David Gladstone - Chairman, CEO and President Michael LiCalsi - General Counsel and Secretary Lewis Parrish - CFO.

John Massocca - Ladenburg Thalmann Michelle Stein - Neuberger Berman.

Good day, ladies and gentlemen, and welcome to the Gladstone Land Corporation's Third Quarter ending September 30, 2014 Earnings Call and Webcast. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time.

(Operator Instructions) As a reminder, this conference call is being recorded. I would now like introduce your host for today's conference David Gladstone, Chairman. You may begin..

All right. Thank you, Nicole for that nice introduction. And we thank all you people who have called in and online today. We always enjoy this time with shareholders. We wish there are more but that's what we do once a quarter. Please come and visit us if you're ever in the Washington D.C. area, we are located in a suburb Washington D.C.

called McLean, Virginia, and you have an open invitation to stop by and say hello. You'll see some of the team here, many of them on the road of course as over 60 members of the team now. And we are no longer small. We have about $1.5 billion in assets under management, under our company. And Gladstone Land is one of the smallest.

So we are growing that one fast to catch up with the others. Also, some of the people here like to bring their dogs to work, we’re very dog friendly, and so you will get to introduce yourself to few of those if you stop by. We'll begin now with Michael LiCalsi. He's our General Counsel and Secretary, also serves as President of our Administrator.

Michael?.

Good morning, everyone. This report you are about to hear may include forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, including statements with regard to the future performance of the Company.

These forward-looking statements involve certain risks and uncertainties that are based on our current plan, which we believe to be reasonable.

There are many factors that may cause our actual results to be materially different from any future results expressed or implied by these forward-looking statements, including all of the items listed under the caption Risk Factors in our Forms 10-K and 10-Q that we file with the Securities and Exchange Commission.

These forms can be found on our website at www.gladstoneland.com and on the SEC's website at www.sec.gov. The Company undertakes no obligation to publicly update or revise any of these forward-looking statements, whether as a result of new information, future events or otherwise.

And in our report today as Real Estate Investment Trust or REIT, we plan to discuss funds from operations or FFO. FFO is a non-GAAP accounting term defined as net income, excluding the gains or losses from the sale of real estate and any impairment losses, plus depreciation and amortization of real estate assets.

And The National Association of REITs or NAREIT has endorsed FFO as one of the non-accounting standards that we may use in discussion of REITs. And please review our Form 10-Q filed yesterday with the SEC for more detailed description of FFO.

And the report from our President and CFO, you are about to hear is an overview of our operations and performance. And we encourage all listeners to read yesterday's press release and the quarterly report on Form 10-Q that we filed yesterday, which includes a wealth of information for our investors.

You can find them all at our website, www.gladstoneland.com and on the SEC's website www.sec.gov. To stay up-to-date on the latest news involving Gladstone Land and our other affiliated public funds, please follow us on Twitter, username GladstoneComps; and on Facebook, keywords The Gladstone Companies.

And you can go to our general website to see more information about this Company and our other affiliated publicly traded funds as well at www.gladstone.com. Now, I'll turn the presentation back over to David Gladstone. .

All right. Thank you, Michael. Before we go into the numbers, let me do this for the last time briefly recount, for the newcomers on the call, about the history.

And first we started as a private company and then we became a public one and began our operations as a private company in 1997, as a fully integrated berry and vegetable grower, shipper, marketer. So we grew it, sold it, shipped it, marketed it, so fully integrated.

We had about 2,500 workers and farmed thousands of acres that we either rented or owned. And then in 2004, we sold the agricultural operation business to Dole, but we kept the farmland that we owned today. And since then our business has consisted solely of owning farmland and leasing it to independent and of course corporate farmers like Dole.

We don't farm the land at all. We are just the landlord. Most of the farms we own are concentrated in locations where the farms are able to grow high value annual row crops such as berries and vegetables.

However, we also have some farmland that's farmed for blueberries which are permanent crops rather than annual crops and blueberry bushes may last for up to 40 years where strawberries and vegetables are planted every year. Typically blueberries are grown by the same farmers that grow fresh vegetables and berries.

