Q1 2024 Farmland Partners Inc Earnings Call
Operator: Thank you for standing by. My name is Cath, and I will be your conference operator for today. At this time, I would like to welcome everyone to the Farmland Partners Incorporated first quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise.
Thank you for standing by my name is Cathy and I will be your conference operator today at this time I would like to welcome everyone to the farmland partners incorporated first quarter of 'twenty 'twenty four earnings conference call.
Operator: 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 followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star. One again. Thank you I would now like to turn the call over to Luca Fabbri.
Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Luca Fabbri, President and Chief Executive Officer. Please go ahead.
Luca Fabbri: I said, then and Chief Executive Officer. Please go ahead.
Luca Fabbri: Thank you, Kath. Good morning, everybody. Welcome to our quarterly update call after the announcement of our earnings last night. Before we just jump into the call, I will turn over the call to our general counsel, Christine Garrison, for some customary preliminary remarks.
Luca Fabbri: Thank you good morning, everybody welcome to our quarterly update call. After the announcement of our earnings last night.
Luca Fabbri: Before we just jump into the call I will turn over the call dollar General Counsel Kristine garrison for some customary preliminary remarks Christine.
Christine M. Garrison: Thank you, Luca, and thank you to everyone on the call. The press release announcing our first quarter earnings was distributed after the market closed yesterday. The supplemental package has been posted to the Investor Relations section of our website under the subheader Events and Presentations. For those who listened to the recording of this presentation, we remind you that the remarks made herein are as of today, May 1, 2024, and will not be updated subsequent to this call.
Christine M. Garrison: And thank you to everyone on the call. The press release announcing our first 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. We remind you that the remarks made herein are as of today may 1st one.
Christine M. Garrison: 24, 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 dispositions impact of acquisitions dispositions and financing activities business development opportunities as well as comments on our.
Christine M. Garrison: 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 dispositions, the impact of acquisitions, dispositions, and financing activities, business development opportunities, as well as comments on our outlook for our business, rents, and the broader agricultural markets. We will also discuss certain non-GAAP financial measures, including net operating income, FFO, adjusted FFO, EBITDA RE Definitions of these non-GAAP measures, as well as reconciliations to most comparable GAAP measures, are included in the company's press release announcing first quarter 2024 earnings, which is available on our website, farmlandpartners.com, and is furnished as an exhibit to our current report on Form 8K, dated April 30, 2024.
Luca Fabbri: 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. O adjusted SSO EBITA, Ari and adjusted EBITDA Ari definitions of these non-GAAP measures as well as reconciliations to most comparable GAAP measures are included.
Christine M. Garrison: In the company's press release announcing first quarter 'twenty.
Luca Fabbri: 'twenty 'twenty four earnings which is available on our website farmland partners Dot com and is furnished as an exhibit to our current report on form 8-K dated April 32020 for listeners are cautioned that these statements are subject to certain risks and uncertainties many of which are difficult to protect and generally beyond our control. These restaurant uncertainty.
Christine M. Garrison: 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. I would now like to turn the call over to our Executive Chairman, Paul Pittman. Paul?
Paul A. Pittman: That 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 I would now like to turn the call to our executive Chairman Paul Finan Paul.
Paul A. Pittman: Thank you, Christine. This was a really strong quarter for the company. I'm going to talk in a minute about the transaction where we received some non-refundable deposits that we ran through the quarterly P&L, but I'll come back to that in a minute. You know, the really important things about the quarter are that we materially increased the annual guidance. Our cost control efforts are working with our overheads down around 13%. With all the asset sales, we decreased our assets last year by around 12%, but our rents have only gone down about 5% overall.
Paul A. Pittman: Thank you Christine.
Paul A. Pittman: This is a really strong quarter for the company.
Paul A. Pittman: I'm going to talk in a minute about the train.
Paul A. Pittman: Auction, where we received some non refundable deposits that we ran through the quarterly P&L, but I'll come back to that in a minute.
Paul A. Pittman: Really important things about the quarter.
Paul A. Pittman: Curiously increased the annual guidance.
Luca Fabbri: Our cost control efforts are working with our overheads down around 13%.
Paul A. Pittman: With all the asset sales, we decreased our assets last year by around 12%.
Luca Fabbri: Rents have only gone down about 5% overall.
Luca Fabbri: Clearly, we sold off the assets that weren't as strongly performing as the ones that we held on to and that's really what we're trying to accomplish here to drive efficiencies and higher into.
Paul A. Pittman: So clearly, we sold off assets that weren't as strongly performing as the ones we held on to, and that's really what we're trying to accomplish here to drive efficiencies and hire AFFO into the company. The one comment I want to make about the transaction with the non-refundable deposits is the following. I saw in several of the analyst reports that there was sort of an immediate reaction to call that a one-time event. And yes, it is an unusual event, but in an annual sense, we have them about twice a year.
Luca Fabbri: And to the company.
Paul A. Pittman: The one comment I want to make about the transaction with non refundable deposits you can fall.
Paul A. Pittman: And several of the analyst reports that there was sort of an immediate reaction to call that a one time event.
Luca Fabbri: And yes. It is an unusual event, but in an annual since we have about twice a year.
Luca Fabbri: Things like that that runs through our P&L. So yes. It is unusual in the context of in any given quarter and it's not true which is the reason we disclosed at the way we did it's not traditional rents.
Luca Fabbri: But we get them.
Luca Fabbri:
Luca Fabbri: Approximately every other quarter some major payout related to the way we negotiate our various real estate transactions. In this particular case it was someone who wanted to buy a farm from US we required them to make a nonrefundable down payment towards the purchase of that farm.
Paul A. Pittman: And they eventually decided they could not complete the purchase and we kept their money.
Luca Fabbri: In the fourth quarter of 2023, we had a similarly large payment from a solar company because.
Luca Fabbri: Because we had negotiated a one time payment from them when they initiated construction.
Paul A. Pittman: And so on and so forth. So I just wanted to add a little bit of clarity. We will always disclose these things that are unusual, but I'm not quite sure. It's appropriate to immediately kind of pull them out of our P&L, if youre an equity analyst.
Paul A. Pittman: These things happen over and over and over again for us, which is which is good.
Paul A. Pittman: With that I'm going to turn it over to Luca.
Paul A. Pittman: To make further comments about the quarter.
Luca Fabbri: There are really a couple of areas that I want to spend a minute on. The first one is acquisitions and dispositions and how our strategy in 2024 vis-à-vis those items is changing in 2023 and what are the drivers of our strategy this year. And this is also because, as we just spoke, we did a round of meetings with some investors, and there were some questions that came up, so that's why I think it's appropriate to give a little bit more clarity, even though some of these items might be obvious to some of you.
Speaker Change: Thank you Paul there are really a couple of ideas that we want to spend a minute on that.
Luca Fabbri: The first one is acquisitions and dispositions and how our strategy in 2024 vis vis those items is changing in 2023 and what are the drivers of our strategy. This year.
