Gladstone Land Corporation — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Gladstone Land is an externally managed farmland REIT. It owned 158 farms at quarter-end and reported 160 farms across 14 states as of the filing, following subsequent acquisitions.
Key financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Lease revenue | $19.6m | $14.0m | $52.5m | $41.9m |
| Operating income | $8.4m | $7.1m | $21.9m | $20.5m |
| Net income | $1.5m | $1.6m | $1.5m | $4.9m |
| Net income (loss) attributable to common stockholders | $(1.6)m | $(0.8)m | $(7.3)m | $(2.0)m |
| Basic and diluted loss per common share | $(0.05) | $(0.04) | $(0.25) | $(0.09) |
- Revenue increased 40.0% in Q3 and 25.3% year to date, mainly from farms acquired since the prior-year periods. Same-property fixed rent was nearly flat; participation rents rose.
- Operating margin, calculated as operating income divided by lease revenue, was approximately 42.8% in Q3 versus 51.0%; year to date it was 41.7% versus 48.9%. Higher depreciation, property costs and management fees contributed to expense growth.
- For the nine months, net cash from operations was $20.4m, investing cash use was $149.5m, and financing cash provided was $186.4m. Cash ended the period at $66.5m, up from $9.2m at year-end 2020.
- Notes and bonds payable, net, were $646.0m, plus $0.1m under lines of credit. The weighted-average borrowing rate was 3.72% for the nine-month period, before interest patronage and debt issuance costs. Management reported covenant compliance.
- Management reported available liquidity of approximately $135.7m, consisting of approximately $85.7m cash and $50.0m of availability under MetLife and other undrawn facilities. This liquidity figure differs from quarter-end balance-sheet cash and should be checked against its timing and components.
- Management’s estimated NAV was $13.80 per common share and OP Unit at September 30, compared with a common-stock closing price of $22.77. NAV is a management estimate, not a GAAP measure or an assurance of realizable value.
- Non-GAAP diluted AFFO per share was $0.17 for Q3 versus $0.14, and $0.47 for the nine months versus $0.50. These supplemental measures are not substitutes for GAAP results or operating cash flow.
Material changes and unusual items
- The company acquired 21 farms during the first nine months for an aggregate purchase price of approximately $147.7m. Acquisitions and related financing contributed to higher revenue, depreciation and interest expense.
- Year-to-date 2020 revenue included approximately $2.8m of net lease termination income; there was no comparable 2021 item. Interest patronage of approximately $2.2m was recorded in Q1 2021, contributing to year-to-date other income.
- Series D 5.00% term preferred stock was issued for approximately $60.4m gross proceeds, and Series A term preferred stock was redeemed for approximately $28.8m. Series D is mandatorily redeemable in January 2026 and is classified as a liability for GAAP purposes.
- Common-stock and Series C preferred offerings raised substantial equity during the period; subsequent ATM common-stock sales and acquisitions were also disclosed. These issuances support expansion but increase the share count and can dilute existing holders.
- Effective July 1, the quarterly base management fee rate increased from 0.125% to 0.15% of prior-quarter gross tangible real estate. Q3 base and incentive fees totaled $2.7m, compared with $1.9m a year earlier.
Outlook, risks and contingencies
- No quantified earnings or revenue guidance was provided. Management said near-term resources should cover distributions, debt service and operating costs, and described its acquisition pipeline as healthy; there is no assurance acquisitions will close.
- Management cited California and Florida as 64.1% and 19.4% of nine-month lease revenue, respectively. It warned that natural disasters and climate change could affect results, while stating its western farms had not been materially affected by the ongoing drought to date.
- Other risks include tenant lease renewals and replacement occupancy, variable crop-linked participation rents, COVID-19 and its effects on tenants and markets, interest-rate and LIBOR-transition exposure, and the company’s ability to raise capital or refinance. Management reported no material COVID-19 impact to date and expected a minimal impact from transition to SOFR, subject to uncertainty.
- The company had approximately $9.8m of listed capital-improvement commitments, with completion dates extending through 2025; rent increases are expected on certain improvements as funds are deployed. It reported no material known or threatened litigation, no material off-balance-sheet arrangements, and no material change in previously disclosed risk factors.
Important facts for investors to verify
- Reconcile management’s $135.7m available-liquidity figure with $66.5m quarter-end cash and the disclosed facility availability, including post-quarter equity proceeds.
- Review acquisition economics, lease terms and crop exposure, particularly California concentration and water-related assets; the filing reports $19.6m of banked water at quarter-end, with no rent currently earned on that value.
- Assess the effect of increased borrowing and preferred-stock obligations, scheduled debt maturities, and the Series D mandatory redemption on future cash available for common distributions.
- Evaluate share-count growth, offering costs and affiliate compensation, including the higher management-fee rate and Series C selling commissions and dealer-manager fees.
- Consider that GAAP net income attributable to common stockholders was negative despite positive net income at the company level, reflecting preferred dividends and other preferred-stock charges.
- Review the assumptions behind estimated NAV and non-GAAP FFO/AFFO; management notes these measures are subjective or non-GAAP and may not correspond to market value or cash available for distributions.