Gladstone Land - Earnings Call - Q4 2024

Executive Summary

• Q4 revenue fell 13.7% YoY to $21.1M as fixed base cash rents declined and occupancy dropped to 96.2% (from 99.5%); AFFO/share was $0.093 vs $0.151 in Q4’23, and diluted net loss/share was $(0.151) vs $(0.120) YoY.
• NAV/share declined to $14.91 (−$4.15 YoY) on lower appraisals for certain permanent-crop farms; management will discontinue voluntary quarterly NAV publication going forward, a notable change in disclosure policy.
• Management shifted several permanent-crop leases to variable, crop-linked structures, implying a 2025 fixed-rent reduction of ~$3.0–$3.5M per quarter with most participation rents recognized in 2H25; liquidity remains robust (> $195M available, ~$50M cash) and ~100% of debt is fixed at 3.35% WAC for 3.6 years.
• Subsequent events: sold 7 farms for $64.5M gross with ~$15.7M net gain and repaid $19.4M of loans; monthly dividend held flat at $0.0467 into Q1’25; these actions and the lease mix shift are key stock catalysts into 2H25 when variable rents convert to cash.

What Went Well and What Went Wrong

• What Went Well

  • Participation rents strengthened: “During the fourth quarter, we recorded approximately $4.8M of participation rents vs $3.3M in the prior-year quarter,” driven by stronger yields (notably pistachios), partly offset by lower prices.
  • Cost actions and fee normalization: related-party fees decreased by ~$1.0M in Q4 (vs prior-year quarter), and interest expense declined on loan repayments.
  • Portfolio pruning and liquidity: post-quarter, LAND sold 7 farms for $64.5M gross (~$15.7M net gain), repaid $19.4M of loans, and maintained ample liquidity (> $195M available; ~$50M cash).

• What Went Wrong

  • Fixed base cash rents fell by ~$4.9M YoY, reflecting lease restructurings toward variable rent, prior farm sale in Florida, and vacant/direct-operated/non-accrual properties; Q4 AFFO/share fell to $0.093 (−38% YoY).
  • Occupancy and NAV pressure: occupancy declined to 96.2% (from 99.5%), and NAV/share fell to $14.91, with decreases concentrated in certain permanent-crop farms reappraised during 2024.
  • Operating costs for problem assets: property operating expenses elevated due to taxes and costs on vacant/direct-operated/non-accrual farms; management expects some normalization after asset sales and re-leasing.

Transcript

Operator (participant)

Greetings and welcome to the Gladstone Land Corporation year-end earnings call. At this time, all participants are in a listen-only mode. The question-and-answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Mr. David Gladstone, Chief Executive Officer and President. Thank you. You may begin.

David Gladstone (CEO and President)

Thank you, Daryl. That's a nice introduction. This is, to repeat again, David Gladstone, and welcome to the quarterly conference call that we give every quarter. It is our year-end as well. Thank you all for calling in today. We appreciate you taking the time to listen to our presentation. Before I begin, we have to hear from Michael LiCalsi, our General Counsel. Michael?

Michael LiCalsi (General Counsel)

Thanks, David. Good morning, everybody. Today's report may include forward-looking statements under the Securities Act of 1933 and the Securities Exchange Act of 1934, including those regarding our future performance. These statements involve certain risks and uncertainties that are based on our current plans, which we believe to be reasonable. Many factors may cause our actual results to be materially different from any future results expressed or implied by these forward-looking statements, including all risk factors in our Forms 10-K, 10-Q, and other documents we file with the SEC. You can go to our website, gladstoneland.com, specifically the Investors' page, or the SEC's website, which is www.sec.gov, and you can find them all there. We undertake no obligation to publicly update or revise any of these forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

Now, today we'll discuss FFO, which is Funds From Operations. Now, FFO is a non-GAAP accounting term. Definition is net income excluding the gains or losses from the sale of real estate and any impairment losses from property, plus depreciation and amortization of real estate assets. We may also discuss Core FFO, which we generally define as FFO with some adjustments for certain non-recurring revenues and expenses, and then adjusted FFO, which further adjusts Core FFO for certain non-cash items, such as converting GAAP rents to normalized cash rents, and we do this because we believe these are better indications of our operating results and allow better comparability of our period-over-period performance. Now, we once again ask you to visit our website. That's gladstoneland.com. While you're there, you can sign up for our email notification service. You can also find us on Facebook.

