UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20172021
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001- 36405File Number: 001-36405
FARMLAND PARTNERS INC.
(Exact Name of Registrant as Specified in its Charter)
| ||
Maryland | | 46-3769850 |
(State or Other Jurisdiction of Incorporation or Organization) | | (IRS Employer Identification No.) |
| | |
4600 South Syracuse Street, Suite 1450 Denver, Colorado | | 80237-2766 |
(Address of Principal Executive Offices) | | (Zip Code) |
(720) (720) 452-3100
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock | FPI | New York Stock Exchange |
6.00% Series B Participating Preferred Stock | FPI.PRB | New York Stock Exchange |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). ☒ Yes ☐ No
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| ||||
Large | ☐ | | Accelerated |
|
| | | | ��� |
| ☐ | | Smaller reporting company | ☒ |
| | | | |
| | | Emerging growth company | ☐ |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
As of NovemberAugust 3, 2017, 32,337,3052021, 32,819,948 shares of the Registrant’s common stock (34,300,035 on a fully diluted basis, including 1,480,087 Common Units of limited partnership interests in the registrant’s operating partnership) held by non-affiliates of the registrant were outstanding.
Farmland Partners Inc.
FORM 10-Q FOR THE QUARTER ENDED
SeptemberJune 30, 20172021
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| Balance Sheets as of | | 3 |
| | 4 | |
| | 5 | |
| | 6 | |
| | 8 | |
| | 9 | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 33 | |
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2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Farmland Partners Inc.
As of SeptemberJune 30, 20172021 (Unaudited) and December 31, 20162020
(Unaudited)
(in thousands except par value and share data)
|
|
|
|
|
|
|
|
| September 30, |
| December 31, | ||
|
| 2017 |
| 2016 | ||
ASSETS |
|
|
|
|
|
|
Land, at cost |
| $ | 835,986 |
| $ | 551,392 |
Grain facilities |
|
| 10,732 |
|
| 6,856 |
Groundwater |
|
| 12,072 |
|
| 11,933 |
Irrigation improvements |
|
| 50,660 |
|
| 15,988 |
Drainage improvements |
|
| 8,146 |
|
| 4,757 |
Permanent plantings |
|
| 51,868 |
|
| 1,845 |
Other |
|
| 6,615 |
|
| 2,901 |
Construction in progress |
|
| 7,843 |
|
| 1,615 |
Real estate, at cost |
|
| 983,922 |
|
| 597,287 |
Less accumulated depreciation |
|
| (8,309) |
|
| (3,224) |
Total real estate, net |
|
| 975,613 |
|
| 594,063 |
Deposits |
|
| 1,161 |
|
| 5,721 |
Cash |
|
| 129,298 |
|
| 47,166 |
Notes and interest receivable, net |
|
| 6,951 |
|
| 2,843 |
Deferred offering costs |
|
| 280 |
|
| 216 |
Deferred financing fees, net |
|
| 370 |
|
| — |
Accounts receivable, net |
|
| 3,205 |
|
| 4,181 |
Inventory |
|
| 92 |
|
| 283 |
Prepaid and other assets |
|
| 2,746 |
|
| 1,056 |
TOTAL ASSETS |
| $ | 1,119,716 |
| $ | 655,529 |
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
Mortgage notes, line of credit and bonds payable, net |
| $ | 464,494 |
| $ | 308,779 |
Dividends and distributions payable |
|
| 4,882 |
|
| 2,938 |
Accrued interest |
|
| 2,886 |
|
| 1,538 |
Accrued property taxes |
|
| 1,523 |
|
| 1,225 |
Deferred revenue (See Note 2) |
|
| 3,876 |
|
| 982 |
Accrued expenses |
|
| 3,525 |
|
| 4,558 |
Total liabilities |
|
| 481,186 |
|
| 320,020 |
|
|
|
|
|
|
|
Series B Participating Preferred Stock |
|
| 144,223 |
|
| — |
Redeemable non-controlling interests in operating partnership, Series A preferred units |
|
| 119,633 |
|
| 119,915 |
|
|
|
|
|
|
|
EQUITY |
|
|
|
|
|
|
Common stock, $0.01 par value, 500,000,000 shares authorized; 32,632,150 shares issued and outstanding at September 30, 2017, and 17,351,446 shares issued and outstanding at December 31, 2016 |
|
| 322 |
|
| 172 |
Additional paid in capital |
|
| 342,313 |
|
| 172,100 |
Retained earnings |
|
| 2,665 |
|
| 4,103 |
Cumulative dividends |
|
| (26,948) |
|
| (14,473) |
Non-controlling interests in operating partnership |
|
| 56,322 |
|
| 53,692 |
Total equity |
|
| 374,674 |
|
| 215,594 |
|
|
|
|
|
|
|
TOTAL LIABILITIES, SERIES B PARTICIPATING PREFERRED STOCK, REDEEMABLE NON-CONTROLLING INTERESTS IN OPERATING PARTNERSHIP AND EQUITY |
| $ | 1,119,716 |
| $ | 655,529 |
| | | | | | |
| | June 30, | | December 31, | ||
|
| 2021 |
| 2020 | ||
ASSETS | | | | | | |
Land, at cost | | $ | 930,665 | | $ | 924,952 |
Grain facilities | |
| 11,283 | |
| 12,091 |
Groundwater | |
| 10,214 | |
| 10,214 |
Irrigation improvements | |
| 52,335 | |
| 53,887 |
Drainage improvements | |
| 12,606 | |
| 12,805 |
Permanent plantings | | | 53,519 | | | 54,374 |
Other | | | 6,890 | |
| 8,167 |
Construction in progress | |
| 10,228 | |
| 9,284 |
Real estate, at cost | |
| 1,087,740 | |
| 1,085,774 |
Less accumulated depreciation | |
| (35,230) | |
| (32,654) |
Total real estate, net | |
| 1,052,510 | |
| 1,053,120 |
Deposits | |
| 65 | |
| — |
Cash | |
| 40,159 | |
| 27,217 |
Assets held for sale | | | 530 | | | — |
Notes and interest receivable, net | |
| 2,440 | |
| 2,348 |
Convertible notes receivable | | | 2,428 | | | — |
Right of use asset | | | 178 | | | 93 |
Deferred offering costs | |
| 75 | |
| — |
Deferred financing fees, net | | | 44 | | | 87 |
Accounts receivable, net | |
| 3,520 | |
| 4,120 |
Inventory | |
| 742 | |
| 1,117 |
Prepaid and other assets | |
| 1,628 | |
| 2,889 |
TOTAL ASSETS | | $ | 1,104,319 | | $ | 1,090,991 |
| | | | | | |
LIABILITIES AND EQUITY | | | | | | |
LIABILITIES | | | | | | |
Mortgage notes and bonds payable, net | | $ | 500,705 | | $ | 506,625 |
Lease liability | | | 178 | | | 93 |
Dividends payable | |
| 1,715 | |
| 1,612 |
Derivative liability | | | 1,738 | | | 2,899 |
Accrued interest | |
| 3,373 | |
| 3,446 |
Accrued property taxes | |
| 1,752 | |
| 1,817 |
Deferred revenue | |
| 2,420 | |
| 37 |
Accrued expenses | |
| 11,132 | |
| 8,272 |
Total liabilities | |
| 523,013 | |
| 524,801 |
| | | | | | |
Commitments and contingencies (See Note 8) | | | | | | |
| | | | | | |
Series B Participating Preferred Stock, $0.01 par value, 6,037,500 shares authorized; 5,806,797 shares issued and outstanding at June 30, 2021, and 5,831,870 at December 31, 2020 | | | 139,116 | |
| 139,766 |
Redeemable non-controlling interest in operating partnership, Series A preferred units | | | 118,755 | | | 120,510 |
| | | | | | |
EQUITY | | | | | | |
Common stock, $0.01 par value, 500,000,000 shares authorized; 32,810,518 shares issued and outstanding at June 30, 2021, and 30,571,271 shares issued and outstanding at December 31, 2020 | |
| 317 | |
| 297 |
Additional paid in capital | |
| 373,299 | |
| 345,870 |
Retained earnings | |
| (5,457) | |
| 1,037 |
Cumulative dividends | |
| (57,932) | |
| (54,751) |
Other comprehensive income | |
| (908) | |
| (2,380) |
Non-controlling interests in operating partnership | |
| 14,116 | |
| 15,841 |
Total equity | |
| 323,435 | |
| 305,914 |
| | | | | | |
TOTAL LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS IN OPERATING PARTNERSHIP AND EQUITY | | $ | 1,104,319 | | $ | 1,090,991 |
See accompanying notes.
3
Farmland Partners Inc.
Consolidated Statements of Operations
For the three and ninesix months ended SeptemberJune 30, 20172021 and 20162020
(Unaudited)
(in thousands except per share amounts)
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|
|
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|
|
| For the Three Months Ended |
| For the Nine Months Ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
OPERATING REVENUES: |
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|
|
|
|
|
|
|
|
|
|
|
Rental income (See Note 2) |
| $ | 11,107 |
| $ | 6,164 |
| $ | 28,381 |
| $ | 16,462 |
Tenant reimbursements |
|
| 474 |
|
| 112 |
|
| 1,230 |
|
| 276 |
Other revenue |
|
| 465 |
|
| 670 |
|
| 1,044 |
|
| 931 |
Total operating revenues |
|
| 12,046 |
|
| 6,946 |
|
| 30,655 |
|
| 17,669 |
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization |
|
| 2,107 |
|
| 419 |
|
| 5,651 |
|
| 1,102 |
Property operating expenses |
|
| 1,400 |
|
| 548 |
|
| 4,399 |
|
| 1,529 |
Acquisition and due diligence costs |
|
| 180 |
|
| 1,712 |
|
| 878 |
|
| 1,818 |
General and administrative expenses |
|
| 1,707 |
|
| 1,587 |
|
| 5,840 |
|
| 4,770 |
Legal and accounting |
|
| 450 |
|
| 330 |
|
| 1,151 |
|
| 882 |
Other operating expenses |
|
| 88 |
|
| 160 |
|
| 363 |
|
| 248 |
Total operating expenses |
|
| 5,932 |
|
| 4,756 |
|
| 18,282 |
|
| 10,349 |
OPERATING INCOME |
|
| 6,114 |
|
| 2,190 |
|
| 12,373 |
|
| 7,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER (INCOME) EXPENSE: |
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
| (135) |
|
| (72) |
|
| (157) |
|
| (133) |
(Gain) loss on disposition of assets |
|
| (44) |
|
| — |
|
| 48 |
|
| — |
Interest expense |
|
| 3,683 |
|
| 2,065 |
|
| 9,852 |
|
| 7,869 |
Total other expense |
|
| 3,504 |
|
| 1,993 |
|
| 9,743 |
|
| 7,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before income tax expense |
|
| 2,610 |
|
| 197 |
|
| 2,630 |
|
| (416) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
| — |
|
| 97 |
|
| — |
|
| 97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
| 2,610 |
|
| 100 |
|
| 2,630 |
|
| (513) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (income) loss attributable to non-controlling interests in operating partnership |
|
| (394) |
|
| (30) |
|
| (353) |
|
| 37 |
Net (income) loss attributable to redeemable non-controlling interests in operating partnership |
|
| — |
|
| — |
|
| — |
|
| 64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to the Company |
|
| 2,216 |
|
| 70 |
|
| 2,277 |
|
| (412) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonforfeitable distributions allocated to unvested restricted shares |
|
| (36) |
|
| (24) |
|
| (116) |
|
| (72) |
Distributions on redeemable non-controlling interests in operating partnership, Common units |
|
| — |
|
| — |
|
| — |
|
| (113) |
Distributions on redeemable non-controlling interests in operating partnership, Series A preferred units and dividends on Series B Participating Preferred Stock |
|
| (1,959) |
|
| (887) |
|
| (3,714) |
|
| (2,057) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders of Farmland Partners Inc. |
| $ | 221 |
| $ | (841) |
| $ | (1,553) |
| $ | (2,654) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted per common share data: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) available to common stockholders |
| $ | 0.01 |
| $ | (0.06) |
| $ | (0.05) |
| $ | (0.21) |
Diluted net income (loss) available to common stockholders |
| $ | 0.01 |
| $ | (0.06) |
| $ | (0.05) |
| $ | (0.21) |
Basic weighted average common shares outstanding |
|
| 32,862 |
|
| 13,683 |
|
| 30,695 |
|
| 12,663 |
Diluted weighted average common shares outstanding |
|
| 32,862 |
|
| 13,683 |
|
| 30,695 |
|
| 12,663 |
Dividends declared per common share |
| $ | 0.1275 |
| $ | 0.1275 |
| $ | 0.3825 |
| $ | 0.3825 |
| | | | | | | | | | | | |
| | For the Three Months Ended | | For the Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
OPERATING REVENUES: | | | | | | | | | | | | |
Rental income | | $ | 8,291 | | $ | 9,141 | | $ | 18,551 | | $ | 19,215 |
Tenant reimbursements | |
| 839 | |
| 883 | |
| 1,777 | |
| 1,744 |
Crop sales | | | 237 | | | 362 | | | 453 | | | 697 |
Other revenue | |
| 646 | |
| 131 | |
| 808 | |
| 512 |
Total operating revenues | |
| 10,013 | |
| 10,517 | |
| 21,589 | |
| 22,168 |
| | | | | | | | | | | | |
OPERATING EXPENSES | | | | | | | | | | | | |
Depreciation, depletion and amortization | |
| 1,885 | |
| 2,003 | |
| 3,820 | |
| 4,003 |
Property operating expenses | |
| 1,708 | |
| 1,818 | |
| 3,639 | |
| 3,679 |
Cost of goods sold | | | 667 | | | 745 | | | 917 | | | 1,311 |
Acquisition and due diligence costs | |
| — | |
| 11 | |
| — | |
| 11 |
General and administrative expenses | |
| 1,897 | |
| 1,402 | |
| 3,514 | |
| 2,854 |
Legal and accounting | |
| 2,901 | |
| 848 | |
| 5,643 | |
| 1,330 |
Other operating expenses | | | — | | | 1 | | | 2 | | | 1 |
Total operating expenses | |
| 9,058 | |
| 6,828 | |
| 17,535 | |
| 13,189 |
OPERATING INCOME | |
| 955 | |
| 3,689 | |
| 4,054 | |
| 8,979 |
| | | | | | | | | | | | |
OTHER (INCOME) EXPENSE: | | | | | | | | | | | | |
Other (income) expense | | | (8) | | | (33) | | | (52) | | | 88 |
(Gain) on disposition of assets | | | (74) | | | (917) | | | (3,467) | | | (831) |
Interest expense | |
| 3,902 | |
| 4,467 | |
| 7,961 | | | 9,130 |
Total other expense | |
| 3,820 | |
| 3,517 | |
| 4,442 | |
| 8,387 |
| | | | | | | | | | | | |
Net income (loss) before income tax expense | | | (2,865) | | | 172 | | | (388) | | | 592 |
| | | | | | | | | | | | |
Income tax expense | | | — | |
| — | | | — | |
| — |
| | | | | | | | | | | | |
NET INCOME (LOSS) | |
| (2,865) | |
| 172 | |
| (388) | |
| 592 |
| | | | | | | | | | | | |
Net (income) loss attributable to non-controlling interests in operating partnership | |
| 130 | |
| (10) | |
| 13 | | | (36) |
| | | | | | | | | | | | |
Net income (loss) attributable to the Company | | | (2,735) | | | 162 | | | (375) | | | 556 |
| | | | | | | | | | | | |
Nonforfeitable distributions allocated to unvested restricted shares | | | (14) | | | (16) | | | (28) | | | (32) |
Distributions on Series A Preferred Units and Series B Preferred Stock | | | (3,055) | | | (3,088) | | | (6,120) | | | (6,203) |
| | | | | | | | | | | | |
Net loss available to common stockholders of Farmland Partners Inc. | | $ | (5,804) | | $ | (2,942) | | $ | (6,523) | | $ | (5,679) |
| | | | | | | | | | | | |
Basic and diluted per common share data: | | | | | | | | | | | | |
Basic net (loss) available to common stockholders | | $ | (0.19) | | $ | (0.10) | | $ | (0.21) | | $ | (0.19) |
Diluted net (loss) available to common stockholders | | $ | (0.19) | | $ | (0.10) | | $ | (0.21) | | $ | (0.19) |
Basic weighted average common shares outstanding | |
| 31,072 | |
| 29,433 | |
| 30,747 | |
| 29,485 |
Diluted weighted average common shares outstanding | |
| 31,072 | |
| 29,433 | |
| 30,747 | |
| 29,485 |
Dividends declared per common share | | $ | 0.05 | | $ | 0.05 | | $ | 0.10 | | $ | 0.10 |
See accompanying notes.
4
Farmland Partners Inc.
Consolidated Statements of Comprehensive Income (Loss)
For the three and six months ended June 30, 2021 and 2020
(Unaudited)
(in thousands)
| | | | | | | | | | | | |
| | For the Three Months Ended | | For the Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Net Income (loss) | | $ | (2,865) | | $ | 172 | | $ | (388) | | $ | 592 |
Amortization of OCI | | | 236 | | | 247 | | | 530 | | | 247 |
Net change associated with current period hedging activities | | | (266) | | | (400) | | | 942 | | | (1,983) |
Comprehensive Income (Loss) | | | (2,895) | | | 19 | | | 1,084 | | | (1,144) |
Comprehensive income (loss) attributable to non-controlling interests | | | 130 | | | (10) | | | 13 | | | (36) |
Net income (loss) attributable to Farmland Partners Inc. | | $ | (2,765) | | $ | 9 | | $ | 1,097 | | $ | (1,180) |
See accompanying notes.
5
Farmland Partners Inc.
Consolidated Statements of Changes in Equity and Other Comprehensive Income
For the three and six months ended June 30, 2021 (Unaudited)
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | |
| | Stockholders’ Equity | | | | | | | | | | ||||||||||||
| | Common Stock | | | | | | | | | | | Non-controlling | | | | |||||||
|
| |
| | |
| Additional |
| |
| |
| | Other |
| Interests in |
| | |||||
| | | | | | | Paid in | | Retained | | Cumulative | | Comprehensive | | Operating | | Total | ||||||
|
| Shares |
| Par Value |
| Capital |
| Earnings |
| Dividends |
| Income |
| Partnership |
| Equity | |||||||
Balance at December 31, 2020 | | 30,571 | | $ | 297 | | $ | 345,870 | | $ | 1,037 | | $ | (54,751) | | $ | (2,380) | | $ | 15,841 | | $ | 305,914 |
Net income | | — | | | — | | | — | | | 2,360 | | | — | | | — | | | 117 | | | 2,477 |
Grant of unvested restricted stock | | 113 | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Forfeiture of unvested restricted stock | | (3) | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Stock-based compensation | | — | | | — | | | 251 | | | — | | | — | | | — | | | — | | | 251 |
Dividends accrued or paid | | — | | | — | | | — | | | (3,065) | | | (1,540) | | | — | | | (74) | | | (4,679) |
Conversion of common units to shares of common stock | | 159 | | | 1 | | | 1,697 | | | — | | | — | | | — | | | (1,698) | | | — |
Net change associated with current period hedging transactions | | — | | | — | | | — | | | — | | | — | | | 1,501 | | | — | | | 1,501 |
Adjustments to non-controlling interests resulting from changes in ownership of operating partnership | | — | | | — | | | 38 | | | — | | | — | | | — | | | (38) | | | — |
Balance at March 31, 2021 | | 30,840 | | $ | 298 | | $ | 347,856 | | $ | 332 | | $ | (56,291) | | $ | (879) | | $ | 14,148 | | $ | 305,464 |
Net loss | | — | | | — | | | — | | | (2,735) | | | — | | | — | | | (130) | | | (2,865) |
Issuance of stock | | 1,955 | | | 19 | | | 25,281 | | | — | | | — | | | — | | | — | | | 25,300 |
Grant of unvested restricted stock | | 16 | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Stock-based compensation | | — | | | — | | | 334 | | | — | | | — | | | — | | | — | | | 334 |
Dividends accrued or paid | | — | | | — | | | — | | | (3,054) | | | (1,641) | | | — | | | (74) | | | (4,769) |
Net change associated with current period hedging transactions | | — | | | — | | | — | | | — | | | — | | | (29) | | | — | | | (29) |
Adjustments to non-controlling interests resulting from changes in ownership of operating partnership | | — | | | — | | | (172) | | | — | | | — | | | — | | | 172 | | | — |
Balance at June 30, 2021 | | 32,811 | | $ | 317 | | $ | 373,299 | | $ | (5,457) | | $ | (57,932) | | $ | (908) | | $ | 14,116 | | $ | 323,435 |
See accompanying notes.
6
Farmland Partners Inc.
Consolidated Statements of Changes in Equity and Other Comprehensive Income
For the ninethree and six months ended SeptemberJune 30, 2017 and 20162020 (Unaudited)
(Unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Stockholders’ Equity |
|
|
|
|
|
| ||||||||||||
|
| Common Stock |
|
|
|
|
|
|
| Non‑controlling |
|
|
| |||||||
|
|
|
|
|
|
| Additional |
|
|
|
|
| Interests in |
|
| |||||
|
|
|
|
|
|
| Paid-in |
| Retained |
| Cumulative |
| Operating |
| Total | |||||
|
| Shares |
| Par Value |
| Capital |
| Earnings |
| Dividends |
| Partnership |
| Equity | ||||||
Balance at December 31, 2015 |
| 11,979 |
| $ | 118 |
| $ | 114,783 |
| $ | 659 |
| $ | (7,188) |
| $ | 30,162 |
| $ | 138,534 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| — |
|
| — |
|
| — |
|
| (412) |
|
| — |
|
| (37) |
|
| (449) |
Grant of unvested restricted stock |
| 119 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Issuance of stock under the at-the-market offering, net of costs of $81 |
| 844 |
|
| 10 |
|
| 9,224 |
|
| — |
|
| — |
|
| — |
|
| 9,234 |
Conversion of Common units to shares of common stock |
| 1,109 |
|
| 11 |
|
| 10,450 |
|
| — |
|
| — |
|
| (10,461) |
|
| — |
Stock based compensation |
| — |
|
| — |
|
| 892 |
|
| — |
|
| — |
|
| — |
|
| 892 |
Dividends and distributions accrued or paid |
| — |
|
| — |
|
| (2,057) |
|
| — |
|
| (5,073) |
|
| (2,232) |
|
| (9,362) |
Issuance of Common units as partial consideration for asset acquisition |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 28,825 |
|
| 28,825 |
Reclassification of Common units from mezzanine equity |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 9,519 |
|
| 9,519 |
Forfeiture of unvested restricted stock |
| (5) |
|
| — |
|
| (3) |
|
| — |
|
| — |
|
| — |
|
| (3) |
Adjustments to non-controlling interests resulting from changes in ownership of operating partnership |
| — |
|
| — |
|
| 4,282 |
|
| — |
|
| — |
|
| (4,282) |
|
| — |
Balance at September 30, 2016 |
| 14,046 |
| $ | 139 |
| $ | 137,571 |
| $ | 247 |
| $ | (12,261) |
| $ | 51,494 |
| $ | 177,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016 |
| 17,351 |
|
| 172 |
|
| 172,100 |
|
| 4,103 |
|
| (14,473) |
|
| 53,692 |
|
| 215,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| — |
|
| — |
|
| — |
|
| 2,277 |
|
| — |
|
| 353 |
|
| 2,630 |
Grant of unvested restricted stock |
| 205 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Costs incurred related to the at-the-market offering |
| — |
|
| — |
|
| (119) |
|
| — |
|
| — |
|
| — |
|
| (119) |
Conversion of Common units to shares of common stock |
| 1,108 |
|
| 11 |
|
| 10,944 |
|
| — |
|
| — |
|
| (10,955) |
|
| — |
Stock based compensation |
| — |
|
| — |
|
| 1,100 |
|
| — |
|
| — |
|
| — |
|
| 1,100 |
Dividends and distributions accrued or paid |
| — |
|
| — |
|
| — |
|
| (3,715) |
|
| (12,475) |
|
| (2,398) |
|
| (18,588) |
Issuance of common stock as partial consideration for asset acquisition and business combination |
| 14,815 |
|
| 148 |
|
| 168,835 |
|
| — |
|
| — |
|
| — |
|
| 168,983 |
Issuance of Common units as partial consideration for business combination |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 2,494 |
|
| 2,494 |
Issuance of Common units as partial consideration for asset acquisitions |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 10,035 |
|
| 10,035 |
Repurchase and cancellation of shares |
| (841) |
|
| (9) |
|
| (7,437) |
|
| — |
|
| — |
|
| — |
|
| (7,446) |
Forfeiture of unvested restricted stock |
| (6) |
|
| — |
|
| (9) |
|
| — |
|
| — |
|
| — |
|
| (9) |
Adjustments to non-controlling interests resulting from changes in ownership of operating partnership |
| — |
|
| — |
|
| (3,101) |
|
| — |
|
| — |
|
| 3,101 |
|
| — |
Balance at September 30, 2017 |
| 32,632 |
| $ | 322 |
| $ | 342,313 |
| $ | 2,665 |
| $ | (26,948) |
| $ | 56,322 |
| $ | 374,674 |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Stockholders’ Equity | | | | | | | | | | ||||||||||||
| | Common Stock | | | | | | | | | | | Non-controlling | | | | |||||||
|
| |
| | |
| Additional |
| |
| |
| | Other |
| Interests in |
| | |||||
| | | | | | | Paid in | | Retained | | Cumulative | | Comprehensive | | Operating | | Total | ||||||
|
| Shares |
| Par Value |
| Capital |
| Earnings |
| Dividends |
| Income |
| Partnership |
| Equity | |||||||
Balance at December 31, 2019 | | 29,952 | | $ | 292 | | $ | 338,387 | | $ | 6,251 | | $ | (48,784) | | $ | (1,644) | | $ | 19,044 | | $ | 313,546 |
Net income | | — | | | — | | | — | | | 394 | | | — | | | — | | | 25 | | | 419 |
Grant of unvested restricted stock | | 139 | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Stock-based compensation | | — | | | — | | | 242 | | | — | | | — | | | — | | | — | | | 242 |
Dividends accrued or paid | | — | | | — | | | — | | | (3,115) | | | (1,498) | | | — | | | (95) | | | (4,708) |
Net change associated with current period hedging transactions | | | | | | | | | | | | | | | | | (1,583) | | | | | | (1,583) |
Repurchase and cancellation of shares | | (225) | | | (3) | | | (1,396) | | | — | | | — | | | — | | | — | | | (1,399) |
Adjustments to non-controlling interests resulting from changes in ownership of operating partnership | | — | | | — | | | 224 | | | — | | | — | | | — | | | (224) | | | — |
Balance at March 31, 2020 | | 29,866 | | $ | 289 | | $ | 337,457 | | $ | 3,530 | | $ | (50,282) | | $ | (3,227) | | $ | 18,750 | | $ | 306,517 |
Net income | | — | | | — | | | — | | | 162 | | | — | | | — | | | 11 | | | 173 |
Stock-based compensation | | — | | | — | | | 275 | | | — | | | — | | | — | | | — | | | 275 |
Dividends accrued or paid | | — | | | — | | | — | | | (3,088) | | | (1,488) | | | — | | | (96) | | | (4,672) |
Net change associated with current period hedging transactions | | | | | | | | | | | | | | | | | (153) | | | | | | (153) |
Repurchase and cancellation of shares | | (270) | | | (2) | | | (1,795) | | | — | | | — | | | — | | | — | | | (1,797) |
Adjustments to non-controlling interests resulting from changes in ownership of operating partnership | | — | | | — | | | 121 | | | — | | | — | | | — | | | (121) | | | — |
Balance at June 30, 2020 | | 29,596 | | $ | 287 | | $ | 336,058 | | $ | 604 | | $ | (51,770) | | $ | (3,380) | | $ | 18,544 | | $ | 300,343 |
See accompanying notes.
57
Farmland Partners Inc.
Consolidated Statements of Cash Flows
For the ninesix months ended SeptemberJune 30, 20172021 and 20162020
(Unaudited)
(in thousands)
|
|
|
|
|
|
|
|
| For the Nine Months Ended | ||||
|
| September 30, | ||||
|
| 2017 |
| 2016 | ||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
Net income (loss) |
| $ | 2,630 |
| $ | (513) |
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: |
|
|
|
|
|
|
Depreciation, depletion and amortization |
|
| 5,651 |
|
| 1,102 |
Amortization of deferred financing fees and discounts/premiums on debt |
|
| 162 |
|
| 219 |
Amortization of net origination fees related to notes receivable |
|
| (11) |
|
| (3) |
Amortization of below market leases |
|
| — |
|
| (63) |
Stock based compensation |
|
| 1,091 |
|
| 889 |
Loss on disposition of assets |
|
| 48 |
|
| — |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
Decrease (increase) in accounts receivable |
|
| 2,739 |
|
| (1,427) |
(Increase) in interest receivable |
|
| (227) |
|
| (106) |
(Increase) in other assets |
|
| (433) |
|
| (303) |
Decrease (increase) in inventory |
|
| 289 |
|
| (129) |
Increase in accrued interest |
|
| 1,348 |
|
| 945 |
(Decrease) increase in accrued expenses |
|
| (14,358) |
|
| 1,984 |
(Decrease) increase in deferred revenue |
|
| (2,028) |
|
| 900 |
(Decrease) increase in accrued property taxes |
|
| (302) |
|
| 119 |
Net cash (used in) provided by operating activities |
|
| (3,401) |
|
| 3,614 |
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
Real estate acquisitions, net of cash acquired |
|
| (92,680) |
|
| (122,388) |
Real estate and other improvements |
|
| (17,650) |
|
| (5,011) |
Principal receipts on notes receivable |
|
| — |
|
| 50 |
Issuance of notes receivable |
|
| (3,870) |
|
| — |
Net cash used in investing activities |
|
| (114,200) |
|
| (127,349) |
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
Borrowings from mortgage notes payable and lines of credit |
|
| 101,790 |
|
| 200,787 |
Repayments on mortgage notes payable |
|
| (20,819) |
|
| (84,750) |
Proceeds from ATM offering |
|
| — |
|
| 9,338 |
Proceeds from issuance of Series B Participating Preferred Stock |
|
| 144,523 |
|
| — |
Common stock repurchased |
|
| (7,446) |
|
| — |
Payment of offering costs |
|
| (572) |
|
| (64) |
Payment of debt issuance costs |
|
| (817) |
|
| (937) |
Dividends on common stock |
|
| (10,535) |
|
| (4,809) |
Distributions on Series A preferred units |
|
| (2,915) |
|
| — |
Dividends on Series B Participating Preferred Stock |
|
| (1,082) |
|
| — |
Distributions to non-controlling interests in operating partnership |
|
| (2,394) |
|
| (2,155) |
Net cash provided by financing activities |
|
| 199,733 |
|
| 117,410 |
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH |
|
| 82,132 |
|
| (6,325) |
CASH, BEGINNING OF PERIOD |
|
| 47,166 |
|
| 23,514 |
|
|
|
|
|
|
|
CASH, END OF PERIOD |
| $ | 129,298 |
| $ | 17,189 |
Cash paid during period for interest |
| $ | 8,491 |
| $ | 6,706 |
Cash paid during period for taxes |
| $ | — |
| $ | — |
|
|
|
|
|
|
|
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING TRANSACTIONS: |
|
|
|
|
|
|
Transfer of deferred offering costs to equity |
| $ | 419 |
| $ | 104 |
Dividend payable, common stock |
| $ | 4,152 |
| $ | 1,791 |
Distributions payable, Common units |
| $ | 730 |
| $ | 724 |
Distributions payable, preferred units |
| $ | 2,633 |
| $ | 2,057 |
Additions to real estate improvements included in accrued expenses |
| $ | 1,155 |
| $ | 134 |
Financing fees included in accrued expenses |
| $ | 25 |
| $ | — |
Issuance of common stock and equity from non-controlling interests in operating partnership in conjunction with acquisitions |
| $ | 181,510 |
| $ | 145,826 |
Below market lease acquisitions |
| $ | — |
| $ | 29 |
Property tax liability assumed in acquisitions |
| $ | — |
| $ | 79 |
Deferred offering costs included in accrued expenses |
| $ | — |
| $ | 24 |
| | | | | | |
| | For the Six Months Ended | ||||
| | June 30, | ||||
|
| 2021 |
| 2020 | ||
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | |
Net income (loss) | | $ | (388) | | $ | 592 |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Depreciation, depletion and amortization | |
| 3,820 | |
| 4,003 |
Amortization of deferred financing fees and discounts/premiums on debt | |
| 172 | |
| 147 |
Stock-based compensation | |
| 585 | |
| 517 |
(Gain) on disposition of assets | |
| (3,467) | |
| (831) |
Proceeds from litigation settlement | | | 550 | | | — |
Bad debt expense | | | — | | | 46 |
Amortization of dedesignated interest rate swap | | | 530 | | | 247 |
Changes in operating assets and liabilities: | | | | | | |
Increase (Decrease) in accounts receivable | |
| 326 | |
| 2,372 |
Increase (Decrease) in interest receivable | | | (47) | | | (29) |
Increase (Decrease) in other assets | |
| 1,081 | |
| 1,565 |
Increase (Decrease) in inventory | | | 375 | |
| (582) |
(Decrease) Increase in accrued interest | |
| (219) | |
| 347 |
(Decrease) Increase in accrued expenses | |
| 2,588 | |
| (781) |
(Decrease) Increase in deferred revenue | |
| 2,337 | |
| 2,205 |
(Decrease) Increase in accrued property taxes | |
| (26) | |
| 164 |
Net cash provided by operating activities | |
| 8,217 | |
| 9,982 |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | |
Real estate acquisitions | |
| (30,003) | | | (884) |
Real estate and other improvements | |
| (1,353) | | | (1,689) |
Principal receipts on notes receivable | | | 6 | | | 1,762 |
Issuance of note receivable | | | — | | | (8) |
Proceeds from sale of property | | | 28,649 | | | 7,526 |
Net cash provided by (used in) investing activities | |
| (2,701) | |
| 6,707 |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | |
Borrowings from mortgage notes payable | | | 14,000 | | | — |
Repayments on mortgage notes payable | | | (19,976) | | | (85) |
Proceeds from ATM offering | | | 25,301 | | | — |
Participating preferred stock repurchased | | | (650) | | | (3,095) |
Common stock repurchased | | | — | | | (3,196) |
Payment of debt issuance costs | | | (73) | | | (130) |
Payment of swap fees | | | (73) | | | — |
Dividends on common stock | | | (3,072) | | | (2,996) |
Distribution on Series A preferred units | | | (3,510) | | | (3,510) |
Distribution on Series B participating preferred stock | | | (4,365) | | | (4,450) |
Distributions to non-controlling interests in operating partnership, common | | | (156) | | | (190) |
Net cash provided by (used in) financing activities | |
| 7,426 | |
| (17,652) |
| | | | | | |
NET INCREASE (DECREASE) IN CASH | |
| 12,942 | |
| (963) |
CASH, BEGINNING OF PERIOD | |
| 27,217 | |
| 12,561 |
CASH, END OF PERIOD | | $ | 40,159 | | $ | 11,598 |
Cash paid during period for interest | | $ | 7,217 | | $ | 8,334 |
Cash paid during period for taxes | | $ | — | | $ | — |
| | | | | | |
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING TRANSACTIONS: | | | | | | |
Dividend payable, common stock | | $ | 1,641 | | $ | 1,488 |
Dividend payable, common units | | $ | 74 | | $ | 95 |
Distributions payable, Series A preferred units | | $ | 1,755 | | $ | 1,755 |
Convertible notes receivable | | $ | 2,417 | | $ | — |
Additions to real estate improvements included in accrued expenses | | $ | 238 | | $ | — |
Settlement of outstanding notes receivable with property acquisitions | | $ | — | | $ | 487 |
Swap fees payable included in accrued interest | | $ | 146 | | $ | 109 |
Deferred offering costs amortized through equity in the period | | $ | 79 | | $ | — |
Right of Use Asset | | $ | 178 | | $ | 163 |
Lease Liability | | $ | 178 | | $ | 163 |
See accompanying notes.
