Farmland Partners Inc. (FPI) Q2 2019 Earnings Report, Transcript and Summary

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 said, this is what a down cycle looks like. And when we talk later about asset sales, there would be few industries where you could be at this place in the market cycle and still be able to sell assets at substantial premiums to purchase price. This year's -- the other thing that's in the news a great deal about the ag economy is of course the floods, excess rain and now to some degree drought and the weather related impacts on the U.S. crop of corn and soybeans in particular. I have traveled this summer and seen virtually every one of our farms in the last 60 days. And these -- and what the situation is out there in my opinion is that this is going to be a very short crop compared to what the expectations would have been when the crop was about to be planted back in say late April. However, it is incredibly difficult because the crop is so uneven even within any given field to get a true understanding of how bad things will turn out to be. Now, when I say bad, I'm talking about the yield on the farm. Most of these farmers and certainly most of our tenants have good crop insurance. So financially they will be okay. But I think we're going to end up with a relatively short crop of both corn and soybeans and probably see commodities prices appreciate. What we're seeing in the commodities markets on the Chicago Board of Trade today though is a recognition of the difficulty of judging the size of this crop balanced against the demand destruction occurring from the trade war and the demand destruction occurring because of increased crop prices. I think in the end the supply side shortage will dominate the markets and it will be bullish for corn and soybeans. But there is certainly no certainty. The reason I walk through this is that the farmers frankly need to see some price increase on their way. They have had multiple years of surplus which is depressed prices. I think while painful for individual farmers, a short crop year will for the industry as a whole turn out to be a reasonably positive thing. If in fact we could get the trade war settled, it would be certainly positive for agriculture. The trade war is about way more than just agriculture, which of course makes it so complicated to solve. Moving forward to the land values, USDA land value survey that just came out yesterday. Let me give you a couple of key statistics. For those of you listening who own the preferred security, the preferred B security, there was a press release issued yesterday with the exact mechanics of how that instrument will be paid out related to this USDA land value survey. But talking about the survey, overall, looking at farm real estate, which is the metric we pay attention to, the USDA report said that Farmland values have increased 1.94% from June of 2018 to June of 2019. Looking only at this -- the 17 states that FPI owns Farmland in, we have seen it go up 2.66%. Looking at individual regions where we own quite a bit of farmland, the Southeast is up slightly with a range of negative 1.1% in Georgia to positive 2.7% in South Carolina. The delta, which is Arkansas, Louisiana, Mississippi is up anywhere from 2.2% to 5.1%. Illinois was flat, meaning no change from the prior year. Nebraska was up 3.6%, Colorado up 0.6% and California up 7%. Now don't necessarily expect those appreciation factors to come through directly into our portfolio, but that is certainly a powerful indicator that as an inflation hedge even in tough economic times in agriculture land values hold up and continue to gradually appreciate. If you would, moving on then to performance metrics about our company specifically. There's sort of a, as I said, there are headwinds in the industry -- in the industry generally and in our P&L. But I want to give you a simple way and it's really an oversimplification of a way to think about our operating P&L for the quarter, because there are clearly quite a bit of changes in that P&L. And of course a negative $0.5 a share AFFO. Again, I want to emphasize this is an oversimplification, but it's I think important particularly for the equity analysts to think about, at least start by thinking about it this way and then add the detail as you study the results we reported. So we've made asset sales around 5.5 percent of the portfolio. Revenues have gone down about 4.1%, which makes sense. We have sold a significant piece of the portfolio. Revenues are therefore going to decline. And they have declined slightly less than the amount of assets we've sold, which is because we have on average sold assets at the lower end of our cap rate structure within the company. So operating income, if you adjust out for the about $1 million of excess legal costs related to the Rota Fortunae litigation, operating income came down about 4.5%, more or less in line with the decline in revenues. And AFFO would have been about $0.3 higher. Now that's clearly, as I said, an oversimplification, but I think it's important to separate sort of the onetime events from the underlying performance of the farms and the asset. And it just starts with sort of that methodology when thinking about the company performance. I do want to make one additional cautionary note because I already read something early this morning on the Internet that our net income jump from $981,000 to $6.5 million is really driven of course by asset sales. I read something this morning about significant increase in net income and, yes, we did in a technical sense, but