Yahoo Finance Farmland Partners Inc. (NYSE:FPI) Q1 2024 Earnings Call Transcript
Farmland Partners Inc. (NYSE:FPI) Q1 2024 Earnings Call Transcript May 1, 2024
Farmland Partners Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Thank you for standing by. My name is Cath, and I will be your conference operator today. At this time, I would like to welcome everyone to the Farmland Partners, Inc. First Quarter 2024 Earnings Conference Call. All lines have been placed in mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. I would now like to turn the call over to Luca Fabbri, President and Chief Executive Officer. Please go ahead.
Luca Fabbri: Thank you, Cath. Good morning, everybody. Welcome to our quarterly update call after the announcement of our earnings last night. Before we just jump into the call, I will turn over the call to our General Counsel, Christine Garrison for some customary preliminary remarks. Christine?
Christine Garrison: Thank you, Luca, and thank you to everyone on the call. The press release announcing our first quarter earnings was distributed after market closed yesterday. The supplemental package has been posted to the Investor Relations section of our website under the sub-header Events and Presentation. For those who listen to the recording of this presentation, we remind you that the remarks made herein are as of today, May 1, 2024, and will not be updated subsequent to this call. During this call, we will make forward-looking statements, including statements related to the future performance of our portfolio, our identified and potential acquisitions and dispositions, impact of acquisitions, dispositions and financing activities business development opportunities, 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 most comparable GAAP measures are included in the company's press release announcing first quarter 2024 earnings, which is available on our website farmlandpartners.com and is furnished as an exhibit to our current report on Form 8-K dated April 30, 2024. 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 distributed yesterday and in documents we have filed with or furnished to the SEC.
I would now like to turn the call to our Executive Chairman, Paul Pittman. Paul?
Paul Pittman: Thank you, Christine. This is a really strong quarter for the company. I'm going to talk in a minute about the transaction where we received some nonrefundable deposits that we ran through the quarterly P&L, but I'll come back to that in a minute. The really important things about the quarter are we materially increased the annual guidance. Our cost control efforts are working with our overheads down around 13%. With all the asset sales, we decreased our assets last year by around 12%, but our rents have only gone down about 5% overall. So clearly, we sold off assets that weren't as strongly performing as the ones we held on to. And that's really what we're trying to accomplish here, to drive efficiencies and higher AFFO into the company.
The one comment I want to make about the transaction with the nonrefundable deposits is the following. I saw in several of the analyst reports that there was sort of an immediate reaction to call that a one-time event. And yes, it is an unusual event, but in an annual sense, we have about twice a year something like that, that runs through our P&L. So yes, it's unusual in the context of any given quarter. And it's not true, which is the reason we disclosed it the way we did. It's not traditional rents. But we get approximately every other quarter some major payout related to the way we negotiate our various real estate transactions. In this particular case, it was someone who wanted to buy a farm from us. We required them to make a nonrefundable down payment toward the purchase of that farm and they eventually decided they could not complete the purchase, and we kept their money.
In the fourth quarter of 2023, we had a similarly large payment from a solar company because we had negotiated a onetime payment from them when they initiated construction. And so on and so forth. So I just wanted to add a little bit of clarity. We will always disclose these things that are unusual, but I'm not quite sure it's appropriate to immediately kind of pull them out of our P&L, if you're an equity analyst because these things happen over and over and over again for us, which is good. With that, I'm going to turn it over to Luca to make further comments about the quarter.
Luca Fabbri: Thank you, Paul. There are really a couple of areas that I want to spend a minute on, kind of the first one is acquisitions and dispositions and how our strategy in 2024 vis-a-vis those items is changing in 2023. And what are the drivers of our strategy this year. And this is also because of -- we just spoke with a round of meetings with some investors, and there were some questions that came up. So that's why I think it's appropriate to draw a little bit more clarity. Even though some of these items might be obvious to some of you. So in 2023, we had a very significant disposition activity in terms of both number of transactions and dollar volume of those transactions. I believe we use those proceeds very, very well in paying down debt and buying back stock.
We intend to do fundamentally the same thing in 2024. However, we have some regulatory constraints, to follow. Specifically, as a real estate investment trust, we are subject to certain limitations in terms of the disposition activity that we had in aggregate in year. And we can rely on a number of different safe harbors in any given year. Last year, we relied on the safe harbor is really related to a dollar -- a total aggregate dollar amount of transactions. It is really based on a three-year average. That safe harbor would have led to a very small number of dispositions this year. So we are actually relying on a different safe harbor, which is purely a number of transactions, namely seven, regardless of the individual or aggregate dollar amount of those transactions.
We already kind of "used" one of those transactions through dispositions in the opportunity zone fund in which we hold -- which we are an asset manager, in which we hold a 10% equity interest and because of that 10% equity interest, that counted as a disposition transaction for us. So while last year, whenever disposition opportunities came to our attention and we decided to pursue them, we were executing on them effectively right away. This year, we need to be a little bit more thoughtful because we only have six remaining transactions -- disposition transactions that we can complete. And therefore, we are being a little bit more thoughtful and planning and prioritizing the various opportunities that we have in front of us. So while so far we haven't completed any dispositions, I expect that we will enter into some of these transactions later in the year Although to preempt any questions, I don't have any information to share at this point publicly related to the expected specific timing or volume of transactions of regions and so on and so forth.
