Gladstone Land Corporation — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Gladstone Land is an externally managed agricultural REIT that owns and leases farmland; it reported 153 farms across 14 states, totaling 105,282 acres.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Lease revenue | $16.9m | $12.6m | $32.9m | $27.9m |
| Operating income | $7.4m | $6.2m | $13.5m | $13.4m |
| Net income (loss) | ($0.5m) | $0.2m | $0.02m | $3.3m |
| Net loss attributable to common stockholders | ($3.5m) | ($2.1m) | ($5.7m) | ($1.1m) |
| Loss per common share | ($0.12) | ($0.10) | ($0.20) | ($0.05) |
Operating margin was approximately 43.8% in Q2 versus 48.9% a year earlier, and 41.1% for the first half versus 47.9%. Higher depreciation and amortization, interest expense, preferred dividends and property-disposition losses weighed on earnings. Common-share counts also increased substantially.
For the first half, operating cash flow was $17.0m, investing cash outflow was $85.0m, and financing cash inflow was $125.6m; cash increased $57.6m to $66.8m at June 30. The filing reports $84.3m of cash on hand in its liquidity discussion, a figure that appears to reflect a later measurement than the balance-sheet date.
At June 30, total assets were $1.202bn, including net real estate of $1.105bn. Notes and bonds payable were $627.4m net of issuance costs, with $0.1m drawn on lines of credit; Series D term preferred stock was recorded as a $58.5m liability. Total equity was $481.3m. Management reported approximately $131.3m of available liquidity, including $47.0m of facility and other undrawn-note availability, subject to collateral and covenant conditions. The company was in compliance with debt covenants.
Management’s non-GAAP diluted FFO per share was $0.13 for Q2 and $0.30 for the first half, compared with $0.11 and $0.36, respectively, in 2020. Diluted AFFO per share was $0.13 and $0.30, versus $0.10 and $0.35. These measures are not substitutes for GAAP results or operating cash flow.
Changes versus prior comparable periods
- Revenue rose 33.7% in Q2 and 17.9% in the first half, primarily reflecting acquisitions. Same-property revenue was nearly flat in Q2 and down 10.1% for the first half; the prior-year half included a $2.8m net lease-termination payment.
- Operating expenses rose 47.1% in Q2 and 33.5% in the first half, notably from depreciation on acquired farms. First-half operating income was nearly unchanged despite revenue growth.
- Interest expense increased 23.1% in Q2 and 23.9% in the first half, mainly because average borrowings increased. First-half net income fell to $23,000 from $3.3m.
- The company acquired 16 farms in the first half for an aggregate purchase price of $85.3m. It raised net proceeds of $85.5m from common-stock ATM sales and $21.4m from Series C preferred sales; Series D preferred issuance proceeds funded the redemption of Series A preferred stock.
Outlook, risks and notable items
- No numerical earnings or acquisition guidance was provided. Management said current and near-term resources should cover operations, debt service and distributions, and described its acquisition pipeline as healthy. It expects to use a significant portion of available liquidity for additional farmland acquisitions.
- Management reported no material COVID-19 impact to date, but noted uncertainty around the pandemic, variants, tenant operations, rent collection, financing and distributions.
- California and Florida generated 62.6% and 20.5% of first-half lease revenue, respectively. Management said its western farms had not been materially affected by drought, citing independent water sources; it identified natural disasters and climate change as potential risks.
- Six leases were scheduled to expire in 2021 and nine in 2022. Management anticipated renewals at generally flat market rents but cautioned that renewals and replacement tenants are not assured.
- On July 13, 2021, the advisory agreement was amended to raise the base management fee from 0.50% to 0.60% annually on gross tangible real estate, effective for the quarter ending September 30, 2021. The company is externally managed by affiliates; related-party fees and equity-offering commissions are disclosed in the filing.
- The company acquired a California banked-water investment with a June 30 carrying value of approximately $14.8m; it currently intends to hold the water for future farm use. Management reported no impairment indicators for the water or its real estate at quarter-end.
- Management estimated NAV at $13.16 per common share and OP Unit, versus a June 30 common-stock closing price of $24.06. NAV is management-prepared, non-GAAP and subject to valuation assumptions; the filing cautions that realized values may differ.
Important facts for investors to verify
- Reconcile the $84.3m liquidity figure in management’s discussion with $66.8m of cash on the June 30 balance sheet and review the conditions on undrawn borrowing availability.
- Assess acquisition-driven revenue growth against higher depreciation, interest costs, common-stock issuance and the resulting per-share performance.
- Review lease expirations, tenant credit and geographic concentration, particularly California and Florida exposure and water availability.
- Evaluate the post-quarter advisory-fee increase, preferred-stock obligations, and the assumptions underlying management’s NAV estimate.