Q3 2019 Earnings Call

Good day and welcome to the farmland partners Inc. third quarter 2019 earnings conference call and webcast.

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I would now let's turn the conference over to Mr., Paul Pittman, Chairman and CEO . Please go ahead.

Thank you.

Good morning, and welcome to farmland partners third quarter 2019 earnings conference call and web cast.

Thank you taking the time to during the school days calls, we see them as a very important opportunity to share with you are thinking and strategy.

Please refer to the Investor Relations section of our website at farmland partners Dot Com for Q3 supplemental package, which we will be speaking to during the call. The links to the presentation is directly below the webcast link and it's also posted under presentations section.

The Investor relations portion of our website.

With me this morning as lucrative robbery, the company's Chief Financial Officer, I will now turn over to coal to linger for some customary and preliminary remarks.

Thank you Bohlen. Thank you all who are listening to these webcast libel recorded.

Press release announcing our third quarter earnings was distributed yesterday evening everyone.

A replay of this call will be available shortly after the conclusion of the goal through December 620 19.

Numbers to access the replay are provided in the earnings press release for those who we sent to the rebroadcast of this presentation. We remind you that the remarks made hearing autos are as of today November 12, 2019 and have not been updated subsequent to the initial earnings call.

During this call will make forward looking statements, including statements related to the future performance of our portfolio I, what I didn't see five and potential acquisitions and dispositions.

Positions these positions in financing activities as well as comments about our outlook for our business rights and the brother agricultural markets.

We will also discuss certain non-GAAP financial measures, including net operating income.

Adjusted EBITDA.

He'd be debris and adjusted EBITDA free definitions of these non-GAAP measures as well as reconciliations to the most comparable GAAP measures, including the company's press release announcing third quarter earnings which is available on our website www Dot pharma partners Dot com and use furnished as an exhibit dollar current report on form eight.

Hey, they didn't November 12 2019.

Listeners are cautioned that these statements are subject to certain risks and uncertainties many of which are difficult to predict and generally beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations and we advise listeners to review the risk factors discussed in our press release yesterday after market close.

Documents, we filed with or furnished to yes, you see.

I'd now like to turn the call back to our chairman and CEO Puppy Bowl.

Thank you [noise] Luca.

Hi, Mike a few comments about the corridor, which was obviously disappointing when you're looking at the financial statistics for the quarter and the nine months in my prepared comments I'm going to be speaking.

Mostly about the nine month results because as we've said many times quarterly results in particular.

A lot of noise due to timing.

That is still true up nine month results in our business, but less so.

At a high level, our results were affected by a variety of industry wide and factors and in particular some company specific factors.

If you looked at the nine month revenues for example.

We saw a significant decline in revenue, which is largely explained by four separate items the timing of crop sales.

And crop crop shares, especially in the citrus area, but also in other crops led to approximately 1.2 million dollar decline in revenues.

We had about a 1 million dollar decline in revenue due to the properties we have sold in the past.

About a half a million.

Decrease in revenues related to a tree nuts that is partly due to prices and volume that's on the volume side, especially due to the alternate bearing nature of the stocks yes.

And we also had about a half a million dollar reduction in tax reimbursements.

That was that is.

Because of the fact that in 2018, we had major reimbursements for one time supplemental property taxes paid by the tenants. This number will reimburse both and in in there now reimbursed by our tenants does affect our topline revenue number.

If you look on the operating income side. In addition to the you know looking at those numbers the decline in revenues of course flowed down through that part of the BNL.

But in addition, we had about 900000 of expenses related to increased operating costs all properties.

Partially related to the southeast Hurricane clean ups, which we mentioned about this time last year.

And those cleanups went on through most of this 2019 year and the way we are accounting for some leased equipment in a particular farm operation in the southeastern United States.

About a 700000, a bit increased legal and accounting costs and around 830000.

Sure.

Cost of goods sold on some directly operated farms in particular in a blueberry lemons and avocados Oh products.

