Farmland Partners Inc. (FPI) Q1 2022 Earnings Report, Transcript and Summary

Good morning. Thank you for attending today's Farmland Partners Q1 2022 Earnings Call. My name is Bethany, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. [Operator Instructions]. I would now like to pass the conference over to our host, Paul Pittman, Chairman and CEO with Farmland Partners. Please go ahead.

Good morning, and welcome to Farmland Partners First Quarter 2022 Earnings Conference Call and Webcast. We appreciate you taking the time to join us for these calls because we see them as a very important opportunity to share with you our thinking and our strategy in a format less formal and more interactive than public filings and press releases. I will now turn over the call to our CFO, James Gilligan, for some customary preliminary remarks. James?

Thank you, Paul, and thank you to everyone on the call. The press release announcing our first quarter earnings was distributed yesterday afternoon. The supplemental package was posted to the Investor Relations section of our website under the sub header presentations and other materials yesterday afternoon as well. For those who listen to the recording of this presentation, we remind you that the remarks made herein are as of today, May 4, 2022, and will not be updated subsequent to this 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, business development opportunities 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, farmlandpartners.com and is furnished as an exhibit to our current report on Form 8-K dated May 3, 2022. The 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 distributed yesterday and in documents we have filed with or furnished to the SEC. I would now like to turn the call to our Chairman and CEO, Paul Pittman. Paul?

Thank you, James. So I want to make a few prepared comments about our quarter we'll look forward to your questions in the Q&A session as well. This was obviously a very strong quarter for the company. Essentially, we have the wind at our back on all the major drivers in our business. Land prices of the assets we already own are surging higher -- this has also led to more sales and revenue in our MWA Auction and Brokerage division. Rents, especially in the row crop area are increasing substantially. We have now renewed around 25% of the leases that will need to be renewed at the end of 2022 and we are seeing rental increases in those renewals in the 15% to 20% range. The underlying Farmland profitability is very, very strong, despite higher fertilizer prices, the increase in grain price is more than compensates. All of this is fundamentally caused by increasing food demand and decreasing availability of high-quality Farmland. But on top of that general long-term trend, the profitability of the farmer and therefore, the strength of our business has been accentuated by poor weather in South America, a reduced crop in India, now potentially late planting in the United States and of course, the unfortunate war in Ukraine, which is limiting Russian and Ukrainian exports. These things are driving grain prices and farmer profitability higher. And they benefit our business, however they are from a societal perspective, disappointing circumstances, at least for the poorest people in the world. For FPI, these factors are showing up in the strength of our P&L. This is most clearly evidenced by the almost 200% increase in AFFO per share. The strong operating results are complemented by the significantly reduced costs coming from the way we finance our business. We have substantial savings from the conversion of the Series B last fall that are now showing up in the income statement. We have savings from significant debt reduction. And in addition, after defeating the class action lawsuit, our legal spend should decline in the future. I'm happy to report that this has led the Board of Directors to vote for a 20% increase in the dividend because of these strong results and our positive outlook for the future. Our pipeline remains very strong. We anticipate doing further acquisitions that will create long-term value for our shareholders. With that, I'm going to turn it over to Luca for a few prepared remarks.

