管理層發言
Greetings. Welcome to Gladstone Land Corporation’s Third Quarter Earnings Call. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded. It is now my pleasure to introduce David Gladstone, Chief Executive Officer and President. Thank you, Mr. Gladstone. You may begin.
Well, thank you, Sherry, and that was a nice introduction. This is David Gladstone, and welcome to the quarterly conference call for Gladstone Land. Thank you all for calling in today. We certainly appreciate you taking time out of your busy day to listen to our presentation. Before I begin, we’ll start with Michael LiCalsi. He’s our General Counsel. Michael?
Thanks, David. Good morning, everybody. Today’s report may include forward-looking statements under the Securities Act of 1933 and the Securities Exchange Act of 1934, including those regarding our future performance. These forward-looking statements involve certain risks and uncertainties that are based on our current plans, which we believe to be reasonable. The many factors may cause our actual results to be materially different from any future results expressed or implied by these forward-looking statements, including all the risk factors listed in our Forms 10-K, 10-Q and other documents that we filed with the SEC, and find them on our website, specifically, go to the Investors page, and you can always go to the SEC’s website. Now, we undertake no obligation to publicly update or revise any of these forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Today, we will discuss FFO, which is funds from operations. FFO is a non-GAAP accounting term, defined as net income, excluding the gains or losses from the sale of real estate and any impairment losses from property, plus depreciation and amortization of real estate assets. And, we may also discuss core FFO, which we generally define as FFO adjusted for certain non-recurring revenues and expenses, as well as adjusted FFO, which further adjusts core FFO for certain non-cash items, such as converting GAAP rents to normalized cash rents. We believe these are better indications of our operating results and allow better comparability of our period-over-period performance. Please visit our website again, sign up for our email notification service. You can also find us on Facebook and on X, formerly known as Twitter. Today’s call is an overview of our results, so we ask that you review our press release and Form 10-Q issued yesterday for more detailed information. With that, I’ll turn it back to David.
Thank you, Michael. I’ll start with a brief overview as I do each time, just so we all know where we are. We are currently on about 112,000 acres, own 168 farms and about 54,000 acre-feet of water assets. One acre-foot is equal to about 326,000 gallons. So, we have nearly 18 billion gallons of water. And together, the land and the water are valued at about a total price of $1.5 billion. Our farms are in 15 different states and more importantly, they’re in 29 different growing areas. Our water assets are all in California. You don’t need to store much water. If you’re in Florida, you can drill down quickly to get water. Our farms are leased to over 90 different tenant farmers growing over 60 different types of crops, mostly fruits and vegetables with a lot of nut trees as well. You can find these items in the produce section of the grocery store, which is where most of the crops that are grown on our farms are sold.
We’ve been pretty active in leasing since the beginning of third quarter. We executed 21 new or amended leases on farms in eight different states, including leases on only a couple of farms that were previously vacant. On annual row crop farms, we renewed or amended eight different leases, resulting in an aggregate increase of net operating income of about $309,000 or 11% over that of the prior leases. Overall, we continue to see steady appreciation in consistent rents growing in our annual row crops, which make up about half the portfolio. Our permanent crop farms, well, we renewed about 13 leases, adjusting the lease structure whereby we eliminated the base rent and provided the tenant with some cash for growing crops. In exchange for the base rent, we significantly increased participation in the rent component of these leases, the major portion of which will be recognized in the second half of 2025.
We are entering a period here with base rents down. Market conditions around many of the permanent crop farms in the West have been hampered by lower crop prices, higher inputs, and, of course, increased borrowing costs. These conditions make it difficult for tenants to commit long-term leases with high base rents. We decided to adjust the lease structure to help tenants manage their fixed costs while allowing us to participate in the upside if they have a good year. We believe these lease structures will give us the best chance of making good profit on these farms in the coming years. We particularly see strong potential on two pistachio farms we’re currently handling. These are high-yielding properties with a history of strong production, which means the crop insurance should be favorable. Additionally, California has experienced above-average rainfall levels in recent years, with most reservoirs at or above historic averages.
