Quarterly Report (10-q)

Date : 05/10/2019 @ 4:06AM
Source : Edgar (US Regulatory)
Stock : Farmland Partners Inc. (FPI)
Quote : 6.75  -0.05 (-0.74%) @ 6:01AM
Farmland Partners Inc. share price Chart

Quarterly Report (10-q)

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 March 31, 2019

 

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:

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

 

 

 

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

FPI

New York Stock Exchange

6.00% Series B Participating Preferred Stock

FPI.PRB

New York Stock Exchange

 

As of May 6, 2019, 31,355,917 shares of the Registrant’s common stock (33,752,428 on a fully diluted basis, including 2,396,511 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

March 31, 2019

 

TABLE OF CONTENTS

 

 

 

 

 

PART I. FINANCIAL INFORMATION  

 

Page

 

 

 

 

Item 1.  

Financial Statements

 

 

 

Consolidated Financial Statements

 

 

 

Balance Sheets as of March 31, 2019 (unaudited) and December 31, 2018

 

3

 

Statements of Operations for the three months ended March 31, 2019 and 2018 (unaudited)

 

4

 

Statements of Changes in Equity for the three months ended March 31, 2019 and 2018 (unaudited)

 

5

 

Statements of Cash Flows for the three months ended March 31, 2019 and 2018 (unaudited)

 

6

 

Notes to Consolidated Financial Statements (unaudited)

 

7

Item 2.  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

30

Item 3.  

Quantitative and Qualitative Disclosures about Market Risk

 

44

Item 4.  

Controls and Procedures

 

45

 

 

 

 

PART II. OTHER INFORMATION  

 

45

 

 

 

 

Item 1.  

Legal Proceedings

 

45

Item 1A.  

Risk Factors

 

45

Item 2.  

Unregistered Sales of Equity Securities and Use of Proceeds

 

46

Item 3.  

Defaults Upon Senior Securities

 

46

Item 4.  

Mine Safety Disclosures

 

46

Item 5.  

Other Information

 

46

Item 6.  

Exhibits

 

47

 

 

2


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Farmland Partners Inc.

Consolidated Balance Sheets

As of March 31, 2019 (Unaudited) and December 31, 2018

(in thousands except par value and share data)

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

    

2019

    

2018

ASSETS

 

 

 

 

 

 

Land, at cost

 

$

953,499

 

$

957,516

Grain facilities

 

 

12,184

 

 

12,184

Groundwater

 

 

11,473

 

 

11,473

Irrigation improvements

 

 

54,956

 

 

53,458

Drainage improvements

 

 

12,311

 

 

12,271

Permanent plantings

 

 

53,052

 

 

52,989

Other

 

 

8,831

 

 

8,196

Construction in progress

 

 

9,756

 

 

10,262

Real estate, at cost

 

 

1,116,062

 

 

1,118,349

Less accumulated depreciation

 

 

(20,232)

 

 

(18,202)

Total real estate, net

 

 

1,095,830

 

 

1,100,147

Deposits

 

 

 —

 

 

 —

Cash

 

 

19,150

 

 

16,891

Notes and interest receivable, net

 

 

11,844

 

 

11,877

Right of use asset

 

 

166

 

 

 —

Deferred offering costs

 

 

218

 

 

218

Deferred financing fees, net

 

 

239

 

 

261

Accounts receivable, net

 

 

7,875

 

 

6,136

Inventory

 

 

63

 

 

341

Prepaid and other assets

 

 

2,467

 

 

3,638

TOTAL ASSETS

 

$

1,137,852

 

$

1,139,509

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

Mortgage notes and bonds payable, net

 

$

521,573

 

$

523,641

Lease liability

 

 

166

 

 

 —

Dividends payable

 

 

1,712

 

 

1,681

Derivative liability

 

 

1,080

 

 

865

Accrued interest

 

 

3,969

 

 

4,296

Accrued property taxes

 

 

2,134

 

 

1,666

Deferred revenue

 

 

12,362

 

 

238

Accrued expenses

 

 

3,199

 

 

3,581

Total liabilities

 

 

546,195

 

 

535,968

 

 

 

 

 

 

 

Commitments and contingencies (See Note 8)

 

 

 

 

 

 

 

 

 

 

 

 

 

Series B Participating Preferred Stock, $0.01 par value, 100,000,000 shares authorized; 5,996,787 shares issued and outstanding at March 31, 2019, and 6,013,587 December 31, 2018

 

 

145,696

 

 

143,758

Redeemable non-controlling interest in operating partnership, Series A preferred units

 

 

117,878

 

 

120,510

 

 

 

 

 

 

 

EQUITY

 

 

 

 

 

 

Common stock, $0.01 par value, 500,000,000 shares authorized; 31,836,187 shares issued and outstanding at March 31, 2019, and 30,594,592 shares issued and outstanding at December 31, 2018

 

 

310

 

 

300

Additional paid in capital

 

 

348,075

 

 

332,996

Retained earnings

 

 

1,733

 

 

4,852

Cumulative dividends

 

 

(44,286)

 

 

(42,695)

Other comprehensive income

 

 

(1,080)

 

 

(865)

Non-controlling interests in operating partnership

 

 

23,331

 

 

44,685

Total equity

 

 

328,083

 

 

339,273

 

 

 

 

 

 

 

TOTAL LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS IN OPERATING PARTNERSHIP AND EQUITY

 

$

1,137,852

 

$

1,139,509

 

See accompanying notes.

