Farmland Partners - Q2 2023
July 27, 2023
Transcript
Operator (participant)
Good morning. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Farmland Partners Inc. Second Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. Thank you. Luca Fabbri, President and CEO, you may begin your conference.
Luca Fabbri (President and CEO)
Thank you, Rob. Good morning, everyone, and welcome to Farmland Partners' Second Quarter Earnings Conference Call and Webcast. It has been a busy quarter and frankly, busy first half of the year here at Farmland Partners, so I especially welcome the opportunity for myself and the rest of the team to explain a little bit more and give a little bit more color about what we have been doing and what we are planning to do. I appreciate your taking the time to join us for this call. I will now turn over the call to our General Counsel, Christine Garrison, for some customary preliminary remarks. Christine?
Christine Garrison (General Counsel and Corporate Secretary)
Thanks, Luca, thank you to everyone on the call. The press release announcing our second quarter earnings was distributed after market close yesterday. The supplemental package has been posted to the Investor Relations section of our website under the subheader Events and Presentations. For those of you who listen to the recording of this presentation, we remind you that the remarks made herein are as of today, July 27, 2023, 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 second quarter earnings, which is available on our website, farmlandpartners.com, and is furnished as an exhibit to our current report on Form 8-K, dated July 26, 2023. 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. 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?
Paul Pittman (Chairman and CEO)
Thank you, Christine. This was frankly a very good quarter and a very good half for the long-term, value-oriented shareholder in our stock. We have significantly increased the value into those underlying shares through stock buybacks, very strong asset sales, and the beginning of a gradual reduction of our debt loads. That value will come to all of us eventually. As you all of you know, I'm a large shareholder myself. We are taking actions that are fundamentally arbitraging very high values for our farmland against a deeply discounted stock. We will continue to do that as long as it takes to get our shareholders rewarded. The farm economy remains quite strong. You know, our stock has performed pretty well since the last call. Asset values for farmland continue to rise.
As we gradually trim things out of the portfolio, we are getting pretty strong gains on our farms. Please recognize that we are not selling our very best farms. We are selling farms where we are concerned of water challenges or market volatility challenges, or they are outliers for some reason in our portfolio. The appreciation we have in the parts of the portfolio we are not selling are even stronger than those that we are selling. We want to gradually concentrate this portfolio in ways that lessen water risk and lessen volatility of earnings and simplify the management of the business. As I said in the last call, farmland values, farmland as an investment class, you really need to think about how is value created. Value is created two-thirds from appreciation and approximately one-third from current yield.
We went and did IRR calculations on all of the assets that I have, you know, bought and sold over the 25-plus-year career I've had. That would be roughly where the value creation comes from. Appreciation is two-thirds, current yield is one-third. For whatever reason, the public market is partly because I think we're a REIT, is incredibly focused on this sort of scorecard on quarterly AFFO. It is the wrong thing to be focused on. The stock today is down maybe 5%-7%. That is a buying opportunity for the smart investor. The proceeds of the sales we're making are going to buy back stock and to pay back down debt. To date, we have weighted or overweighted, frankly, the repurchases of stock because we think that the stock is at such a deep discount.
We don't want these debt levels to climb much higher, we will be shifting, at least for a quarter or so, to a much more debt reduction-oriented posture. Doesn't mean we will not do any buybacks, we will shift from what's been You know, we've paid down debt along the way as well, we're gonna be shifting more to debt reduction and less to buybacks. As we watch the stock price change over time, we may, and our debt levels gradually come down, we may shift back. We did buy, I just want to point out, we bought back some of our Preferred B. That instrument is in many ways like a debt instrument.
You know, obviously, a hybrid is a Preferred, you know, but it is an interest-bearing instrument, or a dividend-bearing instrument that it performs much like debt. It's about a 3% coupon. That instrument expires a couple of years from now, so we want to gradually whittle away at the balance, so we don't get faced with a big one-time payment. That doesn't show up in AFFO, the savings we make from having paid off a piece of the Preferred. The, you know, the position we find ourselves is that we will just continue to sell farms that we aren't in love with at strong, strong prices, buy back stock, pay down debt, and occasionally buy additional farms in the markets and the locations that we are very happy with.
