Q3 2020 Gladstone Land Corp Earnings Call

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Greetings and welcome to the Gladstone Land Corporation earnings call for the quarter ended September Thirtyth Twentytwenty.

At this time all participants on all this said only mode.

A question and answer session will follow the formal presentation if.

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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 Please go ahead.

Oh, Thank you Donna Nice introduction this is David Gladstone and welcome to the quarterly conference call for Gladstone land. This one.

I want to thank you all for calling in today, we appreciate taking time.

Okay normalized cash room believe these are better indications of our operating results and allow better comparability of our period over period performance of please take the opportunity to visit our website. Once again Gladstone farms dot com sign up or email notification service. So that you can stay up to date on everything involving the company can also find itself Facebook.

Keyword there the Gladstone companies, we even have our own Twitter handling that AD Gladstone cops and today's call as an overview of our results. So we <unk> review our press release, some form 10-Q, both issued yesterday for more detailed information against you can find them on the investors page of our website with that I'll turn the presentation back over to David Okay. Thanks, Mike.

Acquisition activities picked up for US recently, and we required about $75 million in new farms over the past two months or so and we're continuing to be significantly more opportunities than we've seen in quite a while.

Began getting information on some of our farms with regard to hop yields and pricing, which allows us to record approximately $1.1 million and participation ranch during this quarter.

Puts us about $1.2 million and participation rent for the year through the third quarter. We're currently expecting a total participation rent for the year to be similar to what we had last year is about 2.23 $2.3 million, we're hopefully be able to report.

An increase in participation rents for the next year. That's 2021 is we have a few more farms that are scheduled to pay participation rents in 2021.

Overall the operations our farms remain strong our team continues to have success and releasing our existing farms had an increase rental rate.

I think these increases in rental rate are all indicative of continued strong demand for what we're seeing.

For our farms and all of the products that are grown on those farms with regard to the government closings from COVID-19, the demand for products grown and most of our farms remains high these are products like berries, and vegetables and nuts.

I think that's because the vast majority of the crops grown by the farmers we lease too.

Are sold in grocery stores like Kroger, Safeway, Costco, Walmart and similar outlets very little of our produce is sold to the food's servicing industry, including restaurants in institutions like schools, which is where produce sales have been hurt the most because of COVID-19.

<unk> for a produce and many other food grocery stores remains high.

Above 2019 levels. We expect this to continue to be the case for at least the rest of the year and into 2021.

Our farmers are still not seeing significant impact from the government shutdowns on their operations supply chains are still intact running smoothly and pricing remains very good for most of their crops. We granted a short term well two of those were granted to farmers back in July a deferral and those payments have all been made.

And collected in full right now all of our tenants are current rental payments, except one tenant new OS is about $43000, but that's unrelated to covid. He.

He just a few weeks ago lay down his rent, but we expect to resolve this situation in the fourth quarter. Please keep in mind that trees and plants on our farms don't know that there's a pandemic so as long as clients get Sunshine and water there'll continue producing fruits and vegetables. So.

That side of the business is strong.

Moving on to a farm land ownership, we currently own about 94000 acres. So.

I'm 27 farms validate just over a billion dollars. We're really excited to have passed the billion dollar market is only a few years back that we did our public offering and raise $50 million and here. We are with a billion dollars in farmland now our farms are located in 13, no more important different growing 20.

Six different growing regions. So we in 13 states, but the most important thing about this is there in 26 different growing regions in these growing regions really control the the farm lands out there.

Our farms continue to be 100% occupied and or at least to 75 different tenants all of whom unrelated to us and.

And the tenants operating these farms are growing about 50 different types of crops. So a lot of diversification there.

So given that we own a good number of farms.

And are in enough different growing regions with many different farmers and many different types of crops. We.

We think there's a sufficient diversification to provide safety and security for the cash flows coming from our rents.

And this helps protect dividends that we pay to our shareholders. There's no guarantees in life, but we sure are strong right now.

During the third quarter the team acquired eight farms for $39 million and we acquired an additional four farms for about $36 million subsequent to quarter in.

Overall, the net cash ye'll to us on these investments is about 52%, 5.2% excuse me wish it was 52%.

In addition, all of these leases on the farm contain certain provisions such as participation rents an annual escalations that should push that figure even higher in the future.

And just as a reminder, the you'll figure does account for operating expenses that we're responsible for under the respective leases, but most of these leases are triple net so there shouldn't be many expenses incurred by our company.

On the leasing front during the third quarter, we the executed new leases or extended additional lease our existing leases four four of our property is located southern California in Southern Florida and total the new leases are expected to result in a total increase in annual net income of about $118000.

On those four and that's about 11% increase over the prior leases that we had.

Cents per share.

And last month, we completed a follow on offering of common stock in which we raised about $26 million in net proceeds at a public offering price of 14 40 per share. These proceeds were needed to help fund new acquisitions that we're hopeful of closing on and becoming months and all of these potential new acquisitions are expected to be accretive to <unk> in year one.

We also raised about $11 million in net proceeds from sales of the series see preferred stock.

As with the series be preferred stock, which we recently listed on NASDAQ under the ticker land O R plan with the series see preferred stock is to sell it in small amounts over the net over the course of the next several years. So there were better able to find new farms to buy as a proceeds come in.

And just to remind everyone in the process of selling the series B and now the Sir you see preferred stock, we pay certain commissions and Faezeh Gladsome securities and affiliated broker dealer of hours. However, Gladstone Securities is just a conduit in these offerings is it pays out about 94% of these fees to other third parties, including brokers and wholesalers, who are helping to sell the shares.

And the rest of the fees kept by Gladsome Securities are used to cover cover various other expenses related to selling the stock.

Please also note that the preferred stock is not included in the calculation of the fees paid to the adviser and it has never resulted in additional fees paid to the adviser.

Property level legal fees and annual state filing fees.

Moving on to net asset value, we had 28 farms revalued during the quarter and all via third party appraisals.

Overall, these farms increase in value by about $20 million or 6% over there prior valuations from a year ago.

$8 million of this increase came on farms, where we completed about $5 million worth of certain capital improvements, while the remaining $12 million of appreciation came from organic appreciation and value and this is particularly true of certain of our farms in California and Florida.

As of September 30th or firms were valued at about $971 million all of which is valued based on the third party appraisals or the actual purchase prices.

And based on these update evaluations and including the fair value of our debt and all preferred stock or net asset value for common shares September 30th was $11 97.

Which is up by 91 or 8% from last quarter the.

The main driver of the increase was the aforementioned depreciation property values.

Turning toward capital makeup and overall liquidity from a leveraged standpoint, our loan to value ratio in our total from an holdings on a fair value basis in net of cash was about 52% of September 30th we're comfortable at this level given the relative low risk of high quality farmland as an overall asset class.

In addition over 99% of our borrowings are currently at fixed rates Internodal on a weighted average basis. These rates are fixed at 346% for another six years out.

So we believe we are currently well protected on that side against any future interest rate volatility.

Totaling $4.80 per share in total distributions and.

And of course this is on top of dividends paid to shareholders of our preferred securities.

Paying dividends to our shareholders is paramount to our business plan and our goal continues to be in to increase the common dividend at a rate that outpaces inflation, we're not quite there yet, but we believe we are heading in the right direction.

That you can find in either the produce section of your local grocery store. We consider these foods to be among the healthiest type of foods and we continue to see growing trend toward organic among these foods.

About 40% of our fresh produce acreage is either organic or transitioning to become organic.

10% of our permanent crops.

They have the acreage fault into the organic category, where where a believer in organic and we want to continue to be a strong area for us to grow in an addition, more than 95% of our crops on our farm land on classified as being non G. M O and we're taking steps toward E. S. G comply.

<unk> for both our operations as well if those tenant farmers.

Another major reason why our business strategy is to focus on farmland growing fresh produce is due to the effect of inflation on particular segue on this particular segment. According to the Bureau of Labor Statistics.

In almost all areas, where our farms are located.

Particularly along the west coast, including most of California, Oregon and Washington.

And the east coast, especially in Florida.

Or some other states also on the East coast, our farmers are not growing marijuana, our tobacco just growing fruits and vegetables, and so we are keeping our company is in good condition. Please.

Please remember that purchasing stock in this company is a long term investment I think an investment in our stock really has two parts first of all it's similar to golf gold is that it's a hard asset farmland of course is dirt and that has an intrinsic value because there is a limited amount of good farmland and is being used up by EUR.

That we continue success in a long term growth to shareholders.

But just so you know I'm not going any place. So we're showing what we have is a deep bench of talented people.

Having this team as well as many of the other parts of the company I'm Gonna stop here and have the operator come on and tell operators. How they can tell everybody to have some questions that we can answer forms so donna come on.

Okay.

Ladies and gentlemen, the floor is now open for questions. If you would like to ask a question. Please press star one on your telephone keypad at this time.

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The any thoughts there.

That was a one form that I worked on like that and I had worked with the farmer for a while and then.

And Bill Reiman picked it up and close the deal later, maybe it was because he is better than I am I don't know, but end of the day. It got done I think a farm from start to finish takes a good six months to get negotiated and get everything in place and then get it closed in on the books, so things do hang around.

We have a very.

Very long list of farms that are in the queue and we worked on a number of them. We have purchase agreements in place and now we're going through our due diligence and as I mentioned, that's the hang up sometime how it slows down as you get to a certain point the.

He's a gentleman that is star one to register a question at this time.

Mr. Glad shown we're showing no further questions in queue did you have any closing comments today.

No Donna I think everything is doing so well, we don't Wanna comment we might jinx. The place. So everything is going great right now and we're looking forward to a great quarter that'll in December 31st So with that will say goodbye to all of you until next quarter.

Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect your lines or lock up the webcast at this time and have a wonderful day.

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