Farmland Partners Inc. (Form: 10-Q, Received: 11/09/2017 16:06:36)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001- 36405

FARMLAND PARTNERS INC.

(Exact Name of Registrant as Specified in its Charter)

Maryland		46-3769850
(State of Organization)		(IRS Employer Identification No.)

4600 South Syracuse Street, Suite 1450 Denver, Colorado		80237-2766
(Address of Principal Executive Offices)		(Zip Code)

(720) 452-3100

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). ☒ Yes ☐ No

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer	☐	Accelerated Filer	☒

Non-Accelerated Filer	☐ (Do not check if a smaller reporting company)	Smaller reporting company	☐

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☒

If emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

As of November 3, 2017, 32,337,305 shares of the Registrant’s common stock were outstanding.

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Farmland Partners Inc.

FORM 10-Q FOR THE QUARTER ENDED

September 30, 2017

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION		Page

Item 1.	Financial Statements
	Consolidated Financial Statements
	Balance Sheets as of September 30, 2017 and December 31, 2016 (unaudited)	3
	Statements of Operations for the three and nine months ended September 30, 2017 and 2016 (unaudited)	4
	Statements of Changes in Equity for the nine months ended September 30, 2017 and 2016 (unaudited)	5
	Statements of Cash Flows for the nine months ended September 30, 2017 and 2016 (unaudited)	6
	Notes to Consolidated Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	56
Item 4.	Controls and Procedures	56

PART II. OTHER INFORMATION		56

Item 1.	Legal Proceedings	56
Item 1A.	Risk Factors	56
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	57
Item 3.	Defaults Upon Senior Securities	57
Item 4.	Mine Safety Disclosures	57
Item 5.	Other Information	57
Item 6.	Exhibits	57

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Farmland Partners Inc.

Consolidated Balance Sheets

As of September 30, 2017 and December 31, 2016

(Unaudited)

(in thousands except par value and share data)


	September 30,		December 31,
	2017		2016
ASSETS
Land, at cost	$	835,986	$	551,392
Grain facilities		10,732		6,856
Groundwater		12,072		11,933
Irrigation improvements		50,660		15,988
Drainage improvements		8,146		4,757
Permanent plantings		51,868		1,845
Other		6,615		2,901
Construction in progress		7,843		1,615
Real estate, at cost		983,922		597,287
Less accumulated depreciation		(8,309)		(3,224)
Total real estate, net		975,613		594,063
Deposits		1,161		5,721
Cash		129,298		47,166
Notes and interest receivable, net		6,951		2,843
Deferred offering costs		280		216
Deferred financing fees, net		370		—
Accounts receivable, net		3,205		4,181
Inventory		92		283
Prepaid and other assets		2,746		1,056
TOTAL ASSETS	$	1,119,716	$	655,529

LIABILITIES AND EQUITY
LIABILITIES
Mortgage notes, line of credit and bonds payable, net	$	464,494	$	308,779
Dividends and distributions payable		4,882		2,938
Accrued interest		2,886		1,538
Accrued property taxes		1,523		1,225
Deferred revenue (See Note 2)		3,876		982
Accrued expenses		3,525		4,558
Total liabilities		481,186		320,020

Series B Participating Preferred Stock		144,223		—
Redeemable non-controlling interests in operating partnership, Series A preferred units		119,633		119,915

EQUITY
Common stock, $0.01 par value, 500,000,000 shares authorized; 32,632,150 shares issued and outstanding at September 30, 2017, and 17,351,446 shares issued and outstanding at December 31, 2016		322		172
Additional paid in capital		342,313		172,100
Retained earnings		2,665		4,103
Cumulative dividends		(26,948)		(14,473)
Non-controlling interests in operating partnership		56,322		53,692
Total equity		374,674		215,594

TOTAL LIABILITIES, SERIES B PARTICIPATING PREFERRED STOCK, REDEEMABLE NON-CONTROLLING INTERESTS IN OPERATING PARTNERSHIP AND EQUITY	$	1,119,716	$	655,529

See accompanying notes.

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Farmland Partners Inc.

Consolidated Statements of Operations

For the three and nine months ended September 30, 2017 and 2016

(Unaudited)

(in thousands except per share amounts)


	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016
OPERATING REVENUES:
Rental income (See Note 2)	$	11,107	$	6,164	$	28,381	$	16,462
Tenant reimbursements		474		112		1,230		276
Other revenue		465		670		1,044		931
Total operating revenues		12,046		6,946		30,655		17,669

OPERATING EXPENSES
Depreciation, depletion and amortization		2,107		419		5,651		1,102
Property operating expenses		1,400		548		4,399		1,529
Acquisition and due diligence costs		180		1,712		878		1,818
General and administrative expenses		1,707		1,587		5,840		4,770
Legal and accounting		450		330		1,151		882
Other operating expenses		88		160		363		248
Total operating expenses		5,932		4,756		18,282		10,349
OPERATING INCOME		6,114		2,190		12,373		7,320

OTHER (INCOME) EXPENSE:
Other income		(135)		(72)		(157)		(133)
(Gain) loss on disposition of assets		(44)		—		48		—
Interest expense		3,683		2,065		9,852		7,869
Total other expense		3,504		1,993		9,743		7,736

Net income (loss) before income tax expense		2,610		197		2,630		(416)

Income tax expense		—		97		—		97

NET INCOME (LOSS)		2,610		100		2,630		(513)

Net (income) loss attributable to non-controlling interests in operating partnership		(394)		(30)		(353)		37
Net (income) loss attributable to redeemable non-controlling interests in operating partnership		—		—		—		64

Net income (loss) attributable to the Company		2,216		70		2,277		(412)

Nonforfeitable distributions allocated to unvested restricted shares		(36)		(24)		(116)		(72)
Distributions on redeemable non-controlling interests in operating partnership, Common units		—		—		—		(113)
Distributions on redeemable non-controlling interests in operating partnership, Series A preferred units and dividends on Series B Participating Preferred Stock		(1,959)		(887)		(3,714)		(2,057)

Net income (loss) available to common stockholders of Farmland Partners Inc.	$	221	$	(841)	$	(1,553)	$	(2,654)

Basic and diluted per common share data:
Basic net income (loss) available to common stockholders	$	0.01	$	(0.06)	$	(0.05)	$	(0.21)
Diluted net income (loss) available to common stockholders	$	0.01	$	(0.06)	$	(0.05)	$	(0.21)
Basic weighted average common shares outstanding		32,862		13,683		30,695		12,663
Diluted weighted average common shares outstanding		32,862		13,683		30,695		12,663
Dividends declared per common share	$	0.1275	$	0.1275	$	0.3825	$	0.3825

See accompanying notes.

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Farmland Partners Inc.

Consolidated Statements of Changes in Equity

For the nine months ended September 30, 2017 and 2016

(Unaudited)

(in thousands)


	Stockholders’ Equity
	Common Stock									Non‑controlling
				Additional						Interests in
				Paid-in		Retained		Cumulative		Operating		Total
	Shares	Par Value		Capital		Earnings		Dividends		Partnership		Equity
Balance at December 31, 2015	11,979	$	118	$	114,783	$	659	$	(7,188)	$	30,162	$	138,534

Net loss	—		—		—		(412)		—		(37)		(449)
Grant of unvested restricted stock	119		—		—		—		—		—		—
Issuance of stock under the at-the-market offering, net of costs of $81	844		10		9,224		—		—		—		9,234
Conversion of Common units to shares of common stock	1,109		11		10,450		—		—		(10,461)		—
Stock based compensation	—		—		892		—		—		—		892
Dividends and distributions accrued or paid	—		—		(2,057)		—		(5,073)		(2,232)		(9,362)
Issuance of Common units as partial consideration for asset acquisition	—		—		—		—		—		28,825		28,825
Reclassification of Common units from mezzanine equity	—		—		—		—		—		9,519		9,519
Forfeiture of unvested restricted stock	(5)		—		(3)		—		—		—		(3)
Adjustments to non-controlling interests resulting from changes in ownership of operating partnership	—		—		4,282		—		—		(4,282)		—
Balance at September 30, 2016	14,046	$	139	$	137,571	$	247	$	(12,261)	$	51,494	$	177,190

Balance at December 31, 2016	17,351		172		172,100		4,103		(14,473)		53,692		215,594

Net income	—		—		—		2,277		—		353		2,630
Grant of unvested restricted stock	205		—		—		—		—		—		—
Costs incurred related to the at-the-market offering	—		—		(119)		—		—		—		(119)
Conversion of Common units to shares of common stock	1,108		11		10,944		—		—		(10,955)		—
Stock based compensation	—		—		1,100		—		—		—		1,100
Dividends and distributions accrued or paid	—		—		—		(3,715)		(12,475)		(2,398)		(18,588)
Issuance of common stock as partial consideration for asset acquisition and business combination	14,815		148		168,835		—		—		—		168,983
Issuance of Common units as partial consideration for business combination	—		—		—		—		—		2,494		2,494
Issuance of Common units as partial consideration for asset acquisitions	—		—		—		—		—		10,035		10,035
Repurchase and cancellation of shares	(841)		(9)		(7,437)		—		—		—		(7,446)
Forfeiture of unvested restricted stock	(6)		—		(9)		—		—		—		(9)
Adjustments to non-controlling interests resulting from changes in ownership of operating partnership	—		—		(3,101)		—		—		3,101		—
Balance at September 30, 2017	32,632	$	322	$	342,313	$	2,665	$	(26,948)	$	56,322	$	374,674

See accompanying notes.

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Farmland Partners Inc.

Consolidated Statements of Cash Flows

For the nine months ended September 30, 2017 and 2016

(Unaudited)

(in thousands)


	For the Nine Months Ended
	September 30,
	2017		2016
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	2,630	$	(513)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation, depletion and amortization		5,651		1,102
Amortization of deferred financing fees and discounts/premiums on debt		162		219
Amortization of net origination fees related to notes receivable		(11)		(3)
Amortization of below market leases		—		(63)
Stock based compensation		1,091		889
Loss on disposition of assets		48		—
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable		2,739		(1,427)
(Increase) in interest receivable		(227)		(106)
(Increase) in other assets		(433)		(303)
Decrease (increase) in inventory		289		(129)
Increase in accrued interest		1,348		945
(Decrease) increase in accrued expenses		(14,358)		1,984
(Decrease) increase in deferred revenue		(2,028)		900
(Decrease) increase in accrued property taxes		(302)		119
Net cash (used in) provided by operating activities		(3,401)		3,614
CASH FLOWS FROM INVESTING ACTIVITIES
Real estate acquisitions, net of cash acquired		(92,680)		(122,388)
Real estate and other improvements		(17,650)		(5,011)
Principal receipts on notes receivable		—		50
Issuance of notes receivable		(3,870)		—
Net cash used in investing activities		(114,200)		(127,349)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings from mortgage notes payable and lines of credit		101,790		200,787
Repayments on mortgage notes payable		(20,819)		(84,750)
Proceeds from ATM offering		—		9,338
Proceeds from issuance of Series B Participating Preferred Stock		144,523		—
Common stock repurchased		(7,446)		—
Payment of offering costs		(572)		(64)
Payment of debt issuance costs		(817)		(937)
Dividends on common stock		(10,535)		(4,809)
Distributions on Series A preferred units		(2,915)		—
Dividends on Series B Participating Preferred Stock		(1,082)		—
Distributions to non-controlling interests in operating partnership		(2,394)		(2,155)
Net cash provided by financing activities		199,733		117,410

NET INCREASE (DECREASE) IN CASH		82,132		(6,325)
CASH, BEGINNING OF PERIOD		47,166		23,514

CASH, END OF PERIOD	$	129,298	$	17,189
Cash paid during period for interest	$	8,491	$	6,706
Cash paid during period for taxes	$	—	$	—

SUPPLEMENTAL NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Transfer of deferred offering costs to equity	$	419	$	104
Dividend payable, common stock	$	4,152	$	1,791
Distributions payable, Common units	$	730	$	724
Distributions payable, preferred units	$	2,633	$	2,057
Additions to real estate improvements included in accrued expenses	$	1,155	$	134
Financing fees included in accrued expenses	$	25	$	—
Issuance of common stock and equity from non-controlling interests in operating partnership in conjunction with acquisitions	$	181,510	$	145,826
Below market lease acquisitions	$	—	$	29
Property tax liability assumed in acquisitions	$	—	$	79
Deferred offering costs included in accrued expenses	$	—	$	24

See accompanying notes.

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Note 1—Organization and Significant Accounting Policie s

Organization

Farmland Partners Inc., collectively with its subsidiaries (the “Company”), is an internally managed real estate company that owns and seeks to acquire high-quality farmland located in agricultural markets throughout North America. The Company was incorporated in Maryland on September 27, 2013. The Company is the sole member of the general partner of Farmland Partners Operating Partnership, LP (the “Operating Partnership”), which was formed in Delaware on September 27, 2013. As of September 30, 2017, the Company owned a portfolio of approximately 154,164 acres which are consolidated in these financial statements. All of the Company’s assets are held by, and its operations are primarily conducted through, the Operating Partnership and the wholly owned subsidiaries of the Operating Partnership. As of September 30, 2017, the Company owned an 85.1% interest in the Operating Partnership (see “Note 9—Stockholders’ Equity and Non-controlling Interests” for additional discussion regarding Class A Common units of limited partnership interest in the Operating Partnership (“Common units”), Series A preferred units of limited partnership interest in the Operating Partnership (“Series A preferred units”)) and Series B participating preferred units of limited partnership interest in the Operating Partnership (“Series B participating preferred units”)). Unlike holders of the Company’s common stock, holders of Common units and Series A preferred units do not have voting rights or the power to direct our affairs. On August 17, 2017, the Company issued 6,037,500 shares of its newly designated 6.00% Series B Participating Preferred Stock, $0.01 par value per share (the “Series B Participating Preferred Stock”) in an underwritten public offering. Shares of Series B Participating Preferred Stock, which represent equity interests in the Company, generally have no voting rights and rank senior to the Company’s common stock with respect to dividend rights and rights upon liquidation (See “Note 9—Stockholders’ Equity—Series B Participating Preferred Stock” for more information on the Series B Participating Preferred Stock).

The Company elected to be taxed as a real estate investment trust (“REIT”), under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with its short taxable year ended December 31, 2014.

On March 16, 2015, the Company formed FPI Agribusiness Inc., a wholly owned subsidiary (the “TRS” or “FPI Agribusiness”), as a taxable REIT subsidiary. The TRS was formed to provide volume purchasing services to the Company’s tenants and also to operate a small scale custom farming business. As of September 30, 2017, the TRS performs these custom farming operations on 716 acres of farmland owned by the Company and located in Florida and California.

AFCO Mergers

On February 2, 2017, the Company completed the previously announced merger with American Farmland Company (“AFCO”) at which time one of the Company’s wholly owned subsidiaries was merged with and into American Farmland Company L.P. (“AFCO OP”) with AFCO OP surviving as a wholly owned subsidiary of the Operating Partnership (the “Partnership Merger”), and AFCO merged with and into another one of our wholly owned subsidiaries with such wholly owned subsidiary surviving (the “Company Merger” and together with the Partnership Merger, the “AFCO Mergers”).

At the effective time of the Company Merger, each share of common stock of AFCO, par value $0.01 per share (“AFCO Common Stock”), issued and outstanding immediately prior to the effective time of the Company Merger (other than any shares of AFCO Common Stock owned by any wholly owned subsidiary of AFCO or by the Company or the Operating Partnership or any wholly owned subsidiary of the Company or the Operating Partnership), was automatically converted into the right to receive, subject to certain adjustments, 0.7417 shares of the Company’s common stock (the “Company Merger Consideration”). In addition, in connection with the Company Merger, each outstanding AFCO restricted stock unit that had become fully earned and vested in accordance with its terms was, at the effective time of the Company Merger, converted into the right to receive the Company Merger Consideration. The Company issued 14,763,604 shares of its common stock as consideration in the Company Merger, 17,373 shares of its common stock in respect of fully earned and vested AFCO restricted stock units, and 218,525 Common units in connection with the Partnership Merger at a share price of $11.41 per share on the date of the merger for a total consideration of $171.1 million, net of $75.0 million in assumed debt.

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Principles of Consolidation

The accompanying consolidated financial statements for the periods ended September 30, 2017 and 2016 are presented on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and the Operating Partnership. All significant intercompany balances and transactions have been eliminated in consolidation.

Interim Financial Information

The information in the Company’s consolidated financial statements for the three and nine months ended September 30, 2017 and 2016 is unaudited. The accompanying financial statements for the three and nine months ended September 30, 2017 and 2016 include adjustments based on management’s estimates (consisting of normal and recurring accruals), which the Company considers necessary for a fair statement of the results for the periods. The financial information should be read in conjunction with the consolidated financial statements for the year ended December 31, 2016, included in the Company’s Annual Report on Form 10-K, which the Company filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 23, 2017. Operating results for the three and nine months ended September 30, 2017 are not necessarily indicative of actual operating results for the entire year ending December 31, 2017.

The consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the SEC for interim financial statements. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.

During the second quarter of 2017, the Company identified and recorded an out-of-period adjustment related to tenant reimbursement revenue that should have been recorded in the first quarter of 2017. The Company concluded that this adjustment was not material to the Company’s consolidated financial statements for the periods impacted. The adjustment was reflected as a $0.2 million increase in tenant reimbursement revenue in the consolidated statements of operations for the three and six months ended June 30, 2017 with a corresponding increase to accounts receivable in the consolidated balance sheet as of June 30, 2017.

During the third quarter of 2017, the Company identified and recorded an out-of-period adjustment related to rental revenue that should have been recorded in the first and second quarters of 2017. The Company concluded that this adjustment was not material to the consolidated financial statements for the periods impacted. The adjustment is reflected as a $0.2 million increase in rental revenue in the consolidated statements of operations for the three months ended September 30, 2017 with a $0.2 million decrease in deferred revenue in the consolidated balance sheet as of September 30, 2017.

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from previously estimated amounts, and such differences may be material to our consolidated financial statements.

Real Estate Acquisitions

When the Company acquires farmland where substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets it is not considered a business. As such, the Company accounts for these types of acquisitions as asset acquisitions. When substantially all of the fair value of the gross assets acquired is not concentrated in a single identifiable asset or a group or similar assets and contains acquired inputs, processes and outputs, these acquisitions are accounted for as a business combination.

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The Company considers single identifiable assets as tangible assets that are attached to and cannot be physically removed and used separately from another tangible asset without incurring significant cost or significant diminution in utility or fair value. The Company considers similar assets as assets that have a similar nature and risk characteristics.

Whether our acquisitions are treated as an asset acquisition under ASC 360 or a business combination under ASC 805, the fair value of the purchase price is allocated among the assets acquired and any liabilities assumed by valuing the property as if it was vacant. The “as-if-vacant” value is allocated to land, buildings, improvements, permanent plantings and any liabilities, based on management’s determination of the relative fair values of such assets and liabilities as of the date of acquisition.

Upon acquisition of real estate, the Company allocates the purchase price of the real estate based upon the fair value of the assets and liabilities acquired, which historically have consisted of land, drainage improvements, irrigation improvements, groundwater, permanent plantings (bushes, shrubs, vines, and perennial crops), and grain facilities, and may also consist of intangible assets including in-place leases, above market and below market leases, and tenant relationships. The Company allocates the purchase price to the fair value of the tangible assets by valuing the land as if it were unimproved. The Company values improvements, including permanent plantings and grain facilities, at replacement cost, adjusted for depreciation.

Management’s estimates of land value are made using a comparable sales analysis. Factors considered by management in its analysis of land value include soil types and water availability and the sales prices of comparable farms. Management’s estimates of groundwater value are made using historical information obtained regarding the applicable aquifer. Factors considered by management in its analysis of groundwater value are related to the location of the aquifer and whether or not the aquifer is a depletable resource or a replenishing resource. If the aquifer is a replenishing resource, no value is allocated to the groundwater. The Company includes an estimate of property taxes in the purchase price allocation of acquisitions to account for the expected liability that was assumed.

When above or below market leases are acquired, the Company values the intangible assets based on the present value of the difference between prevailing market rates and the in-place rates measured over a period equal to the remaining term of the lease for above market leases and the initial term plus the term of any below market fixed rate renewal options for below market leases that are considered bargain renewal options. The above market lease values are amortized as a reduction of rental income over the remaining term of the respective leases. The fair value of acquired below market leases, included in deferred revenue on the accompanying consolidated balance sheets, is amortized as an increase to rental income on a straight-line basis over the remaining non-cancelable terms of the respective leases, plus the terms of any below market fixed rate renewal options that are considered bargain renewal options of the respective leases. As of September 30, 2016, all below market leases had been fully amortized, with amortization totaling $0.1 million recorded in the nine months ended September 30, 2016. There were no above market leases in place during the nine months ended September 30, 2017 or the year ended December 31, 2016.

As of September 30, 2017 and 2016, the Company had $0.9 million and $0 million respectively, recorded for tenant relationship intangibles, net of accumulated amortization of $0.5 million and $0 million, respectively. The purchase price is allocated to in-place lease values and tenant relationships, if they are acquired, based on the Company’s evaluation of the specific characteristics of each tenant’s lease, availability of replacement tenants, probability of lease renewal, estimated down time, and its overall relationship with the tenant. The value of in-place lease intangibles and tenant relationships will be included as an intangible asset and will be amortized over the remaining lease term (including expected renewal periods of the respective leases for tenant relationships) as amortization expense. If a tenant terminates its lease prior to its stated expiration, any unamortized amounts relating to that lease, including (i) above and below market leases, (ii) in-place lease values, and (iii) tenant relationships, would be recorded to revenue or expense as appropriate.

The Company capitalizes acquisition costs and due diligence costs if the asset is expected to qualify as an asset acquisition. If the asset acquisition is abandoned, the capitalized asset acquisition costs will be expensed to acquisition and due diligence costs in the period of abandonment. Costs associated with a business combination are expensed to acquisition and due diligence costs as incurred.

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Total consideration for acquisitions may include a combination of cash and equity securities. When equity securities are issued, we determine the fair value of the equity securities issued based on the number of shares of common stock and Common units issued multiplied by the stock price on the date of closing in the case of common stock and Common units and by liquidation preference in the case of preferred units.

Using information available at the time of business combination, the Company allocates the total consideration to tangible assets and liabilities and identified intangible assets and liabilities. During the measurement period, which may be up to one year from the acquisition date, the Company may adjust the preliminary purchase price allocations after obtaining more information about assets acquired and liabilities assumed at the date of acquisition.

Inventory

The costs of growing crops are accumulated until the time of harvest at the lower of cost or market value and are included in inventory in the consolidated balance sheets. Costs are allocated to growing crops based on a percentage of the total costs of production and total operating costs that are attributable to the portion of the crops that remain in inventory at the end of the period. The costs of growing crops incurred by FPI Agribusiness consist primarily of costs related to land preparation, cultivation, irrigation and fertilization. Growing crop inventory is charged to cost of products sold when the related crop is harvested and sold. The cost of harvested crop was $0.4 million and $0.2 million, respectively, for the nine months ended September 30, 2017 and 2016 and $0.1 million and $0.2 million, respectively, for the three months ended September 30, 2017 and 2016.

Harvested crop inventory includes costs accumulated during both the growing and harvesting phases. Growing crop inventory includes costs accumulated during the current crop year for crops which have not been harvested. Both harvested and growing crop are stated at the lower of cost or the estimated net realizable value, which is the market price, based upon the nearest market in the geographic region, less any cost of disposition. Cost of disposition includes brokers’ commissions, freight and other marketing costs.

Other inventory, such as fertilizer and pesticides, is valued at the lower of cost or market.

As of September 30, 2017 and December 31, 2016, respectively, inventory consisted of the following:


(in thousands)	September 30, 2017		December 31, 2016
Harvested crop	$	—	$	283
Growing crop		92		—
	$	92	$	283

New or Revised Accounting Standards

Adopted

In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330) . The amendments require that an entity should measure inventory at the lower of cost or net realizable value. Net realizable value is the estimated sales price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The Company has adopted this guidance as of January 1, 2017 and there has been no impact on the financial results of the Company.

Not Yet Adopted

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers: (Topic 606) (“ASU 2014-09”) . ASU 2014-09 amends the guidance for revenue recognition to replace numerous, industry-specific requirements and converges areas under this topic with those of the International Financial Reporting Standards. ASU 2014-09 implements a five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. The amendment also requires enhanced disclosures regarding the nature, amount, timing and uncertainty

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of revenues and cash flows from contracts with customers. Other major provisions include the capitalization and amortization of certain contract costs, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. While the Company is still completing its assessment of the impact of this guidance, it does not believe that it will have a material impact on the financial statements as the majority of the Company’s contracts with customers relate to leases that fall within the scope of ASU 2016-02 (see below). Other contract types undergoing evaluation are considered ancillary to the Company’s operations and financial statements. The amendments in this ASU are effective for annual and interim reporting periods beginning after December 15, 2017. We are currently assessing the impact of ASU 2014-09, as amended; however, the majority of our revenue is from net-lease agreements which will be in the scope of the leasing standard as described below.

In February 2016, the FASB issued ASU 2016-02, Leases: (Topic 842) (“ASU 2016-02”), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. While the Company is still completing its assessment of the impact of this guidance, the following is anticipated to reflect the primary effects of this guidance on the Company’s reporting:

(i)

For leases in which the Company is the lessee, the Company does not expect the guidance to have a material impact as there are only three operating leases for office space and for subleased property in Nebraska. Two of these leases have terms less than 12 months and the Company will elect not to apply the recognition requirements of ASU 2016-02. The Company will record a right-of-use asset and a lease liability for the third lease that has a term greater than 12 months, but the Company does not expect it to have a significant impact on the consolidated financial statements;

(ii)

For leases in which the Company is the lessor, the Company does not expect there to be a material impact as the majority of the Company’s leases do not contain a non-lease component. While the Company is expecting there to be other ancillary impacts for leases in which the Company is the lessor, they are not expected to be material to the consolidated financial statements. Under the new guidance lease procurement costs which were previously capitalized will be expensed as incurred. Lastly, under the new guidance, there are certain circumstances in which buyer-lessors in sale and leaseback transactions could potentially result in recording the transaction as a financial receivable if such transaction fails sale and leaseback criteria, which the Company is still evaluating.

The standard is effective for annual and interim reporting periods beginning after December 15, 2018, with modified retrospective restatement for each reporting period presented at the time of adoption. Early adoption is permitted. The Company has not yet determined whether this guidance will be early adopted.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 is intended to reduce diversity in practice across all industries. The amendments in this update provide guidance on the following eight specific cash flow issues: 1) Debt Prepayment or Debt Extinguishment Costs; 2) Settlement of Zero-Coupon Debt Instruments or Other Debt Instruments with Coupon Interest Rates That Are Insignificant in Relation to the Effective Interest Rate of the Borrowing; 3) Contingent Consideration Payments Made after a Business Combination; 4) Proceeds from the Settlement of Insurance Claims; 5) Proceeds from the Settlement of Corporate-Owned Life Insurance Policies, including Bank-Owned Life Insurance Policies; 6) Distributions Received from Equity Method Investees; 7) Beneficial Interests in Securitization Transactions; and 8) Separately Identifiable Cash Flows and Application of the Predominance Principle. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years and retrospective

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restatement is required. Early adoption is permitted. The Company is currently evaluating the requirements of ASU 2016-15 and does not anticipate a material impact on our statement of cash flows.

In January 2017, the FASB issued ASU No. 2017-01, Business Combination (Topic 805): Clarifying the definition of a business (“ASU 2017-01”). ASU 2017-01 is intended to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of businesses. The Company has determined that with the adoption of this guidance some acquisitions that were deemed business combinations will be deemed asset acquisitions and costs associated with these asset acquisitions will be capitalized to the acquisition rather than being expensed. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The Company has adopted this guidance as of January 1, 2017. The Company expects the vast majority of its acquisitions to be deemed asset acquisitions under this new guidance.

Note 2—Revenue Recognition

For the majority of its leases, the Company receives at least 50% of the annual lease payment from tenants either during the first quarter of the year or at the time of acquisition of the related farm, with the remainder of the lease payment, generally secured by growing or harvested crops, due in the second half of the year. The rental income received is recorded on a straight-line basis over the lease term. The lease term generally includes periods when a tenant: (1) may not terminate its lease obligation early; (2) may terminate its lease obligation early in exchange for a fee or penalty that the Company considers material enough such that termination would not be probable; (3) possesses renewal rights and the tenant’s failure to exercise such rights imposes a penalty on the tenant material enough such that renewal appears reasonably assured; or (4) possesses bargain renewal options for such periods.

Certain of the Company’s leases provide for a rent payment determined as a percentage of the gross farm proceeds. Revenue under leases providing for a payment equal to a percentage of the gross farm proceeds are recorded at the guaranteed crop insurance minimums and recognized ratably over the lease term during the crop year. Upon notification from the grain or packing facility that a future contract for delivery of the harvest has been finalized or when the tenant has notified the Company of the total amount of gross farm proceeds, revenue is recognized for the excess of the actual gross farm proceeds and the previously recognized minimum guaranteed insurance.

Most of our farming leases range from two to three years for row crops and one to seven years for permanent crops. Leases in place as of September 30, 2017 have terms ranging from one to 25 years. Payments received in advance are included in deferred revenue until they are earned. As of September 30, 2017 and December 31, 2016, the Company had $3.9 million and $ 1.0 million , respectively, in deferred revenue.

The following sets forth a summary of rental income recognized for the three and nine months ended September 30, 2017 and 2016:


	Rental income recognized
	For the three months ended				For the nine months ended
	September 30,				September 30,
(in thousands)	2017		2016		2017			2016
Leases in effect at the beginning of the year	$	3,187	$	3,098	$	9,348	$	9,760
Leases entered into during the year (1)		7,920		3,066		19,033		6,702
	$	11,107	$	6,164	$	28,381	$	16,462

(1)

Includes all leases resulting from acquisitions completed during the period including those leases acquired as a result of the AFCO mergers.

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Future minimum lease payments from tenants under all non-cancelable leases in place as of September 30, 2017, including lease advances, when contractually due, but excluding, crop share and tenant reimbursement of expenses for the remainder of 2017 and each of the next four years and thereafter as of September 30, 2017 are as follows:


(in thousands)	Future rental
Year Ending December 31,	payments
2017 (remaining three months)	$	9,456
2018		26,559
2019		19,704
2020		7,548
2021		3,263
Thereafter		4,122
	$	70,652

Since lease renewal periods are exercisable at the option of the lessee, the preceding table presents future minimum lease payments due during the initial lease term only.

The Company records revenue from the sale of harvested crops when the harvested crop has been delivered to a grain facility and title has transferred. Revenues from the sale of harvested crops totaling $ 0.6 million and $ 0.8 million were recognized for the nine months ended September 30, 2017 and 2016, respectively, and $0.2 mil lion and $0.6 million being recognized during the three months ended September 30, 2017 and 2016, respectively. Harvested crops delivered under marketing contracts are recorded using the fixed price of the marketing contract at the time of delivery to a grain facility. Harvested crops delivered without a marketing contract are recorded using the market price at the date the harvested crop is delivered to the grain facility and title has transferred.

Note 3—Concentration Risk

Credit Risk

For the three and nine months ended September 30, 2017, the Company had one significant tenant representing a tenant concentration as presented in the table below. If the Company’s significant tenant fails to make rental payments to the Company or elects to terminate its leases, and the land cannot be re-leased on satisfactory terms, there could be a material adverse effect on the Company’s financial performance and the Company’s ability to continue operations. Rental income received is recorded on a straight-line basis over the applicable lease term. The following table presents the amount of the rental income and percentage of the Company’s total rental income received from the Company’s significant tenant.


	Rental income recognized								Rental income recognized
	For the three months ended September 30,								For the nine months ended September 30,
($ in thousands)	2017				2016				2017				2016
Tenant A (1)	$	2,091	18.8	%	$	—	—	%	$	4,071	14.3	%	$	—	—	%

(1)

Tenant A is a tenant who is currently leasing a number of permanent crop farms in California .

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Geographic Risk

The following table summarizes the percentage of approximate total acres owned as of September 30, 2017 and 2016 and the percentage of rental income recorded by the Company for the three and nine months ended September 30, 2017 and 2016 by region:


	Approximate %				Rental Income (1)
	of total acres				For the three months ended				For the nine months ended
	As of September 30,				September 30,				September 30,
Location of Farm (2)	2017		2016		2017		2016		2017		2016
Corn belt	30.8	%	29.3	%	33.7	%	40.2	%	35.5	%	37.5	%
Delta and South	18.8	%	21.8	%	9.3	%	11.4	%	10.0	%	11.7	%
High Plains	20.4	%	24.1	%	8.6	%	15.8	%	9.3	%	15.6	%
Southeast	25.8	%	24.8	%	18.3	%	32.6	%	21.2	%	35.2	%
West Coast	4.2	%	—	%	30.1	%	—	%	24.0	%	—	%
	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%

(1)

Due to regional disparities in the use of leases with crop share components and seasonal variations in the recognition of crop share revenue, regional comparisons by rental income are not fully representative of each region's income producing capacity until a full year is taken into account.

(2)

Corn Belt includes farms located in Illinois, Michigan, and eastern Nebraska. Delta and South includes farms located in Arkansas, Louisiana, and Mississippi. High Plains includes farms located in Colorado, Kansas, western Nebraska, and Texas. Southeast includes farms located in Florida, Georgia, North Carolina, South Carolina, and Virginia. West Coast includes farms located in California.

Note 4—Related Party Transactions

On July 21, 2015, the Company entered into a lease agreement with American Agriculture Aviation LLC (“American Ag Aviation”) for the use of a private plane. American Ag Aviation is a Colorado limited liability company that is owned 100% by Mr. Pittman. The Company incurred costs of $0.16 million and $0.14 million, respectively, during the nine months ended September 30, 2017 and 2016 and $0.02 million and $0.05 million, respectively, during the three months ended September 30, 2017 and 2016 from American Ag Aviation for use of the aircraft in accordance with the lease agreement. These costs were recognized based on the nature of the associated use of the aircraft, as follows: (i) general and administrative - expensed as general and administrative expenses within the Company’s consolidated statements of operations; (ii) land acquisition (accounted for as an asset acquisition) - allocated to the acquired real estate assets within the Company’s consolidated balance sheets; and (iii) land acquisition (accounted for as a business combination) - expensed as acquisition and due diligence costs within the Company’s consolidated statements of operations.

Note 5—Real Estate

During the nine months ended September 30, 2017, the Company completed 15 acquisitions which were accounted for as asset acquisitions in Illinois, South Carolina, South Dakota, Arkansas, Michigan, Georgia, Kansas, California, and Colorado. Consideration totaled $111.6 million and was comprised of cash, shares of common stock and Common units. No intangible assets were acquired through these acquisitions.

The estimated fair values for the assets acquired and the liabilities assumed are preliminary and are subject to change as additional information related to the fair value of the assets and liabilities becomes available. Subsequent adjustments to the preliminary purchase price allocation are not expected to have a material impact to the Company's consolidated financial statements. The following outlines the impact of the completion of the AFCO Mergers accounted for as a business combination as of September 30, 2017:

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($ in thousands)
Land, at cost	$	181,072
Irrigation improvements		26,155
Permanent plantings		48,513
Buildings		1,499
In-place leases (1)		1,139
Lease origination costs		264
Cash		3,832
Other assets		1,831
Inventory		99
Deferred revenue		(4,434)
Other liabilities		(13,826)
Gross Total Consideration		246,144
Mortgage notes and bonds payable, net		(75,000)
Total Consideration	$	171,144

(1)

Weighted average amortization period of the in-place lease liability is 3 years.

During the period the Company recorded a measurement period adjustment in relation to property tax accruals in the amount of $0.6 million recognized in other liabilities. As the amount was recovered through tenant reimbursements, the Company also increased the other assets category by $0.6 million.

The Company also recorded a measurement period adjustment in relation to deferred revenue associated with acquired leases in the amount of $1.1 million with a corresponding change in land of $0.8 million, irrigation improvements of $0.1 million and permanent plantings of $0.2 million. The statement of operations impact of this adjustment is immaterial to the three months ended September 30, 2017.

The Company has included the results of operations for the acquired real estate in the consolidated statements of operations from the dates of acquisition. The real estate acquired in business combinations during the nine months ended September 30, 2017 contributed $10.1 million to total revenue and $2.4 million to net income.

The pro forma information presented below does not purport to represent what the actual results of operations of the Company would have been had the business combination outlined above occurred as of the beginning of the periods presented, nor does it purport to predict the results of operations of future periods. The pro forma information is presented below as if the real estate acquired in the business combination during the nine months ended September 30, 2017 had been acquired as of January 1, 2016.