68
Farmland Partners, Inc.
Notes to the Unaudited Financial Statements as of June 30, 2021
Note 1—Organization and Significant Accounting PoliciesPolicies
Organization
Farmland Partners Inc., collectively with its subsidiaries (the “Company”), is an internally managed real estate company that owns and seeks to acquire high-quality farmland located in agricultural markets throughout North America. The Company was incorporated in Maryland on September 27, 2013. The Company is the sole member of the general partner of Farmland Partners Operating Partnership, LP (the “Operating Partnership”), which was formed in Delaware on September 27, 2013. As of SeptemberJune 30, 2017,2021, the Company owned a portfolio of approximately 154,164157,000 acres which are consolidated in these financial statements. In addition, the Company serves as property manager over approximately 3,800 acres (see “Note 4—Related Party Transactions”). All of the Company’s assets are held by, and its operations are primarily conducted through, the Operating Partnership and the wholly owned subsidiaries of the Operating Partnership. As of SeptemberJune 30, 2017,2021, the Company owned an 85.1%a 95.4% interest in the Operating Partnership (see “Note 9—Stockholders’ Equity and Non-controlling Interests” for additional discussion regarding Class A Common units of limited partnership interest in the Operating Partnership (“Common units”), Series A preferred units of limited partnership interest in the Operating Partnership (“Series A preferred units”)) and Series B participating preferred units of limited partnership interest in the Operating Partnership (“Series B participating preferred units”)). Unlike holders of the Company’s common stock, holders of Common units and Series A preferred units generally do not have voting rights or the power to direct our affairs. On August 17, 2017, the Company issued 6,037,500 shares of its newly designated 6.00% Series B Participating Preferred Stock, $0.01 par value per share (the “Series B Participating Preferred Stock”) in an underwritten public offering. Shares of Series B Participating Preferred Stock, which represent equity interests in the Company, generally have no voting rights and rank senior to the Company’s common stock with respect to dividend rights and rights upon liquidation (See “Note 9—Stockholders’ Equity—Series B Participating Preferred Stock” for more information on the Series B Participating Preferred Stock).
The Company elected to be taxed as a real estate investment trust (“REIT”), under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with its short taxable year ended December 31, 2014.
On March 16, 2015, the Company formed FPI Agribusiness Inc., a wholly owned subsidiary (the “TRS” or “FPI Agribusiness”), as a taxable REIT subsidiary. The TRS was formed to provide volume purchasing services to the Company’s tenants and also to operate a small scalesmall-scale custom farming business. As of SeptemberJune 30, 2017,2021, the TRS performsperformed these custom farming operations on 7161,232 acres of farmland owned by the Company and located in FloridaCalifornia and California. Michigan.
AFCO MergersAll references to numbers and percent of acres within this report are unaudited.
On February 2, 2017, the Company completed the previously announced merger with American Farmland Company (“AFCO”) at which time one of the Company’s wholly owned subsidiaries was merged with and into American Farmland Company L.P. (“AFCO OP”) with AFCO OP surviving as a wholly owned subsidiary of the Operating Partnership (the “Partnership Merger”), and AFCO merged with and into another one of our wholly owned subsidiaries with such wholly owned subsidiary surviving (the “Company Merger” and together with the Partnership Merger, the “AFCO Mergers”).
At the effective time of the Company Merger, each share of common stock of AFCO, par value $0.01 per share (“AFCO Common Stock”), issued and outstanding immediately prior to the effective time of the Company Merger (other than any shares of AFCO Common Stock owned by any wholly owned subsidiary of AFCO or by the Company or the Operating Partnership or any wholly owned subsidiary of the Company or the Operating Partnership), was automatically converted into the right to receive, subject to certain adjustments, 0.7417 shares of the Company’s common stock (the “Company Merger Consideration”). In addition, in connection with the Company Merger, each outstanding AFCO restricted stock unit that had become fully earned and vested in accordance with its terms was, at the effective time of the Company Merger, converted into the right to receive the Company Merger Consideration. The Company issued 14,763,604 shares of its common stock as consideration in the Company Merger, 17,373 shares of its common stock in respect of fully earned and vested AFCO restricted stock units, and 218,525 Common units in connection with the Partnership Merger at a share price of $11.41 per share on the date of the merger for a total consideration of $171.1 million, net of $75.0 million in assumed debt.
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Principles of Consolidation
The accompanying consolidated financial statements for the periods ended SeptemberJune 30, 20172021 and 20162020 are presented on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and the Operating Partnership. All significant intercompany balances and transactions have been eliminated in consolidation.
Interim Financial Information
The information in the Company’s consolidated financial statements for the three and ninesix months ended SeptemberJune 30, 20172021 and 20162020 is unaudited. The accompanying financial statements for the three and ninesix months ended SeptemberJune 30, 20172021 and 20162020 include adjustments based on management’s estimates (consisting of normal and recurring accruals), which the Company considers necessary for a fair statement of the results for the periods. The financial information should be read in conjunction with the consolidated financial statements for the year ended December 31, 2016,2020, included in the Company’s Annual Report on Form 10-K, which the Company filed with the U.S. Securities and Exchange Commission (the “SEC”)
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on February 23, 2017.March 19, 2021. Operating results for the three and ninesix months ended SeptemberJune 30, 20172021 are not necessarily indicative of actual operating results for the entire year ending December 31, 2017.2021.
The consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the SEC for interim financial statements. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.
During the second quarter of 2017, the Company identified and recorded an out-of-period adjustment related to tenant reimbursement revenue that should have been recorded in the first quarter of 2017. The Company concluded that this adjustment was not material to the Company’s consolidated financial statements for the periods impacted. The adjustment was reflected as a $0.2 million increase in tenant reimbursement revenue in the consolidated statements of operations for the three and six months ended June 30, 2017 with a corresponding increase to accounts receivable in the consolidated balance sheet as of June 30, 2017.
During the third quarter of 2017, the Company identified and recorded an out-of-period adjustment related to rental revenue that should have been recorded in the first and second quarters of 2017. The Company concluded that this adjustment was not material to the consolidated financial statements for the periods impacted. The adjustment is reflected as a $0.2 million increase in rental revenue in the consolidated statements of operations for the three months ended September 30, 2017 with a $0.2 million decrease in deferred revenue in the consolidated balance sheet as of September 30, 2017.
Use of Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results maycould materially differ from previously estimated amounts,those estimates, including the impacts of the ongoing coronavirus (“COVID-19”) pandemic and such differences may be materialits effects on the domestic and global economies. We are unable to quantify the ultimate impact of the pandemic on our consolidated financial statements.business.
Real Estate Acquisitions
When the Company acquires farmland where substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or, group of similar identifiable assets, it is not considered a business. As such, the Company accounts for these types of acquisitions as asset acquisitions. When substantially all of the fair value of the gross assets acquired is not concentrated in a single identifiable asset, or a group orof similar assets, and contains acquired inputs and processes andwhich have the ability to contribute to the creation of outputs, these acquisitions are accounted for as a business combination.combinations.
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The Company considers single identifiable assets as tangible assets that are attached to and cannot be physically removed and used separately from another tangible asset without incurring significant cost or significant diminution in utility or fair value. The Company considers similar assets as assets that have a similar nature and risk characteristics.
Whether ourthe Company’s acquisitions are treated as an asset acquisition under ASC 360 or a business combination under ASC 805, the fair value of the purchase price is allocated among the assets acquired and any liabilities assumed by valuing the property as if it was vacant. The “as-if-vacant” value is allocated to land, buildings, improvements, permanent plantings and any liabilities, based on management’s determination of the relative fair values of such assets and liabilities as of the date of acquisition.
Upon acquisition of real estate, the Company allocates the purchase price of the real estate based upon the fair value of the assets and liabilities acquired, which historically have consisted of land, drainage improvements, irrigation improvements, groundwater, permanent plantings (bushes, shrubs, vines and perennial crops), and grain facilities, and may also consist of intangible assets including in-place leases, above market and below market leases and tenant relationships. The Company allocates the purchase price to the fair value of the tangible assets by valuing the land as if it were unimproved. The Company values improvements, including permanent plantings and grain facilities, at replacement cost, adjusted for depreciation.
Management’s estimates of land value are made using a comparable sales analysis. Factors considered by management in its analysis of land value include soil types and water availability and the sales prices of comparable farms. Management’s estimates of groundwater value are made using historical information obtained regarding the applicable aquifer. Factors considered by management in its analysis of groundwater value are related to the location of the aquifer and whether or not the aquifer is a depletable resource or a replenishing resource. If the aquifer is a replenishing resource, no value is allocated to the groundwater. The Company includes an estimate of property taxes in the purchase price allocation of acquisitions to account for the expected liability that was assumed.
When above or below market leases are acquired, the Company values the intangible assets based on the present value of the difference between prevailing market rates and the in-place rates measured over a period equal to the remaining term of the lease for above market leases and the initial term plus the term of any below market fixed rate renewal options
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for below market leases that are considered bargain renewal options. The above market lease values are amortized as a reduction of rental income over the remaining term of the respective leases. The fair value of acquired below market leases, included in deferred revenue on the accompanying consolidated balance sheets, is amortized as an increase to rental income on a straight-line basis over the remaining non-cancelable terms of the respective leases, plus the terms of any below market fixed rate renewal options that are considered bargain renewal options of the respective leases. As of September 30, 2016, all below market leases had been fully amortized, with amortization totaling $0.1 million recorded in the nine months ended September 30, 2016. There were no above market leases in place during the nine months ended September 30, 2017 or the year ended December 31, 2016.
As of SeptemberJune 30, 20172021 and 2016,December 31, 2020, the Company had $0.9$1.3 million and $0 million respectively, recorded forin tenant relationship intangibles, netgross of accumulated amortization of $0.5$1.3 million, and $0 million, respectively.which results in a 0 net value on our balance sheet. The purchase price is allocated to in-place lease values and tenant relationships, if they are acquired, based on the Company’s evaluation of the specific characteristics of each tenant’s lease, availability of replacement tenants, probability of lease renewal, estimated down time and its overall relationship with the tenant. The value of in-place lease intangibles and tenant relationships will beare included as an intangible asset and will behave been amortized over the remaining lease term (including expected renewal periods of the respective leases for tenant relationships) as amortization expense. If a tenant terminates its lease prior to its stated expiration, any unamortized amounts relating to that lease, including (i) above and below market leases, (ii) in-place lease values, and (iii) tenant relationships, would be recorded to revenue or expense as appropriate.
The Company capitalizes acquisition costs and due diligence costs if the asset is expected to qualify as an asset acquisition. If the asset acquisition is abandoned, the capitalized asset acquisition costs will beare expensed to acquisition and due diligence costs in the period of abandonment. Costs associated with a business combination are expensed to acquisition and due diligence costs as incurred. During the three and six months ended June 30, 2021, the company incurred an immaterial amount of costs related to acquisition and due diligence.
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Total consideration for acquisitions may include a combination of cash and equity securities. When equity securities are issued, we determinethe Company determines the fair value of the equity securities issued based on the number of shares of common stock and Common units issued multiplied by the price per share of the Company’s common stock price on the date of closing in the case of common stock and Common units and by liquidation preference in the case of preferred stock and preferred units.
Using information available at the time of business combination, the Company allocates the total consideration to tangible assets and liabilities and identified intangible assets and liabilities. During the measurement period, which may be up to one year from the acquisition date, the Company may adjust the preliminary purchase price allocations after obtaining more information about assets acquired and liabilities assumed at the date of acquisition.
InventoryReal Estate Sales
The Company recognizes gains from the sales of real estate assets, generally at the time the title is transferred, consideration is received and the Company no longer has substantial continuing involvement with the real estate sold.
Assets Held For Sale
The Company generally considers assets to be held for sale when the following criteria are met: (i) management commits to a plan to sell the property, (ii) the property is available for sale immediately, (iii) the property is actively being marketed for sale at a price that is reasonable in relation to its current fair value, (iv) the sale of the property within one year is considered probable and (v) significant changes to the plan to sell are not expected. As of June 30, 2021, the Company has classified certain of its agriculture equipment as held for sale. The equipment is reported at the lower of its carrying value or its estimated fair value less estimated costs to sell.
Convertible Notes Receivable
On January 20, 2021, the Company entered into property sale and long-term management agreements with Promised Land Opportunity Zone Farms I, LLC ("OZ Fund"), a private investment fund focused on acquiring and improving farmland in qualified opportunity zones in the United States ("QOZs"), as designated under U.S. tax provisions enacted in 2017. On March 5, 2021, the Company sold 9 farms to the OZ Fund. On March 31, 2021, the Company sold an additional property to the OZ Fund. The Company received approximately $19.1 million in cash and approximately $2.4 million in
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convertible notes receivable (the “OZ Convertible Notes”). The OZ Convertible Notes have an interest rate of 1.35% and an aggregate principal balance of $2.4 million as of June 30, 2021. Unless earlier converted, approximately $2.0 million of the OZ Convertible Notes had a maturity date of March 5, 2031, and approximately $0.4 million had a maturity date of March 31, 2031. At the Company’s option, the OZ Convertible Notes are convertible into membership interests in the OZ Fund at any time on or before December 31, 2021. On July 16, 2021, the Company provided notice to the OZ Fund that it was converting its OZ Convertible Notes, and accrued interest thereon, to membership interest. The value of the conversion was $2.4 million and the Company’s membership interest in the OZ Fund is approximately 7.6%. Refer to “Note 11 – Subsequent Events.” The OZ Fund has the option to purchase additional properties from the Company.
Liquidity Policy
The Company manages its capital position and liquidity needs by continuously forecasting its expected cash receipts, expenses and capital needs, managing its cash position and monitoring all the sources of capital available to the Company. The business model of the Company, and of real estate investment companies in general, utilizes a combination of debt and equity capital in financing the business. When debt becomes due, it is generally refinanced or repaid with equity capital rather than being repaid using the Company’s cash flow from operations. As of June 30, 2021 the Company had debt maturities within the next twelve months of approximately $126.0 million. Management believes that cash on hand, access to debt and equity capital, and other sources of liquidity, such as sales of farms or formation of joint ventures or other asset management arrangements, are sufficient to meet all its ongoing capital needs, including repayment of its upcoming debt maturities. The Company has a demonstrated history of refinancing or extending existing debt obligations. In addition, the Company has recently raised $25.6 million of equity capital from its At-The-Market equity program and has utilized such program successfully in the past. The Company also has an effective shelf registration statement with $250.0 million of capacity, pursuant to which it could issue additional equity or debt securities. Furthermore, the Company also has a deep portfolio of real estate assets which management believes could be readily liquidated if necessary to fund any immediate liquidity needs. Management believes its capital resources and plans are sufficient to meet all future financing needs, including repayment of debt maturities over the next twelve months.
Allowance for Doubtful Accounts
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes the method and timing of the recognition of credit losses on financial assets. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities are required to use a new forward-looking "expected loss" model that generally will result in the earlier recognition of allowance for losses. This credit loss standard is required to be applied using a modified-retrospective approach and requires a cumulative-effect adjustment to retained earnings be recorded as of the date of adoption. In November 2018, the FASB issued ASU 2018-19, which clarified that operating lease receivables are outside the scope of the new standard. The Company adopted the new standard on January 1, 2020. The adoption of the standard did not have a material impact on its financial position or results of operations.
The Company records an allowance for doubtful accounts, reducing the receivables balance to an amount that it estimates is collectible from our customers. Estimates used in determining the allowance for doubtful accounts are based on historical collection experience, current trends, aging of accounts receivable and periodic credit evaluations of the Company’s customers’ financial condition. The Company writes off accounts receivable when it becomes apparent, based upon age or customer circumstances, such that all current expected losses are sufficiently reserved for at each reporting period. The Company considered its current expectations of future economic conditions when estimating its allowance for doubtful accounts. As of June 30, 2021 and December 31, 2020, the Company had an allowance for doubtful accounts of $0.0 million.
Inventory
The costs of growing crops are accumulated until the time of harvest at the lower of cost or marketnet realizable value and are included in inventory in the consolidated balance sheets. Costs are allocated to growing crops based on a percentage of the total costs of production and total operating costs that are attributable to the portion of the crops that remain in inventory at the end of the period. The costs of growing crops incurred by FPI Agribusiness consist primarily of costs
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related to land preparation, cultivation, irrigation and fertilization. Growing crop inventory is charged to cost of products sold when the related crop is harvested and sold. The cost of harvested crop was $0.4$0.7 million, $0.9 million, $0.7 million, and $0.2$1.3 million respectively, for the nine months ended September 30, 2017 and 2016 and $0.1 million and $0.2 million, respectively, for the three and six months ended SeptemberJune 30, 20172021 and 2016.2020, respectively.
Harvested crop inventory includes costs accumulated both during both the growing and harvesting phases. Growing crop inventory includes costs accumulated during the current crop year for crops which have not been harvested. Both harvestedphases and growing crop are stated at the lower of costthose costs or the estimated net realizable value, which is the market price, based upon the nearest market in the geographic region, less any cost of disposition. Cost of disposition includes brokers’broker’s commissions, freight and other marketing costs.
OtherGeneral inventory, such as fertilizer, seeds and pesticides, is valued at the lower of cost or market.net realizable value.
As of SeptemberJune 30, 20172021 and December 31, 2016, respectively,2020, inventory consisted of the following:
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(in thousands) |
| September 30, 2017 |
| December 31, 2016 |
| June 30, 2021 |
| December 31, 2020 | ||||
Harvested crop |
| $ | — |
| $ | 283 | | $ | — | | $ | 47 |
Growing crop |
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| 92 |
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| — | | | 742 | | | 1,070 |
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| $ | 92 |
| $ | 283 | ||||||
| | $ | 742 | | $ | 1,117 | ||||||
Hedge Accounting
ASC 815 requires the Company to recognize all of its derivative instruments as either assets or liabilities in the consolidated balance sheet at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, the company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in the consolidated statements of operations during the period.
The Company uses derivative instruments to manage certain interest rate risks. More specifically, interest rate swaps are entered into to manage the risk associated with the Company’s floating-rate borrowings when such risk management is deemed appropriate by the Company’s management and a fixed interest rate is not available or not economical, or when it is contractually required by a lender. In accordance with ASC 815, the Company designates interest rate swaps as cash flow hedges of said floating-rate borrowings. The entire change in the fair value of the Company’s designated cash flow hedges is recorded to accumulated other comprehensive income, a component of shareholders’ equity in the Company’s consolidated balance sheets.
The Company terminated its old interest rate swap at the end of March 2020 and entered into a new interest rate swap agreement to manage interest rate risk exposure, effective April 1, 2020. An interest rate swap agreement utilized by the Company effectively modifies the Company’s exposure to interest rate risk by converting the Company’s floating-rate debt to a fixed rate basis for the next six years on 50% of the currently outstanding amount to Rabobank, thus reducing the impact of interest rate changes on future interest expense. This agreement involves the receipt of floating rate amounts in exchange for fixed rate interest payments over the life of the agreement without an exchange of the underlying principal amount.
As of June 30, 2021, the total notional amount of the Company’s receive-variable/pay-fixed interest rate swap was $33.2 million. For a summary of the fair value and related disclosures in relation to hedge accounting, please refer to “Note 10 – Hedge Accounting.”
New or Revised Accounting Standards
AdoptedRecently adopted
In July 2015,March 2020, the FASB issued ASU No. 2015-11, Inventory2020-04, Reference Rate Reform (Topic 330). 848), that provided practical expedients to address existing guidance on contract modifications and hedge accounting due to the expected market transition from the London Inter-bank Offered Rate (“LIBOR”) and other interbank offered rates (together “IBORs”) to alternative
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reference rates, such as the Secured Overnight Financing Rate. In July 2017, the Financial Conduct Authority announced it intended to stop compelling banks to submit rates for the calculation of LIBOR after 2021. We refer to this transition as “reference rate reform.”
The amendments requirefirst practical expedient allows companies to elect to not apply certain modification accounting requirements to debt, derivative and lease contracts affected by reference rate reform if certain criteria are met. These criteria include the following: (i) the contract referenced an IBOR rate that an entity should measure inventoryis expected to be discontinued; (ii) the modified terms directly replace or have the potential to replace the IBOR rate that is expected to be discontinued; and (iii) any contemporaneous changes to other terms that change or have the potential to change the amount and timing of contractual cash flows must be related to the replacement of the IBOR rate. If the contract meets all three criteria, there is no requirement for remeasurement of the contract at the lower of costmodification date or net realizable value. Net realizable value is the estimated sales price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments should be applied prospectively with earlier application permitted asreassessment of the previous hedging relationship accounting determination.
The second practical expedient allows companies to change the reference rate and other critical terms related to the reference rate reform in derivative hedge documentation without having to de-designate the hedging relationship. This allows for companies to continue applying hedge accounting to existing cash flow and net investment hedges.
The ASU was effective upon issuance on a prospective basis beginning January 1, 2020 and may be elected over time as reference rate reform activities occur. During the first quarter of an interim or annual reporting period.2020, the Company elected to apply the hedge accounting practical expedient to its cash flow hedge. The Company has adopted this guidance as of January 1, 2017will continue to evaluate its debt, derivative and there has been no impact on the financial results of the Company.
Not Yet Adopted
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers: (Topic 606)(“ASU 2014-09”). ASU 2014-09 amends the guidancelease contracts that are eligible for revenue recognition to replace numerous, industry-specific requirementsmodification relief and converges areas under this topic with those of the International Financial Reporting Standards. ASU 2014-09 implements a five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. The amendment also requires enhanced disclosures regarding the nature, amount, timing and uncertainty
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of revenues and cash flows from contracts with customers. Other major provisions include the capitalization and amortization of certain contract costs, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. While the Company is still completing its assessment of the impact of this guidance, it does not believe that it will have a material impact on the financial statements as the majority of the Company’s contracts with customers relate to leases that fall within the scope of ASU 2016-02 (see below). Other contract types undergoing evaluation are considered ancillary to the Company’s operations and financial statements. The amendments in this ASU are effective for annual and interim reporting periods beginning after December 15, 2017. We are currently assessing the impact of ASU 2014-09, as amended; however, the majority of our revenue is from net-lease agreements which will be in the scope of the leasing standard as described below.
In February 2016, the FASB issued ASU 2016-02, Leases: (Topic 842) (“ASU 2016-02”), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lesseesexpects to apply a dual approach, classifying leasesthose elections as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. While the Company is still completing its assessment of the impact of this guidance, the following is anticipated to reflect the primary effects of this guidance on the Company’s reporting:needed.
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The standard is effective for annual and interim reporting periods beginning after December 15, 2018, with modified retrospective restatement for each reporting period presented at the time of adoption. Early adoption is permitted. The Company has not yet determined whether this guidance will be early adopted.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 is intended to reduce diversity in practice across all industries. The amendments in this update provide guidance on the following eight specific cash flow issues: 1) Debt Prepayment or Debt Extinguishment Costs; 2) Settlement of Zero-Coupon Debt Instruments or Other Debt Instruments with Coupon Interest Rates That Are Insignificant in Relation to the Effective Interest Rate of the Borrowing; 3) Contingent Consideration Payments Made after a Business Combination; 4) Proceeds from the Settlement of Insurance Claims; 5) Proceeds from the Settlement of Corporate-Owned Life Insurance Policies, including Bank-Owned Life Insurance Policies; 6) Distributions Received from Equity Method Investees; 7) Beneficial Interests in Securitization Transactions; and 8) Separately Identifiable Cash Flows and Application of the Predominance Principle. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years and retrospective
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restatement is required. Early adoption is permitted. The Company is currently evaluating the requirements of ASU 2016-15 and does not anticipate a material impact on our statement of cash flows.
In January 2017, the FASB issued ASU No. 2017-01, Business Combination (Topic 805): Clarifying the definition of a business (“ASU 2017-01”). ASU 2017-01 is intended to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of businesses. The Company has determined that with the adoption of this guidance some acquisitions that were deemed business combinations will be deemed asset acquisitions and costs associated with these asset acquisitions will be capitalized to the acquisition rather than being expensed. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The Company has adopted this guidance as of January 1, 2017. The Company expects the vast majority of its acquisitions to be deemed asset acquisitions under this new guidance.
Note 2—Revenue Recognition
For the majority of its leases, the Company receives at least 50% of the annual lease payment from tenants either during the first quarter of the year or at the time of acquisition of the related farm, with the remainderremaining 50% of the lease payment generally secured by growing or harvested crops, due in the second half of the year. The rentalRental income received is recorded on a straight-line basis over the lease term. The lease term generally includes periods when a tenant: (1) may not terminate its lease obligation early; (2) may terminate its lease obligation early in exchange for a fee or penalty that the Company considers material enough such that termination would not be probable; (3) possesses renewal rights and the tenant’s failure to exercise such rights imposes a penalty on the tenant material enough such that renewal appears reasonably assured; or (4) possesses bargain renewal options for such periods. Payments received in advance are included in deferred revenue until they are earned.
Certain of the Company’s leases provide for a rent payment determined as a percentage of the gross farm proceeds.proceeds (contingent rent). Revenue under leases providing for a payment equal to a percentage of the gross farm proceeds aremay be recorded at the guaranteed crop insurance minimums and recognized ratably over the lease term during the crop year. Upon notification from the grain or packing facility that a future contract for delivery of the harvest has been finalized or when the tenant has notified the Company of the total amount of gross farm proceeds, revenue is recognized for the excess of the actual gross farm proceeds and the previously recognized minimum guaranteed insurance.
Certain of the Company’s leases provide for minimum cash rent plus a bonus based on gross farm proceeds. Revenue under this type of lease is recognized on a straight-line basis over the lease term based on the minimum cash rent. Bonus rent is recognized upon notification from the tenant of the gross farm proceeds for the year.
Most of ourthe Company’s farming leases range from two to three years for row crops and one to seven years for permanent crops. Leases in place as of SeptemberJune 30, 20172021 have terms ranging from one to 25forty years. Payments received in advance are included in deferred revenue until they are earned. As of SeptemberJune 30, 20172021 and December 31, 2016,2020, the Company had $3.9$2.4 million and $1.0$0.0 million,, respectively, in deferred revenue.
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The following sets forth a summary of rental income recognized for the three and ninesix months ended SeptemberJune 30, 20172021 and 2016:2020:
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(in thousands) |
| 2017 |
| 2016 |
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| 2016 | |||
Leases in effect at the beginning of the year |
| $ | 3,187 |
| $ | 3,098 |
| $ | 9,348 |
| $ | 9,760 |
Leases entered into during the year(1) |
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| 7,920 |
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| 3,066 |
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| 19,033 |
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| 6,702 |
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| $ | 11,107 |
| $ | 6,164 |
| $ | 28,381 |
| $ | 16,462 |
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| | June 30, | | June 30, | ||||||||
(in thousands) |
| 2021 |
| 2020 |
| 2021 |
| | 2020 | |||
Leases in effect at the beginning of the year | | $ | 7,263 | | $ | 8,338 | | $ | 16,734 | | $ | 17,679 |
Leases entered into during the year | |
| 1,028 | |
| 803 | |
| 1,817 | |
| 1,536 |
| | $ | 8,291 | | $ | 9,141 | | $ | 18,551 | | $ | 19,215 |
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Future minimum lease payments from tenants under all non-cancelable leases in place as of SeptemberJune 30, 2017,2021, including lease advances when contractually due, but excluding crop share and tenant reimbursement of expenses, for the remainder of 20172021 and each of the next four years and thereafter as of SeptemberJune 30, 20172021 are as follows:
|
|
|
|
|
(in thousands) |
| Future rental |
| |
Year Ending December 31, |
| payments |
| |
2017 (remaining three months) |
| $ | 9,456 |
|
2018 |
|
| 26,559 |
|
2019 |
|
| 19,704 |
|
2020 |
|
| 7,548 |
|
2021 |
|
| 3,263 |
|
Thereafter |
|
| 4,122 |
|
|
| $ | 70,652 |
|
| | | |
(in thousands) |
| Future rental | |
Year Ending December 31, | | payments | |
2021 (remaining six months) | | $ | 15,438 |
2022 | |
| 20,202 |
2023 | | | 11,790 |
2024 | |
| 4,211 |
2025 | | | 2,759 |
Thereafter | | | 23,493 |
| | $ | 77,893 |
Since lease renewal periods are exercisable at the option of the lessee, the preceding table presents future minimum lease payments due during the initial lease term only.
The Company records revenue from the sale of harvested crops when the harvested crop has been contracted to be delivered to a grain or packing facility and title has transferred. Revenues from the sale of harvested crops totaling $0.6$0.2 million, $0.5 million, $0.4 million, and $0.8$0.7 million were recognized for the ninethree and six months ended SeptemberJune 30, 20172021 and 2016, respectively, and $0.2 million and $0.6 million being recognized during the three months ended September 30, 2017 and 2016,2020, respectively. Harvested crops delivered under marketing contracts are recorded using the fixed price of the marketing contract at the time of delivery to a grain or packing facility. Harvested crops delivered without a marketing contract are recorded using the market price at the date the harvested crop is delivered to the grain or packing facility and title has transferred.
Note 3—Concentration Risk
Credit Risk
For the three and ninesix months ended SeptemberJune 30, 2017,2021, the Company had oneno significant tenanttenants representing a tenant concentration as presentedof 10% or greater of period revenue. Historically, and in the table below. If the Company’sfuture, if a significant tenant fails to make rental payments to the Company or elects to terminate its leases, and the land cannot be re-leased on satisfactory terms, there could be a material adverse effect on the Company’s financial performance and the Company’s ability to continue operations. Rental income received is recorded on a straight-line basis over the applicable lease term. The following table presents the amount of the rental income and percentage of the Company’s total rental income received from the Company’s significant tenant.
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|
|
|
|
|
|
|
|
|
|
|
| Rental income recognized |
| Rental income recognized | ||||||||||||||||||
|
| For the three months ended September 30, |
| For the nine months ended September 30, | ||||||||||||||||||
($ in thousands) |
| 2017 |
| 2016 |
|
| 2017 |
| 2016 |
| ||||||||||||
Tenant A(1) |
| $ | 2,091 |
| 18.8 | % | $ | — |
| — | % |
| $ | 4,071 |
| 14.3 | % | $ | — |
| — | % |
|
|
1315
Geographic Risk
The following table summarizes the percentage of approximate total acres owned as of SeptemberJune 30, 20172021 and 20162020 and the percentage of rental income recorded by the Company for the three and ninesix months ended SeptemberJune 30, 20172021 and 20162020 by region:
| | | | | | | | | | | | | | | |
| | Approximate % | | Rental Income (1) | |||||||||||
| | of total acres | | For the three months ended | | For the six months ended | |||||||||
| | As of June 30, | | June 30, | | June 30, | |||||||||
Location of Farm (2) |
| 2021 |
| 2020 | | | 2021 |
| 2020 | | | 2021 |
| 2020 |
|
Corn Belt | | 27.3 | % | 28.1 | % | | 39.5 | % | 35.4 | % | | 36.8 | % | 33.7 | % |
Delta and South | | 20.4 | % | 17.8 | % | | 9.5 | % | 11.3 | % | | 10.6 | % | 10.7 | % |
High Plains | | 18.8 | % | 18.9 | % | | 10.0 | % | 6.1 | % | | 8.0 | % | 7.0 | % |
Southeast | | 26.1 | % | 27.8 | % | | 25.7 | % | 25.9 | % | | 27.3 | % | 24.6 | % |
West Coast | | 7.4 | % | 7.4 | % | | 15.3 | % | 21.3 | % | | 17.3 | % | 24.0 | % |
|
| 100.0 | % | 100.0 | % | | 100.0 | % | 100.0 | % | | 100.0 | % | 100.0 | % |
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|
| Approximate % |
| Rental Income(1) | |||||||||||
|
| of total acres |
| For the three months ended |
| For the nine months ended | |||||||||
|
| As of September 30, |
| September 30, |
| September 30, | |||||||||
Location of Farm(2) |
| 2017 |
| 2016 |
|
| 2017 |
| 2016 |
|
| 2017 |
| 2016 |
|
Corn belt |
| 30.8 | % | 29.3 | % |
| 33.7 | % | 40.2 | % |
| 35.5 | % | 37.5 | % |
Delta and South |
| 18.8 | % | 21.8 | % |
| 9.3 | % | 11.4 | % |
| 10.0 | % | 11.7 | % |
High Plains |
| 20.4 | % | 24.1 | % |
| 8.6 | % | 15.8 | % |
| 9.3 | % | 15.6 | % |
Southeast |
| 25.8 | % | 24.8 | % |
| 18.3 | % | 32.6 | % |
| 21.2 | % | 35.2 | % |
West Coast |
| 4.2 | % | — | % |
| 30.1 | % | — | % |
| 24.0 | % | — | % |
|
| 100.0 | % | 100.0 | % |
| 100.0 | % | 100.0 | % |
| 100.0 | % | 100.0 | % |
| (1) |
| Due to regional disparities in the use of leases with crop share components and seasonal variations in the recognition of crop share revenue, regional comparisons by rental income are not fully representative of each |
| (2) |
| Corn Belt includes farms located in Illinois, Michigan and eastern Nebraska. Delta and South includes farms located in Arkansas, Louisiana and Mississippi. High Plains includes farms located in Colorado, Kansas, western Nebraska, and |
Note 4—Related Party Transactions
On July 21, 2015, the Company entered into a lease agreement with American Agriculture Aviation LLC (“American Ag Aviation”) for the use of a private plane. American Ag Aviation is a Colorado limited liability company that is owned 100% by Mr. Pittman. The private plane is generally utilized when commercial air travel is not readily available or practical to and from a particular location. The Company incurredpaid costs of $0.16$0.05 million, and $0.14$0.09 million, respectively, during the nine months ended September 30, 2017 and 2016 and $0.02$0.04 million and $0.05 million respectively, during the three and six months ended SeptemberJune 30, 20172021 and 2016 from2020, respectively, to American Ag Aviation for use of the aircraft in accordance with the lease agreement. These costs were recognized based on the nature of the associated use of the aircraft, as follows: (i) general and administrative - expensed as general and administrative expenses within the Company’s consolidated statements of operations; (ii) land acquisition (accounted for as an asset acquisition) - allocated to the acquired real estate assets within the Company’s consolidated balance sheets; and (iii) land acquisition (accounted for as a business combination) - expensed as acquisition and due diligence costs within the Company’s consolidated statements of operations.
