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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 June 30, 2021

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:

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

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

As of August 3, 2021, 32,819,948 shares of the Registrant’s common stock (34,300,035 on a fully diluted basis, including 1,480,087 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

June 30, 2021

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Page

Item 1.

Financial Statements

Consolidated Financial Statements

Balance Sheets as of June 30, 2021 (unaudited) and December 31, 2020

3

Statements of Operations for the three and six months ended June 30, 2021 and 2020 (unaudited)

4

Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2021 and 2020 (unaudited)

5

Statements of Changes in Equity for the three and six months ended June 30, 2021 and 2020 (unaudited)

6

Statements of Cash Flows for the six months ended June 30, 2021 and 2020 (unaudited)

8

Notes to Consolidated Financial Statements (unaudited)

9

Item 2.

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

33

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

50

Item 4.

Controls and Procedures

50

PART II. OTHER INFORMATION

51

Item 1.

Legal Proceedings

51

Item 1A.

Risk Factors

51

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

51

Item 3.

Defaults Upon Senior Securities

51

Item 4.

Mine Safety Disclosures

52

Item 5.

Other Information

52

Item 6.

Exhibits

52

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Farmland Partners Inc.

Consolidated Balance Sheets

As of June 30, 2021 (Unaudited) and December 31, 2020

(in thousands except par value and share data)

June 30,

December 31,

    

2021

    

2020

ASSETS

Land, at cost

$

930,665

$

924,952

Grain facilities

 

11,283

 

12,091

Groundwater

 

10,214

 

10,214

Irrigation improvements

 

52,335

 

53,887

Drainage improvements

 

12,606

 

12,805

Permanent plantings

53,519

54,374

Other

6,890

 

8,167

Construction in progress

 

10,228

 

9,284

Real estate, at cost

 

1,087,740

 

1,085,774

Less accumulated depreciation

 

(35,230)

 

(32,654)

Total real estate, net

 

1,052,510

 

1,053,120

Deposits

 

65

 

Cash

 

40,159

 

27,217

Assets held for sale

530

Notes and interest receivable, net

 

2,440

 

2,348

Convertible notes receivable

2,428

Right of use asset

178

93

Deferred offering costs

 

75

 

Deferred financing fees, net

44

87

Accounts receivable, net

 

3,520

 

4,120

Inventory

 

742

 

1,117

Prepaid and other assets

 

1,628

 

2,889

TOTAL ASSETS

$

1,104,319

$

1,090,991

LIABILITIES AND EQUITY

LIABILITIES

Mortgage notes and bonds payable, net

$

500,705

$

506,625

Lease liability

178

93

Dividends payable

 

1,715

 

1,612

Derivative liability

1,738

2,899

Accrued interest

 

3,373

 

3,446

Accrued property taxes

 

1,752

 

1,817

Deferred revenue

 

2,420

 

37

Accrued expenses

 

11,132

 

8,272

Total liabilities

 

523,013

 

524,801

Commitments and contingencies (See Note 8)

Series B Participating Preferred Stock, $0.01 par value, 6,037,500 shares authorized; 5,806,797 shares issued and outstanding at June 30, 2021, and 5,831,870 at December 31, 2020

139,116

 

139,766

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

118,755

120,510

EQUITY

Common stock, $0.01 par value, 500,000,000 shares authorized; 32,810,518 shares issued and outstanding at June 30, 2021, and 30,571,271 shares issued and outstanding at December 31, 2020

 

317

 

297

Additional paid in capital

 

373,299

 

345,870

Retained earnings

 

(5,457)

 

1,037

Cumulative dividends

 

(57,932)

 

(54,751)

Other comprehensive income

 

(908)

 

(2,380)

Non-controlling interests in operating partnership

 

14,116

 

15,841

Total equity

 

323,435

 

305,914

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

$

1,104,319

$

1,090,991

See accompanying notes.

3

Farmland Partners Inc.

