Gladstone Land Corporation — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Gladstone Land is an externally managed agricultural REIT that owns and leases farmland. It reported 165 farms across 15 states at quarter-end; subsequent acquisitions brought the portfolio to 169 farms, according to management.
Financial results and position
Amounts are in millions of dollars except per-share data.
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Lease revenue | $20.3 | $16.9 | $40.2 | $32.9 |
| Operating income | $8.1 | $7.4 | $14.7 | $13.5 |
| Net income (loss) | $0.6 | $(0.5) | $1.8 | $0.02 |
| Net loss attributable to common stockholders | $(3.9) | $(3.5) | $(6.6) | $(5.7) |
| Loss per common share | $(0.11) | $(0.12) | $(0.19) | $(0.20) |
| FFO per diluted common share, non-GAAP | $0.14 | $0.13 | $0.33 | $0.30 |
| AFFO per diluted common share, non-GAAP | $0.13 | $0.13 | $0.31 | $0.30 |
- Operating margin was approximately 40.1% in Q2 versus 43.8% a year earlier, and 36.6% for the first half versus 41.1%. Revenue growth chiefly reflected acquired properties; same-property lease revenue was nearly flat year over year for the first half.
- First-half operating cash flow was $19.4 million, versus $17.0 million. Investing used $35.1 million, mainly for acquisitions and capital improvements; financing provided $47.5 million. Cash increased $31.7 million to $48.4 million at June 30.
- Quarter-end notes and bonds payable, net, were $661.8 million; including $0.1 million drawn on lines of credit, total borrowings, net, were $661.9 million. Series D term preferred stock was a $58.9 million liability on the balance sheet. Reported total liabilities were $758.4 million and equity was $651.9 million.
- Management described available liquidity as approximately $133.3 million, including $21.0 million cash and $112.3 million of credit and other borrowing availability, subject to collateral and covenants. This cash figure differs from the balance-sheet cash of $48.4 million; the filing text does not clearly reconcile the amounts.
- Management estimated NAV at $15.60 per common share as of June 30, versus a closing market price of $22.16. NAV is a management estimate, is not audited, and depends on valuation assumptions.
Changes and material activity
- Q2 revenue rose 20.1%; first-half revenue rose 22.2%. Operating income increased 9.9% in Q2 and 8.8% for the first half. Depreciation and amortization and management fees grew faster than revenue, weighing on operating margins.
- First-half 2022 acquisitions totaled $24.6 million, compared with $85.3 million in the first half of 2021. The largest 2022 purchase was a 1,374-acre California olive farm for $24.5 million, with stated annualized straight-line rent of $1.7 million.
- Series C preferred stock issuance generated $68.9 million net proceeds in the first half; 310,055 common shares sold through the ATM program generated $10.3 million net. The company also paid $7.7 million to redeem 204,778 OP Units.
- First-half preferred dividends on Series B and C increased to $8.4 million from $5.7 million, principally reflecting more shares outstanding. Common-stock distributions declared were $0.2721 per share for the half-year.
Outlook, risks and unusual items
- No formal earnings or acquisition guidance was provided. Management said it expects near-term resources to cover distributions, debt service and operating costs, and intends to use significant available liquidity for additional farmland acquisitions. It cautioned that acquisitions are subject to diligence and may not be completed.
- Management said more than 99% of borrowings were fixed-rate, with a weighted-average effective rate of 3.26% fixed for more than five years, and reported compliance with debt covenants. Approximately $16.9 million of maturing loans were repaid after quarter-end. LIBOR-linked facilities will need renegotiation ahead of the phaseout; management expected a minimal impact from transition to SOFR, subject to uncertainty.
- Geographic concentration is substantial: California and Florida generated 66.5% and 17.9% of first-half lease revenue, respectively. Management reported no material impact to its farms from current western drought conditions, but noted exposure to drought, natural disasters and climate impacts.
- Four leases representing 3,720 acres and 6.1% of first-half lease revenue were scheduled to expire in 2022. Management anticipated renewal of a California lease at a relatively flat rental rate, but gave no assurance of renewals or replacement tenants on favorable terms.
- Subsequent to quarter-end, the company acquired four farms for a combined $37.4 million and announced a renewable-energy lease covering 16,595 Colorado acres, expected to generate about $332,000 annually during development through June 2026. It also declared Q3 monthly distributions, including $0.1368 per common share for the quarter.
- There was no material known or threatened litigation, no material change in reported risk factors, and no material off-balance-sheet arrangement. Management reported effective disclosure controls and no material change in internal control over financial reporting. A $2.8 million Farm Credit interest-patronage receipt benefited first-half other income; results also included real-estate disposition losses and a property-and-casualty recovery.
Important facts for investors to verify
- Reconcile management’s $21.0 million liquidity cash figure with $48.4 million of quarter-end balance-sheet cash, and confirm the amount of borrowing availability after collateral requirements.
- Confirm share-count figures: the balance sheet reports 34,520,068 common shares outstanding at June 30, while the cover page reports 34,210,013 as of August 9.
- Assess the sustainability of common distributions against AFFO, preferred dividends, acquisition funding needs and continuing equity issuance; FFO and AFFO are non-GAAP measures.
- Evaluate debt maturities, interest-rate exposure, credit-facility draw deadlines and the effect of refinancing or LIBOR-to-SOFR transition.
- Review the assumptions behind the $15.60 NAV estimate, including farmland appraisals and capitalization rates, and the portfolio’s California/Florida concentration and lease-expiration exposure.