Gladstone Land Corp (LAND) 2021 Q3 法說會逐字稿

Greetings, and welcome to Gladstone Land Third Quarter Earnings Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, David Gladstone, Chief Executive Officer and President. Thank you. You may begin.

Well, thank you for that nice introduction. This is David Gladstone, and welcome to the quarterly conference calls for Gladstone Land. And again, thank you all for calling in today. We appreciate you take time out of your day to listen to our presentation. We're first going to start with Erich. Erich Hellmold is in the office today for Michael LiCalsi. Erich is our Deputy General Counsel, and he is the -- also the -- one of the big guns in the administration side of our business. And that's the administrator for all the Gladstone funds.

Erich, why don't you start?

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 upon 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 Form 10-K and other documents we file with the SEC. Those can be found on our website, www.gladstoneland.com, specifically at the Investors page or on the SEC's website at www.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 will 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'll also discuss core FFO, which we generally define as FFO adjusted for certain non-recurring revenues and expenses, and adjusted FFO, which further adjusts core FFO for certain noncash items such as converting GAAP rents to normalized cash rents. We believe these are better indications of our operating results and allow better comparability of our period-over-period performance.

Please take the opportunity to visit our website, www.gladstoneland.com and sign up for our e-mail notification service so that you can stay up-to-date on the company. You can also find us on Facebook, keyword, the Gladstone companies, and we have our own Twitter handle, @GladstoneComps. Today's call is an overview of our results, so we ask you to review our press release and Form 10-Q, both issued yesterday for more detailed information. Again, those can be found on the Investors page of our website.

Now I'll turn the presentation back to David Gladstone.

All right. Thank you, Erich. We start with a brief recap of the current farmland holdings. We currently own about 108,000 acres on 160 farms and about 45,000 acre-feet of banked water. All those together total about $1.4 billion in assets that we own. Our farms are located in 14 different states and more importantly, in 28 different growing regions, and our farms continue to be 100% occupied and are leased to 82 different tenant farmers, all of whom are unrelated to us, and the tenants on these farms are growing over 60 different types of crops.

Given the number of different growing regions, tenants, types of crops, our farms -- on our farms, we think these -- there's sufficient diversification to provide for safety and security. The cash flows coming from the rents, and we believe these -- this diversification helps protect the dividends that we're paying to our preferred as well as our common shareholders. There are no guarantees in this world, anything can happen in this life. But right now, we're feeling pretty good about getting the money in from rents and paying it out as dividends.

We had another strong quarter from the acquisition standpoint, and we continue to see a decent number of buying opportunities come our way. And in the fourth quarter, we've gotten off to a nice start. We still have a few farms that we're working on to close before the end of the year. Hopefully, we get them all done. Has been kind of a slow year in terms of -- the pandemic has kept people out of the office, and that always slows things down. We continue to be able to renew all the expiring leases without incurring any downtime on any of our farms, and a notable increase in these renewals reflects the positive trends in all the rental rates that we're currently seeing in many regions.

Overall operations on our farms remain strong and demand for product that have grown on most of our farms remains relatively strong. And these are products like berries and vegetables and nuts. And as anybody who goes to the grocery store, these -- tell you. There are many of these types of food that continue to increase in price, and that's good for our farmers and good for us long term.

During the third quarter, the team acquired 5 farms, 5,000 acre-feet of banked water or a total of a price of about $62 million. In addition, right after the quarter end, we acquired 2 more farms, approximately 2,000 more acre-feet of banked water or a total of about $46 million. So we have new investments of about 108,000 -- $108 million from last time. Overall initial net cash yield to us on these are about 5.5%. In addition, all the leases on these farms contain certain provisions such as participation rents or annual escalations that should push that figure higher as we go forward in the future.

As a reminder, this banked water is water that we own by the stored and the local water district. We can use the water that's in these districts on the farmland located in Kern County, that sub-basin where the water is, where we have several farms, and we can sell it to a third party or we can use it on our farms. Our plan is to hold the water to keep as a safeguard for our own assets in the region. Currently, we're not using any of it. We're using the water that we have from the wells that we have on the farms in the past. They say, they've not used any of it, they kept buying a little bit. So when it came time to sell, they wanted to sell us the same insurance for water that we have in these wells. All of our farms currently have enough water, but we like the security of having extra water.

On the leasing front, since the beginning of the third quarter weeks, we executed 10 lease renewals on properties located in California, Colorado, Florida and Michigan. Overall, these lease renewals are expected to result in an increase in annual net operating income of about $227,000 or about 8% over the prior leases that we had. Looking ahead, we only have 3 leases scheduled to expire in the next 6 months that make up less than 2% of our total annualized lease revenue. We're in discussion with existing tenants on these farms as well as some potential new tenants, and we aren't expecting any downturn -- downtime on these farms. Overall, we continue to expect the new leases on these farms to be relatively flat from where they are today.

