million that is unencumbered and eligible to be pledged as collateral. Equity Capital The following table provides information on equity sales that have occurred since January 1, 2020 (dollars in thousands, except per-share amounts): Type of Issuance Number of Shares Sold Weighted-average Offering Price Per Share Gross Proceeds Net Proceeds (1) Series B Preferred Stock (2) 1,229,531 $ 24.52 $ 30,148 $ 27,664 Series C Preferred Stock 624,057 24.88 15,525 14,197 Common Stock – Follow-on Offering (3) 1,897,500 14.40 27,324 26,094 Common Stock – ATM Program 979,945 14.94 14,638 14,491 (1) Net of selling commissions and dealer-manager fees or underwriting discounts and commissions (in each case, as applicable). 48 Table of Contents (2) Excludes share redemptions during the applicable time period. (3) Includes the underwriters’ exercise of the full over-allotment option in connection with the offering. Our 2020 Registration Statement (as defined in Note 8, “ Equity—Registration Statement ,” within the accompanying notes to our condensed consolidated financial statements) permits us to issue up to an aggregate of $1.0 billion in securities (including up to $650.0 million reserved for issuance of shares of the Series C Preferred Stock), consisting of common stock, preferred stock, warrants, debt securities, depository shares, subscription rights, and units, including through separate, concurrent offerings of two or more of such securities. To date, we have issued approximately $15.5 million of Series C Preferred Stock and approximately $40.9 million of common stock (including common stock issued to redeem OP Units) under the 2020 Registration Statement. In addition, we have the ability to, and expect to in the future, issue additional OP Units to third parties as consideration in future property acquisitions. Off-Balance Sheet Arrangements As of September 30, 2020, we did not have any material off-balance sheet arrangements. NON-GAAP FINANCIAL INFORMATION Funds from Operations, Core Funds from Operations, and Adjusted Funds from Operations The National Association of Real Estate Investment Trusts (“NAREIT”) developed funds from operations (“FFO”) as a relative non-GAAP supplemental measure of operating performance of an equity REIT to recognize that income-producing real estate historically has not depreciated on the same basis as determined under GAAP. FFO, as defined by NAREIT, is net income (computed in accordance with GAAP), excluding gains or losses from sales of property and impairment losses on property, plus depreciation and amortization of real estate assets, and after adjustments for unconsolidated partnerships and joint ventures. We further present core FFO (“CFFO”) and adjusted FFO (“AFFO”) as additional non-GAAP financial measures of our operational performance, as we believe both CFFO and AFFO improve comparability on a period-over-period basis and are more useful supplemental metrics for investors to use in assessing our operational performance on a more sustainable basis than FFO. We believe that these additional performance metrics, along with the most directly-comparable GAAP measures, provide investors with helpful insight regarding how management measures our ongoing performance, as each of CFFO and AFFO (and their respective per-share amounts) are used by management and our board of directors, as appropriate, in assessing overall performance, as well as in certain decision-making analysis, including, but not limited to, the timing of acquisitions and potential equity raises (and the type of securities to offer in any such equity raises), the determination of any fee credits, and declarations of distributions on our common stock. The non-GAAP financial measures presented herein have limitations as analytical tools and should not be considered in isolation or as a substitute for an analysis of our results calculated in accordance with GAAP. We believe that net income is the most directly-comparable GAAP measure to each of FFO, CFFO, and AFFO. Specifically, we believe that FFO is helpful to investors in better understanding our operating performance, primarily because its calculation excludes depreciation and amortization expense on real estate assets, as we believe that GAAP historical cost depreciation of real estate assets is generally not correlated with changes in the value of those assets, particularly with farmland real estate, the value of which does not diminish in a predictable manner over time, as historical cost depreciation implies. Further, we believe that CFFO and AFFO are helpful in understanding our operating performance in that it removes certain items that, by their nature, are not comparable on a period-over-period basis and therefore tend to obscure actual operating performance. In addition, we believe that providing CFFO and AFFO as additional performance metrics allows investors