Q2 2023 Farmland Partners Inc Earnings Call
[music].
Good morning, My name is Rob and I'll be your conference operator today.
This time I would like to welcome everyone to the farmland Partners, Inc. Second quarter 2023 earnings conference call. All lines have been placed on mute to prevent any background noise.
The speaker's remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again press. The star one. Thank you Luca Fabbri, President and CEO you May begin your conference.
Thank you Rob good morning, everyone and welcome to farmland partners second quarter earnings conference call and webcast. It has been a busy quarter and frankly busy first half of the year.
So I, especially welcome the opportunity.
To for myself and the rest of the team to explain all of it.
More and give that there'll be more color about what we have been doing and what we are planning to do.
I appreciate your taking the time to join US for this call I will now turn over the call to our general Counsel Kristine garrison for some customary preliminary remarks, Christine Thanks, Luca 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 events and presentation for those of you who listen to the recording of this presentation. We remind you that the remarks made herein are as of today July 27, 2023 and will not be updated subsequent to this call. During this call. We will make forward looking statements, including statements related to future performance of our portfolio.
Our identified and potential acquisitions, and dispositions impact of acquisitions dispositions and financing activities business development opportunities as well as comments on our outlook for our business rents and the broader agricultural market.
Also discuss certain non-GAAP financial measures, including net operating income S. S. Though adjusted F S, though EBITDA Ari and adjusted EBITDA Ari definitions of these non-GAAP measures as well as reconciliations to the most comparable GAAP measures are included in the company's press release announcing second quarter earnings.
It is available on our website farmland partners dot com and is furnished as an exhibit to our current report on form 8-K dated July 26, 2023 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 restaurant uncertainties can cause actual.
To differ material materially from our current expectations and we advise listeners to review the risk factors discussed in our press release distributed yesterday and the documents, we have filed with or furnished to the SEC.
Now like to turn the call to our executive Chairman, Paul Pittman well.
Thank you Christine.
This was frankly, a very good quarter and a <unk>.
Very good for the long term value oriented shareholder in our stock.
We have significantly increased the value.
The underlying shares through stock buybacks very strong asset sales and the beginning of a gradual reduction of our debt loads. The market may not proceed this but that value will come to all of US eventually as you all of you know I'm a large large shareholder myself.
And we are taking actions that are fundamentally arbitrage.
Very high values for our farmland.
Against P deeply discounted stock we will continue to do that as long as it takes to get our shareholders rewarded.
The farm economy remains quite strong.
The.
Our stock has performed pretty well.
The last call.
Asset values for farmland.
<unk> to rise.
As we gradually trim things out of the portfolio, we are getting pretty strong gains on our farms.
Please recognize that we are not selling our very best farms, we are selling farms, where we are concerned of water challenges for market volatility challenges or they are outliers for some reason in our portfolio.
The appreciation we have in the parts of the portfolio, we are not selling our even stronger than those that we are selling we want to gradually concentrate this portfolio in ways that lessen water risk and lessen volatility of earnings and simplify the management of the.
Business.
As I said in the last call farmland values farmland.
As an investment class.
You really need to think about how is value created and value is created.
Two thirds from appreciation and approximately one third from current yield you went and did IRR calculations all of the assets that I have bought and sold over the 25 plus year career I've had.
That would be roughly where the value creation comes from depreciation is two thirds current yield is one third.
For whatever reason public market isn't partly because I think we're a REIT is incredibly focused.
On this sort of a scorecard on.
Quarterly ASF.
It is the wrong thing to be focused on.
The stock today is down maybe 5% to 7% that is a buying opportunity for the smart investor.
The proceeds of the sales, we're making are going to buy back stock.
And to pay down debt to date, we have weighted our overweighted frankly, the repurchases of stock because we think that the stock is at such a deep discount we.
We don't want these debt levels decline.
Higher so we will be shifting at least for a quarter or so to a much more debt reduction oriented posture doesn't mean, we will not do any buybacks, but we will shift from.
What's been sort of we've paid down debt along the way as well, but we're going to be shifting more to debt reduction and less to buybacks as we watch the stock price change over time, we may.
