Farmland Partners Inc. (FPI) Q4 2016 Earnings Report, Transcript and Summary

Good day, and welcome to the Farmland Partners Inc., Q4 Earnings Conference Call and Webcast. 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 that this event is being recorded. I would now like to turn the conference over to Mr. Paul Pittman, Chairman and CEO. Please go ahead.

Thank you very much, Daniel. Good morning, and welcome to Farmland Partners' fourth quarter and full year 2016 earnings conference call and webcast. We truly appreciate you taking the time to join us for these calls. 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 the public filings and press releases. Please refer to the Investor Relations section on our website at farmlandpartners.com for our fourth quarter and fiscal year 2016 earnings call supplement presentation, which I will be speaking to later in this call. Again, I want to reemphasize the fact we will use some supplemental slides, so please find them on our website at farmlandpartners.com. The link for the presentations directly below the webcast link, and is also posted under our Investor Presentation section of the website. With me this morning is Luca Fabbri, the Company's CFO, and I will now turn it over 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 9, 2017. The phone numbers to access the replay are provided in the earnings press release. For those who listen to the rebroadcast of this presentation, we remind you that the remarks made herein are as of today, February 23, 2017 and have not been updated subsequent to the initial earnings call. During this call we will make forward-looking statements, including statements related to the future performance of our portfolio, our identified acquisition and farm properties under evaluation, impact of acquisitions and financing activities as well as comments on our outlook for our business rents in the broader agricultural markets. We also will discuss certain non-GAAP financial measures including 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 website www.farmlandpartners.com and is furnished as an exhibit to our current report on Form 8-K, dated February 22, 2017. 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 with or furnished to the SEC. I would now like to turn the call back to our Chairman and CEO Paul Pittman. Paul.

Thank you, Luca. So this is probably the most important conference call that we've done since the Company went public back in April of 2014. We set out at that time, with the goal of buying incredibly good quality farms and renting them to good tenants and through that creating a REIT that had meaningful scale, meaningful diversity and strong profits and the ability to distribute those products. It appears to us that the market fundamentally does not recognize the success that we have had. We now have a portfolio that is 148,000 acres across 17 states with a 100 plus tenants and 26 major crop types. In the last few weeks, we have made three very significant announcements in the market and to be blunt the stock price has gone down, it makes utterly no sense. We've had an outstanding quarter and an outstanding year, significant increases in revenues and AFFO and any other financial metric you choose to measure us by. And it appears the market is not understanding the story. So we really want to focus on the specifics of some of these events and what has happened. So what I'm going to cover today is Luca will address some of the key financials specifically, I want to address the scale and the profitability of the Company. The diversity of our portfolio, which means the stability of the earnings that we'll have going forward, the discipline deal structure that we put in place when we do major acquisitions and the benefits of that sort of deal structure showed up this quarter in terms of the lease termination payments, which will directly address, I want to reemphasize that we are fundamentally in the farmland ownership business not the farming business. We do not take direct commodity price risk on most of our portfolio, but even given that fundamentally the bottom has been set in my opinion for farmland and farmland valuation. We are not seeing the major declines in value that you keep reading about in the headlines, they're just not happening it's in the data, it's obviously in the data. The demand for the key crops we grow on a worldwide basis continues to go up, that's the most fundamental thing in our business model is that we believe in long term increases in global food demand. And then finally, I want to reset everyone on NAV and asset values, generally in the industry and for our portfolio in particular. So I will in a minute or so start referring to those slides if anyone wants to get them in front of them. But the three big things that we feel like maybe we have not done a good job explaining because of the market's reaction in the last couple of weeks. But I want to reemphasize our first the combination of the FPO, FPI and AFCO increases our diversification in a very substantial way. Increases our scale, increases the average cap rate of our portfolio and due to the fact that we instantly executed on the synergies of shutting down the AFCO office and laying off the employees, and all the rest has an instant 10% accretion of our profitability and about week-and-a-half ago on a separate conference call, we discussed the fact that we'd have something in the neighborhood of $0.60 of AFFO had we run those two companies together during the 2016 year under our cost structure. And again, it appears that the market has sort of missed that significant increase in profitability of the combined company and scale and diversification. Secondly, we announced yes I believe it was yesterday or the day before that we had and the day before that we had terminated the prudential contract when we talked about the AFCO transaction, we talked about seeing these synergies come to us in two years, 10% in the first year and 10%, and then when we terminated or we're able to get out of the prudential contract. And we fundamentally have moved that accretion forward even from our own projections by over a year, and merger went down yesterday after we put that announcement out there. We have avoided and I'll go through this in detail later, we have fundamentally avoided approximately $8 million of expense for a termination payment of $160,000, it's $0.50 a share is the value creation in that transaction for us. And then finally, we had a really great revenues and earnings, net incomes up 250% year-over-year, revenues up 125%, AFFO up 172%, we got included in the Russell in the last 12 months, and we've done $600 million of transactions in the last year. So we feel like we are executing very efficiently and swiftly on the plan we laid out when we took the Company public, and are frankly frustrated and disappointed with the trading, which is substantially below net asset value at this point in time. So moving specifically to the slides, I will of course direct you to the fact that I will be making some forward-looking statements in this presentation and frankly already have, so please note that. But turning to Page 3, which really kind of looks at 2014, 2015 and 2016 and the success and performance of the Company. Luca will get into the details there are some confusion about what amount of this revenue increase, for example, is actually a recurring style revenue and what is a one-time, and he'll go through that in detail. But off the headline, we basically tripled our revenue from 2014 to 2015, and then doubled it or more than doubled it again from 2015 to 2016. What you're seeing in terms of the AFFO line, which is, so we went from $4.2 million of revenue in 2014, the $31 million of revenue in 2016 took AFFO from about $0.12 to $0.58, and what this really is, is that as we were a small Company and -- a small Company in the public domain, we had a cost structure that was frankly quite significant compared to the asset base. As we have increased the asset base and we always said this, we will getting ourselves in a position where our ability to distribute and to bring ever more of those revenues to the bottom line will occur and that's fundamentally what's happening and take all the noise aside the bottom line is we've reached, we're running almost $1 billion of farmland with 18 employees and that is an incredibly efficient structure and incredibly efficient way to own farmland. So moving forward to Page 4, just I want to reemphasize the diversification point. So we started, when we started the company we had approximately 7,000 acres at the time of the IPO. By the end of 2014 we had about 46,000, today we have 148,000 acres spread across the United States. As I said earlier, in 17 different states, and reason that is significant as we think about risks to farmland and risk to farmland revenue generation weather is an incredibly important factor, of course, and we have diversified the portfolio on a geographic sense to the point that we are basically not affected by weather events because it would take a truly nationwide weather event to have a huge impact on our farmers. Turning the kind of regions of the country where that land is at year-end 2014 we had about $246 million of assets and we now have round numbers $968 million of farmland value, it's about 75% primary row crop corn, soybeans, wheat, and rice et cetera and about 25% specialty crops meeting the tree nuts, the citrus, vegetables, that is the portfolio balance that we truly believe is correct. Because it does reflect nationwide output by farmers of Foodstuffs overall and again we always say that this is about global food demand in the face of land scarcity and so that portfolio is not trying to pick winners and losers among individual commodities. It's about trying to really track that global food demand story. And then you can see on the right side of the page that how the portfolio was grown, and one of those important diversification is of course is the addition of the West Coast. Moving to Page 5, as this goes to scale and liquidity, so when we closed the AFCO transaction in -- after the first day or so of February we closed it. We -- the transaction was $171 million of equity and $75 million of debt assumed was essentially the ultimate purchase price. What that has done is it has moved us as a company to where we have approximately $510 million of overall equity capitalization in the company. If you look at it on a fully diluted common share basis it's right around $400 million depending on what the stock prices on any given day. And I want to emphasize that, that if you look in many of the sort of public sources you will only see the companies public float common equity, we have distributed and successfully so many, many operating partnership units, which are fully diluted common equity. So the market cap of the Company is now $400 million. This is gotten us to a point in which two really good things are beginning to happen, institutional investor interest in the Company is obviously increasing, because of our scale and the basic liquidity, but secondly, our ability to use operating partnership units as currency in relatively small transactions has gone up materially in the last year. When we go to a farmer now and try to acquire their property, we can issue equity in those transactions almost as if it's cash -- if I try to issue an individual farmer $1 million or so of equity, they view that as the same as cash in terms of the transaction negotiation. The benefit of that, as we now have the ability to increase the scale of the Company without paying nearly so much fees and discounts for equity raises to continue to grow the Company. The other thing I want to emphasize on this page is that we are in the process of gradually reducing our total debt capitalization, Luca will talk more to this later, but we had run the Company historically with the target of about 45 to 50, we're now sort of moving that target closer to 40 with a gradual delivering of the Company, the fundamental reason for that is as we have achieved enough scale, we think the market will reward us for slightly lower leverage, frankly. And we also think that as we've gotten bigger, there is some more fundamental systemic risk in the total debt load that we have, so we're gradually backing that down. Turning to Page 6, I want to amplify kind of the efficiency in the cost structure, we as I said earlier, manage this portfolio with 18 employees and we have today