Good morning, and welcome to the Farmland Partners, Inc. First Quarter 2021 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Paul Pittman, Chairman and CEO. Please go ahead.

Thank you. Good morning and welcome to Farmland Partners first quarter earnings and conference call and webcast. We always appreciate your taking the time to join us for these calls because we see them as a very important opportunity to share with you our thinking and strategy in a format less formal and more active than public filings and press releases. With me this morning is Luca Fabbri, the company’s Chief Financial Officer. I will now turn the call over to Luca for some customary preliminary remarks.

Thank you, Paul, and thank you all for listening to this webcast live or recorded. The press release announcing our first quarter earnings was distributed earlier this morning. A replay of this call will be available shortly after the conclusion of the call through May 27, 2021. The phone numbers to access the replay are provided in the earnings press release. For those who listen to rebroadcast of this presentation, we remind you that the remarks made herein as of today, May 13, 2021, and have not been updated subsequent to the initial earnings call. In the Investor Relations section of our website you can find a presentation with supplemental information that we’ll refer to during this conference 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 – businesses rent and the broader agricultural markets. We also will discuss certain non-GAAP financial measures, including net operating income, FFO, adjusted FFO, EBITDAre and adjusted EBITDAre. 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 first quarter earnings, which is available on our website, www.farmlandpartners.com, and is furnished as an exhibit to our current report on Form 8-K dated as of this morning, May 13, 2021. 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 this morning before market open and in documents we have filed with or furnished to the SEC. I would now like to turn the call back to our Chairman and CEO, Paul Pittman. Paul?

Thank you, Luca. So today I’m going to discuss a couple of different things, the first quarter results, I will also discuss some of the macro factors going in the market generally, and I will also discuss our continued effort to shift from a position of asset sales and stock buybacks to a more growth-oriented company. So first starting with the highlights of the quarter and Luca will go into these in more detail. But this is really a very strong quarter for us, but for the litigation expense. Just to give you one metric and one comparison. In the first quarter of 2020, a year ago, adjusted for litigation, we had approximately $300,000 negative AFFO. In Q1 2021 adjusted for litigation we had approximately $900,000 positive AFFO. That’s a very significant swing. There are a lot of different things going on in those numbers. And as we always caution, quarterly numbers are jumpy and volatile, but it is certainly a very strong positive move in the right direction and demonstrates what we think is the beginning of a multiyear cycle of very strong quarterly and annual performance in the portfolio. We have begun in the first quarter in earnest to shift the company back to a growth mode as discussed in the 2020 earnings call back in March. Prior to that, we were an asset disposition and stock buyback mode, but we started to discuss acquisitions and other things to put the company back on the growth path. We really began that in the first quarter of this year. As our press release indicates, we started an acquisition program again, we bought about $2.9 million of assets. We bought those assets without any debt. We bought them entirely with equity and which is part and parcel of our desire…

Thank you, Paul. As Paul has mentioned this just now in his remarks, we feel that the company's performance in this quarter was actually quite strong. However, the financial results were really clouded by the significant legal and accounting expense, specifically the legal spend related to the Rota Fortuna litigation. So in a bit of a departure from task practice, I will mention now some of the – our performance indicators also excluding about $2.5 million of Rota Fortuna litigation related expense that we incurred in the first quarter of the year. So for the quarter, we recorded the total operating revenues of $11.6 million, as compared to $11.7 million for the same period in 2020. So again, pretty strong performance considering our portfolio has shrunk a bit over this period of time. And in the same two comparable periods this year, we record the total operating income of $3.1 million versus $5.3 million in the same period of 2020. However, adding back those that legal spend, as I mentioned, the performance this year would have been $5.6 million. In the quarter, we recorded basic net loss to common stockholders of $0.02 per share, moving ahead the basic net income of $0.07 per share without those litigation expenses, as compared to a net loss of $0.09 per share in the same period of 2020. And finally, for AFFO in this quarter, we recorded a negative $0.05 versus negative $0.01 in the same period during in 2020, but this year it would have been a positive $0.03 performance without those legal expenses. In the quarter, we repurchased about 8,300 shares of Series B preferred by about $25.82 average price. Subsequent to the end of Q1, we purchased an additional about 16,800 shares at $25.98 average price, so total since the beginning of the year so far, we have repurchased 25,073 shares of Series B preferred at an average price of $25.93 for a total of approximately $650,000. Finally, on the debt side, in the quarter, we repaid approximately $20 million total in debt of that $10 million was a prepayment just not related to any specific asset dispositions and therefore, our need to free up collateral. As of today, the total fully diluted share count 32,319,978. This concludes my remarks. Thank you for your time this morning and your interest in Farmland Partners. Kate, we would like to begin the question-and-answer session.

