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. We appreciate you taking the time to join us today. Before we start, I'd like to ask Catherine Gerkis, our Director of Investor Relations and ESG, to take over with her part 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, gladstoneland.com. 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 at GladstoneComps as well as Facebook and LinkedIn. Keyword for both is the Gladstone Companies. 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 begin with a quick summary of our farmland holdings as I do in every call. Currently, we own around 100,000 acres across approximately 148 farms, along with nearly 56,000 acre-feet of water assets, which amounts to over 18 billion gallons. Our farms are located in 15 states, with all of our water assets in California, where conditions are the driest. We lease these farms to more than 80 tenant farmers who cultivate over 60 different crops, primarily fruits, vegetables, and nuts typically found in grocery store produce sections. We are maintaining a disciplined investment strategy and are not pursuing new farms due to high interest rates that impede financing. We remain hopeful that banks will lower their rates in the future. Additionally, cap rates for most row crop farmlands are still insufficient to make economic sense. During the quarter, we sold a property consisting of two farms in Florida for $21.5 million, a 36% premium over our original purchase price, resulting in a gain of approximately $6 million. We might consider selling more selected farms as we conduct our ongoing portfolio review, but we are being very cautious with new deals. I'll now update you on the modifications we've made to some lease structures for our permanent crops in the West. As mentioned in previous calls, due to market conditions impacting specific permanent crops like nuts and grapes, we've adjusted lease structures on six properties. This adjustment supports our growth and helps our partners reduce fixed costs, while allowing us to share in the revenue by taking a percentage of gross crop sales instead of fixed rent. We also chose to operate two properties ourselves with assistance from third-party operators, leveraging their strong production history to secure higher crop insurance coverage based on historical yields. We are nearing the end of the harvest for last year’s almonds, pistachios, and grapes, and we recently completed the pistachio harvest on three farms. We expect to recognize around $17 million in revenue from these three orchards this fourth quarter, having already received a cash payment of over $5 million. After the quarter ended, we transitioned a lease on a large vineyard in Napa, California, to a more traditional crop share arrangement, with the aim of converting all our leases back to this structure, as we prefer receiving fixed rents monthly rather than waiting for crop sales at year-end. In other leasing activity, we executed two lease renewals after the quarter that should increase our annual net operating income by about $65,000, or roughly 7%. Looking ahead, we have 11 leases set to expire through 2025. Some of these leases include no fixed base rent or cash lease incentives, accounting for a negative $651,000 in lease revenue, but do not impact the payments we receive from crop sales. These participation rents will only be recognized after the fourth quarter when we finalize our figures. Overall, we are optimistic about our nut crops. We are in discussions with current and potential tenants about leasing farms, including reverting some leases back to standard fixed monthly or quarterly rents, minimizing our participation in crop sales. We have some farms where we invest money and receive a significant portion of revenue from sales. This strategy seems promising. Lastly, I will provide a brief update on tenant matters. We currently have six vacant farms, and two properties consisting of four farms are being managed by a third party. We also recognize revenue on a cash basis from leases with four tenants leasing seven of our farms. We are actively working towards solutions for these situations and expect several to be resolved in the coming months. Now, I’ll hand it off to Bill Reiman for some positive news.
