FPI - NYSE

Hello. My name is Jeannie and I will be your conference operator today. I would like to welcome you to the Farmland Partners, Inc. Q4 and Fiscal Year 2023 Earnings Call. All lines have been placed on 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 CEO. You may begin your conference.

Thanks, Jeannie. Good morning and welcome to Farmland Partners full year 2023 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 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. Christine?

Thank you, Luca and thank you to everyone on the call. The press release announcing our fourth 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 February 29, 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 the most comparable GAAP measures are included in the company's press release announcing full year 2023 earnings, which is available on our website at farmlandpartners.com and is furnished as an exhibit to our current report on Form 8-K dated February 28, 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?

Thank you, Christine. So I'm going to make four or five very general comments and points about the company before I turn it over to Luca and James to go into more detail. So the first point is we continue to be significantly undervalued comparing ourselves to the underlying asset value of the portfolio. Land values across the country have continued to go up in the green producing regions of the country, the growth rate slowed some in 2023. And we think that rate will slow yet again in 2024. But that needs to be taken in the context of the prior years. So in 2021 and 2022, we saw as rapid appreciation in farmland values as we've probably ever seen in history in the grain-growing regions of the country. That can't go on forever. So we will see sort of a flattening or a plateauing in my opinion as we move into 2024. But what that has led us to and this is an overwhelmingly row crop oriented portfolio is there is a huge disconnect between the market value of our land in the private markets and the public company trading value of our common stock. As many of you know, I bought a significant amount of stock personally last year. The company bought back a lot of stock. We're likely to continue that effort as long as that gap continues. Turning for a moment to specialty crops. We are now in the second year of reasonably strong rainfall on the West Coast of the United States particularly in California. That will help the water situation and that will help the yield situation. We believe that we will have pretty strong crops out in those markets this year. Although continues to be price pressure due to over planting of many of those commodities across the world. Turning to the third point I want to make, which is about cost cutting. Despite what I said about the gap between our underlying asset value and the stock price, we are valued in many ways on AFFO. I frankly think that's incorrect as it relates to our company, but that is how REITs are valued. So, we must drive AFFO higher and we're working quite hard to do that. So, we have embarked over the last 12 months or so on an aggressive cost-cutting effort and we're going to continue that effort into 2024. That cost cutting is coming from selective staff reductions, cutting our travel costs, [indiscernible] the size of our Board which is always a challenging thing to do but we have done it. I am going to take a $500,000 compensation cut in the 2024 year. That's 25% of the compensation I received for 2023 and Luca is going to stay flat in his compensation. These steps really are required to try to drive AFFO higher. As a major shareholder I think like an owner not an employee and we are going to get this stock price higher and that requires increasing of AFFO. Just to put that cost-cutting effort in context if you look back to 2022 for G&A and legal and accounting in our financials. We spent approximately $14.9 million on those two line items in 2022. For projections. Those two line items add up to 11.9%. That's a 20% reduction in just a couple of years and there will be more to come. Turning now to the sales program of the company in 2023 and what the what that might look like in 2024. During the 2023 year, we've made many, many asset sales and others will address this in more detail, so I won't go into it here. But the focus of those asset sales were to unload properties that we think had significant water challenges. This is why we exited so much of our Eastern Colorado portfolio to get rid of properties we do not think we're appreciating rapidly and to get rid of properties that are very difficult to manage. We will continue on those themes in the 2024 year. There will be materially less asset sales in 2024 than they were in 2023 largely driven by tax rules. We're limited this year to probably around seven transactions and then any 1031s we do on top of that. So, expect sales this year of assets but don't expect the same quantity as last year. We want to continue to simplify the portfolio as we do this. that does make the cost reductions easier on the G&A line. It also lowers our property operating expenses. In terms of the use of the proceeds from those asset sales. Some of that money will be recycled into the regions and the markets we like the most, which are generally the grain-growing regions of the country. Some of that money will be used for debt reduction and some of that money will be used for stock buybacks. As far as interest cost our perspective is those savings are going to come to us eventually. We don't know exactly when but I think we are at the beginning of a rate reduction cycle instead of a rate increase cycle. So, when we have excess cash we need to think very carefully about to sort of take the near-term jolt of debt reduction knowing that if you just wait you're going to get an interest cost reduction anyway. Or do we gain the $4 or $5 or maybe even $6 a share that comes from buying back our stock at such deeply discounted levels. And so that's the trade-off we have to think about in our mind. So, when you look -- and that was a final point, point five. When you look at 2024, if I had a crystal ball, this is what I think that crystal ball would say. I think we'll see in 2024 on the specialty crops, slightly better yields and price than we have had in recent years. That is largely due on the yield side to two years of rainfall has solved a lot of agronomic problems and will help those crops. On the price side, I think we'll get a modest recovery, just looking at what's going on in pricing right now. On the row crop side of the portfolio, now we have fixed cash rents, so what the underlying pharma performance won't directly affect us, but we always care about the profitability of our tenants you're going to see somewhat lower grain prices than you have seen in recent years, probably reasonably strong yields, but we've seen that cycle over and over again. We will go into a slightly lower commodity price cycle for a couple of years. It will slow the appreciation of farmland values. It will make rent increases more difficult to get, but not impossible. They just won't be as big. And then we'll come out of that cycle and see farmland values serve again. We will continue to lower the overheads of the company, and we will -- we believe we will see late in this year a gradual reduction in our interest cost, substantial amount of our debt is variable, and that will hopefully start to flow through and give us wind at our backs in terms of our AFFO per share. And then the final point of the 2024 plan, as I mentioned is we will continue to make selective asset sales. So those will be of assets that we do not like that much or whenever we get a very high price for any asset we're willing to let that asset go. With that, I will turn it over to Luca to make some further remarks.

