FRP HOLDINGS, INC. annual report, FY2023

FRP Holdings, Inc. 2023 Form 10-K Summary

Business Context and Reporting Period

FRP Holdings, Inc. is a real estate holding, development and operating company reporting for the fiscal year ended December 31, 2023. Its four reportable segments are Industrial and Commercial, Mining Royalty Lands, Development and Multifamily. The company owns or controls approximately 21,000 acres and operates primarily in the Mid-Atlantic and southeastern United States.

During the fourth quarter, the company renamed its Asset Management segment Industrial and Commercial and its Stabilized Joint Venture segment Multifamily. Management stated that the changes were cosmetic and did not affect reported results.

Financial Performance and Key Metrics

Metric	2023	2022	Change
Revenue	$41.5 million	$37.5 million	+10.7%
Operating profit	$11.7 million	$8.0 million	+46.3%
Net income	$4.9 million	$4.0 million	+20.6%
Net income attributable to FRP	$5.3 million	$4.6 million	+16.1%
Diluted EPS	$0.56	$0.48	+16.7%
Operating margin	28.2%	21.3%	Improved
Pro-rata NOI	$30.24 million	$24.23 million	+24.8%
Total assets	$709.2 million	$701.1 million	+1.2%
Shareholders’ equity	$414.5 million	$407.1 million	+1.8%
Book value per common share	$43.71	$43.04	+1.6%

Lease revenue increased 8.1% to $29.0 million, while mining royalty revenue increased 17.3% to $12.5 million.
Industrial and Commercial revenue increased 45.4% to $5.4 million and segment NOI increased 46.2% to $3.9 million. The portfolio was 95.6% leased and occupied at year-end, compared with 84.3% occupied at the end of 2022.
Mining royalty revenue reached a record level despite aggregate tons sold declining slightly to approximately 9.6 million tons. Mining royalty segment operating profit was $10.6 million, or approximately 84.3% of segment revenue.
Multifamily revenue increased 1.8% to $21.8 million and segment operating profit increased 15.4% to $3.7 million. Pro-rata NOI declined 14.7% to $8.1 million, primarily because the company sold a 20% interest in Dock 79 and The Maren in late 2022.
Development remained loss-making, with an operating loss of $4.3 million and a loss before income taxes of $11.0 million, including $11.4 million of equity losses from joint ventures.
Net investment income increased 99.1% to $10.9 million, primarily from higher interest earned on cash and income from lending ventures.
Interest expense increased 41.7% to $4.3 million, partly because less interest was capitalized as development activity changed.
Cash flow from operations was $33.0 million, compared with $22.3 million in 2022. Investing activities used $48.7 million, including $11.2 million for property investments and $46.7 million for joint-venture investments, partially offset by $9.2 million of returned joint-venture capital.
Cash and cash equivalents were $157.6 million at year-end. The company also held $128.8 million of U.S. Treasury notes maturing through mid-2024.
Debt consisted primarily of $180.1 million of fixed-rate mortgage principal secured by Dock 79 and The Maren. Carrying-value debt was $178.7 million after unamortized issuance costs. The loans bear interest at 3.03%, require interest-only payments and mature April 1, 2033.
The company had no borrowings under its $35 million Wells Fargo revolving facility, $823,000 of outstanding letters of credit and $34.2 million of remaining borrowing capacity.
The company does not pay cash dividends and stated that its current policy is not to pay them.

