FRP Holdings, Inc. — Form 10-Q Summary
Business context and reporting period
FRP Holdings is a real estate company focused on warehouse and office properties, mining royalty lands, and land development and construction. The filing covers the quarter and six months ended March 31, 2016, the second quarter of fiscal 2016. The former transportation business was spun off to Patriot Transportation Holding, Inc. on January 30, 2015 and is reported as a discontinued operation.
Financial performance and key metrics
| Metric | Three months ended March 31 | Six months ended March 31 |
|---|---|---|
| Total revenue | $9.615 million, up 7.5% | $18.438 million, up 6.9% |
| Operating profit | $3.509 million; 36.5% margin | $10.109 million; 54.8% margin |
| Income from continuing operations | $1.820 million; $0.18 diluted EPS | $9.293 million; $0.94 diluted EPS |
| Net income | $1.820 million, versus $1.361 million | $9.293 million, versus $4.155 million |
| Net cash from operating activities | $9.117 million for the six-month period |
- Rental revenue increased to $6.089 million for the quarter and $12.116 million for six months. Royalty and rents increased 33.5% for the quarter and 28.8% for six months, primarily from higher mining volumes.
- Asset Management revenue was $7.574 million for the quarter and $14.489 million for six months. Six-month cash-basis NOI was $10.832 million, compared with $10.453 million in the prior year.
- Mining Royalty Lands revenue was $1.778 million for the quarter and $3.437 million for six months; operating profit was $1.574 million and $3.044 million, respectively.
- Six-month capital expenditures and property investments were $11.495 million, including the Port Capital acquisition. Management expected approximately $28.6 million of fiscal 2016 capital expenditures and acquisitions.
- At March 31, total assets were $256.142 million and shareholders’ equity was $193.234 million. Cash and cash equivalents were zero; cash held in escrow was $1.175 million.
- Total debt was $39.179 million, consisting of $1.044 million outstanding under revolving facilities and $38.135 million of mortgage notes. The Wells Fargo facility had $16.789 million available, subject to $2.796 million of letters of credit; $629,000 was outstanding under the First Tennessee revolver. The company was in compliance with its debt covenants.
Material changes versus the prior comparable period
- Quarterly operating profit increased 62.5%, driven by higher revenue, lower operating expenses and lower corporate costs. Continuing-operations income increased 115.4%.
- Six-month operating profit increased 124.4% and continuing-operations income increased 370.3%. Comparability was materially affected by a $6.277 million gain on the sale of Windlass Run residential land and a $3.000 million environmental-claims settlement benefit.
- Six-month operating cash flow increased from $8.271 million to $9.117 million, while investing cash use declined to $1.732 million. Financing cash use increased to $7.804 million, primarily because of revolver repayments.
- Asset Management occupied square footage increased to 3,348,112 from 3,198,200, and overall occupancy increased to 90.7% from 88.8%. Portfolio size increased to 3,693,377 square feet.
- The Port Capital property was acquired for approximately $9.9 million through a Section 1031 exchange following the $11.1 million sale of Windlass Run Phase 2 residential land.
Guidance, outlook, risks and unusual items
- Management planned to complete a 79,550-square-foot speculative warehouse at Hollander Business Park, pursue construction of a 104,000-square-foot speculative building at Patriot Business Park, and continue development and lease-up of RiverFront on the Anacostia.
- Management expected to commence approximately $4.2 million of bulkhead capital improvements at Square 664E, of which $397,000 had been incurred. It also anticipated that a commitment to develop RiverFront Phase II could require recording an additional environmental remediation liability.
- Dock 79 at RiverFront was nearing completion on budget and on schedule, with initial residential occupancy expected in August 2016. Lease-up was expected to continue through 2017.
- FRP entered into a 50/50 joint venture with St. John Properties to develop the remaining Windlass Run lands into approximately 329,000 square feet of office space. FRP expected an initial cash distribution of approximately $2.130 million in May 2016.
- Key risks include construction and development execution, zoning and entitlement approvals, demand for warehouse and office space, mining volumes, tenant concentration, interest rates, financing availability, economic conditions, environmental remediation and joint-venture performance.
- The company had a capped environmental remediation obligation for RiverFront Phase I and anticipated potentially recording additional remediation costs for Phase II. Management stated that ordinary-course litigation and claims were not expected to materially affect consolidated results.
- Management presented non-GAAP adjusted operating profit of $7.109 million for the six months ended March 31, 2016, excluding the $3.000 million environmental settlement benefit. Adjusted operating profit increased 27.3% from the comparable period after adjustments.
Important facts for investors to verify
- Separate recurring operating performance from the Windlass Run land-sale gain and the environmental settlement benefit.
- Confirm the timing, cost and lease-up assumptions for Hollander, Patriot Business Park, Square 664E and RiverFront.
- Review the additional environmental liability that could arise if RiverFront Phase II proceeds.
- Monitor occupancy, tenant retention and tenant concentration, including major tenants representing 11.6% and 12.4% of six-month consolidated revenue.
- Verify the availability, covenants and interest-rate exposure of the Wells Fargo and First Tennessee credit facilities.
- Assess the company’s planned $28.6 million fiscal 2016 capital program against operating cash flow, property-sale proceeds and borrowing capacity.
- Note that the filing provides no formal earnings guidance beyond the stated development, capital-expenditure and project-timing expectations.