Good day and welcome to the Farmland Partners Incorporated Second Quarter 2019 Earnings Conference Call. [Operator Instructions]. Please note that this event is being recorded. I would now like to turn the conference over to Paul Pittman, Chairman and CEO. Please go ahead.

Thank you, Chuck. Good morning, and welcome to Farmland Partners' Second Quarter 2019 Earnings Call and Webcast. We appreciate you taking the time to join us for these calls. We see them as an important opportunity to give investors additional information about our company beyond that and in a more interactive form that isn't in the public filings and the press releases. Please refer to the Investor Relations section of our website, farmlandpartners.com. You will see a Q2 2019 supplemental package which you may find helpful. The link for the presentation is directly below the webcast link. And it is also posted under 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 and preliminary remarks.

Thank you, Paul. And thank you to all who are listening to this webcast live or recorded. 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 21, 2019. The phone numbers to access the replay are provided in the earnings press release. For those who listen to the rebroadcast of this presentation, we remind you that the remarks made herein are as of today, August 7, 2019, and have not been updated subsequent to this initial earnings call. During this call we will make forward-looking statements, including statements related to the future performance of our portfolio, our identified and potential acquisitions and dispositions, 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 as of yesterday. Listeners are cautioned that these statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations and we advise listeners to review the risk factors discussed in our press release yesterday after market close and in documents we have filed with or furnished to the SEC. I would now like to turn the call back to our Chairman and CEO, Paul Pittman. Paul?

Thank you, Luca. So this will be a slightly longer presentation than I normally give. I'm going to discuss around six separate topics, starting with general comments on the ag economy, the USDA land value survey that came out yesterday and specific performance metrics, asset sales, share repurchases and Rota Fortunae litigation related matters. So let me jump right into it. The general ag economy continues to have fundamental headwinds, but I am frankly quite optimistic about what is going on in our company and what that effect will be for the ultimate long-term shareholder value. So turning to really the key things going on in the ag economy, generally. Let me start by saying this is what a down cycle looks like for a Farmland investor. And that's not to suggest this is a great time. But what it proves is the fundamental resilience of the asset class. The ag economy is quite stable because it's based fundamentally on land scarcity and growing food demand. That even with the trade war and other significant issues affecting agriculture, we're still seeing modest appreciation in Farmland values and while challenging we're seeing our tenants perform reasonably well. So the trade war specifically is not good for the farmer profits. It is affecting us to some degree particularly through our crop shares. Surprisingly, some of the negative effect is showing up significantly in nut crops, almonds, pistachios and walnuts. They are viewed somewhat as luxury goods in China, so less likely to be imported in the trade war environment. The recent announcement of no more ag products to China from the United States is certainly not good news. But fundamentally, U.S. production agriculture will weather that storm, some of the pain will be felt by landowners. But it -- but as I…

Thank you, Paul. So as Paul mentioned, I will just walk through some of the financial highlights that were in the press release from last night related to the both the second quarter of 2019 and the performance of the company year-to-date. Total operating revenues were $10.9 million for the quarter, $21.8 million for the first half, respectively a 4.1% and 3.5% decrease over the corresponding periods from last year. The major driver of this decrease in operating revenue was the fact that we did sell some assets and therefore those assets don't contribute to our top line anymore and to a much lesser extent the difficult operating environment in the USA ag economy as a whole. The operating income for the second quarter of '19 was $4 million. For the first half it was $8.5 million, respectively a 23.8% and a 15.3% decrease over the corresponding periods in 2018. Besides the decrease in revenue and other major drivers of the decrease in operating income were the increase in nonrecurring legal expenses related to the Rota Fortunae [indiscernible] back on the company. Finally, net income was -- basic net income to common stockholders was $0.09 per share. And total net income for the second quarter was $6.5 million, very, very significant increase over the same period for 2018. Again as Paul mentioned, we caution you that this is really fundamentally driven by nonrecurring gains for the disposition of certain assets. The AFFO per share for the quarter was negative $0.05, again influenced by all the factors that I mentioned related to revenues and operating income, in addition to that also by the increase in interest rate. During the quarter we completed farm dispositions totaling $29.7 million. The proceeds from those assets’ dispositions were fundamentally used by repurchasing both common and preferred stock by paying down that and to a much lesser extent by making improvements to some of our farms. We repurchased $12.9 million in shares of common stock during the quarter and 0.5 million in series B participating preferred stock. We also completed some repurchases after the end of the quarter. The resulting fully diluted common share count as of today is just barely short of 32 million shares. This concludes my remarks in our operating performance for the second quarter of 2019. Thank you for your time this morning and your interest in Farmland Partners. Chuck, we would like to begin the question-and-answer session.

