Farmland Partners Inc. (FPI) Q2 2018 Earnings Report, Transcript and Summary

Good day and welcome to the Farmland Partners Second Quarter 2018 Earnings Conference Call and Webcast. All participants will be in a 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, Chief Executive Officer. Please go ahead, sir.

Thank you, Clodia. Welcome to Farmland Partners, second quarter 2018 earnings conference call and webcast. Please refer to the Investor Relations section of our website at farmlandpartners.com for the Q2 2018 supplemental package, which we maybe speaking to later in the call. The link for the presentation is both directly below the webcast link and is also posted under the presentations section of the Investor Relations portion of our website. With me this morning is Luca Fabbri, the Company's Chief Financial Officer. 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 second quarter earnings was distributed yesterday evening. A replay of this call will be available shortly after the conclusion of the call through August 23, 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 August 09, 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, dispositions and farm properties under evaluation, impact of acquisitions, dispositions 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 net operating income, FFO, adjusted FFO, EBITDAre and adjusted EBITDAre. Definitions of these non-GAAP measures, as well as reconciliations to the most comparable GAAP measures are included in the company's press release announcing second quarter earnings, which is available on our website, www.farmlandpartners.com, and is furnished as an exhibit to our current report on Form 8-K dated August 8, 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. It has been a difficult month for shareholders, but it is important to remember that the fundamental value of our portfolio remains strong and probably growing despite the noise in the public markets. Obviously, we have had a lot transpire over the prior month. It has been trying to receive unfounded criticisms that we did and to see the impact on our shareholders. That being said, I take great comfort that our business model is sound, fundamentals are healthy, earnings and values are solid, these items endure. And as long as we continue to execute, we will be rewarded. Value is value and we thank you all for your continued support of the Company. I am going to go through five kind of major topics this morning. The first of which is our fundamental business. As I said a moment ago, the fundamental business is strong. We are confident in our high-quality assets and in our tenants. A few important facts; the USDA announced that Farmland view values grew to reach an all time high last week even in the face of the ongoing trade wars. Nationwide, Farmland values went up 1.9% on a weighted average basis for our portfolio they went up approximately 1.7% in the last year. This is what a challenging year for asset values in the Farmland asset class looks like. We would expect better results than that in the future, but if this is what a down year looks like, this is why we have all invested in Farmland. Our portfolio not surprisingly is continuing to perform and our internal estimates of value remain steady as in any industry. Book value per share is approximately $9.73. Based on the USDA land values report, our per share value would be $11.73. Using traditional cap rate based REIT valuations, we would have a NAV per share of approximately $13.92. As I have said for many months, we believe the NAV of our company is somewhere between $11.50 and $12.50 and we will work diligently to see that that value is achieved in the shares. Our portfolio is 100% occupied and fundamentals are okay for the second half of 2018 and 2019. Same-store rents grew 1.7% 2Q 2017 over 2Q 2018 and 7.3% for the six months ended 2Q 2018 versus 2Q 2017. We caution you all that quarterly based same-store rents have quite a bit of noise in them due to timing, but the trends are certainly positive. We have executed several assets sales in Texas and Illinois at approximately a 10% gain on book value, which has resulted in an unlevered IRR on those transactions of approximately 9.1% and a levered IRR of approximately 14.6%. These sales validate management capital allocation decisions and will continue at a modest and measured pace. These asset sales also gradually reduce our debt. This is what matters, when it comes to our business and to the fundamental value of our shares. This is what management will continue to focus on, not the noise created in Seeking Alpha or any other unknowledgeable source of information about our Company. I would now like to touch briefly on the misleading anonymously written Seeking Alpha report. We issued a detailed press release refuting the allegations. So I will not go through the Seeking Alpha report point-by-point. We have no intent on dwelling on this issue. We are instead focused on what it means for our shareholders and what we can do. We will pursue litigation and cooperate with law enforcement to see that justice is done and to attempt to recoup money for our shareholders. We are also instituting an employee retention plan for the non-executive members of our team. When your stock declines, like ours did, it creates many short-term issues, but it also creates significant opportunity. In the short-term, we will face lost revenue for new business ventures, decreased growth in acquisitions and capital expenditures and additional costs and expenses, including litigation expenses all resulting from the misleading Seeking Alpha article. With this short-term issue, we also find opportunities to benefit our shareholders by reinvesting in our Company by buying back our shares. We intend to repurchase discounted shares which allows us to increase the ownership of our farms at deep discounts for the benefit of all shareholders. Point number three, we are lowering our 2018 earnings guidance by approximately $0.10 to a range of $0.30 to $0.34 per share to account for the litigation expense, the increased G&A and the losses of revenue from asset. Asset acquisitions, we will not do. Asset sales, we have made, and lost revenue opportunities from planned joint ventures. Prior to the report, I would have characterized our earnings at the bottom end of the range, due to trade war headwinds and negative short-term impacts in particular two farms in Florida, but the overall business was performing generally quite well. After the report, obviously we have a hard time handicapping the actual additional costs we will incur, but the core business is on track and delivering as expected. As I mentioned a moment ago, we do have two specific issues on Florida farms that have led to a modest reduction in 2018 revenues for which we have taken reserves. But they do not have any impact on the long-term value potential of those particular farms or our overall portfolio. Number four, our Board has approved an additional $30 million of common and preferred share repurchases, which results in a total of $38.5 million of available capacity for share repurchases. Repurchasing our shares will generate returns well in excess of traditional Farmland investments available in the market today, and will lead to a significant accretion of cash flow and NAV per share. We do not anticipate utilizing additional borrowing to fund this buyback rather we will finance repurchases using recurring cash flow and funds from asset sales. To this point we are reducing our dividend to $0.05 per quarter and we use the savings per quarter to help fund the buybacks. We have deliberated extensively over the decision to cut the dividend. It is especially impactful as it relates to operating partnership holders who took those OP units as a part of the farm acquisition transaction. But given the current low stock price and the significant value that can be created from buybacks we feel that this decision to reduce the dividend is in the best interest of shareholders. As a very large shareholder and OP unit holder this reduction of course directly impacts me and several other members of the management. But the stock manipulation on July 11th had certainly hurt our shareholders and caused us to make some different decisions. However, when you have the opportunity to drive NAV per share, cash flow per share of this magnitude we feel that this is an opportunity we must capitalize on. We hope to return with stronger dividends in the future when the stock price recovers. Asset sales create a lucrative arbitrage opportunity. We have assembled a great portfolio of critical scale which is a source of competitive advantage but similar to our dividend discussion we will pursue asset sales at strong private market values to finance the purchase of discounted public securities until it makes sense to change that strategy. Number 5, moving forward we will continue to do our best to improve shareholder value and move it back forward NAV. Our NAV is likely growing according to the USDA land values reports both this year and last year. We will continue to look at all options to maximize shareholder value including the sale of non-core assets and the reinvestment in our business through buybacks. We our management team that is focused not getting shareholder value in line with NAV. We have run the business with the principles of mentality and will continue to do so. We are committed to realizing these underlying values of this business by all means necessary. We hope that our existing shareholders and the new ones that have come into the stock recently understand this incredible value opportunity and are committed to supporting us as we diligently pursue that goal. Luca let me turn it back over to you.

