Farmland Partners, Inc. (NYSE:FPI) Q2 2023 Earnings Conference Call July 27, 2023 11:00 AM ET

Company Participants

Luca Fabbri - President, Chief Executive Officer & Director

James Gilligan - Chief Financial Officer

Christine Garrison - General Counsel

Paul Pittman - Executive Chairman and Director

Conference Call Participants

Robert Stevenson - Janney Montgomery Scott

Craig Kucera - B. Riley Securities

Operator

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 speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. Luca Fabbri, President and CEO. You may begin your conference.

Luca Fabbri

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 for Farmland Partners. So I especially welcome the opportunity to -- 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. And 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

Thanks, Luca, and thank you to everyone on the call. The press release announcing our second quarter earnings was distributed after market closed yesterday. The supplemental package has been posted to the Investor Relations section of our website under the sub-header 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 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 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 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?

Paul Pittman

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 under those underlying shares through stock buybacks, very strong asset sales and the beginning of a gradual reduction of our debt loads. The market may not perceive this, but that value will come to all of us eventually.

As all of you know, I'm a large, large shareholder myself, and we are taking actions that are fundamentally arbitraging very high values for 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. The -- 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 to simplify the management of the business. As I said in the last call, Farmland values -- Farmland is an investment class, you really need to think about how is value created and 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 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, public market is in -- partly because I think we're a REIT is incredibly focused on the sort of scorecard on quarterly AFFO, it is the wrong thing to be focused on. The stock today is down maybe 5% to 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 down debt. To date, we have weighted our overweighted, frankly, the repurchases of stock because we think the stock is at such a deep discount.

We don't want these debt levels to climb much higher. So 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, but we will shift from what's been sort of -- we've paid down debt along the way as well, but we're going to 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. Obviously, a hybrid is a preferred but it is an interest-bearing instrument or a dividend-bearing instrument that transforms 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 onetime payment. But that doesn't show up in AFFO, the savings we make from having paid off a piece of the preferred. 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, buyback stock pay down debt and grab and occasionally buy additional farms in the markets and the locations that we are very happy with.

Rates -- interest rates will eventually come down -- and 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, but 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, will be available for questions and turn it over to Luca.

Luca Fabbri

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 is go outline. 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 had about $22 million of asset sales under contract, pending closing. We have about $30 million to $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 a very advanced negotiation.

So this is a total of about $135 million total in identified transactions or closed transactions so far. We are working, and you should expect probably more transactions, more asset sales to come later in the year. So I want to stop and really focus the attention of everybody here, as Paul has mentioned, on the power of appreciation in the asset class.

And I'm really going to stick to the ones that really have kind of -- are very much solidified in terms of having been closed or just pending closing. On the $52 million close 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. So this truly demonstrates that this asset class is a very, very strong appreciation potential. There has to be content center for anybody investing in the asset class and is certainly a core component of our investing in portfolio management strategy.

By the way, as Paul mentioned, we are engaged in a broader portfolio optimization, if you will and 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 and therefore, we continue evaluating opportunities that fit our portfolio and that kind of streamline and derisk the way that Paul alluded to.

Now in terms of use of proceeds, as we announced earlier this year, we are really focusing mostly on two items. One is stock repurchases and the other one is reduction of leverage or pay down of debt. The -- 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 true 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 speak to building the strategy that we are pursuing.

On the debt side, as I said, we kind of front-loaded these stock repurchases and therefore, the balance -- the debt balance actually went up slightly as of the end of Q2. But as we said, in the proceeds -- use of proceeds in later this year will be overwhelmingly focused on debt reduction. So in sum, we have been demonstrating value by asset sales gains.

We are creating value by stock repurchases that has some repercussions. We are, of course, as we sell some assets. We are losing some revenue and but we have some costs associated with the [indiscernible] of those farms. We had incurred temporarily higher debt, as I just explained, but that will kind of reverse soon.

We also experienced 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're actually seeing them climbing yet more despite 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, one of the main strategic buyers in the marketplace, pretty much having use -- they're cash buyers and pretty much they use the cash that they wanted to use to buy farms.

