管理層發言
Greetings and welcome to the Gladstone Land Corporation Third Quarter Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. David Gladstone, Chief Executive Officer. Thank you, sir. You may begin.
Thank you, Latanya, for the introduction. This is David Gladstone, and I welcome you to the quarterly conference call for Gladstone Land. I appreciate everyone for joining us today and taking the time to listen to our presentation. Before we start, I’d like to invite Catherine Gerkis, our Director of Investor Relations and ESG, to take over now.
Thanks, 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 e-mail notification service and find information on how to contact our Investor Relations department. We are also on X at GladstoneComps as well as Facebook and LinkedIn. 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 nonrecurring 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.
Thank you, Catherine. I'll start with a brief overview of our farmland holdings as we do every time. Currently, we own about 100,000 acres across approximately 148 farms, accompanied by nearly 56,000 acre-feet of water assets, which translates to more than 18 billion gallons. Our farms are situated in 15 different states, with all of our water assets located in California due to its dryness. We lease our farms to over 80 different tenant farmers who cultivate more than 60 types of crops, primarily fruits, vegetables, and nuts commonly found in grocery stores. We are maintaining a disciplined approach to new investments, essentially refraining from engaging in new farms due to high interest rates that complicate financing. We are optimistic that banks may reduce their rates in the future, but currently, cap rates for most row crop farmlands remain too low to sustain viable economies. This quarter, we completed the sale of one property that included two farms in Florida, achieving a sale price of $21.5 million, which reflects a 36% premium over our original purchase price, resulting in a gain of about $6 million. We might consider selling additional selected farms in the upcoming quarters as part of our continuous portfolio review, but we are being very conservative as we assess new deals. I will now update you on the modifications we have made to certain lease structures for some of our permanent crops farms in the West. As mentioned in prior calls, we have adjusted the lease structures on six properties due to market conditions affecting certain permanent crops, especially nuts and grapes. This adjustment aims to lower fixed costs for our partners while allowing us to share in the potential upside by accepting a percentage of gross crop sales instead of fixed rent. We are also operating two properties ourselves with third-party help, confident in their strong history of production. This confidence is buoyed by robust crop insurance coverage based on historical yields. Currently, we are completing harvest activities for our almonds, pistachios, and grapes. We wrapped up the pistachio harvest earlier this month and are now receiving proceeds statements that confirm the volume delivered to our sellers. From these statements, we expect to recognize approximately $17 million in revenue in the fourth quarter from these three orchards, along with a first cash payment of just over $5 million. Additionally, we transitioned a lease on a large vineyard in Napa, California, back to a traditional crop share arrangement from a structured lease that included a large lease incentive payment. Our goal is to eventually revert all leases to a more traditional structure, favoring fixed monthly rents over waiting until the end of the year for crop payments, even though the latter may often be more profitable. In other leasing activity, we executed two lease renewals after the quarter-end, expected to increase annual NOI by about $65,000, or roughly 7%. Looking forward, we have 11 leases set to expire throughout the remainder of 2025, some of which contain no fixed base rent while others feature cash lease incentives in exchange for increasing the participation rent component. These leases represent a negative $651,000 in lease revenue but do not account for payments we will receive from crop sales under the participation arrangement, which won’t be recognized until after the fourth quarter. We feel positive about our nut crops, and we are discussing leasing options with both current and prospective tenants while exploring the option to revert some leases back to standard arrangements with fixed monthly or quarterly rents. We currently have six vacant farms, and two properties with four farms are being operated under management agreements with an unrelated third party. We recognize revenue on a cash basis for leases with four tenants who collectively lease seven of our farms. We are actively pursuing solutions for these situations, optimistic that many will be resolved in the coming months, although it typically takes about six months following year-end for resolution. I will pause here as we have Bill Reiman online, who will share some positive updates. Bill, the floor is yours.
