Farmland Partners Inc. 2019 Q1 Form 10-Q Summary
Business Context and Reporting Period
Farmland Partners Inc. is an internally managed REIT that owns and leases farmland across North America and provides agricultural loans through its FPI Loan Program. The filing covers the unaudited three months ended March 31, 2019, compared with the three months ended March 31, 2018.
- Portfolio: approximately 162,000 acres, with 70% used for primary crops and 30% for specialty crops.
- Operating Partnership ownership: 93.0% at March 31, 2019, compared with 87.0% at December 31, 2018, primarily reflecting conversion of Common units into common shares.
- The company remains taxed as a REIT and adopted the new lease standard effective January 1, 2019, recognizing a $0.2 million right-of-use asset and lease liability.
Financial Performance and Position
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Total operating revenue | $10.9 million | $11.2 million | Down 3% |
| Operating income | $4.5 million | $4.8 million | Down 6% |
| Operating margin | 41.5% | 43.0% | Down approximately 150 bps |
| Net income | $0.01 million | $0.5 million | Down $0.5 million |
| Net loss available to common stockholders | $3.1 million | $2.7 million | Loss increased |
| Basic and diluted loss per share | $0.10 loss | $0.08 loss | Loss increased |
| FFO | $1.7 million | $2.6 million | Down 35% |
| AFFO | $1.0 million loss | $0.04 million loss | Lower |
| Adjusted EBITDAre | $7.1 million | $7.5 million | Down 6% |
| Net cash from operating activities | $13.8 million | $15.1 million | Down $1.2 million |
- Rental income was $9.7 million, down 3%; same-property rental income increased 2.3%, but dispositions and timing of crop-share revenue reduced reported rental income.
- Tenant reimbursements fell 39% to $0.5 million, while crop sales increased to $0.5 million from $0.1 million.
- Property operating expenses increased 14% to $1.9 million, largely due to Hurricane Michael cleanup costs.
- Interest expense increased 13% to $5.0 million, primarily due to higher interest rates.
- Cash was $19.2 million at March 31, 2019, compared with $16.9 million at December 31, 2018.
- Net real estate was $1.096 billion; total assets were $1.138 billion.
- Mortgage notes and bonds payable were $521.6 million net, or $523.2 million of principal outstanding. Total debt maturities include $5.3 million during the remaining nine months of 2019, $48.6 million in 2020 and $112.3 million in 2022.
- Approximately 34.7% of debt, or $181.4 million, carried variable interest rates. Management estimated that a 100-basis-point increase in rates would reduce annual cash flow by approximately $2.9 million.
- Operating cash flow was $13.8 million, investing activities provided $2.6 million and financing activities used $14.2 million.
Material Changes Versus the Prior Comparable Period
- No real estate acquisitions were completed in Q1 2019, compared with four acquisitions totaling $26.8 million in Q1 2018.
- The company sold four Corn Belt properties for $4.7 million and recognized a $0.4 million gain. It used approximately $2.0 million of the proceeds to repay MetLife debt.
- Common stock repurchases totaled $6.5 million for 1.17 million shares, at an average price of $5.61 per share. Approximately $17.1 million remained available under the repurchase program at quarter-end.
- Common dividends declared decreased to $0.05 per share from $0.1275 per share in the prior-year comparable period.
- General and administrative expense declined 30% to $1.4 million, partly due to lower payroll costs; legal and accounting expense increased 56% to $0.7 million.
- Legal and accounting expense included costs related to the company’s litigation against parties operating under the pseudonym “Rota Fortunae.”
Guidance, Outlook, Risks and Unusual Items
- Management expects market rents in the coming year to remain flat and noted that the majority of bonus and crop-share rent is expected later in the year; first-quarter results are therefore not necessarily indicative of full-year performance.
- Management intends to continue selectively acquiring farmland and disposing of assets when considered appropriate. No formal earnings or acquisition guidance was provided.
- Trade tensions have reduced prices received by tenants for crops including soybeans, almonds and walnuts. A prolonged trade conflict could reduce tenant profitability, variable rents and future leasing results.
- Extreme weather affected 2018 tenant profitability and variable rents, including Hurricane Michael, excess rainfall in the Southeast and a California heat wave that management expected to affect 2019 revenue.
- The company has significant tenant, crop, geographic and interest-rate risks. One tenant represented $1.2 million, or 12.6%, of first-quarter rental income.
- Two purported securities class actions allege that disclosures concerning the FPI Loan Program were misleading. No class had been certified, damages were not specified, and the company could not estimate the outcome or related expenses.
- The company believes insurance may cover Rota Fortunae defense costs exceeding $0.35 million but had not recognized an insurance receivable because coverage discussions remained unresolved.
- The company reported compliance with applicable debt covenants and no material changes to previously disclosed risk factors.
- Subsequent to quarter-end, the company repurchased 480,270 common shares for $3.2 million and sold one Corn Belt farm for $10.8 million, recognizing a $0.6 million gain.
Most Important Facts for Investors to Verify
- Reconcile the decline in FFO and AFFO with higher interest expense, lower reported rental revenue and preferred-unit distributions.
- Assess refinancing and liquidity needs around the $5.3 million of remaining 2019 debt maturities, the $48.6 million due in 2020 and the $112.3 million due in 2022.
- Monitor variable-rate debt exposure, interest-rate hedging and the potential effect of higher LIBOR on cash flow.
- Review tenant concentration, lease expirations, crop-share exposure and the effect of trade tensions and weather events on tenant credit quality.
- Track the legal proceedings and whether insurance ultimately reimburses eligible defense costs.
- Confirm the remaining authorization and post-quarter-end activity under the common and preferred stock repurchase program.
- Verify reported TRS acreage and repurchase authorization figures, which are presented inconsistently in portions of the filing.