Gladstone Land Corp (LAND) 2021 Q1 法說會逐字稿

Greetings, and welcome to the Gladstone Land's First Quarter Earnings Conference Call. (Operator Instructions) Please note, this conference is being recorded.

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

Well, thank you, Devin. That was a nice introduction, and this is David Gladstone and we welcome you to the quarterly conference call for Gladstone Land, and thank you again for all of you coming into this conference call and listening. And we'll start off with Michael LiCalsi, here's our General Counsel and Secretary, and he's President of Gladstone Administration, which is the administrator for all the Gladstone funds. Michael, go ahead.

Thanks, David, and good morning.

Today's report may include forward-looking statements under the Securities Act of 1933 and the Securities Exchange Act of 1934, including those regarding our future performance. These forward-looking statements involve certain risks and uncertainties that are based on our current plans, which we believe to be reasonable.

Now many factors may cause our actual results to be materially different from any future results expressed or implied by these forward-looking statements, including all risk factors in our forms 10-Q, 10-K and other documents we filed with the SEC. And you can find these on our website at www.gladstoneland.com, specifically go to the Investors page. You can always find them on the SEC's website, that's 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 now today, we will discuss FFO, and that's funds from operations. FFO is a non-GAAP accounting term defined as net income, excluding the gains and losses from the sale of real estate and any impairment losses from property plus depreciation and amortization of real estate assets. Now we may also discuss core FFO, which we generally define as FFO adjusted for certain nonrecurring revenues and expenses. And adjusted FFO, which further adjusts core FFO for certain noncash items, such as converting GAAP rents to normalized cash rents, and we believe these are all better indications of our operating results and allow better comparability of our period-over-period performance.

Now please take the opportunity, once again, to visit our website, gladstoneland.com, sign up for our e-mail notification service so you can stay up-to-date on the company. You can also find us on Facebook. Keyword there is the Gladstone companies, and our Twitter handle is @gladstonecomps.

Today's call is an overview of our results, so we ask that you review our press release and Form 10-Q, both issued yesterday for more detailed information. Again, you can find them on the Investors page of our website.

With that, I'll turn the presentation back to David Gladstone. David?

Okay. Thanks, Michael. As all of you know who are listening and from our press release yesterday, we currently own about 104,000 acres of farmland, 141 different farms and over $1.2 billion in valuation.

Our farms are located in 13 different states and more importantly, in 27 different growing regions. I noticed you guys saw in the Wall Street Journal that Mr. Gates owns 120,000 acres, and is supposedly the largest farm owner. Well, move over, Mr. Gates we're coming through.

Our farms continue to be 100% occupied and they are leased to 79 different tenants, all of whom are unrelated to us. And the tenants on these farms are growing over 55 different crops. So if you look at these numbers now, the number of farms, we have enough different growing regions. We have many different farmers and many different types of crops. I think we're sufficiently diversified to provide safety and security for the cash flows coming in from the rents. We believe this diversification will help protect our dividends that we pay to our shareholders. And our assets, of course, are farms that are growing food and they're very valuable.

With the number of farms we purchased at the end of 2020, we are starting 2021 on a high note with strong operating results after closing on $156 million in farms in the last 3 weeks of 2020. The new acquisitions for the first quarter were a bit light. While -- and that's kind of what happened to us last year, we started off slow. While we replenish our backlog of potential farms to buy, it may take us a while to get up to the speed that everybody wants to see us buying $100,000 or $200,000 worth of farms every quarter.

However, we did close another large olive ranch, as they call it out west, and these olive orchards are right after the quarter end and expect to do more activity on the acquisition front in the next several months. We continue to be able to renew all expiring leases without incurring any downtime on any of our farms. Rent collections continue to come in largely as expected. We did have one tenant on a small farm in Michigan that looks like it was headed for bankruptcy. As a result, we terminated the lease with that tenant and immediately re-leased the farm to a new stronger tenant at a good rate, and it was a bit higher than what we had before, but not much.

Overall, operations in the farms remain strong, and the demand for products grown on most of these farms remained high. These are products like berries and vegetables and nuts, which are things that we're experts at. Most of the vegetable and berry crop grow from -- grown from our farms are sold in grocery stores, and demand in grocery stores these days is very strong. I know the restaurants are coming back, and there's a lot of restaurants that are selling to homes directly, but grocery stores are really the strongest place to be these days.

During the first quarter, the team acquired 3 farms for about $6 million, about $4 million of which was paid via issuing OP Units. This is like common stock in our company. So we traded some common stock for the farmland. In addition, as noted earlier, right after the quarter end, we acquired another large olive farm for about $38 million. So we are heavy in the olive farm area.

