10-K
1
frph10k20.htm
FRPH FORM 10K 2020
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM 10-K
_________________
(Mark One)
or
Commission File Number: 001-36769
_____________________
FRP HOLDINGS, INC.
(Exact name of registrant as specified in its
charter)
_____________________
200 W. Forsyth St., 7th Floor, Jacksonville, Florida 32202
(Address of principal executive offices) (Zip Code)
(904) 396-5733
Title of each class Symbol Name of each exchange on which registered
Common Stock, $.10 par value FRPH NASDAQ
Securities registered pursuant to Section
12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock $.10 par value NASDAQ
Securities registered pursuant to
Section 12(g) of the Act: None
_________________
Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [_] No [X]
Indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [_] No [X]
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 every Interactive Data File required to be submitted 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 such files). Yes [X] No [_]
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting
company,” and “emerging growth 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
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared
or issued its audit report. [_]
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Act). Yes [_] No [X]
The number of shares of the registrant’s
stock outstanding as of March 17, 2021 was 9,387,823. The aggregate market value of the shares of Common Stock held by non-affiliates
of the registrant as of June 30, 2020, the last day of business of our most recently completed second fiscal quarter, was $288,633,764.
Solely for purposes of this calculation, the registrant has assumed that all directors, officers and ten percent (10%) shareholders
of the Company are affiliates of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the FRP Holdings, Inc. 2020
Annual Report to Shareholders are incorporated by reference in Parts I and II.
Portions of the FRP Holdings, Inc. Proxy
Statement which will be filed with the Securities and Exchange Commission not later than March 31, 2021 are incorporated by reference
in Part III.
Preliminary Note Regarding Forward-Looking
Statements.
Certain matters discussed in the report contain
“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 “Exchange Act”). 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-K 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
Item 1. BUSINESS.
FRP Holdings, Inc., a Florida corporation (the
“Company”) was incorporated on April 22, 2014 in connection with a corporate reorganization that preceded the Spin-off
of Patriot Transportation Holding, Inc. The Company’s predecessor issuer was formed on July 20, 1998. The business of the
Company is conducted through our wholly-owned subsidiaries FRP Development Corp., a Maryland corporation, and Florida Rock Properties,
Inc., a Florida corporation, and the various subsidiaries of each.
Our Business. The Company is a holding
company engaged in various real estate businesses. Our business segments are: (i) leasing and management of commercial properties
owned by the Company (the “Asset Management Segment”), (ii) leasing and management of mining royalty land owned by
the Company (the “Mining Royalty Lands Segment”), (ii) real property acquisition, entitlement, development and construction
primarily for apartment, retail, warehouse, and office buildings either alone or through joint ventures (the “Development
Segment”), (iv) ownership, leasing and management of buildings through joint ventures (the “Stabilized Joint Venture
Segment”).
The Asset Management Segment owns, leases and
manages commercial properties. 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 on May 21, 2018 and sold an additional
industrial warehouse property to the same buyer on June 28, 2019 for $11.7 million, leaving only two commercial properties and
one recent industrial acquisition (Cranberry Run Business Park, which we purchased in 2019) in the Asset Management Segment. In
July 2020 we sold our property located at 1801 62nd Street, our most recent spec building in Hollander Business Park,
which we acquired on April 1, 2019. Our overall business strategy includes the re-deployment of the warehouse portfolio sales proceeds
into asset classes across various business segments that will allow management to exploit its knowledge and expertise, including
mixed-use properties, raw land, existing buildings, and strategic partnerships located in core markets with growth potential.
Our Mining Royalty Lands Segment owns several
properties comprising approximately 15,000 acres currently under lease for mining rents or royalties and an additional 4,280 acres
through our Brooksville joint venture with Vulcan Materials. Other than one location in Virginia, all of our mining properties
are located in Florida and Georgia.
Our Development Segment owns and continuously
monitors the “highest and best use” of parcels of land that are in various stages of development. The overall
strategy for this segment is to convert all of our non-income producing property into income-producing property through (i) an
orderly process of constructing new apartment, retail, warehouse, and office buildings to be operated by the Company 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. Since 1990, one of our primary strategies in this segment has been to acquire, entitle
and ultimately develop commercial and industrial business parks providing 5–15 building pads which we typically convert into
warehouse or 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.
The Stabilized Joint Venture Segment owns buildings
held for lease through joint ventures. We intend to transfer additional joint ventures from our Development Segment into this segment
as they reach stabilization. Stabilization occurs when our minimum percentage leased goal is achieved.
Competition. As a developer, we compete
with numerous developers, owners and operators of real estate, many of whom own properties similar to ours in the same submarkets
in which our properties are located. Price, location, rental space availability, flexibility of design and property management
services are the major factors that affect competition.
Customers. In the Mining Royalty Lands
Segment, we have a total of five tenants currently leasing our mining locations, and Vulcan Materials Company (“Vulcan”
or “Vulcan Materials”) accounted for 32.0% of the Company’s consolidated revenues in 2020. An event affecting
Vulcan’s ability to perform under its lease agreements could materially impact the Company’s results.
Sales and Marketing. We use national
brokerage firms to assist us in marketing our vacant properties. Our hands on in-house management team focuses on tenant satisfaction
during the life of the lease which we have found to be very beneficial with respect to our tenant renewal success rate over the
years.
Financial Information. Financial information
is discussed by industry segment in Note 10 to the consolidated financial statements included in the accompanying 2020 Annual Report
to Shareholders, which is incorporated herein by reference.
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 government guidelines and orders issued by state and local
authorities. Our Dock 79 and Maren properties in Washington, D.C. suffered the principal impacts to our business from the pandemic
during 2020 due to our retail tenants being unable to operate at full capacity, the lack of fan attendance at the Washington Nationals
baseball park, and the rent freeze on lease renewals imposed in Washington, D.C. These restrictions and any future restrictions
imposed by any federal, state, or local government may impact our ability lease retail spaces or increase rents.
Environmental Matters. The Company incurs
costs from time to time to investigate and remediate environmental contamination on its real estate, in particular, in connection
with our Development Segment. The Company's mining leases contain provisions under which the lessee is responsible for environmental
liabilities and reclamation of mining sites at least to the extent required by law.
Employees. The Company employed 13 people
and was provided services by three executive officers under a related party agreement at December 31, 2020.
Company Website. The Company’s
website may be accessed at www.frpdev.com. All of our filings with the Securities and Exchange Commission are accessible through
our website promptly after filing. This includes annual reports on Form 10-K, proxy statements, quarterly reports on Form 10-Q,
current reports filed or furnished on Form 8-K and all related amendments.
Item 1A. RISK FACTORS.
Our future results may be affected by a number
of factors over which we have little or no control. The following issues, uncertainties, and risks, among others, should be considered
in evaluating our business and outlook. Also, note that additional risks not currently identified or known to us could also negatively
impact our business or financial results.
Risks Relating to the COVID-19
Pandemic
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, 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 continue to work remotely.
The restrictions in place as a result of the
COVID-19 pandemic are negatively impacting many industries, especially the commercial real estate industry and mixed-use properties,
which have apartment dwellers, small businesses, and restaurants as tenants. The significance, extent and duration of the impacts
of the COVID-19 pandemic on our business and operations are dependent on factors 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, and the timetable for implementing effective treatments and vaccines.
The financial performance of our mixed-use
properties in Washington, D.C. (The Maren and Dock 79) has been adversely affected by the COVID-19 pandemic due to restrictions
on the operation of local businesses, the rent freeze on lease renewals imposed in Washington, D.C., and the lack of fan attendance
at the Washington Nationals baseball park. At this time, the Company anticipates that these factors will continue to impact The
Maren and Dock 79 for at least the first half of 2021, which will adversely affect our financial condition, results of operations
and cash flows.
Additionally, the COVID-19 pandemic could materially
and adversely affect 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.
Risks Relating to our Business
A decline in the economic conditions in
Baltimore and Washington, D.C. markets could adversely affect our business.
Nearly all of our commercial and residential/mixed
use properties are located in the Baltimore area and Washington, D.C. We are, therefore, subject to increased exposure (positive
or negative) to economic and other competitive factors specific to markets in confined geographic areas. Our operations may also
be affected if too many competing properties are built in these markets. An economic downturn in these markets could adversely
affect our operation. We cannot be sure that these markets will continue to grow or demand the type of assets in our portfolio.
We conduct a significant portion of our
operations through joint ventures, which may lead to disagreements with our joint venture partners and adversely affect our interests
in the joint ventures.
We currently are a party to several joint ventures
and we may enter into additional joint ventures in the future. In each of our existing joint ventures, the consent of our joint
venture partner is required to take certain actions, and in some cases will share equal voting control. Our joint venture partners,
as well as future partners, may have interests that are different from ours which may result in conflicting views as to the conduct
of the joint ventures. In the event that we have a disagreement with a joint venture partner as to the resolution of a particular
issue to come before the joint venture, or as to the conduct or management of the joint venture generally, we may not be able to
resolve such disagreement in our favor and such a disagreement could have a material adverse effect on our interest in the joint
venture or on the business of the joint venture generally.
Our business may be adversely affected by
seasonal factors and harsh weather conditions.
The Mining Royalty Lands Segment and the Development
Segment could be adversely affected by reduced construction and mining activity during periods of inclement weather. These factors
could cause our operating results to fluctuate from quarter to quarter. An occurrence of unusually harsh or long-lasting inclement
weather such as hurricanes, tornadoes and heavy snowfalls could have an adverse effect on our operations and profitability.
Our business could be negatively impacted
by cyberattacks targeting our computer and
telecommunications systems and infrastructure,
or targeting those of our third-party service providers.
Our business, like other companies in our industry,
has become increasingly dependent on digital technologies, including technologies that are managed by third-party service providers
on whom we rely to help us collect, host or process information. Such technologies are integrated into our business operations.
Use of the internet and other public networks for communications, services, and storage, including "cloud" computing,
exposes all users (including our business) to cybersecurity risks.
While we and our third-party service providers
commit resources to the design, implementation, and monitoring of our information systems, there is no guarantee that our security
measures will provide absolute security. Despite these security measures, we may not be able to anticipate, detect, or prevent
cyberattacks, particularly because the methodologies used by attackers change frequently or may not be recognized until launched,
and because attackers are increasingly using techniques designed to circumvent controls and avoid detection. We and our third-party
service providers may therefore be vulnerable to security events that are beyond our control, and we may be the target of cyber-attacks,
as well as physical attacks, which could result in information security breaches and significant disruption to our business.
Our revenues depend in part on construction sector activity,
which tends to be cyclical.
Our Mining Royalty Lands Segment revenues are
derived from royalties on construction aggregates mined on our properties. Thus, our results depend in part on residential, commercial
and infrastructure construction activity and spending levels. The construction industry in our markets tends to be cyclical. Construction
activity and spending levels vary across our markets and are influenced by interest rates, inflation, consumer spending habits,
demographic shifts, environmental laws and regulations, employment levels and the availability of funds for public infrastructure
projects. Economic downturns may lead to recessions in the construction industry, either in individual markets or nationally.
Our operations are subject to various environmental
laws and regulations, the violation of which could result in substantial fines or penalties.
Liability for environmental contamination
on real property owned by the Company may include the following costs, without limitation: investigation and feasibility study
costs, remediation costs, litigation costs, oversight costs, monitoring costs, institutional control costs, penalties from state
and federal agencies and third-party claims. These costs could be substantial and in extreme cases could exceed the value of the
contaminated property. Moreover, on-site operations may be suspended until certain environmental contamination is remediated and/or
permits are received, and governmental agencies can impose permanent restrictions on the manner in which a property may be used
depending on the extent and nature of the contamination. This may result in a breach of the terms of the lease entered into with
our tenants. Governmental agencies also may create liens on contaminated sites for damages it incurred to address such contamination.
In addition, the presence of hazardous substances at, on, under or from a property may adversely affect our ability to sell the
property or borrow funds using the property as collateral, thus harming our financial condition.
The presence of contaminated material at
our RiverFront on the Anacostia development site will subject us to substantial environmental liability and costs as construction
proceeds.
With respect
to our RiverFront on the Anacostia site in Washington, D.C., preliminary environmental testing has indicated the presence of contaminated
material that will have to be specially handled in excavation in conjunction with construction. While we have recovered and will
continue to seek partial reimbursement for these costs from neighboring property owners, we still expect to incur significant environmental
costs in connection with construction.
During the quarter ending December 31, 2015,
management successfully completed negotiations and entered into a $3.0 million settlement of environmental claims on all four phases
against our former tenant at the Riverfront on the Anacostia property and continues to pursue settlement negotiations with other
potentially responsible parties. The total remediation expense for Phase I of this development
was $1.833 million.
The Company executed a letter of intent with
MRP Realty in May 2016 to develop Phase II of the Riverfront on the Anacostia project and recorded an estimated environmental remediation
expense of $2.0 million for the Company’s estimated liability under the proposed agreement. The Company substantially completed
the remediation and reduced the estimated liability in the quarter ending September 30, 2018 by $465,000 and further reduced the
liability $92,000 to zero in 2020.
The Company has no obligation to remediate
this contamination on Phases III and IV of the development until such time as it makes a commitment to commence construction on
each phase. The Company's actual expense to address this issue may be materially higher or lower than the expense previously recorded
depending upon the actual costs incurred.
Uninsured losses could significantly reduce
our earnings.
We self-insure for a portion of our claims
exposure resulting from workers’ compensation, auto liability, general liability and employees’ health insurance. We
also are responsible for our legal expenses relating to such claims. We maintain insurance above the amounts for which we self-insure
with licensed insurance carriers. Although we believe the aggregate insurance limits should be sufficient to cover reasonably expected
claims, it is possible that one or more claims could exceed our aggregate coverage limits. Additionally, there are certain losses,
such as losses from hurricanes, terrorism, wars or earthquakes, where insurance is limited or not economically justifiable. If
the Company experiences an uninsured loss of real property, we could lose both the invested capital and anticipated revenues associated
with such property. We accrue currently for estimated incurred losses and expenses and periodically evaluate and adjust our claims
accrued liability to reflect our experience. However, ultimate results may differ from our estimates, which could result in losses
greater than accrued amounts.
We may be unable to renew leases or re-lease
properties as leases expire.
When a lease expires, a tenant may elect not
to renew it. If that occurs, we may not be able to lease the property on similar terms. The terms of renewal or re-lease (including
the cost of required renovations and concessions to tenants) may be less favorable than the prior lease. If we are unable to lease
all or substantially all of our properties, or if the rental rates upon such re-leasing are significantly lower than expected rates,
our cash generated before debt repayments and capital expenditures may be adversely affected.
We may be unable to lease currently vacant
properties.
If we are unable to obtain leases sufficient
to cover carrying costs, then our cash flows may be adversely affected.
The bankruptcy or insolvency of significant
tenants with long-term leases may adversely affect income produced by our properties.
Should tenants default on their obligations,
our cash flow would be adversely affected, and we may not be able to find another tenant to occupy the space under similar terms
or may have to make expenditures to retrofit or divide the space. Additionally, we may have to incur a non-cash expense for a significant
amount of deferred rent revenue generated from the accounting requirement to straight-line rental revenues. The bankruptcy or insolvency
of a major tenant may also adversely affect the income produced by a property. If any of our tenants become a debtor in a case
under the U.S. Bankruptcy Code, we cannot evict that tenant solely because of its bankruptcy. The bankruptcy court may authorize
the tenant to reject and terminate its lease with the Company. Our claim against such a tenant for unpaid future rent would be
subject to a statutory limitation that may be substantially less than the remaining rent actually owed to us under the tenant’s
lease. Any shortfall in rent payments could adversely affect our cash flow.
Our inability to obtain necessary approvals
for property development could adversely affect our profitability.
We may be unable to obtain, or incur delays
in obtaining, necessary zoning, land-use, building, occupancy
and other required governmental permits and
authorizations, which could result in increased costs or abandonment of certain projects. Before we can develop a property, we
must obtain a variety of approvals from local and state governments with respect to such matters as zoning, density, parking, subdivision,
site planning and environmental issues. Legislation could impose moratoriums on new real estate development or land-use conversions
from mining to development. These factors may reduce our profit or growth and may limit the value of these properties.
Real estate investments are not as liquid
as other types of assets.
The illiquid nature of real estate investments
may limit our ability to react promptly to changes in economic or other conditions. In addition, significant expenditures associated
with real estate investments, such as mortgage payments, real estate taxes and maintenance costs, are generally not reduced when
circumstances cause a reduction in income from the investments. Thus, the illiquid nature of our real estate investments could
adversely affect our profitability under certain economic conditions.
Our debt service obligations may have adverse
consequences on our business operations.
We use debt to finance our operations,
including acquisitions of properties. As of December 31, 2020, we had outstanding non-recourse mortgage indebtedness of
$90,000,000, secured by developed real estate properties having a carrying value of $89,964,000. Our use of debt may have
adverse consequences, including the following:
· We may not be able to refinance or extend our existing debt.
Our uncollateralized revolving credit agreement
restricts our ability to engage in some business activities.
Our uncollateralized revolving credit agreement
contains customary negative covenants and other financial and operating covenants that, among other things:
· restricts our ability to incur certain additional indebtedness;
· restricts our ability to make certain investments;
· restricts our ability to merge with another company;
· restricts our ability to pay dividends;
· requires us to maintain financial coverage ratios; and
· requires us to not encumber certain assets except as approved by the lenders.
These restrictions could cause us to default
on our unsecured line of credit or negatively affect our operations.
The replacement of LIBOR with an alternative
reference rate may adversely affect interest expense related to outstanding debt and our financial results.
The United Kingdom’s Financial Conduct
Authority (FCA) has announced that it would phase out LIBOR as a benchmark by the end of 2021. It is unclear if LIBOR will cease
to exist at that time or if new methods of calculating LIBOR will be established such that it continues to exist after 2021. If
LIBOR ceases to exist, we will likely need to agree upon a replacement index with our lenders, which would require an amendment
to our borrowing arrangements that use LIBOR as a factor in determining the interest rate (including our credit agreement with
Wells Fargo), and the interest rate thereunder will likely change.
The U.S. Federal Reserve, in conjunction with
the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering
replacing U.S. dollar LIBOR with a new index, the Secured Overnight Financing Rate (SOFR), calculated using short-term repurchase
agreements backed by Treasury securities. Whether or not SOFR, or another alternative reference rate, attains market traction as
a LIBOR replacement tool remains in question.
The transition to an alternative rate will
require careful and deliberate consideration and implementation so as to not disrupt the stability of financial markets. There
is no guarantee that a transition from LIBOR to an alternative will not result in financial market disruptions, significant increases
in benchmark rates, or borrowing costs to borrowers, any of which could have an adverse effect on our business, results of operations
and financial condition. Furthermore, any changes announced by the FCA, U.S. Federal Reserve, or other regulators in the method
pursuant to which the reference rates are determined may result in a sudden or prolonged increase or decrease in the reported reference
rates, which could have an adverse effect on our interest payments and our results of operations and financial condition.
Fluctuations in value of Bond Portfolio
and losses on bonds sold.
As of December 31, 2020, the Company had total
investments of $75,609,000 in corporate bonds with maturities ranging from 2021 through 2022. The Company measures the fair value
of these investments on a quarterly basis and recognizes the unrealized gain or loss in its comprehensive income. As a result,
the Company’s comprehensive income will be impacted by factors outside our control such as fluctuations in interest rates
that impact the value of our investment portfolio. The Company could incur losses should it sell the bonds prior to maturity or
if the bond issuer does not redeem the bond at par.
Our Asset Management and Development Segments
face competition from numerous sources.
As a developer of apartments, retail, flexible
warehouse and office space, we compete with numerous developers, owners and operators of real estate, many of whom own properties
similar to ours in the same submarkets in which our properties are located. If our competitors offer space at rental rates below
current market rates, or below the rental rates we currently charge our tenants, we may lose potential tenants and we may be pressured
to reduce our rental rates to an amount lower than we currently charge in order to retain tenants when our tenants’ leases
expire. As a result, our financial condition, results of operations, cash flow and ability to satisfy our debt service obligations
could be materially adversely affected.
Construction costs may be higher than anticipated.
Our long-term business plan includes a number
of construction projects. The construction costs of these projects may exceed original estimates and possibly make the completion
of a property uneconomical. Building material commodity shortages, construction delays or stoppages or rapidly escalating construction
costs may out-pace market rents, which would adversely affect our profits. The market environment and existing lease commitments
may not allow us to raise rents to cover these higher costs.
Risks Relating to our Common Stock
Certain shareholders have effective control of a significant
percentage of FRP's common stock and
would have significant influence on the outcome of any shareholder
vote.
As of December 31, 2020, our Chief Executive
Officer, John D. Baker, II beneficially owned approximately 14.8% of the outstanding shares of our common stock (79.8% of which
are held in trusts under which voting power is shared with other family members) and members of his family who are (i) officers
or directors of the company, (ii) required to report their beneficial ownership on Schedule 13D or Schedule 13G, or (iii) are members
of his immediate family beneficially own, collectively, an additional 20.8% of the outstanding shares of our common stock. As a
result, these individuals effectively may have the ability to direct the election of all members of our board of directors and
to exercise a controlling influence over its business and affairs, including any determinations with respect to mergers or other
business combinations involving the Company, its acquisition or disposition of assets, its borrowing of monies, its issuance of
any additional securities, its repurchase of common stock and its payment of dividends.
Provisions in our articles of incorporation and bylaws and certain
provisions of Florida law could delay or prevent a change in control of FRP.
The existence of some provisions of our articles
of incorporation and bylaws and Florida law could discourage, delay or prevent a change in control of FRP that a shareholder may
consider favorable. These include provisions:
providing that directors may be removed by
our shareholders only for cause;
authorizing a large number of shares of stock
that are not yet issued, which would allow FRP’s board of directors to issue shares to persons friendly to current management,
thereby protecting the continuity of its management, or which could be used to dilute the stock ownership of persons seeking to
obtain control of FRP;
prohibiting shareholders from calling special
meetings of shareholders or taking action by written consent; and
imposing advance notice requirements for nominations
of candidates for election to our board of directors at the annual shareholder meetings.
These provisions apply even if a takeover offer
may be considered beneficial by some shareholders and could delay or prevent an acquisition that our board of directors determines
is not in the Company’s or the shareholders’ best interests.
FRP may issue preferred stock with terms
that could dilute the voting power or reduce the value of our common stock.
Our articles of incorporation authorize us
to issue, without the approval of our shareholders, one or more classes or series of preferred stock having such designations,
powers, preferences and relative, participating, optional and other rights, and such qualifications, limitations or restrictions
as our board of directors generally may determine. The terms of one or more classes or series of preferred stock could dilute the
voting power or reduce the value of FRP's common stock. For example, FRP could grant holders of preferred stock the right to elect
some number of its directors in all events or on the happening of specified events or the right to veto specified transactions.
Similarly, the repurchase or redemption rights or dividend, distribution or liquidation preferences FRP could assign to holders
of preferred stock could affect the residual value of the common stock.
Item 1B. UNRESOLVED STAFF COMMENTS.
None.
Item 2. PROPERTIES.
The Company owns (predominately in fee simple
but also through ownership of interests in joint ventures) approximately 20,000 acres of land in Florida, Georgia, Maryland, Virginia,
South Carolina, and the District of Columbia. This land is generally held by the Company in four distinct segments: (i) Asset Management
Segment (land owned and operated as income producing rental properties in the form of commercial properties), (ii) Mining Royalty
Lands Segment (land owned and leased to mining companies for royalties or rents), (iii) Development Segment (land owned and held
for investment to be further developed for future income production or sales to third parties), and (iv) Stabilized Joint Venture
Segment (ownership, leasing and management of buildings through joint ventures).
Asset Management Segment. As of December
31, 2020, the Asset Management Segment owned three commercial properties in fee simple 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). The property is subject to commercial leases with various tenants.
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 Run Business Park in Hartford
County, Maryland consists of five office buildings totaling 268,010 square feet which are 87.6% occupied. The property is subject
to commercial leases with various tenants.
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. The Company sold an additional warehouse property, which was excluded from the initial sale due
to the tenant exercising its right of first refusal to purchase the property, to the same buyer for $11.7 million on June 28, 2019.
The warehouse portfolio sale 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 in the financial statements filed herewith.
Mining Royalty Lands Segment – Mining
Properties. The following table sets forth a summary of the mining royalty lands owned by the Company or its subsidiaries in
fee simple and estimated reserves at December 31, 2020. These properties are subject to mining leases with various tenants, including
Vulcan Materials, Martin Marietta, Cemex, Argos, and The Concrete Company.
The Company owns nine properties currently being
mined in Grandin, Fort Myers, Keuka, Newberry,
and Astatula, Florida; Columbus, Macon, and
Tyrone, Georgia; and Manassas, Virginia
The Company owns four properties that are leased
for mining but are not currently being mined in
In May 2014, the Company entered into an amendment
to our lease with Vulcan for our Fort Myers location requiring that the mining be accelerated and that the mining plan be conformed
to accommodate the future construction of up to 105 residential dwelling units around the mined lakes. In return, the Company granted
Lee County an option to purchase a right of way for a connector road that would benefit the residential area
on our property and to place a conservation
easement on part of the property, which the County exercised in 2020. Mining activity commenced in 2017 following Lee County’s
issuance of a mine operating permit allowing Vulcan to begin production.
In November 2017, Lake County commissioners
voted to approve a permit to Cemex to mine the Company’s land in Lake Louisa, Florida. The county issued the permit in July
2019. After completing the work necessary to prepare this site to become an active sand mine, Cemex expects to begin mining by
the end of 2021.
Mining Royalty Lands Segment - Brooksville
Joint Venture. In 2006, a subsidiary of the Company entered into a joint venture agreement with Vulcan Materials Company to
jointly own and develop approximately 4,280 acres of land near Brooksville, Florida as a mixed-use community. In April 2011, the
Florida Department of Community Affairs issued its final order approving the development of the project consisting of 5,800 residential
dwelling units and over 600,000 square feet of commercial and 850,000 of light industrial uses. Zoning for the project was approved
by the County in August 2012. Vulcan Materials still mines on the property and the Company receives 100% of the royalty on all
tons sold at the Brooksville property. In 2020, 285,000 tons were sold, and estimated reserves were 4,326,000 as of December 31,
2020. During 2017, the Company extended the mining lease on this property for an additional ten years (through 2032) in exchange
for an increase in production of 100,000 tons by December 31, 2023.
Mining Royalty Lands Segment - Other Properties.
The segment also owns an additional 160 acres of investment property in Brooksville, Florida.
Development Segment – Warehouse/Office
Land.
At December 31, 2020 this segment owned the
following future development parcels:
Development Segment – Land Held for
Investment or Sale.
At December 31, 2020, this segment owned the
following development parcels:
Stabilized Joint Venture Segment.
We renamed this segment from RiverFront on
the Anacostia to the Stabilized Joint Venture Segment as we intend to transfer additional joint ventures from our Development Segment
into this segment as they reach stabilization.
At December 31, 2020, this segment owned the
following stabilized joint ventures:
Item 3. LEGAL PROCEEDINGS.
Through its joint venture with MRP Realty,
the Company is redeveloping the property located at 680 Rhode Island Avenue N.E. in Washington, D.C. In connection with the redevelopment,
the Company discovered and removed three underground storage tanks. Post-excavation sampling of the sidewall and soil was conducted
to investigate the potential extent of contamination. The sidewall sampling detected the presence of some petroleum-related contaminants,
only two of which (ethylbenzene and naphthalene) were detected at concentrations that exceeded applicable regulatory limits in
a limited area of the sidewall.
On March 20, 2020, the Department of Energy
and the Environment (“DOEE”) issued a Comprehensive Site Assessment Directive Letter dated March 20, 2020 (the “Directive”).
The Directive indicated that DOEE’s Underground Storage Tank Branch had opened a Leaking Underground Storage Tank case relating
to the former tanks, and directed preparation of a Work Plan and CSA report “to delineate the extent of both groundwater
and soil contamination.” Notably, the Directive indicated that whether a Corrective Action Plan would be needed would be
determined following DOEE’s review of the CSA report.
Based on work conducted by the joint venture’s
environmental consultant, the Company believes that any offsite contamination is unrelated to the tanks removed from the joint
venture’s property. The Company does not believe that this case will have a material adverse impact on the Company.
Additionally, Note 12 to the consolidated financial
statements included in the accompanying 2020 Annual Report to Shareholders is incorporated herein by reference.
Item 4. MINE SAFETY DISCLOSURES.
None.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY,
RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
There were approximately 339 holders of record
of FRP Holdings, Inc. common stock, $.10 par value, as of December 31, 2020. The Company's common stock is traded on the Nasdaq
Stock Market (Symbol FRPH).
Price Range of Common Stock. Information
concerning stock prices is included under the caption "Quarterly Results" on page 9 of the Company's 2020 Annual Report
to Shareholders, and such information is incorporated herein by reference.
Dividends. The Company has not paid
a cash dividend in the past and it is the present policy of the Board of Directors not to pay cash dividends. Information concerning
restrictions on the payment of cash dividends is included in Note 4 to the consolidated financial statements included in the accompanying
2020 Annual Report to Shareholders, and such information is incorporated herein by reference.
Securities Authorized for Issuance Under
Equity Compensation Plans. Information regarding securities authorized for issuance under equity compensation plans is included
in Item 12 of Part III of this Annual Report on Form 10-K, and such information is incorporated herein by reference.
Purchases of Equity Securities by the Issuer
and Affiliated Purchasers
(c)
Total
Number of
Shares (d)
Purchased Approximate
(a) As Part of Dollar Value of
Total (b) Publicly Shares that May
Number of Average Announced Yet Be Purchased
Shares Price Paid Plans or Under the Plans
Period Purchased per Share Programs or Programs (1)
October 1
Through
November 1
Through
December 1
Through
(1) On February 4, 2015, the Board
of Directors authorized management to expend up to $5,000,000 to repurchase shares of the Company’s common stock from time
to time as opportunities arise. On December 5, 2018, the Board of Directors approved a $10,000,000 increase in the Company’s
stock repurchase authorization. On August 5, 2019, the Board of Directors approved a $10,000,000 increase in the Company’s
stock repurchase authorization. On May 6, 2020, the Board of Directors approved a $10,000,000 increase in the Company’s stock
repurchase authorization. On August 26, 2020, the Board of Directors approved a $10,000,000 increase in the Company’s stock
repurchase authorization.
Item 6. SELECTED FINANCIAL DATA.
Information required in response to this Item
6 is included under the caption "Five Year Summary" on page 9 of the Company's 2020 Annual Report to Shareholders and
such information is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION.
Information required in response to Item 7
is included under the caption "Management’s Discussion and Analysis of Financial Condition and Results of Operation"
on pages 10 through 21 of the Company’s 2020 Annual Report to Shareholders, and such information is incorporated herein by
reference.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.
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.
Under the Wells Fargo Credit Agreement, the
applicable margin for borrowings at December 31, 2020 was Daily 1 Month 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 outstanding at December 31, 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.
For our debt instruments with variable interest
rates, changes in interest rates affect the amount of interest expense incurred. The following table provides information about
the Company’s long-term debt and variable rate debt outstanding at December 31, 2020 (dollars in thousands):