Q1 2022 Gladstone Land Corp Earnings Call
Greetings and welcome to the Gladstone Land Corporation 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.
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It is now my pleasure to introduce your host Mr. David Gladstone, Chief Executive Officer, and President. Thank you Sir. Please go ahead.
Okay. Thank you Donna has nice introduction this is David Gladstone and welcome to the quarterly conference call for Gladstone land.
Yeah.
Mr Gladstone.
He seemed to foster audio can you. Please make sure your line is not on mute.
We're in terrible shape. This morning, leaving it on mute. So thank you Donna for that nice introduction. This is David Gladstone and welcome to the quarterly conference call for Gladstone land and thank you for calling in today. We appreciate you taking the time to listen to our presentation and we're looking forward to some good questions, we'll start with Michael Okay.
He's our general Counsel and Secretary and he is also president of Gladstone administration. So Michael take it away. Thanks. David Today's report May include forward looking statements under the Securities Act of Nikes and three the Securities Exchange Act of 1934, including those regarding our future performance.
Forward looking statements involve certain risks and uncertainties that are based on our current plans, which we believe to be reasonable and 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 the risk factors in our forms 10-K, and 10-Q and other file documents, we filed with the SEC can find them on our website spin.
Typically the investors page of the website, an ethic Gladstone land dot com or on the SEC's website, which is SEC Dot 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 discuss.
<unk>, which is funds from operations, if I was a non-GAAP accounting term defined as net income excluding the gains and losses from the sale of real estate and any impairment losses from property plus depreciation and amortization of real estate assets that we may also discuss core F. F O, which we generally define as <unk> adjusted for <unk>.
Certain non recurring revenues and expenses and adjusted <unk>, which further adjusts core <unk> for certain noncash 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 performance, we SBA take the.
The opportunity to visit our website once again Gladstone land dotcom sign up for email notification service. So you can stay up to date on the company can also be found on Facebook keyword, the Gladstone companies and Twitter at Gladstone comps today's call's, an overview of our results. So we ask that you review our press release and 10-Q.
Both issued yesterday for more detailed information again, there on the investors page of the website with that I'll turn the presentation back to David Okay. Thank you Michael It start with a brief overview of our current holdings, we currently own approximately 113000 acres of farmland.
That's on 162 farms and we also own about 45000 acre feet of bank water valued at in all three of these together bank.
Water as well as all of these farms are worth about 1.5 billion and our farms are located in 15 different states more importantly in 29 different growing areas.
Our farms continue to be 100% occupied and are leased to 86 different tenant farmers all of whom are unrelated to us and the attendance on these farms are growing over 60 different types of crops given the number of different growing regions tenants different tenants in different types of crops on our farms.
We think this is sufficient diversification to provide safety and security for the cash flows coming in from the rents. We believe these diversifications helped protect the dividends that we pay to our shareholders.
After closing nearly $150 million of farm acquisitions in the fourth quarter of 2021 last year, we'd be we've been pretty quiet on the acquisition front. We're here for the last three months, but.
Things are picking up for us in the last six or seven months of this year, which you should see our typically our most active periods, you'll see us close some deals and we.
We announce each one of those as they come to fruition.
However, largely as a result of those acquisitions last quarter and aided by interest patronage received from the farm credit people that we borrow from we did have another strong quarter from operational standpoint.
We're coming off a year in which we reported $5 $2 million of participations from our last rent from from last brands and we have a few more farms with participation rents.
Revision scheduled to come online for this year that we didn't have last year. So we're optimistic of being able to report a good result for 2022.
Or are these numbers are largely dependent upon the yields achieved in the farms the prices at which the crops are sold so we'll need to wait until later in the year before we can estimate and announce those figures.
To continue to be able to renew all our expiring leases without incurring any downtime on any of our farms Ah. That's what we did and we're hopeful that we can continue to do that.
As for farms on our primary regions of focus this is along each of the coast, we continue to execute renewals at higher rent levels.
Upon a change of a lease structure as we did on one of our farms. It hurt our income a little bit, but we'll go over that in a bit overall operations on our farms remained strong and the demand for products growing most of our farms remains high these are products like berries, vegetables and nuts as any.
Body, who goes to the grocery store can tell your prices on these products continue to rise.
One reason, we've been less active with acquisitions. So far this year is because we.
Being more selective we are being much more selective in the types of firms that we're looking at right now.
