FRPH FRP Holdings Inc

FRP Holdings, Inc. (NASDAQ-FRPH)

Fourth Quarter Consolidated Results of Operations

Net income for the fourth quarter of 2018 was $706,000 or $.07 per share versus $13,203,000 or $1.31 per share in the same period last year.  Income from discontinued operations for the fourth quarter of 2018 was $20,000 or $.00 per share versus $6,034,000 or $.60 per share in the same period last year. The fourth quarter of 2017 included a reduction of $12,043,000, or $1.20 per share, in the provision for income taxes resulting from revaluing the Company’s net deferred tax liabilities per the Tax Cuts and Jobs Act of 2017.  This positively impacted net income by the same amount.

The fourth quarter of 2018 was impacted by the following items:

• Interest income is reduced by a $905,000 realized loss on the sale of bonds during the quarter.
• Corporate expense includes $372,000 for the annual director stock grant and $100,000 for stock options granted to employees.
• Operating expenses includes $218,000 professional fees related to organization of the Bryant St. joint venture.
• Operating expenses include $276,000 in due diligence costs on the CSX Fort Smallwood potential purchase.
• Interest income includes the $81,000 preferred return on The Maren.
• Loss on joint ventures includes $64,000 for our share of the loss.

The fourth quarter of 2017 included consulting fees of $200,000 charged to discontinued operations.

Fourth Quarter Segment Operating Results

Asset Management Segment:

Most of the Asset Management Segment was reclassified to discontinued operations leaving only three office buildings.  Total revenues in this segment were $592,000, up $18,000 or 3.1%, over the same period last year.  Operating profit was $261,000, up $33,000 compared to the same quarter last year due to lower allocation of corporate expenses.

Mining Royalty Lands Segment:

Total revenues in this segment were $2,187,000 versus $1,860,000 in the same period last year.  Total operating profit in this segment was $1,950,000, an increase of $254,000 versus $1,696,000 in the same period last year.

Development Segment:

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

With respect to ongoing projects:

• We are fully engaged in the formal process of seeking PUD entitlements for our 118-acre tract in Hampstead, Maryland, now known as “Hampstead Overlook.” 
• We finished shell construction this past quarter on the two office buildings in the first phase of our joint venture with St. John Properties.  Shell construction of the two retail buildings was completed subsequent to the end of the year in January. We are now in the process of leasing these four single-story buildings totaling 100,000 square feet of office and retail space.
• We are the principal capital source of a residential development venture in Essexshire now known as “Hyde Park.”  We have committed up to $9.2 million in exchange for an interest rate of 10% and a preferred return of 20% after which a “waterfall” determines the split of proceeds from sale.  This project will hold 125 town homes and 4 single family lots and is currently in the entitlement process. 
• During the second quarter of 2018, we began construction on a 94,350-square foot spec building at Hollander Business Park.  This Class “A” facility will be our first building with a 32-foot clear and should come on line in the second quarter of 2019.
• In April, we began construction on Phase II of our RiverFront on the Anacostia project, now known as “The Maren.”  We expect to deliver the building in the first half of 2020.
• In December 2018, the Company entered into a joint venture agreement with MidAtlantic Realty Partners (MRP) for the development of the first phase of a multifamily, mixed-use development in northeast Washington, DC known as “Bryant Street.”  FRP contributed $32 million for common equity and another $23 million for preferred equity to the joint venture.   

Stabilized Joint Venture Segment:

Average occupancy for the quarter was 94.63%, and at the end of the fourth quarter Dock 79 was 96.39% leased and 95.08% occupied.  During the fourth quarter, 65.57% of expiring leases renewed with an average increase in rent of 3.36%.  Dock 79 is a joint venture between the Company and MRP, in which FRP Holdings, Inc. is the majority partner with 66% ownership. 

