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, 2022 (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. With the exception of 1 farm in California and 11 farms in Michigan which are currently self-operated (on a temporary basis and via management agreements with unrelated third-parties), we are not a grower of crops, nor do we typically farm the properties we own. We currently own 169 farms comprised of 115,593 acres located across 15 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. Portfolio Diversification Our farmland portfolio currently consists of 169 farms leased to 92 different, unrelated third-party tenants who grow over 60 different types of crops on our farms. Our investment focus is in farmland suitable for growing either fresh produce annual row crops (e.g., certain berries and vegetables) or certain permanent crops (e.g., almonds, blueberries, pistachios, and wine grapes), with an ancillary focus on farmland growing certain commodity crops (e.g., beans and corn). The following table summarizes the different geographic locations (by state) of our farms owned as of and during the nine months ended September 30, 2023 and 2022 (dollars in thousands): 25 As of and For the Nine Months Ended September 30, 2023 As of and For the Nine Months Ended September 30, 2022 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) 63 34,844 30.1% $ 42,945 65.1% 63 34,401 29.8% $ 43,702 67.8% Florida 26 22,468 19.4% 11,280 17.1% 26 22,606 19.6% 10,810 16.8% Washington 6 2,529 2.2% 3,494 5.3% 6 2,529 2.2% 2,239 3.5% Colorado 12 32,773 28.3% 1,904 2.9% 12 32,773 28.4% 1,618 2.5% Arizona 6 6,320 5.5% 1,695 2.6% 6 6,320 5.5% 1,545 2.4% Oregon 6 898 0.8% 1,625 2.5% 6 898 0.8% 1,204 1.9% Nebraska 9 7,782 6.7% 1,018 1.5% 9 7,782 6.7% 855 1.3% Michigan 23 1,892 1.6% 727 1.1% 23 1,892 1.6% 1,182 1.8% Maryland 6 987 0.9% 345 0.5% 6 987 0.9% 337 0.5% Texas 1 3,667 3.2% 337 0.5% 1 3,667 3.2% 337 0.5% South Carolina 3 597 0.5% 183 0.3% 3 597 0.5% 183 0.3% Georgia 2 230 0.2% 168 0.3% 2 230 0.2% 168 0.3% New Jersey 3 116 0.1% 97 0.1% 3 116 0.1% 97 0.1% North Carolina 2 310 0.3% 72 0.1% 2 310 0.3% 113 0.2% Delaware 1 180 0.2% 56 0.1% 1 180 0.2% 55 0.1% TOTALS 169 115,593 100.0% $ 65,946 100.0% 169 115,288 100.0% $ 64,445 100.0% (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. 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, semi-annual, or quarterly basis, with such rent typically subject to periodic escalation clauses provided for within the lease. Currently, 105 of our farms are leased on a pure, triple-net basis, 46 farms are leased on a partial-net basis (with us, as landlord, responsible for all or a portion of the related property taxes), 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, or insurance costs), 12 farms are self-operated, and 3 farms are vacant. Additionally, 27 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, 2023 (dollars in thousands): Year Number of Expiring Leases (1) Expiring Leased Acreage % of Total Acreage Lease Revenues for the Nine Months Ended September 30, 2023 % of Total Lease Revenues 2023 (2) 7 6,081 5.3% $ 4,763 7.2% 2024 7 9,893 8.6% 5,131 7.8% 2025 11 20,729 17.9% 5,574 8.4% 2026 12 12,636 10.9% 4,607 7.0% 2027 6 7,123 6.2% 7,620 11.6% Thereafter 60 58,733 50.8% 37,820 57.3% Other (3) 11 398 0.3% 431 0.7% Totals 114 115,593 100.0% $ 65,946 100.0% (1) Certain lease agreements encompass multiple farms. (2) Includes one lease with a tenant termination option that expired subsequent to September 30, 2023, without being exercised. Also includes four leases on properties in Michigan (encompassing 14 total farms) that expired subsequent to September 30, 2023. 26 (3) Primarily consists of ancillary leases (e.g., renewable energy leases; oil, gas, and mineral leases; telecommunications leases; etc.) with varying expirations on certain of our farms. Also includes one farm that was self-operated as of September 30, 2023, for which we recorded approximately $77,000 of lease revenues attributable to the former tenant during the three months ended March 31, 2023. We currently have three agricultural leases scheduled to expire within the next six months. We are currently exploring a variety of options with the underlying properties, including negotiating lease terms with existing and potential new tenants, discussing sale options with prospective buyers, and considering operating the properties ourselves via third-party management agreements. 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—Existing Properties Leasing Activity The following table summarizes certain leasing activity that has occurred on our existing properties since July 1, 2023, through the date of this filing (dollars in thousands, except for footnotes): PRIOR LEASES (1) NEW LEASES (2) Farm Locations Number of Leases Total Farm Acres Total Annualized Straight-line Rent (3) # of Leases with Participation Rents Lease Structures (# of NNN / NN / N) (4) Total Annualized Straight-line Rent (3) Wtd. Avg. Term (Years) # of Leases with Participation Rents Lease Structures (# of NNN / NN / N) (4) CA & CO 9 14,591 $ 5,886 1 4 / 5 / 0 $ 6,193 7.1 1 4 / 5 / 0 (1) Prior leases include one lease that was terminated early during the three months ended September 30, 2023. Upon termination of this lease, we entered into new leases with new tenants, effective immediately, which are included in the above table. (2) In connection with certain of these leases, we committed to provide capital for certain improvements on these farms. See “ Liquidity and Capital Resources—Operating Commitments and Obligations—Operating Obligations ” below for additional information on these and other commitments. (3) 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. (4) “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 .” Water Acquisition On October 9, 2023, we entered into a water transfer agreement with Byron-Bethany Irrigation District (“BBID”), a multi-county water district located in Contra Costa County, California. Pursuant to the agreement, which expires on February 28, 2031, we may elect to purchase up to 15,000 acre-feet of water per water year during years in which BBID has a surplus supply of water. Initial consideration consisted of $750,000, plus incremental costs based on the number of acre-feet we elected to purchase for the 2023 water year. As such, on October 12, 2023, we paid approximately $1.2 million (including the initial payment of $750,000) to purchase 7,000 acre-feet of water for the 2023 water year. Our ability to purchase water under this contract in future years will be subject to BBID having surplus water available in such water years, and prices will be determined based on water transfer rates established by certain Federal and state governing agencies. To the extent surplus water supplies are available, water purchases in future years are at our sole option (up to a maximum of 15,000 acre-feet of water per water year), and we are not obligated to purchase water in any water year in which BBID has surplus water supplies. In addition, all water transfers are subject to approval by the U.S. Department of Interior, Bureau of Reclamation. We plan to store this water in a groundwater recharge facility recently constructed on one of our farms, and we currently intend to hold this water for the long-term for future use on