FRP Holdings, Inc.

The following is a recording for John Milton with Florida Rock Properties on Thursday, March 4th, 2021 at 8 a.m. Central Time. 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 open the floor for questions. Instructions for asking questions will be given at that time. I would now like to turn the conference over to John Baker II. Mr. Baker, you may begin.

Good morning. My name is John Baker, and I'm Executive Chairman and CEO of FRP Holdings, Inc. With me today on the line are David DeVilliers, Jr., our President, John Baker III, our CFO, David DeVilliers III, our Executive Vice President, John Klopfenstein, our Chief Accounting Officer, and John Milton, our Secretary. Before we begin discussion of the quarter's results, let me remind you that any statements on this call which relate to the future or by their nature subject to risk and uncertainties that could cause actual results and events to differ materially from those indicated in such forward-looking statements. These risks and uncertainties are listed from time to time in our SEC filings, including but not limited to our annual and quarterly reports. We have no obligation to revise or update any forward-looking statements except as imposed by law as a result of future events or new information. Now, let me turn to the results. Net income for the fourth quarter of 2020 was $393,000, or four cents per share, bringing our net income for the year to $11 million, $615,000 or $1.21 per share versus $16,177,000 or $1.63 per share. The lower results for 2020 were driven by lower investment income as interest rates fell dramatically during the year and by greater losses on our joint ventures, especially the Marin and Bryant Street, which had high interest and depreciation expense and operating losses as we built our rent rolls from zero at both locations. These losses were partially offset by gains on property sales, including our three remaining lots in the Lakeside Business Park, our depleted mining site at Gulf Hammock, Florida, a right of way through our Fort Myers property, and our newly completed and fully occupied warehouse in our Hotlander Business Park in Baltimore. During the year, we made good progress on our new developments at Bryant Street and Half Street in Washington, our two mixed-use projects in Greenville, South Carolina, and at the Marin, where we completed the construction of the second phase of our Anacostia property and expect to achieve 90% occupancy this month. Additionally, our mining royalties business had record results, and we negotiated new 12-year interest-only loans on DOC 79 and the Marin at a fixed rate of 3.03%, with total principal on the two loans of $180 million. The loan on the... Doc 79 replaces a 4.15% loan, and on that property alone, we will save over $1 million a year in interest. Finally, during the year, we repurchased 510,145 shares of our stock at an average cost of $41.78. while still leaving ourselves with $150 million of cash and equivalents at year-end. Let me turn over the call to our President, David Duvalier, who will walk you through our various projects. David?

David Duvalier Thank you, John, and good day to those on the call this morning. Let me now add a bit of detail to the highlights John provided in his opening remarks. As to our asset management segment, With the disposition of our final two heritage properties in 2019, we completed the liquidation of a little over 4 million square feet of assets that made up this business segment, leaving just the company's 33,000-square-foot multi-tenanted home office building in Sparks, Maryland, and the now vacant lot in Jacksonville, Florida, that at one time housed Florida Rock Industries' home office that remains under lease to Vulcan Materials. Earlier this year, we transferred from the development segment, 1801 62nd Street, our completed 94,350 square foot speculative warehouse building in Baltimore City. The building became 100% leased and occupied in the first quarter of 2020, and we subsequently completed the sale of the asset in July of 2020, realizing a gain of some $3.8 million. In early 2019, we added an asset to this business segment through the purchase of the Cranberry Run Business Park in Aberdeen, Maryland, a 268,000 square foot multi-building warehouse park that was in dire need of rehabilitation. We spent the remaining months of 2019 and part of 2020 completing an extensive renovation of the park and associated buildings. During 2020, we received significant leasing success, bringing the park from 26.1% at the beginning of the year to 87.6% occupancy at year's end. Total revenues for the asset management segment for the quarter were up 44% to $658,000 over the same period last year with an operating profit of $36,000 versus a loss of $213,000 in the same quarter last year. Increased revenues and profit this quarter were mainly attributable to approved leasing at Cranberry Run. In the mining and royalty segment, total revenues for the quarter were $2,383,000 versus $2,274,000 in the same period last year. Total operating profit was $2,089,000, an increase of 2.5%. over the same period last year. And of particular note, as John said earlier in his opening remarks, this business segment experienced the highest revenue numbers for the year in our company's history. With respect to ongoing and new projects in the development section, highlights would include, one, at year's end, phase one of our joint venture with St. John's Properties consisted of four buildings totaling 72,080 square feet of single-story office buildings and 27,950 square feet of small bay retail space in Baltimore County, Maryland. Leasing efforts procured one retail tenant despite the pandemic who took possession in the fourth quarter of 2020 with lease commencement in January of 2021. As a result, the project is now 46.7% occupied overall, a 2.7% increase over 2019. At completion, this project will consist of 329,000 square feet of office and retail space. Secondly, we continue with the PUD entitlement process at Hampstead Overlook, our 118-acre development tract in Hampstead, Maryland. The concept plan approved in the first quarter of this year calls for 164 single-family and 91 townhome units. We are currently seeking preliminary plan approval from local agencies as the next step in the development process. We are optimistic that 2021 will be the year of substantial progress towards this goal. Third, as an update to our lending ventures, All of the entitlements were completed this year at Hyde Park in Baltimore County, Maryland, and a home builder purchased all 126 residential lots prior to the commencement of any land development activities. All principal and accrued interest has been repaid and part of the profits have been received. Additional profits are expected to be received in 2021 and early 2022, resulting in an overall return of our $3.5 million investment of over 27% or a little over $1 million. Four, relative to our other lending venture, it is also a residential development project called Amber Ridge and located in Prince George's County, Maryland. Our total commitment for this project is $18.5 million. As with Hyde Park, The investment includes a charged 10% interest rate and a preferred return of 20%, above which a profit-induced waterfall determines the final split of proceeds, similar to Hyde Park. Entitlements are complete, land development has commenced, and two national homebuilders are under contract to purchase all 187 lots after completion of the horizontal development. Phase 2 of our riverfront on the Anacostia Project in Washington, D.C., known as Marin, as John alluded to earlier, began leasing in March and received a final certificate of occupancy for the building in September of 2020. By year's end, 87.5% of the apartments were leased and 84.1% were occupied. far out exceeding expectations despite the pandemic environment. Of note, the apartments are expected to reach occupancy by the end of this month. Relative to the 6,900 square feet of first floor retail, 76% of the space is leased with occupancy currently scheduled for the third quarter of this year. As with Dock 79, This is a joint venture project with Mid-Atlantic Realty Partners, or MRP, in which FRP is the major partner. Six, at the end of 2018, we entered into a third joint venture with MRP to develop the first phase of a mixed-use residential and retail development adjacent to the Red Line Metro Station in northeast Washington, D.C., known as Bryan Street. As a transit-oriented development, immediate access to public transportation options is a critical feature to the design and marketing of this project. FRP contributes $32 million in common equity and another $23 million in preferred equity to the joint venture, all of which were capital gains dollars. Construction began in February of 2019, and the project at year end is 82% complete. The first building delivery, entitled CODA, consisting of 154 apartments, was completed at the end of December, and our leasing team has produced 34 leases as of the end of February, making this building 25% leased. On time and within budget, we expect to deliver the remaining three phases of Phase 1 and Q3 of this year. Not unexpectedly, we are keeping a watchful eye on the completion of construction and the delivering of such a large project during the pandemic. We believe leasing activity should increase as the critical mass of vaccinations are completed and we approach herd immunity, thereby allowing a certain return to normalcy that hinges on people moving about freely, a linchpin to the attractiveness of this project. This property is located in a designated opportunity zone, which allows us to defer a significant tax liability. In total, phase one at Bryan Street will consist of 487 apartments and 86,100 square feet of first floor and freestanding retail. Approximately 44,000 square feet of the retail is pre-leased. Seven, in December 2019, The company entered into its fourth joint venture with MRP for the development of a mixed-use project known as 1800 Half Street. And in August of this year, we began construction. The development is located in the Buzzard Point area of Washington, D.C., less than a half mile downriver from Dock 79 and Marion. It lies directly between our two-acre site on the Anacostia River, currently under lease to Vulcan Materials, and Alley Field, the home stadium of the D.C. United professional soccer team. The 10-story structure will have 344 apartments and 11,246 square feet of ground floor retail and is scheduled for completion in the third quarter of 2022. This project is also located in an opportunity zone, and FRP contribute $37.3 million of capital gains as common equity. At the end of 2019, we entered into two joint venture agreements with Woodfield Development, a new strategic partner, to invest in the two distinct projects in Greenville, South Carolina. Woodville has vast experience developing residential and mixed-use projects throughout the Southeast and Washington, DC. Our first JV, called Riverside, It's a 200-unit multifamily project in which FRP contributed $6.2 million in capital gains in exchange for a 40% ownership interest. Construction began in Q1 of 20 and is on schedule to be complete in the third quarter of 2021. This is a qualified Opportunity Zone investment. Our second joint venture with Woodfield is a 227-unit multifamily development entitled .408 Jackson, which is a nod to Shoeless Joe Jackson and is adjacent to Greenville's minor league baseball stadium. This project will also include 4,700 square feet of retail space. FRP has received a 40% ownership position in this project in exchange for $9.7 million in capital gains funds. Construction began in May of this year and should be complete in the third quarter of 2022. This is also a qualified opportunity investment, and along with Riverside, will allow us to defer a little over $4.3 million in federal taxes. Closeout 2020. In November, we completed the purchase of a 55-acre tract of land in Aberdeen, Maryland. adjacent to the cranberry run business park we paid 10.5 million dollars for this property this project will be known as cranberry run phase two and could support up to 675 000 square feet of warehouse product in a robust distribution market this purchase will expand our industrial land holdings to allow us to continue the industrial development program beyond the remaining undeveloped building lot in Hollander Business Park in Baltimore City. We are currently petitioning for annexation to bring all parcels of this property into the same municipal boundaries. This process will take a year, and we will begin the design process in the interim. Existing land leases for the storage of trailers on site will help to off-site our carrying and entitlement costs. We are hopeful we can begin construction here in late 2022 or early 2023. Moving on to our stabilized joint venture business segment, in July of 2019, we completed a partial 1031 like-kind exchange by investing $6 million for a 26.65% beneficial interest in a Delaware statutory trust, or DST, that owns a 294-unit garden-style apartment community known as Hickory Creek, located in Henrico County, Virginia. The complex was constructed in 1984 and substantially renovated in 2016. The business plan calls for further rehabilitation of the apartments, generating value-added rents prior to selling the project after an appropriate hold period. We continue to receive monthly distributions from operations in Hickory Creek. Fourth quarter distributions were $85,000 and $339,000 for the year. Occupancy averaged above 95% for the year, with a collection rate and 12 COVID-related payment plans representing less than 3% of revenues. Relative to DOC 79, the average occupancy for the year was 93.1%, down from 95.1% last year. This past quarter, retention rate was 60.4%, similar to the same period last year. Rental rates, however, were flat due to government-imposed restrictions on rent increases due to COVID. Net operating income for the quarter was $1.55 million, down $270,000, or 14.77%, over the same period last year. All in all, DOCS 79 fared quite well during the year, despite the significant interruptions we all experienced throughout 2020, generating a net operating income of $6,652,000, down 7.1% over 2019. Keeping our eyes on resident retention, finding creative solutions to help our tenants weather a difficult new reality, and optimizing expense savings continues to be our primary focus as we navigate this property through the pandemic. Those seriously impacted by COVID with shutdowns, reduced capacity, canceled stadium events, and general uncertainty, our three retail tenants at Dock 79, which total approximately 10,500 square feet of the total 14,000 of retail space, seem to be holding their own and looking forward to warmer weather and better utilization of their outdoor spaces. The remaining retail suite is being actively marketed, but we are being quite selective as to vendor and use. Full occupancy is expected in late 21 for the retail program. DOC 79 was our first joint venture between MRP and FRP, in which FRP is the major partner with a 66% ownership position. We have touched a few times on the impact COVID has had on FRP. Make no mistake, we are not immune to the effects of this terrible global disease that has monopolized the world's attention throughout 2020. FRP has significantly adjusted its operations, withstood infected employees and contractors, held the hands of tenants paralyzed by new government regulations preventing their opening for business, and witnessed the carnage of life and enterprise at many turns. All the while, we are immensely grateful that as a business, and a collection of professionals, we stand atop a solid financial foundation that uniquely enables us to progress as an organization with a steadfast mission that followed closely should insulate us from much of the troubles others face. Thank you, and I'll now turn the call back to John.