Gladstone Land Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 20, 2025

Key Takeaways

  • Adjusted FFO per share fell to $0.09 in 4Q24 (from $0.15) and annual AFFO declined to $0.47 (from $0.57) due to lease changes, farm sales and tenant issues.
  • The company sold 11 underperforming Michigan blueberry farms at a small loss, triggering a $400,000 NOI drag and an impairment charge.
  • Five Florida farms were sold at a ~40% premium and two Midwest farms at ~9% gain, unlocking significant value from prior investments.
  • Leases on five permanent‐crop farms were restructured to cut base rent by $3–$3.5 million per quarter in 2025 in exchange for higher participation rents, shifting income to H2 2025–26.
  • Liquidity remains strong with $50 million cash on hand, $195 million undrawn credit and 99.9% fixed‐rate debt at a 3.35% average rate for another 3.6 years.
AI Generated. May Contain Errors.
Earnings Conference Call
Gladstone Land Q4 2024
00:00 / 00:00

Transcript Sections

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Operator

Greetings and welcome to the Gladstone Land Corporation Year End Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Mr. David Gladstone, Chief Executive Officer and President. Thank you. You may begin.

David Gladstone
David Gladstone
Founder, Chairman, CEO & President at Gladstone Land

Thank you, Daryl. That's a nice introduction. And this is, to repeat again, David Gladstone, and welcome to the quarterly conference call that we give every quarter. It is our year end as well. Thank you all for calling in today.

David Gladstone
David Gladstone
Founder, Chairman, CEO & President at Gladstone Land

We appreciate you taking the time to listen to our presentation. Before I begin, we have to hear from Michael Localsi, our General Counsel. Michael?

Michael Licalsi
Michael Licalsi
General Counsel & Secretary at Gladstone Land

Thanks, David. Good morning, everybody. Today's report may include forward looking statements under the Securities Act of 1933 and the Securities Exchange Act of 1934, including those regarding our future performance. These statements involve certain risks and uncertainties that are based on our current plans, which we believe to be reasonable. And many factors may cause our actual results to be materially different from any future results expressed or implied by these forward looking statements, including all risk factors in our forms 10 ks, 10 Q and other documents we file with the SEC.

Michael Licalsi
Michael Licalsi
General Counsel & Secretary at Gladstone Land

Go to our website gladstoneland.com, specifically the Investors page or the SEC's website, which is www.sec.gov, and you can find them all there. 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. Now today, we'll discuss FFO, which is funds from operations. Now FFO is a non GAAP accounting term. Definition is 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.

Michael Licalsi
Michael Licalsi
General Counsel & Secretary at Gladstone Land

We may also discuss core FFO, which we generally define as FFO with some adjustments for certain non recurring revenues and expenses and then adjusted FFO, which further adjusts core FFO for certain non cash items, such as converting GAAP rents to normalized cash rents. And we do this because we believe these are better indications of our operating results and allow better comparability of our period over period performance. Now, we once again ask you to visit our website, that's gladstoneland.com. While you're there, you can sign up for our email notification service. You can also find us on Facebook, keyword there is The Gladstone Companies and on Vax, which is formerly Twitter.

Michael Licalsi
Michael Licalsi
General Counsel & Secretary at Gladstone Land

Our handle there is gladstonecomps. Today's call is an overview of our results, so we ask that you review our press release and the Form 10 K both issued yesterday for more detailed information. Now with that, I'll turn the presentation back to David Gladstone.

David Gladstone
David Gladstone
Founder, Chairman, CEO & President at Gladstone Land

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. One acre foot is equal to about 326,000 gallons.

David Gladstone
David Gladstone
Founder, Chairman, CEO & President at Gladstone Land

So we own over 18,000,000,000 gallons of water. And together, the land and the water are all valued at a total of about $1,300,000,000 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 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.

David Gladstone
David Gladstone
Founder, Chairman, CEO & President at Gladstone Land

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.

David Gladstone
David Gladstone
Founder, Chairman, CEO & President at Gladstone Land

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 had 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.

David Gladstone
David Gladstone
Founder, Chairman, CEO & President at Gladstone Land

In January, we sold five farms in Florida at a sizable gain and represented about a 40% premium over what we had paid over at six point five 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% over what we paid for them to increase. 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. Regarding leasing activity since the beginning of the fourth quarter, we've executed four new lease and amended or amendment agreements, all in the Westin permanent crop farms.

David Gladstone
David Gladstone
Founder, Chairman, CEO & President at Gladstone Land

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 farm grow their produce. In exchange, we significantly increased the participation rent component of these leases, majority of which will be recognized in the second half of twenty twenty five. 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.

David Gladstone
David Gladstone
Founder, Chairman, CEO & President at Gladstone Land

We started prior in prior calls, marketing conditions around many of the permanent crop farms in the West particularly, nuts and some of the grapes have been hampered by lower crop prices and higher input costs that is fertilizer and those kind of things. And of course, the borrowing cost has remained high. As such, we decided to adjust the lease structure on five farms to help the grower 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.

David Gladstone
David Gladstone
Founder, Chairman, CEO & President at Gladstone Land

If we assume the worst case scenario and assume that we have a total crop loss on five of on these five farms, meaning we have no crops proceeds from the harvest, we expect the crop insurance on these farms to pay us enough money to cover all of our costs and also provide us with a profit, it will be a small profit but nonetheless a profit. And this is government insurance, so as a result, we don't worry about them not being able to pay. We've not done this that often. And of course, our hope so 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 and 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.

David Gladstone
David Gladstone
Founder, Chairman, CEO & President at Gladstone Land

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 expect 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.

David Gladstone
David Gladstone
Founder, Chairman, CEO & President at Gladstone Land

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 revenue. So we should get those done this year and not lose anything there, I hope.

David Gladstone
David Gladstone
Founder, Chairman, CEO & President at Gladstone Land

We're in discussions with the current tenants and then prospective new tenants to lease these farms or if the price is right, we may look and 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.

David Gladstone
David Gladstone
Founder, Chairman, CEO & President at Gladstone Land

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 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 accrual basis, but we're going to do cash on those just to keep them current.

David Gladstone
David Gladstone
Founder, Chairman, CEO & President at Gladstone Land

Regarding these farms, we're in discussion with various potential buyers or tenants to buy or lease 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 will hit us in the fourth quarter. I'm going to stop here.

David Gladstone
David Gladstone
Founder, Chairman, CEO & President at Gladstone Land

That's just a tasting and I hope we get some good questions at the end. But Louis is going to take over now as the CFO of the company. He works with the numbers every day. So, Louis, go ahead.

Lewis Parrish
Lewis Parrish
CFO & Assistant Treasurer at Gladstone Land

All right. 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 $23,500,000 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 sold about $20,000 of our Series E preferred stock and about $4,700,000 of our common stock for the ATM program. Moving on to our operating results. Adjusted FFO for the fourth quarter was approximately $3,400,000 or $0.09 per share compared to $5,400,000 or $0.15 per share in the prior year quarter. Dilatives declared per common share were about $0.14 in both quarters. On an annual basis, adjusted FFO for 2024 was approximately $16,700,000 compared to $20,300,000 in 2023.

Lewis Parrish
Lewis Parrish
CFO & Assistant Treasurer at Gladstone Land

And AFFO per share was $0.47 in 2024 versus $0.57 in 2023. Navios declared per share were $0.56 in 2024 dollars 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 floor that we sold in January 24, and certain tenancy issues, which has led to vacancies on some of our funds and resulted in both lost revenues and increased costs. Year over year fixed base cash rents decreased by about $4,900,000 on a quarterly basis and $9,700,000 on an annual basis, primarily due to the reasons Jess mentioned that is lost revenues from the Q1 farm sale and vacancies, as well as structural changes to certain leases, whereas Dave mentioned we reduced, eliminated or in some cases provided lease incentives to certain tenants in exchange for significantly increasing the crop share components in these leases.

Lewis Parrish
Lewis Parrish
CFO & Assistant Treasurer at Gladstone Land

The 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 $4,800,000 of participation rents compared to $3,300,000 in the prior year quarter. And for the year, we recorded participation rents of $9,400,000 versus $5,900,000 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 altering nature of these crops and partially offset by lower prices during the twenty twenty, twenty twenty four marketing period.

Lewis Parrish
Lewis Parrish
CFO & Assistant Treasurer at Gladstone Land

And 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 $13,000,000 This is $25,000,000 versus 2024. This figure consists of the base rents that we recognize in 2024 under the prior leases plus the cash allowances that we've 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 $3,000,000 to $3,500,000 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 twenty twenty five, with the remaining smaller portion being recognized in the second half of twenty twenty six.

Lewis Parrish
Lewis Parrish
CFO & Assistant Treasurer at Gladstone Land

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 decreased for both comparable periods. Total related party fees decreased by $1,000,000 on a quarterly basis and $1,800,000 on an annual basis due to the incentive fees earned during each of the prior year periods. On a quarterly basis, our remaining core operating expenses remain relatively flat, and 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 either vacant, direct operated or non accrual status at some point during the year.

Lewis Parrish
Lewis Parrish
CFO & Assistant Treasurer at Gladstone Land

And these costs included additional real estate taxes, legal costs and property management fees. Finally, other expenses decreased primarily due to lower interest expense incurred as a result of longer payments made over the past year. With that, we'll move on to net asset value.

Lewis Parrish
Lewis Parrish
CFO & Assistant Treasurer at Gladstone Land

We had 37 funds revalued during the quarter and overall these valuations decreased by about $50,000,000 from their previous valuations a year ago. Decreases were limited to certain of our early crop farms as our annual row crop farms continued to appreciate in value. As of December 31, our portfolio was valued at about $1,400,000,000 Based on these updated valuations and including the fair value of our debt and all preferred securities, our net asset value for common share at December 31 was $14.91 which is down from $15.57 as September 30. Majority of this change was due to the decreases in values valuations of certain funds that we appraised 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 NAV calculation in our quarterly reports.

Lewis Parrish
Lewis Parrish
CFO & Assistant Treasurer at Gladstone Land

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 interest 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 195,000,000 of capital, including about $50,000,000 of cash on hand. We also have nearly $150,000,000 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 three point six years.

Lewis Parrish
Lewis Parrish
CFO & Assistant Treasurer at Gladstone Land

As a result, we have not experienced much of an impact on our operating 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 $38,000,000 coming due over the next twelve months. However, about $20,000,000 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.

Lewis Parrish
Lewis Parrish
CFO & Assistant Treasurer at Gladstone Land

So removing those maturities, we only have about $18,000,000 of amortizing principal payments coming due over the next twelve months or less than 4% of our current debt outstanding. Finally, regarding our current distributions, in January, we declared a dividend of $0.0467 per share per month for the first quarter of twenty twenty five. 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 REIT sector. Given the changes we've recently made in restructures at certain properties, we believe it prudent to hold the dividend by this time and we'll continue to reassess in the new industry in 2025 harvest becomes known. And with that, I'll turn the program back over to David.

David Gladstone
David Gladstone
Founder, Chairman, CEO & President at Gladstone Land

Thank you, Louis. Nice report will continue to stay active in the market should a good acquisition opportunity present itself. And so, 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 valued most 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 for somebody to rent them.

David Gladstone
David Gladstone
Founder, Chairman, CEO & President at Gladstone Land

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 cutting seem to be getting keep getting reduced as we strive 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.

David Gladstone
David Gladstone
Founder, Chairman, CEO & President at Gladstone Land

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 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.

David Gladstone
David Gladstone
Founder, Chairman, CEO & President at Gladstone Land

We got a report yesterday that pretty much the country is 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 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.

David Gladstone
David Gladstone
Founder, Chairman, CEO & President at Gladstone Land

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 maneuver 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 in the fresh produce sector, all of those and trends as more and more people in The U.

David Gladstone
David Gladstone
Founder, Chairman, CEO & President at Gladstone Land

S. 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 has an intrinsic value because there's a limited amount of good farmland in The United States and it's being used up by urban development.

David Gladstone
David Gladstone
Founder, Chairman, CEO & President at Gladstone Land

The farm that we sold in Florida has got to be turned into some housing And while that's good for us on a one time basis, once they're gone, they're 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.

Operator

Thank you. We will now be conducting the question and answer session. Our first question is come from the line of Gaurav Mehta with Alliance Global Partners. Please proceed with your questions.

Gaurav Mehta
Managing Director at Alliance Global Partners

Yes, thank you. Good morning. I wanted to clarify your comments on the participation on fixed base rent amendment. So I think you said $3,500,000 lower fixed base rent. Is that $3,500,000 lower from what you guys reported in 4Q?

Lewis Parrish
Lewis Parrish
CFO & Assistant Treasurer at Gladstone Land

No, it's more the average base rent for the year in 2024 compared to the average base rent in 2025. So it's not Q4 versus looking forward. If you took the annual base rent from 2024 divided it by four, that's the baseline number we're using for that $3,000,000 to $3,500,000 swing.

Gaurav Mehta
Managing Director at Alliance Global Partners

Okay. And then that lower baseband, majority of that you're expecting to get in 3Q and 4Q of twenty twenty five, right?

Lewis Parrish
Lewis Parrish
CFO & Assistant Treasurer at Gladstone Land

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
Managing Director at Alliance Global Partners

And so then in 'twenty six, do the leases on these firms, do they go back to how they were in 'twenty four or you expect them to continue like in 'twenty five?

Lewis Parrish
Lewis Parrish
CFO & Assistant Treasurer at Gladstone Land

It remains to be seen. Our hope is that we can revert these back to the traditional lease price. We're going to be at the mercy of the market. And like we were this time, we could have maybe leased 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.

Lewis Parrish
Lewis Parrish
CFO & Assistant Treasurer at Gladstone Land

So when these leases come due at the end of this crop year, we'll have to do that analysis again.

Gaurav Mehta
Managing Director at Alliance Global Partners

Okay. And then maybe lastly 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
Lewis Parrish
CFO & Assistant Treasurer at Gladstone Land

Right now, it's part of the $50,000,000 that we have is cash on hand on the balance sheet. We're just holding that for other uses at this point.

Gaurav Mehta
Managing Director at Alliance Global Partners

Okay. Thank you. That's all I had.

David Gladstone
David Gladstone
Founder, Chairman, CEO & President at Gladstone Land

Okay. Next question.

Operator

Thank you. Our next question is coming from the line of Craig Kucera with Lucid Capital Markets. Please proceed with your questions.

Craig Kucera
MD - Equity Research at Lucid Capital Markets

Yes. Good morning, guys. The first one is for Lou. What are your expectations around interest patronage here in the first quarter?

Lewis Parrish
Lewis Parrish
CFO & Assistant Treasurer at Gladstone Land

We should be getting a similar percentage back from the bond credit borrowings, but we have paid off a portion of those loans over the past year. So if I had to 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
MD - Equity Research at Lucid Capital Markets

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 K, you've got north of 17% expiring.

Craig Kucera
MD - Equity Research at Lucid Capital Markets

Can you give us some color on the remaining lease expirations this year, maybe a split between what's permanent versus row crop?

Lewis Parrish
Lewis Parrish
CFO & Assistant Treasurer at Gladstone Land

Yes. So the leases expiring in the next six months, those are most of those are row crop funds. 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 where we have lease incentive and a high upside on the crop share.

Lewis Parrish
Lewis Parrish
CFO & Assistant Treasurer at Gladstone Land

So probably about 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 upwards, but remain to be seen at this point. And as we just answered, the remaining leases on the permacrost 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. Got it. That's helpful.

Craig Kucera
MD - Equity Research at Lucid Capital Markets

I guess given where the preferred is trading, you've been buying it, I think in the 2,050 range, it's still kind of around there. Will you guys anticipate to continue to be out in the market, buying back the preferred and maybe getting a small gain?

David Gladstone
David Gladstone
Founder, Chairman, CEO & President at Gladstone Land

Yes. That's an easy way for us to make money.

Craig Kucera
MD - Equity Research at Lucid Capital Markets

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
Lewis Parrish
CFO & Assistant Treasurer at Gladstone Land

Yes, exactly. It's that whole bucket of vacant direct to operating and non accrual properties. Some tenants had to we terminated their leases early, so they were they didn't make those tax payments. We had to make them on their behalf. But yes, it is all related to the properties that have fallen into that bucket. Okay. Thanks for the color. Thank you.

Operator

Our next question comes from the line of John Massocca with B. Riley Securities. Please proceed with your question.

John Massocca
Senior Research Analyst at B Riley Financial

Good morning.

Lewis Parrish
Lewis Parrish
CFO & Assistant Treasurer at Gladstone Land

Good morning, John.

John Massocca
Senior Research Analyst at B Riley Financial

So maybe just 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 till kind of mid-4Q that could cause it to skew higher or some one time expenses that could cause it to kind of skew lower in the quarters of 2025?

Lewis Parrish
Lewis Parrish
CFO & Assistant Treasurer at Gladstone Land

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 owed, so some legal costs will remain related to those farms, but the costs related attributable to those farms should come down quite a bit.

Lewis Parrish
Lewis Parrish
CFO & Assistant Treasurer at Gladstone Land

And I think we also had to recognize some kind of catch up real estate 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 their behalf in the fourth quarter. So I don't know exactly how I can't say how exactly how much, but we do expect that number to come down a bit in 2025.

John Massocca
Senior Research Analyst at B Riley Financial

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

Lewis Parrish
Lewis Parrish
CFO & Assistant Treasurer at Gladstone Land

Yes, they were. Revenue numbers for the farms that we sold in 'twenty five, I think was for the year was about $1,000,000 1 point 5 million dollars 1 point 7 million dollars

John Massocca
Senior Research Analyst at B Riley Financial

Okay. 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 prop 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
Lewis Parrish
CFO & Assistant Treasurer at Gladstone Land

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 other permacrop farms that are in the traditional lease structure, we believe at this time that they will we will be able to keep them in the standard structure. On a value basis, I don't have that number available or calculated right now. We can get back to you on that.

Lewis Parrish
Lewis Parrish
CFO & Assistant Treasurer at Gladstone Land

But five barns are in that bucket. Two or three more might go there. The rest we expect to stay in the traditional lease structure. Okay.

John Massocca
Senior Research Analyst at B Riley Financial

That's very helpful. And that's it for me. Thank you very much.

David Gladstone
David Gladstone
Founder, Chairman, CEO & President at Gladstone Land

Do you have any other questions?

Operator

Thank you. Mr. Glassstone, there are currently no other questions in the queue.

David Gladstone
David Gladstone
Founder, Chairman, CEO & President at Gladstone Land

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 process 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.

David Gladstone
David Gladstone
Founder, Chairman, CEO & President at Gladstone Land

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 chance of losing money, it's really not because the insurance policies that we get from the U. S.

David Gladstone
David Gladstone
Founder, Chairman, CEO & President at Gladstone Land

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 us at the end. You got another question?

Lewis Parrish
Lewis Parrish
CFO & Assistant Treasurer at Gladstone Land

And I'll just follow-up with a question that John asked earlier. 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
David Gladstone
Founder, Chairman, CEO & President at Gladstone Land

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.

David Gladstone
David Gladstone
Founder, Chairman, CEO & President at Gladstone Land

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 in the end of the year 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. When you got one more question?

Operator

Just glad we do yes, let me bring John back through. Give me one sec here. Next question is coming from John Massocca with B. Riley. Please proceed with your questions.

John Massocca
Senior Research Analyst at B Riley Financial

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 something that's like now annual? Or is that is the thought process that that cost is too burdensome just in general?

David Gladstone
David Gladstone
Founder, Chairman, CEO & President at Gladstone Land

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 and 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.

David Gladstone
David Gladstone
Founder, Chairman, CEO & President at Gladstone Land

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 our 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
Lewis Parrish
CFO & Assistant Treasurer at Gladstone Land

And just a second, I appreciate that the cost of those appraisals were running us about $300,000 per year.

John Massocca
Senior Research Analyst at B Riley Financial

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

David Gladstone
David Gladstone
Founder, Chairman, CEO & President at Gladstone Land

Okay. We're assuming there are no more questions?

Operator

No more at this time.

David Gladstone
David Gladstone
Founder, Chairman, CEO & President at Gladstone Land

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.

Executives
    • David Gladstone
      David Gladstone
      Founder, Chairman, CEO & President
    • Michael Licalsi
      Michael Licalsi
      General Counsel & Secretary
    • Lewis Parrish
      Lewis Parrish
      CFO & Assistant Treasurer
Analysts
    • Gaurav Mehta
      Managing Director at Alliance Global Partners
    • Craig Kucera
      MD - Equity Research at Lucid Capital Markets
    • John Massocca
      Senior Research Analyst at B Riley Financial
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