Gladstone Land Corp (LAND) 2020 Q4 法說會逐字稿

Greetings, and welcome to the Gladstone Land Corporation Fiscal Year-end December 31, 2020 Earnings Conference Call. (Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. David Gladstone. Thank you. You may begin.

Thank you, Jessie. Nice introduction. And this is David Gladstone and the quarterly conference call for Gladstone Land. We always appreciate the time we have with you to tell you about what we're doing, and this is our year-end. So we have a little extra stuff. So Michael LiCalsi is going to do his part. He's our General Counsel, and he's the President of Gladstone Administration. So Michael, go ahead.

Thanks, David, and Good morning. Today's report may include forward-looking statements under the Securities Act of 1933 and the Securities Exchange Act of 1934, including those regarding our future performance. These forward-looking statements involve certain risks and uncertainties that are based on our current plans, which we believe to be reasonable. 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. You'll find them on our website, www.gladstoneland.com, specifically the Investors page or on the SEC's website at 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.

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 nonrecurring revenues and expenses and adjusted FFO, which further adjusts core FFO for certain noncash items, such as converting GAAP rents to normalized cash rents. And we believe these are better indications of our operating results and allow better comparability of our period-over-period performance.

We ask everybody to take the opportunity to visit our website, once again, www.gladstoneland.com, sign up for our e-mail notification service, so you can stay up-to-date on the company. You could also find us on Facebook, keywords there is the Gladstone Companies and on Twitter, we're @Gladstonecomps.

Today's call is an overview of our results, so we ask you that you review the press release and the Form 10-K, both issued yesterday for more detailed information. Again, they're on the Investors page of our website. With that, I'll turn the presentation back to David Gladstone.

All right. Thank you, Michael. We had the year start out really strong. And now at the end of the year, we had total of $256 million of new acquisitions. The only difference this year is $156 million of these acquisitions came in the last 3 weeks of the year. So we didn't get to see much of an impact on earnings from those in the year 2020. But we're all looking forward to the reporting what are really strong results that we think we're going to have in 2021.

Participation rents were similar to last year. We experienced in 2020, about $2.4 million versus $2.3 million in 2019. We're hopeful of being able to report a very nice increase in participation rents in 2021. We have some participation rents that are coming in this year that should push us up beyond 2.4. We'll see when we get there. We continue to be able to renew all our expiring leases without incurring any downtime on any of our farms. We continue to execute renewals at overall higher rental rates on farms than -- especially in the regions we focus in. Each of the coasts are strong, and we continue to see that grow. But we're still having -- thank goodness, we don't have a lot of farms there. We're still having not much increase in rents in the Midwest.

Rent collections have remained strong for us. We collected all the base rents owed during 2020, except for about $43,000 from one tenant. This is the tenant who fell into financial difficulty after the government shut his operations down and doing an inspection on his farm for something like listeria or some other problem, we don't expect to be able to collect this amount. He's got a real problem, but we did replace that tenant on that farm with a larger tenant under a 10-year lease. And the rental rate was a little bit higher than we had on the previous rent. It was about 5% higher. Well, we had an excellent year for 2020. It would be really hard to fault that year at all.

So for 2021, we started out, we've collected all the base rents, except for about $97,000 from 2 tenants. Those 2 tenants have just fallen behind a little bit because of the fruits and vegetables they're collecting. So we will end up collecting those over the next coming months. Overall, the operations of our farms remain relatively strong. The demand for the products has grown very nicely. And these are products like berries, vegetables and nuts, which are center of our things that we're doing. Majority of the crop is grown by the farmers we lease our farms to or sold to grocery stores. And that's very important to know because we're not selling to restaurants or schools or industrial outlets. So as a result, we've not had the problem that those areas have. The demand for produce and many other foods at grocery stores remains high. We expect this to continue in 2021.

Moving on to our total farmland ownership, we currently own about 101,000 acres, 137 farms. And it's about $1.2 billion. So we were really excited. We didn't throw a party here, but we should have -- we're excited to pass the $1 billion fair market value of the farmland we own. Our firms are located now in 13 different states, more importantly, in 27 different growing areas.