	For the three months ended				For the nine months ended
($ in thousands)	September 30,				September 30,
Proforma	2017		2016		2017		2016
Revenue	$	12,046	$	6,946	$	30,655	$	17,669
Pro forma estimate (1)		-		4,146		993		11,244
Total operating revenue	$	12,046	$	11,092	$	31,648	$	28,913

Net income (loss)	$	2,610	$	100	$	2,630	$	(513)
Pro forma estimate		-		431		(367)		2,141
Total net income	$	2,610	$	531	$	2,263	$	1,628

Net income (loss) available to common stockholders of Farmland Partners Inc.	$	221	$	(467)	$	(1,935)	$	(869)

Earnings per share basic and diluted
Income (loss) per basic share attributable to common stockholders	$	0.01	$	(0.02)	$	(0.06)	$	(0.03)
Income (loss) per diluted share attributable to common stockholders	$	0.01	$	(0.02)	$	(0.06)	$	(0.03)
Weighted-average number of common shares - basic		32,862		28,447		32,374		27,427
Weighted-average number of common shares - diluted		32,862		28,447		32,374		27,427

(1)

Represents a linear extrapolation of revenues over the three and nine months ended September 30, 2017 and 2016 and therefore does not take into account the irregularity of certain of the Company's revenue components, such as crop share lease payments.

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During the nine months ended September 30, 2016, the Company completed 16 acquisitions which were accounted for as asset acquisitions in Georgia, South Carolina, Texas, Illinois, and Louisiana. Consideration totaled $261.1 million and was comprised of cash, Common units, and Series A preferred units. No intangible assets were acquired through these acquisitions.

The following outlines the fair value allocation of the assets and liabilities acquired as a result of the completion of six acquisitions in Michigan, Mississippi, Texas, Illinois, Colorado and Georgia which were accounted for as business combinations as of September 30, 2016:


($ in thousands)
Land, at cost	$	7,170
Groundwater		634
Irrigation improvements		518
Permanent plantings		763
Below market lease		(29)
Total Consideration	$	9,056

Prudential Termination Agreement

On February 18, 2017, the Company entered into a Termination Agreement (the “Termination Agreement”) with Prudential Capital Mortgage Company (the “Prudential Sub-Advisor”) pursuant to which the Company and the Prudential Sub-Advisor agreed to terminate, effective as of March 31, 2017, the Amended and Restated Sub-Advisory Agreement (the “Sub-Advisory Agreement”), dated as of October 23, 2015, by and among American Farmland Company, American Farmland Advisors, American Farmland Company L.P. and Prudential and certain related property management agreements (together with the Sub-Advisory Agreement, the “Prudential Agreements”).

The Termination Agreement provided that, as of March 31, 2017, Prudential no longer provides services to the Company under the Prudential Agreements. The Company paid the Prudential Sub-Advisor $1.6 million in cash, which is equal to the fee that would have been owed to Prudential for services through the quarter ended March 31, 2017, plus a termination fee of approximately $0.2 million. The statement of operations impact to the Company for the nine months ended September 30, 2017 totaled $0.7 million, which is included in property operating expenses, with the remaining $0.9 million being included in the accruals as a component of the purchase accounting surrounding the AFCO Mergers as this represented the costs incurred by AFCO prior to the AFCO Mergers.

Note 6—Notes Receivable

In August 2015, the Company introduced an agricultural lending product aimed at farmers as a complement to the Company's business of acquiring and owning farmland and leasing it to farmers (the “FPI Loan Program”). Under the FPI Loan Program, the Company makes loans to third-party farmers (both tenant and non-tenant) to provide financing for working capital requirements and operational farming activities, farming infrastructure projects, and for other farming and agricultural real estate related projects. The Company seeks to make loans that are collateralized by farm real estate and in principal amounts of $100,000 or more at fixed interest rates with maturities of up to six years. The Company expects the borrower to repay the loans in accordance with the loan agreements based on farming operations and access to other forms of capital, as permitted.

Notes receivable are stated at their unpaid principal balance and include unamortized direct origination costs and accrued interest through the reporting date, less any allowance for losses and unearned borrower paid points.

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As of September 30, 2017 and December 31, 2016, the Company had the following notes receivable:


($ in thousands)		Principal Outstanding as of				Maturity
Loan	Payment Terms	September 30, 2017		December 31, 2016		Date
Mortgage Note (1)	Principal & interest due at maturity	$	1,800	$	1,800	1/15/2017
Mortgage Note (2)	Principal & interest due at maturity		240		980	3/16/2022
Mortgage Note (2)	Principal due at maturity & interest due monthly		2,194		-	3/16/2022
Mortgage Note	Principal & interest due at maturity		1,647		-	4/27/2018
Mortgage Note	Principal & interest due at maturity		100		-	1/31/2018
Mortgage Note	Principal due at maturity & interest paid in advance		669		-	2/15/2018
Total outstanding principal			6,650		2,780
Points paid, net of direct issuance costs			(10)		(4)
Interest receivable (net prepaid interest)			311		67
Total notes and interest receivable		$	6,951	$	2,843

(1)

In January 2016, the maturity date of the note was extended to January 15, 2017 with year one interest received at the time of the extension and principal and remaining interest due at maturity. On July 28, 2017 the Company notified the borrower of default under the Promissory Note. The Company currently believes that collectability is reasonably assured.

(2)

The original note was renegotiated and a second note was entered into simultaneously with the borrower during the three months ended March 31, 2017. The notes include mortgages on two additional properties in Colorado that include repurchase options for the properties at a fixed price that are exercisable between the second and fifth anniversary of the notes by the borrower.

The collateral for the mortgage notes receivable consists of real estate and improvements present on such real estate.

Fair Value

FASB ASC 820-10 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

Level 1 —Inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.

Level 2 —Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets and inputs that are observable or can be substantially corroborated for the asset or liability, either directly or indirectly.

Level 3 —Inputs to the valuation methodology are unobservable, supported by little or no market activity and are significant to the fair value measurement.

The fair value of notes receivable is valued using Level 3 inputs under the hierarchy established by GAAP and is calculated based on a discounted cash flow analysis, using interest rates based on management’s estimates of market interest rates on mortgage notes receivable with comparable terms whenever the interest rates on the notes receivable are deemed not to be at market rates. As of September 30, 2017 and December 31, 2016, the fair value of the notes receivable was $6.7 million and $2.8 million, respectively.

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Note 7—Mortgage Notes, Lines of Credit and Bonds Payable

As of September 30, 2017 and December 31, 2016, the Company had the following indebtedness outstanding:


									Book
			Annual						Value of
($ in thousands)			Interest	Principal					Collateral
			Rate as of	Outstanding as of					as of
			September 30,	September 30,		December 31,		Maturity	September 30,
Loan	Payment Terms	Interest Rate Terms	2017	2017		2016		Date	2017
Farmer Mac Bond #1 (1)	Semi-annual interest only	2.40%	2.40%	$	—	$	20,700	September 2017	$	—
Farmer Mac Bond #2 (2)	Semi-annual interest only	2.35%	2.35%		5,460		5,460	October 2017		9,557
Farmer Mac Bond #3	Semi-annual interest only	2.50%	2.50%		10,680		10,680	November 2017		11,487
Farmer Mac Bond #4	Semi-annual interest only	2.50%	2.50%		13,400		13,400	December 2017		23,588
Farmer Mac Bond #5	Semi-annual interest only	2.56%	2.56%		30,860		30,860	December 2017		61,104
Farmer Mac Bond #6	Semi-annual interest only	3.69%	3.69%		14,915		14,915	April 2025		21,609
Farmer Mac Bond #7	Semi-annual interest only	3.68%	3.68%		11,160		11,160	April 2025		18,441
Farmer Mac Bond #8A	Semi-annual interest only	3.20%	3.20%		41,700		41,700	June 2020		80,929
Farmer Mac Bond #9	Semi-annual interest only	3.35%	3.35%		6,600		6,600	July 2020		7,711

MetLife Term Loan #1 (3)	Semi-annual interest only	3.48% adjusted every three years	3.48%		90,000		90,000	March 2026		198,345
MetLife Term Loan #2	Semi-annual interest only	2.66% adjusted every three years	2.66%		16,000		16,000	March 2026		31,677
MetLife Term Loan #3	Semi-annual interest only	2.66% adjusted every three years	2.66%		21,000		21,000	March 2026		27,654
MetLife Term Loan #4 (3)	Semi-annual interest only	3.48% adjusted every three years	3.48%		15,685		15,685	June 2026		30,624
MetLife Term Loan #5	Semi-annual interest only	3.26% adjusted every three years	3.26%		8,379		—	January 2027		16,761
MetLife Term Loan #6	Semi-annual interest only	3.21% adjusted every three years	3.21%		27,159		—	February 2027		55,526
MetLife Term Loan #7	Semi-annual interest only	3.45% adjusted every three years	3.45%		21,253		—	June 2027		48,307
Farm Credit of Central Florida	(4)	LIBOR + 2.6875% adjusted monthly	3.92%		5,102		5,102	September 2023		9,688
Prudential	(5)	3.20%	3.20%		6,481		6,600	July 2019		11,643
Rutledge Note Payable #1	Quarterly interest only	3 month LIBOR + 1.3% adjusted quarterly	2.60%		25,000		—	January 2022		46,022
Rutledge Note Payable #2	Quarterly interest only	3 month LIBOR + 1.3% adjusted quarterly	2.60%		25,000		—	January 2022		49,700
Rutledge Note Payable #3	Quarterly interest only	3 month LIBOR + 1.3% adjusted quarterly	2.60%		25,000		—	January 2022		58,985
Rutledge Note Payable #4	Quarterly interest only	3 month LIBOR + 1.3% adjusted quarterly	2.60%		15,000		—	January 2022		28,271
Rutledge Note Payable #5	Quarterly interest only	3 month LIBOR + 1.3% adjusted quarterly	2.60%		30,000		—	January 2022		69,772
Total outstanding principal					465,834		309,862		$	917,401
Debt issuance costs					(1,360)		(1,193)
Unamortized premium					20		110
Total mortgage notes and bonds payable, net				$	464,494	$	308,779

(1)

Bond was repaid in full on September 5, 2017.

(2)

Bond was repaid in full on October 23, 2017.

(3)

During the nine months ended September 30, 2017 the Company converted the interest rate on MetLife Term Loans 1 and 4 from variable to fixed rates that can be adjusted to an adjustable rate every three years over their remaining terms.

(4)

Loan is an amortizing loan with quarterly interest payments that commenced on January 1, 2017 and quarterly principal payments that commence on October 1, 2018, with all remaining principal and outstanding interest due at maturity.

(5)

Loan is an amortizing loan with semi-annual principal and interest payments that commence on July 1, 2017, with all remaining principal and outstanding interest due at maturity.

During the remainder of 2017, $60.4 million of the Company’s borrowings will mature. Any cash that the Company uses to satisfy its outstanding debt obligations will reduce the amounts available to acquire additional farms, which could adversely affect our growth prospects. As of September 30, 2017, the Company had $3.1 million in capacity available under the Farm Credit of Central Florida Mortgage Note (as defined below). The Company has signed a non-binding term sheet for a debt facility with a major financial institution, which the Company intends to use to refinance the debt due to mature in 2017. The Company has also signed a non-binding term sheet for a debt facility with a major financial institution to finance a portion of the California property acquisition committed to during the quarter. However, the Company can provide no assurances that the Company will be able to enter into a binding agreement to refinance or secure the debt on similar terms or at all and thus alternative sources of capital may be necessary. As of September 30, 2017, the Company

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had $465.8 million of debt, which may expose the Company to the risk of default under the Company’s debt obligations, restrict the Company’s operations and the Company’s ability to grow the Company’s business and revenues and restrict the Company’s ability to pay distributions to the Company’s stockholders.

Farmer Mac Facility

The Company and the Operating Partnership are parties to the Amended and Restated Bond Purchase Agreement, dated as of March 1, 2015 and amended as of June 2, 2015 and August 3, 2015 (the “Bond Purchase Agreement”), with Federal Agricultural Mortgage Corporation (“Farmer Mac”) and Farmer Mac Mortgage Securities Corporation, a wholly owned subsidiary of Farmer Mac, as bond purchaser (the “Purchaser”), regarding a secured note purchase facility (the “Farmer Mac Facility”) that has a maximum borrowing capacity of $165.0 million. Pursuant to the Bond Purchase Agreement, the Operating Partnership may, from time to time, issue one or more bonds to the Purchaser that will be secured by pools of mortgage loans, which will, in turn, be secured by first liens on agricultural real estate owned by the Company. The mortgage loans may have effective loan-to-value of up to 60%. Prepayment of each bond issuance is not permitted unless otherwise agreed upon by all parties to the Bond Purchase Agreement.

On September 5, 2017 the Company repaid in full a $20.7 million bond that was due and payable on that date, under the Farmer Mac facility.

As of September 30, 2017 and December 31, 2016, the Operating Partnership had approximately $134.8 million and approximately $155.5 million outstanding, respectively, under the Farmer Mac facility. The Farmer Mac facility is subject to the Company’s ongoing compliance with a number of customary affirmative and negative covenants, as well as financial covenants, including: a maximum leverage ratio of not more than 60%; a minimum fixed charge coverage ratio of 1.50 to 1.00; and a minimum tangible net worth requirement. The Company was in compliance with all applicable covenants at September 30, 2017. On October 23 2017, the Company repaid in full the Farmer Mac #2 bond with an outstanding principal balance of $5.5 million.

In connection with the Bond Purchase Agreement, on March 1, 2015, the Company and the Operating Partnership also entered into an amended and restated pledge and security agreement (the “Pledge Agreement”) in favor of the Purchaser and Farmer Mac, pursuant to which the Company and the Operating Partnership agreed to pledge, as collateral for the Farmer Mac Facility, all of their respective right, title and interest in (i) mortgage loans with a value at least equal to 100% of the aggregate principal amount of the outstanding bond held by the Purchaser and (ii) such additional collateral as necessary to have total collateral with a value at least equal to 110% of the outstanding notes held by the Purchaser. In addition, the Company agreed to guarantee the full performance of the Operating Partnership’s duties and obligations under the Pledge Agreement .

The Bond Purchase Agreement and the Pledge Agreement include customary events of default, the occurrence of any of which, after any applicable cure period, would permit the Purchaser and Farmer Mac to, among other things, accelerate payment of all amounts outstanding under the Farmer Mac Facility and to exercise its remedies with respect to the pledged collateral, including foreclosure and sale of the agricultural real estate underlying the pledged mortgage loans.

Bridge Loan

On February 29, 2016, two wholly owned subsidiaries of the Operating Partnership (together, the “Bridge Borrower”) entered into a term loan agreement (the “Bridge Loan Agreement”) with MSD FPI Partners, LLC, an affiliate of MSD Partners, L.P. (the “Bridge Lender”), that provided for a loan of $53.0 million (the “Bridge Loan”), the proceeds of which were used primarily to fund the cash portion of the consideration for the acquisition of the Forsythe farms, which was completed on March 2, 2016. During the nine months ended September 30, 2016, the Company accrued and paid debt issuance costs on the Bridge Loan totaling $173,907, and interest totaling $2,271,867, of which $2,120,000, or 4.0%, of the Bridge Loan's principal amount, was con sidered additional interest paid on issuance . The Bridge Loan was paid in full, including accrued interest, and without prepayment penalty, on March 29, 2016 using proceeds from the MetLife Term Loans, as described below.

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MetLife Term Loans

On March 29, 2016, five wholly owned subsidiaries of the Operating Partnership entered into a loan agreement (the “First MetLife Loan Agreement”) and, together with the Second MetLife Loan Agreement, the “MetLife Loan Agreements”) with Metropolitan Life Insurance Company (“MetLife”), which provides for a total of $127.0 million of term loans, comprised of (i) a $90.0 million term loan (“Term Loan 1”), (ii) a $16.0 million term loan (“Term Loan 2”) and (iii) a $21.0 million term loan (“Term Loan 3” and, together with Term Loan 1 and Term Loan 2, the “Initial MetLife Term Loans” and, together with Term Loan 4, Term Loan 5, Term Loan 6 and Term Loan 7 described below, the “MetLife Term Loans”). The proceeds of the Initial MetLife Term Loans were used to repay existing debt (including amounts outstanding under the Bridge Loan), to acquire additional properties and for general corporate purposes. Each Initial MetLife Term Loan is collateralized by first lien mortgages on certain of the Company’s properties.

On June 29, 2016, five wholly owned subsidiaries of the Operating Partnership entered into a loan agreement (the “Second MetLife Loan Agreement”) with MetLife which provides for a loan of approximately $15.7 million to the Company with a maturity date of June 29, 2026 (“Term Loan 4”). Interest on Term Loan 4 is payable semi-annually and accrues at a floating rate that will be adjusted quarterly to a rate per annum equal to the greater of (a) the three-month LIBOR plus an initial floating rate spread of 1.750%, which may be adjusted by MetLife on each of September 29, December 29, March 29 and June 29 of each year to an interest rate equal to the greater of (a) the three month LIBOR plus the floating rate spread or (b) 2.00% per annum. Term Loan 4 initially bears interest at a rate of 2.39% per annum until September 29, 2016, and on September 29, 2016 the rate changed to 2.60% per annum. Effective March 29, 2017, the Company exercised its option to convert the interest rate on Term Loan 4 from a floating rate to an adjustable rate. The new adjustable rate is 3.48% which may be adjusted by MetLife on each of March 29, 2020 and March 29, 2023. Proceeds from Term Loan 4 were used to acquire additional properties and for general corporate purposes.

Interest on Term Loan 1 is payable semi-annually and accrues at a floating rate that will be adjusted quarterly to a rate per annum equal to the greater of (a) the three-month LIBOR plus an initial floating rate spread of 1.750%, which may be adjusted by MetLife on each of March 29, 2019, March 29, 2022 and March 29, 2025 to an interest rate consistent with interest rates quoted by MetLife for substantially similar loans secured by real estate substantially similar to the Company’s properties securing Term Loan 1 or (b) 2.000% per annum. Term Loan 1 bore interest at a rate of 2.40% per annum until September 29, 2016, and on September 29, 2016 the rate changed to 2.60% per annum. Effective March 29, 2017, the Company exercised its option to convert the interest rate on Term Loan 4 from a floating rate to an adjustable rate. The new adjustable rate is 3.48% which may be adjusted by MetLife on each of March 29, 2020 and March 29, 2023.Subject to certain conditions, the Company may at any time during the term of Term Loan 1 elect to have all or any portion of the unpaid balance of Term Loan 1 bear interest at a fixed rate that is initially established by the lender in its sole discretion that may be adjusted from time to time to an interest rate consistent with interest rates quoted by MetLife for substantially similar loans secured by real estate substantially similar to the Company’s properties securing Term Loan 1. On any floating rate adjustment date, the Company may prepay any portion of Term Loan 1 that is not subject to a fixed rate without penalty.

Interest on Term Loan 2 and Term Loan 3 is payable semi-annually and accrues at an initial rate of 2.66% per annum, which may be adjusted by MetLife on each of March 29, 2019, March 29, 2022 and March 29, 2025 to an interest rate consistent with interest rates quoted by MetLife for substantially similar loans secured by real estate substantially similar to the Company’s properties securing Term Loan 2 and Term Loan 3.

Subject to certain conditions, amounts outstanding under Term Loan 2 and Term Loan 3, as well as any amounts outstanding under Term Loan 1 that are subject to a fixed interest rate, may be prepaid without penalty up to 20% of the original principal amounts of such loans per year or in connection with any rate adjustments. Any other prepayments under the Initial MetLife Term Loans generally are subject to a minimum prepayment premium of 1.00%.

In connection with the Initial MetLife Term Loans, on March 29, 2016, the Company and the Operating Partnership each entered into a separate guaranty (the “Initial MetLife Guaranties”) whereby the Company and the Operating Partnership jointly and severally agreed to unconditionally guarantee all of the borrowers’ obligations under the First MetLife Loan Agreement.

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In connection with the Term Loan 4, on June 29, 2016, the Company and the Operating Partnership each entered into a separate guaranty (the “Term Loan 4 Guaranties”) whereby the Company and the Operating Partnership jointly and severally agreed to unconditionally guarantee all of the borrowers’ obligations under the Second MetLife Loan Agreement.

On January 12, 2017, five wholly owned subsidiaries of the Operating Partnership entered into a loan agreement (the “Fifth MetLife Loan Agreement”) with MetLife which provides for a loan of approximately $8.4 million to the Company with a maturity date of January 12, 2027 (“Term Loan 5”). Interest on Term Loan 5 is payable semi-annually and accrues at a 3.26% per annum fixed rate, and may be adjusted by MetLife on each of January 12, 2020, January 12, 2023 and January 12, 2026 at the option of the Lender to a rate that is consistent with similar loans. Proceeds from Term Loan 5 were used to acquire additional properties and for general corporate purposes.

In connection with the Term Loan 5, on January 12, 2017, the Company and the Operating Partnership each entered into a separate guaranty (the “Term Loan 5 Guaranties”) whereby the Company and the Operating Partnership jointly and severally agreed to unconditionally guarantee all of the borrowers’ obligations under the Fifth MetLife Loan Agreement.

On February 14, 2017, a wholly owned subsidiary of the Operating Partnership entered into a loan agreement (the “Sixth MetLife Loan Agreement”) with MetLife which provides for a loan of approximately $27.2 million to the Company with a maturity date of February 14, 2027 (“Term Loan 6”). Interest on Term Loan 6 is payable semi-annually and accrues at a 3.21% per annum fixed rate, and may be adjusted by MetLife on each of February 14, 2020, February 14, 2023 and February 14, 2026 at the option of the Lender to a rate that is consistent with similar loans. Proceeds from Term Loan 6 were used to acquire additional properties.

In connection with the Term Loan 6, on February 14, 2017, the Company and the Operating Partnership each entered into a separate guaranty (the “Term Loan 6 Guaranties) whereby the Company and the Operating Partnership jointly and severally agreed to unconditionally guarantee all of the borrowers’ obligations under the Sixth MetLife Loan Agreement.

On June 7, 2017, a wholly owned subsidiary of the Operating Partnership, entered into a loan agreement (the “Seventh MetLife Loan Agreement”) with MetLife which provides for a loan of approximately $21.3 million to the Company with a maturity date of June 7, 2027 (“Term Loan 7”). Interest on Term Loan 7 is payable semi-annually and accrues at a 3.45% per annum fixed rate, and may be adjusted by MetLife on each of June 7, 2020, June 7, 2023 and June 7, 2026 at the option of the Lender to a rate that is consistent with similar loans. Proceeds from Term Loan 7 were used to acquire additional properties.

In connection with the Term Loan 7, on June 7, 2017, the Company and the Operating Partnership each entered into a separate guaranty (the “Term Loan 7 Guaranties” together with the Initial MetLife Guaranties, the Term Loan 4 Guaranties, the Term Loan 5 Guaranties and the Term Loan 6 Guaranties, the “MetLife Guaranties”) whereby the Company and the Operating Partnership jointly and severally agreed to unconditionally guarantee all of the borrowers’ obligations under the Seventh MetLife Loan Agreement.

Each of the MetLife Loan Agreements contains a number of customary affirmative and negative covenants, including the requirement to maintain a loan to value ratio of no greater than 60%. The MetLife Guaranties also contain a number of customary affirmative and negative covenants. The Company was in compliance with all covenants under the MetLife Term Loans as of September 30, 2017.

Each of the MetLife Loan Agreements includes certain customary events of default, including a cross-default provision related to other outstanding indebtedness of the borrowers, the Company and the Operating Partnership, the occurrence of which, after any applicable cure period, would permit MetLife, among other things, to accelerate payment of all amounts outstanding under the MetLife Term Loans and to exercise its remedies with respect to the pledged collateral, including foreclosure and sale of the Company’s properties that collateralize the MetLife Term Loans.

Farm Credit of Central Florida Mortgage Note

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$8.2 million to the Company with a maturity date of September 1, 2023. As of September 30, 2017 and December 31, 2016, approximately $5.1 million had been drawn down under this facility. Interest on Farm Credit Mortgage Note is payable quarterly and accrues at a floating rate that will be adjusted monthly to a rate per annum equal to the one-month LIBOR plus 2.6875%, which is subject to adjustment on the first day of September 2016, and on the first day of each month thereafter. Principal is payable quarterly commencing on October 1, 2018, with all remaining principal and outstanding interest due at maturity. Proceeds from the Farm Credit Mortgage Note are to be used for the acquisition and development of additional properties.

The Farm Credit Mortgage Note contains a number of customary affirmative and negative covenants, as well as a covenant requiring the Company to maintain a debt service coverage ratio of 1.25 to 1.00 beginning on December 31, 2019.

Prudential Note

On December 21, 2016, a wholly owned subsidiary of the Operating Partnership entered into a loan agreement with The Prudential Insurance Company of America (“Prudential”) which provides for a loan of approximately $6.6 million to the Company with a maturity date of July 1, 2019 (the “Prudential Note”). Interest on the Prudential Note is payable in cash semi-annually and accrues at a fixed rate of 3.20% per annum. Proceeds from the Prudential Note were used for the acquisition of additional properties.

Beginning on December 21, 2017, the Prudential Note requires the Company to maintain a loan to value no greater than 60%.

Rutledge Credit Facilities

Upon closing of the AFCO Mergers, by virtue of AFCO OP becoming a subsidiary of the Company, the Company assumed AFCO’s outstanding indebtedness under four loan agreements (the “Existing Rutledge Loan Agreements”) between AFCO OP and Rutledge Investment Company (“Rutledge”), which are further described below:

Loan Agreement, dated as of December 5, 2013, with respect to a $25,000,000 senior secured credit facility bearing interest at an annual rate of 3 month LIBOR plus 1.3%. The loan agreement requires AFCO OP to make quarterly interest payments on April 1, July 1, October 1 and January 1 of each calendar year. Additionally, the loan agreement requires AFCO OP to pay a quarterly non-usage fee equal to 0.25% per annum of the committed loan amount minus the average outstanding principal balance of the loan amount over the prior three-month period.

Loan Agreement, dated as of January 14, 2015, with respect to a $25,000,000 senior secured credit facility bearing interest at an annual rate of 3 month LIBOR plus 1.3%. The loan agreement requires AFCO OP to make quarterly interest payments on April 1, July 1, October 1 and January 1 of each calendar year. Additionally, the loan agreement requires AFCO OP to pay a quarterly non-usage fee equal to 0.25% per annum of the committed loan amount minus the average outstanding principal balance of the loan amount over the prior three-month period.

Loan Agreement, dated as of August 18, 2015, with respect to a $25,000,000 senior secured credit facility bearing interest at an annual rate of 3 month LIBOR plus 1.3%. The loan agreement requires AFCO OP to make quarterly interest payments on April 1, July 1, October 1 and January 1 of each calendar year. Additionally, the loan agreement requires AFCO OP to pay a quarterly non-usage fee equal to 0.25% per annum of the committed loan amount minus the average outstanding principal balance of the loan amount over the prior three-month period.

Loan Agreement, dated as of December 22, 2015, with respect to a $15,000,000 senior secured credit facility bearing interest at an annual rate of 3 month LIBOR plus 1.3%. The loan agreement requires AFCO OP to make quarterly interest payments on April 1, July 1, October 1 and January 1 of each calendar year. Additionally, the loan agreement requires AFCO OP to pay a quarterly non-usage fee equal to 0.25% per annum of the committed loan amount minus the average outstanding principal balance over the loan amount of the prior three-month period.

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In connection with the completion of the AFCO Mergers, on February 3, 2017, AFCO OP, in its capacity as a wholly owned subsidiary of the Company and the Operating Partnership, and Rutledge entered into the Second Amendment (the “Rutledge Amendment”) to the Existing Rutledge Loan Agreements. Pursuant to the Rutledge Amendment, among other things, the maturity dates for each of the Existing Rutledge Loan Agreements were extended to January 1, 2022 and the aggregate loan value under the Existing Rutledge Loan Agreements may not exceed 50% of the appraised value of the collateralized properties. Certain AFCO properties acquired by the Company in the Mergers serve as collateral under the Existing Rutledge Loan Agreements.

On February 3, 2017, the Company and the Operating Partnership each entered into guaranty agreements (the “Existing Loan Guarantees”) pursuant to which they unconditionally guarantee the obligations of AFCO OP under the Existing Loan Agreements.

In addition, in connection with the completion of the Mergers, on February 3, 2017, AFCO OP entered into a fifth loan agreement with Rutledge Investment Company (the “Fifth Rutledge Loan Agreement” and together with the Existing Rutledge Loan Agreements, as amended, the “Rutledge Loan Agreements”), with respect to a senior secured credit facility in the aggregate amount of $30.0 million, with a maturity date of January 1, 2022 and an annual interest rate of 3 month LIBOR plus 1.3%. The Fifth Rutledge Loan Agreement requires AFCO OP to make quarterly interest payments. Additionally, the Fifth Rutledge Loan Agreement contains certain customary affirmative and negative covenants, including (i) AFCO OP must pay a quarterly non-usage fee equal to 0.25% of the committed loan amount minus the average outstanding principal balance of the loan amount during the prior three-month period, (ii) AFCO OP must maintain a leverage ratio of 60% or less and (iii) the aggregate amounts outstanding under all of the Rutledge Loans may not exceed 50% of the aggregate appraised value of the properties serving as collateral under the Rutledge Loan Agreements.

On February 3, 2017, the Company and the Operating Partnership each entered into separate guarantees (the “Fifth Loan Guarantees” and together with the Existing Loan Guarantees, the “Guarantees”) whereby they are required to unconditionally guarantee AFCO OP’s obligations under the Fifth Rutledge Loan Agreement. As of September 30, 2017 $0 remains available under this facility.

As of September 30, 2017, the Company was in compliance with all covenants under the Rutledge Loan Agreements.

Debt Issuance Costs

Costs incurred by the Company in obtaining debt are deducted from the face amount of mortgage notes and bonds payable. During the nine months ended September 30, 2017, $0.8 million in costs were incurred in conjunction with the MetLife and Rutledge Term Loans. During the nine months ended September 30, 2016, the Company paid 4.0% of the principal amount of the MSD Bridge Loan, or $2,120,000, as additional interest on issuance. Debt issuance costs are amortized using the straight-line method, which approximates the effective interest method, over the respective terms of the related indebtedness. Any unamortized amounts upon early repayment of mortgage notes payable are written off in the period in which repayment occurs. Fully amortized deferred financing fees are removed from the balance sheet upon maturity or repayment of the underlying debt. Accumulated amortization of deferred financing fees was $0.5 million and $ 0.7 million as of September 30, 2017 and December 31, 2016, respectively.

Aggregate Maturities

As of September 30, 2017, aggregate maturities of long-term debt for the succeeding years are as follows:


($ in thousands)
Year Ending December 31,	Future Maturities
2017 (remaining three months)	$	60,400
2018		—
2019		6,481
2020		48,300
2021		—
Thereafter		350,653
	$	465,834

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Fair Value

The fair value of the mortgage notes payable is valued using Level 3 inputs under the hierarchy established by GAAP and is calculated based on a discounted cash flow analysis, using interest rates based on management’s estimates of market interest rates on long-term debt with comparable terms whenever the interest rates on the mortgage notes payable are deemed not to be at market rates. As of September 30, 2017 and December 31, 2016, the fair value of the mortgage notes payable was $458.9 million and $300.1 million, respectively.

Note 8—Commitments and Contingencies

On October 26, 2016, a purported class action lawsuit was filed in the Circuit Court for Baltimore County, Maryland against AFCO, seeking to represent a proposed class of all AFCO stockholders captioned Parshall v. American Farmland Company et. al., Case No. 24C16005745. The complaint names as defendants AFCO, the members of AFCO’s board of directors, AFCO OP, the Company, the Operating Partnership, Farmland Partners OP GP LLC, FPI Heartland LLC, FPI Heartland Operating Partnership, LP and FPI Heartland GP LLC. The complaint alleges that the AFCO directors breached their duties to AFCO in connection with the evaluation and approval of the AFCO Mergers. In addition, the complaint alleges, among other things, that AFCO, AFCO OP, the Company, Farmland Partners OP GP LLC, FPI Heartland LLC, FPI Heartland Operating Partnership, LP and FPI Heartland GP LLC aided and abetted those breaches of duties. On April 18, 2017, the court approved an order to dismiss the lawsuit without prejudice.

In April 2015, the Company entered into a lease agreement for office space. The lease expires on July 31, 2019. The lease commenced on June 1, 2015 and had an initial monthly payment of $10,032, which increased to $10,200 and $10,367 in June of 2016 and June of 2017, respectively, and increases annually thereafter. The Company also entered into two annual leases for farmland and office space on January 1, 2017 and February 2, 2017, respectively. As of September 30, 2017, future minimum lease payments are as follows:


($ in thousands)	Future rental
Year Ending December 31,	payments
2017 (remaining three months)	$	44
2018		126
2019		74
2020		—
2021		—
	$	244

A sale of any of the 38 properties contributed to the Company’s portfolio at the time of its initial public offering that would not provide continued tax deferral to Pittman Hough Farms is contractually restricted until the fifth (with respect to certain properties) or seventh (with respect to certain other properties) anniversary of the completion of the formation transactions, which occurred on April 16, 2014. Furthermore, if any such sale or defeasance is foreseeable, the Company is required to notify Pittman Hough Farms and to cooperate with it in considering strategies to defer or mitigate the recognition of gain under the Code, by any of the equity interest holders of the recipient of the Common units .

The Company has entered into lease agreements in which the Company agreed to complete certain improvement projects on one Florida farm and four South Carolina farms. As of September 30, 2017, future capital commitments associated with the projects are as follows:


($ in thousands)	Future Capital
Year Ending December 31,	Commitments
2017 (remaining three months)	$	4,311
2018		845
	$	5,156

As of September 30, 2017 the Company had the following properties under contract. As of the report date, none of the farm acquisitions below have closed, but are expected to close in Q4 2017 or Q1 2018 and are expected to be accounted for as asset acquisitions.

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($ in thousands)		Purchase
Farm State		Price
South Carolina	$	1,120
California		110,000
	$	111,120

See “Note 10—Subsequent Events” for properties put under contract subsequent to September 30, 2017.

Note 9—Stockholders’ Equity and Non-controlling Interests

Non-controlling Interests in Operating Partnership

The Company consolidates its Operating Partnership. As of September 30, 2017 and December 31, 2016, the Company owned an 85.1% and a 75.1% interest, respectively, in the Operating Partnership, and the remaining 14.9% and 24.9% interest, respectively, is included in non-controlling interests in Operating Partnership on the consolidated balance sheets. The non-controlling interests in the Operating Partnership are held in the form of Common units.

On or after 12 months of becoming a holder of Common units, unless the terms of an agreement with such Common unit holder dictate otherwise, each limited partner, other than the Company, has the right, subject to the terms and conditions set forth in the Second Amended and Restated Agreement of Limited Partnership of the Operating Partnership, as amended (the “Partnership Agreement”), to tender for redemption all or a portion of such Common units in exchange for cash, or in the Company’s sole discretion, for shares of the Company’s common stock on a one-for-one basis. If cash is paid in satisfaction of a redemption request, the amount will be equal to the number of tendered units multiplied by the fair market value of a share of the Company’s common stock on the date of the redemption notice (determined in accordance with, and subject to adjustment under, the terms of the Partnership Agreement). Any redemption request must be satisfied by the Company on or before the close of business on the tenth business day after the Company receives a notice of redemption. On March 27, 2017, the Company issued 129,174 shares of common stock in exchange for 129,174 Common units that had been tendered for redemption. On April 12, 2017, the Company issued 328,122 shares of common stock in exchange for 328,122 Common units that had been tendered for redemption. On July 10, 2017, the Company issued 118,634 shares of common stock in exchange for 118,634 Common units that had been tendered for redemption. On July 19, 2017, the Company issued 531,827 shares of common stock in exchange for 531,827 Common units that had been tendered for redemption. There were 4.5 million and 3.0 million outstanding Common units eligible to be tendered for redemption as of September 30, 2017 and December 31, 2016, respectively.

If the Company gives the limited partners notice of its intention to make an extraordinary distribution of cash or property to its stockholders or effect a merger, a sale of all or substantially all of its assets, or any other similar extraordinary transaction, each limited partner may exercise its right to tender its Common units for redemption, regardless of the length of time such limited partner has held its Common units.

Regardless of the rights described above, the Operating Partnership will not have an obligation to issue cash to a unitholder upon a redemption request if the Company elects to redeem Common units for shares of common stock. When a Common unit is redeemed, non-controlling interest in the Operating Partnership is reduced and stockholders’ equity is increased.

The Operating Partnership intends to continue to make distributions on each Common unit in the same amount as those paid on each share of the Company’s common stock, with the distributions on the Common units held by the Company being utilized to pay dividends to the Company’s common stockholders.

Pursuant to the consolidation accounting standard with respect to the accounting and reporting for non-controlling interest changes and changes in ownership interest of a subsidiary, changes in parent’s ownership interest when the parent retains controlling interest in the subsidiary should be accounted for as equity transactions. The carrying amount of the non-controlling interest shall be adjusted to reflect the change in its ownership interest in the subsidiary, with the offset to equity attributable to the parent. As a result of equity issuances including and subsequent to the IPO, changes in the

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ownership percentages between the Company’s stockholders’ equity and non-controlling interest in the Operating Partnership occurred during the nine months ended September 30, 2017 and September 30, 2016. During the nine months ended September 30, 2017, the Company increased the non-controlling interest in the Operating Partnership and decreased additional paid in capital by $3.1 million . During the nine months ended September 30, 2016, the Company decreased the non-controlling interest in the Operating Partnership and increased additional paid in capital by $4.3 million.