[Operator Instructions] The first question is from Rob Stevenson of Janney. Please go ahead.

Good morning, guys. Paul, what determined the 14 dispositions, was that attract to pricing? Was that farms and/or crops that you wanted do reduce exposure to? Was there any significant concentration in terms of those farms in terms of crops or location?

A very good question, Rob, and I probably should have covered it in the prepared remarks. The big driver, I think almost $21 million or $22 million of the $25 million – of the roughly $28 million of dispositions were the assets we contributed into the Opportunity Zone Fund. So we still maintain management fees on those assets. That's part of our effort to expand our AUM. So the Opportunity Zone Fund was seeded with some of our own assets. Further growth will probably largely come from third-party – true third-party acquisitions of properties that we don't own today. But that was the big driver. It wouldn't – the remainder of the dispositions, we’re really thinks we already had deeply in process before we kind of made that shift from asset sales and stock buybacks back to growth. And we want to be perceived in the marketplace as a very good counterparty in sales and purchase transactions. So you're always, when you make that shift, you're already so deep into a transaction counterparties have spent money on diligence, things like that. And we basically went ahead and finished those transactions up. Because I think it's the ethical and appropriate thing to do.

And Rob, by the way, just Paul use the term contributed. Those are actually sales, 90% of the sale price actually came to us in cash. So we generated cash for us to redeploy other OIs.

Good point. A good point.

Okay. And then what is – what are you getting in terms of fees off the asset management business? How should we be thinking about that either revenue off the existing $21.5 million, or as a percentage of what you're likely to be get as you grow that and what level of expenses are going to be associated with that?

So I don't know if we have this in the public domains. I don't think so. But I can give you – I can frame it for you without giving you an exact number. We receive from the Opportunity Zone vehicle fees based on assets under management. So whether it's levered, growing levered is irrelevant. It's based on assets under management. And those fee levels are set to be modestly in excess of the overheads of the company today, running it as a public company. So the profit margin for us running a private vehicle with the same essentially cost and charge is pretty beneficial and pretty powerful to the public vehicle, so that's – if you need further information on that Rob, feel free to call us later and I'll check the documents and see what we have in the public domain. And I can maybe – we can take it a little farther for you if it's important to you.

And also to add a little bit to what Paul said, if these OZ Fund were to scale up significantly, we might eventually have to incur additional expenses. But right now we expect to perform all the activities and generic those revenues without tool additional expense items.

Okay. And that stuff – is that stuff considered good income for repurposes? Or is that basically need to be in some sort of taxable subsidiary?

No, it is segregated in our TRS.

Okay. And what line item does that appear on that income statement?

We don't have any material right now. It would be under other writing.

Okay. And then I guess Paul…

Just to add, that was set up in the – that's formal sale of assets and getting off the ground of the Opportunity Zone Fund was only in the first couple of weeks of March. So just a tiny impact in Q1 and Q2 will be the first time you start to see those numbers come through.

Okay. And then what type of crops and locations where the two acquisitions you made during the quarter?

The acquisitions were all in the Midwest tend to be primary row crops, largely speaking were adjacent to – loosely adjacent to the land that we already owned. So nice good acquisitions and fit in our portfolio quite nicely. Hopefully, there'll be more to come in future quarters.

Okay. And then last one for me. What is the Series B callable?

The first call date on the Series B is the very beginning of October of this calendar year. Erica, our General Counsel, who happens to be in the room with me, Rob, just to follow-up on your question. So this is fully in the public domain. I can tell you that the exact fee level we get, 85% – 0.85%. So just under 1%, 0.85% fee on the assets in the Opportunity Zone. Thank you, Rob.

Okay. All right. And then I guess the question winds up being, so the Series B is callable at par in October, why pay more than par for it now?

