Gladstone Land Corporation (LAND) Earnings Call Transcript & Summary

Thanks a lot for those kind words. I'm David Gladstone, and I'd like to welcome everyone to Gladstone Land's quarterly conference call. We're grateful that all of you dialed in today. It means a lot that you set aside part of your day to hear what we have to share. To start things off, Catherine Gerkis will speak — she serves as our Director of Investor Relations. She'll give a short statement about some regulatory items that apply to today's call. Catherine, please go ahead.

Thanks, David, and hello everyone. During this morning's call, we might make forward-looking statements, and those rest on management's estimates, assumptions and projections. No assurance exists regarding future performance, and actual outcomes could vary materially from what those statements express or imply, given a range of uncertainties, such as the risk factors described in our SEC filings, available on the Investors page at gladstoneland.com. Unless the law requires it, we take on no duty to revise any such statements. For additional detail, please see our website, where you'll find our Form 10-Q plus the earnings press release, each released yesterday. You may also subscribe to our e-mail alert service and locate details about reaching our Investor Relations department. We're on X too, @GladstoneComps, and also on Facebook and LinkedIn. The keyword for both is the Gladstone Companies. Later today, we'll cover FFO, meaning funds from operations, a non-GAAP accounting term whose definition is net income, excluding gains or losses on real estate sales and any property impairment losses, plus depreciation and amortization of real estate assets. We might also address core FFO, generally defined as FFO adjusted 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; in our view, these metrics can better indicate our operating results and permit improved comparability of our performance across periods. Now I'll hand things back to David Gladstone.

Okay, thanks, Catherine. First, a quick reminder for everyone: we continue to hold roughly 99,000 acres spread over 144 farms. That includes around 56,000 acre-feet of water, which works out to over 18 billion gallons. Our farms sit in 14 states, while all of our water assets are located in California, since that's the driest place. During the quarter, we had no acquisitions or sales, though we might look at selling a few more farms in the coming quarters. Should we get some of those done, we'd want to direct the majority of the proceeds toward reducing debt and repurchasing preferred stock. We've already been doing quite a bit of that. As always, we stay disciplined about acquisitions, and there is some market activity right now, but it isn't much — things remain fairly slow. Once conditions get better, it could make sense to pursue growth again, so we're monitoring every metric and figuring out our next step. Let me address a couple of leases. Before this call, because market conditions were hurting certain permanent crops — especially nuts and wine grapes — we changed the lease structures so we could address a few different issues. Fixed costs got to share more in the upside since our crop share participation is higher; we've adjusted our leases so we're carrying much more growing risk, and we still run 2 properties alongside third-party growers. On the whole, the 2025 harvest was very strong. Everyone got it wrong, even the U.S. government. Imagine them misjudging the projections. On almonds and pistachios in particular, yields mostly matched or beat our own estimates, and the 2025 crop keeps delivering. Money keeps coming in. We enrolled most of those same farms under an agreement similar to what we had in '26. So we anticipate comparable earnings patterns this year. I believe matching or surpassing what we achieved last year would be very difficult. 2025 was quite a year. I'd also like to remind everybody that crop insurance remains very important for all of us. It helps us cap the downside risk on the farms, so if something occurs, as it sometimes does, we can turn to the insurance and recover some money. Eventually, our aim is to move all of our farms back toward more traditional lease structures built on fixed-based rents. But when that happens depends on several factors in play today. Above all, we need interest rates to come down. I'm not sure what the Federal Reserve is doing, but they simply aren't playing the game the way they should. Going forward, 5 leases are set to expire within the next 6 months. All told, those leases account for roughly 4% of our total lease revenue year-to-date in 2026. Right now we're in talks with the two existing tenants involved in these — that 2 of these properties sit in — as well as with prospects of new tenants about leasing any of these farms. My sense is we'll get them all back in shape. Now I'll provide a brief update on a few of the ongoing tenancy matters we're working through. At present, 8 farms are wholly or partially vacant, and we're actively pursuing solutions to bring these farms back to a stable position. We believe we're getting close on a few of these, and I think we'll be in good shape before the year ends. We're also currently recognizing revenue on a cash basis for leases with 4 tenants. We managed to resolve one of those situations during the quarter, but we're adding 2 new tenants to the list after they fell behind on their rent payments. I'll stop here, and we'll bring in the guy who's really in touch with the world of farming. That's Bill Reiman. He's been reporting much of our current management focus. And Bill, do you want to come on board?

