Farmland Partners Inc.

Ladies and gentlemen, thank you for your patience and thank you for attending today's Farmland Partners Incorporated third quarter 2022 earnings call. My name is Amber and I will be your operator 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. If you would like to ask a question, please press star one on your telephone keypad at any time. It is now my pleasure to hand the conference over to our host, Paul Pittman, Chairman and CEO of Farmland. Paul, please proceed.

Thank you, Amber. Good morning and welcome to Farmland Partners third quarter 2022 earning conference call and webcast. Thank you for taking the time to hear these further insights about our business beyond those expressed in the public filings and press releases. I will now turn the call 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 third quarter earnings was distributed earlier today. The supplemental package has been posted to the investor relations section of our website under the subheader presentations and other materials. For those who listened to the recording of this presentation, we remind you that the remarks made herein are as of today, October 25th, 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, impacts of acquisitions, dispositions, and financing activities, business development opportunities, as well as comments on our outlook for our business, rents, and the broader agricultural market. We will also discuss certain non-GAAP financial measures, including net operating income, FFO, adjusted FFO, EBITDA RE, and adjusted EBITDA RE. Definitions of these non-GAAP measures, as well as reconciliations to the most comparable GAAP measures, are included in the company's press release announcing third quarter earnings, which is available on our website, farmlandpartners.com, and it's furnished as an exhibit to our current report on Form 8K, dated October 24, 2022. 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 today 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.

Thank you, Christine. This was another very strong quarter for the company. Revenues were up. AFFO was up $5.7 million. Operating income was up over 200% compared to Q3 of 2021. The operations primarily benefited from increased rents on our fixed leases, largely in the row crop arena, increased auction and brokerage fee revenue, and lower litigation expenses. We think this trend will continue for the fourth quarter as well. Farmer profitability is high and will remain high. This is driven by modest shortages of the primary commodities around the world, the continued unrest in Ukraine, and weather challenges in Western Europe, South America, and the United States. Land appreciation has been extremely strong over the past nine months and was even stronger in 2021. We think in 2023, the rate of appreciation may slow, but it will continue to be a strong year for farmland values. As far as the company's liquidity position goes, we have today approximately $120 million of available liquidity. This puts the company in a strong and secure position, no matter what comes in the overall economy. We think the farm economy in particular will weather the coming storm quite well, but we and all investors are nervous about the outlook given the recent rates of inflation and increased interest rates, so we wanted to be well prepared no matter what comes our way. With that, I will turn it over to Luca Fabri to make a few comments.

