Q1 2021 Gladstone Land Corp Earnings Call
Okay.
Greetings and welcome to the Gladstone land first quarter earnings Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I would now let's turn the conference over to your host.
She David Gladstone, Chief Executive Officer of prison.
Thank you you may begin.
Well. Thank you Devin I was a nice introduction and this is David Gladstone and we welcome you to the quarterly conference call for Gladstone land and land.
Again for all of you coming into this conference call and listening in.
We will start off of course with Michael the Kalsi, He's our general counsel and Secretary.
And he's president of Gladstone administration, which is the administrator for all of the Gladstone funds. Michael go ahead. Thanks, David and good morning. Today's report May include forward looking statements for the Securities Act of 1933, and the Securities Exchange Act of $19 30 for including those regarding our future performance. These forward looking statements involve certain risks and uncertainties.
Based on our current plans, which we believe to be reasonable. So 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 risk factors in our forms 10-K 10-Q, one of the documents we filed with the SEC, saying you can find these on our website at Www Dot Gladstone.
The land Dot Com, specifically go to the investors page you can always find them on the SEC's website Thats Www Dot said the G O V and 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.
<unk> F F O and that funds from operations of the <unk> as the non-GAAP accounting term defined as net income excluding the gains or losses from the sale of real estate and any impairment losses from property plus depreciation and amortization of real estate assets. Now. We may also discuss core of <unk>, which we generally define as <unk> adjusted.
For certain non recurring revenues and expenses and then adjusted <unk>, which further adjusts core <unk> for certain noncash items, such as converting GAAP rents to normalized cash rents and we believe these are all better indications of our operating results and allow better comparability of our period over period performance net beliefs.
The opportunity once again to visit our website Gladstone land dot com sign up for our email notification service. So you can stay up the data on the company could also find us on Facebook keyword. There is the Gladstone companies and our Twitter handle is at Gladstone comps today's call with an overview of our results. So we ask that you review of our press release.
<unk> and form 10-Q, both issued yesterday for more detailed information again, you can find them on the investors page of our website with that I'll turn the presentation back to David Gladstone, David Okay. Thanks, Michael anthology know who are listening from our press release yesterday, who currently on the pad 100 per 1000 acres of farmland.
141 different farms and over $1.2 billion in.
And the valuation our farms are located in 13 different states and more importantly in 27 different growing regions of notice you guys saw on the Wall Street Journal net.
Mr. Gates owns a 120000 acres in the supposedly the largest farm owner well.
The move over Mr Gates for coming through are.
Our farms continue to be of 100% occupied it in there and they are at least the 79 different tenants all of whom of unrelated to us and the tenants on these farms are growing over 55 different crops.
So if you look at these numbers now the number of farms, we have enough different growing regions of many different farmers many different types of crops.
We're sufficiently diversified to provide safety and security for the cash flow is coming in from the rents.
We believe this diversification will help protect our dividends that we paid for our shareholders and our assets of course arms of our ROE.
Non food, they're very valuable with the number of farms. We purchased in the end of 2020, we're starting 2021 on the high note. The strong operating results. After closing on 156 million of farms in the last three weeks of 2020, the new acquisitions for the first quarter were at.
Oh, Wow, and that's kind of what happened to us last year, we started off slow.
While we replenish our backlog of potential farms to buy it may take us a while to get up to the speed that everybody wants to see us buying of 100 or 200000.
Dollars' worth of farms every quarter. However, we did close another large olive branch so they call it out west in the east all of our orchards are right. After the quarter end and expect to do more activity on the acquisition front in the next several months of continued to be able to renew all expiring leases.
Without incurring any downtime on any of our farms rent collections continued to come in largely as expected. We did have one tenant in a small farm in Michigan that looks like it was headed for bankruptcy as a result of the terminated the lease of that tenant and immediately released the farm to of new stronger.
Yes.
And a good rate and there was a bit higher than what we had before but not much overall operations in the farms remains strong and the demand for products grown on most of these farms remains high.
These are products like berries, and vegetables and nuts.
Which are of things that we are experts at most of the vegetable and Berry crop Berry crop growth from our growth from our farms are sold in grocery stores and demand in grocery stores. These days is very strong and other restaurants of coming back and there's a lot of the restaurants that are selling to homes direct.
But grocery stores are really the strongest place to the these days.
During the first quarter of the team acquired three farms for about 6 million of about $4 million of which was paid the <unk>.
Issuing op units. This is like common stock in our company. So we traded some common stock for the farmland.
In addition, as noted earlier right. After the quarter end, we acquired a number of large olive farm for about $38 million. So we are heavy in the fall of farm area. Overall initial net cash yields to us on these investments is about five 3%. In addition to all of the leases on these farms contain.
