FRP HOLDINGS, INC. (FRPH) FY 2021 MD&A

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion includes a non-GAAP financial
measure within the meaning of Regulation G promulgated by the Securities and Exchange Commission to supplement the financial results as
reported in accordance with GAAP. The non-GAAP financial measure discussed is net operating income (NOI). The Company uses this metric
to analyze its continuing operations and to monitor, assess, and identify meaningful trends in its operating and financial performance.
This measure is not, and should not be viewed as, a substitute for GAAP financial measures. Refer to “Non-GAAP Financial Measure”
below in this annual report for a more detailed discussion, including reconciliations of this non-GAAP financial measure to its most directly
comparable GAAP financial measure.

Executive Overview

FRP Holdings, Inc. (“FRP” or the “Company”)
is a real estate development, asset management and operating company businesses. Our properties are located in the Mid-Atlantic and southeastern
United States and consist of:

Lands leased to mining companies,
some of which will have second lives as development properties;

Residential apartments in Washington,
D.C.;

Warehouse or office properties
in the Mid-Atlantic states either existing or under development;

Mixed use properties under development
in Washington, D.C. or Greenville, South Carolina; and

Properties held for sale.

We believe our present capital structure, liquidity
and land provide us with years of opportunities to increase recurring revenue and long-term value for our shareholders. We intend to focus
on our core business activity of real estate development, asset management and operations. We are developing a broad range of asset types
that we believe will provide acceptable rates of return, grow recurring revenues and support future business. Capital commitments will
be funded with cash proceeds from completed projects, existing cash, owned-land, partner capital and financing arrangements. We do not
anticipate immediate benefits from investments. Timing of projects may be subject to delays caused by factors beyond our control.

Reportable Segments

We conduct primarily all of our business in the following
four reportable segments: (1) asset management (2) mining royalty lands (3) development and (4) stabilized joint ventures.
For more information regarding our reportable segments, see Note 10. Business Segments of our consolidated financial statements
included in this annual report.

Highlights of 2021.

Dock 79’s average annual occupancy was above
95% for the second time ever.

Third year in a row with mining royalties in excess
of $9.4 million.

Grew NOI by 22.11% from $17.05 million in 2020 to
$20.82 million in 2021

With construction complete on both Bryant Street
and Riverside, this year the Company added 687 residential units, an increase of 120.74% over last year

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Asset Management Segment.

The Asset Management segment owns, leases and manages
commercial properties. These assets create revenue and cash flows through tenant rental payments, lease management fees and reimbursements
for building operating costs. The Company’s industrial warehouses typically lease for terms ranging from 3 – 10 years often
with 1 or 2 renewal options. All base rent revenue is recognized on a straight-lined basis. All of the commercial warehouse leases
are triple net and common area maintenance costs (CAM Revenue) are billed monthly, and insurance and real estate taxes are billed annually.
34 Loveton is the only office product wherein all leases are full service therefore there is no CAM revenue. Office leases are also
recognized on a straight-lined basis. 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.

As of December 31, 2021, the Asset Management Segment
owned four commercial properties in fee simple as follows:

1) 34 Loveton Circle in suburban Baltimore County,
Maryland consists of one office building totaling 33,708 square feet which is 95.1% occupied (16% of the space is occupied by the Company
for use as our Baltimore headquarters). The property is subject to commercial leases with various tenants.

2) 155 E. 21st Street in Duval County,
Florida was an office building property that remains under lease through March 2026. We permitted the tenant to demolish all structures
on the property during 2018.

3) Cranberry Run Business Park in Hartford County,
Maryland consists of five office buildings totaling 267,737 square feet which are 81% occupied and 100% leased. The property is subject
to commercial leases with various tenants.

4) Hollander 95 Business Park in Baltimore City, Maryland
consists of two buildings totaling 145,590 square feet that were completed in the fourth quarter of 2021and are 29.1% leased.

Management focuses on several factors to measure our
success on a comparative basis in this segment. The major factors we focus on are (1) net operating income growth, (2) growth in occupancy,
(3) 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),
(4) tenant retention success rate (as a percentage of total square feet to be renewed), (5) building and refurbishing assets to meet Class
A and Class B institutional grade classifications, and (6) reducing complexities and deferred capital expenditures to maximize sale price.