Thank you, Paul. I would like now to go through summary financial highlights related to the second quarter financial performance in the first half financial performance. In the second quarter of 2018 revenues were $11.4 million and operating income was $5.2 million. Year-to-date revenues were $22.6 million, a 21.6% growth year-over-year and operating income was $10 million, a 60% growth year-over-year. In the second quarter adjusted EBITDAre was $7.8 million basic net loss the commercial stockholders was $0.07 and AFFO per share was $0.01. In the second quarter we also – as Paul mention we had some asset sales that were closing the quarter totaling approximately $2 million at an approximately 11.8% gain over net book value. And subsequent to the quarter end we also close approximately $7.5 million in sales at an approximate 10.2% gain over net book value. I just want to remind you. Again a little bit about the seasonality of revenues in AFFO in our business in general and in this year in particular. While our own operating expenses and overhead expenses are generally spread relatively evenly through the year. And we have a significant bump in revenue recognition in general in the fourth quarter related to crop share the recognition of crop share revenues and is particularly heightened in 2018 and we expect it to be heightening some of the future years due to some specific leases that are - that concentrate a lot of revenue recognition in the fourth quarter. In the second quarter we incurred approximately $20 million in additional indebtedness as well. This concludes my summary remarks on our operating performance for the second quarter of 2018. Thank you for your time this morning. Operator, we would like to begin the question-and-answer session.

Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] Our first question is from Rob Stevenson with Janney. Please go ahead, sir.

Good morning, guys. Paul, what magnitude of asset sales are you and the Board thinking about at this time?

We will - it's hard to say what the exact number is. What I have previously said it was $20 million to $40 million. We will exceed that number by some amount, but exactly how much is unknown. Our view is that the – and we're seeing this in asset sales we’re making. We have profit in many of our assets. We are called all the time by bottom fishers after this attack on our company. We're just not going to respond to those guys, but fair value buyers we will sell some assets because it's very compelling to reinvest that those dollars today in the buying back our own securities, and frankly more profitable than holding the farms. So it's hard to say exactly what the number is, bigger than it would have been 60 days ago, but it's probably still not – it's not multiple hundreds of millions or anything like that is not our expectation, is not in the near-term.

Okay. And with any share repurchases, how should we be thinking about that leverage neutral or should we expect to see effective leverage increase as a result?

