The following interview was conducted by Brannon McPherson, managing director at Timbrel Capital LLC, and was published as part of Gladstone’s directory sponsorship package with The DI Wire. The DI Wire did not conduct or participate in the interview.
David Gladstone is the founder of Gladstone Land Corporation (the “company”) (Nasdaq: LAND) and has served as chief executive officer and chairman of the board of directors since the company’s inception in 2003. He is also currently the president of Gladstone Land.
Mr. Gladstone founded and has served as CEO and chairman of the company’s affiliate corporations, including Gladstone Capital Corporation (Nasdaq: GLAD), Gladstone Investment Corporation (Nasdaq: GAIN), and Gladstone Commercial Corporation (Nasdaq: GOOD), and Gladstone Management Corporation, which serves as the registered investment adviser to the company and each of the other aforementioned three investment funds (the “adviser”).
Prior to founding the Gladstone family of companies in 2001, Mr. Gladstone served as either chairman or vice chairman of American Capital, Ltd., a publicly-traded LBO fund and mezzanine debt company, from 1997 to 2001.
From 1974 to 1997, Mr. Gladstone held positions including chairman and CEO, with Allied Capital Corporation (NYSE: ALD), Allied Capital Corporation II, Allied Capital Lending Corporation and Allied Capital Advisors, Inc., a registered investment adviser that managed the Allied companies, the largest group of publicly-traded mezzanine debt funds in the U.S.
From 1991 to 1997, Mr. Gladstone served either as chairman or president of Allied Capital Commercial Corporation, a publicly-traded REIT. He managed the growth of Allied Capital Commercial from no assets at its IPO to $385 million in assets at its merger into Allied Capital Corporation in 1997. Mr. Gladstone holds an MBA from the Harvard Business School, an MA from American University and a BA from the University of Virginia.
The Gladstone Companies (the parent company of the Adviser) and its family of funds have four current offerings in the non-traded market:
- Gladstone Land: $500 million 6.0% Series C Cumulative Redeemable Preferred Stock Offering
- Gladstone Commercial: $500 million 6.0% Series F Cumulative Redeemable Preferred Stock Offering
- Gladstone Investment: $350 million 6.0% Notes due 2040 Offering
- The Gladstone Companies: $50 million 7.0% Senior Secured Bond Offering
You seem to be very busy during this pandemic with four nontraded offerings in the marketplace. Is now a good time to raise and deploy capital?
Yes, we currently have four offerings, including a Reg A+ offering for The Gladstone Companies, the holding company for the adviser, one nontraded preferred offering for each of Gladstone Land (which is a farmland REIT focused on owning and leasing farmland that produces healthy crops, such as fruits, nuts, vegetables) and Gladstone Commercial (an industrial and office REIT), and a nontraded notes offering for Gladstone Investment (a buy-out business development company (“BDC”)).
The adviser advises our four publicly-traded funds, which are all permanent capital vehicles. As a result, we regularly have needs for additional capital to fund growth. Despite the economic conditions created by the pandemic lockdowns, our funds’ deal teams continue to actively seek out new assets and companies in which to invest.
I read a statistic the other day that 10,000 people in the U.S. retire each day. These retirees need diversification and income. Our focus at Gladstone is to try to provide those investors and our shareholders with diversification and income by giving them access to the farmland, industrial/office, corporate credit and private equity sectors.
You have two non-traded preferred offerings in the marketplace and a long history with preferred stock offerings. Advisors and investors seem to like this structure. What is it about the preferred stock offerings, from your standpoint, that make business sense for Gladstone?
We first raised money through the registered, nontraded market in 2013 via a senior common stock offering for Gladstone Commercial, our office and industrial REIT. Since then, we have seen many nontraded offerings in the market that seemed to burden the end investors with many fees and costs.
We decided that we liked the nontraded preferred structure because it allows the investor to invest 100 percent of their hard-earned dollars without incurring a load. That means all of their money is working for them as it relates to a return, because the fund pays the commissions and fees associated with their nontraded preferred stock investment.
We also like the nontraded market because it allows us to raise capital incrementally over time, versus a registered underwritten offering where a relatively larger amount of capital is raised overnight and then we have to deploy it quickly.
You created the first ever publicly-traded farmland REIT with Gladstone Land (Nasdaq: LAND). What led you to create this entity and why is it different than just investing in farm related entities?
I grew up on a farm in Virginia and have always had familiarity with various types of farming. When I had an opportunity to buy a large strawberry operation in California in 1997, my business partner and I bought Coastal Berry Company from Monsanto. I subsequently sold the operating business to Dole in 2004 but continued to own the land and this is where the buy-and-lease strategy we currently use for Gladstone Land came about.
With our buy-and-lease strategy we typically target fruits, nuts and vegetables farms. We like these over commodity crops, like corn and wheat, because the price of grains is so volatile, and it can be hard to judge whether a farmer is going to make any money. There is greater stability of pricing with our target crops and, as the landlords, we like that and so do our farmers.
Given the pandemic, how are farmland and other investments able weather these day-to-day disruptions?
The pandemic has been humbling to everyone on the map. We are fortunate that our investments have been resilient through all of this. For Gladstone Land, as mentioned, we target crops such as fruits, nuts and vegetables – all items that are sold in the produce section of grocery stores. Since our farmer-tenants sell primarily through the grocery store channel, we have not seen supply chain issues like those that sell to restaurants and hospitality industries.
We also have not been impacted by the fires that have been ravaging the western United States. Our commercial REIT portfolio (in Gladstone Commercial) has had a 95 percent or greater occupancy rate through mid-September 2020 and is principally focused on industrial versus office properties. Despite the COVID-19 lockdowns, we have experienced at least 98 percent monthly rent collections dating back to April 2020.
I think this nice performance can partly be attributed to our stringent underwriting criteria that we put every single one of our leases through, prior to approving an investment. Since each of our funds is a publicly-listed entity, their management teams have been providing pandemic updates on a periodic basis to their shareholders.
You were one of the early adopters of business development companies, heading Allied Capital, one of the largest BDCs. Is corporate credit a sound investment right now? What should advisors and investors understand about the benefits of credit to an investment portfolio?
Well, markets do change often and one of the key benefits with most, and you should be sure to check before you invest, is the security of the underlying assets in any portfolio and the historical performance of the fund. We focus on providing monthly income to our investors, and to do that consistently over time, our funds need to make sound income-producing investments. They can’t do that if we haven’t made investment choices based on sound credit analysis.
We underwrite each prospective portfolio company, tenant and property through a very diligent and consistent process with our investment committees. Although most of our investments are in unrated entities, we assign internal credit ratings much as a public ratings agency would do. I’d like to think we’ve been successful throughout the years, and in good and bad markets, at least partly due to our investment diligence.
Before we exit, your goal has always seemed to allow investors to have a clear exit strategy within your offerings. Given your penchant for listing companies, is listing the best approach for an investor versus just selling off the assets?
We run each of our funds as going concerns with the goal of continuing to build on the asset bases we have in each fund. Of course, we have opportunistically sold assets at times throughout the years, but our primary goal is not to exit via asset sales. As publicly-traded permanent capital vehicles, our goal is to maximize shareholder value, and we believe we have achieved that through growing our assets, as opposed to selling our assets. Listing our non-traded preferred offerings allows us to maintain our capital base and continue to grow our assets, and it also allows each shareholder to make the decision when he/she would like to exit their investment.
So ultimately, two of our goals are to pay regular dividends and provide shareholders with liquidity for their stock.
About Timbrel Capital
Timbrel Capital, LLC, member FINRA/SIPC, offers consultative, distribution, and managing broker-dealer services to alternative investment product sponsors with the mission of efficiently and effectively aligning innovative and high-caliber retail alternative investment solutions with RIA firms, independent BDs, and their affiliated financial advisors. Timbrel Capital executes on this mission by partnering with both newly formed and well-established retail alternative product sponsors to provide a comprehensive array of services that support each stage of the product sales cycle. For more information, please visit www.timbrel.com.
Timbrel Capital is the distributor and national accounts manager for the Gladstone Investment Notes offering, Gladstone Land Series C offering and Gladstone Commercial Series F offering. Timbrel is not affiliated with Gladstone Securities, Inc. or Gladstone Investment Corporation, Gladstone Land Corporation and Gladstone Commercial Corporation.
Timbrel Capital is the managing broker dealer, national accounts manager and distributor for The Gladstone Companies 7.0% Senior Secured Bonds Reg A+ offering.
Gladstone is a sponsor of The DI Wire, and the interview was published as part of their standard directory sponsorship package.