Keyword there is the Gladstone Companies, and on X, which is formerly Twitter, our handle there is @gladstonecomps. Today's call is an overview of our results, so we ask that you review our press release and the Form 10-K, both issued yesterday, for more detailed information. Now, with that, I'll turn the presentation back to David Gladstone.

David Gladstone (CEO and President)

Thank you, Michael. I'll start with a brief overview, as I do each time. We have a lot of farmland. We currently own about 103,000 acres on 150 farms and over 55,000 acre-feet, which is the way they measure water assets. One acre-foot is equal to about 326,000 gallons. So we own over 18 billion gallons of water. Together, the land and the water are all valued at a total of about $1.3 billion. Our farms are in 15 different states and, more importantly, in 29 different growing regions, and our water assets are mostly in California. Farms are leased to over 65 different tenant farmers, and people who manage the farms are a lot of people involved. The tenants on these farms are growing over 60 different kinds of 60 different crops, mostly of fruits and vegetables and nuts.

You can find this produce in other sections of the grocery store as well as in the produce section, which is where most of the crops that are grown on any of our farms are sold. We mentioned in previous calls that we continue to be cautious with new investments because our cost of capital remains high. Cap rates on most row crops and farmlands are so low that today, because of those situations, the value of those crops and land remains very high. We also believe it's a good time to conserve cash given the uncertainty of the produce and nut marketplace. The Federal Reserve is holding interest rates too high today, so hopefully they'll change their mind and reduce it down as time goes on. We completed some farmland sales recently. In December, we sold 11 blueberry farms in Michigan.

These are farms that have been giving us some problems. We recorded an impairment charge on these farms in the third quarter and then had a small loss in the fourth quarter when we completed the sale. But these farms had a negative impact on net operating income of about $400,000 in 2024. We didn't see a clear path back to profitability, so we sold these farms. In January, we sold five farms in Florida at a sizable gain. That represented about a 40% premium over what we had paid for at six and a half years. Farmland values in most parts of Florida have continued to go up at a faster pace than the rest of the market, but it still was a time for us to sell some of these.

Finally, in February, we sold two farms in the Midwest for a total gain of about 9% over what we paid for them too. We had originally budgeted these farms as potato farms, but the market shifted more toward corn and soybean in this region, so we felt that resulting cap rates didn't make sense for us to continue holding them. Regarding leasing activity since the beginning of the fourth quarter, we've executed four new lease and amended or amendment agreements, all in the western permanent crop farms. On two of these leases, we adjusted the lease structure in a similar manner to what we've done in a few other farms recently. That is, we eliminated the base rent or, in some cases, provided the tenants with some cash allowances to grow the produce.

In exchange, we significantly increased the participation rent component of these leases, the majority of which will be recognized in the second half of 2025, so we won't have income from these leases in the near term, but when we sell the crops, we'll get a big piece of it, and I want to touch a little bit more. We stated prior, in prior calls, marketing conditions around many of the permanent crop farms in the West, particularly nuts and some of the grapes, have been hampered by lower crop prices and higher input costs, that is, fertilizer and those kind of things, and of course, the borrowing costs have remained high. As such, we decided to adjust the lease structure on five farms to help the grower minimize that fixed cost, but also allow us to participate greatly in the upside.

In essence, we're accepting a percentage of the gross crop sales instead of fixed rent payments. This may be a big win for us come next year, come the end of this year. If we assume the worst-case scenario and assume that we have a total crop loss on five of these five farms, meaning we have no crop proceeds from the harvest, we expect the crop insurance on these farms to pay us enough money to cover all of our costs and also provide us with a profit. It would be a small profit, but nonetheless a profit. This is government insurance, so as a result, we don't worry about not being able to pay. We've not done this that often. Of course, our hopes are that we have good production overall and that we don't have to use the crop insurance at all.

There are a few additional properties that we're looking at possibly doing a similar structure on. We're still reviewing the projections, and I think the projections will probably look good on another two or three of these, so we may end up in that. Our current plan is to move forward with the structure for 2025 and harvest for these farms, and then hopefully revert back to more traditional structure next year or we may sell some of these properties along the way. The other two leases we executed recently on permanent crop farms are expected to result in a year-over-year decrease in annual NOI of about $180,000. The net operating income is how we measure most of the things in our business, so that's a hit. I hate to say it. It's not that much, but nonetheless, just hate to lose anything.

