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 |
For the quarterly period ended September 30, 20212022
or
☐ | 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: 001-36405
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) 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 |
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 every Interactive Data File required to be submitted 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 such files). ☒ Yes ☐ No
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ||||
Large accelerated filer | ☐ | | Accelerated filer | ☐ |
| | | | |
Non-accelerated filer | ☒ | | Smaller reporting company | ☒ |
| | | | |
| | | 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 October 22, 2021, 45,062,52521, 2022, 54,584,092 shares of the Registrant’s common stock (46,419,864(55,821,431 on a fully diluted basis, including 1,357,3391,237,339 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
September 30, 20212022
TABLE OF CONTENTS
9 | | | |
| | | |
| | | |
| | | |
| Page | ||
| | | |
| | ||
| | | |
| Balance Sheets as of September 30, | | 3 |
| | 4 | |
| | 5 | |
| | 6 | |
| Statements of Cash Flows for the nine months ended September 30, | | 8 |
| | 10 | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
| |
|
| ||
|
| ||
| | | |
|
| ||
| | | |
|
| ||
|
| ||
|
| ||
|
| ||
|
| ||
|
| ||
|
|
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Farmland Partners Inc.
Consolidated Balance Sheets
As of September 30, 20212022 (Unaudited) and December 31, 20202021
(in thousands, except par value and share data)
| | | | | | | | | | | | |
| | September 30, | | December 31, | | September 30, | | December 31, | ||||
|
| 2021 |
| 2020 |
| 2022 |
| 2021 | ||||
ASSETS | | | | | | | | | | | | |
Land, at cost | | $ | 931,803 | | $ | 924,952 | | $ | 969,360 | | $ | 945,951 |
Grain facilities | |
| 11,282 | |
| 12,091 | |
| 10,918 | |
| 10,754 |
Groundwater | |
| 10,214 | |
| 10,214 | |
| 12,602 | |
| 10,214 |
Irrigation improvements | |
| 52,703 | |
| 53,887 | |
| 53,431 | |
| 52,693 |
Drainage improvements | |
| 12,606 | |
| 12,805 | |
| 12,528 | |
| 12,606 |
Permanent plantings | | | 53,741 | | | 54,374 | | | 53,698 | | | 53,698 |
Other | | | 6,783 | |
| 8,167 | | | 6,995 | |
| 6,848 |
Construction in progress | |
| 10,153 | |
| 9,284 | |
| 14,125 | |
| 10,647 |
Real estate, at cost | |
| 1,089,285 | |
| 1,085,774 | |
| 1,133,657 | |
| 1,103,411 |
Less accumulated depreciation | |
| (37,082) | |
| (32,654) | |
| (43,224) | |
| (38,303) |
Total real estate, net | |
| 1,052,203 | |
| 1,053,120 | |
| 1,090,433 | |
| 1,065,108 |
Deposits | |
| 2,155 | |
| — | |
| 269 | |
| 58 |
Cash | |
| 21,373 | |
| 27,217 | |
| 8,869 | |
| 30,171 |
Assets held for sale | | | 518 | | | — | | | 34 | | | 530 |
Notes and interest receivable, net | |
| 6,128 | |
| 2,348 | |
| 5,910 | |
| 6,112 |
Right of use asset | | | 142 | | | 93 | | | 368 | | | 107 |
Deferred offering costs | |
| 76 | |
| — | |
| 53 | |
| 40 |
Deferred financing fees, net | | | 22 | | | 87 | ||||||
Accounts receivable, net | |
| 7,221 | |
| 4,120 | |
| 6,632 | |
| 4,900 |
Derivative asset | | | 2,014 | | | — | ||||||
Inventory | |
| 1,705 | |
| 1,117 | |
| 3,123 | |
| 3,059 |
Equity method investments | | | 3,424 | |
| — | | | 4,149 | |
| 3,427 |
Intangible assets, net | | | 2,060 | | | 1,915 | ||||||
Goodwill | | | 2,706 | | | 2,706 | ||||||
Prepaid and other assets | |
| 1,919 | |
| 2,889 | |
| 1,256 | |
| 3,392 |
TOTAL ASSETS | | $ | 1,096,886 | | $ | 1,090,991 | | $ | 1,127,876 | | $ | 1,121,525 |
| | | | | | | | | | | | |
LIABILITIES AND EQUITY | | | | | | | | | | | | |
LIABILITIES | | | | | | | | | | | | |
Mortgage notes and bonds payable, net | | $ | 499,533 | | $ | 506,625 | | $ | 408,372 | | $ | 511,323 |
Lease liability | | | 142 | | | 93 | | | 368 | | | 107 |
Dividends payable | |
| 1,715 | |
| 1,612 | |
| 3,333 | |
| 2,342 |
Derivative liability | | | 1,239 | | | 2,899 | | | — | | | 785 |
Accrued interest | |
| 3,103 | |
| 3,446 | |
| 3,578 | |
| 3,011 |
Accrued property taxes | |
| 2,588 | |
| 1,817 | |
| 2,856 | |
| 1,762 |
Deferred revenue | |
| 31 | |
| 37 | |
| 111 | |
| 45 |
Accrued expenses | |
| 12,767 | |
| 8,272 | |
| 8,855 | |
| 9,564 |
Total liabilities | |
| 521,118 | |
| 524,801 | |
| 427,473 | |
| 528,939 |
| | | | | | | | | | | | |
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 September 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 | | | 119,633 | | | 120,510 | | | 109,408 | | | 120,510 |
| | | | | | | | | | | | |
EQUITY | | | | | | | | | | | | |
Common stock, $0.01 par value, 500,000,000 shares authorized; 32,942,696 shares issued and outstanding at September 30, 2021, and 30,571,271 shares issued and outstanding at December 31, 2020 | |
| 319 | |
| 297 | ||||||
Common stock, $0.01 par value, 500,000,000 shares authorized; 54,319,217 shares issued and outstanding at September 30, 2022, and 45,474,145 shares issued and outstanding at December 31, 2021 | |
| 531 | |
| 444 | ||||||
Additional paid in capital | |
| 374,966 | |
| 345,870 | |
| 646,999 | |
| 524,183 |
Retained earnings (deficit) | |
| (11,066) | |
| 1,037 | ||||||
Retained deficit | |
| (2,189) | |
| (4,739) | ||||||
Cumulative dividends | |
| (59,579) | |
| (54,751) | |
| (70,705) | |
| (61,853) |
Other comprehensive income | |
| (284) | |
| (2,380) | |
| 3,205 | |
| 279 |
Non-controlling interests in operating partnership | |
| 12,663 | |
| 15,841 | |
| 13,154 | |
| 13,762 |
Total equity | |
| 317,019 | |
| 305,914 | |
| 590,995 | |
| 472,076 |
| | | | | | | | | | | | |
TOTAL LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS IN OPERATING PARTNERSHIP AND EQUITY | | $ | 1,096,886 | | $ | 1,090,991 | | $ | 1,127,876 | | $ | 1,121,525 |
See accompanying notes.
3
Farmland Partners Inc.
Consolidated Statements of Operations
For the three and nine months ended September 30, 20212022 and 20202021
(Unaudited)
(in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended | | For the Three Months Ended | | For the Nine Months Ended | ||||||||||||||||
| | September 30, | | September 30, | | September 30, | | September 30, | ||||||||||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||||||
OPERATING REVENUES: | | | | | | | | | | | | | | | | | | | | | | | | |
Rental income | | $ | 8,850 | | $ | 8,701 | | $ | 27,400 | | $ | 27,916 | | $ | 9,081 | | $ | 8,850 | | $ | 27,823 | | $ | 27,400 |
Tenant reimbursements | |
| 861 | |
| 911 | |
| 2,638 | |
| 2,655 | |
| 883 | |
| 861 | |
| 2,470 | |
| 2,638 |
Crop sales | | | 262 | | | 748 | | | 715 | | | 1,445 | | | 2,471 | | | 262 | | | 4,316 | | | 715 |
Other revenue | |
| 132 | |
| 244 | |
| 940 | |
| 755 | |
| 705 | |
| 132 | |
| 4,778 | |
| 940 |
Total operating revenues | |
| 10,105 | |
| 10,604 | |
| 31,693 | |
| 32,771 | |
| 13,140 | |
| 10,105 | |
| 39,387 | |
| 31,693 |
| | | | | | | | | | | | | | | | | | | | | | | | |
OPERATING EXPENSES | | | | | | | | | | | | | | | | | | | | | | | | |
Depreciation, depletion and amortization | |
| 1,911 | |
| 1,979 | |
| 5,731 | |
| 5,982 | |
| 1,665 | |
| 1,911 | |
| 5,076 | |
| 5,731 |
Property operating expenses | |
| 1,993 | |
| 1,961 | |
| 5,632 | |
| 5,640 | |
| 2,115 | |
| 1,993 | |
| 6,128 | |
| 5,632 |
Cost of goods sold | | | 417 | | | 1,332 | | | 1,334 | | | 2,643 | | | 1,673 | | | 417 | | | 4,444 | | | 1,334 |
Acquisition and due diligence costs | |
| 5 | |
| — | |
| 5 | |
| 11 | |
| 24 | |
| 5 | |
| 86 | |
| 5 |
General and administrative expenses | |
| 1,746 | |
| 1,395 | |
| 5,258 | |
| 4,248 | |
| 2,505 | |
| 1,746 | |
| 8,613 | |
| 5,258 |
Legal and accounting | |
| 2,599 | |
| 287 | |
| 8,241 | |
| 1,617 | |
| 407 | |
| 2,599 | |
| 2,479 | |
| 8,241 |
Other operating expenses | | | — | | | 1 | | | 2 | | | 2 | | | 26 | | | — | | | 65 | | | 2 |
Total operating expenses | |
| 8,671 | |
| 6,955 | |
| 26,203 | |
| 20,143 | |
| 8,415 | |
| 8,671 | |
| 26,891 | |
| 26,203 |
OPERATING INCOME | |
| 1,434 | |
| 3,649 | |
| 5,490 | |
| 12,628 | |
| 4,725 | |
| 1,434 | |
| 12,496 | |
| 5,490 |
| | | | | | | | | | | | | | | | | | | | | | | | |
OTHER (INCOME) EXPENSE: | | | | | | | | | | | | | | | | | | | | | | | | |
Other (income) expense | | | (8) | | | 25 | | | (59) | | | 113 | ||||||||||||
(Income) loss from equity method investment | | | (15) | | | — | | | (15) | | | — | ||||||||||||
Other (income) | | | (366) | | | (8) | | | (380) | | | (59) | ||||||||||||
(Income) from equity method investment | | | — | | | (15) | | | (16) | | | (15) | ||||||||||||
(Gain) loss on disposition of assets | | | 112 | | | (1,348) | | | (3,355) | | | (2,179) | | | 48 | | | 112 | | | (3,948) | | | (3,355) |
Interest expense | |
| 4,014 | |
| 4,411 | |
| 11,974 | | | 13,541 | |
| 3,891 | |
| 4,014 | |
| 11,461 | | | 11,974 |
Total other expense | |
| 4,103 | |
| 3,088 | |
| 8,545 | |
| 11,475 | |
| 3,573 | |
| 4,103 | |
| 7,117 | |
| 8,545 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) before income tax expense | | | (2,669) | | | 561 | | | (3,055) | | | 1,153 | | | 1,152 | | | (2,669) | | | 5,379 | | | (3,055) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Income tax expense | | | — | |
| — | | | — | |
| — | | | 33 | | | — | | | 129 | |
| — |
| | | | | | | | | | | | | | | | | | | | | | | | |
NET INCOME (LOSS) | |
| (2,669) | |
| 561 | |
| (3,055) | |
| 1,153 | |
| 1,119 | |
| (2,669) | |
| 5,250 | |
| (3,055) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net (income) loss attributable to non-controlling interests in operating partnership | |
| 115 | |
| (34) | |
| 127 | | | (70) | |
| (25) | |
| 115 | |
| (135) | | | 127 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) attributable to the Company | | | (2,554) | | | 527 | | | (2,928) | | | 1,083 | | | 1,094 | | | (2,554) | | | 5,115 | | | (2,928) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Nonforfeitable distributions allocated to unvested restricted shares | | | (14) | | | (16) | | | (42) | | | (48) | | | (16) | | | (14) | | | (47) | | | (42) |
Distributions on Series A Preferred Units and Series B Preferred Stock | | | (3,055) | | | (3,064) | | | (9,175) | | | (9,269) | | | (728) | | | (3,055) | | | (2,408) | | | (9,175) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net (loss) available to common stockholders of Farmland Partners Inc. | | $ | (5,623) | | $ | (2,553) | | $ | (12,145) | | $ | (8,234) | ||||||||||||
Net income (loss) available to common stockholders of Farmland Partners Inc. | | $ | 350 | | $ | (5,623) | | $ | 2,660 | | $ | (12,145) | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Basic and diluted per common share data: | | | | | | | | | | | | | | | | | | | | | | | | |
Basic net (loss) available to common stockholders | | $ | (0.17) | | $ | (0.09) | | $ | (0.39) | | $ | (0.28) | ||||||||||||
Diluted net (loss) available to common stockholders | | $ | (0.17) | | $ | (0.09) | | $ | (0.39) | | $ | (0.28) | ||||||||||||
Basic net income (loss) available to common stockholders | | $ | 0.01 | | $ | (0.17) | | $ | 0.05 | | $ | (0.39) | ||||||||||||
Diluted net income (loss) available to common stockholders | | $ | 0.01 | | $ | (0.17) | | $ | 0.05 | | $ | (0.39) | ||||||||||||
Basic weighted average common shares outstanding | |
| 32,551 | |
| 29,206 | |
| 31,355 | |
| 29,392 | |
| 53,495 | |
| 32,551 | |
| 49,908 | |
| 31,355 |
Diluted weighted average common shares outstanding | |
| 32,551 | |
| 29,206 | |
| 31,355 | |
| 29,392 | |
| 53,495 | |
| 32,551 | |
| 49,908 | |
| 31,355 |
Dividends declared per common share | | $ | 0.05 | | $ | 0.05 | | $ | 0.15 | | $ | 0.15 | | $ | 0.06 | | $ | 0.05 | | $ | 0.17 | | $ | 0.15 |
See accompanying notes.
