Farmland Partners Inc. — Q1 2022 Form 10-Q Summary
Business context and reporting period
Farmland Partners Inc. is an internally managed REIT that owns and operates farmland across North America. For the quarter ended March 31, 2022, the company owned approximately 160,700 acres, managed approximately 25,000 additional acres, and directly operated 2,973 acres through its taxable REIT subsidiary. Approximately 70% of the portfolio by value was used for primary crops and 30% for specialty crops. The interim financial statements are unaudited.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total operating revenue | $13.9 million | $11.6 million | 20.0% |
| Operating income | $4.3 million | $3.1 million | 39.4% |
| Net income | $1.1 million | $2.5 million | (54.0%) |
| Net income available to common stockholders | $0.2 million | $(0.7) million | Improved |
| Basic and diluted earnings per share | $0.00 | $(0.02) | Improved |
| FFO | $2.2 million | $1.0 million | 118.6% |
| AFFO | $2.1 million | $(1.6) million | Improved |
| Adjusted EBITDAre | $6.8 million | $5.3 million | 26.9% |
Operating margin was approximately 31.1%, compared with 26.8% in the prior-year quarter. Net margin was approximately 8.2%, compared with 21.4% in Q1 2021, primarily because the prior period included a substantially larger gain on asset dispositions. AFFO per diluted weighted-average share was $0.04 versus $(0.05) in Q1 2021. The company declared a common dividend of $0.05 per share for the quarter.
- Rental income declined 6.9% to $9.5 million, reflecting asset dispositions, conversion of certain farms to direct operations, and lower variable rent, partly offset by higher solar rent.
- Crop sales increased to $0.7 million from $0.2 million, and other revenue rose to $2.9 million from $0.2 million, driven mainly by crop insurance proceeds, management fees, and auction and brokerage income.
- General and administrative expense increased 91.9% to $3.1 million, largely because of higher personnel, travel, and consulting costs, including costs associated with the Murray Wise Associates acquisition and rebuilding the acquisition pipeline.
- Legal and accounting expense decreased 54.2% to $1.3 million as litigation-related costs declined.
Cash flow, debt, and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Cash flow from operating activities | $10.3 million | $11.4 million |
| Cash flow from investing activities | $(7.8) million | $25.0 million |
| Cash flow from financing activities | $(16.6) million | $(27.6) million |
| Ending cash | $16.1 million | $36.1 million |
| Debt principal outstanding at March 31 | $465.0 million | Not clearly provided in the filing text |
Net cash used in the quarter was $14.1 million. The company acquired four properties for $8.0 million, invested $1.0 million in real estate and other improvements, issued $3.5 million of notes receivable, and received $4.6 million from property dispositions. Financing included $112.0 million of borrowings, $160.4 million of mortgage debt repayments, and $38.3 million of net ATM equity proceeds. Total debt declined by $48.5 million during the quarter.
Mortgage notes and bonds payable, net, were $462.8 million at March 31, 2022, compared with $511.3 million at December 31, 2021. Approximately 30.4% of debt, or $141.5 million, had variable interest rates. Management estimated that a 1% increase in variable rates would reduce annual cash flow by approximately $1.1 million. The company was in compliance with applicable debt covenants and had $30.0 million available under the Rutledge facility. No material debt maturities were due before 2025.
The company reported an effective shelf registration statement with approximately $200 million of capacity. It also had approximately $40.5 million remaining under its share repurchase authorization, although no shares were repurchased during the quarter. The company reported no off-balance-sheet arrangements.
Material changes versus the prior comparable period
- Revenue increased 20.0%, but net income fell 54.0% because Q1 2021 benefited from a $3.4 million gain on asset dispositions versus $0.7 million in Q1 2022.
- Operating income increased 39.4%, supported by higher crop-related and service revenue and lower legal and accounting costs.
- FFO and AFFO improved substantially, aided by the absence of Series B preferred stock distributions following its October 2021 conversion into common stock.
- Common shares outstanding increased materially, including 2.9 million shares issued through the ATM program during the quarter. Common stock issued and outstanding was 48.5 million shares at March 31, 2022, versus 45.5 million at December 31, 2021.
- The company refinanced and consolidated the Rutledge loans into a revolving facility with a capacity of $112.0 million and a March 2027 maturity.
- The company acquired Murray Wise Associates in November 2021, adding agricultural asset management, brokerage, auction, and related service activities.
Guidance, outlook, risks, contingencies, and unusual items
The filing does not provide formal quantitative full-year earnings or revenue guidance. Management expects to benefit from strong commodity prices, farmer profitability, farmland appreciation, and rent growth. Management stated that primary-crop lease renewals produced rent increases of more than 10% in connection with 2021 renewals and expected continued rent growth into 2022.
- Management described farmland values as rapidly appreciating, supported by inflation, strong commodity prices, and favorable farmer profitability, but acknowledged that values could decline if market conditions weaken.
- The war in Ukraine was expected to support U.S. agricultural demand and commodity prices, but also creates uncertainty regarding global food supplies, trade, tenant operations, and commodity markets.
- COVID-19 effects remained difficult to quantify. Other risks include tenant credit, weather, crop yields and prices, water availability, inflation, interest rates, refinancing conditions, capital-market access, and changes in farmland values.
- LIBOR transition remains a risk for the Rabobank mortgage note. The company stated that no official replacement rate had been identified for its relevant exposure as of the filing date.
- The company maintained one interest-rate swap with a $33.2 million notional amount and reported a $0.3 million derivative asset at March 31, 2022.
- The Brokop securities class action was dismissed with prejudice on April 7, 2022; an appeal deadline remained open. Related derivative litigation was also expected to be voluntarily dismissed if no appeal was filed in the Brokop matter.
- Subsequent events included a $0.06 common dividend declared for payment in July 2022, a $4.0 million partial farm disposition producing a $2.2 million gain, a $1.6 million loan repayment, repayment of a $16.0 million MetLife loan, and $24.1 million of additional net ATM proceeds.
Important facts for investors to verify
- Reconcile recurring rental income and rent collections with the reported growth in crop, insurance, auction, brokerage, and management revenue.
- Assess whether FFO and AFFO improvement is sustainable after excluding preferred distributions, stock compensation, asset-sale gains, and other adjustments.
- Review leverage, variable-rate exposure, interest-rate swap coverage, covenant compliance, and refinancing requirements beginning in 2025.
- Evaluate the effect of continued ATM equity issuance on per-share results, dilution, and acquisition funding.
- Monitor lease expirations: approximately 32.0% of leased acres and 37.5% of annual fixed rents expire during the remaining nine months of 2022.
- Verify the outcome of remaining litigation appeals and the potential financial effect of related legal proceedings.
- Consider the sensitivity of farmland values, rents, tenant credit quality, and crop-related revenue to commodity prices, weather, water availability, inflation, interest rates, COVID-19, and the war in Ukraine.