Farmland Partners Inc.

Good morning. My name is Rob and I will be your conference operator today. At this time, I would like to welcome everyone to the Farmland Partners Inc. second quarter 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again press the star one. Thank you. Luca Fabri, President and CEO, you may begin your conference.

Thank you, Rob. Good morning, everyone, and welcome to Farmland Partners' second quarter earnings conference call and webcast. It has been a busy quarter and frankly busy first half of the year here at Farmland Partners, so I especially welcome the opportunity for myself and the rest of the team to explain a little bit more and give a little bit more color about what we have been doing and what we are planning to do. And I appreciate your taking the time to join us for this call. I will now turn over the call to our general counsel, Christine Garrison, for some customary preliminary remarks. Christine?

Thanks, Luca, 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 subheader Events and Presentations. For those of you who listened to the recording of this presentation, we remind you that the remarks made herein are as of today, July 27, 2023, 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 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 second 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 July 26, 2023. 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 Executive Chairman, Paul Pittman. Paul?

Thank you, Christine. This was frankly a very good quarter and a very good half for the long-term value-oriented shareholder in our stock. We have significantly increased the value and to those underlying shares through stock buybacks, very strong asset sales, and the beginning of a gradual reduction of our debt loads. The market may not perceive this, but that value will come to all of us eventually. As all of you know, I'm a large, large shareholder myself, and we are taking actions that are fundamentally arbitraging very high values for our farmland against a deeply discounted stock. We will continue to do that as long as it takes to get our shareholders rewarded. The farm economy remains quite strong. Our stock has performed pretty well since the last call. Asset values for farmland continue to rise. As we gradually trim things out of the portfolio, we are getting pretty strong gains on our farms. Please recognize that we are not selling our very best farms. We are selling farms where we are concerned of water challenges or market volatility challenges. or they are outliers for some reason in our portfolio, the appreciation we have in the parts of the portfolio we are not selling are even stronger than those that we are selling. We want to gradually concentrate this portfolio in ways that lessen water risk and lessen volatility of earnings and simplify the management of the business. As I said in the last call, Farmland values, farmland as an investment class, you really need to think about how is value created. And value is created two-thirds from appreciation and approximately one-third from current yield. You went and did IRR calculations on all of the assets that I have bought and sold over the 25-plus year career I've had. That would be roughly where the value creation comes from. Appreciation is two-thirds. Current yield is one-third. For whatever reason, the public market is, partly because I think we're a REIT, is incredibly focused on this sort of scorecard on quarterly AFFO. It is the wrong thing to be focused on. The stock today is down maybe 5% to 7%. That is a buying opportunity. for the smart investor. The proceeds of the sales we're making are going to buy back stock and to pay down debt. To date, we have weighted or overweighted, frankly, the repurchases of stock because we think that the stock is at such a deep discount. We don't want these debt levels to climb much higher, so we will be shifting at least for a quarter or so to a much more debt reduction oriented posture. Doesn't mean we will not do any buybacks, but we will shift from what's been sort of, you know, we've paid down debt along the way as well, but we're going to be shifting more to debt reduction and less to buybacks. As we watch the stock price change over time, we may and our debt levels gradually come down, we may shift back. We did buy, I just want to point out, we bought back some of our preferred B. That instrument is in many ways like a debt instrument. You know, obviously a hybrid is a preferred, you know, but it is an interest-bearing instrument or a dividend-bearing instrument that it performs much like debt. It's about a 3% coupon. That instrument expires a couple years from now, so we want to gradually whittle away at the balance so we don't get faced with a big one-time payment. But that doesn't show up in AFFO, the savings we make from having paid off a piece of the preferred. The, you know, the position we find ourselves is that we will just continue to sell farms that we aren't in love with at strong, strong prices, buy back stock, pay down debt, and occasionally buy additional farms in the markets and the locations that we are very happy with. Interest rates will eventually come down, and the AFFO will have a shockingly large positive increase as that happens. No one, certainly not me, and probably no one on the call knows exactly when that will happen. But when that happens, earnings will recover strongly. But I don't really want to overemphasize that point. The core of our business is buying high-quality farms, managing them as efficiently as possible, getting the current yield that we can, and ultimately harvesting that massive appreciation that occurs in the asset class due to inflation and everything else. With that, I'll stop. Of course, we'll be available for questions, and turn it over to Luca.

