Farmland Partners' (FPI) CEO Paul Pittman on Q2 2016 Results - Earnings Call Transcript

| About: Farmland Partners (FPI)

Farmland Partners, Inc. (NYSE:FPI)

Q2 2016 Results Earnings Conference Call

August 04, 2016 11:00 AM ET

Executives

Paul Pittman - Chairman and CEO

Luca Fabbri - CFO

Analysts

Venkat Kommineni - Janney

Dave Rodgers - Baird

Laura Engel - Stonegate Capital Partners

Operator

Good morning and welcome to the Farmland Partners Second Quarter 2016 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please also note today's event is being recorded.

I would now like to turn the conference over to Paul Pittman, Chairman and CEO. Please go ahead, sir.

Paul Pittman

Thank you, Rocco. Good morning and welcome to Farmland Partners second quarter 2016 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. With me this morning is Luca Fabbri, the Company's Chief Financial Officer. And I will now turn the call over to Luca for some customary preliminary remarks. Luca?

Luca Fabbri

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 18, 2016. The phone numbers to access the replay are provided in the earnings press release. For those who listen to the rebroadcast of this presentation, we remind you that the remarks made herein are as of today, August 4, 2016 and have not been updated subsequent to this initial earnings call.

During this call we will make forward-looking statements including statements related to the future performance of our portfolio, our identified acquisitions and farm properties under valuation, impacts of acquisitions and financing activities as well as comments on our outlook for our business, rent and the broader agricultural market. We also will discuss certain non-GAAP financial measures including FFO, adjusted FFO, EBITDA and adjusted EBITDA. 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 3, 2016.

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 close and in documents we have filed with or furnished to the SEC.

I would now like to turn the call back to our Executive Chairman, President and Chief Executive Officer, Paul Pittman. Paul?

Paul Pittman

Thank you, Luca. So, I am going to go through several important highlights of the operations this quarter and talk through a couple of specific acquisitions and projects that we have recently done. We have closed yet another good quarter in Q2. Our revenues have reached $6 million which is a new high and a 109% year-over-year improvement. We also are heading for a total of $24 million or a little better in total revenue for the year which again is a significant growth from prior periods. Our EBITDA reached $4 million this quarter that is adjusted EBITDA. Actual EBITDA was $3.6 million. Both of those numbers are new highs for this Company. So an important take away from that is that we are continuing to aggressively grow our scale and the size of the Company, trying to set us up to be the low cost provider of ownership and management services in the farmland industry. Our AFFO at $1.2 million for the quarter frankly suffered a little and is lower than we would hope for, although that is really a function of our effort to continue to build an infrastructure for a bigger and stronger and more efficient Company. It is also a function of the timing of some of our acquisition activity and whether it slips right into the end of one quarter or the beginning of the next quarter.

In terms of our effort to continue to build our infrastructure, we now have a total of 16 employees, up from approximately 13. We've recently added a new General Counsel named Erika Borenstein. We have added a Vice President of Business Development with a special focus on specialty crops, Cortland Barnes. And we have made a significant enhancement of our accounting and finance department with the addition of a gentleman named Simon Dexter who is a 15-year veteran of PriceWaterhouse. This effort is a continuation of our now nearly 2.5 year effort to build the largest public REIT focused on the farmland space and the most efficient operating REIT focused on the farmland space. We believe that the markets and outside observers are now beginning to recognize this success. We were happy to see our inclusion into the Russell indexes. Our stock price is trading at or near a 52-week high. And we have got significantly increased volume since our addition to the Russell. All of those are indicative of the fact that the market is beginning to understand our story and accept and understand our strategy.

Turning to a couple of specific projects and acquisitions that we have either completed or soon will complete. I wanted to talk about really sort of development projects and how we approach development projects, because we do this frankly differently than I think many others. When you engage in an agriculture property development exercise the good news is that you can end up with a property with very strong cap rates once stabilized going forward. And you can get very substantial appreciation in the underlying asset value. The bad news is that the normal development process measured in the matter of a year or two, sometimes even longer, you will have a negative cash flow during that development. Our strategy when we do development is to basically avoid any of that negative cash flow. The development projects we have done to date, and the two I'm going to describe today, we have been able to execute on that strategy. So we have been able to get the tenants to pay us a modest rent during the development cycle, which then increases materially once the farm is in full production, but it avoids for us and our investors that negative cash flow period that troubles so much development.