Thank you, Paul. We have seen at this time, a very, very significant amount of investor interest in Farmland as an asset class in general and in our company, in particular. This amount of interest is driven certainly by some very, very long-term factors and characteristics of the asset class, namely the stability and the characteristics of the asset class in terms of appreciation potential driven by very fundamental macroeconomic factors. There are also some more specific factors driving this interest right now at this juncture in time, for example, the fact the Ukrainian conflict has really heightened the perception and the reality of the value of producing stable food crops in a truly geopolitically stable area of the world, such as the United States, especially when some of these this Farmland in the United States, like in the U.S. Midwest is some of the best in the world and the most productive in the world. And then there are also the other factors related to price and productivity and so on and so forth that Paul recently outlined. Also, Farmland has historically been a very, very good hedge against inflation. And of course, at this point in time, there is a lot of interest investors in that particular characteristics of Farmland. Another structural kind of factors attracting interest to Farmland and to our company, is the intrinsically ESG and sustainability friendly nature of the asset class. We are -- we have embarked the company in a journey to better formalize our approach to ESG and sustainability. And you should see a little bit more from us here in the near future, but we really kind of focused on the definition of sustainability around ESG specifically that starts with -- yes, with the social aspect and really focusing on how sustainability is to start with the ability to affordably produce food for everybody in the world. And this is specifically heightened right now with the logistical challenges and the scarcity of some basic food crops like wheat and corn, the prior -- that came from the Ukraine. Also, of course, another definition of sustainability as a second tier is that we have to produce affordable food in the most environmentally sustainable way possible. To that -- specifically to that point, we actually -- we've always felt a known in our hearts that good agronomic practices are very strongly aligned with environmental sustainability. And we also believe that our tenants are some of the best farmers in the world. We had a very strong proof of that when we recently ran an environmental sustainability survey among our tenants. And the results actually surprised even us 97% of our tenants are investing in improving soil health on our farms, 94% of our road crop tenants, practice conservation tillage reducing carbon dioxide emissions in the atmosphere through several avenues. 87% use variable rate application technology to limit and optimize the usage of all inputs from seed to chemicals to fertilizers to water and 51% participate in federal natural resource conservation programs that are focusing on enhancing biodiversity especially in -- on tracks of Farmland that are relatively marginal from a crop productivity standpoint. Partly in response to this heightened interest in our company and in the asset class, we're also intensifying our Investor Relations effort. There are several conferences for institutional investors that will be participating, too. And specifically, there the Jane REIT conference on May 17. It's a virtual Institutional Investor Conference on May 25 and 26 in Los Angeles, the NAREIT week on June 7 and 8 in New York and the ROTH Conference on June 22 and 23 in London. I encourage all participants to those conference to reach out to us and schedule meetings with us so that we can better present our company. With that, I will turn the call to James again for his remarks on financial performance. James?

