Farmland Partners Inc (FPI) 2015 Q1 法說會逐字稿

Good morning and welcome to the Farmland Partners Inc. Q1 earnings conference call.

(Operator Instructions)

Please note this event is being recorded. I would now like to turn the conference over to Paul Pittman. Please go ahead.

Thank you. Good morning and welcome to Farmland Partners first-quarter 2015 earnings conference call and webcast. We truly appreciate your taking the time to join us for these calls because we see them as very important opportunities to share with you our thinking and our strategy in a format less formal and more interactive than public filings and press releases.

With me this morning is Luca Fabbri, the Company's Chief Financial Officer. I will now turn the call over to Luca for some customary preliminary remarks.

Thank you, Paul. First and foremost I would like to also welcome you to this conference call and webcast and thank you for joining us. 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 20, 2015. The 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 are made herein as of today May 6, 2015 and have not been updated subsequent to this initial earnings call.

During this call we will make forward-looking statements including statements related to the future performance of our portfolio, our identified acquisitions and farm properties under evaluation, impact of acquisitions 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 but not limited to FFO, adjusted FFO, EBITDA and adjusted EBITDA. 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 at www.farmlandpartners.com.

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 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 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 Executive Chairman, President and Chief Executive Officer Paul Pittman. Paul?

Thank you, Luca. I want to spend a few minutes discussing the highlights from the first quarter, talk about our goals and strategies for the rest of 2015 and discuss some general market trends. In addition for the first time we are providing annual guidance.

As is typical in agriculture businesses, due to timing and the growing season-based nature of our business annual results are much more meaningful than interim results. Luca will give more detail of our thoughts on 2015 financial outlook toward the end of the call.

We are executing aggressively and efficiently on our growth plan. We continue to grow our Company at a rapid pace. From 7,300 acres at the IPO a little over a year ago we now have 46,500 acres at the end of 2014 and today including farms under contract we have over 68,000 acres with a market value well over $300 million.

In the first quarter, we closed on six acquisitions in four different states totaling 2,900 acres. We also for the first time during a first quarter used equity as a part of the consideration in a farm purchase. We believe this will become more common in the future.

We currently have under contract our largest acquisition to date. That's 15,000 acres in South Carolina, North Carolina and Virginia from a single seller. As previously announced, when we closed this transaction, which is likely to be in the next few weeks, we expect to recommend that our Board raise the dividend by about 10% to $0.51 per year.

Approximately 40% of the consideration in this acquisition will be in the form of equity securities. We view it as a very positive development that a large and sophisticated landowner was willing to take that large a portion of the purchase price in equity.

We have had many requests from investors in the past for more detail on our specific farms. To meet that request we have added a section to our website which now contains extensive information about the farms in our portfolio including detailed locations, aerial maps and soil maps. The conservative and stable nature of our business model continues to serve us well.

As discussed in the past a majority of our portfolio well over 85% for the 2015 crop year by expected revenue is rented under cash leases. All of our farms are rented for the 2015 crop year.

In the context of the overall agriculture market conditions we believe that this conservative business model is being proven out. Commodity prices remain low but supply and demand dynamics point toward a recovery in the next year or two. Corn has been above $7.50 twice in the last seven years and it will get there again.

It is important to remember that short-term changes in commodity price do not directly affect farmland value. Land values are in fact holding up. There are reports and surveys that some local markets are seeing modest price declines and we agree with that.

Some markets are flat and some markets are in fact still seeing price increases. As I've said many times before, farmland prices are a function of the three- to five-year profitability outlook for agriculture, not near-term commodity prices.

If farmer profitability does not recover with the 2015 harvest we would expect to see some more negative impact on land values. However, from our Company's perspective, we do not face many rent rollovers in our portfolio at the end of this year so we are largely insulated from downward pressure on cash rents until the fall of 2016.

Now I want to give you some insight into how we had value to our farms after we acquire them. One of the acquisitions we made in the fourth quarter of last year, the package of South Carolina farms we purchased in December for approximately $28 million, presented several opportunities for improvements. We worked very hard and very fast to implement these improvements before the planting season.

We added irrigation to over 2,000 acres, cleared timber on 190 acres and added them to the tillable base on that farm. We developed 22 irrigation pivots and 16 new wells to supply water to these new pivots. The total investment was $3.75 million materially improving that farm's productivity.