Our farms continue to be 100% occupied, leased to 81 different tenants, all of whom are unrelated to us. And the tenants on these farms are growing over 55 different crops. Given now we own a good number of farms that are enough -- in enough different growing regions, with 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 from these rents.

Diversification helps protect the dividend that we pay to our shareholders, and that's an important thing for us since we are dividend oriented. During the fourth quarter, the team acquired 14 farms for about $192 million. Remember, $156 million of that was in the last 3 weeks. And it was very busy around here during the end of the year holidays. Overall, the initial net cash yield to us on these investments during that quarter was about 5.5%. In addition, our leases on these farms contain certain provisions, such as increases in participations and annual escalations, that should push that figure higher in the future.

And just a reminder, as my accountant keeps telling me, the yield figures, they do include all the operating expense that we are responsible for. It's not much, but most of these leases are triple net. So there should be, shouldn't be, too many additions to the expense side of it. On the leasing front, since the beginning of the fourth quarter, we either executed leases or extended the leases on 5 of our properties located in California and Colorado. The lease in our California properties were renewed at the same or higher rental rates. While our Colorado leases were renewed at a little bit lower rates.

However, the 2 Colorado leases, we changed the lease structure, whereby the lower fixed base rent amount was lowered and the additional participation rent component was increased. So we're looking at that one to help out the farmer there. This means that if the farmer has an average or good year, we expect to end up similar to where we would have been under previous lease or possibly even better. Of course, we end up worse if the framer ends up having a bad year. But we will not know the overall results of that until the farmer collects all the things that he's growing and selling on the properties. Looking ahead, we only have one lease scheduled to expire over the next 6 months, and it makes up less than one-half of 1% of our annual lease revenue.

We're in discussions in the existing tenant. And well, we have some potential new tenants. We aren't expecting any downtime on this farm that's coming due during this half of the year. Overall, we're currently expecting new leases on the farms to be similar to where they are today. I don't think we're going to have any problems keeping that cash flow coming.

One other thing I'd like to talk about is where we are on environmental, social and government standards. This is the standard called ESG. We're stewards of agricultural land and in various regions throughout the United States, and we understand our ability and our responsibility to positively affect the environment in which we operate. We are developing a good ESG standard, unique to our position within the agricultural industry. And once that development has progressed enough, then we'll try to define it for you and let you understand what we're trying to do.

Our portfolio is diversified and operations put us in a unique position to make a significant impact among a multitude of producers. With all of their unique opportunities, each one of these farms seems to have something different. So we'll have to look at it on a giant scale and then in more detail. We hope to learn from the diversity and become a source of incorporating our learning into various communities and commodities that we operate in; both now and in the future.

Finally, I wanted to briefly mention that we filed for a new company called Gladstone Acquisition. It's a Special Purpose Acquisition Corp. or SPAC. A lot of people don't like it, but it's just another way of becoming public. And in this relationship, it is very similar to Gladstone Land, except that it is possibly the first and maybe -- maybe we'll make that one as big as this one over the next 5 years. It's going to be buying the operating assets of these farms. Over the past several years, we've had some of the owners come to us and say, buy their business. And in some cases, we'd offer to buy just the land, but they wanted to keep the land and the operations together. So as a REIT, Gladstone Land can't own operating companies because the operating income is not permitted in the REIT standards for tax purposes. And Gladstone Acquisitions, SPAC, was created potentially to take advantage of such opportunities as when Gladstone Land would not participate.

So what we do is highly dependent on the kind of large farming businesses we may buy. At this point, we don't have any large farm operations identified. But if we do, we'll continue to make sure that all potential conflicts of interest with Gladstone Land are appropriately resolved with our Board of Directors. We'll keep you informed on that. We have this situation with our other companies, the 2 BDC's, and we have a procedure in place for doing all of that now to make sure it works. And we'll be back to you once we decide how we're going to integrate the 2 companies. But certainly, those that are buying operations, will have to make sure they go into this new company.

