10-Q 1 fpi-20220331x10q.htm 10-Q
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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 March 31, 2022

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

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 April 29, 2022, 50,067,105 shares of the Registrant’s common stock (51,424,444 on a fully diluted basis, including 1,357,339 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

March 31, 2022

TABLE OF CONTENTS

9

PART I. FINANCIAL INFORMATION

Page

Item 1.

Financial Statements

Consolidated Financial Statements

Balance Sheets as of March 31, 2022 (unaudited) and December 31, 2021

3

Statements of Operations for the three months ended March 31, 2022 and 2021 (unaudited)

4

Statements of Comprehensive Income (Loss) for the three months ended March 31, 2022 and 2021 (unaudited)

5

Statements of Changes in Equity for the three months ended March 31, 2022 and 2021 (unaudited)

6

Statements of Cash Flows for the three months ended March 31, 2022 and 2021 (unaudited)

8

Notes to Consolidated Financial Statements (unaudited)

10

Item 2.

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

35

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

51

Item 4.

Controls and Procedures

51

PART II. OTHER INFORMATION

52

Item 1.

Legal Proceedings

52

Item 1A.

Risk Factors

52

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

52

Item 3.

Defaults Upon Senior Securities

52

Item 4.

Mine Safety Disclosures

53

Item 5.

Other Information

53

Item 6.

Exhibits

53

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Farmland Partners Inc.

Consolidated Balance Sheets

As of March 31, 2022 (Unaudited) and December 31, 2021

(in thousands, except par value and share data)

March 31,

December 31,

    

2022

    

2021

ASSETS

Land, at cost

$

949,738

$

945,951

Grain facilities

 

10,833

 

10,754

Groundwater

 

12,602

 

10,214

Irrigation improvements

 

52,886

 

52,693

Drainage improvements

 

12,568

 

12,606

Permanent plantings

53,698

53,698

Other

6,845

 

6,848

Construction in progress

 

12,445

 

10,647

Real estate, at cost

 

1,111,615

 

1,103,411

Less accumulated depreciation

 

(39,956)

 

(38,303)

Total real estate, net

 

1,071,659

 

1,065,108

Deposits

 

1,776

 

58

Cash

 

16,102

 

30,171

Assets held for sale

407

530

Notes and interest receivable, net

 

7,488

 

6,112

Right of use asset

443

107

Deferred offering costs

 

23

 

40

Accounts receivable, net

 

3,104

 

4,900

Derivative asset

259

Inventory

 

2,973

 

3,059

Equity method investments

3,435

 

3,427

Intangible assets, net

1,913

1,915

Goodwill

2,706

2,706

Prepaid and other assets

 

2,778

 

3,392

TOTAL ASSETS

$

1,115,066

$

1,121,525

LIABILITIES AND EQUITY

LIABILITIES

Mortgage notes and bonds payable, net

$

462,836

$

511,323

Lease liability

443

107

Dividends payable

 

2,496

 

2,342

Derivative liability

785

Accrued interest

 

3,120

 

3,011

Accrued property taxes

 

2,337

 

1,762

Deferred revenue

 

7,926

 

45

Accrued expenses

 

8,331

 

9,564

Total liabilities

 

487,489

 

528,939

Commitments and contingencies (See Note 8)

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

117,878

120,510

EQUITY

Common stock, $0.01 par value, 500,000,000 shares authorized; 48,518,993 shares issued and outstanding at March 31, 2022, and 45,474,145 shares issued and outstanding at December 31, 2020

 

474

 

444

Additional paid in capital

 

562,717

 

524,183

Retained deficit

 

(4,511)

 

(4,739)

Cumulative dividends

 

(64,281)

 

(61,853)

Other comprehensive income

 

1,386

 

279

Non-controlling interests in operating partnership

 

13,914

 

13,762

Total equity

 

509,699

 

472,076

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

$

1,115,066

$

1,121,525

See accompanying notes.

3

Farmland Partners Inc.