to gauge our overall performance in a manner that is more similar to how our performance is measured by management (including their respective per-share amounts), as well as by analysts and the overall investment community. We calculate CFFO by adjusting FFO for the following items: • Acquisition- and disposition-related expenses. Acquisition- and disposition-related expenses (including due diligence costs on acquisitions not consummated and certain auditing and accounting fees incurred that were directly related to completed acquisitions or dispositions) are incurred for investment purposes and do not correlate with the ongoing operations of our existing portfolio. Further, certain auditing and accounting fees incurred vary depending on the number and complexity of acquisitions or dispositions completed during the period. Due to the inconsistency in which these costs are incurred and how they have historically been treated for accounting purposes, we believe the exclusion of these expenses improves comparability of our operating results on a period-to-period basis. Other adjustments . We will adjust for certain non-recurring charges and receipts and will explain such adjustments accordingly. We believe the exclusion of such non-recurring amounts improves comparability of our operating results 49 Table of Contents on a period-to-period basis and will apply consistent definitions of CFFO for all prior-year periods presented to provide consistency and better comparability. Further, we calculate AFFO by adjusting CFFO for the following items: • Rent adjustments. This adjustment removes the effects of straight-lining rental income, as well as the amortization related to above-market lease values and lease incentives and accretion related to below-market lease values, other deferred revenue, and tenant improvements, resulting in rental income reflected on a modified accrual cash basis. In addition to these adjustments, we also modify the calculation of cash rents within our definition of AFFO to provide greater consistency and comparability due to the period-to-period volatility in which cash rents are received. To coincide with our tenants’ harvest seasons, our leases typically provide for cash rents to be paid at various points throughout the lease year, usually annually or semi-annually. As a result, cash rents received during a particular period may not necessarily be comparable to other periods or represent the cash rents indicative of a given lease year. Therefore, we further adjust AFFO to normalize the cash rent received pertaining to a lease year over that respective lease year on a straight-line basis, resulting in cash rent being recognized ratably over the period in which the cash rent is earned. • Amortization of debt issuance costs . The amortization of costs incurred to obtain financing is excluded from AFFO, as it is a non-cash expense item that is not directly related to the operating performance of our properties. • Other adjustments . We will adjust for certain non-cash charges and receipts and will explain such adjustments accordingly. We believe the exclusion of such non-cash amounts improves comparability of our operating results on a period-to-period basis and will apply consistent definitions of AFFO for all prior-year periods presented to provide consistency and better comparability. We believe the foregoing adjustments aid our investors’ understanding of our ongoing operational performance. FFO, CFFO and AFFO do not represent cash flows from operating activities in accordance with GAAP, which, unlike FFO, CFFO, and AFFO, generally reflects all cash effects of transactions and other events in the determination of net income, and should not be considered an alternative to net income as an indication of our performance or to cash flows from operations as a measure of liquidity or ability to make distributions. Comparisons of FFO, CFFO, and AFFO, using the NAREIT definition for FFO and the definitions above for CFFO and AFFO, to similarly-titled measures for other REITs may not necessarily be meaningful due to possible differences in the definitions used by such REITs. Diluted funds from operations (“Diluted FFO”), diluted core funds from operations (“Diluted CFFO”), and diluted adjusted funds from operations (“Diluted AFFO”) per share are FFO, CFFO, and AFFO, respectively, divided by the weighted-average number of total shares (including shares of our common stock and OP Units held by non-controlling limited partners) outstanding on a fully-diluted basis during a period. We believe that diluted earnings per share is the most directly-comparable GAAP measure to each of Diluted FFO, CFFO, and AFFO per share. Because many REITs provide Diluted FFO, CFFO, and AFFO per share information to the investment community, we believe these are useful supplemental measures when comparing us to other