And therefore, now with the interest cost 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.

So also as a result of that slowdown in transaction volumes, the volume of business in our brokerage and auction business has slowed down a little bit, and we have reviewed the -- 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 and also he is trying -- given that our portfolio is changing, he is going to try to also offer 2023 view that is pro forma for the full-year with all the dispositions that we have done. I will now actually turn the call over to him, to James for his overview of the company's financial performance. James?

James Gilligan

Thank you, Luca. I'm going to cover a number of items today, including a 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 will 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 sub-header Events and Presentations.

Page number 1 through 9 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 2. For the three months ended June 30, 2023, net income was $7.9 million compared to $3 million for '22, an increase of $4.9 million.

Net income per share available to common stockholders was $0.14 and compared to $0.04 for '22, an increase of $0.10. AFFO was negative $1.1 million compared to positive $1.1 million for '22, a decrease of $2.2 million. AFFO per weighted average share was negative $0.02 compared to positive $0.02 for '22, a decrease of $0.04.

For the six months ended June 30, 2023, net income was $9.6 million compared to $4.1 million for '22, an increase of $5.5 million. Net income per share available to common stockholders was $0.15 compared to $0.05 for '22, an increase of $0.10. AFFO was $0.4 million compared to $3.3 million for '22, a decrease of $2.8 million. AFFO per weighted average share was $0.01 compared to $0.07 for '22, a decrease of $0.06.

Next, we'll review some of the operating expenses and other items shown on Page number 5. Depreciation, depletion and amortization was higher in the second quarter of 2023 due to approximately $400,000 of nonrecurring 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 onetime 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.

In addition, the nonrecurring expense occurred in the second quarter of 2023 of approximately $140,000 due to the final reconciliation of cost sharing with the 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 are lower in 2023 due to lower litigation spend. And dispositions is up significantly compared to 2022, demonstrating the appreciation of the Farmland sale values relative to net book value as Luca describe a minute ago. Interest expense increased due to higher rates and greater debt balance in the second quarter compared to 2022.

Next, I will skip ahead of 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 towards 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, and we started to engage with the lender. Next year 2024, we have three MetLife rate resets totaling approximately $44 million. That's loan numbers 9, 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 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, we commented at the bottom to describe the differences between the periods. A few points to highlight are: the fixed payments, 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 acquire properties in 2022 in 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 onetime property tax assessment of about $150,000 and the related tenant reimbursement, as mentioned earlier. In Q4 2022, required land and buildings for four agricultural equipment dealerships in Ohio under the John Deere brain.

The accounting treatment classifies those acquisitions as financing transactions. So if you're on the balance sheet as loans and on the income statement as interest income. This accounts to an 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 2023.

Direct operations is the combination of crop sales, crop insurance and cost of goods sold. It was down largely due to citrus enrollments. Other items decreased due to lower auction brokerage activity compared to 2022 and as Luca 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 have updated the outlook for 2023, using the same building blocks described on the previous pages. Assumptions are listed towards the bottom. As a reminder, this contemplates that we disposed 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 format will change with dispositions, acquisitions and new leases signed. Solar, wind and recreation, tenant reimbursement 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, as 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 auction and brokerage for the balance of the year. On the expense side, property operating expenses are increasing due to a couple of items from the first half of 2023 that we've covered, the onetime property tax expense in the first quarter and the nonrecurring expense in the second quarter.

General and administrative decreases of lower spend in the first half of 2023. Legal and accounting also decreased of lower spend in the first half of 2022. 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 #10, prices in the 6% to 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 resulted in AFFO in the $5.9 million to $9.2 million range or $0.11 to $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 of various transactions by removing the partial year data. Please note, this is not a projection for next year. That will require more analysis, including lease renewals, additional farm transactions, announces of variable rents, 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 will be approximately $200,000 lower than July guidance.

Net debt would be approximately $400 million to $410 million. The fully diluted shares will be approximately 1.9 million shares lower than July guidance. Hopefully, this helps describe where we stand given what we noted. 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.

