FRP Holdings, Inc.

The following is a recording for John Milton with Florida Rock Properties, Inc., on Thursday, November 5, 2020, at 8 a.m. Central. Excuse me, everyone. We now have all of our speakers in conference. Please be aware that each of your lines is in a listen-only mode. At the conclusion of today's presentation, we will then open the floor for questions. At that time, instructions will be given. Ask for the procedure to follow if you would like to ask a question. It's now my pleasure to turn today's conference over to John Baker III, Chief Financial Officer of FRP Holdings, Inc. Please go ahead, sir.

Good morning. I'm John Baker III, CFO and Treasurer of FRP Holdings, Inc. With me today, either in person or by phone, are John Baker II, our Chairman and CEO, David DeVilliers, Jr., our President, John Klassenstein, our Chief Accounting Officer, John Milton, our Secretary, and David DeVilliers III, our Executive Vice President. Before we begin, let me remind you that any statements made on this call which relate to the future are by their nature subject to risks and uncertainties that could cause the actual results and events to differ materially from those indicated in such forward-looking statements. These risks are detailed in our SEC filings including our annual and quarterly reports. We have no obligation to revise or update any forward-looking statements other than as imposed by law as a result of future events or new information. Thank you for joining us this morning. We appreciate your interest in FRP. Net income for the third quarter of 2020 was $5,455,000 or $0.57 per share versus $2,001,000 or $0.20 per share in the same period last year. The third quarter results were impacted by the following items. Interest expense decreased $83,000 as we capitalized more interest on our joint venture construction projects. Loss on joint venture increased $1,042,000 because of a $1,129,000 operating loss at the Marin due to leasing efforts and a gain of $5,732,000. From the sale of our building at the Hollander Business Park and the sale of 87 acres of our Fort Myers property as a result of the county exercising their option for a right-of-way, which will start to enhance our future development there. We continue to buy stock during this quarter and repurchases totaled 81,506 shares during the quarter. at an average price of $40.89 per share, bringing our total shares repurchased in the first nine months to 379, 809 shares at an average price of $41.30. We remain very liquid with approximately $136 million of cash and equivalents, including investments. Now let me turn the call over to David DeVilliers, Jr., who will give you a deeper dive into our operation.

Thank you, John, and good morning to those on the call this morning. Let me now provide you with our third quarter highlights and add a bit of detail to those provided by John in his opening remarks. As of the close of the third quarter, our asset management segment consisted of but three commercial properties, the Cranberry Business Center in Harford County, Maryland, the land at 21st Street in Jacksonville, Florida, and lastly, our home office, a multi-tenanted office building in Hunt Valley, Maryland. In July, we finalized the sale of 1801 62nd Street in Baltimore, Maryland, our latest spec building that was completed in April of 2019. The sale generated $12.3 million in cash and a profit of $3.8 million. which we are seeking 1031 exchange opportunities. As you may remember, the vast majority of asset management was reclassified to discontinued operations in 2018 and early 2019 as a result of the warehouse platform sale. This quarter, we continued to grow occupancy of Cranberry Run from 71.9% as of June 30 to 78.6% at quarter's ends. The significant $2 million renovation project is now complete, and the upgrades to the buildings have been well received by the market. Total revenues for this business segment were $721,000, up $291,000 over the same period last year. Operating profit was a positive $35,000, up $195,000 from an operating loss of $160,000 in the same period last year. primarily due to our new spec building at 1801 62nd Street reaching 100% occupancy and continued increased occupancy at Cranberry Row. In the mining and royalty segment, total revenues were $2,507,000 versus $2,302,000 in the same period last year. Total operating profit was 2.4%. $2 million, an increase of $179,000 versus $2,059,000 in the same period last year. As of quarter's end, aggregate royalties were within 1% of last year's record numbers through the first nine months. And like last year, the royalties we have collected so far are greater than those collected any entire year prior to 2017. Finally, Unrelated to any mining activity, local government exercised its right of eminent domain on some of our Fort Myers quarry to extend a roadway intended to ease traffic congestion in the area. We received $2.2 million in cash, incurring a $1.9 million profit. Under IRS Code 1033, we have up to three years to invest the profits in a like-kind asset in order to defer this federal tax liability. This resulting roadway extension will greatly benefit any Second Life developments on the remaining FRP-owned acreage once mining reserves are depleted. With respect to ongoing and new projects in the development segment, we have several highlights. This quarter, we received final permits and began construction on two speculative warehouse buildings at Hollander Business Park in Baltimore, Maryland, adjacent to the previously mentioned 1801 62nd Street, which we sold last quarter. Totaling 147,000 square feet, the two industrial buildings are planned for delivery in the third quarter of 