FRP Holdings, Inc.

Good day, everyone, and welcome to today's earning conference call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the star and 1 on your touch-tone phone. Please note that this call may be recorded. I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to John Baker. Please go ahead.

Good afternoon. I am John Baker III, Chief Financial Officer and Treasurer of FRP Holdings, and with me today are John Baker II, our Chairman and CEO, 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. As a reminder, 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. To supplement the financial results presented in accordance with generally accepted accounting principles, FRP presents certain non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. The non-GAAP financial measures referenced in this call is net operating income, NOI. FRP uses this non-GAAP financial measure to analyze its 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 measurements. To reconcile GAAP to net income, please refer to the segment titled Non-GAAP Financial Measures on page 9 of our most recent earnings release. Before we begin, I would like to pay tribute to Ted Baker, our founder, who we lost two weeks ago at the age of 87. This company, along with Patriot Transportation, were the brainchild of Ted when he was running Fort Rock Industries. And he served as chairman of the two combined companies from their founding in 1986 until the spinoff in 2015. He was so smart and generous and absolutely one of a kind and remained involved and interested in these businesses until the very end. Because of his remarkable career and generous spirit, this company is more or less a footnote in this incredible legacy of success and philanthropy. We would be remiss without paying tribute to someone who fully embodied the notion that it's not the years in the life, but the life in the years. The world is a much quieter place for his not being here, and the silence is deafening. In tribute to Ted, let me turn to our financial highlights from this quarter, which is what he would have cared about. Net income for the first quarter was $672,000 or $0.07 per share versus $28,373,000 or $3.03 per share in the same period last year. This decrease in income is almost entirely attributable to the gain on re-measurement of the MARIN in the same quarter last year. The re-measurement included a gain of $51.1 million offset by a $10.3 million provision for taxes and $13 million attributable to non-controlling interest. Other items impacting this quarter's income were $316,000 of amortization expense related to the leases in place at the time of the Marin's consolidation and subsequent write-up, $733,000 of gain associated with the sale of excess property in Brooksville, as well as a $477,000 decrease in interest income. Some of this decreased as a result of lower interest income due to bond maturities and the fact that the Marins Permanent Refinancing paid off our preferred loan to the joint venture, and so we are no longer receiving a return on that loan. Net operating income for all segments, including non-controlling interest, the first quarter was $5.7 million versus $4.2 million in the same period last year for an increase of 35%. This increase is primarily the result of additional net operating income from the MARIN. As we continue to complete construction lease up and the lease up of projects in our development segment over the next two years, we expect NOI to increase, albeit in chunks, in the manner in which the addition of the MARIN impacted NOI. This is consistent with our plan to grow NOI substantially in the near future. David will touch on operations with greater depth and detail in his remarks, but I will briefly mention a few operational highlights. Doc 79 ended the reporting period with 95% occupancy for the fourth straight quarter, and that's the first time that's happened since 2018. This quarter concludes the first full year of a stabilized and consolidated merit, and in that year, average residential occupancy was 94.92%. which is all the more remarkable considering we stabilized when occupancy reached 90%, and the Marin didn't hit consistent occupancy above 95% until mid-July. The demand for these assets dovetails nicely with the fact that this is the first quarter in which we have been able to raise rents on renewals since the district placed emergency COVID relief measures in place in March of 2020. The rent increases on renewals did not take effect until mid-February, but even with that headwind, We received a 2.32% increase on renewals at the Marin and a 4.69% increase at Dock 79. For the second year in a row, mining royalties had its best first quarter ever in terms of revenue. This is particularly exciting because the day after the quarter ended, we closed an $11.6 million acquisition to our mining royalty segment. The property we purchased is under lease to Vulcan and is adjacent to our existing mining royalty property in Anastatula, Florida. This 1,500-acre property contains roughly 22.5 million tons of sand and generated 1.37 million royalties in 2021 for its previous owners. $1.37 million is just under 15%, 14.55%. of FRP's 2021 royalty revenue total. This is the first addition to our mining royalty segment since 2012. Now, if I could turn things over to David DeVilliers Jr. to walk you through our segments in more detail. David.