Consolidated Statements of Operations

For the three months ended March 31, 2022 and 2021

(Unaudited)

(in thousands, except per share amounts)

For the Three Months Ended

March 31,

    

2022

    

2021

OPERATING REVENUES:

Rental income

$

9,547

$

10,259

Tenant reimbursements

 

778

 

938

Crop sales

695

216

Other revenue

 

2,870

 

162

Total operating revenues

 

13,890

 

11,575

OPERATING EXPENSES

Depreciation, depletion and amortization

 

1,751

 

1,935

Property operating expenses

 

1,955

 

1,931

Cost of goods sold

1,439

250

Acquisition and due diligence costs

 

63

 

General and administrative expenses

 

3,103

 

1,617

Legal and accounting

 

1,256

 

2,742

Other operating expenses

3

2

Total operating expenses

 

9,570

 

8,477

OPERATING INCOME

 

4,320

 

3,098

OTHER (INCOME) EXPENSE:

Other (income) expense

21

(43)

Income from equity method investment

(7)

Gain on disposition of assets

(660)

(3,392)

Interest expense

 

3,827

4,056

Total other expense

 

3,181

 

621

Net income before income tax expense

1,139

2,477

Income tax expense

 

NET INCOME

 

1,139

 

2,477

Net income attributable to non-controlling interests in operating partnership

 

(33)

(117)

Net income attributable to the Company

1,106

2,360

Nonforfeitable distributions allocated to unvested restricted shares

(15)

(14)

Distributions on Series A Preferred Units and Series B Preferred Stock

(878)

(3,064)

Net income (loss) available to common stockholders of Farmland Partners Inc.

$

213

$

(718)

Basic and diluted per common share data:

Basic net loss available to common stockholders

$

0.00

$

(0.02)

Diluted net loss available to common stockholders

$

0.00

$

(0.02)

Basic weighted average common shares outstanding

 

45,781

 

30,418

Diluted weighted average common shares outstanding

 

45,781

 

30,418

Dividends declared per common share

$

0.05

$

0.05

See accompanying notes.

4

Farmland Partners Inc.

Consolidated Statements of Comprehensive Income (Loss)

For the three months ended March 31, 2022 and 2021

(Unaudited)

(in thousands)

For the Three Months Ended

March 31,

    

2022

    

2021

Net income

$

1,139

$

2,477

Amortization of OCI

172

293

Net change associated with current period hedging activities

935

1,208

Comprehensive income

2,246

3,978

Comprehensive loss attributable to non-controlling interests

(33)

(117)

Net income attributable to Farmland Partners Inc.

$

2,213

$

3,861

See accompanying notes.

5

Farmland Partners Inc.

Consolidated Statements of Changes in Equity and Other Comprehensive Income

For the three months ended March 31, 2022 (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 (Deficit)

    

Dividends

    

Income

    

Partnership

    

Equity

Balance at December 31, 2021

45,474

$

444

$

524,183

$

(4,739)

$

(61,853)

$

279

$

13,762

$

472,076

Net income

1,106

33

1,139

Issuance of stock

2,913

29

38,264

38,293

Grant of unvested restricted stock

147

1

1

Forfeiture of unvested restricted stock

(1)

Shares withheld for income taxes on vesting of equity-based compensation

(14)

(185)

(185)

Stock-based compensation

642

642

Dividends accrued or paid

(878)

(2,428)

(68)

(3,374)

Net change associated with current period hedging transactions

1,107

1,107

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

(187)

187

Balance at March 31, 2022

48,519

$

474

$

562,717

$

(4,511)

$

(64,281)

$

1,386

$

13,914

$

509,699

See accompanying notes.

6

Farmland Partners Inc.

Consolidated Statements of Changes in Equity and Other Comprehensive Income

For the three months ended March 31, 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 (Loss)

    

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

See accompanying notes.

7

Farmland Partners Inc.

Consolidated Statements of Cash Flows

For the three months ended March 31, 2022 and 2021

(Unaudited)

(in thousands)

For the Three Months Ended

March 31,

    

2022

    

2021

CASH FLOWS FROM OPERATING ACTIVITIES

Net income

$

1,139

$

2,477

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

Depreciation, depletion and amortization

 

1,751

 

1,935

Amortization of deferred financing fees and discounts/premiums on debt

 

82

 

76

Amortization of net origination fees related to notes receivable

(5)

Stock-based compensation

 

642

 

251

(Gain) on disposition of assets

 

(660)

 

(3,392)

Income from equity method investment

(7)

Bad debt expense

12

Amortization of dedesignated interest rate swap

317

293

Loss on Early Extinguishment of Debt

27

Changes in operating assets and liabilities:

(Increase) Decrease in accounts receivable

 

1,628

 

1,045

(Increase) Decrease in interest receivable

(73)

(13)

(Increase) Decrease in other assets

 

(1,091)

 

268

(Increase) Decrease in inventory

86

 

13

Increase (Decrease) in accrued interest

 

72

 

(233)

Increase (Decrease) in accrued expenses

 

(2,068)

 

557

Increase (Decrease) in deferred revenue

 

7,881

 

7,622

Increase (Decrease) in accrued property taxes

 

576

 

507

Net cash provided by operating activities

 

10,309

 

11,406

CASH FLOWS FROM INVESTING ACTIVITIES

Real estate acquisitions

 

(7,980)

(2,933)

Real estate and other improvements

 

(964)

(539)

Principal receipts on notes receivable

6

5

Origination fees on notes receivable

60

Issuance of note receivable

(3,500)

Proceeds from sale of property

4,559

28,486

Net cash provided by (used in) investing activities

 

(7,819)

 

25,019

CASH FLOWS FROM FINANCING ACTIVITIES

Borrowings from mortgage notes payable

112,000

Repayments on mortgage notes payable

(160,384)

(19,976)

Proceeds from ATM offering

38,274

Issuance of stock

19

Participating preferred stock repurchased

(214)

Payment of debt issuance costs

(212)

Payment of swap fees

(219)

(73)

Dividends on common stock

(2,274)

(1,530)

Shares withheld for income taxes on vesting of equity-based compensation

(185)

Distribution on Series A preferred units

(3,510)

(3,510)

Distribution on Series B participating preferred stock

(2,187)

Distributions to non-controlling interests in operating partnership, common

(68)

(82)

Net cash used in financing activities

 

(16,559)

 

(27,572)

NET INCREASE (DECREASE) IN CASH

 

(14,069)

 

8,853

CASH, BEGINNING OF PERIOD

 

30,171

 

27,217

CASH, END OF PERIOD

$

16,102

$

36,070

Cash paid during period for interest

$

3,412

$

3,828

Cash paid during period for taxes

$

$

8

Farmland Partners Inc.

Consolidated Statements of Cash Flows (continued)

For the three months ended March 31, 2022 and 2021

(Unaudited)

(in thousands)

For the Three Months Ended

March 31,

    

2022

    

2021

SUPPLEMENTAL NON-CASH INVESTING AND FINANCING TRANSACTIONS:

Dividend payable, common stock

$

2,428

$

1,542

Dividend payable, common units

$

68

$

74

Distributions payable, Series A preferred units

$

878

$

878

Convertible notes receivable

$

$

2,417

Additions to real estate improvements included in accrued expenses

$

1,000

$

453

Repayments on mortgage notes payable from dispositions

$

$

13,577

Swap fees payable included in accrued interest

$

36

$

36

Prepaid property tax liability acquired in acquisitions

$

11

$

Deferred offering costs amortized through equity in the period

$

26

$

Right of Use Asset

$

443

$

58

Lease Liability

$

443

$

58

Non-cash conversion of notes receivable to real estate

$

2,135

$

See accompanying notes.

9

Farmland Partners, Inc.

Notes to the Unaudited Financial Statements as of March 31, 2022

Note 1—Organization and Significant Accounting Policies

Organization

 

Farmland Partners Inc. (“FPI”), collectively with its subsidiaries, is an internally managed real estate company that owns and seeks to acquire high-quality farmland located in agricultural markets throughout North America. FPI was incorporated in Maryland on September 27, 2013. FPI 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.  

FPI is the sole member of the sole general partner of Farmland Partners Operating Partnership, LP (the “Operating Partnership”), which was formed in Delaware on September 27, 2013.  All of FPI’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 March 31, 2022, FPI owned a 97.1% 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 FPI’s common stock, par value $0.01 per share (“common stock”), holders of the Operating Partnership’s Common units and Series A preferred units generally do not have voting rights or the power to direct the affairs of FPI. As of March 31, 2022, the Operating Partnership owns a 9.97% equity interest in an unconsolidated equity method investment that holds 10 properties (see “Note 1, Convertible Notes Receivable”, “Note 1, Equity Method Investments”, and “Note 4 – Related Party Transactions”).

