Gladstone Land Corp
NASDAQ:LAND
Gladstone Land Corp
NASDAQ:LAND
Price:
13.45 USD
0.9%
Market Closed
Updated:
May 16, 2024
Section:
Earnings Call Analysis
Summary
Q3-2023
Q3-2023
Net Loss and Decreasing Revenues Amid Stable NAV
The company reported a net loss of $3 million for shareholders, with adjusted FFO at $5.6 million, down from $7.2 million year-over-year. Despite lower revenues and increased financing costs, the net asset value per common share rose to $20.33, supported by property appraisals. Fixed base cash rents and participation rents dropped by $402,000 (2%) and $600,000 respectively due to lower crop yields from drought and oversupply, notably in almonds. Liquidity remains strong at over $170 million, with negligible impact from interest rate hikes thanks to a fixed-rate borrowing average of 3.35%. Debt maturities of $41 million are due within a year, comfortably covered by increased property values and available refinancing options.
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Greetings, and welcome to the Gladstone Land Corporation Third Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. David Gladstone, Chief Executive Officer. Please proceed, sir.
Quarterly conference call for Gladstone Land, and thank you all for calling in today. We appreciate the time you take to listen during our presentation. Before I begin the presentation, we're going to hear from Michael LiCalsi. He's our General Counsel and is Head of Administration. Michael?
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.
And these forward-looking statements involve certain risks and uncertainties that are based on our current plans we believe to be reasonable. Many factors may cause our actual results to be materially different from any future results expressed or implied by these forward-looking statements, including all the risk factors in our Forms 10-Q, 10-K and other documents that we filed with the SEC. You can find them on our website, at the investors page at gladstoneland.com and on the SEC's website, which is www.sec.gov.
Then 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. FFO is a non-GAAP accounting term defined as net income, excluding the gains or losses from the sale of real estate and any impairment losses from property, plus depreciation and amortization of real estate assets. May also discuss core FFO, which we generally define as FFO adjusted for certain nonrecurring revenues and expenses. And then 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.
Once again, please visit our website, gladstoneland.com and sign up for our e-mail notification service. You also find us on Facebook, keyword there is The Gladstone Companies, and on Twitter, that's @gladstonecomps. Today's call is an overview of our results. So we ask that you review our press release and 10-Q both issued yesterday for more detailed information.
And with that, I'll turn it back to David Gladstone.
All right. Thank you, Michael. I'll start with a brief overview of our farmland holdings. We currently own about 116,000 acres on 169 farms and about 45,000 acre-feet of banked water that's water that's in aquifer that we can tap into. 1 acre foot is equal to about 326,000 gallons so we own nearly 15 billion gallons of water. And together, they are valued at approximately $1.6 billion for both the land and the water.
Our farms are in 15 different states and more importantly, in 29 different growing regions. So stored water, mostly in California. So you can see we're pretty well diversified, just to show you a little more diversification, our farms at least over 90 different tenant farmers and all of whom are unrelated to us. And the tenants in these farms are growing 60 different types of crops, but mostly fruits and vegetables and nuts like you'd see in produce section of a grocery store, which is where most of our products are sold.
And now I'll give you a quick update on some of the tenant issues we've been working through. We're still farming on one farm in California with the help of a third-party farm management group. We've been in discussions with the same group to sign leases and not just farm it for us. Property believe will be closed and finalized a lease agreement, hopefully soon.
In addition, short-term leases on 4 blueberry properties in Michigan, encompassing about 14 different farms expired in October. And since then, we've been farming 3 of these properties, total 11 of the farms with the help of third-party management groups, the fourth property, which consists of 3 farms currently is vacant. And it's okay to be vacant this time of the year because there are no strawberries on this -- no blueberries on the -- blueberry bushes this time of year. We're in discussions with groups that take over all of these farms, and we hope to also have an agreement in place by the end of the year.
Finally, during the year, we had 2 other tenants who had gotten behind in their rental payments to us. One tenant was replaced, farm being fully leased as of July 1. And the other tenant was able to catch up on their rents and is now no longer falling behind.
Total year-over-year impact on our operations as a result of these issues that I mentioned above, was a decrease in operating income of about $201,000 in the third quarter and about $814,000 for the year so far. I think a lot of that will be replaced by the fact that we will get some properties that actually sell their crops and actually make up some of those problems that we had.