Redeemable Non-controlling Interests in Operating Partnership, Class A Common Units

On June 2, 2015, the Company issued 1,993,709 Common units in conjunction with an asset acquisition. Beginning on June 2, 2016, the Common units became eligible to be tendered for redemption for cash, or at the Company’s option, for shares of common stock on a one for one basis. In connection with its annual meeting of stockholders held on May 25, 2016, the Company obtained stockholder approval to issue shares of its common stock upon the redemption of 883,724 of the Common units (the “Excess Units”). Prior to such stockholder approval, the Company would have been required to redeem the Excess Units for cash. As the tender for redemption of the Excess Units for shares of common stock was outside of the control of the Company until May 25, 2016, these units were accounted for as mezzanine equity on the consolidated balance sheets as of December 31, 2015. After the redemption became within the control of the Company these excess units formed part of the non-controlling interests in the Operating Partnership. The Company elected to accrete the change in redemption value of the Excess Units subsequent to issuance and during the respective 12-month holding period, after which point the units were marked to redemption value at each reporting period.

Redeemable Non-controlling Interests in Operating Partnership, Series A preferred units

On March 2, 2016, the sole general partner of the Operating Partnership entered into Amendment No.1 (the “Amendment”) to the Partnership Agreement in order to provide for the issuance, and the designation of the terms and conditions, of the Series A preferred units. Under the Amendment, among other things, each Series A preferred unit has a $1,000 liquidation preference and is entitled to receive cumulative preferential cash distributions at a rate of 3.00% per annum of the $1,000 liquidation preference, which is payable annually in arrears on January 15 of each year or the next succeeding business day. The cash distributions are accrued ratably over the year and credited to redeemable non-controlling interest in operating partnership, preferred units on the balance sheet with the offset recorded to retained earnings. Dividends on Series A preferred units have been recorded through retained earnings in 2017 as opposed to additional paid in capital in 2016 due to the Company generating retained earnings during 2017. On March 2, 2016, 117,000 Series A preferred units were issued as partial consideration in the March 2, 2016 Illinois farm acquisition. Upon any voluntary or involuntary liquidation or dissolution, the Series A preferred units are entitled to a priority distribution ahead of Common units in an amount equal to the liquidation preference plus an amount equal to all distributions accumulated and unpaid to the date of such cash distribution. Total liquidation value of such preferred units as of September 30, 2017 and December 31, 2016 was $119.6 million and $119.9 million, respecti vely, including accrued distributions.

On or after March 2, 2026, the tenth anniversary of the closing of the Forsythe acquisition (the “Conversion Right Date”), holders of the Series A preferred units have the right to convert each Series A preferred unit into a number of Common units equal to (i) the $1,000 liquidation preference plus all accrued and unpaid distributions, divided by (ii) the volume-weighted average price per share of the Company’s common stock for the 20 trading days immediately preceding the applicable conversion date. All Common units received upon conversion may be immediately tendered for redemption for cash or, at the Company’s option, for shares of common stock on a one-for-one basis, subject to the terms and conditions set forth in the Partnership Agreement. Prior to the Conversion Right Date, the Series A preferred units may not be tendered for redemption by the Holder.

On or after March 2, 2021, the fifth anniversary of the closing of the Forsythe acquisition, but prior to the Conversion Right Date, the Operating Partnership has the right to redeem some or all of the Series A preferred units, at any time and from time to time, for cash in an amount per unit equal to the $1,000 liquidation preference plus all accrued and unpaid distributions.

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In the event of a Termination Transaction (as defined in the Partnership Agreement) prior to conversion, holders of the Series A preferred units generally have the right to receive the same consideration as holders of Common units and common stock, on an as-converted basis.

Holders of the Series A preferred units have no voting rights except with respect to (i) the issuance of partnership units of the Operating Partnership senior to the Series A preferred units as to the right to receive distributions and upon liquidation, dissolution or winding up of the Operating Partnership, (ii) the issuance of additional Series A preferred units and (iii) amendments to the Partnership Agreement that materially and adversely affect the rights or benefits of the holders of the Series A preferred units.

The Series A preferred units are accounted for as mezzanine equity on the consolidated balance sheet as the units are convertible and redeemable for shares at a determinable price and date at the option of the holder and upon the occurrence of an event not solely within the control of the Company.

The following table summarizes the changes in the Company’s redeemable non-controlling interest in the Operating Partnership for the nine months ended September 30, 2017 and 2016:


	Common			Series A Preferred Units
($ in thousands)	Redeemable Common units	Redeemable non-controlling interests		Redeemable Preferred units	Redeemable non-controlling interests
Balance at December 31, 2015	884	$	9,695	—	$	—
Issuance of redeemable Common units as partial consideration for real estate acquisition	—		—	117		117,000
Net loss attributable to non-controlling interest	—		(64)	—		—
Accrued distributions to non-controlling interest	—		(113)	—		2,057
Redemption of Common units for Common stock	(884)		(9,518)
Balance at September 30, 2016	—	$	—	117	$	119,057

Balance at December 31, 2016	—	$	—	117	$	119,915
Distributions paid to non-controlling interest	—		—	—		(2,915)
Accrued distributions to non-controlling interest	—		—	—		2,633
Redemption of Common units for common stock	—		—	—		—
Balance at September 30, 2017	—	$	—	117	$	119,633

Series B Participating Preferred Stock

On August 17, 2017, the Company and the Operating Partnership entered into an underwriting agreement with Raymond James & Associates, Inc. and Jefferies LLC, as representatives of the underwriters, pursuant to which the Company sold 6,037,500 shares of its newly designated Series B Participating Preferred Stock, at a public offering price of $25.00 per share, which is the Initial Liquidation Preference (as defined below) of the Series B Participating Preferred Stock.

Shares of Series B Participating Preferred Stock, which represent equity interests in the Company, generally have no voting rights and rank senior to the Company’s common stock with respect to dividend rights and rights upon liquidation. Each preferred share of Series B Participating Preferred Stock is entitled to receive cumulative preferential cash dividends at a rate of 6.00% per annum of the $25 liquidation preference, which is payable quarterly in arrears on the last day of March, June, September and December (the “Initial Liquidation Preference”). Upon liquidation, before any payment or distribution of the assets of the Company is made to or set apart for the holders of equity securities ranking junior to the Series B Participating Preferred Stock, the holders of the Series B Participating Preferred Stock will be entitled to receive the sum of:

(i)

the Initial Liquidation Preference,

(ii)

adjusted by an amount equal to 50% of the cumulative change in the estimated value of farmland in the states in which the Company owned farmland as of June 30, 2017 (measured by reference to a publicly available report released annually by the National Agricultural Statistics Board, the Agricultural Statistics Board and the U.S. Department of Agriculture) (the “FVA Adjustment”), and

(iii)

all accrued and unpaid dividends, subject to a 9.0% cap on total return (the “Final Liquidation Preference”).

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After September 30, 2021, but prior to September 30, 2024, the Company at its option, may redeem all, but not less than all, of the then-outstanding shares of Series B Participating Preferred Stock at any time, for cash or for shares of common stock at a price equal to the Final Liquidation Preference plus an amount equal to the product of:

(i)

the Final Liquidation Preference, and

(ii)

the average change in land values in states in which the Company owned farmland as of June 30, 2017 over the immediately preceding four years and multiplied by a constant percentage of 50% and prorated for the number of days between the most recent release of the publicly available land value report used to calculate the FVA Adjustment (if such amount is positive) (the “Premium Amount”) .

At any time on or after September 30, 2024, the Company, at its option, may redeem or convert to shares of common stock all, but not less than all, of the then-outstanding shares of Series B Participating Preferred Stock at the redemption price per share equal to:

(i)

the Initial Liquidation Preference, plus

(ii)

the FVA Amount, plus

(iii)

any accrued and unpaid dividends.

The total rate of return on shares of the Series B Participating Preferred Stock is subject to a cap such that the total rate of return, when considering the Initial Liquidation Preference, the FVA Adjustment and the Premium Amount plus accrued and unpaid dividends, will not exceed 9.0%.

In connection with the issuance of the Series B Participating Preferred Stock, the sole general partner of the Operating Partnership entered into Amendment No. 2 to the Partnership Agreement in order to provide for the issuance, and the designation of the terms and conditions, of newly classified 6.00% Series B participating preferred units of limited partnership interest in the Operating Partnership (“Series B participating preferred units”), the economic terms of which are identical to those of the Series B Participating Preferred Stock. The Company contributed the net proceeds from the offering of the Series B Participating Preferred Stock to the Operating Partnership in exchange for 6,037,500 Series B participating preferred units.

The shares of Series B Participating Preferred Stock are accounted for as mezzanine equity on the consolidated balance sheet as the Series B Participating Preferred Stock is convertible and redeemable for common shares at a determinable price and date at the option of the Company and upon the occurrence of an event not solely within the control of the Company.

During the three and nine months ended September 30, 2017 the balance recorded in mezzanine equity relating to the Series B Participating Preferred Stock was $144.2 million. During the quarter the Company declared and paid dividends relating to the Series B Participating Preferred Stock of $1.1 million.

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Distributions

The Company’s board of directors declared and paid the following distributions to common stockholders and holders of Common units for the nine months ended September 30, 2017 and the year ended December 31, 2016:


Fiscal Year	Declaration Date	Record Date	Payment Date	Distributions per Common Share/OP unit
2017	July 19, 2017	October 2, 2017	October 13, 2017		0.1275
	May 9, 2017	June 30, 2017	July 14, 2017	$	0.1275
	February 22, 2017	April 1, 2017	April 14, 2017		0.1275
				$	0.3825

2016	March 8, 2016	April 1, 2016	April 15, 2016	$	0.1275
	May 9, 2016	July 1, 2016	July 15, 2016		0.1275
	August 3, 2016	September 30, 2016	October 14, 2016		0.1275
	November 3, 2016	January 2, 2017	January 13, 2017		0.1275
				$	0.5100

Additionally, in connection with the 3.00% cumulative preferential distribution on the Series A preferred units, the Company has accrued $2.6 million in distributions payable as of September 30, 2017. The distributions are payable annually in arrears on January 15 of each year.

In connection with the Series B Participating Preferred Stock, the Company paid $1.1 million in distributions on September 30, 2017 to stockholders of record as of September 15, 2017. As long as shares of Series B Participating Preferred Stock are outstanding, distributions on such shares are payable on the last day of March, June, September and December of each year to stockholders of record on the 15th day of such months.

In general, common stock cash dividends declared by the Company will be considered ordinary income to stockholders for income tax purposes. From time to time, a portion of the Company’s dividends may be characterized as qualified dividends, capital gains or return of capital.

Stock Repurchase Plan

On March 15, 2017, the Company’s board of directors approved a program to repurchase up to $25,000,000 in shares of the Company’s common stock. Repurchases under this program may be made from time to time, in amounts and prices as the Company deems appropriate. Repurchases may be made in open market or privately negotiated transactions in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended, subject to market conditions, applicable legal requirements, trading restrictions under the Company’s insider trading policy and other relevant factors. This stock repurchase plan does not obligate the Company to acquire any particular amount of common stock, and it may be modified or suspended at any time at the Company's discretion. The Company expects to continue to fund repurchases under the program using cash on hand. The Company repurchased 841,257 shares for $7.4 million at an average price of $8.85 per share during the three and nine months ended September 30, 2017.

Equity Incentive Plan

On May 3, 2017, the Company’s stockholders approved the Second Amended and Restated Farmland Partners Inc. 2014 Equity Incentive Plan (the “Second Amended Plan”). The Second Amended Plan, among other things, increased the aggregate number of shares of the Company’s common stock reserved for issuance from 615,070, which was available under the First Amended and Restated Farmland Partners Inc. Equity Incentive Plan (together with the Second Amended Plan, the “Plan”), to 1,265,851 (including the 529,195 shares of restricted common stock that have been issued under the Plan and 750,000 shares reserved for future issuance). As of September 30, 2017, there were 0.7 million of shares available for future grant under the Plan.

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The Company may issue equity-based awards to officers, non-employee directors, employees, independent contractors and other eligible persons under the Plan. The Plan provides for the grant of stock options, share awards (including restricted stock and restricted stock units), stock appreciation rights, dividend equivalent rights, performance awards, annual incentive cash awards and other equity based awards, including LTIP units, which are convertible on a one-for-one basis into Common units. The terms of each grant are determined by the compensation committee of the board of directors.

From time to time, the Company may award restricted shares of its common stock under the Plan, as compensation to officers, employees, non-employee directors and non-employee consultants. The shares of restricted stock vest over a period of time as determined by the compensation committee of the Company’s board of directors at the date of grant. The Company recognizes compensation expense for awards issued to officers, employees and non-employee directors for restricted shares of common stock on a straight-line basis over the vesting period based upon the fair market value of the shares on the date of issuance, adjusted for forfeitures. The Company recognizes compensation expense for awards issued to non-employee consultants in the same period and in the same manner as if the Company paid cash for the underlying services.

A summary of the nonvested shares as of September 30, 2017 is as follows:


		Weighted
	Number of	average grant
(shares in thousands)	shares	date fair value
Unvested at December 31, 2015	145	$	13.87
Granted	119		10.78
Vested	(70)		13.96
Forfeited	(5)		11.09
Unvested at September 30, 2016	189		11.97

Unvested at December 31, 2016	189		11.98
Granted	205		11.30
Vested	(108)		12.84
Forfeited	(7)		10.97
Unvested at September 30, 2017	279	$	11.16

For the nine months ended September 30, 2017 and 2016, the Company recognized $1.1 million and $ 0.9 million , respectively, of stock-based compensation expense related to restricted stock awards. As of September 30, 2017 and December 31, 2016, there were $2.4 million and $ 1.2 million , respectively, of total unrecognized compensation costs related to nonvested stock awards, which are expected to be recognized over weighted-average periods of 1.3 years. The change in fair value of the shares issued to non-employees to be issued upon vesting is remeasured at the end of each reporting period and is recorded in general and administrative expenses on the consolidated statements of operations. The remaining restricted stock awards issued to non-employees vested during the nine months ended September 30, 2017, resulting in no change in fair value for the three months ended September 30, 2017.

At-the-Market Offering Program (the “ATM Program”)

On September 15, 2015, the Company entered into equity distribution agreements under which the Company may issue and sell from time to time, through sales agents, shares of its common stock having an aggregate gross sales price of up to $25 million. During the nine months ended September 30, 2016, the Company had sold an aggregate of 844,207 shares of common stock for aggregate proceeds, net of fees, of approximately $9.3 million at a weighted average price per share of $11.06. During the nine months ended September 30, 2017, the Company had made no sales under the ATM Program.

Deferred Offering Costs

Deferred offering costs include incremental direct costs incurred by the Company in connection with proposed or actual offerings of securities. At the completion of a securities offering, the deferred offering costs are charged ratably as a reduction of the gross proceeds of equity as stock is issued. If an offering is abandoned, the previously deferred offering costs will be charged to operations in the period in which the offering is abandoned. The Company incurred $0.5 million and $0.1 million in offering costs during the nine months ended September 30, 2017 and 2016, respectively. As of

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September 30, 2017 and December 31, 2016, the Company had $0.3 million and $0.2 million respectively in deferred offering costs related to regulatory, legal, accounting and professional service costs associated with proposed or completed offerings of securities.

Earnings (Loss) per Share

The computation of basic and diluted loss per share is as follows:


	For the three months ended				For the nine months ended
	September 30,				September 30,
(in thousands except per share amounts)	2017		2016		2017		2016
Numerator:
Net profit (loss) attributable to Farmland Partners Inc.	$	2,216	$	70	$	2,277	$	(412)
Less: Nonforfeitable distributions allocated to unvested restricted shares		(36)		(24)		(116)		(72)
Less: Distributions on redeemable non-controlling interests in Operating Partnership, Common units		—		—		—		(113)
Less: Distributions on redeemable non-controlling interests in Operating Partnership, Series A preferred units		(877)		(887)		(2,632)		(2,057)
Less: Dividends on Series B Participating Preferred Stock		(1,082)		—		(1,082)		—
Net income (loss) attributable to common stockholders	$	221	$	(841)	$	(1,553)	$	(2,654)

Denominator:
Weighted-average number of common shares - basic		32,862		13,683		30,695		12,663
Conversion of Series A preferred units (1)		—		—		—		—
Conversion of Series B Participating Preferred Stock (1)		—		—		—		—
Unvested restricted shares (1)		—		—		—		—
Weighted-average number of common shares - diluted		32,862		13,683		30,695		12,663

Earnings (Loss) per share attributable to common stockholders - basic	$	0.01	$	(0.06)	$	(0.05)	$	(0.21)
Earnings (Loss) per share attributable to common stockholders - diluted	$	0.01	$	(0.06)	$	(0.05)	$	(0.21)

(1)

Anti-dilutive for the three and nine months ended September 30, 2017 and 2016.

Unvested shares of the Company’s restricted common stock are, and until May 26, 2016, the Excess Units were, considered participating securities which require the use of the two-class method for the computation of basic and diluted earnings per share. On May 25, 2016, the Company obtained stockholder approval allowing the Company to issue shares of common stock upon the redemption of the Excess Units, which allowed the Company to remove the Excess Units from the mezzanine section of the consolidated balance sheets. As such, as of September 30, 2017, the Company no longer has any Common units included as redeemable non-controlling interests outstanding in the mezzanine section of the consolidated balance sheets.

The limited partners’ outstanding Common units (which may be redeemed for shares of common stock) and Excess Units have been excluded from the diluted earnings per share calculation as there would be no effect on the amounts since the limited partners’ share of income would also be added back to net income. Any anti-dilutive shares have been excluded from the diluted earnings per share calculation. Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. Accordingly, distributed and undistributed earnings attributable to unvested restricted shares (participating securities) have been excluded, as applicable, from net income or loss attributable to common stockholders utilized in the basic and diluted earnings per share calculations. Net income or loss figures are presented net of non-controlling interests in the earnings per share calculations. The weighted average number of Common units held by the non-controlling interest was 6.1 million and 5.3 million for the nine months ended September 30, 2017 and 2016, respectively.

The outstanding Series A preferred units are non-participating securities and thus are included in the computation of diluted earnings per share on an as-if converted basis. Any anti-dilutive shares are excluded from the diluted earnings per share calculation. For the three and nine months ended September 30, 2017 and September 30, 2016, these shares were not included in the diluted earnings per share calculation as they would be anti-dilutive.

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The outstanding shares of Series B Participating Preferred Stock are non-participating securities and thus are included in the computation of diluted earnings per share on an as-if converted basis. Any anti-dilutive shares are excluded from the diluted earnings per share calculation. For the three and nine months ended September 30, 2017, these shares were not included in the diluted earnings per share calculation as they would be anti-dilutive.

For the three months ended September 30, 2016 and nine months ended September 30, 2017 and 2016, diluted weighted average common shares do not include the impact of 0.3 million and 0. 2 million, respectively, unvested compensation-related shares as they would have been anti-dilutive. The effect of these items on diluted earnings per share for the three months ended September 30, 2017 has been reflected in the dilutive earnings per share calculation.

The following equity awards and units are outstanding as of September 30, 2017 and December 31, 2016, respectively.


	September 30, 2017	December 31, 2016
Shares	32,353	17,163
Common units	5,724	5,692
Unvested restricted stock	279	188
	38,356	23,043

Note 10—Subsequent Events

Subsequent to the quarter end the Company repurchased an additional 279,210 shares at an average price of $9.15 for total consideration of $2.6 million.

On October 23, 2017 the Company fully repaid the remaining $5.5 million in principal on Farmer Mac Bond #2 which was due and payable on that date. The Company now has a total of $129.3 million outstanding under the Farmer Mac Facility, $54.9 million of which matures prior to the end of 2017.

On October 31, 2017, the Company completed one acquisition which is expected to be accounted for as an asset acquisition in South Carolina. Consideration totaled $2.2 million and was paid in cash.

On October 31, 2017, the Company issued 984,365 shares of common stock in exchange for 984,365 Common units that had been tendered for redemption.

On November 8, 2017, the Company’s board of directors declared a distribution of $0.1275 per share of common stock and Common unit payable on January 16, 2018 to holders of record as of January 1, 2018.

On November 8, 2017, the Company’s board of directors declared a quarterly cash dividend of $0.375 per share of 6.00% Series B Participating Preferred Stock payable on January 2, 2017 to stockholders of record as of December 15, 2017.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes included elsewhere in this Quarterly Report, as well as the information contained in our Annual Report on Form 10-K for the year ended December 31, 2016, filed with the Securities Exchange Commission (“SEC”) on February 23, 2017, which is accessible on the SEC’s website at www.sec.gov. References to “we,” “our,” “us” and “our company” refer to Farmland Partners Inc., a Maryland corporation, together with our consolidated subsidiaries, including Farmland Partners Operating Partnership, L.P., a Delaware limited partnership (the “Operating Partnership”), of which we are the sole member of the sole general partner.

Special Note Regarding Forward-Looking Statements

We make statements in this Quarterly Report on Form 10-Q that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). These forward-looking statements include, without limitation, statements concerning our proposed acquisition of American Farmland Company, projections, predictions, expectations, estimates, or forecasts as to our business, financial and operational results, future economic performance, crop yields and prices and future rental rates for our properties, as well as statements of management’s goals and objectives and other similar expressions concerning matters that are not historical facts. When we use the words “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates” or similar expressions or their negatives, as well as statements in future tense, we intend to identify forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, beliefs and expectations, such forward-looking statements are not predictions of future events or guarantees of future performance and our actual results could differ materially from those set forth in the forward-looking statements. Some factors that might cause such a difference include the following: general volatility of the capital markets and the market price of our common stock, changes in our business strategy, availability, terms and deployment of capital, our ability to refinance existing indebtedness at or prior to maturity on favorable terms, or at all, availability of qualified personnel, changes in our industry, interest rates or the general economy, the degree and nature of our competition, our ability to identify new acquisitions and close on pending acquisitions , and the other factors described in the risk factors described in Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2016 and in other documents that we file from time to time with the SEC. Given these uncertainties, undue reliance should not be placed on such statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions, or changes in other factors affecting forward-looking information, except to the extent required by law.

Overview and Background

We are an internally managed real estate company that owns and seeks to acquire high-quality farmland located in agricultural markets throughout North America. As of the date of this Quarterly Report on Form 10-Q, we own farms with an aggregate of approximately 154,164 acres in Alabama, Arkansas, California, Colorado, Florida, Georgia, Illinois, Kansas, Louisiana, Michigan, Mississippi, Nebraska, North Carolina, South Carolina, South Dakota, Texas, and Virginia. As of the date of this Quarterly Report on Form 10-Q, approximately 75% of the acres in our portfolio are used to grow primary crops, such as corn, soybeans, wheat, rice and cotton, and approximately 25% of the acres in our portfolio produce specialty crops, such as blueberries, vegetables, citrus, nuts and edible beans. We believe our portfolio gives investors exposure to the increasing global food demand trend in the face of growing scarcity of high quality farmland and will reflect the approximate breakdown of U.S. agricultural output between primary crops and animal protein (whose production relies principally on primary crops as feed), on one hand, and specialty crops, on the other.

In addition, in August 2015, we announced the launch of the FPI Loan Program, an agricultural lending product aimed at farmers, as a complement to our primary business of acquiring and owning farmland and leasing it to farmers. Under the FPI Loan Program, we make loans to third-party farmers (both tenant and non-tenant) to provide partial financing for

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working capital requirements and operational farming activities, farming infrastructure projects, and for other farming and agricultural real estate related purposes.

We were incorporated in Maryland on September 27, 2013, and we are the sole member of the general partner of the Operating Partnership, which is a Delaware limited partnership that was formed on September 27, 2013. All of our assets are held by, and our operations are primarily conducted through, the Operating Partnership and its wholly owned subsidiaries. As of September 30, 2017 we own a 85.1% interest in the Operating Partnership. See “Note 9 – Stockholders’ Equity and Non-controlling Interests” within the notes to the consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information regarding the non-controlling interests.

We have elected to be taxed as a real estate investment trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, commencing with our short taxable year ended December 31, 2014.

The following table sets forth our ownership of acreage by region:


Region (1)		Total Acres
Corn Belt		47,472
Delta & South		28,912
High Plains		31,503
Southeast		39,805
West Coast		6,472
		154,164

(1)

Corn Belt includes farms located in Illinois, Michigan, eastern Nebraska. Delta and South includes farms located in Arkansas, Louisiana, and Mississippi. High Plains includes farms located in Colorado, Kansas, western Nebraska, and Texas. Southeast includes farms located in Florida, Georgia, North Carolina, South Carolina, and Virginia. West Coast includes farms located in California.

We intend to continue to acquire additional farmland to achieve scale and further diversify our portfolio by geography, crop type and tenants. We also may acquire, and make loans secured by mortgages on, properties related to farming, such as grain storage facilities, grain elevators, feedlots, processing plants and distribution centers, as well as livestock farms or ranches. In addition, we engage directly in farming through FPI Agribusiness Inc., our taxable REIT subsidiary (the “TRS” or “FPI Agribusiness”), whereby we operate a small number of development properties (approximately 716 acres as of September 30, 2017) relying on custom farming contracts with local farm operators. Additionally, the TRS operates a volume purchasing program for participating tenants by working with suppliers to pool tenant purchasing power and create cost savings through bulk orders.

Our principal source of revenue is rent from tenants that conduct farming operations on our farmland. The majority of the leases that are in place as of the date of this Quarterly Report have fixed annual rental payments. Some of our leases have variable rents based on the revenue generated by our farm-operator tenants. We believe that this mix of fixed and variable rents will help insulate us from the variability of farming operations and reduce our credit-risk exposure to farm-operator tenants, while making us an attractive landlord in certain regions where variable leases are customary. However, we may be exposed to tenant credit risk and farming operation risks, particularly with respect to leases that do not require advance payment of 100% of the annual rent, leases for which the rent is based on a percentage of a tenant's farming revenues and leases with terms greater than one year.

In addition, an increasing number of our leases provide for crop share lease payments, which we only recognize revenue to the amount of the crop insurance minimum, the excess cannot be recognized as revenue until the tenant enters into a contract to sell their crop. Generally, we expect tenants to enter into contracts to sell their crop following the harvest of the crop.

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Recent Developments

Public Offering of Series B Participating Preferred Stock

On August 17, 2017, we entered into an underwriting agreement with Raymond James & Associates, Inc. and Jefferies LLC, as representatives of the underwriters, pursuant to which we sold 6,037,500 shares our newly designated 6.00% Series B Participating Preferred Stock, $0.01 par value per share, at a public offering price of $25.00 per share, which is the initial liquidation preference of the Series B Participating Preferred Stock.

Shares of Series B Participating Preferred Stock, which represent equity interests in the Company, generally have no voting rights and rank senior to the Company’s common stock with respect to dividend rights and rights upon liquidation. Each share of Series B Participating Preferred Stock entitled to receive cumulative preferential cash distributions at a rate of 6.00% per annum of the $25 liquidation preference, which is payable quarterly in arrears on the last day of March, June, September and December (the “Initial Liquidation Preference”). Upon liquidation, before any payment or distribution of the assets of the Company is made to or set apart for the holders of equity securities ranking junior to the Series B Participating Preferred Stock, the holders of the Series B Participating Preferred Stock will be entitled to receive the sum of:

(i)

the Initial Liquidation Preference,

(ii)

(iii)

all accrued and unpaid dividends, subject to a 9.0% cap on total return (the “Final Liquidation Preference”).

After September 30, 2021, but prior to September 30, 2024, we at our option, may redeem all, but not less than all, of the then-outstanding shares of Series B Participating Preferred Stock at any time, for cash or convert into shares of our common stock, at a price equal to the Final Liquidation Preference plus an amount equal to the product of:

(i)

the Final Liquidation Preference, and

(ii)

At any time on or after September 30, 2024, the Company, at its option, may redeem all, but not less than all, of the then-outstanding shares of Series B Participating Preferred Stock at the:

(i)

redemption price per share equal to the Initial Liquidation Preference, plus

(ii)

the FVA Amount, plus

(iii)

any accrued and unpaid dividends.

The total rate of return on shares of the Series B Participating Preferred Stock is subject to a cap such that the rate of return, when considering the Initial Liquidation Preference, the FVA Adjustment and the Premium Amount plus accrued and unpaid dividends, will not exceed 9.0%.

In connection with the issuance of the Series B Participating Preferred Sock, the sole general partner of the Operating Partnership entered into Amendment No. 2 to the Partnership Agreement in order to provide for the issuance, and the designation of the terms and conditions, of newly classified 6.00% Series B participating preferred units of limited partnership interest in the Operating Partnership, the economic terms of which are identical to those of the Series B Participating Preferred Stock. We contributed the net proceeds from the offering of the Series B Participating Preferred Stock to the Operating Partnership in exchange for 6,037,500 Series B participating preferred units. For more information about our Series B Participating Preferred Stock, see out Current Report on Form 8-K fied on August 16, 2017.

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Completed Acquisitions

AFCO Mergers

On February 2, 2017, we completed the previously announced merger with American Farmland Company (“AFCO”) at which time one of our wholly owned subsidiaries was merged with and into American Farmland Company L.P. (“AFCO OP”) with AFCO OP surviving as a wholly owned subsidiary of the Operating Partnership (the “Partnership Merger”), and AFCO merged with and into another one of our wholly owned subsidiaries with such wholly owned subsidiary surviving.

At the effective time of the Company Merger, each share of common stock of AFCO, par value $0.01 per share (“AFCO Common Stock”), issued and outstanding immediately prior to the effective time of the Company Merger (other than any shares of AFCO Common Stock owned by any wholly owned subsidiary of AFCO or by us or the Operating Partnership or any wholly owned subsidiary of us or the Operating Partnership), was automatically converted into the right to receive, subject to certain adjustments, 0.7417 shares of our common stock (the “Company Merger Consideration”). In addition, in connection with the Company Merger, each outstanding AFCO restricted stock unit that had become fully earned and vested in accordance with its terms was, at the effective time of the Company Merger, converted into the right to receive the Company Merger Consideration. We issued 14,763,604 shares of our common stock as consideration in the Company Merger and 17,373 shares of our common stock in respect of fully earned and vested AFCO restricted stock units.

At the effective time of the Partnership Merger, each Common unit of limited partnership interest in AFCO OP issued and outstanding immediately prior to the effective time of the Partnership Merger, was converted automatically into the right to receive, subject to certain adjustments, 0.7417 Common units. We issued 218,525 Common units as consideration in the Partnership Merger.

We believe that following the AFCO Mergers, our portfolio gives investors exposure to the increasing global food demand trend in the face of growing scarcity of high quality farmland and will reflect the approximate breakdown of U.S. agricultural output between primary crops and animal protein (whose production relies principally on primary crops as feed), on one hand, and specialty crops, on the other.

Acquisitions under Contract

On September 22, 2017, we entered into a purchase agreement to acquire three tree nut ranches in California for total consideration of $110 million in cash. The purchase agreement contains certain customary representations, warranties and covenants of the parties, and the acquisition of the Properties is expected to close in December 2017, subject to the satisfaction of certain customary closing conditions. In connection with the closing pursuant to the purchase agreement, the Company expects to enter into a 25-year triple-net lease agreement with the current owner on a revenue share basis with respect to the properties. During the term of the lease, the operator will be responsible for the operation, maintenance and improvements on the properties and will have a right of first refusal if we were to hold the Properties for sale. There can be no assurances that the acquisition will be completed, or that the lease will be entered into, on the expected timeline, on the expected terms or at all. We have signed a non-binding term sheet for a debt facility with a major financial institution to finance a portion of this acquisition. We can provide no assurances that we will be able to enter into the anticipated debt facility on the expected terms, on the expected timeline or at all.

On August 1, 2017 the Company contracted to acquire farmland in South Carolina for an approximate purchase price of $1.1 million. There can be no assurances that the acquisition will be completed on the expected timeline, on the expected terms or at all.

Prudential Termination Agreement

On February 18, 2017, we entered into a Termination Agreement (the “Termination Agreement”) with Prudential Capital Mortgage Company (“the Prudential Sub-Advisor”) pursuant to which we and the Prudential Sub-Advisor agreed to terminate, effective as of March 31, 2017, the Amended and Restated Sub-Advisory Agreement (the “Sub-

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Advisory Agreement”), dated as of October 23, 2015, by and among American Farmland Company, American Farmland Advisors, American Farmland Company L.P. and Prudential and certain related property management agreements (together with the Sub-Advisory Agreement, the “Prudential Agreements”).

The Termination Agreement provided that, as of March 31, 2017, Prudential no longer provides services to us under the Prudential Agreements. We paid the Prudential Sub-Advisor $1.6 million in cash, which is equal to the fee that would have been owed to Prudential for services through the quarter ended March 31, 2017, plus a termination fee of $0.2 million. The statement of operations impact to the Company for the nine month period ended September 30, 2017 totaled $0.7 million, which is included in property operating expenses, with the remaining $0.9 million being included in the accruals as a component of the purchase accounting surrounding the AFCO Mergers as this represented the costs incurred by AFCO prior to the AFCO Mergers.

Factors That May Influence Future Results of Operations and Farmland Values

The principal factors affecting our operating results and the value of our farmland include global demand for food relative to the global supply of food, farmland fundamentals and economic conditions in the markets in which we own farmland, and our ability to increase or maintain rental revenues while controlling expenses. Although farmland prices may show a decline from time to time, we believe that any reduction in U.S. farmland values overall is likely to be short-lived as global demand for food and agricultural commodities typically exceeds global supply. In addition, although prices for many crops experienced significant declines in 2014, 2015 and 2016, we do not believe that such declines represent a trend that will continue over the long term. Rather, we believe that long-term growth trends in global population, GDP per capita and farmland productivity will result in increased revenues per acre for primary crops over time.

Demand

We expect that global demand for food, driven primarily by significant increases in the global population and GDP per capita, will continue to be the key driver of farmland values. We further expect that global demand for most crops will continue to grow to keep pace with global population growth, which we anticipate will lead to either higher prices and/or higher yields and, therefore, higher rental rates on our farmland, as well as sustained growth in farmland values over the long-term. We also believe that growth in global GDP per capita, particularly in developing nations, will contribute significantly to increasing demand for primary crops. As global GDP per capita increases, the composition of daily caloric intake is expected to shift away from the direct consumption of primary crops toward animal-based proteins, which is expected to result in increased demand for primary crops as feed for livestock. According to the United Nations’ Food and Agriculture Organization (“UN FAO”), these factors are expected to require more than one billion additional tons of global annual grain production by 2050, a 45.5% increase from 2005-2007 levels and more than two times the 475 million tons of grain produced in the United States in 2014. Furthermore, we believe that, as GDP per capita grows, a significant portion of additional household income is allocated to food and that once individuals increase consumption of, and spending on, higher quality food, they will strongly resist returning to their former dietary habits, resulting in greater inelasticity in the demand for food. As a result, we believe that, as global demand for food increases, rental rates on our farmland and the value of our farmland will increase over the long-term. Global demand for corn and soybeans as inputs in the production of biofuels such as ethanol and soy diesel also could impact the prices of corn and soybeans, which, in the long-term, could impact our rental revenues and our results of operations. However, the success of our business strategy is not dependent on growth in demand for biofuels and we do not believe that demand for corn and soybeans as inputs in the production of biofuels will materially impact our results of operations or the value of our farmland, primarily because we believe that growth in global population and GDP per capita will be more significant drivers of global demand for primary crops over the long-term.

Supply

Global supply of agricultural commodities is driven by two primary factors, the number of tillable acres available for crop production and the productivity of the acres being farmed. Although the amount of global cropland in use has gradually increased over time, growth has plateaued over the last 20 years. Cropland area continues to increase in developing countries, but after accounting for expected continuing cropland loss, the UN FAO projects only 171 million acres will be added from 2005-2007 to 2050, a 4.3% increase. Furthermore, the National Academy of Sciences of the

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United States of America estimates that farmland lost to development worldwide is on average 1.8 times more productive than the new farmland coming to production. In comparison, world population is expected to grow over the same period to 9.7 billion, a nearly 40% increase. While we expect growth in the global supply of arable land, we also expect that landowners will only put that land into production if increases in commodity prices and the value of farmland cause landowners to benefit economically from using the land for farming rather than alternative uses. We also believe that decreases in the amount of arable land in the United States and globally as a result of increasing urbanization will partially offset the impact of additional supply of farmland. The global supply of food is also impacted by the productivity per acre of tillable land. Historically, productivity gains (measured by average crop yields) have been driven by advances in seed technology, farm equipment, irrigation techniques and chemical fertilizers and pesticides. Furthermore, we expect the increasing shortage of water in many irrigated growing regions in the United States and other growing regions around the globe, often as a result of new water restrictions imposed by laws or regulations, to lead to decreased productivity growth on many acres and, in some cases, cause yields to decline on those acres.

Conditions in Our Existing Markets

Our portfolio spans numerous farmland markets and crop types, which provides us broad diversification across conditions in these markets. Across all regions, farmland acquisitions continue to be dominated by buyers who are existing farm owners and operators; institutional and investor acquirors remain a small fraction of the industry. We generally see firm demand for high quality properties across all regions and crop types.

