LAND - NASDAQ

Greetings and welcome to Gladstone Land Corporation First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. David Gladstone, Chief Executive Officer and President. Thank you, sir. Please, go ahead.

Okay. Thank you, Donna. That’s nice introduction. This is David Gladstone, and welcome to the quarterly conference call for Gladstone Land, and -- [Technical Difficulty]

Mr. Gladstone, we seem to have lost your audio. Can you please make sure your line is not on mute?

We're in terrible shape this morning, leaving it on mute. So thank you, Donna, for that nice introduction. This is David Gladstone, and welcome to the quarterly conference call for Gladstone Land, and thank you for calling in today. We appreciate you taking the time to listen to our presentation, and we're looking forward to some good questions. We'll start with Michael LiCals. He's our General Counsel and Secretary, and he's also President of Gladstone Administration. So Michael, take it away.

Thanks, David. 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 forward-looking statements involve certain risks and uncertainties that are based on our current plans, which we believe to be reasonable. Many factors may cause our actual results to be materially different from any future results expressed or implied by these forward-looking statements, including all the risk factors in our forms 10-K and 10-Q and other documents we file with the SEC. You can find them on our website, specifically the Investors page of the website and that’s at gladstoneland.com or on the SEC's website, which is sec.gov. Now, 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. And today, we'll discuss FFO, which is, funds from operations. FFO is a non-GAAP accounting term, defined as net income, excluding the gains and losses from the sale of real estate and any impairment losses from property, plus depreciation and amortization of real estate assets. Now, we may also discuss core FFO, which we generally define as FFO adjusted for certain non-recurring revenues and expenses, and adjusted FFO, which further adjusts core FFO for certain non-cash items, such as converting GAAP rents to normalized cash rents. And we believe these are better indications of our operating results and allow better comparability of our period-over-period performance. We ask that you take the opportunity to visit our website, once again gladstoneland.com, sign up for our e-mail notification service, so you can stay up-to-date on the company. It can also found on Facebook, keyword The Gladstone Companies and Twitter @GladstoneComps. Today's call is an overview of our results, so we ask that you review our press release and 10-Q, both issued yesterday, for more detailed information. Again, they’re on the Investors page of our website. With that, I’ll turn the presentation back to David.