Well, it's callable at par plus appreciated value, is that how the doc really works. And so we don't think we're paying above par – above what par is going to be as of the new – there'll be another pricing roughly August 5 or so, when the USDA farm land values survey is released. And so we don't think we're above where it's going to be at that point in time, by any means. But the other reason is to get – getting rid of that 6% dividend on that has been a drag on the company's earnings power is important to us. And it's all part of this general effort to overall delever the company. Just to take your question one step further than you actually ask. So the first call date is October, where a company is not any pressure to actually do anything. We have three years after that date to either payoff with cash or convert that preferred into common equity. So we would love to manage our way out of that security, but we're not really under any pressure. It's really just the beginning of a three-year period where we can work on that starting October 1.

Okay. Thanks guys. Appreciate the time.

Great. Thank you.

The next question is from Dave Rodgers of Baird. Please go ahead.

Paul, Luca, good morning and appreciate the comments and the messaging around growth, Paul. I guess I wanted to go to the rollover of your farms this year. You showed a 30% to 50% profitability potential jump in your row crops, which is obviously the first we've seen that in a while. As you look at the roll over this summer. And you confirm you said one-third of the portfolio rolls. And how do you view the lease roll-ups that you anticipate to see the summer? Just given some of the strengths that you're starting to see now?

Yes. So we have around 59,000 acres rolling over this summer. That's a lot of acres. It's still roughly one-third in the value context, because some of that rollover is for example, Eastern Colorado, where acres are less expensive. So think of it as one-third, this is probably a slightly bigger than normal year. So maybe 40% will have the portfolio valuables over this summer, I don't want to give you specifics because I'm sure we have farmers and tenants listening to this call and we're negotiating with them on these things. But I think you will see rent increases that are probably frankly a low of 5% on most row crop farms. A lot of 10% increases in row crop farm rents. And there will be some that are greater than 10%, 15% or more in some cases. This is the industry dynamic is that land values and lease rates in a tough farm cycle more or less stay flat. We talked about that and Dave, we appreciate you being with us ever since the IPO, as an analyst. We've always said you're going to sort of stand more or less still with possibly a little downward pressure or little moves up when the farm economy stinks. And when the farm economy gets strong, you have – this is where grain prices do matter and not directly to land value, but to rents, you will have the opportunity to make material jumps in your rents. The way to intellectually about that or mathematically think about it in the best row crop regions, you're trying to get a $0.35 to $0.40 of every revenue dollar as a landlord. In the lesser quality regions, it's more like 25% of every revenue dollar. But when you – that chart, I presented in my prepared remarks, you start talking about $100, $200, $300 increases in revenue per acre and recognize it's corn and soybean rotation in the best land. So you got to kind of take the midpoint of the improvement in the two crops. It's not unlikely to see $25, $30 increases on rents. That's frankly, 10% of a $300 sort of rent. And I think you're going to see, as I said, more than 10%, in some cases. I hope that helps give you a little more clarity. We're going to do the best we can. And now that I've said these things, when I asked somebody for a 25% increases, they're going to say, you said on the conference call 10% or 15% at the best, but we're going to push them as frankly as hard as we can. We are tenants do need to make money and be profitable. But it's been a tough couple of years for us and our shareholders as well. And we intend to get our shares of this – our share of this increasing revenue now when we can.

I appreciate all that color, Paul. That is helpful. As you look at the mix of that one-third of the value that comes do it, not necessarily sure that the specialty crops are experiencing the same benefit. And so I wanted to ask specifically on specialty and what the mix is this year in that one-third rolling over between kind of specialty and row crop. And just as we think about the balance?

I think it is, and Luca, you may want to look at if it's anything we can look at, that'll help us know this. But it is more weighted to row crop than specialty this year. But it's – you're talking value versus acres. So I don't really have a crystal clear answer for you. But there's an awful lot of row crop in that. Turning just a specialty and what's going on there, we made a small comment, I believe in the press release on this, the specialty crop troubles that farmers and therefore us had last year related to a lot of variable income in the specialty side of our portfolio. We think we are at least as good as last year and cautiously optimistic that we're better off, but it's really early in the season, right? It's very hard at this juncture to – we haven't had any big problem that makes us think that volumes will be way down in the tree nuts or the citrus or anything. But on the pricing side, that's still a – there's a long ways to go in terms of the actual production of the product. And then on the pricing side, there's still a long ways to go in terms of international supply demand characteristics that will affect pricing of key specialty products in the U.S. So we're feeling, okay, about it. But you need to take the okay with a grain of salt because of the, just how early in the calendar we are. Hopefully when we update, after the second quarter, we can get a little higher level of certainty in terms of where we think that specialty product side of our portfolio will come out.