[Operator Instructions]. The first question comes from Collin Mings with Raymond James.

First question from me this morning just if -- as it relates to asset sales. Can you maybe just provide a bit more color on the depth of the buyer pull you're seeing as you continue to sell farms into the market? And then on that front, is there are lot of interest in portfolios or is it just one-off assets?

So the depth of the market is huge. It's a big country. Every region has its own market at different times based on what's going on in that region, generally in terms of crop performance, price of those crops, higher and better use demand for land, so on and so forth. It really is a portfolio approach in terms of how the country works and how we manage our portfolio. Most of the buyers will be individual persons or entities, not asset managers, not our competitors. They will often be the best buyers because they are -- if they're are an operator, as one would expect an operating buyer is always a higher price point buyer than an asset manager style buyer because there's one less level of fees and expenses in there in terms of their return on the property. So we're -- we will continue to opportunistically sell assets at gains as long as we've got good use for those proceeds to either buy better properties or to reacquire our securities, both the common and the preferred. The common has been trading at such a deep discount, that's of course been where we've put most of the dollars. As far as portfolio interest, we do get portfolio interest. It often comes from, frankly, some misinformed person who thinks they can buy assets at a 50% discount because our stock price is so beat up. And we shut those discussions down pretty quickly because there's no need to entertain in that discussion. We will all make a lot of money and I certainly will as a large shareholder if we gradually continue to sell assets if that's what's required and repurchase securities through time. But no need -- the fundamentals of the underlying ag economy are, as I said, not great, but really not all that bad because -- and then fundamental returns to us as an asset holder, a farmland holder are really okay. So hope that helps to answer your question.

Understood. So I think, Paul, maybe just to put a finer point. Most of the sales during the second quarter, were that basically to either kind of maybe tenant operators or adjacent farmland owners? If that's the way we should think about who will be buying them?

No, there was a -- one of the larger transactions we've ever done was to a higher and better use buyer, who has an interest in doing something different with that property. They're a corporate entity, as I've said in the past we aren't going to disclose and discuss exact details of individual transactions, that's frankly our secret sauce. But you're getting a mixture of buyers in the marketplace. But most of them -- most of our sales have been operating sales. But when you get the kind of gain, we got on a few of these transactions, it's likely to be somebody who's going to do something different with the property because that kind of accelerated appreciation isn't normally driven purely by agriculture. Now the reason you want to own a big portfolio like we do across the country though is that there will be more of those somewhat lucky hits in this portfolio through time. They come in lots of different ways, sometimes it's a higher and better use buyer. Sometimes it's solar or wind development on a piece of property we're going to continue to own. We've talked about this in the past, you may move rents from $250 to $850 an acre on a piece of property. But those really big jumps are almost always going to be driven by a nonag related event. The ag-related appreciation is what the USDA is talking about. It's been running at 2% a year for a couple of years or so. But that's always going to be the case, it's going to be kind of close to inflation for the ag driven appreciation in most times.

Got it. Okay. Understood. That's helpful color there. Moving back to the prepared remarks regarding the owner and the Farmland, I think you said something to the effect of will experience some of the pain in the current environment. Can you maybe just expand on kind of your tenant's ability to afford current rents and then recognizing it will vary by region, but just any color regarding market rents versus in-place rents or anything along those lines would be appreciated, it's recognizing again -- there is going to be -- variability to paying upon market.

Yes, so first talking about it at the national level, I mean it's a good question. So let me kind of break it into pieces. Most of our rents are cash rents, so not all, but most. So in the near-term sense unless you get a farmer in true credit distress where they're just unable to pay their rents, we are largely unaffected by a good year -- by a good year or a bad year. I mean, just we get cash rent. Now we have a small portion of the portfolio that's crop shares, so the benefit or the pain shows up more quickly. So that's kind of a one year or one season view. If you take that and extend it out a bit farther. The farmers have crop insurance. Generally the crop insurance will give them back enough to help pay for their rents and their direct inputs for the crop, probably no profits for the farmer, but a breakeven kind of number. So there's a lot of stability in the system. If you -- and then these MFP payments that the USDA is now distributing due to the trade war is also a source of additional revenue for the farmer. And so there's quite a bit more stability than you might think just reading about the flooding in the Midwest or something like that. When you roll forward though into a two or three year time period, as we start to renegotiate leases, if you're in a downcycle, lease negotiations are harder. Then if they are -- if you're in an upcycle, you may take some reductions in rents. But I think I've talked about this in prior conference calls. The baseline is not zero. The baseline is to assume you would get about a 3%…

All right. Appreciate the color there as well. Just shifting gears to the elevated legal costs in 2Q. Should we expect the 2Q number, should we expect that over the next few quarters?