Consolidated Statements of Operations

For the three and six months ended June 30, 2021 and 2020

(Unaudited)

(in thousands except per share amounts)

For the Three Months Ended

For the Six Months Ended

June 30,

June 30,

    

2021

    

2020

    

2021

    

2020

OPERATING REVENUES:

Rental income

$

8,291

$

9,141

$

18,551

$

19,215

Tenant reimbursements

 

839

 

883

 

1,777

 

1,744

Crop sales

237

362

453

697

Other revenue

 

646

 

131

 

808

 

512

Total operating revenues

 

10,013

 

10,517

 

21,589

 

22,168

OPERATING EXPENSES

Depreciation, depletion and amortization

 

1,885

 

2,003

 

3,820

 

4,003

Property operating expenses

 

1,708

 

1,818

 

3,639

 

3,679

Cost of goods sold

667

745

917

1,311

Acquisition and due diligence costs

 

 

11

 

 

11

General and administrative expenses

 

1,897

 

1,402

 

3,514

 

2,854

Legal and accounting

 

2,901

 

848

 

5,643

 

1,330

Other operating expenses

1

2

1

Total operating expenses

 

9,058

 

6,828

 

17,535

 

13,189

OPERATING INCOME

 

955

 

3,689

 

4,054

 

8,979

OTHER (INCOME) EXPENSE:

Other (income) expense

(8)

(33)

(52)

88

(Gain) on disposition of assets

(74)

(917)

(3,467)

(831)

Interest expense

 

3,902

 

4,467

 

7,961

9,130

Total other expense

 

3,820

 

3,517

 

4,442

 

8,387

Net income (loss) before income tax expense

(2,865)

172

(388)

592

Income tax expense

 

 

NET INCOME (LOSS)

 

(2,865)

 

172

 

(388)

 

592

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

 

130

 

(10)

 

13

(36)

Net income (loss) attributable to the Company

(2,735)

162

(375)

556

Nonforfeitable distributions allocated to unvested restricted shares

(14)

(16)

(28)

(32)

Distributions on Series A Preferred Units and Series B Preferred Stock

(3,055)

(3,088)

(6,120)

(6,203)

Net loss available to common stockholders of Farmland Partners Inc.

$

(5,804)

$

(2,942)

$

(6,523)

$

(5,679)

Basic and diluted per common share data:

Basic net (loss) available to common stockholders

$

(0.19)

$

(0.10)

$

(0.21)

$

(0.19)

Diluted net (loss) available to common stockholders

$

(0.19)

$

(0.10)

$

(0.21)

$

(0.19)

Basic weighted average common shares outstanding

 

31,072

 

29,433

 

30,747

 

29,485

Diluted weighted average common shares outstanding

 

31,072

 

29,433

 

30,747

 

29,485

Dividends declared per common share

$

0.05

$

0.05

$

0.10

$

0.10

See accompanying notes.

4

Farmland Partners Inc.

Consolidated Statements of Comprehensive Income (Loss)

For the three and six months ended June 30, 2021 and 2020

(Unaudited)

(in thousands)

For the Three Months Ended

For the Six Months Ended

June 30,

June 30,

    

2021

    

2020

    

2021

    

2020

Net Income (loss)

$

(2,865)

$

172

$

(388)

$

592

Amortization of OCI

236

247

530

247

Net change associated with current period hedging activities

(266)

(400)

942

(1,983)

Comprehensive Income (Loss)

(2,895)

19

1,084

(1,144)

Comprehensive income (loss) attributable to non-controlling interests

130

(10)

13

(36)

Net income (loss) attributable to Farmland Partners Inc.

$

(2,765)

$

9

$

1,097

$

(1,180)

See accompanying notes.

5

Farmland Partners Inc.

Consolidated Statements of Changes in Equity and Other Comprehensive Income

For the three and six months ended June 30, 2021 (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, 2020

30,571

$

297

$

345,870

$

1,037

$

(54,751)

$

(2,380)

$

15,841

$

305,914

Net income

2,360

117

2,477

Grant of unvested restricted stock

113

Forfeiture of unvested restricted stock

(3)

Stock-based compensation

251

251

Dividends accrued or paid

(3,065)

(1,540)

(74)

(4,679)

Conversion of common units to shares of common stock

159

1

1,697

(1,698)

Net change associated with current period hedging transactions

1,501

1,501

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

38

(38)

Balance at March 31, 2021

30,840

$

298

$

347,856

$

332

$

(56,291)

$

(879)

$

14,148

$

305,464

Net loss

(2,735)

(130)

(2,865)

Issuance of stock

1,955

19

25,281

25,300

Grant of unvested restricted stock

16

Stock-based compensation

334

334

Dividends accrued or paid

(3,054)

(1,641)

(74)

(4,769)

Net change associated with current period hedging transactions

(29)

(29)

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

(172)

172

Balance at June 30, 2021

32,811

$

317

$

373,299

$

(5,457)

$

(57,932)

$

(908)

$

14,116

$

323,435

See accompanying notes.

6

Farmland Partners Inc.

