LAND - NASDAQ

Greetings. Welcome to Gladstone Land Corporation Third Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to David Gladstone, Chief Executive Officer and President. Thank you. You may begin.

All right. Thank you, Sherri. That was a nice introduction. This is David Gladstone, and welcome to the quarterly conference call for Gladstone Land. I want to thank you all for calling in today. We appreciate you taking time out of your day to listen to our presentation. We're going to start with Michael LiCalsi. He's our General Counsel and Secretary. He's also the President of Side stone Administration, the administrator for all of our funds. Michael, go ahead.

Thanks, David. Good morning, everybody. Today's report may include forward-looking statements under the Securities Act of 1933, 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. 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 Form 10-Q, 10-K and other documents that we file with the SEC. You can find them on our website, www.gladstoneland.com, specifically the Investors page or on the SEC's website, which is sec.gov. And we undertake no obligation to publicly update or revise any of these forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Today, we'll discuss FFO, which is funds from operations. Now FFO is a non-GAAP accounting term, defined as net income, excluding the gains or losses from the sale of real estate and are impairment losses from property, plus depreciation and amortization of real estate assets. We may also discuss core FFO, which we generally define as FFO adjusted for certain 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. And we believe these are better indications of our operating results and allow better comparability of our period-over-period performance. And please 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. You can also find us on Facebook. Keyword there, The Gladstone Companies and on Twitter @Gladstonecomps. And today's call is an overview of our results, so we ask that you review our press release and Form 10-Q, both issued yesterday for more detailed information. Again, go to the Investors page of our website to find them. Now, I'll turn the presentation back to David Gladstone.

