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 you can find them on our website, specifically on 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 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, 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 both 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. 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 in Florida, you can drill down and get water quickly. Our farms are leased to over 90 different tenant farmers and the tenants on the farms are growing over 60 different types of crops. Mostly these are fruits and vegetables and we have 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 grown on our farms are sold.
We’ve been 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 a couple of farms that were previously vacant. On annual row crop farms, we renewed or amended eight different leases, and these renewals are expected to result 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, we renewed about 13 different leases there. With four of these leases, we adjusted the lease structure whereby we eliminated the base rent and provided the tenant with some cash to grow the crops. In exchange for the base rent, we significantly increase the participation in the rent component of these leases, the majority of which will be recognized in the second half of 2025.
We’re going to go through a little 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, borrowing costs have gone up as well. These conditions make it difficult for the tenants to commit long-term leases that include high base rents. As such, we decided to adjust the lease structure on a few farms to help minimize their fixed costs and also allow us to participate in the upside if the farmers have a good year. We believe these lease structures will give us the best chance of making a good profit on these farms in the coming years, particularly on two pistachio farms, which we’re focusing on at this time. These are high yielding properties, with a history of high production, which means the crop insurance will be good. We also continue to see pricing trends in the right direction for both pistachios and almonds.
California has experienced above average rainfall levels in recent years, and most of the reservoirs are still at or above the historic averages. Our current plan is to move forward with the structure for the 2025 harvest in these few farms and hopefully revert back to more traditional lease structures with the rent next year, or we may also sell some of these farms if we think we’re not going to be able to farm 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 the prior leases. We swapped the base rents for participation on the upside. This is the traditional way of farming, and the King used to own all the land and lease it out to his farmers who would give him most of the crop. Looking ahead, we have seven leases scheduled to expire over the next six months and in total they make up about 2.5% of the total lease revenue.
We’re in discussions with various groups to lease these farms or operate them on our behalf, and we may also look to sell a couple of these farms. We do have one that we agreed to sell, and we believe have some very valuable farms, so this new route is a new option for us. Subsequent to the quarter-end, we also entered into an agreement to sell 11 blueberry farms in Michigan for about $5 million. These are some of our earliest farms. If you remember, this one is one in which the entrepreneur, the farmer, had some very serious accidents and was in the hospital for many months. We had to get others to come in and manage the farms. Finally, we decided to leave that Michigan area. These are the farms that have tenants issuing results on increased operating costs. We’re happy to bring these issues to a close, and all of that should wrap up before the end of the year. Now, I’ll give a quick update on some of the remaining tenancy issues.
We currently have one farm that is vacant, and we’re down there. One farm is directly operated via a management agreement with an unrelated third-party. Additionally, we’re recognizing revenue from leases in two tenants who occupy five of our farms. They have five of our farms, but we’re collecting cash on two of the tenants. Regarding these farms, we’re in discussion with various potential buyers and tenants. We’re in a situation where a lot of people are looking for farms again, and that’s always good to see. We may use some of them to manage and run our farms, and we hope to have an agreement in place by the end of the year on these last two. We may end up listing some of these farms at auction as we did in Michigan, but I don’t expect that to be many of the farms. The total year-over-year impact on our operating results for these tenant issues was a decrease in net operating income of about $638,000 in the third quarter.
Hopefully, by this time next year, we’ll be recognizing a lot of profit from operating some farms with operators who come in to manage them. I’m going to stop here and let Lewis come in and talk to us about the numbers he has for you.
Okay. Thank you, David, and good morning, everyone. I’ll begin by briefly going over our recent financing activity. We did not borrow any new money during the quarter, but we did repay about $13 million of loans that were scheduled to mature or re-price. On the equity side, since the beginning of third quarter, we’ve raised net proceeds of about $80,000 from sales of the Series E preferred stock and about $4.5 million from sales of our common stock through the ATM program. We also continued with the repurchase program of our Series B and Series C preferred stock that was implemented in 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 a 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 the lost revenue from the farm we sold in January and a decrease in income associated with certain properties that were either vacant, directly operated or on non-accrual status during portions of the quarter. Fixed base cash rents decreased by about $2.6 million on a year-over-year basis, primarily due to the reasons I just mentioned. Again, that is the lost revenues from the farm we sold and additional expenses related to certain vacancies we continue to work through, as well as lease incentives granted to certain tenants associated with the lease structure changes that we just mentioned, and a portion of one rent payment that was covered in water.
