Q3 2022 Gladstone Land Corp Earnings Call
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Greetings and welcome to Gladstone Land Corporation third quarter 2022 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to David Gladstone, Chief Executive Officer, and President. Thank you you may begin.
Alright. Thank you Sherry that was a nice introduction this is David Gladstone and welcome to the quarterly conference call for Gladstone land.
I want to thank you all for calling in today. We appreciate you taking time out of your day to listen to our presentation, we're going to start with Michael a calcium he's our general counsel and Secretary. He's also the president of Gladstone administration. The administrator for all of our funds. Michael go ahead. Thanks, David Good morning, everybody. Today's report May include forward.
Looking statements under the Securities Act of 1933 Securities Exchange Act of 1934, including those regarding our future performance. These 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 risk factors in our Form 10-Q, 10-K, and other documents, we file with the SEC and you can find them on our website www Dot Gladstone land Dot com, specifically, the investor's page or on the SEC's website, which is <unk> said that G O V and we undertake no obligation to public.
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, but 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 may also discuss core <unk>, which we generally define as <unk> adjusted for certain nonrecurring revenues and expenses and adjusted F. F O, which further adjusts core <unk> for certain noncash items, such as converting GAAP rents to normalized cash rents and we.
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 once again Gladstone land Dot com sign up for email notification service. So you can stay up to date on the company. You can also find us on Facebook keyword there the Gladstone companies on Twitter.
At Gladstone comps at today's call is an overview of our results. So we ask that you review our press release and Form 10-Q, both issued yesterday for more detailed information again go to the investors page of our website to find them now I will turn the presentation back to David Gladstone.
Alright, Thank you Michael I'll start with a brief overview overview of the farmland holdings. We currently have over 115000 acres.
On 169 different farms and we also have 45000 acre feet of bank water and you all remember that an acre foot is 326000 gallons. So we're into the billions four gallons of water that we hold and is held underground. So we can bring it out if we need it.
And together those two are valued at a total of about.
One 6 billion for both the land and the water our farms are in 15 different states and more importantly, they're in 29 different.
Regions farms continue to be 100% occupied and leased to over 90 different tenant farmers all of whom are unrelated to us and the attendance on these farms are growing over 60 different types of crops.
From fruits and vegetables and nuts.
You mentioned this past couple of calls our acquisition activity.
Auto for us.
We continue to be more selective in the type of farms. We're looking at right now with inflation and interest rates continuing to rise and the risk of even a bigger recession. Then we're in right now becoming more likely we believe it's a good time to be much more conservative with our capital, but overall our existing farmland portfolio.
Continues to perform pretty much as expected and we had another very strong quarter.
You'll hear from the rest of my presentation, and certainly from Lewis our CFO .
The leases on these farms contain certain provisions such as participation rents.
And that this third quarter that we're in we acquired four vineyards in Washington State and Oregon, We paid about $37 million for that overall net cash yields to us on these investments is about six 2% and that's about what we've averaged over all long term.
So.
As I mentioned, just a few minutes ago, we're gonna go too.
Leases on these farms that contain certain provisions and the reason I mentioned that is because we are coming to the year in which we have participation rents.
Or escalations that go on.
So that should push the figure that I mentioned, a little bit higher for the future.
Remember this is not a rocket science. So it's not a quick move in terms of rents. They go up gradually every year that we appreciate because it doesn't take much doing from us on the leasing front since the beginning of the third quarter, we renewed six leases on farms in three different states in <unk>.
Total these renewals are expected to result in an annual operating income increase of about $281000 or about 10% over that of the prior leases. So if we got every lease came up and got 10% we'd be well ahead of the growth record that we're all looking at.
Looking ahead, we only have one lease scheduled to expire over the next six months it makes up less than a half a percent of our total annualized lease revenue.
We're in discussion with potential tenants for this farm, that's coming up and arent really expecting any downtime as we move forward and go on this here's a couple of other updates inflation continues to hover near highest rates seen in over four decades. This latest headline inflation number was eight two.
<unk> and its been over 8% now for the past seven months.
However, in the latest reading on our food eaten at home that category was up 13% and this is a category where the crops grown on our farms fall in.
