Hello, and welcome to Farmland Partners, Inc. Q3 2023 Earnings Call. All lines have been muted to avoid background noise. Following the speakers' comments, we will have a question-and-answer session. I will now hand it over to Mr. Luca Fabbri, President and CEO. Please proceed.

Thank you, Sarah. Good morning, everybody, and welcome to Farmland Partners' third quarter earnings conference call and webcast. Thank you so much for giving us the opportunity to share with you our thinking and our strategy in a format a bit less formal and more interactive than public filings and press releases. Before we really get started, I will turn over the call to our General Counsel, Christine Garrison, for some customary preliminary remarks. Christine?

Thanks, Luca, and thank you to everyone on the call. The press release announcing our third quarter earnings was distributed after market close yesterday. The supplemental package has been posted to the Investor Relations section of our website under the sub-header Events & Presentations. For those who listen to the recording of this presentation, we remind you that the remarks made herein are as of today, October 26, 2023, 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 third 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 October 26, 2023. 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'll make a few general high-level comments before I turn it back to my colleagues. The most important point from my perspective is that our stock continues to be very deeply discounted compared to its fundamental intrinsic value. As proof of my belief, you may have noticed, but I bought $1 million worth of stock during the quarter. I have never sold a share in the company and continue to grow my position because I'm a firm believer that we will ultimately access that value. We will continue selling assets at good gains and using those funds to pay down debt and buy back stock as long as this significant discount exists. It's important to recognize that our gains to date have been very strong, but we are not selling the assets we like the most. We are selling assets that have probably lagged in terms of appreciation compared to the rest of our portfolio. As you may note in the financials, we had one sale that was actually at a substantial discount to what we had on the books for Grassy Island Groves. It's a relatively modest size transaction, but it is a citrus farm in Florida. We fundamentally threw in the towel and got rid of the farm because that is an industry, in our opinion, that will not recover. That is the only citrus farm in Florida we had. In the last decade or so, you have seen almost a 90% reduction in volumes of citrus in Florida. That is a tide that we just couldn't swim against and so we let that farm go and move on. It's important to recognize that despite that loss on that farm, the overall returns on the asset sales we've made are still very strong. What we need to do next is obviously focus some on cost control as we have shrunk the size of the portfolio. We will turn to that as we get later in this year and the beginning of next year. But this strategy is fundamentally creating significant value for our shareholders who decide to stick with us as we continue to execute on the strategy. With that, I'm going to turn it over to Luca Fabbri, our CEO.

Thank you, Paul. I would like to draw your attention to a few data points to outline how we have executed on our strategy so far. In the first three quarters of the year, we have sold 54 properties for total proceeds of about $122 million and approximately a 24% gain over net book value. After the close of the third quarter, we have closed on an additional approximately $2.5 million in asset sales. We have approximately $65 million of asset sales under contract or in advanced negotiations that we expect and hope to close by the end of the year. Of course, for especially the ones in advanced negotiations, there is still some degree of uncertainty about that. We are projecting total asset sales for the year at about $190 million. So far this year, including slightly after the quarter, we have repurchased about 6.4 million shares at an average price of $10.98. Of those $124 million of proceeds so far, we used about $70 million in common stock repurchases. We've also paid down about $8 million of Series A preferred. We are now completely out of the market on the asset purchases side; we have completed a few transactions. We purchased about $20 million of assets. We are really focused on improving our portfolio, not just selling assets. Last but not least, I want to draw your attention to the lease renewal cycle and how we are progressing. So far we are about two-thirds of the way, and we expect to finish the year and end the lease renewal cycle up about 18% to 20%, hopefully even a little bit more than that. I will now turn the call over to James Gilligan, our CFO, for his overview of the company's financial performance. James?

Thank you, Luca. I'm going to cover a few items today, including a summary of the three and nine months ended September 30, 2023, review of capital structure and interest rates, comparison of year-to-date revenue, and updated guidance for the year. First, I'll share a few financial metrics. For the three months ended September 30, 2023, net income was up over 280% to $4.3 million, and net income per share available to common stockholders increased to $0.07 per share, largely due to gains on dispositions of assets. AFFO was down to negative $0.5 million, and AFFO per weighted average share was down to negative $0.01, largely due to elevated interest expense, lower performance in farms under direct operations, and lower auction and brokerage revenue relative to last year. For the nine months ended September 30, 2023, net income was up over 160% to $13.9 million, and net income per share available to common stockholders increased to $0.22, again largely due to gains on dispositions of assets. AFFO was down to about negative $50,000, and AFFO per weighted average share was down to $0.00, again largely due to elevated interest expense, lower performance in farms under direct operations, and lower auction and brokerage revenue relative to last year. Next, we'll review some of the operating expenses and other items. Depreciation, depletion, and amortization were a little higher in the third quarter of 2023 due to more depreciable assets placed in service and approximately $150,000 of adjustments. Property operating expenses were flat in the third quarter but a little higher year-to-date 2023 caused by higher property taxes, including a one-time property tax of approximately $150,000 in the first quarter that was reimbursed by the tenant. Additionally, we incurred a non-recurring expense in the second quarter of approximately $140,000 due to the final reconciliation of cost sharing on a California farm. General and administrative expenses were a little higher in Q3 2023 due to increased compensation expense, but lower for year-to-date 2023, due primarily to lower stock-based compensation and lower travel. Legal and accounting expenses were lower in 2023 due to lower litigation spending. Impairment of assets in the third quarter of 2023 relates to property held for sale; this is what Paul mentioned earlier. These are properties that were under contract for sale as of September 30 and will close in Q4. This impairment generally represents the early recognition of a loss on disposition, which by the way is added back for purposes of calculating FFO and EBITDAre. Gain on dispositions was up compared to 2022, demonstrating the appreciation of Farmland sales values over net book value. Interest expense increased in 2023 due to higher rates. Income tax was a benefit in Q3 and year-to-date 2023 relative to an expense in 2022. This was caused by adjustments within the third quarter of this year that were made to prior period estimates. Next, I will skip ahead to Page 12 to make a couple of comments about our capital structure. Total debt at September 30, 2023, was $422.8 million, down approximately $50 million from the end of last quarter. Fully diluted share count as of October 20 was 49.4 million shares. We had undrawn capacity on the lines of credit of approximately $157 million at the end of the quarter. We agreed to the last MetLife rate reset of the year, which was reset to 6.36% for seven years. As a reminder, we can prepay 50% of that loan in any calendar year without penalty. Next year, we have three MetLife rate resets on debt totaling approximately $44 million. Page 13 provides an overview of our income statement and the building blocks that generate revenue and cost of goods sold. I won't go through it in detail, but please feel free to contact me if you have any questions. Page 14 shows these building blocks for the first three quarters of 2022 and 2023 with comments at the bottom of the page to describe the differences between the periods. A few points to highlight are: fixed farm rent increased between the periods as we acquired properties last year and renewed leases that were offset by dispositions in the current year. Solar, wind, and recreation changes were primarily caused by a large solar project in the State of Illinois that began its construction phase in the third quarter of last year. That quarter had a little bump caused by the commencement of that construction process. The first and second quarters of this year benefited from that construction relative to the same quarters in 2022. Q3 2023 variance was caused by small changes due to property dispositions in the quarter and the absence of that construction-related bump in the third quarter of last year. Tenant reimbursements increased in Q1 2023 with that one-time property tax assessment and related tenant reimbursement. Q3 2023 decreased due to property dispositions. In the fourth quarter of last year, we acquired land and buildings for four agricultural equipment dealerships in Ohio under the John Deere brand. The accounting treatment classifies those acquisitions as financing transactions, so they appear on the balance sheet as loans and on the income statement as interest income. This accounts for the increase in interest income in 2023 compared to last year. Variable payments were down in the first and second quarters of this year due to grapes, row crops, citrus, and tree nuts. Q3 2023 was up largely due to variable payments on row crop farms in the High Plains. Direct operations is the combination of crop sales, crop insurance, and cost of goods sold. It was down year-over-year largely due to citrus and walnuts. Other items decreased due to lower auction and brokerage activity compared to last year. In summary, while the items that comprise fixed payments were up year-over-year, the items that comprise the other categories—variable payments, direct operations, and others—were down year-over-year. On the next page, we have updated the outlook for 2023 using the same building blocks described in the previous pages. Assumptions are listed out on the bottom. This contemplates that we dispose of approximately $190 million of farms in total for the year. As a reminder, this number is an estimate, and actual results may differ. On the revenue side, fixed farm rent will change with dispositions and new leases signed. Solar, wind, recreation, tenant reimbursements, and management fees, and interest income all have small changes from last quarter. Variable payments decreased due to the outlook for tree nuts that pay variable rent. Direct operations—again, that's crop insurance plus crop sales less cost of goods sold—is up significantly due to lower expected cost of goods sold on walnut farms under direct operations. Other items have small changes as we have improved visibility as we approach year-end. On the expense side, general and administrative decreases with lower spend year-to-date 2023. Legal and accounting also decreases with lower spend year-to-date 2023. Interest expense changes with updated rates and higher expense year-to-date 2023. Weighted average shares decreased with share buybacks thus far. This results in AFFO in the $7.3 million to $9.9 million range or $0.14 to $0.19 per share, an increase from projections provided last quarter. Down at the bottom of Page 15, we provide some additional information regarding next year. We've had various people asking about 2024, so we wanted to provide information where we have visibility. Please keep in mind these values consider the $190 million of dispositions we're currently considering, and of course, actual results may differ. Fixed farm rent will be approximately $3 million lower than guidance shown above, due to the full-year impact of farm sales offset by positive lease renewals. Solar, wind, recreation will be approximately in line with guidance shown above. Tenant reimbursements will be approximately $500,000 lower than guidance shown above. This is due not only to asset dispositions, but also the one-time tax reimbursement in the first quarter of this year that we don't anticipate occurring next year. Additionally, certain lease renewals that traded higher fixed rent for lower tenant reimbursements. Hopefully, this helps describe where we stand, given what we know today. This wraps up my comments for this morning. Thank you all for participating. Operator, you can now begin the Q&A session.

Thank you. Your first question comes from the line of Rob Stevenson with Janney. Your line is open.

Good morning, guys. Any clarity on this point at this time on the need for a special dividend and potential size of one?

Yes. I will take that question. This will—we will obviously end up, I believe, with some sort of special dividend. It hasn't been declared by our Board yet, but I think we signaled that last quarter, and it's still likely to happen. The exact size is unknown at this point because you've got so many transactions that are under contract but not closed. Our history is most things that go under contract actually do close, but there's no assurance at this point. I think it'll be probably into December before the exact number is known and put out into the public domain.

Okay. And just to follow-up on that, Paul, I mean I think that we're all sort of cognizant of the fact that if you're selling office buildings or whatever that lining up financing today, on the buy side of that, to be able to finance the purchase is difficult. Can you talk about what the environment right now is for farmers and other interested parties to be able to go out there and line up financing at reasonable rates to purchase the assets from you and close in a timely manner, whether or not that's being held up at all?

Yes. It’s a good question because one core of our frustration and my personal frustration is we're not like all those other real estate assets for the following reasons: The food economy, the farm economy is still incredibly strong. Number two, it's not driven by institutional investors who have to finance everything they buy. We're not office buildings. It's not a REIT-dominated culture in agriculture. It's a farmer-dominated culture. They have a lot of money in their pocket based on the last couple of years. Of all the farms we put under contract this year, we've only had one transaction that didn't close; it was an institutional buyer, largely for the reasons you mentioned. But the farmer buyers are solid and they close these transactions. The final point is that the debt levels in agriculture on farmland ownership overall are something like 13%. This is a cash-dominated market. Most of these purchasers don't get any financing, so it’s just not really an effect for us. Our asset values are appreciating rapidly and continue to do so because they're so tied to inflation. The market doesn't get it. I don't know what else I can do than make a big stock buy to prove to people that I'm highly confident we are seriously undervalued. But, no, we're not really worried about the financing market impacting the ability of these sales to close.

Okay.

Rob, just to add that it’s an important distinction that Paul’s drawing. In our sector, buyers and sellers are getting together. Our tenants are doing really well to the extent they draw on working capital lines of credit to support their seasonal needs. Banks are absolutely lending and are open for business, and farmers are taking advantage of dedicated ag lenders. That’s an important part of the sector. So it's a very different sort of market outlook than you might find in a different asset class, as you referred to.

Yes, rates are high, but to the extent somebody needs financing for an ag property, there are plenty of people offering that money.

And it’s much better to have rates available at an elevated interest cost than have no financing available at all.

Okay. Speaking of the dispositions, how are you guys viewing where the sweet spot is right now in terms of the trade-off between paying down debt and repurchasing stock with the proceeds?

Well, we're likely to continue to do both. The exact sweet spot, frankly, depends on the interest rate outlook and stock price at the time. I think we've been running more like this most recent quarter; we put a lot more money to debt reduction than we did to stock buybacks. If you had to ask me to guess for the fourth quarter, it'd be something like a 50/50 split.

And how much of that is determined also by the fact that some of these lines have a 50% maximum on the payment and wanting to get that done in calendar 2023 versus doing something in the first week of January 2024?

Not a big impact. Although I'll let James add to that.

Yes. Rob, we're generally paying our floaters off first, which are at higher rates today. Should we find ourselves in a position with so much cash that we would want to make additional pay downs, there is a lot that we can pay without any penalties. We have on our MetLife lines; the lowest amount we can pay in a year is about 20% and the highest is 50%. So that provides us a lot of options to pay down should we find ourselves with substantial cash.

Anything that's at an interest reset date could be fully paid off without penalty. So we have a huge balance sheet flexibility should we suddenly find ourselves with a lot of cash from asset sales.

Okay. And James, while I have you, I missed your comment on the crop insurance and why the guidance went up about $400,000 from the prior. What was that in relation to?

Yes. Some of that is a mix between crop sales and crop insurance and generally just better visibility as we are in different products, as we are sort of into or through harvest. We have visibility as to what's come off the trees and how that looks. We’ve just updated our guidance accordingly.

Okay. And then last one for me, Luca, are there any known non-renewals in the 35% of the leases that you're left to renew at this point?

Not really. We tend, as always, to kind of work with our current stable of tenants. Certainly not any non-renewals. I mean, we're not expecting to end up with any farms not leased by the end of the year. That's not what happens in this industry at all. Occasionally, we choose to improve the quality of our tenant pool by cycling some tenants off and getting new ones, but no negative expectations along those lines at all.

Okay. And you said that you expect that 35% is going to be up similarly to the 65% in that sort of 18% to 20% range?

Roughly, yes.

Okay. Perfect. Thanks, guys. Appreciate the time this morning.

Thanks, Rob.

Thanks, Rob.

Thank you. There are no further questions at this time. I will turn the call back to Luca Fabbri for closing remarks.

Thank you all for joining us this morning. We appreciate your interest in our company and look forward to updating you on our activities and results in the coming quarters.

This concludes today's conference call. We thank you for joining. You may now disconnect your lines.