And they share a similar distribution channel. We also acquired some farm related properties such as coolers. These are used to cool the products before they are shipped, and box barns that house thousands of boxes that are needed for shipping of fresh produce to the marketplace.

But investors should expect the bulk of our assets to be farmland that are leased to farmers to grow fresh food. As of September 30, 2014, we owned 29 farms, 11 in California and 9 in Florida, 4 in Michigan, 4 in Oregon and one in Arizona.

We also own three coolers and one box barn and there are some other smaller buildings on some of these farms as well. We generally intend to enter into leases that have terms from three to seven years.

However, when we lease properties that grow longer-term crops such as blueberries, we anticipate entering into longer-term leases such as 10 or more years. Most of our farms in the US--most farms in the US are leased annually on short-term leases because the landlord seeks to increase the rent frequently.

The farms we owned are highly sought after and have been rented for many years without ever being vacant. For those who are trying to understand the concept here, our farms are like owning an apartment building in a highly desirable location. It is easy for the owner to lease the apartment on an annual basis.

But unlike an apartment building where someone else can build a new apartment building next door, no one is opening a new farm next door to our farms. And they are just no new farms in most of the locations where we own farms. Most farms are being sold today to build homes, apartment building, offices, school, industrial building.

In reality, farms are going away at a fast pace. California alone is losing about 100,000 acres of farmland every year with no replenishment. For our properties with short-term leases, we will be required to frequently renew the leases upon expiration. We expect that we'll generally be able to renew these leases with the same farmers.

And we believe this strategy will also permit us to increase the rental rates on a frequent basis. Mainly because all the rents and farms in and around where we have farms have been going up over the years.

We have been successful with this strategy to-date, as evidenced by our 2014 lease renewals which we were able to increase the average rate by over 25% from the older rent rate. These higher rates will begin to show up in earnings later this year for those that we raised.

We enter into long-term leases we seek to place provisions in the leases such as escalation clauses like you would see in many long-term leases that provide for fixed increase in the amount of rent, such an annual escalation of 2% to 3%.

And then as well as that 2% or 3%, we have periodic market reset that might be every two to three years in which we survey the rent basis all around our farms, and if they have gone up substantially then we are able to raise the rent. We don't have any provision that they can go down.

But just as a footnote on our leasing practices, we generally prefer to keep the same tenant on the property for as long as possible. We want farmers to know they can stay on the farm and that's our practice.

Our shares of common stock began trading in January 2013 on NASDAQ under the symbol LAND; we raised total proceeds of $51 million in the IPO and additional [$14 million] [ph] in a small follow on offering completed last month. But since our IPO we’ve invested $79 million in acquisitions of 17 new farms including a small amount of capital improvement.

We've also distributed about $11 million to our shareholders during this time, most of which was to pay out of prior year's cumulative earnings and profits, so we could qualify as a real estate investment trust for the tax year that's just ended or is ending which we have now completed. And just another footnote to talk about.

We currently have no plans to make mortgage loans even though it says so in our perspective, unless an extraordinary opportunity come up and which we could convert the mortgage perhaps into ownership at some point in time. So during the quarter ending September 30, 2014, we became a REIT for all other year and we acquired three new farms.

Two farms in California, one strawberry farm and one vegetable farm that we intend to convert to some strawberry ground, and we also acquired one other strawberry farm in Florida. We purchased these farms an aggregate price of $26.5 million in the overall weighted average cap rate on these deals was 5.6% which is right in line with our target rate.

All other properties have good water on site and the leases are all with here what we've consider strong tenant. The remaining terms range between 3 and 10 years on those farms. Our portfolio of farms continuous to be a 100% lease. Our market activity has been gaining significant traction; we are beginning to be known amongst a lot of farmers.

And a list of possible acquisitions which is really our backlog or some people call it the pipeline is growing very nicely. At this point in time, we have four properties worth about $35 million under signed purchase and sale agreement.

And we are currently finishing up due diligence on all those and should be closing all those before the end of December. We expect to be very active throughout the rest of the year. And please look for our press releases when we close a new farm. We are looking to hire some additional people.

We need a person for marketing and acquisitions in the Midwest to find farms in the region. We will be seeking there vegetable growers, for example those who grow green beans, melons, sweet corns, those of the kind of the things that we like to invest in. Many of these growers are integrated with the big canning company.

