Q3 2023 Gladstone Land Corp Earnings Call
Greetings and welcome to the Gladstone Land Corporation third quarter earnings Conference call. At this time, all participants are in a listen only mode a brief.
A question answer session will follow the formal presentation, if anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference being recorded it is now my pleasure to introduce your host Mr. David Gladstone Chief Executive Officer. Please proceed sir.
Or like conference call for Gladstone land and thank you all for calling in today. We appreciate the time you take lessened during our presentation.
Before I begin the presentation, we're going to hear from Michael of Counsel. He is our general counsel and instead of administration Michael 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.
Forward looking statements involve certain risks and uncertainties that are based on our current plans, we believe to be reasonable. 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-Q, 10-K, and other documents that we filed with the SEC can find them on our <unk>.
<unk> sites, the investor's page at Gladstone land Dot com and on the Sec's website, which is www dot FCC that geography that we undertake no obligation to publicly update or revise any of these forward looking statements whether as a result of new information future events or otherwise except as required by law.
Today, we'll 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.
Also discuss core <unk>, which we generally define as <unk> adjusted for certain nonrecurring revenues and expenses and then adjusted <unk>, which further adjusts core F. F. L for certain noncash items, such as converting GAAP rents to normalized cash rents and we believe these are better indications of our operating results and allow better comparability.
For a period over period performance. Once again, please visit our website Gladstone land dot com and sign up for our email notification service could also find us on Facebook keyword. There is the Gladstone companies and on sweater. That's at Gladstone comps today's call is an overview of our results. So we ask that you review our press release and 10.
Q, both issued yesterday for more detailed information and with that I'll turn it back to David Gladstone.
Alright, Thank you Michael I'll start with a brief overview of our farmland holdings.
Currently own about 116000 acres on a 169 farms in about 45000 acre feet of banked water. That's water. That's M. Hackworth for that we can tap into.
One acre foot is equal to about 326000 gallons. So we own nearly 15 billion gallons of water.
And together they are valued at approximately 1.6 billion for both the Atlanta and the water.
Our farms are in 15 different states and more importantly in 29 different growing regions.
So stored water, mostly in California.
So you can see we're pretty well diversified just to show you a little more diverse diversification. Our farms are leased to over 90 different tenant tenant farmers and all of whom unrelated to us.
And the tenants in these farms are growing 60 different types of crops, but mostly fruits and vegetables and nuts like you'd see in produce section of the grocery store, which is where most of our products are sold.
And now I'll give you a quick update on some of the tenant issues. We've been working through still farming out one farm in California with the help of a third party farm management group.
Been in discussions with the same group too.
Nine leases and not just farm it for us.
Or do you believe will be closed and finalized the lease agreement hopefully soon.
In addition, short term leases on four blueberry properties in Michigan.
Sing about 14 different farms expired in October and since then we've been farming three of these properties have a 11 other farms with the help of third party management groups.
The fourth property, which consisted of three farms currently to say can and it's okay to be vacant. This time of year because there are no strawberries on this no blueberries on the move.
Ooh Berry bushes this time of year.
We're in discussions with groups that take over all of these farms and we hope to also have an agreement in place by the end of the year. Finally during the year. We had two other tenants who had gotten behind in their rental payments to us one tenant was replace.
Arm being fully leased as of July 1st and the other tenant.
Was able to catch up on their rents and is now no longer falling behind.
On a year over year impact on our operations as a result of these issues that I mentioned above was a decrease in operating income of about $201000 in the third quarter.
And about 814000 for the year so far thanks.
I think a lot of that will be replaced by the fact, we will get some properties that are actually sell their crops in.
Actually make up some of those are those problems that we had as mentioned on the past couple of calls we continue to have more selective approach to the type of farms, where review for a potential acquisition because our cost of capital is so much higher or example, we financed most of them most of our.
[noise] farms that we buy with a first mortgage for about 60 or 70% of the price we pay.
And as a result acquisition activity remains slow for us because those costs have gone up so much it is changing and it will change over time with inflation still above the fed's target rate interest rates remain a high for us for this foreseeable future, but having gone through these cycles before.
Four we know it'll change.
But overall, our existing farmland portfolio continues to perform pretty much as we expected it would with the exception of those issues that I mentioned above.
We're having a couple of tenants that are have problems, but we always work through those.
On the leasing front since the beginning of the quarter, we renewed an amended nine leases are.