Thank you, Paul. Drilled a little deeper into a topic that Paul touched on briefly, which is farmland values. As we already talked in prior calls, we have been seeing quite strong appreciation in the asset class in the last 18 to 24 months. After our prior investor call, at the beginning of August, the USDA released its annual land value survey. which we regard as the most reliable and consistent throughout the country basis to evaluate trends in real estate values in the farmland sector. So I just want to quote some of the numbers that USDA came up with in terms of appreciation, and I'll quote a couple of different numbers. One is year-over-year appreciation in the last year, and one is the appreciation over the last two years as a total, not as an annual number. So Illinois was up in the last year 12.7%, 20.3% for the last two years. Iowa was up a blistering 21.5%, 33% over two years. Even in states like California that are seeing some drought challenges, values were up 10.1% over the last year and 20% over the last two years. Nationwide, farm real estate values went up 12.4% in the last year, 20.3% in the last two years. So these are just a couple of reminders. These stats are really for all types of farm real estate, so all quality tiers, and our anecdotal evidence that we see in the marketplace is that perhaps the upper tiers of farmland values and quality are actually appreciating even a tad faster than that. By the way, also, if you go and look at the actual USDA statistics, please remember that the values per acre that you see in those statistics are really, again, across all quality tiers, while we tend to focus really on the upper tier of quality of farmland, and therefore the values that we pay per acre are not really comparable to the values quoted by USDA. And more importantly, you can use the values quoted by the USDA and multiply by the number of acres that we own in the state to come up with portfolio values. But again, USDA values, USDA numbers are incredibly valuable to really estimate appreciation trends. Since the publication of the USDA numbers, We are continuing to see appreciation in farmland values. However, perhaps at a less blistering pace, largely due probably to interest rate increases. The largest buyers of farmland are still farmers. They're strategic buyers. They're largely cash buyers, but they do use leverage from time to time. And as Paul was saying, their economics, their P&Ls this year are very, very strong. Most farmers, especially in row crops, have already largely secured some crop sales for next year, for 2023. And as Paul said, we are expecting strong farmer economics for next year. So we expect these farmland values, the appreciation perhaps to slow down, but to remain sustained into next year. So drivers of these appreciation trends, again, it's farmer economics. But also the fact that productivity, thanks to technological advances, continues to go up every single year. But in the last, in the five years prior to the last two, we had really seen sideways appreciation, you know, zero to 2% kind of range. And therefore, there was a lot of potential appreciation, of pent-up potential appreciation in the marketplace that has really come to the fore in the last 18 to 24 months. I also want to make a couple of quick comments on our potential acquisition activity in the near future. We have a lot of liquidity available to us, mostly in the form of available lines of credit, but capital is very expensive. Debt is expensive. Because of our stock price, equity is very expensive, and therefore you can expect us to be a lot more selective in our acquisition activity, but it will continue. Whenever we see especially attractive opportunities, we will jump on them. And those attractive opportunities are either in the form of potential return expectations, either in terms of cap rate or in terms of potential appreciation or both, but also due to other more strategic factors. For example, if we see the opportunity to buy a farm that is very close by or even contiguous to something that we own, we will continue to jump on those opportunities because they really enhance the value of the whole kind of local portfolio across the board. And with that, I will now turn the call over to James Gilligan, our CFO, for his overview of the company's financial performance.

