Farmland Partners Inc. (FPI) Q4 2015 Earnings Report, Transcript and Summary

Good morning, and welcome to the Farmland Partners' Fourth Quarter and Year-End 2015 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Paul Pittman, President and Chief Executive Officer. Please go ahead.

Thank you. Good morning, and welcome to Farmland Partners' fourth quarter and full year 2015 earnings conference call and webcast. We truly appreciate you taking the time to join us for these calls, because we see them as a very important opportunity to share with you our thinking and our strategy in a format less formal and more interactive than public filings and press releases. Please refer to the Investor Relations section of our Web site, www.farmlandpartners.com for our fourth quarter and fiscal year 2015 earnings call supplement, which I will be speaking to later in the call. The link for the presentation is directly below the webcast link and is also posted under our Investor Presentation section. With me this morning is Luca Fabbri, the company’s Chief Financial Officer. I will now turn over the call to Luca for some customary preliminary remarks. Luca?

Thank you, Paul. First and foremost, I would like to also welcome you to this conference call and webcast, and thank you for joining us. The press release announcing our fourth quarter and full year earnings was distributed yesterday evening. A replay of this call will be available shortly after the conclusion of the call through March 29, 2016. The numbers to access the replay are provided in the earnings press release. For those who listen to the rebroadcast of this presentation, we’ll remind you that the remarks made herein are as of today, March 15, 2016, and have not been updated subsequent to this initial earnings call. During this call, we will make forward-looking statements including statements related to the future performance of our portfolio, our identified acquisitions and farm properties under evaluation, impact of acquisitions and financing activities, as well as comments on our outlook for our business, trends in the broader agricultural market. We also will discuss certain non-GAAP financial measures including, but not limited to FFO, adjusted FFO, EBITDA, and adjusted EBITDA. 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 fourth quarter and full year earnings, which is available on our Web site, www.farmlandpartners.com. 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 yesterday after market close and in documents we have filed or furnished to the SEC. I would now like to turn the call back to our Executive Chairman, President and Chief Executive Officer, Paul Pittman. Paul?