In light of all the economic uncertainties surrounding our nation right now we believe it's a good time for them to be more conservative with our capital. So we're trying only to look at acquisitions that we feel are far safer than investments for us than some of the others that are out there.
And this benefits of course, our shareholders.
On the leasing front since the beginning of the year, we we executed seven lease renewals.
Properties located on four different stage overall. These renewals are expected to result in a decrease in the annual net operating income of about $580000.
Primarily due to one of the leases.
Other than that we're in great shape. The result of this one lease renewal on our property, which we invested $560000 to cover a portion of the phones operating cost in exchange for adding a significant participation rent component to the lease.
The tenant there wanted to see how it works before he signed a long term fixed rate lease. So we're going to get 80% of the gross revenue earned on the farm. This year based on <unk> current commodity prices.
And yield estimates, we think we will end up in a similar place where we would've been in the previous lease on this farm, but we will not know the results until the end of the year. When the crops are sold excluding this one lease or other leases renewals are expected to result in an increase in annual net operating.
Income of approximately 55000 or about a 3% increase over the old leases that we replaced looking.
Looking ahead, we only have one lease scheduled to expire over the next six months it makes up less than one half of 1% of our total annualized lease revenues.
We're in discussions with the existing tenant on the farm as well as some potentially new tenants and we arent currently expecting any downtime on this one we currently expect that the new lease on the farm will be relatively flat, maybe up a little bit where it is today.
There are a couple of other items I'd like to mention before we move on first one.
As the ongoing drought in the west despite some record breaking rainfall in the western United States over the winter, including a relatively wet.
April the entire region continues to deal with multi year drought. However, all the properties continue to be in a position where our farmers currently have enough water to complete certainly the crop for this year and I think we'll be fine in the years going forward.
Where we have farms located in water districts those districts do have stored water or supplemental sources to cover our farms you have to buy the water now as you know we have a lot of water that we have in the ground that is ours almost all of our farms have wells on site and most of them rely on.
Ground water as their main source of irrigation.
For these properties, we are seeing typical seasonal droppings and the water levels of the water in the ground. One thing you should know is that wet and dry weather cycles are the norm out west, especially in California.
Any long term investment we know that we will have both drought periods and wet periods. So.
When we underwrite any potential investment and when we look for properties with multiple sources of water, we build in drought scenarios and we also take into account potential government regulations that might ask us to reduce our water consumption.
Regarding the progress around ESG. This is something new for us we're continuing to work on developing a formal policy related to disclosures.
We consider to be relevant there arent any companies out there or any Reits out there that are similar to ours. So we've not seen anybody announce anything that would be good for what we're doing these days, but just so you know several of our farms have large solar arrays on them that are used to power the operations of the farms and when.
We've been in discussions with groups to add wind power and solar leases onto other farms as well.
We just always want to be careful that these additions arent going to disturb our current tenants on these farms because after all of these current tenants on our primary business partner.
Finally as mentioned on our previous calls, we sometimes come across farmland one.
Owners, who want to sell both their farmland and their operation.
As a package deal as a real estate investment Trust Gladstone land.
Can't take operating income because operating income is generally not permitted in real estate investment Trust.
Do have some additional things that we're doing to potentially take advantage of such opportunities.
We're at Gladstone land could not participate.
I'm going to stop here and it's really enough of the operating day to day, So I'll turn it over to our CFO Lewis Parrish to talk to you more about the financials.
Alright, Thank you David and good morning, everyone I'll begin by briefly reviewing our financing activity.
Since the beginning of the year, we secured about $10 million of new long term borrowings from three different lenders at a weighted average rate of 318%. This rate is fixed for the next seven plus years.
On the equity side since the beginning of the year, we've raised about $10 million of net proceeds through sales of our common stock under the ATM program and about $50 million of net proceeds from sales of the series C preferred stock.
Move in moving into the operating results first of all note that for the first quarter. We had net income of about $1 $2 million and a net loss to common shareholders of $2 $7 million or seven nine cents per common share.
On a quarter over quarter basis, adjusted <unk> for the first quarter was approximately $6 4 million compared to $6 7 million in the fourth quarter last year.
<unk> per share was $18.05 in the first quarter versus $19.09 in the fourth quarter 'twenty one.
Dividends declared per share were about $13.06 in both quarters.
