Farmland Partners Inc. — Q2 2023 Form 10-Q Summary
Business context and reporting period
Farmland Partners Inc. is an internally managed farmland REIT that owns and seeks to acquire agricultural land throughout North America. The filing covers the unaudited three and six months ended June 30, 2023, compared with the corresponding 2022 periods.
- Owned approximately 159,200 acres and managed approximately 31,000 additional acres at June 30, 2023.
- Owned land and buildings for four Ohio agricultural equipment dealerships leased to Ag-Pro under the John Deere brand.
- The taxable REIT subsidiary directly farmed approximately 2,108 California acres.
- FPI owned 97.8% of the Operating Partnership and had 48.95 million common shares outstanding at June 30, 2023.
Financial performance and key metrics
| Metric | Three months ended June 30, 2023 | Three months ended June 30, 2022 | Six months ended June 30, 2023 | Six months ended June 30, 2022 |
|---|---|---|---|---|
| Total operating revenue | $11.6 million | $12.4 million | $24.3 million | $26.2 million |
| Operating income | $2.8 million | $3.5 million | $7.6 million | $7.8 million |
| Net income | $7.9 million | $3.0 million | $9.6 million | $4.1 million |
| Net income available to common stockholders | $7.0 million | $2.1 million | $7.9 million | $2.3 million |
| Basic earnings per share | $0.14 | $0.04 | $0.15 | $0.05 |
| Diluted earnings per share | $0.12 | $0.04 | $0.15 | $0.05 |
| FFO | $(1.0) million | $1.3 million | $0.7 million | $3.5 million |
| AFFO | $(1.1) million | $1.1 million | $0.4 million | $3.3 million |
| Adjusted EBITDAre | $5.4 million | $5.8 million | $12.5 million | $12.5 million |
Approximate operating margins were 23.8% in the second quarter of 2023 versus 28.0% in the prior-year quarter, and 31.3% for the first six months of 2023 versus 29.6% in the prior-year period. Net income benefited substantially from property-sale gains and therefore does not represent recurring operating performance.
- Rental income increased 2.1% in the quarter and 1.8% year to date, primarily from higher fixed farm and solar rent, partly offset by lower variable rent.
- Crop sales decreased 55.2% in the quarter and 52.6% year to date, primarily because of lower citrus volumes.
- Other revenue decreased 29.4% in the quarter and 40.2% year to date, reflecting lower auction, brokerage and crop-insurance revenue.
- Interest expense increased 56.1% in the quarter and 42.2% year to date because of higher interest rates and, for the quarter, higher debt outstanding.
Cash flow, balance sheet, debt and liquidity
- Cash flow from operating activities was $9.4 million for the first six months of 2023, compared with $8.4 million in 2022.
- Investing activities provided $39.9 million, including $51.5 million of property-sale proceeds, compared with $16.5 million used in the prior-year period.
- Financing activities used $45.8 million, including $61.7 million for common-stock repurchases, $8.1 million for Series A preferred-unit redemptions and $6.4 million for common dividends.
- Cash and restricted cash totaled $11.2 million at June 30, 2023, including $2.2 million of restricted cash related to an in-process like-kind exchange.
- Net real estate totaled $1.07 billion. Mortgage notes and bonds payable were $471.0 million net of debt issuance costs, compared with $436.9 million at December 31, 2022.
- Principal debt outstanding was $473.5 million, with approximately 39.4% carrying variable interest rates. Management estimated that a 1.0 percentage-point increase in interest rates would reduce annual cash flow by approximately $1.5 million.
- Undrawn availability under lines of credit was $120.7 million. The ATM program had $50.5 million of remaining capacity, and the shelf registration statement had approximately $100 million of capacity.
- Management reported no material debt maturities before 2025 and stated that the company was in compliance with applicable debt covenants at June 30, 2023.
Material changes versus the prior comparable period
- The company acquired two properties for $9.0 million in the first six months of 2023, compared with nine properties totaling $28.2 million in the prior-year period.
- The company sold 19 properties for $51.5 million and recognized a $12.9 million gain, compared with five properties sold for $16.9 million and a $4.0 million gain in the prior-year period.
- Common-stock repurchases totaled 5.6 million shares at a weighted average price of $11.01 per share; no common shares were repurchased in the prior-year period. Shares outstanding declined from 54.3 million at December 31, 2022 to 49.0 million at June 30, 2023.
- The company redeemed 8,000 Series A preferred units for $8.1 million, leaving 99,000 units and $100.5 million of redeemable preferred interests outstanding.
- Legal and accounting expense declined 74.6% year to date, primarily because of lower litigation-related costs.
- FFO and AFFO declined despite higher GAAP net income, primarily because the increase in property-sale gains does not benefit FFO and AFFO.
Guidance, outlook, commentary, risks and unusual items
- The filing does not provide formal earnings or revenue guidance.
- Management expects to continue selectively acquiring and disposing of farmland, using cash flow, debt, equity capacity and asset sales to fund liquidity needs and capital allocation.
- Subsequent to quarter-end, the company was under contract to acquire one farm for $11.0 million and had contracted to sell 11 farms for approximately $22.1 million, with estimated aggregate gains of $9 million to $10 million. It also planned to auction approximately $30 million to $33 million of additional properties and had up to $26 million of potential sales in advanced negotiations. These transactions are not assured.
- Subsequent to quarter-end, the company repurchased 116,593 additional shares at a weighted average price of $12.22 per share and declared a $0.06 quarterly dividend.
- Key risks include higher interest rates, refinancing risk, variable-rate debt, extreme weather, drought and water restrictions, crop prices and yields, tenant credit and concentration risk, agricultural commodity trade disruptions, farmland-value declines and the ability to complete pending property transactions.
- Farm revenue and cash collections are seasonal. A significant portion of variable rent is generally received in the fourth quarter, so quarterly results may not be representative of full-year performance.
- On June 30, 2023, an appellate court reversed the dismissal of the company’s claims against Sabrepoint and remanded the litigation for further proceedings. Sabrepoint may seek further appellate review.
- Management stated that disclosure controls were effective as of June 30, 2023 and that there were no material changes in internal control over financial reporting.
Most important facts for investors to verify
- Reconcile recurring rental income, FFO and AFFO with GAAP net income, particularly excluding the $12.9 million year-to-date property-sale gain.
- Review the effect of higher SOFR and other rate resets on interest expense, including the $186.5 million of variable-rate debt and the Rabobank interest-rate swap.
- Confirm liquidity after the substantial share repurchases, preferred-unit redemption and dividend payments.
- Monitor 2024–2027 lease expirations, which represent substantial portions of acreage and annual fixed rents.
- Verify the closing, financing and tax treatment of announced acquisitions, dispositions, auctions and like-kind exchanges.
- Assess the status and potential exposure of the Sabrepoint litigation and the company’s ability to refinance debt as maturities approach.
- Review the filing’s deferred-tax disclosures; the text contains an unclear statement regarding the reported change in the valuation allowance, so the underlying tax footnote should be verified directly.