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)
|
or
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
|
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 | 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 | |||||
Common Stock, $.10 par value per share |
1 |
FRP HOLDINGS, INC.
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 20172020
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 | |||||
Consolidated Statements of Shareholders’ Equity | 8 | ||||
Condensed Notes to Consolidated Financial Statements | |||||
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | ||||
Item 3. | Quantitative and Qualitative Disclosures about Market Risks | ||||
Item 4. | Controls and Procedures | ||||
Part II. Other Information | |||||
Item 1A. | Risk Factors | ||||
Item 2. | Purchase of Equity Securities by the Issuer | ||||
Item 6. | Exhibits | ||||
Signatures | |||||
Exhibit 31 | Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||||
Exhibit 32 | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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,properties; demand for flexible warehouse/office facilitiesapartments in the Baltimore-Washington-Northern Virginia area,Washington D.C. and Richmond, Virginia; our ability to obtain zoning and entitlements necessary for property development,development; the impact of lending and capital market conditions on our liquidity, our ability to finance projects or repay our debt,debt; general real estate investment and development risks,risks; vacancies in our properties,properties; risks associated with developing and managing properties in partnership with others, competition,others; competition; our ability to renew leases or re-lease spaces as leases expire,expire; illiquidity of real estate investments,investments; bankruptcy or defaults of tenants,tenants; the impact of restrictions imposed by our credit facility,facility; the level and volatility of interest rates,rates; environmental liabilities,liabilities; inflation risks, cybersecurity risks,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. In addition, if we elect REIT status these risk factors also would include our ability to qualify or to remain qualified as a REIT, our ability to satisfy REIT distribution requirements, the impact of issuing equity, debt or both, and selling assets to satisfy our future distributions required as a REIT or to fund capital expenditures, future growth and expansion initiatives, the impact of the amount and timing of any future distributions, the impact from complying with REIT qualification requirements limiting our flexibility or causing us to forego otherwise attractive opportunities, our lack of experience operating as a REIT, legislative, administrative, regulatory or other actions affecting REITs, including positions taken by the Internal Revenue Service, the possibility that our Board of Directors will unilaterally revoke our REIT election, the possibility that the anticipated benefits of qualifying as a REIT will not be realized, or will not be realized within the expected time period, 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: | 2017 | 2016 | |||||||
Real estate investments at cost: | |||||||||
Land | $ | 127,744 | 99,417 | ||||||
Buildings and improvements | 332,694 | 195,443 | |||||||
Projects under construction | 5,959 | 11,779 | |||||||
Total investments in properties | 466,397 | 306,639 | |||||||
Less accumulated depreciation and depletion | 91,788 | 82,392 | |||||||
Net investments in properties | 374,609 | 224,247 | |||||||
Real estate held for investment, at cost | 7,176 | 7,176 | |||||||
Investments in joint ventures | 13,345 | 22,901 | |||||||
Net real estate investments | 395,130 | 254,324 | |||||||
Cash and cash equivalents | 2,630 | — | |||||||
Cash held in escrow | 186 | — | |||||||
Accounts receivable, Net | 1,033 | 710 | |||||||
Federal and state income taxes receivable | 1,852 | — | |||||||
Unrealized rents | 4,299 | 4,562 | |||||||
Deferred costs | 10,781 | 6,786 | |||||||
Other assets | 181 | 178 | |||||||
Total assets | $ | 416,092 | 266,560 | ||||||
Liabilities: | |||||||||
Lines of credit payable | $ | 6,440 | 6,665 | ||||||
Secured notes payable, current portion | 4,674 | 4,526 | |||||||
Secured notes payable, less current portion | 103,999 | 29,554 | |||||||
Accounts payable and accrued liabilities | 4,825 | 3,747 | |||||||
Environmental remediation liability | 2,037 | 2,037 | |||||||
Bank overdraft | — | 254 | |||||||
Federal and state income taxes payable | — | 887 | |||||||
Deferred revenue | 1,397 | 1,126 | |||||||
Deferred income taxes | 36,075 | 16,455 | |||||||
Deferred compensation | 1,485 | 1,475 | |||||||
Deferred lease intangible, net | 2 | 9 | |||||||
Tenant security deposits | 940 | 1,005 | |||||||
Total liabilities | 161,874 | 67,740 | |||||||
Commitments and contingencies (Note 8) | |||||||||
�� | |||||||||
Equity: | |||||||||
Common stock, $.10 par value 25,000,000 shares authorized, 10,007,167 and 9,914,054 shares issued and outstanding, respectively | 1,001 | 991 | |||||||
Capital in excess of par value | 55,341 | 52,647 | |||||||
Retained earnings | 173,652 | 145,168 | |||||||
Accumulated other comprehensive income, net | 14 | 14 | |||||||
Total shareholders’ equity | 230,008 | 198,820 | |||||||
Noncontrolling interest MRP | 24,210 | — | |||||||
Total equity | 254,218 | 198,820 | |||||||
Total liabilities and shareholders’ equity | $ | 416,092 | 266,560 | ||||||
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 | THREE MONTHS ENDED | NINE MONTHS ENDED | |||||||||||||||||||||||||||||||||||||||||||||||||||
SEPTEMBER 30, | SEPTEMBER 30, | SEPTEMBER 30, | SEPTEMBER 30, | |||||||||||||||||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Rental revenue | $ | 8,738 | 6,259 | 21,243 | 18,430 | |||||||||||||||||||||||||||||||||||||||||||||||||
Mining Royalty and rents | 1,763 | 2,016 | 5,311 | 5,805 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue – reimbursements | 1,553 | 1,501 | 4,182 | 4,399 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Lease revenue | $ | 3,591 | 3,581 | 10,636 | 10,796 | |||||||||||||||||||||||||||||||||||||||||||||||||
Mining lands lease revenue | 2,507 | 2,302 | 7,094 | 7,164 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Total Revenues | 12,054 | 9,776 | 30,736 | 28,634 | 6,098 | 5,883 | 17,730 | 17,960 | ||||||||||||||||||||||||||||||||||||||||||||||
Cost of operations: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Depreciation, depletion and amortization | 4,769 | 2,160 | 9,030 | 6,155 | 1,438 | 1,431 | 4,406 | 4,390 | ||||||||||||||||||||||||||||||||||||||||||||||
Operating expenses | 1,879 | 1,146 | 3,882 | 3,651 | 892 | 952 | 2,598 | 2,744 | ||||||||||||||||||||||||||||||||||||||||||||||
Environmental remediation expense | — | — | — | 2,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Property taxes | 1,401 | 1,087 | 3,592 | 3,357 | 706 | 740 | 2,089 | 2,206 | ||||||||||||||||||||||||||||||||||||||||||||||
Management company indirect | 560 | 419 | 1,504 | 1,340 | 844 | 670 | 2,208 | 1,872 | ||||||||||||||||||||||||||||||||||||||||||||||
Corporate expenses (Note 4 Related Party) | 617 | 656 | 2,510 | 2,348 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate expenses | 637 | 732 | 2,850 | 1,928 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Total cost of operations | 9,226 | 5,468 | 20,518 | 18,851 | 4,517 | 4,525 | 14,151 | 13,140 | ||||||||||||||||||||||||||||||||||||||||||||||
Total operating profit | 2,828 | 4,308 | 10,218 | 9,783 | 1,581 | 1,358 | 3,579 | 4,820 | ||||||||||||||||||||||||||||||||||||||||||||||
Interest income | — | — | — | 1 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Net investment income, including realized gains of $55, $144, $297 and $591, respectively | 1,814 | 2,019 | 5,915 | 5,813 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Interest expense | (1,251 | ) | (273 | ) | (1,870 | ) | (1,080 | ) | (46 | ) | (129 | ) | (142 | ) | (989 | ) | ||||||||||||||||||||||||||||||||||||||
Equity in loss of joint ventures | (12 | ) | (652 | ) | (1,589 | ) | (924 | ) | (1,788 | ) | (746 | ) | (3,773 | ) | (1,282 | ) | ||||||||||||||||||||||||||||||||||||||
Gain on remeasurement of investment in real estate partnership | 60,196 | — | 60,196 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
Loss on investment land sold | — | (148 | ) | — | (257 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Gain on sale of real estate | 5,732 | 126 | 9,329 | 662 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Income before income taxes | 61,761 | 3,235 | 66,955 | 7,523 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Income from continuing operations before income taxes | 7,293 | 2,628 | 14,908 | 9,024 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Provision for income taxes | 16,577 | 1,278 | 18,615 | 2,972 | 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 | 45,184 | 1,957 | 48,340 | 4,551 | 5,271 | 1,889 | 10,747 | 13,344 | ||||||||||||||||||||||||||||||||||||||||||||||
Income attributable to noncontrolling interest | 19,793 | — | 19,793 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
Loss attributable to noncontrolling interest | (184 | ) | (112 | ) | (475 | ) | (380 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Net income attributable to the Company | $ | 25,391 | 1,957 | 28,547 | 4,551 | $ | 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 | $ | 2.54 | 0.20 | 2.86 | 0.46 | $ | 0.57 | 0.20 | 1.16 | 1.39 | ||||||||||||||||||||||||||||||||||||||||||||
Diluted | $ | 2.52 | 0.20 | 2.84 | 0.46 | $ | 0.57 | 0.20 | 1.16 | 1.38 | ||||||||||||||||||||||||||||||||||||||||||||
Number of shares (in thousands) used in computing: | Number of shares (in thousands) used in computing: | Number of shares (in thousands) used in computing: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
-basic earnings per common share | 10,004 | 9,865 | 9,967 | 9,860 | 9,517 | 9,843 | 9,646 | 9,903 | ||||||||||||||||||||||||||||||||||||||||||||||
-diluted earnings per common share | 10,066 | 9,908 | 10,035 | 9,902 | 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, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Comprehensive income | $ | 45,184 | 1,957 | 48,340 | 4,551 | |||||||||||
Less: comprehensive income attributable to noncontrolling interests | 19,793 | — | 19,793 | — | ||||||||||||
Comprehensive income attributable to the Company | $ | 25,391 | 1,957 | 28,547 | 4,551 |
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, 20172020 AND 20162019
(In thousands) (Unaudited)
2017 | 2016 | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | 48,340 | 4,551 | ||||
Adjustments to reconcile net income to net cash | |||||||
provided by operating activities: | |||||||
Depreciation, depletion and amortization | 9,228 | 6,329 | |||||
Deferred income taxes | 19,620 | (1,551 | ) | ||||
Equity in loss of joint ventures | 1,589 | 924 | |||||
Gain on remeasurement of investment in real estate partnership | (60,196 | ) | — | ||||
Loss on sale of equipment and property | 12 | 238 | |||||
Stock-based compensation | 588 | 506 | |||||
Net changes in operating assets and liabilities: | |||||||
Accounts receivable | (283 | ) | (418 | ) | |||
Deferred costs and other assets | (1,221 | ) | (1,066 | ) | |||
Accounts payable and accrued liabilities | 444 | 5,141 | |||||
Income taxes payable and receivable | (2,739 | ) | (1,026 | ) | |||
Other long-term liabilities | (61 | ) | 34 | ||||
Net cash provided by operating activities | 15,321 | 13,662 | |||||
Cash flows from investing activities: | |||||||
Investments in properties | (12,595 | ) | (17,015 | ) | |||
Investments in joint ventures | (621 | ) | (715 | ) | |||
Proceeds from sale of assets | 16 | 2,147 | |||||
Cash at consolidation of real estate partnership | 2,295 | — | |||||
Cash held in escrow | (15 | ) | 1,174 | ||||
Net cash used in investing activities | (10,920 | ) | (14,409 | ) | |||
Cash flows from financing activities: | |||||||
Decrease in bank overdrafts | (254 | ) | (63 | ) | |||
Proceeds from long-term debt | 43 | — | |||||
Repayment of long-term debt | (3,367 | ) | (3,159 | ) | |||
Proceeds from borrowing on revolving credit facility | 12,845 | 18,042 | |||||
Payment on revolving credit facility | (13,070 | ) | (14,163 | ) | |||
Debt issue costs | (21 | ) | (139 | ) | |||
Repurchase of company stock | (74 | ) | (43 | ) | |||
Exercise of employee stock options | 2,127 | 272 | |||||
Net cash (used in) provided by financing activities | (1,771 | ) | 747 | ||||
Net increase in cash and cash equivalents | 2,630 | — | |||||
Cash and cash equivalents at beginning of period | — | — | |||||
Cash and cash equivalents at end of the period | $ | 2,630 | — |
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, 20172020
(Unaudited)
(1) Description of Business and Basis of Presentation.
FRP Holdings, Inc. (“FRP” or the “Company”) is a holding company engaged in the real estate business, namely (i) warehouse/office/residential building ownership, leasing and management, (ii) mining royalty land ownership and leasing, and (iii)(ii) land acquisition, entitlement and development primarily for future warehouse/office or residential building construction.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, and 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).
Effective July 1, 2017 the Company consolidated the assets (at fair value), liabilities and operating results Our ownership of our RiverfrontRiverFront Investment Partners I, LLC partnership (“Dock 79”) which was previously accounted for underincludes a non-controlling interest representing the equity method. The ownership of Dock 79 attributableour partner. The Company uses the cost method to our partner MRP Realty is reflected on our consolidated balance sheet as a noncontrolling interest. Such noncontrolling interests are reported onaccount for its investment in DST Hickory Creek because it does not have significant influence over operating and financial policies.
On May 21, 2018, the Consolidated Balance Sheets within equity but separatelyCompany 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 shareholders' equity.the sale due to the tenant exercising its right of first refusal to purchase the property. On June 28, 2019, the Consolidated StatementsCompany completed the sale of Income,the excluded property to the same buyer for $11.7 million. This resulted in the disposition of all of the revenues and expenses from Dock 79 are reported in net income, including both the amounts attributableCompany’s industrial flex/office warehouse properties prior to the Companysale date and the noncontrolling interest.constituted a major strategic shift and as a result, these properties have been reclassified as discontinued operations for all periods presented. The amounts of consolidated net income attributable to the noncontrolling interest is clearly identified on the accompanying Consolidated Statements of Income.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, 20172020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.2020. 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 September 30, 2016.December 31, 2019.
On December 19, 2016, the Company changed its fiscal year end from September 30 to December 31. The quarter ended December 31, 2016 was a transition period.
(2) Recently Issued Accounting Standards.
In February 2016, the FASB issued ASU No. 2016-02, “Leases”“Leases (Topic 842)”, which requires lessees to recognize a right-to-use asset and a lease obligation for all leases. Lessees are permitted to make an accounting policy election toThe Company is not recognize an asset and liability for leases with a term of twelve months or less. Additional qualitative and quantitative disclosures, including significant judgments made by management, will be required.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 become effective for the Company beginning with the first quarter 2019 and requires a modified retrospective transition approach and includes a number of practical expedients. Early adoption of the standard is permitted. As the Company is primarily a lessor the adoption of this guidance is not expectedcontinue to have a material impact on its financial statements.
In May 2014,similar pattern of recognition as under current GAAP. Sales-type lease accounting, however, will result in the FASB issued ASU No. 2014-09, “Revenue from Contractsrecognition of selling profit at lease commencement, with Customers”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 replaces existing revenue recognition standards and significantly expandcan no longer be capitalized. Only incremental costs of a lease that would not have been incurred if the disclosure requirements for revenue arrangements. Itlease had not been obtained may be adopted either retrospectively or on a modified retrospective basisdeferred as initial direct costs. The new standard also requires lessors to new contracts and existing contracts withexclude from variable
remaining performance obligationspayments certain lessor costs, such as ofreal estate taxes, that the effective date. While lease contracts with customers, which constitutelessor contractually requires the lessee to pay directly to a vast majority of our revenues, are a specific scope exception, certain of our revenue streams may be impacted by the new guidance.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 effectivenot 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 first quarteradoption of 2018.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 Company currently does not expect the adoption of this guidance to result indid not have a material impact on itsour financial statements.
