10-Q 1 frphsepq20.htm FRPH SEPTEMBER 2020 FORM 10Q

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, 2020

 

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)

 

Title of each class   Trading Symbol   Name of each exchange on which registered
Common Stock, $.10 par value   FRPH   NASDAQ  

 

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 [_]
Non-accelerated filer [x]   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 October 29, 2020  
  Common Stock, $.10 par value per share       9,418,385 shares  
             

 

1 
 

 

 

 

FRP HOLDINGS, INC.

FORM 10-Q

QUARTER ENDED SEPTEMBER 30, 2020

 

 

 

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
    Consolidated Statements of Shareholders’ Equity     8
    Condensed Notes to Consolidated Financial Statements     10
           
Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations     22
           
Item 3.   Quantitative and Qualitative Disclosures about Market Risks     38
           
Item 4.   Controls and Procedures     38
           
    Part II.  Other Information      
           

 

Item 1A.

  Risk Factors     40
           
Item 2.   Purchase of Equity Securities by the Issuer     41
           
Item 6.   Exhibits     41
           
Signatures         42
           
Exhibit 31   Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002     44
           
Exhibit 32   Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002     47

 

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 impact of the Covid-19 Pandemic on our operations and financial results; 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:   2020   2019
Real estate investments at cost:                
Land   $ 80,494       84,383  
Buildings and improvements     141,146       147,019  
Projects under construction     2,442       1,056  
     Total investments in properties     224,082       232,458  
Less accumulated depreciation and depletion     33,684       30,271  
     Net investments in properties     190,398       202,187  
                 
Real estate held for investment, at cost     9,101       8,380  
Investments in joint ventures     167,586       160,452  
     Net real estate investments     367,085       371,019  
                 
Cash and cash equivalents     46,289       26,607  
Cash held in escrow     15,259       186  
Accounts receivable, net     923       546  
Investments available for sale at fair value     104,624       137,867  
Unrealized rents     530       554  
Deferred costs     921       890  
Other assets     499       479  
Total assets   $ 536,130       538,148  
                 
Liabilities:                
Secured notes payable   $ 89,027       88,925  
Accounts payable and accrued liabilities     3,052       2,431  
Other liabilities     1,886       1,978  
Deferred revenue     609       790  
Federal and state income taxes payable     164       504  
Deferred income taxes     52,532       50,111  
Deferred compensation     1,240       1,436  
Tenant security deposits     314       328  
    Total liabilities     148,824       146,503  
                 
Commitments and contingencies                 
                 
Equity:                

Common stock, $.10 par value

25,000,000 shares authorized,

9,481,638 and 9,817,429 shares issued

and outstanding, respectively

    948       982  
Capital in excess of par value     56,690       57,705  
Retained earnings     313,103       315,278  
Accumulated other comprehensive income, net     996       923  
     Total shareholders’ equity     371,737       374,888  
Noncontrolling interest MRP     15,569       16,757  
     Total equity     387,306       391,645  
Total liabilities and shareholders’ equity   $ 536,130       538,148  

 

 

 

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,
    2020   2019   2020   2019
Revenues:                                
     Lease revenue   $ 3,591       3,581       10,636       10,796  
     Mining lands lease revenue     2,507       2,302       7,094       7,164  
 Total Revenues     6,098       5,883       17,730       17,960  
                                 
Cost of operations:                                
     Depreciation, depletion and amortization     1,438       1,431       4,406       4,390  
     Operating expenses     892       952       2,598       2,744  
     Property taxes     706       740       2,089       2,206  
     Management company indirect     844       670       2,208       1,872  
     Corporate expenses     637       732       2,850       1,928  
Total cost of operations     4,517       4,525       14,151       13,140  
                                 
Total operating profit     1,581       1,358       3,579       4,820  
                                 
Net investment income, including realized gains of $55, $144, $297 and $591, respectively     1,814       2,019       5,915       5,813  
Interest expense     (46 )     (129 )     (142 )     (989 )
Equity in loss of joint ventures     (1,788 )     (746 )     (3,773 )     (1,282 )
Gain on sale of real estate     5,732       126       9,329       662  
                                 
Income from continuing operations before income taxes     7,293       2,628       14,908       9,024  
Provision for income taxes     2,022       726       4,161       2,529  
Income from continuing operations      5,271       1,902       10,747       6,495  
                                 
Income (loss) from discontinued operations, net     —         (13 )     —         6,849  
                                 
Net income     5,271       1,889       10,747       13,344  
Loss attributable to noncontrolling interest     (184 )     (112 )     (475 )     (380 )
Net income attributable to the Company   $ 5,455       2,001       11,222       13,724  
                                 
Earnings per common share:                                
 Income from continuing operations-                                
    Basic   $ 0.55       0.19       1.11       0.66  
    Diluted   $ 0.55       0.19       1.11       0.65  
 Discontinued operations-                                
    Basic   $ —         —         —         0.69  
    Diluted   $ —         —         —         0.69  
 Net income attributable to the Company-                                
    Basic   $ 0.57       0.20       1.16       1.39  
    Diluted   $ 0.57       0.20       1.16       1.38  
                                 
Number of shares (in thousands) used in computing:                      
    -basic earnings per common share     9,517       9,843       9,646       9,903  
    -diluted earnings per common share     9,545       9,886       9,681       9,945  
                                                       

 

 

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,
    2020   2019   2020   2019
Net income   $ 5,271       1,889       10,747       13,344  
Other comprehensive income net of tax:                                
  Minimum pension liability, net of income                                
    tax effect of $53, $0, $53 and $0     143       —         143       —    
  Unrealized gain (loss) on investments available for                                

  sale, net of income tax effect of ($126), ($18), ($26)

and $691

    (341     (49     (70     1,862  
Comprehensive income   $ 5,073       1,840       10,820       15,206  
                                 
Less comp. income attributable to                                
  Noncontrolling interest   $ (184 )     (112 )     (475 )     (380 )
                                 
Comprehensive income attributable to the Company   5,257       1,952       11,295       15,586  

 

 

 

See accompanying notes

 

 

6 
 

FRP HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(In thousands) (Unaudited)

