10-Q 1 frphdecq16.htm FRPH DECEMBER 2015 FORM 10Q

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________

FORM 10-Q

_________________

(Mark One) |  |

[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2015. |

or

[_] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from_________ to _________ |

Commission File Number: 001-36769

_____________________

FRP HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

_____________________

Florida |  | 47-2449198
(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
200 W. Forsyth St., 7th Floor, Jacksonville, FL |  | 32202
(Address of principal executive offices) |  | (Zip Code)

904-396-5733

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [_]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [x] No [_]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [_] |  | Accelerated filer [x]
Non-accelerated filer [_] | Smaller reporting company [_]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [_] No [x]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

| Class |  |  |  | Outstanding at December 31, 2015 |
| Common Stock, $.10 par value |  |  |  | 9,840,600 shares |
| per share |  |  |  |  |

1

FRP HOLDINGS, INC.

FORM 10-Q

QUARTER ENDED DECEMBER 31, 2015

CONTENTS

Page No.

Preliminary Note Regarding Forward-Looking Statements |  |  | 3
|  | Part I. Financial Information |  |  |
Item 1. |  | Financial Statements |  |  |
|  | Consolidated Balance Sheets |  |  | 4
|  | Consolidated Statements of Income |  |  | 5
|  | Consolidated Statements of Cash Flows |  |  | 6
|  | Condensed Notes to Consolidated Financial Statements |  |  | 7
Item 2. |  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  |  | 17
Item 3. |  | Quantitative and Qualitative Disclosures about Market Risks |  |  | 30
Item 4. |  | Controls and Procedures |  |  | 30
|  | Part II. Other Information |  |  |
Item 1A. |  | Risk Factors |  |  | 31
Item 2. |  | Purchase of Equity Securities by the Issuer |  |  | 31
Item 6. |  | Exhibits |  |  | 31
Signatures |  |  |  |  | 32
Exhibit 31 |  | Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |  |  | 34
Exhibit 32 |  | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  |  | 37

2

Preliminary Note Regarding 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, plans and timetables for completion of pending development projects and other transactions. 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: uncertainties as to whether the Company will recognize the benefits of the spin-off of the transportation group; uncertainties as to whether the Company can complete, and the timetable for completion of pending or proposed development projects and other transactions; 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 flexible warehouse/office facilities in the Baltimore-Washington-Northern Virginia area; 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.

3

PART I. FINANCIAL INFORMATION, ITEM 1. FINANCIAL STATEMENTS

FRP HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited) (In thousands, except share data)

|  | December 31 |  | September 30
Assets: |  | 2015 |  | 2015
Real estate investments at cost: |  |  |  |  |  |  |  |
Land |  | $ | 104,678 |  |  |  | 102,347 |
Buildings and improvements |  |  | 181,977 |  |  |  | 174,820 |
Projects under construction |  |  | 4,994 |  |  |  | 4,129 |
Total investments in properties |  |  | 291,649 |  |  |  | 281,296 |
Less accumulated depreciation and depletion |  |  | 75,710 |  |  |  | 74,091 |
Net investments in properties |  |  | 215,939 |  |  |  | 207,205 |
Real estate held for investment, at cost |  |  | 7,306 |  |  |  | 7,306 |
Real estate held for sale, at cost |  |  | — |  |  |  | 4,826 |
Investment in joint ventures |  |  | 19,168 |  |  |  | 19,010 |
Net real estate investments |  |  | 242,413 |  |  |  | 238,347 |
Cash and cash equivalents |  |  | — |  |  |  | 419 |
Cash held in escrow |  |  | 1,174 |  |  |  | — |
Accounts receivable |  |  | 569 |  |  |  | 778 |
Federal and state income taxes receivable |  |  | — |  |  |  | 393 |
Unrealized rents |  |  | 4,864 |  |  |  | 4,817 |
Deferred costs |  |  | 7,914 |  |  |  | 7,449 |
Other assets |  |  | 175 |  |  |  | 275 |
Total assets |  | $ | 257,109 |  |  |  | 252,478 |
Liabilities: |  |  |  |  |  |  |  |
Secured notes payable, less current portion |  | $ | 34,924 |  |  |  | 36,011 |
Secured notes payable, current portion |  |  | 4,247 |  |  |  | 4,180 |
Lines of credit payable |  |  | 2,928 |  |  |  | 8,494 |
Accounts payable and accrued liabilities |  |  | 1,809 |  |  |  | 3,456 |
Environmental remediation liability |  |  | 48 |  |  |  | 51 |
Deferred revenue |  |  | 806 |  |  |  | 1,060 |
Federal and state income taxes payable |  |  | 1,039 |  |  |  | — |
Bank overdraft |  |  | 69 |  |  |  | — |
Deferred income taxes |  |  | 17,987 |  |  |  | 14,541 |
Deferred compensation |  |  | 1,444 |  |  |  | 1,400 |
Deferred lease intangible, net |  |  | 30 |  |  |  | 45 |
Tenant security deposits |  |  | 991 |  |  |  | 898 |
Total liabilities |  |  | 66,322 |  |  |  | 70,136 |
Commitments and contingencies (Note 8) |  |  |  |  |  |  |  |
Shareholders’ Equity: |  |  |  |  |  |  |  |
Common stock, $.10 par value 25,000,000 shares authorized, 9,840,600 and 9,791,770 shares issued and outstanding, respectively |  |  | 984 |  |  |  | 979 |
Capital in excess of par value |  |  | 50,839 |  |  |  | 49,872 |
Retained earnings |  |  | 138,970 |  |  |  | 131,497 |
Accumulated other comprehensive loss, net |  |  | (6 | ) |  |  | (6 | )
Total shareholders’ equity |  |  | 190,787 |  |  |  | 182,342 |
Total liabilities and shareholders’ equity |  | $ | 257,109 |  |  |  | 252,478 |

See accompanying notes.

4

FRP HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands except per share amounts)

(Unaudited)

|  | THREE MONTHS ENDED |
|  | DECEMBER 31, |
|  | 2015 |  | 2014 |
Revenues: |  |  |  |  |  |  |  |  |
Rental revenue |  | $ | 6,027 |  |  |  | 5,868 |  |
Royalty and rents |  |  | 1,638 |  |  |  | 1,320 |  |
Revenue – reimbursements |  |  | 1,158 |  |  |  | 1,114 |  |
Total Revenues |  |  | 8,823 |  |  |  | 8,302 |  |
Cost of operations: |  |  |  |  |  |  |  |  |
Depreciation, depletion and amortization |  |  | 1,896 |  |  |  | 1,883 |  |
Operating expenses |  |  | 973 |  |  |  | 914 |  |
Environmental remediation recovery |  |  | (3,000 | ) |  |  | — |  |
Property taxes |  |  | 1,118 |  |  |  | 1,095 |  |
Management company indirect |  |  | 504 |  |  |  | 352 |  |
Corporate expenses (Note 4 Related Party) |  |  | 732 |  |  |  | 1,713 |  |
Total cost of operations |  |  | 2,223 |  |  |  | 5,957 |  |
Total operating profit |  |  | 6,600 |  |  |  | 2,345 |  |
Interest income |  |  | 1 |  |  |  | — |  |
Interest expense |  |  | (481 | ) |  |  | (445 | ) |
Equity in loss of joint ventures |  |  | (54 | ) |  |  | (30 | ) |
Gain (Loss) on investment land sold |  |  | 6,286 |  |  |  | (17 | ) |
Income from continuing operations before income taxes |  |  | 12,352 |  |  |  | 1,853 |  |
Provision for income taxes |  |  | 4,879 |  |  |  | 722 |  |
Income from continuing operations |  |  | 7,473 |  |  |  | 1,131 |  |
Gain from discontinued transportation operations, net of taxes |  |  | — |  |  |  | 1,663 |  |
Net income |  | $ | 7,473 |  |  |  | 2,794 |  |
Comprehensive net income |  | $ | 7,473 |  |  |  | 2,794 |  |
Earnings per common share: |  |  |  |  |  |  |  |  |
Income from continuing operations- |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.76 |  |  |  | 0.12 |  |
Diluted |  | $ | 0.76 |  |  |  | 0.12 |  |
Discontinued operations- |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.00 |  |  |  | 0.17 |  |
Diluted |  | $ | 0.00 |  |  |  | 0.17 |  |
Net Income- |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.76 |  |  |  | 0.29 |  |
Diluted |  | $ | 0.76 |  |  |  | 0.29 |  |
Number of shares (in thousands) used in computing: |  |  |  |  |  |  |  |  |
-basic earnings per common share |  |  | 9,802 |  |  |  | 9,711 |  |
-diluted earnings per common share |  |  | 9,853 |  |  |  | 9,771 |  |

See accompanying notes.

5

FRP HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED DECEMBER 31, 2015 AND 2014

(In thousands) (Unaudited)