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from the line of Rob Stevenson from Janney. Your line is open.

Robert Stevenson

Good morning, guys. So this quarter, you guys sold a couple of thousand acres in each of 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 '23 are going to be in those same markets? Or are you expecting to see some West Coast and High Plains sales?

Paul Pittman

So 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 are starting. And 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, but Nebraska is unusual. Nebraska has got very much Illinois and Iowa style land in the eastern, say one-third of 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, we are certainly pruning farms that, for whatever reason, we don't think are as high quality from our perspective as some of the others. So some of the acreage just sold in the Southeast in Delta, which fall into that bucket, but a couple of them just fall into the bucket of somebody made us an offer we can't refuse.

Rob, we -- our farm managers value this portfolio relatively frequently kind of from the bottoms up. We don't publish that. We don't want to publish it, because it's being done by our own farm managers, but they use comps and everything else. And so 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 puts up an offer, that is so far above what we "think it's worth," and gives us the next 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 are selling. So what should come in the rest of the year, though, is more sales, frankly, in the -- on the West Coast and in the High Plans, probably less in the eastern part of the country. But with the caveats I gave, there may be still some things happen in the eastern part of the country. Hope that answers, Rob.

Robert Stevenson

Yes. And I guess you guys have talked in the past about reducing some of the volatility in the revenue streams, et cetera. Are the West Coast assets that are going to be sold, are those ones with the more variable revenue streams or those the more stable ones? I guess what I'm trying to get at is are some of the variable, the tree crops, the almonds, and stuff like that. Is that stuff as in demand today, 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. And right now, it's monetizing strawberries and stuff like that?

Paul Pittman

It's a little bit of a mixed bag. It's a very insightful question and a good question. So here's -- so 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 -- the brokerage business, the MWA business. I mean that's where the volatility comes from. The row crops other than a timing percentage of occasional bad debt is incredibly predictable. 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 is in the company's budget matched up with the actuals in the low crop kind of portion of the portfolio. So yes, the volatility is on the West Coast, but the water risk is also substantially on the West Coast. I mean it's not water risk this year, but there will be again. And we have taken a perspective that we want to lighten up our exposure out there. It doesn't mean they exited completely, but lighten up our exposure. So you will see more sales, as I said, come from there.

Related to that, though, was the other question you asked. The market -- unlike Illinois Farmland where the state kind of is -- 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, acres five miles apart are vastly different in value and vastly different in terms of the food economy they're connected to. So you start with land quality and water, and water is probably even more important than land in California, but it's those two things. And then you go to what crop is on it. And if you're in a permanent crop, say walnuts, which in, frankly, having a tough time right now in a general economic sense, you're trapped because of 40% of your value in that farm is the existing trees. So it's not so -- you can't just say, hey, I'm going to sell the farm to walnut economy, bad.

On the other hand, if the walnut economy was strong, it's easy to sell. So we have to migrate through those issues. They're obviously more complicated farms. So sales processes and due diligence is longer lead times. And then finally, the size of individual transactions there can be quite high, almost always tens of millions of dollars. So it's somewhat more of an institutional market than it is an individual farmer market. So it just slows down your process.

Robert Stevenson

Okay. That's helpful, Paul. I appreciate it. James, so year-to-date, your AFFO per share is $0.01, the guidance is $0.11 to $0.18. Typically, fourth quarter is your big quarter. It's usually, call it, 75% to 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? Or is this sort of normal third quarter, fourth quarter split likely to be intact here in '23?

James Gilligan

Yes. I think, Rob, the kind of shape of the curve would be pretty similar in the past years. So really the bulk is coming in the fourth quarter. So yes, I think that would be pretty consistent.

Robert Stevenson

All right. And then last one for me, James, what -- you guys talked about it a little bit in the press release, but what level of capital gains can you absorb in the common dividend in '23 and possibly using the first quarter '24 dividend without having to pay a special dividend? Or if you sell the $135 million it's all about a foregone conclusion that you guys are going to need to pay a special dividend?

James Gilligan

Yes, Rob, it's a frankly, a topic that we're talking about a lot internally, doing a lot of analysis with not only ourselves, but also our tax advisers. And it's certainly a conversation at the Board level. So at this point, I think we have the potential to make an additional distribution, not -- we're just not in a position to sort of declare what magnitude. So I think we'll come back to you later when we have more info, but it's certainly a possibility.

Paul Pittman

Let me add just a little bit to that, James. I appreciate your caution, but 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 based -- 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 that were pretty compelling that we're going to have to make some sort. I don't believe, I don't want to use the word special dividend, because who knows whether it's special or otherwise. But there probably needs to be something done, because of the relatively powerful gains we've had on those sales.

Robert Stevenson

Okay. And then just last one for me, I guess then. Paul, any update on the hedge fund litigation? Or is that sort of status quo at this point?

Paul Pittman

Yes. No, I'll hit it very quickly. And if you want a deeper read, you guys can always talk to our General Counsel after this call. But the short answer is the Sabrepoint, the party that really caused this in our point of view was trying -- 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 e-mails that prove their involvement. And they have occasionally found a judge who didn't understand the case, because a lot of these state court judges, for example, they do a divorce one minute and a traffic case the next minute, and then they show up in a complex commercial litigation in the third case of the day.

So they got a favorable decision in Texas a year or more ago saying, hey, 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, and so we are back to the races. Sabrepoint, 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 going to change their mind. But they get to run the process and will continue to -- they know they're guilty, so they're trying to waste time and opinion. That's what they're doing.

But we're on top again, and we will stay there. That's my point of view. Good news is we're not spending much money on it, because when you're just sitting there waiting on the judge to rule, you don't spend much money on it, and that's good.

Robert Stevenson

Thank you. That's helpful. Appreciate the time guys.

Paul Pittman

Thanks.

Operator

And your next question comes from the line of Craig Kucera from B. Riley Securities. Your line is open.

Craig Kucera

Yes, hey, good morning guys. I had a couple of questions. First, I 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

Sure. The -- in terms of the lease renewals when you go to do lease renewals, probably -- there are two really important factors in that negotiation. The first is a general sense of the farm economy at the time of the negotiation, and what vintage lease are you renegotiating. And so 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. And with what's going on in Ukraine right now, it may get stronger and kind of has here in the last week or two.

But 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 '19 or 2020. That was an era that had some of the leases had pretty big bumps back then and some didn't. That was the time frame where the farm economy transitions. And so the earlier negotiated leases were still kind of weak, and the late in the year negotiated leases were pretty strong.

So this year, if you're renegotiating one of the ones that wasn't very strong back in 2020, we'll likely to get pretty big bumps, the 15% kind of bracket like we got last year. If you happen to be renegotiating one, that was negotiated late in the 2020 cycle. You may see a lease that's more like 5% to 10% up, because -- just because you're coming off a higher base. So that's what we're facing. I mean rents 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, but we're pretty early in the process, so it's kind of hard to tell. I think it will be strong, but not quite as good as in terms of percentage jumpers we had last year.

Craig Kucera

That's helpful. Thanks for the color. James, I've got a question on your guidance, just looking from your sort of May 23 assumptions to July. It looks like about a 50 to 100 basis point increase on the interest rate reset on the $49 million that's outstanding. Kind of can you walk us through 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

Sure. So in general, when we look at these MetLife rate resets, we sort of put the language as to actually how the resets work in the queue in the Note 7. But generally, how it works is they're priced off a spread to treasuries. And so we've had movement in treasuries. And the spreads, while earlier in the year, we may have hoped to be a little bit tighter, they've widened out. So historically, our spread, if you wanted to put a range around, it's been kind of 180 to 200 over, and now we're, I think closer to the 200 side of the range and treasuries have moved.

So typically, we're pricing off the three 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 -- 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

Yes, that's helpful. Thank you. And just another follow-up on the guidance. I know that your variable payment expectations were 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 a direct operation or maybe have a third-party spending those? Just some color there would be helpful to understand if there is a disconnect there.