James? Thanks, 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 subheader events and presentations. Pages one through 10 of the package contain the press release and related financial information, and pages 11 through 21 contain the supplemental info. First, I will share a few financial metrics that appear on page two. For the three month end of September 30, 2022, NAN income was positive 1.1 million compared to negative 2.7 million for Q3 21, an increase of 3.8 million. Debt income per share available to common stockholders was positive one cent compared to negative 17 cents for Q321, an increase of 18 cents. AFFO was positive 2.5 million compared to negative 3.2 million for Q321, an increase of 5.7 million, as Paul cited earlier. AFFO per weighted average share was positive five cents compared to negative nine cents for Q321, an increase of 14 cents. Improved performance was due to increased revenue, reduced legal and accounting expense, 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. G&A expenses were higher in 2022 largely due to the acquisition of Murray Wise Associates, or MWA as we say internally, in late 21. For the nine months ended September 30th, 2022, net income was positive 5.2 million compared to negative 3.1 million for 21, an increase of 8.3 million. Net income per share available to common stockholders was positive 5 cents compared to negative 39 cents for 21, an increase of 44 cents. AFFO was positive 5.8 million compared to negative 8.5 million for 21, an increase of 14.3 million. AFFO per weighted average share was positive 11 cents compared to negative 26 cents for 21, an increase of 37 cents. Similar to Q3, the year-to-date performance is due to increased revenue, reduced legal and accounting expense, and reduced distributions on preferred stock, partly offset by an increase in cost of goods sold due to directly operating more farms and an increase in G&A expenses due to the acquisition of MWA in late 21. Total debt at September 30, 2022 was $410 million. Since December 31, 2021, we've reduced net debt by over $80 million. We repaid an additional $5 million of Series A preferred within the quarter. The balance of Series A preferred was $109 million as of September 30, 2022. Fully diluted share count as of October 21 was 55.8 million shares. Next, I will turn to page 14 to provide an overview of our income statement. On the calls in the first two quarters of 2022, we took a couple of minutes to review the different components listed out on the table. I won't go through the entire table on today's call, just a few highlights. But if you have any questions, please feel free to follow up with me. The items to highlight are this table on the graphs on the following pages show direct operations on a gross profit basis, revenue less, cost of goods sold. Thus, the totals shown are total revenue less, cost of goods sold. For fixed farm rent, 50% to 100% of the annual lease is paid before planting, generally in the first quarter. Thus, we are positive from a working capital perspective for a large portion of the year. We have one large variable rent contract for approximately $6.5 million that is very well covered by farm revenue. The lowest risk parts of our business, the fixed payments plus the one large variable rent contract that I just mentioned, comprise over 80% of the total of the items listed, revenue less cost gets sold. The charts that follow on page 15 show the values of the different categories described on page 14 for Q3 2022 compared to Q3 2021. You can see the fixed payments, variable payments, direct operations gross profit, and other items. The total in the right-hand column is revenue less cost of goods sold. Q3 2022 was $11.4 million compared to $9.7 for Q3 2021. Further down on page 15, we dive deeper into the fixed payments and variable payments, creating a bridge from Q321 to Q322. For fixed payment details, we separate out the performance of same row crop farm from the other items such as acquisitions, dispositions, permanent crops, and the farms that were non-comparable between the periods. Same row crop farms are row crop farms in the portfolio before January 1st of 21. 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 is up 0.2 million from Q321 to Q322. Fixed payments associated with acquisitions, dispositions, and other items is up 0.9 million. One reason for the large increase was a solar project that started its construction phase within the quarter. We expect that project to become operational within the year. The next year, excuse me. 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 Q3 is largely in line with expectations. The positive variance in tree nuts is due to the pecans in the southeast. The negative variance in citrus is due to the citrus farms being under direct operations and therefore not generating variable rent in the quarter. The decline in all other crops is 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 2022 compared to 2021. On the top two charts, you can see the fixed payments, variable payments, direct operations gross profit, and other items. Again, the total in the right-hand column is revenue less cost to get sold. Year-to-date 22 was $34.8 million compared to $30.4 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 0.6 million from year-to-date 21 to year-to-date 22. The fixed payments associated with acquisitions, dispositions, and other items was up 1.7 million. For variable details, the bridge from year-to-date 21 to year-to-date 22 shows tree nuts were down, which is really a Q1 item caused by Q4 2020 after-harvest revenues slipping into Q1 of 2021, while Q1 of 2022 did not benefit from any revenue slipping from the previous quarter. Citrus is down due to no citrus farms under third party leases paying variable rent in 2022 offset by a lagging final payment from the 2021 crop year that was received in the second quarter. Grapes were down in Q1 caused by timing and also lower performance. All other crops was down due to the farm that was sold in 2022. On the next page, page 17, 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 payment increased due to new acquisitions and leases signed. Variable payments decreased due to pricing on tree nuts and lower yields on grapes. Direct operations gross profit increased due to higher projections for crop insurance and increased projections for the remaining citrus and blueberry crop sales in the fourth quarter. On the expense side, G&A decreased by approximately 0.3 million Due to the accounting treatment of the non-cash incentive associated with the Merriwise acquisition in late 2021, that non-cash incentive is added back to ASFO. In addition, various other items are trending lower than forecasted on our last update. Weighted average shares increased due to the share of sales under the company's ATM program. This results in AFFO in the $14.3 to $16.1 million range compared to $13.4 to $15.6 million range that we shared back in July. AFFO per share is in the range of $0.27 to $0.31 compared to $0.26 to $0.30 from back in July. This wraps up my comments for this morning. Operator, you can now begin the question and answer session. Thank you.

Thank you. We will now begin the Q&A session. If you would like to ask a question, please press star 1 on your telephone keypad at any time. If you would like to remove that question for any reason, please press star followed by 2. Again, to ask a question, that's star 1. As a reminder, if you are using the speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. Our first question comes from Rob Stevenson with Jani. Rob, your line is now open.

Good afternoon, guys. In the release, you guys said that you renewed 60% of the 2022 lease expiration. Can you talk about what's going on with the remaining 40% and are there certain crops or geographical areas where the lease discussions are more challenging at this point?

