Gladstone Land's CEO Discusses Q4 2013 Results - Earnings Call Transcript

Feb.25.14 | About: Gladstone Land (LAND)

Gladstone Land Corporation (NASDAQ:LAND)

Q4 2013 Earnings Conference Call

February 25, 2014 8:30 AM ET


David J. Gladstone – Chairman, President and Chief Executive Officer

Michael LiCalsi – Secretary and Internal Counsel

Danielle Jones – Chief Financial Officer and Treasurer


Dan P. Donlan – Ladenburg Thalmann & Co., Inc.

Brian Hollenden – Sidoti & Company, LLC


Good morning and welcome to the Gladstone Land Corporation Fourth Quarter ended December 31, 2013 Shareholders’ Conference Call. All participants will be in a listen-only mode. (Operator Instructions) After today’s presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded.

Now, I’d like to turn the conference over to David Gladstone. Mr. Gladstone, please go ahead.

David J. Gladstone

All right. Welcome to the conference call for Gladstone Land and this is David Gladstone and thank you, Keith, for that nice introduction and thanks for all of you people calling in. We like to talk to people, we enjoy this time that we have with our shareholders and wish we have more time like this.

Please note that if you’re ever visiting the Washington D.C. area, we are located in a suburb called McLean, Virginia just outside and you have – of D.C. and you have an open invitation to stop and see us if you’re in this area. You’ll see a great team at work, and there’s over 60 members of the team now. So we’re no longer a small business, we have about $1.5 billion in assets under management in all our companies. Also, when you’re here, you’ll see that some of the folks bring their dogs and they come here to be with us during the day. So we have a good organization.

We have a team presentation for you today. And the first person will be Michael LiCalsi, our Internal Counsel. He is also a Secretary to the company and he is President of our Administrator that keeps up with a lot of the statements regarding all the things that go on here. So he is going to talk about the forward-looking statements. Michael?

Michael LiCalsi

Good morning, everyone. This report that we’re about to give may include statements that may constitute forward-looking statements within the meaning of Securities Act of 1933 and the Securities Exchange Act of 1934, including statements with regard to the future performance of the company. These forward-looking statements involve certain risks and uncertainties that are based on our current plan, which we believe to be reasonable.

As there are many factors that may cause our actual results to be materially different from any future results expressed or implied by these forward-looking statements, including all of those factors listed under the caption Risk Factors in our company’s Form 10-K and Form 10-Q reports that we filed with the Securities and Exchange Commission. These forms 10-K and 10-Q can be found on our website at, and on the SEC’s website at The company undertakes no obligation to publicly update or revise any of these forward-looking statements, whether as a result of new information, future events or otherwise.

In our talk today, we will note that we intend to elect to be a real estate investment trust or REIT and therefore, we plan to talk about funds from operations or FFO. Since FFO is a non-GAAP accounting term, we need to explain that FFO is defined as net income, including the gains and losses from the sale of real estate and any impairment losses, plus depreciation and amortization of real estate assets. The National Association of REITs or NAREIT has endorsed FFO as one of the non-accounting standards that we can use in discussions of REITs. Please review our Form 10-K filed yesterday with the SEC and our financial statements for a detailed description of FFO.

The report from the company’s President and CFO that you’re about to hear is an overview of the company’s operations and performance. We encourage all listeners to read yesterday’s press release and the annual report on Form 10-K that was filed yesterday with the SEC. There’s a lot of good information in those documents that will help any investor. You can find them at our website and on the SEC’s website at

To stay up to date on the latest news involving Gladstone Land and our other public companies, please follow us on Twitter, username @gladstonecomps and on Facebook, keywords The Gladstone Companies. And you can go to our general website to see more information about this company and our affiliated publicly traded funds at

I’d also like to take this opportunity to mention that we have our first Annual Meeting of Stockholders in McLean, Virginia in May of this year. The proxy will be filed in the late March or early April, and we will need you to vote your shares.

Now I will turn the presentation back to David Gladstone.

David J. Gladstone

All right. Thank you. That was a good report. Before we go into the numbers, I’d just like to update some of the newcomers to the call about our history. We began this company in 1997 as a fully-integrated berry and vegetable grower. Not only did we grow the berries, we were a shipper and marketer so we sold to people like Safeway and Kruger. We also had about 2,500 employees. We had the largest integrated strawberry operation in United States at the time.

