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 2023 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, 2023 was Daily Simple SOFR plus 2.25%.
The Company did not have any variable rate debt outstanding
at December 31, 2023, 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, 2023 (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 2023 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, 2023.
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 2023, 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 “Our Board of Directors”, “Corporate Governance, ESG and Our Approach to
Risk Management”, “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, 2024.
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, 2024.
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 6, 2024 ($60.51).
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 caption “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, 2024.
Item 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Information required in response to this Item 13 is
included under the captions “Corporate Governance, ESG and Our Approach to Risk Management” and “Our Board of Directors”
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, 2024.
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 caption
“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, 2024.
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 26, 2024 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 26, 2024.
(Principal Executive Officer) /s/ Matthew S. McAfee Matthew S. McAfee Director
/s/ Nicole B. Thomas Nicole B. Thomas Director
FRP HOLDINGS, INC.
FORM 10-K FOR THE FISCAL YEAR
ENDED DECEMBER 31, 2023
EXHIBIT INDEX
21.1 Subsidiaries of Registrant at December 31, 2023
31.1 Certification of John D. Baker II.
31.2 Certification of John D. Baker III.
31.3 Certification of John D. Klopfenstein.
97.1 FRP Holdings, Inc. Executive Officer Compensation Clawback Policy.
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 26, 2024, 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 26, 2024
Annual Report 2023
CONSOLIDATED FINANCIAL HIGHLIGHTS
Years ended December 31
(Amounts in thousands except per share
amounts)
%
Gain on sale of real estate and other income $ 53 874 (93.9 )
Loss attributable to noncontrolling interest $ (420 ) (518 ) (18.9 )
Net income attributable to the Company $ 5,302 4,565 16.1
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,
It is a truth universally acknowledged,
at least in the investment world, that diversification on the company level is unnecessary if not out-and-out a bad thing. The heyday
of the conglomerates like Gulf & Western or GE at its Jack Welch peak, with their hands in multiple assets and industries and global
markets, is over. Investor bias towards asset concentration makes sense on a number of levels: it prevents empire building; it is hard
enough to “get smart” on one industry, let alone a multitude of unrelated industries; investors don’t need companies
to diversify for them when they can do it themselves as they see fit. The biggest argument against diversification on the company level
is that it complicates things. Valuing one type of asset is easier than valuing multiple asset types.
This Company is not simple. Though far
from a conglomerate, we have several business segments in different and unrelated facets of the real estate industry. We have our in-house
projects and a multitude of joint ventures. The investor who knows the apartment business might not want to take the time to get to know
the industrial space and almost certainly has limited exposure to the aggregates business. That surface level complexity and lack of concentration
in one particular asset type is probably off-putting to some investors, especially for a company our size. We are arguably the corporate
version of what Scott Fitzgerald referred to as “that most limited of all specialists—the well-rounded man.”
Our complexity is also part of the heritage
of this Company, and we believe we have made it into an asset. Our mining royalties are the sole reason for this Company’s existence
and have been an instrumental component of the cashflow engine that has fueled our debt-free industrial development. We could have sold
our land on the Anacostia River in DC, and deemed multifamily development outside of our focus, and we would have closed the door on owning
some of the best assets in one of the greatest cities in the world. When we sold our industrial portfolio in 2018, we could have solely
concentrated on multi-family projects, and in doing so, we would have written off decades of industrial real estate experience, not to
mention the recent boom in industrial real estate values.
We are a full-service real estate developer
with expertise and experience in several asset classes at every stage of the development and ownership level. The ability to shift our
capital, focus, and level of exposure between different asset classes is a good thing, and we believe it has served and will continue
to serve this Company and its investors well. To that end, as we announced at our Investor Day in October, we are shifting our development
focus away from multifamily towards industrial. The combination of both the shrinking of margins in the multifamily space because of the
cost of debt and materials, as well as the softening of the DC market as a glut of post-covid projects came on line in the last two years,
has led us to believe we are better off delaying any multifamily projects in that market. We have long-term faith in the DC market, and
our partnership with MRP and the Steuart Investment Company to develop the Steaurt Family parcels is an amazing opportunity, but right
now the timing is wrong. At the same time, despite the cost of materials, the industrial market is still excellent, and we can finance
most of the development in our industrial pipeline on an all-equity basis. This is a perfect example of the benefit of having multiple
asset types in our development strategy.
Having a multifaceted development strategy
has served the Company well, but, as mentioned previously, it has also tended to muddy the waters for our investors. We are a small company,
but in less than a decade we have shifted from an industrial asset manager with some development, to a developer with some asset management.
Furthermore, we are a JV partner in a multitude of projects, a capital partner, a lender... it’s a lot, and it has tended to
make our quarterly filings a trip to proverbial firehose for a drink of water. While we have tried to play to our strengths and put our
cash to work, we have done a poor job of making our Company easier to understand. In our effort to grow shareholder value, we have made
it harder for investors to wrap their arms around everything we do. This complexity in a company our size is one reason why we believe
our stock price has never reflected our true net asset value. In theory, we could just keep our heads down and do our jobs and wait for
an efficient market to recognize the fruits of our labor. In reality, we have to be more proactive about explaining what we do, how we
do it, and where we are headed. It is our belief that our development strategy is a strength, maybe our biggest strength. But it also
makes us complex, and unless we want to turn our back on that very strategy, then we have to make it easier for the investing public to
understand us. Our Investor Day in October was a good start. Publishing a quarterly analysis of the estimated value of our assets is another
step in the right direction. We are far from done.
INDUSTRIAL AND COMMERCIAL
In an attempt to further clarify what we
do, we have renamed our “Asset Management” and “Stabilized Joint Venture” segments. Going forward, these will
be our “Industrial and Commercial” and “Multifamily” segments. This change is purely cosmetic and does not shift
assets between segments and requires no restatement of financial results. However, going forward, it does allow us to pursue industrial
joint ventures while still keeping like with like.
The Industrial and Commercial segment performed
well this year, growing revenues by 45.4% and NOI by 46.2% compared to 2022. These increases are partly the result of rent growth at our
Cranberry Run Business Park, but mostly due to a full year of 100% occupancy of two of our buildings at Hollander Business Park as well
as the addition to this segment in March 2023 of a fully occupied 101,750 square-foot, build-to-suit warehouse at Hollander. The strong
performance of this segment as well as the high demand for industrial product and its resilience to inflation is why we have shifted our
development focus towards industrial for the time being. Industrial is our “bread and butter” and expanding our footprint
will be the main focus of our development strategy for some time.
MULTIFAMILY
Our Multifamily business segment had a
mixed year. Dock 79 and the Maren experienced nominal revenue growth of 1.8% with average annual occupancy (94.36%, 95.60%), renewal rates
(68.29%, 53.23%), and increases on renewals (2.80%, 4.21%) in line with historic expectations. There was an expected drop in pro rata
NOI compared to last year, due to the sale of our 20% TIC interest in both buildings to SIC, but total NOI for the buildings is down compared
to last year. Rent growth did not keep pace with rising expenses and as mentioned previously, the DC market is soft right now due to a
significant number of buildings coming online after a Covid bottleneck, as evidenced by trade-outs at the Maren and Dock 79 of 1.90% and
-4.00% respectively. These are still excellent assets in a beautiful area as anyone who came to the Investor Day we held at Dock 79 can
attest to. They are financed interest-only through March 2033 at a rate (3.03%) that now feels like a historical anomaly. But the market,
like the Nationals, isn’t where it was before Covid, which is the reason why we’re hitting pause on multifamily development
in DC for the time being. And like the market (but maybe not the Nationals), we believe strongly in the long-term future of Dock 79 and
the Maren, but we just need to wait out this ebb in the market and focus on expenses.
Conversely, we remain excited about Riverside,
our JV with Woodfield Development in Greenville, SC. Riverside was added to this segment in the third quarter of last year after an exceptionally
brief lease-up and had an average annual occupancy of 94.51% with 55.41% of expiring leases renewing with an average increase of 8.46%.
Most importantly, Riverside added $800,000 of pro-rata NOI to this segment in its first full calendar year. We remain bullish about the
Greenville market and look forward to adding .408 Jackson to this segment when it stabilizes in early 2024.
MINING ROYALTY LANDS
Mining royalties had a very strong 2023.
Once again, we had our highest revenue year ever in this segment, growing revenues to $12,527,000, a 17.3% improvement over what had previously
been our best revenue year ever in 2022. Part of the reason for this increase was the additional royalties from the acquisition in Astatula,
FL that we completed in the second quarter of 2022, but the bulk of the increase came from increases in revenue at nearly every active
location. We are very fortunate to have the best operators in the aggregates industry for our tenants. Vulcan Materials, our primary tenant,
has been aggressive with their pricing, growing their average sales price at all locations by 15% over 2022, as reported in their third
quarter investor presentation. Martin Marrietta saw a 20% increase in average sales price according to their third quarter call. State
and federal infrastructure spending are expected to continue their upward trend with a 14% increase in total state highway and bridge
capital spending anticipated in 2024 (on top of a 13% increase in 2023). Combined with increases in non-residential construction, demand
in this sector should continue to be strong in 2024, even if interest rates dampen the pace of single-family home construction.
DEVELOPMENT
We have a three-part development strategy
which we use to grow our business: 1) In-House Development and Acquisition; 2) Joint Venture Development and Acquisition; and 3) Principal
Capital Source Lending. Since the sale of our legacy industrial assets in 2018, this three-pronged strategy is how we have gone about
putting our cash to work. Our In-House strategy includes our industrial, commercial, and land development platform. These properties are
acquired,
developed, and managed 100% by FRP and
transferred from Development to the Industrial and Commercial segment when construction is completed and the building has its certificate
of occupancy. As stated previously, industrial development through in-house projects as well as JV’s is the current focus of our
development strategy. We have three in-house projects in our industrial pipeline in various stages of development which will eventually
join and drive NOI growth in the Industrial and Commercial segment. During the second quarter of 2023, we broke ground on a 259,000 square-foot
building on our 17-acre parcel in Harford County, MD. We expect shell completion on this building in the third quarter of 2024. In North
East, MD, along the I-95 corridor, we are in the middle of pre-development activities on 170 acres of industrial land that will ultimately
support a 900,000 square-foot distribution center. We would be reluctant to build something this size as a spec building, but we will
be in a position to break ground as early as the fourth quarter of 2024 and would move forward on the project with an institutional capital
partner or take it on ourselves as a build-to-suit. Finally, we are studying multiple conceptual designs for our 55-acre tract in Harford
County, MD adjacent to the Cranberry Run Business Park. Our various configurations should yield from 600,000 to 700,000 square feet dependent
on final design parameters and market demands.
Completion of these three industrial development
projects will add over 1.8 million square feet of additional warehouse product to our Industrial and Commercial business segment as well
as meaningfully increase this segment’s NOI once these assets are all fully stabilized.
Our Joint Venture development and acquisition
strategy focuses on projects developed in conjunction with outside partners, where FRP is typically the majority owner through an equity
contribution in the form of land we already own, capital, or a combination of the two. We seek out developers with expertise in a particular
market or asset class, who will handle day-to-day operations, but will also share in acquisition, development, and asset management costs.
The lion’s share of assets within our development segment are part of our joint-venture strategy. These include our opportunity
zone investments in The Verge and Bryant Street in Washington, DC and .408 Jackson in Greenville, SC. All three of these assets are close
to stabilization (90% occupancy for 90 days) and will join the Multifamily segment in 2024, adding 1,058 units to this segment. The Company
is also in the process of pursuing its first industrial joint ventures. We believe this is the best way to start expanding beyond our
traditional footprint into industrial markets that meet all our development criteria (high barriers to entry, employment/population growth,
transportation infrastructure, etc.) that we wouldn’t have the bandwidth to develop ourselves.
The third prong of our development strategy
is Principal Capital Lending. The chief component of this strategy has been what you’ve heard us refer to as “Lending Ventures.”
It is a program where we lend the capital to a developer to use toward the entitlement and horizontal development of residential land.
This land is pre-sold prior to commencement of any infrastructure improvements, and ultimately transferred to national homebuilders. On
top of the interest accumulated, we then share in the profits from the lot sales. We have two current lending venture projects in various
stages of development. The first is a project called Amber Ridge in Prince George’s County, MD. All 187 units have been sold and
we received $20.2 in preferred interest and principal on $18 million in principal draws. The second is called Aberdeen Overlook, a 344
lot 110-acre residential development project in Aberdeen, MD. We have committed $31.1 million in funding under similar terms as Amber
Ridge (10% interest rate, 20% preferred return, split of proceeds beyond 20%). A national homebuilder is under contract to purchase all
of the finished building lots which will include 222 townhomes and 122 single family dwellings. Horizontal construction has begun, and
the first 11 lots were purchased prior to year end. This development strategy has been incredibly useful as a way to put money to work
at attractive rates of return during a time when we had more cash than projects in which to put the cash to use.
Since the asset sale in 2018, we have used
our development strategy to put over $300 million of equity capital to work in a multitude of projects and asset classes (plus another
$30 million of share repurchases). In so doing, we have grown our pro-rata NOI from $13.6 million at the end of 2018 to $30.2 million
in 2023 for a compound annual growth rate of 17.3%. That kind of growth was only possible because we were a small, nimble company with
an entrepreneurial attitude towards putting capital to work. As mentioned before, that kind of growth also made us incredibly complex
to shareholders in a way I’m not sure management fully appreciated. We don’t want to let the tail wag the dog and stifle growth
opportunities for fear that they may further complicate us, but this Company must and will make it a priority to bring our investor relations
to the level of the kind of Company we want to be.
In the twelve months since this letter
last reached you, unemployment remains low and yet we have started to see inflation cool, the economy continues to grow at a healthy clip,
interest rates appear stable, and the elusive soft landing
now seems like a real possibility. We will
always maintain a healthy capital cushion, but we feel very comfortable putting a meaningful amount of our cash to work in our current
development strategy. This Company—your Company—has come a very long way in the last five years, and as exciting as that was,
we sincerely believe we are just getting started.
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 industrial and commercial facilities
in the Baltimore-Washington-Northern Virginia area; demand for apartments in Washington D.C., Richmond, Virginia and Greenville, SC; 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) Industrial and Commercial
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 or joint ventures held
for investment to be further developed for future income production or sales to third parties), and (iv) Multifamily Segment (ownership,
leasing and management of buildings through joint ventures).
Industrial and Commercial Segment. As of December
31, 2023, the Industrial and Commercial Segment includes nine buildings at four commercial properties owned by the Company in fee simple
as follows:
1) 34 Loveton Circle in suburban Baltimore County,
MD consists of one office building totaling 33,708 square feet which is 90.8% 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,
FL 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 Harford County,
MD consists of five industrial buildings totaling 267,737 square feet which are 92.1% occupied and 92.1% leased. The property is subject
to commercial leases with various tenants.
4) Hollander 95 Business Park in Baltimore City, MD
consists of three industrial totaling 247,340 square feet that are 100.0% leased and 100.0% 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 sand and stone deposits 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,
2023, 2022 and 2021, aggregate tons sold with respect to the Company’s mining properties were approximately 9,569,000, 9,525,000
and 7,575,000, 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 2023, 259,000 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 – Industrial and Commercial
Land.
At December 31, 2023, this segment owned the following
future development parcels:
Development Segment – Land Held for Development
or Sale.
At December 31, 2023, this segment was invested in
the following development parcels:
phases on land owned by SIC. The Company
entered into a separate agreement with MRP to perform pre-development obligations for the contribution agreement. The company owns 50%
of the partnership with MRP.
Multifamily Segment.
At December 31, 2023, this segment was invested in
the following stabilized multifamily 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
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:
Mining royalty lands, some of
which will have second lives as development properties;
Residential apartments in Washington,
D.C. and Greenville, SC;
Warehouse or office properties
in Maryland either existing or under development;
Mixed-use properties under development
in Washington, D.C. or Greenville, SC; 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 all of our business in the following four
reportable segments: (1) industrial and commercial (2) mining royalty lands (3) development and (4) multifamily. For more
information regarding our reportable segments, see Note 10. Business Segments of our consolidated financial statements included
in this annual report.
Highlights of 2023.
· 24.8% increase in pro-rata NOI ($30.24 million vs $24.23 million)
· Mining Royalties revenues increased 17.3%; 17% increase in royalties per ton
Industrial and Commercial Segment.
The Industrial and Commercial 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 one or two 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, 2023, the Industrial and Commercial
Segment includes nine buildings at four commercial properties owned by the Company in fee simple as follows:
1) 34 Loveton Circle in suburban Baltimore County,
MD consists of one office building totaling 33,708 square feet which is 90.8% 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,
FL 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 Harford County,
MD consists of five industrial buildings totaling 267,737 square feet which are 92.1% occupied and 92.1% leased. The property is subject
to commercial leases with various tenants.
4) Hollander 95 Business Park in Baltimore City, MD
consists of three industrial buildings totaling 247,340 square feet that are 100.0% leased and 100.0% 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 sand and stone deposits 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 sand and stone deposits
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, 2023, a total of 9.6 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 are Vulcan Materials, Martin Marietta, Cemex, Argos and The Concrete
Company.
Additionally, these locations provide us with opportunities
for valuable “second lives” for these assets through proper land planning and entitlement.
Significant “2nd life” Mining
Lands:
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 – Industrial and Commercial
Land.
At December 31, 2023, 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