Note 9—Stockholders’ Equity and Non-controlling Interests

Non-controlling Interests in Operating Partnership

The Company consolidates its Operating Partnership. As of March 31, 2017 and December 31, 2016 the Company owned a 82.9% and 75.1% interest, respectively, in the Operating Partnership, and the remaining 18.7% and 24.9% interest, respectively, is included in non-controlling interests in Operating Partnership on the consolidated balance sheets. The non-controlling interests in the Operating Partnership is held in the form of OP units and Preferred units.

On or after 12 months of becoming a holder of OP units, unless the terms of an agreement with such OP unit holder dictate otherwise, each limited partner, other than the Company, has the right, subject to the terms and conditions set forth in the Second Amended and Restated Agreement of Limited Partnership of the Operating Partnership, as amended (the “Partnership Agreement”), to tender for redemption all or a portion of such units in exchange for cash, or in the Company’s sole discretion, for shares of the Company’s common stock on a one-for-one basis. If cash is paid in satisfaction of a redemption request, the amount will be equal to the number of tendered units multiplied by the fair market value of a share of the Company’s common stock on the date of the redemption notice (determined in accordance with, and subject to adjustment under, the terms of the Partnership Agreement). Any redemption request must be satisfied by the Company on or before the close of business on the tenth business day after the Company receives a notice of redemption. On March 27, 2017 the Company issued 129,174 shares of common stock in exchange for 129,174 OP units that had been tendered for redemption. There were 5.5 million and 3.0 million outstanding OP units eligible to be tendered for redemption as of March 31, 2017 and December 31, 2016, respectively.

If the Company gives the limited partners notice of its intention to make an extraordinary distribution of cash or property to its stockholders or effect a merger, a sale of all or substantially all of its assets, or any other similar extraordinary transaction, each limited partner may exercise its right to tender its OP units for redemption, regardless of the length of time such limited partner has held its OP units.

Regardless of the rights described above, the Operating Partnership will not have an obligation to issue cash to a unitholder upon a redemption request if the Company elects to redeem OP units for shares of common stock. When an OP unit is redeemed, non-controlling interest in the Operating Partnership is reduced and stockholders’ equity is increased.

The Operating Partnership intends to continue to make distributions on each OP unit in the same amount as those paid on each share of the Company’s common stock, with the distributions on the OP units held by the Company being utilized to make distributions to the Company’s common stockholders.

Pursuant to the consolidation accounting standard with respect to the accounting and reporting for non-controlling interest changes and changes in ownership interest of a subsidiary, changes in parent’s ownership interest when the parent retains controlling interest in the subsidiary should be accounted for as equity transactions. The carrying amount of the non-controlling interest shall be adjusted to reflect the change in its ownership interest in the subsidiary, with the offset to equity attributable to the parent. As a result of the IPO, the Company’s common stock offerings in July 2014 and July 2015, the ATM Program (as defined below), the issuance of stock compensation, and common stock and OP units issued as partial consideration for certain acquisitions, changes in the ownership percentages between the Company’s stockholders’ equity and non-controlling interest in the Operating Partnership occurred during the three months ended March 31, 2017 and 2016. During the first three months of 2017 the Company decreased the non-controlling interest in the Operating Partnership and increased additional paid in capital by $3.3 million. During the period ended March 31, 2016, the Company decreased the non-controlling interest in the Operating Partnership and increased additional paid in capital by $3.5 million.

Redeemable Non-controlling Interests in Operating Partnership, Class A Common Units

On June 2, 2015, the Company issued 1,993,709 OP units in conjunction with an asset acquisition. Beginning on June 2, 2016, the OP units became eligible to be tendered for redemption for cash, or at the Company’s option, for shares of common stock on a one for one basis. In connection with its annual meeting of stockholders held on May 25, 2016, the Company obtained stockholder approval to issue shares of its common stock upon the redemption of 883,724 of the OP units (the “Excess Units”). Prior to such stockholder approval, the Company would have been required to redeem the Excess Units for cash. As the tender for redemption of the Excess Units for shares of common stock was outside of the control of the Company until May 25, 2016, these units were accounted for as mezzanine equity on the consolidated balance sheets as of December 31, 2015. After the redemption became within the control of the Company these excess units formed part of the non-controlling interests in the Operating Partnership. The Company elected to accrete the change in redemption value of the Excess Units subsequent to issuance and during the respective 12-month holding period, after which point the units were marked to redemption value at each reporting period.

