Farmland Partners Inc (FPI) 2018 Q1 法說會逐字稿

Good morning, and welcome to the Farmland Partners Inc. First Quarter 2018 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Paul Pittman, Chairman and Chief Executive Officer. Please go ahead.

Thank you, Danielle.

Good morning, and welcome to Farmland Partners' First Quarter 2018 Earnings Conference Call and Webcast. We appreciate you taking the time to join us for these calls. We see them as a very important opportunity to share with you our thinking, our strategy in a format less formal and more interactive than public filings and press releases.

Please refer to the Investor Relations section of our website at farmlandpartners.com, for our Q1 2018 supplemental package, which I will be speaking to later in the call. The link for this presentation is directly below the webcast link and is also posted under Presentations section of Investor Relations.

With me this morning is Luca Fabbri, the company's Chief Financial Officer; and David Ronco, our Head of Investor Relations. I will now turn the call over to Luca for some customary preliminary remarks. Luca?

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 24, 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, May 10, 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, 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 9, 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 closed 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?

Thank you, Luca.

So today, I want to address 5 separate topics, 2 of which are general about the farm economy and land value trends in general, and 3 of which are specific to our company. So starting with number one, land value trends. What we're basically beginning to see is that the press reports in the popular and the agriculture press are finally starting to kind of catch up with the reality of what's going on in the marketplace.

As I've said many times before, farmland values have declined slightly in the Corn Belt and have been stable to increasing in most other regions of the country. This is despite the fact that the popular press has been a steady drumbeat of negativity about agriculture and land values. If you'll look back at the things that we've said in these conference calls and in our other communications now for several years, we have taken a position that a decline in commodity price would lead to stability or slight declines in the Corn Belt, and that most of the rest of the country would be stable to increasing because there are fundamentally different factors in those regions driving land values besides commodity price.

We've also, if you'll recall, talked many times about how commodity price doesn't drive land value directly, but it does affect farmer income, which can gradually show up in rents and ultimately, in land values. But the effect here has been frankly very muted and I'm happy, as I said, that the press is starting to report it. So for example, in April 9, there was an article on agweb.com, quoting the Realtors Land Institute of Iowa, which basically said that after 4 years of declines in farmland value in Iowa, the last 12 months have shown a 5% increase in Iowa farmland values.

On April 11, again in agweb.com, quoting the Rural Appraiser and Farm Managers Society of Illinois, it's basically saying and concluding that high-quality land values in Illinois were essentially flat in the prior 12 months. On May 2, NCREIF reported that total farmland return for the year ending March 31, 2018 was 7.07%. That is a survey of pension-owned farmland across the country, a pretty broad survey, again, indicative that what we're seeing is in fact, is that farmland is starting to move back up in value.

We, as a company, are clearly of that opinion as I'm sure you observed in our press release. We acquired quite a bit of stock during the first quarter as a company. I, of course, personally continued to acquire stock. Our stock continues to be seriously undervalued compared to the asset values that are out there.

Now, everyone should keep this in fundamental context though that you can't look at any single report or a single point of view on farmland, whether they're positive ones I quote or the negative ones you need that you happen to read, you have to look at that data of -- that set of information about farmland values as a sort of broad cloud and interpret what all of those facts really mean for the market.

We, of course, view the USDA data as the most comprehensive. Unfortunately, that data only comes out once a year, in August, and so between each August, you are left without a nationwide sort of point of view and you have to piece together what your perspective is of actual land value trends based on snippets of information about different locations.

But generally speaking, our view is that we've seen the bottom be put in, in land values in the Corn Belt, starting to see it come back up, starting to see it be reflected in the popular press and that is, clearly, a positive trend for the underlying asset values.

The second point I want to address is grain prices versus farmland stock and then I'll brief aside about a potential trade war and our point of view regarding that.

So starting with the grain price issue. If you look in the last approximately 4 months at what has happened to Farmland Partners' stock, and what's going on in the primary commodities, there's a real and substantial disconnect.

As I've said many times, we do not believe commodity price drives farmland values in a direct sense, but the flip side is it's shocking to think that grain prices are going up and our stock is going down. So measuring since December 18, 2017, FPI stock has fallen 18.1%. Measuring from the same date, corn has gone up 10.4%. Soy beans have gone up 4.2%, and wheat has gone up 14.3%.

