LAND - NASDAQ

Greetings. Welcome to Gladstone Land Corporation's Second Quarter Earnings Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce Mr. David Gladstone, Chief Executive Officer and President. Thank you, sir. You may begin.

All right. Thank you. That was a very nice introduction, and this is David Gladstone, and welcome to the quarterly conference call for Gladstone Land, and thank you all for taking the time out of your day to listen to our presentation. Before I begin, we'll hear from Katharine Gorka, our Director of Investor Relations, and she handles the ESG stuff as well. Katharine, give us an introduction here.

Thank you, David, and good morning. 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 Company. 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 non-recurring 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.

Well, thank you, Katharine. Let me just remind everybody with a brief overview of our Farmland holdings. We have about 103 acres on 150 different farms, and we have over 55,000 acre feet of water now on acre foot. doesn't mean much to you, but it transfers into about 18 billion gallons that we own, and we have it stored in aquifers and different places. Our farms are in 15 different states and our water assets are all in California. Our farms are leased to over 80 different tenant farmers, who grow 60 different types of crops on our farms. Most of these are the kind of food that you can find in the produce section of your local grocery store, such as fruits and vegetables and also nuts. We continue to be cautious and have made no new investments because interest rates and the expenses of running these farms are so different now than they were when we first started. Our cost of capital remains so high and the cap rates on most of the row crops are still high. If you buy one of these farms and then have to farm it, these are very difficult times for the farmers. We didn't complete any sales during the quarter, but we have one property, and that one property is in Florida. We have it classified on our financials as held for sale. This properties consist of 2 farms in Florida that are currently under signed purchase agreement, and we expect the sale to close soon, and that would result in a nice gain for us. By the way, in Florida, a lot of the farms are being sold to be transferred into or reclassified into housing. We're not in the housing business, so we sell our farms when the housing folks show up and need more land. I want to touch on some modifications we made in our lease structure on certain of our farms. I know we've said this, but I want to make sure you understand it as it has a significant impact on our earnings pattern. I think we mentioned it in the prior call, market conditions around many of these permanent crops in the West, particularly, are those growing nuts and grapes, and we have a lot of price -- crop prices that are different and they're not -- they weren't very high, but this year has a little bit of different legs on it. I'm hopeful we have a lot of almonds, for example, and the government publishes every year their guess of what -- how many almonds are going to be out. The last 5 estimates over the last 5 years were not conclusive, but the government and their projections in the first 2 of the 5 years were. Well, they didn't get exactly right, but we had more almonds than was estimated by the government. Then the third year out, they were right on target, and then the last 2, we just got -- I tell you, if the government is right this year, we make a lot of money. Anyway, we've decided to adjust the lease structure on 6 properties, and that's why these estimates, we hang on them so much minimize the fixed cost, but also allow us to participate in the upside. We have moved from being a leaser and more of an operator or a grower of sorts because we're taking some of our payment for the lease in part of the crop that is being grown. In essence, we accepted a percentage of the gross crop sales instead of a fixed rent payment. We did that because it was a very difficult time in the last 2 years, last 3 years really for farmers. We also decided to operate 2 properties ourselves with the help of third-party operators. That doesn't mean you're going to see me or any of the people out there on the farm harvesting or doing whatever. We really have, like many people who are in this business, have hired third-party operators to run the farms. We'd like to transition all of these back to the more traditional structure, including fixed base rents. Our ability to do so will depend on several external factors such as crop production, pricing, interest rates, input costs have not gone down. They've gone anything to any place in this world, but up. Water availability, that's a key. On our farms, we purchased enough water and stored it so that we're good for many years out. One of the reasons we felt confident in going this route is that particular farms that we have, we have 8 now that are in this. These are farms that had really good crops in prior years. Because the crop insurance coverage we've gotten, you can buy crop guarantees on your historical yields. That means secure high levels of crop insurance. We have crop insurance on all 8 of these farms. Should a hurricane come through and blow all the things down, we're still going to get paid what we would have gotten paid. We think we would have gotten paid in our existing farms. We certainly hope that even though we're covered with crop insurance, we hope that the base rent is strong production from these farms. They've done so in the past so that we don't need to rely on crop insurance in which our profit could be significant. Regarding leasing activity, we still have a lot of farms that are under leases, of course, and we're a real estate investment trust, so our leasing is just in sync with that kind of structure. Regarding leasing activity, we entered into 4 new standard leases agreements during the quarter and expect to result in aggressive increase in our annual NOI of about $166,000 or about 9%. That part of the business is working still very well, and we'll see when we harvest the crops that we will own part of will look like in the future. Looking ahead, we have 14 leases scheduled to expire through the rest of due to some of these leases containing no fixed base rent, including cash leases that we are working. These leases actually account for negative $2.8 million of leasing revenue during the first half of 2024. Remember, we can't put in our estimates even though we have insurance on it, and so those are a negative drag until the crop comes in. We won't know that until the fourth quarter. We'll know a little bit more next time we meet in the third quarter. That's largely because the participation rents resulting from these leases won't be recognized really until we get to the fourth quarter. That's the accounting standards. I don't know why we can't recognize some of it, but that's the rules. And unless you have sold something and are trying to collect on it, you can't accrue any of it. We're in discussions with both the existing and prospective new tenants about the leasing on these farms, including reverting some of these back to leases on standard leases with fixed base rent. Or if the price is right, we may also look to sell a couple of these farms. As I mentioned, we've got one that's going to get sold in Florida. That's because the housing boom down there is unbelievable. I'm going to stop here and call on Bill Ryman. Bill is working all of the stuff in California, been hard at work because we've moved from just collecting rents to actually working with the people we hired to farm them. Bill, why don't you come on now and talk to us about that?

