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Edited Transcript of FPI earnings conference call or presentation 9-May-19 3:00pm GMT

Q1 2019 Farmland Partners Inc Earnings Call

Westminster Jun 12, 2019 (Thomson StreetEvents) -- Edited Transcript of Farmland Partners Inc earnings conference call or presentation Thursday, May 9, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Luca Fabbri

Farmland Partners Inc. - CFO & Treasurer

* Paul A. Pittman

Farmland Partners Inc. - Executive Chairman, President & CEO

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Conference Call Participants

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* Craig Gerald Kucera

Wunderlich Securities Inc., Research Division - Former MD

* David Bryan Rodgers

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Paul Douglas Puryear

Raymond James & Associates, Inc., Research Division - MD of Equity Research and Director of Real Estate Research

* Robert Chapman Stevenson

Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst

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Presentation

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Operator [1]

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Good morning, and welcome to the Farmland Partners First Quarter 2019 Earnings Conference Call. (Operator Instructions) Please note that today's event is being recorded.

And with that, I'd like to turn the conference over to Paul Pittman, CEO and Chairman. Please go ahead.

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Paul A. Pittman, Farmland Partners Inc. - Executive Chairman, President & CEO [2]

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Thank you. Good morning, and welcome to Farmland Partners' First Quarter of 2019 Earnings Conference Call and Webcast. We appreciate you taking the time to join us for these calls. With me this morning is Luca Fabbri, the company's Chief Financial Officer.

I will now turn over the call to Luca for some customary preliminary remarks.

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Luca Fabbri, Farmland Partners Inc. - CFO & Treasurer [3]

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Thank you, Paul, and thank you all for listening to this webcast live or recorded. The press release announcing our first quarter earnings was distributed yesterday evening. A replay of this call will be available shortly after the conclusion of the call through May 23, 2019. The phone numbers to access the replay are provided in the earnings press release. For those who listen to the rebroadcast of this presentation, we remind you that the remarks made herein are as of today, May 9, 2019 and have not been updated subsequent to this initial earnings call.

During this call, we'll make forward-looking statements, including statements related to the future performance of our portfolio, our identified and potential acquisitions and dispositions, the impact of acquisitions, dispositions and financing activities as well as comments on our outlook for our business, rents, and the broader agricultural markets.

We also will discuss certain non-GAAP financial measures, including net operating income, FFO, adjusted FFO, EBITDAre and adjusted EBITDAre. Definitions of these non-GAAP measures as well as reconciliations to the most comparable GAAP measures are included in the company's press release announcing first quarter earnings, which is available on our website www.farmlandpartners.com and is furnished as an exhibit to our current report on Form 8-K, dated May 8, 2019. 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 the listeners to review the risk factors discussed in our press release yesterday after market close and in documents we have filed with or furnished to the SEC.

I would now like to turn the call back to our Chairman and CEO, Paul Pittman. Paul?

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Paul A. Pittman, Farmland Partners Inc. - Executive Chairman, President & CEO [4]

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Thank you, Luca. So when we look at this quarter and the beginning of this year, a couple of key things stand out. Number one, we continue to sell farms at a substantial profit, approximately 10% to 11% above what we paid for those farms and buyback stock at a significant discount. We will continue this strategy as long as there is a substantial upside opportunity for our shareholders.

Our margins in our operating business, this is the second point, were squeezed due to interest rates primarily, but also hurt by hurricane-related repairs, legal expense, offset modestly by higher rents and overhead cost reductions. The NAV of our portfolio on a per share basis is still $12 or better and is constantly rising due to the asset sales and associated stock buybacks. The fourth point is that a complete blowup with China with regard to trade relationships for agricultural goods will be negative for the overall agriculture industry, but it's a fact on land value and rents will probably be muted and somewhat temporary.

With that, I'm going to turn it back over to Luca to walk through some key operating and financial highlights.

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Luca Fabbri, Farmland Partners Inc. - CFO & Treasurer [5]

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Thank you, Paul. Before I jump into financial highlights, let me give you the usual reminder that the underlying business we are -- fundamentally attached to agriculture is really works on an annual cycle and therefore we always warn you that you should look at our results more on an annual basis rather than looking specifically at individual interim reporting periods. Specifically, just as a quick reminder, our revenues due to that seasonality and due to the nature of some of our leases is heavily skewed with revenues in the fourth quarter, while costs are fundamentally by and large spread evenly through the quarters. And that of course affects via significantly the bottom line performance of individual reporting periods.

So having said that, for the first quarter of 2019, we reported total operating revenues of $10.9 million, a 2.8% decrease over the first quarter of 2018. Operating income of $4.5 million, a 6.2% decrease over the same period in 2018, fundamentally for those -- because of those factors that Paul mentioned as well as some of the asset sales that we have done. We are reporting a basic net loss to common stockholders of $0.10 per share and AFFO per share of negative $0.03.

