Farmland Partners (FPI) just announced that it is buying American Farmland Company (AFCO) in a stock for stock transaction. Strategically, we think the move makes sense for both companies. AFCO’s assets are valuable but their performance was held back by the G&A load of a company that was barely large enough to be public. FPI already has a full team so much of the G&A can be eliminated which allows them to carry the same assets with a greater margin of profitability. AFCO is trading up about 19% on the announcement and still trades a bit below the merger price, while FPI is down about 6% on the news.
In the long run, we believe this will be quite accretive to FPI’s AFFO per share as the development properties that came with the transaction begin to cashflow. We see this as a net positive for shareholders of both companies.
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