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Gladstone Land Vs. Farmland Partners: Slow And Steady Wins The Race

Mar. 08, 2018 10:55 AM ETFarmland Partners Inc. (FPI), LAND39 Comments


  • One year ago, LAND and FPI were trading at the same price. One year later, things are different.
  • LAND continues to grow at a methodical pace, and a few changes to how they raise capital should provide more stability.
  • FPI acquired quickly and is now forced to pause.
  • My prediction for the next year.

Just under a year ago, I wrote the article "Gladstone Land Vs. Farmland Partners: The Tortoise And The Hare," comparing Gladstone Land (NASDAQ:LAND) to Farmland Partners (NYSE:FPI). I used the analogy of LAND as the tortoise and FPI as the hare.

At that time, the two were trading at roughly the same price.

Source: Tradingview.com

Since then, LAND has trended upward while FPI has been mostly down. In addition to share price growth, LAND also increased their dividend four times, for a total increase of $0.015/year (2.9%). Will LAND be able to continue their slow and steady growth? Will FPI be able to pull out of their downward spiral?

Same-Property Growth

LAND had a bit of a bumpy year with their renewals. A farm in California that was previously a strawberry farm operated by Dole, was re-leased as a vegetable farm to a different tenant. The reduction in rent from that farm erased gains from the 9 other farms that were renewed, resulting in a net decrease of $166,539 in annual revenues from lease renewals.

Thanks to additional rents from capital improvements, LAND was able to post a modest $320,000 (2.3%) increase in annual revenues from their same-properties. It is encouraging that LAND can continue to grow same-property revenues, even when they lose a significant tenant.

Going into 2018, LAND only has 4.5% of their leases expiring in terms of base rent. Renewals should have little impact on their same-property revenue. Their built in escalators and capital improvements doing the heavy lifting. That means investors can reasonably expect growth to be in the 2-3% range.

FPI has been facing more severe headwinds, with same-property revenues dropping $0.9 million (8%). The decline in rents is something I have been warning investors about since my original FPI article. I have been especially critical of how Mr. Pittman has

This article was written by

Beyond Saving profile picture

Beyond Saving is a professional in commercial real estate providing research on REITs with a focus on properties being acquired and sold by REITs. He shares investment ideas with the understanding that the quality and value of the real estate purchased by a REIT serves as a significant catalyst for future pricing.

Beyond Saving contributes to the investing group Learn more.

Analyst’s Disclosure: I am/we are long LAND, GAIN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (39)

Thank you for posting this thoughtful analysis. I have sometimes wondered about the apparent time correlation between the FPI / AFCO merger and the FPI / LAND stock price divergence (as in your Figure 1). In particular I wonder if a large percentage of the original AFCO owners who suddenly found themselves as FPI owners might have sold their FPI and bought LAND. My reasoning is that AFCO was, in many ways, more similar to LAND than to FPI. Perhaps most of the original AFCO owners have now exited FPI and are now LAND owners. What are your thoughts on that?
Thanks again for the nice article.
Beyond Saving profile picture
I think that is a good theory Hawkeye. Certainly a lot of AFCO shareholders had to be disappointed with the almost immediate loss of value. Also, I think there are a lot of REIT shareholders who will not touch a REIT that is failing to cover their dividend. Before the merger, FPI was covering it, after the merger they were immediately in a large hole. So it was likely a combination of both abandoning ship.
No, I think the LAND guys will be happy just to hoot & yell as they watch FPI go BK.
Hey Beyond Saving, could it be possible for LAND to buy FPI and rescue their shareholders while getting economies of scale and more leverage capabilities for LAND?
Beyond Saving profile picture
I don't think their is any chance that LAND would consider merging with FPI. In the conference call, Gladstone has made it very clear that he has no interest in owning commodity cropland. Additionally, making huge portfolio acquisitions is not the Gladstone style.

LAND might be a buyer if FPI starts selling properties piecemeal, but they are not going to take on the entire portfolio and related problems even if it was a really good price.
ComputerBlue profile picture
Who wants to own a REIT thats not covering their dividend?
Love boring with steady DRIPpping.
Just One Lab Nerd profile picture
Yep. Nothing at all wrong with boring for a dividend producer IMO. Have a couple of those sitting in my Roth, happily reinvesting the quarterly divis.
My hope is that Puffing Paul Pittman will refrain from buying any more farms until 2020 and focus on running what is in hand. For example, he once said FPI could use group buying power to reduce certain costs for the farmers. He also might be able to use some more land for very high rent solar and/or wind farms. (A little land is already so used.)

To be fair Puffing Paul has done something pretty amazing with this REIT, but he is NOT Puff Daddy.
MarketTalk profile picture
Maybe not Puff Daddy, buy you know stranger things have happened. Sean is thinking mo money mo problems but may indeed see the pps of fpi as a golden opportunity. Which comes first, him taking a 10% stake in FPI or Pittman & Luca actually buying 100k each. To boot, next quarter Pittman doesn’t attack seeking alpha? I’ll put my money on Sean Diddy Combs taking 10% stake. What’s laughable. Look at the stock grants recently. Keep grabbing those shares, Puffing Paul. I admire your tenacity.
Long LAND and own a corn and soybean farm in Ohio. Farm prices have leveled or receded with the dropping corn price in the short term. Usually over the long term farm prices tend to rise, but the ethanol from corn subsidy caused a run up in farm prices over the last ten years. Production gains have driven corn prices lower.
Dotto, but sold my farm. Own LAND and LANDP.
any takers on long fpi and short land versus long land and short fpi.....as of Mar 8, 2018 closing?.....
ok...never went short anything before...but will make an exception....you go short fpi for 100 shares and long land 100 shares....I will do the opposite (as of closing prices today march 8, 2018 and we shall see....funny how u say fbi "MAY" be trading below NAV....are you questioning the truthfulness of FPI public information?......
Beyond Saving profile picture
I'm not questioning the data they provide, but as an appraiser, I am well aware of the reality that the actual selling price is often radically different than what we calculate as value on paper. Especially when you are talking about selling a large amount of property in a condensed amount of time.

If FPI were to sell a few properties, they would probably get pretty close to what they believe fair value is. What I'm saying is that if FPI were liquidating, they likely would receive something less, which may or may not be higher than the common share price. Ultimately, a seller having the ability to decide not to sell is an important factor in maintaining value. Sellers who must sell within a certain period of time, will generally get lower prices. For a publicly traded REIT, liquidation comes with a ticking clock. It often does not end well.

As for shorting, I told you I am not short FPI right now. I have been in the past, and might in the future, but currently I do not see value in a short here. The only strong downward catalyst would be a dividend cut, which management seems pretty adamant is not happening this year and they certainly have the capability of running in the red another year.

FPI is $8.27 and LAND is $13.14 today. I will write another article next year and be sure to eat some crow and give you some credit if I am wrong.
i am not an appraiser...i plant stuff...farmland can be sold very easily at market value or above or very very close to...earth population increasing every day and farmland acres decreasing every day...it is a fact
Guy at Work reading SA profile picture
Love the idea of reit farm land but there doesn't seem to be anything that is attractive at those multiples with that many problems. How can a REIT have an AFFO of 18-19 with an uncovered dividend by 16%? Are there any large cap farm REIT's out there? Preferably with covered dividends and growing affo/share.
Beyond Saving profile picture
These are the only two farming REITs, the third- AFCO- was bought by FPI last year.
Guy at Work reading SA profile picture
Too bad, eventually as the sector and companies mature there will be better opportunities!
Also...not as hard as u claim to sell farm land and farm land holds value extremely welll...while mall land increases decade by decade (until recently)...farmland decreases every year...land is part of a series of companies that invest in commercial real estate (even the fed reserve is concerned about commercial real estate)
forgot to mention about increase in property values (what Mr. Pittman said in regards to AFFO)...strawberries gonna be hurting also...dole just tip of iceberg for LAND...I will take sell LAND buy FPI trade anyway of week (although i don’t short)....
I am in the area of Colorado that both FLP And Land have holdings.When compared against each other Land is a house of cards. FLP has some of the most productive land and manages it well. If force liquidated today they would receive close to 100%. Land on the other hand paid way over market with leases solely dependent on RMA Crop insurance programs and if force Liquidated today they would be lucky to get 40 cents on the dollar.
Beyond Saving profile picture
In Colorado, LAND has 31,450 acres and paid $42.4 million. FPI has roughly 24,200 acres (15.1% of acreage- they don't report the exact acreage) and paid somewhere around $60 million for it. So LAND paid $1350/acre, FPI paid roughly $2500/acre.

LAND receives $2.7 million/year in rent, FPI receives roughly the same amount $2.75 million/year (Again calculated-they only provide the percentage 6.4% of revenue.). So FPI is collecting higher rent per acre, suggesting it is better land, but they paid an additional $20 million to collect more or less the same rent.

Are you really saying that LAND's property is only worth $550/acre (and that the land is not producing $85/acre in value) but FPI's is still worth $2500? Any evidence to support that?
can't grow crops on top on mountain top....thanks for buying my property LAND....lol
Al_S profile picture
Could there be other factors in this situation? I'm not saying there are. I'm just suggesting that there might be. I don't know anything about the specific parcels of land.

For example, maybe FPI's land is more suitable for future wind farms that would increase the income.

Or some of FPI's land is not used now, but rates to be in the future.

I will take the other side of your thesis...I maintain the vast divergence of the two stocks is way overdone
Beyond Saving profile picture
"I maintain the vast divergence of the two stocks is way overdone"- it might be, the one thing an FPI investment has going for it is that it is relatively cheap, which does provide more upside potential if it recovers. I just do not see a catalyst for it to recover this year. The simple fact that the dividend is far from covered will keep many REIT investors from seriously considering it.
FPI is way under (way under) book value...shorts like you are gonna regret their position...sell puts on fpi
Beyond Saving profile picture
matt, I am no longer short on FPI. Previously, I have traded both the long and the short sides. You are right that it probably is trading below NAV, but how does FPI realize that in a manner that would be beneficial for common shareholders?

For those looking to benefit from NAV, FPIB seems the better option, with similar yield, far greater dividend security and a direct benefit from appreciating land values.
3 beach dogs profile picture
LANDP has been a low volatility play over the last few stock market tsunami weeks. Their holdings are first rate. I find the trade war angle interesting, as I imagine FPI is far better play if cheap veggies from Central and South America would get the tax. I personally wouldn't play that, but I do think LANDP is less at risk in a tariff tiff. Long LANDP
FPI is commodity crop oriented, not veggie. Makes LAND by far the better buy.
Farm girl, daughter of a farm girl, and very long-time organic gardener. I know whereof I speak.
Excellent recap on your previous article. Enjoyed reading. Keep up the great work!
own LANDP, GOODP, GOOD, GAIN, GLAD. Have quite nice income from them, and all are dripped and in my Roth. I am quite comfortable sleeping well at night. 'David' has done very well for us retirees.
2whiteroses profile picture
Oddly enough, I transferred my LANDP position from ETrade to Fidelity and Fidelity does not allow DRIP while ETrade did. I therefore, can no longer drip LANDP.
Jorge_Soriano profile picture
I really appreciate the follow up article and hope you continue to do so as needed.
Tim McPartland profile picture
Good recap of the last year. For most of us the pure baloney from Pittman is enough to make us stay away. I do own LANDP Gladstone Preferred as well as term preferreds from Gladstone Capital and Gladstone Investment.
I chose LAND common stock early and glad I did. LONG all four Gladstone companies.
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