FRP Holdings, Inc. — 2021 Form 10-K Summary
Business context and reporting period
FRP Holdings, Inc. is a real estate holding company operating in four segments: commercial asset management, mining royalty lands, property development, and stabilized joint ventures. Its properties are concentrated in the Mid-Atlantic and southeastern United States. This filing covers the fiscal year ended December 31, 2021, with comparative results for 2020 and 2019.
At year-end, the Company owned approximately 20,000 acres and had 14 employees. Mining properties covered approximately 15,000 acres, and the portfolio included commercial, multifamily, retail, warehouse, office, and mixed-use assets.
Key financial metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $31.2 million | $23.6 million | 32.4% |
| Operating profit | $2.3 million | $5.1 million | (55.7%) |
| Net income attributable to FRP | $28.2 million | $12.7 million | 121.9% |
| Diluted EPS | $3.00 | $1.32 | 127.3% |
| Net operating income | $20.8 million | $17.1 million | 22.1% |
| Cash flow from operations | $22.2 million | $18.6 million | 19.5% |
| Total assets | $678.2 million | $536.4 million | 26.4% |
| Shareholders’ equity | $396.4 million | $367.7 million | 7.8% |
| Reported total debt | $178.4 million | $90.0 million | 98.3% |
Revenue growth was driven primarily by lease revenue, which increased to $21.8 million from $14.1 million following the consolidation of The Maren and growth in stabilized multifamily assets. Mining royalty revenue was essentially flat at $9.5 million. Operating margin declined to approximately 7.3% from 21.8%, reflecting substantially higher depreciation, amortization, and operating expenses.
Net income included a $51.1 million pretax gain from the fair-value remeasurement of The Maren when the Company consolidated that joint venture. The gain was partly offset by $10.3 million of income tax expense and $14.0 million attributable to noncontrolling interests. Excluding this unusual gain and other nonrecurring items, reported net income and EPS are not representative of recurring operating performance.
Material changes versus the prior comparable period
- The Maren reached stabilization in March 2021 and was consolidated beginning March 31, 2021. The transaction increased reported assets, liabilities, revenue, depreciation, and noncontrolling interests.
- The Company refinanced Dock 79 and obtained permanent financing for The Maren. The combined $180.1 million of fixed-rate mortgage debt bears interest at 3.03%, requires interest-only payments, and matures in April 2033.
- Two Hollander Business Park buildings totaling approximately 145,590 square feet were completed and transferred to the Asset Management segment. A third 101,750-square-foot build-to-suit building remained under construction.
- Construction was completed at Bryant Street and Riverside. At year-end, Bryant Street’s residential units were 56.1% leased and 50.9% occupied; Riverside was 60% leased and 49% occupied.
- Stabilized joint venture revenue increased 72.6% to $17.6 million, but the segment reported a $1.6 million operating loss versus a $1.5 million profit in 2020, primarily because of increased depreciation and $3.9 million of amortization of The Maren’s lease intangibles.
- Asset Management revenue declined 6.3% following the 2020 sale of 1801 62nd Street. Mining royalty revenue declined slightly as lower activity at Vulcan’s Manassas quarry offset performance elsewhere.
- Capital expenditures were $16.5 million, and total 2021 capital invested in real estate development and joint ventures was $29.4 million.
Cash flow, liquidity, debt, and capital structure
- Cash and cash equivalents were $161.5 million at December 31, 2021, supplemented by $4.3 million of investments available for sale.
- The Company had no borrowings under its $20 million Wells Fargo revolving credit facility, $506,000 of outstanding letters of credit, and $19.5 million available to borrow.
- Debt consisted primarily of $180.1 million of fixed-rate mortgage principal secured by Dock 79 and The Maren. The consolidated carrying value of debt was $178.4 million after unamortized issuance costs.
- No principal payments are due on the mortgage loans before 2033. The Company reported compliance with all debt covenants at year-end.
- Management expects approximately $54.7 million of 2022 capital and joint-venture investments, to be funded with cash on hand and operating cash flow.
- The Company has no history of paying cash dividends and stated that its current policy is not to pay dividends. The revolving credit agreement also contains dividend restrictions.
Guidance, outlook, commentary, and risks
The filing does not provide formal numerical earnings or revenue guidance. Management described 2021 as the first stage of a growth period, emphasizing multifamily stabilization, industrial development, joint-venture projects, and redeployment of capital into mixed-use and warehouse assets.
- Management expected 1800 Half Street and .408 Jackson to be completed and begin leasing in the third quarter of 2022. The filing also anticipated construction beginning in the third quarter of 2022 on a 250,000-square-foot warehouse in Harford County.
- Management expects infrastructure spending to support demand and pricing for aggregates, but acknowledged that mining royalty growth may be difficult to sustain after several years of expansion.
- COVID-19 variants continued to affect retail tenants and leasing activity. Washington, D.C. rent-increase restrictions were lifted in February 2022, but the effect on renewal rates and rental growth remained uncertain.
- Key risks include construction-cost inflation, labor and supply-chain disruptions, rising interest rates, economic weakness in the Baltimore and Washington, D.C. markets, vacancy and tenant defaults, cyclical construction and mining demand, joint-venture disagreements, zoning and entitlement delays, environmental liabilities, cyber risks, and limited real estate liquidity.
- Riverfront on the Anacostia Phases III and IV contain potentially contaminated material requiring special handling. The Company expects significant environmental costs as construction proceeds, although reimbursement may be sought from neighboring property owners.
- The Company and MRP guaranteed $26 million of Bryant Street construction debt, subject to an agreement limiting FRP’s guarantee to its proportionate ownership. The Company also had $6.1 million of remaining development and maintenance commitments.
- Vulcan Materials accounted for 23.0% of consolidated 2021 revenue, creating customer concentration risk.
Most important facts for investors to verify
- Reconcile recurring operating performance with reported net income by separately evaluating the $51.1 million The Maren remeasurement gain, related taxes, noncontrolling interests, and lease-intangible amortization.
- Assess whether The Maren, Dock 79, Bryant Street, Riverside, and other development projects can achieve targeted occupancy and rent growth after COVID-related restrictions and during a potentially higher-rate environment.
- Review the funding plan for approximately $54.7 million of expected 2022 capital investments and the effect of those investments on liquidity.
- Evaluate debt service, refinancing, yield-maintenance, covenant, and interest-rate exposure, including the transition away from LIBOR for the revolving facility.
- Monitor environmental costs and contingencies at Riverfront on the Anacostia and the Company’s self-insured claims exposure.
- Verify mining royalty volumes, tenant concentration, Vulcan’s activity levels, and the timing of anticipated mining at Lake Louisa.
- Consider the absence of cash dividends, significant insider and family ownership, related-party administrative-service charges, and joint-venture governance rights.