Q1 2020 Earnings Call
[music].
Good afternoon, My welcome to the form one partner incorporated first quarter 2020 earnings conference call, all participants will be a little bit.
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Now I'd like to turn the conference over to Paul <unk>, Chairman and Chief Executive Officer. Please go ahead.
Thank you good morning, and welcome to farmland partners first quarter 2020, <unk> earnings call and webcast. We appreciate you taking the time to join US. During these highly unusual times take your and we're a little more about our company.
And the performance during the first quarter.
Before I turn it over to my colleague, we could probably four customary remarks, we do wish you and your family as well and hope you are.
The unsafe during all of this yeah, there's very very unusual times.
With that we'd go well you began with the standard comments that you Mike.
Yes, I think Q2, Oh, we think it is webcast libel record that.
The press release announcing our first quarter earnings was distributed yesterday evening, a replay of this call will be available. Shortly after the conclusion of the coal will make what did you say can play twice.
Numbers to access the replay are provided in todays earnings press release.
That's what leasing the rebroadcast of this presentation, we remind you that the remarks made here I mean do they may eight twentytwenty and have not been up did that subsequent to the initial earnings call.
During the cold we will make forward looking statements, including statements related to the future performance award portfolio or identified and potential acquisitions and dispositions.
With each of this deletions from financing activities. It's one of his comments and our outlook for our business right and the border agricultural markets.
We will also discuss certain non-GAAP financial measures, including net operating income.
So adjusted EPS at school eat I read an adjusted EBITDA every definitions of these non-GAAP measures as well as we call information the most comparable GAAP measures, including the company's press release announcing first quarter earnings which is available on our website www dot problem on their so called.
Just furnished as an exhibit four current report on form 8-K, they did as of yesterday. They may 7th when do you play.
Listeners are cautioned that these didn't like the subject to certain risks and uncertainties.
Which are difficult to predict and generally beyond our control.
These risks and uncertainties can cause actual results could differ materially from our current expectation by at least and they're still reviewed the risk factors discussed in our press release yesterday after market close.
Documents, we have filed with or furnished to the FCC or in the case over the Q, we are about to file.
Well no liked to turn the call back door, Truman feel well be month old.
Thank you will go.
So I'm going to make sort of five broad comments.
My presentation today, so what we're going to start with is kind of that elaboration all the effect of who bid 19.
On our business.
So the punch line is that we have not seen to date.
Very much negative.
Due to cope with 19.
We're certainly happy about that.
However, we can't imagine given the economic harm to the nation as a whole we will not eventually see some negative result, due to things related to.
To the Corona virus, but happy to report that that is not.
Occurred at least not yet.
If you look at town in the business and done to how we are operating first before discussing sort of how we're performing.
Individual for managers in the various regions are still out there doing their jobs seem the farms that we own.
We have largely you know reduce the amount of travel that was being done or new acquisitions or new ideas, but we are doing everything necessary to maintain the business in the business that we already have an end to check up on the farms that we already.
We know there were some tornadoes for example in certain parts of the country and we as is typical data.
Irrigation unit or so blown over these four managers have.
Done their job got right out there got on top of that got got those pivot back in operation or so we could sort of farmers could continue to the plant. Our tenants you know have done a very very good job getting older crop planted.
On a timely way and continue to do so so really not much of the disruption.
There.
Our cash collections.
This time in the year are essentially at exactly the same pace. They were at this time last year.
Which is why I said, we really just haven't seen.
Any pain, yet, although we are certainly worried that there maybe some in the future.
As far as our main office in Denver.
Oh, we had taken a step.
Well the city of Denver in the state of Colorado, generally ask offices to shut down.
To request that most of our employees a work from home are they have done that they've continued to go for you know at nearly sort of full potential even though you know not being in the office is obviously.
Disruptive and somewhat cumbersome we've continued to.
Effectively to form a functions, we need to do for FCC violins accounting.
And the like.
The.
You know the economic harm due to co Goodnight. She then the shot and associated shut down.
It is certainly going to be dee.
And we as I said, a few moments ago. It must have some impact on us as it does and all other businesses.
We do believe it since at the end of the day, we are a food production business that whatever impact we eventually suffer.
I don't be as severe as that suffered by many other industries.
You know places that we are concerned about.
The Steve in terms of the future.
Yeah, We you know the restaurant industry isn't complete turmoil.
We have some of our products that end up sold into the food service markets. We are usually not you know directly the involves but our tenants are.
So we're worried that if there could be some impact there Luckily that's just not a very big piece of our of our tenants overall business, but there is some exposure there.
The shutdowns of meat packing plant.
Is certainly worrying not because we directly have very much exposure.
The protein side.
But because obviously the meat packing and is the meat packing industry speeds backwards into that.
The the chicken cattle and hogs and we of course sell a great amount of grain or tenants do.
That is used for feed so there's some concern there probably the biggest area of concern though is the effect.
