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FRPH FRP

Filed: 14 Aug 20, 2:09pm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________

FORM 10-Q

_________________

(Mark One)  

 

[X ]

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


For the quarterly period ended June 30, 2020

 

or

 

[  ]

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

For the transition period from_________ to _________

 

 Commission File Number: 001-36769

_____________________

FRP HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

_____________________

Florida 47-2449198

(State or other jurisdiction of

incorporation or organization)

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

200 W. Forsyth St., 7th Floor,

Jacksonville, FL

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

904-396-5733

(Registrant’s telephone number, including area code)

 

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

 

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

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

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

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

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

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

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

 

 Class   Outstanding at July 31, 2020 
 Common Stock, $.10 par value per share   9,548,308 shares 
       

 

 

 

 

 

FRP HOLDINGS, INC.

FORM 10-Q

QUARTER ENDED JUNE 30, 2020

 

 

 

CONTENTS

Page No.

 

Preliminary Note Regarding Forward-Looking Statements  3
      
  Part I.  Financial Information   
      
Item 1. Financial Statements   
  Consolidated Balance Sheets  4
  Consolidated Statements of Income  5
  Consolidated Statements of Comprehensive Income  6
  Consolidated Statements of Cash Flows  7
  Consolidated Statements of Shareholders’ Equity  8
  Condensed Notes to Consolidated Financial Statements  9
      
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations  21
      
Item 3. Quantitative and Qualitative Disclosures about Market Risks  37
      
Item 4. Controls and Procedures  38
      
  Part II.  Other Information   
      

 

Item 1A.

 Risk Factors  39
      
Item 2. Purchase of Equity Securities by the Issuer  40
      
Item 6. Exhibits  40
      
Signatures    41
      
Exhibit 31 Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002  43
      
Exhibit 32 Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  46

 

 

Preliminary Note Regarding Forward-Looking Statements.

 

This Quarterly Report on Form 10-Q, together with other statements and information publicly disseminated by us, contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words or phrases “anticipate,” “estimate,” ”believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and similar expressions identify forward-looking statements. Such statements reflect management’s current views with respect to financial results related to future events and are based on assumptions and expectations that may not be realized and are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, financial or otherwise, may differ, perhaps materially, from the results discussed in the forward-looking statements. Risk factors discussed in Item 1A of this Form 10-Q and other factors that might cause differences, some of which could be material, include, but are not limited to: the impact of the Covid-19 Pandemic on our operations and financial results; the possibility that we may be unable to find appropriate investment opportunities; levels of construction activity in the markets served by our mining properties; demand for apartments in Washington D.C. and Richmond, Virginia; our ability to obtain zoning and entitlements necessary for property development; the impact of lending and capital market conditions on our liquidity, our ability to finance projects or repay our debt; general real estate investment and development risks; vacancies in our properties; risks associated with developing and managing properties in partnership with others; competition; our ability to renew leases or re-lease spaces as leases expire; illiquidity of real estate investments; bankruptcy or defaults of tenants; the impact of restrictions imposed by our credit facility; the level and volatility of interest rates; environmental liabilities; inflation risks; cyber security risks; as well as other risks listed from time to time in our SEC filings, including but not limited to, our annual and quarterly reports. We have no obligation to revise or update any forward-looking statements, other than as imposed by law, as a result of future events or new information. Readers are cautioned not to place undue reliance on such forward-looking statements.

 

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

 

PART I. FINANCIAL INFORMATION, ITEM 1. FINANCIAL STATEMENTS

FRP HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited) (In thousands, except share data)

  June 30 December 31
Assets: 2020 2019
Real estate investments at cost:        
Land $81,679   84,383 
Buildings and improvements  147,819   147,019 
Projects under construction  888   1,056 
     Total investments in properties  230,386   232,458 
Less accumulated depreciation and depletion  32,634   30,271 
     Net investments in properties  197,752   202,187 
         
Real estate held for investment, at cost  8,788   8,380 
Investments in joint ventures  159,779   160,452 
     Net real estate investments  366,319   371,019 
         
Cash and cash equivalents  30,742   26,607 
Cash held in escrow  3,739   186 
Accounts receivable, net  1,323   546 
Investments available for sale at fair value  130,058   137,867 
Unrealized rents  657   554 
Deferred costs  791   890 
Other assets  488   479 
Total assets $534,117   538,148 
         
Liabilities:        
Secured notes payable $88,993   88,925 
Accounts payable and accrued liabilities  2,155   2,431 
Other liabilities  1,886   1,978 
Deferred revenue  627   790 
Federal and state income taxes payable  2,651   504 
Deferred income taxes  50,212   50,111 
Deferred compensation  1,430   1,436 
Tenant security deposits  362   328 
    Total liabilities  148,316   146,503 
         
Commitments and contingencies         
         
Equity:        

Common stock, $.10 par value

25,000,000 shares authorized,

9,563,144 and 9,817,429 shares issued

and outstanding, respectively

  956   982 
Capital in excess of par value  57,107   57,705 
Retained earnings  310,486   315,278 
Accumulated other comprehensive income, net  1,194   923 
     Total shareholders’ equity  369,743   374,888 
Noncontrolling interest MRP  16,058   16,757 
     Total equity  385,801   391,645 
Total liabilities and shareholders’ equity $534,117   538,148 

 

 

 

 

See accompanying notes.

 

 

FRP HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands except per share amounts)

(Unaudited)

  THREE MONTHS ENDED SIX MONTHS ENDED
  JUNE 30, JUNE 30,
  2020 2019 2020 2019
Revenues:                
     Lease revenue $3,447   3,730   7,045   7,215 
     Mining lands lease revenue  2,402   2,633   4,587   4,862 
 Total Revenues  5,849   6,363   11,632   12,077 
                 
Cost of operations:                
     Depreciation, depletion and amortization  1,500   1,472   2,968   2,959 
     Operating expenses  781   910   1,706   1,792 
     Property taxes  646   713   1,383   1,466 
     Management company indirect  692   610   1,364   1,202 
     Corporate expenses  1,026   551   2,213   1,196 
Total cost of operations  4,645   4,256   9,634   8,615 
                 
Total operating profit  1,204   2,107   1,998   3,462 
                 
Net investment income, including realized gains of $134, $328, $242 and $447, respectively  2,110   1,984   4,101   3,794 
Interest expense  (45)  (272)  (96)  (860)
Equity in loss of joint ventures  (1,343)  (272)  (1,985)  (536)
Gain on sale of real estate  3,589   536   3,597   536 
                 
Income from continuing operations before income taxes  5,515   4,083   7,615   6,396 
Provision for income taxes  1,538   1,131   2,139   1,803 
Income from continuing operations   3,977   2,952   5,476   4,593 
                 
Income from discontinued operations, net  —     6,776   —     6,862 
                 
Net income  3,977   9,728   5,476   11,455 
Loss attributable to noncontrolling interest  (172)  (97)  (291)  (268)
Net income attributable to the Company $4,149   9,825   5,767   11,723 
                 
Earnings per common share:                
 Income from continuing operations-                
    Basic $0.41   0.30   0.56   0.46 
    Diluted $0.41   0.30   0.56   0.46 
 Discontinued operations-                
    Basic $—     0.68   —     0.69 
    Diluted $—     0.68   —     0.69 
 Net income attributable to the Company-                
    Basic $0.43   0.99   0.59   1.18 
    Diluted $0.43   0.99   0.59   1.17 
                 
Number of shares (in thousands) used in computing:            
    -basic earnings per common share  9,620   9,915   9,712   9,933 
    -diluted earnings per common share  9,649   9,960   9,744   9,978 
                             

 

 

 

See accompanying notes.

 

FRP HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands except per share amounts)

(Unaudited)

 

 

  THREE MONTHS ENDED SIX MONTHS ENDED
  JUNE 30, JUNE 30,
  2020 2019 2020 2019
Net income $3,977   9,728   5,476   11,455 
Other comprehensive income net of tax:                
  Unrealized gain on investments available for                

  sale, net of income tax effect of $518, $129, $101

and $708

  1,397   351   271   1,911 
Comprehensive income $5,374   10,079   5,747   13,366 
                 
Less comp. income attributable to                
  Noncontrolling interest $(172)  (97)  (291)  (268)
                 
Comprehensive income attributable to the Company 5,546   10,176   6,038   13,634 

 

 

 

See accompanying notes

 

 

 

FRP HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2020 AND 2019

(In thousands) (Unaudited)

  2020 2019
Cash flows from operating activities:        
 Net income $5,476   11,455 
 Adjustments to reconcile net income to        
  net cash provided by continuing operating activities:        
 Income from discontinued operations, net  —     (6,862
 Deferred income taxes  101   22,458 
 Depreciation, depletion and amortization  3,084   3,082 
 Equity in loss of joint ventures  1,985   536 
 Gain on sale of equipment and property  (3,611)  (531)
 Stock-based compensation  1,171   57 
 Realized gain on available for sale investments  (242)  (447)
 Net changes in operating assets and liabilities:        
  Accounts receivable  (777)  (219)
  Deferred costs and other assets  28   (1,092)
  Accounts payable and accrued liabilities  (439)  (670)
  Income taxes payable and receivable  2,147   (17,352)
  Other long-term liabilities  187   187 
 Net cash provided by operating activities of continuing operations  9,110   10,602 
 Net cash used in operating activities of discontinued operations  —     (2,441
 Net cash provided by operating activities  9,110   8,161 
         
Cash flows from investing activities:        
 Investments in properties  (1,167)  (8,176)
 Investments in joint ventures  (1,315)  (6,592)
 Purchases of investments available for sale  (24,748)  (33,846)
 Proceeds from sales of investments available for sale  32,703   79,937 
 Proceeds from the sale of assets  5,867   8,153 
 Cash held in escrow  (3,553)  (19,864)
Net cash provided by investing activities of continuing operations  7,787   19,612 
Net cash provided by investing activities of discontinued operations  —     11,526 
Net cash provided by investing activities  7,787   31,138 
         
Cash flows from financing activities:        
 Distribution to noncontrolling interest  (408)  (510)
 Repurchase of company stock  (12,354)  (5,312)
 Exercise of employee stock options  —     145 
Net cash used in financing activities of continuing operations  (12,762  (5,677
Net cash used in financing activities of discontinued operations  —     —   
Net cash used in financing activities  (12,762  (5,677
         
Net increase in cash and cash equivalents  4,135   33,622 
Cash and cash equivalents at beginning of year  26,607   22,547 
Cash and cash equivalents at end of the period $30,742   56,169 

 

See accompanying notes.

 

FRP HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

SIX MONTHS ENDED JUNE 30, 2020 AND 2019

(In thousands, except share amounts)

 

         Accumu-      
         lated      
         Other      
         Compre- Total    
     Capital in   hensive Share Non-  
 Common Stock Excess of Retained Income, net Holders’ Controlling Total
 Shares Amount Par Value Earnings of tax Equity Interest Equity
Balance at December 31, 2019 9,817,429  $982  $57,705  $315,278  $923  $374,888  $16,757  $391,645 
                                
 Exercise of stock options                               
 Stock option grant compensation         47           47       47 
 Restricted stock compensation         94           94       94 
 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 (298,303)  (30  (1,765)  (10,559)      (12,354)      (12,354)
 Net income             5,767       5,767   (291  5,476 
 Distributions to partners                         (408  (408
 Unrealized gain on investment, net                 271   271       271 
                                
Balance at June 30, 2020 9,563,144  $956  $57,107  $310,486  $1,194  $369,743  $16,058  $385,801 
                                
                                
                                
Balance at December 31, 2018 9,969,174  $997  $58,004  $306,307  $(701 $364,607  $18,648  $383,255 
                                
 Exercise of stock options 4,804       145           145       145 
 Stock option compensation         57           57       57 
 Shares purchased and cancelled (110,527)  (11  (644)  (4,657)      (5,312)      (5,312)
 Net income             11,723       11,723   (268  11,455 
 Distributions to partners                         (510  (510
 Unrealized gain on investment, net                 1,911   1,911       1,911 
                                
Balance at June 30, 2019 9,863,451  $986  $57,562  $313,373  $1,210  $373,131  $17,870  $391,001 

 

 

 

 

 

FRP HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(Unaudited)

 

 

(1) Description of Business and Basis of Presentation.

 

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

 

The accompanying consolidated financial statements include the accounts of FRP Holdings, Inc. (the “Company” or “FRP”) inclusive of our operating real estate subsidiaries, FRP Development Corp. (“Development”) and Florida Rock Properties, Inc. (”Properties”) and RiverFront Investment Partners I, LLC. Our investment in the Brooksville joint venture, BC FRP Realty joint venture, RiverFront Holdings II joint venture, Bryant Street Partnerships, 1800 Half Street and Greenville/Woodfield are accounted for under the equity method of accounting (See Note 11). Our ownership of RiverFront Investment Partners I, LLC includes a non-controlling interest representing the ownership of our partner. The Company uses the cost method to account for its investment in DST Hickory Creek because it does not have significant influence over operating and financial policies.

 

On May 21, 2018, the Company completed the disposition of 40 industrial warehouse properties and three additional land parcels to an affiliate of Blackstone Real Estate Partners VIII, L.P. for $347.2 million. One warehouse property valued at $11.7 million was excluded from the sale due to the tenant exercising its right of first refusal to purchase the property. On June 28, 2019, the Company completed the sale of the excluded property to the same buyer for $11.7 million. This resulted in the disposition of all of the Company’s industrial flex/office warehouse properties prior to the sale date and constituted a major strategic shift and as a result, these properties have been reclassified as discontinued operations for all periods presented. The Asset Management segment currently contains four 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 six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. The accompanying consolidated financial statements and the information included under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" should be read in conjunction with the Company's consolidated financial statements and related notes included in the Company’s Form 10-K for the year ended December 31, 2019.

 

 

(2) Recently Issued Accounting Standards.

 

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”, which requires lessees to recognize a right-to-use asset and a lease obligation for all leases. The Company is not a significant lessee. Lessors will account for leases using an approach that is substantially equivalent to existing accounting standards. The Company's existing leases will continue to be classified as operating leases. Leases entered into after the effective date of the new standard may be classified as operating or sales-type leases, based on specific classification criteria. Operating leases will continue to have a similar pattern of recognition as under current GAAP. Sales-type lease accounting, however, will result in the recognition of selling profit at lease commencement, with interest income recognized over the life of the lease. The new standard also includes a change to the treatment of internal leasing costs and legal costs, which can no longer be capitalized. Only incremental costs of a lease that would not have been incurred if the lease had not been obtained may be deferred as initial direct costs. The new standard also requires lessors to exclude from variable

 

payments certain lessor costs, such as real estate taxes, that the lessor contractually requires the lessee to pay directly to a third party on its behalf. The new standard requires our expected credit loss related to the collectability of lease receivables to be reflected as an adjustment to the line item Lease Revenue. For the year ended December 31, 2019, the credit loss related to the collectibility of lease receivables was recognized in the line item Operating expenses and was not significant. Additionally, the new standard requires lessors to allocate the consideration in a contract between the lease component (right to use an underlying asset) and non-lease component (transfer of a good or service that is not a lease). However, lessors are provided with a practical expedient, elected by class of underlying asset, to account for lease and non-lease components of a contract as a single lease component if certain criteria are met. The terms of the Company's leases generally provide that the Company is entitled to receive reimbursements from tenants for operating expenses such as real estate taxes, insurance and common area maintenance, in addition to the base rental payments for use of the underlying asset. Under the new standard, common area maintenance is considered a nonlease component of a lease contract, which would be accounted for under Topic 606. However, the Company will apply the practical expedient to account for its lease and non-lease components as a single, combined operating lease component. While the timing of recognition should remain the same, the Company is no longer presenting reimbursement revenue from tenants separately in our Consolidated Statements of Income beginning January 1, 2019. The new standard along with the adoption of ASU No. 2018-11, Leases - Targeted Improvements which the FASB issued in July 2018, was adopted effective January 1, 2019 and we have elected to use January 1, 2019 as our date of initial application. We elected the package of practical expedients permitted under the transition guidance within the new standard. By adopting these practical expedients, we were not required to reassess (1) whether an existing contract meets the definition of a lease; (2) the lease classification for existing leases; or (3) costs previously capitalized as initial direct costs. The adoption of this guidance did not have a material impact on our financial statements.

 

 

(3) Business Segments.

 

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

 

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

 

Our Mining Royalty Lands segment owns several properties comprising approximately 13,400 acres currently under lease for mining rents or royalties (this does not include the 4,280 acres owned in our Brooksville joint venture with Vulcan Materials).  Other than one location in Virginia, all of these properties are located in Florida and Georgia.

 

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

 

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

 

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

 

10 
 

 

  Three Months ended Six Months ended
  June 30, June 30,
  2020 2019 2020 2019
Revenues:                
 Asset management $716   662   1,368   1,303 
 Mining royalty lands  2,402   2,633   4,587   4,862 
 Development  279   316   572   585 
 Stabilized Joint Venture  2,452   2,752   5,105   5,327 
   5,849   6,363   11,632   12,077 
                 
Operating profit (loss):                
 Before corporate expenses:                
   Asset management $323   128   500   225 
   Mining royalty lands  2,194   2,458   4,195   4,502 
   Development  (703)  (565)  (1,477)  (1,118)
   Stabilized Joint Venture  416   637   993   1,049 
    Operating profit before corporate expenses  2,230   2,658   4,211   4,658 
 Corporate expenses:                
  Allocated to asset management  (265)  (139)  (573)  (302)
  Allocated to mining royalty lands  (84)  (36)  (181)  (79)
  Allocated to development  (617)  (341)  (1,329)  (740)
  Allocated to stabilized joint venture  (60)  (35)  (130)  (75)
    Total corporate expenses  (1,026)  (551)  (2,213)  (1,196)
  $1,204   2,107   1,998   3,462 
                 
Interest expense $45   272   96   860 
                 
Depreciation, depletion and amortization:                
 Asset management $200   196   392   373 
 Mining royalty lands  62   42   100   94 
 Development  53   49   107   107 
 Stabilized Joint Venture  1,185   1,185   2,369   2,385 
  $1,500   1,472   2,968   2,959 
Capital expenditures:                
 Asset management $341   1,352   554   7,818 
 Mining royalty lands  —     —     —     —   
 Development  320   (122  617   248 
 Stabilized Joint Venture  19   227   (4)  110 
  $680   1,457   1,167   8,176 

 

 

    June 30,   December 31,  
Identifiable net assets 2020   2019  
         
Asset management$18,813   18,468  
Mining royalty lands 37,911   38,409  
Development 173,334   179,357  
Stabilized Joint Venture 131,652   133,956  
Investments available for sale at fair value 130,058   137,867  
Cash items 34,481   26,793  
Unallocated corporate assets 7,868   3,298  
 $534,117   538,148  

 

 

11 
 

(4) Related Party Transactions.

 

The Company is a party to a Transition Services Agreement which resulted from our January 30, 2015 spin-off of Patriot Transportation Holding, Inc. (Patriot). The Transition Services Agreement sets forth the terms on which Patriot will provide to FRP certain services that were shared prior to the Spin-off, including the services of certain shared executive officers. The boards of the respective companies amended and extended this agreement for one year effective April 1, 2020.

 

The consolidated statements of income reflect charges and/or allocation from Patriot for these services of $290,000 and $328,000 for the three months ended June 30, 2020 and 2019 and $580,000 and $629,000 for the six months ended June 30, 2020 and 2019, respectively. Included in the charges above are amounts recognized for corporate executive stock-based compensation expense. These charges are reflected as part of corporate expenses.

 

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

 

(5) Long-Term Debt.

 

Long-term debt is summarized as follows (in thousands):

  June 30, December 31,
  2020 2019
Riverfront permanent loan $88,993   88,925 
Less portion due within one year  —     —   
  $88,993   88,925 

 

On February 6, 2019, the Company entered into a First Amendment to the 2015 Credit Agreement (the “Credit Agreement”) with Wells Fargo Bank, N.A. (“Wells Fargo”), effective February 6, 2019. The Credit Agreement modifies the Company’s prior Credit Agreement with Wells Fargo dated January 30, 2015. The Credit Agreement establishes a five-year revolving credit facility with a maximum facility amount of $20 million. The interest rate under the Credit Agreement will be a maximum of 1.50% over LIBOR, which may be reduced quarterly to 1.25% or 1.0% over LIBOR if the Company meets a specified ratio of consolidated debt to consolidated total capital, as defined which excludes FRP Riverfront. A commitment fee of 0.25% per annum is payable quarterly on the unused portion of the commitment but the amount may be reduced to 0.20% or 0.15% if the Company meets a specified ratio of consolidated total debt to consolidated total capital. The Credit Agreement contains certain conditions, affirmative financial covenants and negative covenants. As of June 30, 2020, there was no debt outstanding on this revolver, $411,000 outstanding under letters of credit and $19,589,000 available for borrowing. The letters of credit were issued to guarantee certain obligations to state agencies related to real estate development. Most of the letters of credit are irrevocable for a period of one year and typically are automatically extended for additional one-year periods. The letter of credit fee is 1% and applicable interest rate would have been 1.17825% on June 30, 2020. The credit agreement contains certain conditions and financial covenants, including a minimum tangible net worth and dividend restriction. As of June 30, 2020, these covenants would have limited our ability to pay dividends to a maximum of $219 million combined. The Company was in compliance with all covenants as of June 30, 2020.

 

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

12 
 

representations made under the Loan Documents (iii) voluntary or involuntary bankruptcy, and (iv) dissolution, or the dissolution of the guarantor. MidAtlantic Realty Partners, LLC, an affiliate of MRP, has executed a carve-out guaranty in connection with the loan.

 

Debt cost amortization of $34,000 and $68,000 was recorded during the three and six months ended June 30, 2020, respectively. During the three months ended June 30, 2020 and June 30, 2019 the Company capitalized interest costs of $940,000 and $705,000, respectively. During the six months ended June 30, 2020 and June 30, 2019 the Company capitalized interest costs of $1,875,000 and $1,090,000, 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 Six Months ended
 June 30, June 30,
 2020 2019 2020 2019
Weighted average common shares       
 outstanding during the period       
 - shares used for basic       
 earnings per common share 9,620   9,915   9,712   9,933 
                
Common shares issuable under               
 share based payment plans               
 which are potentially dilutive 29   45   32   45 
                
Common shares used for diluted               
 earnings per common share 9,649   9,960   9,744   9,978 
                
Income from continuing operations$3,977   2,952   5,476   4,593 
Discontinued operations$—     6,776   —     6,862 
Net income attributable to the Company$4,149   9,825   5,767   11,723 
                
Basic earnings per common share:               
 Income from continuing operations$0.41   0.30   0.56   0.46 
 Discontinued operations$—     0.68   —     0.69 
 Net income attributable to the Company$0.43   0.99   0.59   1.18 
                
Diluted earnings per common share:               
 Income from continuing operations$0.41   0.30   0.56   0.46 
 Discontinued operations$—     0.68   —     0.69 
 Net income attributable to the Company$0.43   0.99   0.59   1.17 

 

 

For the three and six months ended June 30, 2020, 2020, 74,065 and 53,545 shares attributable to outstanding stock options were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive. For the three and six months ended June 30, 2019, 19,950 shares attributable to outstanding stock options were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive.

 

During the first six months the Company repurchased 298,303 shares at an average cost of $41.41.

 

(7) Stock-Based Compensation Plans.

 

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

 

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

 

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

 

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

 

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

  Three Months ended Six Months ended 
  June 30, June 30, 
  2020 2019 2020 2019 
Stock option grants $23   28   47   57 
Restricted stock awards granted in 2020  47   —     94   —   
Employee stock grant  —     —     530   —   
Annual director stock award  500   —     500   —   
  $570   28   1,171   57 

 

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 June 30, 2020  132,504  $33.82  5.3 $1,631 
               
Exercisable at June 30, 2020  114,189  $32.11  4.8 $1,333 
Vested during six months ended              
  June 30, 2020  —          $—   

 

The aggregate intrinsic value of exercisable in-the-money options was $1,131,000 and the aggregate intrinsic value of outstanding in-the-money options was $1,148,000 based on the market closing price of $40.58 on June 30, 2020 less

14 
 

exercise prices.

 

The unrecognized compensation cost of options granted to FRP employees but not yet vested as of June 30, 2020 was $243,000, which is expected to be recognized over a weighted-average period of 3.3 years.

 

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

    Weighted Weighted Weighted
  Number Average Average Average
  Of Exercise Remaining Grant Date
Restricted stock Shares Price Term (yrs) Fair Value(000's)
         
Outstanding at January 1, 2020  0           
    Granted  20,520  $46.30    $950 
Outstanding at June 30, 2020  20,520  $46.30  3.9 $950 
               

Total compensation cost of restricted stock granted but not yet vested as of June 30, 2020 was $856,000 which is expected to be recognized over a weighted-average period of 3.9 years.

 

(8) Contingent Liabilities.

 

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

 

The Company executed a letter of intent with MRP in May 2016 to develop Phase II of the Riverfront on the Anacostia project and recorded an estimated environmental remediation expense of $2.0 million for the Company’s estimated liability under the proposed agreement. The Company substantially completed the remediation and reduced the estimated liability in the quarter ending September 30, 2018 by $465,000 and further reduced the liability $92,000 to zero in 2020. The Company has no obligation to remediate any known contamination on Phases III and IV of the development until such time as it makes a commitment to commence construction on each phase.

 

(9) Concentrations

 

The mining royalty lands segment has a total of five tenants currently leasing mining locations and one lessee that accounted for 31.5% of the Company’s consolidated revenues during the six months ended June 30, 2020 and $419,000 of accounts receivable at June 30, 2020.  The termination of these lessees’ underlying leases could have a material adverse effect on the Company. The Company places its cash and cash equivalents with Wells Fargo Bank and First Horizon Bank.  At times, such amounts may exceed FDIC limits.

 

 

(10) Fair Value Measurements.

 

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

 

At June 30, 2020 the Company was invested in 59 corporate bonds with individual maturities ranging from 2020 through 2022. The unrealized gain on these bonds of $1,584,000 was recorded as part of comprehensive income and

15 
 

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 $242,000 in its net investment income related to bonds that were sold in 2020. The amortized cost of the investments was $128,474,000 and the carrying amount and fair value of such bonds were $130,058,000 as of June 30, 2020.

 

At June 30, 2020 and 2019, the carrying amount reported in the consolidated balance sheets for cash and cash equivalents and revolving credit approximate their fair value based upon the short-term nature of these items.

 

The fair values of the Company’s other mortgage notes payable were estimated based on current rates available to the Company for debt of the same remaining maturities. At June 30, 2020, the carrying amount and fair value of such other long-term debt was $88,993,000 and $95,606,000, respectively. At June 30, 2019, the carrying amount and fair value of such other long-term debt was $88,857,000 and $92,541,000, respectively.

 

 

(11) Investments in Joint Ventures.

 

Brooksville. In 2006, the Company entered into a Joint Venture Agreement with Vulcan Materials Company to jointly own and develop approximately 4,300 acres of land near Brooksville, Florida. Under the terms of the joint venture, FRP contributed its fee interest in approximately 3,443 acres formerly leased to Vulcan under a long-term mining lease which had a net book value of $2,548,000. Vulcan is entitled to mine a portion of the property until 2032 and pay royalties to the Company. FRP also contributed $3,018,000 for one-half of the acquisition costs of a 288-acre contiguous parcel. Vulcan contributed 553 acres that it owned as well as its leasehold interest in the 3,443 acres that it leased from FRP and $3,018,000 for one-half of the acquisition costs of the 288-acre contiguous parcel. The joint venture is jointly controlled by Vulcan and FRP. Distributions will be made on a 50-50 basis except for royalties and depletion specifically allocated to the Company. Other income for the six months ended June 30, 2020 includes a loss of $21,000 representing the Company’s portion of the loss of this joint venture.

 

BC FRP Realty (Windlass Run). In 2016, the Company entered into an agreement with a Baltimore development company (St. John Properties, Inc.) to jointly develop the remaining lands of our Windlass Run Business Park. The 50/50 partnership initially calls for FRP to combine its 25 acres (valued at $7,500,000) with St. John Properties’ adjacent 10 acres fronting on a major state highway (valued at $3,239,536) which resulted in an initial cash distribution of $2,130,232 to FRP in May 2016. Thereafter, the venture will jointly develop the combined properties into a multi-building business park to consist of approximately 329,000 square feet of single-story office space. On September 28, 2017 BC FRP Realty, LLC obtained $17,250,000 of construction financing commitments for four buildings through September 15, 2022 from BB&T at 2.5% over LIBOR. The balance outstanding on these loans at June 30, 2020 was $12,160,000.

 

RiverFront Holdings II, LLC. On May 4, 2018, the Company and MRP formed a partnership to develop Phase II of our RiverFront on the Anacostia project and closed on construction financing with Eagle Bank. The Company has contributed its land with an agreed value of $16.3 million (cost basis of $4.6 million) and $6.2 million of cash. MRP contributed capital of $5.6 million to the partnership including development costs paid prior to the formation of the partnership and a $725,000 development fee. The Company further agreed to fund $13.75 million preferred equity financing at 7.5% interest rate all of which was advanced through June 30, 2019. The Company records interest income for this loan and a loss in equity in ventures for our 80% equity in the partnership. The loan from Eagle Bank allows draws of up to $71 million during construction at an interest rate of 3.25% over LIBOR. The loan is interest only and matures in 36 months with a 12-month extension assuming completion of construction and at least one occupancy. There is a provision for an additional 60 months extension with a 30-year amortization of principal at 2.15% over seven-year US Treasury Constant if NOI is sufficient for a 9% yield. The loan balance at June 30, 2020 was $60,704,000. The Company’s equity interest in the joint venture is accounted for under the equity method of accounting through the construction and lease up period as MRP acts as the administrative agent of the joint venture and oversees and controls the day to day operations of the project.

 

Bryant Street Partnerships. On December 24, 2018 the Company and MRP formed four partnerships to purchase and develop approximately five acres of land at 500 Rhode Island Ave NE, Washington, D.C. This property is the first

16 
 

phase of the Bryant Street Master Plan. The property is located in an Opportunity Zone, which provides tax benefits in the new communities development program as established by Congress in the Tax Cuts and Jobs Act of 2017. The Company contributed cash of $32 million in exchange for a 61.36% common equity in the partnership. The Company also contributed cash of $23 million as preferred equity financing at 8.0% interest rate. The Company records interest income for this loan and a loss in equity in ventures for our 61.36% equity in the partnership. On March 13, 2019 the partnerships closed on a construction loan with a group of lenders for up to $132 million at an interest rate of 2.25% over LIBOR. The loan matures March 13, 2023 with up to two extensions of one year each upon certain conditions including, for the first, a debt service coverage of at least 1.10 and a loan-to-value that does not exceed 65% and for the second, a debt service coverage of 1.25 and a maximum loan-to-value of 65%. Borrower may prepay a portion of the unpaid principal to satisfy such tests. The loan balance at June 30, 2020 was $38,660,000. The Company and MRP guaranteed $26 million of the loan in exchange for a 1% lower interest rate. The Company and MRP have a side agreement limiting the Company’s guarantee to its proportionate ownership. The value of the guarantee was calculated at $1.9 million based on the present value of the 1% interest savings over the anticipated 48-month term. This amount is included as part of the Company’s investment basis and is amortized to expense over the 48 months. The Company’s equity interest in the joint venture is accounted for under the equity method of accounting as all the major decisions are shared equally.

 

Hyde Park. On January 27, 2018 the Company entered into a loan agreement with a Baltimore developer to be the principal capital source of a residential development venture in Essexshire now known as “Hyde Park.” We have committed up to $3.5 million in exchange for an interest rate of 10% and a preferred return of 20% after which the Company is also entitled to a portion of proceeds from sale. Entitlements for the development of the property are complete, a homebuilder is under contract to purchase all of the 126 recorded building lots. The first phase of settlement occurred in May 2020, resulting in a $2.67 million principal and interest payment.

 

DST Hickory Creek. In July 2019, the Company invested $6 million in 1031 proceeds from two sales in 2019 into a Delaware Statutory Trust (DST) known as CS1031 Hickory Creek Apartments, DST.  The Company is 26.65% beneficial owner and receives monthly distributions. The DST owns a 294-unit garden-style apartment community consisting of 19 three-story apartment buildings containing 273,940 rentable square feet on approximately 20.4 acres of land.  The property was constructed in 1984 and substantially renovated in 2016.  The DST purchased the property in April, 2019 for $45,600,000 with ten-year financing obtained for $29,672,000 at 3.74% with a 30 year amortization period, interest only for five years. The Company’s equity interest in the trust is accounted for under the cost method because we do not have significant influence over the operating and financial policies. Monthly distributions are recorded as equity in gain or loss of joint ventures. Distributions of $168,000 were received in the first six months of 2020.

 

Amber Ridge. On June 26, 2019 the Company entered into a loan agreement with a Baltimore developer to be the principal capital source of a residential development venture in Prince Georges County, Maryland known as “Amber Ridge.” We have committed up to $18.5 million in exchange for an interest rate of 10% and a preferred return of 20% after which the Company is also entitled to a portion of proceeds from sale. This project will hold 187 single-family town homes. We are currently pursuing entitlements and have two homebuilders under contract to purchase all of the 187 units upon completion of development infrastructure.

 

1800 Half Street. On December 20, 2019 the Company and MRP formed a joint venture to acquire and develop a mixed-use project located at 1800 Half Street, Washington, D.C. This property is located in the Buzzard Point area of Washington, DC, less than half a mile downriver from Dock 79 and the Maren. It lies directly between our two acres on the Anacostia currently under lease to Vulcan and Audi Field, the home stadium of the DC United. The project is located in an Opportunity Zone, which provides tax benefits in the new communities’ development program as established by Congress in the Tax Cuts and Jobs Act of 2017. The Company contributed cash of $37.3 million. MRP will contribute the remainder of its equity in 2020. The land was acquired in two pieces over first half of 2020. On June 26, 2020 the partnership closed on a construction loan with Truist Bank for up to $74 million at an interest rate of 2.25% over 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.

17 
 

 

Greenville/Woodfield Partnerships. On December 23, 2019 the Company and Woodfield Development formed a joint venture to develop a mixed-use project in Greenville SC known as .408 Jackson located across the street from Greenville’s minor league baseball stadium. The project will hold 227 multifamily units and 4,700 square feet of retail space. It is located in an Opportunity Zone, which provides tax benefits in the new communities’ development program as established by Congress in the Tax Cuts and Jobs Act of 2017. The Company contributed cash of $9.7 million in exchange for a 40% common equity in the joint venture. The Company’s equity interest in the joint venture is accounted for under the equity method of accounting through the construction and lease up period. Woodfield personally guaranteed the loan and will be managing the projects day to day operations. Major decisions for the entity must be made unanimously between both members.

 

On December 23, 2019 the Company and Woodfield formed a joint venture to develop a 200-unit multifamily apartment project located at 1430 Hampton Avenue, Greenville, SC. The project is located in an Opportunity Zone, which provides tax benefits in the new communities’ development program as established by Congress in the Tax Cuts and Jobs Act of 2017. The Company contributed $6.2 million in exchange for a 40% common equity in the joint venture. The Company’s equity interest in the joint venture is accounted for under the equity method of accounting through the construction and lease up period. Woodfield personally guaranteed the loan and will be managing the projects day to day operations. Major decisions for the entity must be made unanimously between both members.

 

Investments in Joint Ventures (in thousands):

              The 
              Company's 
              Share of  Profit 
   Common  Total  Total Assets of  Profit (Loss)   (Loss) of  the 
  Ownership  Investment  The Partnership  Of the Partnership   Partnership 
                
As of June 30, 2020               
Brooksville Quarry, LLC 50.00% $7,476  14,310  (42) (21)
BC FRP Realty, LLC 50.00% 5,286  22,689  (210) (104)
RiverFront Holdings II, LLC 80.00% 25,484  104,426  (1,326) (1,409)
Bryant Street Partnerships 61.36% 59,549  133,553  —   (825)
Hyde Park    1,214  1,214  —   —  
DST Hickory Creek 26.65% 6,000  48,651  (162) 168 
Amber Ridge Loan    1,183  1,183  —   —  
1800 Half St. Owner, LLC 61.37% 37,537  39,327  126  126 
Greenville/Woodfield Partnerships 40.00% 16,050  43,095  158  80 
   Total    $159,779  408,448    (1,456)   (1,985)
                
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)

 

 

               

 

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

 

18 
 

 

 As of June 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, net103,602   132,932   46,106   27,603   20,845   $331,088 
Cash and cash equivalents 720   512   1,483   8,917   21,878   33,510 
Unrealized rents & receivables 78   95   622   0   0   795 
Deferred costs 26   14   440   2,807   372   3,659 

   

Total Assets

104,426   133,553   48,651   39,327   43,095  $369,052 
                       

 

 

Secured notes payable60,252   35,770   29,268   0   0  $125,290 
Other liabilities 2,094   19,405   171   392   3,213   25,275 
Capital - FRP 36,732   58,224   5,120   37,460   15,953   153,489 
Capital - Third Parties 5,348   20,154   14,092   1,475   23,929   64,998 

   

Total Liabilities and Capital

104,426   133,553   48,651   39,327   43,095  $369,052 

 

 

 As of June 30, 2020  
 Brooksville BC FRP   Amber Ridge Apartment/ Grand
 Quarry, LLC Realty, LLC Hyde Park Loan Mixed Use Total
            
Investments in real estate, net. $14,290   22,187   1,214   1,183   331,088   $369,962 
Cash and cash equivalents 18   59   0   0   33,510   33,587 
Unrealized rents & receivables 0   230   0   0   795   1,025 
Deferred costs 2   213   0   0   3,659   3,874 
   Total Assets $14,310   22,689   1,214   1,183   369,052  $408,448 
                        
Secured notes payable $0   12,130   0   0   125,290  $137,420 
Other liabilities 41   105   0   0   25,275   25,421 
Capital - FRP 7,476   5,227   1,214   1,183   153,489   168,589 
Capital - Third Parties 6,793   5,227   0   0   64,998   77,018 
   Total Liabilities and Capital $14,310   22,689   1,214   1,183   369,052   $408,448 

 

 

 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, net87,521   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 payable38,564   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 

 

 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 

 

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The Company’s capital recorded by the unconsolidated Joint Ventures is $8,809,000 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 $(5,574,000) and $(4,127,000) as of June 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 six months ended June 30, 2019 were as follows (in thousands):

 

  Three months ended Six months ended
  June 30, June 30,
  2019 2019
 Lease Revenue $222   460 
         
Cost of operations:        
     Depreciation, depletion and amortization  12   41 
     Operating expenses  139   234 
     Property taxes  26   46 
     Management company indirect  —     —   
     Corporate expenses  —     —   
Total cost of operations  177   321 
         
Total operating profit  45   139 
         
Interest expense  —     —   
Gain on sale of buildings  9,245   9,268 
         
Income before income taxes  9,290   9,407 
Provision for income taxes  2,514   2,545 
         
Income from discontinued operations $6,776   6,862 
         
Earnings per common share:        
 Income from discontinued operations-        
    Basic $0.68   0.69 
    Diluted $0.68   0.69 

 

 

(13) Subsequent Event.

 

In July 2020 the Company sold its fully leased building in the Hollander Business Park at 1801 62nd Street for $12.3 million resulting in a gain of $3.8 million before income taxes. The proceeds were placed in a 1031 exchange fund.

 

 

 

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

 

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

 

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

 

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

 

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

 

Asset Management Segment.

 

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

 

As of June 30, 2020, the Asset Management Segment owned four commercial properties as follows:

 

1) 34 Loveton Circle in suburban Baltimore County, Maryland consists of one office building totaling 33,708 square feet which is 95.1% occupied (16% of the space is occupied by the Company for use as our Baltimore headquarters).

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

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

3) Cranberry Office Park consists of five office buildings totaling 268,010 square feet which are 71.9% occupied at June 30, 2020.

4) 1801 62nd Street consists of 94,350 square feet and was completed in the second quarter of 2019. The building was 100.0% occupied at June 30, 2020. The Company sold this property in July 2020 for $12.3 million. The decision to sell was in keeping with a departure from our previous “develop and hold” business model. The sale resulted in a gain of $3.8 million before taxes and the proceeds were placed in a 1031 exchange fund.

 

To take advantage of market cycles and attract a wide range of top tier buyers, management focuses on several factors in this segment to facilitate a successful and profitable sale. The major factors we focus on are (1) net operating

21 
 

income growth, (2) growth in occupancy, (3) average annual occupancy rate (defined as the occupied square feet at the end of each month during a fiscal year divided by the number of months to date in that fiscal year as a percentage of the average number of square feet in the portfolio over that same time period), (4) growth of our portfolio (in square feet), (5) tenant retention success rate (as a percentage of total square feet to be renewed), (6) building and refurbishing assets to meet Class A and Class B institutional grade classifications, and (7) reducing complexities and deferred capital expenditures to maximize sale price.

 

Mining Royalty Lands Segment.

 

Our Mining Royalty Lands segment owns several properties comprising approximately 13,400 acres currently under lease for mining rents or royalties (this does not include the 4,280 acres owned in our Brooksville joint venture with Vulcan Materials).  Other than one location in Virginia, all of these properties are located in Florida and Georgia.  The typical lease in this segment requires the tenant to pay us a royalty based on the number of tons of mined materials sold from our property during a given fiscal year multiplied by a percentage of the average annual sales price per ton sold. As a result of this royalty payment structure, we do not bear the cost risks associated with the mining operations, however, we are subject to the cyclical nature of the construction markets in these states as both volumes and prices tend to fluctuate through those cycles. In certain locations, typically where the reserves on our property have been depleted but the tenant still has a need for the leased land, we collect a minimum annual rental amount. We believe strongly in the potential for future growth in construction in Florida, Georgia, and Virginia which would positively benefit our profitability in this segment.  Our mining properties had estimated remaining reserves of 516 million tons as of December 31, 2019 after a total of 8.1 million tons were consumed in 2019.

 

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

 

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

 

Significant “2nd life” Mining Lands: 

 

LocationAcreageStatus
Brooksville, Fl4,280 +/-Development of Regional of Impact and County Land Use and Master Zoning in place for 5,800 residential unit, mixed-use development
Ft. Myers, FL1,993 +/-Approval in place for 105, 1 acre, waterfront residential lots after mining completed.
Total6,273 +/- 

 

 

Development Segment.

 

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

 

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

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

 

Development Segment – Warehouse/Office Land.

 

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

 

1)25 acres of horizontally developed land capable of supporting 226,750 square feet of warehouse, office, and flex buildings at Hollander 95 Business Park in Baltimore City, Maryland.

 

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

 

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

 

Significant Investment Lands Inventory:

 

LocationApprox. AcreageStatus

 

NBV

RiverFront on the Anacostia Phases III-IV2.5Conceptual design program ongoing.  $6,062,000
Hampstead Trade Center, MD73Residential conceptual design program ongoing$8,709,000
Square 664E,on the Anacostia River in DC2Under lease to Vulcan Materials as a concrete batch plant through 2021 with one 5-year renewal option.$7,927,000
Total77.5 $22,698,000

 

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

 

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

23 
 

been removed. The Company’s position is that otherwise Phase IV will be adversely impacted, and additional compensation or other relief will be due the Company.

 

HAMPSTEAD TRADE CENTER: We purchased this 118-acre tract in 2005 for $4.3 million in a Section 1031 exchange with plans of developing it as a commercial business park. The “great recession” caused us to reassess our plans for this property. As a result, Management has determined that the prudent course of action is to attempt to rezone the property for residential uses and sell the entire tract to another developer such that we can redeploy this capital into assets with more near-term income producing potential. On December 22, 2018, The Town of Hampstead re-awarded FRP its request for rezoning with a 30-day appeal period. No appeal was filed, therefore, FRP can now move forward with its residential concept plan. We are fully engaged in the formal process of seeking PUD entitlements for this 118-acre tract in Hampstead, Maryland, now known as “Hampstead Overlook”.

 

SQUARE 664E, WASHINGTON, DC: This property sits on the Anacostia River at the base of South Capitol Street in an area known as Buzzard Point, less than half a mile down river from our RiverFront on the Anacostia property. The Square 664E property is approximately two acres and is currently under lease to Vulcan Materials for use as a concrete batch plant. The lease terminates on August 31, 2021 and Vulcan has the option to renew for one additional period of five years. In July 2018, Audi Field, the home of the DC United professional soccer club, opened its doors to patrons in Buzzard Point. Under normal circumstances the 20,000 seat stadium hosts 17 home games each year in addition to other outdoor events. The stadium is separated from our property by 1800 Half Street, the property acquired in a joint venture between the Company and MRP in December 2019.

 

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

 

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

 

 As of June 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, net103,602   132,932   46,106   27,603   20,845   $331,088 
Cash and cash equivalents 720   512   1,483   8,917   21,878   33,510 
Unrealized rents & receivables 78   95   622   0   0   795 
Deferred costs 26   14   440   2,807   372   3,659 

   

Total Assets

104,426   133,553   48,651   39,327   43,095  $369,052 
                       

 

 

Secured notes payable60,252   35,770   29,268   0   0  $125,290 
Other liabilities 2,094   19,405   171   392   3,213   25,275 
Capital - FRP 36,732   58,224   5,120   37,460   15,953   153,489 
Capital - Third Parties 5,348   20,154   14,092   1,475   23,929   64,998 

   

Total Liabilities and Capital

104,426   133,553   48,651   39,327   43,095  $369,052 

 

 As of June 30, 2020  
 Brooksville BC FRP   Amber Ridge Apartment/ Grand
 Quarry, LLC Realty, LLC Hyde Park Loan Mixed Use Total
            
Investments in real estate, net. $14,290   22,187   1,214   1,183   331,088   $369,962 
Cash and cash equivalents 18   59   0   0   33,510   33,587 
Unrealized rents & receivables 0   230   0   0   795   1,025 
Deferred costs 2   213   0   0   3,659   3,874 
   Total Assets $14,310   22,689   1,214   1,183   369,052  $408,448 
                        
Secured notes payable $0   12,130   0   0   125,290  $137,420 
Other liabilities 41   105   0   0   25,275   25,421 
Capital - FRP 7,476   5,227   1,214   1,183   153,489   168,589 
Capital - Third Parties 6,793   5,227   0   0   64,998   77,018 
   Total Liabilities and Capital $14,310   22,689   1,214   1,183   369,052   $408,448 

 

24 
 

 

 

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 June 30, 2020 includes a loss of $21,000 representing the Company’s portion of the loss of this joint venture (not including FRP’s royalty revenues).

 

BC Realty, LLC (Windlass Run). In March 2016, we entered into an agreement with a Baltimore development company (St. John Properties, Inc.) to jointly develop the remaining lands of our Windlass Run Business Park. The 50/50 partnership initially calls for FRP to combine its 25 acres (valued at $7,500,000) with St. John Properties’ adjacent 10 acres fronting on a major state highway (valued at $3,239,536) which resulted in an initial cash distribution of $2,130,232 to FRP in May 2016. Thereafter, the venture will jointly develop the combined properties into a multi-building business park to consist of approximately 329,000 square feet of single-story office space. The project will take place in several phases, with construction of the first phase, which includes two office buildings and two retail buildings totaling 100,030-square-feet (inclusive of 27,950 retail), commenced in the fourth quarter of 2017 and projected to stabilize in the fourth quarter of 2020. The start of subsequent phases will follow with the final phase commencing in the 4th quarter of 2024. On September 28, 2017 BC FRP Realty, LLC obtained $17,250,000 of construction financing commitments for 4 buildings through September 15, 2022 from BB&T at 2.5% over LIBOR. The balance outstanding on these loans at June 30, 2020 was $12,160,000. Shell building construction of the two office buildings and two retail buildings in the first phase of our joint venture with St. John Properties was completed in December 2018.

 

RiverFront Holdings II, LLC. On May 4, 2018, the Company and MRP formed a Joint Venture to develop Phase II and closed on construction financing with Eagle Bank. Phase II on the Anacostia known as The Maren is a 250,000-square-foot mixed-use development which supports 264 residential units and 6,937 SF of retail. The Company has contributed its land with an agreed value of $16.3 million (cost basis of $4.6 million) and $6.2 million of cash. MRP contributed capital of $5.6 million to the joint venture including development costs paid prior to the formation of the joint venture and a $725,000 development fee. The Company further agreed to fund $13.75 million preferred equity financing at 7.5% interest rate all of which was advanced through December 31, 2019. The loan from Eagle Bank allows draws of up to $71 million during construction at an interest rate of 3.25% over LIBOR. The loan is interest only and matures in 36 months with a 12-month extension assuming completion of construction and at least one occupancy. There is a provision for an additional 60 months extension with a 30-year amortization of principal at 2.15% over seven-year US Treasury Constant if NOI is sufficient for a 9% yield. The Company’s equity interest in the joint venture is accounted for under the equity method of accounting as MRP acts as the administrative agent of the joint venture and oversees and controls the day to day operations of the project. Construction began in April 2018, with substantial completion in March 2020, and stabilization (meaning 90% of the individual apartments are leased and occupied by third party tenants) in late 2021.

 

Bryant Street Partnerships: On December 24, 2018 the Company and MRP formed four partnerships to purchase and develop approximately five acres of land at 500 Rhode Island Ave NE, Washington, D.C. This property is the first phase of the Bryant Street Master Plan. The property is located in an Opportunity Zone, which provides tax benefits in the new communities development program as established by Congress in the Tax Cuts and Jobs Act of 2017. This first phase is a mixed-use development which supports 487 residential units and 85,681 SF of first floor and stand-alone retail on approximately five acres of the roughly 12-acre site. The Company contributed cash of $32 million in exchange for a 61.36% common equity in the partnership. The Company also contributed cash of $23

25 
 

million as preferred equity financing at 8.0% interest rate. The Company records interest income for this loan and a loss in equity in joint ventures for our 61.36% equity in the partnership. On March 13, 2019 the partnerships closed on a construction loan with a group of lenders for up to $132 million at an interest rate of 2.25% over LIBOR. The loan matures March 13, 2023 with up to two 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.

 

Amber Ridge. On June 26, 2019 the Company entered into a loan agreement with a Baltimore developer to be the principal capital source of a residential development venture in Prince Georges County, Maryland known as “Amber Ridge.” We have committed up to $18.5 million in exchange for an interest rate of 10% and a preferred return of 20% after which the Company is also entitled to a portion of proceeds from sale. This project will hold 187 single-family town homes. We are currently pursuing entitlements and have two homebuilders under contract to purchase all of the 187 units upon completion of infrastructure development.

 

1800 Half Street. On December 20, 2019 the Company and MRP formed a joint venture to acquire and develop a mixed-use project located at 1800 Half Street, Washington, D.C. This property is located in the Buzzard Point area of Washington, DC, less than half a mile downriver from Dock 79 and the Maren. It lies directly between our two acres on the Anacostia currently under lease by Vulcan and Audi Field, the home stadium of the DC United. The project is located in an Opportunity Zone, which provides tax benefits in the new communities’ development program as established by Congress in the Tax Cuts and Jobs Act of 2017. The Company contributed cash of $37.3 million. The land was acquired in two pieces over first half of 2020. On June 26, 2020 the partnership closed on a construction loan with Truist Bank for up to $74 million at an interest rate of 2.25% over 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.

 

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

26 
 

apartment project located at 1430 Hampton Avenue, Greenville, SC. The project is located in an Opportunity Zone, which provides tax benefits in the new communities’ development program as established by Congress in the Tax Cuts and Jobs Act of 2017. The Company contributed $6.2 million in exchange for a 40% common equity in the joint venture. The Company’s equity interest in the joint venture is accounted for under the equity method of accounting through the construction and lease up period. Woodfield personally guaranteed the loan and will be managing the projects day to day operations. Major decisions for the entity must be made unanimously between both members.

 

 

Stabilized Joint Venture Segment.

 

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

 

Dock 79. This first phase of our RiverFront on The Anacostia project is a joint venture owned by the Company (66%) and our partner, MRP Realty (34%) and is a 305-unit residential apartment building with approximately 18,000 sq. ft. of first floor retail space. For financial reporting purposes the Company consolidates this venture as it is considered the primary beneficiary of the Variable Interest Entity. As of June 30, 2020, the residential units were 90.16% occupied and 92.13% leased, while retail units are 76% leased with just one space remaining.

 

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

 

 

 

Comparative Results of Operations for the Three months ended June 30, 2020 and 2019

 

Consolidated Results

(dollars in thousands) Three Months Ended June 30,  
 2020 2019 Change %
Revenues:               
  Lease Revenue$3,447  $3,730  $(283  -7.6%
  Mining lands lease revenue 2,402   2,633   (231  -8.8%
 Total Revenues 5,849   6,363   (514  -8.1%
                
Cost of operations:               
  Depreciation/Depletion/Amortization 1,500   1,472   28   1.9%
  Operating Expenses 781   910   (129)  -14.2%
  Property Taxes 646   713   (67  -9.4%
  Management company indirect 692   610   82   13.4%
  Corporate Expense 1,026   551   475   86.2%
Total cost of operations 4,645   4,256   389   9.1%
                
Total operating profit 1,204   2,107   (903  -42.9%
                
Net investment income, including realized gains               
 of $134 and $328 2,110   1,984   126   6.4%
Interest Expense (45)  (272)  227   -83.5%
                  
27 
 

 

Equity in loss of joint ventures (1,343)  (272)  (1,071)  393.8%
Gain on sale of real estate 3,589   536   3,053   569.6%
                
Income before income taxes 5,515   4,083   1,432   35.1%
Provision for income taxes 1,538   1,131   407   36.0%
Income from continuing operations  3,977   2,952   1,025   34.7 %
                
Income from discontinued operations, net —     6,776   (6,776)  -100.0%
                
Net income 3,977   9,728   (5,751)  -59.1%
Loss attributable to noncontrolling interest (172)  (97)  (75)  77.3%
Net income attributable to the Company$4,149  $9,825  $(5,676)  -57.8%
                

 

 

Net income for the second quarter of 2020 was $4,149,000 or $.43 per share versus $9,825,000 or $.99 per share in the same period last year. The second quarter of 2020 was impacted by the following items:

 

  • Corporate expense stock compensation of $570,000 compared to $28,000 in the same period last year due the timing of stock grants.
  • Interest expense decreased $227,000 as we capitalized more interest on our joint venture construction projects.
  • Loss on joint ventures increased $1,071,000 primarily due to our share of the Bryant Street preferred interest, $118,000 amortization of guarantee liability related to the Bryant Street loan, $809,000 operating loss at the Maren due to pre-leasing efforts, partially offset by interest income generated in our opportunity zone investments prior to the funds being deployed.
  • Gain on sale of $3,589,000 from the sale of the three remaining lots at our Lakeside Business Park and our Gulf Hammock Property compared to $536,000 in the same period last year

 

Income from discontinued operations for the second quarter of 2019 was $6,776,000 or $.68 per share and included the sale of our property at 1502 Quarry Drive for $11.7 million. This asset was excluded from the original sale due to the tenant potentially exercising its right of first refusal to purchase the property. The second quarter of 2019 included a $328,000 realized gain on the sale of bonds.

 

 

Asset Management Segment Results

 

  Three months ended June 30    
(dollars in thousands) 2020 % 2019 % Change %
             
Lease revenue $716   100.0%  662   100.0%  54   8.2%
                         
Depreciation, depletion and amortization  200   27.9%  196   29.6%  4   2.0%
Operating expenses  96   13.4%  175   26.5%  (79  -45.1%
Property taxes  (24  -3.3%  90   13.6%  (114  -126.7%
Management company indirect  121   16.9%  73   11.0%  48   65.8%
Corporate expense  265   37.0%  139   21.0%  126   90.6%
                         
Cost of operations  658   91.9%  673   101.7%  (15  -2.2%
                         
Operating profit $58   -8.1%  (11  -1.7%  69   -627.3%

 

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. Cranberry Run is a five-building industrial park in Harford County, MD

28 
 

totaling 268,010 square feet of industrial/ flex space and at quarter end was 71.9% leased and occupied. 1801 62nd Street is our most recent spec building in Hollander Business Park and is our first warehouse with a 32-foot clear-height ceiling. We completed construction on this building in 2019 and it is now 100% leased and occupied. Total revenues in this segment were $716,000, up $54,000 or 8.2%, over the same period last year. Operating profit was $58,000, up $69,000 from an operating loss of $11,000 in the same quarter last year due to 1801 62nd St being fully leased and occupied, improved leasing at Cranberry offset by the sale of 7030 Dorsey Road in June 2019.

 

 

Mining Royalty Lands Segment Results

  Three months ended June 30    
(dollars in thousands) 2020 % 2019 % Change %
             
Mining lands lease revenue $2,402   100.0%  2,633   100.0%  (231  -8.8%
                         
Depreciation, depletion and amortization  62   2.6%  42   1.6%  20   47.6%
Operating expenses  14   0.6%  15   0.6%  (1  -6.7%
Property taxes  65   2.7%  69   2.6%  (4  -5.8%
Management company indirect  67   2.8%  49   1.8%  18   36.7%
Corporate expense  84   3.5%  36   1.4%  48   133.3%
                         
Cost of operations  292   12.2%  211   8.0%  81   38.4%
                         
Operating profit $2,110   87.8%  2,422   92.0%  (312  -12.9%

 

Total revenues in this segment were $2,402,000 versus $2,633,000 in the same period last year. Total operating profit in this segment was $2,110,000, a decrease of $312,000 versus $2,422,000 in the same period last year. The primary reason for the 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.

 

 

Development Segment Results

  Three months ended June 30 
(dollars in thousands) 2020 2019 Change 
        
Lease revenue 279   316   (37 
              
Depreciation, depletion and amortization  53   49   4  
Operating expenses  144   95   49  
Property taxes  330   295   35  
Management company indirect  455   442   13  
Corporate expense  617   341   276  
              
Cost of operations  1,599   1,222   377  
              
Operating loss $(1,320)  (906)  (414) 

 

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

 

With respect to ongoing projects:

 

  • PUD entitlements for our 118-acre tract in Hampstead, Maryland, now known as “Hampstead Overlook,” are ongoing.  Hampstead Overlook received Concept Plan approval from the Town of Hampstead for 164 single and 91 town home residential units in February 2020, and the project is currently under Preliminary Plan review with the governing agencies.
  • 29 
     
  • We are currently pursuing permit entitlements for two industrial buildings at Hollander Business Park totaling 145,750 square feet.  Construction is anticipated to begin the third quarter of 2020 with shell completion in the third quarter of 2021.
  • We finished shell building construction in December 2018 on the two office buildings in the first phase of our joint venture with St. John Properties.  Shell building construction of the two retail buildings was completed in January 2019. We are now in the process of leasing these four single-story buildings totaling 100,030 square feet of office and retail space. At quarter end, Phase I was 44% leased and occupied.
  • We are the principal capital source of a residential development venture in Baltimore County, Maryland known as “Hyde Park.”  We have committed up to $3.5 million in exchange for an interest rate of 10% and a preferred return of 20% after which a “waterfall” determines the split of proceeds from sale.  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 $2.67M principal and interest payment.
  • We are the principal capital source of a residential development venture in Prince George’s County, Maryland known as “Amber Ridge.”  We have committed up to $18.5 million in exchange for an interest rate of 10% and a preferred return of 20% after which a “waterfall” determines the split of proceeds from sale.  Amber Ridge will hold 187 town homes.  We are currently pursuing entitlements and have two homebuilders under contract to purchase all 187 units upon completion of development infrastructure.
  • In April 2018, we began construction on Phase II of our RiverFront on the Anacostia project, now known as “The Maren.” The 14-story project will have 264 units and 6,937 square feet of ground floor retail and was 98% complete at quarter end. Lease-up commenced in earnest in the second week of March. At the end of the quarter, the Maren was 45% leased, and 23% occupied.
  • In December 2018, the Company entered into a joint venture agreement with MidAtlantic Realty Partners (MRP) for the development of the first phase of a multifamily, mixed-use development in northeast Washington, DC known as “Bryant Street.”  The project is comprised of four buildings, with 487 units and 85,681 square feet of retail.  FRP contributed $32 million for common equity and another $23 million for preferred equity to the joint venture.  Construction began in February 2019 and as of the end of the quarter was 67% complete.  Bryant Street is currently on time, within budget, and expected to be complete in the fourth quarter of 2021, with the first of the four buildings delivering in the fourth quarter of 2020.  This project is located in an opportunity zone and has allowed us to defer $14.9 million in taxes associated with the sale of our industrial assets.
  • In December 2019, the Company entered into a joint venture agreement with MRP for the development of a mixed-use project known as “1800 Half Street.” The development is located in the Buzzard Point area of Washington, DC, less than half a mile downriver from Dock 79 and the Maren. It lies directly between our two acres on the Anacostia, currently under lease by Vulcan, and Audi Field, the home stadium of the DC United. The 10-story structure will have 344 apartments and 11,246 square feet of ground floor retail. FRP contributed $37.3 million in common equity. The project is a qualified opportunity zone investment and will defer just over $10 million in taxes associated with the sale of our industrial assets. In June 2020, we closed on a $74 million construction loan, and we anticipate starting construction during the third quarter of this year.
  • In December 2019, the company entered into two joint ventures in Greenville, SC with a new partner, Woodfield Development. Woodfield specializes in Class-A multi-family, mixed use developments primarily in the Carolinas and DC. Our first joint venture with them is a 200-unit multifamily project known as “Riverside.” FRP contributed $6.2 million in common equity for a 40% ownership interest. Construction began in February 2020 and should be complete in the third quarter of 2021. The second joint venture in Greenville with Woodfield is a 227-unit multifamily development known as “.408 Jackson.” It will have 4,700 square feet of retail and is located across the street from Greenville’s minor league baseball stadium. FRP contributed $9.7 million in common equity for a 40% ownership interest. Construction began in May 2020 and should be complete in the second quarter of 2022. Both projects are qualified opportunity investments and will defer a combined $4.3 million in taxes.

 

 

 

 

30 
 

Stabilized Joint Venture Segment Results

  Three months ended June 30    
(dollars in thousands) 2020 % 2019 % Change %
             
Lease revenue $2,452   100.0%  2,752   100.0%  (300  -10.9%
                         
Depreciation, depletion and amortization  1,185   48.3%  1,185   43.0%  —     0.0%
Operating expenses  527   21.5%  625   22.7%  (98  -15.7%
Property taxes  275   11.2%  259   9.4%  16   6.2%
Management company indirect  49   2.0%  46   1.7%  3   6.5%
Corporate expense  60   2.5%  35   1.3%  25   71.4%
                         
Cost of operations  2,096   85.5%  2,150   78.1%  (54  -2.5%
                         
Operating profit $356   14.5%  602   21.9%  (246  -40.9%

 

Dock 79’s average occupancy for the quarter was 91.50%, and at the end of the quarter, Dock 79 was 92.13% leased and 90.16% occupied. This quarter, 62.30% of expiring leases renewed with no increase in rent due to the mandated rent freeze on renewals in DC. Net Operating Income this quarter for this segment was $1,654,000, down $213,000 or 11.41% compared to the same quarter last year. Dock 79 is a joint venture between the Company and MRP, in which FRP Holdings, Inc. is the majority partner with 66% ownership.

 

In July 2019, the Company completed a like-kind exchange by reinvesting $6,000,000 into a Delaware Statutory Trust (DST) known as CS1031 Hickory Creek DST. The DST owns a 294-unit garden-style apartment community known as Hickory Creek consisting of 19 three-story apartment buildings containing 273,940 rentable square feet.  Hickory Creek was constructed in 1984 and substantially renovated in 2016 and is located in suburban Richmond, Virginia. The Company is 26.649% beneficial owner and receives monthly distributions. Second quarter distributions were $85,000. The project is a qualified 1031 like-kind exchange investment and will defer $790,000 in taxes associated with the sales of 7030 Dorsey Road and 1502 Quarry Drive.

 

 

 

Comparative Results of Operations for the Six months ended June 30, 2020 and 2019

 

Consolidated Results

 

(dollars in thousands) Six Months Ended June 30, 
 2020 2019 Change % 
Revenues:                
  Lease Revenue$7,045  $7,215  $(170  -2.4% 
  Mining lands lease revenue 4,587   4,862   (275  -5.7% 
 Total Revenues 11,632   12,077   (445  -3.7% 
                 
Cost of operations:                
  Depreciation/Depletion/Amortization 2,968   2,959   9   0.3% 
  Operating Expenses 1,706   1,792   (86)  -4.8% 
  Property Taxes 1,383   1,466   (83  -5.7% 
  Management company indirect 1,364   1,202   162   13.5% 
  Corporate Expense 2,213   1,196   1,017   85.0% 
Total cost of operations 9,634   8,615   1,019   11.8% 
                 
Total operating profit 1,998   3,462   (1,464  -42.3% 
                 
Net investment income, including realized gains                
 of $242 and $447 4,101   3,794   307   8.1% 
Interest Expense (96)  (860)  764   -88.8% 
                  
31 
 

 

Equity in loss of joint ventures (1,985)  (536)  (1,449)  270.3%
Gain on real estate investments 3,597   536   3,061   571.1%
                
Income (loss) before income taxes 7,615   6,396   1,219   19.1%
Provision for (benefit from) income taxes 2,139   1,803   336   18.6%
Income (loss) from continuing operations  5,476   4,593   883   19.2 %
                
Income from discontinued operations, net —     6,862   (6,862)  -100.0%
                
Net income 5,476   11,455   (5,979)  -52.2%
Loss attributable to noncontrolling interest (291)  (268)  (23)  8.6%
Net income attributable to the Company$5,767  $11,723  $(5,956)  -50.8%`
                

 

 

Net income for first half of 2020 was $5,767,000 or $.59 per share versus $11,723,000 or $1.17 per share in the same period last year. Income from discontinued operations for the first half of 2019 was $6,862,000 or $.69 per share. Income from continuing operations increased $883,000 or 19% and was impacted by the following items:

 

  • Corporate expense stock compensation of $1,171,000 compared to $57,000 in the same period last year due the timing of stock grants.
  • Interest expense decreased $764,000 as we capitalized more interest on our joint venture construction projects.
  • Loss on joint ventures increased $1,449,000 primarily due to our share of the Bryant Street preferred interest, $236,000 amortization of guarantee liability related to the Bryant Street loan, $992,000 operating loss at the Maren due to pre-leasing efforts, partially offset by interest income generated in our opportunity zone investments prior to the funds being deployed.
  • Gain on sale of $3,597,000 from the sale of the three remaining lots at our Lakeside Business Park and our Gulf Hammock Property compared to $536,000 in the same period last year

 

 

 

Asset Management Segment Results

 

  Six months ended June 30    
(dollars in thousands) 2020 % 2019 % Change %
             
Lease revenue $1,368   100.0%  1,303   100.0%  65   5.0%
                         
Depreciation, depletion and amortization  392   28.6%  373   28.6%  19   5.1%
Operating expenses  193   14.1%  384   29.5%  (191  -49.7%
Property taxes  48   3.5%  146   11.2%  (98  -67.1%
Management company indirect  235   17.2%  175   13.4%  60   34.3%
Corporate expense  573   41.9%  302   23.2%  271   89.7%
                         
Cost of operations  1,441   105.3%  1,380   105.9%  61   4.4%
                         
Operating profit $(73  -5.3%  (77  -5.9%  4   -5.2%

 

 

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. 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 71.9% leased and occupied. 1801 62nd Street is our most recent spec building in Hollander Business Park and is our first warehouse with a 32-foot clear-

32 
 

height ceiling. We completed construction on this building in 2019 and it is now 100% leased and occupied. Total revenues in this segment were $1,368,000, up $65,000 or 5.0%, over the same period last year. Operating loss was $73,000, down $4,000 from an operating loss of $77,000 in the same period last year due to higher allocation of corporate expenses.

 

 

 

Mining Royalty Lands Segment Results

  Six months ended June 30    
(dollars in thousands) 2020 % 2019 % Change %
             
Mining lands lease revenue $4,587   100.0%  4,862   100.0%  (275  -5.7%
                         
Depreciation, depletion and amortization  100   2.2%  94   1.9%  6   6.4%
Operating expenses  27   0.6%  31   0.7%  (4  -12.9%
Property taxes  132   2.9%  137   2.8%  (5  -3.6%
Management company indirect  133   2.9%  98   2.0%  35   35.7%
Corporate expense  181   3.9%  79   1.6%  102   129.1%
                         
Cost of operations  573   12.5%  439   9.0%  134   30.5%
                         
Operating profit $4,014   87.5%  4,423   91.0%  (409  -9.2%

 

 

Total revenues in this segment were $4,587,000 versus $4,862,000 in the same period last year. Total operating profit in this segment was $4,014,000, a decrease of $409,000 versus $4,423,000 in the same 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.

 

 

 

Development Segment Results

  Six months ended June 30 
(dollars in thousands) 2020 2019 Change 
        
Lease revenue 572   585   (13 
              
Depreciation, depletion and amortization  107   107   —    
Operating expenses  353   141   212  
Property taxes  689   618   71  
Management company indirect  900   837   63  
Corporate expense  1,329   740   589  
              
Cost of operations  3,378   2,443   935  
              
Operating loss $(2,806)  (1,858)  (948) 

 

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

 

 

33 
 

Stabilized Joint Venture Segment Results

  Six months ended June 30    
(dollars in thousands) 2020 % 2019 % Change %
             
Lease revenue $5,105   100.0%  5,327   100.0%  (222  -4.2%
                         
Depreciation, depletion and amortization  2,369   46.4%  2,385   44.8%  (16  -0.7%
Operating expenses  1,133   22.2%  1,236   23.2%  (103  -8.3%
Property taxes  514   10.1%  565   10.6%  (51  -9.0%
Management company indirect  96   1.9%  92   1.7%  4   4.3%
Corporate expense  130   2.5%  75   1.4%  55   73.3%
                         
Cost of operations  4,242   83.1%  4,353   81.7%  (111  -2.5%
                         
Operating profit $863   16.9%  974   18.3%  (111  -11.4%

 

Dock 79’s average occupancy for the first six months was 92.56%, and at the end of the second quarter, Dock 79 was 92.13% leased and 90.16% occupied. For the first six months, 58.33% of expiring leases renewed with an average increase in rent on those renewals of 0.60% due to the mandated rent freeze on renewals that went into effect in March. Net Operating Income for this segment was $3,466,000, down $31,000 or .9% compared to the same period last year. Dock 79 is a joint venture between the Company and MRP, in which FRP Holdings, Inc. is the majority partner with 66% ownership.

 

Distributions for Hickory Creek were $168,000 for the first six months. The project is a qualified 1031 like-kind exchange investment in a Delaware Statutory Trust of which the Company is a 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 June 30, 2020, we had $34,481,000 of cash and cash equivalents along with $130,058,000 of investments available for sale. As of June 30, 2020, we had no debt borrowed under our $20 million Wells Fargo revolver, $411,000 outstanding under letters of credit and $19,589,000 available to borrow under the revolver. In November 2017, we secured $90 million in permanent financing for Dock 79 from EagleBank, the proceeds of which were used to pay off $79 million of construction and mezzanine debt. The remainder was distributed pari passu between the Company and our partners.

 

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

  Six months 
  Ended June 30, 
  2020 2019 
Total cash provided by (used for):      
Operating activities$9,110  8,161 
Investing activities 7,787  31,138 
Financing activities (12,762 (5,677
Increase (decrease) in cash and cash equivalents$4,135  33,622 
       
Outstanding debt at the beginning of the period$88,925  88,789 
Outstanding debt at the end of the period$88,993  88,857 

 

 

Operating Activities - Net cash provided by operating activities for the six months ended June 30, 2020 was $9,110,000 versus $8,161,000 in the same period last year. Net cash used in operating activities of discontinued operations for the six months ended June 30, 2019 was $2,441,000.

 

Investing Activities - Net cash provided by investing activities for the six months ended June 30, 2020 was $7,787,000 versus $31,138,000 in the same period last year. The decrease was due primarily to the proceeds on the sale investments available for sale offset by the purchase of investments available for sale, while the prior year included the acquisition of Cranberry Business Park, and the preferred equity contribution to the RiverFront Holdings II joint venture.

 

34 
 

At June 30, 2020 the Company was invested in 59 corporate bonds with individual maturities ranging from 2020 through 2022. The unrealized gain on these bonds of $1,584,000 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 $242,000 in its net investment income related to bonds that were sold in 2020.

 

Financing Activities – Net cash used in investing activities was $12,762,000 versus $5,677,000 in the same period last year due primarily due to the increased purchase of company stock in the six months ended June 30, 2020.

 

Credit Facilities - On February 6, 2019 the Company entered into a First Amendment to the 2015 Credit Agreement (the "Credit Agreement") with Wells Fargo Bank, N.A. (Wells Fargo”), effective February 6, 2019. The Credit Agreement modifies the Company’s prior Credit Agreement with Wells Fargo, dated January 30, 2015. The Credit Agreement establishes a five-year revolving credit facility (“Revolver”) with a maximum facility amount of $20 million. The interest rate under the Credit Agreement will be a maximum of 1.50% over LIBOR, which may be reduced quarterly to 1.25% or 1.0% over LIBOR if the Company meets a specified ratio of consolidated total debt to consolidated total capital. A commitment fee of 0.25% per annum is payable quarterly on the unused portion of the commitment but the amount may be reduced to 0.20% or 0.15% if the Company meets a specified ratio of consolidated total debt to consolidated total capital. The credit agreement contains certain conditions and financial covenants, including a minimum tangible net worth and dividend restriction. As of June 30, 2020, these covenants would have limited our ability to pay dividends to a maximum of $219 million combined.

 

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

 

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. On May 6, 2020, the Board of Directors approved a $10,000,000 increase in the Company’s stock repurchase authorization. As of June 30, 2020, $8,585,000 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 capital expenditures for the remainder of 2020 to include approximately $37.8 million for real estate development including investments in joint ventures, which will be funded mostly out of cash and investments on hand, cash generated from operations and property sales, or borrowings under our credit facilities.

 

Impact of the COVID-19 Pandemic. The COVID-19 pandemic is having an extraordinary impact on the world economy and the markets in which we operate. As an essential business, we have continued to operate throughout the pandemic in accordance with White House guidance and orders issued by state and local authorities. We have implemented social distancing and other measures to protect the health of our employees and customers. While we recognize the importance of social distancing, stay at home and telework measures to protect 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 cash flow adjustments that will adversely affect our NOI. We anticipate that the pandemic 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.

35 
 

 

Summary and Outlook. This is the first quarter where the Company had to reckon with the full effects of COVID-19, and the ensuing economic shutdown and effects associated with it. Beyond the internal practical issues of working from home, ensuring the safety of our employees and tenants, running a shareholder and board meeting virtually, there were the larger issues of rent freezes at Dock 79, the lease-up of the Maren during a pandemic, and general uncertainty on how this would affect our tenants, construction, and our royalties business. The fallout from this extraordinary situation has been mixed. Even in midst of the pandemic, we were able to sell our three remaining lots at Lakeside Business Park for $3.75 million, and our Gulf Hammock property for $2.51 million. Royalties are down compared to last year, though how much of it is COVID-related is debatable at this point. Some locations are down compared to 2019, while others doing markedly better than last year. The bulk of the decrease can be attributed to no longer receiving double minimums at Lake Louisa. Even with the decreases, our outlook in the short and long term remains positive regarding this segment. Our annualized revenue ($9,174,000) and revenue for the last twelve months ($9,163,000) would still be the second-best year in the history of this segment.

 

We have been fortunate that none of the local governments where we currently have projects under development have halted construction. We have had problems getting our certificates of occupancy on the final floors of the Maren, simply because local restrictions have made it difficult to get the inspectors on site. Beyond the economic headwinds caused by the pandemic, there are the necessary but still problematic logistical issues with trying to lease up a building during this unusual situation—virtual tours, an inability to showcase the property with events, no baseball etc. Even with all that, we signed 91 leases this quarter, including 44 in May. At quarter end, the Maren was 45% leased and 23% occupied, putting us well ahead of schedule on lease-up. The building itself is very close to the finish line in terms of completion. We have conditional certificates of occupancy in place for all floors with actual units in them. All that remains are the certificates of occupancy for the amenity spaces along with the final certificate of occupancy for the building itself.

 

Dock 79 remains a source of some concern. The rent freeze on renewals will be in effect at least until October. Because our apartments come up for renewal two months prior to the end of the lease, an October end to the rent freeze with a 60-day tail means that there will more than likely be no increases on renewals for the rest of the year. A shortened baseball season without fans compounds a difficult situation for our retail tenants and consequently Dock 79. However, all three businesses have been able to resume operating to the extent that they can. Two of our tenants were able to resume paying rent in June. We are still working with all three on a payment plan for the back rent. During a pandemic, during the construction of the Maren next door, without baseball, occupancy remains above 90% at quarter end.

 

Industrial remains strong as an asset class. 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 issued our first quarter earnings and consequently our outlook during a period of heightened concern and uncertainty. This company along with our country and the entire world was struggling to comprehend the immediate and long-term effects of something none of us had any familiarity with. It would be inaccurate to suggest that we are any less concerned or any more certain than we were three months ago. We have not seen the end of COVID-19 nor its effects, but we have at least seen how our business responds to it. This quarter could have gone any number of ways, and thankfully, we have more good things to report than bad, more cause for confidence than unease. A conservative balance sheet and substantial cash reserves are one reason for our confidence. However, we believe strongly in our business and its assets which is why we continue to put money back into the company in the form of share buybacks. During the first six months of 2020, the Company repurchased 298,303 shares at an average cost of $41.41 per share.

 

Finally, subsequent to the end of the quarter, on July 31, the Company sold its warehouse at 1801 62nd Street in Hollander Business Park for $12.3 million. This 94,350 square-foot warehouse came on line in second quarter of 2019, was fully leased and occupied in the fourth quarter of 2019, and was our first building with a 32-foot clear. The decision to sell was in keeping with a departure from our previous “develop and hold” business model. The sale resulted in a gain of $3.8 million before taxes and the proceeds were placed in a 1031 exchange fund.

 

36 
 

Non-GAAP Financial 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. This measure is not, and should not be viewed as, a substitute for GAAP financial measures.

 

Net Operating Income Reconciliation           
Six months ended 06/30/20 (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 (47  (739)  622   4,162   1,478   5,476 
Income Tax Allocation (18  (274)  338   1,543   550   2,139 
Income (loss) from continuing operations before income taxes (65  (1,013)  960   5,705   2,028   7,615 
                        
Less:                       
 Equity in profit of Joint Ventures —     —     168   —     —     168 
 Gains on sale of buildings 8   1,877   —     1,712   —     3,597 
 Unrealized rents 114   —     —     121   —     235 
 Interest income —     2,048   —     —     2,053   4,101 
Plus:                       
 Unrealized rents —     —     8   —     —     8 
 Equity in loss of Joint Venture —     2,132   —     21   —     2,153 
 Interest Expense —     —     71   —     25   96 
 Depreciation/Amortization 392   107   2,369   100   —     2,968 
 Management Co. Indirect 235   900   96   133   —     1,364 
 Allocated Corporate Expenses 573   1,329   130   181   —     2,213 
                        
Net Operating Income (loss) 1,013   (470)  3,466   4,307   —     1,998 

 

Net Operating Income Reconciliation           
Six months ended 06/30/19 (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 335   (1,347)  25   3,211   2,369   4,593 
Income Tax Allocation 124   (499)  109   1,190   879   1,803 
Income (loss) from continuing operations before income taxes 459   (1,846)  134   4,401   3,248   6,396 
                        
Less:                       
Gains on sale of buildings 536   —     —     —     —     536 
 Unrealized rents —     —     29   —     —     29 
 Interest income —     526   —     —     3,268   3,794 
Plus:                       
Unrealized rents    —     —     228   —     231 
Equity in loss of Joint Venture —     514   —     22   —     536 
 Interest Expense —     —     840   —     20   860 
 Depreciation/Amortization 373   107   2,385   94   —     2,959 
 Management Co. Indirect 175   837   92   98   —     1,202 
 Allocated Corporate Expenses 302   740   75   79   —     1,196 
                        
Net Operating Income 776   (174)  3,497   4,922   —     9,021 

 

 

 

 

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 Agreement with Wells Fargo.

 

37 
 

Under the Wells Fargo Credit Agreement, the applicable margin for borrowings at June 30, 2020 was LIBOR plus 1.0%. The applicable margin 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 Company did not have any variable rate debt at June 30, 2020, so a sensitivity analysis was not performed to determine the impact of hypothetical changes in interest rates on the Company’s results of 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.

 

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 June 30, 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.

 

38 
 

 

PART II. OTHER INFORMATION

 

 

Item 1A. RISK FACTORS

 

In addition to the other information set forth in this report, 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 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;

39 
 

 

 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
PeriodPurchased per Share Programs or Programs (1)
 April 1                
 Through                
 April 30  105,834  $42.28   105,834  $3,044,000 
                  
 May 1                
 Through                
 May 31  65,206  $41.30   65,206  $10,350,000 
                  
 June 1                
 Through                
 June 30  44,772  $39.43   44,772  $8,585,000 
                  
 Total  215,812  $41.39   215,812     

 

(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.

 

 

 

Item 6. EXHIBITS

 

(a)Exhibits. The response to this item is submitted as a separate Section entitled "Exhibit Index", on page 42.
  
  

 

 

 

 

 

 

40 
 

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:  August 14, 2020 ByJOHN D. BAKER II 
   John D. Baker II 
   Chief Executive Officer
   (Principal Executive Officer)
     
     
  ByJOHN D. BAKER III 
   John D. Baker III. 
   Treasurer and Chief Financial Officer
   (Principal Financial Officer)
     
     
  ByJOHN D. KLOPFENSTEIN 
   John D. Klopfenstein 
   Controller and Chief Accounting
   Officer (Principal Accounting Officer)
41 
 

FRP HOLDINGS, INC.

FORM 10-Q FOR THE SIX MONTHS ENDED JUNE 30, 2020

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 on November 9, 2017.
(31)(a)Certification of John D. Baker II.
(31)(b)Certification of John D. Baker III.
(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.INSXBRL Instance Document
101.XSDXBRL Taxonomy Extension Schema 
101.CALXBRL Taxonomy Extension Calculation Linkbase
101.DEFXBRL Taxonomy Extension Definition Linkbase
101.LABXBRL Taxonomy Extension Label Linkbase
101.PREXBRL Taxonomy Extension Presentation Linkbase

 

42