Gladstone Land Corporation

types of crops. Given the number of different growing regions, tenants and different types of crops on our farms, we think this is sufficient diversification to provide safety and security for the cash flows coming in from the rents. We believe these diversifications help protect the dividends that we pay to our shareholders. After closing nearly $150 million of farm acquisitions in the fourth quarter of 2021 last year, we've been pretty quiet on the acquisition front for a year, for the last three months. But things are picking up for us in the last six or seven months of this year, which you should see are typically our most active periods. You'll see us close some deals and We announce each one of those as they come to fruition. However, largely as a result of those acquisitions last quarter and aided by interest patronage received from the farm credit people that we borrow from, we did have another strong quarter from an operational standpoint. We're coming off a year in which we reported $5.2 million of participations from last rents, and we have a few more farms with participation rents provision scheduled to come online for this year that we didn't have last year. So we're optimistic at being able to report a good result for 2022. However, these numbers are largely dependent upon the yields achieved in the farms, the prices at which the crops are sold. So we'll need to wait until later in the year before we can estimate and announce those figures. To continue to be able to renew all expiring leases without incurring any downtime on any of our farms, that's what we did, and we're hopeful that we can continue to do that. As for farms on our primary regions of focus, this is along each of the coast, we continue to execute renewals at higher rent levels. Upon a change of a lease structure, as we did on one of our farms, it hurt our income a little bit But we'll go over that in a bit. Overall operations on our farms remain strong, and the demand for products growing most of our farms remains high. These are products like berries, vegetables, and nuts. As anybody who goes to the grocery store can tell you, prices on these products continue to rise. One reason we've been less active with acquisitions so far this year is because, well, being much more selective in the types of farms that we're looking at right now. In light of all the economic uncertainties surrounding our nation right now, we believe it's a good time to be more conservative with our capital. So we're trying only to look at acquisitions that we feel are far safer than investments for us than some of the others that are out there. And this benefits, of course, our shareholders. On the leasing front, since the beginning of the year, we executed seven lease renewals, properties located on four different states. Overall, these renewals are expected to result in a decrease in the annual net operating income of about $580,000. And that's primarily due to one of the leases. Other than that, we're in great shape. The result of this one lease renewal on our property which we invested $560,000 to cover a portion of the farm's operating cost in exchange for adding a significant participation rent component to the lease. The tenant there wanted to see how it worked before he signed a long-term fixed rate lease. So we're going to get 80% of the gross revenue earned on the farm this year based on current commodity prices and yield estimates, we think, We'll end up in a similar place where we would have been on the previous lease on this farm, but we'll not know the results until the end of the year when the crops are sold. Excluding this one lease, our other lease renewals are expected to result in an increase in annual net operating income of approximately $55,000, or about a 3% increase over the old leases that we replaced. Looking ahead, we only have one lease scheduled to expire over the next six months. It makes up less than one half of 1% of our total annualized lease revenues. We're in discussions with the existing tenant on the farm, as well as some potentially new tenants. And we aren't currently expecting any downtime on this one. We currently expect that the new lease on the farm will be relatively flat, maybe up a little bit where it is today. There are a couple of other items I'd like to mention before we move on. First one is the ongoing drought in the west. Despite some record-breaking rainfall in the western United States over the winter, including a relatively wet April, the entire region continues to deal with multi-year drought. However, all the properties continue to be in a position where our farmers currently have enough water to complete certainly the crop for this year, and I think will be fine in the years going forward. Where we have farms located in water districts, those districts do have stored water or supplemental sources to cover our farms. You have to buy the water. As you know, we have a lot of water that we have in the ground that is ours. Almost all of our farms have wells on site, and most of them rely on groundwater as their main source of irrigation. For these properties, we are seeing typical seasonal droppings in the water levels of the water in the ground. One thing you should know is that wet and dry weather cycles are the norm out west, especially in California. Throughout any long-term investment, we know that we will have both drought periods and wet periods. When we underwrite any potential investment, we look for properties with multiple sources of water. We build in drought scenarios, and we also take into account potential government regulations that might ask us to reduce our water consumption. Regarding the progress of ESG, this is something new for us. We continue to work on developing a formal policy related to disclosures. we consider to be relevant. There aren't any companies out there or any REITs out there that are similar to ours, so we've not seen anybody announce anything that would be good for what we're doing these days. But just so you know, several of our farms have large solar arrays on them that are used to power the operations of the farms, and we've been in discussions with groups to add wind power and solar leases onto other farms as well. We just always want to be careful that these additions aren't going to disturb our current tenants on these farms because, after all, these current tenants are our primary business partner. Finally, as mentioned on previous calls, we sometimes come across farmland owners who want to sell both their farmland and their operation as a package deal. As a real estate investment trust, Gladstone Land can't take operating income because operating income is generally not permitted in real estate investment trusts. We do have some additional things that we're doing to potentially take advantage of such opportunities where Gladstone Land could not participate. I'm going to stop here. It's really enough of the operating day-to-day, so I'll turn it over to our CFO. Louis Parrish to talk to you more about the financials. Louis Parrish All right.

Thank you, David, and good morning, everyone. I'll begin by our financing activity. Since the beginning of the year, we've secured about $10 million of new long-term borrowings from three different lenders at a weighted average rate of 3.18 percent. This rate is fixed for the next seven-plus years. On the equity side, since the beginning of the year, we've raised about $10 million in net proceeds through sales of our common stock under the ATM program. and about $50 million in net proceeds from sales of the Series C preferred stock. Moving into the operating results, first I'll note that for the first quarter we had net income of about $1.2 million, and a net loss to common shareholders of $2.7 million, or 7.9 cents per common share. On a quarter-over-quarter basis, adjusted FFO for the first quarter was approximately $6.4 million compared to $6.7 million in the fourth quarter last year. And AFFO per share was 18.5 cents in the first quarter versus 19.9 cents in the fourth quarter of 21. Dividends declared per share were about 13.6 cents in both quarters. Primary driver behind the decrease in AFFO was $3.4 million of participation rents recorded during the fourth quarter of 21 versus none recorded in the first quarter of 22. Partially offsetting this was about $2.8 million of interest patronage or refunded interest recorded during the current quarter related to our loans from farm credit. Fixed base cash rents increased by about $700,000, or 4%, primarily driven by additional revenues earned from recent acquisitions. On the expense side, excluding reimbursable expenses and certain non-recurring or non-cash expenses, our core operating expenses remain relatively flat on a quarter-over-quarter basis. Total related party fees decreased during the quarter, primarily due to a lower incentive fee earned by our advisor, during the current quarter. However, this was offset by increases in both property operating expenses and G&A expenses. The increase in property operating expenses was driven by additional property tax obligations on certain properties, as well as annual state filing fees that we have to pay on each of our properties. And the increase in G&A expenses was largely due to higher professional fees, particularly additional audit and appraisal costs. Moving on to net asset value, we had 34 farms revalued during the current quarter. all via third-party appraisals. And overall, these farms increased in value by about $13.2 million over their previous valuations from about a year ago. These increases represented about a 4% increase in the value of these properties. We especially saw strong value appreciation across the board on our California properties, and that included properties growing fresh produce row crops in the Central Coast, as well as farms growing nuts in the Central Valley. And I think that's a testament to the job our team has done at locating farms with good sources of water that are able to withstand severe drought conditions like we're currently experiencing out there. With water at a premium out west, especially these days, we're seeing values declining for farms that only have one source of water, while prices of farms with multiple sources of water are continuing to go up. So as of March 31st, our portfolio is valued at about $1.5 billion. all of which was supported by either third-party appraisals or the actual purchase prices. And based on these updated valuations and including the fair value of our debt in all preferred stock, net asset value per common share at March 31st was $15.54, which is up by $1.23 from last quarter. The primary drivers of this increase were the aforementioned depreciation of the values of our funds, as well as the impact of increases in market interest rates on the value of our fixed long-term borrowings. Turning to our capital makeup and overall liquidity, from a leverage standpoint and with respect to our borrowings, our loan-to-value ratio on our total foreign holdings on a fair value basis and net of cash was about 40% at March 31st. Over 99% of our borrowings are currently at fixed rates, and on a weighted average basis, these rates are fixed at 3.25% for another five plus years. So we believe we are currently well protected on the debt side against further interest rate hikes. Regarding our upcoming debt maturities, We have about $66 million coming due over the next 12 months. However, about $48 million of that represents various loan maturities, and the properties collateralizing these loans have increased in value by a total of about $20 million since their respective