Company Quick10K Filing
FRP Holdings
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 10 $495
10-Q 2019-11-08 Quarter: 2019-09-30
10-Q 2019-08-08 Quarter: 2019-06-30
10-Q 2019-05-09 Quarter: 2019-03-31
10-K 2019-03-15 Annual: 2018-12-31
10-Q 2018-11-08 Quarter: 2018-09-30
10-Q 2018-08-09 Quarter: 2018-06-30
10-Q 2018-05-10 Quarter: 2018-03-31
10-K 2018-03-16 Annual: 2017-12-31
10-Q 2017-11-09 Quarter: 2017-09-30
10-Q 2017-08-08 Quarter: 2017-06-30
10-Q 2017-05-05 Quarter: 2017-03-31
10-K 2016-12-12 Annual: 2016-09-30
10-Q 2016-08-05 Quarter: 2016-06-30
10-Q 2016-05-05 Quarter: 2016-03-31
10-Q 2016-02-05 Quarter: 2015-12-31
10-K 2015-12-11 Annual: 2015-09-30
10-Q 2015-08-06 Quarter: 2015-06-30
10-Q 2015-05-08 Quarter: 2015-03-31
10-Q 2015-02-05 Quarter: 2014-12-31
10-K 2014-12-08 Annual: 2014-09-30
10-Q 2014-08-06 Quarter: 2014-06-30
10-Q 2014-05-07 Quarter: 2014-03-31
10-Q 2014-02-03 Quarter: 2013-12-31
10-K 2013-12-04 Annual: 2013-09-30
10-Q 2013-08-07 Quarter: 2013-06-30
10-Q 2013-05-01 Quarter: 2013-03-31
10-Q 2013-02-06 Quarter: 2012-12-31
10-K 2012-12-06 Annual: 2012-09-30
10-Q 2012-08-01 Quarter: 2012-06-30
10-Q 2012-05-02 Quarter: 2012-03-31
10-Q 2012-02-01 Quarter: 2011-12-31
10-K 2011-12-08 Annual: 2011-09-30
10-Q 2011-08-03 Quarter: 2011-06-30
10-Q 2011-05-04 Quarter: 2011-03-31
10-Q 2011-02-02 Quarter: 2010-12-31
10-K 2010-12-03 Annual: 2010-09-30
10-Q 2010-08-04 Quarter: 2010-06-30
10-Q 2010-05-05 Quarter: 2010-03-31
10-Q 2010-02-03 Quarter: 2009-12-31
8-K 2019-11-06
8-K 2019-08-08
8-K 2019-08-05
8-K 2019-05-06
8-K 2019-05-06
8-K 2019-03-07
8-K 2018-12-05
8-K 2018-11-07
8-K 2018-08-02
8-K 2018-05-24
8-K 2018-05-14 Other Events
8-K 2018-05-08
8-K 2018-03-22 Enter Agreement, Other Events, Exhibits
8-K 2018-03-07
FRPH 2019-09-30
Part I. Financial Information, Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Item 3. Quantitative and Qualitative Disclosures About Market Risks
Item 4. Controls and Procedures
Part II. Other Information
Item 1A. Risk Factors
Item 2. Purchases of Equity Securities By The Issuer
Item 6. Exhibits
EX-31 frphex31a.htm
EX-31 frphex31b.htm
EX-31 frphex31c.htm
EX-32 frphex32.htm

FRP Holdings Earnings 2019-09-30

FRPH 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
EXPI 664 105 65 731 22 -18 -17 629 3% -38.0 -17%
RVI 655 1,730 846 260 0 58 189 503 0% 2.7 3%
RESI 624 2,102 1,697 207 0 -126 47 543 0% 11.6 -6%
EFC 562 3,128 2,534 0 0 34 106 604 5.7 1%
BOMN 503 390 66 33 20 -12 2 491 59% 275.1 -3%
FRPH 495 535 144 23 0 15 26 512 0% 19.5 3%
BBX 454 1,802 1,167 959 12 25 119 73 1% 0.6 1%
TRC 432 529 94 35 0 5 11 493 0% 43.1 1%
NTP 340 318 90 0 0 0 0 340 0%
RFL 304 143 17 5 0 -3 -1 291 0% -259.0 -2%

10-Q 1 frphsepq19.htm FRPH FORM 10Q SEPTEMBER 2019

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________

FORM 10-Q

_________________

(Mark One)    

 

[X ]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended September 30, 2019

 

or

 

[  ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from_________ to _________

 

 Commission File Number: 001-36769

_____________________

FRP HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

_____________________

Florida   47-2449198

(State or other jurisdiction of

incorporation or organization)

  (I.R.S. Employer Identification No.)
     

200 W. Forsyth St., 7th Floor,

Jacksonville, FL

  32202
(Address of principal executive offices)   (Zip Code)

904-396-5733

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  [x]    No  [_]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  [x]    No  [_]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [_]   Accelerated  filer [x]
     
Non-accelerated filer [_]   Smaller reporting company [x]
     
Emerging growth company [_]    

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  [_] 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  [_]    No  [x]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

  Class       Outstanding at September 30, 2019  
  Common Stock, $.10 par value per share       9,823,668 shares  
             
1 
 

 

 

 

 

FRP HOLDINGS, INC.

FORM 10-Q

QUARTER ENDED SEPTEMBER 30, 2019

 

 

 

CONTENTS

Page No.

 

Preliminary Note Regarding Forward-Looking Statements     3
           
    Part I.  Financial Information      
           
Item 1.   Financial Statements      
    Consolidated Balance Sheets     4
    Consolidated Statements of Income     5
    Consolidated Statements of Comprehensive Income     6
    Consolidated Statements of Cash Flows     7
    Condensed Notes to Consolidated Financial Statements     8
           
Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations     19
           
Item 3.   Quantitative and Qualitative Disclosures about Market Risks     34
           
Item 4.   Controls and Procedures     34
           
    Part II.  Other Information      
           

 

Item 1A.

  Risk Factors     36
           
Item 2.   Purchase of Equity Securities by the Issuer     36
           
Item 6.   Exhibits     36
           
Signatures         37
           
Exhibit 31   Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002     39
           
Exhibit 32   Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002     42

 

2 
 

Preliminary Note Regarding Forward-Looking Statements.

 

This Quarterly Report on Form 10-Q, together with other statements and information publicly disseminated by us, contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words or phrases “anticipate,” “estimate,” ”believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and similar expressions identify forward-looking statements. Such statements reflect management’s current views with respect to financial results related to future events and are based on assumptions and expectations that may not be realized and are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, financial or otherwise, may differ, perhaps materially, from the results discussed in the forward-looking statements. Risk factors discussed in Item 1A of this Form 10-Q and other factors that might cause differences, some of which could be material, include, but are not limited to: the possibility that we may be unable to find appropriate investment opportunities; levels of construction activity in the markets served by our mining properties; demand for apartments in Washington D.C. and Richmond, Virginia; our ability to obtain zoning and entitlements necessary for property development; the impact of lending and capital market conditions on our liquidity, our ability to finance projects or repay our debt; general real estate investment and development risks; vacancies in our properties; risks associated with developing and managing properties in partnership with others; competition; our ability to renew leases or re-lease spaces as leases expire; illiquidity of real estate investments; bankruptcy or defaults of tenants; the impact of restrictions imposed by our credit facility; the level and volatility of interest rates; environmental liabilities; inflation risks; cyber security risks; as well as other risks listed from time to time in our SEC filings, including but not limited to, our annual and quarterly reports. We have no obligation to revise or update any forward-looking statements, other than as imposed by law, as a result of future events or new information. Readers are cautioned not to place undue reliance on such forward-looking statements.

 

These forward-looking statements are made as of the date hereof based on management’s current expectations, and the Company does not undertake an obligation to update such statements, whether as a result of new information, future events or otherwise. Additional information regarding these and other risk factors may be found in the Company’s other filings made from time to time with the Securities and Exchange Commission.

3 
 

PART I. FINANCIAL INFORMATION, ITEM 1. FINANCIAL STATEMENTS

FRP HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited) (In thousands, except share data)

    September 30   December 31
Assets:   2019   2018
Real estate investments at cost:                
Land   $ 84,383       83,721  
Buildings and improvements     145,690       144,543  
Projects under construction     1,461       6,683  
     Total investments in properties     231,534       234,947  
Less accumulated depreciation and depletion     28,871       28,394  
     Net investments in properties     202,663       206,553  
                 
Real estate held for investment, at cost     8,283       7,167  
Investments in joint ventures     103,822       88,884  
     Net real estate investments     314,768       302,604  
                 
Cash and cash equivalents     69,246       22,547  
Cash held in escrow     6,734       202  
Accounts receivable, net     919       564  
Investments available for sale at fair value     115,308       165,212  
Federal and state income taxes receivable     27,189       9,854  
Unrealized rents     548       53  
Deferred costs     1,079       773  
Other assets     474       455  
Assets of discontinued operations     32       3,224  
Total assets   $ 536,297       505,488  
                 
Liabilities:                
Secured notes payable   $ 88,891       88,789  
Accounts payable and accrued liabilities     1,488       3,545  
Other liabilities     1,978       100  
Deferred revenue     831       27  
Deferred income taxes     51,104       27,981  
Deferred compensation     1,439       1,450  
Tenant security deposits     334       53  
Liabilities of discontinued operations     18       288  
    Total liabilities     146,083       122,233  
                 
Commitments and contingencies                 
                 
Equity:                

Common stock, $.10 par value

25,000,000 shares authorized,

9,823,668 and 9,969,174 shares issued

and outstanding, respectively

    982       997  
Capital in excess of par value     57,627       58,004  
Retained earnings     313,262       306,307  
Accumulated other comprehensive income, net     1,161       (701 )
     Total shareholders’ equity     373,032       364,607  
Noncontrolling interest MRP     17,182       18,648  
     Total equity     390,214       383,255  
Total liabilities and shareholders’ equity   $ 536,297       505,488  

 

 

See accompanying notes.

4 
 

 

FRP HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands except per share amounts)

(Unaudited)

 

    THREE MONTHS ENDED   NINE MONTHS ENDED
    SEPTEMBER 30,   SEPTEMBER 30,
    2019   2018   2019   2018
Revenues:                                
     Lease revenue   $ 3,581       3,617       10,796       10,418  
     Mining lands lease revenue     2,302       2,125       7,164       5,952  
 Total Revenues     5,883       5,742       17,960       16,370  
                                 
Cost of operations:                                
     Depreciation, depletion and amortization     1,431       1,821       4,390       6,350  
     Operating expenses     952       983       2,744       2,951  
     Environmental remediation     —         (465 )     —         (465 )
     Property taxes     740       663       2,206       1,949  
     Management company indirect     670       550       1,872       1,366  
     Corporate expenses     732       522       1,928       2,910  
Total cost of operations     4,525       4,074       13,140       15,061  
                                 
Total operating profit     1,358       1,668       4,820       1,309  
                                 
Net investment income, including realized gains of $144, $0, $591 and $0, respectively     2,019       1,654       5,813       1,875  
Interest expense     (129 )     (768 )     (989 )     (2,418 )
Equity in loss of joint ventures     (746 )     (13 )     (1,282 )     (36 )
Gain (loss) on real estate investments     126       (3 )     662       (3 )
                                 
Income from continuing operations before income taxes     2,628       2,538       9,024       727  
Provision for income taxes     726       508       2,529       269  
Income from continuing operations      1,902       2,030       6,495       458  
                                 
Income (loss) from discontinued operations, net     (13 )     (78 )     6,849       122,109  
                                 
Net income     1,889       1,952       13,344       122,567  
Loss attributable to noncontrolling interest     (112 )     (272 )     (380 )     (1,199 )
Net income attributable to the Company   $ 2,001       2,224       13,724       123,766  
                                 
Earnings per common share:                                
 Income from continuing operations-                                
    Basic   $ 0.19       0.20       0.66       0.05  
    Diluted   $ 0.19       0.20       0.65       0.05  
 Discontinued operations-                                
    Basic   $ 0.00       (0.01     0.69       12.17  
    Diluted   $ 0.00       (0.01     0.69       12.08  
 Net income attributable to the Company-                                
    Basic   $ 0.20       0.22       1.39       12.33  
    Diluted   $ 0.20       0.22       1.38       12.24  
                                 
Number of shares (in thousands) used in computing:                      
    -basic earnings per common share     9,843       10,062       9,903       10,037  
    -diluted earnings per common share     9,886       10,135       9,945       10,110  
                                                       

See accompanying notes.

