Farmland Partners to Acquire American Farmland Co. in Stock-for-Stock Transaction
On the morning of September 12, Farmland Partners Inc. (FPI – Outperform) announced that it had entered into an agreement to acquire American Farmland Company (AFCO – Outperform) in a stock-for-stock transaction, creating the largest publicly traded farmland REIT. The merger is expected to grow FPI's total acreage by 15% and should yield a combined company with a market cap of roughly $360 million based on yesterday's close. We view the acquisition as a positive for shareholders of FPI as the new company should benefit from increased scale, better access to capital, a more attractive cost of capital, and cost-related synergies, which should ultimately drive AFFO growth. We believe that increased earnings power will further support the company's quarterly dividend of $0.1275, which currently offers a ~4.5% yield to buyers at these levels. Reflecting the announcement, as well as some adjustments made to our AFFO assumptions, we are increasing our FPI estimates for FY16 AFFO per share to $0.38 from $0.19 and our FY17 AFFO per share estimate to $0.48 from $0.26. We are also modestly increasing our NAV per share estimate for FPI from $12.03 to $12.09.
