Farmland Partners Inc (FPI) 2018 Q2 法說會逐字稿

Good day, and welcome to the Farmland Partners Second Quarter 2018 Earnings Conference Call and Webcast. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Paul Pittman, Chief Executive Officer. Please go ahead, sir.

Thank you, Claudia. Welcome to Farmland Partners Second Quarter 2018 Earnings Conference Call and Webcast. Please refer to the Investor Relations section of our website at farmlandpartners.com for the Q2 2018 supplemental package, which we may be speaking to later in the call. The link for the presentation is both directly below the webcast link, and it is also posted under presentations section of the Investor Relations portion of our website. With me this morning is Luca Fabbri, the company's Chief Financial Officer.

I will now turn it 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 second quarter earnings was distributed yesterday evening. A replay of this call will be available shortly after the conclusion of the call through August 23, 2018. The phone numbers to access the replay are provided in the earnings press release. For those who listened to the rebroadcast of this presentation, we remind you that the remarks made herein are as of today, August 9, 2018, and has not been updated subsequent to this initial earnings call.

During this call, will make forward-looking statements, including statements related to the future performance of our portfolio; our identified acquisitions, dispositions and farm properties under evaluation; impact of acquisitions, dispositions 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 net operating income, FFO, adjusted FFO, EBITDAre and adjusted EBITDAre. Definitions of these non-GAAP measures as well as reconciliations to the most comparable GAAP measures are included in the company's press release announcing second 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 August 8, 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. It has been a difficult month for shareholders, but it is important to remember that the fundamental value of our portfolio remains strong and probably growing, despite the noise in the public markets. Obviously, we have had a lot transpire over the prior month. It has been trying to receive unfounded criticisms that we did and to see impact on our shareholders. That being said, I take great comfort that our business model is sound, fundamentals are healthy, earnings and values are solid, these items endure. And as long as we continue to execute, we will be rewarded. Value is value, and we thank you all for your continued support of the company.

I'm going to go through 5 kind of major topics this morning. The first of which is our fundamental business. As I said a moment ago, the fundamental business is strong. We are confident in our high-quality assets and in our tenants. A few important facts. The USDA announced that Farmland view -- values grew to reach an all-time high last week, even in the face of the ongoing trade wars. Nationwide, Farmland values went up 1.9%. On a weighted average basis for our portfolio, they went up approximately 1.7% in the last year.

This is what a challenging year for asset values in the Farmland asset class looks like. We would expect better results than that in the future, but if this is what a down year looks like, this is why we have all invested in Farmland.

Our portfolio, not surprisingly, is continuing to perform and our internal estimates of value remain steady, as in any industry. Book value per share is approximately $9.73. Based on the USDA land values report, our per-share value would be $11.73. Using traditional cap rate-based REIT valuations, we would have a NAV per share of approximately $13.92.

As I have said for many months, we believe the NAV of our company is somewhere between $11.50 and $12.50, and we will work diligently to see that, that value is achieved in the shares.

Our portfolio is 100% occupied and fundamentals are okay for the second half of 2018 and 2019. Same-store rents grew 1.7% 2Q '17 over 2Q '18 and 7.3% for the 6 months ended 2Q '18 versus 2Q '17. We caution you all that quarterly-based same-store rents have quite a bit of noise in them due to timing, but the trends are certainly positive.

We have executed several asset sales in Texas and Illinois at approximately a 10% gain on book value, which has resulted in an unlevered IRR on those transactions of approximately 9.1% and a levered IRR of approximately 14.6%. These sales validate management's capital allocation decisions and will continue at a modest and measured pace. These asset sales also gradually reduce our debt.

This is what matters when it comes to our business and to the fundamental value of our shares. This is what management will continue to focus on, not the noise created in Seeking Alpha or any other unknowledgeable source of information about our company.

I would now like to touch briefly on the misleading anonymously written Seeking Alpha report. We issued a detailed press release refuting the allegations, so I will not go through the Seeking Alpha report point by point. We have no intent on dwelling on this issue, we are instead focused on what it means for our shareholders and what we can do. We will pursue litigation and cooperate with law enforcement to see that justice is done and to attempt to recoup money for our shareholders. We are also instituting an employee retention plan for the nonexecutive members of our team. When your stock declines, like ours did, it creates many short-term issues, but it also creates significant opportunity. In the short term, we will face lost revenue for new business ventures, decreased growth in acquisitions and capital expenditures, and additional costs and expenses, including litigation expenses, all resulting from the misleading Seeking Alpha article.

With this short-term issue, we also find opportunities to benefit our shareholders by reinvesting in our company by buying back our shares. We intend to repurchase discounted shares, which allows us to increase the ownership of our farms at deep discounts for the benefit of all shareholders.

Point number three. We are lowering our 2018 earnings guidance by approximately $0.10 to a range of $0.30 to $0.34 per share to account for litigation expense, the increased G&A and the losses of revenue from asset acquisitions we will not do, asset sales we have made and the lost revenue opportunities from planned joint ventures. Prior to the report, I would have characterized our earnings at the bottom end of the range due to trade war headwinds and negative short-term impacts, in particular, 2 farms in Florida. But the overall business was performing generally quite well.

