Gladstone Land Corporation (LAND) Earnings Call Transcript & Summary

All right, I appreciate that kind introduction. This is David Gladstone speaking, and I'd like to welcome everyone to the quarterly conference call for Gladstone Land. Thanks to each of you for joining us today. We're grateful that you've set aside part of your day to hear our presentation. With any luck, we'll give you a sense of the direction we're headed. At this point, we'll turn things over to Catherine Gerkis, who serves as our Director of Investor Relations, so she can give a short disclosure about certain regulatory matters related to this call and this report. Catherine, the floor is yours.

Hello, everyone. This morning's discussion might contain forward-looking statements, all of which rest on estimates, assumptions, and projections made by management. No assurance can be given regarding future results, and because of a range of uncertainties—among them the risk factors described in our SEC filings, available on the Investors page at gladstoneland.com—actual outcomes could differ materially from those stated or suggested here. Unless the law requires it, we take on no duty to revise any such statements. For fuller details, please see our website, where you'll find our Form 10-K along with the earnings press release, each of which we issued yesterday. There you can also register for our e-mail alerts and learn how to reach our Investor Relations team. Additionally, we're on X at @GladstoneComps, plus Facebook and LinkedIn; for all of these, the keyword is the Gladstone Companies. On today's call, we'll cover FFO—funds from operations—a non-GAAP measure that means net income, with gains or losses on real estate sales and any property impairment losses excluded, plus depreciation and amortization on real estate assets. We might also address core FFO, which we typically describe as FFO with adjustments for particular nonrecurring revenues and expenses, and adjusted FFO, which takes core FFO further by adjusting for specific noncash items, for instance converting GAAP rents into normalized cash rents. Our view is that these metrics may offer a clearer picture of how we're operating and make comparing one period with another easier; at this point, I'll hand things back to David Gladstone.

