Gladstone Land Corporation — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; unaudited. Gladstone Land is an externally managed agricultural REIT that primarily owns and leases farmland. At quarter-end it owned 86 farms across 10 states; after an April acquisition, management reported 87 farms.
Financial performance and position
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Lease revenue | $7.830 million | $6.694 million |
| Total operating revenue | $7.830 million | $9.245 million |
| Operating income | $3.225 million | $2.786 million |
| Net income (loss) | $108,000 | $(318,000) |
| Net loss attributable to common stockholders | $(496,000), or $(0.03) per share | $(297,000), or $(0.02) per share |
| Net cash from operating activities | $2.432 million | $2.751 million |
| Cash and cash equivalents at quarter-end | $23.108 million | $14.730 million at Dec. 31, 2018 |
- Lease revenue rose 17.0%, reflecting acquisitions and leasing activity. Same-property fixed base rents declined 0.4%.
- Total revenue fell 15.3% because the prior-year period included crop-sale revenue from a farm operated by the company’s taxable subsidiary; that farm was leased to a third party starting August 2018. The related prior-year crop costs also do not recur.
- Operating expenses, net of adviser fee credits, declined 28.7% to $4.605 million. The adviser granted a $569,000 fee waiver. Property operating expenses increased 90.7%, including temporary generator costs and permitting expenses.
- Other income included approximately $700,000 of Farm Credit interest patronage and $110,000 of deferred revenue recognized after a farm sale agreement terminated. Interest expense rose 21.9%, primarily due to higher average borrowings.
- FFO available to common stockholders and OP unitholders was $2.136 million; AFFO was $2.462 million, or $0.13 per weighted-average total share. These are non-GAAP measures defined by the company.
Balance sheet, debt and liquidity
- Total assets were $575.949 million and total equity was $194.769 million at March 31, 2019.
- Notes and bonds payable, net, were $333.835 million; the balance sheet also reports $100,000 of borrowings under lines of credit. The company reported total borrowings, net, of $333.935 million. Fixed-rate notes and bonds had weighted-average stated rates of 3.97% and 3.55%, respectively; all borrowing covenants were met.
- Series A term preferred stock is classified as a liability, with a $28.183 million carrying value and mandatory redemption in September 2021. Series B preferred stock, classified in equity, had approximately $47.3 million liquidation value outstanding.
- Management reported debt-to-total-capitalization of 65.0% at book value and 56.9% at fair value, including Series A preferred stock as debt. Estimated NAV was $12.30 per common share, down from $12.88 at year-end; this management estimate is not audited or assured by the auditor.
- Management stated available liquidity was approximately $20.7 million, comprising $5.6 million cash and $15.1 million of MetLife facility availability, subject to covenants. This cash figure does not match the $23.108 million balance-sheet cash amount; see investor verification items below.
- Cash from operations was $2.432 million; investing used $5.717 million, primarily for acquisitions and capital improvements; financing provided $11.663 million, including equity proceeds. Cash increased $8.378 million during the quarter.
Changes, outlook and risks
- During Q1 the company acquired one Nebraska farm for $2.4 million, with annualized straight-line rent of $126,000. On April 9 it acquired a California pistachio farm for approximately $28.6 million, with minimum annualized straight-line rent of approximately $1.7 million. A further California acquisition totaling approximately $70 million was under agreement but remained subject to due diligence and closing conditions.
- The company raised approximately $18.5 million gross through Series B preferred stock sales during Q1. Common shares outstanding increased, including 570,879 shares issued in exchange for OP Units. Q1 common distributions were $0.13335 per share; preferred distributions were also declared.
- Management said current and short-term resources should be sufficient for distributions, debt service, preferred dividends and operating costs in the near term. It expects to fund longer-term needs through equity, mortgage and bond financing, and other borrowings, and intends to use significant available liquidity for acquisitions. No quantified earnings or FFO guidance was provided.
- Portfolio exposure is concentrated: California and Florida generated 47.7% and 29.9% of Q1 lease revenue. One tenant represented 14.1%. Leases covering 44.6% of acreage and 23.0% of lease revenue were scheduled to expire in 2020, creating renewal and re-leasing risk. Management also cited potential adverse effects from natural disasters.
- Other notable matters: the company adopted the new lease accounting standard on January 1, 2019; it reported no property impairments, material litigation, or material off-balance-sheet arrangements. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Reconcile management’s stated $5.6 million cash available for liquidity with the $23.108 million cash balance on the balance sheet.
- Reconcile the $100,000 line-of-credit balance in the financial statements with MD&A’s separate disclosure of approximately $5.4 million outstanding under the MetLife lines of credit.
- Assess the sustainability of lease growth, the timing and terms of the proposed approximately $70 million acquisition, and the company’s reliance on continued equity issuance and borrowing.
- Review tenant concentration, 2020 lease expirations, geographic exposure, and the assumptions behind management’s estimated NAV and property valuations.