During the first quarter of 2019, we completed farm dispositions totaling approximately $4.7 million. Also, on the stock buyback side, during the quarter, we repurchased 1.2 million shares of common stock at a weighted average price of $5.61 per share as well as 16,800 shares of the Series B Participating Preferred at a weighted average price of $18.51. As a reminder, the kind of the nominal value of those shares is at this point $25.21. Subsequent to the quarter end, we've also repurchased an additional approximately 0.5 million shares of common stock at a weighted average price of $6.58, bringing the total stock repurchases for common and preferred B in the year-to-date at just about $10 million. As of today's date, we have 33,752,428 shares of common stock outstanding on a fully diluted basis, which includes the units in our operating partnership. With that, I'm concluding my remarks on our operating performance for the first quarter of 2019. Thank you for your time this morning and your interest in Farmland Partners.

Operator, we would like to begin the question-and-answer session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Today's first question will be from Rob Stevenson with Janney.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [2]

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Paul, what are the types of crops and locations of the farms that you've sold thus far in 2019 and anything in particular from a rhyme or reason in terms of selling certain assets, selling certain markets should we expect over the remainder of '19?

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Paul A. Pittman, Farmland Partners Inc. - Executive Chairman, President & CEO [3]

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So all of the asset sales that we make are based frankly on local market conditions. All of these little submarkets around the United States trade at a different pace and so we are largely selling properties where we think good returns can be achieved and our long-term outlook for the region based on the way the portfolio is currently structured as we'd like to lighten up on that region. I mean, we don't just sort of sell anything that somebody wants. We only sell those things where good prices are attained and we would like to lighten exposure. Other than what we disclosed, we don't disclose actual prices or transactions individually, at least to the extent we can avoid it, because we are respectful of the transaction we've done and the counterparty on the other side. And I just think it's inappropriate to give too much detail. These asset sales we've made, though, were both in the Midwest region. I will give you that much additional information and are likely what we -- we are very exposed in the Midwest in terms of our total exposure. So there will be some trimming there in the rest of the year, though. There would also be some anticipated sales in the regions away from the Midwest because as we -- the Midwest to us is still an incredibly strong and important market. It's very easy market to manage. So we expect some sales to come in other regions as well and continue the approximate portfolio balance we currently have. One important addition to that I would say is, you may have noticed that we are, by the effect of these sales, we are gradually increasing the percentage of our revenues coming from the specialty crop side of our portfolio. That's likely to continue. We'd never quite got as fully weighted to specialty crops when we were growing the portfolio as we wanted. So the asset sales will tend to be away from the California Central Valley and tend to be in other locations.

I hope that helps you a little bit.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [4]

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And then when you're doing these sales, how are you thinking about leverage? I mean, is this -- are you maintaining -- are you essentially leverage, got to be leverage neutral relative to your current leverage? Are you looking to pay down more debt and delever as part of these transactions? Are you trying to buy back more stock and so essentially leverage ratios increase slightly as a result of this? How are you guys in the Board thinking about that?

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Paul A. Pittman, Farmland Partners Inc. - Executive Chairman, President & CEO [5]

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I mean, broadly speaking, I think you should think of them as leverage neutral. Whenever we sell a farm, the very first funds flow out of the closing is to reduce whatever debt is on that farm. Usually, give or take a little bit, it's about 50% of the price we paid when we acquired the farm. So you're going to always take that debt off the balance sheet at the time you close the transaction. The decision on whether to buy back common or preferred or reduce debt further is always going to be case by case based on the relative value of those different instruments at the time we spend the money. Certainly at current stock price, you've got a tendency to deploy that capital to acquire additional stock, and that's what we've been doing. But round numbers, that will ever so slightly push your total leverage up, but from time to time, we'll make additional debt reduction that kind of pulls that back in line. So it ought to stay roughly leverage neutral.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [6]

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Okay. And then last one for me. What percentage of your assets have some sort -- that you've acquired have some sort of tax protection on them?

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Paul A. Pittman, Farmland Partners Inc. - Executive Chairman, President & CEO [7]

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None.

Let me just add to that. The only tax protection that the company had ever given was in the original IPO transaction I received. Tax reduction me and my immediate family on the assets we contributed that set up the REIT, but if you all recall, late last year, literally right around the turn of the year, I converted 100% of my OP interest into common shares. One of the reasons I did that was, it removed the tax protection overhang from the company on any given asset.

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Operator [8]

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Next question today will be from...

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Paul A. Pittman, Farmland Partners Inc. - Executive Chairman, President & CEO [9]

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Yes. So there is none left today at all.

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Operator [10]

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Next question will be from Dave Rodgers with Baird.

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David Bryan Rodgers, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [11]

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I guess, just wanted to follow-up on what you're seeing out and you haven't really been out in the acquisition market, you've done some. I assume that you're still paying some attention there. I guess, a couple of questions around that. One is, are you seeing good volume out there for specialty crops and for permanent crops that would be higher yielding for you guys? And I guess the question then would be, why not maybe accelerate some of these asset sales, maybe go a little bit even faster in that direction, which would enhance your yield here in the near-term and really kind of support the stock and cash flow and debt reduction in the near term.

