Farmland Partners Inc. (FPI) Q1 2018 Earnings Report, Transcript and Summary

Good morning and welcome to the Farmland Partners Incorporated, First Quarter 2018 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. Paul Pittman, Chairman and Chief Executive Officer. Please go ahead.

Thank you, Danielle. Good morning and welcome to Farmland Partners, First Quarter 2018 Earnings Conference Call and Webcast. We 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, our strategy, in a format less formal and more interactive than public filings and press releases. Please refer to the investor relations sector of our website at www.farmlandpartners.com for our Q1 2018 supplemental package, which I will be speaking to later in the call. The link for this presentation is directly below the webcast link and is also posted under the presentations section of Investor Relations. With me this morning is Luca Fabbri, the company's Chief Financial Officer and David Ronco, our Head of Investor Relations. I will now turn the call 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 first quarter earnings was distributed yesterday evening. A replay of this call will be available shortly after the conclusion of the call through May 24, 2018. The phone numbers to access the replay are provided in the earnings Press Release. For those who listened to the rebroadcast of this prevention, we remind you that the remarks made herein as of today May 10, 2018 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 acquisitions and farm properties under evaluation, impact of acquisitions and financing activities, 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 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 first quarter 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 May 9, 2018. 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. Today I want address five separate topics, two of which are general about the farm economy and land value trends in general and three of which are specific to our company. So starting with number one, land value trends. What we’re basically beginning to see is that the press reports in the popular and the agriculture press are finally starting to kind of catch up with the reality of what’s going on in the market place. As I’ve said many times before, farmland values have declined slightly in the Corn Belt and have been stable to increasing in most other regions of the country. This is despite the fact that the popular press has been a steady drumbeat of negativity about agriculture and land values. If you look back at the things that we’ve said in these conference calls and in our other communications now for several years, we have taken a position that a decline in commodity price would lead to stability or slight declines in the Corn Belt and that most of the rest of the country will be stable to increasing, because there are fundamentally different factors in those regions driving land values besides commodity price. We’ve also if you recall talked many times about how commodity price doesn’t drive land value directly, but it does effect farmer income, which can gradually show up in rents and ultimately in land values. But the effect here has been frankly very muted and I’m happy as I said that the press is starting to report it. So for example, on April 9 there was an article on agweb.com quoting the Realtors Land Institute of Iowa, which basically says that after four years of declines in farmland value in Iowa the last 12 months have shown a five 5% increase in Iowa farmland values. On April 11 again in agweb.com, quoting the Rural Appraiser and Farm Manager Society of Illinois, it’s basically saying and concluding that high quality land values of Illinois have been essentially flat in the prior 12 months. On May 2, we reported that total farmland return for the year ending March 31, 2018 was 7.07%. That is survey of pension owned farmland across the country, a pretty broad survey, again indicative of what we are seeing is in fact that farmland is starting to move back up in value. We as a company are clearly of that opinion. As I’m sure you observed in our press release, we acquired quite a bit of stock during the fourth quarter and the company. I of course personally continue to acquire stock. Our stock continues to be seriously undervalued compared to the asset values that are out there. Now everyone should keep this in fundamental context though, that you can’t look at any single report or single point of view of farmland, whether these positive ones I quote or the negative ones you need that you happen to read, you have to look at that data of – that set of information about farmland values as a sort of broad cloud and incorporate what all of those facts real mean from the market. We of course view the USDA data as the most comprehensive. Unfortunately that data only comes out once a year in August and so between each August you are left without a nation-wide sort of point of view and you have to piece together what your perspective is of actual land value trends based on snippets of information about different locations. But generally speaking, our view is that we’ve seen the bottom we put in, in land values and the Corn Belt, starting to see it come back up, starting to see it be reflected in the popular press and that is clearly a positive trend for the underlying asset values. The second point I want to address is grain prices versus farmland stock and then a brief side about the potential trade war and our point of view regarding that; so starting with the grain prices issue. If you looked in the last approximately four months, of what has happened to Farmland Partners stock, what’s going on in the primary commodities, there was a real and substantial disconnect. As I’ve said many times, we do not believe commodity price drives farmland values in the direct sense. But the flipside is, it’s shocking to think that grain prices are going up and our stock is going down. So measuring since December, 18, 2017 FPI stock has fallen 18.1%. Measuring from the same day, corn has gone up 10.4%, soybeans have gone up 4.2% and wheat has gone up 14.3%. This fundamentally does not make any sense. We have traded down with the commodities, the stock was $9.33 on December 18, that is already an incredibly depressed level compared to our underlying asset values, and it has only fallen further while grain prices has started to recover. The most powerful and important takeaway about grain price recovery is that in many regions of the country today you can sell corn and soybeans at clearly profitable levels and at levels not seen in terms of cash price paid to farmers in several years. Typical of a commodity industry, the fundamental cure for the low prices is low prices. We’ve continued to build national and worldwide demand during the low price environment in the last few years and now you are seeing the markets recover. Obvious question is, does it last? Does it continue? But fundamentally what drives long term price trends in the Ag commodities is what’s called carry out, meaning the amount of crop left over at the end of one season to rollover into next season. That’s fundamentally going on and driving commercial buyers as opposed to speculators, is that carry out projections in 2019, 2020 and beyond where most of the major commodities nationally and internationally are trending downward. Therefore what’s happening is we’ve worked our way through in excess supply situation and gradually seeing the effects of demand drive prices back up. Again, not a direct driver of farmland, but it is a driver of farmer profitability, which over time is obviously beneficial to our business. It is important from our perspective that this turnaround is finally coming. Our view about our sort of tenant healthy generally is that we have each year since about 2014 gradually seen a few more tenants. Today we have roughly 110 separate tenants and each year we’ve seen a few more tenants in a little bit more financial difficulty. So if in 2015 I had one lease that where a tenant was in some sort of challenged financial circumstance, by 2016 that was two guys and 2017 would have been three guys and this year its four or five. Clearly these farmers have burnt through their working capital gradually during the last few years, but you haven’t and you’ve seen it reflected to some degree in farmer incomes and ultimately our release rates that you haven’t really seen it show up in land values. That is in fact the way it’s supposed to work. The land value should stay stable through most downturns. Hopefully we are climbing out from an Ag productivity perspective, and you are going to see performance at the farmer income level start to improve. Interest rates and their effect on us and their