|  | 2015 |  |  |  | 2014 |
Cash flows from operating activities: |  |  |  |  |  |  |
Net income | $ | 7,473 |  |  |  | 2,794 |
Adjustments to reconcile net income to net cash |  |  |  |  |  |  |
provided by operating activities: |  |  |  |  |  |  |
Income from discontinued operations, net |  | — |  |  |  | (1,663 | )
Depreciation, depletion and amortization |  | 1,959 |  |  |  | 1,865 |
Deferred income taxes |  | 3,446 |  |  |  | 826 |
Equity in loss of joint ventures |  | 54 |  |  |  | 30 |
(Gain) Loss on sale of equipment and property |  | (6,285 | ) |  |  | 73 |
Stock-based compensation |  | 72 |  |  |  | 172 |
Net changes in operating assets and liabilities: |  |  |  |  |  |  |
Accounts receivable |  | 209 |  |  |  | 327 |
Deferred costs and other assets |  | (750 | ) |  |  | (203 | )
Accounts payable and accrued liabilities |  | (1,904 | ) |  |  | (1,496 | )
Income taxes payable and receivable |  | 1,432 |  |  |  | (382 | )
Other long-term liabilities |  | 122 |  |  |  | 6 |
Net cash provided by operating activities of continuing operations |  | 5,828 |  |  |  | 2,349 |
Net cash provided by operating activities of discontinued operations |  | — |  |  |  | 4,010 |
Net cash provided by operating activities |  | 5,828 |  |  |  | 6,359 |
Cash flows from investing activities: |  |  |  |  |  |  |
Investments in properties |  | (10,539 | ) |  |  | (1,738 | )
Investment in joint ventures |  | (214 | ) |  |  | (135 | )
Cash held in escrow |  | (1,174 | ) |  |  | 35 |
Proceeds from the sale of real estate held for investment and properties |  | 11,297 |  |  |  | (17 | )
Net cash used in investing activities of continuing operations |  | (630 | ) |  |  | (1,855 | )
Net cash used in investing activities of discontinued operations |  | — |  |  |  | (2,193 | )
Net cash used in investing activities |  | (630 | ) |  |  | (4,048 | )
Cash flows from financing activities: |  |  |  |  |  |  |
Increase in bank overdrafts |  | 69 |  |  |  | — |
Repayment of long-term debt |  | (1,020 | ) |  |  | (1,123 | )
Proceeds from borrowing on revolving credit facility |  | 11,541 |  |  |  | 774 |
Payment on revolving credit facility |  | (17,107 | ) |  |  | (1,169 | )
Excess tax benefits from exercises of stock options |  | — |  |  |  | 94 |
Exercise of employee stock options |  | 900 |  |  |  | 251 |
Net cash used in financing activities of continuing operations |  | (5,617 | ) |  |  | (1,173 | )
Net cash used in financing activities of discontinued operations |  | — |  |  |  | (1,256 | )
Net cash used in financing activities |  | (5,617 | ) |  |  | (2,429 | )
Net decrease in cash and cash equivalents |  | (419 | ) |  |  | (118 | )
Cash and cash equivalents at beginning of period |  | 419 |  |  |  | 1,013 |
Cash and cash equivalents at end of the period | $ | — |  |  |  | 895 |

See accompanying notes.

6

FRP HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(Unaudited)

(1) Basis of Presentation. The accompanying consolidated financial statements include the accounts of FRP Holdings, Inc. (the “Company” or “FRP”) inclusive of our operating real estate subsidiaries, FRP Development Corp. (“Development”) and Florida Rock Properties, Inc. (”Properties”), subsequent to the completed spin-off (the “Spin-off”) of our transportation assets into a new, publicly traded entity, Patriot Transportation Holding, Inc. (“Patriot”; stock symbol “PATI”) effective January 30, 2015. As a result of the Spin-off the former transportation segment of the Company is reported as a discontinued operation that cannot receive any corporate overhead allocation. Hence, all corporate overhead of the transportation group through the date of the spin-off is included in “corporate expense” on the Company’s consolidated income statements herein. Our investment in the 50% owned Brooksville Joint Venture and in the Riverfront Investment Partners I, LLC are accounted for under the equity method of accounting (See Note 12). These statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q and do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (primarily consisting of normal recurring accruals) considered necessary for a fair statement of the results for the interim periods have been included. Operating results for the three months ended December 31, 2015 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2016. The accompanying consolidated financial statements and the information included under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" should be read in conjunction with the Company's consolidated financial statements and related notes included in the Company’s Form 10-K for the year ended September 30, 2015.

Following the completion of the Spin-off of the transportation business, management conducted a strategic review of the Company’s real estate operations. As a result of this review, it was determined that the information that the Company’s chief operating decision makers regularly review for purposes of allocating resources and assessing performance, had changed. Therefore, beginning with the quarter ending March 31, 2015 (with prior periods adjusted accordingly), the Company is reporting its financial performance based on three reportable segments, Asset Management, Mining Royalty Lands and Land Development and Construction, as described below.

Our Mining and Royalties segment stays the same, but based on our strategic review the Developed Property Rentals segment has been broken down into an Asset Management segment and a Land Development and Construction segment to reflect how management now evaluates the real estate activities previously presented in the Developed Property Rentals segment. The Asset Management segment contains all the developed buildings capable of producing current rental income; the Land Development and Construction segments contains the remaining developable land not yet developed to its eventual highest and best use potential where the Company's focus is to add further entitlements, construct vertical improvements or market the property to third parties all in an effort to bring such property to income producing status or realization of its fair market value through sales or exchange. This Land Development and Construction segment is generally in a pre-income production state where objectives are long term capital investment for eventual production of long-term rental streams or capital investment to achieve highest potential market value for sale to third parties.

7

Prior to the quarter ending December 31, 2015 certain corporate expenses (primarily stock compensation, corporate aircraft and one-time Spin-off related expenses) were reported as “unallocated” on the Company’s consolidated income statement and were not allocated to any business segment. Effective with fiscal 2016 all corporate expenses, other than those not allocated to discontinued operations, have been allocated. Reclassifications to the appropriate prior period line items and amounts have been made to be comparable to the current presentation. See Note 3 for a breakdown of corporate expenses showing the amounts allocated to the segments and the unallocated to discontinued operations.

(2) Recently Issued Accounting Standards. In November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes”. The guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. The guidance becomes effective for annual reporting periods beginning after December 15, 2016 with early adoption permitted. The Company adopted this guidance retrospectively as of October 1, 2015 and reclassified $143,000 from deferred costs to long-term deferred tax liability.

(3) Business Segments. Following the completion of the spin-off of the transportation business, management conducted a strategic review of the Company’s real estate operations. As a result of this review, it was determined that the information that the Company’s chief operating decision makers regularly review for purposes of allocating resources and assessing performance, had changed. Therefore, beginning with the quarter ending March 31, 2015 (with prior periods adjusted accordingly), the Company is reporting its financial performance based on three reportable segments, Asset Management, Mining Royalty Lands and Land Development and Construction, as described below.

The Asset Management segment owns, leases and manages warehouse/office buildings located predominately in the Baltimore/Northern Virginia/Washington, DC market area.

Our Mining Royalty Lands segment was unaffected by the change in segments and owns several properties comprising approximately 15,000 acres currently under lease for mining rents or royalties (this does not include the 4,280 acres owned in our Brooksville joint venture with Vulcan Materials). Other than one location in Virginia, all of these properties are located in Florida and Georgia.

Through our Land Development and Construction 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 of our non-income producing lands into income production through (i) an orderly process of constructing new warehouse/office buildings for us to own and operate or (ii) a sale to, or joint venture with, third parties.

Subsequent to the Spin-off, the Company is receiving certain services from Patriot (e.g. executive oversight, accounting, information technology and human resource services) which are billed to the Company on a monthly basis in accordance with the Transition Services Agreement entered into and made effective as of the date of the Spin-off. As was the case prior to the Spin-off, these costs (excluding stock compensation) are included in the Company’s corporate expense and are fully allocated to the business segments. Certain other corporate expenses (primarily stock compensation, corporate aircraft and one-time Spin-off related expenses) are reported as “unallocated” on the Company’s consolidated income statement and are not allocated to any business segment. As a result of the Spin-off the former

8

transportation segment of the Company is reported as a discontinued operation and thus is not allowed any corporate overhead allocation. Hence, all corporate overhead of the transportation group through the date of the Spin-off is included in “corporate expense” on the Company’s consolidated income statements herein. Reclassifications to the appropriate prior period line items and amounts have been made to be comparable to the current presentation.

Operating results and certain other financial data for the Company’s business segments are as follows (in thousands):

| Three Months ended
| December 31,
|  | 2015 |  |  |  | 2014 |  |
Revenues: |  |  |  |  |  |  |  |
Asset management | $ | 6,915 |  |  |  | 6,757 |  |
Mining royalty lands |  | 1,659 |  |  |  | 1,344 |  |
Land development and construction |  | 249 |  |  |  | 201 |  |
| $ | 8,823 |  |  |  | 8,302 |  |
Operating profit: |  |  |  |  |  |  |  |
Before corporate expenses: Asset management | $ | 3,388 |  |  |  | 3,386 |  |
Mining royalty lands |  | 1,525 |  |  |  | 1,200 |  |
Land development and construction |  | 2,419 |  |  |  | (528 | ) |
Corporate expenses: |  |  |  |  |  |  |  |
Allocated to asset management |  | (378 | ) |  |  | (300 | ) |
Allocated to mining royalty |  | (55 | ) |  |  | (318 | ) |
Allocated to land development and construction |  | (299 | ) |  |  | (176 | ) |
Unallocated to discontinued operations |  | — |  |  |  | (919 | ) |
|  | (732 | ) |  |  | (1,713 | ) |
| $ | 6,600 |  |  |  | 2,345 |  |
Interest expense: |  |  |  |  |  |  |  |
Asset management | $ | 481 |  |  |  | 445 |  |
Depreciation, depletion and amortization: |  |  |  |  |  |  |  |
Asset management | $ | 1,798 |  |  |  | 1,786 |  |
Mining royalty lands |  | 34 |  |  |  | 31 |  |
Land development and construction |  | 64 |  |  |  | 66 |  |
| $ | 1,896 |  |  |  | 1,883 |  |
Capital expenditures: |  |  |  |  |  |  |  |
Asset management |  | 9,237 |  |  |  | 905 |  |
Mining royalty lands |  | — |  |  |  | — |  |
Land development and construction |  | 1,302 |  |  |  | 833 |  |
| $ | 10,539 |  |  |  | 1,738 |  |

9

|  | December 30, |  |  |  | September 30, |  |
Identifiable net assets |  | 2015 |  |  |  | 2015 |  |
Asset management | $ | 159,216 |  |  |  | 151,023 |  |
Mining royalty lands |  | 39,298 |  |  |  | 39,300 |  |
Land development and construction |  | 56,916 |  |  |  | 60,682 |  |
Cash items |  | 1,174 |  |  |  | 419 |  |
Unallocated corporate assets |  | 505 |  |  |  | 1,054 |  |
| $ | 257,109 |  |  |  | 252,478 |  |

(4) Related Party Transactions. In order to effect the Spin-off and govern our relationship with Patriot Transportation Holding, Inc. after the Spin-off, we entered into an Employee Matters Agreement and a Transition Services Agreement. The Employee Matters Agreement generally allocates responsibilities to each company for liabilities relating to each Company’s current and former employees and allocated responsibilities under employee benefit plans. The Transition Services Agreement sets forth the terms on which Patriot will provide to FRP certain services that were shared prior to the Spin-off, including the services of certain shared executive officers, for a period of 12 or more months after the Spin-off.

The consolidated statements of income reflects charges and/or allocations from Patriot for these services of $386,000 and $794,000 for the three months ended December 31, 2015 and 2014, respectively.

