Q2 2024 Farmland Partners Inc Earnings Call and Business Update

Greg: Thank you for standing by. My name is Greg, and I will be your conference operator today. At this time, I would like to welcome everyone to Farmland Partners, Incorporated's Q2 2024 earnings call. All lines have been placed on mute to prevent any background noise.

Thank you for standing by. My name is Greg and I will be your conference operator today. At this time, I would like to welcome everyone to Farmland Partners Incorporated Q2 2024 earnings call.

Greg: After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. Thank you. I would now like to turn the call over to Luca Fabbri, President and CEO. Luca, please go ahead.

All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. Thank you.

I would now like to turn the call over to Luca Fabbri, President and CEO . Luca, please go ahead.

Luca Fabbri: Thank you, Greg. Good morning, everybody, and welcome to our second quarter 2024 earnings conference call and webcast. We appreciate your presence here on this call and taking the time to join us because we see these calls as very, very important opportunities to share more informally our thinking and our strategy in a more interactive format rather than the usual SEC public filings and press releases. But first, I will turn the call over to our general counsel, Christine Garrison, for some customary preliminary remarks. Go ahead, Christine.

Thank you, Greg.

Good morning, everybody, and welcome to our second quarter 2024 Earnings Conference Call-a-Webcast.

We appreciate your presence here on this call and taking the time to join us because we see them as a very very important opportunities to share more informally our thinking and our strategy in a more interactive format rather than the usual SEC public filings and press releases.

But first, let me turn the call over to our general counsel, Christine Garrison, for some customary preliminary remarks. Go ahead, Christine.

Christine M. Garrison: Thank you, Luca, and thank you to everyone on the call. The press release announcing our second 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, July 25, 2024, and will not be updated subsequent to this call.

Thank you, Luca, and thank you to everyone on the call. The press release announcing our second quarter earnings was distributed after 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, July 25, 2024, 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 outlook for our business, rent, and the broader agricultural market.

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, rent, and the broader agricultural market. 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 the most comparable GAAP measures are included in the company's press release announcing second quarter earnings, which is available on our website, farmlandpartners.com, and is furnished as an exhibit to our current report on Form 8K, dated July 24, 2024.

We will also discuss 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 second quarter earnings.

which is available on our website, farmlandpartners.com, and it's furnished as an exhibit to our current report on Form 8K, dated July 24th, 2024.

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 Fitman. Paul?

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 to our Executive Chairman, Paul Pittman. Paul?

Paul A. Pittman: Thank you, Christine. I'm going to make comments on sort of four different topics today. One is the farm economy generally, land values, our cost control efforts, and our continuing discount to the net asset value of the underlying assets we own. So, starting with the farm economy. We're in an environment today where commodity prices for primary row crops like corn, soybeans, and wheat are lower than they have been in the past several years.

Thank you, Christine. I'm going to make comments about sort of four different topics today. One is the farm economy generally.

land values, our cost control efforts, and our continuing discount to the net asset value of the underlying assets we own. So starting with the farm economy.

We're in an environment today where commodity prices for the primary row crops like corn and soybeans and wheat

are lower than they have been in the past several years. That is leading to certain challenges for farmers in terms of their cash flow and the strength of their balance sheets.

Paul A. Pittman: That is leading to certain challenges for farmers in terms of their cash flow and the strength of their balance sheets. However, as is typical, though, this is by no means a crisis. There are a few farmers facing, you know, gradual levels of distress, but there are no broad-based economic problems in the farm belt. This is highly consistent with, you know, what has happened in the past, and for me, I'm now on probably cycle five or six in my career.

As is typical, though, this is by no means a crisis.

There are a few farmers facing, you know, gradual levels of distress, but there is no broad-based, you know, economic problems in the farm belt. This is highly consistent.

With you know what has happened in the past and for me. I'm now on probably cycle five or six

Paul A. Pittman: You go into a relatively lower commodity price phase. A few of the weaker farmers from a financial point of view get into trouble, but the overall market stays quite stable and quite strong, and we expected that to be exactly the same this time. We do anticipate still getting modest rent increases on the rent rolls that we do, and we do not anticipate any significant change in our bad debt levels. And, as you all probably know, our bad debt levels are almost zero, if not zero.

in my career, you go into a relatively lower commodity price phase.

A few of the weaker farmers, from a financial point of view, get into trouble.

But the overall market stays quite stable and quite strong.

We expected that to be exactly the same.

this time.

We do anticipate still getting modest rent increases on the rent rolls that we do.

and we do not anticipate any significant change in our bad debt levels.

And as you all probably know, our bad debt levels are almost zero, if not zero.

Paul A. Pittman: Turning just a second to the West Coast markets, their commodity prices are also somewhat challenged, although there are some bright spots, like citrus, where prices are actually higher than they've been in the last couple of years. The major challenges, though, in California's assets continue to be the same, both the absolute water risk and what I call political water risk because of the rules and regulations, which sometimes don't line up with the true reality of water.

Turning, turning just a second to the West Coast.

markets. Their commodity prices are also somewhat challenged, although there are some bright spots like citrus, where pricing is actually higher than it's been in the last couple of years. The major challenges, though, in California assets continue to be the same.

Both the absolute water risk, the what I call political water risk because of the rules and regulations

which sometimes don't line up with the true reality of water. And then finally continuing sort of increases in labor costs

Paul A. Pittman: And then finally, continuing sort of increases in labor costs for the farmers out there uh coming out of what, in my perspective, are sort of bad policies coming out of Sacramento. But those are the challenges there, but again, similar to the grain belt, not expecting any uh major crisis in the in that in that. Turning for a second to land values. Land values have sort of hit a bit of a plateau in the row crop regions.

for the farmers out there coming out of, you know, what in my perspective are sort of bad policies coming out of Sacramento. But those are the challenges there, but again, similar to the Grain Belt, not expecting any major crisis in that region.

Turning for a second to land values.

Land values have sort of, in the row crop regions, hit a bit of a plateau. In this industry a plateau is kind of what down feels like. We, you know, as we all know there's a sort of six percent per annum long-term average appreciation to the underlying assets.

Paul A. Pittman: In this industry, a plateau is kind of what going down feels like. We, you know, as we all know, there's a sort of 6% per annum long-term average appreciation on the underlying assets. That, of course, does not come like clockwork. It comes, you know, in a little bit of a lumpy style.

That, of course, does not come like clockwork.

Paul A. Pittman: And to refresh your memory, we've seen really, really high appreciation rates for the last three or so years, possibly as high as 15% or 20% on some assets in some regions. And so, we're going to see some kind of revert to the long-term mean occur. And how that occurs is you'll go through a period where you get almost no appreciation in assets for a year or two. And that's how you kind of stay at that long-term average.

It comes in a little bit of a lumpy style, and to refresh your memory, we've seen really, really high appreciation rates for the last three or so years.

possibly as high as 15 or 20 percent on some assets in some regions and so we're going to we're going to see the kind of revert to the long-term mean occur and how that occurs is you'll go through a period where you get almost no appreciation

in assets for a year or two, and that's how you kind of stay at that long term approximately.

Paul A. Pittman: I'm going to talk a little bit about what that means in kind of a practical matter if you're reading newspapers in the U.S. Midwest. What's gone away from them, you know, the sales of high-quality farmland are still very, very strong. You know how the best land in Illinois and Iowa is easily $16,000 to $18,000 an acre virtually every time you try to sell it or buy it.

6% appreciation factor. What that means in kind of a practical matter, if you're reading newspapers in the U.S. Midwest,

What's gone away from them, you know, the sales of high quality farmland are still very, very strong.