On January 20, 2021, the Company entered into property sale and long-term management agreements with the OZ Fund. The OZ Fund is a Delaware limited liability company whose manager is controlled by the brother of one of the Company's independent directors. That independent director has an indirect investment in the OZ Fund. In addition, as partial consideration in certain transactions with the OZ Fund, the Company received the OZ Convertible Notes, which on July 16, 2021, were converted into a 7.6% equity interest in the OZ Fund. Under the terms of the long-term management agreement, the Company earns a quarterly management fee equal to (i) 0.85% times gross book value per annum if the gross book value is less than $50 million or (ii) 0.80% times gross book value per annum if the gross book value is $50 million or more. The Company earned management fees of $0.05 million and $0.6 million, respectively, during the three and six months ended June 30, 2021.
Note 5—Real Estate
DuringThe Company completed 4 acquisitions, consisting of 4 properties, in the nineCorn Belt and Delta and South regions during the six months ended SeptemberJune 30, 2017, the Company completed 152021. Aggregate consideration for these acquisitions which were accounted for as asset acquisitionstotaled $15.9 million in Illinois, South Carolina, South Dakota, Arkansas, Michigan, Georgia, Kansas, California,cash and Colorado. Consideration totaled $111.6$14.0 million and was comprised of cash, shares of common stock and Common units. Nonotes payable. NaN intangible assets were acquired through these acquisitions.
The estimated fair values for the assets acquired and the liabilities assumed are preliminary and are subject to change as additional information related to the fair value of the assets and liabilities becomes available. Subsequent adjustments to the preliminary purchase price allocation are not expected to have a material impact to the Company's consolidated financial statements. The following outlines the impact of the completion of the AFCO Mergers accounted for as a business combination as of September 30, 2017:
14
|
|
|
($ in thousands) |
|
|
Land, at cost | $ | 181,072 |
Irrigation improvements |
| 26,155 |
Permanent plantings |
| 48,513 |
Buildings |
| 1,499 |
In-place leases(1) |
| 1,139 |
Lease origination costs |
| 264 |
Cash |
| 3,832 |
Other assets |
| 1,831 |
Inventory |
| 99 |
Deferred revenue |
| (4,434) |
Other liabilities |
| (13,826) |
Gross Total Consideration |
| 246,144 |
Mortgage notes and bonds payable, net |
| (75,000) |
Total Consideration | $ | 171,144 |
|
|
During the period the Company recorded a measurement period adjustment in relation to property tax accruals in the amount of $0.6 million recognized in other liabilities. As the amount was recovered through tenant reimbursements, the Company also increased the other assets category by $0.6 million.
The Company also recorded a measurement period adjustment in relation to deferred revenue associated with acquired leasescompleted 2 acquisitions, consisting of 4 properties, in the amount of $1.1 million with a corresponding change in land of $0.8 million, irrigation improvements of $0.1 million and permanent plantings of $0.2 million. The statement of operations impact of this adjustment is immaterial toCorn Belt region during the threesix months ended SeptemberJune 30, 2017.
The Company has included the results of operations2020. Aggregate consideration for the acquired real estate in the consolidated statements of operations from the dates of acquisition. The real estate acquired in business combinations during the nine months ended September 30, 2017 contributed $10.1 million to total revenue and $2.4 million to net income.
The pro forma information presented below does not purport to represent what the actual results of operations of the Company would have been had the business combination outlined above occurred as of the beginning of the periods presented, nor does it purport to predict the results of operations of future periods. The pro forma information is presented below as if the real estate acquired in the business combination during the nine months ended September 30, 2017 had been acquired as of January 1, 2016.
|
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|
|
|
|
| For the three months ended |
| For the nine months ended | ||||||||
($ in thousands) |
| September 30, |
| September 30, | ||||||||
Proforma |
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
Revenue |
| $ | 12,046 |
| $ | 6,946 |
| $ | 30,655 |
| $ | 17,669 |
Pro forma estimate(1) |
|
| - |
|
| 4,146 |
|
| 993 |
|
| 11,244 |
Total operating revenue |
| $ | 12,046 |
| $ | 11,092 |
| $ | 31,648 |
| $ | 28,913 |
|
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|
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|
|
|
Net income (loss) |
| $ | 2,610 |
| $ | 100 |
| $ | 2,630 |
| $ | (513) |
Pro forma estimate |
|
| - |
|
| 431 |
|
| (367) |
|
| 2,141 |
Total net income |
| $ | 2,610 |
| $ | 531 |
| $ | 2,263 |
| $ | 1,628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders of Farmland Partners Inc. |
| $ | 221 |
| $ | (467) |
| $ | (1,935) |
| $ | (869) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share basic and diluted |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per basic share attributable to common stockholders |
| $ | 0.01 |
| $ | (0.02) |
| $ | (0.06) |
| $ | (0.03) |
Income (loss) per diluted share attributable to common stockholders |
| $ | 0.01 |
| $ | (0.02) |
| $ | (0.06) |
| $ | (0.03) |
Weighted-average number of common shares - basic |
|
| 32,862 |
|
| 28,447 |
|
| 32,374 |
|
| 27,427 |
Weighted-average number of common shares - diluted |
|
| 32,862 |
|
| 28,447 |
|
| 32,374 |
|
| 27,427 |
|
|
15
During the nine months ended September 30, 2016, the Company completed 16these acquisitions which were accounted for as asset acquisitions in Georgia, South Carolina, Texas, Illinois, and Louisiana. Consideration totaled $261.1$1.4 million and was comprised of $0.9 million in cash, Common units, and Series A preferred units. No$0.5 million reduction in notes receivable and related interest to the seller through the acquisition of collateralized property. NaN intangible assets were acquired through these acquisitions.
16
The following outlinesTable of Contents
During the fair value allocation of the assets and liabilities acquired as a result of the completion of six acquisitions in Michigan, Mississippi, Texas, Illinois, Colorado and Georgia which were accounted for as business combinations as of Septembermonths ended June 30, 2016:
|
|
|
|
($ in thousands) |
|
|
|
Land, at cost |
| $ | 7,170 |
Groundwater |
|
| 634 |
Irrigation improvements |
|
| 518 |
Permanent plantings |
|
| 763 |
Below market lease |
|
| (29) |
Total Consideration |
| $ | 9,056 |
Prudential Termination Agreement
On February 18, 2017,2021, the Company entered into a Termination Agreement (the “Termination Agreement”) with Prudential Capital Mortgagecompleted 7 dispositions consisting of 15 properties in the Corn Belt, Southeast, and Delta and South regions. The Company (the “Prudential Sub-Advisor”) pursuant to whichreceived cash consideration for these dispositions totaling $28.6 million and $2.4 million of convertible notes receivable, and recognized an aggregate gain on sale of $3.5 million.
During the six months ended June 30, 2020, the Company and the Prudential Sub-Advisor agreed to terminate, effective ascompleted 3 dispositions consisting of March 31, 2017, the Amended and Restated Sub-Advisory Agreement (the “Sub-Advisory Agreement”), dated as of October 23, 2015, by and among American Farmland Company, American Farmland Advisors, American Farmland Company L.P. and Prudential and certain related property management agreements (together with the Sub-Advisory Agreement, the “Prudential Agreements”).
The Termination Agreement provided that, as of March 31, 2017, Prudential no longer provides services to the Company under the Prudential Agreements. The Company paid the Prudential Sub-Advisor $1.6 million in cash, which is equal to the fee that would have been owed to Prudential for services through the quarter ended March 31, 2017, plus a termination fee of approximately $0.2 million. The statement of operations impact to the Company for the nine months ended September 30, 2017 totaled $0.7 million, which is included in property operating expenses, with the remaining $0.9 million being included4 properties, in the accruals as a componentCorn Belt and High Plains regions for aggregate consideration of the purchase accounting surrounding the AFCO Mergers as this represented the costs incurred by AFCO prior to the AFCO Mergers. $7.5 million and an aggregate gain on sale of $0.8 million.
Note 6—Notes Receivable
In August 2015, theThe Company introducedoffers an agricultural lending product aimed atfocused on farmers as a complement to the Company'sCompany’s business of acquiring and owning farmland and leasing it to farmers (the “FPI Loan Program”). Under the FPI Loan Program, the Company makes loans to third-party farmers (both tenant and non-tenant) to provide financing for working capital requirements and operational farming activities, farming infrastructure projects and for other farming and agricultural real estate related projects. The Company seeks to make loans that are collateralized by farm real estate or growing crops and in principal amounts of $100,000$0.1 million or more at fixed interest rates with maturities of up to six years. The Company expects the borrower to repay the loans in accordance with the loan agreements based on farming operations and access to other forms of capital, as permitted.
In addition to loans made under the FPI Loan Program, the Company, on certain occasions, makes short-term loans to tenants secured by collateral other than real estate, such as growing crops, equipment or inventory, when the Company believes such loans will ensure the orderly completion of farming operations on a property owned by the Company for a given crop year and other credit is not available to the borrower.
Notes receivable are stated at their unpaid principal balance and include unamortized direct origination costs and accrued interest through the reporting date, less any allowance for losses and unearned borrower paid points. The Company monitors its receivables based upon historical collection experience, collateral values and current trends. Accrued interest write-offs are recognized as credit loss expense. The Company’s estimate of expected credit losses on its notes receivable principal balance is $0.0 million as of June 30, 2021 and December 31, 2020. The Company recorded $0.00 million, $0.00 million, $0.05 million and $0.05 million of credit loss expense related to interest receivables during the three and six months ended June 30, 2021 and 2020.
16
As of SeptemberJune 30, 20172021 and December 31, 2016,2020, the Company had the following notes receivable:
| | | | | | | | | | |
($ in thousands) | | | | Principal Outstanding as of | | Maturity | ||||
Loan |
| Payment Terms | | June 30, 2021 |
| December 31, 2020 |
| Date | ||
Mortgage Note (1) | | Principal & interest due at maturity | | $ | 223 | | $ | 229 | | 12/7/2028 |
Mortgage Note (1) | | Principal due at maturity & interest due monthly | | | 2,135 | | | 2,135 | | 3/16/2022 |
Total outstanding principal | | | 2,358 | | | 2,364 | | | ||
Interest receivable (net prepaid interest) | | | 314 | | | 277 | | | ||
Provision for interest receivable | | | | | (232) | | | (293) | | |
Total notes and interest receivable | | $ | 2,440 | | $ | 2,348 | | | ||
|
|
|
|
|
|
|
|
|
|
|
($ in thousands) |
|
|
| Principal Outstanding as of |
| Maturity | ||||
Loan |
| Payment Terms |
| September 30, 2017 |
| December 31, 2016 |
| Date | ||
Mortgage Note(1) |
| Principal & interest due at maturity |
| $ | 1,800 |
| $ | 1,800 |
| 1/15/2017 |
Mortgage Note (2) |
| Principal & interest due at maturity |
|
| 240 |
|
| 980 |
| 3/16/2022 |
Mortgage Note (2) |
| Principal due at maturity & interest due monthly |
|
| 2,194 |
|
| - |
| 3/16/2022 |
Mortgage Note |
| Principal & interest due at maturity |
|
| 1,647 |
|
| - |
| 4/27/2018 |
Mortgage Note |
| Principal & interest due at maturity |
|
| 100 |
|
| - |
| 1/31/2018 |
Mortgage Note |
| Principal due at maturity & interest paid in advance |
|
| 669 |
|
| - |
| 2/15/2018 |
Total outstanding principal |
|
| 6,650 |
|
| 2,780 |
|
| ||
Points paid, net of direct issuance costs |
|
| (10) |
|
| (4) |
|
| ||
Interest receivable (net prepaid interest) |
|
| 311 |
|
| 67 |
|
| ||
Total notes and interest receivable |
| $ | 6,951 |
| $ | 2,843 |
|
| ||
(1) |
|
|
| The original note was renegotiated and a second note was entered into simultaneously with the borrower during the three months ended March 31, 2017. The notes include mortgages on |
The collateral for the mortgage notes receivable consists of real estate, personal property and improvements present on such real estate.
In March 2021, the Company received approximately $2.4 million in OZ Convertible Notes. Please refer to “Note 1—Organization and Significant Accounting Policies” for more detail.
17
Fair Value
FASB ASC 820-10 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
| Level 1—Inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets. |
| Level 2—Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets and inputs that are observable or can be substantially corroborated for the asset or liability, either directly or indirectly. |
| Level 3—Inputs to the valuation methodology are unobservable, supported by little or no market activity and are significant to the fair value measurement. |
The fair value of notes receivable is valued using Level 3 inputs under the hierarchy established by GAAP and is calculated based on a discounted cash flow analysis, using interest rates based on management’s estimates of market interest rates on mortgage notes receivable with comparable terms whenever the interest rates on the notes receivable are deemed not to be at market rates. As of SeptemberJune 30, 20172021 and December 31, 2016,2020, the fair value of the notes receivable was $6.7$2.4 million and $2.8 million, respectively.$2.4 million.
17
Note 7—Mortgage Notes, Lines of Credit and Bonds Payable
As of SeptemberJune 30, 20172021 and December 31, 2016,2020, the Company had the following indebtedness outstanding:
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | Book | |
| | | | | | Annual | | | | | | | | | | Value of | |
($ in thousands) | | | | Interest | | Principal | | | | Collateral | |||||||
| | | | | | Rate as of | | Outstanding as of | | | | as of | |||||
| | | | | | June 30, | | June 30, | | December 31, | | Maturity | | June 30, | |||
Loan |
| Payment Terms |
| Interest Rate Terms |
| 2021 |
| 2021 |
| 2020 |
| Date |
| 2021 | |||
Farmer Mac Bond #6 | | Semi-annual interest only | | 3.69% | | 3.69% | | $ | 13,827 | | $ | 13,827 | | April 2025 | | $ | 21,438 |
Farmer Mac Bond #7 | | Semi-annual interest only | | 3.68% | | 3.68% | | | 11,160 | | | 11,160 | | April 2025 | | | 18,570 |
MetLife Term Loan #1 (1) | | Semi-annual interest only | | 3.30% adjusted every three years | | 3.30% | | | 83,205 | | | 85,188 | | March 2026 | | | 186,805 |
MetLife Term Loan #2 | | Semi-annual interest only | | 4.27% adjusted every three years | | 4.27% | | | 16,000 | | | 16,000 | | March 2026 | | | 32,323 |
MetLife Term Loan #3 | | Semi-annual interest only | | 4.27% adjusted every three years | | 4.27% | | | 16,800 | | | 21,000 | | March 2026 | | | 26,141 |
MetLife Term Loan #4 (1) | | Semi-annual interest only | | 3.30% adjusted every three years | | 3.30% | | | 13,016 | | | 15,685 | | June 2026 | | | 25,689 |
MetLife Term Loan #5 | | Semi-annual interest only | | 3.50% adjusted every three years | | 3.50% | | | 6,779 | | | 8,379 | | January 2027 | | | 10,021 |
MetLife Term Loan #6 | | Semi-annual interest only | | 3.45% adjusted every three years | | 3.45% | | | 27,158 | | | 27,158 | | February 2027 | | | 58,087 |
MetLife Term Loan #7 | | Semi-annual interest only | | 3.20% adjusted every three years | | 3.20% | | | 16,198 | | | 17,153 | | June 2027 | | | 36,391 |
MetLife Term Loan #8 | | Semi-annual interest only | | 4.12% fixed until 2027 | | 4.12% | | | 44,000 | | | 44,000 | | December 2042 | | | 110,042 |
MetLife Term Loan #9 | | Semi-annual interest only | | 3.20% adjusted every three years | | 3.20% | | | 16,800 | | | 21,000 | | May 2028 | | | 39,005 |
MetLife Term Loan #10 | | Semi-annual interest only | | 3.00% adjusted every three years | | 3.00% | | | 51,808 | | | 53,277 | | October 2030 | | | 109,208 |
Rabobank | | Semi-annual interest only | | LIBOR + 1.70% adjustable every three years | | 1.81% | | | 59,459 | | | 62,358 | | March 2028 | | | 29,857 |
Rutledge Note Payable #1 (2) | | Quarterly interest only | | 3 month LIBOR + 1.3% adjusted quarterly | | 1.49% | | | 17,000 | | | 17,000 | | April 2022 | | | 40,538 |
Rutledge Note Payable #2 (2) | | Quarterly interest only | | 3 month LIBOR + 1.3% adjusted quarterly | | 1.49% | | | 25,000 | | | 25,000 | | April 2022 | | | 48,164 |
Rutledge Note Payable #3 (2) | | Quarterly interest only | | 3 month LIBOR + 1.3% adjusted quarterly | | 1.49% | | | 25,000 | | | 25,000 | | April 2022 | | | 29,302 |
Rutledge Note Payable #4 (2) | | Quarterly interest only | | 3 month LIBOR + 1.3% adjusted quarterly | | 1.49% | | | 15,000 | | | 15,000 | | April 2022 | | | 83,809 |
Rutledge Note Payable #5 (2) | | Quarterly interest only | | 3 month LIBOR + 1.3% adjusted quarterly | | 1.49% | | | 30,000 | | | 30,000 | | April 2022 | | | 128,892 |
Jefferson Bank Bridge Loan | | Interest due at maturity | | 6.25% (3) | | 6.25% | | | 14,000 | | | — | | September 2021 | | | 26,887 |
Total outstanding principal | | | | | | | | | 502,210 | | | 508,185 | | | | $ | 1,061,169 |
Debt issuance costs | | | | | | | | | (1,505) | | | (1,560) | | | | | |
Unamortized premium | | | | | | | | | — | | | — | | | | | |
Total mortgage notes and bonds payable, net | | | | | | | | $ | 500,705 | | $ | 506,625 | | | | | |
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|
| Collateral | |||||||
|
|
|
|
|
| Rate as of |
| Outstanding as of |
|
|
| as of | |||||
|
|
|
|
|
| September 30, |
| September 30, |
| December 31, |
| Maturity |
| September 30, | |||
Loan |
| Payment Terms |
| Interest Rate Terms |
| 2017 |
| 2017 |
| 2016 |
| Date |
| 2017 | |||
Farmer Mac Bond #1 (1) |
| Semi-annual interest only |
| 2.40% |
| 2.40% |
| $ | — |
| $ | 20,700 |
| September 2017 |
| $ | — |
Farmer Mac Bond #2 (2) |
| Semi-annual interest only |
| 2.35% |
| 2.35% |
|
| 5,460 |
|
| 5,460 |
| October 2017 |
|
| 9,557 |
Farmer Mac Bond #3 |
| Semi-annual interest only |
| 2.50% |
| 2.50% |
|
| 10,680 |
|
| 10,680 |
| November 2017 |
|
| 11,487 |
Farmer Mac Bond #4 |
| Semi-annual interest only |
| 2.50% |
| 2.50% |
|
| 13,400 |
|
| 13,400 |
| December 2017 |
|
| 23,588 |
Farmer Mac Bond #5 |
| Semi-annual interest only |
| 2.56% |
| 2.56% |
|
| 30,860 |
|
| 30,860 |
| December 2017 |
|
| 61,104 |
Farmer Mac Bond #6 |
| Semi-annual interest only |
| 3.69% |
| 3.69% |
|
| 14,915 |
|
| 14,915 |
| April 2025 |
|
| 21,609 |
Farmer Mac Bond #7 |
| Semi-annual interest only |
| 3.68% |
| 3.68% |
|
| 11,160 |
|
| 11,160 |
| April 2025 |
|
| 18,441 |
Farmer Mac Bond #8A |
| Semi-annual interest only |
| 3.20% |
| 3.20% |
|
| 41,700 |
|
| 41,700 |
| June 2020 |
|
| 80,929 |
Farmer Mac Bond #9 |
| Semi-annual interest only |
| 3.35% |
| 3.35% |
|
| 6,600 |
|
| 6,600 |
| July 2020 |
|
| 7,711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MetLife Term Loan #1(3) |
| Semi-annual interest only |
| 3.48% adjusted every three years |
| 3.48% |
|
| 90,000 |
|
| 90,000 |
| March 2026 |
|
| 198,345 |
MetLife Term Loan #2 |
| Semi-annual interest only |
| 2.66% adjusted every three years |
| 2.66% |
|
| 16,000 |
|
| 16,000 |
| March 2026 |
|
| 31,677 |
MetLife Term Loan #3 |
| Semi-annual interest only |
| 2.66% adjusted every three years |
| 2.66% |
|
| 21,000 |
|
| 21,000 |
| March 2026 |
|
| 27,654 |
MetLife Term Loan #4(3) |
| Semi-annual interest only |
| 3.48% adjusted every three years |
| 3.48% |
|
| 15,685 |
|
| 15,685 |
| June 2026 |
|
| 30,624 |
MetLife Term Loan #5 |
| Semi-annual interest only |
| 3.26% adjusted every three years |
| 3.26% |
|
| 8,379 |
|
| — |
| January 2027 |
|
| 16,761 |
MetLife Term Loan #6 |
| Semi-annual interest only |
| 3.21% adjusted every three years |
| 3.21% |
|
| 27,159 |
|
| — |
| February 2027 |
|
| 55,526 |
MetLife Term Loan #7 |
| Semi-annual interest only |
| 3.45% adjusted every three years |
| 3.45% |
|
| 21,253 |
|
| — |
| June 2027 |
|
| 48,307 |
Farm Credit of Central Florida |
| (4) |
| LIBOR + 2.6875% adjusted monthly |
| 3.92% |
|
| 5,102 |
|
| 5,102 |
| September 2023 |
|
| 9,688 |
Prudential |
| (5) |
| 3.20% |
| 3.20% |
|
| 6,481 |
|
| 6,600 |
| July 2019 |
|
| 11,643 |
Rutledge Note Payable #1 |
| Quarterly interest only |
| 3 month LIBOR + 1.3% adjusted quarterly |
| 2.60% |
|
| 25,000 |
|
| — |
| January 2022 |
|
| 46,022 |
Rutledge Note Payable #2 |
| Quarterly interest only |
| 3 month LIBOR + 1.3% adjusted quarterly |
| 2.60% |
|
| 25,000 |
|
| — |
| January 2022 |
|
| 49,700 |
Rutledge Note Payable #3 |
| Quarterly interest only |
| 3 month LIBOR + 1.3% adjusted quarterly |
| 2.60% |
|
| 25,000 |
|
| — |
| January 2022 |
|
| 58,985 |
Rutledge Note Payable #4 |
| Quarterly interest only |
| 3 month LIBOR + 1.3% adjusted quarterly |
| 2.60% |
|
| 15,000 |
|
| — |
| January 2022 |
|
| 28,271 |
Rutledge Note Payable #5 |
| Quarterly interest only |
| 3 month LIBOR + 1.3% adjusted quarterly |
| 2.60% |
|
| 30,000 |
|
| — |
| January 2022 |
|
| 69,772 |
Total outstanding principal |
|
| 465,834 |
|
| 309,862 |
|
|
| $ | 917,401 | ||||||
Debt issuance costs |
|
| (1,360) |
|
| (1,193) |
|
|
|
|
| ||||||
Unamortized premium |
|
| 20 |
|
| 110 |
|
|
|
|
| ||||||
Total mortgage notes and bonds payable, net |
| $ | 464,494 |
| $ | 308,779 |
|
|
|
|
| ||||||
| (1) |
|
|
|
|
| During the |
| (2) | On January 29, 2021 the Rutledge Facility (as defined below) maturity was extended to |
| (3) | The loan is collateralized by property acquired May 28, 2021. In accordance with the terms of the applicable real estate purchase agreement, the seller agreed to reimburse the Company for a 3.0% interest rate |
|
|
|
|
During the remainder of 2017, $60.4 million of the Company’s borrowings will mature. Any cash that the Company uses to satisfy its outstanding debt obligations will reduce the amounts available to acquire additional farms, which could adversely affect our growth prospects. As of September 30, 2017, the Company had $3.1 million in capacity available under the Farm Credit of Central Florida Mortgage Note (as defined below). The Company has signed a non-binding term sheet for a debt facility with a major financial institution, which the Company intends to use to refinance the debt due to mature in 2017. The Company has also signed a non-binding term sheet for a debt facility with a major financial institution to finance a portion of the California property acquisition committed to during the quarter. However, the Company can provide no assurances that the Company will be able to enter into a binding agreement to refinance or secure the debt on similar terms or at all and thus alternative sources of capital may be necessary. As of September 30, 2017, the Company
18
had $465.8 million of debt, which may expose the Company to the risk of default under the Company’s debt obligations, restrict the Company’s operations and the Company’s ability to grow the Company’s business and revenues and restrict the Company’s ability to pay distributions to the Company’s stockholders.
Farmer Mac Facility
The Company and the Operating Partnership are parties to the Amended and Restated Bond Purchase Agreement, dated as of March 1, 2015 and amended as of June 2, 2015 and August 3, 2015 (the “Bond Purchase Agreement”), with Federal Agricultural Mortgage Corporation (“Farmer Mac”) and Farmer Mac Mortgage Securities Corporation, a wholly owned subsidiary of Farmer Mac, as bond purchaser (the “Purchaser”), regarding a secured note purchase facility (the “Farmer Mac Facility”) that has a maximum borrowing capacity of $165.0 million. Pursuant to the Bond Purchase Agreement, the Operating Partnership may, from time to time, issue one or more bonds to the Purchaser that will be secured by pools of mortgage loans, which will, in turn, be secured by first liens on agricultural real estate owned by the Company. The mortgage loans may have effective loan-to-value of up to 60%. Prepayment of each bond issuance is not permitted unless otherwise agreed upon by all parties to the Bond Purchase Agreement.
On September 5, 2017 the Company repaid in full a $20.7 million bond that was due and payable on that date, under the Farmer Mac facility.
As of SeptemberJune 30, 20172021 and December 31, 2016,2020, the Operating Partnership had approximately $134.8$25.0 million and approximately $155.5 million outstanding respectively, under the Farmer Mac facility. The Farmer Mac facility is subject to the Company’s ongoing compliance with a number of customary affirmative and negative covenants, as well as financial covenants, including: a maximum leverage ratio of not more than 60%; a minimum fixed charge coverage ratio of 1.50 to 1.00; and a minimum tangible net worth requirement. The Company was in compliance with all applicable covenants at SeptemberJune 30, 2017. On October 23 2017, the Company repaid in full the Farmer Mac #2 bond with an outstanding principal balance2021.
MetLife Term Loans
As of $5.5 million.
In connection with the Bond Purchase Agreement, on March 1, 2015,June 30, 2021 and December 31, 2020, the Company and the Operating Partnership also entered into an amendedhad $291.8 million and restated pledge and security agreement$308.8 million outstanding, respectively (the “Pledge Agreement”“Metlife loans”) in favor of, under the Purchaser and Farmer Mac, pursuant to which the Company and the Operating Partnership agreed to pledge, as collateral for the Farmer Mac Facility, all of their respective right, title and interest in (i) mortgage loans with a value at least equal to 100% of the aggregate principal amount of the outstanding bond held by the Purchaser and (ii) such additional collateral as necessary to have total collateral with a value at least equal to 110% of the outstanding notes held by the Purchaser. In addition, the Company agreed to guarantee the full performanceloan agreements between certain of the Operating Partnership’s dutiessubsidiaries and obligations under the Pledge Agreement.
The Bond Purchase Agreement and the Pledge Agreement include customary events of default, the occurrence of any of which, after any applicable cure period, would permit the Purchaser and Farmer Mac to, among other things, accelerate payment of all amounts outstanding under the Farmer Mac Facility and to exercise its remedies with respect to the pledged collateral, including foreclosure and sale of the agricultural real estate underlying the pledged mortgage loans.
Bridge Loan
On February 29, 2016, two wholly owned subsidiaries of the Operating Partnership (together, the “Bridge Borrower”) entered into a term loan agreement (the “Bridge Loan Agreement”) with MSD FPI Partners, LLC, an affiliate of MSD Partners, L.P. (the “Bridge Lender”), that provided for a loan of $53.0 million (the “Bridge Loan”), the proceeds of which were used primarily to fund the cash portion of the consideration for the acquisition of the Forsythe farms, which was completed on March 2, 2016. During the nine months ended September 30, 2016, the Company accrued and paid debt issuance costs on the Bridge Loan totaling $173,907, and interest totaling $2,271,867, of which $2,120,000, or 4.0%, of the Bridge Loan's principal amount, was considered additional interest paid on issuance. The Bridge Loan was paid in full, including accrued interest, and without prepayment penalty, on March 29, 2016 using proceeds from the MetLife Term Loans, as described below.
19
MetLife Term Loans
On March 29, 2016, five wholly owned subsidiaries of the Operating Partnership entered into a loan agreement (the “First MetLife Loan Agreement”) and, together with the Second MetLife Loan Agreement, the “MetLife Loan Agreements”) with Metropolitan Life Insurance Company (“MetLife”), which provides for a total of $127.0 million of term loans, comprised of (i) a $90.0 million term loan (“Term Loan 1”), (ii) a $16.0 million term loan (“Term Loan 2”) and (iii) a $21.0 million term loan (“Term Loan 3” and, together with Term Loan 1 and Term Loan 2, the “Initial MetLife Term Loans” and, together with Term Loan 4, Term Loan 5, Term Loan 6 and Term Loan 7 described below, (together, the “MetLife Term Loans”loan agreements”). The proceeds of the Initial MetLife Term Loans were used to repay existing debt (including amounts outstanding under the Bridge Loan), to acquire additional properties and for general corporate purposes. Each Initial MetLife Term Loan is collateralized by first lien mortgages on certain of the Company’s properties.
On June 29, 2016, five wholly owned subsidiaries of the Operating Partnership entered into a loan agreement (the “Second MetLife Loan Agreement”) with MetLife which provides for a loan of approximately $15.7 million to the Company with a maturity date of June 29, 2026 (“Term Loan 4”). Interest on Term Loan 4 is payable semi-annually and accrues at a floating rate that will be adjusted quarterly to a rate per annum equal to the greater of (a) the three-month LIBOR plus an initial floating rate spread of 1.750%, which may be adjusted by MetLife on each of September 29, December 29, March 29 and June 29 of each year to an interest rate equal to the greater of (a) the three month LIBOR plus the floating rate spread or (b) 2.00% per annum. Term Loan 4 initially bears interest at a rate of 2.39% per annum until September 29, 2016, and on September 29, 2016 the rate changed to 2.60% per annum. Effective March 29, 2017, the Company exercised its option to convert the interest rate on Term Loan 4 from a floating rate to an adjustable rate. The new adjustable rate is 3.48% which may be adjusted by MetLife on each of March 29, 2020 and March 29, 2023. Proceeds from Term Loan 4 were used to acquire additional properties and for general corporate purposes.
Interest on Term Loan 1 is payable semi-annually and accrues at a floating rate that will be adjusted quarterly to a rate per annum equal to the greater of (a) the three-month LIBOR plus an initial floating rate spread of 1.750%, which may be adjusted by MetLife on each of March 29, 2019, March 29, 2022 and March 29, 2025 to an interest rate consistent with interest rates quoted by MetLife for substantially similar loans secured by real estate substantially similar to the Company’s properties securing Term Loan 1 or (b) 2.000% per annum. Term Loan 1 bore interest at a rate of 2.40% per annum until September 29, 2016, and on September 29, 2016 the rate changed to 2.60% per annum. Effective March 29, 2017, the Company exercised its option to convert the interest rate on Term Loan 4 from a floating rate to an adjustable rate. The new adjustable rate is 3.48% which may be adjusted by MetLife on each of March 29, 2020 and March 29, 2023.Subject to certain conditions, the Company may at any time during the term of Term Loan 1 elect to have all or any portion of the unpaid balance of Term Loan 1 bear interest at a fixed rate that is initially established by the lender in its sole discretion that may be adjusted from time to time to an interest rate consistent with interest rates quoted by MetLife for substantially similar loans secured by real estate substantially similar to the Company’s properties securing Term Loan 1. On any floating rate adjustment date, the Company may prepay any portion of Term Loan 1 that is not subject to a fixed rate without penalty.
Interest on Term Loan 2 and Term Loan 3 is payable semi-annually and accrues at an initial rate of 2.66% per annum, which may be adjusted by MetLife on each of March 29, 2019, March 29, 2022 and March 29, 2025 to an interest rate consistent with interest rates quoted by MetLife for substantially similar loans secured by real estate substantially similar to the Company’s properties securing Term Loan 2 and Term Loan 3.
