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 2021 Annual Report to Shareholders, and such information is incorporated herein by reference.
Item 7.A 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, 2021 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, 2021, 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 presents the principal cash flow payments
associated with our outstanding debt by year, weighted average interest rates on debt outstanding each year-end, and fair value of total
debt as of December 31, 2021 (dollars in thousands):
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA.
Information required in response to this Item 8 is
included under the caption "Quarterly Results" on page 9 and on pages 22 through 41 of the Company's 2021 Annual Report to Shareholders.
Such information is incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
Item 9A. CONTROLS AND PROCEDURES.
CONCLUSION REGARDING THE EFFECTIVENESS OF DISCLOSURE
CONTROLS AND PROCEDURES
Under the supervision and with the participation of
our management, including our principal executive officer, principal financial officer and chief accounting officer, we conducted an evaluation
of our disclosure controls and procedures, as such terms are defined under Rule 13a-15(e) promulgated under the Exchange Act. Based on
this evaluation, our principal executive officer, our principal financial officer and our chief accounting officer concluded that our
disclosure controls and procedures were effective as of the end of the period covered by this Annual Report.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER
FINANCIAL REPORTING
Our management is responsible for establishing and
maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision
and with the participation of our management, including our principal executive officer, principal financial officer and principal accounting
officer, we conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework in the
Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on our evaluation under the framework in the Internal Control-Integrated Framework (2013), our management concluded that
our internal control over financial reporting was effective as of December 31, 2021.
This Annual Report does not include an attestation
report of our Independent Registered Public Accounting Firm, Hancock Askew & Co., LLP, regarding internal control over financial reporting.
Management’s report was not subject to attestation by our Independent Registered Public Accounting Firm pursuant to rules of the
Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report.
CHANGE IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the fourth quarter of 2021, there were no changes
in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
INHERENT LIMITATIONS OVER INTERNAL CONTROLS
Our internal control over financial reporting is designed
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements
for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes
those policies and procedures that:
Internal control over financial reporting cannot provide
absolute assurance of achieving financial reporting objectives because of its inherent limitations, including the possibility of human
error and circumvention by collusion or overriding of controls. Accordingly, even an effective internal control system may not prevent
or detect material misstatements on a timely basis. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or
procedures may deteriorate.
ITEM 9B. OTHER INFORMATION.
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS
THAT PREVENT INSPECTIONS.
Not applicable.
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE.
The Company has adopted a Financial Code of Ethical
Conduct applicable to its principal executive officers, principal financial officers and principal accounting officers. A copy of this
Financial Code of Ethical Conduct is filed as Exhibit 14 to this Form 10-K. The Financial Code of Ethical Conduct is also available on
our web site at www.frpdev.com/investor-relations/corporate-governance/.
The rest of the information required in response to
this Item 10 is included under the captions “Board of Directors & Corporate Governance”, “Our Executive Officers”,
“Securities Ownership” in the Company's Proxy Statement, and such information is incorporated herein by reference. The Proxy
Statement will be filed with the Securities and Exchange Commission not later than March 31, 2022.
Item 11. EXECUTIVE COMPENSATION.
Information required in response to this Item 11 is
included under the caption “Executive Compensation” in the Company's Proxy Statement, and such information is incorporated
herein by reference. The Proxy Statement will be filed with the Securities and Exchange Commission not later than March 31, 2022.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
Equity Compensation Plan Information
Number of Securities
remaining available
Number of Securities for future issuance
to be issued upon Weighted average under equity
exercise of exercise price of compensation plans
outstanding options, outstanding options, (excluding securities
warrants and rights warrants and rights reflected in column (a))
Plan Category (a) (b) (c)
Equity compensation plans
Equity compensation plans
not approved by security holders 0 0 0
payout of the performance share awards
has been assumed, and the number of performance share awards has been calculated using our closing stock price on March 2, 2022 ($58.06).
The performance share awards are subject to partial or complete forfeiture if the vesting criteria are not met. Because some or all of
the performance share awards may not vest, and because the number of shares of restricted stock to be issued thereunder is dependent on
future stock prices, columns (a) and (c) may overstate or understate expected dilution.
The remainder of the information
required in response to this Item 12 is included under the captions “Securities Ownership” in the Company's Proxy Statement,
and such information is incorporated herein by reference. The Proxy Statement will be filed with the Securities and Exchange Commission
not later than March 31, 2022.