effect on farmers are obviously going the other way, but the interest rate moves certainly don’t explain that 18% decline in our stock. We are today roughly 12% of our capital structure overall is adjustable rate debt, we have not – just the math behind the modest moves and our interest rates on 12% of our cap structure does not justify the significant declines we are seeing in the stock compared to what’s going on in terms of commodity prices and the rest. Of course the entire REIT sector has been pulled down with fear of interest rate moves and we have to some degree gone down in sympathy. But remember, farmland is fundamentally an inflation hedge. In my opinion, probably the best inflation hedge there is, even better than gold and our view is that modest interest rate increases, as long as they are being driven by expansion in the economy and ultimately inflation, the inflation benefits, the inflation hedge benefits of farmland will outweigh the interest rate increases on terms of total return. Now turning to the issue of the trade war and the potential of a trade war. This is clearly not a good thing for agriculture. Generally in the United States, if you get a trade war started, its important though to think deeply about what really happens in a trade war and to be frank I haven’t in my professional career went through one of these before. The last time we had a significant trade war for agriculture commodities was in Jimmy Carter days, when I was frankly in high school. The effect of a trade war in our view is not going to be an instant and significant decline in demand for our primary commodity products. The reason for that of course is that the world is largely consuming all the production that is out there. So if the Chinese were buying our soybeans, you will shift the trade routes around the world in a way where our soybeans fundamentally get sold to somebody else. Just in the recent weeks we’ve started exporting soybeans from the United States to Brazil. That seldom happens, but what’s happening is the Brazilians are selling more beans to China, so we are having to backfill the Brazilian internal demand for their own crushing facilities to make soybean meal and soy oil. This sort of shifts around the country, around the world is likely to be the near term impact of a trade war if it in fact happens. It will of course have an immediate negative physiological effect, but it’s not really an instant problem. That being said, a trade war is not good for U.S. agriculture. Again going back to the Jimmy Carter and Richard Nixon era, the trade wars that we had at that point in time and the embargos we had to Japan and Russia in that era actually led to the creation of Brazil as a long term competitor for U.S. agriculture. Brazil prior to the time we embargoed products into Japan had very, very little soybean production and grain production and now 40 years, 50 years later they are a substantial and major competitor. This trade war will have an impact of causing the Chinese to invest substantially more in the infrastructure in South America that over the course of five or maybe even 10 years will make Brazil in particular a better supplier of the worldwide markets. That’s certainly not good for American agriculture, but the immediate and near term impact of the trade war is frankly over overblown, because as I said, the world needs the crops, but the long term effects of the trade war are certainly not good for farmer profitability and commodity prices in the United States. Turning to the third point I want to make this morning, which is scale and balance in our portfolio. We have worked every hard in the last couple of years to create a portfolio that really reflects that worldwide global food demand growth and the fundamental fact of land scarcity in the United States and round the world. So at 12/31/216 our portfolio was largely, a commercial real crop portfolio based entirely in the Midwest, the Delta, the Plains and the Southeast. We had a few blueberry crops at that point in time grown in Michigan, a few vegetable crops grown in other locations, but broadly speaking virtually 100% of our assets and our revenues were coming from the primary commercial world crops, corn, soybeans, wheat and rice, and cotton and the like. Today around 3/31/2018 we are now about 70% to 30% balance of asset value, between primary real crops and the specialty crops and that’s on asset value. On revenues we are about 62% from real crop and 38% from specialty and permanent crops; that’s based of course on 2018 estimated revenues. That is a reasonability significant shift. That improved diversification of assets and income is really fitting into our portfolio a situation where no negative event in any given state or any given crop really hurts our fundamental performance very much. We think this is incredibility important and probably not fully recognized in the marketplace. Again, our goal is to tie our investors to global food demand on a global basis and the fundamental fact that high quality land scarcity in the best Ag performing nation in the world and which is why we largely invest, entirely invest here in the U.S. The fourth point in want to point to is valuation of our stock on an NAV basis, looking at the underlying value of the assets. As I have always said, we think that our stock is worth somewhere in the neighborhood of $12 a share, with a range of about 11.50 to 12.50 and that is based largely on what we paid for these assets and adjusting through time for modest declines on the assets we bought in the Midwest, in the high plains, flat in the southeast and the delta to slightly increasing and then of course the California assets gradually increasing as well. So we think if we went to liquidate this portfolio, you would achieve something line $12 a share. Now we are not going to liquidate the portfolio anytime soon. I haven’t given up by any means as a public company. But we are clearly frustrated by the disconnect between stock price and underlying private market asset values. For those of you who have spent some time looking at our supplemental, we provide a great deal of information that would allow an analyst or anyone else to calculate the value of our stock on a cap rate basis and you can do it based on gross cap rates or whatever your preferred methodology is. If you want to do it on an NOI basis, you have to use a slightly lower cap rate of course because properties trade on lower cap rate on NOI than they do on a gross basis. But that being said, if you got to page 13 of our supplemental and you work your way through the facts on that page and I encourage you all to do this, and you use the cap rates we provided based on the regional, based on our regional cap rate variations that we’ve seen in the nation, you end up using that methodology with a stock price of $14.17. Now I just said I think the stock is worth 12. As you all know, valuation is an art not a science. It’s a matter of balancing a variety of methods of looking at the value of a given asset. The only way to know what anything is worth is to actually sell it, but the bottom line here is that as we have significantly increased the revenue potential of the company and we’re building that on an LTM basis, you have seen a significant enhanced valuation on a cap rate basis of what the stock should be trading at. So I do encourage you to look at those numbers. You can run sensitivities. We sort of laid everything out there for everyone, but the bottom line is that you can quibble about what the exact value of the stock should be. Whatever that analysis leads you to, it’s going to lead you to a number substantially higher than the recent trading history of the company. And the final and fifth point that I want to make is to talk just a little bit about cost control in the light of the scale increases that we’ve achieved in the company. We own $1.1 billion, $1.2 billion farmland assets around the country today. We have seen a very large increase in our revenues and a holding of our cost structure essentially flat. That’s why you see in the quarterly numbers a 57% year-over-year increase in revenues, a 581% increase in operating income and a 90% increase in EBITDA. This is the company that has run incredibly efficiently from the standpoint of overheads and personnel costs. We of course do everything we can to limit property operating expenses, although as many of you know that’s largely property taxes which is out of our control, but we will continue to be disciplined in that cost control effort and we would expect to continue to see those efforts create greater and greater value on cash flow out of our properties. With that, I am going to pause. You’ll have a chance later for questions and turn it back over to Luca.

