FRP Holdings, Inc. (NASDAQ:FRPH) is a diversified real estate company that has demonstrated remarkable resilience in navigating market cycles over its decades-long history. Founded in 1986 as a spin-off from Florida Rock Industries, FRP Holdings has evolved into a multifaceted real estate enterprise with operations spanning industrial, commercial, mining royalty, and multifamily residential segments.
Business Overview and History
FRP Holdings’ origins trace back to its formation in 1986 when it was spun off from Florida Rock Industries. The company initially focused on managing and leasing the mining royalty lands that it had received as part of the spin-off transaction. These properties were held for their mineral rights and future development potential. Over the years, FRP Holdings has strategically expanded its real estate portfolio, diversifying into industrial, commercial, and residential assets.
In 2015, FRP Holdings underwent a significant transformation by spinning off its transportation division, Patriot Transportation Holding. This strategic move allowed the company to focus exclusively on its real estate operations and dedicate all of its resources towards growing its real estate portfolio and development projects.
One of FRP’s major milestones was the development of its Dock 79 and The Maren multifamily properties in Washington, D.C. These projects, completed in partnership with MRP Realty, helped establish FRP’s expertise in multifamily real estate. The company has since expanded its multifamily portfolio through additional joint ventures in the D.C. metro area and Greenville, South Carolina.
Throughout its history, FRP Holdings has faced and overcome various challenges. In the early 2000s, the company encountered issues with environmental contamination at some of its mining properties, requiring extensive remediation efforts and negotiations with state agencies. Additionally, the 2008 financial crisis put strain on FRP’s development projects, necessitating careful management of its capital and liquidity. Despite these obstacles, FRP demonstrated its ability to adapt and continue growing its real estate business.
In the Industrial and Commercial segment, FRP Holdings owns and manages a portfolio of warehouse and office properties, primarily located in Maryland. As of September 30, 2024, this segment included nine buildings totaling 515,080 square feet of industrial space and 33,710 square feet of office space, with a combined occupancy rate of 95.6%. The company’s industrial warehouse leases typically range from 3-10 years with renewal options, while office leases are recognized on a straight-line basis.
The Mining Royalty Lands segment oversees a portfolio of approximately 16,650 acres of land, primarily located in Florida and Georgia, that is leased to various mining operators in exchange for royalty payments. This segment has historically provided FRP Holdings with a stable and recurring revenue stream. The company leases land under long-term agreements that grant the lessee the right to mine and sell sand and stone deposits from the property in exchange for royalty payments, typically based on the volume and sales price of the mined materials.
FRP Holdings’ Multifamily segment consists of six stabilized joint ventures that own and manage apartment buildings and associated retail spaces, primarily in the Washington, D.C. and Greenville, South Carolina markets. As of September 30, 2024, this segment included 1,827 apartment units and over 125,000 square feet of retail space. The company’s residential units typically lease for 12-15 month terms, with tenants offered renewal options 90 days prior to lease expiration. If no notice of termination or renewal is given, leases go month-to-month. Retail leases at these properties are typically 10-15 years with options to renew, and also include percentage rents based on tenant sales.
The company’s Development segment focuses on converting non-income-producing land into income-generating assets through development or joint venture partnerships. This segment has been actively involved in the development of industrial, warehouse, and mixed-use properties in various regions, including Maryland, Florida, and Washington, D.C. Revenues in this segment are generated primarily from land sales and interim property rents.
Financial Performance and Ratios
FRP Holdings has demonstrated a solid financial performance in recent years. For the year ended December 31, 2023, the company reported annual revenue of $41.51 million and net income of $5.30 million. The company’s balance sheet remains healthy, with a current ratio of 15.34 and a debt-to-equity ratio of 0.42 as of September 30, 2024.
The company’s pro rata net operating income (NOI), a key performance metric, has grown at a compound annual growth rate of 26.4% over the past three years, reflecting the success of its diversified real estate strategy. In the first nine months of 2024, FRP Holdings’ pro rata NOI increased by 28% compared to the same period in the prior year, driven by strong performance across its Multifamily, Industrial and Commercial, and Mining Royalty Lands segments.
For the most recent quarter (Q3 2024), FRP Holdings reported revenue of $10.63 million, a 0.4% increase year-over-year, and net income of $1.36 million, an 8.1% increase year-over-year. The increase in net income was primarily due to higher operating profit before general and administrative expenses. Operating cash flow and free cash flow for the quarter were both $6.32 million.
The company maintains a strong liquidity position with $144.68 million in cash and a $35 million revolving credit facility with Wells Fargo, of which $34.45 million was available as of September 30, 2024. The company’s quick ratio matches its current ratio at 15.34, indicating a high level of short-term liquidity.
