Q2 2021 Gladstone Land Corp Earnings Call
[music].
Greetings and welcome to Gladstone land and second 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.
Cross Star Zero on your telephone keypad.
As a reminder of this conference is being recorded I would now like to turn this conference over to your host Mr. David Gladstone. Thank you Sir you may begin.
And thank you Laura that was the nice introduction and this is David Gladstone and welcome to the the quarterly conference call for Gladstone land and thank you all for calling in today. We appreciate you taking the time to listen to our presentation will start with Michael accounts. The he's our general Counsel and Secretary is also president of Gladstone Administration.
Which is the administrator for all of the Gladstone funds. Michael go ahead, Thanks, David and good morning, everybody. Today's report May include forward looking statements under the Securities Act of late and from 33, The Securities Exchange Act of $19.30 for including those regarding our future performance of these forward looking statements involve certain risks and uncertainties that are based on our current plans, which we believe.
It'd be reasonable and <unk>.
Any 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 and our forms 10-K, 10-Q, and other documents that we filed with the SEC and find them on our website www Dot Gladstone land Dot com, specifically, the investor's page or on the SEC's website.
Which is www dot and said that G. O V that 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.
And I will discuss <unk>, which is funds from operations and <unk> and 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 and we may also discuss core <unk>, which we generally defined as <unk> and <unk>.
And the for certain non recurring revenues and expenses and also adjusted <unk>, which further adjusts core of <unk> for certain noncash items, such as converting GAAP rents to normalized cash rents and we believe these are better indications of our operating results and allow better comparability of our period over period of performance, we ask that you.
Visit our website and once again Gladstone land Dot com sign up for our email notification service. So they can stay up the data on the company can also find us on Facebook keyword.
Third there is the Gladstone companies and we even have are on Twitter handle and that's at Gladstone comps and today's calls and overview of our results. So we ask that you review of our press release and form 10-Q, both issued yesterday for more detailed information again those are on the investors page of our website with that I'll turn the presentation back to the <unk>.
The Gladstone Okay. Thank you Michael I'll start with a brief recap of our current farm land holdings, we currently own a.
105000 acres of.
And at 53 farms and about 20000 acre feet of.
Bank of water valued all total of about $1.3 billion. Our farms are located and 14 different states and more importantly, and 28.
The different growing areas and as Louis will talk about later, where 100% occupied and leased to 79 different tenants. All of these are unrelated to us the tenants and these farms of growing over 55 different crops.
And this is a lot of diversification, we believe and diversification and that helps protect our dividend and.
And that we pay to our shareholders no guarantees and this world, but diversification helps.
We had a strong second quarter and we continue to be able to renew expiring leases without incurring any downtime on any of the farms and.
The increases in all of the lease renewals, we executed reflecting a positive trend and the rental rates that we're seeing of certain regions.
Overall operations on our farms remained strong and the demand for products grown on most of our farms remains high and these are products like berries vegetables and.
And during the second quarter of the team acquired 13 farms and over 20000 acre feet of bank of the water. Just so you know water is measured in acre feet and one acre foot is equal to a little over 125000 gallons. So it's a lot of water we are about.
$80 million invested during these during the second quarter overall initial net cash yield on these investments is about five 1% and addition, all of the leases on these farms contain certain provisions such as participation rents are annual escalations and that should push this figure of a little bit of <unk>.
Higher.
And one of these farm acquisitions that we did this time was in New Jersey, which is a new state for us and we.
Tried to entering it several times before and we finally got one done and New Jersey as call of the Garden State for those who know the whole state and that's because the second half of the state that the southern half of the state is very productive and a lot of different crops. The bank and water was a new type of acquisition for us and this is.
This is the one that we stored local water and of district, and we can use that water on any farm land located in the current county sub basin, where we have several farms or we can sell it to third parties on the open market current price is about $856 per.
Per acre foot and values today on our P&L I went on our balance sheet of $728. Our plan is to hold the water to help safeguard our own assets and the region against any future of water shortages all of our farms of currently have enough water and we have.
A lot of wells drilled and drilled out for us.
But we like the security of having extra water on the leasing front since the beginning of the second quarter, we executed five lease renewals on properties located in California, Florida, and Michigan overall of these lease renewals of expected result, and an operating income increase of about 168000 and that's about <unk>.
10% over the prior leases that we had on those properties. Looking ahead, we only have three leases scheduled to expire over the next six months.
They make up about 2% of our total annualized lease revenue.
We're in discussions with existing tenants on these farms as well as some potential new tenants and we aren't expecting any downturn of downturn on these farms in terms of the overall income.
Currently expect the new leases on all of the farms going forward to be about flat from where they are today. So amount of we're not looking at a big increase.
There are a few other items I'd like to touch on first is the drought out west and I'm sure you've watched that on TV or heard about it on the radio worse.
The Western U S is dealing with the severe drought all of our properties of position where they are currently ample water to complete at least both of the current crops that that is this year's and next years.
We have one farm and which we're going to take out about half of the trees, they're older trees, but we bought that the farm just.
And the dirt and we didn't buy any of the trees. So we're going to take out some of the old ones there.
And we have farms, located and water districts, whose districts have stored water or other supplemental sources to cover our farms.
Water needs for the short term our farms out west have wells on the property and most of them rely on groundwater and the main source of irrigated water for these properties. We are seeing the typical seasonal dropping and water levels, but we've not had any wells go dry and all of our farms are.
Currently I think currently have pumping capacity to cover all of the crop needs and the.
The Skip ahead, one thing you should know is that wet and dry weather cycles.
Are the norm out west and especially in California throughout any long term investment period, we know that we will have both the drought periods and wet periods. So when we underwrite of potential investment out west and quite well for all of our entre things, we look at the properties with multiple sources of water and we built.
And drought scenarios and also take into account potential government regulations and it's <unk>.
Right of undertaken and when we get into a new situation.
And one of those while I'm on this topic, California, just mentioned that none of our farms have suffered any damage as a result of wildfires you read about those and the news every day. This is something people and California deal with and on on annual basis, and the fires generally and the hills, where the all of the brush and the various tree.
These are located where.
As our farms are in the valley is the flat land near the coast or and the middle of the of the Valley. We don't think the current wildfires pose any threat to any of our farms.
The second thing I'd like to discuss briefly the increase in base management fee that we did this year.
And as you may have seen the increase and the fever of small amount and it was 110th of 1%.
So we can expand the team to hire more people to buy more farms as you know, we manage and asset class. That's unlike most other public Reits.
Cost of running this REIT is more like a private equity REIT.
Real estate investment funds and the standard there is much higher fees. So these fees of the private equities are substantially above ours. We're now at six tenths of 1% of assets is our management.
<unk> for for running the business, we continue to expect a strong year in terms of participation rents as you. All know we recorded about $2.4 million and participating rents and each of the past two years, but we expect to see and increase this year for the 2021 period and that's mainly due to the having more for.
Armed with participation rent provisions and schedule to become active this year, we don't know how much yet we've made some estimates I don't want to give those out but and the next month or so.
Certainly by the fourth quarter, we'll have a better figure to give out to you of what's going to happen there.
And we also of working on our ESG policy, that's something thats become very.
Very timely we continue to actively work on developing formal policies related to the disclosures that we consider relevant and we will continue to update you on this as we get close to finalizing the policies that were published and put on our website related to that as you may know the SEC approved nasdaq's proposed.
Changes to enhance board diversity I'm confident that we'll meet the new standards.
And when they become effective.
Going back some of you and know that we started Gladstone acquisition. It's a special purpose acquisition company that we recently filed its now funded with the $100 million.
And we're out looking for situations that meet that goal and some of the people that are selling their properties don't want to just sell the properties they want to sell of the the.
The financing the their farm land operations, and we want to buy that was but we can't do that and our REIT Gladstone land can't on operating companies because operating income is not permitted and a REIT.
Stone the acquisitions. This public company was created to potentially take advantage of such opportunities where at Gladstone land couldn't participate Gladstone acquisition is public now traded under the symbol G. L. E. So do you want to know a little more about that that's where you can go find it I'm going to stop here and turn it over to.
And our CFO Lewis Parrish and he'll give you some more details on the numbers for ahead Louis Thank.
Thank you David and good morning, everyone I'll begin with our balance sheet. During the second quarter of total assets increased by about $67 million due to new acquisitions, we did not incur any new borrowings during the quarter as all of the acquisitions were financed with equity proceeds most of which came from sales of our common stock through the ATM program.
Since the beginning of the second quarter, we've raised about $83 million of net proceeds from sales of our common stock under the ATM program and that represents a net cost of capital of $2, 47% with our recently increased dividend.
We also increased the size of our ATM program during the quarter and we have about $113 million remaining under the current.
For the same time period, we've also raise of about $13 million of net proceeds from sales of the series C preferred stock.
Moving on to our operating results first of all no different and second quarter, we had a net loss of about $531000 and a net loss of common shareholders of $3.5 million for $11 seven per common share.
Adjusted <unk> for the second quarter was approximately $3.7 million compared to about $4.7 million and the first quarter and <unk> <unk> per share was $12.06 from the second quarter versus $17 four and the first quarter dip.
Dividends declared per share were about $13 five and each quarter.
The primary driver behind the decrease and <unk> was about $2 million of interest patronage of recorded and the prior quarter related to our loans from farm credit.
The offset by an incentive fee of $1 million earned by our adviser during the prior quarter and neither of these events occurred during the current quarter.
<unk> per share for the current quarter was further impacted by additional shares of common stock issued under the ATM program, the proceeds of which have not yet been fully invested.
The fixed based cash rents increased by about $830000 of 5% on a quarter over quarter basis. This is primarily driven by additional revenues earned from our recent acquisitions.
On the expense side, excluding reimbursable expenses, and certain nonrecurring or non cash expenses, our core operating expenses decreased by about $626000 on a quarter over quarter basis, and this was primarily driven by a lower related party fees as no incentive fee was earned by our advisor of during the current quarter.
If we remove related party fees of core operating expenses increased by about $539000. This increase was primarily driven by higher property operating expenses, which was largely largely due to additional water costs incurred on one of our properties and Colorado as well as an increase and our general and administrative expenses due to additional costs incurred related to the annual shareholders' meeting.
Regarding the additional water cost the impact on our current quarter's numbers was about $350000 or $1 <unk> per share.
We currently anticipate incurring another 350000 to $400000 during the second half of the year in total but.
And the majority of which will be incurred during the third quarter and <unk>.
On our current share count this equates to another one two cents per share throughout the rest of the year.
However, we do not currently expect to continue incurring these costs beyond 2021.
So if it weren't for these additional water costs are <unk> and <unk> per share for the quarter would have been $14 three and $13 eight respectively.
Moving on to net asset value, we had 46 farms revalued during the quarter, albeit third party appraisals and overall these farms increased in value by about $336000 over the previous valuations from about a year ago.
So as of June 30th our portfolio was valued at about $1.3 billion all of which was valued based on either the third party appraisals or the actual purchase prices and.
And based on these updated valuations and including the fair value of our debt and all preferred stock our net asset value per common share of June 30th was $13.16, which is up by 47 from last quarter.
Turning to our capital makeup and overall liquidity from a leverage standpoint, and with respect to our borrowings along the loan to value ratio on our total from land holdings on a fair value basis, and net of cash was about 45% at June 30.
And over 99% of our borrowings are currently at fixed rates and on a weighted average basis. These rates are fixed at 338% for another six years out.
So we believe we are currently well protected on the debt side against any future interest rate volatility. In addition, the weighted average maturity of these borrowings is over nine years out.
Regarding our upcoming debt maturities, we have about $33 million coming due over the next 12 months. However, about $17 million of this represents bullet maturities of five loans coming due the five properties collateralized on these loans have increased and valued by a total of $6 million since irrespective of 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 $16 million of amortizing principal payments coming due over the next 12 months or about 2% of our total debt outstanding.
From a liquidity standpoint, including availability on our lines of credit and other Undrawn notes. We currently have over $125 million of dry powder, and addition to about $44 million of Unpledged properties.
We have ample availability under our two largest borrowing facilities and we continue to be and discussions with other lenders for new borrowings and potentially new credit facilities. So overall credit continues to be readily available to us from multiple lenders and at very favorable terms.
Finally, I'll touch on our common distributions, we recently raised our common dividend again to $4.5 <unk> per share per month.
Over the past 26 quarters, we raised our common dividend 23 times, resulting in an overall increase of 53% and our monthly kind of common distributions over this time.
Since 2013, we paid 102 consecutive monthly dividends to common shareholders totaling $5.25 per share and total distributions paint.
Paying dividends for us.
To our shareholders is paramount for our business plan and our goal is the continued to increase the dividend at regular intervals.
And when considering the relative stability and security security of the underlying assets and the related cash flows. We believe the stock continues to offer compelling investment alternative, particularly in light of today's inflationary concerns.
And with that I'll turn the program back over to David.
Alright. Thank you Louis as nice report nice to hear about the standard of dividends going out.
Acquisition activity for us picked up again, and this quarter and we continue to see good amount of buying opportunities coming our way and we hope to be able to announce some additional acquisitions in the coming months, we were talking about that before we started and it sounds like one is coming through the.
All of the things that you have to do to get out.
These things are complete paper chase to catch up with all the ways of buying these the.
And I think you'll see something and the next few days of weeks for.
For us some farms out west and.
And just a few final points I'd like to make before we can open it up and that is investing in farm land and growing crops that contribute to healthy lifestyles, such as fruits and vegetables and nuts.
The follows the trend, we're seeing and the market today currently about 85% of our total crop revenue comes from farms growing the east type of foods that you can find in either the producer of the nut section of your local grocery store and we consider these foods to be among the healthier type foods out there and we continue to see growing trend.
<unk> toward organic coming out of these foods and about 40% of our fresh produce today is and acreage that's organic or transitioning to organic and over 10% of our permanent crop acreage falls into that same organic category. We believe the organic section will continue to be of strong.
Growth area. In addition, more than 95% of our shops are farm land classified to be non GMO. Another major reason why our business strategy is focused on farmland growing fresh produce is due to the effects of inflation on that particular segment. According to the Bureau of Labor statistics the overall.
All annual food CPI generally keeps pace with inflation. This is why and many financial advisors tell their clients to invest and farm land.
Does it acts as a good hedge against inflation.
All of our over the past 40, plus years, the fresh produce and vegetable segment of the food categories outpaced the total food CPI by a multiple of 1.5 times. This is the large reason again, while we like this segment and while prices of commodity grain crops, such as corn and wheat and the other are more typically.
Volatile.
Then the ones, we're in global supply and demands for fresh produce is mostly insulated by from the global volatility because of the crops are grown and the United States and consumed locally.
Mostly within a short period of time being harvested.
And I tell you. This because we are often confused with the owning farms, where farmers are growing corn and soy and wheat and we've mostly stayed clear of these crops because they have to compete with other countries like Brazil, and Argentina, and certainly the Ukraine, where the.
The cost of production, even after shipping cost is very low and.
And those farmers can undercut the price of grain farmers here and the United States.
Grain prices have been much higher this year, but the one reason for that is because Brazil, and Argentina and of drafts period, right now and are not producing as much. So that means that our farmers at a price that will help some of the people that are and the grain side of the business.
Not really relevant for us the farms in these countries largely depend on rainwater, whereas we have wells that.
And do most of the work for us and watering.
Overall demand for prime farmland growing berries, and vegetables remains stable to strong and almost all areas, where the our farms are located particularly along the west coast, including most of California, Oregon, Washington, and the East Coast, especially Florida and some of the other east Coast States that we're in.
And overall farm land continues to perform well compared to other assets.
And there is a knee crieff and it's an association the <unk>.
The <unk> farmland index, which is currently made up of about $13.2 billion worth of agricultural properties I think all of ours of there aren't the moral and there yeah.
And that the agricultural properties have an average annual return of 12, 3% over the past 20 years compared with 11% for the REIT Index and then the even lower number for the standard and Poor's index and.
And during those 20 years, the farmland index did not have a single negative year, whereas the REIT index and the S&P index each had for negative years over that same period.
Farm land generally provides investors with the safe Haven during the turbulent times and the financial marketplace as both land prices and food prices, especially for fresh produce and have.
Continued to rise so and closing please remember to purchase stock and the company debt purchasing the stock and this company is a long term investment don't expect the big jump overnight and Youll see and some of the technology stocks.
We expect inflation, particularly in the food sector has to increase and we expect values underlying farm land to increase as a result.
And we expect this especially true for fresh produce and the food sector.
The trend of.
Eating healthy foods, rather than the all of those that are not quite as healthy.
But gladstone land wouldn't be much if it werent for the operating people here.
Buying and leasing farms is a really of complex business and it sounds simple, but it's complex tastes of lot of time and energy. So if you like what we're doing please buy some of the stock and our company and especially keep eating fresh fruits and vegetables and nuts and we'll have some questions now so of Lora come on.
On the operator will.
Give me give some instructions on what you need to do to ask a question.
Okay.
At this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Information from will indicate your line is and the question queue. You May press star two share and move your questions from the queue the break.
It depends using speaker equipment and may be necessary for you to pick up your and handset before pressing the star keys, one moment, while we poll for questions.
Our gross question comes from the line of Rob Stevenson with Janney You May proceed with your question.
Good morning, guys.
On it David how significant or any of the participating rents likely to be this year and is that mostly of fourth quarter event or some in the third quarter summit and first quarter of 2022, how should we be thinking about that as that pertains over the back half of the year given the.
Where your crops are and pricing and everything is today.
Rob of all of those of true we get some indications and the third quarter, we know a lot more and the fourth quarter and actually get some of the payments and finally no. The real number in the first quarter of next year.
Okay and as it sits today with crop prices being where they are how significant is that likely to be for you guys. This year.
Well, we had projected it to be very significant but I can't give you a real good reading on that now it's just too early at the harvesting as having the happened. So we don't have a good fix on it today.
Hey.
And then if I take a look back a year ago, the niv was $11 roughly.
Now.
Over $13, so it's up 19% year over year, where location wise and crop wise have been the biggest increases over the past year or so and where are you seeing the slower appreciation crop and region wise.
California would win that the boat I haven't gone out and done the numbers, but certainly they've moved as you know and California a law.
And lot of the farms get gobbled up for higher and better use of at least a call it higher and better use.
They are and government buildings, and playgrounds and schools and apartment buildings and those kind of things. So every year, 25% to 50000 and farms get taken out by those kind of development. So it's a big change and every time that happens the land that we hold becomes more valuable because people are looking at.
From two directions, one they've gotta get farm land to grow stuff, so they'll pay more and rents and then also some of those will be zone for higher and better use so I'd say, California wins that Oregon, all come in second and I think and certainly Florida is in the running for first or second so.
Florida has an incredible thing I think is 10000 and families move to Florida every week.
And where would where would you wind up seeing the sort of slower appreciation, what's kind of wind up being at the.
Below the 19% average there.
Oh, well the state of Washington has some of that and certainly Arizona.
I, just don't I don't know, where the slowest one of all day.
And if you'll help me determined that I'll stay out of the state.
And is there any particular crop overlap when youre looking at either of the best or the or the slower ones. I mean is there anything in particular, even within those regions the wear.
The land for certain crop that's fertile for that winds up being much more valuable than.
Land, a few miles away for some other crop.
Yeah, we went into new Jersey, this year and that's been one of its been hard to hard to chase because the prices have gone up so many times. There. So I think is the northern New Jersey spreads and the southern New Jersey, you'll get a lot of changes. They also have something going on and New Jersey that that's put a great press.
Sure on farm land and that is the state will pay a farmer.
A good deal on a good deal of money if they will just set up a raise of solar catching sunset at the.
So hell bent and and New Jersey that they had the pass a law that prevents much more of that happening there.
If they got rid of that law.
But the good news is if the farmer keeps farming it there'll be fine.
They don't have any kind of.
Thing against them and other kinds of developments, but they have been people that have been upset that so much is being converted from regular farm land and.
Solar arrays to help raise more energy for the state.
And I don't know Rob you could spend a lot of time analyzing that we we do it from the ground up half of farm comes in that we think is good.
Put together a package and it.
And the go forward of don't we really haven't gone out and said Gee I think new Jersey is going to be the best place and the world, Let's put all of our money there. So.
I can't really identify that for you, but you know of some farms for the sale just send them our way.
Okay.
Alright, guys I appreciate the time.
Okay, Operator would you come on and let's get the second the list of questions. Please.
Our next question comes from the line of Nate Crossett with Bamberg Capital markets. You May proceed with your question.
Hey, guys. Good morning, it's Eric on for <unk>, Thanks for taking the questions.
Maybe to start could you provide any additional color on the current pipeline I know you don't give formal guidance, but could you talk about what's currently under PSA.
And historically I think you've tried to do about $250 million of year do you think thats achievable this year.
Right.
We are.
Right now we've done about $85 million, so far and we.
We are on pace, if everything we have signed up right. Now closes then we would surpass that number of this year and we do have quite a few.
Properties under signed PSA is right now on to the tune of over $100 million worth of properties that are under signed PSA.
The majority of these were hoping will close in Q3 and some of my slipped to Q4, but we of others that are close to getting signed up as well.
And so we're hoping and we're hoping to get between between 250 and between between $2.50, and $300 million of acquisitions all of them in the years said and done.
Okay, that's great.
Maybe could you expand on the type of yields you're seeing and the current environment has there been any compression or increased competition for the assets you're targeting.
I would say that and Oxnard is probably a really tough to find something that meets our conditions and so that's an area of I think other areas that we've got are.
Wherever you've got stuff in Oregon, and Washington, and certainly Northern California, you can usually find something there the biggest problem for all of these are are not the yields but just getting the farmer to consider selling.
I mean, this is a business and which you don't have a big brokerage community and between you and the farmer and the brokerage community is lining of mob and does a great ride up in the presentation and you get a lot of your work out of the way. These of people that were meeting with one on one or in a conference someplace.
And so youre working on one at a time and it takes a different different style and a different orientation. That's the reason most of the people that are working for us out and the feel come from the farming community. So they can speak the same language so to speak and.
I just I think we're going to do extremely well and Louis has got his pulse and his finger on the pulse and so I think we're in good shape to do a lot of good transactions this year, but its theres no way of sort of saying this is going to close of that I'd tell the story of talking to one of the people, who finally sold as the.
Farm after 10 years of discussion back and forth. So hopefully thank god. They all are on like that but at the end of the day, it's still a very.
The business too on the front end of the business once we get it under purchase and sale agreement, it's a little bit easier although.
Here people and the background and saying no it's still hard but nonetheless, it's just the very long process and that's the big.
Thing that keeps us from growing extremely fast we have the money and we're just looking for deals now Nate any other things I can answer.
No I appreciate that one last thing for me in terms of the potential tax implications.
And the VA of losing the 10.31.
Utilizing the operating structure more on your deals.
We preach it every time, we talk to our farmer of how to sell this farm and not pay any taxes until they sell the stock.
It has hit some very nice and they did it when we were low priced and they're very happy people today.
We haven't had anything recent debt.
And where people maybe I should just.
Get some of these guys and gals and here that are on the selling side of him let him tell the story of farmers are.
Scream the conservative I mean, they're most of these farms are under leveraged.
They haven't leveraged themselves up so as a result, theyre just skeptical of.
Doing these the upright even though we're now over $1 billion is just very very difficult to get people to do that.
I like you.
And that we have many more of these done but they don't come as quickly as we'd like and they're now that the 10.31 has gone away or going away.
We will get a little bit better.
Neat thing about farm land is it's not one farm that's of tax entity, usually farms are six or eight or 10 different tax entities. Each one of them. According to the IRS standards is a farm and itself.
So if somebody wants to sell us five of those tax entities with stock and the other five for cash we can do that you can't really do that much with office buildings or warehouses because is usually just one taxing entity. So we're working it but it's.
I think now that we're over $1 billion, we get a little bit better attention because people feel secure but my goodness, it's still of heart cell.
Perfect. That's it for me guys I appreciate the time.
So who is the third person wants to ask a question.
Our next question comes from the line of John Let's Yoga with Ladenburg Thalmann. You May proceed with your question.
Good morning.
Good morning, John.
So maybe.
But a little more color on the water.
Reits that you purchased.
And just maybe kind of specifically what could potentially cause of the valuation of that water to change and how would that flow through.
And maybe on both the GAAP financial statements and also potentially down the <unk> if at all John That's a wonderful question and Louis nose out of answer it.
So first of all of these arent really water rights. This is actual water that we bought we.
Firstly at the acquisition, we bought a contract to Tobias and water for a set price and we exercise of that contract right of way. So we can get the water and our account and in our name and.
Be able to use it if and when we need to and as David mentioned, we don't have and need to use it right now and hopefully won't over the next few years, but it's good to have the security.
As far as how it's valued so we did look at multiple sources. There is a and index for California water that we can put a lot of weight on and.
And we will monitor that index against the the book value, which David said as of about 718 of $728 per acre foot.
And if the value of the water.
It goes down below our book value then it would be treated similar to and impairment of real estate, so you'd see a flow through and the impairment line item.
And it would be adjusted for in the if the low numbers as well just as the and.
And impairment on the on a building might be.
Okay.
And it wouldnt really of any of that flow through day of Boe of that because they're kind of one time or maybe the treatment of its kind of going to be true.
And it would be similar to the impairment on a on a real property, where you would get added back and.
To answer your question as to what might cause that to happen and.
California gets the.
You know a lot of snow a lot of rain rainy season, they get of wet year. Then the price of water is obviously going to go down so it might hurt our financials for that period, but it's good for the overall farming community and the value of our assets there.
Okay.
And then continuing with water the call.
Laredo.
On the cost of the Colorado property to kind of and.
And just give us some water issues and it sounded like there I mean can you maybe provide some color on what that was and and kind of what that.
Opex of Capex is going into.
Yeah the.
The Colorado situation is one and which was tied up and court for quite a period of time and seems to be resolved at least initially.
And at the higher end of the cost of water and so I think it's $150 per acre foot that theyre charging now up from about 80 Bucks. So yes, 75 to 90, so as a result that hits every farmer right in their pocket book, because they still need the same amount of water in order to growth.
They are growing.
So we don't know how that's going to finally shake out there all kind of <unk>.
Mers going around and were just going with the flow right now and not much we can do that.
Cause this is the government interference and the situation. This is not a.
The rain water or something like that so we will just have to keep playing that game. The way that people have played it for a long time out there and.
Hope for the best because as there's a good amount of water out there there's an aqua for it there that's pretty large they have stopped drilling holes into the aquifer and drawing out water.
The new one new wells sometime ago. So they were hoping that it would reconstitute itself over a period of time, but it hasn't done that much. So as a result, the water cost probably going to be more expensive and that would mean that whatever you grow there you got a tack on.
More money to pay for the water and inflation is going to be a big candidate over the next 10 years and all of the farming operations.
And this includes places even like Florida, where you can puncture of hole in the ground and find water.
It's just a very difficult thing to talk about because we don't really know what's going to happen. If you get a good snow year, and California, there be so much water that prices could go down and I would hope that that happens because it means all of the farms of worth a lot more a lot more people want to buy for fall.
Arms of rent the farms. So as a result, we're just following what happens every day when you get up and read the weather report and know how it's going to impact of what Youre trying to do.
So don't know, how and how else to answer that John.
I guess I mean, the kind of increased opex and maybe versus Q1 or the last year, I mean, I know and prioritize if you'd had situations where.
There had been issues getting electrical to the wells and so you had the kind of pay generated of course, I mean, something like that or is it just youre by external water and that's driving that opex to be higher this quarter and potentially.
And two H.
So in the past on this particular farm as David mentioned the cost of water had been in the 75 to $90 per acre foot range and while this wasn't adjudication that was.
Kind of the expectations of it fall on the low end of the range that we had and our provision and our lease where we would pay for the cost between anything over $75 up to $150.
And the judge ruled at the high end of the range at $150 per acre foot. So that put us on the hook for $75 per acre foot of water on this farm.
And most of the so the way that the the seasonality of the water usage is generally and mostly in Q quarters.
Two and three the early summer to debt.
The late fall months.
So we.
We recorded probably about 50% of the cost of that water. Once the judge's ruling was known and Q2 and we have for the other the little bit over 50%.
Be recorded throughout the quarters three and for.
And on the majority of that will be in quarter, three but and.
This lease runs out this lease expires at the end of this year of 12.31 2021.
And we're looking at several options for that farm, but we do not but right now we are not expecting that the next lease we have or.
And any other option that we that we're currently looking at will include the.
Those costs being a responsibility.
Perfect very helpful.
And that's it for me. Thank you all very much.
Anybody else.
We have any other questions.
We do not I'd like to turn this call back over to you for closing remarks.
Okay. Thank you all for your questions Hope, we answered them all and.
We will see you again next quarter and that's the end of this call.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and enjoy the rest of your day.
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Sure.
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