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 (excluding the 4,280 acres owned by our Brooksville
joint venture with Vulcan Materials). Other than one location in Virginia, all of these properties are located in Florida and Georgia. The
Company leases land under long-term leases that grant the lessee the right to mine and sell reserves from our property in exchange for
royalty payments. A typical lease has an option to extend the lease for additional terms. 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 minimum annual rental amount. We believe strongly
in the potential for future growth in construction in Florida, Georgia, and Virginia which would positively benefit our profitability
in this segment. In the

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fiscal year ended December 31, 2021, a total of 8
million tons were mined.

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 entirely
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, Cemex, Argos and The
Concrete Company.

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

Significant “2nd life” Mining
Lands:

Development Segment.

Through our Development 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 our non-income producing lands into income production through (i) an orderly process of constructing
new commercial and residential buildings for us to own and operate or (ii) a sale to, or joint venture with, third parties. Additionally,
our Development segment will purchase or form joint ventures on new developments of land not previously owned by the Company.

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.

Development Segment – Warehouse/Office Land.

At December 31, 2021, this segment owned the following
future development parcels:

We also have three properties that were either spun-off
to us from Florida Rock Industries in 1986 or acquired by us from unrelated third parties. These 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 mature.

Development Segment - Significant Investment Lands
Inventory:

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Development Segment - Investments in Joint Ventures

The third leg of our Development Segment consists
of investments in joint venture for properties in development. The Company has investments in joint ventures, primarily with other real
estate developers which are summarized below:

Joint ventures where FRP is not the primary beneficiary
are reflected in the line “Investment in joint ventures” on the balance sheet and “Equity in loss of joint ventures”
on the income statement. The following table summarizes the Company’s investments in unconsolidated joint ventures (in thousands):

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(1) Riverfront Holdings II, LLC was consolidated on
March 31, 2021, and reflected in Stabilized Joint Ventures.

The major classes of assets, liabilities and equity
of the Company’s Investments in Joint Ventures as of December 31, 2021, are summarized in the following two tables (in thousands):

Stabilized Joint Venture Segment.

Currently the segment includes three stabilized joint
ventures which own, lease and manage buildings. These assets create revenue and cash flows through tenant rental payments, and reimbursements
for building operating costs. The Company’s residential spaces generally lease for 12 – 15-month lease terms and 90 days prior
to the expiration, as long as there is no balance due, the tenant is offered a renewal. If no notice to move out or renew is made, then
the leases go to month to

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month until notification of termination or renewal
is received. Renewal terms are typically 9 – 12 months. In 2021, due to the DC legislation in place freezing rent increases
as a part of a covid relief plan, FRP was unable to increase rental rates for renewals. This legislation was lifted in February 2022.
The Company also leases retail spaces at apartment/mixed-use properties. The retail leases are typically 10 -15-year leases with
options to renew for another 5 years. Retail leases at these properties also include percentage rents which average 3-6% of annual
sales for the tenant that exceed a breakpoint stipulated by each individual lease. All base rent revenue is recognized on a straight-line
basis. The major cash outlays incurred in this segment are for property taxes, full service maintenance, property management, utilities
and marketing. The three stabilized joint venture properties are as follows:

COMPARATIVE RESULTS OF OPERATIONS

Consolidated Results

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Net income attributable to the Company for 2021 was
$28,215,000 or $3.00 per share versus $12,715,000 or $1.32 per share in the same period last year. The calendar year 2021 was impacted
by the following items:

Gain of $51.1 million on the remeasurement of investment
in The Maren real estate partnership, which is included in Income before income taxes. This gain on remeasurement is mitigated by a $10.1
million provision for taxes and $14.0 million attributable to noncontrolling interest.

The period includes $3,899,000 amortization expense
of the $4,750,000 fair value of The Maren’s leases-in-place established when we booked this asset as part of the gain on remeasurement
upon consolidation of this Joint Venture.

Operating expenses includes $807,000 expense for
non-refundable deposit of $500,000 and due diligence costs on a potential warehouse property where the acquisition has recently been determined
to be considered less than probable. The prior year included a $250,000 credit for settlement of environmental claims on our Anacostia
property.

Interest income decreased $3,200,000 due to bond
maturities and the repayment of the Company’s preferred interest in The Maren upon the building’s refinancing.

Interest expense increased $1,204,000 due to interest
on The Maren’s debt consolidated in April partially offset by a lower interest rate on Dock 79. The current year included a $900,000
prepayment penalty on Dock 79 while last year included $902,000 accelerated amortization of deferred loan fees at Dock 79 in anticipation
of the early refinancing.