Consolidated Statements of Changes in Equity and Other Comprehensive Income

For the three and six months ended June 30, 2020 (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, 2019

29,952

$

292

$

338,387

$

6,251

$

(48,784)

$

(1,644)

$

19,044

$

313,546

Net income

394

25

419

Grant of unvested restricted stock

139

Stock-based compensation

242

242

Dividends accrued or paid

(3,115)

(1,498)

(95)

(4,708)

Net change associated with current period hedging transactions

(1,583)

(1,583)

Repurchase and cancellation of shares

(225)

(3)

(1,396)

(1,399)

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

224

(224)

Balance at March 31, 2020

29,866

$

289

$

337,457

$

3,530

$

(50,282)

$

(3,227)

$

18,750

$

306,517

Net income

162

11

173

Stock-based compensation

275

275

Dividends accrued or paid

(3,088)

(1,488)

(96)

(4,672)

Net change associated with current period hedging transactions

(153)

(153)

Repurchase and cancellation of shares

(270)

(2)

(1,795)

(1,797)

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

121

(121)

Balance at June 30, 2020

29,596

$

287

$

336,058

$

604

$

(51,770)

$

(3,380)

$

18,544

$

300,343

See accompanying notes.

7

Farmland Partners Inc.

Consolidated Statements of Cash Flows

For the six months ended June 30, 2021 and 2020

(Unaudited)

(in thousands)

For the Six Months Ended

June 30,

    

2021

    

2020

CASH FLOWS FROM OPERATING ACTIVITIES

Net income (loss)

$

(388)

$

592

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

Depreciation, depletion and amortization

 

3,820

 

4,003

Amortization of deferred financing fees and discounts/premiums on debt

 

172

 

147

Stock-based compensation

 

585

 

517

(Gain) on disposition of assets

 

(3,467)

 

(831)

Proceeds from litigation settlement

550

Bad debt expense

46

Amortization of dedesignated interest rate swap

530

247

Changes in operating assets and liabilities:

Increase (Decrease) in accounts receivable

 

326

 

2,372

Increase (Decrease) in interest receivable

(47)

(29)

Increase (Decrease) in other assets

 

1,081

 

1,565

Increase (Decrease) in inventory

375

 

(582)

(Decrease) Increase in accrued interest

 

(219)

 

347

(Decrease) Increase in accrued expenses

 

2,588

 

(781)

(Decrease) Increase in deferred revenue

 

2,337

 

2,205

(Decrease) Increase in accrued property taxes

 

(26)

 

164

Net cash provided by operating activities

 

8,217

 

9,982

CASH FLOWS FROM INVESTING ACTIVITIES

Real estate acquisitions

 

(30,003)

(884)

Real estate and other improvements

 

(1,353)

(1,689)

Principal receipts on notes receivable

6

1,762

Issuance of note receivable

(8)

Proceeds from sale of property

28,649

7,526

Net cash provided by (used in) investing activities

 

(2,701)

 

6,707

CASH FLOWS FROM FINANCING ACTIVITIES

Borrowings from mortgage notes payable

14,000

Repayments on mortgage notes payable

(19,976)

(85)

Proceeds from ATM offering

25,301

Participating preferred stock repurchased

(650)

(3,095)

Common stock repurchased

(3,196)

Payment of debt issuance costs

(73)

(130)

Payment of swap fees

(73)

Dividends on common stock

(3,072)

(2,996)

Distribution on Series A preferred units

(3,510)

(3,510)

Distribution on Series B participating preferred stock

(4,365)

(4,450)

Distributions to non-controlling interests in operating partnership, common

(156)

(190)

Net cash provided by (used in) financing activities

 

7,426

 

(17,652)

NET INCREASE (DECREASE) IN CASH

 

12,942

 

(963)

CASH, BEGINNING OF PERIOD

 

27,217

 

12,561

CASH, END OF PERIOD

$

40,159

$

11,598

Cash paid during period for interest

$

7,217

$

8,334

Cash paid during period for taxes

$

$

SUPPLEMENTAL NON-CASH INVESTING AND FINANCING TRANSACTIONS:

Dividend payable, common stock

$

1,641

$

1,488

Dividend payable, common units

$

74

$

95

Distributions payable, Series A preferred units

$

1,755

$

1,755

Convertible notes receivable

$

2,417

$

Additions to real estate improvements included in accrued expenses

$

238

$

Settlement of outstanding notes receivable with property acquisitions

$

$

487

Swap fees payable included in accrued interest

$

146

$

109

Deferred offering costs amortized through equity in the period

$

79

$

Right of Use Asset

$

178

$

163

Lease Liability

$

178

$

163

See accompanying notes.

