Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2014, for Farmland Partners Inc. (the "Company"). The Company is an internally managed real estate investment trust (REIT) focused on owning high-quality primary row crop farmland in North America. As of the reporting date, the Company had not yet commenced operations; its balance sheet reflects only nominal cash ($1,000). The financial results presented for the quarter relate to the Company's predecessor, FP Land LLC, which owned a portfolio of 38 farms and three grain storage facilities. The Company completed its Initial Public Offering (IPO) and merged with FP Land LLC on April 16, 2014, a subsequent event not reflected in the period-end balance sheet.
Key Financial Metrics (Predecessor: FP Land LLC)
The following metrics reflect the combined consolidated results of FP Land LLC for the three months ended March 31, 2014:
- Total Operating Revenues: $685,651 (Rental income: $635,854; Tenant reimbursements: $49,797).
- Net Income: $134,590.
- Operating Income: $469,164.
- Total Assets: $40,860,431 (Primarily real estate, net of $38.36 million).
- Total Liabilities: $44,288,421 (Primarily mortgage notes payable of $42.06 million).
- Cash and Cash Equivalents: $34,288.
- Net Cash Used by Operating Activities: $(137,759).
- Funds from Operations (FFO): $174,485.
- EBITDA: $509,059.
Material Changes Versus Prior Period
Comparing the three months ended March 31, 2014, to the same period in 2013:
- Revenue Growth: Total operating revenues increased by 21.8% ($122,652), driven by a 12.9% increase in rental income due to higher average annual rent per acre ($366 in 2014 vs. $327 in 2013) and the inclusion of a farm acquired in late 2013.
- Expense Increases: Total operating expenses surged 279.1% to $216,487. This was primarily due to a 100% increase in professional fees ($105,556) related to IPO preparation and a 243.6% increase in property taxes ($49,797) due to changes in lease reimbursement timing.
- Net Income Decline: Despite revenue growth, Net Income decreased 24.2% to $134,590, largely due to the significant rise in operating expenses and a slight increase in interest expense.
- Cash Flow: Net cash used by operating activities increased to $(137,759) from $(103,472), impacted by the timing of rent collections (due post-IPO) and increased accrued interest.
Guidance, Outlook, and Subsequent Events
Subsequent Events (Post-March 31, 2014):
- IPO Completion: On April 16, 2014, the Company completed its IPO, selling 3.8 million shares at $14.00 per share for gross proceeds of $53.2 million and net proceeds of approximately $48.0 million.
- Debt Refinancing: Concurrent with the IPO, the Company repaid approximately $12.0 million of outstanding indebtedness and entered into a new Multi-Property Loan agreement for approximately $30.8 million.
- Acquisition: The Company entered into an agreement to acquire a 3,171-acre farm in Colorado for approximately $7.64 million, expected to close by May 30, 2014.
- Dividend: On May 14, 2014, the Board declared a cash dividend of $0.105 per share.
Risks and Contingencies:
- Concentration Risk: Two related-party tenants (Astoria Farms and Hough Farms) accounted for 97.3% of rental income in Q1 2014. Geographic concentration is also high, with 88.4% of rental income derived from farms in Illinois.
- Internal Controls: Management identified a material weakness in internal controls over financial reporting related to the predecessor entity, citing a lack of qualified accounting personnel and segregation of duties. Remediation efforts are underway.
- Interest Rate Risk: Approximately 93.8% of the Company's debt carries variable interest rates, exposing cash flows to fluctuations in LIBOR.
Key Facts for Investor Verification
- Verify the closing of the pending $7.64 million Colorado farm acquisition and the terms of the lease-back arrangement.
- Confirm the status of the remediation plan for the material weakness in internal controls over financial reporting.
- Monitor the renewal status of leases with Astoria Farms and Hough Farms, which represent the vast majority of revenue.
- Track the deployment of the $48.0 million net IPO proceeds, specifically regarding future acquisitions and debt service.
- Assess the impact of variable interest rates on the $30.8 million Multi-Property Loan as LIBOR fluctuates.