Alright, thank you, David. Morning, everyone. As we've been saying in our updates, a big part of management's attention right now is on those properties run either through the amended lease arrangements or farmed in-house with the help of third-party growers. With roughly half of the marketing season for the 2025 almond and pistachio crops behind us, pricing is strengthening, particularly for pistachios. Add to that yields coming in above what we had projected, and our final revenue and profit figures for 2025 ought to come in ahead of our plan. Turning to the 2026 season, winter has passed, and it left most watersheds across the Western U.S. with a very thin snowpack, though plenty of the areas where our farms sit got more rain than usual, particularly early in the spring. That leaves spring soil moisture at high levels, which ought to give crops a potentially robust beginning. By April 1, bloom on our almonds had wrapped up. And although bloom conditions varied around California, ours came out quite strong, with early crop sets better than what we saw a year ago. In March, a strange stretch of heat landed right in the middle of pistachio bloom, and that weather event triggered a fair number of problems across the state. To be specific, certain trees dropped a meaningful share of their crop. Right now it's tough to gauge what this means for our orchards, largely since the 2026 crop year counts as what we refer to as an off year for pistachios. Pistachios are what's known as alternate bearing, which means yields can swing year to year from quite high to quite low, sometimes quite dramatically. Because this is a light production year, or an off year as we put it, a number of our pistachio blocks hadn't built up much of a crop — not much crop was on them ahead of the heat spell. So it's plausible that whatever effect we see will be small. Yet another factor making this hard to call is simply how the fruit set that remains will develop. There's still a lot of growing season left, and we simply can't say how things will turn out. So — and one more element here is that with supply down sharply, that's certainly going to keep pushing prices higher. It's possible that pricing more than offsets the lost crop. So we'll just need to wait and watch. At present, every one of our properties where we've put capital into the crops is running in line with budget. And while we might see water costs rise on a couple of ranches, we ought to finish right on our budget targets. A bit on the markets. Our view is that most ag real estate markets out West have hit bottom, and we're beginning to notice somewhat more transaction activity; specifically, a number of pistachio purchases have closed over the last 6 months at price levels we hadn't seen for a few years. We aren't convinced that valuations are truly bouncing back at this point, though certain strategic buyers are ready to offer more for orchards that show strong potential for cash flow. In Coastal California, values have stayed level, with inventory running above typical levels, while the Pacific Northwest holds steady. Whenever truly exceptional properties become available in that region, they move off the market quite fast. Mid-tier and lower-grade properties just linger without selling. In my view, both values and rents across the Pacific Northwest are holding firm. One more point about real estate markets — especially in California, though really throughout the West — is that we're noticing a growing gap in value between properties that have excellent water access and those that don't. Given regulations and policy, we anticipate this will become a lasting reality. The conflict in Iran, ongoing tariff turmoil, and trade friction all remain in the news. The crop markets appear to have adjusted and largely come to terms with this uncertainty. Net crop markets keep demonstrating remarkable resilience and strength, especially in pistachios, where we see enormous demand growth for pistachio products worldwide. Prices for growth keep climbing. For 2026, we anticipate our minimum pricing will be considerably above 2025. That's encouraging. I'd characterize the overall mood in the pistachio sector as one where, despite a substantial volume of nonbearing acres, planting remains insufficient — which is great news for growers and for the future worth of their crop. For our company, this matters a great deal. It's the biggest crop we hold. Almonds have held fairly steady, with modest fluctuations largely tied to the turmoil around the Strait of Hormuz, yet prices have recently been rising following the release of crop size projections that indicate a harvest comparable to the prior year; it seems the market had anticipated a bigger crop, and thus cheaper prices; we've noted previously our view that the market is underbought. As a result, these projections coming in below expectations are pushing buyers to cover their requirements. Wine grape markets keep lagging, even though we're starting to observe certain varietals, notably some white grape types, turning scarce. Right now, that isn't pushing prices up or giving wineries any reason to sign supply contracts, yet it's the first positive indicator we've witnessed in two years. Vineyard removals are still happening swiftly across California and globally; thus we hold hope that this reduction in supply will shortly restore balance to the market. Much has been discussed regarding fertilizer and fuel prices spiking because of the war. That's accurate, but our exposure is fairly contained. For most crops grown on our farms, fertilizer cost as a share of overall cultural cost is comparatively minor; regarding our operated farms, numerous purchases were completed before the war. That curbs the effect in those specific instances. Lastly, water. At the beginning of winter, snow and rain got us off to a solid start. But after we moved beyond the first part of January, just a handful of storms arrived, and those showed up late in winter and early in spring. What we ended up with was a significantly below-average snowpack, yet reservoirs came in above normal, and decent spring moisture got the season started on a positive footing. Right now we're out in the market, searching for favorable chances to secure water for this year and future years. We continue to benefit from the trend of recent wet years, which has made water available at reasonable prices. Our team keeps assessing these chances, aiming to bolster the portfolio's overall water security via strategic purchases of water spanning both long and short terms, while we keep putting capital into water delivery and storage infrastructure and seek out ways to generate synergies among our farm assets; at this point I'll hand things over to Lewis Parrish, our CFO.