Significantly we were able to raise the rent on those farms after those improvements from approximately a cap rate at the time of purchase of 5.1% to a new cap rate including the value of the additions of 5.6%. This is only one of many examples where we work with tenants to improve the farms we own.

Another initiative I'd like to update you on is our volume purchasing program. After a pilot program for the 2015 growing season that involved a handful of tenants we are now seeking to enroll all of our tenants and multiple vendors for the 2016 crop year. We believe that we will be able to help our tenants reduce input costs for participating farmers by about $10 to $20 per acre in the first year growing over time to as much as $25 to $50 an acre depending on the crop grown.

We will do this by collecting the volumes than the information we get from our former network and then working with suppliers to streamline their supply chain so they can operate more efficiently and our farmers can get lower input cost. Over time this will improve our tenants' credit risk and deepen our relationships with those tenants.

During the remainder of 2015, we intend to continue adding to our portfolio, increasing the number of acres and tenants across the country. We also intend to begin gradually to add acres in the specialty crops arena.

With that I will ask Luca to walk you through some of the key operating and financial highlights contained in our earnings release. And then we will take questions you may have about this during the discussion and Q&A.

Thank you, Paul. In the first quarter of 2015 we closed on six acquisitions in four states, totaling nearly 2,900 acres. The highlight of the month's closings or the quarter's closings was our first acquisition using equity as part of the consideration as we issued 63,851 shares of common stock in connection with the acquisition of a Colorado farm.

From an acquisitions perspective in the first quarter we also put under contract a total of 19,093 acres with an expansion to two new states, North Carolina and Virginia. The acquisitions we put under contract either closed or expected to close in the second quarter, bringing us revenues for the full-year and include a significant equity component in the consideration.

During the first quarter we did not issue any new debt. After the quarter's close we issued two new bonds under the Farmer Mac facility totaling $26.1 million.

Both such bonds are 10-year interest-only at fixed rates of 3.68% and 3.69%. They increase meaningfully the weighted average duration of our indebtedness.

Now let me turn to our first-quarter 2015 financial results. As I cover some of the key highlights please refer to our earnings press release for more details.

For the first quarter we recorded rental income of $2 million and a net loss of $181,000. We received $6.5 million in cash rents for the 2015 year and all our properties are either rented or expected to generate rent revenues for the full fiscal year.

Like many other REITs we look at certain non-GAAP measures, particularly adjusted funds from operations or AFFO as additional measures of our performance. We calculate FFO, funds from operations, consistent with the definition provided by the National Association of Real Estate Investment Trusts. The key adjustments we make to FFO to arrive at AFFO are to recognize revenue in the calendar year in which the cash rental payment was actually received and to exclude non-cash expenses such a stock compensation and certain acquisition-related expenses.

Our AFFO for the first quarter was a $0.4 million. On a fully diluted weighted average basis AFFO per share was $0.04.

When we calculate per share non-GAAP measures on a fully diluted weighted average basis we include units in our operate partnership which is our main operating subsidiary because of their 1 to 1 parity with our publicly traded shares. On that basis our fully diluted weighted average share count as of the end of the first quarter was 9,689,471 shares.

As Paul mentioned earlier for the first time we are now providing guidance for the full-year ending December 31, 2015 as well as certain assumptions used in preparing our guidance. Our operating and financial performance is on track with management's expectations of AFFO per fully diluted weighted average share of approximately $0.58 to $0.62 for the full-year.

As is typical of agriculture businesses annual results are more meaningful than interim results. Accordingly first-quarter AFFO must be viewed in an annual context given that AFFO for the first quarter does not include one, revenues deriving from leases that provide for a rent payment determined as a percentage of gross farm proceeds which are typically received and recognized in the fourth quarter; two, crop revenues of our taxable REIT subsidiary deriving from custom farmed acres which will be received unrecognized in the fourth quarter as well; and three, revenues deriving from acquisitions closed or expected to close after the quarter's end.

The Company's estimate is based on the following key assumptions: total AFO revenues of approximately $15.7 million to $16.5 million; property operating expenses of approximately $0.9 million to $1 million; general, administrative, legal and accounting expenses excluding stock-based compensation of approximately $3.4 million to $3.6 million; interest expense of approximately $4.6 million to $4.8 million; and fully diluted weighted average shares for the full-year of approximately 11.69 million. Key investment assumptions include closing our current acquisitions under contract and acquiring $15 million in additional farmland in Q2.

This concludes my remarks on our operating performance for the first quarter. Thank you for your time this morning and your interest in Farmland Partners. Operator, we would like to begin the question-and-answer session.

(Operator Instructions) Dan Altscher, FBR.

Thanks, good morning everyone. I want to start first on a macro question and then more specific about the results.

But just from a big picture standpoint, Paul, I don't think you really have any material or any exposure to California. But with the drought there can you just give us some perspective as to how that might impact the farming industry whether it's at the farm level, at the property value level or at the farmer level?

Sure. So specifically we do not have any exposure to California in our portfolio at this time. So no direct impact on our Company or on any of our operating properties because of the water crisis in California.

Then thinking more broadly though about what that does to the nationwide farmland market, the crisis in California is fundamentally of two types. One is the near-term impact of a couple of very dry years which is exacerbating a series of long-term structural problems in terms of a lack of water in the southern Central Valley generally.

What we will expect to see in coming years is that the Central Valley of California will become a location where only the highest value crops are grown because the water will become more scarce and more expensive. Therefore, farmers will be forced to only grow the things that that climate -- there are certain crops that can only be grown in the Central Valley and they will continue to be grown there because that's the highest and best use of that land and the limited water.

What we believe that will do and we're executing with the recognition of this fact, it will drive irrigated farmland values or the values of Midwestern farmland up materially. Because all of the low value crops produced in the Central Valley today are going to have to find a home largely somewhere else in the United States that has abundant water to grow those sorts of crops.

Think our file for example that is still grown in substantial volumes in California. That production is going to move somewhere else. So we believe that these farms where

for example in the Southeastern United States and making major irrigation improvements to are going to significantly increase in value in the coming years due to the loss of irrigated land in a place like California.

Grade, okay, thanks. That's a very complete answer, so I appreciate that.

In regard to I guess the results, can you give us a little bit of an update on the capital availability? Currently you see I guess what's remaining of the Farmer Mac availability and I guess how that related to some of the guidance in terms of the I guess only $15 million of expected acquisitions in Q2. Is that just a function of capital availability or is there more stuff in the pipeline to think about for third quarter and fourth quarter which you just didn't include in the guidance?

Well, the pipeline is way beyond our capital availability. There's no limit to the good investment opportunities in front of us. But there are fundamental limitations on our capital and how much leverages we want to have in our portfolio.

So we are basically -- what we say in that guidance should be clear to everyone. The reason there's only $15 million more beyond what we've already contracted for in Q2 is that we have largely spent in its entirety the capital that we have raised in the past and we have spent largely as much of the debt capacity not -- it's not limited on what we can access, it's a limit on how much leverage we want in the portfolio. So we're really fundamentally closing in here on fully invested in every sense of that word given the capital we have today.

We are a REIT. We will obviously from time to time return to the market to raise capital and grow our business. That's our fundamental business plan.

Got it. Yes, that's loud and clear.

Then just thinking about the equity that's been used in some of these most recent deals, can you just maybe give us a little bit of flavor of how some of those negotiations work for the sellers? Were the sellers really eager to get equity or was there some trade-off here in terms of the terms of the prices -- we'll take some equity but we'll give you X a difference in terms of a price or lease duration?

Well let's separate this between the transactions. We did some smaller transactions within the neighborhood of 15% equity or so of the purchase price and then we've done this larger one recently which isn't closed yet but is about 40% of the purchase price is equity.

So in the smaller transactions with smaller equity amounts, what's fundamentally going on there is it is a less expensive way for us to raise equity to use it as acquisition currency as opposed to frankly paying investment bankers and others to raise capital for us. So we would like to push modest amounts of equity into many of our transactions when we can. We've made that pretty clear to sellers.

Sellers are smart and we're a new Company, they want to see us get into our second year of existence as a public Company. But we have started to have people, I won't say they're jumping up and down demanding that they get equity in a transaction. But we're actually not having very much trouble getting them to take modest amounts.

It will extend our ability to grow the business rapidly without returning to the market all the time. Obviously we're issuing equity that way. So we have to be cognizant of the prices we're issuing it at.

On the bigger transactions there is a bit more -- the first group I'll call it stretching our cash availability is really the approach there. On the bigger transactions, conceptually we really want to see equity get used in a lot of these large transactions. I doubt we'll do it in everyone we ever do but there is a fundamental sense of partnership when you get somebody to take that much equity and in a very large sale-leaseback transaction we think that is the right sort of principal position as an acquirer to be in.