This fundamentally does not make any sense. We have traded down with the commodities, the stock was $9.33 on December 18. That is already an incredibly depressed level compared to our underlying asset values and it has only fallen further while grain prices have started to recover. The most powerful important takeaway about grain price recovery is that in many regions of the country today, you can sell corn and soybeans at clearly profitable levels and at levels not seen in terms of cash price paid to farmers in several years.

Typical of a commodity industry, the fundamental cure for low prices is low prices. We have continued to build national and worldwide demand during the low price environment of the last few years, and now you're seeing the markets recover. Obvious question is, does it last? Does it continue? But fundamentally, what drives long-term price trends in the ag commodities is what's called carryout, meaning the amount of crop left over at the end of 1 season to roll over into next season.

What's fundamentally going on and driving commercial buyers, and this opposed to speculators, is that carryout projections in 2019, 2020 and beyond, for most of the major commodities nationally and internationally, are trending downward; therefore, what's happening is we have worked our way through an excess supply situation and gradually seeing the effects of demand drive prices back up. Again, not a direct driver of farmland, but it is a driver of farmer profitability, which over time, is obviously beneficial to our business.

It is important from our perspective that this turnaround is finally coming. Our view about our sort of tenant health generally is that we have each year, since about 2014, gradually seen a few more tenants. Today, we have roughly 110 separate tenants, and each year we've seen a few more tenants in a little bit more financial difficulty. So if in 2015, I had 1 lease that where a tenant was in some sort of challenged financial circumstance, by 2016, that was 2 guys and in 2017, would have been 3 guys and this year it's 4 or 5.

Clearly, these farmers have burnt through their working capital gradually during the last few years, but you haven't -- and you've seen it reflected to some degree in farmer incomes and ultimately our lease rates, but you haven't really seen it show up in land values. That is, in fact, the way it's supposed to work. Land values should stay stable through most downturns. Hopefully, we're climbing out from an ag productivity perspective, and you're going to see performance at the farmer income level start to improve.

Interest rates and their effect on us, and their effect on farmers are obviously going the other way, but the interest rate moves certainly don't explain that 18% decline in our stock. We are, today, roughly 12% of our capital structure overall is adjustable rate debt. We have not -- just the math behind modest moves in our interest rates on 12% of our cap structure does not justify the significant declines we're seeing in the stock, compared to what's going on in terms of commodity prices and the rest.

Of course, the entire REIT sector has been pulled down with fear of interest rate moves and we've, to some degree, gone down in sympathy. But remember, farmland is fundamentally an inflation hedge. In my opinion, probably the best inflation hedge there is, even better than gold and our view is that modest interest rate increases, as long as they're being driven by expansion in the economy and ultimately, inflation, the inflation benefits -- inflation hedge benefits of farmland -- will outweigh the interest rate increases in terms of total return.

Now turning to the issue of the trade war and the potential of a trade war. This is clearly not a good thing for agriculture generally, in the United States, if you get a trade war started. It's important though to think deeply about what really happens in a trade war and to be frank, I haven't, in my professional career, lived through 1 of these before.

The last time we had a significant trade war for agriculture commodities was in Jimmy Carter days, when I was frankly in high school. The effect of a trade war, in our view, is not going to be an instant and significant decline in demand for our primary commodity products. The reason for that of course, is that the world is largely consuming all the production that is out there. So if the Chinese quit buying our soybeans, you'll shift the trade routes around the world in a way where our soybeans fundamentally get sold to somebody else.

Just in the recent weeks, we've started exporting soybeans from the United States to Brazil. That seldom happens, but what's happening is the Brazilians are selling more beans to China so we're battling to backfill the Brazilian internal demand for their own crushing facilities to make soybean meal and soy oil. This sort of shifts around the country -- around the world is likely to be the near-term impact of a trade war, if it in fact, happens. It of course will have an immediate negative psychological effect, but it's not really an instant problem.

That being said, a trade war is not good for U.S. agriculture. Again, going back to the Jimmy Carter and Richard Nixon era, the trade wars that we had at that point in time and the embargoes we had to Japan and Russia in that era, actually led to the creation of Brazil as a long-term competitor for U.S. agriculture. Brazil, prior to the time we embargoed products into Japan, had very, very little soybean production and grain production. And now, 40 years, 50 years later, they are a substantial and major competitor.

