Gladstone Land Corporation (LAND) Earnings Call Transcript & Summary

Alright, Melissa, thanks for that kind introduction. I'm David Gladstone, and this is Gladstone Land's call for the quarter. Thanks to everyone for joining us today. We appreciate that you've set aside time from your busy day to hear our presentation and receive some updates from us. To start, we'll hear from Catherine Gerkis, our Director of Investor Relations, who will give a short disclosure about certain regulatory matters related to this call. Catherine, please go ahead.

Appreciate that, David, and hello everybody. Statements made on this call could be forward-looking, and those depend on estimates, assumptions, and projections from management. We can't promise any particular future performance, and actual results may wind up differing materially from what those statements express or imply, given a range of uncertainties — among them the risk factors laid out in our SEC filings, which you can find on the Investors page at gladstoneland.com. Unless the law requires it, we take on no duty to revise any such statements. For more detail, please check our website, where you'll find both our Form 10-Q and the earnings press release, each of which we issued yesterday. Our email alert system is another way to stay updated, and you'll find details there about reaching our Investor Relations team. You can also find us on X under Gladstone Comp, plus Facebook and LinkedIn, where the keyword for each is the Gladstone Company. Turning to today's topics, we'll cover FFO — funds from operations — which is a non-GAAP accounting measure. It's calculated as net income, leaving out any gains or losses tied to real estate sales along with property impairment losses, then adding back depreciation and amortization on real estate assets. We might also talk about core FFO. Our usual definition for that is FFO with adjustments made for particular revenues and expenses that don't recur, plus adjusted FFO, which takes core FFO and further adjusts it for specific noncash items — for example, turning GAAP rents into normalized cash rents. In our view, these measures can offer a clearer picture of how our operations are performing and make it easier to compare results from one period to the next. At this point, I'll hand things back over to David Gladstone.

Okay, thanks. I’ll just go over the portfolio that we hold. Right now, we own roughly 98,000 acres spread across 142 farms, plus around 56,000 acre feet of water — that works out to roughly 18 billion gallons. The farms we have are located in 14 separate states, while all of our water assets sit in California. During this active quarter, we had no acquisitions or dispositions; however, at quarter end, we sold a property made up of 2 citrus farms in Florida for approximately $3 million. The acreage involved was modest. The original tenant had defaulted on the lease, and the tenant that replaced them was paying a rental rate that was substantially lower. Given the persistent softness in citrus markets, we decided the smartest path was to sell that property, then direct the money toward retiring certain related mortgages or toward other assets we intend to put to use. As we continue reviewing our portfolio, we might consider divesting a few more farms during the coming quarters. Should we steer the bulk of those proceeds into reducing debt and buying back preferred stock, the benefit to us would be substantial. Our approach to acquisitions stays disciplined, and we're still active in the market so we can act when conditions turn favorable; restarting portfolio growth is a sensible next step. That's going to take a drop in interest rates for it to occur. So if there's any way you can get on the phone with the Fed and urge them to bring that rate down, we would happily complete additional transactions. I believe, as we've covered during each of our earlier calls, seemingly for ages at this point, given how the permanent crops market works — nuts and wine grapes especially — we altered the lease arrangement in that area, which allowed a small number of farms to lower the grower's fixed expenses while giving us a bigger stake in the upside via a larger crop share. As a result, our involvement in operations has grown considerably. On the whole, both the 2025 almond harvest and the pistachio harvest came in quite strong, with production levels typically coming in above what had been projected. We don't have the pistachio crop's ultimate price locked in just yet — honestly, getting all of this wrapped up seems to drag on endlessly. Some of the parties involved have signaled to us that the number we land on should come in above what we saw a year ago. That means a sizable chunk of extra revenue tied to this harvest ought to show up in Q4 of the current year. For the majority of those farms, we've put comparable structures in place covering the 2026 crop as well. So the course we're on remains the one we laid out to carry us past every one of those earlier difficulties. Once more, the bulk of the income and profits tied to this will be booked in Q4; our accounting team will fill you in on the exact figures afterward. I'd also like to point out that crop insurance remains a key piece of this, since it reins in potential losses on the farms, especially with the solid yield record they've built up. Say we post a great year and then run into trouble — that coverage reliably protects us from the worst-case outcome. Down the road, we still intend to transition the farms we run through shared arrangements into standard lease structures built around a set base rent. However, when that happens hinges on multiple things, including how crops produce, what prices do, where interest rates go, what inputs cost and, above all, whether water is available — we're discovering issues regarding water availability in certain places. Going forward, 6 leases are set to run out within the coming 6 months; altogether, those leases represent roughly 3.5% of leasing revenue we expect for the year concluding in 2026; right now we're talking with tenants we already have as well as potential new ones, and we anticipate being able to get every one of those leases renewed before they lapse. Additionally, we're exploring a number of other ways to generate revenue, water leases among them. A portion of our farmland has water available, which we can lease out. Also, consistent with the programs and certain solar initiatives we discussed earlier that involve 4 of our tenants, we received cash rent payments this quarter from a couple of those tenants. Even so, we'll continue treating them as nonaccrual until we see a consistent track record of timely payments. That covers everything for now — I'll turn it over to Bill Reiman, our Executive Vice President. He's based in California. Correct, Bill?