Gain from sale of real estate decreased $8,365,000.
The year included $805,000 for an easement and sale of excess land in the Mining Royalty Lands Segment. The prior year included a gain
of $9,170,000 primarily due to the sale of the three remaining lots at our Lakeside Business Park, 1801 62nd Street, our inactive
and depleted quarry land at Gulf Hammock, and 87 acres from our Ft. Myers property.

Asset Management Segment Results

Total revenues in this segment were $2,575,000, down
$172,000 or 6.3%, over the same period last year due to the sale of our warehouse 1801 62nd Street in July 2020 which had $423,000 of
revenues in the same period last year. Operating loss was $(231,000), up $(229,000) from an operating loss of $(2,000) in the same period
last year primarily due to the sale of 1801 62nd Street.

Mining Royalty Lands Segment Results

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Total revenues in this segment were $9,465,000 versus
$9,477,000 in the same period last year. Total operating profit in this segment was $8,240,000, a decrease of $101,000 versus $8,341,000
in the same period last year.

Development Segment Results

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

With respect to ongoing projects:

·
In the third quarter, we purchased 17 acres in Harford County, Maryland for $1.96 million for the
purposes of industrial development. We are pursuing entitlements on the land, and we anticipate beginning construction in the third quarter
of 2022 on a 250,000 square foot, Class A warehouse which will comprise the entirety of the developable space on the site.

·
As referenced previously, during the fourth quarter, we completed construction on two industrial
buildings totaling approximately 146,000 square feet at Hollander Business Park. These assets are now a part of the Asset Management segment.
Construction on the build-to-suit building totaling 101,750 square feet continues and we estimate shell completion and occupancy in the
fourth quarter of 2022.

·
With respect to our joint venture with St. John Properties, we are now in the process of leasing
these four single-story buildings totaling 100,030 square feet of office and retail space. At quarter end, Phase I was 48.1% leased and
46.8% occupied.

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·
We are the principal capital source of a residential development venture in Prince George’s
County, Maryland known as “Amber Ridge.”  Of the $18.5 million in committed capital to the project, $15.9 million in
principal draws have taken place to date. Through the end of the fourth quarter, 34 of the 187 units have been sold, and we have received
$6,362,000 in preferred interest and principal to date.

·
The Coda, the first of our four buildings at Bryant Street joint venture, received a final certificate
of occupancy on April 1, 2021, and leasing efforts are under way. At quarter end, the Coda was 93.5% leased and 95.5% occupied. Leasing
began in August on the second building at Bryant Street, known as the Chase 1B. At quarter end, this building was 62.7% leased and 55.9%
occupied. Leasing of the third building, the Chase 1A, began during the fourth quarter and at quarter end, this building was 16.3% leased
and 6.4% occupied. The fourth building which is purely a commercial space is 90% leased to Alamo Draft House and opened in December. In
total, at quarter end, all four buildings now have their certificate of occupancy, and Bryant Street’s 487 residential units are
56.1% leased and 50.9% occupied. Its commercial space is 82.5% leased and 61.7% occupied at quarter end.

·
We began construction on our 1800 Half Street joint venture project at the end of August 2020 and
expect the building to be complete in the third quarter of 2022. As of the end of the fourth quarter, the project was 67.01% complete.

·
At quarter end, our first joint venture in Greenville, South Carolina is now complete and has received
its final certificate of occupancy. Leasing began on Riverside in the third quarter and the building is 60% leased and 49% occupied. .408
Jackson is our second joint venture project in Greenville and is currently under construction. This project is 83.23% complete and we
expect to complete construction and begin leasing in third quarter of 2022.

Stabilized Joint Venture Segment Results

Total revenues in this segment were $17,617,000, an
increase of $7,410,000 versus $10,207,000 in the same period last year. The Maren’s revenue was $6,989,000 and Dock 79 revenues
increased $422,000. Total operating loss in this segment was $(1,630,000), a decrease of $3,109,000 versus a profit of $1,479,000 in the
same period last year. The period includes $3,899,000 amortization expense of the $4,750,000 fair value of The Maren’s leases-in-place
established when we booked this asset as part of the gain on remeasurement upon consolidation of this Joint Venture. Net Operating Income
for this segment was $10,816,000, up $4,164,000 or 62.6% compared to the same period last year due to The Maren’s consolidation
into this segment.

