Revenue Recognition

9 Months Ended

Sep. 30, 2022

Revenue Recognition

Revenue Recognition

Note 2—Revenue Recognition

Fixed Rent: The majority of the Company’s leases provide for rent payments on an entirely or partially fixed basis. For the majority of its fixed farm rent leases, the Company receives at least 50% of the annual lease payment from tenants before crops are planted, generally during the first quarter of the year, with the remaining 50% of the lease payment due in the second half of the year generally after the crops are harvested. Rental income is recorded on a straight-line basis over the lease term. The lease term generally considers 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.

Variable Rent: Certain of the Company’s leases provide for a rent payment determined as a percentage of the gross farm proceeds in their entirety or above a certain threshold. Revenue under leases providing for variable rent may be 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.

Fixed Rent and Variable Rent: Certain of the Company’s leases provide for a minimum fixed rent plus variable rent based on gross farm revenue.

Leases in place as of September 30, 2022 have terms ranging from one to 40 years, though, most of the Company’s farming leases range from two to three years for row crops and one to seven years for permanent crops. Payments received in advance are included in deferred revenue until they are earned. As of September 30, 2022 and December 31, 2021, the Company had $0.1 million and less than $0.1 million, respectively, in deferred revenue.

The following sets forth a summary of rental income recognized during the three and nine months ended September 30, 2022 and 2021:

	Rental income recognized
	For the three months ended				For the nine months ended
	September 30,				September 30,
(in thousands)	2022		2021		2022			2021
Leases in effect at the beginning of the year	$	7,008	$	6,902	$	22,558	$	23,635
Leases entered into during the year		2,073		1,948		5,265		3,765
	$	9,081	$	8,850	$	27,823	$	27,400

Future minimum fixed rent payments from tenants under all non-cancelable leases in place as of September 30, 2022, including lease advances when contractually due, but excluding crop share and tenant reimbursement of expenses, for the remainder of 2022 and each of the next four years and thereafter as of September 30, 2022 are as follows:

(in thousands)	Future rental
Year Ending December 31,	payments
2022 (remaining three months)	$	8,713
2023		30,349
2024		20,762
2025		10,950
2026		5,019
Thereafter		36,484
	$	112,277

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.

Tenant Reimbursements: Certain of the Company’s leases provide for tenants to reimburse the Company for property taxes and other expenses. Tenant reimbursements are recognized on a straight-line basis each year over the applicable term of the lease.

Crop Sales: 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 recognized for the three months ended September 30, 2022 and 2021 were $2.5 million and $0.3 million, respectively. Revenues from the sale of harvested crops recognized for the nine months ended September 30, 2022 and 2021 were $4.3 million and $0.7 million, 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.

Other Revenue: Other revenue includes crop insurance proceeds, auction fees, brokerage fees, interest income, and property management income. Crop insurance proceeds are recognized when the amount is determinable and collectible. Crop insurance proceeds are generally received in lieu of crop sales on farms under direct operations. The Company generates auction revenue by contracting with a real estate owner to market and auction farm property. Successful bidders sign a purchase agreement immediately following the auction. Auction fee revenue is recognized upon completion of the

transaction. The Company generates real estate brokerage commissions by acting as a broker for real estate investors or owners seeking to buy or sell farm property. Revenue from brokerage fees is recognized upon completion of the transaction. Property management revenue is recognized over the term of the contract as services are being provided. The Company collects property management fees in advance of the commencement of property management activities on behalf of third parties. Payments received in advance are included in deferred revenue until they are earned. Interest income is recognized on notes receivable on an accrual basis over the life of the note. Direct origination costs are netted against loan origination fees and are amortized over the life of the note using the straight-line method, which approximates the effective interest method, as an adjustment to interest income which is included as a component of other revenue in the Company’s Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021.

The following table presents other revenue that is disaggregated by revenue source for the three and nine months ended September 30, 2022 and 2021:

	For the three months ended				For the nine months ended
	September 30,				September 30,
(in thousands)	2022		2021		2022			2021
Auction and brokerage fees	$	401	$	—	$	1,852	$	—
Crop insurance proceeds		—		—		1,925		—
Property management income		174		46		497		103
Other		130		86		504		837
	$	705	$	132	$	4,778	$	940