Farmland Partners Inc. 2021 Form 10-K Summary
Business context and reporting period
Farmland Partners Inc. is an internally managed REIT that owns and leases farmland across North America. The filing covers the fiscal year ended December 31, 2021, with comparative results for 2020. At year-end, the Company owned approximately 160,200 acres, managed approximately 26,300 additional acres for third parties, and owned a 9.97% equity interest in the Opportunity Zone Fund. Approximately 70% of owned farmland by value supported primary crops and 30% supported specialty crops.
Principal activities include fixed- and variable-rent farmland leasing, agricultural lending, direct farming through a taxable REIT subsidiary, third-party asset management, and, following the November 2021 acquisition of Murray Wise Associates, brokerage and auction services.
Key financial metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Operating revenue | $51.7 million | $50.7 million | 2.1% increase |
| Operating income | $16.8 million | $22.3 million | 24.7% decrease |
| Operating margin | 32.5% | 44.1% | Down approximately 11.6 points |
| Net income | $10.3 million | $7.5 million | 36.2% increase |
| Net margin | 19.8% | 14.9% | Up approximately 4.9 points |
| Net loss available to common stockholders | $(5.8) million | $(5.3) million | Loss increased |
| Basic and diluted loss per share | $(0.17) | $(0.18) | Improved by $0.01 |
| FFO | $8.6 million | $12.5 million | Decreased |
| AFFO | $0.4 million | $1.8 million | Decreased |
| AFFO per diluted share | $0.01 | $0.06 | Decreased |
| Net cash from operating activities | $7.9 million | $19.7 million | Decreased $11.9 million |
| Cash and cash equivalents | $30.2 million | $27.2 million | Increased $3.0 million |
| Total assets | $1.12 billion | $1.09 billion | Increased |
| Outstanding debt, principal | $513.4 million | $508.2 million | Increased $5.2 million |
Rental income increased 3.6% to $45.3 million, while tenant reimbursements declined 5.1% to $3.5 million and crop sales declined 53.7% to $0.9 million. Other revenue increased 48.1% to $2.2 million, partly reflecting litigation settlement proceeds, management fees, and auction and brokerage income.
Operating expenses rose 23.2% to $34.9 million. Legal and accounting expense increased to $10.1 million from $3.7 million, primarily due to litigation costs, and general and administrative expense increased 39.2% to $8.2 million. Interest expense declined 9.9% to $15.9 million. The Company recognized a $9.3 million gain on asset dispositions.
Material changes versus the prior comparable period
- The Company completed 12 acquisitions for aggregate consideration of $81.2 million, including $28.4 million paid through notes payable.
- The Company completed 12 dispositions covering 20 properties, receiving $70.6 million of cash and $2.4 million of convertible notes receivable, and recognized a $9.3 million aggregate gain.
- Primary-crop lease renewals produced rent increases of more than 10%; management expected continued rent growth into 2022.
- The Company began third-party asset management through its agreement with the Opportunity Zone Fund and acquired Murray Wise Associates for an initial consideration of approximately $5.3 million, including cash and stock. The acquisition added asset management, brokerage, and auction capabilities.
- All outstanding Series B Participating Preferred Stock was converted on October 4, 2021 into 12.1 million shares of common stock. The conversion generated a $5.7 million deemed dividend and materially increased the common share count.
- The Company sold 2.1 million shares through its at-the-market programs for $27.6 million of gross proceeds and $27.3 million of net proceeds.
- The common distribution remained $0.05 per share per quarter, or $0.20 per share for 2021.
- Operating cash flow declined materially despite higher net income, primarily due to changes in working capital and lower cash receipts from fixed and variable rents.
Debt, liquidity, and cash flow
At December 31, 2021, principal debt totaled $513.4 million, substantially secured by farm mortgages, versus total assets of $1.12 billion. The balance-sheet carrying value of mortgage notes and bonds payable, net, was $511.3 million. Approximately $171.5 million, or 33.4% of debt, carried variable interest rates; management estimated that a 100-basis-point increase would reduce annual cash flow by approximately $1.4 million.