Mary driver behind the decrease in <unk> was $3 $4 million of participation rents recorded during the fourth quarter of 2021 versus non recorded in the first quarter of 'twenty two.
Partially offsetting this was about $2 $8 million of interest patronage or refunded interest recorded during the current quarter related to our loans from farm credit.
Fixed base cash rents increased by about $700000 or 4%, primarily driven by additional revenues earned from recent acquisitions.
On the expense side, excluding reimbursable expenses, and certain nonrecurring or non cash expenses. Our core operating expenses remained relatively flat on a quarter over quarter basis.
Total related party fees decreased during the quarter.
Primarily due to a lower incentive fee earned by our adviser.
During the current quarter. However, this was offset by increases in both property operating expenses and G&A expenses.
The increase in property operating expenses was driven by additional property tax obligations on certain properties as well as annual state filing fees have you have to pay on each of our properties.
And the increase in G&A G&A expenses was largely due to higher professional fees, particularly additional audit and appraisal costs.
Moving on to net asset value, we had 34 farms revalued during the current quarter all via third party appraisals and overall these farms increased in value by about $13 $2 million over their previous valuations from it from about a year ago.
These increases represented about a 4% increase in the value of these properties.
We especially saw strong value appreciation across the board on our California properties and that included properties growing fresh produce row crops in the central coast as well as farms growing nuts in the Central Valley.
And I think that's a testament to the job our team has done at locating farms with good sources of water that are able to withstand severe drought conditions like we are currently experiencing out there.
With water at a premium out west, especially.
These days, we're seeing values declining for foreigners that only have one source of water while prices of farms with multiple source of water sources of water are continuing to go up.
So as of March 31st our portfolio is valued at about $1 5 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.
Net asset value per common share at March 31 was $15.54, which is up by $1 43 in last quarter.
Primary drivers of this increase worthy aforementioned depreciation values of our filings as well as the impact of increases in market interest rates on the value of our fixed long term borrowings.
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 40% at March 31.
Over 99% of our borrowings are currently at fixed rates and on a weighted average basis. These rates are fixed at 3.25% for another five plus years.
So we believe we are currently well protected on the debt side against further interest rate hikes.
Regarding our upcoming debt maturities, we have about 66 million to $6 $66 million coming due over the next 12 months.
However, about $48 million of that represents various loan maturities and at properties collateralized on these loans have increased in value by a total of about $20 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 those maturities, we only have about $18 million of amortizing principal payments coming due over the next 12 months or less than 3% of our total debt outstanding.
From a liquidity standpoint, including availability on our lines of credit and another Undrawn notes. We currently have over $175 million of dry powder. In addition to $30 million of Unpledged properties.
We recently increased the size of our Metlife facility.
This gives us ample availability under each of our two largest borrowing facilities and we continue to reach out to new lenders for additional borrowings as well.
Finally regarding our common distributions, we recently raised our common dividend again to 4.54 cents per share per month over the past 29 quarters. We've raised our common dividend 26 times, resulting in an overall increase of more than 51% over this time.
Since 2013, we paid 111 consecutive monthly dividends to common shareholders and our goal is to continue to increase the dividend at regular intervals.
<unk> continues to be a stable asset class and continues to perform well in the midst of all the uncertainty and volatility currently in our markets and we continue to believe that this stock offers a compelling investment alternative, especially in light of today's inflationary and recessionary concerns.
With that I'll turn the program back over to David Lewis.
Lewis Thank you Nice report.
Acquisition activity remains good for US we continue to see buying opportunities coming our way we have a few farms that are either signed up or close to being signed up.
Hope to be able to announce some closings over the next few months, but we still have to.
Complete our diligence process and sometimes it goes very slow as youre trying to get appraisals Zen and other things that are necessary in order to close one of these investments.
Some of these properties have not been so for the last 100 years. So it takes a while to clean them up and make them good for us to buy.
Additional points I'd like to make and believe that investing in farmland growing crops that contribute to healthy lifestyles, such as fruits vegetables and nuts follows the trend we're seeing in the market today overall demand for prime farmland growing berries and vegetables remains stable to strong.
And almost all of the areas, where our farms are located particular, along the west coast, including most of California, Oregon, Washington, and the East Coast, especially Florida and some other states in the east.
And overall farmland continues to perform well compared to other asset classes.
As a farmland index of farm land prices called need Crieff Index, which is currently made up of about $14 $4 billion worth of agricultural properties, including almost all of ours as an average annual return they've been at 12, 6% over the past 20 years with no negative.
