Gladstone Land Corp (LAND) 2019 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Gladstone Land Corporation Fourth Quarter and Year-Ended December 31, 2019 Earnings Call and Webcast. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to introduce your host for today's conference call, Mr. David Gladstone. You may begin.

Thank you, Kevin. Nice introduction. This is David Gladstone, and welcome to the quarterly conference call for Gladstone Land. And thank you all for calling in today. We always appreciate taking time -- you taking time to listen to our presentation.

I'm going to start with Michael LiCalsi. He's our General Counsel and Secretary. He's also the President of Gladstone Administration, which is the administrator for all the Gladstone funds. So Michael, go ahead.

Thanks, David, and good morning. 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 forward-looking statements involve certain risks and uncertainties that are based on our current plans, which we believe to be reasonable, though 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 and other documents that we file with the SEC. You'll find these on our website, www.gladstonefarms.com, specifically the Investor Relations page or on the SEC's website at sec.gov. 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.

Today, we'll discuss FFO, which is funds from operations. FFO is a non-GAAP accounting term defined as net income, excluding the gains or losses from the sale of any real estate and any impairment losses from property plus depreciation and amortization of real estate assets. We'll also discuss core FFO, which we generally define as FFO adjusted for certain nonrecurring revenues and expenses; and adjusted FFO, which further adjusts core FFO for certain noncash items, such as converting GAAP rents to normalized cash rents. And we believe these are better indications of our operating results and allow better comparability of our period-over-period performance.

We ask that you take the opportunity to visit our website, once again, gladstonefarms.com, sign up for our e-mail notification service so that you can stay up-to-date on the company. You could also find us on Facebook, keyword there is The Gladstone Companies. And our own Twitter handle is @GladstoneComps. And today's call is an overview of our results, so we ask that you review our press release and Form 10-K, both issued yesterday, for more detailed information. Again, you can find these on the Investor Relations page of our website.

And with that, I'll turn the presentation back to David Gladstone.

Okay, Michael. Thank you. We had another strong quarter, and wrapping up what was an interesting banner year. Our recent acquisitions have been a little higher-yielding than those in the past. And that has been coupled with a low fixed rate interest rates that we're able to lock in for these farms. This should result in a nice increase in our income going forward.

We saw rents begin to tick up, and that upward movement, of course, in our regions, we're able to take advantage of that with our lease renewals as well as the built-in bumps that we have in our leases. This should add a good amount of additional income that will impact future earnings. We also had a strong increase in the amount of participation rents this year. It was a banner year for participations.

Looking at our total farmland ownership. We currently own about 88,000 acres, 113 farms in 10 different states. And based on either the third-party appraisals or the price we paid for the new farms, our farms have an estimated total fair value of about $885 million.

More importantly than the number of states that our farms are located in, 24 -- they're located in 24 different growing regions, and the tenant farmers operating these farms are growing about 50 different types of crops. Great news is that our farms continue to be 100% occupied at least to 70 different tenants, all of whom are unrelated to us. I think we now own a good number of farms in enough different regions with as many different farmers as we have and many different types of crops. So there's sufficient diversification to provide security for cash flows that are coming in and thus, dividends that we pay out to our shareholders. I think we're there now. We're diversified, but we're always looking for improvements in that.

Some recent activity during the fourth quarter. The team acquired another $52 million of new farms at an overall net yield of about 6.5%. And that does not include any of the participation rents that might receive from these farms. And since the year-end, we brought 2 more farms in, smaller amount, $8 million. We'll see what this quarter ends up with.

Overall, the initial net cash yield to us on these acquisitions is about 6.4%, and these leases also contain certain provisions such as annual escalations or participation rents, that should push the figure even higher in the future. As a result, and a reminder, this cap rate does account for operating expenses that we are responsible for under the -- each of the leases. But most of these leases are triple net, so we shouldn't be too many expenses incurred by our company going forward.