Subject to certain conditions, amounts outstanding under Term Loan 2 and Term Loan 3, as well as any amounts outstanding under Term Loan 1 that are subject to a fixed interest rate, may be prepaid without penalty up to 20% of the original principal amounts of such loans per year or in connection with any rate adjustments. Any other prepayments under the Initial MetLife Term Loans generally are subject to a minimum prepayment premium of 1.00%.
In connection with the Initial MetLife Term Loans, on March 29, 2016, the Company and the Operating Partnership each entered into a separate guaranty (the “Initial MetLife Guaranties”) whereby the Company and the Operating Partnership jointly and severally agreed to unconditionally guarantee all of the borrowers’ obligations under the First MetLife Loan Agreement.
20
In connection with the Term Loan 4, on June 29, 2016, the Company and the Operating Partnership each entered into a separate guaranty (the “Term Loan 4 Guaranties”) whereby the Company and the Operating Partnership jointly and severally agreed to unconditionally guarantee all of the borrowers’ obligations under the Second MetLife Loan Agreement.
On January 12, 2017, five wholly owned subsidiaries of the Operating Partnership entered into a loan agreement (the “Fifth MetLife Loan Agreement”) with MetLife which provides for a loan of approximately $8.4 million to the Company with a maturity date of January 12, 2027 (“Term Loan 5”). Interest on Term Loan 5 is payable semi-annually and accrues at a 3.26% per annum fixed rate, and may be adjusted by MetLife on each of January 12, 2020, January 12, 2023 and January 12, 2026 at the option of the Lender to a rate that is consistent with similar loans. Proceeds from Term Loan 5 were used to acquire additional properties and for general corporate purposes.
In connection with the Term Loan 5, on January 12, 2017, the Company and the Operating Partnership each entered into a separate guaranty (the “Term Loan 5 Guaranties”) whereby the Company and the Operating Partnership jointly and severally agreed to unconditionally guarantee all of the borrowers’ obligations under the Fifth MetLife Loan Agreement.
On February 14, 2017, a wholly owned subsidiary of the Operating Partnership entered into a loan agreement (the “Sixth MetLife Loan Agreement”) with MetLife which provides for a loan of approximately $27.2 million to the Company with a maturity date of February 14, 2027 (“Term Loan 6”). Interest on Term Loan 6 is payable semi-annually and accrues at a 3.21% per annum fixed rate, and may be adjusted by MetLife on each of February 14, 2020, February 14, 2023 and February 14, 2026 at the option of the Lender to a rate that is consistent with similar loans. Proceeds from Term Loan 6 were used to acquire additional properties.
In connection with the Term Loan 6, on February 14, 2017, the Company and the Operating Partnership each entered into a separate guaranty (the “Term Loan 6 Guaranties) whereby the Company and the Operating Partnership jointly and severally agreed to unconditionally guarantee all of the borrowers’ obligations under the Sixth MetLife Loan Agreement.
On June 7, 2017, a wholly owned subsidiary of the Operating Partnership, entered into a loan agreement (the “Seventh MetLife Loan Agreement”) with MetLife which provides for a loan of approximately $21.3 million to the Company with a maturity date of June 7, 2027 (“Term Loan 7”). Interest on Term Loan 7 is payable semi-annually and accrues at a 3.45% per annum fixed rate, and may be adjusted by MetLife on each of June 7, 2020, June 7, 2023 and June 7, 2026 at the option of the Lender to a rate that is consistent with similar loans. Proceeds from Term Loan 7 were used to acquire additional properties.
In connection with the Term Loan 7, on June 7, 2017, the Company and the Operating Partnership each entered into a separate guaranty (the “Term Loan 7 Guaranties” together with the Initial MetLife Guaranties, the Term Loan 4 Guaranties, the Term Loan 5 Guaranties and the Term Loan 6 Guaranties, the “MetLife Guaranties”) whereby the Company and the Operating Partnership jointly and severally agreed to unconditionally guarantee all of the borrowers’ obligations under the Seventh MetLife Loan Agreement.
Each of the MetLife Loan Agreementsloan agreements contains a number of customary affirmative and negative covenants, including the requirement to maintain a loan to value ratio of no greater than 60%.
In connection with each of the MetLife loan agreements, the Company and the Operating Partnership each entered into separate guarantees whereby the Company and the Operating Partnership jointly and severally agree to unconditionally guarantee the obligations under the Metlife loan agreements (the “MetLife guarantees”). The MetLife Guaranties alsoguarantees contain a number of customary affirmative and negative covenants.
The Company was in compliance with all covenants under the MetLife Term Loansloan agreements and MetLife guarantees as of SeptemberJune 30, 2017.2021.
Each of the MetLife Loan Agreementsloan agreements includes certain customary events of default, including a cross-default provision related to other outstanding indebtedness of the borrowers, the Company and the Operating Partnership, the occurrence of which, after any applicable cure period, would permit MetLife, among other things, to accelerate payment of all amounts outstanding under the MetLife Term Loansloans and to exercise its remedies with respect to the pledged collateral, including foreclosure and sale of the Company’s properties that collateralize the MetLife Term Loans.loans.
Farm Credit of Central Florida Mortgage Note
On August 31, 2016, a wholly owned subsidiary of the Operating Partnership entered into a loan agreement (the “Farm Credit Mortgage Note”) with Farm Credit of Central Florida (“Farm Credit”) which provides for a loan of approximately
21
$8.2 million to the Company with a maturity date of September 1, 2023. As of SeptemberJune 30, 20172021 and December 31, 2016,2020, the Company had $0.0 million outstanding and approximately $5.1 million had been drawn down under this facility. Interest onthe Farm Credit Mortgage Note is payable quarterly and accrues at a floating rate that will be adjusted monthly to a rate per annum equal to the one-month LIBOR plus 2.6875%, which is subject to adjustment on the first day of September 2016, and on the first day of each month thereafter. Principal is payable quarterly commencing on October 1, 2018, with all remaining principal and outstanding interest due at maturity.Central Florida mortgage note facility. Proceeds from the Farm Credit Mortgage Note are to bemortgage note were used for the acquisition and development of additional properties.
The FarmOn October 29, 2020, the proceeds of a refinancing with MetLife were used to repay all outstanding principal and interest on this note.
Rutledge Credit Mortgage Note contains a numberFacility
As of customary affirmativeJune 30, 2021 and negative covenants, as well as a covenant requiring the Company to maintain a debt service coverage ratio of 1.25 to 1.00 beginning on December 31, 2019.
Prudential Note
On December 21, 2016, a wholly owned subsidiary of the Operating Partnership entered into a loan agreement with The Prudential Insurance Company of America (“Prudential”) which provides for a loan of approximately $6.6 million to the Company with a maturity date of July 1, 2019 (the “Prudential Note”). Interest on the Prudential Note is payable in cash semi-annually and accrues at a fixed rate of 3.20% per annum. Proceeds from the Prudential Note were used for the acquisition of additional properties.
Beginning on December 21, 2017, the Prudential Note requires the Company to maintain a loan to value no greater than 60%.
Rutledge Credit Facilities
Upon closing of the AFCO Mergers, by virtue of AFCO OP becoming a subsidiary of the Company, the Company assumed AFCO’s outstanding indebtedness under four loan agreements (the “Existing Rutledge Loan Agreements”) between AFCO OP and Rutledge Investment Company (“Rutledge”), which are further described below:
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|
|
|
|
|
|
|
22
In connection with the completion of the AFCO Mergers, on February 3, 2017, AFCO OP, in its capacity as a wholly owned subsidiary of2020, the Company and the Operating Partnership had $112.0 million and Rutledge entered into the Second Amendment (the “Rutledge Amendment”) to the Existing Rutledge Loan Agreements. Pursuant to the Rutledge Amendment, among other things, the maturity dates for each of the Existing Rutledge Loan Agreements were extended to January 1, 2022 and the aggregate loan value$112.0 million, respectively, outstanding under the Existing Rutledge Loan Agreements may not exceed 50% of the appraised value of the collateralized properties. Certain AFCO properties acquired by the Company in the Mergers serve as collateral under the Existing Rutledge Loan Agreements.
On February 3, 2017, the Company and the Operating Partnership each entered into guaranty agreements (the “Existing Loan Guarantees”) pursuant to which they unconditionally guarantee the obligations of AFCO OP under the Existing Loan Agreements.
In addition, in connection with the completion of the Mergers, on February 3, 2017, AFCO OP entered into a fifth loan agreementcredit facility with Rutledge Investment Company (the “Fifth“Rutledge Facility”). As of June 30, 2021, $0.0 remains available under this facility and the Company was in compliance with all covenants under the loan agreements relating to the Rutledge Loan Agreement” and togetherFacility.
In connection with the Existing Rutledge Loan Agreements, as amended, the “Rutledge Loan Agreements”), with respect to a senior secured credit facility in the aggregate amount of $30.0 million, with a maturity date of January 1, 2022 and an annual interest rate of 3 month LIBOR plus 1.3%. The Fifth Rutledge Loan Agreement requires AFCO OP to make quarterly interest payments. Additionally, the Fifth Rutledge Loan Agreement contains certain customary affirmative and negative covenants, including (i) AFCO OP must pay a quarterly non-usage fee equal to 0.25% of the committed loan amount minus the average outstanding principal balanceeach of the loan amount during the prior three-month period, (ii) AFCO OP must maintain a leverage ratio of 60% or less and (iii) the aggregate amounts outstanding under all ofagreements relating to the Rutledge Loans may not exceed 50% of the aggregate appraised value of the properties serving as collateral under the Rutledge Loan Agreements.
On February 3, 2017,Facility, the Company and the Operating Partnership each entered into separate guarantees (the “Fifth Loan Guarantees”whereby the Company and together with the Existing Loan Guarantees, the “Guarantees”) whereby they are requiredOperating Partnership jointly and severally agreed to unconditionally guarantee AFCO OP’sthe obligations under the Fifthloan agreements related to the Rutledge Loan Agreement. AsFacility (the “Rutledge guarantees”). The Rutledge guarantees contain a number of September 30, 2017 $0 remains available under this facility.customary affirmative and negative covenants.
19
Rabobank Mortgage Note
As of SeptemberJune 30, 2017,2021 and December 31, 2020, the Company and the Operating Partnership had $59.5 million and $62.4 million outstanding, respectively, under the Rabobank mortgage note. The Company was in compliance with all covenants under the RutledgeRabobank mortgage note as of June 30, 2021.
Jefferson Bank Bridge Loan Agreements.
On May 28, 2021, the Company entered into a loan agreement with Jefferson Bank in connection with the acquisition of property. The loan is due September 2021 and is collateralized by the property acquired. In accordance with the terms of the applicable real estate purchase agreement, the seller agreed to reimburse the Company for a 3.0% interest rate on a maximum of $13.5 million in loan principal for the first 90 days following the closing. As of June 30, 2021, the Company and the Operating Partnership had $14.0 million outstanding under the Jefferson Bank bridge loan.
LIBOR
LIBOR is expected to be phased out or modified by June 2023, and the writing of contracts using LIBOR is expected to stop by the end of 2021. As of June 30, 2021, the Company’s only indebtedness with maturity beyond 2023 that has exposure to LIBOR was the Rababank Mortgage Note. There can be no assurances as to what the alternative base rate will be in the event that LIBOR is discontinued, and the Company can provide no assurances whether that base rate will be more or less favorable than LIBOR. The Company intends to monitor the developments with respect to the phasing out of LIBOR after 2021 and work with its lenders to ensure that any transition away from LIBOR will have minimal impact on its financial condition, but can provide no assurances regarding the impact of LIBOR discontinuation.
Debt Issuance Costs
Costs incurred by the Company in obtaining debt are deducted from the face amount of mortgage notes and bonds payable. During the nine months ended September 30, 2017, $0.8 million in costs were incurred in conjunction with the MetLife and Rutledge Term Loans. During the nine months ended September 30, 2016, the Company paid 4.0% of the principal amount of the MSD Bridge Loan, or $2,120,000, as additional interest on issuance. Debt issuance costs are amortized using the straight-line method, which approximates the effective interest method, over the respective terms of the related indebtedness. Any unamortized amounts upon early repayment of mortgage notes payable are written off in the period in which repayment occurs. Fully amortized deferred financing fees are removed from the balance sheet upon maturity or repayment of the underlying debt. Accumulated amortization of deferred financing fees was $0.5$1.5 million and $0.7$1.3 million as of SeptemberJune 30, 20172021 and December 31, 2016,2020, respectively.
Aggregate Maturities
As of SeptemberJune 30, 2017,2021, aggregate maturities of long-term debt for the succeeding years are as follows:
|
|
|
|
|
($ in thousands) |
|
|
|
|
Year Ending December 31, |
| Future Maturities |
| |
2017 (remaining three months) |
| $ | 60,400 |
|
2018 |
|
| — |
|
2019 |
|
| 6,481 |
|
2020 |
|
| 48,300 |
|
2021 |
|
| — |
|
Thereafter |
|
| 350,653 |
|
|
| $ | 465,834 |
|
| | | | |
($ in thousands) | | | | |
Year Ending December 31, |
| Future Maturities |
| |
2021 (remaining six months) | | $ | 14,000 | |
2022 | | | 112,000 | |
2023 | | | — | |
2024 | |
| 2,100 | |
2025 | | | 27,087 | |
Thereafter | | | 347,023 | |
| | $ | 502,210 | |
23
Fair Value
The fair value of the mortgage notes payable is valued using Level 3 inputs under the hierarchy established by GAAP and is calculated based on a discounted cash flow analysis, using interest rates based on management’s estimates of market interest rates on long-term debt with comparable terms whenever the interest rates on the mortgage notes payable are deemed not to be at market rates. As of SeptemberJune 30, 20172021 and December 31, 2016,2020, the fair value of the mortgage notes payable was $458.9$517.9 million and $300.1$535.1 million, respectively.
20
Note 8—Commitments and Contingencies
On October 26, 2016, a purported class action lawsuit was filed in the Circuit Court for Baltimore County, Maryland against AFCO, seekingThe Company is not currently subject to represent a proposed class of all AFCO stockholders captioned Parshall v. American Farmland Company et. al., Case No. 24C16005745. The complaint namesany known material contingencies arising from its business operations, nor to any material known or threatened litigation other than as defendants AFCO, the members of AFCO’s board of directors, AFCO OP, the Company, the Operating Partnership, Farmland Partners OP GP LLC, FPI Heartland LLC, FPI Heartland Operating Partnership, LP and FPI Heartland GP LLC. The complaint alleges that the AFCO directors breached their duties to AFCO in connection with the evaluation and approval of the AFCO Mergers. In addition, the complaint alleges, among other things, that AFCO, AFCO OP, the Company, Farmland Partners OP GP LLC, FPI Heartland LLC, FPI Heartland Operating Partnership, LP and FPI Heartland GP LLC aided and abetted those breaches of duties. On April 18, 2017, the court approved an order to dismiss the lawsuit without prejudice.discussed below.
In April 2015, the Company entered into a lease agreement for office space.space which the Company extended in March 2020 through July 31, 2021 and in May 2021 through September 2022. The lease expires on July 31, 2019. The lease commenced on June 1, 2015 and had an initial monthly payment of $10,032, which increased to $10,200 and $10,367 in June 2016, $10,366 in June 2017, $10,534 in June 2018, $10,701 in June 2020, $12,373 in August 2020 and $13,042 in October 2021. Beginning in 2020, the Company recognized right of 2016use assets and June of 2017, respectively, and increases annually thereafter.related lease liabilities in the consolidated balance sheets. The Company also entered into two annual leasesestimated the value of the lease liabilities using a discount rate equivalent to the rate we would pay on a secured borrowing with similar terms to the lease. Options to extend the lease are excluded in our minimum lease terms unless the option is reasonably certain to be exercised. Our total lease cost for farmlandthe three and office space on January 1, 2017six months ended June 30, 2021 and February 2, 2017,2020 was $0.04 million, $0.08 million, $0.03 million and $0.06 million, respectively. As of SeptemberJune 30, 2017, future minimum2021, the lease has a remaining term of fifteen months and a discount rate of 3.35%. Minimum annual rental payments under these operating leases, reconciled to the lease liability included in accrued liabilities and other in our consolidated balance sheets, are as follows:follows (in thousands):
|
|
|
|
|
($ in thousands) |
| Future rental |
| |
Year Ending December 31, |
| payments |
| |
2017 (remaining three months) |
| $ | 44 |
|
2018 |
|
| 126 |
|
2019 |
|
| 74 |
|
2020 |
|
| — |
|
2021 |
|
| — |
|
|
| $ | 244 |
|
| | | | |
($ in thousands) |
| Future rental |
| |
Year Ending December 31, | | payments |
| |
2021 (remaining six months) | | $ | 64 | |
2022 | |
| 117 | |
2023 | | | — | |
2024 | | | — | |
2025 | |
| — | |
Thereafter | | | — | |
| | $ | 181 | |
A saleLitigation
On July 11, 2018, a purported class action lawsuit, captioned Kachmar v. Farmland Partners Inc. (the “Kachmar Action”), was filed in the United States District Court for the District of anyColorado against the Company and certain of our officers by a purported Company stockholder. The complaint alleges, among other things, that our disclosure related to the FPI Loan Program was materially false and misleading in violation of the 38 properties contributedSecurities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. On August 17, 2018, a second purported class action, captioned Mariconda v. Farmland Partners Inc. was filed in the United States District Court for the District of Colorado (the “Borop Action”). As discussed below, the current named plaintiff in that action is a purported FPI shareholder named Don Brokop. The complaint filed in the Brokop Action alleged substantially identical claims to those alleged in the Kachmar Action.
Several purported shareholders moved to consolidate the Kachmar Action and the Brokop Action and for appointment as lead plaintiff. On November 13, 2018, the plaintiff in the Kachmar Action voluntarily dismissed the Kachmar Action. On December 3, 2018, the court appointed two purported stockholders of the Company, the Turner Insurance Agency, Inc. and Cecilia Turner (the “Turners”), as lead plaintiffs in the Brokop Action. On March 11, 2019, the Turners and additional plaintiff Obelisk Capital Management filed an amended complaint in the Brokop Action. On June 18, 2019, the court denied the defendants’ motion to dismiss the amended complaint in the Brokop Action. The defendants answered the amended complaint on July 2, 2019. On December 6, 2019, plaintiffs voluntarily dismissed Obelisk Capital Management from the case. In connection with Obelisk Capital Management’s dismissal from the case, defendants filed a motion for judgment on the pleadings on December 10, 2019, which automatically stayed discovery in the action pending the court’s determination of the motion. On December 16, 2019, plaintiffs filed a motion for class certification, seeking to certify the case as a class action on behalf of purchasers of Farmland Partners’ common stock between November 12, 2015 and July 10, 2018 and to have the Turners and purported stockholder Don Brokop appointed as class representatives. On December 27, 2019, plaintiffs filed a motion for leave to file a second amended complaint to add Brokop as an additional plaintiff in place of Obelisk Capital Management. On December 8, 2020, the court granted the Turners’ motion to amend to add Brokop as an additional plaintiff and denied the Company’s motion for judgment on the pleadings. As a result, the automatic discovery stay was lifted and the court entered a schedule for proceedings going forward. The Company, Mr. Pittman, and Mr. Fabbri filed an opposition to plaintiffs’ motion for class certification on February 8, 2021. On February 17, 2021, plaintiffs filed a motion to withdraw the Turners as lead plaintiffs and to substitute Brokop as lead plaintiff. On
21
June 7, 2021, the court granted the motion to withdraw the Turners and substitute Brokop as lead plaintiff. The parties completed fact discovery on June 29, 2021. On July 23, 2021, Magistrate Judge Nina Wang issued a Report and Recommendation to the district court recommending that Brokop’s motion for class certification be granted in part and denied in part. Specifically, the magistrate judge recommended that the district court deny the motion as to purchasers of Farmland Partners common stock between November 12, 2015 and December 14, 2016 and grant the motion as to purchasers between December 14, 2016 and July 11, 2018. The district court has not yet acted on the magistrate judge’s recommendation. Expert discovery is ongoing and is scheduled to conclude on October 1, 2021. At this time, no class has been certified in the Turner Action and we do not know the amount of damages or other remedies being sought by the plaintiffs. The Company can provide no assurances as to the outcome of this litigation or provide an estimate of related expenses at this time.
On December 18, 2018, a purported stockholder of the Company, Jack Winter, filed a complaint in the Circuit Court for Montgomery County, Maryland (the “Winter Action”), purporting to assert breach of fiduciary duty claims derivatively on the Company’s portfoliobehalf against the Company’s directors and certain of the Company’s officers. The Winter Action alleges, among other things, that the Company’s directors and certain of the Company’s officers breached their fiduciary duties to the Company by allowing the Company to make allegedly false and misleading disclosures related to the FPI Loan Program, as alleged in the Brokop Action. On April 26, 2019, Winter voluntarily dismissed his complaint in the Circuit Court for Montgomery County Maryland. On May 14, 2019, Winter re-filed his complaint in the United States District Court for the District of Colorado. The Winter Action has been stayed pending further proceedings in the Turner Action.
On November 25, 2019, another purported shareholder, Shawn Luger, filed a complaint derivatively on behalf of the Company and against certain of our officers in the Circuit Court for Baltimore City, Maryland (the “Luger Action”). The Luger Action complaint made similar claims to those in the Brokop and Winter Actions. On February 14, 2020, another purported shareholder, Brent Hustedde, filed a complaint derivatively on behalf of the Company and against certain of our officers in Maryland state court (the “Hustedde Action”). The Hustedde Action complaint made similar claims to those in the Brokop, Winter, Luger, and Barber Actions. On September 23, 2020, the Court consolidated the Luger and Hustedde action under the caption In re Farmland Partners Inc. Stockholder Litigation (the “Stockholder Litigation”). Luger and Hustedde (the “Derivative Plaintiffs”), the plaintiffs in the Stockholder Litigation, filed a consolidated amended complaint on October 30, 2020. The Company moved to dismiss the complaint in the Stockholder Litigation on December 15, 2020. On June 3, 2021, the court granted the Company’s motion to dismiss and dismissed the consolidated amended complaint in the Stockholder Litigation as to all defendants. On July 7, 2021, the Derivative Plaintiffs filed a notice of appeal, appealing the order dismissing their consolidated amended complaint to the Maryland Court of Special Appeals.
On November 26, 2019, another purported shareholder, Anna Barber, filed a complaint derivatively on behalf of the Company and against certain of our officers in the United States District Court for the District of Colorado (the “Barber Action”). The Barber Action complaint made similar claims to those in the Brokop, Winter, and Luger Actions. On June 25, 2021, Barber voluntarily dismissed the Barber Action with prejudice.
On July 24, 2018, we filed a lawsuit in the District Court, Denver County, Colorado, against “Rota Fortunae” (a pseudonym for Quinton Mathews, the individual behind Rota Fortunae) and numerous co-conspirators (collectively, “Wheel of Fortune”) in response to an article posted on Seeking Alpha that makes numerous allegations about the Company that we believe to be false or materially misleading. We believe that as a consequence of Wheel of Fortune’s internet posting, which we alleged was published in connection with a “short and distort” scheme to profit from an artificial decline in our stock price, the trading price of our common stock declined by approximately 40%. The Company does not expect insurance proceeds to cover a substantial portion of the costs related to the lawsuit we filed against Wheel of Fortune. On May 15, 2020, United States District Court for the District of Colorado to which this case was removed issued orders (i) denying Rota Fortunae’s motion to dismiss our claims; and (ii) requiring him to disclose his identity. On July 28, 2020, the Court granted our motion to amend the complaint to add Quinton Mathews’ name as well as the following alleged co-conspirators: QKM, L.L.C., Sabrepoint Capital Management, LP, Donald Marchiony and George Baxter. On February 26, 2021 the Court granted the motion of Sabrepoint Capital Management, LP, Donald Marchiony, and George Baxter to dismiss them solely on personal jurisdiction grounds.
22
On June 20, 2021, Quinton Mathews (a.k.a. “Rota Fortunae”) entered into a settlement agreement with the Company in which he agreed to pay the Company a multiple of the profits he made when the Company’s common stock price fell in connection with the Wheel of Fortune article. The Company has long believed the Wheel of Fortune article was part of a short and distort attack on the Company. This was confirmed when Quinton Mathews issued a press release admitting he and his advisory clients shorted the Company in advance of the article and profited from the decline it caused, and further admitted that many of the key statements in that article – which he acknowledged led to the stock’s decline - were false. Following the parties’ settlement, the Court granted a joint stipulated motion to dismiss the case on June 29, 2021.
On July 2, 2021, the Company filed a complaint against First Sabrepoint Capital Management, LP, Sabrepoint Capital Partners, LP, Sabrepoint Capital Participation, LP, George Baxter, and Donald Marchiony (collectively, “Sabrepoint”) in the Civil District Courts of Dallas County, Texas seeking relief for their role, as alleged in the complaint, in the short and distort scheme.
Repurchase Options
For certain of the Company’s acquisitions, the seller retains the option to repurchase the property at a future date for a price, which is calculated based on an appreciation factor over the original purchase price plus the value of improvements on the property, that, at the time of the acquisition, the Company expected would be at or above the property’s fair market value at the exercise date. As of June 30, 2021, the Company has an approximate aggregate net book value of $8.0 million related to assets with unexercised repurchase options, and $15.8 million related to assets with exercised repurchase options. On September 4, 2020, the seller of 1 such property exercised its right to repurchase approximately 2,860 acres in South Carolina. The Company received a non-refundable initial public offering that would not provide continued tax deferralpayment of $2.9 million upon exercise, plus an additional payment of $0.3 million in February 2021. The Company is scheduled to Pittman Hough Farms is contractually restrictedreceive a series of non-refundable payments until the fifth (with respectclosing date, which is currently scheduled to certain properties)take place on or seventh (with respect to certain other properties) anniversary of the completion of the formation transactions, which occurred on April 16, 2014. Furthermore, if any such sale or defeasance is foreseeable, the Company is required to notify Pittman Hough Farms and to cooperate with it in considering strategies to defer or mitigate the recognition of gain under the Code, by any of the equity interest holders of the recipient of the Common units.before January 15, 2025.
The Company has entered into lease agreements in which the Company agreed to complete certain improvement projects on one Florida farm and four South Carolina farms. As of September 30, 2017, future capital commitments associated with the projects are as follows:
|
|
|
|
($ in thousands) |
| Future Capital | |
Year Ending December 31, |
| Commitments | |
2017 (remaining three months) |
| $ | 4,311 |
2018 |
|
| 845 |
|
| $ | 5,156 |
As of September 30, 2017 the Company had the following properties under contract. As of the report date, none of the farm acquisitions below have closed, but are expected to close in Q4 2017 or Q1 2018 and are expected to be accounted for as asset acquisitions.
24
|
|
|
|
|
|
|
|
($ in thousands) |
|
| Purchase |
Farm State |
|
| Price |
South Carolina |
| $ | 1,120 |
California |
|
| 110,000 |
|
| $ | 111,120 |
See “Note 10—Subsequent Events” for properties put under contract subsequent to September 30, 2017.
Note 9—Stockholders’ Equity and Non-controlling Interests
Non-controlling Interests in Operating Partnership
The Company consolidates its Operating Partnership. As of SeptemberJune 30, 20172021 and December 31, 2016,2020, the Company owned an 85.1%95.4% and a 75.1% interest,94.9% of the outstanding interests, respectively, in the Operating Partnership, and the remaining 14.9%4.6% and 24.9% interest,5.1% interests, respectively, isare included in non-controlling interests in Operating Partnership on the consolidated balance sheets. The non-controlling interests in the Operating Partnership are held in the form of Common units and Series A preferred units.
On or after 12 months of becoming a holder of Common units, unless the terms of an agreement with such Common unit holderunitholder dictate otherwise, each limited partner, other than the Company, has the right, subject to the terms and conditions set forth in the Second Amended and Restated Agreement of Limited Partnership of the Operating Partnership, as amended (the “Partnership Agreement”), to tender for redemption all or a portion of such Common units in exchange for cash, or in the Company’s sole discretion, for shares of the Company’s common stock on a one-for-one1-for-one basis. If cash is paid in satisfaction of a redemption request, the amount will be equal to the number of tendered units multiplied by the fair market value of aper share of the Company’s common stock on the date of the redemption notice (determined in accordance with, and subject to adjustment under, the terms of the Partnership Agreement). Any redemption request must be satisfied by the Company on or before the close of business on the tenth business day after the Company receives a notice of redemption. On March 27, 2017,During the six months ended June 30, 2021 and the year ended December 31, 2020, the Company issued 129,174158,705 and 265,000, respectively, of shares of common stock in exchange for 129,174 Common units that had been tendered for redemption. On April 12, 2017, the Company issued 328,122 sharesupon redemption of common stock in exchange for 328,122 Common units that had been tendered for redemption. On July 10, 2017, the Company issued 118,634 shares158,705 and 265,000, respectively, of common stock in exchange for 118,634 Common units that had been tendered for redemption. On July 19, 2017, the Company issued 531,827 shares of common stock in exchange for 531,827 Common units that had been tendered for redemption. There were 4.51.5 million and 3.01.6 million outstanding Common units eligible to be tendered for redemption as of SeptemberJune 30, 20172021 and December 31, 2016,2020, respectively.
If the Company gives the limited partners notice of its intention to make an extraordinary distribution of cash or property to its stockholders or effect a merger, a sale of all or substantially all of its assets or any other similar extraordinary transaction, each limited partner may exercise its right to tender its Common units for redemption, regardless of the length of time such limited partner has held its Common units.
23
Regardless of the rights described above, the Operating Partnership will not have an obligation to issue cash to a unitholder upon a redemption request if the Company elects to redeem Common units for shares of common stock. When a Common unit is redeemed, non-controlling interest in the Operating Partnership is reduced, and stockholders’ equity is increased.
The Operating Partnership intends to continue to make distributions on each Common unit in the same amount as those paid on each share of the Company’s common stock, with the distributions on the Common units held by the Company being utilized to pay dividends to the Company’s common stockholders.
Pursuant to the consolidation accounting standard with respect to the accounting and reporting for non-controlling interest changes and changes in ownership interest of a subsidiary, changes in parent’s ownership interest when the parent retains controlling interest in the subsidiary should be accounted for as equity transactions. The carrying amount of the non-controlling interest shall be adjusted to reflect the change in its ownership interest in the subsidiary, with the offset to equity attributable to the parent. As a result of equity issuances including and subsequent to the IPO, changes in the
25
ownership percentages between the Company’s stockholders’ equity and non-controlling interest in the Operating Partnership occurred during the ninesix months ended SeptemberJune 30, 20172021 and September 30, 2016. During the nine months ended September 30, 2017, the Company increased2020. To reflect these changes, adjustments were made to increase / decrease the non-controlling interest in the Operating Partnership by $0.1 million and decreased additional paid in capital by $3.1$0.3 million. During during the ninesix months ended SeptemberJune 30, 2016,2021 and 2020 respectively, with the Company decreased the non-controlling interest in the Operating Partnership and increasedcorresponding offsets to additional paid in capital by $4.3 million.paid-in capital.
Redeemable Non-controlling Interests in Operating Partnership, Class A Common Units
On June 2, 2015, the Company issued 1,993,709 Common units in conjunction with an asset acquisition. Beginning on June 2, 2016, the Common units became eligible to be tendered for redemption for cash, or at the Company’s option, for shares of common stock on a one for one basis. In connection with its annual meeting of stockholders held on May 25, 2016, the Company obtained stockholder approval to issue shares of its common stock upon the redemption of 883,724 of the Common units (the “Excess Units”). Prior to such stockholder approval, the Company would have been required to redeem the Excess Units for cash. As the tender for redemption of the Excess Units for shares of common stock was outside of the control of the Company until May 25, 2016, these units were accounted for as mezzanine equity on the consolidated balance sheets as of December 31, 2015. After the redemption became within the control of the Company these excess units formed part of the non-controlling interests in the Operating Partnership. The Company elected to accrete the change in redemption value of the Excess Units subsequent to issuance and during the respective 12-month holding period, after which point the units were marked to redemption value at each reporting period.
Redeemable Non-controlling Interests in Operating Partnership, Series A preferred unitsPreferred Units
On March 2, 2016, the sole general partner of the Operating Partnership entered into Amendment No.1No. 1 (the “Amendment”) to the Partnership Agreement in order to provide for the issuance, and the designation of the terms and conditions, of the Series A preferred units. UnderPursuant to the Amendment, among other things, each Series A preferred unit has a $1,000 liquidation preference and is entitled to receive cumulative preferential cash distributions at a rate of 3.00% per annum of the $1,000 liquidation preference, which is payable annually in arrears on January 15 of each year or the next succeeding business day. The cash distributions are accrued ratably over the year and credited to redeemable non-controlling interest in operating partnership, preferred units on the balance sheet with the offset recorded to retained earnings. Dividends on Series A preferred units have been recorded through retained earnings in 2017 as opposed to additional paid in capital in 2016 due to the Company generating retained earnings during 2017. On March 2, 2016, 117,000 Series A preferred units were issued as partial consideration in the March 2, 2016 Illinois farm acquisition. Upon any voluntary or involuntary liquidation or dissolution, the Series A preferred units are entitled to a priority distribution ahead of Common units in an amount equal to the liquidation preference plus an amount equal to all distributions accumulated and unpaid to the date of such cash distribution. Total liquidation value of such preferred units as of SeptemberJune 30, 20172021 and December 31, 20162020 was $119.6$118.8 million and $119.9$120.5 million, respectively,respectively, including accrued distributions.
On or after March 2,February 10, 2026 the tenth anniversary of the closing of the Forsythe acquisition (the “Conversion Right Date”), holders of the Series A preferred units have the right to convert each Series A preferred unit into a number of Common units equal to (i) the $1,000 liquidation preference plus all accrued and unpaid distributions, divided by (ii) the volume-weighted average price per share of the Company’s common stock for the 20 trading days immediately preceding the applicable conversion date. All Common units received upon conversion may be immediately tendered for redemption for cash or, at the Company’s option, for shares of common stock on a one-for-one1-for-one basis, subject to the terms and conditions set forth in the Partnership Agreement. Prior to the Conversion Right Date, the Series A preferred units may not be tendered for redemption by the Holder.
