Farmland Partners(FPI) - 2023 Q4 - Annual Report

PART I This section provides an overview of the company's business, associated risk factors, and details on properties, legal proceedings, and cybersecurity measures Business FPI is an internally managed REIT focused on acquiring and managing high-quality North American farmland, generating revenue from leases, loans, and asset management - FPI is an internally managed REIT focused on acquiring high-quality North American farmland, with a portfolio of approximately 132,800 owned acres and 38,300 managed acres as of December 31, 2023[18][21] - The portfolio is diversified by crop type, with approximately 70% of its value in primary crops (corn, soybeans, wheat) and 30% in specialty crops (almonds, citrus, vegetables)[21][29] Full Year 2023 Highlights | Metric | 2023 Value | 2022 Value | % Change | | :--- | :--- | :--- | :--- | | Net Income | $31.7 million | $12.0 million | +164.9% | | Adjusted Funds from Operation (AFFO) | $8.1 million | $15.8 million | -48.4% | | Property Dispositions | $195.5 million | - | - | | Property Acquisitions | $22.2 million | - | - | | Common Stock Repurchased | 6,551,087 shares | - | - | | Total Indebtedness Reduction | $76.4 million | - | - | - The company's primary revenue source is rent from tenants, with leases typically ranging from one to three years, and most leases having fixed rent payments often paid in advance of the planting season[25][35] - FPI engages in complementary businesses, including a loan program for farmers (FPI Loan Program), asset management for third parties, and brokerage/auction services through its subsidiary Murray Wise Associates (MWA)[22][53][54] Portfolio Distribution by Region (as of Dec 31, 2023) | Region | Owned Acres | Managed Acres | Total Acres | | :--- | :--- | :--- | :--- | | Corn Belt | 44,527 | 22,027 | 66,554 | | Delta and South | 26,427 | 8,763 | 35,190 | | High Plains | 21,831 | 1,380 | 23,211 | | Southeast | 28,825 | 6,107 | 34,932 | | West Coast | 11,189 | — | 11,189 | | Total | 132,799 | 38,277 | 171,076 | Risk Factors The company faces diverse risks spanning business operations, organizational structure, REIT tax compliance, and capital market performance Risks Related to Our Business and Properties Business risks include reliance on tenant profitability, substantial debt, rising interest rates, crop concentration, adverse weather, and loan program exposure - The company's financial performance is dependent on the profitability of its tenants' farming operations, which can be affected by weather, crop prices, and trade policies[83][84] - As of December 31, 2023, the company had approximately $363.1 million of outstanding indebtedness, exposing it to default risk, operational restrictions, and potential foreclosure[86][87][88] - Rising benchmark interest rates increase borrowing costs, with $136.0 million of debt subject to rate resets as of December 31, 2023, and $43.9 million resetting in 2024, which is expected to significantly increase interest expense[91][92] - The portfolio is concentrated in primary crops (70% by value), making it susceptible to risks associated with crops like corn and soybeans, while permanent/specialty crops (30% by value) have different risks, including longer replacement times if lost to disease or weather[98][99][100] - The business is exposed to risks from adverse weather, climate change, crop disease, and pests, which can impact variable rent income and tenants' ability to pay fixed rent[119][120][122] - The FPI Loan Program exposes the company to lender risks, including borrower defaults, with remaining loan balances totaling $13.9 million as of December 31, 2023[145][146] Risks Related to Our Organizational Structure Organizational risks involve potential conflicts of interest, stock ownership restrictions, and provisions that could impede changes in control - Potential conflicts of interest may arise between the company's stockholders and the holders of units in the Operating Partnership, although the partnership agreement prioritizes stockholder interests[167][168][169] - The company's charter restricts stock ownership to 9.8% to maintain REIT status, which may deter or prevent a change of control transaction[172][173] - Certain provisions in Maryland law and the company's charter and bylaws, such as those regarding the removal of directors and business combinations, could inhibit changes in control[176][181] U.S. Federal Income Tax Risks Tax risks primarily involve maintaining REIT qualification, meeting distribution requirements, and avoiding prohibited transaction taxes - Failure to maintain qualification as a REIT would subject the