With regard to leasing dynamics, we believe quality farmland in the United States has a near-zero vacancy rate as a result of the supply and demand fundamentals discussed above. Our view is that rental rates for farmland are a function of farmland operators’ view of the long-term profitability of farmland, and that many farm operators will compete for farmland even during periods of decreased profitability due to the scarcity of farmland available to rent. In particular, we believe that due to the relatively high fixed costs associated with farming operations (including equipment, labor and knowledge), many farm operators in some circumstances will rent additional acres of farmland when it becomes available in order to allocate their fixed costs over additional acres. Furthermore, because it is generally customary in the industry to provide the existing tenant with the opportunity to re-lease the land at the end of each lease term, we believe that many farm operators will rent additional land that becomes available in order to control the ability to farm that land in future periods. As a result, in our experience, many farm operators will aggressively pursue rental opportunities in their operable geographic area, even when the farmer anticipates lower current returns or short-term losses.

In our primary row crop farmland, we see flat to modestly lower rent rates in connection with 2017 lease renewals. This is consistent with, on the one hand, headwinds in primary crop markets and, on the other, tenant demand for leasing high quality farmland. In 2016, we had a higher portion than in 2015 of our fixed cash leases providing for payment of 50% of a year’s rent after harvest rather than substantially all of the lease paid prior to harvest, as compared to 2016. This structure better matches operator cash flows. Given per acre revenue on our primary crop farmland and crop insurance levels, we do not expect that this structure materially changes tenant credit risk. Due to the short term nature of most of our primary crop leases, we believe that a recovery of crop prices and farm profitability will be reflected relatively rapidly in our revenues via increases in rent rates. Across specialty crops, operator profitability generally remains healthy. Participating lease structures are common in many specialty crops and base lease rates are consistent with 2016.

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Lease Expirations

Farm leases are generally short-term in nature. As of September 30, 2017, our portfolio had the following lease expirations as a percentage of approximate acres leased and annual minimum cash rents:


($ in thousands)
Year Ending December 31,	Approximate Acres	% of Approximate Acres		Annual Cash Rents		% of Annual Cash Rents
2017 (remaining three months)	30,797	20.0	%	$	6,000	19.3	%
2018	33,978	22.1	%		6,567	21.1	%
2019	57,525	37.4	%		11,045	35.5	%
2020	11,663	7.6	%		4,272	13.7	%
2021	13,184	8.6	%		2,329	7.5	%
2022 and beyond	6,734	4.3	%		860	2.9	%
	153,881	100.0	%	$	31,073	100.0	%

As of September 30, 2017, we had 72,681 acres for which lease payments are based on a percentage of farming revenues and 716 acres that are leased to our TRS, which are not included in the table above. From time to time, we may enter into recreational leases on our farms. We expect market rents in the coming year to be flat. Since lease renewal periods are exercisable at the option of the lessee, the preceding table presents future lease expirations during the initial lease term only.

Rental Revenues

Our revenues are primarily generated from renting farmland to operators of farming businesses. Our leases have terms ranging from one to ten years. Although the majority of our leases do not provide the tenant with a contractual right to renew the lease upon its expiration, we believe it is customary to provide the existing tenant with the opportunity to renew the lease, subject to any increase in the rental rate that we may establish. If the tenant elects not to renew the lease at the end of the lease term, the land will be offered to a new tenant.

The leases for the majority of the properties in our portfolio provide that tenants must pay us at least 50% (and often 100%) of the annual rent in advance of each spring planting season. As a result, we collect a significant portion of total annual rents in the first calendar quarter of each year. We believe our use of leases pursuant to which at least 50% of the annual rent is payable in advance of each spring planting season mitigates the tenant credit risk associated with the variability of farming operations that could be adversely impacted by poor crop yields, weather conditions, mismanagement, undercapitalization or other factors affecting our tenants. Prior to acquiring farmland property, we take into consideration the competitiveness of the local farm-operator tenant environment in order to enhance our ability to quickly replace a tenant that is unwilling to renew a lease or is unable to pay a rent payment when it is due. Some of our leases provide for a reimbursement of the property taxes we pay. We expect that, going forward, a progressively smaller percentage of our leases will provide for such a reimbursement.

Expenses

Substantially all of our farm leases are structured in such a way that we are responsible for major maintenance, certain insurance and taxes (which are sometimes reimbursed to us by our tenants), while our tenant is responsible for minor maintenance, water usage and all of the additional input costs related to farming operations on the property, such as seed, fertilizer, labor and fuel. We expect that substantially all of the leases for farmland we acquire in the future will continue to be structured in a manner consistent with substantially all of our existing leases. As the owner of the land, we generally only bear costs related to major capital improvements permanently attached to the property, such as irrigation systems, drainage tile, grain storage facilities, permanent plantings or other physical structures customary for farms. In cases where capital expenditures are necessary, we typically seek to offset, over a period of multiple years, the costs of such capital expenditures by increasing rental rates. We also incur the costs associated with maintaining liability and casualty insurance.

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We incur costs associated with running a public company, including, among others, costs associated with employing our personnel and compliance costs. We incur costs associated with due diligence and acquisitions, including, among others, travel expenses, consulting fees, and legal and accounting fees. We also incur costs associated with managing our farmland. The management of our farmland, generally, is not labor or capital intensive because farmland generally has minimal physical structures that require routine inspection and maintenance, and our leases, generally, are structured to require the tenant to pay many of the costs associated with the property. Furthermore, we believe that our platform is scalable, and we do not expect the expenses associated with managing our portfolio of farmland to increase significantly as the number of farm properties we own increases over time. Rather, we expect that as we continue to add additional farmland to our portfolio, we will be able to achieve economies of scale, which will enable us to reduce our operating costs per acre .

Crop Prices

Our exposure to short-term crop price declines is limited as most of our leases do not factor in per bushel prices and instead are set on a rental rate per acre basis. This approach is common throughout agriculture for several reasons. This approach recognizes that the value of leased land to a tenant is more closely linked to the total revenue produced on the property which is driven by crop yield and crop price. This approach simplifies the administrative requirements for the landlord and the tenant significantly. This approach supports the tenants’ desire to maintain access to their leased farms which are in short supply, a concept expanded upon below, by providing the landlord consistent rents. Crop price exposure is also limited because tenants also benefit from the fundamental revenue hedging that occurs when large crops mitigate the lower crop prices triggered by their large crop. Similarly, smaller crops have a tendency to increase the crop prices triggered and help increase revenue even when confronted by a smaller crop. Further risk mitigation is available to tenants, and indirectly to us, via crop insurance and hedging programs implemented by tenants. Our TRS takes advantage of this risk mitigation programs and strategies also.

We believe quality farmland in the United States has a near-zero vacancy rate as a result of the supply and demand fundamentals. Our view is that rental rates for farmland are a function of farmland operators’ view of the long-term profitability of farmland, and that many farm operators will compete for farmland even during periods of decreased profitability due to the scarcity of farmland available to rent. In particular, we believe that due to the relatively high fixed costs associated with farming operations (including equipment, labor and knowledge), many farm operators in some circumstances will rent additional acres of farmland when it becomes available in order to allocate their fixed costs over additional acres. Furthermore, because it is generally customary in the industry to provide the existing tenant with the opportunity to re-lease the land at the end of each lease term, we believe that many farm operators will rent additional land that becomes available in order to control the ability to farm that land in future periods. As a result, in our experience, many farm operators will aggressively pursue rental opportunities in their operable geography, even when the farmer anticipates lower current returns or short-term losses.

The value of a crop is affected by many factors that can differ on a yearly basis. Weather conditions and crop disease in major crop production regions worldwide creates a significant risk of price volatility, which may either increase or decrease the value of the crops that our tenants produce each year. Other material factors adding to the volatility of crop prices are changes in government regulations and policy, fluctuations in global prosperity, fluctuations in foreign trade and export markets, and eruptions of military conflicts or civil unrest. Prices for many primary crops, particularly corn, experienced meaningful declines in 2014, 2015, and 2016. We do not believe such declines represent a trend over the long term. Rather, we believe those declines represented a combination of correction to historical norms (adjusted for inflation) and high yields induced by farmer planting decisions and unusually favorable weather patterns. We expect that continued long-term growth trends in global population and GDP per capita will result in increased prices for primary crops over time. We expect pricing across specialty crops to generally remain firm relative to 2016 as U.S. and global consumer demand remains strong and supply is broadly balanced to demand. Although annual rental payments under the majority of our leases are not based expressly on the quality or profitability of our tenants' harvests, any of these factors could adversely affect our tenants' ability to meet their obligations to us and our ability to lease or re-lease properties on favorable terms.

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Interest Rates

We expect that future changes in interest rates will impact our overall operating performance by, among other things, increasing our borrowing costs. While we may seek to manage our exposure to future changes in rates through interest rate swap agreements or interest rate caps, portions of our overall outstanding debt will likely remain at floating rates. In addition, a sustained material increase in interest rates may cause farmland prices to decline if the rise in real interest rates (which is defined as nominal interest rates minus the inflation rate) is not accompanied by rises in the general levels of inflation. However, our business model anticipates that the value of our farmland will increase, as it has in the past, at a rate that is equal to or greater than the rate of inflation, which may in part offset the impact of rising interest rates on the value of our farmland, but there can be no guarantee that this appreciation will occur to the extent that we anticipate or at all.

Critical Accounting Policies and Estimates

Except as set forth in Note 1 to the consolidated financial statements included in this Quarterly Report on Form 10-Q, there have been no changes to our critical accounting policies disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.

New or Revised Accounting Standards

For a summary of the new or revised accounting standards please refer to “Note 1 – Organization and Significant Accounting Policies” within the notes to the consolidated financial statements included in this Quarterly Report on Form 10-Q.

Results of Operations

Comparison of the three months ended September 30, 2017 to the three months ended September 30, 2016


	For the three months ended September 30,
($ in thousands)	2017		2016		$ Change		% Change
OPERATING REVENUES:
Rental income	$	11,107	$	6,164	$	4,943	80	%
Tenant reimbursements		474		112		362	323	%
Other revenue		465		670		(205)	(31)	%
Total operating revenues		12,046		6,946		5,100	73	%

OPERATING EXPENSES
Depreciation, depletion and amortization		2,107		419		1,688	403	%
Property operating expenses		1,400		548		852	155	%
Acquisition and due diligence costs		180		1,712		(1,532)	(89)	%
General and administrative expenses		1,707		1,587		120	8	%
Legal and accounting		450		330		120	36	%
Other operating expenses		88		160		(72)	(45)	%
Total operating expenses		5,932		4,756		1,176	25	%
OPERATING INCOME		6,114		2,190		3,924	179	%

OTHER (INCOME) EXPENSE:
Other income		(135)		(72)		(63)	88	%
(Gain) loss on disposition of assets		(44)		—		(44)	NM
Interest expense		3,683		2,065		1,618	78	%
Total other expense		3,504		1,993		1,511	76	%

Net income before income tax expense		2,610		197		2,413	1,225	%

Income tax expense		—		97		(97)	NM

NET INCOME	$	2,610	$	100	$	2,510	2,510	%

NM=Not Meaningful

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Our rental income for the period presented was impacted by the two acquisitions completed in the last quarter of 2016 and, to a greater extent, the 15 acquisitions and the AFCO Mergers completed in the first three quarters of 2017. To highlight the effect of changes due to acquisitions, we have separately discussed the rental income for the same-property portfolio, which includes only properties owned and operated for the entirety of both periods presented. The same-property portfolio for the periods presented includes 110,828 acres, which represents 72% of our current portfolio on an acreage basis.

Total rental income under cash leases for the same-property portfolio decreased to $4.9 million for the three months ended September 30, 2017, from $5.9 million for the three months ended September 30, 2016, as a result of average annual rent for the same-property portfolio decreasing year over year to $165 per acre in the third quarter of 2017 from $199 in the comparative three-month period ended September 30, 2016. In the fourth quarter of 2016 we recognized $6.5 million in revenue in connection with the termination of certain leases. Had we recognized such revenue through the remaining life of the cancelled leases, the average annual rent for the same property portfolio would have decreased from $199 in the third quarter of 2016 to $187 in the third quarter of 2017. This decrease is primarily due to the fact that more of our leases now require the tenant to pay a portion of its rent through crop share payments rather than through fixed cash rental payments. Under GAAP, we cannot recognize crop share revenue until our tenant has a contractual agreement to sell the crop, therefore such revenue is not included in our results of operations for the three months ended September 30, 2017. Management does not believe that same-property rent comparisons for periods shorter than the full year are necessarily indicative of the expected full year comparison because the majority of bonus and crop share rent payments are expected in the fourth quarter.

Total rental income increased $4.9 million, or 80%, for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016, resulting from the completion of 17 acquisitions and the AFCO Mergers after September 30, 2016. For the three months ended September 30, 2017, the average annual cash rent for the entire portfolio remained consistent at $202 per acre compared to the same period in 2016.

Revenues recognized from tenant reimbursement of property taxes increased 323%. This increase is the result of an increased number of leases requiring reimbursement of property taxes to the Company by the tenant.

Other revenues totaled $0.5 million during the three months ended September 30, 2017, compared to $0.7 million in the comparative three-month period ended September 30, 2016. The $0.5 million recognized in the three months ended September 30, 2017 consisted of $0.2 million realized on crop sales from our farming operation in the TRS, in addition to $0.3 million earned on interest and amortization of net loan fees from notes receivable compared to $0.6 million and $0.1 million, respectively, recognized in the three months ended September 30, 2016. Mortgage notes receivable under the FPI Loan Program totaled $7.0 million as of September 30, 2017 compared to $2.9 million as of September 30, 2016.

Depreciation, depletion and amortization expense increased $1.7 million, or 403%, for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016, as a result of acquiring approximately $0.3 million in depreciable assets in the last quarter of 2016 and an additional $84.6 million in depreciable assets during the first three quarters of 2017. This change was primarily driven by an increased investment in permanent crops. Additionally, approximately $0.7 million was invested in property improvements during the last quarter of 2016 along with $11.7 million in property improvements during the first three quarters of 2017.

Property operating expenses increased $0.9 million, or 155%, for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016, primarily related to property taxes attributable to properties acquired since September 30, 2016.

Acquisition and due diligence costs totaled $0.2 million for the three months ended September 30, 2017 as compared to $1.7 million recognized in the same period of the prior year. Prior year expenses largely related to cost associated with the acquisition of AFCO. The acquisition and due diligence costs recognized in the three months ended September 30, 2017 primarily consisted of $0.1 million of continued expense related to the AFCO Mergers as well as $0.1 million of land acquisition costs related to potential acquisitions that were not pursued further.

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General and administrative expenses increased $0.1 million, or 8%, for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016. The increase in general and administrative expenses was largely a result of increased costs related to our continued growth. During the three months ended September 30, 2017, employee compensation expenses increased $0.1 million which includes an increase in employee benefits expenses, as compared with the same period in 2016, due to an increase in the number of employees from 15 as of September 30, 2016 to 16 as of September 30, 2017.

Legal and accounting expenses increased $0.1 million, or 36%, for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016, primarily as a result of the continued growth of our portfolio and general corporate matters.

Other income increased $0.1 million, or 88%, for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016, primarily due to higher interest income on bank accounts.

Interest expense increased $1.6 million, or 78%, for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016. This increase is the result of an increase in our outstanding borrowings from $303.3 million as of September 30, 2016 to $465.8 million as of September 30, 2017 and increased interest rates. The increase in our total borrowings was primarily driven by the use of debt financing to acquire new properties as well as the debt assumed in the AFCO Mergers.

Comparison of the nine months ended September 30, 2017 to the nine months ended September 30, 2016


	For the Nine Months Ended September 30,
($ in thousands)	2017		2016		$ Change		% Change
OPERATING REVENUES:
Rental income	$	28,381	$	16,462	$	11,919	72	%
Tenant reimbursements		1,230		276		954	346	%
Other revenue		1,044		931		113	12	%
Total operating revenues		30,655		17,669		12,986	73	%

OPERATING EXPENSES
Depreciation, depletion and amortization		5,651		1,102		4,549	413	%
Property operating expenses		4,399		1,529		2,870	188	%
Acquisition and due diligence costs		878		1,818		(940)	(52)	%
General and administrative expenses		5,840		4,770		1,070	22	%
Legal and accounting		1,151		882		269	30	%
Other operating expenses		363		248		115	46	%
Total operating expenses		18,282		10,349		7,933	77	%
OPERATING INCOME		12,373		7,320		5,053	69	%

OTHER (INCOME) EXPENSE:
Other income		(157)		(133)		(24)	18	%
(Gain) loss on disposition of assets		48		—		48	NM
Interest expense		9,852		7,869		1,983	25	%
Total other expense		9,743		7,736		2,007	26	%

Net income (loss) before income tax expense		2,630		(416)		3,046	(732)	%

Income tax expense		—		97		(97)	NM

NET INCOME (LOSS)	$	2,630	$	(513)	$	3,143	(613)	%

NM=Not Meaningful

Our rental income for the period presented was impacted by the two acquisitions completed in the last quarter of 2016 and, to a greater extent, the 15 acquisitions and the AFCO Mergers completed in the first three quarters of 2017. To highlight the effect of changes due to acquisitions, we have separately discussed the rental income for the same-property portfolio, which includes only properties owned and operated for the entirety of both periods presented. The same-property portfolio for the periods presented includes 74,420 acres, which represents 48% of our current portfolio on an acreage basis.

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Total rental income under cash leases for the same-property portfolio decreased to $8.0 million for the nine months ended September 30, 2017, from $12.0 million for the nine months ended September 30, 2016, as a result of average annual rent for the same-property portfolio decreasing year over year to $145 per acre in the first three quarters of 2017 from $215 in the comparative nine-month period ended September 30, 2016. In the fourth quarter of 2016 we recognized $6.5 million in revenue in connection with the termination of certain leases. Had we recognized such revenue through the remaining life of the cancelled leases, the average annual rent for the same property portfolio would have decreased from $215 in the first three quarters of 2016 to $179 in the first three quarters of 2017. This decrease is primarily due to the fact that more of our leases now require the tenant to pay a portion of its rent through crop share payments rather than through fixed cash rental payments. Under GAAP, we cannot recognize crop share revenue until our tenant has a contractual agreement to sell the crop, therefore such revenue is not included in our results of operations for the nine months ended September 30, 2017. Management does not believe that same-property rent comparisons for periods shorter than the full year are necessarily indicative of the expected full year comparison because the majority of bonus and crop share rent payments are expected in the fourth quarter.

Total rental income increased $11.9 million, or 72%, for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, resulting entirely from the completion of 17 acquisitions and the AFCO Mergers after September 30, 2016. For the nine months ended September 30, 2017, the average annual cash rent for the entire portfolio remained consistent at $202 per acre compared to the same period in 2016.

Revenues recognized from tenant reimbursement of property taxes increased 346%. This increase is the result of an increased number of leases requiring reimbursement of property taxes to the Company by the tenant .

Other revenues totaled $1.0 million during the nine months ended September 30, 2017, compared to $0.9 million in the comparative nine-month period ended September 30, 2016. The $1.0 million recognized in the nine months ended September 30, 2017 consisted of $0.6 million realized on crop sales from our farming operation in the TRS, in addition to $0.4 million earned on interest and amortization of net loan fees from notes receivable compared to $0.8 million and $0.1 million, respectively, recognized in the nine months ended September 30, 2016. Mortgage notes receivable under the FPI Loan Program totaled $7.0 million as of September 30, 2017 compared to $2.9 million as of September 30, 2016.

Depreciation, depletion and amortization expense increased $4.5 million, or 413%, for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, as a result of acquiring approximately $0.3 million in depreciable assets in the last quarter of 2016 and an additional $84.6 million in depreciable assets during the first three quarters of 2017. This change was primarily driven by an increased investment in permanent crops.Additionally, approximately $0.7 million was invested in property improvements during the last quarter of 2016 along with $11.7 million in property improvements during the first three quarters of 2017.

Property operating expenses increased $2.9 million, or 188%, for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, primarily related to property taxes attributable to properties acquired since September 30, 2016. The increase in property operating expenses also includes an increase in expense relating to the Prudential Agreements assumed in the AFCO Mergers and subsequently terminated as of March 31, 2017, totaling $0.7 million compared to no such costs in the same period in 2016.

Acquisition and due diligence costs totaled $0.9 million for the nine months ended September 30, 2017 as compared to $1.8 million recognized in the same period of the prior year. Prior year costs largely related to the acquisition of AFCO. The acquisition and due diligence costs recognized in the nine months ended September 30, 2017 primarily consisted of $0.5 million of costs related to the AFCO Mergers, $0.2 million of land acquisition costs related to potential acquisitions that were not pursued further, and $0.2 million of miscellaneous acquisition and due diligence expenses.

General and administrative expenses increased $1.1 million, or 22%, for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016. The increase in general and administrative expenses was largely a result of increased costs related to our continued growth. During the nine months ended September 30, 2017, employee compensation expenses increased $0.9 million which includes an increase in employee benefits expenses, as compared with the same period in 2016, due to an increase in the number of employees from 15 as of September 30, 2016 to 16 as of September 30, 2017. During the nine months ended September 30, 2017, our public company costs increased due to increased investor relations, regulatory, compliance activity and general and administrative activity. This activity

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amounted to an increase of $0.2 million during the nine months ended September 30, 2017 compared to the same period in 2016.

Legal and accounting expenses increased $0.3 million, or 30%, for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, primarily as a result of increased costs related to transactions, including the AFCO Mergers, the continued growth of our portfolio and general corporate matters.

Other operating expenses totaling $0.4 million during the nine months ended September 30, 2017 is related to cost of crop sales on the $0.6 million of revenue recognized on crop sales from our TRS’s farming operations, compared to other operating expenses totaling $0.2 million during the nine months ended September 30, 2016 related to cost of crop sales on the $0.8 million of revenue recognized on crop sales in that period.

Other income increased $0.02 million, or 18%, for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, primarily due to higher interest on bank accounts.

Interest expense increased $2.0 million, or 25%, for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016. This increase resulted from an increase in our outstanding borrowings from $303.3 million as of September 30, 2016 to $465.8 million as of September 30, 2017 and increased interest rates, which was offset by the absence of additional interest expense during the nine months ended September 30, 2017 related to interest and amortization of deferred loan fees associated with the $53.0 million Bridge Loan compared to $2.4 million during the nine months ended September 30, 2016. The increase in our total borrowings was primarily driven by the use of debt financing to acquire new properties as well as the debt assumed in the AFCO Mergers.

Liquidity and Capital Resources

Overview

Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay any outstanding borrowings, fund and maintain our assets and operations, make distributions to our stockholders and to Common unitholders, and other general business needs.

Our short-term liquidity requirements consist primarily of funds necessary to acquire additional farmland and make other investments consistent with our investment strategy, make principal and interest payments on outstanding borrowings, make distributions necessary to qualify for taxation as a REIT and fund our operations. Our sources of funds primarily will be cash on hand, operating cash flows and borrowings from prospective lenders. As at September 30, 2017 the Company had $129.3 million in cash on hand.

During the remainder of 2017, $54.9 million of our borrowings will mature. Any cash that we use to satisfy our outstanding debt obligations will reduce the amounts available to acquire additional farms, which could adversely affect our growth prospects. As of the date of this report, we have $3.1 million in capacity available under the Farm Credit of Central Florida Mortgage Note (as defined below). To date, we have repayed all 2017 maturities under the Famer Mac Facility using cash from the Series B Participating Preferred Stock offering. We have signed a non-binding term sheet with a major financial institution for a debt facility, which we intend to use to refinance the debt due to mature in 2017. The Company has also signed a non-binding term sheet for a debt facility with a major financial institution to finance a portion of the California property acquisition committed to during the quarter. However, we can provide no assurances that we will be able to enter into a binding agreement to refinance or secure the debt on similar terms or at all and thus alternative sources of capital may be necessary. As of September 30, 2017, we had $465.8 million of debt, which may expose us to the risk of default under our debt obligations , restrict our operations and our ability to grow our business and revenues and restrict our ability to pay distributions to our stockholders.

On August 17, 2017, we completed an underwritten public offering of 6,037,500 shares of Series B Participating Preferred Stock which generated net proceeds of $144.5 million. We intend to use the proceeds from the offering to partially fund our acquisition of the California properties discussed under “—Recent Developments—Acquisitions under Contract” and for future farmland acquistions in accordance with our investment strategy and for general corporate

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purposes. The Company has also used part of the proceeds to make initial debt repayments for maturing bonds under the Farmer Mac Facility, we have signed a non-binding term sheet with a major financial institution for a debt facility, which we intend to use to refinance the remaining debt due to mature in 2017 and to replace cash used from the Series B Participating Preferred Stock offering initially used to make bond repayments.

In addition to utilizing current and any future available borrowings, we entered into equity distribution agreements on September 15, 2015 in connection with the ATM Program, under which the Company has issued and sold from time to time, through the sales agents, shares of our common stock having an aggregate gross sales price of up to $25 million. Through September 30, 2017, the Company has generated $11.1 million in net cash proceeds under the ATM Program which is intended to provide cost-effective financing alternatives in the capital markets. We intend to use the net proceeds from the ATM Program, if any, for future farmland acquisitions in accordance with our investment strategy and for general corporate purposes, which may also include originating loans to farmers under our loan program. We only intend to utilize the ATM Program if the market price of our common stock reaches levels which are deemed appropriate by our board of directors.

Consolidated Indebtedness

Farmer Mac Facility

We are party to the Amended and Restated Bond Purchase Agreement, dated as of March 1, 2015 and amended as of June 2, 2015 and August 3, 2015 (the “Bond Purchase Agreement”), with Federal Agricultural Mortgage Corporation (“Farmer Mac”) and Farmer Mac Mortgage Securities Corporation, a wholly owned subsidiary of Farmer Mac, as bond purchaser (the “Purchaser”), regarding a secured note purchase facility (the “Farmer Mac Facility”) that has a maximum borrowing capacity of $165.0 million. Pursuant to the Bond Purchase Agreement, the Operating Partnership may, from time to time, issue one or more bonds to the Purchaser that will be secured by pools of mortgage loans, which will, in turn, be secured by first liens on agricultural real estate owned by us. The mortgage loans may have effective loan-to-value of up to 60%. Prepayment of each bond issuance is not permitted unless otherwise agreed upon by all parties to the Bond Purchase Agreement.

On September 5, 2017 the Company repaid $20.7 million in principal which was due and payable on that date, as a result this facility has been fully repaid.

As of September 30, 2017 and December 31, 2016, we had approximately $134.8 million and approximately $155.5 million outstanding, respectively, under the Farmer Mac Facility. The Farmer Mac Facility is subject to our ongoing compliance with a number of customary affirmative and negative covenants, as well as financial covenants, including: a maximum leverage ratio of not more than 60%; a minimum fixed charge coverage ratio of 1.50 to 1.00; and a minimum tangible net worth requirement. We were in compliance with all applicable covenants at September 30, 2017. On October 23 2017, the Company repaid in full an additional bond with an outstanding principal amount of $5.5 million bringing the total amount of outstanding indebtedness under the Farmer Mac Facility to $129.3 million.

In connection with the Bond Purchase Agreement, on March 1, 2015, we and the Operating Partnership also entered into an amended and restated pledge and security agreement (the “Pledge Agreement”) in favor of the Purchaser and Farmer Mac, pursuant to which we and the Operating Partnership agreed to pledge, as collateral for the Farmer Mac Facility, all of their respective right, title and interest in (i) mortgage loans with a value at least equal to 100% of the aggregate principal amount of the outstanding bond held by the Purchaser and (ii) such additional collateral as necessary to have total collateral with a value at least equal to 110% of the outstanding notes held by the Purchaser. In addition, we agreed to guarantee the full performance of the Operating Partnership’s duties and obligations under the Pledge Agreement.

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Bridge Loan

On February 29, 2016, two wholly owned subsidiaries of the Operating Partnership (together, the “Bridge Borrower”) entered into a term loan agreement (the “Bridge Loan Agreement”) with MSD FPI Partners, LLC, an affiliate of MSD Partners, L.P. (the “Bridge Lender”), that provided for a loan of $53.0 million (the “Bridge Loan”), the proceeds of which were used primarily to fund the cash portion of the consideration for the acquisition of the Forsythe farms, which was completed on March 2, 2016. During the nine months ended September 30, 2016, we accrued and paid debt issuance costs on the Bridge Loan totaling $173,907, and interest totaling $2,271,867, of which $2,120,000, or 4.0%, of the Bridge Loan’s principal amount was considered additional interest paid on issuance. The Bridge Loan was paid in full, including accrued interest, and without prepayment penalty, on March 29, 2016 using proceeds from the MetLife Term Loans, as described below.

MetLife Term Loans

On March 29, 2016, five wholly owned subsidiaries of the Operating Partnership entered into a loan agreement (the “First MetLife Loan Agreement” and together with the Second MetLife Loan Agreement, the “MetLife Loan Agreements”) with Metropolitan Life Insurance Company (“MetLife”), which provides for a total of $127.0 million of term loans, comprised of (i) a $90.0 million term loan (“Term Loan 1”), (ii) a $16.0 million term loan (“Term Loan 2”) and (iii) a $21.0 million term loan (“Term Loan 3” and, together with Term Loan 1 and Term Loan 2, the “Initial MetLife Term Loans” and, together with Term Loan 4, Term Loan 5, Term Loan 6 and Term Loan 7 (described below), the “MetLife Term Loans”). The proceeds of the Initial MetLife Term Loans were used to repay existing debt (including amounts outstanding under the Bridge Loan), to acquire additional properties and for general corporate purposes. Each Initial MetLife Term Loan is collateralized by first lien mortgages on certain of our properties.

On June 29, 2016, five wholly owned subsidiaries of the Operating Partnership entered into a loan agreement (the “Second MetLife Loan Agreement”) with MetLife, which provides for a loan of approximately $15.7 million to the Company with a maturity date of June 29, 2026 (“Term Loan 4”). Interest on Term Loan 4 is payable semi-annually and accrues at a floating rate that will be adjusted quarterly to a rate per annum equal to the greater of (a) the three-month LIBOR plus an initial floating rate spread of 1.750%, which may be adjusted by MetLife on each of September 29, December 29, March 29 and June 29 of each year to an interest rate equal to the greater of (a) the three month LIBOR plus the floating rate spread or (b) 2.00% per annum. Term Loan 4 initially bears interest at a rate of 2.39% per annum until September 29, 2016, and on September 29, 2016 the rate changed to 2.60% per annum. Effective March 29, 2017, the Company exercised its option to convert the interest rate on Term Loan 4 from a floating rate to an adjustable rate. The new adjustable rate is 3.48% which may be adjusted by MetLife on each of March 29, 2020 and March 29, 2023. Proceeds from Term Loan 4 were used to acquire additional properties and for general corporate purposes.

Interest on Term Loan 1 is payable semi-annually and accrues at a floating rate that will be adjusted quarterly to a rate per annum equal to the greater of (a) the three-month LIBOR plus an initial floating rate spread of 1.750%, which may be adjusted by MetLife on each of March 29, 2019, March 29, 2022 and March 29, 2025 to an interest rate consistent with interest rates quoted by MetLife for substantially similar loans secured by real estate substantially similar to the Company’s properties securing Term Loan 1 or (b) 2.000% per annum. Term Loan 1 bore interest at a rate of 2.40% per annum until September 29, 2016 and on September 29, 2016 the rate changed to 2.60% per annum. Effective March 29, 2017, the Company exercised its option to convert the interest rate on Term Loan 4 from a floating rate to an adjustable rate. The new adjustable rate is 3.48% which may be adjusted by MetLife on each of March 29, 2020 and March 29, 2023. Subject to certain conditions, we may at any time during the term of Term Loan 1 elect to have all or any portion of the unpaid balance of Term Loan 1 bear interest at a fixed rate that is initially established by the lender in its sole discretion that may be adjusted from time to time to an interest rate consistent with interest rates quoted by MetLife for substantially similar loans secured by real estate substantially similar to the Company’s properties securing Term Loan 1. On any floating rate adjustment date, we may prepay any portion of Term Loan 1 that is not subject to a fixed rate without penalty.

Interest on Term Loan 2 and Term Loan 3 is payable semi-annually and accrues at an initial rate of 2.66% per annum, which may be adjusted by MetLife on each of March 29, 2019, March 29, 2022 and March 29, 2025 to an interest rate consistent with interest rates quoted by MetLife for substantially similar loans secured by real estate substantially similar to our properties securing Term Loan 2 and Term Loan 3.

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On January 12, 2017, five wholly owned subsidiaries of the Operating Partnership, entered into a loan agreement (the “Fifth MetLife Loan Agreement”) with MetLife which provides for a loan of approximately $8.4 million to the Company with a maturity date of January 12, 2027 (“Term Loan 5”). Interest on Term Loan 5 is payable semi-annually and accrues at a 3.26% per annum fixed rate, and may be adjusted by MetLife on each of January 12, 2020, January 12, 2023 and January 12, 2026 at the option of the Lender to a rate that is consistent with similar loans. Proceeds from Term Loan 5 were used to acquire additional properties and for general corporate purposes.

On February 14, 2017, a wholly owned subsidiary of the Operating Partnership, entered into a loan agreement (the “Sixth MetLife Loan Agreement”) with MetLife which provides for a loan of approximately $27.2 million to the Company with a maturity date of February 14, 2027 (“Term Loan 6”). Interest on Term Loan 6 is payable semi-annually and accrues at a 3.21% per annum fixed rate, and may be adjusted by MetLife on each of February 14, 2020, February 14, 2023 and February 14, 2026 at the option of the Lender to a rate that is consistent with similar loans. Proceeds from Term Loan 6 were used to acquire additional properties.

In connection with the Term Loan 6, on February 14, 2017, the Company and the Operating Partnership each entered into a separate guaranty (the “Term Loan 6 Guaranties”) whereby the Company and the Operating Partnership jointly and severally agreed to unconditionally guarantee all of the borrowers’ obligations under the Sixth MetLife Loan Agreement.

On June 7, 2017, a wholly owned subsidiary of the Operating Partnership entered into a loan agreement (the “Seventh MetLife Loan Agreement”) with MetLife which provides for a loan of approximately $21.3 million to the Company with a maturity date of June 7, 2027 (“Term Loan 7”). Interest on Term Loan 7 is payable semi-annually and accrues at a 3.45% per annum fixed rate, and may be adjusted by MetLife on each of June 7, 2020, June 7, 2023 and June 7, 2026 at the option of the Lender to a rate that is consistent with similar loans. Proceeds from Term Loan 7 were used to acquire additional properties.

In connection with the Term Loan 7, on June 7, 2017, the Company and the Operating Partnership each entered into a separate guaranty (the “Term Loan 7 Guaranties” and, together with the Initial MetLife Guaranties, the Term Loan 4 Guaranties, the Term Loan 5 Guaranties and the Term Loan 6 Guaranties, the “MetLife Guaranties”) whereby the Company and the Operating Partnership jointly and severally agreed to unconditionally guarantee all of the borrowers’ obligations under the Seventh MetLife Loan Agreement.

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Farm Credit of Central Florida Mortgage Note

On August 31, 2016, a wholly owned subsidiary of the Operating Partnership entered into a loan agreement (the “Farm Credit Mortgage Note”) with Farm Credit of Central Florida (“Farm Credit”) which provides for a loan of approximately $8.2 million to the Company with a maturity date of September 1, 2023. As of September 30, 2017 and December 31, 2016, approximately $5.1 million had been drawn down under this facility. Interest on the Farm Credit Mortgage Note is payable quarterly and accrues at a floating rate that will be adjusted monthly to a rate per annum equal to the one-month LIBOR plus 2.6875% which is subject to adjustment on the first day of September 2016, and on the first day of each month thereafter. Principal is payable quarterly commencing on October 1, 2018, with all remaining principal and outstanding interest due at maturity. Proceeds from Farm Credit Mortgage Note are to be used for the acquisition and development of additional land.

The Farm Credit Mortgage Note contains a number of customary affirmative and negative covenants, as well as a covenant requiring us to maintain a debt service coverage ratio of 1.25 to 1.00 beginning on December 31, 2019.

Prudential Note

Beginning on December 21, 2017, the Prudential Note requires the Company to maintain a loan to value no greater than 60%.

Rutledge Credit Facilities

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In connection with the completion of the AFCO Mergers, on February 3, 2017, AFCO OP, in its capacity as a wholly owned subsidiary of the Company and the Operating Partnership, and Rutledge entered into the Second Amendment and the “Rutledge Amendment”) to the Existing Rutledge Loan Agreements. Pursuant to the Rutledge Amendment, among other things, the maturity dates for each of the Existing Rutledge Loan Agreements were extended to January 1, 2022 and the aggregate loan value under the Existing Rutledge Loan Agreements may not exceed 50% of the appraised value of the collateralized properties. Certain AFCO properties acquired by the Company in the AFCO Mergers serve as collateral under the Existing Rutledge Loan Agreements.

On February 3, 2017, the Company and the Operating Partnership each entered into guaranty agreements (the “Existing Loan Guarantees”) pursuant to which they will unconditionally guarantee the obligations of AFCO OP under the Existing Loan Agreements.

In addition, in connection with the Completion of the Mergers, on February 3, 2017, AFCO OP entered into a fifth loan agreement with Rutledge Investment Company (the “Fifth Rutledge Loan Agreement” and together with the Existing Rutledge Loan Agreements, as amended, the “Rutledge Loan Agreements”), with respect to a senior secured credit facility in the aggregate amount of $30 million, with a maturity date of January 1, 2022 and an annual interest rate of 3 month LIBOR plus 1.3%. The Fifth Rutledge Loan Agreement requires AFCO OP to make quarterly interest payments. Additionally, the Fifth Rutledge Loan Agreement contains certain customary affirmative and negative covenants, including (i) AFCO OP must pay a quarterly non-usage fee equal to 0.25% of the committed loan amount minus the average outstanding principal balance of the loan amount during the prior three-month period, (ii) AFCO OP must maintain a leverage ratio of 60% or less and (iii) the aggregate amounts outstanding under all of the Rutledge Loans may not exceed 50% of the aggregate appraised value of the properties serving as collateral under the Rutledge Loan Agreements.

