Q2 2025 Gladstone Land Corp Earnings Call

Speaker #1: Greetings. Welcome to GLADSTONE LAND Corp second quarter earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation.

Speaker #1: If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Mr. David Gladstone, Chief Executive Officer and President.

Speaker #1: Thank you, sir. You may begin.

Speaker #4: All right. Thank you. That was very nice introduction, and this is David Gladstone. And welcome to the quarterly conference call for GLADSTONE LAND. And thank you all for taking the time out of your day to listen to our presentation.

Speaker #4: Before I begin, we'll hear from Katherine Gerkes, our Director of Investor Relations, and she handles the ESG stuff as well. So, Katherine, give us an introduction here.

Speaker #5: Thank you, David, and good morning. Today's call may include forward-looking statements, which are based on management's estimates, assumptions, and projections. There are no guarantees of future performance, and actual results may differ materially from those expressed or implied in these statements due to various uncertainties, including the risk factors set forth in our SEC filings.

Speaker #5: What you can find on the investor's page of our website, gladstoneland.com. We assume no obligation to update any of these statements unless required by law.

Speaker #5: Please visit our website. For Form 10Q and earnings press release, both issued yesterday, for more detailed information. You can also sign up for our email notification service and find information on how to contact our investor relations department.

Speaker #5: We are also on X, @GladstoneComps, as well as Facebook and LinkedIn. Keyword for both is the Gladstone Company. Today, we'll discuss FFO, which is funds from operations, a non-GAAP accounting term defined as net income excluding gains or losses from the sale of real estate and any impairment losses on property, plus depreciation and amortization of real estate assets.

Speaker #5: We may also discuss core FFO, which we generally define as FFO adjusted for certain non-recurring revenues and expenses. And adjusted FFO, which further adjusts core FFO for certain non-cash items such as converting GAAP rents to normalized cash rents.

Speaker #5: We believe these metrics can be a better indication of our operating results and allow better comparability over our period-over-period performance. Now, I'll turn it back to David Gladstone.

Speaker #6: Well, thank you, Katherine. Let me just remind everybody of a brief overview of our farmland holdings. We have about 103 acres. And 150 different farms.

Speaker #6: And we have over 55,000 acre-feet of water now and acre-foot. Doesn't mean much to you, but it transfers into about 18 billion gallons that we own.

Speaker #6: And we have it stored in aquifers in different places. And our farms are in 15 different states. And our water assets are all in California.

Speaker #6: Our farms are leased to over 80 different tenant farmers who grow 60 different types of crops on our farms. Most of these are the kind of food that you can find in the produce section of your local grocery store.

Speaker #6: Such as fruits and vegetables, and also nuts. We continue to be cautious, and that made no new investments because interest rates and the expenses running these farms are so different now than they were when we first started.

Speaker #6: A cost of capital remains so high, and the cap rates on most of the row crops are still high. And so if you buy one of these farms and then have to farm it, these are very difficult times for the farmers.

Speaker #6: So we didn't complete any sales during the quarter, but we have one property and that one property is in Florida. And

Speaker #7: Yes.

Speaker #6: So, we are classifying our financials as held for sale. This property consists of two farms in Florida that are currently under signed purchase agreements.

Speaker #6: And we expect the sale to close soon. And that would result in a nice gain for us. by the ay, in Florida, a lot of the farms are being sold to be transferred into or reclassified into housing.

Speaker #6: So we're not in the housing business, so we sell our farms when the when the housing folks show up and need more land. I want to touch on some modifications we made in our lease structure on certain of our farms.

Speaker #6: Again, and I know we've said this, but I want to make re you understand it. As it has a significant impact on our earnings pattern.

Speaker #6: I think we mentioned it in the prior call. Market conditions around many of these permanent crops in the West particularly. Are those growing nuts and grapes and we have, we have a lot of price crop prices that are different and they're not, they weren't very high, but this year has a little bit of different blacks on it.

Speaker #6: And I'm hopeful we have a lot of almonds, for example, and the government publishes every year their guest of what how many almonds are going to be out.

Speaker #6: And the last five estimates over the last five years were not conclusive, but the government and their projections and the first two of the five years were well, they didn't guess exactly right, but we had more almonds than was estimated by the government.

Speaker #6: And then the third year out, they were right on target. And then the last two, we just got and boy, I'm telling you, if the government's right this year, we make a lot of money.

Speaker #6: Anyway, we've decided to adjust the lease structure on six properties, and that's why these estimates we hang on them so much. We aim to minimize the fixed costs, but also allow us to participate in the upside.