I think the most recent quarter was probably slightly higher than you would expect in the next few quarters, but it's incredibly unpredictable. There are -- we are battling our -- we're going after RF in terms of -- in our view finally getting some traction, which is the source of my comments in the prepared remarks. We are defending the class actions that were spawned out of the crime Rota Fortunae committed against the company. I can't believe that there's a group of shareholders and lawyers who want to just punish the victim, but there seems to be. It's -- in my view it's a glorified insurance fraud against our insurer, but it seems to be the world we live in. So it's just -- it's so many different moving pieces, hard to predict. We don't like those costs. But as a major shareholder and with a kind of a long-term view winning those cases and recovering cash and some reputation is important that we think the long-term value and the costs while painful on a quarterly basis are not really all that significant in the grand scheme of things. The more significant thing is what it's doing to company morale, tenant morale, ability of the company to continue to grow. So we'll -- it's hard for me to predict exactly what happens in the quarter, but I feel like this quarter was probably close to the top, I hope.

Okay. And one last one for me and I'll turn over, but recognizing there is some again immediate impact given the variable interest expense, just thinking in terms of the recent reduction we've had in interest rate, just balance sheet opportunities on the debt side in the current interest rate environment, especially just given where the weight average duration is on your debt right now?

We think -- I mean, that is where -- I could give you an hour-long answer, but I'm going to give you a minute-long answer. We think that the rate reductions that have already come through and the rate reductions that we believe may come through in the next few months are likely to show up between $25 million and a $50 million a year in interest cost reduction. There is a lot of, if you want to call Luca after the conference call, call him and go through that. All the moving pieces are in the public domain so we can talk to you about it. But if you kind of start looking at what amount do, we have adjustable, what of the three year debts are about to adjust, you start to get a mathematical analysis that leads you to the answer I just gave you.

The next question comes from Dave Rodgers with Baird.

Can you maybe talk a little bit about the farmer situation from the revenue and expense side? Obviously, you went through crop yield and maybe the impact on future price this year. But can you also talk about feed costs, fertilizer costs, et cetera, and kind of how that would set them up to maybe get back on track with that 3% to 4% long-term increase in rents and revenue that you've been looking for?

Yes. So I'll do that. But since you asked the question that way let me give a little bit of context for everyone else on the call. So historically farmer push -- two sources of upside from farmland, one is rents, the other is appreciation. Both are generally tied to long-term return to other low-risk assets. The most common connection is the 10-year is a pretty good directional indicator of rents and rental increases and of land appreciation at some level. If you stay in a long -- so the 3% to 4% number I quote is based on a 30, 40, 50 year history of land value appreciation and rent increases. If we are permanently or semi-permanently in a relatively low interest environment by historical standards, a 3% to 4% may turn out to be 2% to 3%, but in real terms it doesn't make any difference, if you understand what I'm saying. Because it's really a spread measurement at some level and we're in a fundamentally lower interest rate environment. Our real returns will be about the same. They may be nominally lower than history. But with that context, all of the other input suppliers, and we look at ourselves at some level as an input supplier to production agriculture, we provide land, they're trying to squeeze out modest increases in crop inputs as well. And whether it's seed, whether it's chemical, whether it's fertilizer. And each of them have different market power to do -- to try to get that done, and it's very a -- that's what the farmer is fundamentally up against. The key thing to keep in mind though is that we -- farmers and the -- is on sort of commentators, academic industry so on and so forth have a tendency to talk…

It did, Paul. Thanks. One specific question in the quarter. I don't know, either for Paul or maybe Luca, you had higher property operating level cost year-over-year, but revenue declined due the asset sale. So I guess I just was wondering if there are any onetime costs [indiscernible] or anything else that might have been in the second or third OpEx that won't recur?

