Farmland Partners Inc. (FPI) Q2 2022 Earnings Report, Transcript and Summary

Good afternoon. Thank you for attending today's Farmland Partners Incorporated Q2 2022 Earnings Call. My name is Forum, 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] It is now my pleasure to pass the conference over to our host, Paul Pittman, Chairman and CEO of Farmland Partners; Mr. Pittman, please proceed.

Thank you. Good morning, and welcome to Farmland Partners second quarter 2022 earnings conference call and webcast. We appreciate you taking the time to join these calls because they are an important opportunity for the Company's management to inform you about our thinking and strategy in a format, less formal and more interactive than public filings and press releases. I want before we begin the formalities of the call, I do want to make one comment. We are reporting the very best quarter this company has probably ever had, in a stunning level of incompetence, Reuters published us in the middle of the night as having a quarterly loss, which was picked up from what we can tell by several other news sources and spread around. That explains why our stock price is down instead of up after reporting an absolutely fantastic quarter. So, we will go through the details as we continue, but I did want to start off with making everyone aware that there are news sources out there that in error show us at a $0.04 net income loss when in fact it is a $0.04 net income gain. With that, I'm going to turn it over to our General Counsel, Christine Garrison, for some customary preliminary remarks. Christine?

Thank you, Paul, and thank you to everyone on the call. The press release announcing our second quarter earnings was distributed after market close yesterday. The supplemental package has been posted to the Investor Relations section of our website under the sub header, Presentations and Other Materials. For those who listen to the recording of this presentation, we remind you that the remarks made herein are as of today, July 27, 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 second quarter earnings, which is available on our website, farmlandpartners.com and is furnished as an exhibit to our current report on Form 8-K. 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?

Right. Thank you, Christine. So as I said a few minutes ago, this is probably the strongest quarter that this company has ever had. We are in a situation where virtually everything in our business is going quite well. Asset values continue to increase significantly. I think year-over-year, we're going to see another gain in the 10% or more asset appreciation. That's after the 2021 year may have been as high as 15% or 20% improvement in asset values. Our revenues are up strongly. Our operating income is up over 250%. Let me repeat that. Operating income year-over-year is up 250%. AFFO is up strongly. We have raised our guidance $0.03 a share, two quarters in a row now. The rent releasing process that we are in we have now released approximately 1/3 of the farms that are up for renewal, and we are getting in excess of 15% rent bumps in that releasing effort. Leverage is down on the Company and we are still trading at a substantial discount in net asset value, probably in my estimation at today's trading rates, we're probably trading in the neighborhood of $1.50 a share below net asset value. So all in all, this is an incredibly strong quarter. As I said a few minutes ago, very disappointed by the fake news, so to speak, that got put out overnight. The Company had a very, very successful quarter. And with that, I'm going to turn it over to Luca to make some comments, and then I'll turn it over to James to further walk through financial details. Go ahead, Luca.