So turning to a couple of very specific examples. We have acquired the Ironwood Farm in Florida. This is an approximately 2,400 acre piece of property that has been in -- a quail hunting plantation was its prior use. We are taking that land and turning it into row crop production for the purpose of growing forage for the dairy industry in Florida. Our tenant is one of the major dairies in Florida. During that development phase which will take between a year and two years, we will receive an approximately 4% return on that farm and then following that we will receive approximately a 5.75% return and a bonus.

So, we will end up with a property that is returning approximately 6% to us after development based on the full investment we made in that land. We will not suffer the negative cash flow during the development phase and the appreciation of the property should be quite substantial when we have it reappraised following development cycle. The farms of that nature in Florida are very, very productive. It will be a farm that produces somewhere between three and possibly as many as four crops of forage for the dairy farm each year. It also gives us tenant exposure fundamentally that is tied to the livestock and the protein industry in a very direct way as opposed to purely commodity row crop production.

A second deal which is similar but in a different part of the country that I want to talk about is we have bought a feedlot in Northern Colorado. And this feedlot is, again sort of a demonstration of our creativity and our ability to diversify and expand our portfolio. This project is fully developed, there is no development cost. We bought a feedlot from a long-term operator of this property and included in the feedlot were of course all of the facilities as well as the water rights. And in fact in this particular property there is some additional oil and gas rights that come with the property. In this case we will end up getting in the neighborhood of a 6% return on the $5.5 million total investment, that is a monthly return in that case or a rent that is paid monthly the annual return of course.

But again, this is an example of our ability to make investments in agriculture properties that are a little bit different and a little bit unusual but still have long-term value enhancement and upside for our investors and for our Company. So to summarize, if you look at those sorts of transactions, that is the placement of capital of approximately $20 million, $21 million that is going to have returns that are in the neighborhood of 6% or better when they are fully up and operational which is a substantial increase in the cap rates we get in traditional row crop agriculture.

However, it is of course a slightly riskier strategy. But in the context of our overall portfolio today that is about $600 million of Farmland assets, we think it is prudent and acceptable to get out a little bit further on the risk curve on a portion of our portfolio to enhance the cap rates and the profitability that we should get from those farms. And so, we are gradually beginning to do this; this is all a function of us continuing to grow the Company. I mentioned Cortland Barnes, our new hire, the VP of Business Development. We're also beginning to explore specialty crop investments in a more significant way than we have in the past.

As I have expressed in prior calls, we are under weighted in specialty crops today. We will begin to expand our specialty crop portion of the portfolio, again, taking slightly higher risk but also getting a higher cap rate. But again, it is a portfolio approach. You never should expect us to have more than 20% or 25% of our portfolio in specialty crops because we think much beyond that you are adding additional risk to the overall portfolio and not necessarily getting appropriately compensated for it.

Turning to the state of the markets and the state of the farm economy. I am sure there will be some questions on this, but I want to address it in my prepared remarks. What is going on when you look at the marketplace today, for the fundamental commodity prices, corn, soybeans, wheat, etc.? What you have got is a tug-of-war between demand on one side and crop yield or crop size on the other side. And we are talking about a relatively large crop here in the United States for both corn and soybeans. The crops in the countryside look incredibly good and are likely to be relatively high yielding for our tenants as well as every other farmer out there. But at the same time demand is rapidly ramping. So, if we were a commodity trader I would be possibly concerned about the size of this crop, but we are not a commodity trader. We are an acquirer of farmland and the driver of farmland value is the long-term demand side for global food demand in the face of land scarcity.

So, the fact that this demand continues to increase -- and you've got to look under the hood a little bit, you can't just look at the headline. But that is a very, very powerful fact leading to medium- and long-term increases in farmland values and ultimately increases in our rents and our revenue stream. This is a time to invest in this asset class, not a time to pull back because when the farm economy is a little bit tough it slows down farmer buying which are the big drivers of the market. But it is time for us as an institutional provider of capital to agriculture to continue to invest and build our Company so we do truly create that largest farmland REIT available in the United States, at least in the public markets.

A couple of other comments about the market overall. Not seeing really any stress amongst farmers. You read these bad headlines but, again, if you really go to the facts you are not seeing any significant declines in land values, you are not seeing any fire sales. You have seen a volume of farm transactions go down which basically means you have a disagreement amongst buyers and sellers as to what fair value is. That would be typical at this point in time. We make the assumption that this fall will be a good opportunity because there will be an occasional property, sell at a good value, but we do not expect any sort of overarching material decrease in the land values. As I think I have said in prior calls, we will stay flat to slightly down until we see farmer profitability turn the corner and start to go back up. Exactly when that happens of course I can't predict, but I am confident that it will happen.

So with that I'm going to turn the call back over to Luca to walk through some financial highlights. Luca?

Luca Fabbri

Thank you, Paul. In the second quarter of 2016 we acquired eight farms in six states totaling 3,622 acres and put under contract 2,966 additional acres. Over the course of the second quarter of 2016 we were able to sell 696,607 shares of our common stock under our at-the-market offering program at a volume weighted average price per share of $11.16 and generated net proceeds of approximately $7.7 million. We also announced the inclusion of our common stock to the Russell 3000 Index, the Russell 2000 Index and the Russell Global Index.

Now let me turn to our second-quarter 2016 financial results. As I cover some of the key highlights, please refer to our earnings press release for more details. For the second quarter of 2016 we recorded rental income of $5.9 million and net income of $1.3 million. Net income available to common stockholders was $0.00 per share. We received $2.6 million in cash rents and all our properties are either rented or under contract with the expectation that they will generate rental revenues for the full fiscal year after closing. Like many other REITs, we look at certain non-GAAP measures, particularly adjusted funds from operations, or AFFO, as additional measures of our performance. We calculate FFO, funds from operations, consistent with the definition provided by the National Association of Real Estate Investment Trusts.

The key adjustments we make to FFO to arrive at AFFO are to exclude non-cash expenses, such as stock compensation, certain acquisition-related expenses and distributions in the preferred units issued by our operating partnership. After and including the first quarter of 2016 we also made an additional adjustment in our calculation of AFFO and adjusted EBITDA to recognize revenue in the calendar year in which the cash rental payment was actually received, which we refer to as crop year adjusted revenue. In light of new SEC interpretation of rules regarding non-GAAP measures in general and revenue in particular, we are discontinuing the crop year revenue adjustment for periods subsequent to March 31, 2016.

As a result the reported amounts of AFFO and adjusted EBITDA for the three and six months ended June 30, 2016 in subsequent periods will not be directly comparable to the reported amounts in prior periods in which we adjusted for crop year adjusted revenue. For the second quarter, our AFFO was $1.2 million and on a diluted weighted average basis AFFO per share was $0.06. When we calculate per share non-GAAP measures on a diluted weighted average basis, we include common units in our operating partnership, which is our main operating subsidiary because of the one to one convertibility into publicly traded shares. But we do not include preferred units in our operating partnership. On that basis, our fully diluted weighted average share count was 19,028,011 for the second quarter. As of June 30 we had 19,566,831 shares outstanding on a fully diluted basis.

This concludes my remarks on our operating performance for the second quarter of 2016. Thank you for your time this morning and your inter

Question-and-Answer Session

Operator

Thank you, sir. We will now begin today's question and answer session. [Operator Instructions]

Operator

[Operator Instructions] Today's first question comes from Rob Stevenson of Janney. Please go ahead.

Venkat Kommineni

Good morning, this is Venkat in for Rob. How much dry powder do you guys still have left for acquisitions?

Paul Pittman

I will take this one, Luca. In terms of our dry powder we, as I said in the prior quarter's phone call, are close to fully invested. We as a Company have been very creative in terms of our ability to do transactions with operating partnership units and the issuance of equity. And we've had quite a bit of success with that, quite a bit more in fact as a percentage of our overall acquisition strategy than other REITs generally do. You should expect us to continue to make modest investments on the dry powder we have, but we are, as I said, kind of pretty close to fully invested. The existence of our ATM though has now given us kind of an official and a very efficient additional capital raising strategy where we can gradually increase our equity capital and then lever that and continue to make acquisitions. So I hope that answers your question. I don't know the exact to the dollars and pennies because it is a complicated question to answer because we maintain substantial reserves for things like dividends and employee costs and all the rest. But we are -- as I have said now for several months, we are close to fully invested.

Venkat Kommineni

And you previously spoke about fighting to remain flat on renewals and just curious if you could talk about the trends today.