To determine these allocations between FRP and Patriot as set forth in the Transition Services Agreement, we generally employed the same methodology historically used by the Company pre Spin-off to allocate said expenses and thus we believe that the allocations to FRP are a reasonable approximation of the costs related to FRP’s operations but any such related-party transactions cannot be presumed to be carried out on an arm’s-length basis as the terms were negotiated while Patriot was still a subsidiary of FRP.

As a result of the Spin-off the former transportation segment of the Company is reported as a discontinued operation and thus is not allowed any corporate overhead allocation. Hence, all corporate overhead of the transportation group through the date of the Spin-off is included in “corporate expense” on the Company’s consolidated income statements. The consolidated statements of income reflect charges and/or allocation for these services of $919,000 for the three months ended December 31, 2014.

(5) Long-Term debt. Long-term debt is summarized as follows (in thousands):

|  | December 31, |  | September 30,
|  | 2015 |  | 2015
Revolving credit (uncollateralized) |  | $ | 2,928 |  |  |  | 8,494 |
5.6% to 7.9% mortgage notes |  |  |  |  |  |  |  |
due in installments through 2027 |  |  | 39,171 |  |  |  | 40,191 |
|  |  | 42,099 |  |  |  | 48,685 |
Less portion due within one year |  |  | 4,247 |  |  |  | 4,180 |
|  | $ | 37,852 |  |  |  | 44,505 |

On January 30, 2015, in connection with the Spin-off, the Company terminated its $55 million credit facility entered into with Wells Fargo Bank, N.A. in 2012 and simultaneously entered into a new five year credit agreement with Wells Fargo with a maximum facility amount of $20 million (the "Credit Agreement"). The Credit Agreement provides a revolving credit facility (the “Revolver”) with a $10 million sublimit available for standby letters of credit. At the time of the Spin-off, the Company refinanced $10,483,000 of borrowings then outstanding on the terminated revolver. As of December 31,

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2015, there was $2,837,000 outstanding on the Company’s new credit facility, $2,377,000 letters of credit and $14,786,000 available for borrowing. The credit agreement contains certain conditions and financial covenants, including a minimum $110 million tangible net worth. As of December 31, 2015, the tangible net worth covenant would have limited our ability to pay dividends or repurchase stock with borrowed funds to a maximum of $79 million combined. The Company was in compliance with all covenants as of December 31, 2015.

During the first quarter of fiscal 2015, the Company announced the execution of a commitment from First Tennessee Bank to provide up to $40 million dollars of mortgage backed financing in two separate facilities. On July 24, 2015 the Company closed on a five year, $20 million secured revolver with a twenty-four month window to convert up to the full amount of the facility into a ten year term loan. As of December 31, 2015, there was $91,000 outstanding on the revolver. The second facility is a $20 million ten year term loan secured by to-be-determined collateral from our current pool of unencumbered warehouse/office properties. We expect to close on the ten year term loan during calendar 2016. The purpose of these loans is to facilitate growth through new construction in the Land Development and Construction segment and/or acquisition of existing, operating buildings to be added to the Asset Management segment.

During the three months ended December 31, 2015 and December 31, 2014 the Company capitalized interest costs of $222,000 and $321,000, respectively.

The fair values of the Company’s mortgage notes payable were estimated based on current rates available to the Company for debt of the same remaining maturities. At December 31, 2015, the carrying amount and fair value of such long-term debt was $39,171,000 and $42,325,000, respectively.

(6) Earnings per share. The following details the computations of the basic and diluted earnings per common share (dollars in thousands, except per share amounts):

| Three Months ended
| December 31,
| 2015 |  | 2014
Weighted average common shares outstanding |  |  |
during the period – shares used for basic |  |  |
earnings per common share |  | 9,802 |  |  |  | 9,711 |
Common shares issuable under share based |  |  |  |  |  |  |
payment plans which are potentially dilutive |  | 51 |  |  |  | 60 |
Common shares used for diluted |  |  |  |  |  |  |
earnings per common share |  | 9,853 |  |  |  | 9,771 |
Income from continuing operations | $ | 7,473 |  |  |  | 1,131 |
Discontinued operations |  | — |  |  |  | 1,663 |
Net income | $ | 7,473 |  |  |  | 2,794 |
Basic earnings per common share: |  |  |  |  |  |  |
Income from continuing operations | $ | 0.76 |  |  |  | 0.12 |
Discontinued operations |  | 0.00 |  |  |  | 0.17 |
Net income | $ | 0.76 |  |  |  | 0.29 |
Diluted earnings per common share: |  |  |  |  |  |  |
Income from continuing operations | $ | 0.76 |  |  |  | 0.12 |
Discontinued operations |  | 0.00 |  |  |  | 0.17 |
Net income | $ | 0.76 |  |  |  | 0.29 |

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For the three months ended December 31, 2015 and 2014, 72,090 and 69,175 shares attributable to outstanding stock options were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive.

(7) Stock-Based Compensation Plans. As more fully described in Note 8 to the Company’s notes to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended September 30, 2015, the Company’s stock-based compensation plan permits the grant of stock options, stock appreciation rights, restricted stock awards, restricted stock units, and stock awards. The number of common shares available for future issuance was 397,630 at December 31, 2015.

As a result of the Spin-off and pursuant to the Employee Matters Agreement, we made certain adjustments to the exercise price and number of outstanding FRP stock options. All outstanding options held by the Company directors, Company officers and key employees on January 30, 2015 were cancelled and replaced by an equal number of FRP options at 75.14% of the previous exercise price based upon the market value of FRP less the when issued market value of the Company on that day. For FRP officers additional options were issued rather than issuing Patriot options for the 24.86% market value attributed to Patriot. The adjusted stock options are subject to the same vesting conditions and other terms that applied to the original FRP award immediately prior to the Spin-off, except as otherwise described above.

Subsequent to Spin-off, the realized tax benefit pertaining to options exercised and the remaining compensation cost of options previously granted prior to the Spin-off will be recognized by FRP or Patriot based on the employment location of the related employee or director.

The Company recorded the following stock compensation expense (including unallocated to Patriot in periods prior to the Spin-off) in its consolidated statements of income (in thousands):

|  | Three Months ended |
|  | December 31, |
|  | 2015 |  | 2014 |
Stock option grants |  | $ | 72 |  |  |  | 172 |  |  |
Annual director stock award |  |  | — |  |  |  | — |  |  |
|  | $ | 72 |  |  |  | 172 |  |  |

A summary of changes in outstanding options is presented below (in thousands, except share and per share amounts):

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|  |  |  |  |  | Weighted |  |  |  | Weighted |  |  |  | Weighted |
|  | Number |  |  |  | Average |  |  |  | Average |  |  |  | Average |
|  | of |  |  |  | Exercise |  |  |  | Remaining |  |  |  | Grant Date |
Options |  | Shares |  |  |  | Price |  |  |  | Term (yrs) |  |  |  | Fair Value |
Outstanding at |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
October 1, 2015 |  | 305,750 |  |  | $ | 21.90 |  |  |  | 5.9 |  |  | $ | 2,738 |
Granted |  | 21,540 |  |  | $ | 31.15 |  |  |  |  |  |  | $ | 272 |
Exercised |  | (48,830 | ) |  | $ | 18.43 |  |  |  |  |  |  | $ | (362 | )
Outstanding at |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
December 31, 2015 |  | 278,460 |  |  | $ | 23.22 |  |  |  | 6.2 |  |  | $ | 2,648 |
Exercisable at |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
December 31, 2015 |  | 200,613 |  |  | $ | 22.00 |  |  |  | 5.4 |  |  | $ | 1,729 |
Vested during |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
three months ended |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
December 31, 2015 |  | 35,596 |  |  |  |  |  |  |  |  |  |  | $ | 341 |

The aggregate intrinsic value of exercisable in-the-money options was $2,396,000 and the aggregate intrinsic value of outstanding in-the-money options was $2,985,000 based on the market closing price of $33.94 on December 31, 2015 less exercise prices.

The realized tax benefit to the Company or Patriot from options exercised in the three months ended December 31, 2015 was $270,000. The unrecognized compensation cost of options granted to FRP employees but not yet vested as of December 31, 2015 was $417,000, which is expected to be recognized over a weighted-average period of 4.0 years. Gains of $698,000 were realized by option holders during the three months ended December 31, 2015.

(8) Contingent liabilities. Certain of the Company’s subsidiaries are involved in litigation on a number of matters and are subject to certain claims which arise in the normal course of business. The Company has retained certain self-insurance risks with respect to losses for third party liability and property damage. The liability at any point in time depends upon the relative ages and amounts of the individual open claims. In the opinion of management, none of these matters are expected to have a material adverse effect on the Company’s consolidated financial condition, results of operations or cash flows.

Preliminary testing on the site of the Company's four phase master development known as RiverFront on the Anacostia in Washington, D.C. indicated the presence of contaminated material that will have to be specially handled upon excavation in conjunction with construction. The Company has agreed with our joint venture partner to bear the cost of handling the contaminated materials on the first phase of this development up to a cap of $1.871 million. We recorded an expense in the fourth quarter of fiscal 2012 of $1,771,000 for this environmental remediation liability which is the lower end of the range of estimates. As of December 31, 2015, the excavation and foundation work for Phase 1 were substantially complete; thus, the bulk of the remediation expenses have been incurred. Management believes the total cost for remediation on Phase 1 will end up at approximately $1.9 million. The Company has no obligation to remediate this contamination on Phases II, III and IV of the development until such time as it makes a commitment to commence construction there. During the quarter ending December 31, 2015, management successfully completed negotiations and entered into a $3,000,000 settlement of environmental claims on all four phases against our former tenant at the Riverfront on the Anacostia property and continues to pursue settlement negotiations with other potentially responsible parties. Management anticipates committing to develop Phase II of the Riverfront on the Anacostia project during this fiscal year at which time we will likely book a liability for the estimated incremental cost of remediation similar to what we booked with regards to Phase I.

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(9) Concentrations. With the completion and occupancy of the 3rd build to suit for the same tenant at Patriot Business Park in the first quarter of fiscal 2015 this particular tenant accounted for 12% of the Company’s consolidated revenues during the three months ended December 31, 2015. The mining royalty lands segment has a total of four tenants currently leasing mining locations and one lessee that accounted for 13.1% of the Company’s consolidated revenues in the three months ended December 31, 2015 and $87,000 of accounts receivable at December 31, 2015. The termination of these lessees’ underlying leases could have a material adverse effect on the Company. The Company places its cash and cash equivalents with high credit quality institutions. At times, such amounts may exceed FDIC limits.