REITs. We believe that FFO, CFFO, and AFFO and Diluted FFO, CFFO, and AFFO per share are useful to investors because they provide investors with a further context for evaluating our FFO, CFFO, and AFFO results in the same manner that investors use net income and EPS in evaluating net income. The following table provides a reconciliation of our FFO, CFFO, and AFFO for the three and nine months ended September 30, 2020 and 2019 to the most directly-comparable GAAP measure, net income, and a computation of diluted FFO, CFFO, and AFFO per share, using the weighted-average number of total shares (including shares of our common stock and OP Units held by non-controlling OP Unitholders) outstanding during the respective periods (dollars in thousands, except per-share amounts): 50 Table of Contents For the Three Months Ended September 30, For the Nine Months Ended September 30, 2020 2019 2020 2019 Net income $ 1,581 $ 523 $ 4,864 $ 804 Less: Aggregate dividends declared on Series B Preferred Stock and Series C Preferred Stock (1) (2,405) (1,161) (6,793) (2,655) Net loss available to common stockholders and non-controlling OP Unitholders (824) (638) (1,929) (1,851) Plus: Real estate and intangible depreciation and amortization 3,909 3,419 12,010 8,952 Plus: Losses on dispositions of real estate assets, net 195 134 861 154 Adjustments for unconsolidated entities (2) 5 — 13 — FFO available to common stockholders and non-controlling OP Unitholders 3,285 2,915 10,955 7,255 Plus: Acquisition- and disposition-related expenses 43 119 110 272 Plus (less): Other receipts, net (3) — (11) (37) (2) CFFO available to common stockholders and non-controlling OP Unitholders 3,328 3,023 11,028 7,525 Net rent adjustment (437) (226) (852) (265) Plus: Amortization of debt issuance costs 194 161 559 461 Plus: Other noncash charges (4) 63 — 38 — AFFO available to common stockholders and non-controlling OP Unitholders 3,148 2,958 10,773 7,721 Weighted-average common stock outstanding—basic and diluted 21,991,291 20,763,615 21,558,859 19,154,744 Weighted-average common non-controlling OP Units outstanding 16,452 222,494 175,981 217,857 Weighted-average total common shares outstanding 22,007,743 20,986,109 21,734,840 19,372,601 Diluted FFO per weighted-average total common share $ 0.15 $ 0.14 $ 0.50 $ 0.37 Diluted CFFO per weighted-average total common share $ 0.15 $ 0.14 $ 0.51 $ 0.39 Diluted AFFO per weighted-average total common share $ 0.14 $ 0.14 $ 0.50 $ 0.40 (1) Includes (i) cash dividends paid on our Series B Preferred Stock and Series C Preferred Stock, (ii) the pro-rata write-off of offering costs related to shares of Series B Preferred Stock that were redeemed, and (iii) the value of additional shares of Series C Preferred Stock issued pursuant to the DRIP. (2) Represents our pro-rata share of depreciation expense recorded in unconsolidated entities during the period. (3) Consists primarily of property and casualty recoveries recorded, net of the cost of related repairs expensed, as a result of the damage caused to certain irrigation improvements by natural disasters on certain of our properties. (4) Consists of (i) the pro-rata write-off of offering costs related to shares of the Series B Preferred Stock that were redeemed, which was a noncash expense, (ii) the amount of dividends on the Series C Preferred Stock paid via issuing new shares (pursuant to the DRIP), and (iii) our pro-rata share of income (loss) recorded from investments in unconsolidated entities during the period. Net Asset Value Real estate companies are required to record real estate using the historical cost basis of the real estate, adjusted for accumulated depreciation and amortization, and, as a result, the carrying value of the real estate does not typically change as the fair value of the assets change. Thus, one challenge is determining the fair value of the real estate in order to allow stockholders to see the value of the real estate increase or decrease over time, which we believe is useful to our investors. Determination of Fair Value Our Board of Directors reviews and approves the valuations of our properties pursuant to a valuation policy approved by our Board of Directors (the “Valuation Policy”). Such review and approval occurs in three phases: (i) prior to its quarterly meetings, the Board of Directors receives written valuation recommendations and supporting materials that are provided by professionals of the Adviser and Administrator, with oversight and direction from the chief valuation officer, who is also employed by the Administrator (collectively, the “Valuation Team”); (ii) the valuation committee of the Board of Directors (the “Valuation Committee”), which is comprised entirely of independent directors, meets to review the valuation recommendations and supporting materials; and (iii) after the Valuation Committee concludes its meeting, it and the chief valuation officer present the Valuation Committee’s findings to the entire Board of Directors so that the full Board of Directors may review and approve the fair values of our properties in accordance with the Valuation Policy. Further, on a quarterly basis, the Board of Directors reviews the Valuation Policy to determine if changes thereto are advisable and also reviews whether the Valuation Team has applied the Valuation Policy consistently. 