5 
 

FRP HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands except per share amounts)

(Unaudited)

 

 

    THREE MONTHS ENDED   NINE MONTHS ENDED  
    SEPTEMBER 30,   SEPTEMBER 30,  
    2019   2018   2019   2018  
Net income   $ 1,889       1,952       13,344       122,567  
Other comprehensive income net of tax:                                
  Unrealized gain (loss)on investments available for sale,                                
   Net of income tax effect of ($18), ($154), $691 and                                
     and ($154)     (48     (413     1,862       (413 )
Comprehensive income   $ 1,841       1,539       15,206       122,154  
                                 
Less comp. income attributable to                                
  Noncontrolling interest   $ (112 )     (272 )     (380 )     (1,199 )
                                 
Comprehensive income attributable to the Company   1,953       1,811       15,586       123,353  
                                   

 

 

 

 

See accompanying notes

 

 

6 
 

FRP HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(In thousands) (Unaudited)

    2019   2018
Cash flows from operating activities:                
 Net income   $ 13,344       122,567  
 Adjustments to reconcile net income to                
  net cash provided by continuing operating activities:                
 Income from discontinued operations, net     (6,849     (122,109
 Deferred income taxes     23,123       (2,187 )
 Depreciation, depletion and amortization     4,635       6,597  
 Equity in loss of joint ventures     1,282       36  
 Gain on sale of equipment and property     (657 )     (19 )
 Stock-based compensation     206       1,169  
 Realized gain on available for sale investments     (591 )     290  
 Net changes in operating assets and liabilities:                
  Accounts receivable     (355 )     (123 )
  Deferred costs and other assets     (922 )     (909 )
  Accounts payable and accrued liabilities     (1,252 )     673  
  Income taxes payable and receivable     (17,335 )     940  
  Other long-term liabilities     2,148       (1,943 )
 Net cash provided by operating activities of continuing operations     16,777       4,982  
 Net cash used in operating activities of discontinued operations     (1,756     (46,642
 Net cash provided by (used in) operating activities     15,021       (41,660
                 
Cash flows from investing activities:                
 Investments in properties     (9,360 )     (5,729 )
 Investments in joint ventures     (16,226 )     (7,160 )
 Purchases of investments available for sale     (36,941 )     (313,306 )
 Proceeds from sales of investments available for sale     89,260       121,161  
 Cash held in escrow     (6,532 )     (33,937 )
 Proceeds from the sale of assets     8,405       77  
Net cash provided by (used in) investing activities of continuing operations     28,606       (238,894 )
Net cash provided by investing activities of discontinued operations     11,525       340,744  
Net cash provided by investing activities     40,131       101,850  
                 
Cash flows from financing activities:                
 Distribution to noncontrolling interest     (1,086 )     (765 )
 Repayment of long-term debt     —         (1,552 )
 Repurchase of company stock     (7,714 )     —    
 Exercise of employee stock options     347       1,231  
Net cash used in financing activities of continuing operations     (8,453     (1,086
Net cash used in financing activities of discontinued operations     —         (28,846 )
Net cash used in financing activities     (8,453     (29,932
                 
Net increase in cash and cash equivalents     46,699       30,258  
Cash and cash equivalents at beginning of year     22,547       4,524  
Cash and cash equivalents at end of the period   $ 69,246       34,782  

 

See accompanying notes.

7 
 

FRP HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2019

(Unaudited)

 

(1) Description of Business and Basis of Presentation.

 

FRP Holdings, Inc. is a holding company engaged in the real estate business, namely (i) mining royalty land ownership and leasing, (ii) land acquisition, entitlement and development primarily for future warehouse/office or residential building construction, (iii) ownership, leasing, and management of a residential apartment building, and (iv) warehouse/office building ownership, leasing and management.

 

The accompanying consolidated financial statements include the accounts of FRP Holdings, Inc. (the “Company” or “FRP”) inclusive of our operating real estate subsidiaries, FRP Development Corp. (“Development”) and Florida Rock Properties, Inc. (”Properties”) and RiverFront Investment Partners I, LLC. Our investment in the Brooksville joint venture, BC FRP Realty joint venture, RiverFront Holdings II joint venture, and Bryant Street Partnerships are accounted for under the equity method of accounting (See Note 11). Our ownership of RiverFront Investment Partners I, LLC includes a non-controlling interest representing the ownership of our partner.

 

On May 21, 2018, the Company completed the disposition of 40 industrial warehouse properties and 3 additional land parcels to an affiliate of Blackstone Real Estate Partners VIII, L.P. for $347.2 million. One warehouse property valued at $11.7 million was excluded from the sale due to the tenant exercising its right of first refusal to purchase the property. This resulted in the disposition of all of the Company’s industrial flex/office warehouse properties and constituted a major strategic shift and as a result, these properties have been reclassified as discontinued operations for all periods presented. On June 28, 2019, the Company completed the sale of the excluded property to the same buyer for $11.7 million.

 

These statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q and do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (primarily consisting of normal recurring accruals) considered necessary for a fair statement of the results for the interim periods have been included. Operating results for the nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. The accompanying consolidated financial statements and the information included under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" should be read in conjunction with the Company's consolidated financial statements and related notes included in the Company’s Form 10-K for the year ended December 31, 2018.

 

 

(2) Recently Issued Accounting Standards. In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” which replaces existing revenue recognition standards and significantly expand the disclosure requirements for revenue arrangements. It may be adopted either retrospectively or on a modified retrospective basis to new contracts and existing contracts with remaining performance obligations as of the effective date. Lease contracts with customers constitute a materially all of our revenues and are a specific scope exception. The new standard was adopted beginning with the first quarter of 2018 in connection with our revenues not subject to leases and did not have a material impact on our financial statements.

 

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”, which requires lessees to recognize a right-to-use asset and a lease obligation for all leases. The Company is not a significant lessee. Lessors will account for leases using an approach that is substantially equivalent to existing accounting standards. The Company's existing leases will continue to be classified as operating leases. Leases entered into after the effective date of the new standard may be classified as operating or sales-type leases, based on specific classification criteria. Operating leases will continue to have a similar pattern of recognition as under current GAAP. Sales-type lease accounting, however, will result in the recognition of selling profit at lease commencement, with interest income recognized over the life of

8 
 

the lease. The new standard also includes a change to the treatment of internal leasing costs and legal costs, which can no longer be capitalized. Only incremental costs of a lease that would not have been incurred if the lease had not been obtained may be deferred as initial direct costs. The new standard also requires lessors to exclude from variable payments certain lessor costs, such as real estate taxes, that the lessor contractually requires the lessee to pay directly to a third party on its behalf. The new standard requires our expected credit loss related to the collectability of lease receivables to be reflected as an adjustment to the line item Lease Revenue. For the nine months ended September 30, 2019, the credit loss related to the collectibility of lease receivables was recognized in the line item Operating expenses and was not significant. Additionally, the new standard requires lessors to allocate the consideration in a contract between the lease component (right to use an underlying asset) and non-lease component (transfer of a good or service that is not a lease). However, lessors are provided with a practical expedient, elected by class of underlying asset, to account for lease and non-lease components of a contract as a single lease component if certain criteria are met. The terms of the Company's leases generally provide that the Company is entitled to receive reimbursements from tenants for operating expenses such as real estate taxes, insurance and common area maintenance, in addition to the base rental payments for use of the underlying asset. Under the new standard, common area maintenance is considered a nonlease component of a lease contract, which would be accounted for under Topic 606. However, the Company will apply the practical expedient to account for its lease and non-lease components as a single, combined operating lease component. While the timing of recognition should remain the same, the Company is no longer presenting reimbursement revenue from tenants separately in our Consolidated Statements of Income beginning January 1, 2019. The new standard along with the adoption of ASU No. 2018-11, Leases - Targeted Improvements which the FASB issued in July 2018, was adopted effective January 1, 2019 and we have elected to use January 1, 2019 as our date of initial application. Consequently, financial information will not be updated and disclosures required under the new standard will not be provided for periods presented before January 1, 2019 as these prior periods conform to the Accounting Standards Codification 840. We elected the package of practical expedients permitted under the transition guidance within the new standard. By adopting these practical expedients, we were not required to reassess (1) whether an existing contract meets the definition of a lease; (2) the lease classification for existing leases; or (3) costs previously capitalized as initial direct costs. The adoption of this guidance did not have a material impact on our financial statements.

 

 

(3) Business Segments. The Company is reporting its financial performance based on four reportable segments, Asset Management, Mining Royalty Lands, Development and Stabilized Joint Venture, as described below.

 

The Asset Management segment owns, leases and manages commercial properties. The flex/office warehouses in the Asset Management Segment were sold and reclassified to discontinued operations leaving only two commercial properties, one recent industrial acquisition, Cranberry Run, which we purchased in 2019, and 1801 62nd Street, our most recent spec building in Hollander Business Park, which joined Asset Management April 1 of this year.

 

Our Mining Royalty Lands segment owns several properties comprising approximately 15,000 acres currently under lease for mining rents or royalties (this does not include the 4,280 acres owned in our Brooksville joint venture with Vulcan Materials).  Other than one location in Virginia, all of these properties are located in Florida and Georgia.

 

Through our Development segment, we own and are continuously monitoring for their “highest and best use” several parcels of land that are in various stages of development.  Our overall strategy in this segment is to convert all of our non-income producing lands into income production through (i) an orderly process of constructing new buildings for us to own and operate or (ii) a sale to, or joint venture with, third parties. Additionally, our Development segment will form joint ventures on new developments of land not previously owned by the Company.

 

The Company operates a residential apartment building Riverfront Investment Partners I, LLC partnership (“Dock 79”). The ownership of Dock 79 attributable to our partner MRP Realty is reflected on our consolidated balance sheet as a noncontrolling interest. Such noncontrolling interests are reported on the Consolidated Balance Sheets within equity but separately from shareholders' equity. On the Consolidated Statements of Income, all of the revenues and expenses from Dock 79 are reported in net income, including both the amounts attributable to the Company and the noncontrolling interest. The amounts of consolidated net income attributable to the noncontrolling interest is clearly identified on the accompanying Consolidated Statements of Income.

 

9 
 

On May 21, 2018, the Company completed the disposition of 40 industrial warehouse properties and 3 additional land parcels to an affiliate of Blackstone Real Estate Partners VIII, L.P. for $347.2 million. One warehouse property valued at $11.7 million was excluded from the sale due to the tenant exercising its right of first refusal to purchase the property. This sale constituted a major strategic shift and as a result, these properties have been reclassified as discontinued operations for all periods presented. On June 28, 2019, the Company completed the sale of the excluded property to the same buyer for $11.7 million. We plan to develop our remaining owned office/warehouse pad sites in a timely, opportunistic manner and sell the fully leased buildings in groups of two or three.

