FRP HOLDINGS, INC. quarterly report, Q1 FY2022

FRP Holdings, Inc. — Form 10-Q Summary

Business context and reporting period

FRP Holdings, Inc. is a real estate company focused on mining royalty lands, property development, asset management, and stabilized joint ventures. The filing covers the three months ended March 31, 2022, with comparisons to the three months ended March 31, 2021. The company reported four segments: Asset Management, Mining Royalty Lands, Development, and Stabilized Joint Venture.

Key financial metrics

Metric	Q1 2022	Q1 2021	Change
Total revenue	$8.707 million	$5.853 million	+48.8%
Operating profit	$1.364 million	$1.442 million	-5.4%
Operating margin	15.7%	24.6%	Lower
Net income	$0.404 million	$40.875 million	-99.0%
Net income attributable to FRP	$0.672 million	$28.373 million	-97.6%
Diluted EPS	$0.07	$3.03	Declined
Net cash from operating activities	$1.314 million	$3.420 million	Declined
Capital expenditures	$3.636 million	$3.387 million	+7.3%

• Lease revenue increased 77.6% to $6.282 million, primarily reflecting the consolidation of The Maren for the full quarter.
• Mining lands lease revenue increased 4.8% to $2.425 million. Management described Q1 as the best first quarter of mining royalty revenue in the segment’s history.
• Net operating income, a non-GAAP measure, increased to $5.736 million from $4.229 million.
• Cash and cash equivalents totaled $164.523 million at March 31, 2022. The company also held $91.559 million of U.S. Treasury notes maturing from late 2022 through 2024.
• Total assets were $674.867 million and total equity was $424.230 million.
• Secured notes payable were $178.446 million, consisting primarily of fixed-rate mortgage loans at 3.03% with principal due April 1, 2033. The company reported compliance with all debt covenants.
• The $20 million revolving credit facility had no borrowings, $0.506 million of letters of credit outstanding, and $19.494 million available.

Material changes versus the prior comparable period

• Revenue increased substantially because The Maren, previously accounted for under the equity method, was consolidated beginning March 31, 2021. The Maren contributed $2.409 million of revenue in Q1 2022.
• Q1 2021 included a nonrecurring $51.139 million gain from remeasurement of the Company’s investment in The Maren. That gain, partially offset by taxes and noncontrolling interest, drove the unusually high prior-year earnings.
• Q1 2022 included a $0.733 million gain on the sale of excess property at Brooksville and $0.316 million of amortization related to The Maren’s lease-in-place value recorded at consolidation.
• Operating costs increased 66.5%, exceeding the 48.8% revenue increase. Depreciation, depletion and amortization rose 100.8%, and operating expenses rose 115.0%, largely reflecting the larger consolidated stabilized-joint-venture portfolio.
• Operating cash flow declined because the prior-year comparison benefited from noncash adjustments associated with The Maren remeasurement and deferred taxes.
• Investing cash flow fell to $2.459 million from $38.524 million, primarily because 2021 included larger investment-portfolio proceeds, a return of preferred equity financing, and cash consolidated with The Maren.

Guidance, outlook, commentary, risks, and unusual items

• Management expects approximately $39.7 million of real estate capital expenditures, including joint-venture investments, during the remainder of 2022. Funding is expected to come primarily from cash and investments, operating cash flow, property sales, and potentially credit facilities.
• On April 1, 2022, the company purchased a 1,549-acre mining royalty property in Astatula, Florida, for $11.6 million. The property contains approximately 22.5 million tons of sand reserves, is adjacent to an existing company site, and is leased to Vulcan Materials. Management expects revenue contribution beginning in Q2 2022.
• Management expects completion and leasing activity for The Verge and .408 Jackson in Q3 2022, while Bryant Street and Riverside continue progressing toward stabilization.
• Residential occupancy remained strong. The Maren averaged 95.13% occupancy during the quarter, and Dock 79 averaged 95.18%. Renewal rent increases were 2.32% at The Maren and 4.69% at Dock 79.
• Development remained loss-making, with a Q1 operating loss of $1.239 million compared with a $0.805 million loss in the prior year.
• Key risks include COVID-19 and potential future variants, construction and development delays, zoning and entitlement requirements, interest-rate and capital-market conditions, tenant vacancies or defaults, lease renewals, real estate market cycles, inflation, environmental liabilities, cybersecurity, joint-venture performance, and concentration among mining tenants.
• One mining lessee accounted for 21.3% of consolidated revenue during Q1 2022. The company also had $0.506 million of letters of credit supporting obligations to state agencies and participated in a guarantee of a portion of a Bryant Street construction loan.
• The company does not pay cash dividends and reported no share repurchases during Q1 2022. Disclosure controls and procedures were deemed effective as of March 31, 2022.

Important facts for investors to verify

• Confirm the sustainability of revenue and NOI growth after normalizing for The Maren’s consolidation and other accounting effects.
• Evaluate whether the $39.7 million planned 2022 capital program and the $11.6 million Astatula acquisition produce the expected revenue and returns.
• Monitor occupancy, leasing velocity, renewal spreads, and stabilization at The Maren, Dock 79, Bryant Street, Riverside, The Verge, .408 Jackson, and Hollander Business Park.
• Review joint-venture debt, development budgets, completion timelines, and FRP’s guarantees and funding commitments.
• Assess exposure to mining-volume cycles and the 21.3% revenue contribution from one mining lessee.
• Review the fixed-rate mortgage maturities, revolver covenants, available liquidity, and the effect of higher interest rates on future refinancing or development financing.