That does shut down or economic shutdown as had.
On ethanol demand.
You know ethanol demand at the end of the day is fundamentally a function of gasoline demand.
And you know, we're seeing spar reduced amounts of gasoline demand depressed oil prices and so forth and that you know will lessen corn demand.
You know, we think it will recover but but again it it's.
Certainly going to take some time.
So we do expect a medium term amounts of financial pain in our business at some point. This year I, just don't know exactly where it's going to come from and what it will look like.
But the big picture is that you know global food demand.
And demand for.
Her fiber and fuel will probably be largely unaffected.
In the long run by Cobot 19.
So we think that the long term.
Position of our business is very strong relative to other businesses.
And you know, we as I said anticipate some level of pain, but the that our company will fundamentally weathered the storm.
So turning to the second general topic I want to cover is just sort of how was the core.
Given that the beginning of told that 19 toward the end of that corridor.
It was a good but not great.
Order from a financial point of view.
You know we beat the numbers from the prior year and almost all cases, we feel pretty good about that.
You know we had an increase in revenues in the face of its frankly smaller portfolio. So all in all feel like the numbers are pretty good for the first quarter.
But you're not out outstanding.
During the third general topic.
Asset sales, we did not actually close any asset sales in the first quarter.
But we did close a sale of two assets since the end of the first quarter.
We have reported in our subsequent events section of our financial filings with total sales price of those two farms was $7.8 million.
The sales prices were approximately nine or 10% over what we had invested in those farms.
Oh, we have.
Uh Huh acquired one additional farm for about $880000 that adjoins another far more young as we've always said, we'll continue to add farms from time to time.
But you know when you look at the asset sales process. Since we began it now you know 18 months ago, or so or maybe even a little longer we've sold about $75 million of assets at approximately a 15% premium.
So what we invested in those assets.
We are quite comfortable with the valuations of our portfolio that we own good assets that have been appreciating.
And we just continue to prove that point with these asset sales the for.
General point I want to make is that we will continue to.
So farms and reduce debt and repurchase our securities.
In the coming quarters.
We will probably be a little cautious in terms of our liquidity management until the effect of the code that 19 and related shut downs.
Becomes more clear.
But we will generally to keep the course that we have followed.
And we'll continue to do so until we see our stock price recover.
To a point that is much closer to net asset value.
The point is that the litigation does continue we will continue to pursue.
Oh wrote Unfortunately, I'm I'm I'm sure that the strategy is that where else out.
That's not likely to happen, we will continue the course and eventually.
She is a fundamental justice for the company in the shareholders, we continue to uncover yet more evidence.
Relatively far reaching well back.
Financial fraud.
And we continue to we will continue to pursue that for the for the coming quarters.
With that I'm going to turn it back over to Luca.
To go through key operating and financial highlights let Luca.
Thank you Paul Inc. first quarter of Twentytwenty, we record the total revenues of about 11.7 million as compared to 10.9 million, maybe the first quarter of about 2019.
We had total body income of 5.3 million <unk> first quarter Twentytwenty versus 45.
The same quarter of a last year.
We recorded that basic net loss common stockholders.
<unk> nine cents per share versus a 10 cents per share a IND or what's important and last year.
Yes, if a share of negative one say versus negative, but he said the same quarter last year. So as bill indicated you know its oh no dramatic changes structurally during this quarter, what btwenty and incorporate 29 18, but just some slight improvement financial performance throughout.
Despite the fact frankly that we you suppose if some some assets.
[music].
Kind of getting one quick reminder of seasonality or financial performance.
The vast majority of our cost structure is really spread relatively evenly throughout the four quarters of year. The however, the in the first three quarters of the year, we substantially recognize.
For the most part just the pro rata portions of the fixed fixed right.
The fourth quarter has a huge amount typically are the speed of course, there's all the recognition of crop shift revenue and there are four or so we're probably going to be with these heavily skewed towards the fourth quarter. We don't expect that the seasonal structure to be fundamentally different easier versus.
Your years, especially the last couple of years.
Finally last comment I have using the first quarter, we repurchased about 425000 shares of common stock.
A 50000 shares of series B preferred.
After the quarter and we purchase it further about 50000 shares of series B preferred.
Currently the fully diluted share count is 51 million sitting under 69007 under the Nike do.
So what is going up Oh.
Comment initially I hope that the all of you your schemes and their families I believe wells going to be is unprecedented times other than that I don't have any further comments operator, we would like to begin to question answer session.
We will now be getting the question answer session.
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My first question will come from Craig Kucera with B. Riley FBR. Please god.
Yeah, Hey, good morning, guys.
I mean your 10-K, you noted that you had a couple of debt maturities coming up in June and July totaling about $48 million can you give us an update on sort of where you stand with your lenders.
You know says or sort of on the horizon here.
Lukas you want to take that question. Please.
Sure Interestingly. These is [laughter] actually was the a it's a shift from something which we had.