On the leasing front, during and after the quarter ending December 31, 2019, we either executed new leases or extended and amended the existing leases on 13 of our properties. Now 2 of these leases were changes from a single net structure, with us being responsible for the property taxes, the repairs, certain other operating expenses to a partially triple net lease with our only responsibility being the property taxes on those farms. After accounting for the changes in responsibilities of some of these operational expenses, the new leases are expected to result in a total increase in annual net income of about $1 million over that prior lease.

Subsequent to year-end, we also terminated the leases for 4 farms and received $3 million in termination payments. These farms were immediately re-leased to a new unrelated third-party tenant with no downtime incurring. So that was a win for us.

Looking ahead, we have 7 more leases scheduled to expire in 2020. These all expire in the second half of the year and in total, make up about 7% of our total annualized lease revenue. We're in negotiations with both of the existing tenants and some partial new tenant -- and potentially new tenants, and we aren't expecting any downtime on any of these farms.

Now let's turn to our capital-raising activity. Since September 30, '19, we received another $6 million in net proceeds through the sale of our common stock under our ATM Program, and we also sold about $50 million in net proceeds through the sale of our nontraded Series B Preferred Stock. To date, we've sold about $140 million worth of this $150 million Series B Preferred Stock. So we're almost sold out of this offering. It took us almost 2 years to get there, but that was just right. We needed the money to buy more farms.

And I just want to remind everyone that this -- in the process of selling the Series B Preferred Stock, the company has paid certain commissions and fees to a wholly-owned subsidiary and the management company, Gladstone Securities. However, Gladstone Securities is just a conduit for this offering, and about 94% of those fees earned are being paid to third-parties, including brokers and wholesalers who are helping sale -- sell the shares and earn commissions as part of those sales. And the rest of the fees retained by Gladstone Securities, the remaining 6% of the fees is used to cover expenses such as printing prospectuses books and the information pamphlets and attending conferences and other travel-related expenses to selling the stock. In total, these additional expenses are actually greater than the 6% that's left over and kept by Gladstone Securities.

As you can see, it's costly to sell nontraded stock. But really, at the end of the day, not more than a typical secondary public offering -- overnight stock offering. And folks, the one reason we use preferred stock is to avoid dilution of the common stock. As you all know, I'm a large shareholder of the common stock, and most common stockholders like me, do not like dilution. And please note that the preferred stock is not included in the calculation of the fees paid to the adviser, and has never resulted in additional fees being paid to the adviser. There were some mix-ups in some people who were confused on how the fee was done. And so subsequent to year-end, we amended the agreement of our adviser to change how the management fee is calculated. Rather than calculating the fee based on the amount of common equity in the fund, we thought it made more sense to base the fee on the amount of real estate assets owned by the fund. After all, these are the assets that we're responsible for, as the adviser of the activity of overseeing and managing those assets.

We're also hearing some stockholders were having some real difficulties replicating the fee calculation. So this will straighten that out and be more easily calculated by everybody who wants to know it.

We set the new fee not at the old rate, but it's at 0.5% annually of the amount of gross tangible real estate owned by the fund. I think this is more in line with other externally managed funds such as those managed by the adviser. It's the low end of the range at 0.5% is much lower than any of the fees paid in other situations. And it has to do, of course, with the expenses related to managing those assets. And this change was reviewed and approved unanimously by our Board of Directors to make things straightforward, I think. But please remember that this fee is based on historical cost basis of the assets and not the fair value. As the fair value increases, which it has on most of our farms, it will not result in increased fees. So it's just on the base amount that we are managing.

And that's enough on the operations side. I'm going to turn it over now to our CFO, Lewis Parrish, who will talk to you about the other numbers.

All right. Thank you, David, and good morning, everyone.

I'll begin by going over our balance sheet. During the fourth quarter, our total assets increased by about $60 million or 8%, primarily to these new acquisitions, which were funded through a combination of new fixed rate loans and cash proceeds received through equity issuances.

