Gladstone Land Corporation — Q3 2022 Form 10-Q
Business context and reporting period. This unaudited quarterly filing covers the three and nine months ended September 30, 2022. Gladstone Land is an externally managed agricultural REIT that owns and leases farmland; it reported 169 farms comprising 115,288 acres across 15 states. Its largest revenue concentrations were California (67.8% of nine-month lease revenue) and Florida (16.8%).
Financial results and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Lease revenue | $24.2 million | $19.6 million | $64.4 million | $52.5 million |
| Operating income | $9.6 million | $8.4 million | $24.4 million | $21.9 million |
| Net income | $1.8 million | $1.5 million | $3.6 million | $1.5 million |
| Net loss attributable to common stockholders | ($3.6 million); ($0.10/share) | ($1.6 million); ($0.05/share) | ($10.2 million); ($0.30/share) | ($7.3 million); ($0.25/share) |
| Operating cash flow | Not separately reported for the quarter | $23.1 million | $20.4 million | |
| Cash and cash equivalents at period-end | September 30, 2022: $37.0 million | December 31, 2021: $16.7 million | ||
| Notes and bonds payable, net; plus credit-line borrowings | September 30, 2022: $639.7 million | December 31, 2021: $668.0 million |
Q3 operating margin was approximately 39.8%, compared with 42.8% a year earlier; nine-month operating margin was approximately 37.8%, versus 41.7%. Common-stockholder losses reflect preferred dividends and related charges despite positive net income. Nine-month diluted AFFO was $0.52 per share versus $0.47; this is a non-GAAP measure, not a substitute for GAAP earnings or operating cash flow.
For the nine months, investing activities used $78.6 million, mainly for acquisitions and $16.1 million of capital expenditures. Financing activities provided $75.9 million, including equity proceeds and net debt repayments. The company reported approximately $176.2 million of current available liquidity, including cash and borrowing availability, and said it was in compliance with debt covenants. More than 99% of borrowings were fixed-rate; management described the weighted-average effective rate as 3.26% fixed for another five-plus years.
Material changes versus the prior comparable period
- Nine-month lease revenue grew 22.7%; fixed rent rose 21.3%, while participation rent increased 63.9%. Revenue growth reflected acquisitions and higher participation rents; same-property fixed rent was nearly flat, up 0.2% for the nine-month period.
- Nine-month operating expenses increased 31.0%, faster than revenue, mainly due to higher depreciation and amortization on acquired farms, management and administration fees, and an $851,000 write-off of Series C offering costs.
- Common-stockholder loss widened to $10.2 million from $7.3 million for the nine months, primarily as preferred dividends and related charges increased. Weighted-average common shares also rose to 34.5 million from 29.2 million.
- Debt declined by approximately $28.2 million from year-end 2021. The company issued $125.1 million net from Series C preferred shares and $14.9 million net through its common-stock ATM program during the nine-month period.
- The company acquired five farms or parcels for an aggregate purchase price of $62.0 million during the nine months. It reported a September 30 estimated NAV of $16.56 per common share, a non-GAAP management estimate; the common stock closed at $18.10 that day.
Outlook, commentary, and risks
No quantified earnings or revenue guidance was provided. Management said near-term cash resources should cover distributions, debt service, preferred dividends, and operating costs, and expects to use available capital for additional farmland acquisitions. It cited inflation and rising rates, but said higher food prices may help offset farm-operator input-cost increases and its mostly fixed-rate debt limits near-term rate exposure. Management also noted recession uncertainty and anticipated renegotiating certain LIBOR-linked agreements as LIBOR phases out, with a minimal overall impact expected from transition to SOFR.
Key risks include geographic and climate concentration, water availability and water-rights matters, tenant and crop economics, lease renewals, acquisition execution, and access to capital. Management said western-region farms had not been materially affected by the ongoing drought and that no farms in California or Florida had been materially affected by recent wildfires or hurricanes. One agricultural lease was scheduled to expire within six months; management was negotiating renewal or replacement and expected rent to be relatively flat, but gave no assurance. The filing reported no material litigation, no material changes to previously disclosed risk factors, and effective disclosure controls.
Notable items include the Series C offering reduction and associated offering-cost write-off; $11.1 million of Series C selling commissions and dealer-manager fees paid to an affiliate during the nine months; and the lack of a public market for Series C shares, for which the company intends to seek a listing but cannot assure one. The filing also disclosed related-party management and administration arrangements.
Important facts for investors to verify
- How much revenue and cash generation depends on California and Florida, participation rents, and the performance of individual tenants.
- Whether the $176.2 million liquidity figure, which includes borrowing availability subject to collateral and covenant conditions, remains available as expected.
- Debt maturities, refinancing terms, interest-rate exposure, and the timing and terms of the LIBOR-to-SOFR transition.
- The assumptions and appraisal inputs behind management’s estimated $16.56 NAV per share; the filing cautions that realized values may differ materially.
- The effect of preferred dividends, continuing equity issuance, and offering fees on common-stockholder returns and per-share performance.
- Lease renewal outcomes, committed farm-improvement spending, and exposure to drought, water rights, and other climate or agricultural risks.