You know, the best land in Illinois and Iowa is easily $16,000 to $18,000 an acre virtually every time you try to sell it or buy it. But those sort of $20,000 plus sales that make headlines...

Paul A. Pittman: But those sort of $20,000 plus sales that make headlines are frankly less of those than there were. We've never marked our internal internal marks that we carry on our portfolio in terms of understanding what things are worth. We never use those super high outlier transactions.

There's frankly less of those than there were. We've never marked our internal internal marks.

that we carry on our portfolio in terms of understanding what things are worth.

We never use those super high outlier transactions, they're just not where the market is, we tend to use sort of where is the, you know, 75% of deals are getting done in X price range, that's the price range we want to use.

Paul A. Pittman: They're just not where the market is; we tend to use sort of where the 75% of deals are getting done in X price range. That's the price range; think about the value of our portfolio. And we don't think that's going to go down very much. You know, it's hard to even measure a 2% or 3% move either way, but it's certainly a very tight bracket. We don't see any real risk in the row crop region of the portfolio for any kind of asset price declines. Turning then to California, California is a little different.

when we think about the value of our portfolio. And we don't think that's going to go down very much. You know, it's it's it's hard to

to even measure a 2% or 3% move either way, but it's certainly a very tight bracket. We don't see any real risk in the row crop region of the portfolio for any kind of asset price declines.

Turning then to California. California is a little different and people are frustrated about the

Paul A. Pittman: People are frustrated about the water and the labor cost issues I talked about. Many institutions are concerned about their exposure in that region. As I've said in prior phone calls, we will gradually, over time, lessen our exposure to that because of those factors. Cost-cutting. As you all know, we changed the CFO role inside the organization during the quarter. We had our CFO, James Gilligan, lead the company. We promoted the long-term top accountants up into the CFO role, Susan Landy, who will speak here later today.

the water and the labor cost issues I talked about.

Many institutions are concerned about their exposure in that region.

As I've said in prior phone calls, we will gradually, over time, lessen our exposure to that region.

because of those factors.

Cost-cutting, as you all know, we changed the CFO role inside the organization.

during the quarter.

We had our CFO , James Gilligan, lead the company, we promoted the long-term top accountants.

up into the CFO role, Susan Landy, she will speak here later today.

Paul A. Pittman: We just didn't need that level of staffing in the finance department when we're in a position like we are now where we're not, frankly, growing very much. We're not raising a lot of capital, and we had more staff at higher costs than made sense. James was a wonderful member of the team.

We just didn't need that level of staffing.

In the finance department, when we're in a position like we are now, where we're not, frankly, growing very much, we're not raising a lot of capital.

And we, you know, we had more staffing at higher costs than made sense.

Paul A. Pittman: We made, as per his employment agreement, the payout he was permitted to get, and he deserved it. This is all about cost-cutting, not about performance, and Susan Landy has been the top CPA in the company for many years and will do a great job as our CFO and help limit our overheads in the home office in Denver. Then finally, you know, I'm like a broken record on this, but I always want to make it clear: we continue to believe we trade at a deep, deep discount to our net asset value.

James was a wonderful member of the team. We made, as per his employment agreement, the payout he was permitted to get and he deserved it.

This is all about cost-cutting, not about performance, and Susan Landy has been the top CPA in the company for many years and will do a great job as our CFO and help limit our overheads in the home office in Denver.

Then finally, you know, I'm like a broken record on this, but I always want to make it clear. We continue to believe we trade at a deep, deep discount.

Paul A. Pittman: I think that the discount could be, you know, north of four or five dollars a share. It is absolutely huge. We will continue to do our best to close that gap through, you know, things like asset sales and arbitraging the private market values for our assets against the public market. This is not a situation which we're going to allow to sit there forever. As a REIT, we're obviously constrained in the kinds and numbers of deals we can do in any year by the tax law, and so we'll stay in compliance with that, but we will continue to drive With that, I'm going to turn it over to Luca to make some additional comments.

to our net asset value. I think that discount could be north of $4 or $5 a share. It is absolutely huge.

We will continue to do our best to close that gap through things like asset sales and arbitraging the private market values for our assets against the public market discount.

This is not a situation which we're going to allow to sit there forever. As a REIT, we're obviously constrained in the kinds of numbers of deals we can do in any year by the tax law, and so we'll stay in compliance with that.

But we will continue to drive, as we did in the 23 calendar year, to arbitrage the high private market values for our assets against.

against the discounts in the public market. With that, I'm gonna turn it over to Luca to make some additional comments.

Luca Fabbri: Thank you, Paul. I only have a couple of very quick remarks. First and foremost, I want to remind everybody about the seasonality of our business from a financial reporting standpoint. Based on our investor relations activity and the calls that we've had, I know that we might have a couple of new investors listening to this call. And Q2 and Q3 in the calendar year tend to be the slower months because we don't have very much in the way of revenue recognition other than revenues that are spread all over the year. Typically, the first quarter and, even more importantly, the fourth quarter in the year are the ones where we have higher revenue recognition and, therefore, a higher, you know, more prominent performance at the bottom line level.

Thank you, Paul. I only have a couple of very quick remarks. First and foremost, I want to remind everybody about the seasonality of our business from a financial reporting standpoint.

Based on our investor relations activity and the calls that we've had, I know that we might have a couple of new investors listening to this call. And Q2 and Q3 in the calendar year tend to be the slower months.

because we don't have very much in the way of revenue recognition other than the revenues that are spread all over the year. Typically the first quarter and even more importantly the fourth quarter in the year are the ones where we have higher revenue recognition and therefore a higher, you know, more prominent performance at the bottom line level.

Luca Fabbri: Speaking of that, I think that Q2 was, relatively speaking, a very, very strong quarter for us when compared to last year. Of course, on a net income basis last year, we had several dispositions that actually contributed to the gap bottom line. We tried to present, through our adjusted FFO, a more of a view into what we consider the core performance of our business, and we had a very strong one indeed. If you think that, from a gross book value standpoint, we actually disposed of about 10.4% of our portfolio, yet our operating revenues were down only 1.2%.

Speaking of that, I think that Q2 was relatively speaking a very very strong quarter for us when compared to last year. Of course on a net income basis last year we had several dispositions that actually contributed to the gap bottom line. We tried to present through our adjusted FFO a more

more of a view into what we consider the core performance of our business, and we had a very strong one indeed.

If you think that from a gross book value standpoint...

we actually dispose of about 10.4% of our portfolio.

yet our operating revenues were down only 1.2%.

Luca Fabbri: So I think that that is a testament to the, frankly, the good work that we've done in improving our portfolio and pushing our revenues and also managing our expenses. Our total operating expenses, which include, of course, overhead, which is harder to flex with the size of the company, were down 7%.

So I think that that is a testament to the, frankly, the good work that we've done in improving our portfolio and pushing our revenues, and also managing our expenses.

Our total operating expenses, which include, of course, overhead, which is harder to flex with the size of the company, we're down 7%.

Luca Fabbri: One quick note to prevent some questions that I certainly expect, especially after Paul's remarks, we haven't announced any significant asset dispositions this year. As I've mentioned in the past, in prior calls, we do expect to have some later in the year because of the safe hardware limitations that we are operating under this year. We are kind of postponing any disposition transactions until later in the year when we have a better view of what we have available.

One quick note, to prevent some questions that I certainly expect, especially after Paul's remarks, we haven't announced any significant asset dispositions in the year. As I've mentioned in the past, in prior calls, we do expect.

to have some likely later in the year because of the safe harbor limitations that we are operating under this year. We are kind of postponing any asset transfer.

disposition transactions until later in the year when we have a better view for what we have available.