This trade war will have an impact of causing the Chinese to invest substantially more in the infrastructure in South America that over the course of 5 or maybe even 10 years, will make Brazil in particular, a better supplier to worldwide markets. That's certainly not good for American agriculture, but the immediate and near-term impact of the trade war is frankly overblown because as I said, the world needs the crops, but the long-term effects of a trade war are certainly not good for farmer profitability and commodity prices in the United States.

Turning to the third point I want to make this morning, which is scale and balance in our portfolio. We have worked very hard in the last couple of years to create a portfolio that really reflects that worldwide global food demand growth and the fundamental fact of land scarcity in the United States and around the world.

So at 12/31/2016, our portfolio was largely a commercial row-crop portfolio based entirely in the Midwest, the Delta, the Plains and the Southeast. We had a few blueberry crops at that point in time growing in Michigan, a few vegetable crops growing in other locations, but broadly speaking, virtually 100% of our assets and our revenues were coming from the primary commercial row crops corn, soybeans, wheat and rice, and cotton and the like.

Today, or on 3/31/2018, we are now about a 70% to 30% balance on asset value between primary row crops and the specialty crops and that's on asset value. On revenues, we are about 62% from row crop and 38% from specialty and permanent crops. That's based of course, on 2018 estimated revenues.

That is a reasonably significant shift. That improved diversification of assets and income, is really putting into our portfolio a situation where no negative event in any given state or any given crop really hurts our fundamental performance very much.

We think this is incredibly important and probably not fully recognized in the marketplace. Again, our goal is to tie our investors to global food demand on a global basis, and the fundamental fact of high-quality land scarcity in the best ag performing nation in the world, and which is why we largely invest -- entirely invest here in the U.S.

The fourth point I want to point to is valuation of our stock on an NAV basis, looking at the underlying value of the assets. As I have always said, we think that our stock is worth somewhere in the neighborhood of $12 a share, with a range of about $11.50 to $12.50, and that is based largely on what we pay for these assets and adjusting through time for modest declines on the assets we bought in the Midwest and the High Plains, flat in the Southeast and the Delta to slightly increasing and then, of course, the California assets gradually increasing as well.

So we think, if we went to liquidate this portfolio, you would achieve something like $12 a share, and we're not going to liquidate the portfolio anytime soon. I haven't given up by any means as a public company, but we are clearly frustrated by the disconnect between stock price and underlying private market asset values.

For those of you who have spent some time looking at our supplemental, we provide a great deal of information that would allow an analyst or anyone else to calculate the value of our stock on a cap rate basis, and you can do it based on gross cap rates or whatever your preferred methodology is. If you want to do it on an NOI basis, you have to use a slightly lower cap rate, of course, because properties trade on a lower cap rate on NOI than they do on a gross basis.

But that being said, if you go to Page 13 of our supplemental, and you work your way through the facts on that page -- and I encourage you all to do this -- and you use the cap rates we've provided based on the regional cap rate variations that we see in the nation, you end up using that methodology with a stock price of $14.17.

Now I just said I think the stock is worth $12. As you all know, valuation is an art, not a science. It's a matter of balancing a variety of methods of looking at the value of a given asset. The only way to know what anything is worth is actually sell it, but the bottom line here is that as we have significantly increased the revenue potential of the company and we're building that on an LTM basis, you have seen a significant enhanced valuation on a cap rate basis of what this stock should be trading at.

So I do encourage you to look at those numbers. You can run sensitivities. We've sort of laid everything out there for everyone, but the bottom line is that you can quibble about what the exact value of the stock should be; whatever that analysis leads you to, it's going to lead you to a number substantially higher than the recent trading history of the company.

And the final and fifth point that I want to make is to talk just a little bit about cost control in the light of the scale increases that we've achieved in the company. We own $1.1 billion, $1.2 billion of farmland assets around the country today. We have seen a very large increase in our revenues, and a holding of our cost structure essentially flat. That's why you see in the quarterly numbers a 57% year-over-year increase in revenues, a 581% increase in operating income and a 90% increase in EBITDA.

This is a company that is run incredibly efficiently from the standpoint of overheads and personnel costs. We, of course, do everything we can to limit property operating expenses, although as many of you know, that's largely property taxes, which is out of our control, but we will continue to be disciplined in that cost control effort and we would expect to continue to see those efforts create greater and greater value and cash flow out of our properties.

