Farmland Partners Inc (FPI) 2017 Q4 法說會逐字稿

Good day, and welcome to the Farmland Partners Inc. Fourth Quarter 2017 Earnings Conference Call and Webcast. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Mr. Paul Pittman, Chairman and CEO. Please go ahead.

Thank you, Austin. Good morning, and welcome to Farmland Partners Fourth Quarter 2017 Earnings Conference Call and Webcast. We appreciate you taking the time to join these calls because it gives management a chance to share our thinking and our strategy in a format less formal and more interactive than public filings and press releases.

During today's comments, I will be speaking to both our supplemental -- Q4 2017 supplemental and to the Q4 2017's earnings call slides. You can find those 2 documents in the link with the webcast or in the Investor Relations tab of our website, but if you can have those handy, it will make the presentation more meaningful.

With me this morning is Luca Fabbri, the company's Chief Financial Officer; and David Ronco, Vice President of Capital Markets.

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

Thank you, Paul. I would like also to welcome everybody on this call, and thank you for joining us today. The press release announcing our fourth quarter earnings was distributed yesterday evening. A replay of this call will be available shortly after the conclusion of the call through March 16, 2018. 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, March 2, 2018, and have not been updated subsequent to the 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 will also discuss certain non-GAAP financial measures, including 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 fourth 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 March 1, 2018.

Listeners are cautioned that these statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations, and we advise listeners to review the risk factors discussed in our press release yesterday after market close and in documents we have filed with, or furnished to, the SEC.

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

Thank you, Luca. This has been a year where our underlying business performance and asset values have held up reasonably well. It's fundamentally an okay year from the operating business perspective. However, it has been a dismal year with regard to our stock price. It's hard fundamentally for us to understand that disconnect between private market values and public market values. Nevertheless, it certainly exists in a substantial amount with regard to our company. The asset values have held up despite decreases in primary commodity prices. That is as we would expect. That is similar to what has happened historically. There's no reason to think that will not continue to be the case. During the Q&A, if anyone has further questions about that and why that happens, happy to discuss it.

The AFCO assets, we acquired in the acquisition last February, are performing quite well, and as expected, they have provided the diversification both in terms of cash flows and in terms of different markets as it relates to underlying asset values that we expected. We are quite pleased with that acquisition. I'm now going to address those slides that I mentioned earlier called Q4 2017 Earnings Call and Webcast Slides. And I want to go -- what this presentation covers is a couple of things. Historical performance of the company on some key operating metrics as well as summary of a couple of important pieces of USDA data that are often quoted in the press yet fundamentally misunderstood.

So starting with Page 3, which is the key operating metrics. The point of this page is to give some historic perspective to what we've accomplished in terms of the company and the development of a meaningful scale as a farmland REIT. So when we went public in 2014, we had approximately $200 million of assets. Today, we have approximately $1.2 billion of assets. Fundamentally, very, very rapid growth in terms of our asset base. Total operating revenues from 2014 were $4.2 million. They finished 2017 at $46.2 million and 2018 guidance would indicate approximately $60 million in 2018, again, incredibly rapid growth in terms of our revenues.

Adjusted EBITDA went from approximately $2 million in 2014 to $33.7 million today. AFFO went from under $1 million in 2014 to $13.3 million today, and AFFO per share, of course, went from $22 million, now up to $36 million with some declines from 2016 to '17, which, of course, none of us are happy about. But the key takeaway from all of that is that for a company to be public, you must achieve a meaningful scale to defray incredibly expensive overheads of the company related to the public listing and in particular, the accounting surrounding that listing. At the bottom of the page, if you look at the ratios, what we've accomplished is very obvious. We track our expenses in the company in 2 different ways, basically a bucket of expenses we really can't control and then a bucket of expenses we can control.

The can't control group is fundamentally property taxes. It also would be insurance on assets and things of that nature. Those numbers are going to be reasonably stable through time, every time we add more assets, property taxes go up, insurance goes up. In particular, if you add specialty or permanent crop assets, your property taxes and your depreciation will increase substantially compared to traditional row crop, but you can see the effect of adding AFCO has kind of raised our percentage of revenues going to property taxes and property operating expenses.

But turning now to the controllable expenses, what we call in this presentation all other operating expenses, we have steadily driven all these controllable operating expenses, starting at about 73% of revenues in '14, now down to around 22% of revenues. And if you project forward in a teen, looking at the guidance that we have in the supplemental, you'll see that go below around 15% in the 2018 year.