Calendar Year 2018 Consolidated Results of Operations

Net income for 2018 was $124,472,000 or $12.32 per share versus $41,750,000 or $4.16 per share in the same period last year.  Income from discontinued operations for 2018 was $122,129,000 or $12.09 per share versus $11,003,000 or $1.10 per share in the same period last year.    Interest income was reduced by realized losses on bond and bond fund sales of $1,195,000 in 2018.  Calendar year 2017 included a gain on remeasurement of investment of $60.2 million in the Company’s Dock 79 real estate partnership as a result of the asset’s stabilization and the ensuing change in control of the partnership for accounting purposes.  This change in control brought with it this substantial and non-taxable gain.  The gain is based on the difference between the carrying value and the fair value of all assets and liabilities in the partnership and is included in income from continuing operations before income taxes.  Calendar year 2017 also included a gain of $12,043,000, or $1.20 per share, due to a reduction in the provision for income taxes resulting from revaluing the Company’s net deferred tax liabilities per the Tax Cuts and Jobs Act of 2017. 

Total revenues were $22,022,000, up 41.1%, versus the same period last year, primarily because of the addition of rental revenues from Dock 79 when its results were consolidated starting in July 2017.

Calendar Year 2018 Segment Operating Results

Asset Management Segment:

Total revenues in this segment were $2,309,000, up $25,000 or 1.1%, over the same period last year. Operating profit of $898,000 was up $17,000 compared to the same period last year.   

Mining Royalty Lands Segment:

Total revenues in this segment were $8,139,000 versus $7,241,000 in the same period last year.  Total operating profit in this segment was $7,290,000, an increase of $725,000 versus $6,565,000 in the same period last year. 

Stabilized Joint Venture Segment:

Average occupancy for 2018 was 94.77%, and at the end of 2018 Dock 79 was 96.39% leased and 95.08% occupied. Through calendar year 2018, 58.40% of expiring leases renewed with an average increase in rent of 3.29%.  Dock 79 is a joint venture between the Company and MRP, in which FRP Holdings, Inc. is the majority partner with 66% ownership.

Summary and Outlook 

2018 was among the more important years in the history of this company.  Our mining royalty segment had its biggest year ever in terms of both revenue and operating profit; we broke ground on The Maren, Phase II of RiverFront on the Anacostia; and we entered an incredibly important joint venture with MRP in our Bryant Street Project.  But without a doubt, the most important event was the sale of our industrial real estate portfolio.  This asset sale provides us with substantial liquidity heading into a period of economic uncertainty when liquidity may be at a premium.  At the very least, it gives us the very enviable problem of what to do with a substantial amount of money.  We have said before that because we believe that we sold at the top, we are not anxious to turn around and reinvest at the top.  Though we believe there are still some investment opportunities out there right now that make financial sense—Bryant Street is an excellent example—we would like to hold on to most of the cash until asset prices cool off and the economic future becomes a little clearer. 

We end the year a very different company than we started, and yet a number of things remain the same—we still have some of the best assets in the businesses we are involved in and our management team remains committed to maximizing the value of your investment.  Central to both those issues is how we decide to redeploy the proceeds of the warehouse sale, so please, at the risk of repeating ourselves, rest assured that we will not squander this opportunity. 

Conference Call

The Company will also host a conference call on Thursday, March 7, 2019 at 1:00 p.m.  (EST).  Analysts, stockholders and other interested parties may access the teleconference live by calling 1-800-311-9406 (passcode 939063) within the United States.  International callers may dial 1-334-323-7224 (passcode 939063).  Computer audio live streaming is available via the Internet through the Company’s website at www.frpholdings.com. You may also click on this link for the live streaming http://stream.conferenceamerica.com/frp030719.  For the archived audio via the internet, click on the following linkhttp://archive.conferenceamerica.com/archivestream/frp030719.mp3. If using the Company’s website, click on the Investor Relations tab, then select the earnings conference stream.  An audio replay will be available for sixty days following the conference call. To listen to the audio replay, dial toll free 1-877-919-4059, international callers dial 1-334-323-0140.  The passcode of the audio replay is 15511787.  Replay options: “1” begins playback, “4” rewind 30 seconds, “5” pause, “6” fast forward 30 seconds, “0” instructions, and “9” exits recording.  There may be a 30-40 minute delay until the archive is available following the conclusion of the conference call.   Investors are cautioned that any statements in this press release which relate to the future are, by their nature, subject to risks and uncertainties that could cause actual results and events to differ materially from those indicated in such forward-looking statements. These include, but are not limited to: the possibility that we may be unable to find appropriate reinvestment opportunities for the proceeds from the Sale Transaction; levels of construction activity in the markets served by our mining properties; demand for flexible warehouse/office facilities in the Baltimore-Washington-Northern Virginia area demand for apartments in Washington D.C.; our ability to obtain zoning and entitlements necessary for property development; the impact of lending and capital market conditions on our liquidity; our ability to finance projects or repay our debt; general real estate investment and development risks; vacancies in our properties; risks associated with developing and managing properties in partnership with others; competition; our ability to renew leases or re-lease spaces as leases expire; illiquidity of real estate investments; bankruptcy or defaults of tenants; the impact of restrictions imposed by our credit facility; the level and volatility of interest rates; environmental liabilities; inflation risks; cybersecurity risks; as well as other risks listed from time to time in our SEC filings; including but not limited to; our annual and quarterly reports. We have no obligation to revise or update any forward-looking statements, other than as imposed by law, as a result of future events or new information. Readers are cautioned not to place undue reliance on such forward-looking statements.

