Farmland Partners (FPI 0.74%) stock gained 5% on Tuesday following the farmland real estate investment trust's (REIT) release of third-quarter results that were likely better than many investors expected.
For investors not familiar with Farmland Partners, this REIT buys high-quality U.S. farmland that it leases to farmers to grow a variety of crops. It also provides auction, brokerage, and third-party farm management services.
Farmland Partners' key numbers
| Metric | Q3 2022 | Q3 2021 | Change |
|---|---|---|---|
| Revenue | $13.1 million | $10.1 million | 30% |
| Operating income | $4.7 million | $1.4 million | 230% |
| Net income | $1.1 million | ($2.7 million) | N/A. Result flipped to positive from negative. |
| Earnings per share (EPS) | $0.01 | ($0.17) | N/A. Result flipped to positive from negative. |
| Adjusted funds from operations (AFFO)* | $2.5 million | ($3.2 million) | N/A. Result flipped to positive from negative. |
| AFFO per share | $0.05 | ($0.09) | N/A. Result flipped to positive from negative. |
Data source: Farmland Partners. *Funds from operations (FFO) is a closely watched metric for companies organized as REITs. It adds depreciation expense back to net income and makes a few other adjustments to net income to reflect a REIT's cash flow.
The company's strong results were driven by "higher rents on fixed leases, increased auction and brokerage fee revenue, increased direct operations gross profit, and lower litigation expenses," CEO Paul Pittman said in the earnings release.
Wall Street had been looking for a net loss of $0.02 per share on revenue of $11.4 million. It also was projecting AFFO of $0.02 per share. So, Farmland Partners easily exceeded all the consensus estimates.
What happened with Farmland Partners in the quarter?
- The company completed three property acquisitions for a total of $8.7 million. These purchases bring its total property acquisitions in 2022 through the third quarter up to nine for a total of $36.9 million.
- It did not sell any properties in the quarter, so its 2022 total property sales remain at five properties for total cash of $16.9 million and a total gain of $4 million.
- The company renewed about 60% of leases expiring in 2022 at average rent increases greater than 15%.
- It lowered its debt by $16 million, while maintaining $48 million of borrowing capacity under a line of credit.
- Just after the quarter ended (mid-October), the company closed on a $75 million line of credit, which it has not tapped, to provide it with additional liquidity.
2022 guidance increased again
Farmland Partners raised its full-year AFFO guidance range to a range of $0.27 to $0.31. The prior range, issued in July, was $0.26 to $0.30. While this is just a slight increase, it's not the first guidance increase this year. In 2021, AFFO per share excluding litigation costs was $0.24.
The company's outlook for 2022 remains positive. "Farmland values continue to show meaningful appreciation across row-crop regions and the farm economy remains strong, partly driven by inflationary pressure," Pitman said. "Inflation, which is generally positive for farmland values, is also leading to increased interest rates, which will impact many borrowers, including FPI, in 2023."
Worth considering buying
Back in June, I was tasked with selecting a stock trading under $20 per share that is worth considering buying. My selection was Farmland Partners, and my opinion remains unchanged.
"Prime U.S. farmland is poised to increase nicely in value over the long term, in my view, because of supply demand dynamics," I wrote. Moreover, physical assets (such as land) tend to appreciate during periods of high inflation, though the drawback -- as Pitman noted in his statement -- is that higher interest rates lead to higher borrowing costs.
Shares pay a modest dividend, currently yielding about 1.7%.
