Farmland Partners Inc. (FPI) Q1 2020 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the Farmland Partners, Inc. First Quarter 2020 Earnings Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Paul Pittman, Chairman and Chief Executive Officer. Please go ahead.

Thank you. Good morning, and welcome to Farmland Partners First Quarter 2020 Earnings Call and Webcast. We appreciate you taking the time to join us during these high unusual times to hear and learn a little more about our company and the performance during the first quarter. Before I turn it over to my colleague, Luca Fabbri, for customary remarks, we do wish you and your families well and hope you are healthy and safe during all of this. It is very, very unusual times. With that, Luca, would you begin with the standard comments that you make?

Thank you, Paul, and thank you to all who are listening to this webcast live or recorded. The press release announcing our first quarter earnings was distributed yesterday evening. A replay of this call will be available shortly after the conclusion of the call through May 22, 2020. The phone numbers to access the replay are provided in the earnings press release. For those who listen to rebroadcast of this presentation, we remind you that the remarks made herein as of today, May 8, 2020, and have not been updated subsequent to the initial earnings call. During the 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 and 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 first quarter earnings, which is available on our website, www.farmlandpartners.com, and is furnished as an exhibit to our current report on Form 8-K dated as of yesterday, May 7, 2020. 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 or in the case of the Q we are about to file. I would now like to turn the call back to our Chairman and CEO, Paul Pittman. Paul?

Thank you, Luca. So I'm going to make sort of 5 broad comments in my presentation today. So what we're going to start with is kind of an elaboration of the effect of COVID-19 on our business. So the punch line is that we have not seen to date very much negative effect due to COVID 19. We're certainly happy about that. However, we can't imagine given the economic harm to the nation as a whole, we'll not eventually see some negative result due to things related to the coronavirus. But happy to report that, that has not occurred, at least not yet. If you look at kind of the business and kind of how we are operating first before discussing sort of how we're performing, the individual farm managers in the various regions are still out there doing their jobs, seeing the farms that we own. We have largely reduced the amount of travel that was being done on new acquisitions or new ideas, but we are doing everything necessary to maintain the business that we already have and this check up on the farms that we already have. There were some tornadoes, for example, in certain parts of the country. And we, as is typical, had an irrigation unit or so blown over. These farm managers have done their job, got right out there, got on top of it, got those pivots back in operation, so we could -- so the farmers could continue to plant. Our tenants have done a very, very good job, getting all their crops planted in a timely way and continue to do so, so really not much of a disruption there. Our cash collections at this time in the year are essentially at exactly the same pace they were at this time last year, which is why I said we really just haven't seen any pain yet, although we are certainly worried that there may be some in the future. As far as our main office in Denver, we had taken a step before the city of Denver and the state of Colorado generally ask offices to shutdown to request that most of our employees work from home. They have done that. They've continued to perform at nearly sort of full potential, even though not being in the office is obviously disruptive and somewhat cumbersome, we've continued to effectively perform the functions we need to do for our SEC filings, accounting and the like. The economic harm due to COVID-19 and the associated shutdown is certainly going to be deep, and we -- and as I said a few moments ago, it must have some impact on us as it does in all other businesses. We do believe that since at the end of the day we are a food production business, that whatever impact we eventually suffer won't be as severe as that suffered by many other industries. Places that we are concerned about in terms of the future. We -- the restaurant industry is in complete turmoil. We have some of our products that end up sold into the food service markets. We are usually not directly the -- involved, but our tenants are. And so we're worried if there could be some impact there. Luckily, that's just not a very big piece of our tenants' overall business, but there is some exposure there. The shutdowns of meat packing plants is certainly worrying not because we directly have very much exposure to the protein side, but because, obviously, the meat packing industry feeds backwards into the chicken, cattle and hogs. And we, of course, sell a great amount of grain or our tenants do that is used for feed. So there's some concern there. Probably the biggest area of concern, though, is the effects that the shutdown -- economic shutdown has had on ethanol demand. Ethanol demand, at the end of the day, is fundamentally a function of gasoline demand. And we're seeing far reduced amounts of gasoline demand, depressed oil prices and so forth, and that will lessen corn demand. We think it will recover. But again, it's certainly going to take some time. So we do expect a medium-term amount of financial pain in our business at some point this year. Just don't know exactly where it's going to come from and what it will look like. But the big picture is that global food demand and demand for fiber and fuel will probably be largely unaffected in the long run by COVID-19. So we think that the long-term position of our business is very strong relative to other businesses. And we, as I said, anticipate some level of pain, but that -- our company will fundamentally weather the storm. So turning to the second general topic I want to cover is just sort of how was the quarter. Given the beginning of COVID-19 towards the end of that quarter, it was a good but not great quarter from a financial point of view. We beat the numbers from the prior year in almost all cases. We feel pretty good about that. We had an increase in revenues in the face of, frankly, smaller portfolio. So all in all, I feel like the numbers are pretty good for the first quarter, but not outstanding. Turning to the third general topic, asset sales. We had not actually close any asset sales in the first quarter. But we did close the sale of 2 assets since the end of the first quarter that we have reported in our subsequent events section of our financial filings. With -- total sales price of those 2 farms was $7.8 million. The sales prices were approximately 9% or 10%, over what we had invested in those farms. We have acquired one additional farm for about $880,000 that it joins another farm we own. As we've always said, we will continue to add farms from time to time. But when you look at the asset sales process since we began it now, 18 months ago or so, maybe even a little longer, we've sold about $75 million of assets at approximately a 15% premium to what we invested in those assets. We are quite comfortable with the valuations of our portfolio that we own and good assets that have been appreciating, and we just continue to prove that point with these asset sales. The fourth general point I want to make is that we will continue to sell farms and reduce debt and repurchase our securities in the coming quarters. We will probably be a little cautious in terms of our liquidity management until the effect of the COVID-19 and related shutdowns becomes more clear. But we will generally keep the course that we have followed and will continue to do so until we see our stock price recover to a point that is much closer to net asset value. The fifth point is that the litigation does continue. We will continue to pursue Rota Fortunae. I'm sure that the strategy is to wear us out. That's not likely to happen. We will continue the course and eventually achieve fundamental justice for the company and the shareholders. We continue to uncover yet more evidence relatively far-reaching well-backed financial fraud. And we continue to -- we will continue to pursue that for the coming quarters. With that, I'm going to turn it back over to Luca to go through key operating and financial highlights. Go ahead, Luca.

