Two years after spinning off its transportation business and turning its focus to commercial real estate, FRP Holdings Inc. may go one step further and convert the company into a real estate investment trust, or REIT.
But the final decision on whether to convert will have to wait until new tax policies come out of Washington, D.C.
At Wednesday’s annual shareholders meeting at The River Club Downtown, Executive Chairman John Baker said FRP may not follow through with the REIT conversion if there is a drastic drop in corporate tax rates, as President Donald Trump advocates.
On the other hand, he said, “If the rates don’t go down, we’ll definitely do it.”
REITs are real estate companies that pay out most of their earnings to shareholders in the form of dividends.
The company doesn’t have to pay federal income tax on those earnings before they are passed on to stockholders. That’s why the conversion is advantageous if tax rates remain high.
FRP was formed as a spinoff company from Florida Rock Industries Inc. in 1986 and has never paid out cash dividends. The company also had a trucking business that was spun off into a separate company called Patriot Transportation Holding Inc. in 2015.
FRP already took one step toward REIT conversion by changing its fiscal year.
It has historically ended the fiscal year on Sept. 30 but is now changing its fiscal year to coincide with the calendar, which is required for REITs.
Although the fiscal year has been changed, Chief Financial Officer John Milton said that doesn’t mean any decisions have been made on the conversion.
“We’re strictly creating optionality,” he said.
Because of the new fiscal year, FRP on Wednesday reported earnings for the three-month transition period that ended Dec. 31 of $1.7 million, or 17 cents a share.
That was 77 percent lower than earnings in the same period of 2015, but the 2015 results included two one-time gains. Without those gains, operating profit rose 11.2 percent.
“All told, we’re still going in the right direction,” Milton said.
Jacksonville-based FRP traditionally has developed office and industrial properties, mainly in the Baltimore-Washington, D.C., area.
However, the company last fall completed the first phase of a multiuse project along the Anacostia River, adjacent to the Washington Nationals’ baseball stadium, which includes retail space and 305 residential units aimed at millennials.
FRP President David deVilliers said Phase 1 was completed ahead of schedule and the company is working on Phase 2, which will include 250 to 270 apartments.
“We’re really proud of that program,” deVilliers said.
Baker said FRP has come a long way since its creation in 1986.
“It’s been a neat program to see this company evolve and begin to throw off income,” he said.