So let me stop at this point. I'll be back in a little while to talk some more about it, and we'll go to Lewis and Lewis, take [over].

Sure. Thank you, David, and good morning, everyone. I'll begin with our balance sheet. During the fourth quarter, our total assets increased by about $189 million, primarily due to our new farm acquisitions. From a financing perspective, during and subsequent to the fourth quarter, we secured about $154 million of new long-term borrowings at a weighted average rate of 2.83%, which is fixed for the next 8 plus years.

On the equity side, since the beginning of the fourth quarter, we raised about $65 million of net proceeds through sales of our common stock. This includes a follow-on offering that we completed in October, through which we raised $26 million at an offering price of $14.40 per share and about $39 million of sales through our ATM program at an average issuance price of $14.70 per share.

Over the same time period, we've also raised about $22 million of net proceeds from sales of the Series C preferred stock. As with the Series B preferred stock, which we recently listed on NASDAQ under the ticker LANDO, our plan with the Series C preferred stock is to sell it in small amounts over the course of the next several years so that we're better able to match the timing of the proceeds coming in with finding new farms to buy.

And finally, just last month, we raised about $58 million of net proceeds through the issuance of a new 5% Series B term preferred stock, which is also traded on NASDAQ under the ticker LANDM. About $29 million of these proceeds were used to redeem our Series A term preferred stock, which carried a coupon of 6.375% and had a mandatory redemption date of September 2021.

Moving on to our operating results. First, I'll note that for the fourth quarter, we had net income of about $91,000 and net loss to common shareholders of $2.4 million or $0.10 per common share. For the year, we had net income of $5 million and a net loss to common shareholders of $4.4 million or $0.195 per common share. On a quarter-over-quarter basis, adjusted FFO for the fourth quarter was approximately $3.6 million compared to $3.1 million in the third quarter, an increase of about 14%. AFFO per share was $0.147 in the fourth quarter versus $0.143 in the third quarter, an increase of about 3%. Increases to the per share figures were diluted due to the equity proceeds raised during the quarter, which have not yet been fully invested.

Dividends declared per share were $0.135 in the fourth quarter and $0.134 in the third quarter. On an annual basis, adjusted FFO for 2020 was about $14.3 million compared to $11.3 million in 2019, an increase of 27%. AFFO per share was $0.641 in 2020 versus $0.568 in 2019, increase of 13%. And dividends declared per share were $0.537 in 2020 and $0.534 in 2019.

Our payout ratios using AFFO was about 84% in 2020 versus 94% in 2019. The main driver behind the increases in AFFO was higher top line revenues. From a cash rent perspective, rental income increased by about $1.1 million or 8% on a quarter-over-quarter basis and by about $12.3 million or 31% on a year-over-year basis. This is primarily due to additional revenues earned on our recent acquisitions. On a same-property basis and including participation rents, but excluding income recognized due to early lease terminations, 2020 lease revenues increased by approximately $748,000 or 2.2% over that of 2019. This increase was primarily due to recent lease renewals or amendments at net higher rental rates.

During the fourth quarter, we recorded about $1.2 million of participation rents compared to $1.1 million in the third quarter. For the year, we reported participation rents of about $2.4 million versus $2.3 million last year. During 2020, we had 19 farms under leases that had an active participation rent component versus 18 farms during 2019. We have several more farms with participation rate components that are scheduled to come online later in 2021.

On the expense side, excluding reimbursable expenses and certain nonrecurring or noncash expenses, our core operating expenses increased by about [$141,000] on a quarter-over-quarter basis, primarily driven by slightly higher management and incentive fees earned by our adviser during the current quarter. Removing related party fees, our core operating expenses were relatively flat, increasing by only $8,000 from the prior quarter. On a year-over-year basis, our core operating expenses increased by about $3.8 million, primarily driven by higher related party fees, and this is partially also due to a credit to certain fees that were granted to us by our adviser during 2019.

Removing related party fees, our core operating expenses in 2020 decreased by about $820,000 from 2019. And this is primarily driven by a decrease in our property operating expenses as we incurred a significant amount of cost during the first half of 2019 related to generator rentals to power some new wells in one of our properties.