Speaker #6: So we have moved from being a leaser and more of an operator. We're a grower of sorts because we're taking some of our payment for the lease in the part of the crop that is being grown.

Speaker #6: In essence, we accepted a percentage of the gross crop sales instead a fixed rent payment. And we did that because it was a very difficult time in the last two years, last three years really, for farmers and we also decided to operate two properties.

Speaker #6: Ourselves with the help of a third-party operator. And it doesn't mean you're going to see me or any of the people out there on the farm harvesting or doing whatever.

Speaker #6: We really have like many people who are in this business have hired third-party operators to run the farms. We'd like to tradition all the transition all of these back to the more traditional structure of including fixed-based rents.

Speaker #6: But our ability to do so will depend on several external factors such as crop production, pricing, interest rates, input costs have not gone down.

Speaker #6: They've gone any place in this world, but up. And what our ailability, that's a key on our farms. We've purchased enough water and stored it so that we're good for many many years out.

Speaker #6: One of the reasons we felt confident in growing this route is that particular farms that we have out— and we have eight now— are in this kind. These are farms that had really good crops in prior years.

Speaker #6: Because the crop insurance coverage we've gotten you can buy crop guarantees on your historical yields. And that means secure high levels of crop insurance.

Speaker #6: So we have crop insurance on all eight of these farms. Should a hurricane come through and blow all the things down, we're still going to get paid what we would have gotten paid.

Speaker #6: We think we would have gotten paid in in our existing farms. We certainly hope that even though we're covered with crop insurance, we hope that the base rent is strong production from these farms.

Speaker #6: They've done so in the past, so that we don't need to rely on crop insurance, in which our profit could be significant. Regarding leasing activity, we still have a lot of farms that are under leases, of course.

Speaker #6: And we're real estate investment trusts, so our leasing is just in sync with that kind of structure. Regarding leasing activity, when it entered into four new standard leases, agreements during the quarter, and expect to results aggressive increase in our annual NOI of about 166,000.

Speaker #6: Or about 9%. So that part of the business is working still very well and we'll see when we harvest the crops that we will own part of.

Speaker #6: We'll look like in the future. So looking ahead, we have 14 leases scheduled to expire through the rest of due to some of these leases containing no fixed-based rent.

Speaker #6: Including cash leases that we're working these leases actually account for negative 2.8 million of leasing revenue during the first half of the 2024. Remember, we can't put in our estimates even though we have insurance on it.

Speaker #6: And so those are negative drag until the crop comes in. So we won't know that until the fourth quarter. We'll know little bit more next time we meet in the third quarter.

Speaker #6: And that's largely because the participation rents resulting from these leases won't be recognized really until we get to the fourth quarter. That's the accounting standards.

Speaker #6: I don't know why we can't recognize some of it, but that's the rules. Unless you have sold something and are trying to collect on it, you can't accrue any of it.

Speaker #6: We're in discussions with both the existing and prospective new tenants about the leasing on these farms, including reverting some of these back to leases on standard leases with fixed-based rent.

Speaker #6: Or if the price is right, we may also look to sell a couple these farms as I mentioned. We've one that's going to get sold in Florida.

Speaker #6: That's because the housing boom down there is unbelievable. So I'm going to stop here and call on Bill Reiman. Bill is working with all of the stuff in California.

Speaker #6: Been hard at work because we've moved from just collecting rents to actually working with the people we hired to farm them. And so Bill, why don't you come on now and talk to us about that?

Speaker #8: Thank you, David. Yeah, sure. Good morning, everybody. Just to talk a little bit about the eight properties that are under modified lease agreements or being directly operated by third parties.

Speaker #8: Three these properties are wine grape vineyards. And with wine grape economics, as they are, we hope to recover most of our costs on these.

Speaker #8: If we break even, that'll be a huge win. The remaining five properties consist of two pistachio orchards, two almond orchards, and a large property that has both.

Speaker #8: So based on planted acreage, about 60% of these eight properties are in pistachios, with about 35% of the acreage in almonds. So overwhelmingly, our focus is on these two nut crops.

Speaker #8: We're very pleased with the condition of the crops on all eight properties. We expect above-average crop yields, and crop quality looks excellent. As David mentioned, you know we're fully insured on all of these.

Speaker #8: These properties the nut perties have really strong historical production so they they all look above I would say the crop looks excellent. We've been working with five different tenants or operators across the eight assets.

Speaker #8: And all five growers are performing at a very high level for us. And you know they're achieving an acceptable standard to us. So all positive stuff there.

Speaker #8: In addition to that, you know we had a wet to average winter this last winter. And the growing season has been, I would say, nearly perfect.