In two different states in total renew as expected.
And results of increasing annual net operating income of about $275000 or four 7% above that of the prior leases. Looking ahead, we have three leases scheduled to expire over the next six months and in total that makes up less than 5% of our total annualized lease.
Revenue.
We are in discussion with groups to lease these farms and we also looking into possibly selling one of these farms.
As it's in one of those development areas and hopefully we'll have some information for you before the end of the year.
But we are not currently anticipating any vacancies on any of these farms as a result of upcoming expirations.
We also recently entered into a water transfer agreement with a local water district in California that will allow us to purchase up to 15000 acre feet or nearly 5 billion gallons of water.
Per year through February 2031, so far.
We purchased about 7000 acre feet of water for 2020 three.
And total consideration for that was about $1.2 million.
We've recently completed construction of some groundwater recharge basins.
Basins on some of the farm acreage on a couple of our large properties in California. This will enable us to pump the water onto these basins. So that we can store it as it goes underground for further use in our farms.
So we're in good shape in terms of needing water in the future I think this year is gonna be a wet year, but.
Who knows maybe it's a beginning of a five or six year drought periods. So we've got a lot of water.
Get us through any kind of problems we have.
Inflation continues to slow down the impact of the impact of the fed's interest rate hikes now being felt throughout the economy. However.
The latest headline inflation is about three 7% still remains above the fed's target of 2%.
And core inflation has not been moving in the right direction. According to the federal reserve.
Food prices are also showing signs of cooling down they went up substantially after the pandemic.
But we continue to keep pace or outpace.
Pes inflation as we see them now we believe food prices will continue to keep pace, Oregon, outpace inflation, which should help mitigate the increases in operating costs many of them.
The tenant farmers have been experiencing we look forward to the future I'm going to stop here and turn it over to our CFO Louis.
Talk to you more about the numbers purpose alright. Thank you David and good morning, everyone begin by briefly going over our financing activity.
It's not in Kearny, new borrowings during the quarter, but we have repaid about $7 million of loans since the beginning of the quarter on the equity side since the beginning of the quarter. We raised net proceeds of about $2 million from sales of our series E preferred stock and $1 million from sales of our common stock through the ATM program early in the quarter.
Moving onto our operating results.
For the third quarter, we had net income of about $3.1 million and a net loss to common shareholders of $3 million or eight cents per common share.
For fall for the following discussion of operations I'll be comparing to the third quarter of 2023 with a corresponding third quarter of 2022.
Adjusted <unk> for the current quarter was approximately $5 $6 million or 15.5 cents per share compared to $7 $2 million or 27 cents per share in the prior year quarter.
Dividends declared per common share were $13.09 in the current quarter compared to $13.07 in the prior year quarter.
Primary driver behind the decrease in <unk> was lower year over year revenues, coupled with an increase in related party fees and higher financing costs with the proceeds from a portion of such financings remaining uninvested.
Fixed base cash rents decreased by about $400000 or 2% from their prior year quarter.
Primarily this was primarily driven by a decrease in revenues from the self operated and non accrual properties as well as the lease we executed in the fourth quarter of 2022 in which we reduced the fixed base rent in exchange for increasing the participation rent component of the lease.
And the result of this increase in the participation rent component won't be known until the fourth quarter.
Participation rents also decreased by about $600000 from Q3 of last year.
These figures are largely dependent upon the timing of when such information is made available to us but from what we've received so far we're seeing lower yields coupled with lower pricing for last year's crop the lower yields were expected due to the alternate year bearing nature of the trees and also due to the fact that these crops were harvested at the end of a multiyear drought.
Pricing continues to be somewhat lower due to oversupply.
This is particularly true in the RV market.
On the expense side.
Excluding reimbursable expenses and certain nonrecurring or non cash expenses, our core operating expenses for the current quarter increased by about $370000 from last year.
I'm really driven by an increase in related party fees, particularly a higher incentive fee earned by our adviser during the current quarter.
Removing related party fees or recurring core operating expenses remained relatively flat from the prior year quarter.
Finally, other expenses decreased due primarily to lower interest expense incurred as a result of loan repayments made over the past year.
With that we'll move on to net asset value.
We had 43 farms and are banked water all value during the quarter and this is these are all done via third party appraisals over all these valuations increased by about $1.1 million or their previous valuations from about a year ago.
So as of as of September 30th our portfolio was valued at approximately $1 $6 billion all of which was supported by either third party appraisals or the purchase prices.