Thanks, Bill, and good morning to everybody. I'll begin with a quick report on what we've been doing lately on the financing side; no fresh borrowings were taken on and no loans were paid down in the quarter, though we did pledge some unencumbered properties under certain credit facilities, both existing ones and new ones, which lifted our immediately available liquidity by roughly $50 million. In January, we called all of our Series D Term Preferred Stock so we wouldn't face a coupon step-up from 5% to 8% — that redemption was paid for by combining common stock issued through our ATM program with a draw on our line of credit, and that draw has since been repaid. Through 2026 so far, we've brought in roughly $50 million via our ATM program. And together with the majority — together with the money from the property sales completed recently, most of these funds have gone toward lowering leverage on the balance sheet, including calling the Series D Term Preferred Stock, paying down the line of credit and repurchasing Preferred Stock under our buyback program. On that final point, more than $6 million of Preferred Stock has been repurchased in 2026 to date at an average repurchase yield of 7.4%, giving us a total gain of close to $700,000. Now to our operating results. In the first quarter, we posted a net loss of roughly $4.3 million and a net loss to common shareholders of $10 million, or $0.24 per share. Adjusted FFO came in at $3.1 million, or $0.08 per share, for the first quarter, versus $2 million, or $0.06 per share, in last year's comparable quarter. The AFFO improvement came mainly from an early pistachio crop bonus payment we collected, partly offset by tenant-related problems we're still working through. Fixed base cash rents fell by roughly $2.4 million year over year in the quarter, mostly because of lost revenues from 1 property moved to direct operations last year and 2 tenants put on nonaccrual status in this quarter. Last year's quarter also had a $2.4 million termination fee from a tenant that exited. This decline was mostly offset by participation rents rising by about $4.4 million, largely from receiving an early partial bonus payment on the 2025 pistachio crop. Normally, that bonus gets paid in late 2026 or early 2027, but one of our processors sent a portion ahead of schedule, letting us book that revenue sooner than usual. The rest of the bonus should still be recognized on the usual timeline and booked in the fourth quarter. Net income from crop sales at our directly operated farms came to about $1.9 million in the first quarter, also mainly thanks to the early pistachio bonus payment. And just like with participation rents, we anticipate booking the rest of this marketing bonus later in 2026. On costs, our recurring cash operating expenses rose by roughly $750,000. Fees paid to related parties came down a bit, and the main reason was a smaller base management fee tied to farm sales completed not long ago. On property operating expenses, the figure went up, driven largely by what we had to spend on supplemental water supplied at one of our properties under the lease, plus greater professional fees tied to safeguarding water rights at certain California farms. The rise in G&A expenses was mostly attributable to larger legal and accounting costs booked this quarter. Last, cash flows from operations grew, mostly because we collected more cash from participation rents and crop sales, though that gain was partly offset by the termination fee received during the same quarter a year earlier. Now on to liquidity. Right now we hold roughly $150 million in capital available immediately, along with more than $110 million in unpledged properties that could serve as extra collateral if needed. At present, more than 99% of what we owe carries fixed rates, with a weighted average interest rate of 3.41% secured for a further 2.5 years. That has provided protection against the rate swings witnessed across the last few years. Going forward, scheduled principal amortization payments totaling roughly $17 million come due across the coming 12 months, amounting to under 4% of all debt we have outstanding; we also carry approximately $155 million in loans with fixed rate terms set to reset within the next year, even though those loans are not reaching maturity. That figure includes around $133 million in loans under our MetLife facility, which are due to reprice in January 2027. Lastly, on our common distributions. During April, we declared a monthly dividend of $0.0467 per share for the second quarter of 2026. With our stock priced at $9.44 right now, that works out to a 5.9% annualized yield, which sits above the average for the REIT sector. I'll hand things back to you.