Thank you, David. I want to provide some additional details regarding the eight properties under modified lease agreements or managed by third-party operators. The harvest for the 2025 crops of pistachios, almonds, and grapes is nearly complete. All pistachios are now stored, and we have received our first payment for that crop. There are only a few tons of grapes remaining to be picked, and while there are still some almonds in stockpiles, they have all been cleared from the fields. We anticipate finishing up in the coming weeks. Last quarter, we mentioned that the growing conditions were nearly ideal, and this positive trend continued throughout the fall. Although we experienced some higher than normal rainfall in California's Central Valley, the harvest proceeded smoothly, which we appreciate. Our pistachio orchards outperformed state averages and exceeded our internal expectations in both crop quality and yield. While a few almond blocks did not perform as well, the majority did surpass 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 with excellent quality. The favorable growing and harvest conditions of 2025 have set the trees and vines up well for the upcoming 2026 season. While sufficient chilling hours, winter precipitation, and favorable weather are necessary for next year, we are optimistic about the start of the 2026 crop. Irrigation and fertilization efforts are already in progress, and we will begin some curing activities this winter. Regarding crop markets, ongoing tariffs, trade tensions, and geopolitical uncertainty continue to create challenges in various export markets. However, the nut crop markets show notable resilience and strength, particularly for pistachios. We are seeing higher than anticipated demand from two key markets, the EU and the Middle East, which helps reduce our dependence on China. Although the Chinese market remains crucial, diversifying our customer base mitigates risk. Consequently, the base guaranteed price for the current pistachio crop remains steady compared to 2024, and we believe that the final price for the 2025 crop will likely align with 2024 levels, though this will not be confirmed for a year and requires extensive marketing effort. Almond prices have rebounded from their mid-summer lows and have returned to early spring levels, with prices continuing to rise steadily. Sellers and marketers report increasing demand, and this positive trend is expected to continue for several months. Conversely, wine grape markets are underperforming due to high yields over the last few years and decreasing global consumption, leading to significant oversupply in the industry. Consequently, many vineyards are being removed worldwide, and we anticipate market recovery within the next year to 18 months. Overall, the weakening U.S. dollar benefits our exported products, making them more appealing to international buyers. Lastly, regarding water resources, we have similar updates as last quarter. We’ve experienced a normal to wet cycle in recent years, including this past winter. We are focused on improving our water delivery and storage systems across our portfolio. With the recent wet years, the supply of affordable water is robust, and we have made strategic acquisitions, strengthening our nearly 56,000 acre-feet of water assets to ensure sufficient irrigation regardless of weather conditions. We feel confident about our water supply situation. For federal water systems, we expect a minimum allocation of 35% and potentially up to 50% if the winter is dry. Should we experience a normal to wet winter, we expect even better results. Overall, we have positive news regarding our water resources. Now, I will turn it over to Lewis Parrish, our CFO.
Thanks, Bill, and good morning, everyone. I'll begin with a quick update on our recent financing activities. During the quarter, we repaid a $10 million bond that was due. This bond was secured by a property that we also sold during this time. On the equity front, since the start of the third quarter, we've generated approximately $10 million through our ATM program. These issuances were aimed at redeeming our Series B term preferred stock, which is set to mature at the end of January 2026. This approach will help us avoid the upcoming increase in the coupon rate from 5% to 8% and decrease our dependence 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 about $2.1 million, while our net loss to common shareholders was $3.9 million, or $0.11 per share. Adjusted FFO stood at $1.4 million, equivalent to $0.04 per share, compared to $4.5 million or $0.13 per share in the same quarter last year. The year-over-year drop in AFFO was primarily due to recent changes in lease structures on certain farms, lost revenue from farm sales over the previous years, and ongoing tenancy issues leading to vacancies, which resulted in lower revenues and elevated costs. Fixed base cash rents were approximately $5.4 million lower than in the prior year due to these factors, particularly the lease modifications on certain properties where we either reduced or waived fixed base rents, or in some instances, offered cash lease incentives in exchange for much higher crop share participation. The outcomes from these crop share components will be clearer once the harvest is completed and the crops are sold, which is currently in progress. Participation rents rose by about $1.9 million, mainly due to the accelerated recognition of payments related to the 2024 harvest on certain farms, as we received additional information earlier this year. This increase was also supported by significantly better pistachio pricing compared to the previous year. We continue to anticipate higher participation rents in the fourth quarter of 2025 owing to the lease modifications made on certain permanent crop farms. As we noted in past calls, these adjustments have resulted in lower fixed base rents for fiscal year 2025 compared to 2024, with the bulk of the crop share proceeds expected to be recognized as participation rent in the fourth quarter of 2025, while a smaller portion will be accounted for in the latter half of 2026. Essentially, we are transitioning revenue from fixed base rents to participation rents over the next few years. Consequently, most of our earnings for 2025 will be realized in the fourth quarter, with more stable earnings throughout the first nine months of the year. On the expense side, excluding reimbursable items and certain nonrecurring or noncash charges, our core operating expenses decreased by about $140,000 this quarter. Total related party fees declined by approximately $110,000, driven by a lower base management fee due to recent sales. Our recurring cash operating expenses remained stable as increases in property operating costs were balanced by reductions in general and administrative expenses. Additionally, other expenses fell mainly due to lower interest costs from loan repayments made over the past year. Regarding liquidity, we currently possess over $170 million in instantly accessible capital. We also have nearly $150 million in unencumbered properties that we could use as additional collateral if necessary. Over 99% of our borrowings are fixed-rate with an average interest rate of 3.39% locked in for at least three years. This has provided us with protection against the fluctuations in interest rates over the past few years. Looking forward, we have around $17 million in scheduled principal amortization payments due over the next year. Additionally, we have about $25 million in loans with fixed rate terms that will expire in the next year; however, these loans themselves are not maturing yet. Finally, concerning our common distributions, we declared a monthly dividend of $0.0467 per share for the fourth quarter of 2025 in October. At our current stock price of $9.24, this yields an annualized rate of 6.1%, exceeding the average for the REIT sector. Now I’ll hand 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 time results. 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 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 this 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 the 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 due on January 31, 2026, and currently has a 5% coupon. If it is not redeemed by that date, the coupon will increase to 8%. Our plan is to redeem it now to avoid that higher rate, utilizing a combination of common stock and a line of credit. We have been issuing common stock at around 6.1%, while the line of credit is just below 6%. Therefore, the expected cost is about 6%, which is higher than the current 5% yield but significantly lower than the potential 8%.