Just as a note on our annual row crops, which make up about half, we continue to see a steady appreciation and consistent rent growth in this category. During 2024, we renewed 12 different leases on annual row crops, not permanent crops. These renewals are expected to result in an aggregate increase in annual net operating income of about $556,000, or about a 14% increase over prior leases. Looking ahead, we have three leases scheduled to expire over the next six months, and in total, they only make up about 1.5% of our total lease revenue. We should get those done this year and not lose anything there, I hope. We're in discussions with the current tenants and prospective new tenants to lease these farms, or if the price is right, we may look at selling a couple of these farms too.

We believe we have some very valuable farms, so selling is an option for us. Now, I'll give a quick update on some of the remaining tenancy issues that we continue to work on. During the quarter, we executed lease agreements on certain farms and sold other farms that have previously been either vacant or directly operated by us. So we currently have five farms that are vacant. One farm is in direct operation via a management agreement with an unrelated third party. I know some of the people in this business have their own way of doing it with a captive. These are third parties, so we have some good people in there. In addition, we're recognizing revenue from leases with three tenants who collectively lease six of our farms on a cash basis.

It's usually done on an accrual basis, but we're going to do cash on those just to keep them current. Regarding these farms, we're in discussion with various potential buyers or tenants to buy or lease these properties. We hope to get these remaining issues resolved later this year. If we're unable to come to an acceptable resolution, we may end up listing some of these farms for sale. A pretty good way of going about getting out of them is listing them for sale. Total year-over-year impact of our operations as a result of tenant issues is properties will decrease in net operating income of about $236,000. That'll hit us in the fourth quarter. I'm going to stop here. That's just a teaser, and I hope we get some good questions at the end.

But Lewis is going to take over now as the CFO of the company. He works with the numbers every day, so Lewis, go ahead.

Lewis Parrish (CFO)

All right. Thank you, David, and good morning, everyone. I'll begin by briefly going over our recent financing activity. We did not borrow any new money during the quarter, but during and since the fourth quarter, in connection with certain property sales, we did pay off about $23.5 million of loans. The majority of these loans were scheduled to reprice later this year. On the equity side, since the beginning of the fourth quarter, we sold about $20,000 of our Series E Preferred Stock and about $4.7 million of our common stock to the ATM program. Moving on to our operating results, adjusted FFO for the fourth quarter was approximately $3.4 million, or $0.09 per share, compared to $5.4 million, or $0.15 per share in the prior year quarter. Dividends declared for common share were about $0.14 in both quarters.

On an annual basis, adjusted FFO for 2024 was approximately $16.7 million, compared to $20.3 million in 2023. AFFO per share was $0.47 in 2024 versus $0.57 in 2023. Dividends declared per share were $0.56 in 2024 and $0.55 in 2023. Our FFO, as defined by Nareit, was $0.58 per share in 2024, compared to $0.62 per share in 2023. Primary drivers behind the decreases in AFFO were recent changes in lease structures on certain farms, lost income from the large farm in Florida that we sold in January of 2024, and certain tenancy issues, which has led to vacancies on some of our farms and resulted in both lost revenues and increased costs.

Year-over-year fixed base cash rents decreased by about $4.9 million on a quarterly basis and $9.7 million on an annual basis, primarily due to the reasons just mentioned, that is, lost revenues from the Q1 farm sale and vacancies, as well as structural changes to certain leases, whereas they had mentioned we reduced, eliminated, or in some cases, provided lease incentives to certain tenants in exchange for significantly increasing the crop share components in these leases. The results of the crop share components won't be known until the harvest is completed in the fourth quarter of this year. The decrease in fixed base cash rents was partially offset by an increase in participation rents recorded during 2024. During the fourth quarter, we recorded approximately $4.8 million in participation rents, compared to $3.3 million in the prior year quarter.

For the year, we recorded participation rents of $9.4 million versus $5.9 million last year. The increase in participation rents was primarily driven by increased yields on certain of our almond and pistachio farms, partly due to the alternate bearing nature of these crops, and partially offset by lower prices during the 2023, 2024 marketing period. We mentioned this on last quarter's call, but I think it's worth noting again and just providing an update to some of the numbers. As a result of the change in lease structures we've made on a few farms, we are expecting a total year-over-year swing in our fixed base rents of about $13 million. This is 2025 versus 2024. This figure consists of the base rents that we recognized in 2024 under the prior leases, plus the cash allowances that we granted to these tenants for the 2025 crop year.

This will be shown as a reduction in our fixed base rents of about during 2025 at a rate of between $3 million and $3.5 million per quarter, and then the majority of the resulting crop share proceeds from these leases would be recognized as participation rent in the second half of 2025, with the remaining smaller portion being recognized in the second half of 2026. The things play out as we currently expect them to, will essentially be just moving this money from the fixed base rent bucket into the participation rent bucket over the next couple of years. On the expense side, excluding reimbursable expenses and certain non-recurring or non-cash expenses, our core operating expenses decreased for both comparable periods.

Total related party fees decreased by $1 million on a quarterly basis and $1.8 million on an annual basis due to the incentive fees earned during each of the prior year periods. On a quarterly basis, our remaining core operating expenses remained relatively flat. It's slightly higher. Property operating expenses were offset by slightly lower general and administrative expenses. On an annual basis, the increase in property operating expenses was primarily driven by the additional costs incurred on properties that were either vacant, directly operated, or on non-accrual status at some point during the year, and these costs included additional real estate taxes, legal costs, and property management fees. Finally, other expenses decreased primarily due to lower interest expense incurred as a result of loan repayments made over the past year. With that, we'll move on to net asset value.

We had 37 farms revalued during the quarter, and overall, these valuations decreased by about $50 million from their previous valuations a year ago. These decreases were limited to certain of our current crop farms as our annual row crop farms continued to appreciate in value. As of December 31st, our portfolio was valued at about $1.4 billion. Based on these updated valuations, and including the fair value of our debt and all preferred securities, our net asset value for common share on December 31st was $14.91, which is down from $15.57 at September 30th. The majority of this change was due to the decreases in valuations of certain farms that were reappraised during the quarter, partially offset by the change in fair value of certain preferred securities due to changes in market rates.

Note that this will be the last time that we will voluntarily publish our NAV calculation in our quarterly reports. As our portfolio has grown in size, the cost of these recurring appraisals has become quite substantial. As we look for ways to reduce costs, we no longer feel that the time and money required for this process is in the best interest of our company or its shareholders. Turning to liquidity, including availability on our lines of credit and other subordinated notes, we currently have access to over $195 million of capital, including about $50 million of cash on hand. We also have nearly $150 million of unpledged properties. Over 99.9% of our borrowings are currently at fixed rates, and on a weighted average basis, these rates are fixed at 3.35% for another 3.6 years.

So as a result, we have not experienced much of an impact on our operating results from increased interest rates over the past couple of years, and regarding our current borrowings, we believe we are well protected should interest rates continue at elevated levels. Regarding our upcoming debt maturities, we have about $38 million coming due over the next 12 months. However, about $20 million of that represents various loan maturities, and given the value of the underlying collateral, we do not foresee any problems refinancing any of these loans if we choose to do so, so removing those maturities, we only have about $18 million of amortizing principal payments coming due over the next 12 months, or less than 4% of our current debt outstanding. Finally, regarding our common distributions, in January, we declared a dividend of $0.0467 per share per month for the first quarter of 2025.

At our current stock price of $11.52, this works out to a yield of 4.9%, which is higher than the average dividend yield across the entire REIT sector. Given the changes we've recently made in lease structures at certain properties, we believe it's prudent to hold the dividend flat at this time and will continue to reassess as more information regarding the 2025 harvest becomes known. With that, I'll turn the program back over to David.

David Gladstone (CEO and President)

Thank you, Lewis. Nice report. We'll continue to stay active in the market should a good acquisition opportunity present itself, and so that we're ready if interest rates come down as well, but as mentioned in prior calls and today, we're still being more cautious on the acquisition front because our cost of capital remains high. While we have seen a decrease in the pricing of certain permanent crops, farms in the West valued most, and most of the value of the farms like those growing strawberries remains high, the cap rates on most of these farms are just high enough to cover our financing costs, so it doesn't make it very advantageous to somebody to rent them, so as a result, acquisition activity remains slow for us, probably will last for another couple of quarters.

Interest rates are still too high today, and projections for further rate cuts seem to be kept getting reduced at a pretty sharp rate. So the amount and time of any additional rate cuts remains uncertain to us. We do hope that rates come down at some point in the near future so that we can start looking at buying more farms. Just a few final points, we believe that investing in farmland and growing crops that contribute to a healthy lifestyle, such as fruits and vegetables and nuts, follows the trend that we see in the market today. Overall demand for prime farmland growing berries and vegetables remains stable to strong in most of the areas that we're in. As mentioned earlier, crop prices are certainly, and permanent crops, particularly nuts and grapes, have been depressed lately. People are just not eating enough nuts.

