Q3 2023 Farmland Partners Inc Earnings Call
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Speaker 1: transcript
Speaker 1: up
Hello, and welcome to farmland Partners, Inc. Q3, 'twenty twenty-three earnings call all lines have been placed on mute to prevent any background noise.
Speaker 1: transcript
Speaker 2: All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star one on your telephone keypad I will now turn the conference over to Mr. Luca Fabbri, President and CEO. Please go ahead.
Speaker 1: transcript
Speaker 3: If you would like to have the question during this time, simply press star one on the screen.
Speaker 1: transcript
Speaker 4: I will now turn the conference over to Mr. Luca Fabri, President and CEO .
Thank you Sarah good morning, everybody and welcome to farmland partners third quarter earnings conference call and webcast. Thank you so much for giving us the opportunity to share with you our thinking and our strategy in a format a bit less formal and more interactive than public filings and press releases before we get started I will turn over the call to our general counsel.
Speaker 2: transcript
Speaker 5: Good morning everybody and welcome to Farman Partners, third quarter earnings conference calling webcast. Thank you so much for giving us the opportunity to share with you our thinking and our strategy in a format a bit less formal and more interactive than public filing suppress releases.
Speaker 3: transcript
Speaker 6: Before we really get started, I will turn over the call to our general counsel, Christine Garison, for some customary preliminary remarks. Christine? Thank you, Luza. And thank you to everyone on the call. The press release announcing our third quarter earnings was distributed after March close yesterday. The supplemental package has been posted to the investor relations section of our website under the sub-heter events and presentations.
Christine garrison for some customary preliminary remarks, Christine Thank you lose that and thank you to everyone on the call. The press release announcing our third quarter earnings was distributed after market closed yesterday and supplemental package have been posted to the Investor Relations section of our website under the sub head or events and presentation for those who listen to the recording of this presentation.
Speaker 3: transcript
Speaker 7: For those who listen to the recording of this presentation, we remind you that the remarks made herein are as of today, October 26, 2023, and will not be updated subsequent to this call. During this call, we will make forward looking. Thank you.
Remind you that the remarks made herein are as of today October 26, 2023 and will not be updated subsequent to this call. During this call. We will make forward looking statements, including statements relate to the future performance of our portfolio, our identified and potential acquisitions and dispositions impact of acquisitions dispositions and financing activities.
Speaker 3: transcript
Speaker 8: to the future performance of our portfolio, our identified and potential acquisitions and distributions, impact of acquisitions, distributions and financing activities, business development opportunities, as well as comments and our outlook for our business rents and the broader agricultural market.
These business 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 S. S. Though adjusted SFO EBITDA Ari and adjusted EBITDA Ari definitions of these non-GAAP measures as well.
Speaker 3: transcript
Speaker 9: We also discussed certain non-GAAP financial measures, including net operating income, FFO, adjusted FFO, EBITDA RE, and adjusted EBITDA RE. 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 their quarter earnings, which is available on our website, fromlinepartners.com, and is furnished as an exhibit to our current report on Form 8K dated October 25, 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 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 the SEC.
Reconciliations to the most comparable GAAP measures are included in the company's press release announcing third quarter earnings which is available on our website from the partners Dot com and is furnished as an exhibit to our current report on form 8-K dated October 25th 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 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 that D. C. I would now like to turn the call to our executive Chairman.
Speaker 3: transcript
Speaker 10: I would now like to turn the call to our Executive German. Help it and fall.
Paul Pittman Fox.
Speaker 4: transcript
Speaker 11: Thank you, Christine. So I'll make a few general high-level comments before I turn it back to my colleague.
Thank you Christine.
So I'll make a few general high level comments before I turn it back to my colleagues.
Speaker 4: transcript
The most important point from my perspective is that our stock continues to be fair.
Speaker 4: transcript
Speaker 12: very deeply discounted compared to its fundamental intrinsic value. Sort of as proof of my belief, you may or not notice, but I bought a million dollars worth of stock during the quarter. I have never sold a share in the company and continue to grow my position because I'm a firm believer that we will ultimately access that value.
Very deeply discounted compared to its fundamental intrinsic value.
Sort of as proof of my belief you may not notice, but I bought a million dollars worth of stock.
During the quarter.
I have never sold a share on the company and continuing to grow my position.
I'm a firm believer that we will ultimately access that value.
Speaker 4: transcript
Speaker 13: We will continue selling assets at good gains and using those funds to pay down debt and buy back stock as long as this significant discount exists.
We will continue selling assets at good gains and.
And using those funds to pay down debt and buying back stock as long as this significant discount exists.
Speaker 4: transcript
Speaker 14: And it's important to recognize that our gains to date have been very strong, but we are not selling the assets we like the most. We are selling assets that probably have been laggards in terms of appreciation compared to the rest of our portfolio.
And it's important to recognize that our games to date have been very strong, but we are not selling the assets. We like the most we are selling assets that probably have been laggards in terms of appreciation compared to the rest of our portfolio.
Speaker 4: transcript
Speaker 15: There is, as you may note, in the financials, we had one sale that was actually at a substantial discount to what we had it on the books for. It's Gracie Island Groves, it's a relatively modest size transaction, but it is a citrus farm in Florida. And we fundamentally threw in the towel and got rid of the farm because that is an industry and opinion that will not recover.
There is as you may know in.
The financials, we had one sales it was actually at a substantial discount to what we had it on the books for its grassy island grows it's a relatively modest sized transaction.
But it is a citrus farm in Florida, and we fundamentally threw in the towel and got rid of the farm because that is an industry in our opinion that will not recover.
Speaker 4: transcript
Speaker 16: That is the only citrus farm in Florida we had. But as many of you may know in the last decade or 20 years or so, you've seen almost a 90% reduction in volumes of citrus in Florida.
That is the only citrus farm in Florida, we had.
But as many of you may know in the last.
Decade are 20 years, or so you've seen almost a 90% reduction in volumes of citrus in Florida.
Speaker 4: transcript
Speaker 17: That is a tide that we just couldn't swim against. And so we just let that farm go and move on. It's important to recognize that despite that loss on that farm, the overall returns on the asset sales we've made are still very, very strong.
That is a tide that we just couldn't swim against.
And so we just let that farm go.
And move on it's important to recognize that despite that loss on that farm. The overall returns on the asset sales. We've made are still very very strong.
Hum.
Speaker 4: transcript
Speaker 18: What we need to do next is obviously focus some on cost control as we have shrunk the size of the portfolio.
What we need to do next is obviously focus some on cost control as we have shrunk the size of the portfolio we.
Speaker 4: transcript
Speaker 19: We will turn to that as we get later in this year in the beginning of next year. But this strategy is fundamentally creating significant value for our shareholders who decide to stick with us as we continue to execute on the strategy.
We will turn to that as we get.
Later in this year and the beginning of next year.
This strategy.
It was fundamentally creating significant value for our shareholders, who decide to stick with us as we continue to execute on our strategy.
Speaker 4: transcript
Speaker 20: With that, I'm going to turn it over to Luca Fobri RCL.
With that I'm going to turn it over to Luca Fabbri our CEO.
Speaker 2: transcript
Speaker 21: Thank you, Paul. I would like to draw your attention to a few data points to kind of outline how we have executed our strategy so far as Paul is outlined and as we've discussed in past conference polls.
Paul I would like to draw your attention to a few data points to about an hour.
Aligning how we have executed on our strategy so far as Paul has outlined and as we've discussed in past conference calls in the first three quarters of the year, we have sold 54 properties.
Speaker 2: transcript
Speaker 22: In the first three quarters of the year, we have sold 54 properties.
Speaker 2: transcript
Speaker 23: for total proceeds of about 122 million, and approximately 24% gain over mental value. After the close of the third quarter, we have closed on an additional about $2.5 million in asset sales.
For total proceeds of about $122 million.
And approximately 24% gain over network volume.
After the close of the third quarter, we have closed on an additional about $2 $5 million in asset sales and we had approximately 65 million of.
Speaker 2: transcript
Speaker 24: and we have approximately 65 million of asset sales under contract.
Asset sales under contract or in advanced negotiations that we expect and hope to close by the end of the year of course.
Speaker 2: transcript
Speaker 25: or in advanced negotiations that we expect and hope to close by the end of the year.
Speaker 2: transcript
Speaker 26: Of course, you know, there is, especially on the ones in advanced negotiations, there is still some degree of uncertainties about that. So we are projecting total asset sales for the year at about $190 million.
It is especially on the <unk> box negotiations that are still to some degree of uncertainties about that so we are projecting total asset sales for the year at about $190 million.
Speaker 2: transcript
Speaker 27: So far this year, including slightly after the quarter, we have repurchased about 6.4 million shares at the average price of $10.98. So of those $124 million of proceeds so far, we use about 70 in common stock repurchases. We've also paid down about $8 million of CZA preferred.
So far this year, including slightly after the quarter, we have repurchased about $6 4 million shares.