As a percent of total assets, we've gone from about 1.5% in 2014, now down to just under 1%, 0.9%, in fact, of operating expenses to total assets and we would expect that to continue to decline next year to the range of about 75 basis points. The takeaway here is that we have grown a very large company relative to the space. It's obviously still small relative to The New York Stock Exchange overall, but what that has done for investors and for the metrics in the company despite the fact the market doesn't understand it, is to put us in a position in which we are incredibly efficient managers of a large pool of assets, and we expect those efficiency gains to continue.

Now moving to the rest of the slides in this page. All of them basically address the following question. And I get this question from investors from time to time, in phone calls. How can it be possible that I just read in the Wall Street Journal about incredible declines in farm income or that farmers have to have off farm jobs to support their farming habit, otherwise the industry will collapse. How can those articles be true? And at the same time, we're not seeing or are not going to see massive declines in farm land values?

So what I wanted to cover is I went through a lot of the statistics often cited by these reporters in the Wall Street Journal and other places and I actually dug into what those -- what they were citing and what those statistics actually mean. So the first slide, which is on Page 3 looks at what's called U.S. Farm Income. And you often see quoted in the newspaper, the blue line on that page called Net Farm Income and it says things like net farm income declines for the third or fourth year in a row or net farm income is down 20% from the prior year or 30% or whatever.

The fundamental issue is that the reporter is citing the wrong statistic. If they ask somebody at the USDA what statistic they should cite to be representative of farmer incomes, they would be told to look at the red line, the net cash income line. The blue line is fundamentally put together by the USDA to be something that is included in the GDP for the nation calculation. It is not meant to be directly representative of the cash income of farmers. It does not take into account transfers of cash from year 1 to year 2. It doesn't take -- it takes into account depreciation and especially aggressive formula. It's just not put together to be used the way the press uses it. The number they should be referring to is net cash income. As you can see, net cash income has not declined anywhere close to the amount of net farm income. This is why you're not seeing fundamental distress in the countryside.

If you go to Page 4 and you look at U.S. farm net cash income inflation adjusted. The takeaway, and this is a long series of data. Of course, it could go back to 1970. It's presented in 2018 dollars. What this shows you is the incredibly high profitability of the 2012 to 2014 time frame was the unusual event. What we are experiencing today is largely in line with the long-term history of agriculture. Well, agriculture has not spent very much of its history in the last 50 years or so in difficult times in terms of asset values or farmer bankruptcies. And as long as we continue right where we are, we are not going to see broad-based distress amongst farmers. We are in a zone that is like much of the last 50 years. And with the exception of a few years in the mid-1980s, it has been pretty good time for production agriculture.

Turning to Page 5 and this one always shocks me the way the data is recorded, but it's really, again, very important. The USDA calls anyone who produces, who has the potential to produce $1,000 a year of gross revenues, a farmer. So if you have a garden in your backyard and a little stand out by the road selling vegetables and you have the potential to sell $1,000 worth of vegetables in a year, you are called a farmer under the USDA. When you ask the USDA, why do they track it down to such a low number, what they tell you is they've been tracking this data for a long time. They are trying to cast the net as widely as possible, but at the same time, they want a long-term linear comparability, so they do not move the starting point of being qualified as a farmer and haven't moved in a long time.

However, for sophisticated consumers of this information, they do parse the data into a more meaningful divisions, and that's what you see on Page 5. To be a real farmer, meaning a full-time farmer, what you would need to do is to produce at least $250,000 a year of gross sales and in many -- people would say it has to be at least $0.5 million. And if you look at the fundamental economic results for that average farm, you see that they are actually very strong. For the bucket that says $250,000 to $500,000, those farmers are making on average around $100,000 a year from their operation. If you look at the group that is $1 million or more, you will see that, that group on average, which of course includes people that have tens of millions of sales, they might be making in the neighborhood of $650,000 to $700,000 a year. Again, this is what the popular press talks about subscale farmers and the difficulty those subscale farmers face. The true economic picture of our tenants is actually much, much stronger.

Page 6 sort of just repeats the same thing. So I won't go over it.

Page 7. 7 looks at long-term land values in U.S. farm land including buildings. There is a statistic for cropland only, which is similar, but this one has a longer dataset, so it's the one I use. What you will see here is that long-term appreciation returns to farmland are between 5% and 6%. You can parse this data with rolling 7-year period analysis and you still get largely the same result, except for that mid-1980s period. The takeaway here is that the market does not give us any credit whatsoever it appears for the long-term appreciation of our underlying assets, which is in fact, not true. Our assets are appreciating, albeit slower than historical rates. Our view is that they will continue to appreciate and that, that value should be ending up in our stock price, but it, of course, is not at this point in time.