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Paul A. Pittman, Farmland Partners Inc. - Executive Chairman, President & CEO [12]

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Well, for a variety of reasons that we are not likely to aggressively accelerate the asset sales, but I'll come back to that in a minute. And in terms of what we're seeing in the marketplace, though, values for assets are staying quite strong. I mean, you can see that in the asset sales that we are making. And the reason for that is that the asset is fundamentally very, very scarce, particularly in the higher quality end of the asset range and most of what we own is very high quality for the region that we are invested in. So you just -- there is not a huge opportunity to deploy capital in a discounted way by any means, nor is there a huge buying opportunity anywhere or even at frankly fair price. Their volumes are quite light and volumes in specialty crops on the West Coast, for example, are probably kind of normal by historical levels. Asset movement in the Midwest is below historical average. That's frankly to be expected. The current pricing today is not drawing an additional amount of volume into the market, because it's just not high enough to motivate a potential seller. The only assets you're seeing move generally come out of a death or a divorce or some specific farmer-related distress. That's typical of a -- when the market price is weak, volumes will reduce. When market prices tend to be slightly strong, volumes increase and that's the factor we watch. So in terms of accelerating the strategy, we are not driven, and never have been, purely by cash flow. It's not the right way in my opinion to invest in farmland. Farmland has 2 elements to return. Cash flow is one, asset appreciation is another. The long-term investors in the asset class care about both. If you are -- but every investor is of course different. If you're a little more motivated by current yields, you will tend to have a specialty crop. Bent to your investment thesis, if you are more motivated by long-term appreciation, safety, and ease of management, you will tend to have a corn belt bent to your investment thesis. We're frankly somewhere in between. With the asset sales we made, we are probably approaching 70%-30%, specialties 30%, row crops 70%. It used to be more like 75%-25%, but in broad strokes, we will stay close to that ratio as we continue to make asset sales. It will probably creep a little more toward specialty crop over time, but not dramatically so because I think it's just not an asset class where I think you get rewarded. We're chasing whatever feels good right now. Because about the time you've shifted your portfolio to that position, you will find out that what was hot is no longer hot and you wish you had more exposure to a different kind of crop. So we're going to stay balanced and cautious and, look, as the largest shareholder in the company, this strategy is working. The true value of my shares and every shareholder's shares are rapidly increasing because we're selling properties at significant gains and buying stock back at a, in my opinion, 40% or 50% discount. I know it doesn't feel good when you look at the stock price on a daily basis, but in terms of true value creation, that's a very disciplined approach and we're going to stick to it.

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David Bryan Rodgers, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [13]

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With respect to G&A, Paul, you guys have done a great job of kind of bringing that number down. Are you kind of near the bottom on that level? As we sat in the first quarter, I think it was like a $1.3 million and then as you look out and kind of in the future re-growing the portfolio, are you scalable at this level or does that have to scale then back up?

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Paul A. Pittman, Farmland Partners Inc. - Executive Chairman, President & CEO [14]

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No, we're absolutely scalable. We were very rapidly growing portfolio. Hopefully we'll get back to growth when appropriate stock price is reached again. But we can grow, probably not -- I mean, we can't -- probably can't double every year like we were for a while with the staffing level, but we could probably grow 20% or 30% a year at the staffing level and would certainly do so. From the standpoint of overhead reduction, the fact that we have become -- we have really slowed our growth rate. It's allowed us great opportunity inside the company to catch up on sorts of the internal infrastructure building process that all companies ought to go through. And so we've done some of that and it allows us to run our portfolio somewhat more efficiently. We're out -- one of the things, for example, when we consider selling farms that we focus on is, is it in a slightly geographically cumbersome location from the standpoint of management. Is it long ways from wherever the human being would actually runs that farm lives or offices and compare that to how much we have in that region. So we're doing things that actually make this portfolio a little bit easier to manage as we go through this sale process.

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Operator [15]

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Next question will be from Paul Puryear with Raymond James.

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Paul Douglas Puryear, Raymond James & Associates, Inc., Research Division - MD of Equity Research and Director of Real Estate Research [16]

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Paul, if you could comment on sort of how your revenue line looks sort of on a same-store basis. If you net it out acquisitions and dispositions over the past year, how would the top line look? Do you have a sense for that?

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Paul A. Pittman, Farmland Partners Inc. - Executive Chairman, President & CEO [17]

