Earnings Call Transcript - LAND Q2 2025

Operator, Operator

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.

David John Gladstone, CEO

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.

Katharine Gorka, Director of Investor Relations

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. 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.

David John Gladstone, CEO

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-feet. 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 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, which is in Florida. We have it classified on our financials as held for sale. This property consists 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 those growing nuts and grapes, have different crop prices that are not very high, but this year has a little different outlook. I'm hopeful we have a lot of almonds, for example, and the government publishes every year their guess of how many almonds are going to be produced. 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 it exactly right, but we had more almonds than estimated by the government. Then the third year out, they were right on target, and then in the last 2 years, we just didn’t meet that optimism. If the government is right this year, we can make significant profits. Anyway, we've decided to adjust the lease structure on 6 properties, and that's why these estimates are so important. We aimed to 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've 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 for farmers. We also decided to operate 2 properties ourselves with the help of third-party operators. This does not mean you're going to see me or any of the people out there on the farm harvesting or doing whatever. We have, like many people in this business, 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, and interest rates, while input costs have not gone down. They've gone anything but down. Water availability, that’s a key factor. On our farms, we purchased enough water and stored it, so we're good for many years out. One of the reasons we felt confident in going this route is that particular farms are ones that had really good crops in prior years. Because of the crop insurance coverage we've gotten, you can buy crop guarantees on your historical yields, which means securing high levels of crop insurance. We have crop insurance on all 8 of these farms. Should a hurricane come through and damage everything, we're still going to get paid based on what we would have earned in existing farms. We certainly hope that, even though we are covered with crop insurance, the base rent reflects strong production from these farms. They've done so in the past, so we don't need to rely on crop insurance, which could yield significant profit. 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. We entered into 4 new standard lease agreements during the quarter, expecting to result in an aggressive increase in our annual NOI of about $166,000 or about 9%. That part of the business is still working well, and we'll see when we harvest the crops that we will own part of what it looks like in the future. Looking ahead, we have 14 leases scheduled to expire over the rest of the year, some of these leases containing no fixed base rent, including cash leases that we are navigating. These leases actually account for negative $2.8 million of leasing revenue during the first half of 2024. Remember, we can't place those estimates in our calculations, 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 learn 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 until we reach the fourth quarter. That's the standard accounting. 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 revenues. We're in discussions with both existing and prospective new tenants about leasing these farms, including reverting some of these back to standard leases with fixed base rents, or if the price is right, we may also look to sell a couple of these farms. As I mentioned, we have one property that is going to be sold in Florida due to the booming housing market there. I'm going to stop here and call on Bill Ryman. Bill is handling all the operations in California and has 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?

