Gladstone Land Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparative period is Q1 2022. Gladstone Land is an externally managed agricultural REIT that owns and leases farmland. At quarter-end it owned 169 farms across 15 states, totaling 115,731 acres, leased to 88 unrelated tenants.
Financial results and position
| Metric | Q1 2023 | Q1 2022 / prior date |
|---|---|---|
| Lease revenue | $21.2 million | $19.9 million; up 6.3% |
| Operating income | $7.4 million | $6.6 million; up 13.2% |
| Net income | $1.75 million | $1.19 million |
| Net loss attributable to common stockholders; diluted loss per share | $(4.32) million; $(0.12) | $(2.74) million; $(0.08) |
| FFO / AFFO available to common holders and non-controlling OP unitholders | $5.30 million / $6.04 million | $6.62 million / $6.38 million |
| Net cash from operating activities | $4.71 million | $7.55 million |
| Cash and cash equivalents at quarter-end | $38.7 million | $61.1 million at December 31, 2022 |
| Total assets; total equity | $1.426 billion; $734.9 million | $1.457 billion; $731.4 million at December 31, 2022 |
| Notes and bonds payable, net; line of credit | $599.0 million; $0.1 million | $626.4 million; $0.1 million at December 31, 2022 |
Operating expenses rose 2.9% to $13.8 million. Interest expense declined to $6.0 million from $6.4 million as average borrowings fell; preferred dividends and related charges increased to $6.1 million from $3.9 million, driving a larger common-stockholder loss despite higher net income. Q1 FFO and AFFO per diluted share were $0.15 and $0.17, respectively, versus $0.19 for each in Q1 2022. Common distributions declared were approximately $0.14 per share in both periods.
Cash used in investing was $3.0 million, including $2.9 million of capital expenditures. Financing used $24.1 million, principally reflecting $27.6 million of debt repayments and distributions, partly offset by $14.7 million of equity proceeds. Cash declined by $22.4 million in the quarter.
Material changes and drivers
- Lease revenue increased $1.3 million, reflecting rent from farms acquired after 2021, participation rents, and tenant reimbursements. Same-property fixed rent was nearly flat, up 0.7%.
- Q1 2023 included $2.3 million of Farm Credit interest patronage associated with 2022 borrowing costs, recorded in other income. Patronage is timing-dependent and should not be treated as recurring quarterly rent.
- FFO fell from $6.6 million to $5.3 million, while AFFO declined from $6.4 million to $6.0 million. The company attributed much of the difference between net income and common results to preferred distributions; Q1 2023 also included casualty losses.
- Common shares outstanding rose to 35.7 million from 35.1 million at year-end. The ATM program raised $13.0 million net from 663,585 shares at a weighted-average $19.72 per share; Series E preferred issuance added $1.4 million net in the quarter.
Liquidity, debt and outlook
Management reported approximately $192.4 million of available liquidity, comprising approximately $42.7 million of cash on hand and $149.7 million of availability under MetLife and other undrawn facilities, subject to collateral and covenant requirements. This cash figure differs from the $38.7 million balance-sheet amount at March 31; the filing does not provide a reconciliation in the cited discussion. Management said liquidity was adequate for operating costs, debt service and distributions.
More than 99.9% of borrowings were fixed-rate, at a weighted-average effective rate of 3.34% for another 4.8 years. The weighted-average remaining debt term was approximately 9.4 years. Debt covenants were met. Scheduled principal payments total $18.0 million for the remaining nine months of 2023 and $40.9 million in 2024. The $57.0 million of Farmer Mac bonds outstanding were within a facility whose issuance window was due to expire May 31, 2023; management was discussing an extension and expected an agreement in Q2 2023. Subsequent to quarter-end, the common-stock ATM authorization was increased from $260 million to $500 million.
Management intends to use available capital for farm acquisitions and improvements and reported prospective acquisitions under review, but gave no quantitative earnings or acquisition guidance. It anticipated renewing two California leases due to expire within six months at flat to slightly higher rents, while noting renewals were not assured. One temporarily self-operated California farm was expected to be leased within three months, with no guarantee of a favorable agreement.
Risks, contingencies and unusual items
- Three tenants with credit issues affected seven leases across 17 farms; rent on those properties was recognized on a cash basis. Q1 revenue from the affected properties was approximately $363,000, versus $470,000 a year earlier. Management was pursuing collections or lease resolutions.
- California and Florida represented 64.2% and 17.5% of Q1 lease revenue, respectively. California floods damaged structures at one Central Valley farm; the estimated carrying value written down was $855,000. Management expected recovery through insurance or tenant obligations, but assessment was ongoing.
- Inflation, changing interest rates, potential recession, natural disasters, water-rights costs and tenant credit could affect operating results, asset values or financing. Management cited food-price increases and farmland returns as potentially supportive, but these are not company guidance.
- Estimated NAV was $17.12 per common share at March 31, compared with a closing common-stock price of $16.65. NAV is a management-prepared non-GAAP estimate based substantially on appraisals and assumptions; the auditor provided no assurance on it, and realized sale values may differ.
- The company reported no material litigation, no material off-balance-sheet arrangements, and no material changes to previously disclosed risk factors. Disclosure controls were deemed effective.
Important facts for investors to verify
- Whether the flood-damage recovery is realized in full and whether additional damage or repair costs emerge.
- Collections, tenant status and leasing outcomes for the 17 farms with cash-basis rent recognition, the self-operated farm, and near-term lease expirations.
- Actual liquidity and collateral-backed borrowing availability, including reconciliation of management’s $42.7 million cash figure to quarter-end balance-sheet cash.
- Whether Farmer Mac extended its issuance window, and how future debt refinancing and interest costs compare with management’s assumptions.
- Common and preferred share issuance, dilution, distribution coverage, and the sustainability of FFO/AFFO given patronage timing and preferred claims.
- Valuation assumptions underlying the $17.12 estimated NAV, particularly appraisal inputs, tenant credit assessments and market capitalization rates.