our farms. Self-operated, Non-accrual, and Vacant Properties During a portion of the nine months ended September 30, 2023, we had 18 farms (4 in California and 14 in Michigan) that were either self-operated or on which lease revenues were recognized on a cash basis (due to credit issues with three tenants causing us to determine that the full collectibility of the remaining rental payments under the respective leases were not deemed to be probable). Currently, 1 farm in California and 11 farms in Michigan are self-operated (on a temporary basis via management agreements with unrelated third-parties). One California farm was fully re-leased during the three months ended September 30, 2023, and the other two California farms are currently expected to return to full accrual status later in the year pending, among other factors, continued on-time rental payments made by the tenant. Additionally, three farms in Michigan are currently vacant. Regarding self-operated and vacant farms, we are in discussions with potential tenants to lease these farms and currently expect to come to agreements within the next three months; however, there can be no guarantee that we will be able to reach lease agreements with tenants at favorable terms to us, or at all. 27 During the three and nine months ended September 30, 2023, we recorded aggregate lease revenues related to the aforementioned farms of approximately $156,000 and $782,000, respectively, as compared to approximately $525,000 and $1.6 million during the respective prior-year periods. Financing Activity Debt Activity Loan Repayments From July 1, 2023, through the date of this filing, we repaid approximately $6.9 million of maturing loans. On a weighted-average basis, these borrowings bore interest at a stated rate of 3.39% and an effective interest rate (after interest patronage, where applicable) of 3.00%. Equity Activity Series E Preferred Stock On November 9, 2022, we filed a prospectus supplement with the SEC for a continuous public offering (the “Series E Offering”) of up to 8,000,000 shares of our newly-designated 5.00% Series E Cumulative Redeemable Preferred Stock, par value $0.001 per share (the “Series E Preferred Stock”), on a “reasonable best efforts” basis through Gladstone Securities at an offering price of $25.00 per share. See Note 6, “Related-Party Transactions—Gladstone Securities—Dealer-Manager Agreements,” for a discussion of the commissions and fees to be paid to Gladstone Securities in connection with the Series E Offering. The following table summarizes the sales of our Series E Preferred Stock that occurred from July 1, 2023, through the date of this filing (dollars in thousands): Number of Shares Sold Weighted-average Offering Price Per Share Gross Proceeds Net Proceeds (1) 89,872 $ 24.96 $ 2,243 $ 2,022 (1) Net of underwriting discounts, 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 $221,000. The Series E Offering will terminate on the date (the “Series E Termination Date”) that is the earlier of (i) December 31, 2025 (unless terminated or extended by our Board of Directors) and (ii) the date on which all 8,000,000 shares of Series E Preferred Stock offered in the Series E Offering are sold. There is currently no public market for shares of Series E Preferred Stock. We intend to apply to list the Series E Preferred Stock on Nasdaq or another national securities exchange within one calendar year of the Series E Termination Date; however, 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 entered into equity distribution agreements with Virtu Americas, LLC, and Ladenburg Thalmann & Co., Inc. (each a “Sales Agent”), that, as subsequently amended, permitted us to issue and sell, from time to time and through the Sales Agents, shares of our common stock having an aggregate offering price of up to $260.0 million (the “ATM Program”). On April 13, 2023, we entered into separate amended and restated equity distribution agreements with the Sales Agents to allow us to sell shares of our common stock having an aggregate offering price of up to $500.0 million. The following table summarizes the activity under the ATM Program from July 1, 2023, through the date of this filing (dollars in thousands): Number of Shares Sold Weighted-average Offering Price Per Share Gross Proceeds Net Proceeds (1) 58,360 $ 17.34 $ 1,012 $ 1,002 (1) Net of underwriting commissions. Impact of Inflation and Rising Interest Rates According to the U.S. Bureau of Labor Statistics, the consumer price index (“CPI”) grew at an annual rate of 3.7% through September 30, 2023, as overall inflation continued to ease from the peak levels experienced in the summer of 2022, when it reached the highest rates seen in over 40 years. The increase in food prices has also slowed but still continues to keep pace with the rate of inflation, with the overall food segment also increasing at an annual rate of 3.7% through September 30, 2023. In addition, according to the NCREIF Farmland Index, which, as of September 30, 2023, consisted of approximately $16.4 billion of farms across the U.S., the total return on U.S. farmland (including appreciation and income) was 5.8% for the 12 months ended September 30, 2023. If the increases in food prices continue to outpace or at least keep pace with inflation, we believe this will help mitigate any increase in input costs experienced by our farm operators. 28 To combat inflation, the Federal Reserve has raised its benchmark funds rate 11 times since March 2022, resulting in the highest target rate seen since January 2001. While slowing down significantly from its peak levels, overall inflation, and particularly “core inflation” (which excludes transitory costs, such as food and energy), remains above the Federal Reserve’s target long-term rate of 2.0%, leading many to believe another rate increase remains possible in the near-term future. As such, interest rates remain volatile in response to competing concerns regarding inflationary pressures, coupled with the continued threat of a near-term recession. The yield on the 10-year U.S. Treasury Note has increased substantially since reaching a historic low in 2020 and recently surpassed 5% for the first time since 2007, which adversely affects interest rates on long-term financing. In addition, while the U.S. economy has proven to be resilient and its outlook has improved somewhat in recent months, fears of global recessionary conditions continue to persist, caused in part by stubborn inflation, rising borrowing costs, and geopolitical conditions (including instability arising from armed conflict), although the actual timeline, impact, and duration, if any such conditions materialize, are unknown. Over 99.9% of our borrowings are currently at fixed rates, and on a weighted-average basis, these rates are fixed at an effective interest rate of 3.35% for another 4.3 years. As such, with respect to our current borrowings, we have experienced minimal impact from the recent increases in interest rates, and we believe we are well-protected against further interest rate increases, which seem likely to continue in the near term. LIBOR Transition The majority of our debt is at fixed rates, and we currently have very limited exposure to variable-rate debt. Previously, our variable-rate debt was based upon the London Interbank Offered