From the -- sorry, from a financing perspective, since the beginning of the fourth quarter, in addition to the proceeds from equity issuance, as David mentioned earlier, we also secured 7 new loans from 4 different lenders for total proceeds of about $57 million. On a weighted average basis, these new loans will carry an effective interest rate of 3.35% and will be fixed for the next 6 years.

From a leverage standpoint, on a fair value basis, our loan-to-value ratio on our total farmland holdings was about 54% at December 31. We're comfortable at this level given the relative low-risk of high-quality farmland as an overall asset class.

While interest rates continue to be somewhat volatile, over 99% of our borrowings are currently at fixed rates. And on a weighted average basis, these rates are fixed at 3.6% for another 6 years out. So we believe we are currently well protected on the debt side against any future interest rate hikes. And with the weighted average maturity of these borrowings being 10-plus years out, we also feel we're protected against any potential liquidity issues should another recession hit.

Regarding upcoming debt maturities, we have about $26 million coming due over the next 12 months. However, about $15 million of that represents the maturities of 3 bullet loans coming due towards the end of this year. The 3 properties collateralizing these loans have increased in value by a total of $2.3 million since their respective acquisitions. So we don't foresee any problems refinancing these loans, either with the same lender or potentially new lenders.

So removing those maturities, we only have about $11 million of amortizing principal payments coming due over the next 12 months or about 2% of our total debt outstanding.

And now I'll move on to our operating results. First, I'll note that for the fourth quarter, we had net income of about $958,000 and a net loss to common shareholders of about $627,000 or $0.03 per common share. For the year, we had net income of about $1.8 million and a net loss to common shareholders of about $2.5 million or $0.13 per common share.

On a quarter-over-quarter comparison, our adjusted FFO for the fourth quarter increased by about $589,000 or 20%. On a per share basis, AFFO increased by $0.026 per share, up to $0.167 per share in the current quarter compared to $0.141 per share last quarter. Dividends declared were $0.134 per share in each quarter.

On a year-over-year comparison, our AFFO for 2019 increased by about $2.9 million or 34%. And on a per share basis, AFFO increased by $0.054 per share, up to $0.568 per share in 2019 compared to $0.514 per share last year. Dividends declared during 2019 were $0.543 per share, putting our payout ratio for the year using AFFO at 94%. The main driver behind the increase in AFFO was higher top line revenues.

From a cash rate perspective, rental income increased by about $2.5 million or 23% on a quarter-over-quarter basis and by about $11.3 million or 39% on a year-over-year basis. This is primarily due to additional revenues earned on our recent acquisitions as well as additional participation rents recorded during the current period.

During the fourth quarter, we recorded about $1.5 million of participation rents compared to $848,000 in the prior quarter.

During 2019, for the year, we had 19 -- I'm sorry, for the year-ended December 31, 2019, we had $2.3 million of participation rents, almost doubling that of $1.2 million from last year. And during 2019, we had 19 farms under leases that had an active participation rent component versus 11 during 2018. We're picking up additional participation rents on 1 more farm in 2020, and then quite a few more will come online in 2021.

On the expense side, our core operating expenses increased by about $986,000 on a quarter-over-quarter basis. This is primarily driven by an incentive fee earned by our adviser during the current quarter due to our pre-incentive fee FFO surpassing the required hurdle rate.

Removing related-party fees, our core operating expenses only increased by about $90,000 or 10% from the prior quarter. This is just primarily due to slightly higher professional fees and additional costs spent on marketing and advertising. Of note, our property operating expenses were relatively flat quarter-over-quarter.

On a year-over-year basis, our core operating expenses increased by about $1 million or 14%. This increase in the current year was driven by the higher related-party fees, primarily the incentive fee we just mentioned, and additional property operating expenses during -- incurred during the first half of the year.

