Farmland Partners Inc. ($FPI)

Thank you for standing by. My name is Janice, and I will be your conference operator today. At this time, I would like to welcome everyone to the Farmland Partners, Inc. Q1 2026 Earnings Conference Call. [Operator Instructions] Thank you. And I would now like to turn the conference over to Luca Fabbri, President and Chief Executive. Please go ahead.

Thank you, Janice. Good morning, everybody, and welcome to Farmland Partners First Quarter 2026 Earnings Conference Call and Webcast. We truly appreciate you taking the time to join us for these calls because we see them as a very important opportunity to share with you, our thinking and our strategy in a format less formal and more interactive than public filings and press releases. I will now turn the call over to our General Counsel, Christine Garrison, for some customary preliminary remarks. Christine?

Thank you, Luca, and thank you to everyone on the call. The press release announcing our first quarter earnings was distributed after market close yesterday. The supplemental package has been posted to the Investor Relations section of our website under the sub-header Events and Presentations. For those who listen to the recording of this presentation, we remind you that the remarks made herein are as of today, April 30, 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 the most comparable GAAP measures are included in the company's press release announcing first quarter 2026 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 29, 2026. 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 the 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?

Thank you, Christine. It's all in all, a pretty good quarter. I'm just going to address a couple of issues in my prepared comments, and then I'll turn it over to Luca. So the first issue is we've been getting some questions about what's the impact of the war in Iran on fertilizer, grain prices, farmer outlook, et cetera. So let me kind of hit a couple of key issues. And if anybody has follow-ups, we can deal with it in Q&A. The first is on fertilizer. Most of the U.S. fertilizer does not come from the Middle East or from the Gulf generally. It frankly comes from the U.S. and Canada. So all in all, the U.S. farmer, while prices may be higher for fertilizer is sort of unaffected from a supply perspective on fertilizer. So I think if this went on for another year, it would have some impact. But largely speaking, I haven't heard any reports about lack of fertilizer. What I have heard is some people changing crop decisions because cost of fertilizer is an issue, which may lead to slightly less corn being produced as opposed to soybeans in particular. So that's really kind of on the fertilizer front. We have seen some grain price increases recently, particularly in wheat. The U.S. is not a huge worldwide producer of wheat compared to some other places in the world. But you have seen -- wheat is also very fertilizer intensive. You may see less wheat grown or less yield on wheat in other parts of the world because of the limitation on fertilizer production coming out of the Gulf. So we've seen some wheat price increases, some corn increases, as wheat price increases as well. I think that's at least as much due to drought in the U.S. as it is to the war that's going on in Iran. The drought in the Southeastern portion of the U.S., which is a reasonably large wheat producer, is very, very significant. I read this morning, it's actually the worst drought that there's -- may have ever been at this point in the Southeast. So that will lead to probably lead to somewhat increases in grain prices. And then the final question we've been getting is about how all that might impact our next cycle of rent negotiations. And the real answer is it's really too early to tell. This doesn't move through the -- things like the war in Iran does not move through the farm economy overnight. It certainly doesn't move through nearly as quickly as the up and down of the public markets. So this is going to be a kind of slow-moving process. Higher grain prices obviously help us in our upcoming rent negotiations, which won't even start for another few months. And lower grain prices obviously hurt in those negotiations. But just to give context, hurt means we're -- largely flat and had a hard time getting increases, good times to there when we can get modest increases in rents. The final issue I want to address before I turn it over to Luca is we did take some additional loan loss reserves, not because we're directly concerned that we won't collect but we are obviously making relatively high interest rate, high-risk loans, and we just think it's prudent to continue to make some reserves under the eventuality that we didn't collect everything. Hopefully, those things get reversed, but we put them in our financials in an effort to be cautious and conservative given the risk profile of our loan program. So that's -- with that, I'm going to turn it over to you, Luca, and I'll be back at the Q&A.