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, (ii) real property acquisition, entitlement, development and construction primarily for apartment, retail, warehouse, and office, (iv) leasing and management of a residential apartment building.

Contact:	John D. Milton, Jr.
	Chief Financial Officer	904/858-9100

FRP HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME(In thousands except per share amounts)(Unaudited)

		THREE MONTHS ENDED													TWELVE MONTHS ENDED
		DECEMBER 31,													DECEMBER 31,
		2018					2017								2018								2017
Revenues:
Rental revenue		$	3,282						3,206								13,219								7,815
Mining Royalty and rents			2,165						1,842								8,050								7,153
Revenue – reimbursements			205						165								753								634
Total Revenues			5,652						5,213								22,022								15,602
Cost of operations:
Depreciation, depletion and amortization			1,548						2,631								7,898								5,934
Operating expenses			1,334						824								4,285								2,136
Environmental remediation recovery			—						—								(465		)						—
Property taxes			676						632								2,625								2,016
Management company indirect			399						333								1,765								1,295
Corporate expenses (Note 4 Related Party)			1,042						670								3,952								3,180
Total cost of operations			4,999						5,090								20,060								14,561
Total operating profit			653						123								1,962								1,041
Net investment income, including realized losses			797						—								2,672								—
Interest expense			(685	)					(1,958		)						(3,103		)						(2,741		)
Equity in loss of joint ventures			(52	)					(9		)						(88		)						(1,598		)
Gain on remeasurement of investment in real estate partnership			—						—								—								60,196
Gain on investment land sold			43						—								40								—
Income (loss) before income taxes			756						(1,844		)						1,483								56,898
Provision for (benefit from) income taxes			255						(8,021		)						524								7,350
Income from continuing operations			501						6,177								959								49,548
Income from discontinued operations, net of tax			20						6,034								122,129								11,003
Net income			521						12,211								123,088								60,551
Gain (loss) attributable to noncontrolling interest			(185	)					(992		)						(1,384		)						18,801
Net income attributable to the Company		$	706						13,203								124,472								41,750
Earnings per common share:
Income from continuing operations-
Basic		$	0.05						0.62								0.10								4.97
Diluted		$	0.05						0.61								0.09								4.94
Discontinued operations-
Basic		$	0.00						0.60								12.16								1.10
Diluted		$	0.00						0.60								12.09								1.10
Net income attributable to the Company-
Basic		$	0.07						1.32								12.40								4.19
Diluted		$	0.07						1.31								12.32								4.16
Number of shares (in thousands) used in computing:
-basic earnings per common share			10,049						10,011								10,040								9,975
-diluted earnings per common share			10,094						10,070								10,105								10,040

FRP HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In thousands, except share data)(Unaudited)

