FRP HOLDINGS, INC. (FRPH) FY 2024 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 pro-rata 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.

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Executive Overview

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

Residential/mixed-use apartments in Washington, D.C., Greenville, SC, and Florida;

Warehouse or office properties in Maryland and Florida either existing or under development;

Mining royalty lands, some of which will have second lives as development properties;

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 growth. Capital commitments will be funded with cash proceeds from completed projects, existing cash, owned-land, partner capital and financing arrangements. Timing of projects may be subject to delays caused by factors beyond our control.

Reportable Segments

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

Multifamily Segment.

As of December 31, 2024 the Multifamily segment included six stabilized joint ventures which own and manage apartment buildings and any associated retail. These assets create revenue and cash flows through tenant rental payments and reimbursements for building operating costs. The Company’s residential units typically lease for 12 – 15-month lease terms. If no notice to move out or renew is made, then the leases go month-to-month until notification of termination or renewal is received. Renewal terms are typically 9 – 12 months. 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 five years. Retail leases at these properties also include percentage rents which collect on average 3-6% of annual sales when a tenant exceeds 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 six multifamily properties are as follows:

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Industrial and Commercial Segment.

The Industrial and Commercial 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 one or two 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. 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, 2024, the Industrial and Commercial Segment includes nine buildings at four commercial properties owned by the Company in fee simple as follows:

1)34 Loveton Circle in suburban Baltimore County, MD consists of one office building totaling 33,708 square feet which is 90.8% 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, FL 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 Harford County, MD consists of five industrial buildings totaling 267,737 square feet which are 92.1% leased and occupied. The property is subject to commercial leases with various tenants.

4)Hollander 95 Business Park in Baltimore City, MD consists of three industrial buildings totaling 247,340 square feet that are 100.0% leased and occupied.

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.

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Mining Royalty Lands Segment.

Our Mining Royalty Lands segment owns several properties comprising approximately 16,648 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 sand and stone deposits 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 sand and stone deposits on our property have been depleted but the tenant still has a need for the leased land, we collect a minimum annual rental amount. In the year ended December 31, 2024, aggregate royalty tons sold were 9.6 million.

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 are Vulcan Materials, Martin Marietta, Cemex, Summit Materials 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 land 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.

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Development Segment – Industrial and Commercial Land.

At December 31, 2024, this segment owned the following future development parcels:

1)54 acres of land that will be capable of supporting 635,000 square feet of industrial product located at 1001 Old Philadelphia Road in Aberdeen, MD (Crouse land adjacent to Cranberry Business Park).

2)17 acres of land in Harford County, MD that can accommodate 258,000 square foot speculative warehouse project on Chelsea Road under construction due to be complete in the second quarter of 2025.

3)170 acres of land located at 765 Mechanics Valley Road in Cecil County, MD that can accommodate 900,000 square feet of industrial development.

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 are being prepared for their highest and best use and will either be sold or contributed as equity in a joint venture. We are often able to lease 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:

Development Segment - Investments in Joint Ventures

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

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Joint ventures where FRP is not the primary beneficiary (including those in the Multifamily Segment) 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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The major classes of assets, liabilities and equity of the Company’s unconsolidated joint ventures as of December 31, 2024 are summarized in the following two tables (in thousands):

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The following table presents the calculation of the Company's pro rata share of certain balance sheet items by segment as of December 31, 2024:

Executive Summary and Analysis – In the fourth quarter, the Company saw a 21% improvement in pro rata NOI compared to the same period last year, and for the year ended December 31 2024 saw a 26% increase in pro rata NOI ($38.1 million vs $30.2 million) compared to 2023. This is consistent with the almost 30% compound annual growth rate at which we have grown pro rata NOI since 2021. We experienced meaningful NOI growth across all segments in 2024 compared to last year including a 17% improvement ($649,000) in Industrial and Commercial NOI; a 23% increase ($2.7 million) in Mining Royalty lands NOI; and a 34% increase ($4.6 million) in Multifamily NOI. While we are proud of this level of growth, as we have mentioned in the past and highlight in our shareholder letter, it is also a pace we cannot possibly sustain, and do not expect to match in 2025. For a number of reasons, we expect 2025 NOI to be flat if not slightly less than 2024. In the Industrial Segment, we have vacancies at Cranberry and our new Chelsea building that will take time to lease up and will have operating expenses that will negatively impact NOI compared to 2024. The lease-up of three

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different projects (Verge, Bryant Street, and .408 Jackson) in our Multifamily segment had a profound impact in the growth of our NOI over the last 12 months. In 2025, these lease-ups will give way to more organic growth as we attempt to improve rents on already stabilized assets, a particular challenge for the DC assets which will be competing with a glut of new projects. Mining royalty revenue and earnings should remain strong in 2025, though from an NOI perspective, it will be difficult to keep pace with 2024, simply for the fact that we received a $1.9 million one-time minimum payment at one location, which we cannot replicate for obvious reasons.

The flip side of this coin is that while we anticipate our NOI growth to stall in 2025, the driver of most of our future NOI growth will also come in 2025 through an estimated $71 million in equity capital investment. In 2025, we will begin construction on our two industrial joint ventures in Florida, continue to entitle our existing industrial pipeline in Maryland to have the land shovel ready in 2026, and look to augment our existing pipeline through a land purchase, industrial joint venture, or possibly both. This is where the rubber hits the road on our pivot to industrial development, and sets the course for our stated goal of delivering three new industrial assets every two years as we look to double the size of this segment over the next five years.

While our core focus is industrial, we will continue to partner on multifamily projects that meet our return thresholds. We believe these are an effective hedge of our aggressive industrial strategy. We will always try to exploit our competitive advantage in the asset class we have the most experience in, but real estate can be cyclical and there will almost certainly come a day where the state of the industrial market will make us glad we continued to pursue multifamily development. In 2025, we anticipate moving forward with two multifamily projects outside the DC area, one in South Carolina and the other in southwest Florida, which will add 810 units and $6 million in pro rata NOI upon stabilization.

Highlights of the year ending 12/31/24.

•20% increase in Net Income ($6.4 million vs $5.3 million)

•26% increase in pro rata NOI ($38.1 million vs $30.2 million)

•The Mining Royalty Lands Segment's pro rata NOI includes a $2.2 million increase in unrealized revenues primarily due to a one-time, $1.9 million minimum royalty payment that applies to the prior twenty-four months as the tenant failed to meet a production requirement contained in the lease. This revenue was straight-lined over the estimated remaining 20 year life of the lease.

•34% increase in the Multifamily segment’s pro rata NOI primarily due to lease up of Bryant St., 408 Jackson, and The Verge. This comparison includes the results for these three projects from the same period last year (when these projects were still in our Development segment).

•Industrial and Commercial revenue increased 5%, and segment NOI increased 17%

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COMPARATIVE RESULTS OF OPERATIONS

Consolidated Results

Net income for 2024 was $6,385,000 or $.34 per share versus $5,302,000 or $.28 per share last year. Pro rata NOI for 2024 was $38,139,000 versus $30,240,000 last year.

•Pro rata NOI includes a one-time, minimum royalty payment of $1,853,000 that applies to the prior twenty-four months as the tenant failed to meet a production requirement contained in the lease. This revenue was straight-lined over the estimated remaining 20 year life of the lease.

•General and administrative expense increased $1,305,000 over the same period last year due primarily to the implementation of our executive succession and transition plan that commenced in May, 2024.

•Net investment income increased $215,000 due to increased earnings on cash equivalents ($1,321,000) and increased income from our lending ventures ($1,059,000), partially offset by decreased preferred interest ($2,165,000) due to the conversion of FRP preferred equity to common equity at Bryant Street.

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•Interest expense decreased $1,165,000 compared to the same period last year as we capitalized $1,296,000 more interest, partially offset by increased costs related to the increase in our line of credit with Wells Fargo. More interest was capitalized due to increased in-house and joint venture projects under development this quarter compared to last year.

•Equity in loss of Joint Ventures improved $578,000 due to improved results at our unconsolidated joint ventures. Results improved at The Verge ($2,445,000) and .408 Jackson ($259,000) but that improvement was mostly offset by a $2,255,000 increase in loan guarantee expense. The Company recorded a gain on loan guarantee of $1,886,000 in December 2023 as the guarantee liability was relieved upon the refinancing of the Bryant Street debt versus an expense of $496,000 in 2024 stemming from the guarantee of the new Bryant Street loan.

Multifamily Segment (pro rata consolidated and pro rata unconsolidated)

For ease of comparison all the figures in the tables below include the results for Bryant Street, .408 Jackson, and The Verge from the prior period (when these projects were still in our Development segment).

The combined consolidated and unconsolidated pro rata net operating income this year for this segment was $18,177,000, up $4,634,000 or 34% compared to $13,543,000 last year. Most of this increase was from the lease up of Bryant Street, .408 Jackson, and The Verge. These three projects contributed $9,740,000 of pro rata NOI to this segment compared to $5,466,000 in the Development segment last year, an increase of $4,274,000. Same store NOI (Dock, Maren & Riverside) increased $360,000 or 4.5%.

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Multifamily Segment (Consolidated - Dock & Maren)

Total revenues for our two consolidated joint ventures (Dock & Maren) were $22,096,000, an increase of $272,000 versus $21,824,000 last year. Total operating profit before G&A for the consolidated joint ventures was $5,825,000, an increase of $1,285,000, or 28% versus $4,540,000 last year primarily due to lower depreciation and operating expense. Depreciation decreased as some of the assets became fully depreciated. Operating expenses decreased due to lower maintenance, utilities, insurance and marketing costs.

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Multifamily Segment (Pro rata unconsolidated)

For our four unconsolidated joint ventures, pro rata revenues were $20,335,000, an increase of $5,635,000 or 38% compared to $14,700,000 in the same period last year. Pro rata operating profit before G&A was $1,609,000 versus a loss of $1,542,000 last year, an increase of $3,151,000.

Industrial and Commercial Segment

Total revenues in this segment were $5,621,000, up $267,000 or 5%, over last year. Operating profit before G&A was $3,110,000, up $30,000 or 1% from $3,080,000 last year. Revenues and operating profit are up because of full occupancy at 1841 62nd Street (which had only $11,000 of revenue in the first quarter last year) and the addition of 1941 62nd Street to this segment in March 2023 less $222,000 of allowance for uncollectible revenue on one tenant in the process of eviction. We were 95.6% leased and occupied during 2024 inclusive of the uncollectable space leased. Net operating income in this segment was $4,547,000, up $649,000 or 17% compared to last year partially due to $549,000 more unrealized rental revenue in the prior year due to rent abatements that expired in 2023.

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Mining Royalty Lands Segment Results

Total revenues in this segment were $12,852,000, an increase of $325,000 or 3% versus $12,527,000 last year despite a 3% decrease in royalty tons sold compared to 2023. Royalty revenues were impacted by the deduction of royalties to resolve an $842,000 overpayment. During the year, the tenant withheld $619,000 in royalties otherwise due to the Company with the remainder ($223,000) withheld in the fourth quarter of 2023. There are no further amounts to be withheld moving forward. Total operating profit before G&A in this segment was $11,853,000, an increase of $319,000 versus $11,534,000 last year. Net operating income in this segment was $14,396,000, up $2,676,000 or 23% compared to last year mostly due to a one-time, minimum royalty payment at one location which is straight-lined across the estimated remaining 20 year life of the lease for GAAP revenue purposes.

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Development Segment Results

With respect to ongoing Development Segment projects:

▪We entered into two new joint venture agreements in early 2024 with Altman Logistics Properties (formerly doing business as BBX Logistics). The first joint venture is a 200,000 square-foot warehouse development project in Lakeland, FL, and the second joint venture is a 182,000 square-foot warehouse redevelopment project in Broward County, FL. We anticipate construction to start on both projects in the second quarter of 2025.

▪Last summer we broke ground on a new speculative warehouse project in Aberdeen, MD on Chelsea Road. This Class A, 258,000 square foot building is due to be completed in the 2nd quarter of 2025.

▪We are the principal capital source to develop 344 residential lots on 110 acres in Harford County, MD. We have funded $26.5 million of our $31.1 million total commitment. A national homebuilder is under contract to purchase all 222 townhome lots and 122 single family lots. At year end, 100 lots have been sold and $15.3 million of preferred interest and principal has been returned to the Company of which $4.0 million was booked as profit to the Company.

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, 2024, we had $148,620,000 of cash and cash equivalents. As of December 31, 2024 we had no debt borrowed under our $35 million Wells Fargo revolver, $548,000 outstanding under letters of credit and $34,452,000 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.

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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 for the year ended December 31, 2024 was $28,986,000 versus $32,971,000 last year. Income and NOI increased substantially but net cash provided by operating activities of the Company excludes the unconsolidated joint ventures where much of the increase occurred. In addition, income tax payments increased $1,863,000 and accounts payable and accrued liabilities in the prior year increased $3,028,000 primarily due to the phase of construction of our latest warehouse.

Investing Activities - Net cash used in investing activities for the year ended December 31, 2024 was $50,621,000 versus $48,747,000 in the same period last year. The $1.9 million increase was primarily due to a $40.0 million increase in property due to $31.7 million invested by the Company and Altman Logistics Properties (formerly doing business as BBX Logistics) in the consolidated warehouse joint ventures and active Company warehouse construction mostly offset by a $30.3 million decrease in investments in joint ventures due to lower capital calls and lending activity, and an $8.0 million increase in return of capital from joint ventures due to permanent financing at .408 Jackson and higher lending venture returns.

Financing Activities – Net cash provided by financing activities was $12,700,000 versus $4,166,000 required in the same period last year primarily due to $15.7 million of contributions from Altman Logistics Properties (formerly doing business as BBX Logistics) toward our consolidated partnerships versus the same period last year including $2.0 million repurchase of stock partially offset by the exercise of employee stock options.

Credit Facilities - On December 22, 2023, the Company entered into a 2023 Amended and Restated Credit Agreement (the "Credit Agreement") with Wells Fargo Bank, N.A. (“Wells Fargo”). The Credit Agreement modifies the Company’s prior $20 million Credit Agreement with Wells Fargo, dated January 30, 2015. The Credit Agreement establishes a three-year revolving credit facility with a maximum facility amount of $35 million. The interest rate under the Credit Agreement will be 2.25% over Daily Simple SOFR. A commitment fee of 0.35% per annum is payable quarterly on the unused portion of the commitment. The credit agreement contains certain conditions and financial covenants, including a minimum tangible net worth and dividend restriction. As of December 31, 2024, these covenants would have limited our ability to pay dividends to a maximum of $105 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

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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 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.

On July 25, 2022 the Greenville partnership at Riverside secured a $32,000,000 loan with a fixed rate of 4.92% from Synovus Bank, replacing the $22,800,000 loan with Truist Bank. It is an eight year loan maturing July 25, 2030. The term coincides with when the Opportunity Zone holding period lapses in 2030, when a sale could take place and the tax on gain is forgiven.

On December 4, 2023 the Bryant Street partnership secured a $110,000,000 loan with a floating rate equal to SOFR plus 2.9% from Rialto Capital Management, replacing the $132,000,000 loan with Capital One. It is a three year loan with two one-year extensions. A SOFR rate cap was secured at 5.35% from Chatham Financial creating an effective interest rate ceiling of 8.25%. The loan has a floor interest rate of 6.90%. FRP will look to secure a fixed permanent loan in the future when interest rates are more favorable.

On January 30, 2024 the Greenville partnership at .408 Jackson secured a $49,450,000 loan with a fixed rate of 5.59% from Fannie Mae, replacing the $36,000,000 loan with First National Bank. It is a seven year loan maturing February 1, 2031. The interest rate was favorable given the current market conditions and the term coincides with when the Opportunity Zone holding period lapses in 2030, when a sale could take place and the tax on gain is forgiven. As a result of refinancing, the Company received a $5 million return of capital.

On April 25, 2024 the Verge partnership secured a $68,862,000 loan with a fixed rate of 5.72% from Fannie Mae, replacing the $72,823,000 loan with Truist Bank. It is a seven year loan maturing May 1, 2031. The Opportunity Zone holding period lapses in 2030, when a sale could take place and the tax on gain is forgiven.

Cash Requirements – The Company expects to invest $62 million into our existing real estate holdings and joint ventures during 2025 and $153 million beyond 2025 for projects currently in our pipeline, with such capital being funded from cash and investments on hand, cash generated from operations, property sales, distributions from joint ventures, or borrowings through credit facilities.

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. We believe these non-GAAP measures provide useful information to our Board of Directors, management and investors regarding certain trends relating to our financial condition and results of operations. Our management uses these non-GAAP measures to compare our performance to that of prior periods for trend analyses, purposes of determining management incentive compensation and budgeting, forecasting and planning purposes. We provide pro rata net operating income (NOI) because we believe it assists investors and analysts in estimating our economic interest in our consolidated and unconsolidated partnerships, when read in conjunction with our reported results under GAAP. This measure is not, and should not be viewed as, a substitute for GAAP financial measures. For ease of comparison all the figures in the tables below include the results for Bryant Street, .408 Jackson, and The Verge in the Multifamily segment for all periods shown.

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Pro Rata Net Operating Income Reconciliation

Twelve months ended 12/31/24 (in thousands)

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Pro Rata Net Operating Income Reconciliation

Twelve months ended 12/31/23 (in thousands)

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 in Note 12 Contingent Liabilities. The Company's 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 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 collectability 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.

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Net Real Estate Investments and Impairment of Assets. Net real estate investments are recorded at cost less accumulated depreciation and depletion. Depletion expense of is computed on the basis of units of production in relation to estimated sand and stone deposits. Provision for depreciation of Net real estate investments is computed using the straight-line method based on the following estimated useful lives:

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, 2024, 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 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. 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.

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME – Years ended December 31

(In thousands)

See accompanying notes.

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CONSOLIDATED BALANCE SHEETS – As of December 31

(In thousands, except share data)

See accompanying notes.

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CONSOLIDATED STATEMENTS OF CASH FLOWS – Years ended December 31

(In thousands)

See accompanying notes.

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands, except share amounts)

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