Now I'll move on to net asset value. We had 10 farms revalued during the quarter, all via independent third-party appraisers. Overall, these farms increased in value by about $1.3 million or 1.2% over their prior valuations from about a year ago. As of December 31, our farms were valued at about $877 million, all of which was valued based on either third-party appraisals or the actual purchase prices.

Based on these updated valuations and including the fair value of our debt and all preferred stock, our net asset value per common share at December 31 was $11.41, which is down by $0.08 or 0.7% from last quarter. The main drivers of the decrease were ongoing capital improvements on certain properties and the dilutive impact of equity issuances during the quarter, largely offset by valuation increases.

And turning to liquidity, including availability on our lines of credit, we currently have over $50 million of dry powder, which translates into over $125 million of buying power for straight cash acquisitions. We also have the ability and intent to issue new OP units as consideration for purchases should the opportunity arise.

And finally, late last night, we completed an amendment with MetLife for a new $75 million term note commitment. So we have ample availability under our largest borrowing facility, and we continue to be in discussions with potential new lenders for either additional facilities or individual borrowings. The credit generally continues to be readily available to us at favorable terms. We have plenty of room and ability to continue borrowing and buying new farms that meet our investment criteria.

And lastly, I'll touch briefly on our common distributions. We recently raised our common dividend again to $0.04465 per share per month. Over the past 20 quarters, we raised our common dividend 17x, resulting in an overall increase of 48.8% in our monthly distribution rate to common shareholders over this time. And since 2013, we've paid 84 consecutive monthly dividends to common shareholders, totaling $4.44 per share in total distributions. Paying dividends to our shareholders is paramount to our business plan, and our goal continues to be to increase the dividend at a rate that outpaces inflation.

With that, I'll turn the program back over to David.

Okay. Thank you. Good report. I know everybody wants to know what the acquisitions are going to look like in 2020. Everybody has built their model, and we have one, too. Trying to figure out the acquisitions is always difficult.

2020 started out slow, much like last year, but overall, our list of potential farms to buy remains healthy. So we hope to continue to be very active and be able to report positive news to you as the year goes forward. But as you know, there's no guarantee on anything closing, but it just so happens they come to fruition during periods of time like this.

And just a few final points. We are investing in farmland that's growing crops that contribute to healthy lifestyles, such as fruits, vegetables and nuts, and following the trend that we're seeing in the market today. Currently, about 85% of our total revenue comes from farms that are growing the types of foods you can find in either the produce section or the nut section of your local grocery store. We consider these foods to be among the healthiest type of foods out there, and we're seeing a growing trend toward organics among these foods. Over 45% of our fresh produce acreage is either organic or transitioning to become organic. And about 10% of our permanent crops, that acreage falls into the organic category. We believe the organic section will continue to be a strong growing area. In addition, over 95% of our portfolio is GMO-free.

Another major reason why our business strategy is to focus on farmland growing fresh produce is due to the effect of inflation in that area. According to the Bureau of Labor Statistics, the overall annual food CPI generally keeps pace with inflation. However, over the past 40 years, the fresh fruit and vegetable segment of the food categories outpaced the total food CPI by a multiple of 1.6x. And folks, price inflation is good for our growers. And these healthy foods, they make more money. And thus, we can charge them a little more for rent. And while prices of commodity crops like corn, oats and wheat are typically more volatile and because they are susceptible to the global supply and demand, whereas fresh produce is more insulated from global volatility, mainly because the crops are generally consumed locally within a short time of being harvested.

Overall, demand for prime farmland, growing fruits and vegetables remains stable to strong in almost all the areas that we're in, where our farms are located, particularly along the West Coast, and here, I'm talking about California, Oregon and Washington, on the West Coast; and on the East Coast, especially Florida and a little bit north of Florida and Georgia.

