Farmland Partners Inc. — Q3 2022 Form 10-Q Summary
Business context and reporting period
Farmland Partners Inc. is an internally managed REIT that owns and acquires farmland across North America. As of September 30, 2022, it owned approximately 160,800 acres, managed approximately 29,800 additional acres, and directly operated 2,306 acres through its taxable REIT subsidiary. Approximately 70% of the portfolio by value supported primary crops and 30% specialty crops. The filing covers the three and nine months ended September 30, 2022; interim financial statements are unaudited.
Financial performance and key metrics
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Total operating revenue | $13.1 million | $10.1 million | $39.4 million | $31.7 million |
| Operating income | $4.7 million | $1.4 million | $12.5 million | $5.5 million |
| Operating margin | 36.0% | 14.2% | 31.7% | 17.3% |
| Net income (loss) | $1.1 million | $(2.7) million | $5.3 million | $(3.1) million |
| Net income available to common stockholders | $0.4 million | $(5.6) million | $2.7 million | $(12.1) million |
| FFO | $2.8 million | $(0.6) million | $6.4 million | $(0.7) million |
| AFFO | $2.5 million | $(3.2) million | $5.8 million | $(8.5) million |
| AFFO per diluted share | $0.05 | $(0.09) | $0.11 | $(0.26) |
| Adjusted EBITDAre | $7.1 million | $3.7 million | $19.6 million | $12.2 million |
Q3 rental income rose 2.6% to $9.1 million. Crop sales increased to $2.5 million from $0.3 million, while other revenue increased to $0.7 million, primarily due to auction and brokerage activity from the MWA acquisition, management fees and loan interest. Q3 interest expense declined 3.1% to $3.9 million despite rising interest rates, reflecting lower debt balances.
At September 30, 2022, total assets were $1.13 billion, including $1.09 billion of net real estate. Mortgage notes and bonds payable, net, were $408.4 million, versus $511.3 million at December 31, 2021. Cash was $8.9 million, compared with $30.2 million at year-end 2021. The company reported a $2.0 million derivative asset related to its interest-rate hedge.
For the nine months, operating cash flow was $8.8 million, compared with $1.2 million in the prior-year period. Investing cash flow was $(25.7) million, including $36.9 million of acquisitions, $3.0 million of improvements and $16.9 million of property-sale proceeds. Financing cash flow was $(4.3) million, reflecting $121.3 million of net ATM equity proceeds, $102.9 million of net debt reduction, $10.2 million of Series A preferred-unit redemptions and $7.9 million of common dividends.
Material changes versus the prior comparable period
- Total revenue increased 30.0% in Q3 and 24.3% for the nine months.
- Operating income increased 229.5% in Q3 and 127.6% for the nine months, principally reflecting higher revenue and sharply lower legal and accounting expenses.
- Legal and accounting expense declined $2.2 million in Q3 and $5.8 million for the nine months following the resolution of significant litigation.
- General and administrative expense increased 43.5% in Q3 and 63.8% for the nine months, driven by the MWA acquisition, personnel, travel and consulting costs.
- The company completed 12 acquisitions for $36.9 million and five dispositions for $16.9 million during the first nine months, compared with five acquisitions and 17 property dispositions in the prior-year period.
- Common shares outstanding increased materially, primarily because of 8.6 million shares issued through ATM programs. Net ATM proceeds were $121.3 million.
- Leverage, as defined by management, declined from approximately 48% at December 31, 2021 to approximately 37% at September 30, 2022.
- The company redeemed 10,000 Series A preferred units for approximately $10.2 million, reducing the outstanding liquidation value to $109.4 million.
Guidance, outlook, risks and unusual items
The filing does not provide formal quantitative earnings or revenue guidance. Management expects continued acquisition activity and believes strong commodity prices, farmer profitability, limited high-quality farmland supply and rent increases support farmland values and future rental growth. Management reported rent increases of more than 10% on primary row-crop lease renewals in 2021 and expected rent growth to continue into 2022.
Management also expects growth-related personnel, travel and consulting expenses to remain elevated. Agricultural results are seasonal: substantial fixed rent is collected in the first quarter and variable rent is generally received after harvest, often in the fourth quarter. Quarterly results therefore may not represent full-year performance.
- Interest-rate exposure is significant. Variable-rate debt totaled $123.5 million, or 30.1% of debt; a 1% increase in rates was estimated to reduce annual cash flow by approximately $0.9 million.
- The company has exposure to SOFR and LIBOR transition risk. A $33.2 million interest-rate swap was in place, and its derivative asset had a fair value of $2.0 million.
- Debt refinancing remains important. Management stated that debt is generally refinanced or repaid through equity issuance or asset sales rather than operating cash flow. No material debt maturities were due before 2025 as of September 30, 2022.
- Tenant credit risk, crop yields, commodity prices, weather, water availability, inflation, fertilizer and fuel costs, and changing farmland values may affect rental income and asset values.
- The war in Ukraine and related disruptions to grain, fertilizer and energy markets create uncertainty. Management expects high demand and commodity prices to support U.S. farm profitability but cannot assure that this will increase rents.
- The company had no known material business contingencies other than disclosed matters. Several previously disclosed shareholder and derivative cases were resolved; the Sabrepoint litigation remained subject to appeal, with oral arguments scheduled for November 30, 2022.
- Subsequent to quarter-end, the company entered into a $75.0 million senior secured revolving facility, borrowed an additional $7.0 million under the Rutledge facility and completed two farm acquisitions for $3.4 million.
- The board declared a $0.06 per-share common dividend payable January 17, 2023.
Most important facts for investors to verify
- Whether rent growth, crop-related revenue and MWA-derived auction and brokerage revenue are recurring and sustainable after the seasonal fourth quarter.
- The impact of higher SOFR, future MetLife rate resets and the LIBOR transition on interest expense and cash available for distributions.
- Debt refinancing capacity, covenant compliance and utilization of the new $75.0 million revolving facility.
- Whether the lower leverage ratio is maintained without excessive equity dilution or property sales.
- The sustainability of AFFO relative to the $0.06 quarterly common dividend, particularly after preferred-unit distributions and capital expenditures.
- Tenant credit quality, lease expirations and the ability to renew or re-lease approximately 16.1% of acres and 29.7% of annual fixed rents expiring during the remainder of 2022.
- The outcome and potential cost of the remaining Sabrepoint litigation and the effect of any future legal expenses.
- The effect of inflation, water constraints, weather, crop prices and geopolitical disruptions on tenants, farmland values and rental rates.