Thank you, Paul. So Paul already walked you through some of the financial highlights for the quarter just a few seconds ago, but I want to kind of re-emphasize them again. In the first quarter our revenues were $11.2 million, which is a 57% year-over-year over the same quarter last year. The operating income for the first quarter was $4.8 million, a 581% increase year-over-year. Reported basic net loss to common stock holders was $0.08 per share and AFFO was zero cents per share. However I want to remind you that historically, because of the structure of some of our leases and the associated revenue recognition policies, we experienced a relatively high seasonality on the revenue side, while our cost structure is frankly relatively stable through the year and that seasonality really emphasizes the fourth quarter. This is even more true than usual in 2018 again due to some relatively large leases, so we do expect the fourth quarter to have a much higher revenue level, as well as operating income and net income and AFFO. With this quarter, the first quarter of 2018 we began reporting earnings before interest taxes, depreciation, amortization, the full real estate and the associated adjust also known as EBITDAre and the associated adjusted EBITDAre. Now EBITDAre is a new measure that has been put forward by the National Association of Real Estate Investment Trust and we decided to conform to this new recommendation of the industry association as we see other leading REITs already started doing so. Specifically what EBITDAre does, it takes EBITDA and adjusts it for a couple of other items such as gains or losses and disposition of depreciated property and payment write downs of depreciated property. These are adjustments that are particularly relevant in REIT in asset classes with a significant proportion of depreciable assets; that is not the case for us. So we expect EBITDAre and adjusted EBITDAre to fundamentally track the EBITDA and adjusted – previously reported and therefore we will not be reporting separately EBITDA and adjusted EBITDA. Having said that, the first quarter adjusted EBITDAre was $7.5 million, a 90% increase year-over-year, over the same quarter last year. In the quarter we also repurchased $6.5 million in shares of common stock and finally a quick note on that, there was no material change in that year in the quarter. I want to stress how 76% of our outstanding debt is based on fixed rate as of the end of the first quarter and we don’t see any material principal payments due in 2018 and only about $6 million due in 2019, so effectively not very much of that due in the next couple of years. This concludes my remarks on our operating performance for the first quarter of 2018. Thank you again for your time this morning and your interest in Farmland Partners. Danielle, we would like to begin the Q&A session.