3


 

Farmland Partners Inc.

Consolidated Statements of Operations

For the three months ended March 31, 2019 and 2018

(Unaudited)

(in thousands except per share amounts)

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

March 31,

 

    

2019

    

2018

OPERATING REVENUES:

 

 

 

 

 

 

Rental income

 

$

9,672

 

$

9,941

Tenant reimbursements

 

 

467

 

 

768

Crop sales

 

 

450

 

 

79

Other revenue

 

 

300

 

 

419

Total operating revenues

 

 

10,889

 

 

11,207

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

Depreciation, depletion and amortization

 

 

2,115

 

 

2,130

Property operating expenses

 

 

1,932

 

 

1,697

Acquisition and due diligence costs

 

 

 —

 

 

131

General and administrative expenses

 

 

1,374

 

 

1,964

Legal and accounting

 

 

723

 

 

463

Other operating expenses

 

 

222

 

 

 1

Total operating expenses

 

 

6,366

 

 

6,386

OPERATING INCOME

 

 

4,523

 

 

4,821

 

 

 

 

 

 

 

OTHER (INCOME) EXPENSE:

 

 

 

 

 

 

Other income

 

 

(24)

 

 

(81)

Loss (gain) on disposition of assets

 

 

(418)

 

 

 8

Interest expense

 

 

4,956

 

 

4,391

Total other expense

 

 

4,514

 

 

4,318

 

 

 

 

 

 

 

Net income before income tax expense

 

 

 9

 

 

503

 

 

 

 

 

 

 

Income tax expense

 

 

 —

 

 

 —

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

 

 9

 

 

503

 

 

 

 

 

 

 

Net (income) loss attributable to non-controlling interests in operating partnership

 

 

(1)

 

 

(62)

 

 

 

 

 

 

 

Net income (loss) attributable to the Company

 

 

 8

 

 

441

 

 

 

 

 

 

 

Nonforfeitable distributions allocated to unvested restricted shares

 

 

(21)

 

 

(42)

Distributions on redeemable non-controlling interests in operating partnership, preferred units

 

 

(3,127)

 

 

(3,143)

 

 

 

 

 

 

 

Net loss available to common stockholders of Farmland Partners Inc.

 

$

(3,140)

 

$

(2,744)

 

 

 

 

 

 

 

Basic and diluted per common share data:

 

 

 

 

 

 

Basic net (loss) available to common stockholders

 

$

(0.10)

 

$

(0.08)

Diluted net (loss) available to common stockholders

 

$

(0.10)

 

$

(0.08)

Basic weighted average common shares outstanding

 

 

30,791

 

 

33,014

Diluted weighted average common shares outstanding

 

 

30,791

 

 

33,014

Dividends declared per common share

 

$

0.0500

 

$

0.1275

 

 

See accompanying notes.

 

 

4


 

 

Farmland Partners Inc.

Consolidated Statements of Changes in Equity

For the three months ended March 31, 2019 and 2018

(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, 2017

 

33,334

 

 

329

 

 

350,147

 

 

5,161

 

 

(31,199)

 

 

 —

 

 

46,513

 

 

370,951

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 —

 

 

 —

 

 

 —

 

 

441

 

 

 —

 

 

 —

 

 

62

 

 

503

Grant of unvested restricted stock

 

157

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Stock based compensation

 

 —

 

 

 —

 

 

331

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

331

Dividends and distributions accrued or paid

 

 —

 

 

 —

 

 

 —

 

 

(3,143)

 

 

(4,190)

 

 

 —

 

 

(584)

 

 

(7,917)

Repurchase and cancellation of shares

 

(780)

 

 

(8)

 

 

(6,510)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(6,518)

Conversion of Common units to shares of common stock

 

157

 

 

 2

 

 

1,543

 

 

 —

 

 

 —

 

 

 —

 

 

(1,545)

 

 

 —

Adjustments to non-controlling interests resulting from changes in ownership of operating partnership

 

 —

 

 

 —

 

 

334

 

 

 —

 

 

 —

 

 

 —

 

 

(334)

 

 

 —

Balance at March 31, 2018

 

32,868

 

$

323

 

$

345,845

 

$

2,459

 

$

(35,389)

 

 

 —

 

$

44,112

 

$

357,350

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2018

 

30,594

 

$

300

 

$

332,996

 

$

4,852

 

$

(42,695)

 

