Farmland Partners looks to fruit and veg to boost portfolio

The NYSE-listed REIT released its annual earnings report last week detailing a net loss of $671,300. Nasdaq-listed peer Gladstone Land reported a net loss of $125,000 on the year.

Farmland Partners, the NYSE-listed real estate investment trust (REIT), is expanding its acquisition strategy to include fruit and vegetable crops, Paul Pittman, chief executive, said on an earnings call last week.

Until now, the REIT has focused on commodity crop farmland predominantly in the Midwest region of the US, but it is now expanding its reach into new crop types and parts of the US.

The decision comes as Midwestern farmland values have fallen by around 3 percent, according to local estimates.

The new strategy will move Farmland Partners closer in line with its only listed farmland peer Gladstone Land, a REIT which is primarily focused on fruit and vegetable land.

“The core of our story is about meeting the global food demand and we want to build a nationwide portfolio that allows our investors to get land ownership in diversified areas,” Pittman told Agri Investor.

The REIT is currently looking into acquiring some vegetable and fruit land across Southeast and Western US, he added.

In the fourth quarter of 2014, Farmland Partners nearly doubled its acreage from 24,301 to 46,485 of row crop land growing wheat, rice, corn, cotton and soybeans, worth $200 million. And it has a further 3,500 acres under contract.

Gladstone by comparison has 8,370 acres of land across 33 farms in California, Florida, Michigan, Oregon and Arizona.

Farmland Partners returned $4.2 million in annual operating revenues during the year but reported a $671,300 net loss. Gladstone, which listed on the Nasdaq in 2013, a year before Farmland Partners listed, returned operating revenues of $7.2 million and a net loss of $125,000 for the year although during the fourth quarter of 2014 Gladstone returned a net income of $55,000.

“Our investors loved the results and they bought more shares,” said David Gladstone, founder and chairman of the firm.

Farmland Partners is not the only one expanding its reach/ Gladstone is also considering adding some commodity crop land, although it will remain very much in the minority of its portfolio, according to the founder.

While Midwestern land values have fallen, it has not affected Farmland Partners’ rental returns because it signs 3-year contracts, according to Pittman.

“If a farm is half way through a 3-year lease, you are not likely to have the farmer ask for a reduction in rent in the middle of it,” Pittman said. “It will only be an issue when it comes to renewals.”

The first time the company will renew a significant number of rental contracts will be late 2016, he added. “Given the speed that we are growing the portfolio, when that happens, it will probably be something under 20 percent of the portfolio at that point of time,” he noted.

Talking about the dropping value of the farmland in Midwest, Pittman said it is important to see it in an appropriate and historical context.

“My point here is not that history will repeat itself in exactly the same way but rather to point out that commodities always have and always will trade in cycles,” Pittman said. “Farmland values and rents trade based on a farmer’s 3-to 5- year view of farm profitability. All of the long-term trends, such as growth in global demand for grains and scarcity of farmland, are still firmly in place.”

Reflecting recent falling corn prices, Pittman recommended that farmers reduce plantings of corn, although poor farmgate returns could be good news for the REIT. “Our perspective is that the distress some farmers may face during the coming years will actually create buying opportunities for our company,” he said.

The farmland owned by Gladstone Land has continued to steadily increase in both underlying and rental value, according to the founder. The firm is currently negotiating on a large potato farm in Colorado and other farms in Ohio, he told Agri Investor.

Gladstone shares have increased nearly 11.21 percent since the beginning of 2015. In the final minutes of trading on Friday, shares hit $11.91, an increase of 9.67 percent since earnings were announced on February 24. Farmland Partners shares closed at $11.21 on Friday, up from the $11.15 closing price on Thursday before the earnings were announced. It is still down 13 percent from its IPO in April 2014.