Luca Fabbri: Also because of we just spoke with roundup.
Luca Fabbri: A round of <unk>.
Luca Fabbri: Meetings with some investors, saying that there were some questions that came up so that's why I think it's appropriate to draw a little bit more clarity, even though some of these items might be obvious to some of your so in 2023, we had a very significant disposition activity in terms of both number of transactions and dollar volume of those transactions.
Luca Fabbri: So in 2023, we had a very significant disposition activity in terms of both the number of transactions and the dollar volume of those transactions. We, I believe, use those proceeds very, very well in paying down debt and in buying back stock. We intend to do fundamentally the same thing in 2024, but we have some regulatory constraints to follow.
Luca Fabbri: I believe we use those proceeds very very well and paying down debt in buying back stock. We intend to do fundamentally the same thing in 2024. However, we had some regulatory constraints to two.
Luca Fabbri: Two to follow <unk>.
Luca Fabbri: As a real estate investment trust, we are subject to certain limitations in terms of the disposition activity that we have in every given year. We can rely on a number of different safe harbors in any given year. Last year, we relied on a safe harbor that is really related to a dollar, a total aggregate dollar amount of transactions that is really based on a three-year average.
Luca Fabbri: Typically as a real estate investment trust.
Luca Fabbri: <unk>.
Luca Fabbri: We are subject to certain limitations in terms of the disposition activity that we.
Luca Fabbri: In aggregate in the year and we can rely on a number of different safe harbors in any given year last year, we rely on the safe Harbor is really related to a dollar a total aggregate dollar amount of transactions. There is really based on that on a three year average.
Luca Fabbri: That safe harbor would have led to a very small number of dispositions this year, so we are actually relying on a different safe harbor, which is purely a number of transactions, namely seven, regardless of the individual or aggregate dollar amount of those transactions. We have already kind of quote-unquote used one of those transactions through a disposition in the Opportunity Zone Fund, which we hold, which we are an asset manager, in which we hold a 10% equity interest, and because of that 10% equity interest, that counted as a disposition transaction for us.
Luca Fabbri: Safe Harbor would have led to a very small number of.
Luca Fabbri: Dispositions. This year, so we had actually relying on the different safe Harbor, which is purely a number of transactions, namely seven.
Luca Fabbri: Regardless of the individual or aggregate dollar amount of those transactions, we already kind of quote unquote used one of those transactions through of dispositions in the opportunity zone funding, which we hold a which we are an asset manager in which we hold a 10% equity interest in because of that 10% equity interest debt.
Luca Fabbri: Counted as a disposition transaction for us so while last year whenever a disposition opportunities came to our attention and we decided to pursue them. We were executing on them effectively right away. This year, we need to be a little bit more thoughtful because we only have six remaining transactions that disposition transactions that.
Luca Fabbri: So, while last year, whenever disposition opportunities came to our attention and we decided to pursue them, we were executing on them effectively right away, this year, we need to be a little bit more thoughtful because we only have six remaining transactions, disposition transactions that we can complete. Therefore, we are being a little bit more thoughtful and planning and prioritizing the various opportunities that we have in front of us, so while so far we haven't completed any dispositions, I expect that we will enter into some of these transactions later in the year. However, to preempt any questions, I don't have any information to share publicly at this point related to the expected specific timing or volume of transactions or regions, and so on.
Luca Fabbri: We can complete and therefore, we are being a little bit more thoughtful and planning and prioritizing the various opportunities that we have in front of us so while so far we haven't completed any dispositions.
Luca Fabbri: I expect that we will enter into some of these transactions later in the year, although to preempt any questions.
Luca Fabbri: Don't have any information to share at this point publicly related to expected specific timing or volume of transactions in regions and so on and so forth.
Luca Fabbri: One other kind of item I wanted to cover is on the cost management side. I think we did a pretty good job in 2023 by reducing some GNA costs. We are continuing that approach this year, you know; we had some staff reductions, and we had some compensation. At the senior executive level, compensation has been either reduced or capped, and we will continue to pursue further opportunities in the course of this year to reduce expenses whenever we can. And with that, I will now turn the call over to James for his overview of the company's financial performance.
Luca Fabbri: One one other.
James: Kind of item I wanted to cover is on the cost.
James: Cost management side, I think we did a pretty good job in 2023 by reducing some G&A costs, we are continuing that approach.
Luca Fabbri: Year.
James: And we had some staff reductions we had some compensations and the senior executive level compensation has been either reduce or capped.
James: And we will continue to pursue further opportunities in the course of this year to reduce expenses wherever we can.
Luca Fabbri: And with that I will now turn the call over to James for his overview of the company's financial performance.
James Gilligan: I'm going to cover a few items today, including a summary of the first quarter of 2024, a review of capital structure and interest rates, and updated guidance for 2024. I'll be referring to the supplemental package in my comments, which, as Christine mentioned, is available in the investor relations section of our website under the subheader events and presentations.
James: Thank you Luca.
James: Going to cover a few items today, including summary of the first quarter 2020 for review of capital structure and interest rates and updated guidance for 2024.
James Gilligan: I'll be referring to the supplemental package in my comments, which as Christine mentioned is available on the Investor Relations section of our web site under the sub head or events and presentations.
James Gilligan: First, I'll share a few financial metrics that appear on page 2. For the three months ended March 31st, 2024, net income was $1.4 million, and net income per share available to common stockholders was one cent lower than the same period for 2023, largely due to the impacts of dispositions that occurred last year. AFFO was $2.8 million, and AFFO per weighted average share was $0.06, significantly higher than the same period for 2023.
James Gilligan: First I'll share a few financial metrics that appear on page two.
James Gilligan: While Q1 2024 AFFO was negatively impacted by sales that occurred in 2023, it was positively impacted by the $1.2 million of income from forfeited deposits that Paul referred to, which I'll also explain a little bit further in a minute. Next, we'll review some of the operating expenses and other items shown on page 5. Depreciation, depletion, and amortization was lower in the first quarter of 2024 due to fewer depreciable assets and services. Property operating expenses were lower in Q1 2024, caused by lower property taxes, lower property insurance expenses, and lower repair expenses.
James Gilligan: For the three months ended March 31, 2024, net income was $1 4 million and net income per share available to common stockholders was <unk> <unk>.
James Gilligan: Lower than the same period for 2023, largely due to the impacts of dispositions that occurred last year.
James Gilligan: General and Administrative and Legal and Accounting Expenses and small changes between the periods. Gain on dispositions was down in Q1 2024 as no farms were sold, only small fixed assets on a few properties. Income from forfeited deposits.
James Gilligan: <unk> was $2 8 million and <unk> <unk> per weighted average share with <unk>.
James Gilligan: Significantly higher than the same period for 2023, while Q1 2024 <unk> was negatively impacted by sales that occurred in 2023. It was positively impacted by the $1 2 million of income from forfeited deposits that Paul referred to which also explain a little bit further in a minute.