4
Farmland Partners Inc.
Consolidated Statements of Comprehensive Income (Loss)
For the three and nine months ended September 30, 20212022 and 20202021
(Unaudited)
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended | | For the Three Months Ended | | For the Nine Months Ended | ||||||||||||||||
| | September 30, | | September 30, | | September 30, | | September 30, | ||||||||||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||||||
Net income (loss) | | $ | (2,669) | | $ | 561 | | $ | (3,055) | | $ | 1,153 | | $ | 1,119 | | $ | (2,669) | | $ | 5,250 | | $ | (3,055) |
Amortization of OCI | | | 234 | | | 301 | | | 764 | | | 547 | ||||||||||||
Amortization of other comprehensive income | | | 141 | | | 234 | | | 453 | | | 764 | ||||||||||||
Net change associated with current period hedging activities | | | 390 | | | 226 | | | 1,332 | | | (1,756) | | | 1,207 | | | 390 | | | 2,473 | | | 1,332 |
Comprehensive income (loss) | | | (2,045) | | | 1,088 | | | (959) | | | (56) | | | 2,467 | | | (2,045) | | | 8,176 | | | (959) |
Comprehensive income (loss) attributable to non-controlling interests | | | 115 | | | (34) | | | 127 | | | (70) | | | (25) | | | 115 | | | (135) | | | 127 |
Net income (loss) attributable to Farmland Partners Inc. | | $ | (1,930) | | $ | 1,054 | | $ | (832) | | $ | (126) | | $ | 2,442 | | $ | (1,930) | | $ | 8,041 | | $ | (832) |
See accompanying notes.
5
Farmland Partners Inc.
Consolidated Statements of Changes in Equity and Other Comprehensive Income
For the three and nine months ended September 30, 20212022 (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 |
Net (loss) | | — | | | — | | | — | | | (2,554) | | | — | | | — | | | (115) | | | (2,669) |
Issuance of stock | | 5 | | | 1 | | | 65 | | | — | | | — | | | — | | | — | | | 66 |
Grant of unvested restricted stock | | 4 | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Stock-based compensation | | — | | | — | | | 334 | | | — | | | — | | | — | | | — | | | 334 |
Dividends accrued or paid | | — | | | — | | | — | | | (3,055) | | | (1,647) | | | — | | | (70) | | | (4,772) |
Net change associated with current period hedging transactions | | — | | | — | | | — | | | — | | | — | | | 624 | | | — | | | 624 |
Conversion of common units to shares of common stock | | 123 | | | 1 | | | 1,275 | | | — | | | — | | | — | | | (1,275) | | | 1 |
Adjustments to non-controlling interests resulting from changes in ownership of operating partnership | | — | | | — | | | (7) | | | — | | | — | | | — | | | 7 | | | — |
Balance at September 30, 2021 | | 32,943 | | $ | 319 | | $ | 374,966 | | $ | (11,066) | | $ | (59,579) | | $ | (284) | | $ | 12,663 | | $ | 317,019 |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Stockholders’ Equity | | | | | | | | | | ||||||||||||
| | Common Stock | | | | | | | | | | | Non-controlling | | | | |||||||
| | | | | | | Additional | | | | | | Other | | Interests in | | | ||||||
| | | | | | | Paid in | | Retained | | Cumulative | | Comprehensive | | Operating | | Total | ||||||
|
| Shares |
| Par Value |
| Capital |
| Earnings (Deficit) |
| Dividends |
| Income |
| Partnership |
| Equity | |||||||
Balance at December 31, 2021 | | 45,474 | | $ | 444 | | $ | 524,183 | | $ | (4,739) | | $ | (61,853) | | $ | 279 | | $ | 13,762 | | $ | 472,076 |
Net income | | — | | | — | | | — | | | 1,106 | | | — | | | — | | | 33 | | | 1,139 |
Issuance of stock | | 2,913 | | | 29 | | | 38,264 | | | — | | | — | | | — | | | — | | | 38,293 |
Grant of unvested restricted stock | | 147 | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Forfeiture of unvested restricted stock | | (1) | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Shares withheld for income taxes on vesting of equity-based compensation | | (14) | | | — | | | (185) | | | — | | | — | | | — | | | — | | | (185) |
Stock-based compensation | | — | | | — | | | 642 | | | — | | | — | | | — | | | — | | | 642 |
Dividends accrued or paid | | — | | | — | | | — | | | (878) | | | (2,428) | | | — | | | (68) | | | (3,374) |
Net change associated with current period hedging transactions | | — | | | — | | | — | | | — | | | — | | | 1,107 | | | — | | | 1,107 |
Adjustments to non-controlling interests resulting from changes in ownership of operating partnership | | — | | | — | | | (187) | | | — | | | — | | | — | | | 187 | | | — |
Balance at March 31, 2022 | | 48,519 | | $ | 473 | | $ | 562,717 | | $ | (4,511) | | $ | (64,281) | | $ | 1,386 | | $ | 13,914 | | $ | 509,698 |
Net income | | — | | | — | | | — | | | 2,915 | | | — | | | — | | | 77 | | | 2,992 |
Issuance of stock | | 4,121 | | | 41 | | | 60,108 | | | — | | | — | | | — | | | — | | | 60,149 |
Forfeiture of unvested restricted stock | | (7) | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Shares withheld for income taxes on vesting of equity-based compensation | | (1) | | | — | | | (1) | | | — | | | — | | | — | | | — | | | (1) |
Stock-based compensation | | — | | | — | | | 185 | | | — | | | — | | | — | | | — | | | 185 |
Dividends accrued or paid | | — | | | — | | | — | | | (859) | | | (3,165) | | | — | | | (75) | | | (4,099) |
Conversion of common units to shares of common stock | | 110 | | | 1 | | | 1,213 | | | — | | | — | | | — | | | (1,214) | | | — |
Net change associated with current period hedging transactions | | — | | | — | | | — | | | — | | | — | | | 471 | | | — | | | 471 |
Adjustments to non-controlling interests resulting from changes in ownership of operating partnership | | — | | | — | | | (474) | | | — | | | — | | | — | | | 474 | | | — |
Balance at June 30, 2022 | | 52,742 | | $ | 515 | | $ | 623,748 | | $ | (2,455) | | $ | (67,446) | | $ | 1,857 | | $ | 13,176 | | $ | 569,395 |
Net income | | — | | | — | | | — | | | 1,094 | | | — | | | — | | | 25 | | | 1,119 |
Issuance of stock | | 1,565 | | | 16 | | | 22,927 | | | — | | | — | | | — | | | — | | | 22,943 |
Grant of unvested restricted stock | | 2 | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Stock-based compensation | | — | | | — | | | 351 | | | — | | | — | | | — | | | — | | | 351 |
Dividends accrued or paid | | — | | | — | | | — | | | (828) | | | (3,259) | | | — | | | (74) | | | (4,161) |
Conversion of common units to shares of common stock | | 10 | | | — | | | 106 | | | — | | | — | | | — | | | (106) | | | — |
Net change associated with current period hedging transactions | | — | | | — | | | — | | | — | | | — | | | 1,348 | | | — | | | 1,348 |
Adjustments to non-controlling interests resulting from changes in ownership of operating partnership | | — | | | — | | | (133) | | | — | | | — | | | — | | | 133 | | | — |
Balance at September 30, 2022 | | 54,319 | | $ | 531 | | $ | 646,999 | | $ | (2,189) | | $ | (70,705) | | $ | 3,205 | | $ | 13,154 | | $ | 590,995 |
See accompanying notes.
6
Farmland Partners Inc.
Consolidated Statements of Changes in Equity and Other Comprehensive Income
For the three and nine months ended September 30, 20202021 (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, 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 |
Net income | | — | | | — | | | — | | | 527 | | | — | | | — | | | 34 | | | 561 |
Stock-based compensation | | — | | | — | | | 271 | | | — | | | — | | | — | | | — | | | 271 |
Dividends accrued or paid | | — | | | — | | | — | | | (3,065) | | | (1,454) | | | — | | | (95) | | | (4,614) |
Net change associated with current period hedging transactions | | — | | | — | | | — | | | — | | | — | | | 527 | | | — | | | 527 |
Repurchase and cancellation of shares | | (510) | | | (5) | | | (3,367) | | | — | | | — | | | — | | | — | | | (3,372) |
Adjustments to non-controlling interests resulting from changes in ownership of operating partnership | | — | | | — | | | 75 | | | — | | | — | | | — | | | (75) | | | — |
Balance at September 30, 2020 | | 29,086 | | $ | 282 | | $ | 333,037 | | $ | (1,934) | | $ | (53,224) | | $ | (2,853) | | $ | 18,408 | | $ | 293,716 |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Stockholders’ Equity | | | | | | | | | | ||||||||||||
| | Common Stock | | | | | | | | | | | Non-controlling | | | | |||||||
| | | | | | | Additional | | | | | | Other | | Interests in | | | ||||||
| | | | | | | Paid in | | Retained | | Cumulative | | Comprehensive | | Operating | | Total | ||||||
|
| Shares |
| Par Value |
| Capital |
| Earnings (Deficit) |
| Dividends |
| Income (Loss) |
| 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 |
Net (loss) | | — | | | — | | | — | | | (2,554) | | | — | | | — | | | (114) | | | (2,668) |
Issuance of stock | | 5 | | | 1 | | | 65 | | | — | | | — | | | — | | | — | | | 66 |
Grant of unvested restricted stock | | 4 | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Stock-based compensation | | — | | | — | | | 334 | | | — | | | — | | | — | | | — | | | 334 |
Dividends accrued or paid | | — | | | — | | | — | | | (3,055) | | | (1,647) | | | — | | | (70) | | | (4,772) |
Conversion of common units to shares of common stock | | 123 | | | 1 | | | 1,275 | | | — | | | — | | | — | | | (1,275) | | | 1 |
Net change associated with current period hedging transactions | | — | | | — | | | — | | | — | | | — | | | 624 | | | — | | | 624 |
Adjustments to non-controlling interests resulting from changes in ownership of operating partnership | | — | | | — | | | (7) | | | — | | | — | | | — | | | 7 | | | — |
Balance at September 30, 2021 | | 32,943 | | $ | 319 | | $ | 374,966 | | $ | (11,066) | | $ | (59,579) | | $ | (284) | | $ | 12,664 | | $ | 317,020 |
See accompanying notes.
7
Farmland Partners Inc.
Consolidated Statements of Cash Flows
For the nine months ended September 30, 20212022 and 20202021
(Unaudited)
(in thousands)
| | | | | | |
| | For the Nine Months Ended | ||||
| | September 30, | ||||
|
| 2021 |
| 2020 | ||
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | |
Net income (loss) | | $ | (3,055) | | $ | 1,153 |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Depreciation, depletion and amortization | |
| 5,731 | |
| 5,982 |
Amortization of deferred financing fees and discounts/premiums on debt | |
| 304 | |
| 218 |
Stock-based compensation | |
| 919 | |
| 788 |
(Gain) on disposition of assets | |
| (3,355) | |
| (2,179) |
(Income) loss from equity method investment | | | (15) | | | — |
Proceeds from litigation settlement | | | 550 | | | — |
Bad debt expense | | | — | | | 325 |
Amortization of dedesignated interest rate swap | | | 764 | | | 547 |
Changes in operating assets and liabilities: | | | | | | |
(Increase) Decrease in accounts receivable | |
| (3,312) | |
| (1,256) |
(Increase) Decrease in interest receivable | | | (117) | | | 7 |
(Increase) Decrease in other assets | |
| (1,301) | |
| 1,734 |
(Increase) Decrease in inventory | | | (588) | |
| 45 |
Increase (Decrease) in accrued interest | |
| (379) | |
| 88 |
Increase (Decrease) in accrued expenses | |
| 4,336 | |
| 1,757 |
Increase (Decrease) in deferred revenue | |
| (52) | |
| 166 |
Increase (Decrease) in accrued property taxes | |
| 808 | |
| 786 |
Net cash provided by operating activities | |
| 1,238 | |
| 10,161 |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | |
Real estate acquisitions | |
| (31,008) | | | (884) |
Real estate and other improvements | |
| (2,186) | | | (2,026) |
Investment in equity method investees | | | (991) | | | — |
Principal receipts on notes receivable | | | 37 | | | 1,762 |
Issuance of note receivable | | | (3,702) | | | (8) |
Proceeds from sale of property | | | 28,710 | | | 13,427 |
Net cash provided by (used in) investing activities | |
| (9,140) | |
| 12,271 |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | |
Borrowings from mortgage notes payable | | | 26,750 | | | — |
Repayments on mortgage notes payable | | | (33,976) | | | (2,994) |
Proceeds from ATM offering | | | 25,365 | | | — |
Participating preferred stock repurchased | | | (650) | | | (3,095) |
Common stock repurchased | | | — | | | (6,568) |
Payment of debt issuance costs | | | (147) | | | (130) |
Payment of swap fees | | | (291) | | | (182) |
Dividends on common stock | | | (4,713) | | | (4,484) |
Distribution on Series A preferred units | | | (3,510) | | | (3,510) |
Distribution on Series B participating preferred stock | | | (6,542) | | | (6,637) |
Distributions to non-controlling interests in operating partnership, common | | | (228) | | | (285) |
Net cash provided by (used in) financing activities | |
| 2,058 | |
| (27,885) |
| | | | | | |
NET (DECREASE) IN CASH | |
| (5,844) | |
| (5,453) |
CASH, BEGINNING OF PERIOD | |
| 27,217 | |
| 12,561 |
CASH, END OF PERIOD | | $ | 21,373 | | $ | 7,108 |
Cash paid during period for interest | | $ | 11,019 | | $ | 12,650 |
Cash paid during period for taxes | | $ | — | | $ | — |
See accompanying notes.