This was partially offset by a $1.1 million increase in participation rents recorded during the current quarter. These amounts are largely dependent upon when our tenants provide certain information to us, but thus far the increase has been largely driven by stronger production at some of our pistachio farms. A note to make on revenue over the next several quarters: as a result of the change in lease structures we made on a few farms, we are expecting a total year-over-year swing in our fixed base rents of about $20 million. This figure consists of the base rent that we were previously receiving under the prior leases, plus the cash allowances we granted to some of these tenants. This will be shown as a reduction in our fixed base rents over the next five quarters, beginning with Q4 2024 at a rate of between $3.5 million to $4.5 million per quarter. Then, the majority of the resulting crop share from these leases will be recognized as participation rent in the second half of 2025, with the remaining smaller portion being recognized in the second half of 2026.
Right now, we are expecting to recover the full $20 million and possibly more, but we will not know these numbers until later in 2025. If things play out as we currently expect, we’ll essentially be moving about $20 million from the fixed base rent bucket into the participation rent bucket over the next couple of years. On the expense side, excluding reimbursable expenses and certain non-recurring or non-cash expenses, our core operating expenses decreased by about $140,000 during the current quarter. Related party fees decreased by $800,000 due to a higher incentive fee earned in the prior year. Largely offsetting this was an increase in property operating expenses of $590,000, primarily driven by additional costs incurred on properties that were either vacant, directly operated or on non-accrual status. These costs included additional legal costs, property management fees and real estate taxes.
As we bring these issues to a close, which we expect to happen by the end of the year, these costs should decrease to a more normalized level. Finally, G&A expenses increased slightly due to additional shareholder-related costs and higher professional fees. We also recorded an impairment charge of about $2 million during the quarter, which was the result of writing the net book value of some Michigan blueberry farms down to the sales prices, per the agreements we entered into subsequent to September 30. Other expenses decreased primarily due to lower interest expense incurred as a result of loan repayments we made over the past year. With that, we’ll move on to net asset value. During the quarter, we had 43 farms revalued, all via third-party appraisals. Overall, these valuations decreased by about $23 million or 4.5% from their previous valuations about a year ago. These decreases were limited to certain of our permanent crop farms as our annual row crop farms continue to appreciate in value.
So as of September 30, our portfolio was valued at about $1.5 billion, and all of this valuation was supported by either third-party appraisals or purchase prices in the case of water. Based on these updated valuations and including the fair value of our debt and preferred securities, our net asset value per common share at September 30 was $15.57, which is down from $17.59 at June 30. The majority of this decrease was due to certain farms that were reappraised during the quarter as well as the change in fair value of our debt and preferred securities due to changes in market rates. Turning to liquidity, including availability in our lines of credit and other undrawn notes, we currently 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 currently at fixed rates and, on a weighted average basis, these rates are fixed at 3.4% for another 3.7 years.
As a result, we have experienced minimal impact on our operating results from increased interest rates over the past couple of years. Regarding upcoming debt maturities, we have about $39 million coming due over the next 12 months. However, $21 million of that represents various loan maturities. Given the value of the underlying collateral, we do not foresee any problems refinancing if we choose to do so. Removing those maturities, we have about $18 million of amortizing principal payments coming due over the next 12 months, or about 3% of our current outstanding debt. Additionally, we have about $19 million of loans that are not maturing, but have a fixed rate term expiring over the next 12 months. In October, we declared a dividend of $4.67 per share per month for the fourth quarter. At our current stock price of $13.66 per share, this works out to a yield of 4.1%, which is in line with the average dividend yield across the entire REIT sector.
Given the changes we recently made in lease structure at certain properties, we believe it prudent to hold the dividend flat at this time and we’ll continue to reassess it as more information regarding the 2025 crop share amount is known. And with that, I’ll turn things 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 love us and would love to lend us more money, but we’re not going in that direction unless interest rates come down. As mentioned in prior calls, we’re still being more cautious on the acquisition front because our cost of capital remains high. While we have seen decreases in prices for certain permanent crops and farms in the West, the values of most of the row crops like strawberries have remained very high. Cap rates on most of those farms are not increasing enough to cover our financing costs. As a result, acquisition activity has been slow; we’re not doing any new deals given the cost of capital and potential returns. Interest rates are still a bit too high for us despite the Feds cutting rates by 0.5% in September. The timing of further cuts is uncertain, but we're hopeful that rates will be lower soon so we can start looking to buy more farms.
A final point: we believe investing in farmland growing crops that contribute to healthy lifestyles, such as fruits, vegetables, and nuts, is a great trend. Overall demand for prime farmland and crops remains stable to strong, especially on the vegetable and berry side, which is relatively stronger than ever. However, crop prices for certain permanent crops, particularly nuts and wine grapes, have been depressed lately, impacting the value of underlying farmland. We’re seeing prices begin to turn around for crops like almonds and pistachios, which have been pushed down by lower demand. While it's unclear which way things are going, we are cautious about the overall landscape. Please remember that purchasing stock in this company is a long-term investment, with inevitable ups and downs. Historically, long-term appreciation has remained strong, though short-term fluctuations can occur. Similar to investments, farmland is subject to those cycles, especially in the grain crops like soy and corn, where prices are down and farmers are struggling.
We expect inflation in food prices to continue over time. Even though many complain about high food costs, we expect the values of farmland to increase as the products produced on those lands become more valuable, particularly in the fresh produce sector. Recently, the prices we’ve seen show a trend towards healthy eating. I want to mention two types of value in farmland: intrinsic value, like the dirt itself, and usage value, where the land is actively farmed to produce income. So in essence, farmland is a better hedge against inflation compared to assets like gold. Each time we sold property, it was because we were offered exceptionally high prices. Let’s stop here, and operator, please tell people how they can ask questions.
分析師問答
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 said over six months, seven leases are expiring. But can you give us a number for 2025, how many leases are expiring and how many of those leases are permanent crops?
Yes, in 2025, let me confirm this number. We usually look out, and the reason we talk about six months ahead is because we work on the properties we’d like to renew, but always accepting backup offers, and we usually get lease extensions done quickly. In 2025, we have 17 leases coming due, which is a good portion of our revenue; about a fifth of it, 20%. We are in contact with the current tenants on those. Sorry, give me a minute to open the details for 2025. Just trying to determine which are berries, nuts, and others. I don’t have that number readily available.
Well, about half of our farms are row crops, like berries and similar products. The other half are in nuts and related areas. We do have crops like olives that have been around for ages and continue to produce.
No, I was just clarifying. So half of your portfolio is permanent crops and half is annual growth?
Yes, looking at the list of leases for 2025, it looks like it is probably more skewed towards annual row crops, probably around 60% of the leases coming due are row crop and 40% would be permanent crop types.
Okay. That’s helpful. On the third quarter lease amendments, were these leases expiring in the third quarter, or were they amended for different reasons?
The leases amended in Q3 were for a few different reasons. Some were expiring in 2024, which we pushed out, and some even expiring in 2028. So basically, a handful were pushed out due to proximity to expiration.
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 the 20 vacant, directly operated and non-accrual, correct?
Yes, correct.
That you have for sale? Okay. And I think David said that you had another farm that you’ve agreed to sell. Is that part of the 20 as well?
No, that one is leased through the middle of next year. Nothing imminent, just an agreement that could close early next year, but nothing certain at this point.
Okay. So, a quarter from now when you’re reporting fourth quarter, if that blueberry farm sale goes through, the number of vacant, directly operated non-accrual properties should basically be halved at that point, right?
Yes, assuming that closes, we’ll be left with one vacant property, one directly operated and then five farms on a non-accrual basis.
Okay, that’s helpful. Anything else looking like it’s headed towards non-accrual, or are you comfortable with the remaining farms?
We’re comfortable with the collectability of rent from the other tenants right now. It’s really just two tenants that are on five of our farms in total that have had issues. We have some other leases expiring later this year that we’re working on amendments for. These are on permanent crop farms, so the ones expiring later this year will likely have similar situations, where we remove the base rent and transition to participation rent next year, but we don’t expect those to end up on a non-accrual basis.
Okay. Last one for me, the NAV decline, if I think about the $4.76 versus the decline, how much of that was strictly permanent crop-related? How should I consider the status of row crops?
Yes, it’s 100% permanent crops. The decline is probably about $2 from portfolio valuation and $2 due to changes in market rates, along with preferred stock and debt valuation. The depreciation in values is strictly on permanent crops. We are seeing appreciation in our row crop ground, typical 2% to 4% per year.
Regarding the crops we sold in Michigan at auction, there were many small farms. We acquired those when we were starting out and didn’t manage one tenant properly, who faced issues.
Okay, 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. Was there any impact to fixed rent this quarter from the restructuring or is that expected to begin in the fourth quarter?
There was a little bit this quarter, probably about $500,000 to $1 million decrease from normalized levels. This was more on the wine grape farms since they are more in a calendar year, and those restructurings happened earlier in Q3. The updates for the two pistachio farms will start on November 1st. We’ll see a portion of it impacting Q4 and then all of it in quarters one, two, and three next year.
Okay. Shifting to participation rent, there was considerable year-over-year strength. Did that strength stem from specific crops?
Yes, the pistachios showed higher production. We don’t have data from all properties with crop shares yet, but those where we have observed higher crop share year-over-year.
Expecting fourth quarter to potentially be higher than third quarter participation rents, is that what you’re aiming for?
That’s what we are hoping for. Still, we don’t have full data to confirm it, but that’s what we’re aiming for.
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.
Touching on the Michigan blueberry farms that you sold, what’s the NOI impact from that? Were they generating any cash flow, or were they more of an NOI drag given historical operating issues?
They were definitely an NOI drag. Average quarterly drag on NOI for the last year was about $125,000, not to mention interest expense likely contributing another $40,000. In total, about $165,000 NOI drag. The amounts we are receiving now will cover the debt, relieving us of the NOI drag and the interest expense.
Thinking about lease changes this quarter, the $20 million annualized shift you mentioned moves from stable on a four-quarter basis to if participation rents are as expected highly concentrated in ’25. Are all those numbers just from the nine properties where you moved to a percentage rent situation?
Yes, four properties transitioned to this new lease structure which contributes to that $20 million. This will reduce our fixed base rents over the next five quarters starting with this Q4 2024. Most of the associated crop shares will be recognized in the second half of 2025, with a portion recognized in the second half of 2026.
Is that based on current performance or solely on the pricing trend for pistachios?
This is based on our limited experience with crop payment timelines after harvest. Comparisons of received crop share aren’t fully evaluable mid-season.
Is the expected rent level primarily reliant on pistachio operations or are there almonds included as well?
It’s all pistachios. We have some almond properties but those aren't included in the four leases we modified.
We do have some crop share coming in this quarter or next quarter; in this Q4 we should see some, but it’s from different leases than those we just talked about.
In the context of the California permanent crop market, you’ve highlighted potential stabilization. Is that reflected in your valuation observations?
Currently, the prices for farms are low for nuts and grapes. The transition from monthly payments to participation rents means payments are concentrated in the latter part of the year, complicating dividend payments although we’re not in trouble. This means we must now wait longer to recognize those significant payments.
John, adding to your question, I believe in California, the main driver of farm and property values is still water source accessibility. Properties with dual water sources generally retain their values better, which is the focus of our efforts to secure additional water assets.
Thank you for the insight, that’s it for me.
Okay. Do we have any final questions?
There are no further questions at this time. I would like to hand it back off to management for closing remarks.
All right. Thank you all for following us. We’re expecting a good year next year, because we’ll be on the participation rent side of the business. We have some farms that we know are great producers. We don’t yet know the price, but we’re anticipating a good production year in 2025 which is fundamental. That’s the end of this call and we’ll see you all next quarter. Thank you for calling in.
Thank you. This will conclude today’s conference. You may disconnect at this time.