Gladstone Land Corporation — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. This is an annual report, not a standalone fourth-quarter filing. The company is an externally managed farmland REIT that owns and leases agricultural land and related facilities; it does not farm the properties.
Business context and portfolio
- At year-end, the company owned 43 farms totaling 16,810 acres across six states, plus three cooling facilities and a box barn, leased to 33 unrelated tenants. Occupancy was reported at 100%.
- It acquired 11 farms in 2015 for approximately $76.0 million. Farmable acreage grew to 13,022 from 6,637 in 2014; the portfolio’s estimated fair value rose to $285.3 million from $193.0 million.
- Fresh-produce annual row crops generated 77.6% of 2015 rental revenue; permanent crops generated 7.0% and commodity crops 5.6%. California accounted for 65.2% of rental revenue, and Dole accounted for 24.8%.
Financial performance and condition
| Metric | 2015 | 2014 |
|---|---|---|
| Operating revenue | $11.90 million | $7.18 million |
| Operating income | $4.57 million | $1.60 million |
| Net income (loss) | $568,545 | ($125,133) |
| EPS, basic and diluted | $0.07 | ($0.02) |
| FFO per share | $0.42 | $0.24 |
| AFFO per share | $0.40 | $0.25 |
| Cash from operating activities | $4.75 million | $3.54 million |
| Capital spending and acquisitions, net cash used in investing activities | ($78.48 million) | ($71.33 million) |
| Cash at year-end | $2.53 million | $2.62 million |
| Total assets | $229.74 million | $151.70 million |
| Total borrowings | $142.73 million | $86.42 million |
| Stockholders’ equity | $78.01 million | $59.97 million |
Revenue increased 65.6%, chiefly from acquired properties; same-property rental revenue rose 2.9%. Operating margin was approximately 38.4%, versus 22.3% in 2014. Net income improved from a loss, although interest expense more than doubled to $4.16 million as average borrowings increased. Net cash from financing activities was $73.63 million, including new debt and equity proceeds. The company issued shares in public offerings and through its ATM program, ending the year with 9,992,941 shares outstanding, up from 7,753,717.
Annual distributions were $0.465 per share, including $0.12 in the fourth quarter; AFFO per share of $0.40 was below the annual distribution. The filing cautions distributions are discretionary and may include return of capital. Management reported current liquidity of approximately $24.3 million, including $21.4 million of borrowing availability subject to covenants. The balance sheet reports cash of $2.53 million; elsewhere the liquidity discussion cites $2.9 million, a difference investors should reconcile. Debt-to-total-capitalization at book value was 64.7%, compared with 59.0% in 2014. The stated blended borrowing rate was 3.2% before interest patronage; the reported effective rate including Farm Credit patronage was 3.4%.
Management’s estimated NAV was $14.20 per share at year-end, compared with a December 31 market price of $8.65. NAV is a non-GAAP management estimate, uses appraisals and internal valuations, and was not audited or reviewed by the independent auditor.
Changes, outlook, and notable items
- Management said cash resources should cover near-term distributions, debt service, and operating costs. It expects longer-term funding from equity, mortgage debt, bond issuances, and other borrowings; it provided no earnings or distribution guidance.
- Two farms totaling 6,664 acres were under purchase agreements after year-end for an aggregate approximately $41.4 million, with expected closings in the first and second quarters of 2016. These transactions remained subject to due diligence and other conditions. A portion of the Colorado consideration was expected to be OP Units.
- Management described farmland demand and long-term land values positively, while noting lower grain prices had softened some Midwest farmland values and that high acquisition prices could pressure returns. It reported the California drought had not materially affected its farms at the time, but identified water availability, drought, weather, crop disease, tenant credit, and geographic concentration as significant risks.
- The company is developing an almond orchard at Bear Mountain, with estimated project costs of approximately $7.8 million and expected completion by June 30, 2016. Permanent-crop development carries longer lead times and greater weather, disease, and market risks than annual crops.
- Two Dole leases, expiring in 2020, represented 24.8% of rental revenue; a separate tenant represented 10.7%. California generated 65.2% of rental revenue. The filing identifies tenant concentration as a potential material risk.
- Borrowings were secured by all 43 farms. Scheduled principal payments include approximately $19.7 million in 2018 and $17.0 million in 2020; certain facilities have variable rates or rates that reset. The company reported compliance with debt covenants and no off-balance-sheet arrangements.
- Other notable items: two 2014 fire claims were closed after additional insurance recoveries in 2015; a pipeline easement generated a $14,483 gain; management reported no material litigation. The independent auditor issued an unqualified opinion, and management concluded internal control over financial reporting was effective.
Most important facts for investors to verify
- Reconcile management’s stated $2.9 million cash figure with the audited balance-sheet amount of $2.53 million, and confirm the availability and conditions attached to the reported $21.4 million of credit capacity.
- Assess whether recurring cash generation supports distributions: 2015 AFFO was $0.40 per share versus distributions of $0.465 per share. Review the company’s non-GAAP definitions, which changed during 2015.
- Evaluate refinancing and covenant headroom against secured debt, the 64.7% book-value debt-to-capitalization ratio, and scheduled maturities, especially in 2018 and 2020.
- Monitor tenant and geographic concentration, particularly Dole’s 24.8% revenue share and California’s 65.2% revenue share, alongside lease renewals and tenant payment capacity.
- Test the assumptions behind management’s $14.20 NAV estimate and the feasibility, funding, and expected rent contribution of the $41.4 million proposed acquisitions and almond-orchard development.