Thank you, Paul. I would like to walk everybody a little bit more in detail through what we have been doing in the first half of the year vis-a-vis the kind of the pillars of our current strategy that has been outlined. On the asset disposition side, in the first half, we sold about $52 million in assets. We close on an additional about $3 million in asset sales in the very beginning of Q3 so far. We have about $22 million of asset sales under contract pending closing. We have about $30 to $33 million in assets going to auction here in Colorado at the beginning of August. And we have an additional about $26 million of transactions in very advanced negotiation. So this is a total of about $135 million total in identified transactions or closed transactions so far. We are working, and you should expect probably more transactions, more asset sales to come later in the year. So I want to stop and really focus the attention of everybody here, as Paul was mentioning, on the power of appreciation in the asset class. And I'm really going to stick to the ones that really are very much solidified in terms of having been closed or just pending closing. On the $52 million close in the first half of the year, we recognized gains of about 33% over net book value. For the $22 million under contract, we are expecting about 75% gains over book value. So this truly demonstrates that this asset class has a very, very strong appreciation potential that has to be front and center for anybody investing in the asset class and is certainly a core component of our own investing and portfolio management strategy. By the way, as Paul mentioned, we are engaged in a broader portfolio optimization, if you will. And in that context, we are also still buying some farms. We are, of course, given our overall strategy at this point in time, not as acquisitive as we have been in the past, but we did close on an acquisition in Q2 in Oklahoma for about $9 million. We have another pending transaction here to close later this year for another farm. And therefore, we continue evaluating opportunities that portfolio in that kind of streamlined and de-risked way that Paul alluded to. Now, in terms of use of proceeds, as we announced earlier this year, we are really focusing mostly on two items. One is stock repurchases, and the other one is reduction of pay down of debt. We kind of front-loaded stock repurchases, so we bought back about $62 million in stock. In terms of shares, it's about 10% of the truly diluted outstanding shares as of the beginning of the year, and we did get an average price of 11.03 per share. That is, in our mind, a very, very clear and material discount to the intrinsic value of the shares, and therefore, we've been creating value for all the shareholders that have decided to believe in what we are doing and stick to the strategy that we are pursuing. As I said, we kind of front-loaded a little bit these stock repurchases and therefore the balance, the debt balance actually went up slightly as of the end of Q2, but as we said, in that the proceeds, use of proceeds in later this year will be overwhelmingly focused on debt reduction. So, in sum, we have been demonstrating value via sales again. Purchases, you know, that has some repercussions. You know, we are, of course, as we sell some assets, we are losing some revenue, and by the way, also some costs associated with the disposal of those farms. We have incurred temporarily higher debt, as I just explained, but that will kind of reverse soon. We will also experience higher interest rates like everybody else that we were expecting. Also, one other, on the business side, while asset valuations are very strong, and in some parts of the country, we're actually seeing them climbing yet more, despite the, frankly, torrid increases Couple of years that we're catching up on several years of sideways appreciation. The transaction volume overall in the marketplace is slowing down a bit. That's that's a result of farmers. What are the main strategic buyers in the marketplace? Pretty much having use over their cash buyers and pretty much they use the cash that they wanted to to use to buy farms and therefore now with the interest costs being as high as they are. buyers are hitting a little bit of a pause. Also, there is a little bit of scarcity of transactions of assets coming to market. So, also, as a result of that slowdown in transaction volumes, the volume of business in our brokerage and auction slowed down a little bit, and we have reviewed the our projections for the year down a little bit. James, in particular, will walk through a little bit more details of what that means in terms of our expectations for the year. And also, he's trying to, given that our portfolio is changing, he's going to try to also offer a 2023 view that is pro forma for the full year with all these dispositions that we have done. I will now actually turn the call over to him, to James, for his overview of the company's financial performance. James.