Luca Fabbri: And finally, one quick remark on the CFO transition. As Paul mentioned, Susan has already been a very, very important part of our team, driving SEC reporting and financial reporting in general in our company for several years. So thanks to her experience with the company, experience in general, and James' active role in the transition, I believe the transition was absolutely seamless. And with that, let me turn the call over to her for her overview of the company's financial performance. Susan. Thank you, Luca.

And finally, one quick remark also on the CFO transition, as Paul mentioned, Susan has already been a very, very important part of our team, driving SEC reporting and

financial reporting in general in our company now for several years so thanks to her you know experience with the company experience in general and James active role in transition I believe the transition was absolutely seamless

And with that, let me turn over the call over to her for her overview of the company's financial performance. Susan. Thank you, Luca. I'm going to cover a few items today, including the summary of the three and six months ended June 30th.

Susan Landy: Thank you, Luca. I'm going to cover a few items today, including a summary of the three and six months ended June 30th, a review of the capital structure, a comparison of year-to-date revenue, and updated guidance for 2024. I'll be referring to the supplemental package, which is available in the Investor Relations section of our website under the subheader Events and Presentations. But first, I will share a few financial metrics that appear on page 2. For the three months ended, our net loss was $2.1 million, and the net loss per share available to common stockholders was $0.6.

a review of capital structure, comparison of year-to-date revenue, and updated guidance for 2024. I'll be referring to the supplemental package, which is available in the Investor Relations section of our website under the subheader, Events and Presentations.

First, I will share a few financial metrics that appear on page 2. For the three months ended, our net loss was $2.1 million and net loss per share available to common stockholders was $0.6.

Susan Landy: 0.06, lower than the same period for 2023 largely due to the impacts of dispositions that occurred in 2023. ASFO was 0.5 million, and ASFO per weighted share was 0.01, higher than the same period for 2023. ASFO was positively impacted by lower property taxes due to fewer properties, lower G&A expenses as part of the company's cost-cutting initiative, and an increased volume of citrus sales on our directly operated property. For the six months ended June 30, our net loss was $0.6 million, and net loss per share available to common stockholders was $0.05, lower than the same period for 2023, again largely due to the impacts of dispositions that occurred in 20

0.06, lower than the same period for 2023, largely due to the impacts of dispositions that occurred in 2023.

ASFO was 0.5 million and ASFO per weighted share was 0.01.

higher than the same period for 2023.

ASFO was positively impacted by lower property taxes due to fewer properties, lower G&A expenses as part of the company's cost-cutting initiative, and increased volume of citrus sales on our directly operated properties.

For the six months ended June 30, our net loss was $0.6 million and net loss per share available to common stockholders was $0.05, lower than the same period for 2023, again largely due to the impacts of dispositions that occurred in 2023.

Susan Landy: AFFO was $3.3 million, and AFFO per weighted average share was $0.07, higher than the same period for 2023. AFFO was positively impacted by $1.2 million of income from forfeited deposits in the first quarter, lower property taxes due to fewer properties, lower G&A expenses as part of the company's cost-cutting initiative, and increased volume of citrus sales on our directly operated properties. Next, we will review some of the operating expenses and other items, which are shown on page 5.

AFFO was $3.3 million and AFFO per weighted average share was $0.07 higher than the same period for 2023.

AFFO was positively impacted by $1.2 million of income from forfeited deposits in the first quarter, lower property taxes due to fewer properties, lower G&A expenses as part of the company's cost-cutting initiative.

and increased volume of citrus sales on our directly operated properties.

Susan Landy: Property operating expenses were lower than for the three and six months ended June 30, 2024, which is caused by lower property taxes, lower property insurance expenses, and lower repair expenses. G&A increased primarily due to the one-time severance expense of $1.4 million in connection with the previously announced departure of the company's former CFO as part of the company's cost-cutting initiative. This was partially offset by lower salaries and travel expenses. However, gain on dispositions was down from the prior year as no farms were sold during this year. There were only a small six asset dispositions from a few properties reported in the six months ended.

Next, we will review some of the operating expenses and other items, which is shown on page 5.

Property operating expenses were lower than for the three and six months ended, June 30, 2024, which are caused by, again, the lower property taxes, lower property insurance expenses, and lower repairs expenses. So, again, GNA increased.

primarily due to the one-time severance expense of $1.4 million in connection with the previously announced departure of the company's former CFO as part of the company's cost-cutting initiative. This is partially offset by lower salaries and travel expenses.

Gain on dispositions was down from prior year as no farms were sold during this year. There was only a small small success at dispositions from a few properties reported in the six months ended.

Susan Landy: Income from forfeited deposits 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 that termination, we recognized $1.2 million of forfeited deposits.

Income from forfeited deposits relates to the sale of a farm that was initiated back in 2020 where we received a series of non-refundable deposits over time.

Speaker Change: The sale was terminated by mutual agreement in the first quarter of 2024, and as a result of that termination, we recognize $1.2 million of forfeited deposits. Interest expense decreased slightly from the prior year due to lower outstanding principal balance.

Susan Landy: Interest expense decreased slightly from the prior year due to a lower outstanding principal balance. Next, moving on to page 12, there are a few capital structure items to point out. First, floating rate debt net of the swap is a percent of total debt was approximately 20%. Second, we had undrawn capacity on our lines of credit of approximately $158 million as of the end of Q2.

Speaker Change: Next, moving on to page 12, there are a few capital structure items to point out. First, floating rate debt, net of the swap, is a percent of total debt was approximately 20%.

Speaker Change: Second, we had undrawn capacity on our lines of credit of approximately $158 million as of the end of Q2. In 2024, we have two MetLife resets that are set to happen in the fourth quarter on debt totaling approximately $27 million.

Susan Landy: In 2024, we have two MetLife resets that are set to happen in the fourth quarter on debt totaling approximately $27 million. The Rutledge facility was amended during the quarter to reduce the interest rate by 40 basis points. In addition, the 2.5% annual reduction in the facility size was also eliminated.

Speaker Change: The Rutledge facility was amended during the quarter to reduce interest rate by 40 basis points.

Speaker Change: In addition, the 2.5% annual reduction in the facility size was also eliminated. There was also a reduction in the facility size from $85.8 million to $75 million.

Susan Landy: There was also a reduction in the facility size from $85.8 million to $75 million, as well as the introduction of an unused commitment fee of 0.2%. Page 14 breaks down the difference in revenue categories with a few comments at the bottom to describe the difference between periods. The few points that I would like to highlight are fixed farm rent decreases due to dispositions, as we were expecting. Solar, wind, and recreation changes were caused primarily by rent on land with a large solar project in Illinois that was higher in 2023 than 2024 as that project moved from construction to operational at the end of 2023.

Speaker Change: as well as the introduction of a non-use commitment fee of 0.2%.

Operator: Page 14 breaks down the difference in revenue categories with a few comments at the bottom to describe the difference between periods.

Speaker Change: Page 14 breaks down the difference in revenue categories with a few comments at the bottom to describe the difference between periods.

Operator: The few points that I would like to highlight are six farm rents decreased due to dispositions, as we were expecting. Solar wind and recreation changes were caused primarily by rent on land with large solar project in Illinois that was higher in 2023 than 2024, as that project moved from construction to operational at the end of 2023. We will see this impact throughout the year, especially in Q4.

Speaker Change: The few points that I would like to highlight

Speaker Change: Our fixed farm rent decreased due to dispositions, as we were expecting.

Speaker Change: Solar, wind, and recreation changes were caused primarily by rent on land with a large solar project in Illinois that was higher in 2023 than 2024 as that project moved from construction to operational at the end of 2023.

