September 12, 2016

Farmland Partners Inc. (FPI) and American Farmland Company (AFCO) have agreed upon a stock for stock merger of the two companies under which Farmland Partners will acquire all of the outstanding common stock of American Farmland.

The combined company will be the largest public farmland real estate investment trust (REIT) in the U.S., with a portfolio of 133,000 acres covering 25 different major crops spread across 16 states in the Midwest, Plains, and Delta regions as well as along both U.S. coasts. The acquisition of AFCO, which is approximately one-third the size of FPI in terms of assets under management, will bring the value of the companies total assets to $800-850 million.

Strategic Diversification

The transaction will also be highly complementary, bringing together Farmland Partners’ portfolio that is mainly comprised of row crop farmland, with American Farmland’s portfolio of predominantly specialty and permanent crop farms – resulting in a combined portfolio that will be approximately 75 percent row crop and 25 percent specialty crop farms by value.

“FPI’s acquisition of these great assets assembled by AFCO will strengthen FPI’s role as the leading public farmland real estate platform in the U.S., said Paul Pittman, chairman and CEO of Farmland Partners in a company statement. “This merger will significantly increase FPI’s diversification across crops and geographies. Thanks to increased scale, we also expect to realize a reduction in overall costs as a percentage of portfolio value, creating superior value for our and AFCO’s stockholders and our respective farmer partners.”

In a conversation with GAI News Pittman explained the transaction will bring a “significant increase in scale and in crop type and cash flow diversification.” He went to describe that specialty crops have a tendency to trade on a different cycle than commodity crops -the latter of which FPI, as a traditional REIT, has been heavily focused on. With this diversification, FPI can now collect rents at more points during the year.

Pittman adds that while specialty crops tend to have a higher return, they also tend to be a little riskier. However, blended in a portfolio that is 75 percent row crops actually reduces risk and volatility while increasing total rental return, which Pittman calls a “win-win.”

The increased scale of the combined REIT will create a sizeable platform from which to pursue both row and permanent crop acquisitions across the country, and with a fully diluted market cap of approximately $400 million, will provide greater access to global investors looking to invest in U.S. farmland.

Financials and Leadership

Under the terms of the tax free stock for stock reorganization, shares in both Farmland Partners and American Farmland will be converted into the right to receive 0.7147 shares of the newly issued Farmland Partners common stock. Once finalized, equity holders in Farmland Partners will hold about 65 percent of the combined company’s equity, while American Farmland shareholders will hold the remaining 35 percent.

Paul Pittman will continue to serve as CEO and chairman of the board of the newly combined company, while AFCO’s President and Chief Investment Officer, Robert Cowan, a 30-year veteran in the field of agricultural real estate investment, will join Farmland Partners as president. After the completion of the deal, the Board of Directors of Farmland Partners will increase from six to eight with the addition of American Farmland chairman, D. Dixon Boardman and CEO, Thomas Gimbel.

AFCO’s Road to the Merger

In April of this year, American Farmland announced that its Board of Directors had approved a review of strategic options moving forward in order to boost value for the company’s shareholders.

Since the company’s float in October 2015, its shares have been trading at a discount to its net asset value, which was estimated to be $10.05 per share as of December 31, 2015. In response, the company’s board agreed to explore a range of possible moves including joint venture agreements, a merger, or the sale of all or part of the company or its assets.

“We believe this opportunity to join FPI’s robust platform presents a meaningful opportunity to our stockholders,” said Thomas S.T. Gimbel, CEO of American Farmland. “As the end result of a thorough process we commenced in April of this year, we are confident that the complementary nature of this transaction will accomplish our goal of enhancing stockholder value while preserving our core principles and continuing to execute on our vision for a scalable institutional, well-diversified and high-quality portfolio of farmland assets.”

Moving Forward

The Boards of both companies have approved the deal, which is expected to be about 10 percent accretive to Farmland Partners AFFO per share in 2017, and to be 20 percent accretive as synergies advance. The deal will also contribute about $16 million in revenue in 2016, bringing Farmland Partners’ total revenue from $26 million to $42 million.

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Lynda Kiernan and Sarah Day Levesque

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Stay tuned later this week when Paul Pittman shares his outlook for farmland prices with GAI News.