Redeemable Non-controlling Interests in Operating Partnership, Preferred Units

On March 2, 2016, the sole general partner of the Operating Partnership entered into Amendment No.1 (the “Amendment”) to the Partnership Agreement in order to provide for the issuance, and the designation of the terms and conditions, of the Preferred units. Under the Amendment, among other things, each Preferred unit has a $1,000 liquidation preference and is entitled to receive cumulative preferential cash distributions at a rate of 3.00% per annum of the $1,000 liquidation preference, which is payable annually in arrears on January 15 of each year or the next succeeding business day. The cash distributions are accrued ratably over the year and credited to redeemable non-controlling interest in operating partnership, preferred units on the balance sheet with the offset recorded to additional paid in capital. On March 2, 2016, 117,000 Preferred units were issued as partial consideration in the March 2, 2016 Illinois farm acquisition. Upon any voluntary or involuntary liquidation or dissolution, the Preferred units are entitled to a priority distribution ahead of OP units in an amount equal to the liquidation preference plus an amount equal to all distributions accumulated and unpaid to the date of such cash distribution. Total liquidation value of such preferred units as of March 31, 2017 and 2016 was $117,877,500 and $117,283,000, respectively, including accrued distributions.

On or after March 2, 2026, the tenth anniversary of the closing of the Forsythe acquisition (the “Conversion Right Date”), holders of the Preferred units have the right to convert each Preferred unit into a number of OP units equal to (i) the $1,000 liquidation preference plus all accrued and unpaid distributions, divided by (ii) the volume-weighted average price per share of the Company’s common stock for the 20 trading days immediately preceding the applicable conversion date. All OP units received upon conversion may be immediately tendered for redemption for cash or, at the Company’s option, for shares of common stock on a one-for-one basis, subject to the terms and conditions set forth in the Partnership Agreement. Prior to the Conversion Right Date, the Preferred units may not be tendered for redemption by the Holder.

On or after March 2, 2021, the fifth anniversary of the closing of the Forsythe acquisition, but prior to the Conversion Right Date, the Operating Partnership has the right to redeem some or all of the Preferred units, at any time and from time to time, for cash in an amount per unit equal to the $1,000 liquidation preference plus all accrued and unpaid distributions.

In the event of a Termination Transaction (as defined in the Partnership Agreement) prior to conversion, holders of the Preferred units generally have the right to receive the same consideration as holders of OP units and common stock, on an as-converted basis.

Holders of the Preferred units have no voting rights except with respect to (i) the issuance of partnership units of the Operating Partnership senior to the Preferred units as to the right to receive distributions and upon liquidation, dissolution or winding up of the Operating Partnership, (ii) the issuance of additional Preferred units and (iii) amendments to the Partnership Agreement that materially and adversely affect the rights or benefits of the holders of the Preferred units.

The Preferred units are accounted for as mezzanine equity on the consolidated balance sheet as the units are convertible and redeemable for shares at a fixed and determinable price and date at the option of the holder and upon the occurrence of an event not solely within the control of the Company.

The following table summarizes the changes in the Company’s redeemable non-controlling interest in the Operating Partnership for the three months ended March 31, 2017 and 2016:


	Common			Preferred
($ in thousands)	Redeemable OP units	Redeemable non-controlling interests		Redeemable Preferred units	Redeemable non-controlling interests
Balance at December 31, 2015	884	$	9,695	—	$	—
Issuance of redeemable OP units as partial consideration for real estate acquisition	—		—	117		117,000
Net income attributable to non-controlling interest	—		(101)	—		—
Accrued distributions to non-controlling interest	—		(113)	—		283
Adjustment to arrive at redemption value of non-controlling interests in Operating Partnership, common units	—		38	—		—
Balance at March 31, 2016	884	$	9,519	117	$	117,283

Balance at December 31, 2016	—	$	—	117	$	119,915
Distributions paid to non-controlling interest	—		—	—		(2,915)
Accrued distributions to non-controlling interest	—		—	—		878
Balance at March 31, 2017	—	$	—	117	$	117,878

Distributions

The Company’s board of directors declared and paid the following distributions to common stockholders and holders of OP units for the three months ended March 31, 2017 and the year ended December 31, 2016:


Fiscal Year	Declaration Date	Record Date	Payment Date	Distributions per Common Share/OP unit

2017	February 22, 2017	April 1, 2017	April 14, 2017	$	0.1275

2016	March 8, 2016	April 1, 2016	April 15, 2016	$	0.1275
	May 9, 2016	July 1, 2016	July 15, 2016		0.1275
	August 3, 2016	September 30, 2016	October 14, 2016		0.1275
	November 3, 2016	January 2, 2016	January 13, 2016		0.1275
				$	0.5100

Additionally, in connection with the 3.00% cumulative preferential distribution on the Preferred units, the Company has accrued $0.9 million in distributions payable as of March 31, 2017. The distributions are payable annually in arrears on January 15 of each year.

In general, common stock cash dividends declared by the Company will be considered ordinary income to stockholders for income tax purposes. From time to time, a portion of the Company’s dividends may be characterized as qualified dividends, capital gains or return of capital.

Stock Repurchase Plan

On March 15, 2017, the Company’s board of directors approved a program to repurchase up to $25,000,000 in shares of the Company’s common stock. Repurchases under this program may be made from time to time, in amounts and prices as the Company deems appropriate. Repurchases may be made in open market or privately negotiated transactions in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended, subject to market conditions, applicable legal requirements, trading restrictions under the Company’s insider trading policy and other relevant factors. This stock repurchase plan does not obligate the Company to acquire any particular amount of common stock, and it may be modified or suspended at any time at the Company's discretion. The Company expects to fund repurchases under the program using cash on hand. There were no repurchases made during the three months ended March 31, 2017.

Equity Incentive Plan

On May 5, 2015, the Company’s stockholders approved the amendment and restatement of the Farmland Partners Inc. 2014 Equity Incentive Plan (the “Plan”), which increased the aggregate number of shares of the Company’s common stock reserved for issuance under the Plan to 0.6 million shares (including the 0.3 million shares of restricted common stock that have been granted to the Company’s executive officers, certain of the Company’s employees, the Company’s non-executive directors and Jesse J. Hough, the Company’s consultant). As of March 31, 2017, there were 0.1 million of shares available for future grant under the Plan.

The Company may issue equity-based awards to officers, non-employee directors, employees, independent contractors and other eligible persons under the Plan. The Plan provides for the grant of stock options, share awards (including restricted stock and restricted stock units), stock appreciation rights, dividend equivalent rights, performance awards, annual incentive cash awards and other equity based awards, including LTIP units, which are convertible on a one-for-one basis into OP units. The terms of each grant are determined by the compensation committee of the board of directors.

From time to time, the Company may award restricted shares of its common stock under the Plan, as compensation to officers, employees, non-employee directors and non-employee consultants. The shares of restricted stock vest over a period of time as determined by the compensation committee of the Company’s board of directors at the date of grant. The Company recognizes compensation expense for awards issued to officers, employees and non-employee directors for restricted shares of common stock on a straight-line basis over the vesting period based upon the fair market value of the shares on the date of issuance, adjusted for forfeitures. The Company recognizes compensation expense for awards issued to non-employee consultants in the same period and in the same manner as if the Company paid cash for the underlying services.

A summary of the nonvested shares as of March 31, 2017 is as follows:


		Weighted
	Number of	average grant
(shares in thousands)	shares	date fair value
Unvested at December 31, 2016	189	$	11.98
Granted	187		11.34
Vested	(34)		10.71
Forfeited	—		—
Unvested at March 31, 2017	342	$	11.75

For the three months ended March 31, 2017 and 2016, the Company recognized $0.4 million and $0.2 million, respectively, of stock-based compensation expense related to these restricted stock awards. As of March 31, 2017 and December 31, 2016, there were $2.9 million and $1.2 million, respectively, of total unrecognized compensation costs related to nonvested stock awards, which are expected to be recognized over weighted-average periods of 2.1 years. The change in fair value of the shares issued to non-employees to be issued upon vesting is remeasured at the end of each reporting period and is recorded in general and administrative expenses on the consolidated statements of operations. As a result of changes in the fair value of the nonvested shares, the Company recorded an increase in stock based compensation of $157 for the three months ended March 31, 2017 and a decrease of $11,792 for the three months ended March 31, 2016.

On May 3, 2017, the Company’s stockholders approved the Second Amended and Restated 2014 Equity Incentive Plan (the “Second Amended Plan”). The Second Amended Plan increased the aggregate number of shares of the Company’s common stock reserved for issuance to 1,265,851 (including the 529,195 shares of restricted common stock that have been issued uner the Plan and 750,000 shares reserved for future issuance).

At-the-Market Offering Program (the “ATM Program”)

On September 15, 2015, the Company entered into equity distribution agreements under which the Company may issue and sell from time to time, through sales agents, shares of its common stock having an aggregate gross sales price of up to $25 million. During the three months ended March 31, 2017 and 2016, the Company made no sales under the ATM Program.

Deferred Offering Costs

Deferred offering costs include incremental direct costs incurred by the Company in conjunction with proposed or actual offerings of securities. At the completion of a securities offering, the deferred offering costs are charged ratably as a reduction of the gross proceeds of equity as stock is issued. If an offering is abandoned, the previously deferred offering costs will be charged to operations in the period in which the offering is abandoned. The Company incurred $78,543 and $0 in offering costs during the three months ended March 31, 2017 and 2016, respectively. As of March 31, 2017 and December 31, 2016, the Company had $275,560 and $216,027 respectively in deferred offering costs related to regulatory, legal, accounting and professional service costs associated with proposed or completed offerings of securities.

Earnings (Loss) per Share

The computation of basic and diluted loss per share is as follows:


	For the three months ended
	March 31,
(in thousands except per share amounts)	2017		2016
Numerator:
Net loss attributable to Farmland Partners Inc.	$	(1,626)	$	(1,354)
Less: Nonforfeitable distributions allocated to unvested restricted shares		(43)		(30)
Less: Distributions on redeemable non-controlling interests in Operating Partnership, common		—		(113)
Less: Distributions on redeemable non-controlling interests in Operating Partnership, preferred		(878)		(283)
Net income (loss) attributable to common stockholders	$	(2,547)	$	(1,780)

Denominator:
Weighted-average number of common shares - basic		26,699		11,834
Conversion of preferred units(1)		—		—
Unvested restricted shares(1)		—		—
Redeemable non-controlling interest(1)		—		—
Weighted-average number of common shares - diluted		26,699		11,834

Loss per share attributable to common stockholders - basic	$	(0.10)	$	(0.15)

(1)

Anti-dilutive for the three months ended March 31, 2017 and 2016.

Unvested shares of the Company’s restricted common stock are, and until May 26, 2016, the Excess Units were, considered participating securities which require the use of the two-class method for the computation of basic and diluted earnings per share. On May 25, 2016, the Company obtained stockholder approval allowing the Company to issue shares of common stock upon the redemption of the Excess Units, which allowed the Company to remove the Excess Units from the mezzanine section of the consolidated balance sheets. As such, as of March 31, 2017, the Company no longer has any OP units included as redeemable non-controlling interests outstanding in the mezzanine section of the consolidated balance sheets.

The limited partners’ outstanding OP units (which may be redeemed for shares of common stock) and Excess Units have been excluded from the diluted earnings per share calculation as there would be no effect on the amounts since the limited partners’ share of income would also be added back to net income. Any anti-dilutive shares have been excluded from the diluted earnings per share calculation. Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. Accordingly, distributed and undistributed earnings attributable to unvested restricted shares (participating securities) have been excluded, as applicable, from net income or loss attributable to common stockholders utilized in the basic and diluted earnings per share calculations. Net income or loss figures are presented net of non-controlling interests in the earnings per share calculations. The weighted average number of OP units held by the non-controlling interest was 6.2 million and 4.2 million for the three months ended March 31, 2017 and 2016, respectively.

The outstanding Preferred units are non-participating securities and thus are included in the computation of diluted earnings per share on an as-if converted basis. Any anti-dilutive shares are excluded from the diluted earnings per share calculation. During the first three months of 2017 and 2016, these shares were not included in the diluted earnings per share calculation as they would be anti-dilutive.

For the three months ended March 31, 2017 and 2016, diluted weighted average common shares do not include the impact of 342,394 and 237,575 shares, respectively, of unvested restricted shares of common stock. For the three months ended March 31, 2017 and 2016, diluted weighted average common shares do not include the impact of 0.2 million and 0.2 million, respectively, unvested compensation-related shares. The effect of these items on diluted earnings per share would be anti-dilutive.

The following equity awards and units are outstanding as of March 31, 2017 and December 31, 2016, respectively.


	March 31, 2017	December 31, 2016
Shares	32,106	17,163
OP Units	6,702	5,692
Unvested RSAs	342	188
	39,150	23,043