Speaker Change: We will continue, we will see this impact throughout the year, especially in Q4.

Susan Landy: We will continue to see this impact throughout the year, especially in Q4. Senate reimbursements decreased in the current year due to a one-time tax reimbursement in Q1 of last year, also dispositions that occurred in 2023, and a small number of leases that renewed with higher fixed rents but with lower tenant reimbursement.

Operator: Senate reimbursement decreased in the current year due to a one-time tax reimbursement in Q1 of last year, also disposition that occurred in 2023 and a small number of leases that renewed with higher fixed rent with lower tenant reimbursement. Management fees and interest income increased with greater loans and financing receivables outstanding. Direct operations is a combination of crop sales, crop insurance, and cost of its sold. It is up relative to 2023 largely due to a larger volume of citrus and walnut sales and lower impairment expense.

Speaker Change: Tenant reimbursements decreased in the current year due to a one-time tax reimbursement in Q1 of last year. Also dispositions that occurred in 2023 and a small number of leases that renewed with higher fixed rents but with lower tenant reimbursements.

Susan Landy: Management fees and interest income increased with greater loans and financing receivables outstanding. Direct operations were a combination of crop sales, crop insurance, and cost of goods sold. It is up relative to 2023, largely due to a larger volume of citrus and walnut sales and lower impairment expense. Other items decreased slightly between the periods. Page 15 is our outlook for 2024. Assumptions are listed at the bottom. Note that we had three acquisitions in Q1 of 2024. There are no other transactions that are included in this projection.

Speaker Change: Management fees and interest income increased with greater loans and financing receivables outstanding.

Speaker Change: Direct operations is a combination of crop sales, crop insurance, and cost of goods sold. It is up relative to 2023, largely due to a larger volume of citrus and walnut sales and lower impairment expense.

Operator: Other items decreased slightly between the page 15. Our outlook for 2024. Assumptions are listed at the bottom. Note that we had three acquisitions in Q1 of 2024. There are no other transactions that are included in the projections. On the revenue side, fixed farm rent changes reflect the full year impact of 2023 transactions plus the Q1 2024 acquisitions and a few lease changes that occurred during 2024. Direct operations, which is crop sales, crop insurance minus cost of goods sold, is up due to higher expected performance in citrus farms under direct operations.

Speaker Change: Other items decreased slightly between the periods. Page 15 is our outlook for 2024. Assumptions are listed at the bottom.

Speaker Change: Note that we had three acquisitions in Q1 of 2024. There are no other transactions that are included in the projections.

Susan Landy: 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 during 2024. Direct operations, which is crop sales plus crop insurance minus cost of goods sold, is up due to higher expected performance in citrus farms under direct operations. On the expense side, G&A increased due to severance costs, but that was partially offset by targeted cost reduction. The forecasted range of ASFO is 9.8 to 12.8 million, or 0.2 to 0.26 per share. The low end of the range is slightly higher than the outlook from the last quarter.

Speaker Change: On the revenue side, fixed farm rent changes reflect the full year impact of 2023 transactions.

Speaker Change: plus the three Q1 2024 acquisitions and a few lease changes that occurred during 2024. Direct operations, which is crop sales, crop insurance minus cost of goods sold, is up due to higher expected performance in citrus farms under direct operations.

Operator: On the expense side, G&A increased due to severance costs, but that's partially offset by targeted cost reductions. The forecasted range of ASSO is 9.8 to 12.8 million, or 0.2 to 0.26 per share. The low end of the range is slightly higher than the outlook from the last quarter.

Speaker Change: On the expense side, G&A increased due to severance costs, but that's partially offset by targeted cost reductions.

Speaker Change: The forecasted range of ASSO is 9.8 to 12.8 million, or 0.2 to 0.26 per share. The low end of the range is slightly higher than the outlook from the last quarter.

Susan Landy: This summarizes where we stand today, and we will keep you updated as we progress through the year. This wraps up our comments this morning. Thank you all for participating. Operator, you can now begin the Q&A session.

Operator: This summarizes where we stand today, and we will keep you updated as we progress through the year. This wraps up our comments this morning. Thank you all for participating.

Speaker Change: This summarizes where we stand today, and we will keep you updated as we progress through the year. This wraps up our comments this morning. Thank you all for participating. Operator, you can now begin the Q&A session.

Susan Landi: Operator, you can now begin the Q&A session. Thanks, Susan.

Operator: Thanks, Susan. And at this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. Once again, star one. And we will pause just a moment to compile the Q&A roster. And it looks like our first question today comes from the line of Scott Fortune with Roth Capital. Scott, please go ahead.

Operator: And at this time, I would like to remind everyone that in order to ask a question, press star, then the number one on your telephone keypad. Once again, star one. And we will pause just a moment to compile the Q&A roster.

Speaker Change: Thanks, Susan. And at this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. Once again, star one. And we will pause just a moment to compile the Q&A roster.

Scott Fortune: And it looks like our first question today comes from the line of Scott Fortune with Rock Capital. Scott, please go ahead.

Speaker Change: And it looks like our first question today comes from the line of Scott Fortune with Roth Capital. Scott, please go ahead.

Scott Thomas Fortune: Yeah, good morning, and thanks for all the detail. Just wanted to follow up and get a little color as we look into the second half of next year on the renewal lease discussions you're having. And obviously, you mentioned some of the pressure, downward pressure, and volatility in many of the row crops for farmers from that standpoint here. But just kind of what are your initial expectations with the farm economy coming off a little bit and just those discussions around rent renewal leases for going into 25 to start here initially.

Scott Fortune: Yeah, good morning and thanks for all the detail.

Scott Fortune: Just want to follow up and get a little color as we look into the second half into next year on the renewal lease discussions you're having. And obviously, you mentioned some of the pressure, downward pressure, and volatility in many of the row crops for the farmers from that standpoint here. But just kind of what are what you're just to expectations with the farm economy coming off a little bit. And just those discussions around rent renewal leases for going in 2.5 to start here initially.

Scott Thomas Fortune: Yeah, good morning, and thanks for all the detail. Just wanted to follow up and get a little color.

Speaker Change: As we look into the second half next year on the renewal lease discussions you're having.

Speaker Change: And obviously you mentioned some of the pressure, downward pressure and volatility in many of the row crops for the farmers from that standpoint here. But just kind of what are your initial expectations with the farm economy coming off a little bit and just those discussions around rent.

Speaker Change: renewal leases for going into 25 to start here initially.

Paul A. Pittman: Yeah, this is Paul, and I'll take that question. I'm in a different location than the rest of the management team today, so if they have anything to add, they will. So we would expect, just to give you the punchline first, we would expect rent renewals this year, hopefully in the five to ten percent range in terms of the leases we renew this year. That's still a pretty good increase, certainly not as strong as the last couple of years, which have been 15 to 20 percent, and that's, as I discussed earlier, kind of reflecting the lower commodity price environment.

Paul Pittman: Yeah, this is Paul, and I'll take that question. I'm in a different location than the rest of the management team today, so if they have anything to add, they will. So we would expect us to give you the punchline first. We would expect renewals this year, hopefully in the five to 10% increase in terms of the leases we renewed this year. The, you know, that's still a pretty good increase; certainly not as strong as the last couple of years, which have been 15 to 20%. And that's, as I discussed earlier, kind of reflecting the lower commodity price environment.

Speaker Change: Yeah, this is Paul, and I'll take that question, and I'm in a different location than the rest of the management team today, so if they have anything to add, they can.

Speaker Change: they will. So we would expect, just to give you the punchline first, we would expect rent renewals this year hopefully in the five to ten percent increase.