Since The Maren achieved stabilization on the last
day of March, average residential occupancy is 94.84% and 67.40% of expiring leases have renewed with no increase in rent due to the mandated
rent freeze on renewals in DC. The Maren is a joint venture between the Company and MRP, in which FRP Holdings, Inc. is the majority partner
with 70.41% ownership.

Dock 79’s average residential occupancy for
2021 was 95.47%. Through the year, 62.20% of expiring leases renewed with no increase in rent due to the mandated rent freeze on renewals
in DC. Dock 79 is a joint venture between the

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Company and MRP, in which FRP Holdings, Inc. is the
majority partner with 66% ownership.

In March, we completed a refinancing of Dock 79 as
well as securing permanent financing for The Maren. This $180 million loan ($92 million for Dock 79, $88 million for The Maren) lowers
the interest rate at Dock 79 from 4.125% to 3.03%, defers any principal payments for 12 years for both properties, and repays our $13.75
million preferred equity investment in The Maren along with $2.3 million in accrued interest.

Distributions from our CS1031 Hickory Creek DST investment
were $343,000 for 2021.

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, 2021, we had $161,521,000 of cash and cash equivalents along with $4,317,000 of investments available for sale. As of December
31, 2021, we had no debt borrowed under our $20 million Wells Fargo revolver, $506,000 outstanding under letters of credit and $19,494,000
available to borrow under the revolver. On March 19, 2021, the Company refinanced Dock 79 and The Maren projects pursuant to separate
Loan Agreements and Deed of Trust Notes entered into with Teachers Insurance and Annuity Association of America, LLC. Dock 79 and The
Maren borrowed principal sums of $92,070,000 and $88,000,000 respectively, in connection with the refinancing.

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):

Operating Activities - Net cash provided by
operating activities in 2021 was $22,242,000 versus $18,613,000 in the same period last year. The Gain on remeasurement of investment
in real estate partnership and related deferred income taxes were both non-cash adjustments to net income to arrive at net cash provided
by operating activities.

Net cash provided by operating activities in 2020
was $18,613,000 versus $47,023,000 in 2019. Net cash used in operating activities of discontinued operations in 2019 was $1,742,000. Net
cash provided by operating activities of continuing operations was lower primarily due to the prior year deferral of income taxes related
to a 1031 exchange on the sales of 1502 Quarry Drive and 7020 Dorsey Road and the prior year placement of $50 million in two opportunity
zone funds.

Current income tax expense in 2019 included
an $13,797,000 provision to return adjustment related to the deferral of current federal and state taxes due in connection with $50 million
additional Opportunity Zone investment funds invested in June of 2019 but applied to the 2018 returns. In addition, 2019 included an additional
deferral reduction of $4,213,000 of current state taxes related to the $55 million Opportunity Zone investment in December of 2018 which
were deferred rather than our prior 2018 tax position that the state taxes would not conform to the federal treatment. The aggregate of
the provision to return adjustments in 2019 of $18 million offset current tax provision of $2 million absent these adjustments for a net
current tax benefit of $16 million. As of December 31, 2020 the company has deferred taxes of approximately $31 million associated with
$112 million of gains on sales reinvested through Opportunity Zone investments. These taxes are deferred until the earlier of the sale
of the related investments or December 31, 2026 and 10% of gains are excluded from tax once the investments are held five years plus an
additional 5% is excluded at seven years.

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Investing Activities – Net cash provided
by investing activities in 2021 was $66,601,000 versus $50,527,000 in 2020. The increase was due primarily due to a return of our preferred
equity financing with interest of $16.1 million from The Maren, $5.3 million return of capital from Amber Ridge, $24.6 million decrease
in purchases of corporate bonds due to lack of attractive investment opportunities, and $3.7 million for cash on the books of The Maren
upon consolidation mostly offset by a $15.9 million decrease on maturities and sales of our corporate bond portfolio and the $18.3 million
decrease in proceeds from the sale of assets as the prior year included the sale of the three remaining lots at our Lakeside Business
Park, 1801 62nd Street, Gulf Hammock, and 87 acres from our Ft. Myers property.

Net cash provided by investing activities in 2020
was $50,527,000 versus cash used in investing activities of $33,819,000 in 2019. The increase was due primarily to the proceeds on the
sale of investments available for sale offset by the purchase of investments available for sale, the proceeds from the sale of the three
remaining lots at our Lakeside Business Park, 1801 62nd Street, Gulf Hammock, and 87 acres form our Ft. Myers property, offset
by the purchase of property at 1001 Old Philadelphia Road.

