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 remaining 50% of the lease payment due in the second half of the year. Rental income 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. Payments received in advance are included in deferred revenue until they are earned. As of September 30, 2019, the Company had a straight-line asset of $2.0 million due to the timing of earned straight line revenue exceeding contracted lease payments. This straight-line asset is currently included in Accounts Receivable as of September 30, 2019.

Certain of the Company’s leases provide for a rent payment determined as a percentage of the gross farm proceeds (contingent rent). 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.

Certain of the Company’s leases provide for minimum cash rent plus a bonus based on gross farm proceeds. Revenue under this type of lease is recognized on a straight-line basis over the lease term based on the minimum cash rent. Bonus rent is recognized upon notification from the tenant of the gross farm proceeds for the year.

Most of the Company’s 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, 2019 have terms ranging from one to 40 years. Payments received in advance are included in deferred revenue until they are earned. As of September 30, 2019 and December 31, 2018, the Company had $0.2 million and $0.2 million, respectively, in deferred revenue.

During the nine months ended September 30, 2019, the Company entered into two agreements to lease equipment to a tenant. The first lease is for commercial vehicles (trucks and trailers) and qualifies as a sales-type lease. The agreement contains an option for the lessee to purchase the equipment at the end of the lease which the lessee is reasonably certain to exercise. The Company recorded $0.2 million related to the net investment in sales-type lease in prepaid and other assets. Monthly rent is payable over five years. Interest income related to sales-type leases will be recorded as interest income when payments are received. The second lease is for farm equipment. It does not meet any criteria for classification as either a sales-type lease or a direct-financing lease and is therefore classified as an operating lease. The Company recorded $0.9 million of farm equipment in other assets. Three annual lease payments are due at the beginning of each year. During the three and nine months ended September 30, 2019, the Company recorded $0.04 and $0.04 million as rental income related to the operating lease.

The following sets forth a summary of rental income recognized for the three and nine months ended September 30, 2019 and 2018:


	Rental income recognized
	For the three months ended				For the nine months ended
	September 30,				September 30,
(in thousands)	2019		2018		2019			2018
Leases in effect at the beginning of the year	$	8,729	$	7,663	$	27,610	$	21,343
Leases entered into during the year		382		3,553		870		9,871
	$	9,111	$	11,216	$	28,480	$	31,214

Future minimum lease payments from tenants under all non-cancelable leases in place as of September 30, 2019, including lease advances when contractually due, but excluding crop share and tenant reimbursement of expenses, for the remainder of 2019 and each of the next four years and thereafter as of September 30, 2019 are as follows:


(in thousands)	Future rental
Year Ending December 31,	payments
2019 (remaining three months)	$	8,938
2020		23,733
2021		11,597
2022		2,984
2023		1,010
Thereafter		7,596
	$	55,858

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 contracted to be delivered to a grain or packing facility and title has transferred. Revenues from the sale of harvested crops totaling $0.8 million and $0.4 million were recognized for the nine months ended September 30, 2019 and 2018, 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 or packing 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 or packing facility and title has transferred.