As mentioned on the past couple of calls, we continue to have more selective approach to the type of farms we review for a potential acquisition because our cost of capital is so much higher. For example, we financed most of our farms that we buy with a first mortgage for about 60% or 70% of the price we pay and as a result, acquisition activity remains slow for us because those costs have gone up so much.
It is changing, and it will change over time with inflation still above the Fed's target rate, interest rates remain high for us for the foreseeable future, but having gone through these cycles before, we know it will change. But overall, our existing farmland portfolio continues to perform pretty much as we expected it would with the exception of those issues I mentioned above. We're having a couple of tenants that have problems, but we always work through those.
On the leasing front, since the beginning of the quarter, we renewed and amended 9 leases on the farms in 2 different states in total renew as expected and results of increasing annual net operating income of about $275,000 or 4.7% above that of the prior leases.
Looking ahead, we have 3 leases scheduled to expire over the next 6 months. And in total, that makes up less than 5% of our total annualized lease revenue. We're in discussion with groups to lease these farms, and we are also looking into possibly selling one of these farms as it's in one of those development areas, and hopefully, we'll have some information for you before the end of the year. But we are not currently anticipating any vacancies on any of these farms as a result of upcoming explorations.
We also recently entered into a water-transfer agreement with a local water district in California that will allow us to purchase up to 15,000 acre feet or nearly 5 billion gallons of water per year, through February 2031. And so far, we purchased about 7,000 acre feet of water for 2023. And total consideration for that was about $1.2 million. We've recently completed construction of some groundwater recharge basins. These basins on some of the on-farm acreage on a couple of our large properties in California. This will enable us to pump the water onto these basins so that we can store it as it goes underground for further use in our farms. So we're in good shape in terms of needing water in the future. I think this year is going to be a wet year, but who knows, maybe it's beginning of a 5- or 6-year drought period. So we've got a lot of water to get us through any kind of problems we have.
Inflation continues to slow down the impact of -- the impact of the Fed's interest rate hikes now being felt throughout the economy. However, the latest headline inflation is by 3.7% still remains above the Fed's target of 2% and core inflation has not been moving in the right directions according to the Federal Reserve.
Food prices are also showing signs of cooling down. They went up substantially after the pandemic, but we continue to keep pace or outpace inflation as we see them now. We believe food prices will continue to keep pace or again outpaced inflation, which should help mitigate the increases in operating costs, many of our farmers -- the tenant farmers have been experiencing. We look forward to the future.
I want to stop here and turn it over to our CFO, Lewis and talk to you more about the numbers. Lewis?
All right. Thank you, David, and good morning, everyone. I begin by briefly going over our financing activity. Not incurring new borrowings during the quarter, but we have repaid about $7 million of loans since the beginning of the quarter. On the equity side, since the beginning of the quarter, we've raised net proceeds of about $2 million from sales of our Series E preferred stock and $1 million from sales of our common stock through the ATM program early in the quarter.
Moving on to our operating results. For the third quarter, we had net income of about $3.1 million and a net loss to common shareholders of $3 million or $0.08 per common share. For the following discussion of operations, I'll be comparing the third quarter of 2023 with the corresponding third quarter of 2022. Adjusted FFO for the current quarter was approximately $5.6 million or $0.155 (sic) [ $0.15 ] per share compared to $7.2 million or $0.207 (sic) [ $0.21 ] per share in the prior year quarter.
Dividends declared per common share were $0.139 in the current quarter compared to $0.137 in the prior year quarter. The primary driver behind the decrease in FFO was lower year-over-year revenues, coupled with an increase in related party fees and higher financing costs with the proceeds from a portion of such financings remaining uninvested. Fixed base cash rents decreased by about $402,000 or 2% from the prior year quarter. This was primarily driven by a decrease in revenues from the self-operated and nonaccrual properties as well as a lease we executed in the fourth quarter of 2022, in which we reduced the fixed base rent in exchange for increasing the participation rent component in the lease. And the result of this increase in the participation rate component won't be known until the fourth quarter.
Participation rents also decreased by about $600,000 from Q3 of last year. These figures are largely dependent upon the timing of when such information is made available to us. But from what we've received so far, we're seeing lower yields coupled with lower pricing for last year's crop. The lower yields were expected due to the alternate year bearing nature of the trees and also due to the fact that these crops were harvested at the end of a multiyear drought.
