Q2 2020 Farmland Partners Inc Earnings Call

Good day and welcome to the former partners during second quarter 2020 earnings call control.

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I'll now turn the conference over coupled chairman and CEO. Please go ahead Sir.

Good morning, and welcome to the farmland partners second quarter 2020, <unk> earnings conference call and webcast. We truly appreciate you taking the time to join US for these calls because we see them as a very important opportunity to share with you are thinking and our strategy in a format lots form.

More and more interactive and public filings and press releases with me. This morning is Luca Fabrizio the company's Chief Financial Officer.

I'll now turn over the call to Luca Fortune customary preliminary remarks, we go.

Thank you Paul and thank you all who are listening to this webcast live on recorded.

That's release announcing our second quarter earnings was distributed earlier. This morning have replay of this call will be available. Shortly after the conclusion of the goal through August 24, Twentytwenty. The phone numbers success. The replay are provided in the earnings press release for those who listened to the rebroadcast of this presentation. What do you mind you.

That the remarks made here I mean I was on it as of today August 10, Twentytwenty and have not been updated subsequent to these initial earnings call.

During this call will make forward looking statements, including statements related to the future performance or portfolio identifying potential acquisitions and dispositions.

Acquisitions dispositions and financing activities as well as comments on our outlook for what business rents in the broader who cultural and markets.

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

So adjusted FFO BBW in adjusted BBW.

Definitions of these non-GAAP measures as well as we go through the issuance of the most comparable GAAP measures, including the company's press release announcing second quarter earnings, which is available on our website www Dot pharma partners Dot com and he's furnished as an exhibit darker reports on form 8-K did as of this morning.

Listeners are cautioned that these statements are subject to 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.

We advise listeners to review the risk factors discussed discussed you know what press released this morning before market open in documents, we filed or furnished to yes, you see.

I would now like turn the call back door, Chairman and CEO <unk> Paul.

Thank you Luca.

So several different points I want to cover in this morning's call.

First there will be some discussion of the market generally.

Our performance specifically and then we're going to spend a few moments discussing the ongoing litigation that the companies involved in.

So first.

Turning to land values.

We did see the U.S.D.A. land values survey come out a couple of days ago. It was in fact last Thursday, we did a press release related to be a fair value adjustments that as a part of the bulk of food series B, a direct you to that a press release.

Or the specifics.

The punch line is that farmland values on the nation wide basis were essentially flat year over year 2019, the 2020.

For our particular, a 16 state 17 state portfolio at the time, we issued the portfolio we are slightly up.

So that it would be what one would expect to see you know given what's going on on the farm economy that were largely flat I in the last few years just refresh your memory, we've been in the neighborhood of 1% to 2% growth per annum and land values I say this year as a little bit behind that my own view is.

With all the economic stimulus, what's occurring we will see farmland I used to begin to appreciate due to the expectation of inflation.

But you know what we'll know for sure a year from now.

Looking at performance of tenants and how those things are going.

As far as the primary grains crop prices are low bye.

You know last five year historical standards.

But yields are likely to be very very high.

I think it'll turn out to be an okay year. When you balance those things farmers continue to face some level of financial stress because they it's been now Ah.

Five plus years since they had a really good year.

In terms of profitability.

Turning to the specialty crops are hitting hitting kind of the.

Four or five major crop types that we have in our specialty portfolio Allman pricing is lower than the prior year, but the yields are the same or a better.

Oh gosh, it shows similar or slightly lower price and the crop is similar to the prior year walnuts the prices down but the crops are pretty strong.

And again, similar or slightly better than past years in citrus the prices and the crops were strong for the citrus harvest this year.

And for wine grapes as many of you may know the prices are actually terrible I. It's a historic low in many cases for some of the wine grape varieties.

In the crop is pretty good.

So I'd say that my cover it because it relates to our.

Due to the crops shares that we may get a later in the year I think this will turn out to be you know a bear year from the performance of our specialty portfolio.

But certainly not a great year due to the couple of the commodities, having a very very difficult pricing environment.

When you look at.

The co bid on the company I use this statistic not because it is it by any means a perfect statistic, but it's the one we use last quarter and it's a it gives a quick representation of whether we're feeling the effect of co bid in the portfolio.

Our cash collections are about 98% of where they were at this time last year.

You know I would say that's essentially the same as last year, Oh, you know that the way that cystic works and the timing the timing of when it exactly when various payments come in 98% hundred and 2%. It's all in the zone of the same as prior years.

That is consistent with what we feel a we are an industry where co bid is not a significant factor, but the general.

Other general issues affecting agriculture do affect our tenants in our portfolio, but cobot in particular are just not that big a factor.

If we.

You know go.

Forward in terms of what the strategy of the company will continue to be in the future.

Orders it will continue to gradually sell assets.

And repurchase our stock and preferred.

We will continue to do that as I've said in the past until such time as we feel like our stock price more accurately represents net asset value.

Now turning to the litigation the biggest single event for the company in this quarter was the advancement.

And what we have historically called the wrote a fortune a lawsuit.

Related to the shortened the store to attack that was put against the company in the summer of 2018.

What has occurred is that there was a release of the name of the person who wrote the article the port required.

Quintin Matthews. That's you wrote Unfortunately is to release his name.

And we were allowed to depose.

Mr Matthews and to get some additional discovery.

What has come from that is really the following but let me preface it by first saying as we as we have always said.

We have no problem with people, taking short positions our stock if they happen to get disagree with our point of view with regard to any important factor affecting agriculture or the ownership of land agriculture or things like that.

Legitimate traders do disagree with our outlook for commodity prices for rents for land values and if that's your perspective feel free to short our stock.

We do believe that illegal market manipulation is a different matter it has the opposite effect.

Fair and open price discovery that that is really why I N supportive of legitimate short trading.

In this particular case based on our initial review of discovery.

We now believe that a record clearly supports our position that the company's on it and its shareholders will the victim of an illegal market manipulation scheme in July of 2018.

This led to a 40% decline in the stock and led to litigation by class action attorneys against the company.

As I said, a few moments ago, we have identified.

Road, Unfortunately, as Quintin Matthews and we've also identified additional parties, who we believe worked with Matthews.

The problem it profit from big short bat timed with the attack.

We have amended our complain to add the following parties, we believe those coconspirators to be.

Sabre point management LP, and George Baxter, and Donald Marciano Me, who our employees of Sabre point.

We continue to believe their conduct was illegal and we will continue to pursue those responsible for a full recovery for the company and its shareholders.

Mr. Matthews, there's not some sort of market visionary on a quest to uncover improper behavior at companies rather he is a low budget hired gun passed with writing a defamatory article to assist in a short and distorts scheme.

Based on the email discovery that we have received our complaint alleges that sabre point brought the idea to Mr. Matthews and assisted Matthews.

Regarding the drafting of the posting.

While Mr. Matthews attempted remain on the autonomous for nearly two years of pending litigation. The court after denying Matthews motion to dismiss that he can no longer remain behind the first amendment rights to anonymity.

There is a well known playbook for shortened distorts games, and we believe Matthews and his coconspirators played it too with Ti.

They have done this before to other companies and they will do it again, unless we or some other victim hold them accountable.

This pattern of behavior should upset all legitimate market participants whether on the long side or the short side and should eventually attracted the attention of law enforcement entities.

With that I will turn it back over to you Luca for some additional comments.

Thank you Paul just a little run as usual through some quick financial highlights whether that to the quarter.

In the second quarter busier, a we recorded total revenues of $10.5 million versus 10.9 in the same tedious last year.

When you go to also told but it income of 3.7 million versus 4 million last year in the basic net loss to common stockholders of 10 cents per share versus a net income took almost stockholders of nine cents per share.

The loss in the same quarter last year. This difference specifically was driven largely by net gain some dispositions that would eat into second quarter last year.

And we also recorded a in this quarter, if if a share of negative four cents versus 95 cents. Since then the same period last year as usual I just look either quick reminder, above the high seasonality in GAAP results in our business a large portion of the operating revenues.

Gets recorded in the fourth worked in relation to.

Body boat or leases by double rent leases and therefore, the individual quarters of I've never really indicative of the.

Expected performance for the company for the full year.

As Paul mentioned, Oh, we last Thursday, we also issued a press release a lead the kind of on you all.

Results of the U.S., you lend body surveys applied to our series B preferred stock.

D. these small increasing the value of our portfolio pushed the filing by the appreciation amount what I what she does the preferred to 80 cents per share a nines or that this is a cumulative.

Amounts for the whole life of the preferred.

You know, bringing the notional of face value.

Of the preferred stock as of today to $25 in 80 cents of course, please refer to the prospectus of the series B preferred for for will define green.

In a in the second quarter, we'll sort of purchase about 170000 shares of common stock and 90, approximately 92000 shares a series B preferred.

He investment in a all stock repurchases was approximately 3.9 million in the quarter and finally, the current fully diluted share count as of today is a 51 million.

499735 ships.

This concludes my remarks on our operating performance for the second quarter of Twentytwenty. Thank you for your time this morning, and your interest in pharma partners. Operator, we would like to begin the question answer session.

Thank you were asking a question you May proceed stars in one on the Touchtone phone.

Remember so the huge please first starting to.

Once again, ladies and gentlemen that Star then one if you had a question.

Today's first question comes from Rob Stevenson with Janney. Please go ahead.

Good morning, guys I'm talking you talk about what drove the acquisition disposition trade starting the quarter and how did you evaluate you know I know its wasn't I kind of money, but buying farms versus buying back more your stock or preferred at this point.

And so thank you Rob and good morning, <unk>. So the general strategy, but the company is following and and obviously those exceptions to this but the but the general way we are looking at things.

Is on the acquisition front.

We are making add on acquisitions at this point, meaning that a property we acquired needs to be a very close to a farm we already own a in some cases literally a adjoining land farm.

Or if we had a very good tenet you brought us a great idea. We you know we would we would view that as an add on because it's the same tenant that we want to expand with.

But beyond that or you know unless there was an incredibly good deal we're not likely to be.

Strong acquirers at this point in time, because the stock price remains depressed and so that's really how we evaluate things on lots. We haven't you know add on acquisition ready to go we will end up devoting a the resources that we get from.

Asset sales through the repurchases of either the common or the series B preferred.

I think that will be our strategy.

For the foreseeable future, although things could always change as I said in my prepared remarks, generally speaking until we see stock price get back up.

Oh closer to win a b, we are are likely to be weighted toward repurchasing our securities.

Okay, and then Luca can you.

Talk about what you spent over the last few years dealing with wrote unfortunate stuff and what do you expect to spend here over the remainder of 2020.

[noise], a we don't really have good detail fully articulated doubts end up you know what public filings the pulp, perhaps you want to kinda, especially that higher level. Yeah do we do we I don't remember in the PML, specifically, we have a legal and accounting line, we do Rob that's the best place to.

Look for it.

You know I don't want to go beyond that we've already put in the public domain on this call.

Yes, we you know we're not all in the same room in this cold environment. So want to Oh, I would want us to talk about it before it was twice that number as far as going forward.

We will continue to spend on this as long as we believed financial recovery.

It is possible I'm you know, we're not doing this for recreational purposes or we do you know we did believe there were well heeled investors behind this we've now discovered at least one of them.

We think there are probably more.

And we're going to you know run this the ground and try to get a summer bar losses back for the company in the shareholders. This was an incredibly damaging event to this company I would argue that we might be double our size or triple our size at this point, how does not occur that would have had.

Very positive benefits.

For shareholders in terms of economies of scale and all sorts of the rest of efficient use or would have come with that size. These losses are very real and they were in our view driven by someone engaging in an illegal shorten distorts scheme ready that frankly pick the pockets.

The legitimate shareholders for their short term gain.

Using you know inappropriate illegal means so we're gonna stay after it and not likely to let up at all.

Okay, and then last one from me can you talk about what percentage of your leases today have.

Participating rents are the Overages were you know later in the year it might wind up giving you.

Outsized earnings as a result.

Yeah. So so in that in a general sense in the portfolio, we are around 80% cash and 20% some form of crop share.

There is occasionally leases that are 100% crop share and then some of the cash leases will have a small portion of crops, yet, but but in broad brush think of it. It is 80 20, but importantly.

There is a the as you recall, we did that large large on transaction.

A couple of years back that is a 100% crop share lease and that is a very substantial.

Lease payment a that comes in in the fourth quarter. You know that's a was as you probably may or may not recalls 110 million dollar acquisition price. It's all specialty crops and you know it's a pretty strong return you know it just six cap kind of seven cap bracket.

At a deal on terms of its return.

And so it's a you know it's good very very good transaction for us and not all comes in the fourth quarter.

Okay. Thanks, guys appreciate it and actually just quick cod at this point, we're closer to 75% thinks 25% body.

Okay. That's helpful guys. Thank you, but brackman pickup.

And ladies and gentlemen, as a reminder, isn't going to ask the question. Please press Star then one well pause momentarily to assemble our roster.

And ladies and gentlemen. This includes a question answer session. During the conference back over to the management team for any final remarks.

I don't have any further remarks other than the thank you for all participating in our earnings call today.

If you have any further questions or inquiries feel free to reach out to the company or directly to Luca or I. Thank you very much.

Thank you Sir This concludes todays conference call. We thank you all for attending today's presentation. You may now disconnect your lines or another wonderful day.