So they just grow and their crops go directly to big canner that you would find in any other grocery stores today..

We are seeking to have a good diversification of mortgage lenders and not depend on just one lender. And now let me talk about my favorite part of this. And that's the net asset value. Most real estate investment trust doesn't update the fair value of their properties because they already are expensive.

However, we intend to update the valuation of each of our properties at least once a year. Sometimes, we use independent appraisals as most people do and another time we just use our own valuations and try to explain that in our 10-K and 10-Q. As some of you know, we do valuation for our two other funds, they are business development companies.

And we have on board a full time valuation officer with a very strong experience to help us with all the valuations we intend to report these update valuations in each of our quarters that we report to shareholders.

For the quarter ending September 30, 2014, the majority of our properties will value based on either appraisal that were less than one year old or actual purchase price, now if they were purchased within the last 12 months. During the quarter, we update the valuation of fixed farms.

Two farms represents about 7% of our total portfolio, is valued internally. And for the four farms we order new appraisal as appraisal show an aggregate increase of about $1.6 million in value, about 14% from their prior valuations which was between six and nine months ago.

Most of these were direct results of irrigation upgrades which increase the value of the properties that we completed on the farms. The two farms we valued internally increase about $400,000 or 4% from their prior valuation which was between 11 and 15 months.

This schedule of valuation is discussed in much more detailed in our 10-Q that was filed yesterday.

And we substitute these new values for the carrying values of our properties in our financial statement for September 30, we come up with a new net worth number that move from $60 million that you see on the book value to $106 million at current fair market value. And remember, many of these properties have just been recently purchased.

So no increases in value for those properties have been reflected yet. And a few of these properties were purchased years ago, but have very low book value. So now stockholders can watch the increase or perhaps decrease in the net asset value over time.

We have one continuing drag on increase on net asset value and that was -- we have been paying up more than we have a net income. However, we expect our FFO to increase and be able to cover our distribution for December 31 quarter end. And perhaps from then on looks very favorable going forward.

We are using these values for the farms we own and the resulting net worth number, this means the net asset value per share at September 30 is now $13.77 per share, which is down from the $13.93 per share in June.

And while our portfolio appreciated and value about $0.26 per share, the dilutive effect of the offering that we did in September, it was a decrease in the net asset value of $0.36 a share. And of course we paid out $0.09 a share in distribution while we only had income of about $0.02 per share.

Our current distribution is $0.36 per share an annualized basis or about 3% yield based on the stock price. Over time, we expect our asset value to increase as the farm land value appreciate due to rents going up and the land around the farms increasing in price. Now for some math.

From the $15 per share investors had paid at the IPO, you should deduct from that payout the earnings and profits from prior years. That was $1.47 that we returned to the initial public shareholders from the distribution of prior year's earnings and profits leaving a cost basis for shareholders that purchased on the IPO at $13.53.

That compares favorably with the net asset value today of $13.77 especially after the cost of the IPO which was very expensive. So there has been no decline in the net asset value per share for those who purchased in the IPO. Our stock unfortunately is currently trading at $11.97 that was close yesterday, which is below our net asset value.

Thus, we are hopeful of stock price will rise this year. So if you buy the stock today, you're getting a discount from our estimated net asset value of about 13%, buying at $13.76 in net asset or $11.97. And I think it's a great time to buy.

This net asset value per share is a mark that we will gauge our progress as we move forward, we will be judge by this; we see or don't see appreciation in the numbers.

And speaking of distribution, as we get our money to work from the borrowings from our lenders who will have the difference between what we pay for the borrowed money and the amount of rents we are receiving, and that we are buying properties with, and the debt now has about -- we are trying to get to 50% borrowed money and 50% stockholders equity which were not there but as we get there, it should drop to the bottom line.

I think all those holders who purchased on the -- should be happy, and we expect in the coming years to be much better and we have leases increase in rental payments as well as appreciation land value. And we all know there is no guarantee at any of these things will happen.

As I look at this farmland REIT as a way to hedge against inflation and food prices and other inflation items. I think it is better hedge than buying gold. That's enough for the business discussion. Now, I'll turn it over to Chief Financial Officer, Lewis. And why don't you go forward, Lewis..

All right. Good morning, everybody. I'll start with an update on our REIT status that David touched on. In September, we filed our 2013 tax return on which we have officially elected REIT status. As a result, we are now REIT effective as of January 1, 2013. We are very pleased to finally have this long and expensive process behind us.

As a REIT, we generally will not be subject to income taxes so long as we distribute at least 90% of our taxable income to our stockholders. And now I'll discuss the financial results beginning with our portfolio and the balance sheet. We acquired three new farms during the quarter, adding about $27 million of new assets to our books.

With the current lease terms ranging between 3 and 10 years, these new properties will provide us with approximately $1.5 million of additional revenue per year over these periods. As David mentioned, the new acquisitions have a combined cap rate of about 5.6% with the first year being at 5.1%.

We are continuing to diversify our portfolio of properties with the tenants on our farms. Over the past 12 months, we've increased our tenant base from 11 different growers to 25 today, all of which are unrelated to us.

And while the majority of our farms in rental operations remained concentrated in California, our reliance on income from those farms continues to decrease as we become more geographically diverse. A year ago over 60% of our total acreage and 84% of our revenues came from California farms.

However, as of September 30, the percentage of total acreage in California was down to 26% and 61% of annualized revenues now come from California. However, investors should remember that California is very large.

There are several different growing regions in the state and we own farms in three of them, that are as far part from each other as from Virginia to Georgia. As such, we will continue to look at new properties in California. We've also become more diversified with regards to crop type.

As we now own eight farms that grow permanent crops as well as a couple of farms that grow grains. While we intend to continue to further diversify our portfolio, our focus for the time being remains in fresh produce row crops. During the third quarter, our total assets increased by $27 million or about 29%, due to the new property acquisitions.

These acquisitions were funded from about 50% equity and 50% new debt. And speaking of new debt, we did close on the three new mortgage loans with Farm Credit during the quarter for an aggregate borrowing amount of about $12.5 million. These notes will mature in 2034 and we will bear interest at fixed blended rate of 3.53% for the first three years.

Note that this rate is before any interest repatriation. We expect the overall effective rate to be closer to about 3% after such repatriation.

On our facility with MetLife, we currently have $41.3 million outstanding under the mortgage note at an interest rate of 3.5%, and we have $3.5 million outstanding on the line of credit which bears interest at 2.75%. We use the majority of the proceeds received in September’s follow on offering to repay the amounts owed under the line of credit.

For a discussion on our operating results, I'd like to talk about Adjusted FFO or AFFO, which we define as FFO adjusted for certain non-cash items such as the straight lining of rents and amortizations into rental income and certain non-recurring charges including acquisition related expenses, income taxes and a property and casualty items we recorded.

Our AFFO for the quarter was $781,000 or $0.12 per weighted average common share compared to distribution paid of $0.09 per share. This is an increase in AFFO of $0.02 per share from the June 30 quarter. Our operating revenue increased by 14% over the prior quarter driven by our new acquisitions over the past several months.

However, our largest acquisitions of the quarter, the $13.8 million strawberry farm in Florida closed on September 29. So its full impact won't be felt until next quarter. It alone will provide for approximately $220,000 of additional FFO per quarter, so we expect to see an even larger jump at revenue next quarter.

The increase in our operating expenses was due to a few different factors. First, our administration fee increased due to a change in how the fee is allocated to us, as it is now based on a percentage of time methodology as opposed to being asset based.

And our management fee increased as a direct result of the follow on offering we completed last month. We believe the fees we recorded during the September 30 quarter to be representative of what we expect to incur going forward.

During the quarter we also expense $65,000 of repairs that we made to the cooler on our West Gonzales property that was damaged by fire last quarter. And we also wrote off about $47,000 of unamortized lease intangibles related to the lease we terminated in September. The farm was released to a strong tenant with minimum downtime or revenue loss.

And regarding the property causality line item, the recovery recorded during Q3 and the net recovery for the year so far is based primarily on actual insurance proceeds received. We are still in discussion with the insurance companies, but we expect to receive at least another $125,000 of insurance proceeds during Q4.

This amount along with any other amount received will be recorded as an additional gain or recovery upon receipt. And turning to liquidity, at September 30, we had $3 million in cash and about $25 million of availability under our MetLife facility.

We also have an additional $8 million of properties that are currently unpledged and we are working with MetLife and other lenders to pledge certain of these properties to provide us with additional availability. We have two principal payments coming up on our borrowings.

$100,000 will be due to Farm Credit November and $1.4 million principal payment will be due to MetLife in January of 2015. Going into Q4, we are very excited about the properties we are expected to close on, as well as the number of farms we are reviewing for potential future acquisitions.

We anticipate strong growth throughout the remainder of 2014 and into 2015. And we also expect to add a couple of other lenders to help us mortgage the purchases of these farms. As we have agreed to terms with one lender and we are close to another. And with that, I'll turn the program back over to David. .

All right. Good report, Lewis. The main point at this report is to tell you that we are executing the plan that we told you about at the beginning. We use the proceeds from the IPO and our follow on offering to acquire new properties and pay down debt. And we have more availability under MetLife due to follow on offering.

And now we are also using Farm Credit to buy farms. We have very nice list of potential properties that we are interested in acquiring. And through that list we hoped to be able to grow the farm portfolio significantly during 2014 and 2015. I noticed that we have four properties again at $35 million which I think we'll close before December.

We also have the indication of interest; we are working on about $73 million in our list of items that are farms that we are looking at. With an increase in the portfolio of farms comes greater diversification and protection for investors, and we also expect better earnings.

We anticipate that many of the farms that we purchase will be acquired from farmers or agriculture companies and they or an independent farmer will simultaneously lease the farm from us.

We also expected many other farms we acquire will be purchased from farm owners that really don't farm that farm or any other property, and rather they just turn around and lease it to a farmer. About 38% of all the farms in the US are owned but not farmed by the owner.

In situations like these, we intend to put our lease in place, prior to or simultaneously when we acquired the farms that's what we have been able to do in the past. Now people ask us about drought in California, since they come up in every conversation. There is a drought in parts of the state.

But all our farms have wells and so far the wells are doing fine. And a number of communities like Watsonville, California, they have a large processing plant that takes the effluent converted to water that can be used to grow crop. And pipe that that we have turnouts from that processing plant by our stuff and our farms in Watsonville.

Oxnard has finished their plant and now they are going to run the pipes out to the farm, so at this point none of the farms -- none of our farms are dry. All of them have wells and plenty of water. The other question people ask is, why don't you invest in more in corns and other hard grains. And the reason is that the prices vary so unpredictably.

Corn this year has been as low even below $3.30 a bushel. And not many farmers make any money at that level. Last year it was as high as $8.50. So we don't like this huge variation in price that can be manipulated anywhere on earth because they grow corn all over the world. It's always good for us to take a look at the economic outlook.

US farmland has performed extremely well in the last 10 years compared to other asset classes and farmland has provided investors with a tremendously good safe haven during recent turbulence in the financial market place.

This is evidenced by the increase in price of fruits and vegetables that we are seeing at the grocery store that's been going on for the last 10 years. And most of all farmland has historically been an excellent hedge against inflation. Our business thesis is very straight forward.

One of course is that there are more people in the world and more people in the United States and people have to eat. Farmers need farmland to grow food. Farmland has been converted to non farm uses so there is less farmland to grow food. There is no replenishment of farmland. And there are no more trees to cut down and make into farmland.

Our farmland is becoming more valuable every year because of all those pressure point. In October of 2014, the Board voted to maintain the monthly distribution of $0.03 per common share for each of the month of October, November, and December.

As of today, we made 20 consecutive monthly distributions to shareholders for a total paid out at $1.76 since our IPO in January 2013. We are projecting strong production and income growth through the rest of year and into 2015. And if our expectations are met, we hope to increase the dividend.

I am the largest shareholder, so I am working very hard to increase the dividend. If we insiders, I don't know 40%. There is a lot of confusion about our past dividend payout. The dividend has been $0.03 per share from the beginning, but we also paid out the past earnings at [Technical Difficulty] requirement.

And although I said it every time we talked on the phone that there were two types of payout and all the people continue to view that we cut the dividend. We did not cut dividend. What happen is we stopped distributing the past earnings and profits, so we could qualify as a REIT and that were all that happened. That's behind us now.

We are concentrating on growth. Both in growth and assets and growth in dividend. And we are hopeful January when we meet in the middle of the month that we can announce an increase. But we have to wait till then to see. With the stock prices at about $11.97, a distribution yield about 3%. Just remember the entire REIT index is trading at about 3.5%.

So we are not that far off the week dividend index, and I am hopeful that the increase in 2015 will bring us into line with what you can get buying other REIT. But please remember that purchasing this stock is not a short-term twist and turn. This is a long-term investment in farmland. It is in part an asset investment just like you make in gold.

We inspect inflation, our food be strong and the value of farmland to increase as our business model and it seems to be working. Now let's have some questions from our loyal shareholders and some analysts out there who follow this wonderful company. With the operator, please come on and help the listeners so they can ask. .

(Operator Instructions) Our first question comes or comment from Daniel Donlan of Ladenburg Thalmann. Your line is now open. .

Hi, this is actually John Massocca on for Daniel.

Just a question, you mentioned on the call you are looking for -- to hire someone out on the Midwest, and how big do you think the opportunity is for acquisitions in the Midwest? Especially if you guys stay away from grain as or primary stay away from grain as you stated in the past?.

Yes. It is fairly large. We don't know the numbers. We are just finishing up with our analysis where the US government keeps up with production of each crop by county. And so we are going through that analysis now and just to make sure if there is a big enough market place, and so John our goal is to make sure that we can find enough obviously.

What happens in the Midwest, it's very different from the two coasts with regard to vegetables, and that is most of those guys are tied into a large canning company. For example, and I don't know anybody that's using this but there are number of big canners out in the Midwest that just negotiate with the farmer to buy all of their crop.

If they are growing broccoli, they will buy all of the broccoli they come to offer that farm and so it's almost fully integrated with the canner. For example, DelMonte might tie up with a farmer to grow sweet corn and that sweet corn is used to make soups or whatever for DelMonte.

So it is a lot lower risk profile when you do that because now you are not talking about anything other than what can you grow on the farm. That is how many bushels of this or bushels of that can you actually grow. And you are not worried about price because you've already locked in everything. So we like that idea.

We just need to do to finish the survey and then see what we can find out there. .

So absolutely makes sense.

And then going a little more to the balance sheet here, is there a reason you guys decided to utilize Farm Credit for those three mortgages you did during the quarter, was it just to maintain kind of availability on the MetLife mortgage now you have or is just the pricing is very attractive that you could find out there from Farm Credit?.

It was both of those. The Farm Credit folks charge a little less and in addition they have this rebate that is during the year they will come up with what their numbers are. And then they rebate part of the interest that was paid by us to them. And so that lowers your return obviously – I mean your cost.

And so as a result, we looked and said we should do some of that. They are very active in Florida, so we wanted to use them at least once and maybe a few more times. And then we are talking with two or three other lenders. One of them is coming very close, so we may be able to announce that in the next few months.

The idea of having variable mortgage provider is very key to being able to reduce risk. Not that I think MetLife will do anything to be detrimental to our mortgage business, but you just never know and so as a result we just need to diversify our mortgages.

So both on the fact that it was cheaper and second of the fact that we want diversification and want to establish our relationship with others. So once you’ve established the relationship the first one goes very difficult and then the second and third and fourth becomes easier. So you want to maintain that relationship.

Farm Credit probably has a much stronger balance sheet and if they are related to the United States government, I guess I say that lightly because the US government seems to be going to hell in a handbasket in terms of its credit rating.

But the bottom line is we just need to be with -- as you know in our other REIT which is industrial and commercial properties, we probably have 10 or 12 different mortgage lenders that we go to when we buy a property. We wanted to do the same thing here. So that's the overview of what we are trying to do on the balance sheet..

So you guys are probably looking to continue to expand the list of borrowers you are utilizing going forward..

Yes. I think we need to be up around 5 or 6 just to be able to first of all keep everybody honest.

You farm it out to three or four different mortgage lenders and say, okay, here is the property, what will you give me in terms of rate and term and all of those? And each of those companies of all the ones we are dealing with, all have changes, if you are bank you may be filled up with all of the mortgages you want to do on farmland at some point in time.

