Q2 2022 Farmland Partners Inc Earnings Call
Good afternoon. Thank you for attending today's farmland partners incorporated Q2, 2022 earnings call. My name is for them and I will be your moderator for today's call.
All lines will remain muted during the presentation portion of the call with an opportunity for questions and answers at the end if he would like to ask a question. Please press star one on your telephone keypad and it's now my pleasure to pass the conference over to our host Paul Pittman, Chairman and CEO of farmland partners. Mr. Pittman. Please proceed.
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Thank you.
Good morning, and welcome to farmland partners second quarter 2022 earnings conference call and webcast. We appreciate you taking the time to join these calls because they are an important opportunity for the company's management to inform you about our thinking and strategy in a format less formal and more interactive than public filings.
And press releases.
I want before we begin the formalities of the call I do want to make one comment we are reporting.
Very best quarter. This company has probably ever had.
And a stunning level of incompetence.
Lawyers published us in the middle of the night as having a quarterly loss.
Which was picked up from what we can tell by several other new sources and spread around.
That explains why our stock prices down instead of up after reporting an absolutely fantastic quarter.
So we will go through the details as we continue but I did want to start off with making everyone aware that there are new sources out there that in air show us at a 4% net income loss when in fact, it is a 4% net income gain.
With that I'm going to turn it over to our general counsel Kristine garrison for some customary preliminary remarks, Christine. Thank you Paul and thank you to everyone on our call. The press release announcing our second quarter earnings was distributed after market close yesterday. The supplemental package have been posted to the Investor Relations section of our website under.
The sub header presentation and other materials for those who listen to the recording of this presentation. We remind you that the remarks made herein are as of today July 27, 2022 and will not be updated subsequent to this call. During this call. We will make forward looking statements, including statements related to the future performance of our portfolio.
<unk>, alright, densify and potential acquisitions, and dispositions impact of acquisitions dispositions and financing activities.
The development opportunities as well as comments on our outlook for our business rents and the broader agricultural markets. We will also discuss certain non-GAAP financial measures, including net operating income <unk> adjusted <unk> EBITDA and adjusted EBITDA Ari definitions of these non-GAAP .
Reconciliations to the most comparable GAAP measures are included in the company's press release announcing second quarter earnings, which is available on our website farmland partners Dot com and is furnished as an exhibit to our current report on form 8-K.
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 distributed yesterday and in documents, we have filed with or furnished to you.
That said I would now like to turn the call to our chairman and CEO , Paul Pittman, Paul Alright, Thank you Christine.
So as I said, a few minutes ago. This is probably the strongest quarter that this company has ever had.
We are in a situation where virtually everything in our business is going quite well.
Set values continue to increase significantly.
I think year over year, we're going to see another gain in the 10% or more.
Asset appreciation that's after the 2021 year may have been as high as 15 or 20% improvement in asset values.
Our revenues were up strongly.
Our operating income is up over 250%, let me repeat that operating income year over year is up 250%.
<unk> is up strongly we have raised our guidance three cents a share two quarters in a row now.
The re leasing process that we are in we have now released approximately a third of that of the farms that are up for renewal and we are getting in excess of 15% rent bumps in that releasing effort.
Leverage is down on the company and we are still trading at a substantial discount to net asset value probably in my estimation at todays trading rates were probably trading in the neighborhood of $1 50, a share below net asset value.
So all in all this is an incredibly strong quarter as I said, a few minutes ago very disappointed by the.
Fake news so to speak that got put out overnight.
The company had a very very successful quarter.
And with that I'm going to turn it over to <unk>.
Luca to make some comments and then I'll turn it over to James to further walk through financial details go ahead Luca.
Thank you Paul just wanted to share a couple of thoughts regarding capital markets.
The company's presence on capital markets said number one is we would include that as of May 31.
In the MSCI REIT index or more commonly known in the REIT industry as the RMC index.
We see that a significant milestone in the in the growth of the company and a testament to the growth and success of the company.
Also wanted to point to point out that we have been quite active with our ATM at the market program in capital markets, we see that as a very very efficient and cost effective tool.
