Gladstone Land Series C Preferreds: Share buyback gives minimum valuation (LANDP)

It has been some time since I final wrote about Gladstone Land Company’s Sequence C 6% Cumulative Most well-liked Inventory (NASDAQ: LANDP). Final September, whereas analyzing the frequent inventory of Gladstone Land Company (LAND), I famous this its most well-liked inventory, LANDP, represented a beautiful funding alternative because it was backed by greater than 110,000 acres of invaluable farmland all through america and guarded by greater than $580 million in fairness in LAND’s capital construction. The inventory additionally returned a beautiful 7.8%.

To date, my suggestion has yielded good outcomes: Gladstone’s Sequence C Most well-liked Shares have generated practically 13% of the full return since my article (Determine 1).

Importantly, the popular inventory considerably outperformed Gladstone’s frequent inventory, proving that funding within the firm’s capital construction can be important. necessary (Determine 2).

Nevertheless, since a lot time has handed, let’s return to Gladstone’s fundamentals to see if LANDP’s most well-liked inventory stays a superb funding going ahead.

Total, I consider the story stays the identical for the 6% most well-liked inventory. They continue to be securely shielded from loss by invaluable farmland and enormous capital. The just lately introduced share buyback program must also present a flooring for valuations. I stay a LANDP purchaser.

A short overview of the corporate

Gladstone Land Company is an actual property funding belief (“REIT”) that makes a speciality of the acquisition and possession of invaluable agricultural land in america. Gladstone primarily targets farms rising annual recent produce (e.g. vegetables and fruit) and everlasting crops (e.g. blueberries and nuts) moderately than farms rising money crops (corn and soybeans) (Determine 3).

Contemporary produce and everlasting crops have traditionally been higher investments as a result of these crops have extra secure demand and are much less topic to cost fluctuations in comparison with money crops.

Most well-liked shares are nicely protected

I consider the Sequence C most well-liked inventory is nicely protected as the corporate owns 169 farms with an estimated worth of $1.57 billion, in comparison with the corporate’s market enterprise worth of $1.03 billion (Determine 4).

Moreover, within the firm’s capital construction, the Sequence C most well-liked inventory is protected towards loss by greater than $500 million of frequent fairness (Determine 5).

As a reminder, most well-liked shares have a better precedence of proper to the corporate’s property than abnormal shareholders. Subsequently, to ensure that the Sequence C Most well-liked Inventory to incur a loss, the fairness holder should first be destroyed.

Tenant issues continued within the first quarter

For Gladstone, a current string of tenant points continued in its newest outcomes for Q1 2024. Working earnings fell 4.5% year-over-year to $20.3 million, largely resulting from misplaced income as a big farm in Florida was offered within the quarter. Gladstone additionally had 20 farms (5 in California, 14 in Michigan, and 1 in Washington) that had been both vacant or had issues with tenants, inflicting farm earnings to be acknowledged on a money foundation and lowering internet working earnings. ~$750 thousand (Determine 6)

Gladstone stays vastly underrated

The poor efficiency of Gladstone frequent inventory, with a year-to-date return of -7%, possible displays the corporate’s tenant points and poor financials talked about above. Nevertheless, as now we have proven in a number of articles, the corporate as a complete stays severely undervalued.

For instance, Gladstone frequent inventory at present has a internet asset worth (“NAV”) per share of $18.50, in comparison with a present share worth of $13.48, or a P/NAV of 0.73x (Determine 7 ).

Gladstone’s P/NAV has traditionally ranged from a low of 0.5x to a excessive of two.3x, so present valuations of 0.7x stay low cost by historic requirements.

Actually, it could possibly be argued that the e book worth the corporate makes use of could also be conservative, because the current sale of a farm in Florida confirmed.

Within the first quarter, Gladstone offered a 3,748-acre farm in Florida for about $65.7 million. After accounting for closing prices, the corporate was in a position to register a internet earnings of $10.4 million and a return on fairness of 60%.

The tender supply helps the evaluation

Gladstone additionally just lately introduced a young supply of the corporate’s most well-liked shares. With rates of interest stubbornly excessive, buying new farms does not make financial sense, so the corporate allocates capital to purchase again its personal most well-liked inventory.

The Firm has approved a share repurchase program of as much as $20 million of as much as 6.0% Sequence B Most well-liked Inventory (LANDO) and as much as $35 million of as much as 6.0% Sequence C Most well-liked Inventory (LANDP).

By publicly providing to purchase again these most well-liked shares, Gladstone helps the valuation of those shares, which commerce at a big low cost to their $25 par worth.

With a coupon of 6.0% ($1.50 per 12 months or $0.125 monthly), the Sequence C Most well-liked Shares are at present yielding 7.4% at a market worth of $20.20 (Determine 8).

At present, LANDP yields 7.4%, up about 290 bps. exceeds the 4.5% yield on the 10-year Treasury be aware (Determine 9).

Though Gladstone’s most well-liked shares are unrated by the credit standing companies, I do not consider they need to be buying and selling at such a large unfold in comparison with BBB funding grade loans, which at present commerce at a 110bp unfold, as Gladstone is backed by invaluable farmland ( determine 10)

Dangers of Proudly owning Gladstone Most well-liked Shares

The most important threat to proudly owning Gladstone Sequence C Most well-liked Shares stays long-term rates of interest. Given the perpetual nature of the Sequence C Most well-liked Inventory, they’re typically traded as long-term bonds of Gladstone Land Corp. If long-term Treasury yields rise considerably, the Sequence C Most well-liked Inventory will possible commerce decrease.

Conclusion

I proceed to love the Gladstone 6.0% Sequence C Most well-liked Shares due to their relative security. The popular inventory is backed by $1.57 billion value of farmland, which does not fluctuate like different monetary property. As well as, the popular inventory is protected within the capital construction by greater than $500 million of frequent capital.

The just lately introduced share repurchase program of Sequence B and Sequence C most well-liked inventory ought to present a base valuation. I proceed to advocate LANDP as a purchase.