Q3 2021 Gladstone Land Corp Earnings Call
Greetings and welcome to Gladstone land third quarter earnings call. At this time, all participants are in a listen only mode.
<unk> and answer session will follow the formal presentation. If we had what should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference being recorded I would now like to turn the conference over to your whole, David Gladstone, Chief Executive Officer, and President. Thank you you may be.
Well. Thank you for that nice introduction this is David Gladstone.
Welcome to the quarterly conference calls.
Gladstone land and again, thank you all for calling in today. We appreciate your take time out of your day to listen to our presentation.
First going to start with Eric Eric is in the office today from Michael La County.
Eric is our Deputy General Counsel and he is also one.
One of the big guns in the fenestration side of our business.
And that's the administrator for all the Gladstone funds, Eric why don't you start.
Thanks, David and good morning. Today's report May include forward looking statements under the Securities Act of $19 33 and the.
Securities Exchange Act of 1934, including those regarding our future performance.
These forward looking statements involve certain risks and uncertainties that are based upon our current plans, which we believe to be reasonable Manny.
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 Form 10-K, and other documents we file with the SEC.
Those can be found on our website www dot Gladstone land dot com, specifically, the investor's page or on the SEC's website at Www SEC Gov.
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.
Today, we will discuss <unk>, which is funds from operations <unk> is a 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.
We will also discuss core <unk>, which we generally define as <unk> adjusted for certain nonrecurring revenues and expenses and adjusted <unk>, which further adjusts core <unk> for certain noncash items, such as converting GAAP rents to normalized cash cash rents.
We believe these are better indications of our operating results and allow better comparability of our period over period performance.
Please take the opportunity to visit our website www Dot Gladstone land dot com and sign up for our email notification service. So you can stay up to date on the company. You can also find us on Facebook keyword, the Gladstone companies and we have our own Twitter handle at Gladstone comps.
Today's call is an overview of our results. So we ask you to review our press release and Form 10-Q, both issued yesterday for more detailed information again those can be found on the investors page of our website now I'll turn the presentation back to David Gladstone Alright, Thank you Eric.
We start with a brief recap of the current farmland holdings, we currently own about one.
108000 acres on 160 farms in.
About 45008.
Acre feet banked water all of those together.
Total about $1 $4 billion in assets that we own our farms are located in 14 different states and more importantly in 28 different growing regions in our farms continue to be 100% occupied and are leased to 82 different tenant farmers all of whom are unrelated to us and the tenant.
On these farms are growing over 60 different types of crops given the number of different growing regions tenants types of crops are farms on our farms. We think these sufficient diversification to provide for safety and security.
Cash flow is coming from the rents and lease. These this diversification helps protect.
The dividends that we're paying to our preferred as well as our common shareholders.
No guarantees in this world anything can happen in this life, but right now we're feeling pretty good about getting the money in from rents and paying it out as dividends we are.
Had another strong quarter from the acquisition standpoint, and we continue to see a decent number of buying opportunities come our way in.
In the fourth quarter, we've gotten off to a nice start.
Still have a few farms that we're working on to close before the end of the year hopefully we get them. All done has been kind of a slow year in terms of.
The pandemic has kept people out of the office and that always slows things down.
We continue to be able to renew all of the expiring leases without incurring any downtime on any of our farms and a notable increase in these renewals reflects the positive trends in all the rental rates that we're currently seeing in many regions overall.
Overall operations on our farms remains strong and demand for product.
<unk> grown our most of our farms remains relatively strong.
These are products like berries, and vegetables and nuts and.
And as anybody who goes to the grocery store these days.
Tell you.
Many of these types of food that continued to increase in price and that's good for our farmers and good for us long term.
During the third quarter the team acquired five farms.
Acre feet of banked water or total price of about $62 million.
In addition, right after the quarter end, we acquired two more farms.
Approximately 2000 more acre feet of bank of water or total of about $46 million.
So we have new investments of about 108000.
$108 million from last time.
Overall initial net cash yield to us on these are about five 5%.
In addition, all of the leases on these farms contain certain provisions such as participation rents or annual escalations that should push that figure higher as we go forward in the future.
As a reminder, this banked water is water that we own but.
They stored in the local water districts, we can use the water that's in these districts.
On the farm located in Kern County that sub basin, where the water is where we have several farms and we can sell it to a third party or we can use it on our farms.
Our plan is to hold the water to keep as a safeguard for our own assets in the region.
Currently we are not using any of it using the water that we have.
From the wells that we have on the farms in the past they say they have not used any of it they kept buying a little bit.
So when it came time to sell they wanted to sell us the same insurance for water that we have in these wells.
All of our farms currently have enough water, but we like the security of having extra water.
On the leasing front since the beginning of the third quarter, we executed 10 lease renewals and.
From properties, located in California, Colorado, Florida, and Michigan overall these lease renewals are expected to result in an increase in annual net operating income.
I have about 227000 or about 8% over the prior leases that we had.
Looking ahead, we only have three leases scheduled to expire in the next six months, so they make up less than 2% of our total annualized lease revenue.
We are in discussion with existing tenants on these farms as well as some potential new tenants.
And we aren't expecting any downturn downtime on these farms overall, we continue to expect the new leases on these farms to be relatively flat from where they are today there are a few.
Other items I'd like to touch on before we move on the first one is going the ongoing drought in the west.
Some recent record breaking rainfall parts of California.
Certainly in Oregon, and Washington, they've gotten good amount watered down on the farms, but they also have gotten.
Many feet of snow in the mountains and when that snow melts it feeds.
All of the farms in the valley.
However, all of our properties continued to be in a position where there is currently ample water to complete both the current crop in next year's crop.
Where we have farms located in water districts those districts have stored water or other supplemental sources to cover our farms for the short term almost all of the farms out west have well sites and most of them rely on ground water as their main source of the irrigation for.
For these properties, we are seeing a typical seasonal dropping out of the water table table levels.
And.
So we haven't had any of course that has gone dry.
And all of the farms currently have pumping capacity cover their crop needs.
One thing you should know is that wet and dry weather cycles are the norm out west those of you here in the Midwest or in the south.
It is something that you would know how to handle most likely but.
It's very difficult in the west, especially California throughout any long term investment we know that we're going to have both drought periods and wet periods. So when we underwrite a potential investment out west we look for properties with multiple sources of water we build in droughts in.
<unk> is in our projections and we also take into account potential government regulations, because sometimes they just come in and say, we'd like you to pump, 25% less water out of the ground.
We've done that and we've done a good job.
Keeping the government happy with our water.
We continue to expect a strong year in terms of participation rents I think this will be the largest year we've ever had.
We record recorded about $2 4 million in participation rents each of the past two years and we're expecting a sizeable increase.
And that amount for 2021, no guarantees, but thats, what we are projecting right now and this is mainly due to having several more farms with participation rents this year.
We recorded about one 8 million participation rents so far through the third quarter.
People have begun to pay and give us good projections, so we're bringing in that money now.
Guarding the progress on our ESG policy, we continue to work on developing a formal policy related to disclosures that we continue to think are relevant and we will continue to update you on this as we get closer to finalizing these policies one of our problems on ESG is just finding someone who can.
Identifying say we've done it correctly theres a lot of fighting on Europe over what.
Constitutes some of the ESG policies.
Finally, I want to again briefly mentioned that Gladstone acquisition, it's our spec.
Recently filed and reiterate that relationship to Gladstone land. It has a little over $100 million in cash in it now and as mentioned in previous calls we sometimes come across farms, one farm owners, who don't want to sell just their land they want to sell both their farm land and their operations as a package.
Deal.
As you know a REIT like Gladstone land is limited and the ability to own operating companies because operating income is generally not permitted in our real estate investment Trust.
So Gladstone acquisition was created to potentially take advantage of such opportunities. We're looking at a couple now we have not signed anything and so theres been no press releases on it but stay tuned.
Here, what we do there.
I'm going to stop at this point on operations now I'll turn it over to our Chief Financial Officer Lewis Parrish.
To talk to you more about the numbers that he published last night.
Thank you, Dave and good morning, everyone.
Again with our balance sheet during the third quarter, our total assets increased by about $60 million due to new acquisitions, which were financed with a mix of debt and equity proceeds.
During the quarter, we secured about $31 million of new long term borrowings at a weighted average rate of 275%, which is fixed for the next 10 years.
On the equity side since the beginning of the third quarter.
About $86 million of net proceeds through sales of our common stock under the ATM program.
Presenting a net cost of capital of $2 three 5% with our recently increased dividend.
And over the same time period. We've also raised about $22 million of net proceeds from sales of our series C preferred stock.
Moving onto our operating results first I'll note that for the third quarter. We had net income of about $1 5 million and a net loss to common shareholders of $1 6 million or $5 two per common share.
On a quarter over quarter basis, adjusted <unk> for the third quarter was approximately $5 3 million compared to $3 7 million in the second quarter, an increase of about 41%.
<unk> share was $16.06 in the third quarter versus $12 six in the second quarter, an increase of 32%.
Dividends declared per share were about $13 five in each quarter.
Primary driver behind the increase in <unk> was in it was additional participation rents recorded this was partially offset by an incentive fee earned by our adviser during the current quarter.
During the third quarter, we recorded about $1 $8 million of participation rents versus only $19000 in the previous quarter fix.
Fixed base cash rents increased by about $1 million or 6% on a quarter over quarter basis, primarily driven by additional revenue earned from recent acquisitions on.
On the expense side, excluding reimbursable expenses, and certain nonrecurring or non cash expenses, our core operating expenses increased by about $1 $1 million, which was driven by higher related party fees.
The quarter over quarter increase from related party fees is reflective of a higher rate used to determine the base management fee rate, which became effective on July one and.
And includes an incentive fee of $945000 earned by our adviser during the current quarter versus non earned in the prior quarter.
Removing related party fees, our core operating expenses decreased by about $250000.
This decrease was primarily driven by lower property operating expenses, which was largely due to less water costs incurred in one of our properties in Colorado and reduced annual filing fee.
As well as a decrease in our general and administrative expenses due to due to the additional costs incurred in the prior quarter related to our annual shareholders' meeting.
Regarding the additional water cost in Colorado the impact on the current quarter's numbers was about $260000 or <unk> <unk> per share down from about $350000 in the prior quarter.
We currently anticipate incurring an additional 100 to $150000 during the fourth quarter for these water costs, but we do not we do not currently anticipate continuing to incur these costs beyond 2021.
Moving on to net asset value, we had 37 farms revalued during the quarter.
All via third party appraisals, except for three farms that were valued internally.
Overall these farms increased in value by about $2 million over their previous valuations from a year ago.
So as of September 30th our portfolio was valued at just over $1 3 billion all of which was supported by either third party appraisals or the actual purchase prices.
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 at September 30th was $13 80.
Which is up by 64 from last quarter.
Turning to our capital makeup and overall liquidity from a leverage standpoint, and with respect to our borrowings our loan to value ratio on our total farmland holdings on a fair value basis, and net of cash was about 44% at September 30.
Over 99% of our borrowings are currently at fixed rates and on a weighted average basis. These rates are fixed at 335% for another six years out.
So we believe we are currently well protected on the debt side against any future interest rate volatility in.
In addition, the weighted average maturity of these borrowings was about 10 10 years out.
Regarding upcoming debt maturities, we have about $43 million coming due over the next 12 months, however, about $27 million of that represents the maturities of eight loans coming due.
The eight properties collateralized. These loans have increased in value by a total of $14 million since their respective acquisitions.
We do not foresee any problems refinancing any of these loans, if and when 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. In addition to over $100 million of Unpledged properties.
We have ample availability under our two largest borrowing facilities and we continue to be in discussions with these and other lenders for new borrowings and credit facilities.
But overall credit continues to be readily available to us for multiple lenders and at very favorable terms.
Finally, I'll touch on our common distributions, we recently raised our common dividend dividend again to $4 $5 <unk> per share per month.
Over the past 27 quarters, we've raised our dividend or common dividend 24 times, resulting in an overall increase of 57% and our monthly common distributions over this time.
Since 2013, we paid 105 consecutive monthly dividends to common shareholders totaling $5 39 per share in total distributions.
Peyton paying dividends to our shareholders is paramount to our business plan and our goal is to continue to increase the dividend at regular intervals.
When considering the relative to build stability and security of the underlying assets and the related cash flows. We believe the stock continues to offer a compelling investment alternative, especially in light of today's inflationary concerns and with that I'll turn the program back over to David.
Alright. Thank you Louis is a nice report and Eric gave us a nice introduction. So we're gliding along here acquisition activity remains good for US we continue to see buying opportunities. We continue to make offers we sign up people.
And get them into a position that we can go forward and close them.
And then a little bit slow in the marketplace out there simply because.
People are still reacting to the COVID-19.
Just a few final points before that I'd like to make before we moved too far on we believe that investing in farmland growing crops that contribute to healthy lifestyles, such as fruits and vegetables and nuts.
Following the trend that we're seeing in the marketplace. Today currently about 85% of our total crop revenues come from farms growing the types of food that you would find in either the produce section or the nut section of your local grocery store. So if you want to see what we grow just go to the grocery store and Youll see it we consider that.
These foods to be among the healthiest type foods, and we continue to see a growing trend toward organic among these food groups about 40% of our fresh produce acreage is either organic or transitioning to become organic.
And about 15% of the permanent crop acreage falls into this organic character category.
We believe the organic sector with continued to be strong as.
Very strong growth area and additions more than 95% of the crops that are grown on our farmland is classified as being non GMO.
Another major reason our business strategy is to focus on farmland growing fresh produce is due to the effect of inflation in that particular segment. According to the bureau of labor.
The Bureau of Labor the overall annual food CPI generally keeps pace with inflation.
This is why so many financial advisors tell their clients to invest in farmland.
Because it acts as a hedge against inflation. However over the 40 plus years, the fresh fruit and vegetables segment of the food category has outpaced total food CPI.
Multiple of one five times and this is a large reason why we like being in this segment as well and while prices of commodity grain crops, such as corn and wheat are typically more volatile volatile and susceptible.
Global supply and demand fresh produce is mostly insulated from global volatility mainly because the crops are generally consumed loci locate locally and within a short time after harvest and <unk> got about 14 days to get a strawberry off the buying into somebody's mouth before it goes bad.
I'm, telling you this because we're often confused with owning farms, where farmers grow corn soy wheat, and we have mostly stayed clear of these crops. Because we have to compete they have to compete with other countries like Brazil, Argentina, the Ukraine, where cost of production even after shipping cost is very low.
And those farmers can undercut the prices of grain farmers in the U S. This year grain prices have been much higher in the United States, but one reason and that's because Brazil, and Argentina in a very difficult drought situation.
Farms in these countries largely depend on rainfall water.
So 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, and Washington, and not to forget East Coast, especially Florida and some of the other states on the East coast.
<unk> is going along at a good pace and overall farmland continues to perform well compared to other assets.
There is an association called decrease and it has a farmland index and is currently made up of about $13 2 billion worth of our agricultural properties, including all of ours and.
And Thats average return of about 12, 3% over the last 20 years compared to 11% for the overall REIT index and lower for the S&P index.
And during those 20 years. The farmland index has not had a single negative year yield, whereas the REIT index and the S&P index I've had four negative years over that same period.
Farmland has generally provided investors with a safe haven during turbulent times and in financial marketplaces.
Both land prices and food prices, especially for fresh produce have continued to rise steadily.
So just in closing please remember that purchasing stock in this company is a long term investment in farmland.
<unk> investment in our stock really has two parts, it's similar to gold in a sense that it's a hard asset farmland are dirt.
It's the good farmland that can grow food it hasnt intrinsic value because there's a limited amount of good farmland and it's being used up by urban development, especially in California, and Florida, where we have many farms.
And I'd like to compare gold and other alternative assets, because it's better than those because it's an active investment with cash flows to investors and we believe that's better than a bond fund because we keep increasing the dividend.
We expect inflation, particularly in the food sector to increase.
And increased two values that.
Pump up the value of underlying farmland to increase as a result.
And we expect this especially be true of fresh produce.
Food sector, the trends of more people in the U S are eating healthy foods continuing to grow.
Such products for distribution through.
And Gladstone land land would not be anything without the good people, we have operating and managing it.
And leasing farmland is a complex business. If you like what we're doing please buy some stock and keep eating fresh fruits and vegetables and nuts now, we'll stop and have some questions from those who follow US operator would you. Please come on until these people how they can ask some questions.
Thank you at this time, we will conduct a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
A confirmation tone will indicate your line is there any question in queue.
Press Star two 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 once again Thats star one at this time, one moment, while we poll for question.
Our first question comes from Rob Stevenson with Janney. Please proceed.
Good morning, David where is pricing for farmland today versus a couple of years ago pre pandemic. When you look at similar properties are we up 5%, 10% flattish how do you sort of characterize it across your various sort of property types and.
Markets.
Yes, if you are looking at the Midwest, which is most often the one that's published it's gone up pretty substantially this year simply because people are making money.
They are also buying lots of tractors and those kind of equipment and the areas that we're in that's been sort of a steady increase over the last 10 years and certainly over the last three or four years as people have realized that there's other things other than corn and wheat.
That are growing and I would say there has been.
Good <unk>.
15% increase over the last three years.
Okay.
And then given how hot the housing market is have you guys thought about selling some of your land to homebuilders and some markets, where it's bumping up against the farms.
We have a few farms that are inside of there.
The areas like in California.
You can't just sell your land to a developer and develop our goes often builds what he wants to on it in California do you need to get the local city you have to be inside the city districts.
So if youre in Watsonville do you need to be inside of the town limits for Watsonville and then the local government.
Officials can make that decision if you're outside of that.
You have to put it on the ballot for voting and if you've ever seen a valid for California, they're about four feet long. They are really a lot of things on those ballots and one of those would be I want to take that lot. That's right next to the.
Alright next to this one or that one and build houses on it and they always get shot down California's are not interested in building more houses.
And so you have California, pushing now to take neighborhoods and tear down the houses and build.
Apartment buildings are condos something in order to increase the amount of land that's being used for <unk>.
For that.
Its really rough in California, they are probably 15% under house built Ara.
Places to live in.
They just can't seem to get out of their own way in terms of regulations.
I know a lot of farms that we have one right inside of Watsonville.
Small.
Mostly bluebird now mostly strawberries in that.
And I think some day someone will show up and want to buy that but that's not going to be a big hit is going to be a nice hit.
They havent shown up yet and one reason is quite frankly.
Strawberry fields are in an area that is not the best part of town. So as a result, we have a lot of old houses around it and they havent done much changes and.
Unlike a lot of cities in California, there's not a lot of people who are moving to watsonville. So as a result, we haven't had the pressures that you would have if we were next in Los Angeles, or San Francisco or even some of the other large cities. So I would say one day someone will show up in one of our Big farm, which is its trough.
<unk> 500.
500 acres.
And it's right next to the Ocean and somebody is going to be able to get that through.
And build on it because it's an hour and 20 minutes to lay eggs and that's going to be a big one we paid about $25000 in total for everything on that farm.
It's probably worth $80000 an acre today and if you could zone. It it would be worth a million and a half dollars an acre if you could put down on it so.
So yes, someday all you're lucky people after I'm gone.
I enjoyed the benefits of us selling some of these farms right now we're not interested in selling anything what we want to do is build an incredible company with lots of farms and try to catch up with some of the other big farmers in the United States.
As you well know.
Man is in.
And the.
Really not in the business anymore, but he is buying up a lot of land around the country has got about 230000 acres.
And he has the largest farmer and.
We need to catch him.
<unk> since he is using tax free dollars to buy farms.
But I think we're in good shape Robin I think we're just going to continue doing the same thing every day for the next 10 years until we get a really big farming operation going.
Okay, and then last one for me.
The.
Acquisition vehicle.
Are the opportunities you're looking at there going to be too big for a taxable REIT subsidiary.
Is that the reason why youre going that route rather than just putting any of the operations until a taxable REIT subsidiary for the time being yes, they're too big and they had overshadowed everything and as you know if we bus that.
Regulation, we are out of the REIT business for five years.
So I don't want to break it and so thats why we are there and we keep getting these opportunities showing up and saying we'd like to sell the whole thing and we say well hang on and as we get public we will be able to distribute some of the $100 million that we have in that.
Spak and also gave you some publicly traded stock.
We are wishing we're working on some now we've got some in here and Windsor acquisition.
Call then we have a date.
So we don't yet we don't have a date yet okay I know he's filing next week.
Isn't it.
No it hasnt been the case.
So it will happen soon youll get a copy of it obviously, Rob and maybe by then we'll have something a little more firmed up I don't think its going to be a problem finding things to buy we've seen a lot of those and what we want to do is by several.
Relatively large ones and.
And start out as a diversified group rather than one that just does one thing.
And then continue to buy smaller farms and operations and have a good operating team. We don't have an operating team now we'd have to tap one of our tenants to do some of that but I don't I don't know how all of that's going to work out until we buy the first couple of farms.
Okay. Thanks, David guys I appreciate it.
Next question.
Our next question comes from Eddie Rally with F. Hutton. Please proceed.
Hey, guys congrats on the strong quarter.
This is the second quarter in a row, where lease renewals will contribute to over 10% and growth in operating income is.
Is this more indicative of the individual farms, whose leases were renewed or is this indicative of the general environment were in terms of inflation you think.
We think it's a little bit of both I mean, obviously there are.
Certain pockets in the country, where if we were renewing leases in those regions.
Might be more muted increase or maybe even flat but.
With a couple of farms that we have.
Negotiating where there's where those negotiated and negotiations are taking place.
In Northern California, Michigan.
Parcel at certain parts of Florida, Midwest, and Thats, where were seeing rents in those particular areas are increasing slightly particularly in the Midwest as David mentioned with the commodity prices this year.
But Florida has been a pretty strong market consistently.
In central and Northern California has southern California cap rates have compressed a little bit there but.
None of our lease renewals have have them.
<unk> been that area lately, so it's a little bit of both.
Got you got you and where are most of the.
Lease renewals in the upcoming year taking place.
In the rest of 2021 is just one farm.
We have three leases in 'twenty, one that are that are expiring over the next well I guess actually over the next six months three leases, but two of them are our tenant termination options that are exercisable within the next five days.
We do not believe that tenants going to exercise the option on either one of those so it's really just one renewal that we're working on.
On a farm in Colorado that.
We're close to finalizing negotiations with a tenant the gross rent is likely to remain flat, but we we are expecting a significant decrease in the amount of operating expenses, we will be able to hook for us. So we would expect.
Hopefully an increase in the NOI for us there.
Got it got it.
Turning to financing and it seems like you guys have a pretty healthy loan to value ratio right now.
Can you talk a little bit.
How about your plan of action for finding new deals going forward.
Well, we have three ways of generating funds for that one of course, he has touched on and Thats. The borrowing there are lots of lenders in that.
Agricultural space.
And in the U S. We have I think theres five federal large banks that do lending and we've used them pretty.
Pretty much every time, we also have a couple of large institutions.
<unk> Bank is the largest in the world in terms of agricultural lending, we've done a little bit with them, but not a lot.
And in addition to that we've got.
Metlife is the largest in the United.
Mid states and we've done deals with them, so theres plenty of leverage and it doesn't seem to be impacted by banks that might have problems. So.
We're in good shape. There. We also sell some preferred stock. He has got a number of those outstanding and we participate by selling non traded preferred that's more expensive, it's about 6%, but we use it when we need a little extra leverage so it's that kind of situation.
And quite frankly, the ATM program has been very strong what have you got from that.
Got about $86 million over the past four months or so so we've been selling stock through that ATM program and using it to buy.
Bye bye farms that are generating 500% to 6%.
So after leverage we've got a good ratio and.
The nice thing about leverage is that it doesn't go up until the end of it and we've got long term mortgages on these things. So as a result, the spread is sort of locked in for years and years and years and so for us.
The next movement for us is going to be to <unk>.
Raised money some other way and I don't have any other way right now but all.
All of those that I mentioned are.
Just wonderful places to get leverage now that's going to change over time and that will reduce how much we can pay for a farm and all of these farmers know that so we've had good transaction with them and as you probably know we do from time to time have people that'll take up REIT shares that is.
And Thats, a non taxable transaction, whereby we give them shares of our stock and they give us their foreign amendments.
It's quite nice for them and for us because that's another way of raising equity.
So we're in good shape on the financial side, we don't see any problems unless something blows up in.
I don't see that happening.
Now.
Got you got you and I will add.
The use of <unk>.
Some of the sources that David mentioned in the past, where we would almost always get alone simultaneously with the acquisition with all of the equity proceeds that we've that we've been able to bring in what we've been doing and we will we probably will continue to do is.
By these foreigners with equity proceeds and then close on a loan but not draw until later, we want to close on it now because interest rates are.
Very attractive is as we said earlier, we got $2, 75% fix that for next 10 years this quarter.
But we want to lock in these rates, but not drawing them yet until late down the road when we actually need the additional proceeds.
Okay, great that makes sense. Thank you guys.
Other questions.
Our next question comes from Eric Bolton with Bamberg Capital. Please proceed.
Hey, guys good morning.
Kind of.
Could you talk about the volumes in the quarter, what was kind of the mix in terms of deal size there.
And then kind of maybe going forward given your favorable cost of capital, what's what's the appetite to target larger deals maybe portfolios out there in terms of farmland.
Yeah, they're not that many that come up with big farms.
Other than the fact that the farms continue to go up in price in some areas. So.
I think we'd love to get some big farms.
5000 acres would be great. If it can find acreage here and there and everywhere. We also want diversification so getting one huge farm like we have in southern California.
They are not that many people that can lease it we've.
At least it to one of the largest strawberry operators in the country.
Sure.
They are a strong big lots of lots of cash flow. So we like that but you get to these much larger farms. There arent that many farmers that can take down that much. So we have to be very careful not to get in a bind whereby we have a large farm.
We don't have a tenant.
So we like the onesie twosies there not a lot of players there.
That's our forte is being able to negotiate those and offer the seller.
A good price for the farm, but also tax free if they want to do the right transactions.
We will keep doing what we're doing in the diversification is really important for me I don't want to get into a situation where we've got.
Couple of big farms that are going to hurt us.
No I appreciate that.
And then maybe on the acquisition front kind of historically Q4 seems to be.
A key time to acquire farms, but given given the constraints as it relates to Covid do you think youll see more farmers come to market in Q1 or will there be some some rollover there into the new year.
Probably I would guess, we never know if they're going to be able to close on time, we had one situation in which after the.
The review of everything we've found that.
We were about a half of our acreage or maybe it was more on somebody else's farm that we were that the farmers farming and we had to get that done before we close.
Of course, that's got to go through the government in California. So that's always a pain and not that they are bad people is just that COVID-19 has messed up their scheduling and so as a result, we get.
Don't get really quick response on that so you sit for a while waiting for it to close I think the bottom line Eric is that we.
We are known in the marketplace now we were not known five years ago very much in so now everybody knows who we are that's going to sell a farm and so they show up on our doorstep.
We are just sitting there working with them trying to get them to move to a point, where we can get the deal done and.
Unfortunately, a lot of these farms are tied up in history that as it's been in the family for five or six generations.
And Theres a lot of emotional.
And the sale of that.
<unk> is one of those things that it's been in our family for six generations are three generations whatever it is and they don't want to let it go for what its really worth.
To somebody who's farming, it and while we can always agree to look at.
Somebody doing.
Third party doing the review.
It doesn't mean, you're going to get the farm just because you got to review it.
There's a lot of things bundled up into that.
There is a lot of farms out there in California, its massive in terms of the areas that we like which is berries.
I think most of the nut trees are out there certainly in almonds.
That shows.
We've picked up a lot of pistachio farm, because there weren't a lot of people buying those in.
Wonderful product.
So I don't know acquisitions are going to go at the pace that people want us want to go and I know I talked to a guy 10 years ago trying to buy his farm and.
Unfortunately for him. He died and we bought it from his sister who inherited of that since you didn't have the same emotional impact and that went back to $19 38, where they sold off the <unk>.
Oil and gas underneath the farm.
So it was a little bit different transaction I. Just think there is a time when people decide to sell.
The pandemic pushed some by some people along.
Others once you talk to them and say look.
Sure.
65 years old do you have a plan for your farm and they don't usually so we show them how they can do it and we talk with some of the.
The people that advised farmers on what to do and they see the non taxable away or going and here's the difference between.
That.
Program that we have is that farms that might be two or 300 acres are broken into maybe six or eight different tax districts and so as a result, each one of those taxable pieces is considered a farm by the IRS and so they can sell us three or four.
Four of those and take cash and sell the other two or three in the form of.
Cash noncash and.
Shareholder we've had a number of those where they wanted to take some cash out and this is one of the only places that I know that works like that because if youre buying aware.
A warehouse some place it's one unit and so you've got to be very careful how you do that.
I think there is only a 10% amount that you can pay in cash if the other part of it is.
As in non taxable.
Ed.
The pressure that's been put on the marketplace.
The reduction in 10 30 ones value.
Because the government has changed the way that works has been good for us and I think we will see more of that as time goes on.
Anyway, if you.
Talk to some of these advisors.
Farmland is where you want to be but having a whole lot of money tied up in one farm is not where you want to be.
Only a few things you can do with it.
The other question.
Last one for me and then just kind of relates to.
Potential development opportunities I know in the past to kind of talk about potential deforestation around the farm lands.
Certain farms and I was just curious is that potential does that arable land.
To give you an opportunity to.
Increase the acreage per farm or is that really not how I should be thinking about it.
Probably not the way to think about it only because the.
Deforestation is up in the mountains and we don't grow anything in the mountains. So.
Part of that whole problem, and it's really sad people burned down had burned down houses.
A lot of trees have been loss that were up in the mountains, but at the end of the day.
<unk> for US is we just need good flat farmland and Thats what were looking for.
So I think from our standpoint.
You shouldn't look at it that way you should consider it.
G. They've got some farm land the farmer is going to sell it.
Sometimes have taken a small plane from.
Watsonville down to Oxnard, two small airports you can go through.
As you fly over that that part of the world.
It's just everything is in farm land that isn't in houses and so over time.
There's no doubt in my mind that over time, those places will go away they used to be.
In Watsonville is a company that you probably know it's that sparkling.
Apple juice.
Non alcoholic drinkers strength at it.
In place of Champagne.
They've been around forever, and a day and all of that farm land that we farmed there in watsonville plus.
<unk> of other acreage used to be.
Bill with Apple trees, and those all got chopped down and put into berries and some of the other ground crops because it was much more profitable.
And they now get a lot of their apples from up in the mountains of Washington, maybe.
Some of the other Apple tree makers and so it is just the changing thing that goes on.
Most every day out there.
And we're seeing more and more people.
Needing place to live and so it's going to continue with pressure.
On all of those places.
I don't know Eric.
We just are following huge transition and land from agricultural to.
Places to live it won't happen in my lifetime completely bug.
I'd say 50 years.
A lot of that will be gone.
And that will be cashed in by us and other people who own farms.
So.
Hang in there.
Right.
Sounds good. Thank you guys appreciate it.
We have any more questions.
Our next question comes from James Villard with Ladenburg Thalmann. Please proceed.
Good morning, guys.
Good morning.
Just one quick one.
One quick one how do you think inflation expectations are impacting your acquisition volume.
Yes, it may be some there obviously inflation and berries.
Other ground crops are.
Steep right now and so the farmer is making good money and he wants more money than he wanted before so yes, it's following through.
The difference is that a lot of the leases that we have in place now go up in price when inflation goes up so it helps us we have <unk>.
Stopping points as we call. It we're in three years or five years, we assess the marketplace and to the extent that the marketplace has gone up we are able to push up the price of our rents.
We also have.
As we've mentioned many times now.
Ownership in some of the crop and as the crop prices go up we benefit as well on that so we've kind of sheltered ourselves from inflation, we're not in the crops that.
That people rent by the year for example, a lot of the corn crops are rented on an annual basis and they of course have a chance to Jack up the rent every year.
We've tried to stay away from that and just put some bumps in there for us and all of ours have some kind of way of the price going up and it's it's worked very well I think there is always.
Tension between what you want to do on something like that.
Because if the prices of the crop go down our rent doesn't go down so we only have a chance to move rents up rather than any.
Any other method.
Unlike many of the other Reits.
We have built into our leases.
2% increases every year, 3% increases every year and that pretty much takes care of the way inflation's going however.
At the rate of the last six months.
That would be stripped away pretty quick so inflation could hurt us unlikely at some point in time, we will regain our strength back because of the lease will come due and that's when we would push up the price I think the acquisition side inflation on the acquisition side.
He has taken care of by the fact that people want to sell they want to sell for no taxes or they want to sell and lease it back with some kind of inflation protection for us and for them that they know what theyre going to have to pay over the next five to 10 years.
In the sense that they have a base rent and it related.
Piece of the rent.
I don't know Theres not many ways to protect yourself, we go through that with our other REIT, which is in the business of buying warehouses and office buildings that are leased to tenants.
Those are all long term leases with bumps every year that seems to be okay, but I think youre right. There is some hurt.
Against us being able to buy some properties, we looked at a farm in Oxnard not too long ago that was growing.
Some very inflated types of crops and so as a result, they wanted more money for it they also and in an area.
Youre in Oxnard, you're within striking distance of that law.
I think all of that land will be sold over time, I remember going over from La <unk>, some years ago and I arrived at and.
In the afternoon, and twinkling lights, where very few 10 years ago today you'd come over that.
Hill Thats, just before you get the Oxnard and there are a lot of light. So they are building houses there theyre building this that and the other and so it's going to it's going to grow it's just too close to la not to grow so we're going to see that pressure on those properties as well.
Sure.
Anything else I can answer for you I guess.
Just kind of following up on that are you seeing any.
I guess in the negotiations you are having.
New potential leases are you seeing more pushback on your ability to get percentage rent agreements.
No I don't think so I think we always theres a dance that goes on between buyers and sellers and we're no different from anybody else theyre pushing whatever they think they can get their.
Which they should do but I think the negotiations go pretty straightforward most people have already heard about us they've already read about us.
Probably some shareholders that.
Come with their land, but.
I think negotiations go pretty straightforward in some sellers as I mentioned in another part of the presentation have an emotional attachment to the land.
And they just don't want to sell it at the average price thats going on.
They have their their whole history I know when we bought a farm in.