FRP Holdings, Inc. — Form 10-Q Summary
Reporting period: Three months ended March 31, 2020; filed May 14, 2020. Amounts are in thousands except per-share data. FRP operates in mining royalty lands, real estate development, asset management, and stabilized joint ventures. Former industrial warehouse properties were sold and are reported as discontinued operations.
Financial Performance and Position
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Total revenue | $5,783 | $5,714 | +1.2% |
| Operating profit | $794 | $1,355 | -41.4% |
| Operating margin | 13.7% | 23.7% | Down 10.0 points |
| Income from continuing operations | $1,499 | $1,641 | -8.7% |
| Net income attributable to FRP | $1,618 | $1,898 | -14.8% |
| Basic EPS attributable to FRP | $0.17 | $0.19 | Down $0.02 |
| Net cash from operating activities | $3,983 | $3,250 | +$733 |
- Lease revenue increased 3.2% to $3,598, while mining lands lease revenue declined 2.0% to $2,185.
- Net investment income rose 10.0% to $1,991, but equity in joint venture losses increased to $642 from $264.
- Corporate expenses increased 84.0% to $1,187, primarily reflecting $601 of stock-based compensation versus $29 in the prior-year quarter.
- Net operating income, a non-GAAP measure, was $3,954 versus $4,170 in the prior-year period. Stabilized joint venture NOI increased to $1,812 from $1,630, while mining royalty NOI declined to $2,044 from $2,267.
- At March 31, 2020, total assets were $534,699, including $371,522 of net real estate investments, $161,924 of investments in joint ventures, and $148,667 of investments available for sale.
- Cash and cash equivalents declined to $11,375 from $26,607 at December 31, 2019. Investments available for sale increased to $148,667 from $137,867.
- Comprehensive income attributable to FRP was $492, compared with $3,458 in Q1 2019, primarily due to a $1,126 unrealized after-tax loss on available-for-sale investments.
Cash Flow, Debt, and Liquidity
- Operating cash flow was $3,983. Investing cash flow was $(15,488), driven primarily by $24,748 of purchases of available-for-sale investments, partly offset by $11,857 of sales proceeds and $2,115 of joint venture investments.
- Financing cash flow was $(3,727), including $3,421 of share repurchases and $306 distributed to the noncontrolling interest. FRP repurchased 82,491 shares at an average price of $41.47.
- Consolidated secured notes payable were $88,959, substantially consisting of the Dock 79 permanent loan. The loan bears fixed interest at 4.125% and is non-recourse to FRP, subject to customary default provisions.
- FRP had no borrowings under its $20 million Wells Fargo revolving credit facility, $411 of outstanding letters of credit, and $19,589 available for borrowing. The company was in compliance with its covenants at March 31, 2020.
- Management expected approximately $38.6 million of additional 2020 real estate development expenditures, including joint venture investments, to be funded from cash and investments, operating cash flow, property sales, and available credit facilities.
- FRP does not pay cash dividends. The board authorized a further $10 million increase in the share repurchase authorization on May 6, 2020.
Material Changes and Operating Developments
- Operating profit decreased primarily because corporate expenses rose sharply, including timing-related stock compensation, while development operating losses widened to $1,486 from $952.
- Mining royalty operating profit declined to $1,904 from $2,001 because FRP no longer received double minimum payments at Lake Louisa after Cemex received its final mining permit.
- Stabilized joint venture operating profit increased to $507 from $372. Dock 79 average occupancy was 93.52%, with 92.13% leased and 93.44% occupied at quarter-end.
- Development activity expanded through investments in Bryant Street, The Maren, 1800 Half Street, and two Greenville, South Carolina projects. Joint venture investments increased to $161,924 from $160,452 at year-end.
- The Maren reached approximately 95% construction completion at quarter-end, while Bryant Street was approximately 53% complete and expected to be completed in the fourth quarter of 2021.
- Asset Management revenue increased modestly to $652, but the segment reported a $131 operating loss. Cranberry Office Park was 54% occupied, while 1801 62nd Street was 98.7% occupied at quarter-end.
- Related-party charges under the Transition Services Agreement with Patriot Transportation Holding were $290, compared with $301 in Q1 2019. The agreement was extended for one year effective April 1, 2020.
Outlook, Risks, and Unusual Items
- Management stated that the COVID-19 pandemic could adversely affect rent collections, lease renewals, retail tenant operations, mining royalties, construction schedules, financing availability, asset values, liquidity, and covenant compliance.
- FRP was negotiating rent abatements and cash-flow adjustments with retail tenants, which management expected to reduce NOI. Restaurant tenants at Dock 79 were particularly affected, and Washington, D.C. restrictions limited rent increases.
- As of April 27, 2020, Dock 79 was 90.8% leased and 92.8% occupied; The Maren was 17.42% leased and 4.17% occupied. Management expected The Maren to be substantially complete before the end of the second quarter.
- Construction continued at Bryant Street and the Greenville projects because applicable jurisdictions allowed construction to proceed. Management cautioned that the full effects of COVID-19 remained uncertain.
- FRP reported that it closed the sale of remaining Lakeside Business Park lots for $3.75 million on April 3, 2020.
- One mining lessee accounted for 30% of consolidated revenue in the quarter, creating customer concentration risk.
- FRP has guarantees and other obligations associated with certain joint venture construction loans, including the Bryant Street loan. Joint ventures also had substantial debt that is not included in FRP’s consolidated secured notes payable.
- Contingent litigation and normal-course claims were not expected by management to have a material adverse effect. A previously recorded environmental remediation liability was reduced to zero during 2020.
Investor Verification Checklist
- Verify the pace and cost of COVID-19-related rent concessions, collections, lease renewals, and retail tenant recovery.
- Monitor cash balances, available-for-sale investment values, and funding capacity relative to the projected $38.6 million of 2020 development spending.
- Assess construction completion, lease-up, stabilization, and financing requirements for The Maren, Bryant Street, 1800 Half Street, and the Greenville projects.
- Review joint venture debt, guarantees, interest-rate exposure, and potential funding obligations that are not fully reflected in consolidated debt.
- Track mining volumes, construction activity, and the effect of losing Lake Louisa double minimum payments.
- Reconcile non-GAAP NOI with GAAP results and evaluate the sustainability of investment income and realized or unrealized securities gains and losses.
- Review the concentration represented by the mining lessee contributing 30% of consolidated revenue and the occupancy of FRP’s commercial properties.