In March 2016, the FASB issued ASU No. 2016-09, “Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”. The ASU includes multiple provisions intended to simplify various aspects of the accounting for share-based payments. Excess tax benefits for share-based payments are recorded as a reduction of income taxes and reflected in operating cash flows upon the adoption of this ASU. Excess tax benefits were recorded in equity and as financing activity prior to adoption of this ASU. In addition, the guidance allows for a policy election to account for forfeitures as they occur rather than on an estimated basis. The Company adopted this guidance prospectively as of October 1, 2016. As a result of this adoption in the nine months of 2017 we recorded a $14,000 reduction of income tax expense from excess tax benefits on stock option exercises.(3) Business Segments.
In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business”, to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions of assets or businesses. To be considered a business, an acquisition would have to include an input and a substantive process that together significantly contribute to the ability to create outputs. The new guidance provides a framework to evaluate when an input and a substantive process are present. To be a business without outputs, there will now need to be an organized workforce. ASU 2017-01 further states that when substantially all of the fair value of gross assets acquired is concentrated in a single asset (or a group of similar assets), the assets acquired would not represent a business. The Company adopted this guidance prospectively as of July 1, 2017. The Company expects this standard to result in building acquisitions being considered an asset rather than a business. This change will result in acquisition costs being capitalized as part of the asset acquisition, whereas prior treatment has them recognized in earnings in the period incurred.
(3) Business Segments.The Company is reporting its financial performance based on four reportable segments, Asset Management, Mining Royalty Lands, Land Development and Construction and RiverFront on the Anacostia,Stabilized Joint Venture, as described below.
The Asset Management segment owns, leases and manages warehouse/commercial properties. The flex/office buildings located predominatelywarehouses in the Baltimore/Northern Virginia/Washington, DC market area.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 Land Development and Construction segment, we own and are continuously monitoringassessing for their “highesthighest and best use”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.
In July 2017, PhaseThe 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, (Dock 79)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 development known as RiverFront onrevenues and expenses from Dock 79 are reported in net income, including both the Anacostia in Washington, D.C., a 300,000 square foot residential apartment building developed by a joint venture betweenamounts attributable to the Company and MRP SE Waterfront Residential, LLC (“MRP”), reached stabilization, meaning 90%the noncontrolling interest. The amounts of consolidated net income attributable to the individual apartments have been leased and are occupied by third party tenants. Upon reaching stabilization, the Company has, for a period of one year, the exclusive right to (i) cause the joint venture to sell the property or (ii) cause the Company’s and MRP’s percentage interests in the joint venture to be adjusted so as to take into account the value of the development at the time of stabilization. The attainment of stabilization also resulted in a change of control for accounting purposes as the veto rights of the minority shareholder lapsed and the Company became the primary beneficiary. As such, beginning July 1, 2017, the Company consolidated the assets (at current fair value), liabilities and operating results of the joint venture as a new segment called RiverFrontnoncontrolling interest is clearly identified on the Anacostia.accompanying Consolidated Statements of Income.
Operating results and certain other financial data for the Company’s business segments are as follows (in thousands):
Three Months ended | Nine Months ended | Three Months ended | Nine Months ended | |||||||||||||||||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||||
Asset management | $ | 7,578 | 7,323 | 22,057 | 21,824 | $ | 721 | 430 | 2,089 | 1,733 | ||||||||||||||||||||||
Mining royalty lands | 1,786 | 2,037 | 5,381 | 5,874 | 2,507 | 2,302 | 7,094 | 7,164 | ||||||||||||||||||||||||
Land development and construction | 323 | 416 | 931 | 936 | ||||||||||||||||||||||||||||
RiverFront on the Anacostia | 2,367 | — | 2,367 | — | ||||||||||||||||||||||||||||
Development | 290 | 307 | 862 | 892 | ||||||||||||||||||||||||||||
Stabilized Joint Venture | 2,580 | 2,844 | 7,685 | 8,171 | ||||||||||||||||||||||||||||
12,054 | 9,776 | 30,736 | 28,634 | 6,098 | 5,883 | 17,730 | 17,960 | |||||||||||||||||||||||||
Operating profit: | ||||||||||||||||||||||||||||||||
Operating profit (loss): | ||||||||||||||||||||||||||||||||
Before corporate expenses: | ||||||||||||||||||||||||||||||||
Asset management | $ | 3,336 | 3,245 | 10,071 | 9,986 | $ | 200 | 8 | 700 | 233 | ||||||||||||||||||||||
Mining royalty lands | 1,667 | 1,915 | 4,993 | 5,504 | 2,291 | 2,103 | 6,486 | 6,605 | ||||||||||||||||||||||||
Land development and construction | (390 | ) | (196 | ) | (1,168 | ) | (3,359 | ) | ||||||||||||||||||||||||
RiverFront on the Anacostia | (1,168 | ) | — | (1,168 | ) | — | ||||||||||||||||||||||||||
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 | (350 | ) | (339 | ) | (1,424 | ) | (1,213 | ) | (165 | ) | (168 | ) | (738 | ) | (470 | ) | ||||||||||||||||
Allocated to mining royalty lands | (30 | ) | (49 | ) | (124 | ) | (176 | ) | (53 | ) | (44 | ) | (234 | ) | (123 | ) | ||||||||||||||||
Allocated to land development and construction | (210 | ) | (268 | ) | (935 | ) | (959 | ) | ||||||||||||||||||||||||
Allocated to RiverFront on the Anacostia | (27 | ) | — | (27 | ) | — | ||||||||||||||||||||||||||
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 | ) | ||||||||||||||||||||||||
(617 | ) | (656 | ) | (2,510 | ) | (2,348 | ) | $ | 1,581 | 1,358 | 3,579 | 4,820 | ||||||||||||||||||||
$ | 2,828 | 4,308 | 10,218 | 9,783 | ||||||||||||||||||||||||||||
Interest expense: | ||||||||||||||||||||||||||||||||
Asset management | $ | 374 | 273 | 993 | 1,080 | |||||||||||||||||||||||||||
RiverFront on the Anacostia | 877 | — | 877 | — | ||||||||||||||||||||||||||||
$ | 1,251 | 273 | 1,870 | 1,080 | ||||||||||||||||||||||||||||
Interest expense | $ | 46 | 129 | 142 | 989 | |||||||||||||||||||||||||||
Depreciation, depletion and amortization: | ||||||||||||||||||||||||||||||||
Asset management | $ | 2,090 | 2,071 | 6,112 | 5,891 | $ | 137 | 154 | 529 | 527 | ||||||||||||||||||||||
Mining royalty lands | 17 | 24 | 91 | 70 | 60 | 36 | 160 | 130 | ||||||||||||||||||||||||
Land development and construction | 98 | 65 | 263 | 194 | ||||||||||||||||||||||||||||
RiverFront on the Anacostia | 2,564 | — | 2,564 | — | ||||||||||||||||||||||||||||
Development | 53 | 54 | 160 | 161 | ||||||||||||||||||||||||||||
Stabilized Joint Venture | �� | 1,188 | 1,187 | 3,557 | 3,572 | |||||||||||||||||||||||||||
$ | 4,769 | 2,160 | 9,030 | 6,155 | $ | 1,438 | 1,431 | 4,406 | 4,390 | |||||||||||||||||||||||
Capital expenditures: | ||||||||||||||||||||||||||||||||
Asset management | $ | 1,273 | 10,276 | 6,061 | 11,510 | $ | 233 | 824 | 787 | 8,642 | ||||||||||||||||||||||
Mining royalty lands | — | 99 | — | 205 | — | — | — | — | ||||||||||||||||||||||||
Land development and construction | 2,852 | 4,210 | 6,203 | 5,300 | ||||||||||||||||||||||||||||
RiverFront on the Anacostia | 331 | — | 331 | — | ||||||||||||||||||||||||||||
Development | 1,754 | 167 | 2,371 | 415 | ||||||||||||||||||||||||||||
Stabilized Joint Venture | 46 | 194 | 42 | 304 | ||||||||||||||||||||||||||||
$ | 4,456 | 14,585 | 12,595 | 17,015 | $ | 2,033 | 1,185 | 3,200 | 9,361 |
September 30, | December 31, | September 30, | December 31, | |||||||||||||
Identifiable net assets | 2017 | 2016 | 2020 | 2019 | ||||||||||||
Asset management | $ | 180,827 | 169,736 | $ | 11,323 | 18,468 | ||||||||||
Mining royalty lands | 38,744 | 39,259 | 37,617 | 38,409 | ||||||||||||
Land development and construction | 44,162 | 57,126 | ||||||||||||||
RiverFront on the Anacostia | 146,718 | — | ||||||||||||||
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 | 2,630 | — | 61,548 | 26,793 | ||||||||||||
Unallocated corporate assets | 3,011 | 439 | 1,772 | 3,298 | ||||||||||||
$ | 416,092 | 266,560 | $ | 536,130 | 538,148 |
(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, 2017.2020.
The consolidated statements of income reflect charges and/or allocation from Patriot for these services of $352,000$290,000 and $362,000$347,000 for the three months ended September 30, 20172020 and 2016,2019 and $1,229,000$870,000 and $1,156,000$976,000 for the nine months ended September 30, 20172020 and 2016,2019, 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 generally employed the same methodology historically used by the Company pre Spin-offemploy 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 as the terms were negotiated while Patriot was still a subsidiary of FRP.basis.
(5) Long-Term Debt.
Long-term debt is summarized as follows (in thousands):
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
Revolving credit (uncollateralized) | $ | 6,440 | 6,665 | |||||
5.6% to 7.9% mortgage notes | ||||||||
due in installments through 2027 | 30,792 | 34,080 | ||||||
RiverFront construction loan | 60,881 | — | ||||||
RiverFront EB5 secondary financing | 17,000 | — | ||||||
115,113 | 40,745 | |||||||
Less portion due within one year | 4,674 | 4,526 | ||||||
$ | 110,439 | 36,219 |
September 30, | December 31, | |||||||
2020 | 2019 | |||||||
Riverfront permanent loan | $ | 89,027 | 88,925 | |||||
Less portion due within one year | — | — | ||||||
$ | 89,027 | 88,925 |
On January 30, 2015,February 6, 2019, the Company entered into a five year credit agreementFirst 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 "Credit Agreement").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 provides a revolving credit facility (the “Revolver”) with a $10 million sublimit available for standby letters of credit.contains certain conditions, affirmative financial covenants and negative covenants. As of September 30, 2017,2020, there was $5,687,000no debt outstanding on thethis revolver, $2,266,000$411,000 outstanding under letters of credit and $12,047,000$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 Revolver bearsletter of credit fee is 1% and applicable interest at a rate of 1.4% over the selected LIBOR, which may change quarterly basedwould have been 1.149% on the Company’s ratio of Consolidated Total Debt to Consolidated Total Capital, as defined which excludes FRP RiverFront. A commitment fee of 0.15% per annum is payable quarterly on the unused portion of the commitment. The commitment fee may also change quarterly based upon the ratio described above.September 30, 2020. The credit agreement contains certain conditions and financial covenants, including a minimum $110 million tangible net worth.worth and dividend restriction. As of September 30, 2017, the tangible net worth covenant2020, these covenants would have limited our ability to pay dividends or repurchase stock with borrowed funds to a maximum of $77.5$219 million combined. The Company was in compliance with all covenants as of September 30, 2017.2020.
On July 24, 2015November 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 closed on a five year, $20 million secured revolverand MRP in 2014 in connection with First Tennessee Bank with a twenty-four month window to convert up to the full amountdevelopment of the facility into a ten year term loan. Interest accrues at 1.90% over one month LIBOR plus an annual commitment fee of 0.10%. As of September 30, 2017, there was $753,000 outstandingRiverfront on the revolver and $19,247,000 available for borrowing.Anacostia property, borrowed a principal sum of $90,000,000 in connection with the refinancing. The Company expects to close on a second facility with First Tennessee Bank with a $20 million ten year term loan is secured by to-be-determined collateral. The purposethe Dock 79 real property and improvements, bears a fixed interest rate of these loans is to facilitate growth through new construction4.125% 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 the Land Development and Construction segment and/or acquisition of existing, operating buildings to be added to the Asset Management segment.equal installments based upon a 30-
Effective July 1, 2017 the Company consolidated the assets (at current fair value), liabilities and operating results of our Riverfront Investment Partners I, LLC partnership (“Dock 79”) which was previously accounted for under the equity method. As such the full amount of our construction loan and secondary financing were recorded in the consolidated financial statements and described below. Both these financing sources are non-recourse to FRP.
Effective August 7, 2014, the Dock 79 obtained a commitment for a construction loan from a financial institution in the principal amount of $65,000,000 to fund certain development and construction costs of the Dock 79. The initial maturity date of the loan is the earlier of (i) August 7, 2018, or (ii) the date to which the loan is accelerated pursuant to certain terms as outlined in the agreement. Dock 79 has the option to extend the initial maturity date for one extension period of four years (Extension Term) upon the compliance with and satisfaction of certain conditions as defined in the agreement. The interest rate on the loan through the initial maturity date is based on the 2.35% over one month LIBOR and the interest rate during the Extension Term (if any) until the maturity date will be based on a fixed-interest rate swap or interest rate cap, as applicable, for the applicable LIBOR-based rate on the then applicable market terms. Accrued interest is payable in arrears on the first day of each calendar month and on the maturity date. The outstanding principal balance on all loans shall be due and payable in full on the maturity date. After maturity, accrued interest on all loans shall be payable on demand.year amortization period. The loan is secureda non-recourse loan. However, all amounts due under the Loan Documents will become immediately due upon an event of default by any realthe 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 personal property(iv) dissolution, or the dissolution of Dock 79. The agreement contains certain conditions, affirmative financial covenantsthe guarantor. MRP has executed a carve-out guaranty in connection with the loan.
Debt cost amortization of $34,000 and negative covenants including the maintenance of a debt service ratio of not less than 1.25 to 1.00$102,000 was recorded during the Extension Term.