nearly $1 billion in farmland assets that is truly incredible when you think about the cost structure that we have relative to the scale that we have. We think we can continue to expand this portfolio, something in the neighborhood of doubling it without a significant increase in our overall overheads that will lead to even more powerful earnings and profitability leverage for our shareholders. So turning specifically to AFCO and the Prudential agreement in particular. Prudential as many of you know, was a sub-advisor to American Farmland Company and Prudential had done a very, very good job in acquiring those assets and pulling those assets together for American Farmland. As we've talked in the past American Farmland as a company, got fundamentally trapped too small to higher cost structure but the quality of the assets in many cases due to Pru's work was an outstanding set of assets so when we acquired the properties we began a conversation with Prudential that was frankly frank and open and said, these are great assets. But we Farmland Partners are a self-managed Company, we internally manage everything, we do not frankly need your management services, we continue that discussion and immediately following the merger in early February in the closing of the merger we made those discussions much more serious and Prudential agreed to terminate and get out of this management agreement. The financial impact of that for the Company is incredibly positive. We will likely do business with Prudential in other ways in the future lending, acquisitions and the like, well-known Company in the industry, happy to continue to do business with them but we fundamentally didn't need the management services and mutually agreed to accept the contract. So what we have done financially in terms of that contract is we have gotten out of something approximating an $8 million cost for $160,000 termination payment. That contract would have continued under its terms through the fall of 2019, what we agreed with Prudential to do was to pay them a total of $1.6 million in cash, but this is why I say we got out of it for $160,000. The $1.6 million includes the fourth quarter fees that AFCO already owed from their ownership of the company pre-merger and in the month of January we have agreed to continue the contract in an orderly transition through the end of the quarter. So the combined FPI shareholders are fundamentally paying for that contract for just two months and a termination fee of $160,000. An incredible result from the standpoint of the financials of the Company, fundamentally when you think about it, it is $0.50 a share for our shareholders if not a little more right there in terms of the Prudential contract termination. So, moving on to the other sort of kind of major issues of the quarter. So, I talked about the disciplined kind of deal structure that we do when we do large transactions in the quantity of deals. So our ability to scale the business is obviously proven at this point, like I said $600 million in transactions in the prior year, but I think there is a misunderstanding of the structures we use particularly on large transactions. When we negotiate a large sale leaseback, we often pre-collect, meaning cash already in our bank, a substantial portion of the revenue stream during a 3-year to 5-year period into the future, 20%, 25% of the rent, something like that will be paid in advance. Under the GAAP revenue recognition rules, we of course already have that cash, but because of the straight-lining, we do not get the recognized it as revenue. So when we have a tenant who decides to exit a lease from one of those big transactions, we have been sitting on cash, in this case some cash that we set on since 2015, that never went through the revenue line that then gets to go through the revenue line. We of course also asked and which is what happened here. We also asked in addition to that for a termination payment on top for allowing the tenant out of the lease, and that's where we accomplished in this transaction. So when you think about that revenue, we either would have had it in prior quarters or we would have had it this in the next year. So we view the cash that we already had in the bank and are finally taking through the revenue line that is fundamentally sustainable ongoing income. The termination of payment itself should probably be thought of as a one-time and you'll see in the detail when Luca will address it some more, how to break out between those two things, but that's really how we think about it what this represents as a very, very conservative GAAP revenue recognition policy that has us often sitting on cash, which we cannot get through the revenue line until a substantial passage of time, and we will have -- we have throughout our portfolio a lot of the sort of thing. And we will see over time generally positive surprises from time to time, because of how we structure these deals and we just happen to see quite a bit of that this quarter. Farmland and the farm economy generally, the next topic, so on the farm economy generally, what's happened out there and you're starting to actually see this in what I call farmer confidence or farmer optimism surveys. The farmers there is in the grain sector of the farm economy still reasonably difficult environment but this is what has changed and you noted this in some of John Deere and other sort of large companies in Ag that start to see this in their results as well. Farmers were truly fearful that corn prices could go way lower than they are, and they kind of held in that $3.50 to $4 range for corn and similar prices in the other key commodities. So people have begun to feel like the worst is behind us and you're seeing that optimism in the marketplace, you're seeing a modest uptick in acquisition activity by farmers, you're seeing a modest increase in their buying of equipment and things like this. This has begun to sort of, as I say, find the clear bottom in terms of the farmers mentality in the row crop world, and we're going to benefit as we come out of this in the next 12 months to 24 months. In the non-primary row crop part of our portfolio meaning the specialty crop side that part of our portfolio has actually continued to increase in value through all of this, farmland valuations are going up, obviously, all of the rain fall California has gotten is going to improve the profitability of California generally and our farms in particular, so what we've seen is the modest decline in valuations in the part of the Corn Belt, flat to slightly increasing in the other primary green producing regions Southeast Delta, et cetera and in the specialty crop regions largely Florida and California you've actually continue to see farmland valuations go up. Fundamental worldwide demand for these commodities continues to increase soybeans is the best example, if you go look at soybean demand it is continued to climb, you're now seeing increase in prices in soybeans for the first time in two years, you've started to see that here in early 2017. We're going to see a substantial turnaround in these commodity markets will eventually lead to ability to re-increase -- or start increasing rents again and start on the primary row crop portion of our portfolio. Finally, just I do this every quarter and I give everyone you our internal view of NAV, many of you always ask, we like to do this every quarter, we have not increased that NAV for several quarters, but we are going to today. Our internal view of NAV which we have historically said was $12 per share. Our view now is that it's approximately $12.25 a share with a range between $11.75 and $12.75 per share. There are three specific reasons for the NAV increase in today's call and I want to go through them. The first is on American Farmland we had valued AFCO under an assumption that we would have had to pay the continuing expenses related to the Pru contract since we were so successful in getting out of that contract as quickly as we did and as inexpensively as we did. We would have paid more for those assets, but for that contract and so we view those assets as fundamentally more valuable because they will throw off more cash than we had originally assumed. And as I said, simple math on the Pru contract alone is about $0.50 a share. The second thing is that the assets we have acquired have continued to appreciate; we valued those properties last summer fundamentally, so we're looking at valuations from the spring of 2015 and many of the specialty crop properties have increased in value since that period of time. The final thing I want to allude to is that we did a very large transaction in Illinois for around 8,400 acres in two tracks. This was a farm that was owned by a private family based in Florida. The -- older family, the patriarch of the family passed away and so these farms went on the market. This is by the way in the region that I grew up in and know very well so we acquired those farms at a public auction and the public auction process was difficult because it was too many acres flooding the market at one time for the local farmers to be the buyers. So we acquired those properties in our view, at approximately $1,000 an acre lower than they would have sold for had those properties been auctioned in smaller increments over some period of time. We were the beneficiary frankly of the fact that the family had in a state tax issue and needed to move all those properties in two quick at time for the local market to absorb. And so we having capital available, we're able to step in and make that acquisition and we have leased those farms and are well on our way to getting the benefits of what we view as a relatively low purchase price compared to what they could have and possibly would have sold for if they had a longer and we were able to take advantage of a longer marketing time. So again marketing time, so again just to reemphasize, we view the value of our stock at $12.25 a share on an NAV basis based on the asset values of what we own, and as you can see from a current trading, we are trading at a substantial discount to that number. With that Luca, I'm going to turn it over to you.

Thank you, Paul. So 2016 has been a great year for FPI, and the fourth quarter of 2016 specifically has been a great quarter leading to somewhat sizeable positive surprise for the street, so I'd like to address our fourth quarter performance first. First and foremost, I would like to remind you that we live in the world of agriculture, and while agriculture itself is of course an incredibly seasonal business throughout the year. The annual cycle, and while we are not an operating kind of agricultural Company, we still have a little bit of that seasonality embedded in our performance, and especially as far as raw crops are concerned the fourth quarter is where the bulk of the revenues for farm operators comes in and that's where the vast majority of the crop share rent payments that we received come in. So fourth quarter tends to be always best, because of that seasonality for us, also in a Company that is growing at the pace we are growing, without any dispositions of assets of course, our asset base continues to grow through the year, and therefore later in the year quarter's benefit from a larger asset base, and therefore revenue base is compared to earlier quarters of the year. Specifically during the fourth quarter besides those crop share revenues that larger asset base, we had a specific event, which is the termination of a couple of lease agreements that led to a couple of different positive events for the Company, one was the payment of about $2.8 million in termination fees, and I'll turn back to that in a second, but also we had the acceleration of revenue recognition for $3.7 million, just to give a frame of reference. The vast majority of those $3.7 million have been paid in cash to the Company over a year prior, again cash is fungible, but you can think of that cash is actually being invested in the meantime and generated 2016 revenues, that's how long that cash had been in the Company. The fact that the recognition happened of that revenue happened at a point in time at the termination event is frankly a result of a revenue recognition policy that is appropriate is fairly is very conservative. Back on the $2.8 million of termination payments, well those are two termination payments because this tenant had opted to get out of its obligation. We see, as Paul was alluding to we see that value has truly kind embedded implicitly throughout our portfolio just because of the, of the way we conduct our business, we structure our leases and so on so forth. So having said that, because of Q4 let me turn back to the year in general, and 2016, has been a year of absolutely outstanding growth. And I want to point out some elements that drove the growth and made that growth possible. First and foremost, we added to the Company new people and new skills. We started in life because of largely of our background impulse personal background in row crops is fundamentally focused on row crops, that's what we understood best and that's where we had the best execution in the context of fast-paced growth but we always wanted to add specialty crops in general to our portfolio that was our objective. And we were able in 2016 to an early 2017 with the closing of the acquisition, we've added some outstanding people and skills in the specialty crop arena. And I believe that our transaction sourcing and execution capability in the specialty crop arena in the US now is absolutely top notch. We've also added other people in our department of our other skills. For example, in our finance and accounting department, where we have now several team members with big fore background so we absolutely have some of the strongest people in the industry. We had an outstanding general Counsel that is helping us execute more quickly and more efficiently, while reducing our legal expenses. So strong positive improvements on the, in terms of bench strength. We also improved our internal processes SOX 404 compliance for us is still further down the road for a couple of years, given our emerging growth company status. However we are proceeding aggressively, making sure that for business purposes first and foremost, but also for future SOX 404 compliance our processes are as efficient and solid as they can be. Finally we also implemented new systems specifically we implemented the best-in-class real estate property accounting and management software out there, Yardi. That implementation has been nearly completed as of January 1 and we feel that can carry us for a long time. So just to sum up, I believe that now we had in our company despite the small size, only 18 employees we have the absolute top notch deals sources sourcing deal execution and far management capabilities in the industry. And we've proven that in 2016 in early 2017 by sourcing and closing what we believe is the largest row crop transaction farmland ever by managing and closing a public company merger, which is no easy feat yet, in that context, we have continued to source negotiate and close many more modest sized acquisitions, which, which are the bread and butter of the industry. Some as small as sub $1 million. So, I feel that Paul and I built a platform that will carry us now, will carry growth very well into the future and will enable us to a kind of continue growing the company without any significant additions to the cost structure. Going back in general to 2016. From an equity standpoint as in prior periods we've continued to use OP units as an effective tool to conduct our business, especially I want to focus your attention on the $117 million 10-year preferred equity with a 3% coupon earlier in the year. There was an incredibly positive transaction for both the company and the seller because of tax benefits. We've continually issuing common stocks specifically, we did an equity offering in late November of 3.1 million shares at $11.25, which is $0.25 above the price of the prior offsetting that we had closed. And we have continued using the our at the market program for example in Q4 alone, we sold about 150,000 shares at an average price of $11.88. Specifically on these two points I want to kind of point out that we are very, very focused on making sure that the, we continue creating value for our shareholders given that the management of the company is also a very important positions in terms of shareholder ship of the company. As we stand right now, fully diluted shares for the company are about $23 million as of December 31. About $38.4 million as of today the jump up being specifically and largely due to the merger with American Farmland Company, just as a reminder, given our structural as an umbrella partnership REIT, we really look at our operating partnership units as the equivalent of a share of common stock given out there one-to-one redeem ability into common stock in the same dividends they get paid. On quick update on the debt front between Q4 and Q1, we brought on board two new lenders to our stable of lenders. We, as we stand today we have a total of about $420 million in debt outstanding at a net average interest rate of 2.74% this is a 45% roughly, kind of loan to roughly kind of loan-to-value ratio for our balance sheet overall, as opposed to 48 as of December 31. As Paul pointed out earlier, we are slowly but actively reducing our overall leverage in our balance sheet and we expect to continue doing so given the -- if the overall kind of that environment, interest rates remain fairly stable or growing only modestly as they have been in the past. In the context of our debt agreement, I want to point out that under our existing loan agreements, we still have about $45 million of borrowing ability available to us under those existing agreements. Finally, I want to kind of mention profitability and specifically in general -- let me remind you to please refer to the press release for more details and for all the appropriate disclosures, but our full year net income for 2016 was $6 million. Our full year 2016 AFFO was $11 million or $0.58 per share on a diluted weighted average basis. This concludes my remarks on our operating performance for the fourth quarter and full year 2016. Thank you for your time this morning and your interest in Farmland Partners. Daniel, we would like to begin the question-and-answer session.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Jessica Levi-Ribner with FBR. Please go ahead.

Good morning. Thanks so much for taking my questions this morning. What is the renewal rate, and then also overall cap rate on the portfolio pro forma for the merger now?

Pro forma, this is Paul. So I'll take that one, so in terms of renewal rate we expect 100% occupancy on our properties, I don't have a number exactly at hand, Luca, if you know you can give it, but we probably have 90% or more already released for the 2017 year, obviously, we're still in the winter time in the northern part of the country. So a 100% occupancy is the expectation on the portfolio. In terms of cap rate, cap rate of the properties we acquired in AFCO, especially crops in particular, but the entire blended portfolio is approaching a total of a 6 cap, when we get it fully stabilized, it's right now in more the mid-fives and the difference there is that we paid for three or four separate properties that are still in development. So in other words not fully revenue-producing yet. So we've got a modest a couple of million dollars of continued investment before those and another passage of 12 months to 18 months before those are fully stabilize as revenue producers. But we'll see an overall cap rate, that pulse portfolio-wide cap rate frankly into the mid, mid-to-high 4% range and we think that will gradually get higher over time as we continue to acquire specialty crops. And we're seeing a modest increase in cap rate in the row crop side of the portfolio as well as valuations have come down somewhat on some of that, those sorts of properties we're acquiring and we're able to extract reasonably good rent negotiations.

And how have just piggybacking off that how have rent negotiations has been in the past I would say couple of months, is it pretty stable from last year or?

It's actually, it's actually interesting. We've probably seen a portfolio-wide same-store sales basis and this will surprise a lot of people, but about 1.5% to 2% increase across the board in rents. Now that doesn't come by increasing every single contract by 1.5% to 2%. What's happening is there are a few regions of the country and particularly as we look at our portfolio specifically, if we're renegotiating a rent that was negotiated in 2014 not 2013, because remember, we were a carryover business that I had owned before we went public, those rents are generally coming down. I mean they were negotiated at the absolute high in the row crop world particularly in the Illinois and Eastern Nebraska and places like that. And you're seeing them come down, but not massively. I mean there are, everyone's different, but they're often in the 5-ish% kind of range. But the row crop areas, other than the core of the Midwest are still getting modest rent increases and specialty crop regions can get even very significant rent increases. And then as I've emphasized in the past, we tend to make improvements on every property we would buy. So with the addition of drainage, with the addition of grain storage, with the addition of irrigation to these properties we generally will get something like 10 cap on the incremental, additional investment and that blended into the overall rent is pulling our same-store sales, as I said, companywide up a little bit. I mean we're pretty proud of that fact and what's for the row crop side of the of the farm economy relatively difficult but we're still gradually raising rents portfolio-wide.

And then just one last one heading into 2017 I guess we're already into 2017 what's the acquisition outlook, I know you touched on a little bit in the call that do you expect a good amount of farms to come online or has the pace of kind of available properties slowed.

I mean there is $30 billion of farmland transactions available in the United States every year. So I mean we about 2% of farmland turns over, it's really a small percentage of the total industry, it's not, but since the industry is so large, there's a huge, huge opportunity set out there. Our pipeline today is probably of deals that we know than are seriously interested in it's frankly, probably over $1 billion we could easily do that amount of acquisitions. The challenge in this company and this [wonder] should record it we're not going to sell equity at the prices we're trading at to buy anymore farms. I'm not going to bill it. I own a lot of the company myself, I'm not going to do dilutive acquisitions we have a $1 billion of farmland and we've got a really good operating model right now if we have to sit here at the same size for a while we will or we'll do operating partnership unit transactions where we often negotiate a premium to current market price in those negotiations. We get farmers to believe that our farms really are worth $12.25 a share and use that kind of price in those negotiations will continue to do deals, sort of just give us what the key takeaway is fundamentally, very little limitation on our ability to find good transactions, its ability to find a fair price for our equity security. That's limiting the growth of the company, and we're not going to -- we're going to be very disciplined, we had to grow the company, we did grow the company to something that's really a meaningful scale now. But we're not going to do super dilutive equity offerings to continue to grow, we're going to wait till the market realizes how good this company actually is.

[Operator Instructions] Our next question comes from Mitch Fitter with Aegis Capital. Please go ahead.

Hey guys Paul and Luca. Let me try and simplify the question a little bit, and maybe we can figure out why the price of the stock is not performing that well. Are you having any kind of flooding issues on the properties that you bought in California and do our labor issues is that can be a concern to you?

Yeah. So let's take them one at a time. So on the flooding issue, no, we are not, we have one -- the big flood -- the big dam risk, which I think is a lesson now was that overall build dam in the north of Sacramento always, we are downstream, so to speak from that dam and not even directly in the flood zone below, but literally hundred miles or more, some, we had one property where, you might have some theoretical risk if that damn broken and raise the level of a bunch of other rivers along the way, but other than that property, no exposure really at all. Obviously, we'll see what happens is a key terrain. So we really don't have any kind of flooding thing on any of those properties, they were properly located, properly cited properties in the first place, and so we're in good shape there. On the employment front, which is obviously a good question, all of the specialty crop where there is quite a bit of hand labor has some level of concern with regard to a crackdown or undocumented workers, generally speaking though there is appropriate Visa program for that migrant labor that does a lot of that picking, most of our tenants would use a contractor who provides that labor. They are here with appropriate legal status generally speaking, that's been pretty regulated for a long period of time. The big -- literally you think of it is several bus loads worth of usually Hispanic workers. That's have been a regulated piece of industry for quite a bit of time, it's not -- it's just not something people are super fearful about, what will happen over the long-term is that you're going to see frankly more mechanization in most of those crops in terms of the picking of the crops in particular, as people continue to have a general fear of the migrant labor issues, but that, I guess that for most of our tenants that -- they're not sort of picking up a group of guys at the edge of the Home Depot parking lot for example, they're working through some major contractor and they're properly documented because of that.

Okay. Just as far as the dividend that you're going to be paying, this is my last question, the share count has gone up considerably if I remember correctly, American Farmland did not pay higher dividend as you guys did. And you probably stated this already, but you would have no problem covering that $0.51 going forward.

No, absolutely not. We have, we put out an agenda if you went to our website, you can see this presentation in the public domain and it may still be a recorded conference call about a week-and-a-half ago to try to inform everyone about the effects of the AFCO merger on our profitability. We did a separate conference call and presentation and the punch line of that presentation is that, had we had the companies combined during 2016. We would have had something in the neighborhood of $0.62 I think is what it was of AFFO per share, we had the company's combined and operated them at our cost structure. So we feel pretty comfortable that going forward this is, those, that transaction is very accretive to us that $0.62 of share by the way was before the termination of the Prudential contract so it's frankly better now because we assume the Prudential contract in an analysis as we hadn't gotten out of it yet. So this, we're in we think we're in great shape. The key you're right Mitch, they did have a lower dividend than us but the key is that we'd largely wiped out the cost structure of American Farmland. So we picked up $15 million, $16 million, $17 million of revenues something like that on our Company and we've really only brought over one employee and now with the termination of the Pru contract basically got out of all the costs of that company and got a big incremental revenue bump, so very powerful for us in terms of AFFO per share and covering the dividend.

It appears that at this time we have no further questions. And with that, I would like to turn the call to Mr Paul Pittman for any closing remarks.

Great, thank you, Daniel. And thank you all for joining our conference call. We do appreciate the opportunity to update you. For those of you who have been an investors with us ever since the IPO thank you for the long-term support, we do believe we are truly doing what we originally set out to do and has begun to see that profitability come through the bottom line for the company and give us a well-covered dividend, frankly. We certainly hope that the stock price begins to reflect it, but in that regard thank you all for the support you've given us through the last couple of years and we'll continue to grow the company and make it even more successful in the years ahead. Thank you, operator.

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