In 2004, we sold our agricultural operation business to Dole, we kept our farmland. Dole became our largest tenant and still is today. since the sale, our business has consisted solely of operating farmland – of owning farmland and leasing it to independent and corporate farmers. And since 2004, we’ve been buying farms and adding to our list of properties.

Just as a reminder, there was a big gap in the time we were looking for farms due to the recession after 2004, and it’s only recently that we’ve come back into the market on a full-time basis. The farms we own are predominately concentrated in locations where farmers are able to grow really the high value annual crops, such as berries and vegetables. These are row crops, which are planted and harvested annually and many cases, more frequently.

We also have a small amount of farmland that is farmed to blueberries, which are permanent crops and that blueberry bushes may last up to 40 years. Typically, blueberries are farmed by many other same fruit farmers that grow berries and vegetables and they are also sold to similar customers, such as the supermarkets and the wholesalers. We like the blueberry business, because there are varieties that can be harvested by machinery with labor cost going up, it’s one of the things that we worry about. So, blueberries have an exception to that.

Also, we’ve acquired some farm-related properties with buildings, such as coolers, these are in connection with the ability to cool the produce before it’s shipped and we own one box barn on one of the farms, which is used to store and assemble boxes for shipping.

We are also looking at processing plant, packaging buildings, distribution centers, some of those may show up in the future, but really investors should expect the bulk of our assets in the future as they are today to be in farmland that’s leased to farmers to grow food.

We currently own 21 farms, two coolers, one box barn. There are some smaller buildings on these properties. Eight of our farms are located in California, six in Florida, four in Michigan, two in Oregon and one is in Arizona. As this customary in agricultural leases, we generally intend to enter into leases with farmers that have somewhere around two to five years. However, when we lease properties that are growing on long-term permanent plants, such as blueberries or if we ever went into the tree side or the vine side, we anticipate entering into longer-term leases as we did with the blueberry farms that we acquired this year. Those have leases ranging from five to 15 years.

We will be required to frequently renew the shorter-term leases that we have on our properties upon expiration of those leases and we expect that we’ll generally be able to renew the leases with the same farmers and we believe the strategy will also commit us to increase the rental rates over time. We have been successful with the strategy to-date and I think it’ll serve us well in the future.

When we enter into long-term leases, we will seek to place provisions in the leases such as escalation clauses that provide for periodic increases in the amount of rent, as well as periodic market resets to the rental rates based on local rental rates, and typically, those are set, so that if rental rates in the area go up, our rent goes up. If it goes down, our rent stays the same.

And just as a footnote on our leasing practices, we generally prefer to keep the same tenant on the property for as long as possible. These are people who know the farm and can farm it well. So, we like to do that.

On January 29, 2013, our shares began trading on NASDAQ under the symbol LAND and we raised the total proceeds of $51 million in that offering. We deployed $38 million of those proceeds for acquisition of nine farms in the past year and another $1 million in capital improvement in existing properties. Most of the remainder of these proceeds will be used to make distributions to our stockholders in order to pay out the prior year earnings.

In fact, we’ve already done that. So, we’ll be able to qualify as a real estate investment trust for tax year 2013. And here’s a point not to be missed in paying out the earnings and profits of past years, we returned $1.47 per share to shareholders in the form of distributions of prior period earnings. This is before 2013. So, if you purchased Docket 15 and the IPO, your current expected cost is $13.53 per share.

Just another footnote in our talk, we currently have no plans to make mortgage loans on farms, but may do so if an extraordinary opportunity that should come up. We’d probably want to do that only if we have the right to buy the farm at some point in time.

Over the last eight months, we have been increasing the list of farms that we are trying to buy and we have very strong list today during the six months leading up to the IPOs, really stopped talking altogether with farmers about buying their farms in order to get through the IPO process much more quickly.

As many of you may know, if you sign a contract to buy a farm, you have to redo the perspectives and so we just have to shutdown operations altogether. So, we lost about six months of marketing and talking to farm owners, while we are working on the IPO, which really hurt our acquisition activity certainly in the first part of 2013. But we are active now is evidenced by the fourth quarter activity.