Effective August 7, 2014, Dock 79 partnership member EB5 Capital-Jobs Fund 8, L.P. made an initial capital contribution of $17 million in cash into an escrow account with a financial institution all of which have been used for construction. Associated with the $17 million cash contribution, EB5 is entitled to earn an investment return. The investment return requires the Dock 79 to pay interest monthly based on an annual rate of 4.95% for the first 5 yearsthree and 8% thereafter, on the balance remaining of the initial capital contributed. Dock 79 is required to repay or redeem EB5's membership interest for a purchase price equal to the sum of the balance of EB5's contribution account, plus any accrued by unpaid investment return sixtynine months after the initial capital contribution, unless extended for an additional twelve months in accordance with the agreement. Subsequent to the repayment of the investment return, EB5 will no longer be a partner in the Dock 79. Due to the mandatory redemption requirements associated with the EB5 financing arrangement, the related investment is classified as a liability on the balance sheets.
ended September 30, 2020, respectively. During the three months ended September 30, 20172020 and September 30, 20162019 the Company capitalized interest costs of $210,000$948,000 and $382,000,$870,000, respectively. During the nine months ended September 30, 20172020 and September 30, 20162019 the Company capitalized interest costs of $812,000$2,823,000 and $864,000,$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 |
Three Months ended | Nine Months ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Weighted average common shares | |||||||||||||||
outstanding during the period | |||||||||||||||
- shares used for basic | |||||||||||||||
earnings per common share | 10,004 | 9,865 | 9,967 | 9,860 | |||||||||||
Common shares issuable under | |||||||||||||||
share based payment plans | |||||||||||||||
which are potentially dilutive | 62 | 43 | 68 | 42 | |||||||||||
Common shares used for diluted | |||||||||||||||
earnings per common share | 10,066 | 9,908 | 10,035 | 9,902 | |||||||||||
Net income attributable to the Company | $ | 25,391 | 1,957 | 28,547 | 4,551 | ||||||||||
Basic earnings per common share: | |||||||||||||||
Basic | $ | 2.54 | 0.20 | 2.86 | 0.46 | ||||||||||
Diluted | $ | 2.52 | 0.20 | 2.84 | 0.46 |
For the three and nine months ended September 30, 2017, 13,6102020, 74,065 and 22,42253,545 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, 2016, 42,040 and 72,0902019, 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 number of common shares available for future issuance was 569,917 at September 30, 2017.
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 35%29% and 46%41%, risk-free interest rate of .3%1.0% to 4.2%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.
As previously disclosed, Thompson S. Baker II resigned from his positionIn March 2020, 20,520 shares of restricted stock were granted to employees as CEO and frompart of a long-term incentive plan that will vest over the boardnext five years. The number of directors oncommon shares available for future issuance was 443,820 at September 30, 2020. In March 13, 2017. In recognition2020, 11,448 shares of his outstanding servicestock were granted to the Company, the Board approved the vesting of all of Mr. Baker's outstanding FRPemployees rather than stock options which expired 90 days following the termination of his employment. The vesting of Mr. Baker’s outstanding FRP options that were issuedas in prior to the spin-off required Patriot to record modification stock compensation expense of $150,000. FRP reimbursed Patriot for this cost under the transition services agreement. The vesting of Mr. Baker’s outstanding FRP options that were issued subsequent to the spin-off required modified stock compensation expense of $41,000.years.
The Company recorded the following stock compensation expense in its consolidated statements of income (in thousands):
Three Months ended | Nine Months ended | Three Months ended | Nine Months ended | |||||||||||||||||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||
Stock option grants | $ | 33 | 31 | 143 | 94 | $ | 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 | — | — | 445 | 412 | — | 70 | 500 | 70 | ||||||||||||||||||||||||
$ | 33 | 31 | 588 | 506 | $ | 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 | — | $ | — |
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, 2017 | 236,385 | $ | 25.35 | 6.1 | $ | 2,440 | |||||||||||
Granted | 4,555 | $ | 37.55 | $ | 75 | ||||||||||||
Modification | — | $ | 30.21 | $ | (137 | ) | |||||||||||
Exercised | (84,630 | ) | $ | 25.13 | $ | (783 | ) | ||||||||||
Outstanding at | |||||||||||||||||
September 30, 2017 | 156,310 | $ | 25.82 | 5.5 | $ | 1,595 | |||||||||||
Exercisable at | |||||||||||||||||
September 30, 2017 | 114,020 | $ | 23.83 | 4.7 | $ | 1,010 | |||||||||||
Vested during | |||||||||||||||||
nine months ended | |||||||||||||||||
September 30, 2017 | 26,839 | $ | 223 | ||||||||||||||
The aggregate intrinsic value of exercisable in-the-money options was $2,442,000$1,216,000 and the aggregate intrinsic value of outstanding in-the-money options was $3,037,000$1,234,000 based on the market closing price of $45.25$41.67 on September 29, 201730, 2020 less exercise prices.
The unrecognized compensation cost of options granted to FRP employees but not yet vested as of September 30, 20172020 was $343,000,$219,000, which is expected to be recognized over a weighted-average period of 3.53.1 years.
GainsA summary of $1,474,000 were realized by option holders during the nine months endedchanges 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, 2017. Patriot realized the tax benefits2020 was $809,000 which is expected to be recognized over a weighted-average period of $1,365,000 of these gains because these options were exercised by Patriot employees for options granted prior to the spin-off.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.
Preliminary testing on the site of the Company's four phase master development known as RiverFront on the Anacostia in Washington, D.C. indicated the presence of contaminated material that will have to be specially handled upon excavation in conjunction with construction. The Company agreed with our joint venture partner to bear the cost of handling the contaminated materials on the first phase of this development up to a cap of $1.871 million.As of September 30, 2016, the excavation and foundation work for Phase 1 were substantially complete and the total remediation expense was $1.833 million.During the quarter ending December 31, 2015, management successfully completed negotiations and entered into a $3,000,000 settlement of environmental claims on all four phases against our former tenant at the Riverfront on the Anacostia property and continues to pursue settlement negotiations with other potentially responsible parties. The Company executed a letter of intent with MRP Realty 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 thisany known contamination on Phases III and IV of the development until such time as it makes a commitment to commence construction on each phase. The Company's actual expense to address this issue may be materially higher or lower than the expense previously recorded depending upon the actual costs incurred.
(9) Concentrations. One tenant accounts for 11% of the Company’s consolidated revenues during the quarter ended September 30, 2017.
The mining royalty lands segment has a total of fourfive tenants currently leasing mining locations and one lessee that accounted for 15.4%32.1% of the Company’s consolidated revenues during the nine months ended
September 30, 20172020 and $106,769$374,000 of accounts receivable at September 30, 2017.2020. 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 TennesseeHorizon 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.
AsAt 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, 2017 the Company had no assets or liabilities measured at fair value on a recurring or non-recurring basis. Footnote 12 describes a remeasurement to fair value of certain assets at July 1, 2017. 2020.
At September 30, 20172020 and 2016,2019, the carrying amount reported in the consolidated balance sheets for cash and cash equivalents short-term notes payable 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, 2017,2020, the carrying amount and fair value of such other long-term debt was $115,113,000$89,027,000 and $117,827,000,$95,138,000, respectively. At December 31, 2016,September 30, 2019, the carrying amount and fair value of such other long-term debt was $40,745,000$88,891,000 and $43,747,000,$94,658,000, respectively.
(11) Investments in Joint Ventures (Equity Method).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, 20172020 includes a loss of $31,000$33,000 representing the Company’s portion of the loss of this joint venture.
BC FRP Realty (Windlass Run). DuringIn 2016, the quarter ending March 2016, weCompany 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 storysingle-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.
Investments in Joint Ventures (in thousands):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
The | |||||||||||||||
Company's | |||||||||||||||
Total Assets | Net Loss | Share of Net | |||||||||||||
Total | of the | of the | Loss of the | ||||||||||||
Ownership | Investment | Partnership | Partnership | Partnership | |||||||||||
As of September 30, 2017 | |||||||||||||||
RiverFront Holdings I, LLC (1) | — | — | — | $ (2,019 | ) | $ (1,558 | ) | ||||||||
Brooksville Quarry, LLC | 50.00 | % | $ 7,487 | $ 14,445 | (62 | ) | (31 | ) | |||||||
BC FRP Realty, LLC | 50.00 | % | 5,858 | 12,298 | — | — | |||||||||
Total | $ 13,345 | $ 26,743 | $ (2,081 | ) | $ (1,589 | ) | |||||||||
As of December 31, 2016 | |||||||||||||||
RiverFront Holdings I, LLC | 77.14 | % | $10,151 | $90,420 | $ (1,446 | ) | $ (1,115 | ) | |||||||
Brooksville Quarry, LLC | 50.00 | % | 7,522 | 14,341 | (8 | ) | (4 | ) | |||||||
BC FRP Realty, LLC | 50.00 | % | 5,228 | 10,784 | — | — | |||||||||
Total | $ 22,901 | $ 115,545 | $ (1,454 | ) | $ (1,119 | ) |
Balance Sheetincome 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 December 31, 2016 (in thousands):
| As of December 31, 2016 | |||||||||||||||
Riverfront | Brooksville | BC FRP | ||||||||||||||
Holdings I, LLC | Quarry, LLC | Realty, LLC | Total | |||||||||||||
Cash | $ | 1,023 | $ | 18 | $ | 21 | $ | 1,062 | ||||||||
Cash held in escrow | 88 | — | — | 88 | ||||||||||||
Investments in real estate, net | 89,309 | 14,323 | 10,763 | 114,395 | ||||||||||||
Total Assets | $ | 90,420 | $ | 14,341 | $ | 10,784 | $ | 115,545 | ||||||||
Other Liabilities | $ | 6,348 | $ | 1 | $ | 47 | $ | 6,396 | ||||||||
Long-term Debt | 69,042 | — | — | 69,042 | ||||||||||||
Capital – FRP | 10,151 | 7,522 | 5,228 | 22,901 | ||||||||||||
Capital - Third Parties | 4,879 | 6,818 | 5,509 | 17,206 | ||||||||||||
Total Liabilities and Capital | $ | 90,420 | $ | 14,341 | $ | 10,784 | $ | 115,545 |
Income statementsan 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 the RiverFront Holdings I, LLC, prior to consolidation July 1, 2017 (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenues: | ||||||||||||||||
Rental Revenue | $ | — | — | $ | 3,053 | 127 | ||||||||||
Revenue – Reimbursements | — | 127 | 33 | — | ||||||||||||
Total Revenues | — | 127 | 3,086 | 127 | ||||||||||||
Cost of operations: | ||||||||||||||||
Depreciation and amortization | — | 228 | 1,958 | 325 | ||||||||||||
Operating expenses | — | 405 | 1,096 | 621 | ||||||||||||
Property taxes | — | 41 | 459 | 41 | ||||||||||||
Total cost of operations | — | 674 | 3,513 | 987 | ||||||||||||
Total operating profit | — | (547 | ) | (427 | ) | (860 | ) | |||||||||
Interest expense | — | (280 | ) | (1,592 | ) | (280 | ) | |||||||||
Net loss of the Partnership | $ | — | (827 | ) | $ | (2,019 | ) | (1,140 | ) |
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 amount of consolidated accumulated deficit for these joint ventures was $(2,633,000) and $(1,667,000) as ofloan balance at September 30, 2017 and December 31, 2016 respectively.
(12) Consolidation of RiverFront Investment Partners I, LLC.On March 30, 2012 the Company entered into a Contribution Agreement with MRP SE Waterfront Residential, LLC. (“MRP”) to form a joint venture to develop the first phase only of the four phase master development known as RiverFront on the Anacostia in Washington, D.C. The purpose of the Joint Venture is to develop and own an approximately 300,000 square foot residential apartment
building (including approximately 18,000 square feet of retail) on approximately 2 acres of the roughly 5.82 acre site. The joint venture, RiverFront Investment Partners I, LLC (“RiverFront I”)2020 was formed in June 2013 as contemplated. The Company contributed land with an agreed to value of $13,500,000 (cost basis of $6,165,000) and contributed cash of $4,866,000 to the Joint Venture for a 77.14% stake in the venture. MRP contributed capital of $5,553,000 to the joint venture including development costs paid prior to formation of the joint venture. The Joint Venture closed on $17,000,000 of EB5 secondary financing and a nonrecourse construction loan for $65,000,000 on August 8, 2014. Both these financing sources are non-recourse to FRP. At the time of these financings, RiverFront Holdings I, LLC. was formed as a parent to RiverFront Investment Partners I, LLC with EB5 as an equity partner in Riverfront Holdings I, LLC. Construction commenced in October 2014, first occupancy was in August 2016. As of September 30, 2017 96.4% of the units were leased.$63,466,000. The Company’s equity interest in the joint venture was previouslyis 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.
In July 2017, Phase I (Dock 79) reached stabilization, meaning 90%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 individual apartments have been leasedBryant 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 are occupied by third party tenants. Upon reaching stabilization, theJobs Act of 2017. The Company has,contributed cash of $32 million in exchange for a period61.36% 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 exclusive rightfirst, 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 (i) causesatisfy such tests. The loan balance at September 30, 2020 was $60,342,000. The Company and MRP guaranteed $26 million of the joint venture to sell the property or (ii) causeloan 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 MRP’s percentage interestsis amortized to expense over the 48 months. The Company’s equity interest in the joint venture to be adjusted sois accounted for under the equity method of accounting as to take into accountall the contractual payouts assuming a sale at the value of the development at the time of this “Conversion election”.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 attainmentfirst phase of stabilization resultssettlement occurred in May 2020, resulting in a change$2.67 million principal and interest payment, with subsequent payments of control$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 accounting purposes$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 veto rightsfirst 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 minority shareholder lapsed187 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
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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 becamecontributed cash of $37.3 million. MRP will contribute the primary beneficiary. As such, beginning Julyremainder 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 2017,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 consolidatedand Woodfield Development formed a joint venture to develop a mixed-use project in Greenville SC known as .408 Jackson located across the assets (at fair value), liabilitiesstreet from Greenville’s minor league baseball stadium. The project will hold 227 multifamily units and operating results4,700 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. This consolidation resultedThe Company’s equity interest in a gain on remeasurementthe joint venture is accounted for under the equity method of investment in real estate partnership of $60,196,000 of which $20,469,000 was attributedaccounting 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 noncontrolling interest. In accordance with the terms of the Joint Venture agreements,entity must be made unanimously between both members.
On December 23, 2019 the Company usedand 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 fair value amount at datenew communities’ development program as established by Congress in the Tax Cuts and Jobs Act of conversion and calculated an adjusted ownership2017. 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 Conversion election. As suchequity 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 financial reporting purposes effective July 1, 2017 the Company ownership is based upon this substantive profit sharing arrangement and is estimated at 66.0% on a prospective basis.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 |
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As of July 1, 2017 | |||||||||||||||||
Riverfront | Gain on Remeasure- | ||||||||||||||||
Holdings I, LLC | ment | Revised | |||||||||||||||
Land | $ | 7,220 | $ | 21,107 | $ | 28,327 | |||||||||||
Building and improvements, net | 81,773 | 34,362 | 116,135 | ||||||||||||||
Value of leases in place | — | 4,727 | 4,727 | ||||||||||||||
Cash | 2,295 | — | 2,295 | ||||||||||||||
Cash held in escrow | 171 | — | 171 | ||||||||||||||
Accounts receivable | 40 | — | 40 | ||||||||||||||
Prepaid expenses | 142 | — | 142 | ||||||||||||||
Total Assets | $ | 91,641 | $ | 60,196 | $ | 151,837 | |||||||||||
Long-term Debt | $ | 78,587 | $ | — | $ | 78,587 | |||||||||||
Amortizable debt costs | (852 | ) | — | (852 | ) | ||||||||||||
Other liabilities | 905 | — | 905 | ||||||||||||||
Equity – FRP | 8,583 | 39,727 | 48,310 | ||||||||||||||
Equity - MRP | 4,418 | 20,469 | 24,887 | ||||||||||||||
Total Liabilities and Capital | $ | 91,641 | $ | 60,196 | $ | 151,837 | |||||||||||
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 | — | — |
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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. (“FRP” or the “Company”) is a holding company engaged in the real estate business, namely (i) warehouse/office building ownership, leasing and management, (ii) mining royalty land ownership and leasing, and (iii)(ii) land acquisition, entitlement and development primarily for future warehouse/office or residential building construction.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 group health claims experience.construction cost management.
Potential REIT Conversion.