Debt maturities originally included $112.0 million due in April 2022. On February 18, 2022, the Company refinanced or extended that amount to March 1, 2027 under a facility bearing interest at SOFR plus a 1.80% to 2.25% margin. Following the transaction, management stated that no material debt maturities were due before 2025. The Company reported compliance with applicable debt covenants at December 31, 2021.
| Cash flow category | 2021 | 2020 |
|---|---|---|
| Operating activities | $7.9 million provided | $19.7 million provided |
| Investing activities | $18.8 million used | $18.7 million provided |
| Financing activities | $13.9 million provided | $23.7 million used |
Liquidity sources include cash, operating cash flow, debt refinancing, equity issuance, and asset dispositions. The Company had approximately $40.5 million remaining under its share repurchase authorization and approximately $200 million of shelf-registration capacity. No common shares were repurchased during 2021.
Guidance, outlook, management commentary, risks, and unusual items
Management estimated 2022 rent-related payments of $46.9 million to $47.4 million, consisting of $36.3 million to $36.5 million of fixed payments and $10.6 million to $10.9 million of variable payments. The estimate excludes auction and brokerage revenue and is subject to crop yield, commodity price, tenant performance, and timing uncertainty. Approximately $6.5 million of the variable-payment estimate was tied to a single lease.
Management cited strong commodity prices, farmer profitability, inflation concerns, and demand for high-quality farmland as drivers of rapidly appreciating farmland values. The Company expects long-term food demand and farmland scarcity to support rental rates and property values, but acknowledged that higher real interest rates could pressure farm income, land values, refinancing costs, and distributions.
- Litigation remains material. The Company incurred approximately $8.8 million of litigation-related legal and accounting expense in 2021 and received approximately $0.6 million from the Rota Fortunae settlement. Stockholder litigation remained pending, and the Company was appealing dismissal of its claims against Sabrepoint; potential outcomes and future costs were not estimable.
- Tenant profitability and rent collection remain exposed to weather, crop disease, pests, commodity prices, trade policy, government farm programs, and tenant leverage. Short-term leases create more frequent exposure to changes in market rents.
- The portfolio is concentrated in agricultural real estate, with approximately 70% by value exposed to primary row crops and significant revenue concentration in California and Illinois. One tenant represented 20.2% of rental income in 2021.
- The Company is exposed to refinancing, foreclosure, covenant, floating-rate, and LIBOR-transition risks. Mortgage debt is secured by farmland, and defaults could result in foreclosure and loss of properties.
- COVID-19 effects remained difficult to quantify, particularly for specialty crops, hospitality-related demand, supply chains, and capital markets.
- The Company must maintain REIT qualification and satisfy distribution requirements, including generally distributing at least 90% of REIT taxable income. Failure to qualify could result in corporate-level taxation and reduced distributions.
- No real estate impairment was recognized in 2021, and the auditor reported no critical audit matters. Management concluded that internal controls over financial reporting were effective as of December 31, 2021.
Most important facts for an investor to verify
- Reconcile recurring rental income and cash rent collections with the 2022 payment forecast, particularly the single lease representing approximately $6.5 million of estimated variable payments.
- Review the post-year-end $112.0 million debt extension, its SOFR-based pricing, covenants, collateral, and remaining refinancing requirements.
- Assess whether operating cash flow and AFFO support the common distribution after preferred-unit distributions, litigation costs, capital expenditures, and debt service.
- Evaluate the effect of the Series B conversion and ATM issuance on per-share economics, dilution, and future distributions.
- Monitor pending stockholder litigation, the Sabrepoint appeal, potential attorney-fee claims, insurance coverage, and uninsured legal costs.
- Analyze tenant concentration, lease expirations, rent-renewal assumptions, variable-rent exposure, and geographic and crop concentrations.
- Review the strategic and financial contribution of the Opportunity Zone Fund, third-party asset management, and the MWA acquisition.
- Confirm REIT qualification, distribution requirements, preferred-unit claims, and the tax treatment of distributions, including potential return-of-capital components.