Greetings, and welcome to the Limoneira’s Second Quarter Fiscal Year 2022 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, John Mills with ICR.

Thank you. You may begin..

Good afternoon, everyone and thank you for joining us for Limoneira’s second quarter fiscal year 2022 conference call. On the call today are Harold Edwards, President and Chief Executive Officer; and Mark Palamountain, Chief Financial Officer.

By now everyone should have access to the second quarter fiscal year 2022 earnings release, which went out today at approximately 4:00 p.m. Eastern Time. If you not had a chance to view the release, it’s available on the Investor Relations portion of the company’s website at limoneira.com.

This call is being webcast and a replay will be available on Limoneira’s website as well. Before we begin, we’d like to remind everyone that prepared remarks contain forward-looking statements, and management may make additional forward-looking statements in response to your questions.

Such statements involve a number of known and unknown risks and uncertainties, many of which are outside the company’s control and could cause its future results, performance or achievements to differ significantly from the results, performance or achievements expressed or implied by such forward-looking statements.

Important factors that could cause or contribute to such differences include risk detailed in the company’s 10-Qs and 10-Ks filed with the SEC and those mentioned in the earnings release.

Except as required by law, we undertake no obligation to update any forward-looking or other statements herein, whether as a result of new information, future events or otherwise. Please note that during today’s call, we will also be discussing non-GAAP financial measures, including results on an adjusted basis.

We believe these adjusted financial measures can facilitate a more complete analysis and greater understanding of Limoneira’s ongoing results of operations, particularly when comparing underlying results from period to period. We have provided as much detail as possible on any items that are discussed on an adjusted basis.

Also, within the company’s earnings release and in today’s prepared remarks, we include adjusted EBITDA, which is a non-GAAP financial measure. A reconciliation of adjusted EBITDA to the most directly comparable GAAP financial measure is included in the company’s 10-Q and press release, which have been posted on its website.

And with that, it is my pleasure to turn the call over to the company’s President and CEO, Mr. Harold Edwards..

number one, to reduce debt and right-size our balance sheet. We also reiterated today that we expect to receive approximately $95 million over the next five-years from harvest at Limoneira beginning this year.

In addition to Harvest, we have identified over $100 million in assets that we will be monetizing [indiscernible] in the near term to streamline our operations. Number two, transitioning our One World of Citrus to an Asset Lighter business model.

In order to unlock the value of our many assets and better leverage our leading global citrus position, we will be expanding our One World of Citrus while also strategically selling certain assets and streamlining our operations to dramatically increase our long term cash flow.

To accomplish this, we will be increasing our focus on growth of the Asset Light model using more GROWER PARTNER fruit in order to reduce the impact of pricing volatility and farming costs. We will continue to develop best-in-class GROWER services to recruit additional grower partners.

We'll also be reconfiguring our global lemon packing network to better support our GROWER PARTNER’s fruit. This may include reducing certain orange and lemon acreage globally, while still increasing the packing and marketing of the food grown on these locations.

In the coming years, we expect 30% of our lemon growing supply chain to come from Limoneira fruit and 70% to come from GROWER PARTNER fruit, while maintaining our overall growth goals. To put this in perspective, today 50% of our fruit is produced on Limoneira properties.

As an example, last week, we announced our engagement with the Yuma Mesa Irrigation and Drainage District in a two-year following in forbearance program at the company's Associated Citrus Packers ranch in Yuma, Arizona.

The program targets 400 acres of farmable land on the property over the duration of the agreement and will result in excess of 4,200 acre feet or more than 1.3 billion gallons annually of save water that will be retained in Lake Mead as Colorado River system conservation water.

In addition to conserving natural water resources, the program converts previously unprofitable acreage to be profitable with an estimated annual savings of approximately $1 million.

As a reminder, our Associated Citrus Packers ranch includes 1,300 acres of land comprised of approximately 900 acres of productive lemon orchards and 400 acres of other crops and facilities with access to the Colorado River for crop irrigation.

We cultivate, harvest and pack fruit for sale within the Limoneira family of brands as well as third-party contract partners. Now with the following program in place, we will have 700 acres of productive lemons, 400 valid acres and 200 acres of other crops.

