Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Farmland Partners Inc (FPI, Financial) reported a strong Q2 2024, with operating revenues down only 1.2% despite disposing of 10.4% of its portfolio.
- The company has successfully managed its expenses, with total operating expenses down 7%.
- AFFO (Adjusted Funds From Operations) was positively impacted by lower property taxes, lower G&A expenses, and increased citrus sales.
- Farmland Partners Inc (FPI) has undrawn capacity on its lines of credit of approximately $158 million.
- The company anticipates modest rent increases and does not expect significant changes in bad debt levels, which are currently almost zero.
Negative Points
- Commodity prices for primary row crops like corn, soybeans, and wheat are lower, leading to challenges for farmers' cash flow and balance sheets.
- California assets face challenges due to water risks, political regulations, and increasing labor costs.
- The company experienced a net loss of $2.1 million for the three months ended June 30, 2024.
- G&A expenses increased due to a one-time severance expense of $1.4 million related to the departure of the former CFO.
- Farmland values have hit a plateau, with no significant appreciation expected in the near term.
Q & A Highlights
Q: What are your expectations for rent renewals given the current farm economy?
A: We expect rent renewals to increase by 5% to 10% this year, which is lower than the 15% to 20% increases seen in the past few years. This reflects the current lower commodity price environment and the psychological impact on rent negotiations. Additionally, the leases up for renewal this year had already seen significant increases three years ago.
Q: How is the current farm economy affecting your disposition strategy?
A: The market for high-quality farms remains strong. We are limited to seven total transactions for the calendar year due to aggressive asset sales last year. We plan to focus on asset sales in the late third and fourth quarters when the market is most active. We do not see a weakness in farmland values but rather a plateau, meaning we are not seeing the gains of the past few years but also not a decline.
Q: Would you be buying farmland if you had a better cost of capital?
A: Yes, we would be buying farms if we had a better cost of capital. The current plateau period is a good time to buy farms as the market is stable. However, we do not have the cost of capital to allow us to do so at this time.
Q: What types of assets are you looking to sell in the back half of the year?
A: We are evaluating various opportunities, including some in California and other parts of our portfolio. We are unlikely to sell our most prized assets in the core Corn Belt unless we receive a strong offer. We aim to gradually lessen our exposure to California over the next 3 to 5 years.
Q: How will the reset on the $27 million of debt in the back half of the year impact your financials?
A: The current interest rate on this debt is in the low-3% range, and it is likely to reset to the 6% range. This will increase our interest expenses.
Q: How is the recent stabilization in almond pricing affecting your farms?
A: We have seen some talks about the bottoming out of almond prices, and our almond production assets are of higher quality than average. We will benefit from stronger almond prices through higher variable lease revenues and having stronger tenants.
Q: What are the drivers behind the adjustments in your guidance for cost of goods sold and management fees?
A: The adjustments are due to a combination of factors, including an increase in citrus farm yields and prices. There are also some smaller factors contributing to the changes.
Q: Are there any other moving pieces in your non-fixed farm rent revenue items?
A: We expect some variability in interest income due to early loan repayments, but nothing that will significantly move the needle. Renewable energy leases are generally stable, with movements driven by the conversion of option leases into full production leases.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