I mean it should be close to leverage neutral if not actually decreasing leverage and here's how we can kind of think about it. When we sell a farm in the neighborhood of 40% to 50% of the sales price of that farm will go to reduce debt. Each of these farms has an individual mortgage on it, and obviously, right there at the closing table you’ll paydown the debt that was assigned to that farm. And then as far as with the repurchases, if we are repurchasing preferred, you are obviously lowering your sort of owned for all senior leverage or senior capital position. If you're repurchasing common, you're theoretically increasing your leverage a little bit, but not frankly by very much, and that’s kind of what we would expect to see. So it ought to be close to leverage neutral or maybe even lower our leverage gradually through the time.

Okay. And then when does your window – is your window open up after – basically now that you filed the results that you can start buying back stock later today or tomorrow, is there…

I mean I won't disclose our exact buyback and repurchasing plans for obvious reasons. We will stay out of the market for what people consider the normal amount of appropriate time for this new information to settle in and fully be seen in the marketplace and then we'll likely enter the market for buybacks.

No I was going to just ask – I mean in terms of some of the impact on some of your farmers from the trade wars and tariffs and everything like that, has anything of the money sort of earmarked by the Trump administration started to flow to help these farmers at this point? Is it going to come soon enough that they will impact to maybe get a positive in terms of their operations for next year? And how they think about planting in crops and things of that nature? How should we be thinking about that and the sort of attitude of your tenants from that as we get towards the – thinking about 2019 rather than just 2018?

Yes. So the trade war as it impact on our business is actually a very sort of difficult thing to figure out. Number one, there's not much history here. It's been a long time since we've had a trade war in place on agricultural commodities. Commodity prices corn, soybeans and wheat in particular have come up pretty significantly in the last 20 days to 30 days, and if you just go pull a price chart for any of those primary commodities will see this. They came up earlier in the spring. They dipped for a while and now they've come back. The reason for that is those prices are driven by the true underlying fundamentals, not the trade war. It is a hungry world. All of these commodities will be consumed. We are generally entering a period of time with more orientation towards shortage than surplus. If you look at USDA data as it relates to worldwide and national carryout numbers for those commodities and that's really what's driving commodity prices today. Trade war is probably are holding it back. Soybeans in particular would probably be – I've read reports that would say that would be as much as $1 higher if we settle the trade war. That's the commodity most impacted by Chinese, [discontinuing Asian] of importing for us. But what's going to happen, assuming the trade war continues to go forward, at least in the near-term, you're just going to shift where we sell our product, not actually change our ability to sell it as the United States very much. Brazil will sell more to China and we will sell more to everybody else in the world. And that change is already sort of occurring. So that farmers aren't in need today of that benefit so to speak, in terms of making their profitability and our cash flow to stay together. If this goes on multiple years, that's when the trade war really becomes a big negative, at least in my view. And that's because what it does, it causes other countries to invest in solving their infrastructure and production problems to be able to produce more beans or corn or wheat and compete with us. So it's the five-year effects of the trade war that I worry about the most, not the near-term effects. Obviously, what the Trump administration has proposed is generally welcomed in the farm community, who wouldn't want further revenue and aid in what's a challenging price year. That’s not a make or break fact for the performance of a farmer. I've even read some articles that people think maybe only half the farmers will even bother to fill out the paperwork. So it's just – this idea that the trade war has completely hurt production agriculture is really a misnomer, all of us in agriculture want the trade war behind us. It's an export driven industry, but it's not got immediate huge negative financial impacts as I think the popular press sometimes suggest and you can see that it doesn't have those impacts if you just pull out a commodity price chart. Hope that helps?

Okay. Yes. And then last one for me, I think it was the fourth quarter earnings call in response to some comments that you made regarding the discount. You believe the stock was trading at that time. I asked you, why not find some capital to pick the Company private, I think in response, you basically said that you were committed to remaining public for a variety of reasons. I wonder after the last month on top of the last year, you still feel that way and whether or not something that the Board has been considering?

We obviously as a Board, considered everything. But our strategy is as I just outlined in my prepared comments. For now, we are going to sell a few assets and we're going to aggressively repurchase our shares because we believe the value is there that difference between private market valuations and our public stock valuation. That is not for the benefit of some private equity fund they want to take us private. That is for the benefit of the shareholders we already have. And we will take decisions – private equity fund wants to show up and pay NAV. We will probably sell the company. But if a private equity fund wanted to buy cheaply, we're not going to do that. There is absolutely $12 a share in our opinion in the stock and we will achieve that value eventually through a variety of different actions we can take. And that's what we're focused on. It's really a value question, not a process question per se?

Okay. Thanks guys.

Yes. Thank you very much.

Our next question is from Collin Mings with Raymond James. Please go ahead.

Thanks. Good morning. First question for me Paul, just I'm guidance. The higher G&A legal and accounting costs are pretty straightforward. But just can you walk us through that $0.05 hit to base rental income and a little bit more detail?

