FRP Holdings, Inc.

This is a recording for John Baker with Florida Rock Properties, Inc., on Tuesday, August 3, 2021, at 10 a.m. Central Time, 11 a.m. Eastern Time. Excuse me, everyone. We now have John Baker, Executive Chairman of FRP Holdings, Inc., in conference. Please be aware that each of your lines is in a listen-only mode. At the conclusion of Mr. Baker's presentation, we will open the floor for questions. At that time, instructions will be given as the procedure to follow if you'd like to ask a question. I would now like to turn the conference over to John Baker. Sir, you may begin.

Good morning. Thanks for joining us today. I'm John Baker II, Chairman and CEO of FRP Holdings, Inc. With me today on this call are David DeVilliers, Jr., President of the company, David DeVilliers III, Executive Vice President, John Baker III, CFO, John Milton, our General Counsel, and John Klopfenstein, our Chief Accounting Officer. Before we begin, let me remind you that this presentation may contain forward-looking statements. Such statements reflect management's current views with respect to financial results related to future events and are based on assumptions and expectations that may not be realized and are inherently subject to risk and uncertainties. many of which cannot be predicted with accuracy and some of which might not be anticipated. Future events and actual results, financial or otherwise, may differ perhaps materially from the results discussed in such forward-looking statements. Risk factors are discussed in our SEC filings in annual quarterly and quarterly results. These forward-looking statements are made as of this date and based on management's current expectations. The company does not undertake an obligation to update such statements other than as imposed by law, and investors are cautioned not to place undue reliance on such forward-looking statements. The second quarter saw revenues and NOI grow 45% and 37%, respectively, versus the same quarter last year. Royalty revenues were the highest in our history and the likelihood of passage of a federal infrastructure bill gives us an expectation that the royalty earnings will continue their secular growth. Net income for the quarter was $82,000 or one cent per share versus $4,149,000 or 43 cents per share a year ago. Driving this decline was the amortization of the leases in place as a result of last quarter's consolidation of the Marin and its leases in place, which was part of the write-up of that asset. Also contributing to the decline in earnings was the interest on the now consolidated Marin loan and lower gains on the sale of real estate. Let me now turn it over to David Duvalier to walk you through our operating results.

Thank you, John, and good morning to those on the call today. I'll now offer some detail to the financial highlights provided by John in his opening remarks. Since the 2018-19 dispositions of our warehouse platform, totaling a little over 4 million square feet, We have been actively seeking value-add purchase opportunities, development lands for vertical construction, and new strategic partnerships. Additionally, we have continued to develop and construct speculative projects upon our land inventory when available and through. In early 2019, we added an asset to our asset management business segment through the purchase of the Cranberry Run Business Park in Aberdeen, Maryland. 268,000 square foot multi-building warehouse park that was in dire need of rehabilitation. We completed an extensive renovation of the business park and associated buildings late last year. Due to the nature of the short-term lease program at Cranberry, we have had some turnover. And at the end of June 2021, the park stood at 77.6% leased and 59.7% occupied. versus 71.9% leased and occupied during the same period last year. 34 Lofton, our home office, is 95.1% occupied, and we recently completed a much needed renovation of the first four lobby and common areas. Total revenues for the asset management segment for the quarter were down 17.9%, or $128,000 over the same period last year, to $588,000. mainly as a result of the sale of our 94 000 square foot industrial building at 1801 62nd street in july of 2020. 1801 62nd street was responsible for 163 000 dollars of revenue in q2 of 2020. we realized an operating loss of $160,000, down $218,000 from an operating profit of $58,000 in the same quarter last year, again, primarily due to the sale of 1801 62nd Street. Other assets in this segment remain leased and occupied as in previous periods. The mining and royalties business segment remains strong with revenues of $2,634,000, an increase of $232,000 over Q2 2020. This was the most revenue in any second quarter ever. Operating profit was $2,292,000, which represents a $182,000 increase over the $2,110,000 realized in this period last year. With respect to ongoing and new projects in our development business segment, we have Several really strong highlights. One, at quarter's end, phase one of our joint venture was 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, gained a retail tenant. during the quarter, increasing the percentage amount leased to 48 with occupancy of 46.8%. These asset classes of office and retail have been hit especially hard by the pandemic. Our tenants at Windlass, though, have kept current with their rental payments, and we are encouraged by some increased leasing activity here. After the sale of our 92,000 square foot warehouse at 1801 62nd Street in Baltimore in