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Farmland Partners (FPI) Q3 Earnings call transcript Oct 31, 2024

AInvestFriday, Nov 1, 2024 7:48 pm ET
2min read

In the third quarter of 2024, Farmland Partners reported an incredibly strong performance, both operationally and in terms of asset sales. The company has been focused on its strategy of returning value to shareholders through the sale of appreciated farmland and the distribution of significant gains. This has resulted in the sale of over $500 million of farmland in the last 24 months, with gains slightly above internal valuation metrics on average.

The appreciation of the asset class, as highlighted by Paul Pittman, is a significant theme that has driven the company's performance. The long-term appreciation of farmland is a crucial part of the total return for investors in this sector. Despite the modest current yield, the company has distributed $1.45 to its shareholders in the last 12 months, which is a huge return on a relatively low stock price.

One of the key challenges for Farmland Partners is the valuation of its California specialty crop assets, which is a much more complex valuation exercise compared to row crop farms. Determining the value of these assets is influenced by tree health, tree age, long-term water outlook, and worldwide demand for those crops. However, even if there are mispricings in the company's internal valuations, the stock should still be worth $15 to $16 per share, indicating the significant undervaluation of the company.

Another significant trend is the company's focus on reducing its debt load, which has been reduced by almost half since going public. This move is aimed at addressing concerns from investors about leverage levels in the asset class. Despite this reduction, Farmland Partners remains the second largest landowner in Illinois and one of the largest holders of agricultural land in the United States.

Shareholder Questions and Concerns: Asset Sales, Dividends, and Future Outlook

During the Q&A session, shareholders raised several questions about the company's asset sales, dividends, and future outlook. Robert Stevenson questioned the annualized revenue on the 52 farms sold and its impact on future revenue. Paul Pittman clarified that the full-year annualized revenues for the farm sales were approximately $11.2 million, and the company is waiting to see what the stock price does before making any significant asset sales.

Scott Fortune asked about the health of the farmer and the rent increases in 2025. Paul Pittman acknowledged the challenging environment for farmers but expects flat to at best a 5% increase in rents for next year, given the current commodity pricing pressure and farmer profitability.

Buck Horne inquired about the impact of the election outcome on farm valuations and transaction activity. Paul Pittman stated that he doesn't expect any significant change in the outlook for farm valuations depending on the election outcome, as the demand for land remains strong among successful farm families.

John Massocca asked about the additional dispositions in the portfolio and the uses of the proceeds. Paul Pittman explained that the proceeds will be used for debt repayment, stock buybacks, and acquisitions, depending on market conditions.

Craig Kucera asked about the debt repayments made and the remaining debt. Susan Landi clarified that a good chunk of the Rabobank loan has been paid down, and the swap has been amended to cover the full amount. The company is also open to making loans through the FPI loan program if they can secure high-quality collateral and a substantial spread against their cost of capital.

Conclusion

In conclusion, Farmland Partners' third quarter earnings call highlighted the company's strong operational performance and strategic asset sales, emphasizing the long-term appreciation of the asset class. The company's focus on reducing debt and returning value to shareholders through stock buybacks and dividends is a positive sign for investors. Despite the challenges in the agricultural sector, Farmland Partners remains optimistic about the future, with a strategic focus on maximizing shareholder value and navigating the current market conditions.

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