Farmland Partners Inc. 2015 Form 10-K Summary
Business context and reporting period
Farmland Partners Inc. is an internally managed farmland REIT that owns and leases agricultural real estate primarily for primary crops, with growing exposure to specialty crops. The filing covers the fiscal year ended December 31, 2015; it is an annual report rather than a quarterly filing. The company reported 2015 results alongside 2014 and predecessor results for earlier periods, but comparability is affected by the April 2014 IPO and substantial acquisition activity.
- At year-end, the company owned 130 farms and eight grain storage facilities in the consolidated financial statements; portfolio disclosures elsewhere report approximately 99,572 acres.
- 2015 acquisitions totaled 26 transactions, approximately 27,782 acres and $143.4 million of purchase price, expanding the portfolio into four additional states and into permanent specialty crops.
- The company launched the FPI Loan Program in August 2015 and had two mortgage loans outstanding with $2.78 million outstanding at December 31, 2015.
- The company elected REIT status beginning with its short taxable year ended December 31, 2014.
Key financial metrics
| Metric | 2015 | 2014 | Change |
|---|---|---|---|
| Total operating revenue | $13.8 million | $4.2 million | +226.1% |
| Rental income | $13.5 million | $4.0 million | +241.2% |
| Operating income | $6.2 million | $0.6 million | +1,016.4% |
| Net income | $1.7 million | $(0.7) million | Improved by $2.4 million |
| Net income available to common stockholders | $0.8 million | $(0.6) million | Improved |
| Basic and diluted EPS | $0.08 | $(0.15) | Improved |
| FFO | $2.6 million | $(0.3) million | Improved |
| AFFO | $5.8 million | $1.3 million | +353.8% |
| Adjusted EBITDA | $10.4 million | $2.7 million | +293.5% |
| Cash flow from operating activities | $7.7 million | $1.8 million | +331.8% |
| Cash and cash equivalents | $23.5 million | $33.7 million | $(10.2) million |
| Total assets | $345.0 million | $200.7 million | +72.0% |
| Net mortgage notes and bonds payable | $187.1 million | $113.5 million | +64.8% |
Operating expenses increased 105.9% to $7.5 million, including higher depreciation, property expenses, public-company costs, employee compensation, legal and accounting expenses. Interest expense increased 236.4% to $4.6 million as average borrowings increased to approximately $159.2 million from $44.4 million, while the weighted-average borrowing cost remained broadly stable at 2.80% versus 2.76%.
2015 quarterly net income available to common stockholders was $(0.2) million in the first quarter, approximately $(0.02) million in the second quarter, $0.5 million in the third quarter and $0.5 million in the fourth quarter. Fourth-quarter operating revenue was $4.6 million and net income was $0.9 million.
Cash flow, margins, debt and liquidity
- Cash flow from operations was $7.7 million, versus $1.8 million in 2014. Investing cash outflows were $119.7 million, primarily for $109.3 million of acquisitions, $7.6 million of property improvements and $2.8 million of mortgage loan funding.
- Financing cash inflows were $101.8 million, including $82.5 million of mortgage borrowings and $35.1 million of net equity offering proceeds. Dividends and distributions paid totaled approximately $5.9 million.
- Debt outstanding at December 31, 2015 was approximately $187.2 million of principal, secured by mortgages on farms. Approximately 17% of debt, or $31.75 million, carried variable rates; management estimated that a 100-basis-point increase would reduce annual cash flow by approximately $317,000.
- Contractual principal maturities disclosed at year-end totaled $31.75 million in 2016 and $81.1 million in 2017, with additional maturities of $48.3 million in 2020 and $26.1 million thereafter.
- The company was in compliance with applicable debt covenants at December 31, 2015, including maximum leverage and minimum fixed-charge coverage requirements.
- Cash rent received was $16.4 million compared with rental income recognized of $13.5 million, reflecting the seasonal receipt of rent in advance and straight-line GAAP recognition. Deferred revenue rose to $4.9 million from $1.4 million.
Material changes versus the prior comparable period
- Revenue growth was driven primarily by 55 acquisitions completed during 2014 and 2015; same-property cash rental income declined modestly to $2.6 million from $2.6 million, and same-property average rent declined to $357 per acre from $360 per acre.
- Average annual cash rent for the entire portfolio increased to $215 per acre from $179 per acre, reflecting portfolio expansion and geographic diversification rather than solely organic rent growth.
- The company completed a 3.36 million-share public offering at $11.00 per share, generating approximately $34.6 million of net proceeds, and transferred its listing from NYSE MKT to the NYSE.
- Annual common distributions increased to $0.4985 per share from $0.3260 per share. Quarterly distributions were $0.1160 for the first quarter and $0.1275 for each subsequent quarter.
- At year-end, approximately 46.5% of leased acres and 37.6% of annualized minimum cash rents were scheduled to expire in 2016, increasing exposure to renewal pricing and tenant retention.
- Tenant concentration remained significant: the four largest disclosed tenant groups represented 52.0% of 2015 rental income. Justice Family Farms alone represented 25.9% of recognized rental income.
Guidance, outlook, commentary, risks and unusual items
- Management expected farmland values to benefit over the long term from global population growth, rising GDP per capita and constrained farmland supply, while acknowledging recent declines in commodity prices and modestly declining or flat rent rates on renewals.
- Management expected 2016 market rents to be generally consistent with expiring rents. A higher portion of fixed leases was expected to defer 50% of rent until after harvest, improving tenant cash-flow matching but potentially changing cash collection timing.
- As of the filing date, the company had completed approximately $206.9 million of 2016 acquisitions covering 25,305 acres, including the $197.0 million Forsythe acquisition. These transactions occurred after year-end and are not 2015 operating results.
- The company had approximately $84.7 million of debt maturing in 2016, including a $53.0 million bridge loan maturing April 29, 2016, subject to extensions, and $26.0 million of First Midwest debt due in June 2016. Refinancing was dependent on prospective financing and equity sources.
- MetLife subsequently provided conditional commitments totaling $127 million for mortgage loans, but the filing stated there was no assurance the financing would close on anticipated terms or at all.
- 2015 included $941,802 of stock-based compensation and $259,978 of acquisition and due-diligence costs. AFFO and Adjusted EBITDA exclude or adjust for several such items and should not be treated as GAAP liquidity or cash available for distributions.
- Material risks include tenant defaults and concentration, adverse weather and crop prices, water availability and regulation, geographic concentration, rising interest rates, acquisition and integration risk, environmental liabilities, REIT qualification requirements, debt refinancing and foreclosure risk, and potential dilution from OP-unit redemptions or future equity issuance.
- The company reported no real-estate impairments, no material litigation, no material known contingencies and no off-balance-sheet arrangements at December 31, 2015.
Important facts investors should verify
- Whether the 2016 debt maturities and bridge loan were refinanced without material dilution, asset sales or adverse pricing.
- Actual 2016 rent collections, renewal rates, lease pricing and the effect of the substantial 2016 lease expirations.
- Tenant concentration, particularly exposure to Justice Family Farms and other large or related-party tenant groups.
- Whether acquisitions completed after year-end generated expected rents and whether the Forsythe and other acquisitions affected leverage, preferred-unit obligations and per-share results.
- Cash available for distributions after interest, capital expenditures, debt repayments, preferred distributions and OP-unit distributions; AFFO is a non-GAAP measure and not a substitute for cash flow.
- Compliance with debt covenants and the terms, collateral requirements and refinancing costs of the Farmer Mac, First Midwest and bridge facilities.
- Commodity-price, weather, water-rights and environmental developments affecting tenants and property values.
- REIT qualification and the tax treatment of distributions, including any return-of-capital component in future periods.