Gladstone Land Corp (LAND) 2023 Q4 法說會逐字稿

Greetings. Welcome to the Gladstone Land Corporation's year end and fourth-quarter earnings call. (Operator Instructions) Please note this conference is being recorded.

At this time, I'll now turn the conference over to Mr. David Gladstone, Chief Executive Officer and President. Mr. Gladstone, you may begin.

Thank you, Rob. It's 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 seriously appreciate all the time you take to listen to our presentations and hopefully can give you some really good news this time. Before I begin, though, we have to start with Michael LiCalsi, he's our General Counsel. So Michael, take it away.

Thanks, David, and 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 and that these forward-looking statements involve certain risks and uncertainties that are based on our current plans, which we believe to be reasonable and 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 the risk factors in our Forms 10-K, 10-Q and other documents we filed with the SEC and find them on our website, which is www.gladstone.com, specifically the Investors page on the SEC's website, which is www.sec.gov. And 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.

And 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 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 adjusted for certain nonrecurring revenues and expenses. Also 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.

Please visit our website. Once again, gladstoneland.com, sign up for our e-mail notification service. You can also find us on Facebook keyword there is The Gladstone Companies and on Twitter where at GladstoneComps.

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.

Now with that, I'll turn it back to David Gladstone.

Okay. Thank you, Michael. Let me start with a brief overview of our Farmland holdings. We currently own about 112,000 acres on 168 farms and over 46,000 acre feet of water assets. One acre foot is equal to about 326,000 gallons. So we own about 15 billion gallons of water. And although the land and the water are valued at about $1.6 billion, it will be interesting to see where the land and buildings go over the next year or two as the changes in the economy hopefully take hold currently $250 to $500 per acre foot, so $23 million worth of water, and you can't grow anything without the water. So we're in good shape there.

We have that all of this land that we own, plus the water is worth about $1.6 billion. Our farms are in 15 different states and more importantly, in 29 different growing regions and our water assets are all in California. Our farms are leased to over 90 different tenant farmers all of whom are unrelated to us. And the tenants on these farms are growing 16 different crops, mostly fruits and vegetables and nuts. And you can find these in the produce section of grocery stores, which is where most of our crops that our tenants sell our crops to those people running the grocery stores.

And now I'll give a quick update on some of the tenants issued. Issues that we are continuing to have. We currently have five properties about 15 of our 168 farms that are vacant. And we also are recognizing revenue from leases with two tenants who collectively lease five of our farms on a cash basis. So we're a little bit behind on that.

Regarding the vacant farms, we are in discussion with various potential buyers or tenants to buy or lease these properties and hope to have all of those in place by this summer. And regarding the two tenants on nonaccrual status, one of them is now current in their rental payments to us and we are continuing to work with the other tenant and to collect from that.

And total year-over-year impact on the operations as a result of these two and other tenant issues get sorted out during the year, but decreased operating income by about $1.4 million for the fourth quarter and about $1.7 million for the year. I think you'll see that come up in the next quarter.

As we mentioned on the past several calls, we continue to be cautious with our new investments because the cost of capital, both borrowing cost that we have to pay and the equity that we have to raise that remains very high. And the land prices are still too high, that makes sense in many of the acquisitions that we look at.

So as a result, acquisition activity remains slow for us and probably well for at least another couple of quarters with inflation still above the Fed's target rate, interest rates are going to remains probably pretty high for the next six months, maybe even a year and when the rate cuts do come might be getting further rate cuts might be pushed further down the line. So maybe before we can start bulking up again on more land.

But overall, our existing farmland portfolio continues to perform as expected, with the exception of those issues that I mentioned just about just a few minutes ago. We did sell one property after year end. That's after December 31. And that resulted in a nice gain for us. This farm is in Florida. We bought it for about $54 million about seven years ago, and we sold it in January for about $66 million.

So net of closing costs, this resulted in a cash gain of about $10 million and remember during the last seven years that tenants had been paying rent on the farm, and I'll note the price we sold out was about $2 million more than its recent appraised value and leads me to believe that the appraisals that we have on our properties was -- go to at asset values are a little bit low.

