Gladstone Land Corporation — Form 10-Q Summary
Business context and reporting period
Quarterly period ended September 30, 2015; filed November 3, 2015. Gladstone Land is an externally managed REIT that owns and leases farmland, generally under triple-net or partial-net leases, and does not farm the land itself. At quarter-end it held 41 farms totaling 14,880 acres, leased to 31 tenants. The company reported 42 farms and 15,572 acres after a subsequent acquisition.
Financial performance
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Operating revenue | $3.08 million | $1.78 million | $8.49 million | $4.84 million |
| Operating income | $1.17 million | $0.30 million | $3.02 million | $1.05 million |
| Net income (loss) | $206,395 | $100,375 | $200,681 | $(179,803) |
| Basic and diluted EPS | $0.02 | $0.02 | $0.02 | $(0.03) |
| FFO per share | $0.11 | $0.08 | $0.30 | $0.14 |
| AFFO per share | $0.10 | $0.06 | $0.31 | $0.16 |
Operating margin was approximately 37.9% in Q3 2015 versus 17.0% in Q3 2014, and 35.5% for the first nine months versus 21.8%. Net margin for the nine-month period was approximately 2.4%, compared with a loss in the prior-year period. FFO, core FFO and AFFO are non-GAAP measures; the company cautions that these are not substitutes for GAAP results or operating cash flow.
- Cash flow: Nine-month operating cash flow was $4.30 million, compared with $2.03 million. Investing used $68.60 million, principally for acquisitions and property improvements; financing provided $64.38 million. Cash increased $82,108 to $2.70 million.
- Assets and liquidity: Total assets were $219.19 million, including net real estate of $211.21 million. The filing’s liquidity discussion cites approximately $6.5 million available, including cash and borrowing availability; the amount of availability stated for the MetLife facility varies by disclosure and should be reconciled.
- Debt: Mortgage notes and bonds were $135.09 million, plus $5.00 million drawn on the line of credit, for total borrowings of approximately $140.09 million. Debt-to-total-capitalization at book value was 66.4%, up from 59.0% at year-end 2014. Weighted-average borrowing rates were reported at approximately 3.4% for Q3 and 3.5% for the nine-month period, before Farm Credit patronage.
- Distributions: The company paid $0.345 per common share during the first nine months of 2015, versus $0.270 in 2014. Monthly distributions were $0.04 per share in Q3; a further $0.12 total for October–December was declared after quarter-end.
Material changes versus prior period
- Revenue rose 73.5% in Q3 and 75.5% year to date, mainly from farms acquired since September 2014. Same-property rental revenue increased 1.9% in Q3 and 3.8% year to date.
- Nine-month net income improved by $380,484, from a loss to income. Operating income increased, but interest expense more than doubled year over year as borrowings expanded to fund acquisitions.
- The company acquired nine farms in six transactions during the first nine months, for an aggregate purchase price of approximately $66.5 million. Portfolio expansion also increased depreciation, property costs and acquisition-related expenses.
- Common shares outstanding increased to 9.06 million at September 30 from 7.75 million at December 31, 2014, including a 1.31 million-share follow-on offering that generated approximately $13.8 million net proceeds.
- Management estimated NAV at $13.64 per share, up from $13.42 at June 30; the September 30 closing share price was $9.18. NAV is a management estimate, not a GAAP measure or guaranteed realizable value.
Outlook, commentary, risks and unusual items
- Management said current resources were expected to cover near-term distributions, debt service and operating costs, and described its acquisition pipeline as healthy. No earnings or revenue guidance was provided.
- At September 30, three purchase agreements covered approximately 1,688 acres in Florida and Georgia for about $7.7 million; a portion closed after quarter-end. Subsequent agreements covered additional Arizona and Colorado farmland, subject to customary conditions and due diligence.
- Key risks include tenant and geographic concentration: Dole contributed 26.1% of nine-month rental revenue and another tenant contributed 11.2%; California generated 66.6% of rental revenue. Natural disasters, climate impacts, lease renewals and tenant credit are material exposures.
- Interest-rate exposure includes variable-rate debt and fixed-rate debt that may reprice. The company reported compliance with applicable borrowing covenants and had no derivative contracts to hedge rate exposure.
- Commitments include irrigation and property-development work, including an estimated $7.8 million almond-orchard conversion at Bear Mountain. The company also had a contingent $700,000 Parrish Road payment tied to water-permit approval, plus potential tenant irrigation funding.
- Unusual period items included $97,232 of net insurance recovery related to earlier fires; management said no further recoveries were expected. The Adviser credited a $320,905 finder’s fee against management fees. No material litigation was reported, and disclosure controls were deemed effective.
Important facts for investors to verify
- Reconcile the filing’s different statements of MetLife borrowing availability and total available liquidity at September 30.
- Review debt maturities, collateral requirements, covenant headroom and exposure to future interest-rate resets as acquisition financing needs grow.
- Assess whether rental growth and cash generation can support distributions after debt service, capital commitments and acquisition spending.
- Monitor major-tenant exposure, California revenue concentration, near-term lease expirations and renewal outcomes.
- Validate the assumptions underlying the estimated $13.64 NAV per share, particularly farmland values, capitalization rates and appraisals; the filing notes that actual sale proceeds may differ.
- Confirm completion, cost and rent effects of the announced irrigation, orchard-development and subsequent acquisition plans.