FRP Holdings, Inc. 2022 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022. Although the request identifies 2022 Q4, this filing is an annual Form 10-K; quarterly data are included for the quarter ended December 31, 2022.
Business context
FRP Holdings is a real estate holding and development company operating through four segments: Asset Management, Mining Royalty Lands, Development, and Stabilized Joint Ventures. Its portfolio spans approximately 21,000 acres and includes commercial properties, mining royalty land, apartments, mixed-use developments, industrial projects, and unconsolidated joint ventures in the Mid-Atlantic and southeastern United States.
Key financial metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Revenue | $37.5 million | $31.2 million | 20.1% |
| Operating profit | $8.0 million | $2.3 million | 251.6% |
| Operating margin | 21.3% | 7.3% | Expanded |
| Net income attributable to FRP | $4.6 million | $28.2 million | (83.8%) |
| Diluted EPS | $0.48 | $3.00 | (83.7%) |
| Net cash from operating activities | $22.3 million | $22.2 million | Approximately flat |
| Total assets | $701.1 million | $678.2 million | 3.4% |
| Shareholders’ equity | $407.1 million | $396.4 million | 2.7% |
| Total debt | $178.6 million | $178.4 million | Approximately flat |
Revenue growth was led by lease revenue of $26.8 million, up 23.2%, and mining royalty revenue of $10.7 million, up 12.9%. Net income was materially affected by the absence of the $51.1 million 2021 gain from remeasurement of The Maren partnership. The 2022 effective income tax provision was $1.5 million, and comprehensive income attributable to the Company was $3.2 million.
Pro-rata net operating income, a non-GAAP measure, increased 38.0% to $24.2 million from $17.6 million. Segment pro-rata NOI was $10.2 million for Mining Royalties, $9.5 million for Stabilized Joint Ventures, $2.7 million for Asset Management, and $1.9 million for Development.
Liquidity, cash flow, and debt
- Cash and cash equivalents were $177.5 million at December 31, 2022, including $161.6 million invested in U.S. Treasury notes maturing in late 2023.
- Operating cash flow was $22.3 million; investing cash flow was negative $23.2 million; financing cash flow was positive $16.8 million; cash increased $16.0 million during the year.
- Capital expenditures and investments in real estate totaled $27.6 million, including $11.2 million for mining property and $14.5 million for Development activities. Investments in joint ventures totaled $21.6 million, partly offset by $20.8 million of returned capital.
- Secured debt consisted primarily of $180.1 million of fixed-rate mortgage loans at 3.03%, with principal due April 1, 2033. Reported long-term debt, net of issuance costs, was $178.6 million.
- The $20 million Wells Fargo revolving facility had no borrowings, $562,000 of letters of credit outstanding, and $19.4 million available capacity. The Company was in compliance with debt covenants.
- Management expects approximately $83 million of 2023 investment in existing holdings, partnerships, and new assets, funded by cash, investments, operating cash flow, property sales, and potential borrowings.
Material changes versus the prior comparable period
- Asset Management revenue increased 43.0% to $3.7 million, and segment operating profit improved to $1.0 million from a $0.2 million loss, primarily because of improved occupancy, rent growth, and the addition of Hollander 95 properties.
- Mining royalty revenue increased 12.9% to $10.7 million following the April 2022 acquisition of the Bland Property in Astatula, Florida, purchased for $11.6 million. Aggregate tons sold increased to approximately 9.5 million from 7.6 million.
- Stabilized Joint Venture revenue increased 21.7% to $21.4 million, and operating profit improved to $3.2 million from a $1.6 million loss. The Maren was included for a full year in 2022, compared with nine months in 2021.
- FRP sold a 20% tenancy-in-common interest in Dock 79 and The Maren to Steuart Investment Company for $65.3 million. Net cash contribution was $27.9 million, of which $18.6 million was distributed to FRP and $9.3 million to MRP. FRP retained control and continued consolidation.
- Riverside achieved stabilization and obtained $32 million of permanent financing at a fixed 4.92% rate. The Verge and .408 Jackson completed construction and entered lease-up, while FRP invested $3.6 million for a 16% interest in the Estero joint venture.
- Net income declined sharply because 2021 included the $51.1 million non-cash gain on remeasurement of The Maren investment. The 2022 results also benefited from lower amortization expense, which fell to $547,000 from $3.9 million.
Outlook, commentary, risks, and unusual items
Management intends to reinvest cash and operating proceeds into industrial, multifamily, mixed-use, raw-land, and mining royalty opportunities. The company and its partners plan a long-term Washington, D.C. development program exceeding three million square feet, approximately 3,000 residential units, and 150,000 square feet of retail. Management does not currently plan to pay cash dividends or undertake a meaningful share repurchase program because cash is expected to fund growth and provide a capital cushion.
- Management expects the remaining Hollander buildings and a 101,750-square-foot build-to-suit warehouse to achieve occupancy during the first half of 2023.
- Key risks include rising interest rates, inflation and construction costs, economic weakness in the Baltimore-Washington markets, cyclical construction and mining activity, tenant concentration, vacancies, lease renewals, zoning and entitlement delays, joint venture disagreements, environmental liabilities, weather, cybersecurity, and limited real estate liquidity.
- Vulcan Materials accounted for 23% of consolidated 2022 revenue, creating customer concentration risk.
- Riverfront on the Anacostia Phases III and IV have known contamination that may require significant environmental handling costs when construction begins.
- Deferred taxes were approximately $31 million on $112 million of gains reinvested through Opportunity Zone investments; the filing states these taxes are generally deferred until the earlier of disposition or December 31, 2026.
- The Company guaranteed its proportionate share of a $26 million Bryant Street construction loan and had $2.1 million of remaining real estate development and maintenance commitments, plus $30.8 million of additional residential lending commitments, of which $8.3 million was budgeted for 2023.
- The filing identifies no material litigation, no unresolved SEC staff comments, and no subsequent events. Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022.
Important facts for investors to verify
- Reconcile the significant decline in GAAP net income and EPS to the nonrecurring 2021 Maren remeasurement gain.
- Verify the composition, maturity, valuation, and liquidity of the $161.6 million Treasury-note portfolio.
- Assess whether the planned $83 million of 2023 investment can be funded without materially increasing leverage or reducing liquidity.
- Monitor lease-up and occupancy at The Verge, .408 Jackson, Hollander 95, Windlass Run, and other development projects.
- Evaluate exposure to Vulcan Materials and the broader construction and aggregates cycle.
- Review environmental obligations at Riverfront Phases III and IV and the Company’s guarantees, letters of credit, and joint venture commitments.
- Consider the effect of the no-dividend policy, concentrated family ownership, and restrictions under the Wells Fargo credit facility.