On the leasing front, since the beginning of the quarter, we are we renewed or amended seven leases on farms in two different states. In total, these renewals are expected to result in a decrease of annual net operating income from those properties about $682,000 than the prior leases we had on it.

However, this includes one lease executed on a property to replace the prior tent, we've been placed on nonaccrual status. This prior lease was fixed with a fixed rent basis, whereas the new leases larger crop share basis, we usually use that crop share, where do we get part of the profits from in new leases simply to give the new tenants a chance to feel out how much he can really pay for the property.

So excluding this one lease, the remaining lease renewals are expected to result in an overall increase in net investment income of about $504,000. That's about 5.4% over the prior leases. So looking good there.

Looking ahead, we only have one lease that is expiring in the next six months, and it makes up less than one-half or 1% of our total annualized lease revenue. We're in discussion with a group of lease group that wants to lease the farm, and we're currently anticipating an additional vacancy, no additional vacancies as a result of this or any other upcoming situations.

And just a few other items I'd like to mention in 2023 that was really a good year for our western portfolio regarding water. Water is the key to almost everything on the West Coast. And then 2024, and now is off to a very positive start as a lot of rain going on out there. And right, even today and certainly yesterday.

Under the Sustainable Groundwater Management Act or as we call it SGMA, which was enacted in 2014. Certain basins basic must achieve groundwater sustainability by 2040. So we've got plenty of time to do it. But our team in California has been focused on ensuring that we have a firm understanding of the impact of SGMA on the long term sustainability of our Western portfolio. And as such, we have been working to develop projects in certain areas that have identified as having risk of potential water shortages over the next couple of decades.

During 2023, we completed a construction of a large groundwater recharge facility on two of our farms, we entered into various agreements with both local water districts and private third party individuals to acquire additional water supplies in the near term. And we have secured a long-term water supply contract for substantial amounts of our portfolio in the western San Joaquin Valley, California.

These acquisitions and projects have already made a large impact in achieving long-term and sustainable water supplies for many of the farms in California. We intend to continue this focus on water security for farms in 2024, which has started off with another round of historic storms in California. If the rain events continue, we expect this state's water supply to allow for another year of great opportunity from farms in California. Allowing us to leverage the projects and contracts secured in 2023 to acquire even more water rights.

We have additional water projects that we anticipate completing in 2024 to secure additional water rights. It's important to note that these projects are largely forward looking our portfolio currently has adequate supply of water. And to date, none of the farms have had to follow the farms or reduce plantings.

Our goal is to remain in case through full compliance of SGMA into 2024, 2040 and beyond. While certain other land may have to follow a portion of their farms, thus reducing the amount of planted acreage of certain crops of our goal is to maintain a stable production level on all of our farms. We intended to continue to partner with local groundwater management agencies across California to ensure that we have, unlike any of our farming friends sustainable water supply for all of our farms in the West and Florida, of course, in the East, it's much easier to get groundwater.

And just one more note regarding weather in California. They're experiencing another round of storms and flooding over the past few weeks. But fortunately, we've been able to report that none of our farms have suffered any significant damage as a result of these recent storms. And we don't expect our farms to get hurt. We have good runoff and programs.

And finally, I just wanted to touch on a question we get from time to time from some of our good shareholders that we pay money. That is your company pays money to Gladstone Securities to sell that preferred stock that we're issuing in the company.

In Gladstone Securities is largely a conduit in this process. It remits a large majority of the fees received to other parties involved in the offering, including participating broker-dealers and wholesalers. And at the end of the day, it's pretty much a breakeven business for Gladstone Securities. So we're not making a profit out of selling your securities and please also remember that preferred stock is not included in the calculation of any fees that Gladstone Land Corp. --

So I'm going to stop here. That's enough on the operations. Now turn it over to our CFO, Lewis Parrish, to talk to you more about the numbers that he's reported in the 10-K.

