FRP Holdings, Inc.

The following is a recording of the John Milton Teleconference with Florida Rock Properties, Inc. on Tuesday, May 4th, 2021 at 10 o'clock a.m. Eastern Time, 9 o'clock a.m. Central Time. The following is a recording of the John Milton Teleconference with Florida Rock Properties on Tuesday, May 4th, 2021 at 10 o'clock a.m. Eastern Time, 9 o'clock 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 will be given as to the procedure to follow if you would like to ask a question at that time. I would now like to turn the conference over to Mr. John Baker III. Please go ahead, sir.

Good morning. I am John Baker III, Chief Financial Officer and Treasurer of FRP Holdings, and with me today are David DeVilliers, Jr., our president. John Milton, our executive vice president and general counsel. John Klopfenstein, our chief accounting officer. And David DeVilliers, III, our executive vice president. Before we begin, let me remind you that any statements on this call which relate to the future are, by their nature, subject to risks 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 in our SEC filings. 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. You are, of course, used to hearing the voice of a different and more experienced, maybe more capable John Baker. Our chairman and CEO had a scheduling conflict, and I drew the short straw of having to fill his very big shoes. This will be old news to anyone who attended our annual meeting yesterday, but during the quarter ended March 31st, 2021, we had two important accomplishments in our riverfront on the Anacostia project. First, we secured a $92 million refinancing of DOCS 79, as well as a permanent refinancing of the Marin for $88 million. These are 12-year interest-only loans at 3.03%, and will significantly lower our debt service at DOCSIS M-9, in addition to paying off the construction loan at the Marin, as well as the mezzanine refinancing we provided to the project. Secondly, the Marin achieved stabilization in March, meaning 90% of the individual apartments were leased and occupied. As a result of that, the company is now considered for accounting purposes to have control of the partnership without any transfer of consideration and is required to write up the value of the assets and liabilities to their fair market value. Previously, the Marin joint venture was accounted for under the equity method and prior periods are still reflected using that method. Starting in April, all of the MARIN's revenues and expenses are reported in their corresponding categories in the Consolidated Statement of Income, including the amounts attributable to the company and our partner MRP Realty. The amount of new income attributable to our partners is clearly identified as non-controlling interest. Because of the increased depreciation and amortization attributable to the company as a result of consolidating the marriage results into our income statement. The impact on net income going forward may in fact be negative, but the positive impact on our NOI and cash flow will be significant. Now let me turn to financial highlights. Net income for the first quarter was $28,373,000 or $3.03 per share versus $1,618,000 or 16% per share. 16 cents per share in the same period last year. The lion's share of this increase is a result of the stabilization of the Marin and subsequent fair write-up, excuse me, write-up to fair value, which resulted in a gain of $51.1 million on the remeasurement of investment in the Marin Real Estate Partnership, which is included in income before taxes. This gain on remeasurement is mitigated by a $10.3 million provision for taxes and a $13 million attributable to non-controlling interest. Additionally, we were positively impacted by a decrease in expenses. During the same period last year, professional fees were $260,000 higher, primarily because of environmental claims on our Anacostia property, which we settled at the end of last year. We also had stock compensation expenses of $202,000 compared to $601,000 this quarter last year due to the timing of stock grants. Finally, this quarter, our loss on joint ventures increased $993,000. This is primarily due to a $248,000 increased loss at the Marin prior to stabilization and a 663 increased loss at Bryant Street. At this point last year, the Marin was not in service, and we hadn't yet started leasing efforts at Bryant Street. Aggregates royalties income this quarter increased by 5.95% compared to the same period last year. The $2.315 million in revenue this quarter is the best first quarter in revenue in the segment's history. This is the third quarter in a row where royalties during the pandemic have exceeded those prior. And with royalty revenue of $9.6 million over the last 12 months, this is also the first time we have surpassed the $9.5 million revenue threshold in any consecutive 12-month period. On a big picture level, this is also the closest in some time that we as a nation have been to a major national infrastructure bill. Both parties have submitted infrastructure plans, albeit very different ones. Hopefully they can do what Congress is designed to do and come up with a compromise both sides can live with. Any kind of infrastructure bill, in addition to being sorely needed, would of course positively impact this segment. We still retain high levels of liquidity relative to our size with roughly $160 million in cash and bonds, as well as a $20 million line of credit. While we are busier than ever in terms of sourcing deals to redeploy our cash, this substantial capital cushion is more precious to us than it has ever been. With vaccination numbers on the rise, a path back to a quote-unquote normal world is still slowly starting to materialize, but we are not out of the woods by any stretch. We remain extremely optimistic about our projects under development, but our liquidity allows us the luxury of that optimism. We will continue to be opportunistic with our share buybacks. This past quarter, we purchased 6,004 shares. at an average cost of $43.95 per share. Now, if I could turn things over to David DeVilliers, Jr. to walk you through our segments in more detail.