Overall, initial net cash yield to us on these investments is about 5.3%. In addition, all the leases on these farms contain certain provisions such as the participation rents where we own part of the farm products that come off of these farms. And another thing that we do from time to time is annual escalations, that is, each year, it goes up by 2% or 3% in terms of the rent. That should push the figure a little higher in the future. But these are not major changes, it's just a good way of doing business.

And just as a reminder, this yield figure does account for all the operating expenses that are responsible for under the leases. And most of these leases are triple-net. So there shouldn't be much anyway in additional expenses, but the numbers do include those expenses that we have.

On the leasing front, since beginning of the year, we executed new leases or extended some existing leases on 4 of our properties located in California, Colorado, Florida and Michigan. We did see a rent decrease with the renewal of a farm in the Midwest, but that was a 1-year renewal that we executed with the expectations that we'll be able to increase the rents at the end of the year. And with the rise in commodity prices lately, we think we'll be in a better shape on that farm next year anyway.

Looking ahead, we only have 2 leases scheduled to expire over the next 6 months, and they only make it up to less than 1% of our annualized leases. We're discussing with the existing tenants on these farms as well as some potential new tenants and we aren't expecting any downturn -- downtime on these leases. Overall, we currently expect the new leases on these farms to be equal to or slightly higher than they are today.

Another update, we recorded about $2.4 million in participation rents in each of the past 2 years. We don't know the exact amount yet, but we're expecting a sizable increase in participation rents for 2021. This is because we have several on our farms that were in our portfolio that have participation rent provisions in the leases. Of course, we won't know how much, if any, will be received for several more months. Probably in December, we'll be closer to knowing.

Regarding where we are in environmental, social, governance standards, in ESG, as it's called, we're actively working on developing formal policies related to all of our disclosures. From a Board diversity standpoint, 1/3 of our independent Board members are women. We have no reason not to expect that we will be able to comply with all the Board diversifications as well as the other things that are required. Some of which have been proposed, but not many have been adopted and formalized, such that they're going to go into effect this year. Next year will be the year in which we'll see a lot of that happen.

I wanted again to just briefly mention that Gladstone acquisition is our SPAC that we recently filed. Over the past several years, we've encountered some owners of large farm operations that wanted to sell, not only their land, but also their business. In some cases, we offered to buy just the land, but they wanted to keep the land and the operations together.

As a real estate investment trust, Gladstone Land cannot own operating companies because the operating income is not under (inaudible) on the REIT status. So Gladstone Acquisition was created as a potential way to take advantage of such opportunities where Gladstone Land can't participate.

I'm going to stop here, and that's really enough on operations. I'll turn it over to our CFO, Lewis Parrish, to talk to you more about the numbers. Lewis?

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

I'll begin with our balance sheet here. During the first quarter, our total assets increased by about $67 million. This is primarily due to net proceeds received from stock issuances, which have yet to be fully invested.

From a financing perspective, during the first quarter, we secured about $10 million of new long-term bonds at a weighted average rate of 2.96%, which is fixed for the next 8 plus years. In addition, in January, we raised about $58 million of net proceeds through the issuance of a new 5% Series D term preferred stock, which is traded on NASDAQ under the ticker LANDM. And in February, we used about $29 million of those proceeds to redeem our Series A term preferred stock, which carried a coupon of 6.375% and had a mandatory redemption date of September 2021.

On the equity side, since the beginning of the year, we've also raised about $16 million of net proceeds from the sales of our Series C preferred stock. And over the same time period, we've also raised about $59 million of net proceeds through sales of our common stock under the ATM Program. Our current ATM Program originally allowed for $100 million of sales, which we have since sold out of. So we will likely be looking to increase the size of the ATM Program soon.

Moving on to our operating results. First, I'll note that for the first quarter, we had net income of about $554,000 and a net loss to common shareholders of $2.2 million or $0.082 cents per common share.

On a quarter-over-quarter basis, adjusted FFO for the first quarter was approximately $4.7 million compared to $3.6 million in the fourth quarter of 2020, an increase of about 31%. And AFFO per share was $0.174 in the first quarter versus $0.147 in the previous quarter, an increase of about 18%. The increase in the per share figure was a bit muted due to the recent equity issuances, the proceeds from which are still not yet fully invested.

Dividends declared per share were about $0.135 for both quarters. The main drivers behind the increase in AFFO were higher top line revenues and about $2 million of interest patronage recorded related to our loans from Farm Credit.