We need more of that in order to push the price up. We have impacted the values of our underlying farmland, especially nuts and grapes, and we're seeing prices that are overall economies of some of these crops just starting to turn around. We got a report yesterday that pretty much the country is out of all of the old nuts and pistachios, and we've got a new feeling that things are going to go up because there's just not many left. When people stop eating, it doesn't mean the trees stop producing. They keep producing. So we ended up with prices being cut down to price that didn't work very well for us, but please remember that purchasing stock in this company is really a long-term investment in farmland.

Historically speaking, long-term returns remain strong, but there are occasionally some ups and downs in the marketplace, just like with any investment in areas like this. Now, there's a portion of our portfolio in a down cycle that we're working to maneuver through. We expect inflation, particularly in the food sector, to continue to increase over time, and we expect the values of underlying farmland to increase over the time as a result. We expect this to be especially true in fresh produce, the fresh produce sector, all of those, and trends as more and more people in the U.S. eating healthy foods continue to grow. Please keep in mind that an investment in our stock really has two parts. First, it's similar to gold in that it's a hard asset. It's farmland. It's dirt. It's not going anywhere.

It has an intrinsic value because there's a limited amount of good farmland in the United States, and it's being used up by urban development. The farm that we sold in Florida has got to be turned into some housing. While that's good for us on a one-time basis, once they're gone, they're gone. Second of all, unlike gold and other alternative assets, it's an active investment with cash flows to investors. So we believe farmland is a better hedge against inflation than gold is for that reason. Now, we'll have some questions from those who follow us. Operator, if you'll come on, would you please tell them how they can ask some questions? We hope we get a lot of questions today.

Operator (participant)

Thank you. We'll now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, for our first question. Our first questions come from the line of Gaurav Mehta with Alliance Global Partners. Please proceed with your questions.

Gaurav Mehta (Managing Director and Senior Equity Analyst)

Yeah, thank you. Good morning. I wanted to clarify your comments on the participation and fixed base rent amendment. So I think you said $3.5 million lower fixed base rent. Is that $3.5 million lower from what you guys reported in 4Q?

Lewis Parrish (CFO)

No, it's more the average base rent for the year in 2024 versus compared to the average base rent in 2025. So it's not Q4 versus looking forward. If you took the annual base rent from 2024, divided it by four, that would be the baseline number we're using for that $3 million-$3.5 million swing.

Gaurav Mehta (Managing Director and Senior Equity Analyst)

Okay. Then that lower base rent, majority of that, you're expecting to get in 3Q and 4Q of 2025, right?

Lewis Parrish (CFO)

Yes. The majority of that will be, well, based on our current expectation, we do expect to recover the majority of that, and hopefully more if the harvest turns out well in the second half of this year, and then after the marketing period is over, bonuses and adjustments will get recognized in the second half of the following year.

Gaurav Mehta (Managing Director and Senior Equity Analyst)

So then in 2026, do the leases on these farms, do they go back to how they were in 2024? Or you expect them to continue like in 2025?

Lewis Parrish (CFO)

It remains to be seen. Our hope is that we can revert these back to traditional lease, but we're going to kind of be at the mercy of the market, and like we were this time, we could have maybe leased it out for a very low base rent and very little, if any, upside, but when we ran the numbers, we thought this was a better option for us to take, so when these leases come due at the end of this crop year, we'll have to do that analysis again.

Gaurav Mehta (Managing Director and Senior Equity Analyst)

Okay. Then maybe lastly, on the sale of Florida farm, I think you mentioned you paid off some debt from the proceeds. What was the use of remaining proceeds from that sale?

Lewis Parrish (CFO)

Right now, it's part of the $50 million that we have as cash on hand on the balance sheet. We're just holding that for other uses at this point.

Gaurav Mehta (Managing Director and Senior Equity Analyst)

Okay. Thank you. That's all I had.

David Gladstone (CEO and President)

Okay. Next question.

Operator (participant)

Thank you. Our next question has come from the line of Craig Kucera with Lucid Capital Markets. Please proceed with your questions.