One other kind of item, I wanted to cover is on the cost management side. I think we did a pretty good job in 2023 by reducing some G&A costs. We are continuing that approach this year with some -- we had some staff reductions. We had some compensation at the senior executive level, compensation has been either reduced or capped, and we will continue to pursue further opportunities in the course of this year to reduce expenses whenever we can. And with that, I will now turn the call over to James for his overview of the company's financial performance. James?
James Gilligan: Thank you, Luca. I am going to cover a few items today, including a summary of the first quarter of 2024, review of capital structure and interest rates and updated guidance for 2024. I'll be referring to the supplemental package in my comments, which as Christine mentioned, is available on the Investor Relations section of our website under the sub-header Events and Presentations. First, I'll share a few financial metrics that appear on Page 2. For the three months ended March 31, 2024, net income was $1.4 million and net income per share available to common stockholders is $0.01, lower than the same period for 2023, largely due to the impact of dispositions that occurred last year. AFFO was $2.8 million and AFFO per weighted average share was $0.06, significantly higher than the same period for 2023.
While Q1 2024 AFFO was negatively impacted by sales that occurred in 2023, it was positively impacted by the $1.2 million of income from forfeited deposits that Paul referred to, which I'll also explain a little bit further in a minute. Next, I'll review some of the operating expenses and other items shown on Page 5. Depreciation, depletion and amortization was lower in the first quarter of 2024 due to fewer depreciable assets in service. Property operating expenses were lower in Q1 2024, caused by lower property taxes, lower property insurance expenses and lower repair expenses. General and administrative and legal and accounting expenses had small changes between the periods. Gain on dispositions was down in Q1 2024, as no farms were sold only small fixed assets on a few properties.
Income from forfeited deposits, as Paul described, that relates to the sale of a farm that was initiated back in 2020, where we received a series of nonrefundable deposits over time. The sale was terminated by mutual agreement in the first quarter of 2024. And as a result of the sale termination, we recognized the $1.2 million of forfeited deposits. Interest expense increased slightly in Q1 2024 due to higher rates. Next, moving to Page 12. There are a few capital structure items to point out. Total debt at March 31, 2024, was $383 million. Floating rate debt net of the swap, as a percent of total debt was approximately 18%. Fully diluted share count as of April 25, was 49.4 million shares. We have undrawn capacity on the lines of credit of approximately $179 million at the end of the first quarter of 2024.
In 2024, we have three MetLife rate resets on debt totaling approximately $44 million. That's loan #9, #11 and #12. We agreed to the new rate for MetLife loan #9, that 6.37% for the next three years. That rate is effective on May 5. The Rabobank debt shown on the table had a change within the quarter. The $2.1 million of annual amortization has been eliminated. The spread on the Rabobank debt remained the same, the next spread reset is in two years. The Rutledge facility also maintained its spread. The next spread reset is at the beginning of Q2 2025. Page 13 provides an overview of our income statement and the building blocks that generate revenue and cost of goods sold. Please note that our GAAP financials had a small presentation change in the fourth quarter of 2023.
Tenant reimbursements are included now in rental income on the income statement, as reflected in the 10-K and also the first quarter 10-Q. In Note 2 of the K and the Q, we show the components of rental income, fixed farm rent; solar, wind and recreation; tenant reimbursements and variable rent. Page 14 shows these building blocks for the first quarter of '23 and the first quarter of '24, with comments at the bottom to describe the differences between the periods. A few points to highlight are: as expected, fixed farm rent decreased due to dispositions in 2023. Solar, wind and recreation changes were caused primarily by rent on land with a large solar project in Illinois that was higher in '23 than '24, as the project moved from its construction phase to its operational phase at the very end of 2023.
We will see this difference and this impact throughout the year, especially in the first -- excuse me, in the fourth quarter. Tenant reimbursements decreased in Q1 2024 due to a onetime tax reimbursement in Q1 of last year, dispositions that occurred throughout 2023, and a small number of leases that renewed with higher fixed rent in exchange for lower tenant reimbursements. Management fee and interest income decreased -- excuse me, increased with greater loans and financing receivables outstanding. Variable payments were higher in the first quarter of 2024 due to grapes. Direct operations is a combination of crop sales, crop insurance and cost of goods sold. It was up relative to 2023, largely due to citrus. Other items decreased slightly between the periods.
On the next page, Page 15, we show the outlook for 2024 using the same format as the previous pages. Assumptions are listed out at the bottom. We had three acquisitions in the first quarter of 2024. No other transactions are included in these projections. On the revenue side, fixed farm rent changes full year impact of 2023 transactions plus the three, Q1 2024 acquisitions and a few lease changes that occurred in the first quarter of 2024. Direct operations, again, that's crop sales, plus crop insurance plus cost of goods sold, is up due to higher expected performance in citrus farms under direct operations. On the expense side, general and administrative decreases a slightly lower spend in the first quarter of 2024. Interest expense is higher due to updated forward curves.
And keep in mind, we don't show the entire income statement here, but please note that the Q1 impact for the forfeited deposits is included in AFFO. The forecasted range of AFFO is $9.4 million to $12.8 million or $0.19 to $0.26 per share, an increase over the outlook from last quarter. This summarizes where we stand today, and we will keep you updated as we progress throughout the year. This wraps up our comments this morning. Thank you all for participating. Operator, you can now begin the Q&A session.
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