 

Operating results and certain other financial data for the Company’s business segments are as follows (in thousands):

 

    Three Months ended   Nine Months ended
    September 30,   September 30,
    2019   2018   2019   2018
Revenues:                                
 Asset management   $ 430       568       1,733       1,717  
 Mining royalty lands     2,302       2,125       7,164       5,952  
 Development     307       330       892       944  
 Stabilized Joint Venture     2,844       2,719       8,171       7,757  
      5,883       5,742       17,960       16,370  
                                 
Operating profit (loss):                                
 Before corporate expenses:                                
   Asset management   $ 8       276       233       783  
   Mining royalty lands     2,103       1,961       6,605       5,497  
   Development     (629 )     (139 )     (1,747 )     (1,146 )
   Stabilized Joint Venture     608       92       1,657       (915 )
    Operating profit before corporate expenses     2,090       2,190       6,748       4,219  
 Corporate expenses:                                
  Allocated to asset management     (168 )     (34 )     (470 )     (146 )
  Allocated to mining royalty lands     (44 )     (28 )     (123 )     (157 )
  Allocated to development     (479 )     (408 )     (1,219 )     (1,110 )
  Allocated to stabilized joint venture     (41 )     (52 )     (116 )     (289 )
  Unallocated     —         —         —         (1,208 )
    Total corporate expenses     (732 )     (522 )     (1,928 )     (2,910 )
    $ 1,358       1,668       4,820       1,309  
                                 
Interest expense   $ 129       768       989       2,418  
                                 
Depreciation, depletion and amortization:                                
 Asset management   $ 154       145       527       405  
 Mining royalty lands     36       55       130       145  
 Development     54       57       161       171  
 Stabilized Joint Venture     1,187       1,564       3,572       5,629  
    $ 1,431       1,821       4,390       6,350  
Capital expenditures:                                
 Asset management   $ 824       17       8,642       184  
 Mining royalty lands     —         —         —         —    
 Development     167       4,268       415       5,578  
 Stabilized Joint Venture     194       25       304       (33 )
    $ 1,185       4,310       9,361       5,729  

 

 

10 
 


      September 30,       December 31,    

Identifiable net assets   2019       2018    
                 
Asset management $ 17,823       10,593    
Discontinued operations   32       3,224    
Mining royalty lands   38,734       37,991    
Development   118,209       119,029    
Stabilized Joint Venture   135,232       138,206    
Investments available for sale at fair value   115,308       165,212    
Cash items   75,980       22,749    
Unallocated corporate assets   34,979       8,484    
  $ 536,297       505,488    

 

(4) Related Party Transactions. The Company is a party to a Transition Services Agreement which resulted from our January 30, 2015 spin-off of Patriot Transportation Holding, Inc. (Patriot). The Transition Services Agreement sets forth the terms on which Patriot will provide to FRP certain services that were shared prior to the Spin-off, including the services of certain shared executive officers. The boards of the respective companies amended and extended this agreement for one year effective April 1, 2019.

 

The consolidated statements of income reflect charges and/or allocation from Patriot for these services of $347,000 and $360,000 for the three months ended September 30, 2019 and 2018 and $976,000 and $1,089,000 for the nine months ended September 30, 2019 and 2018, respectively. Included in the charges above are amounts recognized for corporate executive stock-based compensation expense. These charges are reflected as part of corporate expenses.

 

To determine these allocations between FRP and Patriot as set forth in the Transition Services Agreement, we employ an allocation method to allocate said expenses and thus we believe that the allocations to FRP are a reasonable approximation of the costs related to FRP’s operations, but any such related-party transactions cannot be presumed to be carried out on an arm’s-length basis.

 

(5) Long-Term Debt. Long-term debt is summarized as follows (in thousands):

 

    September 30,   December 31,
    2019   2018
Riverfront permanent loan   $ 88,891       88,789  
Less portion due within one year     —         —    
    $ 88,891       88,789  

 

On May 21, 2018 in conjunction with the sale of the warehouse business the Companies mortgages notes were prepaid and the credit line with First Tennessee Bank, N.A. was terminated. Prepayment penalties of $3,420,000 were paid.

 

On February 6, 2019, the Company entered into a First Amendment to the 2015 Credit Agreement (the “Credit Agreement”) with Wells Fargo Bank, N.A. (“Wells Fargo”), effective February 6, 2019. The Credit Agreement modifies the Company’s prior Credit Agreement with Wells Fargo dated January 30, 2015. The Credit Agreement establishes a five-year revolving credit facility with a maximum facility amount of $20 million. The interest rate under the Credit Agreement will be a maximum of 1.50% over LIBOR, which may be reduced quarterly to 1.25% or 1.0% over LIBOR if the Company meets a specified ratio of consolidated debt to consolidated total capital, as defined which excludes FRP Riverfront. A commitment fee of 0.25% per annum is payable quarterly on the unused portion of the commitment but the amount may be reduced to 0.20% or 0.15% if the Company meets a specified ratio of consolidated total debt to consolidated total capital. The Credit Agreement contains certain conditions, affirmative financial covenants and negative covenants. As of September 30, 2019, there was no debt outstanding on this revolver, $958,000 outstanding under letters of credit and $19,042,000 available for borrowing. The letters of credit were issued to guarantee certain obligations to state agencies related to real estate development. Most of the letters of credit are irrevocable for a period of one year and typically are automatically extended for additional one-year periods. The letter of credit fee is 1% and applicable interest rate would have been 3.0435% on September 30, 2019. The credit agreement contains certain conditions and financial covenants, including a minimum tangible net worth and

11 
 

dividend restriction. As of September 30, 2019, these covenants would have limited our ability to pay dividends to a maximum of $217 million combined. The Company was in compliance with all covenants as of September 30, 2019.

 

On November 17, 2017, Riverfront Holdings I, LLC (the "Joint Venture") refinanced the Dock 79 project pursuant to a Loan Agreement and Deed of Trust Note entered into with EagleBank ("Loan Documents"). The Joint Venture, which was formed between the Company and MRP in 2014 in connection with the development of the Riverfront on the Anacostia property, borrowed a principal sum of $90,000,000 in connection with the refinancing. The loan is secured by the Dock 79 real property and improvements, bears a fixed interest rate of 4.125% per annum and has a term of 120 months. During the first 48 months of the loan term, the Joint Venture will make monthly payments of interest only, and thereafter, make monthly payments of principal and interest in equal installments based upon a 30-year amortization period. The loan is a non-recourse loan. However, all amounts due under the Loan Documents will become immediately due upon an event of default by the Joint Venture, such events including, without limitation, Joint Venture's (i) failure to: pay, permit inspections or observe covenants under the Loan Documents, (ii) breach of representations made under the Loan Documents (iii) voluntary or involuntary bankruptcy, and (iv) dissolution, or the dissolution of the guarantor. MidAtlantic Realty Partners, LLC, an affiliate of MRP, has executed a carve-out guaranty in connection with the loan.

 

During the three months ended September 30, 2019 and September 30, 2018 the Company capitalized interest costs of $870,000 and $243,000, respectively. During the nine months ended September 30, 2019 and September 30, 2018 the Company capitalized interest costs of $1,960,000 and $742,000, respectively.

 

(6) Earnings per Share. The following details the computations of the basic and diluted earnings per common share (in thousands, except per share amounts):

  Three Months ended   Nine Months ended
  September 30,   September 30,
  2019   2018   2019   2018
Weighted average common shares              
 outstanding during the period              
 - shares used for basic              
 earnings per common share   9,843       10,062       9,903       10,037  
                               
Common shares issuable under                              
 share based payment plans                              
 which are potentially dilutive   43       73       42       73  
                               
Common shares used for diluted                              
 earnings per common share   9,886       10,135       9,945       10,110  
                               
Income from continuing operations $ 1,902       2,030       6,495       458  
Discontinued operations $ (13     (78     6,849       122,109  
Net income attributable to the Company $ 2,001       2,224       13,724       123,766  
                               
Basic earnings per common share:                              
 Income from continuing operations $ 0.19       0.20       0.66       0.05  
 Discontinued operations $ 0.00       (0.01     0.69       12.17  
 Net income attributable to the Company $ 0.20       0.22       1.39       12.33  
                               
Diluted earnings per common share:                              
 Income from continuing operations $ 0.19       0.20       0.65       0.05  
 Discontinued operations $ 0.00       (0.01     0.69       12.08  
 Net income attributable to the Company $ 0.20       0.22       1.38       12.24  

 

12 
 

For the three and nine months ended September 30, 2019, 19,950 shares attributable to outstanding stock options were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive. For the three and nine months ended September 30, 2018, no shares attributable to outstanding stock operations were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive.

 

During the first nine months the Company repurchased 159,282 shares at an average cost of $48.43.

 

(7) Stock-Based Compensation Plans. The Company has two Stock Option Plans (the 2006 Stock Incentive Plan and the 2016 Equity Incentive Option Plan) under which options for shares of common stock were granted to directors, officers and key employees. The 2016 plan permits the grant of stock options, stock appreciation rights, restricted stock awards, restricted stock units, or stock awards. The options awarded under the plans have similar characteristics. All stock options are non-qualified and expire ten years from the date of grant. Stock based compensation awarded to directors, officers and employees are exercisable immediately or become exercisable in cumulative installments of 20% or 25% at the end of each year following the date of grant. When stock options are exercised the Company issues new shares after receipt of exercise proceeds and taxes due, if any, from the grantee. The number of common shares available for future issuance was 487,838 at September 30, 2019.

 

The Company utilizes the Black-Scholes valuation model for estimating fair value of stock compensation for options awarded to officers and employees. Each grant is evaluated based upon assumptions at the time of grant. The assumptions were no dividend yield, expected volatility between 29% and 41%, risk-free interest rate of 1.0% to 2.9% and expected life of 3.0 to 7.0 years.

 

The dividend yield of zero is based on the fact that the Company does not pay cash dividends and has no present intention to pay cash dividends. Expected volatility is estimated based on the Company’s historical experience over a period equivalent to the expected life in years. The risk-free interest rate is based on the U.S. Treasury constant maturity interest rate at the date of grant with a term consistent with the expected life of the options granted. The expected life calculation is based on the observed and expected time to exercise options by the employees.

 

The Company recorded the following stock compensation expense in its consolidated statements of income (in thousands):

    Three Months ended   Nine Months ended  
    September 30,   September 30,  
    2019   2018   2019   2018  
Stock option grants   $ 29       17       86       486  
Unrestricted employee stock award     50       —         50       —    
Annual director stock award     70       —         70       683  
    $ 149       17       206       1,169  

 

A summary of changes in outstanding options is presented below (in thousands, except share and per share amounts):

 

        Weighted   Weighted   Weighted
    Number   Average   Average   Average
    Of   Exercise   Remaining   Grant Date
Options   Shares   Price   Term (yrs)   Fair Value(000's)
                 
Outstanding at January 1, 2019     147,538     $ 33.48     6.7   $ 1,782  
    Granted     —       $ —           $ —    
    Exercised     (11,304 )   $ 30.67         $ (108 )
Outstanding at September 30, 2019     136,234     $ 33.71     6.0   $ 1,674  
                             
Exercisable at September 30, 2019     108,410     $ 31.68     5.4   $ 1,239  
Vested during nine months ended                            
  September 30, 2019     —                   $ —    
13 
 

 

The aggregate intrinsic value of exercisable in-the-money options was $1,771,000 and the aggregate intrinsic value of outstanding in-the-money options was $1,950,000 based on the market closing price of $48.02 on September 30, 2019 less exercise prices.

 

The unrecognized compensation cost of options granted to FRP employees but not yet vested as of September 30, 2019 was $317,000, which is expected to be recognized over a weighted-average period of 3.8 years.

