July 11 was a rough day for Farmland Partners, a publicly traded (NYSE: FPI) real estate company that owns or has under contract over 166,000 acres located in 17 states.
Shares in Farmland Partners fell nearly 40% on July 11, after a report was posted to SeekingAlpha.com. The article entitled, "Farmland Partners: Loans To Related-Party Tenants Introduce Significant Risk Of Insolvency - Shares Uninvestible" was posted by a short seller written under pseudonym "Rota Fortunae" (which translates as "Wheel of Fortune”).
The article has been removed from the website, “pending clarifications from the author.”
The report, according to an article in the Denver Business Journal, indicated Farmland Partners is "artificially increasing revenues by making loans to related-party tenants who round-trip the cash back to FPI as rent" and the company "has neglected to disclose that the majority of its loans have been made to two members of the management team, including Jesse Hough, CEO Paul Pittman’s long-time business partner."
Following the report’s circulation, Pittman quickly responded, calling the allegations “false and materially misleading in numerous respects.”
"It is horrifying the amount of damage that this self-interested, anonymous party's false allegations caused today to the Company's stockholders," said Pittman in a company statement on July 11. "We are evaluating what avenues are available to the Company and its stockholders to remedy the damage inflicted."
Pittman told Reuters that there is "utterly no risk of insolvency" for the company and that Farmland Partners had made loans to the people mentioned in the article as part of the company’s tenant loan program, under which it offers lender-of-last-resort loans that are secured by real estate. But he said Farmland had not “made any loans to related parties that are not appropriately disclosed.”
Farmland Partners has posted a lengthy rebuttal (Farmland Partners Provides Rebuttal to Inaccurate, Misleading and Anonymous Internet Posting on Seeking Alpha) to the seven main points in the now-removed Seeking Alpha post from “Wheel of Fortune."
“These malicious, self-interested and misleading "short and distort" attacks against the Company are very unfortunate and have caused serious financial and reputational harm to the Company, its management and its common and preferred shareholders,” the rebuttal says. “We intend to pursue all legal avenues to redress these wrongs, but more importantly, we are firmly committed to seeing that over time, the Company's stock price more accurately reflects the actual underlying value of our portfolio. We are committed to increasing revenue from our farms through the active management of our farms, including rental increases and property improvements.”
Farmland Partners’ stock has regained some of its value since the dramatic drop.
Several other posts have followed on SeeingAlpha.com:
Farmland Partners: The Smell Test
While Rota did dig up several facts through public records that were previously under the radar, the theory he used those facts to support did not pass the smell test.
Farmland Partners up 3.4% on its defense against short's post on SA
Farmland Partners +3.4% after reporting plans to take legal action against the short seller publishing under pseudonym "Rota Fortunae," saying the posting on SA was "false and materially misleading in numerous respects."
Farmland Partners: Why We Bought On The Crash
This was not the first bearish article on FPI and it will likely not be the last. If we examine the entire landscape of bearish articles on FPI, it boils down to 3 main categories: Trustworthiness, Overpaying for assets and Dividend sustainability.
Farmland Partners: Don't Bet The Farm On The Common Rather Land On The Preferred
Rota Fortunae dropped a bombshell over Farmland Partners yesterday, calling the stock "uninvestible." Using the two articles and our risk management thinking we explain why we put money on the preferred and won't bet the farm on the common.