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spk04: Good day, everyone, and welcome to the FRP Holdings Third Quarter Earnings 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 touchstone phone. You may withdraw yourself from the queue by pressing star 2. Please note this call is being recorded, and I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to John Baker II, CEO and Chairman of FRP Holdings. Please go ahead.
spk03: Good afternoon, and thanks for joining us today. I'm John Baker, Chairman and CEO of FRP, and with me today are David DeVilliers, Jr., our President, John Baker III, our CFO, John Milton, our General Counsel, David DeVilliers III, our Executive Vice President, and John Klopfenstein, our Chief Accounting Officer. Before I begin, let me remind you that investors are cautioned that any statements made on this call which relate to the future are, 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 include risk, listed from time to time in our SEC filings, included but not limited to 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. Listeners are cautioned not to place undue reliance on such forward-looking statements. This week, we issued two press releases. One, our quarterly results for the period ending September 30, 2022, and another announcing an agreement with Stewart Investment Company and MRP Realty. The first press release contained our quarterly results and outlook, which were very encouraging. Revenues for the quarter were $9,294,000. up 9.7% from the same period last year. Net income was $480,000, up 36% from a year ago, with increased rents and lower amortization charges moving the needle. Net operating income, which is our main internal barometer of success, was $17,970,000 in the nine months ended in September, up 32% year over year. David DeVilliers will walk you through our operations in more detail in a moment. The second press release announced an agreement with Stewart Investment Company, our longtime partner MRP, and ourselves to combine our various properties in the Capitol Riverfront, Buzzard Point, section of southeastern Washington into a joint venture. These ten properties, three of which include Dock 79, DeMarin, and our newly completed project, Verge, which just began leasing. These projects are owned by MRP and ourselves. There are three undeveloped properties owned entirely by FRP and Phases 3 and 4 of Riverfront and the Vulcan Ready Mix Plant in Buzzard Point. The final four are Stewart-owned parcels in Buzzard Point. As we develop new projects, FRP and MRP will control the design, development, and financing of the projects, with FRP owning at least 40% of each and MRP 20%. Stewart will have the right to retain 10% to 35% of the ownership on their properties and the right to buy 10% to 20% of FRP and MRP's properties. The Stewart properties are scheduled to be developed one every four years through 2035. The MRP, FRP properties can be developed whenever we so choose. The first deal will include our purchase of Stewart Phase 1 and Stewart's purchase of 35% of our Marin and Dock 79 projects. Excuse me, 20%. The bottom line is that these 10 properties will have 3,000 apartments in 3 million square feet of mixed-use developments. all of which are contingent except for some right-of-ways, and which comprise the entire southern entrance to the nation's capital. FRP, in conjunction with MRP, will have control of when and if these are developed, how they are developed, and how they are operated. This is one of the hottest apartment markets in the U.S., and by having control, we can make sure they are timed so as to maximize rents and absorption. We can control the design and quality of the projects, which will give this neighborhood a uniformly high level of beauty and quality that will ensure its reputation. By having MRP and Stewart co-invest in these projects, we retain the predominance of control And to the extent they invest, we reduce the capital required by FRP. Our people, especially David DeVilliers III, working with Arnold and Porter, our attorneys, have crafted a deal that is fair to all and which carefully outlines the rights of the parties. In short, we all know where we stand, and we all are excited about it. This will transform FRP in a carefully controlled process over two to three decades. We believe it's truly a deal made in heaven. Now, if I could, let me ask our President David DeVilliers to walk you through our ongoing projects.
