Farmland Partners Inc. (FPI) Earnings Call Transcript & Summary

Thank you. Hello everyone. Thank you for joining us and welcome to the Farmland Partners Inc. Q2 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question... Press star 1 again. I will now hand the conference over to Luca Fabri, President and Chief Executive Officer. Luca, please go ahead.

Thank you, Erika. And good morning and welcome to Farmland Partners' second quarter 2026 earnings conference call and webcast. We truly appreciate your 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 over the call to our General Counsel, Christine Garrison, for some customary preliminary remarks.

Thank you, Luca, and thank you to everyone on the call. The press release announcing our second quarter earnings was distributed after market closed yesterday. The supplemental package has been posted to the investor relations section of our website under the subheader events and presentations. For those who listened to the recording of this presentation, we remind you that the remarks made herein are as follows. July 30th, 2026 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 and 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, EBITDA RE, and adjusted EBITDA RE. 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 2026 earnings, which is available on our website, farmlandpartners.com, and it's furnished as an exhibit to our current report on 8K, dated July 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.

press release distributed yesterday and in documents we've 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. This was actually a pretty good quarter for us and frankly a very mundane quarter. No real surprising events. Everything's kind of performing at as expected and as projected. So you'll hear me back at the Q&A, but I'm going to turn it over to Luca so we don't end up repeating the same things.

Thank you, Paul. This was a pretty strong quarter performance-wise to the extent that we actually even marginally adjusted guidance upwards on the low end for the remainder of the year for AFFO. But as Paul said, relatively uneventful quarter as typically Q2 and Q3. of the year are in the middle of the year. We continue evaluating asset dispositions through the end of the year, especially non-core assets like in California. And we're also actively monitoring the conditions in the agricultural world, as far as timing of our lease renewals we have held back so far in pushing lease renewals for the next year because financial conditions are not ideal, to say the least, among our tenants. But we do have very, very strong tenants in our pool. is not the first year of relatively middling performance in their financials. So there is nothing particularly new that we expect, but we are hoping for a little bit of better news before we kick off the lease renewal cycle in higher gear. And with that, I will now turn the call over to our CFO, Susan Landy, 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 three and six months ended June 30, 2026, a review of our capital structure, and updated guidance for 2026. I'll be we'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 want to share a few metrics that appear on page two for the three months ended June 30, 2026 net income of 3.1 million or 7 cents per share available to common stockholders versus 7.8 million or 15 cents per share available to common stockholders for the same period in 2025. AFFO was 1.7 million or 7 cents or 4 cents per weighted average share compared to 1.3 million or 3 cents per weighted average share for the same period in 2025 for the six months. Ended June 30, 2026. Net income was 3.8 million or 8 cents a share available to common stockholders versus 9.9 million or 18 cents a share available to common stockholders. stockholders for the same period in 2025. AFFO was 3.8 million or nine cents per weighted average share compared to 3.6 million and eight cents per weighted average share for the same period of 2025. Page five shows a more comprehensive look at the main drivers of these changes year over year. On the revenue side we were positively impacted by higher interest income, which is due to higher average balance on on the loans under the FBI loan program and financing receivables. 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 occurring in the prior year. Operating expenses declined on a quarter to quarter to date and year to date basis over prior year. Some of these declines are to be with the property dispositions that occurred in the prior year, but there were also other reductions to GNA and legal fees, including a reduction in property impairment charges. These declines were partially offset by an increase in the provision for credit loss allowance related to loans under the FPI loan program. Overall, we saw a reduction in net income and EPS for both quarter to date and a year to date basis. The primary driver for the reduction relates to a decrease in the net gain on disposition of assets as a result of fewer property dispositions in the current year versus the prior year. AFFO per weighted average share is up by a penny for the three and six months ended period of the current year. On page 12, there are a few capital structure items that I'd like to point out. The first is that we had undrawn capacity on the lines of credit of approximately 122 million at the end of Q2 2026. There were repayments of $8 million during the quarter, but no borrowings. We had one MetLife loan with a rate reset that occurring during the second quarter. In addition, one loan was extended by one year. rate on these loans decreased from 5.64% to 5.25%. Moving on to page 15 has it'll show you the updated outlook for 2026. The assumptions are listed at the bottom of the page. On the revenue side, changes from the April guidance include an increase in our outlook on variable lease payments. On the expense side, changes from the April guidance include increases as a result of additional provision for credit loss allowances on loans receivable and an increase in impairment related to updated market valuations in connection with one of our West West Coast properties. And these were partially offset by a $3.6 million gain on a property disposition. The forecasted range of AFFO is $13.5 million to $15.3 million, or $0.31 to $0.35 per share, which is an increase from the prior quarter on the low end of the range. remained unchanged. This summarizes where we stand today. We will keep you updated as we progress through the year. This does wrap up our comments for this morning. Thank you all for participating. Operator, you can now begin the Q&A session.