Thank you, David. Yes, sure. Good morning, everybody. Just to talk a little bit about the 8 properties that are under modified lease agreements or being directly operated by third-parties. Three of these properties are wine grape vineyards, and with wine grape economics as they are, we hope to recover most of our costs on these. If we break even, that will be a huge win. The remaining 5 properties consist of 2 pistachio orchards, 2 almond orchards and a large property that has both. Based on planted acreage, about 60% of these 8 properties are in pistachios with about 35% of the acreage in almonds. Overwhelmingly, our focus is on these 2 nut crops. We're very pleased with the condition of the crops on all 8 properties. We expect above-average crop yields and crop quality looks excellent. As David mentioned, we're fully insured on all of these properties. The nut properties have really strong historical production. They all look above -- I would say the crop looks excellent. We've been working with 5 different tenants or operators across the 8 assets, and all 5 growers are performing at a very high level for us, and they're achieving an acceptable standard to us. All positive stuff there. In addition to that, we had a wet -- an average wet winter this last winter, and the growing season has been, I would say, nearly perfect in the entire Western U.S. That is certainly a factor that we don't control, but we've been very, very fortunate. Going into crop markets. Generally speaking, we've seen the markets for many of our crops and commodities trend lower in the last few months. Trade negotiations, tariff talks certainly play a major role in this, but traditional supply-demand dynamics are really the main drivers, particularly behind crops such as almonds and wine grapes, which are really important to us. These industries have seen orchards and vineyards being removed at historically large scale. Sometime in the near future, we expect those markets to turn. Over the past year, we've seen almond markets definitely turn a corner, trending upward. David referenced the USDA's almond objective forecast that was released in July. The number they put out was massive, higher than anybody expected and nobody really believes it. but it caused about a 20% drop in almond prices about a month ago. It wiped out all of the pricing gains of the last year and got back down to what prices were a year ago. In the last couple of weeks, we've seen pricing really come back. It's up 5% to 8%. That was as of a week ago, and this past week, just this week ending, we're up another $0.03 or $0.04 a pound. We definitely have good almond market momentum, and we expect that to continue. Harvest just started. We're shaking trees in all of our almond orchards as of right now. Over the next several weeks, we'll start to see how the industry actuals compared to the objective. All eyes are on that because that will support more price gains if we are at a slower rate than the USDA projected. Coffee shop talk as of today, crop is coming in light. That's actually probably good news for us because it will strengthen the market. Fine grape market still mired in their low points, and it's been slow this summer to get contracts, but in the last 10 days, we've had a number of inquiries on some of our crops for contracts and the pricing is significantly higher than a year ago. There are a couple of positive signals there. Pistachio is really probably the best market out there right now. Same thing with tariffs and trade discussions have really created some uncertainty, but we see very strong demand, increasing demand. In fact, a little bit of that was unexpected and it caused the 2024 crop to be sold out early. As we sit here today, a month away from harvest of the '25 crop, there's very little movement because there's very little product. We have very low inventories going into 2025, so 2025 is going to have probably the largest U.S. pistachio crop on record, but we have good strong demand and good stable pricing. In fact, our guaranteed base price came out a few weeks ago, and it is the same as last year's, and that's exactly what we budgeted for. We do have one of the unknowns is now known. We know what our base pricing is for our pistachio crops, so that's good. We're happy about that. While profitability is not nearly as strong as the boom time from 5 years or 10 years ago in pistachios, the market fundamentals are very strong. Generally, we see this increase in bearing acreage, which every year, the pistachio crop grows, coupled with some trade uncertainty, particularly with China. We see those 2 negatives being balanced out by a reduction in new plantings, not a lot of new trees going in the ground, well water pumping restrictions due to Sigma in California that is going to hurt some orchards that have been planted in the last 10 years or 15 years in areas with weak water rights. We're seeing very strong increased consumption in the EU, particularly due to the Dubai chocolate phenomenon. A lot of positives to balance out the negatives. I'll end it on some talk about water. We've always -- we've been reporting in the past how the Western U.S. has been in a normal to wet cycle the last few years, including this most recent. This has created quite a few water buying opportunities at prices that really fit into our crop budgets. We've been very aggressive and focused on improving our delivery and storage infrastructure across the portfolio. Coupled with the availability of inexpensive water, we've really done a good job of improving the water security of the farms. We continue to add to that 55,000 acre feet of water. We have certain areas where our farms have enough water. If it didn't rain for 10 years, we could still irrigate them for about a decade. We are spending a lot of time trying to figure out how to synergize our properties, coordinate with them with each other where they can share water and just improve the overall security of the portfolio. We'll continue to do that, looking at long-term, short-term water purchases, improving the -- continue to improve infrastructure and just working towards really having a secure portfolio in that regard. That's it for me. I'll turn it over to our CFO, Lewis Parrish.