Years during that period. This is higher than both the SP S&P index and overall REIT index, both of which have had three sometimes four negative years in which they've gone down in value.
And we in the farmland business at least through knee creeps analysis and any zero years plays around with that purchasing stock in this company is a long term investment in farmland.
I think in investment in stock.
<unk> has two parts similar to go our stock is a hard asset its farmland. It's dirt that's the intrinsic value because there's a limited amount of good farmland.
Available for us and available for people to grow things in the United States, It's being used up as you know by urban development, especially in California, and Florida, where we have many of our farms to think the second thing Unlike gold and other alternative assets. It's an active investment with cash flows to investors and we would be.
Aleve were better than a bond fund because we keep increasing the dividend where a bond fund usually does not.
Remember you have the dividend process plus appreciation from the farms that we had about $13 2 million in this quarter from evaluation standpoint.
We expect inflation, particularly in the food sector to sector to continue to increase and we expect the values of the underlying farmland.
To increase as a result, and we expect to be especially true in the more.
In fresh produce food sector as the trend is more and more people are eating healthy foods to continue to grow.
Some farmland and the grain producing states.
Ones that we have a strong this year due to the lower current production.
Stuff from Argentina, or Brazil, and.
Ukraine.
I just know that there's going to be a problem somewhere along the way because theres just not enough grain being produced and we'll see how that works out now I'm going to stop and Donna if youll come on board, we'll get some questions from our friends in the head.
On the line.
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Our first question is coming from John <unk> of Ladenburg Thalmann. Please go ahead.
Good morning.
John Good morning.
Looking at the pipeline and potential acquisitions, how our sellers being impacted by both commodity price movements.
Rising interest rates in terms of.
What does that incentivize them to do deals or or may be causing some of them to hold onto their properties.
Well it runs depend on the person you're talking to some of them cite both of those are one of those is a reason for them to get out of the business.
Think it will help us if we get in a position. So we can buy arms and farm operations, but just to sell the land that means they've got to start paying rent and while that's good for a lot of people. It doesn't work in every situation. So we listen to what's going on in most of these farmers are pretty sharp and putting the pen.
Will the paper in order to determine whether they should sell or not but my guess is that as the economy gets more and more difficult for people to figure out I mean, these people are paying huge prices for for fertilizer and other inputs to the farm operation and they're all.
Doing the math.
If I've got to pay twice the price for oil.
Our fertilizer that I paid last year, what do I need to do to make up the difference and while it's true that most of them are getting more money for their berries or nuts or whatever at the same time a lot of that profit is staying at the grocery store level its not its not going out to them because they're having to pay more to.
Get those products into the grocery stores, so I don't know John .
It's always a just to sit down and talk with people that gets us to the purchase price and to the purchase agreement. We've got some purchase agreements that had been signed and will eventually come through but quite frankly, it takes a long time to get closings done now because people that are in.
The government positions for example that I have to give you that okay for what you're doing in order to get insurance or whatever it just takes longer to get these things done I don't know what.
What we will do if it keeps going at a slow pace like it is now I think we will have plenty of opportunity as time goes on because people.
Can't live forever as they say and so they're trying to figure out what theyre going to do with their farm.
The children, usually don't want to farm and so as a result, theyre looking for a way out and while selling the land certainly gets them a lot of money and some of them are selling in order to buy another piece of property someplace else.
But I think this going right that we're going at today is probably as good as any thats going to happen and so my guess is we'll do $150 million to $200 million. This year and we'll just have to see that's just a guess because you can't always count on things closing when they say they're going to close.
So that's not a good answer John but that's what I've got.
No no that's understood.
And then on the balance sheet side of things what are you seeing today in terms of.
Secured debt pricing and maybe even unsecured debt pricing. If you look at that side of the capital stack for future growth in some of the refinancing thats going to occur.
Or potentially could occur later this year.
So if we were to go out and get some close right now.
And we'd probably be in the low fours to mid fours as far as pricing.
If you're based on what we're hearing right now that obviously it could be a bit higher towards the end of the year so well.
We will look at those numbers and we have we are preferred common in that we have multiple sources of capital that we can go to so.
When we when we get all those numbers ready to close the deal in finance It and then you know at.
At that time, we will look at the best.
Combination of of capital sources to move forward with.