So based on these updated valuations and including the fair value of our debt and all preferred securities. Our net asset value for common share of September 30th was $20.33, which is up from $19.15 at 630 and up from $16.56 at Q3 of last year.
The majority of this change was due to a decrease in the fair value of our preferred securities, which has been driven by the high interest rate environment.
Turning to liquidity, including availability on our lines of credit and other Undrawn notes. We currently have access to over $170 million of liquidity. In addition to about $155 million of Unpledged properties.
Over 99, 9% of our borrowings are currently at fixed rates and on a weighted average basis. These rates are fixed at 3.35% for another 4.3 years as a result, we have experienced minimal impact on our operating results from increases in interest rates and with respect with respect to our current debt load. We believe we are well protected against any further interest rate hikes for the fall.
Seeable future.
Regarding upcoming debt maturities, we have about $41 million coming due over the next 12 months, however, about $24 million of that represents various loan maturities and their properties collateralized. These loans have increased in value by a total of $7 million since their respective acquisitions. So we don't foresee any problems refinancing any of these loans, if we choose to do so.
But if we remove those maturities, we only have about $17 million of amortizing principal payments coming due over the next 12 months or less than 3% of our current debt outstanding.
One other item to note here our lines of credit with Metlife are currently set to expire in April 2024, we are close to finalizing a long term extension with Metlife for each of these and we hope to have this wrapped up during the fourth quarter.
And finally regarding our common distributions. We recently raised our common dividend again to 4.64 cents per share per month. This marks a 32nd time, we've raised our common dividend over the past 35 quarters, resulting in an overall increase of 55% over that period.
With that I'll turn the program back over to David.
Okay. Thank you Louis and some nice report we continue to stay active in the market should a good opportunity to present itself.
But we are being more cautious on the acquisition front.
That's changing out there people have begun to reduce the price on some of their farms Ah it happens much quicker than other rigs, but on the land side. The owner of the property can always continue to operate the farm and make a few bucks Adil.
Additional points to make.
Just the final point I'd like to make.
We believe that investing in farmland growing crops that contribute to healthy lifestyle, such as fruits and vegetables and nuts follows a trend that we're seeing in the market today overall demand for prime farmland growing berries and vegetables remains stable to strong in almost all areas that we're in today.
When our farms are located today, particularly in both the coast East and West are.
We're getting good bad increases and overall farmland continues to perform well compared to other asset classes. For example, the decrease index farmland index, which is currently made up of about $16 $4 billion worth of agricultural properties has an average annual return over the last two.
25 years of 11, 4% with no negative years going down please.
There's so much better than the S&P index and the overall REIT index, each of which have had six or more negative years in which if you were getting out you were going to lose money. If you are in that.
There's a certain amount.
We've had zero in the farmland index. So it's a it shows its strength.
By being something that is always available for.
As to go out and finance.
Banks that we use are very interested in lending is more money of course, there at a higher price.
In closing just remember that purchasing stock of this company is a long term investment in farmland.
I think in investment and stock is two parts. It's similar to go that's a hard asset farm land it's dirt.
That has an intrinsic value because there is a limited amount of good farmland that is being used up by urban developers, especially in California, and Florida, where our many farms located.
And second it's unlike go in that.
As an alternate at asset, but it's an active investment with cash flows and investors getting money every month, we believe and it's better than a bond fund because we keep increasing the dividend which doesn't happen on time.
We expect inflation, particularly in the food sector to continue increasing over time, and we expect the values of the underlying farmland to increase as a result.
And we expect this especially to be true in the fresh produce food sector.
As it trends up more and more people in the U S eating healthy foods and continue to grow in that area.
Now I have some questions from those who follow US operator would you please come on and help us listen to some of these questions.
Thank you we will now conduct a question and answer session. If he would like to ask a question. Please press star one on your telephone keypad.
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Our first question comes from Rob Stevenson with Janney. Please proceed.
Hey, good morning, guys, David other than the four blueberry properties what are the other crops that are among the challenged operator farms that you guys are talking about.
Well, we have an oversupply of almonds in the marketplace today, So I would count that as one.
That is a problem, but the good thing about almonds as they're nuts, and you can pack them up and hold them for a while.
We found that international purchases of almonds have been down substantially.
And I don't know why that is other than.
They're expensive.
But we think that'll change and yeah.
No change I think in the next.
Next year.
Okay.
Go ahead.
No Ed.
I was just going to ask you know beyond the the Michigan Blueberry stuff I think you said that there was one in California are there any other markets, where you're having issues at this point.
We have a venue that's not making as much money as it should so I keep an eye on that.
Okay.
How are you guys thinking about you know the opportunity to re.
Release, these assets and what you'd get from that versus just selling them I'm, taking the proceeds and either repaying debt or buying something else and moving on.
Yeah, that's a daily conversation in this place and so as a result, we have one property in Florida, It's a fairly large large farm it's growing berries.
Produce now but the.
Push in that direction is directly competing with.
The Mexican produce that's coming out so as a result.
Most of the produce guys don't want to pay as much. So what we did is we located a couple of people who want to buy that.
It is directly in the line.
Development in Florida.
And somebody will makeup buchu of money, but if you think about it we'd have to carry it with a negative carry in order to get to the period, where we'd be able to sell that off there are some investors out there that don't really care for income they just want to hold it and sell it to some of the developers.
And so hopefully we get that done before the end of the year, but maybe not anyway I don't want to get myself in trouble I've done. This for mentioning that something is going to happen, but it's moved along we have a letter of understanding but it is not binding.
And we are currently getting the property in shape, so it will be transferred.
And I think it'll happen.
And the next.
90 days for sure.
Okay, and then last one for me is what's the rationale for buying incremental water at this point right you know given the environment right now and given that your cost of capital is it versus spending that money on our income producing farm.
Well on income producing farm would be lovely, but we don't have many of those for sale because the price they're willing to take so much higher than you can justify it based on the cash flows.
And that's throughout the industry. So this is not something that's just in strawberries, blueberries or almonds or anything else. It's very expensive out there now inflation is driving up the price of all the inputs to grow.
So almonds and.
Our stash shows are much more expensive to grow today than they were two or three years ago.
And the guys who are running our farms and renting from us are able to sell and make money, but they're not they're.
They're not making a lot of money and so as a result as soon as the fed stops raising rates for good.
And things to level out will go back into a mode that will allow us to do that we're already seeing some of the farms in California, and certainly in Florida come up for sale at lower prices and.
If you want to get out now, which as you probably remember about.
58, and now 80% of our farms are.
In the hands of families that are wanting to get out of the business or.
To somehow find a way to be more profitable.
That's for US that's the thing that's driving anything right. Now is if you want to get out you got to sell at a lower price than they had hoped they would get.
And that'll change in a year or two and those prices will be back.
And they'll sell to us the financing that we use will be in Vogue again, and therefore with the vacuum business. We've already seen three or four farms that are coming up for sale that we turned down because the price was too high and they're now starting to walk down the price. So I think.
We will be back in the business of buying farms Ah within the next year.
Okay. Thanks, guys I appreciate the time this morning.
Okay Latoya Who's next.
Our next question comes from Mike Albany's with <unk>. Please proceed.
Yeah, Hey, guys. Thanks for taking my questions.
The 10 initiatives I think that was largely a nice quarter.
Just I guess a couple of quick ones from me again on the acquisition front.
You talked a little bit about pricing any.
Insight into you know.
Implied cap rates are there any deals out there that have closed.
Obviously, you guys that.
You could point to or just to give us some sense of where cap rate stands today.
I think cap rates around 5.5%, maybe higher today, but it's a it's gotta go back down for us to get involved but there are some nonprofits that buy properties just for some E. S. G.
The reason, they don't really care about making money.
They want to make money, but they don't that's not the primary driver.
So there are some of those and I'd say, if you wanted to pay eight cap rates you could have all the deals you want.
I don't know how you'd ever finance that in today's marketplace.
So for us it means a time of making sure that the farms that we have are in good shape.
We're currently doing some of these deals now that with our existing farmers that will give us more income on a straight line basis as opposed to having extra money at the end of the year and paying us so trying to even out everything and make it work for us and we're in great shape, we've got cash.
We can stay alive for a three or four years, if we needed to do that.
But I'm expecting the marketplace to change pretty substantially in 2024.
Got it got it yes.
You're right you do have a healthy balance sheet you have plenty of liquidity you are in a position where you can kind of.
I guess wait this out a little bit just to dig into the tenant issues a little bit more from their perspective.
Obviously, they're seeing.
Property expenses going up in general from an inflationary expenses.
Financing gets more difficult and then you mentioned in like an oversupply in almonds, and I guess, where where are you seeing more of the AR issues arising from that is it really on the supply demand side of it is that the inflationary side I mean, what I guess the better question is what what would.
To help them out more disinflation coming down or just kind of a balancing out and their particular crop.
Had to and then that's all behind you know you were able to replace them on I think you said at a higher lease.
Okay.
The higher leased income and then the other caught up I mean, I guess using the one that caught up as an example, what what changed for that.
Well, they probably probably got a hold of all of their cost and and recharge the way that they are doing things.
Difficulty in selling to who we sell to which of the grocery store and so that's where they most of our products end up.
Is that the grocery stores arent passing all of that on there keeping a lot of it. So we're not we're not getting better prices for our almonds and pistachios and strawberries, we're getting good returns, but if we could get past the markup.
Safeways and.
Others are doing we'd be better off.
It all changes once once their grocery stores realize that they need us more than.
Anybody else almost because they got to have product to sell.
You'll see things change in the marketplace out there and for the person who caught up.
They're good farmers, but they just had a poor year and so they're in better shape today than they were.
When they stop paying or ask us to accrue something and not get paid cash for it.
We're in the business of course of paying dividends and we and that's our cost if you want to think about it that way so.
When you look at this as just another lift in the marketplace and hopefully in the next 30 to 90 days things will change I know people are surprised at what's going on in the marketplace in terms of interest rates.
This has happened I remember my first mortgage was about seven 8% and of course, they are back to those numbers now, but it doesn't last long and I think a lot of people are going ahead, and paying the 7% or 8% for our mortgages.
And quite frankly think that in a year there'll be refinancing things down to a lower rate and.
All of that's happening I think most of the people that are farmers out there today.
Alright in a good shape in terms of where they are in the marketplace and who they're selling to it just as it gets tight every now and then people go through those problems one of our.
One of our situations as.
The farmer died since about the third time, it's happened to us and the Lady who is trying to make a go of it with her son.
Is not nearly as strong as she had been she and a.
Farmer had been in the past and we're working with her about we'll probably find somebody else to take over that farm. If she wants to do that I'm just afraid sure get so deep and so we've been trying to work with her.
Yes, Sir.
And there isn't one thing that's going to fix everything other than interest rate.
Hi.
The markets change and everybody knows.
Corn and wheat are high priced items items today because of the war in Ukraine.
<unk>, which is a big producer in the drafts that have happened in Brazil, and Argentina, So they're riding high and people are paying big prices for that we went through six years of that being the reverse in which you can almost not give away some of that corn farms, but I think in the.
And the long term it all works out for everybody in the farming business you heard Louis talk about R. R.
Net asset value continues to go along and.
I just think.
Farmland side of the business is never going to be zero might go down or go up depending on what's going on in the marketplace, but.
It's never going to be like it was 1929, whereas the drops.
Couldn't couldn't get grown because they didn't have water today.
In.
California, we may drill down.
<unk> thousand eight to get water.
Or what are your.
Banking, our water that is putting it in the aquifer to be taken out later, when we need it.
This increase or decrease in the need for water.
It's going to be going on in California, as long in California exist. There just isn't any chance of one long period of time in which we have all the water we need out there. So that's why I went back and we are probably.
Well bank for the next two years I'd say this year, that's coming off the one it.
So summer of 'twenty 'twenty four.
We are extremely good shape on that.
It'll go down as we use the water and hopefully we don't have to use any water that would just mean that we're in better shape going forward.
I don't know Mike, it's it's it's hard to figure out this business because.
We are like the weather man that you'd listened to on T. V. You just got a 50 50 chance of calling it right. That's about what we have but on the long term we.
We do well.
Yeah, there's definitely a lot of moving pieces and I think you know the velocity at which rates have.
Rather than has put.
And you know a lot of you guys on their heels.
Just two more for me I want to go back to.
I guess, the pricing, particularly on like blueberries strawberries things like that I mean.
We've been through a few cycles here what is the propensity for.
I guess grocery stores to basically if you're going to be able to start to pass on some of those costs.
We all.
Due to the grocers kind of hold the cards there is a consumer driven.
What have you seen in the past.
The grocery stores got to have the produce and as long as there's produce at a lower price theyre going to go with the lower priced ones unless you're a high end grocery store and then you're going to want the best berries. So that you can get and youre willing to pay for them for US right. Now I think we're just in the middle of the cycle.
And at some point in time.
The grocery stores are going to realize that they have to pay up and they'll pay up.
But their grocery stores are making money today, and probably always will cause people got to eat.
And so as a result, the grocery stores will be places that they go we're not in the places that are difficult to defend and that would be.
Like for example, some of the places that people buy groceries.
The smaller stores and also the one off places.
You can get good.
Pricing if you go to the right grocery stores and there's one thing that's all of our people realize is that if you say you're going to be there for the grocery store strawberries.
On Monday.
And people go shopping you better be there because they are depending on you. They don't have any spare strawberries in the back.
Or anything else so as a result.
There's a symbiotic relationship between the two groups.
That'd be fine.
And we'll be fine.
Our farmers all know these grocers I remember when I had a farm out there and we.
We'd entertain that people from kroger's or Safeway, and we couldn't do much in the way of entertainment because they have these rules that they are buyers can't get perks or anything from any of the sellers.
But it changes and.
They will have to have products that we're making and we've got 60 products and most of them are in.
Front of the store, where the produce section is and so as a result, those are fast moving and they've gotta be fast moving because you've got.
Our limited time to keep a strawberry on the shelf for salad on the shelf and so as a result, we'll be fine people aren't gonna want food and Theyre going to go to the grocery store to buy it and that's where we dominate.
Our farmers are there.
Yes.
But I can't tell you, what's going to happen with the grocery stores I'm not a grocery store expert and I think if we have a lot of supply prices will go down if we have a limited supply of prices will go up.
That happens in every product and every region.
Yes.
We're growing strawberries in Michigan, you Gotta get you got a good price last year all of those those guys. All made a lot of money while they make it next year I don't know I don't think anybody knows because you know with the Mt.
Strong coming out of Michigan are going to be next year.
So got it thank you very Oh I'm sorry go.
Any other questions.
That was really really helpful contacts much appreciated my last question here. This is Rob.
Really geared towards Lewis.
Regarding the NAV.
Excuse me the net increase I mean can you just.
Drivers I mean is this is this more so on property pricing and what kind of changes in the cap stack of that their rates or I should say valuation techniques.
You know what with your balance sheet items that are driving the increase in NAV.
Yeah. The majority of the increase for both the quarter over quarter and from Q3 of last year was just due to the preferred evaluation.
Particularly for the year over year period.
The series C. Once we listed that.
Previously we had valued it based on a waterfall approach so held it at par twenty-five once it got listed its its mark to market based upon its closing stock price and as I as you know they've been trading India.
17, $18 range compared to the par value of 25. So that's that's that's been the bulk of it but there is there are components that are.
They were driven by the increases in fair value of our portfolio that is that has continued to increase but it hasnt been as significant as the change in valuation of the preferred.
Also if you remember we do value our our properties every quarter and when we get these third parties in.
They have been impacted the pricing for all the farms has been impacted about high interest rates.
And so as a result.
Prices of farms.
I've been impacted by the fact that you can't borrow cheap money now and so you can't do the deals that you wanted to do and so those properties and those valuations are taking into account the very extremes and that are going on in the interest rate marketplace now if interest rates come back down.
Don.
You may see a big bump in our valuations because right now their valuation people are saying well you can't sell it for that per day and so that's what we're waiting on is.
Those people that run the fed gotta get off the dime and stop.
Stop increasing rates.
When they do as they do each time.
And things will change in the valuations.
Yes that was that's a great point and that was really the basis for my question because.
Surprise or surprise for lack of a better term at how well the know how about given how quickly and dramatically interest rates have gone up but obviously.
You see that affect you in a kind of a couple of different places so.
That makes sense.
Very helpful. Thank you and that's it on my end I. Appreciate you guys taking my questions.
Latanya you got anybody that wants to ask another question. Yes. The next question comes from John My Soccer with B Riley. Please proceed.
Good morning.
Good morning.
So just kind of noticed any participation rents in the quarter were kind of down.
About 20% year over year, I know you don't really give guidance for for participation rates, but as you kind of think about <unk>, there's obviously another big quarter.
What participation rent perspective should we expect a similar kind of downtick or was there something kind of.
Unique about the third quarter.
I'd say, it's difficult to analyze the participation rate amounts in any one single quarter. Because for example last year, we may have gotten.
Information from properties, a b and C and this time, we get properties from B C and D.
So it's not always a one to one match I think we really need to be able to be looking at it on a kind of a full year basis. So that we're really capturing the full population.
As far as where Q4 is going to come in we are still gathering data, but I know in the past we've said that on it.
Annual basis, we do expect the 2023 participation rate amounts to come in.
Somewhere between the 21 amount of slightly north of $5 million into 'twenty, two amount of close to $7 million.
Hopefully we're on the upper end of that range, but we're still gathering data and finalizing the numbers vetting the information on our end.
Okay. That's very helpful and then in terms of kind of.
Some of the leases, where you either self operating or you've had some some tenant issues I mean.
Is there any of that debt.
Was it really reflected yet in the <unk> numbers, and what kind of flow through for Q or any you know.
Kind of immediate recovery, just how should we kind of think about that impacting NOI or maybe any other line items that some of the self operating stuff might be flowing through.
Everything's been captured so far the self operated properties I mean, they haven't been.
We didn't record any revenue from them in Q3.
The tenants that were on a cash basis.
Once well assuming they do eventually return to full accrual status get back on a GAAP rents you will see a small.
Increase in GAAP lease revenue just from capturing data the straight line effect again, just as we reversed that I think back in Q1.
But it's we're still we still want to see more from those tenants continued on time rate payments among other factors to before we put them back on accrual status.
Of the issues that we've talked about everything has was fully reflected in in the Q3 numbers.
Okay.
If you do get something from the self operated properties that can be kind of a onetime hit in and out of.
Quarter out there in the next 12 months or so or is that.
Just kind of how should we think about the potential impact from that.
Its self operated properties on the costs so far.
Now they've been deferred on the balance sheet is kind of crop inventories. So.
Once those crops are harvested the gross those costs will offset the the gross revenues as they come in as cost of sales and we will just recognize the net amount is in the P&L.
Okay.
That's it for me thank you very much.
Latanya, we got another question.
Yes. The next question is from Mike Whittaker with Newbridge Securities. Please proceed.
Good morning.
This will be brief I think most of that most of the answers are probably already been given but.
I'm looking at from an Investor standpoint, I used to have L. A N D O. When it went public I had L. A N D. P. Before it went public and now it's public and that's.
I'm talking to all of my clients. So that's down almost 30% is there anything outside of interest rates inflation or any of the things that you've been speaking up that's caused us to go down roughly 30% since June and is there any anticipation outside of interest rates going down or inflation going down.
It might cause these valuations if you go back up.
Well remember these securities are first out so they get in front of the common stock. So these are guys are in great position.
Fact that it's gone down is just the fact that interest rates have been changed by the fed.
And so as a result, you're competing with 5% and that you can get and T bills and.
Five year T bills are wonderful to whole.
These are good properties that are in this things.
You just can't get something as secure as is because it has all of our land is the first call on that so I can't believe that people are willing to give up.
The return, but it's just pure numbers.
Or do you want your piece of property to me here.
Security to generate and if it's got to generate more than 5% that's absolutely secure.
Then.
I don't have to do that so the price has to come down and this is a good reflection also on the people who own land.
Because they used to get real high prices for their property and now they can't get the high prices and so the only way to get that property sold is to drop the price of the property, but something that somebody will pay for and at the same things happening with those.
Preferred positions that those dock those are securities that your clients own same thing, they're going to get their dividend, but that's not enough today when they can.
Jumping out of well they can't jump out at a price, but they can sell and get something else to generate just as much income.
It's a L. L. A L. A N D O went public and went down and then obviously went back up to like $27 a share for a period of time. So it's just sort of like the just the time that we're in right now.
We feel that this is going to be.
Possibly going back up at some point when the market starts to come back up is there anything is there anything that's causing us outside of what we're talking about with inflation interest rates and so on.
Okay.
Asian inflation and interest rates that are very high now that people have many other alternatives to get the returns that are looking right I agree with you. Okay. That's the only question I had I appreciate it thanks for your time.
Latoya, we got any others.
There are no further questions in queue I'd like to turn it back to you Mr. Gladstone for closing comments.
I don't think anybody wants to hear anymore closing comments, but nonetheless, we had a good quarter.
A lousy quarter when you think about it in terms of interest rates above where we were bound by those.
Markets that are out there for securities that pay dividends and.
We're very happy that we're in good shape no downsides that we're looking at today so thank.
Thank you all for calling in and we'll see you next quarter. That's the end of this call.
Thank you. This does concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a great day.
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