To raise capital while maintaining control over the cost of such capital So far year to date. This year, we've issued approximately $100 million.
Some of which actually just around the <unk>.
Our inclusion in the MSCI REIT index.
A quick note on the marketing side.
We are you will see that we are starting to step up the presence of the company on kind of a more more widespread social media channels. Please.
Please follow us on Twitter on Facebook and Linkedin.
We will also have that soon a new website up and running to better communicate the company's presence overall and the ESG strategy and so on and so forth.
And I will now turn the call over to James for his overview of the company's financial performance James Thank.
Thank you Luca I'm going to refer to the supplemental package in my comments as a reminder, the packages available in the Investor Relations section of our website under the sub head or presentations and other materials pages. One through 10 of the package contains the press release and related financial information pages 11 through 21 contain the supplemental information.
First I will share a few financial metrics that appear on page two.
For the three months ended June 32022, net income was positive $3 million compared to negative $2 9 million for Q1 dollars 21, an increase of $5 9 million.
Net income per share available to common stockholders was positive four cents compared.
Compared to negative <unk> 19 for Q1, 'twenty, one an increase of 23.
<unk> was positive $1 1 million compared to negative $3 6 million for Q1, 'twenty, one an increase of $4 8 million.
<unk> per weighted average share was positive <unk> compared to negative 11 for Q1, 'twenty one an increase of 13.
Improved performance was due to increased revenue reduced legal and accounting expenses and reduced distributions on preferred stock cost of goods sold was higher in 2022 due to the greater number of farms under direct operations in 2022 compared to 2021 Gen.
General and administrative expenses were higher in 2022, largely due to the acquisition of Murray wide associates or <unk> as we say internally in late 2021.
For the six months ended June 32022, net income was positive $4 1 million compared to negative <unk> 4 million for 'twenty, one an increase of $4 5 million and.
Net income per share available to common stockholders was positive <unk> <unk>.
Compared to negative <unk> 21 for 'twenty, one and increased 26.
<unk> was positive $3 3 million compared to negative $5 3 million for 'twenty, one an increase of $8 5 million.
<unk> per weighted average share was positive seven paired.
<unk> to negative <unk> 16.
21, an increase of 23.
Similar to Q1 the year to date.
<unk> performance was due to increased revenue reduced legal and accounting expenses and reduced distributions on preferred stock.
Offset partly by increase in cost of goods sold due to directly operating more farms and an increase in general and administrative expenses due to the acquisition of <unk> in late 'twenty one.
Total debt at June 32022 was $426 million.
Since December 31, 2021, and we have reduced net debt by over $75 million.
We repaid $5 million of series a preferred within the quarter the balance of series a preferred was $113 7 million as of June 30th.
Fully diluted share count as of July 22nd was $54 million.
Next I will turn to page 14 to provide an overview of our income statement.
In the last two quarters, we took a couple of minutes to review the different components listed out on the table.
I won't go through the entire table on today's call just a couple of highlights, but if you have any questions. Please feel free to follow up the.
Key items to highlight our number one this analysis in the following charts shows direct operations on a gross profit basis.
Revenue less cost of goods sold.
And number two.
We remind people that for fixed farm rent, 50% to 100% of the annual leases paid before planting generally in the first quarter. Thus we are positive from a working capital perspective for a large portion of the year.
The chart that follow on page 15 show the values of the different categories described on page 14 for Q2 2022 compared to Q2 2021.
You can see the fixed payments variable payments direct operations gross profit and other items. The total on the right hand column is revenue less cost of goods sold.
Q2, 'twenty, two was $11 million compared to $9 3 million for Q2 'twenty one.
Further down on page 15, we dive deeper into the fixed payments and variable payments, creating a variable variance bridge from Q2, 'twenty one to Q2 'twenty two.
For fixed payment details, we separated out the performance of the same row crop farms from other items, such as acquisitions dispositions permanent crops and farms that were non comparable between the periods.
Aircraft firms of row crop farms in the portfolio before January one 2021.
