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Gladstone Land Reports Earnings for Q4 and 2019.

In case anyone has interest Gladstone Land (LAND) has reported earnings for the 4th quarter and year ending 12/31/2019.

The 10K can be read here.

I have an interest in this because of the term preferred shares currently outstanding (LANDP) which are trading at $25.71 right now. These shares have been callable since 2018 and will be redeemed 9/30/2021 (if not sooner).

mREIT Arbor Realty Trust Announces Earnings

Arbor Realty Trust (ABR) which has 3 high yield perpetual preferreds outstanding announced earnings on 2/14/2020.

With earnings that generally are pretty good, one has to wonder how long 3 issues of perpetual preferreds can remain outstanding–in particular one with a 8.50% coupon (ABR-C). Shares are all trading very strong with the ABR-C issue trading at $26.52–and it just went ex-dividend for 53 cents.

The earnings release can be read here.

Ag Coop CHS Reports Softening Earnings

While personally I am not worried about the longer term performance of giant Ag Coop CHS (untraded), but the short term outlook remains dicey.

CHS has just filed their earnings for the quarter ending 11/30/2019 and there isn’t a sector that they operate in that is showing strength.

Obviously the agriculture sector has been hammered pretty good and to derive a hefty chunk of revenue from this area makes for dicey earnings. The coop reported a pretax loss in the ag segment of $13.9 million compared to the year ago report of a pretax profit of $80.3 million.

The coop has been propped up in recent quarters with stellar energy segment earnings, but these are now softening with pretax earnings of $162 compared to a year ago pretax profit of $232 million.

Earnings in their smaller segments of grain milling and nitrogen production also fell.

With all the above in mind I note that the company had a total net profit for the quarter of $177 million–which is a decent chunk of change, but it pales as compared to the year ago number of $347 million.

I like to look at depreciation (a non cash charge against earnings) to see what type of free cash they generate and they show $136 million in depreciation which when added to $177 million means they had free cash generation of $310 million (just a quicky look at cash generation and not meant to be a total look at cash flows).

As you all know CHS has 5 issues of perpetual preferreds outstanding which can be seen here. Quarterly dividends on the preferreds are about $42 million–so dividends are not now–and won’t likely be affected by the downward trend in earnings.

The preferred stock issue have not reacted whatsoever to the earnings which is no surprise as they seem to always trade strongly.

The earnings release from the company can be read here.

The SEC 10Q can be read here.

Thanks to Affinity4Investing for being right on top of this earnings release.

A Quick Look at Giant Cooperative CHS

Ag cooperative giant CHS (Cenex Harvest States) has now turned into a oil refining company masquerading as a ag company.

CHS was a darling of mine many years ago so I thought I should check in with them because of the 5 preferred issues they have outstanding.

CHS preferreds have always been good to investors–with coupons much higher than comparable corporations would offer.

Some may remember–and some may not know this–that the 1st issue from CHS was issued primarily to cooperative members way back in 2003–it was a whopping 8% coupon (CHSCP), which became redeemable in 2008. In 2013 the company changed the terms of the issue so that it would not be redeemable until 2023. During the years of 2003-2008 the company issued another 9 million (more or less) of these shares–even though they could have garnered a lower coupon–the ownership remained strongly in the hands of many of their members, thus it always remained a strongly traded issue and I have always surmised that the optional redemption period on this issue was extended simply as a bit of a concession to the members/owners.

After this initial issue (in 2013, 2015 and 2015) the company began to sell new issues of preferred stock–primarily to build a massive fertilizer plan in North Dakota. The new facility was never built and instead the company invested proceeds in giant fertilizer company CF Industries (CF)–quite honestly this investment has not provided much in the way of profits until recently.

So what is the company doing lately in this absolutely horrible ag economy? Actually they are making quite a bunch of money–but little of the profit comes from the ag end of the business.

The cooperative had net income of $819 million for the year ending 8/31/2019–$618 million was generated from the 2 refineries they own as well as 1,450 retail outlets. Ag contributed a measly $43 million of net income (off revenue of $24 billion), while the nitrogen investment in CF Industries kicked in $73 million. Investments in Ardent Mills (the nations largest flour miller–a venture with Cargill and and ConAgra) and Ventura Foods contributed $81 million.

So while the lions share of revenue comes from the ag segment it produces almost no profits right now.

The total revenues the company has produced during the last 3 years have all been in the $31-$32 billion area which actually is pretty respectable for operating in the ag segment of the economy. Of course, if you go further back you will see they had revenue of $44 billion at the peak for the year ending 8/31/2013. Energy has always been a pretty large chunk of earnings for the company–so right now the prime difference is the lack of contribution from the ag business.–now if this was a publicly owned company shareholders would be pounding the table to get rid of the ag business. Obviously this won’t happen.

So as a whole the company is performing well. Unfortunately energy at some point will perform poorly and one can only hope that the ag economy has straightened out by then. Looking further at the company’s debt situation–I always look closely at the debt–things look good. Most companies can perform relatively well–even in a recession, if their debt is under control. In this respect CHS runs a pretty tight ship. They have $1.8 billion in long term debt and $2.2 billion of notes outstanding–a total of $4 billion in debt against $16 billion in assets. Equity is around $8.6 billion. Interest rates on the debt run from 2.25% to 5.40%–the debt is all unsecured. So debt is really a small consideration for the coop.

The company’s 10-K filing for the year can be seen here.

Now going back to the preferred stock–

CHSCP, 8% perpetual is currently trading at $28.15 and is optionally redeemable starting 7/2023.

CHSCO, 7.875% perpetual is currently trading at $27.60 and is optionally redeemable starting 9/2023.

CHSCN 7.10% reset rate perpetual is currently trading at $27.83 and is optionally redeemable starting in 3/2024.

CHSCM 6.75% reset rate perpetual is currently trading at $26.40 and is optionally redeemable starting 9/2024.

CHSCL 7.50% perpetual is currently trading at $27.38 and is optionally redeemable staring 2/2025.

So as a new buyer (I haven’t had shares for a long time) these issues don’t look too attractive on a yield to worst basis. On the other hand knowing that the air won’t come out of the price until maybe 12 months before possible redemption and having 3.5 to 5 years before potential redemption maybe a tiny buy is in order?

Do I really like CHS enough to buy the CHSCL 7.50% issue at a current yield of 6.85%–and a yield to worst of 5-5.25%? I doubt it.