And our debt levels gradually come down we may shift back.
We did buy I just want to point out we bought back some of our preferred b that instrument is in many ways like a debt instrument, obviously, a hybrid as a preferred.
But it is an interest bearing instrument.
Our dividend bearing instrument that it performs much like that it's about a 3% coupon.
That instrument expires a couple of years from now so we want to gradually whittle away at the balance so.
So we don't get spaced with a big onetime payment, but that doesn't show up in <unk>.
The savings, we make from having paid off a piece of that of the preferred.
The <unk>.
Position, we find ourselves is that we will just continue to sell farms that we aren't in love with at strong strong prices buyback.
Buy back stock pay down debt and grad and occasionally buy additional farms in the markets and the locations that we are very happy with.
Rates interest rates will eventually come down and the <unk> will have a shocking the large positive increase as that happens.
No one certainly not me and probably no one on the call knows exactly when that will happen, but when that happens earnings will recover strongly but I don't really want to overemphasize that point the core of our business is buying high quality farms managing them as efficiently as possible getting the curve.
Yield that we can.
And ultimately harvesting that massive appreciation that occurs in the asset class due to inflation and everything else with that I'll stop of course will be available for questions and turn it over to Luca.
Thank you Paul.
I'd like to walk everybody a little bit more in detail through what we have been doing in the first half of the year visa visa.
So our current strategy for our wine.
On the asset disposition side in the first half, which sold about $52 million in assets.
We closed on an additional about $3 million in asset sales since the very beginning of Q3, so far we have about $22 million of asset sales under contract pending closing.
We have about 30% to $53 million in assets going to auction here in Colorado.
On August one we have an additional about $26 million of transactions in very advanced negotiations.
So this is a total of about $135 million total in identified transactions will close transactions so far.
We are working and you should expect probably more transactions more asset sales to come later in the year. So I want to stop and really focus the attention of everybody here as Bob was mentioning on the positive appreciation in the asset class.
And I'm really going to going to stick to the one that really has kind of are very very much solidified in terms of having been closed or just pending closing on the $52 million closed in the first half of the year.
Recognized gains of about 53% over net book value for the $22 million under contract we are expecting about 75% gains over book value. So this truly demonstrate that the asset class is a very very strong appreciation potential there has.
To be front and center for anybody in the asset velocity is certainly a core component of our investing in facilities management strategy.
By the way as Bob mentioned, we are engaged in a broader portfolio optimization, if you will.
Sure.
And in that context, we are also still buying some farms where of course <unk>.
At this point in time, not as acquisitive as we have been in the past, but we keep close an acquisition in Q2 in Oklahoma.
Yes.
We have another pending transaction here to close later this year for another farm.
And therefore, we're continually evaluating opportunities.
Our loan portfolio and that is going to streamline and be leased wage Paul alluded to now in terms of use of proceeds as we announced earlier this year.
We are really focusing mostly on two items, one is stock repurchases and the other one is a reduction of leverage.
Leverage will pay down the debt.
We kind of front loaded stock repurchases. So we.
We bought back about $62 million in stock.
In terms of shares is about 10% of the fully diluted outstanding shares as of the beginning of the year and we need that at an average price of $11 three per share.
That is a reminder, very very clear a material discount to the intrinsic value of the shares and therefore, we've been creating value for all the shareholders that it decided to steward, believing those are doing.
So I mean, the strategy that we are pursuing on the debt side as I said, we got to Frontload a little bit is.
These stock repurchases and therefore.
The balance of the debt balance actually went up slightly as of the end of Q2, but as we said.
And that the proceeds use of proceeds later this year will be overwhelmingly focus on debt reduction.
So in some we have been demonstrating value will be up by asset sales of games, we are creating value by stock repurchases.
It has some rig reductions we are we are of course as we sell some assets we are losing some revenue.
By the way also some costs associated with various video of those farms.
We had incurred temporarily higher debt as I, just explained but that will.
Reverse.
We also experienced slightly higher interest rates like everybody else.
<unk>.
Also one other on the business side.