Thank you, Paul. This quarter was very much in line with expectations from an operational standpoint. The largest items of note, we actually already addressed in the prior call, which is the completed redemption of our Series A preferred units. They were a significant overhang on the company in case we had to convert them into common at prices that we consider at a significant discount to our intrinsic value. But we have prepared for this event for a long time by shoring up our liquidity reserves, and we were able to satisfy our Series A holders in cash. Despite that, we still have a very strong liquidity position. We have access to about $114 million in untapped liquidity on our lines of credit. So we from a balance sheet perspective, our company is very, very strong at this point in time. On the portfolio side, we continue to marginally improve the overall quality of our portfolio. We disposed of another California property, which we consider a region subject to volatility and to risks. And therefore, we welcome the reduction to that kind of exposure. Overall, in the global picture, if you set AI aside, this is a time of great uncertainty and volatility and so on and so forth. And in the -- in the agricultural sector, in particular, there is quite a bit of trepidation about what's going to happen on the cost side, as Paul was outlining. But overall, Farmland as an asset class is -- continues to demonstrate its strength and its resilience, and we remain a very, very strong believer in the quality of the asset class. With that, I will turn the call over to our CFO, Susan Landi, for her overview of the company's financial performance. Susan?

Thank you, Luca. I'm going to cover a few items today, including the summary of the 3 months ended March 31, 2026, a review of our capital structure and updated guidance for 2026. I'll be referring to the supplemental package, which is available in the Investor Relations section of our website under the subheader Events and Presentations. First, I will share a few financial metrics that appear on Page 2. For the 3 months ended March 31, 2026, net income was $0.6 million or $0.01 per share available to common stockholders, which was lower than the same period for 2025. AFFO was $2.1 million versus $2.3 million for the same period of 2025 or $0.05 per weighted average share, which was the same as Q1 of 2025. Page 5 shows a more comprehensive look at the main drivers of the changes year-over-year. On the revenue side, we were positively impacted by higher interest income due to a higher average balance on loans under the FPI loan program and financing receivables. An increase in amortization of points and higher proceeds from oil and gas royalties. These increases were partially offset by lower rental income due to asset dispositions, the absence of auction brokerage and third-party management income due to the sale of MWA in the fourth quarter of 2025. Operating expenses are slightly higher over the prior year due to the increase in the allowance for credit losses related to loans under the FPI loan program. This increase was partially offset by decreases in property operating and depreciation expenses, which are due to asset dispositions and savings on corporate and travel expenses as a result of the sale of MWA. On Page 12, there are a few capital structure items to point out. We had undrawn capacity on the lines of credit of approximately $114 million at the end of Q1 of 2026. Borrowings during the quarter were primarily used to redeem the remaining Series A preferred units. We had rate resets on three MetLife loans during the quarter. The aggregate amount of these loans was $19.3 million. The weighted average rate on these loans went from about 5.56% to 5.19%. The MetLife term loan #7 is scheduled to reprice in June. Moving on to Page 15, you'll see our updated outlook for 2026. The assumptions are listed at the bottom of the page. On the revenue side, changes from the February guidance include management fees and interest income, which is higher due to the amendment and extensions of loans under the FPI loan program. On the expense side, changes from the February guidance include an increase in provision for credit loss allowance due to higher allowance on potential credit losses of loans. The forecasted range of AFFO is $13.2 million to $15.2 million or $0.30 to $0.35 per share, which is a decrease from the prior quarter on both the high and low end of the range. This summarizes where we stand today. We will keep you updated as we progress through the year. This wraps up our comments this morning. Thank you all for participating. Operator, you can now begin the Q&A session.

[Operator Instructions] Your first question is coming from the line of John Massocca with B. Riley Securities.

So maybe just to clarify on the loan reserve increase. Is that being tied to the performance of the borrower? I mean is there something specific you're seeing there? It just seems like it's an older loan, right? It's not a new loan necessarily creating more reserves. So just kind of curious why the change, it kind of seems like there wasn't a major change in the outlook for kind of farm valuations.

Yes. We make loans to a variety of different folks. One of the lenders -- one of the borrowers continues to have sort of some critical challenges in their overall business and have negative news cycle, if you will. While we may feel secure about our specific loans, that negative news cycle always makes us nervous, which is really what's kind of driving the reserves. When things get messy for a borrower with other lenders, even though it may not directly affect our collateral position, it just makes the whole -- any situation more complicated. And in a non-sort of defined way, increases risk. And so that's what's driving those reserves.

Are those issues caused at all about a certain crop type having headwinds? Or is it more just very specific to the borrower themselves?

No, it's very specific to that borrower. It's not a crop type issue.

And in terms of the size of the outstanding loan program, I mean, is any of that kind of maintained size and kind of growing interest income tied to extensions on that -- with that particular borrower? Or is it just kind of more broadly either extensions or new loans...

Some of the extensions and some of the increased interest rates are related to that buyer or that borrower.