Bill Ryman, Operations Manager

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 being what 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 the crop quality looks excellent. As David mentioned, we're fully insured on all these properties. The nut properties have historically strong production, and all of them appear to be above average this year. 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 meeting our standards. All positive news there. In addition to that, we had a wet and average winter this past season, and the growing season has been nearly perfect in the entire Western U.S. That is certainly a factor that we don't control, but we've been very fortunate. Regarding 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, especially behind crops such as almonds and wine grapes, which are vital to us. These industries have seen orchards and vineyards being removed at historically large scale. We expect those markets to turn sooner rather than later. 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 much higher than anyone 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, bringing prices back down to where they were a year ago. In the last couple of weeks, we’ve seen pricing rebound, increasing by about 5% to 8%. As of last week, it's up another $0.03 or $0.04 per pound. We definitely have good almond market momentum, and we expect that to continue. Harvest just started, and we're shaking trees in all of our almond orchards right now. Over the next few weeks, we'll start to see how the industry actuals compare to the objective. All eyes are on that because it will support additional price gains if we fall short of USDA projections. Discussions around the coffee shop as of today indicate that the crop is coming in light. This is probably good news for us because it should strengthen the market. The wine grape market is still mired in its low points, and it was slow this summer to secure contracts, but in the last 10 days, we had a number of inquiries regarding some of our crops for contracts, and the pricing is significantly higher than a year ago. There are a couple of positive signals there. The pistachio market is currently the best market out there. Similar to earlier discussions around tariffs and trade, there certainly is uncertainty, but we see very strong demand, with increasing demand definitely causing some unexpected shifts. It caused the 2024 crop to be sold out early. As we sit here today, a month away from the 2025 crop harvest, there is minimal movement because there is a lack of product. We have very low inventories entering 2025, suggesting that it might house the largest U.S. pistachio crop on record. However, demand remains strong, and pricing is stable. Our guaranteed base price recently announced is the same as last year and aligns with our budget. While profitability is not nearly as robust as during the boom time from 5 or 10 years ago for pistachios, the market fundamentals are still solid. Generally, we see increasing bearing acreage, where every year the pistachio corp grows, offsetting some negatives like uncertainty tied to trade, especially with China. Nevertheless, we notice that stronger demand is perceived in the EU, which is particularly due to the surprisingly growing chocolate trends with nuts. To conclude, we have historically reported how the Western U.S. has experienced normal to wet cycles over the last few years. This has created several water buying opportunities at prices that fit our crop budgets. We've aggressively focused on improving our delivery and storage infrastructure across our portfolio. Coupled with access to inexpensive water, we've enhanced the portfolio’s water security significantly. We'll continue to add to that 55,000 acre-feet of water. We have certain areas where our farms have sufficient water. If it didn't rain for a decade, we could still irrigate for about ten years. We are spending significant effort figuring out how to synergize our properties, coordinating where they can share water to improve overall security. We'll continue to assess long-term and short-term water purchases, improve infrastructure, and work towards having a more secure portfolio in that regard. That's it for me. I'll turn it over to our CFO, Lewis Parrish.

Lewis Parrish, CFO

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, reducing revenues and raising costs along with lost revenue from farms sold over the past year. Fixed base cash rents decreased by about $6.8 million from the prior year quarter due to the reasons just mentioned, primarily the vacancies we're working through and 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 in 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 also decreased, largely due to the accelerated recognition of certain revenue in 2024. Last year, we obtained some information earlier than usual, which enabled us to record certain revenue amounts in the first half of the year. So far, this year's participation rents are mostly 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 due to lease modifications on certain permanent crop farms. We discussed this on prior calls; these lease changes are expected to reduce fixed base rents by about $17 million for fiscal year 2025 compared to 2024. This figure includes both the base rents recognized last year under prior leases, plus cash allowances offered to certain tenants for the 2025 crop year. It is being illustrated as a reduction in fixed base rents at a rate of roughly $4 million to $5 million per quarter in 2025, in line with the first half of the year. Consequently, the majority of the resulting crop share proceeds from these leases are anticipated to be recognized as participation rent in the fourth quarter of 2025, with a smaller portion recognized in the second half of 2026. In essence, we are shifting this revenue from fixed base rents to participation rents over the next couple of years, meaning that earnings this year will be more heavily weighted toward the fourth quarter, with lighter earnings during the year's first half. 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 triggered in Q1 by property sales was reversed in Q2 due to additional losses incurred on certain asset dispositions. If we exclude this reversal, total related-party fees fell by about $67,000, primarily because of a lower base management fee driven by recent farm sales. 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 due to additional costs incurred to protect water rights on certain farms in California as well as higher expenses related to vacant farms that were direct-operated or on non-accrual status, particularly increased property taxes, which were previously the responsibility of former tenants. The decrease in G&A expense resulted mainly from lower shareholder-related costs and reduced professional fees. Finally, other expenses decreased mainly due to lower interest expenses driven by loan repayments made over the past year. Regarding liquidity, we currently have over $150 million of available capital, and we also have nearly $170 million of unpledged properties that we could utilize as additional collateral if necessary. Over 99% of our borrowings are at fixed rates with a weighted average rate of 3.39% locked in for another 3.3 years. This has helped shield 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, which is less than 4% of our total debt. We also have about $11 million in loans with fixed rate terms expiring in the next year, although 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 2025. 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 will 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.