Or the summing up from the logistics of be shut down all or ignore especially travel restrictions related to probably thinking we are we have been working with one or one existing lenders do we find out those maturities coming.
I mean do enjoy in July however, because of some of the restrictions we are they couldn't afford unskilled from feel good diligence in a timely fashion.
We work with farmer Mac to actually extend those maturities from June and July 20, Duane due October 31, Twentytwenty can you give us plenty of time to Oh.
I will finish for the our refinancing lenders to finish up to finish their feel due diligence I just want to know that we were very grateful to a farmer Mac for working very very efficiently with us equal bleeding is a extension there based on that was Russia.
Got it so we we shouldn't anticipate you selling those assets that you are going to try to get the refinanced here in the fourth quarter correct.
No that's not the plan currently is that just continue working diligently with our refinancing legacy just finish it get agents and just to be financed these expedition.
Okay, and you know policy, if we do see some of the medium term you know declining demand, whether it's tied to ethanol or a you know some of the.
She is related to meat packing do you anticipate that there may be more opportunities on the on the lending side. You guys are you sort of pulled back from that business and haven't seen a lot of opportunities.
Over the last several years, but are you starting to see that is maybe being more of a growth potential.
There are there are many good blending opportunities available to our company, but we have essentially paths them up.
We have passed them up because that criminal enterprise run by road. Unfortunately as cost this company an immense amount of money.
And I just you know we're not going to.
We're not going to expose them in the biggest damages what borrower.
He wants to get pulled through the mud.
By an anonymous stocks fraudster related to alone they took from our company.
This is very difficult these are incredibly good alone.
Ratably high profitability for shareholders and we're just not doing it.
And I know until we.
Well, we get this litigation behind US we won't do very much of it. So it's really unfortunate, but I think there is opportunity, but not likely to be something we expand into.
This function.
Got it and one more for me.
I I think I caught that your cash collections or at least in April were pretty much in line with what sort of historical norms, but.
Did you make any comments on may and those been sort of in line as well.
Yes, so basically the the comment that I made just to clarify was that if you looked at cash collections up to this point in the year you know when I say this point a few days ago of course, we're not up to the second.
We were at a at basically you know two to the Penny almost the same amount of collections in the first you know for months and a week.
This year as we had last year and that is in the context of what's been somewhat shrinking portfolio because of asset sales. So we're really in the same place you know we would assume you know every every given month can have a little ups and downs.
But we watch this sort of.
Cash collection as a little bit of them early warning of fundamental or you know difficulties that we might experience in the business and we're tracking quite closely.
And so were you know we're we're.
Cautiously optimistic that.
That you know our business is going to avoid a lot of the troubles.
The other businesses experienced although as I said.
You know this this has become a detrimental enough national economic crisis.
I like that I can't imagine, we get out of it completely on scale, but so far we're sitting pretty safe.
Okay. That's it for me thank you.
Again, if you'd like to ask your question it as Star then one.
Star then one to ask the question.
Our next question will come from Charles offsetting with Raymond James. Please go ahead.
Hey, guys John Paul on for Kolon I'm, just wanted to ask clearly you a its youve completed two destination, thus far in the quarter just wanted to check and see if there's anything else under contract for the rest of the Q and then also just wanted to see if there's been any fallout in your pipeline given the pandemic.
So we don't report things just under contract, where we're pretty disciplined about only reporting closed transactions, but you know we <unk> I would expect to be ended the second quarter that we will have a some additional sales to announce.
Whether the closings of but have you know occurred during the quarter, you know, meaning prior to July 1st or in the month or so after that quarter before we actually report I don't know, but but you know we're always in the market.
You know <unk> asset sales is always a little bit of an episodic set of or other events, but I would anticipate some continued asset sales.
As far as any that we add under you know kind of on the contractor in place no we haven't.
Yeah. This yeah, we just haven't seen anybody you know cancel a transaction or anything you know as Luca referred to when the on the question about our debt.
You know the agriculture industry broadly defined.
It is.
Yes, it's just stable I mean I you know we lived through I certainly lived through as a private investor.
Oh, no Oh wait only nine sort of financial crisis.
And whether its lenders suppliers farmers themselves landowners like us.
Its an industry thankfully that people must find a way to kinda muddle through and keep getting the job done.
You know in a way that kind of keeps food on the table it almost sounds trite, but its but it's true and so you know this is a.
Like I like I keep saying I can't imagine, we don't suffered something at some point this year from.
From this disruption.
But it's an industry overall.
I keep producing food.
So.
Long winded answer, but but I hope that helps.
Got it appreciate the color and you talked about values, but just to kind of clarifier dig dig a little deeper <unk> has there been any noticeable slowdown in transaction volumes just across the industry on in terms of farmland.
No no in fact in fact, there was a bit of in my sense is there's a bit of a flight to quality.