Thank you, Paul. I just wanted to share a couple of thoughts regarding capital markets and the Company's presence on capital markets. The number one is we were included as of May 31, in the MSCI REIT index, more commonly in the REIT industry as the RMZ index. We see that a significant milestone in the growth of the Company and a testament to the growth and success of the Company. Also wanted to point out that we have been quite active with our ATM at the market program in capital markets. We see that as a very, very efficient and cost-effective tool to raise capital while maintaining control over the cost of such capital. So far year-to-date this year, we issued approximately $100 million some of which actually just around the -- our inclusion in the MSCI REIT index. A quick note on the marketing side. We are -- you will see that we are starting to step up the presence of the Company on kind of more widespread social media channels. Please follow us on Twitter, on Facebook, on LinkedIn, we will also have soon a new website up and running to better communicate kind of the Company's presence and role in ESG strategy and so on and so forth. And I will now turn the call over to James for his overview of the Company's 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 10 of the package contain the press release and related financial information, the Pages 11 through 21 contain the supplemental information. First, I will share a few financial metrics that appear on Page 2. For the three months end of June 30, 2022 net income was positive $3 million compared to negative $2.9 million for Q1 '21, an increase of $5.9 million. Net income per share available to common stockholders was positive $0.04 compared to negative $0.19 for Q1 '21, an increase of $0.23. AFFO was positive $1.1 million compared to negative $3.6 million for Q1 '21, an increase of $4.8 million. AFFO per weighted average share was positive $0.02 compared to negative $0.11 for Q1 '21, an increase of $0.13. Improved performance is due to increased revenue, reduced legal and accounting expenses and reduced distributions on preferred stock. Cost of goods sold was higher in 2022 due to the greater number of farms under direct operations in 2022 compared to 2021. General and administrative expenses were higher in 2022, largely due to the acquisition of Murray Wise Associates or MWA as we say internally in late 2021. For the six months ended June 30, 2022, net income was positive $4.1 million compared to negative $0.4 million for '21, an increase of $4.5 million. Net income per share available to common stockholders was positive $0.05 compared to negative $0.21 for '21, an increase of $0.26. AFFO was positive $3.3 million compared to negative $5.3 million for '21, an increase of $8.5 million. AFFO per weighted average share was positive $0.07 compared to negative $0.16 for '21, an increase of $0.23. Similar to Q1, the year-to-date improved performance was due to increased revenue, reduced legal and accounting expenses and reduced distributions on preferred stock, offset partly by increase in cost of goods sold due to directly operating more farms and an increase in general and administrative expenses due to the acquisition of MWA in late '21. Total debt at June 30, 2022, was $426 million, since December 31, 2021, we have reduced net debt by over $75 million. We repaid $5 million of Series A preferred within the quarter. The balance of Series A preferred was $113.7 million as of June 30. Fully diluted share count as of July 22, was $54 million. Next, I will turn to Page 14 to provide an overview of our income statement. In the last two quarters, we took a couple of minutes to review the different components listed out in the table. I won't go through the entire table on today's call. Just a couple of highlights, but if you have any questions, please feel free to follow up. The items to highlight are: number one, this analysis in the following charts shows direct operations on a gross profit basis, that's revenue less cost of goods sold. And number two, we remind people that for fixed farm rent, 50% to 100% of the annual leases paid before planting generally in the first quarter. Thus, we are positive from a working capital perspective for a large portion of the year. The charts that follow on Page 15 show the values of the different categories described on Page 14 for Q2 2022 compared to Q2 2021. You can see the fixed payments, variable payments, direct operations, gross profit and other items. The total on the right-hand column is revenue less cost of goods sold. Q2 '22 was $11 million compared to $9.3 million for Q2 '21. Further down on Page 15, we dive deeper into the fixed payments and variable payments, creating a variance bridge from Q2 '21 to Q2 '22. For fixed payment details, we separated out the performance of the 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 and row-crop farms in the portfolio before January 1, 2021. 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. As you can see, performance was up $0.2 million from Q2 '21 to Q2 '22. The fixed payments associated with acquisitions, dispositions and other items, was up $0.5 million. In variable payment details, we remind listeners that the vast majority of cash and revenue occurs after harvest in the fourth quarter. The variance in Q2 is largely in line with expectations. The positive variance in tree nuts was largely due to pecans in the Southeast. The positive variance in citrus was due to a lagging final payment from last year, and the decline in all other crops was largely due to a farm that was sold in 2022 and, therefore, not part of the numbers for 2022. The charts on Page 16 show the same information for year-to-date '22 compared to '21. On the top two charts, you can see the fixed payments, variable payments, direct operations, gross profit and other items. Again, the total on the right-hand columns is revenue less cost of goods sold. Year-to-date, '22 was $23.5 million compared to $20.7 million for year-to-date '21. Further down on Page 16, we show the fixed payments broken out in the same fashion as the previous page. Same row-crop farms were up $0.4 million from year-to-date '21 to year-to-date '22, the fixed payments associated with acquisitions, dispositions and other items was up $0.8 million. For variable details, the bridge from year-to-date '21 to year-to-date '22 shows, tree nets were down, which was really a Q1 item that was caused by Q4 2020 after harvest revenue slipping into Q1 2021, while Q1 2022 did not benefit from any revenue slipping in from the previous quarter. Citrus is up due to that lagging final payment received in Q2 that was mentioned a minute ago. Grapes were down in the first quarter caused by timing and also lower performance, and all other crops was down due to the farm that was sold impacting the second quarter as mentioned a moment ago. On the next page, Page 17, we updated the outlook for 2022. We -- the table starts with the same categories described on Page 14 and the charts, fixed payments, variable payments, direct operations, gross profit and other. Fixed payments increased due to new acquisitions and leases signed. Variable payments increased slightly. Direct operations gross profit decreased due to citrus pricing changes, lemons are lower, caused by export demand changes and shipping issues at major ports. We will keep you updated as the harvested fruit is sold throughout the third quarter. Other increased due to additional auction business from Murray Wise Associates. On the expense side, general and administrative increased approximately $750,000 due to the accounting treatment of the noncash incentive associated with the Murray Wise acquisition in late 2021. That noncash incentive is added back to AFFO. In addition, travel and personnel expenses are trending slightly higher than originally projected. Legal and accounting decreased due to lower expected litigation expenses. That range for litigation spend has decreased from $1.8 million to $2.4 million from back in May, down to the range of $1.3 million to $1.5 million today. 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 $13.4 million to $15.6 million range compared to the $11.4 million to $14 million range shared back in May. AFFO per share is in the range of $0.26 to $0.30 compared to $0.22 to $0.28 from back in May. This wraps up my comments for this morning. Operator, you can now begin the question-and-answer session.