And that category is mostly crops that are grown on our farms and are sold in grocery stores. That's a at home kind of indication. We believe the increases in food prices will continue to outpace.
Inflation itself, the normal inflation numbers and should help mitigate the increases in input cost experience via farm operators.
We were extremely fortunate to have made it through hurricane I E.
With only minor damages to a few buildings and structures all of which was covered by insurance. Some of the farmers did report delayed plantings because they're so much water in the crop land.
Crop losses in some fields due to the amount of surface water produced by the Hurricane was very light. However, these farms have since been replanted and are now back on schedule. We can continue to keep those in mind, who are injured or negatively negatively impacted by the hurricane it was.
Our rent is for a lot of people in Florida.
Well, while we all are hoping for a wet winter and it seems to be coming in that way because it's raining out in California now to relieve the drought in the west we've been focused on increasing the water security of our current portfolio of assets. This may include but not limited to buying the water on the open market.
We can buy water and put it out on our farms are more more importantly, purchasing long term water contracts and acquiring additional water credits through purchasing additional Oakland ground.
Lot of the ground in California that is not planned it does have water rights and we may want to buy some of those in order to build up the water delivery infrastructure that we have and replace older inefficient equipment and irrigation systems upgrades. All of these kind of improvements are things that we normally do anyone.
Way. So we're just getting ahead of the curve by doing it fairly.
We continuously work with our tenants to assist the water availability on each of our properties as well as the financial situation with each of our tenants are.
They all have to deal with their banks and the banks are charging more for loans to plant and in loans to harvest. So they're seeing some pretty good changes going on there.
Ongoing drought.
Dressed aquifers, and California surface water supplies, all over California have been.
In high demand of course, and we're not immune to these effects. However, we have always been proactive and I've tried to stay in front of the large larger problems to date, we've not had any water deficiencies prevent any of our tenants from making their obligation that is the rent payments that they owe to us.
Never as almond prices remained low during to oversupply believe it or not there's could be an oversupply of almonds couple.
Coupled with the increase in cost of water due to the decreasing supply of both groundwater and surface water.
Certain of our arm and farmers are beginning to experience increases decreases in production that is their harvesting less.
We're in discussion with these tenants to come up with solutions to help get through these difficult times and such solutions may include additional capital improvements.
Temporary rent reduction.
One thing to keep in mind is that these wet and dry cycles are very normal in the west, especially in California.
The impact of the current drought has been somewhat exacerbated by the fact that it occurred so soon after the previous drive cycle, which ended in late 2016.
So previous wet cycles didn't have enough time to refill all of the reservoirs before the current drought cycles. We're just hopeful that the snow thats going on out there we put a lot of snow in the mountains and that's what most of these farmers live off of in terms of water during the summers.
Out of any long term investment in California, We know that we will have both drought periods and wet periods and we build those assumptions into our underwriting models that we use.
We currently have a small handful of tenants who have gotten a few months behind in their rent in aggregate. It's about $1 3 million of late rent payments that are owed to us.
We're working with all of our tenants and partners to have.
The delayed rent paid over the next three months or so.
Currently expecting receive all of these payments in full before the end of the year might be a little touch you for a couple of the almond growers, but I think we're gonna be fine.
Regarding our capital plans as we announced in August we have.
<unk> the stock offering series C preferred stock to reduce the offering size and shortened the duration of the offering as amended we expect to sell only about 10 million more under the offering.
After this week's close before the offering terminated at the end of the year. So we're pretty much out of that series C preferred stock and looking at what we might put in its place for going forward.
With interest rates rising acquisition activity has slowed down as you can imagine almost every acquisition, we make we need that in order to make part of it work it's difficult to put these proceeds to work that we've been getting from the series C. So we're having to work harder to get across.
<unk> deals that we're currently exploring other capital raising options.
Well, we'll find something for us, but it's not the end of the world to take a break for a while and see how this economy is going to come around.
Oh, one other item on the ESG front, everybody seems to be interested in that we did post a short report.
Where we stand and certainly ESG initiatives.
On the governmental side, we seem to be fine.
Going out to each of our tenants and working with them.
I'm going to stop here and let Louis go forward Lewis why don't you take over now sure. Thank you David Good morning, everyone.