again that's a onetime event. Moving on to a couple of other topics on general operating metrics. I want to talk just a moment about operating expenses within the company. We have dropped the run rate costs of the company's administration by over $1 million in the past year. This is largely driven by changes and reduction in personnel. We have lost a lot of good people. I hated to see them go. We were able to replace with also very good people. But this is what happens to a company like ours when a stock manipulator Rota Fortunae and his coconspirators attack the company. And then you get the piling on of the class action lawyers and their own scrupulous shareholder clients. And it is truly a difficult challenge inside the company. The senior management of this company, the section 16 officers are very committed to what we're doing and we're going to see it through, but I don't -- the key message there is that we have continued to substantially reduce the overheads of this company through the recent timeframe. Moving on, we finally are starting to see interest rates move in our favor. As you all know, we are a reasonably levered company. Seeing interest rate cycle start to turn back downward will be beneficial to the P&L of the company over time, of course hard to predict how quickly that shows up, but it will. The final operating statistic or financial statistic that I want to touch on is that we always talk about the net asset value analysis of the company looking at the valuation of our portfolio from three different metrics. If you do that today what you will see is that looking at a cap rate based analysis you would see evaluation for the portfolio that is equivalent to approximately $15.60 a share. Looking at the USDA evaluation methodology, and this is the methodology I believe to be the most accurate reflection, it would be $14.07 a share. And looking at book value, you would be at $9.90 a share. So all three of those metrics have increased in the last quarter substantially. They're increasing because of the continued stock buyback we do and because of the general asset value appreciation. I still think that something around $12 a share is a good place to think about the NAV per share, although the continued buybacks have probably moved that up somewhat through the last year or so. So it may in fact be slightly higher than the $12 a share. Turning then specifically to asset sales. We have been quite successful and very active in our asset sales efforts. Let me give you a couple of statistics on those assets sales. So we at this point have now sold about $67 million of assets at a gain of approximately 20% above what we paid for those farms. None of these assets were assets of the original predecessor, meaning none of them are assets that I and my family contributed to the company at the time of the IPO. These are all assets where we are measuring off valuations that have occurred since the IPO and in many -- which was in 2014, which -- and in many cases much more recently. The lowest return sale was an 8% gain. The highest return sale was a 56% gain. Smallest sale was about $300,000, the largest was almost $19 million. This is about a 5% to 6% of the total portfolio has been sold. The levered IRRs on these assets during the holding period was over 25%. The narrative promoted by Rota Fortunae a year ago that we cannot achieve values in our asset sales of above purchase price was false when he made it. I believe he knows it was false when he made it. And the asset sales we have done and will probably continue to do will continue to prove that point. Turning to share repurchases. We have at this point bought back about 15% of the company, approximately 5.7 million shares. Our share count is now slightly under 32 million shares. The stock buybacks that have been done on average in the mid $6s per share probably created about $30 million to $35 million of equity value for the remaining shareholders. That would equate to slightly more than $1 per share, which is back to the point I made a few minutes ago, why I think our NAV per share is probably climbing substantially. Now turning to litigation-related matters. I would generally never mention a repayment of a modest-size loan by one of our tenant farmers. But since the company has been sued over this by unscrupulous lawyers and unscrupulous shareholders trying to take advantage of the rest of you, I am going to discuss it in somewhat detail. Jesse Huff which is the Huff loan has been repaid in full. That we as a company have made a substantial gain from the repayment of that loan, the principle of the loan was $5.25 million. Mr. Huff repaid all interest and all bonus interest and all principle for a total return of slightly more than 8.5%. This loan was made to Mr. Huff as acquisition financing. It was re-financed by him at rates much better than the rates we had given him with a traditional lender. This was a good loan for FPI and for the FPI shareholders. Mr. Huff was not a related party at the time this loan was made. This is a very good piece of business. At this point those unscrupulous lawyers that I keep referring to and those shareholders walking along behind them should drop this frivolous attack on the company, but I doubt that they will. RF in my opinion, Rota Fortunae, knew that this was a good loan when it was made since it was secured by real estate. He knew as he said that Jesse Huff was not a related party. He wrote that article so he could exit and these clients that [indiscernible] is paid to write those articles for could exit from that stock