(10) Fair Value Measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. Level 1 means the use of quoted prices in active markets for identical assets or liabilities. Level 2 means the use of values that are derived principally from or corroborated by observable market data. Level 3 means the use of inputs are those that are unobservable and significant to the overall fair value measurement.

As of December 31, 2015 the Company had no assets or liabilities measured at fair value on a recurring or non-recurring basis. At December 31, 2015 and 2014, the carrying amount reported in the consolidated balance sheets for cash and cash equivalents, short-term notes payable and revolving credit approximate their fair value based upon the short-term nature of these items. The fair values of the Company’s other mortgage notes payable were estimated based on current rates available to the Company for debt of the same remaining maturities.

(11) Unusual or Infrequent Items Impacting Quarterly Results. Operating profit includes expenses of $450,000 in the first quarter of fiscal 2015 for costs incurred related to the planned spin-off of the transportation group.

Costs of operations for the land development and construction segment for the quarter ending December 31, 2015 includes a $3,000,000 positive benefit from settlement of environmental claims against our former tenant at the Riverfront on the Anacostia property (see Note 8).

Gain on investment land sold for the quarter ending December 31, 2015 includes $6,277,000 gain on the sale of phase 2 of Windlass Run residential property.

(12) Investment in Riverfront and Brooksville Joint Ventures.

Riverfront. On March 30, 2012 the Company entered into a Contribution Agreement with MRP SE Waterfront Residential, LLC. (“MRP”) to form a joint venture to develop the first phase only of the four phase master development known as RiverFront on the Anacostia in Washington, D.C. The purpose of the Joint Venture is to develop, own, lease and ultimately sell an approximately 300,000 square foot residential apartment building (including approximately 18,000 square feet of retail) on approximately 2.1 acres of the roughly 5.82 acre site. The joint venture, RiverFront Investment Partners I, LLC (“RiverFront I”) was formed in June 2013 as contemplated. The Company contributed land with an

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agreed to value of $13,500,000 (cost basis of $6,165,000) and contributed cash of $4,866,000 to the Joint Venture for a 76.91% stake in the venture. MRP contributed capital of $5,553,000 to the joint venture including development costs paid prior to formation of the joint venture. The Joint Venture closed on $17,000,000 of EB5 secondary financing and a nonrecourse construction loan for $65,000,000 on August 8, 2014. Both these financing sources are non-recourse to FRP. At the time of these financings, RiverFront Holdings I, LLC. was formed as a parent to RiverFront Investment Partners I, LLC with EB5 as an equity partner in Riverfront Holdings I, LLC. Construction commenced in October 2014. At this point, the Company anticipates lease up to occur in the second half of calendar 2016 and all of 2017. The Company’s equity interest in the joint venture is accounted for under the equity method of accounting as MRP acts as the administrative agent of the joint venture and oversees and controls the day to day operations of the project.

Other income for the three months ended December 31, 2015 includes a loss of $45,000 representing the Company’s portion of the loss of this joint venture due primarily to expenses incurred in the joint venture with respect to depreciation on the bulkhead and advertising expense.

Brooksville. In 2006, the Company entered into a Joint Venture Agreement with Florida Rock Industries, Inc. (now owned by Vulcan Materials Company) to jointly own and develop approximately 4,300 acres of land near Brooksville, Florida. Under the terms of the joint venture, FRP contributed its fee interest in approximately 3,443 acres formerly leased to Vulcan under a long-term mining lease which had a net book value of $2,548,000. Vulcan is entitled to mine a portion of the property until 2022 and pay royalties to the Company. FRP also contributed $3,018,000 for one-half of the acquisition costs of a 288-acre contiguous parcel. Vulcan contributed 553 acres that it owned as well as its leasehold interest in the 3,443 acres that it leased from FRP and $3,018,000 for one-half of the acquisition costs of the 288-acre contiguous parcel. The joint venture is jointly controlled by Vulcan and FRP, and they each have a mandatory obligation to fund additional capital contributions of up to $2,430,000. Capital contributions of $2,397,000 have been made by each party as of December 31, 2015. Distributions will be made on a 50-50 basis except for royalties and depletion specifically allocated to the Company. Other income for the three months ended December 31, 2015 includes a loss of $9,000 representing the Company’s portion of the loss of this joint venture. In April 2011, the Florida Department of Community Affairs issued its Final Order approving the development of the Project, and zoning for the Project was obtained from Hernando County in August 2012. We will continue to monitor the residential market in Hernando County and pursue opportunities to partner with a master community developer or major homebuilder to commence construction when the market dictates.

Investments in Joint Ventures (in thousands):

|  |  |  |  |  |  |  |  |  |  |  |  |  | The |
|  |  |  |  |  |  |  |  |  |  |  |  |  | Company's |
|  |  |  |  |  |  |  | Total Assets |  |  | Net Loss |  |  | Share of Net |
|  |  |  |  | Total |  |  | of the |  |  | of the |  |  | Loss of the |
|  | Ownership |  |  | Investment |  |  | Partnership |  |  | Partnership |  |  | Partnership |
|  |  |  |  |  |  |  | (Unaudited) |  |  | (Unaudited) |  |  |  |
As of December 31, 2015 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Riverfront Holdings I, LLC |  | 76.91 | % |  | $ 11,635 |  |  | $ 50,536 |  |  | $ (53 | ) |  | $ (45 | )
Brooksville Quarry, LLC |  | 50.00 | % |  | 7,533 |  |  | 14,354 |  |  | (18 | ) |  | (9 | )
Total |  |  |  |  | $ 19,168 |  |  | $ 64,890 |  |  | $ (71 | ) |  | $ (54 | )

15

As of September 30, 2015 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Riverfront Holdings I, LLC |  | 76.91 | % |  | $ 11,517 |  |  | $ 40,970 |  |  | $ (108 | ) |  | $ (105 | )
Brooksville Quarry, LLC |  | 50.00 | % |  | 7,493 |  |  | 14,336 |  |  | (80 | ) |  | (40 | )
Total |  |  |  |  | 19,010 |  |  | $ 55,306 |  |  | $ (188 | ) |  | $ (145 | )

The amount of consolidated retained earnings for these joint ventures was $423,000 and $389,000 as of December 31, 2015 and September 30, 2015, respectively.

Summarized Unaudited Financial Information for the Investments in Joint Ventures (in thousands):

|  | As of |
|  |  | 12/31/2015 |  |  |  | 9/30/2015 |
Cash |  | $ | 92 |  |  |  | 61 |
Cash held in escrow |  |  | 644 |  |  |  | 3,420 |
Amortizable Debt Costs |  |  | 1,490 |  |  |  | 1,593 |
Investments in real estate, net |  |  | 62,664 |  |  |  | 50,232 |
Total Assets |  | $ | 64,890 |  |  |  | 55,306 |
Other Liabilities |  | $ | 7,432 |  |  |  | 6,969 |
Long-term Debt |  |  | 25,929 |  |  |  | 17,000 |
Capital – FRP |  |  | 19,168 |  |  |  | 19,010 |
Capital - Third Parties |  |  | 12,361 |  |  |  | 12,327 |
Total Liabilities and Capital |  | $ | 64,890 |  |  |  | 55,306 |

(13) Spin-off. On January 30, 2015, FRP Holdings, Inc. (Nasdaq GM: FRPH) (the “Company” or “FRP”) completed the spin-off of its transportation business into a new, separately traded public company - Patriot Transportation Holding, Inc. (Nasdaq GM: PATI) (“Patriot”) - resulting in FRP becoming a pure real estate company. As a result, the former transportation segment is reported as a discontinued operation without any corporate overhead allocation. Hence, all corporate overhead attributable to the transportation group through the date of the spin-off is included in “corporate expense” on the Company’s historical consolidated income statements.

The results of operations associated with discontinued operations for the three month periods ended December 31, 2015 and 2014 were as follows (in thousands):

| Three Months ended |
| December 31, |
| 2015 |  | 2014 |
Revenue | $ | — |  |  |  | 31,717 |  |
Cost of operations |  | — |  |  |  | 28,965 |  |
Operating profit |  | — |  |  |  | 2,752 |  |
Interest expense |  | — |  |  |  | (26 | ) |
Income before income taxes |  | — |  |  |  | 2,726 |  |
Provision for income taxes |  | — |  |  |  | 1,063 |  |
Income from discontinued operations | $ | — |  |  |  | 1,663 |  |

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The following table presents the carrying value of the major categories of assets and liabilities of discontinued operations reflected on the Company’s consolidated balance sheets at September 30, 2014:

Property and equipment, net |  | $ | 42,174 |
Accounts receivable, net |  |  | 7,119 |
Deferred costs |  |  | 11,809 |
Other assets |  |  | 32 |
Assets of discontinued operation |  | $ | 61,134 |
Line of credit |  | $ | 7,282 |
Accounts payable and accrued liabilities |  |  | 11,489 |
Deferred compensation |  |  | 717 |
Deferred income taxes |  |  | 8,924 |
Liabilities of discontinued operation |  | $ | 28,412 |

(14) Port Capital Property Acquisition. On October 19, 2015, the Company purchased for approximately $9.9 million, 7700 Port Capital Drive in Elkridge, Maryland which consists of 1 building on 6.39 acres totaling 91,218 square feet plus approximately 29,558 square feet of mezzanine space. The Company has accounted for this acquisition in accordance with the provisions of ASC 805, Business Combinations (ASC 805). The Company has allocated the purchase price of the property, through the use of a third party valuation, based upon the fair value of the assets acquired, consisting of land, buildings and intangible assets, including in-place leases. Based on the third party valuation performed, the purchase price has been allocated to the fair value of the in-place leases. These deferred leasing intangible assets are recorded within Deferred Costs in the consolidated balance sheets. The value of the in-place lease intangibles will be amortized to amortization expense over the remaining lease terms.

