Greetings. And welcome to the Gladstone Land Corporation Fiscal Year End Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, CEO and President, David Gladstone. Thank you, David. You may begin.

Well, thank you, Paul. That was a nice introduction and this is David Gladstone. And welcome to the quarterly conference call for Gladstone Land. This is also our year end, so you get a double barrel place in our systems of things if we are going to tell you about and thank you all for calling in today. We appreciate you taking the time to listen to our presentation. We always start off with Michael LiCalsi. He’s our General Counsel and Secretary and he is the President of Gladstone Administration, the administrator for all of Gladstone funds. Michael, you are up.

Thanks, David. Good morning, everybody. Today’s report may include forward-looking statements under the Securities Act of 1933, 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. 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 file with the SEC. You can find these on our website at 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. Now FFO is a non-GAAP accounting term, defined as net income, excluding the gains or losses from the sale of real estate and the impairment losses from property, plus depreciation and amortization of real estate assets. We may also discuss core FFO, we generally define as FFO adjusted for certain non-recurring revenues and expenses, and adjusted FFO, which further adjusts core FFO for certain non-cash 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. And please take the opportunity to visit our website, once again, gladstoneland.com, and 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 Twitter @Gladstonecomps. And today’s call is an overview of our results, so we ask that you review our press release and 10-K, both issued yesterday for more detailed information and you can find them on the Investors page of our website. With that, I will turn it back to David Gladstone.

Well, thank you, Michael. I will start off with a brief overview of our farmland holdings. We currently own about 116,000 acres on 169 farms and about 45,000 acre feet of bank water acreage foot is equal to about 327,000 gallons. So that’s about 14.6 billion gallons of water that we have in the ground in California mostly. And together, they are valued at about $1.6 billion for both the land and the water. Our farms are in 15 different states, and more importantly, it’s in 29 different growing regions. Farms continue to be 100% occupied and leased to about 90 different tenant farmers, all of whom are unrelated to us. And the tenants on these farms are growing about 60 different types of crops, but mostly fruits and vegetables and nuts. We have two slow paying tenants and partly due to excess supply and market for their respective crops. Markets sometimes get oversupplied and can be slow to cure themselves, but they usually do over a certain period of time, it’s slower sales, so it takes a while to get there. As we have mentioned in the past couple of calls, acquisition activities remained slower for us than in the past as we continue to be much more selective in the type of farms we are looking at. Higher interest rates also impact the level of returns we can be able to achieve on any new acquisition. That too will pass. With inflation and interest rates continue to rise and the risk of recession becoming more likely, we believe it’s a good time to be much more selective with our capital. But overall, our existing farmland portfolio continues to perform pretty much as expected, with the exceptions of the issues we are having with two tenants, which led us…

Thank you, David, and good morning, everyone. I will begin by briefly going over our balance sheet. We did not incur any new borrowings during the quarter, but we did repay about $19 million of loans during the fourth quarter that were scheduled to mature. That putting aside [ph], since the beginning of the fourth quarter, we raised net proceeds of about $27 million from sales of our Series C preferred stock, about $800,000 from sales of our new Series E preferred stock and $20 million from sales of our common stock through the ATM program. Moving on to our operating results. First, I will note that for the fourth quarter we had net income of $1.1 million and net loss to account shareholders of $4.8 million or $0.14 per common share. For the year, we had net income of about $4.7 million and a net loss to shareholders of $15 million or $0.43 per share. On a quarter-over-quarter basis, adjusted FFO for the fourth quarter was approximately $6.8 million or $0.195 per share and that was compared to $7.2 million or $0.207 per share in the third quarter. Dividends declared per common share were $0.137 in both quarters. And on an annual basis, adjusted FFO for 2022 was approximately $24.8 million, compared to $20.4 million in 2021, an increase of 22%. Compared AFFO [ph] per share was $0.716 in 2022 versus $0.668 in 2021, an increase of 7%. Dividends declared were $0.546 in 2022 to $0.541 in 2021. Common dividend payout ratio was about 76% of AFFO in 2022 versus 81% in 2021. Primary driver behind the increase in AFFO was higher topline revenues, partially offset by increases in related party fees and additional financing costs. Fixed base cash rents decreased by about $1 million or 5% on a…

