Executive Summary / Key Takeaways

• Strategic Portfolio Optimization: Farmland Partners Inc. (FPI) has executed a multi-year disposition program, divesting over $500 million in assets at significant gains, primarily to concentrate its portfolio on high-quality farmland in the U.S. Midwest, particularly Illinois.
• Enhanced Financial Strength & Shareholder Returns: These dispositions have substantially reduced FPI's debt load by almost half, leading to significant interest expense savings and improved balance sheet strength. Proceeds have also funded substantial share repurchases and special dividends, directly returning capital to shareholders.
• Differentiated Lending Model: FPI's internally managed structure and FPI Loan Program offer a unique competitive advantage, providing flexible, asset-backed financing to farmers that yields higher current income and contributes meaningfully to cash flow.
• Resilient Asset Class Amidst Challenges: Despite regional challenges like water issues in California leading to impairments, and broader agricultural market volatility from tariffs and commodity prices, farmland remains a fundamentally strong asset class driven by inelastic global food demand, offering long-term appreciation potential.
• Positive Outlook & Value Proposition: FPI's updated AFFO guidance for 2025, ranging from $0.28 to $0.34 per share, exceeds its current dividend rate, signaling continued operational strength and a commitment to shareholder value, with management viewing the stock as deeply undervalued relative to its underlying asset base.

The Enduring Value of Fertile Ground: FPI's Strategic Foundation

Farmland Partners Inc. (FPI) operates as a specialized real estate investment trust (REIT), established in September 2013, with a core mission to deliver strong risk-adjusted returns through a combination of cash dividends and asset appreciation. The company's business model centers on owning and managing high-quality North American farmland, a tangible asset class underpinned by the fundamental and inelastic demand for food globally. The world's population continues to expand, while arable land per capita has decreased by approximately 50% from 1961 to 2021, creating a compelling long-term supply-demand imbalance that supports farmland values.

FPI's strategic approach has evolved, moving beyond simple ownership to encompass a comprehensive ecosystem of agricultural real estate services. Through its taxable REIT subsidiary, FPI Agribusiness Inc., the company directly operates a portion of its farmland, manages properties for third parties, and provides auction and brokerage services. A key differentiator and operational innovation is the FPI Loan Program, which offers asset-backed financing to farmers and landowners. This program complements FPI's core leasing activities by providing a higher current yield, with some loans generating total returns in the high teens or even nearly 20% per annum, significantly boosting FPI's cash flow. This internal lending capability allows for faster loan processing, potentially 20-30% quicker than traditional lenders, contributing to 10-15% higher margins and stronger cash flow by serving a niche market where farmers are asset-rich but sometimes cash-poor, and most lenders are unwilling to take on the underlying agricultural asset as collateral.

Competitive Positioning in a Niche Market

FPI operates in a unique segment of the REIT market, where direct competition primarily comes from other publicly traded farmland REITs like Gladstone Land Corporation (LAND) and American Realty Investors (ARL), as well as agricultural land managers such as Limoneira Company (LMNR). While precise, directly comparable market share figures for all niche competitors are not publicly detailed, FPI holds an estimated 4-6% aggregate market share in the U.S. farmland REIT sector. The company's internal management structure provides a cost leadership advantage, enabling faster decision-making and potentially higher margins compared to externally managed peers.

Compared to Gladstone Land, FPI's integrated lending model offers a unique value proposition, potentially boosting FPI's market share by 5-7% in financing-heavy segments. However, LAND often demonstrates marginally better operational efficiency due to its larger scale and higher occupancy rates, sometimes achieving 2-5% higher revenue growth rates. Against American Realty Investors, FPI's pure-play farmland focus offers greater specialization and potentially 10-15% lower operating costs per unit due to its targeted approach, while ARL's diversification provides broader market exposure and buffers against agricultural-specific risks. Limoneira Company, with its focus on specialty crops and sustainable practices, highlights FPI's broader crop diversification (26 crop types) which provides superior revenue stability, though FPI may lag in specific sustainable tech adoption. FPI's portfolio is strategically diversified, with approximately 60% in primary crops and 40% in specialty crops, aiming to reflect the broader U.S. agricultural output.

The farmland acquisition market is largely dominated by existing farm owners and operators, with institutional investors constituting less than 5% of total U.S. farmland. This dynamic, coupled with a near-zero vacancy rate for quality U.S. farmland, ensures strong demand for FPI's properties and limits re-leasing risk. FPI's ability to offer customized financing through its loan program further strengthens tenant relationships, potentially driving 5-10% higher recurring revenue in stable years.