Thank you, Luca. I'm going to refer to the supplemental package in my comments. As a reminder, the package is available in the Investor Relations section of our website under the sub header presentations and other materials. Pages 1 through 9 of the package contained the press release and related financial information. And Pages 10 through 20 contain the supplemental information. First, I will share a few financial metrics that appear on Page 2 for the 3 months ended March 31, 2022. Net income was $1.1 million compared to $2.5 million for Q1 '21. Q1 2022 net income included $0.7 million of gain on dispositions of assets, down from $3.4 million in Q1 '21. Adjusted for litigation, net income was $2 million compared to $5 million for Q1 '21. Net income per share available to common stockholders was $0.00 compared to negative $0.02 for Q1 '21. Adjusted for litigation, net income per share available to common stockholders was positive $0.02 compared to positive $0.05 for Q1 '21. AFFO was positive $2.1 million compared to negative $1.6 million for Q1 '21. Adjusted for litigation, AFFO was $3 million compared to $0.9 million for Q1 '21. AFFO per weighted average share was positive $0.04 compared to negative $0.05 for Q1 '21. Adjusted for litigation, AFFO per weighted average share was $0.06 compared to $0.03 for Q1 '21. Total debt at March 31, 2022, was $465 million, with further reduction of $16.9 million after the end of the quarter. Fully diluted share count as of April 29 was $51.4 million. Next, I will draw your attention to Page 12. As Luca mentioned, we have received many questions over the past couple of months regarding Ukraine. I'll make comments on Ukraine a few minutes ago, so I won't go into depth here. However, we wanted to provide some high-level information that might address questions that investors have. One of the sources listed at the bottom of the page, International Food Policy Research Institute has written many theses on the impact of the conflict in Ukraine -- it might be an interesting resource for people looking for more information. Next, I will turn to Page 14 to provide an overview of our income statement. Similar to last quarter, I will take a minute to talk through the table at the top of the page. We have over 300 farms in the portfolio, many of which have multiple revenue streams. We try to simplify the business into a few baskets described in this table. We start with fixed payments. Fixed payments include fixed farm rent, wind rent, solar rent, recreation rent, tenant reimbursement, management fees and interest income on loans. We consider these fixed payments to be low risk. Fixed farm rent represents the vast majority of fixed payments. As a point of information, farmers generally pay 50% to 100% of fixed farm rent before planting, generally in the first quarter thereby creating positive working capital for a large portion of the year. To illustrate that point, we're about a third of the way through the year as we sit here today, and we have received approximately 60% of the fixed farm rent for the year. The next category is variable payments. This is rent paid by tenants as a percentage of farm gross proceeds. With variable payments, we have exposure to both upside and downside of farm performance but the downside is often mitigated because cost overruns are borne by the tenants. Tenants generally make the vast majority of variable payments after harvest in Q4 with some slipping into Q1 of the following year. As a reminder, we have one large variable rent contract that accounts for approximately $6.5 million. That contract is very well covered by farm revenue. We consider this large contract to be relatively low risk. I'll come back to this contract in a minute. Direct operations is the next category. It is higher risk than variable payments because we don't have a tenant bearing the risk of cost overruns, but the upside is also higher as we are not sharing firm revenue with the tenant. We present direct operations in this table in gross profit to make it more comparable to the first two categories. For direct operations gross profit, we had crop sales in crop insurance, that's insurance received in lieu of crop sales and subtract out cost of goods sold. Because we're looking at gross direct operations on a gross profit basis, when we sum the values described in this table, the result is total revenue less cost of goods sold. The last category is other items, which includes revenue associated with auction, brokerage and other activities. When we consider the amount of revenue less cost of goods sold, we want to point out the lower-risk parts of our business, fixed payments plus that one large $6.5 million variable rent contract represented approximately 85% of the total for the year 2021. 2022 will be a little bit lower, closer to 80% because we have more farms under direct operations. The chart below the table show the values of these different categories for Q1 '22 and Q1 '21. You will see the fixed payments, variable payments, direct operations, gross profit and other items. Again, the total on the right-hand column is revenue less cost of goods sold. Q1 '22 was $12.4 million compared to $11.3 million for Q1 '21. On the next page, Page 15, we telescope down into the fixed payments and variable payments, creating a bridge from Q1 '21 to Q1 '22. For fixed payment details, we separated out the performance of same row crop farms from other items such as acquisitions, dispositions, permanent crops and farms that were not comparable between the periods. Same row crop farms were row crop farms in the portfolio before January 1, and of 2021. We view same row crop farms in the -- excuse me, we view same row-crop farms as the best way to remove the noise from the various activities that are grouped into the other category here. As you can see, performance was up $0.2 million from Q1 '21 to Q1 '22. Fixed payments associated with acquisitions, dispositions and other items was up $0.3 million. In variable payment details, we remind listeners that the vast majority of cash and revenue occurs after harvest in Q4. The variance in Q1 is largely in line with expectations, and our full year outlook for variable payments remains the same. The bridge from Q1 '21 to Q1 '22 is the negative variance in tree nuts was due to timing differences between the years as after harvest revenue slipped from Q4 of '20 and to Q1 of '21, while Q1 of '22 did not receive any such slippage from the fourth quarter of 2021. The negative variance in grapes was a combination of timing difference and lower performance. On the next page, Page 16, we update the outlook for 2022. The table starts with the same categories described on Page 14, fixed payments, variable payments, direct operations, gross profit and other. Fixed payments increased due to the additional leases signed and new acquisitions. Variable payments did not change. As a reminder, three citrus farms converted from third-party contracts to direct operations in the second half of 2021. Thus, for those citrus farms 2022 overall, will have a shift toward direct operations and away from fixed payments and variable payments. Direct operations gross profit decreased due to citrus pricing changes. While mandarins and oranges are higher, lemons are lower, caused by export demand changes and shipping issues at major ports. It's still relatively early in the season. The industry continues to sell fruit into the third quarter, and we will keep you updated as we have new information. Other increased due to additional auction business. On the expense side, property operating expenses in general administration did not change. Legal and accounting decreased due to lower expected litigation expenses. We had previously shared a range of litigation spend of $2.4 million to $3 million. That range is now lowered to $1.8 million to $2.4 million. Interest expense decreased due to lower debt levels, partly offset by rising interest rates. Weighted average shares increased due to the sale of shares under the company's ATM program. This results in AFFO in the $11.4 million to $14 million range compared to $9.1 million to $11.7 million range shared back in February. AFFO per share would be in the range of $0.22 to $0.28 compared to $0.19 to $0.25 from back in February. We are assuming that the litigation concludes in 2022. AFFO adjusted for the midpoint of the estimated litigation spend would be in the range of $13.4 million to $16 million compared to $11.8 million to $14.4 million from February. AFFO per share adjusted for litigation would be in the $0.27 to $0.32 range compared to $0.25 to $0.31 that we shared with you all back in February. This wraps up my comments this morning. I'll turn the call back to Paul for concluding remarks.