David? David DeVilliers, Jr.: : Thank you, John, and good morning to those on the call today. I'll now offer some detail to the highlights provided by John in his opening remarks. As for our asset management segment, with the final disposition of two heritage properties in 2019, we completed the liquidation of a little over 4 million square feet of warehouse 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 vacant lot in Jacksonville, Florida. that at one time housed Florida Rock Industries' home office that remains under lease to Vulcan Materials until 2026. We are constantly seeking value-add purchase opportunities and will continue to construct speculative-type buildings upon our land inventory when available. 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 completed an extensive renovation of the park and associated buildings late last year, and as of March 31st, the asset was 87.6% occupied. Total revenues for this business segment for the quarter were up 9.2% over the same period last year. $712,000 with an operating profit of $17,000, up $148,000 from a loss of $131,000 the same period last year. Increased revenues and profit for this quarter were mainly attributable to the stronger occupancies of Cranberry Run. I won't give any further detail on the mining and royalty segment because John took care of that in his opening remarks. It's quite an amazing program that the mining and royalty segment is on. With respect to ongoing and new projects in the development segment, we have many highlights to provide. At quarter's end, phase one of our joint venture with St. John 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, remained as it was at the end of 2020. being 46.7% leased overall. This asset class of office and retail has been devastated by the pandemic, but the tenants at Windlass have kept current with their rental payments. After the sale of our 94,000 square foot warehouse in the third quarter of last year, we were encouraged by the velocity of its sub-market and began construction of two speculative shell warehouse buildings totaling 145,750 square feet at the Hollander Business Park near the Port of Baltimore. Like their predecessor, these are state-of-the-art Class A concrete tilt wall buildings with 28 and 32-foot clear ceiling heights built to Baltimore City green building standards. Leasing efforts are ongoing and we expect to complete these buildings in the third quarter of this year. Next, we continue with the PUD entitlement process at Hampstead Overlook, a 118-acre development tract in Hampstead, Maryland. Concept plan approved at the end of last year calls for 164 single and 91 townhome units. We are currently seeking preliminary plan review 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. Next, as an update to our lending venture activities, all of the entitlements were completed in 2020 at our Hyde Park project in Baltimore County, Maryland, and a home builder purchased all 126 residential lots prior to our initiating any infrastructure development activities. All principal and accrued interest has been repaid, and part of the profits have been received. Additional profits are expected in the second or third quarter of this year, which is quicker than expected due to the strong demand for housing, resulting in an overall internal rate of return on our initial $3.5 million investment of over 27% or over $1 million. Relative to our other lending venture 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 our Hyde Park venture, the investment includes a charged 10% interest rate and a minimum 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 home builders are under contract to purchase all 187 lots after completion of the infrastructure development. The first set of finished lots are due to be delivered to the purchasers in the third quarter of this year. At the end of 2018, we entered into our third joint venture project with MRP. It developed the first phase of a mixed-use residential and retail development known as Bryan Street. which is adjacent to the Red Line Metro Station in northeast Washington, D.C. As a transit-oriented development, immediate access to public transportation options is a critical feature to the design and marketing of this project. The first building, named COTA, was placed in service on January 1 of this year and received final certificates of occupancy on April 1 for all of its 154 apartments. Our leasing team has done a Herculean job of leasing during the period from January through March, and at the end of the quarter, the building was 35.7% leased. As the weather has gotten warmer and project completion is on the horizon, being 94% at quarter's end, the traffic has picked up, and as of yesterday, COTA was 57.1% leased and 34.4% occupied. Not unexpectedly, we are keeping a watchful eye on the completion of construction and the delivering of such a large project during a pandemic. But we are certainly encouraged by the recent philosophy. In total, Phase 1 will consist of 487 apartments in three buildings and 86,100 square feet of first floor and freestanding retail. Approximately 51% Excuse me, 51,000 square feet of the retail is now pre-leased. This property is located in a designated opportunity zone, which allows us to defer a significant tax liability. In December of 2019, the company entered into its fourth joint venture with MRP for the development of another mixed-use project known as 1800 Half Street. And in August of this past year, we began construction. The development is located in the Buzzard Point area of Washington, D.C., less than half a mile downriver from Dock 79 in Marin. It lies directly between our two acres on the Anacostia, currently under lease to Vulcan Materials, and Audi Field, the home stadium of the D.C. United soccer franchise. The 10-story structure will have 