Item 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Information required in response to this Item 13 is
included under the captions “Related Party Transactions” and “Board of Directors & Corporate Governance” in
the Company's Proxy Statement, and such information is incorporated herein by reference. The Proxy Statement will be filed with the Securities
and Exchange Commission not later than March 31, 2022.
Item 14. PRINCIPAL ACCOUNTING FEES AND
SERVICES.
Our independent registered accounting firm is
Hancock Askew & Co., LLP, Jacksonville, Florida, Firm 794. Information required in response to this Item 14 is included under
the captions “Proposal 2: The Auditor Proposal” in the Company’s Proxy Statement, and such information is
incorporated herein by reference. The Proxy Statement will be filed with the Securities and Exchange Commission not later than March
31, 2022.
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT
SCHEDULE.
(a) (1) Financial Statements.
The response to this item is submitted
as a separate section. See Index to Financial Statements on page 27 of this Form 10-K.
(3) Exhibits.
The response to this item is submitted
as a separate section. See Exhibit Index on pages 25 through 26 of this Form 10-K.
Item 16. FORM 10-K SUMMARY.
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d)
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: March 30, 2022 By JOHN D. BAKER II
John D. Baker II
Chief Executive Officer
(Principal Executive Officer)
By JOHN D. BAKER, III
John D. Baker, III
Treasurer and Chief Financial Officer
(Principal Financial Officer)
By JOHN D. KLOPFENSTEIN
John D. Klopfenstein
Controller and Chief Accounting
Officer (Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on
March 30, 2022.
(Principal Executive Officer)
FRP HOLDINGS, INC.
FORM 10-K FOR THE FISCAL YEAR
ENDED DECEMBER 31, 2021
EXHIBIT INDEX
21.1 Subsidiaries of Registrant at December 31, 2021
31.1 Certification of John D. Baker II.
31.2 Certification of John D. Baker III.
31.3 Certification of John D. Klopfenstein.
101.INS XBRL Instance Document Taxonomy Extension Schema
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase
101.DEF XBRL Taxonomy Extension Definition Linkbase
101.LAB XBRL Taxonomy Extension Label Linkbase
101.PRE XBRL Taxonomy Extension Presentation Linkbase
FRP HOLDINGS, INC.
INDEX TO FINANCIAL STATEMENTS
(Item 15(a) (1) and 2))
Page
Consolidated Financial Statements:
Consolidated statements of income 52
Consolidated statements of comprehensive income 53
Consolidated statements of cash flows 55
Consolidated statements of shareholders' equity 56
Notes to consolidated financial statements 57-76
Report of Independent Registered Public Accounting Firm 78-79
Selected quarterly financial data (unaudited) 37-38
Consent of Independent Registered Public Accounting Firm 28
All schedules have been omitted, as they
are not required under the related instructions, are inapplicable, or because the information required is included in the consolidated
financial statements.
Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
FRP Holdings, Inc.
Jacksonville, Florida
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333- 125099, 333-131475 and 333-216025) of FRP Holdings, Inc. of our report dated March 30, 2022, relating to the consolidated financial statements which appear in the Annual Report to Shareholders incorporated by reference herein.
Respectfully submitted,
Hancock Askew & Co., LLP
Jacksonville, Florida
March 30, 2022
Annual Report 2021
CONSOLIDATED FINANCIAL HIGHLIGHTS
Years ended December 31
(Amounts in thousands except per share
amounts)
%
Equity in loss of joint ventures $ (5,754 ) (5,690 ) 1.1
Gain on remeasurement of investment in real estate partnership $ 51,139 — —
Gain (loss) attributable to noncontrolling interest $ 11,879 (993 ) 1296.3
Per common share:
Net income attributable to the Company:
BUSINESS. FRP Holdings, Inc. is
a holding company engaged in the real estate business, namely (i) leasing and management of commercial properties owned by the Company,
(ii) leasing and management of mining royalty land owned by the Company, (iii) real property acquisition, entitlement, development and
construction primarily for apartment, retail, warehouse, and office buildings either alone or through joint ventures, (iv) ownership,
leasing and management of buildings through joint ventures. The Company’s operating subsidiaries are FRP Development Corp. and Florida
Rock Properties, Inc.