Thank you, Paul. I will further articulate and emphasize some of the points that Paul already raised. In 2023, we really have three main strategic objectives. One was to demonstrate the value embedded in our portfolio by selected asset sales, then we wanted to reduce that. And finally, we wanted to buy back stock at a discount. As to the first strategic objective, we sold about $200 million in assets, generating significant taxable gains to the extent that we actually had to distribute a special dividend in order to meet our re-codification requirements. Those asset sales were mostly focused on assets that were not a good fit long term for our portfolio. I suppose Paul was mentioning is because the they were water challenged, they had some uncertainties about long-term appreciation potential or because there were about crops that in regions where, frankly, we did not believe that there was a significant potential for recovery, like, for example, Blueberries in Michigan. So, we have effectively left the core of our portfolio. What we see is the core along portfolio, which is the core of the Corn Belt in the Midwest, virtually untouched and we believe that the appreciation, the embedded appreciation is actually most significant in that part of our portfolio. Our second objective was reducing debt, and we did so. We reduced that by about $76 million. At the same time, we increased liquidity by about $30 million. So we maintain access to sources of liquidity. And finally, we repurchased about 6.5 million shares at an average price right on dot of $11. However, you measure the real value of our portfolio on a per share basis, that's a sharp discount to that value. Other things that we've done that were kind of very meaningful in 2023 is that we renewed the expiry leases at about 20% increase in rents. And as Paul mentioned, we reduced overhead, general and administrative expenses and legal and accounting by about 15%. Looking forward in 2024, as Paul mentioned, we will continue some selective asset sales. We will continue to purchase assets whenever we see the good strong opportunities which always come up. We will further reduce overhead expenses. And as far as our projections go, that we put out in our supplemental, there is a degree of variability there. And I always remind you that, we grow crops outside. So, we try to be reasonably realistic in our assumptions, but we -- there is always the potential for some better than or worse than expected returns. Mother Nature can be very capricious. With that, I will now turn the call over to our Chief Financial Officer, James Gilligan for his overview of the company's financial performance. James?