[Operator Instructions] Our first question comes from the line of Rob Stevenson with Janney. Rob, your line is now open.

Paul or Luca, can you talk about the expire, what the expiring term was on the leases that you renewed? So it's up 15% plus, but is that off of leases that were signed a year ago, two years ago, three years ago, what is that increase off of?

That would have been an increase off of leases signed usually three years ago. I don't know if it's true -- if every single lease was three years ago, but the overwhelming majority will be leases that were signed in -- this is '22, they would have been 2018 vintage leases.

And what did those leases typically have in terms of annual bumps in them?

They will generally, from that era, have had a 1% per annum bump in them. It was the most common thing that we were doing in that era. And so this will be a significant bump in total rents. And then the cost of living adjustments that we're carrying and a lot of leases now are sometimes based on CPI and sometimes 2% or 3% higher than they were historically.

Okay. So that one goes to either CPI, the 1% bump goes through the CPI or at least 2% to 3%?

Correct.

On the new leases? And then what -- in terms -- go ahead.

Yes. And that cost of living adjustment is not part of that in excess of 15%. That 15% is just a onetime jump when the lease rolls over.

Okay. And then looking at the two-thirds or roughly that amount that haven't renewed as of yet, I mean, you guys have typically been close to 100% in terms of renewals. So I assume that these will be renewals, just you guys going back and forth over terms with the operators. But from their standpoint, I mean, even at up 15% or up 12% or whatever you guys wind up settling on, given crop prices, et cetera, is there any issue there from their standpoint that they're not going to make a hefty profit unless comp prices fall dramatically.

No. There's -- I mean these are -- last year just to level set. We've got about a 10% increase on renewals. And this year, it's slightly higher, but on the group that got increased last year, we haven't had any difficulty in rent collections or farmer success and farmer profitability. We don't anticipate any change here. The farm economy is quite strong. The crops are going to be okay, but I don't think -- I don't think there'll be a sort of outstanding crop. It will be a decent crop and prices are historically quite high. If you look at a short-term chart of 20 or 30 days, it feels like corn prices are down, but if -- and soybean prices are down. But if you look at a two-year chart, this is or a 10-year chart -- this is some of the strongest grain prices that farmers have ever had and will continue to happen for the foreseeable future, in my opinion. So the farmer profitability is strong, and we're a beneficiary of that.

Okay. And I guess on a related question, so acquisitions picked up a bit in the second quarter here. How are you characterizing the market both in terms of the number and availability of farms that you're interested in out there for sale and also where pricing is for those farms today, given the improvement in the farm economy that you talked about today versus a couple of years ago? What are you having to pay more for those? And are people sitting on the farms rather than selling? Or there's still plenty of good farms that you'd be interested in acquiring out there for sale at prices that make sense to you?

It's -- so lots of different questions there. So number one, pricing in the farm country for farms is strong. It's an appreciating market. It's been an appreciating market now for about 24 months, a rapid, rapid appreciation in the 2021 year. The 2022 year is somewhat more muted but still strong appreciation. The unique feature, I think, of our asset class though, is that the very best farms always come to market when the farm economy is strong and farmland is appreciating. If you study volumes, you will see that farm sale volumes go down in tough economic times, basically only have sales that are death, divorce or distress. And in those cases, the only farms being sold are, frankly, not very good farms. Nobody in a forced sale is selling their best farm. When the farm economy is strong and farmland prices are high and everybody feels good bring in additional volume off the sidelines of farms that probably wouldn't have sold prices weren't so strong. So for us, we want to be in the market. We are very long-term oriented in the quality of our portfolio. So you need to be in this market buying these farms, even though prices are high, because this is one of the best assets we are trading.