July of last year, we were encouraged by the velocity of the sub-market and began construction of two speculative shell warehouse buildings totaling 145,700 square feet at our Hollander Business Park near the Port of Baltimore. Like their predecessor, these are state-of-the-art Class A concrete tilt-up buildings with 28-foot and 32-foot clear ceiling heights built with Baltimore City green building standards. We are actively pre-leasing and have pre-leased 39% of one building and are encouraged by the continued activity in the sub-market. We expect to complete and deliver both buildings in the third quarter of 2021. Also in the second quarter of this year, we executed a built-to-suit lease for $101,000. square foot facility at 1941 62nd Street. This is the last building lot in Hollander Business Park. We plan to commence construction on this project in the third quarter of this year and expect to deliver the building to the tenant before the end of calendar year 2022. We continue with the PUD entitlement process, our Hampstead Overlook project, 118-acre development tract in Hampstead, Maryland. The concept plan approved at the end of last year calls for 164 single and 91 townhome units. We are currently seeking preliminary plan approval from the local agencies at the next step in the development process. We are optimistic that 2021 will be the year of substantial progress towards this goal. As an update to our lending venture investments program, Hyde Park in Baltimore County, Maryland is now complete. All principal and accrued interest has been repaid and preferred interest and shared profits totaling $1.03 million have been received. Another lending venture called Amber Ridge is 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. Entitlements are complete, land development is fully underway, and two national homebuilders are under contract to purchase all 187 lots after completion of the infrastructure development. The first set of finished lots are scheduled to be delivered to the purchasers in the third quarter this year. On the joint venture front, at the end of 2018, we entered into our third joint venture with MRP to develop the first phase of a mixed-use residential and retail development project 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. The first building, named COTA, was placed in service on January 1st of this year and received final certificates of occupancy on April 1st, 2021, for all 154 of its apartments. Thanks to Herculean efforts from our leasing team, COTA was 88.3% leased and 67.5% occupied at the end of the second quarter. Of note, as of August 1st, COTA was 93.5% leased and 85.7% occupied. With the leasing success of COTA, despite COVID challenges, we are optimistic about the leasing velocity for the neighboring two buildings at Bryan Street called Chase. These two buildings are scheduled to be open and ready to receive tenants in mid-August. In total, Phase 1 at Bryan Street will consist of 487 apartments and three buildings and 89,196 square feet of first floor, freestanding, and open-air retail. 68,691 square feet, or 77% of the retail, is now pre-leased. and expected to open for operations by year-end. 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 a mixed-use project at 1800 Half Street. in southwest Washington, D.C., in the Buzzard Point area, just a few blocks downriver from Marin and Dock 79. In August of 2020, we began construction. The project, now known as The Verge, lies directly between our two acres on the Anacostia River, currently under lease to Vulcan Materials, and Audi Field, the home stadium of the D.C. United Soccer Franchise. This 10-story structure will have 344 apartments and 11,246 square feet of ground floor retail and is scheduled for completion in the summer of 2022. At quarter's end, The Verge was 27% complete. This project is also located in an Opportunity Zone. Also in December of 2019, we entered into two joint venture agreements with Woodfield Development 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, D.C. The first JV, called Riverside, is a 200-unit, three-building apartment project. Construction began in the first quarter of 2020 and is on the doorstep of completion. Pre-leasing efforts began the last week of July. The second JV with Woodfield is a 227-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 4,700 square feet of retail space. Construction began in May of 2020 and should be complete in the summer of 2022. Currently, this project is 54% complete. Riverside and .408 Jackson represent a $15.9 million investment from FRP. We're at 40% ownership interest in these two South Carolina projects, which are both Opportunity Zone investments. The structure of these investments will ultimately allow us to defer a total of $4.3 million in federal taxes. Relative to our industrial development platform, late last year we completed the purchase of a 55-acre tract of land in Aberdeen, Maryland, adjacent to the Cranberry Run Business Center. Purchase price for this property was $10.5 million. This project will be known as Cranberry Run Business Center Phase 2 and can support up to 675,000 square feet of warehouse product in a robust distribution market. This purchase expands our industrial land holdings to allow us to continue the industrial development program beyond the nearly complete Hollander Business Park in Baltimore City. We are currently petitioning for annexation to bring all partners parcels that make up the assemblage into the same municipal boundaries. This