$

(865)

 

$

44,685

 

$

339,273

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 —

 

 

 —

 

 

 —

 

 

 8

 

 

 —

 

 

 —

 

 

 1

 

 

 9

Grant of unvested restricted stock

 

224

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Forfeiture of unvested restricted stock

 

(1)

 

 

 —

 

 

(2)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(2)

Stock based compensation

 

 —

 

 

 —

 

 

396

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

396

Dividends accrued or paid

 

 —

 

 

 —

 

 

 —

 

 

(3,127)

 

 

(1,591)

 

 

 —

 

 

(120)

 

 

(4,838)

Conversion of common units to shares of common stock

 

2,185

 

 

22

 

 

21,292

 

 

 —

 

 

 —

 

 

 —

 

 

(21,314)

 

 

 —

Net change associated with current period hedging transactions

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(215)

 

 

 —

 

 

(215)

Repurchase and cancellation of shares

 

(1,166)

 

 

(12)

 

 

(6,528)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(6,540)

Adjustment to non-controlling interest resulting from changes in ownership of the Operating Partnership

 

 —

 

 

 —

 

 

(79)

 

 

 —

 

 

 —

 

 

 —

 

 

79

 

 

 —

Balance at March 31, 2019

 

31,836

 

$

310

 

$

348,075

 

$

1,733

 

$

(44,286)

 

 

(1,080)

 

$

23,331

 

$

328,083

 

See accompanying notes.

 

 

 

5


 

Farmland Partners Inc.

Consolidated Statements of Cash Flows

For the three months ended March 31, 2019 and 2018

(Unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

March 31,

 

    

2019

    

2018

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net income (loss)

 

$

 9

 

$

503

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation, depletion and amortization

 

 

2,115

 

 

2,130

Amortization of deferred financing fees and discounts/premiums on debt

 

 

85

 

 

105

Amortization of net origination fees related to notes receivable

 

 

(1)

 

 

(4)

Stock based compensation

 

 

394

 

 

331

(Gain) loss on disposition of assets

 

 

(418)

 

 

 8

Bad debt expense

 

 

177

 

 

357

Changes in operating assets and liabilities:

 

 

 

 

 

 

Increase in accounts receivable

 

 

(1,735)

 

 

726

(Increase) in interest receivable

 

 

(209)

 

 

(103)

Decrease in other assets

 

 

1,093

 

 

359

(Decrease) increase in inventory

 

 

278

 

 

(245)

Increase in accrued interest

 

 

(327)

 

 

171

(Decrease) increase in accrued expenses

 

 

(187)

 

 

369

Increase in deferred revenue

 

 

12,096

 

 

10,584

(Increase) decrease in accrued property taxes

 

 

460

 

 

(215)

Net cash provided by operating activities

 

 

13,830

 

 

15,076

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

Real estate acquisitions

 

 

 —

 

 

(26,770)

Real estate and other improvements

 

 

(2,183)

 

 

(5,309)

Principal receipts on notes receivable

 

 

307

 

 

3,469

Casualty loss insurance recovery

 

 

 —

 

 

21

Issuance of note receivable

 

 

(246)

 

 

(5,250)

Proceeds from sale of property

 

 

4,725

 

 

 —

Payment of direct costs related to note receivable

 

 

 —

 

 

 —

Net cash provided by investing activities

 

 

2,603

 

 

(33,839)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Repayments on mortgage notes payable

 

 

(2,133)

 

 

(118)

Participating preferred stock repurchased

 

 

(164)

 

 

 —

Payments associated with the shelf registration

 

 

 —

 

 

(29)

Common stock repurchased

 

 

(6,540)

 

 

(6,517)

Payment of debt issuance costs

 

 

 —

 

 

(78)

Dividends on common stock

 

 

(1,759)

 

 

(4,250)

Distribution on Preferred units

 

 

(3,500)

 

 

(3,510)

Distributions to non-controlling interests in operating partnership, common

 

 

(78)

 

 

(605)

 

 

 

 

 

 

 

Net cash used in financing activities

 

 

(14,174)

 

 

(15,107)

 

 

 

 

 

 

 

NET INCREASE IN CASH

 

 

2,259

 

 

(33,870)

CASH, BEGINNING OF PERIOD

 

 

16,891

 

 

53,536

CASH, END OF PERIOD

 

$

19,150

 

$

19,666

Cash paid during period for interest

 

$

5,157

 

$

4,137

Cash paid during period for taxes

 

$

 —

 

$

 —

 

 

 

 

 

 

 

SUPPLEMENTAL NON-CASH INVESTING AND FINANCING TRANSACTIONS:

 

 

 

 

 

 

Dividend payable, common stock

 

$

1,592

 

$

4,191

Distributions payable, Common units

 

$

120

 

$

584

Distributions payable, Series A preferred units

 

$

878

 

$

878

Distributions payable, Series B participating preferred stock

 

$

2,249

 

$

2,264

Additions to real estate improvements included in accrued expenses

 

$

155

 

$

662

Property tax liability assumed in acquisitions

 

$

 —

 

$

 5

Right of Use Asset

 

$

166

 

$

 —

Lease Liability

 

$

166

 

$

 —

See accompanying notes.