All right. Thank you, Michael. I'll start with a brief overview of the farmland holdings. We currently have over 115,000 acres on 169 different farms, and we also have 45,000 acre feet of bank water. You all remember that an acre foot is 326,000 gallons. So, we're into the billions for gallons of water that we hold and is held underground. And so, we can bring it out if we need it. And together, those two are valued at a total of about $1.6 billion for both the land and the water. Our farms are in 15 different states and more importantly, they are in 29 different farming regions. Farms continue to be 100% occupied and leased to over 90 different tenant farmers all of whom are unrelated to us. And the tenants on these farms are growing over 60 different types of crops from fruits and vegetables and nuts. We mentioned this past couple of calls, acquisition activity remains slow for us. We continue to be more selective in the type of farms we're looking at right now with inflation and interest rates continuing to rise and the risk of even a bigger recession than we're in right now becoming more likely. We believe it's a good time to be much more conservative with our capital. But overall, our existing farmland portfolio continues to perform pretty much as expected, and we had another very strong quarter, as you'll hear from the rest of my presentation and certainly from Lewis, our CFO. Leases on these farms contain certain provisions such as participation rents. And this third quarter that we're in, we acquired four venues in Washington State and Oregon. We paid about $37 million for that. Overall, net cash yields to us on these investments is about 6.2%, and that's about what we've averaged overall long term. So, as I mentioned just a few minutes ago, we're going to go to the leases on these farms that contain certain provisions. And the reason I mentioned that is because we're coming to the year-end in which we have participation rents or escalations that go on. So that should push the figure that I mentioned a little bit higher for the future. Remember, this is not rocket science, so it's not a quick move in terms of rents. They go up gradually every year that we appreciate because it doesn't take much doing from us. On the leasing front, since the beginning of the third quarter, we renewed six leases on farms in three different states. In total, these renewals are expected to result in an annual operating income increase of about $281,000 million or about 10% over that of the prior leases. So if we got -- every lease came up and got 10%, we'd be well ahead of the growth record that we're all looking at. Looking ahead, we only have one lease scheduled to expire over the next six months. It makes up less than 0.5% of our total annualized lease revenue. We're in discussion with potential tenants for this farm that's coming up and aren't really expecting any downtime as we move forward and go on this. Here's a couple of other updates. Inflation continues to hover near highest rates seen in over four decades. This latest headline inflation number was 8.2%, and it's been over 8% now for the past seven months. However, in the latest reading on food eaten at home, that category was up 13%. And this is a category where the crops grown in our farms fall in, and that category is mostly crops that are grown on our farms and are sold in grocery stores, that's at-home kind of indication. We believe the increases in food prices will continue to outpace inflation itself, normal inflation numbers and should help mitigate the increases and input costs experienced by our farm operators. We were extremely fortunate to have made it through Hurricane Ian with only minor damages to a few buildings and structures, all of which was covered by insurance. Some of the farmers did report delayed plantings because the so much water in the crop land, but the crop losses in some fields due to the amount of surface water produced by the hurricane was very light. However, these farms have since been replanted and are now back on schedule. We continue to keep those in mind, who were injured or negatively impacted by the hurricane. It was a horrendous for a lot of people in Florida. While we all are hoping for winter, and it seems to be coming that way because it's raining out in California now, to relieve the drought in the West, we've been focused on increasing the water security of our current portfolio of assets. This may include, but not limited to, buying the water on the open market. We can buy water and put it out on our farms. Or more importantly, purchasing long-term water contracts and acquiring additional water credits through purchasing additional open ground. A lot of the ground in California that is not planned, it does have water rights. And we may want to buy some of those in order to build up the water delivery infrastructure that we have and replace older inefficient equipment and irrigation systems upgrades, all of these kind of improvements are things that we normally do anyway. So, we're just getting ahead of the curve by doing it early. We continuously work with our tenants to assess the water availability on each of our properties as well as the financial situation with each of our tenants. They all have to deal with their banks and the banks are charging more for loans to plant and loans to harvest. So they're seeing some pretty good changes going on there. The ongoing drought has stressed aquifers in California. Surface water supplies all over California have been in high demand, of course, and we're not immune to these effects. However, we have always been proactive and have tried to stay in front of the larger problems. To date, we've not had any water deficiencies prevent any of our tenants from making their obligation that is the rent payments that they owe to us. However, as almond prices remain low during to oversupply. Believe it or not, there could be an oversupply of almonds coupled with the increase in cost of water due to the decreasing supply of both groundwater and surface water, certain of our almond farmers are beginning to experience decreases in production that is they're harvesting less. We're in discussion with these tenants to come up with solutions to help get through these difficult times and such solutions may include additional capital improvements or temporary rent reduction. One thing to keep in mind is that these wet and dry cycles are very normal in the West, especially in California. The impact of the current drought has been somewhat exacerbated by the fact that it occurred so soon after the previous drought cycle, which ended in late 2016. So, previous wet cycles didn't have enough time to refill all of the reservoirs before the current drought cycle. We're just hopeful that the snow that's going on out there will put a lot of snow in the mountains, and that's what most of these farmers live off of in terms of water during the summers. Throughout any long-term investment in California, we know that we'll have both drought periods and wet periods, and we build those assumptions into our underwriting models that we use. We currently have a small handful of tenants who have gotten a few months behind in their rent. In aggregate, it's about $1.3 million of late rent payments that are owed to us. We're working with all of our tenants and partners to have the delayed rent paid over the next three months or so. We are currently expecting to receive all of these payments in full before the end of the year. Might be a little touchy for a couple of the almond growers, but I think we're going to be fine. Regarding our capital plans, as we announced in August, we amended the stock offering Series C preferred stock to reduce the offering size and shorten the duration of the offering. As amended, we expect to sell only about $10 million more under the offering after this week's close before the offering terminated at the end of the year. So, we're pretty much out of that Series C preferred stock and looking at what we might put in its place for going forward. With interest rates rising, acquisition activity has slowed down. As you can imagine, almost every acquisition we make, we need debt in order to make part of it work. It's difficult to put these proceeds to work that we've been getting from the Series C. So, we are having to work harder to get accretive deals done. We're currently exploring other capital raising options. We'll find something for us, but it's not the end of the world to take a break for a while and see how this economy is going to come around. One other item on the ESG front, everybody seems to be interested in that. We did post a short report where we stand in certain ESG initiatives. On the governmental side, we seem to be fine. It's going out to each of our tenants and working with them. I'm going to stop here and let Lewis go forward. Lewis, why don't you take over now?

Sure. Thank you, David. Good morning, everyone. I'll begin by briefly mentioning our financing activity. We did not incur any new borrowings during the quarter, but we did repay about $17 million of loans that were scheduled to mature. On the equity side, since the beginning of the third quarter, we've raised net proceeds of about $75 million from sales of the Series C preferred stock and $5 million from sales of our common stock through the ATM program. Moving on to our operating results. First, I'll note that for the third quarter, we had net income of about $1.8 million and a net loss to common shareholders of $3.6 million or $0.074 per common share. On a quarter-over-quarter basis, adjusted FFO for the third quarter was approximately $7.2 million compared to $4.5 million in the second quarter. And AFFO per share was $20.07 in the third quarter versus $12.9 in the second quarter. Dividends declared per share were about $0.137 in the third quarter versus $0.136 in the second quarter. The primary driver behind the increase in AFFO was about $3 million of participation rents recorded during the current quarter versus only $20,000 in the previous quarter. This was partially offset by higher incentive fee by about $500,000 during the current quarter. Fixed base cash rents increased by about $877,000 or 4%. This is primarily driven by additional revenues earned from recent acquisitions and completed CapEx projects as well as from recent lease amendments and renewals. On the expense side, excluding reimbursable expenses and certain nonrecurring or noncash expenses, our core operating expenses increased by about $534,000 on a quarter-over-quarter basis. Total related party fees increased by about $629,000 during the current quarter, primarily driven by a $505,000 incentive fee earned during the current quarter versus no fee earned in the previous quarter. Property operating expenses remained relatively flat, while recurring G&A expenses decreased by about $78,000, and this was primarily due to costs related to annual shareholders meeting in the previous quarter. One note on expenses during the third quarter, we did write off about $800,000 of deferred and unallocated costs related to the Series C offering as a result of the amendment that reduced the offering size. Moving on to net asset value. We had 39 farms we valued during the quarter. This is all via third-party appraisals, except for three that were valued internally. Overall, these farms increased in value by about $17 million or 3.7% over their previous valuations from about a year ago. We saw a particularly strong appreciation in the values of our Florida farms, which saw an average increase of 11%. Also of note, the California farms we had reappraised increased by 2%. So despite the ongoing drought and water concerns across the state, we continue to see values of our farms increase. And we believe this underscores the job that our team has done at identifying good farms with secure water sources. So as of September 30, our portfolio was valued at about $1.6 billion and all this value is supported by either third-party appraisals or the purchase prices. Base lean's updated valuations and including the fair value of our debt and our preferred stock, our net asset value per common share at September 30 was $16.56, which is up by about -- which is up by $0.96 from last quarter. The primary drivers of this increase were the impact of increases in market interest rates on the value of our fixed long-term borrowings as well as the appreciation and value experienced on the farms that were revalued this quarter. Turning to liquidity, including availability on our lines of credit and other undrawn but committed notes, we currently have over $175 million of dry powder in addition to over $100 million of unpledged properties. Over 99% of our borrowings are currently at fixed rates. And on a weighted average basis, these rates are fixed at 3.26% for another five-plus years. The increase in interest rates does impact our ability to finance new acquisitions and of course, plays a factor in our decision to repay versus refinance all maturing loans. However, with respect to our current debt load, we have experienced minimal impact from the recent rate increases. And we believe we are pretty well protected against future interest rate increases for the foreseeable future as well. Regarding upcoming debt maturities, we have up $56 million coming due over the next 12 months. About $31 million of this number represents various loan maturities, and the properties collateralizing these loans have increased in value by a total of $13 million since their respective acquisitions. So, we do not foresee any problems refinancing any of these loans if we choose to do so. By removing those maturities, we only have about $25 million of amortizing principal payments coming due over the next 12 months, which is less than 4% of our current debt outstanding. Finally, regarding our common distributions. We recently raised our common dividend again to $0.0458 per share per month. Over the past 31 quarters, we've raised our common dividend 28x and that has resulted in an overall increase of more than 52% over this time period. 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 this stock harbors a compelling investment alternative, especially in light of the inflationary and recessionary concerns. With that, I'll turn the program back over to David.