Moving on to net asset value. We only had ten farms revalued during the quarter and all via third-party appraisals, and overall the values of these particular farms remained flat from their prior valuations. So as of December 31, our farms were valued at about $1.2 billion, all of which was valued based on either third-party appraisals or the actual purchase prices. Based on these update valuations and including the fair value of our debt and all preferred stock, our net asset value per share -- per common share, at December 31 was $12.23, which was up by $0.26 or 2% from last quarter. The main driver of this increase was the issuance of common stock at prices higher than our estimated NAV as of September 30.

Turning to our capital makeup and overall liquidity. From a leverage standpoint, our loan-to-value ratio and our total farm net holdings on a fair value basis and net of cash, was about 53% at December 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 average basis, these rates are fixed at 3.38% for another 6 years out. So we believe we are currently well protected on the debt side against any future interest rate volatility. And with the weighted average maturity of these borrowings being ten years out, we also feel that we're protected against any potential liquidity issues should the current economic uncertainty continue for a prolonged period.

Regarding upcoming debt maturities, we have $31 million coming due over the next 12 months. However, about $17 million of this represents maturities of 4 loans 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. So removing those maturities, we only have about $14 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 $70 million of dry powder. 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. We don't currently foresee a credit freeze on ag lending in the near-term future as borrowings continue to be readily available to us from multiple lenders and at very favorable terms.

Finally, I'll touch on our common distributions. We recently raised our dividend again to $0.04495 per share per month. Over the past 24 quarters, we've raised our common dividend 21x, resulting in an overall increase of 49.83% in our monthly common distributions over this time. Since 2013, we've paid 96 consecutive monthly dividends to common shareholders, totaling $4.98 per share in total distributions. And of course, this is on top of dividends paid to our preferred shareholders. Paying dividends to our shareholders is paramount to our business plan, and our goal continues to be to increase the common dividend at a rate that outpaces inflation. We're not quite there yet, but we do believe that we're heading in the right direction.

At our current distribution run rate and with where our common stock price is today, the yield in our common stock is about 2.9%. And when considering the relative stability and security of the underlying assets and the related cash flows, we believe this stock offers a compelling investment alternative. And with that, I'll turn the program back over to David.

All right. Thank you, Lewis. That was a nice report. For us, acquisition activity really picked up toward the end of the year. I think some of that was generated by tax laws that are expected to change. We -- even today, we continue to see a good amount of buying opportunities coming our way, probably have about $250 million worth of backlog. We'll probably close on about 80% of that. But certain aspects of our due diligence process have ended taking a much longer time than normal due to the various travel restrictions and all the other things going on in the marketplace out there. Some of our banks are all working from home, that takes up extra time. Some of the government offices are closed, so we can't get data that we need. But hopefully, some of these restrictions will be starting to lighten up in the near future and allow us to move a little quicker than we're doing today.

And just a final point or 2 here, I'd like to make, we still believe investing in farmland and growing crops that contribute to a healthy lifestyle, such as fruits and vegetables and nuts as well as many of the other tree fruits that we have from cherries and apples and figs and oranges sort of makes you hungry for going to lunch today. So following the trend we're seeing in the market today, that's where we want to stay. Currently about 85% of our total crop revenues come from farms that are growing types of food that you'd find in either the produce 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 a growing trend toward organic among these foods.

About 40% of our fresh produce acreage is either organic or transitioning to organic and over 10% of our permanent crops, these are the tree crops as well as bushes, acreage falls into that same organic category. We believe the organic sector will continue to be a strong growth area. In addition, more than 95% of our crops are in the non-GMO category. So we're aiming toward the healthy side of food production.