Overall, farmland continues to perform well compared to other assets, despite some recent downturns in certain regions. The NCREIF index, and this is a farmland index, which currently is made up of about $11.4 billion worth of agricultural properties, including ours, they've averaged an annual return of about 12.3% over the past 20 years. And I think during that period, it's 5.6% for the S&P index. And as you should know, that during those 20 years, the farmland index has never had a negative year, unlike the S&P, which I think has had 6 net years over that same period -- negative years over that same period.

Farmland has generally provided investors with a safe haven during the turbulent times in the financial marketplace, as both land prices and food prices, especially fresh produce, have continued to rise steadily. Our current distribution run rate, where the stock price is today, $13.90. When you consider the relative stability of these underlying assets, you'd expect the stock price to be much, much higher. And I think stock offerings are a wonderful alternative, and we're yielding people that are buying today at the $13.90, about 3.9% or nearly 4%.

In closing, please remember to purchase stock -- that you're purchasing stock in a company that has a really long-term investment in farmland. This isn't a technology stock that you're going to wake up tomorrow morning and there'll be some big aha moment. I think investments in our stock has 2 parts that I love the most. First of all, it's similar to gold. It is a hard asset, dirt, farmland. It has an intrinsic value because there is a limited amount of it, and it's being used up by urban developers, especially in California and Florida, where we have many farms. And second, unlike gold and other alternative assets, it's an active investment with cash flows to investors. And we believe this is better than any bond fund because we can keep increasing the dividend. I think a good way to look at our farmland fund is a wonderful hedge against inflation.

I think this is a great fund. And once we get a bit larger in terms of asset size, I hope that we'll get listed on the RMZ Index. If that happens, it should bring in an additional institutional ownership, which hopefully will increase the price a little bit more and some more liquidity. I noticed that Vanguard, who has the largest REIT fund, those folks recently purchased a nice amount of the stock. But Gladstone Land wouldn't be anything today without the good people we have, operating and managing it. Buying and leasing farmland is a complex business and farming is a very complex operation. It takes years to learn, and you got to have a lot of smart people in the farming business. It's not as simple as some of the presidential hopefuls would think it is.

So if you like what we're doing, please buy some stock, keep eating fresh fruits and vegetables and nuts. And this is the best economy that we've ever seen. I haven't seen anything like this in my career. So everyone is better off today, and with the amount by the government -- by the turnaround of the government on terms of things that might produce more water to farmland in California. Last night, the government signed a piece of legislation that should produce more water for farmers in California. I was surprised to see that, but it happened.

Well, let's go away from the politics. And we'll have some questions from those who follow us. Operator, would you come on now and tell our listeners how they can ask some questions.

(Operator Instructions) Our first question comes from Rob Stevenson with Janney.

Can you talk about how your major crop exposures breakdown today? How much of the -- either by revenue or acreage is soybeans, blueberries, strawberries, corn and potatoes, et cetera?

Lewis, what you got?

Sure. So I -- we think revenue is a more important indicator than acreage because, I mean, 1 acre of strawberries in California is not equivalent in value or revenue as 1 acre of corn in Nebraska. So from a revenue standpoint, we're probably about just under 20% pistachios right now. And we had the large $70 million acquisition at the end of last -- at the end of 2019 that really bump that up a bit. Second and third is probably a tie between prime strawberry ground and a miscellaneous vegetable ground by about 18% each there. And then after that, you're probably looking at almonds right around 10%.

Okay, very helpful. In terms of 2019, how much of the revenues were participating versus contractual?

Percentage-wise, I don't -- I'd have to -- let me get my calculator, it's $2.3 million over $40.6 million or so.

Okay, that's perfect. I can do that -- we do the math here. And then...

5%, 6%.

Okay. How much is left on the Series B? You guys said that it was almost sold out. And will you guys start another series of nontraded preferred? Or does this basically tap you out in terms of the preferred you want in the capital structure for now?

We've got about less than 5%, I think...

A little under $10 million.