So in that transaction we basically started from the standpoint that hey, we're not going to do this deal unless we get a substantial amount of equity into the consideration which we were able to accomplish. We certainly didn't pay more for the farm to get them to take our equity. That wouldn't make much sense at all.

So we frankly feel that since we announced that transaction it has been good for the Company's stock price. And frankly it's good for the seller because the stock price has moved upwards from the point of the time we negotiated the transaction. So it's frankly a win-win for everybody.

But there's two approaches depending on the size of the deal that we're taking. But the key takeaway is we're going to try to push more equity issuances into our acquisition transactions in the future because we think it's good overall for growing the Company in an efficient manner.

Thanks for that. And I just have one follow-up probably for Luca. Just with the new Farmer Mac bonds that were issued and maybe a little bit more, maybe the issue if there's another -- with the other transaction, the $15 million, can you just give us a sense of what your all-in weighted cost -- weighted average cost of debt is now?

I don't have that number at my fingertips right now. Of course by stretching to the 10-year -- old the cost of the various bonds is out there in the public domain. With the 10-year of course we are incurring a little higher interest cost of course but still leaving us at fairly significant margin so that the acquisitions are accretive of course.

Okay, thanks.

Dave Rodgers, Baird.

Yes, good morning guys. Paul, a question for you maybe first off on the $3.75 million of investments you said you made in the fourth quarter on that farm. So I guess it sounds like that was outside of the initial purchase price and I was curious a little bit on the return on investment.

It looks like it may be about 10% ROI on that spend. Do you see more opportunities to do that, am I right that it wasn't in the purchase price and I guess just the broader thought there (multiple speakers)

You are correct. It was not in the purchase price. As a general model when we make those sorts of tenant improvements the improvements that tenants are working with us to make but they're fundamental capital improvements to our property so we're paying for them, we would expect to get a 6%, maybe even a 7% return on the actual investments we make.

What bumps it to something like 10% is the following fact. When you add 190 acres that weren't previously farmable it really -- your return on those acres is almost infinite. You bought them, you already own them, you just took the trees off of them, you actually sell the trees and get some money for the timber and then all of a sudden you've got new acres you get to charge rent on.

So that's what boosts it. All of the farms, I wouldn't say all of the farms, but a great number of farms we own have an opportunity to make modest improvements in their productive capacity and get rent bumps over the first couple of years of ownership because of the improvements without regard to what the market's doing generally for farmland from our farmers.

And we'll do that -- we like to do it in a pretty disciplined way. This was a good frankly a good and easy opportunity, they're probably not all quite as big a bump in valuation and return as this one is. But we look for those opportunities all the time.

Okay, that's helpful. One of the things you disclosed in the press release yesterday I think was total rent per acre at 361 versus 360 in the same quarter a year ago.

It looks like that might have been total portfolio as opposed to what actually expired and had to be renewed in the quarter. So can you give us a breakdown or some more thoughts around that?

Yes, I believe that's how that's reported and here's what fundamentally is going on. The only rent rollovers we had last fall I shouldn't say only, I think there's one other one.

But the bulk of the rent rollovers we have were with my personal historic family farming operation and this is a function of when the Company was started. So virtually every lease we sign new is a three-year lease. The original pool of properties that I contributed to set up the REIT we took that pool of properties and divided them in roughly thirds.

The first third had a one-year lease on it, the second third had a two-year lease and the third group had a three-year lease to avoid a huge rollover of that original pool all at the same time. So the only real renewals we had last fall were with a related party. So what we gave was basically a 1% rent increase in an environment in which rents are flat to slightly down on that group of properties.

When you do the calculation as we released it across all properties it looks like $1 an acre. The rent increase was actually on each individual acre where the roll occurred somewhat higher than that of course.

And just to clarify that average rent per acre was on the same property portfolio comparison with the first quarter of last year, not across the entire portfolio.

Okay, yes, that's helpful. And Luca maybe a couple of questions for you and this will all get to guidance but in the first quarter, did you collect rents on all the acquisitions that you completed? Any of that bleed into the second quarter?

Yes, the acquisition completed, yes, we collected rent if there was any rent due. And the one, the acquisitions closed in the first quarter were all cash rents. So yes, we collected everything typically at closing.