All right. Thank you, Bill, and good morning, everyone. I'll start with a quick update on our recent financing activity. During the quarter, we refinanced a $10 million maturing loan with MetLife, and after quarter end, we repaid a $10 million maturing bond in anticipation of selling the underlying property later this month. We did not issue any new equity during the quarter. Turning to our operating results. For the second quarter, we recorded a net loss of about $7.9 million and a net loss to common shareholders of $13.9 million or $0.38 per share. Adjusted FFO was negative $3.4 million or $0.10 per share compared to a positive $3.7 million or $0.10 per share in the same quarter last year. The dividends declared per common share were $0.14 in both quarters. The year-over-year decline in AFFO was driven by recent changes to lease structures on certain farms and ongoing tenancy issues that resulted in farm vacancies, leading to reduced revenues and higher costs, along with lost revenue from farms sold over the past year. Fixed base cash rents were down by about $6.8 million from the prior year quarter due to the reasons just mentioned, mainly the vacancies we continue to work through and the structural changes made to certain leases, where we reduced or eliminated fixed base cash rents or in some cases, provided cash lease incentives to certain tenants on exchange for significantly increasing the crop share components. As others have mentioned, the results from these crop share components won't be known until the harvest is complete and the crops are sold. Year-over-year participation rents were also down, and that was largely due to the accelerated recognition of certain revenue in 2024. Last year, some information became available to us earlier than usual, which allowed us to record certain revenue amounts in the first half of the year. So far, this year's participation rents have mostly come from cash collections on wine grape sales. I will note that we continue to expect higher participation rent levels in the second half of 2025 as a result of lease modifications we made on certain permanent crop farms. We discussed this on prior calls, but these lease changes are expected to reduce fixed base rents by about $17 million for fiscal year 2025 compared to '24. This figure includes both the base rents recognized last year under prior leases, plus the cash allowances provided to certain tenants for the 2025 crop year. It’s being shown as a reduction in fixed base rents at a rate of roughly $4 million to $5 million per quarter in 2025, which is in line with the first half of the year. In turn, the majority of the resulting crop share proceeds from these leases is expected to be recognized as participation rent in the fourth quarter of 2025, with most of the remaining smaller portion being recognized in the second half of 2026. In essence, we're shifting this revenue from fixed base rents to participation rents over the next couple of years, and as a result, earnings this year will be more heavily weighted towards the fourth quarter with lighter earnings during the first half of the year. On the expense side, excluding reimbursable items and certain non-recurring or non-cash charges, our core operating expenses decreased by about $200,000 this quarter. The capital gain fee that was triggered in Q1 by property sales was reversed in Q2 due to additional losses incurred on certain asset dispositions. Excluding this reversal, total related party fees fell by about $67,000 driven by a lower base management fee due to recent farm sales. Now the capital gains fee, if any, is not payable until after the end of the fiscal year and is subject to further adjustment throughout '25 if and when we dispose of additional assets. Our remaining cash operating expenses decreased by about $135,000 with lower G&A costs partially offset by higher property operating expenses. The increase in property operating expenses was largely driven by additional costs incurred to protect water rights on certain farms in California as well as higher expenses related to farms that were vacant, direct operated or on non-accrual status, particularly increased property taxes, which were previously the responsibility of the former tenants. The decrease in G&A expense was mainly due to lower shareholder-related costs and reduced professional fees. Finally, other expenses decreased mainly due to lower interest expense driven by loan repayments made over the past year. Turning to liquidity. We currently have over $150 million of available capital, and we also have nearly $170 million of unpledged properties that we could use as additional collateral if needed. Over 99% of our borrowings are at fixed rates with weighted average rate of 3.39% locked-in for another 3.3 years. This has helped show us from the impact of rising interest rates over the past few years. Looking ahead, we have about $17 million of scheduled principal amortization payments due over the next 12 months, less than 4% of our total debt. We also have about $11 million in loans with fixed rate terms expiring in the next year, though the loans themselves are not maturing. Finally, regarding our common distribution. In July, we declared a monthly dividend of $0.0467 per share for the third quarter of '25. At our current stock price of $9.14, this represents a 6.1% annualized yield, which is well above the sector average. We're maintaining the dividend at its current level for now, and we'll reevaluate it in the coming months as we gain more clarity on the 2025 harvest results. With that, I'll turn it back over to David.