 

6


 

Note 1—Organization and Significant Accounting Policie s

 

Organization

 

Farmland Partners Inc., collectively with its subsidiaries (the “Company”), is an internally managed real estate company that owns and seeks to acquire high-quality farmland located in agricultural markets throughout North America. The Company was incorporated in Maryland on September 27, 2013. The Company is the sole member of the general partner of Farmland Partners Operating Partnership, LP (the “Operating Partnership”), which was formed in Delaware on September 27, 2013. As of March 31, 2019, the Company owned a portfolio of approximately 162,000 acres which are consolidated in these financial statements. All of the Company’s assets are held by, and its operations are primarily conducted through, the Operating Partnership and the wholly owned subsidiaries of the Operating Partnership. As of March 31, 2019, the Company owned a 93.0% interest in the Operating Partnership (see “Note 9—Stockholders’ Equity and Non-controlling Interests” for additional discussion regarding Class A Common units of limited partnership interest in the Operating Partnership (“Common units”), Series A preferred units of limited partnership interest in the Operating Partnership (“Series A preferred units”) and Series B participating preferred units of limited partnership interest in the Operating Partnership (“Series B participating preferred units”)). Unlike holders of the Company’s common stock, holders of Common units and Series A preferred units generally do not have voting rights or the power to direct our affairs. On August 17, 2017, the Company issued 6,037,500 shares of its newly designated 6.00% Series B Participating Preferred Stock, $0.01 par value per share (the “Series B Participating Preferred Stock”) in an underwritten public offering.  Shares of Series B Participating Preferred Stock, which represent equity interests in the Company, generally have no voting rights and rank senior to the Company’s common stock with respect to dividend rights and rights upon liquidation (See “Note 9—Stockholders’ Equity—Series B Participating Preferred Stock” for more information on the Series B Participating Preferred Stock).

 

The Company elected  to be taxed as a real estate investment trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with its short taxable year ended December 31, 2014.

 

On March 16, 2015, the Company formed FPI Agribusiness Inc., a wholly owned subsidiary (the “TRS” or “FPI Agribusiness”), as a taxable REIT subsidiary.  The TRS was formed to provide volume purchasing services to the Company’s tenants and also to operate a small-scale custom farming business. As of March 31, 2019, the TRS performed these custom farming operations on 625 acres of farmland owned by the Company located in Florida. 

  

Principles of Consolidation

 

The accompanying consolidated financial statements for the periods ended March 31, 2019 and 2018 are presented on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and the Operating Partnership. All significant intercompany balances and transactions have been eliminated in consolidation.

 

Interim Financial Information

 

The information in the Company’s consolidated financial statements for the three months ended March 31, 2019 and 2018 is unaudited.  The accompanying financial statements for the three months ended March 31, 2019 and 2018 include adjustments based on management’s estimates (consisting of normal and recurring accruals), which the Company considers necessary for a fair statement of the results for the periods.  The financial information should be read in conjunction with the consolidated financial statements for the year ended December 31, 2018, 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 14, 2019.  Operating results for the three months ended March 31, 2019 are not necessarily indicative of actual operating results for the entire year ending December 31, 2019.

 

7


 

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.

 

Real Estate Acquisitions  

   

When the Company acquires farmland where substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets it is not considered a business. As such, the Company accounts for these types of acquisitions as asset acquisitions. When substantially all of the fair value of the gross assets acquired is not concentrated in a single identifiable asset or a group 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 was vacant.  The “as-if-vacant” value is allocated to land, buildings, improvements, permanent plantings and any liabilities, based on management’s determination of the relative fair values of such assets and liabilities as of the date of acquisition.

   

Upon acquisition of real estate, the Company allocates the purchase price of the real estate based upon the fair value of the assets and liabilities acquired, which historically have consisted of land, drainage improvements, irrigation improvements, groundwater, permanent plantings (bushes, shrubs, vines and perennial crops) and grain facilities, and may also consist of intangible assets including in-place leases, above market and below market leases and tenant relationships. The Company allocates the purchase price to the fair value of the tangible assets by valuing the land as if it were unimproved. The Company values improvements, including permanent plantings and grain facilities, at replacement cost, adjusted for depreciation. 

 

Management’s estimates of land value are made using a comparable sales analysis. Factors considered by management in its analysis of land value include soil types and water availability and the sales prices of comparable farms. Management’s estimates of groundwater value are made using historical information obtained regarding the applicable aquifer.  Factors considered by management in its analysis of groundwater value are related to the location of the aquifer and whether or not the aquifer is a depletable resource or a replenishing resource.  If the aquifer is a replenishing resource, no value is allocated to the groundwater.  The Company includes an estimate of property taxes in the purchase price allocation of acquisitions to account for the expected liability that was assumed. 