We view same row crop farms as the best way to remove the noise from the various activities that are grouped into the other category.
As you can see performance was <unk> 2 million from Q2, 'twenty one to Q2 'twenty two.
The fixed payments associated with the acquisitions dispositions and other items was up zero point $5 million.
And variable payment details, we remind listeners that the vast majority of cash and revenue occurs after harvest in the fourth quarter.
The variance in Q2 was largely in line with expectations.
Positive variance in tree nuts was largely due to pecans and the southeast the positive variance in citrus was due to a lagging final payment from last year and a decline in all other crops was largely due to a farm that was sold in 2022, and therefore not part of the numbers for 2022.
The charts on page 16 show the same information for year to date 22 compared to compared to 21.
On the top two charts, you can see the fixed payments variable payments direct operations gross profit and other items.
Again, the total on the right hand columns as revenue less cost of goods sold.
Year to date, 22 was $23 5 million compared to $20 7 million for year to date 21.
Further down on page 16, we show the fixed payments broken out in the same fashion as the previous page same row crop farms were up 0.4 million from year to date 21 to year to date 22.
The fixed payments associated with acquisitions dispositions and other items was <unk> 8 million.
For variable details the bridge from year to date 21 to year to date 22 shows.
Tree nuts were down which is really a Q1 item that was caused by Q4 2020 after harvest revenue slipping into Q1 2021.
While Q1 2022 did not benefit from any revenue slipping and from the previous quarter.
Citrus is up due to the lagging final payment received in Q2 that was mentioned a minute ago.
Grapes were down in the first quarter caused by timing and also lower performance and all other crops was down due to the farm that was sold impacting the second quarter as mentioned a moment ago.
On the next page page 17, we update the outlook for 2022.
The table starts with the same category as described on page 14 in the charts fixed payments variable payments direct operations gross profit and other <unk>.
Fixed payments increased due to new acquisitions and leases signed.
Variable payments increased slightly.
Direct operations gross profit decreased due to citrus pricing changes lemons are lower caused by export demand changes in shipping issues at major ports. We will keep you updated as the harvested fruit is sold throughout the third quarter.
Other increased due to additional auction business from Murray wives associates.
On the expense side general and administrative increased approximately $750000 due to the accounting treatment of the noncash incentives associated with the <unk> acquisition in late 2021.
That noncash incentive is added back to <unk>.
In addition, traveling personnel expenses are trending slightly higher than originally projected.
Legal and accounting decreased due to lower expected litigation expenses.
That range for litigation spend decreased from one eight to $2 4 million from back in May.
Down to the range of one three to $1 5 million today.
Interest expense decreased due to lower debt levels, partly offset by rising interest rates.
Weighted average shares increased due to the sale of shares under the Companys ATM program.
This results in <unk> in the 13, 4% to $15 $6 million range compared to the 11, 4% to $14 million range shared back in May.
<unk> per share is in the range of 26 to 30.
Compared to <unk> 22 to 28 from back in May.
This wraps up my comments for this morning, operator, you can now begin the question and answer session.
Certainly my pleasure. Thank you I'd like to ask a question. Please press star followed by one on your telephone keypad.
If for any reason you would like to remove that question. Please press star followed by two.
Ken ask a question press Star one as a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question.
Our first question comes from the line of Rob Stevenson with Janney Rod. Your line is now open.
Hi, good afternoon guys.
Paul or Luca can you talk about the expire what the expiring term was on the leases that you've renewed so it's up 15% plus but is that off of leases that were signed a year ago. Two years ago three years ago, what does that increase off of.
That would've been an increase off of leases signed usually three years ago I don't know if its true. If every single lease was three years ago, but the overwhelming majority will be leases that were signed in.
Our business is 'twenty two that would have been 2018 vintage leases.
What did those leases typically have in terms of annual bumps in them.
They will generally from that era have had a 1% per annum bump in them.
It was the most common thing that we were doing in that era.
And so this will be.
<unk> be a significant bump in total rents and then the cost of living adjustments that were carrying in a lot of leases now are sometimes based on CPI, and sometimes two or 3% higher than than they were historically.