2021. Two. Phase 1 of our joint venture with St. John's Properties, consisting of four buildings totaling 72,080 square feet of single-story office and 27,950 square feet of small bay retail space in Baltimore County, Maryland, saw some activity this quarter as our percentage increased to 47% with the addition of the project's first retail tenant. Entitlements continue for our project in Hampstead, Maryland, known as Hampstead Overlook, which received concept plan approval this spring for the 255 single-family and townhouse building lots proposed. We are currently seeking preliminary plan approval from the town and the county. This is a critical step in moving the development forward and a prerequisite for final plan approval, which secures the entitlements necessary to develop the project. Relative to our lending ventures platform, the first phase of settlement at the Hyde Park subdivision in Baltimore County, Maryland, closed in May of this year on the 122 townhouse and four single-family recorded loss. The settlement produced $2.67 million in principal and accrued interest. This quarter, we received the remaining $1.67 million in principal and $322,600 of accrued interest. additional profits from the repayment of an $800,000 note, which accrues interest as expected over the next 12 to 8 months prior to its maturity in March of 2022. Our other lending venture project, the residential development called Amber Ridge, located in Prince George's County, Maryland, is currently in the initial stages of horizontal development. Two national homebuilders are under contract to purchase all 187 lots following the completion of certain infrastructure improvements. The first sections of these lots are scheduled to be turned over in the second quarter of 2021. These lending ventures appear to have nice returns as we look to benefit from the surge in homebuilding and the shortage of lots in the areas we are concentrated. Moving on to phase two of our riverfront on the Anacostia project in Washington, D.C., known as Marin, it welcomed its first tenant in late March of this year. This 14-story mixed-use development consists of 264 apartments and 6,937 square feet of first-floor retail. During the third quarter, Marin received 100% of its use and occupancy certificates and has seen robust leasing activity increasing from 45% leased and 23% occupied at the end of June to 76.14% leased and 68.94% occupied at the end of the third quarter. The retail component is 74% leased with the large retail suite totaling 5,111 square feet signing a tenant at the end of the second quarter. As with Dock 79, this is a joint venture with Mid-Atlantic Realty Partners, or MRP. FRP maintains the majority interest in this project. The first phase of our mixed-use residential and retail development in northeast Washington, D.C., known as Bryan Street, was 78% complete overall at the end of the third quarter, with the first of four buildings scheduled for delivery in the fourth quarter of this year, and the remaining three buildings expected to be complete by the fourth quarter of 2021. This phase consists of 488 apartments and 85,681 square feet of first floor and freestanding retail. Approximately 44,000 square feet of this retail is pre-linked. The project is running on time and within budget. This property is located in a designated opportunity zone, which allows us to defer a $14.9 million tax liability associated with the warehouse platform sale in 2018. This project is also a joint venture with MRP, and FRP holds a major interest. In December of 2019, the company contributed $37.3 million of equity into a new joint venture agreement with MRP, for the development of a mixed-use project known as 1800 Half Street. Development is located in the Buzzard Point area of Washington, D.C., less than half a mile downriver from Dock 79 in Marist. It lies directly between our two-acre site on the Anacostia, currently under lease by Vulcan Materials, and Aldi Field, the home stadium of the D.C. United Professional Soccer Team. The 10-story structure will house 344 apartments and 11,246 square feet of ground floor retail. The project is a qualified Opportunity Zone investment and will defer a bit over $10 million in taxes associated with 2018's warehouse platform sale. In June, we closed on a $74 million construction loan and subsequently began construction at the end of August of this year. We expect to deliver this project in the fourth quarter of 2022. In addition to 1800 Half Street, and also in December of 2019, we ventured outside of Washington, D.C., and entered into two joint venture agreements with Woodfield Development, a strategic new partner, to invest in two separate and distinct residential development projects in Greenville, South Carolina. Woodfield has vast experience developing residential and mixed-use projects throughout the Southeast and Washington, D.C. The first project, called Riverside, is a 200-unit apartment project, and the CFRP contributed $6.2 million in exchange for a 40% ownership interest. Construction began during the first quarter this year and is expected to be complete in the third quarter of 2021. This is a qualified Opportunity Zone investment. Our second project with Woodfield is a 227-unit mixed-use development entitled Point 408 Jackson, a nod to Shoeless Joe Jackson, who actually lived on this site, and which is adjacent to Greenville's Minor League Baseball Stadium, which houses an affiliate of the Boston Red Sox. This project will also include 4,700 square feet of retail space. FRP received a 40% ownership position in this project in exchange for $9.7 million. Closing on the property occurred at the end of April of this