Fixed base cash rents increased by about $2 million or 15% on a quarter-over-quarter basis, primarily driven by additional revenue earned from recent acquisitions. This was partially offset by a decrease in participation rents as we recorded about $1.2 million more than the prior quarter.

On the expense side, excluding reimbursable expenses and certain nonrecurring or noncash expenses, our core operating expenses increased by about $688,000 on a quarter-over-quarter basis. This is primarily driven by higher base management and incentive fees earned by our adviser during the current quarter. Removing related party fees, our core operating expenses increased by about $176,000. This increase was primarily due to additional property taxes incurred on certain of our farms as well as miscellaneous operating expenses incurred related to our recent acquisitions.

Overall, we felt this was a very strong quarter for us operationally. For one, our operating revenues of just over $16 million was the highest we've ever reported for a quarter. And keep in mind that this was only -- with only about $26,000 of participation rents being recorded. Of course, this was a result of all the new properties we put in the books in the latter part of 2020.

In addition, our AFFO and AFFO per share numbers were both the second highest we've ever reported. These were second only to Q1 of 2020, when we recorded a onetime lease termination fee of about $3 million.

Moving on to net asset value. We had 32 farms revalued during the quarter, all via third-party appraisals. Overall, these farms increased in value by about $2.2 million or 0.7% over their previous valuations from about a year ago. So as of March 31, our farms were valued at a little over -- at about $1.2 billion, and all of this was based on valuations via third-party appraisals or the actual purchase price.

And based on these updated valuations and including the fair value of our debt and all preferred stock, net asset value per common share at March 31 was $12.69, which is up by $0.46 or 4% from last quarter. The main drivers of the increase were a decrease in the fair value of our fixed long-term borrowings due to increases in market interest rates and the issuances of common stock through our ATM Program at prices higher than our estimated NAV as of December 31.

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 47% at March 31. We continue to be comfortable at our current leverage levels given the relative low risk of high-quality farmland as an overall asset class and the security of the resulting cash flows.

In addition, over 99% of our borrowings are currently at fixed rates. And on a weighted age basis, these rates are fixed at 3.38% for the next 6 years. So we believe we're kind of well protected on the debt side against any future interest rate volatility. And with the weighted average maturity of these borrowings being over 9 years out, we also feel we're protected against any potential liquidity issues.

Regarding upcoming debt maturities, we currently have about $31 million coming due over the next 12 months. However, about $16 million of that represents bullet maturities of 4 loans that are coming due. The 4 properties collateralizing these loans have increased in value by a total of $6 million since their respective acquisitions. So we do not foresee any problems refinancing any of these loans if we choose to do so.

So removing these maturities, we only have about $15 million of amortizing 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, we currently have over $100 million of dry powder, and we also have about $40 million of unpledged properties. After expanding our credit facilities with both MetLife and Farmer Mac during 2020, we have ample availability under our 2 largest borrowing facilities, and we continue to be in discussions with other lenders for new borrowings and potentially new credit facilities as well. But overall, credit continues to be readily available to us from multiple lenders and at very favorable terms.

And finally, I'll touch on our common distributions. We recently raised our common dividend again to $0.045 per share per month. Over the past 25 quarters, we've raised our common dividend 22x for a total increase of over that time of 50% in our monthly common distributions. Since 2013, we paid out 99 consecutive monthly dividends to common shareholders, totaling $5.12 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.

With our current distribution run rate and with where our common stock price is today, the yield in our common stock is about 2.4%. And when considering the relative stability and security of the underlying assets and the related cash flows, we believe the stock continues to offer a compelling investment alternative, particularly in light of today's inflationary concerns.

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

Okay. Thank you, Lewis. Nice report.

I know all of you out there are always asking, do you have a lot of things you're going to buy and grow? Well, we continue to see a good amount of buying opportunities coming our way, and we hope we'll be able to announce some additional acquisitions in the coming months.

As you can imagine, certain aspects of our due diligence process have ended up taking a long, long time due to the various travel restrictions or office closures. Due to the various government restrictions related to COVID-19, many of the government offices will only let one person in at a time into that building. But hopefully, most of these restrictions will start lightening up soon and that will allow us to move a little quicker than we've been doing in last year.

And just a few final points, we still believe that investing in farmland and growing crops that are contributing to a healthy lifestyle, such as the ones we have, fruits, vegetables and nuts, follows a strong trend we're seeing in the markets that we service today here in the United States. Currently, about 85% of our total crop revenue comes from farms growing types of food that you can find either in the produce section or the nut section of your local grocery store.