After the report, obviously, we have a hard time handicapping the actual additional costs we will incur, but the core business is on track and delivering as expected. As I mentioned a moment ago, we do have 2 specific issues on Florida farms that have led to a modest reduction in 2018 revenues and for which we have taken reserves, but they do not have any impact on the long-term value potential of those particular farms or our overall portfolio.

Number four. Our board has approved an additional $30 million of common and preferred share repurchases, which results in a total of $38.5 million of available capacity for share repurchases. Repurchasing our shares will generate returns well in excess of traditional Farmland investments available in the market today and will lead to a significant accretion of cash flow and NAV per share. We do not anticipate utilizing additional borrowing to fund this buyback, rather we will finance repurchases using recurring cash flow and funds from asset sales. To this point, we are reducing our dividend to $0.05 per quarter, and will use the savings per quarter to help fund the buybacks.

We have deliberated extensively over this decision to cut the dividend. It is especially impactful as it relates to operating partnership holders who took those OP units as a part of a farm acquisition transaction. But given the current low stock price and the significant value that can be created from buybacks, we feel that this decision to reduce the dividend is in the best interest of shareholders. As a very large shareholder and OP unitholder, this reduction, of course, directly impacts me and several other members in the management. But the stock manipulation on July 11 has certainly hurt our shareholders and caused us to make some different decisions. However, when you have the opportunity to drive NAV per share, cash flow per share to this magnitude, we feel that this is an opportunity we must capitalize on. We hope to return with stronger dividends in the future when the stock price recovers.

Asset sales create a lucrative arbitrage opportunity. We have assembled a great portfolio of critical scale, which is a source of competitive advantage, but similar to our dividend discussion, we will pursue asset sales at strong private market values to finance the purchase of discounted public securities until it makes sense to change that strategy.

Number five. Moving forward, we will continue to do our best to improve shareholder value and move it back toward NAV. Our NAV is likely growing according to the USDA land values reports, both this year and last year. We will continue to look at all options to maximize shareholder value, including the sale of noncore assets and the reinvestment in our business through buybacks. We are a management team that is focused on getting shareholder value in line with NAV. We have run the business with a principles mentality and will continue to do so. We are committed to realizing these underlying values at this business by all means necessary. We hope that our existing shareholders and the new ones that have come into the stock recently understand this incredible value opportunity and are committed to supporting us as we diligently pursue that goal.

Luca, let me turn it back over to you.

Thank you, Paul. I would like now to go through some summary financial highlights related to the second quarter financial performance and the first half financial performance. In the second quarter of 2018, revenues were $11.4 million and operating income was $5.2 million. Year-to-date revenues were $22.6 million, a 21.6% growth year-over-year and operating income was a $10 million, a 60% growth year-over-year. In the second quarter, adjusted EBITDAre was $7.8 million, basic net loss to common stockholders was $0.07 and AFFO per share was $0.01.

In the second quarter, we also, as Paul mentioned, we had some asset sales that were closed in the quarter, totaling approximately $2 million at an approximately 11.8% gain over net book value. And subsequent to the quarter end, we also closed approximately $7.5 million in sales at an approximate 10.2% gain over net book value.

I just want to remind you, again, a little bit about the seasonality of revenues and AFFO in our business in general, in this year in particular. While our operating expenses and overhead expenses are generally spread relatively evenly through the year, we have a significant bump in revenue recognition, in general, in the fourth quarter related to crop -- the recognition of crop share revenues and this particularly heightened in 2018, and we expect it to be heightened in some of the future years due to some specific leases that are -- that concentrate a lot of revenue recognition in the fourth quarter.

In the second quarter, we incurred approximately $20 million in net additional indebtedness as well. This concludes my summary remarks on our operating performance for the second quarter of 2018. Thank you for your time this morning.

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

(Operator Instructions) Our first question is from Rob Stevenson with Janney.

Paul, what magnitude of asset sales are you and the Board thinking about at this time?

We will -- it's hard to say what the exact number is. What I have previously said was $20 million to $40 million. We will exceed that number by some amount, but exactly how much is unknown. Our view is that the -- and we're seeing this in asset sales we're making, we have profit in many of our assets. We are called all the time by bottom fishers after this attack on our company. We're just not going to respond to those guys, but they're value buyers. We will sell some assets because it's very compelling to reinvest that -- those dollars today into buying back our own securities. And frankly, more profitable than holding the farms. So it's hard to say exactly what the number is. Bigger than it would have been 60 days ago, but it's probably still not -- it's not multiple hundreds of millions or anything like that, is not our expectation, at least not in the near term.

Okay. And with any share repurchases, how should we be thinking about that? Leverage neutral or should we expect to see effective leverage increase as a result?