| | | | | | |
| | For the Nine Months Ended | ||||
| | September 30, | ||||
|
| 2022 |
| 2021 | ||
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | |
Net income (loss) | | $ | 5,250 | | $ | (3,055) |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Depreciation, depletion and amortization | |
| 5,076 | |
| 5,731 |
Amortization of deferred financing fees and discounts/premiums on debt | |
| 272 | |
| 304 |
Amortization of net origination fees related to notes receivable | | | (28) | | | — |
Stock-based compensation | |
| 1,178 | |
| 919 |
Stock-based incentive | | | 417 | |
| — |
(Gain) on disposition of assets | |
| (3,948) | |
| (3,355) |
(Income) from equity method investment | | | (16) | | | (15) |
Proceeds from litigation settlement | | | — | | | 550 |
Bad debt expense | | | 24 | | | — |
Amortization of dedesignated interest rate swap | | | 417 | | | 764 |
Loss on early extinguishment of debt | | | 162 | | | — |
Changes in operating assets and liabilities: | | | | | | |
(Increase) Decrease in accounts receivable | |
| (1,913) | |
| (3,312) |
(Increase) Decrease in interest receivable | | | (43) | | | (117) |
(Increase) Decrease in other assets | |
| 1,903 | |
| (1,301) |
(Increase) Decrease in inventory | | | (64) | |
| (588) |
Increase (Decrease) in accrued interest | |
| 935 | |
| (379) |
Increase (Decrease) in accrued expenses | |
| (2,091) | |
| 4,336 |
Increase (Decrease) in deferred revenue | |
| 124 | |
| (52) |
Increase (Decrease) in accrued property taxes | |
| 1,101 | |
| 808 |
Net cash provided by operating activities | |
| 8,756 | |
| 1,238 |
| | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | |
Real estate acquisitions | |
| (36,943) | | | (31,008) |
Real estate and other improvements | |
| (3,040) | | | (2,186) |
Acquisition of non-real estate assets | | | (75) | | | — |
Investment in equity method investees | | | (705) | | | (991) |
Principal receipts on notes receivable | | | 1,577 | | | 37 |
Origination fees on notes receivable | | | 60 | | | — |
Issuance of notes receivable | | | (3,500) | | | (3,702) |
Proceeds from sale of property | | | 16,901 | | | 28,710 |
Net cash (used in) investing activities | |
| (25,725) | |
| (9,140) |
| | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | |
Borrowings from mortgage notes payable | | | 114,000 | | | 26,750 |
Repayments on mortgage notes payable | | | (216,941) | | | (33,976) |
Proceeds from ATM offering | | | 121,326 | | | 25,365 |
Issuance of stock | | | 59 | | | — |
Participating preferred stock repurchased | | | — | | | (650) |
Payment of debt issuance costs | | | (444) | | | (147) |
Payment of swap fees | | | (401) | | | (291) |
Redemption of Series A preferred units | | | (10,158) | | | — |
Dividends on common stock | | | (7,867) | | | (4,713) |
Shares withheld for income taxes on vesting of equity-based compensation | | | (186) | | | — |
Distributions on Series A preferred units | | | (3,510) | | | (3,510) |
Distributions on Series B participating preferred stock | | | — | | | (6,542) |
Distributions to non-controlling interests in operating partnership, common | | | (211) | | | (228) |
Net cash provided by (used in) financing activities | |
| (4,333) | |
| 2,058 |
| | | | | | |
NET (DECREASE) IN CASH | |
| (21,302) | |
| (5,844) |
CASH, BEGINNING OF PERIOD | |
| 30,171 | |
| 27,217 |
CASH, END OF PERIOD | | $ | 8,869 | | $ | 21,373 |
| | | | | | |
Cash paid during period for interest | | $ | 10,217 | | $ | 11,019 |
Cash paid during period for taxes | | $ | — | | $ | — |
8
Farmland Partners Inc.
Consolidated Statements of Cash Flows (Continued)(continued)
For the nine months ended September 30, 20212022 and 20202021
(Unaudited)
(in thousands)
| | | | | | |
| | For the Nine Months Ended | ||||
| | September 30, | ||||
|
| 2021 |
| 2020 | ||
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING TRANSACTIONS: | | | | | | |
Dividend payable, common stock | | $ | 1,647 | | $ | 1,454 |
Dividend payable, common units | | $ | 68 | | $ | 95 |
Distributions payable, Series A preferred units | | $ | 2,633 | | $ | 2,633 |
Additions to real estate improvements included in accrued expenses | | $ | 164 | | $ | 141 |
Settlement of outstanding notes receivable with property acquisitions | | $ | — | | $ | 487 |
Swap fees payable included in accrued interest | | $ | 36 | | $ | 36 |
Deferred offering costs amortized through equity in the period | | $ | 80 | | $ | — |
Right of Use Asset | | $ | 142 | | $ | 128 |
Lease Liability | | $ | 142 | | $ | 128 |
Conversion of Convertible Notes into Investment in equity method investee | | $ | 2,417 | | $ | — |
| | | | | | |
| | For the Nine Months Ended | ||||
| | September 30, | ||||
|
| 2022 |
| 2021 | ||
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING TRANSACTIONS: | | | | | | |
Dividend payable, common stock | | $ | 3,259 | | $ | 1,647 |
Dividend payable, common units | | $ | 74 | | $ | 68 |
Distributions payable, Series A preferred units | | $ | 2,408 | | $ | 2,633 |
Conversion of Convertible Notes into Investment in equity method investee | | $ | — | | $ | 2,417 |
Additions to real estate improvements included in accrued expenses | | $ | 1,053 | | $ | 164 |
Swap fees payable included in accrued interest | | $ | 36 | | $ | 36 |
Prepaid property tax liability acquired in acquisitions | | $ | 55 | | $ | — |
Deferred offering costs amortized through equity in the period | | $ | 107 | | $ | 80 |
Right of Use Asset | | $ | 368 | | $ | 142 |
Lease Liability | | $ | 368 | | $ | 142 |
Non-cash conversion of notes receivable to real estate | | $ | 2,135 | | $ | — |
See accompanying notes.
9
Farmland Partners, Inc.
Notes to the Unaudited Financial Statements as of September 30, 20212022
Note 1—Organization and Significant Accounting Policies
Organization
Farmland Partners Inc. (“FPI”), collectively with its subsidiaries, is an internally managed real estate company that owns and seeks to acquire high-quality farmland located in agricultural markets throughout North America. FPI was incorporated in Maryland on September 27, 2013. FPI 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.
FPI is the sole member of the sole general partner of Farmland Partners Operating Partnership, LP (the “Operating Partnership”), which was formed in Delaware on September 27, 2013. All of FPI’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 September 30, 2021,2022, FPI owned a 95.7%97.7% 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 FPI’s common stock, par value $0.01 per share (“common stock”), holders of the Operating Partnership’s Common units and Series A preferred units generally do not have voting rights or the power to direct the affairs of FPI. As of September 30, 2021,2022, the Operating Partnership owns a 9.98%9.97% equity interest in an unconsolidated equity method investment that holds 10 properties (see “Note 1, 1—Convertible Notes Receivable”, “Note 1—Equity Method Investments”, and “Note 4—Related Party Transactions”).
References to the “Company,” “we,” “us,” or “our” mean collectively FPIandFPI and its consolidated subsidiaries, including the Operating Partnership.
As of September 30, 2021,2022, the Company owned a portfolio of approximately 158,000160,800 acres of farmland which are consolidated in these financial statements. In addition, the Company serves as property manager over approximately 8,30029,800 acres (see “Note 4—Related Party Transactions”).of farmland.
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. On October 4, 2021, the Company converted all 5,806,797 shares of the outstanding Series B Participating Preferred Stock into shares of common stock. (See “Note 9—Stockholders’ Equity—Series B Participating Preferred Stock” for more information on the Series B Participating Preferred Stock and see “Note 11 – Subsequent Events” for information on the conversion of Series B Participating Preferred Stock.)Stock).
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 toWe engage directly in farming, provide property management, auction, and brokerage services and volume purchasing services to our tenants through the Company’s tenants and also to directly operate farms under certain circumstances.TRS. As of September 30, 2021,2022, the TRS performed direct farming operations on 2,8072,306 acres of farmland owned by the Company located in California and Michigan.
All references to numbers and percent of acres within this report are unaudited.
Principles of Combination and Consolidation
The accompanying consolidated financial statements for the periods ended September 30, 2021 and 2020 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 FPI and the Operating Partnership. All significant intercompany balances and transactions have been eliminated in consolidation.
10
Interim Financial Information
The information in the Company’saccompanying consolidated financial statements of the Company as of December 31, 2021 and September 30, 2022 and for the three and nine months ended September 30, 20212022 and 20202021 is unaudited. The accompanying financial statements for the three and nine months ended September 30, 2021 and 2020 include adjustments based on management’s estimates (consisting of normal and recurring accruals), which the Company considers necessary for a fair statementpresentation 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, 2020,2021, 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”) on March 19, 2021.1, 2022. Operating results for the three and nine months ended September 30, 20212022 are not necessarily indicative of actual operating results for the entire year ending December 31, 2021.2022.
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.
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 could materially differ from those estimates for a variety of reasons, including, without limitation, the impacts of the ongoing coronavirus (“COVID-19”) pandemic, the war in Ukraine, substantially higher prices for oil and itsgas and substantially increased interest rates, and their effects on the domestic and global economies. We are unable to quantify the ultimate impact of the pandemicthese factors on our 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 a 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 of similar assets, and contains acquired inputs and processes which have the ability to contribute to the creation of outputs, these acquisitions are accounted for as business combinations.
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 the 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 were 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.
11
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 salessale prices of comparable farms. Management’s estimates of groundwater value are made using historical information obtained regarding the applicable
11
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 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.
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 are included as an intangible asset and have 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 are 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 nine months ended September 30, 2022 and 2021, the companyCompany incurred an immaterial amount of costs related to acquisition and due diligence.
Total consideration for acquisitions may include a combination of cash and equity securities. When equity securities are issued, the Company determines the fair value of the equity securities issued based on the number of shares of common stock and Commonor units issued multiplied by the price per share of the Company’s common stock 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.or unit.
Using information available at the time of a 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 when incomplete information exists as of the respective reporting 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.
Real Estate Sales
The Company recognizes gains from the sales of real estate assets generally at the time the title is transferred and consideration is received and the Company no longer has substantial continuing involvement with the real estate sold, aside from properties managed for Promised Land Opportunity Zone Farms I, LLC (the "OZ Fund"), as described below.received.
Assets Held For SaleLiquidity Policy
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 tomanages its liquidity position and expected liquidity needs taking into consideration current fair value, (iv) the salecash balances, undrawn availability under its lines of credit, and reasonably expected cash receipts. The business model of the property within one yearCompany, and of real estate investment companies in general, relies on debt as a structural source of financing. When debt becomes due, it is considered probable and (v) significant changesgenerally refinanced rather than repaid using the Company’s cash flow from operations. The Company has a history of being able to the planrefinance its debt obligations prior to sell are not expected. As of September 30, 2021,maturity. Furthermore, the Company also has classified certaina deep portfolio 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 costsreal estate assets which management believes could be readily liquidated if necessary to sell.fund any immediate
12
liquidity needs. As of September 30, 2022, we had $408.4 million of mortgage and other debt against a portfolio of real estate assets with a net book value of $1.1 billion. We also have an effective shelf registration statement with approximately $100 million of capacity, excluding availability on any At-the-Market Equity Offering Program (collectively, the “ATM Program”) currently in place, pursuant to which we could issue additional equity or debt securities. During the nine months ended September 30, 2022, we raised $121.3 million of equity capital from our ATM Program. For more information on the ATM Program please see "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources".
Notes and Interest Receivable
Notes receivable are stated at their unpaid principal balance and include unamortized direct origination costs, prepaid interest and accrued interest through the reporting date, less any allowance for losses and unearned borrower paid points.
Management determines the appropriate classification of debt securities at the time of issuance and reevaluates such designation as of each balance sheet date. As of September 30, 2022 and December 31, 2021, the Company had four and five notes outstanding, respectively, under the Company’s loan program (the “FPI Loan Program”) and have designated each of the notes receivable as loans. Loans are stated at amortized cost, adjusted for amortization of premiums and accretion of discounts to maturity computed under the straight-line method, which approximates the effective interest method. Such amortization, including interest, is included in other revenue within our Consolidated Statements of Operations. See “Note 6—Notes Receivable.”
Convertible Notes Receivable
On January 20, 2021, the Company entered into property sale and long-term management agreements with the OZ Fund,Promised Land Opportunity Zone Farms I, LLC (the "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 9nine farms to the OZ Fund. On March 31, 2021, the Company sold an additional property to the OZ Fund. TheAs consideration for the 10 farms sold to the OZ Fund, the Company received approximately $19.1 million in cash and approximately $2.4 million in convertible notes receivable (the “OZ Convertible Notes”)., resulting in a gain on disposition of assets totaling $2.4 million. The OZ Convertible Notes had an interest rate of 1.35% and an aggregate principal balance of $2.4 million. On July 16, 2021, the Company provided notice to the OZ Fund that it was converting its OZ Convertible Notes, and accrued interest thereon, into membership interests in the OZ Fund, in accordance with the terms of the OZ Convertible Notes. The value of the conversion was $2.4 million and the Company’s membership interestinterests in the OZ Fund waswere approximately 7.6% upon conversion and increased to 9.98%9.97% as of September 30, 20212022 after subsequent capital contributions. Please refer to “Note 4 – 4—Related Party Transactions.” The OZ Fund has the option to purchase additional properties from the Company.