We will continue to leverage our existing supply chain for the 700 acres of lemons and expect to add more GROWER PARTNER’s in the desert area into our supply chain in the coming year. This will result in more lemon volume than we previously generated.

This Asset Light model will enable us to achieve improvements in the following metrics, our Board is using to measure progress and position us to improve shareholder value.

The first is reduced investment risk outside of North America, generate more stable and higher growth of EBITDA in earnings, and lastly, to improve our annual return on invested capital. During the past 12 years, we grew our One World of Citrus offering.

We also made certain investments in assets that were embedded in this growth and the overall infrastructure of Limoneira. Now we'll be focusing on monetizing certain of these assets that have increased in value over the years and this will dramatically improve our churn on invested capital.

We expect to also leverage our leading avocado position by increasing avocado production in Ventura County and exploring additional ways to participate in the packing, marketing and selling of avocados as a complement to our One World of Citrus. Our fifth strategic objective is enhancing our ESG goals.

Limoneira have a long history of sustainability practices and this is one of the reasons our company has enjoyed almost 130 years of giving back to the community.

We built housing for farm workers, sponsor community programs, reduce our carbon footprints with seven solar installations, manage greenway's with 28 facility that receives 200 plus tons per day of organic Greenway's, minimize pesticides and we are pioneer in water conservation.

However, in order to ensure our land this year for future generations, we are redoubling our efforts on environmental, social and governance standards.

We are increasing our focus on regenerative agricultural practices, including expanding our relationships with third-party agronomists to further enhance and property merger or so, and water conservation efforts. We continue to improve our digital information system to increased efficiencies across our supply chain.

This system will work in tandem with our agricultural practices by monitoring daily tree health and fruit growth, identifying labor and distribution needs, predicting the right time to harvest and match harvest, food grades and sizes to meet global demand. Lastly, we are evolving our governance structure to ensure best practices.

We believe that this new strategic plan will result in an Asset Lighter business model, dramatic debt reduction, reduced volatility and an increase in EBITDA and earnings per share, higher return on invested capital, increase in our quarterly dividend, higher ESG scores, expansion of global fruit packaged to marketing by Limoneira, and lastly, an increase in the growing, packing, marketing and selling of avocados.

We will update you on a regular basis regarding our progress and we believe we will be in a position to announce additional asset sales and streamlining of our business model in the coming quarters.

Our entire team at Limoneira is very excited about our new strategic plan to realize the value of the many investments we have made over the past 20 years. This will dramatically improve our financial position and expand our One World of Citrus opportunities. We have a deep history of being a leader in the citrus and avocado world.

In this new plan, we will elevate Limoneira and enhance the value of our company for all stakeholders. And with that, I'll now turn the call over to Mark. .

Thank you, Harold, and good afternoon, everyone. For the second quarter of fiscal year 2022, total net revenue was $46.8 million compared to total net revenue of $45.1 million in the second quarter of the previous fiscal year. Agribusiness revenue was $45.4 million compared to $44 million in the second quarter last year.

Other operations revenue was $1.4 million compared to $1.1 million in the second quarter of the previous fiscal year. Agribusiness revenue for the second quarter of fiscal year 2022 includes $27.3 million in fresh lemon sales compared to $28.7 million in the same period of fiscal year 2021.

Approximately $1,552,000 cartons of fresh lemons were sold during the second quarter of fiscal year 2022 at a $17.57 average price per carton compared to approximately $1,528,000 cartons sold at $18.79 average price per carton during the second quarter of fiscal year 2021.

Lemon pricing has remained challenging for the first half of fiscal year 2022 as we've dealt with adverse weather on the East Coast as well as the emergence of the Omicron variant creating an oversupply of lemons in the marketplace.

We are seeing the lemon export market to begin to returning normal levels, however is expected to be a slower recovery and so while we expect improvement in the second half of this year, it is still expected to be down year-over-year.

The company recognized $2.7 million of brokered fruit and other lemon sales in the second quarter of fiscal year 2022 compared to $2.3 million in the same period last year. The company recognized $3.6 million of avocado revenue in the second quarter of fiscal year 2022 compared to $2.7 million in the same period last fiscal year.

Approximately 1,877,000 pound of avocados were sold during the second quarter of fiscal year 2022 at a $1.90 average price per pound compared to approximately 2,142,000 pounds sold at $1.26 average price per pound during the second quarter of fiscal year 2021.