Okay. Thank you, Michael. I'll start with a brief overview of our current holdings. We currently own approximately 113,000 acres of farmland. It's on 162 farms and -- we also own about 45,000 acre feet of banked water valued and all three of these together banked water as well as all these farms are worth about $1.5 billion -- and our farms are located in 15 different states, more importantly, in 29 different growing areas. Our farms continue to be 100% occupied and are leased to 86 different tenant farmers, all of whom are unrelated to us. And the tenants on these farms are growing over 60 different types of crops. Given the number of different growing regions, tenants and different tenants and different types of crops on our farms, we think this is sufficient diversification to provide safety and security for the cash flows coming in from the rents. We believe these diversifications help protect the dividends that we pay to our shareholders. After closing nearly $150 million of farm acquisitions in the fourth quarter of 2021 last year, we've been pretty quiet on the acquisition front for a year – for the last three months. But things are picking up for us in the last six or seven months of this year, which you should see are typically, our most active periods. You will see us close some deals and we announce each one of those as they come to fruition. However, largely as a result of those acquisitions last quarter and aided by interest patronage received from the farm credit people that we borrow from, we did have another strong quarter from operational standpoint. We're coming off a year in which we reported $5.2 million of participations from our last -- from last rents and we have a few more farms with participation rents provisions scheduled to come online for this year that we didn't have last year. So we're optimistic of being able to report a good result for 2022. However, these numbers are largely dependent upon the yields achieved in the farms, the prices at which the crops are sold. So we'll need to wait until later in the year before we can estimate and announce those figures. To continue to be able to renew all expiring leases without incurring any downtime on any of our farms, that's what we did, and we're hopeful that we can continue to do that. As for farms on our primary regions of focus, this is along each of the coast, we continue to execute renewals at higher rent levels. Upon a change of a lease structure as we did on one of our farms, it hurt our income a little bit, but we'll go over that in a bit. Overall operations on our farms remained strong, and the demand for products growing most of our farms remains high. These are products like berries, vegetables and nuts as anybody who goes to the grocery store can tell you prices on these products continue to rise. One reason we've been less active with acquisitions so far this year is because -- well, being more selective in the types of farms that we're looking at right now. In light of all the economic uncertainties surrounding our nation right now, we believe it's a good time for to be more conservative with our capital. So we're trying only to look at acquisitions that we feel are far safer than investments for us than some of the others that are out there. And this benefits, of course, our shareholders. On the leasing front, since the beginning of the year, we executed seven lease renewals, properties located on four different states. Overall, these renewals are expected to result in a decrease in the annual net operating income of about $580,000, and that's primarily due to one of the leases other than that, we're in great shape. The result of this one lease renewal on our property, which we invested $560,000 to cover a portion of the farm's operating cost in exchange for adding a significant participation rent component to the lease. The tenant there wanted to see how it worked before he signed a long-term fixed rate lease, so we're going to get 80% of the gross revenue earned on the farm this year based on current commodity prices and yield estimates, we think we'll end up in a similar place where we would have been in -- on the previous lease on this farm, but we will not know the results until the end of the year when the crops are sold. Excluding this one lease, our other leases renewals are expected to result in an increase in annual net operating income of approximately $55,000 or about a 3% increase over the old leases that we replaced. Looking ahead, we only have one lease scheduled to expire over the next six months. It makes up less than one-half of 1% of our total annualized lease revenues. We're in discussions with the existing tenant on the farm as well as some potentially new tenants, and we aren't currently expecting any downtime on this one. We currently expect that the new lease on the farm will be relatively flat, maybe up a little bit where it is today. There are a couple of other items I'd like to mention before we move on. First one is the ongoing drought in the west despite some record-breaking rainfall in the Western United States over the winter, including a relatively wet April; the entire region continues to deal with multiyear drought. However, all the properties continue to be in a position where our farmers currently have enough water to complete certainly the crop for this year, and I think we'll be fine in the years going forward. Where we have farms located in water districts, those districts do have stored water or supplemental sources to cover our farms you have to buy the water. As you know, we have a lot of water that we have in the ground that is ours. Almost all of our farms have wells on site and most of them rely on groundwater as their main source of irrigation. For these properties, we are seeing typical seasonal droppings in the water levels of the water in the ground. One thing you should know is that wet and dry weather cycles are the norm out west, especially in California, throughout any long-term investment; we know that we will have both drought periods and wet periods. So when we underwrite any potential investment, we look for properties with multiple sources of water we build in drought scenarios, and we also take into account potential government regulations that might ask us to reduce our water consumption. Regarding the progress of ESG, this is something new for us. We're continuing to work on developing a formal policy related to disclosures we consider to be relevant. There aren't any companies out there or any REITs out there that are similar to ours. So we've not seen anybody announce anything that would be good for what we're doing these days. But just so you know, several of our farms have large solar arrays on them that are used to power their operations of the farms, and we've been in discussions with the groups to add wind power and solar leases on to other farms as well. We just always want to be careful that these additions aren't going to disturb our current tenants on these farms because after all, these current tenants are a primary business partner. Finally, as mentioned on the previous calls, we sometimes come across farmland owners who want to sell both their farmland and their operation as a package deal as a real estate investment trust, Gladstone Land can't take operating income because operating income is generally not permitted in real estate investment trust. We do have some additional things that we're doing to potentially take advantage of such opportunities where Gladstone Land could not participate. I'm going to stop here, and it's really enough of the operating day to day. So, I'll turn it over to our CFO, Lewis Parrish to talk to you more about the financials.

