FRP Holdings, Inc. — Form 10-Q Summary
Business context and reporting period
FRP Holdings, Inc. is a real estate holding company focused on mining royalty lands, property development, commercial property ownership and leasing, and stabilized residential joint ventures. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2020, with comparisons to the corresponding 2019 periods. The company reported four segments: Asset Management, Mining Royalty Lands, Development, and Stabilized Joint Venture.
Most industrial warehouse properties were previously sold and are presented as discontinued operations. The remaining business is concentrated in mining royalties, development projects, selected commercial properties, and residential and mixed-use joint ventures.
Key financial metrics
| Metric | Three months ended September 30, 2020 | Three months ended September 30, 2019 | Nine months ended September 30, 2020 | Nine months ended September 30, 2019 |
|---|---|---|---|---|
| Total revenue | $6.098 million | $5.883 million | $17.730 million | $17.960 million |
| Operating profit | $1.581 million | $1.358 million | $3.579 million | $4.820 million |
| Income from continuing operations | $5.271 million | $1.902 million | $10.747 million | $6.495 million |
| Net income attributable to FRP | $5.455 million | $2.001 million | $11.222 million | $13.724 million |
| Diluted EPS attributable to FRP | $0.57 | $0.20 | $1.16 | $1.38 |
| Net cash from operating activities | Not provided for the quarter | Not provided for the quarter | $13.353 million | $15.021 million |
Third-quarter operating margin was approximately 25.9%, compared with 23.1% in the prior-year quarter. The nine-month operating margin was approximately 20.2%, compared with 26.8% in 2019. The improvement in quarterly earnings and continuing operations was driven primarily by real estate-sale gains, while the year-to-date decline in total net income reflected the absence of the prior-year discontinued-operations gain.
- Balance sheet: Total assets were $536.130 million at September 30, 2020, versus $538.148 million at December 31, 2019. Total equity was $387.306 million versus $391.645 million.
- Liquidity: Cash and cash equivalents were $46.289 million, with an additional $15.259 million held in escrow. Investments available for sale were $104.624 million. Management reported total cash and cash equivalents, including escrow, of $61.548 million.
- Debt: Secured notes payable were $89.027 million, principally the Dock 79 permanent loan. The company had no borrowings under its $20 million revolving credit facility, $0.411 million of letters of credit outstanding, and $19.589 million available to borrow.
- Cash flow and investing: Nine-month investing activities provided $22.729 million, including $57.240 million of proceeds from sales of available-for-sale investments and $19.257 million from asset sales. Capital expenditures were $3.200 million, and investments in joint ventures were $10.911 million.
- Share repurchases: FRP repurchased 379,809 shares for $15.687 million during the first nine months, at an average cost of $41.30 per share. The company had $15.252 million remaining under its repurchase authorization at September 30, 2020.
Material changes versus the prior comparable period
- Third-quarter revenue increased 3.7% to $6.098 million. Mining royalty revenue rose 8.9% to $2.507 million, and Asset Management revenue rose 67.7% to $0.721 million.
- Third-quarter operating profit increased 16.4% to $1.581 million. Net income attributable to FRP increased 172.6% to $5.455 million, principally because of a $5.732 million real estate-sale gain versus $0.126 million in the prior-year quarter.
- For the first nine months, revenue decreased 1.3% and operating profit decreased 25.7%. Higher corporate expenses, including $1.241 million of stock compensation versus $0.206 million in 2019, and increased joint-venture losses offset lower interest expense and higher real estate-sale gains.
- Nine-month income from continuing operations increased 65.5% to $10.747 million, but net income attributable to FRP declined 18.2% because 2019 included $6.849 million of income from discontinued operations.
- Equity in joint-venture losses increased to $3.773 million from $1.282 million, primarily reflecting the Maren’s lease-up losses, Bryant Street preferred-interest costs and guarantee-liability amortization.
- Real estate-sale gains increased to $9.329 million from $0.662 million for the first nine months. 2020 gains included sales of Lakeside Business Park lots, 1801 62nd Street, Gulf Hammock, and 87 acres of the Fort Myers property.
- Net cash provided by operating activities declined to $13.353 million from $15.021 million, while financing cash use increased to $16.400 million from $8.453 million, primarily because of increased share repurchases.
Guidance, outlook, risks and unusual items
- Management expected approximately $19.7 million of additional 2020 real estate capital expenditures, including joint-venture investments, funded primarily from cash, investments, operating cash flow, property sales, or credit facilities.
- Management stated that mining royalties were ahead of the prior-year quarter and approximately 1% below the prior-year record through nine months. A county purchase of 87 Fort Myers acres for $2.2 million is expected to support a future road extension and potential second-life development.
- The Maren received its final certificate of occupancy at the end of September. It was approximately 76% leased and 69% occupied at quarter-end after 91 leases were signed and 125 tenants moved in during the quarter.
- Dock 79 residential units were 94.43% occupied and 90.49% leased at quarter-end. A District of Columbia rent freeze limited renewal increases; management expected the impact to continue into the first quarter of 2021. Dock 79’s third-quarter NOI declined 11.6% year over year.
- Bryant Street was 78% complete and expected to be completed in the fourth quarter of 2021. 1800 Half Street began construction in August 2020 after closing a construction loan of up to $74 million. Two Greenville projects were under construction and expected to be completed in 2021 and 2022.
- COVID-19 remained a material uncertainty. Management expected potential adverse effects on rent collections, tenant concessions, lease renewals, mining activity, construction schedules, permitting, financing, asset values, liquidity, and debt-covenant compliance. The company reported that tenants were generally paying rent, with one office tenant owing $6,500 for April.
- The company was in compliance with its credit-facility covenants at September 30, 2020. It paid no cash dividends and stated that it had no current intention to do so.
- Material contingencies include joint-venture construction debt, guarantees, development commitments, environmental and zoning matters, tenant concentration, and litigation or claims arising in the ordinary course. Management did not expect existing litigation to materially affect consolidated results.
- One mining lessee accounted for 32.1% of consolidated revenue for the first nine months, creating concentration risk. Investments available for sale consisted principally of 46 corporate bonds with maturities from 2020 through 2022.
Most important facts for investors to verify
- Whether the Maren reaches stabilization as projected and whether lease-up losses decline.
- The effect of the rent freeze and COVID-19 conditions on Dock 79 occupancy, renewals, retail tenants, and NOI.
- Progress, budgets, financing terms, guarantees, and completion schedules for Bryant Street, 1800 Half Street, Greenville, and other joint ventures.
- The sustainability of earnings excluding the $9.329 million of year-to-date real estate-sale gains and other unusual items.
- Exposure to joint-venture losses, construction-loan maturities, interest-rate changes, guarantees, and future capital commitments.
- Dependence on major mining tenants and the impact of construction activity on royalty revenue.
- Available liquidity after escrow balances, planned capital expenditures, joint-venture funding, and additional share repurchases.