Thank you, David, and good morning. Everyone will begin by briefly going over our recent financing activity, we did not incur any new borrowings, but we did repay abou,t we have repaid about $24 million of loans since the beginning of the fourth quarter that were scheduled to either mature or reset. On the equity side since beginning of the quarter, we raised net proceeds of about $556,000 from sales of the Series E preferred stock.

Moving on to our operating results. For the fourth quarter, we had net income of about $1.8 million and a net loss to common shareholders of $4.3 million or $0.12 per share. For the year, we had net income of $14.6 million. Net loss to common shareholders of $9.9 million or $0.28 per share.

By quarter-over-quarter basis, adjusted FFO for the current quarter was approximately $5.4 million or [ $0.15] per share compared to $6.6 million or [$0.189] per share in the prior year quarter. Dividends declared per common share were [$0.139] in the current quarter compared to [$0.137] in the prior year quarter.

On an annual basis, adjusted FFO for 2023 with approximately $20.3 million compared to $24.3 million in 2022. And AFFO per share was $0.569 in 2023 versus $0.701 in 2022. Dividends declared were $0.554 in 2023 and $0.546 in 2022.

Primary drivers behind the decreases in AFFO were the lost revenues and increased expenses associated with properties that were vacant self-operated status during portions of the year as well as a decreasing amount of participation rents recorded an increase in dividends paid to preferred shareholders during the year.

Despite the lost revenues from vacant self-operated and non-accrual properties fixed base cash rents increased by about $255,000 or 1% on a quarter-over-quarter basis and by about $990,000 or 1% on a year-over-year basis. These increases were largely driven by additional rents earned on capital improvements projects that we completed on certain of our farms.

During the fourth quarter, we recorded about $3.3 million of participation rents compared to $4.7 million in Q4 last year. And for the year, we recorded participation rents of about $5.9 million versus $7.7 million in 2022. Participation rents decreased primarily due to lower yields, coupled with lower pricing for last year's crops. The lower yields were expected due to the fact that these crops were harvested at the end of a multi-year drought. And of course, the water landscape in California in the West in general has changed drastically since then.

Pricing continued to be somewhat lower due to oversupply, particularly in the home market. However, we are starting to see almond prices rebound a bit as global inventories get used up. On the expense side, excluding reimbursable expenses and certain nonrecurring or noncash expenses, our core operating expenses remain relatively flat for both comparable periods.

Total related party fees decreased for both periods was primarily due to a lower incentive fee earned by our adviser during the current quarter and year. This decrease was largely offset by increases in certain other core operating expenses, namely property operating expenses and general and administrative expenses.

Property operating expenses increased in the current year periods due to higher property taxes and additional property management fees incurred as a result of certain properties being either vacant or self-operated during first portions of 2023. And G&A expenses increased due to higher professional fees and additional costs incurred in connection with amending our credit facility with MetLife.

One final thing to note on our income statement. We sometimes get reimbursed by our tenants for certain costs or they will sometimes pay these costs directly on our behalf as stipulated in the lease agreement. In these cases, we record additional lease revenue and also additional property operating expenses with the amounts offsetting each other and netting out to zero.

In the past, this amount has been averaging about $50,000 per quarter. However, that figure jumped to nearly $550,000 during the fourth quarter. It still nets out to zero on the income statement, but I just wanted to point out that each of these individual line items as lease revenue and property operating expenses are both inflated by about $500,000 in the fourth quarter from what it has been recently.

Finally, other expenses decreased due primarily 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 31 farms, we revalued during the quarter as all via third-party appraisals.

Overall, these valuations decreased by about $13 million from their previous valuations from about a year ago. So as of December 31, our portfolio was valued at about $1.6 billion and all of this was supported by either third-party appraisals or the purchase prices.

Based on these updated valuations and including the fair value of our debt and all preferred securities, our net asset value per common share at December 31 was $19.06, down from $20.33 at September 30. The majority of this decrease was due to the change in fair value of our fixed long-term borrowings and preferred securities as interest rates retreated somewhat from [$930 to $1231], as well as decreases in valuations of certain farms that were reappraised during the quarter.