Equity Method Investments
As of September 30, 2021, the aggregate balance of our Equity Method Investment was approximately $3.4 million. The OZ Fund will exist until an event of dissolution occurs, as defined in the limited liability company agreement of the OZ Fund. Under the OZ Fund agreement, the Manager of the OZ Fund may call for additional capital contributions from its members to fund expenses, property acquisitions and capital improvements in accordance with each members’ funding ratio. The Operating Partnership’s additional capital contributions are capped at $20 million.
Under the agreement, any available cash, after the allowance for the payment of all obligations, operating expenses and capital improvements, is distributed to the Members at least annually. For each fiscal year, net income or loss is allocated to the Members pro rata in accordance with their percentage interest.
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 September 30, 2021 the Company had debt maturities within the next twelve months of approximately $112.0 million. The Company is currently engaged with lender to refinance our upcoming 2022 maturities. The Company and the lender have agreed to a five year extension. The facility is likely to close after December 31, 2021. After the $112.0 million due in 2022, the Company has no material debt maturities due before 2025. 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 $25.7 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.
Allowancefor Doubtful AccountsNotes and Interest Receivable
In June 2016,A note is placed on non-accrual status when management determines, after considering economic and business conditions and collection efforts, that the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurementnote is impaired or collection of Credit Lossesinterest is doubtful. The accrual of interest on Financial Instruments, which changes the methodinstrument ceases when there is concern that principal or interest due according to the note agreement will not be collected. Any payment received on such non-accrual notes are recorded as interest income when the payment is received. The note is reclassified as accrual-basis once interest and timingprincipal payments become current. The Company periodically reviews the value of the recognitionunderlying collateral of credit lossesfarm real estate for the note receivable and evaluates whether the value of the collateral continues to provide adequate security for the note. Should the value of the underlying collateral become less than the outstanding principal and interest, the Company will determine whether an allowance is necessary. Any uncollectible interest previously accrued is also charged off. As of September 30, 2022, we believe the value of the underlying collateral for each of the notes to be sufficient and in excess of the respective outstanding principal and accrued interest and no notes are currently on financial assets. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entitiesnon-accrual status.
Accounts Receivable
Accounts receivable are required to use a new forward-looking "expected loss" model that generally will result inpresented at face value, net of the earlier recognition of allowance for losses. Operating leasedoubtful accounts. The Company records an allowance for doubtful accounts, reducing the receivables are outside the scope of the new standard.balance to an amount that it estimates is collectible from our
13
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 offcreates an allowance for accounts receivable when it becomes apparent, based upon age or customer circumstances, that an amount may not be collectible, such that all current expected losses are sufficiently reserved for at each reporting period. The Company considered its current expectations of future economic conditions, including the impact of COVID-19, when estimating its allowance for doubtful accounts. As of September 30, 2021 and December 31, 2020, the Company had anThe allowance for doubtful accounts was less than $0.1 million as of $0.0 million.September 30, 2022 and December 31, 2021. An allowance for doubtful accounts is recorded on the Consolidated Statement of Operations as a reduction to rental revenue if in relation to revenues recognized in the year, or as property operating expenses if in relation to revenue recognized in the prior years.
Inventory
The costs of growing crops on farms under direct operations are accumulated until the time of harvest at the lower of cost or net 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.crop or harvested crop, as appropriate. The costs of growing crops incurred by FPI Agribusiness consist primarily of costs 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. ForThe cost of goods sold was $1.7 million and $0.4 million, respectively, for the three months ended September 30, 20212022 and 2020, the cost of harvested crop was $0.4 million and $1.3 million, respectively.2021. For the nine months ended September 30, 20212022 and 2020,2021, the cost of harvested crop sold was $1.3$4.4 million and $2.6$1.3 million, respectively.
Harvested crop inventory on farms under direct operations includes costs accumulated both during the growing and harvesting phases and are stated at the lower of those 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 broker’s commissions, freight and other marketing costs.
General inventory, such as fertilizer, seeds and pesticides, is valued at the lower of cost or net realizable value.
As of September 30, 20212022 and December 31, 2020,2021, inventory consisted of the following:
| | | | | | | | | | | | |
(in thousands) |
| September 30, 2021 |
| December 31, 2020 |
| September 30, 2022 |
| December 31, 2021 | ||||
Harvested crop | | $ | 198 | | $ | 47 | | $ | 232 | | $ | 164 |
Growing crop | | | 1,507 | | | 1,070 | | | 2,891 | | | 2,895 |
| | $ | 1,705 | | $ | 1,117 | | $ | 3,123 | | $ | 3,059 |
Equity Method Investments
As partial consideration for 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 upon conversion and increased to 9.97% as of September 30, 2022. As of September 30, 2022 and December 31, 2021, the aggregate balance of the Company’s equity method investment in the OZ Fund was approximately $4.1 million and $3.4 million, respectively, including aggregate capital contributions of $1.7 million and $1.0 million through September 30, 2022 and December 31, 2021, respectively. The OZ Fund will exist until an event of dissolution occurs, as defined in the limited liability company agreement of the OZ Fund (the “Fund Agreement”). Under the Fund Agreement, the Manager of the OZ Fund may call for additional capital contributions from its members to fund expenses, property acquisitions and capital improvements in accordance with each members’ funding ratio. The Company’s capital contributions are capped at $20.0 million.
Under the Fund Agreement, any available cash, after the allowance for the payment of all obligations, operating expenses and capital improvements, is distributed to the members at least annually. For each fiscal year, net income or loss is allocated to the members pro rata in accordance with their percentage interest.
Business Combinations
The Company recognizes and measures the assets acquired and liabilities assumed in a business combination based on their estimated fair values as of date of acquisition, with any difference recorded as goodwill. Management engages an independent valuation specialist, as applicable, to assist with the determination of fair value of the assets acquired,
14
liabilities assumed, and resulting goodwill, based on recognized business valuation methodologies. If the initial accounting for the business combination is incomplete by the end of the reporting period in which the acquisition occurs, an estimate will be recorded. Subsequent to the acquisition, and not later than one year from the acquisition date, the Company will record any measurement period adjustments to the initial estimate based on new information obtained that would have existed as of the acquisition date. An adjustment that arises from information obtained that did not exist as of the date of the acquisition will be recorded in the period of the adjustment. Acquisition and due diligence costs that arise as a result of a business combination are expensed as incurred.
On November 15, 2021, we acquired 100% of the membership interests of Murray Wise Associates, LLC (“MWA”), an agricultural asset management, brokerage and auction company, for total transaction value of $8.1 million, comprised of $5.3 million of consideration paid at closing, net of $2.8 million of closing adjustments. The consideration paid at closing was comprised of $2.2 million in cash and $3.1 million in shares of our common stock. The primary reason for the acquisition was to increase the Company’s breadth of activities in the farmland sector, while adding additional sources of revenue and market insight. As a result of the acquisition, MWA became a wholly owned subsidiary of the TRS. The Company issued an aggregate of 248,734 shares of common stock at a price of $12.61 per share in connection with the closing of the acquisition. The Company has entered into an incentive compensation agreement providing for the issuance of up to $3.0 million in shares of common stock for the benefit of current and prospective MWA employees aside from Murray Wise, who was appointed to our Board of Directors in connection with the closing of the acquisition, the receipt of which is tied to achieving certain profitability and asset-under-management objectives within three years following the closing of the transaction. Stock-based incentive expense related to these awards will be recognized ratably over the same three-year period to which it relates. For the three and nine months ended September 30, 2022, the Company recorded $0.0 million and $0.4 million, respectively, for these awards. As of September 30, 2022, $0.4 million is included in accrued expenses on the accompanying consolidated balance sheets.
The Company recorded goodwill of $2.7 million, trade names and trademarks of $1.9 million, and customer relationships of $0.1 million, as part of the purchase of MWA. Goodwill represents the difference between the purchase consideration and the net assets acquired, including identifiable intangible assets. The factors giving rise to goodwill are primarily related to (a) entry into new lines of business which are complimentary to FPI’s existing business operations, and (b) acquired workforce-in-place, including Murray Wise, who has extensive experience in the industry, and became a member of our Board of Directors in connection with the closing of the transaction, as described above.
The following table presents a summary of the Company's purchase accounting entries:
| | | |
| | | |
($ in thousands) |
| | MWA Purchase |
Consideration: | | | Accounting |
Cash consideration | | $ | 2,161 |
Stock consideration | | | 3,147 |
Total consideration | | $ | 5,308 |
| | | |
Amounts recognized for fair value of assets acquired and liabilities assumed: | | | |
Cash and cash equivalents | | $ | 1,305 |
Fixed Assets | | | 110 |
Goodwill | | | 2,706 |
Intangible assets | | | 1,915 |
Net Liabilities | | | (728) |
Total Fair Value | | $ | 5,308 |
| | | |
Net cash used in the transaction: | | | |
Cash paid in transaction | | $ | (2,161) |
Cash acquired in transaction | | | 1,305 |
Net cash used in the transaction | | $ | (856) |
Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price over the estimated fair value of the net assets acquired in the acquisition of a business. Goodwill is not amortized, but rather is tested for impairment annually in the fourth quarter and when events or changes in circumstances indicate that the fair value of a reporting unit with goodwill has been reduced
15
below its carrying value. The impairment test requires allocating goodwill and other assets and liabilities to reporting units. The fair value of each reporting unit is determined and compared to the carrying value of the reporting unit. The fair value is calculated using the expected present value of future cash flows method. Significant assumptions used in the cash flow forecasts include future net operating margins, discount rates and future capital requirements. If the fair value of the reporting unit is less than the carrying value, including goodwill, the excess of the book value over the fair value of goodwill is charged to net income as an impairment expense. During the three and nine months ended September 30, 2022, the Company did not incur any impairment charges related to goodwill.
Amortization of intangible assets with definite lives is calculated using the straight-line method, which is reflective of the benefit pattern in which the estimated economic benefit is expected to be received over the estimated useful life of the intangible asset. Intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the intangible asset may not be recoverable. If the sum of the expected undiscounted future cash flows related to the asset is less than the carrying amount of the asset, an impairment loss is recognized based on the fair value of the asset. Trade names and trademarks have an indefinite life and, therefore, are not subject to amortization. Customer relationships are subject to amortization and are amortized over a period of 12 years. During the three and nine months ended September 30, 2022, the Company recorded amortization of customer relationships of less than $0.1 million for each period.
Fair Value
The Company is required to disclose fair value as further explained in “Note 6 – 6—Notes Receivable”, “Note 7 – 7—Mortgage Notes, Lines of Credit and Bonds Payable” and “Note 10 – 10—Hedge Accounting” below.. FASB ASC 820-10 establishes a three-level hierarchy for the 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. |
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
14
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 reporting period.
The Company usesmanages economic risks, including interest rate, liquidity, and credit risk, by managing the amount, sources, duration and interest rate exposure of its funding. The Company may also use interest rate derivative financial instruments, namely interest rate swaps.
The Company may enter into marketing contracts to sell commodities. Derivatives and hedge accounting guidance requires a company to evaluate these contracts to determine whether the contracts are derivatives. Certain contracts that meet the definition of a derivative may be exempt from derivative accounting if designated as normal purchase or normal sales. The Company evaluates all contracts at inception to determine if they are derivatives and if they meet the normal purchase and normal sale designation requirements.
16
The Company has in place one interest rate swap agreement with Rabobank to add stability to interest expense and to manage certainits exposure to 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 andmovements. This agreement qualifies as 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.hedge and is actively evaluated for ongoing effectiveness (see “Note 10—Hedge Accounting”). 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. The interest rate swap agreement utilized byAdditionally, the Company effectively modifiedassesses whether the Company’s exposurederivative used in its hedging transaction is expected 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 outstanding amount to Rabobank at the time of the agreement, thus reducing the impact of interest ratebe highly effective in offsetting 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 September 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 toor cash flows of the hedged item. The Company discontinues hedge accounting please referwhen it is determined that a derivative has ceased to “Note 10 – Hedge Accounting.” be or is not expected to be highly effective as a hedge, and then reflects changes in fair value of the derivative in earnings after termination of the hedge relationship.
New or RevisedRecently Adopted Accounting Standards
Recently adopted
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 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 reference rates, such as the Secured Overnight Financing Rate.Rate (“SOFR”). 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 first 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 is 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 modification date or reassessment 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 2020, the Company elected to apply the hedge accounting practical expedient to its cash flow hedge. The Company will continue to evaluate its debt, derivative and lease contracts that are eligible for modification relief and expects to apply those elections as needed.
15
Note 2—Revenue Recognition
Fixed rent:Rent: The majority of the Company’s leases provide for rent payments on an entirely or partially fixed basis. For the majority of its fixed farm rent leases, the Company receives at least 50% of the annual lease payment from tenants before planting,crops are planted, generally during the first quarter of the year, with the remaining 50% of the lease payment due in the second half of the year generally after harvest.the crops are harvested. Rental income is recorded on a straight-line basis over the lease term. The lease term generally includesconsiders 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.
Variable rent:Rent: Certain of the Company’s leases provide for a rent payment determined as a percentage of the gross farm proceeds in their entirety or above a certain threshold. Revenue under leases providing for a payment equal to a percentage of the gross farm proceedsvariable rent may 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
17
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.
Fixed rentRent and variable rent:Variable Rent: Certain of the Company’s leases provide for a minimum fixed rent plus variable rent based on gross farm proceeds.revenue.
Leases in place as of September 30, 2022 have terms ranging from one to 40 years, though, most of the Company’s farming leases range from two to three years for row crops and one to seven years for permanent crops. Payments received in advance are included in deferred revenue until they are earned. As of September 30, 2022 and December 31, 2021, the Company had $0.1 million and less than $0.1 million, respectively, in deferred revenue.