All right. Thank you, David, and good morning, everyone. I'll begin by briefly in our financing activity. Since the beginning of the year, we secured about $10 million of new long-term borrowings from three different lenders at a weighted average rate of 3.18%. This rate is fixed for the next seven plus years. On the equity side, since the beginning of the year, we've raised about $1 million of net proceeds through sales of our common stock under the ATM program and about $50 million of net proceeds from sales of the Series C preferred stock. Moving into the operating results. First, I'll note that for the first quarter, we had net income of about $1.2 million and a net loss account shareholders of $2.7 million or $0.079 per common share. On a quarter-over-quarter basis, adjusted FFO for the first quarter was approximately $6.4 million compared to $6.7 million in the fourth quarter last year. And AFFO per share was $0.185 in the first quarter versus $0.199 in the fourth quarter '21. Dividend declared per share were about $0.136 in both quarters. Primary driver behind the decrease in AFFO was $3.4 million of participation rents recorded during the fourth quarter of 2021 versus none reported in the first quarter of ’22. Partially offsetting this was about $2.8 million of interest patronage or refunded interest recorded during the current quarter related to our loans from farm credit. Fixed base cash rents increased by about $700,000 or 4% primarily driven by additional revenues earned from recent acquisitions. On the expense side, excluding reimbursable expenses and certain nonrecurring or noncash expenses, our core operating expenses remained relatively flat on a quarter-over-quarter basis. Total related party fees decreased during the quarter primarily due to a lower incentive fee earned buyer adviser during the current quarter. However, this was offset by increases in both property operating expenses and G&A expenses. The increase in property operating expenses was driven by additional property tax obligations on certain properties, as well as annual state filing fees that we have to pay on each of our properties. And the increase in G&A expenses was largely due to higher professional fees, particularly additional audit and appraisal costs. Moving on to net asset value. We had 34 farms revalued during the current quarter, all via third-party appraisals. And overall, these farms increased in value by about $13.2 million over their previous valuations from about a year ago. These increases represented about a 4% increase in the value of these properties. We especially saw strong value appreciation across the board on our California properties, and that included properties growing fresh produce row crops in the Central Coast as well as farms growing nuts in the Central Valley. And I think that's a testament to the job our team has done at locating farms with good sources of water that are able to withstand severe drought conditions like we're currently experiencing out there. With water at a premium out West, especially these days, we're seeing values declining for farms that only have one source of water, while prices of farms with multiple sources of water are continuing to go up. So as of March 31, our portfolio is valued at about $1.5 billion, all of which was supported by either third-party appraisals or the actual purchase prices. And based on these updated valuations and including the fair value of our debt and all preferred stock, net asset value per common share at March 31 was $15.54 which is up by $1.23 from last quarter. Primary drivers of this increase were the aforementioned appreciation of the value of our funds as well as the impact of increases in market interest rates on the value of our fixed long-term borrowings. Turning to our capital makeup and overall liquidity. From a leverage standpoint and with respect to our borrowings, our loan-to-value ratio on our total farm and holdings on a fair value basis and net of cash was about 40% at March 31st. Over 99% of our borrowings are currently at fixed rates and on a weighted average basis, these rates are fixed at 3.25% for another five-plus years. So, we believe we are currently well protected on the debt side against further interest rate hikes. Regarding our upcoming debt maturities, we have about $66 million coming due over the next 12 months. However, about $48 million of that represents various loan maturities and the properties collateralizing these loans have increased in value by a total of about $20 million since their respective acquisitions. So, we do not foresee any problems refinancing any of these loans if we choose to do so. So, removing those maturities, we only have about $18 million of amortizing principal payments coming due over the next 12 months for less than 3% of our total debt outstanding. From a liquidity standpoint, including availability on our lines of credit and other undrawn notes, we currently have over $175 million of dry powder in addition to $30 million of unpledged properties. We recently increased the size of our MetLife facility. This gives us ample availability under each of our two largest borrowing facilities and we continue to reach out to new lenders for additional borrowings as well. Finally, regarding our common distributions, we recently raised our common dividend again to $0.0454 per share per month. Over the past 29 quarters, we raised our common dividend 26 times, resulting in an overall increase of more than 51% over this time. Since 2013, we paid 111 consecutive monthly dividends to common shareholders and our goal is to continue to increase the dividend at regular intervals. Farmland continues to be a stable asset class and continues to perform well in the midst of all the uncertainty and volatility currently in the markets. We continue to believe that this stock offers a compelling investment alternative, especially in light of today's inflationary and recessionary concerns. And with that, I'll turn the program back over to Dave.