I think the big news for the quarter ending December 31st is we acquired seven new farms and five set for transactions. We also good on the remaining $30.6 million available under our revolving mortgage loan, currently have about $41 million outstanding under that mortgage loan.

First farm required this December quarter was $7.3 million. It’s located in Salinas, California, a big growing area. It has 166 farmable acres and its farm for vegetables and berries. Upon the acquisition, we assume the lease that was in place on the property, which expires in two years from the day we acquired it.

In addition, we also executed a nine-year follow-on lease with a corporate grower that forms significant amounts of acreage in California. This follow-on lease will begin at the end of the two-year lease period. So, we really have about 11 years to go on that one. And that lease does have obviously – it moves up as prices move up.

The second acquisition this quarter consisted of three farms totaling 150 acres located in the South Haven, Michigan, that we acquired for $2 million. The property will be farmed for blueberries. In connection with the acquisition, we executed a five-year lease with one five-year option to one of the leading vertically integrated blueberry producers in Michigan.

The third acquisition this quarter was a 60-acre farm located in Moorpark, California for $3 million. This property has been farmed for lemons for many years. However, it will be farmed for blueberries as they takedown the lemon trees and go follow it with blueberries. They do have some [indiscernible]. We executed a 10-year lease with a 10-year extension option to a family-owned and operated farmer, who has been in that area and has farms around this particular farm for over a 100 years.

The fourth acquisition was 1,895 acres located in the Columbia Basin of Oregon, which we bought for $13.9 million. The property has been farmed in row crops and vegetables for decades. We executed a 10-year lease with a three five-year renewal options with a large farming operation that grows a variety of row crops and many other things other than they are very big potatoes and onions and they sell a lot of the potatoes and onions to the fast-food industry, one of the largest producers of that product. So, when you go out to eat, ask for extra, extra potatoes and onions. It will help us a little bit there.

The fifth acquisition this quarter was 1,760 acre farm in Willcox, Arizona, which we bought for $6.7 million. In connection with the acquisition, we executed a 10-year lease. The primary crops there are beans and corn. This is a new area for us. We are doing this to gain more knowledge. A very knowledgeable group that’s farming it. We are trying to get close to that area just to make sure over the next 10 years that we understand what’s going on in that area and hopefully can take advantage of it.

But now it looks for us to make big investments in this area immediately at least until after we see some performance of this property. And currently our portfolio of farms continues to be a 100% leased. All are paying as agreed. We were able to sign new leases on all three of the leases that were expiring in 2013 had increased rate. This is great news for us. It shows that there’s a high demand for agricultural land and that continues to be the case at least as far as we can see.

We have two leases that will expire this year in 2014 because the rental rates on these two leases have not been renegotiated in the past year. We anticipate being able to renew both of these leases at higher rates. Both of the tenants have the proposed leases in front of them, so we are heading into the discussions on these two leases. So, stay tuned for announcement on these leases.

List of possible acquisition remain strong. We expect to close on more properties in the upcoming months. At this point in time, we have one property undersigned, purchase and sale agreement that’s currently going through due diligence and we are moving towards the addition of this transaction. We also have two other properties under letter of intent, signed by us and the other parties. Our marketing activities are gaining significant traction. It should allow us to buy a lot of farms located throughout the United States.

Additionally, we hired a Managing Director of Marketing in Acquisitions in California to work with our contacts out there. We will find that he will find farms, I think all over the Western growing area. He has been a farmer and knowledgeable of farm properties for many years. He is really going to help us build our list of possible acquisitions out there in California as well as all the way up to Oregon and Washington. Next we will be looking for someone in the Florida area that can handle the southeast region. We haven’t put out a RFP on that one, but soon we should.

Just as a note on borrowing here. We are in discussions with our lender group to increase our line of credit and expand our mortgage line. We signed a letter of intent and the lawyers are drafting documents. I hope we will have an announcement in the near future on that as well. That will allow us to keep going for quite a good amount of time.