company to corporate income tax, substantially reducing its ability to make distributions to stockholders[193][195] - To qualify as a REIT, the company must distribute at least 90% of its REIT taxable income annually, which may require borrowing funds or selling assets at inopportune times[196][197] - Sales of properties held primarily for sale could be deemed "prohibited transactions" and subject to a 100% tax, which may cause the company to hold assets longer than otherwise optimal or use a taxable REIT subsidiary (TRS) for such sales[198][200][201] Risks Related to the Market for Our Capital Stock Market risks include potential volatility in distributions, sensitivity to interest rate changes, and fluctuations in common stock price - The company may be unable to make distributions at expected levels, which could decrease the market price of its common stock, as distributions are at the discretion of the Board of Directors[214][215] - Increases in market interest rates may adversely affect the stock price, as investors may demand a higher distribution yield relative to other investments[216] - The market price and trading volume of the common stock may be volatile due to factors such as variations in operating results, changes in earnings estimates, and general market conditions[217][219] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[226] Cybersecurity The company manages cybersecurity risk through a Board-overseen program focusing on vigilance, safeguards, and training, with past incidents deemed immaterial - The company's cybersecurity program is overseen by the Board of Directors and managed by the President and CEO, Luca Fabbri, in coordination with the General Counsel[230][231] - The risk management strategy focuses on vigilance, system safeguards, third-party vendor management, employee training, and incident response policies[228][229] - The company has experienced cyberattacks in the past, but none have been material, and cybersecurity threats are not considered reasonably likely to materially affect the company's business strategy, operations, or financial condition[233] Properties This section incorporates by reference the property details provided in Item 1, which outlines the company's portfolio of approximately 132,800 owned acres across 15 states and 38,300 managed acres - The information regarding the company's properties is incorporated by reference from the "Our Properties" section in Item 1 of the report[234] Legal Proceedings This section refers to Note 8 of the Consolidated Financial Statements for details on legal proceedings, including ongoing litigation against Sabrepoint - Information regarding legal proceedings is detailed in Note 8 of the Consolidated Financial Statements[234] Mine Safety Disclosures This section is not applicable to the company's operations - Not Applicable[234] PART II This section covers the market for the company's common equity, management's discussion and analysis of financial condition, market risk disclosures, and internal controls Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities FPI common stock trades on NYSE, with an active share repurchase program and an intent to pay regular quarterly distributions - The company's common stock is traded on the New York Stock Exchange (NYSE) under the symbol "FPI"[235] - The company maintains a share repurchase program, which was increased by $75.0 million in May 2023 and $40.0 million in November 2023, with $83.3 million remaining available as of December 31, 2023[243][245] Share Repurchase Activity (Q4 2023) | Period | Total Common Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Oct 2023 | 152,000 | $10.28 | | Nov 2023 | 186,000 | $11.72 | | Dec 2023 | 0 | N/A | | Total Q4 | 338,000 | $11.07 | - The company intends to continue paying regular quarterly distributions, but the amount and timing are at the discretion of the Board of Directors and depend on financial performance, REIT requirements, and other factors[238][239] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2023, FPI's strategic dispositions, share repurchases, and debt reduction led to a significant net income increase despite lower AFFO and operating revenues - Key developments in 2023 included the disposition of 74 properties for $195.5 million, resulting in a $36.1 million gain; the repurchase of 6.55 million common shares; and a $76.4 million reduction in total indebtedness[252][253][255] - The company's liquidity increased to $206.6 million as of December 31, 2023, up from $176.7 million a year prior, consisting of cash and undrawn availability under its credit facilities[256][304] Comparison of Operations (Year ended Dec 31) | (in thousands) | 2023 | 2022 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total operating revenues | $57,466 | $61,210 | ($3,744) | (6.1)% | | Total operating expenses | $39,467 | $36,236 | $3,231 | 8.9% | | (Gain) on disposition of assets, net | ($36,133) | ($2,641) | ($33,492) | NM | | Interest expense | $22,657 | $16,143 | $6,514 | 40.4% | | NET INCOME | $31,681 | $11,960 | $19,721 | 164.9% | - The decrease in operating revenue was driven by a $3.1 million (58.0%) drop in crop sales and a $0.9 million (13.4%) decrease in other revenue, while the increase in operating expenses was primarily due to a $5.8 million impairment of assets[295][299] - Interest expense increased by $6.5 million (40.4%) due to higher interest rates, partially offset by a lower average debt balance[301] Lease Expiration Schedule (% of Annual Fixed Rents) | Year Ending Dec 31, | % of Annual Fixed Rents | | :--- | :--- | | 2024 | 36.1% | | 2025 | 21.4% | | 2026 | 19.3% | | 2027 | 14.3% | | 2028 & Thereafter | 8.9% | FFO and AFFO Reconciliation (Year ended Dec 31) | (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Net income | $31,681 | $11,960 | | Adjustments for FFO | ($23,794) | $4,319 | | FFO | $8,887 | $16,279 | | Adjustments for AFFO | ($747) | ($518) | | AFFO | $8,140 | $15,761 | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, mainly related to SOFR, with a 1.0% change impacting annual cash flow by approximately $0.5 million - The primary market risk exposure is interest rate risk, specifically related to the Secured Overnight Financing Rate (SOFR)[337] - As of December 31, 2023, $80.5 million (22.2%) of debt had variable rates, but an interest rate swap on $33.2 million reduces the effective floating rate exposure to $47.3 million, or 13.0% of total debt[338] - A hypothetical 1.0% increase in SOFR would decrease annual cash flow by approximately $0.5 million, while a 1.0% decrease would increase it by the same amount[338] Financial Statements and Supplementary Data This section indicates that the company's consolidated financial statements and supplementary data are included starting on page F-1 of the report - The consolidated financial statements and supplementary data are included in a separate section of the Annual Report, commencing on page F-1[339] Changes and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[339] Controls and Procedures Management concluded that disclosure controls and internal controls over financial reporting were effective as of December 31, 2023, with no material changes in Q4 2023 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective at a reasonable level of assurance as of December 31, 2023[341] - Based on an evaluation using the 2013 COSO framework, management concluded that internal controls over financial reporting were effective as of December 31, 2023[344] - There were no changes in internal controls over financial reporting during the fourth quarter of 2023 that materially affected, or are reasonably likely to materially affect, these controls[345] Other Information During the year ended December 31, 2023, none of the company's directors or executive officers adopted or terminated a Rule 10b5-1 trading plan - No directors or executive officers adopted or terminated any Rule 10b5-1 trading plans during the year ended December 31, 2023[346] PART III This section incorporates by reference information regarding directors, executive compensation, security ownership, related transactions, and principal accountant fees from the company's proxy statement Directors, Executive Officers and Corporate Governance The information required for this item is incorporated by reference from the company's definitive Proxy Statement for its 2024 Annual Meeting of Stockholders - This information is incorporated by reference from the Company's Proxy Statement for the 2024 Annual Meeting of Stockholders[347] Executive Compensation The information required for this item is incorporated by reference from the company's definitive Proxy Statement for its 2024 Annual Meeting of Stockholders - This information is incorporated by reference from the Company's Proxy Statement for the 2024 Annual Meeting of Stockholders[348] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required for this item is incorporated by reference from the company's definitive Proxy Statement for its 2024 Annual Meeting of Stockholders - This information is incorporated by reference from the Company's Proxy Statement for the 2024 Annual Meeting of Stockholders[348] Certain Relationships and Related Transactions, and Director Independence The information required for this item is incorporated by