   

When above or below market leases are acquired, the Company values the intangible assets based on the present value of the difference between prevailing market rates and the in-place rates measured over a period equal to the remaining term of the lease for above market leases and the initial term plus the term of any below market fixed rate renewal options 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.

8


 

   

As of both March 31, 2019 and December 31, 2018, the Company had $1.3 million, recorded for tenant relationship intangibles, net of accumulated amortization of $1.0 million. 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 will be 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 months ended March 31, 2019, the company expensed an immaterial amount of costs in relation to business combinations during the periods.

   

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 Common 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.

   

Using information available at the time of business combination, the Company allocates the total consideration to tangible assets and liabilities and identified intangible assets and liabilities.  During the measurement period, which may be up to one year from the acquisition date, the Company may adjust the preliminary purchase price allocations after obtaining more information about assets acquired and liabilities assumed at the date of acquisition. 

 

Real Estate Sales

 

The Company recognizes gains from the sales of real estate assets, generally at the time the title is transferred, consideration is received and the Company no longer has substantial continuing involvement with the real estate sold.

 

 

Allowance for Doubtful Accounts

 

The Company records an allowance for doubtful accounts, reducing the receivables balance to an amount we estimate 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 our customers’ financial condition. The Company writes off accounts receivable when it becomes apparent, based upon age or customer circumstances, that such amounts will not be collected. As of March 31, 2019 and December 31, 2018, the Company had an allowance of $0.1 million and $0.2 million, respectively. 

 

Inventory

 

The costs of growing crops are accumulated until the time of harvest at the lower of cost or market value and are included in inventory in the consolidated balance sheets. Costs are allocated to growing crops based on a percentage of the total costs of production and total operating costs that are attributable to the portion of the crops that remain in inventory at the end of the period. The costs of growing crops incurred by FPI Agribusiness consist primarily of costs 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 and is included in other operating expenses. The cost of harvested crop was $0.2 million and $0.0 million for the three months ended March 31, 2019 and 2018, respectively.

 

9


 

Harvested crop inventory 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 market.

 

As of March 31, 2019 and December 31, 2018, inventory consisted of the following:

 

 

 

 

 

 

 

 

(in thousands)

    

March 31, 2019

 

December 31, 2018

Harvested crop

 

$

 —

 

$

100

Growing crop

 

 

 8

 

 

122

General inventory

 

 

55

 

 

119

 

 

$

63

 

$

341

Hedge Accounting

 

ASC 815 requires the Company to recognize all of its derivative instruments as either assets or liabilities in the consolidated balance sheet at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, the company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in the consolidated statements of operations during the period.

 

The Company uses derivative instruments to manage certain interest rate risks. More specifically, interest rate swaps are entered into to manage the risk associated with the Company’s floating-rate borrowings when such risk management is deemed appropriate by the Company’s management and a fixed interest rate is not available or not economical, or when it is contractually required by a lender. In accordance with ASC 815, the Company designates interest rate swaps as cash flow hedges of said floating-rate borrowings.

 

The Company entered into an interest rate swap effective April 1, 2018 and chose to early adopt ASU No. 2017-12,  Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities, (“ASU 2017-12”) effective on that date. As a result of the adoption of ASU 2017-12, 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 has entered into an interest rate swap agreement to manage interest rate risk exposure. An interest rate swap agreement utilized by the Company effectively modifies the Company’s exposure to interest rate risk by converting the Company’s floating-rate debt to a fixed rate basis for the next five years on 50% of the currently outstanding amount to Rabobank, thus reducing the impact of interest rate changes on future interest expense. This agreement involves the receipt of floating rate amounts in exchange for fixed rate interest payments over the life of the agreement without an exchange of the underlying principal amount.

 

As of March 31, 2019, the total notional amount of the Company’s receive-variable/pay-fixed interest rate swap was $33.2 million. For a summary of the fair value and related disclosures in relation to hedge accounting, please refer to “Note 10 – Hedge Accounting.” 

 

 

New or Revised Accounting Standards  

 

Adopted

 

In August 2017, the FASB issued ASU No. 2017-12, which, is intended to improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities by better aligning the entity’s financial reporting for hedging relationships with those risk management activities and reduce the complexity of and simplify the application of hedge accounting by preparers. ASU 2017-12 is effective for fiscal years

10


 

beginning after December 15, 2018 with early application permitted in any interim period after the issuance of the updated guidance. The Company entered into an interest rate swap effective April 1, 2018 and as such chose to early adopt the new guidance effective April 1, 2018. The impact on the Company is set out in the accounting policies above and in “Note 10 – Hedge Accounting.”

