Farmland Partners has sold at least two properties as part of a broader sales drive prompted by a judgement that the public market undervalues its farmland.
The New York Stock Exchange-listed REIT announced the sale of 2,426 acres in Nebraska and South Carolina in mid-May to tenants for $16.2 million. President and chief executive Luca Fabbri said in the statement the deals represented a total gain of 24 percent over net book value that would be dedicated to “buying back stock at a discount to our estimate of its value,” among other initiatives.
On Colorado-headquartered FPI’s earnings call earlier this month, chairman Paul Pittman highlighted the gap between the public market’s $1.1 billion valuation of its farmland and an approximately $1.4 billion valuation of the same properties in private markets. He said FPI already had an additional $42 million of sales under contract and plans to auction off an additional approximately $40 million later this year.
Pittman told Agri Investor the movement towards selling more farms has been an organic one for the company, which has long questioned stock market investors’ understanding of the role appreciation plays in farmland markets.
FPI’s portfolio includes 165,000 owned acres devoted to more than 25 row and permanent crops across the US. It has acquired more than 300 properties since its 2014 IPO and achieved a gross unlevered IRR of 8.1 percent through $170 million in dispositions, according to a recent presentation. FPI also includes an asset management collaboration with Westchester Group founder Murray Wise that manages 31,000 acres for third parties.
“The cheapest farmland on the planet is embedded in our stock right now,” said Pittman. “We’re not getting fairly rewarded for what we do because the market doesn’t grasp the appreciation thing.”
Pittman explained Farmland Partners plans to use asset sales as an opportunity to limit exposure to long-term water challenges.
“Essentially, everything west of Grand Island, Nebraska, we’re probably trying to migrate out. It’s not a fire sale, we’re not trying to give it away or dump it all at once, but if we could lighten up in eastern Colorado, western Nebraska, even into eastern Nebraska areas with sandy soil, we will,” he said. “We generally have a bias that California is long-term water challenged, so if we can lighten up on that, we will as well.”
FPI already grades its own properties on an ABC scale internally, and the plans to treat offers on properties differently depending on how the company has judged its long-term prospects, Pittman said. Price, speed and certainty will be the key considerations for FPI in evaluating bids on its farmland properties, he added.
“If you come to us with an offer on a B or a C [grade property], and it feels fair, we’ll sell it. If you come to us and try and buy an A, you are going to have to pay us more than we think it’s worth,” he explained. “There’s a lot of bids coming in from pools of capital that aren’t really options, they’re offers. If you have a diligence period of longer than 60 days in row crops, that’s an option, not an offer.”
Pittman highlighted that FPI stock has been rising over the past month, despite a challenging backdrop across public markets driven largely by sector-specific and macro challenges.
“Everybody accepts we are undervalued, at least most people do,” Pittman said. “What is not quite as clear is: are we the most undervalued thing out there, or would they be better off buying some other type of real estate or company because something else is even more beat up than we are? That’s a very fair question. It’s not purely an absolute question it’s an allocation of limited capital question.”
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