James Gilligan: Next I'll review some of the operating expenses and other items shown on page five depreciation.
James Gilligan: Depreciation depletion and amortization was lower in the first quarter of 2024 due to fewer depreciable assets in service property operating expenses were lower in Q1 2024 caused by lower property taxes, lower property insurance expenses and lower repair expenses.
James Gilligan: General and administrative and legal and accounting expenses that small changes between the periods.
James Gilligan: Gain on dispositions was down in Q1 2024 is no farms are sold only small fixed assets on a few properties.
James Gilligan: As Paul described, that relates to the sale of a farm that was initiated back in 2020, where we received a series of non-refundable deposits over time. The sale was terminated by mutual agreement in the first quarter of 2024, and as a result of the sale termination, we recognize the $1.2 million of forfeited. Interest expense increased slightly in Q1 2024 due to higher rates. Next, moving to page 12, there are a few capital structure items to point out. Total debt at March 31st, 2024 was $383 million. Floating rate debt, net of the swap, is a percent of total debt, is approximately 18%. The fully diluted share count as of April 25th was 49.4 million shares.
Speaker Change: Income from forfeited deposits as Paul described that relates to the sale of a farm that was initiated back in 2020, we received a series of nonrefundable deposits overtime.
James Gilligan: It was terminated by mutual agreement in the first quarter of 2024 and as a result of the sale termination we recognized the $1 2 million of forfeited deposits.
James Gilligan: Interest expense increased slightly in Q1 2024 due to higher rates.
James Gilligan: Next moving to page 12, there are a few capital structure items to point out.
James Gilligan: Total debt at March 31, 2024 was $383 million.
James Gilligan: Floating rate debt net of the swap as a percent of total debt was approximately 18%.
James Gilligan: Fully diluted share count as of April 25th was $49 4 million shares.
James Gilligan: We had undrawn capacity on our lines of credit of approximately $179 million at the end of the first quarter of 2024.
James Gilligan: We had undrawn capacity on the lines of credit of approximately 179 million at the end of the first quarter of 2024. In 2024, we had three met life rate resets on debt totaling approximately 44 million dollars. That's a low number nine, number 11, and number 12.
James Gilligan: In 2024, we have three metlife rate resets on debt totaling approximately $44 million.
James Gilligan: It's a low number nine number 11 to number 12, we agreed to the new rate for Metlife loan number nine that.
James Gilligan: We agree to the new rate for MetLife Loan Number 9, that's 6.37% for the next three years. That rate is effective on May 5th. The RoboBank debt shown on the table had a change within the quarter; the $2.1 million of annual amortization has been eliminated. The spread on the RoboBank debt remained the same.
James Gilligan: 637% for the next three years that rate is effective on may five.
James Gilligan: The next spread reset is in two years. The Rutledge facility also maintained its spread. The next spread reset is at the beginning of Q2 2025. Page 13 provides an overview of our income statement and the building blocks that generate revenue and cost of goods sold. Please note that our GAAP financials had a small presentation change in the fourth quarter of 2023. Tenant reimbursements are now included in rental income on the income statement, as reflected in the 10-K and also the first quarter 10-Q.
James Gilligan: The rabobank that shown in the table I haven't had a change within the quarter the $2 $1 million of annual annual amortization has been eliminated the spread on the rabobank that remain the same the next spread reset is in two years.
James Gilligan: The Rutledge facility also maintained its spread the next spread reset is at the beginning of Q2 2025.
James Gilligan: Page 13 provides an overview of our income statement and the building blocks that generate revenue and cost of goods sold. Please note that our GAAP financials had a small presentation change in fourth quarter of 2023.
James Gilligan: Tenant reimbursements are included now in rental income on the income statement as reflected in the 10-K and also the first quarter 10-Q in note.
James Gilligan: In Note 2 of the K and the Q, we show the components of rental income, fixed farm rent, solar wind recreation, tenant reimbursements, and variable rent. Page 14 shows these building blocks for the first quarter of 23 and the first quarter of 24, with comments at the bottom to describe the differences between the periods. A few points to highlight are, as expected, fixed farm rent decreased due to dispositions in 2023. Solar wind and recreation changes were caused primarily by rent on land with a large solar project in Illinois that was higher in 23 than 24 as the project moved from its construction phase to its operational phase at the very end of 2023. We will see this difference in this impact throughout the year, especially in the first quarter and, excuse me, in the fourth quarter.
James Gilligan: Two of the K and the Q, we show the components of rental income fixed.
James Gilligan: Fixed firm rent solar wind recreation tenant reimbursements and variable rate.
James Gilligan: Page 14 shows these building blocks for the first quarter of 'twenty three in the first quarter of 'twenty four with comments at the bottom to describe the differences between the periods. A few points to highlight are as expected fixed farm rent decrease due to dispositions in 2023.
James Gilligan: Solar wind and recreation changes were caused primarily by rent on land with a large solar project in Illinois, There was higher in 'twenty three 'twenty four as the projects move from its construction phase twos operational phase the very end of 2023.
James Gilligan: We will see this difference and this impact throughout the year, especially in the first excuse me in the fourth quarter.
James Gilligan: Tenant reimbursements decreased in Q1 2024 due to a one-time tax reimbursement in Q1 of last year, dispositions that occurred throughout 2023, and a small number of leases that renewed with higher fixed rents in exchange for lower tenant reimbursement. Management fee and interest income decreased, or, excuse me, increased with greater loans and financing receivables outstanding. Variable payments were higher in the first quarter of 2024 due to grain. Direct operations is a combination of crop sales, crop insurance, and cost of goods sold.
James Gilligan: Tenant reimbursements decreased in Q1 2024 due to a onetime tax reimbursement in Q1 of last year dispositions that occurred throughout 2023.
James Gilligan: A small number of leases that renewed with higher fixed rent in exchange for lower tenant reimbursements.
James Gilligan: Management fee and interest income decrease excuse me increase with greater loans and financing receivables outstanding <unk>.
James Gilligan: Variable payments were higher in the first quarter of 2024 due to groups.
James Gilligan: It was up relative to 2023, largely due to citrus, while other items decreased slightly between the. On the next page, page 15, we show the outlook for 2024 using the same format as the previous pages. The assumptions are listed out at the bottom. We had three acquisitions in the first quarter of 2024. No other transactions are included in these projections. On the revenue side, fixed farm rent changes reflect the full-year impact of 2023 transactions, plus the three Q1 2024 acquisitions and a few lease changes that occurred in the first quarter of 2024. Direct operations, again, that's crop sales plus crop insurance plus cost of goods sold, are up due to higher expected performance than citrus farms under direct operations.
James Gilligan: Direct operations of the combination of crop sales crop insurance and cost of goods sold it was up relative to 2023, largely due to citrus.
James Gilligan: Other items decreased slightly between the periods.
James Gilligan: Next page page 15, we show the outlook for 2024, using the same format as the previous pages assumptions are listed at the bottom.