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

Thank you. The floor is now open for questions. [Operator Instructions] Our first question is coming from John Massocca of Ladenburg Thalmann. Please go ahead.

Good morning.

John, good morning.

Just interested, as you look at the pipeline and potential acquisitions, how are sellers being impacted by both commodity price movements and rising interest rates in terms of whether that's incentivizing into new deals or maybe causing some of them to hold on to their properties?

Well, it runs depending on the person you're talking to, some of them cite both of those or one of those as a reason for them to get out of the business. I think it will help us if we get in a position so we can buy farms and farm operations. But just to sell the land, that means that we've got to start paying rent. And while it's good for a lot of people, it doesn't work in every situation. So we listen to what's going on. And most of these farmers are pretty sharp in putting the pencil to paper in order to determine whether they should sell enough. But my guess is that as the economy gets more and more difficult for people to figure out. I mean these people are paying huge prices for fertilizer and other inputs to the farm operation, and they're all doing the math. if I've got to pay twice the price for fertilizer that I paid last year, what do I need to do to make up the difference. And while it's true that most of them are getting more money for their barriers or nuts or whatever. At the same time, a lot of that profit is staying at the grocery store level. It's not going out to them because they're having to pay more to get those products into the grocery stores. So I don't know, John, it's always just to sit down and talk with people that gets us to the purchase price and to the purchase agreement. We've got some purchase agreements that have been signed and will eventually come through. But quite frankly, it takes a long time to get closings done now because people that are in government positions, for example, that have to give you the okay for what you're doing in order to get insurance or whatever, it just takes longer to get these things done. I don't know what we'll do if it keeps going at a slow pace like it is now, I think we'll have plenty of opportunity as time goes on because people can't live forever as they say. And so they're trying to figure out what they're going to do with their farm. The children usually don't want the farm. And so as a result, they're looking for a way out. And while selling the land certainly gets them a lot of money. Some of them are selling in order to buy another piece of property someplace else. But I think this going rate that we're going at today is probably as good as any that's going to happen. And so my guess is we'll do $150 million to $200 million this year and we'll just have to see. That's just a guess because you can't always count on things closing when they say they're going to close. So that's not a good answer, John, but that's what I've got.

No, no, it's understood. And then on the balance sheet side of things, what are you seeing today in terms of secured debt pricing and maybe even unsecured debt pricing as you look at that side of the capital stack for future growth and some of the refinancing that's going to occur or potentially could occur later this year?

So if we were to go out and get some quotes right now, we'd probably be in the low fours to mid fours as far as pricing. If you're based on what we're hearing right now, that obviously could be a bit higher towards the end of the year. So we'll look at those numbers. And we have preferred common and debt. We have multiple sources of capital that we can go to. So when we get all those numbers ready to close a deal and finance it, then at that time, we'll look at the best I guess, combination of capital sources to move forward with.

And remember, if we're borrowing money from the federal banks, we do get some payback later in the year. So like during the first quarter, we get back another 2.8 million. It's up 1.3% -- 139 basis points, I think it was.

Because we are actually the “owners” of those banks in directly as a borrower. It's not a profit making opportunity like you'd see at a regular bank. So as a result, we got about 1.3% back from all of our borrowings. So as borrowings go up from the federal side, we get more money back every quarter, and that certainly made us look really good in the first quarter. But first quarter is always slow because we've gotten most of our participation rents in. And so as a result, we did well this quarter. Go ahead.

And then in terms of leverage, I think I heard on the call around 40% loan to farmland value. It's a little lower than kind of historically, is that just maybe being prudent, given some of the economic -- broad economic conditions we're in, or is that just maybe something that could drift up over time as you do close some deals later in the year?