And so therefore you just stop or you price it a much higher price. So our goal is to get good variety of mortgage lenders out there. And I think we are going down that path pretty quick. And I would expect sometime next year we will have -- we have made it to the point that we wanted to be of having enough mortgage lenders. .

All right. That absolutely makes sense. And then one last question.

For the income tax provision, given you guys attained REIT status in September, is this the last time we are going to see any kind of income tax provision on the income statement or is there some kind of taxes and state taxes that might continue into 2015 and beyond?.

2014 is the last year we expect. These are all related to California state taxes that we owe as a result of prior year land transfers but those taxes will be fully paid off in 2014..

Sometimes and just to piggyback on that, sometimes we have a property in which it’s not triple net. We have one property in which we pay the taxes on but they pay a higher price in terms of what the market would bear. So you may see a little one now and then on those, but it would be very small..

Your next question comes from the line of John [Specce] [ph] of the DCAP. Your line is now open. .

Hi, guys. With regards to the drought, I understand you guys are primarily on with water and California in the difficult areas and that's great.

But if you were to see some negative effect from this drought either land values or not enough water from your wells because you can't access other water, or California regulating ground water, what might be the negative effect that you might expect to see or we might expect to see going forward from this extreme drought that you are suffering through?.

Yes. I think the extreme drought will -- the only thing it will do is require you to draw less water out of the ground which saw Jerry Brown in California implement that and I think all of our farms complied with -- all the farmers complied with that request.

And so as a result I don't think-- I mean California has been through this drought over and over again. It's not unusual for them. And just my perception of the world and some other people I talked to, California has plenty of water. The problem is the distribution of the water.

It is done by politicians and not done in a way you and I would probably do it. That is just to mention few things, some of the environmentalists intent on keeping certain fish and other animals alive and therefore good water that could be used to irrigate farms would not be used for that purpose. I doubt that I would make that decision.

And so as a result of the way the water is distributed, that's what happens. And what happens then since some of the waters being taken for environmental purposes that mean that others don't get it.

And for example in the Central valley where we have one farm and a good well, two good wells on that property, and the environmentalists have taken some of the water for their purposes. And that means the person that really gets hurt here is the farmer of annual crop.

And they have a number of farms now in California that just don't get any water and so as a result they are not growing anything.

And farms that have gotten the water had to be tree farms and vines and so if you are growing grapes or you are growing nuts, they don't want those trees and vines to die, if you didn't give them water during some period of time they would die and then it would cost a lot of money to replace them.

So they shorted to the annual crop guys and if you look at the Central Valley, you would find some real problems there for lot of the farmers. And this is not the first time. I remember few years ago there were lots of farms taken into Central Valley. Still the Central Valley is the -- an incredible vegetable growing area.

And has been for many, many years and we own a lot, we only own one farm there. But I just don't know how California is going to eventually do the distribution. As you heard me say, if you didn't have any water, you don't grow anything. And you can't imagine a farmer paying rent on a farm if he can't grow anything on it.

So it would be very detrimental and that goes in the Midwest as well. In the Midwest, there are a lot of farms and we call it dry farming in which you are depended on rain in order to grow your farms. There are many farms in the Midwest that have now irrigation and they are depended on the weather to provide them with water.

And we would not be in a position to buy any of those kinds of farms. We want to make sure that there is a plenty of water for those farms. And that just is the way life is out in the Midwest.

A lot of places, you take Kansas for example, you can't drill a well in the farm belt in Kansas anymore because they are worried that they aquifer underneath Kansas is permanent, that it is not being recharged or replenished. And that every time you stick another well down, you are taking the water that won't be available to anybody ever.

So as a result they are very stringent on what they will do on water well out there. Again, we are trying to avoid drought at any cost, meaning that we are buying farms that have one well. We drill another well afterwards. We buy a farm that might have two wells that are not producing as well. We go and rehabilitate those wells.

In California, you can do that. In Florida, you can do that, if you have a well or two well, you can rehabilitate and you can -- if one goes dry as we had in Watsonville, it wasn't really dry, it was salting up too much. And so as a result we closed that well and drilled another well.