As of the date of this Quarterly Report, there is an aggregate of $120.0 million outstanding under Rutledge Loan Agreements. As of September 30, 2017, we were in compliance with all covenants under the Rutledge Loan Agreements.

Sources and Uses of Cash

The following table summarizes our cash flows for the nine months ended September 30, 2017 and 2016:


	For the nine months ended September 30,
(in thousands)	2017		2016
Net cash (used in) provided by operating activities	$	(3,401)	$	3,614
Net cash used in investing activities	$	(114,200)	$	(127,349)
Net cash provided by financing activities	$	199,733	$	117,410

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Comparison of the nine months ended September 30, 2017 to the nine months ended September 30, 2016

As of September 30, 2017, we had $129.3 million of cash compared to $17.2 million at September 30, 2016.

Cash Flows from Operating Activities

Net cash provided by operating activities decreased $7.0 million, primarily as a result of the following:

Receipt of $28.2 million in cash rents for the nine months ended September 30, 2017, as compared to receiving $16.3 million in cash rents in the nine months ended September 30, 2016;

An increase of $1.8 million in cash paid for interest as compared to the nine months ended September 30, 2016;

An increase of approximately $4.6 million in cash paid for other operating expenses as compared to the nine months ended September 30, 2016; and

Cash payments totaling $12.5 million made in relation to settling assumed obligations as part of the AFCO Mergers.

Cash Flows from Investing Activities

Net cash used for investing activities decreased $13.1 million primarily as a result of the following:

Completing 15 acquisitions and the AFCO Mergers during the nine months ended September 30, 2017 for aggregate cash consideration of $92.7 million, as compared to $122.4 million in aggregate cash consideration for 22 acquisitions during the nine months ended September 30, 2016;

An increase of $12.6 million in investments in real estate improvements as compared to the nine months ended September 30, 2016;

A $0.1 million decrease in principal on notes receivable received by the Company as compared to the nine months ended September 30, 2016;

A $3.9 million increase in notes receivable issued by the Company as compared to the nine months ended September 30, 2016.

Cash Flows from Financing Activities

Net cash provided by financing activities increased $82.3 million primarily as a result of the following:

Borrowings from mortgage notes payable decreased $99.0 million as compared to the borrowings during the nine months ended September 30, 2016;

Debt payments decreased $63.9 million as compared to the nine months ended September 30, 2016 which includes the pay-off of the $53.0 million Bridge Loan;

A $9.3 million decrease in proceeds from the At the Market offering as compared to the nine months ended September 30, 2016;

A $7.4 million increase in common stock repurchased as compared to the nine months ended September 30, 2016;

A $2.9 million increase in dividends paid on Series A preferred units as compared to the nine months ended September 30, 2016;

Increase of $5.7 million in dividends paid on common stock as compared to the nine months ended September 30, 2016;

Increase of $144.5 million in proceeds from issuance of the Series B Participating Preferred Stock as compared to the nine months ended September 30, 2016;

Increase of $1.1 million in dividends paid on Series B, Participating Preferred Stock as compared to the nine months ended September 30, 2016;

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An increase in distributions of $0.2 million to non-controlling interests as compared to the nine months ended September 30, 2016;

A $0.5 million increase in the payments associated with offering costs as compared to the nine months ended September 30, 2016.

Off-Balance Sheet Arrangements

As of September 30, 2017, we did not have any off-balance sheet arrangements.

Non-GAAP Financial Measures

Funds from Operations (“FFO”) and Adjusted Funds from Operations (“AFFO”)

We calculate FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts, or NAREIT. NAREIT defines FFO as net income (loss) (calculated in accordance with GAAP), excluding gains (or losses) from sales of depreciable operating property, plus real estate related depreciation, depletion and amortization (excluding amortization of deferred financing costs), and after adjustments for unconsolidated partnerships and joint ventures. FFO is a supplemental non-GAAP financial measure. Management presents FFO as a supplemental performance measure because it believes that FFO is beneficial to investors as a starting point in measuring our operational performance. Specifically, in excluding real estate related depreciation and amortization and gains and losses from sales of depreciable operating properties, which do not relate to or are not indicative of operating performance, FFO provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs. We believe that, as a widely recognized measure of the performance of REITs, FFO will be used by investors as a basis to compare our operating performance with that of other REITs.

However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our properties that result from use or market conditions nor the level of capital expenditures necessary to maintain the operating performance of improvements on our properties, all of which have real economic effects and could materially impact our results from operations, the utility of FFO as a measure of our performance is limited. In addition, other equity REITs may not calculate FFO in accordance with the NAREIT definition as we do, and, accordingly, our FFO may not be comparable to such other REITs’ FFO. Accordingly, FFO should be considered only as a supplement to net income as a measure of our performance. FFO should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to pay dividends or service indebtedness. FFO also should not be used as a supplement to or substitute for cash flow from operating activities computed in accordance with GAAP.

We do not, however, believe that FFO is the only measure of the sustainability of our operating performance. Changes in GAAP accounting and reporting rules that were put in effect after the establishment of NAREIT’s definition of FFO in 1999 result in the inclusion of a number of items in FFO that do not correlate with the sustainability of our operating performance. Therefore, in addition to FFO, we present AFFO and AFFO per share, fully diluted, both of which are non-GAAP measures. Management considers AFFO a useful supplemental performance metric for investors as it is more indicative of the Company’s operational performance than FFO. AFFO is not intended to represent cash flow or liquidity for the period, and is only intended to provide an additional measure of our operating performance. Even AFFO, however, does not properly capture the timing of cash receipts, especially in connection with full-year rent payments under lease agreements entered into in connection with newly acquired farms. Management considers AFFO per share, fully diluted to be a supplemental metric to GAAP earnings per share. AFFO per share, fully diluted provides additional insight into how our operating performance could be allocated to potential shares outstanding at a specific point in time. Management believes that AFFO is a widely recognized measure of the operations of REITs, and presenting AFFO will enable investors to assess our performance in comparison to other REITs. However, other REITs may use different methodologies for calculating AFFO and AFFO per share, fully diluted and, accordingly, our AFFO and AFFO per share, fully diluted may not always be comparable to AFFO and AFFO per share amounts calculated by other REITs. AFFO and AFFO per share, fully diluted should not be considered as an alternative to net income (loss) or earnings per share (determined in accordance with GAAP) as an indication of financial performance, or as an alternative to net income (loss) earnings per share (determined in accordance with GAAP) as a measure of our liquidity, nor are they indicative of funds available to fund our cash needs, including our ability to make distributions.

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AFFO is calculated by adjusting FFO to exclude or include the income and expenses that we believe are not reflective of the sustainability of our ongoing operating performance, as further explained below:

Real estate related acquisition and due diligence costs. Acquisition (including audit fees associated with these acquisitions) and due diligence costs are incurred for investment purposes and therefore, do not correlate with the ongoing operations of our portfolio. We believe that excluding these costs from AFFO provides useful supplemental information reflective of the realized economic impact of our leases, which is useful in assessing the sustainability of our operating performance. Acquisition and due diligence costs totaled $0.9 million and $1.8 million for the periods ended September 30, 2017, and 2016, respectively. Real estate related acquisition and due diligence costs for the period ended September 30, 2016 included $2.3 million in interest and loan fees associated with the short-term Bridge Loan and the Forsythe acquisition and as the interest and fees are a non-recurring item they have been excluded from the AFFO calculation. Included in the $2.3 million of interest and loan fees is only a portion of the interest, approximately $2.1 million, or 4% of the Bridge Loan's principal amount, which was considered additional interest paid on issuance. A portion of the audit fees we incur are directly related to acquisitions, which varies with the number and complexity of the acquisitions we evaluate and complete in a given period. As such, these costs do not correlate with the ongoing operations of our portfolio. Total acquisition related audit fees excluded from AFFO totaled $0.2 million and $0.1 million for the period ended September 30, 2017, and 2016, respectively. Also included in real estate related acquisition and due diligence costs for the period ended September 30, 2017 is $0.7 million in fees paid to the Prudential Sub-Advisor following the completion of the AFCO Mergers, including a $160,000 termination fee. We believe that excluding these costs from AFFO provides useful supplemental information reflective of the realized economic impact of our current acquisition strategy, which is useful in assessing the sustainability of our operating performance. These exclusions also improves comparability of our results over each reporting period and of our Company with other real estate operators.

Stock based compensation. Stock based compensation is a non-cash expense and therefore, does not correlate with the ongoing operations. We believe that excluding these costs from AFFO improves comparability of our results over each reporting period and of our Company with other real estate operators.

Indirect offering costs. Indirect offering costs are fees for services incurred by the Company to grow and maintain an active institutional investor presence. As we continue to acquire more farms, our ability to access capital through the equity markets will remain a critical component of our growth strategy. As of September 30, 2015, we began excluding indirect offering costs from AFFO as we believe it improves comparability of our results over each reporting period and of our Company with other real estate operators. Prior to this date the company did not incur indirect offering costs.

Distributions on Series A preferred units . Dividends on Series A preferred units, which are convertible into Common units on or after March 2, 2026, have a fixed and certain impact on our cash flow, thus they are subtracted from FFO. We believe this improves comparability of our Company with other real estate operators.

Dividends on Series B Participating Preferred Stock . Dividends on Series B Participating Preferred Stock, which may be redeemed for cash or converted into shares of common stock on or after September 30, 2021 , have a fixed and certain impact on our cash flow, thus they are subtracted from FFO. We believe this improves comparability of our Company with other real estate operators.

Common shares fully diluted. In accordance with GAAP, common shares used to calculate earnings per share are presented on a weighted average basis. Common shares on a fully diluted basis includes shares of common stock, Common units, redeemable Common units and unvested restricted stock outstanding at the end of the period on a share equivalent basis, because all shares are participating securities and thus share in the performance of the Company. The conversion of Series A preferred units is excluded from the calculation of common shares fully diluted as they are not participating securities, thus don’t share in the performance of the Company and their impact on shares outstanding is uncertain.

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The following table sets forth a reconciliation of net income (loss) to FFO, AFFO and net (loss) income available to common stockholders per share to AFFO per share, fully diluted, the most directly comparable GAAP equivalents, respectively, for the periods indicated below as previously reported (unaudited):


	For the three months ended September 30,				For the nine months ended September 30,
(in thousands except per share amounts)	2017		2016		2017		2016
Net income (loss)	$	2,610	$	100	$	2,630	$	(513)
Depreciation, depletion and amortization		2,107		419		5,651		1,102
FFO		4,717		519		8,281		589

Stock based compensation		309		333		1,091		889
Indirect equity offering costs		—		24		—		72
Real estate related acquisition and due diligence costs		250		1,735		1,760		4,172
Dividends on Series B Participating Preferred Stock and distributions on Series A preferred units		(1,959)		(887)		(3,714)		(2,057)
AFFO	$	3,317	$	1,724	$	7,418	$	3,665

AFFO per diluted weighted average share data:

AFFO weighted average common shares		38,997		19,711		37,118		18,576

Net income (loss) per share available to common stockholders	$	0.01	$	(0.06)	$	(0.05)	$	(0.21)
Income available to redeemable non-controlling interest and non-controlling interest in operating partnership		0.06		0.07		0.12		0.19
Depreciation, depletion and amortization		0.05		0.02		0.15		0.06
Stock based compensation		0.01		0.02		0.03		0.05
Real estate related acquisition and due diligence costs		0.01		0.09		0.05		0.22
Dividends on Series B Participating Preferred Stock and distributions on Series A preferred units		(0.05)		(0.05)		(0.10)		(0.11)
AFFO per diluted weighted average share	$	0.09	$	0.09	$	0.20	$	0.20

The following table sets forth a reconciliation of AFFO share information to basic weighted average common shares outstanding, the most directly comparable GAAP equivalent, for the periods indicated below (unaudited):


	For the three months ended September 30,		For the nine months ended September 30,
(in thousands)	2017	2016	2017	2016
Basic weighted average shares outstanding	32,862	13,683	30,695	12,663
Weighted average Common units on an as-if converted basis	5,846	5,840	6,139	5,265
Weighted average unvested restricted stock	289	188	284	177
Weighted average redeemable non-controlling interest in operating partnership	—	—	—	471
AFFO weighted average common shares	38,997	19,711	37,118	18,576

EBITDA and Adjusted EBITDA

Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is a key financial measure used to evaluate our operating performance but should not be construed as an alternative to operating income, cash flows from operating activities or net income, in each case as determined in accordance with GAAP. EBITDA is not a measure defined in accordance with GAAP. We believe that EBITDA is a standard performance measure commonly reported and widely used by analysts and investors in our industry. However, while EBITDA is a performance measure widely used across several industries, we do not believe that it correctly captures our business operating performance because it includes non-cash expenses and recurring adjustments that are necessary to better understand our business operating performance. Therefore, in addition to EBITDA, our management uses adjusted EBITDA (“Adjusted EBITDA”), a non-GAAP measure.

We further adjust EBITDA for certain additional items such as stock based compensation, indirect offering costs, real estate acquisition related audit fees and real estate related acquisition and due diligence costs (for a full discussion of these adjustments see AFFO adjustments discussed above) that we consider necessary to understand our operating performance. As of September 30, 2015, we began excluding indirect offering costs from EBITDA as we believe it improves comparability of our results over each reporting period and of our Company with other real estate operators. Prior to this date the Company had not incurred any indirect offering costs. We believe that Adjusted EBITDA provides useful

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supplemental information to investors regarding our ongoing operating performance that, when considered with net income and EBITDA, is beneficial to an investor’s understanding of our operating performance.

EBITDA and Adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

EBITDA and Adjusted EBITDA do not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;

EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;

EBITDA and Adjusted EBITDA do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;

Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for these replacements; and

Other companies in our industry may calculate EBITDA and Adjusted EBITDA differently than we do, limiting the usefulness as a comparative measure.

Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results of operations and using EBITDA and Adjusted EBITDA only as a supplemental measure of our performance.

The following table sets forth a reconciliation of our net income to our EBITDA and Adjusted EBITDA for the periods indicated below (unaudited):


	For the three months ended				For the nine months ended
	September 30,				September 30,
(in thousands)	2017		2016		2017		2016
Net income (loss)	$	2,610	$	100	$	2,630	$	(513)
Interest expense		3,683		2,065		9,852		7,869
Income tax expense		—		97		—		97
Depreciation, depletion and amortization		2,107		419		5,651		1,102
EBITDA	$	8,400	$	2,681	$	18,133	$	8,555

Stock-based compensation		309		333		1,091		889
Indirect equity offering costs		—		24		—		72
Real estate related acquisition and due diligence costs		250		1,735		1,760		1,901
Adjusted EBITDA	$	8,959	$	4,773	$	20,984	$	11,417

Inflation

Most of our farming leases are two to three years for row crops and one to seven years for permanent crops, pursuant to which each tenant is responsible for substantially all of the operating expenses related to the property, including maintenance, water usage and insurance. As a result, we believe that the effect on us of inflationary increases in operating expenses may be offset in part by the operating expenses that are passed through to our tenants and by contractual rent increases because our leases will be renegotiated every one to five years. We do not believe that inflation has had a material impact on our historical financial position or results of operations.

Seasonality

Because the leases for a majority of the properties in our portfolio require payment of at least 50% of the annual rent in advance of each spring planting season, we receive a significant portion of our cash rental payments in the first calendar quarter of each year, although we recognize rental revenue from these leases on a pro rata basis over the non-cancellable term of the lease in accordance with GAAP.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market-sensitive instruments. In pursuing our business strategies, the primary market risk to which we are exposed is interest rate risk. Our primary interest rate exposure will be the daily LIBOR. We may use fixed interest rate financing to manage our exposure to fluctuations in interest rates. On a limited basis, we also may use derivative financial instruments to manage interest rate risk. We will not use such derivatives for trading or other speculative purposes.

At September 30, 2017, $125.1 million, or 27%, of our debt had variable interest rates. Assuming no increase in the level of our variable rate debt, if interest rates increased by 1.0%, or 100 basis points, our cash flow would decrease by approximately $1.3 million per year. At September 29, 2017, LIBOR was approximately 123 basis points. Assuming no increase in the level of our variable rate debt, if LIBOR were reduced to 0 basis points, our cash flow would increase approximately $1.6 million per year.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Exchange Act, management has evaluated, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

The nature of our business exposes our properties, us and the Operating Partnership to the risk of claims and litigation in the normal course of business.

Item 1A. Risk Factors.

As of September 30, 2017, There have been no material changes from the risk factors previously disclosed in response to “Part I - Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on February 23, 2017.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer Purchases of Equity Securities

Unregistered Sales of Equity Securities

None.

Share Repurchase Program

On March 15, 2017, our board of directors approved a program to repurchase up to $25,000,000 in shares of our common stock. Repurchases under this program may be made from time to time, in amounts and prices as we deem appropriate. Repurchases may be made in open market or privately negotiated transactions in compliance with Rule 10b-18 under the Exchange Act, subject to market conditions, applicable legal requirements, trading restrictions under our insider trading policy, and other relevant factors. This share repurchase program does not obligate us to acquire any particular amount of common stock, and it may be modified or suspended at any time at our discretion. We expect to fund repurchases under the program using cash on its balance sheet. Our repurchase activity for the three months ended September 30, 2017 under the share repurchase program is presented in the following table.



($ in thousands)	Total Shares Purchased		Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly announced Plans or Programs		Approximate Dollar Value of Shares that May Yet be Purchased Under the Share Repurchase Program
July 1, 2017 - July 31, 2017	—	$	—	—	$	25,000
August 1, 2017 - August 31, 2017	274		8.54	274		22,660
September 1, 2017 - September 30, 2017	567		9.00	567		17,555
Total	841	$	8.85	841	$	17,555

As of the date of this report the Company has repuchased 1,120,467 shares for $9,999,998 at an average price of $8.92.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other information.

None.

Item 6. Exhibits.

The exhibits on the accompanying Exhibit Index are filed, furnished or incorporated by reference (as stated therein) as part of this Quarterly Report on Form 10-Q.

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Exhibit Index


Exhibit Number		Description of Exhibit
10.1*	Purchase Agreement, dated as of September 22, 2017, by and between Farmland Partners Inc., Farmland Partners Operating Partnership, LP and Olam International
31.1*	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document*
101.SCH	XBRL Taxonomy Extension Schema*
101.CAL	XBRL Taxonomy Extension Calculation Linkbase*
101.DEF	XBRL Taxonomy Extension Definition Linkbase*
101.LAB 101.PRE	XBRL Taxonomy Extension Label Linkbase* XBRL Taxonomy Extension Presentation Linkbase*

* Filed herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	Farmland Partners Inc.

Dated: November 9, 2017	/s/ Paul A. Pittman
	Paul A. Pittman
	Executive Chairman and Chief Executive Officer
	(Principal Executive Officer)

Dated: November 9, 2017	/s/ Luca Fabbri
	Luca Fabbri
	Chief Financial Officer and Treasurer
	(Principal Financial and Accounting Officer)

Exhibit 10.1

REAL ESTATE PURCHASE AGREEMENT

THIS REAL ESTATE PURCHASE AGREEMENT (the “ Agreement ”) is made and entered into as of the date of the last signature (the “ Effective Date ”), by and between OLAM FARMING, INC., a Delaware corporation with principal offices at 205 E. River Park Circle, Suite 310, Fresno, CA 93720-1572 (the “ Seller ”), and Arnold (CA) LLC, or assigns, a Delaware limited liability company with principal offices at 4600 S. Syracuse St., Suite 1450, Denver, CO 80237, (the “ Buyer ”), with Chicago Title Company, Fresno, California, as Escrow Holder. Seller and Buyer are sometimes collectively referred to herein as the “Parties” and singularly by their individual names or as a “Party.”

W I T N E S S E T H:

WHEREAS, the Seller has, subject to the terms and conditions enumerated herein, agreed to sell, and the Buyer has agreed to purchase, approximately 5,101 acres of farmland real estate located in Madera and Kern Counties, California, known as the KG, Chowchilla I, Chowchilla II and Stella Ranches and more particularly described in Exhibit A attached hereto (the “ Real Estate ”) and the Additional Interests, as defined below.

NOW THEREFORE, in consideration of the covenants and agreements herein contained and other valuable consideration, the sufficiency and receipt of which is hereby acknowledged, the parties hereto, intending to be legally bound, covenant and agree as follows:

1. SALE AND PURCHASE. Seller does hereby covenant and agree to sell and convey the Real Estate, together with all water rights, all mineral rights (if any, and then only to the extent of Seller’s interest therein), appurtenances and hereditaments, as well as title and interest to easements and rights-of-way, now located thereon or attached thereto (collectively, the “ Additional Interests ” and, hereafter, the Real Estate and the Additional Interests shall be referred to as the “ Property ”) by good and sufficient grant deeds recordable in Madera and Kern Counties, California (the " Grant Deeds ") to Buyer, or to such entity as Buyer may designate provided that such entity is owned by Buyer or Buyer’s parent company and provided further that Buyer shall not be released from any of Buyer’s agreements and undertakings as set forth herein; and Buyer covenants and agrees to purchase and accept Property on the terms provided for herein. Notwithstanding anything to the contrary written in this Agreement, the Property does not include the Excluded Property (defined below in this Section) which Seller shall retain and Buyer shall not purchase.

a) Excluded Property . " Excluded Property " includes the following improvements located on the Property: permanent plantings, wells, well parts and equipment, electrical panels, electrical hookups, water conveyance and discharge facilities, pipelines, irrigation systems inclusive of motors, pumps, piping, tubing, emitters, etc., structures, and dwellings (including all residences). Seller, at Seller's sole discretion, shall have the right to depreciate the Excluded Property. Additionally, Seller may, at Sellers's sole cost and expense, remove, destroy, or level any of the Excluded Property at Seller's sole discretion as long as such acts do not negatively impact the farming operation on the Premises.

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2. PRICE.

a) Purchase Price . The price at which Seller will sell, and Buyer will purchase, the Property shall be One Hundred Ten Million and No/100 Dollars ($110,000,000.00) (the “ Purchase Price ”).

b) Payment of Purchase Price . The Purchase Price shall be paid as follows:

(i) Independent Consideration . Notwithstanding any term or provision of this Agreement, Buyer hereby delivers to Seller an amount equal to One Hundred and No/100 Dollars ($100.00) from the Initial Deposit (as hereinafter defined) (the “ Independent Consideration ”) as independent consideration to Seller for having entered into this Agreement. The Independent Consideration shall be nonrefundable if Close of Escrow does not occur for any reason related to a Buyer default or termination under this Agreement, or due to a failure of a Buyer condition, and to the extent that this Agreement requires any funds to be refunded to Buyer, any amount so refunded shall not include the Independent Consideration; provided, however, that the Independent Consideration shall be refunded to Buyer from Seller, as part of Buyer’s damages, in the event of a Seller default under this Agreement.

(ii) Deposit . Within three (3) business days of the Effective Date, Buyer shall deposit the sum of One Million and No/100 Dollars ($1,000,000.00) with Escrow Holder (the “ Initial Deposit ”). At Buyer’s request, the Initial Deposit shall be placed in an interest bearing account at a federally insured commercial bank or other institution acceptable to Buyer, with all interest accruing for Buyer’s benefit. The entire Initial Deposit (and any accrued interest) is refundable to Buyer until the end of the Title Review Period (defined below in Section 3(b)). Thereafter, unless Buyer is unable to obtain the Financing (as described in Section 5(a)), the Initial Deposit shall be non-refundable. After the earlier of Buyer's obtaining assurance of the Financing or the end of the Financing Period, unless Buyer has given timely notice of its election to terminate this Agreement as provided in Section 5(a), Buyer shall deposit an additional One Million and No/100 Dollars ($1,000,000.00) with Escrow Holder (the “ Additional Deposit ” and together with the Initial Deposit and all interest accrued thereon, is referred to herein as the “ Deposit ”). Thereupon, the Deposit shall be non-refundable for any reason except Seller’s material breach of the obligations under this Agreement. If Escrow Closes, then Escrow Holder shall apply the Deposit (and accrued interest) against the Purchase Price.

(iii) Balance . At or prior to the Close of Escrow (as defined below), Buyer shall deposit the balance of the Purchase Price with Escrow Holder in cash, by cashier’s check, wire transfer, or other immediately available good funds acceptable to Seller (the “ Balance ”).

c) Liquidated Damages . NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT TO THE CONTRARY, IN THE EVENT THAT THE ESCROW FAILS TO CLOSE DUE TO A BREACH OR DEFAULT BY BUYER, THEN THE AMOUNT OF THE DEPOSIT DEPOSITED AT THAT TIME SHALL ACT AS LIQUIDATED DAMAGES, AND NOT AS A PENALTY AND AS SELLER'S EXCLUSIVE REMEDY AGAINST BUYER AT LAW OR OTHERWISE. THE AMOUNT OF SELLER'S ACTUAL DAMAGES IN THE EVENT OF BUYER’S BREACH OR DEFAULT WOULD BE EXTREMELY DIFFICULT OR IMPRACTICABLE TO ASCERTAIN, AND THE AMOUNT SET FORTH ABOVE AS LIQUIDATED

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DAMAGES HAS BEEN AGREED UPON BY SELLER AND BUYER AFTER SPECIFIC NEGOTIATION. THE PARTIES AGREE THAT THE AMOUNT SET FORTH ABOVE REPRESENTS A REASONABLE ESTIMATE OF THE ACTUAL DAMAGES WHICH SELLER WOULD INCUR IN THE CASE OF SUCH BREACH OR DEFAULT BY BUYER. BY INITIALING THE SPACES WHICH FOLLOW, SELLER AND BUYER SPECIFICALLY AND EXPRESSLY AGREE TO ABIDE BY THE TERMS AND PROVISIONS OF THIS SECTION 2(c) CONCERNING LIQUIDATED DAMAGES IN THE EVENT OF A BREACH OR DEFAULT BY BUYER.


	BUYER		SELLER

d) Allocation of Purchase Price . For all purposes relevant to the calculation of federal or state taxes, the Parties shall mutually agree on an allocation of the Purchase Price on or before the expiration of the Financing Period, and each Party will report the transactions contemplated herein in a manner consistent with this allocation. The Purchase Price shall be allocated only and solely to the Property.

e) 1031 Exchange . Each party may engage in an Internal Revenue Code Section 1031 exchange with respect to the sale and purchase of the Property and will cooperate with the other Party (at no cost to the other Party) to the extent necessary to accomplish such exchange.

3. TITLE TO PROPERTY. Seller shall convey good, marketable and insurable fee simple title to the Property to Buyer free and clear of all liens and encumbrances, subject only to the exceptions listed below (the " Permitted Exceptions ")

a) Permitted Exceptions .

(i) The lien for current real and personal property taxes and water district taxes and assessments, if any, not yet due;

(ii) The lien for supplemental taxes and assessments resulting from the change in ownership created by the sale of the Property to Buyer;

(iii) Zoning laws and building ordinances, easements of record and rights-of-way for public roads, public utilities, and underground pipelines that are of record or apparent, which do not materially interfere with Buyer’s agricultural use of the Property, including, but not limited to those included on Exhibit A ;

(iv) Covenants and restrictions of record which will not be violated by Buyer’s agricultural use of the Property or which do not restrict agricultural use of the Property;

(v) Prior mineral leases and/or reservations of record;

(vi) Roads, ways, and streams crossing the Property;

(vii) Matters which would be disclosed by a true and current survey of the Property;

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(viii) Existing mortgages to be paid in full at Closing or released at Closing; and

(ix) All other exceptions to title, not objected to by Buyer pursuant to Section 3(b), reflected on the preliminary report of title to the Property issued by Escrow Holder (the “ Preliminary Report ”).

b) Preliminary Report . As soon as possible after the Effective Date, Escrow Holder shall deliver to Buyer a copy of the Preliminary Report and any exceptions to title listed on the Preliminary Report. Upon receipt of the Preliminary Report, map with plotted easements and copies of all of documents referred to above, Buyer shall have ten (10) days within which to notify Seller in writing of any exceptions to title disclosed thereby other than those described in Section 3(a) above that Buyer, in its reasonable discretion, disapproves (the “ Objectionable Exceptions ”). If Buyer notifies Seller of one or more Objectionable Exceptions, Seller shall have ten (10) days after receipt of such written notice (the " Objection Response Period ") to (i) remove or agree to remove the Objectionable Exception(s) prior to the Close of Escrow, and proceed to close the sale; or (ii) refuse to remove the Objectionable Exception(s), in which case Buyer may elect to waive its objection (with any such objections thereafter being deemed Permitted Exceptions) and close the sale, or withdraw its offer to purchase the Property by providing Seller notice of such withdrawal in writing within five (5) days after the last day of the Objection Response Period (the " Title Review Period ") and receive a refund of the Deposit (to the extent paid into the Escrow), whereupon neither Party shall have any further obligation to sell or purchase the Property. Buyer’s failure to provide such written notice of withdrawal to Seller on or before the end of the Title Review Period shall be deemed to constitute Buyer’s acceptance of the Property and intention to complete the purchase thereof in accordance with the terms of this Agreement and the Deposit shall become non-refundable except in the case of Seller’s material default under this Agreement or Buyer's inability to obtain the Financing.

c) Title Insurance . At the Close of Escrow and as a condition to Buyer’s obligation to purchase the Property, Escrow Holder shall commit to issue, and to deliver to Buyer, its standard coverage ALTA title insurance policy insuring title to the Property in Buyer in the condition set forth in Section 3(a) and with liability in the amount of the Purchase Price (the “ Title Policy ”). Seller shall pay the cost of a CLTA title insurance policy and Buyer shall pay any additional costs or fees associated with the ALTA title insurance policy.

d) Additional Title Evidence . If Buyer or Buyer’s lender requires title evidence of a type other than that which Seller provides, then the additional cost, if any and all other costs not set forth herein to be paid by Seller, occasioned by the title evidence required shall be at Buyer’s expense and no additional cost shall be chargeable to Seller.

e) Condition of Property . Seller is selling the Property “as is, where is” with no warranties of any nature whatsoever, except as provided in this Agreement.

Except as expressly set forth in this Agreement, Seller has not made and hereby disclaims any and all representations and warranties as to the quality, quantity, adequacy, availability, reliability, transferability or cost of surface or well water, water rights for the Property, or the eligibility thereof or Buyer to receive irrigation water from any irrigation

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or water district. Buyer represents that prior to the Closing it will have independently investigated the availability, quality and cost of water available to the Property and satisfied itself as to the adequacy and cost thereof.

Buyer acknowledges that the Property has been an active working farm for many years. Buyer specifically acknowledges that various petroleum products, fuel, gasoline and chemicals, including fertilizers, herbicides and pesticides, customarily used in farming, some of which may, as of the date hereof, be considered to be hazardous or toxic, may have been used, stored, mixed and applied to the Property in the course of the farming or ranching activities conducted thereon or on adjacent property. Buyer further acknowledges that, except as expressly set forth in this Agreement and in any other document provided hereunder, Seller, its agents, officers, directors, employees and other persons acting on behalf of Seller have made no representation or warranty of any kind as to the precise number of acres of the Real Estate, the development potential of the Property, the condition of the Property or the soil, drainage capacity, the quality, quantity, variety, value or marketability of any permanent plantings or growing crops, the existence, transferability or value of any mineral rights, or the condition of any improvements, fixtures or equipment located on the Property on which Buyer has relied or will rely, directly or indirectly for any purpose.

BUYER ACKNOWLEDGES THAT BUYER IS PURCHASING THE PROPERTY SOLELY IN RELIANCE ON BUYER'S OWN INVESTIGATION, AND THAT EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NO REPRESENTATIONS OR WARRANTIES OF ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, HAVE BEEN MADE BY SELLER, OR SELLER'S AGENTS. BUYER WILL ACQUIRE THE PROPERTY INCLUDING ANY IMPROVEMENTS, EQUIPMENT, FIXTURES, AND PERSONAL PROPERTY CONVEYED BY SELLER “AS IS” AND WITHOUT EXPRESS OR IMPLIED WARRANTY OF CONDITION, MERCHANTABILITY OR FITNESS.

4. INSPECTION PERIOD CANCELLATION.

a) Inspection Period . Buyer shall have the right to inspect the Property in all respects and perform its general due diligence responsibilities for fifteen (15) days after the Effective Date (the “ Inspection Period ”). If such inspection and examination of the Property and related issues, including but not limited to survey, title work, environmental issues, and water rights, is not satisfactory to Buyer, Buyer may, in its sole discretion, cancel this Agreement upon written notice to Seller within the Inspection Period, and in such event neither party will have any further obligation or liability under this Agreement and the Deposit shall be refunded to Buyer. If Buyer fails to notify Seller of its election to terminate this Agreement on or before the expiration of the Inspection Period, Buyer shall be deemed conclusively to have waived its right to terminate this Agreement pursuant to this Section 4 . Seller agrees to cooperate reasonably with any such investigations, inspections or studies made by or at Buyer’s direction.

b) Buyer's Indemnification of Seller . Buyer shall: (a) keep the Property free and clear of all liens arising out of the activities of Buyer and/or Buyer’s agents at or on the Property; (b) repair any and all damage to the Property caused by Buyer or any Buyer’s agent or by any tests or investigations conducted by, on behalf of, or at the direction of Buyer; and (c) protect, defend with counsel reasonably acceptable to Seller, indemnify and hold Seller, its affiliates and its and their partners, managers, members, employees, shareholders,

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agents, officers, directors and representatives, harmless from and against any and all actions, liabilities, claims, damages, losses, costs, and expenses (including, but not limited to, reasonable experts’ fees, reasonable attorneys’ fees and the costs and expenses incurred by such attorneys and experts) arising out of or in any way related to: (A) entry onto the Property or any activity thereon or with respect thereto by Buyer or Buyer’s agents (whether before or after the Effective Date); and (B) any breach by Buyer or Buyer’s agents of the provisions of Section 4.

c) Insurance . Buyer shall, at all times during its activities on the Property, both during the Inspection Period and until the Closing, obtain and keep in full force and effect the insurance described below. In accordance with section (iv) below, prior to any entry onto the Property under this Agreement, and as evidence of specified insurance coverage, Buyer shall deliver to Seller certificates of such insurance or, at the request of Seller, copies of such insurance policies.

(i) Type of Insurance . Buyer shall, at its sole cost and expense, maintain in full force and effect during the term of this Agreement, with companies acceptable to Seller, which acceptance shall not be unreasonably withheld, the following insurance: (i) Workers Compensation Insurance (at the minimum limit required by law) for all persons Buyer hires as employees of Buyer in carrying out its activities on the Property; and (ii) Commercial General Liability Insurance on an “occurrence” basis, covering the activities of Buyer and its agents, employees, contractors and Buyer’s agents on the Property and any and all resulting injury to persons and damage to the Property, with a combined single limit for bodily injury and property damage of not less than Two Million Dollars ($2,000,000) per occurrence. Such Commercial General Liability Insurance policy shall include contractual indemnity coverage for the indemnities of Buyer given to Seller under Section 4(b).

(ii) Additional Insureds . Seller and its members shall be included as an additional insured under the coverage specified above.

(iii) Policy Requirements . Each insurance policy required under this paragraph shall: (i) be issued by insurance carriers licensed and approved to do business in California, having a general policyholders rating of not less than “A-” and financial rating of not less than “VII” in the most current Best’s Insurance Report; (ii) contain a provision that the policy shall not be subject to material alteration to the detriment of Seller or Buyer or cancellation without at least thirty (30) days’ prior written notice being given to Seller by registered mail; (iii) provide that such policy or policies and the coverage evidenced thereby are primary and any insurance maintained by the additional insureds is noncontributing with such primary coverage; and (iv) contain severability of interest and cross liability clauses.

(iv) Evidence of Insurance . As evidence of specified insurance coverage, Buyer shall, prior to any entry onto the Property by Buyer or any Buyer’s agent of Buyer and from time to time thereafter at the request of Seller, deliver to Seller certificates evidencing the insurance policies required hereunder. Seller has the right to review certified policies as reasonably necessary. Such evidence shall be delivered to Seller before any entry by Buyer, or any Buyer’s agent, on the Property.

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5. CONTINGENCY

a) Financing. This Agreement is contingent upon Buyer obtaining satisfactory equity and debt financing with no conditions to closing for the transaction (the “ Financing ”). Buyer shall use due diligence and make good faith efforts in obtaining such Financing. If Buyer has been unable to obtain such Financing, and Buyer serves written notice of such circumstance to Seller sixty (60) days following the Effective Date of this Agreement (the “ Financing Period ”), Buyer and Seller shall each have the right to unilaterally terminate this Agreement and the Initial Deposit shall be returned to Buyer. In case of termination of the Agreement pursuant to this Section 5 , neither party shall have any further obligation or liability under this Agreement.

