Gladstone Land Corporation — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Gladstone Land is an externally managed agricultural REIT that owns and leases farmland. It owned 123 farms across 13 states at quarter-end; management reported 127 farms at the filing date after subsequent acquisitions.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Lease revenue | $14.0 million | $11.0 million | $41.9 million | $27.2 million |
| Operating income | $7.1 million | $5.4 million | $20.5 million | $12.8 million |
| Net income | $1.6 million | $0.5 million | $4.9 million | $0.8 million |
| Net loss attributable to common stockholders | $(0.8) million | $(0.6) million | $(2.0) million | $(1.9) million |
| Loss per common share | $(0.04) | $(0.03) | $(0.09) | $(0.10) |
- Operating margin was approximately 51% in Q3 and 49% for the nine-month period, compared with approximately 49% and 47%, respectively, in the comparable 2019 periods.
- For the nine months, operating cash flow was $11.6 million, down from $13.9 million. Investing used $75.6 million, mainly for acquisitions and property improvements; financing provided $56.8 million. Cash decreased $7.2 million to $6.5 million at September 30.
- At quarter-end, total borrowings were $503.5 million, including $11.6 million drawn on revolving credit lines; notes and bonds payable, net, were $491.9 million. The weighted-average borrowing rate before Farm Credit patronage was 3.99% for the nine months. The company reported compliance with debt covenants.
- Total assets were $878.4 million and total equity was $317.3 million. Series A term preferred stock, classified as a liability, was $28.5 million net.
- Management estimated NAV per common share at $11.97 as of September 30, versus a $15.02 common share closing price that day. This non-GAAP estimate relies on management and appraisal assumptions and is not an audited market value.
Changes and notable items
- Nine-month revenue rose 54%, primarily from acquisitions, higher participation rents, and a $2.8 million net lease-termination payment. The company acquired 12 farms during the period for an aggregate purchase price of $64.3 million.
- Q3 revenue increased 27%. Same-property fixed rent rose modestly, and participation rents increased; revenue from farms acquired since the prior-year period also contributed substantially.
- Operating expenses increased 48% for the nine months, including higher depreciation and adviser fees. The 2020 advisory agreement changed the base management fee calculation to 0.5% annually of gross tangible real estate; an incentive fee was also incurred in 2020. These fees totaled $5.3 million for the nine months, versus $1.2 million net of adviser waivers in 2019.
- Higher interest expense reflected increased average borrowings. Net income improved, but preferred dividends and related charges left common stockholders with a net loss in both comparative periods.
- In February, the company received a $3.0 million payment to terminate leases on four Arizona farms and entered into a new seven-year lease. In May, it paid $3.2 million for approved vineyard expansion at a California property, expected to generate approximately $335,000 of additional annual straight-line rent.
Liquidity, outlook, risks, and contingencies
- Management stated that available liquidity was approximately $57.9 million, comprising $33.7 million of cash and $24.2 million of availability under the MetLife facility, subject to covenants. This differs from the September 30 balance-sheet cash figure of $6.5 million; the filing also reports substantial subsequent equity proceeds. Reconciliation is important.
- Management said near-term resources should cover operating costs, debt service, and distributions, and described its acquisition pipeline as healthy. It gave no specific earnings or revenue guidance. It expects rental payments generally to remain timely and farmland values stable, but cautioned that these expectations are uncertain.
- Two tenants received extensions on approximately $343,000 of rent due in July; the deferred amounts were collected in October. Management reported no other COVID-related relief requests at filing, but warned that further requests or disruptions could affect tenants, collections, financing, and distributions.
- Geographic concentration remains material: California and Florida generated 52.9% and 23.9% of nine-month lease revenue, respectively. The filing identifies natural disasters, water access, lease renewals, tenant credit, and agricultural-market conditions as relevant risks. Three agricultural leases were due to expire within six months; renewals were under negotiation.
- Subsequent events included four farm acquisitions, new borrowings, a common-stock offering yielding $26.1 million net, and Nasdaq listing of Series B preferred shares. The Series A preferred stock has a mandatory redemption date of September 30, 2021.
- The company reported no material litigation, no property impairments, and no material off-balance-sheet arrangements. It also noted that LIBOR transition may require renegotiating MetLife credit-line terms.
Investor verification priorities
- Reconcile management’s stated $33.7 million of cash and $57.9 million available liquidity with quarter-end cash of $6.5 million and subsequent financing activity.
- Assess recurring rent and earnings apart from the one-time Arizona lease-termination income, acquisitions, interest patronage, and adviser fee changes.
- Review debt maturities, collateral capacity, covenant headroom, and the 2021 Series A preferred redemption requirement.
- Evaluate the assumptions underpinning the $11.97 estimated NAV, including appraisal dates, farmland values, rental assumptions, and capitalization rates.
- Track lease expirations and renewals, tenant performance, COVID-related rent relief, and the concentration of revenue in California and Florida.