Whether through strategic acquisitions, organic growth, joint ventures, or putting our non-income producingOn May 21, 2018, the Company completed the disposition of 40 industrial warehouse properties and three additional land parcels to work, our constant aim is to create and grow shareholder value. To that end, we have for some time explored the possibilityan affiliate of converting this company into aBlackstone Real Estate Investment Trust (REIT), withPartners VIII, L.P. for $347.2 million. One warehouse property valued at $11.7 million was excluded from the idea that this may be a more efficient structure givensale due to the naturetenant 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 business. In order to have the option to convert toAsset Management segment and constituted a REIT,strategic shift for the Company has already elected to change from our previous fiscal year (ending September 30), to a fiscal year that follows the calendar yearand have been reclassified as is required of a REIT. This change went into effect January 1, 2017 and required one-time additional auditing expenses of $120,000 which were reflected in fiscal year 2017. Thus, this past quarter, and every quarter ended September 30 will now be the third quarter of our fiscal year. Finally, consistent with having the option to elect REIT status, we have contributed our mining reserves into a wholly owned subsidiary. Because the parent company still retains control of the land itself, the portion of the mining royalties’ income that is not attributable to the reserves, but instead more closely resembles ground rents, will be retained by the parent company and will qualify as “REIT-able” income. The subsidiary will receive only the income attributable to the reserves it now controls. This structure is intended to assure that we will meet the asset and income tests applicable to REITs. These preliminary steps will not have a material impact on ourdiscontinued operations if the Company does not elect REIT status.
for all periods presented.
Asset Management Segment.
The Asset Management segment owns, leases and manages warehouse/office buildings located predominately in the Baltimore/Northern Virginia/Washington, DC market area. We focus primarily on owning flexible type facilities that cater to the maximum number of tenant types. As most of our buildings are less than 150,000 square feet, we focus on local and regional vs. national tenants. Hands-on service provided by our in-house construction and property management teams keeps us close to our tenant base. These practices are the cornerstone of our mission to provide the highest quality product and services at competitive rates resulting in tenant satisfaction and ultimately, retention.
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. Of
As of September 30, 2020, the 43 buildings we own today, 28 were constructedAsset 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 through what is now knownfor use as our Land Development and Construction segment. Additionally, overBaltimore 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 years, we have opportunistically acquired 15 existing operating buildings, typically in connection with a deferred like-kind (Section 1031) exchange opportunity. Today, this segmenttenant to demolish all structures on the property during 2018.
3) Cranberry Office Park consists of 4 millionfive office buildings totaling 268,010 square feet.feet which are 78.6% occupied at September 30, 2020.
ManagementTo take advantage of market cycles and attract a wide range of top tier buyers, management focuses on several factors to measure our success on a comparative basis in this segment.segment to facilitate a successful and profitable sale. The major factors we focus on are (1) revenue growth, (2) net operating income (3)growth, (2) growth in occupied square feet, (4) actual occupancy, rate, (5) average annual occupied square feet, (6)(3) average annual occupancy rate (defined as the occupied sfsquare 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), (7) growth of our portfolio (in square feet), and (8)(4) tenant retention success rate (as a percentage of total square feet to be renewed).
Asset Management segment – nine months ended | September 30, 2017 | September 30, 2016 |
Revenues | $22,057,000 | 21,824,000 |
Net Operating Income (Cash Basis) | $16,715,000 | 16,554,000 |
Occupied square feet | 3,637,236 | 3,486,681 |
Overall occupancy rate | 91.3% | 89.9% |
Average YTD occupied square feet | 3,529,911 | 3,383,261 |
Average YTD occupancy rate | 89.4% | 89.5% |
Portfolio square feet | 3,983,813 | 3,880,365 |
Retention Success rate | 81% | 64% |
, (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 Statesstates 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 fixedminimum annual rental amount. We believe thatstrongly in the number of tons and the price per ton will rise on the aggregates under lease aspotential for future growth in construction continues to grow in Florida, Georgia, and Virginia which would positively benefit our profitability in this segment. Our mining properties had estimated remaining reserves of 415516 million tons as of September 30, 2016December 31, 2019 after a total of 6.98.1 million tons were consumed in fiscal 2016.2019.
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 includeare Vulcan Materials, Martin Marietta, Cemex, Argos and Cemex, among others.The Concrete Company.
Additionally, these locations provide us with excellent opportunities for valuable “second lives” for these assets through proper land planning and entitlement.
Significant “2nd life” Mining Lands:
Location | Acreage | Status |
Brooksville, | 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 | Approval in place for 105, 1 acre, waterfront residential lots after mining completed. | |
Total |
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Land Development and Construction Segment.
Through our Land Development and Construction segment, we own and are continuously monitoring for their “highest and best use” several parcels of land that are in various stages of development. Our overall strategy in this segment is to convert all of our non-income producing lands into income production through (i) an orderly process of constructing new warehouse/officecommercial 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 2830 of these pads into developed buildings that we continue to own and manage through the Asset Management segment.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 opportunisticallyoccasionally sold several of these pad sites over time to third party “users”. parties.
The remaining pad sites in our inventory today are fully entitled, located in business parks in four different submarkets in the DC/Baltimore/Northern Virginia area, and can support an additional +/- 876,000 sf. of warehouse/office buildings. Development Segment – Warehouse/Office Land.
Summary of Our Remaining Lot Inventory: At September 30, 2020 this segment owned the following future development parcel:
Location | Acreage | SF +/- | Status |
Lakeside, MD | 20 | 286,500 | Horizontal development completed. Ready for vertical permitting. |
Windlass Run Business Park, MD | 17.5 (50% Interest) | 164,500 (50% Interest) | Company owns a 50% in a joint venture formed in April 2016 with St. John Properties. The joint venture owns the 35 acres and plans to develop the land into 12 office buildings for a total of 329,000 sq. ft. |
Patriot Business Center, Manassas, VA | 18 | 96,047 | Building permit process ongoing for the remaining 96,047 s.f. Includes 12 acres storm water management. |
Hollander 95 Business Park, MD | 33 | 328,740 | Horizontal development completed. Building permit process ongoing for 94,290 sf. |
Total | 88.5 | 875,787 |
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. |
Having sites ready for vertical construction has rewarded us in the past. It is the main reason why we were able to convert 3 of our finished pads at Patriot Business Park into build-to-suit opportunities in 2012, 2013 and 2014. We completed construction on a 103,448 square foot building at Patriot Business Park that was put into service in April 2017. We completed construction on a 79,550 square foot spec building at Hollander Business Park that was put into service in the third quarter of fiscal 2016. In April, 2016 we entered into a joint venture agreement to develop 12 office buildings on our remaining lots at Windlass Run and on adjacent frontage property owned by St. John Properties. 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.
In addition to the inventory of finished building lots, weWe have several otherthree properties that were either spun-off to us from Florida Rock Industries in 1986 or acquired by us from unrelated 3rdthird 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.
Our strategy when selling parcels outright is to attempt to convert the proceeds into income producing real estate for our Asset Management segment through a Section 1031 tax-deferred exchange. An example of this is the Windlass Run 179 acre tract purchased for $5.2 million in 2002. When purchased, the entire parcel was zoned for commercial/industrial uses. Today, some 70 acres of this original tract makes up our Windlass Run Business Park. We successfully rezoned the remaining acreage for medium density residential development and on April 17, 2013, we entered into a contract to sell the residential portion of the property for $19 million. The first phase of the Windlass Run residential land was sold for $8 million and the proceeds were used in a Section 1031 exchange to acquire our Transit Business Park in 2013. Phase 2 was sold in November, 2015 for $11.1 million and we used $9.9 million of the proceeds to acquire the fully leased Port Capital Building.
An example of property in this segment being developed through joint venture is Phase I of our RiverFront on the Anacostia project which was contributed to a joint venture with MRP in 2014 to construct a 305 unit apartment building including 18,000 sf of ground floor retail.
Significant Investment Lands Inventory:
Location | Approx. Acreage | Status |
NBV | Approx. Acreage | Status |
NBV |
RiverFront on the Anacostia Phases II-IV | 3.7 | Phase II final design approval hearings ongoing. | $10,468,000 | |||
RiverFront on the Anacostia Phases III-IV | 2.5 | Conceptual design program ongoing. | $6,068,000 | |||
Hampstead Trade Center, MD | 118 | Residential conceptual design program ongoing. | $7,169,000 | 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. | $8,343,000 | 2 | Under lease to Vulcan Materials as a concrete batch plant through 2021 with one 5-year renewal option. | $7,885,000 |
Total | 126 | $25,980,000 | 77.5 | $22,922,000 |
RIVERFRONT ON THE ANACOSTIA:
ANACOSTIA PHASES III-IV: This property consists of 5.82.5 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 1.1M600,000 square feet of “mixed-use” development in fourtwo phases. In 2014, approximately 2.1 acres (Phase I)See “Stabilized Joint Venture Segment” below for discussion on Phase I and Development Joint Ventures below for discussion of the total 5.8 acres was contributed to a joint venture owned by the Company (77%) and our partner, MRP Realty (23%), and construction commenced in October 2014 on a 305 unit residential apartment building with approximately 18,000 sq. ft. of first floor retail space. Lease up commenced in May 2016 and rent stabilization was achieved in the third quarter of 2017. The attainment of stabilization resulted in a change of control for accounting purposes as the veto rights of the minority shareholder lapsed and the Company became the primary beneficiary. As such, beginning July 1, 2017, the Company consolidated the assets (at fair value), liabilities and operating results of the joint venture and the property was transferred from the Land Development and Construction Segment to a new segment, RiverFront on the Anacostia.Phase II. Phases II, III and IV are slated for residential, office, and hotel/residential buildings, respectively,
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all with permitted first floor retail uses. The company and MRP Realty executed a letter of intent in May 2016 and a Contribution Agreement in February 2017 to develop Phase II but the joint venture is not yet formed. In February, the D.C. Zoning Commission voted 5-0 in favor of the Planned Unit Development (PUD) of Phase II of our RiverFront on the Anacostia project. After formal publishing of the record and a 35 day appeal period we anticipate formal approval in the fourth quarter of this calendar year.
On August 24, 2015, in anticipation of commencing construction of the new Frederick Douglass bridge at a location immediately to the Westwest 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 foot5,022-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 acre118-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. In the fourth quarter of fiscal 2016, the Company received approval from theOn December 22, 2018, The Town of Hampstead and has rezonedre-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 propertyformal process of seeking PUD entitlements for residential use.this 118-acre tract in Hampstead, Maryland, now known as “Hampstead Overlook”.
SQUARE 664E, WASHINGTON, DC
DC: This property sits on the Anacostia River at the base of South Capitol Street in an area namedknown as Buzzard Point, approximately 1less than half a mile down river from our RiverFront on the Anacostia property. The Square 664E property consists ofis approximately 2two 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 theexercised its option to renew for one additional period of five (5) years. In July 2018, Audi Field, the quarter ending December 31, 2014, the District of Columbia announced that it had selected Buzzard Point for the future sitehome of the new DC United major leagueprofessional soccer stadium.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 selected stadium location is separated from our property by just one small industrial lot.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 2017 reconstruction2016, 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 bulkheadfirst 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 costJoint 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 $4retail. 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 anticipationexchange for a 61.36% common equity in the partnership. The Company also contributed cash of future high rise$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.
RiverFront1800 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.
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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.
In 2014, approximately 2.1 acres (Phase I)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 the total 5.8 acres was contributed toour RiverFront on The Anacostia project is a joint venture owned by the Company (77%(66%) and our partner, MRP Realty (23%(34%), and construction commenced in October 2014 onis a 305 unit305-unit residential apartment building with approximately 18,000 sq. ft. of first floor retail space. Lease up commenced in May 2016 and rent stabilization of the residential units of 90% occupied was achieved in the third quarter of 2017.Upon reaching stabilization, the Company has, for a period of one year, the exclusive right to (i) cause the joint venture to sell the property or (ii) cause the Company’s and MRP’s percentage interests in the joint venture to be adjusted so as to take into account the contractual payouts assuming a sale at the value of the development at the time of this “Conversion election”.
The attainment of stabilization also results in a change of control for accounting purposes as the veto rights of the minority shareholder lapsed and the Company became the primary beneficiary. As such, beginning July 1, 2017, the Company consolidated the assets (at current fair value based on a third party opinion), liabilities and operating results of the joint venture. This consolidation resulted in a gain on remeasurement of investment in real estate partnership of $60,196,000 of which $20,469,000 was attributed to the noncontrolling interest. The Company used the fair value amount to calculate adjusted ownership under the Conversion election. As such forFor financial reporting purposes effective July 1, 2017 the Company ownershipconsolidates this venture as it is based upon this substantive profit sharing arrangement and is estimated at 66.0% on a prospective basis.
considered the primary beneficiary of the Variable Interest Entity. As of September 30, 2020, the residential units were 95.4%94.43% occupied and 96.4%90.49% leased, while retail units are 80.0%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, 20172020 and 20162019
Consolidated Results
Three months ended | |||||||||||||||
(dollars in thousands) | September 30, | ||||||||||||||
2017 | 2016 | Change | % | ||||||||||||
Revenues: | |||||||||||||||
Rental Revenue | $ | 8,738 | $ | 6,259 | $ | 2,479 | 39.6 | % | |||||||
Mining Royalty and rents | 1,763 | 2,016 | (253 | ) | -12.5 | % | |||||||||
Revenue-Reimbursements | 1,553 | 1,501 | 52 | 3.5 | % | ||||||||||
Total Revenues | 12,054 | 9,776 | 2,278 | 23.3 | % | ||||||||||
Cost of operations: | |||||||||||||||
Depreciation/Depletion/Amortization | 4,769 | 2,160 | 2,609 | 120.8 | % | ||||||||||
Operating Expenses | 1,879 | 1,146 | 733 | 64.0 | % | ||||||||||
Property Taxes | 1,401 | 1,087 | 314 | 28.9 | % | ||||||||||
Mgmt Co Allocation-In | 560 | 419 | 141 | 33.7 | % | ||||||||||
Corporate Expense | 617 | 656 | (39 | ) | -5.9 | % | |||||||||
Total cost of operations | 9,226 | 5,468 | 3,758 | 68.7 | % | ||||||||||
Total operating profit | 2,828 | 4,308 | (1,480 | ) | -34.4 | % | |||||||||
Interest Expense | (1,251 | ) | (273 | ) | (978 | ) | 358.2 | % | |||||||
Equity in loss of joint ventures | (12 | ) | (652 | ) | 640 | -98.2 | % | ||||||||
Gain on remeasurement of investment in real estate partnership | 60,196 | — | 60,196 | 0.0 | % | ||||||||||
Loss on investment land sold | — | (148 | ) | 148 | -100.0 | % | |||||||||
Income before income taxes | 61,761 | 3,235 | 58,526 | 1809.1 | % | ||||||||||
Provision for income taxes | 16,577 | 1,278 | 15,299 | 1197.1 | % | ||||||||||
Net income | 45,184 | 1,957 | 43,227 | 2208.8 | % | ||||||||||
Gain attributable to noncontrolling interest | 19,793 | — | 19,793 | 0.0 | % | ||||||||||
Net income attributable to the Company | $ | 25,391 | $ | 1,957 | $ | 23,434 | 1197.4 | % | |||||||
(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 20172020 was $25,391,000$5,455,000 or $2.52$.57 per share versus $1,957,000$2,001,000 or $.20 per share in the same period last year. The majoritythird quarter of this uptick in income is2020 was impacted by the resultfollowing items:
Loss from discontinued operations for the third quarter of the addition2019 was ($13,000) or $.00 per share. The third quarter of rental revenues from Dock 79.2019 included a $144,000 realized gain on bonds called early.