The following sets forth a summary of rental income recognized during the three and nine months ended September 30, 2022 and 2021:
| | | | | | | | | | | | |
| | Rental income recognized | ||||||||||
| | For the three months ended | | For the nine months ended | ||||||||
| | September 30, | | September 30, | ||||||||
(in thousands) |
| 2022 |
| 2021 |
| 2022 |
| | 2021 | |||
Leases in effect at the beginning of the year | | $ | 7,008 | | $ | 6,902 | | $ | 22,558 | | $ | 23,635 |
Leases entered into during the year | |
| 2,073 | |
| 1,948 | |
| 5,265 | |
| 3,765 |
| | $ | 9,081 | | $ | 8,850 | | $ | 27,823 | | $ | 27,400 |
Future minimum fixed rent payments from tenants under all non-cancelable leases in place as of September 30, 2022, including lease advances when contractually due, but excluding crop share and tenant reimbursement of expenses, for the remainder of 2022 and each of the next four years and thereafter as of September 30, 2022 are as follows:
| | | |
(in thousands) |
| Future rental | |
Year Ending December 31, | | payments | |
2022 (remaining three months) | | $ | 8,713 |
2023 | | | 30,349 |
2024 | | | 20,762 |
2025 | |
| 10,950 |
2026 | | | 5,019 |
Thereafter | | | 36,484 |
| | $ | 112,277 |
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.
Tenant reimbursements:Reimbursements: Certain of the Company’s leases provide for tenants to reimburse the Company for property taxes and other expenses. Tenant reimbursements are recognized on a straight-line basis each year over the relevant period.applicable term of the lease.
Crop sales:Sales: 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 recognized for the three months ended September 30, 2022 and 2021 and 2020 were $0.3$2.5 million and $0.7$0.3 million, respectively. Revenues from the sale of harvested crops recognized for the nine months ended September 30, 2022 and 2021 and 2020 were $0.7$4.3 million and $1.4$0.7 million, 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.
Most ofOther Revenue: Other revenue includes crop insurance proceeds, auction fees, brokerage fees, interest income, and property management income. Crop insurance proceeds are recognized when the Company’s farming leases range from two to three years for row cropsamount is determinable and one to seven years for permanent crops. Leases in place as of September 30, 2021 have terms ranging from one to forty years. Paymentscollectible. Crop insurance proceeds are generally received in advance are included in deferredlieu of crop sales on farms under direct operations. The Company generates auction revenue until they are earned. Asby contracting with a real estate owner to market and auction farm property. Successful bidders sign a purchase agreement immediately following the auction. Auction fee revenue is recognized upon completion of September 30, 2021 and December 31, 2020, the Company had $0.03 million and $0.04 million, respectively, in deferred revenue.
The following sets forth a summary of rental income recognized for the three and nine months ended September 30, 2021 and 2020:
| | | | | | | | | | | | |
| | Rental income recognized | ||||||||||
| | For the three months ended | | For the nine months ended | ||||||||
| | September 30, | | September 30, | ||||||||
(in thousands) |
| 2021 |
| 2020 |
| 2021 |
| | 2020 | |||
Leases in effect at the beginning of the year | | $ | 6,902 | | $ | 7,789 | | $ | 23,635 | | $ | 25,468 |
Leases entered into during the year | |
| 1,948 | |
| 912 | |
| 3,765 | |
| 2,448 |
| | $ | 8,850 | | $ | 8,701 | | $ | 27,400 | | $ | 27,916 |
1618
Future minimum lease paymentstransaction. The Company generates real estate brokerage commissions by acting as a broker for real estate investors or owners seeking to buy or sell farm property. Revenue from tenants under all non-cancelable leasesbrokerage fees is recognized upon completion of the transaction. Property management revenue is recognized over the term of the contract as services are being provided. The Company collects property management fees in placeadvance of the commencement of property management activities on behalf of third parties. Payments received in advance are included in deferred revenue until they are earned. Interest income is recognized on notes receivable on an accrual basis over the life of the note. Direct origination costs are netted against loan origination fees and are amortized over the life of the note using the straight-line method, which approximates the effective interest method, as an adjustment to interest income which is included as a component of other revenue in the Company’s Consolidated Statements of Operations for the three and nine months ended September 30, 2021, including lease advances when contractually due, but excluding crop share2022 and tenant reimbursement of expenses, for the remainder of 2021 and each of the next four years and thereafter as of September 30, 2021 are as follows:2021.
| | | |
(in thousands) |
| Future rental | |
Year Ending December 31, | | payments | |
2021 (remaining three months) | | $ | 8,437 |
2022 | |
| 24,025 |
2023 | | | 14,195 |
2024 | |
| 6,359 |
2025 | | | 2,810 |
Thereafter | | | 23,502 |
| | $ | 79,328 |
The following table presents other revenue that is disaggregated by revenue source for the three and nine months ended September 30, 2022 and 2021:
| | | | | | | | | | | | |
| | For the three months ended | | For the nine months ended | ||||||||
| | September 30, | | September 30, | ||||||||
(in thousands) |
| 2022 |
| 2021 |
| 2022 |
| | 2021 | |||
Auction and brokerage fees | | $ | 401 | | $ | — | | $ | 1,852 | | $ | — |
Crop insurance proceeds | | | — | | | — | | | 1,925 | | | — |
Property management income | |
| 174 | |
| 46 | |
| 497 | |
| 103 |
Other | |
| 130 | |
| 86 | |
| 504 | |
| 837 |
| | $ | 705 | | $ | 132 | | $ | 4,778 | | $ | 940 |
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.
Note 3—Concentration Risk
Credit Risk
For the three and nine months ended September 30, 2021,2022, the Company had no significant tenants representing a tenant concentration of 10% or greater of period revenue. Historically,Revenue for the three and nine months ended September 30, 2022 are not necessarily indicative of actual revenue for the entire year ending December 31, 2022. The Company receives a significant portion of its variable rental payments in the future, iffourth quarter of each year, typically resulting in at least one tenant concentration of 10% or greater revenue in that quarter. 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 couldmay be a material adverse effect on the Company’s financial performance and the Company’s ability to continue operations.
Geographic Risk
The following table summarizes the percentage of approximate total acres owned as of September 30, 2022 and 2021, and 2020the fixed and the percentage of rental incomevariable rent recorded by the Company for the three and nine months ended September 30, 2022 and 2021 and 2020 by region:location of the farm:
| | | | | | | | | | | | | | | |
| | 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) |
| 2021 |
| 2020 | | | 2021 |
| 2020 | | | 2021 |
| 2020 |
|
Corn Belt | | 27.3 | % | 27.8 | % | | 34.0 | % | 37.3 | % | | 35.5 | % | 34.8 | % |
Delta and South | | 20.4 | % | 17.9 | % | | 13.8 | % | 11.8 | % | | 11.6 | % | 11.0 | % |
High Plains | | 18.8 | % | 19.0 | % | | 8.2 | % | 7.4 | % | | 8.0 | % | 7.2 | % |
Southeast | | 26.2 | % | 27.9 | % | | 22.5 | % | 26.2 | % | | 23.0 | % | 25.1 | % |
West Coast | | 7.3 | % | 7.4 | % | | 21.5 | % | 17.3 | % | | 21.9 | % | 21.9 | % |
|
| 100.0 | % | 100.0 | % | | 100.0 | % | 100.0 | % | | 100.0 | % | 100.0 | % |
| | | | | | | | | | | | | | | |
| | 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) |
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| | 2022 | | 2021 | ||
Corn Belt | | 29.1 | % | 27.3 | % | 44.7 | % | 34.0 | % | | 41.4 | % | | 35.5 | % |
Delta and South | | 20.4 | % | 20.4 | % | 13.4 | % | 13.8 | % | | 14.8 | % | | 11.6 | % |
High Plains | | 18.1 | % | 18.8 | % | 9.8 | % | 8.2 | % | | 9.3 | % | | 8.0 | % |
Southeast | | 25.1 | % | 26.2 | % | 23.4 | % | 22.5 | % | | 23.3 | % | | 23.0 | % |
West Coast | | 7.3 | % | 7.3 | % | 8.7 | % | 21.5 | % | | 11.2 | % | | 21.9 | % |
| | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | | 100.0 | % | | 100.0 | % |
(1) | Due to regional disparities in the use of leases with variable rent and seasonal variations in the recognition of variable rent revenue, regional comparisons by rental income are not fully representative of each region’s income-producing capacity until a full year is taken into account. |
(2) | Corn Belt includes farms located in Illinois, Indiana, Michigan, Missouri and eastern Nebraska. Delta and South includes farms located in Arkansas, Louisiana, |
19
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 Paul A. Pittman, the Company’s Chairman and Chief Executive Officer. The private plane is generally utilized when commercial air travel is not readily available or practical to and from a particular location. The Company paid costs of $0.03$0.02 million and $0.03 million during the three months ended September 30, 20212022 and 2020,2021, respectively, and $0.12$0.09 million and $0.08$0.12 million during the nine months ended September 30, 20212022 and 2020,2021, respectively, to American Ag Aviation for use of the aircraft in accordance with the lease agreement. These costs were recognized based on the nature
17
of the associated use of the aircraft consistently with other travel expenses, 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 the brother of Thomas P. Heneghan, one of the Company's independent directors. That independent directorMr. Heneghan has an indirect investment in the OZ Fund. In addition, as partialOn March 5, 2021, the Company sold nine farms to the OZ Fund. On March 31, 2021, the Company sold an additional property to the OZ Fund. As consideration in certain transactions withfor the 10 farms sold to the OZ Fund, the Company received approximately $19.1 million in cash and approximately $2.4 million in convertible notes receivable, resulting in a gain on disposition of assets totaling $2.4 million. On July 16, 2021, the OZ Convertible Notes which on July 16, 2021, were converted into a 7.6% equity interest in the OZ Fund. As of September 30, 2021,2022, the Company had a 9.98%9.97% interest in the OZ Fund. Under the terms of the long-term management agreement, the Company earns a quarterly management fee equal to (i) 0.2125% times gross book value per quarter ifof the gross book value is less thanunder $50 million orand (ii) 0.2000% times gross book value per quarter ifof the gross book value isin excess of $50 million or more.and under $100 million and (iii) 0.1875% times gross book value per quarter of gross book value in excess of $100 million. The Company earned management fees of $0.11 million and $0.05 million, respectively, during the three months ended September 30, 2022 and 2021 and $0.31 million and $0.10 million, respectively, during the three and nine months ended September 30, 2022 and 2021.
Note 5—Real Estate
The Company completed 5 acquisitions, consisting of 5 properties, in the Corn Belt, Delta and South and Southeast regions duringDuring the nine months ended September 30, 2021.2022, the Company completed twelve acquisitions, consisting of twelve properties, in the Corn Belt region. Aggregate consideration for these acquisitions totaled $17.0 million in cash and $14.0 million of notes payable. NaN intangible assets were acquired through these acquisitions.
The Company completed 2 acquisitions, consisting of 4 properties, in the Corn Belt region during the nine months ended September 30, 2020. Aggregate consideration for these acquisitions totaled $1.4 million and was comprised of $0.9 million in cash, and $0.5 million reduction in notes receivable and related interest to the seller through the acquisition of collateralized property. NaN$36.9 million. No intangible assets were acquired through these acquisitions.
During the nine months ended September 30, 2021, the Company completed 9five acquisitions, consisting of five properties, in the Corn Belt, Delta and South and Southeast regions. Aggregate consideration for these acquisitions totaled $31.0 million. No intangible assets were acquired through these acquisitions.
During the nine months ended September 30, 2022, the Company completed five dispositions consisting of 17five properties in the Corn Belt, High Plains and Southeast regions. The Company received cash consideration for these dispositions totaling $16.9 million and recognized an aggregate gain on sale of $3.9 million.
During the nine months ended September 30, 2021, the Company completed nine dispositions consisting of seventeen properties in the Corn Belt, Delta and South and Southeast regions. The Company received cash consideration for these dispositions totaling $28.7 million and $2.4 million of convertible notes receivable (which were subsequently converted to membership interests in the OZ Fund on July 16, 2021), and recognized an aggregate gain on sale of $3.4 million.
During the nine months ended September 30, 2020, the Company completed 4 dispositions consisting of 8 properties, in the Corn Belt and High Plains regions for aggregate consideration of $13.4 million and an aggregate gain on sale of $2.2 million.
Note 6—Notes Receivable
The Company offers an agricultural lending product (the “FPI Loan Program”) focused on farmers as a complement to the Company’s business of acquiring and owning farmland and leasing it to farmers. Under the FPI Loan Program, the Company makes loans to third-party farmers (both tenant and non-tenant) to provide financing for property acquisitions, working capital requirements, 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
20
growing crops and in principal amounts of $1.0 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.
18
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 ofCompany has estimated zero expected credit losses on its notes receivable principal balance is $0.0 millionbalances as of September 30, 20212022 and December 31, 2020.2021. The Company recorded no credit loss expense related to interest receivables of $0.00 million and $0.00 million during the three months ended September 30, 2021 and 2020, respectively, and $0.00 million and $0.05 million during the nine months ended September 30, 20212022 and 2020,2021, respectively.
As of September 30, 20212022 and December 31, 2020,2021, the Company hadheld the following notes receivable:
| | | | | | | | | | | | | | | | | | | | |
($ in thousands) | | | | Principal Outstanding as of | | Maturity | | | | Principal Outstanding as of | | Maturity | ||||||||
Loan |
| Payment Terms | | September 30, 2021 |
| December 31, 2020 |
| Date |
| Payment Terms |
| September 30, 2022 |
| December 31, 2021 |
| Date | ||||
Mortgage Note (1) | | Principal & interest due at maturity | | $ | 223 | | $ | 229 | | 12/7/2028 | | Principal & interest due at maturity | | $ | 217 | | $ | 223 | | 12/7/2028 |
Mortgage Note (1) | | Principal due at maturity & interest due monthly | | | 2,135 | | | 2,135 | | 3/16/2022 | | Principal due at maturity & interest due monthly | | | — | | | 2,135 | | 3/16/2022 |
Mortgage Note (2) | | Principal due at maturity & interest due quarterly | | | 1,571 | | | — | | 6/23/2023 | | Principal due at maturity & interest due quarterly | | | — | | | 1,571 | | 6/23/2023 |
Mortgage Note (3) | | Principal due at maturity & interest due semi-annually | | | 2,100 | | | — | | 8/18/2023 | | Principal due at maturity & interest due semi-annually | | | 2,100 | | | 2,100 | | 8/18/2023 |
Mortgage Note (4) | | Principal due at maturity & interest due quarterly | | | 1,000 | | | — | | 11/28/2022 | ||||||||||
Mortgage Note (4) | | Principal due at maturity & interest due quarterly | | | 2,500 | | | — | | 3/3/2025 | ||||||||||
Total outstanding principal | Total outstanding principal | | | 6,029 | | | 2,364 | | | | | | | 5,817 | | | 6,029 | | | |
Interest receivable (net prepaid interest and points) | Interest receivable (net prepaid interest and points) | | | 99 | | | 277 | | | | | | | 93 | | | 83 | | | |
Provision for interest receivable | | | | | — | | | (293) | | | | | | | — | | | — | | |
Total notes and interest receivable | Total notes and interest receivable | | $ | 6,128 | | $ | 2,348 | | | | | | $ | 5,910 | | $ | 6,112 | | |
(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 |
(2) | On July 27, 2021, the Company entered into a loan secured against |
(3) | On August 18, 2021, the Company entered into a loan secured against |
(4) | On March 3, 2022, the Company entered into two loans with the same party secured against farmland. |
The collateral for the mortgage notes receivable consists of real estate, personal property and growing crops.
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 and credit risk whenever the interest rates on the notes receivable are deemed not to be at market rates. As of September 30, 20212022 and December 31, 2020,2021, the fair value of the notes receivable was $6.1 million and $2.4$6.0 million, respectively.
1921
Note 7—Mortgage Notes, Lines of Credit and Bonds Payable
As of September 30, 20212022 and December 31, 2020,2021, the Company had the following indebtedness outstanding:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | Book | | | | | | | | | | | | | | | | | | Book | ||
| | | | | | Annual | | | | | | | | | | Value of | | | | Annual | | | | | | | | | | | | | | Value of | ||
($ in thousands) | ($ in thousands) | | | | Interest | | Principal | | | | Collateral | ($ in thousands) | | Interest | | | | | | Principal | | | | Collateral | ||||||||||||
| | | | | | Rate as of | | Outstanding as of | | | | as of | | | | Rate as of | | | | | | Outstanding as of | | | | as of | ||||||||||
| | | | | | September 30, | | September 30, | | December 31, | | Maturity | | September 30, | | Interest | | September 30, | | Interest Rate | | Next Adjustment | | September 30, | | December 31, | | Maturity | | September 30, | ||||||
Loan |
| Payment Terms |
| Interest Rate Terms |
| 2021 |
| 2021 |
| 2020 |
| Date |
| 2021 |
| Payment Terms |
| 2022 |
| Terms |
| Date (1) |
| 2022 |
| 2021 |
| Date |
| 2022 | ||||||
Farmer Mac Bond #6 | | Semi-annual interest only | | 3.69% | | 3.69% | | $ | 13,827 | | $ | 13,827 | | April 2025 | | $ | 21,438 | | Semi-annual | | 3.69% | | Fixed | | N/A | | $ | 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 | | | 18,595 | | Semi-annual | | 3.68% | | Fixed | | N/A | | | 11,160 | | | 11,160 | | April 2025 | | | 18,584 |
MetLife Term Loan #1 | | Semi-annual interest only | | 3.30% adjusted every three years | | 3.30% | | | 83,205 | | | 85,188 | | March 2026 | | | 186,805 | | Semi-annual | | 3.30% | | Fixed for 3 years | | March 2023 | | | 72,622 | | | 83,206 | | March 2026 | | | 182,578 |
MetLife Term Loan #2 | | Semi-annual interest only | | 4.27% adjusted every three years | | 4.27% | | | 16,000 | | | 16,000 | | March 2026 | | | 32,513 | | Semi-annual | | 3.60% | | Fixed for 3 years | | N/A (3) | | | — | | | 16,000 | | March 2026 | | | — |
MetLife Term Loan #3 | | Semi-annual interest only | | 4.27% adjusted every three years | | 4.27% | | | 16,800 | | | 21,000 | | March 2026 | | | 26,141 | | Semi-annual | | 3.60% | | Fixed for 3 years | | N/A (3) | | | — | | | 16,800 | | March 2026 | | | — |
MetLife Term Loan #4 | | Semi-annual interest only | | 3.30% adjusted every three years | | 3.30% | | | 13,016 | | | 15,685 | | June 2026 | | | 25,694 | | Semi-annual | | 3.30% | | Fixed for 3 years | | March 2023 | | | 9,880 | | | 13,017 | | June 2026 | | | 25,698 |
MetLife Term Loan #5 | | Semi-annual interest only | | 3.50% adjusted every three years | | 3.50% | | | 6,779 | | | 8,379 | | January 2027 | | | 9,994 | | Semi-annual | | 3.50% | | Fixed for 3 years | | January 2023 | | | 5,179 | | | 6,779 | | January 2027 | | | 10,096 |
MetLife Term Loan #6 | | Semi-annual interest only | | 3.45% adjusted every three years | | 3.45% | | | 27,158 | | | 27,158 | | February 2027 | | | 58,087 | | Semi-annual | | 3.45% | | Fixed for 3 years | | February 2023 | | | 21,726 | | | 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 | | Semi-annual | | 3.20% | | Fixed for 3 years | | June 2023 | | | 15,698 | | | 16,198 | | June 2027 | | | 29,629 |
MetLife Term Loan #8 | | Semi-annual interest only | | 4.12% fixed until 2027 | | 4.12% | | | 44,000 | | | 44,000 | | December 2042 | | | 110,042 | | Semi-annual | | 4.12% | | Fixed for 3 years | | December 2027 | | | 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 | | Semi-annual | | 3.20% | | Fixed for 3 years | | May 2024 | | | 16,800 | | | 16,800 | | May 2028 | | | 33,652 |
MetLife Term Loan #10 | | Semi-annual interest only | | 3.00% adjusted every three years | | 3.00% | | | 51,808 | | | 53,277 | | October 2030 | | | 109,410 | | Semi-annual | | 3.00% | | Fixed for 3 years | | October 2023 | | | 48,985 | | | 49,874 | | October 2030 | | | 103,870 |
MetLife Term Loan #11 | | Semi-annual interest only | | 2.85% fixed until 2024 | | 2.85% | | | 12,750 | | | — | | October 2031 | | | 26,890 | | Semi-annual | | 2.85% | | Fixed for 3 years | | October 2024 | | | 12,750 | | | 12,750 | | October 2031 | | | 27,102 |
Rabobank | | Semi-annual interest only | | LIBOR + 1.70% adjustable every three years | | 1.78% | | | 59,500 | | | 62,358 | | March 2028 | | | 29,857 | |||||||||||||||||||
Rutledge Note Payable #1 (2) | | Quarterly interest only | | 3 month LIBOR + 1.3% adjusted quarterly | | 1.43% | | | 17,000 | | | 17,000 | | April 2022 | | | 40,538 | |||||||||||||||||||
Rutledge Note Payable #2 (2) | | Quarterly interest only | | 3 month LIBOR + 1.3% adjusted quarterly | | 1.43% | | | 25,000 | | | 25,000 | | April 2022 | | | 48,164 | |||||||||||||||||||
Rutledge Note Payable #3 (2) | | Quarterly interest only | | 3 month LIBOR + 1.3% adjusted quarterly | | 1.43% | | | 25,000 | | | 25,000 | | April 2022 | | | 29,302 | |||||||||||||||||||
Rutledge Note Payable #4 (2) | | Quarterly interest only | | 3 month LIBOR + 1.3% adjusted quarterly | | 1.43% | | | 15,000 | | | 15,000 | | April 2022 | | | 84,031 | |||||||||||||||||||
Rutledge Note Payable #5 (2) | | Quarterly interest only | | 3 month LIBOR + 1.3% adjusted quarterly | | 1.43% | | | 30,000 | | | 30,000 | | April 2022 | | | 128,974 | |||||||||||||||||||
MetLife Term Loan #12 | | Semi-annual | | 3.11% | | Fixed for 3 years | | December 2024 | | | 14,359 | | | 14,359 | | December 2031 | | | 28,884 | |||||||||||||||||
Rabobank (2) | | Semi-annual | | 4.36% | | LIBOR + 1.70% | | March 2024 (4) | | | 59,500 | | | 59,500 | | March 2028 | | | 129,117 | |||||||||||||||||
Rutledge Facility | | Quarterly | | 4.07% | | SOFR + 1.95% | | February 2023 (4) | | | 64,000 | | | 112,000 | | March 2027 | | | 231,751 | |||||||||||||||||
Total outstanding principal | | | | | | | | | 501,001 | | | 508,185 | | | | $ | 1,061,871 | | | | | | | | | | | 410,486 | | | 513,428 | | | | $ | 1,010,528 |
Debt issuance costs | | | | | | | | | (1,468) | | | (1,560) | | | | | | | | | | | | | | | | (2,114) | | | (2,105) | | | | | |
Unamortized premium | | | | | | | | | — | | | — | | | | | | | | | | | | | | | | — | | | — | | | | | |
Total mortgage notes and bonds payable, net | | | | | | | | $ | 499,533 | | $ | 506,625 | | | | | | |||||||||||||||||||
Total mortgage notes and bonds payable, net (5) | | | | | | | | | | $ | 408,372 | | $ | 511,323 | | | | | |
(1) |
(2) | The Company has an interest rate swap agreement with Rabobank to add stability to interest expense and to manage our exposure to interest rate movements (see “Note 10—Hedge Accounting”). |
(3) | MetLife Term Loan #2 and MetLife Term Loan #3 were paid off during the nine months ended September 30, 2022. |
(4) | The adjustment date included in the table above is for the spread noted under “Interest Rate Terms”. |
(5) | On |
Farmer Mac Facility
As of September 30, 20212022 and December 31, 2020,2021, the Company had approximately $25.0 million outstanding 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 September 30, 2021. 2022.
MetLife Term Loans
As of September 30, 20212022 and December 31, 2020,2021, the Company had $304.5$262.0 million and $308.8$316.9 million outstanding, respectively, (the “Metlife loans”), under the loan agreements between certain of the Company’s subsidiaries and Metropolitan Life Insurance Company (“MetLife”) (together, the “MetLife loan agreements”). 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%.
In connection with each of the MetLife loan agreements, FPI and the Operating Partnership each entered into separate guarantees whereby FPI and the Operating Partnership jointly and severally agree to unconditionally guarantee the obligations under the Metlife loan agreements (the “MetLife guarantees”). The MetLife guarantees contain a number of customary affirmative and negative covenants.
22
The Company was in compliance with all covenants under the MetLife loan agreements and MetLife guarantees as of September 30, 2021.2022.
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, FPI and the Operating Partnership, the occurrence of which,
20
after any applicable cure period, would permit MetLife, among other things, to accelerate payment of all amounts outstanding under the MetLife loans and to exercise its remedies with respect to the pledged collateral, including foreclosure and sale of the Company’s properties that collateralize the MetLife loans.
Rutledge Credit FacilityRabobank Mortgage Note
As of September 30, 20212022 and December 31, 2020,2021, the Company and the Operating Partnership had $59.5 million and $59.5 million outstanding, respectively, under the Rabobank mortgage note. The Company was in compliance with all covenants under the Rabobank mortgage note as of September 30, 2022.
Rutledge Credit Facility
On February 18, 2022, the Company and the Operating Partnership, as guarantors, and American Farmland Company L.P. (“AFCO”), a wholly owned subsidiary of the Company as the borrower, entered into an Amended, Restated and Consolidated Loan Agreement (the “Consolidated Loan Agreement”) with Rutledge Investment Company ("Rutledge"), pursuant to which the parties agreed to consolidate the Company's five outstanding promissory notes with Rutledge (the "Legacy Rutledge Loans") into a single revolving credit loan in an aggregate principal amount of up to $112.0 million (the "Consolidated Loan") maturing on March 1, 2027 (the "Maturity Date" and collectively, the “Refinancing”). As a condition to Rutledge providing the Refinancing, the Company and the Operating Partnership individually entered into Amended and Restated Guaranty Agreements with Rutledge, each dated as of February 18, 2022 (each, a “Guaranty Agreement”) whereby we are required to unconditionally guarantee AFCO's obligations under the Consolidated Loan, and AFCO entered into that certain Consolidation of Notes and Modification and Extension Agreement with Rutledge, dated as of February 18, 2022 (the “Modification Agreement,” and together with the Consolidated Loan Agreement and the Guaranty Agreements, the “Refinancing Agreements”). As of September 30, 2022 and December 31, 2021, the Company and the Operating Partnership had $64.0 million and $112.0 million, respectively, outstanding under the credit facility with Rutledge Investment Company (the “Rutledge Facility”).Facility. As of September 30, 2021, $0.02022, $48.0 million remains available under this facility and the Company was in compliance with all covenants under the loan agreements relating to the Rutledge Facility.
In connection with eachThe interest rate for the Consolidated Loan is based on three-month SOFR, plus an applicable margin. The applicable margin for the Consolidated Loan is 1.80% to 2.25%, depending on the applicable pricing level in effect. The Company previously paid a commitment fee to Rutledge equal to 0.50% of the loan agreements relating toaggregate principal amount of the Consolidated Loan. Generally, the Consolidated Loan Agreement contains terms consistent with the Legacy Rutledge Facility,Loans, including, among others, the Companyrepresentations and the Operating Partnership each entered into separate guarantees whereby the Companywarranties, affirmative, negative and the Operating Partnership jointlyfinancial covenants and severally agreed to unconditionally guarantee the obligations under the loan agreements related to the Rutledge Facility (the “Rutledge guarantees”). The Rutledge guarantees contain a numberevents of customary affirmative and negative covenants.