Okay. Thank you, Lewis. I think everybody is getting the gist here. We have changed when we can recognize income, and we won't recognize -- we recognize very little in the second quarter. Hopefully, in the third and fourth quarter, certainly the fourth quarter as we sell a lot of our crops, we'll be back in the game of lots of profits. One thing you may not know, I didn't realize it was going on, on Friday until I got a call from Lewis and our legal team. There was a group out there trading on the market with dollar sign LAND. These me players were just having a lot of fun playing with each other on the price, knocked about 1 point off the price of our stock. It was not good for us, and it takes a long time to get back from these [beam] stocks and be regular traded. Going back to the acquisition outlook, we continue to stay active in the market, and we are seeing a lot of changes that are going on in terms of what farmers are able to sell their properties for. I think we'll be able to sell some more properties over time. Again, just moving in the direction we have to based on the way we're operating the company now. With cost of capital remaining so high, it really worries me that the marketplace is going to have to go through some changes. Overall demand for prime farmland growing berries and vegetables remains stable and among all of the areas where our properties are, especially along the coast of California. As mentioned earlier, prices for certain permanent crops have been depressed. When we say permanent crops, we're really talking about the nut business, a lot of trees out there. The only good thing about all of those trees is they're harvested mechanically. We're not really being bothered by the impact of any changes in how much you have to pay people to pick crops. We still worry about that because so many of our properties are strawberries and other things that are done quickly and shipped quickly. For us, where problems for us has been the fact that we can't recognize any projected income. Now we're all sitting twiddling our thumbs trying to figure out when we're going to be able to get some real transactions done. As Bill mentioned, he mentioned that they are now starting to sell and deliver some of the crops, the nut crops. I don't want to sell any right now, and Bill wants to wait to see what the crops really look like. We all expect inflation, particularly in the food sector to continue to increase over time. We expect the value of the underlying farmland to increase over time because the crops can go up, and so as long as they can make money, people will continue farming. We expect this to especially be true with regard to healthy foods such as the fresh fruits and vegetables we grow as well as the nut crop. Trend of more people going toward eating healthy foods and especially the new HDA guy is, let's face it, he does not like all the garbage that our people are eating and it leads to a lot of problems in the population. We expect Mr. Kennedy to continue to ring about that. I think it's good for us because more people buy healthy foods like nuts, like berries. We have the largest farm that's based on cabbage of anybody I know. So as a result, that's still making money. Now we'll get some questions in rather than me bumbling along or we'll get somebody to come on board and ask some good questions.