Thank you, Luca. I'm going to cover a few items today, including summary of full year 2023, review of capital structure and interest rates, comparison to full year revenue and guidance for 2024. I'll be referring to the supplemental package in my remarks. As a reminder the supplemental 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 full year ended December 31, 2023, net income was up over 160% to $31.7 million and net income per share available to common stockholders increased to $0.55, largely due to gains on disposition of assets, as Luca mentioned a minute ago. AFFO was down $8.1 million and AFFO per weighted average share was down to $0.16, largely due to elevated interest expense and lower revenue in the non-fixed payment categories, as we will review in a couple of minutes. Next, we'll review some of the operating expenses and other items shown on page number 5. Depreciation, depletion and amortization was higher in 2023, due to more depreciable assets placed into service and approximately $500000 of adjustments made in the year related to assets placed in the service. Property operating expenses were higher in 2023, caused by higher property taxes, including a onetime property tax of approximately $150000 in the first quarter. That amount was reimbursed by the tenant. In addition, a nonrecurring expense in the second quarter of approximately $140000 was due to final reconciliation of a cost sharing on the California farm. General and administrative expenses were lower for 2023, primarily due to lower travel expenses and lower compensation expenses. Legal and accounting expenses were lower in 2023, due to lower litigation spend. Impairment of assets in 2023 relates to two items. First, as we covered on last quarter's call, there was a sale transaction that closed in early Q4 of 2023 that resulted in a $3.8 million loss. However, the sale was carried over quarter end at 9/30, so it was considered a held for sale asset at 9/30 and that loss is considered an impairment. Second, in the fourth quarter of 2023, after reviewing the portfolio, as we do every year, we decided to take $2 million impairment on one farm in California, due to our estimate of a decrease in value. Gain on disposition was up significantly compared to 2022, demonstrating the appreciation of farmland sales values over net book value. It should be noted that we deferred an additional gain of $2.1 million, that we think we will recognize in 2024. Interest expense increased in '23, due to higher rates. Income tax was a benefit in 2023, relative to an expense in 2022. This was caused by an adjustment within the third quarter of 2023 adjustments that were made to prior period estimates. Next, I'll get ahead of page 12 to make a couple of comments about our capital structure. Total debt at December 31, 2023, was $363.1 million, down approximately $60 million from the end of the third quarter and down approximately $110 million from the end of the second quarter. Floating rate debt, net of the swap, as a percent of total debt, stood at approximately 13% at the end of the year. That's down from approximately 24% at the end of the third quarter and down from approximately 32% at the end of the second quarter. Fully diluted share count as of February 23, was 49.2 million shares. We had undrawn capacity on the lines of credit of $201 million at the end of 2023. In 2024, we have three MetLife rate resets on debt totaling approximately $44 million. That's loans number 9, 11 and 12 shown on the table. 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 have a small presentation change this quarter. Tenant reimbursements are now included in rental income on the income statement. In Note 2 of the 10-K, we show the components of rental income, fixed farm rent, solar wind recreation, tenant reimbursements and variable rent. It is very similar to what we've been providing in the supplemental, but it is a small change from the past 10-Ks and 10-Qs. On page 14, we show these building blocks for years 2022 and 2023 with comments at the bottom to describe the differences between the periods. A few points to highlight are; fixed farm rent increased between the periods as we acquired properties in 2022 and renewed leases in 2022 and 2023. That was offset by dispositions in 2023. Solar wind and recreation changes were caused primarily by rent on land with a large solar project in the state of Illinois. The project is under construction from the third quarter of 2022 through the fourth quarter of 2023 causing an increase in rent during that time. There was an outsized increase in the fourth quarter of 2023 when that project began operations and ended its construction phase. Tenant reimbursement increased in the first quarter of 2023 with a onetime property tax assessment that was mentioned a couple of minutes ago of $150,000 that was reimbursed by the tenant. Variable payments were down in the first and second quarters of 2023 due to grapes row crops, citrus and tree nuts. Q4, 2023 was down compared to 2022 largely due to Almonds. Direct operation is the combination of crop sales, crop insurance and cost of goods sold. It was down relative to 2022 largely due to citrus and walnuts. Other items decreased due to lower auction and brokerage activity compared to 2022. In summary, while the items that comprise fixed payments were up year-over-year, the other categories were down. Next on page 15, we show the outlook for 2024 using the same format as previous pages. There are assumptions listed out at the bottom. We have three acquisitions targeted for the first quarter of 2024. No other transactions are included in these projections. On the revenue side, fixed farm rent changes reflect the full year impact of 2023 dispositions plus the three Q1 2024 acquisitions that we're targeting plus of course lease renewals from late last year. Solar wind and recreation decreases relative to 2023 due to the absence of the solar rent associated with the 2023 construction project that was mentioned a minute ago. Tenant reimbursements decreased because of farm sales in 2023. Along with the absence of that onetime tax and reimbursement that occurred in the first quarter of 2023. Management fees and interest income increased due to loans issued in the fourth quarter of 2023. Variable payments decreased due to the outlook for citrus plus the absence of tree nut and great farms that were sold during last year. Direct operations again that's crop sales plus crop insurance less cost of goods sold is up slightly due to higher expected performance in citrus farms under direct operations. Other items have small improvements expected for auction and brokerage in 2024. On the expense side, property operating expenses decreased due to lower property taxes largely because of asset sales last year, lower insurance and other items. General and administrative decreases with lower spend on compensation travel and marketing in 2024. Legal and accounting has small changes due to cost inflation and estimates of litigation spend. Interest expense is lower due to rates and lower debt balances. Weighted average shares decreased with the full year impact of the 2023 share buybacks that Luca mentioned a minute ago. This impacted AFFO in the $7.6 million to $11.1 million range or $0.15 to $0.23 per share, an increase over 2023. Hopefully this helps describe where we stand given what we know today. We will keep you updated as we progress throughout the year. This wraps up my comments for this morning. Thank you all for participating. Operator, you can now begin the Q&A session.

[Operator Instructions] And your question comes from the line of Scott Fortune with Roth MKM. Your line is open.

Yeah. Good morning, and thank you for the question. Just want -- if you kind of look at your portfolio and since look at the pipeline there of potential assets they're out in the market and within your network? And are you continuing to see more opportunities obviously with the focus of the Corn Belt. That's kind of where you've talked about moving away from the water test, or those other properties and the value there in your portfolio. And then just kind of a follow-up on the mix between row crops, and the permanent crops, any change to that mix as you look at potential pipeline or acquisitions there?

Yeah. So this is Paul and I'll take that question. So first just to define our view of the row crop regions that we find attractive. It's going to be the core of the Midwest, the Corn Belt, Illinois, Indiana, Missouri, the heart of the country. We will also continue though to make acquisitions in the Delta, Arkansas, Louisiana, Mississippi area. And we will make acquisitions in the Southeastern United States, largely that would be the Carolinas, Georgia, Florida, maybe Alabama. Those regions are very strong grain producers. They have relatively high-quality tenants in all of those regions. Water is seldom if ever an issue in those regions. We think they will continue to appreciate rapidly as farmland becomes ever more scarce, and they are very, very easy to operate, particularly in the Midwest, very low property operating costs, very low overheads to manage those properties. Very consistent and predictable rents and rent growth. So we are highly attractive to those regions and we'll continue to invest there. So what that means by implication is that the dryer for the West parts of the US. So think of that as starting about halfway across Nebraska, water starts to become a challenge. Eastern Nebraska really no problem but Western Nebraska, Eastern Colorado, so on and so forth relatively dry. We still own quite a few properties in those regions but we will continue to lighten up on that exposure. We made five years from now still own some farms there, but it will be a lower percentage of the overall portfolio than it is today. Now moving clearer to the West Coast. The West Coast is a mixed bag. Some of the places have very, very strong water, have surface water rights, groundwater rights that make the farms highly productive. It's a unique climate environment. So again, five years from now we may still own some farms in California, but it will be a lower percentage by quite a bit of the overall portfolio. And the reasons for that are number one water; number two, we do think there is significant over planting of many of those commodities going on across the world, which leads to a tough pricing. We don't think there's any way to solve the volatility problem with regard to those farms. It's very hard to get cash rents on those farms. Therefore, we have a lot of crop share. And the crop share is number one volatile; and number two, complex to manage. So if we can lighten up on that, it feeds back into this sort of simplify the portfolio, make it more stable and predictable from an investor perspective. And also easier and less expensive to manage. So I hope that answers your question Scott.

No I appreciate it. It's really good color. Obviously, good opportunities, as you look at the world crops going forward here. And just a follow-up on that and kind of looking at pipeline and the potential acquisitions, what's the environment here from the farmer standpoint or other interested parties or partners here as far as the financing at these higher rates right from that standpoint to purchase and close on these assets a little more obviously, more challenging but just kind of help us understand the environment from that type of things.

Yes. So – and James or Luca may want to add to this. But agriculture land as a marketplace is completely different than all other commercial real estate assets. There is no lack of borrowing capacity. We for example have liquidity of approximately $200 million available to us right now. The lenders in that space both traditional banks and Farm Credit and Farmer Mac and the large insurance companies that lend into that space are active and there is absolutely money available. The challenge is that, despite the fact that I am a huge believer in the appreciation story of agriculture is frankly as a personal matter, made me wealthy over the last 20 or 30 years. But you cannot run too negative a spread on borrowing costs versus current yield off of a farm property. I'm frankly willing to run a negative spread. But today that negative spread might be four or five percentage points not one or two. And so it makes it challenging to do acquisitions. There's plenty of opportunity but our cost of capital makes it difficult. So our acquisition program is likely to be limited to very specific transactions, where for some reason we think there's deep value opportunity and those do come along or it's an add-on property. Philosophically, we as an institution believe that increasing scale is well rewarded over time, both in higher rents and in the first quarter, for example, will come -- we'll have been a farmer joining something we already have. And we always -- we'll reach pretty deep to try to get those deals done. I don't know Luca or James.

I'd just add, Scott, that to echo Paul's point, the mortgage penetration in our sector if you think about it on like an LTV basis, it's like 10%. That's according to USDA data. So much lower leverage in the system than you would see in other areas of commercial real estate. Farmers are -- look, outlook for profitability is down a little bit. Still very strong relative to sort of historical averages. The last three years have kind of been like the top three years of farmer profitability. This year might be number five in terms of that rank. So while it's down a little bit, farmers are still doing pretty well, but maybe not as well. And so maybe to your question about competition from acquisitions, maybe people won't be as likely to buy a farmers as they would have been in 2023 or 2022 but still quite a bit of appetite still folks doing pretty darn well.

Thank you. If I may add on to that one more real quick one. You mentioned after a few years, obviously farm value and rent increases going forward here. Kind of is there any kind of preliminary expectations for the rent increases levels in 2024? Obviously, you said 20% here last year, but just kind of ballpark that, if we can look forward into 2024 here.

Yes. I think you're going to see in 2024, I'll give you the answer, and then I'll give you the rationale. I think it will be more in the 5% to 10% bracket on those rents we have to roll over in the 2024 year. It's still a little bit early to say, but that would be my estimate. That is sort of closer to historic norm than the last couple of years have been, but I think we're going to kind of revert to that historic norm. And here are the reasons for that. First, sort of a portfolio specific reason. We started to push rent increases very strongly now three years ago. And so we've had three years of very strong rent increases. So when we start the re-leasing cycle this time, it will be off a relatively high base already, because we got three years ago, I forget the exact statistic, high single-digit jumps in rents that year. And then I mean the -- two years ago, we got like 15%, I think, and then this year, like 20%. And so we're going to be coming off a higher base. So I think 5% to 10% is kind of the right level. Then turning to the macro environment, rents are a function of a farmer's three to five-year view of farm profitability. And that's going to be a little more negative due to lower grain prices than it has been in the past couple of years. whereas land values, and this is an important point, land values are a function of a farmer's view of the 50-year, 5-0 year outlook for Farmland depreciation. So it's -- Farmland values are largely unaffected by crop price declines, but rental markets are somewhat more effective. Thus, we'll get a slightly lower increase in rents than we've gotten in the last few years.

Got it. That's very helpful. Thank you for all the color here. I'll jump back in the queue.

Your next question comes from the line of Alex Fagan [ph] with Baird. Your line is open.

Hi. Good morning, and thanks for taking my question. First one for me is, which staffing roles in the company were reduced? Were they corporate specific or property specific? Any more color on that would be great.

Yeah. They were corporate specific, and they will almost always be. We are a very thin overall team here -- we're in the REIT itself, 15 employees, something like that. We have the farm the brokerage business in Champion, Illinois different group of staff. But we're running this pool of assets of approximately $1.5 billion with a tiny, tiny staff. But the cuts have been in the sort of headquarters rules, if you will, not out in the field. I don't think we could get any sooner there than we are. And these cuts are not easy to make. I mean everybody in a tight team like this was -- you can't hide in a company this size. Everybody was already working quite hard, and now people are working a little bit harder. So specific roles were one role as a somewhat junior person in our operations functions here in the Denver office, left to go back to graduate school, and we just didn't replace. We have had a very capable PR and IR sort of person. And when I say IR, not talking to all of you necessarily, that's really Luca, James and to some degree, me, but on the much smaller investors that might call in our Internet press process, our social media process. And we've let that person go and still have access to them as a consultant. Travel was down significantly in the past year. And then the -- we're not as acquisitive so just literally do not as much flying around as there used to be. And then the other major change as you look to the 24 year is we had a Board of nine and now we had a Board of five. When the annual meeting occurs, the Board will have been reduced to five. We didn't ask any directors to leave, we just re-nominated quite a few less than we had in the past. And that's always a hard discussion. The directors we had were great directors, but we had -- we have to get costs under control and directors are one of the costs.

Yeah. That's great color. Thank you. And just one more for me. You kind of talked about rent increases in 2024 at 5% to 10%, which is closer to historical norm. Can you confirm, is that what's embedded in the guide for 2024?

So a couple of things to bear in mind, our rent renewal season is at the end of the year. So kind of think Halloween through the end of the year. A lot of that is coming in November and December. So the impact of rent rolls on 2024 is rather small. When we make projections for 2024, we make a simplifying assumption and actually keep them generally flat. And so the increases are not really baked in at this point.

Let me add something to that, though, because it's very important, just to add to what James said. The rent increases you see in the 2024 projections are the 2023 rent increases that are already contracted for and fully leased. That's not a guess. The 5% to 10% I'm talking about is what James just said will happen next November, and that will affect a 2025 projection. So there's not a rent roll risk embedded in those projections because the leases are already signed that affect the 2024 projection. I hope you understand that and makes sense now.

Yes, it does. Thank you guys. That’s it from me.

Your next question comes from the line of John Massocca with B. Riley. Your line is open.

Good morning. So, you guys touched a little bit on the number of transactions you could possibly do just given kind of tax circumstances in 2024 but maybe just any brackets on what that means in terms of disposition proceeds?

Yes. It's really, really hard to say. So, we have the seven transaction limit and we've actually already used one of them, so we got six left. And we used it unfortunately it was a very small transaction but it was a partial ownership of something we owned that a controlling party sold. So, we've taken one already off the table. So -- in the beginning of the year, we're not likely to do transactions unless they're pretty good size, $25 million or bigger. There always is exceptions of course of a great offer came in. But we don't want to burn through that opportunity to make asset sales too quickly. Obviously, we have the 1031 opportunity, which helps us a little bit. But as we get later in the year, we'll probably shrink the hurdle of size for transactions we might do if we still have some left some room left. But if I had to give you a number it would be in the neighborhood of $50 million worth of asset sales during the year. But like I said it's not modeled into the 2024 projections no assumptions of debt reduction due to asset sales or stock buybacks is modeled in because it's incredibly hard to predict. And if we did 50 of sales we probably do 10 more of purchases. So, net 40 if you were trying to think about how to work with it I'd say half of it will go to stock buybacks and half will at a debt reduction. But that's a credible price dependent in terms of the stock and interest rate, outlook dependent in terms of debt.

