Farmland Partners Loans Are 'Concerning, But Immaterial,' Analyst Says In Upgrade

Farmland Partners Inc FPI dropped 39 percent Wednesday on negative rumors about its loan program, solvency, valuation and reliance on external sources of capital, among other factors.

The Analyst

B. Riley FBR analyst Craig Kucera upgraded Farmland Partners from Neutral to Buy and cut the price target from $8.50 to $8.

The Thesis

The catalyst behind Farmland Partners’ selloff was a Seeking Alpha article claiming the company is self-dealing by making loans to related third parties that kick back the cash as rent.

Farmland Partners CEO Paul Pittman said in a press release there is “utterly no risk of insolvency” and that the article, written by a short seller, is “fundamentally inaccurate and misleading."

Farmland launched its loan program in 2015. As of the first quarter this year, it represents less than 1 percent of its undepreciated assets. Only 1 percent of the company's revenue in 2017 was attributable to the program.

The analyst termed the company's loan program as "concerning, but immaterial." 

Farmland Partners has zero debt maturing in 2018 and a cumulative $56 million maturing through 2021. Kucera said he expects the balance sheet’s rapid growth to take a break after the addition of $155 million in farmland over the past year.

Management could also pursue capital recycling — selling row crop land to reinvest the cash in specialty crop land — but a better option might be putting the cash generated toward supporting its dividend or buying back shares, the analyst said. 

One concern Kucera does have is the impact of the United States’ trade war with China, which could put pressure on the demand for and value of row crops. Farmland's high dividend yield is also at risk, he said. 

“However, we believe these concerns were all embedded in FPI's share price prior to [the selloff on Wednesday]."

Price Action

Farmland Partners bounced partly back Thursday: the stock was up 18.18 percent at $6.24 at the close. 

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