Then continuing on down the PML of course, we saw our net income affected by increased interest costs, but hopefully that trend has begun to a books for us.

So put in context.

You know as an agriculture industry, we are affected by the trade war by the weather.

The general trends in the industry and these things in this quarter happened the line up with <unk> with negative specific facts are related to our company.

I would put in the long term context, we still saw appreciation of our assets of approximately 2%.

We are quite pleased with in what is a challenging operating environment on all fronts.

So as I said a disappointing quarter.

But but from our perspective.

Quarter that is similar to the things I have seen in the past being in this business now for 20 plus years.

And hopefully we will see a turnaround, particularly.

In the general or a weather and climate related factors affecting our our crops and our profitability, but also in the trade war.

One small comment before I pass it back to Luca related to the rolled a fortune aid shortened the store attack on our company.

We have continued to pursue this and at this point, we have now scrubber male traffic between wrote a fortune they may and what we view our coconspirators.

Planning in advance to negatively.

Comments about our company and the <unk> and to manipulate our stock price and the profit.

From those short trades.

Particularly the short put options put on by the perpetrators of this market manipulation.

We will continue to pursue this until we see justice has been done in our view.

And we are.

Frustrated as can be but continue to be optimistic that the facts are gradually coming out.

And eventually the people that have caused this damage will be forced the pay at least some of that bill.

With that I'm going to turn it back over.

Toluca to walk through some key operating and financial highlights.

Thank you Paul So here are some quick financial highlights related to the quarter, especially between the third quarter of this year. We had total operating revenues of 9.8 million operating income of 3.2 million basic net loss to common stockholders of 15 cents per share and after forbearance.

<unk> negative six cents.

As compared to.

The same quarter of last year total operating revenues of 12.5 million operating income of 6.2 million basic net income to common stockholders of two cents and they hope a shade of two cents.

In these third quarter, we closed on a 1.1 million dollar sales record <unk> point 4 million dollar again.

In the quarter, we had relatively slower stock repurchase activity just away typically go low into Q3 of our cash flow from operations and the limit the number of Ah Ah sale transactions that we need.

Yet we need to repurchase.

One of the 40000 shares of common stock, resulting in a quarter in a fully diluted share count as of today of 51 million 982952 shares into what the we also repurchased 1900 shares of the cdis be preferred stock.

This concludes my remarks on our operating performance for the third quarter of 2019. Thank you for your time this morning, and getting thrusting farmland partners operator, we would like to begin the Q when a session.

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

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Our first question comes from Rob Stevenson with Janney.

Hi, Good morning, guys. Paul when you were talking about the the 1.2 billion dollar decline for the variable rent payments and somebody other stuff that was a nine month versus nine month comparison.

Correct.

Okay, and what was the litigation was that like 800000 is that what you said.

It's litigation, it's a legal and accounting the biggest piece of which would be wrote a fortune a related litigation, but also would be you know the new consulting surrounding socs that the company now occurs.

The number was Ah approximately a $675000.

Okay. All right. Thanks, that's helpful and then.

When you take a look at the yes, the stock price today I mean, you guys called one farm in a in the quarter made how are you guys thinking about it you know given the cap rate guidance do you guys provided the supplemental about you know accelerating dispositions and taking advantage of the common stock at sub $7.

Ours.

Oh, we we will.

We'll continue to Opportunistically repurchase our securities as we sell properties, but we're gonna be you know opportunistic on both sides, we want to what she'd good value for our properties.

And as long as we've got that cash available very good place to put it to work is the buyback our stock.

The third quarter is never a very active quarter in terms of farmland sales you know most of that quarter.

You know is is the heart of the growing season, and you know once farmers get him a field in kind of may the AG industry as a whole [noise] slows down in terms of transactions. So that tends to lead you know you'll get second quarter transactions done that were fundamentally.

We agreed to and negotiated in the first quarter.

But by the time you get to the third quarter you just don't have much activity and so that's part of what you're seeing in terms of the relatively lower amount of transaction activity on the sales side for the third quarter.

Okay, and then last one for me on that sort of timing of variable rent payment. The citrus another crops, leading to a 1.2 million nine month year over year decline I mean, how much of that is truly a timing issue, where you're going to get it either in the fourth quarter here or maybe the first quarter.

Her of 2020 versus you know just you know due to whatever circumstances, not getting you know not getting that at all versus just shifting a quarter or too.

I think you're going to I think you're going to see the bulk of it truly be driven by timing.

Although you know part of it is driven by.

Just a low price environment, a low volume of export environment driven by the trade War. So you know I think it's hard to say specifically until the numbers are really in but I you know I think.

This is not going to be an outstanding year for production agriculture in that to some degree shows up in our financials as well. Although you should see you know a significant amount of that kind of come back to us in the fourth quarter.

Although I frankly doubt, but do not know for sure that you'll see 100% of a come back to you.

Okay, I know I do have one more I will I got you I'm just in terms of what you guys are seeing on the ground main there's been a couple around of the Trump administration, providing you know billions of dollars of eight to farmers can you talk about what the sort of lag time is between when that stuff gets approved and when the Uh huh.

Farmers actually get that that aid in their hands. It because I think it seems like a lot of people are anticipating a lot of giveaways and 2020, a leading up to the election and so how quickly does that actually make a difference to the farmer a in terms of them being able to Ah Ah keep their heads above water.

Our AD or are you know provide a they necessary revenue do a replay at another sort of stuff.

Well so there's so there's a couple of different.

You know things going on where do you think about government payments as it relates to farmers.

Setting aside the conservation side of the of the equation looking only at payments related to production of food stuffs.

There really two big buckets. One is is the regular government a payment program, which are.

Today, and our what's called Arc and plc, they're two different programs, though based on.

The long term kinda pricing or trends for the various commodities those payments are have essentially a one year lag.

So when the fall up 19, you're actually getting the payment related to the 18 year in the fall of 20, you'll be getting a payment related to the 19 year. The reason for the lag is as I said, it's looked at.

On a long term.

Measurement of the pricing that a farm or could have achieved on those commodities a measure kind of through the entire marketing cycle, which is what drives a one year lag. The other program, which is the one that people refer to a related to the trade war specifically is.

M.S.P. I think it stands for market facilitation payments. So the M.S.P. program that was announced this summer.

As a series of payments or to farmers, who are farming the key affected commodities.

In terms of the you know the effect of the trade more.

Soybeans are courses is a large benefactor of that program is as well as other crops, but I think soybeans as the leading the leading crop in terms of those payments and it looks back at your historical production in your county.

Those crops and the pricing of those crops and makes an estimate of the loss you might have incurred due to the trade War and then there that is that payment for the 19 year is a three separate installments.

The first installment was announced in the summer in that payments already been made.

The second installment was recently announced and that payments supposed to be made in late November or early December and then the third installment no one knows for sure if that payment will in fact being made because the U.S.D.A. our reserves the right to the judge whether it's now.

Necessary and appropriate given the changes in the trade war. So I don't know if the third payment will ever be made these payments are or most farmers.

You know significant on a farm wide basis, but relatively modest on a per acre basis.

You know there there was certainly important to farmers, but not the primary driver profitability.

You know as far as authorizing another round of those during the 2020 year I frankly have no idea, whether that's likely to happen or not.

I hope that help guide.

Very helpful. Thank you thanks, guys.

Again, if you have a question. Please press Star then one.

Our next question comes from Marni, Georgia with Raymond James.

Hi, good morning, Thank so much for taking my question.

I guess, let's turn to the balance sheet, so obviously share buybacks and a priority, but you know what are your plans for some of that that that's maturing and Tony Tony.

[noise], Luke I'm going to turn it over to you.

I'm sure we di di led the financing the asset base the mortgage type financing market in agriculture, as we got as remain very very active if anything at the micro level. There's been we're seeing a significant going to inflow influx of capital to those specific that markets.

At this point in time, we've had some preliminary discussions are about the financing with a couple of lenders a we've had jet abroad general indications of interest to that they would like that kinda that kind of asset based.

Lending is still very very attractive, especially in these rate environment.

And at this point, we do not expect any issues in refinancing.

Great. That's good to hear thanks, so much I guess just in general you know when we think about the litigation against try to Fortune I do you think you know do you have any estimates for for any cost might be happening in Fourq. You do you think that you'll continue to incurred cost as you look I had to 2020.

Ah, Yes, I don't have any specific estimates on a quarter by quarter basis, but I wouldn't expect mr. continue to move forward as I indicated in my prepared comments.

We have at this point found the evidence that we believe and you know this is all in the public domain. If you'll have read the court filings you can see it weve found the evidence that clearly indicates this was an organized premeditated conspiracy on the part of the people who pulled it off.

We've also begun to found evidence that there are substantially well funded organizations behind it which gives us optimism of recovery.

And you know, we're still working our way through the courts system, which is you know frustratingly slow.

But you know that's the that's the system, we have been probably for all kinds of good reasons it moves slowly.

But yeah I would anticipate it's continuing to spend money on it from the 2020 year.

Okay, great. Thank you understood last question for me just do you have that you know any other comments that you could offer kind of on the status of straight tensions between the U.S. and China, obviously, we talked about sort of payments being made there, but you have any outlook you know as far as it relates to the ended the year next year, how that might affect your your number.

We got I mean, I, certainly don't have any insight into what they will get this settled a in a timely way I was you know optimistic I think as everyone may have been about space, one moving quickly and getting settled during the month in November looks like it may make leak over into.

To December so I don't really you'd have no anymore than anyone would you.

I read the newspapers like.

As far as the effect on our business you know it is a look this is not the best of times for production agriculture, what we're seeing in our business. Surprisingly is is there is actually more damage.

From the trade war in many many of the specialty crops.

Then there actually is in the green in the primary grains, which I will say was was even a bit of a surprise to me.

I think the reason for that is that the primary drains you know really are a human necessity and so we may not be selling as much grain to the Chinese government, but Brazil is selling a lot more and we're now selling to all the customers that Brazil used to have.

So it's it's certainly not positive for pricing in the U.S. on the primary grains, but you know I. It's a trade war goes on I think the farmers will as they have done in the last couple of years [noise].

Got a modest level of profitability and success in state and the large and most efficient bar moves will will stay above break even or at least on our cash flow basis, and you know it won't be a huge change you know we're seeing that trend.

In terms of our rent renewals were you able in many cases to get very modest increases in rental rate.

As we move you know roll leases over so that's that's kinda, we think it'll if it doesn't settle it'll just be more the same which isn't great. But also not a disaster on the on the exported specialty crops and the ones that are exported <unk> or at least in our universe primarily.

The tree nuts, there has been a relatively significant lessening of of demand.

Out of China for those products and that's had some impact on on pricing again, you know that will you know those crops are relatively small in terms of total dollar volume.

So when they turn the corner back to the positive there will probably turn pretty quickly.

And you know we're optimistic for that but I do think it it takes.

Settlement of the of the trade war to to turn that around the other Ritchie of course is since they are relatively small or crops. They haven't gotten the attention I'm of the U.S.D.A. in terms of additional market facilitation payments and things like that for those producers.

What's the lobby groups that represent those individual.

Products and crops are trying to solve.

But at least to date, they haven't gotten any of the.

The government support that the traditional row crop farmer has received.

Okay, that's great color I'll turn it back either.

This concludes our question answer session I would like to turn the conference back over to Mr., Paul Pittman for any closing remarks.

Thank you very much. Thank you all for joining US for this conference call 'em, We will continue to move forward as a company.

As I've said many times in the past our strategy continues to be to opportunistically sell assets and repurchase stock and to manage our cost structure. During this challenging you know AG economy.

But the fundamentals of our business or our sound and we will stay the course, thank you for your time.

The conference has now concluded. Thank you for attending today's presentation can you may now disconnect.