    2020   2019
Cash flows from operating activities:                
 Net income   $ 10,747       13,344  
 Adjustments to reconcile net income to                
  net cash provided by continuing operating activities:                
 Income from discontinued operations, net     —         (6,849
 Deferred income taxes     2,421       23,123  
 Depreciation, depletion and amortization     4,572       4,635  
 Equity in loss of joint ventures     3,773       1,282  
 Gain on sale of equipment and property     (9,343 )     (657 )
 Stock-based compensation     1,241       206  
 Realized gain on available for sale investments     (297 )     (591 )
 Net changes in operating assets and liabilities:                
  Accounts receivable     (377 )     (355 )
  Deferred costs and other assets     (178 )     (922 )
  Accounts payable and accrued liabilities     440       (1,252 )
  Income taxes payable and receivable     (340 )     (17,335 )
  Other long-term liabilities     694       2,148  
 Net cash provided by operating activities of continuing operations     13,353       16,777  
 Net cash used in operating activities of discontinued operations     —         (1,756
 Net cash provided by operating activities     13,353       15,021  
                 
Cash flows from investing activities:                
 Investments in properties     (3,200 )     (9,360 )
 Investments in joint ventures     (10,911 )     (16,226 )
 Purchases of investments available for sale     (24,584 )     (36,941 )
 Proceeds from sales of investments available for sale     57,240       89,260  
 Proceeds from the sale of assets     19,257       8,405  
 Cash held in escrow     (15,073 )     (6,532 )
Net cash provided by investing activities of continuing operations     22,729       28,606  
Net cash provided by investing activities of discontinued operations     —         11,525  
Net cash provided by investing activities     22,729       40,131  
                 
Cash flows from financing activities:                
 Distribution to noncontrolling interest     (713 )     (1,086 )
 Repurchase of company stock     (15,687 )     (7,714 )
 Exercise of employee stock options     —         347  
Net cash used in financing activities of continuing operations     (16,400     (8,453
Net cash used in financing activities of discontinued operations     —         —    
Net cash used in financing activities     (16,400     (8,453
                 
Net increase in cash and cash equivalents     19,682       46,699  
Cash and cash equivalents at beginning of year     26,607       22,547  
Cash and cash equivalents at end of the period   $ 46,289       69,246  

 

See accompanying notes.

7 
 

FRP HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(In thousands, except share amounts)

 

                               
    Nine Months Ended September 30, 2020  
                  Accumulated   Total        
          Capital in       Other Comp-   Share   Non-    
  Common Stock   Excess of   Retained   Rehensive   holders’   Controlling   Total
  Shares   Amount   Par Value   Earnings   Income, net   Equity   Interest   Equity
Balance at January 1, 2020   9,817,429     $ 982     $ 57,705     $ 315,278     $ 923     $ 374,888     $ 16,757     $ 391,645  
                                                               
 Stock option grant compensation                   71                       71               71  
 Restricted stock compensation                   140                       140               140  
 Shares granted to Employees   11,448       1       529                       530               530  
 Shares granted to Directors   12,050       1       499                       500               500  
 Restricted stock award   20,520       2       (2 )                     —                 —    
 Shares purchased and cancelled   (379,809 )     (38     (2,252 )     (13,397 )             (15,687 )             (15,687 )
 Net income                           11,222               11,222       (475     10,747  
 Distributions to partners                                                   (713     (713
 Minimum pension liability, net                                   143       143               143  
 Unrealized loss on investment, net                                   (70     (70             (70
                                                               
Balance at September 30, 2020   9,481,638     $ 948     $ 56,690     $ 313,103     $ 996     $ 371,737     $ 15,569     $ 387,306  
                                                               
                                                               
    Three Months Ended September 30, 2020  
                  Accumulated   Total        
          Capital in       Other Comp-   Share   Non-    
  Common Stock   Excess of   Retained   Rehensive   holders’   Controlling   Total
  Shares   Amount   Par Value   Earnings   Income, net   Equity   Interest   Equity
Balance at July 1, 2020   9,563,144     $ 956     $ 57,107     $ 310,486     $ 1,194     $ 369,743     $ 16,058     $ 385,801  
                                                               
 Stock option grant compensation                   24                       24               24  
 Restricted stock compensation                   46                       46               46  
 Shares purchased and cancelled   (81,506 )     (8     (487 )     (2,838 )             (3,333 )             (3,333 )
 Net income                           5,455               5,455       (184     5,271  
 Distributions to partners                                                   (305     (305
 Minimum pension liability, net                                   143       143               143  
 Unrealized loss on investment, net                                   (341     (341             (341
                                                               
Balance at September 30, 2020   9,481,638     $ 948     $ 56,690     $ 313,103     $ 996     $ 371,737     $ 15,569     $ 387,306  
                                                               
                                                               
    Nine Months Ended September 30, 2019  
                  Accumulated   Total        
          Capital in       Other Comp-   Share   Non-    
  Common Stock   Excess of   Retained   rehensive   holders’   Controlling   Total
  Shares   Amount   Par Value   Earnings   Income, net   Equity   Interest   Equity
Balance at January 1, 2019   9,969,174     $ 997     $ 58,004     $ 306,307     $ (701   $ 364,607     $ 18,648     $ 383,255  
                                                               
 Exercise of stock options   11,304       1       346                       347               347  
 Stock option grant compensation                   86                       86               86  
 Shares granted to Employees   1,012               50                       50               50  
 Shares granted to Directors   1,460               70                       70               70  
 Shares purchased and cancelled   (159,282 )     (16     (929 )     (6,769 )             (7,714 )             (7,714 )
 Net income                           13,724               13,724       (380     13,344  
 Distributions to partners                                                   (1,086     (1,086
 Unrealized gain on investment, net                                   1,862       1,862               1,862  
                                                               
Balance at September 30, 2019   9,823,668     $ 982     $ 57,627     $ 313,262     $ 1,161     $ 373,032     $ 17,182     $ 390,214  
                                                               
                                                               
8 
 

 

    Three Months Ended September 30, 2019  
                  Accumulated   Total        
          Capital in       Other Comp-   Share   Non-    
  Common Stock   Excess of   Retained   rehensive   holders’   Controlling   Total
  Shares   Amount   Par Value   Earnings   Income, net   Equity   Interest   Equity
Balance at July 1, 2019   9,863,451     $ 986     $ 57,562     $ 313,373     $ 1,210     $ 373,131     $ 17,870     $ 391,001  
                                                               
 Exercise of stock options   6,500       1       201                       202               202  
 Stock option grant compensation                   29                       29               29  
 Shares granted to Employees   1,012               50                       50               50  
 Shares granted to Directors   1,460               70                       70               70  
 Shares purchased and cancelled   (48,755 )     (5     (285 )     (2,112 )             (2,402 )             (2,402 )
 Net income                           2,001               2,001       (112     1,889  
 Distributions to partners                                                   (576     (576
 Unrealized loss on investment, net                                   (49     (49             (49
                                                               
Balance at September 30, 2019   9,823,668     $ 982     $ 57,627     $ 313,262     $ 1,161     $ 373,032     $ 17,182     $ 390,214  
                                                               

 

 

 

9 
 

 

FRP HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2020

(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, Bryant Street Partnerships, 1800 Half Street and Greenville/Woodfield 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. The Company uses the cost method to account for its investment in DST Hickory Creek because it does not have significant influence over operating and financial policies.