Yes. So it's not – I'm going to do it the base rental level and to do it the total revenue level if you don't mind come because how we allocate between base and other income as a little bit, that's a lot of data buried in that. So in terms of what's happening to revenues is really the following. We have two – in terms of the basic operating business we already have. We had two significant lease challenges come to us in the second quarter both of which were in Florida. It was a case of a tenant backed by a private equity firm that frankly went bankrupt. We re-rented the farm quickly to someone else with frankly a better and different operating model on the farm. Over a period of a couple years rents will probably go back to if not exceed what we had with the prior tenant. But at least in the short-term particularly this year you take a real step backwards when you take a farm back in early April in Florida. You need to re-rent that farm in a hurry and you do so you do in a discount because in Florida that's obviously already kind of late in the season. The other operator in Florida was a lease that had expired tenant as our normal course of action we get a tenant who was on a sort of first dibs. That tenant at the last minute couldn't secure the funding to continue to form that property. So we have of course we rented that farm with someone else again quite quickly. And that effort led to a drop in the rental rate for this year, but again we're converting that farm to a different type of production, different crops it'll likely go back up to higher rents as you walk forward in 2019 and 2020 than we had under the prior tenant. So these things have significant kind of quarterly impacts because we took a bunch of reserves, we cut revenues, you do those sorts of things and those sort of things show up in your quarter in a pretty significant way. But their impact on overall portfolio valuation or long-term cash flow really isn't very significant but on a quarterly basis in particular or even the rest of the years does that up. We also had a few positive wins on the revenue line and some of our businesses, some of pieces of our business that's good. We lost a very important piece of all broadly called joint venture business following the Seeking Alpha article. That some of it was an effort we had worked on for over a year. And not only there – one very specific piece of business was lost, probably some future business that would have been similar to that was lost. We're trying to recover that not sure if we will, so don't really say any more about it at this point in time. Then the other impact of the revenue line is really kind of the impacts from this sort of strategy change we're making. A modest amount of loss revenue from the asset sales we've already made and we will continue to make, which obviously pulls revenues down. The lost revenue from CapEx and from acquisitions we’re not – we haven't made since we were doing buybacks, certainly year-over-year-on-year and acquisitions in CapEx that we won't do from this point forward since we're devoting all the additional cash to buybacks. And so that's those really are the constituent pieces of the revenue line change in the guidance.

Okay. That's very helpful detail there, Paul. Now just going back from your prepared remarks and as it relates to guidance again you seem to leave the door maybe open to some additional expenses. That again tied to maybe potential litigation you touched on some of the employee retention efforts. Just maybe speak to your confidence level in this new guidance range, is anything else that – some variables that we should consider as we think about the potential movement on what could happen to G&A and legal cost just given where litigation is right now?

Yes. We obviously have D&O insurance as company like us would have. We feel that we're in pretty good shape there. I mean these claims are all fundamentally merit less. So the eventual litigation costs and expenses ought to be manageable. But we came out with both the dividend cut and the guidance. We very specifically wanted to be conservative or aggressive in the negative sense if you will on both of those things because whatever the medicine you have to swallow is after you face these sorts of defamatory attacks, you just need to take it all at once. So I think we're reasonably confident that these are our numbers that we will meet or exceed going forward, but it's a very, very small company, 15 employees. A lot of moving pieces here and trying to kind of budget for everything and plan for everything is a little bit of a challenge. I would like to think that we've been conservative in our numbers, but you just never know is the real answer.

Okay. Fair enough there. And then just on the D&O insurance, I recognized again some sensitivities I wanted to go too much detail on that. But just as you think about potential litigation costs beyond the 2018 and into 2019 if things were to drag out. Is there kind of already a deductible if you will that you feel like you'll have met throughout 2018?

Yes. I mean I'm not going to go into the specifics of our D&O policy, of course, but let me just leave it at the following. We're not engaging in recreational litigation. We believe we have – the claims of the class action suits are completely merit less. I'm relatively – certainly there's a bunch of those class action lawyers on this call. You can't just grab a dishonest article of Seeking Alpha and slap into a complaint and expect to win a lawsuit. That's not how it works. That world is about true facts and real facts and the real obligations we have as a public company. And we haven’t violated any rules. Those cases will eventually go away. And then when you turn to the defamation case that we filed, we believe there is real damage caused that we can prove and we believe that there are people behind that with real money that we can recover and we intend to do our best to do that for our shareholders. And on that litigation strategy that's really all the – as far as I’m going to go common.

Okay. Fair enough. Then going back to the buyback, again recognizing the sensitivities on talking about blackout periods, but maybe just talk a little bit about what you see is more attractive right now in terms of buying back the common or the preferred?

Some one on this phone call, I don’t know what the trading activity is and I'm sure it's hectic. But I think our view would be that you – if you can buy some of that preferred at a material discount, we're going to buy some of that. And then the common is at such a steep discount. We would devote some dollars there. I'm guessing we split those buyback – as much anything as an availability question, there's a lack of liquidity frankly in both securities. So as we're trying to deploy these buyback dollars, it will be partly a function of the pricing available, and I would think when we report it, a quarter from now you'll see that someone both ways.