Asset Management Segment Results
Highlights of the Three Months ended September 30, 2017:
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 | % |
Three Months Ended September 30 | |||||||||||||||||||||||||
(dollars in thousands) | 2017 | % | 2016 | % | Change | % | |||||||||||||||||||
Rental revenue | $ | 6,174 | 81.5 | % | $ | 5,977 | 81.6 | % | $ | 197 | 3.3 | % | |||||||||||||
Revenue-reimbursements | 1,404 | 18.5 | % | 1,346 | 18.4 | % | 58 | 4.3 | % | ||||||||||||||||
Total revenue | 7,578 | 100.0 | % | 7,323 | 100.0 | % | 255 | 3.5 | % | ||||||||||||||||
Depreciation, depletion and amortization | 2,090 | 27.6 | % | 2,071 | 28.3 | % | 19 | .9 | % | ||||||||||||||||
Operating expenses | 1,123 | 14.8 | % | 1,102 | 15.0 | % | 21 | 1.9 | % | ||||||||||||||||
Property taxes | 792 | 10.5 | % | 729 | 10.0 | % | 63 | 8.6 | % | ||||||||||||||||
Management company indirect | 237 | 3.1 | % | 176 | 2.4 | % | 61 | 34.7 | % | ||||||||||||||||
Corporate expense | 350 | 4.6 | % | 339 | 4.6 | % | 11 | 3.2 | % | ||||||||||||||||
Cost of operations | 4,592 | 60.6 | % | 4,417 | 60.3 | % | 175 | 4.0 | % | ||||||||||||||||
Operating profit | $ | 2,986 | 39.4 | % | $ | 2,906 | 39.7 | % | $ | 80 | 2.8 | % | |||||||||||||
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 $7,578,000,$721,000, up $255,000$291,000 or 3.5%67.7%, over the same period last year. Net Operating Income (NOI) in this segment for the third quarter declined slightly to $5,614,000, compared to $5,627,000profit was $35,000, up $195,000 from an operating loss of ($160,000) in the same period last year. Several factors caused revenue to increase while NOI remained stable. Revenues inclusive of reimbursables and unrealized rents have increased over the same periodquarter last year as a result of new buildingsdue to 1801 62nd St being fully leased and increased occupancy. However, the uptick in reimbursable expenses increased revenue without increasing NOI, and the non-reimbursable expenses did nothing for revenue and adversely affected NOI. Additionally, cash-based NOI as calculatedoccupied, improved leasing at Cranberry offset by the Company excludes unrealized rents which are the resultsale of “straight-lining” rental revenue over the life of a lease, i.e. averaging the total rent of the lease over the term. Thus, though revenue as calculated by GAAP may be up because of new leases, cash-based NOI is not as positively affected because the actual rent paid by the tenant7030 Dorsey Road in the beginning of a lease is less than the GAAP-based straight-lined rent. We ended the third quarter with total occupied square feet of 3,637,236 versus 3,486,681 at the end of the same period last year, an increase of 4.3% or 150,555 square feet. Our overall occupancy rate was 91.3%.June 2019.
Mining Royalty Lands Segment Results
Highlights of the Three Months ended September 30, 2017:
Three Months Ended September 30 | ||||||||||||||||
(dollars in thousands) | 2017 | % | 2016 | % | ||||||||||||
Mining Royalty and rents | $ | 1,763 | 98.7 | % | 2,014 | 98.9 | % | |||||||||
Revenue-reimbursements | 23 | 1.3 | % | 23 | 1.1 | % | ||||||||||
Total revenue | 1,786 | 100.0 | % | 2,037 | 100.0 | % | ||||||||||
Depreciation, depletion and amortization | 17 | .9 | % | 24 | 1.2 | % | ||||||||||
Operating expenses | 43 | 2.4 | % | 40 | 2.0 | % | ||||||||||
Property taxes | 59 | 3.3 | % | 58 | 2.8 | % | ||||||||||
Corporate expense | 30 | 1.7 | % | 49 | 2.4 | % | ||||||||||
Cost of operations | 149 | 8.3 | % | 171 | 8.4 | % | ||||||||||
Operating profit | $ | 1,637 | 91.7 | % | $ | 1,866 | 91.6 | % |
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 $1,786,000, a decrease of 12%,$2,507,000 versus $2,037,000$2,302,000 in the same period last year. This drop is primarily due a $127,000 decrease in royalties at our Manassas, Va. quarry, a $47,000 decrease in royalties at our Newberry, Fl. location, a $29,000 decrease in royalties at our Keuka, Fl. location, a $23,000 decrease in royalties at our Tyrone, Ga. quarry, as well as a $41,000 decrease in royalties at our Lake Sand, Fl. location. Royalties are down in Manassas because of a $107,000 downward adjustment in last year’s royalties that we recorded in September. Royalties were down in Newberry because of lower volumes than the previous year. 2016 saw a 300,000 ton increase in production at Newberry over the previous year because operational issues in Argos’ cement plants in South Carolina and Alabama caused Newberry to increase production to absorb the volumes of those plants. Those issues have been fixed and production at Newberry has returned to a level more in line with the growth rate of years prior to 2016. The dip in royalties at Keuka, like at Newberry, is the result of a return to more normal volumes when compared to the previous year. In 2016, several golf course construction projects led to increased golf sand production. Those projects have been completed, and so 2017 golf sand shipments have been reflective of maintenance activities. Thus Keuka has had lower volumes than the previous year. Like last quarter, royalties were down in Tyrone compared to last year because of excessive rainfall. Finally, as stated the last several quarters, royalties have fallen off in Lake Sand as a consequence of Vulcan having fully depleted our proven reserves there. Further capital expenditures would be required by our tenant to change their mining plan at Lake Sand and realize more than three million tons of possible reserves, which we do not anticipate any time soon. Total operating profit in this segment was $1,637,000, a decrease$2,238,000, an increase of $229,000$179,000 versus $1,866,000$2,059,000 in the same period last year.
Land Development and Construction Segment Results
Highlights of the Three Months ended September 30, 2017:
Three Months ended September 30 | Three months ended September 30 | |||||||||||||||||||||||||
(dollars in thousands) | 2017 | 2016 | Change | 2020 | 2019 | Change | ||||||||||||||||||||
Rental revenue | $ | 207 | 282 | (75 | ) | |||||||||||||||||||||
Royalty and rents | — | 2 | (2 | ) | ||||||||||||||||||||||
Revenue-reimbursements | 116 | 132 | (16 | ) | ||||||||||||||||||||||
Total revenue | 323 | 416 | (93 | ) | ||||||||||||||||||||||
Lease revenue | $ | 290 | 307 | (17 | ) | |||||||||||||||||||||
Depreciation, depletion and amortization | 98 | 65 | 33 | 53 | 54 | (1 | ) | |||||||||||||||||||
Operating expenses | 52 | 4 | 48 | 62 | 105 | (43 | ) | |||||||||||||||||||
Property taxes | 282 | 300 | (18 | ) | 330 | 300 | 30 | |||||||||||||||||||
Management company indirect | 281 | 243 | 38 | 504 | 477 | 27 | ||||||||||||||||||||
Corporate expense | 210 | 268 | (58 | ) | 381 | 479 | (98 | ) | ||||||||||||||||||
Cost of operations | 923 | 880 | 43 | 1,330 | 1,415 | (85 | ) | |||||||||||||||||||
Operating loss | $ | (600 | ) | (464 | ) | (136 | ) | $ | (1,040 | ) | (1,108 | ) | 68 |
The Land Development and Construction 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:
Equity in loss of joint ventures was $12,000 because of the Brooksville Joint Venture.
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.
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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 | % |
Highlights
Dock 79’s average residential occupancy for the quarter was 93.29%, and at the end of the Three Months ended September 30, 2017:
Three Months Ended September 30 | ||||||||||||||||
(dollars in thousands) | 2017 | % | 2016 | % | ||||||||||||
Rental revenue | $ | 2,357 | 99.6 | % | — | — | % | |||||||||
Revenue-reimbursements | 10 | .4 | % | — | — | % | ||||||||||
Total revenue | 2,367 | 100.0 | % | — | — | % | ||||||||||
Depreciation and amortization | 2,564 | 108.3 | % | — | — | % | ||||||||||
Operating expenses | 661 | 27.9 | % | — | — | % | ||||||||||
Property taxes | 268 | 11.3 | % | — | — | % | ||||||||||
Management company indirect | 42 | 1.8 | % | — | ||||||||||||
Corporate expense | 27 | 1.2 | % | — | — | % | ||||||||||
Cost of operations | 3,562 | 150.5 | % | — | — | % | ||||||||||
Operating profit | $ | (1,195 | ) | -50.5 | % | $ | — | — | % |
In July 2017, Phase I (Dock 79) of the development known as RiverFront on the Anacostia in Washington, D.C., a 300,000 square foot residential apartment building developed bysame quarter last year. Dock 79 is a joint venture between the Company and MRP, reached stabilization, meaning 90% ofin which FRP Holdings, Inc. is the individual apartments have been leased and are occupied by third party tenants. Upon reaching stabilization,majority partner with 66% ownership.
In July 2019, the Company has, forcompleted a periodlike-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 one year,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 exclusive right to (i) cause the joint venture to sell the property or (ii) cause the Company’ssales of 7030 Dorsey Road and MRP’s percentage interests in the joint venture to be adjusted so as to take into account the value of the development at the time of stabilization. The attainment of stabilization also resulted in a change of control for accounting purposes as the veto rights of the minority shareholder lapsed and the Company became the primary beneficiary. As such, beginning July 1, 2017, the Company consolidated the assets (at current fair value), liabilities and operating results of the joint venture and established the RiverFront on the Anacostia segment as its fourth segment.1502 Quarry Drive.
At the end of September, Dock 79 was 96.4% leased and 95.4% occupied. As the first “generation” of leases came up for renewal this quarter, the renewal rate of 53% is in line with expectations while the average rent increase of 3.89% is stronger than we budgeted.
Comparative Results of Operations for the Nine months ended September 30, 20172020 and 20162019
Consolidated Results
Nine months ended | |||||||||||||||
(dollars in thousands) | September 30, | ||||||||||||||
2017 | 2016 | Change | % | ||||||||||||
Revenues: | |||||||||||||||
Rental Revenue | $ | 21,243 | $ | 18,430 | $ | 2,813 | 15.3 | % | |||||||
Mining Royalty and rents | 5,311 | 5,805 | (494 | ) | -8.5 | % | |||||||||
Revenue-Reimbursements | 4,182 | 4,399 | (217 | ) | -4.9 | % | |||||||||
Total Revenues | 30,736 | 28,634 | 2,102 | 7.3 | % | ||||||||||
Cost of operations: | |||||||||||||||
Depreciation/Depletion/Amortization | 9,030 | 6,155 | 2,875 | 46.7 | % | ||||||||||
Operating Expenses | 3,882 | 3,651 | 231 | 6.4 | % | ||||||||||
Environmental remediation expense | — | 2,000 | (2,000 | ) | -100.0 | % | |||||||||
Property Taxes | 3,592 | 3,357 | 235 | 7.0 | % | ||||||||||
Mgmt Co Allocation-In | 1,504 | 1,340 | 164 | 12.2 | % | ||||||||||
Corporate Expense | 2,510 | 2,348 | 162 | 6.9 | % | ||||||||||
Total cost of operations | 20,518 | 18.851 | 1,667 | 8.8 | % | ||||||||||
Total operating profit | 10,218 | 9,783 | 435 | 4.4 | % | ||||||||||
Interest income and other | — | 1 | (1 | ) | -100.0 | % | |||||||||
Interest Expense | (1,870 | ) | (1,080 | ) | (790 | ) | 73.1 | % | |||||||
Equity in loss of joint ventures | (1,589 | ) | (924 | ) | (665 | ) | 72.0 | % | |||||||
Gain on remeasurement of investments in real estate Partnership | 60,196 | — | 60,196 | 0.0 | % | ||||||||||
Loss on investment land sold | — | (257 | ) | 257 | -100.0 | % | |||||||||
Income before income taxes | 66,955 | 7,523 | 59,432 | 790.0 | % | ||||||||||
Provision for income taxes | 18,615 | 2,972 | 15,643 | 526.3 | % | ||||||||||
Net income | 48,340 | 4,551 | 43,789 | 962.2 | % | ||||||||||
Gain attributable to noncontrolling interest | 19,793 | — | 19,793 | 0.0 | % | ||||||||||
Net income attributable to the Company | $ | 28,547 | $ | 4,551 | $ | 23,996 | 527.3 | % | |||||||
(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 | 13,140 | 1,011 | 7.7 | % | ||||||||||||
Total operating profit | 3,579 | 4,820 | (1,241 | ) | -25.7 | % | |||||||||||
Net investment income, including realized gains | |||||||||||||||||
of $297 and $591 | 5,915 | 5,813 | 102 | 1.8 | % | ||||||||||||
Interest Expense | (142 | ) | (989 | ) | 847 | -85.6 | % | ||||||||||
32 |
Equity in loss of joint ventures | (3,773 | ) | (1,282 | ) | (2,491 | ) | 194.3 | % | |||||||
Gain on real estate investments | 9,329 | 662 | 8,667 | 1309.2 | % | ||||||||||
Income before income taxes | 14,908 | 9,024 | 5,884 | 65.2 | % | ||||||||||
Provision for income taxes | 4,161 | 2,529 | 1,632 | 64.5 | % | ||||||||||
Income from continuing operations | 10,747 | 6,495 | 4,252 | 65.5 | % | ||||||||||
Income from discontinued operations, net | — | 6,849 | (6,849 | ) | -100.0 | % | |||||||||
Net income | 10,747 | 13,344 | (2,597 | ) | -19.5 | % | |||||||||
Loss attributable to noncontrolling interest | (475 | ) | (380 | ) | (95 | ) | 25.0 | % | |||||||
Net income attributable to the Company | $ | 11,222 | $ | 13,724 | $ | (2,502 | ) | -18.2 | %` | ||||||
Net income for first nine months of 2020 was $11,222,000 or $1.16 per share versus $13,724,000 or $1.38 per share in the same period last year. Income from discontinued operations for the first nine months of 20172019 was $28,547,000$6,849,000 or $2.84$.69 per share versus $4,551,000 or $.46 per share in the first nine months last year. The majority of this uptick in income is the result of a gain on remeasurement of investment of $60.2 million in its Dock 79 real estate partnership, which is included inshare. Income from continuing operations before income taxes. As a resultincreased $4,252,000 or 66% and was impacted by the following items:
Asset Management Segment Results
Nine months ended September 30 | ||||||||||||||||||||||||
(dollars in thousands) | 2020 | % | 2019 | % | Change | % | ||||||||||||||||||
Lease revenue | $ | 2,089 | 100.0 | % | 1,733 | 100.0 | % | 356 | 20.5 | % | ||||||||||||||
Depreciation, depletion and amortization | 529 | 25.3 | % | 527 | 30.4 | % | 2 | 0.4 | % | |||||||||||||||
Operating expenses | 332 | 15.9 | % | 492 | 28.4 | % | (160 | ) | -32.5 | % | ||||||||||||||
Property taxes | 91 | 4.4 | % | 216 | 12.5 | % | (125 | ) | -57.9 | % | ||||||||||||||
Management company indirect | 437 | 20.9 | % | 265 | 15.3 | % | 172 | 64.9 | % | |||||||||||||||
Corporate expense | 738 | 35.3 | % | 470 | 27.1 | % | 268 | 57.0 | % | |||||||||||||||
Cost of operations | 2,127 | 101.8 | % | 1,970 | 113.7 | % | 157 | 8.0 | % | |||||||||||||||
Operating profit | $ | (38 | ) | -1.8 | % | (237 | ) | -13.7 | % | 199 | -84.0 | % |
Highlights
Most of the Nine Months ended September 30, 2017:
Nine Months Ended September 30 | |||||||||||||||||||||||||
(dollars in thousands) | 2017 | % | 2016 | % | Change | % | |||||||||||||||||||
Rental revenue | $ | 18,285 | 82.9 | % | $ | 17,887 | 82.0 | % | $ | 398 | 2.2 | % | |||||||||||||
Revenue-reimbursements | 3,772 | 17.1 | % | 3,937 | 18.0 | % | (165 | ) | -4.2 | % | |||||||||||||||
Total revenue | 22,057 | 100.0 | % | 21,824 | 100.0 | % | 233 | 1.1 | % | ||||||||||||||||
Depreciation, depletion and amortization | 6,112 | 27.7 | % | 5,891 | 27.0 | % | 221 | 3.8 | % | ||||||||||||||||
Operating expenses | 2,941 | 13.3 | % | 3,306 | 15.1 | % | (365 | ) | -11.0 | % | |||||||||||||||
Property taxes | 2,317 | 10.5 | % | 2,059 | 9.4 | % | 258 | 12.5 | % | ||||||||||||||||
Management company indirect | 616 | 2.8 | % | 582 | 2.7 | % | 34 | 5.8 | % | ||||||||||||||||
Corporate expense | 1,424 | 6.5 | % | 1,213 | 5.6 | % | 211 | 17.4 | % | ||||||||||||||||
Cost of operations | 13,410 | 60.8 | % | 13,051 | 59.8 | % | 359 | 2.8 | % | ||||||||||||||||
Operating profit | $ | 8,647 | 39.2 | % | $ | 8,773 | 40.2 | % | $ | (126 | ) | -1.4 | % | ||||||||||||
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, but was sold in July 2020. 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 $22,057,000,$2,089,000, up $233,000$356,000 or 1.1%20.5%, over the first nine monthssame period last year. The increase in revenue is due to the additionOperating loss was ($38,000), down $199,000 from an operating loss of new buildings and increased total occupancy. Net Operating Income in this segment for the first nine months of 2017 was $16,715,000, compared to $16,555,000($237,000) in the first nine monthssame period last year due to
33 |
higher allocation of 2016, an increase of 1%.