spk08: Thank you, John, and good day to those on the call this afternoon. Relative to our in-house industrial platform for asset management, Net operating income for our in-house operations was $693,000 for Q3 of 22 versus $486,000 the same period last year, an increase of 48.1%. The second of our two spec buildings at Hollander Business Park, completed at the end of 2021 and collectively totaling 145,500 square feet, became fully leased in the third quarter. We expect full occupancy in the first quarter of 2023. Supply chain issues notwithstanding, the 101,750 square foot build-to-suit warehouse building that will cap off the final building at Hollander Business Park should also be ready for its tenant to occupy in the first quarter of 2023. Cranberry Run Business Park, our renovated 283 excuse me, 268,000 square foot multi-building warehouse park in Aberdeen, Maryland, became fully occupied in the first quarter of 2022. This park remains 100% occupied and is performing ahead of original projections. On the pre-development front, we have three projects in the queue. This past quarter, we completed the annexation process of the 55-acre tract in Harford County, Maryland, purchased in 2020. Building designed to create up to 675,000 square feet of warehouse product will follow in 2023. Existing land leases for the storage of trailers on site help to offset our carrying and entitlement costs. We are hopeful we can begin construction here in 2024. We are also knee deep into the permitting process to support an approximate 250,000 square foot warehouse building on our 17 acre parcel and the Perryman industrial section of Harford County, Maryland. Not too distant from our other assets in Aberdeen. Dependent on market dynamics, construction on this project could begin as early as Q2, 2023. Finally, during this quarter, we completed the purchase of 170 acres of industrial land in Northeast Cecil County, Maryland. This plot of ground will hold a 900,000 square foot distribution warehouse. Initial pre-development entitlements have begun, and assuming favorable market conditions, we expect to construct this building in 24 or 25. Completion of these three aforementioned land development projects, plus the build-to-suit warehouse due to deliver shortly at Hollander, will add 1.8 million square feet of additional warehouse projects product to our industrial platform that, when added to the assets in operation at Hollander Business Park in Cranberry, will total over 2.2 million square feet. As we look toward 2023, increased occupancy at the new buildings at Hollander and the fully occupied Cranberry-run business park should provide a healthy lift to our NOI. In our mining and royalty business segment. As John mentioned in his open remarks, our mining and royalty division saw revenues for the quarter of $2,471,000 versus $2,250,000 in the same period last year. Net operating income was $2,336,000, an increase of 10.34% over the same period last year, primarily due to the April purchase of the Blantford Quarry property in Lake County, Florida. Moving on to our third-party joint ventures. Currently, we maintain both stabilized and projects under development with three distinct development partners, MRP Realty, Woodfield Development, and St. John's Properties. As of 9-30-22, our joint venture platform includes seven mixed-use and one office retail project in various stages of development and operations. Four projects are located in D.C., where MRP is our joint venture partner. These projects are Dock 79, Marin, Bryant, Street Phase 1, and Verge. Leasing is underway at Verge, and we welcomed its first tenant this month. Verge was 97% complete at quarter's end. Dock 79 and Marin maintained better than 95% occupancies for the quarter. And the last retail suite at Dock 79 and 45% of the 8,500 square feet at Verge became leased during the quarter. Our transit-oriented mixed-use project just north of Union Station in D.C., Bryan Street Phase 1, saw its residential occupancy increase to 86.7% and retail occupancy was 71.4% as of September 30th. Our two mixed-use projects in Greenville, South Carolina, with Woodfield as our development partner, saw excellent progress. Riverside's 200 apartments were one year old in August, and the project was 92% occupied as of the end of the third quarter. Riverside also became a stabilized asset in the third quarter, defined as more than 90% occupied for more than 90 days. 408 Jackson's 227 apartments will be placed in service before the end of the year, and we're 98.6% complete at quarter's end. It's 4,539 square feet of retail is 100% pre-leased. Two additional projects that make up the balance of our current third-party JV platform are Hickory Creek, our DST, or Delaware Statutory Trust, in Richmond, Virginia, and an office retail project in Baltimore, Maryland with St. John's Properties. Hickory Creek's 294 apartment units remained above 95% occupancy for the third quarter, while our JV with St. John, that includes 72,080 square feet of single-story office and 27,950 square feet of retail, remained 48% leased and occupied at quarter's end. As of September 30, five projects, including Dock 79, Marin, Burge, Riverside, and Bryant Street, totaled 1,600 apartments in operation, which represents a 47% increase over the third quarter last year when we had 1,085 apartments in operation. The remaining 227 apartments and retail spaces currently under construction will be completed and ready for occupancy by the end of this year. FRP's share of the net operating income for these five projects was $3,315,000 for the third quarter of 2022 versus $1,931,000 in the third quarter of 2021, a 72% increase. So to summarize, relative to our current third-party joint ventures and mixed-use developments, Hickory Creek and Windlass notwithstanding, We are currently invested in six mixed-use multifamily retail projects, totaling 1,827 apartments and 126,000 square feet of retail. Finally, as a postscript to our third-party joint venture program and as some additional commentary on John's opening remarks, with our newly penned agreement with the Stewart Investment Company and our existing partners of 10-plus years, MRP Realty, we have a generational opportunity to create a unique waterfront destination among multiple projects, all controlled by a single ownership group with the freedom to pursue alternate development plans that individual developments cannot consider. The new partnership will add some 2,000 apartments and approximately 2 million square feet of mixed-use development to the existing 913 apartments and 900,000 square feet we already have in Southeast Washington. Together, the parcels represent over a quarter mile of uninterrupted waterfront along the Anacostia River at the southern entrance to our nation's capital. Pre-development activities on phase one, inceptionally planned for 400 plus apartments and 10,000 square feet of retail, located on one of the four parcels that Stuart brings to the venture, has commenced and we anticipate a shovel-ready project sometime in 2023. In our lending ventures, our current lending venture project, Amber Ridge in PG County, Maryland, is winding down. The total commitment to this project is $18.5 million. The investment includes a charged interest rate and a minimum preferred return of 20%. above which a profit-induced waterfall determines the final split of proceeds. As of September 30, the horizontal development was complete. 124 of the total 187 lots, all of which are under contract to sale to national home builders, have been taken down, with $15.5 million inclusive interest have been returned to FRP as of 9-30-22. In March of 2020, When the world shut down, FRP maintained a portfolio of 500,000 square feet of operating industrial office and retail space and 599 apartments. As of September of 2022, FRP had 660,000 square feet of operating industrial office and retail space and 1,894 operating apartment units. with an additional 227 apartments and 101,000 square feet of industrial due to deliver in the next 90 days. This does not speak to our additional development pipeline which is formidable in the industrial and mixed use residential categories. This is a period of tremendous growth for FRP and it is a story we are eager and proud to share. None of this growth or breadth of opportunity would be possible without the solid financial foundation that separates us from much of the competition, enables us to both capitalize on great projects and sometimes make hard decisions not to. Thank you, and I'll now turn it back to John.
spk03: Thank you, David. Let's now open it up for questions, if we might.
spk04: Thank you. At this time, if you would like to ask a question, please press the star and 1 on your touchtone phone. You may remove yourself from the queue at any time by pressing star 2. Once again, that is star and 1 to ask a question. We will pause for a moment to allow questions to queue. Our first question comes from Emerito Quintana of Numantia.
spk01: Hi guys, can you hear me?
spk03: Yes, we can.
spk01: Thank you. My name is Emerito Quintana and I'm calling from Spain because our fund owns 1% of the shares of FRP Holdings and I hope it will remain so for a long time. I would like to know how you see the mining business in 10 years. What is your estimate of the growth of the price per ton of aggregates in the long term? And in the Florida quarries, how do you expect natural disasters such as hurricanes to affect the business in the long term?
spk03: Emerito, it's nice to meet you and we're proud to have you as a shareholder. The quarry business in Florida Of course, I have no idea what's going to happen over 10 years, but what we have seen is two things. One, the aggregates business throughout the United States has been growing well in excess of inflation, even in today's high inflationary times. Vulcan and Martin Marietta reported, I think, 11 or 12 percent increase in pricing this last quarter. It's an amazing time for that. With mortgage rates rising, you would expect the home building segment of their business to slow down dramatically. And that, of course, could affect the pricing and certainly the growth of that business. But it's my belief that because ROC is simply running out in Florida, it's hard to permit in Georgia and Virginia that we will continue to see pricing
spk01: escalate at greater than uh in inflationary um rates uh for a period of maybe up to 10 years certainly for the next five years okay thank you and and the last one uh i know you guys want to steal the stock when you can and be opportunistic with buybacks but how do you see now the expected return of an eventual buyback. Thank you.