With that, I'm going to pause -- you'll have a chance later for questions -- and turn it back over to Luca.

Thank you, Paul. So Paul already walked you through some of the financial highlights for the quarter just a few seconds ago, but I want to kind of reemphasize them again.

In the first quarter, our revenues were $11.2 million, which is a 57% increase year-over-year over the same quarter last year. The operating income for the first quarter was $4.8 million, a 581% increase year-over-year. Reported basic net loss to common stockholders was $0.08 per share and AFFO was $0.00 per share. However, I want to remind you that historically, because of the structure of some of our leases and the associated revenue recognition policies, we experience a relatively high seasonality on the revenue side while our cost structure is frankly, relatively stable through the year and that seasonality really emphasizes the fourth quarter.

This is even more true than usual in 2018, again, due to some relatively large levers. So we do expect the fourth quarter to have a much higher revenue level as well as operating income and net income and AFFO.

With this quarter, the first quarter of 2018, we began reporting earnings before interest, taxes, depreciation and amortization of full real estate and the associated -- also known as EBITDAre -- and the associated adjusted EBITDAre. Now EBITDAre is a new measure that is being put forward by the National Association of Real Estate Investment Trusts, and we decided to conform to this new recommendation of the industry association as we see other leading REITs have already started doing so.

Specifically, what EBITDAre does is it takes EBITDA and adjusts it for a couple of other items, such as gains or losses and disposition of depreciated property and payment write-downs of depreciated property. These are adjustments that are particularly relevant in REIT, in asset classes with a significant proportion of depreciable assets. That is not the case for us. So we expect EBITDAre and adjusted EBITDAre to fundamentally track the EBITDA and adjusted EBITDA we previously reported, and therefore, we will not be reporting separately EBITDA and adjusted EBITDA. Having said that, the first quarter adjusted EBITDAre was $7.5 million, a 90% increase year-over-year over the same quarter last year.

In the quarter, we also repurchased 6.5 million in shares of common stock. And finally, a quick note on that, there was no material change in debt during the quarter. I want to stress how 76% of our outstanding debt is based on fixed rates as of the end of the first quarter. And we don't see any material principal payments due in 2018 and only about $6 million due in 2019. So effectively, not very much due -- debt due in the next couple of years.

This concludes my remarks on our operating performance for the first quarter of 2018. Thank you again for your time this morning and your interest in Farmland Partners. Danielle, we would like to begin the Q&A session.

(Operator Instructions) The first question comes from Dave Rodgers from Baird.

I wanted to maybe first ask about just kind of where your liquidity position is. Are we looking at acquisitions right now? How is that pipeline? And maybe just a second follow-on to that would be, have you thought about some asset sales to maybe trade out of the lower cap rate markets into some higher cap rate markets to help some of the growth in the near term?

I'll take that question.

So in terms of liquidity, we're sitting on a substantial amount of cash. I don't remember the exact number. It's of course, in the financials. At this point in time, we are not likely to make particularly significant acquisitions unless we could of course, find a creative way to finance them. We're not going to sell any stock at this price to raise cash. So as far as acquisitions go, we're not likely to be very active in the coming months unless we get a substantial change in the stock price.

As far as asset sales, we, of course, consider asset sales all of the time. As you can see from the statistics, we are gradually moving the portfolio to a position where we have a higher percentage specialty crops in the portfolio. It gives you, obviously, a higher total cash flow. That though is something that we need to be careful about. Do not expect to see a wholesale selling of the commodity row crop properties.

I personally have been doing this for 20-plus years. These things ebb and flow. Getting out of the row crop properties, when everybody says you ought to get out, everybody, I should say, uninformed, says you ought to get out, is exactly the wrong time to exit any properties like that. We will find ourselves over the next few years, unless we do start this massive trade war, with people telling me I ought to sell my specialty crops and pile into the row crops because those are the hot thing for this given couple of years.

