GLADSTONE LAND Corp Q2 FY2024 earnings call

• Farmland holdings: Currently own about 112,000 acres on 168 farms and ~54,000 acre-feet of water assets, total value ~$1.5B. Farms in 15 states, 29 growing areas, leased to over 90 tenants growing 60 crops.
• Leasing: Executed 11 new/amended leases in Q2, increasing annual net operating income by ~$465k (7% increase). 9 leases expiring in next 6 months.
• Water: Purchased 4,899 acre-feet in Q2 ($1.5M) and 1,985 acre-feet post-quarter end. Portfolio has adequate water supply.
• Tenant issues: 1 vacant farm, 5 properties (12 farms) under management agreements. Discussions ongoing to resolve by end of year.
• Financials: Q2 net loss $823k, net loss to common shareholders $6.7M. Adjusted FFO $3.7M vs prior year $3.6M. Dividends declared $0.140 per share.
• Valuations: 62 farms revalued, decreased by $13.8M (4%), row crops appreciated. Net asset value per share $17.59 vs $18.50 prior.
• Liquidity: ~$180M liquidity, ~$30M cash, ~$150M unpledged properties. 99.9% borrowings at fixed rates 3.4% for 3.9 years.

No detailed product segment breakdown by revenue contribution % was provided. For the second quarter, adjusted FFO was approximately $3.7 million or $0.103 per share compared to $3.6 million, or $0.102 per share in the prior year quarter. The company had a net loss of $823,000 and a net loss to common shareholders of $6.7 million or $0.19 per share. Dividends declared per common share were $0.140 in the current quarter, compared to $0.138 in the prior year quarter.

• Hopeful Federal Reserve will cut interest rates to make acquisition activity active again.
• Common dividend raised to $0.0467 per month, 35th increase in 38 quarters.
• Acquisition activity remains slow due to high cost of capital; expects couple quarters before activity picks up.

• Crop price fluctuations: Almonds and pistachios prices down, impacting farmers' profitability.
• Tenant issues: Vacant and directly operated farms affecting net operating income.
• Interest rate risks: High borrowing costs impacting acquisition activity.

Q: Could you remind us how much exposure does your portfolio has to almonds and pistachios?

A: On a revenue basis, probably about 20% is pistachio and just a little under 10%, 8% or 9% is almonds.

Q: Can you provide some color on where the current interest rates are in case you need to refinance that debt?

A: Right now our weighted average interest rate is about 3.4%. If we were to reprice today, we probably be 200 basis point or 200 basis points above that right now. Those loans with the cash we have on hand, each situation on a case-by-case basis, depending on what the interest rate is, when those loans mature, depending on what our plan for that particular farm is, that will determine whether we decide to pay it off or refinance.

Q: The four California farms that are vacant, direct operated, non-accrual, are those all nuts?

A: Yes, they are.

Q: What accounted for the sequential change in the number of farms in the bucket?

A: It got leased. We put a lease on it.

Q: How much in participating rents did you collect in the second half of 2023? And are you expecting a similar or more or less than that in the second half of '24 at this point?

A: In '23, I don't believe we -- I think all except for maybe $200,000 was recorded in the second half of the year. As for this year, you know, of course, we're still. We haven't even gotten much information from tenants at this point, but if I had to guess, we'd probably be somewhere between the past two years. Hopefully at least as much as last year, but not sure that we'll get as much as we did in 2022.

Q: Is there a strategic rationale or is it just kind of assets where you feel like the performance isn't going to recover from some of the headwinds they've faced in recent years for potential dispositions?

A: Yeah, we're going through that now. And the dispositions, it's really a bad time to be selling almonds or pistachio crops. They're down and they're coming back. We've seen this happen many times in many of our products and it's just something you have to live with. The main thing is you can't be not able to borrow money and pay back your banks or pay whoever. And right now we have tremendous credit ability with the farm credits. And if the rates are cut, we will probably not get down to 3% where we are on some of these, but hopefully get further down than we are today and it's just a difficult period for those two crop types.

Q: Was there anything beyond that kind of bucket of farms that maybe drove the increase in operating expense?

A: No, the full increase from the property operating expenses came from that bucket of farms. One tenant, we had to terminate the lease after quarter-end. We ended up having to pay real estate taxes on their behalf. That farm is now being direct operated. We hope to get a lease on it by the end of the year. And the rest of it was just management fees we're paying to operate certain of these farms.