During to liquidity, including availability and our lines of credit and other undrawn notes. We currently have access to over $200 million of liquidity, including about $60 million of cash on hand. And we also have over $130 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 3.34% for another 4.2 years.

As a result, we have experienced minimal impact on our operating results from increases in interest rates and with respect to our current debt outstanding, we believe we are well protected, should interest interest rates remain high.

Regarding upcoming debt maturities. We have about $35 million coming due over the next 12 months. However, about $17 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 about 3% of our current debt outstanding.

In addition, we had about $10 million in loans that they are not maturing but they have a fixed term fixed rate term that is set to expire over the next 12 months.

And one last item to note here, our lines of credit with MetLife were set to expire in April 2024. However, during the fourth quarter, we amended the MetLife facility to extend the maturity date of both lines of credit to December of 2033, so almost a 10-year extension on those lines of credit.

Finally, regarding our common distributions, we recently raised our common dividend again to $0.465 per share per month. This marks the 33 time, we've raised our common dividend over the past 36 quarters, resulting in an overall increase of 55% over that period.

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

Thank you, Lewis, and nice report. We continue to stay active in the marketplace, should a good opportunity present itself but we're still being more cautious on the acquisition front. Interest rates are still too high, but we are hopeful that the rates will be lower this fall so that we can start buying more farms again.

And just a few final points. We believe investing in farmland growing crops that contribute to healthy lifestyles such as fruits and vegetables and nuts, follows the trend that we're seeing in the marketplace today.

Overall, demand for prime farmland growing berries and vegetables is stable to strong for almost all the areas where our farms are located, particularly along both coast but the east or the west. So please remember that purchasing stock in this company is a long-term investment in farmland. It's an investment of a stock of two parts. One part, of course, is four strong assets such as similar to gold. It's a hard asset.

Farmland is dirt, and that has intrinsic value because there's a limited amount of good farmland in the United States. And it's being used up by urban development, especially in California and Florida, where we have many farms.

And the second part of investing in this stock is, unlike gold or other alternative assets in that it's an active investment with cash flows to investors and believing we are better than a bond fund because we keep increasing the dividend, whereas bonds are fixed, we expect inflation, particularly in the food sector to continue to increase over time.

We expect the value of the underlying farmland to increase as a result and we expect this especially to be true in the fresh produce food sector as it trends more and more people in the United States are healthy food eaters.

We have the cash, as mentioned by our CFO to back any loans that are coming due. We have cash and credit facilities, the banks that we deal with would love to lend us more money. So we have cash to pay off loans coming due and we have borrowing capacity to do the same. So we are very secure here. And if we had to sell off our farms, I know, we will get money to pay off any debts that we have. So we're strong in that regard. So the downside, from my perspective is very low. Farmers need dirt to grow food and and we have plenty of dirt. And so we're great for farmers, while people also need to eat. Farmers need dirt to produce the food that they.

I'm going to stop here. Let's have some questions from those who follow us. Operator, would you please come on and help our listeners ask some questions.

(Operator Instructions)

Rob Stevenson, Janney Montgomery.

Good morning, guys. David, the 15 vacant farms, what crops are those in Michigan and Washington and that have more to do with the crop type in its demand today? Or is it just the financials of the previous tenants there?

A lot of its previous tenants. This is mostly blueberry farms. And now we've had one tenant that has had some personal problems and hasn't been able to take care of the farms. And we're going to get those farms back and lease it to somebody else. The crops are coming out just fine. It's the problem of the farmer in many of these cases, that's giving us a problem. They haven't done a good job of managing their funds.

As a result, it impacts us but it won't be for long as some of you remember some time back, we had a family who had a large farm from us. I guess there were two farms in that and they got in trouble. Farmer died. There were real problems there and we took them back the first year and then after we got everything stabilized. We rented it out and it's still paying as agreed.

And we've signed a 10-year lease then. So the same thing will happen here just takes us a while to get them. Farming is a slow process and people just don't jump on a farm and say, oh, I'm going to grow some blueberries. They have to wait for it.

