Good afternoon. Thank you for attending today's Farmland Partners Incorporated Q2 2022 Earnings Call. My name is Forum, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. It is now my pleasure to pass the conference over to our host, Paul Pittman, Chairman and CEO of Farmland Partners; Mr. Pittman, please proceed.

Thank you. Good morning, and welcome to Farmland Partners second quarter 2022 earnings conference call and webcast. We appreciate you taking the time to join these calls because they are an important opportunity for the Company's management to inform you about our thinking and strategy in a format less formal and more interactive than public filings and press releases. I want before we begin the formalities of the call, to make one comment. We are reporting the very best quarter this company has probably ever had; in a stunning level of incompetence, Reuters published us in the middle of the night as having a quarterly loss, which was picked up from what we can tell by several other news sources and spread around. That explains why our stock price is down instead of up after reporting an absolutely fantastic quarter. So, we will go through the details as we continue, but I did want to start off by making everyone aware that there are news sources out there that in error show us at a $0.04 net income loss when in fact it is a $0.04 net income gain. With that, I'm going to turn it over to our General Counsel, Christine Garrison, for some customary preliminary remarks. Christine?

Thank you, Paul, and thank you to everyone on the call. The press release announcing our second quarter earnings was distributed after market close yesterday. The supplemental package has been posted to the Investor Relations section of our website under the subheader, Presentations and Other Materials. For those who listen to the recording of this presentation, we remind you that the remarks made herein are as of today, July 27, 2022, 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, the impact of acquisitions, dispositions and financing activities, business development opportunities as well as comments on our outlook for our business, rents and the broader agricultural markets. We will also discuss certain non-GAAP financial measures, including net operating income, FFO, adjusted FFO, 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 and is furnished as an exhibit to our current report on Form 8-K. 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 Chairman and CEO, Paul Pittman. Paul?

Right. Thank you, Christine. So as I said a few minutes ago, this is probably the strongest quarter that this company has ever had. We are in a situation where virtually everything in our business is going quite well. Asset values continue to increase significantly. I think year-over-year, we're going to see another gain in the 10% or more asset appreciation. That's after the 2021 year may have been as high as 15% or 20% improvement in asset values. Our revenues are up strongly. Our operating income is up over 250%. Let me repeat that. Operating income year-over-year is up 250%. AFFO is up strongly. We have raised our guidance $0.03 a share, two quarters in a row now. The rent releasing process that we are in we have now released approximately 1/3 of the farms that are up for renewal, and we are getting in excess of 15% rent bumps in that releasing effort. Leverage is down on the Company and we are still trading at a substantial discount in net asset value, probably in my estimation at today's trading rates, we're probably trading in the neighborhood of $1.50 a share below net asset value. So all in all, this is an incredibly strong quarter. As I said a few minutes ago, very disappointed by the fake news that got put out overnight. The Company had a very, very successful quarter. And with that, I'm going to turn it over to Luca to make some comments, and then I'll turn it over to James to further walk through financial details. Go ahead, Luca.

Thank you, Paul. I wanted to share some insights regarding capital markets and the Company's involvement in them. Firstly, as of May 31, we were added to the MSCI REIT index, commonly known in the REIT sector as the RMZ index. We view this as a significant achievement for the Company, highlighting our growth and success. Additionally, we've been actively utilizing our at-the-market program in capital markets, which we see as an efficient and cost-effective way to raise capital while keeping control over the associated costs. Year-to-date, we've issued around $100 million, some of which coincided with our inclusion in the MSCI REIT index. On the marketing front, we're increasing the Company's presence on various social media platforms. Please follow us on Twitter, Facebook, and LinkedIn. We will soon launch a new website to better communicate our role and strategies regarding ESG and more. Now, I will turn the call over to James for his overview of the Company's financial performance. James?

Thank you, Luca. I'm going to refer to the supplemental package in my comments. As a reminder, the package is available in the Investor Relations section of our website under the sub-header presentations and other materials. Pages 1 through 10 of the package contain the press release and related financial information, while Pages 11 through 21 contain the supplemental information. First, I will share a few financial metrics that appear on Page 2. For the three months ended June 30, 2022, net income was positive $3 million compared to negative $2.9 million for Q1 '21, an increase of $5.9 million. Net income per share available to common stockholders was positive $0.04 compared to negative $0.19 for Q1 '21, an increase of $0.23. AFFO was positive $1.1 million compared to negative $3.6 million for Q1 '21, an increase of $4.8 million. AFFO per weighted average share was positive $0.02 compared to negative $0.11 for Q1 '21, an increase of $0.13. Improved performance is due to increased revenue, reduced legal and accounting expenses and reduced distributions on preferred stock. Cost of goods sold was higher in 2022 due to the greater number of farms under direct operations in 2022 compared to 2021. General and administrative expenses were higher in 2022, largely due to the acquisition of Murray Wise Associates or MWA as we say internally in late 2021. For the six months ended June 30, 2022, net income was positive $4.1 million compared to negative $0.4 million for '21, an increase of $4.5 million. Net income per share available to common stockholders was positive $0.05 compared to negative $0.21 for '21, an increase of $0.26. AFFO was positive $3.3 million compared to negative $5.3 million for '21, an increase of $8.5 million. AFFO per weighted average share was positive $0.07 compared to negative $0.16 for '21, an increase of $0.23. Similar to Q1, the year-to-date improved performance was due to increased revenue, reduced legal and accounting expenses and reduced distributions on preferred stock, offset partly by an increase in cost of goods sold due to directly operating more farms and an increase in general and administrative expenses due to the acquisition of MWA in late '21. Total debt at June 30, 2022, was $426 million; since December 31, 2021, we have reduced net debt by over $75 million. We repaid $5 million of Series A preferred within the quarter. The balance of Series A preferred was $113.7 million as of June 30. Fully diluted share count as of July 22, was $54 million. Next, I will turn to Page 14 to provide an overview of our income statement. In the last two quarters, we took a couple of minutes to review the different components listed out in the table. I won't go through the entire table on today's call, just a couple of highlights, but if you have any questions, please feel free to follow up. The items to highlight are: number one, this analysis in the following charts shows direct operations on a gross profit basis, that is revenue less cost of goods sold. And number two, we remind people that for fixed farm rent, 50% to 100% of the annual leases are paid before planting generally in the first quarter. Thus, we are positive from a working capital perspective for a large portion of the year. The charts that follow on Page 15 show the values of the different categories described on Page 14 for Q2 2022 compared to Q2 2021. You can see the fixed payments, variable payments, direct operations, gross profit and other items. The total on the right-hand column is revenue less cost of goods sold. Q2 '22 was $11 million compared to $9.3 million for Q2 '21. Further down on Page 15, we dive deeper into the fixed payments and variable payments, creating a variance bridge from Q2 '21 to Q2 '22. For fixed payment details, we separated out the performance of the same row crop farms from other items such as acquisitions, dispositions, permanent crops and farms that were not comparable between the periods. Same row-crop farms and row-crop farms in the portfolio before January 1, 2021. We view same row-crop farms as the best way to remove the noise from the various activities that are grouped into the other category. As you can see, performance was up $0.2 million from Q2 '21 to Q2 '22. The fixed payments associated with acquisitions, dispositions and other items, was up $0.5 million. In variable payment details, we remind listeners that the vast majority of cash and revenue occurs after harvest in the fourth quarter. The variance in Q2 is largely in line with expectations. The positive variance in tree nuts was largely due to pecans from the Southeast. The positive variance in citrus was due to a lagging final payment from last year, and the decline in all other crops was largely due to a farm that was sold in 2022 and, therefore, not part of the numbers for 2022. The charts on Page 16 show the same information for year-to-date '22 compared to '21. On the top two charts, you can see the fixed payments, variable payments, direct operations, gross profit and other items. Again, the total on the right-hand columns is revenue less cost of goods sold. Year-to-date '22 was $23.5 million compared to $20.7 million for year-to-date '21. Further down on Page 16, we show the fixed payments broken out in the same fashion as the previous page. Same row-crop farms were up $0.4 million from year-to-date '21 to year-to-date '22, while the fixed payments associated with acquisitions, dispositions and other items were up $0.8 million. For variable details, the bridge from year-to-date '21 to year-to-date '22 shows that tree nets were down, which was really a Q1 item that was caused by Q4 2020 after harvest revenue slipping into Q1 2021, while Q1 2022 did not benefit from any revenue slipping in from the previous quarter. Citrus is up due to that lagging final payment received in Q2 that was mentioned a minute ago. Grapes were down in the first quarter caused by timing and also lower performance, and all other crops were down due to the farm that was sold impacting the second quarter as mentioned a moment ago. On the next page, Page 17, we updated the outlook for 2022. The table starts with the same categories described on Page 14 and the charts, fixed payments, variable payments, direct operations, gross profit and other. Fixed payments increased due to new acquisitions and leases signed. Variable payments increased slightly. Direct operations gross profit decreased due to citrus pricing changes, lemons are lower, caused by export demand changes and shipping issues at major ports. We will keep you updated as the harvested fruit is sold throughout the third quarter. Other increased due to additional auction business from Murray Wise Associates. On the expense side, general and administrative increased approximately $750,000 due to the accounting treatment of the noncash incentive associated with the Murray Wise acquisition in late 2021. That noncash incentive is added back to AFFO. In addition, travel and personnel expenses are trending slightly higher than originally projected. Legal and accounting decreased due to lower expected litigation expenses. That range for litigation spend has decreased from $1.8 million to $2.4 million down to the range of $1.3 million to $1.5 million today. Interest expense decreased due to lower debt levels, partly offset by rising interest rates. Weighted average shares increased due to the sale of shares under the Company's ATM program. This results in AFFO in the $13.4 million to $15.6 million range compared to the $11.4 million to $14 million range shared back in May. AFFO per share is in the range of $0.26 to $0.30 compared to $0.22 to $0.28 from back in May. This wraps up my comments for this morning. Operator, you can now begin the question-and-answer session.