 

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. On June 28, 2019, the Company completed the sale of the excluded property to the same buyer for $11.7 million. This resulted in the disposition of all of the Company’s industrial flex/office warehouse properties prior to the sale date and constituted a major strategic shift and as a result, these properties have been reclassified as discontinued operations for all periods presented. The Asset Management segment currently contains three commercial properties.

 

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, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. 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, 2019.

 

 

(2) Recently Issued Accounting Standards.

 

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 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

10 
 

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 year ended December 31, 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. 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 and one recent industrial acquisition, Cranberry Run, which we purchased in 2019. In July 2019 we sold our property located at 1801 62nd Street, our most recent spec building in Hollander Business Park, which had joined Asset Management April 1, 2019.

 

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 assessing for their highest and best use for 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 Stabilized Joint Venture segment includes joint ventures which own, lease and manage buildings that have met our initial lease up criteria. One of our two joint ventures in the segment, Riverfront Investment Partners I, LLC (“Dock 79”) is consolidated. The ownership of Dock 79 attributable to our partner MidAtlantic Realty Partners, LLC (MRP) 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.

 

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

11 
 

 

 

 

  Three Months ended   Nine Months ended
    September 30,   September 30,
    2020   2019   2020   2019
Revenues:                                
 Asset management   $ 721       430       2,089       1,733  
 Mining royalty lands     2,507       2,302       7,094       7,164  
 Development     290       307       862       892  
 Stabilized Joint Venture     2,580       2,844       7,685       8,171  
      6,098       5,883       17,730       17,960  
                                 
Operating profit (loss):                                
 Before corporate expenses:                                
   Asset management   $ 200       8       700       233  
   Mining royalty lands     2,291       2,103       6,486       6,605  
   Development     (659 )     (629 )     (2,136 )     (1,747 )
   Stabilized Joint Venture     386       608       1,379       1,657  
    Operating profit before corporate expenses     2,218       2,090       6,429       6,748  
 Corporate expenses:                                
  Allocated to asset management     (165 )     (168 )     (738 )     (470 )
  Allocated to mining royalty lands     (53 )     (44 )     (234 )     (123 )
  Allocated to development     (381 )     (479 )     (1,710 )     (1,219 )
  Allocated to stabilized joint venture     (38 )     (41 )     (168 )     (116 )
    Total corporate expenses     (637 )     (732 )     (2,850 )     (1,928 )
    $ 1,581       1,358       3,579       4,820  
                                 
Interest expense   $ 46       129       142       989  
                                 
Depreciation, depletion and amortization:                                
 Asset management   $ 137       154       529       527  
 Mining royalty lands     60       36       160       130  
 Development     53       54       160       161  
 Stabilized Joint Venture     1,188       1,187       3,557       3,572  
    $ 1,438       1,431       4,406       4,390  
Capital expenditures:                                
 Asset management   $ 233       824       787       8,642  
 Mining royalty lands     —         —         —         —    
 Development     1,754       167       2,371       415  
 Stabilized Joint Venture     46       194       42       304  
    $ 2,033       1,185       3,200       9,361  

 

      September 30,       December 31,    
Identifiable net assets   2020       2019    
                 
Asset management $ 11,323       18,468    
Mining royalty lands   37,617       38,409    
Development   182,567       179,357    
Stabilized Joint Venture   136,679       133,956    
Investments available for sale at fair value   104,624       137,867    
Cash items   61,548       26,793    
Unallocated corporate assets   1,772       3,298    
  $ 536,130       538,148    

 

12 
 

 

(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, 2020.

 

The consolidated statements of income reflect charges and/or allocation from Patriot for these services of $290,000 and $347,000 for the three months ended September 30, 2020 and 2019 and $870,000 and $976,000 for the nine months ended September 30, 2020 and 2019, 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,
    2020   2019
Riverfront permanent loan   $ 89,027       88,925  
Less portion due within one year     —         —    
    $ 89,027       88,925  

 

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 Daily 1 Month LIBOR, which may be reduced quarterly to 1.25% or 1.0% over Daily 1 Month 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, 2020, there was no debt outstanding on this revolver, $411,000 outstanding under letters of credit and $19,589,000 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 1.149% on September 30, 2020. The credit agreement contains certain conditions and financial covenants, including a minimum tangible net worth and dividend restriction. As of September 30, 2020, these covenants would have limited our ability to pay dividends to a maximum of $219 million combined. The Company was in compliance with all covenants as of September 30, 2020.

 

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-

13 
 

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. MRP has executed a carve-out guaranty in connection with the loan.

 

Debt cost amortization of $34,000 and $102,000 was recorded during the three and nine months ended September 30, 2020, respectively. During the three months ended September 30, 2020 and September 30, 2019 the Company capitalized interest costs of $948,000 and $870,000, respectively. During the nine months ended September 30, 2020 and September 30, 2019 the Company capitalized interest costs of $2,823,000 and $1,960,000, 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,
  2020   2019   2020   2019
Weighted average common shares              
 outstanding during the period              
 - shares used for basic              
 earnings per common share   9,517       9,843       9,646       9,903  
                               
Common shares issuable under                              
 share based payment plans                              
 which are potentially dilutive   28       43       35       42  
                               
Common shares used for diluted                              
 earnings per common share   9,545       9,886       9,681       9,945  
                               
Income from continuing operations $ 5,271       1,902       10,747       6,495  
Discontinued operations $ —         (13     —         6,849  
Net income attributable to the Company $ 5,455       2,001       11,222       13,724  
                               
Basic earnings per common share:                              
 Income from continuing operations $ 0.55       0.19       1.11       0.66  
 Discontinued operations $ —         —         —         0.69  
 Net income attributable to the Company $ 0.57       0.20       1.16       1.39  
                               
Diluted earnings per common share:                              
 Income from continuing operations $ 0.55       0.19       1.11       0.65  
 Discontinued operations $ —         —         —         0.69  
 Net income attributable to the Company $ 0.57       0.20       1.16       1.38  

 

 

For the three and nine months ended September 30, 2020, 74,065 and 53,545 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, 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.

 

14 
 

During the first nine months the Company repurchased 379,809 shares at an average cost of $41.30.

 

 

(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 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.

 

In March 2020, 20,520 shares of restricted stock were granted to employees as part of a long-term incentive plan that will vest over the next five years. The number of common shares available for future issuance was 443,820 at September 30, 2020. In March 2020, 11,448 shares of stock were granted to employees rather than stock options as in prior years.