How should we be thinking about the delta between the NOI between you guys operating it versus having it leased to a third party tenant for an entire year's? Is there a meaningful difference in terms of how that all sort of factors into the bottom line that we need to be thinking about or is that fairly close?

It's close. But generally speaking, somebody we hire and those farms some of the vacant farms are now being run by people. We hired to operate them for. So we are in partially in the farming business with those people. That's a different process than somebody who is skilled in both growing and selling blueberries, strawberries or almonds or anything else. So I would say it's once you get into a situation where you're putting somebody else and operate the farm. And you are, in essence backing a farmer. It's a different world.

People who are really good at this business. and I'll never forget one of the politicians describing farming as, punch a hole in the ground and drops in seed and you'll be fine and it's just not that at all. People don't realize, how much the farmer knows what to do with regard to the farms that they're on. So it takes us about a year to turnaround, something that goes a little bit sour and in some cases this sourness has been truing up some of our time. So we've used this time to get in the water side of the business and making sure that when SGMA and these other government agencies demand that you do, a, b and c that we're ready for them. We've got people on staff that are really skilled in this area. I think anybody in the government side of it would know that we're on their side. We want to be completely away from the idea that we've got to fallow anything. I'm sorry, Rob, did I answer your question?

Yes, that's helpful. And then I know the rains and floods in California caused some damage to some structures on one farm. But are they having any negative impact on any of the crops, especially the permanent ones. And if this continues to go on, is that something we need to be careful about?

And well, of course, you be careful. We've got insurance that helps us out a lot and the one situation that you mentioned, which came out of last year's rain storm was a few wooden structures that were just not weather ready. And so as a result, they got replaced and the tenants there has helped us out with some additional changes to their lease. They didn't have insurance on the truss that these were on. And so as a result, they had to take a small loss in essence.

So Rob, I don't think that's our problem. We even have any, if you may remember, they address one of our addresses on one of our franchises, San Andreas, and there is the San Andreas falls that runs through some of our farms. While that won't destroy the farms, it opened quite a gap to have to jump over to get the crops done.

But we have insurance for that. We pay for that. We want to make sure fire insurance for some of those structures that we have. So we're pretty well covered from every angle, except from the problems that some of the tenants have gotten themselves into and the banks are all recovering. Now they are in strong position. Most of these are federal banks, federal license, and so they're in a good position and I wish the rates would come down. If you have any influence on the Fed, would you please use it to get them to lower their rates because we need a lower rate in order to buy farms. And so we're just slowing down and making sure that we're going to be way ahead of everybody else.

Our management of the water that's needed on all of our farms. In other words, there's another thing that goes on. Sometimes markets change, for example, the almond market place was miserable for a while because we have a lot of almonds that are sold outside the United States. And I've always believed that Spain and Italy had most of that almonds.

But in essence, the United States is producing most of the almonds in the world today and sell to Spain and one area of the world was eating a lot of almonds and practically stopped for a while due to the worry of the pandemic. And so we ended up with a lot of almonds. So we did didn't our tenant ended up with a lot of almonds that they didn't get sold. And almost all of that has been cleared out now and they sold almond that they store.

The good news is almonds can be stored for a good amount of time. And so they are not like strawberries where if you don't sell element 14 days you've done. They can keep on for years actually. So we're in good shape today. And if we don't have another pandemic or probably find the bad thing about a pandemic as all of the restaurants don't use your products, we are lucky that we sell probably more than 90% of our products are sold into grocery stores.

And of course, grocery stores went forward and raised rates. And the unfortunate thing is they didn't pay us more for our products. So their grocery stores got profitability out of it. But every bank thing has come back in line now except the Federal Reserve and the interest rates. And once that happens, I think they'll do something this year. We'll be back in business growing.

And I think we mentioned somewhere along the way that we do stand behind our farmers. And if they need more things done on the farm, we'll do that and we charge them a rate for that. So that rent goes up by whatever we've done for them and it's been working very well. Our farmers know that they're not in a position that they can't get money to do some of the things they need to do to keep their farms going.