year. Construction is also underway and the project should be ready to receive its first tenant in the second quarter of 2022. This project is also a qualified Opportunity Zone investment, along with Riverside, allows us to defer a total of $4.3 million in taxes. Moving on to our Stabilized Joint Ventures business segment, relative to DOT 79, net operating income for the quarter was $1,634,000, down 11.6% over the same period last year. Average occupancy during this quarter for the apartments was 93.29%. This past quarter, the retention rate was 52.3%, but with no rate increases due to a statutory prohibition by the District of Columbia due to COVID. The rent freeze is currently expected to last in the first quarter of 2021. We will continue to renew and sign tenants at their existing rates preferring terms of occupancy over chasing rent growth. The retail component of Dock 79, which totals approximately 14,600 square feet, remains at 76% occupied and 76% leased as of the end of the quarter. Unfortunately, our retail tenants were shut down from March 16th through the end of June as a result of the COVID-19 pandemic. with exception of one of the restaurants being partially open for carrying out. All three retail tenants are now open, albeit nowhere near the normal occupancy. Rent payments have resumed for the most part. Our key guiding principle in this situation is maintaining open communication while preserving our rights as landlord while we wait to see what the future holds for these businesses. The goal is to be a good partner in our existing tenant base and to assist them through this unusual time. We partnered with these existing tenants because we believed in their concepts and business plans, and we continue to do so. The remaining retail space had an executed letter of intent to lease prior to the COVID-19 breakout and is now back on the market. Dock79 is a joint venture between MRP, in which MRP FRP holds a 66 ownership percent interest. So to summarize FRP's movement in the mixed-use development, prior to December of 2019, we had ownership in 305 completed units of Dock 79 and were committed to another 752 units for a total of 1,057 units. As of December 2020, we will have completed 723 apartment units with the inclusion of Marist and the first of four buildings at Bryant Street. We now have 1,105 units under construction with future delivery dates ranging from the beginning of the third quarter of 2021 through the fourth quarter of 2022. As of December 2022, The total completed apartment inventory within our portfolio is projected to be 1,828 units, in which we currently hold an average ownership of 62%. And finally, relative to the new asset introduced to this business segment in July of last year, the 294-unit Hickory Creek apartment complex in Richmond, Virginia, Things remained status quo in the third quarter with average occupancy running above 94%. The distribution was on time and for the anticipated amount of $86,000. Our $6 million investment in this project is a part of a 1031 like-kind exchange. The complex was constructed in 1984 and substantially renovated in 2016. The business plan calls for further refurbishment to the interiors of the apartments and the increasing of rents prior to selling the project at a greater value after an appropriate hold period. FRP is fortunate to have a focused and talented team that has recently been quite active in leasing, development, and sales across multiple business segments. However, it's important to note that like the rest of the world, we've changed due to COVID. Our operations, communications, workflow, and access have all been altered. but we are committed to our mission and remain mindful of the unprecedented impact COVID is having on us all. We are considered an essential business and continue to operate at full capacity while heeding the guidance of the federal government and orders issued by the state and local authorities. Our offices in Baltimore, Maryland are open for limited activities on site, and all employees are set up to operate fully from their homes. When required, our employees are physically distancing and employing other measures to ensure the protection of the folks with whom we interact as we go about our business. At the end of the first quarter, requests for forbearance were limited to four tenants. Three retail restaurants at Dock 79 and one small office tenant whose business focus was related to hotel services. At the end of the second quarter, all but one of the aforementioned tenants had made significant progress towards clearing late rents and expenses. By the end of the third quarter, laudable progress in working through appropriate payment schedules has continued. To be sure, FRP is not unscathed by COVID-19. However, the retail tenants at Dock 79 currently represent a total of 6% of the company's net operating income. and for the time being, appear to be faring better than most in their category. Our tenants continue to operate, though perhaps on revised schedules and conditions, and with few exceptions, continue to pay rent as usual. We are mindful of the challenges that are facing our tenants, partners, and employees every day, and we strive to be good stewards of our stockholders' faith, as well as the trust and support of our business partners. COVID-19 marks a new beginning and will change the way we have to behave personally and professionally. But with all challenges comes opportunity. Lastly, I would encourage everyone to visit our newly minted website at www.frpdev.com, which now better reflects the company we have become, the investments we make, and the future we seek. Thank you, and I'll now turn the call back to John.