So 60% renewed at this time is frankly on pace with what we would expect. We're not anticipating any difficulty. I think we'll end up with renewals in excess of 15% increases across all row crop regions. So the renewal process is going fine. A lot of these leases haven't even expired yet. Farmers are busy in the field. I'm out. Okay.

And then, you know, Luca, given the comments that you made about increases in farm values, how are rental rates increasing? Are they in line with that, above that, below that increase in farm values? How are you characterizing that?

Yeah, I'll just take this one. Luca, feel free to add to it if you want. Obviously, when you have rapidly accelerating farmland values, you have some level of big compression going on because things don't reset quite as fast. That being said, we're seeing very large increases on farmland. We're at 60,000 out of 80,000. We're at 40,000 now that are running worth of $406, sometimes over $60,000. Those are unheard of numbers for the last year or two. So we are seeing rapid appreciation of farm strength, but just not quite as rapid.

Okay. Did I get it? I'll be going.

But I guess my follow-up to that would wind up being, you know, how should we be thinking about acquisitions right now given that, right? The values of the farm are increasing. The rents are increasing but may lag a little bit before you get a full catch up. That's basically meaning the cap rates are decreasing, you know, on a nominal basis here. And so, you know, your cost of capital is going up, you know, from the debt side especially. How are you guys thinking about deploying capital in the back half of this year and early 23 at this point?

Yeah, Rob, as I mentioned, because of the cost of capital issue, we are being very, very careful. However, also keep in mind that we think of our conditions as a total return model, meaning that if we have We are still fundamental believers of the long term appreciation potential as we are. We have the class. We do look at cap rate because we are a public company and we have quarterly reporting obligations, but generally speaking we are not going to be that much straight. The cost of capital is the major driver right now for us as we think about acquisitions. That's why I said that we are being selectively selective and we are going to do acquisitions probably during this period of time in the near future, but it's going to be on a much lesser scale.

Can I add one thing to that? I've been doing this for now 25 years or so. what is the absolute truism that appreciation for powerful sections of farmland industry are turning. So when a super high quality farm, but very little investment in them while you own them, not a lot of operating costs, and fundamentally the compounded appreciation of the asset values.

And then, you know, a question on the balance sheet. Several of the MetLife loans and then I guess the Rutledge facility also has an adjustment date in 23, the early part. Can you talk about what happens to the rates on, you know, those MetLife term loans and then what your expectations are for the Rutledge facility when that rolls?

Hey, Rob, I think you have a ton of background noise. I'm going to answer the question, but if you could mute, it might be helpful. I don't know where that is. It could be coming from the operator, but it's got a lot of scratchiness. We've had this question from a couple of other investors as well in terms of debt resets. We do have a substantial amount of debt resetting during the calendar year. I forget the exact number, but it's excess of $150 million. It's a substantial amount of debt reset. Some of those debt instruments will be repaid from cash flow probably, but we certainly can't repay them all from cash flow. So as far as the rate resets that occur, most of those are loans with MetLife. The MetLife loan agreements, permit us to fully repay those loans at the reset date. So we have quite a bit of negotiating leverage to shift to a different point on the yield curve or to repay with money borrowed from a different lender or negotiate with MetLife. MetLife largely has the authority to set that rate wherever they want, sort of guided by what they're doing for similarly situated borrowers in the rest of their portfolio. We've been through this process with MetLife before. They are quite fair in how they do that. They're looking at the same forward curve we are. That being said, I think we should all expect some level of increase in these interest rates at those reset dates. I think that's just the reality. We are coming off a rate that was set you know, three years ago or so, and virtually any duration, any instrument of any type when it resets would be at a somewhat higher rate. The exact number of those resets is impossible to tell because there is no absolute formula. It's really sort of a discussion of the lender, and because we have the right to repay, it's within our discretion to.