 

References to the “Company,” “we,” “us,” or “our” mean collectively FPI and its consolidated subsidiaries, including the Operating Partnership.

As of March 31, 2022, the Company owned a portfolio of approximately 160,700 acres which are consolidated in these financial statements.  In addition, the Company serves as property manager over approximately 25,000 acres.

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.  On October 4, 2021, the Company converted all 5,806,797 shares of the outstanding Series B Participating Preferred Stock into shares of common stock. (See “Note 9—Stockholders’ Equity—Series B Participating Preferred Stock” for more information on the Series B Participating Preferred Stock).

On March 16, 2015, the Company formed FPI Agribusiness Inc., a wholly owned subsidiary (the “TRS” or “FPI Agribusiness”), as a taxable REIT subsidiary. We provide volume purchasing services to our tenants, engage directly in farming, and provide property management, auction, and brokerage services the TRS.  As of March 31, 2022, the TRS performed direct farming operations on 2,973 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 Combination and Consolidation

The accompanying consolidated financial statements 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 FPI and the Operating Partnership. All significant intercompany balances and transactions have been eliminated in consolidation.

10

Interim Financial Information

The information in the Company’s consolidated financial statements for the three months ended March 31, 2022 and 2021 is unaudited.  The accompanying financial statements for the three months ended March 31, 2022 and 2021 include adjustments based on management’s estimates (consisting of normal and recurring accruals), which the Company considers necessary for a fair presentation 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, 2021, 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”) on March 1, 2022. Operating results for the three months ended March 31, 2022 are not necessarily indicative of actual operating results for the entire year ending December 31, 2022.

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 the war in Ukraine, and their effects on the domestic and global economies. We are unable to quantify the ultimate impact of these factors 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 were 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

11

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 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.

 

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 months ended March 31, 2022 and 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 a 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 when incomplete information exists as of the respective reporting 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 and consideration is received.

Liquidity Policy

The Company manages its liquidity position and expected liquidity needs taking into consideration current cash balances, undrawn availability under its lines of credit, and reasonably expected cash receipts. The business model of the Company, and of real estate investment companies in general, relies on debt as a structural source of financing. When debt becomes due, it is generally refinanced rather than repaid using the Company’s cash flow from operations. The Company has a history of being able to refinance its debt obligations prior to maturity. 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

12

liquidity needs. We also have an effective shelf registration statement with approximately $200 million of capacity pursuant to which we could issue additional equity or debt securities, and during three months ended March 31, 2022, we raised $38.3 million of equity capital from our At-the-Market Equity Offering Program (the “ATM Program”).

Notes and Interest Receivable

Notes receivable are stated at their unpaid principal balance and include unamortized direct origination costs, prepaid interest and accrued interest through the reporting date, less any allowance for losses and unearned borrower paid points.  

Management determines the appropriate classification of debt securities at the time of issuance and reevaluates such designation as of each balance sheet date. As of December 31, 2021 and March 31, 2022, the Company had issued five and five notes, respectively, under the Company’s loan program (the “FPI Loan Program”) and have designated each of the notes receivable as loans. Loans are stated at amortized cost, adjusted for amortization of premiums and accretion of discounts to maturity computed under the straight-line method, which approximates the effective interest method. Such amortization, including interest, is included in other revenue within our Consolidated Statements of Operations. See “Note 6—Notes Receivable.”

Convertible Notes Receivable

On January 20, 2021, the Company entered into property sale and long-term management agreements with the Promised Land Opportunity Zone Farms I, LLC (the "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 nine farms to the OZ Fund. On March 31, 2021, the Company sold an additional property to the OZ Fund. As consideration for the 10 farms sold to the OZ Fund, the Company received approximately $19.1 million in cash and approximately $2.4 million in convertible notes receivable (the “OZ Convertible Notes”), resulting in a gain on disposition of assets totaling $2.4 million. The OZ Convertible Notes had an interest rate of 1.35% and an aggregate principal balance of $2.4 million. On July 16, 2021, the Company provided notice to the OZ Fund that it was converting its OZ Convertible Notes, and accrued interest thereon, into membership interests in the OZ Fund, in accordance with the terms of the OZ Convertible Notes. The value of the conversion was $2.4 million and the Company’s membership interests in the OZ Fund were approximately 7.6% upon conversion and increased to 9.97% as of March 31, 2022 after subsequent capital contributions. Please refer to “Note 4 – Related Party Transactions.” The OZ Fund has the option to purchase additional properties from the Company.