Pricing continues to be somewhat lower due to oversupply, and this is particularly true in the almond market. On the expense side, excluding reimbursable expenses and certain nonrecurring or noncash expenses, our core operating expenses for the current quarter increased by about $370,000 from last year. This is primarily driven by an increase in related party fees, particularly a higher incentive fee earned by our adviser during the current quarter. Removing related party fees, our recurring core operating expenses remained relatively flat from the prior year quarter.
Finally, other expenses decreased due primarily to lower interest expense incurred as a result of loan repayments made over the past year. With that, we'll move on to net asset value. We have 43 farms and our banked water, all valued during the quarter, and this is -- these were all done via third-party appraisals. Overall, these valuations increased by about $1.1 million over their previous valuations from about a year ago. So as of September 30, our portfolio was valued at approximately $1.6 billion all of which was supported by either third-party appraisals or the purchase prices.
So based on these updated valuations and including the fair value of our debt and all preferred securities, our net asset value per common share at September 30 was $20.33, which is up from $19.15 at 6/30 and up from $16.56 at Q3 of last year. The majority of this change was due to a decrease in the fair value of our preferred securities, which has been driven by the high interest rate environment.
Turning to liquidity, including availability on our lines of credit and other undrawn notes, we currently have access to over $170 million of liquidity in addition to about $155 million of unpledged properties. Over 99.9% of our borrowings are currently at fixed rates and on a weighted average basis, these rates are fixed at 3.35% for another 4.3 years.
As a result, we have experienced minimal impact on our operating results from increases in interest rates. And with respect to our current debt load, we believe we are well protected against any further interest rate hikes for the foreseeable future.
Regarding upcoming debt maturities, we have about $41 million coming due over the next 12 months. However, about $24 million of that represents various loan maturities and the properties collateralizing these loans have increased in value by a total of $7 million since their respective acquisitions, so we don't foresee any problems refinancing any of these loans if we choose to do so. But if we remove those maturities, we only have about $17 million of amortizing principal payments coming due over the next 12 months or less than 3% of our current debt outstanding.
One other item to note here, our lines of credit with MetLife are currently set to expire in April of 2024. We are close to finalizing a long-term extension with MetLife for each of these, and we hope to have this wrapped up during the fourth quarter. And finally, regarding our common distributions, we recently raised our common dividend again to $0.0464 per share per month. This marks the 32nd time we've raised our common dividend over the past 35 quarters resulting in an overall increase of 55% over that period.
And with that, I'll turn the program back over to David.
Okay. Thank you, Lewis. It's a nice report. We continue to stay active in the market, should a good opportunity to present itself but we're being more cautious on the acquisition front. That's changing out there. People have begun to reduce the price on some of their farms. It happens much quicker in other REITs but on the land side, the owner of the property can always continue to operate the farm and make a few bucks.
Additional points to make. Just the final point I'd like to make. We believe that investing in farmland, growing crops that contribute to 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 that we're in today. When our farms are located today, particularly in both the Coast East and West, we're getting good value increases. And overall, farmland continues to perform well compared to other asset classes. For example, the NCREIF Index -- Farmland Index, which is currently made up of about $16.4 billion worth of agricultural properties, has an average annual return over the last 25 years of 11.4% with no negative years going down.
This is so much better than the S&P Index and the overall REIT index each of which have had 6 or more negative years in which if you were getting out, you were going to lose money if you were in at a certain amount. We've had 0 in the farmland index. So it shows its strength by being something that is always available for us to go out and finance and the banks that we use are very interested in lending us more money, of course, there at a higher price.
In closing, just remember that purchasing stock of this company is a long-term investment in farmland. I think an investment in stock is 2 parts, it's similar to gold, it's a hard asset, farmland. It's dirt, that has an intrinsic value because there's a limited amount of good farmland and it's being used up by urban developers, especially in California and Florida, where our mini-farms are located.
And second, it's unlike gold in that it's an alternate asset, but it's an active investment with cash flows and investors getting money every month. We believe it's better than a bond fund because we keep increasing the dividend, which doesn't happen on bond fund. We expect inflation, particularly in the food sector to continue increasing over time, and we expect the values of the underlying farmland to increase as a result.