Rate (“LIBOR”), which was phased out in June 2023. LIBOR has since transitioned to a new standard rate, the Secured Overnight Financing Rate (“SOFR”), which was formally adopted by the Alternative Reference Rates Committee in July 2021 as a benchmark interest rate that incorporates certain overnight repo market data collected from multiple data sets. The intent was to adjust the SOFR to minimize the differences between the interest that a borrower was paying using LIBOR versus what it will be paying SOFR. Our lines of credit with MetLife and four term loans with Rabo AgriFinance LLC (which are effectively fixed through our entry into interest swap agreements) were previously indexed based on LIBOR, and all have since transitioned to SOFR, resulting in a minimal impact to our overall operations. Our Adviser and Administrator 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 current investment advisory agreement with our Adviser (the “Advisory Agreement”) and the current administration agreement with our Administrator (the “Administration Agreement”) were each approved unanimously by our board of directors, including, specifically, our independent directors. A summary of certain compensation terms within the Advisory Agreement and a summary of the Administration Agreement is below. Advisory Agreement Pursuant to the Advisory Agreement, 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 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 Advisory Agreement, a base management fee is paid quarterly and is calculated at an annual rate of 0.60% (0.15% 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, permanent plantings, irrigation and drainage systems, 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. Incentive Fee Pursuant to the Advisory Agreement, an incentive fee is 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 Common Equity. 29 For purposes of this calculation, Pre-Incentive Fee FFO is defined in the Advisory Agreement as FFO (also as defined in the Advisory Agreement) accrued by the Company during the current calendar quarter (prior to any incentive fee calculation for the current calendar quarter), less any dividends declared on preferred stock securities that were not treated as a liability for GAAP purposes. In addition, Total Adjusted Common Equity is defined as common stockholders’ equity plus non-controlling common interests in our 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. 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). Administration Agreement Pursuant to the Administration Agreement, we pay for our allocable portion of the Administrator’s expenses incurred while performing its obligations to us, including, but not limited to, rent and the salaries and benefits expenses of our Administrator’s employees, including our chief financial officer, treasurer, chief compliance officer, general counsel and secretary (who also serves as our Administrator’s president, general counsel, and secretary), and their respective staffs. Our allocable portion of the Administrator’s expenses is generally derived by multiplying our Administrator’s total expenses by the approximate percentage of time the Administrator’s employees perform services for us in relation to their time spent performing services for all companies serviced by our Administrator under similar contractual agreements. 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, 2023. 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, 2023 and 2022: ◦ Same-property basis represents farms owned as of June 30, 2022, which were not vacant at any point during either period presented and full collectability of future rental payments under the respective leases was deemed probable during the entirety of both periods; ◦ Properties acquired or disposed of are farms that were either acquired or disposed of at any point subsequent to June 30, 2022. From July 1, 2022, through September 30, 2023, we acquired four new farms and had one partial farm disposition; and ◦ Vacant, self-operated, or non-accrual properties are: * Farms that were vacant (either wholly or partially) at any point during either period presented. We did not have any vacant farms during either of the three months ended September 30, 2023 or 2022; * Farms that were self-operated at any point during either period presented. One of our farms was self-operated (via a management agreement with an unrelated third-party) during the three months ended September 30, 2023; and * Farms with leases where revenue was recognized on a cash basis during either period presented (rather than a straight-line basis) due to full collectability of future rental payments under the respective leases deemed not to be probable as a result of tenant credit issues. During a portion of the three months ended September 30, 2023, we recognized revenue from two different leases with one tenant (encompassing two different farms) on a cash basis. • With regard to the comparison between the nine months ended September 30, 2023 and 2022: ◦ Same-property basis represents farms owned as of December 31, 2021, which were not vacant at any point during either period presented and full collectability of future rental payments under the respective leases was deemed probable during the entirety of both periods; 30 ◦ Properties acquired or disposed of are farms that were either acquired or disposed of at any point subsequent to December 31, 2021. From January 1, 2022, through September 30, 2023, we acquired four new farms and had one partial farm disposition; and ◦ Vacant, self-operated, or non-accrual properties are: ◦ Farms that were vacant (either wholly or partially) at any point during either period presented. We did not have any vacant farms during either of the nine months ended September 30, 2023 or 2022; ◦ Farms that were self-operated at any point during either period presented. One of our farms was self-operated (via a management agreement with an unrelated third-party) during a portion of the nine months ended September 30, 2023; and ◦ Farms with leases where revenue was recognized on a cash basis during either period presented (rather than a straight-line basis) due to full collectability of future rental payments under the respective leases deemed not to be probable as a result of tenant credit issues. During a portion of the nine months ended September 30, 2023, we recognized revenue from seven different leases with three separate tenants (encompassing 17 different farms) on a cash basis. A comparison of results of components comprising our operating income for the three and nine months ended September 30, 2023 and 2022 is below (dollars in thousands): For the Three Months Ended September 30, 2023 2022 $ Change % Change Operating revenues: Lease revenues: Fixed lease payments $ 21,102 $ 21,178 $ (76) (0.4) % Variable lease payments – participation rents 2,385 3,003 (618) (20.6) % Variable lease payments – tenant reimbursements and other 47 28 19 67.9% Total operating revenues 23,534 24,209 (675) (2.8) % Operating expenses: Depreciation and amortization 9,244 9,146 98 1.1 % Property operating expenses 729 706 23 3.3 % Base management and incentive fees 2,939 2,591 348 13.4 % Administration fee 619 543 76 14.0 % General and administrative expenses 605 729 (124) (17.0) % Write-off of costs associated with