Another major reason why our business strategy is focused on farm land growing fresh produce is due to the effect of inflation. According to the Bureau of Labor Statistics, the overall annual CPI generally keeps pace with inflation. However, over the past 40 years, including many of the current years, the fruits and vegetable segment of the food category has outpaced the total food CPI by a multiple of 1.6x. So they're charging more for the fruits and vegetables and the nuts than they have in the past. This is why many financial advisers tell their clients to invest in farms and farmland because it acts as a hedge against inflation. And while prices of commodity grain crops such as corn, soy and wheat are typically more volatile and susceptible to global supply and demand, fresh produce is mostly insulated from global volatility, mainly because the crops are generally consumed locally and within a short time after being harvested.

I'm telling you this because we're often confused with farms where the farmers are growing corn, soy or wheat which are mostly -- we are staying clear of simply because we have to compete with other countries like Brazil and Argentina and the Ukraine, where the cost of production, and even after shipping, is lower than we can produce it for in the United States. And those farmers can undercut our prices, and they have done so in the past. So they drive down the price so that many of our farmers have not been able to make a good living off of their farms if they're growing corn or wheat.

Grain prices are much higher this year because Brazil and Argentina have been in a drought. The farms in these countries largely depend on rain for water. And as you know, almost all of our farms have their own source of water, even multiple sources if we're in places like California.

Overall demand for prime farmland growing various vegetables remains stable to strong in almost every area of our farms, particularly along the West Coast, including most of California, Oregon and Washington, and certainly across the East Coast, especially in Florida and some of the other states. And overall, farmland continues to perform well compared to other asset classes. Despite some recent downturns in certain regions, the NCREIF Index of farmland, which is currently made up of about $12.3 billion worth of agricultural properties, it's averaged about 13.6% over the past 15 years compared with about 10.5% for the S&P index and even lower for the overall REIT index. So we're doing something right, and I think we're in good shape.

During those 15 years, the farmland index did not have a negative year, unlike the S&P, which I had -- I think had 2 or 3 negative years over that same period. Farmland has generally provided investors with a safe haven during turbulent times in the financial marketplace as both land prices and food prices, especially for fresh produce, have continued to rise steadily. And that certainly was proved out during this last pandemic we've seen prices increase in the grocery stores, and most people are buying their food there anyway.

So in closing, 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. One, of course, is it's similar to gold. It is after all the hard assets that's been here since the beginning of the earth. And that has intrinsic value because there's limited amounts of good farmland and it's being used up by urban development, especially in California and Florida, where we have so many farms. And second, unlike gold and other alternative assets, it's an active investment with cash flows to investors, and we believe we're better than a bond fund because we keep increasing the dividend.

We expect inflation, particularly in the food sector, to increase, and we expect the values of the underlying farmland to increase as a result. We expect this is especially true in fresh produce in the food sector as the trends that more people are eating healthy foods and continue -- that we continue to grow. But Gladstone wouldn't be much if we didn't have all these good people operating and managing it. Buying and leasing farmland is complex, is a lot of -- you've got to be on the ground. And so as a result, so if you like what we're doing, please buy some stock, keep eating fresh fruits and vegetables and nuts.

And now operator, just, if you'll come on, you can have some people ask some questions for us to try to answer.

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

Obviously, there's a lot of deal flow toward the end of the year. Maybe you can just speak to the current pipeline right now. I know you guys don't give formal guidance, but maybe you can give us the main puts and takes that we should be thinking about for 2021? And then also on the deal flow, I think you mentioned tax, potential tax, changes. And I'm just curious if your ability to offer OP Units is helping you get deals.

We haven't seen too much of the OP Units. I think one of the small deals we have, it's about $3 million. They want OP Units. We've got a couple of other small ones that may go down that line. But generally speaking, when you're talking about a larger transaction, like we've got one in the pipeline for about $39 million. They want cash because they want to turn around and use that money to grow their business.

I can't answer all those kind of questions of what's going through people's minds. But if the current administration puts in its large capital gains tax, it's going to be -- it will be very hurtful to those people who want to sell. And maybe more people will take OP Units. It's just that we finally reached the size that people will take OP Units because we're strong. We're not going to blow away overnight, and we've already weathered one of the worst downturns in the history of this country, which is still going on today. It's -- we don't have our people back to work. We don't have a lot of businesses operating. So I think we'll do very well in this year 2021. Other questions?