And just to make sure we're clear were the rents that were collected in the first order did you recognize one quarter of the year's worth or did you only recognize the pro rata share in the particular quarter in the first quarter in terms of timing?

So from an AFFO perspective, we recognized the whole quarter from a GAAP perspective, is of course only pro rata for the portion of the quarter when we actually owned the property.

Okay. Then I wanted to go to guidance. You did about $0.04 of AFFO, you've guided to $0.60 at the midpoint for the year.

As you think about rolling forward the numbers you had said you got the acquisitions under contract plus I think you said another $15 million of speculative acquisitions in the second quarter. Does that get us up to that run rate? So what I'm essentially getting at is we go from $0.04 to $0.60 and how does that look and play out over the course of the year?

Absolutely, that projected AFFO revenue that we disclosed in the press release yesterday does include revenue deriving from all these newly closed acquisitions including this additional $15 million that we don't have under contract yet.

And that $15 million, you have funding for it as of today? You don't need to go get additional funding for that other than the (multiple speakers)

Correct. Correct. And also we assume that those $15 million of acquisitions will be all cash and that no equity.

Okay, great. All right, thanks guys.

Rob Stevenson, Janney.

Good morning guys. Just a follow-up on the guidance question, does the guidance reflect any additional debt issuance throughout the year at this point?

Does the guidance reflect any additional debt issuance?

Yes, yes in order to other the $15 million of additional investment capacity that we assume we'll deploy in Q2 a portion of that will be additional bonds to be issued under the Farmer Mac facility.

Okay. And are you giving guidance on that at this point as to what that debt amount is?

We don't go that much into detail, no --

We would expect it to be at rates and terms similar to the ones we've done recently.

Yes, exactly. It's going to happen here in the next couple of months.

And it's not going to be just that. We still have cash on the balance sheet.

All right. And then just a question on the sellers taking equity.

Are you guys forcing them to take stock rather than OP units? Because I would imagine -- I can't imagine why anybody would realistically want common stock over OP units when they could just be converted and exchanged anyway if they really wanted to sell the next day or whatever. So is that what you guys are doing or is that something that they're asking for?

When we refer to equity consideration it could be common stock in it could be OP units. Here's the decision tree from the standpoint of the seller, though. If you are a non-taxpayer you obviously would take stock instead of OP units because then it doesn't matter.

That's sometimes the case in an estate situation because their basis has recently stepped up. That if it is issued in the form of restricted stock it is going to have a six-month hold before it can be sold anyway.

The other reason someone might take a stock over an OP unit is if they have only owned the farm for a modest period of time they don't have a lot of tax advantages to taking an OP unit versus a common stock. We as the Company are fundamentally agnostic between the two. It's really from their tax perspective whether we're given -- whether we're using OP units or we're using restricted stock as equity because from our perspective those two instruments have exactly the same value to the Company from a dilution and dividend and everything else standpoint.

Okay. And then are you guys providing the sellers any protection on that? Caps, collars or anything in case the stock dives or goes dramatically up during the time between your negotiation --

In the small transactions generally no. In the larger transactions there would generally be some sort of collar in that regard but in the small ones no.

Okay and then just lastly, Paul you said that you'd likely expand into specialty crops this year. Do you have any of that under contract and could you talk a little bit about where you're thinking at this point?

We do not currently have any of it under contract. Our perspective is that the value of specialty crops in the overall portfolio is the following.

When I say specialty crops think of vegetables, think of almonds, think of table grapes, things like that. Those products trade on a slightly different cycle than the traditional row crop commodities corn beans, soybeans, corn beans sweet, things like that trade differently than the direct consumption food products.

So we think you will dampen volatility of the overall portfolio by blending some of that in. As individual crops those specialty crops tend to have higher risk and somewhat higher cap rates to compensate for that risk. So our perspective is that our portfolio over time would be in the neighborhood of 20% to 30% specialty crops.

The crops we believe seem to make the most sense are the ones with growing demand on land that if for -- one of the big risks with specialty crops is that if the consumer demand changes can you convert that property to some other use? So we tend to look for properties where if we had to convert it to some other type of crop it can easily be done with not a significant loss of value.

