Farmland Partners Inc. 2021 Q3 SEC Filing Summary
Business context and reporting period
Farmland Partners Inc. is an internally managed REIT that owns and leases farmland across North America, with approximately 157,637 owned acres at September 30, 2021, plus approximately 8,300 acres managed for others. Approximately 70% of the portfolio by value supports primary crops and 30% specialty crops. The company also provides agricultural loans, operates 2,807 acres through its taxable REIT subsidiary, and owned 95.7% of its operating partnership.
This unaudited Form 10-Q covers the three and nine months ended September 30, 2021, compared with the corresponding 2020 periods. Results are seasonal because many rents are collected in advance of spring planting but recognized ratably over lease terms.
Financial performance and key metrics
| Metric ($ in thousands, except per share data) | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Total operating revenue | $10,105 | $10,604 | $31,693 | $32,771 |
| Operating income | $1,434 | $3,649 | $5,490 | $12,628 |
| Operating margin | 14.2% | 34.4% | 17.3% | 38.5% |
| Net income (loss) | $(2,669) | $561 | $(3,055) | $1,153 |
| Net loss attributable to common stockholders | $(5,623) | $(2,553) | $(12,145) | $(8,234) |
| Basic and diluted EPS | $(0.17) | $(0.09) | $(0.39) | $(0.28) |
| FFO | $(646) | $1,192 | $(679) | $4,956 |
| AFFO | $(3,236) | $(1,410) | $(8,493) | $(3,185) |
| Adjusted EBITDAre | $3,707 | $5,874 | $12,219 | $19,296 |
Rental income was $8.9 million in Q3 and $27.4 million for the first nine months. Same-property rental income increased 9.2% in Q3 and 1.1% for the nine-month period, although management cautioned that quarterly comparisons are affected by the timing of variable rent receipts, most of which are expected in the fourth quarter.
Net losses included $3.1 million of preferred distributions in Q3 and $9.2 million year to date. The company declared common dividends of $0.05 per share for each quarter, or $0.15 per share year to date.
Cash flow, balance sheet, debt and liquidity
- Cash provided by operating activities was $1.2 million for the nine months ended September 30, down from $10.2 million in 2020.
- Investing cash flow was $(9.1) million, reflecting $31.0 million of real estate acquisitions, $28.7 million of property-sale proceeds, $2.2 million of improvements, $1.0 million invested in equity-method investees and $3.7 million of notes receivable issued.
- Financing cash flow was $2.1 million, including $26.8 million of new mortgage borrowings, $34.0 million of debt repayments and $25.4 million of net ATM equity proceeds.
- Cash declined by $5.8 million during the nine months, from $27.2 million at December 31, 2020 to $21.4 million at September 30, 2021.
- Total real estate, net, was $1.052 billion; total assets were $1.097 billion; and total equity was $317.0 million.
- Debt principal outstanding was $501.0 million, or $499.5 million net of debt issuance costs, versus $508.2 million and $506.6 million, respectively, at December 31, 2020.
- Approximately $171.5 million, or 34.2% of debt, carried variable interest rates. Management estimated that a 100-basis-point increase in rates would reduce annual cash flow by approximately $1.4 million.
- Approximately $112.0 million of debt matured in 2022, principally the Rutledge Facility. Management stated that a five-year extension had been agreed with the lender and was expected to close after December 31, 2021. No material debt maturities were scheduled before 2025 after the 2022 maturities.
- The company reported compliance with applicable debt covenants and had no available capacity remaining under the Rutledge Facility. It also had a $250 million effective shelf registration statement and approximately $40.5 million of remaining share-repurchase authorization.
Material changes versus the prior comparable period
- Revenue declined 4.7% in Q3 and 3.3% for the nine months, primarily because of lower crop sales, asset dispositions and lower rents on certain leases renegotiated in 2020.
- Operating income declined 60.7% in Q3 and 56.5% year to date. General and administrative expense increased 25.2% in Q3 and 23.8% year to date.
- Legal and accounting expense increased by $2.3 million in Q3 and $6.6 million year to date, largely because of litigation related to the alleged short-and-distort campaign and related claims.
- Interest expense decreased 9.0% in Q3 and 11.6% year to date because of lower interest rates and lower debt balances.
- The company completed five acquisitions for aggregate consideration of $31.0 million and nine dispositions for $28.7 million of cash plus $2.4 million of convertible notes receivable, recognizing a $3.4 million aggregate gain on sale.
- The company raised $25.7 million of gross, or $25.4 million of net, proceeds through its ATM program by issuing approximately 2.0 million common shares.
- On October 4, 2021, after quarter-end, all 5.8 million outstanding Series B preferred shares were converted into 12.1 million common shares. The company expects to record a significant deemed dividend in the fourth quarter.
Guidance, outlook, risks and unusual items
No formal numerical earnings or revenue guidance was provided. Management expects to benefit from strong commodity prices, farmer profitability, higher 2021 lease-renewal rates and rent growth into 2022. It also expects the impact of COVID-19 to lessen in the 2021 crop-marketing cycle, particularly for specialty crops, but stated that the ultimate effect remains uncertain.
- Approximately 53% of annual minimum fixed rents and 52% of leased acres were scheduled to expire in 2021 or 2022; management stated that most 2021 expirations had already been renewed as of the filing date.
- Farmland values and rents remain exposed to commodity prices, crop yields, weather, water availability, tenant credit, agricultural regulation, trade conditions and broader economic conditions.
- The company remains exposed to refinancing risk on the $112.0 million of 2022 maturities. Completion and terms of the proposed extension should be verified.
- LIBOR phaseout may affect floating-rate debt and the Rabobank mortgage note; the company could not determine whether replacement rates would be more or less favorable.
- The Brokop securities class action was certified for purchasers between February 23, 2017 and July 11, 2018. The company stated that it could not predict the outcome or estimate related expenses, and litigation costs were no longer covered by insurance.
- The company received $0.6 million in litigation-settlement proceeds during the nine months and recorded $0.5 million in other revenue related to the settlement.
- The filing states that no material changes occurred to previously reported risk factors and that there were no known material operating contingencies other than disclosed litigation.
Most important facts for investors to verify
- Closing, final terms and covenant implications of the proposed five-year extension for the $112.0 million of 2022 debt maturities.
- Fourth-quarter accounting and per-share impact of the Series B preferred conversion and related deemed dividend.
- Fourth-quarter realization and sustainability of variable rents, including the effect of 2021 lease renewals on 2022 revenue.
- Cash requirements for preferred distributions, common dividends, debt service, acquisitions and ongoing litigation.
- Potential exposure from the Brokop class action, derivative litigation appeal and the company’s claims against Sabrepoint.
- Actual operating cash flow and AFFO, given that both remained below dividend and preferred-distribution requirements on the reported period basis.