Thank you, Paul. In the first quarter of 2020, we recorded total revenues of about $11.7 million as compared to $10.9 million in the first quarter of 2019. We had total operating income of $5.3 million in the first quarter of 2020 versus $4.5 million in the same quarter of last year. And we recorded basic net loss to common stockholders of $0.09 per share versus $0.10 per share in the same quarter last year. And finally, AFFO per share of negative $0.01 versus negative $0.03 in the same quarter of last year. So as Paul indicated, it's -- no dramatic changes structurally during this quarter in 2020 and the same quarter in 2019, but just some slight improvement in financial performance throughout despite the fact, frankly, that we dispose of some assets in the meantime. Again, one quick reminder of seasonality of our financial performance. The vast majority of our cost structure is really spread relatively even throughout the 4 quarters of the year. The -- however, the -- in the first 3 quarters of the year, we substantially recognize, for the most part, just the pro rata portions of fixed rents. The fourth quarter has a huge amount typically, relatively speaking to other quarters of recognition of crop share revenue. And therefore, also our profitability is heavily skewed towards the fourth quarter. We don't expect that seasonal structure to be fundamentally different this year versus the prior years, especially in the last couple of years. Finally, the last comment I have is that in the first quarter we repurchased about 225,000 shares of common stock and 50,000 shares of Series B Preferred. After the quarter end, we purchased a further about 50,000 shares of Series B Preferred. Currently, the fully diluted share count is 31,769,792. Finally, I also want to join Paul's comment initially that -- I hope that all of you, your teams and your families are doing well through these unprecedented times. Other than that, I don't have any further comments. Operator, we would like to begin the question-and-answer session.

[Operator Instructions]. Our first question will come from Craig Kucera with B. Riley FBR.

In your 10-K, you noted that you had a couple of debt maturities coming up in June and July, totaling about $48 million. Can you give an update on sort of where you stand with your lenders, as those are sort of on the horizon here?

Luca, do you want to take that question, please?

Sure. Interestingly, this actually was the circumstance in which we had the -- some impact from the logistics of the shutdown of -- especially travel restrictions related to COVID-19. We are -- we have been working with one of our existing lenders to refinance those maturities coming due in June and July. However, because of travel restrictions, we -- they couldn't perform full due diligence in timely fashion. We work with Farmer Mac to actually extend those maturities from June and July 2020 to October 31, 2020. Then it will give us plenty of time to finish -- for our refinancing lenders to finish their full due diligence. I just want to know that we're very grateful to Farmer Mac for working very, very efficiently with us in completing this extension in a very timely fashion.

