Gladstone Land Corporation — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020; comparative periods are Q2 and first half of 2019. Amounts below are in U.S. dollars unless noted. Gladstone Land is an externally managed agricultural REIT that owns and leases farmland. At quarter-end it owned 115 farms across 10 states, comprising 89,128 acres.
Financial performance and position
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Lease revenue | $12.638m | $8.362m | $27.918m | $16.192m |
| Operating income | $6.184m | $4.121m | $13.381m | $7.346m |
| Net income | $0.182m | $0.174m | $3.283m | $0.282m |
| Net loss attributable to common stockholders | $(2.078)m | $(0.720)m | $(1.144)m | $(1.215)m |
| Loss per common share | $(0.10) | $(0.04) | $(0.05) | $(0.07) |
- Q2 lease revenue rose 51.1% year over year; first-half revenue rose 72.4%. First-half revenue included $2.81m of net lease termination income from a one-time payment of approximately $3.0m.
- Common-stockholder losses reflect preferred dividends: Q2 Series B and C dividends totaled $2.262m; first-half dividends totaled $4.388m. Reported net income was positive in both periods.
- First-half operating cash flow was $9.937m, compared with $4.256m in 2019. Investing used $35.100m; financing provided $36.254m. Cash increased $11.091m to $24.779m at quarter-end.
- Q2 diluted FFO per share was $0.11 versus $0.12; diluted AFFO per share was $0.10 versus $0.13. For the first half, diluted FFO was $0.36 versus $0.23 and diluted AFFO was $0.35 versus $0.26. These are non-GAAP measures.
- At June 30, total assets were $856.689m and total equity was $306.383m. Notes and bonds payable, net, were $491.538m; an additional $0.100m was drawn on revolving credit lines. Debt’s weighted-average stated rate was 3.98% before Farm Credit interest patronage.
- Management reported approximately $53.5m of available liquidity at filing date: $29.3m cash and approximately $24.2m of availability under the MetLife facility, subject to covenants and collateral. The company said it was covenant-compliant.
Material changes and significant activity
- Lease revenue growth reflected acquisitions, higher rents on some renewals and amendments, tenant expense reimbursements, and the termination payment. Same-property fixed lease payments increased 2.1% in Q2 and 2.7% for the first half.
- The company acquired four farms in the first half for approximately $25.2m, versus 13 farms for $47.9m in the first half of 2019. It also spent $9.4m on improvements to existing properties.
- In May, Gladstone paid approximately $3.2m for approved additional vineyard plantings at its Withers Road property; the lease amendment is expected to add approximately $335,000 in annual straight-line rent through 2029.
- The Series B preferred offering concluded in March after selling 6.0m shares in total. A Series C preferred offering began in 2020; 130,702 shares had been sold by June 30. A new common-stock ATM program authorizes up to $100m in sales.
- The 2020 advisory agreement changed the base management fee calculation to 0.50% annually of gross tangible real estate rather than an equity-based calculation. First-half adviser fees were $3.415m, including a $1.334m incentive fee; no adviser fee credits were granted in 2020, unlike 2019.
Outlook, risks and contingencies
- Management said COVID-19 had not materially affected operations or tenants as of the filing, and that most tenants were current. It deferred approximately $343,000 of rent for two tenants until no later than November 1, 2020, and was awaiting another approximately $53,000; management expected collection in full but gave no assurance.
- Management said near-term liquidity was adequate for operations, debt service and distributions, and farmland values were expected to remain stable. It also cautioned that the pandemic could affect tenants, rent collection, financing, property values, acquisitions and future distributions.
- Four agricultural leases were scheduled to expire within six months. Management anticipated California renewals at higher rates and Colorado renewals at lower rates, but noted renewals and replacement tenants were not assured.
- California, Florida and Arizona represented 49.5%, 23.9% and 13.6% of first-half lease revenue, respectively. The geographic and crop concentration leaves exposure to regional events, weather and agricultural conditions.
- The Series A term preferred stock has a mandatory redemption date of September 30, 2021. Scheduled principal payments on notes and bonds include $19.361m for the second half of 2020 and $41.707m in 2022.
- Management estimated NAV at $11.06 per common share and OP Unit at June 30, based on management valuations; this estimate is not audited or assured by the auditor. The reported common-stock closing price that day was $15.86.
- No material litigation, material off-balance-sheet arrangements, or impairment of real estate assets was reported. Management concluded disclosure controls were effective.
Investor verification priorities
- Track collection of the $343,000 deferred rent and $53,000 late payment, and monitor any further COVID-related tenant requests.
- Separate recurring rental performance from the one-time lease termination income when assessing earnings, cash generation and distributions.
- Review debt maturities, collateral availability, covenant compliance, interest costs and the 2021 Series A preferred redemption requirement.
- Assess the sustainability of common distributions against AFFO, preferred dividends, capital spending and future equity issuance.
- Examine upcoming lease renewals, tenant credit, geographic concentration, and the assumptions underlying management’s estimated NAV.