We consider these foods to be among the healthiest type of foods, and we continue to see growing trends toward organic among our foods. And about 40% of our fresh produce acreage is either organic or transitioning to become organic. We like that trend. And over 10% of our permanent crops fall into the organic category. And we hope to add to that during the next year.

We believe the organic section is continuing to be a strong growth area. In addition, just to note, 95% of the crops grown on our farmland is classified as non-GMO, which is an important designation that we're trying to stay away from.

Another major reason why our business strategy is focused on farmland growing fresh produce is due to the effects of inflation on this particular segment. According to the Bureau of Labor Statistics, the overall annual food, CPI generally keeps pace with inflation. However, over the last 40 plus years, the fresh fruit and vegetable segment of the food category has outpaced the total CPI by a multiple of 1.5x. This is why many financial advisers tell their clients to invest in farmland because it acts as a hedge against inflation. 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 because the crops are generally consumed locally within a short time after being harvested.

I'm telling you this because we're often confused with others who own farms where the farmers are growing corn or soy or wheat. We mostly stay clear of these crops because they have to compete with other countries like Brazil, the Ukraine, where the cost of production and even after-shipping costs are very low, so they can compete on the world markets against our growers in the United States.

Grain prices have been much higher this year as opposed to past years where they were really low for the last 6 years. But one reason for that is that Brazil and Argentina are going through a drought period. And the farms in these countries largely depend on rain for water. And now some parts of the U.S. Southwest are in a very dry period. But as you know, almost all of our farms have their own sources of water, even multiple sources.

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, Washington and Florida. Well, they're especially strong these days because we have water on all of those farms.

Farmland continues to perform well compared to other asset classes. Despite some recent downturns in certain regions, the NCREIF Farmland Index, which is currently made up of about $13 billion worth of agricultural properties, has averaged an annual return of about 12.3% for the past 20 years. Compared with, on the other hand, 11% of the overall REIT Index and an even lower number for the S&P Index.

During those 20 years, the Farmland Index did not have a single negative year, whereas the REIT Index and the S&P Index each had about 4 negative years over the time period. Farmland has generally provided investors with a safe haven during turbulent times. We may be going through some of that now, both land prices and food prices, especially for produce, have continued to rise steadily.

Please remember that purchasing stock in this company is a long-term investment in farmland. I think the investment in our stock really has 2 parts. It's similar to gold. It's a hard asset. It's farmland. It's dirt. It's been here for a million years. It has intrinsic value because of the limited amount of good farmland in the United States as well as all over the world.

It's being gobbled up in California. They lose about 50,000 acres every couple of years, and that goes to urban development. In Florida, where we have many farms, we have the same problem there. They're continuing to expand. And unlike gold and other alternative assets, farmland is very active investment. We get cash flows off of that, whereas in gold, you're just sitting there with the gold.

We're seeing inflation, particularly in the food sector to increase, and we expect it to increase over time, underlying farmland to increase as a result of that. As we expected this, especially to be -- we expect this to be especially true in the fresh produce section and trend more and more towards people in the U.S. eating healthy foods and continuing to grow in that area.

But Gladstone Land wouldn't be much unless the good people we have operating it, many of them sitting around the table here with me today. Buying and leasing farmland is a very complex business. It's not like buying a stock on the stock exchange. You got to spend a lot of time with farmers. You got to have boots on the ground. We've got a lot of them in our West Coast as well as our East Coast. And I like you all just to please buy some stock and keep eating fresh fruits, and we'll be in good shape over the next 10 years.

Now I have some questions. So if the operator will come on, we'll answer the questions as best we can. Who's up first?

(Operator Instructions) Our first question comes from the line of Nate Crossett with Berenberg.

Maybe you could just speak to the current pipeline a little bit more. I know you guys don't give formal guidance, but what are kind of the main puts and takes in the pipeline right now? Is there anything under PSA? And I think historically, you've tried to do about $200 million a year or so. Do you think that, that's achievable this year?

Well, I wish I could answer that in a better way for you so you could put it into your model and project where we're going to be at the end of the year. We try to do that every year. But unfortunately, buying farms is not an easy process. And so as a result, I can't give you much more than that. How much do you have in your backlog?

We've got about $150 million of deals that we're looking at various stages, not all of those are under signed PSAs. Maybe half or 2/3 of those are under PSAs right now. But we're still going through the diligence process on all of them. Hopefully, we'll be able to close on most, if not, all of these over the next couple of quarters, Q2 and Q3. But of course, no guarantees.

We really don't know -- we really don't know what's going on with the government. They're talking about increasing capital gains, which would hit these people, that's talking about reducing how much you can transfer to your -- toward your relatives or giveaway, and it's really unsettling time for us with regard to taxes on people.