Okay. So that one goes either CPI, the 1% bump goes to either CPI or at least 2% to 3%.
Correct on the new leases.
And then what Matt.
Go ahead and that are still living adjustments not part of that in excess of 15% that 15% is just a one time jump when.
When the lease rolls over.
Okay and then.
Looking at the two thirds or roughly that amount that haven't renewed as of yet.
You guys have typically been close to 100% in terms of renewals I assume that these will be renewals, just you guys going back and forth over terms with the with the operators but.
From their standpoint, I mean, even at up 15% or up 12% or whatever you guys end up settling on given crop prices et cetera.
Is there any issue there from their standpoint that theyre not going to make a hefty profit less copper prices fall dramatically.
No. There is I mean these are these are rent last year just to level set we've got about a 10% increase on renewals.
And this year.
Slightly higher but the group that got increased last year, we haven't had any difficulty in rent collections or farmer success in farmer profitability. We don't anticipate any change here the farm economy is quite strong.
The crops are going to be okay, but I don't think don't think there'll be a sort of outstanding crop, but it'll be a decent drop in prices are historically quite high there.
Look at a short term charter 20, or 30 days it feels like corn prices are down but in soybean prices are down, but if you look at a two year chart. This is or a 10 year chart. This is some of the strongest grain prices that farmers have ever had and we will continue to have and for the foreseeable future in my opinion, so the farmer.
<unk> strong and we're a beneficiary of that.
Okay, and I guess in a related question, so acquisitions picked up a bit in the second quarter here. How are you characterizing the market both in terms of.
The number and availability of farms that youre interested in out there for sale and also where pricing is for those farms today given the improvement in the farm economy that you talked about today versus a couple of years ago. What are you having to pay more for those and our people sitting on the farms rather than selling or are there is still plenty of.
Good farms that you'd be interested in acquiring out there for sale at prices that make sense to you.
So lots of different questions. There number one pricing in the farm country for farms is strong. It is an appreciating market. It's been an appreciating market now for about 24 months a rapid rapid appreciation in 2021 year to 2022 year is somewhat more muted but still.
Strong appreciation.
The unique a unique feature I think of our asset class, though is that.
The very best farms always come to market when the farm economy is strong and farmland is appreciating.
If you study volumes you will see that farm sale volumes go down in tough economic times basically you only have sales that are death divorce or distress.
And in those cases, the only farms being sold are frankly, not very good farms nobody nobody in a forced sale is selling their best farm. When the farm economy is strong and farm land prices are are high and everybody feels good bring in additional volume off the sidelines.
Of farms that probably wouldn't have sold prices weren't so strong so for us we want to be in the market. We are very long term oriented and the quality of our portfolio. So you need to be in this market buying these farms, even though prices are high but because this is one of the best assets are trading.
Okay. That's helpful and I guess, given your better cost of capital today are there any specific markets <unk> crops that you're especially targeting today in order to broaden or improve the portfolio quality and resiliency.
Yes, I think I mean, it would you look back at our if you look back at the places we've had the strongest returns of both appreciation.
And and current yield over time.
The strongest depreciation has really come from the Midwest.
The core of the Midwest.
It has added an immense amount of value to this portfolio over the time period that we've been public.
And the appreciation continues to be strong there. So we are deploying additional capital in the in the Midwest. The problem as we discussed before is a cap rates in the Midwest are just not very high.
It is a low risk environment, a lot of competition for land a lot of high quality tenants very very benign farming environments low crop risks and that leads to pretty frankly pretty low cap rates that being said total return in the Midwest is frankly better than any other place in the overall portfolio.
But so we will we will also continue to keep diversification going appropriately adding assets in the other regions, particularly the delta and the southeast.
And we will also continue to add probably in California. We are cautious I think I've said in the prior earnings call. A couple of months ago, we're very cautious because of water risk in California, but there will still be successful operations there for decades growing high value specialty crops. They.
Do have better current yield than the Midwest.
So we want to continue to invest there and so the pipeline is as strong and.
A lot of good opportunity out there.
Okay, and then last one for me if I'm not mistaken the last of the lawsuits left is you against the hedge fund what's the current status of that legal proceeding and are there any notable dates coming up on that.
Yes, the current status of that legal proceeding is that it's basically an appeal in Texas. The other side is continue to try to.
Get out on a technicality of jurisdiction and other sorts of issues. We do not think there'll be successful, there's really not much activity going on there right now we don't anticipate a lot of activity during the third quarter, maybe some some results will come out of the court of appeals in the fourth quarter, but just that is the only lawsuit still.
Going on we're still optimistic about <unk>.
Successful recovery for our shareholders at some point in the future.
And but as far as our legal spend.
Slowed down substantially.
That case against the hedge fund was always.
Less costly than the case against the company.
It pains me to say that but defending ourselves against the ambulance chasers was the most expensive part of this but thats all behind us.
Okay. Thanks, guys I appreciate the time.
Thanks.
Thanks Christian.
Our next question comes from the line of Buck Horne with Raymond James Your line is now open.
Hey, Thanks, good afternoon, congrats on the outstanding results.
You mentioned that.
The recent commodity price rollover.
Maybe happened over the past.
Few weeks or so and in the context of certainly where prices have been over the past five or 10 years or so.
But as we look into the back half of this year I was just wondering if there's any pushback.
Coming from the other side of your farm renegotiations.
Or is the recent rollover at commodity prices affecting.
That 15% effective.
Our renewal rate that you're you've been achieving so far in the front half of the year.
No we I would assume we're going to achieve that 15%.
Or better renewal rate across the entire group of farms are renewing.
The reason we reported it the way we reported it as we're currently running.
Materially above 15%, but human nature being what it is our farm managers tend to renew the easiest leases to renew first so we think it will pull back from the absolute number we're running at right now, but I will take it will pull below 15%.
<unk> over the prior year on a weighted average basis.
So to the to the question about grain prices.
Just historical context is important.
We have seen the absolute top of the grain markets come off although to be honest, it's recovered quite a bit in the last few days of the soybeans were up for example, 36 cents yesterday.
We've got soybean prices in the 15 sort of 70 range and corn prices hovering right around $6.
In my lifetime of being involved in agriculture, those would be top.
5% prices over the last.
35, or 40 years.
If not even higher remains really really are strong prices, what we've seen come out of the market in the last 30 days or so is two different things that the overwhelming.
High inflation has hopefully started to temper a little bit we will see whether on the July numbers come out in a few weeks.
For the CPI.
And so grains and food prices has to be part of that pullback, but the second thing is as we've sort of taken the.
Ukraine War premium out of the market.
A little bit.
He was a big agreement to allow humanitarian corridor to ship grain out of the Ukraine of course.
If you've followed this closely the agreement was signed one day and the Russians appeared to have.
Bond the port the next day, so not sure that humanitarian corridor is actually going to work certainly not sure. It will lead to huge amounts of grain moving I mean kind of think about this in a.
And a sort of real world sense, if youre the owner of a huge bulk ship you really want to put it in the black Sea, where theres mines and at a port where the Russians appear to be bombing.
If you're a port work or do you really want to show up to work, if you're a farmer or a truck or do you really want to drive trucks across the war torn country that drop off soybeans or corn or wheat.
My sense is the market got a little ahead of itself and we're seeing this in the last few days of optimism that there was going to be a bunch of grain come out of Ukraine.
And the real issue in Ukraine is not the grain that stuck in those silos. It's the fact that they didn't plant a full crop. This year, we will maintain an overall shortage of key food commodities.
I think through the rest of 'twenty, two and into 'twenty three.
Hope of the World is that the United States will have a bin busting crop.
Given the extreme heat in the late planting date I don't even think that happens can't be sure of it yet it's a little too early to tell but there are a lot of commentators are already suggesting that yield per acre in the United States is going to come down to more of the USDA is currently projecting it if that in fact happens.
We will be in probably another 24 months at least of a relative shortage because the only two producers in the world that can really swing it and change it.
