管理層發言
Greetings. Welcome to Gladstone Land Corporation's Second Quarter Earnings Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce Mr. David Gladstone, Chief Executive Officer and President. Thank you, sir. You may begin.
All right. Thank you. That was a very nice introduction, and this is David Gladstone, and welcome to the quarterly conference call for Gladstone Land, and thank you all for taking the time out of your day to listen to our presentation. Before I begin, we'll hear from Katharine Gorka, our Director of Investor Relations, and she handles the ESG stuff as well. Katharine, give us an introduction here.
Thank you, David, and good morning. Today's call may include forward-looking statements, which are based on management's estimates, assumptions, and projections. There are no guarantees of future performance, and actual results may differ materially from those expressed or implied in these statements due to various uncertainties, including the risk factors set forth in our SEC filings, which you can find on the Investors page of our website. We assume no obligation to update any of these statements unless required by law. Please visit our website for a copy of our Form 10-Q and earnings press release, both issued yesterday for more detailed information. You can also sign up for our email notification service and find information on how to contact our Investor Relations department. We are also on X, @GladstoneComps as well as Facebook and LinkedIn. Keyword for both is The Gladstone Company.
Today, we'll discuss FFO, which is Funds From Operations, a non-GAAP accounting term defined as net income, excluding gains or losses from the sale of real estate and any impairment losses on property, plus depreciation and amortization of real estate assets. We may also discuss core FFO, which we generally define as FFO adjusted for certain non-recurring revenues and expenses and adjusted FFO, which further adjusts core FFO for certain noncash items, such as converting GAAP rents to normalized cash rents. We believe these metrics can be a better indication of our operating results and allow better comparability of our period-over-period performance. Now I'll turn it back to David Gladstone.
Well, thank you, Katharine. Let me just remind everybody with a brief overview of our Farmland holdings. We have about 103 acres on 150 different farms, and we have over 55,000 acre feet of water now on acre foot. It doesn't mean much to you, but it translates into about 18 billion gallons that we own, and we have it stored in aquifers and different places. Our farms are in 15 different states and our water assets are all in California. Our farms are leased to over 80 different tenant farmers, who grow 60 different types of crops on our farms. Most of these are the kind of food that you can find in the produce section of your local grocery store, such as fruits and vegetables and also nuts. We continue to be cautious and have made no new investments because interest rates and the expenses of running these farms are so different now than they were when we first started. Our cost of capital remains high and the cap rates on most of the row crops are still high.
If you buy one of these farms and then have to farm it, these are very difficult times for the farmers. We didn't complete any sales during the quarter, but we have one property, and that one property is in Florida. We have it classified on our financials as held for sale. This property consists of 2 farms in Florida that are currently under a signed purchase agreement, and we expect the sale to close soon, which would result in a nice gain for us. By the way, in Florida, a lot of the farms are being sold to be transferred into or reclassified into housing. We're not in the housing business, so we sell our farms when the housing folks show up and need more land. I want to touch on some modifications we made in our lease structure on certain of our farms. I know we've said this, but I want to make sure you understand it as it has a significant impact on our earnings pattern. I think we mentioned it in the prior call; market conditions around many of these permanent crops in the West, particularly those growing nuts and grapes, have some crop prices that are different and they weren't very high, but this year has a little bit of a different perspective on it.
I'm hopeful we have a lot of almonds, for example, and the government publishes every year their guess of how many almonds are going to be produced. The last 5 estimates over the last 5 years were not conclusive, but the government in their projections for the first 2 of the 5 years was accurate. Well, they didn't get it exactly right, but we had more almonds than were estimated by the government. Then the third year out, they were right on target, and then the last 2 years, we just got... I tell you, if the government is right this year, we make a lot of money. Anyway, we've decided to adjust the lease structure on 6 properties, and that's why these estimates, we hang on them so much to minimize the fixed cost, but also allow us to participate in the upside. We have moved from being a leaser to more of an operator or a grower of sorts because we're taking some of our payment for the lease as part of the crop that is being grown.