Thank you, Lewis. A very nice report. It’s nice when we have a number -- good numbers to report to the market. We continue to stay active in the market should a good opportunity present itself, but as mentioned over and over, as we have gone through this, we are being very selective and cautious in our acquisitions. It’s a time to be careful. And just a few final points before we close it out and ask for some questions, I believe that investing in farmland and growing crops that contribute to healthy lifestyles, such as fruits and vegetables and nuts. We are following the trends that we see in the marketplace today. 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 farms in California, Oregon, the State of Washington and on the East Coast, especially in Florida and some of the other states as we have gone up the coast in the East. And overall, farmland continues to perform comparatively well to other asset classes. There’s a group called NCREIF that run the NCREIF Farmland Index, which currently is made up of about $15.3 billion worth of farmland and our 116 acres is included in that. So we know that they have averaged an annual return of about 12.8% over the past 20 years per year with no negative year during that period. This is better than both the S&P Index and the overall NCREIF Index, each of which had three or more negative years over that same time period versus zero for farming. I just wanted to mention one thing. As you know, we are all publicly traded and we have no control over the stock price.…

Thank you. [Operator Instructions] Our first question is from Gaurav Mehta with EF Hutton. Please proceed with your question.

Good morning. First question on the $1 million write-off, can you maybe provide some color on what drove the write-off and possibility of collecting those rents?

Yeah. So there’s two tenants. One of them is an almond grower in California. One is a blueberry grower up in Michigan. Each of them has -- there were three leases with each of those two tenants that led to this write-off. I think it was about $939,000 of previously recognized revenue. And on top of that, of course, we lost about $400,000 of net loss, but we didn’t record $400,000 of revenue that would have been recorded as they stayed on accrual basis. For the almond grower in California, this is one of our, I guess, compared to our other almond tenants, one of our smaller tenants are on the smaller side compared to the other almond growers out there. And in addition to that, they also own a processing plant where they process about $30 million of almonds per year. So with the weaker almond market, they were kind of hit double, if you will, not just on the growing side, but also to the processing operations. So being their size and getting hit on two sides like that impacted them more than it has our other almond tenants. The grower in Michigan, so a couple of things with this one. From an operational standpoint, he has made good money on our farms. However, he had a kind of a medical emergency earlier in the year. He was on -- in ICU for several months and that led to a slow -- we didn’t put much pressure on him during that time because of his situation and he also might -- we think he also overextended himself in terms of just expanding its operations too quickly. So just put them in a little cash crunch. But we are working with both of these tenants to try to get caught up with payments. But until we have a clear path forward, both these -- both -- revenue from both all of these leases will be recognized on a cash basis and we will just recognize it when the cash comes in. We have received a couple of payments from one of these tenants subsequent to year-end. So we will have some income recognized in 2023 from these. But right now, we just can’t put a full faith in all of the future rent up ends from each of these leases.

Okay. Second question, I was hoping if you could provide some color on the cap rates that you are seeing in the acquisition market for the farms.

Cap rates haven’t changed much. If you are not willing to let them lease the ground at 5%, 5.5%, then cap rate, they won’t lease it. So since we are borrowing money at about that rate, it’s really hard for us to justify the risk reward ratio of buying farms and then just capturing enough money to pay the cap rate on that. So we are very slow right now. It’s going to change, Gaurav. The -- what happens is that you get this adjustment of interest rates going up and the farmers are willing to wait it out. Some of them won’t be able to wait it out. So we will see some good opportunities as time goes on. I hate to take land at that rate, but it’s awfully good for our shareholders.

Okay. Thank you.

Do we have any other questions?

Thank you. Our next question is from Rob Stevenson with Janney Montgomery Scott. Please proceed with your question.

Hi. Good morning, guys. David, are you going to need to re-tenant that almond grower in California, the blueberry grower in Michigan this year?

I don’t know. My guess is the almond grower will catch up. He will eventually sell enough almonds to pay us. And so even though we put some of that money on write-off or hold whatever you want to call it. So we will get that one. The blueberry guy is, we are really worried about him. He’s gone through a hell of a -- he had an explosion on the farm and it burned him pretty bad. So we are hopeful that he recovers. His son is helping him now. So seems to be coming back, but it’s hard to know. We hate to put pressure on these farmers when they get in a situation like that, because it sends the wrong message. We are really in partnership with our farmers and we hate to push them too hard. But on the other hand, we have a lady sitting at the table with me today that collects on all of these. And I am going to send her out to California. She will collect it for us. I am just teasing now. She’s sitting here laughing. Anyway, the bottomline of it all is, these people are going to pay. We have got money coming in from all of our farms with the exception of these. And at the end of the day, we will get this money and we will be fine. So I am not worried about that. It’s not like a disaster that would -- that everybody had back in 2008 and 2009.