Appreciate that, Catherine. Everyone, we closed on a handful of additional farms in Q4, bringing our total for the year to 6 property sales, which generated $95 million in proceeds, and we booked an aggregate gain of roughly $21 million on those sales. So your company is in solid shape as of today. Following those sales, we continue to hold close to 99,000 acres spread over 144 farms, which works out to about 56,000 acre-feet; if you've forgotten, that converts to 18 billion gallons of water held in aquifers, so we're well positioned on that side of things. Our farms span 14 different states, while our water assets sit entirely in California. And at present, California has plenty of water. So from that angle, we're in fine shape. As for the 2 sales we closed in the quarter, the first was a small blueberry farm located in North Carolina. The tenant had gotten behind on his rents, and it was a difficult property for us to place new tenants in; so even though we took a small loss on the sale, we figured it was best to just unload that farm, given it sat outside the normal territory we operate in. Next, there was a Colorado farm—a solid property—whose lease was set to run out when the year ended. We figured rent would likely be marked down and reset, so we took the chance to offload it at a price above both our initial basis and our purchase cost. That led us to proceed, capture the gain, and exit that category of farms. Selling more farms is something we may look at. As a matter of fact, conversations are underway with purchasers regarding a number of them across the coming quarters, which fits into a broader portfolio assessment. Should a few of those deals get across the finish line, our plan is to put the bulk of the money we receive toward reducing what we owe, plus buying back some of the pricier preferred stock on our books, which would let us book a gain. That said, we're still in the process of weighing the opportunities, and right now our hope is that a solid transaction materializes and proves how skilled we are at acquiring and holding onto these properties. Turning to acquisitions, the cost of financing appears to be inching toward the level we're aiming for, though we haven't gotten all the way there; our hope is that interest rates continue trending the right way. Meaning downward. That puts us in a position to resume expanding the portfolio, since it's been a long time since we were active in that business. We hold quite a bit of land ourselves, though it would be good to acquire some at this point, given that pricing appears to be trending favorably. Any fresh investments still get the same disciplined treatment from us. The cost of borrowing, along with what we pay for capital overall, remains elevated, and for the majority of row crop farmland the yields simply aren't sufficient at present for the numbers to pencil out, especially when buying would mean carrying a sizable amount of debt. Turning to leasing: as we mentioned on earlier calls, because of market conditions hitting certain permanent crops, nuts and wine grapes especially, we changed the lease terms on a small number of properties to assist our growers in lowering their fixed costs. Through that reduction, what we're effectively doing is collecting a bigger share of gross crop sales rather than a set rent payment. We also chose to run two properties directly, using third-party operators to help. We think many farms across the United States are simply organized that way, with people supplying farming know-how the way we do. I'll let Bill and Lewis, the next two speakers, address that. All in all, it was a good harvest, almonds and pistachios in particular. We still anticipate that a meaningful portion of revenue from the 2025 pistachio harvest will arrive during 2026, so it isn't reflected yet. The precise figure won't be known until the processors of those nuts complete their settlement with us. I wanted to flag this modified structure because our straightforward strategy for most of these farms in the 2026 crop year will be identical to what we employed a year ago. I also believe it's worth stressing once more how crop insurance factors in. In these situations, one reason we have such confidence in this approach, which is somewhat akin to gambling on these special farms, is their long track record of high production. Because coverage is mostly tied to historical yields, we can obtain fairly high levels of insurance. To illustrate: if a strange disease or something similar destroys one of our insured crops, the insurance lets us recoup the capital we invested in those farms, and knowing the downside is protected is reassuring. Eventually, we still aim to move these leases back toward a more conventional structure built on fixed base rents. A lot of factors determine if that's possible, and most are external: how much of a crop gets grown, what prices crops fetch, where interest rates stand, what it costs farmers for inputs like fertilizer to grow the nuts or, say, strawberries, plus whether water is available. That final factor—water supply—is something we've largely taken care of already, to a degree, which you've probably gathered from what's appeared in the press and various reports. There's an abundance of water in California right now, and the snow sitting in the mountains, set to melt during the summer months and flow down as runoff, is looking quite solid. Turning to our other leasing efforts, we closed out the quarter having finished 5 renewals. A few of those row crops, once their renewal dates arrived, gave us a modest gain of about 7%. On 3 permanent crops, we lowered the fixed base rent and brought in more of a crop share element instead — something we've frequently done — so the result ought to be approximately level with what those farms earned under earlier leases. Turning to what's ahead, 5 leases are set to run out within the coming 6 months. Altogether, that amounts to roughly 3.6% of the lease revenue we expect for 2025. Right now we're talking with tenants already in place as well as potential new ones about renting out every one of those farms. So I feel fairly good about filling them. Let me now give a brief update on a few tenancy issues we're still handling. At present, 9 farms are either entirely or partly empty, and on a number of those we're producing crops. Across 4 of those farms, we've acted as direct operators through management agreements with third-party growers who aren't affiliated with us. We also book revenue on a cash basis for leases covering 3 tenants, who together rent roughly 5 of our farms. That ought to be fine. We're pushing hard to find a fix for all of these cases. For a handful of these farms, we believe a resolution is nearly settled. And with luck, several can come off this list within the next few months. I'll pause there; Bill Reiman is with us on the call, and Bill truly gets our business, having spent most of his career in farming. So Bill, over to you.