Thank you, Luca. I'm going to cover a number of items today, including summary of three and six months ended June 30th, 2023, review of capital structure and interest rates, comparison of year-to-date revenue, and updated guidance for 2023. I'll be referring to the supplemental package in my remarks. As a reminder, the supplemental is available in the investor relations under the subheader events and presentations. Page numbers one through nine contain the price release and related financial tables, and page numbers 10 through 19 contain the supplemental information. First, I'll share a few financial metrics that appear on page number two. For the three month end of June 30th, 2023, net income was 7.9 million compared to three, an increase of 4.9 million. Net income per share available to common stockholders was 14 cents compared to four cents for 22, an increase of 10 cents. AFFO was negative $1.1 million compared to positive $1.1 million for 2022, a decrease of $2.2 million. AFFO per weighted average share was compared to positive $0.02 for 2022, a decrease of $0.04. For the six-month end of June 30, 2023, net income was $9.6 million compared to $4.1 million for 2022, an increase of $5.5 million. Debt income per share available to common stockholders was $0.15 compared to $0.05 for 2022, an increase of $0.10. AFFO was $0.4 million compared to $3.3 million for 2022, a decrease of $2.8 million. AFFO per weighted average share was $0.01 compared to $0.07 for 2022, a decrease of $0.06. Next, we'll review some of the operating revenues shown on page number five. Depreciation, depletion, and amortization was higher in the second quarter of 2023, due to approximately $400,000 recurring adjustments made in the quarter and more depreciable assets. Property operating expenses were higher in 2023 caused by a couple of things. Higher property taxes, including a one-time property tax of approximately $150,000 that occurred in the first quarter that was reimbursed by the tenant and appeared in increased tenant reimbursements, which we'll look at in a minute. In addition, a non-recurring expense occurred in the second quarter of 2023 of approximately $140,000 due to the final reconciliation of cost sharing on the California farm. That was partially offset by lower utility expenses in 2023. General and administrative expenses were lower in 2023 due primarily to lower stock-based compensation. Legal and accounting expenses were lower in 2023 due to lower litigation standards. Gain on dispositions was up significantly compared to 2022, Demonstrating the appreciation of the farmland sale values relative to net book value, as Luke described a minute ago. Interest expense increased due to higher rates and greater debt balance in the second quarter compared to 2022. Next, we'll head to page number 12 to make a couple of comments about our capital structure. Total debt at June 30, 2023 stood at $473.5 million. Fully diluted share count as of last Friday, July 21st, was 50.1 million shares. If you look at the table toward the bottom of the page, we had undrawn capacity on the lines of credit in excess of $120 million at the end of the second quarter. We have one more MetLife rate reset, that's MetLife loan number 10, and we started to engage with the lender. Next year, 2024, we have three MetLife rate resets. totaling approximately $44 million. That's loan numbers 9, 11, and 12. Page 13, that page provides an overview of our income statement and the building blocks that generate revenue and cost of goods sold. I won't go through it in detail as we have in previous quarters, but please feel free to contact me if you have questions. The next page, page 14, shows these building blocks described on 13. For the first two quarters of 2022 and 2023, with comments at the bottom to describe the differences between the periods. A few points to highlight are that the fixed payments, and that's really the first four columns shown, all exceeded 2022. The remaining items came in lower than 2022. To telescope down a little bit, fixed farm rent increased between the periods as we acquired properties in 2022, and that was offset by the disposition so far this year. Solar increased in 2023, as a large project in the state of Illinois commenced its construction phase late last year. Tenant reimbursements increased in the first quarter with that one-time property tax assessment of about $150,000 and the related tenant reimbursement, as mentioned earlier. In Q4 2022, we acquired land and buildings for four agricultural equipment dealerships in Ohio under the John Deere brand. The accounting treatment classifies those acquisitions as financing transactions. So, they appear on the balance sheet as loan, and on the income statement as interest income. This accounts for the increase in interest income in 2023 compared to 2022. Variable payments were down in Q1 due to grapes and row crops, and down in Q2 due to citrus, tree nuts, and row crops. This is largely expected with one exception. The lower performance in row crops in the second quarter is really due to a tiny difference, as revenue that fell in the second quarter of last year is going to slip into the third quarter of 2023. Direct operations is the combination of crop sales, crop insurance, and cost of goods sold. It was down largely due to citrus and walnuts. Other items decreased due to lower auction and brokerage activity compared to 2022, as Luke had described earlier. We have decreased our outlook for auction and brokerage fees for the year, as shown on page 15. If you flip the page to page 15, we have updated the outlook for 2023 using the same building blocks described on the previous pages. Assumptions are listed out toward the bottom. As a reminder, this contemplates that we dispose of approximately $135 million in what we're calling identified transactions. This number is an estimate and actual results may differ. On the revenue side, fixed farm rent will change with dispositions, acquisitions, and new leases signed. Solar wind and recreation, tenant reimbursement, management fees, and interest income all have very small changes. Variable payments increase due to improved outlook for citrus farms that pay variable rent, while direct operation, That's crop insurance plus crop sales, less cost to get sold, is down due to citrus and walnut farms under direct operations. Other items decreased due to lower revenue outlook from auction and brokerage for the balance of the year. On the expense side, property operating expenses are increasing due to a couple items from the first half of 2023 that we've covered. The one-time property tax expense in the first quarter and the non-recurring expense in the second quarter. General and administrative decreases with lower spend in the first half of 2023. Legal and accounting also decreases with lower spend in the first half of 2023. Interest expense increases with higher projected debt balances and updated rates. We're estimating the last remaining interest rate reset for 2023, that's MetLife number 10, prices in the 6% to 6.5% range. While the increase in interest expense is painful, we maintain access to over $120 million of liquidity in the form of undrawn lines of credit. Weighted average shares decrease the share buybacks. This results in the FFO in the $5.9 to $9.2 million range, or $0.11 to $0.18 per share, a decrease from projections provided back in May. At the bottom of page 15, we provide information on what 2023 would have looked like pro-form all the various transactions, but removing the partial year index. Please note this is not a projection for next year. That will require more analysis, including lease renewals, additional farm transactions, analysis of variable rent, et cetera. Fixed farm rent would be approximately $1 million lower than July guidance. Solar, wind, recreation would be approximately $200,000 lower than July guidance. The tenant reimbursements would be approximately $200,000 lower than July guidance. Net debt would be approximately $400 to $410 million. The fully diluted shares would be approximately 1.9 million shares lower than July guidance. Hopefully this helps describe where we stand given what we know today. We will certainly keep you updated as the year progresses. This wraps up my comments for this morning. Thank you all for participating. Operator, you can now begin the Q&A session.

At this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. And your first question comes from the line of Rob Stevenson from Janney. Your line is open.

Good morning, guys. So this quarter, you guys sold a couple thousand acres in each the Corn Belt and Delta South and almost 5,000 acres in the Southeast, but nothing in the West Coast or the High Plains. The expected sales over the remainder of 23 are going to be in those same markets, or are you expecting to see some West Coast and High Plains sales increase?

So the auctions that are alluded to, this is Paul, the auctions that are alluded to in the earnings release that are coming soon, those are actually all High Plains-oriented auctions that they're starting. And the Midwest sales we did, the Corn Belt sales we did, were in Nebraska, which in all except the far western part of Nebraska, we put in the Corn Belt But Nebraska is unusual. Nebraska has got very much, you know, Illinois and Iowa style land in the eastern, say, third of the state. And then as you move west, it's much more water challenged. What we sold in Nebraska is in that water challenged area. As far as the sales in the Delta and Southeast, Um, you know, we are certainly pruning farms that for whatever reason, we don't think are as high a quality from our perspective as, as the, uh, uh, you know, as some of the others. So some of the acres just sold in the Southeast and the Delta would fall into that bucket. But a couple of them, uh, just fall into the bucket of somebody made us an offer. We can't refuse Rob. We, you know, we are farm managers value this portfolio. relatively frequently, kind of from the bottoms up. We don't publish that. We don't want to publish it because it's being done by our own farm managers, but they use comps and everything else. And so we have sort of a tracking list internally on what we think something is worth. And then obviously a sort of internal mental projection of what's the growth in value of that property over the coming years with appreciation in particular. If someone shows up and makes us an offer, that is so far above what we quote unquote think it's worth and gives us the next three years or five years of appreciation without having to wait for it in their offer, we will almost always take that deal and recycle the capital into, in this circumstance, buying back our stock or buying additional farms. If somebody really wants something from an economic perspective more than we do, We're not emotionally tied to any farm. We will sell it. So what should come in the rest of the year, though, is more sales, frankly, on the West Coast and in the high plains, probably less in the eastern part of the country. But with the caveats I gave, there may be still some things happening in the eastern part of the country. Okay.

Yeah, and I guess you guys have talked in the past about reducing some of the volatility in the revenue streams, etc. Are the West Coast assets that are going to be sold, are those ones with the more variable assets? revenue streams or are those the more stable ones? I guess what I'm trying to get at is, are some of the variable, the tree crops, the almonds and stuff like that, is that stuff, you know, as in demand today? Are you having to wait a bit for the market prices and some of the supply issues to subside to really monetize any of that? And, you know, right now it's monetizing strawberries and stuff like that.

It's a little bit of a mixed bag. It's a very insightful question and a good question. So first, in our portfolio, the volatility comes almost entirely from the specialty crops, mostly on the West Coast, but the specialty crops in our portfolio overall, and from the brokerage business, the MWA business. I mean, that's where the volatility comes from. The row crops, other than a tiny percentage of occasional bad debt, is incredibly predictable. You know, it's fixed cash rent. It's coming 50% usually in February or March, 50% roughly in November. It's incredibly predictable. And you can see that in sort of how James' and the company's budget matched up with the actuals in the row crop kind of portion of the portfolio. So, yes, the volatility is on the West Coast, but the water risk is also substantially on the West Coast. I mean, there's not water risk this year, but there will be again. And we have taken a perspective that we want to lighten up our exposure out there. It doesn't mean to exit it completely, but lighten up our exposure. So you will see more, you know, more sales, as I said, come from there. Related to that, though, is the other question you asked. The market out, you know, Unlike Illinois farmland, where the state kind of is different land classes across the state, so the values are different, but it's all fundamentally in the same economic world. It raises corn, it raises soybeans, it raises wheat, and it has some livestock. When you go to California, no two acres, you know, acres five miles apart are vastly different in value and vastly different in terms of the food economy they're connected to. So you start with land quality and water, and water is probably even more important than land in California, but it's those two things. And then you go to what crop is on it. And if you're on a permanent crop, say walnuts, which are frankly having a tough time right now in a general economic sense, you're trapped because 40% of your value in that farm is the existing trees. So you can't just say, hey, I'm going to sell the farm while the Walnut economy is bad. On the other hand, if the Walnut economy was strong, it's easy to sell. So we have to migrate through those issues. They're obviously more complicated farms. So sales processes and due diligence is longer lead times. And then finally, You know, the size of individual transactions there can be quite high, almost always tens of millions of dollars. So it's somewhat more of an institutional market than it is an individual farmer market. So it just slows down your process.

Okay, that's helpful, Paul. Appreciate it.

