Gladstone Land Corporation — Q3 2013 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2013. The company owns and leases farmland, generally under triple-net leases, and is externally managed. At quarter-end it owned 14 farms across California, Florida, Michigan, and Oregon; a California farm acquired on October 21 brought the portfolio to 15 farms after the period.
Financial results
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Rental revenue | $996,096 | $848,461 | $2,860,435 | $2,473,837 |
| Operating income | $348,616 | $305,619 | $1,063,517 | $1,358,668 |
| Net income | $4,760 | $40,431 | $82,633 | $357,408 |
| Pre-tax FFO per share (non-GAAP) | $0.04 | $0.07 | $0.13 | $0.35 |
| Net cash from operating activities | Not separately presented for quarter | $(1,803,839) | $532,286 |
- Q3 revenue rose 17.4%; nine-month revenue rose 15.6%, primarily reflecting farms acquired since August 2012.
- Operating margin was approximately 35.0% in Q3 2013 versus 36.0% in Q3 2012; for nine months it was 37.2% versus 54.9%. Higher expenses, including depreciation and public-company, professional, and G&A costs, weighed on results.
- Cash and cash equivalents were $39.4 million at September 30, up from $0.9 million at year-end 2012; short-term investments were $0.7 million. Total assets were $85.7 million, liabilities $31.4 million, and stockholders’ equity $54.3 million.
- Debt totaled $29.6 million: a $29.5 million MetLife mortgage at 3.50% and a $0.1 million line of credit at 3.27%. Mortgage principal is due through 2026; the rate resets in January 2014. Debt was approximately 34.5% of total assets.
- Operating cash outflow included a $2.1 million IRS cash-bond tax prepayment. Investing cash outflow was $5.2 million, including $4.6 million for acquisitions; financing provided $45.6 million, primarily from the IPO, net of distributions and debt repayments.
Changes, outlook, and risks
- The January 2013 IPO raised approximately $51.3 million net. By September 30, $11.9 million had been invested in acquisitions and $0.6 million spent or accrued for property improvements; remaining proceeds were largely held in cash or money-market accounts.
- The company intended to elect REIT status for 2013, subject to completing qualification steps. Management expected the nine-month income-tax provision to be reversed after the election process; no completed election is reported here. A $2.1 million federal tax payment relates to a deferred intercompany gain expected to become taxable upon REIT election.
- Distributions were $0.80 per common share for the first nine months; the board subsequently declared another $0.36 per share for October–December. The company estimated approximately $9.6 million of accumulated non-REIT earnings and profits had to be distributed by year-end for initial REIT qualification.
- Material property commitments included up to about $900,000 for Colding Loop irrigation (about $573,000 expended or accrued by quarter-end) and $200,000–$250,000 for West Beach drainage work, plus $46,000 for tenant oversight.
- Tenant and geographic concentration are significant: Dole represented 68.6% of nine-month rental income and leased 49.0% of acreage; California generated 84.2% of rental income. Dole’s parent guarantees its leases, but tenant, agricultural, natural-disaster, and regional risks remain.
- Management identified interest-rate and financing risks, including the mortgage rate reset and the possibility that MetLife would not extend the December 2013 deadline for up to $13.6 million of additional mortgage proceeds. Broader risks included economic and interest-rate volatility, crop and climate impacts, and uncertainty in U.S. government finances.
- After quarter-end, the company acquired a Salinas-area farm for approximately $7.3 million. It also disclosed proposed acquisitions subject to due diligence and closing conditions, including a Florida farm and an Arizona farm; completion was not assured. No specific earnings or revenue guidance was provided.
Most important facts to verify
- Progress and final tax treatment of the intended 2013 REIT election, including the expected tax-provision reversal and required distribution of accumulated earnings and profits.
- Use of remaining IPO proceeds, acquisition pipeline, and whether announced post-quarter transactions closed on their stated terms.
- Tenant concentration and renewal outcomes, particularly Dole exposure and leases expiring in 2014.
- Final costs and timing for irrigation and drainage commitments, and the status of the MetLife draw-period extension and January 2014 rate reset.
- The filing revised the December 2012 balance sheet for an approximately $485,000 tax-related error that did not affect prior reported net income; it also recorded a $30,800 out-of-period adjustment that understated 2013 net income. Review the related tax disclosures and accounting judgments.