STRATEGY. Our strategy consists
of a re-deployment of proceeds from the May 2018 warehouse sale into asset classes that allow management to exploit its knowledge and
expertise. The asset classes of choice are mixed-use, raw land, existing buildings, and strategic partnerships located in core markets
with growth potential. Emphasis will be placed on generating returns through opportunistic disposition versus cash-flow and long-term
appreciation.
OBJECTIVE. We strive to improve
shareholder value through (1) active engagement with properties and partners to grow asset value, (2) contributing our operating expertise
and connections to maximize value and NOI growth, and (3) manage our capital structure in an efficient and responsible manner, with a
watchful eye on projected future market conditions and trends to facilitate timely disposition of selected assets, (4) balancing growth
against market pressure.
To Our Shareholders,
There is a concept in the study of cognitive behavior
known as “recency bias.” It is a phenomenon you are no doubt familiar with even if you have never heard the term. It is a
memory bias that favors recent events over historical ones, granting what is fresh in our memory a potency lacking in the more distant
past. This bias leads us to immediately declare the Chiefs-Bills playoff game as the greatest of all time (though that might actually
be true). A C-SPAN clip causes us to claim (incorrectly) that America has never been more politically divided, allowing the partisan name-calling
of today to seem more bitter than the Civil War. So, as we look forward into 2022 with 2021 fresh in our minds, some might feel a sense
of frustration. With the seemingly never-ending conveyor belt of new Covid variants, the looming specter of inflation, the moving targets
of herd immunity and normalcy—there is a temptation, and even a compulsion, to get caught up in the moment and think that after
another year of uncertainty, we are right back where we started, cautiously optimistic perhaps, but more cautious than optimistic. No
progress has been made, second verse same as the first. And yet, that description could not be less accurate.
2020 was a truly awful year—in another example
of recency bias, some were (mistakenly) inclined to call it the worst year in American history. It was chaotic, uncertain, and downright
scary—a period of time when keeping one’s head above water felt like real progress. That is not an accurate description of
most of 2021, particularly for this Company. In 2020, we were happy to see our assets behave normally in abnormal times. This year, we
wanted to move beyond normal, and begin enacting the first stage of a meaningful period of growth for this Company. By and large, we have
delivered on that.
This year saw the stabilization of The Maren; the
permanent financing of the Maren and the refinancing of Dock 79 at extremely favorable terms; the completion of construction on Riverside,
our first multifamily joint venture in Greenville, South Carolina; and the completion of construction at Bryant Street, where our anchor
retail tenant is in and operating and residential occupancy is over 50%. In 2021, we finished construction on two new warehouses at our
Hollander Business Park and began construction on a third, effectively exhausting all available developable inventory in our land bank,
and we sought to remedy exhausting our land bank by purchasing 17 acres of future industrial space. Finally, after years of speculating
on when, and even if, it might happen, Congress passed an infrastructure bill which should have a meaningful impact on future mining royalty
revenues. We ended 2020 with 569 multifamily units, 267,737 square feet of industrial, and $17,051,000 in NOI. At the end of 2021, we
had 1,256 multifamily units, 413,327 square feet of industrial, and $20,815,000 in NOI.
Despite selling our warehouse portfolio in 2018, we
remain committed to industrial real estate as an asset class through value-add purchases like Cranberry Run as well as developing our
remaining pad sites at Hollander Business Park. 2021 represented a big step forward in that commitment. As mentioned previously, this
year we completed construction on two new warehouses at Hollander totaling 145,590 square feet, we began construction on a 101,750 square-foot,
build-to-suit, and we purchased 17 acres in Harford County, Maryland where we plan to develop a 250,000 square foot, Class A warehouse
which will comprise the entirety of the developable space on the site. That is 497,000 square feet of industrial development. When added
to the 625,000 square feet of industrial development we have planned for our Crause Property adjacent to Cranberry Run which we purchased
last year, then we are talking about over a million square feet of industrial that did not exist prior to Covid.
The 2021 highlights of the Stabilized Joint Venture
segment have been mentioned previously but bear repeating. In March, the Maren achieved stabilization, meaning 90% of its units were leased
and occupied, triggering a change in control with the end result being that the asset is now consolidated on to our books in exactly the
same way Dock 79 is. Its balance sheet is now part of our balance sheet and its income statement flows through the Company’s income
statement. In addition to the one-time gain on remeasurement of $51.1 million, this consolidation has impacted and will continue to impact
our depreciation and amortization, greatly increasing both. As a result, the impact on net income may in fact be negative for some time,
but the positive impact on our NOI and cash flow will be significant. Around the same time that the Maren reached stabilization, the Company
simultaneously negotiated both the permanent financing of the Maren and a refinancing of Dock 79. This $180 million loan ($92 million
for Dock 79, $88 million for The Maren) lowered the interest rate at Dock 79 from 4.125% to 3.03%, deferred any principal payments for
12 years for both properties, and repaid our $13.75 million in preferred equity along with $2.3 million in accrued interest.
Covid measures continue to hamstring our retail tenants,
but a full baseball season with fans, particularly in the warm weather months when outdoor seating is not a problem, was
especially meaningful for our retail tenants in light of the
difficulties they faced in 2020. Build out of The Maren’s second retail space was completed at the beginning of 2022 and the retail tenant is open for business. Occupancy was strong throughout the year for both assets. Dock 79 was more than 94% occupied at the end of each
quarter in 2021 which is the first such year for this asset. Average annual occupancy was 95.47% for Dock 79, which is in line with the
highest average annual occupancy we’ve ever had there and an improvement over 2020’s rate of 93.13%. Average occupancy at
the Maren since stabilization was 94.84%. Renewal rates on expiring leases were strong for both buildings. 62.20% of Dock 79’s expiring
leases renewed vs 57.14% in 2020, and as the first generation of leases at the Maren expired, 67.40% renewed. These are positive developments,
to be sure, but the ability to grow NOI was mitigated severely by the fact that the District kept emergency protocols in place, preventing
us from evicting non-paying tenants and raising rent on renewals. Though evictions remain a long and complicated process, the prohibition
on raising rents was allowed to lapse at the end of 2021. Since we start renewal discussions several weeks in advance of expiration, the
prospect of rent increases will not kick in until February, and it remains to be seen if the renewal rates we saw during the rent freeze
persist when rents start moving more in line with where the market rather than the District dictates.
Construction continues on The Verge, our joint venture
with MRP in Buzzard Point, as well as .408 Jackson, our joint venture with Woodfield Development. We expect both projects to be complete
and leasing to begin in the third quarter of 2022. More pressing, as alluded to earlier, is the fact that we have finished construction
on both Bryant Street and Riverside. Bryant Street is a joint venture with MRP for the first phase of a multi-family mixed use project
in northeast Washington, DC. We have invested $32 million in common equity and another $23 million in preferred equity in this four building,
487-unit development. From both a capital and size perspective, Bryant Street is a big bet on the DC multi-family market. Construction
is now complete on all four buildings, leasing is underway, and our retail anchor, Alamo Drafthouse Cinema, is open for business. At year
end, Bryant Street’s residential units are 56.1% leased and 50.9% occupied, and its commercial space is 82.5% leased and 61.7% occupied.
Bryant Street’s primary amenities are the Alamo Drafthouse and its proximity to the DC Metro. Public transportation and indoor entertainment
are not yet the draws they used to be, but this project is an opportunity zone investment, and it is our intent to retain the property
for the ten-year hold period required to realize the full tax benefits associated with this program. We have a lengthy investment time
horizon on this project and we still believe the long term fundamentals are in place to make it successful. As mentioned previously, this
year we also completed construction on Riverside, our first multifamily joint venture in Greenville, South Carolina. Leasing began in
the third quarter on this 200-unit project, and at year end, it is 60% leased and 49% occupied.
The aggregates business is cyclical. Its three main
drivers are home construction, commercial construction, and infrastructure, and the first two correlate very strongly with the economy
and business cycle. A decade of more-or-less uninterrupted growth combined with the pricing power of aggregates producers has been very
kind to our mining tenants and this Company in turn. Since 2011, our royalty income has achieved a compound annual growth rate of 9%,
which while impressive, is perhaps unsustainable. Trees, as the saying goes, do not grow to the sky. If growth is the story of this Company
over the past year, mining royalties is seemingly the only segment that does not fit that narrative. Royalty revenue was slightly down
this year, and while steady, revenue has been more or less flat for the last three years (2019: $9.44 million; 2020: 9.48 million; 2021:
$9.47 million). A cursory glance at the numbers might lead a reasonable person to conclude that the segment has peaked or at the very
least plateaued. Anyone paying attention to this sector knows this is not the case. In 2019, the Company achieved $9 million in mining
royalty revenue for the very first time. In 2020, we were able to improve on the previous year’s mark despite the loss of double
minimums at our Lake Louisa location which left a $350,000 hole in revenue. In 2021, Vulcan temporarily shifted its mining activity off
our portion of the Manassas quarry leading to a $600,000 decrease in royalties at the location compared to 2020, and yet total royalty
revenue remained largely unaffected. That royalties were more or less flat two years in a row, despite major shortfalls in revenue at
specific locations, demonstrates the resilience of this segment and the quality of our tenants and locations. We have market exposure
in three of the country’s best aggregate producing states both in terms of production and pricing. Florida and Georgia, where the
bulk of our assets are located, have benefited in particular from accelerated migration to the Sun Belt where job growth and housing starts
continue to outpace the national average. These are markets where aggregates demand is already high, so the Infrastructure Investment
and Jobs Act will meaningfully impact our mining tenants. In whatever form this Act’s $110 billion investment in hard infrastructure
makes its way down to the markets our mining assets serve, the result will be an increase in demand when demand is already incredibly
high and supply is stretched. This should lead to meaningful price increases. We have always had the utmost confidence in our assets,
but we are particularly excited to see how they will perform in the next few years.
Every pandemic is different, but the one thing they
have in common is that they have all ended. The same will be true for
Covid. Unfortunately, 2021 was not the year it happened. The nation
and probably the world are suffering from Covid fatigue, and each variant that extends the abnormality that is our new, or at least current
normal, aggravates us. That aggravated recency bias can cause us to lose sight of how far we have come in the last two years. That is
true for this nation and it is true for this Company. As you have read in this letter, 2021 was a period of very meaningful growth where
we increased NOI by 22.11%, expanded our number of available multi-family units by 120.74%, and grew our industrial square footage by
54.38%. We are by no means at the finish line. This is merely the first step in a process to put our excess capital to work. While we
are pleased with the initial results, we will continue to work to ensure that, recency bias or not, this Company—your Company—is
one you are proud to own.
Respectfully yours,
John D. Baker II
C.E.O. and Executive Chairman
FORWARD LOOKING STATEMENTS
Certain matters discussed in this report
contain forward-looking statements, including without limitation relating to the Company's plans, strategies, objectives, expectations,
intentions, capital expenditures, future liquidity, and plans and timetables for completion of pending development projects. 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. The following factors and others discussed in the Company’s periodic reports and filings with
the Securities and Exchange Commission are among the principal factors that could cause actual results to differ materially from the forward-looking
statements: levels of construction activity in the markets served by our mining properties; risk insurance markets; availability and terms
of financing; competition; interest rates, inflation and general economic conditions; demand for warehouse/office facilities in the Baltimore-Washington-Northern
Virginia area; demand for apartments in Washington D.C., Richmond, Virginia and Greenville, South Carolina; and ability to obtain zoning
and entitlements necessary for property development. However, this list is not a complete statement of all potential risks or uncertainties.
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.
OPERATING 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,
2021, the Asset Management Segment owned four 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 267,737 square feet which are 81% occupied and 100% leased. The property is subject
to commercial leases with various tenants.
4) Hollander 95 Business Park in Baltimore City, Maryland
consists of two buildings totaling 145,590 square feet that were completed in the fourth quarter of 2021 and are 29.1% leased.
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 Company owns a fee simple interest in 13 open pit aggregates quarries located in Florida, Georgia and
Virginia, which comprise approximately 15,000 total acres. The Company’s quarries are subject to mining leases with various tenants,
including Vulcan Materials, Martin Marietta, Cemex, Argos, and The Concrete Company. Aggregates consist of crushed stone, sand, gravel,
fill dirt, limestone and calcium and are used primarily in construction applications.
Nine of the Company’s quarries (located in Grandin,
FL, Fort Myers, FL, Keuka, FL, Newberry, FL, Astatula, FL, Columbus, GA, Macon, GA, Tyrone, GA, and Manassas, VA; comprising 12,649 acres
in the aggregate) are currently being mined, and four of the Company’s quarries (located in Marion County, FL, Lake Louisa, FL,
and Lake Sand, FL and Forest Park, GA; comprising 2,452 acres in the aggregate) are leased but are not currently being mined. Our typical
mining lease requires the tenant to pay the Company a royalty based on the number of tons of mined materials sold from our mining property
during a given fiscal year multiplied by a percentage of the average annual sales price per ton sold. In certain locations, typically
where the reserves on the property have been depleted but the tenant still has a need for the leased land, we collect a minimum annual
rental amount. In the fiscal years ended December 31, 2021, 2020 and 2019, aggregate tons sold with respect to the Company’s mining
properties were approximately 7,575,000, 8,206,000 and 7,815,000, respectively.
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 March 2023.
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 2021, 280,000 tons were sold. 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 107 acres of investment property in Brooksville, Florida.
Development Segment – Warehouse/Office Land.
At December 31, 2021, this segment owned the following
future development parcels:
Development Segment – Land Held for Investment
or Sale.
At December 31, 2021, this segment owned the following
development parcels:
located in Middle River, Maryland, into
a multi-building business park consisting of approximately 329,000 square feet of single-story office space. The project will take place
in several phases, with construction of the first phase, which includes two office buildings and two retail buildings totaling 100,030-square-feet
(inclusive of 27,950 retail), commenced in the fourth quarter of 2017 and was completed in January 2019. At December 31, 2021 Phase I
was 48.0% leased and 46.7% occupied, the subsequent phases will follow as each phase is stabilized.
Stabilized Joint Venture Segment.
At December 31, 2021, this segment owned the following
stabilized joint ventures:
Five Year Summary
(Amounts in thousands except per share amounts)
Years Ended December 31,
Summary of Operations:
Per Common Share:
Per Common Share:
Financial Summary:
Other Data:
Quarterly Results (unaudited)
(Dollars in thousands except per share
amounts)
For the Quarter Ended
March 31, June 30, September 30, December 31,
Earnings per common share (a):
Net income attributable to the Company-
Market price per common share (b):
For the Quarter Ended
March 31, June 30, September 30, December 31,
Earnings per common share (a):
Net income attributable to the Company-
Market price per common share (b):
(a) Earnings per share of common stock is computed
independently for each quarter presented. The sum of the quarterly net earnings per share of common stock for a year may not equal the
total for the year due to rounding differences.
(b) All prices represent high and low daily
closing prices as reported by The Nasdaq Stock Market.
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 annual report for a more detailed discussion, including reconciliations of this non-GAAP financial measure to its most directly
comparable GAAP financial measure.
Executive Overview
FRP Holdings, Inc. (“FRP” or the “Company”)
is a real estate development, asset management and operating company businesses. Our properties are located in the Mid-Atlantic and southeastern
United States and consist of:
Lands leased to mining companies,
some of which will have second lives as development properties;
Residential apartments in Washington,
D.C.;
Warehouse or office properties
in the Mid-Atlantic states either existing or under development;
Mixed use properties under development
in Washington, D.C. or Greenville, South Carolina; and
Properties held for sale.
We believe our present capital structure, liquidity
and land provide us with years of opportunities to increase recurring revenue and long-term value for our shareholders. We intend to focus
on our core business activity of real estate development, asset management and operations. We are developing a broad range of asset types
that we believe will provide acceptable rates of return, grow recurring revenues and support future business. Capital commitments will
be funded with cash proceeds from completed projects, existing cash, owned-land, partner capital and financing arrangements. We do not
anticipate immediate benefits from investments. Timing of projects may be subject to delays caused by factors beyond our control.
Reportable Segments
We conduct primarily all of our business in the following
four reportable segments: (1) asset management (2) mining royalty lands (3) development and (4) stabilized joint ventures.
For more information regarding our reportable segments, see Note 10. Business Segments of our consolidated financial statements
included in this annual report.
Highlights of 2021.
Dock 79’s average annual occupancy was above
95% for the second time ever.
Third year in a row with mining royalties in excess
of $9.4 million.
Grew NOI by 22.11% from $17.05 million in 2020 to
$20.82 million in 2021
With construction complete on both Bryant Street
and Riverside, this year the Company added 687 residential units, an increase of 120.74% over last year
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 Company’s industrial warehouses typically lease for terms ranging from 3 – 10 years often
with 1 or 2 renewal options. All base rent revenue is recognized on a straight-lined basis. All of the commercial warehouse leases
are triple net and common area maintenance costs (CAM Revenue) are billed monthly, and insurance and real estate taxes are billed annually.
34 Loveton is the only office product wherein all leases are full service therefore there is no CAM revenue. Office leases are also
recognized on a straight-lined basis. 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 December 31, 2021, the Asset Management Segment
owned four 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 267,737 square feet which are 81% occupied and 100% leased. The property is subject
to commercial leases with various tenants.
4) Hollander 95 Business Park in Baltimore City, Maryland
consists of two buildings totaling 145,590 square feet that were completed in the fourth quarter of 2021and are 29.1% leased.
Management focuses on several factors to measure our
success on a comparative basis in this segment. The major factors we focus on are (1) net operating income growth, (2) growth in occupancy,
(3) average annual occupancy rate (defined as the occupied square feet at the end of each month during a fiscal year divided by the number
of months to date in that fiscal year as a percentage of the average number of square feet in the portfolio over that same time period),
(4) tenant retention success rate (as a percentage of total square feet to be renewed), (5) building and refurbishing assets to meet Class
A and Class B institutional grade classifications, and (6) reducing complexities and deferred capital expenditures to maximize sale price.
Mining Royalty Lands Segment.
Our Mining Royalty Lands segment owns several properties
comprising approximately 15,000 acres currently under lease for mining rents or royalties (excluding the 4,280 acres owned by our Brooksville
joint venture with Vulcan Materials). Other than one location in Virginia, all of these properties are located in Florida and Georgia. The
Company leases land under long-term leases that grant the lessee the right to mine and sell reserves from our property in exchange for
royalty payments. A typical lease has an option to extend the lease for additional terms. 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. In the
fiscal year ended December 31, 2021, a total of 8
million tons were mined.
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 entirely
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 include Vulcan Materials, Martin Marietta, Cemex, Argos and The
Concrete Company.
Additionally, these locations provide us with opportunities
for valuable “second lives” for these assets through proper land planning and entitlement.
Significant “2nd life” Mining
Lands:
Location Acreage Status
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.
Development Segment – Warehouse/Office Land.
At December 31, 2021, this segment owned the following
future development parcels:
We also 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.
Development Segment - Significant Investment Lands
Inventory:
Location Approx. Acreage Status NBV
Development Segment - Investments in Joint Ventures
The third leg of our Development Segment consists
of investments in joint venture for properties in development. The Company has investments in joint ventures, primarily with other real
estate developers which are summarized below:
Property JV Partner Status % Ownership
Joint ventures where FRP is not the primary beneficiary
are reflected in the line “Investment in joint ventures” on the balance sheet and “Equity in loss of joint ventures”
on the income statement. The following table summarizes the Company’s investments in unconsolidated 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 (1)
Riverfront Holdings II, LLC (1) — — (760 ) (628 )
Aberdeen Station Loan 514 514 — —
(1) Riverfront Holdings II, LLC was consolidated on
March 31, 2021, and reflected in Stabilized Joint Ventures.
The major classes of assets, liabilities and equity
of the Company’s Investments in Joint Ventures as of December 31, 2021, are summarized in the following two tables (in thousands):
Riverfront Bryant Street DST Hickory 1800 Half St. Greenville/ Apartment/
Holdings II, LLC Partnership Creek Partnership Woodfield Mixed Use
Brooksville BC FRP Aberdeen Amber Ridge Apartment/ Grand
Quarry, LLC Realty, LLC Loan Loan Mixed Use Total
Stabilized Joint Venture Segment.
Currently the segment includes three 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 Company’s residential spaces generally lease for 12 – 15-month lease terms and 90 days prior
to the expiration, as long as there is no balance due, the tenant is offered a renewal. If no notice to move out or renew is made, then
the leases go to month to
month until notification of termination or renewal
is received. Renewal terms are typically 9 – 12 months. In 2021, due to the DC legislation in place freezing rent increases
as a part of a covid relief plan, FRP was unable to increase rental rates for renewals. This legislation was lifted in February 2022.
The Company also leases retail spaces at apartment/mixed-use properties. The retail leases are typically 10 -15-year leases with
options to renew for another 5 years. Retail leases at these properties also include percentage rents which average 3-6% of annual
sales for the tenant that exceed a breakpoint stipulated by each individual lease. All base rent revenue is recognized on a straight-line
basis. The major cash outlays incurred in this segment are for property taxes, full service maintenance, property management, utilities
and marketing. The three stabilized joint venture properties are as follows:
Property and Occupancy JV Partner Method of Accounting % Ownership
COMPARATIVE RESULTS OF OPERATIONS
Consolidated Results