Farmland Partners Inc. 2023 Q3 Form 10-Q Summary
Business Context and Reporting Period
Farmland Partners Inc. is an internally managed REIT that owns and leases farmland across North America, with related agricultural lending, property management, brokerage, auction, and direct farming operations through its taxable REIT subsidiary. As of September 30, 2023, the Company owned approximately 147,200 acres, managed approximately 31,000 additional acres, and directly operated 2,108 acres in California. Approximately 70% of the portfolio by value supported primary crops and 30% specialty crops.
This unaudited Form 10-Q covers the three and nine months ended September 30, 2023, compared primarily with the corresponding 2022 periods. Results are seasonal, with significant fixed-rent collections generally occurring in the first quarter and variable-rent receipts often occurring in the fourth quarter.
Key Financial Metrics
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Total operating revenue | $11.6 million | $13.1 million | $35.9 million | $39.4 million |
| Operating income | $0.0 million | $4.7 million | $7.6 million | $12.5 million |
| Net income | $4.3 million | $1.1 million | $13.9 million | $5.3 million |
| Net income available to common stockholders | $3.4 million | $0.4 million | $11.3 million | $2.7 million |
| Basic and diluted EPS | $0.07 | $0.01 | $0.22 | $0.05 |
| Operating margin | 0.1% | 36.0% | 21.2% | 31.7% |
| Net margin | 37.1% | 8.5% | 38.8% | 13.3% |
| FFO | $(0.2) million | $2.8 million | $0.5 million | $6.4 million |
| AFFO | $(0.5) million | $2.5 million | $(0.05) million | $5.8 million |
| Adjusted EBITDAre | $6.3 million | $7.1 million | $18.8 million | $19.6 million |
Rental income increased 3.9% in the quarter and 2.5% for the nine-month period, while total revenue declined because of lower crop sales and other revenue. Q3 interest expense rose 60.1% to $6.2 million; nine-month interest expense rose 48.3% to $17.0 million.
Net income benefited substantially from gains on property dispositions of $10.3 million in Q3 and $23.2 million for the nine months. The Company also recorded a $3.8 million impairment on a property held for sale in Q3. Excluding these and other non-operating items, recurring operating performance was weaker, as reflected in negative Q3 AFFO and slightly negative nine-month AFFO.
Balance Sheet, Cash Flow, Debt and Liquidity
- Total assets were $1.069 billion at September 30, 2023, compared with $1.160 billion at December 31, 2022. Net real estate was $1.016 billion.
- Cash and cash equivalents were $6.1 million, down from $7.7 million at December 31, 2022 and $8.9 million at September 30, 2022.
- Mortgage notes and bonds payable, net, were $420.5 million, compared with $436.9 million at December 31, 2022. Principal debt outstanding was $422.8 million.
- Total equity was $528.9 million, compared with $594.0 million at year-end 2022. Redeemable Series A preferred units totaled $101.2 million, including accrued distributions.
- Operating cash flow was $5.7 million for the nine months, down from $8.8 million in the prior-year period.
- Investing activities provided $99.6 million, including $121.7 million of property-sale proceeds, compared with $25.7 million of investing cash used in the prior-year period.
- Financing activities used $106.9 million, primarily reflecting $68.4 million of common-stock repurchases, $94.2 million of debt repayments, dividends, and the $8.1 million redemption of Series A preferred units.
- Management reported $157.0 million of undrawn line-of-credit availability, $50.5 million of remaining ATM capacity, and approximately $100 million of additional shelf-registration capacity. No material debt maturities were scheduled before 2025.
- Approximately $136.5 million, or 32.3%, of debt had variable interest rates; after the $33.2 million Rabobank interest-rate swap, effective floating-rate exposure was 24.4%. Management estimates a 1% increase in SOFR would reduce annual cash flow by approximately $1.0 million.
Material Changes Versus the Prior Comparable Period
- Total revenue declined 11.6% in Q3 and 8.9% for the nine months, despite higher rental income.
- Crop sales declined 67.1% in Q3 and 60.9% for the nine months, primarily because of lower citrus volumes and the conversion of blueberry farms from direct operations to third-party leases.
- Other revenue declined 35.1% for the nine months, principally because of lower crop-insurance proceeds and auction and brokerage income.
- Operating income declined 99.7% in Q3 and 39.1% for the nine months, due to the impairment charge, higher depreciation, and higher property operating expenses.
- Interest expense increased materially because of higher interest rates, partially offset by a lower average debt balance.
- The Company acquired three properties for $20.0 million and sold 54 properties for $121.7 million of cash consideration during the first nine months, compared with 12 acquisitions totaling $36.9 million and five dispositions totaling $16.9 million in the prior-year period.
- The Company repurchased 6.2 million common shares during the nine months at a weighted average price of $11.00 per share, reducing shares outstanding from 54.3 million at year-end 2022 to 48.3 million at September 30, 2023.
- The quarterly common dividend was $0.06 per share, compared with $0.06 in Q3 2022; the nine-month declared dividend was $0.18 per share versus $0.17.
Outlook, Commentary, Risks and Unusual Items
The filing does not provide quantitative earnings or revenue guidance. Management expects to continue selectively acquiring farmland and disposing of assets when proceeds can be redeployed to enhance shareholder returns. Management believes long-term food demand, limited high-quality farmland supply, and generally strong tenant demand support farmland values and rents, while acknowledging that transaction activity and appreciation slowed in 2023 relative to 2021 and 2022.
- Interest-rate risk: Higher SOFR and periodic debt resets are increasing borrowing costs and could reduce cash flow, farmland values, and refinancing flexibility.
- Refinancing risk: The Company relies on refinancing debt at maturity and states that future refinancing may not occur on favorable terms or at all.
- Agricultural and tenant risk: Weather events, drought, crop disease, commodity prices, tenant defaults, crop yields, water restrictions, and international trade disruptions could reduce rents and property values.
- Seasonality: Variable rents and agricultural cash receipts are concentrated in the fourth quarter, so quarterly results may not represent full-year performance.
- Litigation: The Company’s claims against Sabrepoint were revived by a Texas appellate court and remanded for further proceedings; Sabrepoint petitioned the Texas Supreme Court for review on October 13, 2023. The filing does not quantify a potential recovery or liability.
- Held-for-sale impairment: A property was written down by $3.8 million; two of three held-for-sale properties had closed after quarter-end, and one was expected to close later in Q4 2023.
- Subsequent events: The Company declared another $0.06 quarterly dividend, repurchased 152,211 additional shares at $10.28 per share, sold two properties for $2.6 million, and borrowed $2.0 million on credit facilities after September 30, 2023.
- Controls: Management concluded that disclosure controls were effective at a reasonable level of assurance, with no material changes to internal control over financial reporting.
Important Facts for Investors to Verify
- Whether negative AFFO and declining operating cash flow are temporary effects of property sales, crop-sale timing, and seasonality or indicate weaker recurring cash generation.
- The sustainability of the common dividend relative to AFFO, operating cash flow, debt service, and fourth-quarter variable-rent receipts.
- Exposure to higher SOFR and upcoming debt-rate resets, particularly the October 2023 repricing of MetLife Term Loan #10 to 6.36%.
- The Company’s ability to refinance or repay the $102.1 million of debt maturing in 2025 and $84.1 million maturing in 2026.
- The impact of the large 2023 property-sale program on future rental income, asset coverage, and portfolio quality.
- The status and potential financial consequences of the Sabrepoint litigation.
- Whether management’s farmland-value and tenant-profitability assumptions remain valid amid elevated interest rates, lower transaction volumes, commodity-price volatility, and weather or water risks.