And we expect this especially to be true in the fresh produce food sector as the trends of more and more people in the U.S. eating healthy foods and continue to grow in that area.
Now we have some questions from those who follow us. Operator, would you please come on and help us listen to some of these questions.
[Operator Instructions] Our first question comes from Rob Stevenson with Janney.
David, other than the 4 blueberry properties, what are the other crops that are among the challenged operator forms that you guys are talking about?
Well, we have an oversupply of almonds in the marketplace today. So I would count that as one that is a problem. But the good thing about almonds is there are nuts and you can pack them up and hold them for a while. We found that international purchases of almonds have been down substantially. And I don't know why that is other than they're expensive. But we think that will change and it will change, I think, in the next year. Go ahead.
No, no. I was just going to ask, beyond the Michigan blueberry stuff, I think you said that there was one in California. Are there any other markets where you're having issues at this point?
We have a vineyard that's not making as much money as it should. So keep an eye on that.
Okay. And how are you guys thinking about the opportunity to re-lease these assets and what you'd get from that versus just selling them, taking the proceeds and either repaying debt or buying something else and moving on?
Yes. That's a daily conversation in this place. And so as a result, we have one property in Florida. It's a fairly large farm. It's growing berries and produce now, but the push in that direction is directly competing with the Mexican produce that's coming out. So as a result, most of the produce guys don't want to pay as much. So what we did is we located a couple of people who want to buy that. It is directly in the line of development in Florida. And somebody will make a bookoo of money. But if you think about it, we'd have to carry it with a negative carry in order to get to the period where we'd be able to sell that off. There are some investors out there that don't really care for income. They just want to hold it and sell it to some of the developers.
And so hopefully, we get that done before the end of the year, but maybe not. Anyway, I don't want to get myself in trouble, I've done this before mentioning that something is going to happen. But it's moved along. We have a letter of understanding but it's not binding. And we are currently getting the property in shape. So it will be transferred -- and I think it will happen in the next 90 days for sure.
Okay. And then last one for me is what's the rationale for buying incremental water at this point given the environment right now and given that your cost of capital, is it versus spending that money on an income-producing farm?
Well, an income-producing farm would be lovely, but we don't have many of those for sale because the price they're willing to take is so much higher than you can justify based on the cash flows. And that's throughout the industry. So this is not something that's just in strawberries or blueberries or almonds or anything else. It's very expensive out there now. Inflation is driven up the price of all the inputs to grow. So almonds and pistachios are much more expensive to grow today than they were 2, 3 years ago. And the guys who are running our farms and renting from us are able to sell and make money, but they're not making a lot of money. And so as a result, as soon as the Fed stops raising rates for good and things level out, we'll go back into a mode that will allow us to do that. We're already seeing some of the farms in California and certainly in Florida come up for sale at lower prices.
And if you want to get out now, which as you probably remember about 58 -- no, 80% of the farms are in the hands of families that are wanting to get out of the business or to somehow find a way to be more profitable. That for us, that's the thing that's driving everything right now is if you want to get out, you got to sell at a lower price than they had hoped they would get. And that will change in a year or 2, those prices will be back, and they'll sell to us the financing that we use will be in vogue again. And therefore, we'll be back in business. We've already seen 3 or 4 farms that are coming up for sale that we turned down because the price was too high, and they are now starting to walk down the price. So I think -- I think we'll be back in the business of buying farms within the next year.
Our next question comes from Mike Albanese with EF Hutton.
Despite the tenant issues, I think that was largely a nice quarter. Just, I guess, a couple of quick ones for me. Again, on the acquisition front, you talked a little bit about pricing. Any insight into implied cap rates, are there any deals out there that have closed, obviously, not with you guys that you could point to or just to give us some sense of where cap rates stand today?
I think cap rates around 5.5%, maybe higher today, but it's got to go back down for us to get involved. But there are some nonprofits that buy properties just for some ESG reason and they don't really care about making money. They want to make money, but they don't. That's not the primary driver. So there are some of those. And I'd say if you wanted to pay 8 cap rates, you could have all the deals you want, but ., don't know how you'd ever finance that in today's marketplace.
So for us, it means a time of making sure that the farms we have are in good shape. We're currently doing some of these deals now that with our existing farmers that will give us more income on a straight-line basis as opposed to having extra money at the end of the year and paying us. So trying to even out everything and make it work for us. And we're in great shape. We've got cash, we can stay alive for 3 or 4 years if we needed to do that. But I'm expecting the marketplace to change pretty substantially in 2024.