8

Farmland Partners, Inc.

Notes to the Unaudited Financial Statements as of June 30, 2021

Note 1—Organization and Significant Accounting Policies

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 June 30, 2021, the Company owned a portfolio of approximately 157,000 acres which are consolidated in these financial statements.  In addition, the Company serves as property manager over approximately 3,800 acres (see “Note 4—Related Party Transactions”). 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 June 30, 2021, the Company owned a 95.4% 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 June 30, 2021, the TRS performed these custom farming operations on 1,232 acres of farmland owned by the Company located in California and Michigan.

All references to numbers and percent of acres within this report are unaudited.

Principles of Consolidation

The accompanying consolidated financial statements for the periods ended June 30, 2021 and 2020 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 and six months ended June 30, 2021 and 2020 is unaudited.  The accompanying financial statements for the three and six months ended June 30, 2021 and 2020 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, 2020, 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”)

9

on March 19, 2021. Operating results for the three and six months ended June 30, 2021 are not necessarily indicative of actual operating results for the entire year ending December 31, 2021.

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, including the impacts of the ongoing coronavirus (“COVID-19”) pandemic and its effects on the domestic and global economies. We are unable to quantify the ultimate impact of the pandemic on our business.

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

10

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.

 

As of June 30, 2021 and December 31, 2020, the Company had $1.3 million in tenant relationship intangibles, gross of accumulated amortization of $1.3 million, which results in a zero net value on our balance sheet. 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 have been 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 and six months ended June 30, 2021, the company incurred an immaterial amount of costs related to acquisition and due diligence.

 

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.

Assets Held For Sale

The Company generally considers assets to be held for sale when the following criteria are met: (i) management commits to a plan to sell the property, (ii) the property is available for sale immediately, (iii) the property is actively being marketed for sale at a price that is reasonable in relation to its current fair value, (iv) the sale of the property within one year is considered probable and (v) significant changes to the plan to sell are not expected. As of June 30, 2021, the Company has classified certain of its agriculture equipment as held for sale. The equipment is reported at the lower of its carrying value or its estimated fair value less estimated costs to sell.

Convertible Notes Receivable

On January 20, 2021, the Company entered into property sale and long-term management agreements with Promised Land Opportunity Zone Farms I, LLC ("OZ Fund"), a private investment fund focused on acquiring and improving farmland in qualified opportunity zones in the United States ("QOZs"), as designated under U.S. tax provisions enacted in 2017. On March 5, 2021, the Company sold 9 farms to the OZ Fund. On March 31, 2021, the Company sold an additional property to the OZ Fund. The Company received approximately $19.1 million in cash and approximately $2.4 million in

11

convertible notes receivable (the “OZ Convertible Notes”). The OZ Convertible Notes have an interest rate of 1.35% and an aggregate principal balance of $2.4 million as of June 30, 2021. Unless earlier converted, approximately $2.0 million of the OZ Convertible Notes had a maturity date of March 5, 2031, and approximately $0.4 million had a maturity date of March 31, 2031. At the Company’s option, the OZ Convertible Notes are convertible into membership interests in the OZ Fund at any time on or before December 31, 2021. On July 16, 2021, the Company provided notice to the OZ Fund that it was converting its OZ Convertible Notes, and accrued interest thereon, to membership interest. The value of the conversion was $2.4 million and the Company’s membership interest in the OZ Fund is approximately 7.6%. Refer to “Note 11 – Subsequent Events.”  The OZ Fund has the option to purchase additional properties from the Company.

Liquidity Policy

The Company manages its capital position and liquidity needs by continuously forecasting its expected cash receipts, expenses and capital needs, managing its cash position and monitoring all the sources of capital available to the Company. The business model of the Company, and of real estate investment companies in general, utilizes a combination of debt and equity capital in financing the business. When debt becomes due, it is generally refinanced or repaid with equity capital rather than being repaid using the Company’s cash flow from operations. As of June 30, 2021 the Company had debt maturities within the next twelve months of approximately $126.0 million. Management believes that cash on hand, access to debt and equity capital, and other sources of liquidity, such as sales of farms or formation of joint ventures or other asset management arrangements, are sufficient to meet all its ongoing capital needs, including repayment of its upcoming debt maturities.  The Company has a demonstrated history of refinancing or extending existing debt obligations. In addition, the Company has recently raised $25.6 million of equity capital from its At-The-Market equity program and has utilized such program successfully in the past. The Company also has an effective shelf registration statement with $250.0 million of capacity, pursuant to which it could issue additional equity or debt securities.  Furthermore, the Company also has a deep portfolio of real estate assets which management believes could be readily liquidated if necessary to fund any immediate liquidity needs.  Management believes its capital resources and plans are sufficient to meet all future financing needs, including repayment of debt maturities over the next twelve months.

Allowance for Doubtful Accounts

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes the method and timing of the recognition of credit losses on financial assets. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities are required to use a new forward-looking "expected loss" model that generally will result in the earlier recognition of allowance for losses. This credit loss standard is required to be applied using a modified-retrospective approach and requires a cumulative-effect adjustment to retained earnings be recorded as of the date of adoption. In November 2018, the FASB issued ASU 2018-19, which clarified that operating lease receivables are outside the scope of the new standard. The Company adopted the new standard on January 1, 2020. The adoption of the standard did not have a material impact on its financial position or results of operations. 

The Company records an allowance for doubtful accounts, reducing the receivables balance to an amount that it estimates 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 the Company’s customers’ financial condition. The Company writes off accounts receivable when it becomes apparent, based upon age or customer circumstances, such that all current expected losses are sufficiently reserved for at each reporting period. The Company considered its current expectations of future economic conditions when estimating its allowance for doubtful accounts. As of June 30, 2021 and December 31, 2020, the Company had an allowance for doubtful accounts of $0.0 million.

Inventory

The costs of growing crops are accumulated until the time of harvest at the lower of cost or net realizable 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

12

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. The cost of harvested crop was $0.7 million, $0.9 million, $0.7 million, and $1.3 million for the three and six months ended June 30, 2021 and 2020, respectively.

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 net realizable value.

As of June 30, 2021 and December 31, 2020, inventory consisted of the following:

(in thousands)

    

June 30, 2021

 

December 31, 2020

Harvested crop

$

$

47

Growing crop

742

1,070

$

742

$

1,117

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 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 terminated its old interest rate swap at the end of March 2020 and entered into a new interest rate swap agreement to manage interest rate risk exposure, effective April 1, 2020. 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 six 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 June 30, 2021, 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

Recently adopted

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848), that provided practical expedients to address existing guidance on contract modifications and hedge accounting due to the expected market transition from the London Inter-bank Offered Rate (“LIBOR”) and other interbank offered rates (together “IBORs”) to alternative

13

reference rates, such as the Secured Overnight Financing Rate. In July 2017, the Financial Conduct Authority announced it intended to stop compelling banks to submit rates for the calculation of LIBOR after 2021. We refer to this transition as “reference rate reform.”

The first practical expedient allows companies to elect to not apply certain modification accounting requirements to debt, derivative and lease contracts affected by reference rate reform if certain criteria are met. These criteria include the following: (i) the contract referenced an IBOR rate that is expected to be discontinued; (ii) the modified terms directly replace or have the potential to replace the IBOR rate that is expected to be discontinued; and (iii) any contemporaneous changes to other terms that change or have the potential to change the amount and timing of contractual cash flows must be related to the replacement of the IBOR rate. If the contract meets all three criteria, there is no requirement for remeasurement of the contract at the modification date or reassessment of the previous hedging relationship accounting determination.

The second practical expedient allows companies to change the reference rate and other critical terms related to the reference rate reform in derivative hedge documentation without having to de-designate the hedging relationship. This allows for companies to continue applying hedge accounting to existing cash flow and net investment hedges.

The ASU was effective upon issuance on a prospective basis beginning January 1, 2020 and may be elected over time as reference rate reform activities occur. During the first quarter of 2020, the Company elected to apply the hedge accounting practical expedient to its cash flow hedge. The Company will continue to evaluate its debt, derivative and lease contracts that are eligible for modification relief and expects to apply those elections as needed.

Note 2—Revenue Recognition

For the majority of its 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 may be 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 of the actual gross farm proceeds and the previously recognized minimum guaranteed insurance.

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 the Company’s farming leases range from two to three years for row crops and one to seven years for permanent crops. Leases in place as of June 30, 2021 have terms ranging from one to forty years. Payments received in advance are included in deferred revenue until they are earned. As of June 30, 2021 and December 31, 2020, the Company had $2.4 million and $0.0 million, respectively, in deferred revenue.

