Publicly-traded real estate investment trust Farmland Partners has agreed to buy 22,300 acres of Illinois farmland for $197 million. The land will be paid for in cash, limited partnership interest and common stock, according to a press release.
The purchase, which should close in the first quarter of 2016, will increase the Farmland Partners’ acreage by nearly 30 percent to 96,700 acres. Chief executive Paul Pittman told Agri Investor deal includes 120 separate farms, mostly primary row-crop land.
Pittman added that his group has no plans to make major changes to operations once the sale is complete. Farmland Partners hopes to reach lease agreements with the 19 tenants currently operating the farms.
“There’s kind of an assumption among farm buyers that you give the guy that used to farm it the first chance to continue farming it,” he said.
Pittman said Farmland Partners plans to use the newly-acquired properties as collateral to secure $100 million in lending and make new acquisitions. He described these as “in various stages of due diligence and negotiation”, adding that the group is looking at opportunities in the US Southeast and Mississippi Delta regions. Farmland Partners is also looking to diversify its investments through speciality crops in California and Florida.
The company’s reliance on a buy-and-lease business model leaves it poised to make considerable gains by continuing to scale up its holdings, said Pittman:
“We can add this amount of acres and not have to add any additional employees to service these acres. We’ve already got our accounting and back-office organisation put together in a way that allows us to add to the size of our business in a very substantial way without having to add more overhead.
“And any time we can make our farmers more profitable, we become more profitable.”
Farmland Partners expects the acquisition to increase annual revenues by $6 million. However, Pittman said he does not expect the additional cashflow to translate to higher quarterly dividends paid to investors from rent revenues.
“We’re actually paying a very high dividend because our stock is depressed and below its fair value. If our stock price recovers a lot we’ll obviously increase the dividend,” said Pittman. “[The additional revenue] will increase our AFFO [adjusted funds from operations], our pre-dividend cashflow, which makes the dividend that we do pay more secure.”
News of the acquisition comes on the heels of Farmland’s release of Q3 financial statements, which showed triple-digit percentage increases in operating revenues and adjusted funds from operations per share compared with the previous year.