Got it. So we shouldn't anticipate you selling those assets that you are going to try to get them refinanced here by the fourth quarter, correct?

No, that's -- no. The plan currently is to just continue working diligently with our refinancing lenders to just finish their due diligence and just refinance these expirations.

Okay. And Paul, if we do see some of the medium-term decline in demand, whether it's tied to ethanol or some of the issues related to meat packing, do you anticipate that there may be more opportunities on the lending side for you guys? I know you've sort of pulled back from that business and haven't seen a lot of opportunities over the last several years. But are you starting to see that as maybe being more of a growth potential?

There are many good lending opportunities available to our company, but we have essentially passed them up. We have passed them up because that criminal enterprise run by Rota Fortunae has cost this company an immense amount of money. And I just -- we're not going to expose -- I mean the biggest damage is what borrower wants to get pulled through the mud by an anonymous stock fraudster related to a loan they took from our company. So this is very difficult. These are incredibly good loans with incredibly high profitability for shareholders, and we're just not doing it. And I -- until we fully get this litigation behind us, we won't do very much of it. So it's really unfortunate. But I think there is opportunity, but not likely to be something we expand into at this juncture.

Got it. And one more for me. I think I caught that your cash collections, at least in April, were pretty much in line with sort of historical norms. But could you make any comments on May? And have those been sort of in line as well?

So basically, the comment that I made, just to clarify, was that if you looked at cash collections up to this point in the year, when I say this point, a few days ago, of course, we're not up to the second, we were at basically to the $0.01 almost, the same amount of collections in the first 4 months and a week of this year as we had last year. And that is in the context of what's been a somewhat shrinking portfolio because of asset sales. So we're really in the same place. We would assume -- every given month can have a little ups and downs, but we watch this sort of cash collection as a little bit of an early warning of fundamental difficulties that we might experience in the business, and we're tracking quite closely. And so we're cautiously optimistic that our business is going to avoid a lot of the troubles that other businesses have experienced. Although as I said, this has become a detrimental enough national economic crisis that I can't imagine we get out of it completely unscathed. But so far, we're seeing pretty safe.

[Operator Instructions]. Our next question will come from John Austin with Raymond James.

This is John Paul on for Collin. Just wanted to ask, clearly, you've completed 2 dispositions thus far in the quarter. Just wanted to check in and see if there's anything else under contract for the rest of the Q? And then also, just wanted to see if there had been any fallout in your pipeline given the pandemic?

So we don't report things just under contract. We're pretty disciplined about only reporting closed transactions. But we -- I would expect at the end of the second quarter that we will have some additional sales to announce, whether the closings have occurred during the quarter, meaning prior to July 1 or in the month or so after that quarter before we actually report, I don't know. But we're always in the market. Asset sales is always a little bit of an episodic set of events. But I would anticipate some continued asset sales. As far as any that we had under -- kind of under contract or in place, no, we haven't -- this -- we just haven't seen anybody cancel a transaction or anything. As Luca referred to on the question about our debt, the agriculture industry broadly defined is just -- it's just stable. I mean we lived through -- I certainly lived through as a Private Investor, the whole '08, '09 sort of financial crisis. And whether it's lenders, suppliers, farmers themselves, land owners like us, it's an industry thankfully that people just find a way to kind of muddle through and keep getting the job done in a way that kind of keeps food on the table. It almost sounds tripe, but it's true. And so this is a, like I keep saying, I can't imagine we don't suffer something at some point this year from this disruption, but it's an industry overall that will just continue to march forward because when you think about it at a national society or a worldwide society level, there's really no choice. It's got to keep producing food. So long-winded answer, but I hope that helps.

Yes. Got it. Appreciate the color. And you talked about values, but just to kind of clarify or dig a little deeper, has there been any noticeable slowdown in transaction volumes just across the industry in terms of farmland?

No. No. In fact, there's a bit of a -- in my sense is there's a bit of a flight to quality going on that as in gold and things like that. There's also people that say, a safe hard asset with a albeit modest return and long-term appreciation potential is a good place to place money. And I think that trend will continue. Most of the private vehicles out there have continued to see inflows of money private vehicles that acquire farmland, employs the money, that capital is being placed, farmers themselves are continuing to buy. And certainly, people a month ago, 1.5 months ago, experienced why having a portion of your portfolio in hard assets like farmland is a good idea, because the regular market does have a lot of volatility and farmland has quite a bit less.

