Farmland Partners Inc. — 2015 Q3 Form 10-Q Summary
Business context and reporting period
Farmland Partners Inc. is an internally managed REIT that owns and acquires farmland and related grain facilities across North America. The filing covers the unaudited quarter and nine months ended September 30, 2015, with comparisons to the corresponding 2014 periods. As of September 30, 2015, the Company owned 121 farms and eight grain storage facilities and owned 74.1% of the Operating Partnership.
Key financial metrics
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Total operating revenue | $4.17 million | $1.26 million | $9.16 million | $2.73 million |
| Operating income | $2.15 million | $0.32 million | $3.94 million | $0.54 million |
| Operating margin | 51.7% | 25.4% | 43.1% | 19.6% |
| Net income | $0.86 million | $0.03 million | $0.81 million | $(0.37) million |
| Net income available to common stockholders | $0.49 million | $0.01 million | $0.29 million | $(0.38) million |
| EPS, basic and diluted | $0.04 | $0.00 | $0.03 | $(0.12) |
| Net cash from operating activities | Not separately provided | Not separately provided | $8.65 million | $1.67 million |
| FFO | $1.09 million | $0.14 million | $1.42 million | $(0.16) million |
| AFFO | $1.76 million | $0.48 million | $3.87 million | $0.94 million |
| AFFO per diluted share | $0.11 | $0.06 | $0.32 | $0.21 |
At September 30, 2015, total assets were $352.1 million, including $305.5 million of net real estate, compared with $200.7 million and $165.7 million, respectively, at December 31, 2014. Cash was $42.5 million versus $33.7 million at year-end 2014.
Mortgage notes and bonds payable, net, were $190.1 million at September 30, 2015, compared with $113.5 million at December 31, 2014. Total principal outstanding was $190.2 million. Approximately $34.75 million, or 18.3% of debt, carried variable interest rates; management estimated that a 100-basis-point increase would reduce annual cash flow by approximately $347,500.
The Company generated $8.65 million of operating cash flow, used $107.0 million in investing activities, primarily for acquisitions and improvements, and received $107.2 million from financing activities. Ending cash increased by $8.8 million from the beginning of 2015.
Material changes versus the prior comparable period
- Revenue increased 230.3% in the quarter and 234.9% for the nine months, primarily because of significant portfolio expansion. Rental income increased 240.3% and 250.9%, respectively.
- The Company completed 18 acquisitions during the first nine months of 2015 for approximately $133.5 million of purchase price, covering approximately 24,709 acres. Since December 31, 2014, it completed 20 acquisitions.
- Same-property cash rental income was relatively stable: $1.06 million in Q3 2015 versus $1.06 million in Q3 2014, and $1.98 million for the nine months of 2015 versus $1.98 million in the comparable 2014 period.
- Operating expenses increased 114.1% in the quarter and 137.3% for the nine months. General and administrative expense more than doubled for the nine months, reflecting staffing, public-company costs, compensation, travel, consulting and compliance expenses.
- Interest expense increased 386.0% in the quarter and 255.4% for the nine months as average borrowings increased substantially, although the weighted-average borrowing cost remained approximately 2.86% for the quarter and 2.76% for the nine months.
- The Company completed a July 2015 underwritten equity offering of 3.36 million shares at $11.00 per share, generating net proceeds of approximately $34.6 million. It also established a $25.0 million at-the-market equity program, under which no shares had been issued by September 30.
- The quarterly distribution increased from $0.1050 per share or OP unit in 2014 to $0.1275 in the third quarter of 2015. Total 2015 distributions declared through the third quarter were $0.3710 per share or OP unit.
Guidance, outlook, risks and unusual items
- Management expects market rents in the coming year to be generally consistent with expiring rents. No formal earnings or revenue guidance was provided.
- The Company expects long-term farmland demand to benefit from population growth, rising GDP per capita and constrained cropland supply, but acknowledges exposure to crop prices, yields, weather, water availability, tenant performance, farmland values, interest rates and capital-market conditions.
- Approximately 38.6% of leased acres and 32.6% of annual minimum cash rents were scheduled to expire in 2016. Lease terms generally range from one to five years, creating renewal and re-leasing risk.
- Over the following twelve months, approximately $34.75 million of debt was scheduled to mature. Management expected to use operating cash flow, equity proceeds and debt refinancing, but stated that additional Farmer Mac capacity or alternative financing was not assured.
- The Farmer Mac Facility had a $165.0 million maximum capacity, $163.6 million outstanding and only $1.425 million of remaining capacity, subject to qualifying collateral. The Company was in compliance with applicable debt covenants at September 30, 2015.
- The Company launched the FPI Loan Program and funded $1.8 million of a potential $2.0 million secured loan to a non-tenant farmer. Principal and accrued interest were due January 15, 2016; management considered the note fully collectible at quarter-end.
- Subsequent to quarter-end, the Company completed two acquisitions for approximately $5.0 million and entered into agreements for additional acquisitions totaling approximately $202.2 million and 24,399 acres. These transactions were subject to customary closing conditions.
- The Company amended two leases with its largest tenant after quarter-end, revising payment schedules and increasing 2016 rent. The filing identifies significant tenant concentration, including related-party tenants, as a material credit risk.
- No real estate impairments, material litigation, material contingencies or off-balance-sheet arrangements were reported. The Company adopted the revised presentation of debt issuance costs retroactively.
Important facts for investors to verify
- Whether the Company can refinance or repay the approximately $34.75 million of debt maturing over the next twelve months without materially slowing acquisitions or increasing leverage.
- The status, funding mix and closing conditions for the approximately $202.2 million of pending acquisitions, including proposed OP units, common stock and Series A preferred units.
- Tenant concentration, collection performance and the economic effect of amended payment schedules for the largest tenant.
- Renewal outcomes for the 2016 lease expirations and whether rents can be maintained or increased in weaker commodity-price environments.
- The availability of additional Farmer Mac borrowing capacity and continued compliance with leverage, fixed-charge coverage, tangible-net-worth and collateral requirements.
- The sustainability of AFFO and distributions, given the use of non-GAAP adjustments, advance rent collections, acquisition-related costs, stock compensation and substantial interest obligations.