That's not fundamentally how to invest in these assets, that's not frankly how to play this game from an asset value perspective. It's about building that balanced, diversified portfolio and sticking to your fundamental principles has created in a very much long-term value in the underlying assets for me and for our company through time. And so yes, we'll be trimming on the edges by all means. What we own in our portfolio as you would expect, is a few assets that we think somebody else might be able to put to better use and pay a fair price for, but generally speaking, we won't be aggressive asset sellers. But I think you could expect us to see something in the neighborhood of $20 million to $40 million of asset sales in the next 12 months, but that's not really very many assets out of $1.2 billion or so of farmland overall.

I hope that helps, David.

It does. I saw you bought some stock back in the first quarter. Do you anticipate continuing to use any of that liquidity to buy stock back? Or are you pretty, again, happy with just kind of waiting and seeing what happens with your cash flow?

I would anticipate that we'll continue to pick away based on our estimate of our cash flow and cash availability at the stock that's out there. We, of course, as you know, have a buyback program that was announced and it still has capacity. So modest amounts of buybacks are what probably going to continue, but it's hard to say.

It's all about what the price is. As you can see from what we -- we pushed the stock price up very substantially during the 4, 5 weeks we were doing buybacks last quarter. There's not a ton of liquidity out there at this point in the market. So if we become a serious buyer and buy much quantity at all, we push the stock pretty hard so when we're buying stock back, we'll tend to go in and out of the market a little bit because we're actually trying to buy that stock at inexpensive price for the benefit of all of us who stay in, when we can. But yes, we'll still buy. But it's not going to be a lot different than what you've seen in the past probably.

Got it. And maybe last for me, and I know you gave some color on the fourth quarter call, but now that we're through the whole first quarter and given your comments that crop prices, as you indicated, are up from the low point, can you talk about what the total rollover was? The rent change on rollover for this year?

I don't have that statistic at my fingertips, but David Ronco and/or Luca, you may have that stat handy. I think we published it in the K, what the same-store sales statistic was.

Yes, the same-store -- this is Luca. The same-store sales statistics were kind of retrospective, I don't think we have it in the public domain specifically any statistics about the rollover of 2017 to 2018.

Does anybody know the same-store number though off the top their head, if we do, we do. I can give some color about the rollover in a moment, let me just give you that, David.

So we went and rolled over our rents, but we generally discovered is and even to me, this was a modest surprise. So the core of the Corn Belt, which is that and California are our biggest areas, we saw rental increases being put into the rollover that we did in the Midwest. We saw rents start to go back up where we rolled over leases. Whenever we switched a tenant, we'd see rents start to go back up; that's fundamentally a positive thing since that's such an important region in our portfolio.

In terms of the California specialty crop portfolio, we also -- there's a lot of crop share in that region, but we are either seeing or expect modest increase in rents regionwide in the specialty crop portfolio.

When we go to the other regions of the country, we would see the High Plains, the assets we own in eastern Colorado, those rent rolls, to the extent we had very many in that area, will be gradually down a little bit. That region of the country has suffered, frankly, more than almost anywhere else in the low commodity price environment because not only does it get hit with low commodity prices, transportation costs for the primary commodities out of that region are expensive. There's no good river network that reaches into the High Plains, certainly not to the western half of the High Plains. So you get more volatility in pricing both directions, frankly, in that region of the country than you get other places.

So Midwest is positive; West Coast specialty, positive in terms of rent roll; Plains, down some; and then in terms of the Delta and the Southeast, broadly speaking, kind of flat, a few downs and a few ups, they sort of balance each other out. So that's the basic situation.

(Operator Instructions) The next question comes from Marnie Georges of Raymond James.

Just to build on that a little bit, what have you been seeing lately in negotiations with some of your farmers? Have concerns about the trade war been having any effect there?

No, we haven't really seen the potential impact of the trade war show up in terms of negotiations with tenants at all. I mean, most of the farm -- I mean, there's a lot written about this topic, if you read the sort of daily kind of commodities blogs and articles and you really kind of focus on what people who actively trade commodities, the ag commodities as a career, there's a lot of sort of data and commentary about that.

It's broadly speaking what I said: people have that kind of view that the trade war is not a good thing by any means. But the impacts, the negative impacts are relatively serious long-term issues, not huge short-term issues and so we haven't really seen it show up.

One of the things that's interesting to note is when you've got this trade war fear, clearly in the press since roughly the beginning of the year, but the primary commodities are still moving up, it tells you that the true commercial demand for these crops from the processors has really gotten stronger and that the commercials, despite their fear of trade wars are raising prices to secure supply in the coming year. That sort of tells you 2 things.