Our first question is from Gaurav Mehta with Alliance Global Partners.

I wanted to follow-up on your comments around participation rents. The $17 million that you guys talked about, how much of that are you expecting in 4Q of '25? How much you're going to go to next year?

The $17 million, it's difficult for us to say right now because we don't know what the total number is going to be if, for example, we have a poor harvest results, then the participation rent that's coming from those leases could be less than that amount. If we have a great harvest, great pricing, then it could be higher. The split between this year and next year, I think we're penciling probably about 60% to 65% this year and the rest would be a little bit throughout the year, but most of it would be probably in Q4 of next year.

The way these leases work, would they automatically go to fixed rents or they're going to get renewed at the participation rents?

They never automatically convert to fixed, and so we'll have to negotiate that again when the time frame comes up, and that's usually before this year-end, this calendar year-end.

Yes. These leases end later this year. We'll be renegotiating them. If we can come to terms on a standard lease, that's great, but if not, then we may have to continue the structure for another year.

Then maybe switching to the balance sheet. Can you talk about your expectations for the Series D that's up for redemption in January of '26?

Yes. We're still keeping our options open. We're in touch with underwriters. We're talking internally about cash availability using the line of credit. Our options are we could pay it off with potentially with proceeds from property sales, the line of credit that is about 1.7% lower than the rate that the Series D would go up to. We can let it sit out there. It would go up from 5% to 8%. At current market rates of refinancing, that still is probably a more favorable option just in terms of what the refinancing rate would be, plus all the upfront costs, commissions and whatnot. Right now, we're still assessing things internally, cash availability, line of credit, seeing what makes sense to do come January, either pay it off or let it sit out there for a little bit, sell properties and pay it off.