 

Gains of $218,000 were realized by option holders during the nine months ended September 30, 2019. Patriot realized the tax benefits of $130,838 of these gains because these options were exercised by Patriot employees for options granted prior to the spin-off.

 

(8) Contingent Liabilities. Certain of the Company’s subsidiaries are involved in litigation on a number of matters and are subject to certain claims which arise in the normal course of business. The Company has retained certain self-insurance risks with respect to losses for third party liability and property damage. The liability at any point in time depends upon the relative ages and amounts of the individual open claims. In the opinion of management, none of these matters are expected to have a material adverse effect on the Company’s consolidated financial condition, results of operations or cash flows.

 

The Company executed a letter of intent with MRP in May 2016 to develop Phase II of the Riverfront on the Anacostia project and recorded an estimated environmental remediation expense of $2.0 million for the Company’s estimated liability under the proposed agreement. The Company substantially completed the remediation and reduced the estimated liability in the quarter ending September 30, 2018 by $465,000. The Company has no obligation to remediate any known contamination on Phases III and IV of the development until such time as it makes a commitment to commence construction on each phase.

 

(9) Concentrations.  The mining royalty lands segment has a total of five tenants currently leasing mining locations and one lessee that accounted for 31% of the Company’s consolidated revenues during the nine months ended September 30, 2019 and $469,000 of accounts receivable at September 30, 2019.  The termination of these lessees’ underlying leases could have a material adverse effect on the Company. The Company places its cash and cash equivalents with Wells Fargo Bank and First Tennessee Bank.  At times, such amounts may exceed FDIC limits.

 

(10) Fair Value Measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. Level 1 means the use of quoted prices in active markets for identical assets or liabilities. Level 2 means the use of values that are derived principally from or corroborated by observable market data. Level 3 means the use of inputs are those that are unobservable and significant to the overall fair value measurement.

 

At September 30, 2019 the Company was invested in 40 corporate bonds with individual maturities ranging from 2020 through 2022. The unrealized gain on these bonds of $1,539,000 was recorded as part of comprehensive income and was based on the estimated market value by National Financial Services, LLC (“NFS”) obtained from sources that may include pricing vendors, broker/dealers who clear through NFS and/or other sources (Level 2). The Company recorded a realized gain of $591,000 in its net investment income related to bonds that were sold in 2019. The amortized cost of the investments was $113,769,000 and the carrying amount and fair value of such bonds were $115,308,000 as of September 30, 2019.

 

At September 30, 2019 and 2018, the carrying amount reported in the consolidated balance sheets for cash and cash equivalents and revolving credit approximate their fair value based upon the short-term nature of these items.

 

The fair values of the Company’s other mortgage notes payable were estimated based on current rates available to the Company for debt of the same remaining maturities. At September 30, 2019, the carrying amount and fair value of such other long-term debt was $88,891,000 and $94,658,000, respectively. At September 30, 2018, the carrying amount and fair value of such other long-term debt was $88,755,000 and $85,642,000, respectively.

 

14 
 

(11) Investments in Joint Ventures (Equity Method).

 

Brooksville. In 2006, the Company entered into a Joint Venture Agreement with Vulcan Materials Company to jointly own and develop approximately 4,300 acres of land near Brooksville, Florida. Under the terms of the joint venture, FRP contributed its fee interest in approximately 3,443 acres formerly leased to Vulcan under a long-term mining lease which had a net book value of $2,548,000. Vulcan is entitled to mine a portion of the property until 2032 and pay royalties to the Company. FRP also contributed $3,018,000 for one-half of the acquisition costs of a 288-acre contiguous parcel. Vulcan contributed 553 acres that it owned as well as its leasehold interest in the 3,443 acres that it leased from FRP and $3,018,000 for one-half of the acquisition costs of the 288-acre contiguous parcel. The joint venture is jointly controlled by Vulcan and FRP. Distributions will be made on a 50-50 basis except for royalties and depletion specifically allocated to the Company. Other income for the nine months ended September 30, 2019 includes a loss of $34,000 representing the Company’s portion of the loss of this joint venture.

 

BC FRP Realty (Windlass Run). During the quarter ending March 2016, we entered into an agreement with a Baltimore development company (St. John Properties, Inc.) to jointly develop the remaining lands of our Windlass Run Business Park. The 50/50 partnership initially calls for FRP to combine its 25 acres (valued at $7,500,000) with St. John Properties’ adjacent 10 acres fronting on a major state highway (valued at $3,239,536) which resulted in an initial cash distribution of $2,130,232 to FRP in May 2016. Thereafter, the venture will jointly develop the combined properties into a multi-building business park to consist of approximately 329,000 square feet of single-story office space. On September 28, 2017 BC FRP Realty, LLC obtained $17,250,000 of construction financing commitments for 4 buildings through September 15, 2022 from BB&T at 2.5% over LIBOR. The balance outstanding on these loans at September 30, 2019 was $11,538,000.

 

RiverFront Holdings II, LLC. On May 4, 2018, the Company and MRP formed a partnership to develop Phase II of our RiverFront on the Anacostia project and closed on construction financing with Eagle Bank. The Company has contributed its land with an agreed value of $16.3 million (cost basis of $4.6 million) and $6.2 million of cash. MRP contributed capital of $5.6 million to the partnership including development costs paid prior to the formation of the partnership and a $725,000 development fee. The Company further agreed to fund $13.75 million preferred equity financing at 7.5% interest rate all of which was advanced through June 30, 2019. The Company records interest income for this loan and a loss in equity in ventures for our 80% equity in the partnership. The loan from Eagle Bank allows draws of up to $71 million during construction at an interest rate of 3.25% over LIBOR. The loan is interest only and matures in 36 months with a 12-month extension assuming completion of construction and at least one occupancy. There is a provision for an additional 60 months extension with a 30-year amortization of principal at 2.15% over seven-year US Treasury Constant if NOI is sufficient for a 9% yield. The loan balance at September 30, 2019 was $27,671,000. The Company’s equity interest in the joint venture is accounted for under the equity method of accounting through the construction and lease up period as MRP acts as the administrative agent of the joint venture and oversees and controls the day to day operations of the project.

 

Bryant Street Partnerships. On December 24, 2018 the Company and MRP formed four partnerships to purchase and develop approximately five acres of land at 500 Rhode Island Ave NE, Washington, D.C. This property is the first phase of the Bryant Street Master Plan. The property is located in an Opportunity Zone, which provides tax benefits in the new communities development program as established by Congress in the Tax Cuts and Jobs Act of 2017. The Company contributed cash of $32 million in exchange for a 61.36% common equity in the partnership. The Company also contributed cash of $23 million as preferred equity financing at 8.0% interest rate. The Company records interest income for this loan and a loss in equity in ventures for our 61.36% equity in the partnership. On March 13, 2019 the partnerships closed on a construction loan with a group of lenders for up to $132 million at an interest rate of 2.25% over LIBOR. The loan matures March 13, 2023 with up to two extension of one year each upon certain conditions including, for the first, a debt service coverage of at least 1.10 and a loan-to-value that does not exceed 65% and for the second, a debt service coverage of 1.25 and a maximum loan-to-value of 65%. Borrower may prepay a portion of the unpaid principal to satisfy such tests. There were no draws on the loan through September 30, 2019. The Company and MRP guaranteed $26 million of the loan in exchange for a 1% lower interest rate. The Company and MRP have a side agreement limiting the Company’s guarantee to its proportionate ownership. The value of the guarantee was calculated at $1.9 million based on the present value of the 1% interest savings over the anticipated 48 month term. This amount is included as part of the Company’s investment basis and is amortized to expense over the 48 months. The Company will evaluate the guarantee liability based upon the success of the project and assuming no

15 
 

payments are made under the guarantee the Company will have a gain for $1.9 million when the loan is paid in full. The Company’s equity interest in the joint venture is accounted for under the equity method of accounting as all the major decisions are shared equally.

 

Hyde Park. On January 27, 2018 the Company entered into a loan agreement with a Baltimore developer to be the principal capital source of a residential development venture in Essexshire now known as “Hyde Park.” We have committed up to $3.5 million in exchange for an interest rate of 10% and a preferred return of 20% after which the Company is also entitled to a portion of proceeds from sale. Hyde Park will hold 122 town homes and four single-family lots and received a non-appealable Plan Approval during the first quarter of 2019. We are currently pursuing entitlements and have a home builder under contract to purchase the land upon government approval to begin development. The loan balance at September 30, 2019 was $1,047,000.

 

DST Hickory Creek. In July 2019, the Company invested $6 million in 1031 proceeds from two sales in 2019 into a Delaware Statutory Trust (DST) known as CS1031 Hickory Creek Apartments, DST.  The Company is 26.65% beneficial owner and receives monthly distributions. The DST owns a 294-unit garden-style apartment community consisting of 19 three-story apartment buildings containing 273,940 rentable square feet on approximately 20.4 acres of land.  The property was constructed in 1984 and substantially renovated in 2016.  The DST purchased the property in April, 2019 for $45,600,000 with 10 year financing obtained for $29,672,000 at 3.74% with a 30 year amortization period, interest only for 5 years. The property is located in Henrico County, providing residents convenient access to some of the largest employment and economic drivers in Metro Richmond, including ten fortune 1,000 companies. Distributions of $40,000 have been received.

 

Amber Ridge. On June 26, 2019 the Company entered into a loan agreement with a Baltimore developer to be the principal capital source of a residential development venture in Prince Georges County, Maryland known as “Amber Ridge.” We have committed up to $18.5 million in exchange for an interest rate of 10% and a preferred return of 20% after which the Company is also entitled to a portion of proceeds from sale. This project will hold 190 single-family town homes.

 

Investments in Joint Ventures (in thousands):

                            The  
                            Company's  
                            Share of  
     Common     Total     Total Assets of     Profit (Loss)     Profit (Loss) of  
    Ownership     Investment     The Partnership     Of the Partnership     the Partnership  
                               
As of September 30, 2019                              
Brooksville Quarry, LLC   50.00 %  $ 7,464     14,383     (68 )   (34 )
BC FRP Realty, LLC   50.00 %   5,487     22,857     (990 )   (495 )
RiverFront Holdings II, LLC   80.00 %   25,726     78,282     (602 )   (597 )
Bryant Street Partnerships   61.36 %   57,827     90,441     (130 )   (130 )
Hyde Park         1,067     1,067     —      —   
DST Hickory Creek   26.65 %   5,934     51,642     (98 )   (26 )
Amber Ridge         317     317     —      —   
   Total        $   103,822     258,989       (1,888 )     (1,282 )
                               
As of December 31, 2018                              
Brooksville Quarry, LLC   50.00 %  $ 7,449     14,325     (122 )   (61 )
BC FRP Realty, LLC   50.00 %   5,976     21,371     —      —   
RiverFront Holdings II, LLC   80.00 %   19,865     38,869     (66 )   (66 )
Bryant Street Partnerships   61.36 %   55,000     77,541     —      —   
Hyde Park         594     594     39     39  
   Total        $   88,884     152,700       (149 )     (88 )

 

 

                             

 

Summarized Financial Information for the Investments in Joint Ventures (in thousands):

 

16 
 

 

    As of September 30, 2019    
    Brooksville   BC FRP   Riverfront   Bryant Street        
    Quarry, LLC   Realty, LLC   Holdings II, LLC   Partnerships   Others   Total
                         
Investments in real estate, net   $ 14,294       22,532       77,713       78,176       50,467     $ 243,182
Cash and cash equivalents     89       18       569       5,884       2,559       9,119
Unrealized rents & receivables     —         52       —         52       —         104
Deferred costs     —         255       —         6,329       —         6,584
   Total Assets   $ 14,383       22,857       78,282       90,441       53,026     $ 258,989
                                               
Secured notes payable   $ —         11,920       27,671       —         29,375     $ 68,966
Other liabilities     141       75       7,903       13,416       —         21,535
Capital – FRP     7,465       5,431       37,077       56,876       7,318       114,167
Capital - Third Parties     6,777       5,431       5,631       20,149       16.333       54,321
   Total Liabilities and Capital   $ 14,383       22,857       78,282       90,441       53,026     $ 258,989
                                                       

 

 

 

    As of December 31, 2018      
    Brooksville   BC FRP       RiverFront   Bryant Street      
    Quarry, LLC   Realty, LLC   Hyde Park   Holdings II, LLC   Partnerships   Total  
                           
Investments in real estate, net   $ 14,299       21,352       594       38,793       41,821     $ 116,859  
Cash and cash equivalents     20       11       —         76       35,670       35,777  
Deferred costs     6       8       —         —         50       64  
   Total Assets   $ 14,325       21,371       594       38,869       77,541     $ 152,700  
                                                 
Secured notes payable   $ —         9,549       —         —         —       $ 9,549  
Other liabilities     119       38       —         1,887       2,886       4,930  
Capital – FRP     7,449       5,892       594       31,347       55,000       100,282  
Capital - Third Parties     6,757       5,892       —         5,635       19,655       37,939  
   Total Liabilities and Capital   $ 14,325       21,371       594       38,869       77,541     $ 152,700  
                                                     

 

 

The Company’s capital recorded by the unconsolidated Joint Ventures is $10,345,000 more than the Investment in Joint Ventures reported in the Company’s consolidated balance sheet due to the lower basis in property contributed.

 

The amount of consolidated accumulated deficit for these joint ventures was $(3,637,000) and $(2,702,000) as of September 30, 2019 and December 31, 2018 respectively.

 

 

(12) Discontinued Operations.

 

On May 21, 2018, the Company completed the disposition of 40 industrial warehouse properties and three additional land parcels to an affiliate of Blackstone Real Estate Partners VIII, L.P. for $347.2 million. One warehouse property valued at $11.7 million was excluded from the sale due to the tenant exercising its right of first refusal to purchase the property. These properties comprised substantially all the assets of our Asset Management segment and have been reclassified as discontinued operations for all periods presented. On June 28, 2019, the Company completed the sale of the excluded property to the same buyer for $11.7 million. The results of operations associated with discontinued operations for the three and nine months ended September 30, 2019 and 2018 were as follows (in thousands):

 

    Three months ended   Nine months ended  
    September 30,   September 30,  
    2019   2018   2019   2018  
 Lease Revenue     —         219       460       11,876  
                                 
Cost of operations:                                
17 
 

 

     Depreciation, depletion and amortization     (24     29       17       3,131  
     Operating expenses     12       52       246       1,694  
     Property taxes     —         19       46       1,266  
     Management company indirect     —         370       —         1,360  
     Corporate expenses       —         56       —         1,458  
Total cost of operations     (12     526       309       8,909  
                                 
Total operating profit (loss)     12       (307     151       2,967  
                                 
Interest expense     —         —         —         (587 )
Gain (loss) on sale of buildings     (30 )     200       9,238       165,007  
                                 
Income (loss) before income taxes     (18     (107     9,389       167,387  
Provision for (benefit from) income taxes     (5     (29     2,540       45,278  
                                 
Income (loss) from discontinued operations   $ (13     (78     6,849       122,109  
                                 
Earnings per common share:                                
 Income (loss) from discontinued operations-                                
    Basic     0.00       (0.01 )     0.69       12.17  
    Diluted     0.00       (0.01 )     0.69       12.08  
                                 

The components of the balance sheet are as follows (in thousands):

 

    September 30   December 31
Assets:   2019   2018
Real estate investments at cost:              
Land   $ —         546
Buildings and improvements     —         3,315
     Total investments in properties     —         3,861
Less accumulated depreciation and depletion     —         2,374
     Net investments in properties     —         1,487
               
Accounts receivable, net     32       910
Unrealized rents     —         473
Deferred costs     —         354
Assets of discontinued operations   $ 32       3,224
               
Liabilities:              
Accounts payable and accrued liabilities   18       205
Deferred revenue     —         45
Tenant security deposits     —         38
Liabilities of discontinued operations    $ 18       288
               

 

 

 

 

18 
 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

 

The following discussion includes a non-GAAP financial measure within the meaning of Regulation G promulgated by the Securities and Exchange Commission to supplement the financial results as reported in accordance with GAAP. The non-GAAP financial measure discussed is net operating income (NOI). The Company uses this metric to analyze its continuing operations and to monitor, assess, and identify meaningful trends in its operating and financial performance. This measure is not, and should not be viewed as, a substitute for GAAP financial measures. Refer to “Non-GAAP Financial Measure” below in this quarterly report for a more detailed discussion, including reconciliations of this non-GAAP financial measure to its most directly comparable GAAP financial measure.

 

Overview - FRP Holdings, Inc. is a holding company engaged in the real estate business, namely (i) mining royalty land ownership and leasing, (ii) land acquisition, entitlement and development primarily for future warehouse/office or residential building construction, (iii) ownership, leasing, and management of a residential apartment building, and (iv) warehouse/office building ownership, leasing and management.

 

The Company’s operations are influenced by a number of external and internal factors. External factors include levels of economic and industrial activity in the United States and the Southeast, construction activity and costs, aggregates sales by lessees from the Company’s mining properties, interest rates, market conditions in the Baltimore/Northern Virginia/Washington DC area, and our ability to obtain zoning and entitlements necessary for property development. Internal factors include administrative costs, success in leasing efforts and construction cost management.

 

On May 21, 2018, the Company completed the disposition of 40 industrial warehouse properties and three additional land parcels to an affiliate of Blackstone Real Estate Partners VIII, L.P. for $347.2 million. One warehouse property valued at $11.7 million was excluded from the sale due to the tenant exercising its right of first refusal to purchase the property. These properties comprised substantially all the assets of our Asset Management segment and constituted a strategic shift for the Company and have been reclassified as discontinued operations for all periods presented. On June 28, 2019, the Company completed the sale of the excluded property to the same buyer for $11.7 million.

 

Asset Management Segment.

 

The Asset Management segment owns, leases and manages four commercial properties.  These assets create revenue and cash flows through tenant rental payments, lease management fees and reimbursements for building operating costs. The major cash outlays incurred in this segment are for operating expenses, real estate taxes, building repairs, lease commissions and other lease closing costs, construction of tenant improvements, capital to acquire existing operating buildings and closing costs related thereto and personnel costs of our property management team.

 

As of September 30, 2019, the Asset Management Segment owned four commercial properties as follows:

1) 34 Loveton Circle in suburban Baltimore County, Maryland consists of one office building totaling 33,708 square feet which is 95.2% occupied (16% of the space is occupied by the Company for use as our Baltimore headquarters).

2) 155 E. 21st Street in Duval County, Florida was an office building property that remains under lease through March

2026. We permitted the tenant to demolish all structures on the property during 2018.

3) Cranberry Office Park consists of five office buildings totaling 268,010 square feet which are 26.1% occupied at September 30, 2019.

4) 1801 62nd Street consists of 94,350 square feet and was completed in second quarter. The building is 100% leased at September 30, 2019.

 

Management focuses on several factors to measure our success on a comparative basis in this segment. The major factors we focus on are (1) revenue growth, (2) net operating income, (3) growth in occupied square feet, (4) actual occupancy rate, (5) average annual occupied square feet, (6) average annual occupancy rate (defined as the occupied square feet at the end of each month during a fiscal year divided by the number of months to date in that fiscal year as a percentage of the average number of square feet in the portfolio over that same time period), and (7) tenant retention success rate (as a percentage of total square feet to be renewed).

 

 

19 
 

Mining Royalty Lands Segment.

 

Our Mining Royalty Lands segment owns several properties comprising approximately 15,000 acres currently under lease for mining rents or royalties (this does not include the 4,280 acres owned in our Brooksville joint venture with Vulcan Materials).  Other than one location in Virginia, all of these properties are located in Florida and Georgia.  The typical lease in this segment requires the tenant to pay us a royalty based on the number of tons of mined materials sold from our property during a given fiscal year multiplied by a percentage of the average annual sales price per ton sold. As a result of this royalty payment structure, we do not bear the cost risks associated with the mining operations, however, we are subject to the cyclical nature of the construction markets in these states as both volumes and prices tend to fluctuate through those cycles. In certain locations, typically where the reserves on our property have been depleted but the tenant still has a need for the leased land, we collect a minimum annual rental amount. We believe strongly in the potential for future growth in construction in Florida, Georgia, and Virginia which would positively benefit our profitability in this segment.  Our mining properties had estimated remaining reserves of 528 million tons as of December 31, 2018 after a total of 8.0 million tons were consumed in 2018.

 

The major expenses in this segment are comprised of collection and accounting for royalties, management’s oversight of the mining leases, land entitlement for post-mining uses and property taxes at our non-leased locations and at our Grandin location which, unlike our other leased mining locations, are not paid by the tenant.  As such, our costs in this business are very low as a percentage of revenue, are relatively stable and are not affected by increases in production at our locations. Our current mining tenants are Vulcan Materials, Martin Marietta, Cemex, Argos and The Concrete Company. 

 

Additionally, these locations provide us with excellent opportunities for valuable “second lives” for these assets through proper land planning and entitlement.

 

Significant “2nd life” Mining Lands: 

 

Location Acreage Status
Brooksville, Fl 4,280 +/- Development of Regional of Impact and County Land Use and Master Zoning in place for 5,800 residential unit, mixed-use development
Ft. Myers, FL 1,993 +/- Approval in place for 105, 1 acre, waterfront residential lots after mining completed.
Gulf Hammock, Fl 1,600 +/- Currently on the market
Total 7,873 +/-  

 

Development Segment.

 

Through our Development segment, we own and are continuously monitoring for their “highest and best use” several parcels of land that are in various stages of development.  Our overall strategy in this segment is to convert all our non-income producing lands into income production through (i) an orderly process of constructing new commercial and residential buildings for us to own and operate or (ii) a sale to, or joint venture with, third parties. Additionally, our Development segment will purchase or form joint ventures on new developments of land not previously owned by the Company.

 

Revenues in this segment are generated predominately from land sales and interim property rents. The significant cash outlays incurred in this segment are for land acquisition costs, entitlement costs, property taxes, design and permitting, the personnel costs of our in-house management team and horizontal and vertical construction costs.

 

Since 1990, one of our primary strategies in this segment has been to acquire, entitle and ultimately develop commercial/industrial business parks providing 5–15 building pads which we typically convert into warehouse/office buildings. To date, our management team has converted 30 of these pads into developed buildings. Our typical practice has been to transfer these assets to the Asset Management segment on the earlier to occur of (i) commencement of rental revenue or (ii) issuance of the certificate of occupancy. We have also occasionally sold several of these pad sites over time to third parties.

20 
 

 

Development Segment – Warehouse/Office Land.

 

At September 30, 2019 this segment owned the following future development parcels:

 

1)15 acres of horizontally developed land available for future construction of an additional 187,550 square feet of warehouse/office product at Lakeside Business Park in Harford County, Maryland.

 

2)25 acres of horizontally developed land capable of supporting 227,940 square feet of warehouse, office, and flex buildings at Hollander 95 Business Park in Baltimore City, Maryland.

 

We will continue to actively monitor these submarkets where we have lots ready for construction and take advantage of the opportunities presented to us. We will also look for new parcels to place into development.

 

We have three properties that were either spun-off to us from Florida Rock Industries in 1986 or acquired by us from unrelated third parties. These properties, as a result of our “highest and best use” studies, are being prepared for income generation through sale or joint venture with third parties, and in certain cases we are leasing these properties on an interim basis for an income stream while we wait for the development market to mature.

 

Significant Investment Lands Inventory:

 

Location Approx. Acreage Status

 

NBV

RiverFront on the Anacostia Phases III-IV 2.5 Phase II contributed to JV and under construction.   $6,099,000
Hampstead Trade Center, MD 73 Residential conceptual design program ongoing $8,146,000
Square 664E,on the Anacostia River in DC 2 Under lease to Vulcan Materials as a concrete batch plant through 2021 with one 5 year renewal option. $8,052,000
Total 77.5   $22,297,000

 

RIVERFRONT ON THE ANACOSTIA PHASES III-IV: This property consists of 2.5 acres on the Anacostia River and is immediately adjacent to the Washington Nationals’ baseball park in the SE Central Business District of Washington, DC. Once zoned for industrial use and under a ground lease, this property is no longer under lease and has been rezoned for the construction of approximately 600,000 square feet of “mixed-use” development in two phases. See “Stabilized Joint Venture Segment” below for discussion on Phase I and Development Joint Ventures below for discussion of Phase II. Phases III and IV are slated for office, and hotel/residential buildings, respectively, all with permitted first floor retail uses.

 

On August 24, 2015, in anticipation of commencing construction of the new Frederick Douglass bridge at a location immediately to the west of the existing bridge, the District of Columbia filed a Declaration of Taking for a total of 7,390 square feet of permanent easement and a 5,022-square-foot temporary construction easement on land along the western boundary of the land that will ultimately hold Phase III and IV. Previously, the Company and the District had conceptually agreed to a land swap with no compensation that would have permitted the proposed new bridge, including construction easements, to be on property wholly owned by the District. As a result, the Planned Unit Development was designed and ultimately approved by the Zoning Commission as if the land swap would occur once the District was ready to move forward with the new bridge construction. In September 2016 the Company received $1,115,400 as settlement for the easement. The Company will continue to seek an agreement from the District that the existing bridge easement will terminate when the new bridge has been placed in service and the existing bridge has been removed. The Company’s position is that otherwise Phase IV will be adversely impacted, and additional compensation or other relief will be due the Company.

 

HAMPSTEAD TRADE CENTER: We purchased this 118-acre tract in 2005 for $4.3 million in a Section 1031

21 
 

exchange with plans of developing it as a commercial business park. The “great recession” caused us to reassess our plans for this property. As a result, Management has determined that the prudent course of action is to attempt to rezone the property for residential uses and sell the entire tract to another developer such that we can redeploy this capital into assets with more near-term income producing potential. On December 22, 2018, The Town of Hampstead re-awarded FRP its request for rezoning with a 30-day appeal period. No appeal was filed, therefore, FRP can now move forward with its residential concept plan. We are fully engaged in the formal process of seeking PUD entitlements for this 118-acre tract in Hampstead, Maryland, now known as “Hampstead Overlook”.

 

SQUARE 664E, WASHINGTON, DC: This property sits on the Anacostia River at the base of South Capitol Street in an area named Buzzard Point, approximately 1 mile down river from our RiverFront on the Anacostia property. The Square 664E property consists of approximately 2 acres and is currently under lease to Vulcan Materials for use as a concrete batch plant. The lease terminates on August 31, 2021 and Vulcan has the option to renew for one additional period of five (5) years. In July 2018, Audi Field, the home of the DC United professional soccer club, opened its doors to patrons in Buzzard Point. The 20,000-seat stadium hosts 17 home games each year in addition to other outdoor events. The stadium is separated from our property by just one small industrial lot and two side streets.

 

The third leg of our Development Segment consists of investments in joint venture for properties in development as described below:

 

Development Segment - Investments in Joint Ventures (in thousands):

 

    As of September 30, 2019    
    Brooksville   BC FRP   Riverfront   Bryant Street        
    Quarry, LLC   Realty, LLC   Holdings II, LLC   Partnerships   Others   Total
                         
Investments in real estate, net   $ 14,294       22,532       77,713       78,176       50,467     $ 243,182
Cash and cash equivalents     89       18       569       5,884       2,559       9,119
Unrealized rents & receivables     —         52       —         52       —         104
Deferred costs     —         255       —         6,329       —         6,584
   Total Assets   $ 14,383       22,857       78,282       90,441       53,026     $ 258,989
                                               
Secured notes payable   $ —         11,920       27,671       —         29,375     $ 68,966
Other liabilities     141       75       7,903       13,416       —         21,535
Capital – FRP     7,465       5,431       37,077       56,876       7,318       114,167
Capital - Third Parties     6,777       5,431       5,631       20,149       16.333       54,321
   Total Liabilities and Capital   $ 14,383       22,857       78,282       90,441       53,026     $ 258,989
                                                       

 

 

Brooksville Quarry, LLC.. In 2006, the Company entered into a Joint Venture Agreement with Vulcan Materials Company to jointly own and develop approximately 4,300 acres of land near Brooksville, Florida. Under the terms of the joint venture, FRP contributed its fee interest in approximately 3,443 acres formerly leased to Vulcan under a long-term mining lease which had a net book value of $2,548,000. Vulcan is entitled to mine a portion of the property until 2032 and pay royalties to the Company. FRP also contributed $3,018,000 for one-half of the acquisition costs of a 288-acre contiguous parcel. Vulcan contributed 553 acres that it owned as well as its leasehold interest in the 3,443 acres that it leased from FRP and $3,018,000 for one-half of the acquisition costs of the 288-acre contiguous parcel. The joint venture is jointly controlled by Vulcan and FRP. Distributions will be made on a 50-50 basis except for royalties and depletion specifically allocated to the Company. Other income for the year ended September 30, 2019 includes a loss of $34,000 representing the Company’s portion of the loss of this joint venture (not including FRP’s royalty revenues).

 

BC Realty, LLC (Windlass Run). In March 2016, we entered into an agreement with a Baltimore development company (St. John Properties, Inc.) to jointly develop the remaining lands of our Windlass Run Business Park. The 50/50 partnership initially calls for FRP to combine its 25 acres (valued at $7,500,000) with St. John Properties’ adjacent 10 acres fronting on a major state highway (valued at $3,239,536) which resulted in an initial cash distribution of $2,130,232 to FRP in May 2016. Thereafter, the venture will jointly develop the combined properties into a multi-building business park to consist of approximately 329,000 square feet of single-story office space. The project will take place in several phases, with construction of the first phase, which includes two office buildings and

22 
 

two retail buildings totaling 100,030-square-feet (inclusive of 27,950 retail), commenced in the fourth quarter of 2017 and projected to stabilize in the fourth quarter of 2020. The start of subsequent phases will follow with the final phase commencing in the 4th quarter of 2024. On September 28, 2017 BC FRP Realty, LLC obtained $17,250,000 of construction financing commitments for 4 buildings through September 15, 2022 from BB&T at 2.5% over LIBOR. The balance outstanding on these loans at September 30, 2019 was $11,538,000. The joint venture finished shell construction on its two office buildings in November 2018, while shell construction on the two retail buildings wrapped up in January 2019.

 

RiverFront Holdings II, LLC. On May 4, 2018, the Company and MRP formed a Joint Venture to develop Phase II and closed on construction financing with Eagle Bank. Phase II on the Anacostia known as The Maren is a 250,000-square-foot mixed-use development which supports 264 residential units and 6,900 SF of retail. The Company has contributed its land with an agreed value of $16.3 million (cost basis of $4.6 million) and $6.2 million of cash. MRP contributed capital of $5.6 million to the joint venture including development costs paid prior to the formation of the joint venture and a $725,000 development fee. The Company further agreed to fund $13.75 million preferred equity financing at 7.5% interest rate all of which was advanced through September 30, 2019. The loan from Eagle Bank allows draws of up to $71 million during construction at an interest rate of 3.25% over LIBOR. The loan is interest only and matures in 36 months with a 12-month extension assuming completion of construction and at least one occupancy. There is a provision for an additional 60 months extension with a 30-year amortization of principal at 2.15% over seven-year US Treasury Constant if NOI is sufficient for a 9% yield. The Company’s equity interest in the joint venture is accounted for under the equity method of accounting as MRP acts as the administrative agent of the joint venture and oversees and controls the day to day operations of the project. Construction began in April 2018, with substantial completion estimated in June 2020, and stabilization (meaning 90% of the individual apartments are leased and occupied by third party tenants) in late 2021.

 

Bryant Street Partnerships: On December 24, 2018 the Company and MRP formed four partnerships to purchase and develop approximately five acres of land at 500 Rhode Island Ave NE, Washington, D.C. This property is the first phase of the Bryant Street Master Plan. The property is located in an Opportunity Zone, which provides tax benefits in the new communities development program as established by Congress in the Tax Cuts and Jobs Act of 2017. This first phase is a mixed-use development which supports 487 residential units and 86,042 SF of first floor and stand-alone retail on approximately five acres of the roughly 12-acre site. The Company contributed cash of $32 million in exchange for a 61.36% common equity in the partnership. The Company also contributed cash of $23 million as preferred equity financing at 8.0% interest rate. The Company records interest income for this loan and a loss in equity in joint ventures for our 61.36% equity in the partnership. On March 13, 2019 the partnerships closed on a construction loan with a group of lenders for up to $132 million at an interest rate of 2.25% over LIBOR. The loan matures March 13, 2023 with up to two extension of one year each upon certain conditions including, for the first, a debt service coverage of at least 1.10 and a loan-to-value that does not exceed 65% and for the second, a debt service coverage of 1.25 and a maximum loan-to-value of 65%. Borrower may prepay a portion of the unpaid principal to satisfy such tests. There were no draws on the loan through September 30, 2019. The Company’s equity interest in the joint venture is accounted for under the equity method of accounting as all the major decisions are shared equally. Construction is to begin in 2019, with substantial completion estimated in 2nd quarter 2021, and stabilization (meaning 90% of the individual apartments and retail are leased and occupied by third party tenants) in late 2022.

 

Hyde Park. On January 27, 2018 the Company entered into a loan agreement with a Baltimore developer to be the principal capital source of a residential development venture in Essexshire now known as “Hyde Park.” We have committed up to $3.5 million in exchange for an interest rate of 10% and a preferred return of 20% after which a “waterfall” determines the split of proceeds from sale. Hyde Park will hold 122 town homes and four single-family lots and received a non-appealable Plan Approval during the first quarter of 2019. We are currently pursuing entitlements and have a home builder under contract to purchase the land upon government approval to begin development. The loan balance at September 30, 2019 was $1,047,000.

 

 

Amber Ridge. On June 26, 2019 the Company entered into a loan agreement with a Baltimore developer to be the principal capital source of a residential development venture in Prince Georges County, Maryland known as “Amber Ridge.” We have committed up to $18.5 million in exchange for an interest rate of 10% and a preferred return of 20% after which the Company is also entitled to a portion of proceeds from sale. This project will hold 190 single-family

23 
 

town homes.

 

Stabilized Joint Venture Segment.

 

Currently the segment includes two stabilized joint ventures which own, leases and manage buildings. These assets create revenue and cash flows through tenant rental payments, and reimbursements for building operating costs. The major cash outlays incurred in this segment are for property taxes, full service maintenance, property management, utilities, marketing and our management.

 

Dock 79. Is a joint venture owned by the Company (66%) and our partner, MRP Realty (34%) and is a 305-unit residential apartment building with approximately 18,000 sq. ft. of first floor retail space. For financial reporting purposes the Company consolidates this venture as it is considered the primary beneficiary of the Variable Interest Entity. As of September 30, 2019, the residential units were 96.72% occupied and 93.44% leased, while retail units are 76% leased with just one space remaining.

 

DST Hickory Creek. In July 2019, the Company invested $6 million in 1031 proceeds from two sales in 2019 into a Delaware Statutory Trust (DST) known as CS1031 Hickory Creek Apartments, DST.  The Company is 26.649% beneficial owner and receives monthly distributions. The DST owns a 294-unit garden-style apartment community consisting of 19 three-story apartment buildings containing 273,940 rentable square feet.  The property was constructed in 1984 and substantially renovated in 2016.  The property is located in Henrico County, providing residents convenient access to some of the largest employment and economic drivers in Metro Richmond, including ten fortune 1,000 companies. The Company’s equity interest in the trust is accounted for under the equity method of accounting and monthly distributions net of depreciation are recorded as equity in loss of joint ventures.

 

 

 

Comparative Results of Operations for the Three months ended September 30, 2019 and 2018

 

Consolidated Results

 

(dollars in thousands)  Three Months Ended September 30, 
  2019   2018   Change   %  
Revenues:                                
  Lease Revenue $ 3,581     $ 3,617     $ (36     -1.0 %  
  Mining lands lease revenue   2,302       2,125       177       8.3 %  
 Total Revenues   5,883       5,742       141       2.5 %  
                                 
Cost of operations:                                
  Depreciation/Depletion/Amortization   1,431       1,821       (390     -21.4 %  
  Operating Expenses   952       983       (31 )     -3.2 %  
  Environmental remediation   —         (465     465       100.0 %  
  Property Taxes   740       663       77       11.6 %  
  Management company indirect   670       550       120       21.8 %  
  Corporate Expense   732       522       210       40.2 %  
Total cost of operations   4,525       4,074       451       11.1 %  
                                 
Total operating profit   1,358       1,668       (310     -18.6 %  
                                 
Net investment income, including realized gains                                
 of $144 and $0   2,019       1,654       365       22.1 %  
Interest Expense   (129 )     (768 )     639       -83.2 %  
Equity in loss of joint ventures   (746 )     (13 )     (733 )     5638.5 %  
Gain (loss) on real estate investments   126       (3 )     129       -4300.0 %  
                                 
Income before income taxes   2,628       2,538       90       3.5 %  
                                   
24 
 

 

Provision for income taxes   726       508       218       42.9 %
Income from continuing operations    1,902       2,030       (128     -6.3  %
                               
Loss from discontinued operations, net   (13 )     (78 )     65       -83.3 %
                               
Net income   1,889       1,952       (63 )     -3.2 %
Loss attributable to noncontrolling interest   (112 )     (272 )     160       -58.8 %
Net income attributable to the Company $ 2,001     $ 2,224     $ (223 )     -10.0 %
                               

 

Net income for the third quarter of 2019 was $2,001,000 or $.20 per share versus $2,224,000 or $.22 per share in the same period last year. Loss from discontinued operations for the third quarter of 2019 was ($13,000) or $.00 per share versus a loss from discontinued operations of ($78,000) or ($.01) per share in the same period last year. Interest earned for the third quarter includes $560,000 for Bryant Street and Maren preferred interest and $144,000 realized gain on bonds called early. Loss on Joint Venture includes $393,000 for the Company’s ownership share of the Bryant Street and Maren preferred interest and $255,000 amortization of the guarantee liability related to the Bryant Street loan. In July 2019 land located in Yatesville, Georgia was sold for $213,500 resulting in a gain of $124,000.

 

Asset Management Segment Results

    Three months ended September 30        
(dollars in thousands)   2019   %   2018   %   Change   %
                         
Lease revenue   $ 430       100.0 %     568       100.0 %     (138     -24.3 %
                                                 
Depreciation, depletion and amortization     154       35.8 %     145       25.5 %     9       6.2 %
Operating expenses     108       25.1 %     106       18.7 %     2       1.9 %
Property taxes     70       16.3 %     43       7.6 %     27       62.8 %
Management company indirect     90       20.9 %     (2     -.4 %     92       -4600.0 %
Corporate expense     168       39.1 %     34       6.0 %     134       394.1 %
                                                 
Cost of operations     590       137.2 %     326       57.4 %     264       81.0 %
                                                 
Operating profit   $ (160     -37.2 %     242       42.6 %     (402     -166.1 %

 

 

Most of the Asset Management Segment was reclassified to discontinued operations leaving two commercial properties as well as Cranberry Run, which we purchased first quarter, and 1801 62nd Street which joined Asset Management on April 1. Cranberry Run is a five-building industrial park in Harford County, MD totaling 268,010 square feet of industrial/ flex space and at quarter end was 26.1% leased and occupied. 1801 62nd Street is our most recent spec building in Hollander Business Park and is our first warehouse with a 32-foot clear. We completed construction on this building earlier this year and it is now 100% leased. We expect it to be fully occupied in the first quarter of 2020. Total revenues in this segment were $430,000, down ($138,000) or (24.3%), over the same period last year. Operating loss was ($160,000), down ($402,000) from an operating profit of $242,000 in the same quarter last year due to higher allocation of corporate expenses and increased operating expenses associated with the Cranberry Run acquisition in the first quarter and the addition of 1901 62nd Street to Asset Management in the second quarter.

 

Mining Royalty Lands Segment Results

 

Highlights of the Three Months ended September 30, 2019:

 

  • Mining lands lease revenue was up $177,000, or 8.3%.

 

25 
 
    Three months ended September 30        
(dollars in thousands)   2019   %   2018   %   Change   %
                         
Mining lands lease revenue   $ 2,302       100.0 %     2,125       100.0 %     177       8.3 %
                                                 
Depreciation, depletion and amortization     36       1.6 %     55       2.6 %     (19     -34.5 %
Operating expenses     44       1.9 %     48       2.2 %     (4     -8.3 %
Property taxes     66       2.9 %     61       2.9 %     5       8.2 %
Management company indirect     53       2.3 %     —         0.0 %     53       0.0 %
Corporate expense     44       1.9 %     28       1.3 %     16       57.1 %
                                                 
Cost of operations     243       10.6 %     192       9.0 %     51       26.6 %
                                                 
Operating profit   $ 2,059       89.4 %     1,933       91.0 %     126       6.5 %

 

Total revenues in this segment were $2,302,000 versus $2,125,000 in the same period last year. Total operating profit in this segment was $2,059,000, an increase of $126,000 versus $1,933,000 in the same period last year. Among the reasons for this increase in revenue and operating profit is the contribution from our Ft. Myers quarry, the revenue from which, now that mining has begun in earnest, was nearly double the minimum royalty we have been receiving until recently. Royalties were reduced by $115,000 due to a volumetric adjustment from the Manassas quarry.

 

 

Development Segment Results

    Three months ended September 30  
(dollars in thousands)   2019   2018   Change  
               
Lease revenue   307       330       (23  
                           
Depreciation, depletion and amortization     54       57       (3  
Operating expenses     105       143       (38  
Environmental remediation     —         (465     465    
Property taxes     300       269       31    
Management company indirect     477       465       12    
Corporate expense     479       408       71    
                           
Cost of operations     1,415       877       538    
                           
Operating loss   $ (1,108 )     (547 )     (561 )  

 

The Development segment is responsible for (i) seeking out and identifying opportunistic purchases of income producing warehouse/office buildings, and (ii) developing our non-income producing properties into income production.

 

With respect to ongoing projects:

 

  • We are fully engaged in the formal process of seeking PUD entitlements for our 118-acre tract in Hampstead, Maryland, now known as “Hampstead Overlook.” Hampstead Overlook received non-appealable rezoning from industrial to residential during the first quarter this year. 
  • We finished shell construction in December 2018 on the two office buildings in the first phase of our joint venture with St. John Properties.  Shell construction of the two retail buildings was completed in January. We are now in the process of leasing these four single-story buildings totaling 100,030 square feet of office and retail space. At quarter end, Phase I was 44% leased and 8% occupied.
  • We are the principal capital source of a residential development venture in Baltimore County, Maryland known as “Hyde Park.”  We have committed up to $3.5 million in exchange for an interest rate of 10% and a
  • 26 
     
  • preferred return of 20% after which a “waterfall” determines the split of proceeds from sale.  Hyde Park will hold 122 town homes and four single-family lots and received a non-appealable Plan Approval during the first quarter. We are currently pursuing entitlements and have a home builder under contract to purchase the land upon government approval to begin development.
  • We are the principal capital source of a residential development venture in Prince George’s County, Maryland known as “Amber Ridge.”  We have committed up to $18.5 million in exchange for an interest rate of 10% and a preferred return of 20% after which a “waterfall” determines the split of proceeds from sale.  Amber Ridge will hold approximately 200 town homes.  We are currently pursuing entitlements and have a home builder under contract to purchase 136 of the 200 units upon completion of development.
  • In April 2018, we began construction on Phase II of our RiverFront on the Anacostia project, now known as “The Maren.”  We expect to deliver the building in the first half of 2020.
  • In December 2018, the Company entered into a joint venture agreement with MidAtlantic Realty Partners (MRP) for the development of the first phase of a multifamily, mixed-use development in northeast Washington, DC known as “Bryant Street.”  FRP contributed $32 million for common equity and another $23 million for preferred equity to the joint venture. Construction began in February 2019 and should be finished in 2021. This project is located in an opportunity zone and could defer a significant tax liability associated with last year’s asset sale.

Stabilized Joint Venture Segment Results

 

    Three months ended September 30        
(dollars in thousands)   2019   %   2018   %   Change   %
                         
Lease revenue   $ 2,844       100.0 %     2,719       100.0 %     125       4.6 %
                                                 
Depreciation, depletion and amortization     1,187       41.7 %     1,564       57.5 %     (377     -24.1 %
Operating expenses     695       24.4 %     686       25.2 %     9       1.3 %
Property taxes     304       10.7 %     290       10.7 %     14       4.8 %
Management company indirect     50       1.8 %     87       3.2 %     (37     -42.5 %
Corporate expense     41       1.5 %     52       1.9 %     (11     -21.2 %
                                                 
Cost of operations     2,277       80.1 %     2,679       98.5 %     (402     -15.0 %
                                                 
Operating profit   $ 567       19.9 %     40       1.5 %     527       1317.5 %

 

Dock 79’s average occupancy for the quarter was 97.02%, and at the end of the quarter, Dock 79 was 93.44% leased and 96.72% occupied. This quarter, 63.51% of expiring leases renewed with an average increase in rent on those renewals of 3.19%. Net Operating Income this quarter for this segment was $1,849,000, up $153,000 or 9.02% compared to the same quarter last year. Dock 79 is a joint venture between the Company and MRP, in which FRP Holdings, Inc. is the majority partner with 66% ownership.

 

In July 2019, the Company completed a like-kind exchange by reinvesting $6,000,000 into a Delaware Statutory Trust (DST) known as CS1031 Hickory Creek DST. The DST owns a 294-unit garden-style apartment community known as Hickory Creek consisting of 19 three-story apartment buildings containing 273,940 rentable square feet.  Hickory Creek was constructed in 1984 and substantially renovated in 2016 and is located in Henrico County, Virginia. The Company is 26.649% beneficial owner and receives monthly distributions.

 

 

 

Comparative Results of Operations for the Nine months ended September 30, 2019 and 2018

 

Consolidated Results

 

27 
 

 

(dollars in thousands)  Nine Months Ended September 30, 
  2019   2018   Change   %  
Revenues:                                
  Lease Revenue $ 10,796     $ 10,418     $ 378       3.6 %  
  Mining lands lease revenue   7,164       5,952       1,212       20.4 %  
 Total Revenues   17,960       16,370       1,590       9.7 %  
                                 
Cost of operations:                                
  Depreciation/Depletion/Amortization   4,390       6,350       (1,960     -30.9 %  
  Operating Expenses   2,744       2,951       (207 )     -7.0 %  
  Environmental remediation   —         (465     465       100.0 %  
  Property Taxes   2,206       1,949       257       13.2 %  
  Management company indirect   1,872       1,366       506       37.0 %  
  Corporate Expense   1,928       2,910       (982 )     -33.7 %  
Total cost of operations   13,140       15,061       (1,921 )     -12.8 %  
                                 
Total operating profit   4,820       1,309       3,511       268.2 %  
                                 
Net investment income, including realized gains                                
 of $519 and $0   5,813       1,875       3,938       210.0 %  
Interest Expense   (989 )     (2,418 )     1,429       -59.1 %  
Equity in loss of joint ventures   (1,282 )     (36 )     (1,246 )     3461.1 %  
Gain on real estate investments   662       (3 )     665       -22166.7 %  
                                 
Income before income taxes   9,024       727       8,297       1141.3 %  
Provision for income taxes   2,529       269       2,260       840.1 %  
Income from continuing operations    6,495       458       6,037       1318.1  %  
                                 
Income from discontinued operations, net   6,849       122,109       (115,260 )     -94.4 %  
                                 
Net income   13,344       122,567       (109,223 )     -89.1 %  
Loss attributable to noncontrolling interest   (380 )     (1,199 )     819       -68.3 %  
Net income attributable to the Company $ 13,724     $ 123,766     $ (110,042 )     -88.9 %  
                                 
                                   

 

 

Net income for first nine months of 2019 was $13,724,000 or $1.38 per share versus $123,766,000 or $12.24 per share in the same period last year. Income from discontinued operations for the first nine months of 2019 was $6,849,000 or $.69 per share versus $122,109,000 or $12.08 per share in the same period last year. Interest earned for the first nine months of 2019 includes $1,017,000 for Bryant Street and Maren preferred interest and $591,000 realized gain on bonds. Loss on Joint Venture includes $759,000 for the Company’s ownership share of the Bryant Street and Maren preferred interest and $255,000 amortization of the guarantee liability related to the Bryant Street loan. In July 2019, the Company sold a parcel of vacant land in Yatesville, GA for $213,500 resulting in a gain of $124,000. The first nine months of 2018 income from continuing operations of $1,309,000 included $1,085,000 in stock compensation expense ($682,800 for the 2018 director stock grant and $402,000 for vesting of option grants from 2016 and 2017 due to the asset disposition).

 

 

Asset Management Segment Results

 

28 
 

    Nine months ended September 30        
(dollars in thousands)   2019   %   2018   %   Change   %
                         
Lease revenue   $ 1,733       100.0 %     1,717       100.0 %     16       0.9 %
                                                 
Depreciation, depletion and amortization     527       30.4 %     405       23.6 %     122       30.1 %
Operating expenses     492       28.4 %     335       19.5 %     157       46.9 %
Property taxes     216       12.5 %     122       7.1 %     94       77.0 %
Management company indirect     265       15.3 %     72       4.2 %     193       268.1 %
Corporate expense     470       27.1 %     146       8.5 %     324       221.9 %
                                                 
Cost of operations     1,970       113.7 %     1,080       62.9 %     890       82.4 %
                                                 
Operating profit (loss)   $ (237     -13.7 %     637       37.1 %     (874     -137.2 %

 

Most of the Asset Management Segment was reclassified to discontinued operations leaving one recent industrial acquisition, Cranberry Run, which we purchased first quarter, 1801 62nd Street which joined Asset Management on April 1, and two commercial properties after the sale this past quarter of our office property at 7030 Dorsey Road. Cranberry Run is a five-building industrial park in Harford County, MD totaling 268,010 square feet of industrial/ flex space. It is our plan to make $1,455,000 in improvements in order to re-lease the property for a total investment of $29.35 per square foot. 1801 62nd Street is our most recent spec building in Hollander Business Park and is our first warehouse with a 32-foot clear. We completed construction on this building earlier this year and it is 100% leased as of September 30, 2019. Total revenues in this segment were $1,733,000, up $16,000 or .9%, over the same period last year. Operating loss was ($237,000), down $874,000 from an operating profit of $637,000 in the same period last year due to higher allocation of corporate expenses and increased operating expenses associated with the Cranberry Run acquisition in the first quarter and the addition of 1801 62nd Street to Asset Management second quarter.

 

 

Mining Royalty Lands Segment Results

 

Highlights of the Nine Months ended September 30, 2019:

  • Mining lands lease revenue were up $1,212,000, or 20.4%.

 

    Nine months ended September 30        
(dollars in thousands)   2019   %   2018   %   Change   %
                         
Mining lands lease revenue   $ 7,164       100.0 %     5,952       100.0 %     1,212       20.4 %
                                                 
Depreciation, depletion and amortization     130       1.8 %     145       2.4 %     (15     -10.3 %
Operating expenses     75       1.1 %     128       2.2 %     (53     -41.4 %
Property taxes     203       2.8 %     182       3.1 %     21       11.5 %
Management company indirect     151       2.1 %     —         0.0 %     151       0.0 %
Corporate expense     123       1.7 %     157       2.6 %     (34     -21.7 %
                                                 
Cost of operations     682       9.5 %     612       10.3 %     70       11.4 %
                                                 
Operating profit   $ 6,482       90.5 %     5,340       89.7 %     1,142       21.4 %

 

Total revenues in this segment were $7,164,000 versus $5,952,000 in the same period last year. Total operating profit in this segment was $6,482,000, an increase of $1,142,000 versus $5,340,000 in the same period last year. Among the reasons for this increase in revenue and operating profit is the contribution from our Ft. Myers quarry, the revenue from which, now that mining has begun in earnest, was more than double the minimum royalty we have been receiving until recently. Royalties were reduced by $115,000 due to a volumetric adjustment from the Manassas quarry.

 

 

Development Segment Results

 

29 
 

 

    Nine months ended September 30  
(dollars in thousands)   2019   2018   Change  
               
Lease revenue   892       944       (52  
                           
Depreciation, depletion and amortization     161       171       (10  
Operating expenses     246       618       (372  
Environmental remediation     —         (465     465    
Property taxes     918       768       150    
Management company indirect     1,314       998       316    
Corporate expense     1,219       1,110       109    
                           
Cost of operations     3,858       3,200       658    
                           
Operating loss   $ (2,966 )     (2,256 )     (710 )  

 

The Development segment is responsible for (i) seeking out and identifying opportunistic purchases of income producing warehouse/office buildings, and (ii) developing our non-income producing properties into income production.

 

With respect to ongoing projects:

 

  • We are fully engaged in the formal process of seeking PUD entitlements for our 118-acre tract in Hampstead, Maryland, now known as “Hampstead Overlook.” Hampstead Overlook received non-appealable rezoning from industrial to residential during the first quarter this year. 
  • We finished shell construction in December 2018 on the two office buildings in the first phase of our joint venture with St. John Properties.  Shell construction of the two retail buildings was completed in January. We are now in the process of leasing these four single-story buildings totaling 100,030 square feet of office and retail space. At quarter end, Phase I was 44% leased and 8% occupied.
  • We are the principal capital source of a residential development venture in Baltimore County, Maryland known as “Hyde Park.”  We have committed up to $3.5 million in exchange for an interest rate of 10% and a preferred return of 20% after which a “waterfall” determines the split of proceeds from sale.  Hyde Park will hold 122 town homes and four single-family lots and received a non-appealable Plan Approval during the first quarter. We are currently pursuing entitlements and have a home builder under contract to purchase the land upon government approval to begin development.
  • We are the principal capital source of a residential development venture in Prince George’s County, Maryland known as “Amber Ridge.”  We have committed up to $18.5 million in exchange for an interest rate of 10% and a preferred return of 20% after which a “waterfall” determines the split of proceeds from sale.  Amber Ridge will hold approximately 200 town homes.  We are currently pursuing entitlements and have a home builder under contract to purchase 136 of the 200 units upon completion of development.
  • In April 2018, we began construction on Phase II of our RiverFront on the Anacostia project, now known as “The Maren.”  We expect to deliver the building in the first half of 2020.
  • In December 2018, the Company entered into a joint venture agreement with MidAtlantic Realty Partners (MRP) for the development of the first phase of a multifamily, mixed-use development in northeast Washington, DC known as “Bryant Street.”  FRP contributed $32 million for common equity and another $23 million for preferred equity to the joint venture. Construction began in February 2019 and should be finished in 2021. This project is located in an opportunity zone and could defer a significant tax liability associated with last year’s asset sale.

 

 

Stabilized Joint Venture Segment Results

 

30 
 

    Nine months ended September 30        
(dollars in thousands)   2019   %   2018   %   Change   %
                         
Lease revenue   $ 8,171       100.0 %     7,757       100.0 %     414       5.3 %
                                                 
Depreciation, depletion and amortization     3,572       43.7 %     5,629       72.6 %     (2,057     -36.5 %
Operating expenses     1,931       23.6 %     1,870       24.1 %     61       3.3 %
Property taxes     869       10.6 %     877       11.3 %     (8     -0.9 %
Management company indirect     142       1.8 %     296       3.8 %     (154     -52.0 %
Corporate expense     116       1.4 %     289       3.7 %     (173     -59.9 %
                                                 
Cost of operations     6,630       81.1 %     8,961       115.5 %     (2,331     -26.0 %
                                                 
Operating profit   $ 1,541       18.9 %     (1,204     -15.5 %     2,745       -228.00 %

 

Average occupancy for the first nine months at Dock 79 was 95.57%, and at the end of the third quarter, Dock 79 was 93.44% leased and 96.72% occupied. Through the first nine months of the year, 59.76% of expiring leases have renewed with an average increase in rent of 2.80%. Net Operating Income for this segment was $5,346,000, up $499,000 or 10.30% compared to the same period last year, primarily due to substantial increases in NOI from our retail tenants compared to this period last year. Dock 79 is a joint venture between the Company and MRP, in which FRP Holdings, Inc. is the majority partner with 66% ownership.

 

In July 2019, the Company completed a like-kind exchange by reinvesting $6,000,000 into a Delaware Statutory Trust (DST) known as CS1031 Hickory Creek DST. The DST owns a 294-unit apartment community known as Hickory Creek consisting of 19 three-story apartment buildings containing 273,940 rentable square feet.  Hickory Creek was constructed in 1984 and substantially renovated in 2016. The property is eleven miles from downtown Richmond in Henrico County, Virginia. The Company is 26.649% beneficial owner and receives monthly distributions.

 

 

Liquidity and Capital Resources. The growth of the Company’s businesses requires significant cash needs to acquire and develop land or operating buildings and to construct new buildings and tenant improvements. As of September 30, 2019, we had $69,246,000 of cash and cash equivalents along with $115,308,000 of investments available for sale. As of September 30, 2019, we had no debt borrowed under our $20 million Wells Fargo revolver, $958,000 outstanding under letters of credit and $19,042,000 available to borrow under the revolver. In November 2017, we secured $90 million in permanent financing for Dock 79 from EagleBank, the proceeds of which were used to pay off $79 million of construction and mezzanine debt. The remainder was distributed pari passu between the Company and our partners.

 

Cash Flows - The following table summarizes our cash flows from operating, investing and financing activities for each of the periods presented (in thousands of dollars):

    Nine months  
    Ended September 30,  
    2019   2018  
Total cash provided by (used for):            
Operating activities $ 15,021     (41,660 )
Investing activities   40,131     101,850  
Financing activities   (8,453   (29,932 )
Increase in cash and cash equivalents $ 46,699     30,258  
             
 Outstanding debt