Gladstone Land Corporation — Q3 2023 Form 10-Q
Reporting period: Quarter ended September 30, 2023; comparisons are with the quarter and nine months ended September 30, 2022. Gladstone Land is an externally managed agricultural REIT. It owned 169 farms covering 115,593 acres across 15 states, leased to 92 unrelated tenants. California represented 65.1% of nine-month lease revenue and Florida 17.1%.
Key financial results
| Metric ($ millions, except per-share data) | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Lease revenue | 23.534 | 24.209 | 65.946 | 64.445 |
| Operating income | 9.398 | 9.643 | 24.670 | 24.354 |
| Net income | 3.141 | 1.806 | 12.746 | 3.606 |
| Net loss attributable to common stockholders | (2.964) | (3.594) | (5.557) | (10.204) |
| Basic and diluted loss per common share | (0.08) | (0.10) | (0.16) | (0.30) |
| Net cash provided by operating activities | — | 22.657 | 23.073 |
Q3 lease revenue fell 2.8%, chiefly as participation rents declined 20.6% to $2.385 million, reflecting lower production on some almond and pistachio farms and weaker crop prices, particularly almonds. Nine-month revenue rose 2.3%, as increased fixed rents, including rent from capital improvements, outweighed lower participation rents. Nine-month net income benefited from a $6.4 million gain on a Florida land sale; the common-stockholder loss remained after preferred dividends.
Nine-month FFO was $16.009 million, down from $17.826 million; AFFO was $15.419 million, down from $18.013 million. Diluted FFO per share was $0.45 versus $0.52, and diluted AFFO per share was $0.43 versus $0.52. These are non-GAAP measures defined by the company and are not substitutes for GAAP earnings or cash flow.
Balance sheet, debt and liquidity
- At September 30, 2023, total assets were $1.406 billion, cash and cash equivalents $25.080 million, and total equity $731.486 million. Cash was $61.141 million at December 31, 2022.
- Notes and bonds payable totaled $587.197 million before debt issuance costs and $584.098 million net; the balance sheet also included $59.416 million of Series D term preferred stock classified as a liability. Borrowings declined from $629.854 million at year-end 2022, primarily reflecting repayments.
- More than 99.9% of borrowings were fixed-rate; management reported a 3.35% effective weighted-average rate fixed for another 4.3 years and an approximately 9-year weighted-average remaining debt term. The company was in compliance with debt covenants.
- Management reported approximately $174.4 million of available liquidity, including cash and availability under MetLife and other undrawn facilities, subject to collateral and covenants. It also identified approximately $155.2 million of unencumbered properties eligible to be pledged. The MetLife revolving lines mature April 5, 2024; management said it expected to finalize an extension by year-end 2023.
- Nine-month investing cash use was $1.086 million, versus $78.627 million in 2022, when acquisitions were substantial. Financing used $57.632 million, compared with $75.852 million provided in 2022, reflecting lower equity proceeds and net borrowings. Cash declined by $36.061 million over the 2023 nine-month period.
Material changes, outlook and risks
- The company sold a 138-acre parcel of unfarmed Florida land in June for $9.6 million and recognized a net gain of approximately $6.4 million. It made no farm acquisitions in the first nine months of 2023.
- California flooding in January damaged structures at one Central Valley farm; the company recorded a $1.016 million nine-month property and casualty loss and continued assessing repairs with the tenant. Management reported no impairment of properties or water assets.
- Tenant credit issues led to cash-basis revenue recognition on certain leases; during part of the first nine months, this affected seven leases across 17 farms. At filing, one California farm and 11 Michigan farms were temporarily self-operated, and three Michigan farms were vacant. Management was seeking tenants and expected agreements within three months, but gave no assurance of favorable terms or completion.
- Management said current liquidity should cover near-term debt service, operating costs and distributions, and it intends to use available capital for farm acquisitions and improvements. It provided no specific earnings or revenue guidance. Acquisition plans depend on available capital, due diligence and suitable opportunities.
- Risks include crop-price and production variability, tenant credit and lease renewal risk, geographic and natural-disaster exposure, and interest-rate and refinancing conditions. California and Florida accounted for 82.2% of nine-month lease revenue combined. The company stated that inflation and rate volatility persisted, while fixed-rate borrowing limited the near-term effect on current debt.
- After quarter-end, the company paid approximately $1.2 million for 7,000 acre-feet of California water under an agreement allowing optional future purchases when surplus supplies are available, subject to regulatory approval. It also repaid approximately $2.7 million of maturing loans after quarter-end.
- Management estimated September 30 NAV at $20.33 per common share, versus a reported common-stock closing price of $14.23. NAV relies on management’s property valuations and assumptions; the filing cautions that realized asset values may differ materially.
Important facts for investors to verify
- Progress on extending the MetLife revolving facility before its April 2024 maturity and the availability of other debt capacity under collateral and covenant limits.
- Re-leasing or operating outcomes for vacant, self-operated and credit-affected farms, including the post-quarter status of the Michigan leases identified as expiring.
- Participation-rent trends, crop yields and prices, and tenant performance, especially in California and Florida.
- Repair costs and insurance recoveries related to California flood damage, and any further effects of weather or water availability on the portfolio.
- The assumptions behind management’s estimated NAV and the gap between estimated NAV and the common-stock market price; NAV is not an audited or guaranteed realizable value.
- Ongoing preferred and common equity issuance, associated dilution and issuance costs, and the sustainability of distributions relative to AFFO and cash flows.