I don't know Rob, I'm answering your questions. What's up?

Yep, that's helpful. Thank you. Lewis, how much of the quarter-over-quarter NAV decline of [$127] was the change in farm values versus the change in debt and other balance sheet items?

That breakout was it was down by [$1.27], a little over $0.80 was the change in our the long-term financing, the fixed rate debt and the preferred securities and just under $0.40 was the result of the valuation changes.

Okay. And then what did you do with the Martin County disposition proceeds? I think it was $66 million or so on a gross basis. Is that just paying down debt, is that silly and earning interest? How should we be thinking about that?

We had of about little about $1.5 million of closing costs. We repaid $16 million of debt and that were encumbering the property. We paid another loan since then some a small loan. And the rest of it right now is earning about 4.5% interest in the Bank.

Okay. And then last one for me, David, given your comments about getting a good price, if you sold some of your farms? Stock's trading at more than a 30% discount to your NAV? What are your thoughts and the Board's thoughts on potentially selling a few farms and doing some stock buybacks at these levels?

I hate it. I don't want to buy back stock. I think we're going to use the money to grow. I watch Warren Buffett a lot and he doesn't buy back stock often. But I don't know, we could do that, but we'd just be injuring ourselves for the long term future.

Okay. Thanks, guys. Appreciate the time.

Mike Albanese, EF Hutton.

Hey, good morning, guys. I'm yes, I think most of my questions were answered with the previous caller, but I guess just, if you could provide more color on crop prices and kind of the supply demand dynamic across almonds, berries, pistachios. You mentioned or alluded to kind of that oversupply, global oversupply normalizing as inventories are drawn down. I mean, how much runway is there left for kind of normalization? Or really just any other context you could help me frame that would be helpful?

I think, the current situation with almonds is pretty much over. I don't think there's any excess left and so that's good. There's never been any in strawberries or blueberries every now and then blueberries, if the farmer has turned toward doing almonds, any of the juices from blueberries, then it's probably got had some leftovers.

So it's very low right now. There isn't anybody with a lot of things out there, even the apple growers have gotten strong, which I hate that business simply because it's hard to keep an Apple. You see them in the stores. They're all merely and don't want to be in that business. But even though we've got some out there.

The other businesses are hurt sometimes like for cherries. cherries can get wiped out completely if you go to any kind of frost. And so we don't have that many cherries. So we're lucky in that regard. I don't think there's much difference in, let's say, the 2021 prices and amount that we had back then today going forward.

2024 is going to be a great year for us because after all, we're going to slip back into the same, we were making lots of money before the pandemic and all are the erosion to the market. And so I think if you want to put down something outside this 2024 will be fantastic. If we get the interest rates going. The markets are good today. And so the guys are growing almost everything these days as in good shape.

Every now and then you have as we did in the blueberry business, a person who gets themselves in trouble and personally as well as just destroyed his whole business. But that'll come out. Unfortunately, you can't get somebody to take over that farm by snap your fingers. People want some time to operate it and feel it out. And then we can go in and say, okay, if you want to go next year, then we have to go to a fixed-price lease and they usually are in agreement with us. I have to negotiate prices often in those situations because one year is really not enough time for them to explore all the alternatives they have.

But we've had good luck in that regard. And we got some interesting farmers out there. I think I've mentioned it, we have one other largest farmers in the world, doing some of our stuff in the strawberry area. And we have the largest strawberry grower as our largest farm and does extremely well there. But I don't know how to help you with that other than to say that pretty much we're back to 2021 or maybe even the beginning of 2022, in terms of pricing and farming and whatever you grow, you can sell.

It's a wonderful marketplace when it does have these crazy things that come along like they did in '08 when all the marketplaces were upside down. And today, I think we're all in good shape. I think this is the one moment this business will change.

That's helpful. But that's pretty much exactly what I was looking for. Okay. And then can you just remind me kind of overall portfolio exposure to, I guess, the participation, the rent structure? And then how much of that is, if anything is captured with these tenants, is that having issues?

So I'd say about of our permanent most all the participation, rents, lease structures are on our permanent crop farms. I think all but maybe one or two. But it's a little less than one-third of our leases have a participation rent component. In the past couple of years, both 2022 and 2023, we've averaged about $90 million of total lease revenues. We've had participation rents of between $6 million and $7 million. So I think that's a kind of normal run rate for us right now. As far as percentage of participation rents, participation rents as a percentage of total lease revenues, if that's what you're asking?

Yes, that's helpful. Thank you.

Barry Oxford, Colliers.

Great. Thanks, guys. David, when you think about acquisitions and let's say interest rates stay roughly where they are just move down ever so slightly, what would you have to see in the cap rate environment movement to make buying farms attractive too?

Well, if this farmer will drop the price, then it works. But most of the farmers are long-term holders. And when you offer them something that makes the numbers work, but it's lower than they believe their farm is worth. And remember, a lot of these farms are farms that have been in families for years, so they're not willing to get rid of them. They'll just continue to farm them.

So barrier, I don't think at the end of the day, you're going to see much happen unless interest rates come back in line with where they were in 2021.

So they approach it more from a personal then an institutional marketplace?

I hear this phrase every time. My great grandfather started here and migrated from wherever. And so it's a beautiful stories, unfortunately, that taxing that's going on now by the government keeps a lot of these guys from selling because they owe so much money when they sell. So they do tried to do [1031s]. And of course, we offer to give them stock in our company or partnership interest, which we have a partnership underneath our company.

And some of them take it, we have not gotten many to take all of it in terms of stock and with the stock down as far as it is today, it's almost better just trying to do a thing in cash. So it's a peculiar situation we're in, but it happens every now and just as in '08, '09, when people are scared to death. A lot of these farmers are people who want to get out of the business altogether. They want to sell the operating part and they want to sell their land and land is the piece we love. We don't really want to be in the operating part that often for various reasons.

But generally speaking, we want to be in a passive position rather than in the operation business. And so if the world changes a little bit on interest rates, I think will be explosive in terms of what we can do. Many of the farmers are 58, 59, 60, and they want to sell and liquidate simply because they're tired and worn out from years or farming.

Farming is a very difficult situation for almost everybody here, chewing your nails over the price of fertilizer, and it just goes on and on and on. So from my perspective, I think eventually people like us and maybe a few others who are out there will end up owning most of the farmland.

We haven't seen what people keep arguing about and is that China is buying up this farm land. They are only interested in the ones that are right next to an airport or something like that. For example, the buyer of our farm down in Florida was not buying it for anything other than they believe in the next 10 years to 20 years going to be able to sell pieces of that farm to people who are in the homebuilding area.

As you probably know, millions of people have moved to Florida housing prices there, just to keep the housing people very busy that farm that we sold down there will probably have two golf courses. And God only knows what else on it with the hundreds of houses. But it's not going to happen to work for us because we need ordinary income coming in every month to meet our dividends. So we sold it to somebody who's going to end up, holding it for a while and selling off big chunks to homebuilders down there.

We have another big farm right next to that farm. So we will be the benefactors of that craziness that's going on in Florida In terms of housing prices. Barry, I just don't see anything to hold us back except the interest rate craziness that's going on now. And I think they're going to drop the rates somewhere along here and if the FED will drive it by a quarter of a point, all hell will break loose because the banks will be dropping their rates so that we can go use it.

And there are plenty of farmers who want to sell. And I don't know how we solve the problem unless we can find somebody who wants to operate the farm because the people who are selling really want to get out. And I think for us, our time is here today.

Right. Now that makes makes all the sense in the world. And then, David, in your prepared comments, you mentioned something about California and water and banking more. You're seeing opportunities there. Will we start to see some dribbles here in the first quarter or first half of the year?

Dribbles meaning what? Selling water

Land water bank.

We got, as I mentioned, 15 billion gallons backed.

I bit. I mean, are you going to be doing more?