If you turn now briefly to the supplemental, I want to point just a couple of things out on this page or in this document. This is in the -- this -- the document I'm referring to now is the Q4 2017 Supplemental Package, also available in the link for this conference call. If you would turn to Page 15, you will see that we have issued guidance for the 2018 year, guidance is reasonably strong. Top line revenues go to approximately $60 million. AFFO midpoint of approximately $0.42 a share. The -- one other point that I want to also emphasize on this page because I don't want people to miss it, is that everyone should read Footnote 3 carefully. What Footnote 3 says is that we will experience somewhat more seasonality in our AFFO -- in our reported AFFO than we have experienced in the past.

What this has driven fundamentally by GAAP revenue recognition rules and our -- we're required, of course, to comply with them, and so we get an ever-increasing back-end loading of our revenue stream, even though the expenses for the year are taken as the quarters come. The key big driver that is making this situation different between '17 and '18 is the large Olam transaction that we did, we'll unfortunately have 100% of the revenue from that asset recognized in the fourth quarter. We have tried to negotiate with accountants to get that changed, but frankly, we're unable to. So I do want to point that footnote out so no one is surprised.

Page 17, let's look at it for just a second, is a buildup of net asset value of the portfolio using cap rates. I want to draw everyone's attention to the fact that we have begun this year to present this on a backward looking as opposed to forward-looking basis. In 2017, we presented it on a forward-looking basis because of the large AFCO acquisition. It was sort of meaningless on a backwards looking basis, but it is more traditional amongst REITs to present it backward looking. So now that we have the AFCO acquisition behind us, this presentation is on a backward-looking basis. If you run the calculation through, it would lead you to a high $12 per share net asset value.

Then the final point, that I would like to make before I turn it back over to Luca, is that I want to make sure that all of our investors do understand despite what I have said, that we take quite seriously the difficult stock price performance for the year. We do not -- we are not pleased with this. We are not happy with this. I frankly look at it as an opportunity. I look at it as an opportunity to personally accumulate more shares in the company when prices are below fair value. I certainly look at it from the company's buyback perspective as an opportunity. But the point that I wanted to emphasize is that both Luca and I took in the 2017 year substantial reductions in compensation. We did not have these reductions forced on us by our comp committee. We offered them. Neither Luca nor I took any cash bonus in the 2017 year. You'll see this when our proxy comes out. And we will both took, in my case, approximately a 30% or greater reduction in total compensation, and in the case of Luca, 20% or greater.

We want everyone to understand that we are in this for the long term. We are focused on fundamental value. We do not get nervous because some commentator on Seeking Alpha, who frankly doesn't have the courage even to use his own name, criticizes our company. None of that matters to us. We buy the farms that farmers want to rent, and we will continue to own them and create value through that process.

And then a final comment, because I know it will come up. The company's perspective on the dividend. If you read the press release announcing the dividend, we made a clear statement there that we are not cutting the dividend. We are not going to cut the dividend during this calendar year. We're not likely, frankly, to cut it next year, but we'll leave ourselves the flexibility to discuss that again. Our perspective is that we have issued securities to farmers in particular, who have taken our securities in return for their farmland. And it is fundamentally unfair to that group of people to cut that dividend. They sold us those assets with an expectation of a certain dividend payout. We did that deal with them. We, of course, would cut our dividend as the board of this company, which I'm the Chairman of, would cut the dividend if we were forced to, but we have no intention to cut this dividend as a tactical matter.

The shortfall in dividend distributions is under $5 million. The appreciation on the portfolio is well in excess of $20 million each year, if not more. We are not issuing stock to pay the dividend, which is something I read in the chat room from time to time. What we are doing is we are fundamentally distributing part of that appreciation before we actually fully realize it in an accounting sense on our balance sheet. But we are going to maintain this dividend and that is our firm intention within the company. The only thing that will lead us to cut that dividend, it would be true financial distress inside the company, which required the dividend cut, but we don't see that happening.

With that, I'm going to turn it back over to Luca to make some comments on the key operational and financial statistics. Thank you, Luca.

Thank you, Paul. I will walk you now through some of the key financial highlights for the fourth quarter of 2017 as well as regarding the full year 2017. Revenues in the fourth quarter were $15.6 million, which is a 17% year-on-year increase on the same period in 2016. For the full year, they were $46.2 million or a 49% increase. Operating income was -- in the fourth quarter was $10.2 million, a 22% year-on-year increase on the same period in 2016, and $22.5 million or a 44% year-on-year increase for the full year.

Now I would like to draw your attention to the fact that in 2016, especially in the fourth quarter, in relation to the termination of some certain lease agreements that we have with some of our tenants, we accelerated the recognition of revenues that would otherwise be recognized in 2018 and '19 largely, and a little bit in 2020. And also we recorded some one-time revenue. And therefore, once you take that into consideration, the year-over-year and period-over-period increases will be significantly higher, even better than what we have effectively recorded.

Basic net income available to common stockholders was $0.08 for the fourth quarter and $0.03 for the full year. Now I would like to draw your attention as we are about to mention some non-GAAP measures, please look at the press release and our other filings for FFO, AFFO and other non-GAAP measure definitions and reconciliations. AFFO per share was $0.16 for the fourth quarter, $0.36 for the full year. Also, however, in addition to what I mentioned before regarding revenue recognition in 2016, please note that in 2017, we did issue a preferred equity. We are -- so the full cost of that preferred equity, meaning the dividend is reflected in the AFFO. However, virtually no positive impact from any purchases made through that -- the proceeds of that preferred issuances are reflected in our 2017 performance. Roughly, the impact -- the negative impact on -- of the participation preferred on our AFFO performance was $0.06 for the fourth quarter and $0.09 for the full year.

Also, in the fourth quarter, we repaid about $60.4 million in preexisting debt that it come to expiration, but we also entered into an $80 million credit facility with Rabo AgriFinance and we have drawn so far $66.4 million out of that facility.

This concludes my remarks on our operating performance for the fourth quarter of 2017 and the full year. 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) Our first question comes from Collin Mings with Raymond James.

To start, maybe just, Paul, can you just expand on the acquisition activity here to start the year? Clearly, still making some acquisitions in the market. Just maybe update us on what you're seeing and specifically what you've been buying?

Yes. So what we've been buying in -- with of course, the Olam transaction, which is fully out in the public domain at this point was acquired and closed in the fourth quarter of last year. We have continued that acquisition path and using the money that we got from the preferred offering, were relatively high cap rate acquisitions either in specialty crops or in sort of unique opportunities within the row crop area. Given the coupon on that security, we've got to keep cap rates certainly in the high-5s to have it make sense. So we've continued to do some expansions. What we're seeing in the marketplace is an occasional opportunity to acquire something -- that something we perceive as a relative bargain. That almost always comes in a sale-leaseback context where a farmer wants to sell something, but wants to continue to operate it. What they're doing when they do that, of course, from an -- in terms of a pure asset value basis is they're shutting themselves off from a major portion of the potential buyers, meaning their competitors. And so we're able to, from time to time, to get slightly better cap rates and slightly better deal opportunities in terms of asset price when we do that, and that's where we're spending the bulk of our efforts and our monies at this point in time.

Okay. And then if I were to interpret your prepared remarks and kind of the acquisition activity here year-to-date, should I be thinking about another $35 million-or-so of acquisitions, kind of (inaudible) guidance that haven't already been announced?

It's probably something less than that. Let me refer you to something. It will help you interpolate probably a more accurate answer. If you went to our supplemental document, I believe it's Page 16, shows a revenue bridge from this year's revenue to next year's revenue, '17 revenue to '18 revenue. You will see that there's a section of that called, Anticipated '18 Acquisitions. You can extrapolate because you kind of know what our cap rates are, how much -- how many dollars we will spend, so the number you cite it's probably a bit high.

Okay, okay. And then I guess just as we think about acquisition activity and Paul, you made some comments about just the deep discount to NAV, that the stock currently trades that. Just maybe, how much dry powder do you feel like you guys have for additional acquisition activity? And how do you balance that against maybe jumping back in the market and buying back some more stock?

We have in the neighborhood of $20-ish million of dry powder, something like that, give or take a little. And we basically will evaluate at all points in time whether we have better acquisition opportunities or whether our stock is now at such a discount that we should be devoting our dollars to buybacks. We, of course, as you all know, have a buyback authorized. And we're all -- we're so often in a closed period, it's frankly a little difficult to execute on the buyback because of the rules that we face in terms of closed periods. But when you look at this mathematically, what you would see is that we've got a dividend -- to the payout ratio today against stock price that's in the mid- to high-6s, occasionally has pushed as high as 7 and you have the opportunity to buy the pool of underlying assets at something like 30%-or-greater discount. A very few -- I made this comment last quarter, there's no where you can buy farmland at that big a discount in the private market. That opportunity just doesn't exist. So buybacks are compelling to us, although the counterbalancing factor is we really are trying to grow a big company. You heard me discuss how we've driven our cost ratios down very aggressively. And whenever we buy back stock, you're actually reversing that trend a little bit because we run a tight enough ship, as long as we're still public, we're going to have roughly 15 employees. There's no way to get any skinnier than that. So there's a lot of kind of countervailing factors. We evaluate it every day and try to figure out what the right thing to do is.