process will take the rest of this year, and we have begun the design process in the interim. Existing land leases for the storage of trailers on site will help to offset our carrying entitlement costs. Average monthly revenue from land leases for the second quarter were in excess of $42,000. We are hopeful we can begin vertical construction here in early 2023. Moving on to our stabilized joint ventures business segment, in July of 2019, we completed a partial 1031 like-kind exchange by investing $6 million for 26.6% beneficial interest in a Delaware statutory trust for 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 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. Q2-21 distributions were $87,000, equal to 5.5% per annum on our investment. Occupancies averaged above 95% for this project. In March of this year, Phase 2 of our riverfront on the Anacostia project in Washington, D.C., known as Marin, reached stabilization or 90% occupancy of its 264 apartment units and as a result of this milestone, joins Dock 79 and Hickory Creek in our stabilized joint ventures business segment. At quarters end, 94.7% of the apartments were leased and 93.9% 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 quarters of this year. As with DOC 79, this is a joint venture with Mid-Atlantic Realty Partners, or MRP, which FRP is the majority partner. Of 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. This is a testament to the quality of location and product delivered to the market and the skill of leadership on the ground managing the day-to-day operations. As a result of the quick stabilization of this project and certain contractual obligations to our joint venture development partner, FRP's ownership interest in Marin is now 70.41% down from 80% prior to stabilization. Relative to DOC 79, its 305 apartments were 95.2% occupied on average year-to-date and were 94.1% leased and 96.4% occupied at quarter's end, marking the third quarter in a row with occupancy levels above 94%. Our retention rate at DOC was 61.4%, down slightly from 62.3% last year. Rental rates, however, were flat due to continued government-imposed restrictions on rent increases due to COVID. These restrictions are currently scheduled to expire at the end of the year. Dock 79 has fared quite well over the past year despite the significant interruptions we all experienced. Though 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 square feet of retail space, seem to be holding their own and have made significant headway towards normalcy. with the loosening of some restrictions, warmer weather, better utilization of their outdoor spaces, and stadium events with spectators. Of particular note, overage rental payments received for the second quarter were $120,000 for the three retail tenants. In early April, the remaining retail space became leased. We look forward to full retail occupancy in late 2021. DOC 79 was our first joint venture with MRP, and MRP is the major partner with 66% ownership position. Revenues for the quarter for both DOC 79 and Marin were $4.8 million, up 96.7% over the same period last year, primarily due to Marin's lease-up. Marin Revenue represents $2.16 million, and DOC 79 claims $2.66 million in revenue, an increase for DOC of $208,000 over the same period last year. NOI for the quarter in this business segment was $3 million, a little over $3 million, up $1.38 million, which is 83.6% over the period last year. Thanks again to the addition of Marin to this business segment and its lasting success. We have touched a few times on the impact COVID has had on FRP. Despite the arrival of the Delta variant, summer is in full swing throughout our portfolio, and life is looking more normal every day. Major League and Minor League, baseball is back, bars and restaurants are open, both inside and out. trucks are moving goods, and tenants are leasing space. These are strong signals for us personally and as a business that new life, new energy, and new opportunities are happening every day. We have been extraordinarily fortunate that our warehouse platform is performing at least as well as it has historically. Construction material needs have kept mining revenues solidly positive. We continue to identify new opportunities despite raucous competition for deals, and the timing for construction delivery of several of our multifamily and mixed-use projects have lent themselves to capitalize on the reemergence of activity. However, we have not been unscathed by the effects of this terrible global disease. And notwithstanding the good news, we do expect to see the continuation of limited retail and office leasing as some business categories remain uncertain amidst the unique regulatory and public health plan. We are cautiously optimistic but also realistic. FRP has adjusted its operations, withstood infected employees and contractors, held the hands of tenants paralyzed by new government regulations preventing opening for their business, and witnessed the terrible results of this global pandemic. Now we have employees back in the office collaborating and interacting on a regular basis, and we are building back toward an FRP that is more recognizable than over the past 16 months. All the while, we remain grateful that as a company and group of professionals, we are solidly grounded and uniquely prepared to progress as an organization loyal to our mission that has served us well both before and during COVID-19. Thank you, and I'll now turn the call back to Jonathan.