Rates, interest rates will eventually come down, the AFFO will have a shockingly large positive increase as that happens. No one, certainly not me, and probably no one on the call knows exactly when that will happen, but when that happens, earnings will recover strongly. I don't really want to overemphasize that point. The core of our business is buying high-quality farms, managing them as efficiently as possible, getting the current yield that we can, and ultimately harvesting that massive appreciation that occurs in the asset class due to inflation and everything else. With that, I'll stop. Of course, I'll be available for questions and turn it over to Luca.
Luca Fabbri (President and CEO)
Thank you, Paul. I would like to walk everybody a little bit more in detail through what we have been doing in the first half of the year, vis-a-vis the kind of the pillars of our current strategy that has Paul outlined. On the asset disposition side, in the first half, we sold about $52 million in assets. We closed on an additional about $3 million in asset sales in the very beginning of Q3 so far. We have about $22 million of asset sales under contract, pending closing. We have about $30 million-$33 million in assets going to auction here in Colorado at the beginning of August. We have an additional about $26 million of transactions in very advanced negotiation.
This is a total of about $135 million total in identified transactions or closed transactions so far. We are working, you should expect probably more transactions, more asset sales to come later in the year. I want to stop and really focus the attention of everybody here, as Paul was mentioning, on the power of appreciation in the asset class. I'm really going to stick to the ones that really have, kind of are, are very, very much solidified in terms of having been closed or just pending closing. On the $52 million closed in the first half of the year, we recognized gains of about 33% over net book value. For the $22 million under contract, we are expecting about 75% gains over book value.
This truly demonstrate that the, this asset class has a very, very strong appreciation potential that has to be front and center for anybody investing in the asset class, and is certainly a core component of our own investing and portfolio management strategy. By the way, as Paul mentioned, we are engaged in a broader portfolio optimization, if you will. In that context, we are also still buying some farms. We are, of course, given our overall strategy at this point in time, not as acquisitive as we have been in the past, but we did close on an acquisition in Q2 in Oklahoma for about $9 million. We have another pending transaction here to close later this year for another farm.
Therefore, we continue evaluating opportunities that fit our portfolio and that kind of streamlined and de-risked way that Paul alluded to. Now, in terms of use of proceeds, as we announced earlier this year, we are really focusing on, mostly on two items. One is stock repurchases, and the other one is reduction of leverage or paydown of debt. We kind of front-loaded stock repurchases, so we bought back about $62 million in stock. In terms of shares, is about 10% of the fully diluted outstanding shares as of the beginning of the year, and we did that at an average price of $11.03 per share.
That is, in our mind, a very, very clear and material discount to the intrinsic value of the shares, and therefore, we've been creating value for all the shareholders that have decided to believe in what we are doing and stick to kind of believe in the strategy that we are pursuing. On the debt side, as I said, we kind of front-loaded a little bit these stock repurchases, and therefore, the debt balance actually went up slightly as of the end of Q2. As we said, in the proceeds, use of proceeds in later this year will be overwhelmingly focused on debt reduction.
In sum, we have been demonstrating value via by asset sales and gains, and we are creating value via stock repurchases. You know, that has some repercussions. You know, we are, of course, as we sell some assets, we are losing some revenue, and by the way, also some costs associated with the disposal of those farms. We have incurred temporarily higher debt, as I just explained, but that will kind of reverse soon. We have also experienced, you know, slightly higher interest rates like everybody else than we were expecting.
Also one other on the business side, while asset valuations are very strong and in some parts of the country we are actually seeing them climbing yet more, despite the frankly torrid increases in the last couple of years that were catching up on several years of sideways appreciation. The transaction volume overall in the marketplace is slowing down a bit. That's a result of farmers, who are the main strategic buyers in the marketplace, pretty much having used they are cash buyers and pretty much they used the cash that they wanted to use to buy farms. Therefore, now, with the interest costs being as high as they are, buyers are hitting a little bit of a pause.
Also, there is a little bit of paucity of scarcity of transactions of assets coming to market. Also as a result of that slowdown in transaction volumes, our the volume of business in our brokerage and auction business has slowed down a little bit, and we have reviewed our projections for the year down a little bit. James, in particular, will walk through a little bit more details of what that means in terms of our expectations for the year. Also he's trying to. Given that our portfolio is changing, he's gonna try to also offer a 2023 view that is pro forma for the full year with all these dispositions that we have done.
Although I should turn the call over to James, for his overview of the company's financial performance. James?
