FRP HOLDINGS, INC. annual report, FY2018

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FRP Holdings, Inc. — 2018 Form 10-K Summary

Business Context and Reporting Period

FRP Holdings, Inc. is a real estate holding company reporting for the fiscal year ended December 31, 2018. Its businesses comprise commercial property leasing and management, mining royalty lands, real estate development, and a stabilized residential joint venture.

  • The company owns more than 20,000 acres across Florida, Georgia, Maryland, Virginia, Delaware, and Washington, D.C.
  • Its stabilized joint venture owns a 305-unit apartment building with approximately 18,000 square feet of retail space.
  • At December 31, 2018, the company had 10 employees and received services from three executive officers under a related-party agreement.

Financial Metrics and Capitalization

The filing text provided does not include the consolidated statements of income, comprehensive income, cash flows, or balance sheets; those statements were incorporated by reference from the 2018 Annual Report to Shareholders. Consequently, revenue, net income, operating cash flow, margins, earnings per share, cash balances, and year-over-year percentage changes cannot be stated clearly from the supplied text.

  • Vulcan Materials Company represented 29.9% of consolidated 2018 revenue, creating customer-concentration exposure.
  • As of December 31, 2018, outstanding non-recourse mortgage debt was $90.0 million, secured by developed real estate with a carrying value of $138.762 million.
  • The mortgage debt carried a stated average fixed interest rate of 4.125%; scheduled maturities were $127,000 in 2021, $1.556 million in 2022, $1.622 million in 2023, and $86.695 million thereafter.
  • The company reported no variable-rate debt outstanding at year-end.
  • The company held $165.212 million of corporate bonds maturing from 2020 through 2024. Unrealized gains and losses affect comprehensive income.
  • Gross real estate carrying cost was $241.413 million at December 31, 2018, compared with $243.165 million at December 31, 2017. Accumulated depreciation and depletion was $27.921 million, compared with $26.228 million.
  • Capitalized real estate additions were $7.025 million in 2018, compared with $2.896 million in 2017.
  • The company has not paid cash dividends and stated that its current policy is not to pay them.

Material Changes Versus the Prior Comparable Period

  • On May 21, 2018, the company sold 40 industrial warehouse properties and three land parcels to an affiliate of Blackstone Real Estate Partners VIII for $347.2 million. One warehouse, valued at $11.7 million, was excluded after the tenant exercised a right of first refusal. The sold properties were classified as discontinued operations for all periods presented.
  • The sale substantially reduced the Asset Management segment. At year-end, that segment retained three commercial properties.
  • In connection with the warehouse sale, mortgage notes were prepaid and the First Tennessee Bank credit line was terminated.
  • Construction commenced on the second building at RiverFront on the Anacostia in 2018.
  • On December 24, 2018, the company and MRP Realty formed four partnerships to acquire and develop approximately five acres in Washington, D.C.’s Bryant Street Master Plan. The property is located in an Opportunity Zone.
  • Hampstead, Maryland, rezoning was re-awarded to FRP in December 2018. No appeal was filed, allowing the company to proceed with its residential concept and formal planned-unit-development entitlement process.
  • The company repurchased 121,817 shares during the fourth quarter at an average price of $47.06. The board increased the repurchase authorization by $10.0 million in December 2018.
  • Environmental remediation liability associated with RiverFront Phase II was reduced by $465,000 in the quarter ended September 30, 2018 after substantial completion of remediation.

Guidance, Outlook, Risks, Contingencies, and Unusual Items

The filing does not provide specific quantitative 2019 earnings or revenue guidance. Management’s strategy is to convert non-income-producing land into income-producing assets through development, operation, sales, and joint ventures.

  • Mining activity is cyclical and affected by construction demand, weather, interest rates, infrastructure spending, and economic conditions. Revenue generally declines slightly during winter months.
  • Vulcan’s concentration in consolidated revenue means a disruption in its ability to perform under lease agreements could materially affect results.
  • Development projects face zoning, entitlement, permitting, environmental, construction-cost, financing, leasing, and timing risks.
  • RiverFront on the Anacostia contains contaminated material requiring special handling. The company expects significant environmental costs and may incur amounts materially above or below recorded estimates. It continues to seek reimbursement from potentially responsible parties.
  • The company faces joint-venture risks, including partner disagreements, shared control, and differing economic interests.
  • The company’s unsecured revolving credit agreement contains restrictions on additional debt, investments, mergers, dividends, asset encumbrances, and financial coverage ratios.
  • Real estate investments are relatively illiquid, while lease expirations, vacancies, tenant defaults, and tenant bankruptcies could reduce cash flow.
  • A tenant, The Gill Corporation, sued regarding an alleged right of first refusal for the excluded $11.7 million warehouse and asserted that FRP should replace the roof at an estimated cost of $664,900. FRP believes the claims are without merit and is defending the action.
  • The company’s executives are shared with Patriot Transportation Holding under a transition services agreement, creating potential attention and conflict-of-interest risks.
  • Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2018. The independent auditor also audited internal-control effectiveness.

Most Important Facts for Investors to Verify

  1. Retrieve the incorporated 2018 Annual Report to verify consolidated revenue, discontinued-operation effects, net income, cash flow, liquidity, and segment results.
  2. Assess how the $347.2 million warehouse disposition changed recurring revenue, operating cash flow, asset composition, and leverage.
  3. Verify the maturity and refinancing risk associated with the $86.695 million mortgage balance due after 2023.
  4. Review corporate-bond holdings for issuer concentration, credit quality, unrealized losses, and liquidity needs.
  5. Evaluate Vulcan’s 29.9% revenue contribution and the sustainability of mining royalty volumes and reserves.
  6. Review environmental remediation estimates and potential additional liabilities at RiverFront on the Anacostia.
  7. Monitor the Gill litigation and any possible roof-replacement, purchase, or damages obligation.
  8. Assess execution, funding, entitlement, construction, and lease-up risks for RiverFront Phase II, Bryant Street, Hampstead Overlook, and other development projects.