On or after March 2,February 10, 2021, the fifth anniversary of the closing of the Forsythe acquisition mentioned above, but prior to the Conversion Right Date, the Operating Partnership has the right to redeem some or all of the Series A preferred units, at any time and from time to time, for cash in an amount per unit equal to the $1,000 liquidation preference plus all accrued and unpaid distributions.
26
In the event of a Termination Transaction (as defined in the Partnership Agreement) prior to conversion, holders of the Series A preferred units generally have the right to receive the same consideration as holders of Common units and common stock, on an as-converted basis.
24
Holders of the Series A preferred units have no voting rights except with respect to (i) the issuance of partnership units of the Operating Partnership senior to the Series A preferred units as to the right to receive distributions and upon liquidation, dissolution or winding up of the Operating Partnership, (ii) the issuance of additional Series A preferred units and (iii) amendments to the Partnership Agreement that materially and adversely affect the rights or benefits of the holders of the Series A preferred units.
The Series A preferred units are accounted for as mezzanine equity on the consolidated balance sheet as the units are convertible and redeemable for shares at a determinable price and date at the option of the holder and upon the occurrence of an event not solely within the control of the Company.
The following table summarizes the changes in the Company’s redeemable non-controlling interest in the Operating Partnership for the ninesix months ended SeptemberJune 30, 20172021 and 2016:2020:
|
|
|
|
|
|
|
|
|
|
|
|
| Common |
| Series A Preferred Units | ||||||
($ in thousands) |
| Redeemable |
| Redeemable |
| Redeemable |
| Redeemable | ||
Balance at December 31, 2015 |
| 884 |
| $ | 9,695 |
| — |
| $ | — |
Issuance of redeemable Common units as partial consideration for real estate acquisition |
| — |
|
| — |
| 117 |
|
| 117,000 |
Net loss attributable to non-controlling interest |
| — |
|
| (64) |
| — |
|
| — |
Accrued distributions to non-controlling interest |
| — |
|
| (113) |
| — |
|
| 2,057 |
Redemption of Common units for Common stock |
| (884) |
|
| (9,518) |
|
|
|
|
|
Balance at September 30, 2016 |
| — |
| $ | — |
| 117 |
| $ | 119,057 |
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016 |
| — |
| $ | — |
| 117 |
| $ | 119,915 |
Distributions paid to non-controlling interest |
| — |
|
| — |
| — |
|
| (2,915) |
Accrued distributions to non-controlling interest |
| — |
|
| — |
| — |
|
| 2,633 |
Redemption of Common units for common stock |
| — |
|
| — |
| — |
|
| — |
Balance at September 30, 2017 |
| — |
| $ | — |
| 117 |
| $ | 119,633 |
| | | | | | |
| | | Series A Preferred Units | |||
($ in thousands) | |
| Redeemable |
| Redeemable | |
Balance at December 31, 2019 | | | 117 | | $ | 120,510 |
Distribution paid to non-controlling interest | | | — | | | (3,510) |
Accrued distributions to non-controlling interest | | | — | | | 1,755 |
Balance at June 30, 2020 | | | 117 | | $ | 118,755 |
| | | | | | |
Balance at December 31, 2020 | | | 117 | | $ | 120,510 |
Distribution paid to non-controlling interest | | | — | | | (3,510) |
Accrued distributions to non-controlling interest | | | — | | | 1,755 |
Balance at June 30, 2021 | | | 117 | | $ | 118,755 |
Series B Participating Preferred Stock
On August 17, 2017, the Company and the Operating Partnership entered into an underwriting agreement with Raymond James & Associates, Inc. and Jefferies LLC, as representatives of the underwriters, pursuant to which the Company sold 6,037,500 shares of its newly designated Series B Participating Preferred Stock, at a public offering price of $25.00 per share, which is the Initial Liquidation Preference (as defined below) of the Series B Participating Preferred Stock.
Shares of Series B Participating Preferred Stock, which represent equity interests in the Company, generally have no voting rights and rank senior to the Company’s common stock with respect to dividend rights and rights upon liquidation. Each preferred share of Series B Participating Preferred Stock is entitled to receive cumulative preferential cash dividends at a rate of 6.00% per annum of the $25 liquidation preference, which is payable quarterly in arrears on the last day of each March, June, September and December (the “Initial Liquidation Preference”). Upon liquidation, before any payment or distribution of the assets of the Company is made to or set apart for the holders of equity securities ranking junior to the Series B Participating Preferred Stock, the holders of the Series B Participating Preferred Stock will be entitled to receive the sum of:
(i) | the Initial Liquidation Preference, |
(ii) |
|
(iii) | all accrued and unpaid dividends, subject to a 9.0% cap on total return (the “Final Liquidation Preference”). |
27
After September 30, 2021, but prior to September 30, 2024, the Company, at its option, may redeem all, but not less than all, of the then-outstanding shares of Series B Participating Preferred Stock at any time, for cash or for shares of common stock at a price equal to the Final Liquidation Preference plus an amount equal to the product of:
25
(i) | the Final Liquidation Preference, and |
(ii) | the average change in land values in states in which the Company owned farmland as of June 30, 2017 over the immediately preceding four years and multiplied by a constant percentage of 50% and prorated for the number of days between the most recent release of the publicly available land value report used to calculate the FVA Adjustment (if such amount is positive) (the “Premium Amount”). |
At any time on or after September 30, 2024, the Company, at its option, may redeem or convert to shares of common stock all, but not less than all, of the then-outstanding shares of Series B Participating Preferred Stock at the redemption price per share equal to:
(i) | the Initial Liquidation Preference, plus |
(ii) | the FVA Amount, plus |
(iii) | any accrued and unpaid dividends. |
The total rate of return on shares of the Series B Participating Preferred Stock is subject to a cap such that the total rate of return, when considering the Initial Liquidation Preference, the FVA Adjustment and the Premium Amount plus accrued and unpaid dividends, will not exceed 9.0%. Based on the data released by the USDA in August 2020 in their Land Values 2020 Summary, the FVA Amount as of 2020 was determined to be $0.80 per share of Series B Participating Preferred Stock.
In connection with the issuance of the Series B Participating Preferred Stock, the sole general partner of the Operating Partnership entered into Amendment No. 2 to the Partnership Agreement in order to provide for the issuance, and the designation of the terms and conditions, of newly classified 6.00% Series B participating preferred units of limited partnership interest in the Operating Partnership (“Series B participating preferred units”), the economic terms of which are identical to those of the Series B Participating Preferred Stock. The Company contributed the net proceeds from the offering of the Series B Participating Preferred Stock to the Operating Partnership in exchange for 6,037,500 Series B participating preferred units.
The shares of Series B Participating Preferred Stock are accounted for as mezzanine equity on the consolidated balance sheet as the Series B Participating Preferred Stock is convertible and redeemable for common shares at a determinable price and date at the option of the Company and upon the occurrence of an event not solely within the control of the Company.
During the three and nine months ended September 30, 2017 theThe balance recorded in mezzanine equity relating to the Series B Participating Preferred Stock as of June 30, 2021 and December 31, 2020 was $144.2 million. During the quarter the Company declared$139.1 million and paid dividends relating to the Series B Participating Preferred Stock of $1.1 million.
$139.8 million, respectively.
2826
Distributions
Distributions
The Company’s board of directors declared and paid the following distributions to common stockholders and holders of Common units for the ninesix months ended SeptemberJune 30, 20172021 and the year ended December 31, 2016:2020:
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
| Declaration Date |
| Record Date |
| Payment Date |
| Distributions | |
2017 |
| July 19, 2017 |
| October 2, 2017 |
| October 13, 2017 |
|
| 0.1275 |
|
| May 9, 2017 |
| June 30, 2017 |
| July 14, 2017 |
| $ | 0.1275 |
|
| February 22, 2017 |
| April 1, 2017 |
| April 14, 2017 |
|
| 0.1275 |
|
|
|
|
|
|
|
| $ | 0.3825 |
|
|
|
|
|
|
|
|
|
|
2016 |
| March 8, 2016 |
| April 1, 2016 |
| April 15, 2016 |
| $ | 0.1275 |
|
| May 9, 2016 |
| July 1, 2016 |
| July 15, 2016 |
|
| 0.1275 |
|
| August 3, 2016 |
| September 30, 2016 |
| October 14, 2016 |
|
| 0.1275 |
|
| November 3, 2016 |
| January 2, 2017 |
| January 13, 2017 |
|
| 0.1275 |
|
|
|
|
|
|
|
| $ | 0.5100 |
| | | | | | | | | |
Fiscal Year |
| Declaration Date |
| Record Date |
| Payment Date |
| Distributions | |
2021 | | February 11, 2021 | | April 1, 2021 | | April 15, 2021 | | $ | 0.0500 |
| | May 7, 2021 | | July 1, 2021 | | July 15, 2021 | | $ | 0.0500 |
| | | | | | | | $ | 0.1000 |
| | | | | | | | | |
2020 | | November 3, 2020 | | January 1, 2021 | | January 15, 2021 | | $ | 0.0500 |
| | August 4, 2020 | | October 1, 2020 | | October 15, 2020 | | $ | 0.0500 |
| | May 6, 2020 | | July 1, 2020 | | July 15, 2020 | | $ | 0.0500 |
| | March 11, 2020 | | April 1, 2020 | | April 15, 2020 | | $ | 0.0500 |
| | | | | | | | $ | 0.2000 |
| | | | | | | | | |
Additionally, in connection with the 3.00% cumulative preferential distribution on the Series A preferred units, the Company has accrued $2.6$1.8 million in distributions payable as of SeptemberJune 30, 2017.2021. The distributions are payable annually in arrears on January 15 of each year.
In connection with the Series B Participating Preferred Stock, the Company paid $1.1 million in distributions on September 30, 2017 to stockholders of record as of September 15, 2017. As long as shares of Series B Participating Preferred Stock are outstanding, distributions on such shares are payable on the last day of March, June, September and December of each year to stockholders of record on the 15th day of such months.
In general, common stock cash dividends declared by the Company will be considered ordinary income to stockholders for income tax purposes. From time to time, a portion of the Company’s dividends may be characterized as qualified dividends, capital gains or return of capital.
StockShare Repurchase PlanProgram
On March 15, 2017, the Company’s board of directors approved a program to repurchase up to $25,000,000$25 million in shares of the Company’s common stock. In November 2017, the board of directors approved repurchases of the Company’s Series B Participating Preferred Stock from time to time under the share repurchase program. Subsequently on August 1, 2018, the board of directors increased the authority under the share repurchase program by an aggregate of $30 million. On November 7, 2020, the board of directors increased the authority under the program by an additional $50 million. Repurchases under this program may be made from time to time, in amounts and prices as the Company deems appropriate. Repurchases may be made in open market or privately negotiated transactions in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended, subject to market conditions, applicable legal requirements, trading restrictions under the Company’s insider trading policy and other relevant factors. This stockshare repurchase planprogram does not obligate the Company to acquire any particular amount of common stock or Series B Preferred Stock and it may be modified or suspended at any time at the Company'sCompany’s discretion. The Company expects to continue to fundfunds repurchases under the program using cash on hand. Theits balance sheet.
During the six months ended June 30, 2021, the Company repurchased 841,2570 shares of its common stock and 25,073 shares of its Series B preferred stock for $7.4$0.7 million at an average price of $8.85$25.92 per share duringshare. As of June 30, 2021, the three and nine months ended September 30, 2017.Company had approximately $40.5 million in shares that it can repurchase under the stock repurchase plan.
Equity Incentive Plan
On May 3, 2017,7, 2021, the Company’s stockholders approved the SecondThird Amended and Restated Farmland Partners Inc. 2014 Equity Incentive Plan (the “Second Amended Plan”(as amended and restated, the “Plan”). The Second Amended Plan, among other things,, which increased the aggregate number of shares of the Company’s common stock reserved for issuance from 615,070, which was available under the First Amended and Restated Farmland Partners Inc. Equity Incentive Plan (together with the Second Amended Plan, the “Plan”), to 1,265,851 (including the 529,195 shares of restricted common stock that have been issued under the Plan and 750,000 shares reserved for future issuance).to approximately 1.9 million shares. As of SeptemberJune 30, 2017,2021, there were 0.70.8 million of shares available for future grantgrants under the Plan.
29
The Company may issue equity-based awards to officers, non-employee directors, employees, independent contractors and other eligible persons under the Plan. The Plan provides for the grant of stock options, share awards (including restricted stock and restricted stock units), stock appreciation rights, dividend equivalent rights, performance awards, annual incentive cash awards and other equity basedequity-based awards, including LTIP units, which are convertible on a
27
one-for-one basis into Common units. The terms of each grant are determined by the compensation committee of the board of directors.
From time to time, the Company may award restricted shares of its common stock under the Plan, as compensation to officers, employees, non-employee directors and non-employee consultants. The shares of restricted stock vest over a period of time as determined by the compensation committee of the Company’s board of directors at the date of grant. The Company recognizes compensation expense for awards issued to officers, employees and non-employee directors for restricted shares of common stock on a straight-line basis over the vesting period based upon the fair market value of the shares on the date of issuance, adjusted for forfeitures. The Company recognizes compensation expense for awards issued to non-employee consultants in the same period and in the same manner as if the Company paid cash for the underlying services.
A summary of the nonvested shares as of SeptemberJune 30, 20172021 is as follows:
|
|
|
|
|
|
|
|
|
|
| Weighted |
| |
|
| Number of |
| average grant |
| |
(shares in thousands) |
| shares |
| date fair value |
| |
Unvested at December 31, 2015 |
| 145 |
| $ | 13.87 |
|
Granted |
| 119 |
|
| 10.78 |
|
Vested |
| (70) |
|
| 13.96 |
|
Forfeited |
| (5) |
|
| 11.09 |
|
Unvested at September 30, 2016 |
| 189 |
|
| 11.97 |
|
|
|
|
|
|
|
|
Unvested at December 31, 2016 |
| 189 |
|
| 11.98 |
|
Granted |
| 205 |
|
| 11.30 |
|
Vested |
| (108) |
|
| 12.84 |
|
Forfeited |
| (7) |
|
| 10.97 |
|
Unvested at September 30, 2017 |
| 279 |
| $ | 11.16 |
|
| | | | | | | |
| | | | | Weighted |
| |
| | | Number of | | average grant |
| |
(shares in thousands) | |
| shares |
| date fair value |
| |
Unvested at December 31, 2020 | |
| 316 | | $ | 6.46 | |
Granted | |
| 129 | | | 11.73 | |
Vested | |
| (160) | | | 6.68 | |
Forfeited | |
| — | | | — | |
Unvested at June 30, 2020 | |
| 285 | | $ | 8.72 | |
For the ninethree and six months ended SeptemberJune 30, 20172021 and 2016,2020, the Company recognized $1.1$0.3 million, $0.6 million, $0.3 million and $0.9$0.5 million,, respectively, of stock-based compensation expense related to restricted stock awards. As of SeptemberJune 30, 20172021 and December 31, 2016,2020, there were $2.4$2.1 million and $1.2$1.1 million,, respectively, of total unrecognized compensation costs related to nonvested stock awards, which are expected to be recognized over a weighted-average periodsperiod of 1.31.9 years. The change in fair value of the shares issued to non-employees to be issued upon vesting is remeasured at the end of each reporting period and is recorded in general and administrative expenses on the consolidated statements of operations. The remaining restricted stock awards issued to non-employees vested during the nine monthsyear ended September 30, 2017,December 31, 2020, resulting in no0 change in fair value for the threesix months ended SeptemberJune 30, 2017.2021.
At-the-Market Offering Program (the “ATM Program”)
On September 15, 2015,May 14, 2021, the Company entered into equity distribution agreements under which the Company may issue and sell from time to time, through sales agents, shares of its common stock having an aggregate gross sales price of up to $25$50 million. During the ninesix months ended SeptemberJune 30, 2016,2021 the Company had sold an aggregate of 844,2071,954,293 shares of common stock for aggregategenerating $25.6 million and $25.3 million in gross and net proceeds, net of fees, of approximately $9.3 million at a weighted average price per share of $11.06. During the nine months ended September 30, 2017, the Company had made no salesrespectively, under the ATM Program.
Deferred Offering Costs
Deferred offering costs include incremental direct costs incurred by the Company in connection with proposed or actual offerings of securities. At the completion of a securities offering, the deferred offering costs are charged ratably as a reduction of the gross proceeds of equity as stock is issued. If an offering is abandoned, the previously deferred offering costs will be charged to operations in the period in which the offering is abandoned. The Company incurred $0.5 million$0.2 and $0.1 million$0.0 in offering costs during the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, respectively. As of
30
September June 30, 20172021 and December 31, 2016,2020, the Company had $0.3 million $0.1 and $0.2 million $0.0, respectively, in deferred offering costs related to regulatory, legal, accounting and professional service costs associated with proposed or completed offerings of securities.
28
Earnings (Loss) per Share
The computation of basic and diluted loss per share is as follows:
| | | | | | | | | | | | |
| | For the three months ended | | For the six months ended | ||||||||
| | June 30, | | June 30, | ||||||||
(in thousands, except per share amounts) |
| 2021 | | 2020 | | 2021 |
| 2020 | ||||
Numerator: | | | | | | | | | | | | |
Net income (loss) attributable to Farmland Partners Inc. | | $ | (2,735) | | $ | 162 | | $ | (375) | | $ | 556 |
Less: Nonforfeitable distributions allocated to unvested restricted shares | |
| (14) | |
| (16) | |
| (28) | |
| (32) |
Less: Distributions on redeemable non-controlling interests in Operating Partnership, preferred | | | (3,055) | | | (3,088) | | | (6,120) | | | (6,203) |
Net loss attributable to common stockholders | | $ | (5,804) | | $ | (2,942) | | $ | (6,523) | | $ | (5,679) |
| | | | | | | | | | | | |
Denominator: | | | | | | | | | | | | |
Weighted-average number of common shares - basic | |
| 31,072 | |
| 29,433 | |
| 30,747 | |
| 29,485 |
Conversion of preferred units(1) | | | — | | | — | | | — | | | — |
Unvested restricted shares(1) | | | — | | | — | | | — | | | — |
Redeemable non-controlling interest(1) | | | — | | | — | |
| — | |
| — |
Weighted-average number of common shares - diluted | |
| 31,072 | |
| 29,433 | |
| 30,747 | |
| 29,485 |
| | | | | | | | | | | | |
Loss per share attributable to common stockholders - basic | | $ | (0.19) | | $ | (0.10) | | $ | (0.21) | | $ | (0.19) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the three months ended |
| For the nine months ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
(in thousands except per share amounts) |
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Net profit (loss) attributable to Farmland Partners Inc. |
| $ | 2,216 |
| $ | 70 |
| $ | 2,277 |
| $ | (412) |
Less: Nonforfeitable distributions allocated to unvested restricted shares |
|
| (36) |
|
| (24) |
|
| (116) |
|
| (72) |
Less: Distributions on redeemable non-controlling interests in Operating Partnership, Common units |
|
| — |
|
| — |
|
| — |
|
| (113) |
Less: Distributions on redeemable non-controlling interests in Operating Partnership, Series A preferred units |
|
| (877) |
|
| (887) |
|
| (2,632) |
|
| (2,057) |
Less: Dividends on Series B Participating Preferred Stock |
|
| (1,082) |
|
| — |
|
| (1,082) |
|
| — |
Net income (loss) attributable to common stockholders |
| $ | 221 |
| $ | (841) |
| $ | (1,553) |
| $ | (2,654) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares - basic |
|
| 32,862 |
|
| 13,683 |
|
| 30,695 |
|
| 12,663 |
Conversion of Series A preferred units(1) |
|
| — |
|
| — |
|
| — |
|
| — |
Conversion of Series B Participating Preferred Stock (1) |
|
| — |
|
| — |
|
| — |
|
| — |
Unvested restricted shares(1) |
|
| — |
|
| — |
|
| — |
|
| — |
Weighted-average number of common shares - diluted |
|
| 32,862 |
|
| 13,683 |
|
| 30,695 |
|
| 12,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) per share attributable to common stockholders - basic |
| $ | 0.01 |
| $ | (0.06) |
| $ | (0.05) |
| $ | (0.21) |
Earnings (Loss) per share attributable to common stockholders - diluted |
| $ | 0.01 |
| $ | (0.06) |
| $ | (0.05) |
| $ | (0.21) |
| (1) |
| Anti-dilutive for the three and |
Unvested shares of the Company’s restricted common stock are and until May 26, 2016, the Excess Units were, considered participating securities, which requirerequires the use of the two-class method for the computation of basic and diluted earnings per share. On May 25, 2016, the Company obtained stockholder approval allowing the Company to issue shares of common stock upon the redemption of the Excess Units, which allowed the Company to remove the Excess Units from the mezzanine section of the consolidated balance sheets. As such, as of September 30, 2017, the Company no longer has any Common units included as redeemable non-controlling interests outstanding in the mezzanine section of the consolidated balance sheets.
The limited partners’ outstanding Common units (which may be redeemed for shares of common stock) and Excess Units have been excluded from the diluted earnings per share calculation as there would be no effect on the amounts since the limited partners’ share of income would also be added back to net income. Any anti-dilutive shares have been excluded from the diluted earnings per share calculation. Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. Accordingly, distributed and undistributed earnings attributable to unvested restricted shares (participating securities) have been excluded, as applicable, from net income or loss attributable to common stockholders utilized in the basic and diluted earnings per share calculations. Net income or loss figures are presented net of non-controlling interests in the earnings per share calculations. The weighted average number of Common units held by the non-controlling interest was 6.11.5 million and 5.31.9 million for the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, respectively.
The outstanding Series A preferred units are non-participating securities and thus are included in the computation of diluted earnings per share on an as-if converted basis. Any anti-dilutive shares are excluded from the diluted earnings per share calculation. For the three and ninesix months ended SeptemberJune 30, 20172021 and September 30, 2016,2020, these shares were not included in the diluted earnings per share calculation as they would be anti-dilutive.
31
The outstanding shares of Series B Participating Preferred Stock are non-participating securities and thus are included in the computation of diluted earnings per share on an as-if converted basis. Any anti-dilutive shares are excluded from the diluted earnings per share calculation. For the three and ninesix months ended SeptemberJune 30, 2017,2021 and 2020, these shares were not included in the diluted earnings per share calculation as they would be anti-dilutive.
For the threesix months ended SeptemberJune 30, 20162021 and nine months ended September 30, 2017 and 2016,2020, diluted weighted average common shares do not include the impact of 0.3 million and 0.20.3 million, respectively, unvested compensation-related shares as they would have been anti-dilutive. The effect
29
The following equity awards and units arewere outstanding as of SeptemberJune 30, 20172021 and December 31, 2016,2020, respectively.
|
|
|
|
|
|
| September 30, 2017 |
| December 31, 2016 |
Shares |
| 32,353 |
| 17,163 |
Common units |
| 5,724 |
| 5,692 |
Unvested restricted stock |
| 279 |
| 188 |
|
| 38,356 |
| 23,043 |
| | | | | | |
| |
| June 30, 2021 | |
| December 31, 2020 |
Shares | | | 32,526 | | | 30,255 |
Common Units | | | 1,480 | | | 1,639 |
Redeemable Common Units | | | — | | | — |
Unvested Restricted Stock Awards | | | 285 | | | 316 |
| | | 34,291 | | | 32,210 |
Note 10—Subsequent Events
Subsequent toNote 10—Hedge Accounting
Cash Flow Hedging Strategy
The Company manages economic risks, including interest rate, liquidity, and credit risk, by managing the quarter endamount, sources, duration and interest rate exposure of its financing sources. The Company may also use interest rate derivative financial instruments, primarily interest rate swaps. As of June 30, 2021, the Company repurchased an additional 279,210 shares at an average pricewas a party to one interest rate swap, designated as a hedging instrument, to add stability to interest expense and to manage its exposure to adverse interest rate movements.
For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the entire change in the fair value of $9.15 for total considerationthe Company’s designated cash flow hedges is recorded to accumulated other comprehensive income, a component of $2.6 million.shareholders’ equity in the Company’s consolidated balance sheets.
On October 23, 2017March 26, 2020, the Company fully repaid the remaining $5.5 million in principal on Farmer Mac Bond #2terminated its existing swap agreement and entered into a new interest rate swap agreement to obtain a more favorable interest rate and to manage interest rate risk exposure, which was due and payableeffective April 1, 2020. An interest rate swap agreement utilized by the Company effectively modifies the Company’s exposure to interest rate risk by converting the Company’s floating-rate debt to a fixed rate basis for the next six years on that50% of the currently outstanding amount to Rabobank, thus reducing the impact of interest rate changes on future interest expense. This agreement involves the receipt of floating rate amounts in exchange for fixed rate interest payments over the life of the agreement without an exchange of the underlying principal amount. The fair value of the de-designated swap was $2.6 million on the termination date. The Company now hasis amortizing the de-designated swap over the original term utilizing a totalforward curve analysis of $129.3determining monthly amortization. Amortization for the three and six months ended June 30, 2021, is $0.2 million outstandingand $0.5 million. The Company’s $2.6 million termination fee was rolled into the new swap and will be paid over the next six years. Termination fees paid during the three and six months ended June 30, 2021 were $0.1 million and $0.2 million, respectively. The amount of frozen Accumulated Other Comprehensive Income on the de-designated old swap is being amortized out of Other Comprehensive Income through the original termination date (March 1, 2023).
The Company determines the hedge effectiveness of its interest rate swaps at inception by applying a quantitative evaluation of effectiveness using regression analysis. On an ongoing basis the Company applies an initial qualitative assessment of on-going effectiveness and reviews hedge effectiveness through assessing the hedge relationship by comparing the current terms of the swap and the associated debt to ensure they continue to coincide through the continued ability of the Counterparty to the swap to honor its obligations under the Farmer Mac Facility, $54.9swap contract. The qualitative assessment may indicate that the hedge relationship is not highly effective, the Company would then perform a quantitative evaluation using regression analysis. The Company concluded the hedge was highly effective at inception and remains highly effective as of June 30, 2021.
As of June 30, 2021, the total notional amount of the Company’s receive-variable/pay-fixed interest rate swap was $33.2 million.
30
The fair value of the Company’s derivative instrument on a recurring basis is set out below:
| | | | | |
($ in thousands) | | | | | |
Instrument |
| Balance sheet location |
| Level 2 Fair Value | |
Interest rate swap | | Derivative liability | | $ | 1,738 |
The effect of derivative instruments on the consolidated statements of operations for the periods ended June 30, 2021 and 2020 is set out below:
| | | | |
| | | | |
Cash flow hedging relationships | | Location of Gain (Loss) reclassified from Accumulated OCI into income | | |
Interest rate contracts | | Interest expense | | |
The amount of loss recognized in net income for the three and six months ended June 30, 2021 and 2020 was $0.2 million, $0.5 million, $0.2 million and $0.2 million, respectively. The net change associated with current period hedging transactions was $(0.0) million, $1.5 million, $ (0.2) million and $ (1.7) million, for the three and six months ended June 30, 2021 and 2020, respectively. The amortization of frozen Accumulated Other Comprehensive Income was $0.2 million and $0.5 million for the three and six months ended June 30, 2021.
The fair values of the Company’s interest rate swap agreements are determined using the market standard methodology of netting the discounted future fixed cash payments and the discounted expected variable cash receipts, which matures prior tois considered a Level 2 measurement under the endfair value hierarchy. Level 2 is defined as inputs other than quoted prices in active markets that are either directly or indirectly observable. There were no transfers between Levels 1, 2 or 3 during the six months ended June 30, 2021. The variable cash receipts are based on an expectation of 2017.future interest rates (forward curves) derived from observable market interest rate curves.
The following table outlines the movements in the other comprehensive income account as of June 30, 2021 and December 31, 2020:
| | | | | | | | |
($ in thousands) | | |
| | June 30, 2021 |
| | December 31, 2020 |
Beginning accumulated derivative instrument gain or loss | | | | $ | (2,380) | | $ | (1,644) |
Net change associated with current period hedging transactions | | | | | 942 | | | (1,582) |
Amortization of frozen AOCI on de-designated hedge | | | | | 530 | | | 846 |
Difference between a change in fair value of excluded components | | | | | — | | | — |
Closing accumulated derivative instrument gain or loss | | | | $ | (908) | | $ | (2,380) |
Note 11—Subsequent Events
Dividends
On October 31, 2017, the Company completed one acquisition which is expected to be accounted for as an asset acquisition in South Carolina. Consideration totaled $2.2 million and was paid in cash.
On October 31, 2017, the Company issued 984,365 shares of common stock in exchange for 984,365 Common units that had been tendered for redemption.
On November 8, 2017,August 4, 2021, the Company’s boardBoard of directors declared a distribution of $0.1275 per share of common stock and Common unit payable on January 16, 2018 to holders of record as of January 1, 2018.
On November 8, 2017, the Company’s board of directorsDirectors declared a quarterly cash dividend of $0.375$0.3750 per share of 6.00% Series B Participating Preferred Stock payable on January 2, 2017September 30, 2021 to stockholders of record as of DecemberSeptember 15, 2017.2021.
On August 4, 2021, the Company’s Board of Directors declared a quarterly cash dividend of $0.05 per share of common stock and Common units payable on October 15, 2021 to stockholders and unitholders of record as of October 1, 2021.
Real Estate Acquisitions
On July 26, 2021, the Company completed one farm acquisition in the Southeast region for $1.0 million in cash consideration.
31
Conversion of Notes
On July 16, 2021, the Company provided notice to the OZ Fund that it was converting its OZ Convertible Notes, and accrued interest thereon, to membership interest in the OZ Fund. The value of the conversion was $2.4 million and the Company’s membership interest in the OZ Fund is approximately 7.6% following the conversion.
ATM Program
Subsequent to June 30, 2021, the Company sold 5,219 shares of common stock generating $0.1 million in net proceeds under the ATM Program.
FPI Loan Program
On July 27, 2021, the Company closed on $1.6 million of loans to a tenant under the FPI Loan Program. For further information on the FPI Loan Program, refer to “Note 6—Notes Receivable”.
32
Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSManagement’s Discussion and Analysis of Financial Condition and Results of Operations.
The following analysis of our financial condition and results of operationsshould be read in conjunction with our consolidated financial statements and the notes included elsewhere in this Quarterly Report, as well as the information contained in our Annual Report on Form 10-K for the year ended December 31, 2016,2020, filed with the Securities Exchange Commission (“SEC”) on February 23, 2017,March 19, 2021, which is accessible on the SEC’s website at www.sec.gov. References to “we,” “our,.“our,” “us” and “our company” refer to Farmland Partners Inc., a Maryland corporation, together with our consolidated subsidiaries, including Farmland Partners Operating Partnership, L.P., a Delaware limited partnership (the “Operating Partnership”), of which we are the sole member of the sole general partner.
Special Note Regarding Forward-Looking Statements
We make statements in this Quarterly Report on Form 10-Q that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). These forward-looking statements include, without limitation, statements concerning our proposed acquisition of American Farmland Company,pending acquisitions and dispositions, projections, predictions, expectations, estimates or forecasts as to our business, financial and operational results, future stock repurchases, our dividend policy, future economic performance, crop yields and prices and future rental rates for our properties, ongoing litigation, as well as statements of management’s goals and objectives and other similar expressions concerning matters that are not historical facts. When we use the words “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates” or similar expressions or their negatives, as well as statements in future tense, we intend to identify forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, beliefs and expectations, such forward-looking statements are not predictions of future events or guarantees of future performance, and our actual results could differ materially from those set forth in the forward-looking statements. Some factors that might cause such a difference include the following: the impact of the COVID-19 pandemic and efforts to reduce its spread on our business and on the economy and capital markets generally, general volatility of the capital markets and the market price of our common stock, changes in our business strategy, availability, terms and deployment of capital, our ability to refinance existing indebtedness at or prior to maturity on favorable terms, or at all, availability of qualified personnel, changes in our industry, interest rates or the general economy, the degree and nature of our competition, the outcomes of ongoing litigation, our ability to identify new acquisitions or dispositions and close on pending acquisitions, or dispositions and the other factors described in the risk factors described in Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 20162020, and in other documents that we file from time to time with the SEC. Given these uncertainties, undue reliance should not be placed on such statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by law.
Overview and Background
We are an internally managed real estate company that owns and seeks to acquire high-quality farmland located in agricultural markets throughout North America. As of the date of this Quarterly Report on Form 10-Q, we own farms with an aggregate of approximately 154,164157,000 acres in Alabama, Arkansas, California, Colorado, Florida, Georgia, Illinois, Kansas, Louisiana, Michigan, Mississippi, Nebraska, North Carolina, South Carolina, South Dakota Texas, and Virginia. In addition, the Company serves as property manager over approximately 3,800 acres (see “Note 4—Related Party Transactions”). As of the date of this Quarterly Report on Form 10-Q, approximately 75%70% of the acres in our portfolio are(by value) is used to grow primary crops, such as corn, soybeans, wheat, rice and cotton, and approximately 25% of the acres in our portfolio30% is used to produce specialty crops, such as blueberries, vegetables, citrus, nuts and edible beans. We believe our portfolio gives investors exposure to the increasing global food demand trend in the face of growing scarcity of high qualityhigh-quality farmland and will reflect the approximate breakdown of U.S. agricultural output between primary crops and animal protein (whose production relies principally on primary crops as feed), on one hand, and specialty crops, on the other.
In addition, in August 2015, we announced the launch of the FPI Loan Program, an agricultural lending product aimed at farmers, as a complement to our primary business of acquiring and owning farmland and leasing it to farmers. Underunder the FPI Loan Program, we make loans to third-party farmers (both tenant and non-tenant) to provide partial financing for
33
working capital requirements and operational farming activities, farming infrastructure projects and for other farming and agricultural real estate related purposes.
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We were incorporated in Maryland on September 27, 2013, and we are the sole member of the general partner of the Operating Partnership, which is a Delaware limited partnership that was formed on September 27, 2013. All of our assets are held by, and our operations are primarily conducted through, the Operating Partnership and its wholly owned subsidiaries. As of SeptemberJune 30, 20172021, we own a 85.1% interest inowned 95.4% of the Operating Partnership.Common units and none of the Series A preferred units nor the Series B Participating Preferred Stock. See “Note 9 – Stockholders’ Equity and Non-controlling Interests” within the notes to the consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information regarding the non-controlling interests.