The Company will recognize the amortization related to the Port Capital Drive property intangible assets according to the following schedule (in thousands):

|  |  |  |  | In-place |  |
|  |  |  |  | Leases |  |
| Initial Values |  |  | $ | 1,126 |  |
| Annual Amortization: |  |  |  |  |  |
| 2016 |  |  | $ | 104 |  |
| 2017 |  |  |  | 114 |  |
| 2018 |  |  |  | 114 |  |
| 2019 |  |  |  | 114 |  |
| 2020 |  |  |  | 114 |  |
| 2021 |  |  |  | 114 |  |
| 2022 |  |  |  | 113 |  |
| 2023 |  |  |  | 113 |  |
| 2024 |  |  |  | 113 |  |
| 2025 |  |  |  | 113 |  |

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the consolidated financial information and related notes that appear in Part I, Item 1 of this Quarterly Report on Form 10-Q. The following discussion also presents net operating income (“NOI”) and adjusted operating profit, non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission (“Regulation G”) to supplement the financial results as reported in accordance with GAAP. Management uses these metrics to analyze its continuing operations and to monitor, assess, and identify meaningful trends in its operating and financial performance. These measures are not, and should not be viewed as, a substitute for GAAP financial measures. Refer to “Non-GAAP Financial Measures” below in this Quarterly Report on Form 10-Q for a more detailed discussion, including a reconciliation of NOI to the most directly comparable GAAP financial measure.

Overview – This section provides management's discussion and analysis of the financial condition and results of operations of FRP Holdings, Inc. for the quarter ended December 31, 2015.

FRP Holdings, Inc. (“FRP” or the “Company”) is a holding company engaged in the real estate business, namely (i) warehouse/office building ownership, leasing and management, (ii) mining royalty land ownership, leasing and management, and (iii) land acquisition, entitlement, development and construction mainly for warehouse/office buildings.

On January 30, 2015, FRP completed the tax-free spin-off of its transportation business (“Spin-off”) into a new, separately traded public company, Patriot Transportation Holding, Inc. (“Patriot”). In the Spin-off, FRP distributed all of the outstanding stock of Patriot to FRP’s shareholders as of the record date of January 9, 2015. FRP’s shareholders received one share of Patriot common stock for every three shares of FRP common stock owned on the record date. Patriot is now an independent publicly-traded company, and FRP retains no ownership in Patriot. FRP retained the real estate business, which is now the sole business of the Company. As a result, the former transportation segment is reported as a discontinued operation without any corporate overhead allocation. Hence, all corporate overhead attributable to the transportation group through the date of the spin-off is included in “corporate expense” on the Company’s historical consolidated income statements.

Following the completion of the spin-off of the transportation business, management conducted a strategic review of the Company’s real estate operations. As a result of this review, Management determined that the information that the Company’s chief operating decision makers regularly review for purposes of allocating resources and assessing performance, had changed. Therefore, beginning with the quarter ending March 31, 2015 (with prior periods adjusted accordingly), the Company is reporting its financial performance based on three reportable segments, Asset Management, Mining Royalty Lands and Land Development and Construction, as described below.

Our Mining and Royalties segment remains unaffected, but our former Developed Property Rentals segment has been broken down into an Asset Management segment and a Land Development and Construction segment to reflect how management now evaluates the real estate activities previously presented in the Developed Property Rentals segment. The Asset Management segment contains all the developed buildings capable of producing current rental income. The Land Development and Construction segment contains the remaining developable land that is generally in a pre-income production state where objectives are long term capital investment in an effort to bring such property to

18

income producing status or realization of its fair market value through sales or exchange.

Prior to the quarter ending December 31, 2015 certain corporate expenses (primarily stock compensation, corporate aircraft and one-time Spin-off related expenses) were reported as “unallocated” on the Company’s consolidated income statement and were not allocated to any business segment. Effective with fiscal 2016 all corporate expenses, other than those not allocated to discontinued operations, have been allocated. Reclassifications to the appropriate prior period line items and amounts have been made to be comparable to the current presentation. See Note 3 for a breakdown of corporate expenses showing the amounts allocated to the segments and the unallocated to discontinued operations.

The Company’s operations are influenced by a number of external and internal factors. External factors include levels of economic and industrial activity in the United States and the Southeast, construction activity and costs, aggregates sales by lessees from the Company’s mining properties, interest rates, market conditions in the Baltimore/Northern Virginia/Washington DC area, and our ability to obtain zoning and entitlements necessary for property development. Internal factors include administrative costs and group health claims experience. Financial results of the Company for any individual quarter are not necessarily indicative of results to be expected for the year.

Asset Management Segment.

The Asset Management segment owns, leases and manages warehouse/office buildings located predominately in the Baltimore/Northern Virginia/Washington, DC market area. We focus primarily on owning flexible type facilities that cater to the maximum number of tenant types. As most of our buildings are less than 150,000 square feet, we focus on local and regional vs. national tenants. Hands-on service provided by our in-house construction and property management teams keeps us close to our tenant base. These practices are the cornerstone of our mission to provide the highest quality product and services at competitive rates resulting in tenant satisfaction and ultimately, retention.

These assets create revenue and cash flows through tenant rental payments, lease management fees and reimbursements for building operating costs. 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. Of the 40 buildings we own today, 26 were constructed by the Company through what is now known as our Land Development and Construction segment. Additionally, over the years, we have opportunistically acquired 14 existing operating buildings, typically in connection with a deferred like-kind (Section 1031) exchange opportunity. Today, this segment consists of just under 3.7 million square feet.

Management focuses on several factors to measure our success on a comparative basis in this segment. The major factors we focus on are (1) revenue growth, (2) net operating income (cash basis), (3) growth in occupied square feet, (4) actual occupancy rate, (5) average annual occupied square feet, (6) 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), (7) growth of our portfolio (in square feet), and (8) tenant retention success rate (as a percentage of total square feet to be renewed).

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Asset Management segment – three months ended | December 31, 2015 | December 31, 2014
Revenues | $6,915,000 | $6,757,000
Net Operating Income (Cash Basis) | $5,390,000 | $5,358,000
Occupied square feet | 3,364,008 | 3,342,789
Overall occupancy rate | 91.1% | 92.8%
Average annual occupied square feet | 3,363,418 | 3,280,839
Average annual occupancy rate | 91.1% | 92.2%
Portfolio square feet | 3,693,377 | 3,602,159
Retention Success rate | 68% | 77%

Mining Royalty Lands Segment.

Our Mining Royalty Lands segment owns several properties comprising approximately 15,000 acres currently under lease for mining rents or royalties (this does not include the 4,280 acres owned in our Brooksville joint venture with Vulcan Materials). Other than one location in Virginia, all of these properties are located in Florida and Georgia. 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 fixed annual rental amount. We believe strongly in the potential for future growth in construction in Florida and Georgia which would positively benefit our profitability in this segment.

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 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 and Cemex, among others.

Additionally, these locations provide us with excellent opportunities for valuable “2nd lives” for these assets through proper land planning and entitlement.

Significant “2nd life” Mining Lands:

Location | Acreage | Status
Brooksville, Fl | 4,280 +/- | Development of Regional of Impact and County Land Use and Master Zoning in place for 5,800 residential unit, mixed-use development
Ft. Myers, FL | 1,993 +/- | Approval in place for 105, 1 acre, waterfront residential lots after mining completed.
Gulf Hammock, Fl | 1,600 +/- | Currently on the market for $4.5 million
Total | 7,873 +/- |

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Land Development and Construction Segment.

Through our Land Development and Construction 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 of our non-income producing lands into income production through (i) an orderly process of constructing new warehouse/office buildings for us to own and operate or (ii) a sale to, or joint venture with, third parties.

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.

Since 1990, one of our primary strategies in this segment has been to acquire, entitle and ultimately develop commercial/industrial business parks providing 5–15 building pads which we typically convert into warehouse/office buildings. To date, our management team has converted 26 of these pads into developed buildings that we continue to own and manage through the Asset Management segment. Our typical practice has been to transfer these assets to the Asset Management segment on the earlier to occur of (i) commencement of rental revenue or (ii) issuance of the certificate of occupancy. We have also opportunistically sold several of these pad sites over time to third party “users”.

The remaining pad sites in our inventory today are fully entitled, located in business parks in four different submarkets in the DC/Baltimore/Northern Virginia area, and can support an additional +/- 1.2 million sf. of warehouse/office buildings.

Summary of Our Remaining Lot Inventory:

Location | Acreage | SF +/- | Status
Lakeside, MD | 20 | 266,530 | Horizontal development completed. Ready for vertical permitting.
Windlass Run Business Park, MD | 50 | 386,626 | Horizontal development completed. Permitting submitted for 150,000 sf warehouse/office building with the balance ready for further vertical permitting.
Patriot Business Center, Manassas, VA | 24 | 198,150 | Horizontal development completed. Ready for vertical permitting.
Hollander 95 Business Park, MD | 33 | 345,750 | Horizontal development completed. Construction in progress on 80,000 sf warehouse/office building with the balance of the land ready for vertical permitting.
Total | 127 | 1,197,056 |

We completed a third build-to-suit building for the same tenant at our Patriot Business Park and transferred that asset to the Asset Management segment on or about November 2014 when the building was approved for occupancy. Having sites ready for vertical construction has rewarded us in the past. It is the main reason why we were able to convert 3 of our finished pads at Patriot Business Park into build-to-suit opportunities in 2012, 2013 and 2014. We are now under construction on an 80,000 square foot spec building at Hollander Business Park. We will continue to actively monitor these submarkets where we have lots ready for construction and take advantage of the opportunities presented to us.

In addition to the inventory of finished building lots, we have several other properties that were either spun-off to us from Florida Rock Industries in 1986 or acquired by us from unrelated 3rd parties. These

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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 ripen.

Our strategy when selling parcels outright is to attempt to convert the proceeds into income producing real estate for our Asset Management segment through a Section 1031 tax-deferred exchange. An example of this is the Windlass Run 179 acre tract purchased for $5.2 million in 2002. When purchased, the entire parcel was zoned for commercial/industrial uses. Today, some 70 acres of this original tract makes up our Windlass Run Business Park. We successfully rezoned the remaining acreage for medium density residential development and on April 17, 2013, we entered into a contract to sell the residential portion of the property for $19 million. The first phase of the Windlass Run residential land was sold for $8 million and the proceeds were used in a Section 1031 exchange to acquire our Transit Business Park in 2013. Phase 2 was sold in November, 2015 for $11.1 million and we used $9.9 million of the proceeds to acquire the fully leased Port Capital Building.

An example of property in this segment being developed through joint venture is Phase I of our RiverFront on the Anacostia project which was contributed to a joint venture with MRP in 2014 and is now under construction as a 305 unit apartment building including 18,000 sf of ground floor retail.