And Dave, by the way background since given the prevalence of variable leases in specialty crops, the impact of lease rollover on specialty crops is really not particularly high. So generally speaking, when we make comments about lease rollovers, we have really a little bit more skewed towards our row crop portfolio.

That's a very good point. You can say you got a better lease in specialty crop, but since so much of that lease revenue is variable. Good negotiation isn't the end of the story. As you got to grow the crop and get the right price worth.

All incredibly helpful guys. Last one for me, just Paul on the – or maybe for Luca, this would be on the quarter. Any one time items that hit the first quarter result, typically ex the legal costs, you'd probably be at a negative AFFO. So it was really encouraging to see the positive I guess maybe just a little insight on the drivers, any lease termination income, or just some later specialty crop revenue recognition that might've aided in the quarter?

We don't think – it's hard to always a little bit to answer that question, because as we've talked many times in the past. The way GAAP works for us is, it's not based on our industry. It's based on real estate more generally. But not – there's no really large items that come to mind. I believe though that the probably would have been a little shifting of fourth quarter crop share revenue into the first quarter, that was a little out of the ordinary and helped us a bit. But not, I mean, that's not the key driver, those thing that made the most differences that – we're a relatively low interest rate environment year-over-year. We've seen modest improvement in a sort of operating data of the company revenue costs, so on and so forth. And you're seeing that, but for the elevated legal spend, because we've essentially run through our insurance at this point. You're seeing what we'd expect to see as the farm economy turns back up.

Great. All good news. Thanks, Paul.

Thank you very much.

The next question is from Craig Kucera of B. Riley Securities. Please go ahead.

Good morning guys. In your 10-K you put out your expectations – hey guys. In your 10-K you put out your expectations around fixed rent and variable rent leases for the year. I think this year it was pretty flat with 2020 at about $11 million. But my question is with some of these commodities that you're so heavily invested in basically doubling from kind of their averages last year, how should we try to encapsulate what the impact of variable rent might be later this year? Is it 35% to 40% of the upside, or I guess just how should we think about that in a higher pricing environment?

Yes. This is – Craig, in many ways, a continuation of the question that David asked, so most of our variable rents are in the specialty crop area, so this really powerful price recovery in corn, soybeans and wheat isn't a huge driver of our variable rent. Now we do, particularly in the high, what we call the high plains region, you think of Eastern Colorado, Western Kansas, and Nebraska. We do have quite a bit of variable rent in that region. And we will see those variable rents certainly on irrigated farms improve for us substantially. On the dry land farms in that region of which many of our acres are dry land, it’s driven by – the prices look really good, but you have to have rainfall to get a good crop. And right now we have started to see in our areas of – in areas we own Farmland the weather patterns change and improvements in rainfall, which should lead us to a good crop result. But again, it’s mid-May asked me in mid-July and I can give you a better view on whether the crop will be – volumes will be strong. So there will be a modest bump in variable for us because of a row crop. But most of the variable side of our revenue stream is in that specialty crop and those commodities march to a completely different drummer than the row crops. So it doesn’t mean they’re bad, it’s just not the same things going on there as what’s going on in the crop area.

Okay. Thanks. I appreciate the color.

[Operator Instructions] The next question is from Buck Horne of Raymond James. Please go ahead.

Thanks. Good morning. My question is just curious about the acquisition and disposition environment among private market participants. And obviously the good news about the pricing and commodities is probably not gone unnoticed. I’m wondering if you’re seeing more competition coming up for bidding on acres that do come available for sale. Kind of what’s in the pipeline and are people starting to underwrite these higher levels of farmer profitability into their assumptions? Is it getting – is that bidding kind of getting out of hand or not?

Well, the Farmland markets and for this purpose of these comments, I think of it only as the real property agents. So, set California side for a minute as you look at our portfolio. They don’t all move in tandem. So let me kind of break it apart, what the very best quality land in the strongest corn and bean regions in the country like Illinois, where we are so highly invested. Those valuations have moved and moved swiftly over the last six months. I think they have a long way to go. Frankly, if you look at the increased revenue per acre and profit per acre, and you put a cap rate on that increased value that will be available to landlords, I’m not sure those prices are done moving yet. But they have already moved, frankly, thousands of dollars an acre. And what you see happen in this marketplace is two different things when land values appreciate or the land values stay the same for a long period of time. When they stay the same for a long period of time, you see volumes gradually fall off. Because what we all forget is that there’s a tiny percentage of Farmland that trades any given year. It’s only a handful – a couple percent, maybe 5% at the most of Farmland’s rolling over every year. Some people think it’s just right around 2%. If the owners of the Farmland today, believe the prices available in the market are not very good volume decreases, except for that volume that comes from a death in the family or a divorce or cruel financial distress. Conversely, when you see prices start to get strong, you see volumes increase and we have started to see volumes increase in the core of the Midwest…

Thank you. That’s really thoughtful and detailed answer. I’m also curious as you’re talking to your tenants and other participants in the market, if they’re talking about labor shortages in the field or other issues around labor costs, or whether it’s about the shortage of trucking and whether it’s hauling costs. Are you hearing issues around in terms of estimating that profitability what the farmer’s cost equation is doing at the moment and how do you guys think about that?

Yes. So turning to – labor is just one element of cost. I’m going to break this answer into the – again, the two broad crop types, row crop and specialty crop because it’s a little bit different answer for both. So farmers will see gradually increased cost structure as we see prices increase, the seed company, the chemical company, the farm machinery dealership, look, they’ve all done what we’ve done for the last five or six years, sort of hunker down and hold on. And they’re going to take a relative piece of that increased profitability. The ratios that everybody gets will probably stay roughly the same. If anyone has an advantage in that battle to get a slightly higher percentage of the additional revenue, we think the farmer owner us, the landlord is in the most powerful position because we have the scarcest resource. But, I think we’ll get our share of it and so will the seed and chemical company and so will John Deere and so on and so forth. So the farmers are going to see costs go up, but his share of that, his profitability is also going to be significantly enhanced. As far as labor specifically, in the specialty crop area, we have heard some sort of difficulty in getting picking crews for citrus. That’s partly COVID-related and moving substantial amounts of workers across the Southern border in a legal way in the COVID era is difficult. So there’s a little bit of constraint there. Every year there’s slightly more mechanization in that picking process than there was before. We haven’t heard at least from any of our tenants that they couldn’t get the job done. We’ve just heard kind of expressions of frustration, but not real crisis. On the row crop side…

Got you. That’s very helpful. My last one, just real quick thought is just looking at the weather patterns. I guess, the Western region of the U.S. is already seeing pretty dry and record drought conditions for early in the year. Is that an issue to watch for the specialty crops looking ahead? Or how do you think about the start of the year with the water levels already pretty low on the West side of the country?

Well, again, you got to break it into different. You got to break it down to a certain granular level a little bit. So first, if it’s irrigated ground versus non-irrigated ground and the specialty crops are almost universally irrigated. The drought in a near-term sense doesn’t matter. You got irrigation. Where the drought matters is if you are setting into a long-term cycle five or 10 years or a permanent cycle, depending on your view on things like global warming of not having enough water that has long-term implications. So this is something we watch very closely. We try to be very careful about the quality and quantity of water we have on our properties. And in most cases in the specialty markets, we feel pretty good about it. The thing that scares me more is this long-term trend of declining water availability then the sort of near-term drought issue, because that’s where our values of our properties could be affected. That being said, turn this on its head just a minute. We’re not going to quit producing citrus or almonds or pistachios in the United States. If you are in the upper half of water availability, so to speak with your properties, you may actually be benefited in terms of Farmland valuation by the drought, because it takes the very bottom of the barrel and takes them out and they stop producing. So you’ll see a commodity price and valuations on Farmland that still produces those specialty crops get stronger. We think we’ve got our position in the right place that’s kind of where we’ll be is on the upper end of the beneficiary of a drought, so to speak, not on the negative end. And setting those comments aside, our hope is, nobody gets hurt. But we…

Thank you so much. Great color. I appreciate that.

Good. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Paul Pittman for closing remarks.

Great. Thank you. Thank you for everyone for joining our call and more importantly, thank you for supporting our company. We will continue to try to move our business forward with growth and further profitability, and look forward to talking to you again at the end of the next quarter. Thank you.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.