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 2022 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, 2022 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, 2022, 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, 2022 (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 2022 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 principal 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, 2022.
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 2022, 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, 2023.
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, 2023.
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
performance share awards shown in
table is $325,920. For illustrative purposes, the maximum 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, 2023 ($54.32). 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, 2023.
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, 2023.
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, 2023.
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 26 of this Form 10-K.
(3) Exhibits.
The response to this item is submitted
as a separate section. See Exhibit Index on pages 24 through 25 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 22, 2023 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 22, 2023.
(Principal Executive Officer) /s/ John S. Surface John S. Surface Director
FRP HOLDINGS, INC.
FORM 10-K FOR THE FISCAL YEAR
ENDED DECEMBER 31, 2022
EXHIBIT INDEX
Item 15(a)(3)
21.1 Subsidiaries of Registrant at December 31, 2022
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 57-75
Report of Independent Registered Public Accounting Firm 77-78
Selected quarterly financial data (unaudited) 36-37
Consent of Independent Registered Public Accounting Firm 27
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 22, 2023, 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 22, 2023
Annual Report 2022
CONSOLIDATED FINANCIAL HIGHLIGHTS
Years ended December 31
(Amounts in thousands except per share
amounts)
%
Equity in loss of joint ventures $ (5,721 ) (5,754 ) (0.6 )
Gain on sale of real estate $ 874 805 8.6
Gain (loss) attributable to noncontrolling interest $ (518 ) 11,879 (104.4 )
Net income attributable to the Company $ 4,565 28,215 (83.8 )
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 the re-deployment of cash from asset sales, real estate operations, and mining royalties, into new assets that allow management to
exploit its knowledge and expertise. The asset classes of choice are mixed-use, industrial, raw land, existing buildings, and repeatable
strategic partnerships located in core markets with growth potential. Emphasis will be placed on generating returns through opportunistic
disposition, as well as 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) diligent, sustainable
growth.
To Our Shareholders,
Time is a funny thing. The same summer
day that seems to last forever to the boy, is more or less the blink of an eye to his father. A school year is an eternity to a student,
and yet the same year for the teacher or the parent running carpool passes so quickly as to have almost ended moments after it began.
The way time seemingly speeds up as one gets older is the basis of a theory that in terms of the way we perceive time, our lives
are halfway over by the time we turn 18. Youth, maybe even more than we realized, is wasted on the young. That’s a pretty depressing
thought. And yet it gives one heart that even though time appears to move faster and faster, a lot can still happen in a year. This Company
had so much going on in 2022, that it is hard to fathom (what with time moving so fast) that we got it all done in just 365 days. In 2022,
we made our first mining royalty acquisition in a decade with our purchase of the Bland Property in Astatula, Florida, which helped propel
us to our largest revenue year ever for that segment. 2022 saw the stabilization and permanent financing of Riverside in Greenville, South
Carolina, as well as the completion of construction on and lease-up of both .408 Jackson (also in Greenville) and The Verge in DC. In
2022, we added to our industrial development pipeline with the purchase of a new site in Cecil County, Maryland capable of supporting
900,000 square feet of industrial development, and we passed a major pre-development milestone with the unappealable annexation into Aberdeen,
Maryland of our 54 acres adjacent to Cranberry Run Business Park on which we plan to build 690,000 square feet of industrial. This past
year saw meaningful increases in revenue, operating profit, and pro-rata NOI across all segments with the highest pro-rata NOI total ever
for Stabilized Joint Ventures (17.05% increase to $9.47 million vs $8.09 million in 2021), the highest NOI total for Mining Royalties
(13.62% increase to $10.15 million vs $8.94 million in 2021), and the highest NOI total (39.22% increase to $2.67 million vs $1.92 million
in 2021) for our Asset Management segment since the sale of our warehouse portfolio in 2018. Far and away the biggest news of 2022, however,
was our announcement in the beginning of the fourth quarter of our agreement to partner with Steuart Investment Company (SIC) and MidAtlantic
Realty Partners (MRP) in developing our collective properties in the Capitol Riverfront and Buzzard Point submarkets of Washington, DC.
