“I like the idea of being worth billions of dollars, but we’re not trying to do it overnight.” - David Gladstone
Meet David Gladstone, the CEO behind the real estate investment trust that has been purchasing millions of dollars worth of farmland across the nation. Better known as Gladstone Land Corporation, the company has acquired a number of farms in the past few years in an effort to lease them out to farmers.
“It’s a simple business model,” David tells me. “I’m a very methodical lender and investor. We just want to buy a good farm, lease it to someone, and hope it sits there forever and a day with the same farmer farming it. Our goal is to continue to buy land and put good tenants in place on the same farm for the next 20 years.”
As of July 2015, Gladstone Land Corporation owns 36 farms, comprised of 11,457 acres in five different states across the U.S., valued at approximately $231 million.
Gladstone’s deliberate approach to land investments may come as a bit of a surprise, considering the number of farms the company has purchased over the years. This recent spate of acquisitions has led many to wonder, “What is Gladstone Land Corporation?”
Some may remember David Gladstone as the former Chairman of Coastal Berry Company, a large strawberry producer in Watsonville, CA. During his time at Coastal Berry, David had felt that he would be better suited to the world of investing, rather than working as an operator. He had leased approximately 5,000 - 6,000 acres of land before selling the growing and selling operations to Dole, which became his only tenant. After raising additional equity and better lines of credit, David started to build Gladstone Land Corporation from the ground up in 2003.
“That original shot of land that was leased by Dole was the first thing that sparked our interest,” David tells me.
Gladstone currently owns land throughout California, Arizona, Florida, Oregon, and Michigan, and plans to move up the east coast as far as New Jersey. Gladstone recently acquired two farms in Florida for $15.8 million, as well as entered into two purchase and sale agreements to acquire five farms for approximately $35 million. These five farms include 3,519 aggregate acres of irrigated cropland in both California and Florida. The company also has its sights set on six additional properties that total 5,476 acres throughout Colorado, Florida, Georgia, and Nebraska.
“Many farmers are worried that if they do not own the land they will not be able to farm it, but we want the same farmer to lease our land for very long periods.”
David tells me that the company is only now venturing into the Midwest after having opened an office just outside of St. Louis. William “Bill” Hughes has been welcomed to the team to seek out potential acquisitions of farms in the region. He will be looking for farms that grow fresh produce like sweet corn, green beans, melons, potatoes, cabbage, and more.
The agriculture industry remains a key part of Gladstone’s business model, and has continued to fuel its interest in buying companies such as Jack Rabbit, a nut harvesting equipment maker in California. Gladstone also has other funds including Gladstone Investment.
“Many farmers are worried that if they do not own the land they will not be able to farm it, but we want the same farmer to lease our land for very long periods,” David explains. “Most businesses do not tie up their equity to own their real estate but rather use their equity to build their operations.”
Gladstone isn’t limiting itself to only a select few crops. Again, David is quick to remind me that the company’s growth is all part of a slow-and-steady approach.
“We are beginning to look at tree and vine crops. We are trying to understand how they trade and where they go so we can try to find the best operators,” he tells me. “We’re only trying to work with the top 20 percent or 30 percent of farmers who represent the best and brightest in the growing area.”
Gladstone’s business model is highly dependent on being able to borrow money at lower than it is being leased so that its shareholders get the difference between what they get in from the farmer’s rent and what the company has to pay the lending institution in interest for helping them buy the land. David also mentions that the company can buy farms for stock in a tax free exchange for those who want to keep the income coming in and not have to pay taxes on the capital gains from selling the farm. The company pays a dividend of four cents per share per month and recently increased the dividend by 33 percent.
“So far [our model] has worked very well,” says David. “We have plenty of firepower to go forward at our will.”
Considering how much land Gladstone has acquired within the past year alone, I don’t doubt David’s confidence.