Speaker Change: in terms of the leases we renew this year.

Speaker Change: That's still a pretty good increase, certainly not as strong as the last couple of years, which have been 15 to 20 percent.

Paul A. Pittman: And it has not only the kind of financial impacts I mentioned earlier; it has kind of a psychological and emotional impact, which makes rent negotiations harder. So that's what we would anticipate. We're really early in the process, so it's hard to say exactly where that number will come out, but I think it will be in that range.

Speaker Change: And that's, as I discussed earlier, kind of reflecting the lower commodity price environment. And it has not only the kind of financial impacts I mentioned earlier, it has kind of a psychological and emotional impact.

Paul Pittman: And it has not only the kind of financial impacts I mentioned earlier; it has kind of a psychological and emotional impact, which makes rent negotiations harder. So that's what we would anticipate. We're really early in the process, so you know, it's hard to say exactly where that number will come out. But I think it will be in that bracket.

Speaker Change: which makes rent negotiations harder.

Pat: So, that's what we would anticipate. We're really early in the process, so, you know, it's hard to say exactly where that number will come out.

Paul Pittman: The other thing to remember, and it's a very, it's a very important fact. We are now starting on the leases; you know, the leases coming up for renewal this year, our leases that came up for renewal three years ago. So they got a very large increase on average three years ago, so we're really working off a much higher base. So it's not just the farm economy impact. It's all about, you know, whether you're working with at least it was renewed during a boom time era in farming, which is, which is where we are this time.

Pat: but I think it will be in that bracket.

Scott Thomas Fortune: The other thing to remember, and this is a very important fact, we are now starting on the leases, you know, the leases coming up for renewal this year are leases that came up for renewal three years ago. So they got a very large increase on average three years ago, so we're really working off a much higher base. So it's not just the farm economy impact. It's all about whether you're working with a lease that was renewed during a boom time era in farming, which is where we are this time, as opposed to the last couple of years when we were renewing leases that had been renegotiated during a tougher economic period in sort of call it the 17, 18, 19 era. And so it was much, much easier to get the big one. I hope that answers your question.

Speaker Change: The other thing to remember, and it's a very important fact,

Speaker Change: We are now starting on the leases, you know, the leases coming up for renewal this year are leases that came up for renewal three years ago. So they got a very large increase on average three years ago. So we're really working off a much higher base.

Speaker Change: So it's not just the farm economy.

Speaker Change: It's all about...

Speaker Change: You know, whether you're working with a lease that was renewed during a boom time era in farming, which is, which is where we are this time, as opposed to the last couple of years, we've been, we were renewing leases that had been renegotiated.

Paul Pittman: As opposed to the last couple of years, we've been renewing leases that had been renegotiating during a tougher economic period in sort of, you know, call it 1718 19 era. And, and so there was much, much easier to get the big jumps. Hope that answers your questions.

Speaker Change: during a tougher economic period in sort of, you know, call it 17, 18, 19 era. And so it was much, much easier to get the big jumps. I hope that answers your question, Scott.

Paul A. Pittman: Yeah, no, that's great. That's a really good color on that.

Scott Fortune: Yeah, no, it's great. That's a real good color on that.

Scott Fortune: And just kind of follow up, I know you mentioned a little bit, but anything different. On the farmers in common in the common general, like you said, we were seeing some distress there, but it's very limited from that standpoint, but.

Scott Thomas Fortune: Yeah, no, that's great. That's a real good color on that. And just kind of follow up, I know you mentioned a little bit, but anything different...

Scott Thomas Fortune: And just kind of follow up, I know you mentioned a little bit, but anything different on the farmer's income and the economy in general? Like you said, we are seeing some distress there, but it's very limited from that standpoint. And then how does this kind of project as you look at, you know, you mentioned that we're going to do some dispositions potentially in the more likely fourth quarter here, kind of sense that that third quarter will be kind of very, very similar to this last quarter.

Scott Thomas Fortune: on the farmers income and the economy in general. Like you said, we are seeing some distress there, but it's very limited from that standpoint. But, and then how does this kind of project as you look at, you know, you mentioned that we're going to do some dispositions potentially in more likely fourth quarter here, kind of sense that third quarter will be kind of very, very similar to this last quarter, but a lot depends on fourth quarter. But just kind of your framework on kind of any additional distress out there and then how that, how that kind of portrays into kind of the dispositions or sales of assets like in that marketplace.

Scott Fortune: And then how does this kind of project, as you look at, you know, you mentioned that we're going to do some dispositions potentially in more likely for quarter here, kind of since that. The third quarter will be kind of very, very similar to the last quarter, but a lot depends on fourth quarter. But just kind of here, your framework on because any additional distress out there. And then how that, how that time portrays into kind of a disposition or sales of assets like in that marketplace.

Scott Thomas Fortune: But a lot depends on the fourth quarter, but just kind of your framework on kind of any additional distress out there and then how that kind of plays out in kind of the dispositions or sales of assets in that marketplace. Yeah.

Paul A. Pittman: Yeah, I mean, if you own high-quality farms, which we overwhelmingly do, I mean, we've got certainly some farms that aren't perfect. Many, many of our assets are exceedingly high quality. That market is still strong. You can move a farm if you choose to move a farm.

Paul Pittman: Yeah, I mean, I mean, I mean, the the out if you own high quality farms, which we overwhelmingly did, I mean, we've got certainly some farms that are perfect. But many, many of our assets are exceedingly high quality. That market is still strong and deep. You can move a farm if you choose to move a farm.

Speaker Change: Yeah, I mean, if you own high-quality farms, which we overwhelmingly do,

Scott Thomas Fortune: I mean we've got certainly some farms that aren't perfect but many many of our assets are exceedingly high quality. That market is still strong and deep.

Paul Pittman: Our big constraint this year, just to refresh, every summary is because we were so aggressive in selling assets last year, we actually are limited to seven total transactions for the calendar year. And we've actually already consumed one of those small sale of something in the office. for Trinity Zone Fund that we own 10% of. So, the reason we're waiting kind of a fourth quarter to the early, third quarter, fourth quarter, it really gets focused on asset sales is we don't have very many bonds, if you will. And so we want to use them in the best possible way.

Paul A. Pittman: Our big constraint this year, just to refresh everybody's memory, is because we were so aggressive in selling assets last year, we actually are limited to seven total transactions for California. And we've actually already consumed one of those with a small sale of something in the Opportunity Zone Fund that we own 10% of. So the reason we're waiting kind of the fourth quarter to, or late third quarter, fourth quarter; it really gets focused on asset sales is we don't have very many bullets, if you will. And so we wanna use them in the best possible way.

Scott Thomas Fortune: You can move a farm if you choose to move a farm. Our big constraint this year, just to refresh everybody's memory, is because we were so aggressive in selling assets last year, we actually are limited to seven total transactions for the calendar year.

Scott Thomas Fortune: And we've actually already consumed one of those with a small sale of something in the Opportunity Zone Fund that we own 10% of.

Scott Thomas Fortune: So, the reason we're waiting kind of the fourth quarter, or late third quarter, fourth quarter to really get focused on asset sales, is we don't have very many bullets.

Scott Thomas Fortune: if you will. And so we want to use them in the best possible way. The most active time for selling and buying farms is the late third and fourth quarter. And so that's why we haven't done much to date.

Paul A. Pittman: The most active time for selling and buying farms is the late third and fourth quarter. And so that's why we haven't done much to date. We would anticipate anything we sell will be, will be on average over whatever package of farms we end up selling will be a pretty substantial gain if we get a deal done. And we don't see a weakness in farmland values. My comments are all focused on the following.