Yes, that's helpful. You mentioned that there was kind of a large deal in the works. I mean what should we kind of be thinking about as a normalized run rate for volumes in any given year, kind of given your size right now? I know it's not an easy question to answer. But any guidepost would be cool?

It -- we'd would love to help you build your projections in your computer. Lewis is here, Lewis, why don't you answer that? You've got your projections.

So in the past 2 years, we've done $256 million of acquisitions each year. We have enough in the pipeline where we could do that. But given that we're just in February and nothing's closed yet. Still a lot left in the year. I think under -- we have about $150 million or so under PSA's. Obviously, no guarantee that we can close on all those.

Right now, we would expect to be able to do about $200 million of acquisitions. That's kind of our internal minimum target. We might come in lower than that. Just 3 years ago, I think we were at about 150 or so. Maybe we'll even beat last year and the year before, but it's kind of too early to say, but $200 million is kind of an internal number that we pencil in.

Okay. That's helpful. Has your guide view on funding those acquisitions changed in the last 3 months, just given the fact that your stock has done incredibly well?

So you're telling us to fund those with selling common stock, is that what you're saying?

I'm just -- I'm not telling you what to do. I'm just curious if it's weighted more toward equity?

I'm just teasing you, Nate. We always like to blend it together because if you shut down the preferred stock sales, it's hard to start them back up again. So we keep selling $4 million or $5 million a month as we can with that offering, and we'll use the ATM program for the common stock, but we don't have any plans to have a big common stock offering.

Okay. Let's see, who's the second question from?

Our next question is coming from Barry Oxford with D.A. Davidson.

David, getting back to your SPAC, when we look at that, and if it does happen, and we kind of go down the road thinking longer term, is it possible that the operator of the SPAC would have a lease with land?

Could be. As you probably know, there are a number of larger companies, like down the street from us, you've got a hotel operator, and they have us a -- not a SPAC, but they have a -- what do they have? They have a REIT up the street from us. In fact, one of our people left and went to work for that REIT. So this is Hilton, they're right down the street from us and their REIT is right up above us.

So yes, they do that. I've got to study how they do that because I want to make sure there's never any conflict. But the answer is yes. If you got a huge purchase in your SPAC and you needed to sell off or if you're just using the SPAC sales of real estate, we'd certainly want the REIT to pick that up. And I think it would. I don't know that anybody is going to come in and -- I don't even know if we have to do that voluntarily of offer it to the world. As long as we've got good indications of the value for each of the farms. And we do that. As you know, every quarter, we're valuing our real estate.

So I think internally, and I know the folks at Pricewaterhouse have to sign off on any of the valuations we do in our REIT as well as we have a couple of people on the outside that are looking at it. So I know we can make sure we're paying the right amount. We just have to make sure that we don't have a conflict of any kind.

Right. Right. Now on the acquisition side, I want to make sure that there's not a competition between the SPAC and land, there wouldn't be because, correct me if I'm wrong here, the SPAC would only go after a farm that was being operated.

That's correct. That's the first test, of course. And every -- we have conflicts because we've got 4 companies, and they're all involved in different parts of the marketplace. And so we've set up a method of reviewing each one of those of who's going to take it. For example, you might have a buyout that's being worked on by a buyout fund, and our lending company would like to help them. So that would mean pretty automatically that we couldn't have the buyout fund doing it if we're going to do the lending on it. So it's the thing we go through every time. Every deal comes through. We have a form we fill out. We go through it. The board reviews it every quarter of where we sent these deals. So allocation of deals is something that we deal with every single quarter with our board in justifying why it went one place or the other.

I think we have it covered. When you have the 2 business development companies that operate under the 1940 Act, the problem there is we have to get how we're doing it signed off by the SEC, and we do have an agreement with the SEC that allows us to determine where it goes as well as which can invest in it. So it is filled with bureaucracy and paperwork, but I think it's worked for us for a long time. And I had the same situations when I was running another company, and we had multiple funds. So it's not unusual, and the fact that someone like Hilton, who is right here in our backyard, is doing it for their operating business, which is next door and doing it for their REIT, which is just up the street. I think we can do the same thing, if we can justify the way they're doing it.