James Gilligan

Yes. I mean I realize it can be a little confusing, because they're both counted in the basket of citrus, but they are different farms. So we've got sort of a set of farms that are paying variable rent that are frankly doing a little bit better than we initially estimated. And the citrus farms are in the basket of direct operations are doing a little bit worse. So yes, they're all broadly under citrus, but they do grow different types of products. And even on the farms, sometimes a lot of different products within the farm.

So 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. But no -- nothing is really leaving the portfolio to answer that part of the question. It's sort of -- I guess, to use a bad pun here, oranges against oranges.

Craig Kucera

No, that makes sense. I appreciate that. Just looking at the drop in sort of auction and brokerage fee expectations, which was pretty meaningful quarter-to-quarter. I just wanted to circle back to that. Is that due to a lack of buyers or sellers or both?

Paul Pittman

Let me pick up on that one. It is really a lack of sellers. What happens in the farm economy particularly in the real crop world, is when prices start to really surge and everybody is hearing about those $20,000 sales and their market is super euphoric, every -- I mean picture the family in suburban Chicago his grandmother owns a farm, grandma passed away, they're sitting around the table at an extended family party going, hey, let's sell grandma farm, but prices are sky high. And that farm gets sold. Then 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 will recover or maybe Ukraine will get worse and the grain prices will go up. And so there's just this hesitation. And we have transitioned -- and the high interest rates certainly haven't helped, because at least some of the buying community needs to borrow money.

So what happens as we 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. So 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 Murray Wise brokerage business. They did a major amount of business for us, the Nebraska auctions that I talked about a few moments ago, were run by Murray Wise.

But the way the accounting system works, we take the fee revenue that Murray Wise received, because we -- the human beings then in that division of our business have to get paid. The fee revenue that we pay gets consolidated out in the financials. So it makes the Murray 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

No, that makes sense.

Paul Pittman

[Indiscernible]. I don't know the exact numbers, and I don't think I am in the public domain, but I mean it's a pretty big nut to get consolidated out.

Craig Kucera

Thank you.

Operator

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

Unidentified 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

So of the 135 closings that we've been with $135 million of closings that we've been referring to today that are kind of either closed, under contract or really advanced negotiations. The remainder of the proceeds from those sales will largely go to pay down debt. So the closing scheduled, then the closings to be scheduled of the things we know are going to be sold are going to go to pay down debt.

But the thing you need to just keep in mind is we might buy an additional -- cash is fungible. So we might buy an additional farm. But we're pretty dedicated to saying taking that $135 million and the money that was available for stock for repurchases from those asset sales has already been spent. And what's coming now, and 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 it now. And so we did the stock buyback first and then a new net reduction second on that $135 million of proceeds.

Unidentified Analyst

Thank you for that. That's helpful. And then 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

Well, I mean it's mixed bag. We've had a couple of transactions that are institutional buyers are major competitors. They're obviously digging their own confidentiality. So I won't say their names, but they're the who's who of farm of ultra-high net worth families, and big competitive institutional investors to us have bought quite a few of those assets. And then the local farmers have been the remainder of the buying group.

So it's probably roughly reflective of how the market really works and the biggest transactions are often institutional and the ones that are more modest in size or often individual farmers. But we're kind of -- we, as a cultural matter, Alex, offer the farms to the tenant first if we believe the tenant has a financial wherewithal that a chance of buying it. And he may want to go find his own financial backer so we can keep control of the asset even if you can't afford to by themselves.

And so we always kind of start with the farmer that's actually on the farm. And then if he's not able or just doesn't have a wherewithal to buy it. We'll move on to seeing it as other people buying it. But we're not really putting for -- other than the properties we're auctioning, we don't want to decision to say, hey, we're going to sell that. We're kind of waiting for inbound call. We made it known that we're willing to sell some stuff, and we wait for inbound calls.

Unidentified Analyst

Okay. Thank you for that. That's it for me.

Operator

And 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

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

This concludes today's conference call. Thank you for your participation. You may now disconnect.