		December 31				December 31
Assets:		2018				2017
Real estate investments at cost:
Land		$	83,721				87,235
Buildings and improvements			144,543				147,670
Projects under construction			6,683				1,764
Total investments in properties			234,947				236,669
Less accumulated depreciation and depletion			28,394				26,755
Net investments in properties			206,553				209,914
Real estate held for investment, at cost			7,167				7,176
Investments in joint ventures			88,884				13,406
Net real estate investments			302,604				230,496
Cash and cash equivalents			22,547				4,524
Cash held in escrow			202				333
Accounts receivable, net			564				615
Investments available for sale at fair value			165,212				—
Federal and state income taxes receivable			9,854				2,962
Unrealized rents			53				223
Deferred costs			773				2,708
Other assets			455				179
Assets of discontinued operations			3,224				176,694
Total assets		$	505,488				418,734
Liabilities:
Secured notes payable, current portion		$	—				125
Secured notes payable, less current portion			88,789				90,029
Accounts payable and accrued liabilities			3,545				2,081
Environmental remediation liability			100				2,037
Deferred revenue			27				107
Deferred income taxes			27,981				25,982
Deferred compensation			1,450				1,457
Tenant security deposits			53				54
Liabilities of discontinued operations			288				32,280
Total liabilities			122,233				154,152
Commitments and contingencies
Equity:
Common stock, $.10 par value 25,000,000 shares authorized, 9,969,174 and 10,014,667 shares issued and outstanding, respectively			997				1,001
Capital in excess of par value			58,004				55,636
Retained earnings			306,307				186,855
Accumulated other comprehensive income (loss), net			(701	)			38
Total shareholders’ equity			364,607				243,530
Noncontrolling interest MRP			18,648				21,052
Total equity			383,255				264,582
Total liabilities and shareholders’ equity		$	505,488				418,734

 

Asset Management Segment:

		Three months ended December 31
(dollars in thousands)		2018				%				2017				%				Change				%
Rental revenue		$	569				96.1	%			553				96.3	%			16				2.9	%
Revenue-reimbursements			23				3.9	%			21				3.7	%			2				9.5	%
Total revenue			592				100.0	%			574				100.0	%			18				3.1	%
Depreciation, depletion and amortization			135				22.8	%			127				22.1	%			8				6.3	%
Operating expenses			117				19.8	%			118				20.6	%			(1	)			-0.8	%
Property taxes			42				7.1	%			39				6.8	%			3				7.7	%
Management company indirect			30				5.0	%			26				4.5	%			4				15.4	%
Corporate expense			7				1.2	%			36				6.3	%			(29	)			-80.6	%
Cost of operations			331				55.9	%			346				60.3	%			(15	)			-4.3	%
Operating profit		$	261				44.1	%			228				39.7	%			33				14.5	%

Mining Royalty Lands Segment:

		Three months ended December 31
(dollars in thousands)		2018				%				2017				%
Mining Royalty and rents		$	2,165				99.0	%			1,842				99.0	%
Revenue-reimbursements			22				1.0	%			18				1.0	%
Total revenue			2,187				100.0	%			1,860				100.0	%
Depreciation, depletion and amortization			53				2.4	%			19				1.0	%
Operating expenses			40				1.8	%			38				2.0	%
Property taxes			87				4.0	%			64				3.5	%
Corporate expense			57				2.6	%			43				2.3	%
Cost of operations			237				10.8	%			164				8.8	%
Operating profit		$	1,950				89.2	%			1,696				91.2	%

Development Segment:

		Three months ended December 31
(dollars in thousands)		2018				2017				Change
Rental revenue		$	144				184				(40	)
Revenue-reimbursements			118				115				3
Total revenue			262				299				(37	)
Depreciation, depletion and amortization			57				74				(17	)
Operating expenses			580				41				539
Property taxes			269				277				(8	)
Management company indirect			314				267				47
Corporate expense			874				296				578
Cost of operations			2,094				955				1,139
Operating loss		$	(1,832	)			(656	)			(1,176	)

Stabilized Joint Venture Segment:

		Three Months Ended December 31
(dollars in thousands)		2018				%				2017				%
Rental revenue		$	2,569				98.4	%			2,470				99.6	%
Revenue-reimbursements			42				1.6	%			10				.4	%
Total revenue			2,611				100.0	%			2,480				100.0	%
Depreciation and amortization			1,303				49.9	%			2,411				97.2	%
Operating expenses			597				22.9	%			627				25.3	%
Property taxes			278				10.6	%			252				10.2	%
Management company indirect			55				2.1	%			40				1.6	%
Corporate expense			104				4.0	%			38				1.5	%
Cost of operations			2,337				89.5	%			3,368				135.8	%
Operating profit		$	274				10.5	%		$	(888	)			-35.8	%

Asset Management Segment:

		Twelve months ended December 31
(dollars in thousands)		2018				%				2017				%				Change				%
Rental revenue		$	2,212				95.8	%			2,203				96.5	%			9				0.4	%
Revenue-reimbursements			97				4.2	%			81				3.5	%			16				19.8	%
Total revenue			2,309				100.0	%			2,284				100.0	%			25				1.1	%
Depreciation, depletion and amortization			540				23.4	%			512				22.4	%			28				5.5	%
Operating expenses			452				19.6	%			489				21.4	%			(37	)			-7.6	%
Property taxes			164				7.1	%			148				6.5	%			16				10.8	%
Management company indirect			102				4.4	%			100				4.4	%			2				2.0	%
Corporate expense			153				6.6	%			154				6.7	%			(1	)			-0.6	%
Cost of operations			1,411				61.1	%			1,403				61.4	%			8				0.6	%
Operating profit		$	898				38.9	%			881				38.6	%			17				1.9	%

Mining Royalty Lands Segment:

		Twelve months ended December 31
(dollars in thousands)		2018				%				2017				%
Mining Royalty and rents		$	8,050				98.9	%			7,153				98.8	%
Revenue-reimbursements			89				1.1	%			88				1.2	%
Total revenue			8,139				100.0	%			7,241				100.0	%
Depreciation, depletion and amortization			198				2.4	%			110				1.5	%
Operating expenses			168				2.1	%			159				2.2	%
Property taxes			269				3.3	%			240				3.3	%
Corporate expense			214				2.6	%			167				2.3	%
Cost of operations			849				10.4	%			676				9.3	%
Operating profit		$	7,290				89.6	%			6,565				90.7	%

Development Segment:

		Twelve months ended December 31
(dollars in thousands)		2018				2017				Change
Rental revenue		$	753				785				(32	)
Revenue-reimbursements			453				445				8
Total revenue			1,206				1,230				(24	)
Depreciation, depletion and amortization			228				337				(109	)
Operating expenses			1,198				200				998
Environmental remediation recovery			(465	)			—				(465	)
Property taxes			1,037				1,108				(71	)
Management company indirect			1,312				1,113				199
Corporate expense			1,984				1,231				753
Cost of operations			5,294				3,989				1,305
Operating loss		$	(4,088	)			(2,759	)			(1,329	)

Stabilized Joint Venture Segment:

		Twelve Months Ended December 31
(dollars in thousands)		2018				%				2017				%
Rental revenue		$	10,254				98.9	%			4,827				99.6	%
Revenue-reimbursements			114				1.1	%			20				.4	%
Total revenue			10,368				100.0	%			4,847				100.0	%
Depreciation and amortization			6,932				66.9	%			4,975				102.7	%
Operating expenses			2,467				23.8	%			1,288				26.6	%
Property taxes			1,155				11.1	%			520				10.7	%
Management company indirect			351				3.4	%			82				1.7	%
Corporate expense			393				3.8	%			65				1.3	%
Cost of operations			11,298				109.0	%			6,930				143.0	%
Operating profit		$	(930	)			-9.0	%		$	(2,083	)			-43.0	%

FRP HOLDINGS, INC. AND SUBSIDIARIES     DISCONTINUED OPERATIONS(In thousands except per share amounts)(Unaudited)

		THREE MONTHS ENDED								TWELVE MONTHS ENDED
		DECEMBER 31,								DECEMBER 31,
		2018				2017				2018				2017
Revenues:
Rental revenue		$	189				5,936				9,791				22,570
Revenue – reimbursements			33				1,306				2,307				5,019
Total Revenues			222				7,242				12,098				27,589
Cost of operations:
Depreciation, depletion and amortization			30				1,871				3,161				7,598
Operating expenses			48				915				1,742				3,485
Property taxes			20				800				1,286				3,008
Management company indirect			—				192				1,360				734
Corporate expenses			4				200				1,462				200
Total cost of operations			102				3,978				9,011				15,025
Total operating profit			120				3,264				3,087				12,564
Interest expense			—				(495	)			(587	)			(1,582	)
Gain on sale of buildings			(92	)			—				164,915				—
Income before income taxes			28				2,769				167,415				10,982
Provision for (benefit from) income taxes			8				(3,265	)			45,286				(21	)
Income from discontinued operations		$	20				6,034				122,129				11,003
Earnings per common share:
Income (loss) from discontinued operations-
Basic		$	0.00				0.60				12.16				1.10
Diluted		$	0.00				0.60				12.09				1.10