James Gilligan (CFO and Treasurer)
Thank you, Luca. I'm gonna cover a number of items today, including summary of three and six months ended June 30, 2023; review of capital structure and interest rates; comparison of year-to-date revenue; and updated guidance for 2023. I'll be referring to the supplemental package in my remarks. As a reminder, the supplemental is available in the Investor Relations section of our website under the subheader Events and Presentations. Page numbers one through nine contain the press release and related financial tables, and page numbers 10 through 19 contain the supplemental information. First, I'll share a few financial metrics that appear on page number two. For the three months ended June 30, 2023, net income was $7.9 million, compared to $3 million for 2022, an increase of $4.9 million.
Net income per share available to common stockholders was $0.14, compared to $0.04 for 2022, an increase of $0.10. AFFO was ($1.1 million), compared to $1.1 million for 2022, a decrease of $2.2 million. AFFO per weighted average share was ($0.02), compared to $0.02 for 2022, a decrease of $0.04. For the six months ended June thirtieth, twenty twenty-three, net income was $9.6 million, compared to $4.1 million for 2022, an increase of $5.5 million. Net income per share available to common stockholders was $0.15, compared to $0.05 for 2022, an increase of $0.10. AFFO was $0.4 million, compared to $3.3 million for 2022, a decrease of $2.8 million.
AFFO per weighted average share was $0.01, compared to $0.07 for 2022, a decrease of $0.06. We'll review some of the operating expenses and other items shown on page number five. Depreciation, depletion, and amortization was higher in the second quarter of 2023 due to approximately $400,000 of non-recurring adjustments made in the quarter and more depreciable assets placed in the service. Property operating expenses were higher in 2023, caused by a couple of things: higher property taxes, including a one-time property tax of approximately $150,000 that occurred in the first quarter. That was reimbursed by the tenant and appeared in increased tenant reimbursements, which we'll look at in a minute.
A non-recurring expense occurred in the second quarter of 2023 of approximately $140,000 due to the final reconciliation of cost-sharing with a tenant on the California farm. That was partially offset by lower utility expenses in the second quarter of 2023. General and administrative expenses were lower in 2023, due primarily to lower stock-based compensation. Legal and accounting expenses were lower in 2023 due to lower litigation spend. Gain on dispositions was up significantly compared to 2022, demonstrating the appreciation of the farmland sale values relative to net book value, as Luca described a minute ago. Interest expense increased due to higher rates and greater debt balance in the second quarter compared to 2022. I will skip ahead to page number 12 to make a couple of comments about our capital structure.
Total debt at June 30, 2023, stood at $473.5 million. Fully diluted share count as of last Friday, July 21, was 50.1 million shares. If you look at the table toward the bottom of the page, we had undrawn capacity on the lines of credit in excess of $120 million at the end of the second quarter. We have one more MetLife rate reset this year. That's MetLife loan number 10, we started to engage with the lender. Next year, 2024, we have 3 MetLife rate resets totaling approximately $44 million. That's loan numbers nine, 11, and 12. Turning to page 13, that page provides an overview of our income statement and the building blocks that generate revenue and cost of goods sold.
I won't go through it in detail as we have in previous quarters, but please feel free to contact me if you have any questions. The next page, page 14, shows these building blocks described on 13 for the first two quarters of 2022 and 2023, with comments at the bottom to describe the differences between the periods. A few points to highlight are that the fixed payments, and that's really the first four columns shown, all exceeded 2022. The remaining items came in lower than 2022. To telescope down a little bit, fixed farm rent increased between the periods as we acquired properties in 2022 and renewed leases, and that was offset by the disposition so far this year. Solar increased in 2023, as a large project in the state of Illinois commenced its construction phase late last year.
Tenant reimbursements increased in the first quarter of that one-time property tax assessment of about $150,000 and the related tenant reimbursement, as mentioned earlier. In Q4 2022, we acquired land and buildings for four agricultural equipment dealerships in Ohio under the John Deere brand. The accounting treatment classifies those acquisitions as financing transactions, so they appear on the balance sheet as loans and on the income statement as interest income. This accounts for the increase in interest income in 2023 compared to 2022. Variable payments were down in Q1 due to grapes and row crops, and down in Q2 due to citrus, tree nuts, and row crops. This is largely expected, with one exception.
