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?
David Gladstone: Probably got a hold of all of their cost and recharge the way that they doing things, the difficulty in selling to who we sell to, which is the grocery stores, that’s where they most of our products end up. In 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 Safeways and others are doing, we’d be better off it. It all changes once. Once the grocery stores realize that they need us more than anybody else almost because they got a 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 stopped paying or ask us to accrue something and not get paid cash for it. We are 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. This has happened I remember Rogers 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 think that in a year there will be refinancing things down to a lower rate. And as 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 as it gets tight every now and then people go through those problems. One of our situations is, the farmer died. So 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, we are probably find somebody else to take over that farm, if she wants to do that. I’m just afraid she’ll get so deep. And so we’ve been trying to work with her.
There isn’t one thing that’s going to fix everything other than interest rates 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 could 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. And 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 zero, 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 it didn’t have water today. In California, we may drill down 1,000 people to get to water, or we’re banking our 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 of 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 bank for the next 2 years. I’d say this year that’s coming up the one in summer of 2024. We are in extremely good shape on that. It’ll go down as we use the water. And hopefully we don’t have to use any water, that would just mean that we are in better shape going forward.
I don’t know, like it’s hard to figure out this business because we are like the weatherman that you listen to on TV, he has got a 50-50 chance of calling it right. And that’s about what we have. But on the long-term, we do well.
Mike Albanese: Certainly, there is 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 from me, I want to go back to I guess pricing particularly on like blueberries, on the strawberries, things like that. I mean you have got there 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 groceries just kind of hold the cards there as a consumer driven, what have you seen in the past?
David Gladstone: The grocery stores got to have the produce. And as long as there is produce at a lower price, they are going to go with the lower price ones unless you are a high-end grocery store, and then you are going to want the best berries that you can get, and you are willing to pay for them. For us right now, I think we are 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 will pay up. But they are – grocery stores are making money today. And they probably always will, because people got to eat. And so as a result, the grocery stores will be places that they go. We are not in the places that are difficult to defend. And that would be like, for example, some of the places that people buy groceries in the smaller stores and also the one-off places, you can get good pricing if you go to the right grocery stores.
And there is one thing that all of our people realize is that if you say, you are going to be there for the grocery store, strawberries on Monday, and people go shopping, you better be there, because they are depending on you. They don’t have any spare strawberries in the back, or anything else. So, as a result, there is a symbiotic relationship between the two groups, and they will be fine and we will be fine. And our farmers all know these grocers. I remember when I had a farm out there, and we would entertain the people from Kroger or Safeway. And we couldn’t do much in the way of the 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 cap the products that we are making.
And we have got 60 products, and most of them are in front of the store where the produce section is. And so as a result, those are fast moving, and they have got to be fast moving, because you have got a limited time to keep a strawberry on the shelf or a salad on the shelf. And so as a result, we will be fine, people are going to want food, and they are 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 am 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 are growing strawberries in Michigan, you are going to get a good – you got a good price last year, all of 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 with the amount of strawberries coming out of Michigan are going to be next year.
Mike Albanese: Got it. Thank you very much.
David Gladstone: Any other questions?
Mike Albanese: Yes, that was really very helpful context, much appreciated. My last question here, this is really geared towards Lewis. Just regarding NAV, excuse me, the NAV increase, I mean just drivers, I mean is this more so on property pricing and what kind of changes in the cap stack that there are rates, or I should say, valuation techniques with the balance sheet items that are driving the increase in NAV.
Lewis Parrish: 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 of the Series C, once we listed that. Previously, we had valued it based on a waterfall approach, so held it at par $25. Once it got listed, its mark-to-market based on its closing stock pricing is, as you know, they have been trading in the $17 and $18 range compared to the par value of $25. So, that’s been the bulk of it. And there is – there are components that 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 preferred.