It could certainly drift up over time. A lot of it is because, we have the -- we made pretty abundant use of the common ATM in the second half of last year. We had the preferred proceeds coming in. So, right now, for example, in our MetLife facility, we have enough properties plays that we can draw $110 million down on it whenever we want. But right now, we don't need those funds. Of course, if all of the deals currently in our pipeline do end up closing over the next several months, then you would see us start to draw on some of those funds.

Okay. That’s it for me. Thank you very much.

Thank you.

Okay. Next question.

Thank you. The next question is coming from Edward Riley of EF Hutton. Please go ahead.

Hey, guys. Two questions for me. Just wanted to hear more on, if any farmers are having any issues on passing on any increased costs to their customers? Would love to hear some more about that.

Well, we know the price has been going up on all of the inputs, so they've had to pass that on and the grocery stores seem to be able to buy that. As you know, most of our sales, most of our fruits and vegetables go through the grocery store chain, rather than the independent -- I don't know, fast-food place. Anyway, just taking that into account, I think more of our farmers are feeling pretty good about the prices that they're getting and so they're able to pass on just about everything. There's a good relationship between the grocery stores and the farmers. Most of the grocery stores have people out in the farms looking at what's going on and they’re talking to the farmers. So it's not like there's this disconnect between the two. And so as a result, I think everybody is on the same page, which that page is, you're going to have to pay more for fruits and vegetables, as well as nuts on the trees that are coming off this year. So I think there's no problem passing on the prices that they're paying and they're paying probably 2 times what they paid last year for fertilizer, maybe, even more in some cases, because it's very difficult to get fertilizer right now.

Got it, got it. And then, for the participation rent component by the end of the year, could you give us a breakdown in terms of the crops that you expect to make up the vast majority of the participation rights collected?

Most of its going to come from pistachios. We have some participation rent provisions on -- well, it's mostly on our permanent plantings, but most of it will be coming from pistachios. Also, we have some almonds, some wine grapes. And I think we have a couple of farms -- commodity crop farms in the Midwest, but the majority of it will come from pistachios and that's good for us lately because pistachio prices are pretty strong right now. So Ed, we need you to go out and buy a lot of pistachios and almonds.

Well, I have a bag of almonds sitting next to me right now. So I got it covered.

All right.

On the property expenses, you noted some increase there, I think, due to taxes. Is there going to be variability with that throughout the year by quarter, or how should we be thinking about that going forward?

Yes. So it was a little bit -- there were some kind of onetime costs this quarter that won't be recurring or at least not on a quarter-to-quarter basis. For example, I think we had about $65,000 or $70,000 of annual state filing fees. That is an annually recurring fee, but it won't be continuing into the future quarters of this year that usually hits every quarter or every year in the first quarter. On the tax side, two kind of – two things that kind of -- that drove that. One was an increased assessment on one of our properties that caused us to have to kind of record some true-up expense on it, some expenses that are related to the calendar year-end 2021, that I think, was probably $50,000 to $60,000. And the other portion of that related to some leases that turn from triple net to partial net. So those would be recurring. But overall, the property operating expenses, I'd say, $100,000 to $125,000 of that should not be recurring.

Okay. Great. Thank you guys. Appreciate it.

Okay. Next question

[Operator Instructions] The next question is coming from Craig Kucera of B. Riley Securities. Please go ahead.

Yeah, hey good morning, guys. David, you raised about $50 million of preferred year-to-date at 6%, while your common cost of equity optically appears to be a lot lower, certainly based on your dividend yield or your published NAV. Can you comment on how you're thinking about the cost of your various sources of capital?

Yes. We think about it every day. My CFO will tell me over and over again, we're paying too much for our money by using it. But think about this for a minute, Craig. As you probably know, when you're raising money through people who are selling preferred stock, it's a daily thing for them and you can't turn it on and off very easily. The good news is they can usually sell during really difficult times. And so, you're getting your money in to buy more farms at a time when most people are thinking about not doing anything in terms of investing in stocks. So as a result, we don't want to turn that off until we just know that there's no more need for it. And while I'm very happy that we could use our ability to sell new shares when the price moved from $40 a share to $31 where it is, I guess, today, that was a downer. And so, it was still better than what we're doing on the -- on the preferred shares. But I don't want to turn off the preferred shares yet. There may be a day when we want to do that. But I do like to know that during a difficult period of time that they'll keep selling. And it's a very nice product. A lot of people are buying it. But since it's not traded, it makes it much more difficult to sell. So, these people are good salespeople and have done a good job for us. So, we'll just keep it open for a while. And if for some reason, we don’t need it anymore, we'll have to turn it off, but I really don't want to do that. We've got a great sales team that's doing a good job of selling that in the marketplace. So yes, I hear you loud and clear.

Okay. No, I appreciate the candor on that in that regard. Just one more for me. I mean obviously, a lot of news on the drought out West. And I'm curious to get your thoughts on how meaningful you think having multiple sources of water might be to pricing? Thanks.

Well, if you've got multiple sources in your out wet [ph], you've got a very valuable piece of property. We do things to get that back up to size in terms of the ratio of what we're growing there and what we've got water to make it grow. And the real difficult thing is just trying to find out how we can use these water sources that are out there. The runoff from the mountains where they got a pretty good amount of snow this year is always very key to what's going on out West, especially in the valley. The valley is a particular area of drought. As you probably know, there are two rivers that funnel into that place, but half of it is sent out to sea because they have some small fish near San Francisco that need to be protected and so we lose a lot of water as farmers from that decision. Not saying it's wrong, it's just that it needs to be acknowledged. So, our problem today will probably be forever in California is that there's a huge competition for water. There is, of course, all the people that want water and at the same time, a lot of farmers. And the farmers have benefited more than anybody else over the last 20 years. I think that will tighten up some as we go forward, but I don't think any of our farms are in a place. Sometimes we supplement our water with something that nobody else is doing that I know of, and that is buying water that's in the ground in these aquifers that they protect in California. And we've got about 45,000 acre feet -- now an acre foot is 326,000 gallons. So, you multiply 45,000 times 32,000 gallons, and you can see we've got a lot of gallons of water, but we need a lot of water in the agricultural business. And so this is insurance. We actually bought it. We pay interest on the debt that we bought it with and so as a result, it's a cost to us and guaranteed over time, we will appreciate having that as our reserve. So, we do a lot of other things. For example, we've got some places that get water during the year, but maybe not doing as much during the growing season. And we build pools of water that we keep, and we fill them up in the winter and spring and then use them during the summer when their growing season is there. So, we're well aware of this and I've been in this business, as you know, since the public offering of 2013 and even before that, we always had these problems that we talked about. And quite frankly, it's just a matter of doing things that help everybody out. For example, the Governor, I guess it was four years ago asked us to cut back by 25% on the water usage and we did that on all the farms. The farmers are very good at obeying what was requested and went right through and had just as much produce and nuts and things as we always have had, even with 25% reduction in. Now you can't do that much with trees, for example, trees got to be healthy and the problem with trees, of course, as you're growing the tree, which is growing the nuts that we want off the tree and some of the others are in similar positions. So, you can skip for a while, but if you skip too many times, the tree gets weak and doesn't produce as much. One of the -- our old competitors who had a lot -- I mean, a lot of pistachio trees actually shut down, I think it was 15,000 acres because they just couldn't get enough water under normal circumstances, and the trees were old anyway. And so they decided to leave that and put some trees in some other areas. It's a common thought on every farmer's mind is do I have enough water. It's more so in the Valley, where these 15,000 acres were that were taken out and a lot less on the coast, either in Oregon or California, the coast seems to have more water anyway, there are a lot of savings going on now. Almost all the cities in California are thinking about or have in place, water that's being taken from the sea and turned into good water for them to use. There's also any number of cities that take the water that come off the city and purifying it and sending it back as – well, nobody wants it is as drinking water when you're sending it back, but we can certainly use it to irrigate the farms. And so they're saving water that way. It is just a constant thing in California. If you remember that whole song, "It Never Rains in Southern California", it's a truism, and it doesn't rain much in California. But when it does rain, it's like a snowstorm out east when we all get excited they get a rainstorm and they are fidgety because the rain came. And we, of course, love the idea when rain comes here and they do too, but it's an anomaly. So as a result, we're all playing the same game. And Greg, I don't know where we're going to go from here, but I think we'll be fine over the next 10, 15 years, but one has to wonder in 20 years what the West will look like if they keep using the amount of water. Of course, as you know, a lot of the farms are being converted to office buildings and schools and parks don't use as much water as the farmer does. So there's a general reduction in farmland in California, and that's helping everybody have more water. It's a balancing game and sometimes you're on the right side of the balancing game, and sometimes you have problems. We had one farm in – in one of the California areas that just didn't have enough water and we spent $1 million or $1.2 million in drilling a well and didn't get as much water as we wanted, so we were really frustrated by that and found out that the city next door had a line that went across the property. And we asked them if we could have that and they said, yes, during the winter, but during the summer, you can't. So we would load up with water during the winter and fill up our ponds that we have, and it has worked out extremely well. That property is worth much more than it was when we bought it. And so I'm very happy that we've been able to solve our problems. However, I'm always conscious that there's a problem coming my way that I can't solve, and I got to make sure that we don't hit one of those. Right now, we're in good shape. Who knows about the future? I wish I had a good crystal ball with mind broke, and I can't do much with it

And I think we always had a crystal ball. Thanks, Dave.

Okay. Any further questions, Craig? No. Any other questions, Donna?

The next question is coming from Barry Oxford of Colliers. Please go ahead.

Great. Thanks, David. Real quick, you had mentioned about the lease that got redone with 80% participation because you had indicated that farmer was looking to see how that farm would work out. Can you give a little more color behind those negotiations? Number one. And then number two, is that a trend that you think we might see or look that was just a runoff situation?

No. We had a Managing Director who did a deal out there and the other Managing Director to take over his place, came up with this as a solution to and we had a farmer that came in and took one of the two farms that we had there, and he wasn't willing to take a shot at doing two at the same time, and it was kind of late in the season anyway. So he cut the deal there, and a lot of farms do this, a lot of farm owners do this is that they take a large chunk of the -- as you go back to -- the world of England when farming was -- farms were all owned by the king and he leased them out on a pay-as-you-go kind of basis. This is what's happening in some of the farms in California is that the farm owner takes risk, whereas, I don't like to do that because I got a fixed dividend, I got to pay. So as a result, I don't think this is going to happen again, although, I guess, now that I've broken the rule of…

Getting the big spread.

…somebody else. One of our Managing Directors will say, just as you did before, can I do this one? And hopefully, can stand up to that one. But in this case, it was the only way to introduce a new tenant to some farms that we have, and one of them is on a fixed basis, and we'll be fine there. And this one is on an 80%, which if the farm produces what we think it will, we'll be well within the range of getting what we thought we were going to get when we had the farm the first time. So it's another way of looking at the world, and there are couple of couple of large corn farmers. And in fact, that do this on a regular basis and they're just really partners for -- with the guys and girls that are doing the farming. So I'd rather not do that because it's a variable rent, you never know what you're going to get, and it's really hard to plan a dividend based on that. But we're in good shape today. Any other questions, Barry?

Perfect. Thanks David for the color there.

Okay. Donna, we got another question somewhere.

We do not, sir. At this point, I'd like to turn it back to you for closing comments.

Okay. Thank you all for the questions. And hopefully, you're up to date, if you're not just go to the 10-Q that we just filed and it's got a lot of good stuff in it. I know we put 10 times more stuff in there than anybody reads, but that's the requirement of the government. So have fun, read up, and we'll see you again next quarter. That’s the end of this call.