The lower performance in row crops in the second quarter is really due to a timing difference, as revenue that fell into the second quarter of last year is going to slip into the third quarter of 2023. Direct operations is the combination of crop sales, crop insurance, and cost of goods sold. It was down largely due to citrus and walnuts. Other items decreased due to lower auction and brokerage activity compared to 2022, as Luke had described earlier. We have decreased our outlook for auction and brokerage fees for the year, as shown on page 15. If you flip the page to page 15, we've updated the outlook for 2023 using the same building blocks described on the previous pages. Assumptions are listed out towards the bottom.
As a reminder, this contemplates that we dispose of approximately $135 million in what we're calling identified transactions. This number is an estimate, and actual results may differ. On the revenue side, fixed farm rent will change with dispositions, acquisitions, and new leases signed. Solar, wind, and recreation, tenant reimbursements, and management fees, and interest income all have very small changes. Variable payments increased due to improved outlook for citrus farms that pay variable rent, while direct operations, that's crop insurance plus crop sales, less cost of goods sold, is down due to citrus and walnut farms under direct operations. Other items decreased due to lower revenue outlook from excuse me, auction and brokerage for the balance of the year.
On the expense side, Property operating expenses are increasing due to a couple items from the first half of 2023 that we've covered: the one-time property tax expense in the first quarter and the non-recurring expense in the second quarter. General and administrative decreases with lower spend in the first half of 2023. Legal and accounting also decreases with lower spend in the first half of 2023. Interest expense increases with higher projected debt balances and updated rates. We're estimating the last remaining interest rate reset for 2023, that's MetLife number 10, prices in the 6%-6.5% range. While the increase in interest expense is painful, we maintain access to over $120 million of liquidity in the form of undrawn lines of credit. Weighted average shares decreased the share buybacks.
This results in AFFO in the $5.9 million-$9.2 million range, or $0.11-$0.18 per share, a decrease from projections provided back in May. At the bottom of page 15, we provide information on what 2023 would have looked like pro forma all the various transactions, but removing the partial year impact. Please note this is not a projection for next year. That will require more analysis, including lease renewals, additional farm transactions, analysis of variable rent, et cetera. Fixed farm rent would be approximately $1 million lower than July guidance. Solar, wind, recreation would be approximately $200,000 lower than July guidance. The tenant reimbursements would be approximately $200,000 lower than July guidance. Net debt would be approximately $400 million-$410 million.
The fully diluted shares would be approximately 1.9 million shares lower than July guidance. Hopefully, this helps describe where we stand given what we know today. We will certainly keep you updated as the year progresses. This wraps up my comments for this morning. Thank you all for participating. Operator, you can now begin the Q&A session.
Operator (participant)
At this time, I would like to remind everyone, in order to ask a question, press Star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Rob Stevenson from Janney. Your line is open.
Rob Stevenson (Equity Research Analyst)
Good morning, guys. This quarter, you guys sold a couple thousand acres in each the Corn Belt and Delta South, and almost 5,000 acres in the Southeast, but nothing in the West Coast or the High Plains. The expected sales over the remainder of 2023 are going to be in those same markets, or are you expecting to see some West Coast and High Plains sales?
Paul Pittman (Chairman and CEO)
The auctions that are alluded to. This is Paul. The auctions that are alluded to in the earnings release that are coming soon, those are actually all High Plains-oriented auctions.
that they're starting. We, you know, the Midwest sales we did, the Corn Belt sales we did, were in Nebraska, which in all except the far western part of Nebraska, we put in the Corn Belt. Nebraska's unusual. Nebraska has got very much, you know, Illinois and Iowa-style land in the eastern, say, third of the state, and then as you move west, it's much more water-challenged. What we sold in Nebraska is in that water-challenged area. As far as the sales in the Delta and the Southeast, you know, we are certainly pruning farms that, for whatever reason, we don't think are as high a quality from our perspective as, as the, you know, as some of the others.
Some of the acreage just sold in the Southeast and the Delta would fall into that bucket. A couple of them just fall into the bucket of, "Somebody made us an offer we can't refuse." Rob, you know, our farm managers value this portfolio relatively frequently, kind of from the bottoms up. We don't publish that, we don't wanna publish it 'cause, you know, it's being done by our own farm managers, but they use comps and everything else. We have sort of a tracking list internally on what we think something is worth, and then obviously, a sort of internal mental projection of what's the growth and value of that property over the coming years with appreciation, in particular.