Got it. Okay. Good color there. And then just a last quick one. Any appetite for share repurchases with some of those proceeds?

Yes, we always take a substantial portion of the proceeds and roll it back into share repurchases. And as I said, we will continue to do that with probably a little more caution than we might have had in terms of managing our cash balances because we are suspicious that something negative could happen to us during this year.

Our next question will come from Mark Bloudek [ph], who is a Private Investor.

A couple questions. What is the loss of $86,000 on disposition of assets for the first quarter? I didn't see any disposition. So I was kind of wondering what that was on the income statement.

Luca, I'm not sure I know the answer to that. Do you know it?

Yes, of course. We just took some buy-ins in a one great farm we have in California, and we just took them out just to meet more -- to bring them to a varietal that is more in demand from the market. And those were buy-ins that were not fully depreciated yet.

Okay. And then can you comment on the current state of farm financing and refinancing? I mean with LIBOR now under 50 basis points, kind of curious what you guys think and how you guys look at that market now in terms of refinancing stuff and then obviously financing -- refinancing the current debt that's due that you've got extension on?

Yes. Let me give a general answer, and then Luca you can add to it if you would like. So generally, what we're seeing is the decline in the interest rates of our overall portfolio. Weighted average interest rate on the $510 million or $512 million of debt that we have is gradually creeping down. There is a substantial portion of that debt that is fixed, and so it won't continue -- won't go down. But a great deal of it is they're adjustable pretty rapidly, quarterly or monthly. And then another bunch of it is adjustable once every 3 years or so, and some of that is rolling over this year. So we're seeing a gradual decline in interest rates. We may do some level of refinancing of fixed rate debt. Although by the time you start looking at the penalties and the other friction costs related to that, not clear whether that makes any sense. And a lot of those are at pretty good rates and relatively long-term pieces of debt. So not sure we want to make a bunch of changes to that portion of the borrowings. Luca, you may want to expand, but I'll let you do it on some of what we did with the swap, with Rabo because it's very fact specific. So I'll let you do it.

Of course. So we have half of a piece of debt that we had with Rabobank that we had to swap from LIBOR to a fixed rate. We were actually able to blend and extend that swap extending it by 3 years and reducing the rate from 4.7% to approximately 3.8%. So in that regard, we took advantage of that rate reduction. But as Paul said, we have some kind of rate reduction going through all the variable kind of portion of our debt portfolio. Interestingly, the first quarter, when all is said and done, did not reflect a whole lot just because of mechanics of how the LIBOR adjusted and how the rates were set for our outstanding debt, didn't quite bring a whole lot of benefit in the first quarter necessarily, but we expect some of the benefit to show up beginning in the second quarter.

Okay. And then is the state of farm financing, is it healthy? I mean, obviously, some areas like commercial real estate in this country obviously aren't doing as well. So you get -- you looking at good terms you can get for the refinancing that you're doing now, I mean, how does that look just in general?

Yes. I mean the farm -- the problem with farm refinancings is not sort of the market itself. The reason we ended up delaying the refinancing of the $48 million of debt is that the physical mechanics of appraisals, due diligence, travel, many of these lending institutions tend to be very large companies. And they have done appropriately so what all large companies have done, which is essentially put travel bans almost in place on their employees, maybe not entirely banning travel, but nearly so. And so it just massively slows down. In that refinancing of $48 million or so, I can't even hazard a guess, but there's probably -- might be 30, 40, 50 separate farms in there spread across multiple states. And so it just slows it down, but the markets are open. These smaller transactions where we sold properties that I talked about, the buyers there in most cases put debt on those farms when they bought them from us. And those closings occurred on the day they were scheduled to occur on or give or take 48 hours. They closed like a normal real estate transaction. And the title companies, the lenders, everybody just kind of figured out a workaround. And I think you'll continue to see that. It's only that those workarounds are cumbersome when you're dealing with a lot of different properties in a lot of different geographic locations, but it will still get done is my general view.

Our next question will come from Alex Heddel [ph], who is also a Private Investor.

I'm curious what the upside looks like if you prevail in the lawsuit for me as a shareholder? Are you looking to get cash into the company? And then would you use it for repurchase? Or is this one of these things where, as a shareholder, I'd have to fill out lengthy forms to send it to the lawyers, and then the layers will take their cut, and I'll get a few pennies down the road, if I'm lucky.