 

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,  
    2020   2019   2020   2019  
Stock option grants   $ 24       29       71       86  
Restricted stock awards granted in 2020     46       —         140       —    
Employee stock grant     —         —         530       —    
Unrestricted employee stock award     —         50       —         50  
Annual director stock award     —         70       500       70  
    $ 70       149       1,241       206  

 

 

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, 2020     132,504     $ 33.82     5.8   $ 1,631  
    Granted     —       $ —           $ —    
    Exercised     —       $ —           $ —    
Outstanding at September 30, 2020     132,504     $ 33.82     5.0   $ 1,631  
                             
Exercisable at September 30, 2020     114,189     $ 32.11     4.5   $ 1,333  
Vested during nine months ended                            
  September 30, 2020     —                   $ —    

 

15 
 

 

 

The aggregate intrinsic value of exercisable in-the-money options was $1,216,000 and the aggregate intrinsic value of outstanding in-the-money options was $1,234,000 based on the market closing price of $41.67 on September 30, 2020 less exercise prices.

 

The unrecognized compensation cost of options granted to FRP employees but not yet vested as of September 30, 2020 was $219,000, which is expected to be recognized over a weighted-average period of 3.1 years.

 

A summary of changes in restricted stock awards is presented below (in thousands, except share and per share amounts):

        Weighted   Weighted   Weighted
    Number   Average   Average   Average
    Of   Exercise   Remaining   Grant Date
Restricted stock   Shares   Price   Term (yrs)   Fair Value(000's)
                 
Outstanding at January 1, 2020     0                      
    Granted     20,520     $ 46.30         $ 950  
Outstanding at September 30, 2020     20,520     $ 46.30     3.7   $ 950  
                             

 

Total compensation cost of restricted stock granted but not yet vested as of September 30, 2020 was $809,000 which is expected to be recognized over a weighted-average period of 3.7 years.

 

 

(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 and further reduced the liability $92,000 to zero in 2020. 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 32.1% of the Company’s consolidated revenues during the nine months ended September 30, 2020 and $374,000 of accounts receivable at September 30, 2020.  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 Horizon Bank.  At times, such amounts may exceed FDIC limits.

 

 

16 
 

(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, 2020 the Company was invested in 46 corporate bonds with individual maturities ranging from 2020 through 2022. The unrealized gain on these bonds of $1,117,000 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 $297,000 in its net investment income related to bonds that were sold in 2020. The amortized cost of the investments was $103,507,000 and the carrying amount and fair value of such bonds were $104,624,000 as of September 30, 2020.

 

At September 30, 2020 and 2019, 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, 2020, the carrying amount and fair value of such other long-term debt was $89,027,000 and $95,138,000, respectively. 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.

 

 

(11) Investments in Joint Ventures.

 

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, 2020 includes a loss of $33,000 representing the Company’s portion of the loss of this joint venture.

 

BC FRP Realty (Windlass Run). In 2016, the Company 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 four buildings through September 15, 2022 from TRUIST BANK at 2.5% over Daily 1 Month LIBOR. The balance outstanding on these loans at September 30, 2020 was $12,211,000.

 

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

17 
 

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 Daily 1 Month 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, 2020 was $63,466,000. 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 Daily 1 Month LIBOR. The loan matures March 13, 2023 with up to two extensions 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. The loan balance at September 30, 2020 was $60,342,000. 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’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. Entitlements for the development of the property are complete, a homebuilder is under contract to purchase all of the 126 recorded building lots. The first phase of settlement occurred in May 2020, resulting in a $2.67 million principal and interest payment, with subsequent payments of $1.26 million in principal and interest payments in the third quarter.

 

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 ten-year financing obtained for $29,672,000 at 3.74% with a 30 year amortization period, interest only for five years. The Company’s equity interest in the trust is accounted for under the cost method because we do not have significant influence over the operating and financial policies. Monthly distributions are recorded as equity in gain or loss of joint ventures. Distributions of $254,000 were received in the first nine months of 2020.

 

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 187 single-family town homes. We are currently pursuing entitlements and have two homebuilders under contract to purchase all of the 187 units upon completion of development infrastructure.

 

1800 Half Street. On December 20, 2019 the Company and MRP formed a joint venture to acquire and develop a

18 
 

mixed-use project located at 1800 Half Street, Washington, D.C. This property is located in the Buzzard Point area of Washington, DC, less than half a mile downriver from Dock 79 and the Maren. It lies directly between our two acres on the Anacostia currently under lease to Vulcan and Audi Field, the home stadium of the DC United. The project 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 $37.3 million. MRP will contribute the remainder of its equity in 2020. The land was acquired in two pieces over first half of 2020. On June 26, 2020 the partnership closed on a construction loan with Truist Bank for up to $74 million at an interest rate of 2.25% over Daily 1 Month LIBOR. The loan matures June 26, 2024 with one extension of two years requiring a .25% fee, paying principal monthly under a 30-year amortization schedule, and meeting a 9.9% debt yield after the first year. The ten-story structure will have 344 apartments and 11,246 square feet of ground floor retail. The Company’s equity interest in the joint venture is accounted for under the equity method of accounting because all major decisions are shared equally.

 

Greenville/Woodfield Partnerships. On December 23, 2019 the Company and Woodfield Development formed a joint venture to develop a mixed-use project in Greenville SC known as .408 Jackson located across the street from Greenville’s minor league baseball stadium. The project will hold 227 multifamily units and 4,700 square feet of retail space. It 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 $9.7 million in exchange for a 40% common equity in the joint venture. 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. Woodfield personally guaranteed the loan and will be managing the projects day to day operations. Major decisions for the entity must be made unanimously between both members.

 

On December 23, 2019 the Company and Woodfield formed a joint venture to develop a 200-unit multifamily apartment project located at 1430 Hampton Avenue, Greenville, SC. The project 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 $6.2 million in exchange for a 40% common equity in the joint venture. 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. Woodfield personally guaranteed the loan and will be managing the projects day to day operations. Major decisions for the entity must be made unanimously between both members.