In the Multifamily segment, total revenues for the consolidated joint ventures were $16.59 million in the first nine months of 2024, a slight increase of 0.8% compared to the same period in 2023. Total operating profit before G&A for the consolidated joint ventures was $4.43 million, an increase of 38.8% versus the prior year period, primarily due to lower depreciation and operating expenses.
The Industrial and Commercial segment reported total revenues of $4.35 million in the first nine months of 2024, an increase of 10.7% over the same period last year. Operating profit before G&A was $2.48 million, up 10.4% from the prior year period. Net operating income in this segment was $3.56 million, an increase of 30.4% compared to the same period last year, partially due to $519,000 more in unrealized rental revenue from rent abatements that expired in 2023.
The Mining Royalty Lands segment generated total revenues of $9.39 million in the first nine months of 2024, a slight decrease of 2.4% versus the same period last year. The decrease was impacted by a deduction of $619,000 in royalties to resolve an overpayment. Total operating profit before G&A was $8.65 million, a decrease of 1.4% from the prior year period. Net operating income in this segment was $10.89 million, up 19.5% compared to the same period last year, mostly due to a $1.91 million increase in unrealized revenues.
In the Development segment, lease revenues were $905,000 for the first nine months of 2024. Operating profit before G&A was $102,000, a decrease of $343,000 compared to the prior year period.
Risks and Challenges
FRP Holdings’ diversified real estate portfolio is not without its risks and challenges. The company is exposed to the cyclical nature of the real estate and construction markets, which can affect demand for its properties and development projects. Additionally, the company’s joint venture partnerships introduce additional complexities and potential risks related to the management and performance of these investments.
The multifamily segment, which has been a significant contributor to FRP Holdings’ recent growth, faces increasing competition from new developments in the Washington, D.C. and Greenville, South Carolina markets, which could put pressure on occupancy rates and rental rates.
Furthermore, the company’s mining royalty business is susceptible to fluctuations in construction and infrastructure activity, which can impact the demand and pricing for the materials extracted from its leased properties.
Outlook and Recent Developments
FRP Holdings’ management has outlined a focused strategy for the company’s future growth, with a particular emphasis on its industrial and commercial development pipeline. The company is currently in the process of developing several new industrial and warehouse properties, including a 258,000 square-foot Class A warehouse project in Harford County, Maryland, and joint venture projects in Lakeland, Florida, and Broward County, Florida, totaling over 380,000 square feet of new industrial space.
The company’s recent refinancing and capital allocation activities have also strengthened its balance sheet and positioned it to capitalize on new investment opportunities. In March 2021, FRP Holdings refinanced its Dock 79 and The Maren multifamily projects, securing long-term, fixed-rate financing that has reduced its interest expense and improved its financial flexibility.
FRP Holdings reported a 94% increase in net income for the first nine months of 2024 compared to the same period in the prior year, going from $2.4 million or $0.13 per share to $4.7 million or $0.25 per share. The company’s pro rata share of net operating income (NOI) in the third quarter of 2024 was up 39% to $11.3 million, and year-to-date was up 28% to $29 million. The year-to-date increase in NOI was driven by improved results at all six of FRPH’s stabilized multifamily projects, contributing an additional $3.7 million of pro rata NOI.
The company has an active development pipeline, including: – A 258,000 sq ft Class A warehouse building in Maryland expected to be delivered by the end of 2024. – A 200,000 sq ft Class A warehouse building in Lakeland, Florida, with permits expected in Q1 2025. – Two Class A warehouse buildings totaling over 182,000 sq ft in Broward County, Florida, with permits expected by Q1 2025. – A 900,000 sq ft distribution center in Cecil County, Maryland, with permits expected in Q3 2025. – A 635,000 sq ft industrial development in Harford County, Maryland, with construction of a 212,000 sq ft building slated for 2026.
In total, these four development projects represent over 850,000 sq ft of new industrial/commercial space with an estimated total project cost of $145 million, of which FRPH’s share is $130 million. The company expects these projects to generate 6-7% returns on cost upon stabilization, representing potential pro rata NOI of $7.8 million to $9.1 million.
Conclusion
FRP Holdings, Inc. has demonstrated its ability to navigate the complexities of the real estate industry, leveraging its diversified portfolio and strategic development initiatives to deliver consistent financial performance. As the company continues to execute on its growth plans, investors will be closely watching its ability to capitalize on emerging opportunities while managing the inherent risks of the real estate market. With a strong pipeline of development projects and a track record of successfully growing its NOI, FRP Holdings appears well-positioned to continue its growth trajectory in the coming years.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.