In essence, we accepted a percentage of the gross crop sales instead of a fixed rent payment. We did that because it was a very difficult time in the last 2 years, last 3 years really for farmers. We also decided to operate 2 properties ourselves with the help of third-party operators. That doesn't mean you're going to see me or any of the people out there on the farm harvesting or doing whatever. We have, like many people who are in this business, hired third-party operators to run the farms. We'd like to transition all of these back to the more traditional structure, including fixed base rents. Our ability to do so will depend on several external factors such as crop production, pricing, and interest rates; input costs have not gone down. They've gone anywhere but up. Water availability is a key factor. On our farms, we purchased enough water and stored it so that we're good for many years out.
One of the reasons we felt confident in going this route is that for the particular farms that we have, we have 8 now that are in this arrangement. These are farms that had really good crops in prior years. Because of the crop insurance coverage we've secured, you can buy crop guarantees on your historical yields, creating secure high levels of crop insurance. We have crop insurance on all 8 of these farms. Should a hurricane come through and damage the crops, we're still going to get paid what we would have gotten paid. We think we would have gotten paid in our existing farms. We hope that even though we're covered with crop insurance, we can also count on strong production from these farms. They've done so in the past to avoid reliance on crop insurance, which could otherwise reduce our profit. Regarding leasing activity, we still have many farms that are under leases, of course, and we're a real estate investment trust, so our leasing is just in sync with that kind of structure.
We have entered into 4 new standard lease agreements during the quarter, which are expected to result in an aggressive increase in our annual NOI of about $166,000 or about 9%. That part of the business is working still very well, and we'll see when we harvest the crops that we will own part of what they will look like in the future. Looking ahead, we have 14 leases scheduled to expire through the rest of the year, due to some of these leases containing no fixed base rent, including cash leases that we are working on. These leases account for negative $2.8 million of leasing revenue during the first half of 2024. Remember, we can't include in our estimates, even though we have insurance on it, these represent a negative drag until the crop comes in. We won't know that until the fourth quarter. We'll know a little bit more next time we meet in the third quarter. That's largely because the participation rents resulting from these leases won't be recognized until we reach the fourth quarter due to accounting standards.
I don't know why we can't recognize some of it, but those are the rules. Unless you have sold something and are trying to collect on it, you can't accrue any of it. We're in discussions with both existing and prospective new tenants about the leasing of these farms, including reverting some of these back to leases with standard fixed base rents. Or if the price is right, we may also look to sell a couple of these farms. As I mentioned, we've got one that's going to get sold in Florida because the housing boom down there is tremendous. I'm going to stop here and call on Bill Ryman. Bill is working on all the activities in California and has been hard at work because we've moved from just collecting rents to actually working with the people we've hired to farm them. Bill, why don't you come on now and talk to us about that?
Thank you, David. Yes, sure. Good morning, everybody. Just to talk a little bit about the 8 properties that are under modified lease agreements or being directly operated by third parties. Three of these properties are wine grape vineyards, and with the current wine grape economics, we hope to recover most of our costs on these. If we break even, that will be a huge win. The remaining 5 properties consist of 2 pistachio orchards, 2 almond orchards, and a large property that has both. Based on planted acreage, about 60% of these 8 properties are in pistachios with about 35% of the acreage in almonds. Overwhelmingly, our focus is on these 2 nut crops. We're very pleased with the condition of the crops on all 8 properties. We expect above-average crop yields, and crop quality looks excellent. As David mentioned, we're fully insured on all of these properties. The nut properties have really strong historical production, and they all look above average.
We've been working with 5 different tenants or operators across the 8 assets, and all 5 growers are performing at a very high level for us, achieving an acceptable standard. All positive stuff there. In addition to that, we had an average wet winter this past season, and the growing season has been nearly perfect in the entire Western U.S. That is certainly a factor that we don't control, but we've been very fortunate. Regarding crop markets, generally speaking, we've seen many of our crops and commodities trend lower in the last few months. Trade negotiations and tariff talks play a significant role in this, but traditional supply-demand dynamics are the main drivers, particularly behind crops such as almonds and wine grapes, which are vital to us. These industries have seen orchards and vineyards being removed at historically large scales. At some point in the near future, we expect those markets to turn.
Over the past year, we've seen almond markets definitely turn a corner, trending upward. David referenced the USDA's almond objective forecast released in July. The number they put out was massive, higher than anybody expected, and nobody really believes it, but it caused about a 20% drop in almond prices about a month ago. It wiped out all of the pricing gains of the last year and brought prices back down to what they were a year ago. In the last couple of weeks, we've seen pricing really come back. It's up 5% to 8%. That was as of a week ago, and this past week, just this week ending, we're up another $0.03 or $0.04 per pound. We have good almond market momentum, and we expect that to continue. The harvest just started. We're shaking trees in all of our almond orchards as of right now. Over the next several weeks, we'll start to see how the industry actuals compare to the objective. All eyes are on that because that will support more price gains if we come in at a slower rate than the USDA projected.
Coffee shop talk as of today suggests that the crop is coming in light, which is good news for us because it will strengthen the market. The fine grape market, however, still remains mired in low points, and it's been slow this summer to secure contracts, but in the last 10 days, we've had several inquiries about some of our crops for contracts, and the pricing is significantly higher than a year ago. There are a few positive signals there. Pistachios appear to be the best market out there right now. Similarly, tariffs and trade discussions have created some uncertainty, but we see very strong demand, particularly as it seems that the 2024 crop is sold out early. As we sit here today, a month away from the harvest of the '25 crop, there's very little movement because product availability is low. We have low inventories going into 2025, which is expected to yield probably the largest U.S. pistachio crop on record, alongside strong demand and stable pricing.
Our guaranteed base price came out a few weeks ago, and it is the same as last year's, which is exactly what we budgeted for. We do have one of the unknowns now known. We know what our base pricing is for our pistachio crops, which is good. We’re happy about that. While profitability is not nearly as strong as the boom time from 5 or 10 years ago for pistachios, the market fundamentals remain robust. Generally, we are seeing an increase in bearing acreage, coupled with trade uncertainty that balances out the reduction in new plantings due to water pumping restrictions in California that might impact some orchards planted in the past 10 to 15 years with weak water rights. There is also a notable increase in consumption in the EU, particularly due to the Dubai chocolate phenomenon. There are many positives balancing out the negatives. I'll wrap up with a few words on water. We've been reporting the normal to wet cycle the Western U.S. has experienced in recent years, including this one, which has created many water buying opportunities at prices that fit into our crop budgets.
We've been very aggressive and focused on improving our delivery and storage infrastructure across the portfolio. Alongside the availability of inexpensive water, we've enhanced the water security of our farms. We continue to add to that 55,000 acre feet of water. We have certain areas where our farms have enough water; if it didn't rain for 10 years, we could still irrigate them for about a decade. We spend much time trying to figure out how to synergize our properties, coordinating them where they can share water and improve our overall portfolio security. We'll continue to focus on long-term and short-term water purchases, improving infrastructure, and seeking to ensure a secure portfolio in that regard. That's it for me. I'll turn it over to our CFO, Lewis Parrish.
All right. Thank you, Bill, and good morning, everyone. I'll start with a quick update on our recent financing activity. During the quarter, we refinanced a $10 million maturing loan with MetLife, and after the quarter ended, we repaid a $10 million maturing bond in anticipation of selling the underlying property later this month. We did not issue any new equity during the quarter. Turning to our operating results. For the second quarter, we recorded a net loss of about $7.9 million and a net loss to common shareholders of $13.9 million, or $0.38 per share. Adjusted FFO was negative $3.4 million, or $0.10 per share, compared to a positive $3.7 million or $0.10 per share in the same quarter last year. The dividends declared per common share were $0.14 in both quarters. The year-over-year decline in AFFO was driven by recent changes to lease structures on certain farms and ongoing tenancy issues that resulted in farm vacancies, leading to reduced revenues and higher costs, along with lost revenue from farms sold over the past year.
Fixed base cash rents were down by about $6.8 million from the prior year quarter for the reasons just mentioned, mainly the vacancies we continue to work through and the structural changes made to certain leases, where we reduced or eliminated fixed base cash rents or in some cases, provided cash lease incentives to certain tenants in exchange for significantly increasing the crop share components. As others have mentioned, the outcomes from these crop share components won't be clear until the harvest is complete and the crops are sold. So far, this year's participation rents have mostly come from cash collections on wine grape sales. I will note that we continue to expect higher participation rent levels in the second half of 2025 as a result of lease modifications made on certain permanent crop farms. We discussed this on prior calls, but these lease changes are expected to reduce fixed base rents by about $17 million for fiscal year 2025 compared to '24.
This figure includes both the base rents recognized last year under prior leases and cash allowances provided to some tenants for the 2025 crop year. It’s being shown as a reduction in fixed base rents at a rate of roughly $4 million to $5 million per quarter in 2025, which aligns with the first half of the year. Consequently, the majority of the resulting crop share proceeds from these leases are expected to be recognized as participation rent in the fourth quarter of 2025, with most of the remaining smaller portion being recognized in the second half of 2026. In essence, we're shifting this revenue from fixed base rents to participation rents over the next couple of years, and as a result, earnings this year will be more heavily weighted towards the fourth quarter, with lighter earnings during the first half of the year. On the expense side, excluding reimbursable items and certain non-recurring or non-cash charges, our core operating expenses decreased by about $200,000 this quarter.
The capital gain fee that was triggered in Q1 by property sales was reversed in Q2 due to additional losses incurred on certain asset dispositions. Excluding this reversal, total related-party fees fell by about $67,000 driven by a lower base management fee due to recent farm sales. Our remaining cash operating expenses decreased by approximately $135,000, with lower G&A costs partially offset by higher property operating expenses. The increase in property operating expenses was largely driven by additional costs incurred to protect water rights on some farms in California, as well as higher expenses related to farms that were vacant, directly operated, or on non-accrual status, particularly increased property taxes, which were previously the responsibility of the former tenants. The decrease in G&A expense was mainly due to lower shareholder-related costs and reduced professional fees. Finally, other expenses decreased mainly due to lower interest expense driven by loan repayments made over the past year.
Turning to liquidity, we currently have over $150 million of available capital, and we also have nearly $170 million of unpledged properties that we could use as additional collateral if needed. Over 99% of our borrowings are at fixed rates with a weighted average rate of 3.39% locked in for another 3.3 years. This has helped shield us from the impact of rising interest rates over the past few years. Looking ahead, we have about $17 million of scheduled principal amortization payments due over the next 12 months, less than 4% of our total debt. We also have about $11 million in loans with fixed rate terms expiring in the next year, though the loans themselves are not maturing. Finally, regarding our common distribution, in July, we declared a monthly dividend of $0.0467 per share for the third quarter of '25. At our current stock price of $9.14, this represents a 6.1% annualized yield, which is well above the sector average. We're maintaining the dividend at this level for now, and we'll reevaluate it in the coming months as we gain more clarity on the 2025 harvest results. With that, I'll turn it back over to David.
Okay. Thank you, Lewis. I think everybody is getting the gist here. We have changed when we can recognize income, and we won't recognize very little in the second quarter. Hopefully, in the third and fourth quarters, certainly in the fourth quarter, as we sell a lot of our crops, we'll be back in the game of substantial profits. One thing you may not know, I didn't realize it was going on, on Friday until I got a call from Lewis and our legal team. There was a group out there trading on the market with the dollar sign LAND. These players were just having a lot of fun playing with each other on the price, causing about a 1-point drop in the price of our stock. It was not good for us, and it takes a long time to recover from these stocks being manipulated and return to regular trading. Regarding the acquisition outlook, we continue to stay active in the market, and we are seeing numerous changes regarding what farmers can sell their properties for.
I believe we'll be able to sell some more properties over time. Again, just moving in the direction we have to based on the company's current operations. With the cost of capital remaining high, it really concerns me that the marketplace will undergo some changes. Overall demand for prime farmland growing berries and vegetables remains stable among all the areas where our properties lie, especially along the coast of California. As mentioned earlier, prices for certain permanent crops have been depressed. When we speak of permanent crops, we're primarily referring to the nut business, which has many trees. The only positive thing about these trees is that they are harvested mechanically, so we are not significantly affected by changes in labor costs for picking crops. While we still worry about that, as many of our properties are strawberries and other crops that need quick harvesting and shipment.
For us, the issues have been linked to our inability to recognize any projected income. Currently, we are all sitting here twiddling our thumbs trying to determine when we can execute some real transactions. As Bill mentioned, they are now starting to sell and deliver some of the nut crops. I don't want to sell any right now, and Bill prefers to hold off until we can see what the crops truly look like. We all expect inflation, particularly in the food sector, to continue to rise over time. We trust the value of underlying farmland will increase over time as crop values appreciate, and as long as farmers can remain profitable, they will keep farming. We expect this to be particularly true regarding healthy foods like the fresh fruits and vegetables we cultivate, as well as the nut crop. The trend of more individuals opting for healthy foods is significant, especially with dietary concerns plaguing the population.
We anticipate Mr. Kennedy will continue to advocate for this trend, which I believe benefits us as people increasingly purchase healthy foods such as nuts and berries. We have the largest farm dedicated to cabbages among anyone I know, and this is still profitable for us. Now, let's turn to questions instead of me rambling on, or we'll get someone to join in to pose some great questions.
分析師問答
Our first question is from Gaurav Mehta with Alliance Global Partners.
I wanted to follow up on your comments around participation rents. The $17 million that you guys talked about, how much of that are you expecting in 4Q of '25? How much of it is going to carry over to next year?
The $17 million is difficult for us to quantify right now because we don't know what the total number is going to be. If, for example, we have poor harvest results, then the participation rent coming from those leases could be less than that amount. If we have a great harvest and pricing, then it could be higher. We think the split between this year and next year will be probably about 60% to 65% this year, with the remainder carried over to next year, but most of it should be in Q4 of next year.
The way these leases work, would they automatically transition to fixed rents, or will they need to be renewed at the participation rents?
They never automatically convert to fixed, and so we'll need to negotiate that again when the time frame comes up, which is usually before this calendar year-end.
Yes. These leases end later this year. We'll be renegotiating them. If we can come to terms on a standard lease, that's great, but if not, then we may have to continue the structure for another year.
Then maybe switching to the balance sheet. Can you talk about your expectations for the Series D that's up for redemption in January of '26?
Yes. We're still keeping our options open. We're in touch with underwriters and discussing internally about cash availability, using the line of credit. We have options to pay it off with potentially proceeds from property sales, the line of credit that's about 1.7% lower than the rate that the Series D would go up to. We could let it remain, but it would rise from 5% to 8%. With current market rates for refinancing, that still appears to be a more favorable option just in terms of the refinancing rate versus all the upfront costs, commissions, and other expenses. Right now, we're assessing our situation internally: cash availability, line of credit, and determining what makes sense to do come January—whether to pay it off or let it sit for a while until we can sell properties and cover the debt.
Gaurav, one of the good things right now is that we have the possibility of making significant profits from selling these products. For example, our estimates suggest we could make about $8 million from selling one of our nut crops. We've witnessed many people succeed in this space over time. Unfortunately, the ongoing cost of capital and the changes affecting farming have devastated many of our valuable tenants. One case I recall involved someone who used to significantly profit but has now lost approximately $8 million due to these changes. We hope for a substantial crop yield so everyone can benefit. One notable factor with a big crop is that prices often decrease. If you're the first to market and sell it, you can earn greater profits than if you wait. Right now, the initial buyers have an urgency because they are behind in their supply needs. This scenario will be intriguing as they will need the nuts urgently; they might encounter difficulties acquiring them.
I think you're about to witness prices rebound quite quickly over the course of the next year. From my perspective, I believe we will see an influx of individuals entering the nut cultivation business. It has been challenging for us in this sector, but it's beginning to recover, which will be beneficial. The ones who heavily depend on nuts in international markets are particularly affected; for instance, many almond crops are sold in Spain and various Middle Eastern countries. In contrast, we do not typically operate in the international market; for example, strawberries are grown and consumed here rapidly and do not reach international markets. My preference leans toward our traditional leasing business, and I hope to return to that as profitability resurfaces in the nut sector.
Yes, maybe lastly, you talked about some positive trends in almonds and pistachios. I'm curious if there are other crop types within your portfolio that are not seeing positive trends and continuing to experience softness in prices?
I think that is true. Lewis, do you have anything to add?
Bill, do you want to provide some commentary on that?
The question was whether there are other crop types showing weakness or softness in the market. Was that the question, Gaurav?
Yes. I guess, Lewis, you mentioned positive trends in almonds and pistachios. I'm wondering if there is anything else in your portfolio that is not showing positive trends?
Not really. You have the ups and downs in some of the annual row crops, but those are just the normal fluctuations of the market, so to speak. Those are usually driven by short-term weather events which can include freezes, excess rain, or heat waves. In annual row crops, our leases are not tied to the crops. There just isn’t a significant impact from that. The markets that are essential to us are the permanent crops because even in standard leases, a component of those leases is crop share, which always affects us more significantly.
Our next question is from Steven Dumanski with Janney Montgomery Scott.
As discussed earlier in the call, with potential acquirers currently limited by their respective cost of capital, is it possible to project when you'll see more disposition opportunities? Could you provide feedback from any potential buyers?
There are certainly buyers out there, but they're all looking to purchase at very discounted prices. They come in trying to acquire properties at lower prices, which is nice for them, but not something we are inclined to pursue at this time. If you consider Florida, I heard someone say that there are 10,000 new families moving in every week. The housing market is doing great there, and we receive inquiries about paying a much higher price, but that may be further down the line. I don't want to tie up our farms in that direction. As long as these properties continue to generate good rental income, I want to maintain that aspect of the business. We're monitoring the situation. I would estimate that we're among the thousands of farmers tuned into radio broadcasts about daily farming prices. Bill is the closest to the situation since he's in California and communicates with all the farms we have there.
He is our resident expert on pricing, and we rely on him when we decide to sell anything. We still have some properties in the Midwest that we acquired along the way, and we are preparing to sell those and will focus on our main business, which pertains to properties in the East related to our leasing operations, as well as these 8 farms where we are becoming more involved in agriculture. We haven't yet handed out straw hats to everyone, but they are well aware of our dependencies on commodity crop prices now.
Lastly, could you expand on the quarter-over-quarter decrease in the acre-feet of water you own? I'm curious if the variance was due to a remeasurement or other factors.
No, that was just— I think there was a 44-acre foot decrease quarter-over-quarter. That was simply because we used a small amount. We record water credit recognition in the quarter in arrears. This reflects water usage in the first quarter of the year, but it resulted from tenant transition on one property, involving logistic efforts to transition wells from different accounts to the power company. However, the trees needed watering at that moment, so we utilized 44 acre-feet of water that we had stored to irrigate the trees while we managed the well transfers.
We have a question from John Massocca with B. Riley Securities.
With regards to water, what have you observed regarding the impact of Sigma on some of your properties? Has that situation largely stabilized? Or do you believe there are specific assets that lack sufficient water reserves that still face risks? Has that regulatory landscape already been determined? Where are we in that process?
No, there are still changes coming from Sigma. So far, we seem to be ahead of the curve on that, but you never know what the government will do. They are currently meeting—there have been lawsuits filed by groups of farmers. We may be participants in one of those suits. If the government acts unreasonably and begins to favor certain groups, it complicates our decision-making process. At present, we are in relatively good shape. We're not in excellent condition, but we do not foresee any impending issues with water availability this year. This year has treated us well. Moreover, I think most of the farms could manage for another 2 or 3 years without significant water shortages. Water prices could pose challenges for some, especially if we experience a dry year, but fortunately, we are not facing that issue currently. You emphasize the water aspect accurately because while it's not as critical as the trees, water is essential for tree growth, and one cannot grow strawberries without ample water.
Most of our intensive water crops are based in the East, especially in Florida, where, realistically, you can just stick a stick in the ground, and water will emerge without any issue. In the end, the water situation is a significant concern for many farmers in California, but we seem to have positioned ourselves well with the investments we've made to secure water at manageable prices. We have amassed a substantial amount of water in our aquifers, which we accumulated during the wet years. We captured water from creeks and other sources and funneled it into our reserves. In fact, the workers have humorously started referring to it as Lake Gladstone because we have so much water stored. While we have 18 billion gallons stored, it tends to consume rapidly. The weather in California is currently ideal for cultivation, provided there’s access to water. Bill, do you want to add anything regarding the water situation?
John, that’s an excellent question regarding Sigma. From the beginning, we decided to monitor closely how Sigma would impact each of our farms separately. We aimed to determine how we could obtain supplemental water on every farm, especially with the knowledge that regulations would evolve. We have adopted a long-term view in our strategy. That's why we've invested in our delivery infrastructure and are identifying groundwater basins for potential water storage. We’ve been extraordinarily fortunate with recent wet winters that have provided ample water at favorable prices. Our approach has prepared our portfolio well to deal with these uncertainties and changes. We believe that out of all the land portfolios in California owned by various investors or investment firms, our water security is among the best. Given the evolving regulatory landscape, we have been involved in 2 water adjudications and anticipate potentially one or two more impacting us. Our strategy centers around preparing for the future while addressing immediate concerns like available water supply. We're also noticing that land values are bifurcating. Properties with poor water access are declining in value, whereas properties linked to robust water districts and infrastructure maintain or increase their value. In summary, we've strategically prepared ourselves very well.
An additional point to emphasize is that for the past three years, we’ve reported wet average conditions in California. This has presented various buying opportunities, and while other farmers also have access to buy water, most do not possess our level of infrastructure to store it. Various neighboring landowners have even approached us to ask if we could store water for them in exchange for some compensation, which provides a small revenue stream along with enhancing our water security. However, our significant investment of approximately $35 million in water assets has positioned us advantageously, given that we secured this water at around $600 per acre-foot, which stands in stark contrast to the price we could face at the end of the previous drought. Although we’re not seeking a drought, we are confident that we will realize the benefits of our stored water once such conditions arise.
We understand droughts are inevitable. We recognize they will occur again, but we can't predict when. It's certain that the next drought will be severe, and we are preparing meticulously for that.
With regards to the operated properties, is there a floor that you're anticipating based on the crop insurance you have in place today for the impact on probably the Q4 revenues?
I believe that while not necessarily for Q4, across these 8 properties, we have invested around $25 million in maintaining the crop growth costs, including the $17 million from the 6 properties with modified leases. Additionally, we have 2 properties directly operated with the assistance of third-party operators. In a worst-case scenario, where we couldn't harvest and sell any crops, the crop insurance should cover all our costs and possibly yield a small profit. I expect a similar split from earlier questions, probably about 60% to 65% this year, with the remaining amount carrying into next year, though we are confident we will not face a total crop loss.
I'll add a brief note on the crop insurance front. Generally, the better the properties perform, the better the crop insurance we can get. There’s an interesting irony here—our best insured properties are likely those unlikely to experience losses, as they perform better than industry averages. When we mention having robust crop insurance, it's crucial to understand that indicates those assets are above average and truly high-performing.
To wrap things up regarding balance sheet matters: given your more operating focus in the near term, how comfortable are you? Where would you like to see that cash balance maintained at a minimum? Considering your substantial cash reserves, could you use that to pay down maturing debt?
While the cash level is important, it's more about our overall liquidity. As of June 30, we had $30 million cash on the balance sheet. We also have an undrawn line of credit totaling about $87 million—two lines of credit. This grants us immediate access to funds. With our current position, we are looking at approximately $150 million in instant availability. Should we need to operate all 8 properties, we would allocate $25 million for operational costs. Considering we have $17 million in principal payments due, we aim to maintain at least $50 million in available funds consistently over the next 12 months, which we have done. Moreover, we possess $170 million in unpledged properties that could furnish us with an additional $100 million borrowing capacity if interest rates become favorable or if we require funds for other reasons.
There are no further questions at this time.
Well, that's a shame. We enjoy addressing your inquiries. We hope you will have some great questions for us next time, and we anticipate knowing much more about these farms during our next session. That concludes this conversation; we appreciate your participation and look forward to seeing you next quarter.
Thank you. That will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.