Average price of $10 98, so of those $124 million of proceeds so far we used about 70.
Common stock repurchases, we've also paid down about $8 million of series a preferred.
Speaker 2: transcript
Speaker 28: We are not completely out of the market on the asset purchasing side. We have completed a few transactions. We purchased about $20 million of assets. So we are really focused on improving our portfolio, not just selling assets.
We are not completely out of the market on the perch on the asset purchases side, we have completed a few transactions, we purchase about $20 million of assets.
So we are really focused on improving our portfolio not just selling assets.
Speaker 2: transcript
Speaker 29: Last but not least, I want to draw your attention on the least renewal cycle and how we are progressing. So far, we are about two thirds of the way and we are expecting to finish the year and and the least renewal cycle up about 18 to 20% and hopefully even a little bit more than.
When the lease I want to draw your attention on the.
Lease renewal.
Your line, how we are progressing so far we've got about two thirds of the way and we are expecting to finish the year end.
And at.
Lease renewal cycle.
Up about 18% to 20%.
Actually even a little bit more than that.
Speaker 5: transcript
Speaker 30: I will now turn the call over to James Gilligan, our CFO for his overview of the company's financial performance. James. Thank you, Luca. I'm going to cover a few items today, including summary of three and nine months and a September 30th, 2023. Review of capital structure and interest rates. Compare some of your today revenue and updated guidance for the
I will now turn the call over to James Gili <unk>, our CFO for his overview of the company's financial performance James.
Thank you Luca.
I'm going to cover a few items today, including summary of three and nine months ended September 32023 review of capital structure and interest rates.
Comparison of year to date revenue and updated guidance for the year.
Speaker 5: transcript
Speaker 31: I'll be referring to the supplemental package of my remarks. As a reminder, the supplemental is available in the investor relations section of our website under the subheader events and presentations. First, I'll share a few financial messages.
I'll be referring to the supplemental package in my remarks as a reminder, the supplemental is available on the Investor Relations section of our website under the subheading events and presentations.
First I will share a few financial metrics that appear on page two.
Speaker 5: transcript
Speaker 32: For the three-month sentence to September 23, then income was up over 280% to $4.3 million, and then income per share available to common stockholders increased to $0.7 per share largely due to gains on dispositions of assets.
For the three months ended September 30, 23, net income was up over 280% to $4 3 million and net income per share available to common stockholders increased to seven per share largely due to gains on dispositions of assets.
Speaker 5: transcript
AFFO was down to negative 0.5 million, and AFFO for weighted average share was down to negative 1 cent. The largely due to elevated interest expense, lower performance and farms under direct operations, and lower auction broker-dravity relative to last year.
<unk> was down to negative <unk> 5 million <unk>.
Per weighted average share was down at negative <unk>.
Largely due to elevated interest expense lower performance in firms on our direct operations and lower auction in brokerage revenue relative to last year.
For the nine months ended September 30 to 23 net income was up over 160% to $13 9 million and net income per share available to common stockholders increased to 22.
Speaker 5: transcript
For the nine months in its September 30th, 23, the end income was up over 160% to 13.9 million. And end income per share available to common stockholders increased to 22 cents. Again, largely due to gains on this position of AFF.
Again, largely due to gains on dispositions of assets.
Speaker 5: transcript
ASFO was down to about negative $50,000, and ASFO-per-weighted average share was down to zero cents. Again, largely due to elevated interest expense, lower performance and firm center direct operations, and lower auction broke and drove any relative to last year.
<unk> was down to about negative $50000 and <unk> <unk> per weighted average share was <unk> again, largely due to elevated interest expense lower performance in farms under direct operations and lower auction in brokerage revenue relative to last year.
Speaker 5: transcript
Next we'll review some of the operating expenses and other items shown on page 5.
Next I'll review some of the operating expenses and other items shown on page five.
Speaker 5: transcript
Depreciation, depletion, and amortization was a little higher in the third quarter of 2023 due to more depreciable assets placed in a service and approximately $150,000 of adjustments made in the quarter. As a reminder, we had approximately $400,000 of adjustments last quarter related to assets placed in the service.
Depreciation depletion and amortization was little higher in the third quarter of 23 due to more depreciable assets placed into service and approximately $150000 of adjustments made in the quarter. As a reminder, we had approximately $400000 of adjustments last quarter related to assets placed into service.
Speaker 5: transcript
Property operating expenses were flat in the third quarter, but a little higher year-to-date, 23, caused by higher property taxes, including a one-time property tax of approximately $150,000 in the first quarter. That amount was reimbursed by the tenant and appears as tenant reimbursement revenue.
<unk> operating expenses were flat in the third quarter, but a little higher year to date 23 caused by higher property taxes, including a onetime property tax of approximately $150000 in the first quarter that amount was reimbursed by the tenant and appears that tenant tenant reimbursement revenue.
Speaker 5: transcript
In addition, we incurred a non-recurring expense in the second quarter but approximately $140,000 due to the final reconciliation, reconciliation of cost sharing on a California farm.
In addition, we incurred a nonrecurring expense in the second quarter of approximately $140000 due to the final reconciliation and reconciliation of cost sharing on our California farms.
Speaker 5: transcript
General administrative expenses were a little higher than Q323 due to increased compensation expense. But lower for year to date 23, due primarily to lower stock based comp and lower travel.
General and administrative expenses were a little higher in Q3 23 due to increased compensation expense, but lower for year to date 23, due primarily to lower stock based comp and lower travel.
Speaker 5: transcript
Legal and accounting expenses were lower in 23 due to lower litigation spent.
Legal and accounting expenses were lower in 'twenty, three due to lower due to lower litigation spend.
Speaker 5: transcript
Impairment of assets in the third quarter of 23, that relates to property held for sale. This is what Paul mentioned a few minutes ago. These are properties that were under contract for sale as of 930, and we'll close in Q4. This impairment generally represents the early recognition of a loss on disposition, which, by the way, is added back for purposes of calculating FFO and EBITDA.org.
Impairment of assets in the third quarter of 'twenty three that relates to the property held for sale. This is Paul mentioned a few minutes ago.
Other properties are under contract for sale as of 930 and will close in Q4. This impairment generally represents the early recognition of a loss on disposition, which by the way is added back for purposes of calculating <unk> and EBITDA.
Gain on dispositions is up compared to 2022, demonstrating the appreciation of farmland sales values over net book value.
Speaker 5: transcript
Gain on dispositions is up compared to 2022, demonstrating the appreciation of farmland sales values over net book value. Interest expense increased in 2023 due to higher rates.
Interest expense increased 23 due to higher rates income tax was a benefit in Q3 and year to date 23 relative to an expense in 2022. This.
Speaker 5: transcript
Income tax was a benefit in Q3 and year day 23 relative to an expense in 2022. This was caused by adjustments within the third quarter of this year that were made to prior period S.
This was caused by adjustments within the third quarter of this year that were made to prior period estimates.
Speaker 5: transcript
Next, I'll skip ahead to page 12 to make a couple of comments about our capital structure.
Next I'll Skip ahead to page 12 to make a couple of comments about our capital structure.
Speaker 5: transcript
Total debt at September 30th, 2023 was $422.8 million, down approximately $50 million from the end of last quarter.
Total debt at September 32023 was $422 8 million down approximately $50 million from the end of last quarter.
Speaker 5: transcript
Fully diluted share count as of October 20th was 49.4 million shares.
Fully diluted share count as of October 20th was $49 4 million shares.
Speaker 5: transcript
Moving down the page, we had undrawn capacity on the lines of credit of approximately 157 million at the end of the quarter.
Moving down the page, we had undrawn capacity on our lines of credit of approximately $157 million at the end of the quarter.
Speaker 5: transcript
We agreed to the last MetLife Raid Reset of the Year, that's MetLife Number 10, which was reset at 6.36% per seven years. As a reminder, we can pre-pay 50% of that loan in any calendar year without penalties.
We agreed to the last Metlife rate reset of the year, that's Metlife number 10, which was reset the 636% for seven years. As a reminder, we can prepay 50% of that loan in any calendar year without penalty.
Speaker 5: transcript
Next year we have three MetLife Ray Resets on debt totaling approximately 44 million dollars.
Next year, we have three metlife rate resets on debt totaling approximately $44 million.
Page 13 provides an overview of our income statement and the building blocks that generate revenue and cost of goods sold and won't go through it in detail. Please feel free to contact me if you have any questions.
Speaker 5: transcript
Page 13 provides an overview of our income statement and the building blocks that generate revenue and cost of goods sold. I won't go through it in detail, but please feel free to contact me if you have any questions.
Speaker 5: transcript
Page 14 shows these building blocks for the first three quarters of 2022 and 2023 would comment at the bottom of the page to describe the differences between the period.
Page 14 shows these building blocks for the first three quarters of 2022 and 2023 with comments at the bottom of the page to describe the differences between the periods a.