 

 

Investments in Joint Ventures (in thousands):

                            The  
                            Company's  
                            Share of  Profit  
     Common     Total     Total Assets of     Profit (Loss)      (Loss) of  the  
    Ownership     Investment     The Partnership     Of the Partnership      Partnership  
                               
As of September 30, 2020                              
Brooksville Quarry, LLC   50.00 %  $ 7,463     14,306     (66 )   (33 )
BC FRP Realty, LLC   50.00 %   5,233     22,726     (311 )   (157 )
RiverFront Holdings II, LLC   80.00 %   24,429     106,289     (3,116 )   (2,749 )
Bryant Street Partnerships   61.36 %   60,059     156,638     (126 )   (1,317 )
Hyde Park         591     591     —      —   
DST Hickory Creek   26.65 %   6,000     48,303     (255 )   254  
Amber Ridge Loan         9,970     9,970     —      —   
1800 Half St. Owner, LLC   61.37 %   37,748     52,933     147     141  
Greenville/Woodfield Partnerships   40.00 %   16,093     44,896     176     88  
   Total        $ 167,586     456,652       (3,551 )     (3,773 )
                               

 

 

As of December 31, 2019

                             
Brooksville Quarry, LLC   50.00 %  $ 7,499     14,316     (84 )   (42 )
BC FRP Realty, LLC   50.00 %   5,391     22,969     (1,114 )   (591 )
RiverFront Holdings II, LLC   80.00 %   25,975     88,235     (95 )   (871 )
Bryant Street Partnerships   61.36 %   58,353     96,477     260     (573 )
Hyde Park         3,492     3,492     —      —   
DST Hickory Creek   26.65 %   6,000     49,369     (168 )   123  
Amber Ridge Loan         509     509     —      —   
1800 Half St. Owner, LLC   59.73 %   37,314     40,161     —      —   
Greenville/Woodfield Partnerships   40.00 %   15,919     19,214     —      —   
   Total        $       160,452     334,742       (1,201 )     (1,954 )
                               

 

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

 

  As of September 30, 2020   Total
  RiverFront   Bryant Street   DST Hickory   1800 Half St.   Greenville/   Apartment/
  Holdings II, LLC   Partnership   Creek   Partnership   Woodfield   Mixed Use
                       
Investments in real estate, net 104,647       156,022       45,787       32,358       32,768      $ 371,582  
Cash and cash equivalents   1,330       483       1,397       17,765       11,754       32,729  
Unrealized rents & receivables   81       110       697       0       0       888  
Deferred costs   231       23       422       2,810       374       3,860  
Total Assets 106,289       156,638       48,303       52,933       44,896     $ 409,059  
                                             

 

 

Secured notes payable 63,082       57,792       29,279       0       0     $ 150,153  
Other liabilities   2,670       20,213       229       2,969       4,996       31,077  
Capital – FRP   35,550       58,527       5,009       37,481       15,960       152,527  
Capital - Third Parties   4,987       20,106       13,786       12,483       23,940       75,302  
Total Liabilities and Capital 106,289       156,638       48,303       52,933       44,896     $ 409,059  

 

 

 

  As of September 30, 2020    
  Brooksville   BC FRP       Amber Ridge   Apartment/   Grand
  Quarry, LLC   Realty, LLC   Hyde Park   Loan   Mixed Use   Total
                       
Investments in real estate, net.  $ 14,289       22,063       591       9,970       371,582      $ 418,495  
Cash and cash equivalents   17       82       0       0       32,729       32,965  
Unrealized rents & receivables   0       235       0       0       888       1,123  
Deferred costs   0       346       0       0       3,860       4,069  
   Total Assets  $ 14,306       22,726       591       9,970       409,059     $ 456,652  
                                               
Secured notes payable  $ 0       12,268       0       0       150,153     $ 162,421  
Other liabilities   62       104       0       0       31,077       31,243  
Capital – FRP   7,463       5,177       591       9,970       152,527       175,728  
Capital - Third Parties   6,781       5,177       0       0       75,302       87,260  
   Total Liabilities and Capital  $ 14,306       22,726       591       9,970       409,059      $ 456,652  

 

  As of December 31, 2019   Total
  RiverFront   Bryant Street   DST Hickory   1800 Half St.   Greenville/   Apartment/
  Holdings II, LLC   Partnership   Creek   Partnership   Woodfield   Mixed Use
                       
Investments in real estate, net 87,521       95,903       46,685       14,391       1,889      $ 246,389  
Cash and cash equivalents   630       387       1,764       25,770       17,325       45,876  
Unrealized rents & receivables   82       158       446       0       0       686  
Deferred costs   2       29       474       0       0       505  

   

Total Assets

88,235       96,477       49,369       40,161       19,214     $ 293,456  
                                             

 

 

Secured notes payable 38,564       1,660       29,246       0       0     $ 69,470  
Other liabilities   6,771       17,183       120       1,363       1,889       27,326  
Capital - FRP   37,284       57,479       6,000       37,314       15,919       153,996  
Capital - Third Parties   5,616       20,155       14,003       1,484       1,406       42,664  

   

Total Liabilities and Capital

88,235       96,477       49,369       40,161       19,214     $ 293,456  

 

20 
 

 

 

 

 

  As of December 31, 2019    
  Brooksville   BC FRP       Amber Ridge   Apartment/   Grand
  Quarry, LLC   Realty, LLC   Hyde Park   Loan   Mixed Use   Total
                       
Investments in real estate, net.  $ 14,293       22,423       3,492       509       246,389      $ 287,106  
Cash and cash equivalents   18       15       0       0       45,876       45,909  
Unrealized rents & receivables   0       220       0       0       686       906  
Deferred costs   5       311       0       0       505       821  
   Total Assets  $ 14,316       22,969       3,492       509       293,456     $ 334,742  
                                               
Secured notes payable  $ 0       12,103       0       0       69,470     $ 81,573  
Other liabilities   2       196       0       0       27,326       27,524  
Capital - FRP   7,500       5,335       3,492       509       153,996       170,832  
Capital - Third Parties   6,814       5,335       0       0       42,664       54,813  
   Total Liabilities and Capital  $ 14,316       22,969       3,492       509       293,456      $ 334,742  

 

 

The Company’s capital recorded by the unconsolidated Joint Ventures is $8,199,000 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 retained earnings for these joint ventures was $(6,879,000) and $(4,127,000) as of September 30, 2020 and December 31, 2019 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 were as follows (in thousands):

 

    Three months ended   Nine months ended
    September 30,   September 30,
    2019   2019
 Lease Revenue   $ —         460  
                 
Cost of operations:                
     Depreciation, depletion and amortization     (24     17  
     Operating expenses     12       246  
     Property taxes     —         46  
     Management company indirect     —         —    
     Corporate expenses     —         —    
Total cost of operations     (12     309  
                 
Total operating profit     12       151  
                 
Interest expense     —         —    
21 
 

 

Gain (loss) on sale of buildings     (30     9,238  
                 
Income (loss) before income taxes     (18     9,389  
Provision for (benefit from) income taxes     (5     2,540  
                 
Income (loss) from discontinued operations   $ (13     6,849  
                 
Earnings per common share:                
 Income (loss) from discontinued operations-                
    Basic   $ 0.00       0.69  
    Diluted   $ 0.00       0.69  

 

 

 

 

 

 

 

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. On June 28, 2019, the Company completed the sale of the excluded property to the same buyer for $11.7 million. 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.

 

Asset Management Segment.

 

The Asset Management segment owns, leases and manages 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, 2020, the Asset Management Segment owned three commercial properties as follows:

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1) 34 Loveton Circle in suburban Baltimore County, Maryland consists of one office building totaling 33,708 square feet which is 95.1% 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 78.6% occupied at September 30, 2020.

 

To take advantage of market cycles and attract a wide range of top tier buyers, management focuses on several factors in this segment to facilitate a successful and profitable sale. The major factors we focus on are (1) net operating income growth, (2) growth in occupancy, (3) 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), (4) tenant retention success rate (as a percentage of total square feet to be renewed), (5) building and refurbishing assets to meet Class A and Class B institutional grade classifications, and (6) reducing complexities and deferred capital expenditures to maximize sale price.

 

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 516 million tons as of December 31, 2019 after a total of 8.1 million tons were consumed in 2019.

 

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 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 1,907 +/- Approval in place for 105, 1 acre, waterfront residential lots after mining completed.
Total 6,187 +/-  

 

 

 

 

23 
 

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.

 

Development Segment – Warehouse/Office Land.

 

At September 30, 2020 this segment owned the following future development parcel:

 

1)25 acres of horizontally developed land capable of supporting 226,750 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 Conceptual design program ongoing.   $6,068,000
Hampstead Trade Center, MD 73 Residential conceptual design program ongoing $8,969,000
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. $7,885,000
Total 77.5   $22,922,000

 

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 National’s 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,

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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 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 known as Buzzard Point, less than half a mile down river from our RiverFront on the Anacostia property. The Square 664E property is approximately two 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 exercised its option to renew for one additional period of five years. In July 2018, Audi Field, the home of the DC United professional soccer club, opened its doors to patrons in Buzzard Point. Under normal circumstances 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 1800 Half Street, the property acquired in a joint venture between the Company and MRP in December 2019.

 

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, 2020   Total
  RiverFront   Bryant Street   DST Hickory   1800 Half St.   Greenville/   Apartment/
  Holdings II, LLC   Partnership   Creek   Partnership   Woodfield   Mixed Use
                       
Investments in real estate, net 104,647       156,022       45,787       32,358       32,768      $ 371,582  
Cash and cash equivalents   1,330       483       1,397       17,765       11,754       32,729  
Unrealized rents & receivables   81       110       697       0       0       888  
Deferred costs   231       23       422       2,810       374       3,860  
Total Assets 106,289       156,638       48,303       52,933       44,896     $ 409,059  
                                             

 

 

Secured notes payable 63,082       57,792       29,279       0       0     $ 150,153  
Other liabilities   2,670       20,213       229       2,969       4,996       31,077  
Capital – FRP   35,550       58,527       5,009       37,481       15,960       152,527  
Capital - Third Parties   4,987       20,106       13,786       12,483       23,940       75,302  
Total Liabilities and Capital 106,289       156,638       48,303       52,933       44,896     $ 409,059  

 

 

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  As of September 30, 2020    
  Brooksville   BC FRP       Amber Ridge   Apartment/   Grand
  Quarry, LLC   Realty, LLC   Hyde Park   Loan   Mixed Use   Total
                       
Investments in real estate, net.  $ 14,289       22,063       591       9,970       371,582      $ 418,495  
Cash and cash equivalents   17       82       0       0       32,729       32,965  
Unrealized rents & receivables   0       235       0       0       888       1,123  
Deferred costs   0       346       0       0       3,860       4,069  
   Total Assets  $ 14,306       22,726       591       9,970       409,059     $ 456,652  
                                               
Secured notes payable  $ 0       12,268       0       0       150,153     $ 162,421  
Other liabilities   62       104       0       0       31,077       31,243  
Capital – FRP   7,463       5,177       591       9,970       152,527       175,728  
Capital - Third Parties   6,781       5,177       0       0       75,302       87,260  
   Total Liabilities and Capital  $ 14,306       22,726       591       9,970       409,059      $ 456,652  

 

 

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, 2020 includes a loss of $33,000 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 two retail buildings totaling 100,030-square-feet (inclusive of 27,950 retail), commenced in the fourth quarter of 2017 and was completed in December 2018. On September 28, 2017 BC FRP Realty, LLC obtained $17,250,000 of construction financing commitments for 4 buildings through September 15, 2022 from TRUIST BANK at 2.5% over Daily 1 Month LIBOR. The balance outstanding on these loans at September 30, 2020 was $12,211,000.

 

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 6,937 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 December 31, 2019. The loan from Eagle Bank allows draws of up to $71 million during construction at an interest rate of 3.25% over Daily 1 Month 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,

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with substantial completion in March 2020, and stabilization (meaning 90% of the individual apartments are leased and occupied by third party tenants) in early 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 85,681 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 Daily 1 Month LIBOR. The loan matures March 13, 2023 with up to two extensions of one year each upon certain conditions including, for the first, a debt service coverage of at least 1.1 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%. 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 payments are made under the guarantee the Company will have a gain for $1.9 million when the loan is paid in full. Borrower may prepay a portion of the unpaid principal to satisfy such tests. 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 began in February 2019, with substantial completion estimated in 3rd quarter 2021, and stabilization (meaning 88% 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. Entitlements for the development of the property are complete and a homebuilder is under contract to purchase all of the 126 recorded building lots. The first phase of settlement occurred in May 2020, resulting in a $2.67 million principal and interest payment, with subsequent payments of $1.26 million in principal and interest payments in the third quarter.

 

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 187 single-family town homes. We are currently pursuing entitlements and have two homebuilders under contract to purchase all of the 187 units upon completion of infrastructure development.

 

1800 Half Street. On December 20, 2019 the Company and MRP formed a joint venture to acquire and develop a mixed-use project located at 1800 Half Street, Washington, D.C. This property is located in the Buzzard Point area of Washington, DC, less than half a mile downriver from Dock 79 and the Maren. It lies directly between our two acres on the Anacostia currently under lease by Vulcan and Audi Field, the home stadium of the DC United. The project 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 $37.3 million. The land was acquired in two pieces over first half of 2020. On June 26, 2020 the partnership closed on a construction loan with Truist Bank for up to $74 million at an interest rate of 2.25% over Daily 1 Month LIBOR. The loan matures June 26, 2024 with one extension of two years requiring a .25% fee, paying principal monthly under a 30 year amortization schedule, and meeting a 9.9% debt yield after the first year. The ten-story structure will have 344 apartments and 11,246 square feet of ground floor retail. The Company’s equity interest in the joint venture is accounted for under the equity method of accounting as all major decisions are shared equally.