spk03: Okay. We are carefully plotting the uses that we have going forward. Our preference is to invest in projects rather than to invest in our stock unless it just happens to be very low. And so, especially with this Stewart Joint Venture, we will be very careful about buying stock in because we've got the need for that money going forward over the next 10 years. While I would never say we wouldn't buy it in, we will if tempted too badly, but I think the prudent thing for us is to keep a good bit of cash available for future projects.
spk00: Thank you very much.
spk04: Thank you. We'll take our next question from Curtis Jensen of Robadi and Company.
spk06: Good afternoon. Can you hear me okay? Yes, sir. Yeah. Yeah, good afternoon, Curtis. I guess what strikes me about the Stewart announcement is, I mean, all of a sudden you have control of this very large swath of property. And it's almost as if you can create a master plan community at Buzzard Point, for example, where you could connect all these buildings architecturally and by resource and all those other things. It's a pretty interesting... It's that kind of dynamic at work. And then secondly, I guess, and you referred to it, I guess you'll be... I'm wondering, will these projects be done in serial fashion or kind of parallel fashion where you have multiple projects going on, or does it just kind of depend on the environment? I guess that's my first question.
spk08: Well, I'll take a run at the first part, Curtis. How are you? It's David DeVilliers. Obviously, this is an exciting project. program really for all of us. The thing that we really like about it is a little bit like what you just articulated. We can create a master plan community there. And like I think I said in my remarks is that we have the ability to do things that individuals can't do. I mean, we can move properties around. We can come up with different types of development plans. We can combine lots. We can do all sorts of things. because of the size and scope of this project. So yeah, for all intents and purposes, it's a clean slate and we can pretty much do whatever appropriate urban design that we come up with. We'll certainly have a lot of input from the Zoning Commission and the Office of Planning, but they're pretty excited about dealing with one set of owners as well. Relative to how they get developed, I think the market will dictate that action and just the logistics of development projects in different locations. For example, sometimes you want to build away from the water and then go towards it. But with the way we're going to design the program, we don't want to be having concrete trucks or something driving by any more buildings than we have to. So we control the development program for all intents and purposes. We do have a requirement to buy some of Stewart's properties, as John articulated, over 10 years. But the other ones, we pretty much determine when we want to do them. Theoretically, you could be doing two projects at once. The market's going to dictate those actions as much as anything.
spk06: Okay. What happens in terms of, let's say, somebody wants... Or do you have... Is it stipulated that the valuation is subject to a third-party appraisal? Is that how that works?
spk08: I think you broke up, but I think you're saying how do you determine what the value of the projects, the land will be? Yeah, is it a third-party appraisal type of thing? Yes, yes. We'll go through an appraisal process for all of the properties when they are shovel-ready, not before. So when these projects are shovel-ready, we – We can get them appraised. We being the FRP, MRP, in the case of Stewart, the MRP, FRP people would get an appraisal. Stewart would get theirs. And if we didn't come within a certain percentage, then we'd get a third one. So it's a it's a. It's an arm's length program, but the properties will be appraised when they're shovel ready, not before. And also, whatever environmental issues are out there, that gets reduced from the appraised process, which will be effectively for a clean parcel.
spk06: Okay. And then I'll wrap up here in a second, but I guess the specter of higher construction costs, higher borrowing costs has imposed some discipline on probably everybody, but I'm kind of curious about, you know, with respect to Stuart, whether you feel like, I mean, you guys are getting married right now and probably for a pretty long time. Do you have a good philosophical alignment, you know, in terms of your outlook and how your approach is to life?
spk08: I think we do, as good as you can, with three different groups, but we all have the same you know, endgame. We all are investing a pretty sizable amount of dollars into these projects. And what really determines the go forward is having a shovel-ready project that makes economic sense. We have to do all the design. We have to get a guaranteed maximum price from the general contractor. We have to get you know, appropriate and acceptable financing. And obviously the market would have to dictate, you know, that the cost of these projects would give us the inappropriate return on cost. So I think our interests, you know, are definitely aligned in that regard.
spk06: Can you talk about or share what you think is, you know, first up in the queue? Sure.
spk08: Well, as I said in my opening remarks, we are partially through the pre-development process on the first phase of this venture, which is on the Stewart's property, on one of the four phases of Stewart. And it's about 400 plus apartments and I believe about 10,000 square feet of retail. And we're going through the, you know, the... I guess the song and dance with the Office of Planning and ultimately the Zoning Commission. And so once we get approvals and the appropriate entitlements there, then we would move forward with the drawings and then off to the guaranteed maximum price and then see what kind of financing is out there and what the market will dictate and decide at that time whether we want to go forward or just sit back and wait.
spk06: Great. All right. Well, thank you very much. Keep up the good work, guys. Thank you. Thank you, Curtis.
spk04: Thank you. As a reminder, if you would like to ask a question, please press star 1 at this time. We'll take our next question from John Collar of Oppenheimer and Close.
spk02: Good afternoon, gentlemen. Hope you're well.
spk03: Same to you. Same to you.
spk02: My questions really are going to revolve around the pace at which you'll be developing and how you're thinking about capital allocation between what I consider a large number of balls in the air. So between the industrial, the next phase of Bryant Street, and now the new joint venture. And then that sort of raises the question of what kind of capital might you require? I know buybacks are probably not in the cards, which is fine, but It seems to me like you might actually need to raise capital depending on the pace at which you develop these. And I'm curious if you consider that at all and how you think about that if it's necessary.
spk03: David, do you want to take a crack at that?
spk08: Yeah. obviously one of the things that we like about these this program at least with stuart and then i'll get back in the other ones is that having these other partnerships the other partners it reduces the the amount of equity that frp would be putting into this project for example when we did uh doc At 79, we started off at about 77% of the ownership. And then at Marin, it was 80%. And so now we're going to be at 40%. So the equity that is required is going to be less. It's still substantial, but obviously it's going to be less. Another example would be Bryant Street, which is not at this part, but in a different sub market, we have 61% of the ownership there. So one thing about the capital requirement, obviously, is that we will be putting up less money in equity. We do have an opportunity, if we so desire, to add more because there might be a shortfall of anywhere from 10% to 15% of the equity. But going back to the question of how many balls you have up in the air, we are very conscious as to how our our capital is utilized. And we want to make sure that there's enough dry powder in the bank to stand off pretty much anything that comes out there. So we're pretty darn conservative as it relates to how much money that we have invested at any one time. As an example, one of the interesting programs that came about as a result of this is this first phase of Stewart, They purchased 20% of our ownership in Doc and Merit. So we're using those proceeds, which is about $20 million, and then some proceeds from another sale that came up to us after the third quarter to invest in that Steward Phase 1. The board, in conjunction with ourselves, and probably more so, the board has created a set of rails that we're going to have to stay inside of. And if we get outside of that, we have to either delay projects or maybe even sell something in order to come up with additional capital.
spk02: Okay. So is it fair to assume then that this will be the primary focus? I mean, I would think Bryant Street and the new joint venture project
spk08: would occupy most of your time once you've you know you've got the industrial space lined up i don't think maybe you would i guess still pursue development opportunities in industrial or is that going to be less of a focus well as you can one of the things we've always been pretty successful in in our industrial program as a matter of fact it got us to pretty much to where we were now when we sold all those apartments or the industrial projects in 2018 and it kind of gave us the seed money to take off in this new direction. But we're still involved in industrial. As we said, right now, all of our buildings that we have up, and even one of them is not up, is fully leased and will be occupied in the first quarter of 2023. We do have three development projects in the queue. for industrial, and the idea there is when we get them shovel-ready, which is the same condition that we would be in these joint ventures, we take a look at the market, we take a look at our capital, and we decide either to go forward or maybe to stand down or even consider a partner. It's not necessarily the time. For example, some of these big warehouses, the 675 and the 900s, We certainly may consider bringing a partner on. We may not. But capital and maintaining the appropriate debt to equity is very important to our board and to us. And so we're pretty careful about protecting that cash and cash equivalents that we have.
spk02: Okay. And then just really quick, the last one I have, I guess, is on Bryan Street. You're reaching a point where you may get stabilization soon, hopefully very soon. And I'm curious what the timeline is for the next phase and how large that might be. I know you only developed a small portion of it.
spk08: Well, it's interesting. We have a ways to go before we feel good about going forward with the next phase. This is a transit-oriented program, and the transit-oriented side got destroyed by COVID, and everyone still tried to dig out. We want to make sure that the retail is up and fully operating. We still have 71% leased and occupied, but we want to make sure that it stays that way and grows to 90%. We're at 87% in the three residential buildings. So we're going in the right direction, but we still have a ways to go before we would really feel comfortable. with moving on with either phase two or three. And as it relates to phase two, preliminary plans show approximately 200 apartments, which would be kind of bolted onto the side of the property that we don't have yet. But we have an open option to buy the remaining property that would make up the whole So we don't have a gun to our head as to whenever we have to buy that property. In fact, the owner of that property is one of our partners. So we can pretty much decide at the appropriate time when phase two would happen, but it's all a matter of what we believe is the right use for our capital and how much we spend.
spk02: Okay. And then this is the last question, I promise. Are you under any timelines being an opportunity zone where you have to get something additional completed, or is that what you have now by the requirement?
spk08: No, we're done with that. We've got to pay taxes in 27, and we've got to hold it in 29. That's really all we have to do.
spk02: Thanks so much.
spk08: Yes, sir. Thank you.
spk04: Thank you. Again, that's star one to ask a question. We'll take our next question from Bill Chin of Rhizome Partners.
spk07: Hey, guys. Can you guys hear me?
spk04: Yes, sir. Yeah, Bill.
spk07: Yeah, I'm driving on the highway. But my main question, I haven't had a chance to digest the press release, but my main question is the cash on the balance sheet, I believe that's mostly in treasuries right now. What's kind of the breakdown on the maturity date on that? And, you know, as rates have gone up significantly since last time, are we able to kind of, like, you know, take the mature amounts and kind of reinvest that, like, for, I guess, one quarter or one half right now in less than 12 months? Could you give me some color on that?
spk05: Hi, Bill. It's John Klassenstein here. Say we've got all the cash invested in treasuries, as you said. The vast majority of it is in six-month treasuries, and we've got some that are coming mature every week or two. So just this week, we've invested at 4.6% for six months. So that's our go-forward plan.
spk07: That's great to hear. I thought I read in the disclosure that you have some duration that goes out to as long as two years. How much of it is longer than one year?
spk05: Early on, we did 48 million of two-year treasuries, and those now are set to mature at the end of 2023. Everything else is six-month treasuries that maturing, you know, on a biweekly basis more or less.
spk07: Got you. Got you. Thank you for that, Carl. I really appreciate it. Thank you, guys. That's all the questions I have.
spk04: Thanks, Bill. Thank you. And at this time, it appears we have no further questions in queue. I will now turn the floor back over to Mr. Baker for any additional or closing remarks.
spk03: Thank you all again for joining us. I really do believe this is a historic moment in the development of our company, which will allow us to add some really immense value by building projects in a slow and well-timed basis in this great market for decades. You know I I was I like to comment about it sounds like you got a lot of balls in the air. We're trying to you know we have been very meticulous about laying out the timing of these projects phasing whether it's industrial whether it's makes use and we feel very good about our ability over a long period of time to do that without raising money or certainly without getting in trouble. We all know the world has a funny way of changing quickly, and we want to make sure that we have, A, the cash reserves to change with it if it does change, especially in a negative fashion. And you can be assured that while we are enamored by the fact that we can grow this company in an amazing way over a 10- to 15-year period, we're not going to get in a hurry that would ever put us in a financial bind. That's rule number one around here. So I appreciate y'all's interest. I think we're off for a good ride, and I look forward to talking to you next quarter.
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