Gladstone Land Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; year-over-year comparisons are to Q1 2021. Gladstone Land is an externally managed agricultural REIT that owns and leases farmland and farm-related facilities. At quarter-end, it owned 164 farms totaling 112,542 acres across 15 states, leased to 86 unrelated tenants.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / prior date |
|---|---|---|
| Lease revenue | $19.9 million | $16.0 million; up 24.4% |
| Operating income | $6.6 million | $6.1 million; up 7.4% |
| Net income | $1.2 million | $0.6 million |
| Net loss attributable to common stockholders | $2.7 million; $(0.08) per share | $2.2 million; $(0.08) per share |
| Cash from operating activities | $7.6 million | $6.7 million |
| Cash from investing activities | $(3.6) million | $(5.4) million |
| Cash from financing activities | $28.7 million | $62.4 million |
| Cash and cash equivalents | $49.4 million | $16.7 million at Dec. 31, 2021 |
| Notes, bonds and credit-line borrowings, net | $660.1 million | $668.0 million at Dec. 31, 2021 |
| Total assets / total equity | $1.386 billion / $631.9 million | $1.352 billion / $589.1 million at Dec. 31, 2021 |
Revenue growth largely reflected farms acquired after December 2020; same-property lease revenue declined 0.7%. Operating expenses rose 34.9% to $13.4 million, led by higher depreciation, management fees and property costs. Interest expense was $6.4 million, while other income included $2.8 million of Farm Credit interest patronage related to 2021 interest. The company recorded a $1.0 million net loss on real estate dispositions. Cash increased by $32.7 million during the quarter.
Reported common-stockholder loss reflects preferred dividends and charges despite positive net income. As supplemental, non-GAAP measures, diluted FFO, core FFO and AFFO were each $0.19 per weighted-average common share and OP Unit, compared with $0.17, $0.18 and $0.17, respectively, in Q1 2021. Common distributions declared were approximately $0.14 per share in both periods.
Material changes and capital
- The portfolio grew to 164 farms from 139 a year earlier. No farms were acquired in Q1 2022; 53 farms had been acquired and none disposed of from Jan. 1, 2021 through Mar. 31, 2022.
- In February, the MetLife facility was amended to add a $100 million term-note commitment maturing in 2032. The company reported $110.3 million of current borrowing availability under the facility, subject to collateral and covenants.
- Q1 equity proceeds included $35.2 million net from Series C preferred shares and $10.3 million net from common shares sold through the ATM program. Equity issuance increases funding capacity but dilutes existing holders.
- Series C preferred shares are not publicly listed; the company intends to seek a listing after the offering ends, but gives no assurance that one will occur.
- Management estimated NAV at $15.54 per common share/OP Unit, versus the $36.42 closing common-stock price on March 31. NAV is a management-prepared, non-GAAP estimate and is sensitive to valuation assumptions.
Liquidity, outlook and risks
Management reported approximately $178.0 million of available liquidity, including $65.7 million cash and about $112.3 million of availability under the MetLife facility and other undrawn notes or bonds; it also cited $29.9 million of unencumbered properties eligible as collateral. The stated cash figure differs from the $49.4 million balance-sheet cash at March 31; the filing text does not clearly reconcile the timing or basis. Management said near-term resources should cover distributions, debt service and operating costs, and expects to fund longer-term needs through equity, mortgage debt and bond issuance. It plans to use a significant portion of available liquidity for acquisitions and described its acquisition pipeline as healthy, while noting transactions remain subject to due diligence and are not assured.
- California and Florida accounted for 66.4% and 18.0% of Q1 lease revenue, respectively. Management cited drought, water availability, climate change and natural disasters as potential material risks; it said its western farms had not been materially affected by current drought conditions.
- Five leases covering 18.0% of leased acreage expire in 2022, representing 6.8% of Q1 lease revenue. Management was negotiating a California renewal expected to be at a relatively flat market rent, but renewal and replacement are not assured.
- Most borrowings are fixed-rate; reported weighted-average stated borrowing cost was 3.72% before interest patronage. Scheduled principal payments total $38.7 million for the remaining nine months of 2022. Management reported covenant compliance.
- The LIBOR transition may require renegotiation of certain credit agreements; management expected minimal impact if SOFR replaces LIBOR with an appropriate adjustment, but said the ultimate transition remained uncertain.
- The company reported no material litigation, no material changes to previously disclosed risk factors, and no material off-balance-sheet arrangements. Management concluded disclosure controls were effective.
Important facts for investors to verify
- Reconcile the $65.7 million cash figure in management’s liquidity discussion with $49.4 million of cash on the March 31 balance sheet, and confirm the reported availability under borrowing facilities.
- Assess acquisition-driven revenue growth against same-property performance, rising operating costs and future capital-improvement commitments.
- Review upcoming lease renewals, particularly the California lease and the acreage expiring in 2022, along with tenant and geographic concentration.
- Evaluate refinancing and interest-rate exposure, scheduled debt maturities, Farm Credit patronage assumptions and the LIBOR-to-SOFR transition.
- Consider preferred-stock and common-stock issuance costs, related-party management and dealer-manager fees, dilution, and the assumptions underlying management’s NAV estimate.