And now to talk about my favorite part is net asset value. Most of the real estate investment trust don’t update their value of their properties because it’s too expensive. However, for this year and we updated some of our appraisals so that our properties have independent appraisals and that there are less than one-year old. We also are using purchase prices of properties if we purchased it in 2013. So, if we purchased in 2013, even though we have an appraisal that was done at that time. For example, purchased it for less than the appraisal, we are using the purchase price. We didn’t purchase any of them more than the appraisal.

We have the schedule of values in the Form 10-K that was filed yesterday. And when we substitute those values for the carrying values of our properties in our financial statement for December 31, 2013, we come up with a new net worth number, that’s not $45 million as you see on the balance sheet, but rather it’s $88 million.

Now remember, we have just purchased many of these properties. So, the new appraisals haven’t changed the value. Hopefully as we go forward, we will see those values change. But using those values for the farms, that is the $88 million that we own resulting from the net worth number, this means our net asset value per share at December 31, 2013 is about $13.51.

So, doing the math, taking the $15 per share that investors paid on the initial public offering and deducting from that $15, the $1.47 that we returned to them in distribution from prior year’s earnings and profits is the new cost basis for shareholders that purchased on the IPO of $13.53. And that compares favorably with a net asset value per share of $13.51 especially after all of the very expensive cost of the IPO. There has really been no decline in net asset value per share even though we had all of those expenses of the IPO.

Using the net asset value per share of $13.51, this is our low watermark, we believe. And we will gauge all our progress by this as we move forward. We will be judged by this as we see or don’t see appreciation in the numbers. My bet is you are going to see some pretty good appreciation this year.

I think all those holders, who purchased on the IPO should be happy given that the very high cost of going public didn’t takedown the real net asset value. We expect in the coming years to be much better, have leases increase, rentals increase as well as appreciation in the land values.

I look at this REIT is the way to hedge against inflation. I think it’s a better hedge than gold. I remember watching Warren Buffett on an interview in TV and he said he would rather own farm land than gold. And I think that’s a good statement for us to all remember. Any number of smart investors have been advising stock investors to invest in farmland. Unfortunately they haven’t had an opportunity to invest in farmland until now. This is the only publicly traded farmland REIT.

So, let me just stop here. That’s enough business discussion. I turn it over to our Chief Financial Officer and Treasurer, Danielle Jones, for a report on the financial results. Danielle?

Danielle Jones

Good morning everybody. I will start by discussing our status of converting to a REIT. David mentioned we completed all significant actions necessary to convert to a REIT including the distribution of all accumulated earnings and profits in prior years.

Plus we believe, we qualify and intend to elect to be taxed as a REIT for federal income tax purposes beginning with the year ended December 31, 2013. The selection will be made when we file our 2013 tax return, which will be within the next few months.

We intend to be organized into operating manner that will allow us to continue to be qualified in tax as a REIT. As long as we qualify as a REIT, we generally will not be subject to U.S. federal income tax, if we distribute at least 90% of our taxable income to our stockholders.

And now, let’s discuss our operating results beginning with the balance sheet. As David mentioned, we acquired seven additional farms this quarter for an aggregate of $32.9 million. These acquisitions further diversified our investment portfolio to include 21 farms located in five different states. While the majority of our farm acreage and rental operations remain concentrated in California, we continue to diversify our portfolio.

The percentage of total acres we owned based on farms in California has decreased from over 95% two years ago to just 24% as of December 31, 2013. With our acquisitions this quarter, we also further diversified our crop type by acquiring more properties with permanent crops and expanding into the grain market, as well as our tenant base for adding additional growers on our property.

We intend to continue to further diversify our portfolio by acquiring additional farms in our regions of focus. During the fourth quarter, our total assets increased to $93.7 million through the 9% increase from the prior quarter due primarily to the seven farms we acquired during the quarter, coupled with the cash we received from withdrawing our mortgage loans.

Switching to mortgages on our properties. we do have mortgage loan agreement with MetLife for $45.2 million that matures in January 2026. The net currently accrues interest at a rate of 3.5% per year and the interest rate is subject to adjustment in January 2017. As of December 31, the facility was fully drawn with $43.1 million outstanding under the loan. We did make an amortizing principal payment on the loan in January of 2014 and the current balance is now $41.3 million. We are currently in discussions with our lender to increase the commitment under this loan.

