Gladstone Land (LAND) Q3 2026 Earnings Call Transcript

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DATE

Wednesday, Nov. 11, 2026

CALL PARTICIPANTS

• Chief Executive Officer - David Gladstone
• Director of Investor Relations - Catherine Gerkis
• Executive Vice President - William Reiman
• Chief Financial Officer - Lewis Parrish

TAKEAWAYS

• Total Operating Revenue -- $31.5 million, representing a 77.0% increase compared to $17.8 million in the prior-year quarter.
• Net Income -- $11.0 million, compared to $2.1 million in the same period last year.
• Adjusted FFO (AFFO) -- $15.1 million or $0.35 per share, an increase from $1.4 million or $0.04 per share year over year.
• Participation Rents -- $16.8 million, driven by the early recognition of bonus payments for the 2025 pistachio crop and strong pricing for almonds and pistachios.
• Direct Farming Profit -- $2.9 million, reflecting results from four farms operated under third-party management agreements.
• Fixed Base Cash Rents -- $14.1 million, a decrease of approximately $433,000 primarily due to vacant properties and nonaccrual leases.
• Portfolio Scale -- 143 farms totaling approximately 98,000 acres in 14 states and 56,000 acre-feet of water assets.
• Property Sales -- $3.2 million from the sale of two Florida citrus farms, which resulted in a net loss of approximately $169,000.
• Preferred Stock Repurchases -- $13 million since July 1, 2026, at an average yield of 7.3%, yielding a gain of $1.3 million.
• Liquidity Position -- Over $105 million in immediately available capital and $110 million in unpledged properties as of the quarter end.
• Debt Interest Rate -- 3.57% weighted average interest rate on borrowings, with 92% of the debt held at fixed rates.
• Solar Option Agreements -- 5,638 acres in California under contract with third-party solar companies, yielding initial annual payments of $331,000.
• Common Stock Distributions -- $0.1401 per share declared for the fourth quarter, representing an 8.1% annualized yield.
• Impairment Charges -- $2.2 million recognized on four farms in Arizona and one farm in Washington.
• MetLife Loan Repricing -- $130 million in debt scheduled to reprice in Jan. 2027, with an expected rate increase of approximately 250 basis points.
• ATM Program Activity -- $1.5 million in common stock issued at an average cost of capital of 5.7% during the quarter.
• Pistachio Pricing -- 21% increase for the final 2025 crop price and a 67% increase in the initial price for the 2026 crop.
• Lease Expirations -- Seven leases representing 6.8% of year-to-date revenue scheduled to expire within the next six months.
• Loan Repayments -- $5.2 million in debt retired during the quarter, which carried an effective interest rate of 3.47%.
• Water Assets -- 18 billion gallons of water mostly located in California, supporting the long-term viability of the farm portfolio.

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RISKS

• Parrish stated, "The wildcard here is the insurance payments... if it all comes in Q4, it could push us to where we were in Q4 of last year, but we're not sure of the exact timing of those payments quite yet," regarding the timing of 2026 crop revenue.
• Reiman stated, "Damage to the 2026 pistachio crop was felt across the entire industry with production expected to be among the lowest levels we've seen since 2015," due to a spring heat wave.
• Reiman warned that the wine grape industry is facing oversupply and that a lack of relief on pricing has led to accelerating vineyard removals.
• Reiman noted that it is currently a buyer's market for farmland, stating that a potential buyer for an Arizona property recently canceled a contract after due diligence.

SUMMARY

Gladstone Land Corporation (NASDAQ:LAND) reported net income of $11.0 million for the third quarter, a substantial increase driven primarily by earlier-than-usual recognition of participation rents. Management stated that for the 2026 crop year, the company continues to utilize modified lease structures on several farms to navigate market conditions while participating in crop upside. The company indicated it is prioritizing debt reduction and preferred stock repurchases using proceeds from property sales. Management reported that the underlying demand for prime row crop farmland remains stable, particularly in coastal California, despite challenges in specific permanent crop markets.

• CEO Gladstone noted the company has two properties under contract for sale for a total of $30 million, with proceeds intended for debt reduction and preferred stock repurchases.
• Reiman stated, "The almond market is very stable. Pricing continuing to strengthen slightly and remaining at profitable levels."
• Management indicated that the advisor voluntarily waived its incentive fee for the third quarter to help preserve the common dividend during a period of uncertainty for the 2026 crop.
• Reiman noted that while land values are generally flat, there is a strong divergence in values in California based on water cost and availability.
• Subsequent to the quarter end, the company acquired a 180-acre farm in Washington as partial satisfaction of outstanding rent from a tenant in default.
• Parrish stated that the company is currently in discussions with MetLife and other lenders to refinance $130 million in debt that is scheduled to reprice in Jan. 2027.

INDUSTRY GLOSSARY

• AFFO: Adjusted funds from operations, a non-GAAP measure that adjusts for non-cash items to reflect sustainable operating performance.
• Acre-foot: The volume of water required to cover one acre of land to a depth of one foot, equivalent to approximately 325,851 gallons.
• ATM Program: An at-the-market equity offering program that allows a company to sell shares directly into the secondary market.
• Participation Rent: A variable lease component where the landlord receives a share of the crop revenue or profit in addition to or instead of fixed rent.
• Permanent Crops: Crops such as nuts and fruits grown on trees or vines that produce for many years but are harvested annually.
• Row Crops: Annual crops such as vegetables and berries that are planted and harvested every year.

Full Conference Call Transcript

Operator: Good morning. Welcome to Gladstone Land Corporation Third Quarter 2026 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Mr. David Gladstone, Chief Executive Officer. Thank you, sir. You may begin.

David Gladstone: Well, thank you, Sherry. That was a nice introduction. This is David Gladstone, and thank you for calling in today. First, we'll hear from Catherine Gerkis. She's our Director of Investor Relations and she will discuss certain terms regulating regulatory matters that are involved with us. Catherine, go ahead now.

Catherine Gerkis: Thanks, David, and good morning, everyone. Today's call may include forward-looking statements, which are based on management's estimates, assumptions and projections. There are no guarantees of future performance, and actual results may differ materially from those expressed or implied in these statements due to various uncertainties, including the risk factors set forth in our SEC filings, which you can find on the Investors page of our website, gladstoneland.com. We assume no obligation to update any of these statements unless required by law. Please visit our website for a copy of our Form 10-Q and earnings press release, both issued yesterday, for more detailed information.

You can also sign up for our e-mail notification service and find information on how to contact our Investor Relations department. We are also on X @GladstoneComps as well as Facebook and LinkedIn. Keyword for both is The Gladstone Companies. Today, we'll discuss FFO, which is funds from operations, a non-GAAP accounting term defined as net income, excluding gains or losses from the sale of real estate and any impairment losses on property plus depreciation and amortization of real estate assets.

We may also discuss core FFO, which we generally define as FFO adjusted for certain nonrecurring revenues and expenses and adjusted FFO, which further adjusts core FFO for certain noncash items, such as converting GAAP rents to normalized cash rents. We believe these metrics can be a better indication of our operating results and allow better comparability of our period-over-period performance. Now I'll turn it back to David Gladstone.

David Gladstone: Thank you, Catherine. That was very nice. Let's start out with just letting you know, we currently own about 98,000 acres across 143 farms and nearly 56,000 acre feet of water. That's about 18 billion gallons of water that we have. It's mostly out in California. The farms are in 14 different states and our water assets, well, they're all in California where they needed to be. We are acquiring one property subsequent to quarter end, but that was not a good news rather than part of a positive is kind of ending to a negative. We were in a forbearance agreement with one of our tenants, and they defaulted.

This was a small row crop company farm in Washington State that served as collateral for the lease and was transferred to us partially to satisfy the outstanding rent obligations. And during the quarter, we sold a property consisting of 2 citrus farms in Florida about $3 million, so good positive income. We currently have 2 other properties under contract to be sold for a total of about $30 million. I assume the transaction remains on track, and I think people are coming back in and buying up some properties. One of them should close in Q4, which we're in now really. And the other is going to be in Q1 of next year.

Last time we checked, they were still on going forward, and so we should receive that cash in over the next 2 quarters. In each case, we look to use most of the proceeds to pay down debt and buy back preferred stock. But we're still evaluating these and other opportunities at this time. We continue to take a disciplined approach to acquisitions and staying active in the market. So we're ready when conditions improve and it makes sense for us to start growing the portfolio again. When it does, we'll jump in. But we want to make sure that we're the only additional right kind of assets at the right prices.

In terms of leases, we've got -- we discussed in prior calls, some of the updates in the leasing activity. Due to the market conditions affecting certain permanent crops, particularly nuts and wine grapes, we modified the lease structures in a handful of farms to reduce the growers' fixed cost while allowing us to participate very strongly in the upside through higher crop share participations. We also continue to directly operate 2 properties. Who's on the phone that keeps butting in? I don't know. Yes, can you mute whoever it is that's bleeding into my conversation?

As we've discussed in prior calls, due to the market conditions affecting certain permanent crops, particularly the nuts and the wine grapes, we modified these lease structures on a handful of farms to reduce the growers' fixed cost while allowing us to participate more in the upside through higher crop share participations. And we also continue to directly operate 2 properties with the help of third-party managers. So our group is not managing the farms, but they're hiring people who know to manage these farms.

Overall, in 2015 (sic) [ 2025 ], almonds and pistachio harvest were very strong with results generally exceeding all of our expectations and quite frankly, of most people have underestimated how strong they were going to be both in terms of yield and in pricing. Final pricing in 2025 pistachio crop is expected to be at least 21% higher than it was in 2024 and initial pricing on the '26 crop has already been announced at 67% above the initial price for the 2025 crop.

With overall yields on the 2026 crop coming in significantly lower, we expect pricing to remain strong, which should help partially offset the negative impact of the lower yields, but may not fully make up for the shortfall. But given the uncertainties around the 2026 crop results, which impacted our 2027 earnings, the adviser has waived its incentive fee earned during the third quarter, and our priority remains preserving the dividend for our shareholders during the time. And this is a time of a lot of uncertainty. Of course, with regard to farming, the United States government has given a lot of money to the big farmers to keep them going.

We made enough last year, probably one of our best years. We entered into similar arrangements for most of these farms that we own for the 2026 crop as well. So we expect to see smaller earnings pattern next year with the majority of our related revenues and earnings again being recognized during the second half of the year. So we've got a ways out before we can give you much information about what's going on in the crops.

And I also want to remind everyone that crop insurance continues to play an important role in our company as it helps to limit the downside risk on these farms where we have a lot riding on the production of nuts and other things. Our goal is still eventually to translate these farms back to more traditional leases structures, which is fixed base rent, but timing for that will depend on several factors such as crop production and as well as pricing interest rates. When we got in this business, we were borrowing at, I think, 3.5%. The best we can make on it was about 7.5% when all hell broke loose in the farming business.

Looking ahead, 7 leases scheduled to expire over the next 6 months. In total, these represent about 6.8% of our lease revenue year-to-date in 2026. We're currently in discussions with both existing and prospective tenants, and we expect to be able to renew the leases prior to the expirations. So I think that will be just go along as last year. In addition, subsequent to the quarter end, we entered into 2 agreements with solar companies, granting them options to purchase up to 5,600 acres of farmland in California, both for potential solar development, and that's becoming a big thing in California.

The agreements have terms of 5 to 6 years with the combined annual option payment starting at about $331,000, and they'll be increasing over time. We're going to get a lot of money back on these if they work out. And no reason they won't work out because everybody needs electricity. And unlike so many of those companies that are building things to produce electricity, we remain in place and have not had to pay much for our land. We also are pursuing several other alternative revenue opportunities, including all our water leases, fallowing programs and solar leases. I think solar lease is going to be a big thing.

Wouldn't it be nice if we had solar leases on all of our vacant properties and problems? Discussions continue to progress, and we hope to have some more of these agreements in place over the coming months. And probably in our portfolio, about 10 of these farms that could be converted to producing electricity. And folks from New Jersey know this well because New Jersey has a lot of farms that were taken out of farming and putting into producing electricity. And now I'll give a quick update on some of the ongoing tenancy matters that we're working through.

We currently have 7 farms that are wholly or partially vacant, and we're actively working towards solutions to get these farms back into our stable paying leases. Income-producing situations where we want to be because we are dividend payers. Hopefully, we can get some of these situations resolved over the next few months. We're also currently recognizing revenue on a cash basis for leases with 4 tenants. We received some cash rent payments from a couple of these tenants during the quarter, but we'll keep them on a cash basis until we see the rest of the payments come in. And I'll note that these figures include 2 properties we currently have under contract to be sold.

So we get rid of some of the problems and keep going. I'm going to stop here and turn it over to Executive Vice President, Bill Reiman. Bill, why don't you come on and give us your report?

William Reiman: Thanks, David. Good morning, everyone. The third quarter of the year for us is always exciting with the harvest in full swing. Some of our minor crops such as cherries and figs are harvested early in the year, but the harvest of our major crops such as almonds and while almonds typically begin in August, sometimes late July, pistachio generally begins around Labor Day and wine grape harvest typically starts in September as well. Overall, the season got started with a major heat spell in early spring, which caused crops to develop earlier than usual. Some crops responded well to that, while others such as pistachios were negatively impacted.

Damage to the 2026 pistachio crop was felt across the entire industry with production expected to be among the lowest levels we've seen since 2015. Unfortunately, our orchards were no exception, and we also had lower production across the board. However, our farms are well insured, and we expect to receive significant insurance proceeds, as David mentioned, related to our 2026 pistachio crop. We also expect crop insurance proceeds from some of our wine grape blocks where we experienced lower production as well. On a more positive note, the almond crop came in strong across the board, although we're still processing what was harvested, the trend is for our yields to be up. The almond market is very stable.

Pricing continuing to strengthen slightly and remaining at profitable levels. Final price for our 2025 crop came in significantly higher than projected, and we expect even higher prices for the 2026 crop. A combination of strong yields and stable pricing is really a welcome feeling after several challenging years. We expect these trends to continue as bearing acreage continues to decline. There are no significant signs yet of any increase in new plantings. And even if plantings were to increase, it'd be several years before the bearing acreage actually contributed to total almond production increasing. So we definitely feel the tailwinds in the almond business.

The pistachio market, as one might expect, given the significantly smaller crop this year is very strong. Once the extent of the damage from the spring heat wave became apparent, prices really jumped. That helped us close out the 2025 crop at much higher than projected prices. And although the 2026 crop is very small, pricing will be significantly higher than for the 2025 crop. Despite these higher prices, the smaller crop will result in much lower trailing revenue numbers for us over the next 12 to 15 months.

Crop insurance proceeds will help offset this decline, but most of those proceeds are expected to be recognized in Q4 2026, leaving less revenue from the 2026 crop to be recognized in 2027 than in a typical year. The 2027 crop is expected to be another strong production year, and we're hopeful that current pricing strength will carry into 2027, potentially making an even more profitable year than 2025 was. Because the alternate bearing nature of pistachios, we like to compare on years with on years and off years with off years. So we're watching how 2027 shapes up relative to 2025.

Now we're into November with harvest behind us, planning for the 2027 crops becomes -- really becomes a focus of our ops team. Budgets are being finalized. A new management or modified lease agreements are being put in place, so we don't miss a beat with late fall and winter preparations. Though trees and vines still dormant in winter, there's a surprising amount of work that still needs to get done. The wine grape market hasn't changed much. Crop yields were significantly lower across the Western U.S. The industry is still facing oversupply, there hasn't been much relief on pricing. Vineyard removals are accelerating, and we expect that to continue for the foreseeable future.

The industry has faced significant challenges with several large producers going out of business, wine assets selling at substantial discounts and increasing number of properties coming to market. We're seeing -- I'll say a lot of consolidation on the production side, declining acreage, wine labels increasingly concentrated amongst larger producers. So it's going to be really interesting to see how the industry emerges from this period of restructuring. We do see some signs in the wine market, some shortages in some particular varietals. This is the first positive signs we've seen in a couple of years. So hopefully, that's the beginning of the recovery.

We're continuing to evaluate our wine grape assets and explore ways to position them to maximize value, profitability. Although our vineyards have remained under lease, allowing us to fare better than many others in the industry thus far, we may take several vineyards under direct operation in the near future. But we do remain hopeful that market conditions will improve soon and put us in a better position to realize the long-term value of these assets. A few words on real estate -- on the general real estate markets. I'd say, overall, we're generally flat.

The trifecta of interest rates being where they are, crop inputs experiencing inflation and crop prices generally being flat outside of tree nuts, is the main driver of land valuation. We do see some areas gaining strength driven mostly by the strong crop prices in areas where crops can be grown with plentiful and inexpensive water. There's a strong divergence in values around water cost and availability in California, particularly. Areas with riskier water profile are seeing continued depression of land prices, while properties with good cash flow potential are getting positive attention.

Last quarter, we reported that we are seeing a little more lending activity, and that is still the case, although lenders remain cautious, and they're looking for more security with the money they're putting to work. Banks are looking for strong cash flow and equity to secure loans and get deals done. Both aspects are tough to find, but they are out there, but it's like an Easter egg hunt. I'll end this on some thoughts about water. The new water year began October 1. So this is somewhat quiet time of the year as far as water goes, particularly in California. There was a recent late season allocation increase, but it wasn't super impactful for most growers.

It should result in lower costs for current wet water available, but some folks will be able to store a little more, but overall, the impact will be minimal. Most irrigation is done for the season. We're all watching the weather forecast. Strong El Niño in place, everyone is getting ready for the impact no matter where they are. Much of the Pacific Northwest expects to be drier, while most of California and the Southwest expect to be wetter. Of course, anything can happen, so we'll prepare for what we think is likely, but stay ready for the opposite. We are finding some good water purchase opportunities. However, we remain diligent and conservative with what we go after.

Our goal is to only acquire water at prices that fit the economics of our crops in a particular area. Should El Niño result in significant flood water, we could see ourselves grabbing as much of that as we can to store in our water banks. As we've stated before, our strategic water goals is really to strengthen the overall water security of the portfolio through both long and short-term strategic water purchases, continuing to invest in water delivery and storage infrastructure and identifying opportunities to create synergies across our farm assets. That's it for me. Now I'll turn it over to our CFO, Lewis Parrish. Lewis?

Lewis Parrish: Thanks, Bill, and good morning, everyone. I'll start with a brief update on our recent financing activity. We did not secure any new borrowings during the quarter, but we did pay off 2 mortgages totaling about $5 million and one of which was paid off in connection with the property sale that David mentioned earlier. Given where our stock has been trading, we've had very limited activity under the ATM program lately, issuing just about $1.5 million of common stock at an average cost of capital of about 5.7%. We've also continued to execute on our preferred repurchase program.

Since July 1, we've repurchased about $13 million of our preferred stock under the program at an average repurchase yield of 7.3%, resulting in a total gain of about $1.3 million on those repurchases. Turning to our operating results. For the third quarter, we recorded net income of about $11 million and net income to common shareholders of $6.1 million or $0.14 per share. Adjusted FFO for the third quarter was $15.1 million or $0.35 per share compared to $1.4 million or $0.04 per share in the same quarter last year. Common dividends declared were $0.14 in both quarters.

The improvement in AFFO was primarily driven by an earlier-than-usual announcement of the 2025 pistachio crop bonus by our primary processor, and that allowed us to recognize certain revenue amounts sooner than usual. Higher almond and pistachio prices also contributed to increased participation rents and profits from direct farming operations. These increases were partially offset by higher property operating expenses. I'll also note that 2025 was a bit of a transition year for us as we shifted certain farms to modified lease structures or direct farming operations. So 2026 represents our first full crop cycle under these new arrangements.

Year-over-year, fixed base rents decreased by about $400,000, and that was primarily due to lost revenue from vacant and nonaccrual properties as well as property sales completed over the past year. Participation rents increased by about $11.4 million due to the early announcement of the bonus payment for the 2025 pistachio crop as well as continued strong pricing for almonds and pistachios. Direct farming operations also generated a net profit of about $2.9 million during the quarter, largely driven by those same factors. On the expense side, our recurring cash operating expenses increased by about $1.1 million, primarily due to higher property operating expenses.

The increase in property operating expenses was largely driven by supplemental water costs we incurred on property pursuant to our lease obligation, higher professional fees associated with protecting water rights on certain farms in California and additional costs related to properties that were vacant, direct operated or on nonaccrual status. Total net related party fees remained relatively flat compared to the prior year quarter and G&A expenses increased slightly, primarily due to higher professional fees. And finally, cash flows from operations increased largely as a result of higher cash receipts from participation rents and crop sales, a decrease in cash allowances paid to certain tenants and lower interest payments. Turning to liquidity.

We currently have over $105 million of immediately available capital and over $110 million of unpledged properties that could be used as additional collateral. About 92% of our borrowings are currently at fixed rates. And on a weighted average basis, these borrowings bear interest at 3.57% for another 2.1 years. Looking at upcoming debt maturities, we have roughly $34 million of loans maturing over the next 12 months. Given the value of the underlying collateral, we don't anticipate any issues refinancing these loans should we choose to do so. In addition, we have about $16 million of scheduled principal amortization payments due over that time.

We also have about $132 million of loans with fixed rate terms that are scheduled to reset over the next year, although the loans themselves are not maturing. This includes about $130 million of loans under our MetLife facility that are scheduled to reprice in January 2027. We are in discussions with MetLife about refixing these rates, and we're also exploring financing alternatives with other lenders as well as other options, including using proceeds from potential property sales to pay down a portion of the notes. Finally, regarding our common distributions. In October, we declared a monthly dividend of $0.0467 per share for the fourth quarter.

At our most recent closing stock price of $6.88, this represents an 8.1% annualized yield, which is well above the REIT sector average. And with that, I'll turn the program back to David.

David Gladstone: Thank you, Lewis. Overall, demand for prime row crop farmland remains relatively stable across most of our regions and particularly along the coast of California. We're also starting to see some signs of improvements in certain permanent crops, both in the price of the permanent crops as well as broader economics around these crops. So we're hopeful that the worst may be behind us now, but it's still too early to say. This year will say a lot to us about where we're going. And I expect it to be different from the past, but strongly in our favor.

In closing, over the long term, we expect inflation, particularly in the food sector, to continue to move higher, and we expect the values of the underlying farmland to increase. So if we start selling more land, it will be to rid ourselves of some more of the preferred stock. And we expect this to be especially true in the healthy foods, such as fresh fruits and vegetables and nuts. Long-term trends toward healthier eating continues to grow. Now I'll open up for some questions. Those who are listening, operator, would you please come on and help our listeners ask questions.

Operator: [Operator Instructions] Our first question is from Gaurav Mehta with Alliance Global Partners.

Gaurav Mehta: I wanted to ask you on the participation rents expectations for 4Q. Are you able to provide some color on what you're expecting for 4Q? Is it going to be similar to what you guys received in participation rents last year?

Lewis Parrish: Sure. So it might not. As we said, we did recognize some crop share rents that would typically be recognized in Q4, early in Q3 because of that earlier announcement. So I don't know that we'd say it's going to equal Q4 of last year. It's really made up of 3 components for us. We have the variable -- the crop share rents from our standard leases. We have net crop sale profits from our direct operated farms. And then we have insurance payments, which are expected to play a much larger role in the '26 crop. From -- I guess, if we're just talking about the crop share from standard leases and the profits from our direct operations.

I'd probably say we might be similar to where we were at Q3 of last year. The wildcard here is the insurance payments. As Bill mentioned, we might be able to recognize a lot of that in Q4. Some of it could come into Q1 next year. But if it all comes in Q4, it could push us to where we were in Q4 of last year, but we're not sure of the exact timing of those payments quite yet. So I think on the low end, similar to Q3 of last year, on the high end, maybe similar to Q4 of last year.

Gaurav Mehta: Understood. Second question on the balance sheet. You talked about some fixed rate term resets expected next year. Can you remind us where are the interest rates on the debt that's expected to reset? And where do you expect the new interest rate to be?

Lewis Parrish: Yes. Right now, it's 98% of that repricing amount are the MetLife loans. Right now, those -- that's about $128 million, $130 million that's going to reprice in January. Right now, the weighted average interest rate on those loans is about 3.5%. Today, we'd probably be looking at roughly 250 basis points of an increase if we were to refix those right now. But again, we are continuing discussions with MetLife and also talking with other lenders to try to get some competitive bids. And as I mentioned, we're also looking at alternatives of maybe using proceeds from potential property sales to repay all or a portion of those notes.

David Gladstone: Okay. Operator, would you come on and see if there's some more questions?

Operator: Yes. Our next question is from Craig Kucera with Lucid Capital Markets.

Craig Kucera: Of the $7 million of variable lease payments that were made this quarter, can you give us a breakout of what was related to the 2025 pistachio bonus versus other crop types?

Lewis Parrish: I don't have that breakout in the exact breakout in front of me, but if I had to give a guess, it's probably close to 70% of that amount.

Craig Kucera: Okay. That's helpful. And just as we think about 2027, given your commentary about kind of comparing on years versus off years, can you give us a sense of what the yield was off of the '24 crop for pistachios and how that compared to 2025, understanding that pricing is going to be much higher, of course.

Lewis Parrish: Bill, do you want to take that one?

William Reiman: Yes. Could you repeat that question?

Craig Kucera: I'm just trying to figure out when you have a down year with pistachios on your farms, what the yield would be relative to what it was off of the '25 crop, just for thinking about future revenue from the pistachios.

William Reiman: Yes. It really runs the gamut, not to sound elusive, but it really depends. And we've seen -- it's inconsistent. We've seen down years be 25% of an on year. And we -- '26 is overall -- California's overall production is going to -- is about 800 million pounds versus 1.6 billion the previous year. So it was half generally speaking. But then you have to factor in the impact of the pricing, right? So does the percent that the yield goes down by, does the price go up by a significant enough percentage to fill it in? Sometimes it does, sometimes it doesn't. So it's really hard to just kind of place a general percentage on it.

I don't know if that helps, answer your question.

Craig Kucera: No, that actually was perfectly what I was looking for. And you ramped up asset sales or looking to sell more certainly assets held for sale. Are those related to the impairment charges you took in Arizona and Washington? Or are you looking to sell farms from other parts of the country?

Lewis Parrish: Yes. The impairment was related to those sales.

Craig Kucera: Okay. Great. Let's see here. As you're going through leasing here in the fourth quarter, are you expecting any additional modified lease agreements? Or do you anticipate that the 3 that you have will kind of be the ones that remain under modified leases?

Lewis Parrish: No. We're not looking at any additional changes towards modified leases at this point, right? And I'll let Bill speak to this, but we're actually taking one. It's a smaller property, but we are taking one property out of the -- we're planning to take one property out of the modified lease structure and put it into more of a traditional lease, and that's a small almond farm. Bill, any more color you want to give on that one?

William Reiman: Yes, we don't anticipate any other modified leases. We have been getting inquiries going back to traditional leases. And like Lewis said, we have one smaller almond farm that is going back to a traditional, it's coming off the modified lease, going back to a standard lease. And we just kind of evaluate a case-by-case basis, weighing those returns. And so yes, just one less going into next year, and I don't anticipate any new ones for 2027.

Lewis Parrish: One thing I'll add there, Craig, is on the direct operated side, we -- related to the tenant that was in default, David mentioned, we acquired one property as part of a forbearance agreement. They operate a couple of vineyards up in the Pacific Northwest. We might end up having to take those back under direct operations. So not modified lease, but we might have a couple of vineyards added to the direct operated bucket next quarter or in the fourth quarter.

Craig Kucera: Got it. And with the third-party solar agreement, did you say that was on vacant land or that's land that's currently being farmed?

William Reiman: It's on both. One of the agreements is on -- well, actually, they're both leased. So they really aren't -- they aren't vacant. They are on farm.

Lewis Parrish: One was vacant last quarter then, right?

William Reiman: Well, that's true.

Lewis Parrish: One was leased and the other one is now also leased. But on top of that, there's the solar purchase option agreement.

David Gladstone: Operator, can you give us the last question?

Operator: Yes, sir. Our last question is from John Massocca with B. Riley Securities.

John Massocca: Maybe thinking about the kind of overall farm transaction market in terms of acquisitions and dispositions. How is that being impacted by the move in interest rates, if at all, is that kind of changing any kind of strategy you have around maybe selling some underperforming assets and using proceeds to kind of pay down parts of the capital stack? Just kind of curious how that's progressing.

David Gladstone: Lewis, go ahead.

Lewis Parrish: Bill, you want to start?

William Reiman: Yes, it's a buyer's market for most farmlands at this point in time. So it's difficult to get things sold and particularly difficult to get things sold at a value that is helpful to us. But for example, our farm in Arizona, we had under contract just yesterday, the buyer canceled, right? So we had a pricing that we liked, but they didn't -- after doing their due diligence, they determined that what that was going to cost them to operate, it was too expensive. So they backed out. So it's really, really difficult to get these things to get transactions closed.

The buyer pool is typically -- right now, the buyer pool is really just -- it's really just strategic very, very few investors. Institutional activity is really at a very low level. And so any selling -- going out and selling a bunch of properties to free up capital is just -- that is not a quick process at this time. It's just -- it's going to be a grind. So I would say that, that process of liquidating assets to redeploy that capital and some of it is just -- it's going to be slow, and it's going to be slow for a while.

John Massocca: Okay. I mean are you seeing movements in kind of cap rate to kind of compensate for that? Or is there just a buyer-seller disconnect out there given where kind of interest rates have moved?

William Reiman: No, that's a great question because that's what happens, right? Interest rates go up, cost of money goes up, transactions slow down, profitability starts to come back, right? So we definitely see in certain crops, crops that have good profitability, almonds and pistachios, yes, we're definitely starting to see cap rates coming back, right, to compensate for that. So we expect those trends to just kind of gently continue. One thing that is -- the one positive with interest rates is they -- yes, they came up, and we're adjusting to that. But for the last 18 months, it's relatively stable, right? So that stability gives confidence in the industry. And so then we can build profitability back in.

So -- and then as guys -- like in the wine grape market, as it cleans up, it is kind of sad people losing their jobs and companies going out of business. But that's capitalism, right? And so it's -- as it cleans itself up, that we expect that profitability to come back, and it will come back. So we were watching all of those things and figuring out how our assets play into that and what we can do to position ourselves so that we maximize values and returns in the future.

John Massocca: Okay. And then on a more technical level, you mentioned some crop insurance and certain crop types. Can you give maybe a little more color on the seasonality? I think some of that is going to hit in 4Q, but then the impact in terms of lost kind of crop revenue is in '27. Just kind of curious how we should think about that impacting the top and bottom line both in 4Q and in '27.

William Reiman: I was just going to say that generally speaking, the crop insurance proceeds, let's compare those to the crop -- normal crop revenue. The crop insurance proceeds come right away, right? They come right after harvest. In fact, we've received some payments already. And so comparing to the typical crop revenue on those crops that lags to 15 months, sometimes longer, it just -- it shifts that revenue stream. Now crop insurance obviously is kicking in when you've had a problem, right?

So the profitability, if you're getting crop insurance payments, then that -- whatever that was for or a particular crop or in some cases, just a particular block, one block out of one farm, it could be that specific, means that you had probably lower yields and had to make a claim because your -- what level of revenue you were insured to, you're dropping below that. So your overall profitability, obviously, has taken a hit wherever you're -- because we're ensuring to a level that covers our cost, covers our investment in the crop, we're not insuring profitability. So I think that's probably -- I don't know, Lewis, what you can add to that.

It's probably the best way I could describe it.

Lewis Parrish: I think that pretty much covers it. Nothing to add here.

John Massocca: Okay. And then last one, maybe for Lewis. How are you thinking about the preferred stock repurchase program kind of going forward? Is that something we should just expect kind of a steady utilization of? Or could that be a little bit more variable based on where kind of capital needs are in any given quarter?

Lewis Parrish: Yes, definitely the latter. I mean we're -- our line of credit, we're using that right now, and that's going to reprice again in January. So that reprices every 3 months. We'll weigh the cost of that versus the cash needs versus the cost of the preferred or what yield we're able to buy it back at. And frankly, right now, the common is based on last night's closing price, yielding a little bit higher than the preferred. So we're going to weigh the best use of any funds that we have available versus other needs, possibly some acquisitions, although I don't see that in the near term, trumping either one of these repurchase options.

So given -- if things stayed how they did during Q3, then yes, I would expect it to continue, but we'll have to see where interest rates go and what the yields on all of our securities look like.

David Gladstone: Okay. How are we doing on any more questions?

Operator: There are no further questions at this time.

David Gladstone: Well, we're disappointed. We like it when people ask us a lot of questions. So we hope you all just get ready for the next one and give us a lot of questions about and we'll do our best to answer. That's the end of this, and we thank you all for being with us, and we'll see you next quarter.

Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.

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