Yes, we will buy more. We will have enough that will take us to probably rest of the century. We want to get it because once it gets in the ground and one of the aquifers, you can hold on to it for a long time. And unless people are willing to pay, we've been offered land to buy water at prices that are ridiculous. I mean, some some guy won't invest $1,000 an acre foot, then that would have been well. We pay about $50 billion worth of water, sold it at $1,000, under $500 We did the math on it. That would be about $23 million, $24 million. We sold under [500] an acre.

We've done something unique. I hate to mention it too much. I'm afraid people will copy us and that is we've been able to take a lot of the water that's running off of these farms in there and to that our farms and we are putting it into some vacant areas on our farm we built berms, we've pumped water into that area and then some places we just left it in there and other places where over the aquifer. So it will trickle down into the aquifer and we get credit for that and we probably are doing that at the rate of $20, $30 an acre foot.

It's a little bit higher you're saying. It's your markup as the CFO. Any way, we've really skin the cattle very well on this. Our guys are our experts in all the water problems in California. I wish there were some way to use the one in Florida, some way we could get water from Florida where you stick a hole in the ground and got water out to California.

And I think by the end of this century, they will be growing more vegetables and things in in Florida than we do in California. So there will be shipping the vegetables to California rather than vice versa. So water is key in California. If you don't have water, you have nothing. Might as well turn it.

There's a group that's buying land above that capital of California, and that's the worst land you've ever seen in your life for water, there's none there. So as a result, they are going to quote build a city there. I don't know what they're going to do for water. But it's they've got hundreds of acres and I'm just interested in watching what's going on.

These are some really big technology guys that are deciding they're going to be something out there with all of that land and calling it new cattle, new California. So anyway, we'll watch that one from a far high risk. And so for us, we're just going to go back to the way we've always done things, which is by as much property as we can with enough water, a lot of the properties are now being discounted by the people who value these properties. If you don't have at least two sources of water, all of our farms have at least one and now, but buying all of this water that we've got, they've got more than two sources.

So you may see our asset values go up because we have enough water to prove them out and it will be a beautiful thing. If the drought comes and we have all this water as our guys will buy our water. We'll have an agreement with them. It will be, we now have finance pipes that go from one form to another. We finance pipes that go from the aquifer out to a number of different farms. So we are in great shape and be like one of those pipe companies down in there and parent basis where they take the oil out of the basin will be that help with water as well.

So we're just building a different company than any of us thought about building until SGMA came along and now is going to push everybody into the water, plenty of water for their own crops or are there some articles out there about some of the people who in pistachios and almonds because you lose a tree. You've lost everything in that business and there were water rights that were pushed over to one side and nobody knew about it, except this one guy who follows one of the growers out there and he wrote a nice article about how they took water from one place moved to another.

And we've seen people tear down 15,000 acres, 20,000 acres of almonds and pistachios because they don't have enough water to grow. It takes an almond tress about a gallon of water for every nut that they produce. So it's very difficult to keep on almond trees strong for the future. So I think we're in great shape now and I applaud the effort of our guys in getting enough water together. So that we won't be in trouble.

Michael Diana, Maxim Group.

Okay. Thank you. My question is just on the impact of the sale in the first quarter here of that farm. The impact on net asset value, just that in and of itself the sale, is it going to be $10.4 million in other words, the amount over cost or is it $2 million the amount over the appraised value?

It would have been $2 million of the appraised value because the previously appraised value was what we had on the books as far as the NAV calculation goes. However, we did already mark that up at [1231] since we did have a PSA in place at as in 1231. So that sales price that increased sales price is reflected in the NAV calc as of 1231.

Okay. All right. Thank you.

Thank you. We have no further questions. Mr. Gladstone, I turn the floor over to you for closing remarks.

Well, we certainly appreciate all of you listening to this and asking good questions and hope to see you next quarter. And if you can jot down a couple of extra questions to ask, we have time to talk to you and we only talk to you once a quarter. So get your questions ready so we can talk some more about what's going on out there and the farm in the world in California and in Florida. That's the end of this. Thank you very much.

Thank you, Mr. Gladstone. This will conclude today's conference. You may disconnect your lines at this time, and we thank you for your participation.