Gladstone Land Corporation — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. Gladstone Land is an externally managed agricultural REIT that owns and leases farmland and farm-related facilities; it generally does not farm its properties. The filing was signed February 20, 2024. Its financial statements received an unqualified audit opinion, and management and the auditor concluded internal control over financial reporting was effective.
Business context and portfolio
The company reported a portfolio of 169 farms as of December 31, 2023, totaling 115,584 acres, including 96,145 farm acres, across 15 states. The overview and certain later disclosures instead cite 168 farms and 111,836 acres, including figures as of February 2024. California and Florida generated 65.5% and 16.7% of FY2023 lease revenue, respectively. As of February 20, 2024, reported occupancy was 98.9% of farmable acreage, across 93 unrelated tenants growing more than 60 crop types; the weighted-average remaining lease term was 5.9 years.
Financial performance and condition
| Metric | FY2023 | FY2022 |
|---|---|---|
| Total operating revenue | $90.4 million | $89.2 million |
| Operating income | $33.5 million | $33.9 million |
| Operating margin | 37.0% | 38.0% |
| Net income | $14.6 million | $4.7 million |
| Net loss attributable to common stockholders | $(9.9) million; $(0.28) per share | $(15.0) million; $(0.43) per share |
| Net cash from operating activities | $40.1 million | $43.8 million |
| Net cash used in investing activities | $(3.8) million | $(85.5) million |
| Net cash used in financing activities | $(78.9) million | Net cash provided of $86.1 million |
- Lease revenue increased 1.2% to $90.3 million. Fixed lease payments rose 2.8% to $83.7 million, while participation rents fell 23.5% to $5.9 million.
- Interest expense declined 8.1% to $23.7 million, mainly as average borrowings decreased. Other income was $3.6 million, including Farm Credit interest patronage and interest on short-term investments.
- FFO was $22.2 million ($0.62 per diluted share), versus $24.2 million ($0.70) in 2022. AFFO was $20.3 million ($0.57), versus $24.3 million ($0.70). Common distributions declared were $0.5535 per share in 2023, compared with $0.5463 in 2022.
- At December 31, 2023, total assets were $1.387 billion, total equity $719.6 million, and notes and bonds payable, net, $573.9 million; an additional $0.2 million was drawn under lines of credit. Series D term preferred stock, classified as a liability, was $59.5 million net. More than 99.9% of borrowings were fixed-rate; the weighted-average effective rate after patronage was 3.34% for a further 4.2 years, and weighted-average debt maturity was 8.8 years.
- Year-end cash and cash equivalents were $18.6 million. The filing also reports approximately $209.7 million of current available liquidity, comprising approximately $60.1 million of cash and $149.6 million of facility and other undrawn borrowing availability, subject to collateral and covenants. It identifies approximately $130.5 million of unencumbered property eligible as collateral.
- Management-estimated NAV was $19.06 per common share at year-end, versus a $14.45 closing common-stock price. NAV is a non-GAAP management estimate, not an audited fair-value measure; the company cautions that assumptions and realized sale prices may differ.
Material changes and notable items
- Net income improved, but common-stockholder losses persisted because preferred dividends and related charges exceeded net income. Net income benefited from a $5.2 million net gain on real estate dispositions, compared with a $3.8 million net loss in 2022.
- The $5.2 million disposition gain primarily reflected the June 2023 sale of a 138-acre Florida parcel for $9.6 million, producing a net gain of approximately $6.4 million. Separately, a 3,748-acre Florida farm sold on January 11, 2024, for approximately $65.7 million, with an estimated $10.4 million net gain; that sale occurred after year-end.
- California flooding damaged structures on one farm. The company wrote down approximately $855,000 and recorded a net property and casualty loss of $1.0 million for the year. February 2024 California storms caused minor damage but no material farm impacts, according to the filing.
- During 2023, the company made no new farm acquisitions, repaid approximately $36.0 million of notes and bonds, and reduced cash by $42.6 million. It sold common shares through its ATM program and issued Series E preferred stock. Financing cash flow turned negative, largely reflecting lower net equity proceeds and net borrowings than in 2022.
- Participation-rent declines reflected lower production on some almond and pistachio farms and weaker crop prices, particularly almonds. Fixed lease revenue gains partly offset the decline.
Outlook, risks and contingencies
- No numerical earnings or acquisition guidance is provided. Management says it intends to use available liquidity for farm and farm-related acquisitions, has potential properties in due diligence, and expects near-term resources to cover debt service, operating costs, preferred dividends and distributions. Acquisitions remain uncertain.
- Management describes financing costs as elevated and long-term financing as a constraint on acquisitions. It considers the predominantly fixed-rate debt profile protective against near-term rate increases, while noting refinancing and future borrowing costs remain risks.
- California’s wet 2023 water year improved reservoir conditions, but groundwater restrictions under the Sustainable Groundwater Management Act remain a long-term issue. Management is investing in water storage and recharge; future water credits depend on availability and recognition by water districts.
- Key risks include geographic concentration, especially California and Florida; water access and regulation; drought, floods, climate change, crop prices and yields; tenant credit and bankruptcy; vacancies and lease renewals; permanent-crop exposure; interest rates and refinancing; and the illiquidity of farmland. Three leases with two tenants were recognized on a cash basis at year-end because full collectability was not considered probable. Fifteen farms were reported vacant in the year-end portfolio discussion, while the February occupancy disclosure gives a later portfolio snapshot.
- Potential capital and distribution risks include reliance on external financing, secured and cross-collateralized debt, senior preferred securities, and the possibility that distributions may exceed cash available or include return of capital. Distributions are at the Board’s discretion. The company reported compliance with debt covenants and no material legal proceedings or off-balance-sheet arrangements.
- The company is externally managed by affiliates, creating related-party and potential conflict-of-interest risks. FY2023 base management and incentive fees totaled $10.4 million; the Adviser is not obligated to waive incentive fees.
Important facts for investors to verify
- Reconcile the filing’s different portfolio counts and acreage figures (169 farms/115,584 acres at year-end versus 168 farms/111,836 acres in later overview disclosures), and confirm the post-year-end Florida farm sale’s effect on portfolio, revenue and debt.
- Review tenant credit, cash-basis leases, vacant farms, lease expirations, rent collection and the likelihood and timing of releasing properties.
- Assess the sustainability of common distributions against AFFO, operating cash flow, preferred dividends, capital spending and borrowing needs; note that 2023 common distributions exceeded AFFO per share.
- Confirm current liquidity and borrowing availability, collateral requirements, debt maturities and refinancing terms. The filing’s $18.6 million year-end cash balance differs from the approximately $60.1 million cash figure used in its current-liquidity discussion.
- Evaluate the assumptions behind management’s $19.06 NAV estimate, including appraisals, capitalization rates, tenant and water risks, and the gap between estimated NAV and the market price.
- Monitor California water restrictions and water-asset credit realization, crop-market exposure, and the financial impact of weather events and permanent-crop losses.