No. So what we are trying to accomplish is the recovery of unjust enrichment on the part of the stock fraudsters that I referred to earlier. And that money will come into the coffers of the company and be used for general corporate purposes, whether that's repay debt, buyback securities or whatever. There wouldn't be -- the benefit to our shareholders will be through the company's overall gains from winning these lawsuits. You -- it's not a case where you've got to fill out a bunch of forms or all that kind of stuff. That's the -- that's just not how it will work here. We do -- I mean we have clearly discovered evidence. I mean this is a shocking part here that if you're a shareholder in a public company, you should be telling your congressmen and your senator or anybody you can get to listen. The -- we've absolutely discovered the evidence of a direct conspiracy to defraud the market. We've got chapter inverse. We got the trading history. We've got the activity. We've got the article with all of the misleading statements. It's all like a road map. We are actually fighting about whether you can defraud the public markets and stand behind first amendment protection when you do it. That's what this lawsuit is about. It's stunning. If you want to say something bad about me as a CEO or the management team or whatever, we got to be fixed skin. We're public. We're in the public eye. But when you say that for the purpose of crashing the stock so you can exit the put position that you have bought a few days earlier, that's just a crime. It's not about the first amendment, it's ridiculous. And that's why we're just not going to give up. We've found the evidence. Somebody made a lot of money off of all of our shareholders who bailed that day. They have really hurt the company, and we're going to run this to ground.

Our next question will come from John Judy [ph], who is also a Private Investor.

I wonder if you could give an update on that class action lawsuit that was initiated a while back. I haven't heard anything new about that. Has that been dismissed? Or is that still ongoing?

The class action lawsuit, I've got, Erica, our General Counsel, who's on the line. You should come off mute because I may ask you to help with this one. Erica Borenstein is her name. She's our General Counsel. But the high level is that, that lawsuit is still out there. The -- one of the lead plaintiffs in that lawsuit dropped out of the lawsuit. We believe they dropped out because they realized, and we've got kind of e-mail traffic that makes that clear that we hadn't done anything wrong as a company. So that lawsuit is now being sort of maintained and promoted by a couple of tiny shareholders, a few hundred, if not a few thousand shares at most, and fundamentally driven by the contingency lawyers who are trying to enrich themselves at the expense of the other participants in the market. So that lawsuit is still out there. It's not moving very fast. It's -- Erica, you want to add a comment or two about the exact status, that would be helpful.

You've hit it on the head, Paul. It's pending. There really hasn't been any major movement other than what you just mentioned as far as the lead plaintiff dropping out. And right now, it's pending on the replacement of another plaintiff. So everything is pending.

Good.

I just had -- just a follow-up. I'm just curious why you're not hearing what the price of the value of the stock is compared to what the value of the assets are, why you're not maybe being more aggressive as far as dispositions to buy back stock? It seems like they actually created a great opportunity for you. You're actually buying farmland for, what, $0.60, $0.70 on the dollar, what you're saying was worth there. So it just seems like it'd make sense to be more aggressive in that area?

Yes. I mean we are -- we always try to be a little bit aggressive, but these are very, very thin markets. And when I talk about a market, that's not a national market. It's every county in the United States would be its own market essentially, and it's probably even smaller than that. And so if you want to be aggressive, and let's just say, I wanted to sell $250 million of property, what you've done then is you've lessened the list of potential buyers to a very short list. We used to be one of the major participants as a buyer. So we're not on the list anymore. And so there's literally probably 4 that can play at that size and the national level. And what they will do, particularly given the media -- the negative media about agriculture and our company in particular right now, they just want to bottom fish. And I own about 7% of the company myself. I'm not going to play that game. I can sell these things off slowly at 15% premiums to what we paid. I'm not going to dump assets in some sort of fire sale way. Everything we own is for sale, but it's for sale at kind of fair price, and fair price is defined by what farmers largely because they drive each of those individual markets. I think these assets are fundamentally worth in an arm's length transaction. And those numbers -- that's who's been buying from us, and those numbers are kind of -- my kind of go to is always that you could achieve about a 10% premium on average across the entire portfolio to what we paid. We've done better than that, but I'm still cautious. I'd stick closer, like if you're doing a back of the envelope calculation trying to get to NAV, assuming 10% above what we've invested and then do your math from there, you'll come out to kind of what I think in terms of NAV per share, which is, I've said this in the past, it's pretty strong NAV per share. It's probably about $12 or so.

Our next question will come from Collin Mings of Raymond James.

I appreciate the time here. Just a couple of follow-ups from us. Paul, just going back globally, as you think about the situation and as you talk to farmers, can we just expand on the disruptions you're seeing to the supply chain of agricultural products at the moment? And just maybe elaborate a little bit more on that, in particular, what that might mean for row crop versus specialty crops in the current environment?

Yes. So there's a lot of different stuff going on, which is why I say -- I have said today, and we said in our written disclosures, we're just not sure what's going to happen. We've obviously got a negative bias because we as any business person in America is a little bit depressed right now. But I'm going to rattle off a list of things, some of which point opposite directions of each other. So in terms of -- on the negative side, you've got food demand overall staying about the same, but you've got a lot less food demand through the restaurant chains and more through home. Consumption of food in the home is somewhat more efficient, meaning less waste than consumption of food in restaurants. It has to do with what you have to do with leftovers to use a classic example. At home, you put them in refrigerator. In a restaurant, they get thrown away. And so that's a negative. That has a certain impact on certain crops. Let's use a crop we own, a very -- small, tiny exposure to. But seedless lemons, which is a great crop, but the seedless lemons largely end up in the bar trade. It's not that the seamless lemons are being dropped on the ground and throw away, but they're now fighting for a space in the grocery store instead of an already made market for premium seedless lemons that existed with drinks that are consumed in a bar. And so -- and I could go on and on and on. We just don't have much direct exposure to the restaurant trade in our crop types luckily. But to the extent we do, it's negative. Turning to ethanol. I don't need to spend much time talking about that, but the corn is partly feed and partly fuel, and the fuel side has significantly reduced. Now what a lot of the ethanol plants did was they took their typical summer shutdown early. So if they get back in action, they won't shut down in August, like they sometimes do or 4th of July week. A couple of weeks around the 4th of July, a lot them shut down for major maintenance. They all have already taken that. But at the bottom line, if you don't see gasoline demand increase, you're not going to see ethanol demand increase. And people are starting to drive and travel a little bit more, but it's nowhere near the level that it used to be. Then when you start thinking about what's going on in the meat packing industry, you've got some of the packing houses slowing down. President Trump, of course, said they needed to stay open for food supply reasons, but none of them are operating at 100% efficiency. If you've ever been in one of those facilities, the employees do stand kind of shoulder to shoulder in pretty tight groups. It's the way the processing is often done. It's a hard environment to keep everyone healthy in. And so it's a real challenge. I don't -- by the way, just so no one gets scared, I don't think it means the food you get from that facility is somehow not safe and healthy to eat. But they're going to have a rolling problem keeping employees healthy and fully staffed in those companies for probably quite some time. That obviously pushes back up the chain to corn producers like us and soybean producers, but it pushes up the chain in some weird ways. There's more animals still alive. So they're consuming more feed. But are people continuing to have a whole new round of animals or are they literally aborting that new crop of animals, so they don't -- because they don't have any place to put them. And so it's a little hard to tell whether you're going to increase corn demand or decrease corn demand. My bias is it's probably going to decrease corn or soybean demand a little bit. But there's a lot of stuff that cuts both ways there. Now turning kind of the positive side. The U.S. is a -- the U.S. is the world's swing producer. We are the Saudi Arabia of wind. So no one else is -- everyone else is suffering similar disruptions, if not worse, than we are. Our health care system, our economy, our government, using government, as an example, as troubled as it is sometimes, it's better than a lot of other places. And so we're going to see increased demand for food stuffs in the export markets. We've certainly seen that already. We've seen -- the first quarter of this year was the largest pork exports ever by kind of multiples that's ever occurred to China from the United States. It didn't -- it kind of got missed as a small item in the press unless you're kind of an ag geek like we are, you might not even seen it. But that's because, in China, they wiped out a large portion of their hog industry a year ago with the swine flu, and so they're buying meat from the United States in really high volumes. And that kind of stuff is going to continue. And that's going to continue in many other markets in the country. And then you get into currency, right? Since we're the world's reserve currency, you've made ag commodities in Brazil, in particular, feel way more profitable in the Brazilian currency, and it makes hard competition for us who live in dollars. But the flip side is, by the time you get to next year, the Brazilians that have to rebuy inputs for all those crops on a -- in a dollarized market because the inputs are all sold based on dollars. And so long term, I think we -- as U.S. agriculture broadly, are going to come through this pretty well. These sorts of crises tend to make the stronger producers stronger. And the U.S. is certainly one of the stronger producers in the world. So I think long term, it's okay. Short term, it's really hard to figure it out. But we just sort of have this general premonition that all industries will suffer a little bit and us, I think, less than most other industries, but we assume there's going to be some tough sledding ahead of us just because the whole economy is in turmoil.

And to that point, well, maybe two follow-ups there. One, just what do you -- when you think about, to use your words, there's tough sledding, does that mean less power in terms of rent negotiations with tenants? Is that actual tenant default? Maybe just expand on what you mean there. And then one thing kind of embedded in those comments, too, was and it kind of speaks to the point that you've made in the past that there's a lot of nuances depending upon the specific commodities, and that really hasn't been your strategy to bet on any one specific crop. But rather this trend from a comment of global food demand. But one thing that is bigger picture that could have lasting implications is what kind of continues to evolve in China. So maybe just update us on your perspective on trade with China? So again, 2 different points there. One, just the tough sledding comment that you've ensued this time.

Yes, let me -- Thank you, Collin. Let me do that in reverse. I'll do the tough sledding second. So on China, our bias as a company is that all of the rhetoric aside, China will and the U.S. will try to largely comply with the Phase 1 obligations. Whether they perfectly comply, I have no idea. I don't think you'll know until you look back on it a year or 2 after it's over. But I believe that the Phase 1 deal was a sound deal, was put in place for sensible reasons by both the U.S. negotiators and the Chinese negotiators, and that they will largely try to comply with those obligations because the sort of restart of an aggressive trade war is not in the best interest of really either country. So I think you've got to separate the rhetoric from things like what I pointed out. That purchase of pork products is massive. I don't have the exact dollar number, but it is. It's huge and meaningful and continuing. And so these -- I think Phase 1 and the China saying, we'll look back, and we will find that they have largely performed their obligations, and so have we as the United States, at least, I certainly hope that's the case, and that's kind of what we think. No certainty. You could probably ask other people who have a different opinion. In terms of the tough sledding comment where -- what happens? So look, we -- there's going to be some -- we have 110 or so tenants. There's going to be some farmer who gets in a very specific financial crunch because of something related to the market shutdowns from COVID. Who knows what exactly that is who has a hard time making his second half rent. We don't think it will happen very often, but I can't imagine it doesn't happen amongst our tenant base. And it won't be -- it will end up being something to that particular circumstance and a guy that didn't have enough financial horsepower to weather the storm, and he just gets himself in trouble. So there'll be a little bit of that. We certainly have crop share exposure in the specialty crops. The -- those are smaller markets, nicher markets. We assume there will be some damage in those markets to the worldwide commodity prices on almonds, pistachios, walnuts, avocados, you name it. We think that's going to have some pain in those areas. Obviously, the primary commodity prices are down to the extent we have crop shares. We're exposed there. I mean those are the sorts of things we're worried about. It's too early to tell if it has a rent negotiation impact as we roll rents next year. We have, in very recent years, been getting very modest rental increases, but getting them in the row crop part of our portfolio. For now, we assume that trend continues, meaning just very modest 1% to 2% increase is what we're pushing for, and probably able to get in many cases. But it's -- that's now -- it's still a long ways off. That's a next winter event. And by next winter, my hope is that we've either gotten nationwide herd immunity or some cure or vaccine or something, and the economy has largely recovered. And if it has, certainly, ethanol side will recover, and most of these other things will be better off than they are now.

All right. And then one last one for me. And I just wanted to follow up on capital allocation and some of the other questions already hit on this a little bit, but just -- can you maybe just rank order your priorities and just expand on your thoughts there? I mean you've got some near-term debt maturities. There's the dividend. You got both common repurchases, preferred repurchases that you conducted recently. You may comment about potentially kind of enhancing your cash liquidity position a little bit in the uncertain environment. So maybe just expand upon that. And then to the extent that you have some liquidity, is there any willingness to help support some of your farmers as well? So maybe just talk a little bit more on all those fronts, if you could.

Yes. So look, one of the reasons we want to maintain a little bit of liquidity is to be able to help farmers a little bit, if they really, really need it. We have to be very cautious about that. And it's not really a habit I want to start. But I mean, look, we want to be able to provide certain level of financial flexibility because when you are a landlord, you are a financier of your tenant in some way. And so we don't want to be the proverbial landlord who asked us throw somebody out the minute they have a problem. You want to have some financial flexibility to work with them. So there's -- that's the comment about disciplined about our liquidity positions. But I think you would -- should expect to see as far as repurchases of common, repurchases of preferred and debt reduction, that we will allocate capital largely in the way we have in the recent past. And there's a -- that's just kind of how we'll do it because our view is our total returns on these farms that we have purchased and then sold are very, very high. I mean our track record is actually incredible if you look at return on equity, and that's because we use some leverage. People criticize us for it. I personally believe they're wrong. But people do disagree with me on this. But this is an asset class where an important component of the return is appreciation. And you can, without a great deal of risk in this asset class, we're living through this right now. It's way more stable than the other real estate classes that you can materially enhance your return by using kind of appropriate levels of leverage, and ours has always kind of been between 40% and 50% of purchase price is the level we've been at. Probably a little bit lower than that if measured against true value as our recent sales have shown. So what is going to kind of continue to execute on the course we had followed? The -- we are horribly disappointed in the stock price. But the fundamental performance of our company is a pool of assets invested in farmland is outstanding. None of the private vehicles have the kind of returns that we're generating. We run this operation even though public at higher level of efficiency, meaning less overheads. We do very good job on our asset sales. We believe we do a good job on the purchases, which leads to the opportunity. And we, frankly, use a little more leverage than many of them because we think it's prudent and it pays off. But again, long-winded answer, but I think we'll allocate that capital from asset sales about the same way we have in the past.

Our next question will come from Tom Forbes [ph], who's a Private Investor.

I have a quick question. Most of them have been answered already. And that is, as leases are renewed, especially for -- in corn and soybean country, typically, I think it's the fourth quarter. Do you expect below $3 cash price for corn? It would seem like these leases have got to come down in price in order to -- in order for the farmer to even break even. Would you comment on this?

Yes, I do. So I don't actually -- so I don't think they will come down even on a $3 corn. And the reason is that underlying the premise of your question, and I get this question a lot, is a misunderstanding of the structure of your typical medium or large-scale farmer. So everyone wants to underwrite a given field of corn, and that's actually the incorrect analysis. What you need to do is underwrite, and what we do is you underwrite. And what the industry does is you really underwrite the entire farm operation. So most of these large farmers will have a portfolio of land they farm, some of which they own. These tend to be family businesses. So some of which they rent from their relatives usually at a somewhat discounted rate often. Like I said, if grandmother wants to rent grandson a farm at a low price, that's certainly her prerogative with their family businesses. And then some of the land they rent is from people like us. And so when they are confronted with giving up any give an acre because they think the rent is so high, the mathematical analysis that the farmer does and properly so is what is the impact on my overall operation? And when you do that math, what you really find out quickly is if you give up a piece of land, particularly a substantial piece of land out of your operation because you think the rent is too high, you then have to defray your overheads of all types. Equipment is the best example, but labor to some degree would be included in other things on the remaining acres. What you've done is you -- in a mathematical sense, you won by getting rid of a high-priced acre, but lost because you've got a bunch of overhead you got to allocate on a smaller acreage base. And then when you add to that, the fact that this is a 0 vacancy industry in practical terms, row crops, there isn't a bunch of -- it's not like. If you give those acres up, you may never get them back because there are some other farmers going to pick them up. And the farmer that picks them up is going to be happy to keep them. Just don't get rent refusals. A tough environment, which is what we've operated under now for 5 years, is to get rent increases that are barely measurable, 1% or 2%. Our expectation when we founded the public company was that you would get historical average rent increases, which are more like 3 or 4. And so you just aren't going to see across the board rent reductions in our opinion because of crummy commodity prices for 1 year. Now if you have completely -- you've got to measure -- the other thing you got to do is you got to measure revenue per acre, not commodity price. I mean commodity price is only half the equation. It's really revenue per acre. And if the reason your revenue is down as your volume of production is up, you may not have changed your revenue very much even if commodity price is down. So when it's all said and done, and the history kind of proves this, you just don't see cash rents back up very much or very fast. It does happen. 5, 6 years ago, you had some $500 per acre rents in the heart of the Corn Belt, like Illinois and Iowa, and you don't generally have any of those left. But you do still have some $400-plus rents in those markets, and you'll continue to have those, in our opinion. Hope that helps.

It does.

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

Thank you very much, and thank you to all of you for joining us. And to your families and yourselves, please stay safe and healthy. We look forward to talking again in about 90 days. And hopefully, we'll be in better times from both a health and an economic perspective nationwide. Thank you, all. Goodbye.

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