And remember if we're borrowing money from the federal banks.
We do get some payback.
In the year, so like during the first quarter, what did we get back another $2 8 million, it's about 1.3% or one 139 basis points I think it was because we are actually the quote owners of those banks and directly as a borrower, it's not a profit making opportunity like you'd see at a regular.
Bank. So as a result, we got about one 3% back from all of our borrowings. So as borrowings go up from the federal side, when we get more money back every quarter and that certainly made us look really good in the first quarter.
But first quarter is always.
Always slow because we've gotten most of our participation rents in and so as a result, we.
We did well this quarter.
Okay go ahead.
And then in terms of leverage.
I think I heard on the call around a 40% kind of.
Loan to to farmland value.
It's a little lower than kind of historically.
Is that just maybe being prudent given some of the economic your broad economic conditions rain or is that just maybe.
Somebody that could drift up over time as you do close some deals later in the year.
It can certainly drift up over time, a lot of it is because we know we have the we made pretty abundant use of the common ATM in the second half of last year, we had the preferred proceeds coming in so right now for.
For example, in our Metlife facility, we have prop enough properties plays that we can draw of $110 million down on it whenever we want.
But right now we don't need those funds of course, if if all of the deals currently in our pipeline do end up closing over the next several months. Then then you would see us start to draw on some of those funds.
Okay.
That's it for me. Thank you very much. Thank you. Okay next question.
Thank you. The next question is coming from Edward Riley.
Please go ahead.
Hey, guys two questions for me.
Just wanted to hear more on.
You know if any farmers are having any issues on passing on increased costs to their customers.
Would love to hear some more about that.
Well, we know the price has been going up on all of the inputs. So they've had to pass that on in the grocery stores seem to be able to buy that as you know most of our sales most of our fruits and vegetables to go through the grocery store chain rather than the independents.
Independent.
I don't know fast food place anyway, just taking that into our COO.
<unk>.
I think more of our farmers are feeling pretty good about the prices that they're getting and so they're able to pass on just about everything there's a good relationship between the grocery stores and the farmers most of the grocery stores have people out in the farms looking at what's going on and talking to the <unk>.
Farmers. So it's not like there's this disconnect between the two and so as a result, I think everybody's on the same page, which that page is you're going to have to pay more for fruits and vegetables as well as nuts on the trees that are coming off this year.
So I think there there's no problem passing on the prices that they're paying and they're paying probably two times what they paid last year for fertilizer, maybe even more in some cases, because it's very difficult to get fertilizer right now.
Got it got it.
And then for the participation rent component by the end of the year could you could you give us a breakdown.
In terms of the crops.
Do you expect to make up the vast majority of the participation rents collected.
Most of it is going to come from SaaS shows we have some participation rent provisions on.
Well, it's mostly on our permanent plantings, but most of it will be Humphrey pistachios also we have some <unk>.
Almonds.
M wine grapes, and I think we have a couple of farms commodity crop farms in the Midwest, but the majority of it will come from pistachios and that's good for us lately because pistachio prices are are pretty.
Pretty strong right now.
So Ed we need you to go out and buy a lot of Ishares and almonds.
Well I have a valuable and I'm sitting next to me right now so.
[laughter].
On the property expenses you notice.
You noted some increase there.
Due to taxes.
<unk>.
Is there going to be variability with that throughout the year by quarter or.
How should how should we be thinking about that going forward.
Yeah. So it was a little bit there were some kind of onetime cost this quarter that won't be recurring or.
Or at least not on a quarter to quarter basis. For example, our I think we had about 65 or $70000 of annual state filing fees that is an annually recurring fee, but it won't it won't be continuing into the future quarters. This year.
That usually hits every quarter or every year in the first quarter.
On the tax side Ed.
Two two kind of two things that kind of.
That drove that one was a and increased assessment on one of our properties that.
Caused us to have to kind of record some true up expense on it some some expenses that are.
Related to the calendar year in 2021.
I think it was probably 50 to $60000 and the other the other portion of that related to some leases that turned from triple net to partial net.
So those would be recurring but overall the property operating expenses I'd say 100 to 125000 of that is it should not be recurring.
Okay, great. Thank you guys appreciate it.
Okay next questions.
Once again, if you do have a question. Please press star one on your telephone keypad at this time.
The next question is coming from Craig Kucera of B Riley Securities. Please go ahead.
Yeah, Hey, good morning, guys, David you've raised about $50 million of preferred year to date at 6%. While you are common cost of equity optically appears to be a lot lower certainly based on your dividend yield are you published NAV can.
Can you comment on how youre thinking about the cost to be various sources of capital.
Yeah, we think about it every day my CFO will tell me over and over again, we're paying too much for our money by using it but think about this for a minute Craig as you probably know when you're raising money through people who are selling preferred stock.
It's a daily thing for them and you can't turn it on and off very easily. The good news is they can usually sell during really difficult times and so you're getting.
Getting your money and they buy more farms at a time when most people are thinking about.
Not doing anything in terms of investing in stocks. So as a result, we don't want to turn that off until we just know that there's no more need for it and while I'm very happy that we could use our.
Our ability to sell new shares when the price moved from $48 a share to <unk> 31, where it is I guess today as it was.
That was a downer and so it was still better than what we're doing on the on the preferred shares, but I don't want to turn off their preferred shares yet.
There may be a day, when we want to do that but I do like to know that during a difficult period of time that they'll keep selling and it's a very nice product a lot of people are buying it but since it's not traded it makes it much more difficult to sell so these people are good salespeople and have done good job for us.
So we'll just keep it open for a while and if for some reason we don't need it anymore. We will have to turn it off but I really don't want to do that we've got a great sales team that's doing a good job of selling that in the marketplace.
So yeah.
Yeah, I hear you loud and clear.
Okay No I appreciate the candor on that in that regard.
Just one more for me I mean, obviously a lot of news on the drought out west and I am curious to get your thoughts on how meaningful you think having multiple sources of water might be to pricing.
Well, if you've got multiple sources and you're out wet year got a very valuable piece of property and we do things to get that back up to size in terms of.
The ratio of what we're growing there and what we've got.
At water Joe.
To make it grow.
And the real difficult thing is just trying to find out how we can use these water sources that are out there.
The run off from the mountains, where they've got a pretty good amount of snow this year.
Is always very key to what's going on out west, especially in the valley.
Ali is a particular area of drought as you probably know there are two rivers that funnel into that place but.
Half of it is sent out to see because they have some small fish near San Francisco that need to be protected and so we lose a lot of water as farmers from from that decision not saying it's wrong, it's just that Oh.
It needs to be acknowledged so our problem today, yeah, we'll probably be forever and in California is that there's a huge competition for water. There is of course, all the people that want water and at the same time a lot of farmers in the farmers have benefited.
More than anybody else over the last 20 years, I think that will tighten up some as we go forward, but I don't think any of our farms in her place and you know, sometimes we supplement our water with a with something that nobody else is doing that I know of and that is buying <unk>.
Water that's in the ground in these aqua offers that they protect in California.
And we've got about 45000 acre feet now in acre.
Foot is 326000 gallons. So you multiply 45000 tons 326000 gallons and you can see we've got a lot of gallons of water, but we need a lot of water in the agricultural business and so this is insurance we actually bought.
We pay interest on the debt that we bought it with and so as a result, it's a cost to us.
And guaranteed overtime, we will appreciate having that as a reserve so where we do a lot of other things for example, we've got some places that get water doing the year.
But maybe not doing as much during the growing season, and we build our pools of water that we keep and we fill them up in the winter and spring and then use them during the summer when they're growing season is there. So we're well aware of this and I've been in this business is.
You know since the public offering of 2013 and even before that we always had these problems that we talked about and quite frankly, it's just a matter of doing things that help everybody out for example, the governor I guess it was four years ago asked us to.
Cut back.
By 25%.
On the water usage and we did that on all the farms. The farmers are very good at them being what was requested and went right through and had just as much.
Produce in nuts, and things as we always have had even with 25% reduction in and now you can't do that much with trees.
For example, trees gotta be healthy and the problem with trees of course, as you're growing the tree, which is growing the nuts that we want off the tree and some of the others are in similar positions. So you can skip for a while but if you skip to many times the tree gets weak and doesn't produce as much one.
The <unk>.
They are all competitors, who had a lot I mean, a lot of pistachios trees.
Actually shut down I think it was 15000 acres because they just couldn't get enough water.
Under normal circumstances, and the trees were old anyway, and so they decided to leave that and put some trees in some other areas. It's a common thought on every farmers mind is do I have enough water. It's more so in the valley, where these 15000 acres where that were taken.
And a lot less on the coast.
Either in the Oregon, or or a California coast seems to have more water.
Anyway, there are a lot of savings going on now almost all the cities in California are thinking about or have in place.
Water, that's being taken from the sea and turned into good work for them to use Theres also any number of cities that take the water that come off the city.
And purifying it and sending it back as well nobody wants it as drinking water when you're sending it back but we can certainly use it too.
Irrigate the farms and so they are saving water that way if it is just a constant thing in California.
You remember that whole song it never rains in southern California.
It's a truism and it doesn't rain much in California, but when it does rain, it's like a snow storm out east when we all get excited they get a rainstorm and they are.
Our fidgety because of the rain came and we of course love the idea of when rain comes here and they do too, but it's an anomaly. So as a result, we're all playing the same gang and Greg I don't know, where we're going to go from here, but I think we'll be fine over the next 10 15 years, but.
One has to wonder in 20 years, what the west will look like.
They keep using the amount of water of course as you know.
A lot of the farms are being converted to <unk>.
Office buildings and schools and parks don't use as much water as the farmer does so theres a general reduction in farm land in California, and that's helping everybody have more water.
It's a it's a balancing game and sometimes you're on the right side of the balancing game and sometimes you have problems we had one farm in.
And one of the California areas that are.
Just didn't have enough water and we spent a million a million two in drilling a well and didn't get as much water as we wanted.
So we were really frustrated by that and found out that the city.
Next door had a line that went across the property and we asked them. If we could have that and I said, yes during the winter, but during this summer you can't so we would load up with water during the winter and fill up our our ponds that we have and it has worked out extremely well that properties worth much more.
Then it was when we bought it and so I'm very happy that we've been able to solve our problems. However, I'm always conscious that there's a problem coming my way that I can't solve and I got to make sure that we don't hit one of those right now we're in good shape, who knows about the future I wish I had a good crystal ball, but my.
Broke and I can't do much with it.
Yeah.
And I think we all wish we had a crystal ball thanks, Dave.
Any further questions Greg.
Any other questions Donna.
The next question is coming from Barry Oxford of Colliers. Please go ahead.
Great. Thanks, David real quick.
You had mentioned about the lease that got redone with 80% participation. Because you had indicated that farmer was looking to see how that farm would work out can you give a little more color on kind of kind of behind those negotiations number one and then number two is that a trend that.
You think we might see or looked at that was just a run off situation now.
No we had a managing director who did a deal out there and the other managing director to take over his place.
He came up with this as a solution to them.
We had a farmer that came in and took one of the two farms that we had there.
And he wasn't willing to take a shot at doing two at the same time and it was kind of late in the season anyway. So a a cut the deal that and a lot of farms do this a lot of farm owners do this is that they take a large chunk of that.
And as you go back to the.
The World of England win farming was all farms were all owned by the King and at least them out on a pay as you go kind of basis. This is what's happening in some of the farms in California is that a farm owner it takes risk.
Whereas I don't like to do that because I got a fixed dividend I got to pay so as a result, I don't think this is going to happen again, although I guess now that I've broken the rule of thumb.
Yeah, Thanks, Craig somebody else. So one of our managing directors, who will say just as you did before can I do this one and.
Hopefully can stand up to that one but in this case it was the only way to introduce.
A new tenant to some farms that we have and one of them is on a fixed basis and we'll be fine there and this one is on an 80%, which if the farm produces what we think it will we'll be well within the range of getting what we thought we were going to get when we had the farm the first time.
It's a.
It's another way of looking at the World and there are a couple of couple of large.
Corn farmers.
In fact that that do this on a regular basis and are just really partners for with the.
With the with the guys and gals that are doing the farming. So.
Rather not do that because it's a variable rent you never know what you're going to get and it's really hard to plan a dividend based on that but we're in good shape today.
Any other questions Barry perfect. Thanks, Thanks, David for the color there.
Okay, Dana we got another question somewhere.
We do not Sir at this point I'd like to turn it back to you for closing comments.
Okay. Thank you all for the good questions and hopefully your up to date, if youre not just go to the the.
The 10-Q that we just filed and that's got a lot of good stuff in it I know, we've put 10 times more stuff in there than anybody reads.
The requirement of the government.
Have fun read up and we'll see you again next quarter till the end of this call.
Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect. Your lines at this time and enjoy the rest of your day.
Yeah.
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