GLADSTONE LAND Corp Q4 FY2023 earnings call

• Farmland Holdings: Own 112,000 acres, 168 farms, and over 46,000 acre feet of water assets valued at ~$1.6 billion. Farms in 15 states, 29 growing regions; water in CA. 90+ tenants grow 60 crops. 15 vacant farms being worked on for leasing/selling; two tenants on non-accrual, one current, one being resolved.
• Leasing: Renewed/amended 7 leases; excluding one, net investment income up ~$504,000. Only one lease expiring in next 6 months, <0.5% of revenue.
• Water Management: 2023 good for Western portfolio water; 2024 off to good start with rain. Working on SGMA compliance, completed groundwater recharge facility, secured water supply contracts.
• Financials: 4Q net income $1.8M, net loss to common $4.3M; Yr net income $14.6M, net loss to common $9.9M. Adjusted FFO 4Q ~$5.4M vs $6.6M prior yr; Yr adjusted FFO $20.3M vs $24.3M. Dividends: 4Q $0.139, Yr $0.554. Participation rents down due to lower yields, crop pricing. Core expenses flat. Net asset value down to $19.06 from $20.33 due to debt/fair value and farm valuations. Liquidity: >$200M available, ~$60M cash, >$130M unpledged properties.

Gladstone Land Corporation owns approximately 112,000 acres on 168 farms and over 46,000 acre feet of water assets, valued at about $1.6 billion. Farms are in 15 states across 29 growing regions, with water assets in California. There are 15 vacant farms out of 168, and two tenants on non-accrual status. In terms of revenue contribution, fixed-based cash rents increased by about $255,000 (1%) quarter-over-quarter and $990,000 (1%) year-over-year due to capital improvement projects. Participation rents decreased primarily due to lower yields and crop pricing. Core operating expenses remained relatively flat excluding certain items.

• Acquisition activity slow due to high cost of capital and land prices. Interest rates likely high for next 6 months to year, rate cuts may be delayed. Will continue to be cautious with new investments.
• Only one lease expiring in next 6 months, <0.5% of revenue. Anticipate no additional vacancies from upcoming situations.

• Tenant issues: 15 vacant farms due to previous tenants' financial problems. Two tenants on non-accrual, impacting revenue.
• Market and economic risks: Interest rates remaining high, affecting acquisition ability. Potential for lower farm valuations. Weather events in California could impact farms, though insured.

Q: 15 vacant farms, what crops are those in Michigan and Washington and does that have more to do with the crop type and its demand today or is it just the financials of the previous tenants there?

A: A lot of it is previous tenants, mostly blueberry farms, due to previous tenant financial problems.

Q: How should we be thinking about the delta between the NOI between you guys operating it versus having it leased to a third-party tenant for an entire year?

A: It's close, but operating vs leasing is different; it takes time to turn around vacant farms.

Q: The quarter-over-quarter NAV decline of $1.27, was the change in farm values versus the change in debt and other balance sheet items?

A: A little over $0.80 was change in long-term financing, just under $0.40 from valuation changes.

Q: What did you do with the Martin County disposition proceeds?

A: Repaid $16M debt, other loans, rest earning 4.5% interest.

Q: Stock trading at over 30% discount to NAV, thoughts?

A: David hates buybacks, wants to use money to grow.

Q: Exposure to participation rent structure and tenants having issues?

A: ~1/3 of leases have participation rent; less than one-third of leases affected by tenant issues.

Q: Acquisition cap rate environment?

A: Interest rates need to come down, farmers are long-term holders, land prices high.

Q: Impact of sale on NAV?

A: Sale price $2M over appraised value, reflected in 12/31 NAV calc.