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Yes, we certainly have a sense for that. So a significant -- if you looked at top line for the quarter and obviously Luca's comments are important in the context that quarterly numbers, because of GAAP straight-lining and other things, are skewed a little bit, but if you looked in our supplemental at the P&L and you looked at year-over-year, quarter comparisons, what you will see there is most of the reduction in revenue is largely due to a tenant reimbursement issue. And that's not that we're getting less reimbursements, it actually had to do with the fact that because of the AFCO acquisition we had -- still had supplemental property tax bills coming through to P&L in the first quarter of last year. And those supplemental tax bills are reimbursed by the tenants and those reimbursements are technically revenue in our P&L, so it looked like you had a couple hundred thousand dollar drop in revenue. And the truth is, you really didn't. It's largely coming, if not entirely coming, from that just accounting fact of how tax reimbursement works. It's not that we get less reimbursement than we used to get, it's just that they are in terms of how the contracting with our tenants work. It's that we're getting just less dollars because there is no supplemental bills anymore. In terms of the portfolio on a sort of a same-store basis, so a significant percentage of our portfolio, and I don't have an exact number for you, Paul, but probably approaching a third to a half because we started a few years ago embedding in almost all leases a modest annual cost of living adjustment. So we've got that in a lot of leases today. That's usually a 1% or 2% increase per annum that's embedded in the lease. So you've got that going for you gradually pushing your rents up. Most of the rent renewals we did this year led to significant increases in rent. When I say significant, that's a 3%, 4%, 5% increase when you roll the lease forward, but recognize, we only renew approximately a third of our leases, usually a little bit less than a third in any given year. So that doesn't have a super powerful effect. And then we like any company, we would have a couple of troubled properties where we probably went backwards in rent, at least on a handful of properties. So when you net all that together, portfolio-wide, you probably have something in the neighborhood of a 1%, maybe 1.5% increase in our rental stream. We feel pretty good about that from the standpoint of how we manage our business and it's somewhat difficult ag economy. On the other hand, it's way behind the expected trend line, long-term trend line would be about 3% per year, appreciation in rents, and we're getting 1 to 1.5 at this point in time. So we hope that recovers the historical norm. We frankly think it will. The real question is when. I hope that helps, Paul.

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Paul Douglas Puryear, Raymond James & Associates, Inc., Research Division - MD of Equity Research and Director of Real Estate Research [18]

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And if you -- any commentary by region would be helpful.

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Paul A. Pittman, Farmland Partners Inc. - Executive Chairman, President & CEO [19]

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So by region -- the 2 regions, and I'm going to call out a couple of reasons where things are more difficult than other regions. So the 2 regions in the ag economy that are struggling the most are the Northern Plains, think the Dakotas, maybe Minnesota, places like that. And that is a region that had -- in the last half a decade or so become very focused on soybean exports to China and obviously that's been hurt quite a bit. It's a difficult region from the standpoint of river transportation. So it's always got a very negative basis compared to Chicago Board of Trade, meaning a discount to Chicago Board of Trade, because of transportation costs. We luckily only own one farm in that entire region and that farm is doing okay. It's in the southern edge of that region. It's in South Dakota. It can get out to the markets the other way, but we're just not very weighted in that region because several of those states had anti-corporate Farmland law. So we never built much of the portfolio there. Great region. From a long-term perspective, we will see it add more exposure, but we frankly don't, for the reason I just explained. The other region that's struggled is the High Plains, so think Western Kansas, Western Nebraska, Eastern Colorado. Very similar in the sense that the transportation costs are high from those regions, so basis levels are bad for farmers. That's the other region where you are challenged in your rent roll process, but we're probably holding our ground region-wide in those areas. We have quite a bit of crop share in the West in the High Plains region which tends to very rapidly reflect rent increases and decreases. So between last year and this year, not a huge change between the last -- this year and 3 or 4 years ago, quite a bit of change. But we have already taken that pain, because in a crop share environment, it shows up almost -- frankly within the year, you see the change in rental income. As far as the rest of the country goes, pretty good situation. The core of the Midwest, meaning, Illinois, which is the largest state in terms of value in our portfolio, frankly, given the farm economy incredibly strong, generally getting rent increases across the portfolio when rental rolls occur in the Midwest, I am not surprised by that. As I always say, that's the Park Avenue of US agriculture real estate. Very competitive tenant base, very high efficiencies in terms of that farm regions. The cost per unit of production of corn, soybeans in that region is very, very low, frankly even by worldwide standards. And that reflects itself in a very vibrant and strong localized economy, certainly not as strong as it was 5 years ago, but really not big challenges. And so that's kind of what we're seeing regionally.

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Paul Douglas Puryear, Raymond James & Associates, Inc., Research Division - MD of Equity Research and Director of Real Estate Research [20]

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And then I know you didn't comment on the lawsuit in your remarks, but can you tell us anything about the lawsuit?

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Paul A. Pittman, Farmland Partners Inc. - Executive Chairman, President & CEO [21]

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Yes. So we have filed a motion to dismiss the class action lawsuit. That is where shareholders -- I shouldn't even say shareholders. That is where unscrupulous lawyers find a shareholder, did a -- basically a screen scrape of the Rota Fortunae article and sued us on that basis. We filed a motion to dismiss for that. Hopefully that motion to dismiss will be granted since those claims are meritless. We are just grinding it out. We're not going to give up on that and Rota Fortunae will be brought to the dock at some point, not likely to back off on that. We continue to have a modest spend level. It's frankly slowed down some, because you're just waiting for the courts to do their job and grind through the process, but that's -- nothing new which is why we didn't mention it, but no change in course or strategy.

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Paul Douglas Puryear, Raymond James & Associates, Inc., Research Division - MD of Equity Research and Director of Real Estate Research [22]

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And then one last one for us. Given all the noise and everything that's happened with the trade negotiation, I just wonder if you're aware, do you have any sense for any change with respect to ag as to how the administration is thinking?

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Paul A. Pittman, Farmland Partners Inc. - Executive Chairman, President & CEO [23]

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The answer is, I certainly don't have any deep knowledge of what's really going on in the wide-outs and amongst the negotiating team. But here is my perspective. My guess is, and this is largely based on press reports that we had some very good things in that deal for agriculture. We, the United States, thought we had some good things with regard to technology transfer and theft issues and the Chinese negotiating team for reasons that probably makes complete sense from their side of the table backed off on those tech transfer related commitments. And the Trump administration threw up its hands in frustration and threatened to blow the whole thing up. It's not my place to say whether that's good or bad for the nation as a whole. Probably not great for agriculture, although farmers generally are a pretty patriotic group of people and there's probably ways to help farmers if they are the ones taking the brunt of the trade war like they did in the past. So I think, I don't want to sugarcoat it. I mean, a complete roughly 40%, 50% of US agriculture production is exported in some form or fashion. China is the biggest worldwide buyer. Blowing up the Chinese trading relationship is by no means a good thing for production agriculture. Counterbalancing that, though, is that it's a hungry, hungry world and most of the crops are being consumed. So our view is that the trade dispute will have -- if it falls apart here is going to have a relatively negative short-term impact on farm operators, some of which can be helped out through money transfers from the government to make up for that, for the farmers themselves. As far as the long-term impact on land values and rents, we think it will be modest and relatively short-lived. Might take the top end out of the growth rates on both rents and land values, but it's -- I would say, the reason that we invest in this asset class and that I've spent large portion of my life investing in the asset class is that underlying food demand and this fundamental scarcity of the farmland are more or less set in stone. And they don't change very much and that will pull everything through in our opinion.

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Operator [24]

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Next question will be from Craig Kucera with B. Riley FBR.

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Craig Gerald Kucera, Wunderlich Securities Inc., Research Division - Former MD [25]

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I noted that you closed on $11 million of assets subsequent to quarter end, but do you have a sense for the total dollar value of the assets that you are currently marketing for sale today?

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Paul A. Pittman, Farmland Partners Inc. - Executive Chairman, President & CEO [26]

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Well, I mean, everything in our portfolio is for sale at the right price. I mean, that would be a -- $1.1 billion would be for sale, but the key is always the right price. This is -- every single market is an individual market. Your best buyer on any given asset is within a 30 to 50 mile radius of that asset all across the country. Institutional buyers are a tiny, tiny piece of this market. They are active from time to time and we certainly have relationships with other institutional buyers and are happy to sell to them, but that's not what drives this market. So you don't go out and kind of just put a bunch of -- call up a real estate broker and put a bunch of stuff on the market. That's not how this market works. What you do is, you know basically who your neighbors are on every asset and you know who is trying to expand and who is not and you are selectively marketing to those people at all points in time. So I think we've sold today -- it's in our supplemental. Luca, do you have it handy what the assets we've -- total volume of assets we've sold?

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Luca Fabbri, Farmland Partners Inc. - CFO & Treasurer [27]

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The total asset in the second quarter of '18 is about $37 million.

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Paul A. Pittman, Farmland Partners Inc. - Executive Chairman, President & CEO [28]

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Yes. So we made about $37 million of assets. My guess is, we'll -- so that's running at round numbers little better than $10 million a quarter on average. My guess is, we'll maintain that case, it's not accelerated a little bit as long as the stock price stays low. I don't like selling these assets. These are great assets. And I don't like -- I mean, I'm a growth guy, not a sales guy, but the very best investment we can make as a company today is to continue to shrink our outstanding share capital. It is just so simple, but it's frankly one of the beauties of the capital market. People who don't believe me are more than welcome to sell stock back to the company at 6.50 or something like that. And we, as we're standing there buying it, think it's worth $12. And I keep telling people that and I say it over and over and again. It's a free country, it's a free market, let them -- they will sell and those people that agree with our view are making money every time. We are -- if you did the mathematical impact of the -- if you really think the stock is worth $12 and we bought it back on average around $6, it's a lot of money. Lot of value was generated at $5 a share on every one of those shares we bought back so far.

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Craig Gerald Kucera, Wunderlich Securities Inc., Research Division - Former MD [29]

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Okay. And I just want to circle back to the G&A and it sounded based on your commentary in the Q&A that the spend on the shareholder suits, Rota Fortunae, may be slowing down. Should we -- I think last quarter you said you thought it might have a $0.02 to $0.04 impact. Is that still valid or is it potentially lighter?

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Paul A. Pittman, Farmland Partners Inc. - Executive Chairman, President & CEO [30]

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I think I'd continue to run with that number for now. I mean, I would say the only thing less predictable than the tweets coming out of the White House is litigation strategy and process. So I don't know for sure what will happen here. I'd run the same number for a while.

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Craig Gerald Kucera, Wunderlich Securities Inc., Research Division - Former MD [31]

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Okay. And one more for me. With all the weather events last fall, is it still too early to assess damage until we get into this next harvest season in the fall or have you had any update out there?