We are hoping that some people who lose the ability to do a 1031 exchange will take our UPREIT shares, and that's a nontaxable transaction in most cases, and be enjoying, like you are, dividends coming in every month. Next question?

Yes. So I was going to say, is the OP Units a bigger part of the conversation when you're working on deals because of all the potential tax changes?

Well, it certainly helped us closing last December, people wanting to get their deal done in 2020 rather than risking with the new administration.

I don't know, this new administration could do something silly like some of the past presidents have done. If you remember back in the days of some of the presidents, they would not enact these until about now or later in the summer, but they'd be retroactive back to the 1st of January. So you can't plan not knowing what they're going to do.

And it's just one of those periods of time with a lot of indecision by people of not knowing whether they should do it now, wait, listen and see what goes on in the next 6 months. So I wish I could be better -- it would help me a lot more if I could be more projection accuracy, but I can't give you more than that.

Okay. That's fine. Maybe you could just touch on pricing trends. I mean, I think cap rates of what you've done so far this year is a little bit lower than what you did in 2020. Is there anything that we would note there? Or is it just deal-specific? And are you seeing any kind of increased competition?

We haven't seen much in the way of competition. There are people out there trying to buy farms, but they don't have people on the ground. And we found the farmers in California and Florida to be very protective of their information and not willing to go out and give it to just anyone. We are a known quantity buying in those areas so they feel comfortable with us, and I think that will continue.

As far as being able to figure out which way the winds are blowing on taxes, I just don't know. And I think that will have a big part of determining whether people go with us or just sit tight for the next 10 years. You don't know what a farmer is going to do. But as you know, the average farmers are about 58 years old now, and they don't have any way of getting out of what they're doing without doing something with someone like us or the farmer next door. That's usually what happens.

Joe might say to himself, "I'm going to sell my farm." And he tells Ben next door that he's going to sell his farm. And Ben says, "Well, I'd like to buy it," and it gets sold that way. And it never goes into some kind of listing anywhere. It doesn't have any broker. So you've got to have your ear to the ground. You've got to know what's going on in that community, in that growing area in order to get a shot at it. And I think we've now risen to the level in everybody's mind that's out there thinking about selling. We get a lot of inbound calls on that now.

So I think we're in a position to grow fast, but I just don't know what people are going to do at this point. And I think if the government will determine what they're going to do on taxes, it will help everything come loose and people will determine what they're going to do.

It's a delicate area right now. About half the farms that are -- I think it's 80% or so of the farms are still in individual hands. And about half of those are not even farmed by the individuals, they're leased out. We'd love to buy those. We just become the new landlord in those cases. So it's been a good way of growing, and it's a little hard to do anything at this point in time in terms of projections. We just keep hunkering down and working with people. And as time goes on, I think we'll get a lot of opportunities this year.

Our next question comes from the line of Rob Stevenson with Janney Montgomery Scott.

I forget how much of your portfolio is appraised in any given year. But within the portfolio, where are you guys seeing the biggest jumps in value on appraisals in terms of geography and crop types?

So Rob, we get each property appraised at least once a year. Now once very 3 years, we have a full appraisal. And the years in between, we will have desk appraisals, all performed by the same groups -- the same group is performing both the full appraisals and the desk appraisals.

And lately, we've seen pretty decent jumps in -- like Salinas/Watsonville area of California. Florida has continued to appreciate at a pretty good pace. The Midwest [Fort] has stayed relatively flat though, as we continue to get those properties appraised in the next 12 months. If trends continue, that could change. Southern California, it has been flat to down a couple of percentage points over the past year or so. I mean those are the main areas we're seeing with jumps.

Okay. That's helpful. And then has Gladstone Acquisition made any investments yet? Or is there anything in the pipeline that's teed up for them if it closes?

No. We haven't closed yet. And you may know that if you're raising a SPAC, you can't do any negotiations before you get the first tranche of money in. So we're sort of sitting on the sidelines waiting for all of these things to clear. The SEC has been involved in the SPAC business pretty heavy handedly during the last, I don't know, 6 months. So as a result, things have slowed down, Rob, and I don't know when we'll get out on the road and be able to do something. We know some people that want to do a transaction, but we're not talking with them or negotiating as provided by the SEC's regulation.

Okay. And then, I mean, in terms of that vehicle, was -- are you anticipating that there's going to be good size in that? Is that why you just didn't do a taxable REIT subsidiary because you couldn't -- you were going to hit a limit there?

Yes. That's one reason. The second reason is that I'm averse to doing taxable REIT subsidiaries simply because they can end up getting you in trouble. And as you know, Rob, it's -- if you flunk the test, you can't become a REIT for 5 years. So we've avoided any chance of that kind of nuclear thing going on inside of our company.

Our company is big and strong now. There's no reason to take unusual risk, and taxable REIT subsidiaries is that kind of situation. So I'm hopeful that we can buy the land and buy the business in the -- in the SPAC, but that would be the ideal way to do it, because then you would not have the SPAC somehow competing with some of our tenants.

Okay. And then lastly for me, Lewis, a couple of numbers questions. I don't know if I missed it in your comments, but where did the $2.2 million of other income in the first quarter come from? And is that a onetime thing? Or is a portion of that recurring?

It's recurring annually. So this is interest patronage or kind of refunded interest from our Farm Credit loans. I think last year -- it's generally recorded in the first quarter of each year. It has increased over the past few years as we do more -- secure more loans from Farm Credit. I believe last year, Q1 of 2020, we add about $1.3 million, and then we had another $300,000 in Q3 of last year. So $1.6 million about total in 2020 and $2.2 million this year. It's not recurring quarterly, but we would expect this amount to come in more or less, maybe a little bit higher, lower, depending on the amount of loans we have in Q1 of each year.

Okay. So is there a Q3 corresponding like last year? Or is this basically the bulk of it for 2021?

We are not expecting anything more in '21. Last year was a result of -- so usually, we have all the interest that we accrued during 2020. We'll get a-- portion of that refunded in Q1 of 2021.

Now last year with COVID and everything going on, a lot of certain Farm Credit associations made the decision to pay out a portion of that patronage early. So if it wasn't kind of any unique year, that $300,000 would have been received in this Q1 as well. They just paid out a portion of it early.

Okay. And then last one for me. The shares and units outstanding today given the second quarter issuance, is that roughly $29.5 million, somewhere in that ballpark?

Yes. That's correct.

Our next question comes from the line of John Massocca with Ladenburg Thalmann.

So maybe going back to kind of the valuation on kind of the in-place portfolio. You've seen some pretty good upward momentum in kind of commodity-based farms in the Midwest particularly. Are you seeing that same kind of upswing in kind of farm valuations for the more kind of fresh produce type farms that make up the bulk of your portfolio?

Yes. We see that mainly be driven by the desire to lock up farmland. There are people that are growers out there, and they realize that they don't lock it up, they'll miss it. And so they come in, guns ablazing, and we're able to push the rents up some, but you can't push the rents beyond a certain point or they can't make money. Rent is one of their big costs.

And so as a result, as we've worked with these farmers, not ripping them off has been a very, very smart strategy. And so we don't push the numbers probably as hard as we could. But quite frankly, we'll get all of that money that we leave on the table over time because we own the property and they need it to grow fruits and vegetables.

So you're right, the Midwest has changed dramatically simply because of the drought in Argentina and Brazil. Those guys can't produce what they produced in past years. Ukraine is doing well, and we're doing okay. Most of the farmers today in the Midwest are selling or have sold most of the things they think they're going to grow for the year. So it's going to be a very profitable year for people who are growing corn and wheat. But I think it may only be for that 1 year. And then next year, you go back to people competing with each other.

They have a good rainstorm in Brazil. They'll produce a lot of corn. Same thing happens here. And all of a sudden, you've got oversupply and prices dropping. But the prices have gone up dramatically for all those grains. And I think most of the guys have sold their corn on the exchange.

So they've gone to the Chicago exchange and sold 2 train loads of this and bushels of that. So it's getting to the point where I just don't know if they're going to be able to produce in the United States what they said they are going to produce because we're getting droughts, and there are a lot of those farmers that are dry farmers, as I call them, since they depend on rain for their -- for the water for their crops, whereas we're just not in that business. We maybe have 3% of our -- the land we have, and it's usually not essential to our -- overall what we're doing. And as a result, we just don't depend on rain. We have these big wheels that go around and around in the farms, and we have -- in the produce area, we have drip farming and also in the nut business, we have drip farming. And so water is as valuable as oil to us.

And we're in great shape today. It doesn't mean you're going to be that way in 5 years. But right now, we're in great shape and we're currently working on a transaction where we will buy water that's in the aquifer. They actually trade those things now. And so we can buy it. You can't get it financed. The banks won't finance water in the ground. But we're going to buy some, I suspect, and just as an insurance policy. Other questions, John?

But I mean, just in terms of the price kind of rises we've seen with wheat and some of the other commodities. Are you seeing those in kind of the berries or even some of the nuts or any of those kind of produce that's more typical of what's in your portfolio today? And then in that kind of same line of questioning, does that impact how you see participation rents going forward?

Yes, it will impact participation rents, but we don't see big changes out there.

If you looked at the price of berries that are being delivered in New York, I just looked and some of the delivery prices out there for the large strawberries are $20 to $22 a package that we see. And you haven't seen that in a long time.

But on the other hand, if you're just delivering the same berries that you've delivered in the past, it's still $12, $14, $15. And so there hasn't been any huge change like in corn, for example. I think corn went from $3.50 a bushel to about $6 a bushel, and so that's a massive change. And we haven't seen that in our area simply because we've been steady all along and have been able to deliver berries, blue berries.

In the nut side of the business, almonds have been the biggest area of things going on. As you may know, China buys a lot of almonds. There are a number of almond growers that are fairly large. They dominate the almond industry. And so as we see that transaction going on, there haven't been huge movements in the price of almonds. I don't think we're in that kind of business where there are big changes like there is in the valuations that go on with regard to corn and wheat. Those areas are dominated by supply and demand. And if supply is great, prices are very low.

On the other hand, if you get somebody who's in trouble like, I don't know, it was about 8 years ago that people in Russia were not able to grow, and so prices went through the roof. It's a boom or bust kind of situation. And so it's not a good thing to base your business on -- if you're doing dividends, monthly dividends to people who want to get their dividend every month regardless of what's going on in the marketplace. I think we are positioned to do that.

I would hate to be in the corn business, although this year is going to be a bonanza, and all of these corn growers are selling on the market and going out and buying a new tractor or whatever. And so as a result, you're going to see that run through all of the manufacturers.

But at the same time, you see people jacking up the prices. The GMO, the price of that chemical today is -- I know it's up 100%. So they're paying through the nose to get that stuff. We don't do that. So as a result, we haven't had those kind of problems of cost driving us to jack up the price. Although the price has been up, I think that was mainly because everybody went to the grocery store after the restaurants closed and just started buying everything there. And it's come back in line with where they should be today.

So John, I don't think prices for strawberries and blueberries and nuts are going to have a big jump in price. They're going to continue, however, to be steady so that we know when we're growing strawberries or that we can deliver.

I hate to say it this way because it's the wrong way to say it, but all of these migrants that are coming into the country are good for all of the plants that have to be harvested by hand. Strawberry is particular, and a lot of blueberries are drawn by hand. So as a result, it makes it easier for our farmers to get the kind of people that they need to get the harvest done.

I'm sure the apple people are very happy that there's extra people around. That's usually the ones that get hurt the most every year, but I think this will be a good year for apple growers. I don't know. I can't do any more than tell you what prices are today and make some kind of wild guess about what prices will be in 6 months or a year.

Okay. That's understood. And then one quick one on the balance sheet. Leverage came down a little bit quarter-over-quarter, obviously, and probably will -- I mean, kind of quarter-to-date at this point in 2Q, given you fully funded the acquisition with kind of equity raising on the ATM in 2Q.

I mean is kind of this newer lower leverage level, maybe the run rate going forward? Or is some of the activity on the ATM more just kind of creating some dry powder to deploy as more of the pipeline kind of comes to fruition over the course of the year?

Yes. What we see going on, and it's our judgment of what's going on is best for the company, of course. And at this point in time, debt is extremely cheap from Farm Credit and others in the lending business, and we've taken advantage of that. We get 60% to 70% in some cases of how we're going to finance our properties.

And then on the equity side, it's been very nice to have sold as many shares as we've sold. Our CFO is dancing around because he's got so much money. Usually, we'd be pretty tight that is -- he's free. He doesn't have another closing because he's got money. Right now, he's ready to close and he's flogging the troops to close the deals now that he's got so much cash. And we've been very blessed in terms of being able to sell common stock under the ATM and also to borrow money from our banking group that we deal with about 8, 10 banks.

And so at this point, we feel very good about it. We have not had a huge run on our non-traded area. So we haven't raised much money there at a higher price. So we're in great shape in terms of being able to meet any kind of closings that come up. And I think they will. I think you'll see if we closed what's in the pipeline and being worked on right now, we'd wipe out all of the cash that we have and have to borrow as well.

We've not taken down some debt, in some cases, just because we didn't really need to do that in order to close the deals, but we'll be back in the debt marketplace. And the banks and all of those folks seem to be very willing participants in what we're trying to do.

Our final question comes from the line of Craig Kucera with B. Riley.