Okay. And then going back to Rob’s question on as far as asset sales, can you just share with us, do you have any other properties under contract to be sold, again it sounds like it could be north of $40 million all in by the end of the year, but just – are any of those kind of already under contract to be sold?

Yes. We've got – we do have some properties already under contract, but we don't announce what we expect to get or anything like that. I think if you look at the subsequent event sections of our Q, when it comes out there's some disclosure there, but we don't want everyone to talk about numbers until transactions are closed and the money is created enhance.

Okay. Another one just on investment activity, it does look like you may have acquired a property subsequent to quarter close. Can you just touched on that?

Yes, we bought an additional – some additional Farmland in Illinois, transaction we’ve been working on with one of our tenants that they had an opportunity to pursue for quite some time and we would ahead and did it, good value, good farm, happy with the upside potential on that transaction over the long-term. And we're not going away. We’re not going to stop acquiring entirely. But for at least for the near-term, you will see more capital recycling and more sales of assets than acquisitions.

Okay. And then kind of going back to the fundamentals of business, again following up a little bit on your response to Rob’s question here, just maybe talk a little bit more and recognizing it's going to vary by region and by farmer. But just talk a little bit more about just that that rent negotiations are right now? I mean what are you seeing maybe again take us through some of the row crop or just maybe some of the specialty, just talk a little bit more if you can about rent negotiations relative to expiring rents if you can?

Yes, I mean we will have something like 20% to 40% of the rent. Most of our leases as we've talked about in past calls are three years. So we have 20% to 40% of the portfolio rolling over us approximately in a given year. Our general sense is that those rents will move up modestly. Now they will not move up, as – this is what the market I think continues to misunderstand Collin, is that bad times in production agriculture from the landowners perspective are flat that it's a flat environment. It's not a down environment like you might expect in any other asset class and that's all because of the power of food demand growth. And so we don't look at these as good times in terms of rents. But if I'm only getting a 1% or 2% rent increase per year that's bad by the standards of historical averages you would expect 3% to 4%. And so we're going to still eke out modest increases on a low crop properties with one exception and I think that's the high points, and the high points regions of the country because of – centrally because of difficult transportation networks of the primary commodities, corn, soybeans, and wheat, they in a down price environment at the most volatility in terms of formal profitability. And so I think it would be flat in those regions. I mean we're now kind of four years since commodity prices started to come on. And so the pain that needs to be taken has already really been taken in our rents and that's why you're starting to see these same-store sales statistics move up with the cautionary footnote I gave in the prepared comments. Other than a directional sense, I don't think you can take a lot away from a quarterly same-store sales numbers. The annual numbers are obviously more meaningful, but the quarterly ones tend to have in just quite a bit of noise as a time in particular.

Okay. Appreciate the color there Paul. I'll turn it over. Thank you.

Yes.

Our next question is from Dave Rodgers with Baird. Please go ahead, sir.

Hey, good morning. Paul or maybe even better to Luca, just in terms of kind of the three big impacts you talked about to the NOI guidance reduction of that about $0.07 or so. Can you quantify kind of the components there in terms of the tenant bankruptcy and the replacement of the other tenant as well as it looks like maybe you had much as $2 million of acquisition related revenue embedded in the numbers. Can you break those components out for us please?

Yes, I'm going to break them any farther than things we've already said that I can point you to where the kind of facts are. If you look at our prior guidance, your estimate of about $2 million that was in our original guidance or acquisitions and CapEx, Dave, it's not just acquisitions, the acquisitions then CapEx. That number is roughly accurate. So you can start from there as far as the rest goes you'll see – you can see in the reserves that we took significant amount of reserves on those two Florida things in the most of that reserve number this quarter comes from those two events. That's about as specific as I think we ought to be.

Okay. And then appreciate the update on Farmland values both overall as well as your portfolio. Can you talk about that just in a broader sense and any changes that you're seeing in different regions of the country I think it's obviously important there's that underlying stability. And I guess maybe tie that into the broader concept of – can you start to see that type of stability back and your financial results, extra noise of litigation cost in G&A?

Yes. So when you invest in Farmland as a Private Investor. What you're going to get is a real stability in the asset values and some level of volatility if you were directly operating farm some level of volatility obviously in annual return. Now through cash rents and other things you can significantly mute the variation in annual numbers. But the underlying business at the actual individual farm level. The land values gradually creep up. In tough times they creep up like they have the last couple years 2% to 3%. In good times they creep up 5% to 8%. If you went and looked in our supplemental on Page 19 you'll see a 10-year history of land values and all 17 states that we own Farmland. And if you look at states like Illinois, your high values in a place like Illinois came in 2014 and 2015 at about - the high in 2014 was $7,520 per acre average for the state. We're now at $7,450 in Illinois that means we've come off a little bit and started decline back up. But that's just a good example of what goes on, on asset values and you get obviously some volatility based on weather and or crop price in revenue of each one of these farms. We're not seen huge swings in our revenues per farm out there, other than these sort of videos and current events like will always happen when you have 300 or so separate farms. What you're seeing is huge volatility in a stock price that's based on a misunderstanding of what's really going on in the countryside. I mean you go read on Seeking Alpha and I keep seeing authors write things like Farmland’s going to come off 30% they've been right in one writer up there has been writing that now since 2014. Busy ever right, but I'm just wrong. He's wrong. This drumbeat of noise has put volatility into our security. But just hasn't occurred and doesn't exist in the private market. On the G&A side you get something like Seeking Alpha in the litigations coming out of that. That is expensive and does have some impact at the bottom line. Only I don't know the answer to question, but that’s what we're seeing out there.