Thanks, Luca. So I will now go this supplemental material I referred you all to earlier and make a few comments before passing it back to Luca. So if you have this in front of you and you go to Page 3, which is historical financial overview 2015 versus the prior year, what this page basically shows is that we as a company have had powerful growth on nearly every metric that matters. If you compare the 2014 to '15 or 2013 to '15, the growth is frankly incredible. 2015 revenue growth is 226%. It went up from 4.2 million to 13.8 million. Adjusted EBITDA went up 294% from 2.6 million to 10.4 million. AFFO, same story, up 354%. AFFO per share has doubled in the last year. If you look at our balance sheet and our asset base, it was $345 million at the end of 2015 and as of today, we are now nearly $200 million higher than that in terms of the farmland and other ag assets we own. Our acreage and tenant base has grown. We went from a starting point when we began the company of around four tenants to 41 at the end of the year, and now 72 tenants. And on acreage, we ended the year at 74,000 acres and we now already 45% higher than that year-end number at almost 110,000 acres either closed or under contract. We will continue to be able to grow this company and what is occurring and we’ll talk about on the next page is the operating leverage in our structure is quite significant. So if you’ll go to Page 4. Page 4 is looking at just a handful of statistics about this growth and the operating leverage that we are creating. On the left side, what you see there is the blue box represents rental revenue in 2014 and the red box represents rental revenue in 2015. We have had a 241% growth in that rental revenue. We would expect this pace to continue and we will at least double that number during the 2016 year. If you looked at the next set of bar charts to the right, you’ll see depreciation, depletion and property operating expenses. This number over time will grow basically with the same rate of growth as the portfolio. You can see that it grew 246% versus 241% on rental revenue, which is a proxy for portfolio growth, and we would expect that to continue to grow at whatever rate we’re growing the portfolio in the future. Then if you move to the next set of bar charts, you see acquisition and due diligence costs, G&A, legal and accounting, and this is the large bucket, if you will, call it selling, general and administrative overall, the overall overheads of our company. This number has grown at a much slower rate than revenue, should continue in the future to grow at a much slower rate than revenue. And the reason for that is a large portion of these dollars are frankly spent on the acquisition side of our business not on the maintaining of property that we already own. So in other words, our headcount, our travel, all the things that go into those costs fundamentally are largely attached to the growth of the business not the maintenance of the existing portfolio. So what this sets up is that for many years we should have a very big differential in the speed of revenue growth and the speed of our costs growing. That’s going to create substantial amount of cash flow opportunity for distribution going forward. Turning on the other side of the black line on that page looking at AFFO per share, I mentioned this early, we slightly more than doubled this from '14 to '15. And then we also look at just year-end share count; often we’re all looking for sake of clarity at weighted average share count. I at least like looking at year-end share count once in a while because it’s really the shares we had outstanding at the end of the year. And what you’ll see is we’re growing our share count at a much lower rate than we’re growing revenues or AFFO, which is what’s obviously leading to the increase in AFFO per share. Turning to Page 5, just a quick overview of what’s happened on the ground and what the portfolio looks like and some of where we may take the portfolio in the future. So the states you see highlighted there are the states that we currently own properties in. You can see that the Corn Belt is 33,000 acres. We believe we’re one of the largest private landowners in the Corn Belt today. And I know that many on this call and me included as well as farmers across the country are somewhat depressed about commodity price. But when the commodity price for the primary grains turns around and goes up, we are levered to have substantial growth in rents, substantial growth in land values and that will come to us, exactly when is unclear but we’re in a cycle and it will turn. If you look around the rest of the country, the Southeast, we now have around 25,000 acres; in the Delta, about 25,000 acres; and also in the Great Plains around 25,000 acres. We have a total of 18 different crops in our portfolio today. As I said, we have about 72 tenants. We have looked at land in literally another 13 states in the last 12 months or so. You would expect us to expand to many of those states in the coming year and we will probably acquire some more specialty crops. What we ultimately would like to do is have a portfolio that’s approximately 20% specialty crops and we are not at that level as of today. Turning to Page 6. People always are asking me what’s going on in the farmland markets, is farmland prices going up, is it going down? What we are seeing is flat to slightly declining pricing. We have frankly seen that since late 2013, early 2014 if you look back historically. We believe we will continue to see flat to declining farmland prices in the next 12 months in many regions of the country. There will of course be exceptions. But the real takeaway, and those of you who have listened to me before, if this is what the bad time, probably the worst time in the U.S. farm economy since the 1980s looks like, it fundamentally proves our investment thesis. We are seeing declines of 3%, maybe 5% in farmland values on a year-over-year basis on a nation – certain places, it’s a little higher but on nationwide basis that’s not very significant when you think about it in the context of virtually any other asset class. And it’s the underlying global food demand and the land scarcity that even in tough times for the farm economy leaves us with a relatively solid situation in terms of land values and rent renewals and all the rest. Just a specific thing I want to point out here. We look at this USDA data, that’s the second bullet point on the page, the overall farm real estate value according to that data increased 2.4% from the summer of '14 to the summer of '15. Recognize how that measurement occurs. The main selling season in 2015 occurred after that survey was issued, meaning in the months of September, October, November and December. So we don’t think that that accurately reflects what you will see from summer of '15 to summer of '16. Our view is you’ll see a 3% to 5% decline nationwide on farmland values. And there are some less in-depth or less broad reports in the USDA that are out there that are already suggesting that. And we also track the Fed data and I won’t read it to you but you can see it there on the bottom of the page. And what you would see is generally something consistent with that 3% to 5% declines although the Dallas Fed is having a somewhat different experience than the rest of the country. So before I turn this back over to Luca, I want to address what I know will be a source of a few questions in the Q&A period, and I wanted to just get them out of the way directly. So many of you I’m sure are wondering why Farmer Mac was not our funding source on the Forsyth or the Paris, Illinois transaction, why we did the short-term bridge loan with MSD? And I’m prepared to explain that. We as a company and we as individuals say what we mean and we do what we say. Fundamentally, what Farmer Mac did was based on a prior course of dealings with Farmer Mac. We had agreed months ago to the terms on the Farmer Mac transaction to fund the Forsyth deal. After Farmer Mac’s credit committee approved the loan and we signed off, Farmer Mac wanted to add terms inconsistent with our prior agreement. When we explained why those terms were neither necessary nor previously agreed to and why they could not be agreed to, they refused to close. Given the best interest of our shareholders, we went ahead and closed the Forsyth transaction with other funding sources. We were very quickly able to achieve a term sheet from MetLife but MetLife was unable to close the transaction quickly enough, because we were literally a matter of days from closing when this occurred. So we turned to MSD as a source of short-term bridge financing, which you’ll all see in the documents. We will continue in the future to do business with Farmer Mac we believe but that’s a quick explanation of what happened. As you have probably seen, we now have received a loan approval letter from MetLife and they will be taking MSD out in the not too distant future. We thought it was very important to go ahead and close the Forsyth transaction despite the difficulties we face, because that farm – the headline purchase price on that farm was $197 million, it had appraised for 216.5 million. If you recall, we also had a very beneficial financing structure in that transaction. We were able to issue $30 million of OP units at $11.50 a share. And to really amplify why that’s so important to us, we were able to do that at a premium to current stock price with no underwriting discount for investment banking fees and underwriting fees, so very sort of efficient play for us to issue equity. We also, as you know, had $117 million preferred in that transaction at 3% for 10 years. If you mark-to-market what that security would have cost us in the open market, it probably would have been something like 8% if it would have been doable at all. So the value embedded in this transaction not only the value in terms of negotiating a good deal for the land, because of the scale of the transaction, the expansion of our business in a region we think of highly, we also had a fundamental embedded financing transaction in this Forsyth deal. And so it was very important for us to go ahead and move forward and close it, which is what we did. So with that, I will turn it back over to Luca to go through some key operating and financial highlights contained in our earnings release. And then we will take questions you may have during Q&A. Luca?