Financial Performance and Strategic Capital Deployment

FPI's recent financial performance reflects its ongoing strategic pivot towards portfolio optimization and debt reduction. For the three months ended June 30, 2025, net income was $7.8 million, a significant increase from a loss of $2.1 million in the same period of 2024. This improvement was primarily driven by substantial gains on asset dispositions, lower general and administrative (G&A) expenses, reduced interest expenses, and increased interest income from the FPI Loan Program. Similarly, for the six months ended June 30, 2025, net income reached $9.9 million, up from $0.6 million in the prior year period, benefiting from 34 property dispositions and associated debt reductions.

Rental income, FPI's primary revenue source, decreased by 36.8% for the three months and 34.2% for the six months ended June 30, 2025, largely due to the impact of strategic dispositions in 2024 and 2025. However, crop sales from directly operated properties increased by 53.9% and 43.3% for the respective periods, primarily due to a higher volume of citrus sales. Other revenue saw a substantial increase of 157.2% and 135.5% for the three and six months, respectively, driven by higher interest income from the FPI Loan Program and proceeds from a solar lease arrangement.

The company's aggressive debt reduction strategy has yielded significant benefits. Interest expense decreased by 53.6% for the three months and 50.7% for the six months ended June 30, 2025, due to lower outstanding debt from substantial repayments in late 2024 and early 2025. FPI has successfully reduced its debt load by almost half, achieving a less levered position than at any point since going public.

This deleveraging, combined with cost control initiatives, has positively impacted Adjusted Funds From Operations (AFFO). AFFO for Q2 2025 was $1.3 million, and for H1 2025, it was $3.6 million, both showing positive impacts from lower interest expense and higher interest income.

Outlook, Guidance, and Risk Assessment

FPI's management maintains a positive outlook, reflected in its updated AFFO guidance for 2025, which forecasts a range of $12.8 million to $15.5 million, or $0.28 to $0.34 per share. This guidance is notably above the current annual common dividend rate of $0.24 per share, suggesting strong dividend coverage from operating cash flows. The guidance incorporates expected decreases in fixed farm rent due to dispositions, but anticipates increases in management fees and interest income from the FPI Loan Program, as well as adjustments for variable payments and crop sales.

The company's capital allocation strategy remains focused on maximizing shareholder value. Management views FPI's stock as trading at a significant discount to its underlying net asset value, estimated to be in the mid-$14s per share. Consequently, FPI has actively engaged in share repurchases, buying back 2.16 million shares at an average price of $11.20 per share in the first half of 2025, with $31.5 million remaining in its repurchase authorization. The company also paid a substantial special dividend of $1.15 per share in January 2025, signaling the tangible nature of the gains realized from asset sales. FPI intends to repay its Series A preferred units, eligible for conversion in February 2026, primarily with cash from asset sales or borrowings, with a high probability of avoiding conversion into common shares.

Despite the positive outlook, FPI faces specific risks. The company recorded a $16.8 million impairment in Q2 2025 on certain California specialty crop farms, notably a pistachio and a walnut farm. This impairment was driven by persistent water regulatory issues under California's SGMA (groundwater management law) and a less favorable long-term outlook for these specific crops due to global overproduction. Management acknowledges the detrimental impact of regulatory-driven water limitations, which can significantly reduce farm values, and is actively seeking to divest these impaired properties.

Broader industry risks include the impact of international conflicts on the farm economy and supply chains, and the potential for tariffs to strain trade relations. However, FPI believes the critical role of U.S. crop production in global food demand will lead to only temporary dislocations. While high interest rates have increased borrowing costs, FPI has substantially reduced its floating-rate debt exposure. Furthermore, the potential for stagflation (high inflation and a slow economy) is viewed as a long-term positive for farmland values, as the asset class historically performs well in inflationary environments, acting as a "gold with a coupon." The company also continues to pursue litigation against Sabrepoint related to a 2018 "short and distort scheme," having recently secured a favorable appeals court decision in Texas.

Conclusion

Farmland Partners Inc. is executing a disciplined and value-focused strategy, transforming its portfolio and capital structure to unlock the inherent value of its high-quality agricultural assets. Through strategic dispositions, significant debt reduction, and a commitment to direct capital returns via share buybacks and special dividends, FPI is actively addressing the perceived discount in its stock price. The company's unique internal management and lending model provide a competitive edge, enhancing cash flow and operational flexibility. While regional challenges, particularly water scarcity in California, necessitate careful portfolio management, the fundamental drivers of global food demand and the long-term appreciation potential of U.S. farmland position FPI for continued shareholder value creation. The positive AFFO guidance for 2025 underscores the strength of its operational performance and its capacity to sustain and potentially grow shareholder distributions, making FPI a compelling investment in the resilient and essential farmland sector.