Okay. Lewis, what is your incremental cost of debt today, if you guys did go out there and issue something new, what are you going to pay for that and is it the line of credit or one of the farm bureaus on a net basis that your cheapest source?

Cheapest source would definitely be one of the farm credit associations, and right now, our line of credit is quite expensive in the high 6s. So that explains why we aren’t making much use of that. If we were to borrow from one of the farm credit associations on a net basis after patronage, we would probably be in the high 5s, maybe low 6s at the high end.

Okay. That’s helpful.

Maybe little double [ph], 150 basis points higher than that.

Okay. And so you guys have a fairly decent amount of cash on the balance sheet. So, and given the commentary about the slow acquisition environment expected in the first half of the year, how are you guys thinking about utilizing the common ATM, as well as the Series E preferred in the first half of the year, assuming that the stock price goes back up to a point to where you would issue ATM. Are you guys still going to ratably issue in the first half of the year and prefund, hopefully, more acquisition in the back half? Are you guys going to hit pause on all of that, because you have got enough capital for now? How are you guys thinking about that?

Well, the company is in extremely good shape today. We have got money coming in from all of the rest of the farms. We only mentioned the two farmers that aren’t doing as well. So we are in great shape to meet our dividends and go forward. But you are right, the question is going to be and is today, I have got other people sitting around the table, listening for this one, that is what are we going to do with our cash? Can we buy some more farms? We have got people that are looking at good opportunities, but there’s no reason to take that much risk at this point in time in our farmland fund. So we are going to be slow in using up our equity and not going to jump out there ahead of time. And besides, the farmers are not going to make much money if they have to pay 5% or 6% rent on a cap rate basis. So there’s no use pushing this one, and saying, let’s put the things on the books and then, hopefully, we can refinance them or do something with them later. I’d rather play it safe at this point in time, especially since we are so strong in terms of cash flows coming in from the other farms. I hope that’s the right answer you wanted to hear, so you can write, buy the stock on this one.

One last one for me, David. How are you guys thinking about the indoor vertical farms? Yesterday, Realty Income announced a partnership with Plenty. Just curious as to whether indoor vertical farms or something you guys spend any time on?

Yeah. I know them well. The State of Virginia is backing one of the large strawberry growers and we are certainly interested in that. But generally speaking, the indoor farms have one major problem and that is if there are more than one story high, you are giving up an enormous amount of light energy from the sun. And second of all, there aren’t any -- even if you go with the high wattage bulbs, they just aren’t strong enough to grow the way sun does. You could take 1 acre of lettuce farms in California and grow more lettuce than you could ever grow indoors. So for us, we are watching it. We have someone here in the office and he’s actually sitting at the table now. So he comes out of that business. His parents were in that business, building those vertical farms. But I haven’t seen any of the 2-story or 3-story. I think they have even gotten some 6-story ones out there, grow anything other than small greens, those seem to work okay. We are not in the small greens business and there aren’t that many restaurants that are willing to pay the price for those small greens. You have some of them. And they are higher quality in terms of cleanliness, generally speaking, and so it’s coming. I don’t know when, but we will be there if it comes. And we are watching all of these people pour money into them. I don’t know, Rob, I don’t think there’s any of them that make a decent amount of money. And the glass ones are still better than the ones that are 6 stories tall. And I think we will one day find one of those that we think is right and do it just to be in the business. But right now, we are on the sidelines and not doing those.

Okay. Helpful. Thanks, guys. Appreciate the time.

Okay. We have any other questions?

Our next question is from John Massocca with Ladenburg Thalmann. Please proceed you are your question.

Good morning.

Good morning, John.

Maybe what’s the outlook for some of the non-permanent crop types in the portfolio? You mentioned the positive with almonds, sorry, the negative almond, the positive with pistachios. But what are you seeing in terms of berries, fresh vegetables, other crops on the inflation front?

They are all strong. And if you go to the grocery store and pick up some strawberries, you will see how much you are paying for each of those strawberries. It’s getting a little bit ridiculous sometimes, but it’s only for a few months out of the year. For example, Florida makes a lot of money in these months that we are in and then it turns over to California and they start making money. We do see imports coming in from lots of different places, mostly if there are blueberries, they are coming out of, I don’t know, one of the Latin American places. And strawberries are special, and I would say, 90% of the strawberries are for the United States have grown in California, not to diminish the good ones that come from Florida either they are wonderful in. So we are seeing things in the strawberry and lettuce. We have the largest cabbage farm in the world. So eat plenty of slaw would you please and it’s just a wonderful business to be in right now. And so we are really happy with where everything is, except for a couple of guys that are a little slow on their payments.