Okay. Two more from me, and then I'll jump back in the queue, but just on the debt side, 37% floating rate debt to end the year. Just any plans on reducing that? Any progress reducing that thus far in '18?

No. And I doubt we will reduce it. I mean, everybody always wants to say reduce your floating rate debt, but go look at historical table of floating rate versus fixed rate, and the guys that said go all fixed have been wrong every single year for a decade. And so we don't want to be all floating rate debt. It's too much risk attached to that, but we think we're pretty close to the right ratio of floating versus fixed through time. The yield curve is extremely steep in those early periods, as you all know. And so we think that while there's some risk attached to it, maintaining some level of floating rate debt has the -- it may increase our interest cost through the year, but the alternative is just to increase the interest cost right now. And when you compare those 2 things, there's a trade-off certainly the historical fact is people have been better staying on the shorter end of the curve, so we'd likely to stay about where we are.

Okay. And then again last one now, I'll jump back in the queue. Just looking at that Page 16 of your supplemental, there is some organic growth as kind of doing that bridge, between '17 and the midpoint of '18 revenue guidance. Maybe just talk about the areas that you are seeing some pricing power in as you're doing some leasing activity. I think in the press release or in the supplemental, you made reference the row crop same-store being down about 8% last year, but may be what regions are you seeing some pricing power in right now?

We're actually seeing pricing power, but frankly, somewhat surprisingly in virtually every region in the country. The leases that we are rolling from '17 to '18 even in the row crop territories are generally up. There are a few difficult, very difficult locations for us, Nebraska, for example, comes to mind because it's a completely corn-oriented marketplace largely, basis levels, meaning discount to Chicago Board of Trade are pretty high. So we feel some pressure, broadly speaking in the High Plains. Colorado would be similar to Nebraska. But most of the rest of the market, we were able to extract some level of rental increases. In Illinois, for example, we largely were able to increase rents when we rolled leases this year. What's driving that is -- are those statistics from the USDA that I pointed to, the popular narrative you see in the press about sad sack farmers going broke is just factually untrue. Those are human interest stories about subscale farmers masquerading as economic analysis on the front page of the Wall Street Journal. But they're wrong and a lot of people in the world have made quite a bit of money for themselves and their shareholders by ignoring that sloppy analysis, and that's frankly what we intend to do. Let me go back to organic growth just for a second though, if anybody is looking at that Page 16 because I pulled it up while I was talking. There's really kind of 2 pieces of organic growth. There's just the rental increases, that's what the 951,000 represents, that's roughly 2% increase in rents on the assets we already have. The other thing that's sort of like organic growth is the revenue-generating capital expenditures of about $1.1 million that you see there. The revenue-generating capital expenditures will be incremental additions to a property we already own, whether it's grain storage, drainage, irrigation. We usually can achieve cap rates on those additional incremental improvements of something between 6% and 8% cash return on the investment we make, which is almost always higher than the cap rate we have on the underlying farm, certainly in the row crop areas, that's true. And then on top of that, we usually have some sort of crop share, so if the improvement makes an increase in the yield expectation on the farm, which it almost always does or why would you be making that improvement? We usually get some additional benefit over and above the cash return from increased yields and/or profitability in the case of grain storage from having made that improvement. So those are -- you take those 2 things together is -- broadly speaking is the way to think about kind of organic growth and it's pretty beneficial over the long term to make those sorts of improvements. Collin, you had one other thing I just want to address, forget where it was cited, but I know the statistic you're referring to. Same-store sales calculation for our company, '16 versus '17, was down around 8%. That is way less than the market priced us at or expected us to experience. If you -- when we came out with guidance last spring, you would read things what people thought we might see a 20% or 30% decline in same-store sales. 8% is frankly not very much. What -- that is entirely on the basis of basically a grain production-only portfolio. Because remember, the way same-store sales works, it's based on the 2016 era portfolio, that's what you're really measuring against. And in 2016, this company was virtually 100% row crop with a relatively high weighting toward the Corn Belt itself. So what -- none of this surprises us, but it seems to be lost to the market. We experienced 50% reduction in commodity prices and we experienced an 8% reduction in rents and almost no reduction in asset values. That's how this market works. It's exactly what we expected to see happen. You do not see revenue per acre and certainly asset value per acre whipsawed nearly as aggressive as commodities. This is why we frankly want to own land instead of on the commodities themselves because of the stability. So thanks, Collin. Anybody else have questions?