Gaurav, it's one of the things that's so good right now is that the possibility of us making a lot of money from selling these products. For example, we could make just best guesstimate right now, $8 million from selling one of our nut crops. For us, we've watched people do this for a long time. Unfortunately, the cost of capital and also all the changes that have gone into the farming area, just destroyed a lot of our wonderful tenants. One fellow, I remember, made a lot of money in years past, but now has lost about $8 million because of the changes that have gone, so we want there to be a big crop and everybody to make money. The other thing that goes on is when you have a big crop, you have prices go down. If you're first to market and sell it off, they can make more money than if you wait. Right now, we believe that this first tranche that's coming in, first buyers coming in, there are people that are way behind and need it because they don't have. If you're in the candy business and you need a lot of nuts, you got a problem. I don't know where they're going to get them from, but it's going to be very interesting. I think you're going to see the prices move up pretty fast during the next year. From my standpoint, I think we're going to see an influx of a lot of people who want to get in the business of growing crops in the nut area. The nut area has been difficult for us. We caught it just at the wrong time. Now, it's coming back, and it will help a lot if the ones that have bought a lot of nuts on the international field like, all of the people that are in this business are very dependent on the Chinese to buy a lot of nuts and they're very dependent on other countries. I was surprised when I read all of the reports on this, that a lot of the crop that we grow on the almond size are sold in Spain, sold in a lot of the Middle Eastern countries. For us, we normally don't have much on the international area. For example, in growing strawberries, those are grown and consumed here very quick. And so as a result, they never get to the international market. For me, it's a different area. I don't like it as much as I do the regular leasing business that we have been in since the beginning. I think over time, as the profitability comes back to the markets in the nut side, well, we'll just convert back to leasing. looking forward to that because I like that part of this business better. Other questions, Gaurav?

Yes. Maybe lastly, you talked about some positive trends in almonds and pistachios. I was wondering, is there any other crop type within your portfolio that's not seeing positive trends is still seeing softness as far as prices are concerned?

I think that's true. Lewis, anything to ad?

Bill, do you want to give some commentary on that?

The question was, are there other crop types showing weakness or softness in the market? Was that correct the question, Gaurav?

Yes. I guess, Lewis, you talked about positive trends in almond and pistachios. I was wondering within your portfolio, is there anything else that's not showing positive trends?

Not really. You have the ups and downs in some of the annual row crops, but those are just kind of the normal whims of the market, so to speak. Those are usually driven by weather events in the short term, whether it's freezes or excess rain or heat spells. In annual row crops, our leases are -- we're not tied to the crops. There just isn't a -- we just don't have anything like that. The markets that are important to us are the permanent crops because even in standard leases, a component of those leases is crop share. That's always had a bigger impact.

Our next question is from Steven Dumanski with Janney Montgomery Scott.

As discussed earlier in the call, with potential acquirers currently limited by their respective cost of capital, is it possible to project when you'll see more disposition opportunities? Also perhaps, in terms of the feedback that you have received from any potential buyers?

Well, certainly, there are buyers out there, but they're all looking at very discounted prices for farms. They're coming in trying to gobble it up. That's nice that they're there, but it's not something we're going to utilize our sales on. If you continue in Florida, I don't know, somebody mentioned there were 10,000 new families every week in Florida. Housing marketplace is going great, and we have people contacting us about paying a much higher price, but further down the road. I don't want to tie up our farms in that. As long as they're producing a good amount of rental money, I want to stay in that part of the business. We're watching it. I'd say we're probably one of the thousands of farmers that are tied to your radio broadcast on farming prices every day. Bill is probably as close to it as anybody. He's in California. He's in touch with all of the farms we have out there. He is our resident expert on prices. We listen to him when we get ready to sell something. not as -- we still got some properties in the Midwest that we picked up along the way, and those are being put up for sale. We're going to sell them and stick to our knitting, which is things in the East that are related to our leasing business as well as these 8 farms that we have that we are really becoming farmers and haven't given a straw hat to everybody yet, but they all know that we are highly dependent on the price of commodity crops now.