[Operator Instructions] The first question comes from Dave Rodgers from Baird. Please go ahead.

Yeah, good morning guys. I wanted to maybe first ask about just kind of where your liquidity position is? Are we looking at acquisitions right now? How is that pipeline and maybe just a second follow on to that would be, have you thought about the math at sales to maybe trade out of the lower cap rate markets into some higher cap rate markets to help some of the growth in the near term?

So well, I’ll take that question. So in terms of liquidity, we’re sitting on a substantial amount of cash. I don’t remember the exact number; it’s of course in the financials. At this point in time we are not likely to make particularly significant acquisitions unless we could of course you know find a creative way to finance them. We’re not going to sell any stock at this price to raise cash. So as far as acquisitions go, we are not likely to be very active in the coming months unless we get a substantial change in the stock price. As far as asset sales, we of course consider asset sales all of the time. As you can see from the statistics, we are gradually moving the portfolio to a position where we have a higher percentage specialty crops in the portfolio. It gives you obviously higher total cash flow. That one is something we need to be careful about. I do not expect to see a wholesale selling of the commodity row crop properties. You know I personally have been doing this for 20 plus years. These things ebb and flow. Getting out of the row crop properties when everybody says you ought to get out. Everybody I should say uninforms as you ought to get out, is exactly the wrong time to exit any properties like that. We will find ourselves in the next few years, unless we do start this massive trade war with people telling me I ought to sell my specialty crops and pile into the real crops, because those are the hot things for this given couple of years. That’s not fundamentally how to invest in these assets. That’s not frankly you know how to play this game from an asset value perspective. It’s about building that balanced diversified portfolio and sticking to your fundamental principals has created you know very much long term value in the underlying assets for me and for our company through time, and so yeah, we’ll be trimming on the edges by all means. I mean we own in our portfolio as you would expect us, a few assets that we think somebody else might be able to put to better use and pay a fair price for it, but generally speaking you know we won’t be aggressive asset sellers. But I think you could expect us to see something in the neighborhood of $20 million to $40 million of asset sales in the next 12 months, but that’s not really very many assets out of the $1.2 billion or so of you know farmland overall. I hope that helps Dave.

It does. I saw you bought some stock back in the first quarter. Do you anticipate continuing to use any of that liquidity to buy stock back or are you pretty happy with just kind of waiting and seeing what happens with your capital.

I would anticipate that we will continue to pick away based on our estimate of our cash flow and cash availability at the stock that’s out there. We of course as you know have a buyback program that was announced and it still has capacity, so you know modest amounts of buyback are you know probably going to continue, but it’s hard to say. It’s all about what the price is. As you can see from you know what we – we pushed the stock price up very substantially during the four or five weeks we were doing buybacks last quarter. There is not a ton of liquidity out there at this point in the market. So if we become a serious buyer and buy much quantity at all, we’ll push the stock pretty hard, so. When we’re buying the stock back we tend to go in and out of the market a little bit, because we’re actually trying to buy that stock at inexpensive price for the benefit of all of us who stay in when we can, but yeah, we’ll still buy, but it’s not going to be a lot different than what you’ve seen in the past for all this.

Got it, and maybe last for me. I know you gave some color on the fourth quarter call, but now that we’re through the whole first quarter and given your comments that crop prices as you indicated are up from the low points, can you talk about what the total rollover was, the rent change on rollover for this year?

I don’t have that statistic at my finger tips, but David Ronco and Luca you may have you know that stat handy. I think we published it in the K, what the same store sale statistic was.

Yeah, this is Luca. The same store sales, this is kind of retrospective. I don’t think we have in the public domains physically any statistics about the rollover you know 2017 to 2018.

Does anybody know the same store number though off the top of our head, we’ll do. I can give some color about the rollover, but in a moment let me just give you that data. So we went and rolled over our rents. What we generally discovered and even to me this was a modest surprise. So the core of the Corn Belt which is – you know that in California are our biggest areas. We saw rental increases being put into the rollover that we did in the Midwest. We saw our rents start to go back up where we rolled over leases. Whenever we switched a tenant we see rents start to go back up. That’s fundamentally a positive thing, so that’s such an important region in our portfolio. In terms of the California specialty crop portfolio, we also – there is a lot of crop share in that region, but we’ve either seen or expect a modest increase in rents region wide in the specialty crop portfolio. When we go to the other regions of the country, we would see the high plains, the assets we own in Eastern Colorado. Those rentals to the extent we had very many in that area will be gradually down a little bit. That region in the country has suffered frankly more than almost anywhere else in the low commodity price environment, because not only does it get hit with low commodity prices, transportation cost for the primary commodities out of that region are expensive. There is no good river network that reaches into the high plains, certainly not the western half of the high plains. So you get more volatility in pricing, both directions frankly in that region of the country than you get other places. So you know mid west is positive. The west coast specialty positive in terms of rentable plains are down some and then in terms of the delta and the south east, broadly speaking kind of flat. You know a few downs and a few ups, they sort of balance each other out, so that’s the basic situation.

I appreciate all that color. Thank you.

[Operator Instructions] The next question comes from Marnie Georges of Raymond James. Please go ahead.

Hi, thanks for taking my question. Just to build on that a little bit, what have you been seeing lately in negotiations with some of your farmers? Have concerns about the trade work then having any effects there?

No, we haven’t really seen the potential impact of the trade war show up in terms of negotiations with tenants at all. I mean, most of the farm – I mean there’s a lot written about this topic you know if you read the sort of daily kind of commodities, blogs and articles and your really kind of focused on what people who actively trade commodities; the Ag commodities as a career. There is a lot of sort of data and commentary about that. Its broadly speaking what I said. You know people have that kind of view that the trade war is not a good thing by any means, but the impacts, the negative impacts are relatively serious long term issues, not huge short term issues and so we haven’t really seen it show up. You know one of the things that’s interesting to note is when you’ve got this trade war fear, you know clearly in the press and its roughly the beginning of the year, but the primary commodities are still moving up. It tells you that the true commercial demand for these crops from the processors has really gotten stronger and that the commercials, despite their fear of trade wars are raising prices to secure supply in the coming year. That sort of tells you two things. It tells you that most of those people and me included don’t actually think we’ll have this trade war. We think that we and the Chinese in particular will find a compromise. But it also tells you that fundamental demand must frankly be very strong or you would see prices going down with all the negative tone around about a trade war instead of prices going up. So to see prices moving up in the phase of relatively negative moves is frankly a pretty bullish statistic as it relates to commodity price and former profitability. I hope that helps Marnie.

Yeah, definitely. Thank you for the color. Another from me, turning back a little bit more onto the company. Looking at G&A just given the increased scale, given some personnel moves, you know is this quarter something that you would expect to see as a run rate moving forward or is there something else that we should pay attention to there?

Well, I think in fact our cost structure will gradually get even lower in the coming couple of quarters. You’ve seen in the press announcement some personnel changes and you know staffing reductions in the company as some people decided to move on and do other things or to retire or whatever the case was, each case has a story. Fundamentally we are and were a company built for acquisitions and we frankly aren’t doing very many acquisitions. So our staffing needs to manage the properties we already own are frankly you know substantially lower than our staffing needs to manage properties we already own and acquire at an aggressive rate. So we’ve been able – we have a very high quality or a very small team of people. I think at the maximum we might add 16 or 17 employees and now we’re down to 14 or 15 at this point, but we wouldn’t have necessarily gone out and asked those people to leave. We assumed we’ll get back on a growth strategy soon. But as people have come to me and said, ‘hey, I’d like to be doing something else with my life’ you know we can’t replace those people and add some attrition through that timeframe. So as to add the reduction of personnel cost. The other big cost savings though is of course we made a significant change in the accounting service that we use for the company and that has a very significant impact in terms of the annual cost of the company. So those are all, you know those are all positive things. We’ll continue to do that. I mean as you, of course saw at the end of last year, Luca as the CFO and me as the CEO took substantial reductions in compensation, you know not because our business isn’t doing well at the fundamental level, but I’m a big stock holder too and the stock prices is suffering as it has. You know the senior management of the company is going to take some of that pain directly and we did. So the story going forward should be cost structure is at this level or even a bit lower as you see the quarters move forward.

Great, thank you so much. I’ll turn it back over.

Let me actually add one thing. There is a new page added to the supplemental. David you might be able to quote the page number, but its towards the back of the supplement, where we report some LTM statistics over things like overheads, you know G&A, legal and accounting property operating expenses and we’ll start to do that and continue to let you kind of see it on an LTM basis, which us gives the analyst community in particular a basis you know to project going forward. The reason we did that is that each, different quarters through the year have some noise in their numbers and so using an individual quarter and trying to multiply that for is a little bit misleading. LTM will give everybody a more accurate view of the overhand and cost structure of the company. You know the reasons for that internal variation are things like, there was a lot of excess accounting and legal in the first quarter with getting our year end sort of functions that are required by the SEC down at the Annual Meeting, the proxy or that sort of stuff. Fourth quarter of course tends to have bonuses and things like that. We of course accrued through the year, through a portion of things like bonuses and accounting and anything else. But it still tends to have sort of lumpiness when those events actually occur and so we are going to start producing that LTM tracking of the sort of key line items from the PNL, and like I said, it’s close to the end of the supplemental. There is a page in there that those of you who are building models ought to take a look at.

The next question comes from Mike Pesatery [ph] a Private Investor. Please go ahead.

Good morning. Thank you for taking my call. I have just three questions as a shareholder. Paul you have been very clear about this in the past and I want to revisit it, because I think many of us are kind of fearing the same things. You guys continue to make a concerted effort to reduce cost and I can say from a couple of people that I know that hold shares, we really appreciate your diligence to take responsibility and really kind of hunker down and really, really, really buy back shares and reduce your own salary and other things. Now the question I have is, it seems like without your buys and the stock seems to – obviously it goes up like you said as soon as you buy back and then it kind of hangs around for a while. Now what’s kind of the plan here? Like we go one to two years out and for whatever reason Wall Street doesn’t have the same intrinsic value that you as a company feel. I think you quoted earlier about $11 or $12 a share. At that point…

$12. $12 is the number.

Yeah, yeah.

Well, it was a range of what $11.50 to $12.50.

So you know Wall Street has lot of crazy different ways of intrinsically valuing all this stuff and so rather than get all the loss in all the noise, and I do appreciate the fact that you are sticking to the same script and that’s refreshing. The question is, when do you begin to start making a more realistic look towards, and I think one to two years out will be a fare in saying okay, we are not even at that $10 or $11 range. I hope investor that, that people kind of wake up and see the tremendous value they have in investing in our FPI, but at the same time, I don’t really know, that’s kind of your areas of expertise. That’s one question I have for you.

Yeah, so let me actually address that. I mean it’s an incredibly fair question and I try to speak very directly but I’m not going to tell you and everybody else exactly what the timeframe is, because to be honest I don’t know and it’s a function of not just me, it’s that level of decision, it’s a forward decision. But I can tell you that our strategy is we spent a lot of money getting public. We believe that this asset class belongs in the public domain, we think it’s good for agriculture and rural America, we think it good for investors. That being said, if we do not see a stock price recovery at some point in the future, probably measured in the timeframe you are talking about, about a year or two, we are going to do something more drastic whether that’s sell the company, take it private, call out a bunch of real estate brokers, sell off individual assets and distribute the cash to shareholders. I won’t sit here with this much of my personal wealth being affected by irrational pricing behavior on the part of the public markets. But once you decide to give us being public, it’s hard to get public again, not impossible but it’s certainly expensive. So we are really playing the optionality that the market will eventually get it and recognize the fundamental underlying values. We are, as I’ve said many times I believe really misunderstood by the Street. I wish people would go back and look at what we’ve said about asset values since the beginning. What we have said is that if you have a downturn of two or three or four years you are going to gradually see rents come down, you are going to see a little bit of price pressure on land prices, but not very much and then you are going to see it pull out and I think that play as we have described it is largely what we’ve seen and what’s occurring. So our near term strategy, and my certainly personal strategy is I know that the underlying assets will work. I continue to buy stock because I know we can buy farmland through my stock cheaper than I can buy it out in the market place, in the private market palace and I’ll continue to accumulate, the company will continue to buyback through the coming quarters. But eventually we are going to pull back and do something different. Most of you I own 6% or 7% of the company. Whatever we do is going to make my 6% or 7% go up in value and everybody else’s shareholder along with it. But I’m just not ready to that yet, because I think we took the company public in April 14. We have been in a relatively negative primary commodity cycle in terms of the popular reporting on agriculture has been way more negative that the reality. But I think in a new company and that environment it has pretty negative physiological impact.

And I want to address another thing, because I think it’s important in all fairness to you, not only being the – managing a very challenging economic climate. You did make a comment on the past call about all these posting and different articles. So I will take responsibility as a shareholder that I have at times been critical and I think that goes without saying, so I want to own that responsibility and piece. And what I do want to say to you is I would have appreciate it the changes you have made, and that’s in the cost reductions. You continue to support this company by putting your money where your mouth is and I think that speaks volumes and that’s a well differentiated approach to all this other talk about going organic and all this other talk about doing other things. So I want to own that piece, because I think it’s fair, but I also want to be fair to you and say that I appreciate your willingness to stay with the script and when your consistent messaging is very appreciated, even though sometimes you do take hits and shareholders sometimes get upset and so I do appreciate that. My second questions is, why not lower the divided down now, so you can reduce some of your already costs, you know what I am saying. That’s probably being a fare question you’ve asked before.

No, that question gets asked, that question gets discussed in our company all the time, but I’ll give you a really kind of clear answer on it. So to put this – so first thank you for the complements you gave. I mean sticking to the script is early, because my script is based on what’s going on on a fundamental asset value. The part of the company we really control is how we execute, what we buy what we sell and how we plant it and how we keep our costs structure down. What I don’t control is the stock price. I wish I did, but I don’t and so that’s just all we can do and we are going to keep doing it. But turning to the divided reduction specifically, as we said in the last conference call and I won’t reiterate it. Our board has discussed this. Of course we have a legal obligation to authorize divided every quarter. But we don’t have any intention as a board in this company to reduce this divided during this calendar year, that’s not to say we will reduce it next year, but we wanted to tell people quite clearly what our intentions were. And the reason we are again so against reducing the divided is really two-fold: First, in context we are negative, we are over distributing by literally just a few million dollars. Well that is in the context if you looked at last year’s USDA report on land values, of an appreciation of a portfolio that was probably in the neighborhood of about $23 million. That’s you know a $1 billion portfolio, about 2.3% nationwide increase in farmland. We’re roughly a balanced nationwide portfolio. So we think what we are doing is we are over – we are grabbing appreciation value and distributing it a little bit by having an uncovered divided. For the actually dollar amount on $1.1 billion or so of assets is so small that we do not want to reduce a divided and we don’t feel pressured to reduce divided. The next point I want to make and we’ve studied this. If you go look and purely at what happens when somebody reduces a divided, it does not lead to stock price increase, it leads to stock price decrease. Again, there is a wealth of information out and we have these presentations. We searched the topic. Divided decreases do not lead to higher stock price; they lead to lower stock price. So I’m not sure what we get from decrease of a divided. But now when I get to third point this is probably the most important point. We have bought farms from people by distributing equity to those people. And so frankly if you think about it for a second, the value we paid for those farms has come down as the value of our stock has come down. The people that took that stock from us in transaction; that suffered right along with ever other shareholder. Those people have taken that stock in good faith. They are going to hold that stock for a long period of time and these are often retired individuals that will potentially for the tax benefits of talking OP units will pass that stock on to the next generation and we are not going to reduce the divided on those people who we did deals with, and I’m talking there’s probably 100 million plus of that kind of stock out there. And these are good long term shareholders and if they hold on, they understand agriculture quite well. There is a class, they understand agriculture very well, we are not going to reduce the divided on that beautiful people unless we will had to from a financial – from being forced to from a financial point of view, because I think its fundamentally unfair. I mean I’ve got every legal right to do it, but we kind of deal with those people that said ‘look, I don’t control the stock price, but I do the control the divided and we promised you a certain divided. Those folks are often based on the amount of the price they’ve gotten in a transaction, making a reasonable divided or something like 4% or 5% against the original investment and to me it’s a real; it’s a long term reputational honor for doing that after you did those transactions with those people but it’s also just not necessary and not required. Nor by the way, if I felt like producing a divided that would make the stock price go to $12 or even to $10, I’d do it and it’s not the empirical data reducing a divided that will make my stock go to $5. So it is not likely to do that, certainly not any time soon.

Thank you for the color. My last and final question is this. There has been a little bit of confusion and people are always confused because they don’t take time to read anything nowadays. It’s all about popular pressure, message boards and perception. So, can you add and put out for the record, what was that recent filing that had do with I believe it was 300,000 shares or is this something that had to do with potentially one of your board members leaving, that own a substantial amount of shares. I can’t quite make sense of it, so I’d rather just go right straight to it.

I think what you are referring to is a filing that we put out that’s called a shelf offering filing and there was some confusion about that, but there frankly shouldn’t be, so let address it correctly. A modern practice for public companies sort of standard operating procedure of diligent public companies is to maintain a shelf offering at almost all point in time. We had a shelf of 300 million historically, it was about to expire. We put the shelf back in place. The reason you do that as a public company, and virtually every public company does it is that it rapidly accelerates your ability to issue equity anytime in the next three years when you chose to do so, to have a shelf offering in place and to have it kind of up and ready and maintained. And think about it like, you can issue stock in something like two weeks as opposed to two months or more. So what we were doing there is not indicating by any means that we have an intention that this stock price to issue a bunch of stock. We were just being diligent in our business professionals as the management of this company and the board of this company by maintaining the shelf offering which was about to expire by replacing it with one of basically the same size and that’s all that is, it’s all about being prepared. We clearly do assume the stock will recovery eventually and we will be able to grow the company again and in fact it wouldn’t have been, it wouldn’t have been prudent on our part if I left that shelf fully expire and not get a replace shelf back in place. That’s all that is.

And thank you for all your time and I would say it again, FPI, you guys it’s a great investment. I don’t care what Gladstone says, FPI is going to win it out. So that you so much.

Thank you very much. I’ve have no idea who you are, but I should send you a box of chocolates. Thank you very much.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Pittman for closing remarks.

Well, thank you all for joining us. We do appreciate your interest in the company and as the last questioner indicated, we are frankly very supportive of our long term shareholders and want to be supportive of our shareholders. Thank you all for having the confidence to invest in the company and hopefully we will see stock price improve. Certainly the underlying drivers of our business are improving and so we hope that continues. Thank you very much and thank you Danielle.

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