It should be -- I mean, it should be close to leverage neutral, if not actually decreasing leverage. And here is how to -- here is how we kind of think about it. If I'm -- when we sell a farm, in the neighborhood of 40% to 50% of the sales price of that farm will go to reduce debt. Each of these farms has an individual mortgage on it. And obviously, right there at the closing table, you'll pay down the debt that was assigned to that farm. The -- and then as far as with the repurchases, if we're repurchasing preferred, you're obviously lowering your sort of overall senior leverage or senior capital position. If you're repurchasing common, you're theoretically increasing your leverage a little bit, but not, frankly, by very much. And that's kind of what we would expect to see. So it ought to be close to leverage neutral or maybe even lower our leverage gradually through time.

Okay. And then when does your window -- is your window open up basically now that you filed the results, that you can start buying back stock later today, tomorrow, or is there some delay?

I mean, I won't disclose our exact buyback and repurchasing plans for obvious reasons. We will stay out of the market for what people consider the normal amount of appropriate time for this new information to settle in and fully be seen in the marketplace, and then we'll likely enter the market for buybacks. Most people...

Okay. And then...

Go ahead.

No. I was just going to ask, I mean, in terms of some of the impact on some of your farmers from the trade wars and tariffs and everything like that, has any of the money sort of earmarked by the Trump administration started to flow to help these farmers at this point? Is it going to come soon enough that it will impact maybe to the positive in terms of their operations for next year and how they think about planting and crops and things of that nature, how should we be thinking about that and the sort of attitude of your tenants from that as we get towards [the -- that] thinking about '19, rather than just '18?

Yes. So the trade war, as an impact on our business, is actually a very sort of difficult thing to figure out. The -- #1, there is not much history here, it's been long time since we've had a trade war in place on agricultural commodities. Commodity prices, corn, soybeans and wheat, in particular, have come up pretty significantly in the last 20 to 30 days, and if you just go pull a price chart for any of those primary commodities, you'll see this. They came up earlier in the spring, they dipped for a while, and now they've come back. The reason for that is those prices are driven by the true underlying fundamentals, not the trade war. It is a hungry world. All of these commodities will be consumed. We are generally entering a period of time with more orientation towards shortage than surplus, if you look at USDA data as it relates to worldwide and national carryout numbers for those commodities. And that's really what's driving commodity price today. Trade wars probably are holding it back. Soybeans, in particular, would probably be -- as I have read reports that would say they would be as much as $1 higher if we settled the trade war, because that's the community most impact by Chinese discontinuation of importing for us. But what's going to happen, assuming the trade war continues to go forward, at least in the near-term, we're just going to shift where we sell our product, not actually change our ability to sell it as the United States very much. Brazil will sell more to China, and we'll sell more to everybody else in the world. And that change is already sort of occurring. So that -- farmers aren't in need today of that -- of that benefit, so to speak, in terms of making profitability and our cash flow stay together. If this goes on multiple years, that's when the trade war really becomes a big negative, at least in my view. And that's because what it does is it causes other countries to invest in solving their infrastructure and production problems to be able to produce more beans or corn or wheat and compete with us. So it's the 5-year effects of the trade war that I worry about the most, not the near-term effects. Obviously, what the Trump Administration has proposed is generally welcomed in the farm community. Who wouldn't want further revenue and aids in what's a challenging price year? But it's not -- that's not a make or break fact for the performance of the farmer. I've even read some articles that people think maybe only half of the farmers will even bother to fill out the paperwork. So it's just -- this idea that the trade war has completely hurt production agriculture is really a misnomer. All of us in agriculture want the trade war behind us. It's an export-driven industry, but it's not got immediate huge negative financial impacts, as I think the popular press sometimes suggests. I mean, you can see it, you can see that it doesn't have those impacts if you just pull out a commodity price chart. I hope that helps you.

Yes. And then last one from me. I think it's was the fourth quarter earnings call in response to some comments that you made regarding the discount you believe the stock was trading at that time. I asked you, why not find some capital to take the company private? I think, in response you were basically said that you were committed to remaining public for a variety of reasons. I wonder if after the last month on top of the last year, do you still feel that way and whether or not something that the board has been considering?

We obviously -- the board have considered everything. But our strategy is as I just outlined in my prepared comments. For now, we're going to sell a few assets, and we're going to aggressively repurchase our shares because we believe the value is there. That difference between private market valuations and our public stock valuation, that is not for the benefit of some private equity fund who wants to take us private. That is for the benefit of the shareholders we already have. And we will take decisions -- if a private equity fund wants to show up and pay NAV, we will probably sell the company. But if a private equity fund wanted to buy it cheaply, we're not going to do that. There is absolutely $12 a share in our opinion in this stock, and we will achieve that -- we will achieve that value eventually through a variety of different actions we can take. And that's what we're focused on, it's really a value question, not a process question per se.

Our next question is from Collin Mings with Raymond James.

First question from me, Paul, just on guidance. The higher G&A legal and accounting costs are pretty straightforward. But just can you walk us through that $0.05 hit to base rental income in a little bit more detail?

Yes. So it's not -- I'm not going to do it at base rental level, I'm going to do it at the total revenue level, if you don't mind, Collin, just because how we allocate between base and other income is a little bit -- it's a lot of data buried in that. So in terms of what's happening to revenues is really the following. We have 2 -- in terms of the basic operating business we already have, we had 2 significant lease challenges come to us in the second quarter, both of which were in Florida. It was a case of a tenant backed by a private equity firm that frankly went bankrupt. We have rerented the farm quickly to someone else with frankly a better and different operating model on that farm. Over a period of a couple of years, rents will probably go back to, if not exceed, what we had with the prior tenant. But at least in the short-term, particularly this year, you take a real step backwards when you take a farm back in early April in Florida. You need to rerent that farm in a hurry. And to do so, you do it in a discount because in Florida, that's obviously already kind of late in the season. The other operator in Florida was a lease that had expired. The tenant -- as is our normal course of action, we give the tenant who was on it sort of first dibs. That tenant, at the last minute, couldn't secure the funding to continue to farm the property. So we have, of course, rerented that farm to someone else, again, quite quickly. And that effort led to a drop in the rental rate for this year, but again, we're converting that farm to a different type of production, different crops, and it'll likely go back up to higher rents as you walk forward in '19 and '20 than we had under the prior tenant. So these things have significant kind of quarterly impacts because we took a bunch of reserves, we cut revenues, you do those sorts of things and those sorts of things show up in your quarter in a pretty significant way. But their impact on overall portfolio valuation over long-term cash flow really isn't very significant, but on a quarterly basis in particular, or even for the rest of this year, it does add up. We also have a few positive wins on the revenue line and some our businesses, in some of the pieces of our business, that's good. We lost a very important piece of what I'll broadly call joint venture business, following the Seeking Alpha article that some -- it was an effort that we had worked on for over a year. And not only 1 very specific piece of business was lost, probably some future business that would have been similar to that was lost. We're trying to recover that, not sure if we will, so don't want to really say any more about this at this point in time. Then the other impact at the revenue line is really kind of the impacts from the sort of strategy change we're making. A modest amount of lost revenue from the asset sales we've already made and will continue to make, which obviously pulls your revenues down. The lost revenue from CapEx -- the lost revenue from CapEx and from acquisitions we're not -- we haven't made since we were doing buybacks earlier in the year and acquisitions and CapEx that we won't do from this point forward since we're devoting all the additional cash to buybacks. And so that's -- those really are the constituent pieces of the revenue line change in the guidance.

Okay. That's very helpful detail there, Paul. Now just going back to some of your prepared remarks and as it relates to guidance again, you seem to leave the door maybe open to some additional expenses that, again, tied to maybe potential litigation, you touched on some of the employee retention efforts. Just maybe speak to your confidence level in this new guidance range, is there anything else that -- variables that we should consider as we think about the potential movement on what could happen to G&A and legal costs, just given where litigation is right now?

Yes. We obviously have D&O insurance, as any company like us would have. We feel that we're in a pretty good shape there. I mean, these claims are all fundamentally meritless, so the eventual litigation costs and expenses ought to be manageable. But when we came out with both the dividend cut and the guidance, we very specifically wanted to be conservative, or aggressive in the negative sense, if you will, on both of those things because whatever the medicine you have to swallow is, after you face these sorts of defamatory attacks, you just need to take it all at once. So I think we're reasonably confident that these are numbers that we will meet or exceed going forward. But it's -- it's a moving -- we're a very, very small company, 15 employees. A lot of moving pieces here and trying to kind of budget for everything and plan for everything is a little bit of a challenge. I would like to think that we've been conservative in our numbers, but you just never know, is the real answer.

Fair enough there. And just on the D&O insurance, I recognize, again, some sensitivity about wanting to go into too much detail on that, but just as you think about potential litigation costs beyond the 2018 and into '19, if things were to drag out, is there kind of already a deductible, if you will, that you feel like you will have met throughout 2018?

I'm not going to go into the specifics of our D&O policy, of course. But let me just leave it at the following: We are not engaging in recreational litigation. We believe we have -- that the claims of the class action suits are completely meritless. I'm relatively certain there is a bunch of those class action lawyers on this call. You can't just grab a dishonest article off of Seeking Alpha and slap it into a complaint and expect to win a lawsuit. That's not how it works. That world is about true facts and real -- and real facts and the real obligations we have as a public company. And we haven't violated any rules. Those cases will eventually go away. And then when you turn to the defamation case that we filed, we believe there is real damage caused that we can prove, and we believe that there are people behind that with real money that we can recover, and we intend to do our best to do that for our shareholders. And on the litigation and strategy, that's really all the -- as far as I'm going to go, Collin.

Fair enough. Then going back to the buyback, again, recognizing the sensitivities on talking about blackout periods. But maybe just talk a little bit about what do you see as more attractive right now in terms of buying the common or the preferred?

Well, since I'm the phone call, I don't know what the trading activity is and I'm sure it's hectic. But I think our view would be that you'll -- if you can buy some of that preferred at a material discount, we're going to buy some of that. And then the common is such a steep discount, we would devote some dollars there. I'm guessing we split those buyback -- it's as much anything as an availability question. There is a lack of liquidity frankly in both securities. So as we're trying to deploy these buyback dollars, it will be partly a function of the pricing available. And I would think when we report it a quarter from now, you'll see that some went both ways.