We have elected to be taxed as a real estate investment trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, commencing with our short taxable year ended December 31, 2014.
The following table sets forth our ownership of acreage by region:region as of June 30, 2021:
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Region(1) | Total Acres | |
Corn Belt | |
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Delta | |
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High Plains | |
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Southeast | |
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West Coast | |
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| Corn Belt includes farms located in Illinois, Michigan and eastern Nebraska. Delta and South includes farms located in Arkansas, Louisiana and Mississippi. High Plains includes farms located in Colorado, Kansas, western Nebraska, and |
WeWhen we are able to access sufficient additional capital, we intend to continue to acquire additional farmland to achieve scale and further diversify our portfolio by geography, crop type and tenants. We also may continue to selectively dispose of assets when we believe a disposition is in the Company’s best interest. We also may acquire, and make loans secured by mortgages on, properties related to farming, such as grain storage facilities, grain elevators, feedlots, processing plants and distribution centers, as well as livestock farms or ranches. In addition, we engage directly in farming through FPI Agribusiness Inc., our taxable REIT subsidiary (the “TRS” or “FPI Agribusiness”), whereby we operate. The TRS provides volume purchasing services to our tenants, operates a small number of development properties (approximately 716 acres as of September 30, 2017) relying onsmall-scale custom farming contractsbusiness, and occasionally provides our tenants with local farm operators. Additionally,small operating loans. As of June 30, 2021, the TRS operates a volume purchasing program for participating tenants by working with suppliers to pool tenant purchasing powerperforms these custom farming operations on 1,232 acres of farmland located in California and create cost savings through bulk orders.Michigan.
Our principal source of revenue is rent from tenants that conduct farming operations on our farmland. The majority of the leases that are in place as of the date of this Quarterly Report on Form 10-Q have fixed annual rental payments. Some of our leases have variable rents based on the revenue generated by our farm-operator tenants. We believe that this mix of fixed and variable rents will help insulate us from the variability of farming operations and reduce our credit-risk exposure to farm-operator tenants while making us an attractive landlord in certain regions where variable leases are customary. However, we may be exposed to tenant credit risk and farming operation risks, particularly with respect to leases that do not require advance payment of 100% of the annual rent, leases for which the rent is based on a percentage of a tenant'stenant’s farming revenues and leases with terms greater than one year.
In addition, an increasing number of our leases provide for crop share lease payments, through which we only recognize revenue to the amount of the crop insurance minimum, theminimum. The excess cannot be recognized as revenue until the tenant enters into a contract to sell their crop. Generally, we expect tenants to enter into contracts to sell their crop following the harvest of the crop.
Impact of COVID-19 on Our Business
As the vaccine for the coronavirus (“COVID-19”) becomes widely available across the United States, we are gaining a better understanding of the impact of the COVID-19 pandemic on our business and the recovery relative to 2020. We expect the impact of the COVID-19 pandemic to lessen in the 2021 crop marketing cycle, especially for specialty crops that were impacted in 2020 (e.g., citrus). However, we are unable to quantify what the ultimate impact of the pandemic on
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Recent Developments
Public Offering of Series B Participating Preferred Stock
On August 17, 2017, we entered into an underwriting agreement with Raymond James & Associates, Inc.our business will be, as there are still significant uncertainties around the social and Jefferies LLC, as representativeseconomic impact of the underwriters, pursuant to which we sold 6,037,500 shares our newly designated 6.00% Series B Participating Preferred Stock, $0.01 par value per share, at a public offering price of $25.00 per share, which is the initial liquidation preference of the Series B Participating Preferred Stock.
Shares of Series B Participating Preferred Stock, which represent equity interests in the Company, generally have no voting rights and rank senior to the Company’s common stock with respect to dividend rights and rights upon liquidation. Each share of Series B Participating Preferred Stock entitled to receive cumulative preferential cash distributions at a rate of 6.00% per annum of the $25 liquidation preference, which is payable quarterly in arrears on the last day of March, June, September and December (the “Initial Liquidation Preference”). Upon liquidation, before any payment or distribution of the assets of the Company is made to or set apart for the holders of equity securities ranking junior to the Series B Participating Preferred Stock, the holders of the Series B Participating Preferred Stock will be entitled to receive the sum of:
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After September 30, 2021, but prior to September 30, 2024, we at our option, may redeem all, but not less than all, of the then-outstanding shares of Series B Participating Preferred Stock at any time, for cash or convert into shares of our common stock, at a price equal to the Final Liquidation Preference plus an amount equal to the product of:
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At any time on or after September 30, 2024, the Company, at its option, may redeem all, but not less than all, of the then-outstanding shares of Series B Participating Preferred Stock at the:
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The total rate of return on shares of the Series B Participating Preferred Stock is subject to a cap such that the rate of return, when considering the Initial Liquidation Preference, the FVA Adjustmentpandemic, and the Premium Amount plus accruedsize and unpaid dividends, will not exceed 9.0%.timing of additional economic relief measures. In such trying times, we are proud to support the industry and hardworking farmers that feed the entire country.
In connection with the issuance of the Series B Participating Preferred Sock, the sole general partner of the Operating Partnership entered into Amendment No. 2 to the Partnership Agreement in order to provide for the issuance, and the designation of the terms and conditions, of newly classified 6.00% Series B participating preferred units of limited partnership interest in the Operating Partnership, the economic terms of which are identical to those of the Series B Participating Preferred Stock. We contributed the net proceeds from the offering of the Series B Participating Preferred Stock to the Operating Partnership in exchange for 6,037,500 Series B participating preferred units. For more information about our Series B Participating Preferred Stock, see out Current Report on Form 8-K fied on August 16, 2017.
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Completed Acquisitions
AFCO Mergers
On February 2, 2017, we completed the previously announced merger with American Farmland Company (“AFCO”) at which time one of our wholly owned subsidiaries was merged with and into American Farmland Company L.P. (“AFCO OP”) with AFCO OP surviving as a wholly owned subsidiary of the Operating Partnership (the “Partnership Merger”), and AFCO merged with and into another one of our wholly owned subsidiaries with such wholly owned subsidiary surviving.
At the effective time of the Company Merger, each share of common stock of AFCO, par value $0.01 per share (“AFCO Common Stock”), issued and outstanding immediately prior to the effective time of the Company Merger (other than any shares of AFCO Common Stock owned by any wholly owned subsidiary of AFCO or by us or the Operating Partnership or any wholly owned subsidiary of us or the Operating Partnership), was automatically converted into the right to receive, subject to certain adjustments, 0.7417 shares of our common stock (the “Company Merger Consideration”). In addition, in connection with the Company Merger, each outstanding AFCO restricted stock unit that had become fully earned and vested in accordance with its terms was, at the effective time of the Company Merger, converted into the right to receive the Company Merger Consideration. We issued 14,763,604 shares of our common stock as consideration in the Company Merger and 17,373 shares of our common stock in respect of fully earned and vested AFCO restricted stock units.
At the effective time of the Partnership Merger, each Common unit of limited partnership interest in AFCO OP issued and outstanding immediately prior to the effective time of the Partnership Merger, was converted automatically into the right to receive, subject to certain adjustments, 0.7417 Common units. We issued 218,525 Common units as consideration in the Partnership Merger.
We believe that following the AFCO Mergers, our portfolio gives investors exposure to the increasing global food demand trend in the face of growing scarcity of high quality farmland and will reflect the approximate breakdown of U.S. agricultural output between primary crops and animal protein (whose production relies principally on primary crops as feed), on one hand, and specialty crops, on the other.
Acquisitions under Contract
On September 22, 2017, we entered into a purchase agreement to acquire three tree nut ranches in California for total consideration of $110 million in cash. The purchase agreement contains certain customary representations, warranties and covenants of the parties, and the acquisition of the Properties is expected to close in December 2017, subject to the satisfaction of certain customary closing conditions. In connection with the closing pursuant to the purchase agreement, the Company expects to enter into a 25-year triple-net lease agreement with the current owner on a revenue share basis with respect to the properties. During the term of the lease, the operator will be responsible for the operation, maintenance and improvements on the properties and will have a right of first refusal if we were to hold the Properties for sale. There can be no assurances that the acquisition will be completed, or that the lease will be entered into, on the expected timeline, on the expected terms or at all. We have signed a non-binding term sheet for a debt facility with a major financial institution to finance a portion of this acquisition. We can provide no assurances that we will be able to enter into the anticipated debt facility on the expected terms, on the expected timeline or at all.
On August 1, 2017 the Company contracted to acquire farmland in South Carolina for an approximate purchase price of $1.1 million. There can be no assurances that the acquisition will be completed on the expected timeline, on the expected terms or at all.
Prudential Termination Agreement
On February 18, 2017, we entered into a Termination Agreement (the “Termination Agreement”) with Prudential Capital Mortgage Company (“the Prudential Sub-Advisor”) pursuant to which we and the Prudential Sub-Advisor agreed to terminate, effective as of March 31, 2017, the Amended and Restated Sub-Advisory Agreement (the “Sub-
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Advisory Agreement”), dated as of October 23, 2015, by and among American Farmland Company, American Farmland Advisors, American Farmland Company L.P. and Prudential and certain related property management agreements (together with the Sub-Advisory Agreement, the “Prudential Agreements”).
The Termination Agreement provided that, as of March 31, 2017, Prudential no longer provides services to us under the Prudential Agreements. We paid the Prudential Sub-Advisor $1.6 million in cash, which is equal to the fee that would have been owed to Prudential for services through the quarter ended March 31, 2017, plus a termination fee of $0.2 million. The statement of operations impact to the Company for the nine month period ended September 30, 2017 totaled $0.7 million, which is included in property operating expenses, with the remaining $0.9 million being included in the accruals as a component of the purchase accounting surrounding the AFCO Mergers as this represented the costs incurred by AFCO prior to the AFCO Mergers.
Factors That May Influence Future Results of Operations and Farmland Values
The principal factors affecting our operating results and the value of our farmland include global demand for food relative to the global supply of food, farmland fundamentals and economic conditions in the markets in which we own farmland and our ability to increase or maintain rental revenues while controlling expenses. We are currently in an environment of rapidly appreciating land values, driven by the bull market in commodities and strong outlook for farmer profitability. Although farmland prices may show a decline from time to time, we believe that any reduction in U.S. farmland values overall is likely to be short-lived as global demand for food and agricultural commodities typically exceeds global supply. In addition, although prices for many crops experienced significant declines in 2014, 2015 and 2016, we do not believe that such declines represent a trend that will continue over the long term. Rather, we believe that long-term growth trends in global population, GDP per capita and farmland productivity will result in increased revenues per acre for primary crops over time.
Demand
Demand
WeNotwithstanding any impacts from the ongoing COVID-19 pandemic, we expect that global demand for food, driven primarily by significant increases in the global population and GDP per capita, will continue to be the key driver of farmland values. We further expect that global demand for most crops will continue to grow to keep pace with global population growth, which we anticipate will lead to either higher prices and/or higher yields and, therefore, higher rental rates on our farmland, as well as sustained growth in farmland values over the long-term.long term. We also believe that growth in global GDP per capita, particularly in developing nations, will contribute significantly to increasing demand for primary crops. As global GDP per capita increases, the composition of daily caloric intake is expected to shift away from the direct consumption of primary crops toward animal-based proteins, which is expected to result in increased demand for primary crops as feed for livestock. According to the United Nations’ Food and Agriculture Organization (“UN FAO”), these factors are expected to require more than one billion additional tons of global annual grain production by 2050, a 45.5%43% increase from 2005-2007 levels and more than two times the 475446 million tons of grain produced in the United States in 2014. Furthermore, we believe that, as GDP per capita grows, a significant portion of additional household income is allocated to food and that once individuals increase consumption of, and spending on, higher quality food, they will strongly resist returning to their former dietary habits, resulting in greater inelasticity in the demand for food. As a result, we believe that, as global demand for food increases, rental rates on our farmland and the value of our farmland will increase over the long-term.long term. Global demand for corn and soybeans as inputs in the production of biofuels such as ethanol and soy diesel also could impact the prices of corn and soybeans, which, in the long-term,long term, could impact our rental revenues and our results of operations. However, theThe success of our long-term business strategy is not dependent on growth in demand for biofuels, and we do not believe that demand for corn and soybeans as inputs in the production of biofuels will materially impact our results of operations or the value of our farmland, primarily because we believe that growth in global population and GDP per capita will be more significant drivers of global demand for primary crops over the long-term.long term.
Supply
Global supply of agricultural commodities is driven by two primary factors, the number of tillable acres available for crop production and the productivity of the acres being farmed. Although the amount of global cropland in use has gradually increased over time, growth has plateaued over the last 20 years. Cropland area continues to increase in developing countries, but after accounting for expected continuing cropland loss, the UN FAO projects only 171173 million acres will be added from 2005-2007 to 2050, a 4.3%an approximate 5% increase. Furthermore, the National Academy of Sciences of the
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United States of America estimates that farmland lost to development worldwide is on average 1.8 times more productive than the new farmland coming to production. In comparison, world population is expected to grow over the same period to 9.79.1 billion, a nearly 40% increase. According to the World Bank Group arable land per capita has decreased by approximately 50% from 1961 to 2015. While we expect growth in the global supply of arable land, we also expect that landowners will only put that land into production if increases in commodity prices and the value of farmland cause landowners to benefit economically from using the land for farming rather than alternative uses. We also believe that decreases in the amount of arable land in the United States and globally as a result of increasing urbanization will partially offset the impact of additional supply of farmland. Additionally, we believe that farmland lost to urban development disproportionately impacts higher quality farmland. According to a study published in 2017 in the Proceedings of the National Academy of Sciences, urban expansion is expected to take place on cropland that is 1.77 times more productive than the global average. The global supply of food is also impacted by the productivity per acre of tillable
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land. Historically, productivity gains (measured by average crop yields) have been driven by advances in seed technology, farm equipment, irrigation techniques, improvements in soil health, and chemical fertilizers and pesticides. Furthermore, we expect the increasing shortage of water in many irrigated growing regions in the United States and other growing regions around the globe, often as a result of new water restrictions imposed by laws or regulations, to lead to decreased productivity growth on many acres and, in some cases, cause yields to decline on those acres.
Conditions in Our Existing Markets
Our portfolio spans numerous farmland markets and crop types, which provides us broad diversification across conditions in these markets. Across all regions, farmland acquisitions continue to be dominated by buyers who are existing farm owners and operators; institutional and investor acquirors remain a small fraction of the industry. We generally see firm demand for high quality properties across all regions and crop types.
Farmland values are typically very stable, often showing modest increases even in years of commodity price weakness. We expect this trend to continue, with modest but consistent annual increases compounding into significant appreciation in the long term. Under certain market conditions, as we are experiencing in 2021, with strong commodity prices and recovery in the farm economy, there are periods of accelerating appreciation in farmland values. Leases being renegotiated under the robust market conditions experienced in 2021, the first leasing cycle since the farm economy improved, are showing significant increases.
With regard to leasing dynamics, we believe quality farmland in the United States has a near-zero vacancy rate as a result of the supply and demand fundamentals discussed above. Our view is that rental rates for farmland are a function of farmland operators’ view of the long-term profitability of farmland, and that many farm operators will compete for farmland even during periods of decreased profitability due to the scarcity of farmland available to rent. In particular, we believe that due to the relatively high fixed costs associated with farming operations (including equipment, labor and knowledge), many farm operators in some circumstances will rent additional acres of farmland when it becomes available in order to allocate their fixed costs over additional acres. Furthermore, because it is generally customary in the industry to provide the existing tenant with the opportunity to re-lease the land at the end of each lease term, we believe that many farm operators will rent additional land that becomes available in order to control the ability to farm that land in future periods. As a result, in our experience, many farm operators will aggressively pursue rental opportunities in their operable geographic area, even when the farmer anticipates lower current returns or short-term losses.
In our primary row crop farmland, we see flat to modestly lowerhave realized substantial rent ratesincreases so far in connection with 20172021 lease renewals.renewals, and we expect to benefit from rent growth into 2022. This is consistent with on the one hand, headwindsrobust prices in primary crop markets and on the other, tenant demand for leasing high quality farmland. In 2016, we had a higher portion than in 2015 of our fixed cash leases providing for payment of 50% of a year’s rent after harvest rather than substantially all of the lease paid prior to harvest, as compared to 2016. This structure better matches operator cash flows. Given per acre revenue on our primary crop farmland and crop insurance levels, we do not expect that this structure materially changes tenant credit risk. Due to the short term nature of most of our primary crop leases, we believe that a recovery of crop prices and farm profitability will be reflected relatively rapidly in our revenues via increases in rent rates. Across specialty crops, operator profitability generally remains healthy.is recovering after being under pressure partly due to COVID-19, as discussed above. Participating lease structures are common in many specialty crops, and base lease rates are consistent with 2016. or somewhat lower than 2020 due to renewals that occurred in 2020.
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Lease Expirations
Farm leases are generally short-termthree to five years in nature.duration. As of SeptemberJune 30, 2017,2021, our portfolio had the following lease expirations as a percentage of approximate acres leased and annual minimum cash rents:
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Year Ending December 31, |
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| 45,016 | | 28.6 | % | $ | 12,756 |
| 39.8 | % |
2022 | | 37,937 | | 24.1 | % | | 7,660 |
| 23.9 | % |
2023 |
| 42,673 | | 27.1 | % | | 7,492 |
| 23.4 | % |
2024 |
| 12,485 | | 7.9 | % | | 1,345 |
| 4.2 | % |
2025 | | 10,786 | | 6.9 | % | | 1,042 | | 3.3 | % |
Thereafter | | 8,558 | | 5.4 | % | | 1,716 | | 5.4 | % |
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| 157,455 | | 100.0 | % | $ | 32,011 | | 100.0 | % |
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| 30,797 |
| 20.0 | % |
| $ | 6,000 |
| 19.3 | % |
2018 |
| 33,978 |
| 22.1 | % |
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| 6,567 |
| 21.1 | % |
2019 |
| 57,525 |
| 37.4 | % |
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| 11,045 |
| 35.5 | % |
2020 |
| 11,663 |
| 7.6 | % |
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| 4,272 |
| 13.7 | % |
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| 13,184 |
| 8.6 | % |
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| 2,329 |
| 7.5 | % |
2022 and beyond |
| 6,734 |
| 4.3 | % |
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| 860 |
| 2.9 | % |
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| 153,881 |
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| $ | 31,073 |
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As of SeptemberJune 30, 2017,2021, we had 72,681approximately 42,000 acres for which lease payments are at least partially based on a percentage of farming revenues and 7161,232 acres that are leased to our TRS. Acres leased to our TRS which are not included in the table above. From time to time, we may enter into recreational leases on our farms. We expect market rents in the coming year to be flat. Since lease renewal periods are exercisable at the option of the lessee, the preceding table presents future lease expirations during the initial lease term only.
Rental Revenues
Our revenues are primarily generated from renting farmland to operators of farming businesses. Our leases have terms ranging from one to ten years.forty years, with three years being the most common. Although the majority of our leases do not provide the tenant with a contractual right to renew the lease upon its expiration, we believe it is customary to provide the existing tenant with the opportunity to renew the lease, subject to any increase in the rental rate that we may establish. If the tenant elects not to renew the lease at the end of the lease term, the land will be offered to a new tenant.
The leases for the majority of the row-crop properties in our portfolio provide that tenants must pay us at least 50% (and often 100%) of the annual rent in advance of each spring planting season. As a result, we collect a significant portion of total annual rents in the first calendar quarter of each year. We believe our use of leases pursuant to which at least 50% of the annual rent is payable in advance of each spring planting season mitigates the tenant credit risk associated with the variability of farming operations that could be adversely impacted by poor crop yields, weather conditions, mismanagement, undercapitalization or other factors affecting our tenants. Tenant credit risk is further mitigated by usually requiring that our tenants maintain crop insurance and by our claim on a portion of the related proceeds, if any, as well as by our security interest in the growing crop. Prior to acquiring farmland property, we take into consideration the competitiveness of the local farm-operator tenant environment in order to enhance our ability to quickly replace a tenant that is unwilling to renew a lease or is unable to pay a rent payment when it is due. Some of our leases provide for a reimbursement of the property taxes we pay. We
As described above, we are continually assessing the impact, if any, on our ability to collect rent from our tenants as a result of the COVID-19 pandemic. At this time, we expect that, going forward, a progressively smaller percentage ofto continue to be able to collect rents in full and on time, but will continue to assess the pandemic’s impact on our leases will provide for such a reimbursement.tenants on an ongoing basis.
Expenses
Substantially all of our farm leases are structured in such a way that we are responsible for major maintenance, certain insurance and taxes (which are sometimes reimbursed to us by our tenants), while our tenant is responsible for minor maintenance, water usage and all of the additional input costs related to farming operations on the property, such as seed, fertilizer, labor and fuel. We expect that substantially all of the leases for farmland we acquire in the future will continue to be structured in a manner consistent with substantially all of our existing leases. As the owner of the land, we generally only bear costs related to major capital improvements permanently attached to the property, such as irrigation systems, drainage tile, grain storage facilities, permanent plantings or other physical structures customary for farms. In cases where capital expenditures are necessary, we typically seek to offset, over a period of multiple years, the costs of such capital expenditures by increasing rental rates. We also incur the costs associated with maintaining liability and casualty insurance.
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We incur costs associated with running a public company, including, among others, costs associated with employing our personnel and compliance costs. We incur costs associated with due diligence and acquisitions, including, among others, travel expenses, consulting fees and legal and accounting fees. We also incur costs associated with managing our farmland. The management of our farmland, generally, is not labor or capital intensive because farmland generally has minimal physical structures that require routine inspection and maintenance, and our leases, generally, are structured to require the tenant to pay many of the costs associated with the property. Furthermore, we believe that our platform is scalable, and we do not expect the expenses associated with managing our portfolio of farmland to increase significantly as the number of farm properties we own increases over time. Rather, we expect that as we continue to add additional farmland to our portfolio, we will be able to achieve economies
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Crop Prices
Our exposure toWe believe short-term crop price declines ischanges have had little effect historically on farmland values. They also have a limited impact on our rental revenue, as most of our leases do not factor in per bushel prices and instead are set onprovide for a fixed cash rental rate, per acre basis. Thisa common approach is common throughout agriculturein agricultural markets, especially with respect to row crops, for several reasons. This approach recognizes that the value of leased land to a tenant is more closely linked to the total revenue produced on the property which is driven by crop yield and crop price. This approach simplifies the administrative requirements for the landlord and the tenant significantly. This approach supports the tenants’ desire to maintain access to their leased farms, which are in short supply, a concept expanded upon below, by providing the landlord consistent rents. Crop price exposure is also limited because tenants also benefit from the fundamental revenue hedging that occurs when large cropscrop yields mitigate the effect of lower crop prices triggered by their large crop.prices. Similarly, smaller cropslower crop yields have a tendency to increase thetrigger higher crop prices triggered and help increase revenue even when confronted by lower crop yields. Such hedging effect also limits the impact of short-term crop price changes on revenues generated by leases with a smaller crop.bonus component based on farm revenues. Further risk mitigation is available to tenants, and indirectly to us, via crop insurance and hedging programs implemented by tenants. Our TRS also takes advantage of thisthese risk mitigation programs and strategies also.
We believe quality farmland in the United States has a near-zero vacancy rate as a result of the supply and demand fundamentals. Our view is that rental rates for farmland are a function of farmland operators’ view of the long-term profitability of farmland, and that many farm operators will compete for farmland even during periods of decreased profitability due to the scarcity of farmland available to rent. In particular, we believe that due to the relatively high fixed costs associated with farming operations (including equipment, labor and knowledge), many farm operators in some circumstances will rent additional acres of farmland when it becomes available in order to allocate their fixed costs over additional acres. Furthermore, because it is generally customary in the industry to provide the existing tenant with the opportunity to re-lease the land at the end of each lease term, we believe that many farm operators will rent additional land that becomes available in order to control the ability to farm that land in future periods. As a result, in our experience, many farm operators will aggressively pursue rental opportunities in their operable geography, even when the farmer anticipates lower current returns or short-term losses.strategies.
The value of a crop is affected by many factors that can differ on a yearly basis. Weather conditions and crop diseasediseases in major crop production regions worldwide createscreate a significant risk of price volatility, which may either increase or decrease the value of the crops that our tenants produce each year. Other material factors adding to the volatility of crop prices are changes in government regulations and policy, fluctuations in global prosperity, fluctuations in foreign trade and export markets and eruptions of military conflicts or civil unrest. PricesIn addition, although prices for many primary crops particularly corn, experienced meaningfulsignificant declines in 2014 and 2015, in late 2020 and 2016. We do not believe such declines represent a trend overearly 2021 prices rebounded to or near prior highs, driven by increased demand expectations from China and modest adverse weather conditions around the long term. Rather, we believe those declines represented a combination of correction to historical norms (adjusted for inflation) and high yields induced by farmer planting decisions and unusually favorable weather patterns.world. We expect that continued long-term growth trends in global population and GDP per capita will result in increased pricesrevenue per acre for primary crops over time. We expect pricing across specialty crops to generally remain firm relative to 2016 as U.S. and global consumer demand remains strong and supply is broadly balanced to demand. Although annual rental payments under the majority of our leases are not based expressly on the quality or profitability of our tenants'tenants’ harvests, any of these factors could adversely affect our tenants'tenants’ ability to meet their obligations to us and our ability to lease or re-lease properties on favorable terms.
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Interest Rates
We expect that future changes in interest rates will impact our overall operating performance by, among other things, increasingaffecting our borrowing costs. While we may seek to manage our exposure to future changes in rates through interest rate swap agreements or interest rate caps, portions of our overall outstanding debt will likely remain at floating rates. In addition, a sustained material increase in interest rates may cause farmland prices to decline if the rise in real interest rates (which is defined as nominal interest rates minus the inflation rate) is not accompanied by rises in the general levels of inflation. However, our business model anticipates that over time the value of our farmland will increase, as it has in the past, at a rate that is equal to or greater than the rate of inflation, which may in part offset the impact of rising interest rates on the value of our farmland, but there can be no guarantee that this appreciation will occur to the extent that we anticipate or at all.
International Trade
Following the trade tensions between China and the U.S. that started developing in 2018, the two countries reached a "Phase 1" trade deal in late 2019. At this point, we believe that China and the U.S. will endeavor to largely comply with the Phase 1 trade deal, leading to increased purchases by China of many U.S. agricultural exports. While logistical disruptions introduced by the COVID-19 pandemic slowed China’s compliance with its Phase 1 commitments, U.S. agricultural exports to China have rebounded in recent months.
Critical Accounting Policies and Estimates
Except as set forth in Note 1 to the consolidated financial statements included in this Quarterly Report on Form 10-Q, there have been no changes to our critical accounting policies disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.2020.
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New or Revised Accounting Standards
For a summary of the new or revised accounting standards, please refer to “Note 1 – Organization and Significant Accounting Policies” within the notes to the consolidated financial statements included in this Quarterly Report on Form 10-Q.
Results of Operations
Comparison of the three months ended SeptemberJune 30, 20172021 to the three months ended SeptemberJune 30, 20162020
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| | | | | | | | | | | | | |
Rental income |
| $ | 11,107 |
| $ | 6,164 |
| $ | 4,943 |
| 80 | % | | $ | 8,291 | | $ | 9,141 | | $ | (850) |
| | (9.3) | % |
Tenant reimbursements |
|
| 474 |
|
| 112 |
|
| 362 |
| 323 | % | |
| 839 | |
| 883 | |
| (44) |
| | (5.0) | % |
Crop sales | | | 237 | | | 362 | | | (125) | | | (34.5) | % | ||||||||||||
Other revenue |
|
| 465 |
|
| 670 |
|
| (205) |
| (31) | % | |
| 646 | |
| 131 | |
| 515 |
| | NM | |
Total operating revenues |
|
| 12,046 |
|
| 6,946 |
|
| 5,100 |
| 73 | % | |
| 10,013 | |
| 10,517 | |
| (504) |
| | (4.8) | % |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
| | | | | | | | | | | | | | ||||||||||||
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | |
Depreciation, depletion and amortization |
|
| 2,107 |
|
| 419 |
|
| 1,688 |
| 403 | % | |
| 1,885 | |
| 2,003 | |
| (118) |
| | (5.9) | % |
Property operating expenses |
|
| 1,400 |
|
| 548 |
|
| 852 |
| 155 | % | |
| 1,708 | |
| 1,818 | |
| (110) |
| | (6.1) | % |
Cost of goods sold | | | 667 | | | 745 | | | (78) |
| | (10.5) | % | ||||||||||||
Acquisition and due diligence costs |
|
| 180 |
|
| 1,712 |
|
| (1,532) |
| (89) | % | |
| — | |
| 11 | |
| (11) |
| | NM | |
General and administrative expenses |
|
| 1,707 |
|
| 1,587 |
|
| 120 |
| 8 | % | |
| 1,897 | |
| 1,402 | |
| 495 |
| | 35.3 | % |
Legal and accounting |
|
| 450 |
|
| 330 |
|
| 120 |
| 36 | % | |
| 2,901 | |
| 848 | |
| 2,053 |
| | NM | |
Other operating expenses |
|
| 88 |
|
| 160 |
|
| (72) |
| (45) | % | | | — | | | 1 | | | (1) |
| | (100.0) | % |
Total operating expenses |
|
| 5,932 |
|
| 4,756 |
|
| 1,176 |
| 25 | % | |
| 9,058 | |
| 6,828 | |
| 2,230 |
| | 32.7 | % |
OPERATING INCOME |
|
| 6,114 |
|
| 2,190 |
|
| 3,924 |
| 179 | % | |
| 955 | |
| 3,689 | |
| (2,734) |
| | (74.1) | % |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
| | | | | | | | | | | | | | ||||||||||||
OTHER (INCOME) EXPENSE: |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | |
Other income |
|
| (135) |
|
| (72) |
|
| (63) |
| 88 | % | |||||||||||||
(Gain) loss on disposition of assets |
|
| (44) |
|
| — |
|
| (44) |
| NM |
| |||||||||||||
Other (income) expense | | | (8) | | | (33) | | | 25 | | | (75.8) | % | ||||||||||||
(Gain) on disposition of assets | | | (74) | | | (917) | | | 843 | | | (91.9) | % | ||||||||||||
Interest expense |
|
| 3,683 |
|
| 2,065 |
|
| 1,618 |
| 78 | % | |
| 3,902 | |
| 4,467 | |
| (565) |
| | (12.6) | % |
Total other expense |
|
| 3,504 |
|
| 1,993 |
|
| 1,511 |
| 76 | % | |
| 3,820 | |
| 3,517 | |
| 303 |
| | 8.6 | % |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net income before income tax expense |
|
| 2,610 |
|
| 197 |
|
| 2,413 |
| 1,225 | % | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
| | | | | | | | | | | | | | ||||||||||||
Net income (loss) before income tax expense | | | (2,865) | | | 172 | | | (3,037) | | | NM | | ||||||||||||
| | | | | | | | | | | | | | ||||||||||||
Income tax expense |
|
| — |
|
| 97 |
|
| (97) |
| NM |
| | | — | | | — | | | — | | | NM | |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
NET INCOME |
| $ | 2,610 |
| $ | 100 |
| $ | 2,510 |
| 2,510 | % | |||||||||||||
| | | | | | | | | | | | | | ||||||||||||
NET INCOME (LOSS) | | $ | (2,865) | | $ | 172 | | $ | (3,037) |
| | NM | | ||||||||||||
NM=Not Meaningful
41
Our rental income for the period presentedthree months ended June 30, 2021 was impacted partially by the two acquisitions completed inand two dispositions during the last quarter of 2016 and, to a greater extent, the 15 acquisitions and the AFCO Mergers completed in the first three quarters of 2017.months ended June 30, 2021. To highlight the effect of changes due to acquisitions and dispositions, we have separately discussed the rental income for the same-property portfolio, which includes only properties owned and operated for the entirety of both periods presented. The same-property portfolio for the periods presentedthree months ended June 30, 2021 includes 110,828approximately 142,000 acres, which represents 72%representing 96% of our current portfolio on an acreage basis. Additionally, upon renewal in 2021, a number of leases transitioned to higher percentages of variable rents relative to fixed rents, which variable rents have yet to be received.
TotalOn a same-property basis, total rental income under cash leases for the same-property portfolio decreased to $4.9$0.6 million, or 6.6%, for the three months ended SeptemberJune 30, 2017, from $5.9 million for2021 as compared to the three months ended SeptemberJune 30, 2016, as a result of average annual rent for the same-property portfolio decreasing year over year to $165 per acre in the third quarter of 2017 from $199 in the comparative three-month period ended September 30, 2016. In the fourth quarter of 2016 we recognized $6.5 million in revenue in connection with the termination of certain leases. Had we recognized such revenue through the remaining life of the cancelled leases, the average annual rent for the same property portfolio would have decreased from $199 in the third quarter of 2016 to $187 in the third quarter of 2017. This decrease is primarily due to the fact that more of our leases now require the tenant to pay a portion of its rent through crop share payments rather than through fixed cash rental payments. Under GAAP, we cannot recognize crop share revenue until our tenant has a contractual agreement to sell the crop, therefore such revenue is not included in our results of operations for the three months ended September 30, 2017.2020. Management does not believe that same-property rent comparisons for periods shorter than the full year are necessarily indicative of the expected full year comparison because the majority of bonus and crop share rent payments are expected to be received in the fourth quarter.
Total rentalRental income increased $4.9decreased $0.9 million, or 80%9.3%, for the three months ended SeptemberJune 30, 2017,2021 as compared to the three months ended SeptemberJune 30, 2016,2020, resulting from asset dispositions, leases renegotiated downward in the completionsummer of 17 acquisitions2020 before
39
the recovery in the farm economy, and the AFCO Mergers after September 30, 2016. For the three months ended September 30, 2017, the average annual cash rent for the entire portfolio remained consistent at $202 per acre compared to the same periodtiming of crop share revenue recognition in 2016.connection with certain permanent crops.
Revenues recognized from tenant reimbursement of property taxes increased 323%. This increase is the result of an increased number of leases requiring reimbursement of property taxes to the Company by the tenant.
