FRP Properties plans to spin off Sparks division; FRP Development would become a separate company; 'It's a very good idea'; Commercial real estate


FRP Properties Inc. plans to spin off its Sparks-based real estate division as a separate company early next year, a move that it expects will provide focus and perhaps even fresh capital to expand its portfolio.

The planned spinoff of FRP Development Corp. recently received the blessing of the Internal Revenue Service, perhaps the largest hurdle to splitting the company. The IRS ruling means that it could be shed through a tax-free exchange with shareholders.

"This is really the next evolution in our business," said David H. deVilliers Jr., president of FRP Properties' real estate group. "It will allow us a closer focus on the business we're in."

In addition to its real estate division, FRP Properties operates a trucking and transportation division that hauls liquids and dry bulk commodities.

FRP's real estate portfolio contains 1.1 million square feet of industrial and office space, primarily in the Baltimore-Washington area. Its properties are fully leased.

The company also controls more than 30,000 acres of developable land from Maryland to Florida. Locally, FRP is developing the Lakeside Business Park in Harford County, a 131-acre project planned to contain as much as 1.5 million square feet. Three buildings exist there, and a fourth is under construction.

The 10-year-old Florida-based company also will soon begin work on a 60-acre project called Hillside Business Park in Linthicum, which could ultimately contain 600,000 square feet of office and industrial space.

"FRP has a track record and experience, and we believe that now both companies are large enough to stand on their own," deVilliers said.

In its fiscal third quarter that ended June 30, FRP's real estate operations generated gross profit of $1.8 million, a 26.6 percent increase from the comparable period in 1998. Real estate revenue gained 21.3 percent in the quarter, to $2.8 million.

By comparison, FRP's gross profit as a whole was essentially flat at $4.4 million, while its revenue rose 4.5 percent, to $19.8 million. In all, the company's assets total about $150 million.

FRP's stockholders are expected to decide whether to separate the two divisions at the company's shareholders meeting Feb. 2 in Jacksonville, Fla.

"I think it's a very good idea," said James S. Schmitt, an analyst at Westcountry Financial, a Bakersfield, Calif., investment firm that follows FRP. "I believe they are hoping to grow their real estate business, which right now isn't that large, and it will position them to get more interest and make the company more liquid."

If approved, the new company could begin operating by the end of March 2000. The spun-off real estate company would continue to be based in Baltimore County, deVilliers said.

deVilliers acknowledges that many details of the spinoff have yet to be decided. For instance, FRP must decide whether to remain an "S" corporation or attempt to become a real estate investment trust. As a REIT, FRP could avoid corporate income taxes in exchange for paying 95 percent of its income to shareholders.

But REITs have suffered in the past year. Wall Street has clamped down on their ability to sell new stock, and many REITs' share prices have plummeted.

"Clearly it would be difficult for them now to do an [initial public offering]," said Robert A. Frank, director of research at Baltimore investment house Legg Mason Wood Walker Inc. "But in the next three to five years, real estate will come back into vogue as reality sets back into the markets."

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