IPO Report: American Farmland (AFCO)

Francis Gaskins |

American_Farmland_Co.jpgAmerican Farmland (AFCO) is an internally managed real estate company that owns a diversified portfolio of high-quality farmland, consisting of mature permanent, specialty/vegetable row and commodity row crop farms, as well as farmland development projects, which is located in select major agricultural regions in the United States. The company is based in New York, NY.

Three other companies are scheduled for the week of Oct. 12. The full IPO calendar is available at IPO Premium.

SEC Documents

Manager, Joint-managers: Deutsche Bank Securities, Citigroup, Raymond James, RBC Capital Markets, FBR
Co-managers: Janney Montgomery Scott, Oppenheimer & Co., Wunderlich

End of lockup (180 days): Wednesday, April 13, 2016
End of 25-day quiet period: Tuesday, November 10, 2015

AFCO scheduled a $114 million IPO with a market capitalization of $218 million at a price range midpoint of $9.50 for Friday, Oct. 16, 2015 on NYSE.

Summary

AFCO is an internally managed real estate company that owns a diversified portfolio of high-quality farmland, consisting of mature permanent, specialty/vegetable row and commodity row crop farms, as well as farmland development projects, which is located in select major agricultural regions in the United States.

AFCO seeks to provide its stockholders with a combination of (i) current income from renting its stable portfolio of mature farms and (ii) capital appreciation, partially driven by its ability to develop properties to maximize their value.

Valuation

Glossary

Accumulated deficit (mm)

.

.

-$19

     

Per share dilution

.

.

-$0.99

     
             

Valuation Ratios

Mrkt Cap (mm)

Price /Sls

Price /Erngs

Price /BkVlue

Price /TanBV

% offered in IPO

American Farmland (AFCO)

$219

n/a

n/a

1.0

1.1

52%

             

Conclusion

Neutral

Expects to pay 2.6% at price range mid-point

Price to book of 1

Price to tangible book of 1.1

Offering 52% on the IPO

Business

AFCO is an internally managed real estate company that owns a diversified portfolio of high-quality farmland, consisting of mature permanent, specialty/vegetable row and commodity row crop farms, as well as farmland development projects, which is located in select major agricultural regions in the United States.

AFCO seeks to provide its stockholders with a combination of (i) current income from renting its stable portfolio of mature farms and (ii) capital appreciation, partially driven by its ability to develop properties to maximize their value.

AFCO leases its farms to professional farmer tenants under a variety of lease structures with staggered durations, including fixed and participating leases, which typically consist of fixed base rent and participating revenue components.

Approximately 45.6% of AFCO’s 2014 contractual rent and 50.1% of its contractual rent through the second quarter of 2015 was comprised of fixed and base rent, some of which has annual escalators.

In addition, AFCO’s participating leases typically require its professional farmer tenants to obtain crop insurance, which seeks to protect the stability of its cash flow.

AFCO is a Maryland corporation and aim to be the leading farmland REIT to be traded on a U.S. stock exchange with a highly diversified portfolio, scalable platform and a unique investment focus on permanent, specialty/vegetable, development and commodity row crop farmland throughout the U.S.

AFCO’s business strategy is to generate stable and growing cash flow and capital appreciation for its stockholders.

To implement its business strategy, AFCO adheres to four core principles: (i) diversification, (ii) high-quality standards, (iii) a value-added approach and (iv) risk management.

As of the date of this prospectus, its portfolio is comprised of 18 farms with an appraised value of $207.7 million, and approximately 16,136 gross acres with more than 21 crop varieties, some of which are planted in rotation, in Alabama, Arkansas, California, Florida, Georgia and Illinois.

Each farm, other than those acquired between the fourth quarter 2014 and the present (which are held at cost), was appraised as of June 30, 2015, by an independent appraisal firm employing a state certified appraiser with local expertise and who is certified as either an A.R.A. (Accredited Rural Appraiser) or M.A.I. (Member of the Appraisal Institute), or state certified as a Certified General Real Estate Appraiser.

Intellectual Property

Nothing

Competition

Investment firms that AFCO might compete directly against could include agricultural investment firms such as Hancock Agricultural Investment Group, UBS Agrivest LLC, Westchester Agricultural Asset Management, a TIAA—CREF Company. These firms engage in the acquisition, asset management, valuation and disposition of farms.

5% Shareholders Pre-IPO

D. Dixon Boardman       10.36%

Merseyside Pension Fund          11.54%

Goldstar Limited            11.51%            

Dividends

Following the completion of this offering, AFCO intends to pay regular quarterly distributions to holders of its common stock. AFCO intends to pay a pro rata distribution with respect to the period commencing on the completion of this offering and ending on the last day of the then current fiscal quarter, based on $0.0625 per share for a full quarter, which corresponds to $0.25 per share annually, or 2.6% annually at the price range mid-point.

Use of Proceeds

AFCOexpects to receive $14 million from its IPO and use it for the following:

(i) to pay down $52.2 million of its revolving credit facilities and (ii) for working capital purposes, including to fund a combination of (a) new acquisitions and (b) capital expenditures and/or development costs for its existing farms currently expected to total approximately $7.5 million for 2015, of which $2.4 million had not yet been expended through June 30, 2015, and $10.3 million in the aggregate for the completion of its development properties, with the majority of such proceeds intended to be used to fund new acquisitions, depending on its ability to successfully identify farms that satisfy its investment guidelines.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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