Just to add to that, Rob, on the Rutledge, it's the spread that resets on the anniversary of that facility. And the sort of range is from 180 over SOFR to 225. Right now we're at 195. And it's an EBITDA-based test, you know, kind of based on where the numbers are coming out. So we think given, you know, some improvement in operations, we might jump into that top tier to lower that spread. or we might kind of stay where we are.

Okay.

Operator, you want to go to the next question?

Yes. Our next question comes from Jerry Sweeney with Roth Capital. Jerry, your line is now open.

Good afternoon, Paul, Luca, James. Thanks for taking my call. Yeah, great. I just wanted to make sure you can hear me. But could you remind me, I know you went through 60% of your farms that are up this year have been renewed to 40%, you know, to be determined. But what percentage of your total farms roll this year?

Could you remind me of that? Yeah, we roll approximately a third. I don't have the exact number, but approximately a third every year. I think this is a year where we're slightly less than a third, but don't hold me to that. But it's always right around a third because the most common lease in our portfolio is a three-year lease. So it's just a math. We usually have about a third renewing in any given year.

Got it. I thought it was just a little bit lower as well. So I just wanted to see if it was any material lower. You know, a couple of different various questions. You know, Mary Wise, we're coming up on a full year. I'm just curious as to how this, you know, acquisition is internally, how you felt about it and, you know, sort of hitting its stride and, you know, not only a little bit more revenue, but I think part of the reason it opens up some opportunity for maybe some purchases. Again, I get that maybe acquisition is potentially swelling, but just curious if, you know, MWA is sort of opening up the opportunity for some federal.

Yeah. A 12-month look back on that acquisition is that's probably the very best acquisition we've ever done in my entire life from the standpoint of performance in the first 12 months. It has performed at a higher revenue and profitability than we frankly expected. We hope that continues. It's obviously great to buy a real estate brokerage business into a rapidly rising strong farmland market. But the performance of that business from a financial perspective has been outstanding. The performance of that business from the standpoint of giving us broader reach and more opportunities to acquire properties and hear about properties that are for sale without carrying the overheads inside Farmland Partners of that staff has also been quite good. So we have nothing but kind of positive things to say about that acquisition and how it's going.

Is there an opportunity to maybe pivot a little bit and invest a little bit more in MWA if acquisitions become a little less palatable, for lack of a better word?

Well, palatable is the wrong word. We're very sensitive, though, to maintaining reasonably strong cash flows in a rising interest rate environment. So the answer to your first question is yes. We would continue to grow the Murray Wise business. We would grow that both in terms of farm management, but we will also grow it in terms of the brokerage and auction side of the business. I think the growth will come both possibly through small acquisitions. We have done a tuck-in acquisition to expand that business in the last 12 months. It was quite modest, so it's not something that a lot of people focused on, but we did grow through acquisition. But we'll also grow organically and hire more team members for the Murray Wise business, which we have done. And I would anticipate in the 2023 calendar year that that business is a slightly bigger percentage of our overall revenue and profitability. than it was this year. That's a business hard to predict exactly what will happen because it's a real estate brokerage business. But we think given what's going on in the market, it will be a modestly improved performance from that business next year compared to 2022. Got it.

And then I've spoken with you in the past in a forecast. um not just 2023 but obviously we're in a very good up cycle we have you you know the ukraine russia war i think we have some data coming out looking at some increased yields you know supply demand imbalance uh and like i said i think 2023 looks very good but you know what are you seeing a little bit further out on the curve and and you know obviously you've been through multiple cycles but uh just curious where you think we are in this one and what you're seeing to you know past 2023 per se sure

