GLADSTONE LAND Corp quarterly report, Q1 FY2021

Gladstone Land Corporation — Q1 2021 Form 10-Q

Reporting period: Three months ended March 31, 2021. Gladstone Land is an externally managed agricultural REIT that owns and leases farmland. At quarter-end it owned 140 farms across 13 states, comprising 101,312 total acres and 83,652 farm acres. The filing’s later overview reports 141 farms after a post-quarter acquisition.

Financial results and key metrics

Metric	Q1 2021	Q1 2020
Lease revenue	$16.0 million	$15.3 million
Operating income	$6.1 million	$7.2 million
Net income	$0.6 million	$3.1 million
Net income (loss) attributable to common stockholders	$(2.2) million; $(0.08) per share	$0.9 million; $0.04 per share
Net cash provided by operating activities	$6.7 million	$3.5 million
Net cash used in investing activities	$5.4 million	$10.2 million
Net cash provided by financing activities	$62.4 million	$23.2 million

• Revenue increased 4.9%. Fixed lease payments rose 30.3% to $16.0 million, while variable lease payments fell sharply, primarily because Q1 2020 included a $2.8 million net lease-termination payment.
• Operating expenses increased 22.6% to $9.9 million, led by depreciation and amortization, up 42.1% to $6.1 million. Operating margin was approximately 38% versus 47% a year earlier.
• Other income rose to $2.2 million, mainly from $2.2 million of Farm Credit interest patronage recognized in the quarter. Interest expense increased 24.8% to $6.2 million as borrowing balances grew. The company also recorded a $0.8 million net loss on real estate dispositions.
• Cash and cash equivalents were $72.9 million at March 31, 2021, versus $9.2 million at year-end 2020. Total assets were $1.13 billion; total liabilities were $716.8 million.
• Notes and bonds payable, net, were $628.9 million; including $0.1 million drawn on lines of credit, total borrowings were $629.0 million. The company also had $58.4 million of Series D term preferred stock classified as a liability. It reported compliance with debt covenants.
• Management reported available liquidity of approximately $102.2 million, comprising approximately $78.0 million cash and $24.2 million of MetLife facility availability based on pledged collateral. This is a management-reported liquidity figure, not the quarter-end balance-sheet cash figure alone.
• FFO, core FFO and AFFO per diluted share were $0.17, $0.18 and $0.17, respectively, versus $0.25 for each measure in Q1 2020. These are non-GAAP measures. Estimated NAV was $12.69 per common share and OP Unit; management cautioned that the estimate is subjective and may differ from market or realized values.

Material changes and capital activity

• Common-stockholder results shifted from income to a loss, reflecting lower net income, larger preferred dividends and the absence of the prior-year lease-termination income. Common and preferred equity issuances increased weighted-average common shares to 26.9 million from 21.3 million.
• The company issued $60.4 million gross of 5.00% Series D term preferred stock and used approximately $28.8 million to redeem all outstanding Series A term preferred stock. Series D is mandatorily redeemable January 31, 2026, and generally not redeemable before January 31, 2023.
• It raised $22.5 million gross from common stock sales under its ATM program during the quarter and $13.3 million gross from Series C preferred stock sales. The ATM program’s $100 million capacity was reported fully used by the filing date.
• Quarterly financing included $9.9 million of new borrowings. Management reported a 3.70% weighted-average borrowing rate before interest patronage and debt issuance costs, versus 3.98% a year earlier. Two new Rabo loans were variable-rate at quarter-end and were fixed through swaps effective April 1.
• Three farms were acquired during the quarter for $5.6 million. After quarter-end, the company acquired a California olive farm for $37.8 million. Subsequent to quarter-end, it also reported additional ATM and Series C sales.

Outlook, risks and unusual items

• No earnings or revenue guidance was provided. Management said near-term cash resources were expected to cover distributions, debt service, preferred dividends and operating costs, and described its acquisition pipeline as healthy. It noted that prospective purchases remain subject to due diligence and may not be completed.
• Management identified tenant payment capacity, future rent-relief requests and access to financing as COVID-19-related uncertainties. Two tenants had received short-term rent extensions in 2020; those amounts were collected in full, and no further relief requests had been received by the filing date.
• California and Florida represented 61.9% and 20.9% of Q1 lease revenue, respectively. Management warned that natural disasters or climate impacts in portfolio regions could materially affect results. No single tenant exceeded 10% of lease revenue.
• Seven leases covering 11.1% of farm acreage were scheduled to expire in 2021; management said it was negotiating renewals for two leases expiring within six months and anticipated current-market rents, but gave no assurance of renewal or replacement tenants.
• Most debt was fixed-rate. Management was monitoring the LIBOR transition and expected minimal overall impact if SOFR replaces LIBOR with an appropriate adjustment, while noting that some agreements would need renegotiation.
• Unusual period items included the $2.2 million Farm Credit patronage receipt, the prior-year lease-termination payment that did not recur, disposition losses, the Series A redemption and write-off of related issuance costs, and a favorable $1.4 million change in the fair value of interest-rate hedges recorded in comprehensive income.
• The company reported no material litigation, no material off-balance-sheet arrangements, and no material change to previously disclosed risk factors. Management concluded disclosure controls were effective.

Important facts for investors to verify

• How recurring rent and operating performance compare after excluding the prior-year termination payment and the timing-sensitive Farm Credit patronage.
• Debt maturities, collateral availability, covenant headroom and the cost and terms of future equity or debt funding; distinguish quarter-end cash from management’s later liquidity estimate.
• Whether scheduled lease expirations renew, and the effect of California and Florida concentration, water access and regional climate or natural-disaster exposure.
• The sustainability of common and preferred distributions relative to AFFO, cash flows and capital needs.
• The assumptions behind management’s estimated NAV and the valuation of farmland, debt and preferred securities; NAV is not a GAAP measure or assurance of realizable value.