FRP Holdings, Inc. — Form 10-Q Summary
Business context and reporting period
FRP Holdings is a real estate company focused on warehouse and office ownership, leasing and management; mining royalty lands; and land development and construction. The transportation business was spun off to Patriot Transportation Holding, Inc. on January 30, 2015 and is presented as a discontinued operation. This unaudited report covers the three and nine months ended June 30, 2016, the third quarter and first nine months of fiscal 2016.
Key financial metrics
| Metric | Three months ended June 30, 2016 | Three months ended June 30, 2015 | Nine months ended June 30, 2016 | Nine months ended June 30, 2015 |
|---|---|---|---|---|
| Total revenue | $9.243 million | $8.497 million | $27.681 million | $25.747 million |
| Operating profit | $1.966 million | $3.889 million | $12.075 million | $8.393 million |
| Income from continuing operations | $0.774 million | $2.046 million | $10.067 million | $4.022 million |
| Net income | $0.774 million | $2.046 million | $10.067 million | $6.201 million |
| Diluted EPS | $0.08 | $0.21 | $1.02 | $0.63 |
- Revenue increased 8.8% in the quarter and 7.5% for the nine-month period. Operating margin was approximately 21.3% in the quarter and 43.6% year to date, compared with 45.8% and 32.6%, respectively, in the prior-year periods.
- Quarterly results included a $2.0 million environmental remediation expense related to Phase II of RiverFront on the Anacostia. Excluding this unusual charge, quarterly operating performance was materially stronger than reported GAAP results.
- Nine-month results included a $6.177 million gain on investment land sold and a $1.0 million net benefit from environmental claim activity, consisting primarily of a $3.0 million settlement partly offset by the $2.0 million Phase II remediation accrual.
- Asset Management revenue increased 6.4% in the quarter and 4.0% year to date. Nine-month net operating income was $16.317 million, up from $15.726 million. Occupied square footage was 3.320 million at June 30, 2016, while occupancy was 88.0% versus 90.4% a year earlier.
- Mining Royalty Lands revenue increased 18.7% in the quarter and 24.5% year to date, driven by higher tons mined. Nine-month operating profit increased to $4.932 million from $2.900 million.
- Land Development and Construction reported a quarterly operating loss of $2.886 million, including the $2.0 million remediation expense, and a nine-month operating loss of $1.734 million.
Cash flow, debt and liquidity
- Net cash provided by operating activities was $13.680 million for the first nine months, compared with $13.177 million in the prior-year period.
- Investing activities used $0.067 million, reflecting $12.969 million of property investment and $13.463 million of proceeds from real estate and property sales.
- Financing activities used $10.563 million, including $3.110 million of long-term debt repayments and net repayments on revolving facilities.
- Cash increased from $0.419 million at September 30, 2015 to $3.469 million at June 30, 2016.
- Total debt was $37.081 million, consisting of mortgage notes; the company had no borrowings under its $20 million Wells Fargo revolver or its $20 million First Tennessee revolver. Wells Fargo availability was $17.558 million after $2.442 million of letters of credit. The company was in compliance with all debt covenants.
- Shareholders’ equity was $193.997 million and total assets were $255.582 million at June 30, 2016. The company does not currently pay cash dividends.
Material changes, outlook and unusual items
- Management reported adjusted operating profit of $11.075 million for the first nine months, up 16.9% from $9.474 million, excluding the environmental remediation recovery and prior-year corporate costs associated with discontinued operations.
- Fiscal 2016 capital expenditures are expected to be approximately $28 million; $12.969 million had been spent through June 30, primarily for development and acquisitions.
- The company completed the 79,550-square-foot Hollander Business Park spec building and began construction of a 103,653-square-foot Patriot Business Center building, which was 51,727 square feet pre-leased. It also formed a 50/50 joint venture with St. John Properties to develop approximately 329,000 square feet at Windlass Run.
- On July 1, 2016, after the reporting date, FRP acquired the 116,338-square-foot, 100%-leased Gilroy Road building in Hunt Valley, Maryland for $8.331 million. Management projected fiscal 2017 rental revenue of approximately $0.755 million, excluding reimbursements.
- RiverFront Phase I lease-up began in May 2016; as of July 18, 2016, 18.8% of the 305 residential units were pre-leased, with occupancy expected to begin in August 2016. Phase II plans were submitted for zoning approval, and the company recorded the related $2.0 million remediation liability.
- Key risks include construction and development execution, zoning and entitlement approvals, environmental remediation, tenant and mining-lessee concentration, construction-market conditions, interest rates, financing availability, competition, insurance markets and demand for warehouse and office facilities. The company has a remediation liability of approximately $2.039 million at June 30, 2016 and has capped obligations for certain RiverFront Phase I remediation costs.
Important facts for investors to verify
- Whether RiverFront Phase I achieves projected lease-up and occupancy and whether Phase II receives required approvals.
- The final cost and scope of RiverFront environmental remediation and the outcome of negotiations with other potentially responsible parties.
- Actual occupancy, tenant retention and rental growth in the Asset Management portfolio, particularly given the decline in reported occupancy.
- Sustained mining volumes and royalty revenue, including exposure to significant lessees.
- Funding requirements for the approximately $28 million fiscal 2016 capital program and the timing and terms of the proposed $20 million First Tennessee term loan.
- The impact of the July 1, 2016 Gilroy Road acquisition and other development projects on leverage, cash flow and future earnings.