   

In February 2016, the FASB issued ASU 2016-02, Leases: (Topic 842) (“ASU 2016-02”),   which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors).  The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee.  This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively.  A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification.  Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The Company has completed its assessment of the impact of this guidance and the following reflects the primary effects of this guidance on the Company’s reporting:

 

(i)

For leases in which the Company is the lessee, the Company does not expect the guidance to have a material impact as there are only two operating leases for office space and for subleased property in Nebraska. Once of these leases has terms less than 12 months, and the Company will elect not to apply the recognition requirements of ASU 2016-02. The Company will record a right-of-use asset and a lease liability for the second lease that has a term greater than 12 months, but the Company does not expect it to have a significant impact on the consolidated financial statements;

 

(ii)

For leases in which the Company is the lessor, the Company does not expect there to be a material impact as the majority of the Company’s leases do not contain a non-lease component. While the Company is expecting there to be other ancillary impacts for leases in which the Company is the lessor, they are not expected to be material to the consolidated financial statements. Under the new guidance, lease procurement costs that were previously capitalized will be expensed as incurred. Lastly, under the new guidance, there are certain circumstances in which buyer-lessors in sale and leaseback transactions could potentially result in recording the transaction as a financial receivable if such transaction fails sale and leaseback criteria.

 

The standard is effective for annual and interim reporting periods beginning after December 15, 2018, with modified retrospective restatement for each reporting period presented at the time of adoption. Early adoption is permitted. The Company adopted this standard effective January 1, 2019, the impact on adoption was that the company recognized a right of use asset and a lease liability in the amount of $0.2 million.

 

 

Note 2—Revenue Recognition

 

For the majority of our leases, the Company receives at least 50% of the annual lease payment from tenants either during the first quarter of the year or at the time of acquisition of the related farm, with the remaining 50% of the lease payment due in the second half of the year.  Rental income is recorded on a straight-line basis over the lease term. The lease term generally includes periods when a tenant: (1) may not terminate its lease obligation early; (2) may terminate its lease obligation early in exchange for a fee or penalty that the Company considers material enough such that termination would not be probable; (3) possesses renewal rights and the tenant’s failure to exercise such rights imposes a penalty on the tenant material enough such that renewal appears reasonably assured; or (4) possesses bargain renewal options for such periods.  Payments received in advance are included in deferred revenue until they are earned.

 

Certain of the Company’s leases provide for a rent payment determined as a percentage of the gross farm proceeds (contingent rent). Revenue under leases providing for a payment equal to a percentage of the gross farm proceeds are recorded at the guaranteed crop insurance minimums and recognized ratably over the lease term during the crop year. Upon notification from the grain or packing facility that a future contract for delivery of the harvest has been finalized or when the tenant has notified the Company of the total amount of gross farm proceeds, revenue is recognized for the excess

11


 

of the actual gross farm proceeds and the previously recognized minimum guaranteed insurance. Contingent rent recognized for the three months ended March 31, 2019 and 2018 totaled $0.4 million and $0.6 million, respectively.

 

Certain of the Company’s leases provide for minimum cash rent plus a bonus based on gross farm proceeds. Revenue under this type of lease is recognized on a straight-line basis over the lease term based on the minimum cash rent. Bonus rent is recognized upon notification from the tenant of the gross farm proceeds for the year.

 

Most of our farming leases range from two to three years for row crops and one to seven years for permanent crops. Leases in place as of March 31, 2019 have terms ranging from one to 40 years. Payments received in advance are included in deferred revenue until they are earned. As of March 31, 2019 and December 31, 2018, the Company had $12.4 million and $0.2 million , respectively, in deferred revenue.

 

The following sets forth a summary of rental income recognized for the three months ended March 31, 2019 and 2018:

 

 

 

 

 

 

 

 

 

 

Rental income recognized

 

 

For the three months ended

 

 

March 31,

(in thousands)

    

2019

    

2018

Leases in effect at the beginning of the year

 

$

9,514

 

$

8,193

Leases entered into during the year

 

 

158

 

 

1,748

 

 

$

9,672

 

$

9,941

 

Future minimum lease payments from tenants under all non-cancelable leases in place as of March 31, 2019, including lease advances when contractually due, but excluding crop share and tenant reimbursement of expenses, for the remainder of 2019 and each of the next four years and thereafter as of March 31, 2019 are as follows:

 

 

 

 

 

 

(in thousands)

    

Future rental

 

Year Ending December 31,

 

payments

 

2019 (remaining nine months)

 

$

26,675

 

2020

 

 

22,529

 

2021

 

 

10,688

 

2022

 

 

2,244

 

2023

 

 

472

 

Thereafter

 

 

7,591

 

 

 

$

70,199

 

 

Since lease renewal periods are exercisable at the option of the lessee, the preceding table presents future minimum lease payments due during the initial lease term only.