51 Table of Contents Per the Valuation Policy, our valuations are generally derived based on the following: • For properties acquired within 12 months prior to the date of valuation, the purchase price of the property will generally be used as the current fair value unless overriding factors apply. In situations where OP Units are issued as partial or whole consideration in connection with the acquisition of a property, the fair value of the property will generally be the lower of: (i) the agreed-upon purchase price between the seller and the buyer (as shown in the purchase and sale agreement or contribution agreement and using the agreed-upon pricing of the OP Units, if applicable), or (ii) the value as determined by an independent, third-party appraiser. • For real estate we acquired more than one year prior to the date of valuation, we determine the fair value either by relying on estimates provided by independent, third-party appraisers or through an internal valuation process. In addition, if significant capital improvements take place on a property, we will typically have those properties reappraised upon completion of the project by an independent, third-party appraiser. In any case, we intend to have each property valued by an independent, third-party appraiser via a full appraisal at least once every three years, with interim values generally being determined by either: (i) a restricted appraisal (a “desk appraisal”) performed by an independent, third-party appraiser, or (ii) our internal valuation process. Various methodologies were used, both by the appraisers and in our internal valuations, to determine the fair value of our real estate, including the sales comparison, income capitalization (or a discounted cash flow analysis), and cost approaches of valuation. In performing their analyses, the appraisers typically (i) conducted site visits to the properties (where full appraisals were performed), (ii) discussed each property with our Adviser and reviewed property-level information, including, but not limited to, property operating data, prior appraisals (as available), existing lease agreements, farm acreage, location, access to water and water rights, potential for future development, and other property-level information, and (iii) reviewed information from a variety of sources about regional market conditions applicable to each of our properties, including, but not limited to, recent sale prices of comparable farmland, market rents for similar farmland, estimated marketing and exposure time, market capitalization rates, and the current economic environment, among others. In performing our internal valuations, we will consider the most recent appraisal available and use similar methodologies in determining an updated fair value. We will also obtain updated market data related to the property, such as updated sales and market rent comparisons and market capitalization rates, and perform an updated assessment of the tenants’ credit risk profiles, among others. Sources of this data may come from market inputs from recent acquisitions of our own portfolio of real estate, recent appraisals of properties we own that are similar in nature and in the same region (as applicable) as the property being valued, market conditions and trends we observe in our due diligence process, and conversations with appraisers, brokers, and farmers. A breakdown of the methodologies used to value our properties and the aggregate value as of September 30, 2020, determined by each method is shown in the table below (dollars in thousands, except in footnotes): Valuation Method Number of Farms Total Acres Farm Acres Net Cost Basis (1) Current Fair Value % of Total Fair Value Purchase Price 17 9,916 9,257 $ 79,337 $ 79,038 8.1% Third-party Appraisal (2) 106 82,685 66,323 781,453 891,843 91.9% Total 123 92,601 75,580 $ 860,790 $ 970,881 100.0% (1) Consists of the initial acquisition price (including the costs allocated to both tangible and intangible assets acquired and liabilities assumed), plus subsequent improvements and other capitalized costs paid for by us that were associated with the properties, and adjusted for accumulated depreciation and amortization. (2) Appraisals performed between December 2019 and October 2020. Some of the significant assumptions used by appraisers and the Valuation Team in valuing our portfolio as of September 30, 2020, include land values