344 apartments and 11,246 square feet with ground floor retail and is scheduled for completion in the third quarter of 2022. At quarter's end, 1800 Half Street was 16% complete. This project is also located in an opportunity zone. In the waning hours of 2019, we entered into two joint venture agreements with Woodfield Developments. a new strategic partner to invest in two distinct projects in Greenville, South Carolina. Woodfield has vast experience developing residential and mixed-use projects throughout the Southeast and Washington, DC. The first joint venture, called Riverside, is a 200-unit apartment project. Construction began in the first quarter of 2020 and is on schedule to be complete in the third quarter of this year. The second JV with Woodfield is the 227th unit multifamily development entitled .408 Jackson, a nod to Shoeless Joe Jackson and adjacent to Greenville's minor league baseball stadium. This project will also include 4700 square feet of retail space. Construction began in May of 2020 and should be complete in the third quarter of 2022. FRP has invested $15.9 million in capital gains funds for 40% ownership interest in these two South Carolina projects, which are both Opportunity Zone investments, which will allow us to defer a total of $4.3 million in federal taxes. To close out 2020, in November we completed the purchase of a 55-acre tract of land in Aberdeen, Maryland, adjacent to Cranberry Run Business Center for $10.5 million. This project will be known as Cranberry Run Business Center Phase 2 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 building lot at Hollander Business Park in Baltimore City. We are currently petitioning for annexation to bring all parcels that make up the assemblage into the same municipal boundaries. This process will take the rest of this year and we will begin the design process in the interim. Existing land leases for the storage of trailers on site will help to offset our carrying entitlement costs. We're hopeful we can begin construction here in late 2022 or early 2023. Just last month in April, We entered into a build-to-suit long-term lease agreement for a 101,750 square foot warehouse building on the last remaining building lot at the Hollander Business Park. We expect to begin construction in the third quarter of this year and deliver the project to the tenant in the fourth quarter of 2022. Moving on to our Stabilized Joint Ventures business segment. In July of 19, we completed a partial 1031 like-kind exchange by investing $6 million for a 26.6% 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 to departments, generating value-added rents prior to selling the project after an appropriate hold period. We continue to receive monthly distributions from operations at Hickory Creek. In the first quarter of 2021, distributions were $84,000, equal to a 5.65% per annum on our investment. Occupancy averaged above 95% for the year and the first quarter with a collection rate and 12 COVID payment plans representing less than 3% of revenues. To round out the quarter, phase two of our riverfront on the Anacostia project in Washington, DC, known as Marin, reached stabilization or 90% occupancy of its 264 apartment units in March of this year. And as a result of this milestone, will join Dock 79 and Hickory Creek in our stabilized joint venture business segment. At quarter end, 92.8% of the apartments were leased and 92.04% were occupied. Relative to the 6,900 square feet of first floor retail, 100% of the space is leased with occupancies currently scheduled for the third and fourth quarter of this year. As with Dock 79, this is a joint venture with MRP, or Mid-Atlantic Realty Partners, in which FRP is the majority partner. A particular note, this building received its final certificate of occupancy at the end of March 2020 and reached stabilization of 90% in less than 12 months, a significant feat on its own, but during the pandemic, it's something else. Relative to DOC 79, its 305 apartments were 94.1% leased and occupied as the end of this quarter. The retention rate was 60%, similar to what it was last quarter. Rent, however, was flat due to government-imposed restrictions on rent increases due to COVID. Net operating income for the quarter was $1.53 million, down $278,000 over the same period last year, due to the aforementioned government-imposed rent freeze and lower traffic through our three restaurants and parking facilities. All in all, Dock 79 fared quite well over the past year, despite the significant interruptions we all experienced. Those seriously impacted by COVID, with shutdowns, reduced capacity, canceled stadium events, and general uncertainty, are three retail tenants of Dock 79, which total approximately $10.50. square feet, with a total 14,000 square feet of retail space, seem to be holding their own and looking forward to warmer weather and better utilization of their outdoor spaces. In early April, remaining retail space became leased, and we look forward to full occupancy in 2021. Dock 79 was our first joint venture with MRP. in which we are the majority partner with 66% ownership position. We have touched a few times on the impact COVID has had on FRP. Spring is upon us and the baseball is back at National Stadium and vaccines are being widely received. These are strong signals for us personally and as a business that new life, new energy, and new opportunities are on the horizon. However, make no mistake, we are not immune to the effects of this terrible global disease that has monopolized the world's attention throughout the past year. FRP has significantly adjusted its operations with scud 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 in many terms. 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 the troubles others face. Thank you, and I'll now turn the call back to John.