Farmland Partners Inc. — Form 10-Q Summary
Business Context and Reporting Period
Farmland Partners Inc. is an internally managed farmland real estate company. As of March 31, 2015, it owned or controlled 93 farms and six grain storage facilities; as of May 8, 2015, the portfolio had expanded to 107 farms totaling approximately 53,038 acres. The company owns 80.0% of Farmland Partners Operating Partnership, LP and intends to qualify as a REIT.
This filing covers the unaudited quarter ended March 31, 2015. The March 31, 2014 comparison reflects the predecessor business before the April 2014 IPO and therefore is not fully comparable to the public-company period.
Financial Performance and Position
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Total operating revenue | $2.103 million | $0.686 million | +206.8% |
| Operating income | $0.576 million | $0.469 million | +22.8% |
| Operating margin | 27.4% | 68.4% | Declined |
| Net income (loss) | $(0.197) million | $0.135 million | Declined $0.331 million |
| Net loss attributable to common stockholders | $(0.181) million | Not clearly provided | — |
| Basic and diluted EPS | $(0.02) | Not clearly provided | — |
| Net cash from operating activities | $4.949 million | $(0.138) million | Improved $5.087 million |
| Net cash used in investing activities | $(13.235) million | $0 | Increased use |
| Net cash used in financing activities | $(7.267) million | $0.155 million | Increased use |
Revenue consisted primarily of $2.030 million of rental income and $73,000 of tenant reimbursements. AFFO was $366,000, or $0.04 per fully diluted share, compared with $174,000 in Q1 2014; FFO was $(24,000), compared with $174,000. These are non-GAAP measures and are not substitutes for GAAP earnings or liquidity.
At March 31, 2015, total assets were $199.5 million, including $179.3 million of net real estate, and cash was $18.2 million. Total liabilities were $116.3 million and total equity was $83.2 million. Mortgage notes and bonds payable totaled $107.8 million, down from $113.9 million at December 31, 2014. Deferred revenue increased to $5.9 million from $1.4 million, primarily because tenants generally pay annual rent in advance.
The company spent $11.2 million on real estate acquisitions, $1.7 million on construction in progress and $0.4 million on real estate improvements. Cash declined by $15.6 million during the quarter from $33.7 million to $18.2 million.
Material Changes Versus the Prior Comparable Period
- Rental income increased 219.3%, primarily because of 34 acquisitions completed during the last three quarters of 2014 and Q1 2015. Same-property rental income was broadly stable at approximately $638,000 versus $636,000.
- The portfolio’s average annual rent declined to $192 per acre from $367 per acre because of expansion into markets with lower farmland purchase prices and rents per acre.
- Operating expenses increased 605.6% to $1.528 million. General and administrative expense rose to $875,000, and legal and accounting expense rose to $268,000, reflecting public-company operations and growth.
- Interest expense increased 130.9% to $773,000, primarily because of increased borrowings under the Farmer Mac Facility and higher financing-fee amortization.
- The company acquired six farms totaling approximately 2,860 acres during the quarter for aggregate purchase prices of approximately $11.4 million, with partial consideration for one farm consisting of 63,581 common shares valued at $713,000.
- Approximately 25% of debt, or $26.7 million, carried variable interest rates. Management estimated that a 100-basis-point increase in rates would reduce annual cash flow by approximately $0.3 million, assuming no change in variable-rate debt.
Guidance, Outlook, Risks, Contingencies and Unusual Items
Management expects market rents in the coming year to be consistent with expiring rents and expects to receive most annual cash rents in the first quarter, although GAAP revenue is recognized over lease terms. No formal earnings guidance was provided.
Management expects to continue acquiring farmland and to fund growth through operating cash flow, equity and OP-unit issuances, mortgage debt and the Farmer Mac Facility. The Farmer Mac Facility had a $150.0 million maximum capacity, $81.1 million outstanding and $68.9 million of nominal remaining capacity at March 31, 2015; qualifying collateral limited immediately available additional borrowing capacity to approximately $17.0 million.
After quarter-end, the company issued two Farmer Mac bonds totaling $26.1 million at fixed rates of 3.69% and 3.68%. It also completed several acquisitions and expected the remaining pending acquisitions, including the Justice Farms transaction, to close in Q2 2015, subject to customary conditions. The Justice Farms consideration was expected to include $49.8 million of cash, 824,398 common shares and 1,993,709 OP units; completion was not assured.
- Debt maturities included approximately $26.7 million in 2016 and $81.1 million in 2017, creating refinancing and liquidity risk.
- Farmer Mac and First Midwest debt agreements include leverage, fixed-charge coverage, tangible-net-worth, collateral and other covenants. The company reported compliance at March 31, 2015.
- Rental income is concentrated: Astoria Farms represented 26.9% of Q1 rental income, and related parties leased 15.9% of portfolio acres. Geographic concentration and natural disasters could affect results.
- Farmland values and tenant credit are exposed to crop prices, yields, weather, water availability, agricultural regulations, interest rates and general economic conditions.
- The company had no material litigation, known material contingencies, impairments or off-balance-sheet arrangements at quarter-end.
- The taxable REIT subsidiary operated 563 acres and planned a small farming and tenant purchasing business. It entered into contracts to sell 25,000 bushels of corn in Q4 2015 to mitigate crop-price exposure.
- The company declared a $0.116 per-share distribution for Q1 2015, payable April 15, 2015. No share repurchases had been made under the authorized $10 million repurchase program.
Important Facts for Investors to Verify
- Reconcile the substantial revenue growth with acquisition timing, annual advance rent collections and the $5.9 million deferred-revenue balance.
- Assess whether AFFO and operating cash flow adequately support distributions, debt service and planned acquisitions after considering capital expenditures and acquisition-related costs.
- Review 2016–2017 debt maturities, Farmer Mac collateral availability, refinancing assumptions and covenant headroom.
- Evaluate tenant and related-party concentration, including Astoria Farms and Hough Farms, and the effect of short lease terms and expirations.
- Confirm the closing status, funding mix and dilution from post-quarter-end acquisitions, particularly the Justice Farms transaction.
- Monitor interest-rate exposure, farmland valuations, crop prices, weather, water restrictions and tenant solvency.
- Confirm continued REIT qualification and the effect of the taxable REIT subsidiary’s farming activities on tax and operating results.