Farmland Partners Inc. — 2021 Q1 Form 10-Q Summary
Business context and reporting period
Farmland Partners Inc. is an internally managed farmland REIT owning approximately 149,000 acres across North America as of March 31, 2021. Approximately 70% of the portfolio by value supports primary crops and 30% supports specialty crops. The company also operates a small taxable REIT subsidiary farming business and provides agricultural loans.
This unaudited Form 10-Q covers the three months ended March 31, 2021, compared with the three months ended March 31, 2020. The company owned 95.4% of its operating partnership at quarter-end.
Financial performance and key metrics
| ($ in thousands, except per-share data) | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total operating revenue | $11,575 | $11,650 | (0.6%) |
| Operating income | $3,098 | $5,289 | (41.4%) |
| Operating margin | 26.8% | 45.4% | Down |
| Net income | $2,477 | $419 | +$2,058 |
| Net income attributable to the company | $2,360 | $394 | +$1,966 |
| Net loss available to common stockholders | $(718) | $(2,737) | Improved |
| Basic and diluted loss per share | $(0.02) | $(0.09) | Improved |
| Net cash provided by operating activities | $11,406 | $12,867 | (11.4%) |
| FFO | $1,020 | $2,505 | (59.3%) |
| AFFO | $(1,609) | $(368) | Lower |
| Adjusted EBITDAre | $5,327 | $7,410 | (28.1%) |
Rental income increased 1.8% to $10.3 million, while tenant reimbursements increased 8.9% to $0.9 million. Crop sales and other revenue declined. Operating expenses increased 33.3% to $8.5 million, primarily because legal and accounting expense rose to $2.7 million from $0.5 million. The company reported a $3.4 million gain on property dispositions, compared with an $86,000 loss in the prior-year quarter, which drove the increase in net income but did not improve recurring operating metrics.
Common dividends declared remained $0.05 per share. AFFO was negative after preferred distributions, compared with negative $0.4 million in the prior-year quarter.
Balance sheet, debt and liquidity
| ($ in thousands) | March 31, 2021 | December 31, 2020 |
|---|---|---|
| Total assets | $1,075,209 | $1,090,991 |
| Real estate, net | $1,026,884 | $1,053,120 |
| Cash | $36,070 | $27,217 |
| Mortgage notes and bonds payable, net | $486,704 | $506,625 |
| Total liabilities | $512,315 | $524,801 |
| Total equity | $305,464 | $305,914 |
Debt principal outstanding was $488.2 million at March 31, 2021, down from $508.2 million at year-end 2020. Approximately $112.0 million of debt matures in 2022, primarily under the Rutledge facility, whose maturity was extended to April 1, 2022. The company states that it expects to refinance maturing debt and could sell assets if refinancing is unavailable on acceptable terms.
Variable-rate debt totaled $171.5 million, or 35.1% of debt. Management estimated that a 100-basis-point increase in interest rates would reduce annual cash flow by approximately $0.8 million. LIBOR discontinuation after 2021 creates additional refinancing and interest-rate uncertainty.
Cash flow from investing activities was $25.0 million, including $28.5 million of property-sale proceeds and $2.9 million of acquisitions. Financing activities used $27.6 million, including $20.0 million of mortgage repayments and distributions to common and preferred holders. Cash increased to $36.1 million.
Material changes versus the prior comparable period
- Revenue was broadly stable, but operating income fell 41.4% because of higher legal and accounting costs and modestly higher property and administrative expenses.
- Legal and accounting expense increased by $2.3 million, primarily from litigation involving the alleged “short and distort” campaign and related shareholder litigation. Insurance coverage for defending shareholder claims had been exhausted.
- The company sold 14 properties in six transactions for $28.5 million in cash and $2.4 million of convertible notes receivable, recording a $3.4 million gain. It acquired two properties for $2.9 million.
- Mortgage repayments increased materially, reducing debt by approximately $20.0 million from year-end 2020.
- Same-property rental income increased approximately 1.2%, although management cautioned that first-quarter results do not capture the full timing of bonus and crop-share rents, much of which is expected in the fourth quarter.
- The company issued 158,705 common shares upon redemption of operating partnership units during the quarter.
Guidance, outlook, risks and unusual items
- Management reported modest rent increases on 2021 row-crop renewals and expects rent growth into 2022. Specialty-crop operators remain under pressure, with base rents generally consistent with or somewhat below 2020 levels.
- Management expects COVID-19 effects to lessen during the 2021 crop marketing cycle but cannot quantify the pandemic’s ultimate impact. Specialty crops, including lemons, blueberries and almonds, remain exposed to demand, pricing and trade disruptions.
- Approximately 42,000 acres have rents that are at least partly tied to farm revenue, creating exposure to crop prices, yields and tenant profitability.
- Debt refinancing is a significant liquidity dependency, particularly for the $112.0 million maturing in 2022. The company’s ability to refinance or sell assets could be affected by interest rates, lender conditions and farmland values.
- Ongoing litigation includes a purported shareholder class action and related derivative actions concerning disclosures about the FPI Loan Program, as well as the company’s lawsuit against parties it alleges participated in a short-and-distort scheme. No class had been certified in the principal shareholder action, and the company could not estimate potential damages or expenses.
- The company’s interest-rate swap had a $1.6 million derivative liability and a $33.2 million notional amount at quarter-end. Amortization of the terminated prior swap affected current-period results.
- Subsequent to quarter-end, the board declared a $0.375 per-share quarterly dividend on Series B preferred stock and a $0.05 per-share common dividend. The company also repurchased 16,782 additional Series B preferred shares through the report date.
Most important facts for an investor to verify
- Progress and pricing of refinancing efforts for the $112.0 million of debt due in 2022.
- Whether negative AFFO after preferred distributions improves sufficiently to support common dividends on a recurring basis.
- Future legal costs, insurance recoveries, and potential exposure from the shareholder and derivative litigation.
- Collection performance, tenant credit quality and crop-share rent realization, especially for specialty-crop properties.
- Effects of LIBOR replacement on the $171.5 million of variable-rate debt and the company’s hedge arrangements.
- Whether property dispositions, acquisitions and changes in portfolio acreage materially alter recurring rental income and leverage.