Then lastly, can you please expand on the decrease on a quarter-over-quarter basis for the acre feet of water you own? Just want to see if the variance was based on a remeasurement or other factor.

No, that was just -- I think it was a 44-acre foot decrease quarter-over-quarter. That was just because we used a small amount. Now we record water credit recognition in the quarter in arrears. This is really reflective of water usage in the first quarter of the year, but it was just some tenant transition on one property, working to get wells transitioned over from different accounts, power company, everything, but the trees needed watering right then. We just used a 44 acre feet of water on -- that we had stored to get the trees irrigated while we were working to get the wells transferred over.

We have a question from John Massocca with B. Riley Securities.

Maybe sticking with the theme of water. What are you seeing right now in terms of the impact of Sigma at some of your properties? Has that kind of largely played out? Or do you think there are certain specific assets that for whatever reason, maybe don't have -- where your bank water would maybe be less useful that are still at risk? Has that all kind of -- all the regulatory changes, all the water needs already been determined? Just where are we in that process?

No, there's still changes coming from Sigma. So far, we seem to be ahead of the curve on that, but you never know what the government is going to do. They're meeting -- there have been lawsuits that have been filed by groups of farmers. In fact, I think we are one of the participants in one of those suits. If the government gets a little [anti] and starts favoring some of their friends and that makes it very difficult to figure out what to do. Right now, we are in good shape. We're not in excellent shape, but I don't think we got any problems coming in the water side this year. This year has been a good year for us. I think, quite frankly, most of the farms could stand 2 or 3 more years without good year-end. Water prices, I think, are going to hurt some people if we get a dry year this year, and we are not going to have that problem. You're right to emphasize the water side of the business because it's not as important as the trees, but the water for the trees are very important, and you can't grow strawberries without a lot of water and a lot of the vegetables are very heavy in the water side using water, but we do most of our heavy water growing in the East, and certainly in Florida, you stick -- a stick in the ground and water comes up because it's so low down there. At the end of the day, the worry for water is all over California, and we seem to be in great shape. Thanks to the team that has found water at a reasonably low price, and we bought it -- and we stored in the aquifers. We've become big holders of water in the aquifers. We did during the year when it was raining so much, so we built up some of the farms that we have and poured water from the creeks and other places into that. In fact, the kids that are doing that for us were laughing really hard because they kept calling it Lake Gladstone. We have a lot of water out of the ground. It goes pretty fast. While we have 18 billion gallons, you just never know how dry it's going to be. Right now, weather in California is beautiful, but it's great for growing as long as you have water. Bill, you got anything you want to say about the water?

John, it’s great question around Sigma. Our philosophy from the beginning was to -- we decided from early on, like we didn't know what the restrictions were going to look like, and we knew it was going to change over time, but we started out like, okay, we're not going to follow an acre. We're going to figure out how on every farm is affected by Sigma, but we're going to figure out how do we get supplemental water. The focus immediately went to a long-term viewpoint on it. That's why the investment in delivery infrastructure, identifying groundwater basins where we can store water. Then we've been very fortunate in having some wet winters that has made a lot of water available at very good pricing. That's been how we've attacked it. We put ourselves in a really positive position. I would say one of the of all of the land portfolios in California owned by different folks, particularly investment companies, investment funds, I would say the water security of our portfolio is one of the best. We just continue to do that as things evolve. We've been involved in 2 water adjudications. There's probably going to be another 1, maybe 2 that will impact us, but our focus has really been on the -- rather than the fight over initial allocations, it's really been on, okay, let's assume we have this allocation, what are we going to do to supplement and focus on projects that will help us replace some of that. Yes, the big impact on Sigma that we've really are trying to work around, work to avoid is, we're starting to see land values bifurcate. Properties that have really weak water access are really dropping in value, properties that have extra infrastructure in a really good water district, those are maintaining value and even possibly increasing in value. We're really seeing the real estate market follow how the impacts of Sigma. I would say our team out here, the West Coast team probably spends 70% of its time, 75% of its time on Sigma-related issues.