Yes. I think it does and appreciate the added colors. Thanks Paul.

Our next question is from Charles Frischer with LF Partners. Please go ahead.

Good morning, Paul. I own a little bit, less than 1% of the Company. I don't sell before the Seeking Alpha article and [indiscernible]. I just want to ask you a couple questions. One is capital allocation is a critical piece of what a CEO does and you have a [indiscernible] incredible opportunity like you've delineated today. Let's first talk about – you're not going to have to listen to me in terms of do what I say, but buying preferred here is a real head scratcher for me. The preferred trading is $23, 6.5% coupon, they’re trading essentially $0.92 in the dollar. You've got common which give or take is close to a 50% discount to NAV. You have a $38 million buyback, you can all do the math if you spend $38 million buying stock back at current prices, that's like buying a farm that's worth almost $80 million or $40 million. It seems to be a no-brainer, just to go ahead and – I won’t even waste your time buying preferred. That's my first question. Why you would think about buying preferred at all?

Yes. Let me actually answer that because there's a very sort of simple one kind of practical answer, because the math you just did is fundamentally correct. We've had all these equation, but yes. What you said is correct and we believe it is a management, and by the way thank you for supporting us in difficult times. But the practical reality when you execute a buyback, you may or may not know all these rules. Yes, we can only buy 20% of the stock in a given day. We have a relatively low float. The stock will eventually recover. The discounts in our securities won't last for ever. And so let's just say for sake of argument that I'm bumping up against the legal limitations on the common buyback. And if I just keep pushing on the common, I eventually push the stock price up pretty aggressively against myself. We're going to take some dollars and move it over to the preferred and buy some preferred and then come back to the common again. I would think that most of the dollars we spend go against the common. There's certainly bigger discounts there and there is certainly more liquidity in that security. The preferred doesn't trade very effectively – doesn't trade very much volume at all, but we need to keep the flexibility to kind of move back and forth.

That’s fair. You get the math did. On a housekeeping basis, we’ll have to buy one block a week, who to keep [indiscernible] block to sell…?

If somebody has a block to sell they ought to give a call to the – you need to call our office and ask for the CFO, which is Luca or they can call any of the investment banks that we will be executing with and the banks that have been – I'm not going to give you specific names of the banks that have been in our recent transactions if you look back through both equity and preferred transactions will be the banks that are helping us with this.

One more thought I would give you Paul. You're a little down, it's been a tough period, you can make – and you had the opportunity – you're going to be able to buy lots of stock with six or seven handle. And those are going to be wonderful purchases and those are going to be better than any farm you would have bought this year. You're going to create 30%, 40%, 50% returns on equity. So just keep your head down, you are doing the right thing, just grind through this and you’ll do well for everybody, you just got to stay focused and you are.

Yes. Thank you very much for that by the way. And for other people listening have sent me a kind email and there's many of you appreciated. That's what we're going to do. I mean we are depressed. Our company is – everybody in our company feels like they've been defamed and smirched. It's very, very inappropriate. But we're going to get through this. The good reason we are fighting back so hard is – if you’re thinking about suing us in one of the class actions, make sure you do it on contingency, otherwise you’re going to lose your money, and we're just going to – we're going to fight this and win them. So that's where we are.

Okay. We will keep up – and just execute. Thanks Paul.

Our next question is from Craig Kucera with B. Riley FBR. Please go ahead.

Hey, good morning. Paul what was the dollar amount of expected investment in CapEx and acquisition that you elected not to pursue?

I don't know on top of my head the real answer, but it be tens of millions that we're not doing because we will have shifted away quite a bit of money toward buybacks.

Got it. And you close the quarter with I think $26 million of cash. How much of that would you be comfortable using to buy back the stock and then kind of waiting to sell assets?

We are not going to get out over our skis here. The way you’ve really lose money in ag real estate is being forced to those are [indiscernible] long-term investors in Farmland. We hate to see the rents go down and think of the dividend as the rents. But the real value is the corpus, and the corpus is the land itself. You're not going to – you don’t want yourself in a situation like do any kind of forced sale because you're running out of cash and this is why we would already embarked on some sales. I mean we had a dividend that was in excess of our earnings. We certainly – we never would have cut this dividend, but for the Seeking Alpha short distort attack. But we’re not going to get ourselves in a position where we're short of cash. But the asset sales have already started and will continue and so we think we can be reasonably aggressive repurchasing securities, $26 million on the balance sheet, $38 million of potential buybacks in the next year. With asset sales coming that's not a very big bridge to cut across.