James, so year-to-date, your AFFO per share is a penny. The guidance is 11 to 18 cents. typically fourth quarter is your big quarter. It's usually call it 75 to 80% of the second half AFFO. Is there anything different this year that would suggest more coming in the third quarter on a percentage weighting than the fourth quarter? Or is the sort of normal third quarter, fourth quarter split likely to be intact here in 23? Yeah, I think

Rob, the kind of shape of the curve would be pretty similar, you know, in past years, and really the bulk is coming in the fourth quarter. So, yeah, I think that'd be pretty consistent.

All right. And then last one for me, James. You guys talked about it a little bit in the press release, but what level of capital gains can you absorb in the common dividend in 23 and possibly using the first quarter 24 dividend without having to pay a special dividend? Or if you sell the 135, it's all but a foregone conclusion that you guys are going to need to pay a special dividend.

Yeah, Rob, it's a... frankly, a topic that we're talking about a lot internally, doing a lot of analysis with not only ourselves, but also our tax advisors. And it's certainly a conversation at the board level. So at this point, I think, you know, we have the potential to make an additional distribution. Not, you know, we're just not in a position to sort of declare what magnitude, you know. So I think we'll come back to you later when we have more info. But it's certainly a possibility.

Okay. Let me Let me add just a little bit to that, James. I appreciate your caution, and James and I are two different buildings today. Rob, your question is the right question. We would not have put that in the press release if we didn't think it was highly probable. We obviously don't want to pay a tax. We'd rather distribute to shareholders. The exact amount and the timing is Certainly unknown at this point. But the probability, if we complete that $135 million of sales, the mathematics were pretty compelling that we're going to have to make some sort of, I don't want to use the word special dividend because who knows whether it's special or otherwise. But there probably will need to be something done because of the relatively powerful gains we've had on those sales.

Okay. And then just last one for me, I guess, then. Paul, any update on the hedge fund litigation? Or is that sort of status quo at this point?

Yeah, no, I'll hit it very quickly. And if you want a deeper read, you guys can always talk to our general counsel after this call. But the short answer is the Sabre point, the party that really caused this in our point of view, was trying, has always been trying to wiggle out of this under a legal theory that says they weren't involved. That is untrue. We've got the documentation and the emails that prove their involvement. And they have occasionally found a judge who didn't understand the case because a lot of these state court judges, for example, you know, they do a divorce one minute and a traffic case the next minute. And then, you know, then they show up in a, in a complex commercial litigation, a third case of the day. So they had a, they got a favorable decision in Texas a year or more ago, uh, saying, you know, Hey, it was, it was dismissed in Colorado federal court. So it can't come in Texas. That's totally untrue. We appealed that decision, got a unanimous result in our favor. And so we're back to the races favor point, of course. is appealing that, they will, in our view, fail in that appeal because we had a unanimous decision of the group of judges. They're not going to change their mind, but, you know, they get to run the process and will continue to, you know, they know they're guilty, so they're trying to waste time, in our opinion. That's what they're doing. But we're on top again, and we will stay there. That's my point of view. Good news is we're not spending much money on it because you know, when you're just sitting there waiting on the judges to rule, you don't spend much money on it. And that's good.

Thank you. That's helpful. Appreciate the time, guys. Thanks.

And your next question comes from a line of Craig Kucera from B. Reilly Securities. Your line is open.

Hey, good morning, guys. I had a couple of questions. First, we'd like to talk about some of the downward volatility in some of your core row crop prices since the first quarter. Is that impacting your renewal lease discussions and kind of how are they going and what are your expectations?

Sure. In terms of the lease renewals, when you go to do lease renewals, probably there are two really important factors in that negotiation. The first is the general sense of the farm economy at the time of the negotiation. And what vintage lease are you renegotiating? And so this point in time, the farm economy is pretty strong, not quite as strong as it was a year ago, but in terms of row crop prices, but pretty darn strong. And with what's going on in Ukraine right now, you know, it may get stronger and kind of has here in the last week or two. But, you know, we're in a pretty good place in the farm economy. In terms of the vintage of leases we're renegotiating, we are now renegotiating in most cases a lease that was negotiated in 2020, in the fall of 19 or 2020. That was an era that, you know, had some of the leases had pretty big bumps back then and some didn't. That was the timeframe where the farm economy transitions, and so the earlier negotiated leases were still kind of weak, and the late in the year negotiated leases were pretty strong. So this year, if you're renegotiating one of the ones that wasn't very strong back in 2020, we're likely to get pretty big bumps, you know, the 15% kind of bracket like we got last year. If you happen to be renegotiating one that was negotiated late in the 2020 cycle, You may see a lease that's more like 5% to 10% up just because you're coming off a higher base. So that's what we're facing. I mean, rents will continue to climb. I don't think our average increase will be quite as high as next year if I had to take an educated guess right now. But we're pretty early in the process, so it's kind of hard to tell. I think it'll be strong, but not quite as good in terms of percentage jump as we had last year.

No, that's helpful. Thanks for the color. James, I've got a question on your guidance. Just looking from your sort of May 23 assumptions to July, it looks like about a 50 to 100 basis point increase on the interest rate reset on the $49 million that's outstanding. Can you walk us through how you're getting to that? I know we had 25 basis points yesterday, maybe another 25. Are those discussions related to the spreads you might be looking at or any color that would be helpful?

Sure. So in general, when we look at these MetLife rate resets, we sort of put the language as to actually how the resets work in the queue in the Note 7. But generally how it works is they're priced off a spread to treasuries. And so we've had movement in treasuries, and the spreads, while earlier in the year we may have hoped to be a little bit tighter, they've widened out. Historically, our spread, you know, if you wanted to put a range around, it's been kind of 180 to 200 over. And now we're, I think, closer to the 200 side of the range. And Treasuries have moved. So, you know, typically we're pricing off the three-year. In this particular instrument, we have some ability to flex out a little longer. And it's on the table for discussion with the lender. Some of the earlier ones in the year, we just didn't have as much term in the actual loan. It was, you know, they were maturing three or maybe four years out. So going sort of further up the yield curve wasn't really a possibility. Does that make sense?

Yeah, that's helpful. Thank you. And just another follow-up on the guidance. I know that your variable payment expectations are up by an improvement in citrus farms paying variable rent. But your direct operations are down, which I think are mostly comprised of citrus and tree nuts. Is that performance related or did you sell some of those farms under direct operation or maybe have a third party farming those? Just some color there would be helpful to understand that if there is a disconnect there.

Yeah, I mean, I realize it can be a little confusing because they're both kind of in the basket of citrus, but there are different farms. So we've got sort of, you know, a set of farms that are paying variable rent that are, frankly, doing a little bit better than we initially estimated. And, you know, the citrus farms that are in the basket of direct operations are doing a little bit worse. So, yeah, they're all, you know, they're all broadly under citrus, but they do grow different types of products. And even on the farms, sometimes a lot of different products within a farm. So we're just seeing a bit of a bit of divergence and so a little bit better on the variable farms. and a little bit worse on the direct operations farms. But no, nothing's really leaving the portfolio. That's the answer to that part of the question. It's sort of, I guess, to use a bad pun here, oranges against oranges.

No, that makes sense. I appreciate that. Just looking at the drop in sort of auction and brokerage fee expectations, which was pretty meaningful quarter to quarter, I just wanted to circle back to that. Is that due to a lack of buyers or sellers or both?

Let me pick up on that one. It is really a lack of sellers. What happens in the farm economy, particularly in the row crop world, is when prices start to really surge and everybody's hearing about those $20,000 sales and their market is super euphoric, I mean, picture the family in suburban Chicago whose grandmother owns a farm, grandma passed away. They're sitting around the table at an extended family party going, hey, let's sell grandma's farm. The prices are sky high. And that farm gets sold. Then when prices level out, what happens is the same family gathering happens. well let's wait a few let's wait a month or two let's wait a year or two maybe it'll recover maybe ukraine will get worse and the grain prices will go up and so there's just this hesitation and we have transitioned and at high interest rates certainly haven't helped because at least some of the buying community um you know needs to borrow money so so what happens is we've kind of transitioned in the last 12 months from that super euphoric to the plateau And it's really dropped the number of people selling farms. So the volume declines are not just in Murray Wise. They're in our major competitors across the country who sell farms. The one other thing I do want to just mention on Murray Wise brokerage business. They did a major amount of business for us. The Nebraska auctions that I talked about a few moments ago were run by Murray Wise. But the way the accounting system works, we take the fee revenue that Murray Wise received, because the human beings in that division of our business have to get paid. The fee revenue that we pay gets consolidated out in the financials. So it makes the Murray, as it should, but it makes the Murray Wise line look, it's not great anyway, but it looks even worse because you take out the fee levels that came from the business done for FPI's vehicle.

No, that makes sense.

I don't know the exact numbers in the public domain, but it's a pretty big nut to get consolidated out.

Thank you.

And your next question comes from the lineup, Alec Fagan from Baird. Your line is open.

Hi, thank you for taking my question. The first is on the timing of debt repayments. heard that you mentioned in the prepared remarks that the buybacks were front-loaded and the debt repayment will be back-loaded, just kind of for modeling reasons, trying to figure out what that schedule will be like.

So, of the 135 closings that we've been – 135 million closings that we've been referring to today that are, you know, kind of either closed under contract or in really advanced negotiations, the remainder of the proceeds from those sales will largely go to pay down debt. So the closing is scheduled and the closings to be scheduled of the things we know are going to be sold are going to go to pay down debt. The thing you need to just keep in mind is we might buy an additional, you know, cash is fungible, so we might buy an additional fund. But we're pretty dedicated to taking that $135 million and the money that was available for stock repurchases from those asset sales has already been spent. And what's coming now, and we did it, and it worked. I mean, we bought back stock at an average price of $11.03, and I'm not looking at my screen right now, but it's trading higher than that, quite a bit higher than that now. And so we did the stock buyback first and then a new debt reduction second on that $135 million in proceeds.

Thank you for that. That's helpful. And then to go to the asset sales, can you provide some more color on whom you're actually selling to, how much of the assets are going to farmers versus everybody else?

Well, I mean, it's mixed bag. We've had a couple of transactions that are institutional buyers, you know, are major competitors. They're obviously big in their own confidentiality, so I won't say their names. But, you know, they're the who's who of farm, ultra high net worth families and, you know, big competitive institutional investors to us have bought quite a few of those assets. And then the local farmers, have been the remainder of the buying group. It's probably roughly reflective of how the market really works. The biggest transactions are often institutional and the ones that are more modest in size are often individual farmers. We as a cultural matter, Alec, offer the farms to the tenant first if we believe the tenant has a you know, financial wherewithal to have a chance of buying it. And he may want to go find his own financial backer so he can keep control of the asset even if he can't afford to buy it himself. And so we always kind of start with the farmer that's actually on the farm. And then if he's not able, you know, or just doesn't have a wherewithal to buy it, we'll move on to seeing if there's other people buying it. But, you know, we're not really putting for, other than the properties we're auctioning, we don't really put a, decision to say hey we're going to sell that uh we're we're you know we're kind of waiting for inbound call we made it known that we're going to sell some stuff and we wait for inbound calls okay thank you for that that's it for me and there are no further questions at this time i will now turn the call back over to mr luca fabry for some final closing remarks

Thank you, Rob, and thank you, everybody, for listening in and participating to this call. We appreciate your interest in our company and look forward to updating you on our activities and results in the coming quarters. Have a great day.

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