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, 2023 (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. This Quarterly Report includes statistical and other industry and market data that we obtained from industry publications and research, surveys, and studies conducted by third parties. Industry publications and third-party research, surveys, and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. We have not independently verified the information contained in such sources 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 168 farms comprised of 111,836 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 168 farms leased to 93 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 three months ended March 31, 2024 and 2023 (dollars in thousands): 22 As of and For the Three Months Ended March 31, 2024 As of and For the Three Months Ended March 31, 2023 State No. of Farms Total Acres % of Total Acres Lease Revenue % of Total Lease Revenue No. of Farms Total Acres % of Total Acres Lease Revenue % of Total Lease Revenue California (1) 63 34,844 31.2% $ 13,180 66.5% 63 34,844 30.1% $ 13,606 64.2% Florida 25 18,720 16.7% 3,086 15.6% 26 22,606 19.5% 3,713 17.5% Washington 6 2,520 2.2% 1,062 5.3% 6 2,529 2.2% 1,162 5.5% Colorado 12 32,773 29.3% 661 3.3% 12 32,773 28.3% 597 2.8% Arizona 6 6,320 5.6% 569 2.9% 6 6,320 5.5% 563 2.7% Oregon 6 898 0.8% 566 2.8% 6 898 0.8% 518 2.4% Michigan 23 1,892 1.7% 240 1.2% 23 1,892 1.6% 246 1.2% Maryland 6 987 0.9% 115 0.6% 6 987 0.8% 115 0.5% Texas 1 3,667 3.3% 112 0.6% 1 3,667 3.2% 112 0.5% South Carolina 3 597 0.5% 61 0.3% 3 597 0.5% 61 0.3% Georgia 2 230 0.2% 56 0.3% 2 230 0.2% 56 0.3% North Carolina 2 310 0.3% 42 0.2% 2 310 0.3% 33 0.2% New Jersey 3 116 0.1% 32 0.2% 3 116 0.1% 32 0.1% Nebraska 9 7,782 7.0% 25 0.1% 9 7,782 6.7% 369 1.7% Delaware 1 180 0.2% 19 0.1% 1 180 0.2% 19 0.1% TOTALS 168 111,836 100.0% $ 19,826 100.0% 169 115,731 100.0% $ 21,202 100.0% (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, 45 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), 11 farms are direct-operated, and 4 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 (though such leases generally include a guarantee of a minimum amount of rental income). 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 March 31, 2024 (dollars in thousands): Year Number of Expiring Leases (1) Expiring Leased Acreage % of Total Acreage Lease Revenue for the Three Months Ended March 31, 2024 % of Total Lease Revenue 2024 7 7,891 7.1% $ 1,782 9.0% 2025 11 20,729 18.5% 1,597 8.1% 2026 11 11,706 10.5% 1,300 6.6% 2027 7 8,403 7.5% 2,419 12.2% 2028 14 5,198 4.6% 1,395 7.0% 2029 7 2,052 1.8% 1,336 6.7% Thereafter 42 54,298 48.6% 9,871 49.8% Other (2) 14 773 0.7% 126 0.6% Terminated/expired leases — 786 0.7% — —% Totals 113 111,836 100.0% $ 19,826 100.0% (1) Certain lease agreements encompass multiple farms. 23 (2) 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. We currently have five agricultural leases scheduled to expire within the next six months. We are currently in negotiations with the existing tenants on the farms, as well as other potential tenants, and we anticipate being able to renew the leases at their respective current market rental rates without incurring any downtime on the farms. Regarding all vacancies and 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 Property Sale On January 11, 2024, we completed the sale of a 3,748-acre farm in Martin County, Florida, for approximately $65.7 million. Including closing costs, we recognized a net gain on the sale of approximately $10.4 million. During the three months ended March 31, 2024 and 2023, we recorded lease revenue related to this farm of approximately $0 and $732,000, respectively. Leasing Activity The following table summarizes certain leasing activity that has occurred on our existing properties since January 1, 2024, through the date of this filing (dollars in thousands, except for footnotes): PRIOR LEASES NEW LEASES (1) Farm Locations Number of Leases Total Farm Acres Total Annualized Straight-line Rent (2) # of Leases with Participation Rents Lease Structures (# of NNN / NN / N) (3) Total Annualized Straight-line Rent (2) Wtd. Avg. Term (Years) # of Leases with Participation Rents Lease Structures (# of NNN / NN / N) (3) CA & CO 4 6,344 $ 5,444 1 3 / 1 / 0 $ 4,645 6.1 1 3 / 1 / 0 (1) 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. (2) 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. (3) “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 .” Vacant, Direct-operated, and Non-accrual Properties During a portion of the three months ended March 31, 2024, we had 20 farms (5 in California, 14 in Michigan, and 1 in Washington) that were either vacant or on which lease revenues were recognized on a cash basis (due to credit issues with two tenants causing us to determine that the full collectability of the remaining rental payments under the respective leases were