Farmland Companions: Asset Worth +30% Above Market Worth (NYSE:FPI)

Farmland Companions (FPI) has develop into considerably mispriced as its market worth dropped whereas farmland values continued to extend. Utilizing conservative estimates, we calculate FPI’s asset worth between $13-$20 per share. Our methodology will likely be completely detailed beneath together with a broader dialogue of farmland fundamentals.

Inventory worth transferring in opposition to asset values

FPI’s inventory has had a tough yr, down about 22%.

Nonetheless, fundamentals inform a distinct story. AFFO per share steerage has been elevated repeatedly, now sitting at a midpoint of $0.34.

This AFFO per share represents 17% progress from 2024 AFFO per share.

Whereas AFFO progress is sweet, I posit that land corporations ought to primarily be valued on land worth quite than earnings. Earnings can bounce round considerably interval to interval as a result of modifications in commodity costs, timing of income recognition, and varied different components.

Land values are considerably extra steady over time.

Land values are additionally up in 2025.

In keeping with USDA information, land values are up 4.3% in 2025 over 2024. The worth CAGR over the past 5 years is 5.8%.

So if land values are up and FPI’s earnings are up, why is the inventory down?

Information headlines sensationalize brief time period challenges

Farming is a vital business for feeding the world, making it virtually universally considered in a optimistic mild. Each political events need to be on the facet of American farmers, however within the course of need to present that the opposite facet just isn’t on the facet of farmers.

Thus, when insurance policies adversely impression farmers, it’s typically used as a cudgel and the perceived magnitude is amplified.

Presently, the coverage in query is tariffs and the associated commerce warfare.

From an financial perspective it’s unclear what the true impression on farmers will likely be.

• If it ends in reciprocal discount in commerce boundaries, it may very well be a long-term optimistic
• If the commerce warfare is extended it may very well be a big detrimental.

So whereas the long-term impacts are unclear, there are actually some ache factors within the close to time period. Most notably, China halted its buy of soybeans from the U.S. This was troublesome as China has traditionally been a significant purchaser. Following a current assembly between President Trump and President Xi Jinping, China agreed to renew a considerable quantity of soybean purchases from the U.S. Following the deal, soybean costs have rebounded considerably.

Nonetheless, the extent to which China will observe up on its settlement stays unclear. In keeping with TradingEconomics:

“China has purchased simply 332,000 metric tons, far wanting the 12 million tons initially pledged for the calendar yr.”

Such commerce dynamics don’t matter all that a lot in the long term. If China is shopping for soybeans from Brazil as an alternative of the U.S., then whoever would have in any other case purchased from Brazil might have to purchase from the U.S. as an alternative. Thus, whereas the entity shopping for the soybeans may change, the general demand must be in step with total meals demand.

Within the brief time period, nevertheless, it will possibly trigger disruption and vital unease. It feels significantly better to have a identified purchaser lined up than to must scramble to discover a purchaser.

General, soybean costs are reasonable to barely weak.

Corn, the opposite main row crop commodity, is at a equally reasonable to barely weak worth.

I posit that the explanation FPI’s inventory worth is down is as a result of market contributors see the information concerning the stress the commerce warfare is inflicting soybean farmers. When the anecdotes of struggling farmers are mixed with mediocre commodity pricing within the face of value inflation it isn’t arduous to color a bleak image.

For my part, the bears are lacking 2 key components.

1. Farmland worth is just marginally impacted by close to time period cashflows.
2. Farmland income just isn’t dictated by crop costs. Income is the product of worth and yield.

Yield has been wonderful.

There may be at all times going to be year-over-year variability with climate, water, and different components. Long run, nevertheless, yield per acre has elevated steadily and the U.S. stays firmly within the lead.

Corn yields particularly are coming in sizzling with the USDA materially elevating their yield estimate for the present crop yr. In actual fact, the excessive yield is a big contributor to the considerably weak corn costs.

It largely balances out. Income is worth X yield. Worth is mediocre however yields are nice, so total income is coming in fairly decently. In actual fact, the USDA estimates internet money farm revenue to extend 12% in 2025.

That brings us to the juxtaposition of FPI’s languishing inventory worth and broadly stable farmland fundamentals.

FPI was already buying and selling at a reduction to asset worth so now that its inventory has moved inversely with asset worth the low cost is big. I see this as a good time to scoop up shares.

Farmland companions – Asset worth in slimmed down portfolio

In recent times, FPI has bought a considerable portion of its property which prompts us to revalue FPI at its smaller, extra streamlined portfolio.

The place did the proceeds of its substantial land gross sales go?

1. Share buybacks
2. Debt paydown
3. Particular dividends to shareholders
4. Farmland purchases

Shares excellent have decreased by shut to twenty% from the buybacks.

As shares have been repurchased effectively beneath NAV, we consider this transfer was accretive.

If FPI have been to buyback inventory with out paying off debt, it will improve leverage ratios. To keep up correct steadiness sheet metrics, FPI additionally used some proceeds to repay a big quantity of debt.

Liabilities are down from a peak of just about $500 million in 2023 to $180 million as of 3Q25.

As an investor I’d have most popular that FPI went somewhat tougher on the buybacks and rather less on the debt paydown. Fairly merely debt payoff is a 1 for 1. Every greenback paid reduces debt by a greenback. In distinction, shopping for again inventory at such a big low cost to NAV is significantly better than 1 for 1.

Pittman and Fabbri (Chairman and CEO) absolutely perceive this and have each expressed their appreciation for the NAV accretion of share buybacks on convention calls and varied different boards. Additionally they perceive that capital markets prefer to see sure debt ratios and the now decrease leverage portfolio does certainly display screen higher to establishments.

The opposite use of proceeds was to pay shareholders massive particular dividends. They paid $1.15 per share in January of 2025 and $0.21 in January of 2024. These particular dividends have been along with the usual $0.06 quarterly dividend.

One other particular dividend is coming in January of 2026. Luca Fabbri on the 3Q25 earnings launch:

“In keeping with the previous two years, we anticipate to concern a particular dividend for the yr ended 2025, payable in January 2026, to shareholders, with the quantity projected to be between $0.18 and $0.22 per share.”

These dividends are largely pressured by the positive factors of sale of the farmland. The taxable revenue from worthwhile gross sales materially exceeds FPI’s regular dividend payout, so that they must pay particular dividends to take care of compliance with REIT tax legal guidelines.

Lastly, a few of the sale proceeds have been used to buy new farmland. The acquisitions have been primarily high-quality row crop farmland within the corn belt. Notably, acquisition quantity was dwarfed by disposition quantity.

Worth of smaller portfolio

FPI’s remaining portfolio consists of ~75,600 acres of farmland, money and varied non-land property.

The non-land property

The largest portion of non-land property is FPI’s mortgage portfolio with a e book worth of $64 million.

I like these mortgage investments fairly a bit as a result of the collateral is superb. If the counterparty defaults, FPI will get the farmland collateral which might be the equal of FPI shopping for the land at considerably beneath worth. Farmers don’t need to lose their land, and these loans usually are not predatory loans to farmers who can not pay them again, so I believe the overwhelming majority will likely be paid in full.

Thus, the loans are an curiosity revenue stream plus the return of principal. Because the revenue stream roughly equates to a good financial return, I’m counting these loans as NPV impartial and simply valuing them at their e book worth. I’m additionally assuming FPI’s very small quantity of fairness technique investments is NPV impartial and simply utilizing e book worth. The remainder of the FPI’s non-land property are largely money or quickly to be money.

Accounts receivable and stock will develop into money quickly and the $5.3 million MWA proceeds are from the finished sale of Murray Sensible Associates.

FPI has simply over 43.5 million shares excellent, inclusive of OP models. Utilizing right now’s $9.68 worth that could be a market cap of $421 million. Including $180 million of liabilities and $101 million of Most well-liked A shares, that takes enterprise worth to $689 million (netting out money).

If we assume the non-cash, non-land property are definitely worth the $81.6 million we calculated earlier, which means the market worth of FPI is valuing its farmland at $607.4 million.

That is an implied worth per acre of $8,004.

Let’s go forward and examine this to USDA land worth numbers. “Cropland” refers the arable land itself whereas “farm actual property worth” refers back to the total farm inclusive of the home and different infrastructure on it.

At first look, $8004 per acre would appear to be a stable valuation in comparison with these numbers, however there are 2 components that have to be thought of in valuing FPI’s land.

1. Location
2. High quality

FPI’s land is overwhelmingly in Illinois and California that are larger worth acres than many of the nation. Per the latest 10K, FPI owned $315 million and $280 million at value of farmland and farm infrastructure in Illinois and California, respectively. Utilizing USDA cropland values, Illinois averages $9,850 and California averages $17,940 per acre.

Moreover, FPI’s land is of materially larger high quality than common farmland inside these states. REITs typically have a tendency to purchase the highest 25% of high quality inside an asset class and FPI is not any exception. For instance, FPI bought some Illinois farmland at a really excessive valuation and when requested concerning the sustainability of such valuations on the convention name Pittman supplied some numbers.

Illinois and California fall into the farmland financial areas often known as the Cornbelt and Pacific, respectively. Common rents in these areas are $240 and $281 per acre.

FPI’s lease per acre is considerably larger. Per FPI’s 2025 outlook of their supplemental, mounted farm lease is $19.35 million. This quantity alone would take FPI’s lease per acre to $255.95 per acre.

Nonetheless, that $19.35 million lease comes from only a portion of FPI’s farms.

Most row crop farmland lease consists of a set rental fee determined earlier than the rising yr or a multi-year mounted lease. That is the place the $19.35 million determine comes from.

Roughly 40% of FPI’s farmland worth is related to different forms of farms comparable to specialty or everlasting crops. On a majority of these farms, rents are sometimes variable based mostly on sale proceeds submit hoc. FPI additionally has some farms that they function themselves, thereby getting direct income from crop gross sales.

For the reason that $19.35 million lease is coming from only a portion of FPIs farms, the lease per acre have to be larger than utilizing the total acreage because the denominator. FPI doesn’t publish lease per acre, however based mostly on the numbers above I’d ballpark one thing round $300 per acre.

This quantity has vital error bars round it and as it’s based mostly on 2025 lease it could be partially affected by timing of acquisitions and inclinations. However I’m assured that FPI’s lease per acre is considerably larger than USDA numbers. Thus, I’d conclude that FPI’s land is of superior high quality to the encompassing farmland.

Summing the components

Utilizing the USDA land values for California and Illinois, FPI’s land is price about $12,000 per acre. Resulting from larger rents and better common high quality FPI’s land is probably going price a bit greater than statewide averages. The next sensitivity desk converts varied land values into NAV per share.

The vary highlighted in inexperienced is our excessive confidence vary. Given high quality and site it appears not possible FPI’s worth per acre may very well be beneath $10K. Equally, I don’t suppose it’s price $18K per acre though some was bought at that degree.

FPI is buying and selling at an enormous low cost to its asset worth. Utilizing pretty conservative assumptions and USDA information we consider FPI has 30%-100% upside to honest asset worth.

Dangers to FPI and buyout potential

Measurement is turning into a little bit of a priority. Although the shrinking was accretive in that shares have been purchased again effectively beneath NAV, FPI is approaching a dimension that’s inefficient. There are vital prices related to operating a public firm and the smaller an organization is, the extra punishing these prices are relative to asset base.

This places a restrict on what number of extra asset gross sales FPI can execute with out doing a full-on firm sale. As such, I feel the corporate must transfer in one in all 2 instructions:

1. Discover a solution to increase fairness
2. Promote the corporate

Choice 2 is far more accretive to shareholders and I feel the extra probably course. FPI’s executives are clearly conscious of the low cost at which the inventory is buying and selling and need to be shopping for again shares at this worth. I don’t suppose they might be keen to concern shares at wherever close to this massive of a reduction to NAV. Pittman is a significant shareholder, so dilution would harm him simply as a lot as different buyers.

The simplified steadiness sheet is probably a step towards firm sale. FPI is engaged on taking out its most popular. Per the 3Q25 earnings launch:

“Entered right into a definitive settlement with a holder of its Collection A most popular models to get rid of 23 properties positioned within the Corn Belt area in change for $31.0 million of such holder’s Collection A most popular models at a significant achieve (upon closing of the transaction within the fourth quarter of 2025, the Firm’s publicity to Collection A most popular models excellent will likely be diminished from $99.0 million to $68.0 million). The transaction was achieved at a worth that was roughly 56% larger than the worth paid to buy the properties in 2016.”

The popular has been an important instrument for FPI because it was extraordinarily low cost capital, however it’s a complexity within the occasion of sale. The sale of Murray Sensible additionally reduces complexity.

As FPI will get nearer to only a clear farmland asset base, and fewer advanced financing, I feel it would get more and more engaging to non-public fairness as a approach to purchase prime quality farmland at a reduction.

Bonus little bit of worth

FPI has photo voltaic and wind leases that generate about $2.6 million yearly. These leases typically produce way more income per acre than farmland and within the case of wind may even proceed to be farmed with solely reasonable disruption. At its present dimension this isn’t a significant supply of worth. Relying on the cap fee one makes use of to worth these leases, it’s maybe $0.50 per share price of worth, but when extra related offers get signed, it might develop into a significant factor.