At December 31, 2021, the Company was invested in
two corporate bonds valued at $4,266,000 with maturities in January 2022 and U.S. Treasury notes valued at $24,926,000 maturing in late
2023. The unrealized loss on these investments of $42,000 was recorded as part of comprehensive income and was based on the estimated
market value by National Financial Services, LLC (“NFS”) obtained from sources that may include pricing vendors, broker/dealers
who clear through NFS and/or other sources (Level 2). The Company recorded no realized gains or losses on bonds that matured or were sold
in 2021.

Financing Activities – Net
cash required by financing activities was $1,231,000 versus $21,838,000 in the same period last year primarily due the refinancing of
Dock 79 for $1.4 million more net of debt issuance costs than the amount matured and $21.0 million lower repurchases of company stock.

Net cash required by financing activities
in 2020 $21,838,000 versus $9,144,000 in 2019 primarily due to the increased purchase of company stock in 2020.

Credit Facilities - On February 6,
2019, the Company entered into a First Amendment to the 2015 Credit Agreement (the "Credit Agreement") with Wells Fargo Bank,
N.A. (Wells Fargo”). The Credit Agreement modifies the Company’s prior Credit Agreement with Wells Fargo, dated January 30,
2015. The Credit Agreement establishes a five-year revolving credit facility with a maximum facility amount of $20 million. The interest
rate under the Credit Agreement will be a maximum of 1.50% over Daily 1-Month LIBOR, which may be reduced quarterly to 1.25% or 1.0% over
Daily 1-Month LIBOR if the Company meets a specified ratio of consolidated total debt to consolidated total capital. A commitment fee
of 0.25% per annum is payable quarterly on the unused portion of the commitment but the amount may be reduced to 0.20% or 0.15% if the
Company meets a specified ratio of consolidated total debt to consolidated total capital. The credit agreement contains certain conditions
and financial covenants, including a minimum tangible net worth and dividend restriction. As of December 31, 2021, these covenants would
have limited our ability to pay dividends to a maximum of $246 million combined.

On March 19, 2021, the Company refinanced
Dock 79 and The Maren projects pursuant to separate Loan Agreements and Deed of Trust Notes entered into with Teachers Insurance and Annuity
Association of America, LLC. Dock 79 and The Maren borrowed principal sums of $92,070,000 and $88,000,000 respectively, in connection
with the refinancing. The loans are separately secured by the Dock 79 and The Maren real property and improvements, bear a fixed interest
rate of 3.03% per annum, and require monthly payments of interest only with the principal in full due April 1, 2033. Either loan may be
prepaid subsequent to April 1, 2024, subject to yield maintenance premiums. Either loan may be transferred to a qualified buyer as part
of a one-time sale subject to a 60% loan to value, minimum of 7.5% debt yield and a 0.75% transfer fee. Effective March 31, 2021, the
Company consolidated the assets (at current fair value), liabilities and operating results of our Riverfront Investment Partners II, LLC
partnership (The Maren) which was previously accounted for under the equity method. As such the full amount of our mortgage loan was recorded
in the consolidated financial statements.

Cash Requirements – The Company expended
capital of $29,431,000 during 2021 for real estate development including investments in joint ventures. These capital expenditures were
funded from cash and investments on hand, cash generated from operations and property sales, or borrowings under our credit facilities.
The Company expects to make capital and

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investments in joint ventures of $54.7 million in
2022 to be funded from cash on hand and cash generated from operations.

Non-GAAP Financial Measures.

To supplement the financial results presented in accordance
with GAAP, FRP presents a non-GAAP financial measure within the meaning of Regulation G promulgated by the Securities and Exchange Commission.
The non-GAAP financial measure included in this Annual Report on Form 10-K is net operating income (NOI). FRP uses this non-GAAP financial
measure to analyze its operations and to monitor, assess, and identify meaningful trends in its operating and financial performance. This
measure is not, and should not be viewed as, a substitute for GAAP financial measures.

OFF-BALANCE SHEET ARRANGEMENTS

The Company has outstanding letters of credit described
above under “Liquidity and Capital Resources.” The Company has guaranteed debt as described above under Note 12 Contingent
Liabilities. The Company unconsolidated Joint Ventures have debt as scheduled under “Investments in Joint Ventures”. The Company
does not have any other off-balance sheet arrangements that either have, or are reasonably likely to have, a current or future material
effect on its

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financial condition.

