Any future liquidation of Farmland Partners’ portfolio is more likely to occur through individual property auctions than a bulk sale to a private equity firm, according to the NYSE-traded farmland REIT’s chief executive.
Speaking Friday on Farmland Partners’ fourth-quarter earnings call, Paul Pittman (pictured) lamented the disconnect between FPI’s roughly $7-per-share stock price and net asset value, which he said was about $12 per share. Near the end of the call, Pittman, who mentioned that in 2017 his personal compensation fell by approximately 30 percent, responded to analysts’ question about potential wind-down scenarios.
“If I had the ability to take this company private at $9.50 a share, personally take it private and make all that money for myself, I’d frankly be doing it tomorrow,” Pittman said. “The private equity firm that thinks they are going to come in here and get through our board a proposal to buy the assets – since we are trading at a 30 percent discount, they are going to buy them at a 15 percent discount – you’ll never get a fairness opinion on that. You wouldn’t get my vote for it; it wouldn’t be fair to shareholders.”
Given his personal holding in FPI stock, Pittman said he continued to view the depressed stock price as an opportunity to access the company’s farmland portfolio at a steep discount. While, throughout the call, he stressed the firm’s continuing desire to remain a public company, he also stressed that if he were to take the company’s assets private, he would do so through auctions of individual properties.
“We’re not going to chicken out,” Pittman said. “People are going to get the NAV value of these shares eventually, one way or another.”
Pittman attributed part of the disconnect between private and public market valuation of FPI’s farmland to negative public sentiment about agriculture fed by the mass media’s misunderstanding of data offered by the USDA.
“The popular narrative about sad-sack farmers going broke is just factually untrue. Those are human interest stories about sub-scale farmers masquerading as economic analysis on the front page of the Wall Street Journal,” Pittman said. “We do not get nervous because some commentator on Seeking Alpha, who frankly doesn’t have the courage even to use his own name, criticizes our company. None of that matters to us.”
Specifically, Pittman highlighted reporters’ tendency to use net farm income, rather than net cash income, as the gauge of the rural economy’s financial health. Because the net farm income is calculated with an eye towards measuring agriculture’s role in overall national GDP, does not account for year-to-year cash transfers and uses an “especially aggressive” formula to calculate depreciation, Pittman argued that net cash income is the more accurate reflection of farmers’ earnings.
In addition, Pittman said that the fact that the USDA classifies anyone with the potential to make just $1,000 of gross revenue annually through agriculture as “farmers” further skews public perception. An examination of results for those making at least $250,000 annually through ag, Pittman suggested, would present a more accurate indication of FPI’s tenants’ current financial position.
FPI announced on February 20 that it would be issuing a quarterly cash dividend of $0.1275 per share, and Pittman said on Friday’s call that the company had set an internal goal to cover dividend with earnings sometime in 2019. Despite evident frustration, he was adamant that FPI would continue to issue dividends for its stock through the year and at least, probably, through 2019 as well, though he said he wanted to leave some flexibility to consider then. He added that the less than $5 million cumulative shortfall in dividend distributions is dwarfed by the roughly $20 million annual appreciation of FPI’s underlying farmland portfolio.
“We have issued securities to farmers, in particular, who have taken our securities in return for their farmland,” Pittman said. “It is fundamentally unfair to that group of people to cut that dividend.”