Executive Summary / Key Takeaways

• Portfolio Transformation as Value Catalyst: Farmland Partners is deliberately shrinking its owned acreage—selling 128 properties across 2023-2024 for $90.2 million in aggregate gains—to arbitrage private market farmland values against a persistent public market discount, redeploying proceeds into stock buybacks, debt reduction, and higher-yielding loan assets.

• Geographic Rebalancing Toward Water Security: The company is exiting water-stressed regions (nearly all Colorado holdings liquidated by Q2 2025) and taking impairments on California specialty crops ($16.8 million in Q2 2025), concentrating instead in the stable Midwest where Illinois properties have appreciated 56% over ten years, creating a more durable long-term asset base.

• Business Model Evolution Beyond Passive Ownership: FPI is expanding its loan program (15.9% growth to $64.1 million) to generate higher current yields and cover overhead as the owned portfolio shrinks, while divesting non-core operations like Murray Wise Associates ($5.3 million sale) to simplify the business and focus on capital allocation flexibility.

• Capital Structure Optimization Driving Returns: Management has aggressively repurchased shares (3.41 million in nine months ended September 2025) while redeeming Series A preferred units, viewing the stock as "the cheapest farmland we can buy" at a 25-30% discount to NAV, with $17.9 million remaining buyback capacity.

• Agricultural Cycle Timing Creates Near-Term Opportunity: After a flat 2024 for rent renewals, management expects to push increases again in 2025 as corn prices rise and farmer profitability improves, though they caution that 2025's strong AFFO performance includes one-time items that may not repeat, making 2026 a test of the new strategy's sustainability.

Setting the Scene: The Farmland REIT Reinventing Itself

Farmland Partners Inc., incorporated in Maryland on September 27, 2013, began as a traditional farmland REIT focused on acquiring and leasing agricultural land across North America. The company elected REIT status for its 2014 tax year, positioning itself to pass through rental income to shareholders while avoiding corporate taxes. This structure initially supported a growth-through-acquisition strategy, with the company building a diversified portfolio across 15 states and 26 crop types.

The farmland investment landscape is dominated by owner-operators, with institutional investors holding less than 5% of total U.S. farmland. This fragmentation creates opportunities for professional management and portfolio optimization, but also means public vehicles like FPI compete against private buyers who may have lower return thresholds. The industry faces long-term tailwinds from global population growth, shifting caloric intake toward animal proteins, and declining arable land per capita, which has dropped approximately 50% from 1961 to 2021. However, near-term pressures include commodity price volatility, rising interest rates, and increasingly stringent water regulations in key growing regions.

FPI sits between two primary competitors: Gladstone Land Corporation , the other major public farmland REIT, and a host of private institutional investors. While LAND focuses heavily on permanent crops like berries and nuts with long-term leases, FPI has historically maintained a more diversified approach including row crops and specialty crops. This positioning is now shifting dramatically as management executes a strategic pivot toward quality over quantity, stability over scale.

Strategic Transformation: Arbitraging Private Value Against Public Discount

The core of FPI's current investment thesis lies in its aggressive portfolio transformation. In 2023, the company disposed of 74 properties recognizing $36.1 million in gains, followed by 54 properties in 2024 for $54.1 million in gains. These dispositions funded a $1.15 special dividend in January 2024 and a $158.5 million debt reduction. This isn't mere asset sales—it's a deliberate strategy to exploit the gap between private market farmland values and public market valuation.

Management explicitly frames this as arbitrage. As CEO Luca Fabbri stated, "We are gradually shrinking the portfolio because it's—we're arbitraging private market value to—against public market discount and through stock buybacks or special dividends, distributing that cash back to our shareholders." This approach makes economic sense when FPI trades at a 25-30% discount to net asset value, which management estimates in the "mid-14s" per share after the $1.15 special dividend payout.

The strategy continued into 2025 with the exchange of 23 Corn Belt properties for $31 million of Series A preferred units, a transaction representing 56% appreciation over ten years. This accomplishes two goals: it removes dilutive preferred equity while monetizing appreciated assets at favorable terms. The company also agreed to sell its Murray Wise Associates subsidiary for $5.30 million, simplifying operations and providing employees a stronger platform while giving FPI a "very good outcome for our shareholders."

Geographic Rebalancing: From Water Risk to Midwest Stability

A critical driver of FPI's transformation is its response to water availability risks. The company has nearly liquidated its entire Colorado portfolio by Q2 2025, citing long-term water concerns in the High Plains region. This exit generated substantial gains while eliminating exposure to regulatory-driven water restrictions that are increasingly common in the western United States.

California presents a more complex challenge. In Q2 2025, FPI recorded $16.8 million in impairment charges on four California farms, primarily a pistachio farm and a walnut farm. The pistachio farm faces regulatory-driven water access issues under SGMA law , while walnuts suffer from both water concerns and a less favorable long-term outlook due to increased global production, particularly from China. As Executive Chairman Paul Pittman explained, "When you see the regulatory environment fundamentally take away about half of your water on a California farm, it is incredibly detrimental to the value."

These impairments reflect management's discipline in marking assets to reality rather than hoping for recovery. The problem with specialty crops, as Pittman noted, is that "while you're waiting, the trees on the ground are aging out. So you're losing a year of productivity every year." Rather than hold impaired assets, FPI is actively marketing these properties for sale, recognizing that capital is better deployed elsewhere.

The strategic response is a concentrated bet on the U.S. Midwest, particularly Illinois. The region offers stable water resources, predictable regulatory environment, and strong long-term appreciation potential. The 56% appreciation on the Illinois properties exchanged for preferred units demonstrates this value creation. As Pittman stated, "We are much, much more concentrated on the U.S. Midwest, Illinois, in particular, part of the marketplace. That gives us a much, much safer and more stable portfolio than we have had in the past."

Business Model Evolution: Loans, Dealerships, and Simplification

As the owned farmland portfolio shrinks, FPI is diversifying revenue streams to maintain cash flow. The FPI Loan Program has expanded to $64.1 million in net loans as of September 30, 2025, up 15.9% from year-end 2024. These loans generate interest income that grew from $1.8 million in the nine months ended September 2024 to $6.3 million in the same period of 2025—a 257% increase.

Management views this as a natural extension of their expertise. As Pittman explained, "We are an asset-based lender. What we do is we serve a role in the marketplace where, you know, farmers are often and people who own ag land are often very sort of cash poor but asset rich." This program generates "high current yield" to cover overhead as the owned portfolio shrinks, with loans typically secured by farm real estate and sized at $1 million or more with maturities up to six years.

The agriculture equipment dealerships in Ohio represent another innovation. These four properties, leased to Ag-Pro Ohio under John Deere (DE) branding, are accounted as financing arrangements generating a "solid six percent current yield, maybe even six and a half." While acknowledging these are essentially triple-net industrial leases, management sees potential for selective expansion, though "not super aggressively."

Simultaneously, the sale of Murray Wise Associates simplifies operations and removes a low-margin business where revenues were "typically only slightly ahead of costs." This divestiture allows management to focus on core capital allocation decisions rather than managing a services business.

Financial Performance: Evidence of Strategic Execution

FPI's financial results reflect the strategic pivot's short-term pain and long-term gain. Rental income decreased 38.6% in Q3 2025 to $6.0 million and 35.6% year-to-date to $19.0 million, primarily due to property dispositions. This decline is intentional—the portfolio is shrinking by design. However, the composition reveals strategic nuance: solar, wind, and recreation rent increased due to a solar revenue-sharing arrangement in Q1 2025, demonstrating the ability to extract value from non-traditional farmland uses.

The loan program's growth helps to offset some of the rental income decline. Interest income jumped from $533,000 in Q3 2024 to $2.2 million in Q3 2025, reflecting both higher loan balances and the company's role as a lender of choice for farmers facing a "somewhat difficult operating environment." This 304% increase shows the strategy is working. Direct farming operations on 1,845 California acres generated $5.1 million in crop sales year-to-date, up 20.5% from 2024, though this includes accelerated walnut revenue from property sales.

Cost of goods sold increased 37.8% to $4.0 million due to higher water and pruning expenses, highlighting the operational challenges in water-stressed regions that are driving the geographic rebalancing.

General and administrative expenses decreased 12.4% in Q3 2025, reflecting the benefits of operational simplification. Interest expense fell 42.9% year-to-date to $5.8 million due to debt reduction and lower rates, with management noting "no exposure to variable interest rates" after refinancing activities.

Outlook and Guidance: Cautious Optimism Amid One-Time Gains

Management raised 2025 AFFO guidance to $14.5-16.6 million ($0.32-0.36 per share), reflecting strong performance driven by property sales, loan growth, and cost control. However, Pittman offered a crucial caution: "While we're thrilled with this year, it's based on some onetime events. So frankly, I think next year, we'll start out next year with kind of the same place we started this year, which is a sort of more modest AFFO than what we're actually ending up with."

This guidance increase incorporates several moving parts. Fixed farm rent is expected to decrease due to dispositions, while loan interest income increases. Variable payments and crop sales are revised based on updated crop outlooks. The sale of Murray Wise will reduce auction and brokerage revenues, but this is offset by lower operating expenses.

For 2026, management is targeting a special dividend of $0.18-0.22 per share alongside the regular $0.24 dividend, continuing the policy of distributing gains from asset sales. The regular dividend is expected to be covered by AFFO, with the board evaluating potential increases as the year progresses.

Rent renewal expectations are improving. After a "more or less flat" 2024 with a 0.8% negative renewal rate, Pittman expects to "push rent increases again in 2025" driven by higher corn prices and improved farmer profitability. He noted that lease renewals for 2025 in row crop regions were flat after significant increases in prior years, but the three-year average renewal rate remains up 12.4%.

Risks and Asymmetries: What Could Break the Thesis

The most material risk is water availability and regulatory change, particularly in California. The $16.8 million impairment reflects actual value destruction from SGMA regulations that "fundamentally take away about half of your water on a California farm." While management has exited most water-stressed holdings, remaining California assets could face further restrictions. As Pittman warned, "If we believe there was a need to write something else down, we would have already done it," suggesting they believe impairments are complete, but regulatory risk remains.

Tenant concentration presents another vulnerability. While the portfolio includes over 100 tenants, the company notes that variable rental payments concentrated in Q4 could create tenant concentration exceeding 10% of annual revenue. In an agricultural downturn, tenant defaults could materially impact performance. The allowance for doubtful accounts remains minimal at less than $0.1 million, but this could rise quickly if commodity prices fall.

Execution risk surrounds the capital allocation strategy. The arbitrage between private farmland values and public stock price only works if management can continue identifying properties to sell at premiums while deploying capital accretively. With $17.9 million remaining on the buyback authorization and debt reduction largely complete, the easy wins may be behind them. If dispositions slow, AFFO growth could disappoint.

On the positive side, an asymmetry exists in the loan program. If farmer financial stress increases due to commodity price volatility, demand for FPI's asset-based lending could accelerate, growing interest income faster than expected. The program's 15.9% growth rate could accelerate, providing a natural hedge against agricultural downturns that might pressure rental income.

Competitive Context: Positioning Against Gladstone Land

FPI's strategic pivot creates clear differentiation from its primary public competitor, Gladstone Land Corporation (LAND). While LAND maintains a portfolio focused on permanent crops with long-term leases, FPI is actively shrinking its owned acreage and diversifying into lending. This creates different risk-return profiles.

Financial metrics highlight FPI's advantages. FPI's debt-to-equity ratio of 0.31 compares favorably to LAND's 0.82, giving FPI more financial flexibility and lower interest expense burden. FPI's operating margin of 36% exceeds LAND's 27%, reflecting more efficient operations and the benefits of internal management versus LAND's external manager structure.

However, LAND's focus on permanent crops provides more predictable cash flows. LAND's dividend yield of 6.22% exceeds FPI's 2.40%, reflecting different payout policies. FPI's approach emphasizes total return through asset sales and buybacks rather than current income, which may appeal to different investor bases.

FPI's loan program creates a unique competitive advantage. As an asset-based lender to cash-poor but asset-rich farmers, FPI serves a market traditional banks avoid. This generates higher yields while leveraging the company's agricultural expertise. LAND has no comparable program, leaving that market opportunity to FPI.

The geographic rebalancing also differentiates the companies. While LAND maintains significant California exposure, FPI is actively reducing it, potentially avoiding future impairments that could affect LAND. Conversely, FPI's Midwest concentration may limit exposure to higher-growth specialty crop regions where LAND operates.

Valuation Context: Trading Below Asset Value

At $9.99 per share, FPI trades at a price-to-book ratio of 0.95 and an enterprise value to revenue multiple of 11.44. The price-to-book below 1.0 is particularly significant given management's estimate that the stock trades at a 25-30% discount to net asset value.

The company's enterprise value of $605.4 million compares to a real estate portfolio with a net book value of $643 million as of September 30, 2025. This suggests the market is valuing the operating business at a discount to the underlying assets, creating the arbitrage opportunity management is exploiting through buybacks.

Key metrics support the valuation case. Return on equity of 12% and return on assets of 1.6% reflect the asset-heavy nature of the business. The current ratio of 0.60 and quick ratio of 0.24 indicate liquidity is managed through credit lines rather than cash reserves, which is typical for real estate companies that refinance rather than repay debt from operations.

The price-to-free cash flow ratio of 26.63 may appear elevated, but this reflects the company's transformation phase. As dispositions slow and the loan program generates more recurring income, this multiple should compress. The absence of variable-rate debt exposure after refinancing activities reduces interest rate risk that pressures many REIT valuations.

Conclusion: A Farmland REIT Evolving Toward Durability

Farmland Partners is executing a deliberate strategic transformation that sacrifices near-term growth for long-term quality. By arbitraging the gap between private farmland values and public market discount, management is creating value through aggressive capital allocation—selling non-core assets, reducing debt, and repurchasing shares trading below NAV.

The geographic rebalancing toward water-secure Midwestern row crops and away from regulatory-risk-laden Western specialty crops builds a more durable portfolio, though the $16.8 million California impairment demonstrates the cost of this transition. The expansion into higher-yielding loan assets and simplification through non-core divestitures creates multiple ways to win, even as the owned acreage shrinks.

The investment thesis hinges on two variables: management's ability to continue identifying accretive disposition opportunities, and the agricultural cycle's cooperation in supporting rent increases after the 2024 flat period. With $17.9 million in remaining buyback capacity and a loan program growing at 15.9%, the tools are in place to continue creating value even if property sales slow.

For investors, FPI offers exposure to farmland values with an active management team focused on total return rather than current yield. The strategy reduces exposure to water risk and tenant concentration while increasing financial flexibility. Whether this transformation succeeds depends on execution, but the early evidence—$90.2 million in disposition gains and debt reduced by $158.5 million—suggests management is delivering on its promises.