Thank you, David, and good morning, everyone. Yes, a significant portion of management's attention at present is directed toward those properties run under the modified lease arrangements or farmed directly through third-party farm operators. Harvest for 2025 is behind us, and we're glad to share that we surpassed all of the overall yield targets set in our budgets; so those results are really solid. We are extending several of these modified lease arrangements, in particular at 5 of the 8 farms. Of the remaining 3, 2 are redevelopment projects, while the final one — our wine grade vineyard located in Napa — is now leased to a grower from the local area. So we're pleased that's wrapped up. The 5 farms where we're renewing agreements turned out to be the strongest performers within this group last year. So we anticipate yet another very strong year of results. On winter, David mentioned a bit about recent weather. For us, this winter's precipitation has come in around average, with a couple of our wettest months still ahead. Lately, we've seen some major storms that gave snowpack levels a real boost. So there's considerable optimism that surface water allocations for 2026 will come in very strong. Those reservoirs, across both state and federal water projects, sit above historical averages. So near term, supply is plentiful. On chilling hours, we expect a low to medium level of chilling hours in California this winter. That means we ought to satisfy all chill requirements across every one of our permanent crop locations; so that's very encouraging. On almond bloom, as of today, we're likely 2/3 of the way through. The bloom has come in somewhat uneven. There have been reports of flash bloom in numerous locations around the valley, the Central Valley; and additionally, given the cold and rainy conditions, bee activity has — it's been rather limited across quite a few areas. This might possibly push almond yields lower throughout the state. Pistachios, wine grapes, naturally, remain in dormancy; so they've actually benefited from some of this colder wet weather and haven't had the bloom exposed yet. On markets, tariff drama, trade tensions persist as we all see in the headlines; even so, crop markets appear to have settled and largely accepted this uncertainty. Nut crop markets keep displaying notable resilience and strength, especially for pistachios. The key story recently is that the supply chain appears fairly light. There's minimal product across both almond and pistachio buyer side supply chains, which we believe has created upward pressure on pricing. Consequently, our base guaranteed price for the current crop holds consistent with 2024, and we think there's a strong likelihood that the final price for 2025 crop will in fact come in higher than our final 2024 pricing. In fact, one of our processors just announced a bonus of an additional $0.50 per pound, payable alongside our scheduled April crop payment for pistachios tied to the 2025 crop, and that is genuinely welcome news. When the 2026 crop's base price is announced this July, this momentum might also lead to a higher figure. So the pistachio picture is improving. January brought a decline in almond prices, yet they have recovered considerably since then and are rising once more as boom season progresses. Given robust demand and market confidence, I don't anticipate much movement in these prices. There will be minor fluctuations as 2026 crop projections begin to emerge and we reach this stage of bloom, when everyone holds an opinion about what the crop will do. That will certainly show up in the market. Still, overall the market is heavily underbought and the supply chain is thin; those are factors, and growers are hesitant to sell at present. All of these things keep pushing almond prices upward. The wine grape market keeps underperforming, though we are starting to see certain varietals, especially some white grape varieties, appear short in supply. Right now this isn't driving any price increase or truly giving wineries an incentive to contract for supply, but it is the first encouraging signal we've seen in a couple of years. Vineyard removals keep happening quickly in California and truly across the globe. So we hope this reduction in supply will soon restore balance to the market, probably flipping it the other way into underproduction; and then the weakening dollar, provided the dollar keeps weakening, works to our advantage, making our products more appealing to international buyers. Returning to water, as I mentioned, we're having a normal to possibly wet year in terms of precipitation; so that's really good news, since we're still in an extended wet period. 4 out of the last 5 years, or 5 out of the last 6 years, have been average or wet. Full reservoirs, good rainfall, snowpack. All are essential factors for the water market to be full of water for sale at prices that are attractive for our water banking activities. So we've worked hard to identify the best water deals for our properties and to look for infrastructure improvements that will give us the best return on those capital expenditures. Our goal, as always, remains to further strengthen the overall water security of the entire portfolio through long-term and short-term strategic water purchases. We're looking to keep investing in water delivery storage infrastructure, pipelines, water banks and then identifying opportunities to create synergies across the farm assets. Now I'll turn it over to our CFO, Lewis Parrish.

Appreciate that, Bill, and good morning to everybody. I want to begin with a quick rundown of what's been happening with our financing lately. Over the quarter, we paid off a $4 million note backed by a property that we likewise disposed of during that same period; and after the year ended, we bought back our Series D term preferred stock so we wouldn't face the coupon stepping up from 5% to 8% — the money for that repurchase came from both common stock sold through our ATM program and a borrowing under our line of credit. Starting in the fourth quarter, we brought in roughly $50 million by issuing common stock via the ATM program, with most of that money going toward the repurchase. Moving on to how we performed operationally; in Q4, net income came to approximately $4.2 million, alongside a net loss to common shareholders of $1.8 million, which works out to $0.05 per share. On a full-year basis, net income reached $13.5 million, with a net loss to common shareholders of $10.5 million, or $0.29 per share. Adjusted FFO for Q4 totaled $14.4 million, or $0.38 per share, versus $3.4 million, or $0.09 per share, during the equivalent quarter a year earlier. For the whole year, AFFO came in at $14.4 million, or $0.39 per share, compared with $16 million, or $0.47 per share, the prior year. The declines in AFFO stemmed mostly from recent modifications to lease structures at some farms, differences in the timing of revenue recognition tied to crop sales at certain direct operated farms, revenue lost because of farm sales during the past year, and continuing tenancy problems that produced vacancies, which lowered revenues while raising costs. Measured against last year, fixed base cash rents dropped roughly $1.9 million for the quarter and approximately $19.8 million across the full year. The main causes are the factors I just listed, though chiefly the lease changes at certain properties where we cut or removed fixed base rents, or in some instances offered cash lease incentives, in return for substantially boosting the crop share portions. Partly countering that — and mostly for the same underlying reason — participation rents rose by around $9.3 million quarter over quarter and by $10.6 million for the entire year. That gain was additionally fueled by better pistachio pricing relative to a year ago. Net profit from crop sales at our direct operated farms reached roughly $2.6 million for 2025, our inaugural harvest year; even so, the complete effect of the 2025 harvest has yet to show up in our financial results. Although we expensed a full year's worth of growing costs, we still haven't recognized a full year of revenues, especially from the pistachios. As David noted, the final marketing bonus payment tied to the 2025 pistachio crop won't be recognized until later in 2026, which sets up a timing difference relative to 2024, when that property was entirely leased. Also, we had roughly $4.4 million in termination-related revenue during 2025, which included $2 million in Q4, versus 0 in the prior year. Turning to expenses, our recurring cash operating expenses were up in both comparable periods. Related party fees overall decreased by roughly $200,000 for the year, mostly because of a reduced base management fee tied to recent farm sales, though that was partly offset by a higher administration fee in the fourth quarter. Property operating expenses rose in both periods, driven mainly by supplemental water costs we had to supply at one of our properties under the lease, along with increased insurance costs and property taxes on one of our direct operated properties. G&A expenses were lower in both periods, largely because of reduced professional fees this year; and one point on cash flows. Cash flows from operations were down mostly because of timing differences between leasing and operating farms, which is especially evident in the first year of operations. Once again, for our direct operated farms, nearly all of the cash for growing costs was spent during 2025, while most of the cash proceeds will come in during 2026. Furthermore, with respect to the higher participation rents from the lease modifications, a substantial share of the cash payments came in early 2026, which creates another year-over-year timing difference in operating cash flows. Moving to liquidity. We have approximately $85 million in immediately available capital, plus more than $185 million of unpledged properties that could serve as additional collateral. We're talking with a couple of lenders about adding some of these properties to either existing or new facilities. Right now, roughly 98% of our borrowings carry fixed rates, with a weighted average interest rate of 3.39% locked in for another 2.7 years. That has helped protect us from the interest rate volatility seen over the past few years. Looking forward, we have roughly $17 million of scheduled principal amortization payments coming due over the next 12 months; we have no loans maturing over the next year, but we do have about $160 million of loans with fixed rate terms scheduled to reset over the next 12 months, although the loans themselves are not maturing; this includes $135 million of loans under the MetLife facility scheduled to reprice in January of 2027. And lastly, on our common distributions, in January, we declared a monthly dividend of $0.0467 per share for the first quarter of 2026. At our current stock price of $11.51, that represents a 4.9% annualized yield, which is above the REIT sector average. With that, I'll hand it back over to David.

Thanks, Lewis. That was a solid report. It's good to hear we're sitting in a strong capital position. We're remaining active in the market, so if a solid acquisition opportunity shows up, we're prepared to move. That said, as was noted before, we're still taking a careful approach when it comes to acquisitions, since our cost of capital is still very high. Demand overall for prime farmland where berries and vegetables are grown is holding steady in most of our regions — especially along the coast. We've also begun to notice some indications of better pricing and broader economics for those crops. So we're hopeful the worst is behind us, though it's still too soon to tell if we're completely out of the woods. Broadly speaking, over the long term, we anticipate inflation — especially within the food sector — will keep climbing, and because of that, we expect the values of the underlying farmland to rise over time. We think this will be particularly true for healthy foods like fresh fruits and vegetables and nuts, which we grow for people, and these days we're a major producer. So with that, I'll turn it over for questions from those listening in. Operator, would you join us, please, and let them know how to ask a question.

I'd like to go back to what you said about those 5 farms that were repositioned. So essentially, is your point that they sit under comparable lease arrangements, meaning no base rents at all, and you'd expect part of the rent to come as higher participation in '26, with some of it possibly spilling over into 2027 the way it did over the last year? Or what's the right way for us to frame that?

Yes, you've got it exactly right. It's the identical structure that — what I mean is they'll either carry no base rent or perhaps include a lease incentive, yet the structure matches what we had in 2025. On the '25 crop, a solid chunk of the revenue landed in '25, with a piece carrying over into '26, and that same pattern will hold. In 2026, though, we get to capture the benefit of the carryover tied to the '25 crop along with the first payment from the 2026 crop.

Also, building on that point, it's not going to trickle into 2027; the vast majority will land there. When it comes to most of the 2026 crops, the revenue shows up during 2027. So it's — this won't be a small portion. It'll be comparable to what we're seeing in the current year.

All right. And what was — I believe when you reworked those leases, your expectation was, if I recall correctly, possibly 75% would be realized in Q4 of '25. When you take a broader view, and I realize there's still some marketing left on the pistachios. But thinking about it that way, what would you estimate the share was that got recognized in Q4 '25, and what do you anticipate for '26?

This genuinely varies from one farm to the next. For the pistachio farms, I'd say it will likely land somewhere near 65% to 75% in year one, though that reflects our projection of what the marketing bonus will be. It's possible the actual figure ends up larger. Should that happen, a bigger percentage would shift into the year after. Almonds are somewhat different, since a number of our properties were in — and Bill can go into more detail — but we participate in something referred to as a call pool, through which we choose the timing for selling crops — and in that situation — take one property tied to the '25 crop, for instance, where we still haven't made the move, because prices appear to be moving upward and we'd rather hold off and capitalize on that pricing; so with pistachios, the percentage should by and large remain as expected, provided that bonus payment holds at its current level, but — and I'll let Bill address this as well, but we are noticing indications it might come in higher; so once more, that would shift the percentage upward the next year. Bill, is there anything you'd like to add?

Yeah, that's right. On pistachios specifically, our confidence that bonus payments will go up keeps growing day by day. So we're feeling quite good about that. And Lewis brought up the almonds on the call pool — there's this one farm where we made the decision about timing our sale, and we're basically waiting for better almond prices. But on that farm, we did receive a crop insurance payout, so when it comes to whether that farm turned a profit or took a loss, we're already on the positive side. Still, we've got crop left — a modest amount — that we need to sell, and we're simply waiting for prices to rise.

Understood, and one final thing regarding this subject. So, would it be fair to say you'd likely be booking a greater amount of those variable payments spread across the year compared with what normally happens, since you now have greater ability to decide the timing and the price at which the crop gets sold? Or ought we to view it as mostly landing in Q4 when it comes to what was earned during 2025?

My sense is we'll see somewhat more during the first half than is usual for us. Like Bill said, there's one pistachio processor that has told us they'll be paying part of that marketing bonus in early April, so we can likely move some of it into Q1; apart from cases like that, or perhaps additional almond pricing adjustments, the biggest share would probably arrive in Q3 and particularly Q4 once again.

There's another effect as well: should the pistachio market keep moving along the path it's on right now, and should our guaranteed base price rise, then the sum we can claim during this calendar year would be larger. That said, we likely won't have that information until around the close of — typically the close of July.

All right, shifting topics, Lou — what do you anticipate for interest paid during this year and in the first quarter?

My expectation would be a figure somewhere between 10% and 15% below the amount we recorded in 2025. That assumes the share of interest paid out, which is refunded, stays unchanged, and simply mirrors the reduction in loan balance over the last year from paying down certain loans.

All right. So this quarter, you brought in $33 million through the ATM, as I understand it. For the rest of the Series D, did that come from cash sitting on the balance sheet, or was it drawn from the line of credit?

It came from the line of credit. Right now, roughly $10 million is outstanding under that line, and the rate on it is variable at 5.69%.