All right, thanks.

Thank you.

Our next question is from [indiscernible]. Please go ahead.

Good morning. I’m curious about the transaction you mentioned, the purchase in Illinois. Are you a liberty to give more details on that?

No, we’re not going to give individual details on individual transactions. They're just not going to talk about the actual individual transaction. I mean how we negotiate transactions is essentially the secret sauce of what we do and we're not going to get into exact pricing of deals and things like that.

Let me ask you this, do you happen to know what the PI index was?

PI index of both highs. The sales and the acquisitions are Class A soils. So I don't remember exactly, but high 130s or 140s and book cases.

I see.

And for everybody else on the phone, PI stands for productivity index. Its how you measured relative quality of land in Illinois in particular is different indexes in different states.

All right, well that was – what I was curious about and I can appreciate your stance on it.

Yes, great. Thank you very much, David.

Our next question is from [John Topping] of Private Investor. Please go ahead.

Hi, Paul. You noted selling non-core assets. What do you consider non-core and how do you identify those assets that bottom up process or top down process, step back and where you end today?

Yes, that's a gun a combination of both if you mean kind of who decides. We have regional farm managers who look at the assets in their zone as well as me looking at the assets in those zones. And what we do is we kind of look at our land and broadly speaking, three buckets. We've got what we call the crown jewels. These are very, very high quality farms, either very big, very special for some reason. These are assets that we really don't want to sell. We don't if somebody offers us a very, very top dollar price, we will certainly consider. We're in the business of buying and selling land, but the crown jewels we want to keep. I would say that's round number something like 40% of our portfolio. Then the biggest group of our portfolio about 50%, our farms that are really very good, but for some reason, not perfect, not big enough, if you're in the Midwest that possibly have a waterway or something in them there are unusual shape, some challenge of some sort that makes them less than perfect, but still quite good. Those farms are farms will trade in and out of through time gradually trying to increase the number of crown jewels we have is really the goal. But those will be farms we would consider selling. Again we'd want that full and fair price to sell, but we would consider it. Then the third group is a group of farms that in a perfect world and possibly I wish we didn't know. That might be 10%. What's usually happened there is we started in a given geography with an anchor farm and then for whatever reason had a hard time adding on to it in the nearby geography, and so from a management perspective they're a bit of a pain in the backside because you've got to travel to get there, you have to maintain relationships with potential tenants and everything else, but that sort of outliers on their own. And those farms again will sell them in excess of what we paid for him, but we're more willing if you will the sell those farms. And that's really kind of the three buckets and how we look at it. So when we decide what to sell anything in that third group I just described is certainly non-core. And then anything in the middle group I described if the price is high enough, we're willing to sell it and recycle the capital today and in the share repurchases in an more normal environment we could try to be recycling the capital into higher quality farms, higher quality and better farms at similar prices or equal quality farms at lower prices. Because the way the private market works is there will be a buyer who might happen to want something more than we do. And if that's the case we were willing to sell in those instances. So that's sort of how we decide kind of what to part with and what to keep.

Great. So there's no sort of regional bias or land type bias that…

No. There's not any specific regional bias. We firmly believe in the principle of diversification in the context of our overall portfolio. Okay there are several years ago four or five years ago people would have been telling us what are you doing going to the West Coast and buying permanent specialty crops. They don't perform as well but got more risk why are you buying that. Just by the Midwest. Now people said – people that are I think are uninformed frankly say the opposite. And this is – it's a big country with a very powerful ag economies each of the regions is different driven by slightly different economic factors all driven at the end of the day by global food demand. And so we want to be diversified. And so we cannot – the regions that kind of feel that from a buying perspective, the regions are kind of feel bad at a given point in time are probably where you need to be investing in dollars. And in the regions that particular point time feel really good maybe where you want to pull back a little bit it’s sort of traditional rebalancing principles, as you sort of think about the portfolio. Hope that answers your question.

Yes, great answer. Thank you Paul.

Our next question is from [Winston Aronson] of Private investor. Please go ahead, sir.

Paul, good morning. Trying to figure out we’re getting your forecast and AFFO of $0.30 of share, we're looking at $38.5 million in revenue and this may show my ignorance of this whole the economics all of this. But I'm trying to figure out well, what would it take to get it up to the AFFO up to $0.60 or $0.05 a share. And to get it up to $0.60 a share looks to me like kind of another $11 million in revenue which would be about a 29% over what you forecast in this year? Or to get it up to $0.50 a share you're going to need another $7.5 million which would be roughly $20 increase. I don't know everything I see you're here you can expect 1% or 2% increases or maybe 5%. And it seems to where a long way all from getting back to $0.50 or $0.60 a share. Am I missing something like her?

