Farmland Partners Inc. — Q2 2022 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, with complementary lending, farming, property management, auction, brokerage and purchasing activities conducted through its taxable REIT subsidiary. As of June 30, 2022, the Company owned approximately 160,100 acres, managed approximately 25,200 additional acres and directly operated 2,973 acres. The filing covers the unaudited three and six months ended June 30, 2022, compared with the corresponding 2021 periods.
Key financial metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total operating revenue | $12.4 million | $10.0 million | $26.2 million | $21.6 million |
| Operating income | $3.5 million | $1.0 million | $7.8 million | $4.1 million |
| Operating margin | 27.9% | 9.5% | 29.6% | 18.8% |
| Net income (loss) | $3.0 million | $(2.9) million | $4.1 million | $(0.4) million |
| Net income (loss) available to common stockholders | $2.1 million | $(5.8) million | $2.3 million | $(6.5) million |
| Basic and diluted EPS | $0.04 | $(0.19) | $0.05 | $(0.21) |
| AFFO | $1.1 million | $(3.6) million | $3.3 million | $(5.3) million |
| AFFO per diluted share | $0.02 | $(0.11) | $0.07 | $(0.16) |
| Adjusted EBITDAre | $5.8 million | $3.2 million | $12.5 million | $8.5 million |
Q2 revenue growth was driven by higher rental income, crop sales and other revenue. Rental income increased 10.9% to $9.2 million, crop sales increased to $1.2 million from $0.2 million, and other revenue increased 86.1% to $1.2 million. The six-month revenue increase was largely attributable to crop sales, crop insurance proceeds, auction and brokerage activity, management fees and loan interest income.
Six-month net cash provided by operating activities was $8.4 million, compared with $8.2 million in 2021. Investing cash flow was $(16.5) million, including $28.2 million of property acquisitions, $16.9 million of property-sale proceeds, $2.7 million of improvements and $3.5 million of new notes receivable. Financing cash flow was $(2.4) million, reflecting $198.9 million of debt repayments, $112.0 million of borrowings, $98.4 million of net ATM proceeds, dividends and the redemption of Series A preferred units.
Cash was $19.7 million at June 30, 2022, compared with $30.2 million at December 31, 2021. Mortgage notes and bonds payable, net, declined to $424.5 million from $511.3 million. Principal debt outstanding was $426.5 million, with no material debt maturities before 2025. Approximately $32.0 million remained available under the Rutledge facility, and the Company reported compliance with applicable debt covenants. Management reported leverage of approximately 39% of net real estate at June 30, versus approximately 48% at December 31, 2021.
Material changes versus the prior comparable period
- Operating income increased 261.8% in Q2 and 91.7% for the six-month period.
- Net income improved from a loss to positive income in both comparative periods, aided by higher revenue, lower legal and accounting expense, lower interest expense and gains on property dispositions.
- Legal and accounting expense declined 71.9% in Q2 and 63.3% for the six months, primarily because of reduced litigation-related fees.
- General and administrative expense increased 58.4% in Q2 and 73.8% for the six months, reflecting the MWA acquisition, increased personnel, travel, consulting and renewed acquisition efforts.
- The Company completed nine acquisitions totaling $28.2 million and five dispositions generating $16.9 million of cash proceeds and a $4.0 million aggregate gain during the six months.
- The Company issued 7.0 million common shares through its ATM programs for $98.4 million of net proceeds, materially increasing shares outstanding and strengthening the balance sheet.
- On May 19, 2022, the Company redeemed 5,000 Series A preferred units for approximately $5.1 million, leaving 112,000 units outstanding with a liquidation value of $113.7 million.
Guidance, outlook, risks and unusual items
No formal quantitative earnings guidance is provided in the filing. Management expects to continue acquiring farmland, selectively disposing of assets, expanding management and brokerage activities, and using ATM proceeds for acquisitions, loans, leverage reduction and general corporate purposes. Management reported rent increases of more than 10% on primary-crop lease renewals connected with 2021 leasing activity and expected continued rent growth in 2022.
Management cited strong commodity prices, farmer profitability, food demand and farmland scarcity as supportive of farmland values and rents. Conversely, fertilizer, fuel, labor and other input-cost inflation, weather, crop yields, commodity prices, water availability, tenant credit, geopolitical conditions and the war in Ukraine could adversely affect tenants and rental income. Rising interest rates may increase borrowing costs and pressure farmland values. At June 30, 2022, 32.7% of debt had variable rates; management estimated that a 1% increase in rates would reduce annual cash flow by approximately $1.1 million.
The Company had one interest-rate swap with a $33.2 million notional amount and a $0.7 million derivative asset. The filing identifies LIBOR transition risk for the Rabobank mortgage note. The Company also faces refinancing risk because its business model generally relies on refinancing or asset and equity sales to address debt maturities.
Previously disclosed shareholder and derivative litigation matters were substantially resolved in the Company’s favor or dismissed during 2022. The Company continues to pursue an appeal in the Sabrepoint litigation. The filing states that there were no other known material contingencies or material changes to previously disclosed risk factors. Subsequent to quarter-end, the Board declared a $0.06 per-share dividend, the Company sold 247,416 additional ATM shares for $3.5 million of net proceeds, and a tenant notified the Company of planned solar-project construction expected to increase future rent.
Most important facts for investors to verify
- Whether rent growth, crop sales and management, auction and brokerage revenue are recurring or materially seasonal; the Company expects significant variable rent recognition in the fourth quarter.
- The sustainability of positive AFFO after accounting for preferred-unit distributions, capital expenditures, stock compensation and other adjustments.
- Execution of the acquisition and disposition strategy and the effect of substantial ATM equity issuance on per-share results and dilution.
- Exposure to variable interest rates, LIBOR transition terms, refinancing conditions and debt covenant compliance.
- Tenant credit quality and sensitivity to fertilizer, fuel, insurance, labor, water, weather and commodity-price volatility.
- The status and potential financial impact of the remaining Sabrepoint appeal and other contingencies.
- The Company’s ability to maintain dividends while cash declined to $19.7 million and operating cash flow remained below investing requirements.