Gladstone Land Corporation (LAND) Earnings Call Transcript & Summary

Thank you, Sherry — I appreciate the kind introduction. David Gladstone here, and thanks to everyone joining us today. To start things off, we'll turn it over to Catherine Gerkis, our Director of Investor Relations, who will go over some terms concerning the regulatory matters that apply to us. Catherine, please go ahead.

Thanks, David, and good morning to everybody. This call might contain forward-looking statements, and those rest on management's estimates, assumptions, and projections. Future performance isn't guaranteed, and actual results could differ materially from what's expressed or implied in those statements, owing to a range of uncertainties, including the risk factors laid out in our SEC filings, which are available on the Investors page of our website, gladstoneland.com. Unless the law requires it, we take on no obligation to update any of these statements. For more detailed information, please visit our website for a copy of our Form 10-Q and earnings press release, both of which were issued yesterday. You can also sign up for our email notification service and find details on how to reach our investor relations department. You'll find us on X @GladstoneComps, as well as on Facebook and LinkedIn. The keyword for both is The Gladstone Companies. Today we'll discuss FFO, which is funds from operations, a non-GAAP accounting term defined as net income, excluding gains or losses from the sale of real estate and any impairment losses on property, plus depreciation and amortization of real estate assets; we may also discuss core FFO, which we generally define as FFO adjusted for certain non-recurring revenues and expenses, and adjusted FFO, which further adjusts core FFO for certain non-cash items, such as converting GAAP rent to normalized cash rent. In our view, these metrics can be a better indication of our operating results and allow better comparability of our period-over-period performance; now, I'll turn it back to David Gladstone.

Thanks, Catherine — appreciate the kind words. To start off, as of today we hold about 98,000 acres across 143 farms, plus close to 56,000 acre-feet of water. That comes to roughly 18 billion gallons in our portfolio. The bulk of it is in California. Our farms span 14 states, while the water assets are all in California — right where they belong. We picked up one property after the quarter closed, but that news wasn't positive, except in the sense that it wraps up a negative on a better note. A tenant of ours had a forbearance agreement and then defaulted. The collateral behind that lease was a small row crop farm business in Washington State, and it came over to us, in part to settle the unpaid rent. In the quarter, we disposed of a property consisting of two citrus farms in Florida for approximately $3 million, so a solid positive result; right now we have two additional properties under contract for sale totaling about $30 million. Assuming the deal holds together, and I think it will. Buyers are returning and picking up some properties. One of those deals ought to wrap up during Q4 — the quarter we're currently in — while the second will land in Q1 of next year. When we last checked, both were continuing to progress, so that cash ought to come in across the coming two quarters. In either instance, we intend to direct the bulk of the money toward reducing debt and repurchasing preferred stock, though we're still assessing these along with other possibilities right now; we remain disciplined about acquisitions and keep ourselves active in the market. That way we're positioned once conditions pick up and it becomes sensible for us to resume expanding the portfolio. Once that happens, we'll step in—but only if we can be confident we're adding just the right assets at just the right prices. On the leasing side, we've covered some of the recent activity on earlier calls. Because market conditions have hit certain permanent crops—nuts and wine grapes in particular—we reworked lease arrangements on a few farms, lowering the grower's fixed costs while still letting us share very substantially in the upside via larger crop-share percentages. We're also still farming two properties ourselves. Whoever's on the line, could you stop cutting in?

Need to mute out; that's all.

I’m not sure. Yeah, could somebody mute whoever is bleeding into my conversation? As we’ve said on earlier calls, because of market conditions hitting certain permanent crops—nuts and wine grapes especially—we changed those lease structures on a handful of farms so the grower’s fixed cost would be lower while we could take more of the upside through larger crop-share participations. We also keep two properties under direct operation with third-party managers helping. So our group isn’t running the farms, but they’re bringing in people who understand how to run them. Overall, 2025 turned out to be a really strong year for both the almond and pistachio harvests — results came in generally ahead of anything we had anticipated, and honestly ahead of what most folks expected too. People had underestimated just how robust those crops would be, on both yield and pricing. We expect final pricing for the 2025 pistachio crop to land at least 21% higher than it was in 2024. And initial pricing for the 2026 crop has already been announced, at 67% above the initial price for the 2025 crop. Since overall yields for the 2026 crop are coming in significantly lower, we think pricing will remain strong, which should partly offset the hit from the smaller yields — though it may not make up for the entire shortfall. However, because of the unknowns surrounding the 2026 crop results—which had an impact on what we earned in 2027—the advisor has chosen to waive the incentive fee that it earned in the third quarter, and keeping the dividend intact for our shareholders stays our priority right now. We are in a time marked by considerable uncertainty. Naturally, where farming is concerned, the U.S. government has handed substantial sums to large farmers so they can continue operating. Last year we made enough—likely among our strongest years. For the majority of the farms we hold for the 2026 crop, we've set up comparable arrangements, so next year we anticipate a lower earnings profile, with most of the revenues and earnings tied to those operations again showing up in the back half of the year. As a result, we'll need to wait before we can share much detail on how the crops are developing. I'd also like to remind everyone that crop insurance remains a key part of our business, because it assists in capping the downside exposure on these farms, where we have substantial stakes in the output of nuts and other items. Ultimately, we still want to shift these farms toward more conventional lease arrangements, meaning a fixed base rent. However, when that happens hinges on multiple factors, including crop output along with commodity pricing and interest rates. At the time we entered this business, our borrowing rate was, I believe, 3.5%. The maximum return we could generate was roughly 7.5% at the point when the farming sector experienced severe turmoil. Going forward, seven leases are set to lapse within the coming six months, and the $7 million in revenue anticipated from them is a significant factor to weigh. In total, that represents approximately 6.8% of lease revenue for the year to date in 2026. Right now we are talking with tenants we already have as well as prospective ones, and we anticipate being able to renew those leases before they expire. So I believe it will simply play out as it did last year. Also, after the quarter closed, we signed two agreements with solar companies that give them options to buy as much as 5,600 acres of farmland in California, both aimed at possible solar development, and that is turning into a big deal in California. Those agreements run five to six years, and the combined annual option payments begin at roughly $331,000 and will rise as time goes on. We expect substantial returns from these if they succeed. They should succeed, because electricity is a necessity for everyone. Many companies that construct electricity-generating facilities are different from us: we remain where we are and haven't needed to lay out much for our land. We're also pursuing a number of other alternative revenue opportunities, including all our water leases, fallowing programs, and solar leases. In my view, solar leases will become a major item. Wouldn't it be great to have solar leases on every one of our vacant properties and problem? Negotiations continue to progress, and we expect additional agreements of this kind to be finalized over the coming months. Inside our portfolio, roughly 10 of these farms could potentially be repurposed for electricity generation. Residents of New Jersey are quite familiar with this, since the state has many farms that were removed from agricultural use and shifted into power production; now I'll provide a brief update on certain tenancy issues we are currently addressing. Right now, seven farms are either fully or partly unoccupied, and we are actively pursuing ways to return these properties to our roster of reliable, rent-paying leases. Since we pay dividends, income-generating properties are our target. With luck, several of these matters will be settled within the coming few months. Right now, for leases involving four tenants, we're booking revenue on a cash basis. A couple of those tenants paid some cash rent during the quarter, though we'll continue cash-basis accounting for them until the remaining payments arrive. Note that these numbers cover two properties now under contract for sale, so we'll shed some of the trouble and move forward. I'll pause at this point and hand things over to Bill Reiman, our Executive Vice President. Bill, please go ahead and share your report with us.

Thanks, David. Good morning, everyone. For us, the third quarter is always an exciting time, with harvest in full swing. A few of our smaller crops, like cherries and figs, get harvested early in the year, but for our major crops, like almonds and pistachios, the harvest looks different: almonds usually start in August, sometimes late July, pistachios generally get going around Labor Day, and wine grape harvest typically kicks off in September too. Overall, the season began with a major heat spell in early spring, and that made crops develop earlier than usual. Some crops handled it well, while others, pistachios among them, were hurt by it. The whole industry felt the hit to the 2026 pistachio crop, and output is projected to be among the weakest we've recorded since 2015. Our orchards, sadly, were no different — we too experienced reduced production everywhere. Even so, our farms carry solid coverage, and as David noted, we anticipate substantial insurance payouts connected to our 2026 pistachio crop. We likewise expect insurance proceeds from certain wine grape blocks, which also yielded less. Turning to better news, the almond crop performed strongly across all our operations. Harvest processing is still underway, but yields appear to be trending higher. Things look quite steady in almonds right now. Prices are creeping up a bit and staying at levels that make money. The final price on our 2025 crop ended up much better than we had forecast; for the 2026 crop we're anticipating prices that are higher still. Solid yields plus steady pricing is genuinely a nice change of pace following a handful of tough years, and we see both of those trends carrying forward as the number of bearing acres continues to shrink. So far there aren't any meaningful indications that new plantings are picking up, and suppose they did rise — it would still be a matter of several years before those bearing acres would actually add to overall almond output going up. We certainly are feeling favorable winds in the almond side of the business. Given the much smaller harvest this year, the pistachio market is, unsurprisingly, quite robust. Prices climbed sharply once it became clear how much harm the spring heat wave had caused. That allowed us to finish selling the 2025 crop at prices well above what we had forecast. And while the 2026 crop is quite small, its pricing will be considerably above that of the 2025 crop. Even with those higher prices, the reduced crop will mean substantially weaker trailing revenue figures for us across the coming 12 to 15 months. Payments from crop insurance will offset some of that drop, though the bulk of them should be booked in the fourth quarter of 2026 — which means revenue tied to the 2026 crop that gets recognized in 2027 will be smaller than usual. We anticipate 2027 will bring another solid production year, and if today's firm prices hold into 2027, there's a chance it turns out more profitable than 2025. On pistachios and their alternate bearing cycle, we like to line up on years with on years and off years with off years, so we're watching how 2027 shapes up relative to 2025. Looking ahead to November, now that harvest is finished, planning for the 2027 crops becomes the ops team's main focus. Budgets are in the process of being finalized, and any new management or revised lease agreements are being arranged so that late fall and winter preparations proceed without a hitch. Even though trees and vines remain dormant during winter, a surprising amount of work still has to be completed. Conditions in the wine grape market have stayed largely the same. Yields were considerably lower throughout the Western U.S. Because the industry continues to deal with oversupply, pricing has seen little relief. Vineyard removals are picking up pace, and we anticipate that trend will persist for the foreseeable future. The industry is facing significant challenges: multiple big producers are closing, wine properties are changing hands at steep markdowns, and more and more estates are hitting the market. On top of that, we're seeing a lot of consolidation among producers, vineyard acreage is contracting, and wine brands are increasingly clustering around the bigger players. How the industry emerges from this restructuring phase will be genuinely fascinating to watch. We're picking up some encouraging signals in the wine market, among them shortfalls in particular varietals. Those are the first favorable indicators we've seen in roughly two years, so with luck this is the beginning of a turnaround. We keep evaluating our wine grape holdings and seeking ways to set them up so they deliver the greatest value and profit. Although some of our vineyards have remained leased out — helping us do better than a lot of others in the sector up to now — we might soon take several vineyards into direct operation. We still hope market conditions will get better before long, putting us in a stronger spot to capture the long-term value of these assets. A quick note on real estate, regarding the wider real estate markets: on the whole, I would call conditions broadly flat. So, three things really shape land values right now: where interest rates sit today, the cost of crop inputs due to inflation, and crop prices that are mostly flat—apart from treatments. That combination is the main force behind valuations. We are seeing some regions firm up, largely because of strong crop prices, in locations where growing crops is possible with plenty of low-cost water. In California especially, there is a clear split in values based on how much water costs and whether it is available. Land with a less secure water situation is still priced lower, whereas properties that offer dependable cash flow are drawing favorable attention. During our last earnings call, we noted a bit more lending activity, and that's still the case, though lenders remain wary and are seeking greater protection for the capital they deploy. To secure loans and close deals, banks look for solid cash flow and equity. Locating both is hard, yet they do exist—though it feels a bit like hunting for Easter eggs. Let me finish with a few comments about water. With the new water year having begun October 1, we're in a fairly quiet stretch for water now, especially in California. An allocation increase arrived late in the season recently, but most growers saw little effect from it. It ought to bring down costs for the wet water currently on hand, and a few people can store somewhat more, yet on the whole the effect will be small. Irrigation is mostly finished for the season, and all of us are keeping an eye on the weather forecast. With a strong El Niño in place, everyone is preparing for what it will bring, wherever they happen to be. A large part of the Pacific Northwest is expected to be drier, whereas most of California and the Southwest are expected to be wetter. Naturally, anything could occur, so we'll get ready for what we believe is probable while remaining prepared for the reverse. We are turning up some solid chances to buy water; even so, we stay careful and conservative about what we pursue. Our aim is to obtain water only at prices that work with the economics of our crops in a given area. If El Niño brings substantial flood water, we might find ourselves taking as much of it as possible to hold in our water banks. As we've said previously, our strategic water goals really amount to bolstering the portfolio's overall water security by means of both long-term and short-term strategic water purchases, continuing to put money into water delivery and storage infrastructure, and spotting chances to build synergies across our farm assets. That covers my part. I'll now hand things over to our CFO, Lewis Parrish. Lewis?

Thanks, Bill, and good morning to all of you. I'll begin with a quick update on the financing activity we've had recently. No new borrowings were taken on during the quarter, though we did retire two mortgages totaling roughly $5 million, and one of those was repaid in connection with the property sale David referenced earlier. With the way our stock has been trading, activity under the ATM program has been quite limited of late, with just about $1.5 million of common stock issued at an average cost of capital of roughly 5.7%. We've also kept moving forward with our preferred repurchase program. Since July 1st, roughly $13 million of our preferred stock has been bought back under that program at an average repurchase yield of 7.3%, which produced a total gain of about $1.3 million on those repurchases. Now to operating results for the third quarter: net income came in at about $11 million, with net income to common shareholders of $6.1 million, or $0.14 per share. Adjusted FFO for the third quarter was $15.1 million, or $0.35 per share, versus $1.4 million, or $0.04 per share, in the same quarter a year ago. Common dividends declared were $0.14 in both quarters. The AFFO improvement came mainly from our primary processor announcing the 2025 pistachio crop bonus earlier than usual, which let us recognize certain revenue amounts sooner than typical. Stronger almond and pistachio prices also contributed to higher participation rents and profits from direct farming operations. Those increases were partly offset by higher property operating expenses. I'd also point out that 2025 was somewhat of a transition year for us, as certain farms were shifted to modified lease structures or direct farming operations. 2026 is our first full crop cycle under these new arrangements. On a year-over-year basis, fixed base rents fell by about $400,000, primarily because of lost revenue from vacant and non-accrual properties, along with property sales completed over the past year. Participation rents rose by about $11.4 million thanks to the early announcement of the bonus payment for the 2025 pistachio crop, as well as continued strong pricing for almonds and pistachios. Direct farming operations also produced a net profit of about $2.9 million during the quarter, largely driven by those same factors; on the expense side, recurring cash operating expenses rose by about $1.1 million, primarily from higher property operating expenses. That increase in property operating expenses was largely driven by supplemental water costs incurred on one property pursuant to our lease obligation, higher professional fees tied to protecting water rights on certain farms in California, and additional costs related to properties that were vacant, direct operated, or on non-accrual status. Total net related party fees were relatively flat compared with the prior year quarter, and G&A expenses rose slightly, primarily due to higher professional fees. Operating cash flow rose mainly because we collected more cash from participation rents and crop sales, paid out less in cash allowances to certain tenants, and made lower interest payments. On liquidity, we right now hold more than $105 million in capital that is immediately available, plus over $110 million in unpledged properties that could serve as extra collateral. Roughly 92% of what we borrow sits at fixed rates at present, and those borrowings carry interest of 3.57% on a weighted average basis for a further 2.1 years. As for debt coming due, we have approximately $34 million in loans maturing across the coming 12 months. Considering what the underlying collateral is worth, we do not expect any trouble refinancing those loans if we decide to go that route. Beyond that, scheduled principal amortization payments of about $16 million come due during the same period. We additionally hold around $132 million in loans with fixed rate terms that are set to reset within the next year, even though the loans themselves do not mature. That figure includes roughly $130 million in loans under our MetLife facility that are due to reprice in January 2027. We are talking with MetLife about refixing those rates, and we are likewise looking into financing alternatives with other lenders and at other options too, among them applying proceeds from possible property sales toward paying down part of these notes. Last, on our common distributions, during October we declared a monthly dividend of $0.0467 per share for the fourth quarter. Based on the most recent closing stock price of $6.88, that works out to an 8.1% annualized yield, far above the REIT sector average. With that, I will hand the program back to David.

Thank you, Lewis. Across most of the areas where we operate, demand for prime row crop farmland is holding fairly steady, and that's especially so along California's coast. We're beginning to notice some encouraging signals in a few permanent crops as well, both in terms of their pricing and the wider economics surrounding them. So our hope is that the worst is now behind us, though it's still too soon to be certain. A great deal will be revealed to us this year about the direction we're headed, and my expectation is that it will look different from what came before, but very much to our advantage. To wrap up, looking out over the long term, we anticipate inflation will keep climbing, most notably within the food sector, and we anticipate that farmland values will rise. So should we begin selling additional land, the purpose will be to shed more of that preferred stock; and we believe this will hold especially true in healthy foods, including fresh fruits and vegetables along with nuts, as the long-term shift toward healthier eating keeps expanding. At this point I'll take some questions; for those of you listening, operator, would you please join in and assist our listeners in asking their questions?

Thank you. Good morning. I'd like to ask about your expectations for participation rents in Q4. Could you give us some color on what you're expecting there? Will it be comparable to the participation rents you received last year?

Sure; it might not be. As we mentioned, we recognized some crop share rents in Q3 that would normally land in Q4, thanks to that earlier announcement; so I don't know that we'd say it will match Q4 of last year. For us it really consists of three pieces; there's the variable, crop share rents from our standard leases. Then net crop sale profits from our direct operated farms, and then insurance payments, which we expect to play a much bigger role in the 2026 crop. If, I guess, we were only talking about the crop share from standard leases and the profits from our direct operations, I'd probably say we might be similar to where we stood at Q3 of last year. The wild card here is the insurance payments. As Bill mentioned, we might be able to recognize a lot of that in Q4. Some could come into Q1 next year, but if it all arrives in Q4, it could push us to where we were in Q4 of last year. We aren't sure of the exact timing of those payments just yet. I think on the low end, similar to Q3 last year, and on the high end, maybe similar to Q4 of last year.

Got it. My second question concerns the balance sheet. You mentioned certain fixed-rate term resets that are expected next year. Could you remind us what the interest rates are on the debts scheduled to reset, and where you expect the new interest rate to land?

Yes. As things stand, 98% of that repricing amount consists of the MetLife loans. At present, that is roughly $128 million-$130 million repricing in January. Currently, the weighted average spread on those loans comes to about 3.5%. If we were to refix those today, we would probably be looking at an increase of roughly 250 basis points. Again, discussions with MetLife are continuing, and we are also talking with other lenders in an effort to get some competitive bids. As I mentioned, we are likewise examining alternatives, perhaps using proceeds from potential property sales to repay all or a portion of those notes.

Fine, thanks. That's everything from me.

Right. Operator, could you jump in and check whether any further questions are waiting?

Yeah. Hey, good morning. Out of that $17 million in variable lease payments made during this quarter, could you break out how much was tied to the 2025 pistachio bonus as opposed to other crop types?

I don't have that precise breakout right here with me, but if I were to guess, it's probably around 70% of that amount.

All right, that helps. So when we look ahead to 2027, since you talked about making comparisons between on years and off years, could you tell us roughly what the yield came in at from the 2024 pistachio crop and how that stacked up against 2025, bearing in mind that pricing will of course be significantly higher?

Bill, would you like to handle that one?

Yeah. Would you mind asking that again?

Sure, yeah. I'm simply trying to work out, when pistachios on your farms have a down year, what the yield would look like compared with what came off the 2025 crop, just to help think about pistachio revenue down the road.

Yeah, honestly it varies widely. I don't want to sound evasive, but it truly hinges on the situation; we've found it to be inconsistent. Down years, in our experience, can come in at 25% of an on year. For 2026, California's production overall sits at roughly 800 million pounds, against 1.6 billion the year before. Broadly speaking, that was half. You've got to take pricing effects into account, correct? When yield falls by some percent, does price rise by a percentage large enough to make up for it? At times it does, at times it doesn't. Putting a general percentage on it is really difficult. I'm not sure whether that answers you

Okay.

Answer your question.

No, that was actually exactly what I needed.

All right.

You increased asset sales, or you're aiming to sell more, definitely assets held for sale. Do those tie to the impairment charges you recorded in Arizona and Washington, or are you looking to sell farms in other areas of the country?

Yes, those sales were what the impairment was tied to.

All right, great. Let's take a look here. As you work through leasing in the fourth quarter, do you expect any further modified lease agreements, or do you think the three you have will basically be the ones staying under modified leases?

No, at this point we aren't looking at any more changes toward modified leases. I'll let Bill address this, but we're actually taking one, and it's a smaller property, but we are taking one property out of the We're planning to take one property out of the modified lease structure and move it into more of the traditional lease, and that's a small almond farm. Bill, anything more? Tell me, you want to get