I'll begin by briefly mentioning our financing activity, we did not incur any new any new borrowings during the quarter, but we did repay about $17 million of loans that were scheduled to mature.
On the equity side since the beginning of the third quarter. We raised net proceeds of about $75 million from sales of the series C preferred stock and $5 million from sales of our common stock through the ATM program.
Moving onto our operating results.
First I'll note that for the third quarter, we had net income of about $1 $8 million and a net loss to common shareholders of $3 6 million.
Four cents per common share.
On a quarter over quarter basis, adjusted <unk> for the third quarter was approximately $7 2 million compared to $4 $5 million in the second quarter.
<unk> per share was $20 seven in the third quarter versus $12 nine since the second quarter.
Dividends declared per share were about $13 seven since the third quarter versus $13 six second quarter.
Primary driver behind the increase in <unk> was about $3 million of participation rents recorded during the current quarter versus only $20000 in the previous quarter.
This was partially offset by higher incentive fee by about $500000 during the current quarter.
Fixed base cash rents increased by about $877000 or 4%. This was primarily driven by additional revenues earned from recent acquisitions and completed capex projects as well as from recent lease amendments and renewals.
On the expense side, excluding reimbursable expenses, and certain nonrecurring or non cash expenses, our core operating expenses increased by about $534000 on a quarter over quarter basis.
Total related party fees increased by about $629000. During the current quarter, primarily driven by a $505000 incentive fee earned during the current quarter versus no fee earned in the previous quarter.
Property operating expenses remained relatively flat, while recurring G&A expenses decreased by about $78000 and this was primarily due to costs related to the annual shareholders meeting in the previous quarter.
One note on expenses during the third quarter, we did write off about $800000 of deferred and unallocated costs related to the series C offering as a result of the amendment that reduced the offering size.
Moving on to net asset value, we had 39 farms revalued during the quarter. This is all via third party appraisals, except for three that were valued internally.
Overall, these farms increased in value and value by about $17 million or three 7% over their previous valuations from about a year ago.
We saw particularly strong appreciation in values of our Florida farms, which saw an average increase of 11%.
Also of note the California funds, we had reappraised increased by 2%.
Despite the ongoing drought and water concerns across the state we continue to see values of our funds increase and we believe this underscores that underscores the job that our team has done identifying good farms with secure water sources.
So as of September 30, our portfolio was valued at about $1 $6 billion.
And all of this valuation all of this value was supported by either third party appraisals or the purchase prices.
Based on these updated updated valuations and including the fair value of our debt and all preferred stock our net asset value per common share at September 30 was $16 56.
This is up by about which is up by 96 from last quarter.
Primary drivers of this increase were the impact of increases in market interest rates and the buyer of our fixed long term borrowings as well as the appreciation in value experienced on the farms that will be value this quarter.
Turning to liquidity, including availability on our lines of credit and other undrawn, but committed notes. We currently have over $175 million of dry powder.
In addition to over $100 million of Unpledged properties.
Over 99% of our borrowings are currently at fixed rates and on a weighted average basis. These rates are fixed at three 6% for another five plus years.
The increase in interest rates does impact our ability to finance new acquisition and of course plays a factor in our decision to repay versus refinance maturing loans. However, with respect to our current debt load we have experienced minimal impact from the recent rate increases and we believe we're pretty well protected against future interest rate increases for the fourth for the foreseeable few.
<unk> as well.
Regarding upcoming debt maturities, we have about $56 million coming due over the next 12 months.
About $31 million of this number represents various loan maturities.
40 is collateralized these loans have increased in value by a total of $13 million since their respective acquisitions. So.
We do not foresee any problems refinancing any of these loans, if we choose to do so.
Moving those maturities, we only have about $25 million of amortizing principal payments coming due over the next 12 months.
And 4% of our current debt outstanding.
Finally regarding our common distributions.
We recently raised our common dividend dividend again to $4 five eight <unk> per share per month over the past 31 quarters, we've raised our common dividend 28 times.
This resulted in an overall increase of more than 52% over this time period.
Farmer Mac continues to be a stable asset class and continues to perform well in the midst of all the uncertainty and volatility currently the markets. We've seen leave the stock offers a compelling investment alternative, especially in light of inflationary in recessionary concerns with that I will turn the program back over to David. Okay. Thank you that was a good report and it brings people up to date.