Okay. And then going back to Rob's question on -- as far as asset sales, can you just [show us], do you have any other properties under contract to be sold? It's -- again, it sounds like it could be north of $40 million all in by the end of the year, but just are any of those kind of already under contract to be sold?

Yes, we do have some properties already under contract, but we don't announce what we expect to get or anything like that. I think if you looked at the subsequent events sections of our Q when it comes out, there is some disclosure there. But we don't ever want to talk about numbers until transactions are closed and the money has traded hands.

Okay. Another one just on investment activity, it does look like you may have acquired a property subsequent to quarter close, can you just touch on that?

Yes. We bought an additional -- some additional farmland in Illinois. A transaction we have been working on with 1 of our tenants that they had an opportunity to pursue for quite some time, and we went ahead and did it. Good value, good farm, happy with the upside potential on that transaction over the long-term. And we're not -- we're not going away, we're not going to stop acquiring entirely. But you -- for the -- at least for the near term, you will see more capital recycling and more sales of assets than acquisitions.

Okay. And then kind of going back to the fundamentals of the business. Again, following up a little bit on your response to Rob's question here. Just maybe talk a little bit more -- and recognizing it's going to vary by region and by farmer, but just talk a little bit more about that rent negotiations right now? I mean, what are you seeing? Maybe again, take us through some of the row crop versus maybe some of the specialty, just talk a little bit more if you can about rent negotiations relative to expiring rents if you can?

Yes. I mean, we will have something like 20% to 40% of the rent, most of our leases, as we talked about in past calls, are 3 years, so we have 20% to 40% of the portfolio rolling over approximately in a given year. Our general sense is that those rents will move up modestly. Now they will not move up as -- this is -- what the market I think continues to misunderstand, Collin, is that, the bad times in production agriculture from a land owner's perspective are flat. That -- it's a flat environment. It's not a down environment like you might expect in any other asset class, and that's all because of the power of food demand growth. And so we don't look at these as good times in terms of rents, but if I'm only getting a 1% or 2% rent increase per year, that's bad by the standards of historical averages. You would expect 3% to 4%. And so we're going to still eke out modest increases on our row crop properties with 1 exception, and I think that's the high plains. The high plains regions of the country because of -- essentially because of difficult transportation networks of the primary commodities, corn, soybeans and wheat, they, in a down price environment, have the most volatility in terms of farmer profitability. And so I think it'll be flat in those regions. I mean, we're now kind of 4 years since commodity prices started to come off. And so the pain that needs to be taken has already really been taken in our rents, and that's why you're starting to see these same-store sales statistics move up with the cautionary footnote I gave in the prepared comments. Other than a directional sense, I don't think you can take a lot away from the quarterly same-store sales numbers. The annual numbers are obviously more meaningful, but the quarterly ones tend to have just a quite a bit of noise in them because of timing, in particular.

Our next question is from Dave Rodgers with Baird.

Paul, or maybe even better to Luca, just in terms of kind of 3 big impacts you talked about, the NOI guidance reduction of that about $0.07 or so. Can you quantify kind of the components there, in terms of the tenant bankruptcy and replacement of the other tenant as well as it looked like maybe you had as much as $2 million of acquisition related revenue embedded in the numbers, so can you break those components out for us please?

I'm not going to break them any farther than things we've already said. But I can point you to where the kind of facts are. If you look at our prior guidance, your estimate of about $2 million, that was in our original guidance for acquisitions and CapEx, David, it's not just acquisitions, but acquisitions and CapEx. That number is roughly accurate. So you can start from there. As far as the rest goes, you'll see -- you can see in the reserves that we took, significant amount of reserves on those 2 Florida things and then most of that reserve number this quarter comes from those 2 events. That's about as specific as I think we ought to be.

Okay. And then appreciate the update on Farmland values both overall as well as your portfolio. Can you talk about that just in a broader sense and any changes that you're seeing in the different regions of the country? I think it's obviously important that there is that underlying stability, and I guess, maybe tie that into the broader concept of can you start to see that type of stability back into your financial results, ex the noise of litigation cost in G&A?

Yes. So when you invest in Farmland as a private investor, what you're going to get is a real stability in asset values and some level of volatility, if you were directly operating a farm, some level of volatility, obviously, in annual return. Now through cash rents and other things, you can significantly mute the variation in annual numbers. But the underlying business at the actual individual farm level, the land values gradually creep up. In tough times, they creep up like they have the last couple of years, 2% to 3%. In good times, they creep up 5% to 8%. If you went and looked in our supplemental on Page 19, you'll see a 10-year history of land values in all 17 states that we own farmland. And you've you look at states like Illinois, your high values in a place like Illinois came in 2014 and 2015 at about -- the high in 2014 was $7,520 per acre average for the state. We're now at $7,450 in Illinois, that means we've come off a little bit and started the climb back up. But that' just a good example of what goes on, on asset values. And then you get obviously some volatility based on weather and/or crop price in revenue off each one of these farms. We don't see -- we don't -- we're not seeing huge swings in our revenues per farm out there, other than these sort of idiosyncratic events like will always happen when we have 300-or-so separate farms. What you're seeing is huge volatility in the stock price that's based on a misunderstanding of what's really going on in the countryside. I mean, you go read on Seeking Alpha and I keep seeing authors write things like Farmland is going to come off 30%. They've been writing -- 1 writer out there has been writing that now since 2014. Does he ever write that I'm just wrong -- he's wrong? This drumbeat of noise has put volatility into our security. It just hasn't occurred and doesn't exist in the private market. On the G&A side, you get something like Seeking Alpha and the litigations coming out of that. That is expensive and does have some impact at the bottom -- at the bottom line. I don't know if that answers your question, but that's what we are seeing out there.