Thank you, David. To elaborate on the eight properties under modified lease agreements or managed by third-party operators, the harvest for the 2025 pistachio, almond, and grape crops is nearly finished. The pistachios have all been collected, and we have received our initial payment for that crop. There are just a few tons of grapes left to pick, and some almond crop is still in stockpiles, though it has all been cleared from the fields. We anticipate wrapping this up in the next few weeks. Last quarter, we noted that growing conditions were nearly perfect, and those favorable conditions continued throughout the fall. We did experience higher-than-usual rainfall in California's Central Valley, but the harvest process was smooth and uneventful, which is just what we prefer. Our pistachio orchards outperformed state averages and exceeded our own projections in both quality and volume. While some almond blocks underachieved, most exceeded our expectations. We expect to receive crop insurance payouts for the underperforming blocks, which should cover our growing costs. The grape harvest also yielded strong results overall with excellent quality. The favorable growing and harvesting conditions we've experienced in 2025 have set the stage well for the upcoming 2026 season. We still need adequate chilling hours, winter precipitation, and favorable weather next year, but it's looking promising for the 2026 crop. Our irrigation and fertilization practices are already in progress, and we'll begin some curing activities this winter. Regarding crop markets, tariffs, trade tensions, and geopolitical concerns create uncertainty in many export markets. However, nut crop markets, especially for pistachios, are showing remarkable resilience and strength. We're seeing unexpected demand particularly from the EU and the Middle East for pistachios, which helps lessen our dependence on the Chinese market. Although the Chinese market remains crucial, diversifying our export destinations reduces risk. For pistachios, our base guaranteed price is consistent with 2024, and we believe there's a strong chance that the final price, although not to be announced for another year, will be similar to 2024 levels. Almond prices have rebounded from their mid-summer dip and returned to early spring levels, with prices gradually increasing. Sellers and marketers I've spoken with are optimistic, with demand continuing to rise weekly and expectations for this trend to persist for several months. Conversely, the wine grape market is underperforming due to strong yields in recent years coupled with a decline in global consumption, resulting in a significant oversupply situation. Many vineyards worldwide are being removed to address this issue, and we anticipate that markets will begin to recover within the next year to 18 months. On a macroeconomic note, the weakening U.S. dollar benefits all our exported products, making them more appealing to international buyers. Finally, on water, we are in a normal to wet cycle and remain committed to improving our water delivery storage infrastructure across our portfolio. With these wet years, the availability of low-cost water is strong, allowing us to make strategic acquisitions. We continue to build our nearly 56,000 acre-feet of water assets, ensuring that several of our farms have sufficient water supply for immediate irrigation needs, regardless of weather conditions. We feel confident about this situation, no matter how this winter turns out. We expect the storage situation in federal systems to yield a minimum of 35% and potentially up to 50% allocation if we have a dry winter. Thus, if winter is normal to wet, we expect even better results. Overall, we have positive news regarding our water resources.
Thanks, Bill, and good morning, everyone. I'll begin with a quick overview of our recent financing activities. During the quarter, we repaid a $10 million bond that was coming due, which was backed by a property we also sold during this period. On the equity front, since the start of the third quarter, we've raised approximately $10 million through our ATM program. These funds were raised in preparation for redeeming our Series B term preferred stock, set to mature at the end of January 2026. This strategy helps us avoid the scheduled increase in the coupon rate from 5% to 8% and reduces our dependency on our variable rate line of credit to facilitate that redemption. Now regarding our operating results. For the third quarter, we reported a net income of around $2.1 million and a net loss for common shareholders of $3.9 million, equivalent to $0.11 per share. Adjusted FFO was $1.4 million or $0.04 per share, compared to $4.5 million or $0.13 per share in the same quarter last year. The decline in year-over-year AFFO was influenced by recent alterations to lease structures on certain farms, decreased revenue from farm sales over recent years, and ongoing tenancy issues that led to vacancies, resulting in both reduced revenues and increased costs. Fixed base cash rents were approximately $5.4 million lower than in the same quarter last year due to these factors, particularly the lease modifications on certain properties where we reduced or eliminated fixed base rents or, in some cases, offered cash lease incentives in exchange for much higher crop share participation. The outcomes from these crop share components will not be clear until the harvest is complete and the crops are sold, which is underway. Participation rents rose by about $1.9 million, largely because of earlier recognition payments related to the 2024 harvest on specific farms as we received additional information earlier this year. This increase was also driven by significantly stronger pistachio prices compared to last year. We anticipate increased participation rents in the fourth quarter of 2025 due to the lease modifications made on certain permanent crop farms. As we mentioned in previous calls, these adjustments have led to lower fixed base rents in fiscal year 2025 compared to 2024, with most of the resulting crop share proceeds expected to be recognized as participation rent in the fourth quarter of 2025, and the remaining smaller portion in the second half of 2026. Essentially, we are transitioning revenue from fixed base rents to participation rents over the next few years, meaning most of our earnings for 2025 will be realized in the fourth quarter, while the first nine months of the year will show narrower earnings. On the expense front, excluding reimbursable items and certain nonrecurring or noncash charges, our core operating expenses decreased by about $140,000 this quarter. Total related party fees dropped by roughly $110,000, driven by a lower base management fee due to recent sales. Our remaining recurring cash operating expenses stayed relatively steady, as higher property operating costs were balanced by reduced G&A expenses. Additionally, other expenses decreased mainly due to lower interest costs resulting from loan repayments made over the past year. Looking at liquidity, we currently have over $170 million in readily available capital. We also have nearly $150 million in unencumbered properties that could serve as additional collateral if necessary. More than 99% of our borrowings are at fixed rates, with a weighted average interest rate of 3.39% secured for a minimum of three years, shielding us from interest rate fluctuations in recent years. Looking forward, we have approximately $17 million in scheduled principal amortization payments due within the next 12 months, along with about $25 million in loans with fixed rate terms set to expire within the next year. Importantly, these loans are not maturing. Lastly, regarding our common distributions, in October, we declared a monthly dividend of $0.0467 per share for the fourth quarter of 2025. At our current stock price of $9.24, this yields an annualized return of 6.1%, which is significantly above the average in the REIT sector. Now, I’ll pass it back to David.
