Gladstone Land Corporation

Q4 2022 Earnings Conference Call

2/22/2023

spk06: 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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.
spk00: 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 that we're 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 Lacalce. He's our general counsel and secretary, and he's the president of Gladstone administration, the administrator for all of Gladstone funds. Michael, you're up.
spk01: Thanks, David. Good morning, everybody. Today's report may include forward-looking statements of the Securities Act of 1933, 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. Many factors may cause our actual results to be materially different. Many future results expressed are implied by these forward-looking statements, including all risk factors in our Forms 10-Q, 10-K, and other documents we file at the SEC. Find these on our website, that's 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 any impairment losses from property, plus depreciation and amortization of real estate assets. We may also discuss core FFO, which 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 gap rents to normalized cash rents. We believe these are better indications of our operating results and allow better comparability of our period-over-period performance. Please take the opportunity to visit our website, once again, gladstoneland.com, and sign up for our email 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, at Gladstone Comps. 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 investor's page of our website. With that, I'll turn it back to David Gladstone.
spk00: Well, Michael, I'll 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 Banked 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. The farms continue to be 100% occupied and at least 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, 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've mentioned in a past couple of calls, acquisition activities remain slower for us than in the past as we continue to be much more selective in the type of farms we're looking at. Higher interest rates also impact the level of returns we've been able to achieve. on any new acquisition, but that too will pass. With inflation and interest rates continuing 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're having with two tenants. which led us to reverse out about $1 million in revenue in the fourth quarter. And so we hope to collect that in the future, but there's no guarantees on that. But despite those issues, we have another very strong quarter for you from an operating standpoint. We have good results from our participation rents. It has recorded about $4.7 million in additional income during this quarter. This resulted in a record total participation rents of about $7.7 million this year compared with about $5.2 million in 2021. So nice increase there in participation rents. The increase was largely driven by strong yields on our pistachio farms coupled with a continued strong demand for the crop. We had lower results on our almond farms, and this is due to weaker almond prices as the amount of almond market continues to be hampered by oversupply and exaggerated by the supply chain disruptions that arose during the COVID pandemic. Almonds are sold all over the world. And quite frankly, almonds in California end up all over Europe and especially in India, for example. Finally, we continue to be able to renew all expiring leases without incurring any downtime on any of our farms. We did change up a couple of the leases structure-wise, in which we reduced the fixed base rent in exchange for increasing the crop share component. We'll see this nice wet year in California if that was the right thing to do. We think we're in good shape for those once the numbers come in, but we'll have to wait for the year end in order for that to be proved out. Excluding those leases, we continue to execute renewals at higher rental rates. We had one small acquisition during the fourth quarter of 443 acres. It's an open ground piece. We bought it for about $3 million. This ground is adjacent to the farm we already own, right next door, and has both surface water rights and groundwater pumping rights. So the intention is to use these water rights as an additional source of water for our nearby farm. We also sell water. We also can sell water credits on our property to tenants on the other farms that are near ours. For the year end, the team acquired over 3,000 new acres, six different states for a total of $65 million. Overall, the initial cash yield to us on these investments is about 5.8%. And the leases on these farms contain certain provisions, such as participation rents that we just mentioned. And we also have annual escalations, in which if you go from one year to the next year, it may be up by 3% or 4%. And that should push the figures higher in the future for these farms. On the leasing front, we renewed nine leases on the farms from four different states. In total, these renewals are expected to result a decrease in annual net operating income of about $857,000 from the prior leases, mainly because we removed some of those leases from fixed rents to participation rents. However, this decrease was the result of lease amendments, and we executed three of our permanent planning farms in which either reduced or fixed the base rent or agreed to cover some fixed amount of the farm's operating costs. Excluding these three leases, lease renewals executed on our farms growing row crops are expected to result in an increase in operating income of approximately $66,000. It's about a 12% increase over the prior leases. Looking ahead, we only have one lease scheduled to expire over the next six months. It makes up less than 1% of our total annualized lease revenue. We're in discussions with a current tenant on this farm regarding the extensions. And we believe we'll be able to achieve a slight rent increase on this farm. But we aren't currently expecting any downtime to occur on the result of this upcoming expiration. A few other items to mention before we get over to Lewis and the financial world. Inflation continues to be forefront in most people's mind, as well as ours. The headline inflation numbers, of course, are about 6.4% per year. That's much higher than we want it to be at. And on the other hand, this is a category that's going to benefit from that. It's called food at home. It's a category that was up by 11.3%. So that's way ahead of 6.4% for the entire nation. This is a category where nearly all of the crops grown on our farms falls into that category. And most of our crops are sold in grocery stores. So when you go in the grocery store and you look at the produce section, that's where you'd find the products that our farmers are producing. We believe the increase in food prices will very substantially out-cover the inflation that's going on now. That should mitigate the increase in operating costs that many of our farmers are experiencing now. Regarding the recent floods in California, that's a new one to talk about is floods in California. We're always sad to hear about the devastation caused by natural disasters, especially this one in California. However, all of the rain and snow brought some relief to the region that has experienced drought conditions for most of the past three years. You're talking about extra feet of snow in the mountains that will melt this summer and flood all the areas down below. I know all of our people in California are very happy about what's going on. As a result of the storms, the snowpack levels are nearly two times their 20-year historical average. Most reservoirs in the state are also nearing their historical norms. In addition, there are no longer any areas in California that are in the two most severe drought categories, which is the first time in three years that's been the case. No one is proclaiming the drought to be over, of course. Much more rain is still needed to recharge most of the aquifers. We'd love to see the aquifers get fully recharged. We won't get that out of this rainstorm, but maybe as it happens over the next couple of years, we can get there. All of our farms are in the west, have wells on them, as well as those in the east. And so far, none of our farms have suffered water shortages due to the wells not being able to reach the aquifers. In addition, we continue to look at the opportunities to provide additional sources of water on our farms, and we're constantly working on that. State of California hasn't done all they could do in order to help us capture that water that's coming down. One final note on the recent floods out west. None of our farms suffered any extensive damage as a result of the storms. We had one farm that lost some shade structures, which were protecting blueberry bushes from the wind and other adverse weather elements. But generally speaking, the bushes are fine and the structures are covered by insurance, so we'll just build those back. We're forecasting rain out there all day today and for the next six days, so we're going to see a lot more water coming out there. Finally, regarding our capital plans, the offering of our Series C preferred stock was terminated in December after selling about 254 million of securities over the prior three years. Interest rates rose, leading acquisition activity to slow down. It became difficult to put those proceeds to work in an effective manner, so we just pulled that out. Then last month, January 2023, we began selling a new series E preferred stock, which carries an interest rate of 5%. Sales are beginning slow. as we expected. So don't expect this to sell at the same pace as Series C was selling. But we like having multiple sources of capital available to us so we know we have it when we need it. In addition, we started using our ATM program that's at the market program, which allows us to keep selling common stock directly to anyone who shows up and wants it. Again, a few months ago, the plan to continue to do so as long as the price is fixed. Since for us, we stopped selling that when the price dropped below 19. And we'll see what happens over the next six months. Got a great strong company, so we think it'll start selling again. I'm going to stop at this point. That's enough on the operations. And now I'll turn it over to our CFO, Louis Parrish, to talk more about the numbers.
spk02: Louis? Thank you, David, and good morning, everyone. I'll 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 and since the fourth quarter that were scheduled to mature. Since the beginning of the fourth quarter, we've 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'll note that for the fourth quarter we had net income of about $1.1 million and a net loss to common shareholders of $4.8 million, or 14 cents per common share. For the year, we had net income of about $4.7 million and a net loss to common shareholders of $15 million, or 43 cents per share. On a quarter-over-quarter basis, adjusted FFO for the fourth quarter was approximately $6.8 million, or 19.5 cents per share, and that was compared to $7.2 million, or 20.7 cents per share in the third quarter. Dividends declared per common share were 13.7 cents 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%. And AFFO per share was 71.6 cents in 2022, or 76.8 cents in 2021, an increase of 7%. Dividends declared were 54.6 cents in 2022 and 54.1 cents in 2021. Common dividend payout ratio was about 76% of AFFO in 2022 versus 81% in 2021. Primary driver behind the increases in AFFO was higher top line 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 quarter over quarter basis an increase by about $11 million, or 16% on a year-over-year basis. The increase for the year was primarily driven by additional revenues earned from recent acquisitions and completed CapEx projects. This increase was partially offset by the execution of certain lease amendments through which we reduced the fixed base rent in exchange for increasing the participation rent component. In addition, as David mentioned, we reversed about $1 million of previously recognized revenue in Q4 as a result of credit issues with two tenants. Going forward, revenue from these leases will be recognized on a cash basis until such time that full collection of the future rental payments is again deemed to be probable. During the fourth quarter, we recorded about $4.7 million of participation rents, and that compares to $3 million in the prior quarter. And for the year, we had about $7.7 million of participation rents versus $5.2 million last year. On a same property basis and including participation rents, our 2022 lease revenues increased by about $418,000 over that of 2021. On the expense side, excluding reimbursable expenses and certain non-recurring or non-cash expenses, our core operating expenses increased by about $890,000 on a quarter-over-quarter basis and by about $2.5 million on a year-over-year basis. Quarter over quarter, total related party fees increased by about $1.1 million and that was driven by a higher incentive fee earned by our advisor in the fourth quarter. And on a year over year basis, related party fees increased by about $1.8 million. This is primarily driven by a higher base management fee due to additional assets acquired. Removing related party fees, our core operating expenses decreased by about $240,000 on a quarter over quarter basis and increased by about $735,000 on a year over year basis. The increase in the annual period was primarily due to higher professional fees, particularly audit fees and appraisal costs, as well as an increase in certain property tax obligations. One final note on 2022 expenses. During the third quarter, we wrote off about $800,000 of deferred and unallocated costs related to the Series C offering as a result of an amendment that reduced that offering size. With that, we'll move on to net asset value. We had 30 farms revalued during the quarter, all via third-party appraisals. Overall, these farms increased in value by about $9 million, or 2.5% over their previous valuations from about a year ago. So as of December 31st, our portfolio was valued at approximately $1.6 billion, and all of this valuation was supported by either third-party appraisals or the purchase prices. Based on these updated valuations and including the fair value of our debt and all preferred stock, Our net asset value per common share at December 31st was $17.08, which is up by 52 cents from last quarter. Turning to liquidity, including availability in our lines of credit and other undrawn notes, we currently have over $200 million of dry powder, and we also have over $90 million of unpledged properties. Over 99.8% of our borrowings are currently at fixed rates, and on a weighted average basis, these rates are fixed at 3.26% for another five years. As a result, we have experienced minimal impact from the recent increases in interest rates. However, the rate increases do impact our ability to finance new acquisitions and also play a factor in our decision to repay versus refinance maturing loans. With respect to our current debt load, we believe we are well protected against further interest rate hikes for the foreseeable future. Regarding upcoming debt maturities, we have about $53 million coming due over the next 12 months. However, about $36 million of that represents various loan maturities. and the properties collateralizing these loans have increased by a total of $14 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 $17 million of amortizing principal payments coming due over the next 12 months, and that's less than 3% of our current debt outstanding. Finally, regarding our common distributions, we recently raised our common dividend again to 4.59 cents per share per month, This marks the 29th time we've raised our common dividend over the past 32 quarters, resulting in an overall increase of 53% over that period. And with that, I'll turn the program back over to David.
spk00: Thank you, Louis. That is a very nice report. It's nice when we have good numbers to report to the market. Continue to stay active in the market should a good opportunity present itself. But as mentioned over and over as we've gone through this, we're 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 a healthy lifestyle, such as fruits and vegetables and nuts, we're following the trend that they see in the marketplace today. Overall demand for prime farmland Growing berries and vegetables remain stable to strong in almost all of the areas where our farms are located, particularly along the west coast, including farms in California, Oregon, and the state of Washington, and on the east coast, especially in Florida and some of the other states as we've gone up the coast in the east. And overall, farmland continues to perform comparatively well to other asset classes. There's a group called Necreef. that run the NECRE 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 REIT index, each of which had three or more negative years over that same time period versus zero for farmland. Now, I just wanted to mention one thing. As you know, we're all publicly traded, and we have no control over the stock price. But if we were a closed-end fund with no market we would have had a return in terms of percentage gain of 23.17% last year and 21.43% in 2021. These are really strong returns in the private marketplace where there's no way of selling your stock. If our company was a fixed fund these days, we think the institutional shareholders would be very pleased with this. progress that we've made. But please remember that purchasing stock in this company is a long-term investment in farmland. I think investments in our stock is really two parts. Similar to gold, a lot of gold bugs around in this world today. This is a hard asset. It's farmland. It's dirt. It has an intrinsic value because there's a limited amount of good farmland, and it's being used up by urban development, especially in California and Florida where we have a lot of farms. And unlike gold and other alternative assets, it's an active asset with cash flows coming in. And we believe it's much better than a bond fund because it keeps increasing the dividend and the value of the assets are going up. We expect inflation, particularly in the food section, to continue to increase. And we expect values in the underlying farmland to increase as a result. And we expect to especially be true in the fresh produce and food sector that we're in. The trend in the United States is eating more healthy foods. And thank goodness we're in the right spot for that. As to the future, I think we're going to have income, strong income, during the next few years. And there's one statement that you can make on that, and that's because people have to eat. And since we're producing food, we're going to get it sold. The question is at what price? Now we'll have some questions from those who follow us. Operator, if you'll come on, please, and help the listeners ask some questions.
spk06: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question is from Gaurav Mehta with EF Hudson. Please proceed with your questions.
spk08: Good morning. First question on the million-dollar write-off. Can you maybe provide some color on what drove the write-off and possibility of collecting those rents?
spk02: Yes. So it'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, not lost, but we didn't record $400,000 of revenue that would have been recorded had they stayed on a cruel 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 that 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 doubly, if you will, not just on the growing side, but also through 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 in ICU for several months, and that led to a slow up we didn't put much pressure on him during that time because because of his situation and he also might we think he also overextended himself in terms of just expanding his operations too quickly so just put him in a little cash crunch but we're working with both these tenants to try to get caught up with payments but until we have a clear path forward both of these, revenue from all of these leases will be recognized on a cash basis and we'll 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 face in all of the future rental payments from each of these leases.
spk08: Okay. Second question, I was hoping if you could provide some color on the cap rates that you're seeing in the acquisition market for the farms.
spk00: Cap rates haven't changed much. If you're not willing to let them lease the ground at 5%, 5.5%, then cap rate, they won't lease it. Since we're 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're very slow right now. It's going to change, Rob. 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'll see some good opportunities as time goes on. Hate to take land at that rate, but it's awfully good for our shareholders.
spk08: Okay, thank you.
spk00: Do we have any other questions?
spk06: Thank you. Our next question is from Rob Stevenson with Janie Montgomery Scott. Please proceed with your question.
spk05: Good morning, guys. David, are you going to need to retenant that almond grower in California and the blueberry grower in Michigan this year?
spk00: I don't know. My guess is the almond grower will catch up. He'll 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'll get that one. The blueberry guy is, we're really worried about him. He's gone through a hell of a, he had an explosion on the farm and it burnt him pretty bad. So we're 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're 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'm going to send her out to California. She'll collect it for us. I'm just teasing now. She's sitting here laughing. Anyway, the bottom line of it all is these people are going to pay. We've got money coming in from all of our farms, with the exception of these. And at the end of the day, we'll get this money and we'll be fine. So I'm not worried about that. It's not like a disaster that everybody had back in 08 and 09.
spk05: Okay. Lewis, what is your incremental cost of debt today? If you guys had to 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 you're cheapest sourced?
spk02: Chivasaurus would definitely be one of the farm credit associations. Right now, our line of credit is quite expensive in the high sixes, 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'd probably be in the high fives, maybe low sixes at the high end.
spk05: Okay, that's helpful.
spk02: 150 basis points higher than that.
spk05: Okay. And so you guys have a fairly decent amount of cash on the balance sheet. 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, you know, You know, hopefully more acquisitions in the back half. Are you guys going to hit pause on all of that because you've got enough capital for now? How are you guys thinking about that?
spk00: Well, the company is in extremely good shape today. We've 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're in great shape to meet our dividends and go forward. But you're right. The question is going to be, and is today, I've 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've 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're going to be slow in using up our equity and our 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're 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.
spk05: 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 are something you guys spend any time on.
spk00: Yeah, know them well. The state of Virginia is backing one of the large strawberry growers, and we're certainly interested in that. But generally speaking, the indoor farms have one major problem, and that is if they're more than one story high, you're 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 one acre of lettuce farms in California and grow more lettuce than you could ever grow indoors. So for us, we're 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 of building those vertical farms. But I haven't seen any of the two-story or three-story, or I think they've even gotten some six-story ones out there, grow anything other than small greens. Those seem to work okay. We're 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're higher quality in terms of cleanliness, generally speaking. And so it's coming. Don't know when, but we'll 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. Glass ones are still better than the ones that are six stories tall, and I think we'll one day find one of those that we think is right and do it just to be in the business. But right now, we're on the sidelines and not doing those.
spk05: Okay. Helpful. Thanks, guys. Appreciate the time.
spk00: Okay. We have any other questions?
spk06: Our next question is from John Masoka with Leidenberg Thalmann. Please proceed with your question.
spk03: 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, negative with almonds, the positive with pistachios. But what are you seeing in terms of berries, fresh vegetables, other crops on the inflation front?
spk00: They're all strong. And if you go to the grocery store and pick up some strawberries, you'll see how much you're 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're 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're coming out of, I don't know, one of the Latin American places. Strawberries are special, and I would say 90% of the strawberries for the United States are grown in California. Not to diminish the good ones that come from Florida either. They're wonderful. And so we're seeing things in the strawberry and lettuce. You know, 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're really happy with where everything is except for a couple of guys that are a little slow on their payments.
spk03: 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 in the transactions you're seeing in the market today?
spk00: 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're worth. Luckily, we're 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 there for a while. You couldn't even get them over there, much less get them eaten. It's like anything else. We're 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're not suffering the way that some of the people are under this inflationary experience that we're all going through.
spk03: Okay. And then one quick detail one, just kind of roughly, what's the split in terms of the size of due rent from the blueberry farmer versus the almond farmer that are on cash accounting?
spk02: I think the write-off was pretty much a 50-50 split. If you look at it from terms of an annualized basis, it's probably about two-thirds almond grower and one-third the blueberry grower.
spk00: 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're 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.
spk06: Thank you. Our next question is from Craig Kucera with B Reilly Securities. Please proceed with your question.
spk04: Hey, good morning, guys. Good morning. Lou, 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?
spk02: No, we haven't received... I don't know if we've received any communications from farm credit banks yet. It should be coming in probably later this month or early next month, but I have no reason We haven't received any communication. However, we would expect the refund, if we're 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 of the pandemic as kind of a thing of the past. I'm 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.
spk04: 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?
spk00: Well, we keep whittling 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're always spending money to make our wells a little deeper or pipes that are running from one farm to another or one source to another. But we don't have, I think the biggest one is about $7 million in it.
spk02: I think we had two sizable ones that came from recent acquisitions. One was an acquisition in Florida in December of 21, and another one vineyards up in the Pacific Northwest in the state of Washington and Oregon in July. So 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 of those projects as the funds are paid out by us.
spk00: How big are those?
spk02: I think one is about, the Florida one was about $3 million and the other one's about two and a half or so. Okay. Okay. And both of those will, the one in Florida is mostly complete. The one in the Pacific Northwest will continue probably for the rest of this year and into next year as well.
spk04: 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?
spk02: 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.
spk04: Okay, great. Thanks.
spk00: Paul, you got any more questions?
spk06: David, there are no further questions at this time.
spk00: Oh, shucks. We wanted more questions. Anyway, we thank you all for calling in. And if you don't have any more questions, you're going to have to wait until next quarter. That's the end of this call.
spk06: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
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