14

The following sets forth a summary of rental income recognized for the three and six months ended June 30, 2021 and 2020:

Rental income recognized

For the three months ended

For the six months ended

June 30,

June 30,

(in thousands)

    

2021

    

2020

    

2021

    

2020

Leases in effect at the beginning of the year

$

7,263

$

8,338

$

16,734

$

17,679

Leases entered into during the year

 

1,028

 

803

 

1,817

 

1,536

$

8,291

$

9,141

$

18,551

$

19,215

Future minimum lease payments from tenants under all non-cancelable leases in place as of June 30, 2021, including lease advances when contractually due, but excluding crop share and tenant reimbursement of expenses, for the remainder of 2021 and each of the next four years and thereafter as of June 30, 2021 are as follows:

(in thousands)

    

Future rental

Year Ending December 31,

payments

2021 (remaining six months)

$

15,438

2022

 

20,202

2023

11,790

2024

 

4,211

2025

2,759

Thereafter

23,493

$

77,893

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 $0.2 million, $0.5 million, $0.4 million, and $0.7 million were recognized for the three and six months ended June 30, 2021 and 2020, 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 and six months ended June 30, 2021, the Company had no significant tenants representing a tenant concentration of 10% or greater of period revenue. Historically, and in the future, if a 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.

15

Geographic Risk

The following table summarizes the percentage of approximate total acres owned as of June 30, 2021 and 2020 and the percentage of rental income recorded by the Company for the three and six months ended June 30, 2021 and 2020 by region:

Approximate %

Rental Income (1)

of total acres

For the three months ended

For the six months ended

As of June 30,

June 30,

June 30,

Location of Farm (2)

    

2021

    

2020

2021

    

2020

2021

    

2020

 

Corn Belt

27.3

%

28.1

%

39.5

%

35.4

%

36.8

%

33.7

%

Delta and South

20.4

%

17.8

%

9.5

%

11.3

%

10.6

%

10.7

%

High Plains

18.8

%

18.9

%

10.0

%

6.1

%

8.0

%

7.0

%

Southeast

26.1

%

27.8

%

25.7

%

25.9

%

27.3

%

24.6

%

West Coast

7.4

%

7.4

%

15.3

%

21.3

%

17.3

%

24.0

%

 

100.0

%

100.0

%

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, and South Dakota. 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 private plane is generally utilized when commercial air travel is not readily available or practical to and from a particular location. The Company paid costs of $0.05 million, $0.09 million, $0.04 million and $0.05 million during the three and six months ended June 30, 2021 and 2020, respectively, to 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.

On January 20, 2021, the Company entered into property sale and long-term management agreements with the OZ Fund.  The OZ Fund is a Delaware limited liability company whose manager is controlled by the brother of one of the Company's independent directors. That independent director has an indirect investment in the OZ Fund. In addition, as partial consideration in certain transactions with the OZ Fund, the Company received the OZ Convertible Notes, which on July 16, 2021, were converted into a 7.6% equity interest in the OZ Fund. Under the terms of the long-term management agreement, the Company earns a quarterly management fee equal to (i) 0.85% times gross book value per annum if the gross book value is less than $50 million or (ii) 0.80% times gross book value per annum if the gross book value is $50 million or more.  The Company earned management fees of $0.05 million and $0.6 million, respectively, during the three and six months ended June 30, 2021.

Note 5—Real Estate

The Company completed four acquisitions, consisting of four properties, in the Corn Belt and Delta and South regions during the six months ended June 30, 2021. Aggregate consideration for these acquisitions totaled $15.9 million in cash and $14.0 million of notes payable. No intangible assets were acquired through these acquisitions.

The Company completed two acquisitions, consisting of four properties, in the Corn Belt region during the six months ended June 30, 2020. Aggregate consideration for these acquisitions totaled $1.4 million and was comprised of $0.9 million in cash, and $0.5 million reduction in notes receivable and related interest to the seller through the acquisition of collateralized property. No intangible assets were acquired through these acquisitions.

16

During the six months ended June 30, 2021, the Company completed seven dispositions consisting of fifteen properties in the Corn Belt, Southeast, and Delta and South regions. The Company received cash consideration for these dispositions totaling $28.6 million and $2.4 million of convertible notes receivable, and recognized an aggregate gain on sale of $3.5 million.

During the six months ended June 30, 2020, the Company completed three dispositions consisting of four properties, in the Corn Belt and High Plains regions for aggregate consideration of $7.5 million and an aggregate gain on sale of $0.8 million.

Note 6—Notes Receivable

The Company offers an agricultural lending product focused on 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 or growing crops 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.