Speaker 5: transcript
A few points to highlight are fixed farm rent increased between the periods as we acquired properties last year and renewed leases. That was offset by dispositions in the current year.
A few points to highlight are fixed farm rent increase between the periods as we acquired properties last year and renewed leases that was offset by dispositions in the current year.
Solar wind and recreation changes were primarily caused by a large solar project in the state of Illinois to began its construction phase in the third quarter of last year that quarter, Q3, 2022, and a little bump caused by the commencement of VAT construction process the.
Speaker 5: transcript
Solar and wind and recreation changes were primarily caused by a large solar project in the state of Illinois The began its construction phase in the third quarter of last year that quarter Q3 2022 a little bump caused by the commencement of that construction process
Speaker 5: transcript
The first and second quarters of this year benefited from that construction relative to the same quarters in 2022.
The first and second quarters of this year benefited from that construction relative to the same quarters in 2022.
Speaker 5: transcript
Q3 2023 variance was caused by small changes due to property dispositions in the quarter and the absence of that construction related bump in the third quarter of last year.
Q3, 2023 variances caused by small changes due to property dispositions in the quarter and the absence of that construction related bump in the third quarter of last year.
Speaker 5: transcript
Tenant reimbursements increased in Q1 2023 with that one-time property tax assessment and related tenant reimbursements.
Tenant reimbursements increased in Q1, 2023 with that onetime property tax assessment and related tenant reimbursement.
Speaker 5: transcript
Q3 2023 decreased to the property disposition.
Q3, 2023 decreased due to property dispositions.
Speaker 5: transcript
In the fourth quarter of last year, we require land and buildings for four agricultural equipment dealerships in Ohio under the John Deere brand. The accounting treatment classifies as acquisitions as financing transactions. So they appear on the balance sheet as loans and on the income statement as interest income. This accounts for the increase in interest income in 23 compared to last year.
In the fourth quarter of last year, we acquired land in billings for for agricultural equipment dealerships in Ohio under the John Deere brand.
The accounting treatment classifieds those acquisitions as financing transactions. So they appear on the balance sheet as loans and on the income statement as interest income. This accounts for the increase in interest income and <unk> 23 compared to last year.
Speaker 5: transcript
Variable payments were down in the first and second quarters of this year due to grapes, robrops, citrus and tree nuts.
Variable payments were down in the first and second quarters of this year due to grapes row crops citrus in tree nuts Q.
Speaker 5: transcript
Q3 2023 was large. It was up largely due to variable payments on row crop farms in the high plain.
Q3, 2023 was largely was up largely due to the variable payments on row crop farms and the high plains.
Speaker 5: transcript
Direct operations of the combination of crop sales, crop insurance and cost of your soul. It was down year over year, largely due to citrus and walnuts. Other items decreased due to lower auction of broker's activity compared to last year.
Direct operations is the combination of crop sales crop insurance and cost of goods sold it.
It was down year over year, largely due to the citrus and walnuts.
Other items decreased due to lower oxygen brokerage activity compared to last year.
Speaker 5: transcript
So in summary, while the items they comprise fixed payments were up year-to-year, the items they comprise the other categories, variable payments, direct operations, and other were down year.
So in summary, while the items that comprise fixed payments were up year over year. The items that comprise the other categories variable payments direct operations in other were down year over year.
Speaker 5: transcript
On the next page page 15, and we have updated the outlook for 2023, using the same building blocks described in the previous pages. Assumptions are...
On the next page page 15, we have updated the outlook for 2023 using the same building blocks described in the previous pages assumptions are listed out on the bottom.
Speaker 5: transcript
This contemplates that we dispose of approximately $190 million of farms in total for the year as Luke had described. As a reminder, this number is an estimate.
This contemplates that we dispose of approximately $190 million of farms in total for the year as Luc and described.
As a reminder, this number is an estimate and actual results may differ.
Speaker 5: transcript
On the revenue side, fixed farm rent will change with disposition of the new recess.
On the revenue side fixed farmers will change with dispositions and new leases on.
Speaker 5: transcript
Solar, wind and recreation, ten and reimbursements, and manganese and interesting come. All have small changes from last.
Solar and wind and recreation tenant reimbursements and management fees and interest income all have small changes from last quarter.
Speaker 5: transcript
Variable payments decreased due to the outlook for Trina, farms that pay variable rent.
Variable payments decreased due to the outlook for Trina.
Farms that pay variable rent.
Speaker 5: transcript
Direct operations, again, that's crop insurance plus cost sales, less costs to get sold, is up significantly due to lower expected costs to get sold on walnut farms under direct operations. Other items have small changes as we have improved visibility as we approach year-end.
Direct operations again, that's crop insurance plus cost plus cross sales less cost of goods sold is up significantly due to lower expected cost of goods sold on walnut firms under direct operations.
Other items have small changes as we have improved visibility as we approach year end on the expense side general in general and administrative decreases was lower spend year to date 23.
Speaker 5: transcript
On the expense side, general and administrative decreases with lower spend year today, 23. Legal accounting also decreases with lower spend year today, 23.
Legal and accounting also decreases with lower spend year to date 23.
Speaker 5: transcript
Interest expense change with updated rates and higher expense year date 23 Weighted average shares decreased the share buybacks thus far
Interest expense changed with updated rates and higher expense year to date 23 weighted.
Weighted average shares decreased the share buybacks thus far.
Speaker 5: transcript
This results in AFFO in the $7.3 to $9.9 million range, or $0.14 to $0.19 per share, an increase from projections provided last week.
This resulted in <unk> and the seven three to $9 $9 million range for 2014 to <unk> 19 per share an increase from projections provided last quarter.
Speaker 5: transcript
Down at the bottom of page 15, we provide some additional information regarding next year. We've had various people asking about 2024, so we wanted to provide information where we have visibility. Please keep in mind these values consider $190 million that some decisions were currently considering, and of course actual results may differ.
Down at the bottom of page 15, we provide some additional information regarding next year, we've had various people asking about 2024. So we wanted to provide information where we have visibility.
Please keep in mind these values consider it a $190 million of some dispositions. We're currently considering and of course actual results may differ.
Fixed <unk> will be approximately $3 million lower than guidance shown above due to the full year impact of farm sales offset by positive lease renewals.
Speaker 5: transcript
Fixed farm rent will be approximately $3 million lower than guidance shown above due to the full year impact of farm sales offset by positive lease renewal.
Speaker 5: transcript
Solar wind recreation will be approximately in line with guidance shown above.
<unk> recreation will be approximately in line with guidance shown above.
Speaker 5: transcript
Tenere inversions will be approximately $500,000 lower than the guide shown above. This is due not only to ask the decisions, but also the one time tax reimbursement in the first quarter of this year that we don't anticipate occurring next year.
Tenant reimbursements will be approximately $500000 lower than guidance shown above this is due not only to asset dispositions, but also the onetime tax reimbursement in the first quarter of this year that we don't anticipate occurring next year and also certain lease renewals that traded higher fixed rent for lower tenant reimbursements.
Speaker 5: transcript
and also certain lease renewals that traded higher fixed rent for lower tenant reimbursements. Hopefully this helps describe where we stand.
Hopefully this helps describe where we stand given what we know today.
Speaker 5: transcript
This wraps up my comments for this morning. Thank you all for participating. Operator, you can now begin the Q&A session.
This wraps up my comments for this morning, Thank you all for participating.
Operator: Hello, and welcome to Farmland Partners Inc Q3 2023 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question and answer session. If you would like to ask the question during this time, simply press star one on your telephone keypad.
Later, you can now begin the Q&A session.
Thank you if you have a question. Please press star one on your telephone keypad to withdraw your question simply press Star one again.
Speaker 1: transcript
Thank you. If you have a question, please press star one on your telephone keypad to withdraw your questions.
Speaker 1: transcript
Your first question comes from the line of Rob Stevenson with Jamie. Your line is...
Your first question comes from the line of Rob Stevenson with Janney. Your line is open.
Operator: I will now turn the conference over to Mr. Luca Fabbri, President and CEO. Please go ahead. Thank you, Sarah.
Speaker 5: transcript
Good morning guys. Any clarity on this point at this point on the need for special dividend and potential size of one?
Hi, good morning, guys.
Clarity on this point at this point on the need for a special dividend and potential size of one.
Luca Fabbri: Good morning everybody and welcome to Farmland Partners. Third quarter earnings conference call and webcast. Thank you so much for giving us the opportunity to share with you our thinking and our strategy in a format a bit less formal and more interactive than public filings of press releases.
Speaker 4: transcript
This is, I'll take that question. This is Paul. The, this will, we will obviously end up, I believe, with some sort of special dividend. It hasn't been declared barbed-y yet, but I think we signal that last quarter, and it's still likely to happen. The exact size is, you know, unknown at this point, because you've got so many transactions that are under contract, but not closed.
I'll take that question this is Paul.
And we will obviously ended up I believe with some sort of special dividend. It hasnt been declared by our board yet, but I think we signaled that last quarter and it is still likely to happen. The exact sizes is unknown at this point because you've got so many transactions that are under contract, but not closed now or.
Christine Garrison: Before we really get started, I will turn over the call to our general counsel, Christine Garrison, for some customary preliminary remarks. Christine. Thank you, Luca, and thank you to everyone on the call.
Christine Garrison: The press release announcing our third quarter earnings is distributed after March close yesterday. The supplemental package has been posted to the investor relations section of our website under the subheader events and presentations. For those who listen to the recording of this presentation, we remind you that the remarks made herein are as of today, October 26, 2023, 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, our identified and potential acquisitions and decisions, impact of acquisitions, decisions and financing activities, business development opportunities, as well as comments and our outlook for our business rents and the broader agricultural markets.
Speaker 4: transcript
Now our history is most things that go under contract actually do close, but there's no assurance at this point.
History is most things that go under contract actually do close but there is no assurance at this point, so I think it'll be.
Speaker 4: transcript
So I think it'll be probably into December before the exact number is known and put out into the public domain.
Probably into December before the exact number is known and put out into the public domain.
Speaker 6: transcript
okay and just to follow up on that paul i mean uh... you know i think that we're all sort of you know cognizant of fact that in you know you're selling office buildings or whatever that lining up financing today uh... on the by side of that to be able to finance the purchase is difficult you talk about what the environment right now is for farmers and other uh... interested parties to be able to go out there and line up financing it reasonable rate
Okay, and just a follow up on that Paul I mean.
I think we're all sort of cognizant of the fact that in.
Youre selling office buildings or whatever that lining up financing today.
On the buy side of that to be able to finance. The purchase is difficult can you talk about what the environment right now is for farmers and other interested parties to be able to go out there and line up financing at reasonable rates to purchase the assets from you and close in a timely manner, whether or not that's being held.
Christine Garrison: We will also discuss certain non-gap financial measures, including net operating income, FFO, adjusted FFO, EBITDA RE, and adjusted EBITDA RE. Definitions of these non-gap measures, as well as reconciliations to the most comparable gap measures, are included in the company's press release, announcing third quarter earnings, which is available on our website fromlandpartners.com. As furnished as an exhibit to our current report on form 8K dated October 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.
Speaker 6: transcript
to purchase the assets from you and close in a timely manner, whether or not that's being held up at all.
But all.
Speaker 4: transcript
Yeah, I mean, this is, this is, it's a good question because the, you know, one of the cores of our frustration and my personal frustration is we're not like all those other real estate assets for the following reason.
Yes, I mean this is this is it's a good question because one of the cores of our frustration in my personal frustration is we're not like all of those other real estate assets for the following reasons. The food economy farm economy is still incredibly strong number one number two it's not driven.
Christine Garrison: 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 the SEC.
Speaker 4: transcript
The food economy, the farm economy, is still incredibly strong.
Speaker 4: transcript
Number two, it's not driven by institutional investors who have to go finance everything they buy. We're not office buildings. We're not a reed-dominated culture and agriculture. It's a farmer-gover-gover-dominated culture, and they got a lot of money in the pocket based on the last couple of years. Of all the farms we put under contract this year, we've only had one transaction that didn't close. It was an institutional buyer, largely for the reasons you're talking of.
By institutional investors, who have to go finance everything they buy we're not we're not office buildings, which not a REIT dominated culture in agriculture is a farmer.
<unk> culture, and they've got a lot of money in the pocket based on the last couple of years of all of the farms, we put under contract. This year, we've only had one transaction that didn't close.
Paul Pittman: I would now like to turn the call to our executive chairman, Paul Bittman-Paul. Thank you, Christine. I'll make a few general high-level comments before I turn it back to my colleagues.
It was an institutional buyer largely for the reasons you were talking about but the farmer buyers are solid and they close these transactions. The final point is that the debt levels and agriculture on farmland ownership overall something like 13%. This is a cash dominated market. Most of these purchasers don't get.
Speaker 4: transcript
But the farmer buyers are solid and they close these transactions.
Paul Pittman: The most important point from my perspective is that our stock continues to be very deeply discounted compared to its fundamental intrinsic value. You know, sort of as proof of my belief, you may or not notice but I bought a million dollars worth of stock during the quarter. I have never sold a share in the company and continue to grow my position because I'm a firm believer that we will ultimately access that value.
Speaker 4: transcript
The final point is that the debt levels in agriculture on farmland ownership overall is something like 13%. This is a cash-dominated market. Most of these purchasers don't get any f-
Any financing.
Speaker 4: transcript
And so it's just not really an effect for us. Our asset values are appreciating rapidly and continue to do so because they're so tied to inflation. Mark is
And so it's just not really an effect for us.
Our asset values are appreciating rapidly and continue to do so because they are so tied to inflation.
The market doesn't get it.
Speaker 4: transcript
I mean, I don't know what else I can do than make a big stock buy to prove to people that at least I am highly confident. We are seriously, seriously under value.
I don't know what else I can do that then make a big stock buy to prove to people that at least I am highly confident we are seriously seriously undervalued.
Paul Pittman: We will continue selling assets at good gains and using those funds to pay down debt and buy back stock as long as the significant discount exists. And it's important to recognize that our gains to date have been very strong, but we are not selling the assets we like the most. We are selling assets that probably have been laggards in terms of appreciation compared to the rest of our portfolio. There is, as you may know, in the financials, we had one sale that was actually at a substantial discount to what we had it on the books for.
Speaker 5: transcript
But no, we're not really worried about the financing market impacting the ability of these sales to close. Okay. Just add that it's an important distinction to post drawing in our sector. Buyers and sellers are getting together. Our tenants are doing really well.
But no we're not we're not really worried about the financing market impacting the ability of these sales to close okay.
To add to that it's an important distinction to pulse drawing and in our sector buyers and sellers are getting together our tenants are doing really well to the extent they draw on working capital lines of credit to support their seasonal needs and banks are absolutely lending and open for business and farmers are taking advantage of dedicated AG lenders that's an important.
Speaker 4: transcript
To the extent they draw on working capital lines of credit to support their seasonal needs, banks are absolutely lending and open for business, and farmers are taking advantage of dedicated ag lenders. That's an important part of the sector. So it's a very different sort of market outlook than you might find in a different asset class as you refer to. Yeah, rates are high, but to the extent somebody needs financing for an ag property.
Part of the sector.
So it's a very different sort of market outlook, then you might find in the different asset classes. As you referred to yes rates are high but to the extent somebody needs financing for an AG property.
Paul Pittman: It's Gracie Island Groves, it's a relatively modest size transaction, but it is a citrus farm in Florida. And we fundamentally threw in the towel and got rid of the farm because that is an industry and our opinion that will not recover. That is the only citrus farm in Florida we had, but as many of you may know in the last decade or 20 years or so, you have seen almost a 90% reduction in volumes of citrus in Florida.
Speaker 5: transcript
There's 20 people offering that money. And much better to have rates available at an elevated interest cost than the no financing available.
Plenty of people offering that much and much better to have rates available at elevated interest costs no financing available at all.
Speaker 6: transcript
okay at speaking of the disposition how are you guys viewing that where the speed sweet spot is right now in terms of the trade-off between you know paying down debt and repurchasing stock with the proceeds
Speaking of the dispositions how are you guys viewing that where the speed. The sweet spot is right now in terms of the trade off between paying down debt and repurchasing stock with the proceeds.
Speaker 4: transcript
Well, we're likely to continue to do both. The exact sweet spot, frankly, depends on, you know, interest rate outlook and stock price at the time. You know, I think we've been, we've, you know, been running more like, you know, this most recent quarter, we put a lot more money to debt reduction than we did the stock buybacks. You know, if you had to ask me the guests for the fourth quarter, it'd be a 50-50 split. Something like that.
Well, we are likely to continue to do both the exact sweet spot frankly depends on it.
Interest rate outlook and stock price at the time.
I think we've been we've been running more like this most recent quarter, we put a lot more money to debt reduction than we did the stock buybacks.
Paul Pittman: That is a tide that we just couldn't swim against, and so we just let that farm go and move on. It's important to recognize that, despite that loss on that farm, the overall returns on the asset sales we've made are still very, very strong. What we need to do next is obviously focus some on cost control as we have shrunk the size of the portfolio.
That asked me the guests for the fourth quarter. It would be a 50 50 split something like that.
Speaker 6: transcript
And how much of that is determined also by the fact that some of these lines have a 50% max on the payment and wanting to get that done in calendar 23 versus, you know, being doing something the first week of January of 24.
And how much of that is determined also by the fact that some of these lines have a 50% match.
Max on the payment and wanting to get that done in calendar 'twenty three versus.
Paul Pittman: We will turn to that as we get later in this year in the beginning of next year, but this strategy is fundamentally creating significant value for our shareholders who decide to stick with us as we continue to execute on the strategy.
Being doing something the first week of January of 'twenty four.
Speaker 5: transcript
Not a big impact although I was James at today. Yeah, yeah, Rob, we're generally paying our floaters off first, which are higher rate today. And should we find ourselves in position with so much cash that we would want to make additional pay downs? There's a lot that we can pay without.
Not not a big not a big impact, although I'll, let James add.
Remember, we're generally paying our floaters offers which are higher rate today.
And should we find ourselves in a position with so much cash that we would want to make additional pay downs. There is theres a lot that we can pay without.
Luca Fabbri: With that, I'm going to turn it over to Luca Fabri or CEO. Thank you, Paul. I would like to draw your attention to a few data points to kind of outline how we have executed on our strategy so far as Paul is outlined and as we've discussed in past conference goals. In the first three quarters of the year, we have sold 54 properties for total proceeds of about 122 million and approximately 24% gain over mental value.
Luca Fabbri: After the close of the third quarter, we have closed on an additional about $2.5 million in asset sales and we have approximately 65 million of asset sales under contract or in advance negotiations that we expect and hope to close by the end of the year. Of course, especially on the ones in advance negotiations, but it's also some degree of uncertainty is about that. We are projecting total asset sales for the year at about 190 million dollars.
Speaker 4: transcript
without any penalties. We have on our met life lines the lowest amount we can pay any years, about 20% and the highest is 50. So that gives us quite a lot that we could choose to pay down should we find ourselves with a lot of cash. And anything that's at an interest reset date could be fully paid off without it.
Without any penalties we have on our on our Metlife lines. The lowest amount we can pan eight years about 20%. The highest is 50, so that gives us quite a lot that we can choose to pay down should we find ourselves with a lot of cash and anything thats added interest reset date could be fully paid off without penalty. So we.
Speaker 6: transcript
So we have a huge balance sheet flexibility. Should we suddenly find ourselves with substantial cash from asset sales? Okay, and James, while I have you, I miss your comment on the crop insurance and why the guidance went up about 400,000 from the prior. What was that in relation to?
Huge balance sheet flexibility should we suddenly find ourself with substantial cash from asset sales.
And James while I have you I missed your comment on the crop insurance and why the guidance went up about 400000 from the prior what was that in relation to.
Speaker 5: transcript
Yeah, so some of that is kind of a mix between crop sales and crop insurance. And generally just better visibility as we are, you know, in different products, as we are sort of into or through harvest, we have visibility as to what's come off the trees and how that looks. And so we've just updated our...
Yes. So some of that is kind of a mix between cross sales in crop insurance and generally just better visibility as we are in different products as we are sort of into or through harvest.
In EMEA visibility as to what's come off the trees, and how that looks and so we've just updated our guidance accordingly.
Speaker 6: transcript
okay and then last one for me luca is there any uh... known uh... non-renewals in the thirty five percent of the leases that you're uh... left to renew at this point
And then last one for me Luka are there any.
Luca Fabbri: So far this year, including slightly after the quarter, we have repurchased about 6.4 million shares at an average price of $10.98. So of those $124 million of proceeds so far, we use about 70 in common stock repurchases. We've also paid down about $8 million of Series A preferred.
Known non renewals in the 35% of the leases that you are left to renew at this point.
Speaker 2: transcript
Not really. I mean, we tend as always to work with our current stable of tenants. If certainly not renewals, I mean, we're not expecting to end up with any farms, not least by the end of the year. That's not what happens in this industry at all. Occasionally, we choose to improve the quality of our tenant pool by cycling some tenants off and getting new ones. But no negative expectations along those lines at all.
Not really I mean, we tend as always.
Kind of work with our current stable of tenants, if certainly not no renewals I mean, we're not expecting to end up with any farms not least by the end of the year, that's not what happens in this industry at all in occasionally we choose to kind of improve the quality of our tenants buoyed by by cycling some tenants often.
Luca Fabbri: We are not completely out of the market on the asset purchases side. We have completed a few transactions. We purchased about 20 million dollars of assets. So we are really focused on improving our portfolio, not just selling assets.
And getting new ones, but.
No negative expectations, along those lines at all.
Speaker 6: transcript
Okay, and you said that you expect that that 35% is going to be up similarly to the 65% in that sort of 18 to 20% range. Roughly, yes. Okay, perfect. Thanks guys, appreciate the time this morning.
Okay, and you said that you expect that that 35% is going to be up similarly to the 65% and that sort of 18% to 20% range Ross roughly yes, okay. Perfect. Thanks, guys I appreciate the time this morning.
Luca Fabbri: Last but not least, I want to draw your attention on the least renewal cycle and how we are progressing. So far, we are about two thirds of the way. And we are expecting to finish the year and the least renewal cycle up about 18 to 20% and hopefully even a little bit more than that.
Speaker 1: transcript
Thanks Rob. Thanks Rob. Once again ladies and gentlemen if you have a question it is star one on your telephone.
Thanks, Rob.
Once again, ladies and gentlemen, if you have a question. It is star one on your telephone keypad.
Okay.
Speaker 1: transcript
There are no for oh my apologies. We do have a question from the line of Toastly Hide of Raymond James. Your line is
There are no my apologies, we do have a question from the line of <unk> of Raymond James Your line is open.
James Gilligan: I will now turn the call over to James Gilligan, our CFO for his overview of the company's financial performance. James. Thank you, Luca. I'm going to cover a few items today, including summary of three and nine months and a September 30th, 2023 review of capital structure and interest rates comparison of year-to-day revenue and updated guidance for the year. I'll be referring to the supplemental package of my remarks as a reminder, the supplemental is available in the investor relations section of our website under the subheader events and presentations.
Speaker 5: transcript
Hey guys, thanks for taking my question. I was just wondering if you could speak to the current environment or sentiment surrounding the renewable energy side of your business with rates rising and companies kind of looking at areas and co-costs. So you see any pullback in demand from the subject project?
Hey, guys. Thanks for taking my question I was just wondering if you could speak to the current environment, our sentiments surrounding the renewable energy side of your business with rates rising and companies kind of looking at areas and cut costs I'm, assuming you pullback in demand from subsea projects.
Speaker 4: transcript
No, the renewable energy demand across the country for ag properties is high and probably accelerating.
No.
Renewal at renewable energy demand across the country for AG properties is high and probably accelerating.
James Gilligan: First, I'll share a few financial metrics that appear on page two. For the three months and its September 30th, 23, net income was up over 280% to 4.3 million. And net income per share available to common stockholders increased to $0.7 per share largely due to gains and decisions of assets. AFFO was down to negative 0.5 million and AFFO for weighted average share was down to negative one cent largely due to elevated interest expense, lower performance and farms under direct operations and lower auction broker's revenue relative to last year.
Speaker 4: transcript
you know, it's really gotta be looked at on a kind of a state by state basis because each state, you know, sort of has its own set of policies about that.
Really got to be looked at on a kind of a state by state basis, because each state.
So it has its own set of policies about that but the states that have really become aggressive there is just.
Speaker 4: transcript
But the states that have really become aggressive, there is just endless demand. I don't have the exact statistic in my fingertips. We have an immense amount of option, the acres at this point with solar and wind potential. Option acres, as you probably understand, means they're basically paying you to stand still while they do a three to five year study of the property as see if it's feasible.
Enlist demand I don't have exact statistic my finger.
<unk>, we have an immense amount of option the acres at this point with solar and wind potential.
Optioned acres as you probably understand means they're basically paying you to stand still while they do three to five year study of the property is see if it's feasible.
James Gilligan: For the nine months and its September 30th, 23, net income was up over 160% to 13.9 million. And net income per share available to common stockholders increased to 22 cents. Again, largely due to gains on this decisions of assets. AFFO was down to about negative $50,000 and AFFO for weighted average share was down to zero cents. Again, largely due to elevated interest expense, lower performance and farms under direct operations and lower auction broker's revenue relative to last year.
Speaker 4: transcript
You know, the percentage that end up from option in the permanent projects has gradually grown through time.
The percentage that ended up from option into permanent projects has gradually grown through time.
Speaker 4: transcript
early in this process, you know, six, seven years ago, kind of, you know, people were throwing mud against the wall and Optioning every property. Now they're because of the size of the option fees, which are often 50, 60, 70 dollars and acre per year. The solar developers are actually doing quite a bit of due diligence before they put it under option.
Early in this process of six seven years ago kind of people were throwing mud against the wall and optioning every property now because of the size of the option fees, which are often $50 $60 $70 an acre per year.
Solar developers are actually doing quite a bit of due diligence before they put it under option. So.
James Gilligan: Next, we'll review some of the operating expenses and other items shown on page five. Depreciation, depletion, ammarization was a little higher than the third quarter of 23 due to more depreciable assets placed in a service in approximately $150,000 of adjustments made in the quarter. As a reminder, we had approximately $400,000 of adjustments last quarter related to assets placed in the service. Property operating expenses were flat in the third quarter, but a little higher year today, 23 caused by higher property taxes, including a one-time property tax of approximately $150,000 in the first quarter.
Speaker 4: transcript
So we're not seeing really any pullback there. As you know, it's very driven by government policy more than economics. And as long as those policies don't change, I think there'll still be quite a bit of demand for that. Got it.
We're not seeing really any pullback there as you know, it's very driven by government policy more than economics, and there's a lot of those policies don't change I think it will still be quite a bit of demand for that.
Got it thanks I'll add my.
Congrats on the quarter.
Thank you.
Speaker 1: transcript
your next question comes from the line of John Masoka with B. Riley. Your line is open.
Your next question comes from the line of John <unk> with B Riley Your line is open.
Hi, good morning.
James Gilligan: That amount was reimbursed by the tenant and appears a tenant reimbursement revenue. In addition, we incurred a non-recuring expense in the second quarter of approximately $140,000 due to the final reconciliation of cost sharing on a California farm. General administrative expenses were a little higher than Q3, 23 due to increased compensation expense, but lower for year to date, 23 due primarily to lower stock based comp and lower travel. We went on accounting expenses were lower in 23 due to lower litigation spent.
Speaker 7: transcript
So quick question, on the disposition front, sorry if I missed this in the prepared remarks, but what was kind of the rough split between row crops and kind of permanent crops in terms of, you know, the assets that were capital recycled out of?
So quick question quick question on the disposition front, sorry, if I missed this in the prepared remarks, but what was kind of a rough split between.
Row crops and kind of permanent crops in terms of the assets that were capital recycled out of.
Luca you know in dollar terms, because that's what's relevant not acres.
Speaker 8: transcript
What could have you known in dollar terms? Because that's what's relevant, not acres. Yeah, I would say it's a relative of minority of permanent crops, although we did sell some and we have some under contract still.
Yes.
I would say, it's a relative minority of permanent crops, although we did sell some.
We have some under contract steel James is trying to quickly going to some numbers together.
James Gilligan: The impairment of assets in the third quarter of 23, that relates to property health for sale. This is what Paul mentioned a few minutes ago. These are properties that were under contract for sale as of 930 and will close in Q4. This impairment generally represents the early recognition of a loss on disposition, which, by the way, is added back for purposes of calculating FFO and EBITDA. Gain on Dispositions is up compared to 2022, demonstrating the appreciation of farmland sales values over netbook value.
Speaker 5: transcript
James is trying to quickly gonna Yeah, I need some numbers together Yeah, we, it's, it's, as Lucas said, it's mostly Roberoops that we sold.
As Lucas said, it's mostly row crops that we sold probably on the order of $25 million of permanent crops is what we sold year to date. So the vast majority has been in the row crop side of the portfolio.
Speaker 5: transcript
Probably on the order of $25 million of permanent crops is what we sold here to date.
Speaker 5: transcript
So the vast majority has been in the row crop side of that portfolio.
Speaker 4: transcript
Yeah, but that's that's largely reflective of the overall portfolio. That's just put in context, right? You know, we're about a 25 to 30% specialty crop portfolio. And that's roughly what we've sold a specialty crop.
Yes.
And that's largely reflective of the overall portfolio. So just to put it in context right.
We're about 25% to 30% specialty crop portfolio and Thats, roughly what we sold our specialty crops.
James Gilligan: Interest expense increased in 23 due to higher rates. Income tax was a benefit in Q3 and year-to-day 23 relative to an expense in 2022. This was caused by adjustments within the third quarter of this year that were made to prior period estimates.
Speaker 7: transcript
Okay, and I know most of the disposition proceeds are going into kind of paying down debt and embrace them, that ends goes into your salary.
Okay, and I know most of kind of disposition proceeds are going into kind of paying down debt and buying back stock but.
Speaker 7: transcript
Is there a significant difference or meaningful difference in terms of the yield on dispositions versus what you're maybe seeing in the acquisition market or the acquisition you have closed recently?
Is there a significant difference or a meaningful difference in terms of the yield on dispositions versus what you may be seeing in the acquisition market or the acquisition do you have closed recently.
James Gilligan: Next I'll skip ahead of page 12 to make a couple of comments about our capital structure. Total debt at September 30th, 2023 was 422.8 million down approximately 50 million dollars from the end of last quarter. Floyd alluded share count as of October 20th was 49.4 million shares. Moving down the page we had undrawn capacity on the lines of credit of approximately 157 million at the end of the quarter. We agreed to the last met life rate reset of the year, that's met life number 10, which was reset at 6.36% for seven years. As a reminder we can pre-pay 50% of that loan in any calendar year without penalty. Next year we have three met life rate resets on debt totaling approximately 44 million dollars.
Speaker 5: transcript
Yeah, I can say that one. So when we think about sort of what we're selling and plan to sell this year, we're looking at, again, if everything closes, we're looking at selling kind of NLI yield that's approximately 3% 3.1%.
Yes, I can say that one so when we think about sort of what we're selling and plan to sell this year. We're looking at again if everything closes.
We're looking at selling kind of NOI yield that's approximately 3% three 1%.
Speaker 5: transcript
And we think what we've got in the portfolio today, given where we're at today, we're sort of trading at a higher yield.
And we think what we've got in the portfolio today, given where we're at today.
We're sort of trading at a higher yield.
Speaker 5: transcript
And our new acquisitions were targeting stuff that's north of that. And again, it depends on the region. We're being very selective, but we're generally looking at at 4% or higher where we can find it.
And our new acquisitions, we're targeting stuff that's north of that.
And again it depends on the region, we're being very selective, but we're generally looking at 4% or higher where we where we can find it.
Speaker 4: transcript
Okay. Yeah, I just want to amplify that. I want to amplify the point though, because it's incredibly important. Then we talk about this almost every quarter. Two thirds of the total return to farmland investing is the appreciation.
Okay, Yes, I just want to amplify that I want to amplify the point, though because it's incredibly important that we talk about this almost every quarter two thirds of the total return to farmland investing is the appreciation side.
James Gilligan: Page 13 provides an overrear of our income statement in the building blocks that generate revenue and costs a good sold. I won't go through it in detail but please feel free to contact me if you have any questions. Page 14 shows these building blocks for the first three quarters of 2022 and 2023 would comment at the bottom of the page to describe the differences between the periods. A few points to highlight our fixed farm rent increased between the periods as we acquired properties last year and renewed leases that was offset by dispositions in the current year.
Speaker 4: transcript
And so what we're selling are the farms that are laggards in appreciation for a variety of reasons.
So what we what we're selling or the farms that are laggards and appreciation for a variety of reasons that is largely the sales we've made.
Speaker 4: transcript
That is largely the sales we've made. And, you know, the investments we're making are places where we think there is huge upside value going forward. You know, appreciation rates on Illinois farmland have materially higher.
And the investments, we're making are places, where we think there is huge upside value going forward depreciation rates on Illinois farmland.
<unk> higher through the last decade, or so than almost anywhere in the United States that is our largest location of investment, Illinois to the portfolio or something like that.
Speaker 4: transcript
through the last decade or so, and almost anywhere in the...
James Gilligan: Solar and wind and recreation changes were primarily caused by a large solar project in the state of Illinois that began its construction phase in the third quarter of last year. That quarter, Q3 2022, had a little bump caused by the commencement of that construction process. The first and second quarters of this year benefited from that construction relative to the same quarters in 2022. Q3 2023 variance was caused by small changes due to property dispositions in the quarter and the absence of that construction related bump in the third quarter of last year. Tenere inversions increased in Q1 2023 with that one-time property tax assessment and related tenere reimbursement. Q3 2023 decreased due to property dispositions.
Speaker 4: transcript
That is our largest location of investment. You know, Illinois is half the portfolio or something like that. And, you know, we're we're not selling there and, you know, having having at least yet to any major degree. So it's really important to recognize where the total return to the asset class comes from.
And we're not selling there.
And Havent havent at least yet to any major degree. So it's really important to recognize where the total return to the asset class comes from and current yield is.
Speaker 4: transcript
and current yield is a highly secondary consideration. It's total value creation that we're focused on.
Highly secondary consideration, it's total value creation that we're focused on.
Speaker 7: transcript
Okay, understood. And then one last one in terms of the in place portfolio, you kind of mentioned that...
Okay.
Understood and then one last one in terms of the in place portfolio, you kind of mentioned that.
Speaker 7: transcript
You're largely out of or entirely out of the kind of citrus business in Florida, any other places where maybe you're seeing distress on the permanent crop side has any of that kind of
Youre largely out of or entirely out of the kind of citrus business in Florida, any other places, where maybe youre seeing distress on the permanent crops side has any of that kind of.
James Gilligan: In the fourth quarter of last year we required land and buildings for four agricultural equipment dealerships in Ohio under the John Deere brand. The accounting treatment classifies those acquisitions as financing transactions. So they appear on the balance sheet as loans and on the income statement as an interest income. This accounts for the increased and interest income in 23 compared to last year. Variable payments were down in the first and second quarters of this year due to grapes, row crops, citrus and tree nuts.
Speaker 4: transcript
you know, God, worse, gotten better, just any kind of color there would be helpful. Yeah, I mean, what's going on? So there's, so first on citrus, we're out of Florida, we still have substantial citrus holdings in California, and those have performed reasonably well over time. Complete due to a disease called citrus greening, which is a exists in Florida, and essentially doesn't exist in California, has been a huge driver of that reduction in Florida citrus I talked about.
Gotten worse gotten better just any kind of color there would be helpful. Yes, yes.
What's going on so there's there's so first on citrus were out of Florida, we still have substantial citrus holdings in California, and those were performed reasonably well over time.
James Gilligan: Q3 2023 was not largely due to variable payments on row crop farms in the high plants. Direct operations as the combination of crop sales, crop insurance and cost of goods sold. It was down year over year largely due to citrus and walnuts. Other items decreased due to lower auction of broker's activity compared to last year.
Due to a disease, citrus greening, which as it exists in Florida, and essentially doesn't exist in California has been a huge driver of that reduction in Florida, Citrus I talked about.
Speaker 4: transcript
But to your question of other specialty crops, many of the specialty crops today suffer from two different problems.
But to your question of other specialty crops many of the specialty crops today suffer.
James Gilligan: So in summary, while the items that comprise fixed payments were up year year, the items they comprise the other categories. Variable payments, direct operations and other here.
From two different problems first as exposure to water risk in California in particular, and Thats exposure to the actual availability of water, but it frankly more significantly.
Speaker 4: transcript
First is exposure to water risk in California in particular. And that's exposure to the actual availability of water. But it frankly more significantly, the exposure to political risk surrounding water in the state of California. So we're, as we said several times, we're kind of lightening up on anything in our portfolio that has significant water risk. We sold a lot of assets in Eastern Colorado, for example, for that reason.
James Gilligan: On the next page, page 15, and we have updated the outlook for 2023 using the same building blocks described in the previous pages. The assumptions are listed out on the bottom.
Exposure to political risk surrounding water.
In the state of California. So we're as we've said several times, we're kind of lightening up on anything in our portfolio that has significant water risk or we sold a lot of assets in eastern Colorado for example for that reason.
James Gilligan: This contemplates that we dispose of approximately $190 million of farms in total for the year that Luca described as a reminder that this number is an estimate and actual result may differ. On the revenue side, fixed farm rent will change with dispositions and new resources. Solar and wind and recreation, tenant reimbursements, and management fees and interest income all have small changes from last quarter. Variable payments decreased due to the outlook for Trina farms that pay variable rent.
Speaker 4: transcript
So the specialty crops that have been struggling, some of the tree nuts, walnuts in particular, are difficult at this juncture. We own a blueberry asset in Michigan. The blueberry business in Michigan is under a significant amount of pressure. The reason for that is that...
So the specialty crops that have been struggling some of the tree nuts walnuts in particular are difficult.
At this juncture.
We own a blueberry asset Michigan.
Blueberry business in Michigan is under significant amount of pressure.
James Gilligan: Direct operations, again, that's crop insurance plus cost, plus cross sales, less cost of good told, is up significantly due to lower expected cost of good toll than walnut farms under direct operations. Other items have small changes because we have improved visibility as we approach here rent.
The reason for that is that.
Speaker 4: transcript
There's been a massive amount of planting of blueberries in the Pacific Northwest and some in the Southeastern United States.
Been a massive amount of planting of blueberries in the Pacific northwest and some in the southeastern United States.
Speaker 4: transcript
In my opinion, that's not as good a blueberry, but you don't get to taste them before you buy them in the grocery store. They're big.
In my opinion Thats not as good a blueberry, but you don't get the taste them before you buy them in the grocery store they are big clump the.
James Gilligan: On the expense side, general and administrative decreases with lower spend year-to-day 23, legal accounting also decreases with lower spend year-to-day 23. Interest expense changed with updated rates and higher expense year-to-day 23. Weighted average shares decreased the share buybacks thus far.
Speaker 4: transcript
easy to market berries. And they're taking a lot of demand away from the Michigan berry, which is much closer to a wild strain berry. And is frankly way more flavorful. But the person that goes in the grocery store buys the ones that look really big and uniform in size. And so it's hurt the Michigan Blueberry business. So those are places we have some challenges. They're luckily, relatively small portions of the portfolio. Okay.
Easy to market berries and they take.
<unk> taken a lot of demand away from Michigan, Berry, which is much closer to a wild strain Berry and <unk>.
Frankly way more flavorful, but.
The person that goes on the grocery store buys the the ones that look really big in uniform in size.
James Gilligan: This result in AFFO in the $7.3 to $9.9 million range or 14 cents to 19 cents per share and increase from projections provided last quarter.
And so it hurt the Michigan blueberry business. So those are places we have some.
James Gilligan: Down at the bottom of page 15, we provide some additional information regarding next year. We've had various people asking about 2024, so we wanted to provide information where we have visibility. Please keep in mind these values consider the $199 million of dispositions we're currently considering, and of course actual results may differ.
Some challenges there luckily relatively small portions of the portfolio.
Okay I appreciate the color. Thank you very much.
Speaker 1: transcript
There are no further questions at this time. I will turn the call back to Luca Fabri for closing.
No further questions at this time I will turn the call back to Luca Fabbri for closing remarks.
James Gilligan: Sixth farm rent will be approximately $3 million lower than guidance shown above due to the full year impact of farm sales offset by positive lease renewals. Solar wind recreation will be approximately in line with guidance shown above. Tenor reimbursement will be approximately $500,000 lower than guidance shown above. This is due not only to ask the dispositions, but also the one-time tax reimbursement in the first quarter of this year that we don't anticipate occurring next year. And also certain lease renewals that traded higher fixed rent for lower 10or reimbursements.
Speaker 2: transcript
Thank you all for joining us this morning. We appreciate your interest in our company and look forward to updating you on our activities and results in the coming quarters.
Thank you all for joining us. This morning, we appreciate your interest in our company and look forward to updating you on our activities and results in the coming quarters.
Speaker 1: transcript
concludes today's conference call. We thank you for joining. You may now disconnect your lines.
This concludes today's conference call. We thank you for joining you may now disconnect your line.
Speaker 9: transcript
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James Gilligan: Hopefully this helps describe where we stand given what we know today.
James Gilligan: This wraps up my comments for this morning. Thank you all for participating.
Operator: Operator, you can now begin the Q&A session. Thank you. If you have a question, please press star one on your telephone keypad to withdraw your question simply press star one again.
Rob Stevenson: Your first question comes from the line of Rob Stevenson with Janie. Your line is open. Good morning guys.
Paul Pittman: Any clarity on this point at this point on the need for our special dividend and potential size of one?
Paul Pittman: This is I'll take that question. This is Paul. We will obviously end up I believe with some sort of special dividend. It hasn't been declared barboard yet, but I think we signal that last quarter and it's still likely to happen. The exact size is unknown at this point because you've got so many transactions that are under contract but not closed. Now our history is most things that go under contract actually do close, but there's no assurance at this point. So I think it'll be probably into December before the exact number is known and put out into the public domain.
Rob Stevenson: Okay. And just to follow up on that, Paul, I mean, I think that we're all sort of cognizant of the fact that in, you know, you're selling office buildings or whatever, that lining up financing today on the buy side of that to be able to finance the purchase is difficult.
Paul Pittman: Can you talk about what the environment right now is for farmers and other interested parties to be able to go out there and line up financing at reasonable rates to purchase the assets from you and close in a timely manner, whether or not that's being held up at all.
Paul Pittman: Yeah, I mean, this is, this is, that's a good question because the, you know, one of the cores of our frustration and my personal frustration is we're not like all those other real estate assets for the following reasons. The food economy, the farm economy is still incredibly strong. Number one, number two, it's not driven by institutional investors who have to go finance everything they buy. We're not, we're not office buildings. We're not a re-dominated culture in agriculture.
Paul Pittman: It's a farmer-goverinated culture and they got a lot of money in the pocket based on the last couple of years. Of all the farms we put under contract this year, we've only had one transaction that didn't close. It was an institutional buyer largely for the reasons you're talking about, but the farmer buyers are solid and they close these transactions. The final point is that the debt levels in agriculture on farmland ownership overall is something like 13%.
Paul Pittman: This is a cash-dominated market. Most of these purchasers don't get any financing. And so it's just not really an effect for us. Our asset values are appreciating rapidly and continue to do so because they're so tied to inflation. Market doesn't get it.
Paul Pittman: I mean, I don't know what else I can do than make a big stock buy to prove to people that at least I am highly confident. We are seriously, seriously undervalued. But no, we're not really worried about the financing market impacting the ability of these sales to close. Okay.