Series C cumulative redeemable preferred stock — 851 (851) (100.0) % Total operating expenses 14,136 14,566 (430) (3.0) % Operating income $ 9,398 $ 9,643 $ (245) (2.5) % 31 For the Nine Months Ended September 30, 2023 2022 $ Change % Change Operating revenues: Lease revenues: Fixed lease payments $ 63,180 $ 61,387 $ 1,793 2.9 % Variable lease payments – participation rents 2,580 3,024 (444) (14.7) % Variable lease payments – tenant reimbursements 186 34 152 447.1 % Total operating revenues 65,946 64,445 1,501 2.3 % Operating expenses: Depreciation and amortization 27,407 25,883 1,524 5.9 % Property operating expenses 2,744 2,103 641 30.5 % Base management and incentive fees 7,236 7,801 (565) (7.2) % Administration fee 1,708 1,470 238 16.2 % General and administrative expenses 2,181 1,983 198 10.0 % Write-off of costs associated with Series C cumulative redeemable preferred stock — 851 (851) (100.0) % Total operating expenses 41,276 40,091 1,185 3.0 % Operating income $ 24,670 $ 24,354 $ 316 1.3 % Operating Revenues Lease revenues The following table provides a summary of our lease revenues during the three and nine months ended September 30, 2023 and 2022 (dollars in thousands): For the Three Months Ended September 30, For the Nine Months Ended September 30, 2023 2022 $ Change % Change 2023 2022 $ Change % Change Same-property basis: Fixed lease payments $ 20,363 $ 20,413 $ (50) (0.2)% $ 59,259 $ 58,859 $ 400 0.7% Participation rents 2,385 3,003 (618) (20.6)% 2,508 2,993 (485) (16.2)% Total – Same-property basis 22,748 23,416 (668) (2.9)% 61,767 61,852 (85) (0.1)% Properties acquired or disposed of: Fixed lease payments 658 500 158 31.6% 3,239 1,000 2,239 223.9% Participation rents — — — NM — — — NM Total – Properties acquired or disposed of 658 500 158 31.6% 3,239 1,000 2,239 223.9% Vacant, self-operated, or non-accrual, properties: Fixed lease payments 81 264 (183) (69.3)% 682 1,528 (846) (55.4)% Participation rents — — — NM 72 31 41 132.3% Total – Vacant, self-operated, or non-accrual properties 81 264 (183) (69.3)% 754 1,559 (805) (51.6)% Tenant reimbursements and other (1) 47 28 19 67.9% 186 34 152 447.1% Total Lease revenues $ 23,534 $ 24,208 $ (674) (2.8)% $ 65,946 $ 64,445 $ 1,501 2.3% NM = Not Meaningful (1) Tenant reimbursements and other primarily consist of tenant-reimbursed property operating expenses on certain of our farms, including property taxes, insurance premiums, and other property-related expenses. Similar amounts are also recorded as property operating expenses during the respective periods. 2023 amounts also include late fees received from certain tenants. Same-property Basis – 2023 compared to 2022 Lease revenues from fixed lease payments remained relatively flat for the three months ended September 30, 2023, and increased during the nine months ended September 30, 2023. The increase during the nine months ended September 30, 2023, was primarily due to additional rents earned on capital improvements completed on certain of our farms and two one-time payments received for easement access across portions of two of our farms. Both periods were negatively impacted by the 32 execution of one lease agreement in the fourth quarter of 2022, pursuant to which we agreed to reduce the fixed base rent amount in exchange for increasing the participation rent components in the lease, the result of which will not be known until later in 2023. The amount of lease revenues from participation rents is largely dependent upon when certain information is made available to allow us to determine such amounts to be reasonably estimable and thus recorded. Based on the participation rents recorded thus far, the decrease was primarily driven by lower production (i.e., pounds per acre) on certain almond and pistachio farms (partly due to the alternate-bearing nature of such tree crops but also due to the harvest of such crops coming at the end of a multi-year drought), coupled with weaker crop prices, particularly in the almond market, which continued to be hampered with oversupply exacerbated by supply chain disruptions that occurred during the height of the COVID-19 pandemic. Other – 2023 compared to 2022 Lease revenue from properties acquired or disposed of increased primarily due to additional revenues earned on new farms acquired subsequent to December 31, 2021. Fixed lease payments from vacant, self-operated, or non-accrual properties decreased primarily due to revenue from certain of our leases being recognized on a cash basis during a portion of the three and nine months ended September 30, 2023 (rather than a straight-line basis), due to full collectability of future rental payments under the respective leases deemed not to be probable as a result of tenant credit issues. In addition, one of our farms was self-operated (via a management agreement with an unrelated third-party) for the three months ended September 30, 2023, and a portion of the nine months ended September 30, 2023. The decrease in lease revenues from vacant, self-operated, or non-accrual properties was partially offset by cash collections (in part or in whole) from tenants occupying certain of these properties during the three and nine months ended September 30, 2023. No revenue has been recognized as a result of operations at farms that were self-operated during any period presented. The fluctuations in tenant reimbursement revenue are primarily driven by payments made by certain tenants on our behalf (pursuant to the lease agreements) to unconsolidated entities of ours that convey water to the respective properties. As such, the timing of revenue fluctuates as payments are made by our tenants. Amounts recorded during the three and nine months ended September 30, 2023, also include late fees received from certain tenants. Operating Expenses Depreciation and amortization Depreciation and amortization expense increased primarily due to additional depreciation and amortization expense incurred on new farms acquired subsequent to December 31, 2021, as well as an increase in depreciation associated with additional capital expenditures on certain of our farms. This increase was partially offset by a decrease attributable to certain assets reaching the end of their useful lives. Property operating expenses Property operating expenses consist primarily of real estate taxes, repair and maintenance expenses, insurance premiums, and other miscellaneous operating expenses paid for certain of our properties. The following table provides a summary of the property-operating expenses recorded during the three and nine months ended September 30, 2023 and 2022 (dollars in thousands): For the Three Months Ended September 30, For the Nine Months Ended September 30, 2023 2022 $ Change % Change 2023 2022 $ Change % Change Same-property basis $ 648 $ 643 $ 5 0.8% $ 2,172 $ 1,840 $ 332 18.0% Properties acquired or disposed of 1 21 (20) (95.2)% 5 25 (20) (80.0)% Vacant, self-operated, or non-accrual properties 22 2 20 NM 398 175 223 127.4% Tenant-reimbursed property operating expenses (1) 58 40 18 45.0% 169 63 106 168.3% Total Property operating expenses $ 729 $ 706 $ 23 3.3% $ 2,744 $ 2,103 $ 641 30.5% NM = Not Meaningful (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. Similar amounts are also recorded as lease revenue when earned in accordance with the lease. Same-property