not deemed to be probable). During the three months ended March 31, 2024, we recorded lease revenue related to the aforementioned farms of approximately $293,000 (including no participation rents), as compared to approximately $1.0 million (including approximately $72,000 of participation rents) during the prior-year period. During the three months ended March 31, 2024, we entered into a lease agreement with a new tenant on one of the California farms, and subsequent to March 31, 2024, we entered into a short-term management agreement with an unrelated third-party to operate 11 farms in Michigan. As such, currently, 4 farms (3 in Michigan and 1 in Washington) are vacant, 11 farms in Michigan are direct-operated, and 4 farms in California remain on non-accrual status. Regarding vacant and direct-operated farms, we are exploring both leasing and selling options, and we are in discussions with both potential tenants and potential buyers for these farms. We currently expect to come to agreements within the next six months on these farms; however, there can be no guarantee that we will be able to reach lease or sale agreements with tenants or buyers at favorable terms, or at all. Regarding the properties currently on non-accrual status, the tenant on two of the four farms is current with their rental payments to us. We are continuing to work with the tenant leasing the other two farms and will seek to come to an agreement for the remaining rental payments, if possible. Such agreement, if one can be reached, may include placing the tenant on a payment plan, deferring a portion of the rent owed to us, or agreeing to terminate the lease. In the event of a termination, we estimate that we would be able to find new tenants to lease each of these properties to at market rental rates within 1 to 12 months. Water Asset Acquisitions 24 In addition, from March 2023 through March 2024, we elected to participate in a groundwater recharge program established by Westlands Water District (“WWD”), a water district located in Fresno County, California. Under the program, WWD paid for surplus surface water to be delivered to individual landowners’ properties with district-approved groundwater recharge facilities, also known as “water banks.” The landowner was allowed to keep 50% of the net amount of groundwater credits generated under the program (after allowing for certain leave-behind and evaporative losses), and the remaining 50% would be used to recharge the aquifer and retained by WWD. Delivery of water under this program was subject to surplus water availability at WWD’s discretion. WWD terminated the program for the 2024 water year effective March 5, 2024. To date, we have obtained 2,524 acre-feet of water credits, which represents 50% of the total net water credits generated and confirmed by WWD under the program thus far, at a total carrying value of approximately $716,000. In addition, as a result of being granted these water credits in exchange for transferring and storing this surplus water on behalf of WWD, we recorded approximately $426,000 of non-cash revenue during the three months ended March 31, 2024, which represents the estimated fair value of the water credits obtained during the period. During 2023, we also entered into various other agreements with certain third parties (including local water districts and private individuals) to either buy water directly, buy a portion of other water districts’ surface water allocations in future years in which allocations are granted, or to store surface water on others’ behalf in one of our groundwater recharge facilities in exchange for a portion of the net groundwater credits produced and recognized by the respective water district. To date, we have obtained 549 acre-feet of water credits as a result of these agreements at a total carrying value of approximately $166,000. We currently own a total of 49,076 acre-feet of long-term water assets, and our investments in these long-term water assets have an aggregate carrying value of approximately $35.4 million. To date, we have invested approximately $1.5 million to construct groundwater recharge facilities on two of our farms, and we have invested an additional $2.3 million in the aggregate in connection with these agreements that are expected to result in additional groundwater credits in the future; however, the amount and timing of these credits, if any, is currently unknown and is dependent upon and subject to the recognition of such credits by the respective water districts, in their sole discretion. Financing Activity Debt Activity Farm Credit Notes Payable—Interest Patronage From time to time since September 2014, we, through certain subsidiaries of our Operating Partnership, have entered into various loan agreements (collectively, the “Farm Credit Notes Payable”) with 13 different Farm Credit associations (collectively, “Farm Credit”). During the three months ended March 31, 