Paul Pittman: The most active time for selling and buying farms is the late third and fourth quarter.

Paul Pittman: And so, that's why we haven't done much today. We wouldn't disobey. Anything we sell will be, on the average, over whatever package of farms we end up selling, will be a pretty substantial gain if we get a deal done. And we don't see a weakness in farmland values.

Scott Thomas Fortune: We would anticipate anything we sell will be, you know, will be on average over whatever package of farms we end up selling will be a pretty substantial gain if we get a deal done, and, you know, we don't see a weakness in farmland values.

Paul Pittman: What I, my comments are all focused on the following. In the last three years, we have seen very, very strong gains in farmland. That has gone away. But that's not the same as saying there's a decline in value. I used the word Plateau for a reason. We're just not seeing the gains we sell the last three or four years. We're also not really seeing a pullback.

Paul A. Pittman: In the last three years, we have seen very, very strong gains in farming. That has gone away, but that's not the same as saying there's a decline in value. I use the word plateau. We're just not seeing the gains we saw in the last three or four years. We're also not really seeing a pullback.

Speaker Change: My comments are all focused on the following.

Scott Thomas Fortune: In the last three years, we have seen very, very strong gains.

Scott Thomas Fortune: in Farmland. That has gone away, but that's not the same as saying there's a decline in value. I use the word plateau for a reason.

Scott Thomas Fortune: We're just not seeing the gains we saw the last three or four years. We're also not really seeing a pullback.

Scott Fortune: I appreciate that.

Scott Thomas Fortune: I appreciate that. I will jump back in the queue. Thanks.

Scott Fortune: I will jump back and make you. Thanks. Yeah. Thanks.

Operator: Thanks, Scott. And just another reminder, press one on your touchtone phone if you'd like to ask a question. And our next question comes from the line of Rob Stevenson with JANI. Rob, please go ahead.

Speaker Change: I appreciate that. I will jump back in the queue. Thanks.

Operator: Thanks, Scott. And just another reminder, star one on your touched-on phone if you'd like to ask a question.

Scott Thomas Fortune: Yeah. Thanks, Scott.

Speaker Change: And just another reminder, star one on your touchtone phone if you'd like to ask a question.

Rob Stevenson: And our next question comes from the line of Rob Stevenson with Janney. Rob, please go ahead.

Speaker Change: And our next question comes from the line of Rob Stevenson with JANI. Rob, please go ahead.

Robert Chapman Stevenson: Good morning. Paul, given all your comments on the market and land values, at today's market prices, how aggressively would you be buying farmland if you had a more normal cost of equity, or would you just be doing a select few deals and waiting for pricing to come back to you, just trying to strip out your cost of capital from the market conditions and whether or not you'd be a buyer if you had a better cost of capital here?

Robert Chapman Stevenson: Good morning. Paul, given all your comments on the market and land values, at today's market pricing, how aggressively would you be buying farmland if you had a more normal cost of equity? Or would you just be doing a select few deals and waiting for pricing to come back to you? Just trying to strip out your cost of capital from...

Rob Stevenson: Good morning. I'm just trying to strip out the your cost of capital from the market conditions and whether or not you'd be a buyer if you had, you know, better cost of capital here. Well, we had a better cost of capital. We had a better cost of capital.

Paul: the market conditions and whether or not you'd be a buyer if you had, you know, a better cost of capital here. Well, if we had a better cost of capital, if we had a better cost of capital, we would

Paul A. Pittman: Well, if we had a better cost of capital, if we had a better cost of capital, we would... There's not any bargains per se out there, because there never are. You know, you can't say that land values don't really pull back in the bad times and then also say there are a bunch of bargains. Any time in my career where I have now spanned 30 plus years of doing this. You know, when I find a bargain, I look back on it five years later, and it's a little like the lemon car you would have bought on a used car lot. You wish you hadn't bought it.

Paul Pittman: We would be buying farms. You know, there's not bargains, per se, out there because there never are. I mean, you know, you can't say that land values don't really pull back in the bad times. And then also say there's a bunch of bargains out there.

Paul: by Farm.

Speaker Change: You know, there's not bargains per se out there because there never are. I mean, you can't say that land values don't really pull back in the bad times and then also say there's a bunch of bargains out there.

Paul Pittman: Any time in my career where, you know, now spanning 30 plus years of doing this, you know, when there's a bargain. I look back on five years later and it's so, you know, the little like the lemon and car you would have bought and use car. You wish you hadn't bought it. They're just aren't bargains on high quality farms. This farmers have strong personal balance sheets.

Paul: anytime in my career where we're you know now spending 30 plus years of doing this

Paul: When there's a bargain, I look back on it five years later and it's a little like the lemon car you would have bought in a used car lot. You wish you hadn't bought it. There just aren't bargains on high quality farms because farmers have strong personal balance sheets.

Paul A. Pittman: There just aren't any bargains on high-quality farms because farmers have strong personal balances. But when you get to this kind of plateau period that we're in right now, this is a time to try to buy some farms, if you had to pay capital. And the reason is that, you know, we don't try to steal a farm. I mean, when I hear investors trying to raise capital, talking about off-market deals and all this, it's nonsense. This market, it's not transparent to us sitting in the big cities. But I've been spending most of my time this summer back where I grew up in central Illinois.

Paul Pittman: But when you get to this kind of plateau period that we're in right now, this is the time to try to buy some farms. If you had a cost capital, and the reason is that, you know, we don't try to steal a farm. I mean, when I hear investors, you know, trying to raise capital talking about off-market deals and all this, it's nonsense.

Paul: But when you get to this kind of plateau period that we're in right now,

Speaker Change: This is the time to try to buy some farms, if you had to cost capital. And the reason is that, you know, we don't try to steal a farm. I mean, when I hear investors, you know, trying to raise capital, talking about off-market deals.

Paul Pittman: This market in the, it's not transparent to us sitting in the big cities, but I've been spending most of my time with summer back in where I grew up in central Illinois. It's very transparent to that group of farmers in a 20-mile radius of their house. They know about every deal. They know about the pricing. We know about the quality of farms that have been driving by them, you know, every other day for their whole life. And so, there, you know, but what happens when you get to this plateau is that, you know, when you work on your valuation, you've got a kind of static set of data.

Speaker Change: It's nonsense. This market is not transparent to us sitting in the big cities.

Speaker Change: But I've been spending most of my time this summer back where I grew up in central Illinois.

Paul A. Pittman: It's very transparent to that group of farmers within a 20-mile radius of their house. They know about every deal. They know about the pricing. They know about the quality of the farms. They've been driving by them, you know, every other day for their whole life.

Speaker Change: It's very transparent to that group of farmers in a 20-mile radius of their house. They know about every deal, they know about the pricing, they know about the quality of the farms. They've been driving by them, you know, every other day for their whole life.

Paul A. Pittman: And so they're, you know, but what happens when you get to this plateau? You know, when you work on your valuation, you've got a kind of static set of data. So you look at comps, you know, from the last six months or 12 months, and they're, you know, they're kind of flat, they're in the same place, so you can use them, as opposed to trying to adjust them for how rapidly the market's moving away from you. And so it's really a very good time to buy farms. But as you indicated, Rob, we just don't have a cost of capital that allows us to do it.

Speaker Change: And so they're, you know, but what happens when you get to this plateau?

Paul A. Pittman: All right, that's helpful. And then, Luca, you talked about dispositions in your comments.

Speaker Change: is that, you know, when you work on your valuation, you've got a kind of static set of data. So you look at comps, you know, from the last six months or 12 months, and they're, you know, they're kind of flat, they're the same place, so you can use them, as opposed to try to adjust them for how rapidly the market's moving away from you.