Basis – 2023 compared to 2022 Property operating expenses increased primarily due to additional property management and consulting fees incurred across our portfolio, as well as higher legal fees related to drafting new lease agreements. We also recorded additional repairs and 33 maintenance expense as a result of minor damage caused by natural disasters at certain of our farms. This increase was partially offset by a decrease in real estate tax expense. Other – 2023 compared to 2022 Property operating expenses on properties acquired or disposed of decreased, primarily due to additional legal fees incurred in the prior-year periods on certain farms acquired subsequent to December 31, 2021. Property operating expenses attributable to vacant, self-operated, or non-accrual properties increased primarily due to additional legal fees incurred in connection with rent collection, lease termination, or re-leasing efforts on such farms. The fluctuations in tenant-reimbursed property operating expenses are primarily driven by miscellaneous property operating costs incurred by us in connection with our ownership interests in certain unconsolidated entities, for which our tenants are contractually obligated to reimburse us under the terms of the respective leases. Such expenses will fluctuate commensurate with the timing and amount of miscellaneous operating costs incurred by the underlying entities. Related-Party Fees The following table provides the calculations of the base management and incentive fees due to our Adviser pursuant to the Advisory Agreement for the three and nine months ended September 30, 2023 and 2022 (dollars in thousands; for further discussion on certain defined terms used below, refer to Note 6, “ Related-Party Transactions ,” within the accompanying notes to our condensed consolidated financial statements): 34 Quarter Ended Year to Date March 31 June 30 September 30 FY 2023 Fee Calculations: Base Management Fee: Gross Tangible Real Estate (1)(2) $ 1,432,394 $ 1,431,761 $ 1,433,713 Quarterly rate 0.150 % 0.150 % 0.150 % Base management fee (3) $ 2,149 $ 2,148 $ 2,150 $ 6,447 Incentive Fee: Total Adjusted Common Equity (1)(2) $ 358,689 $ 362,411 $ 360,339 First hurdle quarterly rate 1.750 % 1.750 % 1.750 % First hurdle threshold $ 6,277 $ 6,342 $ 6,306 Second hurdle quarterly rate 2.1875 % 2.1875 % 2.1875 % Second hurdle threshold $ 7,846 $ 7,928 $ 7,882 Pre-Incentive Fee FFO (1) $ 5,303 $ 4,400 $ 7,095 100% of Pre-Incentive Fee FFO in excess of first hurdle threshold, up to second hurdle threshold $ — $ — $ 789 20% of Pre-Incentive Fee FFO in excess of second hurdle threshold — — — Total Incentive fee (3) $ — $ — $ 789 $ 789 Total fees due to Adviser $ 2,149 $ 2,148 $ 2,939 $ 7,236 FY 2022 Fee Calculations: Base Management Fee: Gross Tangible Real Estate (1)(2) $ 1,357,800 $ 1,361,757 $ 1,390,645 Quarterly rate 0.150 % 0.150 % 0.150 % Base management fee (3) $ 2,036 $ 2,043 $ 2,086 $ 6,165 Incentive Fee: Total Adjusted Common Equity (1)(2) $ 378,299 $ 381,201 $ 364,955 First hurdle quarterly rate 1.750 % 1.750 % 1.750 % First hurdle threshold $ 6,620 $ 6,671 $ 6,387 Second hurdle quarterly rate 2.1875 % 2.1875 % 2.1875 % Second hurdle threshold $ 8,275 $ 8,339 $ 7,983 Pre-Incentive Fee FFO (1) $ 7,751 $ 4,819 $ 6,892 100% of Pre-Incentive Fee FFO in excess of first hurdle threshold, up to second hurdle threshold $ 1,131 $ — $ 505 20% of Pre-Incentive Fee FFO in excess of second hurdle threshold — — — Total Incentive fee (3) $ 1,131 $ — $ 505 $ 1,636 Total fees due to Adviser $ 3,167 $ 2,043 $ 2,591 $ 7,801 (1) As defined in the Advisory Agreement. (2) As of the end of the respective prior quarters. (3) Reflected as a line item on our accompanying Condensed Consolidated Statements of Operations and Comprehensive Income. The base management fee increased primarily due to additional assets acquired and improvements made on certain of our farms since December 31, 2021. 35 Our Adviser earned an incentive fee during each of the three and nine months ended September 30, 2023 and 2022 due to our Pre-Incentive Fee FFO (as defined in the Advisory Agreement) exceeding the required hurdle rate of the applicable equity base during the third quarter of 2023 and during the first and third quarters of 2022, respectively. The administration fee paid to our Administrator increased 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. General and administrative expenses decreased during the three months ended September 30, 2023, primarily due to a decrease in acquisition-related costs for investments no longer being pursued. The increase during the nine months ended September 30, 2023, was primarily due to additional legal and stockholder-related expenses incurred related to the listing of the Series C Preferred Stock. During each of the three and nine months ended September 30, 2022, we wrote off $851,000 of costs (including approximately $798,000 of unamortized deferred offering costs) related to the Series C Offering due to an amendment that reduced the number of shares of Series C Preferred Stock to be offered. A comparison of results of other components contributing to net loss attributable to common stockholders for the three and nine months ended September 30, 2023 and 2022 is below (dollars in thousands): For the Three Months Ended September 30, 2023 2022 $ Change % Change Operating income $ 9,398 $ 9,643 $ (245) (2.5)% Other income (expense): Other income 382 237 145 61.2% Interest expense (5,856) (6,476) 620 (9.6)% Dividends declared on cumulative term preferred stock (755) (755) — —% Loss on dispositions of real estate assets, net (4) (819) 815 (99.5)% Loss from investments in unconsolidated entities (24) (24) — —% Total other income (expense), net (6,257) (7,837) 1,580 (20.2)% Net income 3,141 1,806 1,335 73.9% Net loss attributable to non-controlling interests — (2) 2 (100.0)% Net income attributable to the Company 3,141 1,804 1,337 74.1% Aggregate dividends declared on and charges related to extinguishment of cumulative redeemable preferred stock (6,105) (5,398) (707) 13.1% Net loss attributable to common stockholders $ (2,964) $ (3,594) $ 630 (17.5)% 36 For the Nine Months Ended September 30, 2023 2022 $ Change % Change Operating income $ 24,670 $ 24,354 $ 316 1.3% Other income (expense): Other income 3,365 3,067 298 9.7% Interest expense (17,835) (19,446) 1,611 (8.3)% Dividends declared on cumulative term preferred stock (2,264) (2,264) — —% Gain (loss) on dispositions of real estate assets, net 5,910 (2,100) 8,010 (381.4)% Property and casualty (loss) recovery, net (1,016) 49 (1,065) (2,173.5)% Loss from investments in unconsolidated entities (84) (54) (30) 55.6% Total other expense, net (11,924) (20,748) 8,824 (42.5)% Net income 12,746 3,606 9,140 253.5% Net income attributable to non-controlling interests — (9) 9 (100.0)% Net income attributable to the Company 12,746 3,597 9,149 254.4% Aggregate dividends declared on and charges related to extinguishment of cumulative redeemable preferred stock (18,303) (13,801) (4,502) 32.6% Net loss attributable to common stockholders $ (5,557) $ (10,204) $ 4,647 (45.5)% 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 primarily due to additional income earned on short-term investments due to higher interest rates, partially offset by less interest patronage received from