Craig Kucera (Managing Director)

Yeah. Good morning, guys. The first one is for Lew. What are your expectations around interest patronage here in the first quarter?

Lewis Parrish (CFO)

We should be getting a similar percentage back from the Farm Credit borrowings, but we have paid off a portion of those loans over the past year. So if I had to ballpark it right now, I'd probably say about 10% less, and that's just because I think we paid off about 10% of those loans from the past year.

Craig Kucera (Managing Director)

Got it. That makes sense. You mentioned that you had three leases expiring here over the next six months and a relatively small amount of rent, maybe 1.5%. For the year, this is actually a pretty big year. I think in the K, you've got north of 17% expiring. Can you give us some color on the remaining lease expirations this year, maybe a split between what's permanent versus row crop?

Lewis Parrish (CFO)

Yeah. So the leases expiring in the next six months, those are mostly row crop farms. But yes, as you said, that's a small percentage of the overall amount. The remaining leases that are expiring in the second half of the year, the majority of those, probably 60%-70%, are on permanent crop farms. Some of these are the leases that we discussed about where we have lease incentive and a high upside on the crop share. So probably about half of the leases that are expiring fall into that bucket. The other half are permanent crop farms that are under traditional leases right now. The half that's under traditional leases, we expect them to remain flat, maybe even can negotiate a rent bump upwards, but remains to be seen at this point.

As we just answered, the remaining leases on the permanent crop farms that are in the kind of lease incentive and high upside bucket remains to be seen. We'd like to be able to revert them back to traditional leases, but we can't say right now what direction we'll have to go on those.

Craig Kucera (Managing Director)

Got it. That's helpful. I guess given where the preferred is trading, you've been buying it, I think, in the $20-$50 range. It's still kind of around there. Will you guys anticipate to continue to be out in the market, buying back the preferred, maybe getting a small gain?

David Gladstone (CEO and President)

Yeah. It's an easy way for us to make money.

Craig Kucera (Managing Director)

One more for me. Just looking at your real estate expenses here this quarter, there was a pretty decent increase. Is that just related to the taxes and some of the incremental costs with the directly operated farms or anything else going on there?

Lewis Parrish (CFO)

Yes, exactly. It's that whole bucket of vacant, direct operated, and non-accrual properties. Some tenants had to terminate their leases early, so they didn't make those tax payments. We had to make them on their behalf. Yeah, it is all related to the properties that have fallen into that bucket.

Craig Kucera (Managing Director)

Okay. Thanks for the color.

Operator (participant)

Thank you. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Our next questions come from the line of John Massocca with B. Riley Securities. Please proceed with your questions.

John Massocca (Senior Research Analyst)

Good morning.

Lewis Parrish (CFO)

Morning, John.

John Massocca (Senior Research Analyst)

So maybe just going back to property operating expense. Again, I mean, is 4Q kind of the good run rate for going forward for the remainder of the year, or was there something where either those leases didn't change over till kind of mid-4Q that could cause it to skew higher or some one-time expenses that could cause it to kind of skew lower in the quarters of 2025?

Lewis Parrish (CFO)

I mean, our hope is that it comes down a little bit for a couple of reasons. One, the Michigan blueberry properties that we've sold, they contributed a decent amount to that increase throughout the year. I think they had negative NOI of about $400,000 over the course of the year. That should start to come down. Now, we are going after the tenant for some additional rent notes, so some legal costs will remain related to those farms, but the costs attributable to those farms should come down quite a bit, and I think we also had to recognize some kind of catch-up real estate taxes in the fourth quarter. I don't have the exact number here, but amounts that the tenant had owed but was unable to make the payments.

So we had to record those, or we had to make those payments on their behalf in the fourth quarter. So I don't know exactly how I can't say exactly how much, but we do expect that number to come down a bit in 2025.

John Massocca (Senior Research Analyst)

Okay. That's very helpful. Then on the dispositions completed in 1Q25, were those occupied in revenue-producing assets? If so, what's kind of the NOI impact from those sales?

Lewis Parrish (CFO)

Yes, they were. Revenue numbers for the farms that we sold in 2025, I think for the year, was about $1.5 million-$1.7 million.

John Massocca (Senior Research Analyst)

Okay. That's very helpful. And then kind of bigger picture, what percentage of kind of the California portfolio, if you will, today is on this kind of crop share, high upside lease structure? How much kind of remains in a more traditional structure? I guess what's the outlook for those assets to stay in the more traditional structure or move to this more of a flow-through structure?

Lewis Parrish (CFO)

So right now, we have five farms that are on this kind of hybrid structure, if you will. As David mentioned, there's another couple, two or three farms that we're looking at. The other farms right now, we believe the other farms that are other permanent crop farms that are in the traditional lease structure, we believe at this time that we will be able to keep them in the standard structure. On a value basis, I don't have that number available or calculated right now. We can get back to you on that but five farms are in that bucket. Two or three more might go there. The rest, we expect to stay in the traditional lease structure.

John Massocca (Senior Research Analyst)

Okay. That's very helpful. That's it for me. Thank you very much.

David Gladstone (CEO and President)

Do you have any other questions?

Operator (participant)

Thank you, Mr. Gladstone. There are currently no other questions in the queue.

David Gladstone (CEO and President)

Okay. Thank you very much. I just want everybody to know that this change is hopefully going to be for one year. Maybe a few farms will go over to the next year but our goal is to put everything back together as it was before. This downturn in tree crop prices just tore us into a different area, which is this area of being able to grow the crops and get money out of the crops as opposed to leasing them to somebody who does all that work. We do have somebody in between us. We've chosen people who do that for a living. That is, they go out and they produce the crops. So we don't have anybody on our group of people working in this company that are out in the fields growing either strawberries or nuts.

So it's almost the same as it was before, except we put some money up, not a lot, as helping the people who grow the crops, get them grown, and then they will sell them as well but that's the difference here. While it looks like it's more chance of losing money, it's really not because the insurance policies that we get from the U.S. government are so strong that I don't think we could lose any money on these five farms that we have going in that direction but never know. Right now, I feel very bullish that we're going to do a good job this year. If there are no other questions, I'll call this at the end. You got another question?

Lewis Parrish (CFO)

I'll just follow up with a question that John asked earlier. The five farms that are in this hybrid structure right now, they make up about 15% of the fair value of our California portfolio. On a total basis, across the whole country, it's about 6% of our nationwide portfolio.

David Gladstone (CEO and President)

So if you think about that, we've got most of it covered in the properties that are leased out on a monthly basis. The rest of them, that is the 6%, is on this hybrid structure in which we put up some of the capital in order to have the people who are growing the crops get the growth done. We'll see if we've made a good bet. My feeling is we're going to make some money on these crops. I don't like to do that because we like things that happen on a monthly basis so we can pay our dividend on a monthly basis. This idea that we get a big whopping amount back when the crops come in doesn't bode well for trying to be on time with dividends.

So I think we're in good shape, but we have to wait and see what we have as income in the end of the year. Toward the end of the year, we'll know how successful or how much we've got to depend on our insurance but that's the end of this. Well, you got one more question?

Operator (participant)

Mr. Gladstone, we do. Yep. Let me bring John back through. Give me one sec here. Next question is coming from John Massocca with B. Riley. Please proceed with your questions.

John Massocca (Senior Research Analyst)

Thank you so much. Sorry for coming in right at the end of the call. I had a quick question that I forgot. With the NAV decision, is that something that's going to be provided semi-regularly now, if not quarterly, or is the intention to stop providing NAVs at all going forward? Is that going to be something that's now annual, or is the thought process that that cost is too burdensome just in general?

David Gladstone (CEO and President)

They came really ridiculous, John. We couldn't find people and brokers that would do anything but give us things that we didn't feel reliable. So, we started backtracking and getting a second opinion. As a result, we've been spending a lot of money trying to find people that can do this. We still would be setting numbers for those internally, and maybe we'll go look at that but generally speaking, trying to get brokers to value these things. We had one broker who was located in Indiana who was doing some of the stuff in Florida, which just made no sense. He didn't know the Florida marketplace very well. As you can see, when we've done sales, we've beaten the valuation that's out there, but it just didn't seem to be logical to keep doing that and paying for that.

So we'll figure out something to do in April when we come back to you.

Lewis Parrish (CFO)

Just to add my thought. The cost of those appraisals were running us about $300,000 per year.

John Massocca (Senior Research Analyst)

Okay. I appreciate that additional color and taking that last question. Thank you.

David Gladstone (CEO and President)

Okay. We're assuming there are no more questions.

Operator (participant)

No more at this time.

David Gladstone (CEO and President)

Okay. So we'll see you next quarter. Thank you all for calling in.

Operator (participant)

Thank you so much. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.