James Gilligan: We had three acquisitions in the first quarter of 2024 no. Other transactions are included in these projections on the revenue side fixed firm rent changes reflect full year impact of 2023 transactions plus the three Q1 2024 acquisitions and a few lease changes that occurred in the first quarter of 2024.
James Gilligan: Direct operations again, that's crop sales plus crop insurance less cost of goods sold.
James Gilligan: This is up due to higher expected performance in citrus farms under direct operations on.
James Gilligan: On the expense side, General and Administrative expenses decreased slightly lower spend in the first quarter of 2024, while interest expense is higher due to updated forward curves. And keep in mind, we don't show the entire income statement here, but please note that the Q1 impact of forfeited deposits is included in the AFFO. The forecasted range of AFFO is $9.4 to $12.8 million, or $0.19 to $0.26 per share, an increase over the outlook from last quarter.
James Gilligan: On the expense side general and administrative decreases a slightly lower spend in the first quarter of 2024.
James Gilligan: Interest expense was higher due to updated forward curves.
James Gilligan: And keep in mind, we don't show the entire income statement here, but please note that the Q1 impact of forfeited deposits is included the Nashville.
James Gilligan: Forecasted range of <unk>, nine four to $12 $8 million or 19% to 26 per share an increase over the outlook from last quarter.
Operator: This summarizes where we stand today, and we will keep you updated as we progress throughout the year. This wraps up our comments this morning. Thank you all for participating. Operator, you can now begin the Q&A session.
Speaker Change: This summarizes where we stand today, we will keep you updated as we progress throughout the year. This wraps up our comments. This morning. Thank you all for participating operator, you can now begin the Q&A session.
Operator: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, press star 1 to join the queue. And your first question comes from the line of Scott Fortune with Ross MKM. Your line is open.
Operator: Thank you we will now begin the question and answer session. If you have dialed in I would like to ask a question. Please press star one on your telephone keypad Teresa has joined the queue. If he would like to withdraw your question simply press Star. One again, if you are called upon to ask your question in a listening via loudspeakers on your device please be capped.
Operator: Your handset and ensure that your phone is not on mute when asking your question again Crestar wanted to join the queue and your first question comes from the line of Scott Fortune with Roth and Kevin Your line is open.
Paul A. Pittman: Good morning and thanks for the question. I just want to follow up real quick on the farmland acquisitions you did in 1Q, $16.3 million, just kind of a sense for what type of farmland it was, geography, and kind of how are you looking at acquiring opportunistically going forward, just some color on what you're seeing out there from an acquisition standpoint. Obviously, liquidity and high interest rates and spread make it difficult, but just kind of your strategic opportunities as you look into 2024 on the acquisition side.
Scott Thomas Fortune: Good morning, and thanks for the question just wanted to follow up real quick on the farmland acquisitions you did in <unk> $16 3 million, just kind of a sense for what type of farmland was geography and kind of how you're looking at acquiring opportunistically going forward just some color on what you see.
Paul A. Pittman: Out there from an acquisition standpoint, obviously liquidity and high interest rates and spread makes it difficult, but just kind of your strategic opportunities as you look into 2024 here on the acquisition side.
Luca Fabbri: Sure, this is Paul, and I'm in a different location today than the rest of the team, so I'll answer the general parts of that question, and Luca, if you would gather your thoughts on the specifics of where those farms we bought were located, so you can take that. So just as a general point, our posture on acquisitions for this year given the high borrowing costs is that we are largely limiting our acquisitions to add-on properties either literally adjoining or very close to a place where we already own.
Paul A. Pittman: Sure. This is Paul and I'm going to.
Luca Fabbri: I'm in a different location today than the rest of the team. So I'll answer the general parts of that question and Luca If you would gather your thoughts on the specifics of where those farms. We bought were located so you can take that piece of it.
Luca Fabbri: So just in the general point, our posture on acquisitions for this year given high borrowing costs that were largely limited our acquisitions to add on properties.
Luca Fabbri: Either literally a joining or very close to a place where we already owned.
Luca Fabbri: When a great opportunity comes up to expand one of the farms we already own, we'll almost always want to do that, assuming the price is fair, because we believe firmly that increased scale adds to the profitability of our farmers and therefore to the amount of rent that we can charge on those farms. So that's the kind of acquisitions we will do this year.
Luca Fabbri: What a great opportunity comes up to expand one of the farms, we already own we will almost always want to do that assuming the price is fair.
Luca Fabbri: Because we believe firmly that increased scale adds to the profitability of our farmers and therefore, the two the amount of rent that we can charge on those farms.
Luca Fabbri: So that's the kind of acquisitions, we will do this year, it's really important to recognize though that return to farmland is not just current yield.
Paul A. Pittman: It's really important to recognize, though, that return on farmland is not just current yield; return on farmland is current yield plus appreciation. And we think today, appreciation plus current yield is at least as high as the long-term average, which is, you know, 11% or so per annum is a combination of appreciation plus current yield. And, you know, we're obviously got a cost of capital on the debt side way below 11%. So we will still do transactions from time to time, even if they are a little bit negative on a current yield versus interest rate basis as long as we believe they are a net positive addition to value overall. Luca, you want to address the specifics of where I think there were three small transactions in that 16 million and address where they were.
Paul A. Pittman: Returned to farmland is current yield plus appreciation.
Paul A. Pittman: And we think today appreciation plus current yield is at least as high as the long term average.
Paul A. Pittman: Which is 11% or so per annum is a combination of appreciation plus current yield.
Luca Fabbri: And we are.
Paul A. Pittman: We were obviously got cost of capital on the debt side way below 11%. So we will still do transactions from time to time, even if they are a little bit negative on a current yield versus interest rate basis as long as we believe they are a net positive addition to value overall.
Luca Fabbri: Luca you want to.
Luca Fabbri: Address the specifics of where I think there were three small transactions in that $16 million and dress where they were located.
Luca Fabbri: Scott, so we did three acquisitions all in Illinois. It was really one acquisition where the overwhelming majority was a little large and two very, very small acquisitions. These were all farms that were either directly adjoining or in the immediate vicinity of something we already owned, especially the very large one, which was right next to another very large farm that we own. That offers us significant benefits that offer the operator on those combined farms significant economies of scale and, therefore, a better ability to pay strong rent and more stability and more value for the combined assets.
Luca Fabbri: Sure Scott So we need the three acquisitions all in Illinois.
Luca Fabbri: Really one acquisitions towards was the overwhelming majority was a little large and two very very small acquisitions. These would all farms that were.
Luca Fabbri: Either directly or joining or the immediate vicinity of something we already owned especially the very large one that was right next to another very large farm that we own.
Luca Fabbri: That offers us to have significant that offers the operator on that combined those combined firms significant economies of scale and therefore better ability to base strong ran to more stability and more value for the combined assets. So this is this is why we pursued these acquisitions.