Our next question is from Dave Rodgers with Baird.

Paul, I appreciate all your comments about the dividend during your prepared comments. I wanted to maybe tie together, kind of, where the dividends at and kind of when you expect to get the coverage? And I guess, I mean there's a couple of issues. One, you're getting about that 2% to 3% same-store growth that you're talking about. So do you see, one, that accelerating to get to the dividend? And then two, maybe can you talk about kind of what the development contribution from the AFCO assets is, because outside of that, it seems like acquisitions will be the only incremental, really ability to drive that number higher?

Yes. So we are still in a -- we are -- we have -- our portfolio is 75% row crop roughly on an asset basis and about 25% specialty and permanent. On a revenue basis, it's a little closer to sort of 2/3, 1/3 as opposed to 75-25. We are still in a somewhat difficult environment in terms of rental rate increases. The rental rate increases that we would expect would be on average 3% to 4% a year portfolio wide. We're not achieving that. That's the long-term historical trend, not driven by grain prices, by the way, fundamentally driven by increases in yield and increases in efficiency, meaning scale on the part of farmers, that's what drives revenue per acre price of the crop, but it's the production of the crop. We think we'll return to that. When? I don't know. If you track what's called commodity carry out, which of course, we do, you have roughly, in corn, for example, a 2 billion bushel carryout. It's a little over 2 billion. Most people think about a line right around 2 billion as the sort of definition of when you go from somewhat bearish to somewhat bullish. All it takes to drop below 2 billion bushel carryout would be a bit of a weather issue in some major growing region in the world. What you've seen in corn price and soy bean price here in the last month or 2 suggests that, that may be getting set up this year, but who knows. So like I said a few minutes ago, that's why I don't trade commodities in my own farmland. We do believe we'll revert to that long-term mean of 3% to 4% rent growth, but exactly when, don't know, but it'll happen. I'm pretty confident. So we think we'll get to a dividend that is covered by the cash flows of the company. Our internal perspective would be, during the 2019 year, is sort of our goal. But I do want to amplify the point and this is an incredibly important point and when I talk to many of our shareholders today are retired farmers. They are people who understand the asset, been around the asset. At some level, Dave, we don't have an uncovered dividend. What we have is an uncovered dividend if you only measure the current yield of our portfolio. If you look at the appreciation of the portfolio, which is an incredibly important component to any investor in Farmland, it is always, will be and always has been roughly half of the long-term return story. We didn't -- we look at the appreciation on the assets we already own. You had more appreciation than you had negative cash flow on a dividend distribution. And the asset class being so land-oriented, meaning fundamentally just a ground lease, that is easy to forget because it's not necessarily the same for the rest of the real estate asset classes, although you do have some appreciation particular -- particularly in central business district, office buildings and things like that. But we are focused on getting back to cash flow coverage of the dividend. But what we really are the most focused on is long-term value creation. And the liquidation value of this portfolio is frankly going up and going up at reasonably significant rate as we speak. And we're going to keep our eye on that ball all the time as frankly, the primary factor that drives us is the long-term value creation on the underlying portfolio.

I would tend to agree with that. And I guess, I would just say from a long-term appreciation standpoint of the stock price, obviously, not covering the dividend for multiple years and maybe you do get there in a 1.5 years, that is something that will limit that appreciation and given that, that's an important component to you and your investors. It's something worth considering. Can I ask again about the development assets? And just kind of what your projection is for kind of contribution from development? How are those coming along over the last year since you've (inaudible) .

Yes, so we've got -- so we have a set of assets. A quick history for everybody that may or may not know the context of the question. When we acquired American Farmland Company, a neighborhood of 30% of those assets were in development of some form or fashion, meaning that they were being converted into permanent crops, trees were being planted and irrigated and fertilized. And that development cycle is 4 to 5 years, depending on the crop. This year, we will add a couple more farms into the cash flows late in the year. They're not making huge contribution yet because the first year, they are "in commercial production." Those farms tend to be barely in commercial production, but they are breakeven or better. And then it gets -- again, depending on the crop, about 10 years after you plant something is its high production, high growth years. And so we would expect it to gradually ramp for us over time. But it is a percentage of the portfolio, David. It's small enough today that the real driver of organic revenue growth is going to be getting back to long-term rental rate increases on farmland. I think we're actually -- we've found the bottom on that, and we're starting the trajectory back up, that's what we're experiencing in our rent rolls now. And I'd be hopeful that in the next year or 2, we get to more rapid rent growth on the existing portfolio as well as a little additional help from these new properties. But again, the new properties today as a percentage of our portfolio are small enough that they don't massively move the dial. It's a few hundred thousands of extra revenue, not millions.

Got you, okay. And then last, you said you have 20 million in capacity remaining. What do you and the board, and what's the discussion been in terms of when you run out of that capacity? What's the next option for continuing that growth pattern of the company that you've talked about?

Well, we would certainly like to grow. I mean, I -- my entire career has been about increasing asset scale and the efficiency surrounding that in terms of agriculture. But the reality is I'm a 6.5% owner of the company's equity. We're not issuing equity at this price. We're going to -- we'll stop growth when we have to. I don't like that, but we're not going to issue equity at this price, that's ridiculous. And people want to sell me their equity at this price, I'm happy to buy it, go look at the Form 4s. So I don't know, whether it will grow or not. Now the good news is, we have achieved the scale already that makes us a pretty efficient manager of a large pool of real estate assets, and we were very dedicated to getting there and getting there quickly, which now gives us the optionality of standing still from a growth perspective for a while, if it takes a while for the market to figure this out. So that's -- I mean, I don't know -- we may not do a lot of acquisitions this year beyond that dry powder. Stay tuned, watch and see what happens to the stock price. There are other alternatives to consider, joint ventures and the like, but we're -- we know what we own and we know what it's worth. In particular, I know what we own and I know what it's worth. We're not selling it cheap. We're not going to engage in a window dressing process for Wall Street. We have great value in our assets. And if we have to hunker down and stand still for a year, we will. Markets going to figure this out and that roughly 10% shorts that are in our stock are going to get killed, and I'll be cheering the day it happens.

Our next question comes from Rob Stevenson with Janney.

Paul, can you talk about the soybean exposure in the portfolio? And whether or not there's any percentage participation there that would be impacted if this trade war continues to -- with China continues to get kicked off and if they do anything with soybean imports in there?

Sure, sure. So first, at the general level, Rob, for everybody else's benefit, we certainly do not want to see a trade war surrounding NAFTA or with China or otherwise, get going. Farmland and farming is one of the exports -- positive export stories of the United States. It's one of the few positive contributors to our trade balances around the world. Fundamentally, free trade is good for production agriculture. So that's what we want to see happen from an industry perspective. The only -- there's not a great positive history for countries on either side on food-related trade wars. It hurts the economy of the exporter and it makes the people of the importer hungry. So there's a lot of reasons, I think, we won't get there, although it has happened on occasion in the past. So that being said, not to our specific exposure, most of the places in the country where soybeans are grown as a significant portion of crop rotation would be cash rent markets for us. The core of the Corn Belt is largely a 50% rotation between corn and soybeans, and that's almost entirely a cash rent market. In the delta, meaning Arkansas, Louisiana and Mississippi. And you guys can look in the supplemental at kind of our percentage exposure, probably 20% of those acres are in soybeans in a given year, that tends to be a 4 or 5 crop rotation there, so you don't have nearly as many acres. And some -- half of those rents down there are -- have got some element of crop share, so kind of extrapolating. You've got some portion of our portfolio with direct exposure to soy bean price, but it's pretty muted by the time you kind of slice and dice it. The more significant issue to us is not what does it do to 1 year's revenue, because we're pretty insulated from that from the reasons I just explained, but a massive trade war on key agricultural commodities is not good for farmer economics. And despite my comments about how people misinterpret the USDA, you will see cash incomes, which is the number that matters, decline pretty dramatically if you get a significant trade war going related to ag commodities. Again, I like to think that the people in the countryside is largely who elected this administration and that won't be what they get as thank you for having helped, but who knows? It continues to be talked about. I was actually in Washington, D.C. just a few days ago and discussing the topic. I think everybody in ag is cautiously optimistic, but they're still nervous. So a good question. So short answer is in the near term, not a big impact, but we still don't want it to happen because the long-term impact wouldn't be very good.

Okay. And then not to give you the bum's rush out of the public markets, but it seems like that the last few quarters, especially the frustration level has been increasing given the disconnect between the stock price and the underlying value of the assets. You're talking about a 12-something NAV, 7-something stock price. I mean, at what point does the frustration get to be high enough for you that you line up some capital and whether or not the number is somewhere between $9.50 and $10 or something like that and take this company private again with capital and run it from that standpoint, if the markets not going to reward you for valuation?

Well, I mean, if I had the ability to take this company private at $9.50 a share, and personally take it private and make all that money for myself, I'd frankly be doing it tomorrow. Here's the reality though. All we have to do to achieve something close to the NAV numbers that we talk about in the 12 range is call up auctioneers and sell these properties one at a time. The private equity firm that thinks they're going to come in here and get through our board, a proposal to buy the assets since we're trading at a 30% discount, they're going to buy them at a 15% discount, you'll never get a fairness opinion on that. You'll never get my vote for it. It wouldn't be fair to shareholders, right? These assets -- I mean, if people don't believe me, they don't believe me. I'm betting with my own money as well as with my statements. We can sell them in the private market. We're not ready to throw in that towel yet. We set out on a path to grow a large public company that in our view brings capital of urban investors into agriculture. It's good for rural America. It's good for the investors. It's good for the economy of agriculture, and we're committed to it and we don't give up easily. But the ultimate solution in a liquidation scenario is not to sell cheap to some private equity firm, it's to sell the assets off in the private market where full value can be achieved and that is a solution we could execute on, and we're not there yet, but eventually we would get there. This -- my personal balance sheet is -- suffers every time the stock gets pushed down. I don't like it. Today, I'm in the viewpoint that, that's just an opportunity, but there will be an eventual achievement of the full value of these assets either in the public market or in the private market. You got CEOs who knows what it is worth and done this for so long and made frankly a great deal of money personally from doing it over the last 20 years. We're not going to chicken out here. This -- people are going to get the NAV value of these shares eventually, one way or the other. I hope that answers your question, but we're not doing anything right now.

And our next question comes from Collin Mings -- as a follow-up, excuse me, from Collin Mings with Raymond James.

Paul, I just wanted to follow up on a couple things real quick. Just as far as capital expenditures this year, you touched on it a little bit in terms of the guidance, the revenue enhancing. But can you maybe just break down for us, how much cash you plan to spend either on revenue enhancing CapEx, any maintenance CapEx? And then any remaining development spend that going back to Dave's question earlier?

Yes, round numbers, we'll spend in the neighborhood of $15 million this year on those sorts of developments. Remember that when you start looking at those developments, they often are so fundamental enhancing in value that you might consider refinancing a property right after you've done them. We seldom finance the individual development project because it's just a few million dollars usually or less, and they're -- it's very inefficient to try to finance a $500,000 irrigation project or something. But once you've made those improvements and you're really making them because they make a real boost, not only in current yield, but in fundamental asset value, you may go circle back and try to get your cash back for those developments by refinancing certain properties and obviously, that's affected by what your obligations are to the existing lender on the property and do you have to pay a premium to break the existing mortgage and things like that, but we look at that. But all in all, you're looking at about a $15 million spend or so during the calendar year on new improvements. Breaking that between row crop and specialty is probably around 40% specialty, 60% row crop related investments.

Okay. And I think just based on prior comments you made before you would deem the overwhelming majority of that $15 million either being in that development spend bucket or revenue enhancing bucket, and a nominal amount in maintenance. Is that fair?

None of that number is maintenance. Maintenance for us is in the property operating expense. Luca, correct me if I say this wrong, but actual maintenance of farms that we already own is in the property operating expense bucket. We have some small amount of cash. A well fails, an irrigation unit gets blown over in a tornado and you have 50,000 -- $10,000 deductible on a $50,000 machine. I mean, that stuff goes in our property operating expenses, and that's frankly where it belongs in our view.

Okay. And then lastly, just going back to that $20 million of capacity number. Is that -- just make sure I'm understanding that correctly, is that $20 million of capacity for acquisitions or buybacks or was that just acquisitions? And does that kind of contemplate some of the other things you touched on with, like the dividend shortfall, things like that? Is that just kind of...

The way you should think about that is either -- we look at a stock buyback like an acquisition, right? It's a math equation. Is my current yield better from an acquisition or from a stock buyback and you have to factor in those scale and efficiency issues that I mentioned earlier, as you weigh those 2 things against each other, buybacks are frankly shrinking the company and acquisitions are expanding the company. Then you -- And of course, your buybacks never have leverage on them and your acquisitions often do, so you've got to factor that in. And then the final factor, of course, is the overwhelming discount on the stock and most of the acquisitions we do are fundamentally paying fair value for, so it's a very low discount to what we think it's "worth" when we buy it in terms of acquisition. So we -- I mean, so the short answer to your question is that $20 million could go to acquisitions, could go to buybacks and that's a case-by-case evaluation. With the long-term bias that we've been trying to grow the company, balanced by the fact that if we see more value in a buyback, we may do that instead.

At this time, I'm showing no further questions. So I would like to turn the conference back to Paul Pittman for any closing remarks.

Well, thank you, everybody, for joining us on this conference call. We will continue to execute on the strategy as we describe it and appreciate all of you being supportive through the ownership of our securities. Thank you, and have a good day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.