Farmland Partners Inc. 2018 Q2 SEC Filing Summary
Business context and reporting period
Form 10-Q for the quarter and six months ended June 30, 2018. Farmland Partners is an internally managed REIT that owns and leases approximately 165,000 acres of farmland across North America, primarily through its operating partnership. Approximately 75% of acreage produces primary crops and 25% produces specialty crops. The company also operates a small custom-farming business and provides loans to farmers.
Financial performance and position
| Metric | Three months ended June 30, 2018 | Three months ended June 30, 2017 | Six months ended June 30, 2018 | Six months ended June 30, 2017 |
|---|---|---|---|---|
| Total operating revenue | $11.4 million | $11.5 million | $22.6 million | $18.6 million |
| Operating income | $5.2 million | $5.6 million | $10.0 million | $6.3 million |
| Net income | $1.0 million | $2.0 million | $1.5 million | $0.02 million |
| Net income attributable to the company | $0.9 million | $1.7 million | $1.3 million | $0.06 million |
| Net loss available to common stockholders | $(2.3) million | $0.8 million | $(5.1) million | $(1.8) million |
| Basic and diluted EPS | $(0.07) | $0.02 | $(0.15) | $(0.06) |
| FFO | $3.0 million | $4.2 million | $5.6 million | $3.7 million |
| AFFO | $0.2 million | $3.8 million | $0.2 million | $4.2 million |
Operating margins were approximately 45.4% in the second quarter and 44.2% for the first six months, compared with approximately 48.4% and 33.6%, respectively, in the prior-year periods. Net margins were approximately 8.6% and 6.6%, compared with 17.6% and 0.1%. Common dividends declared remained $0.1275 per share per quarter through the period.
- Cash provided by operating activities was $14.1 million for the six months, versus cash used of $1.7 million in the prior-year period.
- Investing cash outflow was $36.4 million, including $26.8 million for four farmland acquisitions, $9.0 million for improvements and $6.1 million for new notes receivable; property-sale proceeds were $2.0 million.
- Financing cash outflow was $4.8 million, including $8.4 million of common dividends, $3.5 million of Series A preferred distributions, $4.5 million of Series B preferred dividends and $6.5 million of common-stock repurchases, partially offset by $21.0 million of new mortgage borrowings.
- Cash declined to $26.4 million from $53.5 million at December 31, 2017. Total assets were $1.17 billion and net real estate was $1.12 billion.
- Mortgage notes and bonds payable, net, increased to $533.8 million from $514.1 million at year-end. Principal debt outstanding was $535.6 million, with approximately 36% of debt carrying variable rates.
- Notes and interest receivable increased to $12.5 million from $9.8 million at year-end. The company reported no off-balance-sheet arrangements.
Material changes versus the prior comparable period
- Six-month revenue increased 22%, primarily from acquisitions, higher tenant reimbursements and increased other revenue. Second-quarter revenue was essentially flat because lower rental income offset higher reimbursements, crop sales and other revenue.
- Six-month operating income increased 60%, as revenue growth exceeded the 2% increase in operating expenses. Second-quarter operating income declined 7% because property operating expenses increased 76%.
- Interest expense rose 43% for the six months and 29% for the quarter, reflecting higher borrowings and interest rates.
- Common-stockholder results remained negative after preferred distributions. Series A and Series B preferred distributions totaled $6.3 million for the first six months, compared with $1.8 million in the prior-year period.
- AFFO fell sharply to $0.2 million for the first six months from $4.2 million, primarily because of the increased preferred distributions and the prior-year inclusion of acquisition-related adjustments.
- The company completed four cash acquisitions totaling $26.8 million, compared with 15 acquisitions totaling $91.7 million plus the AFCO business combination in the prior-year period. It also sold one property for $2.0 million and recognized a gain of approximately $0.2 million.
- The company repurchased 780,029 common shares for $6.5 million during the first six months at an average price of $8.36 per share.
Guidance, outlook, risks and unusual items
- Management reported flat to modestly higher 2018 renewal rents for primary-crop farmland and generally firm specialty-crop pricing. It expects market rents in the coming year to be flat.
- Approximately 22.6% of acres and 21.8% of annual cash rents expire during the remaining six months of 2018; an additional 33.7% of acres and 31.7% of annual cash rents expire in 2019.
- The board reduced the common-stock and common-unit dividend to $0.05 per share for the third quarter of 2018 from the prior $0.1275 quarterly rate. Management indicated that retained cash may be used for corporate purposes and share repurchases, and future dividend increases were not assured.
- On August 1, 2018, repurchase authority was increased by $30 million, to approximately $38.5 million for common and Series B preferred shares.
- Interest-rate exposure is material: a 100-basis-point increase in rates was estimated to reduce annual cash flow by approximately $2.5 million. An interest-rate swap fixed the rate on $33.2 million of Rabobank debt for five years.
- The company was technically in default under the Rabobank mortgage note because of a property-tax record issue. Rabobank temporarily waived the default, and the company stated that the matter was subsequently cured.
- Subsequent events included sales of five farms for $7.5 million and an approximate $1.1 million gain, a $5.9 million farm acquisition, and agreements to sell additional properties for an aggregate $41.6 million, subject to due diligence and closing conditions.
- A purported shareholder class action filed July 11, 2018 alleges that disclosures concerning the FPI Loan Program were materially false or misleading. The class had not been certified, and potential damages were not estimable.
- The company filed a separate lawsuit alleging that an online article and related postings contained false, misleading and defamatory statements. Management reported that the company’s stock price declined approximately 40% following the postings.
- The company early adopted hedge-accounting improvements effective April 1, 2018 and recorded a $0.5 million derivative liability in accumulated other comprehensive income.
Most important facts for an investor to verify
- Whether the reduced common dividend and very low AFFO can be sustained while funding preferred distributions, debt service, capital expenditures and share repurchases.
- Debt maturity, refinancing and floating-rate exposure, including the impact of a potential increase in LIBOR and compliance with lender covenants.
- The status, potential costs and disclosure implications of the shareholder class action and the company’s defamation-related lawsuit.
- Whether the pending $41.6 million property sales close on the stated terms and how proceeds are allocated between debt reduction, liquidity and repurchases.
- Tenant concentration, lease expirations and crop-share exposure, including the effect of commodity prices, weather, trade tensions and tenant credit quality.
- The company’s notes receivable portfolio, including a loan disclosed as being in default and the adequacy of related loss provisions.
- Reported non-GAAP measures such as FFO, AFFO and EBITDAre should be reconciled to GAAP results and evaluated for comparability with other REITs.