Okay. That's helpful. And I guess, given your better cost of capital today, are there any specific markets and/or crops that you're especially targeting today in order to broaden or improve the portfolio quality and resiliency.

Yes. I think -- I mean, if you look back at the places we've had the strongest returns of both appreciation and current yield over time. The strongest appreciation has really come from the Midwest, the core of the Midwest has added an immense amount of value to this portfolio over the time period that we've been public, and the appreciation continues to be strong there. So we're deploying additional capital in the in the Midwest. The problem, as we discussed before, is that cap rates in the Midwest are just not very high. It's a low-risk environment, a lot of competition for land, a lot of high-quality tenants, very, very benign farming environments, low crop risks. And that leads to pretty frankly, pretty low cap rates. That being said, total return in the Midwest is frankly better than any other place in the overall portfolio. But -- so we will also, though, continue to keep diversification going appropriately adding assets in the other regions, particularly the Delta and the Southeast. The -- and we'll also continue to add probably in California. We are cautious. I think I said in the prior earnings call a couple of months ago. We're very cautious because of water risk in California -- but there will still be successful operations there for decades, growing high-value specialty crops. They do have better current yield than the Midwest. So we want to continue to invest there. And so, the pipeline is strong and a lot of good opportunity out there.

Okay. And then last one for me. If I'm not mistaken, the last of the lawsuits left is you against the hedge fund. What's the current status of that legal proceeding? And are there any notable dates coming up on that?

Yes, the current status of that legal proceeding is that it's basically an appeal in Texas. The other side has continued to try to get out on a technicality of jurisdiction and other sorts of issues. We do not think they'll be successful. There's really not much activity going on there right now. We don't anticipate a lot of activity during the third quarter. Maybe some results will come out of the court of appeals in the fourth quarter. Just that is the only lawsuit still going on. We're still optimistic about successful recovery for our shareholders at some point in the future. And -- but as far as the legal spend, it's slowed down substantially. That case against the hedge fund was always less costly than the case against the Company, it pains me to say that. But defending ourselves against the ambulance tracers was the most expensive part of this, but that's all behind us.

Our next question comes from the line of Buck Horne with Raymond James. Buck, your line is now open.

Congrats on the outstanding results. You mentioned the recent commodity price rollover that maybe happened over the past few weeks or so and in the context of certainly where prices have been over the past 5 or 10 years or so. But as we look into the back half of this year, I'm just wondering if there's any pushback coming from the other side of your farm renegotiations are -- is the recent rollover in commodity prices affecting that 15% effective renewal rate that you've been achieving so far in the front half of the year.

No, we -- I would assume we're going to achieve that 15% or better renewal rate across the entire group of farms are renewing. We -- the reason we reported it the way we reported it is we're currently running materially above 15% but human nature being what it is, our farm managers tend to renew the easiest leases to renew first. So we think it will pull back from the absolute number we're running at right now, but I don't think it will pull below 15% improvement over the prior year on a weighted average basis. So to the question about grain prices, just historical context is important, we have seen the absolute top of the grain markets come off, although to be honest, it's recovered quite a bit in the last few days. Soybeans were up, for example, $0.36 yesterday. We've got soybean prices in the 15 sort of 70 range and corn prices hovering right around $6. In my lifetime of being involved in agriculture, those would be top 5% prices over the last 35 or 40 years, if not even higher. These really, really are strong prices. What we've seen come out of the market in the last 30 days or so is two different things. The overwhelming high inflation has hopefully started to temper a little bit. We'll see when the July numbers come out in a few weeks for the CPI. And so grains and food prices has to be part of that pullback. But the second thing is we've sort of taken the Ukraine war premium out of the market a little bit. There was a big agreement to allow a humanitarian corridor to ship grain out of the Ukraine. Of course, if you follow this closely, the agreement was signed on day and the Russians appear to have bombed the port the next day. So not sure that humanitarian corridor is actually going to work certainly not sure it will lead to huge amounts of grain moving. I mean kind of think about this in a sort of real-world sense. If you're the owner of a huge bulk ship you really want to put in the Black Sea, where there's mines and at a port where the Russians appear to be bombing. If you're a port worker, do you really want to show up to work, if you're a farmer or a trucker, do you really want to drive trucks across the war-torn country, to drop off soybeans or corn or wheat. My sense is the market got a little ahead of itself, and we're seeing this in the last few days, optimism that there was going to be a bunch of grain come out of Ukraine. And the real issue in Ukraine is not the grain that's stuck in those silos. It's the fact that they didn't plant a full crop this year. We will maintain an overall shortage of key food commodities, I think, through the rest of '22 and into '23. The hope of the world is that the United States will have a bin-busting crop given the extreme heat and the late planting date. I don't even think that happens. I can't be sure of it yet. It's a little too early to tell. But there are a lot of commentators who are already suggesting that yield per acre in the United States is going to come down from where the USDA is currently projecting it. If that, in fact, happens, will be in probably another 24 months at least of relative shortage because the only two producers in the world that can really swing it and change it are the United States and Brazil, and you just got to wait for their crops to come and hope for a really good crop and really good weather. And to give you the example, one of the sort of secondary producers in the world is Western Europe. Western Europe is having probably the worst crops they've had in decades. And so this relatively high price environment is going to go on for quite a bit. Hope that helps.