Rabobank Mortgage Note
As of September 30, 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.default. The Company waswill owe no prepayment penalty if it elects to repay the Consolidated Loan in compliance with all covenants underfull before the Rabobank mortgage note as of September 30, 2021.
Jefferson Bank Bridge Loan
On May 28, 2021, the Company entered into a loan agreement with Jefferson Bank in connection with the acquisition of property. The loan was due September 2021 and was 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. In September 2021, the loan was refinanced through the issuance of a MetLife loan.Maturity Date.
LIBOR
The use of LIBOR is expected to bewas phased out or modified by June 2023, and the writing of contracts using LIBOR is expected to stop byat the end of 2021.2021, although the phase out of U.S. dollar LIBOR has been delayed until mid-2023. Currently, no official replacement rate has been identified. As of September 30, 2021,2022, the Company’s only indebtedness with maturity beyond 2023 that has exposure to LIBOR was the RababankRabobank 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 continued phasing out of LIBOR after 2021 and will 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
23
payable. 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 $1.6$1.1 million and $1.3$1.7 million as of September 30, 20212022 and December 31, 2020,2021, respectively.
21
Aggregate Maturities
As of September 30, 2021,2022, aggregate maturities of long-term debt for the succeeding years are as follows:
| | | | | | | |
($ in thousands) | | | | | | | |
Year Ending December 31, |
| Future Maturities |
|
| Future Maturities | ||
2021 (remaining three months) | | $ | — | | |||
2022 | | | 112,000 | | |||
2022 (remaining three months) | | $ | — | ||||
2023 | | | — | | | | — |
2024 | |
| 2,100 | | | | 2,100 |
2025 | | | 27,087 | | |
| 27,087 |
2026 | | | 84,602 | ||||
Thereafter | | | 359,814 | | | | 296,697 |
| | $ | 501,001 | | | $ | 410,486 |
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 September 30, 20212022 and December 31, 2020,2021, the fair value of the mortgage notes payable was $513.5$373.3 million and $535.1$522.7 million, respectively.
Note 8—Commitments and Contingencies
The Company is not currently subject to any known material contingencies arising from its business operations, nor to any material known or threatened litigation other than as discussed below.
In April 2015, theThe Company entered into a lease agreementhas five leases in place for office space which the Company extended in March 2020 through July 31, 2021with monthly payments ranging between $850 and in May 2021 through September 2022. The$13,377 per month and lease commenced June 1, 2015terms expiring between December 2022 and had an initial monthly payment of $10,032, which increased to $10,200 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 2021.2025. Beginning in 2020, the Company recognized right of use assets and related lease liabilities in the consolidated balance sheets. The Company estimated the value of the lease liabilities using a discount rate ofrates ranging from 3.35% to 5.31%, equivalent to the raterates we would pay on a secured borrowing with similar terms to the lease at the inception of 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 the three months ended September 30, 2022 and 2021 and 2020 was $0.03$0.06 million and $0.02$0.03 million, respectively. For the nine months ended September 30, 20212022 and 2020,2021, total lease cost was $0.17 million and $0.11 million, and $0.09 million, respectively. As of September 30, 2021, the lease has a remaining term of twelve months. Minimum annual rental payments under these operating leases, reconciled to the lease liability included in accrued liabilities and other in our consolidated balance sheets, are as follows (in thousands):
| | | | | | | | |
($ in thousands) |
| Future rental |
|
| Future rental |
| ||
Year Ending December 31, | | payments |
| | payments |
| ||
2021 (remaining three months) | | $ | 39 | | ||||
2022 | |
| 117 | | ||||
2022 (remaining three months) | | $ | 62 | | ||||
2023 | | | — | | | | 196 | |
2024 | | | — | | | | 75 | |
2025 | |
| — | | | | 52 | |
2026 | |
| — | | ||||
Thereafter | | | — | | | | — | |
| | $ | 156 | | ||||
Total lease payments | | | 385 | | ||||
Less: imputed interest | | | (17) | | ||||
Lease liability | | $ | 368 | |
Litigation
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 Colorado 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 Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. On August 17, 2018, a second purported class action, captioned
2224
Mariconda v. Farmland Partners Inc. was filed in the United States District Court for the District of Colorado (the “Brokop 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. Litigation
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 stockholdersSummary 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 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. On September 30, 2021, the district court issued an order adopting in part the magistrate judge’s recommendation and certifying a plaintiff class of purchasers of FPI stock between February 23, 2017 and July 11, 2018. Discovery concluded in the Brokop Action on October 1, 2021. The Company can provide no assurances as to the outcome of this litigation or provide an estimate of related expenses at this time.matters previously resolved:
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 behalf 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.
● | The Brokop Class Action: On April 6, 2022, the Court issued an order granting the Company’s motion for summary judgment in full, and on April 7, 2022, the Court entered a final judgment dismissing Brokop’s claims with prejudice. That judgment became final on May 6, 2022, when the period for Brokop to appeal the judgment expired. |
● | The Winter Derivative Action: In light of the judgment dismissing the Brokop Class Action, the parties stipulated to the dismissal of the Winter Derivative Action, and the court entered a dismissal order on May 9, 2022. |
● | The Luger Derivative Action: The parties filed a joint notice of voluntary dismissal of the appeal in the Luger Action on May 11, 2022, and the court ordered dismissal of the case on May 18, 2022. |
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.
23
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.
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.Update:
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 shortpreviously disclosed 2018 “short and distort scheme.distort” scheme to profit from an artificial decline in our stock price. Certain Sabrepoint defendants had prevailed previously on a motion to dismiss the case against them in the Rota Fortunae action in the United State District Court for the District of Colorado (where the state case had been removed) solely on personal jurisdiction grounds. On December 17, 2021, the Company's claims against Sabrepoint in Texas were dismissed by the trial court, which granted (i) Sabrepoint's motion for summary judgment on collateral estoppel grounds, and (ii) motion to dismiss pursuant to the Texas Citizens Participation Act (“TCPA”). On March 21, 2022, after the Company filed a notice signaling an intent to appeal both orders, the Court of Appeals for the Fifth District of Texas entered an order declaring the trial court's TCPA order “VOID because the motion was denied by operation of law….” Accordingly, the Company narrowed its appeal to the trial court's grant of summary judgment, and is confident that the order will be overturned and the litigation will be allowed to proceed. On January 26, 2022, Sabrepoint filed a motion for attorney's fees relating to the defense of that action. The trial court granted the motion for certain fees claimed by Sabrepoint as relating to its pursuit of its TCPA motion, but as noted above, the Court of Appeals subsequently overturned the TCPA order that formed the basis of Sabrepoint’s fee request, mooting the motion and the Court’s order on the same. The parties have briefed the narrowed appeal before the Texas Court of Appeals and oral arguments have been scheduled for November 30, 2022.
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 September 30, 2021,2022, the Company has an approximate aggregate net book value of $8.0$8.3 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 1one such property exercised its right to repurchase approximately 2,860 acres in South Carolina. The Company received a non-refundable initial payment of $2.9 million upon exercise, plus an additional paymentpayments totaling $0.5 million as of $0.3 million in February 2021.September 30, 2022. The Company is scheduled to receive a series of non-refundable payments until the closing date, which is currently scheduled to take place on or before January 15, 2025.
Employee Retirement Plan
Effective February 1, 2022, the Company amended the Murray Wise Associates 401(k) Profit Sharing Plan and Trust to make it available to all eligible employees of the Company under revised Farmland Partners Operating Partnership, LP 401(k) Plan (the “FPI 401(k) Plan”). The FPI 401(k) Plan is a defined contribution plan for substantially all employees. The Company has elected a “safe harbor” plan in which the Company plans to make contributions which are determined and authorized by the Board of Directors each plan year. As is customary, the Company retains the right to amend the FPI
25
401(k) Plan at its discretion. The Company has safe harbor contributions of $0.1 million for nine months ended September 30, 2022.
Note 9—Stockholders’ Equity and Non-controlling Interests
Non-controlling InterestsInterest in Operating Partnership
FPI consolidates the Operating Partnership. As of September 30, 20212022 and December 31, 2020,2021, FPI owned 95.7%97.7% and 94.9%97.0% of the outstanding interests, respectively, in the Operating Partnership, and the remaining 4.3%2.3% and 5.1%3.0% interests, respectively, are includedheld in the form of Common units and comprise non-controlling interests in the Operating Partnership on the consolidated balance sheets. The non-controlling interests in the Operating Partnership are held inconsidered to be both the form of Common units and the Series A preferred units.
24
Common Units in Operating Partnership, OP Units
On or after 12 months of becoming a holder of Common units, unless the terms of an agreement with such Common unitholder 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 1-for-oneone-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 per 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. During the nine months ended September 30, 20212022 and the year ended December 31, 2020,2021, the Company issued 281,453120,000 and 265,000,281,453, respectively, of shares of common stock upon redemption of 281,453120,000 and 265,000,281,453, respectively, of Common units that had been tendered for redemption. There were 1.4approximately 1.2 million and 1.61.4 million outstanding Common units eligible to be tendered for redemption as of September 30, 20212022 and December 31, 2020,2021, 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.
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 FPI’s common stock, with the distributions on the Common units held by FPI being utilized to pay dividends to FPI’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. Changes in the ownership percentages between the Company’s stockholders’ equity and non-controlling interest in the Operating Partnership resulted in an increase/(decrease) the non-controlling interest in the Operating Partnership by $0.1$0.8 million and $(0.4)less than $0.1 million during the nine months ended September 30, 20212022 and 20202021, respectively, with the corresponding offsets to additional paid-in capital.
26
Series A Preferred Units: Redeemable Non-controllingNon-Controlling Interests in Operating Partnership, Series A Preferred Units
On March 2, 2016, the sole general partner of the Operating Partnership entered into Amendment No. 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. Pursuant 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,the Operating Partnership, preferred units on the balance sheet with the offset recorded to retained earnings. On March 2, 2016, 117,000 Series A preferred units were issued as partial consideration in the March 2, 2016acquisition of a portfolio of Illinois farm acquisition.farms. 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. On May 19, 2022, the Company redeemed 5,000 Series A preferred units for $5.0 million plus accrued distributions for an aggregate of $5.1 million in cash. On September 1, 2022, the Company redeemed an additional 5,000 Series A preferred units for $5.0 million plus accrued distributions for an aggregate of $5.1 million in cash. 107,000 Series A preferred units were outstanding as of September 30, 2022 following such redemptions. Total liquidation value of such preferred units as of September 30, 20212022 and December 31, 20202021 was $119.6$109.4 million and $120.5 million, respectively, including accrued distributions.
25
On or after February 10, 2026 (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 1-for-oneone-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 February 10, 2021, 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.
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.
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 upon the occurrence of an event not solely within the control of the Company.
27
The following table summarizes the changes in the Company’sour redeemable non-controlling interest in the Operating Partnership for the nine months ended September 30, 20212022 and 2020:2021:
| | | | | | | | | | | | | ||||||
| | | | | | | | | Series A Preferred Units | |||||||||
| | | | | | | | | | | | | | | Redeemable | | Redeemable | |
| | | Series A Preferred Units | | | | | | | | | Preferred | | non-controlling | ||||
(in thousands) | |
| Redeemable |
| Redeemable | | | | | | | |
| units |
| interests | ||
Balance at December 31, 2019 | | | 117 | | $ | 120,510 | ||||||||||||
Distribution paid to non-controlling interest | | | — | | | (3,510) | ||||||||||||
Accrued distributions to non-controlling interest | | | — | | | 2,633 | ||||||||||||
Balance at September 30, 2020 | | | 117 | | $ | 119,633 | ||||||||||||
| | | | | | | ||||||||||||
Balance at December 31, 2020 | | | 117 | | $ | 120,510 | | | | | | | | | 117 | | $ | 120,510 |
Distribution paid to non-controlling interest | | | — | | | (3,510) | | | | | | | | | — | | | (3,510) |
Accrued distributions to non-controlling interest | | | — | | | 2,633 | | | | | | | | | — | | | 2,633 |
Balance at September 30, 2021 | | | 117 | | $ | 119,633 | | | | | | | | | 117 | | $ | 119,633 |
| | | | | | | | | | | | | ||||||
Balance at December 31, 2021 | | | | | | | | | 117 | | $ | 120,510 | ||||||
Distribution paid to non-controlling interest | | | | | | �� | | | — | | | (3,510) | ||||||
Accrued distributions to non-controlling interest | | | | | | | | | — | | | 2,408 | ||||||
Redemption of Series A preferred units | | | | | | | | | (10) | | | (10,000) | ||||||
Balance at September 30, 2022 | | | | | | | | | 107 | | $ | 109,408 |
Series B Participating Preferred Stock
On August 17, 2017, the Company 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.
The shares of Series B Participating Preferred Stock arewere accounted for as mezzanine equity on the consolidated balance sheet, as the Series B Participating Preferred Stock was 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.
The balance recorded in mezzanine equity relating to the Series B Participating Preferred Stock as of September 30, 2021 and December 31, 2020 was $139.1 million and $139.8 million, respectively.
26
On October 4, 2021, the Company converted all 5,806,797 shares of the outstanding Series B Participating Preferred Stock into shares of common stock. Each share of Series B Participating Preferred Stock was converted into 2.0871798 shares of common stock, or 12,119,829 shares of common stock in total, less any fractional shares. Holders of the Series B Participating Preferred Stock received cash in lieu of fractional shares. As a result of the conversion, the Company will record a significant deemed dividend to the Series B Participating Preferred stockholders in the fourth quarter of 2021, which represents the conversion value as of the conversion date less the carrying value as of September 30, 2021.