Other revenues totaled $0.5remained relatively flat at $0.8 million and $0.9 million during the three months ended SeptemberJune 30, 2017,2021 and 2020, respectively.
Crop sales totaled $0.2 million during the three months ended June 30, 2021 as compared to $0.7$0.4 million in the comparative three-month period ended SeptemberJune 30, 2016.2020. The $0.5decrease in crop sales is due to lower citrus sales in Florida.
Other revenues totaled $0.6 million during the three months ended June 30, 2021 as compared to $0.1 million in the comparative three-month period ended June 30, 2020. The increase primarily relates to revenue related to litigation settlement proceeds totaling $0.6 million recognized in the three months ended SeptemberJune 30, 2017 consisted of $0.2 million realized on crop sales from our farming operation in the TRS, in addition to $0.3 million earned on interest and amortization of net loan fees from notes receivable compared to $0.6 million and $0.1 million, respectively, recognized in the three months ended September 30, 2016. Mortgage notes receivable under the FPI Loan Program totaled $7.0 million as of September 30, 2017 compared to $2.9 million as of September 30, 2016.2021.
Depreciation, depletion and amortization expense increased $1.7decreased by $0.1 million, or 403%5.9%, for the three months ended SeptemberJune 30, 2017,2021 as compared to the three months ended SeptemberJune 30, 2016, as2020. The decrease is a result of acquiring approximately $0.3 millionasset dispositions and the decrease of the amortization of in-place leases acquired as part of the AFCO acquisition that were fully amortized in depreciable assets in the last quarter of 2016 and an additional $84.6 million in depreciable assets during the first three quarters of 2017. This change was primarily driven by an increased investment in permanent crops. Additionally, approximately $0.7 million was invested in property improvements during the last quarter of 2016 along with $11.7 million in property improvements during the first three quarters of 2017.prior periods.
Property operating expenses increased $0.9decreased $0.1 million, or 155%6.1%, for the three months ended SeptemberJune 30, 2017,2021 as compared to the three months ended SeptemberJune 30, 2016, primarily related2020. The decrease is largely due to property taxes attributable to properties acquired since September 30, 2016.slightly lower tax expenses and repairs, partially offset by increased insurance expenses.
Acquisition and due diligence costs totaled $0.2Cost of goods sold remained relatively flat at $0.7 million for the three months ended SeptemberJune 30, 2017 as compared2021 and 2020. The gross loss on sales is attributable to $1.7 million recognized in the same period of the prior year. Prior year expenses largely related to cost associated with the acquisition of AFCO. The acquisition and due diligence costs recognized in the three months ended September 30, 2017 primarily consisted of $0.1 million of continued expense related to the AFCO Mergers as well as $0.1 million of land acquisition costs related to potential acquisitions that were not pursued further.impairment recorded on growing crop inventory.
42
General and administrative expenses increased $0.1$0.5 million, or 8%35.3%, for the three months ended SeptemberJune 30, 2017,2021 as compared to the three months ended SeptemberJune 30, 2016.2020. The increase in general and administrative expenses was largely a result of increased costs related to our continued growth. During the three months ended September 30, 2017, employee compensation expenses increased $0.1 million which includes an increase in employee benefits expenses, as compared with the same period in 2016, due to an increase in the number of employees from 15 as of September 30, 2016 to 16 as of September 30, 2017. driven by higher payroll, travel and consulting expenses.
Legal and accounting expenses increased $0.1 million, or 36%,$2.1 milliion for the three months ended SeptemberJune 30, 2017,2021 as compared to the three months ended SeptemberJune 30, 2016,2020, which was primarily the result legal fees incurred in relation to a “short and distort” attack against the Company conducted by anonymous parties, including Quinton Mathews, under the pseudonym Rota Fortunae, and his co-conspirators, as discussed above under Part I, Item 1 “Note 8—Commitments and Contingencies—Litigation,”.
On June 20, 2021, Quinton Mathews (a.k.a. “Rota Fortunae”) entered into a resultsettlement agreement with the Company in which he agreed to pay the Company a multiple of the continued growthprofits he made when the Company’s common stock price fell in connection with the Wheel of our portfolioFortune article. The Company has long believed the Wheel of Fortune article was part of a short and general corporate matters.distort attack on the Company. This was confirmed when Quinton Mathews issued a press release admitting he and his advisory clients shorted the Company in advance of the article and profited from the decline it caused, and further admitted that many of the key statements in that article – which he acknowledged led to the stock’s decline - were false. Following the parties’ settlement, the Court granted a joint stipulated motion to dismiss the case on June 29, 2021.
On July 2, 2021, the Company filed a complaint against First Sabrepoint Capital Management, LP, Sabrepoint Capital Partners, LP, Sabrepoint Capital Participation, LP, George Baxter, and Donald Marchiony (collectively, “Sabrepoint”) in the Civil District Courts of Dallas County, Texas seeking relief for their role, as alleged in the complaint, in the short and distort scheme.
The Company continues to defend meritless stockholder class action lawsuits that are related to the claims made by Wheel of Fortune. Amounts incurred to defend the stockholder claims are no longer covered by the Company’s insurance policies because legal and other costs to defend such claims exceeded the Company’s coverage amounts. Accordingly, the Company has not recognized any receivable for insurance recoveries that the Company believes it will be entitled to.
Other operating expenses remained relatively flat at $0.0 million for three months ended June 30, 2021 and 2020.
Other income increased $0.1remained relatively flat at $0.0 million or 88%, for the three months ended SeptemberJune 30, 2017,2021 and 2020.
40
Gain on disposition of assets decreased $0.8 million for the three months ended June 30, 2021 as compared to the three months ended SeptemberJune 30, 2016,2020 due primarily due to higher interest income on bank accounts. the fact that the purchase prices for the farms sold during the three months ended June 30, 2021 were lower than the farms sold during the three months ended June 30, 2020.
Interest expense increased $1.6decreased $0.6 million, or 78%12.6%, for the three months ended SeptemberJune 30, 2017,2021 as compared to the three months ended SeptemberJune 30, 2016.2020. This increasedecrease is the result of an increasea decrease in ourinterest rates and the lower outstanding borrowings from $303.3 million asbalance of September 30, 2016 to $465.8 million as of September 30, 2017 and increased interest rates. The increase in our total borrowings was primarily driven by the use of debt financing to acquire new properties as well as the debt assumed in the AFCO Mergers.debt.
Comparison of the ninesix months ended SeptemberJune 30, 20172021 to the ninesix months ended SeptemberJune 30, 20162020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Nine Months Ended September 30, |
|
|
|
|
|
| ||||
($ in thousands) |
| 2017 |
| 2016 |
| $ Change |
| % Change | ||||
OPERATING REVENUES: |
|
|
|
|
|
|
|
|
|
|
|
|
Rental income |
| $ | 28,381 |
| $ | 16,462 |
| $ | 11,919 |
| 72 | % |
Tenant reimbursements |
|
| 1,230 |
|
| 276 |
|
| 954 |
| 346 | % |
Other revenue |
|
| 1,044 |
|
| 931 |
|
| 113 |
| 12 | % |
Total operating revenues |
|
| 30,655 |
|
| 17,669 |
|
| 12,986 |
| 73 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization |
|
| 5,651 |
|
| 1,102 |
|
| 4,549 |
| 413 | % |
Property operating expenses |
|
| 4,399 |
|
| 1,529 |
|
| 2,870 |
| 188 | % |
Acquisition and due diligence costs |
|
| 878 |
|
| 1,818 |
|
| (940) |
| (52) | % |
General and administrative expenses |
|
| 5,840 |
|
| 4,770 |
|
| 1,070 |
| 22 | % |
Legal and accounting |
|
| 1,151 |
|
| 882 |
|
| 269 |
| 30 | % |
Other operating expenses |
|
| 363 |
|
| 248 |
|
| 115 |
| 46 | % |
Total operating expenses |
|
| 18,282 |
|
| 10,349 |
|
| 7,933 |
| 77 | % |
OPERATING INCOME |
|
| 12,373 |
|
| 7,320 |
|
| 5,053 |
| 69 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER (INCOME) EXPENSE: |
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
| (157) |
|
| (133) |
|
| (24) |
| 18 | % |
(Gain) loss on disposition of assets |
|
| 48 |
|
| — |
|
| 48 |
| NM |
|
Interest expense |
|
| 9,852 |
|
| 7,869 |
|
| 1,983 |
| 25 | % |
Total other expense |
|
| 9,743 |
|
| 7,736 |
|
| 2,007 |
| 26 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before income tax expense |
|
| 2,630 |
|
| (416) |
|
| 3,046 |
| (732) | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
| — |
|
| 97 |
|
| (97) |
| NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
| $ | 2,630 |
| $ | (513) |
| $ | 3,143 |
| (613) | % |
| | | | | | | | | | | | |
| | For the Six Months Ended June 30, | | | | | |
| ||||
($ in thousands) |
| 2021 |
| 2020 |
| $ Change |
| % Change | ||||
OPERATING REVENUES: | | | | | | | | | | | | |
Rental income | | $ | 18,551 | | $ | 19,215 | | $ | (664) |
| (3.5) | % |
Tenant reimbursements | |
| 1,777 | |
| 1,744 | |
| 33 |
| 1.9 | % |
Crop sales | | | 453 | | | 697 | | | (244) | | (35.0) | % |
Other revenue | |
| 808 | |
| 512 | |
| 296 |
| 57.8 | % |
Total operating revenues | |
| 21,589 | |
| 22,168 | |
| (579) |
| (2.6) | % |
| | | | | | | | | | | | |
OPERATING EXPENSES | | | | | | | | | | | | |
Depreciation, depletion and amortization | |
| 3,820 | |
| 4,003 | |
| (183) |
| (4.6) | % |
Property operating expenses | |
| 3,639 | |
| 3,679 | |
| (40) |
| (1.1) | % |
Cost of goods sold | | | 917 | | | 1,311 | | | (394) | | (30.1) | % |
Acquisition and due diligence costs | |
| — | |
| 11 | |
| (11) |
| (100.0) | % |
General and administrative expenses | |
| 3,514 | |
| 2,854 | |
| 660 |
| 23.1 | % |
Legal and accounting | |
| 5,643 | |
| 1,330 | |
| 4,313 |
| NM | |
Other operating expenses | | | 2 | | | 1 | | | 1 | | 100.0 | % |
Total operating expenses | |
| 17,535 | |
| 13,189 | |
| 4,346 |
| 33.0 | % |
OPERATING INCOME | |
| 4,054 | |
| 8,979 | |
| (4,925) |
| (54.9) | % |
| | | | | | | | | | | | |
OTHER (INCOME) EXPENSE: | | | | | | | | | | | | |
Other (income) expense | | | (52) | | | 88 | | | (140) | | NM | |
(Gain) on disposition of assets | | | (3,467) | | | (831) | | | (2,636) | | NM | |
Interest expense | |
| 7,961 | |
| 9,130 | |
| (1,169) |
| (12.8) | % |
Total other expense | |
| 4,442 | |
| 8,387 | |
| (3,945) |
| (47.0) | % |
| | | | | | | | | | | | |
Net income (loss) before income tax expense | | | (388) | | | 592 | | | (980) | | NM | |
| | | | | | | | | | | | |
Income tax expense | | | — | | | — | | | — | | NM | |
| | | | | | | | | | | | |
NET INCOME (LOSS) | | $ | (388) | | $ | 592 | | $ | (980) |
| NM | |
NM=Not Meaningful
Our rental income for the period presentedsix months ended June 30, 2021 was impacted partially by four acquisitions consisting of four farms and seven dispositions consisting of fifteen farms during the two acquisitions completed in the last quarter of 2016 and, to a greater extent, the 15 acquisitions and the AFCO Mergers completed in the first three quarters of 2017.six months ended June 30, 2021. To highlight the effect of changes due to acquisitions and dispositions, we have separately discussed the rental income for the same-property portfolio, which includes only properties owned and operated for the entirety of both periods presented. The same-property portfolio for the periods presentedsix months ended June 30, 2021 includes 74,420approximately 142,000 acres, which represents 48%representing 96% of our current portfolio on an acreage basis. Additionally, upon renewal in 2021, a number of leases transitioned to higher percentages of variable rents relative to fixed rents, which variable rents have yet to be received.
43
TotalOn a same-property basis, total rental income under cash leasesdecreased $0.5 million, or 2.6%, for the same-property portfolio decreased to $8.0 million for the ninesix months ended SeptemberJune 30, 2017, from $12.0 million for2021 as compared to the ninesix months ended SeptemberJune 30, 2016, as a result of average annual rent for the same-property portfolio decreasing year over year to $145 per acre in the first three quarters of 2017 from $215 in the comparative nine-month period ended September 30, 2016. In the fourth quarter of 2016 we recognized $6.5 million in revenue in connection with the termination of certain leases. Had we recognized such revenue through the remaining life of the cancelled leases, the average annual rent for the same property portfolio would have decreased from $215 in the first three quarters of 2016 to $179 in the first three quarters of 2017. This decrease is primarily due to the fact that more of our leases now require the tenant to pay a portion of its rent through crop share payments rather than through fixed cash rental payments. Under GAAP, we cannot recognize crop share revenue until our tenant has a contractual agreement to sell the crop, therefore such revenue is not included in our results of operations for the nine months ended September 30, 2017.2020. Management does not believe that same-property rent comparisons for periods shorter than the full year are necessarily indicative of the expected full year comparison because the majority of bonus and crop share rent payments are expected to be received in the fourth quarter.
Total rental41
Rental income increased $11.9decreased $0.7 million, or 72%3.5%, for the ninesix months ended SeptemberJune 30, 2017,2021 as compared to the ninesix months ended SeptemberJune 30, 2016,2020, resulting entirely from asset dispositions, leases renegotiated downward in the completionsummer of 17 acquisitions2020 before the recovery in the farm economy, and the AFCO Mergers after September 30, 2016. For the nine months ended September 30, 2017, the average annual cash rent for the entire portfolio remained consistent at $202 per acre compared to the same periodtiming of crop share revenue recognition in 2016.connection with certain permanent crops.
Revenues recognized from tenant reimbursement of property taxes increased 346%. This increaseremained relatively flat at $1.8 million during the six months ended June 30, 2021 and 2020.
Crop sales totaled $0.5 million during the six months ended June 30, 2021 as compared to $0.7 million during the six months ended June 30, 2020. The decrease in crop sales is the result of an increased number of leases requiring reimbursement of property taxesdue to the Company by the tenant.lower citrus sales.
Other revenues totaled $1.0$0.8 million during the ninesix months ended SeptemberJune 30, 2017,2021 as compared to $0.9$0.5 million induring the comparative nine-month periodsix months ended SeptemberJune 30, 2016.2020. The $1.0increase primarily relates to revenue related to litigation settlement proceeds totaling $0.6 million recognized in the ninesix months ended SeptemberJune 30, 2017 consisted of $0.6 million realized on crop sales from our farming operation in the TRS, in addition to $0.4 million earned on interest and amortization of net loan fees from notes receivable compared to $0.8 million and $0.1 million, respectively, recognized in the nine months ended September 30, 2016. Mortgage notes receivable under the FPI Loan Program totaled $7.0 million as of September 30, 2017 compared to $2.9 million as of September 30, 2016.2021.
Depreciation, depletion and amortization expense increased $4.5decreased by $0.2 million, or 413%4.6%, for the ninesix months ended SeptemberJune 30, 2017,2021 as compared to the ninesix months ended SeptemberJune 30, 2016, as2020. The decrease is a result of acquiring approximately $0.3 millionasset dispositions and the decrease of the amortization of in-place leases acquired as part of the AFCO acquisition that were fully amortized in depreciable assets in the last quarter of 2016 and an additional $84.6 million in depreciable assets during the first three quarters of 2017. This change was primarily driven by an increased investment in permanent crops.Additionally, approximately $0.7 million was invested in property improvements during the last quarter of 2016 along with $11.7 million in property improvements during the first three quarters of 2017. prior periods.
Property operating expenses increased $2.9remained relatively flat at $3.6 million and $3.7 million for the six months ended June 30, 2021 and 2020, respectively.
Cost of goods sold decreased $0.4 million, or 188%30.1%, for the ninesix months ended SeptemberJune 30, 2017,2021 as compared to the ninesix months ended SeptemberJune 30, 2016, primarily related2020. This was largely due to property taxeslower farming costs on a California farm, partly offset by higher farming costs on a farm in Florida. The gross loss on sales is attributable to properties acquired since September 30, 2016. The increase in property operating expenses also includes an increase in expense relating to the Prudential Agreements assumed in the AFCO Mergers and subsequently terminated as of March 31, 2017, totaling $0.7 million compared to no such costs in the same period in 2016.impairment recorded on growing crop inventory.
Acquisition and due diligence costs totaled $0.9 million for the nine months ended September 30, 2017 as compared to $1.8 million recognized in the same period of the prior year. Prior year costs largely related to the acquisition of AFCO. The acquisition and due diligence costs recognized in the nine months ended September 30, 2017 primarily consisted of $0.5 million of costs related to the AFCO Mergers, $0.2 million of land acquisition costs related to potential acquisitions that were not pursued further, and $0.2 million of miscellaneous acquisition and due diligence expenses.
General and administrative expenses increased $1.1$0.7 million, or 22%23.1%, for the ninesix months ended SeptemberJune 30, 2017,2021 as compared to the ninesix months ended SeptemberJune 30, 2016.2020. The increase in general and administrative expenses was largely adriven by higher payroll, travel and consulting expense.
Legal and accounting expenses increased $4.3 million for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, which was primarily the result of increased costslegal fees incurred in relation to a “short and distort” attack against the Company conducted by anonymous parties, including Quinton Mathews, under the pseudonym Rota Fortunae, and his co-conspirators, as discussed above under Part I, Item 1 “Note 8—Commitments and Contingencies—Litigation,”.
On June 20, 2021, Quinton Mathews (a.k.a. “Rota Fortunae”) entered into a settlement agreement with the Company in which he agreed to pay the Company a multiple of the profits he made when the Company’s common stock price fell in connection with the Wheel of Fortune article. The Company has long believed the Wheel of Fortune article was part of a short and distort attack on the Company. This was confirmed when Quinton Mathews issued a press release admitting he and his advisory clients shorted the Company in advance of the article and profited from the decline it caused, and further admitted that many of the key statements in that article – which he acknowledged led to the stock’s decline - were false. Following the parties’ settlement, the Court granted a joint stipulated motion to dismiss the case on June 29, 2021.
On July 2, 2021, the Company filed a complaint against First Sabrepoint Capital Management, LP, Sabrepoint Capital Partners, LP, Sabrepoint Capital Participation, LP, George Baxter, and Donald Marchiony (collectively, “Sabrepoint”) in the Civil District Courts of Dallas County, Texas seeking relief for their role, as alleged in the complaint, in the short and distort scheme.
The Company continues to defend meritless stockholder class action lawsuits that are related to our continued growth. During the nine months ended September 30, 2017, employee compensation expenses increased $0.9 million which includes an increase in employee benefits expenses, as compared withclaims made by Wheel of Fortune. Amounts incurred to defend the same period in 2016, duestockholder claims are no longer covered by the Company’s insurance policies because legal and other costs to an increase indefend such claims exceeded the number of employees from 15 as of September 30, 2016 to 16 as of September 30, 2017. DuringCompany’s coverage amounts. Accordingly, the nine months ended September 30, 2017, our public company costs increased due to increased investor relations, regulatory, compliance activityand general and administrative activity. This activityCompany has not recognized any receivable for insurance recoveries that the Company believes it will be entitled to.
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amountedOther operating expenses remained relatively flat at $0.0 million for six months ended June 30, 2021 as compared to an increase of $0.2the six months ended June 30, 2020.
Other income decreased $0.1 million for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, resulting primarily from losses in commodity futures that occurred in the six months ended June 30, 2020. The Company incurred no such losses during the ninesix months ended SeptemberJune 30, 20172021.
Gain on disposition of assets increased $2.6 million for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020 due primarily to greater disposition activity in the six months ended June 30, 2021 as compared to the same period in 2016.2020.
Legal and accounting expenses increased $0.3Interest expense decreased $1.2 million, or 30%12.8%, for the ninesix months ended SeptemberJune 30, 2017,2021 as compared to the ninesix months ended SeptemberJune 30, 2016, primarily as a2020. This decrease is the result of increased costs related to transactions, including the AFCO Mergers, the continued growth of our portfolio and general corporate matters.
Other operating expenses totaling $0.4 million during the nine months ended September 30, 2017 is related to cost of crop sales on the $0.6 million of revenue recognized on crop sales from our TRS’s farming operations, compared to other operating expenses totaling $0.2 million during the nine months ended September 30, 2016 related to cost of crop sales on the $0.8 million of revenue recognized on crop salesa decrease in that period.
Other income increased $0.02 million, or 18%, for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, primarily due to higher interest on bank accounts.
Interest expense increased $2.0 million, or 25%, for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016. This increase resulted from an increase in our outstanding borrowings from $303.3 million as of September 30, 2016 to $465.8 million as of September 30, 2017 and increased interest rates which was offset byon floating rate debt and the absencelower outstanding balance of additional interest expense during the nine months ended September 30, 2017 related to interest and amortizationdebt.
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Liquidity and Capital Resources
Overview
Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay any outstanding borrowings, fund and maintain our assets and operations, make distributions to our stockholders and to Common unitholders, and other general business needs.
Our short-termshort- and long-term liquidity requirements consist primarily of funds necessary to acquire additional farmland and make other investments consistent with our investment strategy, make principal and interest payments on outstanding borrowings, make distributions on our Series A preferred units and Series B Participating Preferred Stock, make distributions necessary to qualify for taxation as a REIT, and fund our operations. Our sourcesoperations, and pay legal fees in relation to the Rota Fortunae litigation in excess of funds primarily will bethe Company’s insurance coverage. In addition, we require liquidity to acquire additional farmland, extend loans under the FPI Loan Program, and make other investments and capital expenditures. We expect to meet our liquidity needs through cash on hand, operating cash flows, borrowings and borrowings from prospective lenders. As at September 30, 2017 the Company had $129.3 million in cash on hand.equity issuances.
During the remainderOur long-term liquidity needs consist primarily of 2017, $54.9 million of our borrowings will mature. Any cash that we use to satisfy our outstanding debt obligations will reduce the amounts availablefunds necessary to acquire additional farms, which could adversely affectfarmland, make other investments and certain long-term capital expenditures, make principal and interest payments on outstanding borrowings, and make distributions necessary to qualify for taxation as a REIT. We expect to meet our growth prospects. As of the date of this report, we have $3.1 million in capacity available under the Farm Credit of Central Florida Mortgage Note (as defined below). To date, we have repayed all 2017 maturities under the Famer Mac Facility using cash from the Series B Participating Preferred Stock offering. We have signed a non-binding term sheet with a major financial institution for a debt facility, which we intend to use to refinance the debt due to mature in 2017. The Company has also signed a non-binding term sheet for a debt facility with a major financial institution to finance a portion of the California property acquisition committed to during the quarter. However, we can provide no assurances that we will be able to enter into a binding agreement to refinance or secure the debt on similar terms or at all and thus alternativelong-term liquidity requirements through various sources of capital, may be necessary. Asincluding the equity capital markets, net cash provided by operations, long-term mortgage indebtedness and other secured and unsecured borrowings, asset dispositions and, given the recent recovery in our stock price, equity issuances (including issuances of September 30, 2017, we had $465.8 million of debt, which may expose us to the risk of default under our debt obligations, restrict our operations and our ability to grow our business and revenues and restrict our ability to pay distributions to our stockholders. Common units).
On August 17, 2017, we completed an underwritten public offering of 6,037,500 shares of Series B Participating Preferred Stock which generated net proceeds of $144.5 million. We intend to use the proceeds from the offering to partially fund our acquisition of the California properties discussed under “—Recent Developments—Acquisitions under Contract” and for future farmland acquistions in accordance with our investment strategy and for general corporate
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purposes. The Company has also used part of the proceeds to make initial debt repayments for maturing bonds under the Farmer Mac Facility, we have signed a non-binding term sheet with a major financial institution for a debt facility, which we intend to use to refinance the remaining debt due to mature in 2017 and to replace cash used from the Series B Participating Preferred Stock offering initially used to make bond repayments.
In addition to utilizing current and any future available borrowings, we entered into equity distribution agreements on September 15, 2015May 14, 2021 in connection with the ATM Program, under which the Company has issued and sold from time to time, through the sales agents, shares of our common stock having an aggregate gross sales price of up to $25$50 million. Through SeptemberJune 30, 2017,2021, the Company has generated $11.1$25.6 million and $25.3 million in gross and net cash proceeds, respectively, under the ATM Program which is intended to provide cost-effective financing alternatives in the capital markets. We intend to use the net proceeds from the ATM Program if any, for future farmland acquisitions in accordance with our investment strategy and for general corporate purposes, which may also include originating loans to farmers under our loan program. We only intend to continue to utilize the ATM Program if the market price of our common stock reachesremains at levels which are deemed appropriate by our board of directors.
Consolidated Indebtedness
Farmer Mac Facility
We are partyOur ability to the Amended and Restated Bond Purchase Agreement, dated as of March 1, 2015 and amended as of June 2, 2015 and August 3, 2015 (the “Bond Purchase Agreement”), with Federal Agricultural Mortgage Corporation (“Farmer Mac”) and Farmer Mac Mortgage Securities Corporation, a wholly owned subsidiary of Farmer Mac, as bond purchaser (the “Purchaser”), regarding a secured note purchase facility (the “Farmer Mac Facility”) that has a maximum borrowing capacity of $165.0 million. Pursuant to the Bond Purchase Agreement, the Operating Partnership may, from time to time, issue one or more bonds to the Purchaser thatincur additional debt will be secured by pools of mortgage loans, which will, in turn, be secured by first liensdepend on agricultural real estate owned by us. The mortgage loans may have effective loan-to-value of up to 60%. Prepayment of each bond issuance is not permitted unless otherwise agreed upon by all parties to the Bond Purchase Agreement.
On September 5, 2017 the Company repaid $20.7 million in principal which was due and payable on that date, as a result this facility has been fully repaid.
As of September 30, 2017 and December 31, 2016, we had approximately $134.8 million and approximately $155.5 million outstanding, respectively, under the Farmer Mac Facility. The Farmer Mac Facility is subject to our ongoing compliance with a number of customary affirmativefactors, including our degree of leverage, the value of our unencumbered assets, compliance with the covenants under our existing debt agreements, borrowing restrictions that may be imposed by lenders and negative covenants,the conditions of debt markets. Our ability to access the equity capital markets will depend on a number of factors as well, as financial covenants, including: a maximum leverage ratioincluding general market conditions for REITs and market perceptions about us.
We manage our capital position and liquidity needs by continuously forecasting our expected cash receipts, expenses and capital needs, managing our cash position and monitoring all the sources of not more than 60%; a minimum fixed charge coverage ratio of 1.50capital available to 1.00; and a minimum tangible net worth requirement. We were in compliance with all applicable covenants at September 30, 2017. On October 23 2017, the Company repaid in full an additional bond with an outstanding principal amount of $5.5 million bringing the total amount of outstanding indebtedness under the Farmer Mac Facility to $129.3 million.
In connection with the Bond Purchase Agreement, on March 1, 2015, weus. Our business model, and the Operating Partnership also entered into an amendedbusiness model of real estate investment companies in general, utilizes a combination of debt and restated pledgeequity capital in financing the business. When debt becomes due, it is generally refinanced or repaid with equity capital rather than repaid using our cash flow from operations. When material debt repayments are due within the following 12 months, we work with current and security agreement (the “Pledge Agreement”) in favornew lenders and other potential sources of the Purchaser and Farmer Mac, pursuantcapital to which we and the Operating Partnership agreed to pledge, as collateral for the Farmer Mac Facility,ensure that all of their respective right, title and interestour obligations are satisfied in (i) mortgage loans with a value at least equaltimely manner. We have a history of being able to 100% of the aggregate principal amount of the outstanding bond held by the Purchaser and (ii) such additional collateral as necessaryrefinance or extend our debt obligations to have total collateral with a value at least equal to 110% of the outstanding notes held by the Purchaser.manage our debt maturities. In addition, we agreed to guaranteehave recently raised $25.6 million of equity capital from our ATM equity program and have utilized such program successfully in the full performancepast. We also have an effective shelf registration statement with $250.0 million of the Operating Partnership’s duties and obligations under the Pledge Agreement.
The Bond Purchase Agreement and the Pledge Agreement include customary eventscapacity, whereby we could issue additional equity or debt securities. Furthermore, we have a large portfolio of default, the occurrence of any of which, after any applicable cure period, would permit the Purchaser and Farmer Mac to, among other things, accelerate payment of all amounts outstanding under the Farmer Mac Facility and to exercise its remedies with respect to the pledged collateral, including foreclosure and sale of the agriculturalhigh-quality real estate underlyingassets which we believe could be selectively and readily liquidated if necessary to fund our immediate liquidity needs. Our first course of action is to work with our lenders to refinance debt which is coming due on terms acceptable to us. In the pledged mortgage loans.event that we are unsuccessful in refinancing our debt on terms acceptable to us, we would look first to issue equity under our ATM Program, and second to sell certain assets to fund our liquidity shortfall. We currently have $14.0 million of indebtedness coming due in 2021 and $112.0 million of indebtedness coming due in 2022. We are currently engaged with lenders to refinance our upcoming 2021 and 2022 maturities.
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Bridge Loan
On February 29, 2016, two wholly owned subsidiaries of the Operating Partnership (together, the “Bridge Borrower”) entered into a term loan agreement (the “Bridge Loan Agreement”) with MSD FPI Partners, LLC, an affiliate of MSD Partners, L.P. (the “Bridge Lender”), that provided for a loan of $53.0 million (the “Bridge Loan”), the proceeds of which were used primarily to fund the cash portion of the consideration for the acquisition of the Forsythe farms, which was completed on March 2, 2016. During the ninesix months ended SeptemberJune 30, 2016,2021, we accrued and paid debt issuance costs on the Bridge Loan totaling $173,907, and interest totaling $2,271,867,used $0.7 million to repurchase an aggregate of which $2,120,000, or 4.0%,25,073 shares of the Bridge Loan’s principal amount was consideredSeries B Participating preferred stock at a weighted average price of $25.92. We currently have authority to repurchase up to an aggregate of $40.5 million in additional interest paid on issuance. The Bridge Loan was paid in full, including accrued interest, and without prepayment penalty, on March 29, 2016 using proceeds from the MetLife Term Loans, as described below.
MetLife Term Loans
On March 29, 2016, five wholly owned subsidiaries of the Operating Partnership entered into a loan agreement (the “First MetLife Loan Agreement” and together with the Second MetLife Loan Agreement, the “MetLife Loan Agreements”) with Metropolitan Life Insurance Company (“MetLife”), which provides for a total of $127.0 million of term loans, comprised of (i) a $90.0 million term loan (“Term Loan 1”), (ii) a $16.0 million term loan (“Term Loan 2”) and (iii) a $21.0 million term loan (“Term Loan 3” and, together with Term Loan 1 and Term Loan 2, the “Initial MetLife Term Loans” and, together with Term Loan 4, Term Loan 5, Term Loan 6 and Term Loan 7 (described below), the “MetLife Term Loans”). The proceeds of the Initial MetLife Term Loans were used to repay existing debt (including amounts outstanding under the Bridge Loan), to acquire additional properties and for general corporate purposes. Each Initial MetLife Term Loan is collateralized by first lien mortgages on certainshares of our properties.common stock or shares of our Series B participating preferred Stock.
On June 29, 2016, five wholly owned subsidiaries of the Operating Partnership entered into a loan agreement (the “Second MetLife Loan Agreement”) with MetLife, which provides for a loan of approximately $15.7 million to the Company with a maturity date of June 29, 2026 (“Term Loan 4”). Interest on Term Loan 4 is payable semi-annually and accrues at a floating rate that will be adjusted quarterly to a rate per annum equal to the greater of (a) the three-month LIBOR plus an initial floating rate spread of 1.750%, which may be adjusted by MetLife on each of September 29, December 29, March 29 and June 29 of each year to an interest rate equal to the greater of (a) the three month LIBOR plus the floating rate spread or (b) 2.00% per annum. Term Loan 4 initially bears interest at a rate of 2.39% per annum until September 29, 2016, and on September 29, 2016 the rate changed to 2.60% per annum. Effective March 29, 2017, the Company exercised its option to convert the interest rate on Term Loan 4 from a floating rate to an adjustable rate. The new adjustable rate is 3.48% which may be adjusted by MetLife on each of March 29, 2020 and March 29, 2023. Proceeds from Term Loan 4 were used to acquire additional properties and for general corporate purposes.Consolidated Indebtedness
Interest on Term Loan 1 is payable semi-annually and accrues at a floating rate that will be adjusted quarterly to a rate per annum equal to the greater of (a) the three-month LIBOR plus an initial floating rate spread of 1.750%, which may be adjusted by MetLife on each of March 29, 2019, March 29, 2022 and March 29, 2025 to an interest rate consistent with interest rates quoted by MetLife for substantially similar loans secured by real estate substantially similar to the Company’s properties securing Term Loan 1 or (b) 2.000% per annum. Term Loan 1 bore interest at a rate of 2.40% per annum until September 29, 2016 and on September 29, 2016 the rate changed to 2.60% per annum. Effective March 29, 2017, the Company exercised its option to convert the interest rate on Term Loan 4 from a floating rate to an adjustable rate. The new adjustable rate is 3.48% which may be adjusted by MetLife on each of March 29, 2020 and March 29, 2023. Subject to certain conditions, we may at any time during the term of Term Loan 1 elect to have all or any portion of the unpaid balance of Term Loan 1 bear interest at a fixed rate that is initially established by the lender in its sole discretion that may be adjusted from time to time to an interest rate consistent with interest rates quoted by MetLife for substantially similar loans secured by real estate substantially similar to the Company’s properties securing Term Loan 1. On any floating rate adjustment date, we may prepay any portion of Term Loan 1 that is not subject to a fixed rate without penalty.
Interest on Term Loan 2 and Term Loan 3 is payable semi-annually and accrues at an initial rate of 2.66% per annum, which may be adjusted by MetLife on each of March 29, 2019, March 29, 2022 and March 29, 2025 to an interest rate consistent with interest rates quoted by MetLife for substantially similar loans secured by real estate substantially similarFor further details relating to our properties securing Term Loan 2consolidated indebtedness, refer to “Note 7 – Mortgage Notes, Line of Credit and Term Loan 3.
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Subject to certain conditions, amounts outstanding under Term Loan 2 and Term Loan 3, as well as any amounts outstanding under Term Loan 1 that are subject to a fixed interest rate, may be prepaid without penalty up to 20% of the original principal amounts of such loans per year or in connection with any rate adjustments. Any other prepayments under the Initial MetLife Term Loans generally are subject to a minimum prepayment premium of 1.00%.
In connection with the Initial MetLife Term Loans, on March 29, 2016, the Company and the Operating Partnership each entered into a separate guaranty (the “Initial MetLife Guaranties”) whereby the Company and the Operating Partnership jointly and severally agreed to unconditionally guarantee all of the borrowers’ obligations under the First MetLife Loan Agreement.
In connection with the Term Loan 4, on June 29, 2016, the Company and the Operating Partnership each entered into a separate guaranty (the “Term Loan 4 Guaranties”) whereby the Company and the Operating Partnership jointly and severally agreed to unconditionally guarantee all of the borrowers’ obligations under the Second MetLife Loan Agreement.
On January 12, 2017, five wholly owned subsidiaries of the Operating Partnership, entered into a loan agreement (the “Fifth MetLife Loan Agreement”) with MetLife which provides for a loan of approximately $8.4 million to the Company with a maturity date of January 12, 2027 (“Term Loan 5”). Interest on Term Loan 5 is payable semi-annually and accrues at a 3.26% per annum fixed rate, and may be adjusted by MetLife on each of January 12, 2020, January 12, 2023 and January 12, 2026 at the option of the Lender to a rate that is consistent with similar loans. Proceeds from Term Loan 5 were used to acquire additional properties and for general corporate purposes.
In connection with the Term Loan 5, on January 12, 2017, the Company and the Operating Partnership each entered into a separate guaranty (the “Term Loan 5 Guaranties”) whereby the Company and the Operating Partnership jointly and severally agreed to unconditionally guarantee all of the borrowers’ obligations under the Fifth MetLife Loan Agreement.
On February 14, 2017, a wholly owned subsidiary of the Operating Partnership, entered into a loan agreement (the “Sixth MetLife Loan Agreement”) with MetLife which provides for a loan of approximately $27.2 million to the Company with a maturity date of February 14, 2027 (“Term Loan 6”). Interest on Term Loan 6 is payable semi-annually and accrues at a 3.21% per annum fixed rate, and may be adjusted by MetLife on each of February 14, 2020, February 14, 2023 and February 14, 2026 at the option of the Lender to a rate that is consistent with similar loans. Proceeds from Term Loan 6 were used to acquire additional properties.
In connection with the Term Loan 6, on February 14, 2017, the Company and the Operating Partnership each entered into a separate guaranty (the “Term Loan 6 Guaranties”) whereby the Company and the Operating Partnership jointly and severally agreed to unconditionally guarantee all of the borrowers’ obligations under the Sixth MetLife Loan Agreement.
On June 7, 2017, a wholly owned subsidiary of the Operating Partnership entered into a loan agreement (the “Seventh MetLife Loan Agreement”) with MetLife which provides for a loan of approximately $21.3 million to the Company with a maturity date of June 7, 2027 (“Term Loan 7”). Interest on Term Loan 7 is payable semi-annually and accrues at a 3.45% per annum fixed rate, and may be adjusted by MetLife on each of June 7, 2020, June 7, 2023 and June 7, 2026 at the option of the Lender to a rate that is consistent with similar loans. Proceeds from Term Loan 7 were used to acquire additional properties.
In connection with the Term Loan 7, on June 7, 2017, the Company and the Operating Partnership each entered into a separate guaranty (the “Term Loan 7 Guaranties” and, together with the Initial MetLife Guaranties, the Term Loan 4 Guaranties, the Term Loan 5 Guaranties and the Term Loan 6 Guaranties, the “MetLife Guaranties”) whereby the Company and the Operating Partnership jointly and severally agreed to unconditionally guarantee all of the borrowers’ obligations under the Seventh MetLife Loan Agreement.
Each of the MetLife Loan Agreements contains a number of customary affirmative and negative covenants, including the requirement to maintain a loan to value ratio of no greater than 60%. The MetLife Guaranties also contain a number of customary affirmative and negative covenants.
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Each of the MetLife Loan Agreements includes certain customary events of default, including a cross-default provision related to other outstanding indebtedness of the borrowers, the Company and the Operating Partnership, the occurrence of which, after any applicable cure period, would permit MetLife, among other things, to accelerate payment of all amounts outstanding under the MetLife Term Loans and to exercise its remedies with respect to the pledged collateral, including foreclosure and sale of the Company’s properties that secure the MetLife Term Loans. As of September 30, 2017 there was $199.5 million outstanding under the MetLife Term Loans and we were in compliance with all covenants under the MetLife Loan Agreements.
Farm Credit of Central Florida Mortgage Note
On August 31, 2016, a wholly owned subsidiary of the Operating Partnership entered into a loan agreement (the “Farm Credit Mortgage Note”) with Farm Credit of Central Florida (“Farm Credit”) which provides for a loan of approximately $8.2 million to the Company with a maturity date of September 1, 2023. As of September 30, 2017 and December 31, 2016, approximately $5.1 million had been drawn down under this facility. Interest on the Farm Credit Mortgage Note is payable quarterly and accrues at a floating rate that will be adjusted monthly to a rate per annum equal to the one-month LIBOR plus 2.6875% which is subject to adjustment on the first day of September 2016, and on the first day of each month thereafter. Principal is payable quarterly commencing on October 1, 2018, with all remaining principal and outstanding interest due at maturity. Proceeds from Farm Credit Mortgage Note are to be used for the acquisition and development of additional land.
The Farm Credit Mortgage Note contains a number of customary affirmative and negative covenants, as well as a covenant requiring us to maintain a debt service coverage ratio of 1.25 to 1.00 beginning on December 31, 2019.
Prudential Note
On December 21, 2016, a wholly owned subsidiary of the Operating Partnership entered into a loan agreement with The Prudential Insurance Company of America (“Prudential”) which provides for a loan of approximately $6.6 million to the Company with a maturity date of July 1, 2019 (the “Prudential Note”). Interest on the Prudential Note is payable in cash semi-annually and accrues at a fixed rate of 3.20% per annum. Proceeds from the Prudential Note were used for the acquisition of additional land. As of September 30, 2017 there was $6.5 million outstanding under the Prudential Note and we were in compliance with all covenants under the Prudential Loan Agreement.
Beginning on December 21, 2017, the Prudential Note requires the Company to maintain a loan to value no greater than 60%.
Rutledge Credit Facilities
Upon closing of the AFCO Mergers, by virtue of AFCO OP becoming a subsidiary of the Company, the Company assumed AFCO’s outstanding indebtedness under four loan agreements (the “Existing Rutledge Loan Agreements”) between AFCO OP and Rutledge Investment Company (“Rutledge”), which are further described below:
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In connection with the completion of the AFCO Mergers, on February 3, 2017, AFCO OP, in its capacity as a wholly owned subsidiary of the Company and the Operating Partnership, and Rutledge entered into the Second Amendment and the “Rutledge Amendment”) to the Existing Rutledge Loan Agreements. Pursuant to the Rutledge Amendment, among other things, the maturity dates for each of the Existing Rutledge Loan Agreements were extended to January 1, 2022 and the aggregate loan value under the Existing Rutledge Loan Agreements may not exceed 50% of the appraised value of the collateralized properties. Certain AFCO properties acquired by the CompanyBonds Payable” in the AFCO Mergers serve as collateral under the Existing Rutledge Loan Agreements.
On February 3, 2017, the Company and the Operating Partnership each entered into guaranty agreements (the “Existing Loan Guarantees”) pursuant to which they will unconditionally guarantee the obligations of AFCO OP under the Existing Loan Agreements.
In addition,financial statements included elsewhere in connection with the Completion of the Mergers, on February 3, 2017, AFCO OP entered into a fifth loan agreement with Rutledge Investment Company (the “Fifth Rutledge Loan Agreement” and together with the Existing Rutledge Loan Agreements, as amended, the “Rutledge Loan Agreements”), with respect to a senior secured credit facility in the aggregate amount of $30 million, with a maturity date of January 1, 2022 and an annual interest rate of 3 month LIBOR plus 1.3%. The Fifth Rutledge Loan Agreement requires AFCO OP to make quarterly interest payments. Additionally, the Fifth Rutledge Loan Agreement contains certain customary affirmative and negative covenants, including (i) AFCO OP must pay a quarterly non-usage fee equal to 0.25% of the committed loan amount minus the average outstanding principal balance of the loan amount during the prior three-month period, (ii) AFCO OP must maintain a leverage ratio of 60% or less and (iii) the aggregate amounts outstanding under all of the Rutledge Loans may not exceed 50% of the aggregate appraised value of the properties serving as collateral under the Rutledge Loan Agreements.
On February 3, 2017, the Company and the Operating Partnership each entered into separate guarantees (the “Fifth Loan Guarantees” and together with the Existing Loan Guarantees, the “Guarantees”) whereby they are required to unconditionally guarantee AFCO OP’s obligations under the Fifth Rutledge Loan Agreement. As of September 30, 2017 $0 remains available under this facility.
As of the date of this Quarterly Report there is an aggregate of $120.0 million outstanding under Rutledge Loan Agreements. As of September 30, 2017, we were in compliance with all covenants under the Rutledge Loan Agreements.on Form 10-Q.
Sources and Uses of Cash
The following table summarizes our cash flows for the ninesix months ended SeptemberJune 30, 20172021 and 2016:2020:
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| For the nine months ended September 30, | ||||
(in thousands) |
| 2017 |
| 2016 | ||
Net cash (used in) provided by operating activities |
| $ | (3,401) |
| $ | 3,614 |
Net cash used in investing activities |
| $ | (114,200) |
| $ | (127,349) |
Net cash provided by financing activities |
| $ | 199,733 |
| $ | 117,410 |
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| | For the six months ended June 30, | ||||
(in thousands) |
| 2021 |
| 2020 | ||
Net cash provided by operating activities | | $ | 8,217 | | $ | 9,982 |
Net cash provided by (used in) investing activities | | $ | (2,701) | | $ | 6,707 |
Net cash provided by (used in) financing activities | | $ | 7,426 | | $ | (17,652) |
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Comparison of the ninesix months ended SeptemberJune 30, 20172021 to the ninesix months ended SeptemberJune 30, 20162020
As of SeptemberJune 30, 2017,2021, we had $129.3$40.2 million of cash compared to $17.2$11.6 million at SeptemberJune 30, 2016.2020.
Cash Flows from Operating Activities
Net cash provided by operating activities decreased $7.0by $1.8 million primarily as a result of the following:
| Receipt of |
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| An increase in gain on disposition of |
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| ● | An increase in accrued expensnes of $3.4 million as compared to the six months ended June 30, 2020; |
| ● | Proceeds from litigation settlement of $0.6 million in the six months ended June 30, 2021. |
Cash Flows from Investing Activities
Net cash used forprovided by investing activities decreased $13.1$9.4 million primarily as a result of the following:
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| Property acquisition during the six months ended June 30, 2021 for $30.0 million as compared to $0.9 million in property acquisitions during the six months ended June 30, 2020; and |
● | A |
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Cash Flows from Financing Activities
Net cash provided byused in financing activities increased $82.3$25.1 million primarily as a result of the following:
| Borrowings |
| ● | Mortgage note repayments increased $19.9 million as compared to the |
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| A |
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Off-Balance Sheet Arrangements
As of SeptemberJune 30, 2017,2021, we did not have any off-balance sheet arrangements.
Non-GAAP Financial Measures
Funds from Operations (“FFO”) and Adjusted Funds from Operations (“AFFO”)
We calculate FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts, or NAREIT. NAREITNareit. Nareit defines FFO as net income (loss) (calculated in accordance with GAAP), excluding gains (or losses) from sales of depreciable operating property, plus real estate related depreciation, depletion and amortization (excluding amortization of deferred financing costs), and after adjustments for unconsolidated partnerships and joint ventures. FFO is a supplemental non-GAAP financial measure. Management presents FFO as a supplemental performance measure because it believes that FFO is beneficial to investors as a starting point in measuring our operational performance. Specifically, in excluding real estate related depreciation and amortization and gains and losses from sales of depreciable operating properties, which do not relate to or are not indicative of operating performance, FFO provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs. We believe that, as a widely recognized measure of the performance of REITs, FFO will be used by investors as a basis to compare our operating performance with that of other REITs.
However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our properties that result from use or market conditions nor the level of capital expenditures necessary to maintain the operating performance of improvements on our properties, all of which have real economic effects and could materially impact our results from operations, the utility of FFO as a measure of our performance is limited. In addition, other equity REITs may not calculate FFO in accordance with the NAREITNareit definition as we do, and, accordingly, our FFO may not be comparable to such other REITs’ FFO. Accordingly, FFO should be considered only as a supplement to net income as a measure of our performance. FFO should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to pay dividends or service indebtedness. FFO also should not be used as a supplement to or substitute for cash flow from operating activities computed in accordance with GAAP.
We do not, however, believe that FFO is the only measure of the sustainability of our operating performance. Changes in GAAP accounting and reporting rules that were put in effect after the establishment of NAREIT’sNareit’s definition of FFO in 1999 result in the inclusion of a number of items in FFO that do not correlate with the sustainability of our operating performance. Therefore, in addition to FFO, we present AFFO and AFFO per share, fully diluted, both of which are non-GAAP measures. Management considers AFFO a useful supplemental performance metric for investors as it is more indicative of the Company’s operational performance than FFO. AFFO is not intended to represent cash flow or liquidity for the period and is only intended to provide an additional measure of our operating performance. Even AFFO, however, does not properly capture the timing of cash receipts, especially in connection with full-year rent payments under lease agreements entered into in connection with newly acquired farms. Management considers AFFO per share, fully diluted to be a supplemental metric to GAAP earnings per share. AFFO per share, fully diluted provides additional insight into
46
how our operating performance could be allocated to potential shares outstanding at a specific point in time. Management believes that AFFO is a widely recognized measure of the operations of REITs, and presenting AFFO will enable investors to assess our performance in comparison to other REITs. However, other REITs may use different methodologies for calculating AFFO and AFFO per share, fully diluted, and, accordingly, our AFFO and AFFO per share, fully diluted may not always be comparable to AFFO and AFFO per share amounts calculated by other REITs. AFFO and AFFO per share, fully diluted should not be considered as an alternative to net income (loss) or earnings per share (determined in accordance with GAAP) as an indication of financial performance or as an alternative to net income (loss) earnings per share (determined in accordance with GAAP) as a measure of our liquidity, nor are they indicative of funds available to fund our cash needs, including our ability to make distributions.
52
AFFO is calculated by adjusting FFO to exclude or include the income and expenses that we believe are not reflective of the sustainability of our ongoing operating performance, as further explained below:
| Real estate related acquisition and due diligence costs. Acquisition (including audit fees associated with these acquisitions) and due diligence costs are incurred for investment purposes and, therefore, do not correlate with the ongoing operations of our portfolio. We believe that excluding these costs from AFFO provides useful supplemental information reflective of the realized economic impact of our leases, which is useful in assessing the sustainability of our operating performance. Acquisition and due diligence costs totaled |
|
|
|
|
| Distributions on Series A preferred units. Dividends on Series A preferred units, which are convertible into Common units on or after |
| Dividends on Series B Participating Preferred Stock. Dividends on Series B Participating Preferred Stock, which may be redeemed for cash or converted into shares of common stock on or after September 30, 2021, |
| Common shares fully diluted. In accordance with GAAP, common shares used to calculate earnings per share are presented on a weighted average basis. Common shares on a fully diluted basis includes shares of common stock, Common units, |
5347
The following table sets forth a reconciliation of net income (loss) to FFO, AFFO and net (loss) income available to common stockholders per share to AFFO per share, fully diluted, the most directly comparable GAAP equivalents, respectively, for the periods indicated below as previously reported (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| For the three months ended September 30, |
| For the nine months ended September 30, | ||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||
| | For the three months ended June 30, | | For the six months ended June 30, | ||||||||||||||||||||
(in thousands except per share amounts) |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||||||
Net income (loss) |
| $ | 2,610 |
| $ | 100 |
| $ | 2,630 |
| $ | (513) | | $ | (2,865) | | $ | 172 | | $ | (388) | | $ | 592 |
(Gain) loss on disposition of assets | | | (74) | | | (917) | | | (3,467) | | | (831) | ||||||||||||
Depreciation, depletion and amortization |
|
| 2,107 |
|
| 419 |
|
| 5,651 |
|
| 1,102 | |
| 1,885 | |
| 2,003 | |
| 3,820 | | | 4,003 |
FFO |
|
| 4,717 |
|
| 519 |
|
| 8,281 |
|
| 589 | |
| (1,054) | |
| 1,258 | |
| (35) | | | 3,764 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Stock based compensation |
|
| 309 |
|
| 333 |
|
| 1,091 |
|
| 889 | ||||||||||||
Indirect equity offering costs |
|
| — |
|
| 24 |
|
| — |
|
| 72 | ||||||||||||
| | | | | | | | | | | | | ||||||||||||
Stock-based compensation | |
| 334 | | | 276 | |
| 585 | | | 517 | ||||||||||||
Deferred impact of interest rate swap terminations | |
| 127 | | | 137 | |
| 311 | | | 137 | ||||||||||||
Real estate related acquisition and due diligence costs |
|
| 250 |
|
| 1,735 |
|
| 1,760 |
|
| 4,172 | |
| — | | | 11 | | | — | | | 11 |
Dividends on Series B Participating Preferred Stock and distributions on Series A preferred units |
|
| (1,959) |
|
| (887) |
|
| (3,714) |
|
| (2,057) | ||||||||||||
Distributions on Preferred units | | | (3,055) | | | (3,088) | | | (6,120) | | | (6,203) | ||||||||||||
AFFO |
| $ | 3,317 |
| $ | 1,724 |
| $ | 7,418 |
| $ | 3,665 | | $ | (3,648) | | $ | (1,406) | | $ | (5,259) | | $ | (1,774) |
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| ||||||||||||
| | | | | | | | | | | | | ||||||||||||
AFFO per diluted weighted average share data: |
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| | | | | | | | | | | | |
|
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|
|
|
|
|
|
|
|
|
|
| ||||||||||||
| | | | | | | | | | | | | ||||||||||||
AFFO weighted average common shares |
|
| 38,997 |
|
| 19,711 |
|
| 37,118 |
|
| 18,576 | |
| 32,836 | |
| 31,656 | |
| 32,527 | |
| 31,708 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Net income (loss) per share available to common stockholders |
| $ | 0.01 |
| $ | (0.06) |
| $ | (0.05) |
| $ | (0.21) | ||||||||||||
| | | | | | | | | | | | | ||||||||||||
Net loss per share available to common stockholders | | $ | (0.19) | | $ | (0.10) | | $ | (0.21) | | $ | (0.19) | ||||||||||||
Income available to redeemable non-controlling interest and non-controlling interest in operating partnership |
|
| 0.06 |
|
| 0.07 |
|
| 0.12 |
|
| 0.19 | |
| 0.10 | |
| 0.11 | |
| 0.21 | |
| 0.21 |
Depreciation, depletion and amortization |
|
| 0.05 |
|
| 0.02 |
|
| 0.15 |
|
| 0.06 | ||||||||||||
Stock based compensation |
|
| 0.01 |
|
| 0.02 |
|
| 0.03 |
|
| 0.05 | ||||||||||||
Real estate related acquisition and due diligence costs |
|
| 0.01 |
|
| 0.09 |
|
| 0.05 |
|
| 0.22 | ||||||||||||
Dividends on Series B Participating Preferred Stock and distributions on Series A preferred units |
|
| (0.05) |
|
| (0.05) |
|
| (0.10) |
|
| (0.11) | ||||||||||||
Depreciation and depletion | |
| 0.06 | |
| 0.06 | |
| 0.12 | |
| 0.13 | ||||||||||||
Stock-based compensation | |
| 0.01 | |
| 0.01 | |
| 0.02 | |
| 0.02 | ||||||||||||
(Gain) loss on disposition of assets | | | — | | | (0.03) | | | (0.11) | | | (0.03) | ||||||||||||
Distributions on Preferred units | |
| (0.09) | |
| (0.10) | |
| (0.19) | |
| (0.20) | ||||||||||||
AFFO per diluted weighted average share |
| $ | 0.09 |
| $ | 0.09 |
| $ | 0.20 |
| $ | 0.20 | | $ | (0.11) | | $ | (0.04) | | $ | (0.16) | | $ | (0.06) |
The following table sets forth a reconciliation of AFFO share information to basic weighted average common shares outstanding, the most directly comparable GAAP equivalent, for the periods indicated below (unaudited):
|
|
|
|
|
|
|
|
| |||||||||||||
|
| For the three months ended September 30, |
| For the nine months ended September 30, | |||||||||||||||||
| | | | | | | | | | | | | | ||||||||
|
|
| For the three months ended June 30, | | | For the six months ended June 30, |
| ||||||||||||||
(in thousands) |
| 2017 |
| 2016 |
| 2017 |
| 2016 | | | 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
Basic weighted average shares outstanding |
| 32,862 |
| 13,683 |
| 30,695 |
| 12,663 |
|
| 31,072 |
|
| 29,433 | | | 30,747 |
|
| 29,485 |
|
Weighted average Common units on an as-if converted basis |
| 5,846 |
| 5,840 |
| 6,139 |
| 5,265 | |||||||||||||
Weighted average OP units on an as-if converted basis |
|
| 1,479 |
|
| 1,904 | | | 1,495 |
|
| 1,904 | | ||||||||
Weighted average unvested restricted stock |
| 289 |
| 188 |
| 284 |
| 177 |
|
| 285 |
|
| 319 | | | 285 |
|
| 319 | |
Weighted average redeemable non-controlling interest in operating partnership |
| — |
| — |
| — |
| 471 | |||||||||||||
AFFO weighted average common shares |
| 38,997 |
| 19,711 |
| 37,118 |
| 18,576 |
|
| 32,836 |
|
| 31,656 | | | 32,527 |
|
| 31,708 | |
EBITDAEBITDAre
The Company calculates Earnings Before Interest Taxes Depreciation and Adjusted EBITDA
Earnings beforeAmortization for real estate (“EBITDAre”) in accordance with the standards established by NAREIT in its September 2017 White Paper. NAREIT defines EBITDAre as net income (calculated in accordance with GAAP) excluding interest taxes,expense, income tax, depreciation and amortization, (“EBITDA”)gains or losses on disposition of depreciated property (including gains or losses on change of control), impairment write-downs of depreciated property and of investments in unconsolidated affiliates caused by a decrease in value of depreciated property in the affiliate, and adjustments to reflect the entity’s pro rata share of EBITDAre of unconsolidated affiliates. EBITDAre is a key financial measure used to evaluate ourthe Company’s operating performance but should not be construed as an alternative to operating income, cash flows from operating activities or net income, in each case as determined in accordance with GAAP. EBITDA is not a measure defined in accordance with GAAP. We believeThe Company believes that EBITDAEBITDAre is a standarduseful performance measure commonly reported and will be widely used by analysts and investors in ourthe Company’s industry. However, while EBITDAEBITDAre is a performance measure widely used across several industries, we dothe Company’s industry, the Company does not believe that it correctly captures ourthe Company’s business operating performance because it includes non-cash expenses and recurring adjustments that are necessary to better understand ourthe Company’s business operating performance. Therefore, in addition to EBITDA, ourEBITDAre, management uses adjusted EBITDA (“Adjusted EBITDA”),EBITDAre, a non-GAAP measure.
48
We further adjust EBITDAEBITDAre for certain additional items such as stock basedstock-based compensation, indirect offering costs, real estate acquisition related audit fees and real estate related acquisition and due diligence costs (for a full discussion of these adjustments, see AFFO adjustments discussed above) that we consider necessary to understand our operating performance. As of September 30, 2015, we began excluding indirect offering costs from EBITDA as we believe it improves comparability of our results over each reporting period and of our Company with other real estate operators. Prior to this date the Company had not incurred any indirect offering costs. We believe that Adjusted EBITDAEBITDAre provides useful
54
supplemental information to investors regarding our ongoing operating performance that, when considered with net income and EBITDA,EBITDAre, is beneficial to an investor’s understanding of our operating performance.
EBITDAEBITDAre and Adjusted EBITDAEBITDAre have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
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|
|
|
|
|
| Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and |
| Other companies in our industry may calculate |
Because of these limitations, EBITDAEBITDAre and Adjusted EBITDAEBITDAre should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results of operations and using EBITDAEBITDAre and Adjusted EBITDAEBITDAre only as a supplemental measure of our performance.
The following table sets forth a reconciliation of our net income to our EBITDAEBITDAre and Adjusted EBITDAEBITDAre for the periods indicated below (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| For the three months ended |
| For the nine months ended | ||||||||||||||||||||
|
| September 30, |
| September 30, | ||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||
| | For the three months ended | | For the six months ended | ||||||||||||||||||||
| | June 30, | | June 30, | ||||||||||||||||||||
(in thousands) |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2021 |
| 2020 | | 2021 |
| 2020 | ||||||||
Net income (loss) |
| $ | 2,610 |
| $ | 100 |
| $ | 2,630 |
| $ | (513) | ||||||||||||
Net Income (loss) | | $ | (2,865) | | $ | 172 | | $ | (388) | | $ | 592 | ||||||||||||
Interest expense |
|
| 3,683 |
|
| 2,065 |
|
| 9,852 |
|
| 7,869 | |
| 3,902 | |
| 4,467 | | | 7,961 | |
| 9,130 |
Income tax expense |
|
| — |
|
| 97 |
|
| — |
|
| 97 | |
| — | |
| — | | | — | |
| — |
Depreciation, depletion and amortization |
|
| 2,107 |
|
| 419 |
|
| 5,651 |
|
| 1,102 | |
| 1,885 | |
| 2,003 | | | 3,820 | |
| 4,003 |
EBITDA |
| $ | 8,400 |
| $ | 2,681 |
| $ | 18,133 |
| $ | 8,555 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
(Gain) loss on disposition of assets | | | (74) | | | (917) | | | (3,467) | | | (831) | ||||||||||||
EBITDAre | | $ | 2,848 | | $ | 5,725 | | $ | 7,926 | | $ | 12,894 | ||||||||||||
| | | | | | | | | | | | | ||||||||||||
Stock-based compensation |
|
| 309 |
|
| 333 |
|
| 1,091 |
|
| 889 | | | 334 | | | 276 | | | 585 | | | 517 |
Indirect equity offering costs |
|
| — |
|
| 24 |
|
| — |
|
| 72 | | | — | | | — | | | — | | | — |
Real estate related acquisition and due diligence costs |
|
| 250 |
|
| 1,735 |
|
| 1,760 |
|
| 1,901 | | | — | | | 11 | | | — | | | 11 |
Adjusted EBITDA |
| $ | 8,959 |
| $ | 4,773 |
| $ | 20,984 |
| $ | 11,417 | ||||||||||||
Adjusted EBITDAre | | $ | 3,182 | | $ | 6,012 | | $ | 8,511 | | $ | 13,422 | ||||||||||||
Inflation
Most of our farming leases are two to three years for row crops and one to seven years for permanent crops, pursuant to which each tenant is responsible for substantially all of the operating expenses related to the property, including maintenance, water usage and insurance. As a result, we believe that the effect on us of inflationary increases in operating expenses may be offset in part by the operating expenses that are passed through to our tenants and by contractual rent increases because our leases will be renegotiated every one to five years. We do not believe that inflation has had a material impact on our historical financial position or results of operations.
49
Seasonality
Seasonality
Because the leases for a majoritymany of the properties in our portfolio require payment of at least 50% of the annual rentsignificant payments in advance of eachthe spring planting season (for row crops), we receive a significant portion of our cash rental payments in the first calendar quarter of each year, although we recognize rental revenue from these leases on a pro rata basis over the non-cancellable term of the lease in accordance with GAAP.
55
Item 3.Quantitative and Qualitative Disclosures Aboutabout Market Risk.
Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market-sensitive instruments. In pursuing our business strategies, the primary market risk to which we are exposed is interest rate risk. Our primary interest rate exposure will be the daily LIBOR. We may use fixed interest rate financing to manage our exposure to fluctuations in interest rates. On a limited basis, we also may use derivative financial instruments to manage interest rate risk. We will not use such derivatives for trading or other speculative purposes.
At SeptemberJune 30, 2017, $125.12021, $171.5 million, or 27%34.1%, of our debt had variable interest rates. Assuming no increase in the level of our variable rate debt, if interest rates increased by 1.0%, or 100 basis points, our cash flow would decrease by approximately $1.3$0.8 million per year. At September 29, 2017,June 30, 2021, 1 month LIBOR was approximately 1239 basis points. Assuming no increase in the level of our variable rate debt, if LIBOR were reduced to 0 basis points, our cash flow would increase approximately $1.6$0.8 million per year.
Item 4.Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As required byWe have established disclosure controls and procedures, as defined in Rule 13a-15(b)13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to management, hasincluding our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and that management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
We have evaluated, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures. Based upon thistheir evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controlsdisclosures and procedures were effective at a reasonable level of assurance as of the end of the period covered by this report.
Limitations on the Effectiveness of Controls
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal ControlControls over Financial Reporting
There were no changes in the Company’s internal controlcontrols over financial reporting during the quartersix months ended SeptemberJune 30, 20172021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controlcontrols over financial reporting.reporting
50
PART II. OTHER INFORMATION
Item 1.Legal Proceedings.
For information regarding legal proceedings as of June 30, 2021, see Note 8 to our Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
The nature of our business exposes our properties, us and the Operating Partnership to the risk of claims and litigation in the normal course of business.
As of SeptemberJune 30, 2017, There2021, there have been no material changes from the risk factors previously disclosed in response to “Part I -– Item 1A. “Risk Factors”‘Risk Factors’” in our Annual Report on Form 10-K for the year ended December 31, 20162020, filed with the SEC on February 23, 2017.March 19, 2021.
56
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
Unregistered Sales of Equity Securities
None.
Share Repurchase Program
On March 15, 2017, our board of directors approved a program to repurchase up to $25,000,000 in shares of our common stock. Repurchases under this program may be made from time to time, in amounts and prices as we deem appropriate. Repurchases may be made in open market or privately negotiated transactions in compliance with Rule 10b-18 under the Exchange Act, subject to market conditions, applicable legal requirements, trading restrictions under our insider trading policy and other relevant factors. In November 2017, our Board of Directors approved repurchases of our Series B participating preferred stock from time to time under the share repurchase program. This share repurchase program does not obligate us to acquire any particular amount of common stock or Series B participating preferred stock, and it may be modified or suspended at any time at our discretion. We expect to fund repurchases under the program using cash on itsour balance sheet. Our repurchase activity for the three months ended SeptemberJune 30, 20172021 under the share repurchase program is presented in the following table.
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|
|
($ in thousands) |
| Total Shares Purchased |
|
| Average Price Paid per Share |
| Total Number of Shares Purchased as Part of Publicly announced Plans or Programs |
|
| Approximate Dollar Value of Shares that May Yet be Purchased Under the Share Repurchase Program |
July 1, 2017 - July 31, 2017 |
| — |
| $ | — |
| — |
| $ | 25,000 |
August 1, 2017 - August 31, 2017 |
| 274 |
|
| 8.54 |
| 274 |
|
| 22,660 |
September 1, 2017 - September 30, 2017 |
| 567 |
|
| 9.00 |
| 567 |
|
| 17,555 |
Total |
| 841 |
| $ | 8.85 |
| 841 |
| $ | 17,555 |
On August 1, 2018, our Board of Directors increased the authority under the share repurchase to $38.5 million. On November 7, 2019, the Board of Directors approved an additional $50 million under the share repurchase program. As of the date of this report, we had $40.5 million of availability under the program.
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
(in thousands except per share amounts) |
| Total Number of Common Shares Purchased | | | Average Price Paid per Share | | Total Number of Preferred Shares Purchased | | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | | Approximate Dollar Value of Shares that May Yet be Purchased Under the Share Repurchase Program |
April 1, 2021 - April 30, 2021 | | — | | $ | — | | 17 | | $ | 25.98 | | 17 | | $ | 40,456 |
May 1, 2021 - May 31, 2021 | | — | | | — | | — | | | — | | — | | | 40,456 |
June 1, 2021 - June 30, 2021 | | — | | | — | | — | | | — | | — | | | 40,456 |
Total | | — | | $ | — | | 17 | | $ | 25.82 | | 17 | | $ | 40,456 |
Subsequent to June 30, 2021, the Company has repuchased 1,120,467no shares for $9,999,998 at an average price of $8.92.common stock and no shares of Series B participating preferred stock.
Item 3.Defaults Upon Senior Securities.
None.
51
Item 4.Mine Safety Disclosures.
Not applicable.
Item 5.Other information.Information.
None.
The exhibits on the accompanying Exhibit Index are filed, furnished or incorporated by reference (as stated therein) as part of this Quarterly Report on Form 10-Q.
57
Exhibit Index
Exhibit | Description of Exhibit | |||
| ||||
31.1* | | |||
31.2* | | |||
32.1* | | |||
101.INS | | XBRL Instance | ||
101.SCH | | Inline XBRL Taxonomy Extension | ||
101.CAL | | Inline XBRL Taxonomy Extension Calculation | ||
101.DEF | | Inline XBRL Taxonomy Extension Definition | ||
101.LAB |
| Inline XBRL Taxonomy Extension Label | ||
101.PRE | | Inline XBRL Taxonomy Extension Presentation | ||
104 | | Cover Page Interactive Data File – (formatted as Inline XBRL and contained in Exhibit 101).* | ||
* Filed herewith
5852
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| |
| Farmland Partners Inc. |
|
|
| /s/ Paul A. Pittman |
| Paul A. Pittman |
| Executive Chairman and Chief Executive Officer |
| (Principal Executive Officer) |
| |
| /s/ Luca Fabbri |
| Luca Fabbri |
| Chief Financial Officer and Treasurer |
| (Principal Financial and Accounting Officer) |
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