Thank you, Paul. In the fourth quarter of 2015, we closed on nine farms in five states totaling over 3,000 acres and more importantly we put under contract over 33,000 acres including the acquisition, the Forsyth acquisition near Paris, Illinois Paul referred to, which closed recently. In other notable transactions but under contract in the fourth quarter, a 7,400-acre farm in Louisiana is set to close in the first half of this year. We issued no additional value in the fourth quarter and paid down $3 million of debt due later this year leaving us with gross outstanding debt of 187.2 million. Now let me turn to our fourth quarter and full year 2015 financial results. As I go over some of the key highlights, please refer to our earnings press release for more details. For the fourth quarter and fiscal year 2015, we recorded rental income of 4.7 million and 13.5 million, respectively, and net income of 900,000 and 1.7 million, respectively. As is typical in the industry, farm acquisitions closing late in the year after harvest generate low or minimal rent revenue for the acquirer. That being said, we expect all of the acquired properties to be leased for the 2016 growing season and therefore generate rent revenues in the fiscal year largely in the first quarter. Our estimate of revenue generated by the current portfolio in 2016, excluding any properties under contract that we have not yet closed on is 21.3 million including an estimated 1.8 million derived from leases other than fixed cash. Like many other REITs, we look at certain non-GAAP measures particularly adjusted funds from operations or AFFO as additional measures of our performance. We calculate FFO, funds from operations, consistent with the definition provided by the National Association of Real Estate Investment Trusts. The key adjustments we make to FFO to arrive at AFFO are to recognize revenue in the calendar year in which the cash rental payment was actually received and to exclude non-cash expenses such as stock compensation and certain acquisition-related expenses. Our AFFO was 2 million for the fourth quarter and 5.8 million for fiscal year 2015. On a diluted weighted average basis, AFFO per share was $0.12 for the fourth quarter and $0.45 for fiscal year 2015. When we calculate per share non-GAAP measures on a diluted weighted average basis, we include units in our operating partnership, which is our main operating subsidiary, because of their one-to-one convertibility into publicly traded shares. On that basis, our fully diluted weighted average share count was 16,158,332 for the fourth quarter and 13,060,278 for fiscal year 2015. As of December 31, 2015, we had 16,155,971 shares outstanding on a fully diluted basis. This concludes my remarks on our operating performance for the fourth quarter and full year 2015. Thank you for your time this morning and your interest in Farmland Partners. Operator, we would like to begin the question-and-answer session.

We will now begin the question-and-answer session. [Operator Instructions]. The first question comes from Dan Altscher with FBR. Please go ahead.

Hi. Thanks. Good morning, everybody. I just want to ask a question on I guess the rental, I don’t know if I’d call it guidance but expectations for 2016. Luca, in your prepared remarks, you talked about I think $21.3 million in rental income but then Paul I think you mentioned doubling rental income in 2016. So what’s kind of the difference or what’s not footing between those two?

Sure. So when you think about how we’ll grow our business, we’re now roughly 2.5 months into the year. We will continue to receive full year rental revenues for any transaction we close between now and roughly July 4. So have quite a bit of capital still to deploy, so we’ll still be acquiring properties. So we generally get 100% of the annual rent on any farm we acquire up to kind of mid-summer. If we acquire a farm in July or August, we probably get some percentage of the annual rent although not all of it. And then if we acquire a farm sort of in the fourth quarter, we generally receive no revenue until the following year. And so the way we look at rental revenues, GAAP does not allow us and I’ll let Luca go in more detail here if he wants. GAAP does not allow us to actually – we have to straight line those revenues over the duration of the lease where the reality on the ground is that you’re getting 100% of the revenue for 2016 even though you closed the property in May. It’s just the norm in the industry. The reason it’s a norm in the industry if you think about it from a common sense perspective is in large parts of United States, the crop isn’t even planted until about May 1, so you’re really getting the rent for the whole crop year even though you didn’t own it for the first four calendar months of the year. I hope that makes sense. That’s the difference.

Yes, so maybe just going on that one extra step, so the 21.3 is what you’re saying is going to be the GAAP number but when we do the crop year adjustments --

No, no, no, it will still be higher too, but go ahead, Luca.

Dan, the 21.3 is calculated purely on what we have already – on the acquisitions that we have closed so far. So just to give an example. The Louisiana acquisition that we announced that we have not closed on yet, it’s over $30 million. We expect approximately a 5% cap rate, that’s already not in the number. Plus what Paul was referring to is that we expect to continue closing other acquisitions between now and kind of mid-year, which is when – until then we still expect to get full kind of cash rents for the full year even though from a GAAP perspective we’ll not be able to recognize them all.

Okay. I think I understand it.

The GAAP number will end up materially higher than that 21 as well.

That would be our expectation, yes.

Yes, okay, good. That’s helpful clear up. I did want to talk a little bit the same-store trends. It looks like the same-store numbers were down a little bit on rent per acre, so you can maybe talk – I guess that reflects some re-leasing trends. So can you just talk about I guess the re-leasing trends you’ve seen I guess in the fourth quarter now kind of into January and remind us all – sorry into March and remind us all how much acreage you have that’s re-leasing in 2016, Paul?

Yes, we’re clearly – I’ll let Luca go to the specific numbers if need be, but we’re experiencing some downward pressure in the re-leasing process as you would expect. The leases that are coming up for renewal right now, frankly a few months ago but the ones that came up in this winter just past would have been leases that were negotiated at the top of the market back in roughly 2013. And so these are facing some pressure. On the positive side, we’re also seeing when we acquire a farm that has a preexisting tenant on it that the former owner was leasing to, sometimes we upgrade those tenants after a year. In many of those cases, we’re actually giving rental bumps because we’re putting a better farmer on the property. Again, those rental bumps are modest in this market but we get that. We’re also making some property improvements on these farms; irrigation, drainage, grain storage, et cetera, and we can get a rental increase in that environment. But when you’re doing a straightforward unimproved farm that we owned in 2013 or '14 and then re-leasing it right now, you’re fighting to stay flat and you’re probably giving a bit of a discount and that’s what you’re seeing in the modest change in these numbers. I’ve done this a long time. This will all turn back around. This is the time you build the portfolio. You don’t chicken out. You kind of keep going. And the global food demand story is all the same and the land scarcity story is all the same and the cycle is going to turn here and we want to be a major participant when it does. Luca, you have anything to add.

