Farmland Partners Inc. 2015 Q2 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 real estate in North America. The filing covers the unaudited quarter and six months ended June 30, 2015, compared with the corresponding 2014 periods. As of June 30, 2015, the Company owned 118 farms and six grain storage facilities and owned 67.4% of the units in Farmland Partners Operating Partnership, LP.
The Company completed 15 acquisitions during the first six months of 2015, totaling approximately 22,015 acres and $119.2 million of purchase price. The portfolio expanded substantially from the prior year, and the Company also operated a 563-acre taxable REIT subsidiary farming business.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2015 | Three Months Ended June 30, 2014 | Six Months Ended June 30, 2015 | Six Months Ended June 30, 2014 |
|---|---|---|---|---|
| Total operating revenue | $2.9 million | $0.8 million | $5.0 million | $1.5 million |
| Operating income (loss) | $1.2 million | $(0.3) million | $1.8 million | $0.2 million |
| Net income (loss) | $0.1 million | $(0.5) million | $(0.1) million | $(0.4) million |
| Net income (loss) attributable to the Company | $0.1 million | $(0.4) million | $(0.05) million | $(0.4) million |
| Net loss available to common stockholders | $(0.02) million | $(0.38) million | $(0.21) million | $(0.38) million |
| Basic and diluted loss per share | $(0.00) | $(0.12) | $(0.03) | $(0.24) |
| Net cash provided by operating activities | Not applicable | Not applicable | $9.5 million | $2.2 million |
| Adjusted EBITDA | $2.8 million | $0.6 million | $4.0 million | $1.1 million |
| AFFO | $1.7 million | $0.3 million | $2.1 million | $0.5 million |
Six-month operating expenses were $3.2 million, including $1.9 million of general and administrative expense, $0.5 million of property operating expense, and $0.4 million of depreciation and depletion. Interest expense was $1.8 million for the six months.
At June 30, 2015, total assets were $313.0 million, including $290.4 million of net real estate. Cash was $20.8 million. Mortgage notes and bonds payable, net, were $183.5 million, compared with $113.5 million at December 31, 2014. Total equity was $105.8 million, and redeemable non-controlling interest was $9.8 million.
Cash used in investing activities was $89.8 million, primarily for $84.6 million of real estate acquisitions and $5.2 million of improvements. Financing activities provided $67.3 million, including $75.9 million of mortgage borrowings, partially offset by debt repayments, dividends, offering costs, and distributions.
Material Changes Versus Prior Comparable Period
- Second-quarter revenue increased 266.7% and six-month revenue increased 238.8%, primarily from acquisitions completed in late 2014 and the first half of 2015.
- Rental income increased 297.8% in the quarter and 260.4% for the six months. Same-property rental income increased only modestly, indicating that portfolio expansion was the primary growth driver.
- Operating income improved to $1.2 million for the quarter and $1.8 million for the six months, despite higher operating, public-company, legal, compensation, and depreciation costs.
- Interest expense increased 270.4% for the quarter and 195.5% for the six months, principally because of increased borrowings under the Farmer Mac Facility.
- Average annual rent for the overall portfolio increased to approximately $217 per acre from $186 per acre in the comparable periods. Same-property average annual rent increased to approximately $361 per acre from $360 per acre.
- The Company issued 887,979 common shares and 2,232,296 OP units as partial consideration for acquisitions during the first half of 2015, increasing non-controlling interests and dilution.
- Deferred revenue increased to $10.2 million from $1.4 million at year-end 2014, largely reflecting advance rent payments that will be recognized over future lease periods.
- The Company early adopted the accounting standard requiring debt issuance costs to be presented as a deduction from debt, with prior periods retroactively adjusted.
Guidance, Outlook, Commentary, Risks, and Unusual Items
Management expects long-term farmland demand and values to benefit from global population growth, rising GDP per capita, and food demand. It does not expect farmland values to continue rising as rapidly as in prior years and expects market rents in the coming year to be generally consistent with expiring rents. No formal earnings or revenue guidance was provided.
Management expects most annual rent payments to be collected during the first quarter, creating significant seasonality between cash receipts and GAAP rental-income recognition. As of June 30, 2015, future minimum lease payments under non-cancelable leases totaled $27.0 million, excluding variable rent and tenant reimbursements.
Total debt principal outstanding was $183.6 million. Approximately $34.8 million of borrowings were scheduled to mature over the following twelve months. The Company expected to use operating cash flow, proceeds from a subsequent equity offering, and debt refinancing to meet these maturities. Farmer Mac Facility capacity was $165.0 million, of which $157.0 million was outstanding and approximately $8.0 million remained available, subject to qualifying collateral. The Company reported compliance with applicable debt covenants at June 30, 2015.
Approximately $34.8 million, or 18.9%, of debt had variable interest rates. Management estimated that a 1.0 percentage-point increase in interest rates would reduce annual cash flow by approximately $0.3 million, assuming no change in variable-rate debt levels.
Key risks include interest-rate and refinancing risk, limited remaining borrowing capacity, tenant concentration, geographic concentration, crop prices and yields, weather and natural disasters, water availability and regulation, farmland valuation volatility, acquisition execution, REIT qualification, and reliance on equity and debt capital markets. Four significant tenants accounted for a substantial portion of recognized rental income, and related parties leased approximately 12% of portfolio acres.
The Company reported no real estate impairments, material litigation, material known contingencies, or off-balance-sheet arrangements. FPI Agribusiness entered into a contract to sell 25,000 bushels of corn at $3.98 per bushel for fourth-quarter 2015 delivery. A $10 million share repurchase authorization existed, but no shares had been repurchased.
Subsequent events included a July 2015 sale of 3.0 million common shares at $11.00 per share, generating approximately $31.2 million of net proceeds; issuance of a $6.6 million Farmer Mac bond at a fixed 3.35% rate; completion of the Purdy and Matthews farm acquisitions; termination of the Stelter Berry purchase agreement; and declaration of a $0.1275 per-share dividend payable in October 2015.
Most Important Facts for Investors to Verify
- Whether acquisition-driven revenue growth translates into sustainable same-property rent growth and recurring AFFO.
- The Company’s ability to refinance or repay approximately $34.8 million of debt maturities within twelve months.
- Remaining Farmer Mac borrowing capacity, qualifying collateral, leverage, and fixed-charge-coverage compliance after subsequent borrowings and acquisitions.
- Tenant concentration, including related-party leases and the unusually high share of cash rent received from major tenants.
- The effects of the July 2015 equity offering on leverage, dilution, liquidity, and future acquisition capacity.
- Whether the Company maintains REIT qualification and sufficient taxable income and liquidity to support declared dividends.
- Exposure to farmland values, crop prices, weather, water availability, commodity operations, and geographic concentration.
- The comparability of AFFO, Adjusted EBITDA, and other non-GAAP measures, which depend on Company-defined adjustments and are not substitutes for GAAP earnings or operating cash flow.