2024, we recorded interest patronage of approximately $1.9 million related to interest accrued on the Farm Credit Notes Payable during the year ended December 31, 2023, and during th e three months ended September 30, 2023 , we received approximately $111,000 of interest patronage, as certain Farm Credit associations paid a portion of the 2023 interest patronage (which relates to interest accrued during 2023 but is typically paid during the first half of 2024) early. In total, 2023 interest patronage resulted in a 22.0% reduction (approximately 101 basis points) to the interest rates on such borrowings. For further discussion on interest patronage, refer to Note 4, “ Borrowings—Farm Credit Notes Payable—Interest Patronage ,” in the accompanying notes to our condensed consolidated financial statements. Loan Repayments From January 1, 2024, through the date of this filing, we repaid approximately $16.2 million of maturing bonds. On a weighted-average basis, these borrowings bore interest at an annual rate of 3.15%. 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 Agreement,” 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 January 1, 2024, through the date of this filing (dollars in thousands): 25 Number of Shares Sold Weighted-average Offering Price Per Share Gross Proceeds Net Proceeds (1) 11,340 $ 25.00 $ 284 $ 255 (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 $28,000. 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. Impact of Inflation and Interest Rates According to the U.S. Bureau of Labor Statistics, the consumer price index (“CPI”) grew at an annual rate of 3.5% through March 31, 2024, 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 has generally kept pace with the rate of inflation until the past few months, as the overall food segment increased at an annual rate of 2.2% through March 31, 2024. In addition, according to the NCREIF Farmland Index, which, as of March 31, 2024, consisted of approximately $15.8 billion of farms across the U.S., the total return on U.S. farmland (including appreciation and income) was 3.6% for the 12 months ended March 31, 2024. Despite the slowdown in food prices in recent months, prices remain high, as the overall food segment has increased by 10.9%% over the past two years, outpacing overall inflation of 8.6% over the same time period. Although our farm operators have experienced increases in input costs, we believe such increases will be somewhat mitigated to the extent that food price increases continue to outpace or keep pace with inflation. To combat inflation, the Federal Reserve raised its benchmark funds rate 11 times between March 2022 and July 2023, resulting in the highest target rate seen since January 2001. Since that time, it has held rates flat, and many now expect the Federal Reserve to begin cutting rates later this year, though the timing of such rate cuts, if any, remains uncertain. Despite evidence that economic growth is beginning to slow, including a first-quarter economic growth report that was the weakest in nearly two years, inflation continues to be higher than desired, and the labor market remains strong. As such, the Federal Reserve has stated its desire to see more evidence of inflation being on a sustainable path to its target rate of 2.0%, indicating a “higher-for-longer” stance. As a result of this uncertainty, interest rates remain somewhat volatile. The yield on the 10-year US Treasury Note has withdrawn from the 16-year high it achieved in October 2023 but still remains well above 4.0%. As such, interest rates on long-term financing continue to be high, limiting our ability to finance new acquisitions at favorable terms. 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 3.39% for another 4.2 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 further interest rate increases, which remain a possibility. 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 26 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. 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 three months ended March 31, 2024. 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 March 31, 2024 and 2023: • Same-property basis represents farms owned as of December 31, 2022, which were not vacant or direct-operated 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 December 31, 2022. From January 1, 2023, through March 31, 2024, we did not acquire any new farms and had one farm disposition; and • Vacant, direct-operated, or non-accrual properties are: ◦ Farms that were vacant (either wholly or partially) at any point during either period presented. 16 of our farms were vacant during a portion of either of the three months ended March 31, 2024 or 2023; ◦ Farms that were direct-operated at any point during either period presented. None of our farms were direct-operated during either of the three months ended March 31, 2024 or 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. We recognized revenue from four different leases with three separate 27 tenants (encompassing six different farms) on a cash basis during a portion of either of the three months ended March 31, 2024 or 2023. A comparison of results of components comprising our operating income for the three months ended March 31, 2024 and 2023 is below (dollars in thousands): For the Three Months Ended March 31, 2024 2023 $ Change % Change Operating revenues: Lease revenues: Fixed lease payments $ 19,593 $ 20,960 $ (1,367) (6.5) % Variable lease payments – participation rents — 195 (195) (100.0) % Variable lease payments – tenant reimbursements and other 233 47 186 395.7% Total lease revenue 19,826 21,202 (1,376) (6.5) % Other operating revenue 426 — 426 NM Total operating revenues 20,252 21,202 (950) (4.5) % Operating expenses: Depreciation and amortization 8,789 9,119 (330) (3.6) % Property operating expenses 877 1,128 (251) (22.3) % Base management and incentive fees 2,156 2,149 7 0.3 % Administration fee 603 575 28 4.9 % General and administrative expenses 566 786 (220) (28.0) % Total operating expenses 12,991 13,757 (766) (5.6) % Operating income $ 7,261 $ 7,445 $ (184) (2.5) % NM = Not Meaningful Operating Revenues Lease revenue The following table provides a summary of our lease revenues during the three months ended March 31, 2024 and 2023 (dollars in thousands): For the Three Months Ended March 31, 2024 2023 $ Change % Change Same-property basis: Fixed lease payments $ 19,417 $ 19,375 $ 42 0.2% Participation rents — 123 (123) (100.0)% Total – Same-property basis 19,417 19,498 (81) (0.4)% Properties acquired or disposed of: Fixed lease payments — 732 (732) (100.0)% Total – Properties acquired or disposed of — 732 (732) (100.0)% Vacant, direct-operated, or non-accrual, properties: Fixed lease payments 176 853 (677) (79.4)% Participation rents — 72 (72) (100.0)% Total – Vacant, direct-operated, or non-accrual properties 176 925 (749) (81.0)% Tenant reimbursements and other (1) 233 47 186 395.7% Total Lease revenues $ 19,826 $ 21,202 $ (1,376) (6.5)% (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. Similar amounts are also recorded as property operating expenses during the respective periods. Same-property Basis – 2024 compared to 2023 Lease revenues from fixed lease payments remained relatively flat for the three months ended March 31, 2024 as compared to the prior-year period. 28 Lease revenues from participation rents decreased for the three months ended March 31, 2024, due to insufficient information available to us as of March 31, 2024, to allow certain amounts to be reasonably determinable. Other – 2024 compared to 2023 Lease revenue from properties acquired or disposed of decreased due to the sale of a 3,748-acre farm in Florida on January 11, 2024. Fixed lease payments from vacant, direct-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 months ended March 31, 2024 (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, 16 of our farms were vacant for portions of each of the three months ended March 31, 2024 and 2023. The decrease in lease revenue from vacant, direct-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 months ended March 31, 2024. 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 tenant reimbursement revenue fluctuates as payments are made by our tenants. Amounts recorded during the current-year period include increased reimbursements from certain tenants for costs to deliver water to their farms via a pipeline owned by an unconsolidated entity of ours. Other Operating Revenue Other operating revenue consists of non-lease revenue generated as a result of activities performed on certain of our properties. During the three months ended March 31, 2024, we recognized approximately $426,000 of non-cash revenue associated with the transfer and storing of surplus water on behalf of a government municipality using a groundwater recharge facility constructed on one of our farms. See above under “ Recent Developments—Portfolio Activity–Existing Properties—Water Asset Acquisitions ” for further discussion. Operating Expenses Depreciation and amortization Depreciation and amortization expense decreased primarily due to the disposition of certain assets, including the sale of a 3,748-acre farm in Florida, and certain other assets reaching the end of their useful lives. This decrease was partially offset by additional depreciation expense associated with new capital improvements made on certain of our farms. 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 months ended March 31, 2024 and 2023 (dollars in thousands): For the Three Months Ended March 31, 2024 2023 $ Change % Change Same-property basis $ 481 $ 793 $ (312) (39.3)% Properties acquired or disposed of — 53 (53) (100.0)% Vacant, direct-operated, or non-accrual properties 158 240 (82) (34.2)% Tenant-reimbursed property operating expenses (1) 238 42 196 466.7% Total Property operating expenses $ 877 $ 1,128 $ (251) (22.3)% (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 – 2024 compared to 2023 Property operating expenses decreased primarily due to a decrease in legal fees and other costs incurred in connection with protecting water rights on certain farms in California, as well as a decrease in repairs and maintenance expense incurred during the prior-year period as a result of minor damage cause by natural disasters at certain farms. Other – 2024 compared to 2023 Property operating expenses on properties acquired or disposed of decreased due to the sale of one farm in Florida, as discussed elsewhere. 29 Property operating expenses attributable to vacant, direct-operated, or non-accrual properties decreased primarily due to a decrease in legal fees incurred in connection with rent collection or lease termination efforts for those tenants on farms that were placed on non-accrual status and a decrease in third-party property management expenses. This decrease was partially offset by an increase in property tax expense. 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. Amounts recorded during the current-year period include additional costs to deliver water to certain of our farms via a pipeline owned by an unconsolidated entity of ours, which costs were reimbursed to us by our tenants. 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 months ended March 31, 2024 and 2023 (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): 30 Quarter Ended March 31 2024 Fee Calculations: Base Management Fee: Gross Tangible Real Estate (1)(2) $ 1,437,812 Quarterly rate 0.150 % Base management fee (3) $ 2,156 Incentive Fee: Total Adjusted Common Equity (1)(2) $ 344,128 First hurdle quarterly rate 1.750 % First hurdle threshold $ 6,022 Second hurdle quarterly rate 2.1875 % Second hurdle threshold $ 7,528 Pre-Incentive Fee FFO (1) $ 5,988 100% of Pre-Incentive Fee FFO in excess of first hurdle threshold, up to second hurdle threshold $ — 20% of Pre-Incentive Fee FFO in excess of second hurdle threshold — Total Incentive fee (3) $ — Total fees due to Adviser $ 2,156 2023 Fee Calculations: Base Management Fee: Gross Tangible Real Estate (1)(2) $ 1,432,394 Quarterly rate 0.150 % Base management fee (3) $ 2,149 Incentive Fee: Total Adjusted Common Equity (1)(2) $ 358,689 First hurdle quarterly rate 1.750 % First hurdle threshold $ 6,277 Second hurdle quarterly rate 2.1875 % Second hurdle threshold $ 7,846 Pre-Incentive Fee FFO (1) $ 5,303 100% of Pre-Incentive Fee FFO in excess of first hurdle threshold, up to second hurdle threshold $ — 20% of Pre-Incentive Fee FFO in excess of second hurdle threshold — Total Incentive fee (3) $ — Total fees due to Adviser $ 2,149 (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, 2022. 31 No incentive fee was earned by our Adviser during either of the three months ended March 31, 2024 or 2023, as our Pre-Incentive Fee FFO did not surpass the required hurdle rate in either period. The administration fee paid to our Administrator increased primarily due to 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 current-year period, primarily due to a decrease in stockholder-related expenses related to the annual stockholders’ meeting and the listing of the Series C Preferred Stock on Nasdaq in the first half of 2023. The decrease was also attributable to a decrease in professional fees, particularly lower legal and accounting costs. A comparison of results of other components contributing to net loss attributable to common stockholders for the three months ended March 31, 2024 and 2023 is below (dollars in thousands): For the Three Months Ended March 31, 2024 2023 $ Change % Change Operating income $ 7,261 $ 7,445 $ (184) (2.5)% Other income (expense): Other income 2,428 2,620 (192) (7.3)% Interest expense (5,555) (6,036) 481 (8.0)% Dividends declared on cumulative term preferred stock (755) (755) — —% Gain (loss) on dispositions of real estate assets, net 10,273 (481) 10,754 (2,235.8)% Property and casualty loss, net — (1,016) 1,016 (100.0)% Loss from investments in unconsolidated entities (85) (27) (58) 214.8% Total other income (expense), net 6,306 (5,695) 12,001 (210.7)% Net income 13,567 1,750 11,817 675.3% Net income attributable to non-controlling interests — — — NM Net income attributable to the Company 13,567 1,750 11,817 675.3% Aggregate dividends declared on and charges related to extinguishment of cumulative redeemable preferred stock (6,118) (6,070) (48) 0.8% Net income (loss) attributable to common stockholders $ 7,449 $ (4,320) $ 11,769 (272.4)% NM = Not Meaningful 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, decreased primarily due to less interest patronage received from Farm Credit (primarily due to decreased borrowings from Farm Credit). During the three months ended March 31, 2024, we recorded approximately $1.9 million of interest patronage from Farm Credit related to interest accrued during 2023, as compared to approximately $2.3 million of interest patronage recorded during the prior-year period that related to interest accrued during 2022. In addition, during the three months ended September 30, 2023, we received approximately $111,000 of interest patronage related to interest accrued during 2023, as certain Farm Credit associations paid a portion of 2023 interest patronage (which is typically paid during the first half of 2024) early. In total, 2023 interest patronage resulted in a 22.0% reduction (approximately 101 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 months ended March 31, 2024, was approximately $557.6 million, as compared to approximately $612.2 million for the prior-year period. 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 months ended March 31, 2024, was 3.81%, as compared to 3.77% for the prior-year period. During the three months ended March 31, 2024, we recorded a net capital gain, driven by the sale of a 3,748-acre farm in Martin County, Florida for approximately $65.7 million, which after accounting for closing costs, resulted in a net gain of 32 approximately $10.4 million. The net loss recorded during the three months ended March 31, 2023, related to the disposals of certain irrigation and other improvements on certain of our farms. The net property and casualty loss relates 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 three months ended March 31, 2023, was primarily due to 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. 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 our credit facility with Metropolitan Life Insurance Company (“MetLife”)), and issuances of additional equity securities. Our current available liquidity is approximately $203.5 million , consisting of approximately $57.0 million in cash on hand and, based on the current level of collateral pledged, approximately $146.5 million of availability under our credit facility with MetLife (subject to compliance with covenants) and other undrawn lines of credit, notes, or bonds. In addition, we currently have certain properties valued at a total of approximately $130.1 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 3.39% for another 4.2 years. In addition, the weighted-average remaining term of our notes and bonds payable is approximately 8.7 years. As such, with respect to our current borrowings, we have experienced minimal impact from increased interest rates over the past two years, and we believe we are well-protected against any future interest rate increases. Despite ongoing uncertainty 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 currently-designated preferred securities; making distributions to common 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 currently-designated preferred securities; and fund our distributions to common stockholders (including non-controlling OP Unitholders). We expect to meet our long-term liquidity requirements through various sources of capital, including capacity under current lines of credit, 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 as opportunities arise. 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 March 31, 2024 (dollars in thousands): 33 Farm Location(s) Farm Acreage Total Commitment Obligated Completion Date (1) Amount Expended or Accrued as of March 31, 2024 Columbia, OR 157 $ 1,800 (2) Q3 2024 $ 1,146 St. Lucie, FL 549 230 Q3 2025 185 Ventura, CA 402 1,000 (2) Q4 2025 448 Napa, CA 270 1,635 (2) Q4 2029 1,233 Wicomico & Caroline, MD, and Sussex, DE 833 115 Q3 2030 49 Franklin & Grant, WA, & Umatilla, OR 1,126 2,169 (2) Q4 2032 2,007 (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 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 March 31, 2024, are as follows (dollars in thousands): Period Future Lease Payments (1) For the remaining nine months ending December 31: 2024 $ 40 For the fiscal years ending December 31: 2025 62 2026 62 2027 62 2028 62 Thereafter 631 Total undiscounted lease payments 919 Less: imputed interest (394) Present value of lease payments $ 525 (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 of approximately $26,000 and $25,000 during the three months ended March 31, 2024 and 2023 , respectively. Cash Flow Resources The following table summarizes total net cash flows from operating, investing, and financing activities for the three months ended March 31, 2024 and 2023 (dollars in thousands): For the Three Months Ended March 31, 2024 2023 $ Change % Change Net change in cash from: Operating activities $ 3,420 $ 4,714 $ (1,294) (27.5)% Investing activities 62,519 (3,016) 65,535 (2,172.9)% Financing activities (32,955) (24,111) (8,844) 36.7% Net change in Cash and cash equivalents $ 32,984 $ (22,413) $ 55,397 (247.2)% 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, largely due to a decrease in fixed lease cash payments received (primarily due to the disposition of one farm in Florida, as well as due to the timing of when certain cash rental payments were received), partially offset by a decrease in interest payments made and aggregate fees paid to our Advisor during the current-year period. Investing Activities 34 The change in cash from investing activities was primarily due to proceeds received from the sale of a 3,748-acre farm in Florida for approximately $65.7 million during the three months ended March 31, 2024, which resulted in a net gain of approximately $10.4 million, and a decrease in the amount of cash paid for capital improvements on existing farms during the current-year period. 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 $14.1 million and a decrease in aggregate net borrowings of approximately $5.5 million. Debt Capital MetLife Facility As amended, our credit 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 $200,000 outstanding under the lines of credit and $36.9 million outstanding on the term notes. While $212.9 million of the full commitment amount under the MetLife Facility remains undrawn, based on the level of collateral pledged, we currently have approximately $110.2 million of availability under the MetLife Facility. The revolving equity lines of credit mature on December 15, 2033, and the draw period for both term notes expires on December 31, 2024, after which MetLife has no obligation to disburse any additional undrawn funds under the term notes. Farmer Mac Facility As amended, our agreement with Federal Agricultural Mortgage Corporation (“Farmer Mac”) currently provides for bond issuances up to an aggregate amount of $225.0 million (the “Farmer Mac Facility”) 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, 2024 (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 E Preferred Stock 11,340 $ 25.00 $ 284 $ 255 (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 $4.3 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 March 31, 2024, we did not have any material off-balance sheet arrangements. NON-GAAP FINANCIAL INFORMATION 35 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 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 certain non-cash lease incentives and accretion related to below-market lease values, certain 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. During the three months ended December 31, 2023, we adjusted our definition of AFFO to exclude from this adjustment the removal of lease incentives that were a result of previous cash disbursements made by us to or on behalf of our tenants. The results of all periods presented, including those of the prior year, have been adjusted in the table below to conform with this new definition. • 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. 36 • 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 months ended March 31, 2024 and 2023 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 March 31, 2024 2023 Net income $ 13,567 $ 1,750 Less: Aggregate dividends declared on and charges related to extinguishment of cumulative redeemable preferred stock (1) (6,118) (6,070) Net income (loss) attributable to common stockholders and non-controlling OP Unitholders 7,449 (4,320) Plus: Real estate and intangible depreciation and amortization 8,789 9,119 (Less) plus: (Gains) losses on dispositions of real estate assets, net (10,273) 481 Adjustments for unconsolidated entities (2) 23 23 FFO available to common stockholders and non-controlling OP Unitholders 5,988 5,303 Plus: Acquisition- and disposition-related expenses, net — 19 Plus: Other nonrecurring charges, net (3) 11 1,136 CFFO available to common stockholders and non-controlling OP Unitholders 5,999 6,458 Net rent adjustment (547) (1,043) Plus: Amortization of debt issuance costs 243 261 (Less) plus: Other non-cash (receipts) charges, net (4) (565) 223 AFFO available to common stockholders and non-controlling OP Unitholders 5,130 5,899 Weighted-average shares of common stock outstanding 35,838,442 35,547,397 Weighted-average common non-controlling OP Units outstanding — — Weighted-average shares of common shares outstanding, fully diluted 35,838,442 35,547,397 Diluted FFO per weighted-average common share $ 0.17 $ 0.15 Diluted CFFO per weighted-average common share $ 0.17 $ 0.18 Diluted AFFO per weighted-average common share $ 0.14 $ 0.17 Distributions declared per common share $ 0.14 $ 0.14 (1) Includes (i) cash dividends paid on our cumulative redeemable 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 cumulative redeemable preferred stock that were redeemed during the respective periods. 37 (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 shelf 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 cumulative redeemable preferred stock that were redeemed, which were non-cash charges, (iii) our remaining pro-rata share of (income) loss recorded from investments in unconsolidated entities during the respective periods, and (iv) less non-cash income recorded as a result of additional water assets received as consideration in certain transactions. 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 March 31, 2024, determined by each method is shown in the table below (dollars in thousands, except in footnotes): 38 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 — — — 4,076 $ 1,344 $ 1,344 0.1% Internal Valuation 3 6,189 4,730 — 19,957 36,000 2.4% Third-party Appraisal (2) 165 105,647 87,667 45,000 1,258,657 1,460,575 97.5% Total 168 111,836 92,397 49,076 $ 1,279,958 $ 1,497,919 100.0% (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 June 2023 and March 2024. Some of the significant assumptions used by appraisers and the Valuation Team in valuing our portfolio as of March 31, 2024, 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 March 31, 2024, 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 $ 35,159 $5,512 – $5,512 $ 5,512 Market NOI (per farmable acre) $230 – $3,979 $ 1,846 N/A N/A Market Capitalization Rate 3.30% – 5.70% 4.43% 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 March 31, 2024, 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 March 31, 2024, from the prior value basis as of December 31, 2023, is provided in the table below (dollars in thousands): Total portfolio fair value as of December 31, 2023 $ 1,566,474 Plus: Acquisition of water assets during the three months ended March 31, 2024 771 Less: Sale of one farm during the three months ended March 31, 2024 (65,651) Change in value of farms during the three months ended March 31, 2024 Farms valued via third-party appraisals $ (3,675) Net change in value of farms during the three months ended March 31, 2024 (3,675) Total portfolio fair value as of March 31, 2024 $ 1,497,919 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 March 31, 2024, was approximately $506.8 million, as compared to a carrying value (excluding unamortized related debt issuance costs) of approximately $554.8 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 March 31, 2024, of $20.04 per share, $20.02 per share, and $23.96 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 March 31, 2024 (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- 39 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 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 March 31, 2024, we estimate the NAV per common share to be $18.50. 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 $ 723,319 Fair value adjustment for long-term assets: Less: net cost basis of tangible and intangible real estate holdings (1) $ (1,279,958) Plus: estimated fair value of real estate holdings (2) 1,497,919 Net fair value adjustment for real estate holdings 217,961 Fair value adjustment for long-term liabilities: Plus: book value of aggregate long-term indebtedness (3) 615,143 Less: fair value of aggregate long-term indebtedness (3)(4) (564,635) Net fair value adjustment for long-term indebtedness 50,508 Estimated NAV 991,788 Less: aggregate fair value of cumulative redeemable preferred stock (5) (328,873) Estimated NAV available to common stockholders and non-controlling OP Unitholders $ 662,915 Total common shares and non-controlling OP Units outstanding 35,838,442 Estimated NAV per common share and OP Unit $ 18.50 (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 March 31, 2024. (5) The Series B Preferred Stock and Series C Preferred Stock were valued based on their respective closing stock prices as of March 31, 2024, 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 March 31, 2024, is provided below: Estimated NAV per common share and non-controlling OP Unit as of December 31, 2023 $ 19.06 Plus net income attributable to common stockholders and non-controlling OP Unitholders 0.21 Adjustments for net change in valuations: Net change in unrealized fair value of farmland portfolio (1) $ (0.23) Net change in unrealized fair value of long-term indebtedness 0.01 Net change in unrealized fair value of preferred equity securities (0.41) Net change in valuations (0.63) Less distributions on common stock and non-controlling OP Units (0.14) Less net dilutive effect of equity issuances and redemptions, net — Estimated NAV per common share and non-controlling OP Unit as of March 31, 2024 $ 18.50 (1) The net change in unrealized fair value of our farmland portfolio consists of three components: (i) a decrease of $0.10 per share due to the net depreciation in value of the farms that were valued during the three months ended March 31, 2024, (ii) an increase of $0.25 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 March 31, 2024, and (iii) a decrease of $0.38 per share due to net asset dispositions or 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 40 estimated NAV per common share calculation. For example, while we estimated our NAV per common share to be $18.50 as of March 31, 2024, based on the calculation above, the closing price of our common stock on March 31, 2024, was $13.34 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. 41