Sure. So David, here in Idaho right now — thanks. Like David mentioned, what stands out for Q2 is how robust the demand has been for almonds and pistachios. We've been seeing almond prices climb nearly every week, and pistachio grower pricing has gotten some really solid lifts. We also told you last quarter about an early marketing bonus that got announced in February. That came through to us in April. So yes — and just yesterday I came across something saying these almond prices are the best we've seen in a decade. I haven't verified that myself, but those trends look great. With crop prices moving upward like this, combined with a quarter that was largely quiet on the weather and growing conditions front, our budget projections remain on course to beat the 2025 crop year and are tracking very well for 2026. Our main pistachio processor just came out with expected final pricing for the 2025 crop of no less than $2.70 per pound per split in-shell, which is definitely above what we'd projected throughout the year. They also put out initial pricing for 2026 at $2.50 per pound per split in-shell, and that's 2/3 higher than last year's figure. So these are meaningful gold price increases that will significantly affect all our properties under modified lease arrangements, the ones we run ourselves, and even our crop share lease agreements. We started shaking almonds on July 28. So harvest season has arrived. The almond crop on our properties appears a bit bigger than last year's. So we're expecting yields at least equal, possibly somewhat better. Statewide reports indicate yields generally are a touch lower, and that's among the factors propping up these prices. Pistachio orders are extremely light across the board, same as we told you last quarter. Our view is the industry overall got a bit too optimistic at first, but that's because we were calling for a much smaller crop than a lot of our neighbors. Over the past 30 days or so, though, that reality has set in. And that has led buyers to raise their offers for new crop to levels far beyond last year. Crop expenses remain within our original budgets. There's been plenty of talk in marketing circles about managing such a down year without putting at risk what should be a very strong production year in 2027. We believe our processors are positioned within the industry to hold pricing so that 2027 will be 2025, even if we get a barn door busting crop yield. The wine grape market hasn't really shifted much. The 2026 crop is early, and harvest has begun throughout the West. So we expect that '26 crop to be down, and not only from removals — the crop simply looks light. It's an encouraging sign, and combined with bulk wine inventories at last getting nearer to manageable levels, we're hoping for better demand for new crop this year and over the next couple of seasons. Alright, perhaps we’ve finally reached a point where the industry is past the worst of the oversupply issue. When it comes to real estate markets, as we discussed last quarter, we believe that in the Western U.S., most real estate markets have hit bottom and are beginning to recover, and we’re seeing a significant split in valuations tied to water cost and availability. As a result, properties that offer solid cash flow potential are drawing a lot of interest. In coastal California, values are holding steady, though inventory is above typical levels. The Pacific Northwest is steady, with high-quality properties selling quickly. I’d characterize both values and rents as steady. With interest rates stable, along with profitable crop prices and tree nuts, there’s a bit more lending happening. Growers seem to be having an easier time securing lines of credit, and it looks like banks have funds available to lend. There’s a clear route to covering debt payments, and financing deals are getting completed. I’ll wrap up my part by talking about water. The winter was somewhat underwhelming, especially regarding snowpack, and federal water allocations were quite disappointing. We did receive an extra 3% increase in allocation yesterday, which might not seem like much, but it helps by freeing up some water and reducing prices in certain water deals we have going. We’re identifying some solid buying opportunities, but we’re staying careful and conservative about what we pursue. Our aim is to purchase water only at a price that works within the economics of a specific crop in a specific region. If you look at the long-term weather forecast, I think everyone’s seen it in the news and online—a very strong El Nino pattern is expected this winter. So we’re getting ready for an extended water situation for the next—this coming winter; that should create some excellent chances for water acquisitions and more than just acquisitions, like flood flows, which is something we’re watching closely—being ready to handle surplus water during storm events. The team keeps assessing all these possibilities, and the objective remains to enhance the overall water security of the portfolio, through both long-term and short-term strategic water purchases, and to keep investing in water delivery and storage infrastructure, plus finding ways to build synergies across our farm assets. That’s all from me, and I’ll hand it over to our CFO, Lewis Parrish.