Going on you know that <unk> gold and things like that there's also people that say.
A safe hard asset with a albeit modest return and long term appreciation potential is a good place to place money.
And I think that trend will continue.
Most of the private vehicles are out there have continued to see inflows of money private vehicles that you know acquire farmland and wasn't money that capitals being placed farmers themselves are continuing to buy.
And you know certainly people a month ago month, and a half ago experienced you know.
Why.
Having a portion of the portfolio in hard assets like farmland is a good idea.
Because you know them the regular market does that a lot of volatility and farmland has quite a bit less.
Got it okay. Good color there and then just a last last quick one any appetite for share repurchases.
Some of that's crazy.
Oh, Yeah, we always we always take us a substantial portion of the proceeds and brought back into share repurchases and as I said, we will continue to do that.
With that probably a little more cost and then we might have had in terms of managing our cash balances are because we are a you know we are suspicious that something something negative could happen do us during this year.
Got it thank you I'll turn it over.
Thank you.
Our next question will come from Mark well, there was a private investor. Please go ahead.
Hey, guys couple of questions <unk>, what is the loss of $86000 on disposition of assets for the first quarter I didn't see any dispositions hubs kind of wonder what that was on the.
<unk>.
Well go I'm not sure I know the answer to that do you know.
Yeah of course, we are just a took some bites in them.
[noise] one great fund that we have in California, we just to come out just to meet what kind of bring them to I, but I guess all that is more economically from the market.
Fair enough and those what thanks bye.
Not fully depreciated yet.
Okay.
And then not can you comment on the current state of farm financing refinancing I mean, but library now under 50 basis points kind of curious what once you guys think and how you guys look at that a market now in terms of refinancing stuff and then obviously financing.
Refinancing the current Oh debt, that's due that you've got extension on.
Yeah, well, let me give a general answer and then Luca you can add to it if you would like.
So you know generally what we're seeing is a declining interest rates of our overall portfolio. A you know weighted average interest rate on the on the 510 or 12 million of debt that we have is gradually creeping down there is a substantial portion about debt that is fixed and so it won't.
Continue you know won't go down, but a great deal of it is there adjustable pretty rapidly quarterly or monthly.
And then another bunch of it as adjustable once every three years or so in some of that is rolling over this year. So we're seeing a gradual decline in interest rates. You know, we may do some level of refinancing of fixed.
A rate debt, although by the time you start looking at the penalties on the other friction costs related to that not clear or whether that you know makes any sense and you know a lot of those are very pretty good rates and relatively long term pieces of that so not not sure we want to make a bunch changes.
To that portion of but of the borrowings a Luca you may want to expand but I'll, let you do it on some of what we did with the swap.
Sure.
With Rabo, because it's very fact specific so I'll, let you do it.
Of course, so we have house all a a piece of that that we had with rabobank that we had to swap from LIBOR two way fixed rate.
We would actually able to blend and extend that swap extended by three years ever you seem to rate from 4.7 per se, but equally approximately 3.8%. So in that regard we took advantage of that rate reduction a nice full effect you know we have some some are kinda rate reduction going.
Who oh.
Got a portion of our that portfolio.
Historically, the first quarter.
It's trending down did not reflect a whole lot just because of mechanics of how the like what adjusted and how the.
Rates were said, but I like the name that usually quite being a whole lot of basically the first quarter necessarily but we expect some of that benefit to show up.
Beginning the second quarter.
Okay, and then I is the state of you know farm financing is it is a healthy I mean, obviously some areas like commercial real estate in this country, obviously aren't doing as well on so you get you look in a good terms you can get for the refinancing that you're doing now I mean, how that look.
In General Oh, Yeah, I mean, the far the farm.
That's the problem with farm Refinancings is <unk> is not sort of a market itself, but the reason we ended up delaying the refinancing of the $48 million of debt.
Is that the physical mechanics of appraisals due diligence travel.
You know many of these lending institutions tend to be very large companies and they have done you know appropriately. So what all large companies have done which is essentially put all the essentially but travel bans almost in place on their employees, maybe not entirely banning travel, but nearly so and so it just massively slow.
It was down.
You know in that and that refinancing or have a 48 million or so I can't even hazard a guess, but there's probably.
Maybe 30, 40, 50 separate farms and they're spread across multiple states and so just just slows it down but the markets are open you know these smaller transactions, where we sold properties that I talked about.
The buyers there you know in most cases put a debt on those farms or when they bought them from us.
And you know those closings occurred on the day there were scheduled to occur on or you know give or take 48 hours. They close like a normal real estate transaction and the title companies about lenders everybody just kind of figured out of work around.
And I think you'll continue to see that it's only that those workarounds are.
Cumbersome when a you know when when you're dealing with lots of different properties and a lot of different geographic locations, but it will still get done as much as my general deal.
Great. Thanks, a lot guys appreciate it.
Thank you. Our next question will come from Alex handle it was also a private investor. Please go ahead.
