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David Gladstone

Well, thank you, Michael. I'll start with a brief overview as I do each time. We have a lot of farmland. We currently own about 103,000 acres on 150 farms and over 55,000 acre feet, which is the way they measure water assets. Now one acre foot is equal to about 326,000 gallons, so we own over 18 billion gallons of water. And together the land and the water are all valued at a total of about $1.3 billion.
Our farms are in 15 different states and more importantly, in 29 different growing regions, and our water assets are mostly in California.
Farms are leased to over 65 different tenant farmers and people who manage the farms are a lot of people involved. And the tenants on these farms are growing over 60 different kinds of 60 different crops, mostly of fruits and vegetables and nuts, and you can find this produce in other sections of the grocery store as well as in the produce section.
Which is where most of the crops that are grown on any of our farms are sold. We mentioned in previous calls that we continue to be cautious with new investments because our cost of capital remains high. Cap rates on most row crops and farmlands are so low that today because of those situations, the value of those crops and land remain very high.
We also believe it's a good time to conserve cash given the uncertainty of the produce and nut marketplace, and the Federal Reserve is holding interest rates too high today, so hopefully they'll change their mind and reduce it down as time goes on.
We completed some farmland sales recently in December, we sold 11 blueberry farms in Michigan. These are farms that have been giving us some problems. We recorded an impairment charge on these farms in the third quarter and then had a small loss in the fourth quarter when we completed the sale. But these farms these farms had a negative impact on net operating income of about $400,000 in 2024.
We didn't see a clear path back to profitability, so we sold these farms. In January, we sold five farms in Florida at a sizable and represented about a 40% premium over what we had paid for at 6.5 years.
Farmland values in most parts of Florida have continued to go up at a faster pace, than the rest of the market, but it's still It was a time for us to sell some of these, and finally in February we sold two farms in the Midwest for a total gain of about 9% of what we paid for them.
We had originally budgeted these farms as potato farms, but the market shifted more toward corn and soybean in this region, so we felt that resulting cap rates didn't make sense for us to continue holding them.
Regarded leasing activity since the beginning of the fourth quarter. We've executed four new lease and amended our amendment agreements, all in the western permanent crop farms.
On two of these leases, we adjusted the lease structure in a similar manner to what we've done in a few other farms recently. That is, we eliminated the base rent, or in some cases provided the tenants with some cash allowances to grow the grow the produce. In exchange, we significantly increased the participation rent component of these leases.
The majority of which it will be recognized in the second half of 2025.
So, we won't have income from these leases, but in the near term, but when we sell the crops, we'll get a big piece of it. And I want to touch a little bit more. We started prior in prior calls marketing conditions around many of the permanent crop farms in the west, particularly that's some of the grapes have been hampered by lower crop prices and higher input costs that fertilizer and those kinds of things.
And of course, the borrowing costs have remained high. As such, we decided to adjust the lease structure on five farms to help the growing, minimize that fixed cost but also allow us to participate greatly in the upside. In essence, we're accepting a percentage of the gross crop sales instead of fixed rent payments. This may be a big win for us come next year, come the end of this year.
If we assume the worst-case scenario and assume that we have a total crop loss on five of these five farms, then we have no crops for seeds from the harvest. We expect the crop insurance on these forms to pay us enough money to cover all of our costs and also provide us with a profit. It would be a small profit, but nonetheless a profit.
And this is government insurance, so as a result, we don't worry about not being able to pay. We've not done this that often, and of course our hopes are that we have good production overall and that we don't have to use the crop insurance at all.
There are a few additional properties that we're looking at possibly doing a similar structure on we're still reviewing the projections, and I think the projections will probably look good on another two or three of these, so we may end up in that.
Our current plan is to move forward with the structure for 2025 and harvest for these farms and then hopefully revert back to more traditional structure next year. Or we may sell some of these properties along the way.
The other two leases we executed recently on permanent crop farms are expected to result in a year over year decrease in annual NOI of about $180,000. The net operating income is how we measure most of the things in our business, so that's a hit. I hate to say it. It's not that much, but nonetheless just hate to lose anything.
And just as a note on our annual row crops, which make up about half. We continue to see a steady appreciation and consistent rent growth in this category. During 2024, we renewed 12 different leases on annual row crops, not permanent crops, and these renewals are expected to result in an aggregate increase in annual net operating income of about $556,000 or about a 14% increase over prior leases.
Looking ahead, we have three leases scheduled to expire over the next six months, and in total, they only make up about 1.5% of our total lease revenues.
So, we should get those done this year and not lose anything there, I hope. We're in discussions with the current tenants and prospective new tenants to lease these farms, or if the price is right, we may look at sell a couple of these farms too. We believe we have some very valuable farms, so selling is an option for us.
And now I'll give a quick update on some of the remaining tenancy issues that we continue to work on. During the quarter, we executed lease agreements on certain farms and sold other farms that have previously been either vacant or direct operated by us. So, we currently have five farms that are vacant. One farm is in direct operation via a management agreement.
With an unrelated third party, I know some of the people in this business have their own way of doing it with a captive. These are third parties, so we have some good people in there. In addition, we're recognizing revenue from leases with three tenants who collectively lease six of our farms on a cash basis. It's usually done on a accrual basis, but we're going to do cash on those just to keep them [current].
Regarding these farms, we're in discussion with various potential buyers or tenants to buy these properties, and we hope to get these remaining issues resolved later this year. And if we're unable to come to an acceptable resolution, we may end up listing some of these farms for sale. Pretty good way of going about getting out of them is listing them for sale.
Total year over year impact of our operations as a result of tenant issues, these properties will decrease in net operating income of about $236,000. And that'll hit us in the fourth.
I'm going to stop here. That's just tasting, and I hope we get some good questions at the end, but Lewis is going to take over now as the CFO of the company. He works with the numbers every day, so Lewis, go ahead.

Lewis Parrish

Alright, thank you, David, and good morning, everyone. I'll begin by briefly going over our recent financing activity. We did not borrow any new money during the quarter, but during and since the fourth quarter in connection with certain property sales, we did pay off about $23.5 million of loans. Majority of these loans were scheduled to reprice later this year.
On the equity side, since the beginning of the fourth quarter, we've sold about $20,000 of our Series E preferred stock and about $4.7 million of our common stock for the AGM program.
Moving on to our operating results, adjusted FFO for the fourth quarter was approximately $3.4 million or $0.9 per share compared to $5.4 million or $0.15 per share in the prior year quarter. Dividends declared for common share with about $0.14 in both quarters.
On an annual basis, adjusted FFO for 2024 was approximately $16.7 million compared to $20.3 million in 2023. And AFO per share was $0.47 in 2024 versus 57% in 2023. [Dividends] declared per share were $0.56 in 2024 and $0.55 in 2023. And our FFO, as defined by NAREIT, was $0.58 per share in 2024 compared to $0.62 per share in 2023.
Primary drivers behind the decreases in AFFO were recent changes in lease structures on certain farms, lost income from the large farm in Florida that we sold in January of '24, and certain tenancy issues which has led to vacancies on some of our farms and resulted in both lost revenues and increased costs.
Year over year fixed-base cash rents decreased by about $4.9 million on a quarterly basis and $9.7 million on an annual basis, primarily due to the reasons you just mentioned, that is lost revenues from the Q1 farm sale and vacancies, as well as structural changes to certain leases where they mentioned we reduced, eliminated, or in some cases provided least incentives to certain tenants in exchange for significantly increasing the crop share components in 2023.
Results of the crop share components won't be known until the harvest is completed in the fourth quarter of this year. The decrease in fixed base cash rents is partially offset by an increase in participation rents recorded during 2024.
During the fourth quarter, we recorded approximately $4.8 million in participation rents compared to $3.3 million in the prior year quarter. And for the year, we recorded participation rents of $9.4 million versus $5.9 million last year.
The increase in participation rents was primarily driven by increased yields in certain of our almond and pistachio farms, partly due to the altered nature of these crops and partially offset by lower prices during the 2024 [margin] (inaudible)
We mentioned this on last quarter's call, but I think it's worth noting again and just providing an update to some of the numbers. As a result of the change in lease structures we've made on a few farms, we are expecting a total year over year swing in our fixed base rents of about $13 million. This is '25 versus 2024.
This consists of the base rents that we recognize in 2024 under the prior leases, plus the cash allowances that we granted to these tenants for the 2025 crop [year]. This will be shown as a reduction in our fixed base rents of about during 2025 at a rate of between $3 million to $3.5 million per quarter.
And then the majority of the resulting crop share proceeds from these leases will be recognized as participation rent in the second half of 2025, with the remaining smaller portion being recognized in the second half of 2026.
So, things play out as we currently expect them to will essentially be just moving this money from the fixed base rent bucket into the participation rent bucket over the next couple of years.
On the expense side, excluding reimbursable expenses and certain non-recurring or non-cash expenses, our core operating expenses decrease for both comparable periods. Total related party fees decreased by $1 million on a quarterly basis and $1.8 million on annual basis due to the incentive fees earn during each of the prior year periods.
On a quarterly basis, our remaining core operating expenses remained relatively flat. It slightly higher, property operating expenses were offset by slightly lower general and administrative expenses.
On an annual basis, the increase in property operating expenses was primarily driven by the additional costs incurred on properties that were vacant, direct operated, or not accrual status at some point during the year. And these costs included additional real estate taxes, legal costs, and property management fees.
Others will decrease primarily the lower interest expense incurred as a result of loan repayments made over the past year.
With that, we'll move on to net asset value. We had 37 farms revalued during the quarter and overall, these violations decreased by about $50 million from the previous valuations a year ago. The decreases were limited to certain of our current crop farms as our annual low crop farms continued to appreciate in value.
So, the December 31, our portfolio is valued at about $1.4 billion and based on these updated evaluations and the value of our debt and all preferred securities, our net asset value for common share December 31, was $14.91 which is down from $15.57 at September 30.
The Majority of this change was due to the decreases in violations of certain farms that were reappraised during the quarter, partially offset by the change in fair value of certain preferred securities due to changes in market rates.
Note that this will be the last time that we will voluntarily publish our MEP calculations in our quarterly reports. As our portfolio has grown in size, the cost of these recurring appraisals have become quite substantial. As we look for ways to reduce costs, we no longer feel that the time and money required for this process is in the best interests of our company or its shareholders.
Turning to liquidity, including availability on our lines of credit and other undrawn notes, we currently have access to over $195 million of capital, including about $50 million of cash on hand. We also have nearly $150 million of unpledged properties.
Over 99.9% of our borrowings are currently at fixed rates, and on a weighted average basis, these rates are fixed at 3.35% for another 3.6 years. So, as a result, we have not experienced much of an impact on our offering results from increased interest rates over the past couple of years. And regarding our current borrowings, we believe we are well protected should interest rates continue at elevated levels.
Regarding our upcoming debt maturities, we have about $38 million coming due over the next 12 months. However, about $20 million of that represents various loan maturities. And given the value of the underlying collateral, 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 advertising principal payments coming due over the next 12 months or less than 4% of our current debt.
Finally, regarding our common distributions in January, we declared a dividend of $4.67 per share per month for the first quarter of 2025. At our current stock price of $11.52 this works out to a yield of 4.9%, which is higher than the average dividend yield across the entire wheat sector.
Given the changes we've recently made in restructures at certain properties, we believe it prudent to hold the dividends this time and we'll continue to reassess (inaudible-microphone inaccessible) with that I'll turn the program back over to David.

David Gladstone

Thank you, Lewis. Nice report would continue to stay active in the market should a good acquisition opportunity present itself. And so that we're ready if interest rates come down as well. But as mentioned in prior calls and today we're still being more cautious on the acquisition front because our cost of capital remains high.
And while we have seen a decrease in the pricing of certain permanent crops, farms in the west that most That and most of the value of the farms like those growing strawberries remains high. The cap rates on most of these farms are just high enough to cover our financing costs, so it doesn't make it very advantageous to somebody to rent them.
So, as a result, acquisition activity remains slow for us, probably will last for another couple of quarters. Interest rates are still too high today, and projections for further rate cuts seem to be keep getting reduced and pushed out farther. So, the amount and time of any additional rate cuts remains uncertain to us.
But we do hope that rates come down at some point in the near future so that we can start looking at buying more farms. And just a few final points, we believe that investing in farmland and growing crops that contribute to a healthy lifestyle such as fruits and vegetables and nuts follows the trend that we see in the market today.
Overall demand for prime farmland growing berries and vegetables remains stable to strong in most of the areas that we're in. As mentioned earlier, crop prices are certainly and certainly permanent crops, particularly nuts and grapes, have been depressed lately. People are just not eating enough nuts. We need more of that in order to push the price up.
We have impacted the values of our underlying farmland, especially nuts and grapes, and we're seeing prices that are overall economies of some of these crops just starting to turn around. We got a report yesterday that pretty much the country out of all of the old nuts and pistachios. And we've got new feeling that things are going to go up because there's just not many left.
When people stop eating, it doesn't mean the trees stop producing, they keep producing, so we ended up with the prices being cut down to price that didn't work very well for us.
But please remember that purchasing stock in this company is really a long-term investment in farmland. Historically speaking, long term returns remain strong, but there are occasionally some ups and downs in the marketplace, just like with any investment in areas like this. And now there's a portion of our portfolio in a down cycle that we're working to remove it through.
We expect inflation, particularly in the food sector, to continue to increase over time, and we expect the values of underlying farmland to increase over the time as a result, and we expect this to be especially true in fresh produce, the fresh produce sector, all of those and trends as more and more people eating healthy foods continue to grow.
And please keep in mind that an investment in our stock really has two parts. First, it's similar to gold in that it's a hard asset. It's farmland. It's dirt. It's not going anywhere. It's an intrinsic value because there's a limited amount of good farmland in the United States and it's being used up by urban developments.
The farm that we sold in Florida has got to be turned into some housing and well that's good for us on a one-time basis. Once they're gone, they are gone.
And second of all, unlike gold and other alternative assets, it's an active investment with cash flows to investors. So, we believe farmland is better hedge against inflation than gold is for that reason.
And now we'll have some questions from those who follow us. Operator, if you'll come on, would you please tell them how they can ask some questions, and we hope we get a lot of questions.

Question and Answer Session

Operator

(Operator Instructions)
Gaurav Mehta, Alliance Global Partners.

Gaurav Mehta

Yeah, thank you. Good morning. I wanted to, clarify your comments on the participation and fixed base rents amendment. So, I think you said $3 million to $3.5 million lower fixed base rent, is that $3.5 million lower from what you guys reported in 4Q?

Lewis Parrish

No, it's more the average base rent for the year in 2024 versus compared to the average base rate in 2025. So, it's not Q4 versus looking forward if you took the annual base rate from 2024 divided it by four that just the baseline number, we're using for that $3 million to $3.5 million dollar swing.

Gaurav Mehta

Okay. And so, and then. That lower base rent and majority of that you're expecting to get in 3Q and 4Q of '25, right?

Lewis Parrish

Yes, the majority of that will be well, based on our current expectation, we do expect to recover the majority of that and hopefully more if the harvest turns out well, in the second half of this year, and then, after the marking period is over, bonuses and adjustments will get recognized in the second half of the following year.

Gaurav Mehta

And so, then in '26, do the leases on these firms, do they go back to how they were in '24 or do you expect them to continue like in '25?

Lewis Parrish

It remains to be seen, our hope is that we can, revert these back to the traditional, we're kind of going to be at the mercy of the market and like we were this time, we could have maybe lease it out for a very low base rent and very little if any upside, but when we ran the numbers we thought this was a better option for us to take. And so, when these leases come due at the end of this crop year, we'll have to do that analysis again.

Gaurav Mehta

Okay, and then maybe last year on the sale of Florida farm, I think you mentioned you paid off some debt from the proceeds. What was the use of remaining proceeds from that sale?

Lewis Parrish

Right now, it's part of the $50 million that we have cash on hand on the balance sheet. We're just holding that for other uses at this point.

Gaurav Mehta

Okay, thank you, that's all I have.

David Gladstone

Okay, next question.

Operator

Craig Kucera, Lucid Capital Markets.

Craig Kucera

Yeah, good morning, guys. First one is for Lew. What are your expectations around interest patronage here in the first quarter?

Lewis Parrish

We're, it, we should be getting a similar percentage back from the farm credit borrowing, but we have paid off a portion of those loans over the past year, so, If I had a ballpark it right now, I'd probably say about 10% less and that's just because I think we paid off about 10% of those loans from the past year.

Craig Kucera

Got it. That makes sense. You mentioned that you had three leases expiring here over the next six months and a relatively small amount of rent, maybe 1.5%. But for the year, this is actually a pretty big year I think in the [Ky] you've got north of 17% expiring. Can you give us some color on the remaining lease expirations this year? It may be a split between what's permanent versus row crop.

Lewis Parrish

Yeah, so the lease is expiring in the next six months. Those are most of those are low crop farms, but yes, as you said, that's a small percentage of the overall amount. The remaining leases that are expiring in the second half of the year, the majority of those probably 60% to 70% are on permanent crop farms.
Some of these are the leases that we discussed about well, we have lease incentive and a and a high upside on the crop share. So, probably about half of the half of the leases that are expiring fall into that bucket. The other half are permanent crop farms that are under traditional leases right now.
The half that's under traditional leases, we expect them to remain flat, maybe even can negotiate a rent bump up upwards, but remains to be seen at this point.
And as we just answered, the remaining leases on the [permanent] crop farms that are in the kind of lease incentive and high upside bucket remains to be seen. We'd like to be able to revert them back to traditional leases, but it's, we can't say right now what direction we'll have to go on those.

Craig Kucera

Got it, that's helpful. I guess given where the preferred this trading, you've been buying it, I think in the 20-50 range, it's still kind of around there where we, you guys anticipate to continue to be out in the market, buying back the preferred and maybe getting a small gain.

David Gladstone

Yeah, it's an easy way for us to make money.

Craig Kucera

And one more for me, just looking at your real estate expenses here this quarter, there was a, pretty decent increase. Is that just related to the taxes and some of the incremental costs with the directly operated farms or anything else going on there?

Lewis Parrish

Yes, exactly it's that whole bucket of vacant direct operating non-accrual, properties, some tenants had to terminate their leases early, so they were, they didn't make those tax payments. They had to make them on their behalf, but yeah, it is all related to the properties that have fallen into that bucket.

Craig Kucera

Okay, thanks for the color.

Operator

(Operator Instructions)
John Massocca, B Riley Securities.

John Massocca

Good morning. So, going back to property operating expense again. I mean, is 4Q kind of the good run rate for, going forward for the remainder of the year, or was there something where either, those leases didn't change over to kind of mid 4Q that could cause it to skew higher or one-time expenses that could cause it to kind of [skew] lower, in the quarters of 2025.

Lewis Parrish

And our hope is that it comes down a little bit for a couple of reasons, one. The properties, the Michigan Blueberry properties that we've sold, they contributed a decent amount to that increase throughout the year, I think they had negative NOI of about $400,000 over the course of the year, that should start to come down.
Now we will, we are going after the tenant for some additional rent out so some legal costs will remain related to those farms, but the cost attributable to those farms should come down quite a bit. And I think we also had to recognize some kind of catch up we'll say taxes in the fourth quarter. I don't have the exact number here.
But amounts that the tenant had owed but was unable to make the payments, so we had to record those, or we had to make those payments on our on their behalf in the fourth quarter. So, I don't know exactly how, I can't say exactly how much, but we do expect that number to come down a bit in 2025.

John Massocca

Okay, that's very helpful. And then on the dispositions completed in 1Q'25, were those occupied in revenue producing assets and if so, what's kind of the NOI impact from those sales?
Yes, they.

Lewis Parrish

Yes, they were, revenue numbers for the farms that we sold in '25, I think was for the year was about $1.5 million, $1.7 million.

John Massocca

That's very helpful and then kind of bigger picture, the, what percentage of kind of the California portfolio, if you will, today is on this kind of crop share, high upside lease structure and how much kind of remains in a more traditional structure and I guess what's the outlook for those assets to stay in the more traditional structure or move to this, more of a flow through structure.

Lewis Parrish

So right now, we have five farms that are on this kind of hybrid structure, if you will. As David mentioned, there's another couple, two or three farms that we're looking at. The other farms right now we believe the other farms that are permit crop farms that are in the traditional restructure, we believe at this time that we will be able to keep them in the standard structure.
On a value basis, I don't have that number available or calculator right now. We can get back to you on that, but five farms are in that bucket. two or three more might go there, the rest we expect to stay in the traditional lease structure.

John Massocca

Okay, that's very helpful, and that's it for me. Thank you very much.

David Gladstone

Do we have any other questions?

Operator

Thank you, Mr. Gladstone. There are currently no other questions in the queue.

David Gladstone

Okay, thank you very much.
I just want everybody to know that this change is hopefully going to be for one year. Maybe a few farms will go over to the next year, but our goal is to put everything back together as it was before this downturn in tree crop processes and just tore us into a different area, which is this area of being able to grow the crops and get money out of the crops as opposed to leasing them to somebody who does all that work.
We do have somebody in between us. We've chosen people who do that for a living, that is, they go out and they produce the crops, so we don't have anybody on our group of people working in this company that are out in the fields growing either strawberries or nuts, so it's almost the same as it was before except we put some money up, not a lot.
As helping the people who grow the crops, get them grown, and then they will sell them as well. But that's the difference here and while it looks like it's more the chance of losing money. It's really not because the insurance policies that we get from the US government are so strong that I don't think we could lose any money on these five farms that we have going in that direction.
But never know, and right now I feel very bullish that we're going to do a good job this year. If there are no other questions, I'll call this at the end. You got another question.

And I'll just follow up with the question that John asked earlier on the five farms that are in this hybrid structure right now, they make up about 15% of the California, the fair value of our California portfolio on a total basis across the whole country, it's about 6% of our nationwide portfolio.

David Gladstone

So, if you think about that, we've got most of it covered in the properties that are leased out on a monthly basis, and the rest of them, that is the 6%, is on this hybrid structure in which we put up some of the capital in order to have the people who are growing the crops get the growth done and we'll see if we've made a good bet.
My feeling is we're going to make some money on these crops and don't like to do that because we like things that happen on a monthly basis so we can pay our dividend on a monthly basis and this idea that we get a big whopping amount back when the crops come in.
Doesn't bode well for trying to be on time with dividends so, I think we're in good shape, but we have to wait and see what we have as income toward the end of the year we'll know how successful or how much we've got to depend on our insurance, but that's the end of this.
What you got more question--

Operator

We do yes, let me bring John back through. Give me one sec here.
John Massocca, B Riley Securities.

John Massocca

Thank you so much. Sorry for coming in right at the end of the call. Just, I had a quick question that I forgot. With the NAV decision, is that something that's going to be provided semi-regularly now, if not, quarterly, or is the intention to stop providing NAVs at all going forward? Like, is that it's like now annual or is the thought process that that cost is too burdensome just in general?

David Gladstone

It became really ridiculous, John. We couldn't find people and brokers that would do anything but give us things that we didn't feel reliable and so we started backtracking and getting a second opinion. And as a result, we've been spending a lot of money trying to find people that can do this. We still would be setting numbers for those internally.
And maybe we'll go look at that, but generally speaking, trying to get brokers to value these things. We had one broker who was located in Indiana, was doing some of the stuff in Florida, which just made no sense.
He didn't know the Florida marketplace very well and as you can see when we've done sales, we've beaten the valuation that's out there, but just didn't seem to be logical to keep doing that and paying for that, so we'll figure out something to do in April when we come back to you.

Lewis Parrish

And just that the cost of those appraisals was running us about $300,000 per year.

John Massocca

I appreciate that additional color in taking that last minute question.
Thank you.

David Gladstone

Okay, we're assuming there are no more questions.

Operator

No more at this time.

David Gladstone

Okay, so we'll see you next quarter.
Thank you all for calling in.

Operator

Thank you so much. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.