Farmland Partners Inc. 2016 Q1 Form 10-Q Summary
Business context and reporting period
Farmland Partners Inc. is an internally managed REIT that owns and acquires farmland and related facilities across North America. The filing covers the unaudited three months ended March 31, 2016, compared with the three months ended March 31, 2015. At March 31, 2016, the Company owned 255 farms and 13 grain storage facilities; subsequent acquisitions increased the portfolio to 258 farms and approximately 108,163 acres.
Key financial metrics
| Metric | Q1 2016 | Q1 2015 | Change |
|---|---|---|---|
| Total operating revenue | $4.692 million | $2.103 million | +123% |
| Operating income | $1.896 million | $0.576 million | +229% |
| Operating margin | 40.4% | 27.4% | +13.0 percentage points |
| Net loss | $(1.930) million | $(0.197) million | Loss increased |
| Net loss attributable to common stockholders | $(1.780) million | $(0.182) million | Loss increased |
| Basic and diluted loss per share | $(0.15) | $(0.02) | Unfavorable |
| Cash flow from operating activities | $5.780 million | $4.950 million | +$0.830 million |
| Adjusted EBITDA | $3.686 million | $1.139 million | +224% |
| AFFO | $1.843 million | $0.366 million | +404% |
| AFFO per diluted share | $0.11 | $0.04 | +175% |
Rental income increased 118% to $4.417 million, primarily because of acquisitions completed after March 31, 2015. Other revenue was $206,000, including $149,000 from crop sales and $57,000 from the agricultural loan program. Same-property cash rental income declined to approximately $572,000 from $638,000, and average same-property rent declined to $328 per acre from $361.
Total assets increased to $597.8 million at March 31, 2016 from $345.0 million at December 31, 2015. Cash was $35.7 million, compared with $23.5 million at year-end. Net real estate increased to $555.9 million from $316.2 million. Mortgage notes and bonds payable, net, increased to $289.6 million from $187.1 million. Total liabilities were $307.9 million, and total equity was $163.2 million.
Debt principal outstanding was $290.2 million, including approximately $157.6 million under the Farmer Mac facility and $106.0 million of MetLife term loans funded by March 31. Approximately 46% of debt carried variable interest rates. The Company reported compliance with applicable Farmer Mac and MetLife covenants, including maximum leverage or loan-to-value requirements of 60% and a Farmer Mac fixed-charge coverage ratio requirement of 1.50 to 1.00.
Material changes versus the prior comparable period
- The Company completed eight acquisitions during the quarter totaling approximately 32,785 acres and $239.5 million of purchase price, versus six acquisitions totaling approximately 2,860 acres and $11.4 million in Q1 2015.
- The Forsythe Farms acquisition represented approximately $197.1 million of the quarter’s purchase price and was funded with $50.0 million of cash, 2,608,695 OP units and 117,000 preferred units.
- Operating expenses increased 83% to $2.796 million, including a 74% increase in general and administrative expenses and a 120% increase in property operating expenses.
- Interest expense increased 399% to $3.854 million. Approximately $2.4 million related to interest and amortization associated with the short-term $53.0 million Bridge Loan, including a 4% issuance discount.
- Cash used in investing activities increased to $93.8 million, primarily due to real estate acquisitions. Financing activities provided $100.3 million, compared with $7.3 million used in Q1 2015.
- The Company’s ownership interest in the Operating Partnership declined to 40.4% from 74.1% at December 31, 2015, reflecting the issuance of OP and preferred units in connection with acquisitions.
Guidance, outlook, risks and unusual items
Management did not provide quantified full-year earnings or revenue guidance. Management expects market rents in the coming year to be generally consistent with expiring rents and reported flat to modestly lower renewal rates. The Company expects to continue acquiring farmland to increase scale and geographic, crop-type and tenant diversification.
Management believes long-term global food demand, limited high-quality farmland supply and population and income growth should support farmland values and rents. However, the filing notes that commodity prices declined in 2014 and 2015, farmland values in some markets experienced modest declines, and current market conditions may pressure rents and tenant profitability.
Liquidity risks include substantial indebtedness, refinancing requirements, floating-rate exposure, covenant compliance and the need to fund acquisitions, capital expenditures, distributions and operations. Approximately $28.8 million of debt maturities remained during the rest of 2016 as of March 31; the Company subsequently used MetLife proceeds to repay $26.7 million owed under the First Midwest facility in April.
A 100-basis-point increase in interest rates was estimated to reduce annual short-term cash flow by approximately $288,000, with an estimated $1.3 million annual impact beginning in 2019 and thereafter. Tenant concentration, crop prices, weather, water availability, agricultural regulation, farmland valuations and the ability to renew or replace leases remain material risks.
The Bridge Loan was fully repaid on March 29, 2016. The Company entered into $127.0 million of MetLife term loans maturing in March 2026, with initial rates of 2.38% on the $90.0 million floating-rate loan and 2.66% on the other funded term loan. The remaining $21.0 million commitment was funded in April 2016.
As of March 31, 2016, the Company had no known material litigation or contingencies, no material off-balance-sheet arrangements and no recognized real estate impairments. The board declared a $0.1275 per-share distribution payable July 15, 2016.
Most important facts for investors to verify
- Whether acquisition-driven revenue growth translates into sustainable same-property rent growth, given the reported decline in same-property rents.
- The effect of leverage, variable-rate debt and future refinancing requirements on distributable cash flow.
- Whether AFFO remains positive after excluding substantial acquisition-related and nonrecurring financing adjustments.
- The Company’s ability to maintain REIT qualification and fund required distributions while continuing its acquisition program.
- Tenant concentrations, lease expirations and exposure to crop prices, weather, water availability and farmland valuations.
- The final accounting for preliminary acquisition purchase-price allocations and the results of second-quarter acquisitions totaling approximately $14.8 million that were under contract after quarter-end.