Thank you, John, and good day to those on the call this afternoon. Relative to our in-house industrial platform or asset management, In December of 2021, we delivered two speculative warehouses totaling 145,540 square feet. One of the buildings totaling 66,000 square feet is now fully leased and 64% occupied, with the balance scheduled for occupancy in the second quarter of this year. Also in Q3 of 21, we broke ground on 101,750 square foot building, which is a build-a-suit warehouse that will cap off the final building at Hollander Business Park. We expect a complete interior fit-up and provide occupancy to this tenant by year-end. Cranberry Run Business Park, a renovated 268,000-square-foot multi-building warehouse park, became fully occupied in the first quarter of 2022, up from 87.6% leased and occupied over the same period last year. To strengthen our pipeline of industrial building pads, we are seeking entitlements for the 55-acre track we purchased in Aberdeen, Maryland, adjacent to the Cranberry Run Business Park in late 2020. We expect the annexation process to be complete later this year, and upon annexation, we'll look to begin the building design to create up to 675,000 square feet of warehouse product. Existing land leases for the storage of trailers on site help to off-site our carrying and entitlement costs. We are hopeful we can begin construction here in 2024. Finally, in September of 2021, we purchased another 17-acre parcel in the Perryman Industrial Section of Hartford County, Maryland, not too distant from our other assets in Aberdeen, and have begun both building design and entitlement work to support an approximate 250,000 square foot warehouse building. Depending on market dynamics, construction on this project could begin as early as Q123. Completion of these two land development projects plus the build-to-suit warehouse currently under construction at Hollander will add over a million square feet of additional warehouse product to our industrial platform. That, when added to the assets in operation at Hollander Business Park in Cranberry, will total over 1.4 million square feet. NOI for our in-house operations was $308,777 for Q1 2022 versus $512,696 in Q1 of 2021. The reduction primarily the result of placing the new buildings in service without the tenant occupancy. As the year progresses, the two new buildings of Hollander and increased occupancy at the fully occupied Cranberry Business Run Park should provide a healthy lift to our NOI for this segment in 2022. Mining and royalty. This division saw total revenues for the quarter of $2.4 million versus $2.3 million in the same period last year. As John mentioned, this is a record revenue for the first quarter in the mining and royalty segment. NOI was $2.291 million, an increase of $4.97 million over the same period last year. in spite of a tenant temporarily shifting operations off our site in Manassas, Virginia, for part of the year. Moving on to our third-party joint ventures, currently we operate both stabilized and development projects with three distinct development partners, MRP of Washington, D.C., Woodfield Development of North Carolina, and St. John's Properties of Baltimore, Maryland. The difference between development and stabilized being an initial occupancy level of 90% for a period of 90 days. As of the end of the quarter, our joint venture platform includes eight mixed-use projects in various stages of development and operation. Four are located in Washington, D.C., where MRP Realty is our joint venture partner. These projects are DOC 79, Marin, Brian Street Phase 1 and Verge. Verge will be ready for occupancy in the third quarter of this year and with 79.5% complete at quarter's end. Our two mixed projects in Greenville, South Carolina with Woodfield Development as our development partner saw excellent progress. Riverside opened its 200 apartments for lease in August of 2021. and was 72% occupied as of the end of the quarter. And 408 Jackson will be placed in service in the third quarter this year and was about 90% complete at the end of March. Two additional projects that make up the balance of our third party joint venture platform are Hickory Creek with Capital Square and an office retail project with St. John Properties. Hickory Creek's 294 apartment units remained above 90% occupancy for the year, while our joint venture with St. John properties that include 72,000 square feet of single-story office and 27,950 square feet of retail was up slightly at 48% occupied at quarter's end. So to summarize, relative to our third-party joint ventures in mixed-use developments, Hickory Creek and Windlass notwithstanding, we are currently invested in six mixed-use multifamily slash retail projects, totaling 1,827 apartment units and 128,634 square feet of retail. At Quarters End, four projects, including Dock 79, Marin, Riverside, and Bryan Street, totaling 1,256 apartments, were in operation, of which 978 of these apartments were occupied versus 530 occupied units at the same time last year. 74,000 square feet of retail tenants were occupying their respective spaces versus 10,762 square feet at the same time last year. The remaining 571 apartments in two projects and the related retail spaces currently under construction will be completed and ready for occupancy by the end of this year. FRP's share of the NOI for these projects was $2,497,000 for the first quarter of 2022 and $1,586,000 in the first quarter of 2021. As it relates to our lending ventures, which is kind of the last leg of our operating stool, this is a program where we provide working capital toward the entitlement and horizontal development of single-family residential projects and ultimately a sale to national home builders. The first of our two current projects is Amber Ridge in Prince George's County, Maryland, with a total commitment to this project of $18.5 million. 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. Land development is in the final stages at Amber Ridge, and two national homebuilders are under contract to purchase all 187 lots. 64 lots are sold with $9.6 million return in principal and interest as of Our other current lending venture is called Presbyterian Homes, a new 344-lot, 110-acre residential development project in Aberdeen, Maryland. We plan to provide $31 million in funding under similar terms to Amber Ridge. Entitlements are underway, and their success are the conditions precedent to us settling on the raw land. COVID-19 has held our attention for the last two years. We remain fortunate relative to its limited impact on our company and employees. FRP is a healthy concern and we're proud to have been able to continue to grow and prosper despite the challenges that have negatively affected so many. We're close to normal activity at FRP with our team back in the office and warmer weather on the doorstep. We will continue to assist our tenants navigate this new normal and look to grow our portfolio as more conditions allow. As a business, we stand on a solid financial foundation that enables us to capitalize on opportunities while also making the hard decisions sometimes not to. Thank you, and I'll now return the call back to John.