David John Gladstone, CEO

Okay. Thank you, Lewis. I think everybody is getting the gist here. We have changed how we recognize income, and we won't recognize much in the second quarter. Hopefully, in the third and fourth quarters, especially the fourth quarter, as we sell a lot of our crops, we will be back in the game of profits. One thing you may not know, I was not informed until Friday when I got a call from Lewis and our legal team. There was a group engaged with the market using dollar sign LAND. These players were just having fun trading against each other on the price, which knocked about 1 point off the price of our stock. This was not favorable for us and it takes a long time to recover from these manipulation stocks and trade regularly. Going back to the acquisition outlook, we continue to stay active in the market. We are seeing various changes occurring regarding what farmers can sell their properties for. I believe we will be able to sell some additional properties over time as we move forward. Again, we are navigating based on how we operate the company now. With cost of capital remaining so high, it concerns me that the marketplace must encounter significant changes. Overall demand for prime farmland growing berries and vegetables remains stable across all the areas where our properties are located, especially along the coast of California. As mentioned earlier, prices for certain permanent crops have been somewhat depressed. When we refer to permanent crops, we're mainly addressing the nut business, where there are numerous trees planted. The only good thing about those trees is that they're harvested mechanically. We are not as significantly affected by the increasing costs associated with picking crops due to labor shortages. However, we still worry about food inflation because many of our properties involve strawberries and other crops that require quick harvesting and shipping. At this point, we cannot recognize any projected income. Now, we simply sit and await clarity on when we will achieve substantial transactions. As Bill mentioned, the sales and deliveries of some nut crops are starting. I would prefer not to sell right now, and Bill’s perspective is to wait and see what the crops genuinely look like. We all expect food inflation to continue rising, thereby increasing the value of farmland over time as crops themselves increase in price. As long as farmers can make money, they will continue their business. We expect this trend to particularly persist concerning healthy foods, such as fruits, vegetables, and nuts. The trend towards healthier eating continues to be significant, as we have the largest farm focused on cabbages that I know of. Therefore, we anticipate continued profitability. Now we will open the floor for questions rather than my rambling.

Operator, Operator

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

Gaurav Mehta, Analyst

I wanted to follow up on your comments around participation rents. The $17 million that you discussed, how much of that are you expecting in Q4 of '25? How much will carry over into next year?

Lewis Parrish, CFO

The $17 million, it’s tough for us to specify right now due to the uncertainty regarding harvest results. If we have a poor harvest, the participation rent coming from those leases could be less than that amount. If we have a great harvest, it might be higher. We anticipate a split between this year and next year to be approximately 60% to 65% this year, with the remainder carrying over into next year, primarily in Q4.

Gaurav Mehta, Analyst

The way these leases work, do they automatically convert to fixed rents, or will they be renewed at the participation rents?

David John Gladstone, CEO

They never automatically convert to fixed, and so we’ll have to negotiate again when the timeframe arises, which typically occurs before the end of the calendar year.

Lewis Parrish, CFO

Yes, these leases will end later this year. We will be renegotiating them. If we can agree on terms for a standard lease, that’s ideal, but if not, then we may have to continue with the current structure for another year.

Gaurav Mehta, Analyst

Switching to the balance sheet, can you talk about your expectations for the Series D that is up for redemption in January of '26?

Lewis Parrish, CFO

We're still keeping our options open. We're in touch with underwriters and discussing internally about cash availability using the line of credit. Our options include potentially paying it off with proceeds from property sales, or using the line of credit that is approximately 1.7% lower than the Series D would go up to. We can allow it to remain outstanding, but it would increase from 5% to 8%. Given current market refinancing rates, that is also likely the better option since refinancing would involve additional upfront costs and commissions. At this moment, we are appraising our financials, cash availability, and line of credit to determine the best approach for January—whether to pay it off or let it stay outstanding for a while.

David John Gladstone, CEO

Gaurav, one of the silver linings right now is the possibility of generating significant profits from selling these products. For example, we may estimate around $8 million from selling one of our nut crops. We have seen people do this successfully over time. Regrettably, the high cost of capital and other changes in farming have hurt many of our tenants. I recall one individual who made a lot of money in previous years but has lost around $8 million due to recent changes. We hope for a substantial crop where everyone benefits. Moreover, when there is an abundant crop, prices may decline. If you secure sales early, you can earn more compared to delayed sales. Currently, we believe the initial buyers entering the market are in urgent need due to insufficient supplies. It will be interesting to see how the prices evolve in the next year. I expect there will be a significant influx of participants wanting to enter the nut field. The nut market has presented challenges for us. Unfortunately, we observed this decline at an unfortunate time. Now, we sense a resurgence, which will be beneficial if previous buyers of nuts on the international stage like those heavily reliant on the Chinese market continue their purchasing activity.

Gaurav Mehta, Analyst

Lastly, you mentioned trends in almonds and pistachios. Is there another crop type within your portfolio that isn't seeing positive trends and is still witnessing softness in prices?

David John Gladstone, CEO

I think that is the case. Lewis, do you have anything to add?

Lewis Parrish, CFO

Bill, do you want to provide commentary on this?

Bill Ryman, Operations Manager

The question was whether there are any other crop types experiencing weakness or softness in the market, correct?

Gaurav Mehta, Analyst

Yes, I was wondering since Lewis discussed the positive trends in almonds and pistachios, are there any other aspects of your portfolio not showing optimism?

Bill Ryman, Operations Manager

Not significantly. You may notice fluctuations in some annual row crops, but those are typical market adjustments driven primarily by weather events. In contrast, our leases are not tied to crop fluctuations. We generally don’t have major difficulties in this regard. The key markets for us are permanent crops, and even in standard leases, a component of those leases is crop share, which significantly influences our performance.

Operator, Operator

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

Steven Dumanski, Analyst

As discussed earlier in the call, with potential buyers currently limited due to their respective cost of capital, can you project when you'll see more disposition opportunities? Also, what feedback have you received from any potential buyers?

David John Gladstone, CEO

Certainly, there are buyers out there, though they are predominantly looking to purchase at highly discounted prices for farms. While they may show interest, it's not beneficial for us to pursue those sales at this time. If you consider Florida, it was mentioned that there are 10,000 new families relocating weekly. The housing market is strong, and we have people contacting us offering much higher prices, but it will take time before any sale occurs. As long as our farms generate good rental income, I prefer to remain dedicated to this segment of the business. We are monitoring the situation closely. I'd say we are likely among the thousands of farmers tuned into market broadcasts about agricultural prices daily. Bill is probably closer to developments than anyone, particularly since he's in California and in close contact with our farms there. He’s the resident expert on prices, and we consult with him when making sales decisions. In line with that, we still have some properties in the Midwest we've acquired along the way, and those will be sold as we move forward, allowing us to refine our focus on our leasing business and the 8 farms where we are transitioning more operationally. We have not yet donned our straw hats, but we are acutely aware of our reliance on commodity crop prices now.

Steven Dumanski, Analyst

Lastly, can you elaborate on the decrease quarter-over-quarter for the acre-feet of water you own? Was the variance a result of remeasurement or some other factor?

Lewis Parrish, CFO

No, it was just a 44-acre foot decrease quarter-over-quarter due to minor usage. We typically record water credit recognition in the prior quarter. This reflects water usage in the initial part of the year but was just due to tenant transition on one property, during which we utilized some of our stored water to irrigate while transitioning wells. We just needed to use 44 acre-feet from our stores to maintain operations while facilitating the well transitions.

Operator, Operator

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

John James Massocca, Analyst

Sticking with the theme of water, what are you seeing in terms of the impact of Sigma at your properties? Has that largely played out, or do you think there are specific assets that may still be at risk for various reasons? Have all regulatory changes and water needs been determined? Where are we in that process?

David John Gladstone, CEO

No, there are still changes coming from Sigma. So far, we seem to be ahead of the curve on that, but you never know what the government will decide. They’ve been meeting, and lawsuits have been filed by farmers' groups. In fact, I think we are one of the participants in one of those lawsuits. If the government starts to favor certain groups, which often happens, it creates uncertainty about how to proceed. So far, we are in reasonable shape. We're not in excellent shape, but I don't foresee any immediate concerns for our water side this year. This year has been beneficial for us, and I would say most farms could afford a few more dry years while remaining compliant. Water prices could hurt some growers if we experience another dry period. Luckily, we will not face that issue. It’s important to emphasize the water side of the business. It may not be as crucial as the trees themselves, but water is critical for trees and various vegetable crops. However, most of our heavy water use occurs on our East Coast assets, especially in Florida, where water is plentiful. At the end of the day, we are cautiously monitoring water issues in California, but this year we seem to be in a good position due to our strategic investments in stored water resources.