reference from the company's definitive Proxy Statement for its 2024 Annual Meeting of Stockholders - This information is incorporated by reference from the Company's Proxy Statement for the 2024 Annual Meeting of Stockholders[348] Principal Accountant Fees and Services The information regarding fees billed by the principal accountant, Plante & Moran, PLLC, is incorporated by reference from the company's definitive Proxy Statement for its 2024 Annual Meeting of Stockholders - Information about fees billed by the principal accountant will be incorporated by reference from the Company's Proxy Statement for the 2024 Annual Meeting of Stockholders[350] PART IV This section details the exhibits and financial statement schedules filed as part of the report and notes the absence of a Form 10-K summary Exhibits and Financial Statement Schedules This section lists the documents filed as part of the report, including the financial statements (pages F-1 to F-36), Schedule III for Real Estate and Accumulated Depreciation, and other required exhibits - This section lists the financial statements, financial statement schedules (specifically Schedule III), and exhibits filed with the report[351] Form 10-K Summary The company has elected not to include a Form 10-K summary - The Company has elected to not include a summary[352] Financial Statements This section includes the independent auditor's report, consolidated financial statements, and detailed notes on accounting policies and financial data Report of Independent Registered Public Accounting Firm The independent auditor issued an unqualified opinion on the financial statements, highlighting goodwill and tradename impairment testing as a critical audit matter - The auditor, Plante & Moran, PLLC, expressed an unqualified opinion that the financial statements are fairly presented in conformity with U.S. GAAP[363] - A critical audit matter was identified concerning the impairment testing of goodwill and tradename, which involved significant management estimates and subjective judgments regarding future cash flows and discount rates[365][366][368] Consolidated Financial Statements The consolidated financial statements present the company's financial position, results of operations, and cash flows for 2023 and 2022, reflecting asset sales, debt repayment, and increased net income Consolidated Balance Sheet Data (as of Dec 31) | (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Total real estate, net | $961,531 | $1,105,916 | | Total Assets | $1,022,002 | $1,160,149 | | Mortgage notes and bonds payable, net | $360,859 | $436,875 | | Total Liabilities | $391,192 | $455,935 | | Total Equity | $528,840 | $594,004 | Consolidated Statement of Operations Data (Year ended Dec 31) | (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Total operating revenues | $57,466 | $61,210 | | Total operating expenses | $39,467 | $36,236 | | Net Income | $31,681 | $11,960 | | Net income available to common stockholders | $27,786 | $8,401 | | Diluted EPS | $0.53 | $0.16 | Consolidated Statement of Cash Flows (Year ended Dec 31) | (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $12,887 | $17,051 | | Net cash provided by (used in) investing activities | $158,461 | ($60,398) | | Net cash (used in) provided by financing activities | ($173,513) | $20,830 | | Net (decrease) in cash | ($2,165) | ($22,517) | Notes to Consolidated Financial Statements The notes provide detailed information on accounting policies, revenue sources, debt structure, and equity, including concentration risks and share repurchase specifics - The company's significant accounting policies cover real estate acquisitions (treated as asset acquisitions), impairment testing, revenue recognition, and goodwill[390][406][424] Rental Income by Source (Year ended Dec 31) | (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Fixed Farm Rent | $33,739 | $32,878 | | Solar, Wind and Recreation Rent | $3,954 | $2,647 | | Tenant Reimbursements | $3,428 | $3,264 | | Variable Rent | $8,064 | $10,090 | | Total | $49,185 | $48,879 | - For 2023, one major tenant in California accounted for 13.6% of rental income, and geographically, the Corn Belt and West Coast regions generated the largest shares of rental income at 37.7% and 22.7%, respectively[461][462] - As of Dec 31, 2023, the company had $363.1 million in total principal outstanding debt across various facilities with Farmer Mac, MetLife, Rabobank, and Rutledge, and was in compliance with all debt covenants[483][486][488] - During 2023, the company repurchased 6,551,087 shares of common stock for $72.2 million and redeemed 34,000 Common units for $0.4 million[508][523]