No, not really. We haven’t really experienced much effectively over same-store lease kind of decline much at all. We do have some leases – some farms that are still currently not leased yet. As we see today, these are all farms that we acquired recently. We have leases being negotiated but we’re talking about of that 21.3 number, I believe about 2% of that number, so it’s not very much at all.

And they’ll all be leased with the course of the next couple of weeks. We won’t end up with anything lying fallow. That’s not going to happen.

Yes, okay, got it. And I guess just one more kind of broader on the new MetLife facility. I guess wanting just a little bit color on maybe what the financing costs looks like relative to maybe what some of the Farmer Mac notes have looked like. Then also the $127 million commitment, I guess is that just based upon what you have unencumbered or do you plan on drawing down all of that or how much availability will we have post the MSD, just a little bit color I guess on a dry powder on that facility?

So first thing is rates at MetLife are very competitive with rates at Farmer Mac, so not a – every deal’s a little different but not – the rate sheets are pretty similar but not really a big change there. On the dry powder question, we will have a substantial amount of cash out financing, if you will, on the Forsyth transaction after MetLife finances that. That will create substantial dry powder for us. We would estimate we have the ability to do something in the neighborhood of another $60 million or $70 million of acquisitions based on the dry powder that we have.

Okay. Thanks. I’ll drop back in the queue.

Okay.

The next question comes from Dave Rodgers with Baird. Please go ahead.

Hi, Paul. Good morning. Just a follow up on that question with MetLife. It looks like – obviously what you’re cashing out, are you doing some refis as well with that? I guess how should we think about where that money is going right away or how much might sit on the balance sheet for a while.

Yes, and I don’t know if we have the exact detail on the public domain, so I’ll be slightly careful here. The 127 million that we’re getting from MetLife is not all related to the Forsyth or Paris, Illinois transaction as we call it. A portion of it will be related to that foundry [ph] farm, which we have mentioned and some other assets as well that we’re financing. But there’s quite a bit of liquidity created for us. The nature of that financing transaction that was embedded in the Forsyth deal that will come, but it’s not the full 127.

Okay, that’s helpful. And then just back to another question as well. You are negotiating rent on how many acres this year, what comes up for renewal this year and how much of that was initially the farms that were contributed at the IPO?

Yes, this year meaning 2016, at the end of this year, we will end up with around – I saw this statistic in something I was proofreading the last few days, about 45% of the year-end portfolio, so year-end '15, it will be about 45% up for renewal at year-end '16. However, that 45% is based on that 74,000-acre number we talked about earlier in the call and we’re already like 110,000 acres and growing. So roughly we do on-balance roughly three-year leases. You would expect 25% to 35% rolling over every year. It’s just the math of a three-year lease. And that’s probably where we’ll be at year end in that neighborhood.

45% will be rolling over for 2017.

45% is a statistic but it’s using the year-end acreage.

Year-end '15

Year-end '15 acreage. You can see that in the K is where I think I saw it when I was proofreading over the weekend. What I’m saying is by the time you get to the time the rollover occurs at year-end '16, it will be in the neighborhood of 30%, because of the size of the portfolio we’re working on. You understand what I’m saying, Dave.

Yes. So 30% of the portfolio will roll essentially in 2017 numbers.

Yes, exactly and that’s – we’re starting to get a big enough portfolio. That number should start to be roughly consistent, around 25% to 35% a year will roll.

All right, that makes sense.

That’s the nature of having three-year leases when you think about it.

Sure. You’ll get to that normalized spot. So for 2016 though I guess what’s being renegotiated in the first quarter, how much is that right now, how many acres --?

It’s already done, it’s already behind us.

Okay. How many acres or what was the roll down? I didn’t hear if you quoted an exact number before.

I don’t remember how many acres that were – you can call us later and we’ll dig it up for you.

Okay, sounds good. Maybe on acquisitions, what does that pipeline look like? You talked about 60 million to 70 million of capacity. How is that pipeline compared to that capacity and how quickly do you think you get that deployed?

The pipeline is as always frankly immense. Our question is not finding good transactions. The nation is a big place. So we have several hundred million dollars of opportunities that we’re looking at, at points in time. Obviously, we don’t do them all. Some of them fall out before we even contract them. A few will fall out after contracting during diligence but not frankly many. So, we certainly can deploy that capital. I would anticipate we’ll deploy that capital probably between now and summer time. But it all depends on the quality of the transactions and the quality of the opportunity. We’re seeing occasionally good values now. We’re seeing anecdotally occasionally bargains out there. So we want to keep dry powder available to snap up properties we think that are truly sort of on sale and selling cheap, because it’s not broad based but occasionally it’s happening now.

Okay, that’s helpful. Two more for me. One on the dividend, how are you and the Board thinking about the dividend given kind of the growth expectations that you laid out earlier in the call?

Well, given where we are today, we have a dividend that’s frankly not completely covered by AFFO. If you look at it, we’re doing $0.45 of AFFO and $0.51 of dividends. So I think we’re likely to keep the dividend kind of where it is for the foreseeable future. If we obviously can achieve the kind – if we achieve the kind of growth that I’m predicting and that we achieved '14 to '15 during the rest of this year, hopefully we can do another dividend increase but it’s really just going to be mathematics dependent as we watch the company grow and the cash flows of the company grow.

Okay. And last question, thanks for the help in the supplemental information that you put out regarding values of farmland and how they’re changing. You did talk about down 3% to 5% in recent reports. Can you give us some sense as to how much of a lag you think there is between kind of the movement in crop prices and the movement in land values and what kind of two, three-year trend you would expect to see in land values?

Again, I’ve said this before. Crop prices and land values are not directly related and the reason they’re not directly related is the fundamental scarcity of the farmland, means the farmers want to keep owning it and keep renting it even if profitability is down. The second reason it’s not directly related is obviously the question is, revenue per acre and profit per acre not price per bushel. And what we have seen here is a supply driven decline in price, which means there’s a lot more bushels floating around. And so revenue per acre won’t have fallen as much as dollars per bushel, because the farmers are growing – one of the reasons prices are down is that farmers are growing a lot of bushels. So what you’re seeing out there in the farm economy is a rapid adjustment in crop price, a somewhat slower adjustment in the input costs, whether it’s fuel which is now adjusting down rapidly and that’s roughly 10% of grain farmers expenses of fuel. Most of the fertilizers, which are 20% or 30% of cost for a grain farmer often are petroleum based, so you’re seeing adjustments there not only because of lack of demand given commodity prices but also just the underlying natural gas in particular. You’re seeing chemical and seed prices gradually adjust, seed frankly not as rapidly as you might expect, but there’s a lot of concentration on the seed and not very many seed providers, so they get a lot of market power. And so you’re not seeing it go down very fast but it will come. And then equipment is cheaper. So you’re seeing these farmers hold on to breakeven or modest profitability where if you look purely at corn price or wheat price or bean price, you’d wonder how they’re doing it. So our view is that you’ll see this sort of 3% to 5% decline in land value until you see farmer profitability turn back around. I’m not willing to frankly predict when that will happen but I’m happy to predict that it will happen. So I think you’ll see this kind of flat to modest declines will continue until we see grain prices recover and profitability recover. If you really try to get under the hood and look at supply-demand statistics, a lot of people think just looking at the '17 crop year to start to see substantial recovery and it’s just about how we’re burning through the carryover.

Great. Thanks for all the color guys.

Thanks.

The next question comes from Rob Stevenson with Janney. Please go ahead.

Good morning, guys. Paul, just to clarify, the 60 million to 70 million of dry powder for acquisitions, is that before or after you close roughly 37 million that’s in the earnings release in terms of stuff under contract but hadn’t yet closed?

That would be included in that number.

Okay. So once you close that, you have roughly somewhere in the neighborhood of 35 million or so --

Yes, 30-ish. And as you can tell, we’ve become pretty creative at using our securities as currency in acquisition, so obviously to the extent we can do that, that expands that number. But, yes, you’re doing the math roughly correct.

Okay. And then just as part of that, of the deals that haven’t closed yet and the stuff that you’re actively negotiating on, I mean is decent size chunks of that are going to wind up being for OP units, common stock or preferred stock for units?

We certainly hope so. When we can structure a transaction like the Forsyth transaction, we will do them all day. It was good for us and good for the seller fundamentally. So those transactions take a lot of time of Luca and I and other senior members of our team as well as frankly have some higher overheads due to legal costs and the like. So you really should only be doing them on relatively large transactions and it doesn’t have to be a $200 million deal but you don’t want to do it on a $2 million deal. So we’ve always got a handful of those in the works but they’re never over until they’re over.

Okay. And then a couple of numbers questions for Luca. What drove the tenant reimbursements to go negative in the fourth quarter on the income statement?

We had accrued and we were expecting to actually have some tenant reimbursement – so remember, the tenant reimbursement for property taxes lag one year. So we actually ended up not – the 2016 leases not having the tenant reimbursement built into the lease and therefore we had to reverse that receivable effectively that we had accrued in 2015. And clearly speaking, we are expecting to gradually phase out that tenant reimbursement among other reason – at the end of the day on a per acre basis in farmland that’s very different and billed [ph] to the other state. It’s not very big dollars and it’s quite a bit of administrative burden in tracking them separately and getting them reimbursed separately.

Okay. And then in terms of the slide deck, you guys are talking about 16,156 ending share count. The weighted average for the quarter was 16,158, so the weighted average was higher than the ending. Did you guys buy back stock?

No, it’s not because of buyback, it’s just some dynamics related to some grants of restricted stock to Board members and personnel that ended up leaving, so they were reversed. So that’s why there’s a very, very slight difference there.

Okay. Thanks, guys. I appreciate it.

Thank you.

The next question comes from Craig Kucera with Wunderlich. Please go ahead.

Thanks. Good morning, guys. I appreciate the color on farmland pricing and sort of some context in history. I wanted to know, are you seeing any distress out there just given the drop in crop prices that might be opening up some opportunities maybe by acquisition or any pickup in demand on the FPI loan program?

So the answer to your question is yes we are but not very much. So now let me amplify that. So when we launched the loan program, we frankly thought we’d see more demand for that program than we’ve actually seen. We made a few loans and we got a few more in process, but there is not widespread distress in the farm economy as of now. You are occasionally starting to see, I use the word loosely, but forced sales or probably more accurately encouraged sales by where our farmers are being pushed by financial institutions to lighten up on its exposure to farmland and pay down operating debt and other things. We are, like I said, anecdotally from time to time there’s a bargain out there. If you can move swiftly and we want to make sure we’ve got cash available for that, but no widespread distress as of now. Our perspective is that these things – the sort of distress builds up over time the longer the depressed farm economy is out there, the more likely you’ll begin to see some of that. But I think it was in the last conference call we talked quite a bit about this. You don’t have the 1980s setup this time, nothing close to it. You don’t have the leverage levels, you don’t have the high interest rates. Our view is we’ll see a little bit of distress continue a little more every year until the market turns but you’re not going to see the widespread forced selling that leads to relatively significant and steep drops in land prices, because you just don’t have that kind of tension built up in the system like you did back in the '80s.

Got it. So as your viewpoint then, it sounds like for the next couple of years we could continue to see these crop prices drop and that’s going to incrementally help your business but not – you don’t see an inflection point where cap rates may spike and you might really be able to put a lot of money to work in higher yields?

So first, we don’t think you’re going to see crop prices drop very much more from here. That’s our view, crop prices. I might have meant to say land prices. What we think we’ll see is this gradual decline kind of like I said until it turns back around. I, a few years ago, sort of analytically kind of tore the 1980s farm prices apart. What would you discover if you did that is that people talk about 25% or 30% declines in farmland. The way we got them was not – it’s not like a stock market where you showed up one day and all of a sudden the land was down 30%. What you got was a series of sort of 5% to 7% declines year-in and year-out that added up to that 25% to 30%, because this market doesn’t – it’s a farmer driven market. The farmers have strong balance sheets. They’re obviously not all the same. And so every year you get a few more guys in a little bit of trouble and you got to get a lot of them in trouble to start to see significant declines in land, because the farmers know that it’s a valuable asset to hold on to it as long as they possibly can. So, our view is what you’re seeing here is a much less severe correction after a bunch of really good years, you’re seeing some consolidation phase in farmland markets, farmer profitability and the rest. So we’re going to see this sort of drift to flat to slightly down as we weather that. But the thing is you’ll never predict when it’s going to turn, okay. Take that rainstorm in the Delta. So there was corn planted and beans in some cases, corn beans were already planted in certain places in the Delta. That crop was wiped out. that’s going to get replanted. It will not yield as much as it would have yield had it not been wiped out. And all you take is a handful of those sorts of major weather events and several growing regions in the U.S., too hot or too cold or too wet or whatever and you can see grain prices bounce back this fall in a hurry.

All right. Thanks

The next question comes from Laura Engel with Stonegate Capital Partners. Please go ahead.

Good morning. Thanks for all the information. So with the data you’ve given us already, the acquisition activity and what you discussed for acquisitions looking forward, the ability and the land that’s out there, purchasing power. What can you tell us more on the organic side as far as with the leases you have coming up? I know you’ve again given numbers on that as well, some of the new programs you’ve put into place. Not just this coming year but maybe the next few years, how do you see that changing as part of your business model as far as increasing given what your capabilities will be going forward to do the same level or more of acquisitions?

Look, our rental revenue and our AFFO per share is going to be driven by sort of the following things. Acquisition strategy increasing scale, maintaining and holding – we’re still a subscale public company to be blunt, so continuing to hold our staffing levels and our company size on cost down while growing the size of the portfolio. To the extent we can get rental increases on rollovers that will drive increased rental revenues. As I said earlier that’s a bit of a challenge in this market although with improvements and tenant switches and crop mix switches, we’re getting some improvements there. And then the loan program and the volume purchasing effort should turn out to start to be drivers of additional value creation for us if you look forward sort of 12 to 24 months. As we get a bigger network and bigger universal farmers and more acreage nationwide that’s farmed by our tenant base, the opportunity to create value in all sorts of ways will just continue to expand for us.

Okay. And really all my other questions were answered, so thanks for all the good information and congrats on the completion of an impressive year.

Great. Thank you.

The next question comes from Barry Haimes with Sage Asset Management. Please go ahead.

Hi. I have two quick questions. One is, on some of those leases that got renegotiated this year, could you give us any sort of range for how much those rents rolled down or low single digit, mid single digits, just some sort of a feel? And then second question is to the extent you’ve been able to buy land, who are the sellers typically? Has it been family farms or has it been more institutional sellers? Thanks so much.

Yes, so in terms of buying land, let me answer that one first. It’s overwhelmingly family sellers of some sort. As I always say, farmland transactions are always some version of intergenerational change; somebody is retiring, somebody passed away, somebody has kids who aren’t going to return to the farm, it’s always some story like that. Sometimes those families are directly operating those farms but more likely they’re a generation or two removed from farm operation and it’s been an investment for them not a livelihood per se. I don’t think – we bought a couple of farms last year that we would have bought from what I’ll an institutional seller but not very many. I don’t have the exact acreage or value but it’s just not – it occasionally occurs because there is some institutional in the market but not very many. In terms of specific rent rolls, I don’t think we have that in the public domain and I frankly am not sure I want to because we do not expose individual rents of individual properties. It’s a competitive matter. I don’t want farmer A to know exactly what farmer B is paying as rent on a given property. So I don’t think I’m going to answer that. Do we know a macro number, Luca?

Yes. The rent renegotiation on that per acre basis was not enough. Now going forward talking about 2016 versus 2015 on a same farm basis, they are fairly pretty much in line. In some cases, we reversed it, some tenant reimbursement of property taxes. But in the big picture, they are not very much. So on a same farm basis, I would say that they’re roughly flat to somewhat declining definitely I would say in the single digits on the big picture.

Okay, there’s your answer.

Terrific. Thanks for the color. I appreciate it. Thanks.

[Operator Instructions]. The next question comes from Scott Brown, a private investor [ph]. Please go ahead. Mr. Brown, your line is open for questions. Is it possible your phone is muted? Showing no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Paul Pittman for any closing remarks.

Thank you. We appreciate your interest in our company and look forward to updating you on our activities and results in the coming quarters. It’s been a very good year. We’ve grown the company rapidly and we intend to continue to do so. Thank you very much.

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