acquisitions. So we do not foresee any problems refinancing any of these loans if we choose to do so. So removing those maturities, we only have about $18 million of amortizing principal payments coming due over the next 12 months, or less than 3% of our total debt outstanding. From a liquidity standpoint, including availability in our lines of credit and other undrawn notes, we currently have over $175 million of dry powder in addition to $30 million of unpledged properties. We recently increased the size of our MetLife facility. This gives us ample availability under each of our two largest borrowing facilities, and we continue to reach out to new lenders for additional borrowings as well. Finally, regarding our common distributions, we recently raised our common dividend again to 4.54 cents per share per month. Over the past 29 quarters, we've raised our common dividend 26 times, resulting in an overall increase of more than 51% over this time. Since 2013, we've paid 111 consecutive monthly dividends to common shareholders, and our goal is to continue to increase the dividend at regular intervals. Frontline continues to be a stable asset class and continues to perform well in the midst of all the uncertainty and volatility currently in the markets. We continue to believe that this stock offers a compelling investment alternative especially in light of today's inflationary and recessionary concerns. With that, I'll turn the program back over to David.

Okay, Louis. Thank you. Nice report. Acquisition activity remains good for us. We continue to see buying opportunities coming our way. We have a few farms that are either signed up or close to being signed up, and we hope to be able to announce some closings over the next few months. But we still have to complete our diligence process, and sometimes that goes very slow as you're trying to get appraisals in and other things that are necessary in order to close one of these investments. Some of these properties have not been sold for the last 100 years, so it takes a while to clean them up and make them good for us to buy. Additional points I'd like to make is believe that investing in farmland-growing crops that contribute to healthy lifestyles, such as fruits, vegetables, and nuts, follows the trend we're seeing in the market 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 most of California, Oregon, Washington, and the east coast, especially Florida and some other states on the east. And overall, farmland continues to perform well compared to other asset classes. There's a farmland index of farmland prices called Necreth Index, which is currently made up of about $14.4 billion worth of agricultural properties, including almost all of ours. As an average annual return, they've been at 12.6% over the past 20 years, with no negative years during that period. This is higher than both the S&P Index and overall REIT Index. both of which have had three, sometimes four, negative years in which they've gone down in value. We, in the farmland business, at least through Necreve's analysis, haven't any zero years. Please remember that purchasing stock in this company is a long-term investment in farmland. I think an investment in stock really has two parts. Similar to gold, our stock is a hard asset. It's farmland. It's dirt. That's the intrinsic value because there's a limited amount of good farmland available for us and available for people to grow things in the United States. It's being used up, as you know, by urban developments, especially in California and Florida where we have many of our farms. I think the second thing, 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 where A bond fund usually does not. Remember, you have the dividend plus appreciation from the farms. We had about $13.2 million in this quarter from the valuation standpoint. We expect inflation, particularly in the food sector, to continue to increase, and we expect the values of the underlying farmland to increase as a result. And we expect to be especially true in the more fresh produce food sector, as the trend is more and more people are eating healthy foods to continue to grow. Some farmland in the grain producing states, like the ones that we have, are strong this year due to the lower current production of stuff from Argentina, Brazil, Ukraine. I just know that there's going to be a problem somewhere along the way because there's just not enough grain being produced, and we'll see how that works out. Now I'm going to stop, and Donna, if you'll come on board, we'll get some questions from our friends on the line.