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Gladstone: suburban development supporting farm rental rates

David Gladstone reports that the conversion of farmland into suburbs in growing regions of the US helping to support an increase in rental income for the farmland REIT.

The conversion of farmland into suburbs is decreasing the number of farms in key growing regions of the US and has played a role in driving an average 17 percent increase in rental rates over the past three years, according to Gladstone Land chairman David Gladstone.

David Gladstone
David Gladstone

Speaking on Gladstone Land’s third-quarter earnings call Tuesday, Gladstone – also the company’s chief executive officer and president – said the conversion of farmland for other uses is a “megatrend” helping to raise rental prices for farms in key growing regions. California alone has been losing about 100,000 acres of farmland per year, he said, helping to ensure that Gladstone’s farms in that state are never vacant.

In that region, he said there are “no new farms being developed because [there are] no trees to cut down, no land that can be converted in these areas and all of this arable land is currently being farmed. Now it is being converted to other uses such as housing, schools, factories; and once it goes in that direction, it doesn’t ever come back out.”

Another factor that is increasingly supporting land prices and rental rates in California, according to Gladstone, is water.

“Farmers are not farming land where water is too difficult or expensive to obtain. They are just leaving it fallow. This drives up the rent and prices for all land like the ones we have will wells and multiple sources of water,” Gladstone said.

The company purchased more than 10,000 acres on nine new farms in three regions for a total of $40 million during the third quarter, according to Gladstone. Gladstone Land’s entire portfolio of 57 farms across 7 states includes farms growing more than 35 different crops, 90 percent of which are GMO-free, according to Gladstone.

On the call, Gladstone expressed hope for supportive agricultural policy under a future Trump administration, pointing to the president-elect’s pledge to eliminate the Waters of the United States rule – a document defining the jurisdiction of the Environmental Protection Agency and Army Corps of Engineers over bodies of water in the US – and highlighting environmental regulation and international trade as other important areas to be addressed.

Overall, Gladstone Land reported $35,000 in net income for the third quarter a decrease from the $100,000 reported last quarter that was attributed to expenses related to acquisitions.