Farm Credit (primarily due to decreased borrowings from Farm Credit). During the three months ended March 31, 2023, we recorded approximately $2.3 million of interest patronage from Farm Credit related to interest accrued during 2022, as compared to approximately $2.8 million of interest patronage recorded during the prior-year period that related to interest accrued during 2021. In addition, during the three months ended September 30, 2022, we received approximately $113,000 of interest patronage related to interest accrued during 2022, as certain Farm Credit associations paid a portion of 2022 interest patronage (which is typically paid during the first half of 2023) early. In total, 2022 interest patronage resulted in a 24.1% reduction (approximately 109 basis points) to the interest rate of such borrowings. Interest expense decreased, primarily due to a decrease in overall borrowings. The weighted-average principal balance of our aggregate borrowings (excluding our cumulative term preferred stock) outstanding for the three and nine months ended September 30, 2023, was approximately $589.5 million and $600.5 million, respectively, as compared to approximately $649.2 million and $660.1 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 weighted-average interest rate charged on our aggregate borrowings for the three and nine months ended September 30, 2023, was 3.81% and 3.79%, respectively, as compared to 3.82% and 3.76% for the respective prior-year periods. During the nine months ended September 30, 2023, we recorded a net capital gain, driven by the sale of a 138-acre parcel of unfarmed land in Florida for $9.6 million, which, after accounting for closing costs, resulted in a net gain of approximately $6.4 million. The net losses recorded during each of the three and nine months ended September 30, 2022, related to the disposals of certain irrigation and other improvements on certain of our farms. The net property and casualty (loss) recovery related to net expenses incurred and insurance recoveries received for certain improvements that were damaged due to natural disasters. The property and casualty loss recorded during the nine months ended September 30, 2023, was the result of the heavy rainfall that occurred in California in early 2023 and the resulting flooding, which damaged certain structures located on one of our farms in the Central Valley. We continue to work with our tenant on this farm to assess the damage and come to a solution regarding the repairs. The aggregate dividends paid on our cumulative redeemable preferred stock increased due to additional shares of the Series C Preferred Stock and Series E Preferred Stock issued and outstanding during each of the current-year periods. LIQUIDITY AND CAPITAL RESOURCES Overview 37 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 our credit facility with Metropolitan Life Insurance Company (“MetLife”)), and issuances of additional equity securities. Our current available liquidity is approximately $174.4 million, consisting of approximately $24.7 million in cash on hand and, based on the current level of collateral pledged, approximately $149.7 million of availability under our credit facility with MetLife (subject to compliance with covenants) and other undrawn notes or bonds. In addition, we currently have certain properties valued at a total of approximately $155.2 million that are unencumbered and eligible to be pledged as collateral. Over 99.9% of our borrowings are currently at fixed rates, and on a weighted-average basis, these rates are fixed at an effective interest rate of 3.35% for another 4.3 years. In addition, the weighted-average remaining term of our notes and bonds payable is approximately 9.0 years. As such, with respect to our current borrowings, we have experienced minimal impact from the recent increases in interest rates, and we believe we are well-protected against any future interest rate increases. Despite ongoing volatility in the markets, based on discussions with our lenders, we do not believe there will be a credit freeze on agricultural lending in the near term. We are in compliance with all of our debt covenants under our respective credit facilities and borrowings, and we believe we currently have adequate liquidity to cover all near- and long-term debt obligations and operating expenses. Future Capital Needs Our short- and long-term liquidity requirements consist primarily of making principal and interest payments on outstanding borrowings; funding our general operating costs; making dividend payments on our cumulative term preferred stock and cumulative redeemable preferred stock; making distributions to stockholders (including non-controlling OP Unitholders, if any) to maintain our qualification as a REIT; and, as capital is available, funding capital improvements on existing farms and new farmland and farm-related acquisitions consistent with our investment strategy. In the near term, we believe that our current and short-term cash resources will be sufficient to service our debt; fund our current operating costs; pay dividends on our cumulative term preferred stock and cumulative redeemable preferred stock; and fund our distributions to stockholders (including non-controlling OP Unitholders). We expect to meet our long-term liquidity requirements through various sources of capital, including long-term mortgage indebtedness and bond issuances, future equity issuances (including, but not limited to, shares of our Series E Preferred Stock, OP Units through our Operating Partnership as consideration for future acquisitions, and shares of common stock through our ATM Program), and other secured and unsecured borrowings. 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 we have several properties that are in various 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. Operating Commitments and Obligations Operating Obligations In connection with the execution of certain lease agreements, we have committed to provide capital improvements on certain of our farms. Below is a summary of certain of those projects for which we have incurred or accrued costs as September 30, 2023 (dollars in thousands): Farm Location(s) Farm Acreage Total Commitment Obligated Completion Date (1) Amount Expended or Accrued as of September 30, 2023 Umatilla, OR 135 $ 2,750 (2) Q4 2023 $ 2,308 Columbia, OR 157 1,800 (2) Q3 2024 1,146 Ventura, CA 402 1,000 (2) Q4 2025 448 Napa, CA 270 1,635 (2) Q4 2029 996 Wicomico & Caroline, MD, and Sussex, DE 833 115 Q3 2030 49 Yuma, AZ 3,033 941 (2) Q4 2031 896 Franklin & Grant, WA, & Umatilla, OR 1,126 2,169 (2) Q4 2032 1,915 (1) Our obligation to provide capital to fund these improvements does not extend beyond these respective dates. (2) Pursuant to contractual agreements, we will earn additional rent on the cost of these capital improvements as the funds are disbursed by us. Ground Lease Obligations 38 In connection with certain farms acquired through a leasehold interest, we assumed certain ground lease arrangements under which we are the lessee. Future minimum lease payments due under the remaining non-cancelable terms of these leases as of September 30, 2023, is as follows (dollars in thousands): Period Future Lease Payments (1) For the remaining three months ending December 31: 2023 $ 40 For the fiscal years ending December 31: 2024 92 2025 62 2026 62 2027 62 2028 62 Thereafter 631 Total undiscounted lease payments 1,011 Less: imputed interest (414) Present value of lease payments $ 597 (1) Certain annual lease payments are set at the beginning of each year to then-current market rates (as determined by the lessor). The amounts shown above represent estimated amounts based on the lease rates currently in place. As a result of these ground leases, we recorded lease expense (included within Property operating expenses on the accompanying Condensed Consolidated Statement of Operations and Comprehensive Income) of approximately $26,000 and $77,000 during the three and nine months ended September 30, 2023, respectively, and approximately $23,000 and $69,000 during the three and nine months ended September 30, 2022 , respectively. Cash Flow Resources The following table summarizes total net cash flows from operating, investing, and financing activities for the nine months ended September 30, 2023 and 2022 (dollars in thousands): For the Nine Months Ended September 30, 2023 2022 $ Change % Change Net change in cash from: Operating activities $ 22,657 $ 23,073 $ (416) (1.8)% Investing activities (1,086) (78,627) 77,541 (98.6)% Financing activities (57,632) 75,852 (133,484) (176.0)% Net change in Cash and cash equivalents $ (36,061) $ 20,298 $ (56,359) (277.7)% 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 slightly, primarily due to the timing of certain interest payments made during the nine months ended September 30, 2023, as compared to the prior-year period. This was partially offset by a decrease in aggregate fees paid to our Advisor during the nine months ended September 30, 2023. Investing Activities The change in cash from investing activities was primarily due to a decrease in aggregate cash paid for acquisitions of new farms and capital improvements on existing farms during the current-year period, partially offset by the proceeds received from the sale of a 138-acre parcel of unfarmed land in Florida for $9.6 million during the nine months ended September 30, 2023, which resulted in a net gain of approximately $6.4 million. Financing Activities The change in cash from financing activities was primarily due to a decrease in aggregate net cash proceeds received from preferred and common equity offerings of approximately $119.7 million and a decrease in aggregate net borrowings of approximately $14.3 million. 39 Debt Capital MetLife Facility As amended in February 2022, our facility with MetLife currently consists of $75.0 million of revolving equity lines of credit and an aggregate of $175.0 million of term notes (the “MetLife Facility”). We currently have $100,000 outstanding under the lines of credit and $36.9 million outstanding on the term notes. While $213.0 million of the full commitment amount under the MetLife Facility remains undrawn, based on the level of collateral pledged, we currently have approximately $110.3 million of availability under the MetLife Facility. The revolving equity lines of credit mature on April 5, 2024, and the draw period for the term notes expires on December 31, 2024, after which MetLife has no obligation to disburse any additional undrawn funds under the term notes. We have been in discussions with MetLife regarding extending the maturity dates of the lines of credit and currently expect to have an agreement finalized by the end of 2023. Farmer Mac Facility As amended in June 2023, the Farmer Mac Facility provides for bond issuances up to an aggregate amount of $225.0 million by December 31, 2026, after which Farmer Mac has no obligation to purchase additional bonds under this facility. To date, we have issued aggregate bonds of approximately $100.1 million under the Farmer Mac Facility. Farm Credit and Other Lenders Since September 2014, we have closed on multiple loans with various 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 have borrowing relationships with several other agricultural lenders and are continuously reaching out to other lenders to establish prospective new relationships. As such, we expect to enter into additional borrowing agreements with existing and new lenders in connection with certain potential new acquisitions in the future. Equity Capital The following table provides information on equity sales that have occurred since January 1, 2023 (dollars in thousands, except per-share amounts; excludes shares of Series C Preferred Stock issued pursuant to the DRIP): Type of Issuance Number of Shares Sold Weighted-average Offering Price Per Share Gross Proceeds Net Proceeds (1) Series E Preferred Stock 225,281 $ 24.95 $ 5,621 $ 5,069 Common Stock – ATM Program 788,045 19.34 15,240 15,087 (1) Net of selling commissions and dealer-manager fees or underwriting discounts and commissions (in each case, as applicable). Our 2023 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 $1.5 billion in securities, 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 $3.7 million of Series E Preferred Stock and $2.2 million of common stock under the 2023 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, 2023, 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 40 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 measure, 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 these amounts improves comparability of our operating results 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 41 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, 2023 and 2022 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): For the Three Months Ended September 30, For the Nine Months Ended September 30, 2023 2022 2023 2022 Net income $ 3,141 $ 1,806 $ 12,746 $ 3,606 Less: Aggregate dividends declared on and charges related to extinguishment of cumulative redeemable preferred stock (1) (6,105) (5,398) (18,303) (13,801) Net loss attributable to common stockholders and non-controlling OP Unitholders (2,964) (3,592) (5,557) (10,195) Plus: Real estate and intangible depreciation and amortization 9,244 9,146 27,407 25,883 Plus (less): Losses (gains) on dispositions of real estate assets, net 4 819 (5,910) 2,100 Adjustments for unconsolidated entities (2) 22 14 69 38 FFO available to common stockholders and non-controlling OP Unitholders 6,306 6,387 16,009 17,826 Plus: Acquisition- and disposition-related expenses, net 33 150 126 169 Plus: Other nonrecurring charges, net (3) 50 851 1,328 803 CFFO available to common stockholders and non-controlling OP Unitholders 6,389 7,388 17,463 18,798 Net rent adjustment (1,086) (759) (3,089) (2,208) Plus: Amortization of debt issuance costs 247 269 766 817 (Less) plus: Other non-cash (receipts) charges, net (4) 1 264 279 606 AFFO available to common stockholders and non-controlling OP Unitholders 5,551 7,162 15,419 18,013 Weighted-average common stock outstanding—basic and diluted 35,822,123 34,607,440 35,698,458 34,472,018 Weighted-average common non-controlling OP Units outstanding — — — 82,511 Weighted-average total common shares outstanding 35,822,123 34,607,440 35,698,458 34,554,529 Diluted FFO per weighted-average total common share $ 0.18 $ 0.18 $ 0.45 $ 0.52 Diluted CFFO per weighted-average total common share $ 0.18 $ 0.21 $ 0.49 $ 0.54 Diluted AFFO per weighted-average total common share $ 0.15 $ 0.21 $ 0.43 $ 0.52 Distributions