Most of my questions have been answered already, but I do want to circle back to a couple. Just first, I'd like to talk about pricing. I think last year, you bought at about a 5.5% cap and I think year-to-date, you've done anything from sort of just inside of a 5% to 5.3%. As we think about 2021 and the pipeline of assets you're currently looking at, should we expect to see yields that are maybe compressed 25 to 50 basis points throughout the year? Or any color there would be helpful.

I don't think so. I think sometimes we run into situations where we have to give a little bit on our standard policy of getting 5.5%. You have to give a little bit in order to get a deal done. But Craig, you know how the world works. If you're doing a 10-year lease and it goes up by 1% a year, you may start off at 5%. But as time goes on, it's going to go up. And the way the accounting people make you account for that is you have to add up all those 10 years and divide by 10 in order to get the average, and that's what goes into the discussion we're having now, is that number. So I think we're in great shape to do that.

Also, some of those that may look a little bit low have got some kicker in them someplace, that is, they participate in the harvest or they have a repricing at the end of 3 to 5 years. And frankly, most of those repricings, I don't know why all of those farmers don't sign up for that because, quite frankly, we haven't had that much luck in having farm price -- farm rents go up by much in repricings. So I think -- and that has to do with the fact that we start off in some marketplace higher than most. There are people that will -- especially a family that no longer farms it and they're just counting on that for money coming in. We'll reprice at 3% cap rates.

And so we compete against them. There aren't many of those. And as time has gone on, we've seen people who own farms end up selling those farms simply because the children of those people who own it don't really want to be in the farming business and don't even want to own a farm, even though it's rented out.

So how are you going to keep them down on the farm once they've seen cash? I say it's a nice feeling to have a place to go and remember things. But generally speaking, people who are selling farms these days rather than keeping them as investments.

Craig, just to add to that. I think the lower cap rates for us so far this year, a little bit more circumstantial. We had one sought farm right around 5%, which is kind of norm for that. The facility we acquired that was -- the depressed cap rate in year 1 was more due to an adjustment on the OP Unit issuance price versus the fair value at the time of closing.

And all the farm we acquired right in -- right at the quarter end in April, the year 1 cap rate of 5.3%, but kind of what a -- to what David was talking to, was the annual escalations. It's a 15-year lease. Year 1 negotiation was a bit of a unique circumstance as well. But over the straight line -- over the term of the lease, the straight-line rent cap rate is about 6.7%. So it's in line with what we're looking at.

But I think overall, this year compared to last year, it's not indicative of any decrease in cap rates. It's more region-specific and kind of even more so just deal-specific.

Got it. No, I appreciate the color. And just one more for me. As we think about how to encapsulate the potential upside from all the participation rents that you have as you've done more and more leases on that front over the past couple of years. If we are in an environment where, let's say, all of your crops increased 10% in value this year, how does that translate to land? I think last year, you did $2.4 million in participation rents. But if we did see a nice sort of even increase across the board, what would that mean?

Well, it certainly would mean the participation rents are going up in total number for the simple reason that we have additional farms who have participations as part of their lease. And so you're going to see that as long as we keep adding to it.

There haven't been that many places that didn't give us a good return in terms of participation rents prior years that have gone down. We've got some, but most of them have gone up. If they gave us $2 million last year, maybe it's going to be $3 million or $4 million this year. I mean that's my guess. We don't know until much later in the season.

I mean people are still planting stuff. So it's really hard to know what's going to happen until you've been in the business for many years. And all of a sudden, there's a freeze. We lost -- one of our cherry growers lost most of the blossoms on their trees this year. They're not going to have any income. Now they'll pick up something in insurance. But as a result of that, I don't think we're going to get much in the way of any kind of added amount out of those kind of people.

It's -- because we're in so many farms in so many different areas, to try to generalize and say, over the entire portfolio, x is going to happen, really difficult to do that. But my guess is our upside in participation rents are going up for 2 reasons. One, the one you mentioned, that is if rents and sales and pricing goes up, the participation rents will go up. We participate in that. And on the other hand, participation rents are -- there's just more of them in our portfolio now. We love it. It sort of saves us some years where we didn't get as much income as we thought because we didn't start out with as much. This year, we're starting out with a lot more. As you know, we closed a lot last year. So Craig, I can't -- I wish I could help you with your model, but I can't.

Okay. Anybody else have question in the telephone line there?

There are no further questions at this time. So I'll pass the floor back over to Mr. Gladstone for any closing comments.

Okay. Thank you, all, for calling in. Maybe next time you'll have a lot more questions for us, and we can have more fun answering them. Thanks for calling in. That's the end of this call.

This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation, and have a wonderful day.