Operator, we're going to go to Q&A, and then we'll conclude after we see if there are any questions from the audience. Thank you.

[Operator Instructions]. Our first question comes from the line of Nate Crossett with Berenberg. Please go ahead.

Hey, good morning. Thank you. I had a question on just the deal flow in the pipeline. I don't think you guys gave guidance for kind of acquisition volumes for the year. But you did $8 million in the quarter. There was a presentation you put out recently that showed that you had $18 million under contract, and it was kind of sizing the pipeline at around $330 million. And so is there any way you can just give us a sense of what we can expect in terms of volumes this year? Or what the activity looks like over the next three months? And then also, if you could just maybe comment on cap rates and if you're seeing any changes in pricing just given the change in interest rates over the last few months?

Sure. A bunch of different questions there, Nate, and I'll try to answer them all. If I miss one of them, please prompt me again. But our pipeline today is as we said in our presentation, probably $300 million or more, we track a lot of transactions compared to the number we actually do. We try to measure ourselves more by doing the right transactions, then focusing on a very specific quantity of transactions. We want to be selective do the best deals. And the best deals is really balancing a variety of things. It's thinking about the portfolio balance in the context of what we already own. It's thinking about cap rate we can get on a given asset, which is different in different regions. And then finally, and in many ways, the most important to me is what is our perspective on the long term measured in 5 years or greater upside on a given farm. We want to buy the very, very best farms. And we are now being rewarded for that discipline during the last half a decade or so. And that's really what drives which farms we do. We won't do $300 million of new acquisitions by the end of the year in any -- under kind of any case, but we're going to do quite a few. The next surge in acquisitions is likely to come in the fall because in the fall is when there will be a lot more properties available for sale than there are right now kind of entering a phase where it usually slows down a little bit because it's harder to transact on a farm when there's crops in the field as it creates a set of other deal issues you have to manage. Our perspective, though, is we'll do something in the tens of millions of deals in the next quarter. And it will kind of run, I think, at roughly that pace. But don't be surprised if it's quite a bit higher or even quite a bit lower than that because really, we're driven by selectivity and doing the right deals. So the other question you asked is are we're seeing price changes due to interest rates. And so far, no, we are not. So many farm acquisitions are done with cash. A Farmland as an asset class overall only has about 13% leverage on it. Many, many of these buyers show up with cash available for the transaction. Obviously, for those farmers who are using debt in the purchase they're likely to pull their horns in a little bit because, obviously, it increases the cost of carrying that asset. But as I said, the overwhelming majority of the sort of farmers or institutions making these acquisitions, are doing it with cash. And so the increased debt is not really having an effect at this point in time. I think I got most of your questions. But if I missed one, feel free to follow up.