Got it. Got it. Yes. And you're right, you do have a healthy balance sheet, you have plenty of liquidity. You are in a position where you can kind of, I guess, wait this out a little bit. Just to dig into the tenant issues a little bit more from their perspective. Obviously, they're seeing properties or just expenses going up in general from inflationary expenses, financing gets more difficult? And then you mentioned like an oversupply in almonds. And I guess where are you seeing more of the issues arising from? Is it really on the supply-demand side? Is it the inflationary side? I mean what -- I guess the better question is what would help them out more is inflation coming down or just kind of a balancing out in their particular crop? You had 2 tenants that fell behind. You were able to want -- to replace one, I think you said at a higher lease income. And then the other caught up, I mean, I guess, using the one that caught up as an example, what changed for them?
Well, they probably got a hold of all of their costs and recharge the way that they're doing things. The difficulty in selling to who we sell to, which are the grocery stores. That's where they -- most of our products end up is that the grocery stores aren't passing all of that on. They're keeping a lot of it. So we're not getting better prices for our almonds and pistachios and strawberries. We're getting good returns, but if we could get past the markup that the Safeways and others are doing, we'd be better off. It all changes once their grocery stores realize that they need us more than anybody else almost because they got to have product to sell. You'll see things change in the marketplace out there.
And for the person who caught up, they're good farmers, but they just had a 4 year. And so they're in better shape today than they were when they stop paying or ask us to accrue something and not get paid cash for it. We're in the business, of course, of paying dividends, and we -- and that's our cost, if you want to think about it that way. So we look at this as just another blip in the marketplace. And hopefully, in the next 30 to 90 days, things will change. I know people are surprised at what's going on in the marketplace in terms of interest rates. But this has happened. I remember our first mortgage was about 7.8%. And of course, they're back to those numbers now, but it doesn't last long. And I think a lot of people are going ahead and paying the 7% or 8% for mortgages.
And quite frankly, I think that in a year, there will be refinancing things down to a lower rate. And all of that's happening. I think most of the people that are farmers out there today are in a good shape in terms of where they are in the marketplace and who they're selling to. It just is -- it gets tight every now and then, and people go through those problems.
One of our situations is the farmer died. This is about the third time it's happened to us, and the lady who is trying to make a go of it with her son is not nearly as strong as she had been, she and the farmer had been in the past, and we're working with her, but we'll probably find somebody else to take over that farm if she wants to do that. I'm just afraid should get so deep in that. So we've been trying to work with her.
It's -- there isn't one thing that's going to fix everything other than interest rates that are just too high. But the markets change and everybody knows corn and wheat are high-priced items today because of the war in Ukraine, which is a big producer and the droughts that have happened in Brazil and Argentina. So they're riding high and people are paying big prices for that. We went through 6 years of that being the reverse in which you can almost not give away some of the corn farms. But I think in the long term, it all works out for everybody in the farming business, you heard Lewis talk about our net asset value continues to go along and I just think farmland side of the business is never going to be 0, might go down or go up depending on what's going on in the marketplace. But it's never going to be like it was in 1929 where the crops couldn't get grown because they didn't have water.
Today, in California, we may drill down 1,000 feet to get water or we are banking out water that is putting it in the aquifer to be taken out later when we need it. And this increase or decrease in the need for water is going to be going on in California as long as California exists, there just isn't any chance. So one long period of time in which we have all the water we need out there. So that's why we're banking. We're probably well banked for the next 2 years, I'd say this year that's coming up, the one in the summer of 2024. We are extremely good shape on that. It will go down as we use the water and hopefully, we don't have to use any water that would just mean that we're in better shape going forward.
I don't know Mike, it's hard to figure out this business because we are like the weatherman that you listened to on TV. He's got a 50-50 chance of calling it, right? And that's about what we have. But on the long term, we do well.
Certainly. Yes, there's definitely a lot of moving pieces, and I think the velocity at which rates have risen has put a lot of you guys on their heels. Just two more for me. I want to go back to, I guess, pricing, particularly on the groves, blueberries, almonds, strawberries things like that. I mean we've been through a few cycles here. What is the propensity for, I guess, grocery stores to -- basically for you to be able to start to pass on some of those costs, do the grocers kind of hold the cards there? Is it consumer driven? What have you seen in the past?