Bill Ryman, Operations Manager

John, that's a great question regarding Sigma. Our philosophy from the start was to take proactive measures. We didn't know what restrictions would materialize nor how they may change over time, so we decided early on not to follow a single acre but to assess how every farm would be affected by Sigma and develop plans for supplemental water supplies. This focus allowed us to prioritize a long-term view from the get-go. This is why we've invested in delivery infrastructure and have identified groundwater basins for water storage. We've been fortunate enough to experience some wet winters that provided many favorable pricing opportunities. This strategy has placed our portfolio in a very positive condition. I’d assert that among all land portfolios in California, particularly those held by investment firms, our water security is one of the best. We will continue this approach as circumstances evolve. We've participated in 2 water adjudications, and there will likely be another one or two that might influence us. However, we are focused on supplementation and developing initiatives that could replace some of that we might be allocated. The main effect we've observed from Sigma is that land values are bifurcating. Properties with deficient water access are dropping in value, whereas properties with superior infrastructure in capable water districts are either maintaining or increasing their value.

Lewis Parrish, CFO

One more thing to add, John, is that for the past 3 years, we’ve had average to wet years out in California, which has afforded us significant opportunities to purchase water at reasonable rates. However, every farmer has had a chance to buy water, but most don't have the same level of infrastructure we've built for water recharge or storage. We've even had neighboring landowners inquire if we can store water for them in exchange for a fee, providing us a small revenue stream on the side. But the true benefit is that the stored water will significantly benefit us whenever the next dry season arrives. While we're not hoping for droughts, that could be when we capitalize on all the many resources we have stored.

Bill Ryman, Operations Manager

Droughts are inevitable; we understand that. While we don't know the timing of the next one, we do know it will arrive. We've prepared strategically for it.

John James Massocca, Analyst

Expanding on the properties you operate, is there a threshold you believe would function as a floor based on the crop insurance you currently have in place today for expected impacts on fourth-quarter revenues?

Lewis Parrish, CFO

I will say not necessarily for Q4, but overall, between these 8 properties, we've invested around $25 million into the cost of growing the crops, which includes the $17 million from the 6 properties with modified leases. There are also 2 properties that we're operating directly under third-party operators. About $25 million has been invested in total, and insurance should cover all costs and potentially yield a small profit. The breakdown of this estimate aligns with the previous question answered earlier, predicting about 60% to 65% this year with the remaining amount carried into next year. Note, this is a worst-case scenario where we can't harvest any crops, which isn't likely to happen.

Bill Ryman, Operations Manager

To add quickly, regarding the crop insurance, the better the property and its historical performance, the better the crop insurance will be. Therefore, when we express high confidence in our crop insurance, it indicates that these assets outperformed against industry standards.

John James Massocca, Analyst

One final question regarding the balance sheet. Given the operational component, how comfortable are you? Where would you prefer to see that cash balance maintained as a minimum? Considering you have good cash reserves, would you utilize some for debt maturities? Should we expect the cash level to remain close to the current standing?

Lewis Parrish, CFO

I wouldn’t evaluate cash levels as static. Overall liquidity is crucial. As of June 30, we had $30 million in cash on our balance sheet. We also have an undrawn line of credit totaling around $87 million. This indicates we have about $150 million in readily available funds. Should we operate all 8 properties again, we could project about $25 million. We have $17 million of principal payments due. We aim to maintain at least $50 million in readily available capital at all times, and we are adequately covered in this regard. Additionally, we hold $170 million in unpledged properties that could give us an extra $100 million in borrowing capacity if rates become favorable or if we require it for any other reasons.

Operator, Operator

There are no further questions at this time.

David John Gladstone, CEO

Well, that's unfortunate. We enjoy answering questions. We hope you all will prepare some solid inquiries for our next session, and we expect to have much more clarity regarding these farms in our next meeting. This concludes our discussion today. Thank you all, and we’ll see you next quarter.

Operator, Operator

Thank you. That will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.