We talked about this. We talked about this more, and Luca you can add to this, but I'll give the general point if you want. We talked about this more in the prior conference call. If you recall, I mentioned that there was a bunch of onetime weather events, hurricanes, et cetera, that were going to have an impact on property operating expenses in the exact -- might cause decline in revenue, might cause uninsured losses of some sort on a property. We did have some of those things. I think there was actually more of it in the first -- it showed up in the first quarter then showed up in the second quarter. And so they're onetime in the -- so to answer your question though, Dave, they're onetime in the sense that -- they're onetime in the sense that it won't be exactly the same weather event next time, but we're -- portfolio theory works both ways. We will incur from time to time those sorts of costs. They're going to be episodic and unpredictable, but I wouldn't -- I wouldn't create a model that assumes we never have anything bad happen to our physical asset because we -- I don't -- I can't predict what it is, where it is or how much it'll be, but it will -- we try to insure and cover as much of it as we can, but we will face some of that in the future as well. It's probably a little bit elevated in the most recent quarters, but I wouldn't take the numbers to zero.

Got you. I guess on the stock buyback, it obviously makes a lot of sense from an economic standpoint given the number you quoted for NAV, your book value, but I guess I wanted to ask about kind of more aggressive debt reduction. The numbers maybe don't look quite as good, but would position you better as you got to the back half of all of this and got through your litigation to be out and acquiring without having to immediately issue equity. So I wanted to get your thoughts on shifting the buybacks at a maybe a much more aggressive just debt reduction program?

Yes, I mean we -- every time -- this is all being done opportunistically. So every time we make an asset sale and then we frankly turn into the markets for additional buybacks, because we're doing it from cash that we generate, we have that discussion. The principal you are promoting, we generally agree with, whether it's the reduction in debt or the reduction in preferred. But as long as that stock is stuck down here in the $5s and $6s, the argument kind of falls apart, because the value creation opportunity purely from buying back stock is so compelling for remaining shareholders. So we will -- we'll kind of continue the course. I would guess you will see a modest shifting toward more debt reduction and preferred buybacks, but it's very tempered by exactly what that prices is -- what our shares are trading at. What I'd said in my prepared comments, to give everyone a little deeper inside at least into what I think, I think that our NAV per share is probably at a low of around $12 and then may be as high as $15. When the stock is trading at $6.50 it's hard to pass up the opportunity to kind of almost double or in fact more than double your money by investing it in share repurchases. But I mean, Luca and I both agree with the broad point that we'd love to see debt and preferred come -- be reduced as well, because that would certainly drive shareholder value.

The next question comes from Rick Lutheran [ph], Investor.

I think you've answered most of the questions I had. I'm really concerned in one area here on the Rota Fortunae. I'm wondering, is the suit found, is it already on the docket? Where are we there? And what kind of damages are we looking at here, are we asking for?

Yes, so there's two different lawsuits broadly speaking. One is us going after Rota Fortunae and the coconspirators that he writes. He write -- they come up with an idea, they put on a bunch of short positions, they pay Rota Fortunae to write this article that Seeking Alpha publishes and they hope to hit a home run, which they did on us and dumped their short position into the panic. It is classic stock fraud, it is nothing else. Okay, that's -- we're going after those guys. They are trying to maintain anonymous -- anonymity. They seem to believe that First Amendment protects stock fraud. We obviously don't agree. Nobody agrees by the way. But they're playing a delay game as long as they can. We will get through that eventually in our opinion. So that's a set of cases. We're going after those guys. Who knows what the recovery can be? We think they cost shareholders over $100 million on that day. There's a lot of kind of academic research around how to think about damages. But the damages to the company are substantial. We lost business, we've lost people, we've lost reputation and all shareholders lost a lot of money. And we're going to keep pursuing it because we believe we have a valid claim and that there are some pretty deep pockets behind this scheme. Then, to make matters worse for us as a company, the plaintiff's bar, the ambulance chasers of the security industry take that fake news written by Rota Fortunae and then they sue us over it as a company on the basis that the loans were bad, Mr. Huff was a related party, that the company is going insolvent. We are gradually proving that none of that was true. I always said it wasn't true. But there's a group of -- there is a small group of shareholders out there trying to screw the rest of us. And maybe they will come to their senses and have some ethics and back off, but we're not counting on it. It's a racket and it's a -- frankly, in my opinion it's a fraud on D&O insurance racket that they're participating in. But that's where we are. We believe we'll win, the facts are the facts, but it's painful and expensive.

But we didn't put a value on anything when we filed the suit, is that correct?