Our plan is to proceed with the structure for the 2025 harvest on these farms and possibly revert to more traditional lease structures next year. We may also sell some of these farms if we believe we can’t manage them correctly. The remaining non-lease amendments on our permanent crops are expected to result in a decrease of net operating income of about $441,000 from prior leases. We are essentially balancing base rents for participation on the upside. We have seven leases scheduled to expire over the next six months, comprising about 2.5% of total lease revenue. We are discussing leasing these farms or operating them on our behalf and may also look to sell a couple of these properties. We have one agreed sale already, which we believe offers valuable opportunities. This new approach is a potential route for growth. Subsequent to the quarter-end, we ended an agreement to sell 11 blueberry farms in Michigan for about $5 million.
These are some of our earliest farms, previously tended by an entrepreneur who unfortunately faced serious accidents, resulting in the need for external management assistance. We have decided to exit the Michigan area given the situation with tenant results and operating costs. We are pleased to bring closure to these issues before year-end. Currently, we have one vacant farm, and we are operating one directly via management agreement with an unrelated third party. We are recognizing revenue from leases with two tenants managing five of our farms; cash is being collected on two of them. We are engaging potential buyers for other properties and welcome the increased interest in farms. We may list some properties for auction but do not anticipate a significant number. The year-over-year impact on our operating results from tenant issues was a decrease in net operating income of about $638,000 in the third quarter. We are hopeful for profits from operational agreements with our operators in the coming year. I will stop here and turn it over to Lewis for the numbers.
Okay. Thank you, David, and good morning, everyone. I’ll begin by briefly going over our recent financing activity. We did not borrow new money during the quarter but repaid about $13 million of loans scheduled to mature or re-price. On the equity side, since the beginning of the third quarter, we’ve raised net proceeds of about $80,000 from the sales of Series E preferred stock and about $4.5 million from sales of common stock through the ATM program. We also continued our repurchase program for Series B and Series C preferred stock from the second quarter. During the third quarter, we repurchased a total of 176,045 shares of preferred stock at a total cost of about $3.7 million, resulting in a book gain of about $231,000. At an average repurchase cost of $21.22 per share, this resulted in dividend yield savings of 7.1%. Moving on to our operating results. For the third quarter, we had net income of $6,000 and a net loss to common shareholders of $5.8 million or $0.16 per share.
Adjusted FFO for the current quarter was approximately $4.5 million or $0.13 per share, compared to $5.4 million or $0.15 per share in the prior quarter. Dividends declared per common share were about $0.14 in both quarters. AFFO decreased in the third quarter of 2023 primarily due to lost revenue from the farm sold in January and a decrease in income associated with properties either vacant, directly operated, or on non-accrual status during portions of the quarter. Fixed base cash rents decreased by about $2.6 million year-over-year due to these reasons. This revenue loss was partially offset by a $1.1 million increase in participation rents during the current quarter, driven by stronger production at some of our pistachio farms. One note regarding revenue in the upcoming quarters: as a result of the lease structure changes, we expect a total year-over-year swing in our fixed base rents of about $20 million.
This figure includes the base rent we were previously receiving under prior leases, plus cash allowances granted to some tenants. This will appear as a reduction in our fixed base rents over the following five quarters, beginning with Q4 2024 at a rate of $3.5 million to $4.5 million quarterly. Most of the resulting crop share will be recognized as participation rent in the second half of 2025, with a smaller portion being recorded in the second half of 2026. We expect to recover the full $20 million plus more, but we will confirm these numbers later in 2025. On the expense side, excluding reimbursable expenses and certain non-recurring non-cash expenses, our core operating expenses decreased by about $140,000. Related party fees dropped by $800,000 due to a higher incentive fee earned in the prior year, but this was largely offset by an increase in property operating expenses of $590,000, driven by additional costs for properties that were either vacant, directly operated, or on non-accrual status.
As we resolve these issues by year-end, we expect costs to return to normalized levels. Finally, G&A expenses increased slightly due to additional stockholder-related costs and higher professional fees. We also recorded an impairment charge of about $2 million this quarter, resulting from adjusting the net book value of some Michigan blueberry farms to the sales prices as per agreements post-September 30. Other expenses decreased primarily due to lower interest expense from loan repayments in the past year. We had 43 farms revalued during the quarter via third-party appraisals, with overall valuations decreasing by about $23 million or 4.5% from the previous year. These decreases were limited to some permanent crop farms, with our annual row crop farms continuing to appreciate in value. As of September 30, our portfolio was valued at about $1.5 billion, supported by third-party appraisals or purchase prices for water.
Our net asset value per common share at September 30 was $15.57, down from $17.59 at June 30. This change was largely due to certain farms being reappraised and changes in fair value for our debt and preferred securities based on market rates. In terms of liquidity, we have access to over $160 million of liquidity, including about $20 million of cash on hand. We also have nearly $160 million of unpledged properties. Over 99.9% of our borrowings are at fixed rates, averaging 3.4% for another 3.7 years. Thus, we’ve seen minimal impact from interest rate increases. In terms of expected borrowings, we have about $39 million due over the next 12 months, with $21 million representing various loan maturities. Considering the value of the underlying collateral, we do not foresee refinancing challenges. On the distribution side, in October, we declared a dividend of $4.67 per share for the fourth quarter, equivalent to a yield of 4.1% at our current stock price of $13.66, which aligns with average yields across the REIT sector.
Given recent adjustments in lease structures, we believe it prudent to maintain the dividend and will continue reassessing as more 2025 crop share information becomes available. Now, I’ll turn it back over to David.
Thank you, Lewis. Nice report. We are continuing to stay active in the marketplace should a good acquisition opportunity present itself. The banks are eager to lend us more money, but we won’t pursue that unless interest rates decrease. However, as mentioned in prior calls, we remain cautious in acquisitions due to high capital costs. While we have seen decreases in prices for certain permanent crops and farms in the West, the values of most row crops, like those grown strawberries, have remained high. Cap rates on most of those farms have not increased sufficiently to cover our financing costs, meaning acquisition activity has been essentially non-existent. Interest rates remain too high despite the Fed cutting rates by 0.5% in September. I can’t predict the timing of further cuts. We hope rates decrease soon so we can start buying more farms again. Finally, I want to emphasize that investing in farmland for crops contributing to healthy lifestyles is a positive trend, and we will continue pursuing quality farmland.
Demand for prime farmland and crops like berries and vegetables remains stable to strong. The current pricing for permanent crops, especially almonds and pistachios, has been challenging. We are hopeful that the worst is behind us for these two crops, although the direction is not yet clear. As you might have read, grain crop prices like soy and corn have declined, hurting those farmers. Inflation, especially in the food sector, is expected to continue rising. As for farmland, we anticipate increased values over time as demand for their produce grows. More individuals are choosing to eat healthily, driving up prices. I’d like to mention a point we’ve not discussed before: Farmland has intrinsic value - it’s like any real asset. People purchase it as a hedge against inflation, unlike gold. There is also usage value associated with farmland. Therefore, I believe farmland serves as a better long-term hedge against inflation. Historically, as evidenced by our property sales, we have benefited from selling at very high prices. With that, I’ll hand it back to the operator for questions.
分析師問答
Yes, of course. Our first question is from Gaurav Mehta with Alliance Global Partners. Please proceed.
Yes, thanks. Good morning. I wanted to ask you about your lease expiration. I think you mentioned that over six months, seven leases are expiring. Can you give us a number for 2025 regarding how many leases are expiring and how many of those are permanent crops?
Yes, give me a minute to confirm this number. We usually look a bit ahead, discussing leases due within six months as we work on renewal while accepting backup offers. For 2025, around 17 leases are set to expire, which is a significant portion of our revenue - about 20%. We’re already in contact with current tenants.
About half our farms focus on row crops, fruits, and vegetables, while the other half is in nuts. We also have some olive trees with long-term production.
That’s helpful. Regarding the third-quarter lease amendments, were these leases expiring during the third quarter, or were they amended for different reasons?
Some were expiring in 2024 that we extended, and some set to expire in 2028 and were amended for various reasons. The near-term expirations were only a handful.
Any other questions, Gaurav?
That’s all. Thank you.
Okay. Next question.
Our next question is from Rob Stevenson with Janney Montgomery Scott. Please proceed.
Good morning, guys. Lewis, the 11 Blueberry Farms are part of that 20 vacant, directly operated, and non-accrual, correct?
Yes, correct.
And I think David mentioned having another farm agreed for sale. Is that part of the 20 as well?
No, that one is leased through the middle of next year. It’s an agreement we entered but could close early next year.
Okay. So, if that Blueberry Farm sale goes through, the count of vacant direct-operating non-accrual should be halved at that point, right?
Yes, assuming that does close, we'll be left with one vacant property, one direct operated, and five farms on a non-accrual basis.
That’s helpful. Is there anything else looking like it’s headed towards non-accrual or are you comfortable with the remaining farms?
We’re comfortable with rent collectability from the other tenants. Only two tenants are experiencing issues on five of our farms. We are managing lease amendments for some properties.
Okay. Last one for me: regarding the NAV decline, how much of that was the permanent crops? Was any of that due to row crops?
Yes, it's entirely due to the permanent crops. The decline is approximately $4 from NAV, with about $2 due to portfolio valuation and another $2 from changes in market rates.
Okay, that’s helpful.
The farms we sold in Michigan were lots of small areas we initially booked when we were just starting, making a poor choice with a careless tenant. These issues will be resolved this year.
Thanks, guys. Appreciate the time this morning.
Sure. All right. Anyone else have a question?
Yes. Our next question is from Craig Kucera with Lucid Capital Markets. Please proceed.
Hey, good morning, guys. I may have missed this, but what were the crop types and locations for the four farms where you restructured the leases?
Two are pistachios, and two are wine grapes.
Got it. With the lease restructuring, was there any impact to fixed rent this quarter, or is that expected to start in the fourth quarter?
There was a minor impact this quarter, around $500,000 to $1 million decrease in normalized levels, primarily on the wine grape farms. The switch for the pistachios will start on November 1st.
Okay. Regarding participation rent, were there specific crops where that strength was realized?
The increased production is mainly from our pistachio farms. We are still gathering data for the complete set of properties, but that’s the notable change so far.
Looking at past years, your fourth quarter participation rent has often been 40% to 60% higher than third quarter levels. Is this in the ballpark for what you expect this year?
That is our hope. We still lack comprehensive data to confirm, but that’s the expectation.
Okay. Do we have any other questions?
We have one final question from John Massocca with B. Riley Securities. Please proceed.
Good morning.
Good morning.
Regarding the Michigan Blueberry Farms sale, what is the NOI impact from that? Were those contributing cash flow, or were they a drag due to operational issues?
They were definitely an NOI drag. Over the last year, the average quarterly drag on NOI was about $125,000, alongside another $40,000 in interest expense. So, approximately $165,000 total drag on net income. The sale proceeds will cover debt and relieve us of that drag.
Regarding lease changes this quarter, the $20 million annualized swing you mentioned is primarily from the nine properties transformed into a percentage rent situation, right?
Yes, the four properties we adjusted have a removed base rent component and provided cash allowances for certain capital and operating costs. Together, these factors create the $20 million shift, reducing our fixed base rents over the next five quarters, starting with this Q4. The majority of crop shares will be recognized in the second half of 2025.
Is the rent level largely reliant on pistachio operations, or do almonds play a role?
It's solely related to pistachios. We do have some almond properties with crop share leases, but they aren't part of this particular grouping.
We anticipate some crop share this quarter or next, but not from the new leases. We're hoping for a significant amount as we do each year.
Looking at the California permanent crop market, pricing seems to be stabilizing or recovering. Has that been your experience?
Pricing remains low for nuts and wine grapes, which impacts values. When moving from monthly payments to participation rents, payments are received later in the year. We're transitioning to a payment structure that aligns with cash flows from our farms. The latest payments may impact dividend distributions, but we're not in trouble. We are merely adapting to changes.
Regarding farm pricing in California, water sources are a major influence. We focus on properties with dual-source water to ensure value retention.
Thanks for the insights.
Thank you for your attention. It’s important to remember that investing in our company is a long-term endeavor. There will be ups and downs, but the long-term outlook remains strong. I appreciate everyone joining today, and we look forward to our next quarter. Thank you.
Thank you. This will conclude today’s conference. You may disconnect at this time.