Significant Investment Lands Inventory:

Location | Approx. Acreage | Status | NBV
Riverfront on the Anacostia Phase I | 2.1 | Phase I under construction | $11,635,000
Riverfront on the Anacostia Phases II-IV | 3.7 | Phase II design approval plans to be submitted to Zoning Commission prior to December, 2016. | $10,563,000
Hampstead Trade Center, MD | 117 | Residential studies ongoing | $7,147,000
Square 664E,on the Anacostia River in DC | 2 | Under lease to Vulcan Materials as a concrete batch plant through 2021 with one 5 year renewal option. | $4,650,000
Total | 125 |  | $33,995,000

RIVERFRONT ON THE ANACOSTIA:

This property consists of 5.8 acres on the Anacostia River and is immediately adjacent to the Washington National’s baseball park in the SE Central Business District of Washington, DC. Once zoned for industrial use and under a ground lease, this property is no longer under lease and has been re-zoned for the construction of approximately 1.1M square feet of “mixed-use” development in four phases. In 2014, approximately 2.1 acres (Phase I) of the total 5.8 acres was contributed to a joint venture owned by the Company (77%) and our partner, MRP Realty (23%), and construction commenced in October, 2014 on a 305 unit residential apartment building with approximately 18,000 sq. ft. of first floor retail space. Lease up is expected to commence in 2016 and continue through 2017. Phases II, III and IV are slated for residential, office, and hotel/residential buildings, respectively, all with permitted first floor retail

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uses. In accordance with our Master Planned Unit Development (PUD) approval, the next step for development of Phase II requires us to submit plans to the Zoning Commission for final design approval within two years of issuance of the construction permit for Phase I (i.e. by December of 2016).

HAMPSTEAD TRADE CENTER: We purchased this 117 acre tract in 2005 for $4.3 million in a Section 1031 exchange with plans of developing it as a commercial business park. The “great recession” caused us to reassess our plans for this property. As a result, Management determined that the prudent course of action is to attempt to rezone the property for residential uses and sell the entire tract to another developer such that we can redeploy this capital into an asset with more near-term income producing potential. Residential studies are on-going today.

SQUARE 664E, WASHINGTON, DC

This property sits on the Anacostia River at the base of South Capitol Street in an area named Buzzard Point, approximately 1 mile down river from our RiverFront on the Anacostia property. The Square 664E property consists of approximately 2 acres and is currently under lease to Vulcan Materials for use as a concrete batch plant. The lease terminates on August 31, 2021 and Vulcan has the option to renew for one additional period of five (5) years. In the quarter ending December 31, 2014, the District of Columbia announced that it had selected Buzzard Point for the future site of the new DC United major league soccer stadium. The selected stadium location is separated from our property by just one small industrial lot.

Comparative Results of Operations for the Three months ended December 31, 2015 and 2014

Consolidated Results

| THREE MONTHS ENDED |  |  |  |
| DECEMBER 31 |  |  |  |
| 2015 |  | 2014 |  | Change |  | %
Revenues: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Rental Revenue | $ | 6,027 |  |  |  | 5,868 |  |  |  | 159 |  |  |  | 2.7 | %
Royalty and Rents |  | 1,638 |  |  |  | 1,320 |  |  |  | 318 |  |  |  | 24.1 | %
Revenue-Reimbursements |  | 1,158 |  |  |  | 1,114 |  |  |  | 44 |  |  |  | 3.9 | %
Total Revenues |  | 8,823 |  |  |  | 8,302 |  |  |  | 521 |  |  |  | 6.3 | %
Cost of operations: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Depreciation/Depletion/Amortization |  | 1,896 |  |  |  | 1,883 |  |  |  | 13 |  |  |  | 0.7 | %
Operating Expenses |  | 973 |  |  |  | 914 |  |  |  | 59 |  |  |  | 6.5 | %
Environmental remediation recovery |  | (3000 | ) |  |  | — |  |  |  | (3,000 | ) |  |  | * |
Property Taxes |  | 1,118 |  |  |  | 1,095 |  |  |  | 23 |  |  |  | 2.1 | %
Mgmt Co Allocation-In |  | 504 |  |  |  | 352 |  |  |  | 152 |  |  |  | 43.2 | %
Corporate Expense |  | 732 |  |  |  | 794 |  |  |  | (62 | ) |  |  | -7.8 | %
Corp Mgmt fee not alloc. to discontinued operations |  | — |  |  |  | 919 |  |  |  | (919 | ) |  |  | -100.0 | %
Total cost of operations |  | 2,223 |  |  |  | 5,957 |  |  |  | (3,734 | ) |  |  | -62.7 | %
Total operating profit |  | 6,600 |  |  |  | 2,345 |  |  |  | 4,255 |  |  |  | 181.4 | %
Interest Income and other |  | 1 |  |  |  | — |  |  |  | 1 |  |  |  | * |
Interest Expense |  | (481 | ) |  |  | (445 | ) |  |  | (36 | ) |  |  | 8.1 | %
Equity in loss of joint ventures |  | (54 | ) |  |  | (30 | ) |  |  | (24 | ) |  |  | 80.0 | %
Gain (loss) on investment land sold |  | 6,286 |  |  |  | (17 | ) |  |  | 6,303 |  |  |  | * |
Income before income taxes |  | 12,352 |  |  |  | 1,853 |  |  |  | 10,499 |  |  |  | 566.6 | %
Provision for income taxes |  | 4,879 |  |  |  | 722 |  |  |  | 4,157 |  |  |  | 575.8 | %
Income from continuing operations |  | 7,473 |  |  |  | 1,131 |  |  |  | 6,342 |  |  |  | 560.7 | %
Gain from discontinued operations, net |  | — |  |  |  | 1,663 |  |  |  | (1,663 | ) |  |  | (100.0 | )%
Net income | $ | 7,473 |  |  |  | 2,794 |  |  |  | 4,679 |  |  |  | 167.5 | %
* Not meaningful |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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Income from continuing operations for the first quarter of fiscal 2016 was $7,473,000 or $.76 per share versus $1,131,000 or $.12 per share in the first quarter last year. This first quarter of fiscal 2016 benefited from a gain on land sale of $6,286,000 plus income of $3,000,000 from the settlement of environmental claims resulting in a positive impact of $.57 per share of income from continuing operations. Total revenues were up $521,000, or 6.3%, versus the same quarter last year. Excluding the positive impact of the environmental settlement this quarter ($3 million) and the negative impact of corporate costs not allocated to discontinued operations in the first quarter last year ($919,000), consolidated total operating profit was up 10.3%.

Post Spin-off we are reporting any net gain/(loss) from the transportation business as “discontinued operations” and we currently have no other discontinued operations being reported. In the quarter we received no benefit to after tax net income versus a $1,663,000 benefit in the same quarter last year. GAAP accounting rules do not allow corporate overhead expense to be allocated to a discontinued operation of the Company which resulted in the first quarter of fiscal 2015 including an additional $919,000 of corporate overhead expense to the Company that was associated with the discontinued transportation operations.

Asset Management Segment Results

Highlights of the First Quarter 2016:

- Revenue up $158,000, or 2.3%, over the same quarter last year due to the addition of income producing square feet to our portfolio.
- Operating profit was down $76,000, or 2.5%, over the same quarter last year.

|  | Three months ended December 31 |  |  |  |
(dollars in thousands) |  | 2015 |  | % |  | 2014 |  | % |  | Change |  | %
Rental revenue |  | $ | 5,908 |  |  |  | 85.4 | % |  |  | 5,744 |  |  |  | 85.0 | % |  |  | 164 |  |  |  | 2.9 | %
Revenue-reimbursements |  |  | 1,007 |  |  |  | 14.6 | % |  |  | 1,013 |  |  |  | 15.0 | % |  |  | (6 | ) |  |  | -0.6 | %
Total revenue |  |  | 6,915 |  |  |  | 100.0 | % |  |  | 6,757 |  |  |  | 100.0 | % |  |  | 158 |  |  |  | 2.3 | %
Depreciation, depletion and amortization |  |  | 1,798 |  |  |  | 26.0 | % |  |  | 1,786 |  |  |  | 26.4 | % |  |  | 12 |  |  |  | 0.7 | %
Operating expenses |  |  | 839 |  |  |  | 12.1 | % |  |  | 675 |  |  |  | 10.0 | % |  |  | 164 |  |  |  | 24.3 | %
Property taxes |  |  | 659 |  |  |  | 9.5 | % |  |  | 757 |  |  |  | 11.2 | % |  |  | (98 | ) |  |  | -12.9 | %
Management company indirect |  |  | 231 |  |  |  | 3.4 | % |  |  | 153 |  |  |  | 2.3 | % |  |  | 78 |  |  |  | 51.0 | %
Corporate expense |  |  | 378 |  |  |  | 5.5 | % |  |  | 300 |  |  |  | 4.4 | % |  |  | 78 |  |  |  | 26.0 | %
Cost of operations |  |  | 3,905 |  |  |  | 56.5 | % |  |  | 3,671 |  |  |  | 54.3 | % |  |  | 234 |  |  |  | 6.4 | %
Operating profit |  | $ | 3,010 |  |  |  | 43.5 | % |  |  | 3,086 |  |  |  | 45.7 | % |  |  | (76 | ) |  |  | -2.5 | %

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Total revenues in this segment were $6,915,000, up $158,000 or 2.3%, over the same quarter last year. The increase was due mainly to completion of the third build-to-suit in the middle of the same quarter last year and the acquisition of the Port Capital building in October offset by the lack of revenues ($138,000) from a building that vacated in January 2015 as a result of the tenant outgrowing the space. Cost of operations increased $234,000 due mainly to the reallocation of corporate expenses from the Mining Royalty Lands segment and an increase in operating expenses due primarily to transaction specific fees and costs (e.g. the 1031 exchange) partially offset by a reduction of $98,000 in property taxes due mainly to a successful appeal of taxes on the three build-to-suit buildings at our Patriot Business Park.

Mining Royalty Land Results

Highlights of the First Quarter 2016:

- Royalty and rents revenue were up $318,000, or 24%, as tons mined continued to increase at several of our locations.

|  | Three months ended December 31
(dollars in thousands) |  | 2015 |  | % |  | 2014 |  | %
Royalty and rents |  | $ | 1,638 |  |  |  | 98.7 | % |  |  | 1,320 |  |  |  | 98.2 | %
Revenue-reimbursements |  |  | 21 |  |  |  | 1.3 | % |  |  | 24 |  |  |  | 1.8 | %
Total revenue |  |  | 1,659 |  |  |  | 100.0 | % |  |  | 1,344 |  |  |  | 100.0 | %
Depreciation, depletion and amortization |  |  | 34 |  |  |  | 2.0 | % |  |  | 31 |  |  |  | 2.3 | %
Operating expenses |  |  | 41 |  |  |  | 2.5 | % |  |  | 55 |  |  |  | 4.1 | %
Property taxes |  |  | 59 |  |  |  | 3.6 | % |  |  | 58 |  |  |  | 4.3 | %
Corporate expense |  |  | 55 |  |  |  | 3.3 | % |  |  | 318 |  |  |  | 23.7 | %
Cost of operations |  |  | 189 |  |  |  | 11.4 | % |  |  | 462 |  |  |  | 34.4 | %
Operating profit |  | $ | 1,470 |  |  |  | 88.6 | % |  |  | 882 |  |  |  | 65.6 | %

Total revenues in this segment were $1,659,000, an increase of 23.4%, versus $1,344,000 in the same quarter last year as total tons mined at our locations increased by 29.0%. Total operating profit in this segment was $1,470,000, an increase of 66.7%, versus $882,000 in the first quarter of last year. Management periodically analyzes the amount of corporate and management company time spent on each segment and in the most recent analysis it was determined that less time was being spent on the mining segment versus prior years when management was working on mining related transactions, such as the Lake Louisa acquisition, and the spin-off, which benefited all segments of the business. As a result, the allocation of corporate expense to this segment was reduced and reallocated to our other two segments resulting in $263,000 less corporate expense in this quarter versus the same quarter last year.

Land Development and Construction Segment Results

Highlights of the First Quarter 2016:

- Entered into a $3,000,000 settlement of environmental claims against our former tenant at the Riverfront on the Anacostia property.

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- Property taxes at our Anacostia location increased significantly contributing to a $120,000 increase in property taxes this quarter versus the same quarter last year.

|  | Three months ended December 31 |
(dollars in thousands) |  | 2015 |  | 2014 |  | Change |
Rental revenue |  | $ | 119 |  |  |  | 124 |  |  |  | (5 | ) |
Revenue-reimbursements |  |  | 130 |  |  |  | 77 |  |  |  | 53 |  |
Total revenue |  |  | 249 |  |  |  | 201 |  |  |  | 48 |  |
Depreciation, depletion and amortization |  |  | 64 |  |  |  | 66 |  |  |  | (2 | ) |
Operating expenses |  |  | 93 |  |  |  | 184 |  |  |  | (91 | ) |
Environmental remediation recovery |  |  | (3,000 | ) |  |  | — |  |  |  | (3,000 | ) |
Property taxes |  |  | 400 |  |  |  | 280 |  |  |  | 120 |  |
Management company indirect |  |  | 273 |  |  |  | 199 |  |  |  | 74 |  |
Corporate expense |  |  | 299 |  |  |  | 176 |  |  |  | 123 |  |
Cost of operations |  |  | (1,871 | ) |  |  | 905 |  |  |  | (2,776 | ) |
Operating loss |  | $ | 2,120 |  |  |  | (704 | ) |  |  | 2,824 |  |

The Land Development and Construction segment is responsible for managing and developing our non-income producing properties into income production. In this quarter, this segment successfully closed on the sale of Phase II of the Windlass Run residential land (a non-income producing property) for $11,288,000. Using $9,900,000 of the proceeds from that sale in a Section 1031 exchange, the Asset Management segment acquired the Port Capital building, a 91,218 square foot, 100% occupied, warehouse with first full year projected rental revenue of $594,000. In addition, construction of the 80,000 square foot spec warehouse at Hollander Business park will be completed during the second quarter of this fiscal year and, upon receipt of a Certificate of Occupancy, will be transferred to the Asset Management segment for lease-up. Lastly, management successfully completed negotiations and entered into a $3,000,000 settlement of environmental claims against our former tenant at the Riverfront on the Anacostia property and continues to pursue settlement negotiations with other potentially responsible parties. Management anticipates committing to develop Phase II of the Riverfront on the Anacostia project during this fiscal year at which time we will likely book a liability for the estimated incremental cost of remediation similar to what we booked with regards to Phase I.

Revenues for this segment were up $48,000 over last year’s first quarter due to higher real estate tax reimbursement from the ground lease at our Square 664E property in D.C. Costs of operating this segment (excluding the $3,000,000 positive benefit from the environmental settlement at Anacostia) were up $224,000 in the quarter driven primarily by higher property taxes at our Anacostia Phases II-IV property and the reallocation of corporate expenses from the Mining Royalty Lands segment.

Liquidity and Capital Resources. The growth of the Company’s businesses requires significant cash needs to acquire and develop land or operating buildings and to construct new buildings and tenant improvements. As of December 31, 2015, we had $2,837,000 borrowed under our $20 million revolver, $2,377,000 letters of credit and $14,786,000 available to borrow under the revolver. The Company closed on a $20 Million secured revolver with First Tennessee Bank on July 24, 2015 to provide additional liquidity for growth opportunities. As of December 31, 2015, there was $91,000 outstanding

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on the First Tennessee Bank revolver. First Tennessee has also committed to provide an additional $20 Million of secured financing to the Company on a ten year term loan amortizing on a twenty five (25) year basis and we anticipate closing on this loan during calendar 2016.

Cash Flows - The following table summarizes our cash flows from operating, investing and financing activities for each of the periods presented (in thousands of dollars):

|  | Three Months Ended December 31, |
|  | 2015 |  | 2014 |
Total cash provided by (used for): |  |  |  |  |  |
Operating activities | $ | 5,828 |  |  | 6,359 |
Investing activities |  | (630 | ) |  | (4,048 | )
Financing activities |  | (5,617 | ) |  | (2,429 | )
Decrease in cash and cash equivalents | $ | (419 | ) |  | (118 | )
Outstanding debt at the beginning of the period | $ | 48,685 |  |  | 55,956 |
Outstanding debt at the end of the period | $ | 42,099 |  |  | 54,438 |

Operating Activities - Net cash provided by operating activities decreased $531,000 to $5,828,000 for the three months ended December 31, 2015. The total of net income plus depreciation, depletion and amortization less gains on sales of property and equipment decreased $1,585,000 versus the same period last year. These changes are described above under “Comparative Results of Operations”. The current period includes $408,000 more cash used to reduce accounts payable and accrued liabilities. The current period includes $4,434,000 larger increases to deferred and current income tax payables due to a 1031 exchange and other timing differences. Income and net cash from discontinued operations provided $2,347,000 benefit to the same period last year.

Investing Activities - For the first three months ended December 31, 2015, cash required by investing activities decreased $3,418,000 to $630,000. The prior period discontinued operations cash required was $2,193,000 higher. Cash required by investing activities for continuing operations decreased $1,215,000 due to increased construction activity in the prior period. Proceeds from the sale of the Windlass Run

Residential Phase 2 property of $11,288,000 was used in a tax deferred reverse Section 1031 exchange to acquire the Port Capital property for a total purchase price of $9,900,000.

Financing Activities – For the first three months ended December 31, 2015, cash required by financing activities was $5,617,000 versus $2,429,000 in the first three months ended December 31, 2014. The prior period discontinued operations cash provided was $1,256,000 higher. Cash required by financing activities for continuing operations was $4,444,000 higher in the current period primarily due to payments on the revolver.

Credit Facilities - On January 30, 2015, in connection with the Spin-off, the Company terminated its $55 million credit facility entered into with Wells Fargo Bank, N.A. in 2012 and simultaneously entered into a new five year credit agreement with Wells Fargo with a maximum facility amount of $20 million (the "Credit Agreement"). The Credit Agreement provides a revolving credit facility (the “Revolver”) with a $10 million sublimit available for standby letters of credit. At the time of the Spin-off, the Company refinanced $10,483,000 of borrowings then outstanding on the terminated revolver. As of December 31, 2015, there was $2,837,000 outstanding on the revolver, $2,377,000 letters of credit and $14,786,000 available for borrowing. The letters of credit were issued to guarantee certain obligations to state agencies related to real estate development. Most of the letters of credit are irrevocable for a period

27

of one year and typically are automatically extended for additional one-year periods. The Revolver bears interest at a rate of 1.4% over the selected LIBOR, which may change quarterly based on the Company’s ratio of Consolidated Total Debt to Consolidated Total Capital, as defined. A commitment fee of 0.15% per annum is payable quarterly on the unused portion of the commitment. The commitment fee may also change quarterly based upon the ratio described above. The credit agreement contains certain conditions and financial covenants, including a minimum $110 million tangible net worth. As of December 31, 2015, the tangible net worth covenant would have limited our ability to pay dividends or repurchase stock with borrowed funds to a maximum of $79 million combined. The Company was in compliance with all covenants as of December 31, 2015.

During the first quarter of fiscal 2015, the Company announced the execution of a commitment from First Tennessee Bank to provide up to $40 million dollars of mortgage backed financing in two separate facilities. On July 24, 2015 the Company closed on a five year, $20 million secured revolver with a twenty-four month window to convert up to the full amount of the facility into a ten year term loan. Interest accrues at 1.90% over one month LIBOR plus an annual commitment fee of 0.10%. As of December 31, 2015, there was $91,000 outstanding on the revolver. The second facility is a $20 million ten year term loan secured by to-be-determined collateral from our current pool of unencumbered warehouse/office properties. We expect to close on the ten year term loan during calendar 2016. The purpose of these loans is to facilitate growth through new construction in the Land Development and Construction segment and/or acquisition of existing, operating buildings to be added to the Asset Management segment.

Cash Requirements – The Board of Directors has authorized Management to repurchase shares of the Company’s common stock from time to time as opportunities arise. During the first three months of fiscal 2016 the Company did not repurchase any shares of stock. As of December 31, 2015, $5,000,000 was authorized for future repurchases of common stock. The Company does not currently pay any cash dividends on common stock.

The Company currently expects its fiscal 2016 capital expenditures to include approximately $24,800,000 for real estate development, of which $10,539,000 has been expended to date, which will be funded mostly out of cash generation from operations and partly from borrowings under our credit facilities.

Summary and Outlook. We are focused on building shareholder value through our real estate holdings - mainly by growing our portfolio through the conversion of our non-income producing assets into income production. This strategy is two pronged in that we (i) sell land that is not conducive to warehouse/office development and use the proceeds to acquire existing income producing warehouse/office buildings (typically in a Section 1031 exchange) and (ii) construct new warehouse/office buildings on existing pad sites in our developed business parks. Over the past five years, we have converted 172 acres of non-income producing land into 766,216 square feet of income producing properties with estimated FY 2016 rental revenues of $5,115,000. We saw another quarter of real improvement in mining royalties due mainly to increased volumes at most of our locations and, barring another major economic downturn in the US, we are confident that trend will continue for the foreseeable future.

During the remainder of fiscal 2016, we expect to spend approximately $4 million on the construction of a new bulk head at the Square 664E property in anticipation of future high-rise development and continue working with our JV partner, MRP, to complete the construction of Phase I of Riverfront on the

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Anacostia (now named Dock 79) and to continue planning for the commencement of Phase II.

Non-GAAP Financial Measures.

To supplement the financial results presented in accordance with GAAP, FRP presents certain non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. The non-GAAP financial measures included in this press release are adjusted operating profit and net operating income (NOI). FRP uses these non-GAAP financial measures to analyze its continuing operations and to monitor, assess, and identify meaningful trends in its operating and financial performance. These measures are not, and should not be viewed as, substitutes for GAAP financial measures.

Post Spin-off we are reporting any net gain/(loss) from the transportation business as “discontinued operations” and we currently have no other discontinued operations being reported. GAAP accounting rules do not allow corporate overhead expenses to be allocated to a discontinued operation of the Company; thus, those corporate expenses attributable to the transportation business prior to the spin-off are charged to the Company as part of continuing operations.

Adjusted Operating Profit

Adjusted operating profit excludes the impact of the corporate expense not allocated to discontinued operations and the environmental remediation recovery. Adjusted operating profit is presented to provide additional perspective on underlying trends in FRP’s core operating results. A reconciliation between operating profit and adjusted operating profit is as follows:

Adjusted Operating Profit |  | Three months ended |  |  |  |
|  | December 31, |  |  |  |
|  | 2015 |  | 2014 |  | Change |  | %
Operating profit |  | $ | 6,600 |  |  |  | 2,345 |  |  |  | 4,255 |  |  |  | 181.4 | %
Adjustments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Environmental remediation recovery |  |  | (3,000 | ) |  |  | — |  |  |  |  |  |  |  |  |
Corporate costs not allocated to discontinued operations |  |  | — |  |  |  | 919 |  |  |  |  |  |  |  |  |
Adjusted Operating profit |  | $ | 3,600 |  |  |  | 3,264 |  |  |  | 336 |  |  |  | 10.3 | %

Net Operating Income Reconciliation
Three months ending 12/31/15 (in thousands)
| Asset |  |  | Land |  |  | Mining |  |  | Unallocated |  |  | FRP |  |
| Management |  |  | Development |  |  | Royalties |  |  | Corporate |  |  | Holdings |  |
| Segment |  |  | Segment |  |  | Segment |  |  | Expenses |  |  | Totals |  |
Income from continuing operations | $ 1,535 |  |  | 5,054 |  |  | 884 |  |  | — |  |  | 7,473 |  |
Income Tax Allocation | 1,003 |  |  | 3,298 |  |  | 578 |  |  | — |  |  | 4,879 |  |
Inc. from continuing operations before income taxes | 2,538 |  |  | 8,352 |  |  | 1,462 |  |  | — |  |  | 12,352 |  |
Less: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gains on investment land sold | 9 |  |  | 6,277 |  |  |  |  |  |  |  |  |  |  |
Other income | — |  |  | 1 |  |  |  |  |  |  |  |  |  |  |
Unrealized rents | 13 |  |  | — |  |  |  |  |  |  |  |  |  |  |
Lease intangible rents | 14 |  |  | — |  |  |  |  |  |  |  |  |  |  |
Plus: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity in loss of Joint Venture | — |  |  | 45 |  |  |  |  |  |  |  |  |  |  |
Interest Expense | 481 |  |  | — |  |  |  |  |  |  |  |  |  |  |
Depreciation/Amortization | 1,798 |  |  | 64 |  |  |  |  |  |  |  |  |  |  |
Management Co. Indirect | 231 |  |  | 273 |  |  |  |  |  |  |  |  |  |  |
Allocated Corporate Expenses | 378 |  |  | 299 |  |  |  |  |  |  |  |  |  |  |
Net Operating Income | $ 5,390 |  |  | 2,755 |  |  |  |  |  |  |  |  |  |  |

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Net Operating Income Reconciliation
Three months ending 12/31/14 (in thousands)
| Asset |  |  | Land |  |  | Mining |  |  | Unallocated |  |  | FRP |  |
| Management |  |  | Development |  |  | Royalties |  |  | Corporate |  |  | Holdings |  |
| Segment |  |  | Segment |  |  | Segment |  |  | Expenses |  |  | Totals |  |
Income from continuing operations | $ 1,635 |  |  | (452 | ) |  | 509 |  |  | (561 | ) |  | 1,131 |  |
Income Tax Allocation | 1,046 |  |  | (291 | ) |  | 325 |  |  | (358 | ) |  | 722 |  |
Inc. from continuing operations before income taxes | 2,681 |  |  | (743 | ) |  | 834 |  |  | (919 | ) |  | 1,853 |  |
Less: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Lease intangible rents | 12 |  |  | — |  |  |  |  |  |  |  |  |  |  |
Plus: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loss on investment land sold | — |  |  | 17 |  |  |  |  |  |  |  |  |  |  |
Unrealized rents | 45 |  |  | — |  |  |  |  |  |  |  |  |  |  |
Equity in loss of Joint Venture | — |  |  | 22 |  |  |  |  |  |  |  |  |  |  |
Interest Expense | 405 |  |  | — |  |  |  |  |  |  |  |  |  |  |
Depreciation/Amortization | 1,786 |  |  | 66 |  |  |  |  |  |  |  |  |  |  |
Management Co. Indirect | 153 |  |  | 199 |  |  |  |  |  |  |  |  |  |  |
Allocated Corporate Expenses | 300 |  |  | 176 |  |  |  |  |  |  |  |  |  |  |
Net Operating Income (loss) | $ 5,358 |  |  | (263 | ) |  |  |  |  |  |  |  |  |  |

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Interest Rate Risk - We are exposed to the impact of interest rate changes through our variable-rate borrowings under Credit Agreements with Wells Fargo and First Tennessee Bank.

Under the Wells Fargo Credit Agreement, the applicable margin for borrowings at December 31, 2015 was 1.4%. The applicable margin for such borrowings will be reduced or increased in the event that our debt to capitalization ratio as calculated under the Wells Fargo Credit Agreement Facility exceeds a target level.

The applicable borrowing margin at December 31, 2015 with First Tennessee Bank was 1.9%.

At December 31, 2015 a 1% increase in the current per annum interest rate would result in $29,280 of additional interest expense during the next 12 months under the Wells Fargo and First Tennessee Bank Credit Agreements. The foregoing calculation assumes an instantaneous 1% increase in the rates under the Credit Agreements and that the principal amount under the Credit Agreements is the amount outstanding as of December 31, 2015. The calculation, therefore, does not account for the differences in the market rates upon which the interest rates of our indebtedness are based or possible actions, such as prepayment, which we may take in response to any rate increase.

ITEM 4. CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports under the Securities Exchange Act of 1934, as

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amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure.

The Company also maintains a system of internal accounting controls over financial reporting that are designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements.

All control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving the desired control objectives.

As of December 31, 2015, the Company, under the supervision and with the participation of the Company's management, including the CEO, CFO and CAO, carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on this evaluation, the Company’s CEO, CFO and CAO concluded that the Company's disclosure controls and procedures are effective in alerting them in a timely manner to material information required to be included in periodic SEC filings.

There have been no changes in the Company’s internal controls over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended September 30, 2015, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2. PURCHASES OF EQUITY SECURITIES BY THE ISSUER

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|  |  |  |  | (c) |  |
|  |  |  |  | Total |  |
|  |  |  |  | Number of |  |
|  |  |  |  | Shares |  | (d)
|  |  |  |  | Purchased |  | Approximate
| (a) |  |  |  | As Part of |  | Dollar Value of
| Total |  | (b) |  | Publicly |  | Shares that May
| Number of |  | Average |  | Announced |  | Yet Be Purchased
| Shares |  | Price Paid |  | Plans or |  | Under the Plans
Period | Purchased |  | per Share |  | Programs |  | or Programs (1)
| October 1 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Through |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| October |  |  | — |  |  | $ | — |  |  |  | — |  |  | $ | 5,000,000 |
| November 1 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Through |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| November 30 |  |  | — |  |  | $ | — |  |  |  | — |  |  | $ | 5,000,000 |
| December 1 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Through |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| December 31 |  |  | — |  |  | $ | — |  |  |  | — |  |  | $ | 5,000,000 |
| Total |  |  | — |  |  | $ |  |  |  |  | — |  |  |  |  |

(1) On February 4, 2015, the Board of Directors authorized management to expend up to $5,000,000 to repurchase shares of the Company’s common stock from time to time as opportunities arise.

Item 6. EXHIBITS

| (a) | Exhibits. The response to this item is submitted as a separate Section entitled "Exhibit Index", on page 33.

SIGNATURES

Pursuant to the requirements 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: February 4, 2016 |  | By | THOMPSON S. BAKER II |
|  |  | Thompson S. Baker II |
|  |  | Chief Executive Officer
|  |  | (Principal Executive Officer)
|  | By | JOHN D. MILTON, JR. |
|  |  | John D. Milton, Jr. |
|  |  | Executive Vice President, Treasurer,
|  |  | Secretary and Chief Financial Officer
|  |  | (Principal Financial Officer)
|  | By | JOHN D. KLOPFENSTEIN |
|  |  | John D. Klopfenstein |
|  |  | Controller and Chief Accounting
|  |  | Officer (Principal Accounting Officer)

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FRP HOLDINGS, INC.

FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2015

EXHIBIT INDEX

| (14) | Financial Code of Ethical Conduct between the Company, Chief Executive Officers and Financial Managers, as revised on January 28, 2004, which is available on the Company’s website at www.frpholdings.com.

| (31)(a) | Certification of Thompson S. Baker II.

| (31)(b) | Certification of John D. Milton, Jr.

| (31)(c) | Certification of John D. Klopfenstein.

| (32) | Certification of Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer under Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS | XBRL Instance Document
101.XSD | XBRL Taxonomy Extension Schema
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

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