Allowance for Notes and Interest Receivable

A note is placed on non-accrual status when management determines, after considering economic and business conditions and collection efforts, that the note is impaired or collection of interest is doubtful. The accrual of interest on the instrument ceases when there is concern that principal or interest due according to the note agreement will not be collected. Any payment received on such non-accrual notes are recorded as interest income when the payment is received. The note is reclassified as accrual-basis once interest and principal payments become current. The Company periodically reviews the value of the underlying collateral of farm real estate for the note receivable and evaluates whether the value of the collateral continues to provide adequate security for the note. Should the value of the underlying collateral become less than the outstanding principal and interest, the Company will determine whether an allowance is necessary. Any uncollectible interest previously accrued is also charged off. As of March 31, 2022, we believe the value of the underlying collateral for each of the notes to be sufficient and in excess of the respective outstanding principal and accrued interest.


Accounts Receivable

Accounts receivable are presented at face value, net of the allowance for doubtful accounts. 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 creates an allowance for accounts receivable when it becomes apparent, based upon age or customer circumstances, that an amount may not be collectible, such that all current expected losses are sufficiently

13

reserved for at each reporting period. The Company considered its current expectations of future economic conditions, including the impact of COVID-19, when estimating its allowance for doubtful accounts. The allowance for doubtful accounts was less than $0.1 million as of March 31, 2022 and December 31, 2021. An allowance for doubtful accounts is recorded on the Consolidated Statement of Operations as a reduction to rental revenue if in relation to revenues recognized in the year, or as property operating expenses if in relation to revenue recognized in the prior years.

Inventory

The costs of growing crops on farms under direct operations 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 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 and is included in other operating expenses. The cost of harvested crop sold was $1.4 million and $0.3 million, respectively, for the three months ended March 31, 2022 and 2021.

Harvested crop inventory on farms under direct operations 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 March 31, 2022 and December 31, 2021, inventory consisted of the following:

(in thousands)

    

March 31, 2022

    

December 31, 2021

Harvested crop

$

$

164

Growing crop

2,973

2,895

$

2,973

$

3,059

Equity Method Investments

As partial consideration for 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 upon conversion and increased to 9.97% as of March 31, 2022 after subsequent capital contributions of $1.0 million. As of March 31, 2022, the aggregate balance of the Company’s equity method investment in the OZ Fund was approximately $3.4 million. The OZ Fund will exist until an event of dissolution occurs, as defined in the limited liability company agreement of the OZ Fund (the “Fund Agreement”). Under the Fund Agreement, the Manager of the OZ Fund may call for additional capital contributions from its members to fund expenses, property acquisitions and capital improvements in accordance with each members’ funding ratio. The Company’s capital contributions are capped at $20.0 million.

Under the Fund Agreement, any available cash, after the allowance for the payment of all obligations, operating expenses and capital improvements, is distributed to the members at least annually. For each fiscal year, net income or loss is allocated to the members pro rata in accordance with their percentage interest.

Business Combinations

The Company recognizes and measures the assets acquired and liabilities assumed in a business combination based on their estimated fair values as of date of acquisition, with any difference recorded as goodwill. Management engages an independent valuation specialist, as applicable, to assist with the determination of fair value of the assets acquired, liabilities assumed, and resulting goodwill, based on recognized business valuation methodologies. If the initial accounting for the business combination is incomplete by the end of the reporting period in which the acquisition occurs, an estimate will be recorded. Subsequent to the acquisition, and not later than one year from the acquisition date, the Company will record any measurement period adjustments to the initial estimate based on new information obtained that would have

14

existed as of the acquisition date. An adjustment that arises from information obtained that did not exist as of the date of the acquisition will be recorded in the period of the adjustment. Acquisition and due diligence costs that arise as a result of a business combination are expensed as incurred.