So when we filed the suit, we -- I don't know whether you -- all these documents are in the public domain. I don't remember what -- I think we have a some sort of claim for damages and that's huge, but it's -- we're ways away from getting to the expert testimony related to exact damages. But it's certainly worth. Rick, it's worth our pursuit of this as shareholders. And as you probably know, I'm probably the single largest common shareholder in the company, certainly the single largest individual or common shareholder. I think it's worth the financial recovery or we wouldn't be doing it.

Yes. Agree with that. Sure. Is there any time limit here? In other ways, is it on the docket already where the case is going to be heard or not?

Yes, no, no. The cases are -- the cases are in both in federal courts working their way through. They're in a -- I believe they're both in Colorado actually. Our General Counsel and outside counsel handles that day-to-day on this. But yes, there -- but it's -- I don't know how much litigation you've been involved with, I had never been involved. There is an awful lot of motion practice in advance of actually the true kind of trial. So we're engaged in that long-term motion practice at this point.

The next question comes from Tom Forbes [ph], Investor.

My question in ballpark figures. What percentage of your land portfolio is rented versus custom farm versus sharecropping?

In very broad numbers, about 80% of our total revenue, and I'm going to answer this slightly differently than the way you ask it, because it's the statistics I know. And Luca, if I say this wrong feel free to correct me, but I think we're about 80% of our revenue comes from some sort of fixed rent. And what I mean by that is not -- some of those rents may have a combination of fixed and crop share. So about 80% of total revenues of our company have historically been fixed rent. Then we have crop share, we have very few 100% crop share, where the only source of revenue we have is split of the profitability from grain sale. But we have a few of those. They tend to be concentrated in dry land farms in the Western High Plains, that's a more traditional methodology in that area. But that would be just a couple percent if even that, it's not very much full crop share. Then on the -- most of our crop share is a place in which we might get a 3% or 4% return against the purchase price of the farm as a cash rent. And then on top of that some potential bonus performance of that crop is good that year. Then direct operations. Direct operations for us is really kind of -- it's largely, it maybe even entirely, but it's largely limited to development properties where we -- where we are in the process of pushing out a block of trees and replanting trees. So there really is no profitability for a tenant to pay us rent from. So those farms we end up putting into our TRS and direct operating. Luca, I don't know off top my head what percentage of the total portfolio that is today, but it's not very much.

No, it's truly [indiscernible] it's about 1,800 acres if I remember correctly.

Yes, 1,800 acres. It'll be mostly specialty crops, tree nuts, citrus and the like where we're doing that. I guess we're doing some direct operation on blueberries right now where we are trying to improve the quality of the bushes substantially on some farms. But it tends -- our true direct operations tend to be pretty de minimis, it's not -- it's a necessary part of our business but it's not the primary business model.

The next question comes from Craig Kucera with B. Riley FBR.

Just one more from me. Just Paul given your commentary on sort of the tree nut environment related to the tariff. Is there any way you can put some sort of a band around with the impact to participation income might be in the back half of the year particularly as you recently toured all these farms over the last 60 days?

The answer is I can't right now. If I could have, I would have. It's -- in our opinion it will be -- it will be negative, but it won't be a disaster. I mean people are growing almonds and selling [indiscernible] than they used to sell them at and they are selling that slower. But we just don't have an exact measurement, those farms that I'm referring to tend to be, those tend to be the ones where we would get some portion of fixed rent based on some return on the original purchase price of those farms, that's how that's usually thought of and then a bonus on top of it. Some of those farms are up for renegotiation in terms of their leases right now. It's obviously been a tough two -- starting the second cycle through the tree nut guys of decreased exports. So I think that'll be a harder rent negotiation than it otherwise would have been. But it's -- again it's back of the portfolio theory, Craig. It'll be painful, it just [indiscernible] hugely so because it's balanced out by the rest of the portfolio. And If we get a quantification of that, we'll put it out in the future, the next conference call.

[Operator Instructions]. This concludes our question-and-answer session. I would like to turn the conference back over to Paul Pittman for any closing remarks. Please go ahead.

Thank you all for your time this morning. Just to recap, our continued strategy will be to opportunistically sell assets, buy back stock and reduce debt as long as our shares are trading at such a substantial discount. We will continue to pursue the folks that have hurt all the shareholders, [indiscernible] and its coconspirators, and try to bring the stock manipulators to account and recover financially. We are cautiously optimistic that the civil court process as well as law enforcement will help us in this process. But that has to work its way through the court system. With that, thank you for your continued support of the company. And look forward to talking to you again next time. Thank you.