FRP HOLDINGS, INC. quarterly report, Q1 FY2019

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FRP Holdings, Inc. — Form 10-Q Summary

Business context and reporting period

Unaudited results cover the three months ended March 31, 2019, compared with the three months ended March 31, 2018. FRP operates in mining royalty lands, real estate development, commercial property ownership and leasing, and a stabilized residential joint venture. The 2018 sale of substantially all industrial warehouse properties for $347.2 million was a major strategic shift; those properties are presented as discontinued operations.

Financial performance and position

  • Revenue: $5.714 million, up 12.6% from $5.075 million. Lease revenue increased 5.5% to $3.485 million, while mining lands lease revenue increased 25.8% to $2.229 million.
  • Operating profit: $1.355 million versus $0.097 million; operating margin was approximately 23.7% versus 1.9%.
  • Continuing operations: Income was $1.641 million, or $0.16 diluted per share, compared with a loss of $0.693 million, or $0.07 per share.
  • Net income attributable to FRP: $1.898 million, or $0.19 diluted per share, versus $1.560 million, or $0.15 per share. Net income included $0.086 million from discontinued operations versus $1.722 million in the prior-year quarter.
  • Other income: Net investment income was $1.810 million, including a $0.119 million realized gain on investments, versus $0.005 million in the prior-year quarter.
  • Net operating income: Management’s non-GAAP NOI was $4.170 million versus $3.622 million. Stabilized Joint Venture NOI was $1.631 million, up 9.8%, and mining royalty NOI was $2.267 million, up 26.6%.
  • Cash flow: Operating activities generated $3.250 million, compared with $5.325 million. Investing activities provided $5.813 million, primarily reflecting $22.893 million of investment-sale proceeds, partly offset by property, joint-venture and investment purchases. Financing activities used $1.969 million, including $1.714 million for share repurchases.
  • Liquidity: Cash and cash equivalents were $29.641 million at March 31, 2019, compared with $22.547 million at December 31, 2018. Investments available for sale were $148.778 million, including 48 corporate bonds.
  • Debt: Consolidated secured notes payable were $88.823 million, principally the Dock 79 loan. The five-year Wells Fargo revolver had no borrowings, $1.740 million of letters of credit and $18.260 million available capacity. The company was in compliance with its covenants.
  • Balance sheet: Total assets were $506.123 million and total equity was $384.602 million. Net real estate investments were $313.277 million, including $94.294 million in equity-method joint ventures.
  • Occupancy: Dock 79 was 93.1% occupied and 94.8% leased at quarter-end. Cranberry Office Park was 26% occupied, 7030 Dorsey Road was 67.9% occupied and 34 Loveton Circle was 95.2% occupied.

Material changes versus the prior comparable period

  • Mining royalty revenue increased primarily because the Fort Myers quarry moved beyond minimum royalty payments as mining activity increased.
  • Stabilized Joint Venture operating profit improved to $0.372 million from a $0.856 million loss, largely because depreciation and amortization declined by $0.956 million following the prior consolidation accounting.
  • Asset Management reported a $0.066 million operating loss versus $0.256 million of operating profit, reflecting higher corporate allocations and operating losses from the Cranberry acquisition.
  • Development operating loss widened to $0.952 million from $0.806 million as the company continued investing in development activities.
  • Interest expense declined to $0.588 million from $0.843 million, while equity in joint-venture losses increased to $0.264 million from $0.012 million.
  • Comprehensive income attributable to the company was $3.458 million, including a $1.560 million unrealized after-tax gain on available-for-sale investments.
  • The company acquired Cranberry Office Park for approximately $6.411 million and repurchased 35,932 shares at an average price of $47.71. Approximately $7.436 million remained authorized for future repurchases.
  • The company adopted the new lease accounting standard effective January 1, 2019; management stated that adoption did not materially affect the financial statements.

Guidance, outlook, risks and unusual items

  • Management expects approximately $6.848 million of capital expenditures during the remainder of 2019, primarily for real estate development and joint-venture investments. Funding is expected from cash, investments, operations, property sales and/or credit facilities.
  • Management emphasized substantial liquidity following the 2018 asset sale and intends to redeploy capital selectively while pursuing development opportunities and share repurchases.
  • Construction and development projects include The Maren at RiverFront on the Anacostia, Bryant Street in Washington, D.C., Hollander Business Park, Windlass Run and Hyde Park. Timing, entitlement, leasing and stabilization targets remain subject to execution and market conditions.
  • The 7030 Dorsey Road property was classified as held for sale after quarter-end under an $8.823 million purchase agreement, with closing expected in the second quarter of 2019.
  • A remaining claim by Gill Corporation concerning roof replacement or damages remains pending after its right-of-first-refusal claim was dismissed. A related $11.7 million property sale was expected to close in the second or third quarter of 2019.
  • Key risks include construction and development costs, zoning and entitlement approvals, tenant vacancies and defaults, mining and construction-market cycles, interest rates, capital-market conditions, liquidity restrictions, environmental liabilities, partner performance, competition and cybersecurity.
  • One mining lessee represented approximately 30% of consolidated revenue for the quarter; termination of the related lease could materially affect results.
  • The company does not pay cash dividends and stated that it has no present intention to do so. Credit-facility covenants may restrict dividends.

Important facts for investors to verify

  • Confirm the sustainability of the mining royalty increase, particularly the Fort Myers quarry contribution and concentration in a major lessee.
  • Separate recurring operating performance from the $1.810 million of investment income and the $1.560 million unrealized investment gain.
  • Review occupancy, leasing and required improvement spending at Cranberry Office Park and other remaining commercial assets.
  • Assess funding needs, construction progress, entitlements and projected stabilization for The Maren, Bryant Street, Windlass Run, Hyde Park and Hollander Business Park.
  • Verify the timing and proceeds of the pending 7030 Dorsey Road and remaining warehouse-property sales.
  • Review consolidated and unconsolidated joint-venture debt, interest-rate exposure, guarantees, covenant restrictions and the company’s remaining liquidity.
  • Monitor the pending roof-related litigation and the company’s environmental remediation obligations.