Depreciation and amortization expense increased primarily because of the purchase of the Gilroy Center in Baltimore County in July of 2016 and the completion of a 79,550 square foot warehouse at Hollander Business Park in April 2016 and a 103,448 square foot warehouse at Patriot Business Center in April of 2017.
Corporate expense increased due to a first quarter stock option modification expense of $191,000 and increased internal and external audit expense incurred as a result of the conversion from the previous fiscal year (ending September 30) to one that follows the calendar year.corporate expenses.
Mining Royalty Lands Segment Results
Nine months ended September 30 | ||||||||||||||||||||||||
(dollars in thousands) | 2020 | % | 2019 | % | Change | % | ||||||||||||||||||
Mining lands lease revenue | $ | 7,094 | 100.0 | % | 7,164 | 100.0 | % | (70 | ) | -1.0 | % | |||||||||||||
Depreciation, depletion and amortization | 160 | 2.3 | % | 130 | 1.8 | % | 30 | 23.1 | % | |||||||||||||||
Operating expenses | 43 | 0.6 | % | 75 | 1.1 | % | (32 | ) | -42.7 | % | ||||||||||||||
Property taxes | 191 | 2.7 | % | 203 | 2.8 | % | (12 | ) | -5.9 | % | ||||||||||||||
Management company indirect | 214 | 3.0 | % | 151 | 2.1 | % | 63 | 41.7 | % | |||||||||||||||
Corporate expense | 234 | 3.3 | % | 123 | 1.7 | % | 111 | 90.2 | % | |||||||||||||||
�� | ||||||||||||||||||||||||
Cost of operations | 842 | 11.9 | % | 682 | 9.5 | % | 160 | 23.5 | % | |||||||||||||||
Operating profit | $ | 6,252 | 88.1 | % | 6,482 | 90.5 | % | (230 | ) | -3.5 | % |
Highlights of the Nine Months ended September 30, 2017:
Nine Months Ended September 30 | ||||||||||||||||
(dollars in thousands) | 2017 | % | 2016 | % | ||||||||||||
Mining Royalty and rents | $ | 5,311 | 98.7 | % | 5,805 | 98.8 | % | |||||||||
Revenue-reimbursements | 70 | 1.3 | % | 69 | 1.2 | % | ||||||||||
Total revenue | 5,381 | 100.0 | % | 5,874 | 100.0 | % | ||||||||||
Depreciation, depletion and amortization | 91 | 1.7 | % | 70 | 1.2 | % | ||||||||||
Operating expenses | 121 | 2.2 | % | 124 | 2.1 | % | ||||||||||
Property taxes | 176 | 3.3 | % | 176 | 3.0 | % | ||||||||||
Corporate expense | 124 | 2.3 | % | 176 | 3.0 | % | ||||||||||
Cost of operations | 512 | 9.5 | % | 546 | 9.3 | % | ||||||||||
Operating profit | $ | 4,869 | 90.5 | % | $ | 5,328 | 90.7 | % |
Total revenues in this segment were $5,381,000, a decrease of 8.4%,$7,094,000 versus $5,874,000$7,164,000 in the first nine monthssame period last year. This drop is due to a $260,000 decrease in royalties at our Manassas, Va. location, a $154,000 decrease at our Tyrone, Ga. Location, a $127,000 decrease at our Newberry, Fl. location, a $101,000 decrease at our Keuka, Fl. location, and a $197,000 decrease in royalties at our Lake Sand, Fl. location. Royalties are down in Manassas because of Vulcan’s mining a portion of the quarry not owned by the Company for two months in our second quarter as well as a $107,000 downward adjustment in last year’s royalties that we recorded in September. Vulcan has returned to our portion of the quarry and will be mining there the remainder of the year. Royalties were down in Tyrone compared to last year because of excessive rainfall the past two quarters. Royalties were down in Newberry because of lower volumes than the previous year. 2016 saw a 300,000 ton increase in production at Newberry over the previous year because operational issues in Argos’ cement plants in South Carolina and Alabama caused Newberry to increase production to absorb the volumes of those plants. Those issues have been fixed and production at Newberry has returned to a level more in line with the growth rate of years prior to 2016. The dip in royalties at Keuka, like at Newberry, is the result of a return to more normal volumes when compared to the previous year. In 2016, several golf course construction projects led to increased golf sand production. Those projects were completed so as a result, 2017 golf sand shipments have been reflective of maintenance activities and thus Keuka has had lower volumes than the previous year. As stated previously, royalties have fallen off in Lake Sand as a consequence of Vulcan having fully depleted our proven reserves there. Further capital expenditures would be required by our tenant to change their mining plan at Lake Sand and realize more than three million tons of possible reserves, which we do not anticipate any time soon. Total operating profit in this segment was $4,869,000,$6,252,000, a decrease of $459,000$230,000 versus $5,328,000$6,482,000 in the first nine monthssame period last year. The primary reason for this decrease is that we are no longer receiving double minimums at our Lake Louisa property, because our tenant, Cemex, received its final permit to begin mining the property in July 2019.
Land Development and Construction Segment Results
Nine months ended September 30 | |||||||||||||
(dollars in thousands) | 2020 | 2019 | Change | ||||||||||
Lease revenue | $ | 862 | 892 | (30 | ) | ||||||||
Depreciation, depletion and amortization | 160 | 161 | (1) | ||||||||||
Operating expenses | 415 | 246 | 169 | ||||||||||
Property taxes | 1,019 | 918 | 101 | ||||||||||
Management company indirect | 1,404 | 1,314 | 90 | ||||||||||
Corporate expense | 1,710 | 1,219 | 491 | ||||||||||
Cost of operations | 4,708 | 3,858 | 850 | ||||||||||
Operating loss | $ | (3,846 | ) | (2,966 | ) | (880 | ) |
Highlights of the Nine Months ended September 30, 2017:
Nine Months ended September 30 | |||||||||||||
(dollars in thousands) | 2017 | 2016 | Change | ||||||||||
Rental revenue | $ | 601 | 543 | 58 | |||||||||
Revenue-reimbursements | 330 | 393 | (63 | ) | |||||||||
Total revenue | 931 | 936 | (5 | ) | |||||||||
Depreciation, depletion and amortization | 263 | 194 | 69 | ||||||||||
Operating expenses | 159 | 221 | (62 | ) | |||||||||
Environmental remediation expense | — | 2,000 | (2,000 | ) | |||||||||
Property taxes | 831 | 1,122 | (291 | ) | |||||||||
Management company indirect | 846 | 758 | 88 | ||||||||||
Corporate expense | 935 | 959 | (24 | ) | |||||||||
Cost of operations | 3,034 | 5,254 | (2,220 | ) | |||||||||
Operating loss | $ | (2,103 | ) | (4,318 | ) | 2,215 |
The Land Development and Construction 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:
Because of operating losses and depreciation during the lease up of Dock 79, equity in loss of joint ventures was $1,589,000 (including a loss of $31,000 in the Brooksville Joint Venture).
RiverFront on the AnacostiaStabilized Joint Venture Segment Results
Nine months ended September 30 | ||||||||||||||||||||||||
(dollars in thousands) | 2020 | % | 2019 | % | Change | % | ||||||||||||||||||
Lease revenue | $ | 7,685 | 100.0 | % | 8,171 | 100.0 | % | (486 | ) | -5.9 | % | |||||||||||||
Depreciation, depletion and amortization | 3,557 | 46.3 | % | 3,572 | 43.7 | % | (15 | ) | -0.4 | % | ||||||||||||||
Operating expenses | 1,808 | 23.5 | % | 1,931 | 23.6 | % | (123 | ) | -6.4 | % | ||||||||||||||
Property taxes | 788 | 10.2 | % | 869 | 10.6 | % | (81 | ) | -9.3 | % | ||||||||||||||
Management company indirect | 153 | 2.0 | % | 142 | 1.8 | % | 11 | 7.7 | % | |||||||||||||||
Corporate expense | 168 | 2.2 | % | 116 | 1.4 | % | 52 | 44.8 | % | |||||||||||||||
Cost of operations | 6,474 | 84.2 | % | 6,630 | 81.1 | % | (156 | ) | -2.4 | % | ||||||||||||||
Operating profit | $ | 1,211 | 15.8 | % | 1,541 | 18.9 | % | (330 | ) | -21.4 | % |
Highlights
34 |
Dock 79’s average residential occupancy for the first nine months was 92.80%, and at the end of the Nine Months ended September 30, 2017:
Nine Months Ended September 30 | ||||||||||||||||
(dollars in thousands) | 2017 | % | 2016 | % | ||||||||||||
Rental revenue | $ | 2,357 | 99.6 | % | — | — | % | |||||||||
Revenue-reimbursements | 10 | .4 | % | — | — | % | ||||||||||
Total revenue | 2,367 | 100.0 | % | — | — | % | ||||||||||
Depreciation and amortization | 2,564 | 108.3 | % | — | — | % | ||||||||||
Operating expenses | 661 | 27.9 | % | — | — | % | ||||||||||
Property taxes | 268 | 11.3 | % | — | — | % | ||||||||||
Management company indirect | 42 | 1.8 | % | — | ||||||||||||
Corporate expense | 27 | 1.2 | % | — | — | % | ||||||||||
Cost of operations | 3,562 | 150.4 | % | — | — | % | ||||||||||
Operating profit | $ | (1,195 | ) | -50.4 | % | $ | — | — | % |
In July 2017, Phase I (Dock 79) of the development known as RiverFront on the Anacostia in Washington, D.C., a 300,000 square foot residential apartment building developed bylast year. Dock 79 is a joint venture between the Company and MRP, reached stabilization, meaning 90%in which FRP Holdings, Inc. is the majority partner with 66% ownership.
Distributions for Hickory Creek were $254,000 for the first nine months. The project is a qualified 1031 like-kind exchange investment in a Delaware Statutory Trust of the individual apartments have been leased and are occupied by third party tenants. Upon reaching stabilization,which the Company has, foris a period of one year, the exclusive right to (i) cause the joint
venture to sell the property or (ii) cause the Company’s and MRP’s percentage interests in the joint venture to be adjusted so as to take into account the value of the development at the time of stabilization. The attainment of stabilization also resulted in a change of control for accounting purposes as the veto rights of the minority shareholder lapsed and the Company became the primary beneficiary. As such, beginning July 1, 2017, the Company consolidated the assets (at current fair value), liabilities and operating results of the joint venture and established the RiverFront on the Anacostia segment as its fourth segment.
At the end of September, Dock 79 was 96.42% leased and 95.4% occupied. As the first “generation” of lease came up for renewal this quarter, the renewal rate of 53% is in line with expectations while the average rent increase of 3.89% is stronger than we budgeted.26.659% beneficial owner.
Liquidity and Capital Resources. The growth of the Company’s businesses requires significant cash needs to acquire and develop land or operating buildings and to construct new buildings and tenant improvements. As of September 30, 2017,2020, we had $5,687,000$61,548,000 of cash and cash equivalents along with $104,624,000 of investments available for sale. As of September 30, 2020, we had no debt borrowed under our $20 million Wells Fargo revolver, $2,266,000$411,000 outstanding under letters of credit and $12,047,000$19,589,000 available to borrow under the revolver. The Company closed on a $20 million secured revolver with First Tennessee Bank on July 24, 2015 and as of September 30,In November 2017, we had $753,000 borrowed and $19,247,000 availablesecured $90 million in permanent financing for Dock 79 from EagleBank, the proceeds of which were used to borrow under the revolver. First Tennessee has also committed to provide an additional $20pay off $79 million of secured financing toconstruction and mezzanine debt. The remainder was distributed pari passu between the Company on a ten year term loan amortizing on a twenty five (25) year basis. We expect to close on this second loan with First Tennessee during 2017.and our partners.
Cash Flows- The following table summarizes our cash flows from operating, investing and financing activities for each of the periods presented (in thousands of dollars):
Nine months | Nine months | |||||||||||
Ended September 30, | Ended September 30, | |||||||||||
2017 | 2016 | 2020 | 2019 | |||||||||
Total cash provided by (used for): | ||||||||||||
Operating activities | $ | 15,321 | 13,662 | $ | 13,353 | 15,021 | ||||||
Investing activities | (10,920 | ) | (14,409 | ) | 22,729 | 40,131 | ||||||
Financing activities | (1,771 | ) | 747 | (16,400 | ) | (8,453 | ) | |||||
Increase in cash and cash equivalents | $ | 2,630 | — | |||||||||
Increase (decrease) in cash and cash equivalents | $ | 19,682 | 46,699 | |||||||||
Outstanding debt at the beginning of the period | $ | 40,745 | 42,099 | $ | 88,925 | 88,789 | ||||||
Outstanding debt at the end of the period | $ | 115,113 | 37,081 | $ | 89,027 | 88,891 |
Operating Activities -Net cash provided by operating activities increased $1,659,000 to $15,321,000 for the nine months ended September 30, 2017. The total of net income plus depreciation, depletion and amortization less gains on sales of property and equipment less gain on remeasurement decreased $13,734,0002020 was $13,353,000 versus $15,021,000 in the same period last year due to the net incomeyear. Net cash used in noncontrolling interest offset by the gain on remeasurement of real estate partnership upon consolidation of the assets (at current fair value), liabilities and operating results of the RiverFront joint venture . These changes are described above under “Comparative Results of Operations”. Equity in the loss of joint ventures was $1,589,000 in the first nine months of 2017 primarily as a result of expenses and depreciation during the lease up of Dock 79. Deferred income tax liabilities increased by $19,620,000 primarily due to consolidation of the assets (at current fair value), liabilities and operating results of the RiverFront joint venture. Income tax receivable was $1,852,000 at September 30, 2017 compared to income tax payable of $887,000 at December 31, 2016 resulting in a negative impact to net cash provided by operating activities of $2,739,000 primarily due todiscontinued operations for the bonus depreciation on Dock 79.nine months ended September 30, 2019 was $1,756,000.
Investing Activities - ForNet cash provided by investing activities for the nine months ended September 30, 2017, cash required2020 was $22,729,000 versus $40,131,000 in the same period last year. The decrease was due primarily to the proceeds on the sale investments available for sale offset by investing activities decreased $3,489,000the purchase of investments available for sale, while the prior year included the acquisition of Cranberry Business Park, and the preferred equity contribution to $10,920,000.the RiverFront Holdings II joint venture.
Financing Activities – For the nine months endedAt September 30, 2017, cash required by financing activities2020 the Company was $1,771,000 versus cash provided by financing activitiesinvested in 46 corporate bonds with individual maturities ranging from 2020 through 2022. The unrealized gain on these bonds of $747,000 in 2016 primarily due to lower borrowing$1,117,000 was recorded as part of comprehensive income and was based on the revolver offsetestimated market value by higher exercises of employee stock options.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.
Financing Activities – Net cash used in investing activities was $16,400,000 versus $8,453,000 in the same period last year due primarily due to the increased purchase of company stock in the nine months ended September 30, 2020.
Credit Facilities - On January 30, 2015, in connection with the Spin-off,February 6, 2019 the Company terminated its $55 million credit facility entered into a First Amendment to the 2015 Credit Agreement (the "Credit Agreement") with Wells Fargo Bank, N.A. in 2012 and simultaneously entered into a new five year credit agreement(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 (“Revolver”) with a maximum facility amount of $20 million (the "Credit Agreement").million. The interest rate under the Credit Agreement provideswill be a revolving credit facility (the “Revolver”) with a $10 million sublimit available for standby lettersmaximum of credit. At the time of the Spin-off, the Company refinanced $10,483,000 of borrowings then outstanding on the terminated revolver. As of September 30, 2017, there was $5,687,000 outstanding on the revolver and $2,266,000 outstanding under letters of credit and $12,047,000 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 Revolver bears interest at a rate of 1.4%1.50% over the selectedDaily 1 Month LIBOR, which may changebe reduced quarterly based onto 1.25% or 1.0% over Daily 1 Month LIBOR if the Company’sCompany meets a specified ratio of Consolidated Total Debtconsolidated total debt to Consolidated Total Capital, as defined.consolidated total capital. A commitment fee of 0.15%0.25% per annum is payable quarterly on the unused portion of the commitment. The commitment feebut the amount may also change quarterly based uponbe reduced to 0.20% or 0.15% if the Company meets a specified ratio described above.of consolidated total debt to consolidated total capital. The credit agreement contains certain conditions and financial covenants, including a minimum $110 million tangible net worth.worth and dividend restriction. As of September 30, 2017, the tangible net worth covenant2020, these covenants would have limited our ability to pay dividends or repurchase stock with borrowed funds to a maximum of $77.5$219 million combined. The Company was in compliance with all covenants as of September 30, 2017.
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 quarter of fiscal 2015, the Company announced the execution of a commitment from First Tennessee Bank to provide up to $40 million dollars of mortgage backed financing in two separate facilities. On July 24, 2015 the Company closed on a five year, $20 million secured revolver with a twenty-four month window to convert up to the full amount48 months of the facility intoloan 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 ten year term loan. Interest accrues at 1.90% over one month LIBOR plus an annual commitment fee of 0.10%. As of September 30, 2017, there was $753,000 outstanding on the revolver and $19,247,000 available for borrowing.30-year amortization period. The second facilityloan is a $20 million ten year term loan securednon-recourse loan. However, all amounts due under the Loan Documents will become immediately due upon an event of default by to-be-determined collateral. The purposethe 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 these loans is to facilitate growth through new constructionrepresentations 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 Land Development and Construction segment and/or acquisition of existing, operating buildings to be added to the Asset Management segment.loan.
Cash Requirements – The Board of Directors has authorized Management to repurchase shares of the Company’s common stock from time to time as opportunities arise. DuringOn May 6, 2020, the nine months ended September 30, 2017Board of Directors approved a $10,000,000 increase in the Company repurchased 2,000 sharesCompany’s stock repurchase authorization. On August 26, 2020, the Board of stock.Directors approved a $10,000,000 increase in the Company’s stock repurchase authorization. As of September 30, 2017, $4,883,0002020, $15,252,000 was authorized for future repurchases of common stock. The Company does not currently pay any cash dividends on common stock.
The Company currently expects its 2017 capital expenditures for the remainder of 2020 to include approximately $19,165,000$19.7 million for real estate development and acquisitions, of which $12,595,000 has been expended to date,including investments in joint ventures, which will be funded mostly out of cash generationand investments on hand, cash generated from operations and property sales, or partly from borrowings under our credit facilities.
REIT Conversion – Due toImpact of the pending tax reform proposals nowCOVID-19 Pandemic. The COVID-19 pandemic is having an extraordinary impact on the world economy and the markets in Congress,which we operate. As an essential business, we have decidedcontinued to deferoperate throughout the REIT election decision until 2018. If we elect REIT status, we would be requiredpandemic in accordance with White House guidance and orders issued by state and local authorities. We have implemented social distancing and other measures to distribute to our shareholders an amount equal to at least 90%protect the health of our REIT taxable income, determined without regardemployees and customers. While we recognize the importance of social distancing, stay at home and telework measures to the dividends paid deductionprotect human health, these measures will adversely affect our retail tenants as long as they remain in place. We are negotiating with our retail tenants on rent abatements and excluding any net capital gains. Since wecash flow adjustments that will not elect REIT status for the 2017 calendar year, we would not expect to commence paying regular distributions until 2019 at the earliest. The amount, timing and frequency of future distributions, however, will be at the sole discretion ofadversely affect our Board of Directors and will be declared based upon various factors, many of which are beyond our control, including, our financial condition and operating cash flows, the amount required to maintain REIT status and reduce any income and excise taxes that we otherwise would be required to pay, limitations on distributions in our existing and future debt instruments, limitations on our ability to fund distributions using cash generated through taxable REIT subsidiaries and other factors that our Board of Directors may deem relevant.
We currently operate as a C corporation. A REIT is not permitted to retain earnings and profits (“E&P”) accumulated during the periods when the company or its predecessor was taxed as a C corporation. If we elect REIT status for the year ending December 31, 2018, we would issue a special distribution to our shareholders of accumulated earnings and profits on or prior to December 31, 2018 (the “E&P Distribution”). The E&P Distribution would be taxable to our shareholders. We have not yet determined the amount of our accumulated earnings and profits.NOI. We anticipate that the E&P Distribution would be madepandemic will continue to have negative impacts on the overall economy that is likely to have a negative impact on many of our tenants. During this period, we will continue to fulfill our duty to operate while managing our business in a prudent fashion.
Summary and Outlook. As we have settled into a post-COVID world, we remain fortunate and pleasantly surprised with how well our assets have responded. Aggregates royalties this quarter were well ahead of the formsame period last year, and we are now only 1% off of 75% FRP common stock and 25% cash, although no decision has beenlast year’s record numbers through the first nine months. And like last year, the
made asroyalties we have collected through the first nine months exceed the royalties we collected in any entire year prior to 2017. Unrelated to any mining activity, Lee County exercised their option to buy 87 acres from our quarry in Ft. Myers for $2.2 million in order to extend Alico Road and ease traffic in the composition ofarea. This road extension will benefit any E&P Distribution. second life developments on our property once the reserves are depleted.
The timinglease up of the planned E&P Distribution, which may or may not occur, may be affected by potential changes in tax law, the completionMaren continues to exceed our expectations. The building received its final certificate of various phases of the REIT conversion process and other factors beyond our control.
Summary and Outlook. This past quarter was a momentous one across all of our segments. Thanks to the amazing efforts of our Baltimore office, Asset Management increased occupancy from 86.8% at the end of June to our present occupancy of 91.3%, a remarkable 4.5% increase in the span of three months. After twenty years of work by Florida Rock IndustriesSeptember and Vulcan Materials to get our Ft. Myers property fully entitled, Mining Royalties saw the first tons extracted from that quarry. Though productionis now officially “complete.” We signed 91 leases this past quarter and moved in 125 tenants. At quarter end, the building was offset by prepaid royalties, going forward, Vulcan’s ability finally to realize the 16,000,000 tons of reserves at this site should positively impact revenue and income as it creates an opportunity to collect more than the minimums from this location. Land Development and Construction got the latest building at Patriot fully76% leased and 69% occupied, way aheadputting us within shouting distance of schedule, secured financing for our joint venture with St. John properties, and began construction on the project as well. The ability of this segment to turn vacant land into income production is essential for the growth of the Company. Finally, and perhaps most importantly, this past quarter saw the stabilization and our subsequent consolidation of Dock 79 as the joint venture achieved occupancy greater than 90%. That this consolidation happened ahead of schedule and with stronger rents than expected or budgeted is a testament to the efforts of our partner and the high quality of the asset.stabilization.
During the remainder of this year, we expect to find permanent financingUnfortunately for Dock 79, and continue pre-development activitiesthe rent freeze on renewals was extended through the end of the year. Because our apartments come up for Phase II withrenewal two months prior to the expectation thatend of the lease, we will break ground innot have the last quarterability to increase rent on renewals for the rest of this year orthe year. In all likelihood the first quarter of 2018. Finally,2021 will be affected as well. The current environment is less than ideal for our three retail tenants, but they are all currently open and serving customers. Occupancy remains above 90% and renewals are still in line with where they were in a pre-COVID world. We believe that the rapid lease-up of the Maren and the continued success of Dock 79 speak to the quality of these assets and the desirability of their location. Despite major construction and no baseball, waterfront real estate still demands a premium, and as working from home becomes more and more common, it is possible that the environment afforded by these assets has only served to increase their appeal.
Industrial has responded well to the pandemic, as evidenced by the sale in July of 1801 62nd Street at Hollander Business Park for $12.3 million. We had no issues with tenants paying rent and do not expect to. We had some concerns regarding our office tenants, but every tenant is currently paying rent and the only issue we had with back rent is one tenant who owes $6,500 for the month of April.
We are half a year into this pandemic, and we have forbeen very fortunate. Our assets have performed nearly as well and sometimes better than they did a year ago. But while the people of this country have gotten used to life during a pandemic, COVID-19 as an economic factor may just be ramping up. Government intervention has shielded people and businesses from some of the financial realities of this disease, and as that well of assistance starts to dry up, it is possible that the second wave of the disease may be the first wave of real economic distress. We have yet to see any reason why our assets will not continue to perform well during this unusual time, been debatingbut we have the meritssafety net of converting this company into a REIT. Given the White House’s stated intentionconservative balance sheet and substantial cash reserves to overhaul our federal tax code, and because a changetide us over if they do. Regardless of what is happening right now or in the corporate income tax rate would mitigate many of the advantages of becoming a REIT,near future, we are delaying our decision to elect REIT status until it is clear either way whether there will be meaningful changebelieve strongly in the corporate income tax rate.
long run viability of our business and its assets. The money we put back into it in the form of share buybacks is representative of that. To that end, during the first nine months of 2020, the Company repurchased 379,809 shares at an average cost of $41.30 per share.
Non-GAAP Financial Measures.Measure.
To supplement the financial results presented in accordance with GAAP, FRP presents certain non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. The non-GAAP financial measure included in this quarterly report is net operating income (NOI). FRP uses this non-GAAP financial measure to analyze its continuing operations and to monitor, assess, and identify meaningful trends in its operating and financial performance. These measures areThis measure is not, and should not be viewed as, substitutesa substitute for GAAP financial measures.
Net Operating Income Reconciliation | |||||||||||||||||||||||
Nine months ended 09/30/20 (in thousands) | |||||||||||||||||||||||
Stabilized | |||||||||||||||||||||||
Asset | Joint | Mining | Unallocated | FRP | |||||||||||||||||||
Management | Development | Venture | Royalties | Corporate | Holdings | ||||||||||||||||||
Segment | Segment | Segment | Segment | Expenses | Totals | ||||||||||||||||||
Income (loss) from continuing operations | 2,745 | (2,055 | ) | 864 | 7,200 | 1,993 | 10,747 | ||||||||||||||||
Income Tax Allocation | 1,018 | (762 | ) | 496 | 2,670 | 739 | 4,161 | ||||||||||||||||
Income (loss) from continuing operations before income taxes | 3,763 | (2,817 | ) | 1,360 | 9,870 | 2,732 | 14,908 | ||||||||||||||||
Less: | |||||||||||||||||||||||
Equity in profit of Joint Ventures | — | — | 254 | — | — | 254 | |||||||||||||||||
Gains on sale of buildings | 3,801 | 1,877 | — | 3,651 | — | 9,329 | |||||||||||||||||
Unrealized rents | 147 | — | — | 178 | — | 325 | |||||||||||||||||
Interest income | — | 3,146 | — | — | 2,769 | 5,915 | |||||||||||||||||
Plus: | |||||||||||||||||||||||
Unrealized rents | — | — | 11 | — | — | 11 | |||||||||||||||||
Equity in loss of Joint Venture | — | 3,994 | — | 33 | — | 4,027 | |||||||||||||||||
Interest Expense | — | — | 105 | — | 37 | 142 | |||||||||||||||||
Depreciation/Amortization | 529 | 160 | 3,557 | 160 | — | 4,406 | |||||||||||||||||
Management Co. Indirect | 437 | 1,404 | 153 | 214 | — | 2,208 | |||||||||||||||||
Allocated Corporate Expenses | 738 | 1,710 | 168 | 234 | — | 2,850 | |||||||||||||||||
Net Operating Income (loss) | 1,519 | (572 | ) | 5,100 | 6,682 | — | 12,729 |
37 |
Net Operating Income Reconciliation | ||||||||||||||||||||
Three months ended 09/30/17 (in thousands) | ||||||||||||||||||||
Asset | Land | RiverFront | Mining | FRP | ||||||||||||||||
Management | Development | Anacostia | Royalties | Holdings | ||||||||||||||||
Segment | Segment | Segment | Segment | Totals | ||||||||||||||||
Income from continuing operations | 1,581 | 580 | 42,040 | 983 | 45,184 | |||||||||||||||
Income Tax Allocation | 1,031 | 378 | 14,526 | 642 | 16,577 | |||||||||||||||
Income from continuing operations before income taxes | 2,612 | 958 | 56,566 | 1,625 | 61,761 | |||||||||||||||
Less: | ||||||||||||||||||||
Gain on remeasurement of investment in real estate partnership | — | — | 60,196 | |||||||||||||||||
Equity in Joint Venture | — | 1,558 | — | |||||||||||||||||
Lease intangible rents | 1 | — | — | |||||||||||||||||
Unrealized rents | 48 | — | 50 | |||||||||||||||||
Plus: | ||||||||||||||||||||
Equity in loss of Joint Venture | — | — | 1,558 | |||||||||||||||||
Interest Expense | 374 | — | 877 | |||||||||||||||||
Depreciation/Amortization | 2,090 | 98 | 2,564 | |||||||||||||||||
Management Co. Indirect | 237 | 281 | 42 | |||||||||||||||||
Allocated Corporate Expenses | 350 | 210 | 27 | |||||||||||||||||
Net Operating Income (loss) | 5,614 | (11 | ) | 1,388 |
Net Operating Income Reconciliation | |||||||||||||
Three months ended 09/30/16 (in thousands) | |||||||||||||
Asset | Land | Mining | FRP | ||||||||||
Management | Development | Royalties | Holdings | ||||||||||
Segment | Segment | Segment | Totals | ||||||||||
Income (loss) from continuing operations | 1,592 | (758 | ) | 1,123 | 1,957 | ||||||||
Income Tax Allocation | 1,039 | (495 | ) | 734 | 1,278 | ||||||||
Inc. (loss) from continuing operations before income taxes | 2,631 | (1,253 | ) | 1,857 | 3,235 | ||||||||
Less: | |||||||||||||
Lease intangible rents | 4 | — | |||||||||||
Plus: | |||||||||||||
Unrealized rents | 139 | — | |||||||||||
Equity in loss of Joint Venture | — | 642 | |||||||||||
Loss on investment land sold | 1 | 148 | |||||||||||
Interest Expense | 274 | — | |||||||||||
Depreciation/Amortization | 2,071 | 65 | |||||||||||
Management Co. Indirect | 176 | 243 | |||||||||||
Allocated Corporate Expenses | 339 | 267 | |||||||||||
Net Operating Income | 5,627 | 112 |
Net Operating Income Reconciliation | ||||||||||||||||||||
Nine months ended 09/30/17 (in thousands) | ||||||||||||||||||||
Asset | Land | RiverFront | Mining | FRP | ||||||||||||||||
Management | Development | Anacostia | Royalties | Holdings | ||||||||||||||||
Segment | Segment | Segment | Segment | Totals | ||||||||||||||||
Income (loss) from continuing operations | 4,645 | (1,280 | ) | 42,040 | 2,935 | 48,340 | ||||||||||||||
Income Tax Allocation | 3,009 | (823 | ) | 14,526 | 1,903 | 18,615 | ||||||||||||||
Inc. (loss) from continuing operations before income taxes | 7,654 | (2,103 | ) | 56,566 | 4,838 | 66,955 | ||||||||||||||
Less: | ||||||||||||||||||||
Gain on remeasurement of investment in real estate partnership | — | — | 60,196 | |||||||||||||||||
Lease intangible rents | 5 | — | — | |||||||||||||||||
Unrealized rents | 79 | — | 50 | |||||||||||||||||
Plus: | ||||||||||||||||||||
Unrealized rents | — | — | — | |||||||||||||||||
Equity in loss of Joint Venture | — | — | 1,558 | |||||||||||||||||
Interest Expense | 993 | — | 877 | |||||||||||||||||
Depreciation/Amortization | 6,112 | 263 | 2,564 | |||||||||||||||||
Management Co. Indirect | 616 | 846 | 42 | |||||||||||||||||
Allocated Corporate Expenses | 1,424 | 935 | 27 | |||||||||||||||||
Net Operating Income (loss) | 16,715 | (59 | ) | 1,388 |
Net Operating Income Reconciliation | Net Operating Income Reconciliation | |||||||||||||||||||||||||||||||||||
Nine months ended 09/30/16 (in thousands) | ||||||||||||||||||||||||||||||||||||
Nine months ended 09/30/19 (in thousands) | ||||||||||||||||||||||||||||||||||||
Stabilized | ||||||||||||||||||||||||||||||||||||
Asset | Land | Mining | FRP | Asset | Joint | Mining | Unallocated | FRP | ||||||||||||||||||||||||||||
Management | Development | Royalties | Holdings | Management | Development | Venture | Royalties | Corporate | Holdings | |||||||||||||||||||||||||||
Segment | Segment | Segment | Totals | Segment | Segment | Segment | Segment | Expenses | Totals | |||||||||||||||||||||||||||
Income (loss) from continuing operations | 4,654 | (3,316 | ) | 3,213 | 4,551 | 218 | (2,236 | ) | 304 | 4,796 | 3,413 | 6,495 | ||||||||||||||||||||||||
Income Tax Allocation | 3,038 | (2,165 | ) | 2,099 | 2,972 | 81 | (829 | ) | 253 | 1,778 | 1,246 | 2,529 | ||||||||||||||||||||||||
Inc. (loss) from continuing operations before income taxes | 7,692 | (5,481 | ) | 5,312 | 7,523 | |||||||||||||||||||||||||||||||
Income (loss) from continuing operations before income taxes | 299 | (3,065 | ) | 557 | 6,574 | 4,659 | 9,024 | |||||||||||||||||||||||||||||
Less: | ||||||||||||||||||||||||||||||||||||
Lease intangible rents | 13 | — | ||||||||||||||||||||||||||||||||||
Other income | — | 1 | ||||||||||||||||||||||||||||||||||
Gains on sale of buildings | 536 | — | — | 126 | — | 662 | ||||||||||||||||||||||||||||||
Unrealized rents | — | — | 25 | — | — | 25 | ||||||||||||||||||||||||||||||
Interest income | — | 1,123 | — | — | 4,690 | 5,813 | ||||||||||||||||||||||||||||||
Plus: | ||||||||||||||||||||||||||||||||||||
Unrealized rents | 109 | — | 5 | — | — | 184 | — | 189 | ||||||||||||||||||||||||||||
Equity in loss of Joint Venture | — | 893 | — | 1,222 | 26 | 34 | — | 1,282 | ||||||||||||||||||||||||||||
Loss on investment land sold | 1 | 271 | ||||||||||||||||||||||||||||||||||
Interest Expense | 1,080 | — | — | — | 958 | — | 31 | 989 | ||||||||||||||||||||||||||||
Depreciation/Amortization | 5,891 | 194 | 527 | 161 | 3,572 | 130 | — | 4,390 | ||||||||||||||||||||||||||||
Management Co. Indirect | 582 | 758 | 265 | 1,314 | 142 | 151 | — | 1,872 | ||||||||||||||||||||||||||||
Allocated Corporate Expenses | 1,213 | 959 | 470 | 1,219 | 116 | 123 | — | 1,928 | ||||||||||||||||||||||||||||
Net Operating Income (loss) | 16,555 | (2,407 | ) | 1,030 | (272 | ) | 5,346 | 7,070 | — | 13,174 |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Interest Rate Risk - We are exposed to the impact of interest rate changes through our variable-rate borrowings under our Credit AgreementsAgreement with Wells Fargo and First Tennessee Bank.Fargo.
Under the Wells Fargo Credit Agreement, the applicable spreadmargin for borrowings at September 30, 20172020 was 1.4% over libor.Daily 1 Month LIBOR plus 1.0%. The applicable spreadmargin for such borrowings will be increased in the event that our debt to capitalization ratio as calculated under the Wells Fargo Credit Agreement Facility exceeds a target level.
The applicable borrowing spread above liborCompany did not have any variable rate debt at September 30, 2017 with First Tennessee Bank2020, so a sensitivity analysis was 1.9%.
At September 30, 2017 a 1% increasenot performed to determine the impact of hypothetical changes in the current per annum interest rate would result in $56,872 of additional interest expense during the next 12 months under the Wells Fargo Credit Agreement. The foregoing calculation assumes an instantaneous 1% increase in the rates under the Credit Agreement and that the principal amount under the Credit Agreement is the amount outstanding as of September 30, 2017. The calculation, therefore, does not account for the differences in the market rates upon which the interest rates on the Company’s results of our indebtedness are based or possible actions, such as prepayment, which we may take in response to any rate increase.operations and cash flows.
ITEM 4. CONTROLS AND PROCEDURES
CONCLUSION REGARDING THE EFFECTIVENESS OF DISCLOSURE CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure.
38 |
The Company also maintains a system of internal accounting controls over financial reporting that are designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements.
All control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving the desired control objectives.
As of September 30, 2017,2020, the Company, under the supervision and with the participation of the Company's management, including the CEO, CFO and CAO, carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on this evaluation, the Company’s CEO, CFO and CAO concluded that the Company's disclosure controls and procedures are effective in alerting them in a timely manner to material information required to be included in periodic SEC filings.
There have been no changes in the Company’s internal controls over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1A. RISK FACTORS
In addition to the other information set forth in this report, and the Risks related to our potential REIT election, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended September 30, 2016,December 31, 2019, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
The following risk factor set forth below is in addition to the risk factors discussed under Part I, Item 1A (Risk Factors) of the Company’s most recent annual report on Form 10-K.
The current pandemic of the novel coronavirus COVID-19 could materially and adversely impact or disrupt our financial condition, results of operations, cash flows and performance.
Since being reported in December 2019, the novel coronavirus (COVID-19) pandemic has had repercussions across regional and global economies and financial markets. The outbreak of COVID-19 has significantly adversely impacted global economic activity, contributed to significant volatility and negative pressure in financial markets and increased economic uncertainty. In response to the pandemic, many states and cities in which we own properties have instituted quarantines, restrictions on travel, “shelter in place” rules, restrictions on types of business that may continue to operate, and/or restrictions on the types of construction projects that may continue. In response to these restrictions and to protect employee safety, many of our employees are working remotely.
As a result, the COVID-19 pandemic is negatively impacting many industries, especially the commercial real estate business which has mixed use tenants including apartment dwellers, small businesses and restaurants. The significance, extent and duration of the impacts of the COVID-19 pandemic remains largely uncertain and dependent on future developments that cannot be accurately predicted at this time, such as the continued severity and spread of the virus, the period of time during which mandated social distancing or other mitigation measures remain in place, the timetable for developing effective treatments and a vaccine and the trajectory of the economic recovery.
At this time, the Company anticipates that the pandemic could have material and adverse effects on our ability to successfully operate and on our financial condition, results of operations and cash flows due to, among other factors:
● | Our ability to continue to collect rents, on a timely basis or at all, without reductions or other concessions, from tenants of the Asset Management and Stabilized Joint Ventures segments; |
● | Our ability to renew leases on favorable terms with tenants of the Asset Management and Stabilized Joint Ventures segments; |
● | A decline in royalties collected by our Mining Royalties section in the event that the pandemic results in a decline in construction activity; |
● | Our ability to complete pending and planned construction projects in a timely manner due to restrictions imposed on construction activities, delays in the permitting process or delays in the supply of materials or labor necessary for construction. |
● | Difficulty in obtaining debt financing for our development projects on favorable terms or an inability to comply with financial covenants of our credit facility and other debt agreements and result in a default and potentially an acceleration of indebtedness; |
40 |
● | Any impairment in value of our tangible or intangible assets which could be recorded as a result of a weaker economic conditions; |
● | the potential negative impact on the health of our personnel, particularly if a significant number of them are impacted, could result in a deterioration in our ability to ensure business continuity during this disruption. |
The rapid development and fluidity of this situation precludes any prediction as to the full adverse impact of the COVID-19 pandemic.
Item 2. PURCHASES OF EQUITY SECURITIES BY THE ISSUER
(c) | |||||||||||||||||
Total | |||||||||||||||||
Number of | |||||||||||||||||
Shares | (d) | ||||||||||||||||
Purchased | Approximate | ||||||||||||||||
(a) | As Part of | Dollar Value of | |||||||||||||||
Total | (b) | Publicly | Shares that May | ||||||||||||||
Number of | Average | Announced | Yet Be Purchased | ||||||||||||||
Shares | Price Paid | Plans or | Under the Plans | ||||||||||||||
Period | Purchased | per Share | Programs | or Programs (1) | |||||||||||||
July 1 | |||||||||||||||||
Through | |||||||||||||||||
July 31 | — | $ | — | — | $ | 4,883,000 | |||||||||||
August 1 | |||||||||||||||||
Through | |||||||||||||||||
August 31 | — | $ | — | — | $ | 4,883,000 | |||||||||||
September 1 | |||||||||||||||||
Through | |||||||||||||||||
September 30 | — | $ | — | — | $ | 4,883,000 | |||||||||||
Total | — | $ | — | — |
(c) | |||||||||||||||||
Total | |||||||||||||||||
Number of | |||||||||||||||||
Shares | (d) | ||||||||||||||||
Purchased | Approximate | ||||||||||||||||
(a) | As Part of | Dollar Value of | |||||||||||||||
Total | (b) | Publicly | Shares that May | ||||||||||||||
Number of | Average | Announced | Yet Be Purchased | ||||||||||||||
Shares | Price Paid | Plans or | Under the Plans | ||||||||||||||
Period | Purchased | per Share | Programs | or Programs (1) | |||||||||||||
July 1 | |||||||||||||||||
Through | |||||||||||||||||
July 31 | 18,547 | $ | 39.71 | 18,547 | $ | 7,849,000 | |||||||||||
August 1 | |||||||||||||||||
Through | |||||||||||||||||
August 31 | 7,158 | $ | 40.59 | 7,158 | $ | 17,558,000 | |||||||||||
September 1 | |||||||||||||||||
Through | |||||||||||||||||
September 30 | 55,801 | $ | 41.32 | 55,801 | $ | 15,252,000 | |||||||||||
Total | 81,506 | $ | 40.89 | 81,506 |
(1) On February 4, 2015, the Board of Directors authorized management to expend up to $5,000,000 to repurchase shares of the Company’s common stock from time to time as opportunities arise.
(1) | On February 4, 2015, the Board of Directors authorized management to expend up to $5,000,000 to repurchase shares of the Company’s common stock from time to time as opportunities arise. On December 5, 2018, the Board of Directors approved a $10,000,000 increase in the Company’s stock repurchase authorization. On August 5, 2019, the Board of Directors approved a $10,000,000 increase in the Company’s stock repurchase authorization. On May 6, 2020, the Board of Directors approved a $10,000,000 increase in the Company’s stock repurchase authorization. On August 26, 2020, the Board of Directors approved a $10,000,000 increase in the Company’s stock repurchase authorization. |
Item 6. EXHIBITS
(a) | Exhibits. The response to this item is submitted as a separate Section entitled "Exhibit Index", on page |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
FRP Holdings, Inc. | ||||
Date: November | By | JOHN D. BAKER II | ||
John D. Baker II | ||||
Chief Executive Officer | ||||
(Principal Executive Officer) | ||||
By | JOHN D. | |||
John D. | ||||
(Principal Financial Officer) | ||||
By | JOHN D. KLOPFENSTEIN | |||
John D. Klopfenstein | ||||
Controller and Chief Accounting | ||||
Officer (Principal Accounting Officer) |
FRP HOLDINGS, INC.
FORM 10-Q FOR THE THREENINE MONTHS ENDED SEPTEMBER 30, 20172020
EXHIBIT INDEX
(14) | Financial Code of Ethical Conduct between the Company, Chief Executive Officers and Financial Managers, adopted December 3, 2014, incorporated by reference to Exhibit 14 to the Company’s Form 10-Q filed |
(31)(a) | Certification of John D. Baker II. |
(31)(b) | Certification of John D. |
(31)(c) | Certification of John D. Klopfenstein. |
(32) | Certification of Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer under Section 906 of the Sarbanes-Oxley Act of 2002. |
101.INS | XBRL Instance Document |
101.XSD | XBRL Taxonomy Extension Schema |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase |
101.DEF | XBRL Taxonomy Extension Definition Linkbase |
101.LAB | XBRL Taxonomy Extension Label Linkbase |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase |