Good day, and welcome to the Farmland Partners Incorporated Third 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. Good morning, and welcome to Farmland Partners' third quarter 2019 earnings conference call and webcast. We appreciate you taking the time to join us for these calls. We see them as a very important opportunity to share with you our thinking and strategy. Please refer to the Investor Relations section of our website at farmlandpartners.com for our Q3 supplemental package, which we will be speaking to during the call. The link to the presentation is directly below the webcast link and 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 over the call to Luca for some customary and preliminary remarks. Luca?

Thank you, Paul. And thank you all who are listening to this webcast live or recorded. The press release announcing our third quarter earnings was distributed yesterday evening. A replay of this call will be available shortly after the conclusion of the call through December 6, 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, November 12, 2019, and has 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 and potential acquisitions and dispositions, impact of acquisitions, dispositions and financing activities, as well as comments on our outlook for our business rents in 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 third 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 November 12, 2019. 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 will now like to turn the call back to our chairman and CEO, Paul Pittman. Paul?

Thank you, Luca. So, I'm going to make a few comments about the quarter, which was obviously disappointing when you're looking at the financial statistics for the quarter and the 9 months. In my prepared comments, I'm going to be speaking mostly about the 9-month results because as we have said many times, quarterly results in particular have a lot of noise due to timing. That is still true of 9-months results in our business, but less so. At a high level, our results were affected by a variety of industry-wide factors, and in particular some company-specific factors. If you look at the 9-month revenues, for example, we saw a significant decline in revenue, which is largely explained by four separate items. The timing of crop sales and crop shares, especially in the citrus area but also in other crops led to an approximately $1.2 million decline in revenues. We had about a $1 million decline in revenue due to the properties we had sold in the past, about $0.5 million decrease in revenues related to tree nuts that is partly due to prices and volume of -- on the volume side, especially due to the alternate bearing nature of pistachios. And we also had about $0.5 million reduction in tax reimbursements that is because of the fact that in 2018, we had major reimbursements for one-time supplemental property taxes paid by the tenants. This number, while reimbursed -- both in and out reimbursed by our tenants does affect our top-line revenue number. If you look on the operating income side, in addition to looking at those numbers, the decline in revenues, of course, flowed down through that part of the P&L, but in addition we had about $900,000 of expenses related to increased operating costs on our properties largely…

Thank you, Paul. So here's some quick financial highlights related to the quarter. Specifically, in the third quarter of this year, we had total operating revenues of $9.8 million, operating income of $3.2 million, basic net loss to common stockholders of $0.15 per share and AFFO per share of negative $0.06. As compared to the same quarter of last year, total operating revenues of $12.5 million, operating income of $6.2 million, basic net income to common stockholders of $0.02 and AFFO per share of $0.02. In this third quarter we closed on a $1.1 million sale recording $0.4 million gain. In the quarter we had relatively slower stock repurchase activity just to a cyclical low in the Q3 of cash flow from operations and the limited number of sale transactions that we did. Yet we did repurchase about 240,000 shares of common stock, resulting in a current fully diluted share count as of today of 31,982,952 shares. In the quarter we also repurchased 1,900 shares of the Series B preferred stock. This concludes my remarks and our operating performance for the third quarter of 2019. Thank you for your time this morning and your interest in Farmland Partners. Operator, we would like to begin the Q&A session.

[Operator Instructions] Our first question comes from Rob Stevenson with Janney.

Good morning, guys. Paul, when you were talking about the $1.2 million decline for the variable rent payments and some of the other stuff that was a 9-month versus 9-month comparison?

Correct.

Okay, and what was the litigation? Was that like $800,000? Is that what you said?

It's litigation, it's legal and accounting, the biggest piece of which would be Rota Fortunae related litigation but also would be the new consulting surrounding SOX that the company now incurs and the number was approximately $675,000.

Okay. All right, thanks. That's helpful. And then when you take a look at the stock price today, you guys sold one farm in the quarter. How are you guys thinking about it given the cap rate guidance that you guys provided in the supplemental about accelerating dispositions and taking advantage of the common stock at sub $7?

We'll continue to opportunistically repurchase our securities as we sell properties, but we're going to be opportunistic on both sides. We want to achieve good value for our properties, and as long as we've got that cash available, a very good place to put it to work is to buy back our stock. The third quarter is never a very active quarter in terms of Farmland sales. Most of that quarter is heart of the growing season, and once farmers get in the field in kind of May, the ag industry as a whole slows down in terms of transactions. So that tends to lead -- you'll get second quarter transactions done that were fundamentally agreed to and negotiated in the first quarter, but by the time you get to the third quarter, you just don't have much activity. And so, that's part of what you're seeing in terms of the relatively lower amount of transaction activity on the sales side for the third quarter.

Then last one for me. On that timing of variable rent payments, the citrus and other crops leading to the $1.2 million, 9-month year-over-year decline, how much of that is truly a timing issue where you're going to get it either in the fourth quarter here or maybe the first quarter of 2020 versus due to whatever circumstances not getting that at all versus just shifting a quarter or two?

I think you're going to see the bulk of it truly be driven by timing, although part of it is driven by just a low-price environment, a low volume of export environment driven by the trade war. So, I think it's hard to say specifically until the numbers are really in, but I think this is not going to be an outstanding year for production agriculture and that to some degree shows up in our financials as well. Although you should see a significant amount of that come back to us in the fourth quarter. Although I frankly doubt but do not know for sure that you'll see 100% of it come back to you.

Okay, and I do have one more while I got you. Just in terms of what you guys are seeing on the ground, I mean there's been a couple of rounds of the Trump administration providing billions of dollars of aid to farmers. Can you talk about what the sort of lag time is between when that stuff gets approved and when the farmers actually get that aid in their hands? Because I think it seems like a lot of people are anticipating a lot of giveaways in 2020 leading up to the election, and so how quickly does that actually make a difference to the farmer in terms of them being able to keep their heads above water and/or provide the necessary revenue to replant and other sort of stuff?

Well, so there's a couple of different things going on when you think about government payments as it relates to farmers. Setting aside the conservation side of the equation, looking only at payments related to production of foodstuffs. They're really two big buckets. One is the regular government payment program, which are today what's called ARC and PLC. They're two different programs. They're based on long term kind of pricing trends for the various commodities. Those payments have essentially a one-year lag. So, in the fall of 2019, you're actually getting the payment related to the 2018 year. In the fall of 2020, you'll be getting a payment related to the 2019 year. The reason for the lag is, as I said, it's looked at kind of a long-term measurement of the pricing that a farmer could have achieved on those commodities measured kind of through the entire marketing cycle, which is what drives the one year lag. The other program, which is the one that people refer to related to the trade war specifically is MFP. I think it stands for market facilitation payments. So, the MFP program that was announced this summer is a series of payments to farmers who are farming the key affected commodities in terms of the effect of the trade war. Soybeans, of course, is a large benefactor of that program as well as other crops, but I think soybeans is the Leading crop in terms of those payments. And it looks back at your historical production in your county of those crops and the pricing of those crops and makes an estimate of the loss you might have incurred due to the trade war, and And then that payment for the 2019 year is 3 separate installments. The first installment was announced in the summer and that payment has already been made. The second installment was recently announced and that payment is supposed to be made in late November or early December. And then the third installment, no one knows for sure if that payment will, in fact, be made because the USDA reserves the right to judge whether it's necessary and appropriate given the changes in the trade war. So I don't know if the third payment will ever be made. These payments are for most farmers significant on a farm-wide basis but relatively modest on a per-acre basis. They're certainly important to farmers but not the primary driver of their profitability. As far as authorizing another round of those during the 2020 year, I frankly have no idea whether that's likely to happen or not. Hope that helps.

Yes, very helpful. Thank you. Thanks, guys.

[Operator Instructions] Our next question comes from Manny Georges with Raymond James.

Hi, good morning. Thanks so much for taking my question. I guess let's turn to the balance sheet. So obviously, share buybacks have been a priority. But what are your plans for some of the debt that's maturing in 2020?

The financing, the asset base, the mortgage type financing market in other culture has remained very, very active. If anything, at the macro level there has been -- we are seeing a significant influx of capital to those specific markets. At this point in time, we've had some preliminary discussions about financing with a couple of lenders. We've had general indications of interest that they would like that kind of asset based lending -- is still very, very attractive, especially in this rate environment. And at this point, we do not expect any issues in refinancing it.

Great, that's good to hear. Thanks so much. I guess just in general, when we think about the litigation against Rota Fortunae, do you think -- do you have any estimates for any costs that might be happening in 4Q? Do you think that you'll continue to incur costs as you look ahead to 2020?

Yes, we don't have any specific estimates on a quarter-by-quarter basis. But I wouldn't expect this to continue to move forward, as I indicated in my prepared comments. We have at this point found the evidence that we believe -- and this is all in the public domain. If you read the court filings, you can see it. We've found the evidence that clearly indicates this was an organized, premeditated conspiracy on the part of the people who pulled it off. We have also begun to found evidence that there are substantially well funded organizations behind it, which gives us optimism of recovery. And we're still working our way through the quarter system, which is frustratingly slow. But that's the system we have and probably for all kinds of good reasons, it moves slowly. But I wouldn't anticipate us continuing to spend money on it in the 2020 year.

Okay, great. Thank you. Understood. Last question for me, just do you have any other comments that you could offer kind of on the status of trade tension between the U.S. and China? Obviously, we talked about some of the payments being made there but do you have any outlook as far as it relates to the end of the year next year, how that might affect your numbers?

I mean I certainly don't have any insight into whether we'll get this settled in a timely way. I was optimistic I think as everyone may have been about Phase 1 moving quickly and getting settled during the month of November. Looks like it may leak over into December. So I don't really know any more than any of you who read the newspapers like I do. As far as the effect on our business, it is a -- look, this is not the best of times for production agriculture. What we're seeing in our business surprisingly is there's actually more damage from the trade war in many of the specialty crops than there actually is in the primary grains, which I will say was even a bit of a surprise to me. I think the reason for that is that the primary grains really are a human necessity, and so we may not be selling as much grain to the Chinese government, but Brazil is selling a lot more and we're now selling to all the customers that Brazil used to have. So it's certainly not positive for pricing in the U.S. on the primary grains, but if the trade war goes on, I think the farmers will, as they had done the last couple years, seek out a modest level of profitability and success and stay -- and the large and most efficient farmers will stay above breakeven at least on a cash flow basis. And it won't be a huge change. We're seeing that trend in terms of our rent renewals. We're unable in many cases to get very modest increases in rental rate as we roll leases over. So that's kind of -- we think it'll -- if it doesn't settle, it'll just be more of the same, which isn't great but also not a disaster. On the exported specialty crops, and the ones that are exported are -- at least in our universe, primarily the tree nuts, there has been a relatively significant lessening of demand out of China for those products, and that's had some impact on pricing. Again, that will -- those crops are relatively small in terms of total volume, so when they turn the corner back to the positive, they will probably turn pretty quickly. And we're optimistic for that, but I do think it takes some settlement of the trade war to turn that around. The other issue of course is since they're relatively smaller crops, they haven't gotten the attention of the USDA in terms of additional market facilitation payments and things like that for those producers, which the lobby groups that represent those individual products and crops are trying to solve. But at least to date, they haven't gotten any of the government support that the traditional row crop farmer has received.

Thank you. That's great color. I'll turn it back over.

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

Thank you very much. Thank you all for joining us for this conference call. We will continue to move forward as a company. As I have said many times in the past, our strategy continues to be to opportunistically sell assets and repurchase stock and to manage our cost structure during this challenging ag economy. But the fundamentals of our business are sound and we will stay the course. Thank you for your time.

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