On November 15, 2021, we acquired 100% of the membership interests of Murray Wise Associates, LLC (“MWA”), an agricultural asset management, brokerage and auction company, for total transaction value of $8.1 million, comprised of $5.3 million of consideration paid at closing, net of $2.8 million of closing adjustments. The consideration paid at closing was comprised of $2.2 million in cash and $3.1 million in shares of our common stock. The primary reason for the acquisition was to increase the Company’s breadth of activities in the farmland sector, while adding additional sources of revenue and market insight without raising public equity. As a result of the acquisition, MWA became a wholly owned subsidiary of the TRS. The Company issued an aggregate of 248,734 shares of common stock at a price of $12.61 per share in connection with the closing of the acquisition. Two-thirds of the shares of issued are subject to forfeiture to the extent necessary to satisfy potential indemnification claims for a period of six months following the closing. In addition, the Company agreed to file a registration statement with the Securities and Exchange Commission registering the resale of the shares issued as consideration for the acquisition within six months after the closing date. The Company has entered into an incentive compensation agreement providing for the issuance of up to $3.0 million in shares of common stock for the benefit of current and prospective MWA employees aside from Murray Wise, who was appointed to our Board of Directors in connection with the closing of the acquisition, the receipt of which is tied to achieving certain profitability and asset-under-management objectives within three years following the closing of the transaction. Stock-based compensation expense related to these awards will be recognized ratably over the same three-year period to which it relates.

The Company recorded goodwill of $2.7 million, trade names and trademarks of $1.9 million, and customer relationships of $0.1 million, as part of the purchase of MWA.  Goodwill represents the difference between the purchase consideration and the net assets acquired, including identifiable intangible assets.  The factors giving rise to goodwill are primarily related to (a) entry into new lines of business which are complimentary to FPI’s existing business operations, and (b) acquired workforce-in-place, including Murray Wise, who has extensive experience in the industry, and became a member of our Board of Directors in connection with the closing of the transaction, as described above.

The following table presents a summary of the Company's purchase accounting entries:

($ in thousands)

    

Consideration:

Cash consideration

$

2,161

Stock consideration

3,147

Total consideration

$

5,308

Amounts recognized for fair value of assets acquired and liabilities assumed:

Cash and cash equivalents

$

1,305

Fixed Assets

110

Goodwill

2,706

Intangible assets

1,915

Net Liabilities

(728)

Total Fair Value

$

5,308

Net cash used in the transaction:

Cash used in transaction

$

(2,161)

Cash provided by transaction

1,305

Net cash used in the transaction

$

(856)

Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price over the estimated fair value of the net assets acquired in the acquisition of a business. Goodwill is not amortized, but rather is tested for impairment annually in the fourth quarter and when events or changes in circumstances indicate that the fair value of a reporting unit with goodwill has been reduced below its carrying value. The impairment test requires allocating goodwill and other assets and liabilities to reporting units. The fair value of each reporting unit is determined and compared to the carrying value of the reporting unit. The fair value

15

is calculated using the expected present value of future cash flows method. Significant assumptions used in the cash flow forecasts include future net operating margins, discount rates and future capital requirements. If the fair value of the reporting unit is less than the carrying value, including goodwill, the excess of the book value over the fair value of goodwill is charged to net income as an impairment expense. During the three months ended March 31, 2022, the Company did not incur any impairment charges related to goodwill.

Amortization of intangible assets with definite lives is calculated using the straight-line method, which is reflective of the benefit pattern in which the estimated economic benefit is expected to be received over the estimated useful life of the intangible asset. Intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the intangible asset may not be recoverable. If the sum of the expected undiscounted future cash flows related to the asset is less than the carrying amount of the asset, an impairment loss is recognized based on the fair value of the asset. Trade names and trademarks have an indefinite life and, therefore, are not subject to amortization.  Customer relationships are subject to amortization and are amortized over a period of 12 years. During the three months ended March 31, 2022, the Company recorded amortization of customer relationships of less than $0.1 million.

Fair Value

The Company is required to disclose fair value as further explained in “Note 6 – Notes Receivable”, “Note 7 – Mortgage Notes, Lines of Credit and Bonds Payable” and “Note 10 – Hedge Accounting”. FASB ASC 820-10 establishes a three-level hierarchy for the disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

Level 1—Inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
Level 2—Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets and inputs that are observable or can be substantially corroborated for the asset or liability, either directly or indirectly.
Level 3—Inputs to the valuation methodology are unobservable, supported by little or no market activity and are significant to the fair value measurement.

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 reporting period.