While asset valuations are very strong and in some parts of the country, we had actually seen them climb be yet more despite the frankly totally decreases in the last couple of years. They were catching up on several years of sideways appreciation.
The transaction volume overall in the marketplace is slowing down a bit.
That's a result of farmers what are the main strategic buyers in the marketplace.
Pretty much having use of their cash buyers and pretty much they use the cash that they wanted.
To use to buy farms, and therefore now the interest costs being as high as they are the buyers are cheating a little bit of a pause.
Also there is a paucity of scar city of transactions of assets coming to market. So also as a result of that slowdown in transaction volumes our.
The volume of business in our brokerage and auction business has slowed down a little bit and we have reviewed.
Our projections for the year down a little bit James <unk>, who will walk through a little bit more details of what that means in terms of our expectations for the year and also your strategy given that our portfolio is changing he is going to try to use software.
2023 that is pro forma.
The full year.
We don't just dispositions that we have.
We have what we have done.
So we turn the call over to him to James for his overview of the company's financial performance. James. Thank you Luca I'm going to cover a number of items today, including summary of three and six months ended June 32023.
Review of capital structure and interest rates comparison of year to date revenue and updated guidance for 2023.
Ill be referring to supplemental patents in my remarks as a reminder, the supplemental is available in the Investor Relations section of our website under the sub pattern events and presentations.
Page numbers, one through nine within the press release and related financial tables.
These numbers 10 to 19 contain the supplemental information.
First I'll share a few financial metrics that appear on page number two.
For the three months ended June 32023, net income was $7 9 million compared to $3 million or 22, an increase of $4 9 million.
Net income per share available to common stockholders was <unk> 14.
<unk> 22, an increase of 10%.
<unk> was negative $1 1 million compared to positive $1 1 million for 'twenty, two a decrease of $2 2 million.
<unk> per weighted average share was negative <unk> <unk> compared to positive <unk> 22, a decrease of four zones.
For the six months ended June 32023.
Net income was $9 6 million compared to $4 1 million an.
An increase of $5 5 million.
Net income per share available to common stockholders was <unk> 15, compared to <unk> 22, an increase of tinnitus.
<unk> was <unk> 4 million compared to $3 3 million for 'twenty, two a decrease of $2 8 million.
<unk> per weighted average share was <unk> <unk> compared to <unk> 22, a decrease of $6.
Next we will review some of the operating expenses and other items shown on page number five.
Depreciation depletion and amortization was higher in the second quarter of 2023 due to approximately $400000 of nonrecurring adjustments made in the quarter and more depreciable assets placed into service.
Property operating expenses were higher in 2023 caused by a couple of things higher property taxes, including a onetime property tax of approximately $150000 that occurred in the first quarter that was reimbursed by the tenants and appeared in increased tenant tenant reimbursement. So if you'll look at it in a minute and.
In addition, a nonrecurring expense occurred in the second quarter of 2023 of approximately $140000 due to the final reconciliation of cost sharing with with tenant.
Tenant on California farm.
That was partially offset by lower utility expenses in the second quarter of 2023.
General and administrative expenses were lower in 2023, due primarily to lower stock based compensation.
Legal and accounting expenses lower in 2023 due to lower litigation spend.
Gain on disposition was up significantly compared to 2022, demonstrating the appreciation of the farmland sale values relative to net book value as Lou described a minute ago.
Interest expense increased due to higher rates and greater debt balance in the second quarter compared to 2022.
Next I will skip ahead to page number 12 to make a couple of comments about our capital structure total debt at June 32023.
$473 5 million.
Fully diluted share count as of last Friday July 20, <unk> was $50 1 million shares.
If you look at the table towards the bottom of the page we had undrawn capacity on our lines of credit in excess of $120 million at the end of the second quarter.
We have one more metlife rate reset this year, that's metlife low number 10, when we started to engage with the lender next.
Next year 2024, we have three metlife rate resets totaling approximately $44 million, that's loan numbers 911 and 12.
Turning to page 13.
Page provides an overview of our income statement and the building blocks to generate revenue and cost of goods sold.