Paul Pittman: It's an important distinction to post drawing. In our sector, buyers and sellers are getting together. Our tenants are doing really well. To the extent they draw on working capital lines of credit to support their seasonal needs. And banks are absolutely lending and open for business. And farmers are taking advantage of dedicated ag lenders. That's an important part of the sector. So it's a very different sort of market outlook than you might find in a different asset class as you refer to.
Paul Pittman: Yeah, rates are high, but to the extent somebody needs financing for an ag property that there's 20 of people offering that money and much better to have rates available at an elevated interest cost than the no financing available at all.
Paul Pittman: Okay. Speaking of the disposition, how are you guys viewing where the sweet spot is right now in terms of the trade-off between paying down debt and repurchasing stock with the proceeds? Well, we're likely to continue to do both.
Paul Pittman: The exact sweet spot, frankly, depends on interest rate outlook and stock price at the time. I think we've been running more like this most recent quarter, we put a lot more money to debt reduction than we did to stock buybacks. If you had to ask me the guess for the fourth quarter, it'd be a 50-50 split, something like that. And how much of that is determined also by the fact that some of these lines have a 50% max on the payment and wanting to get that done in calendar 23 versus, you know, being doing something the first week of January of 24?
Paul Pittman: Not a big impact, although I want James to add to that. We're generally paying our floaters off first, which are higher rate today. And should we find ourselves in position with so much cash that we would want to make additional paydowns? There's a lot that we can pay without any penalties. We have on our met life lines the lowest amount we can pay in a year is about 20% and the highest is 50.
Paul Pittman: So that gives us quite a lot that we could choose to pay down should we find ourselves with a lot of cash. And anything that's at an interest reset date could be fully paid off without penalty. So we have a huge balance sheet flexibility should we suddenly find ourselves with substantial cash from asset sales?
Rob Stevenson: Okay, and James, why have you I miss your comment on the crop insurance and why the guidance went up about 400,000 from the prior. What was that in relation to? Yeah, so some of that is kind of a mix between crop sales and crop insurance and generally just better visibility as we are, you know, in different products as we are sort of into or through harvest. We have visibility as to what's come off the trees and how that looks. And so we've just updated our guidance accordingly.
Luca Fabbri: Okay, and then last one for me, Luca, is there any known non renewals in the 35% of the leases that you're left to renew at this point? Not really. I mean, we tend as always to work with our current stable of tenants. If certainly not no renewals, I mean, we're not expecting to end up with any farms, not least by the end of the year, that's not what happens in this industry at all.
Luca Fabbri: Occasionally, we choose to improve the quality of our tenant pool by by cycling some tenants off and getting new ones, but no negative expectations along those lines at all. Okay, and you said that you expect that that 35% is going to be up similarly to the 65% in that sort of 18 to 20% range. Roughly, yes. Okay, perfect.
Operator: Thanks guys, appreciate the time this morning. Thanks, Rob. Once again, ladies and gentlemen, if you have a question, it is star one on your telephone keypad. There are no for my apologies.
Tousley Hyde: We do have a question from the line of toastly hide of Raymond James.
Tousley Hyde: Your line is open. Hey guys, thanks for taking my question.
Paul Pittman: I was just wondering if you could speak to the current environment or sentiment surrounding the renewable energy side of your business with rates rising and company's kind of looking at areas and cut costs. Can you pull back and demand from such a project? No, the renewable energy demand across the country for ag properties is high and probably accelerating.
Paul Pittman: You know, it's really got to be looked at on a kind of a state by state basis because each state, you know, sort of has its own set of policies about that. But the states that have really become aggressive, there is just, you know, endless demand. I don't have the exact statistic in my finger tips, but we have an immense amount of option to acres at this point with sore and wind potential.
Paul Pittman: Option acres, as you probably understand, means they're basically paying you to stand still while they do a three to five year study of the property is see if it's feasible. You know, the percentage that end up from option into permanent projects has gradually grown through time. Early in this process, you know, six, seven years ago. Kind of, you know, people were throwing mud against the wall and optioning every property. Now they're because of the size of the option fees, which are often 50, 60, 70 dollars an acre per year. The the solar developers are actually doing quite a bit of due diligence before they put it under option. So we're not seeing in really any pull back there.
Paul Pittman: As you know, it's very driven by government policy more than economics. And you know, as long as those policies don't change, I think there'll still be quite a bit of demand for it.
John Massocca: John Massocca. Thank you.
John Massocca: Your next question comes from the line of John Massocca with B. Riley. Your line is open.
John Massocca: Hi, good morning.
Luca Fabbri: So quick question on the disposition front. Sorry if I missed this in the prepared remarks, but what was kind of the rough split between row crops and kind of permanent crops in terms of the assets that were capital recycled out of? What could you know in dollar terms because that's what's relevant not acres? Yeah, I would say it's a relative of minority of permanent crops, although we did sell some and we have some under contract still.
Luca Fabbri: James is trying to quickly get some numbers together. Yeah, Luca said it's mostly row crops that we sold probably on the order of $25 million of permanent crops is what we sold here today. So the vast majority has been in the row crop side of the portfolio. Yeah, but that's largely reflective of the overall portfolio.
Luca Fabbri: So this is put in context, right? We're about 25 to 30% specialty crop portfolio. And that's roughly what we've sold of specialty crops. Okay, and I know most of kind of disposition proceeds are going into kind of paying down debt and in buying back stock, but.
Luca Fabbri: Is there a significant difference or a meaningful difference in terms of the yield on dispositions versus what you're maybe seeing in the acquisition market or the acquisition you have closed recently? Yeah, I can see that one. So when we think about sort of what we're selling and plan to sell this year, we're looking at, you know, again, if everything closes, we're looking at selling kind of N O I yield that's approximately 3% 3.1%.
Luca Fabbri: And we think what we've got in the portfolio today given where we're at today. We're sort of trading it at a higher yield. And our new acquisitions were targeting stuff that's not that. And again, it depends on the region.
Paul Pittman: We're being very selective, but we're generally looking at 4% or higher, where we can find it. Okay, I just want to amplify that. I want to amplify the point though, because it's incredibly important. Then we talk about this almost every quarter. Two thirds of the total return to farmland investing is the appreciation side. And so what we what we're selling are the farms that are laggards in appreciation for a variety of reasons.
Paul Pittman: That is largely the sales we've made. And you know, the investments we're making are places where we think there is huge upside value going forward. You know, appreciation rates on Illinois farmland have materially higher through the last decade or so. And almost anywhere in the United States. That is our largest location of investment. You know, Illinois is the portfolio or something like that. And you know, we're we're not selling there. And you know, having having at least yet to any major degree. So it's really important to just to recognize where the total return to the asset class comes from. And current yield is a highly secondary consideration. It's total value creation that we're focused on.
John Massocca: Okay. Understood.
John Massocca: And then one last one, in terms of the in-place portfolio, you kind of mentioned that you're largely out of or entirely out of the kind of citrus business in Florida. Any other places where maybe you're seeing distress on the permanent crop side has any of that kind of, you know, gotten worse, gotten better, just any kind of color there would be helpful. Yeah, I mean, what's going on? So there's something else.
John Massocca: So first on citrus, we're out of Florida. We still have substantial citrus holdings in California. And those were performed reasonably well over time. Complete due to a disease citrus, greening, which is a exists in Florida and essentially doesn't exist in California. There's been a huge driver of that reduction in Florida citrus I talked about. But to your question of other specialty crops, many of the specialty crops today suffer from two different problems.
John Massocca: First is exposure to water risk in California in particular. And that's exposure to the actual availability of water. But it frankly more significantly the exposure to political risk surrounding water in the state of California. So we're, you know, as we said several times, we're kind of lightening up on anything in our portfolio that has significant water risk. We sold a lot of assets in Eastern Colorado. For example, for that reason. So the specialty crops that, you know, have been struggling some of the tree nuts, walnuts in particular are difficult.
John Massocca: At this juncture, you know, they're blue. We on a blueberry asset in Michigan. That's a blueberry business in Michigan is under significant amount of pressure. The reason for that is that it's been a massive amount of planting of blueberries in the Pacific Northwest and some in the southeastern United States. You know, in my opinion, that's not as good a blueberry, but you don't get to taste them before you buy them in the grocery store.
John Massocca: They're big plump, easy to market berries. And they, you know, they're, they're taking a lot of demand away from the Michigan berry, which is much closer to a wild strain berry and is, you know, frankly, way more flavorful. But the, you know, the person that goes in the grocery store buys the ones that look really, you know, big and uniform in size. And so it's hurt the Michigan blueberry business. So those are, you know, those are places we have, you know, some challenges. They're luckily relatively small portions of the portfolio. Okay. I appreciate the color. Thank you very much.
Operator: There are no further questions at this time.
Luca Fabbri: I will turn the call back to Luca Fabri for closing remarks.
Luca Fabbri: Thank you all for joining us this morning. We appreciate your interest in our company and look forward to updating you on our activities and results in the coming quarters.
Operator: This concludes today's conference call. We thank you for joining. You may now disconnect your line.
Operator: Thank you.