If someone shows up and makes us an offer that is, you know, so far above what we, quote-unquote, "think it's worth," and, you know, gives us the next, you know, three years or five years of appreciation without having to wait for it in their offer, we will almost always take that deal and recycle the capital into, in this circumstance, buying back our stock or buying additional farms. If somebody really wants something from an economic perspective, more than we do, we're not emotionally tied to any farm, we will sell it. What should come in the rest of the year, though, is more sales, frankly, in the on the West Coast and in the High Plains.
Probably less in the eastern part of the country, but with the caveats I gave, there may be still some things happening in the eastern part of the country. Hope that helps, Rob.
Rob Stevenson (Equity Research Analyst)
Okay. Yeah, I guess the you guys have talked in the past about reducing some of the volatility in the, in the revenue streams, et cetera. Are the West Coast assets that are gonna be sold, are those ones with the more variable revenue streams, or are those the, the more stable ones? I guess what I'm trying to...
Paul Pittman (Chairman and CEO)
No.
Rob Stevenson (Equity Research Analyst)
get at is, are some of the variable, the tree crops, the almonds and stuff like that, is that stuff, you know, as in demand today, or are you having to wait a bit for the market prices and some of the supply issues to subside to really monetize any of that? you know, right now it's monetizing strawberries and stuff like that.
Paul Pittman (Chairman and CEO)
It's a little bit of a mixed bag. It's a very, very insightful question and a good question. First, in our portfolio, the volatility comes almost entirely from the specialty crops, mostly on the West Coast, but the specialty crops in our portfolio overall, and from the market, you know, the brokerage business, the MWA business. I mean, that's where the volatility comes from. The row crops, other than a tiny percentage of occasional bad debt, is incredibly predictable. You know, it's fixed cash rent, it's coming 50% usually in February or March, 50% roughly in November. It's incredibly predictable, and you can see that in sort of how James's and the company's budget matched up with, with the actuals in the row crop kind of portion of the portfolio.
Yes, the volatility is on the West Coast, but the water risk is also substantially on the West Coast. I mean, there's not water risk this year, but there will be again, and we have taken a perspective that we wanna lighten up our exposure out there. Doesn't mean to exit it completely, but lighten up our exposure. You will see more, you know, more sales, as I said, come from there. Related to that, though, is the other question you asked. The market out, you know, unlike Illinois farmland, where the state kind of it's different land classes across the state, so the values are different, but it's all fundamentally in the same economic world. It raises corn, it raises soybeans, it raises wheat, and it has some livestock.
When you go to California, no two acres, you know, acres five miles apart are vastly different in value and vastly different in terms of the food economy they're connected to. You know, you start with land quality and water, and water is probably even more important than land in California, but it's those two things. Then you go to what crop is on it. If you're in a permanent crop, say, walnuts, which are in a, you know, frankly, having a tough time these right now in a general economic sense, you're trapped because 40% of your value in that farm is the existing trees.
It's not so easy, you know, you can't just say, "Hey, I'm gonna, you know, sell the farm while the walnut economy is bad." On the other hand, if the walnut economy was strong, it's easy to sell. We have to migrate through those issues. They're obviously more complicated farms, so sales processes and due diligence is longer lead times. Then finally, you know, the size of individual transactions there can be quite high, almost always tens of millions of dollars. It's somewhat more of an institutional market than it is an individual farmer market. It just slows down your process.
Rob Stevenson (Equity Research Analyst)
Okay, that's helpful, Paul. Appreciate it. James, year-to-date, your AFFO per share is $0.01. The guidance is $0.11-$0.18. Typically, fourth quarter is your big quarter. It's usually, call it 75%-80% of the second half, AFFO. Is there anything different this year that would suggest more coming in the third quarter on a percentage weighting than the fourth quarter? Is the sort of normal third quarter, fourth quarter split likely to be intact here, in 2023?
James Gilligan (CFO and Treasurer)
Yeah, I think, Rob, the kind of shape of the curve would be pretty similar, you know.
Rob Stevenson (Equity Research Analyst)
Okay
James Gilligan (CFO and Treasurer)
... in the past years, where really the bulk is coming in the fourth quarter. Yeah, I think that'd be pretty consistent.