So, look, both the positive and the negative cycles in farmland and the farm economy, and to be frank, I think we've talked about this before, but on farmland itself, it's not really a cycle. It's a surge and then a plateau in asset value, and then a surge and another plateau. Farmland, for all the reasons we've discussed about scarcity and other things, doesn't really go down in value. You'll see headlines that suggest that. What happens in the real world is when the land values and the sales prices pull back, the number of farms for sale collapses. So what you're only seeing in a downturn is distressed sales. And it tells you nothing about what it would take to actually buy a farm from someone who's not in distress. And those numbers more or less stay flat during that downturn. So that's important to note. But on the general farm economy, meaning crops and farmer profitability, what happens is those cycles are three to five years long in general. Five is a long one. Three is a little bit of a short one. I'd say we're a year and a half or two into this one, this market turnaround in the farm economy. The I expected to go on for at least the 2023 year and what I mean by that is that grain prices will be high. I don't know if they'll be as high as they are right now. But they will be compared to long term historical averages pretty strong in the 2023 year. The reason for that is that we've got carry outs in the primary crops corn soybeans and wheat. that are relatively low by long-term historical standards and they cannot get fixed overnight. It would take a bumper crop in probably two or three of the major growing regions in the country in the same year to completely fix that. And so we're at least a year away from being in a surplus of the grains and probably more than a year away. The other important though characteristic about farmer profitability you've got to keep in mind is that the successful and capable commodity farmer has sold forward most of his 23 grain at this point, or at least a significant percentage of it, and maybe some of his 2024 grain. So even when the cycle turns, the very best farmers, of which that's who we have as tenants, they will have insulated themselves from the first year or two of the market downturn when it finally comes. We saw this in our rent growth and collections and issues like that. Back in the last cycle, which sort of ended in 2014, summer of 2014 is when the kind of cracks in grain prices showed up, we didn't really struggle with, they never got very high, but slightly increased bad debt or having a hard time getting collections on the days they were due from our farmers until about 2017. So it was sort of two years where everything was still great because of those forward sales. And then to the extent we struggled at all, and again, this is an asset class with very little bad debt, that was all sort of 17, 18, maybe 19. It just didn't happen right away. So that's how that cycle worked, and I don't know when we go into the downturn cycle, but I don't think it's any time. You know, it's not right in front of us yet, that's for sure.

Got it. And you sort of touched upon it. This was one of my final questions. I was just curious if you know what percentage of your farmers sell for it. the crops? Obviously, I don't think they do 100%, but they do a decent portion.

We don't survey that exactly, and there's obviously so many different forms they can do that, but I would say that the overwhelming majority, almost all of them on the row crop side, are selling at least some portion of their crops forward. I'd say 2023 year, best practices, they've probably marketed somewhere between 30% and 50% of their crops already for the 2023 year. And for the 2024 year, they're probably lower than that, more like 20% or so. But it's an appropriate marketing practice for top producers is to use those forward markets in a way to insulate their downside. Now, they may roll it, they may trade it, they may put options. There's all sorts of different strategies. But these guys are not going completely unprotected on commodity price when the prices are good like this. If they were disappointed in the price, they might not market very much. If prices are strong like this, they're marketing a substantial portion six to 18 months in advance.

Got it. I appreciate it. Thanks, guys. Thank you.

Thank you. Our next question comes from Dave Rogers with Baird. Dave, your line is now open.

Hey, guys. Wanted to follow up on the refinancing. And I realize that the rates still have to be set by your lenders at some point next year, and you'll pay some off. I guess, though, James, just to kind of put it in reference maybe to the numbers that we're looking at today, when you look at like third quarter next year versus third quarter this year on a like-for-like basis, I mean, Could that increase in interest expense be in the 20% to 25% range, or is that kind of off the table?

Well, I guess I think about it a couple of ways. One is just thinking about where, you know, kind of base rates are moving. So, you know, if you look at, you know, if you look back in time at treasuries, SOFR, LIBOR, whatever it is, and you look where it is today and in the future, you can see the trajectory. And we're frankly looking at those same curves. So that's in the market. I think everyone is looking at that information. We don't know exactly where they're going to reset, but we're trying to take in the data, talk to our lending partners, and understand where they're seeing pricing, frankly, as early as we can. The exact mechanics in these resets don't allow that much advanced pricing. It's kind of at the time. So I think we'll assess it as we go in, but we're certainly seeing things higher. And Dave, we're looking at the curves just the same way you would.

All right, that's helpful. Appreciate it. I think, Dave, you've got to remember not all of our borrowing is resetting. There's a substantial amount of borrowing that's still locked in at very favorable rents. And then as you recall, we have over $100 million of security that's at a 3% dividend yield. as well. So big piece of our debt side of our balance sheet, nothing's going to change. That being said, nobody should sugarcoat this. There are great operational things happening in the company, but the increase in interest rates is not going to be a positive factor for the company in the 2023 year. But we're not particularly worried about it. We're just managed through it. I think you've got to always remember that what's driving the interest rate increases is inflation. Inflation is more directly tied to farmland value appreciation than it even is to interest rates. So the key driver of wealth creation in our asset class isn't interest rates, it's land appreciation. And that inflation is driving that land appreciation and will continue to do so. So you gotta take the good with the bad. Cash flows will suffer a little bit, but farmland values will continue to push forward strongly.

Gotcha. I wanted to go back to the acquisition pipeline. I think you guys have walked the line between kind of being opportunistic but more cautious. Do you have a pipeline of acquisitions we would anticipate you should be closing? Is there something, a number that you've got embedded in either the guidance or where you'd like to achieve by the end of the year?

Yeah, we do have some acquisitions in the pipeline. I would characterize it as being quite small.

We saw this. We started kind of in the summertime. We slowed down a little bit on our acquisitions process. But look, when we commit to somebody, we're going to buy a farm or an asset from them. We're going to follow through and do that. We don't try to back out just because interest rates got higher. So we've got a continuing pipeline of transactions we're going to close. Luckily, a lot of those are at pretty strong cap rates just because of the nature of the sort of assets we were buying. And we'll continue to do tuck-in acquisitions of properties right next door to something we already own, for example, because that always improves the long-term value of the portfolio. But, I mean, you know, our farm managers know this. We are at a slower acquisitions pace than we were, you know, six or 12 months ago. And I think that's appropriate given the cost of capital.

And just to follow on, I think echoing what Luke and Paul said about just kind of maintaining discipline, our outlook, we don't include deals we haven't closed. So as we close things, these numbers would change a little bit.

Helpful. And then last, maybe, Paul, for you from a high-level perspective, and we discuss this often. You made a great case today of why you want to own farmland near term, long term. Values don't typically go down on the farmland business. Economics today are pretty good. You anticipate rents to continue to improve next year, even at a decelerating pace. Not very interest rate sensitive. Why is now, and take the cost of capital out of it maybe for a minute, why is now not the time to just put your foot on the accelerator and buy as much as you can? I understand debt costs are rising. But I also see a stock price with a 57 multiple on it, which pretty much makes anything you buy accretive today on an equity-only basis. And I would say, as we all look around REIT land, that's the exceptional right time to buy as much as you possibly can. And so when you say that we're going to be more cautious, but there's no risk and everything's going up, it just kind of maybe sets aside some of your comments earlier. So I wanted to give you the chance to address it because it does seem like there's a great opportunity to use equity here to grow the platform, grow your business, for all the reasons that you said today.

Yeah, no, I mean, I think if you could promise me that unfettered growth would be rewarded, I think we would do that. But I don't think you can promise me that. I mean, we've now been public for seven years, and I'll tell you we haven't been rewarded for really aggressive growth. We've been awarded for value creation, and that is sort of the sure thing. I say this as a, still I don't know whether I'm the third or fourth largest shareholder today. I'm still a large, large shareholder. We believe that we are trading at a modest discount, frankly, to what the stock is worth. If you liquidated all the properties we have, that set of assets is owned by our current group of shareholders. We don't really want to dilute them. We're not scared of issuing a modest amount of equity to do a very specific acquisition because it's an add-on acquisition or it's a very great deal or it's a cheap price for some reason. We'll do it. But despite the multiple we trade at, if we think that the liquidation value of the underlying pool of assets is in excess of the place the stock's trading at, it's hard to put our foot on the accelerator. We may be wrong. But it's really hard because our stock price took a big dip here in the last two and a half months. None of that was related to anything going on in this company. And we just put out a surprise, I think, in terms of our earnings release, which kind of proves the point. But that just makes a really aggressive, the public markets don't see, and REITs in particular, We're not getting as separated from the reality of the rest of the REIT industry and the general economy as we should be in this cycle. It's one of the challenges of being a public company. But that being said, we've got our eye on growing fundamental long-term value for our shareholders, which means you do pay attention to underlying asset value. So that's kind of where we are and why we come to this sort of balanced approach.