Okay. Thanks, Bill. Morning, everybody. I want to begin by giving a quick rundown of some financing moves made recently; no fresh borrowings were taken on and no loans were paid off during the quarter; that said, following the close of the quarter, a $3 million mortgage loan was repaid tied to the property sale David brought up earlier; on top of that, over the quarter, we brought a number of unencumbered properties into certain existing and new credit facilities, which lifted our immediately available capital by roughly $50 million. Roughly $14 million of common stock was issued under the ATM program early in the quarter, at an average cost of capital of approximately 5.5%. Those proceeds went toward paying down our line of credit and funding preferred stock repurchases. No further shares have been issued since April, given where the stock has been trading; also since April 1, $13 million of preferred stock has been bought back at an average repurchase yield of 7.2%, producing a total gain of roughly $1.1 million across that period. Now to our operating results. In the second quarter, we posted a net loss of approximately $8.5 million and a net loss to common shareholders of $13.5 million, or $0.32 per share. Adjusted FFO for the second quarter came in at negative $1.6 million, or negative $0.04 per share, versus negative $3.5 million, or negative $0.10 per share, in the same quarter a year ago. The AFFO improvement came mainly from greater operating cash revenue and reduced interest costs, partly offset by property operating expenses running higher. Fixed base cash rents rose by roughly $900,000 year over year, driven by rent collected from certain tenants still on nonaccrual status along with leases signed during the past year; those gains were partly offset by revenue lost from farms sold during the past year. Participation rents edged up slightly, mainly on the back of higher almond prices for the 2025 crop. Direct farming operations produced a net profit of roughly $590,000 in the quarter, mainly from the harvest and sale of an orange crop on a Florida farm after a prior tenant's lease was terminated early, plus higher almond prices. On the expense front, recurring cash operating expenses rose by approximately $560,000. Total related party fees were up mainly because of a higher administration fee, and the rise in property operating expenses came largely from higher professional fees tied to protecting water rights on certain California farms, plus additional costs tied to properties that were vacant, directly operated or on nonaccrual status. And G&A expenses were up mostly due to higher stock-related expenses and increased professional fees. And lastly, cash flows from operations rose largely because of higher cash receipts from participation rates and crop sales, a reduction in cash allowances paid to certain tenants and lower interest payments. Now on to liquidity. Right now, we've got roughly $125 million in capital we can put to work immediately, plus approximately $110 million in properties that aren't pledged, which we could tap as extra collateral. More than 95% of what we've borrowed sits at fixed rates, carrying a weighted average interest rate of 3.45%, and that's locked in for another 2.3 years on average. Turning to debt coming due, we've got approximately $33 million in loans maturing across the coming 12 months. Because of what the underlying collateral is worth, we don't expect any trouble refinancing those loans if we decide to go that route. On top of that, scheduled principal amortization payments during that period totaled $17 million, which works out to under 4% of our total debt outstanding. We also hold about $148 million in loans with fixed rate terms that are set to reset within the next year, even though those loans aren't actually maturing. That figure includes roughly $130 million in loans through our MetLife facility that are due to reprice in January of 2027; ahead of those scheduled resets, we're actively weighing all of our options on these loans. Last, on the common distributions side, in July we declared a monthly dividend of $0.0467 per share for the third quarter of 2026, which keeps the dividend unchanged. With the stock currently at $8.21, that's a 6.8% annualized yield, comfortably above the average for the REIT sector; with that, I'll hand things back to David.

Alright, thanks, Lewis. Across the majority of our regions, demand for top-quality farmland used for berries and vegetables is holding steady—especially in coastal California. Beyond that, we're beginning to notice encouraging signals in some permanent crops, both on the pricing side and in the wider economics surrounding them. So we're quite optimistic that the toughest period has passed and is now behind us, though it remains too soon to declare that we're entirely out of the woods. To wrap up, looking ahead over the long term, we anticipate that inflation—above all within the food categories where we operate—will keep climbing, and as a consequence, we foresee the worth of the farmland underneath rising with time. We believe this will hold true in particular for healthy foods like fresh fruits, vegetables, and nuts, and the long-term shift toward better eating habits keeps expanding. At this point I'd like to take questions. Operator, could you join us and kindly guide us through?

I'd like to follow up regarding the participation rents. Could you give us some sense of what amount of participation rents you anticipate for the back half of this year?

At this point, I don't believe we're ready to put out a final figure, simply because pistachio pricing hasn't settled yet — that includes the bonus tied to the '25 crop. Our visibility is actually fairly solid. The initial pricing for the '26 crop is something we already know, though yields remain uncertain right now. That said, I'll hand it to Bill, who can speak to this further. Based on our current view of yields, combined with the stronger pricing, our expectation is for larger amounts this year, yet I don't think we're in a position to provide a final range for what that figure will end up being. Bill, is there anything you'd like to add regarding how yields are shaping up?

Yeah. I'd simply put it this way: it's extremely early. Naturally, we've begun with almonds, as I said earlier, but honestly we are under 2 weeks into it. So there simply isn't enough data yet to feel strongly about whatever patterns might be emerging. Up to this point, things look fine, yet much remains ahead; and regarding pistachios, most likely we won't kick anything off until nearer to September 1. So yeah, on the crop yield side it's simply far too soon to offer any solid guidance. That said, pricing is far more robust compared with 12 months ago. So our sense is that those factors are driving us in a favorable direction.

Following up on what we saw for fixed revenues in Q2 — my second question is whether anything nonrecurring or one-time showed up in that revenue figure?

One thing did occur: a tenant that we had moved to nonaccrual status during the prior quarter, Q1 of '26, sent us a cash payment, and we got that money this quarter. In terms of the quarterly revenue, it came to roughly $700,000; ideally we'd see that repeat. Still, since that same tenant remains on nonaccrual status, for now I wouldn't treat it as a recurring payment when modeling.

Okay, and for my final question, could you share a bit more about the impairment charge that was recorded on 4 farms located in Arizona?

Sure. It was a single property made up of 4 separate farms in Arizona, and after the quarter ended, we entered into a PSA with a buyer. So we wrote it down to the price from that sale agreement. That deal hasn't closed yet, though we're hoping it will close in late Q3, or maybe early Q4 at this point.

I'd like to go through the update on the pistachio market. Thanks for the extra detail. My recollection is that during the prior quarter, we talked about how you got roughly $0.50 per pound from your marketing bonus in the first quarter. My guess was that it could be somewhere between another $0.40 and $0.90. From what this update shows, it seems you might be looking toward the top of that span, something like an extra $1 a pound for this year.

I'd certainly describe it as being at the higher end of that span.

Craig, I’ll just tack this on—from what the processor indicated, they weren’t exactly locking themselves in, though with the expectation sitting at no less than $2.70, that points to an extra bonus of no less than $0.70 per pound. You can interpret that “at least part” however you like, but it’s leading us to believe it will land toward the upper side of the range we provided.

Understood. All right. So just from a purely mechanical perspective, how are we supposed to frame this — you're beginning at $2.50, which represents a 2/3 increase over the prior year. What's the right way to think about when that gets recognized? Should we assume roughly 1/3 in this year and then 2/3 in the following year? Or is there another way to look at it?

Yeah, I'd say a big portion of that hinges on the yield. But if I stick to the pricing side of things, the $2.50 figure is the guaranteed starting price. So for every pound delivered to the processor, we receive $2.50. Then there's a bonus layered on top, and that could amount to $1, possibly higher, and it would be recognized in Q4 of 2027. The part of that calculation that remains unknown right now is the yield. As I mentioned, I won't — I'll let Bill add more, but pistachios are in an off year, and when you combine that with the weather event, yields are anticipated to come in lower than last year. Whether the significant price increase fully makes up for that is somewhat TBD at this moment. Bill, anything else you'd like to add on that?