It is under $10 million left to sell, and it's going really quick. It's become a great place to sell stock in this nontraded area. I think we're going to put together a C and look at that again. I'm not sure how much or when, but that's on our plate to consider again, mainly because it's relatively cheap to sell. We don't have quite as difficult a time of finding shareholders. They come in at a nice pace, and we can generally fund farms at the same pace that we're raising the money. It also keeps us from diluting the common shares. I'm a big believer that the common shares should be much higher priced than they are today, considering the fact that you've got a hard asset underneath that was, I don't know, as old as the earth, if you want to think about it that way, and it's not going anywhere. So the base of the production for these fruits and vegetables is pretty good.

So my feeling is that we should protect the common shareholders as much as possible from dilution. I don't know how much we could all stand in terms of preferred versus common, and we'll certainly watch that. I don't feel like we should have more than 1:1 kind of ratio of leverage, but we'll just have to see how that comes out...

Okay. So your intent at this point is not -- I mean, there are some REITs out there that have gotten on the nontraded preferred bandwagon where their effective leverage using the -- including the preferred is like 80%, 90%, and so dramatically over-leveraged when you include the preferred. I mean how are you guys thinking about preferred in part of the capital stock?

Yes, we're not anywhere close to 80%. I generally think of it as a sort of 1:1 ratio at this point in time. There could be some big changes in both the marketplace today and -- for common and preferred stock that could change that ratio pretty quick. If all of a sudden, people are willing to give us preferred stock at a 3% yield, I'm afraid we'd be selling a lot more preferred stock. Right now, I think it's going to be about 1:1. That's my guess.

Okay. And then can you talk in a little bit more detail about the lease termination and the subsequent re-leasing of the property in Arizona? Why did the previous tenant bail? And did you already have a relationship with the new tenant? And what's the difference between the old and the new rent?

Well, it's about $1 million in difference...

I think the -- on a gross rent basis, the new rent -- the new lease is a little bit less. But as David mentioned, these are the leases that we changed from a single net structure to a partial net. So a lot of the operating expenses we have been incurring should be going away. And after you consider those in, I forget the exact number on those particular leases, but I want to say it's around $300,000 increase on those alone.

Yes, the old tenant really wasn't a very good farmer. We thought they were farmer. And they have plenty of money. So they were credit-wise pretty strong. So we signed a lease in which we -- which was very favorable to us in 1 respect, in terms of terms and outlook, but it wasn't very good in terms of what we assumed in terms and we -- it's the only lease where we've done this, and we did it because they're so strong. They, for some reason, just couldn't make a go of it. And they've been doing it for a while, but it just turned out they wanted to quit. And so we said, "Well, what are you going to do about your lease, you've got 3 more years of the lease?" And they said, "Well, we'll just work out a payment to you." And so they paid us the $3 million to kill the lease.

While we were going through all of this, we were lining up people to take their place on a more standard lease. I think the only difference in this new lease versus leases that we have with others is that we are paying the taxes. It's not as big a deal because the taxes in Arizona are pretty low. But I think, the next time we lease it after this, we'll get rid of that as well. But we're not ready to throw this guy out. He seems to be strong. I don't know. It's -- they got -- there's financial strength and there's operating strength. And while the prior tenant had financial strength, they didn't have farming strength, and that's where we made our mistake. And I think we're in good shape now to not fall back into that problem. And we don't have any others that are like that.

And Rob, just to clarify my numbers earlier, or actually I had to correct them. We were about $400,000 to $500,000 -- on the new lease, we'll be about $400,000 to $500,000 less on the gross rent. But on a net rent coming in -- or net income coming into us, it should be about even, the new lease versus the old lease.

Our next question comes from Ben Zucker with Aegis Capital.

Nice to see the stock moving higher. I guess just to quickly follow-up on that lease termination payment. I just want to make sure that, that $3 million fee is going to be recorded as lease revenue in 1Q '20. So we should definitely be expecting a bit of a spike there from the normal level, is that correct?

Yes.

Yes.

Okay. Great. Let's see. You touched on your appetite for new acquisitions a little bit, even though the pipeline has taken a little bit of time to come in. Maybe thinking about participation rents, this might be getting a little ahead of ourselves since we won't see these again until the second half of 2020, but I'm just curious, was there anything that you would characterize as kind of extraordinary about the harvest season in 2019? And maybe phrased differently, is there any reason to think these 2019 participation numbers can't be achieved again on a go-forward basis? I know you guys were intentionally adding leases with this kind of feature throughout the year. So I'm just trying to strip out how much of the year-over-year increase was from more leases having participation features versus maybe an unusually strong harvest.

Well, we like participation because it gets us a little extra money in good years. And this was a very good year for a lot of people in the business. But the other part of that is that, in some cases, I've encouraged the folks to go out and say, would you -- you had a good year, do you want to pay us that amount if you have another good year or would you rather bump up the fixed payment and get myself from, say, an old 5.5% to 6.5% and see how much I got to give up in participation rents.

Our ability to pay shareholders is really based on our ability to get fixed income coming in. And I'm willing to trade-off some upside for steady payments coming in, and that's just the way we run our company because after all, if you think about this company, it's what Warren Buffett would call, a snowball at the top of the hill, and you roll the snowball down, and of course, it gets bigger and bigger as it goes down the hill. And I think that's what we're aiming for here. The only problem with Warren is, he never told us how much snow was on the hill, and he didn't tell us how steep the hill was that he's looking for us to use his analogy further. If you use that analogy going forward, the hill is not extremely steep. We're going to continue to build at a slow pace and put good deals on for long term. And there's not that much snow on the hill related to how much you can take out of a farmer in terms of rent. So both of those push down the size of the hill and the amount of snow, and therefore, how fast you can grow. And I think, the best thing for us is to sometimes trade in, especially in a good year like we just had, some of those payments for just steady payments of leases. And hopefully, that works out better for our shareholders in dividend.

That's actually really interesting. I never kind of approached it from that angle of kind of gamesmanship like that. So are those kinds of conversations -- are those active dialogues going on now that these farmers have recently delivered a big participation rent so it's possible that throughout the year, we see some leases migrate over to higher fixed rates?

Yes, there are conversations. This is a bad time for most farmers because they're in the heat of getting their farms ready to -- the guys in Florida are working full-time, pulling strawberries and beans and peppers and those kind of things. It's a big season for them. And the people in California don't want to talk about much of anything other than where they're going to plant, how much -- they're doing their planograms, if you want to think about it that way, of where certain crops are going to be and how much they're going to do. So they're in the planning mode for the year that's coming on pretty strong now because all of the berries are planted. And so as a result there, they're moving along. And they're hoping that the trees are going to harvest and provide a harvest of huge amount. I think these nut trees and some of the fruit trees, as you know, we have a lot of different fruit trees now, and so I think those are going to help us level out the years and make things that are not so wedded to high amounts coming in every year. Although the nut trees have been very, very strong, and we've got the ones up north that are coming in strong as well because we had a lot of new plants there. I'm just looking at this and -- as a way to level it all out and make it come in so that we never ever miss a dividend.

Yes. I appreciate that, and I'm sure your shareholders do as well. I think the dividend is kind of the most important part of the story. Lastly, real quickly and kind of coming back to the capital stack and following up on the preferred stock. Look, now that you -- I understood the rationale of going with the preferred stock beforehand because you had revised the management agreement so that preferred stock wasn't counting towards the fee, which made acquiring properties with preferred stock and debt kind of accretive just by way of circumventing the management fee. Under the new management fee though, it doesn't really matter what your equity capital source is, the fee is tied to gross assets.

In light of that, as we go forward, now that the stock is higher, so we could be issuing at a premium to NAV, albeit some temporary earnings dilution just by way of the share count going up, but because your common equity cost of capital is meaningfully lower than the preferred at 6%, is that potentially, now that your stock price is higher, becoming the more attractive source of capital for acquiring new farms as we go forward in 2020? Or why wouldn't that be?

