Gladstone Land Corporation's David Gladstone Discusses Farmland Solutions
MCLEAN, VA - Land concerns are an expanding issue in agriculture. The population is growing and creating more mouths to feed, while farmland is being converted to commercial use faster than ever. And, as acreage continues to disappear, it drives prices of existing land up.
That’s where Gladstone Land Corporation comes in. I connected with David Gladstone, CEO and President, to discuss how the industry can address this problem.
“At Gladstone Land, we do not have, as part of our business plan, the desire to sell any of our farms for development. We buy farms to remain as farms for eternity,” David tells me. “We like to buy farms that have been placed in a program for conservation as farmland. We like to rent the farmland to farmers that want to stay on the farm for a very long time. We want to be the real estate partner to the farmer. In essence, we seek to preserve the farmland for our farmers.”
Gladstone is a publicly traded real estate investment trust. According to David, people should know there are strong returns from investing in farmland. There are many benefits to becoming a shareholder; according to the NCREIF, the overall average return is 13.2% over the past ten years, compared to 6.8% for the NAREIT index, and 5.8% for S&P Index. In addition, for those who hope to help the industry, this model also allows farmers to curb the problem and preserve high-value acreage.
The company focuses on acquiring high-value land. David explains that land can be defined as high-value when revenues and profits derived from farms are higher than the average farm. This means:
- Adequate water supply and clean water
- Soil that is fertile and rich in nutrients
- Sunny and low-wind conditioned weather
- Long growing seasons, with year-long sunlight
- Location in prime growing region with established rental market and abundance of strong farmers to lease
- California has the highest-valued farmland, followed by Oregon, Arizona, and Florida
Gladstone helps by buying land and renting it back to farmers, offering triple net leases to tenants. As we previously reported, there are innumerable benefits for the tenant, as the sale allows them to free up additional capital which can be reinvested into the operation of the farm business.
Currently, Gladstone has its priority on annually-planted fresh produce crops, many of which are organic or in the process of converting. This type of farmland offers advantages through its water access, price volatility, lack of government dependence, and overall lower risk.
The Gladstone Land model relies on the ability to borrow money at lower rates than the land is being leased, so that shareholders see the return on the difference between what is collected through farmer’s rent and what the company has to pay the lending institution in interest for helping them buy the land. Since 2013, Gladstone has made 48 consecutive monthly cash distributions to common stockholders, and over the past 24 months, the company has increased distribution rate five times for a total increase of 43.3%.
“People buy our stock for the steady dividend and the safety and security of knowing that the dividend comes from the oldest profession in the world: farming. People have to eat, and you cannot grow food to eat without dirt. We own the dirt and rent it to the farmers,” David shares. “It is a very simple and reasonably safe business model. Once people understand this business model, they love it.”
As the industry continues to tackle this issue, Gladstone Land strives to provide solutions for farmers and those looking to empower them.