Okay. Thank you. That was a good report, and it brings people up to date on the numerical side of our business. We continue to stay very active in the market. Good opportunities do present themselves. But as mentioned, we're being much more cautious on our acquisition front. Not sure how all of this inflation is going to play out against the farmers and what they have to deal with. Just a few final points I'd like to make. We believe that investing in farmland growing crops that contribute to a healthy lifestyle such as fruits and vegetables and nuts, follows the trend that we're seeing in the market today. Overall demand for prime farmland growing berries and vegetables remains stable to strong in almost all areas where our farms are located, particularly along the West Coast and including the California, Oregon, Washington. And not to be outdone, the ones in Florida are moving at very good paces as well in terms of values. Overall, farmland continues to perform well compared to other asset classes. I mentioned this almost every time the NCREIF Index and Farmland Index, which currently has about $14.9 billion worth of agricultural properties has averaged an annual return of about 12.6% per year over the past 20 years with no negative years during that period. This is higher than S&P Index and the REIT index. And both of those, the S&P and the REIT index have had negative years over that same period of time versus zero for the Farmland Index. But please remember that purchasing stock in this company is a long-term investment. I mean, after all, it's farmland. It's not going to move around much. It's very stable. I think investments in our stock really has two parts. Similar to gold, it's a hard asset. Farmland is just dirt, having an intrinsic value because there is a limited amount of good farm land, especially in the areas that we're in, like Florida and California. And it's being used up by urban developers, especially in California and Florida, where we have a lot of farms. And unlike gold, which is another alternate asset, it's an active investment with cash flows to investors. And we believe we're better than a bond fund because we keep increasing the dividends every year, which bond funds don't usually do. We expect inflation, particularly in the food section to continue to increase, and we expect values of underlying farmland to increase as a result. We're expecting this especially to be true in fresh produce areas. The trend of more people in the United States eating healthy foods rather than some of the unhealthy ones continues to grow. And so, I think we're in the right area. We'll now have some questions from those following us. Operator, would you come on, please, and tell the listeners how they can ask a question?

[Operator Instructions] Our first question is from Rob Stevenson with Janney. Please proceed.

Lewis, the NAV increase, what percentage of the farms had a value change quarter-over-quarter versus what's still left to be revalued over coming quarters?

This quarter, that being in Q3, I think we had about 1/3 of our portfolio that was revalued. It's not exactly 25% each quarter, it varies. I think Q4 is a little bit lighter, closer to 18% to 20% of our portfolio value is being revalued in Q4.

Okay. And what was the impact on the NAV calculation from the debt adjustment?

I'm looking that up right -- no, the debt piece was -- sorry, bear with me, $0.55 per share.

Okay. So roughly half was the debt, roughly half was change in value from the 1/3 of the portfolio.

Yes, that is correct.

Okay. And then while I have you, what is your cost today for new debt? And what would be your best source today if you needed debt for either refinance something or to buy something?

Today, we'd probably be in the mid-5s, 5.5%, 5.6%. And that would be -- for example, if we went to the -- one of the farm credit associations that would be the net effective rate after interest patronage is received. Stated rate would probably be a 1 point to 1.25 point in the quarter above that before the patronage is figured in. But Farmer Mac would probably be in similar rates and similar range in the 5.5%, 5.6% range for us right now.

Okay. That's helpful. And then, David, how -- you mentioned that you're putting a pause on the Series C that, that sunsetting at year-end and that you'll figure out the equity down the road. How are you thinking about that today? I mean, is it the rate market is obviously in constant flux and so preferreds have been a little bit challenging. Do you look at converts? Do you just utilize common stock on the ATM? I mean, obviously, things will change as you move forward. But sitting here today, how are you thinking about that? And where is your -- where would be your best cost of equity beyond the Series C?

Well, we'd love to continue the Series C. But as you know, about 60% of the money we use to buy a farm is from one of these farming debt banks are in that area. And so being able to pass on another 2% change to the farmer and increased rent is just unacceptable to many of the farmers today. They've been hit by a number of things in that area. First of all, the increase in their debt that they use to arm such as money they need to do the kind of things to the farm that have to be done every beginning of every year and then at the end of every year. Their lines of credit have gone up substantially. In addition to that, I don't know if anybody follows it, but all over the world, they've been closing plants that produce any of the chemicals that need to go into farming and especially fertilizer. I think half the fertilizer plants in the world have closed in the last three to four years. So it's a very difficult time for farmers in terms of doing that, and they're passing that on to the consumer. Consumer's paying more for all of the things that we do as well as all the other things such as corn and wheat and those prices have gone through the roof. And so, as we watch this adjustment, we don't want to get in the way of something that's going on out there in the marketplace. So that's why we're not closing a lot of deals right now. We've got some things that we'd love to close, but we've got to wait until we can get to a point where we can finance it in a way that's very accretive to us. There's some desire on the part of some of our people here to do things that are not accretive and lose a little money over the few years, but I don't want to do that. I want us to stay very solid and make sure that we can do things. So until the banking community comes back and the rates go down, and I don't think there's any chance of that happening anytime soon. We're going to be slow rolling our increase in are -- all of the things that we do, but most importantly, in closing new deals. So the growth path for us is slow. However, if you think about it, it's probably a good time to take a breather. We've got $1.5 billion worth of farmland. And there's always something to do there, such as build some more infrastructure, and we do that on a regular basis. And in fact, we probably spent most of our time doing that in the last three or four months. So, I think for us, it's a time to take note of all the changes that are going on. As you may remember, when we've talked about this, we would love to be buying farms and going into the farming business, but there's just not a chance to do that right now. So, we're sort of continuing to do the best we can. And I think your question at the beginning is something that people should look at. And that is, this land that we hold is going up in value. It's not decreasing. And if you added that increase in the value of the farmland to the dividends that we're paying, this would be a great return for almost anybody who wants to put something in their portfolio and not have to worry about it. As you know, Warren Buffett always talks about his net asset value going up. We don't spend as much time doing that. We try to do it for cash. Of course, Warren Buffett doesn't pay any dividends on his Berkshire Hathaway. So as a result, our goal is to continue just to develop the land that we have and increase the income. We've got to adjust rents as they come up and make sure people can handle the rent. It's a very unconventional time right now, and we've all enjoyed the last seven or eight years in which interest was very low and everything was fine. And now this is the moment of adjustment, and we'll see what the government does to slow down the amount of dollars that they're printing and using to continue the government, and we'll also see what happens to the food prices. I think you're going to see some increases pretty substantially over the next year. I don't know if I answered what you're looking for, but that's where I am in thinking about the world.

That's helpful. One last question for me. Any commonality on the $1.3 million of late rent payments by either crop type or geographical concentration?

Well, as you probably know, we keep saying it, almonds are our problem child today and almost all of those are done in California. There's a few that are not in California, but the ones that we have problems with are in California, and I say problems. It's not a problem. It's just that the crops didn't come in as strong as they normally do. So, it's almonds, it's California, that's the commonality of the payments that we haven't received. And believe me, they're working on it. And I have a lady sitting across me here that does collections, and she's good. So, we'll get it done. We'll get it done, and they'll pay. We have all of the things that we love to have in the fourth quarter, which is all the fourth quarter extras come in and we accrued how much of that in this quarter.

$3 million.

$3 million of it in this quarter, and I'm hopeful that we get another $3 million or $4 million in next quarter in this quarter as well, this quarter, meaning the third quarter, we did $3 million in the fourth quarter. I'm hopeful we can do $3 million or $4 million in receipts. Anyway, lots of fun, but just normal.

Thanks guys. Appreciate the time this morning.

Okay. Do we have any more questions?

Yes, sir. Our next question is from Edward Riley with EF Hutton. Please proceed.

I'm curious of the change in rhetoric with regard to water in the press release stating that farms with permanent planting have sufficient water. Wonder can you comment a little bit more in depth on the water situations for farms with raw crops?

Yes. It's not -- raw crops are not killing us these days. It's the trees that are needing the water. We spend a lot of money on keeping the tree alive. And so of course, when you get not all pistachio from the trees, it's been very expensive for those. Pistachio seemed to be doing fine. It's almonds that have bothered us the most. And probably half the almonds that are produced in the United States or shipped to other countries. And I just never realized that we shipped so much out until we got in the business. And a lot of it goes to places like Spain and France in those areas as well as India is massive eater of almonds, and they've had their own problems inside of that country. So I think over time, Ed, this is going to be an area that will cure itself at some point in time as all of these almonds are passed on through. The good news is they're not delicate like strawberry. Strawberries, you've got to get them to somebody's mouth in 14 days. An almond can sit around for years. And we are not doing that. Most of our farmers are planning on selling out probably by January or February. And so, we'll just see how much we collect. Right now, it's touch and go, and we've had them come a little slower to us in terms of payments. And so, we'll work through this little bulge that we have in the production amount of almonds on the one hand and payments on the other.

And just a little bit -- to add a little bit more color on that. As I had mentioned, the water is a concern across the state. And as David said earlier, we're not immune to the impacts of that. There are a few farms that we have -- that we're working through, I guess, some water issues. But as David said, they're not on any row crops and they're not on permanent crops that we own, and that was the reason for the change in the language in the press release. There are a few farms that we own where almond trees are on there and they're single-source water. However, those farms, we only own the land. The tenant owns those trees and the irrigation infrastructure. So, that's why we changed that language to what it is. The farms where we own the trees as well those farms are secure right now. It's just those two or three farms where we only own the land that are single-source water.

Okay. Got you. That's helpful. And then turning to participation rents. Wondering, if you could maybe break down the relationship or the source of participation rents? I know you guys do a lot with pistachios. But do you foresee any impact to participation rents in the fourth quarter, given what's going on with the almond crop currently?

So if you look at our -- the total participation rent that we have recorded over the past couple of years as well as what we expect this year. Pistachios make up about probably 2/3 of that amount. Almonds make up 20% to 25%. So majority of it -- the large majority of it is from pistachios. The rents we're receiving this year. Now that is the -- that's based on the crop that was harvested last year, the 2021 crop. And those yields have been very strong, much higher than the 2020 crop. Pricing is down a little bit, but the increase in yields has -- based on the information we've gathered so far, the increase in yields has more than offset the slight decrease -- the decrease in price from the prior year. So that, coupled with a couple of additional farms that came online last year, which again leads is what results in the payments this year is what's leading to the right now, the expected increase in overall participation rents this year. We're still collecting data for what we -- where we think we might be next year. It's kind of too early to say that right now, but we're still collecting a -- still in the process of seeing where yields are falling this year.

Okay. Got you. And how many farms will you guys be collecting participation rents on this year?

It's -- rough ballpark is about 35 farms have leases with participation components. Now some of those farms, it might be based on thresholds that might not be met. So 35 farms have that provision. It doesn't mean that 35 farms will actually have anything to record for us.

And Ed, remember one thing, pistachios are very strong in protein. And so, if you want to switch from chickens to pistachios, that would be a good move. Are there any other questions, operator?

Yes, sir. Our final question is from John Massocca with Ladenburg Thalmann. Please proceed.

So I think you mentioned you were maybe taking a bit of a pause in the acquisition market. But I mean what are you seeing in terms of cap rate for acquisitions that come across the desk? Has there been notable expansion in kind of what cap rates are out there, given kind of the counterbalance of interest rate increases versus some of the pressures you've seen with regards to kind of farmers?

Yes. It's a mixed bag. And again, I go back to this division that we have from nuts on the one hand and regular crops that we do, such as strawberries and blueberries, et cetera. You look at, John, the way things work out, it looks like every farmer believes that their farm, which their father or grandfather started is worth $1 billion. They just have this pie in the sky start. A lot of them don't. We have them go do an evaluation so that they come back down to earth. But the biggest problem right now is that there's a lot of inflation that's going on. And it's really hard for all of these people to make ends meet when they find out that all the expenses they have to pay out in order to grow something have gone up dramatically. So, the other problem, of course, is that water costs have gone through the roof. I think we price our water -- what is our water worth now?

We're priced at about $650 per acre foot.

So, we have a lot of money tied up in water, but that's insurance. If we need it, we can use it I think the biggest thing for us, John, is just trying to figure out where we're going to land in terms of this economy and what are some stabilized price is going to look like. And it's better for us to not guess at that, but it happened and then by farms. There are a lot of farms for sale. This is not a time when people have drawn back. In fact, the recession has probably sent more people to go out and find out how much of their farms are worth. And I think we'll have plenty of farms that will come our way. And the real question is, can we make them work for us in terms of accretion to our shareholders so we can keep increasing the dividend. I think we will, but there's no guarantees in life. And if it lasts against us, it won't be for long. It would be for six months or so and then people will realize that they've got to pay more in order to get the land that they want to keep growing. So John, it's just one of those undefined times when you can't make a bet work, you probably get the same kind of risk reward if you just went to Las Vegas and put a number amount of money on red and see whether you win or not. But it's better for us to wait and not put a lot of money out in times that are very, very difficult to predict.

Is there like a specific amount? I know each investment is kind of bespoke given the property type, but a specific amount of expansion in terms of cap rates you're seeing out there, in terms of basis points?

Yes. I think right now that if you were trying to sell some of the nut farms, you couldn't get nearly as much as you'd hope to get if you have a nut farmer. On the other end, if you were a strawberry grower or blueberries or any of the vegetables, you can continue to push it up because the -- all of these places from Safeway and Giant and all of those grocery stores are willing to pay up because they need those. The person who comes into the grocery store, most of them are going to the produce section. Produce is a very hot area. So you can sell it if you can grow it and get it to them. And most of the ones that we have that are in that area are located on the coast in both in California and in Florida. And as a result, don't really have as much problems with water as those that are in the valley, which is most of the tree crops. I think the tree crops will sort out this year and next year's crop, which will be -- or '24 will be really dramatically stronger than the ones that we're in today.

Okay. And then as you think about kind of some of the upcoming lease maturities, what's the outlook, particularly in 2023 for where those may roll now that you have maybe a little more visibility into those, what's happening at those farms?

John, we really have one lease expiring over the next six months. Right now, that's a majority of crop share lease, and we expect that structure to remain in place on a relatively small farm in Nebraska. Beyond that, we're just now -- for the expirations that are starting in the middle to the latter half of next year, we're kind of just now starting up negotiations with the tenants. We think we'll see increases on most, if not all of them, but a little bit too early to peg where -- what kind of range we think that increase will fall in.

And on the...

And tenants like to do participation rent simply because it puts their payment on the back end of the lease. We don't like it because we need money along the way in order to pay our dividends. So, there's juxtaposition between us and our tenant that when we're talking about participation rents. And so I don't know, we like participation rents as long as we get enough during the year to pay because participation rents, gets you the upside that you don't normally get.

And then just one last quick detail one. The moves in interest rates, kind of holistically speaking, how does that impact interest rate patronage, if at all, as we're kind of thinking about modeling?

For us, it won't impact -- well, I can't say it won't because the patronage, of course, is not guaranteed, but we do not expect it to impact the amount we get back. What would impact it is -- as we've said, we repaid about $16 million or $17 million of loans. Those were farm credit loans. So, the patronage for those loans, we will not give back since we're not paying interest into them, of course. But we have not received any indication that the percentage of patronage or the basis point of patronage that we get back will change. However -- I mean that's kind of all up to the discretion of each of those associations boards. And if they come on hard times or they have larger reserves in their portfolio than that, of course, could eat into the patronage that we get. But outside of that guesswork, we wouldn't expect any change in the percentage of interest that we pay coming back to us.

Operator, do we have any more questions?

No, we have reached the end of our question-and-answer session. Mr. Gladstone, if you have any closing comments?

Well, no closing comments. We're disappointed. We wanted more questions, but thanks a lot for calling in, and we'll see you next quarter. That's the end of this call.