Yes. That's extremely helpful color. I appreciate all that. That's really helpful commentary. And why don't you shift gears a little bit to the ATM strategy. And obviously, you utilize that in the front half of the year in conjunction with the index inclusion. I'm curious, though, in the context of your comments around the stock still trading at a material discount to NAV. How do you -- how are your thoughts evolving on that trade-off of still utilizing the ATM in the back half versus where you believe the NAV of the Company is?

Yes. So I mean my guess is we will continue to use the ATM modestly as we sort of have so far. Internally, we run a dilution calculation that says what does it do to the existing shareholding shareholders to continue to issue equity if we think we're issuing it at a dilutive balance sheet basis, meaning that we think the breakup value NAV is higher than where we're issuing equity. So we're very sensitive to that. I'm particularly sensitive to it given the amount of shares that I own, but you have to balance that against is it accretive from a P&L perspective. And if we have really good deal opportunity in front of us that has a total return of 8% or 9% or 10% IRR over the holding periods of an asset, you can frankly justify issuing equity a slightly dilutive rate to make acquisitions like that, and we are. The second thing is we do -- we are dedicated to continuing to reduce leverage. We think that interest rates will reset slightly higher as they roll over in the -- we don't have any resets for the remainder of this year, by the way. But in 2023, we'll have some more. And that's why we're just sort of working that debt level down. Again, it's a balancing of a derisking, delevering the portfolio with what's relatively expensive equity capital. But what's the current yield and what's the risk. And we think on balance, we will drive more shareholder value by doing modest equity issuances and continuing to delever the Company and do acquisitions. If you do any kind of stock price index stock price graph, it's year-to-date, these strategies obviously worked. We're round numbers up something like 18% or 20%. All of our competitors, all the other REITs, the S&P, everybody else is certainly not up that much and probably down. We also convert ourselves to major ag companies like John Deere and Corteva. And we're up stronger than they are. So I think we're getting it right although trust me, it pains me every time we issue stock in a $14 or $15 range when I think the NAV is $16 or higher.

Our next question comes from the line of Dave Rodgers with Baird. Dave, your line is now open.

Maybe I don't know, James, on the guidance start there. The operating component of the guidance was up, which was good to see. How much of that was related to net acquisitions, which is kind of the first time we've seen that in a while in the first half of the year versus the better-than-anticipated rents than you have modeled going into the year? And any other factors?

Yes. Sorry, you said that -- can you repeat your question? You said the operating components?

Yes. Through NOI, right, the top portion of that, how much of that was driven by acquisitions versus better-than-anticipated rent in your own modeling versus something else?

Yes, got you. So, on the fixed payment side, that's really due to acquisitions and new leases that were signed related to those acquisitions. The leases that were kind of new this year that would have been signed in late 2021 were factored in. So it's really due on the sort of fixed payments to kind of new activity. And there -- in variable payments were up a little bit as we've seen just how things have progressed throughout the year. And a big component there is the other basket. And we mentioned raising that due to increased auction activity at Murray Wise Associates. But that basket in other and the activities of Murray Wise Associates really have really been strong this year. And that's a lot of auction activity, brokerage activity. So it's been a nice positive for us this year.