Okay. And then on the almond side, has any of the kind of oversupply issues in that crop type impacted land pricing for almond farms at all, any of the transactions you are seeing in the market today?

Oh! Sure. When you get an oversupply like that and the farmer can’t make very much money if at all, it really does depress when we get our almond farms and we put them in front of our people that are doing the valuations, they pull them down in terms of what they are worth. Luckily, we are not in any of them to such an extent that it would have a big impact on us. But it always hurts when you have an oversupply. But that normally corrects itself as people go out of the business or if the product picks up again, we wish the people in India would start eating more almonds. They used to eat a lot, but it’s really hard to get. And we were blocked in trying to ship them to there for a while. You couldn’t even get them over there, much less get them eaten. It’s like anything else. We are very lucky in that most of our products are not shipped outside of the United States. In fact, I’d say, maybe 80% or 90% are eaten here. But all the ones on the ground are great. Blueberries are doing well, except for the one farm up north. It’s a good business to be in right now. We are not suffering the way that some of the people are under this inflationary experience that we are all going through.

Okay. And then one quick detail one. Just kind of roughly, what’s the split in terms of the size of new rent from the blueberry farmer versus the almond farmer that are on cash accounting?

I think the write-off was pretty much a 50-50 split. If you look at it from terms of kind of annualized basis, it’s probably about two-thirds almond grower and one-third the blueberry grower.

Okay. That’s it for me. Thank you very much.

And John, just so you know, we have some farmers that want to take over those farms. We are just reluctant to push somebody out and push somebody else in. However, we may have to do that and it really hurts my feelings, because so many of these farmers have worked so hard to make it work. Next question, please.

Thank you. Our next question is from Craig Kucera with B Riley Securities. Please proceed with your question.

Hey. Good morning, guys.

Good morning, Craig.

Do you -- as we -- good morning. As we sit sort of midway through first quarter, do you have any thoughts on interest patronage that may be received here in the first quarter?

No. We haven’t received -- I don’t know if we received any communications from farm credit banks yet. It should be coming in probably later this month or next month. But, no, we haven’t received any communication, however, but we would expect the refund if we are talking about kind of basis point reduction to be a little bit lower than in the prior two years. And the only reason we say that is, because I think in the past two years, farm credit has tried to give back a little bit more to help out local growers with the pandemic, mostly -- most people think the pandemic is kind of a thing in the past. I am not sure if that will continue. It might, but that’s just kind of our expectation, but we really don’t have any information yet to estimate that.

Okay. Great. I think you had about $20 million in CapEx this year. Do you have any large CapEx projects in the budget for 2023.

Well, we keep twiddling those down simply because we want to conserve cash, but most of those are related to making sure that we have water for our farms. So we have a lot of that going on. We are always spending money to make our wells a little deeper or pipes that are running from one farm to another one source to another. But we don’t have. I think the biggest one is about $7 million in it.

Yeah. I think we had two sizable ones that came from recent acquisitions. One was an acquisition in Florida at -- in December of 2021 and another one, Vineyards up in the Pacific Northwest and the State of Washington and Oregon in July. So we are -- both of those two acquisitions were bought with the understanding. They were development projects, either expanding plantable acreage or planting new wine vineyards and installing new irrigation infrastructure. So that was part of the original underwriting of both of those deals and we are earning additional rent on both those projects as the funds are paid out by us.

How big are those?

I think one is about -- Florida is about $3 million and the other one is about $2.5 million or so.

Okay.

And both of those will -- the farm -- the one in Florida is mostly complete. The one in the Pacific North West will continue for the, probably, for the rest of this year and into next year as well.

Okay. Great. And just one more for me, circling back to the receivable write-downs. I think earlier last year, you had a renewal where you took lower base rent in exchange for higher participation income and I think you actually referenced that in your commentary in the press release. Were any of those farms where you restructured the lease last year related to the rent receivable write-downs this quarter?

No. That was a different farm in the Midwest that, we got our crop share and came out making some money on that farm. These tenants hadn’t gone any restructuring of leases like that.

Okay. Great. Thanks.

Paul, have you got any more questions?

David, there are no further questions at this time.

Oh! Shocks. We wanted more questions. Anyway, we thank you all for calling in and if you don’t have any more questions, you are going to have to wait till next quarter. That’s the end of this call.

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.