Our next question is from [Charles Prescheur] with [LF Partners].

I own a little bit less than 1% of the company. I had owned some before the Seeking Alpha article and been buying since. I want to ask you a couple of questions. One is, capital allocation is a critical piece of what a CEO does, and you have a challenge but an incredible opportunity like you've delineated today. Let's first talk about -- you're not going to have listen to me in terms of do what I say, but buying preferred here is a real head scratcher for me. You -- the preferred are trading $23, 6.5% coupon. They're trading essentially at $0.92 on the dollar. You've got common which, give or take, is close to a 50% discount NAV. You have a $38 million buyback. You can all do the math, if you spent $38 million buying stock back at current prices, that's like buying a farm that's worth almost $80 million [for] $40 million. It seems to be a no-brainer just to go ahead and knock off stock and I wouldn't even waste your time buying preferred. That's my first question, is why you would think about buying preferred at all?

Let me actually answer that, because there is a very sort of simple and kind of practical answer. Because the math you just did is fundamentally correct. We could haggle over the exact equation, but yes, what you said is correct, and we believe it as a management. And by the way, thank you for supporting us in difficult times. But the practical reality when you execute a buyback, you may or may not know all these rules.

[I know all the rules].

We can only buy 20% of the stock in a given day. We have a relatively low float, the stock will eventually recover, the discounts in our securities won't last forever. And so let's just say for sake of argument that I'm bumping up against the legal limitations on the common buyback. And if I just keep pushing on the common, I eventually push the stock price up pretty aggressively against myself. We're going to take some dollars and move it over to the preferred and buy some preferred and then come back to the common again. I would think that most of the dollars we spent go against the common. There is certainly bigger discounts there and there is certainly more liquidity in that security. The preferred doesn't trade very effective -- it doesn't trade very much volume at all. But we need to keep the flexibility to kind of move back and forth between the two. [And that's the way we see it.]

That's fair. I'm -- and I -- you get the math, too. On a housekeeping basis, you're allowed to buy 1 block a week, who do -- if people have a block to sell, who do they call?

If somebody has a block to sell, they ought to give a call to the -- you can call our office and ask for the CFO, which is Luca, or they can call any of the investment banks that we will be executing with and the banks that have been -- I'm not going to give you specific names, but the banks that have been in our recent transactions, if you look back through both equity and preferred transactions, it will be the banks that are helping us with this.

One more thought I would give you, Paul, is you're a little down, this has been a tough period. You can make [chipping out] and you have the opportunity -- you're going to be able to buy lots of stock with a 6 or a 7 handle, and those are going to be wonderful purchases, and those are going to be better than any farm you would have bought this year, because you're going to create 30%, 40%, 50% returns on equity. So just keep your head down, you're doing the right thing, just grind through this and you'll do well for everybody. You've just got stay focused, and you are.

Thank you very much for that, by the way, and for other people listening who have sent me a kind email, and there is many of you, I appreciate it. That's what we're going to do. I mean, we are depressed. Our company is -- everybody in our company feels like they've been defamed and besmirched. It's very, very inappropriate. But we're going to get through this. The good -- the reason we are fighting back so hard is -- if you're thinking about suing us in one of the class actions, make sure you do it on contingency, otherwise you're going to lose your money. We're just going to -- we're going fight this and win them. So that's where we are.

Our next question is from Craig Kucera with B. Riley FBR.

Paul, what was the dollar amount of expected investment in CapEx and acquisitions that you elected not to pursue?

I don't know off the top of my head is the real answer, but it's -- it'd be tens of millions that we're not doing. Because we will have shifted away quite a bit of money towards buybacks.

Got it. And you closed the quarter with I think $26 million of cash. How much of that would you be comfortable using to buy back the stock and then kind of waiting to sell assets [to refinance]?

We're not going to get out over our skis here. The way you really lose money in ag real estate is being forced to -- those of us who are long-term investors in Farmland, we hate to see the rents go down and think of the dividend as the rents. But the real value is the corpus and the corpus is the land itself. You're not going to -- you don't want to get yourself in a situation where you got to do any kind of forced sale because you're running out of cash. And this is why we already embarked on some sales. I mean, we had a dividend that was in excess of our earnings. We certainly -- we never would have cut this dividend but for the Seeking Alpha short distort attack, but we're not going to get ourselves in a position where we're short of cash. But the asset sales have already started and will continue, and so we think we can be reasonably aggressive repurchasing securities. $26 million on the balance sheet, $38 million of potential buybacks in the next year. With asset sales coming, that's not a very big bridge to try to cross.

