EFTA01384957.pdf

acres and 4,962 gross acres. Development farms for permanent crops generally will not generate lease income for periods of between four and seven years, depending on the crop, with certain permanent crop types, such as pistachios, taking up to nine years, with others, such as conversions of an orchard to a vegetable farm taking one to three years, and will generally be considered to be development farms until commercially productive. As of the date of this prospectus, five of these farms are expected to become mature and productive in the next three years, including 77 acres of Quail Run Vineyard that are currently subject to development, but which is not included in this segment as the majority of the farm is mature and crop producing. Critical Accounting Policies and Estimates Use of Estbnotes The preparation of financial statements in conformity with ()AAP requires the use of management's 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 could materially differ from those estimates. Investments in Real Estate Investments in real estate consist of farmland and improvements made to the farmland, consisting of buildings; wells, irrigation and drain systems; and trees and vines acquired in connection with the land purchase. Investments in real estate are recorded at cost. Improvements, replacements and costs of development for new trees and vines, or the repurposing of raw land, arc capitalized when they extend the useful life or improve the efficiency of the asset. Costs of repairs and maintenance arc expensed as such costs are incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the depreciable assets. The estimated useful lives range from ten to fifteen years for land improvements, twenty-five years for buildings, one to thirty years for trees and vines, and five and eight years for fixtures and equipment, respectively. Impairment We account for the impairment of real estate, including intangible assets, in accordance with ASC 360-10-35, "Property, Plant, and Equipment," which requires us to periodically review the carrying value of each property to determine whether circumstances indicate impairment of the carrying value of the investment exists or if depreciation periods should be modified. If circumstances support the possibility of impairment, we prepare a projection of the undiscounted future cash flows, without interest charges, of the specific property and determine whether the carrying value of the investment in such property is recoverable. In performing the analysis, we consider such factors as agricultural and business conditions in the regions in which our farms are located, and the development period (if applicable). and whether there are indications that the fair value of the real estate has decreased. If the carrying amount is more than the aggregate undiscounted future cash flows, we would recognize an impairment loss to the extent the carrying amount exceeds the estimated fair value of the property. We evaluate our entire property portfolio each quarter for any impairment indicators and perform an impairment analysis. We concluded that none of our properties were impaired as of June 30, 2015 or 2014 or as of December 31, 2014 or 2013, and we will continue to monitor our portfolio for any indicators of impairment. There have been no impairments recognized on real estate assets since our inception. This evaluation is subjective and is based in part on management's judgment and assumptions, which could differ materially from actual results. 77 CONFIDENTIAL - PURSUANT TO FED. R. CRIM P 6(e) DB-SDNY-0085640 CONFIDENTIAL SDNY_GM_00231824 EFTA01384957