Luca Fabbri: So this is why we pursued these acquisitions, you know, despite the cost of capital, because we thought that in the long term, they're absolutely kind of slam dunk value adds for our portfolio as a whole.
Luca Fabbri: Despite the cost of capital because we thought that in the long term, we're absolutely kind of slim down value adds for our portfolio as a whole.
Paul A. Pittman: I really appreciate the color. That's helpful, especially with the tough spread environment going on right now. And just to follow up, you mentioned in your remarks here that you have six transactions left potentially for sales of assets. I know you've mentioned you're looking at probably kind of a second half timing standpoint, but you've been looking at a decent size of $25 million. Can you put any type of figure on what kind of potential asset sales could hit in 2024? I know you mentioned on the last call around the $50 million mark, but kind of just a little more color or detail around asset sales potentially for 24 years?
Scott: No I really appreciate the color that's helpful, especially obviously, the tough spread environment going on right now.
Paul A. Pittman: And just a follow up you mentioned in your pre Mark.
Paul A. Pittman: Our remarks here.
Paul A. Pittman: You have six transactions left potentially too.
Paul A. Pittman: And for sales of assets.
Paul A. Pittman: I know you've mentioned you're looking at is probably kind of a second half timing.
Paul A. Pittman: Timing standpoint that you've been looking at.
Paul A. Pittman: Decent size of $25 million.
Paul A. Pittman: Can you put any type of figure.
Paul A. Pittman: <unk>.
Paul A. Pittman: Potential asset sales that could hit in 2024, I know you mentioned on last call around the $50 million Mark that kind of just a little more color or detail around asset sales to nearly 24 years. So again. This is Paul let me make a couple of comments there.
Paul A. Pittman: So, again, this is Paul. Let me make a couple of comments there. You know, I would say that, you know, we'll end up with $50 million or so of sales in the calendar year. Um, there is no certainty around that, but I think it is highly likely and maybe some more. Those transactions will be, relatively speaking, late in the year. You know, we want to preserve it, and we can only do six transactions, and we don't want to burn those too early in the calendar year.
Paul A. Pittman: I would say that we will end up with $50 million or so of sales in the calendar year.
Paul A. Pittman: No certainty around that but I think it is highly likely and maybe some more.
Paul A. Pittman: Those transactions will be relatively speaking late in the year.
Paul A. Pittman: We want to preserve and we can only do six transactions, we don't want to burn those too early in the calendar year, we want to present the optionality.
Paul A. Pittman: We want to present the optionality, you know, maintain the optionality of somebody coming to us and really wanting to own something we own, and we don't have to turn that transaction down. So, the asset sales we do will be concentrated in the fall of the year. Think of it as a probably late third quarter, fourth quarter set of events. They are likely to be relatively larger in size, given that we can only do six for the year.
Paul A. Pittman: Maintaining the optionality of somebody coming to us and really wanting to own something we own and we don't have to turn that transaction down so.
Paul A. Pittman: Asset sales, we do will be concentrated in the fall of the year think of it as the <unk>.
Paul A. Pittman: Late third quarter fourth quarter set of events they are likely to be relatively larger in size given that we can only do six for the year.
Paul A. Pittman: And so thats kind of how we look at it but what's going to drive us.
Paul A. Pittman: And so, that's kind of how we look at it. But what's going to drive us toward asset sales more than any other factor? Is if we continue to maintain what I view as a $5 or greater discount in our stock price versus our underlying value of the portfolio. We're going to sell assets late in the year and buy back stock. I mean, this is crazy. You know, as you all know, I own almost 6% of the company, and that valuation gap needs to be narrowed.
Paul A. Pittman: Toward asset sales more than any other fact.
Paul A. Pittman: As if we continue to maintain what I view as a $5 or greater discount.
Paul A. Pittman: Our stock price versus our underlying value of the.
Paul A. Pittman: Of the portfolio.
Paul A. Pittman: We're going to sell assets late in the year and buyback stock.
Paul A. Pittman: I mean this is crazy.
Speaker Change: As you all know I own almost 6% of the company.
Paul A. Pittman: And that valuation gap needs to be narrowed I think we've got a stock worth well in excess of $16.
Paul A. Pittman: You know, I think we've got a stock worth well in excess of $16, and in terms of the underlying asset value. And we're trading, even after the nice uptick between yesterday and today, at something like a $5 discount. And it's, you know, it's crazy. The assets are highly, highly valuable, and highly liquid. And so if late in the year this gap is still there, we're going to try to create value for everybody by, as I jokingly say, the cheapest farmland on the planet is our own stock. So that's what we want to buy.
Paul A. Pittman: And in terms of the underlying asset value.
Paul A. Pittman: And we're trading even after the nice uptick between yesterday and today.
Paul A. Pittman: Something like a $5 discount.
Paul A. Pittman: And it's it's crazy the assets are highly highly valuable and highly liquid.
Paul A. Pittman: And so if late in the year. This gap is still there we're going to we're going to try to create value for everybody by as I jokingly say the cheapest farm land on the planet is our own stock.
Paul A. Pittman: That's what we want to buy.
Paul A. Pittman: Hope that helps. I appreciate it. Yeah, no, I appreciate it.
Speaker Change: Hope that helps I appreciate yeah no I appreciate the updated color. There that's very helpful. I will jump back in the queue. Thanks.
Paul A. Pittman: Yeah, no, I appreciate the update and coverage there. That's very helpful. I will jump back in the queue. Thanks.
Operator: Your next question comes from the line of Rob Stevenson with Channie. Your line is open.
Paul A. Pittman: Your next question comes from the line of fraud Stevenson with Janney. Your line is open.
Paul A. Pittman: Good morning, guys. I guess, Luca or Paul, anything changing in terms of the availability of financing for people to buy farms? I'm assuming that the issue surrounding the forfeited deposit was specific to that person, but figured I'd ask if anything's changing at the margin these days, given the higher for longer rates and what's happened with some of the banks.
Robert Chapman Stevenson: Hi, good morning, guys.
Paul A. Pittman: I guess Luca Paul anything changing in terms of availability of financing for people to buy farms I'm, assuming that the issues surrounding the forfeited deposit was specific to that person, but figured I'd ask if anything is changing at the margin. These days given the higher for longer rates and what's happened with some of the banks.
Paul A. Pittman: So the answer is the farmland market itself is incredibly strong. It's the power of a market that's largely dominated by, you know, the thousands and thousands of small farmland holders around the country. The farmers themselves are who drive the market, particularly in the grain producing regions.
Speaker Change: So the answer is the farm land market itself.
Paul A. Pittman: Is incredibly strong.
Paul A. Pittman: Power of.
Paul A. Pittman: A market that's largely dominated by.
Paul A. Pittman: No.
Paul A. Pittman: Thousands and thousands of small farm land holders around the country to farmers themselves are who drives the market, particularly in the grain producing regions.
Paul A. Pittman: You know, California, which is a much more institutional ownership market; there, getting transactions done is a little more difficult, but for the overwhelming bulk of our portfolio, we haven't seen any real weakness. Turning to the one specific transaction, that potential transaction would have been relatively large, and so. The person that walked away from those deposits is not that much money as a percentage of the entire purchase price of the property that we were talking about.
Paul A. Pittman: California, which is a much more institutional ownership market.
Paul A. Pittman: They're getting transactions done is a little more difficult.
Paul A. Pittman: Through the overwhelming bulk of our portfolio, we haven't seen any real weakness turning to the to the one specific transaction.
Paul A. Pittman: That potential transaction was would've been relatively large and so.
Paul A. Pittman: The person that walked away from those deposits as a percentage of the entire purchase price of the property that we were talking about it's not that much money.
Paul A. Pittman: I'm guessing they had some financing challenges. We don't know that for sure. I'm also thinking they just kind of changed their minds. It wasn't in the context of the overall transaction, an incredibly huge amount of money. And they just decided that the asset they thought they desperately wanted, they decided they didn't.
Paul A. Pittman: I'm guessing may have some financing challenges, we don't know that for sure.
Paul A. Pittman: I'm also thinking may just kind of changed their mind. It wasn't in the context of the overall transaction and incredibly huge amount of money and they just decided that the asset.
Paul A. Pittman: They desperately wanted.
Paul A. Pittman: They decided they didn't didn't need.
Paul A. Pittman: Okay, but are you not seeing any type of reticence on the standpoint of banks or some of the government programs to lend at this point? Not really, but I'm going to expand your question even though you didn't really ask it for everybody.
Speaker Change: Okay, but youre not seeing any type of reticence on the standpoint of banks or some of the government program. The land, that's not really not really but I'm going to expand your question, even though you didn't really ask for everybody's benefit.
Paul A. Pittman: I view your question as the farm economy getting into trouble in a way that's going to cause problems for us. And the answer to that question is yes, there's a little more trouble out there than there was 12 months ago. And we're seeing it, you know, in having an occasional farmer come to us and say, hey, can you re-rent this farm to someone else? We've had that happen.
Paul A. Pittman: I view. The question is is the farm economy getting into trouble in a way that's going to cause problems for us and the answer to that question is yes. There is a little more trouble out there than there was 12 months ago and we're seeing it we're seeing it.
Paul A. Pittman: Having an occasional farmer come to us and say Hey can you re rent this farm to someone else. We've had that occur we've been able to regret the farms at the same price or in some cases, a little bit higher.
Paul A. Pittman: We've been able to re-rent the farms at the same price, or, in some cases, slightly higher. So we're not really suffering yet from those sorts of problems, but we are hearing about them.
Paul A. Pittman: So we're not really suffering yet from those sorts of problems, but we are hearing about those problems and what's driving that of course is the biggest single factor is relatively lower commodity prices for the row crop guys in the face of somewhat higher particularly high interest rate environment.
Paul A. Pittman: And what's driving that, of course, is the biggest single factor is relatively lower commodity prices for the row crop in the face of somewhat higher, a particularly high interest rate environment, as you know, a little bit of distress starting to show up in the market. Now, you know, the worst bad debt this company ever had in the last downturn was still very, very tiny. This is a zero-vacancy asset class, and you know, we're not gonna end up with people with vacant farms or unrented farms, but we will occasionally have a tenant get in trouble, and we will scramble to replace that tenant and not lose any money.
Paul A. Pittman: A little bit of distress starting to show up in the market now recognize.
Paul A. Pittman: The worst bad debt this company ever had in the last downturn was still very very tiny.
Paul A. Pittman: Zero vacancy asset class and we're not going to end up with people with Bacon farms.
Paul A. Pittman: And rented farms, but we will occasionally have a tenant.
Paul A. Pittman: Get in get in trouble, and we will scramble to replace that tenant and not lose any money.
Paul A. Pittman: For those of you new to the story, we have, in almost every jurisdiction, what's called a first-lien security interest in the growing crop. And if you have that security interest in the growing crop, you can seize those revenues if you're scared of getting your rent at Harvard. And so that's why we have, you know, incredibly low bad debt numbers, even when the farm economy gets a little wobbly.
Paul A. Pittman: For those of you new to the story, we have in almost every jurisdiction, what's called a first lien security interest in the growing crop.
Paul A. Pittman: And if you have that security interest in the growing crop you can seize those revenues if you're scared of getting your rent paid.
Paul A. Pittman: At the time of harvest and so that's why we have incredibly low bad debt numbers, even when the farm economy gets a little wobbly.
Paul A. Pittman: Hope that helps, Rob. Yep, that helps. And then a clarification on the six remaining dispositions that you guys could do. Do 1031 transactions count in that? So if you bought a $10 million farm and sold 10 million farms, is that accepted? A 1031 does. Okay, that's helpful.
Speaker Change: Hope that helps Robert Yes that helps and then a clarification on the.
Speaker Change: Six remaining dispositions that you guys could do do 10 31 transactions count in that so if you bought at $10 million, so $10 million does that accepted.
Speaker Change: 10, 31 does not count.
Speaker Change: That's helpful. One it doesn't and you may see us do some of those.
Speaker Change: For exactly that reason.
Luca Fabbri: Okay, and then last clarification, Luca, the three Illinois assets that you just bought, what are they growing these days, and is that what's going to wind up being grown on there going forward? It's row crops, so corn and soybean rotation. Okay.
Paul A. Pittman: Okay.
Speaker Change: And then last clarification Luca the three.
Luca Fabbri: Illinois assets that you just bought.
Luca Fabbri: Are they growing these days and is that what's going to wind up being grown on there going forward.
Luca Fabbri: It's real crops, so corn and soybean retention.
Paul A. Pittman: And, I mean, where are you guys seeing, you know, the best opportunities, pricing wise? Is it Midwest row crops? Is it something else? You know, as you're looking out there to potentially do any more acquisitions?
Luca Fabbri: Okay.
Luca Fabbri: I mean, where are you guys seeing.
Paul A. Pittman: The best opportunities pricing wise.
Paul A. Pittman: Is it Midwest row crops is it something else.
Paul A. Pittman: As you're looking out there to potentially do any more acquisitions.
Paul A. Pittman: Yeah, so we have looked back across our portfolio, over the long kind of long route, you know, in the case of the farms that I have personally owned that went into the REITs. You know, 10 years ago, when we founded the REIT, we had a 25 year, you know, linear set of data, so to speak.
Luca Fabbri: Yes, so we have looked back across our portfolio.
Paul A. Pittman: Over the long kind of long.
Paul A. Pittman: In the case of the farms that I have personally owned that went into the REIT.
Paul A. Pittman: And certainly, in the last decade as a public company, our experiences, our best long-term returns have been in the core of the Corn Belt, and the second best has been in the Delta. Those are the two, you know, most important farming regions in the country. You know, the upper Midwest and the lower Mississippi River Valley. It's not a surprise.
Paul A. Pittman: 10 years ago, when we founded the REIT.