There are a few other items I'd like to touch on before we move on. The first one is going -- the ongoing drought in the west, despite some recent record-breaking rainfall in parts of California. Certainly in Oregon and Washington, they've gotten a good amount of water down on the farms, but they also have gotten many feet of snow in the mountains. And when that snow melts, it feeds all the farms in the valley. However, all our properties continue to be in a position where there's currently ample water to complete both the current crop and next year's crop. Where we have farms located in water districts, those districts have stored water or other supplemental sources to cover our farms for the short term. Almost all the farms out west have well sites, and most of them rely on groundwater as their main source of the irrigation. For these properties, we are seeing a typical seasonal dropping of the water table level. And we haven't had any, of course, that have gone dry. And all of our farms currently have pumping capacity to cover their crop needs.

One thing you should know is that wet and dry weather cycles are the norm out west. Those of you here in the Midwest or in the south, this is something that you wouldn't know how to handle most likely, but it's very difficult in the west, especially California. Throughout any long-term investment, we know that we're going to have both drought periods and wet periods. So when we underwrite a potential investment out west, we look for properties with multiple sources of water, we build in drought scenarios in our projections, and we also take into account potential government regulations because sometimes they just come in and say, we'd like you to pump 25% less water out of the ground. We've done that, and we've done a good job keeping the government happy with our water.

We continue to expect a strong year in terms of participation rents. I think this will be the largest year we've ever had. We recorded about $2.4 million in participation rents each of the past 2 years, and we're expecting a sizable increase in that amount for 2021. No guarantees, but that's what we're projecting right now. And this is mainly due to having several more farms with participation rents this year. We recorded about $1.8 million of participation rents so far through the third quarter. People have begun to pay and give us good projections, so we're bringing in that money now.

Regarding the progress on our ESG policy, we continue to work on developing a formal policy related to disclosures that we continue to think are relevant, and we'll continue to update you on this as we get closer to finalizing these policies. One of our problems on ESG is just finding someone who can identify and say we've done it correctly. There's a lot of fighting on Europe over what constitutes some of the ESG policies.

Finally, I want to again briefly mention that Gladstone acquisition, it's our SPAC that recently filed and reiterate the relationship to Gladstone Land. It has a little over $100 million in cash in it now. And as mentioned in previous calls, we sometimes come across farms -- farm owners who don't want to sell just their land, they want to sell both their farmland and their operations as a package deal. As you know, a REIT like Gladstone Land is limited in the ability to own operating companies because operating income is generally not permitted in a real estate investment trust. So Gladstone acquisition was created to potentially take advantage of such opportunities. We're looking at a couple now. We've not signed anything, and so there's been no press releases on it. But stay tuned, you'll hear what we do there.

I'm going to stop at this point on operations and I'll turn it over to our Chief Financial Officer, Lewis Parrish, to talk to you more about the numbers that he published last night.

Thank you, Dave, and good morning, everyone. I'll begin with our balance sheet. During the third quarter, our total assets increased by about $60 million due to new acquisitions, which were financed with a mix of debt and equity proceeds. During the quarter, we secured about $31 million of new long-term borrowings at a weighted average rate of 2.75%, which is fixed for the next 10 years. On the equity side, since the beginning of the third quarter, we've raised about $86 million of net proceeds through sales of our common stock under the ATM Program, representing a net cost of capital of 2.35% with our recently increased dividend. And over the same time period, we've also raised about $22 million of net proceeds from sales of the Series C Preferred Stock.

Moving on to our operating results. First, I'll note that for the third quarter, we had net income of about $1.5 million and a net loss to common shareholders of $1.6 million or $0.052 per common share. On a quarter-over-quarter basis, adjusted FFO for the third quarter was approximately $5.3 million compared to $3.7 million in the second quarter, an increase of about 41%. AFFO per share was $0.166 in the third quarter versus $0.126 in the second quarter, an increase of 32%.

Dividends declared per share were about $0.135 in each quarter. The primary driver behind the increase in AFFO was additional participation in rent recorded. This was partially offset by an incentive fee earned by our adviser during the current quarter. During the third quarter, we recorded about $1.8 million of participation rents versus only $19,000 in the previous quarter. Fixed base cash rents increased by about $1 million or 6% on a quarter-over-quarter basis, primarily driven by additional revenue earned from recent acquisitions.

On the expense side, excluding reimbursable expenses and certain nonrecurring or noncash expenses, our core operating expenses increased by about $1.1 million, which was driven by higher related-party fees. The quarter-over-quarter increase in related-party fees is reflective of a higher rate use to determine the base management fee rate, which became effective on July 1 and includes an incentive fee of $945,000 earned by our adviser during the current quarter versus non earned in the prior quarter. Removing related-party fees, our core operating expenses decreased by about $250,000. This decrease was primarily driven by lower property operating expenses, which was largely due to less water costs incurred in one of our properties in Colorado and reduced annual filing fee as well as a decrease in our general and administrative expenses due to the additional costs incurred in the prior quarter related to our annual shareholders' meeting.

Regarding the additional water costs in Colorado, the impact on the current quarter's numbers was about $260,000 or $0.01 per share, down from about $350,000 in the prior quarter. We currently anticipate incurring an additional $100,000 to $150,000 during the fourth quarter for these water costs, but we do not currently anticipate continuing to incur these costs beyond 2021.

Moving on to net asset value. We had 37 farms revalued during the quarter, all via third-party appraisals, except for 3 farms that were valued internally. Overall, these farms increased in value by about $2 million over their previous valuations from a year ago. So as of September 30, our portfolio was valued at just over $1.3 billion, all of which was supported by either third-party appraisals or the actual purchase prices. And 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 September 30 was $13.80, which is up by $0.64 from last quarter.

Turning to our capital makeup and overall liquidity. From a leverage standpoint and with respect to our borrowings, our loan-to-value ratio on our total farmland holdings on a fair value basis and net of cash was about 44% at September 30. Over 99% of our borrowings are currently at fixed rates and on a weighted average basis, these rates are fixed at 3.35% for another 6 years out. So we believe we are currently well protected on the debt side against any future interest rate volatility. In addition, the weighted average maturity of these borrowings is about 10 years out.

Regarding upcoming debt maturities, we have about $43 million coming due over the next 12 months. However, about $27 million of that represents maturities of 8 loans coming due. The 8 properties collateralizing these loans have increased in value by a total of $14 million since their respective acquisitions. So we do not foresee any problems refinancing any of these loans if and when we choose to do so. So removing these maturities, we only have about $16 million of amortized and principal payments coming due over the next 12 months or about 2% of our total debt outstanding.

From a liquidity standpoint, including availability on our lines of credit and other undrawn notes, we currently have over $125 million of dry powder in addition to over $100 million of unpledged properties. We have ample availability under our 2 largest borrowing facilities, and we continue to be in discussions with these and other lenders for new borrowings and credit facilities. But overall, credit continues to be readily available to us from multiple lenders under very favorable terms.

Finally, I'll touch on our common distributions. We recently raised our common dividend again to $0.0452 per share per month. Over the past 27 quarters, we've raised our dividend -- our common dividend 24x, resulting in an overall increase of 50.7% in our monthly common distributions over this time. Since 2013, we've paid 105 consecutive monthly dividends to common shareholders, totaling $5.39 per share in total distributions. Paying dividends to our shareholders is paramount to our business plan, and our goal is to continue to increase the dividend at regular intervals. When considering the relative stability and security of the underlying assets and the related cash flows, we believe this stock continues to offer a compelling investment alternative especially in light of today's inflationary concerns.

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

All right. Thank you, Lewis. That was a nice report, and Erich gave us a nice introduction. So we're gliding along here. Acquisition activity remains good for us. We continue to see buying opportunities. We continue to make offers. We sign up people and get them into a position that we can go forward and close. Been a little bit slow in the marketplace out there simply because people are still reacting to the COVID-19.

Just a few final points that I'd like to make before we move too far on. We believe that investing in farmland and growing crops that contribute to healthy lifestyles such as fruits and vegetables and nuts as following the trend that we're seeing in the marketplace today, currently, about 85% of our total crop revenues come from farms growing the types of food that you find in either the produce section or the nut section of your local grocery store. So if you want to see what we grow, just go to the grocery store and you'll see it.

We consider these foods to be among the healthiest type foods, and we continue to see a growing trend toward organic among these food groups. About 40% of our fresh produce acreage is either organic or transitioning to become organic and about 15% of the permanent crop acreage falls into this organic category. We believe the organic sector will continue to be strong -- a very strong growth area. In addition, more than 95% of the crops that are grown on our farmland is classified as being non-GMO.

Another major reason our business strategy is to focus on pharma and growing fresh produce is due to the effect of inflation in the particular segment. According to the Bureau of Labor, the overall annual food CPI generally keeps pace with inflation. This is why so many financial advisers tell their clients to invest in farmland because it acts as a hedge against inflation. However, over the 40 plus years, the fresh fruit and vegetable segment of the food category has outpaced total food CPI by a multiple of 1.5x. And this is a large reason why we like being in this segment as well. And while prices of commodity grain crops such as corn and wheat are typically more volatile and susceptible to global supply and demand, fresh produce is mostly insulated from the global volatility, mainly because the crops are generally consumed locally and within a short time after harvest and you've got about 14 days to get a strawberry off the vine and into somebody's mouth before it goes bad.

I'm telling you this because we're often confused with owning farms where farmers grow corn, soy, wheat, and we have mostly stayed clear of these crops because we have to compete, they have to compete with other countries like Brazil, Argentina, the Ukraine where cost of production, even after shipping cost, is very low. And those farmers can undercut the prices of grain farmers in the U.S. This year, grain prices have been much higher in the United States. But one reason and that's because Brazil and Argentina are in a very difficult drought situation. Farms in these countries largely depend on rain for water.

So overall, demand for prime farmland growing berries and vegetables remains stable to strong in almost all of the areas where our farms are located, particularly along the West Coast, including most of California, Oregon and Washington. And not to forget, East Coast, especially Florida and some of the other states on the East Coast, everything is going along at a good pace. And overall, farmland continues to perform well compared to other assets. There's an association called NCREIF and it has a Farmland Index and is currently made up of about $13.2 billion worth of agricultural properties, including all of ours. And that's averaged return of about 12.3% over the last 20 years compared to 11% for the overall REIT Index and lower for the S&P Index.

And during those 20 years, the Farmland Index has not had a single negative yield, whereas the REIT Index and the S&P Index have had 4 negative years over that same period. Farmland has generally provided investors with a safe haven during turbulent times and in financial marketplaces as both land prices and food prices, especially for fresh produce, have continued to rise steadily.

So just in closing, please remember that purchasing stock in this company is a long-term investment in farmland. I think an investment in our stock really has 2 parts. It's similar to gold in the sense that it's a hard asset, farmland or dirt, and it's the good farmland that can grow food. It has an intrinsic value because there's a limited amount of good farmland, and it's being used up by urban development, especially in California and Florida where we have many farms. Second, I'd like to compare gold and other alternative assets because it's better than those because it's an active investment with cash flows to investors. And we believe that's better than a bond fund because we keep increasing the dividend.

We expect inflation, particularly in the food sector, to increase, and increase to values that pump up the value of underlying farmland to increase as a result. And we expect this especially be true of fresh produce.

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Food sector, the trends are more, people in the U.S. are eating healthy foods, continuing to grow such products for distribution through

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And Gladstone Land would not be anything without the good people who are operating and managing it. Buying and leasing farmland is a complex business. So if you like what we're doing, please buy some stock and keep eating fresh fruits and vegetables and nuts.

Now we'll stop and have some questions from those who follow us. Operator, would you please come on and tell these people how they can ask us some questions?

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

David, where is pricing for farmland today versus a couple of years ago, pre-pandemic when you look at similar properties? Are we up 5%, 10%, flattish? How do you sort of characterize it across your various sort of property types and markets?

Yes. If you're looking at the Midwest, which is most often the one that's published, it's gone up pretty substantially this year simply because people are making money. They're also buying lots of tractors and those kind of equipment. In the areas that we're in, there's been sort of a steady increase over the last 10 years and certainly over the last 3 or 4 years as people have realized that there's other things other than corn and wheat that are growing. And I would say there's been a good 15% increase over the last 3 years.

Okay. And then given how hot the housing market is, have you guys thought about selling some of your land to homebuilders in some markets where it's bumping up against the farms?

We have a few farms that are inside of the areas like in California. You can't just sell your land to a developer and the developer goes off and builds what he wants to on it. In California, you need to get the local city, you have to be inside the city districts. So if you're in Watsonville, you need to be inside of the town limits for Watsonville. And then the local government officials can make that decision. If you're outside of that, you have to put it on the ballot for voting. And if you've ever seen a ballot for California they're about 4 feet long. They have really a lot of things on those ballots. And one of those would be -- I want to take that lot that's right next to the -- right next to this one or that one and build houses on it, and they always get shot down. Californians are not interested in building more houses. And so you have California pushing now to take neighborhoods and tear down the houses and build apartment buildings or condos, something in order to increase the amount of land that's being used for that. And it's really rough in California. They're probably 15% under house built or places to live, and they just can't seem to get out of their own way in terms of regulations. And I know a lot of farms who would that. We have one right inside of Watsonville. It's a small -- mostly -- no, mostly strawberries in that. And I think someday if someone will show up and want to buy that, but that's not going to be a big hit. It's going to be a nice hit. But they haven't shown up yet. And one reason is, quite frankly, the strawberry fields are in an area that is not the best part of town. So as a result, we have a lot of old houses around it, and they haven't done much changes. And unlike a lot of cities in California, there's not a lot of people moving to Watsonville. So as a result, we haven't had the pressures that you have if we were next to Los Angeles or San Francisco or even some of the other large cities. So I would say, one day, someone will show up and want our big farm, which is -- it's probably 500 acres, and it's right next to the ocean, and somebody is going to be able to get that through and build on it because it's an hour and 20 minutes to LAX, and that's going to be a big one. We paid about $25,000 in total for everything on that farm. It's probably worth $80,000 an acre today. And if you could zone it, it would be worth $1.5 million an acre, if you could put townhouses on it. So yes, someday, all you lucky people after I'm gone are going to enjoy the benefits of us selling some of these farms. Right now, we're not interested in selling anything. What we want to do is build an incredible company with lots of farms and try to catch up with some of the other big farmers in the United States. As you well know, there's a man that is in the -- really not in the business anymore, but he's buying up a lot of land around the country. He's got about 230,000 acres and he's the largest farmer, and we need to catch him. It's going to be a while because he's using tax-free dollars to buy up farms. But I think we're in good shape, Rob, and I think we're just going to continue doing the same thing every day for the next 10 years until we get a really big farming operation going.

Okay. And then last one for me. The acquisition vehicle, I mean, are there opportunities that you're looking at there going to be too big for a taxable REIT subsidiary? Is that the reason why you're going that route rather than just putting plenty of the operations into a taxable REIT subsidiary for the time being?

Yes. They're too big and they'd overshadow everything. And as you know, if we bust that regulation, we're out of the REIT business for 5 years. So I don't want to break it in. So that's why we're there. And we keep getting these opportunities showing up saying, we'd like to sell the whole thing, and we say, well, hang on. As soon as we get public, we'll be able to distribute some of the $100 million that we have in that -- our SPAC and also give you some publicly traded stock. We're working on some now. We've got some in here. And when's our acquisition call? Did we have a date? Anybody know?

We don't yet.

We don't have a date yet. Okay. I know he's filing next week, is it? No, it hasn't been the case. So it will happen soon. You'll get a copy of it, obviously, Rob. And maybe by then, we'll have a little something, a little more firmed up. I don't think it's going to be a problem finding things to buy. We've seen a lot of those. And what we want to do is buy several relatively large ones and start out as a diversified group rather than one that just does one thing and then continue to buy smaller farms and operations and have a good operating team. We don't have an operating team now. We'd have to tap one of our tenants to do some of that. But I don't know how all of that's going to work out until we buy the first couple of farms.

Our next question comes from Eddie Reilly with EF Hutton.

Congrats on a strong quarter. It looks like this is the second quarter in a row where your lease renewals were contributing over 10% in growth in net operating income. Is this more indicative of the individual farms whose leases were renewed? Or is this indicative of the general environment we're in, in terms of inflation, you think?

We think it's a little bit of both. I mean, obviously, there are certain pockets in the country where if we were renewing leases in those regions, it might be a more muted increase or maybe even flat. But with a couple of the farms that we've negotiated -- where those negotiations have taken place in Northern California, Michigan, certain parts of Florida, Midwest. And that's where we're seeing rents in those particular areas are increasing slightly, particularly in the Midwest, as David mentioned, with the commodity prices this year. But Florida has been a pretty strong market consistently. Central and Northern California has -- Southern California cap rates have compressed a little bit there, but none of our lease renewals have been in that area lately. So it's a little bit of both.

Got you. Got you. And where are most of the lease renewals, say, in the upcoming year taking place?

In the rest of 2021, it's just one farm. We have 3 leases in '21 that are expiring over the next -- well, I guess, actually, over the next 6 months, 3 leases. But two of them are tenant termination options that are exercisable within the next 5 days. We do not believe the tenant's going to exercise the option on either one of those. So it's really just one renewal that we're working on. And it's on a farm in Colorado that we're close to finalizing negotiations with the tenant. The gross rent is likely to remain flat, but we are expecting a significant decrease in the amount of operating expenses we will be on the hook for. So we would expect, hopefully, an increase in NOI for us there.

Got it. Got it. Turning to financing. It seems like you guys have a pretty healthy loan-to-value ratio right now. Could you talk a little bit about your plan of action for funding new deals going forward?

Well, we have 3 ways of generating funds for that. One, of course, you've touched on, and that's the borrowing. There are lots of lenders in that -- in the agricultural space. In the U.S., we have -- I think there's 5 federal large banks that do lending, and we've used them pretty much every time. We also have a couple of large institutions. Rabobank is the largest in the world in terms of agricultural lending. We've done a little bit with them, but not a lot. And in addition to that, we've got -- MetLife is the largest lender in the United States, and we've done deals with them. So there's plenty of leverage, and it doesn't seem to be impacted by banks that might have problems. So we're in good shape there. We also sell some preferred stock. We've got a number of those outstanding, and we participate by selling non-traded preferred. That's more expensive, it's about 6%, but we use it when we need a little extra leverage. So it's that kind of situation. And quite frankly, the ATM Program has been very strong. What have you got from that?

We got about $86 million over the past 4 months or so.

So we've been selling stock through that ATM Program and using it to buy farms that are generating 5%, 6%. And so after leverage, we've got a good ratio. And the nice thing about leverage is that it doesn't go up until the end of it, and we've got long-term mortgages on these things. So as a result, the spread is sort of locked in for years and years and years. And so for us, the next movement for us is going to be to raise money some other way, and I don't have any other way right now. But all of those that I mentioned are just wonderful places to get leverage. Now that's going to change over time, and that will reduce how much we can pay for a farm, and all of these farmers know that. So we've had good transactions with them. And as you probably know, we do, from time to time, have people that will take UPREIT shares. That is -- it's a -- and it's a non-tactical transaction whereby we give them shares of our stock, and they give us their farm, and it's quite nice for them and for us because that's another way of raising equity. So we're in good shape on the financial side. We don't see any problems unless something blows up. And I don't see that happening in the economy right now.

And I will add, the use of some of the sources that David mentioned, in the past where we would almost always get a loan simultaneously with the acquisition, with all the equity proceeds that we've been able to bring in, what we've been doing and what we probably will continue to do is buy these farms with equity proceeds and then close on a loan but not draw it until later. We want to close on it now because interest rates are very attractive. As we've said earlier, we got 2.75% fixed debt for next 10 years this quarter but we want to lock in these rates, but not draw on them yet until late down the road when we actually need the additional proceeds.

Our next question comes from Eric Borden with Berenberg Capital.

Want to kind of -- could you talk about the volumes in the quarter? What was kind of the mix in terms of deal size there? And then kind of maybe going forward, given your favorable cost of capital, what's the appetite to target larger deals or maybe portfolios out there in terms of farmland?

Yes, there are not that many that come up with big farms other than the fact that the farms continue to go up in price in some areas. So I think we'd love to get some big farms, 5,000 acres would be great. We can find acreage here and there and everywhere. We also want diversification. So getting one huge farm like we have in Southern California, there are not that many people that can lease it. We've leased it to one of the largest strawberry operators in the country. And they are strong, big and lots of cash flow, so we like that. But to get to these much larger farms, there aren't that many farmers that can take down that much. So we have to be very careful not to get in a bind, whereby we have a large farm and we don't have a tenant. So we like the onesie-twosies. There are not a lot of players there. And that's our forte as being able to negotiate those and offer the seller a good price for the farm, but also tax-free if they want to do the right transaction. So we'll keep doing what we're doing. And the diversification is really important for me, I don't want to get into a situation where we've got a couple of big farms that are going to hurt us.

No. Appreciate that. And then maybe on the acquisition front, kind of historically, Q4 seems to be a key time to acquire farms but given the constraints as it relates to COVID, do you think you'll see more farmers come to market in Q1? Or will there be some roll over there into the new year?

Probably, I would guess, we never know if they're going to be able to close on time. We had one situation in which after the review of everything, we found that we were about 0.5 acre or maybe it was more on somebody else's farm that we were -- that the farmer was farming, and we had to get that undone before we close. And of course, that's got to go through the government in California, so that's always a pain. And not that they're bad people, it's just that COVID has messed up their scheduling. And so as a result, we get -- we don't get really quick response on that. So you sit for a while, waiting for it to close. I think the bottom line, Eric, is that we've -- we are known in the marketplace now. We were not known 5 years ago very much. And so now everybody knows who we are, that's going to sell our farm and so they show up on our doorstep. And we are just sitting there working with them, trying to get them to move to a point where we can get the deal done. And unfortunately, a lot of these farms are tied up in history. That is, it's been in the family for 5, 6 generations, and there's a lot of emotional in the sale of that. It just is one of those things that been in our family for 6 generations or 3 generations, whatever it is, and they don't want to let it go for what it's really worth to somebody who's farming it. And while we can always agree to look at somebody doing a -- some third party doing the review, it doesn't mean you're going to get the farm just because you got the review at the right

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There's a lot of things bundled up into that. There's a lot of farms out there in California. It's massive in terms of the areas that we like, which is berries and

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Most of the nut trees are out there, certainly in almonds and pistachios. And we've picked up a lot of pistachio farms because there weren't a lot of people buying those, and it's a wonderful product. So I don't know, acquisitions are going to go at the pace that people want to go. And I know I talked to a guy 10 years ago trying to buy his farm, and unfortunately, for him, he died, and we bought it from his sister who inherited that since she didn't have the same emotional impact. And that went back to 1938, where they sold off the oil and gas underneath the farm. And so it was a little bit different transaction. I just think there's a time when people decide to sell. The pandemic pushed some people along. Others, once you talk to them and say, look, you're 65 years old, do you have a plan for your farm? And they don't usually. So we show them how they can do it. We talk with some of the people that advise farmers on what to do and they see the nontaxable way of going. And here's the difference between that program that we have is that farms that might be 200 or 300 acres are broken into maybe 6 or 8 different tax districts. And so as a result, each one of those taxable pieces is considered a farm by the IRS and so they can sell us 3 or 4 of those and take cash and sell the other 2 or 3 in the form of cash, noncash and be a shareholder. We've had a number of those where they want to take some cash out. And this is one of the only places that I know that works like that because if you're buying a warehouse someplace, it's one unit. And so you've got to be very careful how you do that because I think there's only a 10% amount that you can pay in cash if the other part of it is in nontaxable. The pressure that's been put on the marketplace by the reduction in 1,031's value because the government has changed the way that works, has been good for us. And I think we'll see more of that as time goes on. Anyway, if you talk to some of these advisers, farmland is where you want to be but having a whole lot of money tied up in one farm is not where you want to be because there's little -- only a few things you can do with it.

Last one for me. And then this kind of relates to potential development opportunities. I know in the past you kind of talk about potential deforestation around the farmlands -- certain farms. And I was just curious, is that potential -- does that arable land, does that give you an opportunity to increase the acreage per farm? Or is that really not how I should be thinking about it?

Probably not the way to think about it only because the deforestation is up in the mountains, and we don't grow anything in the mountains. So we're not part of that whole problem, and it's really sad, people burn down -- have burned down houses, and a lot of trees have been lost that are up in the mountains. But at the end of the day, the problem for us is we just need good, flat farmland, and that's what we're looking for. So I think from our standpoint, you shouldn't look at it that way, you should consider it. Gee, they've got some farmland, the farmer is going to sell it. If you sometimes have taken a small plane from Watsonville down to Oxnard, the 2 small airports you can go through. And as you fly over that part of the world is just everything is in farmland that isn't in houses. And so over time, there's no doubt in my mind that over time, those places will go away. They used to be a -- in Watsonville, there's a company that you probably know, it's that sparkling apple juice and lot of non-alcoholic drinkers drink that it in place of champagne. And they've been around forever and a day. And all of that farmland that we farm there in Watsonville plus thousands of other acres used to be filled with apple trees, and those all got chopped down and put into dairies, into some of the other ground crops because it was much more profitable. And they now get a lot of their apples from up in the mountains of Washington and maybe some of the other apple tree makers. And so it's just a changing thing that goes on almost every day out there, and we're seeing more and more people needing place to live. And so it's going to continue with pressure on all of those places. So I don't know, Eric, we're -- we just are following a huge transition in land from agricultural to places to live. It won't happen in my lifetime completely, but I'd say 50 years

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Lot of that will be gone, and it will be cashed in by us and other people who own farms. So hang in there.

Our next question comes from James Villard with Ladenburg Thalmann.

Just one quick one. How do you think inflation expectations were impacting your acquisition volume?

Yes, maybe some there. Obviously, inflation in berries and other ground crops are pretty steep right now. And so the farmer is making good money, and he wants more money than he wanted before. So yes, it's following through. The difference is that a lot of the leases that we have in place now go up in price when inflation goes up. So it helps us. We have stopping points, as we call it, where in 3 years or 5 years, we assess the marketplace. And to the extent that the marketplace has gone up, we are able to push up the price of our rents. We also have, as we've mentioned many times now, the ownership in some of the crop. And as the crop prices go up, we benefit as well on that. So we've kind of sheltered ourselves from inflation. We're not in the crops that people rent by the year. For example, a lot of the corn crops are rented on an annual basis. And they, of course, have a chance to jack up the rent every year. We've tried to stay away from that and just put some bumps in there for us and all of ours have some kind of way of the price going up. And it's worked very well. I think there's always a tension between what you want to do on something like that and -- because if the prices of the crop go down, our rent doesn't go down. So we only have a chance to move rents up rather than any other method. And like many of the other REITs we have built into our leases, 2% increases every year, 3% increases every year. And that pretty much takes care of the way inflation is going. However, at the rate of the last 6 months, that would be stripped away pretty quick. So inflation could hurt us. Unlikely, at some point in time, we'll regain our strength back because the lease will come due, and that's when we push up the price. I think the acquisition side, inflation on the acquisition side is taken care of by the fact that people want to sell, they want to sell for no taxes or they want to sell and lease it back with some kind of inflation protection for us and for them that they know what they're going to have to pay over the next 5 to 10 years in the sense that they have a base rent and an inflated piece of the rent. I don't know, there's not many ways to protect yourself. We go through that with our other REIT, which is in the business of buying warehouses and office buildings that are leased to 2 tenants. And those are all long-term leases with bumps every year. That seems to be okay. But I think you're right, there's some hurt against us being able to buy some properties. We looked at a farm in Oxnard, not too long ago that was growing some very inflated types of crops. And so as a result, they wanted more money for it. Then they also -- in an area, if you're in Oxnard, you're within striking distance of L.A. and I think all of that land will be sold over time. I remember going over from L.A. some years ago and I arrived at -- in the afternoon and the twinkling lights were very few 10 years ago. Today, you come over that hill that's just before you get to Oxnard, and there are a lot of lights. So they're building houses there. They're building this that and the other. And so it's going to grow. It's just too close to L.A. not to grow. So we're going to see that pressure on those properties as well. Anything else I can answer for you?

Yes. I guess just kind of following up on that, are you seeing any -- I guess, in the negotiations you're having on new potential leases, are you seeing more pushback on your ability to get percentage rent agreements?

No, I don't think so. I think we always -- there's a dance that goes on between buyers and sellers, and we're no different from anybody else there pushing whatever they think they can get and what they should do. But I think the negotiations go pretty straightforward. Most people have already heard about us. They've already read about us. There are probably some shareholders that come with their land, but I think negotiations go pretty straightforward. And some sellers, as I mentioned in another part of the presentation, have an emotional attachment to their land. And they just don't want to sell it at the average price that's going on. They have their whole history. I know when we bought a farm in Oxnard, it had an old fashion house on it. We ended up tearing down the house. And after we tore it down, I realized that one of the families there, all of their children who were in their 60s now had grown up in that house and I regretted it from that standpoint. But we had to get rid of it because we were afraid they were going to come in and tell us it's one of those protected areas that we couldn't tear down the house. It was a beautiful low farmhouse, but it didn't fit the farm -- it hadn't been lived in for years and years and years, so it was not in good shape. Anyway, I think there's a lot of people in the California areas that -- I went recently, there was a family with 24 members in the family that had come over about 100 years ago. And each of those 24 people had the right to stop any sale. I had 23 of them lined up -- no, I'm sorry, 22 of them lined up, but there were 2 holdouts, and we couldn't get them to agree. So it's still sitting out there. I guess they're ready for somebody else to take over at some point in time and sell it off. But it will get sold. There's just nobody there that wants to do it. The size it's in, it's growing garlic and how many people can grow garlic?

Okay. I mean, I guess, just following up on that. I mean, is there a -- have you seen a change? I'm guessing, I'm more getting at is there change in wants versus pre -- I guess, is pre-inflation scare looking back, say, a year?

No. We haven't seen anybody say, gee, it's worth more this year because of inflation. I mean, I'm not sure if somebody argues that. We don't spend a lot of time on it. We usually have an appraisal. We need to keep the -- within the confines of the appraisal because that's what we borrow against is whatever the appraiser says the banks will usually give us 60% of that in terms of a long term mortgage. So we don't have a lot of room to go outside of that appraised relationship that we're in every time we do a deal. So yes, they know what we can -- and we tell them, here's what we can pay. And they either keep coming back and negotiating or they stop and go away. And at this, as we call it, the smaller end of the spectrum, there just aren't that many people out there bidding against us. I'm sure we'll see somebody come and do the same thing we're doing at some point in time. So far, no one is there. And as you probably know, we have a huge team of people in both Florida -- and not a huge team in Florida, but a huge team in California. Just are everywhere there, everybody knows us.

There are no further questions in queue at this time. I would like to turn the call back over to Mr. Gladstone for closing comments.

Well, thank you all for asking questions. I hope you come with a lot of questions next time. It's always great just to chat about things that are on your mind. And we'll see you next quarter. That's the end of this call.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time, and thank you for your participation, and have a great day.