 

27 
 

Greenville Partnerships. On December 23, 2019 the Company and Woodfield Development formed a joint venture to develop a mixed-use project in Greenville SC known as .408 Jackson located across the street from Greenville’s minor league baseball stadium. The project will hold 227 multifamily units and 4,700 square feet of retail space. It 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 $9.7 million in exchange for a 40% common equity in the joint venture. 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. Woodfield personally guaranteed the loan and will be managing the projects day to day operations. Major decisions for the entity must be made unanimously between both members.

 

On December 23, 2019 the Company and Woodfield formed a joint venture to develop a 200-unit multifamily apartment project located at 1430 Hampton Avenue, Greenville, SC. The project 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 $6.2 million in exchange for a 40% common equity in the joint venture. 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. Woodfield personally guaranteed the loan and will be managing the projects day to day operations. Major decisions for the entity must be made unanimously between both members.

 

 

Stabilized Joint Venture Segment.

 

Currently the segment includes two stabilized joint ventures which own, lease 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. This first phase of our RiverFront on The Anacostia project 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, 2020, the residential units were 94.43% occupied and 90.49% 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 suburban Richmond, Virginia, 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 cost 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, 2020 and 2019

 

Consolidated Results

(dollars in thousands)  Three Months Ended September 30,   
  2020   2019   Change   %
Revenues:                              
  Lease Revenue $ 3,591     $ 3,581     $ 10       0.3 %
  Mining lands lease revenue   2,507       2,302       205       8.9 %
 Total Revenues   6,098       5,883       215       3.7 %
                               
                                   
28 
 

 

Cost of operations:                              
  Depreciation/Depletion/Amortization   1,438       1,431       7       0.5 %
  Operating Expenses   892       952       (60 )     -6.3 %
  Property Taxes   706       740       (34     -4.6 %
  Management company indirect   844       670       174       26.0 %
  Corporate Expense   637       732       (95 )     -13.0 %
Total cost of operations   4,517       4,525       (8 )     -0.2 %
                               
Total operating profit   1,581       1,358       223       16.4 %
                               
Net investment income, including realized gains                              
 of $55 and $144   1,814       2,019       (205 )     -10.2 %
Interest Expense   (46 )     (129 )     83       -64.3 %
Equity in loss of joint ventures   (1,788 )     (746 )     (1,042 )     139.7 %
Gain on sale of real estate   5,732       126       5,606       4449.2 %
                               
Income before income taxes   7,293       2,628       4,665       177.5 %
Provision for income taxes   2,022       726       1,296       178.5 %
Income from continuing operations    5,271       1,902       3,369       177.1  %
                               
Loss from discontinued operations, net   —         (13 )     13       -100.0 %
                               
Net income   5,271       1,889       3,382       179.0 %
Loss attributable to noncontrolling interest   (184 )     (112 )     (72 )     64.3 %
Net income attributable to the Company $ 5,455     $ 2,001     $ 3,454       172.6 %
                               

 

 

Net income for the third quarter of 2020 was $5,455,000 or $.57 per share versus $2,001,000 or $.20 per share in the same period last year. The third quarter of 2020 was impacted by the following items:

 

  • Interest expense decreased $83,000 as we capitalized more interest on our joint venture construction projects.
  • Loss on joint ventures increased $1,042,000 primarily due to operating loss at the Maren due to leasing efforts.
  • Gain on sale of $5,732,000 from the sale of our building at 1801 62nd Street and the sale of 87 acres of our Ft. Myers property compared to $126,000 in the same period last year

 

Loss from discontinued operations for the third quarter of 2019 was ($13,000) or $.00 per share. The third quarter of 2019 included a $144,000 realized gain on bonds called early.

 

 

Asset Management Segment Results

    Three months ended September 30        
(dollars in thousands)   2020   %   2019   %   Change   %
                         
Lease revenue   $ 721       100.0 %     430       100.0 %     291       67.7 %
                                                 
Depreciation, depletion and amortization     137       19.0 %     154       35.8 %     (17     -11.0 %
Operating expenses     139       19.3 %     108       25.1 %     31       28.7 %
Property taxes     43       5.9 %     70       16.3 %     (27     -38.6 %
Management company indirect     202       28.0 %     90       20.9 %     112       124.4 %
Corporate expense     165       22.9 %     168       39.1 %     (3     -1.8 %
                                                 
Cost of operations     686       95.1 %     590       137.2 %     96       16.3 %
                                                 
Operating profit   $ 35       4.9 %     (160     -37.2 %     195       -121.9 %
29 
 

 

 

Most of the Asset Management Segment was reclassified to discontinued operations leaving two commercial properties as well as Cranberry Run, which we purchased in the first quarter of 2019, and 1801 62nd Street which joined this segment on April 1 of 2019 and sold this quarter. 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 78.6% leased and occupied. Total revenues in this segment were $721,000, up $291,000 or 67.7%, over the same period last year. Operating profit was $35,000, up $195,000 from an operating loss of ($160,000) in the same quarter last year due to 1801 62nd St being fully leased and occupied, improved leasing at Cranberry offset by the sale of 7030 Dorsey Road in June 2019.

 

 

Mining Royalty Lands Segment Results

    Three months ended September 30        
(dollars in thousands)   2020   %   2019   %   Change   %
                         
Mining lands lease revenue   $ 2,507       100.0 %     2,302       100.0 %     205       8.9 %
                                                 
Depreciation, depletion and amortization     60       2.4 %     36       1.6 %     24       66.7 %
Operating expenses     16       0.6 %     44       1.9 %     (28     -63.6 %
Property taxes     59       2.4 %     66       2.9 %     (7     -10.6 %
Management company indirect     81       3.2 %     53       2.3 %     28       52.8 %
Corporate expense     53       2.1 %     44       1.9 %     9       20.5 %
                                                 
Cost of operations     269       10.7 %     243       10.6 %     26       10.7 %
                                                 
Operating profit   $ 2,238       89.3 %     2,059       89.4 %     179       8.7 %

 

Total revenues in this segment were $2,507,000 versus $2,302,000 in the same period last year. Total operating profit in this segment was $2,238,000, an increase of $179,000 versus $2,059,000 in the same period last year.

 

 

Development Segment Results

    Three months ended September 30  
(dollars in thousands)   2020   2019   Change  
               
Lease revenue   290       307       (17  
                           
Depreciation, depletion and amortization     53       54       (1  
Operating expenses     62       105       (43  
Property taxes     330       300       30    
Management company indirect     504       477       27    
Corporate expense     381       479       (98  
                           
Cost of operations     1,330       1,415       (85  
                           
Operating loss   $ (1,040 )     (1,108 )     68    

 

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 in the PUD entitlement process for our 118-acre tract in Hampstead, Maryland, now known as “Hampstead Overlook.” Hampstead Overlook received Concept Plan approval from the Town of Hampstead
  • 30 
     
  • for 164 single and 91 town home residential units in February 2020, and the project is currently under Preliminary Plan review with the governing agencies.
  • This quarter we received permit entitlements for two industrial buildings at Hollander Business Park totaling 145,750 square feet. We have started construction and anticipate shell completion in the third quarter of 2021.
  • We finished shell building construction in December 2018 on the two office buildings in the first phase of our joint venture with St. John Properties. Shell building construction of the two retail buildings was completed in January 2019. 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 47% leased and 44% 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%. Additional proceeds and interest payments above a 20% preferred return on capital determine a split of profits. Entitlements for the development of the property are complete, and a homebuilder is under contract to purchase all the 126 recorded building lots. The first phase of settlement occurred in May 2020, resulting in a $2.67 million principal and interest payment, with subsequent payments of $1.26M in principal and interest payments in the third quarter. Currently all principal and $322,605 in accrued interest has been repaid.
  • 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%. Additional proceeds and interest payments above a 20% preferred return on capital determine a split of profits. Amber Ridge will hold 187 town homes. We are currently pursuing entitlements, mass grading the site, and have two homebuilders under contract to purchase all 187 units upon completion of development infrastructure.
  • In April 2018, we began construction on Phase II of our RiverFront on the Anacostia project, now known as “The Maren.” The 14-story project has 264 units and 6,937 net leasable square feet of ground floor retail and received its certificate of occupancy at the end of September. Lease-up commenced in earnest in the second week of March. At the end of the quarter, the Maren’s residential units were 76.14% leased, and 68.94% occupied.
  • In December 2018, the Company entered into a joint venture agreement with MRP for the development of the first phase of a multifamily, mixed-use development in northeast Washington, DC known as “Bryant Street.” The project is comprised of four buildings, with 487 units and 85,681 net leasable square feet of retail. FRP contributed $32 million in common equity and another $23 million in preferred equity to the joint venture. Construction began in February 2019 and as of the end of the quarter was 78% complete. Bryant Street is currently on time, within budget, and expected to be complete in the fourth quarter of 2021, with the first of the four buildings delivering in the fourth quarter of 2020. This project is located in an opportunity zone and has allowed us to defer $14.9 million in taxes associated with the sale of our industrial assets.
  • In December 2019, the Company entered into a joint venture agreement with MRP for the development of a mixed-use project known as “1800 Half Street.” The development is located in the Buzzard Point area of Washington, DC, less than half a mile downriver from Dock 79 and the Maren. It lies directly between our two acres on the Anacostia, currently under lease by Vulcan, and Audi Field, the home stadium of the DC United. The 10-story structure will have 344 apartments and 11,246 square feet of ground floor retail. FRP contributed $37.3 million in common equity. The project is a qualified opportunity zone investment and will defer just over $10 million in taxes associated with the sale of our industrial assets. In June 2020, we closed on a $74 million construction loan, and we began construction at the end of August.
  • In December 2019, the company entered into two joint ventures in Greenville, SC with a new partner, Woodfield Development. Woodfield specializes in Class-A multi-family, mixed use developments primarily in the Carolinas and DC. Our first joint venture with them is a 200-unit multifamily project known as “Riverside.” FRP contributed $6.2 million in common equity for a 40% ownership interest. Construction began in February 2020 and should be complete in the third quarter of 2021. The second joint venture in Greenville with Woodfield is a 227-unit multifamily development known as “.408 Jackson.” It will have 4,700 square feet of retail and is located across the street from Greenville’s minor league baseball stadium. FRP contributed $9.7 million in common equity for a 40% ownership interest. Construction began in May 2020 and should be complete in the second quarter of 2022. Both projects are qualified opportunity investments and will defer a combined $4.3 million in taxes.

 

 

31 
 

Stabilized Joint Venture Segment Results

    Three months ended September 30        
(dollars in thousands)   2020   %   2019   %   Change   %
                         
Lease revenue   $ 2,580       100.0 %     2,844       100.0 %     (264     -9.3 %
                                                 
Depreciation, depletion and amortization     1,188       46.0 %     1,187       41.7 %     1       0.1 %
Operating expenses     675       26.2 %     695       24.4 %     (20     -2.9 %
Property taxes     274       10.6 %     304       10.7 %     (30     -9.9 %
Management company indirect     57       2.2 %     50       1.8 %     7       14.0 %
Corporate expense     38       1.5 %     41       1.5 %     (3     -7.3 %
                                                 
Cost of operations     2,232       86.5 %     2,277       80.1 %     (45     -2.0 %
                                                 
Operating profit   $ 348       13.5 %     567       19.9 %     (219     -38.6 %

 

 

Dock 79’s average residential occupancy for the quarter was 93.29%, and at the end of the quarter, Dock 79’s residential units were 90.49% leased and 94.43% occupied. This quarter, 52.31% of expiring leases renewed with no increase in rent due to the mandated rent freeze on renewals in DC. Net Operating Income this quarter for this segment was $1,634,000, down $215,000 or 11.63% 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 suburban Richmond, Virginia. The Company is 26.649% beneficial owner and receives monthly distributions. Third quarter distributions were $86,000. The project is a qualified 1031 like-kind exchange investment and will defer $790,000 in taxes associated with the sales of 7030 Dorsey Road and 1502 Quarry Drive.

 

 

Comparative Results of Operations for the Nine months ended September 30, 2020 and 2019

 

Consolidated Results

 

(dollars in thousands)  Nine Months Ended September 30, 
  2020   2019   Change   %  
Revenues:                                
  Lease Revenue $ 10,636     $ 10,796     $ (160     -1.5 %  
  Mining lands lease revenue   7,094       7,164       (70     -1.0 %  
 Total Revenues   17,730       17,960       (230     -1.3 %  
                                 
Cost of operations:                                
  Depreciation/Depletion/Amortization   4,406       4,390       16       0.4 %  
  Operating Expenses   2,598       2,744       (146 )     -5.3 %  
  Property Taxes   2,089       2,206       (117     -5.3 %  
  Management company indirect   2,208       1,872       336       17.9 %  
  Corporate Expense   2,850       1,928       922       47.8 %  
Total cost of operations   14,151