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Gladstone Land Corporation (NASDAQ:LAND)

Q4 2012 Earnings Conference Call

March 28, 2013 8:30 a.m. ET

Executives

David Gladstone - President and Chief Executive Officer

Danielle Jones - Chief Financial Officer and Treasurer

Analysts

Ryan Connors - Janney Montgomery Scott

Dan Donlan - Ladenburg Thalmann

Operator

Good morning and welcome to the Gladstone Land Corporation year ended December 31, 2012 shareholders conference call. All participants will be in a listen-only mode. (Operator Instructions). After today's presentation, there will be an opportunity to ask questions. (Operator Instructions). Please note this event is being recorded.

I would now like to turn the conference over to David Gladstone. Please go ahead.

David Gladstone

Thank you, Emily for that nice introduction and welcome to the first conference call for Gladstone Land. We’re here to discuss the company which completed its IPO in January and then filed its initial Form K with the SEC yesterday. Thanks to all of you for calling in today. We always enjoy the time with shareholders and I wish there were more of these phone calls so we could explain things as we go along.

Please if you’re in the Washington D.C area, we’re located in a suburb called McLean, Virginia. You have an open invitation to stop by and see us if you’re in that area. We’re here close to 60 members of the team now and we no longer are small and we also have a couple of puppy dogs that come into the office every day.

Now let me read the forward-looking statements. This report that we’re about to give may include statements that may constitute forward-looking statements within the meaning of the Securities Act of 1933, Securities Exchange Act of 1934, including with regard to future performance of the company. These forward-looking statements may involve certain risks and uncertainties that are based on our current plan we believe that plan to be reasonable.

There are many factors that may cause our actual results to be materially different from any future results expressed or implied in these forward-looking statements, including all those factors listed under the Cash and Risk Factors in our Company’s 10-K filing that was filed with the Securities Exchange Commission and this 10-K can be found on our website at www.gladstoneland.com and on the SEC website. The Company undertakes no obligation to publicly update or revise any of the forward-looking statements, whether as a result of new information, future events or otherwise.

In our talk today, we plan to talk about funds from operation or FFO and since FFO is a non-GAAP accounting term, I need you to find FFO as net income, excluding the gains and losses from the sale of real estate, but we haven’t had any of that and any impaired losses or depreciation, amortization of the real estate is added back. The National Association of REITS or NAREIT had endorsed FFO as one of those non-accounting standards that we can use to discuss Real Estate Investment Trust. We see in our 10-K filed yesterday with the SEC you’ll see our financial statements and a detailed description of FFO.

Folks, since this is our first call, we begin this call today with some of the background of the company and then discuss our recent activity. The company was originally incorporated as most of you know, in 1997 and it’s now in the State of Maryland incorporated and we seek to be taxed as a Real Estate Investment Trust and hope to make that happen in 2013. We expect to elect this status as our cash return for the year ending December 31, 2013. We do that when we actually file the tax return.

We were originally growing and selling berries back in the days before. We even thought about being a Real Estate Investment Trust. We were growing all kinds of row crops, mostly strawberries and raspberries and - farmland and farm buildings located in the United States and we leased a lot of farms. 4,000, 5,000, 6,000 acres were leased and we only owned about 1,000 acres. Then in January 29, 2013 our shares of common stock begin trading on NASDAQ under the trading symbol LAND and we priced that IPO and we raised about $51.5 million in connection with our IPO.

Prior to 2004, we owned some farmland, but as I mentioned leased most of the acreage where we grew some vegetables, but mostly berries and we were engaged in farming and contract growing and packaging and marketing and selling and distribution of fresh berries and all those other crops. For many years we did that. We did some commission selling and then contract cooling services for independent berry growers.

All of that changed in 2004 as we sold our agricultural operation business and since 2004 our business has consisted solely of owning farmland and leasing our farms to independent tenant farmers and larger -- the corporate tenant farmers. Since 2004 we’ve been buying farms to add to our list of farms.

Our farmland is predominantly concentrated in locations where farmers are able to grow annual row crops such as berries, lettuce and other row crops. These are planted and harvested annually. Sometimes even more frequently you get two or three crops per year and we may also acquire some properties related to farming such as we have one large cooler and a box barn and then in Florida we bought another cooler along with a farm down there. We’ll look at other things such as processing plants and packaging buildings, but we’re really only looking at those in terms of how it relates to buying additional farmland. You’ll see mostly farmland in our portfolio and not buildings.

We currently have 12 farms, two coolers which are storage facilities using cooling crops and one box barn and all these facilities are used in growing berries or vegetables. Some other small buildings come along with farms, such as storage sheds and all of those. Those are relatively worthless when we buy those compared to the land. Five of these farms are located in Watsonville, California or near Watsonville and one farm is near Oxnard, California and then we have five farms that are in Plant City, Florida and one is near Wimauma, Florida which is near Plant City as well.

As is customary in agricultural leases, we intend to primarily enter leases with independent and here we’re talking about larger independent farmers or corporate farmers and we generally have those on terms of two to five years are the typical leases in that business. We lease properties that have longer term, but unusually those are related and we don’t have any of those related to trees and bushes and barns. We are looking at some blueberry bush farms now and we’ll have to think about how we handle that. But we anticipate entering into a long term lease if we were doing anything in that area.

We will be required to frequently renew the short term leases that always gets people nervous. But we’ve had good luck in the past and most of the farms that we know of, even though they’re on short term leases, they’re leased year after year after year. We expect to renew most of these leases. We have three that are coming up this year. We’re in negotiations with two of them. We’ll begin negotiations with the third one that’s really just going back and forth, sharing with each other what’s going on in the farming area and trying to arrive at something that’s amenable to both parties. And sometimes we have the upper hand because we’ve got phenomenal farmland and other times we have folks that are a little bit picky and don’t come to the marketplace as frequently. We don’t have any of those problems today, but it can certainly happen in the future.

So we expect that all of these would contain provisions often referred to as escalation clauses in which the rents go up at market rate each time it’s renewed and some of these that have long term leases have built in provisions for increases that the tenants have to handle on an annual basis.

So we intend to use these IPO proceeds that we received from this January offering to purchase more farmland and properties related to farming, intend to lease our farm properties to corporate farmers independents. We don’t think we’ll change that and we are looking at independent farmers and corporate farmers that sell through national corporate marketing distribution networks that are already established. It’s hard for the smaller tenant and the smaller farmer to break into those networks. So we’re looking for people who are already in those networks.

We currently have no plans to make mortgage loans and other listed in the prospectus. We might find one someday that fits the category of a mortgage first and then a purchase somewhere along the way, but right now we’re still just concentrating on buying farmland.

During 2012 we acquired four additional farms in two separate transactions. These were all in the late summer, early fall. We purchased both of those with long term debt and both of these properties we’ve extended the lease on one of those and for an additional three years after we bought it. The first farm we acquired in 2012 was comprised of 219 acres of row crops and farmlands near Wimauma, Florida which we acquired for $3.4 million. We funded this acquisition. We had some cash on hand, but mostly from borrowings from our existing credit facility.

At closing, we were assigned the triple-net lease which expires on June 14, 2013 and we’re currently negotiating that now and I think we’ll be able to tell you at the next meeting that we’ve pretty much put that one to bed. The second acquisition in 2012 consisted of three farms comprising an aggregate of 124 acres of row crop farmland near Plant City, Florida. The purchase price there was $4 million. We funded that acquisition with a mortgage loan because our other properties had not been mortgaged. So we just used mortgages against them to generate the cash to purchase this farm. At closing we were assigned an existing triple-net lease which expires in June 2017. The tenant has one option to extend for an additional five years. Obviously we’ll have it market price.

So in summary, all of our existing tenants are paying as agreed. Our portfolio is 100% occupied. We have three leases that expire in 2013 in addition to the lease mentioned above. We’re very active working on these tenants right now and our properties and I think those leases will get done as we anticipate them and we’ll certainly be reporting on those as they come along.

In order to get our IPO prospectus through the SEC, we shut down all of our acquisition activity. We had some in the pipeline that we had to put on hold. This resulted in us having to delay our diligence process on a lot of these transactions on the potential acquisitions. Had we moved forward with any of these acquisitions, we would have had to update the prospectus and resubmit to SEC and that would have been a miserable experience because it would have started the time through the SEC all over again. So we lost about four to six months depending on where we stopped, which activity and we just started again in the beginning of February, 2013 after the IPO in January and I think we’re making good progress.

Now, our pipeline of possible acquisitions is strong today. We hope to close on more of the properties in the upcoming months and we’re very close to closing on one now. At the time we have -- right now we have about seven letters outstanding, indications of interest. We have another seven or eight that are working and I’d be crazy to try to guess how many of those can close, but I think we’ll close a good number of them and maybe all of them.

We have reestablished all of our relationships out in the marketplace in the last two months and the pipeline should build even more. We’re getting calls from people who just hear about us now. We are doing mailings to farmers and farm owners and brokers saying we have money. We’ve been mailing out the prospectus just so they have they information. We are advertising in various farm papers now. We’re getting calls from that as well and I think we’ll be running full force by the summer with word of mouth that’s going on now.

We are seeking to hire a Managing Director of Acquisitions in California that will work on contracts that we’re looking to find farms in California, Washington and Oregon and other western states. We have one working already in Oregon and one in California. So we’re moving along and feel really good about that. I’d love to get that person hired and on board. I think that would speed up the transactions. It’s pretty difficult to get in airplanes and fly five hours and spend time on the ground and then fly back. So, looking desperately for that person. We’ve got about seven or eight résumés now that we’re starting to build our résumés and we’ll choose one along the way.

Some of these are people that I’ve known before that have applied and we will after that probably look for someone in the Florida area to handle the southeast. We can handle the ones that we’re at obviously in North Carolina and Georgia and we’re looking at one large farm in New Jersey and another big farm in blueberries actually in Michigan. So we’re looking there as well.

That’s sort of an overview and again when we get to the end I’ll answer questions, but now I’m going to turn it over to the Chief Financial Officer and Treasurer, Ms. Danielle Jones and she’ll give a report on the financial results. Danielle?

Danielle Jones

Thanks David. Good morning and welcome to our first earnings call. I’m going to start by discussing our intention elect REIT status that David touched on earlier and also our status as an emerging growth company. As discussed previously, we intend to be packed as a Real Estate Investment Trust or REIT under the Federal tax laws beginning with our tax full year ending this year December 31, 2013. The company must study our accumulated our non-REIT earnings and profits by December 31 of the year for which refers to elect REIT status. It is possible that our monthly distributions may not sufficiently satisfy this requirement by December 31, 2013, in which case we will likely not elect to be taxed as a REIT until the tax full year ending this year December 31, 2014. The board will be looking at the alternatives we have to obtain our first earnings and profit.

In the event that our monthly distributions are insufficient to result in distribution of our accumulated earnings and profits prior to the end of 2014, we will make a special distribution under such undistributed non-REIT earnings and profits prior to the end of that year. We however currently anticipate being able to reach REIT status this year. However, we will continue to monitor throughout the year to ensure we will comply with the requirements. As long as we do qualify as a REIT, we generally will not be subject to U.S federal income tax as we distribute at least 90% of our taxable income to our stockholders.

As of December 31, 2012 we estimate that our non-REIT accumulated earnings and profits were approximately $9.1 million. This does include a $4 million gain associated with the deferred and our company gain resulting from past land transfers that will be triggered upon reconversion. Assuming we elect to be taxed as a REIT for the year ending December 31, 2013, we will also have to pay out the fee in accumulated earnings and profits. We may pay a portion of the earnings and profits out of the stock dividend during 2013 and we actually are looking into that possibility today.

Additionally we are considered an emerging growth company as defined under the Job Act and what that means for our company is we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. In particular the Job Act allows an emerging growth company to take advantage of the extended transition period for complying with new or revised accounting standards, meaning that we can delay the adoption of certain accounting standards until the standard otherwise applied to private companies.

Additionally we are eligible to take advantage of certain other exemptions from various reporting requirements, including not being required to comply with the auditor expectation requirement of section 404 of the Sarbanes–Oxley Act. We have elected to take advantage of this extended transition period and as a result, we will comply with the new or revised accounting standards on the date from which adoption of such standards is required for private companies for as long as we maintain our emerging company status and do not resolve this election. Right now our emerging growth company status will likely keep at for at least five years.

Now I will discuss the operating results. Our quarterly and yearend results were strong and reflect our growth from our recent acquisitions. This is evidenced by our total assets increasing to $40.5 million which was up 23.6% from yearend 2011. The amount outstanding under our long term mortgages and our line of credit offering increased to $30.8 million, which is also a 27.7% increase from last year. In addition, our stockholders equity increased by 8% to $8.1 million. With the proceeds from our IPO in early 2013, our assets and equity have both subsequently increased by about $50 million.

Switching to mortgages on our properties, we have a mortgage lend agreement with MetLife in amounts not to exceed $45 million to $50 million. The note currently accrues interest at a rate of 3.5% per year and the interest rate is subject to adjustment in January, 2014. The note matures in January 2026 so we have about 13 years left on that mortgage. As of December 31, 2012 there was $30.7 million outstanding under this loan. The three remaining disbursements we have under this loan may not exceed $13.6 million in aggregate in monthly use. So we can fund the acquisition of new property. We also have a $4.8 million line of credit with MetLife that matures in April 2017. At the end of 2012 we had $100,000 outstanding on the line at an interest rate of about 3.35% and the $100,000 is just the minimum balance required under the line.

Reviewing our upcoming long term debt maturity, we have mortgage debt in the aggregate principal amount of $1.2 million payable during 2013 and another $1.2 million payable during 2014. Both of these payments are not totally consisting of debt amortization payments on our MetLife mortgage. We intend to pay the additional debt amortization payment from our operating cash flow with some borrowing from our line of credit.

Now the results. The per-share I’m referencing are fully diluted weighted average commentaries. FFO available to common stockholders for the quarter was approximately $300,000 or $0.12 per share and $1.1 million or $0.39 per share for the year, which was a 54% and 110% increase respectively when compared to the same period last year.

FFO increased primarily due to increased operating revenues derived from the four farms we acquired during 2012, coupled with a decrease in professional fees from fees we capitalized in 2010 and subsequently expensed in 2011 which related to the preparation of the registration statement for our previously proposed public offering that was later withdrawn during 2011. We also had a loss on early extinguishment of debt that was recognized in 2011 when we refinanced existing debt into our new MetLife mortgage facility.

This was partially offset by an increase in interest expense from the mortgage debt issues in 2012, coupled with an increase in administration fees related to additional time spent on our IPO and an increase in due diligence costs incurred during 2012 relating to acquisitions and potential acquisitions. We do anticipate future growth in 2013 as we begin to deploy the proceeds raised from the IPO.

I’ll now turn the program back over to David.

David Gladstone

All right, thank you very much and that was a good report. We encourage all the listeners to read our press release and the annual report that was filed yesterday with the SEC, that’s Form 10-K. We will be publishing an annual report that will just be the 10-K with a wrapper on it. A lot of good material in there. As you know the government and the accounting profession requires to put a lot of things in there that don’t get transmitted so well and especially in one of these calls. You can find all these on our website at www.gladstoneland.com and obviously on the SEC website.

To stay up to date, we hope all of you will get involved in Gladstone Land and our other public companies. You can follow us on Twitter under @GladstoneComps and also on Facebook under the keyword The Gladstone Companies. You can go to our general website and see more information under www.gladstone.com to get an overview of what we’re all about.

I think the main report here today is to tell you we’ve built up a nice pipeline of potential properties that we’re interested in. we’re working on the acquisitions now. Because of the pipeline, we hope to be able to grow the asset portfolio a lot during 2013. I think we’ll use up all the ideal money plus some pretty good amount of leverage as well. With the increase in the portfolio of properties comes greater diversification. So that’s good for everybody and we expect earnings to go up as well. Please know that we can’t guarantee any projections and we don’t set out any proposal of what they might be because each transaction causes such a change in projections. It would be hard for us to say how many we’re going to close and therefore what the earnings are going to be.

We do anticipate that many of the farms we’ve purchased will be acquired from farmers of agricultural companies and that they or independent farmers will simultaneously lease the properties back from us. We’re seeing a couple of those now and we’ll announce them as they go along. These transactions provide the tenants with an alternative to other financial sources such as borrowings on mortgages on the property or even selling some kind of security. We anticipate that some of the transaction will be in conjunction with acquisitions recapitalizations, corporate transactions of our tenants. And we expect that many of the farms we acquire will be purchased from owners that don’t want to farm their property but rather lease the property. In that case we’ll have a tenant find out before we buy the property. So it will happen simultaneously with the acquisition of the property.

We intend to own primarily single tenant agricultural real estate, generally lease the properties to tenants under leases that will be for recourse obligations to the tenants and their affiliates. We’ll generally seek to enter into short term leases with terms of two to five years which we believe are customary within the farmland communities that we’re in today. These primarily in California and Florida.

While we expect the -- here’s the problem. We don’t expect that we’ll have any problem renewing most of these leases at the end of their terms. We believe that this strategy will permit us to increase the rents at a faster pace than if we set up a long term fixed rate deal. However, we just can’t make any assurances that that’s going to be the case. Lawyers always ask us to warn everybody of this situation while we’re trying to execute on the business plan we discussed. It’s always impossible to figure out what the future is going to be.

When they also entered into some long term leases for properties that grow long term plants, as I mentioned before we’re considering one, blueberries and blueberries last generally 20 years. So the bushes are producing for a long time and you have to amortize those. So you may see a little more amortization if we do a couple of those. We like the blueberry area simply because it goes through the same distribution network as strawberries and raspberries and all of those kinds of things which we know a lot about.

We believe that most of the farmland that we’re interested in purchasing can be rented for the annual rates anywhere from 4% to 6%. We’re averaging a little less than five right now. I think you’ll see that bump up as we move forward .just no assurances that we’ll be able to achieve these levels of rental rates going forward and since the row contract in the farming business is our customer in the short term agreements, this means the rental rates are renegotiated regularly obviously.

We believe that an investment in U.S farmlands has performed extremely well. It has for us and the statistics that we looked at over the last 10 years that compared to other asset classes has provided investors with a safe haven during some recent turbulence in the financial marketplace. In general the farming sector has historically maintained low debt levels. We see most farmers not leveraged and I think that’s the result of what happened in the early 1980s. Farm band values were pushed up by easy money and then all of a sudden came down and then there was all the debt that ended up being foreclosed on the farms. So I think most of the farmers are low leverage. I do know that they leverage up in order to buy equipment, put that equipment in the areas that we -- and it’s not extensive like it is in the grain area of the Midwest.

In February 2013 the board voted to declare monthly distribution of $0.04 per common share for each of the months of February and March. And so that’s an annual rate of about $0.48 per year. This is about a 3.2% yield on the IPO price of $15 and this is about the yield the read index for all the REITS out there. So we’re not too far off the average and I think we can earn that during this year. so I think we’ll be in good shape there and with the stock price at about $15 and the distribution yield is still 3.2%.

We’ll vote early in April during our regular scheduled board meeting to declare the dividends and monthly distributions for April, May and June and that meeting will also discuss what to do with the earnings and profit from past years. All of those earnings and profits that we have built up were used. We didn’t use the money for dividends at the time. We used the earnings and profits to buy more farms. So, all of that money that we earned is in the company. So it’s still strong and we’ll start paying up as past profits with this meeting of the board I suspect. And so you’ll see some past profits being paid out along with the regular dividend. And these dividends that are being paid are from earnings and profits generally speaking are qualified dividends for those of you for individuals on the line.

And at this point we’ll now have some questions from our loyal shareholders that joined us with this IPO. And will the operator please come on and explain how to do that?

Question-and-Answer Session

Operator

(Operator Instructions). And our first question will come from Ryan Connors of Janney Montgomery Scott. Please go ahead.

Ryan Connors - Janney Montgomery Scott

Good morning and congratulations on reaching this milestone in the company’s evolution. I had a question in regards to the size of individual deals, David and obviously the IPO and the MetLife line of credit significantly in hand increased the capitalization of the company. So my question is do you think you’ll be doing larger deals going forward or do you think you’ll be doing small deals similar in size to what you’ve done in the past? And in either of those scenarios, what kind of challenges does that create from a professional resource standpoint, both due diligence and closing?

David Gladstone

There’s two small deals that are excellent properties near areas that we want to be in and we’ll be looking at those hard, but not doing as many small deals unless we think they’re right in our sweet spot. There’s also small deals that are right beside other farmers that we know or even ones that are renting our current land which did into their growth projections and those we will jump on right away. So the smaller deals, yes we’ll continue to do those as we have in the past. The larger deals are much more harder to project. I think when you get around $10 million or $12 million per farm, then you begin to get into a larger area. And those we will do in a heartbeat now because that’s more or less our sweet spot of trying to do $8, $10, $12 million transactions.

The harder ones for us will be some of the larger farms that come up, like our Oxnard property which today is worth, I don’t know, $45, $50 million and I’m not sure we’d be able to take that on today. So, that may be a limiting factor today of trying to do very large transactions. However, if it meets all of the criteria, we’re going to work hard to try to figure out a way to do that because MetLife has in the past and I’m assuming will in the future, lend us $2 for every $1 we want to spend.

So if we had a, I don’t know, a $60 million transaction we’d have to come up with $10 million in equity and borrow the rest. So if it was a really outstanding situation we’d probably go for it. And anyway I think we’re going to run through all this money this year anyway and have a secondary and that secondary will build us up to a size that would take us into a larger category.

I don’t think in the near term and that means the next two or three years, get into the mega deals that are going on. We’re seeing some very large transactions, not so much in California or Florida, but in the Midwest you see very large transactions of $50 to $100 million and even larger than that. We saw a $45 million one just the other day that was quite large and then there’s some big ones coming up and these tend to go to auction and you tend to see the large pension funds and insurance companies doing those transactions. So we’re not in that category. We don’t compete with them on that area.

Ryan Connors - Janney Montgomery Scott

And then the first year acquisition you talked about seven letters outstanding and so forth. Are any or all of those utilizing the partnership units or potentially doing so? Or are those funded?

David Gladstone

No, we haven’t and I will mention that on every conference call and certainly a transaction we do. We don’t have any of those working today. It’s just too early in the process. We’ve had some inquiries, but if you remember a company called Capital Automotive REIT, I was on the board of that and we didn’t get started in that until it was much larger and much more established in the marketplace. I think you’d have a hard time today in this early part of convincing anyone other than very small farmer to have to put all of his money or her money into our company in exchange for shares. But I don’t -- we’re working that marketplace. It’s just a little early to expect a lot of transactions since we just had the IPO in January.

Ryan Connors - Janney Montgomery Scott

And then one more for me before I step out. How often do you intend to have your properties, both your existing properties and any acquired properties, appraised or reappraised? And what’s the catalyst for doing that?

David Gladstone

Well, there’s a lot of ways of doing appraisals. As you know the formal appraisal which we referenced in our IPO documents, those are 20, 40, 60 pages, lots of information in there. They’re expensive and so as a result you’d probably do those only about every three years. There is the ability to go to some of the appraisers and ask them for what we always refer to as a depth appraisal, meaning that they have all the information, current information about what the farms are selling for and as well as what they’re renting for and they can give you an approximate amount or a guess what they think it would be if they did a full-blown appraisal. Some appraisers they won’t do that.

And then there is our own knowledge. For example if we have a farm and it’s then rented for $3,000 an acre and it’s now come up for rent and it’s now $4,000 an acre and we have that signed lease, we’re pretty proficient at evaluating things ourselves. Now, if we use any one of those three in calculating the value of a farm and if we use that in disclosure to the public, we would mention what mythology we used and that would be part of our disclosure, just as we do in our business development companies which we have to do every quarter. We’re planning on trying to do this frequently, centrally no less than annually and quite frankly right now we’re working with accountants and lawyers to see how we disclose this since Real Estate Investment Companies typically don’t do this.

We made it through last time. That is in our prospectus because we had full blown appraisals. Now the questions to the lawyers and accountants is, can we disclose other methods that’s coming up with values? And obviously they would be reviewed every three years by a real appraisal. So you might go up or down from a past appraisal once you’ve got the full blown appraisal. But the point being is I think people would like to know more frequently than every three years or so what the value or the net worth of the company actually is.

We did a good job of that I think in the prospectus when we put that out and certainly I think it’s on page one or two the value of the farms and you can pretty easily mathematically come up with a net worth which is going to be part of this disclosure that I’m trying to get into our next board meeting and let the board see what we’re doing and then put it in our 10-Q that will come up after the March 31 quarter ending.

The goal is to put it up on our website as well so that anybody can go in and see that and probably have much more disclosure on the website in terms of the methodologies used so that everybody can see it. And this is a very touchy area, even though all of the accounting systems are hurtling towards international accounting, we have to do that every quarter. It’s still something new for the accountants and lawyers and they’re going through I don’t know, fits and starts, but I think we’ll get there sometime in the next few weeks and put it up on our website.

Operator

Next question is come from Dan Donlan of Ladenburg Thalmann. Please go ahead.

Dan Donlan - Ladenburg Thalmann

Ryan asked some good questions. I don’t have too much for me. But on a going forward basis, how do you think about your dividend to AFFO? I know you said that you thought you could probably pay out all your earnings this year. But is that a met -- have you thought about that given the high renewals that you guys have seen in years past? You think you can keep that in the high 90s or what’s your viewpoint there?

David Gladstone

The difficulty in this company as opposed to, as you know we have another company called Gladstone Commercial and it’s commercial and industrial buildings and they have very substantial deprecation. So you have a lot of room for discretion about your dividend here. We don’t have that much in the way of depreciation. So we’re not sheltering earnings. So what comes to us in a rent is not sheltered to a great degree. And so as a result we have to pay out 90% of that number anyway. So we’re pretty close to probably always having to pay 805, 85% in order to continue to be a Real Estate Investment Trust. And what I mean is of earnings and not FFO. FFO is adding back depreciation, but that’s not going to be a big add back here because as you know we only have two coolers and one box barn and we may pick up a few more as time goes on.

But that’s going to be very little shelter on those rent payments that are fairly large compared to the buildings. In the commercial world of course the rent is paid primarily for the building and not for the land. Here it’s just the reverse. The rent is being paid for the land and not so much for the buildings. So we’re not going to have this much opportunity to adjust our payout in this company as we do in our other company as well as other REITS. So it will be a more difficult decision for us to try to be too close to that 90% payout because if you flunk that it’s not fun in the REIT business.

Dan Donlan - Ladenburg Thalmann

And then as far as like mortgage debt, what are you seeing rates and how do you feel about that over the next two to three years? Do you feel like you want to be more aggressive on the acquisition side so you can lock in low rates? Or how do you feel there?

David Gladstone

Well, being aggressive is just not in our DNA. We are not going to go out and I saw a commercial an industrial property buyer buying leases that were short term in difficult marketplaces just to get assets on the books. We aren’t going to do that. We’re going to be relatively conservative compared to some people in the business. So we’ll not reach out just because it’s cheap debt. Buying a bad property with cheap debt is really a recipe for disaster. So we’ll stick to our knitting. We know what we’re doing and I don’t expect rates to go up in the next couple of years. So we’re probably safe for a while.

And we have opened negotiations with two additional lenders and we have a third that we’ve just begun to talk to. So we’ll have four potential lenders to discuss. And as mentioned by Danielle, in January of 2014 we have the ability to pay off our currant mortgages and everything that we have and refinance all of them should we desire to do that. I’m expecting the existing lender to sit down with us once we get a little further along here and negotiate a better deal for us in terms of flexibility and in terms of relationships. And also to open it up so that they’re not the exclusive lender and just like we do in our commercial and industrial business we’ll be able to bid out certain bonds in certain locations to different lenders. All lenders have a different way of lending to all of the different categories of land out there.

And so we want to be able to take advantage of all of that. So that will be the first thing that we discuss with our friends and they’re wonderful lenders. We enjoy working with them. They’ve been extremely easy to work with. So we don’t want to lose that relationship, but at the same time we need to diversify our lending ability just like everybody else in order to use diversification as a way to be conservative manager of our business.

Dan Donlan - Ladenburg Thalmann

And do you think being a public company is going to help you out in that regard? Do lenders come up to see that?

David Gladstone

They love it. I remember talking to -- I’ll just mention the name, the Rabobank people we used to be with them and then MetLife came along and did a better deal, but I was talking to the MetLife people and they absolutely love it because they have a 10-K and a 10-Q. they don’t have to ask for much information. We can give them copies of the leases and they’re 99% there once they’ve got all that information. When they’re lending to farmers or even some of the smaller corporate farmers, extracting information is much more difficult, but here they just pick up the 10-Q, 10-K and they know what’s going on with all of our situations. So it’s much easier for us and I think we get a better rate because they do see everything and they know that we can’t hide anything because we have to put everything in our 10-Ks and 10-Qs. So I think we’re better off being a public company than we would be a private company in the current scheme of things.

Dan Donlan - Ladenburg Thalmann

And then last question for me and I know you have a couple of leases coming up. How are you thinking about rental rates? Do you feel like the current rate being paid by your tenants is below market? I know I’ve looked at the (inaudible) farming index. I think it was up about 18.6% in 2012 and a lot of that came in the fourth quarter. I think 9.6%. so does that give you a little bit of leverage to bump up the rent this year?

David Gladstone

It does. Quite frankly and I don’t want to be too specific, but we’re negotiating one right now in which the appraiser they used last time to show us some market rates is the appraiser we used this time to show them the change in market rates. So we got an advantage there. But every one of these farmers knows what other farmers are paying. They all get together. I can tell you if I’m in Watsonville I sit down in one restaurant in which most of the farmers come to it 5:00 in the morning and they sit around there and they talk and they talk about what Joe is paying in rent and what so and so is doing. And so it’s a fairly -- these small farming communities are pretty much open, much more open than you would expect today in terms of what’s going on.

The interesting thing about us being public is that we have to divulge when our leases are coming up and while in the private world there’s not that much information about when leases come up, generally people know. Right now we have people in one of our farms which is a spectacular farm, we have people just asking can they bid on it even though they know we’re partial to the existing tenants. They want to put a bid in and the bids that they’re talking about are extremely high. They’re even higher than the numbers that we’ve been using as possible renewal numbers.

So it’s an interesting dynamic and as we’ve explained so many times in the prospectus and in the road show, the dwindling amount of farmland now that housing is picking back up again, there’s one other brokers that we like a lot and he’s a California broker and they’re fairly large. They’re all up and down the coast and they publish almost weekly a listing of a farm that has been zoned and is now going back to housing. So we’re seeing the absorption coming back of farmland going into housing and to other areas. I think is going to pick up pretty strong. If you believe there’s a housing boom coming back, then farmland will be diminishing at alarming rate as it has for the last 10 years.

Operator

(Operator Instructions). And having no further questions this will conclude our question-and-answer session. I’d like to turn the conference back over to Mr. Gladstone for any closing remarks.

David Gladstone

Well, thank you so much for all of you attending. We appreciate the time we have and again we’ll try to answer questions if you have them by calling us. But generally speaking we try not to talk to anyone a couple of weeks before one of these calls because we don’t think anybody should have an advantage and regulation FD is pretty rugged. So again thank you all for attending the meeting and we’ll see you soon in the first quarter ending March 31 when we do that call sometime late April, early May. Thanks again. Bye.

Operator

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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