It tells you that most of those people, and me included, don't actually think we'll have this trade war. We think that we and the Chinese in particular, will find a compromise. But it also tells you that the fundamental demand must frankly be very strong, or you would see prices going down with all the negative tone around -- about a trade war, instead of prices going up. So to see prices moving up in the face of relatively negative news, is frankly pretty bullish statistic as it relates to commodity price and farmer profitability.

I hope that helps, Marnie.

Yes, definitely. Another one from me, turning back a little bit more on to the company. Looking at G&A, just given the increased scale, given some personnel moves, is this quarter something that you would expect to see as a run rate moving forward? Or is there something else that we should pay attention to there?

Well, I think in fact, our cost structure will gradually get even lower in the coming couple of quarters. You've seen in the press announcement some personnel changes and staffing reductions in the company, as some people have decided to move on and do other things or they'll retire or whatever the case was, each case has a story.

Fundamentally, we were -- we are and were a company built for acquisitions and we, frankly, aren't doing very many acquisitions. So our staffing needs to manage the properties we already own are frankly substantially lower than our staffing needs to manage property we already own and acquire at an aggressive rate. So we've been able -- we have a very high quality, already small team of people. I think at the maximum, we might've had 16 or 17 employees and now, we're down to 14 or 15 at this point. But we wouldn't have necessarily gone out and asked those people to leave. We assume we'll get back on a growth strategy soon, but as people have come to me and said, "Hey, I'd like to be doing something else with my life," we would not replace those people and had some attrition through that time frame. So that's likely the reduction in personnel cost.

The other big cost savings though is, of course, we made a significant change in an accounting service that we use for the company, and that has a very significant impact in terms of the annual cost of the company.

So those are all positive things. We'll continue to do that. I mean, as you -- of course, saw at the end of last year, Luca as the CFO, and me as the CEO, took substantial reductions in compensation -- not because our business isn't doing well at the fundamental level, but I'm a big stockholder too and when the stock price is suffering as it has, the senior management of the company is going to take some of that pain directly and we did. So story going forward should be cost structure is at this level or even a bit lower, as you see the quarters move forward.

Let me actually add one thing. There is a new page added to the supplemental. David, you might be able to quote the page number, but it's towards the back of the supplemental, where we report some LTM statistics for things like overheads, G&A, legal and accounting, property operating expenses; and we'll start to do that and continue to let you kind of see it on an LTM basis, which gives the analyst community in particular, a basis to project going forward.

The reason we did that is that each -- different quarters through the year have some noise in their numbers, and so using an individual quarter and trying to multiply it by 4 is a little bit misleading. LTM will give everybody a more accurate view of the overhead and cost structure of the company. The reasons for that internal variation are things like there's a lot of excess accounting and legal in the first quarter, with getting our year-end sort of functions that are required by the SEC done: the annual meeting, the proxy, all that sort of stuff. Fourth quarter, of course, tends to have bonuses and things like that.

We, of course, accrue through the year, from a portion of things like bonuses and accounting and anything else, but it still tends to have some lumpiness when those events actually occur. And so we're going to start producing an LTM tracking of the sort of key line items from the P&L, and like I said, it's close to the end of the supplemental, but there's a page in there that those of you who are building models ought to take a look at.

The next question comes from Mike (inaudible), a private investor.

I have just 3 questions as a shareholder. Paul, you've been very clear about this in the past, and I wanted to revisit it because I think many of us are kind of fearing the same thing. You guys continue to make a concerted effort to reduce costs, and I can say from a couple of people that I know that hold shares, we really appreciate your diligence to take responsibility and really kind of hunker down and really, really, really buy back shares and reduce your own salary and other things.

Now the question I have is, it seems like without your buys and the stock seems to, obviously it goes up, like you said, as soon as you buy back and then it kind of hangs around for a while. Now what's kind of the plan here, like we go 1 to 2 years out and for whatever reason, Wall Street doesn't have the same intrinsic value that you, as a company feel, I'd say that I think you quoted earlier about an $11 or $12 a share. At that point...

$12, is the number. $12 with a range of $11.50 to $12.50.

So, Wall Street has a lot of crazy different ways of intrinsically valuing all the stuff, and so rather than getting lost in all the noise, and I do appreciate that fact that you're sticking to the same script, and that's refreshing. The question is, when do you begin to start making a more realistic look towards, I think 1 to 2 years out would be fair in saying, okay, we're not at that -- we're not even at that $10 or $11 range, I hope as an investor that people will kind of wake up and see the tremendous value they have investing in FPI, but at the same time, I don't really know that, that's kind of your area of expertise. That's one question I have for you.

Yes, so let me actually address that. I mean it is an incredibly fair question, and I try to speak very directly, but I'm not going to tell you and everybody else exactly what the time frame is because to be honest, I don't know and it's a function of, not just me. That level of decision is a board decision, but I can tell you that look, our strategy is we spent a lot of money getting public. We believe that this asset class belongs in the public domain. We think it's good for agriculture and rural America. We think it's good for investors.

That being said, if we do not see a stock price recovery at some point in the future, probably measured in the time frame you're talking about of 1 year or 2, we are going to do something more drastic and whether that's sell the company, take it private, call up a bunch of real estate brokers, sell off individual assets and distribute the cash to shareholders, I won't sit here with this much of my personal wealth being affected by irrational pricing behavior on the part of the public markets. But once you decide to give up being public, it's hard to get public again, not impossible, but it's certainly expensive. So we're really playing the optionality that the market will eventually get it and recognize the fundamental underlying value.

We are, as I've said many times, I believe, really misunderstood by The Street. I wish people would go back and look at what we've said about asset values since the beginning. What we've said is that if you have a downturn of 2 or 3 or 4 years, you're going to gradually see rents come down. You're going to see a little bit of price pressure on land prices, but not very much. And then you're going to see it pull out. And I think that play, as we have described it, is largely what we've seen and what's occurring.

So our near-term strategy, and my certainly personal strategy, is I know what the underlying assets are worth. I continue to buy stock because I know we can buy farmland through my stock cheaper than I can buy it out in the marketplace, in the private marketplace. And I'll continue to accumulate. The company will continue to buy back through coming quarters, but eventually, we're going to pull the plug and do something different.

As most of you know, I own 6% or 7% of the company. Whatever we do is going to make my 6% or 7% go up in value and everybody else who's a shareholder along with it. But I'm not -- I'm just not ready to do that yet because I think -- we took the company public in April of '14. We have been in a relatively negative primary commodities cycle in terms of the popular reporting on agriculture. It's been way more negative than the reality, but I think in a new company in that environment, it has a pretty negative psychological impact.

And I want to address another thing because I think it's important, that in all fairness to you, not only being the -- managing a very challenging economic climate, you did make a comment on the past call about all these postings and different articles. So I will take responsibility, as a shareholder, that I have at times been critical and I think that goes without saying. So I want to own that responsibility in peace.

And what I do want to say to you is I have appreciated the changes you have made, and that's in the cost reductions. You continue to support this company by putting your money where your mouth is. And I think that speaks volumes, and that's a well differentiated approach to all this other talk about going organic, and all this other talk about doing other things. So I want to own that peace because I don't -- I think it's fair. But I also want to be fair to you and say that I appreciate your willingness to stay with the script and when your consistent messaging is very much appreciated, even though sometimes you do take hits and shareholder sometimes get upset. And so I do appreciate that.

My second question comes is why not lower the dividend down now so you can reduce some of your already costs? You know what I'm saying? That's probably been a fair question you've asked before.

No, no, that question gets asked, that question gets discussed in our company all the time, but I'll give you a really kind of clear answer on it.

So to put this -- so first, thank you for the compliments you gave. I mean sticking to the script is easy because my script is based on what's going on, on the fundamental asset value. The part of the company we really control is how we execute, what we buy, what we sell and how we rent it and how we keep our cost structure down. What I don't control is the stock price. I wish I did, but I don't and so that's all we can do and we're going to keep doing it.

But turning to the dividend reduction specifically, as we said in the last conference call, and I want to reiterate it, our Board has discussed this. Of course, we have a legal obligation to authorize dividends every quarter, but we don't have any intention as a board in this company to reduce this dividend during this calendar year, that's not to say we will reduce it next year, but we wanted to tell people quite clearly what our intentions were.

And the reason we are, again, so against reducing the dividend is really twofold. First, in context, we are negative -- we are over distributing by literally just a few million dollars. Where -- that is in the context, if you looked at last year's USDA report on land values of an appreciation of the portfolio that was probably in the neighborhood of about $23 million, that's a billion dollar portfolio, about 2.3% nationwide increase in farmland; we're roughly a balanced nationwide portfolio.

So we think what we're doing is we're over this -- we're grabbing appreciation value and distributing it a little bit by having an uncovered dividend, but the actual dollar amount on $1.1 billion or so of assets is so small that we do not want to reduce a dividend and we don't feel pressured to reduce the dividend.

The next point I want to make is, and we studied this, if you go look empirically at what happens when somebody reduces a dividend, it does not lead to stock price increase, it leads to stock price decrease. Again, there's a wealth of information out there and we've had these presentations. We researched the topic. Dividend decreases do not lead to higher stock price, they lead to lower stock price. So I'm not sure what we'd get from decreasing the dividend.

But now, I want to get to the third point and this is probably the most important point. We have bought farms from people by distributing equity to those people. And those -- and so frankly, if you think about it for a second, the value we paid for those farms has come down as the value of our stock has come down. The people that took that stock from us in transaction, that suffered right along with every other shareholder, those people have taken that stock in good faith. They are going to hold that stock for a long period of time.

These are often retired individuals that will eventually, for the tax benefits of taking OP units, will pass that stock onto the next generation, and we're not going to reduce the dividend on those people who we did do deals with and I'm talking that's probably 100 million plus of that kind of stock out there, and these are good long-term shareholders. And if they hold on, they understand agriculture quite well. As a class, they understand agriculture very well. We're not going to reduce the dividend on that group of people unless we had to from a financial -- from being forced to from a financial point of view, because I think it's fundamentally unfair.

I mean, I've got every legal right to do it, but we cut a deal with those people that said, look, I don't control the stock price, but I do control the dividend and we promised you a certain dividend. I mean those folks are often based on the amount of the price they've gotten on the transaction, making a reasonable dividend of something like 4% or 5% against the original investment. And to me, it's a real -- it's a long-term reputational harm for doing that after you did those transactions with those people, but it's also just not necessary and not required. Nor, by the way, if I felt like reducing the dividend would make the stock price go to $12 or even to $10, I'd do it, but that's not the empirical data. Reducing the dividend will make my stock go to $5, and so we're just not likely to do that, certainly not anytime soon.

My last and final question is this. There has been a little bit of confusion, and people are always confused because they don't take the time to read anything nowadays. It's all about popular press, message boards and perception. So can you add and put out for the record, what was that recent filing that had to do with, I believe it was 300,000 shares? Or is this something that had to do with potentially one of your Board members leaving that owned a substantial amount of shares? I can't quite make sense of it, so I'd rather just go right straight to it.

I think what you're referring to is the -- is a filing that we put out that's called a shelf offering filing and yes, there was some confusion about that, but there frankly shouldn't be. So let me address it directly.

A modern practice for public companies, sort of standard operating procedure of diligent public companies is to maintain a shelf offering at almost all points in time. We had a shelf of 300 million historically. It was about to expire. We put the shelf back in place.

The reason you do that as a public company and virtually every public company does it, is that it rapidly accelerates your ability to issue equity any time in the next 3 years when you choose to do so, to have a shelf offering in place and to have it kind of up and ready and maintained. And think about it, like you could issue stock in something like 2 weeks as opposed to 2 months or more.

So we view -- so what we were doing there is not indicating, by any means, that we have an intention at this stock price to issue a bunch of stock. We were just being diligent business professionals as the management of this company and the Board of this company, by maintaining the shelf offering, which was about to expire, by replacing it with one of basically the same size, and that's all that is. It's all about being prepared. We clearly do assume the stock will recover eventually and we'll be able to grow the company again. And in fact, it wouldn't have been prudent on our part to let that shelf fully expire and not put a replacement shelf back in place, that's all that is.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Pittman for closing remarks.

Well, thank you all for joining us. We do appreciate your interest in the company, and as the last questioner indicated, we are frankly very supportive of our long-term shareholders and want to be supportive of our shareholders. Thank you all for having the confidence to invest in the company and hopefully, we will see stock price improve. Certainly, the underlying drivers of our business are improving and so we hope that continues. Thank you very much. Thank you, Danielle.

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