Speaker #8: In the west and the entire western US. So that is certainly a factor that we don't control, but we've been we've been very, very fortunate.

Speaker #8: Going into crop markets, we have generally seen the markets for many of our crops and commodities trend lower in the last few months.

Speaker #8: Trade negotiations, tariff talks, certainly play a major role in this. But traditional supply-demand dynamics are ally the main drivers. Particularly behind crops such as almonds and wine grapes, which are really important to us.

Speaker #8: These industries have seen orchards and vineyards being removed at historically large scale. So sometime in near future, we expect those markets to to turn.

Speaker #8: Over the past year, we've seen almond markets definitely turn a corner, trending upward. David referenced the USDA's almond-objected forecast that was released in July.

Speaker #8: The number they put out was massive. Higher than anybody expected. And nobody really believes it. But it caused a about a 20% drop in almond prices about about a month ago.

Speaker #8: So it wiped out all of the pricing gains of the last year. And got back down to what prices were a year ago. But in the last couple of weeks, we've seen pricing really come back.

Speaker #8: It's up 5% 8%. That was as of a week ago. And this past week, just this week ending, we're up another 3% or 4 cents a pound.

Speaker #8: So we definitely have good almond market momentum, and we expect that to continue. Harvest just started. We're shaking trees in all of our almond orchards.

Speaker #8: As of right now, so for the next several weeks, we'll start to see how the industry actuals compared to the objective. All eyes are on that because that will support more price gains if we are at a slower rate than the USDA projected.

Speaker #8: Coffee op talk as of today. Crop is coming in light. So that's actually probably good news for us because it will strengthen the market.

Speaker #8: Wine grape markets still mired in their low points. And it's been slow this summer to get contracts. But in the last 10 days, we've had a number of inquiries on some of our crops for contracts and the pricing is significantly higher than a year ago.

Speaker #8: So there are a couple of positive signals there. Pistachio is really probably the best market out there right . Same thing with tariffs and trade discussions have really created some uncertainty.

Speaker #8: But we see very strong demand, increasing demand. And in fact, a little bit of that was unexpected. And it caused the 2024 crop to be sold out early.

Speaker #8: So as we sit here today, you know a month away from harvest of the 25 crop, there's very little movement because there's very little product.

Speaker #8: So we have very low inventories going into 2025. So 2025 is going to have the probably the largest US pistachio crop on record. But we have good strong demand and good stable pricing.

Speaker #8: In fact, our guaranteed base price came out a few weeks ago. And it is the same as last year's. And that's exactly what we budgeted for.

Speaker #8: So we do have one of the unknowns is now known. So we know what our base pricing is for our pistachio crops. So that's good.

Speaker #8: We're happy about that. While profitability is not nearly as strong as the boom time from 5 or 10 years ago in pistachios, the market fundamentals are very strong.

Speaker #8: We generally see this increase in bearing acreage, which you ow every year the pistachio crop grows. Coupled with some trade uncertainty, particularly with China, we see those two negatives being balanced out by a reduction in new plantings, not a lot of new trees going in the ground.

Speaker #8: Well water pumping restrictions due to the signal in California. It's going to hurt some orchards that have been planted in the last 10 or 15 years in areas with weak water rights.

Speaker #8: And we're eing very strong increase consumption in the EU. Particularly due to the Dubai chocolate phenomenon. So a lot of positives to balance out the negatives.

Speaker #8: The last I'll end it on some talk about water. We've always you know we've been reporting in the past how the western US has been in a normal to wet cycle the last few years.

Speaker #8: Including this most recent winter. This has created quite a few water buying opportunities at prices that really fit into our crop budgets. So we've been very aggressive and focused on improving our delivery and storage infrastructure across the portfolio.

Speaker #8: So coupled with the availability of inexpensive water, we've really done a good job of improving the water security of the farms. We continue to add to that 55,000 acre-feet of water and we have certain areas where our farms have enough water.

Speaker #8: If it didn't rain for 10 years, we could still irrigate them. For about a decade. So we're spending a lot of time trying to figure out how to synergize our property's coordinate them with each other, where they can share water.

Speaker #8: And just improve the overall security of the portfolio. We'll continue to do that looking long-term, short-term water purchases. Improving the continued to improve infrastructure.

Speaker #8: And just working towards really having a secure portfolio in that regard. So that's it for me. I'll turn it over to our CFO, Lewis Parrish.

Speaker #4: All right. Thank you, Bill. And good morning, everyone. I'll start with a quick update on our recent financing activity. During the quarter, we refinanced a $10 million maturing loan with MetLife.

Speaker #4: And after quarter-end, we repaid a $10 million maturing bond in anticipation of selling the underlying property later this month. We do not issue any new equity during the quarter.

Speaker #4: Turning to our operating results, for second quarter, we recorded a net loss of about $7.9 million. And a net loss of common shareholders of $13.9 million or 38 cents per share.

Speaker #4: Adjusted FFO was negative $3.4 million, or $0.10 per share, compared to a positive $3.7 million, or $0.10 per share, in the same quarter last year.

Speaker #4: The dividends declared for common shares were 14 cents in both quarters. The year-over-year decline in FFO was driven by recent changes to lease structures on certain farms and ongoing tenancy issues that resulted in farm vacancies, leading to reduced revenues and higher costs, along with lost revenue from farms sold over the past year.

Speaker #4: Fixed-based cash rents were down by about 6.8 million from the prior year. Prior quarter, due to the reasons just mentioned, mainly the vacancies would continue to work through and the structural changes made to certain leases, where we reduced or eliminated fixed-based cash rents or, in some cases, provided cash lease incentives to certain tenants on exchange for significantly increasing crop share components.

Speaker #4: And as others have mentioned, the results from these crop share components won't be known until the harvest is complete and the rops are sold.

Speaker #4: Year-over-year participation rents were also down, but it's largely due to the accelerated recognition of certain revenue in 2024. Last year, some information became available to us earlier than usual, which allowed us to record certain revenue amounts in the first half of the year.

Speaker #4: So far, this year's participation rents have mostly come from cash collections on wine grape sales. I will note that we continue to expect higher participation rent levels in the second half of 2025, as a result of the lease modifications we made on certain permanent crop farms.

Speaker #4: When we discussed this on prior calls, but these lease changes are expected to reduce fixed-based rents by about $17 million for fiscal year 2025 compared to '24.

Speaker #4: This figure includes both the base rents recognized last year under prior leases, plus the cash allowances provided to certain tenants for 2025 crop year.

Speaker #4: Being shown as a reduction in fixed-based rents at a rate of roughly 4 to 5 million dollars per quarter in 2025, which is in line with the first half of the year.

Speaker #4: And in turn, the majority of the resulting crop share proceeds from these leases is expected to be recognized as participation rent in the fourth quarter of 2025, with most of the remaining smaller portion being recognized in the second half of 2026.

Speaker #4: So in essence, we're shifting this revenue from fixed-based rents to participation rents over the next couple of years. And as a result, earnings this year will be more heavily weighted towards the fourth quarter, with lighter earnings during the first half of the year.

Speaker #4: On the expense side, excluding reimbursable items and certain non-recurring or non-cash charges, our core operating expenses decreased by about $200,000 this quarter. The capital gains fee that was triggered in Q1 by property sales was reversed in Q2 due to additional losses incurred on certain asset dispositions.

Speaker #4: So excluding this reversal, total related party fees fell by about $67,000, driven by a lower base management fee due to recent farm sales. Now the capital gains fee, if any, is not payable until after the end of the fiscal year and is subject to further adjustment throughout '25, if and when we dispose of the additional assets.

Speaker #4: Our remaining cash operating expenses decreased by about $135,000, with lower G&A costs partially offset by higher property operating expenses. The increase in property operating expenses was largely driven by additional costs incurred to protect water rights on certain farms in California, as well as higher expenses related to farms that were vacant, directly operated, or on non-accrual status, particularly increased property taxes, which were previously the responsibility of the former tenants.

Speaker #4: The decrease in G&A expense was mainly due to lower shareholder-related costs and reduced professional fees. Finally, other expenses decreased mainly due to lower interest expense driven by loan repayments made over the past year.

Speaker #4: Turning to liquidity, we currently have over $150 million of available capital. And we also have nearly $170 million of unpledged properties that we could use as additional collateral if needed.

Speaker #4: Over 99% of our borrowings are at fixed rates, with weighted average rate of 3.39% locked in for other 3.3 years. This has helped shield us from the impact of rising interest rates over the past few years.

Speaker #4: Looking ahead, we have about $17 million of scheduled principal amortization payments due over the next 12 months, less than 4% of our total debt.

Speaker #4: We also have about $11 million in loans with fixed-rate terms expiring in the next year, though the loans themselves are not maturing. And finally, regarding our common distribution, in July, we declared monthly dividend of 4.67 cents per share for the third quarter of '25.

Speaker #4: And at our current stock price of 9.14 cents, this represents a 6.1% annualized yield, which is well above the sector average. We're taining the dividend at its current level for now.

Speaker #4: And we'll reevaluate it in the coming months as we gain more clarity on the 2025 harvest results. And with that, I'll turn it back over to David.

Speaker #4: Okay. Thank you, Lewis. I think everybody's getting the gist here. We have changed when we can recognize income. And we won't recognize I would recognize very little in the second quarter.

Speaker #4: But hopefully in the third and fourth quarter, certainly the fourth quarter as we sell a lot of our crops. We'll be back in the game of lots of profits.

Speaker #4: So one thing you may not know, I didn't realize it was going on on Friday until I got a call from Lewis and our legal team.

Speaker #4: There was a group out there trading on the market with dollar sign L-A-N-D. These meme players were just having a lot of fun playing with each other on the price.

Speaker #4: Knocked about a $1.00 off the price of our stocks. So it is not good for us. And it takes a long time to get back from these meme stocks.

Speaker #4: And be regularly traded. Going back to the acquisition outlook, we continue to stay active in the market. And we are seeing a lot of changes that are going on in terms of what farmers are able to sell their properties for.

Speaker #4: And I think we'll be le to sell some more properties over time. And again, just move it in the direction we have to based on the way we're operating the company now.

Speaker #4: With cost of capital remaining so high, it really worries me that the the marketplace is going to have to go through some changes. Overall demand for prime farmland growing varies in vegetables remains stable.

Speaker #4: And among all of the areas where our properties are, especially along the coast of California. As mentioned earlier, prices for certain permanent crops have been depressed.

Speaker #4: And when we say permanent crops, we're really talking the nut and business. A lot of trees out there. And the only good thing about all of those trees is they're harvested mechanically.

Speaker #4: So we're not really being bothered by the impact of any changes in how much you have to pay people to pick crops. We still worry about that because so many of our properties are strawberries and other things that are done quickly and shipped quickly.

Speaker #4: So for us, we're problems for us has been the fact that we can't recognize any projected income and now we're all sitting twiddling our thumbs trying to figure out when we're going to be able to get some real transactions done.

Speaker #4: As Bill's mentioned, he mentioned that they are now starting to sell and deliver some of the crops, the nut crops. And I don't want to sell any right now, Bill wants to wait and see what the crops really look like.

Speaker #4: So we are all expecting inflation, particularly in the food sector, to continue to increase over time. We expect the value of the underlying farmland to increase over time because the crops can go up.

Speaker #4: And so, as long as they can make money, people will continue farming. We expect this to especially be healthy foods, such as the fresh fruits and vegetables we grow, as well as the nut crop.

Speaker #4: Trend of more people going toward eating healthy foods and especially the new HDA, guy, is let's face it, he does not like all the garbage that our people are eating.

Speaker #4: And it leads to a lot of truth with regard to that. So expect Mr. Kennedy to continue to bring about that. And I think it's good for us because more people buy healthy foods like nuts and berries. We have the largest farm based on cabbage of anybody I know.

Speaker #4: And so as a result, that's still making money. Now we'll get some questions and rather than me bumbling along, we'll get somebody to come on board and ask some good questions.

Speaker #4: So operator.

Speaker #9: Yes, sir. If you would like to ask a question, please press star run on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

Speaker #9: You may press star two if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your headset before pressing the star keys.

Speaker #9: Our first question is from Gurav Mehta with Alliance Global Partners. Please proceed.

Speaker #10: Thank you. Good morning. I wanted to follow up on your comments around participation rents. The $17 million that you guys talked about—how much of that are you expecting in Q4 of '25?

Speaker #10: And how much are you going to go the next year?

Speaker #8: So, of the $17 million, it's difficult for us to say right, because we don't know what the total number is going to be. If, for example, we have a poor harvest result, then the participation rent that’s coming from those leases could be less than that amount. If we have a great harvest and great pricing, then it could be higher.

Speaker #8: But the split between this year and next year, I think we're penciling probably about 60 to 65% this year. And the rest would be a little bit throughout the year, but most of it would be probably in Q4 of next year.

Speaker #10: Okay. And so the way these leases work, would they automatically go to fixed rents or they're going to get renewed at the participation rent?

Speaker #8: I'm sorry. Could you repeat the question, please? You're.

Speaker #10: Well, I think.

Speaker #8: .

Speaker #10: You mentioned that you guys.

Speaker #8: They never they never automatically convert to fixed and so we'll have to negotiate that again when the time frame comes up and that's usually before this year end.

Speaker #8: This calendar year end. Yes. These leases end later this year. So we'll be renegotiating them if if we can come to terms on a standard lease that's that's great.

Speaker #8: But if not, then we may have to continue this structure for another year.

Speaker #10: Okay. And then maybe switching to the balance sheet, can you talk about your expectations for the Series D that's up for redemption in January of 26?

Speaker #8: Yeah. So we're still keeping our options open. We're in touch with underwriters. We're talking internally about cash availability using line of credit. So we can our options are we could pay it off with potentially with proceeds from property sales, the line of credit.

Speaker #8: That is about $1.7% lower than the rate that the Series D would go up to. We can let it sit out there. would go up to from 5% to 8%.

Speaker #8: We at current market rates of refinancing, that still is probably a more favorable option just in terms of what the refinancing rate would be plus all of the upfront costs, commissions, and whatnot.

Speaker #8: But right now, re still kind of assessing things internally. Cash availability, line of credit. Seeing what makes sense. To do come January, either pay it off or let it sit out there for a little bit, sell properties, and pay it .

Speaker #8: And Gurav, it's one the things that's so good right now is that the possibility of us making a lot of money from selling these products for example, we could make just best guesstimate right now $8 million from selling one of our nut crops.

Speaker #8: And so for us, we've watched people do this for a long time. Unfortunately, the cost of capital and also all the changes that have gone into the farming area, it just destroyed a lot of our wonderful tenants.

Speaker #8: And one fellow I remember made a lot of money in years past, but now has lost about $8 million because of the changes that have gone on.

Speaker #8: So we want there to be a big crop and everybody to make money, but the other thing that goes on is when you have a big crop, you have prices go down.

Speaker #8: So if you're the first to market and sell it out, it can make more money than if you if you wait. Right now, we believe this first tranche that's coming in, first buyers coming in, they're people that are way behind and need it because they don't have if you're in the candy business and you need a lot of nuts, you got a problem.

Speaker #8: I don't know where they're going to get them from, but it's going to be very interesting. I think you're going to see the prices move up pretty fast.

Speaker #8: During the next year, so from my standpoint, I think we're going to e an influx of a lot of people who want to get in the business of growing crops in the nut area.

Speaker #8: The nut area has been difficult for us. We've caught it just at the wrong time. And now it's coming back. And it will help a lot if the ones that have bought a lot of nuts on the international field like all of the people that are in this business are very dependent on the Chinese to buy a lot of nuts.

Speaker #8: And they're very dependent on other countries and I was surprised when I read all of the reports on this that a lot of the crop that we grow and the almond size are sold in Spain, sold in a lot of the Middle Eastern countries.

Speaker #8: So for us, we normally don't have much on the international area for example, in growing strawberries. Those are grown and consumed here very quick.

Speaker #8: And so as a result, they never get to the international market. So for me, it's a different area. I don't like it as much as I do the the regular leasing business that we've been in since the beginning.

Speaker #8: And I think over time, as the profitability comes back to the markets in the nut side, well, we'll just convert back to leasing. So I'm looking forward to that because I like that part of this business better.

Speaker #8: Other questions, Gurav?

Speaker #10: Yeah. Maybe lastly, you talked about some positive trends in almonds and pistachios. I was wondering, is there any other crop type within your portfolio that’s not seeing positive trends?

Speaker #10: It's still seeing softness as far as prices are concerned?

Speaker #4: I think that's true. Lewis, any?

Speaker #8: I was going to say, Bill, ou want to give some commentary on that?

Speaker #11: Well, the question was, are there other crop types showing weakness or softness in the markets? as the question, Gurav?

Speaker #10: Yeah. Yeah. I guess you talked about positive trends in almonds and pistachios. I wondering, within your portfolio, is there anything else that's not showing positive trends?

Speaker #11: Not really. You know, you have the ups and downs in some of the annual row crops. But, you know, those are just kind of the normal, you know, those are the normal whims of the market, so to speak.

Speaker #11: And those are usually driven by you know weather events in the short term. You know whether it's freezes or excess rain or heat spells.

Speaker #11: But in annual row crops, you know our leases are, we're not tied to the crops. They're just a mechanism. We just don't have anything like that.

Speaker #11: What the markets that are important to us are the permanent crops, because even in standard leases a component of those leases is crop share.

Speaker #11: So that's always had a bigger impact.

Speaker #10: Okay. Thank you. That's all I had.

Speaker #4: Okay. Operator, do we have a second question?

Speaker #9: Yes. Our next question is from Steven Dumansky with Jannie Montgomery Scott. Please proceed.

Speaker #12: Thank ou. As discussed earlier in the call, with potential acquirers currently limited by their respective cost of capital, is it possible to project when you will see more disposition opportunities?

Speaker #12: And also, perhaps in terms of the feedback that you have received from any potential buyers?

Speaker #4: Well, certainly there are buyers out there, but they're all looking at very discounted prices for farms. And so they're coming in trying gobble it up.

Speaker #4: And that's nice that they're there, but it's not something we're going to utilize our sales on. And if you continue in Florida, I don't know, somebody mentioned there were 10,000 new families every week in Florida.

Speaker #4: The housing marketplace is going great. And we have people contacting us about paying a much higher price, but further down the road than I don't want to tie up our farms in that.

Speaker #4: As long as they're producing a good amount of rental money, I want to stay in that part of the business. So we're we're watching it.

Speaker #4: And I'd say we're probably one of the thousands of farmers that are tied to your radio broadcast on farming prices every day. So Bill is probably as close to it as anybody.

Speaker #4: He's in California. He's in touch with all of the farms we have out there. So he is our resident expert on prices. And we listen to him when we get ready to sell something.

Speaker #4: He's not as we've still got some properties in the Midwest that we picked up along the way. And those are being put up for sale.

Morning. So maybe sticking with the theme of water. Um, what are you seeing right now? In terms of the impact of Sigma, some of your properties has that kind of largely?

Played out or do you think there are certain specific assets that for whatever reason, maybe don't have, you know, where your bank water would maybe be less useful that are still at risk because that all kind of, you know, all the regulatory changes, all the water needs kind of already been determined, just kind of where are we in that process?

No, they're still changes coming from Sigma so far. We seem to be ahead of the curve on that, but you never know what the government's going to do. So they're meeting they've been lawsuits that have been filed by groups of farmers. In fact, I think we are 1 of the participants in 1 of those suits and so

Is the government gets a little antsy and starts favoring, some of their friends. And that makes it very difficult to figure out what to do. Right now, we are in good shape. We're not an excellent shape, but I don't think we got any problems coming, and the water side this year. This year has been a good year for us.

And I think quite frankly most of the Farms could stand 2 or 3 more years without Good Year in. So

water prices, I think are going to hurt some people if we get a dry year this year and

We are not going to have that problem.

Um, so it's important to emphasize the water side of the business because...

It's not as important as the trees, but the water for the trees is very important, and you can't grow strawberries without a lot of water. A lot of the vegetables are very, very heavy, and on the water side, using water, but we do most of our heavy water growing in the East, and certainly in Florida. You stick a...

Over California. And we seem to be in great shape. Thanks to the team that has found water at a reasonably low price, and we've bought it

And we we store it in the aquifers. And so we've become big holders of water in the aquifers and we did during the year when it was raining so much. So we built up some of the Farms that we have in Port water from the

Creeks and other places in that.

In fact, the kids that are doing that for us, we're laughing. Really hard? Because they kept calling it Lake Gladstone. We had a lot.

Of the ground.

it uh, it goes pretty fast and while we have 18 billion gallons,

and you just never know how dry it's going to be right now weather in California is

Beautiful but it's it's great for growing as long as you have water and Bill you got any. Yeah. You want to say about the water?

Yeah, John's a great question around Sigma. Um uh, you know, our philosophy from the beginning. Um, you know, was

To.

We decided for early on, like we didn't know what the restrictions were going to look like and when you was going to change over time, but we started out like, okay, we're not going to follow an acre. Like we're going to figure out how on every Farm. That's every Farm is affected by Sigma but we're going to figure out how do we get supplemental water? And we the focus immediately went to kind of a long-term viewpoint on it and that's why the investment and delivery infrastructure. Um, you know, identifying groundwater basins where we can store water. Um, and then we've been very fortunate in having some wet Winters that has made a lot of water.

Available at very good pricing and so that's been how we've attacked it. And so we put ourselves in a really positive position. I, I would say 1 of

All of the land portfolios in California are owned by different folks, particularly investment companies and investment funds. I would say the water security of our portfolio is one of the best, and so we just continue to do that as things evolve. We've been involved in two water adjudications; there's probably going to be another one, maybe two, that will impact us, but our focus has really been on.

The um, rather than the fight over, you know, initial allocations. It's really been on. Okay, what are we going to? Let's assume we have this allocation what are we going to do to supplement and focus on projects that will uh will help us uh, replace some of that. And so um, yeah it it, the big impact on Sigma that we've uh, you know, really are trying to work around. Work to avoid is we're starting to see land values bifurcate and so

Properties that have really weak water. Access are really dropping in value properties. That have

Extra infrastructure in a really good water district. Those are maintaining value and even possibly increasing in value. So we're really seeing the real estate market. Follow how, uh, all of the impacts of Sigma.

And I would say, I would say I would say our team out here. The the West Coast team probably spends 70% of its time, 75% of its time on Sigma related issues.

Okay. Yeah, 1 1 that John is um I for the past 3 years or so, as as we've said um you know, we've had wet average years out in California which has made as Bill said, a lot of good buying opportunities. Now, those buying opportunities have been there for

Every farmer out there. Most Farmers don't have the um, infrastructure that we've built for these these groundwater recharge facilities or water Banks as we call them. Um, everybody's been able to buy the water but most Growers don't have anywhere to store it, like we do. So I mean we we've even had neighboring land owners asking us if we can store water for them in exchange for

Yeah, some cash payment or leaving water behind so it's it's a, it's a small, it's it provides for a small, um, Revenue stream in addition as well. But really the benefit is the the water that we're storing is going to put us at a huge advantage.

When the next drop period comes not that we're looking for a drought. But right now, we have about 35 million dollars of, um,

$600 per acre foot.

However, if you compare that price to what the last price for water was in the last, um, at the end of the most recent drought, it's about a third of that price. So again, not that we're wishing for a drought, but that's when we're really going to be able to recognize the benefits of all this water that we have stored up.

Yep and we know drought um it's inevitable like we know it's going to come. We don't know when but we know it's going to come and it's going to be the worst drought ever and we're just being prepared for that.

John, you have any other questions?

Understood. Um, hear me.

Yep, we can hear you.

Um,

So yeah, maybe kind of building on the operator properties a little bit. Is there a level you know that you think would be a floor based on kind of the crop insurance?

you have in place today for, you know, the impact on

Probably for you revenues.

I'll say the, the not necessary for Q4, but overall between these 8 properties, we've invested about 25 million dollars into the the costs of the growing. The crops and that includes the

Yeah, the 17 million dollars that's just from those from the 6 properties that we modified. The leases, there's also 2 properties that were direct directly operating ourselves with um, but the help of third party operators,

but about 25 million dollars have been invested between those 8 properties in total and insurance would

I think if we cover all of our costs and maybe provide it with a small profit, the split of that, I would say, is probably a similar split from um.

You know, the question answered earlier was probably about 60% to 65% this year, with the remaining amount next year, if...

If that, I mean, that is the worst-case scenario. Meaning we can't harvest any crops and we can't sell them, which we already know is not going to be the case yet. We are going to have a...

Total crop loss on these properties, but um, yes, crop insurance would cover the the cost that we put into these properties.

I want to add a and that's kind of that.

I don't quick note to that with the crop insurance and there's like there's a lot of nuance to it but generally speaking um the better the property the better performing property because it's based on historical but the better performing the property the better, the crop insurance. So there's this little bit of irony where um, the best

The most well-insured situation is probably a property that's never going to experience that because they're really good performing, uh, property. So when we say we have good crop insurance, that's a that should tell you that those assets are, you know, above average, they're they beat industry averages and they're they're just good performing assets.

and then last 1 for me,

Yeah, last 1 for me on the balance sheet side. Um,

Given you have kind of more of an operating component, at least in the near term, how comfortable are you? I guess, where would you want to see that cash balance stay at a minimum? I'm just thinking about it in the context of, you know, you have a decent amount of cash still on the balance sheet. Could you be using it to pay down debt maturities? Should this be the expected cash level to try to stay where it is today, or could you continue to use that to pay down debt as it matures?

Well, I wouldn't look at it cash level. It's more. The overall liquidity, we have, and we have the, as of 6:30, we have 30 million dollars of cash on the balance sheet. We also have a, AN undrawn line of credit for well, actually, we have 2 lines of credit, they're total about 87 million dollars. So those those are immediately funds available to us. We also have other undrawn nodes

so right now we're looking at about, um,

$150 million of immediately available funds to us. Um,

If we had to operate all of these eight properties again, then maybe pencil in $25 million of $17 million of principal payments coming due.

So, we want to maintain probably at least $50 million of.

Of availability for the next 12 months at all times and we're well covered there. In addition to that, we also have 170, 170 million of properties that are unpledged, that we give us another hundred million dollars of borrowing capacity if we um,

if interest rates got attractive or if we needed it for other reasons,

Okay, uh, understood. That's it for me. Thank you very much.

Okay, operator, do we have anybody else that wants to talk to us? There are no further questions at this time.

At the end of this conversation, we thank you all. See you next quarter.

Thank you that will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.