Certain provisions such as the participation rents, where we own the heart of the arm products that come off of these farms and the will another another thing that we do from time to time as annual Escalations that as each year. It goes up by two of 3% in terms of the rent that should push the figure of little higher in the future.
But these are not major changes is just good good way of doing business and just as a reminder of this yield figure does account for all of the operating expenses that are responsible for under the leases and most of these leases are triple net so there shouldnt be much the way an additional expenses, but the numbers do include.
Those expenses that we have on the leasing front since the beginning of the year, we executed new leases or extended some existing leases on.
Four of our properties located in California, Colorado, Florida and Michigan.
We did see a rent decrease with the renewal of a farm in the Midwest all of.
That was on one year renewal that we executed with the expectations that we will be able to increase the ramp at the end of the year.
And with the rising commodity prices lately.
We will be in the better shape of that farm next year anyway.
Looking ahead for all.
On the App two leases scheduled to expire over the next six months.
The only making up from less than 1% on an annualized leases.
We are discussing with the existing tenants all of the farms as well as some potential new tenants and we aren't expecting any downturn downtime on these leases overall, we currently expect the new leases on these farms of the equal to or slightly higher than they are today.
Another update we recorded about $2 4 million in participation rents in each of the past two years, we don't know the exact amount yet, but we're expecting the sizable increase in participation rents for 2021.
This is because we have several of our farms that were in our portfolio the half participation rent provisions in the leases of.
Of course, we won't know how much if any will be received for several more months probably in December will be closer to the economy.
Regarding where we are in the environmental social governance standards in ESG as call. We're actively working on developing formal policies related to all of our disclosures from.
Our board.
The diversity standpoint, one third of our independent board members of women.
I have no reason not to expect that we will be able to comply with all of the board diversifications as one of the Seattle of things that are required.
Some of which have been proposed but not many have been adopted and formalize such that they are kind of go into effect. This year next year over year, which we will see a lot of that.
I wanted to dig into just briefly mentioned that Gladstone. The acquisition is our spec that we recently filed over the past several years. We've had countered some owners of the large farm operations that wanted to sell not only there.
For the land, but also their business in some cases, we offered to buy just the land, but they wanted to keep the land and the operations together.
As a real estate investment Trust Gladstone land cannot own operating companies because of the operating income is not from within the REIT status. So Gladstone acquisition was created as a potential way to take advantage of such opportunities where Gladstone land can't participate.
Non stop here.
So really enough of an operations I'll turn it over to our CFO Lewis Parrish talk to you more about the numbers. Louis Alright. Thank you David and good morning, everyone I'll begin with our balance sheet here during the first quarter, our total assets increased by about $67 million.
This was primarily due to the net proceeds received from stock issuances, which is yet to be fully invested.
From a financing perspective during the first quarter, we secured about $10 million of new long term bonds at a weighted average rate of 296%, which is fixed for the next eight plus years.
In addition in January we raised about $58 million of net proceeds through the issuance of a new 5% series the term preferred stock, which is traded on NASDAQ under the ticker of land.
And in February we used about $29 million of those proceeds to redeem our series a term preferred stock, which carried a coupon of six 375% and had the mandatory redemption date of September 2021.
On the equity side since the beginning of the year. We've also raised about $16 million of net proceeds from the sales of our series C preferred stock.
For the same time period, we've also raise of about $59 million of net proceeds through sales of our common stock under the ATM program.
Our current ATM program originally allowed for $100 million of sales, which we have since sold out of so we will likely be looking to increase the size of the ATM program soon.
Moving on to our operating results first I'll note that for the first quarter. We had net income of about $554000 net net loss of common shareholders of $2 2 million for $8 two per common share.
On a quarter over quarter basis, adjusted <unk> for their first quarter was approximately $4 7 million compared to $3 6 million from the fourth quarter of 2020, and the increase of about 31% and <unk> per share was $17 for the first quarter versus $14 seven from the previous quarter, an increase of about 18 per.
<unk>.
The increase from the per share figure was a bit muted due to the recent equity equity issuances. The proceeds from which are still not yet fully invested.
Dividends declared per share were about $13 five from both quarters. The main drivers behind the increase in <unk> were higher top line revenues and about $2 million of interest patronage of recorded related to our loans from farm credit.
Fixed base cash rents increased by about $2 million or 15% on a quarter over quarter basis, primarily driven by additional revenue earned from our recent acquisitions.
This was partially offset by a decrease in participation rents as we recorded about $1 $2 million more from the prior quarter.
On the expense side, excluding reimbursable expenses, and certain nonrecurring or non cash expenses are core of operating expenses increased by about $688000 on a quarter over quarter basis. This is primarily driven by higher base management and incentive and incentive fees earned by our adviser during the current quarter for me.
Moving related party fees, our core operating expenses increased by about $176000. This increase was primarily due to additional property taxes incurred on certain of our farms as well as the miscellaneous operating expenses incurred related to our recent acquisitions.
Overall, we felt this was a very strong quarter for us operationally for one our operating revenues of just over $16 million of the highest we've ever reported for quarter and keep in mind that this was only with only about $26000 of participation rents being recorded.
Of course this was the result of all of the new properties, we put all of the books in the latter part of the 2020.
In addition, our antibody and gave the poll for share numbers, where both the second highest we've ever reported.
Of our second only to Q1 of 2020.
We recorded a onetime lease termination fee of about $3 million.
Moving on to net asset value, we had 32 farms revalued during the quarter all via third party appraisals overall of these farms increased in value by about $2 2 million or 7% over the previous valuations from about a year ago.
So as of March 31 of our farms were valued at a little over one two at about $1 2 billion and all of this was based on valuations the third party appraisals or the actual purchase price.
And basically the updated valuations and including the fair value of our debt and all preferred stock net asset value per common share at March 31 was $12 69.
Which is up by 46 or 4% from last quarter.
Main drivers of the increase were a decrease from the fair value of our fixed long term borrowings due to increases in market interest rates and the issuances of common stock through our ATM program at prices higher than our estimated NAV as of December 31.
Turning to our capital makeup and overall liquidity from the leverage standpoint, and with respect to our borrowings our loan to value ratio on our total from <unk> holdings on the fair value basis of net of cash was about 47% at March 31, we.
We continue to be comfortable at our current leverage levels, given the relative low risk of high quality of farmland as an overall asset class and the security of the resulting cash flows.
In addition over 99% of our borrowings are currently of fixed rates and on a weighted average basis. These rates are fixed at 338% for the next six years. So we believe we believe we are currently well protected on the debt side against any future interest rate volatility.
And with the weighted average maturity of these borrowings being over nine years out. We also feel we're protected against any potential liquidity issues.
Regarding upcoming debt maturities, we currently have about $31 million coming due over the next 12 months. However.
However, about $16 million of that represents bullet maturities of for loans that are coming due.
The for properties collateralized on these loans have increased in value by a total of $6 million since their respective acquisitions. So we do not foresee any problems refinancing any of these loans, if we choose to do so.
So we're moving these maturities, we only have about $15 million of amortizing principal payments coming due over the next 12 months for about 2% of our total debt outstanding.
From a liquidity standpoint, including availability on our lines of credit. We currently have over $100 million of dry powder and we also have about $40 million of Unpledged properties.
As our expanding our credit facilities with both Metlife and farmer Mac. During 2020, we have ample availability under our two largest borrowing facilities and we continue to be in discussions with other lenders for new borrowings and potentially new credit facilities as well.
But overall credit continues to be readily available to us from multiple lenders and the very favorable terms.
And finally I'll touch on our common distributions. We recently raised our common dividend again to $4 five per share per month over the past 25 quarters. We've raised our common dividend 22 times for a total increase of the items of 50% and our monthly common distributions.
Since 2013, we paid out 99 consecutive monthly dividends of common shareholders totaling $5 of <unk> per share and total total distributions.
Paying dividends for our shareholders is paramount to our business plan.
Total is the continued to increase the dividend at regular intervals.
At our current distribution run rate from the work on the stock prices today, the yield in our common stock of about two 4% and when considering the relative stability and security of the underlying assets and the related cash flows. We believe the stock continues to offer a compelling investment alternative, particularly in light of today's inflationary concerns and with.
For the program back over to David Okay. Thank you Louis Nice report.
No all of the out there always asking do you have a lot of things youre going to buy and grow well, we continue to see a good amount of buying opportunities coming our way and we hope we will be able to announce some additional acquisitions in the coming months.
As you can imagine margin certain aspects of our due diligence process have ended up taking a long long time.
Due to the various travel restrictions of office closures.
Due to the various government restrictions related to COVID-19, many of the government offices will only let one person at a time and of that building, but hopefully most of these restrictions start lightening up soon and that will allow us to move a little quicker than we have been doing for the last year.
And just a few final points, we still believe that investing in farmland growing crops and are contributing to a healthy lifestyle.
Such as the ones, we have fruits vegetables, and nuts follows the strong trends, we're seeing in the markets that we service today here in the United States currently about 85% of our total crop revenue comes from farms growing types of food that you can find either in the produce section or the nut section of the year.
Local grocery store, we consider these foods for the among the healthiest type of foods, and we continue to see growing trends toward organic among our foods and about 40% of our fresh produce acreage is either organic or transitioning to become organic we like that trend and over 10% of our permanent crops.
Our fall into the organic category and we hope to add to that during the next year. We believe the organic section is continuing to be a strong growth area. In addition, just to know 95% of the crops grown on our farm land is classified as non GMO.
Which is an important designation that we're trying to stay away from.
Another major reason why our business strategy is focused on farmland growing fresh produce is due to the effects of inflation on the particularly on this particular segment. According to the Bureau of Labor statistics in the overall annual food CPI generally keeps pace with inflation. However over the last 40 plus years the.
Fresh fruit and vegetables segment of the food category has outpaced the total CPI by a multiple of one five times.
This is one of many financial advisors tell their clients to invest in farm land because of the acts as a hedge against inflation and while prices of commodity grain crops, such as corn and wheat are typically more of a volatile line susceptible to bundle of supply and demand fresh produce is mostly insulated from the global volatility the.
Because of the crops are generally consumed locally within the short time after being harvested.
Selling of this because we're often confused with others, who own farms, where the farmers are growing corn or soy of wheat, we mostly stay clear of these crops because they have after compete with other countries like Brazil, the Ukraine, where the cost of production and even after shipping cost are very low.
So they can compete on the world markets against our growers in the United States grain prices have been much higher this year.
As opposed to past years, where they were really low for the last six years, but one reason for that is that Brazil, and Argentina are going through a drought period and the farms in these countries largely depend on range for water.
And now some parts of the U S southwest or in a very dry period, but as you know almost all of our farms have their own sources of water even multiple sources.
Overall demand for prime farmland growing berries, and vegetables remains stable to strong in almost all of the areas, where our farms are located particularly along the west coast, including most of California, Oregon, Washington, and Florida.
Well they are especially strong these days because we have water all of those farms for.
<unk> farm land continues to perform well compared to other asset classes. Despite some recent downturns in certain regions of the decrease farmland index, which is currently made up of about $13 billion worth of agricultural properties as the averaged an annual return of about 12, 3% for the past 20 years.
Compared with on the other hand, the 11% of of the overall REIT index.
And even lower number for the S&P index.
During those 20 years, the farmland index did not have of single negative year, whereas the REIT index and the S&P index each of our four negative of years over the time period farmland has generally provided investors with a safe Haven during turbulent times.
May be going through some of that now both land prices and food prices, especially for produce and the continued to rise steadily.
Please remember the purchasing stock in this company is the long term investment in farm land I think the investment in our stock really has two parts. It's similar to go it's a hard asset its farm land, it's Derek it's been year for millions of years.
It has intrinsic value of the kind of just a limited amount of of the good farm land in the United States as well as all of the world.
It being gobbled up in California, They lose about 50000 acres of every couple of years and that goes to the urban development in Florida, where we have many farms and we have the same problem there their continued to expand.
And unlike gold and other alternative assets farm land is very active investment we get cash flows off of that whereas in gold you're sitting there with the goal.
We're seeing inflation, particularly in the food sector to increase and we expect it to increase over time.
The underlying farmland to increase as a result of that.
We expect in this especially the beach, we expect this to be especially true in the fresh produce section and trend more and more toward people in the U S from eating healthy foods.
Continuing to grow in that area.
The Gladstone land would mean much from us the group of people, we have operating at many of them sitting around the table here with me today.
Buying and leasing farm land is very complex business, it's not like buying the stock on the stock exchange you got to spend a lot of time with farmers you kind of have boots on the ground. We've got a lot of them in our west coast as well as our east coast and I.
I'd like you all just please buy some stock and keep eating fresh fruits and we'll be in good shape over the next 10 years now I have some questions. So if the operator will come on we'll answer the questions and the best we can lose up first.
At this time, we will be conducting a question and answer session. If you'd like to ask the question. Please for star one on your telephone keypad come from.
Total indicate your line is in the question queue. You may for search if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
The first question comes from the line of Nate Crossett.
Please proceed with your question.
Hey, good morning, guys.
Maybe you could just speak to the current pipeline a little bit more I know you guys don't give formal guidance, but.
What are kind of in the main puts and takes in the pipeline right now is there anything under TSA.
I think historically, you've tried to do about 200 million of year. So can.
Do you think that debt achievable this year.
Well I wish I could answer that in a better way for you. So you can put it into a model and project, where we are going to be at the end of the year, we try to do that every year, but unfortunately buying farms is not.
Easy process and so as a result, I can't give you much more than that how much do you have.
In your backlog.
We've got about $150 million of deals that we're looking at various stages not all of those are under signed PSA.
<unk>.
Maybe.
Half of our two thirds of those are under the TSA is right now.
But we're still once a day billing.
This process on all of them.
Hopefully, we'll be able to close on most if not all of these over the next couple of quarters Q2, and Q3, but.
Of course no guarantees.
We really don't know what.
We really don't know what's going on with the government they are talking about.
Increasing capital gains, which would hit these people that's talking about reducing how much you can transfer to your charge.
Torture relatives of giveaway.
Really unsettling time for us with regard to taxes on people we.
We are hoping that some people who lose the ability to do a 10 31 of exchange will take are up REIT shares that's the non taxable transaction in most cases.
The enjoying like you are.
Dividends coming in every month.
Next question please.
Yes, Doug in the states.
The LP unit, the bigger part of the conversation when you're <unk>.
Working on deals because of all of the potential tax changes.
It certainly helped US closing last December of people wanting to get their deal done in 2020 of them rather than risk and what the new administration.
I don't know this new administration could do something silly like.
Some of the past presidents have done if you remember back in the days of.
Some of the President's day would not enact these until about now or later in the summer but the.
The retroactive back to the first of January So you can't plan not knowing what they're going to do.
And it's just one of those periods of time of a lot of indecision by people of not knowing whether they should do it now wait list and see what goes on in the next six months.
So I wish I could be better helped me a lot more if I could be more projection accuracy, but I can't give you more than that.
Okay, that's fine.
Maybe you could just.
On pricing trends I mean, I think cap rates of what you've done so far this year is a little bit lower.
What you did in 2020.
Is there anything that we would note there or is it yet.
Specific and are you seeing any kind of increased competition.
We haven't seen much in the way of competition. There are people out there trying to buy of farms, but they don't have people on the ground and we found the farmers in California and Florida.
To be very protective of their information and not willing to go out and give it to just any one well.
For a known quantity buying in those areas. So they feel comfortable with us and I think that will continue as far as being able to figure out which way. The winds are blowing on taxes I, just don't know and I think that will have a big part of determining where the people go with us or just sit tight for the next 10 years.
<unk>.
You don't know what pharma is going to do but as you know the average farmers of op 58 years old now.
And they don't have any way of getting out of what theyre doing without doing something with someone like us or the farmer next door, that's usually what happens.
Joe might say to himself on the goodness I'm going to sell my farm and it tails than next door that is going to sell of this farm and Ben says well I'd like to buy it and it gets sold that way and it never goes into some kind of listing anywhere it doesn't have any broker. So you've got a heavier ear to the ground you got to know what's going.
Going on in that community and that growing area in order to get a shot at it and I think we have now risen to the level in everybody's mind thats out there thinking about selling.
A lot of inbound calls on that now so I think we're in in a position to grow fast.
But I just don't know what people are going to do at this point and I think if the government will determine what theyre going to do on taxes. It will help everything income loosen people will return on what theyre going to do.
It's a delicate area right now about half of the farms that are I think it's 80% or so of the farms are still in individuals' hands and about half of those are not even farmed by the individuals that are leased out we love to buy those we just become the new.
The new.
Landlord in those cases, so it's been a good way of growing and it.
It's a little hard to do anything at this point in time in terms of projections, we just keep.
Hunkering down and working with people and as time goes on I think we will get a lot of opportunities this year.
Yes.
Okay. Thank you.
Next question.
Our next question comes from the line of Rob Stevenson with Janney Montgomery Scott. Please seems the question.
Good morning, guys I forget how much of your portfolio is appraised at any given year, but within the portfolio where are you guys seeing the biggest jumps in value on appraisals in terms of geography and crop types.
So Ravi we get each property appraised at least once a year now once every three years, we have of full appraisal and the years in between we will have desk appraisals.
All performed by by generally the same groups that the same groups performing both the full appraisals on the desk appraisals.
I mean lately, we've seen we've seen.
Pretty decent jumps in the like the Salinas Watsonville area of California.
Florida has continued to appreciate at a pretty good pace.
The Midwest for US has stayed relatively flat, though as we are.
Can you get those properties appraised in the next 12 months.
If trends continue that could that could change.
In California, It has been flat to down a couple percentage points over the past the last year or so.
I mean those of the main areas, we're seeing with the jumps.
Okay. That's helpful. And then has cloud stone acquisition made any investments yet or is there anything of the pipeline that's teed up for them if it closes.
We haven't closed yet and you may know that if you're raising of stock you can do any negotiations before you get the first tranche of money.
So we're sort of sitting on the sidelines waiting for all of these things to clear. The SEC has been involved in the spec business pretty heavy handedly during the last.
Six months, so as a result things have slowed down Robin I don't know when we'll get out on the road and be able to do something we know some people that want to do a transaction, but we're not talking with them. We're negotiating as provided by the SEC regulation.
Okay, and then I mean in terms of that vehicle was are you anticipating that there's going to be good size and that is that why you just didn't do a taxable REIT subsidiary because you Couldnt you were going to hit a limit there.
Yeah. That's one reason the second reason is that im averse to doing taxable REIT subsidiaries simply because they can end up getting in trouble of and as you know Rob if you.
For the test you cant become a REIT for five years. So we've avoided any chance of that kind of nuclear thing going on inside of the.
Our company or companies Big and strong now there's no reason to take unusual risk in taxable REIT subsidiaries is that kind of situation. So I'm hopeful that we can buy the land.
And by the business in the.
Yes.
In the back that.
That would be the idea of way to do it.
And you would not have.
The stack somehow competing with some of our tenants.
Okay, and then lastly for me Lewis of couple of numbers questions. I don't know if I missed it in your comments, but where did the $2 2 million of other income in the first quarter come from and is that of one time thing or is a portion of that recurring.
The recurring annually. So this is interest patronage of our.
Kind of the refunded interest from our farm credit loans I think last year. It was the only recorded in the first quarter of each year. It has increased over the past few years as we do more secure more loans from farm credit.
I believe.
Last year Q1 of 2020, we add about $1 3 million and then we add another $300000 in Q3 of last year. So $1 6 million about total in 2020 and $2 $2 million. This year, it's not recurring quarterly, but we would expect.
We would expect this this amount of come in more of less maybe a little bit higher or lower depending on the amount of loans we have.
In Q1 of each year.
Okay. So is there of Q3 corresponding like last year or is this basically the bulk of it for the for 2021, we are not expecting anything more in 'twenty. One last year was the result of it.
Usually we have all of the interest that we accrued during 2020 will get a portion of that refund in Q1 of 2021 now last year with COVID-19 and everything going on a lot of certain foreign trade Association has made the decision to pay out a portion of that patient it's early.
So if it wasn't kind of any unique year that $300000 of would've been received in this Q1 as well they just pay down a portion of the area.
And then the last one for me the <unk>.
Shares and units outstanding today, given the second quarter of issuance was that of roughly $29 5 million somewhere in that ballpark, yes. That's correct. Okay. Perfect. Thanks, guys I appreciate the time.
Okay next question please.
Our next question comes from the line of John Master Lundberg Thalmann. Please proceed with your question.
Good morning, everyone.
One of John.
So.
Maybe going back the kind of the valuation.
On kind of the in place portfolio, you've seen some pretty good.
Upward momentum in kind of commodity based farms in the Midwest, particularly are you seeing that same kind of upswing in kind of foreign valuations for the more kind of.
Fresh produce type farms that make up the bulk of of your portfolio.
Yeah, we see that mainly be driven by the desire to lockup farm land. There are people that are growers out there and they realize that they don't lock it up the miss it.
And so they come in guns, blazing and we're able to push the rents up some but you can't push the rents beyond a certain point of where they can't make money rent is one of their big cost and so as a result, as we've worked with these farmers.
Not ripping them off has been a very very smart strategy and so we don't push the numbers probably as hard as we could.
But quite frankly, we will get all of that money that we leave on the table over time, because we own the property and they need it to growth fruits and vegetables. So youre right. The Midwest has changed dramatically simply because of the drought in Argentina and Brazil.
Those guys can't produce what they produced in past years, Ukraine is doing well and we're doing okay. Most of the farmers today in the Midwest are selling or have sold most of the things they think theyre going to grow for the year. So it's going to the very profitable year for people who grew.
Oh in corn and wheat.
But I think it may only be for that one year and then next year you go back to peak.
People are competing with each other.
They have a good rainstorm in Brazil, they will produce a lot of corn. The same thing happens here and all of the sudden you got oversupply and price is dropping but the prices have gone up dramatically for all of those grains and I think most of the guys have so they're there.
Corn on the exchange so they've gone to the Chicago exchange and sold two train loads of this.
Bushels of that so it's it's getting to the point where.
I, just don't know if they're going to be able to produce in the United States. What they said they are going to produce because were getting droughts and there are a lot of those farmers that are dry farmers as I call them since they depend on the rain for there.
For the water for their crops, whereas we're just not in that business, we maybe of 3% of our land, we have and it's usually not essential to our overall.
What we're doing and as a result, we just don't depend on range.
Have these big wheels that go around and around and the farms and we have in the produce area. We have drip farming and also in the not business, we have drip farming and so water is as valuable as the oil to us and we're in great shape today doesn't mean, you're going to be that way.
The five years, but right now we're in great shape in the currently working on a transaction, where we will buy water thats in the app or for the actually trade those things now and so we can buy it you can't get it financed the banks won't finance water in the ground, but we are going by some of my suspect.
And just as an insurance policy.
The other questions John.
But I mean, just in terms of.
The price kind of rises we've seen with wheat and some of the other commodities are you seeing those in kind of the berries or even some of the nuts are any of those kind of.
Produce that's more typical of what's in your portfolio today, and then you're in that kind of same line of questioning does that impact how you see participation rents going forward.
Yeah, It will impact participation rents, but we don't see big changes out there. If you looked at the price of berries that are being delivered in New York I, just looked and some of the.
Delivery prices out there for the large strawberries are 20 to $22.
The package that we see and you haven't seen that in the long time.
But on the other hand, if youre just delivering the same berries that you've delivered in the past, it's still 12 $14 $15.
And so there hasnt been any huge change like in.
Corn for example, I think corn from.
$3 50, a bushel to about $6 of Bushnell and so that's a massive change and we haven't seen that in our area simply because we've been steady all along and have been able to deliver varies blueberries in the net side of the business almonds.
Have been the <unk>.
Biggest area of things going on as you May know, China buys a lot of almonds.
There are a number of omron growers that are fairly large they dominate the almond industry and so as we see that transaction going on there haven't been huge movements in the price of almonds.
I don't think were in that kind of business, where the big changes like there is in the valuations that go on with regard to corn and wheat.
Those areas are dominated by supply and demand and if supply is great prices are very low on the <unk>.
Other hand if.
You get somebody who is in trouble like I don't know it was about eight years ago the people in Russia.
Not able to grow and so the prices went through the roof.
Boom or bust kind of the situation and so the.
It's not a good thing to base your business on if youre doing dividends monthly dividends to people, who want to get their dividend every month, regardless of what's going on in the marketplace. I think we are positioned to do that.
I would hate to be in the corn business. Although this year is going to be of Bonanza.
All of these corn growers are selling on the market and going out and buying of new tractor or whatever and so as a result of youre going to see that run through.
All of the manufacturers, but at the same time, you see people jacking up the prices the GMO the price of that chemical today is I know, it's up 100%. So they are paying through the nose to get that stuff.
We don't do that so as a result, we haven't had those kind of problems.
Cost driving us to Jack up the price of.
Although the price has been up I think that was mainly because everybody went to the grocery store.
After the restaurants closed and just started buying everything there and it's come back in line with where they should the today. So John I don't think prices for strawberries, and blueberries and nuts are going to have a big jump in price, they're going to continue however to be steady so that.
We know when we're growing strawberries or that we can deliver.
I hate to say it this way because it's a wrong way to say it but all of these migrants that are coming into the country are good for all of the plants that have to be harvested by hand.
The strawberries particular in lot of blueberries are drawn by hand.
As a result.
It makes it easier for our farmers to get the kind of people that they need to.
Against the harvest.
I am sure. The Apple people are very happy that there is extra people around thats, usually the ones that get hurt the most every year, but I think the.
This will be a good year for Apple growers.
No I cant do anymore, then tell you what prices are today and make some kind of.
Wild guess about what prices will be in six months of the year.
Okay understood and then one quick one on the balance sheet.
The leverage came down a little bit quarter over quarter obviously.
Will I mean.
Yes kind of quarter to date at this point into Q.
Given you're fully funded the acquisition of weight with kind of equity raising on the ATM in Q I mean, it is kind of this newer lower leverage level, maybe the run rate going forward or is there some of the activity on the ATM more just kind of creating some dry powder to deploy as.
More of the pipeline kind of comes to fruition over the course of the year.
Yeah, what we see going on and it's our judgment of what's going on is best for the company of course end of.
At this point in time debt is extremely cheap from farm credit and others in the lending business and we've taken advantage of that we get 60% to 70% of some cases.
How we're going to finance our properties.
And then on the equity side.
It's been very nice to have sold as many shares as we sold our CFO is dancing.
Because he's got so much money usually.
Pretty pretty tight that is.
He is praying he doesn't have another closing because the scatter money right now he is ready to close and piece of logging the troops to close deals now that he has got so much cash and we've been very blessed in terms of being able to sell common stock under the ATM and also to borrow money from our banking.
Group that we deal with about a 10 banks.
And so at this point, we feel very good about it we have not had a huge run on our non traded area. So we havent raised much money there thats at a higher price. So we're in great shape in terms of being able to meet any kind of closings that come up and I think they will I think you'll.
C.
If we close to what's in the pipeline and being worked on right now we wipe out all of the cash that we have and have to borrow as well.
<unk> not taken down some debt.
In some cases, just because we didn't really need to do that in order to close the deals, but we will be back in the debt marketplace and the banks and all of those folks seem to be very willing participants in what we're trying to do.
Okay.
And so all my questions. Thank you very much.
Alright, we have another question.
Our final question comes from the line of credit you, Sir with B Riley. Please proceed with your question.
Hey, good morning, guys. Most of my questions have been answered already but I did want to circle back to a couple.
Just first I'd like to talk about pricing I think last year you bought at about a five five cap and I think year to date, you've done anything from sort of just inside of a five two of five three.
As we think of about 2021 and the pipeline of assets you're currently looking at.
Should we expect to see yields that it may be compressed 25 to 50 basis points throughout the year or any color there would be helpful.
I don't think so I think sometimes we run into situations, where we have to give a little bit on our standard policy of getting five 5% you have to give a little bit in order to get a deal done, but Greg you know out of the World works if you're doing.
The 10 year lease and it goes up by 1% of year, you may start off at 5%, but as time goes on.
It's kind of go up and the way the accounting people make you account for that as you have to add up all of that was 10 years and divide by 10 in order to get the average and that's what goes into the.
The discussion we're having now is that number so I think we're in great shape to do that also some of those that may look a little bit low.
Got some kicker in them someplace that is they participate in the.
The <unk>.
Harvest or they have re.
Repricing at the end of three to five years and.
But frankly most of those re pricings I don't know why all of those farmers don't sign up for that because quite frankly, we haven't had net.
That much lock in having foreign price from rents go up by much re pricings.
I think and that has to do with the fact that we start off in some marketplace is higher than most.
There are people that will lag, especially.
Family that no longer farms.
Just counting on that for money coming in.
Will reprice at 3% cap rate and so we compete against them there arent many of those and as time has gone on we've seen people.
Who own farms.
And up selling those farms simply because of the children of all of those people, who I don't really want to be in the pharma business and don't even want to own of farm, even though it's rented out.
So how are you going to keep them down on the farm once they've seen cash and I see.
It's a nice feeling to have a place to go and remember of things, but generally speaking people are selling arms of these days rather than keeping them as investments.
Craig just to add.
I think the lower cap rates for for us so far this year of little bit more.
Circumstantial, we had one sort of farm right around 5%, which is is kind of norm for that the.
The facility, we acquired there was the depressed cap rate in year, one was more due to a an adjustment on the op unit issuance price versus the fair value of the time of closing and.
Excuse me the other farm, we acquired right and the right after quarter end in April.
The year, one cap rate of five 3%, but kind of weighted towards the pharmacy with the annual Escalations the 15 year lease.
Year, one negotiation was a bit of a unique circumstance as well, but over the straight line.
Over the term of the lease the straight line rent cap rate of about six 7%. So it's in line with what we're looking at.
But I think overall this year compared to last year, it's not indicative of any decrease the GAAP rates as more.
The region specific and kind of even more so just deal specific.
Got it no I appreciate the color.
Just one more for me.
As we think about how to encapsulate the potential upside from all of the participation rents that you have.
As you've as you've done more and more leases on that front over the past couple of years.
We were in an environment, where lets say all of your crops of increased 10% in value of this year well how does that translate to land I think last year, the $2 4 million of participation rents, but if we did see a nice sort of EBIT increase across the board what would that mean.
Well it certainly would mean the participation rents are going up in total number for the simple reason that we have additional farms were participations as part of the there as part of their lease and so youre going to see that as long as we keep adding to it the haven't they haven't been that many places that didn't give us the.
Good return in terms of participation rents prior years that have gone down and we've got some but most of them have gone up if they gave us $2 million.
Last year, maybe it's going to be three of $4 million. This year I mean, thats my guess.
No until much.
Much later in the season I mean people are still planting stuff. So it's really hard to know what's kind of happen until you've been in the business for <unk>.
Many years and all of a sudden there's a freeze we lost one of our share of growers lost.
Most of the blossoms on their trees. This year theyre not going to have any income now they will pick up something in insurance.
As a result of that I don't think we kind of get much in the way of any kind of added amount out of those kind of people.
It's because we are in so many farms in so many different areas to try to generalize and say over the entire portfolio ex is going to happen really difficult to do that but my guess is our upside in participation rents are going up for two reasons. One of the one you mentioned that as if rents.
Sales and pricing goes up the parts.
This patient rents will go up we participate in that and on the other hand participation rents part of this just more of them in our portfolio now we love it it sort of of saves us some years, where we didn't get as much income as we thought because we didn't start out with as much. This year, we're starting out with a lot more as you know we've closed a lot of the last.
Year.
So Greg I can't I wish I could help you with your model, but I can.
That's the right I appreciate the color anyway. Thanks.
Okay anybody else have a question and telephone land there.
There are no further questions at this time, so I'll pass the floor back over to Mr. Gladstone for any closing comments. Okay. Thank you all for calling in and maybe next time, you'll have a lot more questions for us and we can have more fun answering them. Thanks for calling in at the end of this call.
This concludes today's teleconference. You may now disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
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Okay.