Yes. I mean when you simply look at the business, Dave, and you think of it in three broad buckets, row crop agriculture, it's a boom time, specialty crop agriculture, sort of neutral, maybe slightly positive, and then the Murray Wise business strongly positive. That's kind of what's going on at an operational level. To the very specific question, I think we might -- our team models the rent increases that came from the same-store row crops accurately. That's a nice strong increase. It's almost $1 million a year of additional revenue from those leases we renewed back in '21. But the bump is coming from the things like new acquisitions and improved Murray Wise and a few broadly positive things that happened in the specialty crop side of the equation.

Great. That's helpful. When you look at your net investment stance a lot more than you sold in the first half of the year, as you think about that, two questions, one is, I guess, in the second half, will you continue to be a net acquirer of assets. And then I guess the second question is what's the cap rate or the yield spread that either you're targeting or that you resulted in the first half of the year and how you see that trending in the second half of the year as well?

Yes. So, we will probably be a net acquirer in the second half, that would be certainly our intention. Obviously, everything we own is always sale, and there are incredibly aggressive prices being paid for farmland assets. And if somebody came to us and made a super strong offer, we're likely to take it on certain assets. But I think the plan would be to be a net acquirer -- in terms of cap rates, round numbers, we're trying to maintain a cap rate in the sort of 4% range on average across the portfolio. You can't get that in every location. But it's important to grasp that if you looked at our portfolio against original purchase price, when you start making 10% or 15% increases in rents, the cap rate against your original purchase price is going up pretty rapidly. So we're starting to see creep up if you evaluate it against original purchase price in the cap rates we have across the portfolio as we're getting these rent increases pushed through. If you look at farmland in a long-term sense, there are forms that, for example, that I personally own that might have a 25% or 30% cap rate today against the original purchase price because you've got decades of rent increases embedded in that, even though the purchase price obviously didn't change, and you didn't have to make additional CapEx into the asset. A lot of good things going on when it comes to kind of the cap rate improvement and return on those assets as well as a -- on the acquisition front.

No, that's really helpful. And I guess maybe one final question along that topic is as you think about selling assets, I mean -- do you look at asset sales as maybe the plug figure for the acquisitions? Is that equity? Or are you kind of more guided toward a deleveraging target as you think about kind of net investments plus deleveraging where you want to balance between those? I guess I'm just trying to kind of weigh those options and rank them in your mind.

It's really a balance. It's really a balance. Look, the leverage of the Company today is, frankly, not very high. If you looked at the value of this portfolio is probably on a current market basis, something in the $1.375 billion range. Book value is about 1.1-ish of the assets we own. And so when you adjust for true market value, which is how the lending community and the farm economy, frankly, works, I don't care what we paid for it a decade ago. They care what it's worth now. We're down in a 30% or lower kind of leverage environment. If you throw the preferred in on the equity side, which is in many ways the right way to look at it, it's even lower than that by quite a bit. So, we don't feel like we have substantial leverage, but we like enhancing the cash flow by reducing debt where we can, particularly given the interest rate environment we're in right now. You have to balance that, though, against the fact that when you acquire a farm, your total return, high single digits, low double digits. We've round-tripped sales of farms. I mean I think we sold about $160 million of farms in the last couple of years. It's 8.1% IRR. That was most of those sales occurred in pretty crummy pharma economy. So if we were doing a lot of sales right now, we really rapidly run that IRR up probably 9 or 10 or better. And so, you can't really -- can't just look at the current yield on buying a farm in the current yield on our debt, you have to look at the kind of total return. So, we'll balance the two things. It's really a question of where the -- how much additional equity we have to deploy and where we think the best total return is, which is really a balance. So I don't think we have an absolute road map. It's really sort of just opportunistically trading off between those things. I think what you can see in the rest of the year is some further debt reduction and some further acquisitions.

There are currently no more questions waiting in the queue. So I will pass the call back to our management team for closing remarks.

Great. Thank you all. Thank you all for joining us. We're very happy about the performance of the quarter. Obviously, a little disappointed that the news didn't get out accurately, but hopefully, in the next day or two, it will show up in the market. And thank you all for your time today. Goodbye now.

This concludes today's conference call. Thank you for your participation. You may now disconnect your lines.