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 aren't lending at the lower rates they used to during our initial purchases, but we are optimistic that they will move in that direction soon. The advantage of the note we are paying off is that it doesn't have a maturity date; it just adjusts its interest rate. Therefore, liquidity isn't a concern for us, and we don't need to repay it unless we choose to reduce the rate to zero. Overall, I believe we're in a strong position. Compared to last year, when we faced some uncertain moments, today feels much more positive. There may be one farmer facing significant challenges, and we could potentially lose that account, but aside from that, the market seems to be improving, particularly in California. Our other properties in Florida and the Midwest are meeting their payment obligations, and we are doing well.
Got it. Yes, it does. Considering your comments on wine grapes, should we conclude that any weakness in wine grapes has largely been offset by strength in tree nuts based on 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.
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 believe the situation on the East Coast is looking positive. However, the West Coast is still struggling to bring in new farmers who have enough equity to manage their debts. We're hopeful for improvements, but it's going to take some time to recover to the levels we saw last year and possibly the year before. John, the more I analyze this, the more confident I feel that it will work out well. I hope you can join us for the fourth quarter, as it will reveal whether we made the right choice between variable and fixed rates. The fixed rate guarantees a set amount each month or quarter, while the variable rate depends on when the products are sold. This season has been excellent for growth, and as long as the plants receive water and some growth stimulants, they will thrive. I see this as a pivotal moment for us, and the projections look very promising. The analyst responsible for crop projections is here with me and is in much better spirits than a couple of years ago. We've also hired a new person on the West Coast who will visit farms more frequently than before, providing insights on the crops and necessary adjustments. This is an exciting time in our industry. There are buyers interested in crops, but some propose payment through promises instead of cash, and we prefer cash. We're focused on generating cash flow; how much 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 problems’ 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's 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 the direction of maybe buying some good farms. 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 type of deals as we look into the remainder of the year and '26 to maybe sell more assets either to capital recycle if you do have attractive buying opportunities or to kind of pay down pieces of the capital stack?
We will definitely pay down the loans in the capital stack that are nearing maturity. I’m not concerned about that. As Lewis pointed out, the rate could rise to 8% if we don’t settle the loan, but the loan itself isn't due yet. The rate will change if we don't pay it off, and we're actively addressing that. I believe we will be in a strong position once the revenue starts coming in from our variable rate charge to some farmers. We're cautiously optimistic; we’re hoping things continue as they have been. After the downturn when demand for nuts dropped significantly, it was quite surprising that customers didn’t return to order right away. They are starting to place back orders now. While they aren't ordering in large quantities, we can manage with the current demand. I feel confident today and I just hope our forecasts are accurate. If so, we stand to gain a lot from the shift from fixed payments to variable payments from the farmers. Are there any other 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 do a partial redemption, but having any product in our capital structure at 8% is not ideal for us right now. We have the current liquidity to take it out today if we wanted to, but it's at 5%, which is lower than the current cost of capital we would use to pay it off. So it makes sense to leave it as is at that 5% for as long as we can. The strategy of mixing common stock and a line of credit is that while the line of credit is a bit cheaper, it's variable based on yesterday's closing price for our common stock. Drawing less on our line of credit helps reduce our exposure to future interest rate volatility. Also, as David mentioned, there might be some farm sales in the works that could provide additional capital. So, to answer your question, we could take it out today if necessary, but it's about managing interest rate risk, obtaining the lowest cost of capital, and ensuring we can do that 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 and 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.