Paul Pittman: So you look at comms, you know, from the last six months or 12 months, and they're, you know, they're kind of flat; they're the same place that you can use them. As opposed to trying to adjust them for how rapidly the market's moving away from it. And so it's really a very good time to buy farms, but as you indicated, Rob, we just don't have a cost capital.

Speaker Change: And so it's really a very good time to buy farms, but as you indicated, Rob, we just don't have a cost of capital that allows us to do it.

Speaker Change: All right, that's helpful. And then, Luca, you talked about dispositions in your comments. Any sort of commonality on the assets that you guys are going to be looking to sell in the back half of the year? Is that going to be a lot of West Coast stuff? Is it going to wind up being stuff out of your row crops, a mixture? How should we be thinking about the stuff that you guys are going to be teeing up to potentially sell in the back half of the year?

Luca Fabbri: Any sort of commonality on the assets that you guys are going to be looking to sell in the back half of the year? Is that going to be a lot of West Coast stuff? Is it going to wind up being stuff out of your row crops, or a mixture? How should we be thinking about the stuff that you guys are going to be tying up to potentially sell in the back half of the year?

Luca Fabbri: Yeah, I'm not going to give you a straight answer because I don't have one, frankly, certainly not one I can share publicly. We are considering and evaluating various opportunities, some in California, some in the rest of our portfolio. We are unlikely to let go of any of the most prized assets in the core of the Corn Belt, like in Illinois, but if somebody shows up with a strong offer, we will consider that as well. So, unfortunately, I'm sorry, but just hold on tight until later in the year.

Luca: Yeah, I'm not going to give you a straight answer because I don't have one, frankly. There's certainly not one I can share publicly. We are considering evaluating various opportunities, some in California, some in the rest of our portfolio.

Speaker Change: We are unlikely to let go of any of the most prized assets in the core of the Corn Belt, like in Illinois.

Speaker Change: But if somebody shows up with a strong offer, we will consider that as well. So, can't give you much information unfortunately, I'm sorry, but just hold on tight until later in the year.

Paul A. Pittman: Let me amplify that just a little bit, if you don't mind, Luca. We keep this internal valuation of all of our assets. Our farm managers help us redo this internal value every year or six months, depending on whether the market's moving rapidly.

Speaker Change: Let me amplify that just a little bit if you don't mind, Luca.

Speaker Change: You know, we keep this internal.

Luca: valuation of all of our assets.

Luca: Our farm managers help us redo this internal value every year or six months, it depends on the markets moving rapidly.

Paul A. Pittman: If people make us an offer higher than our internal mark on an asset, we're quite likely to sell it. I mean, we're in the business of making money two different ways: appreciation and current income off of the farms. And as you've heard me say many times, probably two-thirds of your return on farmland is appreciation. So you can't kind of fall in love with anything.

Speaker Change: If people make us an offer higher than our internal mark on an asset,

Luca: We're quite likely to sell them.

Luca: I mean, we're in the business of making money two different ways.

Luca: appreciation and current income off of the farms. And as you've heard me say many times, probably two-thirds of your return to farmland is appreciation.

Paul A. Pittman: So somebody shows up with a full-price offer in excess of, you know, certainly if it's an excess of our internal view of value, we're likely to sell those farms. Luca's correct, you know; we do believe in the long-term core of the Corn Belt probably more strongly than the other part of our portfolio. So, you know, less likely to do sales there than anywhere else. And then the final point is we are making an effort to gradually lighten up in California.

Luca: So you can't kind of fall in love with anything. So if somebody shows up with a full-price offer in excess, you know, certainly if it's in excess of our internal view of value,

Luca: we're likely to sell those farms.

Lucas: Luca is correct, we do believe in the long-term core of the Corn Belt, probably more strongly than any other part of our portfolio, so less likely to do sales there than anywhere else.

Speaker Change: And then the final point is we are on an effort to gradually lighten up in California. You know, we're not going to go out there and just sell everything we got just because we want to be out of it. But you should expect us to gradually lessen exposure to California over the next...

Paul A. Pittman: You know, we're not going to go out there and just sell everything we've got just because we want to be out of it. But you should expect us to gradually lessen exposure to California over the next, you know, three to five years. I've got to add that.

Speaker Change: you know, three to five years.

Speaker Change: It's just gonna happen.

Robert Chapman Stevenson: Yes, thank you. And then just, Susan, a couple of numbers questions.

Speaker Change: So, I hope that added a little more to it.

Speaker Change: Yes, thank you. And then just, Susan, a couple of numbers questions.

Susan Landy: How meaningful is the reset on the $27 million of debt in the back half of the year? I think it's right around 3 percent-ish now on that combined $27 million. What is that likely to go to? Is that sort of high sixes? That's what we should be anticipating there.

Susan: How meaningful is the reset?

Susan: on the $27 million of debt in the back half of the year. I think it's right around 3%-ish now on that combined 27 million. What is that likely to go to? Is that sort of high sixes?

Susan Landy: Yes, it is somewhere in the, let me, let me kind of flip to my numbers here. It is somewhere in the low threes, high twos, and low threes currently, and we will likely end up in the sixes on that.

Speaker Change: That's what we should be anticipating there.

Speaker Change: Yes, it is somewhere in the, let me kind of flip to my numbers here, it is somewhere in the low threes, high twos, low threes currently, and we will likely end up in the sixes on that.

Robert Chapman Stevenson: Okay, and then in terms of the guidance, the drivers that pushed cost of goods sold up $200,000 over the prior guidance and management fees and interest income down $300,000. Anything singular about that, or is that just a bunch of little stuff that got combined into those adjustments?

Speaker Change: Okay, and then in terms of the guidance...

Speaker Change: The drivers that pushed cost of goods sold up $200,000 over the prior guidance and management fees and interest income down $300,000. Anything singular on that or is that just a bunch of little stuff that combined into those adjustments?

Susan Landy: Yeah, there's a lot of little stuff that's combined into those figures, but the thing to note on that guidance there, what's, I think, really driving the majority of that is there's a citrus farm that is up. Let me flip to my numbers here. There's a citrus farm that we increased by a half million. That is because yields are up approximately 31% and the price is up approximately 14%, on the revenue side. Okay. That's helpful.

Speaker Change: Yeah, there's a lot of little stuff that's combined into those figures, but the thing to note on that guidance there, what's, I think, really driving the majority of that is

Speaker Change: There's a citrus farm that is up, let me flip to my numbers here, there's a citrus farm that we increased by a half million, that is because yields are up approximately 31% and the price is up approximately 14%.

Robert Chapman Stevenson: OK, that's helpful. Thanks guys. Appreciate the time this morning.

Speaker Change: On the revenue side. On the revenue side, correct.

Speaker Change: Okay, that's helpful. Thanks guys, I appreciate the time this morning.

John Massocca: And our next question comes from John Massocca with Riley Securities. John, please go ahead. Good morning.

Robert Chapman Stevenson: Thanks, Rob.

Speaker Change: And our next question comes from John Massocca with the Riley Securities. John , please go ahead.

John Massocca: Good morning. There was some recent data from the USDA that seemed to drive some stabilization in almond pricing. Is that something you are seeing on your farms, and if that pricing does improve, is that going to impact the variable rent bucket?

John Massocca: Good morning. There was some recent data from the USDA that seemed to drive some stabilization in almond pricing. Is that something you are seeing on your farms and if that pricing does improve, is that going to impact the variable rent bucket in the current year?

Luca Fabbri: Luca, do you want to take that, or do you want me to take it? I don't have a specific and factual answer, but I have a point of view.

John Massocca: Luca, do you want to take that or do you want me to take it? I don't have a specific factual answer, but I have a point of view.

Paul A. Pittman: No, happy to take it. Yeah, so I've seen some talk about a kind of bottoming out of almond prices just because we've seen some orchards coming out of production. We believe that our almond production assets are of higher quality than average. And yes, the way some of our leases are structured, we will be beneficiaries of higher almond prices, at least up to a point. Ultimately, if there is a runaway in almond prices, the operator, as its right, will be the main beneficiary. But to some extent, we will be beneficiaries as well, both directly in terms of higher lease, and variable lease revenues, as well as in, you know, having stronger tenants is always better.

Luca: Happy to take it. Yeah, so I've seen some talks about a kind of bottoming out of almond prices just also because

Speaker Change: We've seen some orchards coming out of production. We believe that our almond production assets are of a higher quality than average.

Speaker Change: And yes, the way we, some of our leases that are structured, we will be beneficiaries of stronger

Speaker Change: Almond prices at least up to a point. Ultimately, if there is a runaway in Almond prices, the operator has its right.

Speaker Change: would be the main beneficiary, but to some extent, we will be beneficiaries as well, both directly in terms of higher variable lease revenues, as well as in having stronger tenants is always better.

Luca Fabbri: And Luca, I want to add one comment, though, for John's benefit, if we believed that there was a big bump in variable income or variable revenue already, highly probable, it would be in our projection. So it's sort of, it's not to say it's not gonna happen, but it's too early to tell. So yes, there's a little bit of positive movement in pricing, but as an analyst, don't get the cart before the horse, so to speak here, as we're just not sure yet.

Speaker Change: And Luca, I want to add one comment, though.

Luca: Just for John's benefit, if we believed that there was a big bump in variable income or variable revenue already, you know, highly probable, it would be in our projections.

Luca: So it's sort of, it's not to say it's not going to happen, but it's too early to tell. So yes, there's a little bit of positive movement in pricing, but you know as an analyst, don't, don't you know, get the cart before the horse so to speak here, because we're just not sure yet.

John Massocca: And I just mean, kind of, broad strokes, there was an increase in the guidance, you know, this quarter versus last quarter in terms of, you know, variable rent payments, largely driven by what you already talked about in terms of the citrus farm. But I guess kind of how much of that bucket is citrus versus, you know, tree, you know, permanent crops like, you know, tree nymphs. Let me just kind of think about how, you know, various kinds of movements in pricing could impact that revenue stream. Yeah, so I'm

Speaker Change: And I just mean maybe kind of broad strokes, you know, there was an increase in the guidance, you know, this quarter versus last quarter in terms of, you know, variable rent payments.

Speaker Change: largely driven by, you already talked about in terms of the citrus, you know, farm, but I guess kind of how much of that bucket is citrus versus, you know, tree, permanent crops like, you know, tree nymphs.

Speaker Change: I'm just trying to think about how, you know, various kind of movements in pricing could impact that revenue stream.

Paul A. Pittman: So let me give a general comment while the team in Denver pulls together a couple facts, John, to help you with that. So the big picture is to always remember that, as an overall percentage of our revenue, the variable isn't very high. So keep that in mind. This company is largely about fixed costs. And so, you know, I'll let the team in Denver try to break it down to the extent they can a little more specifically on the different crop types, but I just wanted to make that jump. Luca and Susan, do you want to add anything to that?

Speaker Change: So, let me give a general comment while the team in Denver pulls together a couple of facts, that helps you with that. So, the big picture is to always remember that an overall percentage of our revenue

Speaker Change: variable isn't very high. So keep that in that context. This company is largely about fixed rents.

Speaker Change: And so, you know, I'll let the team in Denver try to break it down to the extent they can, a little more specifically on the different crop types, but I just wanted to make that general comment.

Speaker Change: Luca and Susan, you want to add anything to that?

Luca Fabbri: I'll just chime in quickly. I mean, our variable rents are effectively all, virtually all, if not all, coming from permanent crops. We don't, we really don't have any direct exposure to, in any meaningful way, row crop price variability.

Speaker Change: I'll just chime in quickly. I mean, our variable rents are effectively all, virtually all, if not all, coming from permanent crops. We don't, we really don't have any direct exposure to, in any meaningful way, to row crop price variability.

John Massocca: Okay. That makes sense. And then, I guess, in terms of, you know, the resets or the adjustments on the existing debt, I know you kind of have an idea of where that's going to price today. I mean, is that basically set at this point? And I guess how close to the actual adjustment date is the new rate set for that? That's it.

Speaker Change: Okay.

Speaker Change: That makes sense. And then I guess in terms of, you know, the resets or the adjustments on the existing debt.

Speaker Change: I know you kind of have an idea of where that's going to price today. I mean, is that basically set at this point? And I guess how close to the actual adjustment date is kind of the new rate set for that date?

Paul A. Pittman: This, Paul, is set very, very close. So if we get the benefit of rate reductions this fall, you know, in a general economic sense, it'll show up in that rate.

Speaker Change: It's this fall, it's set very, very close. So if we get the benefit of rate reductions this fall, you know, in a general economic sense, it'll show up in that rate reset.

John Massocca: And then anything else to maybe be conscious of in terms of moving pieces for some of the non-fixed, you know, farm rent line items. I'm just thinking kind of solar, wind, recreation, or even stuff on kind of the management fees and interest income that maybe could move around a bit versus kind of a quarterly run rate.

Speaker Change: And then anything else to maybe, you know, conscious of in terms of moving pieces for some of the non-fixed...

Speaker Change: I'm just thinking kind of solar, wind, recreation, or even stuff on kind of the management fees and interest income that maybe could move around a bit versus kind of a quarterly run rate.

Paul A. Pittman: I don't have any comment on that, and if the folks in Denver have something to add, please do.

Speaker Change: I don't have any comment on that. If the folks in Denver have something to add, please do.

Susan Landy: We do have a little bit of variability that we are expecting in the interest income, for example, so we're expecting a loan that we have outstanding to be repaid early, but nothing that moves the needle. We don't expect to move the needle on a global scale. I mean, think of the renewable energy leases as going fundamentally in one direction. Typically, the movements there are driven by the conversion of option leases into food construction and then production leases, but we don't expect any here in the short term.

Speaker Change: We do have a little bit of variability that we are expecting on the interest income for example, so we're expecting a loan that we have outstanding to be repaid early.

Speaker Change: But nothing that moves the needle. We don't expect to move the needle on a global scale. I mean, think of the renewable energy leases as going fundamentally in one direction.

Speaker Change: You know, typically, the movements there are driven by the conversion of option leases into food construction and then production leases, but we don't expect any here in the short term.

John Massocca: That's very helpful, and that's it for me. Thank you very much.

Luca Fabbri: Thanks, John. Great. Thank you, John. And it looks like that we have all the questions we have today, so I will now turn the call back over to Luca for closing remarks. Luca, the floor is yours.

Speaker Change: Okay, that's very helpful and that's it for me. Thank you very much.

Speaker Change: Thanks, John . Great. Thank you, John .

Speaker Change: And it looks like that is all the questions we have today, so I will now turn the call back over to Luca for closing remarks. Luca, the floor is yours.

Luca Fabbri: Thank you. We appreciate your interest in our company and look forward to updating you on our activities and results in the coming quarters. Thanks, everybody.

Luca: Thank you. We appreciate your interest in our company and look forward to updating you on our activities and results in the coming quarters. Thanks, everybody.

Operator: And ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.

Speaker Change: And ladies and gentlemen, that concludes today's call. Thank you all for joining and you may now disconnect.

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