All right, thanks, Lewis. On the whole, right now in the areas where we operate, there's quite steady demand for top-quality farmland used to grow berries and vegetables — especially near the coastline, which is where we're located. Beyond that, we're beginning to notice some encouraging movement in a few permanent crops, when it comes to both their pricing and the wider economics surrounding them. That gives us hope that the very worst of everything that hit us over the past 2 years may now be behind us. Even so, it's premature to claim that. There's no way to know how the crop will turn out, and that's what makes it tough; we're no different from plenty of other REITs in that regard — what sets us apart is this: our manufacturing plants sit outdoors, and they're living, growing things too. So clearly, ours is a distinct world, and forecasting is extremely difficult. To wrap up, looking out over the long term, we anticipate that inflation will keep climbing, especially when it comes to food. No sign of it easing appears to exist. We also anticipate that farmland's underlying value will rise. And in time, because of that, we ought to be sitting in a solid position regarding collateral behind every one of our loans; we think this holds particularly true for healthy foods of the kind we produce. Those are fresh fruits plus vegetables plus nuts, and lasting shifts toward eating more healthily keep driving demand for such items. At this point we'll take some questions. So, Victoria, please join us and lead us through that.

My understanding is that during the previous quarter, you expected the marketing bonus to arrive in early April. Obviously, a significant portion of it got recognized in Q1 here. Does any remain that you anticipate recognizing during Q2? Or should we figure on the whole thing landing in the latter half of the year?

Regarding cash — well, specifically about the bonus, we anticipate being able to record the leftover portion in Q4. On the size of it, I can only tell you — naturally, we don't have that figured out at this point. If forced to estimate, though, and I'll invite Bill Reiman to weigh in on this as well. The marketing bonus last year was — by last year, I mean for the '24 crop — $0.90 a pound. The complete bonus isn't known to us yet, but the initial bonus payment worked out to roughly $0.50 a pound. So at present, our expectation is that the total bonus will exceed last year's, though we can't be certain; still, if we had to put a range on it, it would be either that $0.40 per pound arriving in Q4 or it might come in far above that. I'll let Bill add whatever further perspective he has on that bonus figure or on what prices appear to be doing.

Absolutely, Lewis, that's exactly right. The figure ought to come in above what we saw a year ago, though no one is showing their hand just yet. To confirm, it was $0.90 per pound in the prior year. So far we have $0.50. It might end up at just $0.40. It might reach the entire $0.90; at this stage nobody is dropping any real hints, other than the fact that it will exceed the prior year's level.

Understood. So a figure around 50%, give or take, seems fairly sensible, and there could be some potential for it to come in higher.

That's right.

Alright, sounds good. You mentioned in the 10-Q that under 5% of California was under some kind of drought designation, and you offered a few remarks about that. What I'd like to know, though, is your take on how the Florida farms have been doing so far in 2026.

I believe this marks the first occasion during my time here when Florida was in a drought and California wasn't. So the significance has clearly flipped; we've had some — no reports have reached us about our farms lacking water badly enough that it affects farm operations. And a drought is indeed present, and regulations are being introduced that require certain farmers to be called upon to make up for losses from wells running dry; yet nothing has come to our attention about our farmers dealing with — lacking water and protecting their crops. Bill, is there anything else you'd like to add on this?

Right. No, you're correct. We haven't faced any limits, any — we haven't seen crops lost because irrigation water wasn't available. During the winter, for frost protection, we did run into a few problems, though that involves drawing water for frost control, which takes a very large volume of water, and — we also had a handful of problems with neighbors in that situation. Beyond that, though, there's been no effect on crops at all.

Alright, that's useful.

There's also a single footnote I ought to mention. Down in Florida we operate a water farm, and it holds an abundance of water. As a result, we aren't experiencing any serious drought conditions in that region. My feeling is that Florida will treat us well indefinitely, since you can basically stick a stick into the ground and find water beneath it. So that's a case where some days the wind blows and it turns chilly, and then abruptly everything becomes bright and shiny, just like on most days. Go ahead, Craig, do you have additional questions?

Yes, I have several additional ones. David, you said you plan to sell — possibly a handful of farms over the coming two quarters. In the prior year, I believe roughly $90 million was sold by you, and perhaps $70 million the year before that. Could you give some range for the dollar figure you expect you may ultimately sell? Or is that something you can do at this stage?

That one's tough. I'm not sure whether you're aware, but in farming, offloading a farm is quite an undertaking, and you can never predict when they'll actually go through with it. Right now we have one where a letter exists stating they intend to purchase it, and we'll see — the lawyers are preparing documents. And I'm happy to be rid of that particular one since it caused us difficulties previously. However, I truly don't have a figure. My hope is that we can sell a few farms, though I don't believe we need to sell beyond that. We're fairly well protected with tenants actively farming, and for those where we lack a solid tenant and have taken them back, these are located in California; we've got some skilled growers. It has caught me off guard. I didn't expect it to turn out so favorably; yet in the last year, it was simply a surge when it came to return on investment; so I suppose we'll do perhaps what we're doing — somewhere between 2 and 5 farms.

Yeah, that range works well.