Farmland Partners Inc. 2020 Q3 Form 10-Q Summary
Business context and reporting period
Farmland Partners Inc. is an internally managed REIT that owns and leases farmland in North America, provides agricultural loans, and conducts limited custom farming through its taxable REIT subsidiary. As of September 30, 2020, the Company owned approximately 156,000 acres and held a 93.9% interest in its operating partnership. The filing covers the unaudited three and nine months ended September 30, 2020, compared with the corresponding 2019 periods.
Key financial metrics
| Metric | Q3 2020 | Q3 2019 | 9M 2020 | 9M 2019 |
|---|---|---|---|---|
| Operating revenue | $10.6 million | $9.8 million | $32.8 million | $31.7 million |
| Operating income | $3.6 million | $3.2 million | $12.6 million | $11.7 million |
| Operating margin | 34.4% | 32.8% | 38.5% | 36.9% |
| Net income (loss) | $0.6 million | $(1.5) million | $1.2 million | $5.1 million |
| Net income (loss) attributable to common stockholders | $(2.6) million | $(4.5) million | $(8.2) million | $(4.7) million |
| Basic and diluted loss per share | $(0.09) | $(0.15) | $(0.28) | $(0.16) |
| FFO | $1.2 million | $0.6 million | $5.0 million | $3.5 million |
| AFFO | $(1.4) million | $(2.0) million | $(3.2) million | $(4.6) million |
| Net cash from operating activities | Not separately provided | Not separately provided | $10.2 million | $7.0 million |
At September 30, 2020, total assets were $1.08 billion, cash was $7.1 million, and total real estate, net, was $1.06 billion. Mortgage notes and bonds payable, net, were $508.4 million, compared with $511.4 million at December 31, 2019. Total liabilities were $526.7 million and total equity was $293.7 million.
For the nine months, investing activities provided $12.3 million, primarily from $13.4 million of property-sale proceeds. Financing activities used $27.9 million, including $10.1 million for common and preferred share repurchases, $10.1 million for common and preferred distributions, and $3.0 million of debt repayments. Cash declined by $5.5 million from year-end 2019.
Approximately 35.5% of debt, or $180.9 million, carried variable interest rates at September 30, 2020. Management estimated that a 100-basis-point increase in rates would reduce annual cash flow by approximately $0.9 million. The Company was in compliance with its reported debt covenants.
Material changes versus the prior comparable period
- Q3 revenue increased 7.7%, while nine-month revenue increased 3.4%. Rental income declined 4.5% in Q3 and 2.0% for the nine months, primarily due to dispositions and timing of crop-share revenue.
- Tenant reimbursements increased 98.9% in Q3 and 90.7% for the nine months, largely due to higher California property-tax reimbursements. Crop sales also increased because of timing and a prior-year revenue reversal.
- Operating income increased 13.1% in Q3 and 7.9% for the nine months. Cost of goods sold rose materially due primarily to the timing of citrus sales, partially offsetting operating improvements.
- Q3 net income improved from a loss to income, aided by a $1.3 million gain on property dispositions and lower interest expense. Nine-month net income declined 77.3% because 2019 included $7.9 million of disposition gains versus $2.2 million in 2020.
- Interest expense declined 8.4% in Q3 and 8.5% for the nine months due to lower floating rates and lower debt balances.
- The Company completed two acquisitions totaling $1.4 million and four dispositions totaling $13.4 million during the nine months. It completed no acquisitions during Q3.
- The Company repurchased approximately 1.0 million common shares for $6.6 million and 140,189 Series B preferred shares for $3.1 million during the nine months. Approximately $41.4 million remained authorized under the repurchase program.
Guidance, outlook, risks and unusual items
- No formal quantitative earnings or revenue guidance is provided in the filing. Management expects primary-crop rents to be flat to modestly higher on 2020 renewals, while specialty-crop profitability and pricing may remain pressured through 2020 and potentially 2021.
- Management states that the direct COVID-19 impact was limited through the reporting date, but identifies risks from specialty-crop demand, lower ethanol and corn demand, labor shortages, export logistics, tenant profitability, rent deferrals and potential bankruptcies. The ultimate impact cannot be quantified.
- Approximately 48,000 acres had leases with rents at least partly based on farming revenues. Variable-rent and crop-share income may be recognized later than fixed rent, creating quarterly volatility.
- Approximately 28.8% of leased acres and 19.6% of annual minimum cash rents were scheduled to expire during the remaining three months of 2020; an additional 27.5% of acres and 17.0% of annual cash rents were scheduled to expire in 2021.
- LIBOR was expected to be discontinued after 2021. The Company had $180.9 million of variable-rate debt tied to LIBOR with maturities beyond 2021 and could not assure that replacement rates would be equally favorable.
- The Company terminated an existing interest-rate swap and entered into a new swap effective April 1, 2020. The new hedge covered 50% of the then-outstanding Rabobank debt for six years; the derivative liability was $3.2 million at September 30, 2020.
- Subsequent to quarter-end, the Company obtained a $54.4 million MetLife term loan at an initial 3.00% rate, maturing in October 2030, to refinance near-term debt. It also completed a $4.0 million property disposition with a $0.5 million gain and issued 265,000 common shares in exchange for operating-partnership units.
- Material litigation remains pending, including stockholder actions concerning disclosures about the FPI Loan Program and the Company’s lawsuit relating to alleged false and misleading short-seller publications. The Company cannot estimate the ultimate litigation exposure; insurance coverage for certain stockholder-litigation costs is expected but not assured.
- Disclosure controls were deemed ineffective at September 30, 2020 because of a previously reported material weakness involving information-technology general controls. Management implemented additional quarterly review controls and believes remediation has been addressed, but effectiveness remains an investor consideration.
Most important facts to verify
- Confirm the refinancing and repayment of the $48.3 million of near-term Farmer Mac debt and Farm Credit debt after September 30, 2020.
- Assess the maturity, refinancing and interest-rate risk of the $509.9 million principal debt balance, particularly the $180.9 million tied to LIBOR.
- Review tenant collections, lease renewals and variable-rent realization following COVID-19-related agricultural disruptions.
- Evaluate whether negative AFFO of $3.2 million for the nine months supports the common dividend and planned share repurchases.
- Monitor the pending litigation, potential uninsured costs and any related financial or governance consequences.
- Verify remediation of the internal-control material weakness in subsequent filings.