FRP Holdings, Inc. — Form 10-Q Summary
Business context and reporting period
FRP Holdings, Inc. is a real estate operating and development company with four reportable segments: Asset Management, Mining Royalty Lands, Development, and Stabilized Joint Ventures. Its portfolio includes commercial properties, mining royalty acreage, residential and mixed-use properties, and development land in the Mid-Atlantic and southeastern United States. This filing covers the unaudited quarter and six months ended June 30, 2022, compared with the corresponding 2021 periods.
Key financial metrics
| Metric | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Six months ended June 30, 2022 | Six months ended June 30, 2021 |
|---|---|---|---|---|
| Total revenue | $9.628 million | $8.495 million | $18.335 million | $14.348 million |
| Operating profit (loss) | $2.066 million | $(0.159) million | $3.430 million | $1.283 million |
| Net income attributable to FRP | $0.657 million | $0.082 million | $1.329 million | $28.455 million |
| Diluted EPS | $0.07 | $0.01 | $0.14 | $3.03 |
| Net cash from operating activities | Not separately provided for the quarter | Not separately provided for the quarter | $8.807 million | $10.963 million |
- Second-quarter operating margin was approximately 21.5%; first-half operating margin was approximately 18.7%.
- Management reported second-quarter NOI of $6.94 million, up 16.0% from $5.98 million, and first-half NOI of $12.67 million, up 24.0% from $10.22 million. NOI is a non-GAAP measure.
- Cash and cash equivalents were $159.262 million at June 30, 2022, compared with $161.521 million at December 31, 2021. The company also held $140.883 million of U.S. Treasury notes maturing from late 2022 through 2024.
- Net real estate investments were $512.179 million, and total assets were $677.040 million at June 30, 2022.
- Secured notes payable were $178.483 million, primarily fixed-rate mortgage loans at 3.03% with principal due April 1, 2033. The company had no borrowings under its $20 million revolver, $506,000 of letters of credit outstanding, and $19.494 million available under the facility.
- Net cash used in investing activities was $9.950 million, including $17.411 million of property investment and $4.261 million of joint venture investments. Financing activities used $1.116 million, principally for noncontrolling-interest distributions.
Material changes versus the prior comparable period
- Second-quarter revenue increased 13.3%, driven by a 15.1% increase in lease revenue and a 9.5% increase in mining lands revenue. First-half revenue increased 27.8%.
- Second-quarter net income attributable to FRP rose to $657,000 from $82,000 as lower amortization related to The Maren and improved operating results more than offset higher interest expense and joint venture losses.
- First-half net income attributable to FRP fell 95.3% from 2021 because the prior-year period included a $51.139 million gain from remeasurement of The Maren upon consolidation, as well as related tax and noncontrolling-interest effects. The 2022 period included a $733,000 gain on real estate sales.
- Asset Management revenue increased 55.1% in the quarter and 34.7% year to date, reflecting improved Cranberry Run occupancy and contributions from Hollander Business Park.
- Mining royalty revenue increased 9.5% in the quarter and 7.3% year to date. Management attributed the growth principally to the acquisition of a mining royalty property in Astatula, Florida.
- Stabilized Joint Venture revenue increased 12.5% in the quarter and 43.0% year to date, partly because The Maren was consolidated beginning March 31, 2021. The segment returned to operating profit of $919,000 in the quarter and $1.285 million year to date.
- Development remained loss-making, with operating losses of $1.397 million in the quarter and $2.636 million year to date, compared with losses of $0.933 million and $1.738 million, respectively, in 2021.
Guidance, outlook, commentary, risks and unusual items
- Management expects approximately $36.4 million of additional 2022 real estate capital expenditures, including joint venture investments, funded primarily with cash and investments on hand, operating cash flow, property sales, and potential revolver borrowings.
- Management expects the final Hollander Business Park building, a 101,750-square-foot build-to-suit with a 10-year lease, to reach shell completion by year-end 2022.
- The Verge, formerly 1800 Half Street, was 91.34% complete and expected to be completed in the third quarter of 2022. The .408 Jackson project was 94.09% complete, with completion and leasing expected in the fourth quarter of 2022.
- Management identified potential milestones including stabilization of Bryant Street, permanent financing for Riverside, and continued lease-up of development projects.
- At June 30, 2022, Bryant Street’s 487 residential units were 84.6% leased and 78.2% occupied; commercial space was 82.5% leased and 69.2% occupied. The company and MRP guaranteed $26 million of Bryant Street construction debt, subject to a side agreement limiting FRP’s obligation to its proportionate ownership.
- Key risks include interest-rate and capital-market conditions, inflation, construction and development delays, zoning and entitlement requirements, vacancies and lease renewals, tenant defaults, joint venture performance, environmental liabilities, cybersecurity, and COVID-19 effects on retail and Washington, D.C. leasing demand.
- One mining lessee represented 22.3% of consolidated revenue for the first six months of 2022, creating customer concentration risk. Cash balances may exceed FDIC insurance limits.
- The company reported compliance with all debt covenants and stated that known litigation and environmental matters were not expected to have a material adverse effect, while noting that environmental liabilities cannot be fully assured.
- The company does not pay cash dividends and reported no share repurchases during the quarter. The revolver covenants would have limited dividends to a maximum of $246 million combined as of June 30, 2022.
Important facts for investors to verify
- Assess recurring NOI and cash earnings separately from the prior-year The Maren remeasurement gain and other real estate sale gains.
- Verify occupancy, lease-renewal rates, rent growth, and lease-up progress at Dock 79, The Maren, Bryant Street, Hollander, and other development projects.
- Monitor the $36.4 million remaining 2022 capital program, construction completion dates, project costs, and future financing requirements.
- Review joint venture losses, project-level debt, guarantee exposure, and the company’s ability to fund development without materially increasing leverage.
- Evaluate exposure to the concentrated mining tenant, construction-market cycles, inflation, interest rates, environmental claims, and potential COVID-19-related leasing impacts.