The grocery store has got to have the produce and as long as there's produce at a lower price, they're going to go with the lower price ones unless you're a high-end grocery store and then you're going to want the best barriers that you can get and you're willing to pay for them. For us right now, I think we're just in the middle of the cycle. And at some point in time, the grocery stores are going to realize that they have to pay up and they'll pay up but their grocery stores are making money today and they probably always will, because people got to eat.
And so as a result, grocery stores will be places that they go. We're not in the places that are more difficult to defend, and that would be like, for example, some of the places that people buy groceries and the smaller stores and also the one-off places. You can get good pricing, if you go to the right grocery stores, and there's one thing that all of our people realize is that if you say you're going to be there for the grocery store with strawberries on Monday and people go shopping, you better be there because they're depending on you. They don't have any spare strawberries in the back or anything else.
So as a result, there's a symbiotic relationship between the 2 groups, and they'll be fine, and we'll be fine. And our farmers all know these grocers. I remember when I had a farm out there, and we've entertained the people from Kroger's or Safeway and we couldn't do much in the way of entertainment because they have these rules that their buyers can't get perks or anything from any of the sellers. But it changes and they will have to have the products that we're making. I mean we've got 60 products, and most of them are in the front of the store where the produce section is. And so as a result, those are fast moving, and they've got to be fast moving because you got a limited time to keep a strawberry on the shelf or salad on the shelf.
And so as a result, we'll be fine. People are going to want food and they're going to go to the grocery store to buy it. And that's where we dominate. Our farmers are there. But I can't tell you what's going to happen with the grocery stores. I'm not a grocery store expert. And I think if we have a lot of supply, prices will go down. If we have a limited supply, prices will go up. That happens in every product and in every region.
If you're growing strawberries in Michigan, you're going to get a -- you got a good price last year. All of those -- those guys all made a lot of money. Will they make it next year? I don't know. I don't think anybody knows because what the amount of strong winds coming out of Michigan are going to be next year.
Got it. Very -- sorry.
Go ahead. Any other questions?
Yes. That was a really helpful context, much appreciated. My last question here, this is really geared towards Lewis. Just regarding the NAV -- excuse me the NAV increase, I mean, can you just drivers? I mean, is this more so on property pricing or kind of changes in the cap stack that or rates or I should say, valuation techniques with your balance sheet items that are driving the increase in NAV?
Yes. The majority of the increase for both the quarter-over-quarter and from Q3 of last year was just due to the preferred valuation, particularly for the year-over-year period, the Series C, once we listed that previously, we had valued it based on a waterfall approach. So held it at par of $25. Once it got listed, it's mark-to-market based on its closing stock price. And as you know, they've been trading in the $17, $18 range compared to the par value of $25. So that's been the bulk of it. There is -- there are components that -- they were driven by the increases in fair value of our portfolio. That has continued to increase, but it hasn't been as significant as the change in valuation of the preferred.
Also, if you remember, we do value our properties every quarter. And when we get these third parties in, they have been impacted. The pricing for all the farms has been impacted about high interest rates. And so as a result, prices of farms have been impacted by the fact that you can't borrow cheap money now. And so you can't do the deals that you wanted to do. And so those properties and those valuations are taking into account the very extremes that are going on in the interest rate marketplace now. If interest rates come back down, you may see a big bump in our valuations because right now, the valuation people are saying, well, you can't sell it for that per day. And so that's what we're waiting on is those people that run the Fed have to got to get off the dime and stop increasing rates when they do as they do each time, it happens. Things will change in the valuations.
Yes, that's a great point. That was really the basis for my question because I'm surprised for lack of a better term and how well the NAV has held up, given how quickly and dramatically, interest rates have gone up. But obviously, you see that affect you in kind of a couple of different places.
Okay. [ Latoria ] you got anybody who wants to ask another question?
The next question comes from John Massocca with B. Riley.
So just kind of notice participation rents in the quarter were kind of down about 20% year-over-year. I know you don't really give guidance for participation rents. But as we kind of think about 4Q, which is obviously another big quarter for participation rent perspective? Should we expect a similar kind of downtick? Or was there something kind of unique about the third quarter?
