Advertiser Disclosure

advertising disclaimer
Skip to main content
farmland

Is Farmland Partners A Buy?


Jul 30, 2020 by Liz Brumer

Agriculture and farmland are the backbone of our country, producing valuable food and grain that is used to not just feed our country but create health, home, and food products that we know and love. Historically this real estate asset class has performed well, showing strong resilience in times of economic hardship, and investors have started to take notice of the growing demand and opportunity. But is agriculture real estate investment trust (REIT) Farmland Partners (NYSE: FPI) the best way to participate in this space? Let's take a look to find out.

What Farmland Partners does

Farmland Partners is a unique REIT because it's a hybrid of both an equity REIT and a mortgage REIT that owns and leases farmland while also providing mortgage loans to farmers. With that being said, the majority of their portfolio is on the equity side of things, owning approximately 156,500 acres across 16 states, primarily in popular agricultural states like Alabama, California, Florida, Georgia, and Illinois, to name a few.

Crop diversity and location diversity are important when investing in farmland and agriculture. Having a variety of crops in various locations reduces the risk of crop loss from flooding, draughts, fires, or disease. Farmland Partners works with 26 crop varieties including wine, nuts, and non-fruit trees, although the bulk of their investments are in row crops such as corn, soybeans, rice, and cotton.

A rough few years

Agriculture and farmland is one of the least impacted asset classes from the pandemic. FPI's production and distribution was affected initially, but the interruptions were temporary with long-term outlook remaining positive.

Farmland Partners has recorded losses for the past three years, although they are making slow year-over-year growth with increases in operating revenues, adjusted EBITDA, and adjusted funds from operation (AFFOs). Their current AFFO is -$0.01, up $0.02 from the same quarter a year prior. In the second quarter of 2020, FPI completed three new acquisitions in the Corn Belt and High Plains, adding $8.7 million worth of new farmland to their portfolio.

Additionally, the company is currently in litigation over a "short and distort" attack made by a writer from Seeking Alpha in July of 2018 which resulted in a 40% decrease in stock value in one day. The impact of the case, including whether the case will be overturned or modified on appeal, is very much unknown, but Farmland Partners is doing everything in their power to pursue and receive retribution for damages caused to the company and shareholders, which could pay off in the long run for those invested.

A recent statement made by the company declared a reduction in dividends starting in July 2020 from $0.05 to $0.3750, pushing their already modest 2% to 3% returns down even further but providing a more sustainable cover ratio from their AFFO. Their second quarter 2020 results will be posted on August 5 and should provide more insight into their current financial state.

The bottom line

While agriculture and farmland is a growing industry and FPI has plenty of room to grow with it, it isn't without risk. I personally would hold off buying this stock until the new release is made or more information is provided on their plan to increase income over the next few years. This is a growth stock, not one you invest in now for the dividend return, but without further information as to how they plan to grow and recover and increase income in the coming years, I'd look elsewhere.

Unfair Advantages: How Real Estate Became a Billionaire Factory

You probably know that real estate has long been the playground for the rich and well connected, and that according to recently published data it’s also been the best performing investment in modern history. And with a set of unfair advantages that are completely unheard of with other investments, it’s no surprise why.

But in 2020 the barriers have come crashing down - and now it’s possible to build REAL wealth through real estate at a fraction of what it used to cost, meaning the unfair advantages are now available to individuals like you.

To get started, we’ve assembled a comprehensive guide that outlines everything you need to know about investing in real estate - and have made it available for FREE today. Simply click here to learn more and access your complimentary copy.

Liz Brumer-Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of Farmland Partners. The Motley Fool has a disclosure policy.

Popular Articles On Millionacres