The United States and Brazil.
And you just got to wait for their crops to come and hope for really good crop and really good weather and to give you. Another example, one of those sort of secondary producers in the world is western Europe , Western Europe is having probably the worst crops they've had in decades.
And so.
This relatively high price environment is going to go on for quite a bit.
Hope that helps.
Yes, that's extremely helpful color I appreciate all of that that's really helpful commentary.
And then once you shift gears, a little bit to the ATM strategy and.
Obviously, you utilize that.
In the front half of the year in conjunction with the.
The index inclusion I'm curious, though in the context of your comments around the stock still trading at a material discount to an EV.
How do you how are your thoughts evolving on that trade off of still utilizing the ATM in the back half versus where you believe the AAV at the company is.
Yes. So my guess is we will continue to use the ATM modestly as we sort of have so far.
<unk> run a dilution calculation that says what does it do to the existing shareholding shareholders to continue to issue equity. If we think we're issuing it.
At a dilutive balance sheet basis.
Meaning that we think the break up value is higher than where we are issuing equity. So we are very sensitive to that on particularly sensitive to it given the amount of shares that I own, but you have to balance that against is it accretive from a P&L perspective.
And if we have really good deal opportunity in front of us that has a total return of <unk>.
Eight or nine or 10% IRR over the holding periods of an asset.
You again, frankly justify issuing equity to slightly dilutive right to make acquisitions like that and we are the second thing is we do we are dedicated to continuing to reduce leverage.
Think that interest rates will reset slightly higher as they rollover into 2000, and we don't have any resets for the remainder of this year by the way, but in 2023 will have some more and that's why we're just sort of working hard work on that debt level down again, it's a balancing of a derisking delevering the portfolio.
With what's relatively expensive in equity capital.
But what's the current yield and whats the risk and we think on balance we will drive more shareholder value by doing modest equity issuances and continuing to Delever the company and do acquisitions.
Do any kind of stock price.
Index stock price graph.
Year to date. These strategies, obviously worked were round numbers up something like 18 or 20% all of our competitors all the other rights. The S&P everybody else's certainly not up that much and probably down we also compare ourselves the major AG companies.
Like John Deere and in core Teva and were up stronger than they are so.
We're getting it right.
Although trust me it pains me every time, we issue stock and a 14 or $15 range. When I think the NAV is as you know.
$16 or higher.
Alright, I appreciate those comments Thats also very helpful color. So thanks again and congrats.
Thank you very much.
Thank you for your question. Our next question comes from the line of Dave Rodgers with Baird.
Your line is now open.
Hey, guys, maybe I don't know James on the guidance start there the operating component of the guidance was up which was good to see how much of that was related to net acquisitions, which is kind of the first time, we've seen that in a while in the first half of the year versus the better than anticipated rents than you had modeled going into the year.
And any other factors.
Yes, sorry, you said the can you repeat your question you said the operating components.
Yes through NOI right. The top portion of that how much of that was driven by acquisitions versus better than anticipated ramp in your own modeling versus something else.
Yeah got you.
So on the fixed payment side, that's really due to.
Acquisitions, and new leases that were signed.
Related to those acquisitions the leases that were kind of new this year that would have been signed in late 2021 were factored in.
So it is really due on the sort of fixed payments that kind of new activity.
In variable payments were up a little bit as we've seen just how things have progressed throughout the year.
And a big component there is the other basket and we mentioned raising that due to increased auction activity at Murray wise associates, but that basket in other in the activities that Murray wives associates are really have really been strong this year.
And Thats a lot of auction activity brokerage activity.
It's been a nice a nice positive for us this year, yes, I mean, when you simply when you simply look at the business, Dave and you think of it in three broad buckets row crop agriculture.
Boom time.
Specialty crop agriculture sort of neutral maybe slightly positive.
And then the Murray wise business strongly positive.
That's kind of what's going on at an operational level to.
The very specific question I think.
Our team modeled the rent increases came from from the same store row crops accurately that's a nice strong increase it's almost $1 billion a year of additional revenue from those leases we renewed back in 'twenty one.
But the bump is coming from the.
Things like new acquisitions, and improved Murray wise and a few Broadway positive things that happened in the specialty crop side of the equation.
Great. That's helpful. When you look at your net investments Dan Bob more than you sold in the first half of the year as you think about that two questions. One is I guess in the second half will you continue to be a net acquirer of assets and then I guess the second question is what's the what's the cap rate or the yield spread that either you are targeting or that.
You have resulted in the first half of the year and how you see that trending in the second half of the year as well.
Yeah. So so we will probably be a net acquirer in the second in the second half for that would be our certainly our intention.
Obviously everything we own is always for sale and there are incredibly aggressive prices being paid for farmland assets and if somebody came to us.
Made a super strong offer we are likely to take it on and on certain assets.
But I think the plan would be to be a net acquirer.
In terms of cap rates are round numbers, we're trying to maintain a cap rate in the next sort of 4% range on average across the portfolio.
Can't get that in every location, but it's important to grasp that if you looked at our portfolio against the original purchase price.
When you start, making 10 or 15% increases in rents the cap rate against your original purchase price is going up pretty rapidly. So we're starting to see.
<unk> creep up if you evaluated against the original purchase price and the cap rates, we have across the portfolio as we're getting these rent increases pushed through.
If you look at farmland and a long term sense.
There are farms that for example that I personally owned that might have a 25 or 30% cap rate today against against the original purchase price because you've got decades of rent increases embedded in that even though the purchase price obviously didn't change and you didn't have to make additional capex into the asset.
A lot of good a lot of good things going on when it comes to kind of a cap rate improve.
Improvement in return on those assets as well as as our App on the acquisition front.
No that's really helpful and I guess, maybe one final question on that topic is as you think about selling assets. I mean do you look at asset sales as maybe the plug the figure for the acquisitions is that equity or are you kind of a more guided toward a deleveraging target as you think about kind of net investments plus deleveraging where you were.
To balance between those I guess I'm, just trying to kind of weigh those options and ranked them in your mind.
It's really a balance it's really a balanced look the leverage of the company. Today is is frankly not very high.
If you looked at our.
If you look at our value the value of this portfolio.
Probably on a on a current market basis, something in the 137 $5 billion range book values about 1.1 ish.
The assets, we own and so when you adjust for true market value, which is how the lending community in the farm economy, frankly works I don't care, what we paid for a decade ago. They care what its worth now.
We're down to the 30% or lower kind of leverage environment.
So the preferred and on the equity side, which is to be in many ways. The right way to look at it it's <unk>.
Even lower than that by quite a bit so.
Don't feel like we have substantial leverage, but we'd like to we'd like enhancing the cash flow by reducing.
That where we can particularly given the interest rate environment. We're in right now.
You have to balance that though against the fact that when you acquire a farm.
Total return high single digits, low total low double digits.
Round tripped sales of farms I mean, I think we sold about $160 million of farms in the last couple of years.
Eight 1% IRR that was most of those sales occurred in a pretty crummy farm economy.
So we still we're doing a lot of sales right now, we'd really rapidly run that IRR up probably nine or 10 or better and so you can't really.
You can't just look at the current yield on buying a farm and the current current yield on our debt you have to look at the kind of total return. So we will balance the two things, it's really a question of where the.
How much additional equity we have to deploy.
And where we think the best total return is which is really a balance. So I don't think we have an absolute roadmap, it's really sort of just opportunistically trading off between those things I think I think what you'll see in the rest of the year as some further debt reduction and some further acquisitions.
Alright, Thanks, Paul.
Thank you.
Thank you for your question. There are currently no more questions waiting in the queue. So I will pass the call back to our management team for closing remarks.
Great. Thank you all thank you all for joining US we're very happy about the performance of the quarter, obviously, a little disappointed that the news didn't get out.
Get out accurately, but hopefully in the next day or two it will show up in the market.
Thank you all for your time today.
Goodbye now.
This concludes today's conference call. Thank you for your participation you may now disconnect your line.