Gladstone Land Corporation — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Gladstone Land is an externally managed agricultural REIT that owns and leases farmland. At quarter-end, it owned 169 farms across 15 states, leased to 92 unrelated tenants.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Lease revenue | $21.2 million | $20.3 million | $42.4 million | $40.2 million |
| Operating income | $7.8 million | $8.1 million | $15.3 million | $14.7 million |
| Net income | $7.9 million | $0.6 million | $9.6 million | $1.8 million |
| Net income (loss) attributable to common stockholders | $1.7 million | $(3.9) million | $(2.6) million | $(6.6) million |
| Basic and diluted EPS | $0.05 | $(0.11) | $(0.07) | $(0.19) |
- Q2 operating margin was approximately 36.9%, down from 40.1%; six-month operating margin was approximately 36.0%, versus 36.6%.
- Six-month net cash from operating activities was $22.6 million, compared with $19.4 million. Investing activities provided $3.1 million, versus $35.1 million used; financing activities used $38.6 million, versus $47.5 million provided. Cash declined $12.9 million to $48.2 million.
- At June 30, total assets were $1.43 billion, total equity $734.9 million, and notes and bonds payable, net, $593.7 million. Including the $0.1 million line-of-credit balance, total borrowings, net, were $593.8 million. Gross notes and bonds principal was $596.9 million.
- Over 99.9% of borrowings were fixed-rate; management reported a 3.35% effective weighted-average rate fixed for another 4.6 years. Scheduled principal payments include $40.9 million in 2024 and $39.2 million in 2025. The company reported compliance with debt covenants.
- Management estimated available liquidity at approximately $185.4 million, including $35.7 million cash and $149.7 million of availability under credit facilities and other undrawn debt, subject to collateral and covenant conditions. The balance sheet reports $48.2 million cash at quarter-end.
- Non-GAAP diluted AFFO was $0.11 per share for Q2 and $0.28 for the first half; declared common distributions were approximately $0.14 and $0.28 per share, respectively.
Material changes and notable items
- Revenue rose 4.5% in Q2 and 5.4% for the first half. Growth reflected rent from acquired farms, rent on capital improvements, and tenant reimbursements; same-property fixed rents increased only 0.5% in Q2 and 0.6% for the first half.
- Q2 operating income declined 3.8%, as operating expenses rose 10.1%, including higher depreciation, property costs, management fees, and G&A. First-half operating income increased 3.8%.
- Q2 net income included a $6.4 million gain on the sale of a 138-acre Florida parcel for $9.6 million. The first-half result also included this gain and a $1.0 million net property-and-casualty loss related primarily to California flooding.
- Debt fell from $626.5 million total borrowings, net, at year-end to $593.8 million, reflecting repayments. No farms were acquired in the first half; capital expenditures were $5.7 million.
- The company issued 729,685 common shares through its ATM program during the first half for $14.1 million net proceeds and issued 135,409 Series E preferred shares for $3.0 million net proceeds. It expanded its ATM capacity to $500 million and its universal registration statement permits up to $1.5 billion of securities.
Outlook, commentary and risks
- No formal earnings or revenue guidance was provided. Management said current and short-term resources should cover debt service, operating costs, preferred dividends and common distributions; it expects to use available capital for acquisitions and farm improvements.
- Ten leases covering 6,514 acres expire in 2023; eight agricultural leases were scheduled to expire within six months of quarter-end. Management anticipated renewals near current market rents, generally flat with existing rents, but gave no assurance of renewal or replacement tenants.
- Three tenants had credit issues affecting seven leases across 17 farms; related rent was recognized on a cash basis for part of the period. Four Michigan farms were re-leased short term after prior leases ended. One California farm remained temporarily self-operated, and a lease agreement was not assured.
- California and Florida generated 64.0% and 17.7% of first-half lease revenue, respectively. Flooding damaged structures at a Central Valley farm; the estimated carrying value written down was $855,000, with repairs and damage assessment ongoing. Management identified weather, water rights, tenant credit, interest rates, refinancing and farmland values as relevant risks.
- Management stated that inflation and interest rates remained volatile but that fixed-rate debt limited near-term rate exposure. The Farmer Mac bond facility was extended for new issuances through December 31, 2026.
- Estimated NAV was $19.15 per common share at June 30, versus the common stock closing price of $16.27. NAV relies on management’s property valuations and assumptions, is not audited, and is not a guarantee of realizable sale value.
Important facts for investors to verify
- Whether tenants with credit issues resume full rent payments and whether the self-operated California property is leased on acceptable terms.
- Lease renewals, especially the 2023 expirations, and the timing and cost of committed farm improvements.
- Cash available after distributions and debt maturities; reconcile management’s $35.7 million liquidity cash figure with quarter-end balance-sheet cash of $48.2 million.
- How preferred dividends, common distributions and equity issuance affect per-share returns; compare AFFO with distributions while recognizing AFFO is non-GAAP.
- Assumptions underlying the estimated NAV, farmland appraisals and water-asset values, and potential exposure to California concentration, weather events and water-rights costs.