I won't go through in details we have in previous quarters, but please feel free to contact me if you have any questions.
The next page page 14 shows these building blocks described in 13 for the first two quarters of 2022, and 2023 commented the bond to describe the differences between the periods.
Two points to highlight are.
The fixed payments. So that's really the first four columns shown all exceeded 2022, the remaining items came in lower in 2020 the task.
Now, let's go down a little bit fixed firm rent increase between the periods as we acquired properties in 2022, and renew leases and that was offset by the dispositions. So far this year.
Solar decrease in 2023 is a large project in the state of Illinois commenced its construction phase late last year.
Tenant reimbursements increased in the first quarter was at one time property tax assessment of about $150000 and related tenant reimbursement as mentioned earlier.
In Q4, 2022 required land and buildings for for agricultural equipment dealerships in Ohio under the John Deere brand the accounting treatment classifies those acquisitions and financing transactions. So they appear in the balance sheet as loans and on the income statement as interest income. This accounts for the decrease in interest income in 2023 compared to 2019.
<unk>.
Variable payments were down in Q1 due to grades in row crops and down in Q2, due to citrus tree nuts and retrofits.
It was largely expected with one exception.
Lower performance in aircraft in the second quarter. It was really due to a timing difference as revenue that fell into the second quarter of last year, it's going to slip into the third quarter 2012.
Direct operations is the combination of crop sales crop insurance and cost of goods sold it was down largely due to citrus and walnuts.
Other items decreased due to lower auction in brokerage activity compared to 2022.
As Luca described earlier.
We have decreased our outlook for auction in brokerage fees for the year as shown on page 15.
If you flip the page to page 15, we have updated the outlook for 2023 using the same building blocks described on the previous phases.
Sanctions are lifted out towards the bottom.
As a reminder, this contemplates that we dispose of approximately $135 million in what we're calling identified transactions. This number is an estimate and actual results may differ.
On the revenue side.
<unk> pharma will change with dispositions acquisitions and new leases signed.
Solar wind and recreation tenant reimbursements management fees and interest income.
Very small changes.
Variable payments increased due to an improved outlook for citrus firms that pay variable rent.
I'll direct operations, that's crop insurance plus crop sales less cost of goods sold is down due to citrus and walnut farms under direct operations.
Other items decreased due to lower revenue outlook for March.
Excuse me auction in brokerage for the balance of the year.
On the expense side property operating expenses are increasing due to a couple of items from the first half of 2023 that we've covered the onetime property tax expense in the first quarter and the nonrecurring expense in the second quarter.
General and administrative decreases in lower spend in the first half of 2023.
Legal and accounting also decreases of lower spend in <unk>.
Interest expense increases with higher projected debt balances and updated rates.
We're estimating the last remaining interest rate reset for 2023, Thats Metlife <unk> prices in the six to six 5% rooms, while the increase in interest expenses painful we maintain access over $120 million of liquidity in the form of Undrawn lines of credit.
Weighted average shares decreased the share buybacks.
This resulted in <unk> and the five 9% to $9 $2 million range or <unk> 11 per.
Per share a decrease our projections provided back in may.
At the bottom of page 15, we provide information on what 2023 would have looked like pro forma all the various transactions, but removing the partial year impact. Please.
Please note. This is not a projection for next year that will require more analysis, including lease renewals additional foreign transactions analysis of variable rent et cetera.
Fixed farm rent would be approximately $1 million lower than July guidance solar wind recreation will be approximately $200000 lower than July guidance and tenant reimbursements will be approximately $200000 lower than July guidance.
That would be approximately 400 $410 million.
The fully diluted shares to be approximately $1 9 million shares lower than July guidance.
Hopefully this helps described where we stand given what we noted we will certainly keep you updated as the year progresses.
Wraps up my comments for this morning. Thank you all for participating operator, you can now begin the Q&A session.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad well pause for just a moment to compile the Q&A roster.
And your first question comes from the line of Rob Stevenson from Janney. Your line is open.
Hi, good morning, guys.
So this quarter you guys sold a couple of thousand acres in each the corn belt in Delta South and almost 5000 acres in the south east, but nothing in the West coast to the high Plains. The expected sales over the remainder of 'twenty three are going to be in those same markets or are you expecting to see some west coast and high plains sales.
So the the auctions that are alluded to this is Paul the auctions that are alluded to in the.
Earnings release that are coming soon those are actually all high plains oriented auctions.
That they are starting and.
The Midwest sales, we did the corn belt sales, we did were in Nebraska in Nebraska, which in all except the far western part of Nebraska, we put in the corn belt.
But nebraska is unusual.
Nebraska, Scott very much, Illinois, and Iowa style land in the Eastern States third state.
And then as you move west it's much more water challenged what we sold in Nebraska and that water challenged area as.
As far as the sales in the Delta and the southeast.
We are certainly pruning farms that for whatever reason, we don't think are as higher quality from our perspective is as the.
Some of the others. So some of the acreage was sold in the southeast and the Delta would fall into that bucket, but a couple of them.
Just fall into the bucket of somebody made us an offer we can't refuse Rob.
Our farm managers value this portfolio relatively frequently caught up from a <unk>.
Bottoms up we don't publish that we don't want to publish it because it's being done by our own farm managers, but they used comps and everything else and so we have sort of a tracking list internally on what we think something has to work and then obviously absorbed in.
Total mental projection of what's the growth in value of that property over the coming years with appreciation.
In particular.
Someone shows up and so.
On offer.
That is so far above what we quote unquote thing gets worse.
And.
Gives us the next three years or five years of appreciation without having to wait for it in their offer.
It will almost always take that deal and recycle the capital into in this circumstance buying back our stock or buying additional parks, where somebody really wants something from an economic perspective more than we do when.
We're not emotionally tied to any borrower who will sell it so whats what should come in the rest of the year, though as more sales frankly in the on the West coast.
And in the high Plains.
Although less in the eastern part of the country.
But with the caveat as I gave there may be still some things happened in the eastern part of the country.
Okay.
And I guess you.
Guys have talked in the past about reducing some of the volatility in the revenue streams et cetera.
The West coast assets that are there are we going to be sold are those ones with the more variable.
Revenue streams or are those the more stable ones I guess, what I'm trying to get at is are the some of the variable the tree crops almonds and stuff like that.
Is that stuff as in demand today or are you having to wait a bit for the market prices and some of the supply issues to subside to really monetize any of that and right now, it's monetizing strawberries and stuff like that.
It's a little bit a little bit of a mixed bag very very insightful question and a good question.
So so here so first in our portfolio the volatility comes almost entirely.
From.
The specialty crops, mostly on the west coast, but the specialty crops and our portfolio overall.
And from the market in the brokerage business the <unk> business I mean, that's where the volatility comes from the row crops.
Other than a tiny percentage of occasional bad debt is incredibly predictable.
Fixed cash rents come in 50% usually in February or March 50% roughly in November .
Incredibly predictable and you can see that in sort of now James is the company's budget matched up.
With what the actuals in the row crop portion of the portfolio.
So yes, the volatility is on the west coast, but the water risk is also substantially on the West coast. I mean is not water risk this year, but there will be again.
And we have taken a perspective that we want to lighten up our exposure out there doesn't mean, they exited completely but lighten up our exposure. So you will see more more sales as I said come from there.
Related to that though was the other question you asked the market.
Unlike Illinois farmland worth of state kind of has its different land classes across the state. So the values are different but it's all fundamentally in the same economic world. It raises corn it raises soybeans erase this week and it has some livestock.
When you go to California.
No two acres.
Acres five miles apart are vastly different in value and vastly different in terms of the food economy, they're connected to.
So you start with the land quality and water and water is probably even more important than land in California, but it's those two things and then you go to what crop is on it and if youre on a permanent crop say walnuts will generate frankly, having a tough time right now at a general economic sense, you're trapped because of <unk>.
40% of your value.
In that farm is the existing trees. So it's not so you can't just say, hey, I'm going to sell.
Sell a farm wallet Walnut economy is bad on the other hand, if all of the economy was strong it's easy to sell so we have to migrate through those issues. There obviously comp more complicated farms those sales processes and due diligence.
As longer lead times, and then finally.
The size of individual transactions, there can be quite high almost always tens of millions of dollars. So it is somewhat more of an institutional market than it is individual farmer market.
So it just slows down your process.
Okay. That's helpful. Paul I appreciate it.
James.
Year to date your <unk> per share was a penny the guidance is 11% to 18 tip.
Typically fourth quarter is your big quarter, it's usually call it 75% to 80% of the second half.
<unk> is there anything different this year that would suggest more coming in the third quarter on a percentage weighting than the fourth quarter or is the sort of normal third quarter fourth quarter split likely to be intact here in 'twenty three.
Yes, I think Rob the kind of shape of the curve would be pretty similar.
In past years or really the bulk is coming in the fourth quarter.
So yeah, I think that'd be pretty consistent.
Alright, and then last one from me James.
You guys talked about it a little bit in the press release, but what level of capital gains can you absorb in the common dividend in 'twenty, three and possibly using the first quarter 2004 dividend without having to pay a special dividend or if you sell the $1 35, it's all but a foregone conclusion that you guys are going to need to pay a special.
Dividend.
Yes, Rob.
Frankly, a topic that we are talking about a lot internally doing a lot of analysis with not only ourselves, but also our tax advisors.
And it's certainly a conversation at the board level. So at this point I think we.
We have the potential to make an additional distribution.
Not.
We're just not in a position to sort of declare what magnitude.
<unk>.
So I think we'll come back to you later, when we have more info.
But it's certainly a possibility okay. Let me, let me add just a little bit a bit to that James I appreciate your caution, but and James and I are two different buildings today.
Rob Youre question is the right question, we would not have put that in the press release.
We didn't think it was highly probable.
Basically, we obviously don't want to pay a tax we'd rather distribute to shareholders. The exact amount and the timing is certainly unknown at this point, but the probability if we complete that $135 million sales the mathematics are pretty compelling.
Going back to make some sort of I don't believe its I don't want to use the word special dividend, because who knows whether it's special or otherwise.
There probably will need to be something done because of the relatively powerful gains we've had on those sales.
Okay and then just last one for me I guess then.
Any update on the.
The hedge fund litigation or is that sort of status quo at this point yes.
Hit it very quickly and if you want a deeper read you guys can always talked to our general counsel after.
After this call, but the short answer is.
The Sabre point the party that that really caused this and our point of view.
Was try it has always been trying to wiggle out of this under a legal theory that says they werent involved.
That is untrue, we've got the documentation and the emails that prove their involvement.
And they have occasionally found that judge who didn't understand the case because a lot of these state court judges for example, divorce one minute of traffic case. The next minute and then then they show up in a in a complex commercial litigation in the third case of the day.
They've got a favorable decision in Texas, a year or more ago say.
Saying, hey, it was it was dismissed in Colorado Federal Court. So it can't come in Texas, that's totally untrue, we appealed that decision got a unanimous resolved in our favor.
And so we are back to the races favor point of course is appealing that.
And our view fail in that appeal, because we had a unanimous decision of the group of judges that not going to change their mind, but they get to run the process will continue.
They know their guilt. These other trying to waste time in our opinion.
That's what they are but we're on.
And we will stay there Mike.
My point of view good news is we're not spending much money on it.
Because.
When you're sitting there waiting on the judges to rule I'll spend much money on it.
That's good.
Thank you that's helpful. I appreciate the time guys.
Thanks.
And your next question comes from the line of Craig Kucera from B Riley Securities. Your line is open.
Hey, good morning, guys.
I had a couple of questions first I would like to talk about the some of the downward volatility in some of your core row crop pricing since the first quarter is that impacting your renewal lease discussions and kind of how are they going and what are your expectations.
Sure.
The.
In terms of the.
Lease renewals.
When you go to do lease renewals.
Probably there are two really important factors in that negotiation.
First is a general sense of the farm economy at the time of the negotiation.
And what vintage lease are you renegotiating.
And so at this point in time the farm economy is pretty strong not quite as strong as it was year ago, but in terms of row crop prices, but pretty darn strong and with what's going on in Ukraine right now.
It may get May get stronger and kind of has here in the last week or two.
But we're a pretty good place in the farm economy in terms of the vintage of leases, we're renegotiating, where now renegotiating in most cases, a lease that was negotiated in 2020.
The fall of 19 or 2020.
That was an error.
That.
At some of the leases had pretty big bumps back then and some didn't that was the timeframe, where the farm economy transitions and so the earlier negotiated leases, we're still kind of weak and the loss in the year negotiated leases were pretty strong.
So this year, if youre renegotiating one of the ones that wasn't very strong back in 2020, we'll likely to get.
Pretty big bumps, the 15% kind of bracket.
Last year, if you happen to be renegotiating, one that was negotiated late in the 2020 cycle you may see a lease thats more like 5% to 10% up because.
Just because you're coming off a higher base. So that's what we're that's what we're facing I mean rent. So we'll continue to decline.
I don't think our average increase will be quite as high as next year, if I had to.
Take an educated guess right now, but we're pretty early in the process. So it's kind of hard to tell I think it will be strong, but not quite as good as in terms of percentage drop as we had last year.
Thanks.
No thats helpful. Thanks for the color.
James I've got a question on your guidance just looking from your sort of May 23 assumptions to July .
Looks like about a 50 to 100 basis point increase on the interest rate resets.
A reset on the $49 million that is outstanding.
Yes.
Can you walk us through how you're getting to that and then we had 25 basis points yesterday, maybe another 25 of those are those discussions related to the spreads you might be looking at or any color there would be helpful.
Sure.
So in general when we look at these metlife rate resets.
We sort of put the language.
Actually I have the resets work in the Q seven.
Kevin, but generally how it works they are priced off a spread to treasuries.
And so we've had movement in treasuries and spreads while earlier in the year, we may have hoped to be a little bit tighter.
They're they've widened out so historically our spread if you wanted to put a range around it it's been kind of $180 to 200 over.
And now we are I think closer to the 200 side.
Of the range and treasuries have moved so.
Typically were pricing off the three year in this particular instrument and we have some ability to.
Flex out a little longer.
And if that's on the table for discussion with the lender.
Some of the earlier ones in the year, we just didn't have as much term and the actual loan.
They were maturing.
Three or maybe four years out so going sort of further yield curve wasn't really possible.
That makes sense.
Yes, that's helpful. Thank you.
And just another follow up on the guidance.
I noticed your variable payment expectations were up by an improvement in citrus farms Green, Greg well rent, but your direct operations are down which I think is mostly comprised of citrus and Trina is that is that performance related or did you sell some of those farms under direct operation or <unk>.
You have a third party is coming now is just some color there would be helpful to understand that.
If there is a disconnect there.
Yes.
It's.
I realize it can be a little confusing because they are both 500 in the basket of citrus, but theyre different farms. So we've got sort of.
Incentive farms that are paying variable rent that are frankly doing a little bit better than we initially estimated.
The citrus earn vascular direct operations are doing a little bit worse. So yes, there are.
They are all broadly under citrus, but do grow different types of products and even on the farms, sometimes a lot of different products within a farm.
So, we're just seeing a bit of a bit of divergence.
So a little bit better on the variable farms and a little bit worse on the direct operations firms, but no nothing's really leaving the portfolio if that answered that part of the question it's sort of.
I guess to use a bad pun here Orange is orange as against oranges.
No that makes sense I appreciate that.
Just looking at the drop in sort of auction and brokerage fee expectations, which was pretty meaningful quarter to quarter.
I just wanted to circle back to that is that due to a lack of buyers or sellers or both.
Let me pick up on that one.
It is really a lack of sellers what happens in the farm economy.
Particularly in the row crop world is when prices when prices start to really surge and everybody is hearing about those 20 dollar sales in their market as Super euphoric.
Picture of the <unk>.
Family in suburban Chicago, whose grandmother owns a farm grandma passed away.
Robert sitting around the table.