Our next question is from [David Quertza] with [Basin Partners].

I am curious about the transaction you mentioned, the purchase in Illinois. Are you at liberty to give more details on that?

No. We're not going to give individual details on individual transactions. I'm just not going talk about the actual individual transaction. I mean, how we negotiate transactions is essentially the secret sauce of what we do and we're not going to get into exact pricing of deals and things like that.

Let me ask you this, do you happen to know what the PI index was?

PI index of both the highs -- the sales and the acquisitions are Class A soils, so I don't remember exactly, but high 130s, low 140s in both cases.

I see.

And for everybody else on the phone, PI stands for Productivity Index. It's how you measure the relative quality of land in Illinois, in particular. There is different indexes in different states.

Our next question is from [John Tobin], a private investor.

You noted selling noncore assets, what do you consider noncore and how do you identify those assets? Is it a bottom-up process or a top-down process? I'll step back and let you answer.

Yes, it's actually kind of a combination of both if you mean kind of who decides. So we have regional farm managers who look at the assets in their zone as well as -- as well as me looking at the assets in those zones. And what we do is we kind of look at our land in, broadly speaking, 3 buckets. We've got what we call the crown jewels. These are very, very high-quality farms, either very big, very special for some reason. These are assets that we really don't want to sell. We don't -- if somebody offers us a very, very top dollar price, we'll certainly consider it. We're in the business of buying and selling land, but the crown jewels, we want to keep. I would say that's round number, something like 40% of our portfolio. Then the biggest group of our portfolio, about 50%, are farms that are really very good but, for some reason, not perfect. Not big enough; if you're in the Midwest, they possibly have a waterway or something in them; they're unusual shape; there is some challenge of some sort that makes them less than perfect, but still quite good. Those farms are farms we'll trade in and out of through time, gradually trying to increase the number of crown jewels we have is really the goal. But those will be farms we would consider selling. Again, we'd want kind of full and fair price to sell them, but we would consider it. Then the third group is a group of farms that, in a perfect world, possibly I wish we didn't own, that might be 10%. What's usually happened there is we started in a given geography with an anchor farm, and then for whatever reason, had a hard time adding on to it in the nearby geography. And so from a management perspective, they're a bit of a pain in the backside because you got to travel to get there, you have to maintain relationships with potential tenants and everything else, but they're sort of outliers on their own. And those farms, again, we'll sell them in excess of what we paid for them, but we're more willing, if you will, to sell those farms. And that's really kind of 3 buckets and how we look at it. So when we decide what to sell, anything in that third group I just described is certainly noncore. And then anything in the middle group I described, if the price is high enough, we're willing to sell it and recycle the capital today into share repurchases. In a more normal environment, we'd have tried to be recycling the capital into higher quality farms, higher quality and better farms at similar prices or equal quality farms at lower prices. Because the way the private market works is there will be a buyer who might happen to want something more than we do. And if that's the case, we're willing to sell in those instances. So that's sort of how we decide kind of what to part with and what to keep.

Great. So there's no sort of regional bias or land type bias that you hold to the price?

No, there is not any specific regional bias. We firmly believe in the principal of diversification in the context of our overall portfolio, okay? There are -- several years ago, 4 or 5 years ago, people would have been telling us, what are you doing going to the West Coast and buying permanent specialty crops? Those are -- they don't perform as well, they've got more risk, why are you buying that? Just buy the Midwest. Now people said people that [they think] are uninformed frankly say the opposite. And this is -- it's a big country with a very powerful ag economies, each of the regions is different, driven by slightly different economic factors, all driven at the end of the day by global food demand. And so we want to be diversified. And so we tend not to -- the regions that kind of feel that -- from a buying perspective, the regions that kind of feel bad at a given point in time are probably where you need to be investing your dollars. And the regions that at that particular point in time feel really good may be where you want to pull back a little bit. It's sort of traditional rebalancing principles as you sort of think about the portfolio. Hope that answers your question.

Our next question is from [Winston Evanston], a private investor.

I'm trying to figure out -- we're getting your forecast in AFFO of $0.30 a share. We're looking at $38,500,000 in revenue, and this may show my ignorance for this whole -- the economics of all of this. But I'm trying to figure out what would it take to get it up to -- the AFFO up to $0.60 or $0.50 a share. And to get it up to $0.60 a share, it looks to me like you're going to need another $11 million of revenue, which would be about 29% over what you're forecasting this year. Or to get it up to $0.50 there, you're going to need another $7.5 million, which would be roughly 20% increase. I don't -- everything I see or hear, you can expect 1% or 2% increases or maybe 5%, it seems to me we're a long way off from getting back to $0.50 or $0.60 a share. Am I missing something there?

Yes, actually I think you are. So I'll just flip into the -- through our supplemental, which I referred to in our prepared comments. It's on our website. Our total revenue guidance isn't $38 million, our revenue guidance is a range of $57.3 million to $58 million.