The company recognized $2.6 million of orange revenue in the second quarter of fiscal year 2022 compared to $1.4 million in the same period of fiscal year 2021.

Approximately 328,000 carton of oranges were sold during the second quarter of fiscal year 2022 at a $7.98, average price per carton, compared to approximately 154,000 cartons sold at a $9.12 average price per carton in the prior year period.

Specialty citrus and other crop revenues was $1.4 million in the second quarter of fiscal year 2022 compared to $1.2 million in the second quarter of fiscal year 2021. Total costs and expenses for the second quarter of fiscal year 2022 were $44.1 million compared to $42.7 million in the second quarter of last fiscal year.

The increase in operating cost was primarily attributable to the company's agribusiness associated with an increase in packing and growing costs, partially offset by decreases in third-party grower and supplier cost in the second quarter of fiscal year 2022.

Operating income for the second quarter of fiscal year 2022 increased to $2.7 million compared to operating income of $2.4 million in the second quarter of the previous fiscal year.

Net income applicable to common stock after preferred dividends for the second quarter of fiscal year 2022 with $1.4 million compared to a net income of $1.8 million in the second quarter of fiscal year 2021.

Net income per diluted share for the second quarter of fiscal year 2022 was $0.08 compared to a net income per diluted share of $0.10 for the same period of fiscal year 2021.

Adjusted net income applicable to common stock for the second quarter of fiscal year 2022 was $1.7 million compared to net income of $1.8 million in the same period of fiscal year 2021. Adjusted net income per diluted share was $0.10 for the second quarter of fiscal year 2022 and 2021.

A reconciliation of net income to adjusted net income is provided at the end of our earnings release. Adjusted EBITDA was $5.8 million in the second quarter of fiscal year 2022 compared to $6 million in the same period of fiscal year 2021. A reconciliation of net income to adjusted EBITDA is provided at the end of our earnings release.

Now turning to our balance sheet and liquidity. Long-term debt as of April 30, 2022 was $135.6 million compared to $130.4 million at the end of fiscal year 2021. We believe the level of debt will decrease throughout fiscal 2022 due to expected cash flow from our agriculture and real estate businesses.

Now I'd like to turn the call back over to Harold to discuss our fiscal year 2022 outlook and longer term growth pipeline..

fiscal year 2022 is expected to generate $8 million of cash to Limoneira, fiscal year 2023 is expected to generate $15 million, fiscal year 2024 is expected to generate $27 million, fiscal year 2025 is expected to generate $30 million, and fiscal year 2026 is expected to generate $15 million.

These expectations from Harvest do not include the potential opportunity of a medical campus in our East Area 2 development. Now I will open the call to your questions.

Operator?.

At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Ben Bienvenu with Stephens. You may proceed with your question. .

Hey. This is Jack Atkins stepping in for Ben Bienvenu. Good afternoon. .

Hi, Jack. .

Hello. Yeah. So I wanted to ask about the expanded strategic scope of One World Citrus. I know you identified $100 million in assets to be sold in the near term.

Do you have any sense of how much of the $600 million you would like to monetize overall? And maybe if you could provide some additional color on how you deploy that capital?.

Yes, be glad to. So we went through a rigorous review of the assets that are involved in the One World of Citrus business model with our Board and developed collaboratively a strategic plan back in February that was unanimously approved by the Board.

And then we're task at the management level to provide the Board with a roadmap for the expansion of the Asset Lighter model, that includes over $100 million of non-core assets to be divested.

Some of those assets are specific assets in areas where our returns on invested capital, historically, have not been achieving the desired levels that we wanted to have. And we see -- yeah, we've seen those assets appreciate the land and the water significantly over time.

So for us to convert some of our owned acreage to be able to divest that to interested financial parties that would then allow us to continue to market and sell the fruit by running that fruit to our packing, marketing and sales program is specifically what we're talking about.

And while we don't have necessarily the ability to talk about the specific assets that we're working on, there is -- there are assets in each of the growing district areas in district one and district and district three that will be potentially in a package of assets that we're going to run a process to try to monetize..

Awesome. Thank you so much. That's it from us. Thank you. .

Our next question comes from the line of Gerry Sweeney with ROTH Capital. You may proceed with your question. .