All right. That's very helpful. And then as I kind of think about the outlook for variable rent payments in 2024 how much of that decline versus 2023 is based on yield and pricing outlook? And how much of that is already kind of set from asset sales that occurred in 2023.

I'm going to let James or Luca take that and then I'll add to it if I need to but probably some more specific numbers is helpful. So somebody else should handle it. James you go first.

Yes. So, it's a mix. We sold a couple of great farms in 2023. So some of the variable rent that in past years we received with respect to grapes goes away. We sold a couple of tree nut farms which would have the same sort of characteristics that variable rent goes away. In addition to that we have a large citrus farm that performed pretty well in 2023. And that is just in some ways reverting a little bit to historical means. So, projected outlook for that sort of citrus farm is a little bit lower. Again could surprise us to the upside could surprise us to the downside, but we're I think being prudently conservative there. That's really what's impacting the variable payments change from year-to-year.

Yes, just to build on that. As I was mentioning earlier, kind of, we grow crops outside. So, on the variable rent we rely on the best expertise out there that we have access to in terms of coming up with an outlook on price for the market, yield for our farms. But at this point, they are just relatively wild guesses. Keep in mind that yield can be affected very strongly by late season kind of weather events. So even right now in certain farms that we have the outlook on crop, yield looks potentially outstanding, that might be kind of tempered further down the road. And on price, often the ultimate price that we receive is determined by a marketing queue at the packing houses for permanent crops that is very much late in this year and if not early into the following year. So we rely on the best information that we have but remember that there can be some significant variability both on the upside and on the downside. We try – we do our best to kind of take a middle of the road of the information that we have.

That makes sense. And maybe one last one on the balance sheet. Can you just remind us the process maybe the pricing outlook for some of the MetLife term loan resets in 2024?

Yes. So generally, and we've got a little bit more detail in Note 7 to our 10-K, when it's filed later today. So if you like that. But generally, those MetLife tranches, price as a spread to treasuries, depending on the duration of the resets, if we're talking a three-year reset, we look at three -year treasuries, five-year, five-year treasuries, et cetera. We have historically been in a spread over treasuries in kind of a 180 to 200 basis points over. Given where the world is today, we're probably on the high side of that. We try as hard as we can to negotiate that down and we've got – we certainly do what we can to bring competitive lenders to bear to make sure we're getting good execution. So that's how we think about it. We've got a good dynamic with all the lenders, MetLife included and we engage with them early and often. And we look out and really seeing where we can get back to execution. So in last year we – most of our resets we did sort of three years. Towards the end of the year, we rolled on out to seven years to get a little bit more term. And throughout all these discussions, we maintain at least 20% and sometimes up to 50% ability to prepay these MetLife lines in any calendar year without penalty. So to the extent that rates move in our favor and we'd like to pay down on the fixed side. And we can do that with really all of these lines somewhere in that sort of 20% to 50% range every year.

That’s very helpful. And that was me. Thank you very much.

I think one thing to add to that because I don't think James mentioned it. In the 2024 projections, we have based on current yield curves sort of projected those rental – those rate increases on those MetLife loans that roll over. Correct me if I'm wrong, but we've made an assumption of a rent. I mean of an interest rate jump in the projections that you saw in the supplemental.

Okay. Very helpful. Thank you very much.

[Operator Instructions] There are no further questions at this time. I will now turn the call back over to Luca Fabbri for closing remarks.

Thank you, Jenny and thank you, everybody. We appreciate your interest in our company. We look forward to continue this conversation through the year with our quarterly updates. And in the meantime, you have any burning questions, please never hesitate to reach out to us. Best way is through our Investor Relations email address which is [email protected]. Thank you everybody and have a great day.