Extended family Party going Hey, let's sell Grandma farm prices are sky high.
Farm gets sold than when prices level out what happened in the same family gathering.
Well, let's wait a few let's wait a month or two let's wait a year or two may be able to recover maybe Ukraine will get worse in the grain prices will go up and so there's just this hesitation and we have transitioned and high interest rates certainly haven't helped because at least some of the buying community.
It needs to borrow money.
So what's happened is we've kind of transitioned in the last 12 months from that Super euphoric to the plateau and it's really dropped the number of people selling farms to the volume declines are not just in marine wise there in all our major competitors across the country.
We sell farms. The one other thing I do want to just mention on Murray Y <unk> brokerage business. They did a major amount of business for us the Nebraska auction site.
Alright.
Talked about a few moments ago were run by Murray wise, but the way the accounting system works, we take the fee revenue that Morry wise received because we the human beings. There in that division of our business have to get paid the fee revenue that we pay it gets consolidated out.
And the financials. So it makes the Murray as it should but it makes it very wise aligned look.
It's not great anyway, but it looks even worse because you take out the fee levels.
Came from the business done for Fps vehicle.
No that makes sense.
Alright, thanks, guys.
I think that I don't know exact numbers on our program in the public domain.
It's it is a pretty big enough to get consolidated out.
Thank you.
And your next question comes from the line of Alex Vegan from Baird. Your line is open.
Alright. Thank you for taking my question. The first is on the timing of debt repayments.
Heard that you mentioned.
In the prepared remarks that the buybacks were front.
Frontloaded in the debt prepayment will be back loaded just kind of for modeling reasons tried to figure out what that schedule will be like.
So of the.
The 135 closings that we have been $135 million of closings that we've been referring to today.
Better yet either.
Either closed or under contract or really advanced negotiations.
The remainder of the proceeds from those sales will largely go to buy it to pay down debt.
Closings scheduled closings to be scheduled of the things we know are going to be sold.
But to pay down debt.
The thing you need to just keep in mind as we might buy an additional cash is fungible. So we might buy an additional thought.
But were pretty dedicated to.
Taking that $135 million, but the money that the money that was available for stock repurchases from those asset sales has already been spent.
What's coming now and we did it and it works I mean, we've bought back stock at an average price of $11 three and I'm not looking at my screen right now, but it's trading higher not quite a bit higher than that and so we did the stock buyback first and then a new debt reduction second.
135 million of proceeds.
Thank you for that that's helpful.
Then to go to the asset sales can you provide some more color on whom youre actually selling to how much of the assets are going to farmers versus everybody else.
Well I mean, its mixed bag, we've had a couple of transactions that are institutional buyers than our major competitors. They are obviously digging their own confidentiality, so I won't say their names, but they.
They are the who's who of farm.
Ultra high net worth families.
And.
Big competitive institutional investors to us.
Got quite a few of those assets.
And then the local farmers have been.
The remainder of the buying group so yes.
Falling roughly reflective of how the market really really works and the biggest the biggest transactions are often institutional or the <unk>.
Ones that are more modest in size are often individual farmers, but.
Got it.
So we have a cultural matter Alec offer to the farms to the tenant first if we believe the tenants.
Financial wherewithal that a chance of buying it.
And he may want to go find his own financial backer. So we can keep control of the asset even if you can't afford to buy themselves and so we always kind of start with the farmer.
Thats actually on the farm and then if he's not able.
Or just didn't have a wherewithal.
By it will we'll move on to seeing if there is other people buying but we're not we're not really putting for other than the properties. We're auctioning.
Decision to say, Hey, we're going to sell that.
Sure.
We're.
Kind of waiting for inbound call. We've made it known that we won't sell some stuff and we wait for inbound calls.
Okay. Thank you for that that's it for me.
And there are no further questions at this time I will now turn the call back over to Mr. Luca Fabbri for some final closing remarks.
Thank you Rob and thank you everybody for listening in and participating to this call. We appreciate your interest in our company I look forward to updating you on our activities and results in the coming quarters have a great day.
This concludes today's conference call. Thank you for your participation you may now disconnect.
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