Hey, Harold, Mark. Thanks for taking my call. .

Hi, Gerry. .

Just staying on the asset divestitures that may be realignment or most of the assets domestic or are you looking at making any changes on the international side?.

So, Gerry, as you know, we also own assets in Argentina and in Chile. And in Argentina, our desire is to opportunistically transition the business where into more of an agency approach where we represent other shippers, fruit and work on the potential divestiture of our owned acreage in Argentina for political risk reasons.

And in Chile, our thoughts are to monetize a percentage of our production, but then to convert that capital in Chile into the development of a new packing house and the new packing operation, very similar to what we did in Santa Paula. .

Got it.

And speaking of that was sort of my next question was -- you kind of alluded to that in the prepared remarks was maybe some other investments is that packing facility in Chile the one -- is that, are you looking at one facility in terms of packing houses or will there be others? And then secondarily, are there other sort of value-enhancing investments you can make as well to sort of support this Asset Lighter model?.

Yes. So we only -- packing house and enjoying interest in a packing, marketing and selling company called La Serena (ph) packing in Chile.

And our packing house currently has a capacity of about 1 million cartons, but based on our relationships with certain farm managers, we have somewhere between 4 million to 5 million cartons identified lemon throughput that need a home from a packing, marketing and sales perspective.

So we see a great opportunity to expand our La Serena (ph) operation to build the packing house with a 4 million to 5 million carton annual capacity to take advantage of that throughput, but then as a great way for us to grow the Asset Lighter model of our One World of Citrus. .

And one more thing to add there. So on the domestic front, we're going to see opportunities in our packing house, there's just tremendous growth in volume and bagging these days for retail. So we're going to add a number of value machines to our packing house.

And then as we pay down debt to what we think are sufficient levels, we are also going to redeploy capital into -- up to 500 acres of avocados and explore other opportunities in the food chain there. .

Got you.

On the avocado side, would you do any packing on that front or would you just use that -- so then and just to the other third-party packagers?.

So right now we are, we see a great opportunity with our land and water assets in Ventura County to reduce our lemon production because fundamentally there is an oversupply in that part of California during that season.

And then convert that acreage into the expansion of avocado production by somewhere between 250 to 500 additional acres of additional production. And then with the significant growth in volume to then explore the potential of entering the packing, marketing and selling of avocados by potentially being acquisitive. .

Got you. Switching gears, I'm not sure there's other people in the line, but real quick, just on the real estate side.

The medical campus an additional sort of acres sales, there you look like you’re going to be doing on the real estate separate from Harvest at Limoneira that's going to be a little bit different sort of structure in terms of cash flow.

I mean is that a direct sale land and you get the cash up front, not necessarily like a joint venture where you had to develop and then build the land then get the cash flow. Just any guidance on that front..

That's exactly right, Gerry. So we entered a letter of intent with a developer who in return has also developed a letter of intent, which is about to be formalized with the health care agency of Ventura County, which is the public hospital system in Ventura County.

And the idea is that the land so there is a upwards of 50-bed hospital that's envisioned on five acres and a 150,000 square foot outpatient medical office building, which is on five acres that's -- at when it's ready to break ground then Limoneira will sell that land, so that 10 acres to the developer.

Now we envision that monetization for Limoneira will be an all-cash outright sale, the turns have been already negotiated and we would expect that to take place in 2023.

And in addition to that we also have another 2.5 acres that's contiguous to that where we're currently negotiating with a hotel on an outright land sale as well to serve as a complement not only to the Harvest at Limoneira residential component, but also to the medical campus component.

The last piece to that is that will leave 20 acres in the East Area II -- area, and we're currently under discussions with the Ventura Community College District to potentially serve sell 10 to 20 acres to them and if we were successful in doing that, that would complete all of East Area II, so it's exciting to see the momentum and progress.

And we begin -- we expect to begin to see the monetization of that next year in 2023..

Got you. I appreciate. I'll jump back in line. .

Our next question comes from the line of Ben Klieve with Lake Street Capital Markets. You may proceed with your question. .

All right. Thank you for taking my questions here. First I have a question on the monetization of the water rights that you announced last week and touched on here on the call today. Curious, the million dollar of improved operating profit that you are looking for here from that announcement.

Can you kind of outline the -- how you get to that number from the perspective of increased cash flow due to the water rights being divested versus savings on -- operating savings given that those acres are not going to be productive anymore?.

Yeah. Sure. Thanks for the question. So really the way we are looking at that is over the past three or four years that acreage that was specified for the fallowing program was very tired in old lemons, a typical lemon only last 22 to 25 years of lemon tree in the Yuma desert area.

And so as we saw this program come out, it was about $1,000 an acre losing proposition and because specifically, it's just not that much fruit being produced as they get older and then we have the trucking costs and shipping cost of getting it all the way to Santa Paula.

just made it more difficult and so that $1,000 an acre then flipped over to $600,000 benefit from the fallowing programs, so basically just looking about a $1 million turnaround from where it was and then money-losing position to then having no input costs and getting $600,000 for the program. .

Got it. That's really helpful.

So then I guess then a follow-up question that is, at the end of two years here, you're going to set, you're effectively going to have completely fallow land and then make a decision on whether to replant with lime as replant with another crop or divested or sit on it and continue to monetize the water rights, is that kind of the different calculation that you're looking at right now for two years out for that plant?.

We actually, that's a great question. So we actually believe that the situation on the Colorado River is dire. And if you read about what's happening with Lake Powell and Lake Mead has storage facilities for western water, the situation is really bad.

And so as a result, we expect that this fallowing program will just become more and more lucrative over a period of time because the agencies that govern the river and the requirement to divert more and more water away from agriculture and into storage or residential and urban use is going to happen.

And so what we fully expect to happen at the end of the following program is that there will be a new fallowing program that will be put in place at significantly higher values.

So really the way we're thinking about that asset in Arizona is more as a long-term water monetization opportunity and less as a place where we're going to produce reliable suppliers of lemons.

We're going to -- from a supply chain perspective begin to pivot some of the supply chain to the west, I guess into the Coachella Valley where there is still quite a bit of young production and high quality production, but still hanging onto our Yuma investments, but focused on the monetization of that water..

Got it. Very interesting. And it's pretty impossible to be optimistic about the outlook for water throughout the Colorado River system, so I hear you loud and clear there.

On the lemon market side, I wholly appreciate the broad comments around your approach to kind of move from a more vertically integrated business to one where you're -- more of a processor and marketer of third-party fruit. My question though is given the challenge that you guys have observed now for four years in those market.

Can you talk about the farmers that you're going to be sourcing from here and an increasing manner via this business model.

I mean what is the state of the lemon market and the average farmer? And how much pressure do you see on this business here over the long term that could potentially impact your efforts to be a marketer of the fruit in a really challenged environment?.

No, that's a great question and that's sort of at the essence of our shift in our strategy. So the answer to your question is different in each of the growing regions.

So in Yuma you're going to see -- because of the water situation, you're going to see a natural reduction in production there because of the fallowing programs and just the lack of access to water that irrigate trees. So that's going to reduce the supply chain from that area.

But the other thing that we're observing just by following local nurseries is that there is an awful lot of new plantings and young plantings in the district three region in the Coachella Valley.

And so we are already in discussions with a number of high-quality citrus producers who are very committed to growing in that region, who are looking forward to our marketing approach and focusing on higher fresh utilization rates and good returns to keep them profitable versus our competition. So that's the desert.

In the San Joaquin valley, we've also observed significant plantings of young trees that will be coming online. So there in the awful lot opportunity to source new growers in the San Joaquin Valley.

And finally the dynamic that's driving the shift to more lemon plantings on the coast in district two is with the curtailment of access to water in certain areas in Ventura County. You're seeing growers who used to have access to a lot of water we were able to successfully row crop have the water rationed and cut way back.

And so it takes a lot less water to grow a lemon tree than it does to produce a number a turns of produce in vegetables and even strawberries or different types of berries. So we're seeing a significantly larger amount of lemon plantings going into Ventura County than we would have thought.

Now the dynamic with that increase in young trees and production as you were saying is the pressure from three really bad years because of oversupply and low pricing some because of COVID and some cause because a systemic over planting around the world.

So that dynamic will be very interesting to follow, but we're very bullish on the opportunity to access new GROWER PARTNERs and continue to grow that part of our business. .

Okay. That's really interesting. Yeah. There's plenty going on there. It's good to hear your thoughts though. There's plenty more to ask that's probably a good place to leave it. I appreciate you guys taking my questions and I'll get back in queue. .

Thanks, Ben. .

Thanks, Ben. .

[Operator Instructions] Our next question comes from the line of Eric Larson with Seaport Research. You may proceed with your question. .

Yeah. Hi, guys. Thanks for taking my question. .

Hi, Eric. .

So my first one -- my first one guys is, what was your fresh utilization in the quarter. I see the fresh sales were off a little bit. Obviously, pricing was not fund. So what was the utilization and were you able to get good market sizing, there were no sizing issues per se maybe in the quarter. .

Great question, Eric. So it was a really good quarter and, seasonally the majority of the fruit that was produced and sourced came from the San Joaquin Valley in our district one area and we finalize the district one crop at a little over 78% fresh utilization at an average return per bin of about $165 of bin, which was very competitive.

But when you take the combination of a great grow return per bin times the amount of fruit that we sold, it drove a much higher profitability back to the acre for our grower partners then [indiscernible] was able to be provided by our competition. .

Got it. Okay. So we're probably three or four weeks away from home kind of the traditional seasonal influx of fruit from Peru.

What does -- what is the import situation look like this year from Peru?.

Yes.

So Peru certainly – I’ll tell you in avocados, Eric?.

Yes. .

So, that's a great question and I appreciate it coming from you, because I know you follow the avocado handlers as well.

So this has been an extraordinary avocado year and season for us as producers because it's the first time in 20 years that I've been involved with our business that the pendulum of leverage has swung from the handler back to the producers because as you know, dramatic shortages that are coming out of Mexico and the ability to have a pretty good size early in California and it's led to dramatically higher returns coming back to our California fruit.

So we expect that part to end though when that Peruvian fruit starts to pour in and the first boats are on the water right now, so we expect that season to really get going in the very near term.

And as producers in California, we have our foot on the gas with our picking strategy to try to get all of our fruit off as quickly as we can and try to be done with our Harvest and our marketing by the beginning of July..

Okay. Wow. That's a pretty fast timeframe. I didn't see you have a little bit of delayed harvest in avocados a year ago. So that -- will that make your third quarter better than fourth quarter for volumes.

I mean I might be messing up my time frame here?.

No, you're pretty close. So the timing will be pretty close to last year.

The calculus as of working on the crop is how much risk do you assume by holding your avocados on the tree and letting them size naturally and then juxtaposing that against what we think the future returns are going to be as a lot of the imported fruit from Mexico, Peru come into the market to influence that pricing.

So what happened last year as we held, I think mark a 1 million pounds towards a later day. This year, because the pricing so high. We're going to try to get that fruit off the tree and into the market as soon as we can.

So right now, where we have our opportunity from a revenue perspective of hitting $9 million to $10 million at this point in avocados if we play this right. So we're really going after it just because of the extraordinary pricing we're seeing right now in the market. .

Wow, excellent. Okay. So kind of back to some of the questions that you're talking about, you kind of your strategic asset sales and you identified $100 million of potential sale value.

So first question is, number one, is that an after-tax value? And number two, can you maybe give us a little better feel for the timeframe on that? And then number three is it, I think this question was probably asked or maybe I missed a real answer on it, but is it limited to only $100 million or do you have other sort of underperforming ROIC land and assets that could come out on top of the $100 million?.

All great questions. So first as far as the $100 million and thinking about the basis of the stuff that we've identified so far, there is about $30 million of gain that we could [indiscernible] see from that. We've got a number of offsets already in our handle. So, we've got about $15 million to $16 million of NOLs on the books.

I’m not sure we've talked about it in prior calls, but we also are in the process of terminating our pension, which has an AOCI loss on the books there and there's a number of better offsets that -- for that 100 million we almost completely shelter that from tax.

And so I think the next part of your question is timeframe sometime in the next 12 months to 24 months, we see as a high probability and we're working hard on it now. And there is currently a process and some of the assets and so we're pretty optimistic that this is going to happen in an orderly quick fashion.

And the third -- third part would you repeat it again?.

Yeah. The third part is, you've identified $100 million of right now and have disclosed publicly here a $100 million of low return more strategic divesture assets.

Is it limited to that or do you have, is there a longer runway on lower ROIC assets that you would be willing to divest and what is your hurdle rate for ROIC?.

Great question. The last part of it, we think it's somewhere around 10%. But we're still kind of formulating that internally.

One of the challenges of many of the investments that we've made over the years, Eric and you will appreciate this is that when you make an investment in land and water, which fundamentally is appreciating, you've got a lot of capital tied up there which you don't really realize the full benefit of the return on invested capital to you divest that land that water and our primarily our game plan has not been a divest land, and water except after kind of looking at the inventory of some of the assets we've seen an opportunity to do that.

So -- and I think very, very profitably, but also very beneficially because in some of these, some of these situations, the assets have been performing sub optimally or are sort of right on the cusp of dealing significant additional investment into them. So it's the right time to begin to make these transitions.

But the first part of your question is, we identified $100 million of opportunity, but let's just say there is a significantly greater amount that we're working on and maybe twice that. And it will really just come down to what the market will bear, and our success in finding willing buyers for those assets that are being marketed right now.

So -- and our weighted average cost of capital is somewhere just below 6% at this point, as you know, we've been a LIBOR plus 150 borrower for a long time and as we see these rates going up, which is obviously part of the debt paydown program. But the goal would be to get obviously above 6%.

So you're not destroying value and some more towards 10 as a hurdle..

Okay. No, that's -- thank you, Mark. I appreciate that clarity. So the final question I have you guys, is this -- this is really -- just kind of your thoughts about California, the drought it's drying up like a prune and you're not the prune business.

So what -- and I have been watching that water levels in Lake Powell, I mean it's pretty serious stuff, how and we're starting to see water rationing in California, et cetera, et cetera. I know you guys have tremendous water rights, et cetera, but how does all this is going to play out in California agriculture.

I'm not talking just you, I'm talking almonds are very water intensive and are they going to get the water down from Northern California, the Southern California to make almonds and I guess I'm just really curious on the California drought and how -- your perspective on it?.

Thank you, Eric, and I'll try to give you sort of our thoughts on it. So, we've been around for 130 years and we've been monitoring the cycles in weather and in rainfall and snow pack for 130 years. We've seen prolonged periods of drought and we've seen for prolonged periods of wet.

Obviously, right now the West Coast is in a prolonged period of drought that makes the situation really kind of scary right now is that you've got politicians that are willing to sacrifice productive farmland to save fish and the environmental agenda and then obviously the urban agenda and the requirement to provide fresh water for urban centers.

So it's making it tougher and tougher as farmers for us to reliably count on the politicians to protect our water in our water rights, especially our repaying rates that come from the snowpack and the snow melt furnace here Sierra, Nevada mountains.

It was a very low snow pack this year and so the allocation of water went down to historically low levels this year, and that's what's putting all the pressure on the Northern California assets this year.

Now, we believe that our assets are in pretty good shape and we are earning in areas where we have some of the first access to the ground water in our groundwater pumping, but also typically very reliable suppliers of repairing rights through the canals and the repairing and ditches that come out of the rivers and so we believe long term we're in good shape.

But this year has been especially challenging year, not only for us, but for everybody in the San Joaquin Valley. The further West you go in the San Joaquin Valley, the less water there is, to the point where many producers have no access to water. So you're going to see quite a bit of the agriculture start coming out in the valley.

What's going on in Arizona, in the Colorado River that's not necessarily driven by drought, that's driven more by systemic over allocation of that water. Although it is influenced by the drought and the snowpack in the Rocky Mountains, that situation is different than what's going on in California.

I guess to complete the story quickly, the water -- at the water rights that we have from groundwater pumping in Ventura County in Southern California are very strong and we have very deep aquifers that can sustain us through these times of low rainfall and challenge rainfall.

I share your concern, but at the same time it's -- I think that the right way to summarize it, it's going to get more and more dynamic and it's going to create opportunities, but there will be winners and there will be losers as it relates to you access to water. .

Okay. Great. Thanks guys. I'll follow up later thanks for the comments. .

Thank you. .

Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn this call back over to Mr. Harold Edwards for closing remarks. .

Thank you, operator, and thank you for all your questions and your interest in Limoneira. Have a great day. .

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and enjoy the rest of your day..