at substantial gains and the losses were pushed upon all of the rest of us as shareholders. Today we have a great difficulty continuing to make loans because no tenant wants to be pulled through the mud as Mr. Huff and Mr. Nieber [ph] have been, related to the loans that we make. This is very good business for Farmland Partners in the past. I wish we would continue and could continue to make loans. But frankly it's very difficult and we're unlikely to make any loans at least in the near future because of the reputational damage to our company created by our Rota Fortunae and his coconspirators. Turning to just a couple other matters related to the RF litigation. If you recall that article, the headline said that we were at risk of insolvency. Well, I guess we know now a year plus later that that wasn't true then and isn't true now. The best proof that Rota Fortunae is nothing but a short and distort fraudster is the following. He and his clients exited their stock positions immediately into the panic created by his fake news article. I am not someone opposed to legitimate shorting of a stock. In fact I think it is important piece of market activity. But the way you tell the difference between a legitimate short and a short and distort fraudster is you see if they hold their position to see their point of view come out or do, they just exit into the panic created by the fake news that they published in this case on Seeking Alpha. Well, what we now know is that they exited those positions on the day or the day after the article in the Maine and they did it because they knew the article, they wrote was untrue. RF and his coconspirators engaged in a scheme to profit from fraud, and unfortunately it worked. We continue to be optimistic that we will eventually get financial redress for our shareholders. I'm going to turn it back over to Luca to go through some key financial statistics and operating statistics related to the company.

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% to 4% per annum increase in rents. We are not achieving that today, but we are generally achieving slightly positive numbers in rental rate increases. But the trend line is not zero, it's not flat. The trend line is expectation of a 3% to 4% increase. And so we're falling behind kind of our expectation, our long-term internal model, but still eking out generally modest increases in rents. Now you also asked about regional and crop type variation. One of the places where we have a higher percentage of participating or crop share rents than as a total dollar matter than anywhere else is in our specialty crop portfolio, the California assets in particular, lots of citrus, lots of tree nuts. The trade war is starting to have a relatively significant impact in the tree nut markets and that will be reflected into lesser participating rents for us unless it turns around. I mentioned in the prepared remarks when there is a trade war or pricing or demand decline, tree nuts, while a great crop and we love the crop as a part of our portfolio, you literally though could have buyers just choose not to buy the good for some reason. When you turn to the primary food crops like corn, soybeans and wheat, generally speaking, those crops will eventually get consumed somewhere by somebody. May not be China, but it'll be somewhere else in the world. And it has to do with the fundamental importance of the crop in the global food chain. And citrus is obviously similar, you may not sell out all your citrus in any given year because it's not a crop that's easy to store. So you've got lots of regional variation. Again, this is why we wanted and built a broad portfolio, so you weather through the downcycle in a reasonably good way.

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 in terms of dollars per acre of fertilizer or of chemicals or of seed or frankly even of rent. That's actually the wrong financial analysis. The correct financial analysis is dollars or actually pennies per bushel, whether it's rent, whether it's seed, whether it's chemicals, whether it's fertilizer. The actual amount per bushel in the last few years has declined substantially for most farmers. You had really high yields, you had really slight increases in input costs of all types. So your pure unit of production economics based on a bushel have actually gone in farmers' favor and that's one of the reasons they're withstanding what looks like a big downturn better than I think a lot of people expect. So going forward, you're going to -- your big farmer today is operating in our opinion just right at or right above or slightly below, just right in the neighborhood of breakeven. And it's different for every operation. Their total entity profitability though is very affected by how much land base in their operation they actually own themselves or their family owns. If a farmer has farmland that they have fully paid off, they do not rent from anybody, but they or their family own it. There is almost no corn, soybean price or wheat price that causes them to lose cash on those acres. I mean, they're just -- they don't. And this is -- it's not the way any of us on this phone call think about the world, but these are family owned businesses and they're saying my profitability on that crop, on those owned acres is still pretty high, because they're not fully factoring in the true economic long-term carrying cost of the land. But that's just the way a family business operates and that's how this industry operates. Hope that helps, Dave.

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.