Unlocking the Hidden Value of Farmland Partners
A recent landmark sale of farmland by Farmland Partners (NYSE:FPI) has sent a strong signal to the market about the company’s fundamental value. The sale, which was well-received by investors, saw FPI’s stock rise by 3% in a single week. However, this modest increase only scratches the surface of the sale’s significance.
Drilling Down into the Sale
The sale of 41,554 acres of farmland to Farmland Reserve for $289 million translates to a price of $6,954 per acre. When compared to the USDA’s published cropland values of $5,570 per acre, this represents a 24% premium. Moreover, FPI’s press release revealed a 21% gain on sale, which roughly coincides with the premium calculated above.
But there’s more to the story. When we examine the sale at the state level, we find that FPI actually sold the land at a staggering 61% premium over USDA published land values. This is because the majority of the land sold was in lower-value states like Louisiana and Mississippi, rather than high-value states like Florida.
The Quality of FPI’s Farmland
Farmland Partners has consistently focused on acquiring high-quality farms with good soil, topography, and tenant farmers. This strategy has paid off, as the company has been able to sell land at substantial premiums to USDA values and its original purchase price. The recent sale is no exception, with FPI selling its lowest-value land at a significant premium.
What’s Next for FPI?
With the sale of its lower-value land, FPI’s remaining 93,446 acres are primarily located in high-value states like Illinois and California. Using USDA land values as a benchmark, we estimate FPI’s net asset value (NAV) per share to be around $17-$21. This represents a significant discount to the company’s current market price of $10.77.
FPI’s management has a history of acting in the best interests of shareholders, and we believe they will continue to do so. The company plans to use the sale proceeds to pay down debt, which could be accretive to earnings. Additionally, FPI’s lower leverage ratio could lead to increased clarity on its fundamental value.
In conclusion, the recent farmland sale by Farmland Partners has provided a unique insight into the company’s true value. With its high-quality farmland portfolio and strong management team, FPI presents an attractive opportunity for investors seeking exposure to the agricultural sector.
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