Farmland Partners Inc. Price & Performance (FPI)

Thank you, Luca, and thank you to everyone on the call. The press release announcing our fourth 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, 02/20/2025, 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 full year 2024 earnings, is available on our website farmlandpartners.com and is furnished as an exhibit to our current report on Form eight ks dated 02/19/2025. 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 factors discussed in our press release distributed yesterday and in documents we have filed with or furnished to the SEC. I would now like to turn the call over to our Executive Chairman, Paul Pittman.

So my comments this morning will be a little bit shorter than normal.

I'll let the rest of the team go through the details of the success of the year. But I want to hit a couple of high points. We have said for a long, long time that owning farmland is fundamentally a total return story. I think the last twelve months truly prove that to our shareholders. We did a substantial amount of asset sales at very high gains. We distributed basically all of that cash to our shareholders in the form of a $1.15 special dividend early in January And if you recall, we did a similar but somewhat smaller distribution a year earlier also based on asset sales at very good prices. Farmland is a function of current yield plus appreciation. The public markets for most of our life have frankly ignored the second element, It is the bigger return element of the asset class We've always said it's there. Now two years in a row. We've delivered on that. We also have focused very, very hard on driving revenue higher and therefore AFFO higher. That's all about increasing rents through time. And getting very good pricing in our specialty crops at least for the most recent year.

The other thing we focused on is reducing cost. All of that has delivered to shareholders a substantial increase in stock price particularly in the context of having handed out $1.15 this year, which is fundamentally should make your stock kind of go down when you think about distribution of the underlying assets of the company. [indiscernible] We've delevered substantially and bought back quite a bit of stock. And all of these things together have delivered very substantially for all shareholders including myself of which we should all be Quite happy. With that, I'll turn it over to Luca and the rest of the team to make some more comments and I'll see you all in the Q and A. Thank you, Paul. I just want to highlight a couple of points that Paul already alluded to. This 2024 has been a very, very strong year for the company.

And if I had to kind of point, I'd space on very specific elements that drove this performance, One would certainly be the fact that now for several years, we've had very, very strong performance in our branch renewals. And that is showing up in the numbers for our base rent revenue. This year, we also had a very strong performance of some of our specialty crop farms, delivering very good returns in terms [indiscernible] as well as direct operation revenue. So that all contributed a strong performance, including all some structural cost reductions that we were able to perform this year. Looking more broadly at what we've done this year, we've done significant asset sales as you are all aware and we were able to not only, as Paula mentioned, deliver some of that gain to our shareholders in form of a special dividend, but we also also created some liquidity that allowed us to reduce our indebtedness and also do some stock buybacks. That as we [indiscernible] that we all saw.

If I look at forward at 2025, you will see that we are putting out a guidance for the year in terms of AFFO per of between $0.25 and $0.3 that is above our current dividend rate of $0.24 As you're all aware, dividends are decided by the Board on a quarter to quarter basis. For the time being, we are kind of staying on course with the $0.24 per share but the Board will, of course, as the year progresses, evaluate a different approach on dividend. But again, that will be on a quarterly by quarter basis, a decision made by the whole Board. With that, I will turn the call over to Susan Landy, our Chief Financial Officer her overview of the company's financial performance. Susan?

Thank you, Luca. I'm going to cover a few items today, including summary of the full year, review of capital structure, a comparison of full year revenue and GAAP 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 two. For the full year ended 12/31/2024, net income was $61,500,000 or $1.19 per share available to common stockholders, which is higher than the same period for 2023 largely due to the impact of dispositions that occurred in the fourth quarter twenty twenty four the significant debt reductions, which resulted in interest savings, and the impact of several years of strong lease renewals. Is in the same period for 2023. AFFO was positively impacted by lower property taxes lower interest expense as a result of the debt reductions, increased volume of avocado and citrus sales, on our directly operated properties and increased variable farm rents. Next, we will review some of the operating expenses and other Gain on disposition of assets was higher due to dispositions of 54 properties in 2024 with an aggregate gain on sale of $54,100,000 compared to dispositions of 74 properties in 2023 with an aggregate gain on sale of $36,100,000 As a result of these meaningful dispositions, we were able to lower interest expense by reducing our outstanding debt by $158,500,000 dollars net of borrowings.

In addition, the dispositions lowered both property operating expenses and depreciation expense. General and administrative expenses increased due to a one time severance expense of $1,400,000 and a special bonus of $2,100,000 to executive ended 12/31/2024, partially offset by lower compensation and travel expense throughout the year. The severance expense was incurred in connection with the previously announced departure of the company's former CFO and Treasurer, as part of the company's cost cutting initiative. Next, moving on to Page 12, there are a few capital structure items to point out. We had undrawn capacity on the lines of credit of of approximately $167,000,000 at the end of the year. We have no debt that is subject to interest rate resets during 2025. Page 14 breaks down the different revenue categories with with comments at the bottom that describe the differences between the periods. A few points that I'd like to highlight are, as expected, fixed farm rent did decrease and that's because of the dispositions in 2023. The decrease was partially offset by several years of strong lease renewal rates. Note that the company negotiated to retain the full year of 2024 rent for the properties sold in October of twenty twenty four.

Management fees and interest income increased primarily due to the increase in loan issuances in 2024 under the FPI loan program. Direct operations is the combination of crop sales crop insurance and cost of goods sold. It was up relative avocado and walnuts as well as lower impairment and cost of sales. Page 15 is our outlook for 2025. The assumptions are listed at the bottom of the page. On the revenue side, fixed farm, solar, wind and recreation rent reflects the full year impact of 2024 Management fees and interest income is higher due to the increased activity in the Variable payments decreased due to the outlook for citrus and rope crops plus the absence of grape Farmland sold. The change in direct ops, again, that's crop sales, crop insurance minus cost of goods sold, is primarily due to increased costs associated with maintenance and water. On the expense side, during the year G and A decreased due to events such as the one time 1,400,000.0 severance expense and the $2,100,000 special bonus. Interest expense declined primarily due to realizing a full year impact of debt reductions that occurred in Q4 of twenty twenty four, and the weighted average shares also decreased with the full year impact of the 2024 share buybacks.

The forecasted range of AFFO is $12,100,000 to $14,700,000 or $0.25 to $0.3 per share. This summarizes where we stand today 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 and A session. Thank you so much. Your first question comes from the line of Rob Stevenson with Janney Montgomery Scott. Please go ahead.

Good morning, guys. Just to love to get your thoughts right now on where the pricing environment is, relative to where you need it to be to do net acquisitions in 2025? And if there's any sort of areas of the country, or crop types that you want to be in longer term that are making sense to do deals today versus the ones that are just far too pricey? Yes. Let me me take that one. Luca, may I have additional comments? Hi, Rob. So So if you looked at our portfolio to overall today, it is extremely focused on the state of Illinois, and a little bit more broadly Indiana and Missouri. A small set of holdings is still in Eastern Colorado. And then basically [indiscernible] So Illinois is incredibly strong. We talked about this in the past. We've kind of reached a plateau stage in terms of valuations in Illinois. Meaning the market is not driving higher, not every single sale is a new record. But the prices particularly for good properties remain very strong. We would continue to buy in Illinois, if the valuations make sense. As we all know, it's a relatively low current yield environment.

But a very, very high appreciation environment. And when you think about the for all investors, when you think about portfolio today, recognize that the gains we achieved on the sale of the portfolio at the end of last year, we sold essentially the Southeast United States, most of Nebraska, and most of our Delta Arkansas, Louisiana and Mississippi properties Those were very high gains. But that's not the best assets with the most embedded value gain Best assets with the most embedded value gains since we've [indiscernible] is really our Illinois properties where we own a Pro2 40,000. Acres. Turning to Colorado, Colorado is frankly a little bit it's like Goldilocks, Not Too Hot, Not Too Cold. We Are Long Term Not Particularly Excited About That Region. Because Of Water Limitations In Their Likelihood That The Water Limitations Just Get To Be More Extensive Through Time. I Think We Will Likely Gradually Exit The High Plains region. We were going to buy more in any of the regions that we where we sold a lot of properties last last November, the place we would go back into is the Delta. Super high quality farms, in particular Northeast Louisiana and Southeast Arkansas are very attractive.

They have many of the characteristics of the Midwest with a slightly higher current yield. Now turning to California.

California remains an area of concern with We've talked about this in the last probably three or four at least, if not a couple of years' worth of conference calls. California has a variety of challenges. With water being probably the first and biggest challenge the second being over planting of many of those crops around the world. And the third being sort of labor challenges as it labor and regulatory challenges particularly in the state of California. What that has done is that's put a lot of pressure on asset values in that region. We think in many cases, institutional investors are very scared of that region right now. There are people exiting that region. So that's a place in our portfolio where we're we continue to monitor it. We're not going to be we're long term value players. I don't get excited about whether the value is up or down in the last ninety days. That's not every time I read an article like that, I kind of recognize it's written by somebody that does understand the asset class nothing moves on a ninety day cycle. In this asset class. So we're going to kind of monitor it, watch it if we did approach to at a fair price on something we own will likely lighten our exposure to California We're very unlikely to buy additional assets in California right now.

But it would likely up there. Hope that Rob kind of answers answers your question.

Yes, that's very helpful. And I guess the other question regarding deployment of capital is how are you thinking about you guys bought the Ohio Deere dealerships. How are you guys thinking about that business? And it's hitting whatever return thresholds that you were looking Farmland coverage etcetera and whether or not you would expand and do more of those either in Ohio and or other states or something of that sort of bent going forward to deploy capital?

Yes. So a couple of thoughts on that. And I've talked to many individual investors, particularly our largest ones about this. And some of them, frankly, love the idea of doing more of that and some of them hate the idea. So here's the kind of intellectual challenge when you think about it. One of the problems we face as a company is not enough current income. In any given year. Those assets are solid 6% current yield sorts of assets, maybe even In some cases, they're great current yield tools for us. [indiscernible] we believe, particularly I believe, that the long term appreciation of a John Deere dealership footprint, we don't own the dealership, we own the the land underneath it and the buildings.

As long as you pay fair value going in and fair value is what about appraised value SKA is really not [indiscernible] on the lease payment.

John, you paid a fair price for that My view is that asset is likely to appreciate more or less with farmland or even higher than Farmland. Many of these dealerships are located at important highway intersections or things like that. There's no reason to think they won't won't go up as land values go up. The base value of the underlying asset won't go up as land values and the ag parts of The United States go up. So that would be the that's the argument to do more. Of that. We don't have very much exposure to that in the overall portfolio sense today. In the counterargument, which is also sensible, it's not the argument I believe in, but it's a sensible argument. [indiscernible] stick to your knitting At some level that John Deere dealership is really just a triple net industrial lease. Don't confuse it with farmland stay away from it. Both of those things are true So to answer your question, Rob, is I think we might do a few more of those I don't think you'll see us get into it super aggressively. Because if I was having this conversation with the Board and the rest of management, you would have people in amongst that group of six or seven people with both points of view that I expressed.

I guess as we'll we may do a few more of those if they're particularly attractive, but don't expect to [indiscernible] Okay, that's helpful. And then one last one for me for Susan.

What is your incremental borrowing rate today? If you needed $20,000,000 of debt, what would that cost you today and how would you sort of get that Where is the best sort of pricing availability to you today? On the debt side? [indiscernible] let me chime in while Susan here kind of pulls up the the correct number.

You have to look at it in two different ways because we have liquidity that is immediately available to us under the lines of credit. And that's a short term kind of spread over SOFR kind of rate. But we can also if we are to structurally increase our debt again, we would actually use more traditional kind of loan agreements on three plus year terms that will come at with different interest rate rates and different interest rate exposure risks. Having said that, Susan, Yes, we're right around 6% right now. For the incremental borrowing rate. Okay. That's very helpful. Thanks guys. Appreciate the time this morning. Yes. Rob, want to connect with I'm not in the same room as Susan and Luca.

I want to just connect what Lucas said and Susan said to your question for a second.

So if you wanted to go borrow really quickly, it's right around that 6% rate.

If we turned it out I think we would beat that rate material.

Okay. That's helpful guys. Appreciate it.

Again, I would like to remind everyone that Your next question comes from the line of Buckhorn with Raymond James. Please go ahead.

Hey guys, good morning. Congrats on the great quarter and all the progress last year. The asset sales, great job.

Curious if you could just share maybe a few high level thoughts on some of the headlines and articles that are out there about the freezing of funding that seems to be going around for the various USDA programs that a lot of farmers had been exposed to and some sort of cost sharing agreements and wondering if that if you know if there are any particular tenants or farmers in your portfolio that are exposed to any sort of funding freezes or how do you think that plays out over the course of the year?

Yes. So Buck, thank you for your kind words and here's kind of my perspective on on that.

So when you look at the USDA budget, You got to think about it in two relatively large separate buckets. The first bucket is Snap, That's basically food stamps, aid to low income people and food purchasing. That is a huge percentage of the budget. I don't have a off the top of my head what it is. But it's a large, large, large percentage of the overall USDA budget.

I think there is a sense in Washington DC under the Trump administration that there to be a little bit less of that.

Not nobody wants to be screwed, I don't think. [indiscernible] they think there is some waste, fraud, abuse in that program. They're and I'm pretty sure there is They also think one of the if you remember back to the Clinton administration and I'm older than most of you on the call, Clinton got very focused on the fact that that providing a food stamp program forever disincentivizes these human beings to go out and create a successful and fulfilling life for themselves. So maybe we need some program changes that make it a short term safety net, not a forever safety net. And I think those things are coming back around. The second bucket of the Farmland program is things that are delivered to farmers Farmland there's a lot of different different pieces of that. There's direct payments there's ad hoc disaster payments and there's crop insurance. At least to my way of thinking, the most important piece of that is crop insurance.

That is a very good program. It is a good program for farmers, but it is a good program for all U. S. Citizens. And the reason for that is that program really cements food security. We are such a productive country in terms of food production that one bad year does not cause a problem in terms of food supply. Causes a little bit increase in pricing, nobody's going to go hungry. Where we would have a problem is The United States. Is if we had two bad years in a row and what crop insurance does is it lets that farmer who had a really bad year go back and plant again the next year therefore making sure we don't have two bad years in a row. And so that program is very, very good. Again, direct payments and ad hoc emergency payments in particular and to some degree in crop insurance, there is waste, fraud and abuse there.

I'm sure that the current USDA team is going to focus on getting rid of that. I mean, I get everybody in Washington focused on that or they should be.

We as a company partly because I was a real farmer for a long time, We just stay away from tenants who are we think abusing the system at all We don't want anything to do with a tenant who's doing what they call insurance Farmland. So we don't have any of those tenants. We just and we also are very, very focused on making sure we've got farmers which have sort of sensible economic results without regard to government payment on their farms. So I don't think anything was done in that area hurts us in any kind of meaningful way.

In fact, it might [indiscernible] people like us who then have relatively speaking higher quality land in the highest quality farming Long winded answer, but hope it helps.

No, that definitely helps and I appreciate thoughts. I just want to also I kind of want to clarify, maybe I wasn't clear in the question because I was the intent I think was more thinking through these inflation reduction act CapEx projects that a lot of farmers had undertaken putting in a lot of money to whether it's doing environmental upgrades some other money that they were putting upfront that they were going to do a cost sharing arrangement with the government on Just wondering if any of your portfolio of farms had taken advantage of that program or it's been a lot of CapEx money or some sort of financial risk due to funding being cut back?

No. So the quick answer is no. I mean, we as a company do not incredibly rare circumstance would we ever directly pursue some sort of government program payments either by pushing a tenant to get it and share it with us or by getting it directly, although seldom are we eligible. For any kind of direct pay. So we just don't want to play in that.

In that space. We just really don't.

Now I mean to be fair, if you had massive reduction in cash flow coming from the USDA, to the agriculture community, that has a negative impact on a large landowner like us. Because it's just less capital in that But I mean the impact on us is is very, very muted for the reasons I just explained. As to the specifics, again, I don't know exactly what the new administration of the USDA will do. But my sense is that anything that's a that's sort of a preexisting contractual obligation a cost share on something they're going to fulfill the obligation and that's just [indiscernible] I think it's going forward, will those programs change is relevant question.

Got you. Got you. Very helpful. I appreciate that. And just one quick last one is, if you could share kind of what your renewal lease terms in terms of your kind of asking rates on new renewals for this spring are going out at and kind of how you think that plays through for the year?

Sure. So on renewal rates, if you look back over the last couple of years, the three year average on renewal rates is up 12.4%. That is based on incredibly strong renewals in the last two years prior to the twenty twenty four year. Twenty twenty four year was essentially flat to slightly down. We had a about 0.8 negative rent renewal rate Now recognize that number is really kind of weird [indiscernible] because we had worked our way through renewing most of the rents on those properties we sold then those were very high quality properties. We sold those properties, so they're not in that so it's kind of So it's kind of a sloppy statistic this year with that selling 25% or 30% portfolio. But But the big takeaway is really strong rental increases three years ago and two years ago and sort of flattish this year.

Even if we'd have had all those properties we sold still in the statistic, it might have been slightly positive, but it wasn't going to be 10% or 12% again. So we're kind of like I said, so I made the comment about plateau and land values, you got that kind of plateau in rents as well. Now for the coming year, I think we're going to be back in a cycle where we can push rent increases again.

If you pull up a soybean or corn chart, corn in particular, over the last six months, you've seen a relatively significant increase in corn price therefore increasing profitability of farmers. And when you go out to have that rental discussion, particularly in our portfolio, which is very row crop centric, the happiness related to grain price, makes that rent negotiation easier.

Got it. Very helpful guys. Congrats again on all the progress. Good job.

Your next question comes from the line of Darren Rabinu with DTR Partners. Please go ahead.

Thank you for your your comments today. Following up on you said that you think you can raise rents How do you think of that in terms of income levels being hit so badly in the last year? I mean, do you think that's change going to be changing on a go forward basis? And I'm asking that because What can we think about dividends being paid through cash flow versus selling of assets or historically been able to access the credit markets, which with interest rates this high, I assume you're not going to want to do that. So where do you see farmers' income? You mentioned that you think farmers' income in corn is going to go up. Is that more looking forward that income levels have bottomed out given where commodity prices are that and labor and etcetera, [indiscernible] recent data coming out of the the USDA and other places actually suggest that farm incomes kind of climbing back up. That's partly these large direct payments that were authorized at the end of last year, but it's also kind of increasing grain price.

And that's kind of in a narrative, it depends whether you're looking through you're looking through something wide angle lens or narrow angle If you look at the narrow angle lens, we're probably a little better than we were last year. But now let's look at the the wide angle lens because that's what's really important. This idea that farmers are on their last legs just it's just so overdone.

We are right now [indiscernible] certainly the top 10 economic return years ever for American farmers.

I've read something recently that said without government payments it'd be the eighth best year ever and with government payments it's the sixth best So [indiscernible] Mean, I'm somebody who really understands these statistics, our company understands these statistics This is just blind totally out of proportion.

Farmers are grain prices are going up, profitability is going up, you'll be able to push up a little bit.

Things are I mean prices are going down, profitability is going down. You're probably not going to be able to push rents very far, which is a year we just kind of went through. And so this is why us as a company anytime times are good, grab those rent increases while you can.

And then be a little more gentle in a year where you can't.

And so that's kind of our approach. So we think we'll be able to continue to push up rents. To give you context, long term average rent increase 3% or 4% a year.

We see it 10% or 12% a year Don't think about that as 10% or 12% forever in your model. Think about it as that's making up for the year of zero.

Right. Long term average if you're modeling it is kind of 3% or 4%.

Or something like that.

And are you seeing distress buyers coming in into California at all, which maybe signals a bottom of the market? Because the banks are giving away assets right now. I mean, is that what you're kind of looking for? Luca, you want to take this question? I mean, I thought about it be thought about it more. So go ahead.

That's right. That's fine. I'm used to it. We see the California farmland market as still being fairly dislocated. There is There is a lot of there are a lot as you probably know very well, there are lots of properties on the market.

There are probably willing buyers that are not they haven't stepped into the market yet. So there is a fundamental misalignment between supply and demand for farmland assets That will take probably a little longer to resolve. Unfortunately, the long term uncertainties there regarding Sigma and water availability so on and so forth.

Kind of remain kind of top of mind for a lot of operators However, good performance, for example, walnuts have performed better than expect almonds have performed pretty well in 2024. We are expecting a little bit of picking up of interest What we are seeing specifically more than from investors is from smaller operators that had a pretty decent 2024 and they are now looking to buy a little parcels here and there We so far, we haven't seen really any big investors swooping into the market to buy in large quantities, mostly because lot of those investors are already present in California and therefore they already feel they have a quite a bit of exposure to the market. Benoit, to your specific question, I think we're at or near the bottom right now. But you never can predict exactly where the bottom is. Okay.

Thank you. Your next question comes from the line of Craig Gocera with Lucid Capital Markets. Please go ahead.

Yes. Good morning, guys.

I'd like to talk a bit about the FTI loan program. You had a pretty sizable increase in your loans outstanding in the fourth quarter and would just like to get your thoughts on where you see demand? Do you expect to see continued higher demand in that [indiscernible] I mean, it's partly demand, Craig, and it's partly focus on it. It. As we have shrunk the portfolio, we've done a good job controlling costs.

But we are a public company. So there is a four to how much we can lower costs. Being public is expensive terms of a board outside legal, filing fees, accounting, etcetera. And so we actively as we got deep into the transaction we did last Farmland where we sold such a large portion of [indiscernible] We consciously said we've got to reach out and increase loan program obviously not by taking on a ton of additional risk we hope, but by making loans at high interest rates and with fees and things like that. In a way that helps us on our cash flow. With the sale of so many properties that was important.

And so that's what we did. And that's what you really see in the numbers.

Again, we're an asset based lender.

What we do is we serve a role in the marketplace where farmers are often And people who own Farmland are often very sort of cash poor, but rich. Most lenders don't want to touch that. It's not because it's a bad loan, but it's because they are not in a position to own that asset if necessary.

We on the other hand are in the business of owning agriculture assets So as long as I and our team feels like we're very covered in terms of collateral value, we'll make a loan. And And that's what we do. We're not scared of of taking the property if we have to. And so that's why we're able to kind of expand. There's just not many people that will take that asset value approach to lending And the reason we take that approach, it's not that it's an obvious question, how do you get paid back if the guy's cash flow is terrible? Well, the reality is he's got lots of that borrower probably has lots of assets. And what he's really doing is trying to buy a little time you can either sell the asset, you lend him money again or sell some other asset and clean up clean up the family business balance sheet and that's the kind of role we play in the market. And as I said, long as we've got good position on the terms of loan to value, than stare us at all and we can generate very strong interest rates and fees related to those transactions.

Right.

I know that always been a program. You hope to grow more than it had in the past. Just one more for me. Has there been any increase maybe in inbound calls since the administration change?

And all the shakeup going on that we discussed in the call today?

Luca, you may be Luca runs the company on a day to day basis now. Luca, I don't I don't know. It's the answer. You have a point of view to express it.

Yes. We've seen a little bit of an uptick in inbound inquiries related to the loan program. I don't really think personally that it's related to the is just more of a a some marginal operators have felt a little squeezed in 2024 and that has increased the need for the type of product that we offer. Not sure what's going to happen here in the coming months, especially given the fact that commodity prices have bounced back quite a bit.

Okay, great. Thanks for the color. Thanks, Greg.

Thank you, everyone. And that concludes our Q and A session. For today. I will now turn the call over back to Luca Fabvi, President and CEO of Farmland Partners. Please go ahead.

Thank you, Gail, and thank you everybody appreciate your interest in our company and look forward to updating you on our activities and results in the coming quarters.