We also have a $4.8 million line of credit with MetLife that matures in April 2017. As of December 31, we have $100,000 outstanding on the line, which is the minimum balance required at an interest rate of 3.25%. We are also currently in talks to expand and extend this line of credit.

Reviewing our upcoming long-term debt maturities as I mentioned, we made a payment of $1.7 million on our mortgage loan in January, which represents the normal debt amortization payment due on our MetLife mortgage loans. We have no other payments due on the facility for the remainder of 2014.

Pre-tax FFO available to common stockholders decreased in prior quarter to $234,000 for the quarter ended December 31, 2013. while our operating revenues for the quarter increased by 18% from the seven additional farms acquired during the fourth quarter. This was offset by the increase to our operating expenses during the quarter, primarily because of additional auditing and accounting fees incurred related to our acquisitions, as well as an increase in the management fee paid to our adviser.

The additional accounting fees related to the cost of reviewing and auditing each of our acquisitions, as well as requirements to file certain reports with SEC. The management fee also increased due to the decrease in the amount of un-invested IPO proceeds that are deducted from stockholders’ equity, as we invested a large portion of the proceeds into new property during the quarter.

Please note that as part of our management agreement; during our first year as a public company, the management fee was limited to 1% of common stockholders’ equity plus any un-invested proceeds from the IPO. However, beginning with the first quarter of 2014, the management fee will be calculated as 2% of common stockholders’ equity and there will no longer be a deduction for un-invested proceeds, thus we expect a significant increase to this line item for 2014. We anticipate continued growth in 2014, as we expect to deploy the remaining cash we have on hand, as well as any cash we may receive as a result of obtaining additional financing.

And I’ll turn the program back over to David.

David J. Gladstone

All right, that was a good report Danielle, and this is our first year as a public company. It is very expensive to get from being a private company to a public company that. But now we’ve finished with all of that. We have our first 10-K filed that should be far less expensive and a lot easier as we go forward. I think the main report to tell you about is that we executed on the plan to acquire farms in 2013, using the proceeds from the public offering. And we also have a nice list of potential properties that we’re interested in acquiring through, and as we go through that list, we hope to be able to grow the farm portfolio significantly during 2014.

Since we’ve used all the equity money from the IPO now in new farms, we are now using money that we have for our mortgage loan and we have availability to borrow [ph] under our line of credit and we’re currently working with our lender to expand the line of credit and if that happens, we’ll buy quite a few more farms. We have signed a letter of intent, and going forward, we hope to finish that increase in our lines soon. And I think the new line of credit will have plenty of money to buy farm. So we’re looking forward to that.

With an increase in the portfolio of farms, of course, comes greater diversification and protection for investors and we also expect much better earnings. We anticipate that many of the farms we purchased will be acquired from farmers or agricultural companies and that they or independent farmer will simultaneously lease the farm from us. These types of transactions provide the tenant with an alternative to other financing sources such as borrowing and mortgaging the property or even selling some kind of security. So we think it’s a big asset for those farmers.

We also expect many of the farms that we acquired will be purchased from farm owners that don’t really farm the property, but they will lease the property to a farmer. In those situations, we assume the current lease or if we can, we intend to put our own lease in place prior to or simultaneously with acquiring farm, so that we get into the kind of leases that we like.

From an economic outlook point of view, we believe that – and as an investment in U.S. farmland has performed well over the last 10 years, compared to other asset classes. And I think farmland will continue to do that. We provide investors with a safe haven during some recent turbulence in the financial marketplace, pricing on farmland didn’t go down during the recession. Most of all, farmland historically has been an excellent hedge against inflation, and for those of you like me who believe there’s inflation coming, I think this is a great place to park some money.

On our business needs, this is very straightforward. There are more people in this world. every year, people have to eat. Farmers need farmland to grow food. Farmland is converted to non-farm uses. So there’s less farmland to grow food in California. It’s just an avalanche of farmland being taken out of farm production [ph]. And there really is no replenishment of farmland in places like California. There is no more trees to cut down, no place to go.

So farmland is disappearing and becoming more valuable every year. So we got two pressures, farmland going out into urban and suburban uses and a number of people increasing, putting more and more pressure to get more and more food out of the land.

In January 2014, the Board voted to declare monthly distribution of $0.03 per common share for each of the month of January, February and March. This is smaller than I wanted obviously, but until the line of credit is expanded and we buy more farms, we just have to be safe and declare $0.03, but hopefully, as time goes on, we can continue to increase that.

With the stock price now at about $11.95, the distribution yield on our stock is about 3% in any of the REITs that trade on the stock market or traded in the 3% to 4% range. So we are not too far off from that and today’s yield marketplace. But please remember that purchase the stock is really a long-term investment in farmland. It’s part of an asset, investment just like goal and with today’s price being $11.95 and the asset being worth $13.51 in farmland, you’re really able to buy $1 worth of farmland for $0.88. So it’s a tremendous opportunity to stock up.

We expect inflation to be strong and the value of farmland to increase faster than inflation. there’s really no guarantee that this will happen, but that’s what we expect to happen. so farmland is a place to go, rather than some of the other storehouses that will such as goal.

Early in April, during the regular scheduled quarterly board meeting to declare the monthly distributions for April, May and June, and just want to mention one thing, I know it’s weighed on a lot of people’s mind is that the drought in California continues to come up as I talk to shareholders or potential shareholders.

Most of that drought is in the Central Valley. It’s a dire circumstances over there. they depend on our canal that runs out of the mountains. And so when they don’t get snow or rain, it’s really terrible for the farmers there. We have no farms in the Central Valley. So we don’t have that problem. we had looked at some, but never been that interested in buying farms there.

At Watsonville, where we do have farms, that’s next to the ocean. you can see the ocean from many of our farms there. They’re all okay. All the farms have wells on them. they seem to be fine. They’re pumping there, so we feel very good about that. In addition, some of the farms have a turnout from the water that’s taken from the city and turned into potable water. So we don’t worry about Watsonville and the farms that we own there.

Oxnard has had some problems, not our farms, because all of farms have good wells that are doing fine, but there are some places in Oxnard that are worried about the drought. So from our standpoint, the water rights in these farms is probably worth as much as the farms themselves, or the farms wouldn’t be worth much without the water, right.

So if that is enough. I think at this point in time, so, if the operator will please come on and help our listeners, so they can some questions.

Question-and-Answer Session


Yes. Thank you. We will now begin the question-and-answer session. (Operator Instructions) And the first question comes from Dan Donlan with Ladenburg Thalmann.

Dan P. Donlan – Ladenburg Thalmann & Co., Inc.

Thank you, and good morning.

David J. Gladstone

Good morning, Dan.

Dan P. Donlan – Ladenburg Thalmann & Co., Inc.

David, can we talk first about the mortgage loan discussions or the credit facility discussions that you’re having. It looks like you still have $16 million or so, on your balance sheet. So I’d imagine you’re probably going to encash at least and I’d imagine you’re probably going to run through that before you’re going to extend the line, but could you maybe talk about how much you’re trying to extend the line by, if possible?

David J. Gladstone

Well, we have signed a letter of commitment, and we paid the fee. The lawyers are drafting the documents now. So until we get the final document, it’s really hard to talk about that. I don’t like to guess where it will come out. we’ve asked for, and they’ve agreed to a very large amount, which I don’t – again, don’t want to give out. but if we got, what we’re going to get, we will have plenty of money to buy farms for a good amount of time.

Dan P. Donlan – Ladenburg Thalmann & Co., Inc.

Okay. and then… Go ahead.

Danielle Jones

Dan, just going to follow on, even if we expand it, it doesn’t mean we’re going to draw right away. So we’ll draw the funds as we need it. So we’ll just expand the facility to give us the capability to do that.

Dan P. Donlan – Ladenburg Thalmann & Co., Inc.

Okay. And as far as facilities tend to be more short-term use of proceeds from most the REITS, is your intention to then term out that line with longer-term mortgages secured by various farms or what’s your thought process there?

David J. Gladstone

Yes, two points to make there. First of all our lender, everybody knows I think it’s MetLife. They’ve been wonderful. And what happens there is we actually have a mortgage in place that has another 17 years on it if I remember.

Danielle Jones


David J. Gladstone

26. So, 26 more years to go and we can pull down on...

Danielle Jones


David J. Gladstone

2026. Okay. That’s what I thought. So, 2026, so we can draw down on that whenever we buy a farm and we put it under their collateral obviously. So, it’s not like we have to go out and search for a mortgage every time we do a transaction. It’s in place.

And if you remember, the old mortgage was at about 3.5%. We certainly expect to get that going forward as well. So, from our standpoint, we feel really comfortable working with MetLife. However, we have talked to MetLife and we’ve reached an understanding that if we want to mortgage with someone else, so that if we want to go out and say, go to some of the other mortgage lenders therein, the farmland business, we can do that as well. So, we will probably diversify some over time, although it’s really hard to beat what MetLife is offering.

Dan P. Donlan – Ladenburg Thalmann & Co., Inc.

Okay. Understood. I appreciate that color. And then as far as what you have under due diligence versus LOI versus the overall pipeline, can you maybe give us a sense as to where is that shaking out?

David J. Gladstone

Well, as I mentioned, there’s one and we’re trying to close now. It’s purchase and sale agreement. It’s only about $2.5 million. So, not a big deal. And then LOI is about $5.6 million and then that has been – indications of interest, where we told them we want to buy that’s about $60 million.

And then there’s about $550 million of stuff that we haven’t worked on very hard other than telling them, this is where we are. This is what we’re interested in doing. We obviously don’t have enough money to buy all of that. But if we got our deal done with MetLife, we would be in – as I say in the farming business, tall cotton.

Dan P. Donlan – Ladenburg Thalmann & Co., Inc.

Okay. I don’t know that’s saying, but I’ll take your word for it.

David J. Gladstone

It’s a good thing. Tall cotton is good.

Dan P. Donlan – Ladenburg Thalmann & Co., Inc.

Okay. And then as far as competition goes for farmland assets, have you lost out to some of the larger pension funds that are continue to pour money into the sector? Can you maybe talk about.

David J. Gladstone

Let me tell you where we are on competition. For the bigger transactions, we’ve not been able to compete because we’re small. We didn’t do one deal that was about $50 million that we wish we could have done. We had another one at. We think we would have won it at $28 million to $30 million. We don’t know that because it hasn’t closed yet.

We did not bid on that because again we just couldn’t take on that much at one whack. As time goes on and we get bigger, we will be able to stand up to some of the larger pension fund such as well, pension fund like TIAA-CREF, who probably owns $3 billion worth of land and is buying all over the world. Prudential is a big buyer for their REIT portfolio, not REIT portfolio, but their farmland portfolio. And John Hancock is very large.

There are several other buyers that buy big blocks that we just haven’t been able to compete with. We did run into on the Oregon property, which is a pretty good sizable property at $13 million. We did run into one of the bidders there and we were chosen over them. And I can’t tell you why other than I guess our prices were better. But more importantly, we look at things for the very long-term, want to stay with the same tenant as long as we can.

And I think we came across of that, plus our fellow that’s working for us in California knew the gentlemen and his family for some time. So, we went out from that perspective as well in terms of trust. So, yes, we do run into a lot of competition, when it comes to bigger transactions, although someone like TIAA-CREF will be buying land in Uruguay and Argentina and Chile and Africa, all over. So, they’re looking for big place, we are still in the smaller area.

On the small end of the stick, we sometimes run into other farmers that are out there looking at farms, looking to buy farms. And we’ve not lost any to other farmers. But I suspect in the future, we will. There are some smaller farmers that we don’t buy properties from because they want ridiculous prices. And so, just let’s you know, if those prices do come to fruition, our portfolio would be worth about twice what it is today. But right now, we feel very comfortable dealing with the smaller transactions and unfortunately, you just have to do a lot of them in order to get the size. Did I answer your question?

Dan P. Donlan – Ladenburg Thalmann & Co., Inc.

Yes, it’s more than answered, David. I appreciate it. Thank you.

David J. Gladstone

Keith, do we have any other questions?


Thank you. (Operator Instructions) And our next question comes from Brian Hollenden with Sidoti & Company.

Brian Hollenden – Sidoti & Company, LLC

Good morning, guys. Thanks for taking my call.

David J. Gladstone

Good morning, Brian.

Brian Hollenden – Sidoti & Company, LLC

So, what are you seeing in terms of pricing and cap rates on the deals that you’re currently looking at?

David J. Gladstone

Yes, cap rates and for those who don’t know what cap rate is, it’s the yield that you get when you divide the purchase price into the amount of rent that you’re going to get. And the cap rates have remained pretty steady and I think we’re averaging about 5.5% now in our return. And so, that’s a good rate especially given the fact that you can push the rate up in a couple of years. Usually, in two to three years, we have on our leases the ability to increase the rent to the current property values.

And so, as a result, we work on that theory that maybe a little bit low as you get into the deal, but certainly after a couple of years, you’re going to be moving the rent up and you’re going to be in the 6% or 7% rent in 5, 6 years. So, we’re seeing cap rates remain the same. Not to say that there are some people out there that they trying to get 4s and 3s and those kind of things. But it’s not something we’re going to buy at that rate.

Brian Hollenden – Sidoti & Company, LLC

All right. Thanks for that. And then you alluded a little bit to how much you generally you’re looking to spend in 2014. I was wondering if you can give us a little more concise of what you think you actually will execute on for fiscal 2014.

David J. Gladstone

Probably somewhere between $50 million and $100 million would be a guess today. And that will – there are a lot of variables around that.

Brian Hollenden – Sidoti & Company, LLC

Okay. Thank you very much.

David J. Gladstone

Next question, please?


Once again, we have another follow-up question from Dan Donlan with Ladenburg Thalmann.

Dan P. Donlan – Ladenburg Thalmann & Co., Inc.

Hi, David, just wanted to go back to the rent discussion. I think you got 22% of your rents expiring in 2014. Can you give us any sense from a modeling perspective, what type of increases we can expect there? I think in the past, you’ve had some that is increased, maybe double-digit for others, maybe kind of in the low single-digit. So, any color there would be helpful.

David J. Gladstone

Yes, we have two that are coming up this year. We presented the new lease to both of them, they’re both considering it. In one of the cases, we have somebody that owns the property in the worse way, we actually showed that person the lease and they would jump on it in a heartbeat. So, at least – tenant number one doesn’t want it, we do have a backup for that one.

The other one is a property that I have owned since 1997, and it is just a perfect piece of property for growing berries. And I think it will go for a very high number. I don’t know that either one of those in the year coming up will be double-digit. But it will be very strong.

Dan P. Donlan – Ladenburg Thalmann & Co., Inc.

Okay. And then lastly, at the IPO, you talked about potentially being able to issue OP units to prospective buyer or prospective sellers. Is that something that you’re still exploring? Have you seen any interest there? Any details would be helpful.

David J. Gladstone

Sure. We’ve had one individual, who wanted to do it, but the property was not something that we really wanted. It was a little more development. As you probably know, there are farms that transition from – and this one happened to be in the Florida. That transition from oranges into, say, strawberries or blueberries or something else, higher and better use.

The problem in Florida, of course, is that so many of the trees have this blight that’s going on down there killing the trees. And so, this was one that we were going to have to spend a lot of money to convert. And he wanted to do UP units, UPREIT because he’s got a very low cost basis. But we just couldn’t see our way to investing that much money and having low returns over the next 5 to 10 years. And so, as a result, we passed on it.

That’s really the only one that we’ve come close to and quite frankly, the biggest problem is the low float on the shares, the small net worth. You may remember a company called Capital Automated REIT, I was part of that Board. And we really didn’t get started on UPREIT shares until much later in the process. Once we’ve gotten, I don’t know $400 million I think in assets before people took us seriously about UPREIT.

We’ve got one family that’s interested. Their price is a little bit too high at this point. So, as time goes on, it will be a big part of it, but we just got to get bigger first before we can do that. So, none in discussion at this point in time other than sort of tangentially about the pricing.

Dan P. Donlan – Ladenburg Thalmann & Co., Inc.

Okay. Thank you, David.

David J. Gladstone

Other questions?


Actually there are no more questions at this present time. So, we would like to turn the call back over to management for any closing comments.

David J. Gladstone

Okay. Thank you very much all of you for calling in, and we look forward to talking to you in the quarter end. And I think you are going to see some big pluses by then. Thanks very much. That’s the end of this conference.


Thank you. The conference is now concluded. Thanks for attending today’s presentation. You may now disconnect. Have a nice day.

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