Okay. Great. That makes sense. And then last question, on the acquisition side, David, as you're out there competing in the marketplace. Have you seen new types of institutional investors come in? Or are you competing against kind of the same cast of characters?

I haven't seen anybody new show up. We've seen some changes in those people that are out there. But generally speaking, it's the same crowd, and we don't see any giant gorilla showing up and saying, I'd like to be in the acquisition business.

Our next question is coming from Craig Kucera with Wunderlich Securities.

Are you expecting any large lease terminations in 2021, like we saw in early 2020?

No, not expecting it. Of course, it could happen, but we don't see anybody that's having those kind of problems. Generally speaking, the agricultural world has missed this big recession that we find all our companies grinding through. And we've been very lucky in that it hasn't touched us at all. I think it's actually increased the sales of most of our agricultural goods. I know the grocery stores are doing better because of that. Whether it will change now that everybody is getting a shot in their arm, I don't know. I think it's going to take a while, Craig, before things lighten up and we get back.

Everybody is thinking that, boy, when we get everybody vaccinated, the world will come back together. I think you're looking at a 2- to 3-year upward tick. You still have 850,000 people on their welfare rolls for this month -- I mean, this week. So it's still a big number of claims. And that's very hard to put back together. And it will come back together. But just like in 2008, it took a long time to get there. And yes, in 2 or 3 years we'll look back at this and pull out our little mask that we put on and laugh a little bit, but it will be a while before we get there.

And just thinking about your property operating expenses. I know you've shifted more and more of your leasing towards triple net. You look to the back half of this year, it's running close to $300,000 a quarter. Is that a pretty good run rate for 2021 as you're thinking about it?

What do you think, Lewis, is that a fair thing for him to put in his projections?

I think the third and fourth quarter were pretty flat. So that's a pretty good normalized number for us going forward. Again, last year, we had some additional operating expenses to a lot of cost for -- to rent some commercial-grade generators to run some wells that hadn't been connected to the permanent power grid yet. But the past 2 quarter have been pretty flat. We did buy a lot of new farms in the fourth quarter. I think all but one of those leases are triple net. So one of those properties, we'll have some real estate taxes on, but there shouldn't be much of an increase to the -- to our run rate for the past 2 quarters.

Got it. And I'd like to talk about your leasing and negotiations here in the fourth quarter and earlier in the quarter. You go back to 2019, you were getting pretty solid double-digit increases in rents or most of 2020, in fact, through third quarter, some of that, you were transitioning from double net to triple net, maybe had a reduction in expenses, but were seeing good double-digit NOI spreads. Can you give us some color on sort of what happened in fourth quarter and earlier in this first quarter? Was there anything unique to those situations or crop types to have rents slip a bit?

So these were -- the 2 main leases where we took rent hits were on some -- actually, the only 2 dry land farms that we own in our portfolio out in Colorado. Now those are the 2 leases that David mentioned that we changed the lease structure. We reduced the base rent in exchange for adding a crop share component to them. There were no crop share components in the prior leases. I think the base rent was about cut in half. And as David was saying, if the farmer has an average or good year, we should -- we expect to come out pretty similar in the end. Of course, by giving their grower this rent structure, which we did to help him out, we are a little bit at risk. If he has a bad year, we'll come in lower than we were previously.

We won't know that until probably Q4 of this year. But we did just -- these leases, we only renewed them for 2 years. So hopefully, after a couple of years, if commodity prices continue their higher trends they are right now, we're hopeful of being able to negotiate a better lease here in the next couple of years on those 2 properties.

Mr. Gladstone, we have no additional questions at this time. Would you like to make any additional closing remarks?

Well, we appreciate everybody calling in and giving us some good questions. Hopefully, we've updated you now. So you can move forward with the projections, and we'll be out there working for you. That's the end of this conference, and thank you all again.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. Once again, we thank you for your participation, and you may disconnect your lines at this time.