Our first question comes from the line of Rob Stevenson with Janney. Rob, your line is now open.

Paul or Luca, can you talk about the expiring term on the leases that you renewed? So it's up 15% plus, but is that off of leases that were signed a year ago, two years ago, three years ago? What is that increase off of?

That increase is based on leases that were signed approximately three years ago. While not every lease falls into that category, the vast majority would be from leases signed in 2018.

And what did those leases typically have in terms of annual bumps in them?

They will generally, from that era, have had a 1% per annum bump in them. It was the most common thing that we were doing in that era. And so, this will be a significant bump in total rents. And then the cost of living adjustments that we're carrying and a lot of leases now are sometimes based on CPI and sometimes 2% or 3% higher than they were historically.

Okay. So that one goes to either CPI, the 1% bump goes through the CPI or at least 2% to 3%?

Correct.

What about the new leases? Please continue.

Yes. And that cost of living adjustment is not part of that in excess of 15%. That 15% is just a one-time jump when the lease rolls over.

Okay. And then looking at the two-thirds or roughly that amount that haven't renewed as of yet, I mean, you guys have typically been close to 100% in terms of renewals. So I assume that these will be renewals, just you guys going back and forth over terms with the operators. But from their standpoint, I mean, even at up 15% or up 12% or whatever you guys wind up settling on, given crop prices, et cetera, is there any issue there from their standpoint that they're not going to make a hefty profit unless crop prices fall dramatically?

No. Last year, we experienced about a 10% increase in renewals, and this year it's slightly higher. For the group that received increases last year, we haven't faced any challenges with rent collections or farmer success and profitability. We don't foresee any changes in this area. The farm economy is strong, and while the crops are expected to be decent, they are not likely to be outstanding. Prices are historically high. Although short-term charts show a decline in corn and soybean prices, long-term charts of two or ten years reveal that these are some of the strongest grain prices farmers have ever encountered, and I believe this trend will continue. Therefore, farmer profitability remains strong, and we benefit from that.

Okay. And I guess on a related question, so acquisitions picked up a bit in the second quarter here. How are you characterizing the market both in terms of the number and availability of farms that you're interested in out there for sale and also where pricing is for those farms today, given the improvement in the farm economy that you talked about today versus a couple of years ago? What are you having to pay more for those? And are people sitting on the farms rather than selling? Or are there still plenty of good farms that you'd be interested in acquiring out there for sale at prices that make sense to you?

There are a lot of questions to address. First, the pricing in the farming sector is strong, and we have seen consistent appreciation over the past two years. In 2021, the appreciation was quite rapid, while 2022 experienced a more moderate but still strong appreciation. A key characteristic of our asset class is that the best farms typically come to market during periods of a strong farm economy and rising farmland values. Historical data shows that farm sale volumes decline during challenging economic times, with sales mainly driven by circumstances like death, divorce, or financial distress. In such cases, only lower quality farms are sold, as owners are unlikely to part with their best properties under pressure. When the farm economy is robust, and farmland prices are high, it encourages additional sellers to enter the market, including those who might have held off when prices were lower. Our long-term strategy emphasizes the quality of our portfolio, so it's important to remain active in the market, even at elevated prices, as these farms represent some of the best investment opportunities available.

Okay. That's helpful. And I guess, given your better cost of capital today, are there any specific markets and/or crops that you're especially targeting today in order to broaden or improve the portfolio quality and resiliency?

Yes. If you look back at where we've seen the highest returns in terms of appreciation and current yield over time, the Midwest has provided significant value to our portfolio since we went public, and this appreciation remains strong. Therefore, we are investing more in the Midwest. However, as we've mentioned before, cap rates in the Midwest are low due to the low-risk environment, high demand for land, quality tenants, and stable farming conditions, leading to lower cap rates. Despite this, the overall total return in the Midwest outperforms any other area in our portfolio. We will also ensure we diversify by adding assets in other regions, especially the Delta and Southeast, and likely in California as well. We are cautious regarding water risks in California, as I mentioned in a previous earnings call. Nevertheless, there will still be successful operations there for many years, growing high-value specialty crops, which offer better current yields than in the Midwest. Hence, we aim to continue our investment in that area. Our pipeline is strong, and there are plenty of promising opportunities available.

Okay. And then last one for me. If I'm not mistaken, the last of the lawsuits left is you against the hedge fund. What's the current status of that legal proceeding? And are there any notable dates coming up on that?

The current status of that legal proceeding is essentially an appeal in Texas. The other party is attempting to escape on a technicality regarding jurisdiction and similar issues, but we do not believe they will succeed. Currently, there is little activity in that matter, and we do not expect much to happen during the third quarter. Some results may emerge from the court of appeals in the fourth quarter, but this is the only lawsuit still active. We remain optimistic about achieving a successful recovery for our shareholders in the future. Regarding legal expenses, they have significantly decreased. The case against the hedge fund has always been less costly than our case, which is unfortunate to admit. Defending ourselves against opportunistic lawsuits was the most expensive aspect, but that is now behind us.

Our next question comes from the line of Buck Horne with Raymond James. Buck, your line is now open.

Congrats on the outstanding results. You mentioned the recent commodity price rollover that maybe happened over the past few weeks or so and in the context of certainly where prices have been over the past 5 or 10 years or so. But as we look into the back half of this year, I'm just wondering if there's any pushback coming from the other side of your farm renegotiations or is the recent rollover in commodity prices affecting that 15% effective renewal rate that you've been achieving so far in the front half of the year?

I would expect that we will reach or exceed a 15% renewal rate across the farms that are renewing. We are currently operating significantly above 15%, but typically our farm managers tend to renew the easiest leases first. Therefore, we anticipate a slight decrease from the current rate, but I don’t expect it to drop below a 15% improvement over last year on average. Regarding grain prices, historically, we have seen a decline from the peak prices, although they have rebounded recently. For example, soybean prices rose by $0.36 yesterday and are currently around $15.70, while corn prices are about $6. Over the last 35 to 40 years, these prices rank among the top 5%. Recently, the market has experienced two significant changes. First, the extraordinarily high inflation seems to be stabilizing, but we will have to wait for the upcoming July CPI numbers to confirm. Thus, we can expect grains and food prices to contribute to this stabilization. Second, the geopolitical situation has influenced market expectations—particularly the humanitarian corridor agreement for grain shipments from Ukraine. However, immediate developments, such as attacks on the port, raise concerns about the effectiveness of this corridor. There are significant risks involved for ship owners, port workers, and transporters in a conflict zone. The market might have overly optimistic expectations regarding the export of grain from Ukraine. The core issue is not just the grain already stored but also that Ukraine didn't plant a full crop this year. I anticipate a continued shortage of key food commodities into 2023. The hope is for a bumper crop in the United States, especially considering the extreme heat and late planting, but I don't believe that will materialize, and it's still too early to predict. Many experts suggest that U.S. yields may fall below USDA projections. If that occurs, we could face another two years of relative shortages. The main producers capable of altering this situation are the U.S. and Brazil, and we must wait for their crops and favorable weather. Meanwhile, Western Europe is experiencing some of its worst crop yields in decades. This high price environment is likely to persist for some time.

Yes, that's very helpful information. I really appreciate that insight. Let's discuss the ATM strategy now. You implemented it in the first half of the year alongside the index inclusion. However, considering that the stock is still trading significantly below its NAV, how are you reassessing the decision to use the ATM in the second half compared to your view on the Company's NAV?

Yes, I believe we will continue to use the ATM moderately, as we have been doing. Internally, we evaluate the dilution impact on existing shareholders when issuing equity, especially if we believe that the breakup value is higher than the equity issuance price. This is something we are quite sensitive to, particularly because of my ownership stake. However, we must also consider if it makes sense from a profit and loss perspective. If there’s a significant acquisition opportunity that offers a total return of 8% to 10% IRR, it can justify issuing equity even if it results in some dilution. We are committed to reducing leverage as we anticipate interest rates will rise slightly in the future. We don't have any debt resets for the rest of this year but will have some in 2023, which is why we are focused on lowering our debt levels. It's a balancing act between reducing risk and debt levels while managing the cost of equity capital. We believe that issuing small amounts of equity will ultimately enhance shareholder value while continuing to pay down debt and pursue acquisitions. If you look at our stock performance this year, it has been positive, up around 18% to 20%, while most of our competitors are down. We also compare favorably to major agricultural companies. While it is difficult for me to issue stock when the price is around $14 or $15 and I believe the NAV is at least $16, I think we are on the right track.

Our next question comes from the line of Dave Rodgers with Baird. Dave, your line is now open.

Maybe I don't know, James, on the guidance start there. The operating component of the guidance was up, which was good to see. How much of that was related to net acquisitions, which is kind of the first time we've seen that in a while in the first half of the year versus the better-than-anticipated rents than you have modeled going into the year? And any other factors?

Yes. Sorry, could you repeat your question? You mentioned the operating components?

Yes. Through NOI, right, the top portion of that, how much of that was driven by acquisitions versus better-than-anticipated rent in your own modeling versus something else?

On the fixed payment side, it's primarily due to acquisitions and new leases signed related to those acquisitions. The leases that were signed this year, which originated in late 2021, were included in this. So, the fixed payments are largely driven by this new activity. Variable payments saw a slight increase as we've observed the year's progression. A significant part of this increase comes from the other category, which we raised due to heightened auction activity at Murray Wise Associates. The activities in that category and at Murray Wise Associates have been robust this year, with considerable auction and brokerage activity contributing positively.

Yes. When you look at the business, it's divided into three main areas: row crop agriculture, which is thriving; specialty crop agriculture, which is generally stable, possibly slightly positive; and the Murray Wise business, which is performing very well. This summarizes the operational situation. Specifically, our team accurately estimated the rent increases from the same-store row crops, resulting in nearly $1 million a year of additional revenue from leases we renewed in 2021. However, the significant increase in revenue is largely due to new acquisitions, the growth of the Murray Wise business, and positive developments in specialty crops.

Great. That's helpful. When you look at your net investment stance a lot more than you sold in the first half of the year, as you think about that, two questions: one is, I guess, in the second half, will you continue to be a net acquirer of assets? And then I guess the second question is what's the cap rate or the yield spread that either you're targeting or that you resulted in the first half of the year and how you see that trending in the second half of the year as well?

Yes. So, we will probably be a net acquirer in the second half; that would be certainly our intention. Obviously, everything we own is always for sale, and there are incredibly aggressive prices being paid for farmland assets. And if somebody came to us and made a super strong offer, we're likely to take it on certain assets. But I think the plan would be to be a net acquirer. In terms of cap rates, round numbers, we're trying to maintain a cap rate in the sort of 4% range on average across the portfolio. You can't get that in every location. But it's important to grasp that if you looked at our portfolio against original purchase price, when you start making 10% or 15% increases in rents, the cap rate against your original purchase price is going up pretty rapidly. So we're starting to see creep up if you evaluate it against the original purchase price in the cap rates we have across the portfolio as we're getting these rent increases pushed through. If you look at farmland in a long-term sense, there are forms that, for example, that I personally own that might have a 25% or 30% cap rate today against the original purchase price because you've got decades of rent increases embedded in that, even though the purchase price obviously didn't change, and you didn't have to make additional CapEx into the asset. A lot of good things are going on when it comes to the cap rate improvement and return on those assets as well as the acquisition front.

No, that's really helpful. And I guess maybe one final question along that topic is as you think about selling assets, do you look at asset sales as maybe the plug figure for the acquisitions? Is that equity? Or are you kind of more guided toward a deleveraging target as you think about kind of net investments plus deleveraging where you want to balance between those? I guess I'm just trying to kind of weigh those options and rank them in your mind.

It's really about finding the right balance. Currently, the Company’s leverage is not very high. The portfolio’s market value is approximately $1.375 billion, while the book value is around $1.1 billion. When adjusting for true market value, which is crucial for the lending community and farm economy, it doesn't matter what we paid for it years ago. They are concerned with its current worth. We are dealing with a leverage environment of 30% or lower. If we include the preferred equity, the leverage is even lower. We don't believe we have significant leverage, but we aim to enhance cash flow by reducing debt where possible, especially considering the current interest rate climate. However, this must be balanced against the fact that purchasing a farm yields high single digits to low double digits in total return. We've sold around $160 million in farms recently, achieving an 8.1% internal rate of return, mostly during tough market conditions. If we were active in sales now, we could quickly increase that rate of return, potentially to 9% or 10% or better. Therefore, it's not just about the current yield from purchasing farms versus our current debt; we need to evaluate the overall total return. We'll find a balance between these aspects. There isn't a strict roadmap; it’s more about making opportunistic choices. Looking ahead, you can expect further debt reduction and additional acquisitions.

There are currently no more questions waiting in the queue. So I will pass the call back to our management team for closing remarks.

Great. Thank you all. Thank you all for joining us. We're very happy about the performance of the quarter. Obviously, a little disappointed that the news didn't get out accurately, but hopefully, in the next day or two, it will show up in the market. And thank you all for your time today. Goodbye now.

This concludes today's conference call. Thank you for your participation. You may now disconnect your lines.