Rob Stevenson (Equity Research Analyst)
All right. Last one from me, James. What you guys talked about it a little bit in the press release, what level of capital gains can you absorb in the common dividend in 2023, and possibly using the first quarter of 2024 dividend, without having to pay a special dividend? If you sell the $135 million, you know, it's all but a foregone conclusion that you guys are gonna need to pay a special dividend.
James Gilligan (CFO and Treasurer)
Yeah, Rob, it's frankly a topic that we're talking about a lot internally, doing a lot of analysis with not only ourselves, but also our tax advisors. It's certainly a conversation at the board level. At this point, I think, you know, we have the potential to make an additional distribution. You know, we're just not in a position to sort of declare what magnitude, you know. I think we'll come back to you later when we have more info. It's certainly a possibility.
Rob Stevenson (Equity Research Analyst)
Okay.
Paul Pittman (Chairman and CEO)
Let me add just a little bit, a bit to that, James. I appreciate your caution, and James and I are in two different buildings today. Rob, your question is the right question. We would not have put that in the press release if we didn't think it was highly probable. You know, based, you know, we obviously don't want to pay a tax. We'd rather distribute to shareholders. The exact amount and the timing is certainly unknown at this point, but the probability, if we complete that $135 million of sales, the mathematics were pretty compelling that we're going to have to make some sort of. I don't believe, I don't want to use the word special dividend, because who knows whether it's special or otherwise.
There probably will need to be something done because of the relatively powerful gains we've had on those sales.
Rob Stevenson (Equity Research Analyst)
Okay. Just last one from me, I guess then, Paul, any update on the hedge fund litigation, or is that sort of status quo at this point?
Paul Pittman (Chairman and CEO)
Yeah, no, I'll hit it very quickly. If you want a deeper read, you guys can always talk to our General Counsel after, you know, after this call. The short answer is, you know, the Saberpoint, the party that really caused this in our point of view, has always been trying to wiggle out of this under a legal theory that says they weren't involved. That is untrue. We've got the documentation and the emails that prove their involvement.
They have occasionally found a judge who didn't understand the case, because a lot of these state court judges, for example, you know, they do a divorce one minute and a traffic case the next minute, then, you know, then they show up in a, in a complex commercial litigation in a third case of the day. They got a favorable decision in Texas a year or more ago, saying, you know, "Hey, it was, it was dismissed in Colorado federal court, so it can't come in Texas." That's totally untrue. We appealed that decision, got a unanimous result in our favor, we're back to the races. Saberpoint, of course, is appealing that. They will, in our view, fail in that appeal because we had a unanimous decision of the group of judges.
They're not gonna change their mind, you know, they get to run the process and will continue to, you know. They know they're guilty, so they're trying to waste time, in our opinion. That's what they're doing. We're on top again, and we will stay there. This is my point of view. Good news is we're not spending much money on it, because, you know, when you're just sitting there waiting on the judges to rule, you don't spend much money on it, and that's, that's good.
Rob Stevenson (Equity Research Analyst)
Thank you. That's helpful. Appreciate the time, guys.
Paul Pittman (Chairman and CEO)
Thanks.
Operator (participant)
Your next question comes from the line of Craig Kucera from B. Riley Securities. Your line is open.
Craig Kucera (Managing Director and Real Estate Equity Research)
Hey, good morning, guys. Had a couple of questions. Would like to talk about the, some of the downward volatility in some of your core row crop prices since the first quarter. Is that impacting your renewal lease discussions, and kind of how are they going, and what are your expectations?
Paul Pittman (Chairman and CEO)
Sure. In terms of the lease renewals, when you go to do lease renewals, there are two really important factors in that negotiation. The first is the general sense of the farm economy at the time of the negotiation, and what vintage lease are you renegotiating? At this point in time, the farm economy is pretty strong, not quite as strong as it was a year ago, but in terms of row crop prices, but pretty darn strong. With what's going on in Ukraine right now, you know, it may get stronger and kind of has here in the last week or two. But, you know, we're in a pretty good place in the farm economy. In terms of the vintage of leases we're renegotiating-...