You're right, you're right, you're right. I apologize, but you still are going to need about $11 million on $57 million, that's a pretty hefty increase to get it up to $0.60 a share. Am I missing something there or do you (inaudible)?

I can't do the math fully in my head. If you look at the current AFFO, what you're basically saying is I need to double it to double, to double. We -- as we said, our prior guidance, which is where we would have been in the range, our prior guidance was $40 million to $44 million, this guidance is $30 million to $34 million, so $0.10 dropped in the range is our view. And the operating leverage in our company is huge. Because if you add a little revenue, it largely speaking drops clear to the bottom line. Additional revenues for us, you don't lose much on the expense side in our normal and ordinary course, setting aside the cost related to the Seeking Alpha article. And so you'll drop a lot of the bottom line, but yes, to get back up to -- to get to $0.60 of AFFO, you will need to round numbers, increase AFFO by something like $10 million, $11 million, I mean it's just simple math. We think that is doable. How fast it's doable, I don't know. We would think the real baseline of the company is closer to where our original guidance was for the year. And so you don't have quite as much of a hill to climb, but you certainly have some.

Could you respond to the allegation in that Alpha article where they said, I forget the exact wording, but it sounded like the company's loaning money to a friend of Paul Pittman's, who is a tenant and he's paying that money back in rent with the obvious implication that you're just trying to create revenue with an additional loans in it presently?

Yes. We did respond in our written response, as you probably are aware. But I can respond a little bit to that. I mean, that allegation is absolutely untrue. We -- related parties has a specific definition, and we have not made any loans to related parties. Now if you think related parties means we only loan money to people we know, that's certainly true. But his allegation when he made it, and I say him, I don't even know if it's a him, a she or a they. They knew that was false when they wrote it. Okay? That's a very sophisticated hit job to create personal wealth for a group of people who are fundamentally criminals. That's what they are. They manipulated the markets to steal money from small investors. Big investors did not sell into that, small investors did. And we intend to pursue it, we hope law enforcement agencies pursue it. And the allegations are untrue. And we hope they don't get away with it. So there is just nothing to it. And as far as recycling it in some way that boosts our earnings, that's also untrue. And I mean, we report our earnings according to GAAP, that's just how we do it, and we are confident that that's how we've been doing it and there is no issue there. So.

I'm one of those guys, I'm one of the investors who has been hurt, and I hope you succeed. Let me ask you...

Yes, and if you want -- let me give you 1 thing. If you want to call the office, give me a -- I've got a -- I'm really busy today and tomorrow due to this phone call. Call the office on Monday and ask for me and we'll talk more about that. Because we -- I will add some ideas that you should pursue.

The -- your net asset value, you're somewhere around -- I don't know, $11, help me understand this. So if you've got, let's say, the normalized FFO, AFFO is $0.40 a share, are you using a discount rate of somewhere around 3.5%, is that how you arrive at that asset value?

Yes. You should -- so I quoted in my prepared comments 3 sort of key statistics and then summarized them for you. And the 3 statistics I quoted that relate to NAV are book value per share, that's literally looking at our total dollars invested in real estate, plus basically the cash, subtract the debt, so on and so forth and divide by the shares outstanding. That number is $9.73. We believe that number is obviously low, but it's still an important measure when you kind of think about how deep a discount we're in right now. And so that number is $9.73. The other way that you just referred to is to look at kind of traditional REIT-based cap rate valuation. And Luca, if you have it handy, the page in the supplemental, which is available on our website with that analysis, give me just a minute, sir, and I'll tell you exactly what page to go to. It would be Page 18, is our NAV analysis. Yes, and there we're using 4.25% as our blended average [cap rate].

I see that.

[Average cap rate, yes]. And it gives you on that page different numbers for different regions as well as what we call intra-regional variation. So you can play around with those numbers and kind of come to your own view, that's why we put those numbers out there. And if you're knowledgeable about the individual markets, you'll see that our cap rates are more or less sensible. Then the sort of third way we look at it internally is we take both a vintage and a regional analysis of the USDA data through time. So we take what did we pay for a farm because we believe that when we buy a farm, give or take a few dollars, you're paying what it's worth on that particular day between an arm's length seller and arm's length buyer. And then you migrate up or down -- you migrate up or down through time based on what the USDA says about that given state and that and -- the state and the time you bought it. And that's the one that leads us, when you do that, to about $11.73. So you've got 3 data points, $9.73, $11.73, and $13.82. And our view is that we're -- NAV is a range of someplace between $11.50 and $12.50 is our internal summation of what we think NAV is. And I was sincere, give me a call on Monday and I'll tell what I believe at least in terms of what I think you ought to do.

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

Sure. Thank you all for joining this conference call. I wish it would have been a different call than the one we had. For those of you who are shareholders, we truly are thankful for your support. For those of you who may have lost money in the events around July 11 on Seeking Alpha, we would encourage you to work with us and let's attempt to go get all of your money back.

Thank you very much. Goodbye now.

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