The numerical side of our business.
We continue to stay very active in the market.
Good opportunities do present themselves, but as mentioned, we're being much more cautious on our acquisition front not sure. How all of this inflation is going to play out against the farmers and what they have to deal with.
Just a few final points I'd like to make and we believe that investing in farmland growing crops that contribute to healthy lifestyles, such as fruits and vegetables and nuts.
Follows the trend that we're seeing in the market today.
Overall, the demand for prime farmland growing berries, and vegetables remains stable to strong in almost all areas, where our farms are located particularly along the west coast and including the California, Oregon, Washington.
And not not to be outdone, the ones in Florida, moving at very good pace as well in terms of values.
Overall farmland continues to perform well compared to other asset classes I mentioned this almost every time the <unk> index and farmland index, which currently has about $14 9 billion worth of agricultural properties has averaged an annual return of about 12, 6% per year over the past 20.
Years with no negative years during that period. This is higher than S&P index in the REIT index.
And both of those the S&P and the REIT index have had negative years over that same period of time versus zero for the farmland index.
But please remember that purchasing stock in this company is a long term investment I mean after all its farmland, it's not going to move around much its very stable I.
I think investments in our stock really has two parts similar to go it's a hard asset farmland is just dirt, having an intrinsic value because there is a limited amount of good farmland, especially in the areas that we in like Florida and California.
And it's being used up by urban developers, especially in California, and Florida, where we have a lot of farms.
And unlike goal.
Which is another alternate asset it's an active investment with cash flows to investors and we believe we're better than a bond fund because we keep increasing the dividend every year, which bond fronts bond funds don't usually do.
We expect inflation.
Particularly in the food section to continue to increase and we expect values of underlying farmland to increase as a result, we're expecting this especially to be true in fresh produce areas. The.
The trend of more and more people in the United States eating healthy foods, rather than some of the unhealthy ones continues to grow and so I think we're in the right area.
We will now have some questions from those following US operator would you come on please and tell the listeners how they can ask a question.
Yes of course.
I would like to ask a question. Please press star one on your telephone keypad.
Information tone will indicate your line.
<unk>.
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Your line is in the question queue, you May press star two if he would like to remove your question from the queue and for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Our first question is from Rob Stevenson with Janney. Please proceed.
Good morning.
Lewis.
The increase what percentage of the farms had a value change quarter over quarter versus what's still left to be revalued over coming quarters.
This quarter that being Q3, I think we had about a third of our portfolio that was revalued.
It's not exactly 25% each quarter. It varies I think Q4 is a little bit lighter closer to 18% to 20% of our portfolio of value is being revalued in Q4.
Okay, and what was the impact on the NAV calculation from the the debt adjustment.
I'm looking that up right now the debt piece was.
I'm sorry.
So bear with me 55 per share okay.
So roughly half was the debt roughly half was change in value from the third of the portfolio, Yes that is correct. Okay.
And then.
While I have you what is your cost today for new debt and what would be your best source today, if you needed.
That for either refinance something or to buy something.
Today, we'd probably be in the mid fives, five 5% five 6%.
And that would be for example, if we went to the one of the farm credit associations that would be that the effective rate after interest patronage received.
State of rate state of rate would probably be a point too.
The point in the quarter above that.
Before the patronage is figured in.
But farm farmer, Mac would probably be in similar rates and similar range in the 5556 range for us right now.
Okay. That's helpful and then David.
You mentioned that you're putting a pause on the series C that sunsetting at year end and that Youll.
Youll figure out of the equity down the road how are you thinking about that today I mean is it the rate market is obviously.
In constant flux, so preferreds.
There have been a little bit challenging.
Do you look at <unk> do you just utilize common stock on the ATM, obviously things will change as you move forward, but sitting here today.
How are you thinking about that and where is your where would be your best cost of equity beyond the series C.
Well, we would love to continue the series C. But as you know about 60% of the money we used to buy a farm is from one of these farming farming.
<unk> are in that area, and so being able to pass on another 2% change to the farmer and increase rent is just unacceptable to many other farmers today, they've been hit by a number of things in that area first of all the.
The increase in there that they used to farm such as money they need to do the kinds of things to the farm that has to be done every beginning of every year and then at the end of every year their lines of credit have gone up substantially in addition to that I don't know if anybody follows it but.
All over the world they've been closing plants that produce.
Any of the chemical.
Chemicals that need to go into farming, and especially fertilizer I think half the fertilizer plants in the world have closed in the last three to four years. So it's a very difficult time for farmers in terms of doing that and they are passing that on to the consumer consumers paying more for all of the <unk>.
Things that we do as well as all of the.
All the other things such as corn and wheat and those those prices have gone through the roof and so as we watch this adjustment we don't want to get in the way of something that's going on out there in the marketplace. So.
That's why we're not <unk>.
Closing a lot of deals right now we've got some things that we'd love to close but we got to wait until we can get to a point, where we can finance it in a way that's very accretive to us.
There is some desire on the part of some of our people here to do things that are not accretive and lose a little money to over the few years, but I don't want to do that I want us to say stay very solid.
Make sure that we can do things so until the banking community comes back and the rates go down and I don't think theres any chance of that happening anytime soon we're going to be slow rolling our increase in <unk>.
All of the things that we do but most importantly in closing new deals. So the growth path for us is slow.
However, if you think about it it's probably a good time to take a breather we've got.
$1.5 billion worth of farmland and Theres always something to do there such as build some more infrastructure and we do that on a regular basis. In fact, we've probably spent most of our time doing that.
In the last three or four months, so I think for us it's a.
It's a time to take.
Note of all the changes that are going on as you may remember when.
We've talked about this we would love to be buying farms and going into the farming business, but there's just not a chance to do that right. Now. So we are we're sort of continuing to do the best we can and I think your question at the beginning is something that people should look at and that is this.
This land that we hold is going up in value, it's not decreasing and.
If you added that increase in the value of the farmland to the dividends that were paying this would be a great return for almost anybody who wants to put something in their portfolio and not have to worry about it as you know Warren Buffett always talks about his net asset value going up we don't see.
Spent as much time doing that we try to do it for cash of course, Warren Buffett doesn't pay any dividends on his Berkshire Hathaway. So as a result, our goal is to continue just to develop the land that we have and increase the income we've got to adjust rents as they come up and make sure people can handle the <unk>.
Rent.
It's a <unk>.
Very unconventional time right now and we've all enjoyed the last seven or eight years in which interest was very low and everything was fine and now this is the moment of adjustment and we'll see what.
The government does to slow down the amount of.
Dollars that they are printing and using to continue the government and we will also see what happens to the food.
Prices I think youre going to see some increased pretty substantially over the next year.
I don't know if I answered what youre looking for but that's where I am in thinking about the world.
That's helpful. One last question for me any commonality on the $1 3 million of late rent payments by either.
Crop type or geographical concentration.
Well as you probably know we keep saying it almonds are a problem child today and almost all of those are done in California. There's a few that are not in California, but the ones that we have problems with are in California, and I say problems. That's not a problem. It's just that the crops didn't come in as strong as they normally do.
No.
It's Aman, it's California, that's the commonality of the payments that we haven't received and believe me Theyre working on it I have a lady sitting across from me here that does collections and she is good.
So we'll get it done we will get it done and they'll pay we have all of the things that we love to have in the fourth quarter, which is.
All of the fourth quarter extra has come in and we accrued how much of that in this quarter $3 3 million of it in this quarter and I'm hopeful that we get another three or $4 million in next quarter.
In this quarter as well this quarter, meaning the third quarter, we did $3 million in the fourth quarter I am hopeful we can do three or $4 million in receipts.
Anyway lots of fun, but just normal.
Okay. Thanks, guys I appreciate the time this morning.
Okay do we have any more questions. Yes, Sir our next question is from Edward Riley with <unk>. Please proceed.
Hey, guys. Thanks for taking my question I'm curious about the change in rhetoric.
With regard to water in the press release, saying that.
<unk> partnered with permanent plantings have sufficient water.
Comment a little bit more in depth on the water situations for farms with with row crops.
Yeah, it's not row crops are not killing us. These days, it's the trees that are meeting the water we spend a lot of money on keeping the tree alive.
And so of course, when you get the nod.
Aw pistachio.
From the trees.
Been very expensive for those SaaS show seem to be doing fine its almonds that have bothered us the most in <unk>.
Probably a half day almonds that are produced in the United States are shipped to other countries and I just never realized that we ship so much out until we got into the business and.
And a lot of it goes to places like Spain, and France in those areas as well as India is a massive eater of.
<unk> and they've had their own problems inside of inside of that country. So I think over time.
Ed This is going to be an area that will cure itself at some point in time as all of these almonds are passed on through the good news is they're not delicate like strawberries Strawberry is you got to get them to somebody's mouth in 14 days.
Aman can sit around for years and we're not doing that most of our farmers are planning on selling out.
Probably by January February and so we'll just see how much we collect right now it's a touch and go and we've had them come a little slower to us in terms of payments and so we will work through this little bulge that we have in the production amount of.
<unk> on the one hand and payments on the other.
Just a little bit they had a little bit more color on that.
As David mentioned that.
Water is a concern across the state.
As David said earlier, we're not immune to the impacts of that.
There are a few farms that we have.
We're working through.
Some water issues, but as David said theyre not on any row crops and theyre not on.
Permanent crops that.
That we own and that was the reason for the change in.
The language in the press release.
There are a few farms that we own where inventories are on their and their single source water. However, those farms, we only owned the land.
Tenant owns those trees and the.
Irrigation infrastructure.
So that's why we changed that language to what it what it is the farms, where we own the trees as well those farms are secure right now it's just us.
Two or three farms, where we only owned the land that are single single source water.
Okay.
That's helpful. Thanks.
And then turning to participation rents wondering if you could.
Maybe break down.
The relationship.
Or the source of participation rents I know you guys do a lot with the staff, but do you foresee.
Any impact of participation rents.
The fourth quarter given.
What's going on with the almond crop currently.
So if you look at our the total participation rent that we have recorded over the past couple of years as well as what we expect this year.
Pistachios makeup about probably two thirds of that amount <unk> make up 20% to 25%.
So the majority of it the large majority of it is from SaaS yields the rents. We are receiving this year now that is the that's based on the crop there was harvested last year that 2021 crop and those yields have been very strong much higher than the 2020 crop.
Pricing is down a little bit, but the increase in yields has basically information we've gathered so far the increase in yields is more than offset the slight decrease the decrease in price from the prior year.
So.
That coupled with a couple of additional farms that came online last year, which again is what results in the payments this year.
Is what's leading to the.
Right now the expected increase in overall participation rents this year.
We're still collecting data for.
What we where we think we might be next year, it's kind of too early to say that right now, but we're still collecting it still in the <unk>.
Yes, I've seen where yields are falling this year.
Okay got you and how many how many farms.
Will you guys be collecting participation rents on.
This year.
It's rough ballpark is about 35 farms have leases with participation bonus now some of those farms.
It might be based on thresholds that might not be met so 35 farms have that provision doesn't mean that 35 farms will.
Actually have anything to record for us.
Okay.
Great.
Is it for me thank you.
And Ed remember one thing pistachios.
Our.
Very strong in and protein and so if you want to switch from chickens pistachios that'd be a good move.
Okay.
Any other questions operator.
Yes, Sir our final question is from John <unk>.
<unk> with Ladenburg Thalmann. Please proceed.
Good morning.
Good morning, John .
So I think you mentioned you were maybe taking a bit of a pause in the acquisition market, but I mean, what are you seeing in terms of cap rate for acquisitions that come across the desk.
Has there been notable expansion in kind of what cap rates are out there given kind of the counterbalance.
Interest rate increases.
Increases versus some of the pressures you're seeing with regards to kind of farmers.
Yeah, It's a mixed bag and again go back to this division that we have from nuts on the one hand and regular crops that we do such as strawberries and blueberries et cetera.
You look at John the way things work out.
It looks like every farmer believes that their farm, which their father grandfather started.
Worth a billion dollars. They just have this pie in the sky start a lot of them don't we have them go do.
And evaluations.
Come back down to Earth, but the biggest problem right now is that there is a lot of inflation that's going on.
It's really hard for all of these people to make ends meet.
When they find out that all the expenses they have to pay out in order to grow something have gone up dramatically.
The other problem of course is that water cost have gone through the roof I think we price our water what are sound waterworth now.
So about 650 per acre foot.
So we have a lot of money tied up in water, but thats insurance, if we need it we can use it.
I think the biggest thing for US John is just trying to figure out where we're going to land in terms of this economy and what are some stabilized prices going to look like and it's better for us.
Not guess at that but it happened and then by our farms. There are a lot of farms for sale and this is not a time when people have drawn back in fact, the recession has probably sent more people to go out and find out how much of that farms are worth.
And I think we will have plenty of farms that will come our way and the real question is can we make them work for us in terms of accretion to our shareholders. So we can keep increasing the dividend I think we will but there's no guarantees in life and if it lasts against us it won't be for long it would be for <unk>.
Six months or so and then people will realize that they've got to pay more in order to get the land that they want to keep growing.
So John it's just one of those undefined times when you can't make a bet work.
He probably get the same kind of risk reward. If you just went to Las Vegas and put a number of amount of money on red and say, whether you win or not but it's it's it's better for us to wait and not put a lot of money out in times that are very very difficult to predict.
Yes.
Is there like a specific amount I know each investment is.
Given the property type, but a specific amount of expansion in terms of cap rates, you're seeing out there.
In terms of basis points.
Yeah, I think right now that if you were trying to sell some of the nut farms.
Get nearly as much as as you'd hope to get if you have not farmer on the other end. If you are a strawberry growers blueberries or any of the vegetables, you can continue to push it up because the.
All of these places from.
From Safeway and giant and all of those grocery stores are willing to pay up because they need those the person who comes into the grocery store most of them are going to the produce section produces very hot area. So you can sell it.
You can grow it and get it to them and most of the ones that we have that are in that area are located on the coast and both in California, and in Florida and as a result don't really have as much problems with water as those that are in the valley, which is most of the tree crops.
I think the free crops will sort out this year and next year's crop, which will be 424.
We'll be really dramatically stronger than the ones that we're in today.
Okay.
And then as we think about kind of some of the upcoming lease maturities whats the outlook, particularly 2023 for where those may roll now that you have maybe a little.
More visibility into those.
It's happening at those farms.
John we only have one one lease expiring over the next six months.
Right now Thats the majority of crop share lease and we expect that structure to remain in place on a relatively small farm in Nebraska.
Beyond that we're just now for the.
The expirations that are starting in the middle to the latter half of next year.
We're just now starting up negotiations with tenants and we think we will see increases on most if not all of them, but a little bit too early to peg what kind of range, we think that the increase will fall in.
Okay.
And what tenants tenants like to do participation rent simply because it puts their payment on the back end of the lease.
We don't like it because we need money along the way in order to pay our dividends. So theres a juxtaposition between us and our tenant that when we're talking about participation rents and so I don't know like participation rents as long as we get enough during the year to pay because participation rents.
It gets you the upside that you don't normally get.
Okay.
And then just one last quick detail one.
Move in interest rates.
Kind of Holistically speaking, how does that impact interest rate patronage if at all.
Is it kind of think about modeling.
For us it won't impact.
It won't impact.
Well I can't say it won't because the Patriots. This of course is not guaranteed but we do not expect it to impact the amount we get back what would impact it is.
As we say, we repaid about 16 or $17 million of loans those were foreign credit loans. So the patronage from those loans we will.
Now get back since we're not paying interest into them of course.
But.
We have not received any indication that the percentage of patronage or the basis point.
The Patriots that we get back will change.
However, I mean, thats kind of all up to the discretion of each of those associations boards.
If they come on hard times or they have larger reserves in their portfolio than <unk>.
Of course could eat into the patronage that we get but.
Outside of that guesswork.
We wouldn't expect any change in the.
Percentage of interest that we pay coming back to us.
Okay very helpful. That's it for me thank you very much.
Operator, do we have any more questions. No. We have reached the end of our question and answer session. Mr. Gladstone. If you have any closing comments well no closing comments. We are disappointed we wanted more questions, but thanks, a lot for calling in and we'll see you next quarter. That's the end of this call.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you again for your participation.