Paul A. Pittman: We've got a 25 year.
Paul A. Pittman: Linear set of data so to speak.
Paul A. Pittman: And certainly we've had the last decade as a public company.
Paul A. Pittman: Our experiences are best long term returns have been in the core of the corn belt.
Paul A. Pittman: And the second best has been the Delta.
Paul A. Pittman: Those are the two most important farming regions in the country.
Paul A. Pittman: The upper Midwest in the lower Mississippi River Valley, it's not a surprise.
Paul A. Pittman: Those are, you know, the best farming regions in the U.S. And a combination of the following three things is why I say what I say, a combination of current yield, the Long-Term Appreciation Rate, and the ease of operations, which leads to lower property operating costs and lower overheads for personnel and other costs, and the Corn Belt has a lower current yield, but higher appreciation rates, and Incredibly Efficient Operators. You know, in our company, we have a single farm manager who operates the Nebraska assets and the Illinois assets, which is really the core of our upper Midwest holding.
Paul A. Pittman: The best performing regions in the U S and a combination of the following three things is why I say, what I say, it's a combination of the current yield.
Paul A. Pittman: The long term appreciation rates and the ease of operations, which leads to lower property operating costs and lower overheads for personnel and other things.
Paul A. Pittman: And the corn belt has the lower current yield.
Paul A. Pittman: But higher appreciation rates.
Paul A. Pittman: And incredibly efficient operations.
Paul A. Pittman: And our company, we have a single farm manager.
Paul A. Pittman: Who operates the Nebraska assets and the Illinois assets, which is really the core of our upper Midwest Holdings.
Paul A. Pittman: That's about 600 million of our overall portfolio run by, you know, one human being. We don't have that level of efficiency anywhere else in the country. So long-term, we love buying the core of the Corn Belt assets because that's what the long-term history says has treated us the best from a financial return.
Paul A. Pittman: About $600 million of our overall portfolio.
Paul A. Pittman: One by one human being.
Paul A. Pittman: We don't have that level of efficiency anywhere else in the country.
Paul A. Pittman: So long term, we love buying core of the corn belt assets, because thats, what the long term history says it's treated us the best from a financial return perspective.
Operator: Alright, that's helpful. Thanks guys, I appreciate the time this morning.
Speaker Change: Alright Thats helpful. Thanks, guys I appreciate the time this morning.
Operator: Again, if you would like to ask a question, press star 1 on your telephone number. Your next question comes from the line of John Massocca with B. Rowley Securities. Your line is open.
Operator: Again, if you would like to ask a question Russ for one on your telephone keypad. Your next question comes from the line of John Masako with B Riley Securities. Your line is open.
John Massocca: Good morning.
John Massocca: Good morning, John morning, Jon.
Paul A. Pittman: So I talked a lot about the kind of Corn Belt region, but maybe touching on some of the farms you own in California and kind of the Western region. How are those kind of trending today? I mean, are some of the issues with, particularly, let's say, tree nut farms starting to abate at all, or is that still a kind of challenged kind of farming market?
John Massocca: And you talked a lot about the corn belt region, but maybe touching on <unk>.
Paul A. Pittman: <unk>.
Paul A. Pittman: As far as your own in California in Canada, the Western region.
Paul A. Pittman: How are those kind of training today I mean, if some of the issues with particularly let's say tree nut farms.
Paul A. Pittman: Going to abate at all or is that still remain kind of challenged.
Paul A. Pittman: And as <unk>.
Paul A. Pittman: Farming market.
Paul A. Pittman: When you look at California, you really have to break down the farms, you know, crop by crop. So, yes, California continues to be challenging. There are water issues, you know, whether they're caused by the politics of water or the actual availability of water. In either case, they're negative for farmers. And that's why, as we've said now, you know, for probably a year or more in these conference calls, we will gradually lessen our exposure to the U.S. West Coast and, frankly, to the Colorado High Plains region as well, also because of water limitations.
Paul A. Pittman: When you when you.
Paul A. Pittman: When you look at California, you really have to break the farms out crop by crop.
Paul A. Pittman: So.
Paul A. Pittman: So, yes, California continues to be challenging.
Paul A. Pittman: There are water issues.
Paul A. Pittman: Whether whether they're caused by politics of water or the actual availability of water we.
Paul A. Pittman: In either case, they're negative for farmers.
Paul A. Pittman: And that's why as we've said now for probably a year or more in these conference calls we will gradually lessen our exposure.
Paul A. Pittman: To the U S West coast, and frankly to the Colorado High Plains region as well also because the water limitations.
Paul A. Pittman: So those problems continue, and that's an overlay on all crops in California. It will lead to the very best farms we own in that area actually appreciating quite rapidly. You know, the really good farms with really good water. California is a unique location in terms of climate, and there are high-value crops there that you can grow few other places in the world, and certainly no other places in North America. And so those best farms out there are going to continue to appreciate in value rapidly. But the more mediocre farms, which we own some of, they're going to be a little challenged. And they are challenged because of water.
Paul A. Pittman: So those problems continue and Thats, an overlay on all crops in California.
Paul A. Pittman: Will lead to the very best farms, we own in that region actually appreciating quite rapidly.
Paul A. Pittman: The really good farms with really good work.
Paul A. Pittman: And then, depending on the crop, they're challenged because of the worldwide supply and demand curve. Walnuts, for example, are in a really tough place on a worldwide supply-demand basis. Pistachios and almonds are challenged, but not nearly as much as walnuts. They're probably, you know, going to be okay and recover, although there's certainly some over-planting in those crops. Citrus, on the other hand, is very much a local U.S. market only. You know, we get a lot of citrus in this country from South America, but at the certain harvest window when the U.S. crop becomes available, there's not much competition.
Paul A. Pittman: California is a unique location in terms of climate and there are high value crops. There that you can grow few other places in the world and certainly no other places in North America.
Paul A. Pittman: And so those best farms out there are going to continue to push it as rapidly, but the more mediocre farms, which we own some ups.
Paul A. Pittman: They're going to they're going to be a little challenged and they were challenged because water and then depending on the crop.
Paul A. Pittman: They are challenged because of worldwide supply demand characteristics.
Paul A. Pittman: Walnuts for example, or in a really tough place on a worldwide supply demand basis, pistachios and almonds are challenged but not nearly so much as walnuts.
Paul A. Pittman: They're probably going.
Paul A. Pittman: Going to be okay, and recover although there is certainly some over plant and then those crops.
Paul A. Pittman: With us on the other hand is very much a local U S market.
Paul A. Pittman: <unk>.
Paul A. Pittman: We get a lot of citrus in this country from South America, but at the certain harvest window that the U S crop becomes available theres not much competition.
Paul A. Pittman: So citrus is, you know, this year, I think, going to be a pretty good crop for us, and, you know, so on and so forth. We, for example, own one vegetable-slash-strawberry farm in California, and that farm is quite profitable, quite successful, and will continue. So it's kind of all over the map, but for the general reason of water, we will gradually reduce exposure to that in the Western US market. Sort of think of it as Colorado West will probably own less over time than we do right now.
Paul A. Pittman: Citrus is this year I think is going to be a pretty good crop for us.
Paul A. Pittman: So on and so forth. We for example on one vegetables last Strawberry farm in California, and that farm is quite profitable quite successful and we will continue to be so it's kind of all over the map, but for the general reason of water.
Paul A. Pittman: Will gradually reduce exposure on that on the Western U S markets sort of think of it as Colorado West will probably own less overtime than we do right now.
Paul A. Pittman: I mean, is there a market to sell maybe kind of just a specific crop of California tree net farms right now, just given all the kind of stress that particular industry has seen in recent months and years?
Paul A. Pittman: I mean is there a market to sell.
Paul A. Pittman: Maybe you can just be specific crop, California, Trina farms right now just given all the kind of stress that particular.
Paul A. Pittman: The industry has.
Paul A. Pittman: In recent months and years.
Paul A. Pittman: Yeah, there I mean, there is a market. It's at a lower price point than it might have been a little while ago, but yeah, there's a market for moving properties out there. We are super patient.
Speaker Change: Yes, I mean, there is a market that's at a lower price point than it might've been a little while ago, but yes, there was a market to move properties out there.
Paul A. Pittman: We are super patients.
Paul A. Pittman: We lose the rare occasion, where we will just get rid of something.
Paul A. Pittman: We think very long term about our portfolio.
Paul A. Pittman: The question isn't it.
Paul A. Pittman: Thrilled with the property right now.
Speaker Change: The management team in General and me in particular have been doing this a long long time.
Paul A. Pittman: You know, it is a rare occasion where we will just get rid of it. We think very long term about our portfolio, and you know the question isn't, are you thrilled with the property right now? I mean, the management team, in general, and me, in particular, we've been doing this for a long, long time.
Paul A. Pittman: It's, do you think this crop, this particular crop, or this particular farm will bounce back in value over the next three to five years? It's not a question about what's going to happen in the next 12 months. If we become convinced that a farm is not going to generate long-term value for us, we will let it go. And I'll give you two examples.
Paul A. Pittman: Do you think this crop this particular crop for this particular farm.
Paul A. Pittman: We will bounce back in value over the next three to five years, it's not a question about what's going to happen. The next 12 months.
Paul A. Pittman: We become convinced that a farm is not going to generate long term value for us we will let it go and I'll give you two examples last year, we sold blueberries.
Paul A. Pittman: Last year we sold blueberries in Michigan at a loss, and we sold a small citrus farm in Florida at a loss. You know, we sold everything else last year pretty much for big gains, but I and the rest of the management team had given up on Florida Citrus and Michigan Blue, and we gave up because we did not believe that there would be a meaningful recovery in those farms in the medium term. And it's just time to take your capital and deploy it somewhere else. We're not really at that point in anything in California.
Paul A. Pittman: In Michigan at a loss and we sold a small citrus farm in Florida at a loss.
Paul A. Pittman: Hold everything else last year pretty much big bones.
Paul A. Pittman: But I had in the rest of the management team had given up on Florida, Citrus on Michigan bloggers, and we've given up because we did not believe that there was a meaningful recovery in those farms and in the medium term and it was time to take your capital and deploy it somewhere else.
Paul A. Pittman: We're not really at that point and anything in California right now.
Paul A. Pittman: Okay, that's very helpful. I hope that helps. It definitely does. And then, you know, I saw that kind of gross profits for the kind of farms that I operated went up, and expectations for what you could do for the year went up. And it was just maybe notable that part of that was a reduction in cost of goods sold. Can you provide some color on what's driving that?
Speaker Change: Okay, that's very helpful.
Paul A. Pittman: I hope that helps.
Paul A. Pittman: It definitely does and then.
Paul A. Pittman: I assume that it kind of in the gross profits for the kind of operated farms went up an expectation for what you can do for the year went up and it was just maybe notable that part of that was a reduction in kind of cost of goods sold.
Paul A. Pittman: Can you provide some color on what's what's driving that.
James Gilligan: I'm going to leave that to you James or you Luca there in the Denver office because it's fact-specific, and I don't have the facts right now.
Speaker Change: I'm going to leave that to you James or you Luca there on the Denver office, because it's fact specific and I'll have the facts right in bromine.
James Gilligan: Yeah, John, on the cost of goods sold change in our outlook, that was mostly caused by kind of revised budgets for spend for the year. At the beginning of the year, some of it was kind of rolled over from prior years, and with more time, our farm manager had the chance to kind of sharpen up, if you will, and there's going to be decreased spend associated with those farms. So that's what's causing the change there.
James Gilligan: Yes, John on the cost of goods sold change in our outlook.
James Gilligan: That was mostly caused by kind of revised budgets for spend for the year.
James Gilligan: In the beginning of the year some of it was kind of rolled over from prior years and with more time or for a manager has a chance to kind of sharpen up if you will and theres going to be decreased spend associated with <unk>.
James Gilligan: Thus far so that's what's causing the.
James Gilligan: Change there.
James Gilligan: I guess there is opportunity for maybe more reduction in that line item as, you know, there's more budget clarity or is that kind of a more finalized thing as we get kind of closer into the growing season, or probably into the growing season, frankly?
Speaker Change: I guess is there opportunity for maybe more reduction in that line item as you know.
James Gilligan: There's more budget clarity or is that kind of.
James Gilligan: Now more finalized thing as we get closer into the growing season, probably into the growing season frankly.
James Gilligan: Yeah, there's always small changes available, potential, but we think it's pretty, you know, the range of outcomes tends to narrow or converge, so we think it's narrowing, but there are some little tweaks that can be made later in the year, but for now, we don't expect any big changes.
James Gilligan: Yes.
Speaker Change: There is always small changes available potential.
James Gilligan: Potential, but we think it's pretty sort of the range of outcomes 10 scenario converge. So we think it is narrowing but there are some little some little tweaks that can be made later in the year.
James Gilligan: But for now we don't expect any big changes.
James Gilligan: Okay, that's very helpful. And that's it for me. Thank you.
Speaker Change: Okay, that's very helpful and Thats it for me. Thank you.
Luca Fabbri: That concludes our Q&A session. I will now turn the conference back over to Luca Fabbri for his closing remarks.
James Gilligan: That concludes our Q&A session I will now turn the conference back over to Luca Savi for closing remarks.
Operator: Thank you everybody for your time and your interest in our company, and stay tuned for further updates in the quarters to come. Have a great day. Ladies and gentlemen, that concludes today's conference call. Thank you all for joining. You may now disconnect.
Luca Fabbri: Thank you everybody for your time and your interest in our company and stay tuned for further updates in the quarters to come and have a great day.
Luca Fabbri: Ladies and gentlemen that concludes today's conference call. Thank you all for joining you may now disconnect.
Operator: [music].
Operator: Yes.