I'd say it's difficult to analyze the participation rent amounts in any one single quarter because, for example, last year, we may have gotten information from properties, A, B and C. And this time, we get properties from B, C and D. So it's not always a one-to-one match. So I think we really need to be able to be looking at it on a kind of a full year basis so that we're really capturing the full population.
As far as where Q4 is going to come in, we are still gathering data, but I know in the past, we've said that on an annual basis, we do expect the 2023 participation rate amounts to come in somewhere between the '21 amount of slightly north of $5 million and the '22 amount of close to $7 million. Hopefully, we're on the upper end of that range, but we're still gathering that and finalizing the numbers, vetting the information on our end.
Okay. That's very helpful. And then in terms of kind of some of the leases where you're either self-operating or you've had some tenant issues. I mean, is there any of that wasn't really reflected yet in the 3Q numbers and will kind of flow through 4Q or any kind of immediate recovery. Just how should we kind of think about that impacting NOI or maybe any other line items that some of the self-operating stuff might be flowing through?
Everything has been captured so far. The self-operated properties, I mean they haven't been -- we didn't record any revenue from them in Q3. The tenants that were on a cash basis, once -- well, assuming they do eventually return to a full accrual status, get back on a GAAP rents, you will see a small increase in GAAP lease revenue just from capturing that -- the straight-line effect again, just as we reverse that, I think, back in Q1. But it's -- we're still -- we still want to see more from those tenants, continued on-time rate payments, among other factors, to -- before we put them back on accrual status. But of the issues that we've talked about, everything has -- was fully reflected in the Q3 numbers.
Okay. And if you do get something from the self-operated properties, that's going to be kind of a onetime hit and now a quarter out there over the next 12 months or so? Or is that -- just kind of how should we think about the potential impact from that?
So the self-operated properties and the costs so far they've been deferred on the balance sheet as kind of crop inventory. So once those crops are harvested, the gross -- those costs will offset the gross revenues as it come in as cost of sales. And we'll just recognize the net amount as in the P&L.
The next question is from Mike Whitaker with Newbridge Securities.
This will be brief. I think most of the answers have probably already been given, but I'm looking at from an investor standpoint, I used to have LANDO when it went public. I had LANDP before it went public and now it's public. And as I'm talking to all my clients and it's down almost 30%. Is there anything outside of interest rates, inflation or any of the things that you've been speaking of that's caused us to go down roughly 30% since June? And is there any anticipation outside of interest rates going down or inflation going down, that might cause these valuations to go back up?
Well, remember, these securities are first out, so they get in front of the common stock. So these guys are in great position. The fact that it's gone down is just the fact that interest rates have been changed by the Fed. And so as a result, you're competing with 5% that you can get in T-bills and 5-year T-bills are wonderful to hold. And these are good properties that are in this things. You just can't get something as secure as it is because it has all of our land as the first call on that. So I can't believe that people are willing to give up the return, but it's just pure numbers.
What do you want your piece of property to -- I mean, your security to generate and if it's got to generate more than 5% that's absolutely secure then it got to have to do that. So the price has to come down. And this is a good reflection also on the people who own land because they used to get real high prices for their property. And now they can't get the high prices. And so the only way to get that property sold is to drop the price of the property is something that somebody will pay for. And the same thing is happening with those preferred positions at those securities that your clients own, it's the same thing. They're going to get their dividend, but that's not enough today when they can jump out of whole price -- well they can't jump out at old price, but they can sell and get something else to generate just as much income.
LANDO went public and went down and then obviously went back up to like $27 a share for a period of time. So is this sort of like just the time that we're in right now, we feel that this is going to be possibly going back up at some point when the market starts to come back up. Is there anything that's causing us outside of what we're talking about with inflation, interest rates and so on?
Okay. Inflation and interest rates that are very high now that people have many other alternatives to get the returns they're looking. [ Latoria ], we got any others?
There are no further questions in queue. I'd like to turn it back to you, Mr. Gladstone for closing comments.
I don't think anybody wants to hear any more closing comments but the last, we had a good quarter. It's a lousy quarter when you think about it in terms of interest rates, but we're bound by those markets that are out there for securities that pay dividends, and we're very happy that we're in good shape, no downsides that we're looking at today. So thank you all for calling in, and we'll see you next quarter. That's the end of this call.
Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.