Farmland Partners Inc. — Q2 2021 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 and provides agricultural loans through its FPI Loan Program. As of June 30, 2021, it owned approximately 157,455 acres, managed approximately 3,800 additional acres, and owned a 95.4% interest in its operating partnership. Approximately 70% of the portfolio by value supported primary crops and 30% specialty crops. The filing covers the unaudited three and six months ended June 30, 2021, compared with the corresponding 2020 periods.
Financial results and key metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total operating revenue | $10.0 million | $10.5 million | $21.6 million | $22.2 million |
| Operating income | $1.0 million | $3.7 million | $4.1 million | $9.0 million |
| Operating margin | 9.5% | 35.1% | 18.8% | 40.5% |
| Net income (loss) | $(2.9) million | $0.2 million | $(0.4) million | $0.6 million |
| Net loss available to common stockholders | $(5.8) million | $(2.9) million | $(6.5) million | $(5.7) million |
| Net loss per common share | $(0.19) | $(0.10) | $(0.21) | $(0.19) |
| Net cash from operating activities | Not separately reported | Not separately reported | $8.2 million | $10.0 million |
| FFO | $(1.1) million | $1.3 million | $(0.04) million | $3.8 million |
| AFFO | $(3.6) million | $(1.4) million | $(5.3) million | $(1.8) million |
Rental income declined 9.3% in Q2 and 3.5% year to date. Legal and accounting expense increased to $2.9 million in Q2 and $5.6 million year to date, primarily because of litigation-related costs. Interest expense declined 12.6% in Q2 and 12.8% year to date due to lower rates and lower debt balances. The company declared common dividends of $0.05 per share for each quarter presented in 2021.
At June 30, 2021, total assets were $1.10 billion, including $1.05 billion of net real estate. Cash was $40.2 million versus $27.2 million at December 31, 2020. Mortgage notes and bonds payable were $500.7 million net, or $502.2 million of principal outstanding. The company reported $323.4 million of total equity, $139.1 million of Series B preferred equity and $118.8 million of redeemable Series A preferred units.
Material changes versus the prior comparable period
- Revenue decreased 4.8% in Q2 and 2.6% for the first six months, while operating expenses increased 32.7% and 33.0%, respectively.
- Operating income declined 74.1% in Q2 and 54.9% year to date.
- Same-property rental income decreased 6.6% in Q2 and 2.6% year to date. Management cautioned that short-period comparisons are affected by the timing of bonus and crop-share rent, much of which is expected in the fourth quarter.
- The company completed four acquisitions for aggregate consideration of $29.9 million, including $15.9 million in cash and $14.0 million of notes payable.
- The company completed seven dispositions of 15 properties for $28.6 million of cash and $2.4 million of convertible notes, recognizing a $3.5 million aggregate gain.
- Shares outstanding increased following the issuance of 1.95 million shares under the ATM program, generating $25.3 million of net proceeds. The company also issued 158,705 shares upon redemption of operating partnership units.
- Cash increased by $12.9 million during the first six months, primarily reflecting ATM proceeds, property-sale proceeds and operating cash flow, partly offset by acquisitions, debt repayments and distributions.
Debt, liquidity and cash flow
- Debt principal outstanding was $502.2 million, with a reported fair value of $517.9 million. Approximately 34.1% of debt, or $171.5 million, carried variable interest rates.
- Debt maturities included $14.0 million in the remaining six months of 2021 and $112.0 million in 2022. Management stated that it was working with lenders to refinance these maturities.
- Management believes cash on hand, debt and equity-market access, property sales and other capital sources are sufficient to meet ongoing needs and upcoming maturities. The company also had $250 million of available shelf-registration capacity and approximately $40.5 million of remaining share-repurchase authorization.
- A 1.0 percentage-point increase in interest rates, assuming no change in variable-rate debt, was estimated to reduce annual cash flow by approximately $0.8 million.
- The company had one interest-rate swap with a $33.2 million notional amount and a $1.7 million derivative liability. The swap effectively fixed the rate on 50% of the Rabobank floating-rate exposure for six years.
- The company stated that it was in compliance with applicable debt covenants at June 30, 2021 and had no off-balance-sheet arrangements.
Guidance, outlook, commentary and risks
- Management expected the effect of COVID-19 to lessen during the 2021 crop-marketing cycle, particularly for specialty crops, but stated that the ultimate impact remained uncertain.
- Management described 2021 farmland markets as supported by strong commodity prices, improved farm profitability and rapidly appreciating land values. It reported substantial rent increases on primary row-crop renewals and expected rent growth into 2022.
- Specialty-crop profitability was recovering from COVID-19-related pressure, although base lease rates were generally consistent with or somewhat below 2020 levels.
- Approximately 45,016 acres, representing 28.6% of the portfolio, and 39.8% of annual minimum cash rents were scheduled to expire during the remaining six months of 2021. A further 24.1% of acres and 23.9% of annual cash rents expire in 2022.
- Material risks include tenant credit and lease-renewal risk, weather and crop-price volatility, water availability and regulation, farmland valuation changes, interest-rate exposure, refinancing risk, COVID-19 effects, and the phaseout of LIBOR.
- The Brokop stockholder class action remained unresolved; no class had been certified as of the filing date, damages were not estimable, and expert discovery was ongoing. Related derivative litigation had been dismissed, subject to appeal. Legal defense costs had exceeded insurance coverage.
- The company settled its litigation against Quinton Mathews in June 2021 and recorded approximately $0.6 million of settlement proceeds. It filed a subsequent lawsuit against other alleged participants in the alleged short-and-distort scheme.
Subsequent events
- On July 16, 2021, the company converted its $2.4 million OZ Fund convertible notes into an approximately 7.6% membership interest.
- On July 26, 2021, the company acquired one farm for $1.0 million in cash.
- On August 4, 2021, the board declared a $0.05 common dividend payable October 15, 2021 and a $0.375 per-share Series B preferred dividend payable September 30, 2021.
- On July 27, 2021, the company closed $1.6 million of loans to a tenant under the FPI Loan Program.
Important facts for investors to verify
- Progress and pricing of refinancing for the $14.0 million 2021 and $112.0 million 2022 maturities.
- Whether rent increases and crop-share revenue expected in later periods offset the Q2 same-property rental decline.
- The sustainability of negative AFFO and the coverage of common and preferred distributions by recurring operating cash flow.
- Developments, potential damages and uninsured costs in the Brokop and related stockholder litigation.
- Actual effects of farmland appreciation, commodity prices, tenant profitability, water constraints and COVID-19 on lease renewals and asset values.
- Terms and economic effects of the OZ Fund investment, subsequent acquisitions and additional ATM share issuance.