Farmland Partners(US:FPI)2019-08-07 19:11Financial Data and Key Metrics Changes - Total operating revenues for Q2 2019 were $10.9 million, representing a 4.1% decrease compared to the same period last year, primarily due to asset sales [30] - Operating income for Q2 2019 was $4 million, a decrease of 23.8% year-over-year, influenced by reduced revenues and increased legal expenses [31] - Net income for Q2 2019 was $6.5 million, a significant increase from $981,000 in the same period last year, driven by nonrecurring gains from asset dispositions [31][32] - AFFO per share was negative $0.05, impacted by revenue declines and increased interest rates [32] Business Line Data and Key Metrics Changes - The company sold approximately 5.5% of its portfolio, leading to a revenue decline of about 4.1% [17] - Asset sales totaled $67 million with an average gain of 20% above purchase price, demonstrating successful asset management [22] - The company has reduced administrative costs by over $1 million in the past year, primarily due to personnel changes [18] Market Data and Key Metrics Changes - USDA land value survey indicated farmland values increased by 1.94% from June 2018 to June 2019, with a 2.66% increase in the 17 states where the company operates [14] - Specific regional changes included a 7% increase in California farmland values and a flat change in Illinois [15] Company Strategy and Development Direction - The company remains optimistic about long-term shareholder value despite current agricultural economic headwinds, emphasizing the resilience of farmland as an asset class [8][9] - The strategy includes opportunistic asset sales and share repurchases to enhance shareholder value, particularly as the stock trades at a discount [24][60] - The company is focused on maintaining a diversified portfolio to weather economic cycles effectively [39] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges from the trade war affecting farmer profits, particularly in nut crops, but expressed confidence in the overall resilience of U.S. agriculture [9][10] - The company anticipates a short crop year for corn and soybeans due to adverse weather conditions, which may lead to price increases [12][13] - Management highlighted the importance of crop insurance for tenants, providing stability in rental payments despite market fluctuations [41] Other Important Information - The company has faced legal challenges related to the Rota Fortunae litigation, which has resulted in increased legal costs and reputational damage [19][25] - Interest rate reductions are expected to benefit the company's P&L over time, with potential annual savings of $25 million to $50 million in interest costs [50] Q&A Session Summary Question: Depth of buyer interest in asset sales - Management indicated a strong market for asset sales, primarily from individual buyers rather than asset managers, and noted that most sales have been to operating buyers [35][36] Question: Tenant's ability to afford current rents - Management explained that most rents are cash rents, providing stability, and that crop insurance helps tenants manage costs, although future lease negotiations may be challenging in a downcycle [41][42] Question: Elevated legal costs in Q2 - Management suggested that the recent quarter's legal costs were likely higher than expected but could stabilize in the future, though unpredictability remains [46][48] Question: Impact of recent interest rate reductions on debt - Management believes that recent and anticipated interest rate reductions could lead to significant savings in interest costs, enhancing financial flexibility [50] Question: Farmer revenue and expense situation - Management discussed the balance of input costs and yields, noting that farmers are currently operating near breakeven, which affects their ability to pay rents [51][55] Question: Status of Rota Fortunae litigation - Management provided updates on ongoing litigation against Rota Fortunae, emphasizing the pursuit of damages for shareholder losses and the complexity of the legal process [62][65]