Paul Pittman

Yes, the trend -- there are really not any change -- I think I made that comment in prior quarter. There is not really any new rental activity in agriculture that occurs during the second quarter or frankly during the third quarter either. It is really all a fourth quarter event or winter early first quarter. So really no new data. What we had been able to -- but for new people on the call who might not have heard it last quarter, the story for us is fundamentally as follows. It is a challenging operating environment for farmers. Those are our customers or tenants if you will. Relatively difficult to extract major rental increases. Although because of the significant property improvements we make, we are getting quite a few of our farms which it is a better farm we are renting when we roll the lease over than what we had at the beginning. And on those farms we are getting some rent increases. So portfolio wide we are able to hold flat or even slightly increasing in terms of the rental rates that we are able to get. But it is nowhere near what we think -- long-term averages will be something in the neighborhood of 3% per annum increase in rental rates and that is what you would -- that is historically what the long-term average has been. And of course you are not accomplishing that right now. But when the farm economy turns it will go back up in that -- back up probably pretty rapidly.

Venkat Kommineni

Okay, thank you. And one last question. With the second-half 2016 acquisitions that include the OP Unit component, where are you thinking about pricing those units versus the actual stock price?

Paul Pittman

We have been pretty successful in how we do this. So if you recall when we did the large $197 million deal, there was about $50 million of common equity issued in that transaction. When we negotiated that deal we were trading in the neighborhood of $10.50 to $10.75 something in that neighborhood and we got $11.50 for our stock in that transaction because I made an argument about our NAV being $12 to $12.50 range. And the nature of a haggle with the seller when we got, we kind of split the difference because he of course wanted the current value and I wanted an NAV. And we got to issue equity at a premium in that transaction essentially to where the stock was trading which is a good thing. And obviously the market has over time perceived that well. And we are trading still below where I would like to be, but starting to trade in a much more reasonable price level here in the last few weeks.

Operator

And our next question comes from Dave Rodgers of Baird. Please go ahead.

Dave Rodgers

Paul, thanks for the color on the balance sheet and kind of how you look at the capital position. But, you did say in your comments that the volume of farmland transactions is declining. Maybe talk a little bit about, if you could, the acquisition backlog that you are seeing. Are you seeing attractive opportunities out there is still, it is just less? Are you seeing competition? Kind of what is the landscape for that today?

Paul Pittman

Yes, I think it is important for everyone to understand the context and I obviously have done this for quite a while, so I sometimes make assumptions that everybody spend as much time thinking about this as I have. When I say that it has declined you have to look at it in the broad picture. So there is approximately 30 billion of farmland transactions a year in the United States. Given the scale of our Company and the scale of our acquisition program, we're not talking about a decline in sales. That means when all the facts are in three years from now before the data is finally all compiled it might turn out to be a $27 billion a year instead of the historic norm of $30 billion.

In the context of us trying to deploy what is literally measured in tens of millions, at best case hundreds of millions it really is a rounding error at most in terms of our individual acquisition opportunity. What I was indicating when I say volumes are down is that people like this asset. So, if they feel like they can't achieve the price they deserve and want for this asset in a temporary way because of what is going on in the general farmland market or the general farming economy, they just don't sell. They don't turn around and put it on the market and take a low price, they just don't sell.

That goes a long way to making sure that asset values don't decline. So, as far as our acquisition program, not having any impact. We have a pipeline of more good deals than we frankly have capital available. And that has been the case in the Company ever since we started it now I guess about 2.25 years ago.

Dave Rodgers

Okay, that is fair and that is helpful. Luca, maybe turning to your comment about one of our favorite topics over the last couple years has been the crop year revenue adjustments. I guess maybe talk a little bit more about how it is going to impact FFO. And I guess if you are doing away with the crop year adjustments there's also going to be a substantially different treatment of top-line revenue on a GAAP and cash basis. So maybe quickly if you can, I know it is not a quick topic, just kind of help us think about that from a go forward perspective.

Paul Pittman

And Luca, let me make a general comment first and you can collect your thoughts on the specific answer to Dave's question. But I wanted to kind of set the stage for everyone. So this crop year adjusted revenue, when we founded the Company in the second quarter of 2014 it was a really big deal. Because what it was important to do is to make sure that during, since that was a stub year in terms of accounting, it was very important that we showed the true annual cash receipt for the farms that we had, during that calendar year and that is how we got started doing this crop year adjusted. And so, just for those of you who aren't accountants, what straight lining the revenue would have forced us to do was on an acquisition we made in April when we started the Company, or May, second month of our existence, we would have only shown the revenue in 2014 for approximately 60% of the revenue, actual revenue of that farm. That is really screwed up and very misleading.

If you roll forward two plus years two things have happened. Number one, this only affects the new acquisitions we make in a given quarter, so we are now have an operating base of $600 million of assets and this little accounting change with crop year adjusted is only related to the brand-new acquisitions. So what we were finding is we had this frankly complicated and somewhat messy crop year adjusted revenue concept which you, Dave, and all the other analysts frankly hated. And we just said, let's get rid of it, it will over time make our numbers more transparent and easier to understand. And it doesn't matter nearly as much as it used to because we have this existing base of assets. Because obviously any -- when we are in a second full year of ownership this issue goes away, there is no -- the rent is for the year and you own the asset for the whole year. So the account -- the GAAP accounting and the actual cash flow lines up. So with that I will turn it back to you, Luca. But I just wanted to add to the big picture [indiscernible] Dave.

Luca Fabbri

Yes, and, Dave, definitely what Paul said in terms of overall impact of this crop year revenue adjustment on our results kind of decreasing as we keep -- our growth is definitely very-very important. We intend to continue disclosing more from a cash flow perspective our cash rent receipts. For example, as I mentioned in my remarks, in the quarter we had $2.6 million in cash rent and we intend to continue doing so. Because another important factor for us is to outline in the annual cycle how the cash flow really doesn't match the revenue recognition and how -- the fact that we had a substantial amount of cash receipts, for example, in the first quarter really gives a very important piece of information to investors as far as the risk profile of our revenue for the year is concern. One other thing that I would mention is that as we kept saying for several quarters now, we feel that we are kind of under weighted specialty crops. Generally speaking in specialty crops you tend to have a right stream that is kind of more -- is very much at the high level more in line with the pro rata per annum kind of concept that is typical in other real estate asset classes. And therefore, as far as those acquisitions are concerned, my personal expectation is that if we were to continue making that crop year revenue adjustment would be less impactful specifically for those specialty crop acquisitions.

Dave Rodgers

And maybe to tie a couple things together -- sorry, those were great answers to those -- thank you, the last one I guess I would say is it sounds like you have got a good acquisition backlog and you have built the team, Paul, here in the second quarter with three additions to scale the business. You issued equity on the ATM kind of in the third quarter to help scale that business. Should we ultimately expect to see the amount of acquisitions reaccelerate in the back half of the year for you?

Paul Pittman

Yes, I think you will see our acquisition activity accelerate in the back half of the year. I mean it is obviously and there are really two reasons for that it is partly because we slowed down a little bit in terms of our acquisition activity in the recent couple of quarters. But we're a small company. One of the reasons we slowed down is not just a capital availability question and it's, as I said earlier, certainly not a deal availability question. A company like ours, when we do something like the Forsythe transaction that is the big farm 22,000 acres near Paris, Illinois. That is an all-consuming transaction for our company.

And so, for the three and four months while that was going on our relatively small team, myself included are not out finding other deals and doing other deals, we are all focused on getting that one done and getting it done well and getting it diligenced and everything else. And so we had some modest acquisitions, but that kind of, that is a big clog if you will go through the pipeline. And then it makes us a little slower after it is done getting back up and starting again.

So, the other thing, the factor that goes on is that you look statistically something like 80% of farmland sales are in the months of October, November, December and January every year. I mean that is when most farm transactions occur. And so, we are ready for that, we are geared up for it and I think we will continue to expand the businesses this fall.

Operator

[Operator Instructions] Our next question comes from Laura Engel of Stonegate Capital Partners. Please go ahead.

Laura Engel

Good morning. Thanks for taking my questions. Congratulations on a great quarter. I wondered with the, if you could tell us a little bit about the timing of the four remaining farms under contract? And then going forward the second part of the question, there has been a lot of discussion about diversification verses also what you have left as far as acquisitions for the remainder of the year and going forward. How much of that will focus on these specialty crops just versus the right opportunity at the right time?

Paul Pittman

Luca, why don't you answer the specific question that she asked, if you have got that data? And if you don't have it handy you can look it up while I answer the general question.

Luca Fabbri

Yes. Would you mind, actually restate that part of the question because I kind of missed it.

Laura Engel

Just the timing on the four remaining farms under contract, should we see those, we're talking next quarter, remainder of the year?

Luca Fabbri

Yes, no, it is, mostly third quarter of the year, so towards kind of in the next couple of months. And we had one closing in the fourth quarter as well.

Laura Engel

Okay, great.

Paul Pittman

Yes, for everybody's benefit, normal closing transaction on our farms. If they are the smaller end there are about 60 days between signing the contract and closing. On the larger end they are more like 90 to 120. And it just relates to the amount of diligence required. So that is the kind of a normal cycle that we would have. Back to your sort of general question of specialty crops versus row crops. Look, my view of this sort of marketplace and the business we are creating and building is that it is all about global food demand increases in the face of land scarcity.

So, the portfolio we will continue to build is a portfolio that reflects total U.S. output of agriculture commodities. And when you look through and when you look at that what you would see is it is approximately 80% row crop or protein and row crop is a good proxy for the proteins meaning dairy, chicken, pork, beef, because that is the feed source. So we will end up with a portfolio that is 80% focused on the row crops or the proteins and approximately 20% on the specialty crops. And the specialty crops is really two buckets. Bucket number one is permanent plantings that is treat nuts, tree fruit things like wine grapes, table grapes. That will be about 10% may be a little higher and the rest will be essentially what are vegetables which is the annual specialty. There is obviously quite a bit of overlap between commodity row crop and specialty vegetables because they are planting on the same ground. Take potatoes, potatoes are mixed in with corn, with commercial corn as a rotation.

So it's a little fuzzy trying to track exactly how much specialty you have when you are thinking about the vegetable side. And we have quite a bit of that kind of specialty in the portfolio today. As of now other than the blueberry farms we have in Michigan we do not have a lot of permanent plantings in the portfolio. We want -- we have always said we wanted to expand that and we are -- we have made additions to our team and sort of a devotion of time of my own in a concentrated effort to do that. So, I think you should expect to see as make those additions to the portfolio in the coming quarter or two. They will of course have all of the additional risks I often talk about, but also substantially increased cap rates. And so, in a portfolio approach we think that is kind of the right balance.

We can get the -- thinking back to my business school days, the ultimate free lunch where we get some and you get to pick up the revenue enhancement without getting the overall portfolio volatility at an uncomfortable level. And that is what we really are trying to accomplish. But it is always important to kind of backup and say what are you really trying to do here? What you are trying to do is hitch the investor's wagon to that global food demand story in the face of land scarcity. It is not about any specific commodity. So that is what you should expect. We will continue to do row crops. We are obviously opportunistic acquirers. If we see a really good deal we don't get too wrapped up about getting out of balance on the portfolio. That is why we pursued the Paris, Illinois transaction, which clearly over weighted us back to the row crops when we had started to get close to our target. But our general trend is we want to add about 20% specialty crops in the portfolio and we don't have anything close to that right now.

Laura Engel

And then the second question, it looks like you are about a year into the loan program. I wonder if you could give us some updates on that and ideas of traction with that program?

Paul Pittman

Sure. We have continued to make occasional loans, they have been modest in size. They have -- that program we did for two reasons. One, we think it is a good program, it is a good way for us to deploy capital at good returns. But it also is a bit of an early warning sign about the level of pain out there amongst our tenants and other farmers. We are a relatively high cost lender. We have reasonably easy terms compared to traditional lenders but we are higher cost. And we are just not getting huge inward inquiry in demand for that product, which is disappointing in a narrow sense, but frankly a very positive indicator to us about the fundamental strength of most farmers out there today that the idea of pledging their land to get operating money just doesn't feel that attractive to them. And that means they have got operating money at lower cost and less security from other sources. So like I said, it is a little bit of a, in a very narrow sense it is disappointing. I think in a broader sense it is a good thing for our company that that is not having as high a demand for that as one might have expected.

Operator

Ladies and gentlemen, this concludes our question-and-answer session for today. I would like to turn the call back over two Mr. Pittman for any closing remarks.

Paul Pittman

Yes, well, thank you all and we appreciate your continued interest and investment in our company. We look forward to updating you in the future. And as always if any investors ever have any follow up questions, feel free to contact the company and Luca and I will be happy to talk with you. Thank you very much and enjoy the rest of your day.

Operator

And thank you, sir. Today's conference has now concluded. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

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