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    Gladstone Land Corp (LAND)

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    Business Description

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    Q3 2024 Summary

    Initial Price$13.65July 1, 2024
    Final Price$13.79October 1, 2024
    Price Change$0.14
    % Change+1.03%

    What went well

    • Strong expected participation rents from pistachio farms due to higher production and positive pricing trends. Higher production is leading to increased participation rents, and prices are trending in the right direction.
    • Disposition of underperforming assets eliminates NOI drag and improves financials. Sale of Michigan blueberry farms, which were causing an NOI drag of approximately $165,000 per quarter, will relieve the company of this burden and reduce interest expense.
    • Row crop farmland continues to appreciate at 2%-4% annually, supporting NAV. Despite decreases in permanent crop valuations, the company's row crop farmland is appreciating at historical rates of 2%-4% per year.

    What went wrong

    • 1. Upcoming Lease Expirations Represent a Significant Portion of Revenue*
    • 17 leases are set to expire in 2025, accounting for about 20% of total lease revenue.
    • Approximately 40% of these expiring leases are on permanent crop farms, which have faced challenges in the current market.

    Q&A Summary

    1. NAV Decline Due to Permanent Crops
      Q: What caused the decline in NAV this quarter?
      A: The $4.76 decline in NAV year-over-year was entirely due to permanent crops. About $2 was from portfolio valuation declines in permanent crops, and $2 from changes in market rates and preferred stock and debt valuation. Our row crop lands are still appreciating at 2–4% per year.

    2. Lease Restructuring Impact on Fixed Rent
      Q: How will lease restructurings affect fixed rent income?
      A: We restructured leases on four properties—two pistachio and two wine grape farms—removing participation rent and providing tenants with cash allowances. This will decrease our fixed base rents by about $20 million over the next five quarters, starting in Q4 2024, with a quarterly decrease of $3.5 million to $4.5 million.

    3. Sale of Michigan Blueberry Farms
      Q: What's the impact of selling the Michigan blueberry farms?
      A: The farms were an NOI drag of about $165,000 per quarter, including $125,000 in NOI loss and $40,000 in interest expense. Selling them relieves us of this drag, and we're receiving enough to pay off the associated debt.

    4. Participation Rent from Pistachios
      Q: How did participation rent perform, and what crops contributed?
      A: Participation rent strengthened due to higher production on our pistachio farms. While we can't yet fully compare year-over-year pricing, early indications are positive, and we hope for participation rent in Q4 to be 40–60% higher than in Q3, similar to prior years.

    5. Lease Expirations in 2025
      Q: How many leases are expiring in 2025, and what's the crop mix?
      A: In 2025, 17 leases are expiring, representing about 20% of our revenue. Approximately 60% are on annual row crops and 40% on permanent crops. We are in contact with tenants and working on renewals.

    6. Nonaccrual Properties and Rent Collectibility
      Q: Are there concerns about more properties going to nonaccrual?
      A: We are comfortable with rent collectibility from other tenants. Only two tenants on five farms have had issues. Some leases expiring later this year may have base rent moved to participation rent, but we don't expect them to go on nonaccrual.

    7. Impact of Water Sources on Land Value
      Q: How does water availability affect land values in California?
      A: Water is key in California. Farms with dual-source water hold their values better. We're investing in additional water assets and infrastructure for our single-source water properties to enhance value and resilience.