Of course, as I mentioned before, if all of a sudden, we can sell preferred stock at a much lower rate, you're going to tend toward preferred. And if the common stock gets down to where some of the REITs are -- some of the REITs are paying 1% or 2% on their common stock. If we hit that level, we will use the common stock. It would be wonderful to raise money then.

I think this is a balancing act then that you spend your time thinking about whether you want to raise it with 1 entity or not. And we get all the debt that we can possibly get because it's at such low rates. Some of the rates that we have because we have a participation in the profits of the farm banks, we get 0.75 point or 1 point back every year because the farm banks are so profitable, they share the money with the people who are borrowing from them. So I don't know, at the end of the day, you tell me where rates are, and I could probably pencil out where I think we would be. But...

I'm not smart enough for that.

Neither am I. And so that's why I'm giving you this vague answer, which is dependent upon what rates are going to be down the road. And we just have to look at that every time we get ready to borrow some money, get ready to sell some common stock. I'm just astounded at how much money you can raise in the nontraded area. And I don't want to become addicted like 2 or 3 of the REITs are, and dependent on that because I think it could go away just as fast as the stock market.

Our next question comes from James Villard with Ladenburg Thalmann.

Just one quick question from me. On that $1.5 million participation rent, how much of that was budgeted in [those] numbers? And how should we really think about that going forward?

I think it goes slightly above what we had projected, not incredibly, but in terms of what we had, I guess, publicly stated on any calls, it was -- we didn't want to oversell ourselves. I think we were saying it would be slightly more than the prior years, which was 1.2%. It came in slightly above what we were projecting. I don't think we're at a point where we're ready to give out any projections for 2020. We're hoping for a kind of a repeat performance. We have some farms falling out of the group and some farms coming in. And as I said on the call, on a net basis, we have 1 addition to the group. But as they are [diluted to], there could be some lease changes in structures. So not ready to say whether it will be more or less or equal to where it is -- where it came in 2019.

As you look at the list of farms where we have participation rents, there are some that didn't perform, and we didn't get much out of them. And there are others that over-performed. And I'd say, generally speaking, they all over-performed where we thought they were going to be. And there were only 2 maybe that were really low compared to where we thought they were going to be. And that's the reason for not emphasizing that area much is because you're dependent on growing crops. And as everyone will tell you in this business, the real difficulty is, if you want to think about it in factory terms, your plant is a growing bush or tree and it's outside, not inside. So as a result, you got a lot of variables to take into account. And I'm just not up for high risk, even though it might mean more money if the year is good.

Okay. Is any of that commodity driven?

Well, if you think about it, there are some commodity-like variations in all crops. If you have one of the strawberry majors with a low crop yield, that means all the others get higher prices. So it just depends on which farmer. That's why we are so intent on finding good farmers, it's that you've got to have a regularity to the production. But all of them, not as much as, say, corn or wheat or soybeans, but all of the crops are like that and have some variation in them depending on the market. And if you look at corn, though, corn competes with corn coming -- corn and soy coming out of Brazil. You've got the Ukraine, actually, and Russia produce a lot of corn and wheat.

So all of those are very difficult to know how much they're going to produce. Some time ago, the corn crops in Ukraine failed and corn went to $8.50 a bushel, and it's currently under $4 now, maybe a little more, but it's dependent on one wins and one loses. Quite frankly, we can only eat and use so much corn. And so as a result, it's a finite demand and a variable production. And I don't want to be in that business unless I had some way of -- if we owned a pig farm obviously you could grow a lot of corn. But we don't own any of those kind of protein operations.

Do we have any more questions?

I'm not showing any further questions at this time.

All right. That's the end of the presentation, and we'll see you next quarter. That's the end of this call.

Ladies and gentlemen, this does concludes today's presentation. You may now disconnect, and have a wonderful day.