6. ESCROW AND CLOSING.

a) Closing shall take place at a time and place agreeable to both Buyer and Seller, and all conditions enumerated in the Agreement have been satisfied or waived by the Buyer (the “ Closing ”). The Closing shall take place by the later of: (a) 15 days from the expiration of the Financing Period; or (b) November 17, 2017.

b) Inability to Close . In the event Escrow Holder is unable to Close the Escrow and the Closing Date is not otherwise extended, the Escrow shall terminate. Subject to the terms of this Agreement, Escrow Holder shall return to each Party any money or documents deposited by the respective Parties and terminate the Escrow; provided, however, that any cancellation charges imposed by Escrow Holder shall be paid by the defaulting Party, or if neither Party is in default, divided equally between Buyer and Seller.

c) Procedure for Closing . Escrow Holder shall Close the Escrow by doing the following:

(i) Pay from funds deposited by Seller or otherwise distributable to Seller, all claims, demands, and liens necessary to place title to the Property in the condition set forth in Section 3(a);

(ii) In accordance with Section 6(e), pay Seller's share of the Closing Costs from funds deposited by Seller or otherwise distributable to Seller;

(iii) Pay from funds deposited by Buyer, Buyer’s share of the Closing Costs;

(iv) Record the Grant Deeds in the Official Records of Madera and Kern Counties, and direct the County Recorders to return the recorded Grant Deeds to Buyer with conformed copies to Seller and file a Preliminary Change of Ownership Report in both Madera and Kern Counties;

(v) Deliver a copy of Buyer’s and Seller's closing statements for the Escrow to the respective Parties;

(vi) Deliver a copy of the FIRPTA Affidavit and the Withholding Affidavit to Buyer;

(vii) Subject to Section 6(g), deliver to Seller the Purchase Price, less payments and other charges that are chargeable to Seller as authorized under this Agreement;

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(viii) Subject to Section 6(g), deliver any remaining funds held in Escrow to Buyer; and

(ix) Deliver to Buyer the original and two (2) copies of the Title Policy in the form set forth in Section 3(c) no later than thirty (30) days after the Closing Date.

7. TERMS AND CONDITIONS . The Buyer and Seller agree to the additional terms and conditions set forth in Exhibit B .

8. NOTICES. All notices, demands, requests, consents, certificates and waivers from either party to the other shall be in writing and sent by United States registered mail, return receipt requested, postage prepaid, or via e-mail, addressed as follows:

If to Seller: Olam Farming, Inc.

Attn: Dave DeFrank

205 E. River Park Circle, Suite 310

Fresno, CA 93720-1572

dave.defrank@olamnet.com

With a copy to:

Ligia Bernardo, Director of Legal

205 E. River Park Circle, Suite 310

Fresno, CA 93720

Baker Manock & Jensen

Attn: Carl R. Refuerzo

5260 North Palm, Suite 421

Fresno, CA 93704

crefuerzo@bakermanock.com

If to Buyer: Arnold (CA) LLC

attn. Legal Department

4600 S. Syracuse St., Suite 1450

Denver, CO 80237

legal@farmlandpartners.com

or to such other address or email address as the party to receive the notice, demand, request, consent, certificate or waiver may hereafter designate in writing to the other. All notices, demands, requests, consents, certificates and waivers shall be deemed to be given when sent via email, or on the third business day after being deposited in the United States mail as aforesaid, whichever occurs first.

[Signatures to follow on the next page.]

Page 8 of 38

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first written above:


BUYER:			SELLER:

Arnold (CA) LLC			COLAM FARMING, INC.,
			a Delaware corporation

By:			By:

Name:			Name:

Title:			Title:

Date:			Date:

Page 9 of 38

EXHIBIT A

DESCRIPTION OF THE REAL ESTATE

KG RANCH:

THE LAND DESCRIBED HEREIN IS SITUATED IN THE STATE OF CALIFORNIA, COUNTY OF MADERA, UNINCORPORATED AREA, AND IS DESCRIBED AS FOLLOWS:

PARCEL NO. 1:

ALL THAT PORTION OF SWAMP & OVERFLOW SURVEY NO. 287, IN THE SOUTHEASTERLY 1/2 OF THE SOUTHEAST 1/4 OF THE SOUTHEAST 1/4 OF SECTION 23, THE SOUTHWEST 1/4 OF THE SOUTHWEST 1/4 AND THE SOUTHEASTERLY 1/2 OF NORTHWEST 1/4 OF SOUTHWEST 1/4 OF SECTION 24, TOWNSHIP 13, SOUTH, RANGE 16 EAST, M.D.B.&M., LYING IN MADERA COUNTY.

EXCEPTING THEREFROM ALL OIL, GAS AND OTHER HYDROCARBON SUBSTANCES AND MINERALS IN SAID REAL PROPERTY; AS RESERVED BY GERTRUDE FRIEDL AND ELIZABETH LOUISE LE BEUF, IN DEED DATED NOVEMBER 12, 1965 AND RECORDED NOVEMBER 18, 1965 IN VOL. 949 OF OFFICIAL RECORDS, PAGE 519, MADERA COUNTY RECORDS, DOCUMENT NO. 16754.

ALSO EXCEPTING THEREFROM THAT PORTION DESCRIBED AS FOLLOWS:

BEGINNING AT THE UNITED STATES TRAVERSE CORNER ON THE NORTH LINE OF SAID SECTION 24, FROM WHICH THE NORTHWEST CORNER OF SAID SECTION 24 BEARS SOUTH 89 DEGREES 48 MINUTES 28 SECONDS WEST 1,881.00 FEET, SAID POINT OF BEGINNING HAVING COORDINATES Y=106, 842.16 AND X=2, 093, 805.30; THENCE FROM SAID POINT OF BEGINNING AND ALONG THE UNITED STATES GOVERNMENT SEGREGATION LINE, SOUTH 79 DEGREES 52 MINUTES 39 SECONDS WEST 38.83 FEET; THENCE LEAVING SAID SEGREGATION LINE FROM A TANGENT THAT BEARS SOUTH 52 DEGREES 22 MINUTES 36 SECONDS WEST ALONG A CURVE TO THE LEFT HAVING A RADIUS OF 1,035.00 FEET THROUGH A CENTRAL ANGLE OF 19 DEGREES 23 MINUTES 10 SECONDS, AN ARC DISTANCE OF 350.19 FEET TO A POINT ON THE LAST SAID SEGREGATION LINE; THENCE ALONG SAID SEGREGATION LINE, SOUTH 06 DEGREES 37 MINUTES 48 SECONDS EAST 185.71 FEET; THENCE SOUTH 28 DEGREES 04 MINUTES 39 SECONDS WEST 408.24 FEET, THENCE LEAVING THE SAID SEGREGATION LINE, SOUTH 06 DEGREES 04 MINUTES 01 SECONDS WEST 635.55 FEET; THENCE SOUTH 03 DEGREES 12 MINUTES 16 SECONDS WEST 100.13 FEET; THENCE SOUTH 06 DEGREES 04 MINUTES 01 SECONDS WEST 844.73 FEET; THENCE ALONG A CURVE TO THE RIGHT HAVING A RADIUS OF 970 FEET THROUGH A CENTRAL ANGLE OF 29 DEGREES 33 MINUTES 26 SECONDS, AN ARC DISTANCE OF 500.40 FEET; THENCE SOUTH 35 DEGREES 37 MINUTES 27 SECONDS WEST 2,529.94 FEET TO A 3/4 INCH IRON PIPE WITH BRASS PLUG MARKED "C8-123" FROM WHICH A 1 1/2 INCH STEEL AXLE MARKING THE NORTHEAST CORNER OF SAID SECTION 23 BEARS NORTH 04 DEGREES 23 MINUTES 40 SECONDS EAST 4,906.71 FEET; THENCE ALONG A CURVE TO THE RIGHT HAVING A RADIUS OF 470.00 FEET THROUGH A CENTRAL ANGLE OF 30 DEGREES 16 MINUTES 23 SECONDS AN ARC DISTANCE OF 248.33 FEET; THENCE SOUTH 65 DEGREES 53 MINUTES 50 SECONDS WEST 245.28 FEET, THENCE SOUTH 68 DEGREES 45 MINUTES 35 SECONDS WEST 100.12 FEET; THENCE SOUTH 65 DEGREES 53 MINUTES 50 SECONDS WEST 115.87 FEET; THENCE ALONG A CURVE TO THE RIGHT HAVING A RADIUS OF 465 FEET THROUGH A CENTRAL ANGLE OF 38 DEGREES 43 MINUTES 04 SECONDS, AN ARC DISTANCE OF 314.23 FEET TO A POINT ON THE NORTHWESTERLY LINE OF SAID STATE SWAMP AND OVERFLOWED LANDS SURVEY NO. 287; THENCE ALONG SAID NORTHWESTERLY LINE SOUTH 45 DEGREES 16 MINUTES 49 SECONDS WEST 33.17 FEET TO A POINT ON THE SOUTH LINE OF SAID SECTION 23; THENCE ALONG SAID SOUTH LINE SOUTH 89 DEGREES 59 MINUTES 38 SECONDS WEST 290 FEET, MORE OR LESS, TO THE LOW WATER MARK ON THE NORTH OR RIGHT BANK OF THE SAN JOAQUIN RIVER; THENCE

Page 10 of 38

UPSTREAM ALONG SAID LOW WATER MARK WITH THE MEANDERS THEREOF TO AN INTERSECTION WITH THE NORTH LINE OF SAID SECTION 24; THENCE ALONG THE NORTH LINE OF SAID SECTION 24, SOUTH 89 DEGREES 48 MINUTES 28 SECONDS WEST 370 FEET, MORE OR LESS, TO THE POINT OF BEGINNING.

ALSO EXCEPTING THEREFROM THAT PORTION DESCRIBED AS FOLLOWS:

COMMENCING AT THE NORTHWEST CORNER OF SAID SECTION 24; THENCE 89 DEGREES 48 MINUTES 28 SECONDS EAST 1,881.00 FEET TO THE UNITED STATES TRAVERSE CORNER ON THE NORTH LINE OF SAID SECTION 24; THENCE SOUTH 79 DEGREES 52 MINUTES 39 SECONDS WEST 38.83 FEET, ALONG THE UNITED STATES GOVERNMENT SEGREGATION LINE OF THE TRUE POINT OF BEGINNING OF THE HEREIN DESCRIBED PARCEL, SAID POINT OF BEGINNING HAVING COORDINATES Y=106,835 34 AND X=2, 093,767.08; THENCE FROM SAID POINT OF BEGINNING AND ALONG SAID SEGREGATION LINE SOUTH 79 DEGREES 52 MINUTES 39

SECONDS WEST 264.78 FEET; THENCE SOUTH 06 DEGREES 37 MINUTES 48 SECONDS EAST 211.08 FEET; THENCE LEAVING SAID SEGREGATION LINE ALONG A CURVE TO THE RIGHT, HAVING A RADIUS OF 1035 FEET, THROUGH A CENTRAL ANGLE OF 19 DEGREES 23 MINUTES 10 SECONDS, AN ARC DISTANCE OF 350.19 FEET TO THE POINT OF BEGINNING.

ALSO EXCEPTING THEREFROM THAT PORTION LYING BETWEEN THE LOW WATER MARK AND THE CENTERLINE OF THE SAN JOAQUIN RIVER.

AND ALSO EXCEPTING THEREFROM ALL OIL, GAS AND OTHER HYDROCARBON SUBSTANCES AND MINERALS IN SAID REAL PROPERTY; AS RESERVED BY GERTRUDE FRIEDL AND ELIZABETH LOUISE LE BEUF, IN DEED DATED NOVEMBER 12, 1965 AND RECORDED NOVEMBER 18, 1965 IN VOL. 949 OF OFFICIAL RECORDS, PAGE 519, MADERA COUNTY RECORDS, DOCUMENT NO. 16754.

ALSO EXCEPTING THEREFROM SUCH INTEREST IN ALL OIL, GAS, OIL SHALE, COAL AND ANY OTHER HYDROCARBONS OF WHATSOEVER NATURE, PHOSPHATE, SODIUM, GOLD, SILVER, GEOTHERMAL RESOURCES, AND ALL OTHER MINERAL DEPOSITS IN AND UNDER SAID REAL PROPERTY, AS WAS RESERVED IN DEED FROM GETTY OIL COMPANY, A DELAWARE CORPORATION, RECORDED FEBRUARY 27, 1985 IN BOOK 1811 AT PAGE 189, MADERA COUNTY RECORDS, DOCUMENT NO. 3875 AND AS MODIFIED BY AGREEMENT RECORDED FEBRUARY 2, 1987 AS DOCUMENT NO. 1834.

APN: 040-222-026 (PORTION)

PARCEL NO. 2:

ALL THAT PORTION OF SWAMP & OVERFLOW SURVEY NO. 576 IN THE WEST 1/2 OF SECTION 24, TOWNSHIP 13 SOUTH, RANGE 16 EAST, MOUNT DIABLO BASE AND MERIDIAN, LYING IN MADERA COUNTY.

EXCEPTING THEREFROM ALL OIL, GAS AND OTHER HYDROCARBON SUBSTANCES AND MINERALS IN SAID REAL PROPERTY; AS RESERVED BY GERTRUDE FRIEDL AND ELIZABETH LOUISE LE BEUF, IN DEED DATED NOVEMBER 12, 1965 AND RECORDED NOVEMBER 18, 1965 IN BOOK 949 OF OFFICIAL RECORDS, PAGE 519, MADERA COUNTY RECORDS, DOCUMENT NO. 16754.

ALSO EXCEPTING THEREFROM THAT PORTION DESCRIBED AS FOLLOWS:

Page 11 of 38

SOUTH 52 DEGREES 22 MINUTES 36 SECONDS WEST ALONG A CURVE TO THE LEFT HAVING A RADIUS OF 1,035.00 FEET THROUGH A CENTRAL ANGLE OF 19 DEGREES 23 MINUTES 10 SECONDS, AN ARC DISTANCE OF 350.19 FEET TO A POINT ON THE LAST SAID SEGREGATION LINE; THENCE ALONG SAID SEGREGATION LINE, SOUTH 06 DEGREES 37 MINUTES 48 SECONDS EAST 185.71 FEET; THENCE SOUTH 28 DEGREES 04 MINUTES 39 SECONDS WEST 408.24 FEET; THENCE LEAVING THE SAID SEGREGATION LINE, SOUTH 06 DEGREES 04 MINUTES 01 SECONDS WEST 635.55 FEET; THENCE SOUTH 03 DEGREES 12 MINUTES 16 SECONDS WEST 100.13 FEET; THENCE SOUTH 06 DEGREES 04 MINUTES 01 SECONDS WEST 844.73 FEET; THENCE ALONG A CURVE TO THE RIGHT HAVING A RADIUS OF 970 FEET THROUGH A CENTRAL ANGLE OF 29 DEGREES 33 MINUTES 26 SECONDS, AN ARC DISTANCE OF 500.40 FEET; THENCE SOUTH 35 DEGREES 37 MINUTES 27 SECONDS WEST 2,529.94 FEET TO A 3/4 INCH IRON PIPE WITH BRASS PLUG MARKED "C8-123" FROM WHICH A 1 1/2 INCH STEEL AXLE MARKING THE NORTHEAST CORNER OF SAID SECTION 23 BEARS NORTH 04 DEGREES 23 MINUTES 40 SECONDS EAST 4,096.71 FEET; THENCE ALONG A CURVE TO THE RIGHT HAVING A RADIUS OF 470.00 FEET THROUGH A CENTRAL ANGLE OF 30 DEGREES 16 MINUTES 23 SECONDS AN ARC DISTANCE OF 248 33 FEET; THENCE SOUTH 65 DEGREES 53 MINUTES 50 SECONDS WEST 245.28 FEET; THENCE SOUTH 68 DEGREES 45 MINUTES 35 SECONDS WEST 100.12 FEET; THENCE SOUTH 65 DEGREES 53 MINUTES 50 SECONDS WEST 115.87 FEET; THENCE ALONG A CURVE TO THE RIGHT HAVING A RADIUS OF 465 FEET THROUGH A CENTRAL ANGLE OF 38 DEGREES 43 MINUTES 04 SECONDS, AN ARC DISTANCE OF 314.23 FEET TO A POINT ON THE NORTHWESTERLY LINE OF SAID STATE SWAMP AND OVERFLOWED LAND SURVEY NO. 287; THENCE ALONG SAID NORTHWESTERLY LINE SOUTH 45 DEGREES 16 MINUTES 49 SECONDS WEST 33.17 FEET TO A POINT ON THE SOUTH LINE OF SAID SECTION 23; THENCE ALONG SAID SOUTH LINE SOUTH 89 DEGREES 59 MINUTES 38 SECONDS WEST 290 FEET, MORE OR LESS, TO THE LOW WATER MARK ON THE NORTH OR RIGHT BANK OF THE SAN JOAQUIN RIVER; THENCE UPSTREAM ALONG SAID LOW WATER MARK WITH THE MEANDERS THEREOF TO AN INTERSECTION WITH THE NORTH LINE OF SAID SECTION 24, THENCE ALONG THE NORTH LINE OF SAID SECTION 24, SOUTH 89 DEGREES 48 MINUTES 28 SECONDS WEST 370 FEET, MORE OR LESS, TO THE POINT OF BEGINNING.

ALSO EXCEPTING THEREFROM THAT PORTION DESCRIBED AS FOLLOWS:

COMMENCING AT THE NORTHWEST CORNER OF SAID SECTION 24; THENCE NORTH 89 DEGREES 48 MINUTES 28 SECONDS EAST 1,881.00 FEET TO THE UNITED STATES TRAVERSE CORNER ON THE NORTH LINE OF SAID SECTION 24; THENCE SOUTH 79 DEGREES 52 MINUTES 39 SECONDS WEST 38.83 FEET, ALONG THE UNITED STATES GOVERNMENT SEGREGATION LINE TO THE TRUE POINT OF BEGINNING OF THE HEREIN DESCRIBED PARCEL, SAID POINT OF BEGINNING HAVING COORDINATES Y=106,835.34 AND X=2,093,767 08; THENCE FROM SAID POINT OF BEGINNING AND ALONG SAID SEGREGATION LINE SOUTH 79 DEGREES 52 MINUTES 39 SECONDS WEST 264.78 FEET; THENCE SOUTH 06 DEGREES 37 MINUTES 48 SECONDS EAST 211.08 FEET; THENCE LEAVING SAID SEGREGATION LINE ALONG A CURVE TO THE RIGHT, HAVING A RADIUS OF 1035 FEET, THROUGH A CENTRAL ANGLE OF 19 DEGREES 23 MINUTES 10 SECONDS, AN ARC DISTANCE OF 350.19 FEET TO THE POINT OF BEGINNING.

ALSO EXCEPTING THERFROM THAT PORTION LYING BETWEEN THE LOW WATER MARK AND THE CENTERLINE OF THE SAN JOAQUIN RIVER.

ALSO EXCEPTING THEREFROM ALL OIL, GAS AND OTHER HYDROCARBON SUBSTANCES AND MINERALS IN SAID REAL PROPERTY; AS RESERVED BY GERTRUDE FRIEDL AND ELIZABETH LOUISE LE BEUF, IN DEED DATED NOVEMBER 12, 1965 AND RECORDED NOVEMBER 18, 1965 IN BOOK 949 OF OFFICIAL RECORDS, PAGE 519, MADERA COUNTY RECORDS, DOCUMENT NO. 16754.

ALSO EXCEPTING THEREFROM THOSE PORTIONS CONVEYED TO THE SACRAMENTO AND SAN JOAQUIN DRAINAGE DISTRICT BY DEED RECORDED NOVEMBER 10, 1966 IN BOOK 974 OF OFFICIAL RECORDS, PAGE 440, MADERA COUNTY RECORDS, DOCUMENT NO. 14630.

Page 12 of 38

ALSO EXCEPTING THEREFROM SUCH INTEREST IN ALL OIL, GAS, OIL SHALE, COAL AND ANY OTHER HYDROCARBONS OF WHATSOEVER NATURE, PHOSPHATE, SODIUM, GOLD, SILVER, GEOTHERMAL RESOURCES, AND ALL OTHER MINERAL DEPOSITS IN AND UNDER SAID REAL PROPERTY, AS WAS RESERVED IN DEED FROM GETTY OIL COMPANY, A DELAWARE CORPORATION, RECORDED FEBRUARY 27, 1985 IN BOOK 1811 AT PAGE 189, MADERA COUNTY RECORDS, DOCUMENT NO 3875 AND AS MODIFIED BY AGREEMENT RECORDED FEBRUARY 2, 1987 AS DOCUMENT NO. 1834.

APN: 040-222-026 (PORTION)

PARCEL NO. 3:

ALL OF SWAMP AND OVERFLOW SURVEY NO. 172, IN THE NORTHEAST 1/4 OF SOUTHEAST 1/4 OF SECTION 23, TOWNSHIP 13 SOUTH, RANGE 16 EAST, MOUNT DIABLO BASE AND MERIDIAN, LYING IN MADERA COUNTY.

EXCEPTING THEREFROM ALL OIL, GAS AND OTHER HYDROCARBONS SUBSTANCES AND MINERALS IN SAID REAL PROPERTY; AS RESERVED BY GERTRUDE FRIEDL AND ELIZABETH LOUISE LE BEUF, IN DEED DATED NOVEMBER 12, 1965 AND RECORDED NOVEMBER 18, 1965 IN BOOK 949 OF OFFICIAL RECORDS, PAGE 519, MADERA COUNTY RECORDS, DOCUMENT NO. 16754.

AND ALSO EXCEPTING THEREFROM THAT PORTION CONVEYED TO THE SACRAMENTO AND SAN JOAQUIN DRAINAGE DISTRICT IN DEED RECORDED OCTOBER 26, 1972 IN BOOK 1140 OF OFFICIAL RECORDS, PAGE 296, MADERA COUNTY RECORDS.

ALSO EXCEPTING THEREFROM SUCH INTEREST IN ALL OIL, GAS, OIL SHALE, COAL AND ANY OTHER HYDROCARBONS OF WHATSOEVER NATURE, PHOSPHATE, SODIUM, GOLD, SILVER, GEOTHERMAL RESOURCES, AND ALL OTHER MINERAL DEPOSITS IN AND UNDER SAID REAL PROPERTY, AS WAS RESERVED IN DEED FROM GETTY OIL COMPANY, A DELAWARE CORPORATION, RECORDED FEBRUARY 27, 1985 IN BOOK 1811, PAGE 189, MADERA COUNTY RECORDS, DOCUMENT NO. 3875 AND AS MODIFIED BY AGREEMENT RECORDED FEBRUARY 2, 1987 AS DOCUMENT NO 1834.

APN: 040-222-026 (PORTION)

PARCEL NO. 4:

ALL OF SWAMP AND OVERFLOW LOCATION SURVEY NO. 3586 IN THE SOUTHEAST 1/4 OF THE NORTHEAST 1/4 OF SECTION 23, TOWNSHIP 13 SOUTH, RANGE 16 EAST, MOUNT DIABLO BASE AND MERIDIAN, LYING IN MADERA COUNTY.

EXCEPTING THEREFROM ALL OIL, GAS AND OTHER HYDROCARBON SUBSTANCES AND MINERALS IN SAID REAL PROPERTY; AS RESERVED BY GERTRUDE FRIEDL AND ELIZABETH LOUISE LE BEUF, IN DEED DATED NOVEMBER 12, 1965 AND RECORDED NOVEMBER 18, 1965 IN BOOK 949 OF OFFICIAL RECORDS, PAGE 519, MADERA COUNTY RECORDS, DOCUMENT NO. 16754.

ALSO EXCEPTING THEREFROM SUCH INTEREST IN ALL OIL, GAS, OIL SHALE, COAL AND ANY OTHER HYDROCARBONS OF WHATSOEVER NATURE, PHOSPHATE, SODIUM, GOLD, SILVER, GEOTHERMAL RESOURCES, AND ALL OTHER MINERAL DEPOSITS IN AND UNDER SAID REAL PROPERTY, AS WAS RESERVED IN DEED FROM GETTY OIL COMPANY, A DELAWARE CORPORATION, RECORDED FEBRUARY 27, 1985 IN BOOK 1811, PAGE 139, MADERA COUNTY RECORDS, DOCUMENT NO. 3875 AND AS MODIFIED BY AGREEMENT RECORDED FEBRUARY 2, 1987 AS DOCUMENT NO 1834.

APN: 040-222-026 (PORTION)

Page 13 of 38

PARCEL NO. 5:

THE NORTHWEST 1/4; THE NORTHWEST 1/4 OF THE NORTHEAST 1/4; THE WEST 1/2 OF THE SOUTHWEST 1/4, LOTS 1, 2, 3 AND 4, STATE SWAMP AND OVERFLOW LOCATION SURVEY NO. 3586 IN THE NORTHEAST 1/4 OF THE NORTHEAST 1/4, STATE SWAMP AND OVERFLOW LOCATION SURVEY 3586 IN THE SOUTHWEST 1/4 OF THE NORTHEAST 1/4; STATE SWAMP AND OVERFLOW LOCATION SURVEY 3586 IN THE NORTHEAST 1/4 OF THE SOUTHWEST 1/4, STATE SWAMP AND OVERFLOW SURVEY 248 IN THE SOUTHEAST 1/4 OF THE NORTHEAST 1/4 OF THE NORTHWEST 1/4 OF THE SOUTHEAST 1/4 IN MADERA COUNTY, ALL OF STATE SWAMP AND OVERFLOW SURVEY 576 IN MADERA COUNTY IN SECTION 13, TOWNSHIP 13 SOUTH, RANGE 16 EAST, MOUNT DIABLO BASE AND MERIDIAN, ACCORDING TO THE OFFICIAL PLAT THEREOF.

EXCEPTING THEREFROM ALL THE ABOVE DESCRIBED LANDS ALL OIL, GAS AND MINERALS THEREIN AND THEREUNDER, AS HERTOFORE CONVEYED BY DEED DATED DECEMBER 2, 1944 AND RECORDED MAY 11, 1945 IN BOOK 362 OF OFFICIAL RECORDS, PAGE 111, MADERA COUNTY RECORDS, TO EDWINA H. GILL, AS TO AN UNDIVIDED 1/3RD INTEREST, WILL GILL, JR., AS TO AN UNDIVIDED 1/6TH INTEREST; AND INEZ THOMPSON, AS TO AN UNDIVIDED 1/6TH INTEREST, ERNEST GILL, AS TO AN UNDIVIDED 1/6TH INTEREST AND RALPH GILL, AS TO AN UNDIVIDED 1/6TH INTEREST.

EXCEPTING THEREFROM THOSE PORTIONS CONVEYED TO THE SACRAMENTO AND SAN JOAQUIN DRAINAGE DISTRICT BY DEED RECORDED NOVEMBER 10, 1966 IN BOOK 974 OF OFFICIAL RECORDS, PAGE 440, MADERA COUNTY RECORDS, DOCUMENT NO. 14630.

APN: 040-166-002

PARCEL NO. 6:

LOTS 2, 3 AND 4; THE NORTH 1/2 OF THE NORTHEAST 1/4; THE SOUTHWEST 1/4 OF THE NORTHEAST 1/4; THOSE PORTIONS OF STATE SWAMP AND OVERFLOW SURVEYS 384, 385 AND 386 IN MADERA COUNTY IN SECTION 23; LOT 1 IN SECTION 24; ALL IN TOWNSHIP 13 SOUTH, RANGE 16 EAST, MOUNT DIABLO BASE AND MERIDIAN, ACCORDING TO THE OFFICIAL PLAT THEREOF.

EXCEPTING THEREFROM AN UNDIVIDED 1/2 INTEREST IN ALL OIL, GAS, AND PETROLEUM AND OTHER MINERAL AND HYDROCARBON SUBSTANCES IN AND UNDER SAID LANDS; AS RESERVED IN DEED FROM EDISON SECURITIES COMPANY, A CORPORATION, DATED AUGUST 31, 1945 AND RECORDED OCTOBER 26, 1945 IN BOOK 363 OF OFFICIAL RECORDS, PAGE 430, MADERA COUNTY RECORDS.

ALSO EXCEPTING THEREFROM (A) AN UNDIVIDED 26% INTEREST IN ALL OIL, GAS, PETROLEUM AND OTHER MINERAL AND HYDROCARBON SUBSTANCES IN, ON, UNDER OR UPON OR THAT MAY BE PRODUCED FROM SAID LAND; (B) ALL OTHER MINERALS OF ANY KIND WHATSOEVER, OTHER THAN OIL, GAS, PETROLEUM AND OTHER MINERALS AND HYDROCARBON SUBSTANCES, AND (C) ALL SURFACE AND UNDERGROUND WATER APPERTAINING TO SAID LANDS, EXCEPT SO MUCH THEREOF AS IS REASONABLY NECESSARY FOR STOCK PURPOSES ON SAID LANDS, AS EXCEPTED AND RESERVED IN A DEED FROM CROCKER FIRST NATIONAL BANK OF SAN FRANCISCO, DATED APRIL 1, 1946 AND RECORDED JUNE 11, 1946 IN BOOK 390 OF OFFICIAL RECORDS, PAGE 233, MADERA COUNTY RECORDS.

Page 14 of 38

ALSO EXCEPTING THEREFROM AN UNDIVIDED 24% INTEREST IN AND TO ALL OIL, GAS AND MINERALS THEREUNDER, AS HERETOFORE CONVEYED TO EDWINA H. GILL, A WIDOW, RALPH GILL, ERNEST GILL AND WILL GILL, JR., AS TO AN UNDIVIDED 1/4 INTEREST EACH BY DEED RECORDED MAY 20, 1959 IN BOOK 745, PAGE 351, MADERA COUNTY RECORDS.

ALSO EXCEPTING THEREFROM SUCH INTEREST IN ALL OIL, GAS, OIL SHALE, COAL AND ANY OTHER HYDROCARBONS OF WHATSOEVER NATURE, PHOSPHATE, SODIUM, GOLD, SILVER, GEOTHERMAL RESOURCES, AND ALL OTHER MINERAL DEPOSITS IN AND UNDER SAID REAL PROPERTY, AS WAS RESERVED IN DEED FROM GETTY OIL COMPANY, A DELAWARE CORPORATION, RECORDED FEBRUARY 27, 1985 IN BOOK 1811, PAGE 189, MADERA COUNTY RECORDS, DOCUMENT NO. 3975 AND AS MODIFIED BY AGREEMENT RECORDED FEBRUARY 2, 1987 AS DOCUMENT NO, 1834.

APN: 040-222-023; 040-222-024; 040-222-027 AND 040-222-025

PARCEL NO. 7:

ALL OF THAT PORTION OF GOVERNMENT LOT 1, STATE SWAMP AND OVERFLOW SURVEY NO. 172 IN THE WEST HALF OF THE SOUTHEAST QUARTER, STATE SWAMP AND OVERFLOW SURVEY NO. 173 IN THE EAST HALF OF THE WEST HALF, STATE SWAMP AND OVERFLOW SURVEY NO. 526 IN THE NORTHWEST QUARTER OF THE NORTHWEST QUARTER, STATE SWAMP AND OVERFLOW LOCATION SURVEY 3586 IN THE NORTHEAST QUARTER OF THE NORTHWEST QUARTER, AND STATE SWAMP AND OVERFLOW SURVEY NO. 3586 IN THE NORTHWEST QUARTER OF THE SOUTHEAST QUARTER, ALL IN SECTION 23, TOWNSHIP 13 SOUTH, RANGE 16 EAST, MOUNT DIABLO BASE AND MERIDIAN, ACCORDING TO THE OFFICIAL PLAT THEREOF, LYING NORTH AND EAST OF THE NORTHERLY BOUNDARY OF THAT PARCEL GRANTED TO THE SACRAMENTO AND SAN JOAQUIN DRAINAGE DISTRICT BY DEED RECORDED NOVEMBER 10, 1966 IN BOOK 974, PAGE 440, OFFICIAL RECORDS OF MADERA COUNTY, AS DOCUMENT NO. 14630.

TOGETHER WITH THAT PORTION OF SECTION 22, TOWNSHIP 13 SOUTH, RANGE 16 EAST, MOUNT DIABLO BASE AND MERIDIAN, ACCORDING TO THE OFFICIAL PLAT THEREOF, MORE PARTICULARLY DESCRIBED AS FOLLOWS:

BEGINNING AT THE NORTHEAST CORNER OF SAID SECTION 22; THENCE SOUTH 00 DEGREES 00 MINUTES 00 SECONDS EAST, ALONG THE EAST LINE OF SAID SECTION 22, A DISTANCE OF 445.44 FEET TO THE NORTHERLY BOUNDARY OF THAT PARCEL OF LAND GRANTED TO THE SACRAMENTO AND SAN JOAQUIN DRAINAGE DISTRICT BY DEED RECORDED NOVEMBER 10, 1966 IN BOOK 974, PAGE 440, OFFICIAL RECORDS OF MADERA COUNTY, DOCUMENT NO. 14630; THENCE NORTH 74 DEGREES 43 MINUTES 03 SECONDS WEST, ALONG SAID NORTHERLY BOUNDARY, A DISTANCE OF 159.11 FEET; THENCE NORTH 15 DEGREES 16 MINUTES 57 SECONDS EAST, ALONG SAID NORTHERLY BOUNDARY, A DISTANCE OF 25.00 FEET; THENCE NORTH 74 DEGREES 43 MINUTES 03 SECONDS WEST, ALONG SAID NORTHERLY BOUNDARY, A DISTANCE OF 185.63 FEET; THENCE NORTH 65 DEGREES 14 MINUTES 50 SECONDS EAST A DISTANCE OF 274.77 FEET; THENCE 00 DEGREES 34 MINUTES 00 SECONDS WEST A DISTANCE OF 64.16 FEET; THENCE NORTH 62 DEGREES 49 MINUTES 20 SECONDS EAST A DISTANCE OF 67 11 FEET, THENCE NORTH 00 DEGREES 34 MINUTES 00 SECONDS WEST A DISTANCE OF 120 15 FEET TO THE NORTH LINE OF SAID SECTION

Page 15 of 38

22, THENCE NORTH 88 DEGREES 34 MINUTES 53 SECONDS EAST, ALONG SAID NORTH LINE, A DISTANCE OF 18 57 FEET TO THE POINT OF BEGINNING.

EXCEPTING THEREFROM ALL THE ABOVE DESCRIBED LANDS ALL OIL, GAS AND MINERALS THEREIN AND THEREUNDER, AS HERETOFORE CONVEYED BY DEED DATED DECEMBER 2, 1944 AND RECORDED MAY 11, 1945 IN BOOK 362 OF OFFICIAL RECORDS, PAGE 111, MADERA COUNTY RECORDS, TO EDWINA H GILL, AS TO AN UNDIVIDED 1/3RD INTEREST; WILL GIL, JR , AS TO AN UNDIVIDED 1/6TH INTEREST, AND INEZ THOMPSON, AS TO AN UNDIVIDED 1/6TH INTEREST, ERNEST GILL, AS TO AN UNDIVIDED 1/6TH INTEREST AND RALPH GILL, AS TO AN UNDIVIDED 1/6TH INTEREST

ALSO EXCEPTING THEREFROM SUCH INTEREST IN ALL OIL, GAS, OIL SHALE, COAL AND ANY OTHER HYDROCARBONS OF WHATSOEVER NATURE, PHOSPHATE, SODIUM, GOLD, SILVER, GEOTHERMAL RESOURCES, AND ALL OTHER MINERAL DEPOSITS IN AND UNDER SAID REAL PROPERTY, AS WAS RESERVED IN DEED FROM GETTY OIL COMPANY, A DELAWARE CORPORATION, RECORDED FEBRUARY 27, 1985 IN BOOK 1811 AT PAGE 189, MADERA COUNTY RECORDS, DOCUMENT NO 3875 AND AS MODIFIED BY AGREEMENT RECORDED FEBRUARY 2, 1987 AS DOCUMENT NO 1834.