CRITICAL ACCOUNTING POLICIES

Management of the Company considers the following
accounting policies critical to the reported operations of the Company:

Accounts Receivable and Unrealized Rents Valuation.
The Company is subject to customer credit risk that could affect the collection of outstanding accounts receivable and unrealized rents,
that is rents recorded on a straight-lined basis. To mitigate these risks, the Company performs credit reviews on all new customers and
periodic credit reviews on existing customers. A detailed analysis of late and slow pay customers is prepared monthly and reviewed by
senior management. The overall collectibility of outstanding receivables and straight-lined rents is evaluated and allowances are recorded
as appropriate. Significant changes in customer credit could require increased allowances and affect cash flows.

Net Real Estate Investments and Impairment
of Assets. Net real estate investments are recorded at cost less accumulated depreciation and depletion. Provision for depreciation
of Net real estate investments is computed using the straight-line method based on the following estimated useful lives:

Depletion of sand and stone deposits is
computed on the basis of units of production in relation to estimated reserves.

The Company periodically reviews net real estate investments
for potential impairment whenever events or circumstances indicate the carrying amount of a long-lived asset may not be recoverable. This
review consists of comparing cap rates on recent cash flows and market value estimates to the carrying values of each asset group. If
this review indicates the carrying value might exceed fair value then an estimate of future cash flows for the remaining useful life of
each property is prepared considering anticipated vacancy, lease rates, and any future capital expenditures. Changes in estimates or assumptions
could have an impact on the Company’s financials.

All direct and indirect costs, including interest
and real estate taxes, associated with the development, construction, leasing or expansion of real estate investments are capitalized
as a development cost of the property. Included in indirect costs is an estimate of internal costs associated with development and rental
of real estate investments. Changes in estimates or assumptions could have an impact on the Company’s financials.

Accounting for Real Estate Investments. The
Company accounts for its real estate investments which are not wholly owned using either the cost method, the equity method or by consolidation
with related non-controlling interest. Consolidation is required if the Company controls an investment and is the primary beneficiary.
Equity method is required when the Company has significant influence over the operating and financial policies of the investment but is
not in control or not the primary beneficiary. Cost method applies when the Company does not have significant influence of the operating
and financial policies. Significant judgment is required and regular review as the facts change.

Income Taxes. The Company accounts
for income taxes under the asset-and-liability method. Deferred tax assets and liabilities represent items that will result in taxable
income or a tax deduction in future years for which the related tax expense or benefit has already been recorded in our statement of earnings.
Deferred tax accounts arise as a result of timing differences between when items are recognized in the Consolidated Financial Statements
compared with when they are recognized in the tax returns. The Company assesses the likelihood that deferred tax assets will be recovered
from future taxable income. To the extent recovery is not probable, a valuation allowance is established and included as an expense as
part of our income tax provision. No valuation allowance was recorded at December 31, 2021, as all deferred tax assets are considered
more likely than not to be realized. Significant judgment is required in determining and assessing the impact of complex tax laws and
certain tax-related contingencies on the provision for income taxes. As part of the calculation of the provision for income taxes, we
assess whether the benefits of our tax positions are at least more likely than not of being sustained upon audit based on the technical
merits of the tax position. For tax positions that are more likely than not of being sustained upon audit, we accrue the largest amount
of the benefit that is more likely than not of being sustained in our consolidated financial statements. Such accruals require estimates
and judgments, whereby

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actual results could vary materially from
these estimates. Further, a number of years may elapse before a particular matter, for which an established accrual was made, is audited
and resolved.

INFLATION

Most of the Company’s operating expenses
are inflation-sensitive, with inflation generally producing increased costs of operations. Substantially all of the Company’s royalty
agreements are based on a percentage of the sales price of the related mined items. Minimum royalties and substantially all lease agreements
provide escalation provisions.

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CONSOLIDATED STATEMENTS OF INCOME
– Years ended December 31

(in thousands, except per share amounts)

See accompanying notes.

52

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME – Years
ended December 31

(In thousands)

See accompanying notes.

53

CONSOLIDATED BALANCE SHEETS – As of December
31

(In thousands, except share data)

See accompanying notes.

54

CONSOLIDATED STATEMENTS OF CASH FLOWS – Years ended December 31

(In thousands)

See accompanying notes.

55

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands, except share amounts)

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