 

The Company records revenue from the sale of harvested crops when the harvested crop has been contracted to be delivered to a grain or packing facility and title has transferred. Revenues from the sale of harvested crops totaling $ 0.4 million and $ 0.1 million were recognized for the three months ended March 31, 2019 and 2018, respectively. Harvested crops delivered under marketing contracts are recorded using the fixed price of the marketing contract at the time of delivery to a grain or packing facility. Harvested crops delivered without a marketing contract are recorded using the market price at the date the harvested crop is delivered to the grain or packing facility and title has transferred.

 

Note 3—Concentration Risk

 

Credit Risk

 

For the three months ended March 31, 2019, the Company had one significant tenant representing a tenant concentration as presented in the table below. If the Company’s significant tenant fails to make rental payments to the Company or elects to terminate its leases, and the land cannot be re-leased on satisfactory terms, there could be a material adverse effect on the Company’s financial performance and the Company’s ability to continue operations.  Rental income received is recorded on a straight-line basis over the applicable lease term.

12


 

The following table presents the amount of the rental income and percentage of the Company’s total rental income received from the Company’s significant tenant.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income recognized

 

 

For the three months ended March 31,

($ in thousands)

    

2019

    

2018

    

Tenant A

 

$

1,217

 

12.6

%  

$

1,105

    

11.6

%  

 

 

 

 

 

 

 

 

 

 

 

 


(1)

Tenant A is a tenant who is currently leasing a number of permanent crop farms in California .

 

Geographic Risk

 

The following table summarizes the percentage of approximate total acres owned as of March 31, 2019 and 2018 and the percentage of rental income recorded by the Company for the three months ended March 31, 2019 and 2018 by region:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Approximate %

 

Rental Income (1)

 

 

of total acres

 

For the three months ended

 

 

As of March 31,

 

March 31,

Location of Farm (2)

    

2019

    

2018

 

 

2019

    

2018

 

Corn Belt

 

28.0

%

28.8

 

36.1

%

37.1

%

Delta and South

 

17.3

%

17.5

 

11.5

%

10.5

%

High Plains

 

19.2

%

19.3

%

 

6.6

%

8.3

%

Southeast

 

28.4

%

27.5

 

25.7

%

24.9

%

West Coast

 

7.1

%

6.9

%

 

20.1

%

19.2

%

 

 

100.0

%

100.0

%

 

100.0

%

100.0

%


(1)

Due to regional disparities in the use of leases with crop share components and seasonal variations in the recognition of crop share revenue, regional comparisons by rental income are not fully representative of each region’s income producing capacity until a full year is taken into account.

(2)

Corn Belt includes farms located in Illinois, Michigan and eastern Nebraska. Delta and South includes farms located in Arkansas, Louisiana and Mississippi. High Plains includes farms located in Colorado, Kansas, western Nebraska, South Dakota and Texas. Southeast includes farms located in Alabama, Florida, Georgia, North Carolina, South Carolina and Virginia. West Coast includes farms located in California. 

 

 

 

 

 

Note 4—Related Party Transactions

 

On July 21, 2015, the Company entered into a lease agreement with American Agriculture Aviation LLC (“American Ag Aviation”) for the use of a private plane.  American Ag Aviation is a Colorado limited liability company that is owned 100% by Mr. Pittman.  The Company incurred costs of $0.00 million and $0.04 million, respectively, during the three months ended March 31, 2019 and 2018 from American Ag Aviation for use of the aircraft in accordance with the lease agreement. These costs were recognized based on the nature of the associated use of the aircraft, as follows: (i) general and administrative - expensed as general and administrative expenses within the Company’s consolidated statements of operations; (ii) land acquisition (accounted for as an asset acquisition) - allocated to the acquired real estate assets within the Company’s consolidated balance sheets; and (iii) land acquisition (accounted for as a business combination) - expensed as acquisition and due diligence costs within the Company’s consolidated statements of operations.

 

Note 5—Real Estate

 

During the three months ended March 31, 2019, the Company completed no acquisitions.

 

During the three months ended March 31, 2019, the Company sold four properties in the Corn Belt for aggregate proceeds of $4.7 million and recognized an aggregate gain on sale of $0.4 million.

 

During the three months ended March 31, 2018, the Company completed four acquisitions that were accounted for as asset acquisitions in Nebraska, South Carolina and North Carolina. Consideration totaled $26.8 million and consisted of cash. No intangible assets were acquired through these acquisitions.

 

During the three months ended March 31, 2018, no acquisitions were accounted for as business combinations.      

 

13


 

 

 

Note 6—Notes Receivable

 

In August 2015, the Company introduced an agricultural lending product aimed at farmers as a complement to the Company’s business of acquiring and owning farmland and leasing it to farmers (the “FPI Loan Program”).  Under the FPI Loan Program, the Company makes loans to third-party farmers (both tenant and non-tenant) to provide financing for working capital requirements and operational farming activities, farming infrastructure projects and for other farming and agricultural real estate related projects. The Company seeks to make loans that are collateralized by farm real estate and in principal amounts of $0.1 million or more at fixed interest rates with maturities of up to six years. The Company expects the borrower to repay the loans in accordance with the loan agreements based on farming operations and access to other forms of capital, as permitted.  