That's one of the problems with the California market is that the pricing per acre is so large that if you lost your specialty crop opportunity and had to go to a more traditional crop on that land you would be seriously hurt from a financial point of view. Whereas if you bought something that has the ability to do blueberries or raspberries or whatever in the upper Midwest or in the Southeast what you would find is that if you had to convert it back to a cornfield you will take a valuation hit but not a very significant one. So I think you should expect to see us come into that marketplace at the lower risk end of the curve and gradually build from there because we just think it's prudent.

Okay, thanks guys.

(Operator Instructions) Paul Adornato, BMO Capital Markets.

Thanks, good morning. Can you talk a little bit about geographic exposure and are you in all of the locations that you'd like to be? In those locations do you have critical mass where you can operate efficiently or offer economies of scale to your tenants?

Yes, so there's a couple of different questions there and let me take them one at a time. So in terms of expanding our geographies we're today in I think 10 separate states and we will certainly expand.

We do not have any exposure today in the far eastern portion of the corn belt and there's some very good land, and very good opportunities and what I would be talking about are Ohio, Indiana, Michigan. The valuations there never got as high and aggressive as Illinois and Iowa did.

We would certainly like to expand into that region. Great locations for long-term agriculture production. So that will be an area of expansion.

We will continue to build in the southeast. We don't own it any properties say in Georgia today or the northern half of Florida. We will probably get into those markets and that's an area of focus for us, has the same characteristics of good water and good opportunity and high basis for the crops as well as specialty crop potential just like the Carolinas and southern Virginia have.

Obviously we have a good base in the delta as you all know. We will likely try to expand into northwestern United States, think of that as Idaho, Oregon, Washington. Generally speaking that area is a mixture of both specialty crops and a lot of wheat ground.

We would like to do both of those types of investments in that region and that is also a pretty strong area of focus. What I've notably left out is California. My assumption is that we will eventually own properties in California.

We're frankly a little nervous about that market. There are some very interesting advantages, though, that come to us as a buyer given the water crisis that's out there right now. So if we found the right opportunity we would invest there.

And what I mean is as a buyer, the advantage you have right now is if you had invested in California like many others did three or four years ago you would have gone and looked at two properties and you would have thought both of those properties after appropriate due diligence had great water rights. Well, a whole lot of people who put money into California agriculture frankly have realized that the water right they think they had isn't very good. And today when you go there you can actually tell who really has a good water right.

The facts are obvious. So we are studying the region pretty carefully right now because of that but for all the reasons we discussed earlier in one of the questions pretty cautious about the market overall.

The second part of your question was critical mass. We are absolutely achieving critical mass and we're frankly achieving that pretty much nationwide now which is why this volume buying effort has really taken off for us.

We estimate that our farmers farm overall in the neighborhood of around 300,000 acres, not just the 68,000 a farm for us. But we're not their only source of land for most of our tenants. So we've actually done a little bit of work trying to understand that and that is a huge scale of US agriculture which we believe will be to this sort of volume purchasing benefit for all the tenants in our network.

Okay. And just as a follow-up what's your exposure and what's your thinking on irrigated lands versus non-?

Well, we actually have quite a bit of irrigated land today but you got to separate the irrigation question between irrigation that's in the relatively dry regions of the country where the irrigation is fundamental to the ability to produce as opposed to irrigation in the parts of the country that are frankly reasonably high rainfall. And that's anyplace that's 30 inches a year or above, which is everything east of the Mississippi and frankly all of the first row of states west of the Mississippi are all plenty of total rainfall for the year.

So we don't have a lot of exposure to irrigated properties in the west because of the risk of running out of water. We have some but it's a really low percentage and for example in our eastern Colorado area I don't have it right at my fingertips but I would be shocked if we've got 10% of that portfolio is irrigated land. It's probably even less than that.

It's dryland and that's what we think is appropriate in that region and you pay dryland value for it. The irrigation we have near the Mississippi River or east of it fundamentally enhances production and really can boost return but you don't in a place like the delta or the southeastern United States literally with almost as much as 50 inches in many of those areas of rainfall per year running out of water is not an issue.

It's just -- what irrigation does for you is it gives you water at exactly the right time. So without irrigation your production would still be pretty high, it just goes sky high with irrigation.

Okay. Got it. Thanks for that.

At this time I show no further questions. I'd like to turn the conference back over to Paul Pittman for any closing remarks.

Great. Thank you very much. We appreciate your continued interest in our Company and look forward to updating you on our activities and results in the coming quarters.

If anyone has any follow-up questions later, feel free to reach out directly to Luca or myself. Thank you very much.