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Paul A. Pittman, Farmland Partners Inc. - Executive Chairman, President & CEO [32]

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No, we know where the harm was. The only -- probably the most significant remaining harm where we -- I mean, we talked about it in the past, but we haven't seen it really flow through to P&L is the avocado property suffered a substantial amount of heat, excess heat last year, and therefore will have had a somewhat lower yield potential this year. It's a one farm out of the 120 or 125 farms we own. Not a company-wide big negative event, but that's the one that we don't think will have quite as good a result this year as we would have otherwise had. Everything else, we are kind of back in action. I think we mentioned, we had -- we lost almost every -- I think we lost every single pivot on a pretty substantial farm in the Florida Panhandle and a little bit of that farm I think is over into Georgia. Those pivots have now been replaced, insurance covered, most of it farmers back in action planting, not really a long-term impact. I mean, it's why we had insurance. The pecan property was the other one we talked about. We lost a lot of the pecan crop, which hurt the crop share on that farm last year, but we didn't lose very many trees in the grand scheme of things. I mean, you hate to see any big old tree with lot of pecans on it fall over, but on a property-wide basis not a big asset quality diminution, it was really the loss of the nuts themselves and this is a new season. So last year's hurricane is irrelevant. The bigger thing going on and it's at least temporarily completely lost in the commodities markets due to the trade dispute, but there is a real set of challenges in terms of getting this crop of corn and soybeans into the ground, that there is also some real challenges on wheat crop in terms of the quality of the winter wheat crop and the planting pace of the spring wheat crop due to the sort of excessively cold spring temperatures and excess moisture in the Plains, in the Midwest. Those 2 problems exacerbate each other, because if it's wet and hot, it dries out. If it's wet and cold, then it just doesn't seem to dry out and let the farmers get back the planting. On the planting progress report that came out from the USDA on Monday, we are around half of historical average levels. This will end up having an impact on yield per acre that's probably going to be substantial. There is probably another 7 to 10 days. Most people say that if you get a corn, it is a nationwide average, so it's different in every state, but roughly you need to have 80% or 85% of the corn crop planted by May 20 or you will start to experience meaningful yield loss. I don't think there's any way you'll have this 80% or 85% of the crop planted by that date. And so you're going to start to have a significant yield loss. From an industry profitability perspective, I'm not sure that's a bad thing. You're going to see price recovery in the commodities particularly corn, if they don't get the crop in the ground and that, on balance, for the farmers, they may be better off with less total volume and a higher price than they are in the alternative. But like I said, that news if it was not for the Trump tweets regarding the trade war last Sunday, that would be the news that would have been traded this week. Because it's -- you guys, I'm sure none of you read the ag press as religiously as I do. But that's the big story and it's out there, but it's completely smothered by the trade war dispute right now.

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Operator [33]

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Next question will be from [Ryan Watson] with Farmland.

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Unidentified Analyst, [34]

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Most of my questions have already been answered. But Paul, in the past you've spoken about taking dividend cut decisions very seriously. The value creation right now of buybacks is at least 3x which you're getting from a dividend. Given that the AFFO was negative and the risks you've mentioned in your opening remarks, have you guys considered eliminating the dividend and accelerating the buybacks? That's all for me.

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Paul A. Pittman, Farmland Partners Inc. - Executive Chairman, President & CEO [35]

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Yes, we have certainly considered it. This is obviously a decision for the Board, not just for me. But we definitely considered it. When we cut the dividend, we considered cutting it completely. One thing I want to correct, we're not running a negative AFFO on an annual basis, it's maybe on a quarterly basis. But that -- quarterly accounting does not fit very well with an annual revenue cycle industry. Luca alluded this to his comments. We take the expenses of our business through the P&L more or less in equal amounts each quarter. You only take the revenue in the fourth quarter. So we're not negative AFFO, but on an annual basis at this dividend level.

But here's the consideration and we're not -- it's not likely that we will change this dividend in the foreseeable future. And the reason is, look, every investor -- and I appreciate what you're saying, [Ryan]. Every investor has a different opinion on that. And so we've struck a -- some people want that dividend and believe it's important that it continues and I get kind of phone calls and investor comments along those lines. They are disappointed we cut it as much as we did. And then some investors take the position that I think you're kind of taking that says, just buyback stock and go back to paying a dividend after you get all the stock bought back as inexpensively as you can. We probably struck roughly the right balance because I would say that I get about an equal number of complaints from each side. So that's kind of where we are. And at least for the foreseeable future, it would be -- again the Board could always change it. But my judgment is that we will stay exactly where we are probably for the remainder of this year.

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Operator [36]

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Next question will be from [Jason Allen], a private investor.

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Unidentified Participant, [37]

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And you've spent a number of questions talking about the capital structure going forward and debt levels. What are your thoughts on the Series B Preferred and what your plans are going forward, because optically it seems like an expensive piece of capital, given that you're no longer in a growth mode? And I have a follow-up after that.