One thing I'll add to that, John, is for the past 3 years or so, as we've said, we've had wet average years out in California, which has made, as Bill said, a lot of good buying opportunities. Now those buying opportunities have been there for every farmer out there. Most farmers don't have the infrastructure that we've built for these groundwater recharge facilities or water banks as we call them. Everybody has been able to buy the water, but most growers don't have anywhere to store it like we do. We've even had neighboring landowners asking us if we can store water for them in exchange for some cash payment or leaving water behind. It provides for a small revenue stream in addition as well, but really, the benefit is that the water that we're storing is going to put us at a huge advantage when the next drought period comes. Not that we're looking for a drought, but right now, we have about $35 million of cash that's been invested in these water assets. That's an average of about $600 per acre foot. However, if you compare that price to what the last price for water was at the end of the most recent drought, it's about 1/3 of that price. Again, not that we're wishing for a drought, but that's when we're really going to be able to recognize the benefits of all this water we had stored up.

We know droughts come. It's inevitable. Like we know it's going to come. We don't know when, but we know it's going to come, and it's going to be the worst drought ever, and we're just being prepared for that.

Maybe kind of building on the operated properties a little bit. Is there a level that you think would be a floor based on the crop insurance you have in place today for the impact on probably 4Q revenues?

I'll say that the -- not necessarily for Q4, but overall between these 8 properties, we've invested about $25 million into the cost of the -- of growing the crops, and that includes the $17 million, that's just from those -- from the 6 properties that we modified the leases. There's also 2 properties that we're directly operating ourselves with the help of third-party operators. But about $25 million have been invested between those 8 properties in total and insurance would -- I think it would cover all of our costs and maybe provide it with a small profit. The split of that, I would say it's probably a similar split from the question answered earlier, probably about 60% to 65% this year with the remaining next year. I mean that is a worst-case scenario, meaning we can't harvest any crops and we can't sell them, which we already know is not going to be the case yet we aren't going to have a total crop loss on these properties, but yes, crop insurance would cover the cost that we put into these properties.

I'll add a quick note to that with the crop insurance, and there's, look, there's a lot of nuance to it. Generally speaking, the better the property, the better performing property because it's based on historical, but the better performing property, the better the crop insurance. There's this little bit of irony where the best the most well-insured situation is probably a property that's never going to experience that because they're really good performing properties. When we say we have good crop insurance, that should tell you that those assets are above average. They beat industry averages, and they're just good performing assets.

Then last one for me on the balance sheet side. Given you have more of an operating component, at least in the near term, how comfortable are you -- I guess, where would you want to see that cash balance stay at a minimum? I'm just thinking about it in the context of you have a decent amount of cash still on the balance sheet, could be using it to pay down debt maturities. Just should we expect the cash level to try to stay near where it is today? Or could you continue to use that to pay down debt as it matures?

Well, I wouldn't look at the cash level, it's more the overall liquidity we have, and as of 6/30, we had $30 million of cash on the balance sheet. We also have an undrawn line of credit for -- well, actually, we have 2 lines of credit that total about $87 million. Those are immediately funds available to us. We also have other undrawn notes. Right now, we're looking at about $150 million of immediately available funds to us. If we had to operate all of these 8 properties again, then we would pencil in at $25 million for that. We have $17 million of principal payments coming due. We want to maintain probably at least $50 million of availability for the next 12 months at all times, and we're well covered there. In addition to that, we also had $170 million of properties that are unpledged that would give us another $100 million of borrowing capacity if interest rates got attractive or if we needed it for other reasons.

There are no further questions at this time.

Well, that's a shame. We like answering questions. We hope you guys will set up some good questions for us next time, and we expect that we're going to know a lot more about these farms at the next session that we have. That's the end of this conversation, and we thank you all. See you next quarter.