Farmland Partners’ new debt route is positive, say analysts

The listed US farmland real estate investment trust issued $21 million in debt last week to fund the further expansion of its portfolio.

The $20.7 million in debt issued by Farmland Partners, the NYSE-listed real estate investment trust, last week is positive for the REIT’s future potential, according to two equity analysts now covering the trust.

Last week Farmland Partners raised $20.7 million from a three-year 2.4 percent note issued to the Federal Agricultural Mortgage Corporation, a rural credit lender created by the US Congress, known as Farmer Mac, for use in further farmland acquisitions.

The note was issued under a larger $30 million secured note purchase facility that the firm can tap further at a later stage. And coincides with the investment firm’s plans to expand its farmland holdings in the Mississippi Delta region of the US.

“I think the debt financing is a fantastic facility,” Daniel Altscher, analyst at FBR & Co, the US investment bank, told Agri Investor. “The pricing is very attractive; it’s almost like free money. What they need to do now is grow their earnings and the portfolio. This debt gives them some runway to do that. I wouldn’t be surprised if there was more debt coming in the near future.”

FBR Capital initiated coverage of Farmland Partners last week with an ‘outperform’ rating and a price target of $13.5 a unit, some 14 percent above Friday’s closing price of $11.81 but 3.5 percent below the IPO price of $14.

David Rodgers, senior real estate research analyst at RW Baird, the financial services firm, agrees that the debt financing can help the REIT to boost its investment capabilities but can also improve investor confidence in the sector.

“We estimate that the combined investment capacity of Farmland Partners could now extend as high as $85 million, including the credit agreement with Farmer Mac,” he told Agri Investor. With so few farmland investment firms trading on the public market, Farmland Partners’ new financing could inspire much confidence among investors, he added. “This low-cost source of financing combined with the experience of Farmer Mac should provide greater confidence to equity investors with regard to the value of farmland and the consolidation opportunity within the space,” he said.

Farmland Partners has been raising capital for much of 2014 after a $49 million IPO in April and a $44 million follow-on equity offering in July. The capital raisings, and falling commodity prices, have pushed Farmland Partners’ unit price down, but this does not spell bad news for the REIT, according to Luca Fabbri, chief financial officer at Farmland Partners.

“Some of those [crop price] reports don’t accurately reflect the farmland market as they are based on limited fundamentals,” he said. “We believe that the US farmland economy is very sound and this is due to the often discussed macro trends, which make farmland an attractive asset class.”

Debt will not become the only source of capital for Farmland Partners, however, according to Fabbri, who sees it as “a complement, rather than an alternative, to equity”.

“We believe this is a landmark transaction and relationship, the importance of which goes well beyond the dollar amount of this individual financing,” said Fabbri. “Farmer Mac’s CEO characterized it as ‘wholesale debt financing’, and the terms of the financing reflect that nature. I couldn’t speak more highly of the Farmer Mac team, they truly understand our business objectives and the asset class more widely.”