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Paul A. Pittman, Farmland Partners Inc. - Executive Chairman, President & CEO [38]

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Yes, I mean, it's a lot cheaper than equity even today and so we are likely to leave that Preferred out there till the time for the ratchet up in the coupon occurs. No -- it's actually a good security in a good price when we sold it. We used it to acquire the Olam assets largely, which had a return well in excess of the cost of that security. So it's a good piece of paper. It may optically look high, but it's actually in the real world compared to comparative alternatives and you'd have to replace that instrument largely with equity, not straight debt. We actually think it's actually a well priced and good security for us. So no likelihood that we do anything drastic on that security in the near term. Your follow-on?

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Unidentified Participant, [39]

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And a follow-up on kind of your thoughts on debt going forward as far as fixed versus floating and kind of the average duration of your debt profile with -- given you have really long-lived assets, what are your thoughts on debt profile now and going forward?

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Paul A. Pittman, Farmland Partners Inc. - Executive Chairman, President & CEO [40]

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Yes, well, what -- we will probably maintain a balance of fixed to floating somewhere to the one we have. Hindsight is always 2020. We would have been better off leaving it all floating. We fix things under pressure from bankers, shareholders, and others. And our own fears, we decided to fix some things and every single thing we fixed would be cheaper now than if we had left it floating. So you never get that perfectly right. The yield curve has been such that you've been rewarded through -- and, I mean, I'm 57 years old, so not just the recent era, but you've been rewarded to stay floating on the shorter end of the curve in most environments for most of my adult life. And so I think we'll continue to maintain that bias, but you don't want to be a 100% floating, because if you get it wrong, it's just too painful. So I think our approximate balance of fixed to floating is where we'll stay.

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Unidentified Participant, [41]

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So you're kind of hedging your bets a little bit.

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Paul A. Pittman, Farmland Partners Inc. - Executive Chairman, President & CEO [42]

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Yes, we are hedging out bets. That's why we've got some fixed on the balance sheet. The lenders are always pushing you to move to fixed, but John Deere always pushes you to buy higher priced tractors. So it's not surprising that's their point of view.

Yes.

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Operator [43]

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Next question will be from [Kurt Albertson] with Aspen Square Holdings.

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Unidentified Analyst, [44]

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Paul, I just had a question regarding -- if you could provide some color on the results of the shareholder vote for the nominees for the Board of Directors and there will be any changes going forward on the Board.

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Paul A. Pittman, Farmland Partners Inc. - Executive Chairman, President & CEO [45]

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Yes, I think we -- I don't want to do anything beyond what we've already publicly disclosed, because that's always such a -- that whole proxy process is highly regulated. Every member of the Board received enough votes to be re-elected. The appointment of the auditor was approved. I think -- I don't know, Luca or Erica, if you are listening please help, but I think there might have been one other resolution, I can't remember what it was.

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Unidentified Analyst, [46]

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I was just kind of curious, specifically, it looks like Mr. Bartels only received 5.4 million shares voting for his nomination versus 8.5 million.

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Paul A. Pittman, Farmland Partners Inc. - Executive Chairman, President & CEO [47]

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Yes. So thank you for that. Because if it's in the public domain, I'm happy to talk about it. I just didn't want to go over the line.

So it sounds like it is in the public domain and Luca and I aren't in the same room today. Cut me off for some reason if it's not in the public domain, Luca.

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Luca Fabbri, Farmland Partners Inc. - CFO & Treasurer [48]

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No, you can go ahead.

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Paul A. Pittman, Farmland Partners Inc. - Executive Chairman, President & CEO [49]

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Yes. So Mr. Bartels is the Chairman of our Governance Committee. He did receive -- all of the Governance Committee members received a materially lower vote tally than the non-members of governance. They are myself and Chris Downey, who do not serve on that committee, got in the 90 percentile range on votes. The members of the Governance Committee got in the 60% and Mr. Bartels I think got in the 40% of the approval level. So in terms of Mr. Bartels, I think he was nominally hit worse because he is the Chairman of that Committee than anybody else. I think that's a little bit frankly unfair to him as an individual, because he is doing in good faith, what he and the Board believes is correct for the company. I think that ISS had a withhold on our Governance Committee in their recommendations to institutional investors. They don't like -- I think they don't like the gender diversity of our Board and they do not like the -- one of the ways one of our bylaws works. The company from our perspective is committed to having a high quality Board and diversity where possible. But diversity by itself is not the leading goal of our Board, it's knowledge of the industry and agriculture is a leading goal of the Board. We have made some proposals to add diverse members to the Board and had not been able to accomplish that because the pool of really qualified candidates is somewhat limited. And so they have chosen not to join our Board. So we're not going to go just sort of solve that problem to tick a box. So we're just going to continue to focus on it and do the right thing over time.