 

In addition to loans made under the FPI Loan Program, the Company, on certain occasions, makes short-term loans to tenants secured by collateral other than real estate, such as growing crops, equipment or inventory, when the Company believes such loans will ensure the orderly completion of farming operations on a property owned by the Company for a given crop year and other credit is not available to the borrower.

 

Notes receivable are stated at their unpaid principal balance and include unamortized direct origination costs and accrued interest through the reporting date, less any allowance for losses and unearned borrower paid points. 

 

As of March 31, 2019 and December 31, 2018, the Company had the following notes receivable:

 

 

 

 

 

 

 

 

 

 

 

 

($ in thousands)

 

 

 

Principal Outstanding as of

 

Maturity

Loan

    

Payment Terms

 

March 31, 2019

    

December 31, 2018

    

Date

Mortgage Note (1)

 

Principal & interest due at maturity

 

$

1,800

 

$

1,840

 

1/15/2017

Mortgage Note (2)

 

Principal & interest due at maturity

 

 

234

 

 

234

 

3/16/2022

Mortgage Note (2)

 

Principal due at maturity & interest due monthly

 

 

2,145

 

 

2,145

 

3/16/2022

Mortgage Note (3)

 

Principal & interest due at maturity

 

 

1,647

 

 

1,647

 

3/1/2020

Mortgage Note

 

Principal & interest due at maturity

 

 

5,000

 

 

5,125

 

8/19/2020

Mortgage Note (4)

 

Principal & interest due at maturity

 

 

62

 

 

62

 

12/31/2018

Line of Credit (5)

 

Principal & interest due at maturity

 

 

 -

 

 

106

 

11/15/2018

Line of Credit (6)

 

Principal & interest due at maturity

 

 

210

 

 

 -

 

11/15/2019

 Total outstanding principal

 

 

11,098

 

 

11,159

 

 

Points paid, net of direct issuance costs

 

 

 -

 

 

 -

 

 

Interest receivable (net prepaid interest)

 

 

1,020

 

 

947

 

 

Provision for interest receivable

 

 

 

 

(274)

 

 

(229)

 

 

 Total notes and interest receivable

 

$

11,844

 

$

11,877

 

 


(1)

In January 2016, the maturity date of the note was extended to January 15, 2017 with year one interest received at the time of the extension and principal and remaining interest due at maturity.  On July 28, 2017, the Company notified the borrower of default under the Promissory Note.  The Company currently believes that collectability is reasonably assured as the fair value of the mortgaged farm is greater than the amount owed under the loan. As of the date of this report a portion of the collateral under this note is under contract to sell for approximately $2.5 million. The Company cannot guarantee that the sale of this property will close.

(2)

The original note was renegotiated and a second note was entered into simultaneously with the borrower during the three months ended March 31, 2017. The notes include mortgages on two additional properties in Colorado that include repurchase options for the properties at a fixed price that are exercisable between the second and fifth anniversary of the notes by the borrower. 

(3)

On April 17, 2018, the Company amended the loan to extend the term of the loan through March 1, 2020 and increased the interest rate to 7.5% per annum. 

(4)

On April 2, 2018, the Company entered into a loan secured against farm equipment. As the borrower is working through bankruptcy proceedings the Company will settle this balance through the bankruptcy process. The Company does not expect to incur any material losses. 

(5)

On April 2, 2018, the Company entered into a line of credit relationship with a tenant farmer with this line of credit secured against growing crops on the farms farmed by the tenant. The Company has reserved $0.2 million against this loan based on the Company’s assessment of the amount of this loan that the Company will be able to collect from the borrower.

(6)

In 2019, the Company entered into a line of credit relationship with a tenant farmer with this line of credit secured against growing crops on the farms farmed by the tenant. The Company is awaiting bankruptcy court approval of the related documentation.

 

The collateral for the mortgage notes receivable consists of real estate, personal property and improvements present on such real estate.

 

14


 

Fair Value

 

FASB ASC 820-10 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

 

·

Level 1 —Inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.

·

Level 2 —Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets and inputs that are observable or can be substantially corroborated for the asset or liability, either directly or indirectly.

·

Level 3 —Inputs to the valuation methodology are unobservable, supported by little or no market activity and are significant to the fair value measurement.

The fair value of notes receivable is valued using Level 3 inputs under the hierarchy established by GAAP and is calculated based on a discounted cash flow analysis, using interest rates based on management’s estimates of market interest rates on mortgage notes receivable with comparable terms whenever the interest rates on the notes receivable are deemed not to be at market rates. As of March 31, 2019 and December 31, 2018, the fair value of the notes receivable was $11.3 million and $11.7 million, respectively.

 

 

Note 7—Mortgage Notes, Lines of Credit and Bonds Payable

 

As of March 31, 2019 and December 31, 2018, the Company had the following indebtedness outstanding: