Q3 2024 Gladstone Land Corp Earnings Call
You all for calling in today, we certainly appreciate you taking time out of your busy day to listen to our presentation.
Before I begin we'll start with Michael a counsel he's our general counsel Michael Thanks, David Good morning, everybody. Today's report May include forward looking statements under the Securities Act of 1933, the Securities Exchange Act of 1934, including those regarding our future performance. These forward looking statements involve certain risks and uncertainties that are based on a car.
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 listed in our forms 10-K, 10-Q, and other documents that we filed with the SEC and find them on our website, that's Gladstone land Dot com specifically go into the <unk>.
<unk> page and you always go to the Sec's website, which is www SEC that G. O Z 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 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 as well as adjusted <unk>, which further adjusts core <unk> for certain noncash items, such as converting GAAP rents to normalized cash rents.
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David: 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 with that I'll turn it back to David.
David: Thank you Michael.
David: I'll start with a brief overview as I do each time, just so we all know where we are we are currently on about 112000 acres on 168 farms in aby.
David: <unk> 4000 acre feet of water assets, one acre foot equal to about 326000 gallons. So we have nearly 18 billion gallons of water.
David: And together the land and the water or about it what about a total price of $1 5 billion. Our farms are in 15 different states and more importantly, they're in 29 different growing areas.
In our water assets are all in <unk> and.
In California, you don't need a store much water if you're in Florida, you can drill down and get water pretty quickly.
David: Farms are leased to over 90 different tenant farmers and the tenants on our farms are growing over 60 different.
Types of products, but mostly these are fruits and vegetables, and we have a lot of nut trees as well.
David: And you can find these produce these items in the produce section of the grocery store, which is where most of the crops that are grown on our farms are sold.
Speaker Change: We've been pretty active in leasing.
Speaker Change: Since the beginning of the third quarter, we executed 21, new or amended leases.
Speaker Change: Farms in eight different states, including leases.
Speaker Change: Only a couple of farms that were previously vacant.
Speaker Change: On an annual row crop farms, we renewed our amended eight different releases in these renewals are expected to result in an aggregate increase of net operating income of about $309000.
Speaker Change: Or 11%.
Speaker Change: Over that of the prior leases overall, we continue to see steady appreciation and consistent rents growing in our annual row crops.
Speaker Change: Which make up about half the portfolio.
Speaker Change: Our permanent crop farms Ah well, we renewed about 13 different leases there with four of these leases we adjusted the lease structure, whereby we eliminated the base rent and provide the tenant with some cash and growing the crops in exchange for that base rent, we see mythical.
Speaker Change: It increases their participation in the rent.
Speaker Change: Rent component.
Speaker Change: Of these leases the major of which will be recognized in the second half of 2025. So we're going to go through a little period here with base rents down as we stated in our prior car calls.
Speaker Change: Conditions around many of the permanent crop farms in the west have been hampered by lower crop prices higher inputs.
Speaker Change: And of course borrowing costs have gone up as well.
Speaker Change: In essence, I think farmland is a much better hold for inflation purposes, I know each time, we sell a property it's been because.
Speaker Change: We are offering really high prices, so let's stop at this point and and the operator, if you'll come on and tell people how they can ask questions that'd be great. Yes. So of course, if he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press star two if he would like to remove your question from the queue and for participants using speaker equipment may be necessary to pick up your handset before pressing the star keys. Our first question is from Colorado.
Speaker Change: MISO with Alliance Global Partners. Please proceed.
Speaker Change: Yeah. Thanks, good morning.
Speaker Change: So if things are like nine months out, 12 months out, it's not as pressing for us.
Speaker Change: Our revenue is about a fifth of it, 20%. We're staying in contact with the current tenants on those.
and I'm looking at the...
Sorry, give me a minute to...
I've been up to 25 leases.
Speaker Change: You're just trying to determine which are berries and which are nuts and those kind of things. Oh, OK.
Speaker Change: don't have that number readily available. Well about half of our farms are on the row crops, the berries and things like that, then the other half is in the nuts and those kind of areas.
Speaker Change: We do have some crops that are wonderful, and that is some of the olive trees that have been around for ages.
and they continue to prove solid.
I'm sorry, did you mention something, Rob?
Thank you. Bye.
Speaker Change: Yeah so I just looking at the list of 25 it looks like it probably is more skewed in terms of number of leases that are on the annual row crop side.
I can't give you an exact
Speaker Change: Probably 60% of the leases that are coming due are row crop and 40% would be of the permanent crop type.
Speaker Change: Okay, that's helpful. On the third quarter lease amendments, were these leases expiring in third quarter or they were amended for different reasons?
the leases that were amended in Q3
Speaker Change: Yeah, were they due for expiration or were they amended for different reasons?
Speaker Change: A few different reasons some of them were expiring in 2024 that we pushed out somewhere even expiring in 'twenty.
Speaker Change: A few different reasons. Some of them were expiring in 2024 that we pushed out. Some were even expiring in 2028 that we pushed out beyond that.
Speaker Change: 2028, they'll be pushed out beyond that.
Speaker Change: And there are a few others that were there were amended for other reasons as well but.
Speaker Change: and there were a few others that were that were amended for other reasons as well but I'd say in terms of ones that were pushed out there were there were near-term expirations that was probably only a handful of them
Speaker Change: I'd say in terms of ones that were pushed out they were they were near term explorations that was probably only a handful of them.
Speaker Change: Any other question Brian.
Brian: That's all thank you.
Any other questions, Rana? That's all. Thank you.
Speaker Change: Okay. Next question. Our next question is from Rob Stevenson with Janney Montgomery Scott. Please proceed.
Speaker Change: Okay, next question. Our next question is from Rob Stephenson with Jannie Montgomery Scott. Please proceed.
Rob Stephenson: Good morning, guys Lewis the 11th Blueberry farms are part of that 20 vacant direct operated or non accrual correct.
Rob Stephenson: Good morning, guys. Lewis, the 11 blueberry farms are part of that 20 vacant direct operated and non-accrual, correct? Yes, correct. That you have for sale? Okay, and I think David said that you had another farm that you've agreed to sell. Is that part of the 20 as well?
Rob Stephenson: Yes, correct, Jeff Ourself, Okay, and I think David said that you had another farm that you've agreed to sell is that part of the 'twenty as well.
Speaker Change: No that one is leased through middle of next year.
No, that one is leased through middle of next year.
Speaker Change: Nothing I mean and of course, just an agreement we've entered into that.
Speaker Change: Nothing imminent, of course, just an agreement we've entered into that...
Speaker Change: <unk> closed in early next year, but nothing certain at this point.
Speaker Change: Could close early next year, but nothing certain at this point.
Speaker Change: Okay. So.
Speaker Change: A quarter from now when you're reporting fourth quarter, if that blueberry farm sale goes through the number of vacant direct operated non accruals should be basically halved at that point right.
Speaker Change: Okay so by the you know a quarter from now when you're reporting fourth quarter if that blueberry farm sale goes through the number of vacant direct operated non-accrual should be basically halved at that point right?
Speaker Change: Yeah I think.
Speaker Change: Assuming that that does close which it should close in I'm.
Yeah, I think...
Speaker Change: Assuming that that does close, which it should close this year, I think we'll be left with one vacant property, one direct-to-operated, and then five farms on non-accrual basis.
Speaker Change: It should close this year.
Speaker Change: We'll be left with.
Speaker Change: One vacant property one direct operated and then five farms on on nonaccrual basis.
Speaker Change: Okay. That's helpful and then anything else at this point, it's looking like it's headed towards non accrual or are you fairly comfortable with the remaining farms in the portfolio at this point.
Speaker Change: Okay, that's helpful. And then anything else at this point that's looking like it's headed towards non-accrual, or are you fairly comfortable with the remaining farms in the portfolio at this point?
Speaker Change: We're comfortable with the collectibility of of ran from the other tenants right now it's really just two tenants that are there on five of our farms in total that have had issues.
Speaker Change: We're comfortable with the collectability of rent from the other tenants right now. It's really just two tenants that are there on five of our farms in total that have had issues.
Speaker Change:
Speaker Change: We have some other leases expiring debt later this year that we're working on a lease amendments for.
Speaker Change: We have some other leases expiring that later this year that we're working on lease amendments for.
Speaker Change: It could be a combination of well there's one apartment crop farms are the ones that are expiring later this year will likely be a similar situation where we are.
Speaker Change: It could be a combination of, well these are on permanent crop farms, so the ones that are expiring later this year will likely be a similar situation where we
Speaker Change: We have to remove the base rent and.
Speaker Change: More on that the participation rent bucket for next year, but we don't expect those to go on non accrual basis.
Speaker Change: Okay, and then last one for me the NAV decline, if I think about the $4 76.
Speaker Change: You know.
Speaker Change: Versus of decline how much of that I think you said you indicated that a lot of that was the permanent crops.
Speaker Change: But is any of that the row crops, how should we be thinking about the row crops. So the row crops.
Speaker Change: Permanent crops, 100%, it's 100% permanent crops either for dollar I guess, you're talking about year over year from 932023 that decline is probably about half $2 ish portfolio evaluation, and then $2 due to just changes in market rates that changed in preferred stock and debt valuation.
Speaker Change: But on the portfolio side. It is strictly the the permanent crops side, we are seeing.
Speaker Change: Pretty much the same appreciation in our row crop ground as we have since our inception, you know the typical two to three 4% per year and we are we still see that today.
Speaker Change: But the depreciation values is on the particularly on the permanent crops side.
Speaker Change: Okay, and Thats helpful and talk and talking about a number of crops. The ones. We had in Michigan that we sold at auction.
Speaker Change: There are a lot of small farms there we put those on the books when we were tiny and just beginning in the area. So we made a mistake of.
Speaker Change: Picking that one tenant who was very careless and got himself in trouble.
Speaker Change: But that will all be gone this year.
Speaker Change: Okay. Thanks, guys. Appreciate the time this morning.
Speaker Change: Sure Alright anybody else have a question.
Speaker Change: Yes. Our next question is from Craig Kucera with.
Speaker Change: Lucid capital markets. Please proceed.
Speaker Change: Yeah, Hey, good morning, guys I may have missed this but what would the crop types and locations for the arms were you restructure the leases.
Speaker Change: Yeah.
Speaker Change: Two our pistachios and two our wine grapes.
Speaker Change: Got it.
Speaker Change: And was there any impact to fixed rent this quarter from the restructuring or is that expected beginning in fourth quarter.
Speaker Change: There was a little bit this quarter.
Speaker Change: This quarter is probably about.
Speaker Change: Well, if you take out the participation rents.
Speaker Change: Maybe a 500000 to a million dollars decrease from I guess, the normalized level, but.
Speaker Change: That was more on the wind great farms, because theyre more in the calendar year and that those restructuring has happened earlier in Q3 on the tube stats, you'll farms those that switchover will start in November November one.
Speaker Change: So we'll have a.
Speaker Change: A portion of it.
Speaker Change: In fact in Q4, and then all of it impacting Q2 quarters, one two and three next year.
Speaker Change: Okay.
Speaker Change: And kind of changing gears looking on participation rent side, there was a pretty good strength year over year was there any particular crops where that strength came from.
Speaker Change: Pistachios production on our perpetual farms, so far I mean, we don't we don't have the data in for all of the the full population of of the properties that have crop share but of the ones. We've received so far that's the that's the one kind of year over year change. We're noticing is the crop share now.
Speaker Change: Pricing overall, we are seeing as David said, we are seeing that trending in the right direction, but.
Speaker Change:
Speaker Change: Pricing is kind of two components.
Speaker Change: Earlier in the in the harvest year, you're told what the minimum pricing is that processors will pay and then about a year or 15 months later they tell you what your your bonus and jetson amounts are due to quality quality bonuses, just marketing adjustments that happened over the marketing period those amounts aren't known yet.
Speaker Change: We can't really compare year over year pricing, yet because we don't know the final component of the pricing we won't until.
Speaker Change: We should have a good idea.
Speaker Change: In December but it won't really be known until probably January maybe February.
Speaker Change: Got it and just kind of thinking about here in the fourth quarter I think last few years. Your your fourth quarter participation rent has been maybe $40, 60% higher than what you got in the third quarter or is that is that kind of ballpark with what you guys are expecting here in the fourth quarter.
Speaker Change: That's what we're hoping for we're still we don't have all the data to say for sure but.
Speaker Change: That's kind of what we're hoping for as well.
Speaker Change: Okay. Thanks, that's all for me.
Speaker Change: Yeah.
Speaker Change: Okay do we have any other questions. We have one final question from John Masako with B Riley Securities. Please proceed.
John Masako: Good morning.
John Masako: Good morning.
John Masako: So maybe touching on the Michigan blueberry farms that you sold.
Speaker Change: What's kind of the NOI impact from that where those.
Speaker Change: Putting off any cash flow for you or were they kind of an NOI drag given some of the operating issues there historically.
Speaker Change: They were definitely in NOI drag.
Speaker Change: We've had tendency issues with these particular funds for a while I think if.
Speaker Change: If you look at the last year or so the average quarterly drag on NOI was about $125000 and not to mentioned the interest expense was probably another 40000, so call. It all in $165000 or so drag on net income.
Speaker Change: The amounts we are receiving is they are enough to pay off the debt. So will be relieved of the NOI drag and also the interest expense.
Speaker Change: Okay.
Speaker Change: And then thinking about the lease changes in the quarter just to kind of clarify that $20 million annualized number you're talking about the kind of moves from being.
Speaker Change: Steady on a four quarter basis to it.
Speaker Change: Participation rents are as expected backend.
Speaker Change: Backend loaded in 'twenty five.
Speaker Change: All of those numbers that's just the.
Speaker Change: In the nine properties that I believe it is where you moved into this percentage right.
Speaker Change: Situation that pulled all of the products.
Speaker Change: Yes.
Speaker Change: Properties.
Speaker Change: And the new leases, we removed that participation rent component and in some cases, we gave the tenants a cash allowance to cover certain cap.
Speaker Change: Capital and operating costs.
Speaker Change: Those two numbers together its about US is what makes up that $20 million swing.
Speaker Change: That will decrease our fixed base rents over the next.
Speaker Change: Five quarters, beginning with this Q4 'twenty for them again.
Speaker Change: Quarterly rate quarterly decrease range about three and a half of $45 million.
Speaker Change: And then in the second half of 'twenty, five we will be able to record the majority of the resulting crop shares now there will be a portion what does but I was just mentioning about the the second component to the pistachio pricing the bonus marketing adjustments those.
Speaker Change: That amount will not be known until.
Speaker Change: The second half of 2026, so if I had to guests today, we'd probably be able to record about 75% to 85% of the resulting total crop share amount in second half of 'twenty five but the remaining amount in the second half of 'twenty six.
Speaker Change: Okay.