declared per total common share $ 0.14 $ 0.14 $ 0.41 $ 0.41 (1) Includes (i) cash dividends paid on our Series B Preferred Stock, Series C Preferred Stock, and Series E Preferred Stock, (ii) the value of additional shares of Series C Preferred Stock issued pursuant to the DRIP, and (iii) the pro-rata write-off of offering costs related to shares of Series C Preferred Stock and Series E Preferred Stock that were redeemed during the respective periods. (2) Represents our pro-rata share of depreciation expense recorded in unconsolidated entities during the respective periods. (3) Consists primarily of (i) net property and casualty losses (recoveries) recorded and the cost of related repairs expensed as a result of the damage caused to certain improvements by natural disasters on certain of our farms, (ii) costs related to the amendment, termination, and listing of shares from the Series C Offering that were expensed, and (iii) the write-off of certain unallocated costs related to a prior universal registration statement. (4) Consists of (i) the amount of dividends on the Series C Preferred Stock paid via issuing new shares (pursuant to the DRIP), (ii) the pro-rata write-off of offering costs related to shares of Series C Preferred Stock and Series E Preferred Stock that were redeemed, which were noncash charges, and (iii) our remaining pro-rata share of (income) loss recorded from investments in unconsolidated entities during the respective periods. 42 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. 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, 2023, 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 Acre-feet of Water Net Cost Basis (1) Current Fair Value % of Total Fair Value Purchase Price — — — — $ 22 $ 22 —% Internal Valuation 3 6,189 4,730 — 20,130 36,000 2.3% Third-party Appraisal (2) 166 109,404 91,408 45,000 1,328,358 1,543,309 97.7% Total 169 115,593 96,138 45,000 $ 1,348,510 $ 1,579,331 100.0% 43 (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 2022 and October 2023. Some of the significant assumptions used by appraisers and the Valuation Team in valuing our portfolio as of September 30, 2023, 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 as of September 30, 2023, is provided in the following table: Appraisal Assumptions Internal Valuation Assumptions Range (Low - High) Weighted Average Range (Low - High) Weighted Average Land Value (per farmable acre) $708 – $123,280 $ 34,835 $5,512 – $5,512 $ 5,512 Market NOI (per farmable acre) $230 – $3,536 $ 1,407 N/A N/A Market Capitalization Rate 3.30% – 5.20% 4.50% N/A N/A 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. 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, 2023, 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, 2023, from the prior value basis as of June 30, 2023, is provided in the table below (dollars in thousands): Total portfolio fair value as of June 30, 2023 $ 1,578,166 Plus: Acquisition of water credits during the three months ended September 30, 2023 18 Change in value of farms during the three months ended September 30, 2023 Farms valued via third-party appraisals $ 1,147 Net change in value of farms during the three months ended September 30, 2023 1,147 Total portfolio fair value as of September 30, 2023 $ 1,579,331 Management also determined fair values of all of its 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, 2023, was approximately $527.1 million, as compared to a carrying value (excluding unamortized related debt issuance costs) of approximately $587.2 million. The fair values of our Series B Preferred Stock, Series C Preferred Stock, and Series D Term Preferred Stock were determined using the closing stock prices as of September 30, 2023, of $18.10 per share, $18.07 per share, and $23.75 per share, respectively. 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 E Preferred Stock to be $25.00 per share as of September 30, 2023 (see Exhibit 99.1 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 cost 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 are the responsibility of management. PricewaterhouseCoopers LLP has neither examined, compiled, nor 44 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, 2023, we estimate the NAV per common share to be $20.33. 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) : Total equity per balance sheet $ 731,486 Fair value adjustment for long-term assets: Less: net cost basis of tangible and intangible real estate holdings (1) $ (1,348,510) Plus: estimated fair value of real estate holdings (2) 1,579,331 Net fair value adjustment for real estate holdings 230,821 Fair value adjustment for long-term liabilities: Plus: book value of aggregate long-term indebtedness (3) 647,572 Less: fair value of aggregate long-term indebtedness (3)(4) (584,457) Net fair value adjustment for long-term indebtedness 63,115 Estimated NAV 1,025,422 Less: aggregate fair value of cumulative redeemable preferred stock (5) (296,870) Estimated NAV available to common stockholders and non-controlling OP Unitholders $ 728,552 Total common shares and non-controlling OP Units outstanding 35,838,442 Estimated NAV per common share and OP Unit $ 20.33 (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 D Term Preferred Stock. (4) Long-term notes and bonds payable were valued using a discounted cash flow model. The Series D Term Preferred Stock was valued based on its closing stock price as of September 30, 2023. (5) The Series B Preferred Stock and Series C Preferred Stock were valued based on their respective closing stock prices as of September 30, 2023, while the Series E Preferred Stock was valued at its liquidation value, as discussed above. A quarterly roll-forward in the estimated NAV per common share for the three months ended September 30, 2023, is provided below: Estimated NAV per common share and non-controlling OP Unit as of June 30, 2023 $ 19.15 Plus net income attributable to common stockholders and non-controlling OP Unitholders (0.08) Adjustments for net change in valuations: Net change in unrealized fair value of farmland portfolio (1) $ 0.19 Net change in unrealized fair value of long-term indebtedness 0.11 Net change in unrealized fair value of preferred equity securities 1.06 Net change in valuations 1.36 Less distributions on common stock and non-controlling OP Units (0.14) Less net dilutive effect of equity issuances and redemptions, net 0.04 Estimated NAV per common share and non-controlling OP Unit as of September 30, 2023 $ 20.33 (1) The net change in unrealized fair value of our farmland portfolio consists of three components: (i) an increase of $0.03 per share due to the net appreciation in value of the farms that were valued during the three months ended September 30, 2023, (ii) an increase of $0.26 per share due to the decrease in net book value of our real estate holdings as a result of the aggregate depreciation and amortization expense recorded during the three months ended September 30, 2023, and (iii) a decrease of $0.10 per share due to net 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 $20.33 as of September 30, 2023, based on the calculation above, the closing price of our common stock on September 30, 2023, was $14.23 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 45 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. 46