We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster.

So, Operator, while you're compiling that roster, this is Paul. I'm just going to chime in on a couple of questions that we got via email and give those answers, and then we'll go to questions and answers from the audience. So we got a question regarding kind of how we're managing the building of reserves as it relates to credit. losses. And while we, frankly, as a business matter, think we will collect 100% of all of our outstanding loans. Our loan program, as you all know, is frankly a relatively high risk program. We're making loans to people who are in distress. We're often getting 15 or 20 percent interest rates. And so we believe it's prudent to gradually build those reserves with a certain hope to reverse them. But it's better to build those reserves and reverse them later. than frankly not to build any reserves and then get caught holding the bag. So it's really nothing unusual. The size of our loan program today is reasonably large. about $60 million total. And so that's why you're seeing these reserves built. In this particular quarter, I don't think the additional reserve was particularly high. The other question we got over the internet, or I mean over email, was a question about legal expense, which shows up on the P&L, illegal and accounting, at about $312,000. And is that indicative of some significant litigation that's going on? And the answer to that question is no. that 312,000 is two thirds, either audit or tax fees, which is, you know, show up in the second quarter. That's when we get those. And so that's really the bulk of it. The litigation was only about 25,000 of that 312. We continue to have the litigation on a farm in the, in Louisiana with some prior tenant dispute. And we also have, you know, of course, the litigation regarding Sabre Point continues to go on. But as you can see from that $25,000 spend, there's not a whole lot happening right now in either of those cases. With that, we can go to whatever Q&A came in.

in with you, operator. The first question comes from the line of Craig Cucera with Elucid Capital. Your line is open.

Yes, thanks. Appreciate the color on the credit loss provision, but I'm curious, that.

was affiliated with one operator that I think you mentioned had some trouble. Was this for the same borrower or some different loan? No, we're building it related to the same borrower. We evaluate every borrower, but the bulk of it is related to the same borrower. We've talked about in the past. and we're continuing to monitor the situation. One of the things you're up against in any of these case, in any sort of distressed situations, as long as the principle that we deal with, meaning the individual human beings that we're dealing with, keep control of the situation, We're making loans with some relatively steep terms with strong, what we think is strong collateral and with people strong, strong intent to pay it back. And so far in our loan program, we've been doing this now a dozen years. We haven't had anybody not pay us. But. The risk you face is that someone loses control of their situation to bankruptcy, for example, or something else. then you're dealing with not, you know, a loan made to a person who, who we know who has intent of paying us back. You're just kind of dealing with a nameless faceless, you know, court process and, And that's really where and why we feel prudent to build reserves over time, because we're watching these borrowers in some sort of trouble. Our fear is that they lose control of their situation and then our security position from a... know, from a legal standpoint, doesn't really change, but from a moral standpoint, if you will, does change. And that's what's going on here. Okay, that's helpful. I appreciate that.

So I know you guys mentioned you're looking to do more dispositions out of California, but where was the disposition this quarter? Was that on the West Coast or was that elsewhere?.

Luca, you want to take that one? Yes, no, it was elsewhere. It was actually the strong gain was related to the fact that this is solar development on the farm and we actually sold the farm to the developer itself and the value to them was much higher than the agricultural value so we we locked in the game that was that was in illinois correct that is correct.

Okay. Now I was going to be impressed if you had a book to three and a half million gain out of California. So just double check that. We would have celebrated as well. Trust me, Greg. Right. So there was an increase in your expectations regarding citrus and avocado revenue flowing through the guidance on variable payments. Is that more of a pricing or a volume situation that you're expecting?.