All right, thank you. Operator, any further questions?

Our next question comes from Craig Kucera with B Reilly Securities. Craig, your line is now open.

Hey, thanks guys. I may have missed this, but are you expecting any crop losses related to Hurricane Ian?

No, we really don't. We've only got a handful of farms in Florida. All of our farms were affected a little bit by high winds and rain. But no meaningful, I'm looking at the management team here, no meaningful measurable damage specifically related to that event. It probably isn't on balance great for the crops, but we, our farms, just because of their geography didn't happen to get hit particularly hard.

Okay, great. And Paul, you've spoken in the past about the lack of leverage in farmland as an asset class. how that's kept a lid on cap rate expansion. But I'd be curious, has that changed at all here in the third and early here in the fourth quarter, just given the more meaningful moving interest rates, or are cap rates still remaining pretty sticky?

Cap rates are very sticky. So there's just not a lot of leverage in the farmland acquisition side of things, which is one reason that these increased interest rates haven't led to an immediate sort of flattening of the appreciation of farmland. You know, I think the statistic is always hovering right around 13% borrowing against the total pool of farmland in the United States. That's just an incredibly low amount of leverage overall. So many of these farms are being bought with cash or with embedded equity. If they borrow at all, they're taking the embedded equity in farmland they already own as a farmer and then using that to purchase a new farm. So there's nominally debt on the farm. but it's really already kind of paid for from the appreciation on their other farms. So it just isn't quite the immediate change in valuation of the underlying asset due to higher interest rates that you might be accustomed to in other asset classes.

And to add on to what Paul's saying, we're also not seeing owners of farmland that have levered it up at a very high level that are suddenly going and selling at distress levels due to rising rates. which you might expect in other asset classes. We're not seeing that because, as Paul said, the level of leverage is pretty darn low to begin with.

Got it. And just one more for me. I know earlier in the year you thought you would probably be looking to buy it around a four cap, which would be presumably below where your floating rate debt is right now, where you have so much capacity. I guess when you think about acquisitions, and I know you mentioned it would be a small number of acquisitions, Are you looking at that as, hey, we need to have a positive spread on our cost of debt day one, or do you look more at it from the perspective, again, of more of a this is a total return vehicle where most of the upside is actually related to appreciation?

We are absolutely driven as a total return vehicle. That's how we think about it. It's how I've always thought about it. It's how the asset class, it's how, frankly, the smart money in the sector thinks about the asset class. That being said... you've got to carry your debt, right? So you can't completely ignore high interest rates when you're thinking about an acquisition. So what does that mean in practical terms? Like we said, if we truly believe the long-term appreciation case, we'll go do that acquisition without regard to the current yield. But you just can't do too many of those, because you've got to make ends meet, so to speak, in terms of your P&L. The flip side is when we do bump into an acquisition that today is 5% or 6%, and there are occasionally those sorts of opportunities, those will carry themselves on our cost of borrowing at this point in time. And we'll do more of those and less of the ones with a lower current yield. But we're always total return focused. No yield hogging here. It's about total return. Okay, thanks guys.

Thank you. There are currently no further questions in queue. So again, to submit for a question, that's star one on your telephone keypad.

I don't think there's any more operator unless somebody came in.

No, there are no further questions in queue.

Great. Well, thank you all for joining us for this call. We appreciate your continued interest in our company, and we look forward to updating you on our activities and results in the coming quarters. Thank you very much.

This concludes today's Farmland Partners Incorporated Third Quarter 2022 Earnings Call. Thank you for your participation. You may now disconnect your line.