Shifting gears maybe a little bit. Has the conflict in the Middle East and maybe some of the uncertainty around prices impacted the disposition market for transactions to the extent you're still really looking for more kind of sale opportunities within your portfolio in your noncore portfolio?

No. What's going on in the Middle East doesn't have any kind of sort of direct line of sight impact on the transaction market for Farmland. What does have an impact is the general economy/general ag economy. And we are not in any real different situation than we were before hostilities in Iran started. We were in a somewhat challenging farm economy based on crop price versus cost of operation. That makes farmers less aggressive bidders on properties. And as we always talk about, the farmers are the most aggressive bidders and really sort of set the price for properties. This -- again, this is not -- you don't have a pendulum here that swings very far. Good times are, okay, 5% if you're really lucky, 7% or 8% increases in land values on a per annual basis. And bad times are only up 1% or 2% or maybe flat or maybe even down 1% or 2%. I think it's just incredibly important to always recognize that we're in an industry with a very slow, steady upward march in asset values due to scarcity and fundamentally due to food demand. Those are not things that all of us involved in the public markets have a hard time grasping this. You just don't get the kind of volatility swings we're used to seeing in asset values or crop price or anything else. It's very glacial in terms of -- with a pretty strong upward trend, but it just doesn't move quickly no matter what.

Okay. And then you talked a little bit about kind of the impact or non-impact of fertilizer prices. This is someone who's much closer to kind of the farm economy than most other people on the call. How impactful has the increase in diesel prices been? And is that something that can maybe be even more meaningful for farmers versus fertilizer or something where it's just a relatively small portion of the overall cost of running the farm?

So it's a relatively small portion is the answer. So a couple of things to grasp here. Number one, most farmers -- most farmers of scale do some level of hedging or prebuying of their diesel fuel. It's quite common for a farmer to have 10,000 gallons or multiple 10,000 gallon tanks of diesel on their farm. And they probably bought that sometime last winter, well before the Iranian hostilities began. So not a huge, huge impact. But obviously, as they look forward on their budgets, they'll run out of that fuel sometime this summer, have to replace it. When they start trucking this fall, diesel will affect trucking costs. So it's certainly not positive for their P&L. But again, it just doesn't come through very quickly because of the amount of kind of prebought capacity on diesel. Round numbers, diesel might be in the neighborhood of 10% of a farmer's crop budget, maybe a little less. So it's just not -- it's not a huge impact overall and probably less impactful than fertilizer cost on the corn and wheat crops. I hope that helps.

There's no other questions in queue at this time. There's one that just came in. It's coming from the line of Tousley Hyde with Raymond James.

Sorry to sneak this one in. Just a quick follow-up on the FPI loan program. So you have probably somewhere around $30 million coming in later this year. Are there any kind of priorities for capital allocation we should be thinking about share repurchases, deleveraging the balance sheet a little bit further, extending new loans? Any kind of color you can provide would be very helpful.

Yes. I would say that most of that capital when it gets returned to us is likely to go for continued deleveraging the balance sheet. If we -- I think our stock is still a relative bargain, although not as big a bargain as it has been in times past. So you could see us buy stock back depending on stock price, but more likely deleveraging would be my current thinking. Luca or Susan, if you have a point of view on this, feel free to express it even if it's frankly different than mine.

No. As we've discussed, that's our priority right now on capital allocation is, frankly, deleveraging. But we remain, as Paul mentioned, we remain very, very opportunistic on the stock price and watching it and implementing potential stock repurchases.

Your next question is coming from the line of John Massocca with B. Riley Securities.

Yes. Just a quick follow-up one. Any kind of outlook currently for what you would expect the rate to be on the repricing of the term loan #7?

I'm going to turn that over to Luca or Susan, if you want to make a comment there.

At this point, we're expecting it to be fairly in line with what we did with the two that occurred in Q1.

Yes. The -- I would expect to add on that, the -- expect the spread to be consistent. But of course, your guess on rates is as good as mine.

Right. And is that locking in, in June? Or is it locking in, in advance of the actual change?

It locks just before.

Yes, it will be late May or early June.

There's no questions in queue at this time. That concludes our Q&A session. I will now turn the conference back over to Luca Fabbri for closing remarks. Please go ahead.

Thanks, Janice. We appreciate your interest in our company and look forward to updating you on our activities and results in the coming quarters. Have a great day, everybody.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.