Well thanks for taking the question I'm curious what the upside it looks like if you prevail in the law suit for me as a as as a shareholder are you looking to get cash into the company and then would you use it for repurchase or is this one of these things where as a shareholder.
I'd have to fill out lengthy forms to send to the lawyers and then the lawyers will take their cut and I'll get a few pennies down the road if I'm Lucky.
No the.
<unk> <unk> so what we're trying to accomplish is the recovery of.
And just enrichment on the part of the stock fraudsters that I referred to earlier.
And that money will come into the coffers of the company can be used you know for general corporate purposes, whether that's repay debt buyback securities or or whatever.
There wouldn't be up you know the benefit to our shareholders will be you know through the company's overall.
Gains from winning these lawsuits you it's not a case, where you got to fill out you know a bunch of forms are all that kind of stuff that's the.
Yeah. It said that that's just not how it will work here. We do you know X. I mean, we have clearly discovered.
Evidence I mean I mean this this is a shocking part here that that it's your shareholder in a public company you should be tell on your congressmen and your senator or anybody you can get the lesson.
The we've absolutely discovered the evidence of a direct conspiracy to Twog the market, we've got chapter and verse, we've got the trading history. When we've got the activity we've got the.
Article with all the misleading statements. It's it's all like a road map.
We are actually fighting about whether you tend to fraud, the public markets and stand behind first Amendment protection when you do it.
That's what this loss it's about it's it's stunning [laughter]. The you know yours made some bad about me as a CEO or the management team or whatever you know, we got to be thick skinned where public weren't up in the public guy.
But when you say that.
For the purpose of crashing the stocks or you can exit the put position that you have bought a few days earlier, that's just a crime. It's not that first amendment, it's ridiculous and.
And that's why we're just not going to get up we found the evidence somebody made a lot of money off of all of our shareholders who failed that day.
Hey, it really hurt the company.
We're going to allowing us to ground.
Great. Thank you.
Thank you.
Our next question will come from John Judy who is also a private investor. Please go ahead.
Yeah, I wanted to give an update on that that class action lawsuit that was negotiated while back I'm, sorry, I knew about God send dismissed or is that still ongoing.
The class action lawsuit and I've got a Eric our general Counsel was on the line should come off a mute because I may ask you to help with this one.
Eric Bornstein, its own entries or general counsel, but but the high level is that that lawsuit is still out there.
The one of the lead plaintiffs in that lawsuit.
Dropped out of the lawsuit.
We believe they dropped out because they realize done we've got kind of email traffic that makes that clear that we hadn't done anything wrong as a company. So that lawsuit is now being sort of maintained and promoted.
By a couple of.
Heinz shareholders. A you know few hundred if not a few thousand shares at most and fundamentally driven by the contingency lawyers, who are trying to.
Enriched for themselves at the expense of but other participants in the market.
So that lawsuit still out there it's not moving very fast it's Erika you want to add a comment or too about the.
Zach status or that would be helpful. You hit on that's all I've, it's pending it really hasn't been any any major <unk> other than what you just mentioned as far as.
Plaintiffs dropping out on that right now its pending on the.
The replacement another plane tech so everything is.
I think.
Good.
I just had a just a follow up I just.
Curious why you're never going anymore.
Sure I went to pricing.
No value the stock is compared to what the value. They assets are why you're not maybe being more aggressive as far as dispositions to buy back stock seems like a <unk>. They actually created a great opportunity for you.
If you're actually buying farmland for what 60 70 cents on a dollar what you're saying it was worth there. So I just seemed like it makes sense to to be more aggressive in that area.
Yeah, you you I mean, we are we always try to be a little bit aggressive, but you know these are very very thin.
Markets and when I talk about a market that's not a national market. It's you know every county in the United States would be its own market, essentially and it's probably even smaller than that.
And so you know if you want to be aggressive and you know, let's just say I wanted to sell $250 million a property.
You know what you've done that is less than the list of potential buyers.
Very short list a you know no we used to be one of the major participants as a buyer.
So we're not on the list anymore and so you know there's there's literally pipe for a that can play at that size on the national level and what they will do particularly given the media.
The negative media about agriculture at our company in particular right now they just weren't bottomfish.
And you know I own about 7% of the company myself I'm not going to play that game.
I can I can sell these things off slowly.
15% premiums to what we paid.
I'm I've done a dump assets you know it in some sort of fire sale way everything we own is for sale, but it is for sale. It you know kind a fair price and fair price is defined.
By what you know farmers largely because they drive each of those individual markets.
These assets are fundamentally worth an arm's length transaction.
And those numbers you know that's who's been buying from us a and those those numbers are you know kind of my my Gotta go to is always but that you could achieve about a 10% premium on average across the entire portfolio to what we paid we've done better than that but I'm still you know I'm still.
Cautious I'd stick closer like you're doing a backup the envelope calculation going to get there may be you know assume 10% above what we've invested in the new your math from there you'll come out to to kind of what I think in terms of any be per share, which as you know I said. Thank you passed it it's it's pretty pretty strong in every per share, it's probably about 12 bucks or so.
Thank you.
Thank you.
Our next question will come trial Mcallen mains Raymond James Please go ahead.
Thanks appreciate the time had just a couple of follow up from us.
Paul just going back globally as you think about the situation as you talk the farmers never get to expand on the disruption if you're seeing the supply chain of agricultural product at the moment and just maybe elaborate a little bit more on that in particular, what that might mean for row crop versus specialty crops and the crime environment.
Yes, so so there's a lot of different stuff going on which is why I say, yeah, I've said today and we said in our written disclosures.
Just not sure what's going to happen, we've obviously got a negative bias because we as any business person in America is a little bit depressed right now [noise].
But but do you know I'm, a rattle off the list of things some of which point.
You know opposite directions of each other so in terms of on the negative side.
You've got.
Food demand overall, staying about the same but you've got a lot less food demand through the restaurant chains and more through home.
Consumption of food in the home is somewhat more efficient, meaning less waste then consumption of food and restaurants, a has to do as you know what do you have to do a leftovers. They use a classic example, with home you put them in refrigeration in a restaurant I get thrown away.
And so you know that that's a negative.
That has a certain impact on on certain crops, let's use a crop we own a very small tiny exposure to.
And but seedless lemons, which is a great crop, but the seamless lemons largely end up in the bar trade.
That's not the receivables woman's are being dropped on the ground drop away, but they're they're now fighting for a space in the grocery store instead of in the ready made markets for premium Seedless limits.
That would that existed with the with you know drinks that are consumed in a bar and so you and I could go on and on and not we just don't have much direct exposure to the restaurant trade in our crop types or luckily, but but you know the extent, we do its its negative turning to ethanol I.
<unk> spend much time talking about that but you know the corn is partly feed and partly fuel and the fuel side has significantly reduced now what a lot of the ethanol plants did was they took their typical summer shutdown early so if they get back in action they won't shutdown and all.
Just like they sometimes do or fourth of July week, you know a couple of weeks around the fourth of July a lot them shut down for major maintenance.
They all have already taken that but the bottom line. If you don't see gasoline demand and increase you're not going to see ethanol demand increase and you know people are starting to drive and travel a little bit more but it's nowhere.
Near the level that used to be.
Then when you when you start thinking about what's going on in the meat packing industry. You know you've got a some of the packing houses you know slowing down a president Trump of course said they needed to stay open for food supply reasons, but none of them are operating at 100% efficiency.
If you've ever been in one of those facilities. The employees do Stan you know kind of shoulder to shoulder.
In pretty tight groups. It's the way the processing is often done you know, it's a hard environment to keep everyone healthy and and so it's it's a real challenge I don't by the way. So no one to get scared I don't think it means the food you get from that facility is somehow not safe and healthy to eat but.
That they're going to have they're gonna have a rolling problem keeping employees, a you know healthy and fully staffed in those and those companies for probably quite some time that obviously you know pushes back up the chain.
Corn producers like like us and soybean producers, but it pushes up the chain and some weird ways.
There's more animals still alive, so they're consuming more feet.
But our people continuing that to you know how the whole new round of animals or are they literally a boarding that new crop of animals. So they don't because the only place to put them and and so it's a little hard to tell whether you're going to increase corn demand or decreased gone demand you know my bias is probably going to.
Chris Quanta sort of your demand a little bit.
But there's a lot of yeah, there's a lot of stuff the cuts both ways there.
Now turning kind of other positive side.
The U.S. is a U.S. is the world's swing producer, we are the Saudi Arabia and.
So.
No. One else is everyone else is suffering similar disruptions if not worse than we are you know our health care system, our economy. Our government as you know the you know using government as an example is troubled as it is sometimes it's better than a lot or other places and so.
We're going to see increased demand for food stuffs in the export markets, we've certainly seen that already.
You know we've seen first quarter. This year was the largest.
<unk> exports ever by kind of multiples that there's ever occurred to China from the United States.
Didnt it kind of got missed as a small item in the press unless you're kind of an AG <unk> like like we are you might not even seen it.
But that's because.
In China, they wiped out a large portion of their hog industry, a year ago or with the swine flu.
And so they're buying meat meat from the United States in really high volumes.
And you know that cost I'll start continue.
And that's going to continue in many other markets and the and the in the country. You know and then you get into currency right. Since were the world's reserve currency, you've made come up you've made add commodities in Brazil in particular.
Feel way more profitable in the Brazilian currency.
And that makes hard competition for us a you know who live in dollars but.
But the flip side is by the time you get to next year.
The Brazilian but after rebuy inputs for all those crops.
On a dog in a dollarized market because the inputs are also based on dollars.
<unk> and so.
Long term I think we you know as a U.S. agriculture broadly are gonna come through this you know pretty well.
These sorts of crisis is tend to make the stronger producers stronger.
I'm in the U.S. is certainly one of the stronger producers in the world.
So I think no long term it's okay.
Short term, it's really hard to figure it out, but we were just sort of have this general.
Premonition that that.
You know all industries will.
Suffer a little bit and us I think less than most other industries, but we we assume no there's got to be some tough sledding ahead of us.
Or just because the whole economies in turmoil.
And and but to that 0.0, maybe maybe to follow up there one just what what do you and when you think about do you use your work their top flooding does that mean.
Left power in terms of rent negotiations with tenant is that actual kind of the fault, maybe just expand on what you mean, there and then one thing kind of embedded in those comments to was.
And that kind of speaks to the point that you've made in the path that there's a lot of nuances depending upon the specific commodities not really hasn't been your strategy to bet on any one specific crop, but rather the trend from a comedy global food demand, but one thing that that is bigger picture that could have laughing implications is what.
We continue to evolve in China, So maybe just update us on your perspective on trade with China. So again, two different point, there I'm just that the but that the top commented and he.
Well, let me. Thank your colony, let me just do that in reverse I'll do the tough sledding second so on China.
Are you know our bias as a company is that all of the rhetoric outside.
China will China will end, the U.S. will try to largely comply with the phase one obligations.
What did they perfectly comply I have no idea I don't think you'll know till you look back on it a year or two after its over but I believe that the phase one deal was a sound deal was put in place for sensible reasons by both the U.S. negotiators and the Chinese negotiators.
And that they will largely try to comply with those obligations because the sort of.
You know restart of an aggressive trade war.
He is not in the best interests of really.
You know the either country. So I think you've got to separate the rhetoric from things like what I pointed out you.
You know that that purchase Oh.
Pork products is massive I don't have exact dollar number but it is it's huge and meaningful and continuing.
And so these you know I think phase, one and the China, saying.
We'll look back and we will find that they have largely perform their obligations and so have we is the United States at least that's certainly hope that's the case and that's kind of what we think there's no. Sir you could probably ask other people have a different opinion.
In terms of the tough sledding comment where you know what happens.
So look.
There's gonna be some may have 110, or so tenants is gonna be some farmer, who gets in a very specific financial crunch because of something related to the market shutdowns from co bid who knows what exactly that is rather hard time, making his second half Brent.
And we don't we don't think it'll happen very often but I can't imagine it doesn't happen.
Amongst our tenant base and it won't be it'll end up being.
You know something to that particular circumstances guy that didn't have enough I didn't have enough financial horsepower to weathered the storm and it just gets himself in trouble.
Maybe a little bit of that Ah, we certainly have crop share exposure in the specialty crops.
The you know those are smaller markets Nichey your markets, we assume there will be some.
Damage in those markets to the <unk> worldwide commodity prices on almonds pistachios walnuts avocados, you know you name it.
Or do we think that that's going to have some pain in those areas.
Obviously, the primary commodity prices are down to extend we have crop shares were exposed there.
I mean, those are the sorts of things were worried about two art too early to tell a if it has a rent negotiation impact as we roll rents next year. You know we have in very recent years been getting very modest rental increases, but getting them in a row crop part of our portfolio for now.
We assume that trend continues meaning you know just very modest 1% to 2% increases is what we're pushing for and probably able to get.
In many cases.
But its you know that's that's a that's now still long ways off that's a next winter event and you know by next winter My hope is that.
Are you know, we neither gotten nationwide herd immunity or some shearer or vaccine or something.
And the economy has largely recovered.
And if it has a certainly yet certainly ethanol side will recover and most of these other things will be better off than they are now.
All right and then one last one from me and I just wanted to follow up on capital allocation and some of the other questions already hit on that the little doubt, but just can you maybe just rank ordering priorities and just expand on your thoughts there I mean, you've got some near term debt maturities that if the dividend you got a common repurchases preferred repurchases that you conducted recently.
He may comment about potentially kind of enhancing your cash liquidity position, a little better than the and the uncertain environment, maybe just expand upon that and then to the extent that that you have some liquidity is there any willingness to help support some of your your farmers as well so maybe just.
Talk a little bit more on all those properties, but.
Yeah. So so look where one of the reasons, we want to maintain a little bit of liquidity is the to be able to help farmers a little bit.
You know if they really really need it or we have to be very cautious about that you know and it's not really a habit I want to start, but but I mean, you know like we want to be able to.
To provide certain level of financial flexibility because when you are landlord you are at Financiere of your tenant in some way and so we all want to we don't want to be the proverbial landlord, who asked US you know.
So somebody out the minute they have a problem you want to have some financial flexibility to work with them.
So there's no. That's that's thus the comment about you know disciplined about all liquidity positions, but I think you what it should expect to see as far as repurchases of common repurchase preferred and debt reduction that we will allocate capital largely in the way we have in the recent past.
And you know there's a.
That's just kind of how we'll do it.
Because our view our view is you know our our total returns.
On these farms that we have purchased and then sold.
Very very high I mean, our track record is actually incredible.
If you look at return on equity and that's because we we use some leverage people criticizes Florida I personally believe they're wrong, a but that people do disagree with me on this.
But this is an asset class, where an important component of the return is appreciation.
And you can without a great deal of risk in this asset class. Your we're living through this right now its way more stable than the other real estate classes.
That you can materially enhance your return.
By using kind of appropriate levels of leverage than ours is always kinda back between 40 and 50%.
Ah Ah purchase prices the level we've been at.
Probably a little bit lower than that if measured against true value as our recent sales of show. So we'll see what was going to kinda continue to execute.
Oh, you know on the course, we have followed the we're we're horribly disappointed in the stock price.
But the fundamental performance of our company is a pool of assets invested in farmland.
His outstanding.
None of those private none of the private vehicles have kind of returns that were generating we run this operation, even though public yet a higher level of efficiency, meaning less overheads.
We do very good job on our asset sales. We believe we do a good job on the purchases, which leads to the opportunity and we frankly use a little more leverage than many of them.
Because we think it's prudent and it and it pays off.
So again long winded answer, but I think we'll we'll allocate that capital from asset sales about the same way we had in the past.
Thanks, Paul I get the college they.
Yep.
Do you.
Our next question will come from Tom Forbes Who's a private investor. Please go ahead.
I have a quick question.
Most of them been answered already and that is says oh leases or renewed especially for a in corn and soybean country are typically I think it's a fourth quarter do you expect the it it below three dollar cash price for corn it would seem like this.
These leases have got to come down in price.
In order to.
In order for the farmer.
Even breakeven.
Would you comment now that yeah, I do so I don't actually.
So I don't think they will come down even or $3 corn and and the reason is that.
Underlying the premise of your question and I get this question a lot.
<unk> is a misunderstanding of the structure of your typical.
Medium or large scale pharma.
So everyone wants to underwrite.
A given field of core.
And that's actually the incorrect analysis, what you need to do is underwrite and what we do as you underwrite and what the industry does is you're really underwrite the entire farm operation.
So most of these large farmers will have a portfolio of landay far.
Some of which they own.
These tend to be family businesses, so some of which they rent.
From.
There are you know relatives, usually at a somewhat discounted rate often.
You know there like I said its grandmother wants direct grants on a farm at a low price. That's certainly her prerogative because you know their family businesses and then some of the land. They rent is from people like us.
And so when they are confronted with giving up any any given acre.
Because they think the rent is so high the mathematical analysis and the pharma doesn't properly. So is what is the impact on my overall operation.
And when you do that math, what you really find out quickly.
Is if you give up a piece of land, particularly a substantial piece of land out of your operation.
Because you think the rents to high you then have to defray.
Youre overheads of all types of equipment is the Best example, but you know labor to some degree would be included another things on the remaining acres.
So what you've done is you in a mathematical sense you won by getting rid of high priced acre, but lost because you've got a bunch overheads, you've got to allocate on a smaller acreage base.
And then when you add to that.
The fact that this is a zero vacancy industry the for in practical terms row crops, there isn't a bunch of.
Speaking, if you get those acres up.
You may never get them back.
The because there's some other farmers going to pick them up.
In the form in the picks them up is gonna be happy to to keep them.
Just don't get rent refusals.
A tough a tough environment, which is what we've operated under now for five years.
Is.
To get.
Rent increases that are you know barely measurable one or 2%.
Our our expectation when we founded a public company was that you would get historical average rent increases which are more like three or four.
And so you're you're you know you just you just dark gonna see.
Across the board rent reductions in our opinion.
Because of crummy commodity prices for one year.
Now if you have completely you got to measure doesn't gotta, there's got to measure revenue per acre not commodity price commodity prices only half the equation certainly revenue per acre and if the reason your revenues down as your is your volume of production is up you may not have changed your revenue very much.
Even if commodity prices down.
So you you so when it's all sudden down in the history kinda proves this.
Just don't see.
Cash rents back up.
Very much.
You know, we're very fast it does happen you know five six years ago. You had some you said you had some 500 dollar per acre rents in the heart of the corn belt like Illinois in Iowa, and you don't generally have any of those left.
But you do still have some 400 plus once in those markets and you'll continue to have those and in our opinion.
Thank you hope that helps.
It does.
This concludes our question and answer session I'd like to turn the conference back over to Paul Pittman for any closing remarks.
Thank you very much and thank you to all of you for joining us and a you know to your families and yourselves, please stay safe and healthy.
We look forward to talking dinner in about 90 days and hopefully we'll be a better times from both a health in an economic perspective, a nationwide. Thank you all goodbye.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect [noise].