We are now renegotiating, in most cases, a lease that was negotiated in 2020, in the fall of 2019 or 2020. That was an era that, you know, had some of the leases had pretty big bumps back then, and some didn't. That was the time frame where the farm economy transitioned. The earlier negotiated leases were still kind of weak, and the late in the year negotiated leases were pretty strong. This year, if you're renegotiating one of the ones that wasn't very strong back in 2020, we're likely to get pretty big bumps, you know, the 15% kind of bracket like we got last year.
If you happen to be renegotiating one that was negotiated late in the, in the 2020 cycle, you may see a lease that's more like, you know, 5%-10% up because, you know, just because you're coming off a higher base. That's what we're, you know, that's what we're facing. I mean, rents are, will continue to climb. I don't think our average increase will be quite as high as next year if I had to take an educated guess right now. We're pretty early in the process, so it's kind of hard to tell. I think it'll be strong, but not quite as good as in terms of percentage jump as we had last year.
Craig Kucera (Managing Director and Real Estate Equity Research)
No, that, that's helpful. Thanks for the, for the color. James, I've got a question on your guidance. Just looking from your sort of May 23 assumptions to July, looks like about a 50 to 100 basis point increase on the interest rate set, reset, on the $49 million that's outstanding. kind of, can you walk us through, you know, how you're getting to that? I know we had 25 basis points yesterday, maybe another 25. Are those discussions related to the spreads you might be looking at or any color there would be helpful?
James Gilligan (CFO and Treasurer)
Sure. In general, when we look at these MetLife rate resets, the, we, we sort of put the language as to actually how the resets work in the Q, in, in the note seven. Generally how it works is they're priced off a spread to treasuries. We've had movement in treasuries, and the spreads, while, you know, earlier in the year, we may have hoped to be a little bit tighter, they've widened out. Historically, our spread, you know, if you, if you wanted to put a range around, it's been kind of 180-200 over. Now we're, I think, closer to the 200 side of the range, and treasuries have moved. Typically, we're pricing off the 3-year.
In this particular instrument, we have some ability to flex out a little longer, and that's on the table for discussion with the lender. Some of the earlier ones in the year, we just didn't have as much term in the actual loan. It was, you know, they were maturing three or maybe four years out, so going sort of further out the yield curve wasn't really a possibility. Does that make sense?
Craig Kucera (Managing Director and Real Estate Equity Research)
Yeah, that's helpful. Thank you. Just another follow-up on the guidance. I noticed your variable payment expectations are up by an improvement in citrus farms paying variable rent, but your direct operations are down, which I think are mostly comprised of citrus and tree nuts. Is that performance-related, or did you sell some of those farms under direct operation, or, you know, maybe have a third party farming those? Just some color there would be helpful to understand the, if there is a disconnect there.
James Gilligan (CFO and Treasurer)
Yeah, I mean, I realize it can be a little confusing because they're both kind of in the basket of citrus, but they're different farms. We've got, sort of, you know, a set of farms that are paying variable rent that are frankly doing a little bit better than we initially estimated. You know, the citrus farms that are in the basket of direct operations are doing a little bit worse. Yeah, they're all, you know, broadly under citrus, but they do grow different types of products, and even on the farms, sometimes a lot of different products within a farm. We're just seeing a bit of divergence and so a little bit better on the variable farms and a little bit worse on the direct operations farms.
No, nothing's really leaving the portfolio. That's the answer to that part of the question. It's sort of, I guess, to use a bad pun here, oranges against oranges.
Craig Kucera (Managing Director and Real Estate Equity Research)
No, that makes sense. Appreciate that. Just looking at the drop in sort of auction and brokerage fee expectations, which was pretty meaningful quarter to quarter, just wanted to circle back to that. Is that due to a lack of buyers or sellers or both?
Paul Pittman (Chairman and CEO)
Let me pick up on that one. It is really a lack of sellers. What happens in the farm economy, you know, particularly in the row crop world, is when prices start to really surge and everybody's hearing about those $20,000 sales and their market is super euphoric, everybody. I mean, picture the family in suburban Chicago whose grandmother owns a farm. Grandma passed away. They're sitting around a table at a, you know, extended family party going: "Hey, let's sell Grandma's farm, the prices are sky-high." That farm gets sold. When prices level out, what happens is the same family gathering, "Well, let's wait a month or two. Let's wait a year or two. Maybe it'll recover.
Maybe Ukraine will get worse, and the grain prices will go up." There's just this hesitation, and we have transitioned, and high interest rates certainly haven't helped, because at least some of the buying community, you know, needs to borrow money. What happens is we've kind of transitioned in the last 12 months from that super euphoric to the plateau, and it's really dropped the number of people selling farms. The volume declines are not just in Murray Wise, they're in our major competitors across the country who sell farms. The one other thing I do want to just mention on the Murray Wise brokerage business. They did a major amount of business for us. The Nebraska auctions I, or that I talked about a few moments ago were run by Murray Wise.
The way the accounting system works, we take the fee revenue that Murray Wise receives, because we, you know, the human beings there in that division of our business have to get paid. The fee revenue that we pay gets consolidated out in the financials. It makes the Murray, you know, as it should, but it makes the Murray Wise line look, it's not great anyway, but it looks even worse because you take out the fee levels that came from the business done for FPI's vehicle.
Craig Kucera (Managing Director and Real Estate Equity Research)
No, that, that makes sense. All right, thanks. That's it for me.
Paul Pittman (Chairman and CEO)
I don't know the exact numbers, and I don't think we have in the public domain, but, I mean, it's a pretty big nut to get consolidated out.
Craig Kucera (Managing Director and Real Estate Equity Research)
Thank you.
Operator (participant)
Your next question comes from the line of Alex Fagan from Baird. Your line is open.
Alex Fagan (Equity Research Analyst)
Hi, thank you for taking my question. The first is on the timing of debt repayments. I heard that you mentioned in the prepared remarks that the buybacks were front-loaded, and the debt repayment will be backloaded, just kind of for modeling reasons, trying to figure out what that schedule will be like.
Paul Pittman (Chairman and CEO)
Of the $135 million closings that we've been referring to today, that are, you know, kind of either closed under contract or in really advanced negotiations. The remainder of the proceeds from those sales will largely go to pay down debt. The closings scheduled and the closings to be scheduled of the things we know are going to be sold, are gonna go to pay down debt. The thing you need to just keep in mind is we might buy an additional, you know, cash is fungible, so we might buy an additional farm.
We're pretty dedicated to saying, taking that $135 million and the money that was available for stock repurchases from those asset sales has already been spent. What's coming now, we did it, and it worked. I mean, we bought back stock at an average price of $11.03, and I'm not looking at my screen right now, but it's trading higher than that, quite a bit higher than that now. We did the stock buyback first, and then we did debt reduction second, you know, on that $135 million in proceeds.
Alex Fagan (Equity Research Analyst)
Thank you for that. That's helpful. To go to the asset sales, can you provide some more color on whom you're actually selling to? How much of the assets are going to farmers versus everybody else?
Paul Pittman (Chairman and CEO)
Well, they're, I mean, it's a mixed bag. We've had a couple of transactions that are institutional buyers, you know, our major competitors. They're obviously big in their own confidentiality, so I won't say their names, but, you know, they're the who's who of farm ultra-high net worth families and, you know, big competitive institutional investors to us have bought quite a few of those assets. And then the local farmers have been, you know, the remainder of the buying group. It's, you know, probably roughly reflective of how the market really, really works, and the biggest transactions are often institutional, and the ones that are more modest in size are often individual farmers.
We're kind of, you know, so, I mean, we as a cultural matter, Alex, offer the farms to the tenant first, if we believe the tenant has a, you know, financial wherewithal to have a chance of buying it. He may wanna go find his own financial backer, so he can keep control of the asset, even if he can't afford to buy it himself. We always kind of start with the farmer that's actually on the farm, and then if he's not able, you know, or just doesn't have the wherewithal to buy it, we'll move on to seeing if there's other people buying it.
You know, we're not really putting other than the properties we're auctioning, we don't really put a decision to say, "Hey, we're gonna sell that." We're, you know, kind of waiting for inbound call. We made it known that we're going to sell some stuff, and we wait for inbound calls.
Alex Fagan (Equity Research Analyst)
Okay. Thank you for that. That's it for me.
Operator (participant)
There are no further questions at this time. I will now turn the call back over to Mr. Luca Fabbri for some final closing remarks.
Luca Fabbri (President and CEO)
Thank you, Rob, and thank you, everybody, for listening in and participating to this call. We appreciate your interest in our company and look forward to updating you on our activities and results in the coming quarters. Have a great day.
Operator (participant)
This concludes today's conference call. Thank you for your participation. You may now disconnect.