As far as the bylaw issue, we actually disagree with ISS on that. We just -- we don't think it's right for long-term shareholder value. We think, for example, what the company is going through today, it would be a perfect example of why that's not the right strategy. What the issue is, this can -- a group of shareholders moved to change the bylaws, or is that a Board act? Our view is that it should -- continue to be a Board act and the reason I say that is that you would have some shareholders today that would be happy, for example, they bought the stock at $5 and they would be happy to sell the company at $7.50 a share. Those shareholders who have bought stock up and down the price structure ever since the IPO would probably disagree with that point of view and we just actually think for shareholder value reasons, that's more carefully -- and that's more properly done by the Board considering the best interest of all shareholders and trying to balance that than necessarily being able to be forced to buy some, given smaller group of shareholders who may have well -- heartfelt, but frankly divergent interests than other shareholders. So that's just kind of our opinion on that. It happens to be different than ISS and they recommended withhold. And I think the brunt of that recommendation fell on the Chairman of the Governance Committee,

Long-winded answer, but I hope it helps.

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Unidentified Analyst, [50]

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Yes. Well, I appreciate the color on that and the very in-depth explanation, but why even hold a shareholder vote if more shareholders are going to vote to not have a nominee on the Board, yet the Board is going to say, we don't care the shareholders say, because it was Board opinion. It just doesn't even seem like it's a valid shareholder vote. And then also with regard to Mr. Bartels, couple of times a year, the shareholders are (inaudible) where every share he has issued, he pretty much disposes of. Does this actually meet the threshold? It looked like there was a change something like 3x the cash portion. I mean, he only owns like 2,400 shares. Is he even eligible based on that metric?

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Paul A. Pittman, Farmland Partners Inc. - Executive Chairman, President & CEO [51]

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Yes, it's -- well, he is eligible because we've -- what I think you're referring to is, we have a certain amount of ownership that Directors and senior officers are supposed to work to over a period of years. So I don't think you've got an absolute issue with regard to the level of ownership, because the time frame by which you have to get there hasn't been met. Look I don't like selling stock, I don't like Directors selling stock. I wish they didn't, but each Director has their own kind of financial concerns and the like in their own management of their portfolio, and it happens from time to time. I think the key is to look in particular at me as the Chairman and CEO. I am highly acquisitive and will continue to be of our shares at these prices. I've been highly acquisitive at almost all prices, because I don't think our stock is traded at its private market value of the underlying assets in quite some time. I continue to believe that and we'll continue to buy it. But I hear you, [Kurt], but there is a process. There is set way that voting process works and he received the necessary number of votes to stay on the Board.

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Unidentified Analyst, [52]

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Okay. It's pretty disappointing. And with ISS having a -- and actually with some corporate governance issues clearly indicated by the vote for that committee, do you feel that has any impact on why potential shareholders are not investing with Farmland Partners and it's perpetually trading at $0.55 to $0.60 on $1. As an investor, what am I missing the -- what's called the smart money, isn't? Why are people not buying the stock? And I guess that's my last question.

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Paul A. Pittman, Farmland Partners Inc. - Executive Chairman, President & CEO [53]

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I think the smart money is buying the stock, so, I mean, that's kind of my opinion. And look, I firmly believe that the Boards and Directors in particular have a duty to shareholders to do what they believe is right, not to do what ISS recommends. ISS does not take the legal liability for running the company in the appropriate way, the Directors do. I think it would be a horrible result for corporate governance nationwide if ISS' recommendations were 100% supported, because what you would have done is you would have turned over the governance of the company to a group of people who are I think frankly well-intentioned and put out a point of view that they truly believe is in the best interests of at least their constituency, but may not be actually the right answer for every single company. And so I just don't agree that you should do whatever ISS says. I think the appropriate thing for a Board and it's what our Board did, is to seriously consider the ISS recommendation on a given issue because they are smart thoughtful people, but to ultimately take the decision that makes the most sense for your particular company, in particular, when you go to hard asset businesses where you really can determine the private market valuation of the underlying assets, ending up with anything that could lead you to a discounted disposition based on short-term emotion of the company, losing for shareholders all of that private market value that's embedded in the assets you hold, that's just a mistake. And that's in our view, and that's why our Board continues to maintain the position they do on that corporate governance issue.

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Luca Fabbri, Farmland Partners Inc. - CFO & Treasurer [54]

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Also just to add one more note on the bylaws issue, we are actually in the same boat as the overwhelming majority of the REIT industry. Our view is shared by virtually all publicly traded REITs.

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Paul A. Pittman, Farmland Partners Inc. - Executive Chairman, President & CEO [55]

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And it comes to the hard asset point that I'm making. This is why the REIT industry tends to disagree on that issue, because it is relatively easy for the Board to understand the private market value of the assets.

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Unidentified Analyst, [56]

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I will follow up with a letter to Mr. Downey.

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Operator [57]

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At this time, this will conclude today's question-and-answer session. I'd like to turn the conference back over to Paul Pittman for any closing remarks.

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Paul A. Pittman, Farmland Partners Inc. - Executive Chairman, President & CEO [58]

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Thank you very much, operator. For all of you on the conference call, we do appreciate your interest in the company. And we'll look forward to updating you again next quarter as the markets continue to unfold. Thank you.

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Operator [59]

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The conference has now concluded. We want to thank everyone for attending today's presentation. At this time, you may now disconnect.