APN 040-222-022 AND PORTION OF 040-221-005 NEW APN 040-222-028

PARCEL NO. 8:

THAT PORTION OF SECTION 15, TOWNSHIP 13 SOUTH, RANGE 16 EAST, MOUNT DIABLO BASE AND MERIDIAN, ACCORDING TO THE OFFICIAL PLAT THEREOF, LYING EAST OF THE FOLLOWING DESCRIBED LINE

COMMENCING AT A POINT ON THE NORTH LINE OF SAID SECTION 15 WHICH BEARS NORTH 89 DEGREES 13 MINUTES 00 SECONDS EAST A DISTANCE OF 2032.23 FEET FROM THE NORTHWEST CORNER THEREOF, THENCE SOUTH 00 DEGREES 27 MINUTES 42 SECONDS EAST A DISTANCE OF 5297.14, MORE OR LESS, TO THE SOUTH LINE OF SAID SECTION 15

TOGETHER WITH THAT PORTION OF GOVERNMENT LOTS 2 AND 3 AND STATE SWAMP AND OVERFLOW SURVEYS NO 527 AND 383 IN SECTION 22, TOWNSHIP 13 SOUTH, RANGE 16 EAST, MOUNT DIABLO BASE AND MERIDIAN, ACCORDING TO THE OFFICIAL PLATS THEREOF, LYING NORTH OF THE NORTHERLY BOUNDARY OF THAT PARCEL OF LAND GRANTED TO THE SACRAMENTO AND SAN JOAQUIN DRAINAGE DISTRICT BY DEED RECORDED NOVEMBER 10, 1966 IN BOOK 974, PAGE 440, OFFICIAL RECORDS OF MADERA COUNTY, DOCUMENT NO 14630, AND EAST OF THE FOLLOWING DESCRIBED LINE

COMMENCING AT A POINT ON THE NORTH LINE OF SECTION 15, TOWNSHIP 13 SOUTH, RANGE 16 EAST, MOUNT DIABLO BASE AND MERIDIAN, WHICH BEARS NORTH 89 DEGREES 13 MINUTES 00 SECONDS EAST A DISTANCE OF 2032.23 FEET FROM THE NORTHWEST CORNER THEREOF, THENCE SOUTH 00 DEGREES 27 MINUTES 42 SECONDS EAST A DISTANCE OF 5899.62 FEET, MORE OR LESS, TO A POINT ON SAID NORTHERLY BOUNDARY OF THAT PARCEL GRANTED TO THE SACRAMENTO AND SAN JOAQUIN DRAINAGE DISTRICT

EXCEPTING THEREFROM THAT PORTION OF SECTION 15, TOWNSHIP 13 SOUTH, RANGE 16 EAST, MOUNT DIABLO BASE AND MERIDIAN, ACCORDING TO THE OFFICIAL PLAT THEREOF, MORE PARTICULARLY DESCRIBED AS FOLLOWS

Page 16 of 38

BEGINNING AT THE NORTHEAST CORNER OF SAID SECTION 15, THENCE SOUTH 00 DEGREES 12 MINUTES 31 SECONDS WEST, ALONG THE EAST LINE OF SAID SECTION 15, A DISTANCE OF 5262.61 FEET TO THE SOUTHEAST CORNER THEREOF, THENCE SOUTH 88 DEGREES 34 MINUTES 53 SECONDS WEST, ALONG THE SOUTH LINE OF SAID SECTION 15, A DISTANCE OF 18.57 FEET, THENCE NORTH 00 DEGREES 34 MINUTES 00 SECONDS WEST A DISTANCE OF 5165.06 FEET, THENCE SOUTH 89 DEGREES 13 MINUTES 00 SECONDS WEST A DISTANCE OF 56.83 FEET, THENCE NORTH 00 DEGREES 34 MINUTES 00 SECONDS WEST A DISTANCE OF

97.00 FEET TO THE NORTH LINE OF SAID SECTION 15, THENCE NORTH 89 DEGREES 13 MINUTES 00 SECONDS EAST, ALONG SAID NORTH LINE, A DISTANCE OF 146.60 FEET TO THE POINT OF BEGINNING.

ALSO EXCEPTING THEREFROM THAT PORTION OF SECTION 22, TOWNSHIP 13 SOUTH, RANGE 16 EAST, MOUNT DIABLO BASE AND MERIDIAN, ACCORDING TO THE OFFICIAL PLAT THEREOF, MORE PARTICULARLY DESCRIBED AS FOLLOWS

BEGINNING AT THE NORTHEAST CORNER OF SAID SECTION 22, THENCE SOUTH 00 DEGREES 00 MINUTES 00 SECONDS EAST, ALONG THE EAST LINE OF SAID SECTION 22, A DISTANCE OF 445.44 FEET TO THE NORTHERLY BOUNDARY OF THAT PARCEL OF LAND GRANTED TO THE SACRAMENTO AND SAN JOAQUIN DRAINAGE DISTRICT BY DEED RECORDED NOVEMBER 10, 1966 IN BOOK 974, PAGE 440 OFFICIAL RECORDS OF MADERA COUNTY, DOCUMENT NO 14630, THENCE NORTH 74 DEGREES 43 MINUTES 03 SECONDS WEST, ALONG SAID NORTHERLY BOUNDARY, A DISTANCE OF 159.11 FEET, THENCE NORTH 15 DEGREES 16 MINUTES 57 SECONDS EAST, ALONG SAID NORTHERLY BOUNDARY, A DISTANCE OF 25.00 FEET, THENCE NORTH 74 DEGREES 43 MINUTES 03 SECONDS WEST, ALONG SAID NORTHERLY BOUNDARY, A DISTANCE OF 185.63 FEET, THENCE NORTH 65 DEGREES 14 MINUTES 50 SECONDS EAST A DISTANCE OF 274.77 FEET, THENCE 00 DEGREES 34 MINUTES 00 SECONDS WEST A DISTANCE OF 64.16 FEET, THENCE NORTH 62 DEGREES 49 MINUTES 20 SECONDS EAST A DISTANCE OF 67.11 FEET, THENCE NORTH 00 DEGREES 34 MINUTES 00 SECONDS WEST A DISTANCE OF 120.15 FEET TO THE NORTH LINE OF SAID SECTION 22, THENCE NORTH 88 DEGREES 34 MINUTES 53 SECONDS EAST, ALONG SAID NORTH LINE, A DISTANCE OF 18.57 FEET TO THE POINT OF BEGINNING.

ALSO EXCEPTING THEREFROM SUCH INTEREST IN ALL OIL, GAS, OIL SHALE, COAL AND ANY OTHER HYDROCARBONS OF WHATSOEVER NATURE, PHOSPHATE, SODIUM, GOLD, SILVER, GEOTHERMAL RESOURCES, AND ALL OTHER MINERAL DEPOSITS IN AND UNDER SAID REAL PROPERTY, AS WAS RESERVED IN DEED FROM GETTY OIL COMPANY, A DELAWARE CORPORATION RECORDED FEBRUARY 27, 1985 IN BOOK 1811 AT PAGE 189, MADERA COUNTY RECORDS, DOCUMENT NO 3875 AND AS MODIFIED BY AGREEMENT RECORDED FEBRUARY 2, 1987 AS DOCUMENT NO 1834.

APN PORTION OF 040-162-004 AND PORTION OF 040-221-005 NEW APN 040-162-005

PARCEL NO. 9:

SECTION 14, TOWNSHIP 13 SOUTH, RANGE 16 EAST, MOUNT DIABLO BASE AND MERIDIAN, ACCORDING TO THE OFFICIAL PLAT THEREOF

TOGETHER WITH THAT PORTION OF SECTION 15, TOWNSHIP 13 SOUTH, RANGE 16 EAST, MOUNT DIABLO BASE AND MERIDIAN, ACCORDING TO THE OFFICIAL PLAT THEREOF, MORE PARTICULARLY DESCRIBED AS FOLLOWS.

BEGINNING AT THE NORTHEAST CORNER OF SAID SECTION 15, THENCE SOUTH 00 DEGREES 12 MINUTES 31 SECONDS WEST, ALONG THE EAST LINE OF SAID SECTION 1, A DISTANCE OF 5262.61 FEET TO THE SOUTHEAST CORNER THEREOF, THENCE SOUTH 88 DEGREES 34 MINUTES 53 SECONDS WEST, ALONG THE SOUTH LINE OF SAID SECTION 15, A DISTANCE OF 18.57 FEET, THENCE NORTH 00 DEGREES 34 MINUTES 00 SECONDS WEST A DISTANCE OF 5165.06 FEET,

Page 17 of 38

THENCE SOUTH 89 DEGREES 13 MINUTES 00 SECONDS WEST A DISTANCE OF 56.83 FEET, THENCE NORTH 00 DEGREES 34 MINUTES 00 SECONDS WEST A DISTANCE OF

97.00 FEET TO THE NORTH LINE OF SAID SECTION 15, THENCE NORTH 89 DEGREES 13 MINUTES 00 SECONDS EAST, ALONG SAID NORTH LINE, A DISTANCE OF 146.60 FEET TO THE POINT OF BEGINNING.

EXCEPTING THEREFROM ALL THE ABOVE DESCRIBED LANDS ALL OIL, GAS AND MINERALS THEREIN AND THEREUNDER, AS HERETOFORE CONVEYED BY DEED DATED DECEMBER 2, 1944 AND RECORDED MAY 11, 1945 IN BOOK 362 OF OFFICIAL RECORDS, PAGE 111, MADERA COUNTY RECORDS, TO EDWINA H GILL, AS TO AN UNDIVDED 1/3RD INTEREST, WILL GILL, JR , AS TO AN UNDIVIDED 1/6TH INTEREST, AND INEZ THOMPSON, AS TO AN UNDIVIDED 1/6TH INTEREST, ERNEST GILL, AS TO AN UNDIVIDED 1/6TH INTEREST AND RALPH GILL, AS TO AN UNDIVIDED 1/6TH INTEREST.

RECORDED FEBRUARY 2, 1987 AS DOCUMENT NO 1834.

APN 040-162-001 AND PORTION OF 040-162-004 NEW APN 040-164-002

STELLA RANCH:

THE LAND DESCRIBED HEREIN IS SITUATED IN THE STATE OF CALIFORNIA, COUNTY OF KERN, UNINCORPORATED AREA, AND IS DESCRIBED AS FOLLOWS:

PARCEL NO. 1:

PARCELS 5, 6, 7, 8, 13, 14, 15 AND 16 OF PARCEL MAP 8799 IN THE UNINCORPORATED AREA OF THE COUNTY OF KERN, STATE OF CALIFORNIA, AS PER MAP RECORDED DECEMBER 23, 1988 IN BOOK 37, PAGES 101, 102 AND 103 OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.

EXCEPTING THEREFROM (1) ALL OIL, GAS AND OTHER LIQUID AND GASEOUS HYDROCARBONS, AND IN ADDITION THERETO CARBON DIOXIDE, HYDROGEN, HELIUM, NITROGEN, METHANE, SULFUR (IN EACH CASE IN EITHER LIQUID OR GASEOUS FORM) AND ANY OTHER LIQUID OR GASEOUS SUBSTANCES, INERT OR OTHERWISE, OR ANY OF THEM, AND ANY MINERALS OR OTHER SUBSTANCES PRODUCED IN ASSOCIATION THEREWITH ("HYDROCARBONS") IN, ON OR UNDER THE PROPERTY; (2) THE EXCLUSIVE RIGHT TO PROSPECT FOR, DRILL FOR, PRODUCE, EXTRACT AND REMOVE, INJECT INTO, DISPOSE OF, STORE UNDER AND THEREAFTER WITHDRAW AND REMOVE HYDROCARBONS FROM AND THROUGH THE LANDS TO WHICH THE SUBJECT INTEREST RELATE, OR LANDS POOLED, UNITIZED OR COMMUNITIZED THEREWITH, (WHICH LANDS SHALL BE REFERRED TO HEREIN AS THE "REAL PROPERTY"); (3) ALL REVERSIONARY RIGHTS RELATING TO HYDROCARBONS IN, ON OR UNDER THE REAL PROPERTY; (4) THE RIGHT TO CONSTRUCT, MAINTAIN, OPERATE, REPAIR, REPLACE AND REMOVE GATHERING LINES AND RELATED IMPROVEMENTS FOR THE PURPOSE OF TRANSPORTING HYDROCARBONS OF SIMILAR SUBSTANCES TO, FROM AND ACROSS THE REAL PROPERTY, WHETHER PRODUCED FROM THE REAL PROPERTY, PRODUCED FROM LANDS POOLED, UNITIZED OR COMMUNITIZED WITH THE REAL PROPERTY OR PRODUCED FROM LANDS IN THE SAME GEOGRAPHIC AREA AS THE REAL

Page 18 of 38

PROPERTY; (5) THE RIGHT TO PRODUCE EXTRACT AND REMOVE, INJECT INTO, DISPOSE OF, STORE UNDER AND THEREAFTER WITHDRAW FROM AND THROUGH THE REAL PROPERTY ANY OIL, GAS, MINERALS, AND OTHER SUBSTANCES THAT MAY BE POOLED, COMMUNITIZED OR UNITIZED WITH ANY OF SAID HYDROCARBONS; AND (6) THE EXCLUSIVE RIGHT TO DRILL AND OPERATE WHATEVER WELLS, CONSTRUCT, INSTALL, OPERATE, MAINTAIN, REPLACE AND REMOVE WHATEVER OTHER FACILITIES AND DO WHATEVER ELSE MAY BE REASONABLY NECESSARY ON AND IN THE REAL PROPERTY FOR THE FULL ENJOYMENT OF THE RIGHTS HEREIN GRANTED, INCLUDING THE RIGHT OF INGRESS TO AND EGRESS FROM THE REAL PROPERTY FOR SUCH PURPOSES; AS CONVEYED TO TENNECO OIL COMPANY, A DELAWARE CORPORATION, IN DOCUMENT RECORDED NOVEMBER 18, 1988 IN BOOK 6183, PAGE 1167 OF OFFICIAL RECORDS.

ALSO EXCEPTING THEREFROM ALL OTHER MINERALS OF WHATEVER KIND OR CHARACTER, ALL HEREIN COLLECTIVELY CALLED "MINERALS", NOT CONVEYED TO TENNECO OIL COMPANY WHETHER SUCH MINERALS ARE NOW KNOWN TO EXIST OR HEREAFTER DISCOVERED (IT BEING INTENDED THAT THE WORD "MINERALS" AS USED HEREIN SHALL BE DEFINED IN THE BROADEST SENSE OF THE WORD BUT SHALL NOT INCLUDE SAND, GRAVEL OR AGGREGATES) WHICH ARE IN, UNDER OR MAY BE PRODUCED FROM THE PREMISES, ALL SALT WATER, BRINES AND GEOTHERMAL RESOURCES, IN, UNDER OR MAY BE PRODUCED FROM SAID REAL PROPERTY; THE EXCLUSIVE RIGHT, BY WHATEVER METHODS NOW OR HEREAFTER KNOWN, AS GRANTOR OR ITS SUCCESSORS OR ASSIGNS MAY DEEM ADVISABLE, TO PROSPECT FOR, INVESTIGATE FOR, EXPLORE FOR, DRILL FOR, PRODUCE, EXTRACT, REMOVE AND REDUCE TO POSSESSION AND OWNERSHIP ALL SUCH MINERALS, SALT WATER, BRINES AND GEOTHERMAL RESOURCES, WHICH ARE IN, UNDER OR MAY BE PRODUCED FROM THE PREMISES; THE EXCLUSIVE RIGHT TO DRILL INTO AND THROUGH THE PREMISES TO EXPLORE FOR AND THEREAFTER PRODUCE AND EXTRACT MINERALS, SALT WATER, BRINES AND GEOTHERMAL RESOURCES WHICH MAY BE PRODUCED FROM ADJACENT PROPERTY, THE RIGHT TO LAY, CONSTRUCT, ERECT AND PLACE UPON AND IN THE PREMISES, AND USE, MAINTAIN AND OPERATE THEREON AND THEREAFTER REMOVE ALL MACHINERY, FIXTURES, EQUIPMENT, PIPELINES, TELEPHONE LINES, ELECTRIC POWER LINES, ROADS, AND OTHER STRUCTURES AND FACILITIES AS GRANTOR ITS SUCCESSORS OR ASSIGNS MAY DEEM ADVISABLE, FOR THE EXERCISE AND ENJOYMENT OF THE RIGHTS HEREIN EXCEPTED AND RESERVED; THE EXCLUSIVE RIGHT TO TREAT, PROCESS, (BUT NOT REFINE), STORE UPON AND REMOVE FROM THE PREMISES SUCH MINERALS, SALT WATER, BRINES AND GEOTHERMAL RESOURCES; THE EXCLUSIVE RIGHT TO PRODUCE AND EXTRACT SUCH MINERALS BY SUCH METHOD OR METHODS AS GRANTOR OR ITS SUCCESSORS OR ASSIGNS MAY DEEM ADVISABLE, THE RIGHT AT ALL TIMES, WITHOUT CHARGE, TO INVESTIGATE FOR, EXPLORE FOR, DRILL FOR, PRODUCE, REMOVE AND REDUCE TO POSSESSION AND OWNERSHIP, THOSE QUANTITIES OF FRESH WATER FROM AQUIFERS UNDERLYING SAID REAL PROPERTY DEEMED NECESSARY BY GRANTOR OR ITS SUCCESSORS OR ASSIGNS TO USE IN PROSPECTING, EXPLORING, DRILLING, PRODUCING, EXTRACTING AND REMOVING OR OTHER OPERATIONS IN CONNECTION WITH THE FULL ENJOYMENT AND EXERCISE OF THE RIGHTS HEREIN EXCEPTED AND RESERVED ANY AND ALL OTHER RIGHTS UPON SAID REAL PROPERTY AS GRANTOR OR ITS SUCCESSORS OR ASSIGNS DEEMS NECESSARY, INCIDENTAL TO, OR CONVENIENT, WHETHER ALONG OR COJOINTLY WITH NEIGHBORING LANDS, IN EXPLORING FOR, PRODUCING AND EXTRACTING THE MINERALS, SALT WATER, BRINES AND GEOTHERMAL RESOURCES HEREIN EXCEPTED AND RESERVED; AND THE UNLIMITED AND UNRESTRICTED RIGHTS OF ACCESS TO SAID MINERALS, SALT WATER, BRINES AND GEOTHERMAL RESOURCES AND OF INGRESS AND EGRESS TO AND FROM, OVER AND ACROSS SAID REAL PROPERTY FOR ALL PURPOSES DEEMED ADVISABLE BY GRANTOR OR ITS SUCCESSORS OR ASSIGNS IN THE EXERCISE OF THE RIGHTS EXCEPTED AND RESERVED HEREIN PROVIDED, HOWEVER, THAT GRANTOR, OR ITS SUCCESSORS AND ASSIGNS, UPON BEING PROVIDED PROOF THEREOF, SHALL COMPENSATE GRANTEE OR ITS SUCCESSORS AND ASSIGNS (A) FOR ANY AND ALL ACTUAL DAMAGE TO IMPROVEMENTS, TREES AND GROWING CROPS UPON SAID REAL PROPERTY WHICH IS CAUSED BY THE EXERCISE OF THE RIGHTS EXCEPTED AND RESERVED HEREIN, AND (B) THE REASONABLE VALUE OF THE LANDS USED FOR ACTUAL DEVELOPMENT AND EXTRACTION OF SUCH MINERAL RIGHTS. ALL AS RESERVED BY TENNECO WEST, INC., A DELAWARE CORPORATION BY DOCUMENT RECORDED JANUARY 31, 1991 IN BOOK 6483, PAGE 753 OF OFFICIAL RECORDS.

Page 19 of 38

APNS: 184-070-29, 184-070-30, 184-070-31, 184-070-32, 184-100-16, 184-100-17, 184-100-18 & 184-100-19)

PARCEL NO. 2:

THAT PORTION OF SECTION 9, TOWNSHIP 31 SOUTH, RANGE 26 EAST, M.D.B.M., IN THE UNINCORPORATED AREA, OF THE COUNTY OF KERN, STATE OF CALIFORNIA, ACCORDING TO THE OFFICIAL PLAT THEREOF, LYING SOUTHEASTERLY OF THE SOUTHEASTERLY LINE OF PARCEL A OF PARCEL MAP 761 AS RECORDED FEBRUARY 15, 1973 IN BOOK 4, PAGE 150 OF PARCEL MAPS.

EXCEPTING THEREFROM ALL OIL, GAS AND OTHER LIQUID AND GASEOUS HYDROCARBONS, AND IN ADDITION THERETO CARBON DIOXIDE HYDROGEN, HELIUM, NITROGEN, METHANE, SULFUR (IN EACH CASE 1 EITHER LIQUID OR GASEOUS FORM) AND ANY OTHER LIQUID OR GASEOUS SUBSTANCES, INERT OR OTHERWISE, OR ANY OF THEM, AND ANY MINERALS OR OTHER SUBSTANCES PRODUCED IN ASSOCIATION THEREWITH ("HYDROCARBONS") IN, ON OR UNDER THE PROPERTY; (2) THE EXCLUSIVE RIGHT TO PROSPECT FOR, DRILL FOR, PRODUCED, EXTRACT AND REMOVE, INJECT INTO, DISPOSE OF, STORE UNDER AND THEREAFTER WITHDRAW AND REMOVE HYDROCARBONS FROM AND THROUGH THE LANDS TO WHICH THE SUBJECT INTERESTS RELATE, OR LANDS POOLED, UNITIZED OR COMMUNITIZED THEREWITH, (WHICH LANDS SHALL BE REFERRED TO HEREIN AS THE "REAL PROPERTY); (3) ALL REVERSIONARY RIGHTS RELATING TO HYDROCARBONS IN, ON OR UNDER THE REAL PROPERTY; (4) THE RIGHT TO CONSTRUCT, MAINTAIN, OPERATE, REPAIR, REPLACE AND REMOVE GATHERING LINES AND RELATED IMPROVEMENTS FOR THE PURPOSE OF TRANSPORTING HYDROCARBONS OR SIMILAR SUBSTANCES TO, FROM AND ACROSS THE REAL PROPERTY, WHETHER PRODUCED FROM THE REAL PROPERTY, PRODUCED FROM LANDS POOLED, UNITIZED OR COMMUNITIZED WITH THE REAL PROPERTY OR PRODUCED FROM LANDS IN THE SAME GEOGRAPHIC AREA AS THE REAL PROPERTY; (5) THE RIGHT TO PRODUCED, EXTRACT AND REMOVE, INJECT INTO, DISPOSE OF, STORE UNDER AND THEREAFTER WITHDRAW FROM AND THROUGH THE REAL PROPERTY ANY OIL, GAS, MINERALS AND OTHER SUBSTANCES THAT MAY BE POOLED, COMMUNITIZED OR UNITIZED WITH ANY OF SAID HYDROCARBONS; AND (6) THE EXCLUSIVE RIGHT TO DRILL AND OPERATE WHATEVER WELLS, CONSTRUCT, INSTALL, OPERATE, MAINTAIN, REPLACE AND REMOVE WHATEVER OTHER FACILITIES AND DO WHATEVER ELSE MAY BE REASONABLY NECESSARY ON AND IN THE REAL PROPERTY FOR THE FULL ENJOYMENT OF THE RIGHTS HEREIN GRANTED, INCLUDING THE RIGHT OF INGRESS TO AND EGRESS FROM THE REAL PROPERTY FOR SUCH PURPOSES; AS CONVEYED TO TENNECO OIL COMPANY, A DELAWARE CORPORATION, IN DOCUMENT RECORDED NOVEMBER 18, 1988 IN BOOK 6183, PAGE 1167 OF OFFICIAL RECORDS.

Page 20 of 38

AND RESERVED; THE EXCLUSIVE RIGHT TO TREAT, PROCESS (BUT NOT REFINE), STORE UPON AND REMOVE FROM THE PREMISES SUCH MINERALS, SALT WATER, BRINES AND GEOTHERMAL RESOURCES; THE EXCLUSIVE RIGHT TO PRODUCE AND EXTRACT SUCH MINERALS BY SUCH METHOD OR METHODS AS GRANTOR OR ITS SUCCESSORS OR ASSIGNS MAY DEEM ADVISABLE, THE RIGHT AT ALL TIMES, WITHOUT CHARGE, TO INVESTIGATE FOR, EXPLORE FOR, DRILL FOR, PRODUCE, REMOVE AND REDUCE TO POSSESSION AND OWNERSHIP, THOSE QUANTITIES OF FRESH WATER FROM AQUIFERS UNDERLYING SAID REAL PROPERTY DEEMED NECESSARY BY GRANTOR OR ITS SUCCESSORS OR ASSIGNS TO USE IN PROSPECTING, EXPLORING, DRILLING, PRODUCING, EXTRACTING AND REMOVING OR OTHER OPERATIONS IN CONNECTION WITH THE FULL ENJOYMENT AND EXERCISE OF THE RIGHTS HEREIN EXCEPTED AND RESERVED ANY AND ALL OTHER RIGHTS UPON SAID REAL PROPERTY AS GRANTOR OR ITS SUCCESSORS OR ASSIGNS DEEMS NECESSARY, INCIDENTAL TO, OR CONVENIENT, WHETHER ALONG OR COJOINTLY WITH NEIGHBORING LANDS, IN EXPLORING FOR, PRODUCING AND EXTRACTING THE MINERALS, SALT WATER, BRINES AND GEOTHERMAL RESOURCES HEREIN EXCEPTED AND RESERVED; AND THE UNLIMITED AND UNRESTRICTED RIGHTS OF ACCESS TO SAID MINERALS, SALT WATER, BRINES AND GEOTHERMAL RESOURCES AND OF INGRESS AND EGRESS TO AND FROM, OVER AND ACROSS SAID REAL PROPERTY FOR ALL PURPOSES DEEMED ADVISABLE BY GRANTOR OR ITS SUCCESSORS OR ASSIGNS IN THE EXERCISE OF THE RIGHTS EXCEPTED AND RESERVED HEREIN PROVIDED, HOWEVER, THAT GRANTOR, OR ITS SUCCESSORS AND ASSIGNS, UPON BEING PROVIDED PROOF THEREOF, SHALL COMPENSATE GRANTEE OR ITS SUCCESSORS AND ASSIGNS (A) FOR ANY AND ALL ACTUAL DAMAGE TO IMPROVEMENTS, TREES AND GROWING CROPS UPON SAID REAL PROPERTY WHICH IS CAUSED BY THE EXERCISE OF THE RIGHTS EXCEPTED AND RESERVED HEREIN, AND (B) THE REASONABLE VALUE OF THE LANDS USED FOR ACTUAL DEVELOPMENT AND EXTRACTION OF SUCH MINERAL RIGHTS. ALL AS RESERVED BY TENNECO WEST, INC., A DELAWARE CORPORATION BY DOCUMENT RECORDED JANUARY 31, 1991 IN BOOK 6483, PAGE 753 OF OFFICIAL RECORDS.

APN: 184-090-21

PARCEL NO. 3:

THAT PORTION OF SECTION 16, TOWNSHIP 31 SOUTH, RANGE 26 EAST, M.D.B.M., IN THE UNINCORPORATED AREA, OF THE COUNTY OF KERN, STATE OF CALIFORNIA, ACCORDING TO THE OFFICIAL PLAT THEREOF, LYING NORTHEAST OF THE NORTHEASTERLY LINE OF INTERSTATE 5 AS CONVEYED TO THE STATE OF CALIFORNIA IN DEED RECORDED MARCH 24, 1967 IN BOOK 4037, PAGE 193 OF OFFICIAL RECORDS.

EXCEPTING THEREFROM THAT PORTION OF SAID LAND LYING WITHIN PARCEL A OF PARCEL MAP 761 AS RECORDED FEBRUARY 15, 1973 IN BOOK 4, PAGE 150 OF PARCEL MAP.

ALSO EXCEPTING THEREFROM (1) ALL OIL, GAS AND OTHER LIQUID AND GASEOUS HYDROCARBONS, AND IN ADDITION THERETO CARBON DIOXIDE, HYDROGEN, HELIUM, NITROGEN, METHANE, SULFUR (IN EACH CASE IN EITHER LIQUID OR GASEOUS FORM) AND ANY OTHER LIQUID OR GASEOUS SUBSTANCES, INERT OR OTHERWISE, OR ANY OF THEM, AND ANY MINERALS OR OTHER SUBSTANCES PRODUCED IN ASSOCIATION THEREWITH ("HYDROCARBON") IN, ON OR UNDER THE PROPERTY; (2) THE EXCLUSIVE RIGHT TO PROSPECT FOR, DRILL FOR, PRODUCED, EXTRACT AND REMOVE, INJECT INTO, DISPOSE OF, STORE UNDER AND THEREAFTER WITHDRAW AND REMOVE HYDROCARBONS FROM AND THROUGH THE LANDS TO WHICH THE SUBJECT INTEREST RELATE, OR LANDS POOLED, UNITIZED OR COMMUNITIZED THEREWITH, (WHICH LANDS SHALL BE REFERRED TO HEREIN AS THE "REAL PROPERTY"); (3) ALL REVERSIONARY RIGHTS RELATING TO HYDROCARBONS IN, ON OR UNDER THE REAL PROPERTY; (4) THE RIGHT TO CONSTRUCT, MAINTAIN, OPERATE, REPAIR, REPLACE AND REMOVE GATHERING LINES AND RELATED IMPROVEMENTS FOR THE PURPOSE OF TRANSPORTING HYDROCARBONS OR SIMILAR SUBSTANCES TO, FROM ACROSS THE REAL PROPERTY, WHETHER PRODUCED FROM THE REAL PROPERTY, PRODUCED FROM LANDS POOLED, UNITIZED OR COMMUNITIZED WITH THE REAL PROPERTY OR PRODUCED FROM LANDS IN THE SAME

Page 21 of 38

GEOGRAPHIC AREA AS THE REAL PROPERTY; (5) THE RIGHT TO PRODUCE, EXTRACT AND REMOVE, INJECT INTO, DISPOSE OF, STORE UNDER AND THEREAFTER WITHDRAW FROM AND THROUGH THE REAL PROPERTY ANY OIL, GAS, MINERALS AND OTHER SUBSTANCES THAT MAY BE POOLED, COMMUNITIZED OR UNITIZED WITH ANY OF SAID HYDROCARBONS; AND (6) THE EXCLUSIVE RIGHT TO DRILL AND OPERATE WHATEVER WELLS, CONSTRUCT, INSTALL, OPERATE, MAINTAIN, REPLACE AND REMOVE WHATEVER OTHER FACILITIES AND DO WHATEVER ELSE MAY BE REASONABLY NECESSARY ON AND IN THE REAL PROPERTY FOR THE FULL ENJOYMENT OF THE RIGHTS HEREIN GRANTED, INCLUDING THE RIGHT OF INGRESS TO AND EGRESS FROM THE REAL PROPERTY FOR SUCH PURPOSES; AS CONVEYED TO TENNECO OIL COMPANY, A DELAWARE CORPORATION, IN DOCUMENT RECORDED NOVEMBER 18, 1988 IN BOOK 6183, PAGE 1167 OF OFFICIAL RECORDS,

ALSO EXCEPTING THEREFROM ALL OTHER MINERALS OF WHATEVER KIND OR CHARACTER, ALL HEREIN COLLECTIVELY CALLED "MINERALS", NOT CONVEYED TO TENNECO OIL COMPANY WHETHER SUCH MINERALS ARE NOW KNOWN TO EXIST OR HEREAFTER DISCOVERED (IT BEING INTENDED THAT THE WORD "MINERALS" AS USED HEREIN SHALL BE DEFINED IN THE BROADEST SENSE OF THE WORD BUT SHALL NOT INCLUDE SAND, GRAVEL OR AGGREGATES) WHICH ARE IN, UNDER OR MAY BE PRODUCED FROM THE PREMISES, ALL SALT WATER, BRINES AND GEOTHERMAL RESOURCES, IN, UNDER OR MAY BE PRODUCED FROM SAID REAL, PROPERTY; THE EXCLUSIVE RIGHT, BY WHATEVER METHODS NOW OR HEREAFTER KNOWN, AS GRANTOR OR ITS SUCCESSORS OR ASSIGNS MAY DEEM ADVISABLE, TO PROSPECT FOR, INVESTIGATE FOR, EXPLORE FOR, DRILL FOR, PRODUCE, EXTRACT, REMOVE AND REDUCE TO POSSESSION AND OWNERSHIP ALL SUCH MINERALS, SALT WATER, BRINES AND GEOTHERMAL RESOURCES, WHICH ARE IN, UNDER OR MAY BE PRODUCED FROM THE PREMISES; THE EXCLUSIVE RIGHT TO DRILL INTO AND THROUGH THE PREMISES TO EXPLORE FOR AND THEREAFTER PRODUCE AND EXTRACT MINERALS, SALT WATER, BRINES AND GEOTHERMAL RESOURCES WHICH MAY BE PRODUCED FROM ADJACENT PROPERTY, THE RIGHT TO LAY, CONSTRUCT, ERECT AND PLACE UPON AND IN THE PREMISES, AND USE, MAINTAIN AND OPERATE THEREON AND THEREAFTER REMOVE ALL MACHINERY, FIXTURES, EQUIPMENT, PIPELINES, TELEPHONE LINES, ELECTRIC POWER LINES, ROADS, AND OTHER STRUCTURES AND FACILITIES AS GRANTOR ITS SUCCESSORS OR ASSIGNS MAY DEEM ADVISABLE, FOR THE EXERCISE AND ENJOYMENT OF THE RIGHTS HEREIN EXCEPTED AND RESERVED; THE EXCLUSIVE RIGHT TO TREAT, PROCESS, (BUT NOT REFINE), STORE UPON AND REMOVE FROM THE PREMISES SUCH MINERALS, SALT WATER, BRINES AND GEOTHERMAL RESOURCES; THE EXCLUSIVE RIGHT TO PRODUCE AND EXTRACT SUCH MINERALS BY SUCH METHOD OR METHODS AS GRANTOR OR ITS SUCCESSORS OR ASSIGNS MAY DEEM ADVISABLE, THE RIGHT AT ALL TIMES WITHOUT CHARGE, TO INVESTIGATE FOR, EXPLORE FOR, DRILL FOR, PRODUCE, REMOVE AND REDUCE TO POSSESSION AND OWNERSHIP, THOSE QUANTITIES OF FRESH WATER FROM AQUIFERS UNDERLYING SAID REAL PROPERTY DEEMED NECESSARY BY GRANTOR OR ITS SUCCESSORS OR ASSIGNS TO USE IN PROSPECTING, EXPLORING, DRILLING, PRODUCING, EXTRACTING AND REMOVING OR OTHER OPERATIONS IN CONNECTION WITH THE FULL ENJOYMENT AND EXERCISE OF THE RIGHTS HEREIN EXCEPTED AND RESERVED ANY AND ALL OTHER RIGHTS UPON SAID REAL PROPERTY AS GRANTOR OR ITS SUCCESSORS OR ASSIGNS DEEMS NECESSARY, INCIDENTAL TO, OR CONVENIENT, WHETHER ALONG OR COJOINTLY WITH NEIGHBORING LANDS, IN EXPLORING FOR, PRODUCING AND EXTRACTING THE MINERALS, SALT WATER, BRINES AND GEOTHERMAL RESOURCES HEREIN EXCEPTED AND RESERVED; AND THE UNLIMITED AND UNRESTRICTED RIGHTS OF ACCESS TO SAID MINERALS, SALT WATER, BRINES AND GEOTHERMAL RESOURCES AND OF INGRESS AND EGRESS TO AND FROM, OVER AND ACROSS SAID REAL PROPERTY FOR ALL PURPOSES DEEMED ADVISABLE BY GRANTOR OR ITS SUCCESSORS OR ASSIGNS IN THE EXERCISE OF THE RIGHTS EXCEPTED AND RESERVED HEREIN PROVIDED, HOWEVER, THAT GRANTOR, OR ITS SUCCESSORS AND ASSIGNS, UPON BEING PROVIDED PROOF THEREOF, SHALL COMPENSATE GRANTEE OR ITS SUCCESSORS AND ASSIGNS (A) FOR ANY AND ALL ACTUAL DAMAGE TO IMPROVEMENTS, TREES AND GROWING CROPS UPON SAID REAL PROPERTY WHICH IS CAUSED BY THE EXERCISE OF THE RIGHTS EXCEPTED AND RESERVED HEREIN, AND (B) THE REASONABLE VALUE OF THE LANDS USED FOR ACTUAL DEVELOPMENT AND EXTRACTION OF SUCH MINERAL RIGHTS. ALL AS

Page 22 of 38

RESERVED BY TENNECO WEST, INC., A DELAWARE CORPORATION BY DOCUMENT RECORDED JANUARY 31, 1991 IN BOOK 6483, PAGE 753 OF OFFICIAL RECORDS.

APN: 184-110-32

PARCEL NO. 4:

THAT PORTION OF THE NORTHWEST 1/4 OF SECTION 22, TOWNSHIP 31, SOUTH, RANGE 26 EAST, M.D.B.M., IN THE UNINCORPORATED AREA OF THE COUNTY OF KERN, STATE OF CALIFORNIA, ACCORDING TO THE OFFICIAL PLAT THEREOF, LYING NORTHEASTERLY OF THE NORTHEASTERLY LINE OF INTERSTATE 5 AS CONVEYED TO THE STATE OF CALIFORNIA IN DEED RECORDED MARCH 24, 1967 IN BOOK 4037, PAGE 193 OF OFFICIAL RECORDS.

EXCEPTING THEREFROM (1) ALL OIL, GAS AND OTHER LIQUID AND GASEOUS HYDROCARBONS, AND IN ADDITION THERETO CARBON DIOXIDE, HYDROGEN, HELIUM OR GASEOUS FORM) AND ANY OTHER LIQUID OR GASEOUS SUBSTANCES, INERT OR OTHERWISE, OR ANY OF THEM, AND ANY MINERALS OR OTHER SUBSTANCES PRODUCED IN ASSOCIATION THEREWITH ("HYDROCARBONS") IN, ON OR UNDER THE PROPERTY; (2) THE EXCLUSIVE RIGHT TO PROSPECT FOR, DRILL FOR, PRODUCED, EXTRACT AND REMOVE, INJECT INTO, DISPOSE OF, STORE UNDER AND THEREAFTER WITHDRAW AND REMOVE HYDROCARBONS FROM AND THROUGH THE LANDS TO WHICH THE SUBJECT INTERESTS RELATE, OR LANDS POOLED, UNITIZED OR COMMUNITIZED THEREWITH, (WHICH LANDS SHALL BE REFERRED TO HEREIN AS THE "REAL PROPERTY"); (3) ALL REVERSIONARY RIGHTS RELATING TO HYDROCARBONS IN, ON OR UNDER THE REAL PROPERTY; (4) THE RIGHT TO CONSTRUCT, MAINTAIN, OPERATE, REPAIR, REPLACE AND REMOVE GATHERING LINES AND RELATED IMPROVEMENTS FOR THE PURPOSE OF TRANSPORTING HYDROCARBONS OR SIMILAR SUBSTANCES TO, FROM AND ACROSS THE REAL PROPERTY, WHETHER PRODUCED FROM THE REAL PROPERTY, PRODUCED FROM LANDS POOLED, UNITIZED OR COMMUNITIZED WITH THE REAL PROPERTY OR PRODUCED FROM LANDS IN THE SAME GEOGRAPHIC AREA AS THE REAL PROPERTY; (5) THE RIGHT TO PRODUCE, EXTRACT AND REMOVE, INJECT INTO, DISPOSE OF, STORE UNDER AND THEREAFTER WITHDRAW FROM AND THROUGH THE REAL PROPERTY ANY OIL GAS, MINERALS AND OTHER SUBSTANCES THAT MAY BE POOLED, COMMUNITIZED OR UNITIZED WITH ANY OF SAID HYDROCARBONS; AND (6) THE EXCLUSIVE RIGHT TO DRILL AND OPERATE WHATEVER WELLS, CONSTRUCT, INSTALL, OPERATE, MAINTAIN, REPLACE AND REMOVE WHATEVER OTHER FACILITIES AND DO WHATEVER ELSE MAY BE REASONABLY NECESSARY ON AND IN THE REAL PROPERTY FOR THE FULL ENJOYMENT OF THE RIGHTS HEREIN GRANTED, INCLUDING THE RIGHT OF INGRESS TO AND EGRESS FROM THE REAL PROPERTY FOR SUCH PURPOSES; AS CONVEYED TO TENNECO OIL COMPANY, A DELAWARE CORPORATION, IN DOCUMENT RECORDED NOVEMBER 18, 1988 IN BOOK 6183, PAGE 1167 OF OFFICIAL RECORDS.

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REMOVE ALL MACHINERY, FIXTURES, EQUIPMENT, PIPELINES, TELEPHONE LINES, ELECTRIC POWER LINES, ROADS, AND OTHER STRUCTURES AND FACILITIES AS GRANTOR ITS SUCCESSORS OR ASSIGNS MAY DEEM ADVISABLE, FOR THE EXERCISE AND ENJOYMENT OF THE RIGHTS HEREIN EXCEPTED AND RESERVED; THE EXCLUSIVE RIGHT TO TREAT, PROCESS, (BUT NOT REFINE), STORE UPON AND REMOVE FROM THE PREMISES SUCH MINERALS, SALT WATER, BRINES AND GEOTHERMAL RESOURCES; THE EXCLUSIVE RIGHT TO PRODUCE AND EXTRACT SUCH MINERALS BY SUCH METHOD OR METHODS AS GRANTOR OR ITS SUCCESSORS OR ASSIGNS MAY DEEM ADVISABLE, THE RIGHT AT ALL TIMES, WITHOUT CHARGE, TO INVESTIGATE FOR, EXPLORE FOR, DRILL FOR, PRODUCE, REMOVE AND REDUCE TO POSSESSION AND OWNERSHIP, THOSE QUANTITIES OF FRESH WATER FROM AQUIFERS UNDERLYING SAID REAL PROPERTY DEEMED NECESSARY BY GRANTOR OR ITS SUCCESSORS OR ASSIGNS TO USE IN PROSPECTING, EXPLORING, DRILLING, PRODUCING, EXTRACTING AND REMOVING OR OTHER OPERATIONS IN CONNECTION WITH THE FULL ENJOYMENT AND EXERCISE OF THE RIGHTS HEREIN EXCEPTED AND RESERVED ANY AND ALL OTHER RIGHTS UPON SAID REAL PROPERTY AS GRANTOR OR ITS SUCCESSORS OR ASSIGNS DEEMS NECESSARY, INCIDENTAL TO, OR CONVENIENT, WHETHER ALONG OR COJOINTLY WITH NEIGHBORING LANDS, IN EXPLORING FOR, PRODUCING AND EXTRACTING THE MINERALS, SALT WATER, BRINES AND GEOTHERMAL RESOURCES HEREIN EXCEPTED AND RESERVED; AND THE UNLIMITED AND UNRESTRICTED RIGHTS OF ACCESS TO SAID MINERALS, SALT WATER, BRINES AND GEOTHERMAL RESOURCES AND OF INGRESS AND EGRESS TO AND FROM, OVER AND ACROSS SAID REAL PROPERTY FOR ALL PURPOSES DEEMED ADVISABLE BY GRANTOR OR ITS SUCCESSORS OR ASSIGNS IN THE EXERCISE OF THE RIGHTS EXCEPTED AND RESERVED HEREIN PROVIDED, HOWEVER, THAT GRANTOR, OR ITS SUCCESSORS AND ASSIGNS, UPON BEING PROVIDED PROOF THEREOF, SHALL COMPENSATE GRANTEE OR ITS SUCCESSORS AND ASSIGNS (A) FOR ANY AND ALL ACTUAL DAMAGE TO IMPROVEMENTS, TREES AND GROWING CROPS UPON SAID REAL PROPERTY WHICH IS CAUSED BY THE EXERCISE OF THE RIGHTS EXCEPTED AND RESERVED HEREIN, AND (B) THE REASONABLE VALUE OF THE LANDS USED FOR ACTUAL DEVELOPMENT AND EXTRACTION OF SUCH MINERAL RIGHTS. ALL AS RESERVED BY TENNECO WEST, INC., A DELAWARE CORPORATION BY DOCUMENT RECORDED JANUARY 31, 1991 IN BOOK 6483, PAGE 753 OF OFFICIAL RECORDS.

APN: 184-100-13

CHOWCHILLA I RANCH:

THE LAND DESCRIBED HEREIN IS SITUATED IN THE STATE OF CALIFORNIA, COUNTY OF MADERA, UNINCORPORATED AREA, AND IS DESCRIBED AS FOLLOWS:

PARCEL NO. 1:

LOT 530 IN BLOCK 36 OF DAIRYLAND FARMS SUBDIVISION NO. 2, AS SHOWN ON THE MAP THEREOF RECORDED ON JULY 8, 1914 IN BOOK 4, PAGES 11, 12, AND 13 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.

EXCEPTING THEREFROM ALL BUILDINGS, STRUCTURES, IMPROVEMENTS AND GROWING CROPS SITUATED THEREON, INCLUDING, WITHOUT LIMITATION, ALMOND TREES, WELLS, PUMPS, MOTORS, ELECTRICAL PANELS, ELECTRICAL HOOKUPS, WATER CONVEYANCE AND DISCHARGE FACILITIES, PIPELINES AND IRRIGATIONS SYSTEMS, HULLER/SHELLER FACILITY, RESIDENTIAL UNITS AND AIRSTRIP AND ALL RIGHTS THE REAL PROPERTY MAY HAVE TO GROUNDWATER, WHICH ALL SHALL REMAIN REAL PROPERTY, AS RESERVED IN THE DEED RECORDED AUGUST 17, 2010 AS DOCUMENT NO. 2010022415 OF OFFICIAL RECORDS.

APN: 024-120-029

PARCEL NO. 2:

Page 24 of 38

LOTS 15 AND 16 IN BLOCK 23 OF CENTRAL TRACT, ACCORDING TO THE MAP THEREOF RECORDED OCTOBER 10, 1912 IN BOOK 3 OF PAGE 13 OF MAPS, MADERA COUNTY RECORDS.

EXCEPTING THEREFROM THOSE PORTIONS OF LOTS 15 AND 16 DESCRIBED AS FOLLOWS:

BEGINNING AT THE SOUTHEAST CORNER OF SECTION 14, TOWNSHIP 10 SOUTH, RANGE 15 EAST, MOUNT DIABLO BASE AND MERIDIAN, THENCE S. 89° 07’ W., 2640 FEET TO THE SOUTHWEST CORNER OF SAID LOT 15, THENCE N. 0° 57’ W. 30.00 FEET; THENCE N. 89° 07’ E., 2610 FEET; THENCE N. 0° 57’ W., 1290 FEET; THENCE N. 89° 07’ E., 30.00 FEET TO THE NORTHEAST CORNER OF SAID LOT 16; THENCE S. 0° 57’ E., 1320 FEET, ORE OR LESS, TO THE POINT OF BEGINNING.

ALSO EXCEPTING THEREFROM ALL BUILDINGS, STRUCTURES, IMPROVEMENTS AND GROWING CROPS SITUATED THEREON, INCLUDING, WITHOUT LIMITATION, ALMOND TREES, WELLS, PUMPS, MOTORS, ELECTRICAL PANELS, ELECTRICAL HOOKUPS, WATER CONVEYANCE AND DISCHARGE FACILITIES, PIPELINES AND IRRIGATIONS SYSTEMS, HULLER/SHELLER FACILITY, RESIDENTIAL UNITS AND AIRSTRIP AND ALL RIGHTS THE REAL PROPERTY MAY HAVE TO GROUNDWATER, WHICH ALL SHALL REMAIN REAL PROPERTY, AS RESERVED IN THE DEED RECORDED AUGUST 17, 2010 AS DOCUMENT NO. 2010022415 OF OFFICIAL RECORDS.

APN: 024-120-011

PARCEL NO. 3:

LOT 13 IN BLOCK 22 OF CENTRAL COLONIES, ACCORDING TO THE MAP ENTITLED “CENTRAL COLONIES”, BEING A PORTION OF THE CENTRAL TRACT OF THE CHOWCHILLA RANCH, FILED AND RECORDED IN THE OFFICE OF THE COUNTY RECORDER OF THE COUNTY OF MADERA, STATE OF CALIFORNIA, ON DECEMBER 2, 1912 IN BOOK 3 PAGE 21 OF MAPS, MADERA COUNTY RECORDS.

APN: 024-120-024

PARCEL NO. 4:

LOT 14 IN BLOCK 22 OF CENTRAL COLONIES, IN THE UNINCORPORATED AREA, COUNTY OF MADERA, STATE OF CALIFORNIA, ACCORDING TO THE MAP THEREOF RECORDED DECEMBER 2, 1912 IN BOOK 3 PAGE 21 OF MAPS, MADERA COUNTY RECORDS.

EXCEPTING THEREFROM THAT PORTION THEREOF CONVEYED TO SACRAMENTO AND SAN JOAQUIN DRAINAGE DISTRICT BY DEED RECORDED APRIL 4, 1975 IN BOOK 1228, PAGE 361 OF OFFICIAL RECORDS, DOCUMENT NO. 4791.

ALSO EXCEPTING THEREFROM AN UNDIVIDED ½ INTEREST IN AND TO THE OIL, GAS AND MINERALS IN AND UNDER THE WITHIN DESCRIBED REAL PROPERTY, AS RESERVED IN DEED FROM HALLIE ALLY ROBINSON, RECORDED NOVEMBER 19, 1963 IN BOOK 884 PAGE 23 OF OFFICIAL RECORDS.

Page 25 of 38

FACILITIES, PIPELINES AND IRRIGATIONS SYSTEMS, HULLER/SHELLER FACILITY, RESIDENTIAL UNITS AND AIRSTRIP AND ALL RIGHTS THE REAL PROPERTY MAY HAVE TO GROUNDWATER, WHICH ALL SHALL REMAIN REAL PROPERTY, AS RESERVED IN THE DEED RECORDED AUGUST 17, 2010 AS DOCUMENT NO. 2010022415 OF OFFICIAL RECORDS.

APN: 024-120-025

PARCEL NO. 5:

LOTS 9 AND 16 IN BLOCK 22 OF CENTRAL COLONIES, ACCORDING TO THE MAP THEREOF RECORDED DECEMBER 2,1912 IN BOOK 3 PAGE 21 OF MAPS, MADERA COUNTY RECORDS.

APN: 024-120-023

PARCEL NO. 6:

LOT 10 IN BLOCK 22 OF CENTRAL COLONIES, ACCORDING TO THE MAP THEREOF RECORDED DECEMBER 2, 1912 IN BOOK 3 PAGE 21 OF MAPS, MADERA COUNTY RECORDS.

APN: 024-120-022

PARCEL NO. 7:

LOT 3 AND ALL THAT PORTION OF LOT 4 IN BLOCK 33 OF BERENDA TRUST, ACCORDING TO THE MAP THEREOF RECORDED OCTOBER 10, 1912 IN BOOK 3 PAGE 16 OF MAPS, MADERA COUNTY RECORDS, LYING SOUTH AND EAST OF BERENDA CREEK.

EXCEPTING THEREFROM A PORTION OF SAID LOT 3 MORE PARTICULARLY DESCRIBED AS FOLLOWS:

PARCEL 10312-A:

BEGINNING AT A POINT ON THE NORTH LINE OF SAID LOT 3, SAID POINT BEARS SOUTH 89° 42’ 31” WEST 2733.17 FEET FROM A 4 IN CH BY 4 INCH REDWOOD POST ACCEPTED AS MARKING THE NORTHEAST CORNER OF SAID BLOCK 33 AS DELINEATED UPON MAP ENTITLED, “SURVEY OF A PORTION OF TOWNSHIPS 9, 10 AND 11 SOUTH, RANGES 15 AND 16 EAST, M. D. B. & M., MADERA COUNTY, CALIFORNIA”, FILED ON AUGUST 9, 1972, IN BOOK 18 OF MAPS, AT PAGE 45, 46 AND 47, MADERA COUNTY RECORDS; THENCE FROM SAID POINT OF BEGINNING LEAVING SAID NORTHERLY LINE SOUTH 00° 17’ 29” EAST 25.00 FEET; THENCE SOUTH 89° 42’ 31” WEST 370.00 FEET; THENCE NORTH 00° 17’ 29” WEST 25.00 FEET TO THE NORTHERLY LINE OF SAID LOT 3;

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THENCE ALONG SAID NORTHERLY LINE NORTH 89° 42’ 31” EAST 370.00 FEET TO THE POINT OF BEGINNING.

APN: 024-142-002

PARCEL NO. 8:

LOT 2 IN BLOCK 33 OF BERENDA TRACT, ACCORDING TO THE MAP THEREOF RECORDED OCTOBER 10, 1912 IN BOOK 3 PAGE 16 OF MAPS, MADERA COUNTY RECORDS.

APN: 024-142-003

PARCEL NO. 9:

LOTS 5 AND 6 IN BLOCK 32 OF BERENDA TRACT, ACCORDING TO THE MAP THEREOF RECORDED OCTOBER 10, 1912 IN BOOK 3 PAGE 16 OF MAPS, MADERA COUNTY RECORDS.

EXCEPTING THEREFROM THE EAST 429 FEET OF LOT 6 AS DEEDED TO ALEXANDER B. BIGLER AND DOROTHY E. BIGLER, HUSBAND AND WIFE, AS JOINT TENANTS, BY DEED RECORDED JULY 26, 1948 IN BOOK 453 PAGE 28 OF OFFICIAL RECORDS.

ALSO EXCEPTING THEREFROM AN UNDIVIDED ½ INTEREST IN AND TO ALL OIL, GAS AND MINERALS UNDER SAID LANDS, AS RESERVED IN THE DEED RECORDED OCTOBER 8, 1947 IN BOOK 423 PAGE 34 OF OFFICIAL RECORDS.

APN: 024-142-007

PARCEL NO. 10:

LOTS 488 TO 495, INCLUSIVE, IN BLOCK 34 OF DAIRYLAND FARMS SUBDIVISION NO. 2, ACCORDING TO THE MAP THEREOF RECORDED JULY 18, 1914 IN BOOK 4 PAGES 11, 12 AND 13 IN MAPS, MADERA COUNTY RECORDS.

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EXCEPTING THEREFROM A PARCEL OR STRIP OF LAND IN SECTION 19, TOWNSHIP 10 SOUTH, RANGE 16 EAST, M. D. B. & M., IN THE COUNTY OF MADERA STATE OF CALIFORNIA, BEING A PORTION OF SAID DAIRYLAND FARMS SUBDIVISION NO. 2, AND DESCRIBED AS FOLLOWS:

THE EAST 50.00 FEET OF LOTS 488 AND 495, EXCEPTING THEREFROM THE SOUTH 25.00 FEET OF LOT 495; AND THE NORTH 50.00 FEET OF TH SOUTH 75.00 FEET OF LOTS 492, 493, 494 AND 495, EXCEPTING THEREFROM THE EAST 50.00 FEET OF LOT 495; AND THE WEST 250.00 FEET OF THE SOUTH 25.00 FEET OF LOT 492; ALL IN BLOCK 34, AS SHOWN ON SAID MAP.

ALSO EXCEPTING THEREFROM AN UNDIVIDED ½ INTEREST IN ALL OIL, GAS AND MINERALS IN AND UNDER SAID LAND, AS RESERVED BY THE SECURITY COMPANY IN DEED RECORDED MARCH 5, 1942 IN BOOK 301 PAGE 497 OF OFFICIAL RECORDS.

APN: 024-150-001

PARCEL NO. 11:

LOT 530 IN BLOCK 36 OF DAIRYLAND FARMS SUBDIVISION NO. 2, AS SHOWN ON THE MAP THEREOF RECORDED ON JULY 8, 1914 IN BOOK 4, PAGES 11, 12 AND 13 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.

APN: 023-050-014

PARCEL NO. 12:

LOTS 532, 567 AND 568 IN BLOCK 36 OF DAIRYLAND FARMS SUBDIVISION NO. 2, AS SHOWN ON THE MAP THEREOF RECORDED ON JULY 8, 1914 IN BOOK 4, PAGES 11, 12 AND 13 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.

APN: 023-050-001

Page 28 of 38

PARCEL NO. 13:

LOTS 528, 529, 569, 570 AND 571, IN BLOCK 36 OF DAIRYLAND FARMS SUBDIVISION NO. 2, AS SHOWN ON THE MAP THEREOF RECORDED ON JULY 8, 1914 IN BOOK 4, PAGES 11, 12 AND 13 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.

APN: 023-050-015

PARCEL NO. 14:

LOT 527 IN BLOCK 36 OF DAIRYLAND FARMS SUBDIVISION NO. 2, AS SHOWN ON THE MAP THEREOF RECORDED ON JULY 8, 1914 IN BOOK 4, PAGES 11, 12 AND 13 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.

APN: 023-050-017

PARCEL NO. 15:

LOT 596, EXCEPT THE EAST 390.1 FEET THEREOF, AND ALL OF LOTS 595, 642 AND 643 IN BLOCK 36 OF DAIRYLAND FARMS SUBDIVISION NO. 2, AS SHOWN ON THE MAP THEREOF RECORDED ON JULY 8, 1914 IN BOOK 4, PAGES 11, 12 AND 13 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.

APN: 023-050-011

PARCEL NO. 16

LOTS 591 TO 594, INCLUSIVE, AND LOTS 644 TO 647, INCLUSIVE, IN BLOCK 36 OF DAIRYLAND FARMS SUBDIVISION NO. 2, AS SHOWN ON THE MAP THEREOF RECORDED ON JULY 8, 1914 IN BOOK 4, PAGES 11, 12 AND 13 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.

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EXCEPTING THEREFROM THE WEST 40.0 FEET OF THE EAST 65.0 FEET OF THE NORTH 100.0 FEET OF LOT 591, AS GRANTED TO THE CHOWCHILLA WATER DISTRICT BY DEED DATED OCTOBER 18, 1962 AND RECORDED APRIL 15, 1963 IN BOOK 864 PAGE 167 OF OFFICIAL RECORDS, DOCUMENT NO. 6286.

APN: 023-050-009

PARCEL NO. 17:

LOTS 353 AND 354 IN BLOCK 23 AND 24 OF DAIRYLAND FARMS SUBDIVISION NO. 1, ACCORDING TO THE MAP THEREOF RECORDED SEPTEMBER 2, 1914 IN BOOK 4, PAGES 15, 16 AND 17 OF MAPS, MADERA COUNTY RECORDS.

APN: 024-070-016

PARCEL NO. 18:

LOTS 345 AND 346 IN BLOCK 23 AND 24 OF DAIRYLAND FARMS SUBDIVISION NO. 1, ACCORDING TO THE MAP THEREOF RECORDED SEPTEMBER 2, 1914 IN BOOK 4 PAGES 15, 16 AND 17 OF MAPS, MADERA COUNTY RECORDS.

EXCEPTING THEREFROM ALL OIL, GAS AND OTHER HYDROCARBONS AND MINERALS NOW OR AT ANY TIME HEREAFTER SITUATE THEREIN AND THEREUNDER, AS RESERVED IN THE DEED FROM OCCIDENTAL LIFE INSURANCE COMPANY OF CALIFORNIA RECORDED AUGUST 17, 1944 IN BOOK 350 PAGE 19 OF OFFICIAL RECORDS, DOCUMENT NO. 4437.

APN: 024-070-017

PARCEL NO. 19:

LOTS 1, 101, 109 AND 110 IN BLOCK 31 OF EL NUEVA TRACT, ACCORDING TO THE MAP THEREOF RECORDED OCTOBER 10, 1912 IN BOOK 3, PAGE 15 OF MAPS, MADERA COUNTY RECORDS.

Page 30 of 38

APN: 024-090-012

PARCEL NO. 20:

LOTS 347 AND 348 IN BLOCK 23 OF DAIRYLAND FARMS SUBDIVISION NO. 1, IN THE UNINCORPORATED AREA, COUNTY OF MADERA, STATE OF CALIFORNIA, ACCORDING TO THE MAP THEREOF RECORDED SEPTEMBER 2, 1914 IN BOOK 4, PAGES 15, 16 AND 17 OF MAPS, MADERA COUNTY RECORDS.

APN: 024-120-009

PARCEL NO. 21:

LOT 349 IN BLOCK 23 OF DAIRYLAND FARMS SUBDIVISION NO. 1, ACCORDING TO THE MAP THEREOF RECORDED SEPTEMBER 2, 1914 IN BOOK 4, PAGES 15, 16, AND 17 OF MAPS, MADERA COUNTY RECORDS.

APN: 024-120-010

CHOWCHILLA II RANCH:

THE LAND DESCRIBED HEREIN IS SITUATED IN THE STATE OF CALIFORNIA, COUNTY OF MADERA, UNINCORPORATED AREA, AND IS DESCRIBED AS FOLLOWS:

PARCEL NO. 1:

THE SOUTHEAST QUARTER OF SECTION 16, TOWNSHIP 10 SOUTH, RANGE 16 EAST, MOUNT DIABLO BASE AND MERIDIAN, ACCORDING TO THE OFFICIAL PLAT THEREOF, COUNTY OF MADERA, STATE OF CALIFORNIA.

Page 31 of 38

EXCEPTING THEREFROM THAT PORTION CONVEYED TO THE UNITED STATES OF AMERICA IN DEED RECORDED JUNE 14, 1954 IN BOOK 611 OF OFFICIAL RECORDS, PAGE 341, MADERA COUNTY RECORDS.

APN: 027-182-009

PARCEL NO. 2:

LOTS 578, 579, 588 AND 589 OF FAIRMEAD COLONY NO. 5, ACCORDING TO THE MAP ENTITLED, “FAIRMEAD COLONY NO. 5”, IN THE COUNTY OF MADERA, STATE OF CALIFORNIA, AS SHOWN ON MAP FILED BOOK 3, PAGE 7 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.

EXCEPTING THEREFROM ½ OF ALL OIL, GAS AND MINERALS IN AND UNDER SAID LAND AS RESERVED IN THE DEED RECORDED MARCH 7, 1973, IN BOOK 1154, PAGE 260, AS DOCUMENT NO. 3636, OFFICIAL RECORDS.

APN: 028-050-003

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EXHIBIT B

TERMS AND CONDITIONS

1. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO PERFORM. In addition to other conditions set forth in this Agreement, including those related to inspection of the Property, Buyer’s obligation to purchase the Property shall be subject to and contingent upon the following conditions precedent, any or all of which Buyer may waive by written notice only:

No Adverse Conditions. There shall be no material adverse change in the condition of, or affecting, the Property or Seller not caused by Buyer between the Effective Date and Closing.

Representations and Warranties. Seller’s representations and warranties contained herein are ongoing through the date of and shall be true and correct as of the date of Closing. Seller shall immediately notify Buyer of any material change in said representations and warranties and, upon such notice, Buyer may terminate this agreement by delivering written notice to Seller within ten (10) business days of Buyer’s receipt of such notice. Subject to the terms of this Agreement, the parties hereto shall have no further obligation or liability hereunder upon such termination.

Government Documents. Seller agrees to provide, within ten (10) days of the Effective Date, or as soon as practicable after Buyer’s request in the case of documents requested by Buyer pursuant to (iv) below, the following documentation relating to the Property to the extent that such documentation is in Seller’s possession or within its reasonable control to obtain: (i) any applicable water or drainage district documentation, (ii) well permits, (iii) real property tax invoices, and (iv) any other relevant business, governmental or regulatory documents that Buyer requests. Seller shall also execute all relevant releases, which would allow Buyer to obtain any reasonable information which is not within the reasonable control of Seller.

Rental Agreement. Seller agrees to enter into the Lease Agreement (attached as Exhibit C)(the “ Lease Agreement ”). The Lease Agreement shall be executed by Seller at Closing.

e) Cancellation. If any of the foregoing conditions precedent is not satisfied or waived in writing by Buyer, Buyer may, but shall not be obligated to, elect, at its option, by written notice to Seller prior to the earlier of the time set for Closing or the specific deadline (as applicable) described within this Section 1, to terminate this Agreement, in which event the Deposit shall be returned to Buyer, subject to the terms of this Agreement, and the parties hereto shall have no further obligation or liability hereunder.

2. CONDITIONS PRECEDENT TO SELLERS'S OBLIGATION TO PERFORM. In addition to other conditions set forth in this Agreement, Sellers’s obligation to sell the Property shall be subject to and contingent upon the following conditions precedent, any or all of which Seller may waive by written notice only:

a) Performance of Obligations. Buyer shall have performed each of the acts to be performed by it under this Agreement, including, without limitation, depositing the Initial Deposit, the Additional Deposit and the Purchase Price and Buyer’s share of the Closing Costs into Escrow prior to the Closing Date.

b) Representations and Warranties. Buyer’s representations and warranties contained herein are ongoing through the date of and shall be true and correct as of the date of Closing. Buyer shall immediately notify Seller of any material change in said representations and warranties and, upon such notice, Seller may terminate this agreement by delivering

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written notice to Buyer within ten (10) business days of Seller’s receipt of such notice. Subject to the terms of this Agreement, the parties hereto shall have no further obligation or liability hereunder upon such termination.

c) Rental Agreement. Buyer agrees to enter into the Lease Agreement. The Lease Agreement shall be executed by Buyer at Closing.

3. REPRESENTATIONS, WARRANTIES, COVENANTS AND STIPULATIONS OF SELLER.

Authority. Seller covenants and warrants to Buyer, its successors and assigns, that Seller has full right and lawful authority to enter into this Agreement and no other parties have any right or ownership in or to the Property.

Possession. At Closing, possession of the Property will be delivered to Buyer, free of all contracts, except for Permitted Title Exceptions, the Lease Agreement, and the Excluded Property.

No New Encumbrances. From and after the Effective Date until Closing, Seller shall not convey any portion of the Property or any rights therein, or enter into any lease, license, conveyance, security document, easement or other agreement, or amend any lease or existing agreement granting to a third party (i.e., a non-affiliate) any rights with respect to the Property or any part thereof, or any interest whatsoever therein, without Buyer’s prior written consent.

No Rights to Third Parties. With the exception of Permitted Exceptions, and the Lease Agreement attached as Exhibit C hereto, no person or entity, other than Buyer, has any right, agreement, commitment, option, right of first refusal or any other agreement, whether oral or written, with respect to the sale, assignment or transfer of all or any portion of the Property. Furthermore, from the Effective Date until thirty (30) days after the Effective Date, Seller shall neither enter into nor solicit from or negotiate with any third party with respect to the sale, assignment or transfer of all or any portion of the Property.

e) Environmental. To the best of Seller’s actual knowledge, without independent inquiry, Seller has not used, authorized or allowed the use of the Property and, to the best of Seller’s actual knowledge, without independent inquiry, the Property has never been used in any manner other than in full compliance with all Hazardous Substance laws. To the best of Seller’s actual knowledge without independent inquiry, no soil or water in or under the Property is contaminated by any Hazardous Substance. For purposes of this Section 2(e), Hazardous Substances shall be any hazardous or toxic substances or waste as those terms are defined by any federal, state or local law or regulation (including CERLA and RCRA) and include, but are limited to, petroleum, asbestos, polychlorinated biphenyls (PCBs), flammables, explosives and chemicals known to cause toxicity or cancer. To the best of Seller's actual knowledge, without independent inquiry, there are no pending or threatened actions relating to any environmental law, there are no events or circumstances that would require clean-up or remediation, and there are no underground storage tanks situated upon the Property. Notwithstanding the foregoing, Buyer understands that the Property has historically been used for agricultural and farming operations and has been farmed by parties other than Seller, including prior owners and Seller's prior tenant. Seller has no present actual knowledge of environmental contamination or violation of environmental laws, but assumes that standard agricultural and farming chemicals, fertilizers, and pesticides have been and are being used upon the Property in connection with such operations. The presence of such items shall not be deemed to be a breach of this representation, and Buyer may obtain environmental surveys during the Inspection Period if it desires further information with respect to such

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matters. Seller has not received written notice and has no knowledge that there has been a release to the Property (including the land, surface water, ground water and any improvements) of any Hazardous Substances in violation of law subsequent to the date of the relevant Phase I Environmental Report for each property identified in Exhibit A ; provided, however, that this representation and warranty does not include those Hazardous Substances used either by Seller from time to time in the ordinary course of business as conducted at the Property or used by occupants of the Property other than Seller and which, to Seller's knowledge, have not caused contamination to the Property that requires remediation under applicable law. The foregoing representations and warranties shall survive the Closing and shall not merge in the deed of conveyance. Seller shall indemnify and hold Buyer, its affiliates and its and their partners, managers, members, employees, shareholders, agents, officers, directors and representatives, harmless from and against any and all actions, liabilities, claims, damages, losses, costs, and expenses (including, but not limited to, reasonable experts’ fees, reasonable attorneys’ fees and the costs and expenses incurred by such attorneys and experts) arising out of or in any way related to any breach by Seller or Seller's agents of the provisions of this Section 3(e).

Foreign Person. Seller is not a foreign person within the meaning of Section 1445(f) (3) of the Internal Revenue Code, and no portion of the purchase price is required to be withheld by Buyer pursuant to Section 1445 of such Code and the regulations promulgated. Upon Buyer’s request, Seller shall provide Buyer with written verification and certification that payments to Seller are not subject to withholding by Buyer.

g) Adverse Tax Consequence. If such taxes apply to a period on or before the Closing, Seller shall be responsible for payment, including reimbursement to Buyer of any rollback taxes assessed, including those assessed for any and all “look back” periods should the assessment rate change or for any other reason rollback taxes are assessed against the property after Closing. This provision shall survive Closing.

4. REPRESENTATIONS, WARRANTIES AND CONVENANTS OF BUYER.

a) Authority. Buyer warrants and represents to Seller that it has, and at Closing will have, all requisite power and authority to execute and deliver this Agreement and to consummate the transactions contemplated herein pursuant to the terms and conditions of this Agreement.

b) No Violation . Buyer’s execution of this Agreement and performance of Buyer's obligations under this Agreement will not violate any agreement, option, covenant, condition, obligation, or undertaking of Buyer.

c) Performance . Buyer shall timely perform and comply with all covenants and agreements, and satisfy all conditions, that Buyer is required to perform, comply with, or satisfy under this Agreement.

5. DEFAULT AND REMEDIES. In the event any party hereto shall fail to pay, perform or observe any of the covenants and conditions undertaken by it herein to be paid, performed or observed, then such party shall be deemed to be in default with respect hereto. In the event of a default by Seller, Buyer shall have the right, following ten (10) days prior written notice to Seller during which period Seller has failed to cure such default, in addition to other remedies available at law or in equity, to: (a) require Seller to perform all of its obligations hereunder including specifically its obligation to convey the Property to Buyer, and (b) recover damages, including

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expenses incurred by Buyer, as a result of the default. In the event of a default by Buyer, Seller shall have the right to declare this Agreement canceled.

6. REAL ESTATE COMMISSION. Any real estate commission attributable to, or associated with, the sale of the Property herein incurred by Seller shall be paid by Seller at Closing. Any real estate commission attributable to, or associated with, the sale of the Property herein incurred by Buyer shall be paid by Buyer at Closing. Seller and Buyer shall indemnify and hold harmless the other from any and all losses, claims, damages, costs or expenses (including attorneys’ fees) which the other may incur as a result of any claim made by any person to a right to a sales or brokerage commission or finder’s fee in connection with this transaction to the extent such claim is based, or purportedly based, on the acts or omissions of Seller or Buyer, as the case may be. The obligations of Buyer and Seller under this Section 5 shall survive the Closing.

7. MISCELLANEOUS.

No Waiver. No waiver of any covenant or condition contained in this Agreement or of any breach of any such covenant or condition shall constitute a waiver of any subsequent breach of such covenant or condition by either party, or justify or authorize the nonobservance on any other occasion of the same or any other covenant or condition hereof of either party, nor shall any forbearance by either party to seek a remedy for any breach constitute a waiver with respect to such or any subsequent breach.

Successors. Except as otherwise provided in this Agreement, the covenants, conditions and agreement contained herein shall bind and insure to the benefit of Seller and Buyer and their respective heirs, personal representatives, successors and assigns.

Captions. The captions in this Agreement are for convenience only and are not a part of this Agreement and do not in any way define, limit or describe or amplify the terms and provisions or the scope or intent hereof.

Entire Agreement Interpretation. This Agreement represents the entire agreement between the parties hereto and there are no collateral or oral agreements or understandings. This Agreement supersedes all prior agreements or representations oral or written with respect to the Property that are not expressly set forth herein or incorporated herein by reference. The masculine (or neuter) pronoun shall include the masculine, feminine and neuter genders, and the singular number shall include the plural number and vice versa.

Amendment. This Agreement shall not be amended or modified in any manner except by an instrument in writing executed by the parties.

Governing Law. This instrument shall be governed by and constructed in accordance with the laws of the State of California.

Attorneys’ Fees/Expenses. In the event any dispute between the parties results in litigation or either party is required to retain legal counsel to enforce the provisions hereof, then the prevailing party shall be entitled to recover from the other any and all attorneys’ fees and expenses resulting therefrom.

Time of the Essence. Time shall be of the essence in this Agreement. In the event the time for performance of any obligation hereunder expires on a Saturday, Sunday, or legal holiday, the time for performance shall be extended to the next day which is not a Saturday, Sunday or legal holiday.

Effective Date. This Agreement shall be effective on the Effective Date.

j) Counterparts and Copies. This Agreement may be executed in one or more counterpart signature pages (including via email in PDF format or other electronic counterpart signature pages), each of which shall be deemed an original, and all of which together shall constitute one and the same instrument.

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Construction. The language used in this Agreement shall be deemed to be the language approved by all parties to this Agreement to express their mutual intent, and no rule of strict construction shall be applied against any party.

Severability. Each party agrees that it will perform its obligations hereunder in accordance with all applicable laws, rules and regulations now or hereafter in effect. If any term or provision of this Agreement shall be found to be wholly illegal or unenforceable, the remainder of this Agreement shall be given full effect as if such provision were stricken. In the event any term or provision of this Agreement shall be held overbroad in any respect, then such term or provision shall be narrowed, modified or limited by a court only to the extent necessary to make such provision or term enforceable while effectuating the intent of the parties herein expressed.

m) Access to Information. From the Effective Date and for a period of one year following, Seller shall provide Buyer with reasonable access to such business records specific to the Property and to the financial condition of the Seller and Seller’s parent company and shall perform such actions pertaining to the Property when requested by Buyer, including but not limited to, any records or actions reasonably requested by Buyer (1) to satisfy its obligations with respect to the Farm Service Agency, (2) to satisfy Buyer’s obligations to make filings with the United States Securities and Exchange Commission, including any cooperation required by Buyer’s auditors and counsel in relation to any financial statements or financial information required to be included in such filings, and (3) to fulfill any inquiry or inquiries which Buyer in its reasonable discretion deems necessary hereunder.

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EXHIBIT C

LEASE AGREEMENT

[ To be attached when complete ]

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Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT

TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Paul A. Pittman, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 of Farmland Partners Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

ugu
Date: November 9, 2017	/s/ PAUL A. PITTMAN
	Paul A. Pittman
	Executive Chairman and Chief Executive Officer

Exhibit 31.2

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT

TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Luca Fabbri, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 of Farmland Partners Inc.;

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Ugst
Date: November 9, 2017	/s/ LUCA FABBRI
	Luca Fabbri
	Chief Financial Officer and Treasurer

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Farmland Partners Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Paul A. Pittman, the Executive Chairman, President and Chief Executive Officer of the Company, and I, Luca Fabbri, the Chief Financial Officer, Secretary and Treasurer of the Company, certify, to our knowledge, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Date: November 9, 2017	/s/ PAUL A. PITTMAN
	Paul A. Pittman
	Executive Chairman and Chief Executive Officer



Date: November 9, 2017	/s/ LUCA FABBRI
	Luca Fabbri
	Chief Financial Officer and Treasurer