per farmable acre, market rental rates per farmable acre and the resulting net operating income (“NOI”) at the property level, and capitalization rates, among others. These assumptions were applied on a farm-by-farm basis and were selected based on several factors, including comparable land sales, surveys of both existing and current market rates, discussions with other brokers and farmers, soil quality, size, location, and other factors deemed appropriate. A summary of these significant assumptions is provided in the following table: Range (Low - High) Weighted Average Land Value (per farm acre) $678 – $127,436 $ 36,461 Market NOI (per farm acre) $421 – $3,759 $ 1,993 Market Capitalization Rate 3.68% – 10.06% 4.70% Note: Figures in the table above apply only to the farmland portion of our portfolio and exclude assumptions made relating to farm-related facilities (e.g., cooling facilities), and other structures on our properties (e.g., residential housing), as their aggregate value was considered to be insignificant in relation to that of the farmland. 52 Table of Contents Our Valuation Team reviews the appraisals, including the significant assumptions and inputs used in determining the appraised values, and considers any developments that may have occurred since the time the appraisals were performed. Developments considered that may have an impact on the fair value of our real estate include, but are not limited to, changes in tenant credit profiles, changes in lease terms (such as expirations and notices of non-renewals or to vacate), and potential asset sales (particularly those at prices different from the appraised values of our properties). Management believes that the purchase prices of the farms acquired during the previous 12 months and the most recent appraisals available for the farms acquired prior to the previous 12 months fairly represent the current market values of the properties as of September 30, 2020, and, accordingly, did not make any adjustment to these values. A quarterly roll-forward of the change in our portfolio value for the three months ended September 30, 2020, from the prior value basis as of June 30, 2020, is provided in the table below (dollars in thousands): Total portfolio fair value as of June 30, 2020 $ 911,770 Plus: Acquisition of eight new farms during the three months ended September 30, 2020 39,179 Plus net value depreciation during the three months ended September 30, 2020: 28 farms valued via third-party appraisals $ 19,932 Total net appreciation for the three months ended September 30, 2020 19,932 Total portfolio fair value as of September 30, 2020 $ 970,881 Management also determined fair values of all long-term borrowings and preferred stock. Using a discounted cash flow analysis, management determined that the fair value of all long-term encumbrances on our properties as of September 30, 2020, was approximately $497.4 million, as compared to a carrying value (excluding unamortized related debt issuance costs) of approximately $495.1 million. In addition, due to the short-term maturity of our Series A Term Preferred Stock (which has a mandatory redemption date of September 30, 2021), its carrying value (exclusive of unamortized offering costs) of approximately $28.8 million was deemed to approximate its fair value as of September 30, 2020. Finally, pursuant to Financial Industry Regulatory Authority Rule 2310(b)(5), with the assistance of a third-party valuation expert, we determined the estimated value of our Series B Preferred Stock and Series C Preferred Stock to each be $25.00 per share as of September 30, 2020 (see Exhibits 99.1 and 99.2 to this Form 10-Q). Calculation of Estimated Net Asset Value To provide our stockholders with an estimate of the fair value of our real estate assets, we intend to estimate the fair value of our farms and farm-related properties and provide an estimated net asset value (“NAV”) on a quarterly basis. NAV is a non-GAAP, supplemental measure of financial position of an equity REIT and is calculated as total equity, adjusted for the increase or decrease in fair value of our real estate assets and long-term borrowings (including any preferred stock required to be treated as debt for GAAP purposes) relative to their respective costs bases. Further, we calculate NAV per common share by dividing NAV by our total common shares outstanding (consisting of our common stock and OP Units held by non-controlling limited partners). The fair values presented above and their usage in the calculation of net asset value per share presented below have been prepared by and is the responsibility of management. PricewaterhouseCoopers LLP has neither examined, compiled, nor performed any procedures with respect to the fair values or the calculation of net asset value per common share, which utilizes information that is not disclosed within the financial statements, and, accordingly, does not express an opinion or any other form of assurance with respect thereto. As of September 30, 2020, we estimate the NAV per common share to be $11.97. A reconciliation of NAV to total equity, which we believe is the most directly-comparable GAAP measure, is provided below (dollars in thousands, except per-share data) : 53 Table of Contents Total equity per balance sheet $ 317,315 Fair value adjustment for long-term assets: Less: net cost basis of tangible and intangible real estate holdings (1) $ (860,790) Plus: estimated fair value of real estate holdings (2) 970,881 Net fair value adjustment for real estate holdings 110,091 Fair value adjustment for long-term liabilities: Plus: book value of aggregate long-term indebtedness (3) 523,882 Less: fair value of aggregate long-term indebtedness (3)(4) (526,175) Net fair value adjustment for long-term indebtedness (2,293) Estimated NAV 425,113 Less: aggregate fair value of Series B Preferred Stock and Series C Preferred Stock (5) (159,407) Estimated NAV available to common stockholders and non-controlling OP Unitholders $ 265,706 Total common shares and OP Units outstanding (6) 22,204,906 Estimated NAV per common share and OP Unit $ 11.97 (1) Per Net Cost Basis as presented in the table above. (2) Per Current Fair Value as presented in the table above. (3) Includes the principal balances outstanding of all long-term borrowings (consisting of notes and bonds payable) and the Series A Term Preferred Stock. (4) Long-term notes and bonds payable were valued using a discounted cash flow model. The Series A Term Preferred Stock was valued based on its closing stock price as of September 30, 2020. (5) Valued at the securities’ respective liquidation values, as discussed above. (6) Includes 22,204,906 shares of common stock and zero OP Units held by non-controlling OP Unitholders. A quarterly roll-forward in the estimated NAV per common share for the three months ended September 30, 2020, is provided below: Estimated NAV per common share and non-controlling OP Unit as of June 30, 2020 $ 11.06 Less net loss available to common stockholders and non-controlling OP Unitholders (0.04) Plus net change in valuations: Net change in unrealized fair value of farmland portfolio (1) $ 0.95 Net change in unrealized fair value of long-term indebtedness 0.04 Net change in valuations 0.99 Less distributions on common stock and non-controlling OP Units (0.13) Plus net accretive effect of equity issuances 0.09 Estimated NAV per common share and non-controlling OP Unit as of September 30, 2020 $ 11.97 (1) The net change in unrealized fair value of our farmland portfolio consists of three components: (i) an increase of $0.91 per share due to the net appreciation in value of the farms that were valued during the three months ended September 30, 2020, (ii) an increase of $0.18 per share due to the aggregate depreciation and amortization expense recorded during the three months ended September 30, 2020, and (iii) a decrease of $0.14 per share due to capital improvements made on certain farms that have not yet been considered in the determination of the respective farms’ estimated fair values. Comparison of estimated NAV and estimated NAV per common share, using the definitions above, to similarly-titled measures for other REITs may not necessarily be meaningful due to possible differences in the calculation or application of the definition of NAV used by such REITs. In addition, the trading price of our common shares may differ significantly from our most recent estimated NAV per common share calculation. For example, while we estimated our NAV per common share to be $11.97 as of September 30, 2020, based on the calculation above, the closing price of our common stock on September 30, 2020, was $15.02 per share. The determination of estimated NAV is subjective and involves a number of assumptions, judgments, and estimates, and minor adjustments to these assumptions, judgments, or estimates may have a material impact on our overall portfolio valuation. In addition, many of the assumptions used are sensitive to market conditions and can change frequently. Changes in the market environment and other events that may occur during our ownership of these properties may cause the values reported above to vary from the actual fair value that may be obtained in the open market. Further, while management believes the values presented reflect current market conditions, the ultimate amount realized on any asset will be based on the timing of such dispositions and the then-current market conditions. There can be no assurance that the ultimate realized value upon disposition of an asset will approximate the estimated fair value above. 54 Table of Contents ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This Item is not applicable to smaller reporting companies.