We’ve mentioned the details of this agreement a number of times, but it bears repeating—this partnership plans to build over
three million square feet of mixed-use development comprising 3,000 residential units and 150,000 square feet of retail spread amongst
10 distinct multi-family projects (including Dock 79, The Maren, and The Verge) on or near the water. This deal took over two years of
overtures, meetings, and negotiations to put in place, but the end result, in the words of Hamlet, “is a consummation devoutly to
be wished.” It will take over a decade to realize, but when all is said and done, your Company will have a meaningful share of nearly
every asset visible from the south entrance of the nation’s capital.
ASSET MANAGEMENT
The Asset Management segment, our industrial
assets in particular, produced strong results in 2022. Increased occupancy and rent increases at our Cranberry Run Business Park as well
as full occupancy at one of the two new spec buildings at Hollander accounted for a 43% increase in revenue over calendar year 2021 as
well as a 39.22% increase in NOI. All seven of our industrial assets are 100% leased, and six of the seven industrial buildings in-service
are 100% occupied with occupancy expected on the seventh in the first half of 2023. Looking forward, we have completed construction on
a 101,750 square foot build-to-suit warehouse project and are awaiting the final certificate of occupancy and expect the tenant to move
in some time in the first half of 2023. We have three other properties in our industrial development pipeline in various stages of predevelopment:
170 acres in Cecil County, Maryland, purchased in September 2022 and capable of supporting 900,000 square feet of industrial for which
we are currently pursuing entitlements; 17 acres in Aberdeen, Maryland where we have submitted grading and building permit applications
for 259,000 square-foot warehouse; and a 54 acre site adjacent to our Cranberry Run Business Park capable of 690,000 square feet of industrial
which was just annexed into the town of Aberdeen, Maryland. Given the current state and recent performance of our industrial portfolio,
management is excited to move forward with these projects in what has been, along with mining royalties, this Company’s “bread
and butter.” With nearly 1,850,000 square feet of potential industrial in our development pipeline, when the dust settles on these
projects, we will have expanded our existing industrial footprint by 358% to roughly 2.4 million square feet.
STABILIZED JOINT VENTURES
Stabilized Joint Ventures experienced a
shot in the arm to begin the year as the District of Columbia finally lifted its emergency protocols and allowed for rent increases on
renewals. Both properties benefitted from this return to free market economics. This year, 61.45% of expiring leases at The Maren renewed
with an average increase in rent of 8.17%, and 61.40% of expiring leases renewed at Dock 79 with an average increase in rent of 5.91%.
Increases seemed to pick
up steam over the course of the year, culminating
in fourth quarter renewals of 42.31% of expiring leases at Dock 79 and 61.90% at The Maren, with an average rent increase on renewals
of 8.89% and 11.14% respectively. This year we began to track “trade outs”—the increase in rent on a new lease when
we were not able to renew an expiring one. In 2022, we saw an increase in rent on these trade outs of 7.4% at The Maren and 12.6% at Dock.
Inflation certainly has something to do with the numbers you’re seeing here, but it also demonstrates the extent to which rents
were held back by DC’s emergency protocols and just how far we had to push rents to get them back in line with what they should
have been barring restrictions. Of course, the desirability of the assets in question had something to do with why we were able to attempt
this in the first place. As mentioned previously, as part of the deal we reached in the fourth quarter with Steuart Investment Company,
SIC is now a 20% partner in both Dock 79 and The Maren. SIC paid $65.3 million for their 20% stake, which places a $326.5 million combined
valuation on Dock 79 and The Maren. Point being, we are excited about this new partnership and what it will build, but SIC’s
investment in our Riverfront projects shows how excited it is about what we have already built. In the third quarter of 2022, we added
Riverside, our joint venture with Woodfield Development in Greenville, South Carolina, to the Stabilized Joint Ventures Segment after
it achieved stabilization (90% occupancy for 90 days). As mentioned previously, we were concurrently able to permanently finance this
joint venture with a $32 million loan with a term of eight years at a fixed rate of 4.92%. This loan is interest-only for the first five
years and has no prepayment penalty after the first three. Riverside achieved stabilization in what management believed was a remarkably
short period of time (even accounting for how fast time passes for adults). Lease-up began in the third quarter of 2021 and we achieved
stabilization in the third quarter of 2022. That and the fact that the building’s 200 units were 98% leased with 92.5% occupancy
at year end speaks to the strength of the Greenville market and gives us confidence as we begin lease-up of .408 Jackson, our second joint
venture with Woodfield in Greenville.
MINING ROYALTIES
2022 was a huge year for mining royalties.
In the fourth quarter, the segment had its highest revenue quarter ever ($2.9 million), closing the books on its best year ever. Prior
to 2022, mining royalties had never achieved $10 million in revenue in any fiscal year. In 2022, this segment had over $10 million in
NOI. Surpassing the $10 million mark with $10.7 million in revenue, a 12.9% improvement over 2021, was primarily due to the acquisition
of the Bland Property (adjacent to, and part of the same Vulcan sand plant as our existing land in Astatula, Florida). As you may recall,
we purchased this property in April of 2022 for $11.6 million. This was the first property added to this segment since 2012 and only the
second property we’ve purchased for mining royalties since 1986. It contains roughly 21.8 million tons in sand reserves on 1,500
acres and right now is our biggest royalty producing property by revenue. Looking into 2023, we are still confident in the underlying
fundamentals of this business. Increased demand in 2022 made for meaningful price increases (Martin Marietta: 10.5% increase on average
selling price over 2021, Vulcan Materials: 12.4% increase on average selling price in Q3 2022), and demand should remain strong in 2023
and beyond. Total federal highway spending is expected to be in the ballpark of $72 billion this year, and over $102 billion in highway,
bridge, and tunnel projects were awarded in 2022, a 24% increase over the previous year. The Cornyn-Padilla amendment to the 2023 Congressional
Appropriations Bill, now allows states to divert unused Covid relief funds for infrastructure projects. To that end, in June 2022, Florida
released the largest budget in the history of the Florida Department of Transportation with over $12 billion in planned infrastructure
investment over the course of five years. The boost in demand from the increase in infrastructure investments described above should translate
into price increases and help continue to drive the bottom line in this segment.
It has been management’s goal for
the last five years to put the proceeds of the asset sale to work in new projects. While we have continued to put money to work in the
form of new investments, the goal of having a home for all our excess cash has eluded us. Naturally it follows that since our last major
round of share buybacks in 2021, we have received a number of inquiries regarding our plans for returning at least part of the cash on
our balance sheet to investors in the form of additional buybacks or dividends. If it was ever a consideration, the agreement with SIC
and MRP has eliminated it. With the industrial and multifamily projects we have in front of us, it will take all of our current cash as
well as future cash flow to be able to make the equity investments that we have laid out over the next decade plus while maintaining a
reasonable capital cushion. It is true that we are not building everything at once, and in every proforma we have run, there is always
a healthy amount of cash in the till. But as we grow and have multiple projects in various stages of development, we believe our cash
is entirely too important as a capital cushion to risk what we’ve built by committing to dividends or further leveraging the Company
through a meaningful buyback program. It is management’s position that dividends are for mature companies, not growing ones. And
for the time being, we are definitely a growth company.
The near-term macroeconomic future is somewhat murky
to say the very least. Inflation and economic growth play a daily tug-of-war with an increasingly schizophrenic market. While we are planning
to grow, we are not going to be so committed to our current vision that it risks what has already been built. We have been very conservative
in how we’ve grown the assets we own outright, and we have been just as careful in choosing partners in our joint ventures that
share our same attitude of deliberate, considerate growth and investment. Whether a recession is around the corner, or the Fed can achieve
a soft landing is important to us, but it will not make or break this Company or our ability to grow it. To borrow from Hamlet again,
“There is a special providence in the fall of a sparrow. If it be now, ‘tis not to come; if it be not to come, it will be
now; if it be not now, yet it will come. The readiness is all.” This Company—your Company—will be ready.
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 21,000 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,
2022, the Asset Management Segment includes eight buildings at four commercial properties owned by the Company 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 100% 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 100.0% leased and 45.4%
occupied.
Mining Royalty Lands Segment – Mining Properties.
The Company owns a fee simple interest in 14 open pit aggregates quarries located in Florida, Georgia and Virginia, which comprise approximately
16,650 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; totaling 13,876 acres)
are currently being mined, and five of the Company’s quarries (located in Marion County, FL, Lake Louisa, FL, Astatula, FL, Lake
Sand, FL and Forest
Park, GA; totaling 2,778
acres) 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, 2022, 2021 and
2020, aggregate tons sold with respect to the Company’s mining properties were approximately 9,525,000, 7,575,000 and 8,206,000,
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. Cemex
expects to begin mining after completing the work necessary to prepare this site to become an active sand mine.
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 2022, 244,000 tons were sold.
Mining Royalty Lands Segment - Other Properties.
The segment also owns an additional 36 acres of investment property in Brooksville, Florida.
Development Segment – Warehouse/Office Land.
At December 31, 2022, this segment owned the following
future development parcels:
Development Segment – Land Held for Investment
or Sale.
At December 31, 2022, this segment owned the following
development parcels:
Phase 3 and Phase 4 remain under a first-stage
PUD approval expiring April 5, 2023, permitting 500,000 square feet of development.
Stabilized Joint Venture Segment.
At December 31, 2022, 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:
Income from discontinued operations, net $ — — — 6,856 122,129
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 pro-rata 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. and Greenville, South Carolina;
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 2022.
· 43.0% increase in asset management revenue versus last year
· Sale of Hickory Creek for $8.83 million on an investment of $6 million.
DC including sale of 20% ownership
interest in tenancy-in-common (TIC) of Dock 79 and The Maren for $65.3 million, $44.5 million attributable to the Company.
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, 2022, the Asset Management Segment
includes eight buildings at four commercial properties owned by the Company 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 100% 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 100.0% leased and 45.4%
occupied.
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 16,650 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, 2022, a total of 9.5 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, 2022, 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
(including those in the Stabilized Joint Venture Segment) 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
The major classes of assets, liabilities and equity
of the Company’s Investments in Joint Ventures as of December 31, 2022, are summarized in the following two tables (in thousands):
Buzzard Point Bryant Street Estero 1800 Half St. Greenville Apartment/
Sponsor, LLC Partnership Partnership Partnership Partnership Mixed-Use
Brooksville BC FRP Lending Apartment/ Grand
Quarry, LLC Realty, LLC Ventures Mixed-Use Total
Stabilized Joint Venture Segment.
At year end, the segment included 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. From
March 2020 through the end of 2021, we were prohibited from increasing rent on renewals by emergency measures in Washington, DC designed
to ease the burden of the pandemic on its citizens. These measures expired at the end of 2021. 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
(dollars in thousands) Twelve Months Ended December 31,
Revenues:
Cost of operations:
Net income attributable to the Company for 2022 was
$4,565,000 or $.48 per share versus $28,215,000 or $3.00 per share in the same period last year. Net income for calendar year 2021 included
a gain of $51.1 million on the remeasurement of investment in The Maren real estate partnership, which is included in Income before income
taxes. This gain on remeasurement was mitigated by a $10.1 million provision for taxes and $14.0 million attributable to noncontrolling
interest. The calendar year 2022 was impacted by the following items:
Asset Management Segment Results