We had a gusher; it is made that farm very, very predictable in terms of its water. And so as a result, you are constantly balancing that. And I would tell you that if you don't have water on a farm, the water is worth as much as the dirt. For the simple reason that you can't grow anything without both of those. So, John, yes, drought is a problem.

We are hopeful that there is some pretty good rain up in north in California in the past week. And so we are hopeful that it will get hit again.

Is that answer your question?.

Thank you. (Operator Instructions) Our next question comes from Michelle Stein; Neuberger Berman Your line is now open. .

Hi, David.

It's Michelle, Neuberger Berman, we will get there, I wanted to just ask maybe it's little bit off but do avocados have any interest in terms of when you look at farmland sort of farm repurchase?.

Sure. We have small avocados group in Oxnard. We bought a farm there and which the farmer wanted to continue with few of the avocados, he actually has a lemon trees as well. He will eventually -- once the lemons sort of reach the end of their time which is probably in the next couple of years, cut those down and turned it not berries.

I don't know when the avocados trees would come down, the problem with avocados is that it's a tree, it costs a lot of money to stick those in the ground. So if we are buying today, we would only buy avocados farm that are up and running. It takes about three years for an avocados tree to produce anything.

So any farmer who is renting from us and planting avocados trees has got a three year wait before they had any income at all. So it's very difficult for them to do that as you can imagine. And very difficult for us. We look at that as development much like a real estate developer would buy a piece of property and a build building on it.

It is a same thing for a farmer to take a farm that might be a dairy farm today and could convert it to an avocados farm. Not much of that going on, although there is a lot of change in the nut business. The nut trees are producing record amount these days because they plant it more and more of those.

It seems like the Chinese and the Asians have fallen in love with almonds and walnut. And so as a result they just can't get enough prices of sky high, and so as a result the nut farmers are making a lot of money today. And so they are planting more nut trees. And they seemed to get a preference in the nut business for water as well.

So as a result they can get the water and grow what is selling very well. The end of the day, some point in time you will get saturation and so as a result that business will come back to normalcy.

But for us, Michelle, I like avocados, most of the avocados today come from Mexico, inland in Mexico, they have had huge fights down there with the bad guys who have been trying to take over avocados farms and go legit rather than smuggling dope. So as a result avocados have -- and Peru has been plentiful as well.

And they are pushing that crop in Mexico as by far the dominate avocados. If you went to the grocery store, you probably find 90% of the avocados coming on Mexico; they are planning a lot in California simply because they get preference for water.

The Central Valley has good planting and most of the plantings though in California are not on the flat land. They gone up decided a mountain and are planting trees up there that works. We don't have any of those at this point in time.

But you are right, we want to look at all of those kinds of things because avocados have traveled down the same path as most of the fruits and vegetables, so it would be a good fit for us..

Thank you.

Also when you talk about water preference, do certain vegetable get preference then state wise or when you say water preference? And does that affect your farms at all?.

Water preference is primarily in the Central Valley. And there the preference is towards permanent crops because they don't want to spend one year and which all those die out and then they don't have anything.

So they have given preference to those guys and the folks that are growing peppers or something more mundane, I don't think there is any preference among ground vegetables or annual crops. I may be wrong. I have never heard of anybody saying, well, I am going to grow peppers because they will give me water as opposed to lettuce.

And all of those take a lot of water. So as a result I think the government just trying to make sure that they don't blot out some of the permanent crops at this point in time. It has been going on for a long time.

If you get a big snow pack up in North California, everybody gets water, if it doesn't snow very much then they start lending who gets water and it is a very unfortunate that so much water is put towards environmental purposes. Not that I am against environmentalists, it is just that I think food is -- should get the preference.

Anyway that's my story.

Any other questions?.

(Operator Instructions) And I am showing no further question at this time. I would like to hand the call back over to Mr. Gladstone for any closing remarks..

All right. Thank you all for showing up and listening to the story again. And I hope to have a lot of good news for you when we due to one sort of the end of -- well probably February sometime because that will be our 10-K and it always takes us a longer time get through that.

So we might not have a call until sometime in February, but I am hopeful our Board in mid January will give us up, our fingers up on increasing the dividend. Thank you all for calling. And we will see you then. .

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Have a great day everyone..