No, that's definitely helpful. I had a question on the renewal spreads. I think last quarter, I can't remember if you guys were kind of articulating 10%, plus or minus, but the 15 to 20 that you quoted this time did seem like it was an uptick. And I guess my question is like how far out are you going to kind of see those spreads? Or what are you kind of anticipating, is this a 2022 phenomenon? Or is this an 18-month to 24-month phenomenon? And I guess like is there any resistance on kind of resetting those rents? Any color you can give there is helpful.

Sure. So just to give everyone the general context, as a company, we reset rents in annual cycles. So what I said on the last call was that the reset cycle that is now showing up in our profit and loss statement for the 2022 calendar year was in that 10%-ish sort of range. That’s what we experienced. Where we are now is we're starting to renegotiate leases that will kick in, in the 2023 years. We are doing that a little bit early, frankly. Normally, we would do it in the late summer and early fall of this year. But we started early for the following reason. We've a very favorable price situation for farmers and the farmer -- if we have renegotiated that we will rent that farm to that farmer for another three years, starting he knows he's got that lease for '23, '24 and '25. That farmer can go out right now and sell grain and hedge the risk but he cannot take -- you cannot put that hedge on if he thinks he's going to lose that farm. So we wanted to start early for the benefit of our tenants as well as ourselves in this cycle of negotiating the 23, 24 and 25 rent package. What we're seeing there is that we're getting kind of a 15% to 20% increase in those rents. As I've said, we’ve now released about 25% of what we have to do this year. And those rental increases are quite strong and higher than we were getting last year. I think that will continue through this entire lease cycle. I think it's likely to continue when we start to renew the leases, that will be up for renewal in 2024. So I think this is going to go on for a couple of years. The situation we find ourselves in with relative grain shortage is not going to get corrected very quickly because we're consuming all of this grain. We're now having another season, as I indicated in my prepared remarks, between short crop in India, difficult weather situation in South America. So short, what they call safrina crop, that's their second crop of corn is now getting smaller. U.S. is starting to have significant planting delays, which puts us at risk of lowering yield because pollination gets pushed into the two hot times of the summer. And then, of course, the Ukraine or. So we've got this sort of perfect storm that I think is going to leave farmer profitability high, and that's the best thing for our rental increases. As far as your comment about pushback from our farmers, yes, we get push back from our farmers as would be expected. Nobody likes to see the rent increase but they are able to do it, and in the end, willing to do it. And so I think we will benefit from that. And so this is very -- I've used this example before. This is an industry where you have these pretty strong upward surges and then a plateau and an upward surge in a plateau. And that applies to land price to some degree, it applies to grain price, certainly applies to rents and the other cost structure the farmer faces. And we find ourselves for the reasons I just expressed in a very strong upsurge period and are taking advantage of it while we can. Hope that answers your question?

Yes, it’s very helpful. I leave it there. Thank you.

Our next question comes from the line of Dave Rodgers with Baird. Please go ahead.

Hey Paul, good morning. Thanks for the increasing disclosures on the company as a whole. Wanted to ask one of the most attractive features, obviously, of Farmland over many years has been the generally 100% occupancy of the farms. I wanted to talk about your direct operations business, I guess, in the sense that it is growing. And you talked about it growing again this year. So can you kind of dovetail the direct operations component in with kind of this 100% occupancy and high demand from farmers?

Yes. So we do direct operations under two circumstances. We do it when we have a farm that's sort of in redevelopment for some reason, -- maybe it needs new irrigation installed. We just bought it and we're going to improve it with irrigation and we might direct operate it. Maybe it's bulldozing trees and changing the crop the specialty crop we have planted there. It's very hard to lease a farm that's not sort of in good conditions, so to speak. So that has historically been the direct operations we have done. Most other institutional managers of farmland use a lease model in row crop and a direct operations model in their specialty crops. The reason they do that is the volatility of your return is high enough that it's relatively hard to get a fair lease in place on the specialty crops. And what I mean by that is, in fairness to the farmer who might lease it, he's always cautious because of that volatility. So getting a fully fair return over the kind of 5-year or so average is difficult because what you're going to end up with -- if I'm going to lease a farm, I want to base rent. I want a significant base rent. And I want that in exchange for giving up the upside that you get from direct operations. The farmer, of course, says that's all great, but what about the downside year where he's really coming out of pocket and taking a loss on direct operations. So what -- like so many other institutions that we've decided to start doing is at least on some of our specialty crops on citrus in particular. That we're going to direct to operate them because we think we will make more money over time than we will from leasing it. And it's really kind of aligning us with, I think, what other long-term managers in the space have done. We have not actually done it, though, on all of our specialty crops, and I don't think we will. We have the relationship with the Olam Company, which is specialty crops but truly a long-term triple-net lease at a great rate. They maintain the trees, they pay the taxes, they do everything. And we still get something against our original purchase price that's in the mid-6s as a cap rate. That's great. But Olam is a unique company with a very strong balance sheet, publicly traded in Singapore. And so we were able to negotiate a lease with them that on balance, gives us a pretty high return and a fixed rent or nearly fixed style rent. And that -- but on the citrus, we just -- we found ourselves unable to get that fixed rent we wanted, and we've all reserved. And so we think we're going to capture much more upside in the -- by direct operating. Hope that helps, Dave.

That does, Paul. And then maybe a related question around the crop insurance proceeds in the quarter just under $2 million. I assume that was related to last year. I guess a couple of questions. One, was that in the guidance originally? And then two, would you anticipate this year actually being able to harvest the crop related to that. So maybe I don't want to say double counting, but you get kind of 2 shots added this year? Or will we see kind of a crop insurance number again next year? How is that kind of working in your guidance and in your outlook?

I'm going to let James take that, at least initially. I may add something afterwards. But go ahead, James.

Yes, Dave, so the crop insurance numbers that showed up were -- yes, they were in our original numbers. And that's crop insurance in lieu of selling the fruit that was anticipated. As we look out into next year, we don't yet have visibility as to how that's shaking out, but we will include that in numbers as we do our work for 2023.

Okay. And then last for me, in terms of the rental increases that you guys are seeing. I think this year, if you looked at just the fixed same-store component you're up about 2.1%. It seems like on the farms, and that makes sense relative to your roughly 10% increase. So I guess just kind of translating that to next year if 25% or so of the leases are rolling and you're going to get a 15% or 20% increase. I mean the organic growth rate next year should be in that 3% to 4% range. I mean is that the right way we're thinking about it?

Go ahead, James.

Yes, it's still early days, but I think that's essentially the math that we do. As Paul said, we've renewed some percentage of leases this year. We have a lot more to go. And so we'll keep you updated, but I think that's essentially the math that we do as well.

And if I was updating your model right now, Dave, I'd be using the 15% number, not the 20% number, just to be cautious. We're shooting for the 20 million but no guarantees yet. We've only renewed about 25% of the acres at this point.

Great. Very helpful. Thank you.

Our next question comes from the line of Craig Kucera with B. Riley Securities.

Hi, good morning guys. And congrats on putting a lot of the legal issues behind you. But I'm curious, Paul, are you in the process of contemplating any sort of pursuit of a recovery related to that?

Yes, there -- yes, we are, Craig, and it's actually a good question. One reason that you didn't see us take all of the elevated legal spend away. We do believe that the class action lawsuit against the company is gone and done at this point. So we're very happy about that. We will continue to pursue the hedge fund that was behind all of this and are hopeful of getting a significant recovery at some point in the future. But it's a very big deal to have the case against us fully dismissed. We always believe that, that was frivolous but it did create financial risk to the company if we would ever have lost that case, which we never really thought we would, but you never know. And then on top of that, it's a case you can't get out of, it's a case against you. We can make a business decision at some point in the future if we choose to, to stop pursuing the hedge fund to get back what they cost us but we can do that on a business basis at the time. In other words, do we think we can achieve more than a cost to continue to pursue it. That just wasn't the way it worked in the class action. We had to stand there in the ring, so to speak, and keep fighting. And obviously, we're successful.

Great. That's helpful. And at this point, are you able to sort of contemplate what that recovery might be? Or are you still sort of restricted in what you can disclose in that matter?

It would be very hard for me to quantify it both because it's an ongoing battle. And I also -- it would be a very broad range. If I tried to quantify it. I mean the damage caused by this is significant, but I'm not going to be able to go into details.

No, that's fair. You raised some additional equity here in the second quarter, pay down additional debt. Most of your debt is relatively long -- has a relatively long maturity. Can you comment on which portion of the debt capital stack is sort of priority for paydowns?

Yes. So when we think about paydowns on our current debt structure, we think about it really in the following way. We think about what's the absolute rate on that piece of debt. What is the alternatives we could use the cash for if we have really good deals in front of us, we'll continue to do transactions without levering them? That's in effect from an overall balance sheet perspective, similar to paying down debt, frankly, because you're delevering overall. We will also look at when there is a reset on rates because a lot of our debt instruments will might be a 10-year instrument, but it may have a reset every three years or so. So if you're coming up with a reset in the near future, on one of our depths given what's going on in the background interest rates. Generally, you would think about trying to accelerate paying down on those debts that are going to reset. And then the final thing we think about, which is really important, is thinking about what collateral is underneath a given loan because if we can free up a lot of collateral, it gives us an awful lot of financing flexibility. So we're very cognizant of creating this relatively large package of assets with no pledge against them because it opens up all kinds of more efficient ways for us to finance the business going forward. So that's how we balance it.

Great. That's helpful. Just 1 more for me. I mean, thinking about how you converted the Series B last year into common you raise more common pay down more debt. Are you viewing the recent deleveraging is sort of giving you dry powder for additional acquisitions to lever back up? Or are you thinking that you want to run the balance sheet with maybe a little bit more -- less leverage over time?

I think it's actually both. It gives us the financial flexibility to really grow the company when there are good opportunities, because we've got a lot of liquidity capacity should we need it. But our general trend is to have slightly less leverage over time than we have had historically. The leverage we had -- we took the point of view that to support the overheads on the company you needed to achieve relatively significant scale. And frankly, we're still a modest-sized company by any measure on Wall Street. But we really wanted to get to a good, big base of assets because you can't run a public company without a pretty solid staff and a minimum number of people. So we've used leverage to be able to keep that growth growing and to get big even without doing with equity. We want to continue to grow. We want to grow aggressively. But I think we are now at a point where we can probably do that growth with slightly less overall leverage ratios. This company, if you look at the preferreds as a debt instrument, and it's not technically correct, but some people do look at it that way. We have massively delevered this company in the last 12 months on an overall basis when you look at it that way. And we think that's good, and we think it's 1 of the things that's helped our stock price. So we're positive about it, but it's always going to be a balance. But long term, I think you'll see lower overall leverage levels than you have seen in the past on the company.

Okay.

There are no additional questions waiting at this time. I would like to pass the conference back to Paul Pittman for any closing remarks.

Thank you. And thank you for all the investors and listeners on this call. We do appreciate your continued support of the company. And we look forward to talking with you either in-person or on the next quarterly conference call. Thank you very much.

That concludes the Farmland Partners Q1 2022 Earnings Call. I hope you all enjoy the rest of your day. You may now disconnect your lines.