The Company manages economic risks, including interest rate, liquidity, and credit risk, by managing the amount, sources, duration and interest rate exposure of its funding. The Company may also use interest rate derivative financial instruments, namely interest rate swaps.

The Company may enter into marketing contracts to sell commodities. Derivatives and hedge accounting guidance requires a company to evaluate these contracts to determine whether the contracts are derivatives. Certain contracts that meet the definition of a derivative may be exempt from derivative accounting if designated as normal purchase or normal sales. The Company evaluates all contracts at inception to determine if they are derivatives and if they meet the normal purchase and normal sale designation requirements.

The Company has in place one interest rate swap agreement with Rabobank to add stability to interest expense and to manage its exposure to interest rate movements. This agreement qualifies as a cash flow hedge and is actively evaluated

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for ongoing effectiveness (see Note 10 – “Hedge Accounting”). 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.

Additionally, the Company assesses whether the derivative used in its hedging transaction is expected to be highly effective in offsetting changes in the fair value or cash flows of the hedged item. The Company discontinues hedge accounting when it is determined that a derivative has ceased to be or is not expected to be highly effective as a hedge, and then reflects changes in fair value of the derivative in earnings after termination of the hedge relationship.

New or Revised Accounting Standards

Recently adopted

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 clarifies 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.

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 reference rates, such as the Secured Overnight Financing Rate (“SOFR”). 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

Fixed rent: The majority of the Company’s leases provide for rent payments on an entirely or partially fixed basis. For the majority of its fixed farm rent leases, the Company receives at least 50% of the annual lease payment from tenants before crops are planted, generally during the first quarter of the year, with the remaining 50% of the lease payment due in the second half of the year generally after the crops are harvested.  Rental income is recorded on a straight-line basis

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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.

Variable rent: Certain of the Company’s leases provide for a rent payment determined as a percentage of the gross farm proceeds in their entirety or above a certain threshold. 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.

Fixed rent and variable rent: Certain of the Company’s leases provide for a minimum fixed rent plus variable rent based on gross farm revenue.

Tenant reimbursements: Certain of the Company’s leases provide for tenants to reimburse the Company for property taxes and other expenses.  Tenant reimbursements are recognized on a straight-line basis over the applicable term of the lease.

Crop sales: 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 recognized for the three months ended March 31, 2022 and 2021 were $0.7 million and $0.2 million, 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.

Other revenue: Other revenue includes crop insurance proceeds, auction fees, brokerage fees, interest income, property management income, and proceeds from litigation settlement. Crop insurance proceeds are recognized when the amount is determinable and collectible. Revenue is recognized for auction and brokerage fees upon completion of the Company’s performance obligations. Typically, the consideration for auction and brokerage services rendered are received on the date of completion. Property management revenue is recognized as ratably on a straight-line basis over the term of the contract as services are being provided. The Company collects property management fees in advance of the commencement of property management activities on behalf of third parties.  Interest income is recognized on notes receivable on an accrual basis over the life of the note. Direct origination costs are netted against loan origination fees and are amortized over the life of the note using the straight-line method, which approximates the effective interest method, as an adjustment to interest income which is included as a component of other revenue in the Company’s Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021.

Leases in place as of March 31, 2022 have terms ranging from one to 40 years, though, most of the Company’s farming leases range from two to three years for row crops and one to seven years for permanent crops. Payments received in advance are included in deferred revenue until they are earned. As of March 31, 2022 and December 31, 2021, the Company had $7.93 million and $0.05 million, respectively, in deferred revenue.

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The following sets forth a summary of rental income recognized during the three months ended March 31, 2022 and 2021:

Rental income recognized

For the three months ended

March 31,

(in thousands)

    

2022

    

2021

Leases in effect at the beginning of the year

$

7,754

$

9,471

Leases entered into during the year

 

1,793

 

788

$

9,547

$

10,259

Future minimum fixed rent payments from tenants under all non-cancelable leases in place as of March 31, 2022, including lease advances when contractually due, but excluding crop share and tenant reimbursement of expenses, for the remainder of 2022 and each of the next four years and thereafter as of March 31, 2022 are as follows:

(in thousands)

    

Future rental

Year Ending December 31,

payments

2022 (remaining nine months)

$

24,982

2023

21,653

2024

13,884

2025

 

4,870

2026

3,640

Thereafter

32,141

$

101,170

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.