Thank you, Lewis. We continue to stay active in the marketplace should a good acquisition come along. But quite frankly, I'm not sure we're going to do any acquisitions this year, but we'll keep looking; maybe one day one will pop up that we like. But as mentioned on prior calls, we're still being much more cautious on the acquisition front because the cost of capital remains very high. Market outlook. Overall demand for prime farmland growing berries and vegetables remains stable in almost all of the areas where our farms are located. So, a lot of underlying value there in those farms. As mentioned earlier, prices for certain permanent crops have been depressed recently, which along with other factors, has impacted the value of the underlying farmland. However, we are seeing signs of improvement as both crop prices and broader economics of some of these crops. So, we are still in a good position for the long term. So, hopefully, the worst may be behind us. When all of the crops were having problems, we clearly were covered by the price of the land that we own. In closing, we expect inflation, particularly in the food sector, to continue to increase over time, and we expect the values of the underlying farmland to increase as a result. We expect this especially true of the healthy foods such as fresh nuts, fruits and other vegetables, which is the trend in America and all over the world for that matter. Trend is more for people in the U.S.A. eating healthy foods, and that continues to grow. Now we'll stop and have some questions from those who follow us. Operator, would you please come on and help them understand how they can ask the questions?
分析師問答
The first question comes from Rob Stevenson with Janney Montgomery Scott.
David or Bill, I might have missed it, but can you talk about how that $16.9 million of revenue from the pistachio harvest was versus what you were expecting? And how does this compare with what that crop would have generated a few years ago?
Well, if you're talking about a few years ago, they were leased. And so, all you would have gotten in is whatever we were charging on the lease. Now we've moved and increased the probability of getting higher rates, who knows. But at the point now, we are probably 2 or 3 times the amount that we would have received. So it was a very positive thing that we're getting now from feedback of where the leases have gone, that is from fixed rate to variable rate. And the variable has been very nice. Now we've gotten some nice numbers in. And we believe when you hear us in the fourth quarter, we will have a lot of this ironed out and you'll know what we made on what we invested. That's as close as I can get to just giving you a straight number.
Okay. And then, Lewis, you talked about redeeming the Series B. What's the cost associated with that and the timing?
The Series D is set to mature on January 31, 2026, with a current coupon rate of 5%. If it is not redeemed by that date, the rate will increase to 8%. We are currently considering our options and would prefer not to incur that higher rate. Refinancing remains costly and involves significant upfront expenses. Our current plan is to redeem the Series D using a combination of common stock and a line of credit. We have been issuing common stock at approximately 6.1%, and the line of credit is just below 6%. Therefore, while the immediate cost may be about 6%, which is higher than the current 5% yield, it is still significantly lower than the 8% it would increase to otherwise.
Okay. And there's roughly $60 million of debt out there?
Correct. Yes, $60.4 million.
The next question comes from Craig Kucera with Lucid Capital.
I think you mentioned that you might sell some of the permanent crop farms out West if you can't restructure the lease, and you're obviously looking at a number of different options there. But I'd be curious to get your thoughts on the depth of the transaction market out on the West Coast right now.
The banks are not lending at the low rates they once did when we initially made these purchases, but they are moving in that direction, and we are optimistic that they will offer a lower rate. The advantage of the note we are paying off is that it doesn't have a due date; it simply adjusts its rate. Therefore, liquidity is not an issue. We have confidence that the funds are available, and we don't need to repay it immediately. If we do decide to pay it back, we would lower the rate to zero. I believe we are in a strong position. This time last year, we faced some uncertain moments in the office as we reflected on the market conditions. However, today there is a sense of optimism. There may be one farmer facing significant challenges, and we might lose that account, but generally, the market appears more favorable. This is particularly true in California, while our other properties in Florida and the Midwest are meeting their payment obligations, putting us in a solid position.
Got it. Yes, it does. Considering your comments on wine grapes, should we conclude that any weakness in wine grapes has largely been balanced out by strength in tree nuts compared to what you had budgeted when you renegotiated those leases last fall?
That's exactly right. How did you get so smart?
The next question comes from John Massocca with B. Riley. Craig Kucera, Analyst, asked if the weakness in wine grapes has been offset by strength in tree nuts since the restructuring of the leases last fall. David Gladstone, CEO, confirmed that is exactly correct and praised the insight.