Distributions
The Company’s boardBoard of directorsDirectors declared and paid the following distributions to common stockholders and holders of Common units for the nine months ended September 30, 20212022 and the year ended December 31, 2020:2021:
| | | | | | | | | | | | | | | | | | |
Fiscal Year |
| Declaration Date |
| Record Date |
| Payment Date |
| Distributions |
| Declaration Date |
| Record Date |
| Payment Date |
| Distributions | ||
2022 | | October 26, 2021 | | January 3, 2022 | | January 18, 2022 | | $ | 0.0500 | |||||||||
| | February 22, 2022 | | April 1, 2022 | | April 15, 2022 | | $ | 0.0500 | |||||||||
| | May 2, 2022 | | July 1, 2022 | | July 15, 2022 | | $ | 0.0600 | |||||||||
| | | | | | | | $ | 0.1600 | |||||||||
| | | | | | | | | | |||||||||
2021 | | August 4, 2021 | | October 1, 2021 | | October 15, 2021 | | $ | 0.0500 | | November 3, 2020 | | January 1, 2021 | | January 15, 2021 | | $ | 0.0500 |
| | May 7, 2021 | | July 1, 2021 | | July 15, 2021 | | $ | 0.0500 | | February 11, 2021 | | April 1, 2021 | | April 15, 2021 | | $ | 0.0500 |
| | February 11, 2021 | | April 1, 2021 | | April 15, 2021 | | $ | 0.0500 | | May 7, 2021 | | July 1, 2021 | | July 15, 2021 | | $ | 0.0500 |
| | | | | | | | $ | 0.1500 | | | | | | | | $ | 0.1500 |
| | | | | | | | | | |||||||||
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$2.4 million in distributions payable as of September 30, 2021.2022. The distributions are payable annually in arrears on January 15 of each year.
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.
28
Share Repurchase Program
On March 15, 2017, the Company’s boardBoard of directorsDirectors approved a program to repurchase up to $25$25.0 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 onOn August 1, 2018, the boardBoard of directorsDirectors increased the authority under the share repurchase program by an aggregate of $30$30.0 million. On November 7, 2020,2019, the boardBoard of directorsDirectors increased the authority under the program by an additional $50$50.0 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 share repurchase program 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’s discretion. The Company funds repurchases under the program using cash on its balance sheet.
During the nine months ended September 30, 2021,2022, the Company repurchased 0no shares of its common stock and 25,073 shares of its Series B preferred stock for $0.7 million at an average price of $25.92 per share.stock. As of September 30, 2021,2022, the Company had approximately $40.5 million in shares that it can repurchaseof capacity under the stock repurchase plan.
Equity Incentive Plan
On May 7, 2021, the Company’s stockholders approved the Third Amended and Restated 2014 Equity Incentive Plan
27
(as (as amended and restated, the “Plan”), which increased the aggregate number of shares of the Company’s common stock reserved for issuance under the Plan to approximately 1.9 million shares. As of September 30, 2021,2022, there were 0.80.6 million shares available for future grants under the Plan.
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-based awards, including LTIP units, which are convertible on a one-for-one basis into Common units. The terms of each grant are determined by the compensation committee of the boardBoard of directors.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 generally over a period of time as determined by the compensation committee of the Company’s boardBoard of directorsDirectors 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 nonvestednon-vested restricted shares as of September 30, 2022 and 2021 is as follows:
| | | | | | | | | | | | | | | | | | | |
| | | | | Weighted |
| | | | | |
| | | | Weighted | |||
| | | Number of | | average grant |
| | | | | | |
| | Number of | | average grant | ||
(shares in thousands) | |
| shares |
| date fair value |
| | | | | | |
|
| shares |
| date fair value | ||
Unvested at December 31, 2020 | |
| 316 | | $ | 6.46 | | ||||||||||||
Unvested at December 31, 2021 | | | | | | | |
| 297 | | $ | 8.87 | |||||||
Granted | |
| 133 | | | 11.73 | | | | | | | | |
| 149 | | | 11.78 |
Vested | |
| (160) | | | 6.68 | | | | | | | | |
| (173) | | | 8.17 |
Forfeited | |
| — | | | — | | | | | | | | |
| (8) | | | 11.32 |
Unvested at September 30, 2020 | |
| 289 | | $ | 8.72 | | ||||||||||||
Unvested at September 30, 2022 | | | | | | | |
| 265 | | $ | 10.86 |
The Company recognized stock-based compensation and incentive expense related to restricted stock awards of $0.3$0.4 million and $0.3 million, for the three months ended September 30, 20212022 and 2020,2021, respectively, and $0.9$1.6 million and $0.8$0.9 million, for the nine months ended September 30, 2022 and 2021, respectively. As described in “Note 1—Organization and 2020, respectively.Significant Accounting Policies—Business Combinations”, the Company recognized $0.0 million and $0.4 million during the three and nine months ended September 30, 2022, respectively, related to stock-based incentive expense in connection with the MWA acquisition, which are included in the amounts above. As of September 30, 2021 2022
29
and December 31, 2020,2021, there were $1.8$2.1 million and $1.1$1.6 million, respectively, of total unrecognized compensation costs related to nonvested stock awards, which are expected to be recognized over a weighted-average period of 1.71.8 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.
At-the-Market Offering Program (the “ATM Program”)
On May 14,October 29, 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 $50 million.$75.0 million (the "$75.0 million ATM Program”). In connection with its entry into these distribution agreements, the Company terminated the equity distribution agreements, each dated as of May 14, 2021, for its prior ATM Program. On May 6, 2022, 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 $100.0 million (the "$100.0 million ATM Program”). During the nine months ended September 30, 20212022, the Company sold 1,959,5125,282,647 shares generating $25.7and generated $73.2 million in gross proceeds and $25.4$72.4 million in net proceeds under the $75.0 million ATM Program.Program and sold 3,312,293 shares and generated $49.5 million in gross proceeds and $48.9 million in net proceeds under the $100.0 million ATM Program for totals of 8,594,940 shares and $122.7 million and $121.3 million in gross and net proceeds, respectively.
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 $0.1 million and $0.2 and $0.0million in offering costs during the nine months ended September 30, 20212022 and 2020,2021, respectively. As of September 30, 20212022 and December 31, 2020,2021, the Company had $0.1$0.05 million and $0.0,$0.04 million, respectively, for each period in deferred offering costs, net of amortization, related to regulatory, legal, accounting and professional service costs associated with proposed or completed offerings of securities.
Earnings (Loss) per Share
The computation of basic and diluted earnings (loss) per share is as follows:
| | | | | | | | | | | | |
| | For the three months ended | | For the nine months ended | ||||||||
| | September 30, | | September 30, | ||||||||
(in thousands, except per share amounts) |
| 2022 | | 2021 | | 2022 |
| 2021 | ||||
Numerator: | | | | | | | | | | | | |
Net income (loss) attributable to Farmland Partners Inc. | | $ | 1,094 | | $ | (2,554) | | $ | 5,115 | | $ | (2,928) |
Less: Nonforfeitable distributions allocated to unvested restricted shares | |
| (16) | |
| (14) | |
| (47) | |
| (42) |
Less: Distributions on redeemable non-controlling interests in Operating Partnership, preferred | | | (728) | | | (3,055) | | | (2,408) | | | (9,175) |
Less: Dividends on Series B Participating Preferred Stock | | | — | | | — | | | — | | | — |
Net income (loss) attributable to common stockholders | | $ | 350 | | $ | (5,623) | | $ | 2,660 | | $ | (12,145) |
| | | | | | | | | | | | |
Denominator: | | | | | | | | | | | | |
Weighted-average number of common shares - basic | |
| 53,495 | |
| 32,551 | |
| 49,908 | |
| 31,355 |
Conversion of preferred units (1) | | | — | | | — | | | — | | | — |
Unvested restricted shares (1) | | | — | | | — | | | — | | | — |
Redeemable non-controlling interest (1) | | | — | | | — | |
| — | |
| — |
Weighted-average number of common shares - diluted | |
| 53,495 | |
| 32,551 | |
| 49,908 | |
| 31,355 |
| | | | | | | | | | | | |
Income (loss) per share attributable to common stockholders - basic | | $ | 0.01 | | $ | (0.17) | | $ | 0.05 | | $ | (0.39) |
Income (loss) per share attributable to common stockholders - diluted | | $ | 0.01 | | $ | (0.17) | | $ | 0.05 | | $ | (0.39) |
(1) | Anti-dilutive for the three and nine months ended September 30, 2022 and 2021 |
2830
Earnings (Loss) per Share
The computation of basic and diluted loss per share is as follows:
| | | | | | | | | | | | |
| | For the three months ended | | For the nine months ended | ||||||||
| | September 30, | | September 30, | ||||||||
(in thousands, except per share amounts) |
| 2021 | | 2020 | | 2021 |
| 2020 | ||||
Numerator: | | | | | | | | | | | | |
Net income (loss) attributable to Farmland Partners Inc. | | $ | (2,554) | | $ | 527 | | $ | (2,928) | | $ | 1,083 |
Less: Nonforfeitable distributions allocated to unvested restricted shares | |
| (14) | |
| (16) | |
| (42) | |
| (48) |
Less: Distributions on redeemable non-controlling interests in Operating Partnership, preferred | | | (3,055) | | | (3,064) | | | (9,175) | | | (9,269) |
Net (loss) attributable to common stockholders | | $ | (5,623) | | $ | (2,553) | | $ | (12,145) | | $ | (8,234) |
| | | | | | | | | | | | |
Denominator: | | | | | | | | | | | | |
Weighted-average number of common shares - basic | |
| 32,551 | |
| 29,206 | |
| 31,355 | |
| 29,392 |
Conversion of preferred units(1) | | | — | | | — | | | — | | | — |
Unvested restricted shares(1) | | | — | | | — | | | — | | | — |
Redeemable non-controlling interest(1) | | | — | | | — | |
| — | |
| — |
Weighted-average number of common shares - diluted | |
| 32,551 | |
| 29,206 | |
| 31,355 | |
| 29,392 |
| | | | | | | | | | | | |
(Loss) per share attributable to common stockholders - basic | | $ | (0.17) | | $ | (0.09) | | $ | (0.39) | | $ | (0.28) |
Numerator:
Unvested shares of the Company’s restricted common stock are considered participating securities, which requires the use of the two-class method for the computation of basic and diluted earnings per share. 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 subtracted, as applicable, from net income or loss attributable to common stockholders utilized in the basic and diluted earnings per share calculations.
Distributions on preferred interests in the Operating Partnership have been subtracted from net income or loss attributable to common stockholders.
Denominator:
Any anti-dilutive shares have been excluded from the diluted earnings per share calculation.
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 if they are dilutive. For the three and nine months ended September 30, 20212022 and 2020,2021, these shares were not included in the diluted earnings per share calculation as they would be anti-dilutive. 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 if they are dilutive. For the three and nine months ended September 30, 2021, and 2020, these shares were not included in the diluted earnings per share calculation as they would be anti-dilutive.
For the nine months ended September 30, 20212022 and 2020,2021, diluted weighted average common shares do not include the impact of 0.3 million and 0.3 million, respectively, unvested compensation-related shares as they would have been anti-dilutive.
The limited partners’ outstanding Common units, or the non-controlling interests, (which may be redeemed for shares of common stock) have not been included in 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, therefore increasing both net
29
income and shares. The weighted average number of Common units held by the non-controlling interest was 1.51.3 million and 1.91.5 million for the nine months ended September 30, 20212022 and 2020,2021, respectively.
Outstanding Equity Awards and Units
The following equity awards and units were outstanding as of September 30, 20212022 and December 31, 2020,2021, respectively.
| | | | | | | | | | | | | | | | | | |
| |
| September 30, 2021 | |
| December 31, 2020 | | | | | | |
| September 30, 2022 | |
| December 31, 2021 | |
Shares | | | 32,654 | | | 30,255 | | | | | | | | 54,054 | | | 45,177 | |
Common Units | | | 1,357 | | | 1,639 | | | | | | | | 1,237 | | | 1,357 | |
Redeemable Common Units | | | — | | | — | | | | | | | | — | | | — | |
Unvested Restricted Stock Awards | | | 289 | | | 316 | | | | | | | | 265 | | | 297 | |
| | | 34,300 | | | 32,210 | | | | | | | | 55,556 | | | 46,831 |
Note 10—Hedge Accounting
Cash Flow Hedging Strategy
The Company manages economic risks, including interest rate, liquidity, and credit risk, by managing the amount, 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 September 30, 2022 and December 31, 2021, the Company was
31
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 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.
On March 26, 2020, the Company terminated 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 effective April 1, 2020. An interest rate swap agreement utilized by the Company effectively modified 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 outstanding amount to Rabobank at the time of the agreement, 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 is amortizing the de-designated swap over the original term utilizing a forward curve analysis of determining monthly amortization out of Other Comprehensive Income through the original termination date (March 1, 2023). Amortization for the three months ended September 30, 2022 and 2021 and 2020 was $0.2$0.1 million and $0.3$0.2 million, respectively. Amortization for the nine months ended September 30, 2022 and 2021 and 2020 was $0.8$0.5 million and $0.5$0.8 million, respectively. The Company’s $2.6 million termination fee was rolled into the new swap and will be paid over the next six years.through March 1, 2026. Termination fees paid during the three and nine months ended September 30, 2022 and 2021, were $0.1 million and $0.3 million, respectively.
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 swap 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 September 30, 2021.2022.
30
As of September 30, 2021,2022, the total notional amount of the Company’s receive-variable/pay-fixed interest rate swap was $33.2 million.
The fair value of the Company’s derivative instrument on a recurring basis is set out below:
| | | | | | | | | | |
($ in thousands) | | | | | | | | | | |
Instrument |
| Balance sheet location |
| Level 2 Fair Value |
| Balance sheet location |
| Level 2 Fair Value | ||
Interest rate swap | | Derivative liability | | $ | 1,239 | | Derivative asset | | $ | 2,014 |
The effect of derivative instruments on the consolidated statements of operations for the periods ended September 30, 20212022 and 20202021 is set out below: