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, Inc. Q2 2024 Earnings Call. [Operator Instructions] Thank you. I would now like to turn the call over to Luca Fabbri, President and CEO. Luca, please go ahead.

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 them 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, let me turn the call over to our General Counsel, Christine Garrison for some customary preliminary remarks. Go ahead, Christine.

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 sub-header Events and Presentations. For those who listen to the recording of this presentation, we remind you that the remarks made herein are as of today, 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, rents and the broader agricultural markets. We will also 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 second quarter earnings, which is available on our website farmlandpartners.com and is furnished as an exhibit to our current report on Form 8-K dated July 24, 2024. 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?

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. As is typical though, this is by no means a crisis. There are a few farmers facing gradual levels of distress. But there is no broad-based economic problems in the farm belt. This is highly consistent with what has happened in the past. And for me, I am now on probably cycle 5 or 6 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. And we expect 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, not zero. 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,…

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 higher, more prominent performance at the bottom line level. 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 try 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%. So, I think that, that is a testament to the, frankly, that’s the good work that we have 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 are down 7%. 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 – any disposition transactions until later in the year when we have a better view for what we have available. 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 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 am going to cover a few items today, including the summary of the 3 and 6 months ended June 30, 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 sub-header, Events and Presentations. First, I will share a few financial metrics that appear on Page 2. For the 3 months ended, our net loss was $2.1 million and net loss per share available to common stockholders was $0.06 lower than the same period for 2023 largely due to the impacts of dispositions that occurred in 2023. AFFO was $0.5 million and AFFO per weighted share was $0.01 higher than the same period for 2023. AFFO 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 6 months ended June 30, our net loss was $0.6 million and net loss per share available to common stockholders was $0.5 million, lower than the same period for 2023, again largely due to the impacts of dispositions that occurred in 2023. AFFO was $3.3 million and AFFO per weighted average share was $0.7 million 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 is shown on Page 5. Property operating expenses were lower than for the…

Thanks, Susan. [Operator Instructions] And it looks like our first question today comes from the line of Scott Fortune with ROTH Capital. Scott, please go ahead.

Yes, 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 into next year on the renewal lease discussions you are 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 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?

Yes, this is Paul and I’ll take that question and I am 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 punch line first, we would expect rent renewals this year, hopefully in the 5% to 10% increase in terms of the leases we renew this year. The – 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. 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 where 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 bracket. The other thing to remember, and it’s very important fact, we are now starting on the leases. The leases coming up for renewal this year are leases that came up for renewal 3 years ago, so they got a very large increase on average 3 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 at least 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 we’ve been – we were renewing leases that had been renegotiated during a tougher economic period in sort of call it ‘17, ‘18, ‘19 era and so it was much, much easier to get the big jumps. Hope that answers your question, Scott.

Yes, 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 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 mentioned that we’re going to do some dispositions potentially in more likely fourth quarter here, kind of since 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 kind of portrays into kind of the dispositions or sales of assets, like in that marketplace?

Yes, I mean, the – if you own high quality farms, which we overwhelmingly do. 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. 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. And we have 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 are waiting kind of the fourth quarter or late third quarter, or fourth quarter, it really gets focused on asset sales is we don’t have very many bullets, 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 quarter and fourth quarter. And so that’s why we haven’t done much to-date. We would anticipate anything we would sell 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. What – my comments are all focused on the following. In the last 3 years, we have seen very, very strong gains in Farmland, that has gone away, that’s not the same as saying there is a decline in value. I use the word plateau for a reason. We are just not seeing the gains we saw in the last 3 years or 4 years. We are also not really seeing a pullback.

I appreciate that and I will jump back in the queue. Thanks.

Thanks Scott.

[Operator Instructions] And our next question comes from the line of Rob Stevenson with Janney. Rob, please go ahead.

Hi. Good morning, Paul, given all your comments on the market 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 come back. Just trying to strip out your cost of capital from the market conditions and whether or not you would be a buyer if you had better cost of capital here?

Well, we had a better cost of capital. If we had a better cost of capital, we would be buying farms. There is not bargains per se out there, because they never are. I mean you can’t say that plan values don’t really pull back in the bad times. And then also say there is a bunch of bargains out there. Anytime in my career where you are now spending 30 plus years of doing this, when there is a bargain, I look back on it 5 years later and it’s the little like the lemon in car you would have bought in the used car lot, you wish you hadn’t bought it. There just are bargains on high quality farms, because farmers have strong personal balance sheets. But when you get to this kind of plateau period that we are in right now, this is a time to try to buy some farms if you had the cost of capital. And the reason is, 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 of this, it’s nonsense. This market, it’s not transparent to us sitting in the big cities, but I have been spending most of my time this 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. They know about the quality of farms. They have been driving by them every other day for their whole life. And so they are – but what happens when you get to this plateau is that when you work on your valuation, you have got a kind of static set of data. So, you look at comps from the last 6 months or 12 months, and they are kind of flat, they are in the same place, so you can use them as opposed to try to adjust them for how rapidly the market is moving away from. And so it’s really a very good time to buy farms. But as you indicated, Rob, we just don’t have the cost of capital allows us to do it.

Alright. 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?

Yes. I am 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 – evaluating various opportunities, some in California, some in the rest of our portfolio. We are unlikely to let go of any of most priced 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, can give you much information, unfortunately I am sorry, but just hold on tight until the later in the year.

Alright. And then…

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 Farmland managers help us redo this internal value every year or six months. It depends if the market is moving rapidly. If people make us an offer higher than our internal mark on an asset, we are quite likely to sell it. I mean we are in the business of making money two different ways appreciation and current income off of the farms. And as you have heard me say many times, probably two-thirds of your return to Farmland is appreciation. So, you can’t kind of fall in love with anything. So, somebody shows up with a full price offer in excess, certainly if it’s an excess of our internal view of value, we are likely to sell those farms. Luca is correct, we do believe in the long-term, the Corn Belt, it’s probably more stronger than the other part of our portfolio, so less likely to do sales there than anywhere else. And then the final point is we are on an effort to gradually lighten up in California. We are not going to go out there and just sell any – we 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 3 years to 5 years just going to happen. So, hope that added more to it, Rob.

Yes. Thank you. And then just Susan, a couple of numbers questions. 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% now on that combined $27 million, what is that likely to go to? Is that sort of high-6s we should be anticipating there?

Yes, it is somewhere in the – let me kind of flip to my numbers here. It is somewhere in the low-3s, high-2s, low-3s currently, and we will likely end up in the 6s on that.

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 on that, or is that just a bunch of little stuff that combined into those adjustments?

Yes, there is a lot of little stuff that’s combined into those figures. But the thing that to note on that guidance there we – what’s I think really driving the majority of that is there is a citrus farm that is up, let me flip to my numbers here. There is a citrus farm that we increased by $0.5 million. That is because yields are up approximately 31% and the price is up approximately 14% on the revenue side, correct.

Okay. That’s helpful. Thanks guys. Appreciate the time this morning.

Thanks Rob.

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

Good morning. There was some recent data from the USDA that seem 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, you want to take that, you want me to take it, I don’t have a specific factual answer, but I have a point of view.

Happy, I will take it. Yes. So, I have seen some talks about a kind of bottoming out of almond prices, just also, because we have seen some orchards coming out of production. We believe that our almond production assets are of a higher quality than average. And yes, the way we – some of our leases that are structured, we will be beneficiaries of stronger almond prices, at least up to a point. Ultimately, if there is a runaway in almond prices, the operator, as it’s right, would be the main beneficiary. But to some extent, we will be beneficiaries as well, both directly in terms of higher lease – variable lease revenues, as well as having stronger tenants is always better.

And Luca, I want to add one comment, though, just 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 projections. 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 is a little bit of positive movement in pricing. But as an analyst, don’t get the cart before the horse, so to speak here, because we are just not sure yet.

And I just mean really kind of broad strokes, there was an increase in the guidance, this quarter versus last quarter in terms of variable net payments, largely driven by, you already talked about, in terms of the citrus farm, but I guess kind of how much of that bucket is citrus versus tree [ph] and permanent crops like [indiscernible]. I am just kind of thinking about how various kind of movements in prices could impact that revenue stream?

Yes. So, let me give a general comment while the team in Denver pulls together a couple of facts to help you with that. So, the big picture is to always remember. As an overall percentage of our revenue, variable isn’t very high, so keep that in that context. This company is largely about fixed rents. And so I will let the team in Denver try to break it down to the extent they can, but a little more specifically on the different crop types. But I just wanted to make that general comment. Luca and Susan, do you want to add anything to that?

I will just chime in quickly. I mean our variable brands are effectively visually all works, it’s not all coming from permanent crops. We don’t – we really don’t have any direct exposure to any meaningful way to row crop price variability.

Okay. That makes sense. And then I guess in terms of the reset 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 kind of the new rate set for that debt?

This fall, that’s set very, very close. So, we get the benefit of rate reductions this fall. In a general economic sense, it will show up in that rate reset.

Okay. And then anything else to maybe conscious of in terms of moving pieces for some of the non-fixed farm rent wide items. I am 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?

I don’t have any comment on that. And the folks in Denver have something to add, please do.

We do have a little bit of variability that we are expecting on the interest income, for example. So, we are expecting a loan that we had 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 being – as going fundamentally in one direction, typically the movements there are driven by the conversion of option leases into food, construction and production leases and – but we don’t expect any here in the short-term.

Okay. That’s very helpful. That’s it for me. Thank you very much.

Thanks John.

Great. Thank you, John. 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.

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.

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