Maybe kind of thinking about both the repayment of the Series D and just generally kind of the market out there to pay down debt or even potentially even buy back common stock, how are you looking at the disposition market right now? Are there disposition opportunities, particularly maybe outside of California that are interesting? I know you closed the deal in Florida recently. So just kind of curious what potential for generating capital via selling farms there is today?
I think the situation on the East Coast is quite positive. However, the West Coast is still struggling to attract new farmers with substantial equity to manage their debts. We're still anticipating improvements in that area. Progress has been made, but it will take time to return to the levels we saw last year, and possibly the year before that. The more I analyze the situation, the more confident I feel that we are heading in the right direction. I hope you can join us for the fourth quarter, as it will reveal whether our choice for variable or fixed rates was wise. Fixed rates provide us with a consistent amount monthly or quarterly, whereas with variable rates, we wait until products are sold. This growing season has been excellent, and as long as the crops receive water and fertilizers, they will thrive. I believe we are at a significant turning point, and our numbers reflect that. The analyst responsible for crop projections is here and appears optimistic, which is a shift from a few years ago when she was quite frustrated. We have also brought in a new individual on the West Coast who will visit farms more frequently than in the past. The prior person did make regular visits, but now we have someone with more growing knowledge to help us identify and make necessary adjustments. This is an exciting time in the business. There are potential buyers for crops we have discussed, but some prefer to make promises rather than pay cash, and we prefer cash. We are focused on securing cash flow. How much cash do we currently have, Lewis?
Right now, we have $25 million in the bank and a fully undrawn $75 million line of credit and other undrawn notes as well.
So, we're not in problem territory now because liquidity is pretty much assured. We expect the fourth quarter to be a great quarter. We only got $5 million last time we got a payment coming in. I think we'll do much better in the fourth quarter. In fact, we're making sure of that by cutting deals as soon as we can. We have one large farm that a group who is trying to start over again is saying they will buy it from us. I don't know. John, you have to play your cards when you get them. But this time, I think if they come up with the amount of money that we're talking about, it would certainly send us in a direction of maybe buying some good farms. I sure miss the ability to go out and buy farms. It's a different world out there for the nut guys. Not that they're nuts, but they're growing nuts.
I just think on the disposition front, I mean, the Florida transaction seemed like it was kind of opportunistic. Is there more potential for those types of deals as we look into the remainder of the year and '26 to maybe sell more assets either to capitalize if you do have attractive buying opportunities or to kind of pay down pieces of the capital stack?
We will certainly pay down the loans in the capital stack, especially if they're nearing maturity. I'm not worried about that. As Lewis mentioned, the rate could go up to 8% unless we manage to eliminate the loan completely, but it's not due yet. The rate will just change if we don't pay it off. We're actively working on this and I believe we will be in good shape once the money starts coming in from our variable rate charge to some of the farmers. We are taking nothing for granted, however, and are hoping for continued positive trends. After the recent downturn, when consumer demand for nuts dropped significantly, it was surprising that orders diminished. However, customers are starting to place back orders now. Although they aren’t ordering as much, we can manage with the current situation. I'm feeling optimistic today and hope our forecasts are accurate. If they are, we stand to gain significantly from transitioning from fixed to variable payments from the farmers. Any further questions?
And then Lewis, maybe thinking about the Series B a little more, where do you think you are today in terms of having the liquidity you'd like to fully pay that down? It seems like you could, given the availability on the line, the cash today. But I mean, is there any need for kind of fresh capital in your mind to finish that repayment? And I guess, could you also maybe if you wanted to partially redeem it? Or does it have to be fully redeemed or fully kind of left out there to kind of pay that higher rate or that higher dividend yield?
We could consider a partial redemption, but having a product in our capital stack at 8% is not ideal for us at the moment. We currently have the liquidity to take it out today if we choose to, but since it's at 5%, which is lower than the current cost of capital we would incur to take it out, it makes sense to keep it at that 5% for as long as possible. The strategy of combining common stock with the line of credit is beneficial because while the line of credit is slightly cheaper, the price of our common stock is variable. By drawing less from the line of credit, we reduce our exposure to potential interest rate fluctuations. Additionally, as David mentioned, there are some farm sales that may occur in the future, which could provide extra capital. To address your question, we could take the amount out today if necessary, but it’s mainly about managing interest rate risk, achieving the lowest cost of capital, and ensuring we can do so effectively.
Okay. Any more questions?
Mr. Gladstone, there are no further questions in queue. I would like to turn it back to you for closing comments, please.
We don't like that. We'd like you to ask more questions. It's more fun when you do that. We'll live with it, and we'll see you next quarter. Don’t miss the opportunity to listen in next quarter and see how well we did in projections. That's the end of this. Thank you very much.
Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a great day.