Yes. I’d actually think you are. So I’ll just flip into this through our supplemental which I refer to in my – our prepared comments on our website. Our total revenue guidance isn't 38, our revenue guidance is a range of $57.3 to $58 million.

You're right. I apologize with you’re still going to need about $11 million on $57 million that's a pretty hefty increase to get it up to $0.60 a share. Am I missing something there…

Can't do the math fully in my head if you look at the current AFFO, you're basically saying is that need to double it to double. We, as we said our prior guidance, which is where we would have been in the range, our prior guidance was $0.40 to $0.44. This guidance is $0.30 to $0.34. So $0.10 dropped in the range as our view. And the operating leverage in our Company is huge, because we're – if you add a little revenue it largely speaking drops clear to the bottom line, additional revenues for us, you don't lose much on the expense side in our normal and ordinary course setting aside in the costs related to Seeking Alpha article. And so you'll drop a lot to the bottom line. But you had a good back up to get to $0.60 of AFFO. You will need to round numbers increase AFFO by something like $10 million or $11 million, just as a simple math. We think that is doable. How fast it's doable, I don't know. We think the real baseline of the company is closer to where our original guidance was for the year. And so you don't have quite as much of a hill to climb certainly have some.

Could you respond to the allegation and then Alpha article where they said, I forget the exact wording, but it sounded like with the Company’s loan and money to a friend that Paul Pittman, who is tenant and he's paying that money back and we’re in for the obvious implication. You’re just trying to create revenue with an additional loan…?

Yes, we did respond in our written response as you probably are aware. But I can respond a little bit of that. I mean that allegation is absolutely untrue. We – related parties has a specific definition and we've not made any loans to related parties. Now if you think related parties means we only loan money to people we know. That's certainly true, but his allegation when he made it and I say him or – over to him or she or they, they knew that was false when they wrote it. Okay, that's a very sophisticated hit to create personal wealth for a group of people who are fundamentally criminals. That's what they are. They manipulated the markets to steal money from small investors. Big investors did not sell into that. Small investors did and we intend to pursue it. We hope law enforcement agencies pursue it and the allegations are untrue. And we hope they don't get away with it. So there's just nothing – there's nothing to it. And as far as recycling it in someway that boosts our earnings. That's also untrue. And I mean we report our earnings according to GAAP. That's that this is how we do it and we're confident that that's how we've been doing it and that there's no issue there.

So I'm one of those guys. I'm one of the investors, who has been hard and I hope you succeed.

Let me give you one thing, if you want to call the office, give me a – I'm really busy today and tomorrow due to this phone call. Call the office on Monday and ask for me and we'll talk more about that, because we – I will add some ideas that you should pursue.

You may have asked that, but you're somewhere around I don't know $11. Help me understand this. So if you've got – let’s say the normalized AFFO was $0.40 a share. Are you using the discount rate of somewhere around 3.5%. Is that how you arrive at that net asset value?

Yes, so I quoted in my prepared comments, three sort of key statistics and summarized them for you. And this three statistics I quoted that relate to NAV our book value per share that's literally looking at our total dollars invested in real estate plus basically the cash subtract the debt, so on and so forth and divide by the shares outstanding. That number is $9.73. We believe that number is obviously low. But it's still an important measure when you kind of think about how deep discount we're in right now. And so that number is $9.73. The other way that you just referred to is to look at kind of traditional REIT based cap rate valuation. And Luca if you're have it handy the page in the supplemental which is available on our website with that analysis.

Giving just a minute sir, and I’ll tell you exactly what page. It would be Page 18 is our NAV analysis.

Yes. And there were using $4.25 as our blended average.

Thank you. I’ll see that.

And it gives you on that Page different numbers for different regions as well as is what we call interregional variation. As you can play around with those numbers and kind of come to your own view that's why we put those numbers out there. And if you're knowledgeable about the individual markets you'll see that our cap rates are more or less sensible. And then sort of third way we look at it internally as we take both a vintage and a regional analysis of the USDA data through time. So we take what do we pay for a farm because we believe that when we buy a farm give or take a few dollars you're paying what it's worth on that particular day between an arm's length seller and an arm's length buyer. And then you migrate up or down, you migrate up or down through time based on what the USDA says about that, given state and that – the state in the time you bought it. And that's the one that leads us when you do that to about $11.73. So you've got three data points $9.73 or $11.73 and $13.82 and our view is that we are NAV has a range of someplace between $11.50 and $12.50 is our internal submission of what we think in NAV is.

Thank you. That’s most helpful.

Good. Thank you. And I was [sincere], you may call on Monday and I'll tell you what I believe at least in terms of what I think you are to do.

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

Sure. Thank you all for joining this conference call, I wish it would have been a different call than the one we had for those of you who are shareholders. We truly are thankful for your support. For those of you who may have lost money in the events around July 11th on Seeking Alpha, we would encourage you to work with us and let's attempt to go get all of your money back. Thank you. Thank you very much. Bye now.

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