Material Changes Versus the Prior Comparable Period

Overall operating performance improved materially because of higher industrial occupancy and rents, the addition of a fully occupied warehouse, and strong mining royalty pricing.
Industrial and Commercial NOI increased 46.2%, supported by full-year occupancy of two Hollander buildings and the addition of a 101,750-square-foot build-to-suit warehouse.
Mining royalties increased 17.3%; management attributed the growth primarily to higher pricing across active locations and the Astatula acquisition completed in 2022.
Multifamily operations were mixed. Dock 79 and The Maren experienced modest revenue growth, but rent growth did not keep pace with expenses in a soft Washington, D.C. market. Riverside contributed approximately $800,000 of pro-rata NOI in its first full calendar year.
Equity in losses of joint ventures increased to $11.9 million from $5.7 million, primarily because of lease-up losses at The Verge and .408 Jackson. The 2022 comparison benefited from a gain on the sale of DST Hickory Creek.
Interest income increased by $5.4 million, while interest expense increased by $1.3 million.
The company repurchased 36,909 shares in 2023 for approximately $2.0 million, at an average cost of $54.19 per share.
Investments in joint ventures increased substantially, including funding for Aberdeen Overlook, a Bryant Street loan paydown, higher interest costs at The Verge and predevelopment activities.

Guidance, Outlook, Commentary, Risks and Unusual Items

Management did not provide formal earnings guidance. It expects to invest approximately $87 million during 2024 in existing properties, joint ventures and new real estate assets, funded through cash and investments, operating cash flow, property sales, joint-venture distributions and potential revolver borrowings. The company expended $57.9 million on real estate development and joint ventures during 2023.

Management is shifting development emphasis away from Washington, D.C. multifamily projects toward industrial development because of higher debt and material costs and excess multifamily supply in the D.C. market.
A 259,200-square-foot speculative warehouse in Aberdeen, Maryland is under construction and is expected to be completed in the third quarter of 2024. Management estimates a project cost of approximately $30 million.
The company expects The Verge, Bryant Street and .408 Jackson to approach stabilization and potentially move into the Multifamily segment during 2024, adding approximately 1,058 units.
Management remains positive on mining royalty demand, citing expected increases in infrastructure spending, but results remain exposed to construction cycles, commodity pricing and tenant activity.
Multifamily performance is exposed to continued softness in the Washington, D.C. market, new competing supply, occupancy trends, renewal rates and expense growth.
Joint ventures generated significant losses and carry substantial debt. FRP’s unconsolidated joint ventures had approximately $263.7 million of secured notes payable at year-end, and FRP had $166.1 million invested in those ventures.
FRP and MRP guaranteed the interest carry cost of a $110 million Bryant Street loan, with FRP’s guarantee limited by a side agreement to its proportionate ownership. The company also had $16.8 million of real estate development commitments and $11.7 million of additional financing commitments to residential lending ventures.
Environmental liabilities are a significant risk, particularly contaminated material at Phases III and IV of Riverfront on the Anacostia. Management expects significant environmental costs when construction proceeds, although the ultimate amount is uncertain.
Vulcan Materials accounted for 24% of consolidated revenue in 2023. An adverse event affecting Vulcan’s ability to perform under its leases could materially affect results.
Opportunity Zone investments created approximately $35 million of deferred taxes associated with $143 million of reinvested gains. The related taxes are generally deferred until the earlier of disposition or April 15, 2027, subject to statutory holding-period provisions.
The company announced a two-for-one forward stock split with a record date of April 1, 2024 and payment date of April 12, 2024. Historical EPS will be adjusted on a pro forma basis for comparability.
No material cybersecurity event was identified in 2023. Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023.

Most Important Facts for Investors to Verify

Reconcile consolidated GAAP earnings and cash flow with management’s non-GAAP pro-rata NOI of $30.24 million.
Assess the sustainability of mining royalty growth, including pricing, tons sold and Vulcan’s 24% revenue concentration.
Monitor Washington, D.C. multifamily occupancy, rent growth, expenses and lease-up at The Verge and Bryant Street.
Verify the timing, budget and leasing assumptions for the Aberdeen warehouse and the company’s broader industrial development pipeline.
Review joint-venture debt, guarantees, preferred returns, ownership adjustments and the $11.9 million equity loss recorded in 2023.
Evaluate liquidity after the planned $87 million of 2024 investment, including Treasury maturities, revolver availability and development commitments.
Assess potential environmental costs at Riverfront on the Anacostia and the effect of deferred Opportunity Zone taxes.
Consider the company’s no-dividend policy, share repurchases, controlling shareholder influence and the effect of the announced stock split on per-share data.