This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk00: Good day, everyone, and welcome to today's FRP Holdings Incorporated Fourth 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 telephone keypad. You may withdraw yourself from the queue by pressing star and 2. Please note, this call is being recorded. I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Chief Financial Officer John Baker III.
spk07: Thank you, Madison. Good morning. I'm John Baker III, Chief Financial Officer and Treasurer of FRP Holdings. And with me today are David DeVilliers, Jr., our President and Vice Chairman, John Mildon, 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 GAAP, FRP presents certain non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. The non-GAAP financial measure referenced in this call is Net Operating Income, or NOI. FRP uses this non-GAAP financial measure to analyze its operations in a monitor, assess, and identify meaningful trends in its operating financial performance. This measure is not and should not be viewed as a substitute for GAAP financial measures. To reconcile NOI to GAAP net income, please refer to the segment titled Non-GAAP Financial Measures on pages 12 and 13 of our most recent earnings release. Any reference to cap rates, asset values, per share values, or the analysis of the estimated value of our assets, net of debt and liabilities are for illustrative purposes only as a reflection of how management views its various assets for purposes of informing management decisions and do not necessarily reflect the price that would be obtained upon a sale of the asset or the associated cost or tax liability. Now for our financial highlights from the fourth quarter. Net income for the fourth quarter was $2.88 million or $0.30 per share versus $2.76 million or $0.29 per share in the same period last year. Net income for the fourth quarter of 2023 when compared to the previous year was impacted negatively by an increase of $879,000 in equity and loss of joint ventures, as well as an increase in interest expense of $188,000 due to less capitalized interest. Net income was positively impacted by an increase in interest income of $423,000 from increased interest earned on cash equivalents, as well as improved revenues from our industrial and commercial segments. Fourth quarter pro rata NOI for all segments was $7.55 million versus $6.26 million in the same period last year for an increase of 20.6%. Net income for 2023 was $5.3 million or 56 cents per share versus $4.57 million or 48 cents per share in the same period last year. Fiscal year 2023 was positively impacted by an increase in revenues and profits in all four segments. compared to 2022, and an increase in interest income of $5.42 million from cash and cash equivalents, as well as our lending ventures compared to last year. These were offset by an increase of $6.22 million in equity and loss of joint ventures compared to the same period last year. as we lease up The Verge and 408 Jackson, as well as an increase in management company indirect expense of $553,000 and an increase in interest expense of $1.2 million. 2022 was also positively impacted by $874,000 in gain from property sales, which we did not repeat in 2023. Revenue, operating profit, pro rata, NOI, and net income all experienced strong growth this quarter and for the year to date. Compared to the fourth quarter of 2022, we grew revenues by 2.6%, operating profit by 17.2%, pro rata NOI by 20.6%, and net income by 7.8%. For fiscal year 2023 compared to last year, these metrics grew by 10.7%, 46.3%, 24.8%, and 16.1% respectively. Yesterday, we posted to our website a brief slideshow of financial highlights for the fourth quarter and fiscal year. For those who have not seen it, we are now publishing an estimated value of our assets debt and liabilities. Our analysis yielded a per share value in the range of $69.14 to $77.58. I will now turn the call over to David for his report. David.
spk05: Thank you, John. Good day to those on the call. Allow me to provide some operational highlights on the fourth quarter results of the company. First of all, a little housekeeping. We've renamed two of our business segments to better describe the assets in them. Asset management has now become industrial commercial, and stabilized joint ventures has become multifamily. Relative to our industrial commercial business segment, we currently maintain nine buildings in-house, making up nearly 550,000 square feet, which are predominantly warehouses. At year end, we enjoyed 95.6% occupancy throughout this part of the portfolio. Full occupancy at our three industrial buildings at Hollander Business Park in Baltimore, Maryland, as well as rent growth on renewals at Cranberry Business Park in Harper County, Maryland, have helped lift the NOI to 1.17 million for the quarter, a 46.1% increase over the same period last year. For the year, Our $3.9 million in NOI for this segment represents an increase of 1.23 million or 46.2% over 2022. Moving on to the results of our mining and royalty business segment, this business segment saw total revenues for the quarter of $2.9 million, nearly flat versus $2.9 million in the same period last year. NOI in this segment was down $169,000. over the same period last year. However, NOI for the year was $11,720,199 versus $10,152,539.22, an increase of 15.4%. In the multifamily segment, Dock 79 in Marin, with its 569 apartments, had average occupancies of 96.4% and 94.7% respectively for Q4, with all retail fully leased. Both projects enjoyed renewal success rates of 70% and 61% respectively for the quarter, with Dock seeing a 1.6% rental rate increase on renewals and Marin a 2.75% increase. Average occupancies for all of 2023 for Dock and Marin were 95.6% and 94.36% respectively. Riverside in Greenville, South Carolina with its 200 apartments was 94.5% occupied at quarter end with 53% of its tenants renewing and an average increase in their rental rate of 2.04%. Average occupancy for Q4 was 95.21%, and year-to-date, 94.51%. The company's share of 2023 pro rata NOI for this business segment was $8.1 million, including an $800,000 in pro rata NOI from Riverside. Although we saw rent growth in all three properties, higher collection balances and operating expenses caused NLIs to flatten year over year when you factor in the change in equity due to the tenant and common sale to the Stewart family at Dock and Maring at the end of 2022. In the development segment, we engaged in several strategies in this segment which we used to grow the business. These strategies included are industrial and commercial, multifamily, and principal capital source lending. These strategies have grown the portfolio from one apartment project and four commercial buildings since liquidating our legacy warehouse portfolio in mid-2018 to over 750,000 square feet of commercial industrial products, 1,827 multifamily units, and several land parcels capable of additional growth. Our industrial commercial strategy consists of ground-up development from properties that are acquired, developed, managed, and in most cases, owned 100% by FRP and transferred from development to the industrial and commercial business segment when the shell buildings are complete. We currently have three projects in our industrial pipeline in various stages of development. During the second quarter, we broke ground on the 259,000-square-foot, state-of-the-art Class A warehouse building on our 17-acre site in the Perryman Industrial Section of Hartford County, Maryland. This spec building is expected to deliver at the end of this year. In Northeast Maryland, along the I-95 corridor, we were in the middle of free development activity on our 178th acres of industrial land that will ultimately support a 900,000 square foot distribution center or smaller multiple buildings, depending on the market at the time. Depending on favorable market conditions, we will be in a position to break down on this project as early as Q1 of 2025. Finally, we are studying multiple conceptual designs for our 55 acres in Harford County, Maryland, adjacent to our existing Cranberry Run business park. Various configurations should yield from 600,000 to 700,000 square feet, dependent on final design parameters and market demands. Existing land leases for the storage of trailers offsite are carrying an entitlement cost on this property until we're ready to build, which could be as early as 2025. Completion of these three industrial development projects will add over 1.8 million square feet of additional warehouse projects to our industrial platform that upon completion will result in our industrial commercial business segment consisting of over 2.35 million square feet. Subsequent to year end, we finalized our first ever industrial joint venture. with BBX Capital for the development of 215,000 square feet warehouse on I-4 Highway between Tampa and Orlando, Florida. Assuming favorable market conditions, we hope to begin construction here in Q4 this year. Also included in this strategy is a joint venture project, which is a 50-50 partnership with St. John's Properties called Windlass Run, which is part of a mixed-use development in White Marsh, Maryland, that includes 3,300 residential units and over 3.5 million square feet of commercial space. Our project currently includes 100,000 square feet of single-story office and retail in four buildings. At year-end, Windlass was 87% leased and 78.3% occupied in the office product, and 38.2% leased and 22.9% occupied on the regional side. Our second development strategy is multifamily, where apartment projects are developed in conjunction with third parties. Our FRP is typically the majority owner, and we share acquisition, development, and asset management tasks with outside local market leaders who facilitate day-to-day operations. These properties are housed in the development section until they're completed and maintained a 90% occupancy level for a period of 90 days before being moved to the multifamily business segment. Currently, this strategy houses Bryant Street and Verge in Washington, D.C., and 408 Jackson in Greenville, South Carolina. Bryant Street, consisting of 487 apartments and 91 apartments, thousand square feet of retail in three different buildings with 93.8% occupied and this retail components were 96.6% leased and 82.7% occupied at quarter's end. Overall departments at Bryant Street averaged a renewal success rate of 65% and rental rate increases of 3.8% as of quarter end. This project will be transferred out of this strategy and in development to the multifamily business segment at the end of this quarter. Our newest project in the district, Verge, received its final certificate of occupancy in the first quarter of 2023. It has 90.7% lease and 85.8% occupied, with 45% of its 8,400 square feet of retail spoken for at the end of the year. Lease up of this property has gone well. An average occupancy for the quarter at Burge was 78.97%. 408 Jackson, our second mixed-use project in Greenville, is located downtown and shares a street plaza with Floor Field, home of the Greenville Drive, and affiliated with the Boston Red Sox. 408 Jackson was placed in service during the fourth quarter of 22, and its as-of-four end was 95.2% leased 93.4% occupied. Like Bryan Street, this project will be transferred to the multifamily business segment at the end of this quarter. Average occupancy for the quarter was 90.37%. It's 4,300 square feet of retail is fully leased and is targeting an opening date sometime this summer. We're in the home stretch of lease-up for all three of these aforementioned joint venture properties. When they reach stabilization and are transferred to multifamily, that business segment will have 1,827 apartments and 126,000 square feet of retail. Unlike a warehouse in the development segment, our multifamily assets are already in operation. So if you refer to the development segment NOI on page 13 of our press release, You will note that these assets generated over 5.46 billion in NOI in 2023 versus 2 million last year, inclusive of an aggregate loss in NOI of $611,000 at 408 and Burge. So another strategy within development is our principal capital source program. It's a program where among other lending strategies, we provide working capital towards the entitlement and horizontal development of residential land, which is pre-sold prior to commencement of any infrastructure improvements, and ultimately transferred to national home builders. This strategy 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. The first of our two current projects is Amber Ridge in Prince George's County, Maryland. With a peak capital out of $12.8 million, all 187 lots have been transferred out to the home builders, and a final development activity should wrap up sometime during the second quarter of this year. Completion of this project, interest, income, and profits are expected to total $4 million. Our other current lending venture is called Presbyterian Homes, now Aberdeen Overlook, a 344-lot, 110-acre residential development project in Aberdeen, Maryland. We've committed $31.1 million in funding under similar terms to Amber Ridge. $20 million was drawn at the end of the year. National Home Builders is under contract to purchase all of the finished building lots. Horizontal construction has begun. The first 11 finished lots have been taken down, and $4.5 million in interest in principle has been returned to the company by year end. In closing, we remain pleased with the company's performance and are optimistic about growth opportunities. Challenges we have foreseen for a while came to roost in the final quarter of 23, as we saw record-setting residential rents begin to flatten with increased competition. The surplus of new apartments coming online in Washington, D.C. over the next several quarters will directly compete with our waterfront assets. Fortunately, two of these three assets are stabilized, and we expect the third to stabilize prior to additional significant competitive apartment deliveries in the latter part of 24 and early 25. We've been well served by the confidence we have placed in our design, amenities, and management teams, coupled with our careful and patient approach to development. Weathering markets and competition is not new to us. We stand on firm foundations and a steadfast belief that challenges begin opportunities. With a strong, dedicated, and talented team in place, FRP will continue to grow its portfolio and, in turn, its revenue and profits through a steady, careful, and well-reasoned approach to the market. We look forward to building upon our successes and further cementing our place in the market. Thank you, and I'll now turn the call back to John.
spk07: Thank you, David. As many of you saw in our subsequent event note in yesterday's earnings release, we announced a forward split of our common stock at a ratio of two post-split shares for every one pre-split share. As a thinly traded company with a small number of shareholders, we believe this has the potential to add some liquidity to our stock. At this point, we're happy to open it up to any questions that you might have.
spk01: At this time, if you would like to ask a question, please press the star and 1 on your telephone keypad. 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. We will take our first question from Curtis Jensen with Robadi Company.
spk11: Hey, good morning. Can you hear me okay?
spk12: Sure. Hey, Curtis, how are you?
spk11: Good morning, Curtis. Hey, John. Thinking about Bryant Street and I don't, are we still in a, we don't have permanent financing on that? Correct. What's kind of the status there and where do you see that? Is it just a function of waiting until rates get a little more attractive or?
spk12: David can speak to this. Go ahead, David.
spk05: I'll take a swing at it, Curtis. Yes, part of it is getting the retail in and occupying. There is some free rent that you always go through in that side of the business. That's where we're really waiting, which hopefully will be sometime during this year. But obviously, we're operating under a floating interest rate, and we're looking to hopefully see that the interest rates start to drop a bit, and then we'll look to permanently finance that program. We obviously weren't in a position to do that when the construction loan came due, which is why we did the interim financing, which is also, you know, again, we – are on a floating rate. But that's the main reason. It's just getting the commercial side operating and in and a little bit of stabilization, then it'll be a better time to go at the market. Also, with hopefully interest rates starting to go down a bit towards the end of the year.
spk11: When you say retail, is that mostly referring to the food court, like the little food business?
spk05: That's part of it. Curtis, we have another, say, call it we've got two leases that are executed for about 8,000 square feet of the inline retail. They're under construction now. It took forever to get the building permits out of the district government agencies. So that's an issue we have. And we have another one, let LOIs out for another one. We're just trying to get all of that wrapped up. And again, we don't see a hurry right now because of the interest rates.
spk11: And how do you, how would you describe, you know, the verges now? I mean, is it kind of meeting your expectations?
spk05: For the most part, yes. There are significant units coming online towards the end of this year. And they will ultimately have a positive effect on that area. We're no longer kind of out in the middle of nowhere because we will be a little bit more of the center of the donut as opposed to the outskirts because there's about 1,400 units coming on that are further west, if you will, of the bridge than where we're located. They all started right after COVID. And so there was a dearth of new projects that were that went under construction right after COVID. And of course, there was pretty, there's pretty low interest rates at that time, too. So they're up and going. The good thing is, critical mass will help in some cases. But the interesting dynamic is there is nothing in the pipeline coming out after those two at the end of 24 and early 25. We think we're in a pretty good place.
spk07: Just to follow up on what David's saying, permanent financing is obviously the ultimate goal, but that's That's only after we are able to grow the NOI to where we envisioned it. I don't think we'd go out and seek permanent financing at the NOI that we're at right now. Our goal is to grow net operating income, increase the value of the property so that By the time we get to the end of the Opportunity Zone 10-year hold period, we've got a healthy asset with an appropriate amount of debt on it. And when I say appropriate, I mean the right amount, not too little, not too much. And the fact that we expect to get a... a good interest rate on it, uh, you know, in, in a few years. Um, it just, you know, speaks to that. That's a benefit. And, and, uh, anyway, uh, you know, I think, yeah, between Bryant Street, Verge, Doc 79, Marin, um, the, the DC market isn't where we want it to be, but we've got really, really good assets. We've got good people running them. Um, there's a lot of supply that's come on, but, It's not riverfront, it's certainly not the quality of our assets, and we think in the long term that's going to continue to benefit us.
spk11: In your lending joint ventures, is the National Home Builder a publicly listed company? Have you named who the counterparty is?
spk12: It's NVR. Okay.
spk05: They had a soft opening for the Aberdeen Overlook property about four or five weeks ago. And as I said in the opening remarks, we transferred 11 lots out to them at the end of the year. We certainly have a pretty substantial deposit from them as well. And in their soft opening, they had over 400 people sign up. for uh for some of their different products now signing up and buying is is is a pretty good difference distance between the lip and the cup but it's a pretty favorable you know pretty favorable uh visual and it's a beautiful area in in one that's kind of once again is in the center of the donut up in aberdeen a lot of construction uh is going on around them as it relates to retail Large hospital has opened up and it's doubling its size. So we're really excited about the potential for this Presbyterian Homes, which has now been entitled, now that it's opening up, Aberdeen Overlook.
spk11: All right, I'll jump off.
spk12: Thanks a lot and keep up the good work. Thank you, Curtis. Yeah, thank you, Curtis.
spk01: We will take our next question. from Stephen Farrell with Oppenheimer.
spk08: Good morning. Good morning. Good morning, Stephen. Just a quick follow-up on the DC market. Are you currently offering concessions at the Marin and Dock 79?
spk05: Small ones, if any. Again, we saw rent growth in Dock and Marin. for the year, we had 2.8% renewal rent growth in DOC 79 and 4.21% rental growth in Marin. Trade-outs in Marin were 1.9%. They weren't as good in DOC 79 because at the beginning of the year, Steve, in the first two or three months of 2023, we had a we replaced the manager on site. We had lost a little bit of the occupancy, and so we wanted to get the heads back in the beds, and that kind of eroded some of our potential profitability, which is why we did have a little bit. We had some concessions there. Everything's pretty much stabilized now, and so we're in pretty good shape.
spk08: And I might have missed this at the beginning. What were the biggest drivers in the operating expense growth at those two properties?
spk05: They're across the board. Probably one of the biggest ones in Marin was we had some utility issues, and so that was pretty big. And the other two things, Steve, and one is security. D.C., like a lot of these cities, have had problems with security, and we wanted to get out in front of the problems, so security was definitely higher there. And also, rent collections are slowly getting better because we were unable to generate the collection process because of COVID. COVID, they did not allow people to get thrown out. You couldn't go to court, couldn't do anything. And so there's an incredible overhang that is slowly starting to work its way through the system. It used to take up until sometime in the beginning of 23, it used to take over a year to start and complete the process of going through trying to collections and then ultimately evictions to get the properties back. Now it's down to about seven months and we're going in the right direction. But those are probably the two biggest reasons.
spk08: And we saw with Bryan Street when you refinanced the construction loan, the bank required us to commit some more capital. And I'm seeing this trend continue whether it's construction loans or permanent financing that banks are refinancing at 50% to 60% LTVs as opposed to 70%. And I think there's an opportunity to provide a gap financing to the borrowers so that they can maintain their debt and equity levels. And I know FRPH is not a lender, but if there was an opportunity to provide that gap financing along with an equity component, would you consider it?
spk05: You mean to Bryan Street? No, just in general. Just generally? I would say probably, generally, I would probably say no. We've got a pretty strong development pipeline. We're focusing more on the industrial side in the near term, but we have some really good locations and some good projects in the multifamily side, too. We want to maintain as much dry powder as we can. I don't see us, and I certainly defer to John, but I don't see us going out and being mezzanine lenders or that kind of stuff.
spk07: No, I think... Yeah, you're absolutely right, David. I think we're going to use our equity to protect our own assets. Um, but we'd have to get, you know, I think number one, we are more than comfortable with the amount of exposure we have to the DC apartment marketplace right now. Um, I don't think we're looking for additional exposure and we would have to get really, really smart on, um, on another asset or another marketplace before, um, before we did something like that. And I just don't think that's the best use of our time or money, but you're right. That is an interesting opportunity. That's just not, um, I don't think we have the bandwidth to, uh, to take on kind of, uh, an additional investment strategy.
spk08: No, that's understandable. And with Amber Ridge, all the lots are sold. Is there any more, um, interest or principal payments that will come in from that?
spk05: Pretty much, no. We're just kind of wrapping it up. There's not a whole lot left. There's some closing out of bonds and that kind of stuff before we can actually close the bond.
spk07: David, correct me if I'm wrong, but aren't there some funds that are going to be released? Because I think if I'm right, the overall... expected um you know return of capital uh and return of principal and interest and profit 22 million and right now we've received 20.2 million yeah it's there's uh from a from a from a cash standpoint there's still uh roughly 700 000
spk05: that we are holding as the lender to complete some of the remaining programs. And so we haven't finalized the actual interest and profit to FRP, but when the dust settles, we believe it's going to be about $4 million in interest and profit we received from that project, which will probably be tallied out sometime in the first or second quarter.
spk08: Thank you. Last question before I turn it over. The warehouse in Aberdeen, how much of the $30 million development cost was funded in 2023? I think it was about $17 million.
spk05: John, Kay, are you there? Can you help me with that? $16 is what I remember, but
spk08: Yeah, I was actually looking at the Amber Ridge issue. What was the question again?
spk05: Chelsea. Chelsea. How much money have we put out in Chelsea? And I assume, does that also include what we have in the land?
spk12: It would, yeah. I'll pull it up. Meantime, is there another question?
spk05: That's all I have. Thank you. Actually, Steve, let's see. Chelsea, Chelsea, Chelsea. Now I don't have any. Spec buildings. We incurred in 23 about $9 million. Okay.
spk12: Plus whatever we have. Plus the land gets to the 30? Yeah. Okay. Great. Thank you very much. Sure.
spk01: Once again, if you would like to ask a question, please press star and 1 on your telephone keypad now. We will take our next question from Bill Chin with Resume Partners. Hey, guys.
spk07: Hey, Bill. Hey, Bill.
spk03: Good to have you join the call. Could you provide a little more detail on the, uh, Florida industrial, uh, joint venture?
spk12: Yeah.
spk05: I mean, it's, uh, we've always, again, take a little, take a step back. We've always like we've done with the multifamily bill. We've, we've always been, we've been looking to expand our platform and our PR and our program. And we've always felt the best way to do that was to find people in locations where the project was actually going to take place. And we found, I've had a relationship with one of the people for 20 years. He moved back to Carl Gables, Florida. And anyway, they came to us late last year and said, look, we've got You know, we've got this project halfway between Orlando and Tampa, literally right on I-4, which is a main thoroughfare between the two areas. The market is very strong, and it's a 215,000-square-foot building that we're working on developing. And it looks like if things pencil out, We will look to start that building sometime in the third quarter of this year. There's strong boots on the ground people like MRP. BBX Logistics is actually the name of our partner. They're a subsidiary of BBX Capital. They're a public company. They're a pink slip public company. very strong financially. They've been around since the late 60s. So there is a very good synergy between the two companies, culturally as well as personally. So we're excited about this opportunity.
spk03: Got you. And just so that, could you talk about kind of the relative mix of the equity ownership and, you know, what Would FRP be able to – is this over 50%? Would this be another equity line item, or would this be consolidated? Could you talk about that a little bit?
spk05: We're going to be the controlling ownership interest. We're probably going to be – because, again, we are holders, and these guys are sellers. Okay. So we would rather be buying, take a number, 10% to 20% of their ownership at retail and keeping our 80% or 90% at wholesale as opposed to getting so much into our partners that it would add a lot of money to the basis of our property. So we're kind of treading water in that direction.
spk03: let me just clarify that your uh so we uh frp will be the controlling holder in this project where we'll wind up with 80 to 90 ownership is that correct yeah okay and i guess like their role is to be boots on the ground almost like uh like uh like like the actual developer they're doing the work is that kind of nature relationship
spk05: Yes, but we will be actively involved. I mean, again, we've been in the industrial business for over 30-some years, and so they're going to lean on us for the design. We certainly have done enough of these. They have, to some extent, too. And so I think it's a really good relationship and a good balance.
spk02: Mm-hmm. Mm-hmm. Mm-hmm. Got you.
spk03: Okay. Thank you for that. And, I mean, if you don't mind, if I probe, like, what are we underwriting potential, like, stabilized unlever yield on a project like this?
spk05: We haven't decided, but it's going to be on a straight return on cost basis. It's got to be above 6.5% or we won't start it. Okay.
spk02: Okay.
spk03: Okay. That's very helpful. And I mean, is there a possibility, you know, like in the Maryland, you know, during the investor day, we, you know, you guys have provided that. that a lot of those Maryland projects could potentially come in at an unleveraged yield of 8 or even above 8. Is there potential for this project to kind of hit those kind of numbers?
spk05: Sure. We hope so. Okay. The market is big and it is strong and there's little vacancy. You understand the way the game's played, and we don't start these things unless we feel pretty good about the shovel-ready condition. We're not required to do anything. We want to get to the point, get the contractors ready, get the numbers, get a guaranteed maximum price, look at the market, all of the above.
spk09: Mm-hmm. Mm-hmm.
spk03: Speaking of contractors, have you seen that the GC world kind of like, you know, call it capacity, call it, you know, just slack, whatever you want to call it, just get a little bit better from like a development perspective?
spk05: If you're saying are their prices getting tighter?
spk03: Is that your question? Yeah. the price is getting better timelines improving you know what whatever you may be or just you know cost coming down you know being able to move faster um you know more willing to work with you uh etc all of those your comments and thank you for that phil all those comments are positive yes um we
spk05: As you know, we have a 259,000-square-foot building under construction now. We're building that in-house, effectively on our subcontracts. But from that standpoint, we're seeing pricing come down a little bit. We're seeing timeframes coming down. So to some extent, they're not back to where they were, but they're getting better.
spk02: Got you. Got you. I appreciate the feedback on that.
spk03: I have a big question I'll save for later, but I just want to provide some commentary. I think that I want to thank the team for, you know, splitting the stock. I know that we really, you know, no one's really going to wind up owning more shares, but I think that I really do think that it will improve liquidity as just the absolute share price goes lower and the bid ask in terms of absolute kind of pennies could get a little tighter, I think that will help with the trading. So thank you for taking the initiative to take that action. I think it really demonstrates to the shareholders that you guys are thoughtful, you guys are thinking about that. And I also just want to commend the company for the share buyback. You know, I've said this many times before, I think buying back at 54 bucks is a great price, especially in light of the recent transaction that I'll talk about. But I think that even at today's price, in the low 60s, I think it's still a great use of capital. I know there's a lot of, you know, a lot of the cash is earmarked for a lot of projects. But I think we're also at a point where the company's generating a lot of cash. So I will always be a cheerleader for more share buybacks. So, you know, I want to really commend you guys for doing the share buyback. And I'm just, you know, nudging that it's, you know, more share buyback will always be better. And which... So my final question is sort of... Mara Marietta recently announced the deal to two transactions, Blue Water Industries, and there's one other transaction. And I looked at the numbers, and essentially what I get to is they spent about $2.5 billion for those two transactions, roughly, and they bought about $1 billion of reserves. And if I'm doing my math right, that pegs the value at about $2.50 for a ton of aggregate reserves. And a lot of the markets are kind of similar, right? And if anything, maybe we can even go so far as to say that FRP's market, which is Georgia and Florida, which is probably growing even faster than some of those markets, Which, like, naturally kind of brings me to, like, some back-of-the-envelope math. At $2.50 per ton of reserve times a half a billion, 500. Now, I get it. Like, they bought the whole operation, right? They bought the operating company and the prop co or the land co. And there's, you know, like, two separate streams of cash flow. But... You know, I think it's fair to say that the FRP's royalty structure and the land ownership accounts for at least half of that, which would peg the value at $1.25 a ton of reserves. And if you do the math, multiply by 500 million tons of reserves, that, like, pegs the aggregate business at something like, you know, at $750 million. I mean, you know, I don't know, like, I'm just kind of like, uh i'm just like trying to figure like figure out uh you know that's probably on the high end you know like if you use a ebitda multiple but like you really gotta strip out the dna because there is no capex or the royalty structure it kind of like pegs it at a 22.3 times ebit multiple is kind of what i get to like like i i get to like a 400 to 750 million dollar valuation for the aggregate business owned by FRPH is kind of like, I'm wondering if you guys have any thoughts on that, like if what I'm saying kind of makes sense or if there's some subtle differences about those two deals that they just did that's very, very dramatically different, is assuming that the royalty structure plus the land ownership accounting for like 50% of a deal like that. Like, is that fair? So like, and he's also commentary color feedback that, that you can provide, uh, you know, um, I'm all yours. Hey Bill.
spk07: Uh, I love your $750 million valuation. Um, I'd say that's definitely on the high end, but I bought your, uh, your bullish approach to the aggregates industry. Um, I obviously have some insight into the, um, the Martin purchase of, of blue water industries. Uh, I, I would venture to guess that they didn't do it on a, a reserves basis, but more on a, uh, an EBITDA basis. And that, that transaction is probably, I mean, I don't think they would have done it were it not accretive to their, um, uh, we're not in a creative transaction. And so if you look at their, um, their EBITDA, uh, multiples, um, it's going to be, you know, somewhere in the ballpark of there, uh, or slightly below. And that's, uh, I think that's probably an appropriate way to, um, value it. You know, you could make this gets into sort of granularity, but, um, the, The way you would value, probably a more appropriate way to value our royalty stream is to apply an EBITDA multiple to the revenue, not our NOI, just because that revenue would be part of their EBITDA. Yeah. Yeah. We have to take into account costs and overhead, et cetera, and that factors into our NOI. But I think that's the appropriate way to look at it. A multiple is obviously a perpetuity, so that takes into account your reserves. I don't know that any operator values a transaction on a per reserve tonnage basis when they make a purchase, but the way that we have gone about valuing our reserve stream does not take into account the second life of the mining lands. And so, you know, your mileage may vary on how you apply a value to the second life. You know, a lot of them are coming up, and a lot of them are way off in the near-term future. But I can promise you that EBITDA multiple takes – into account, nothing like that. So put your own value on it, but you would be correct in thinking that using an EBITDA multiple would certainly undervalue the royalty and royalty lands.
spk03: i mean like like i i was i mean i i've been a shareholder since 2015 and and you know it's been a lot of years uh so i've seen what this royalty business has done i mean it's it's grown it's spit out cash flow and and there's only been two acquisitions there's been no capex through this business you know there's under 25 million dollars of total acquisitions uh you know, one in 2012 and then the recent one, Asatua, right? You know, versus like Marmarietta has to replace the machinery that gets worn down, right? So I would argue that the right multiple is really like an EBITDA less CapEx number, like what that number, and I want to like bring that up because that CapEx number could be like a third of the EBITDA for Vulcan or Marmarietta. So like, If the capex is a third of EBITDA, then your EBITDA multiple is really like you need to get to an EBIT multiple or EBITDA less capex. Using an EBITDA multiple is definitely too conservative. A true apples to apples is really like an EBITDA less capex multiple because I haven't seen any capex with FRP's royalty. structure, right? You know, since I've been a shareholder for nine, you know, nine years now. So I just want to like, kind of like get your thought on that. Like if I'm looking at it the right way and, and at the end, I think that's, that's an interesting way to, to think about it.
spk07: And we would just need, need to kind of noodle on that a little bit more. That's that's insightful.
spk03: Yeah, yeah. At the end of the day, what I'm trying to do is I think real estate and real asset investing inherently has a lot of quirks because a lot of times the depreciation is like, is it real, is it not? And at the end of the day, I'm trying to figure out owner's earning, right? And what I've been very pleasantly surprised being a shareholder in your company is that the owner's earning in this agit business has been way better than like any sort of BCF, any sort of like, you know, like multiple, like it's just like, it just consistently surprises me to the upside. And I think that like a EBITDA multiple just isn't reflective and an EBITDA left capex or an EBIT multiple is like way more accurate of a measure. So, you know, just some proof of thought there.
spk05: Thank you for that, Bill. Obviously, we appreciate all of your thoughts, and hopefully we can continue to stay the course and continue to build on the relationship.
spk02: Yeah, yeah.
spk05: I'm not going anywhere, guys.
spk03: I'm not going anywhere. You guys will have to deal with me for a long time.
spk05: Well, that's a great problem for us to have.
spk03: I mean, it creates a minor problem that I won't sell anything, so there's no liquidity in the stock.
spk05: Well, look, we appreciate all of your loyalty and your support and your candor.
spk03: We really do. Yeah. Well, I appreciate everything you guys do, and that's all the questions and comments I have.
spk12: Okey-doke. Okay. Yep.
spk01: We will take our next question from Bill Ratner, private investor.
spk06: Hi. I was just wondering if you could flesh out a bit the cash balance, how much of that is earmarked for capital versus what is essentially freely available for things like share repurchases and other discretionary types of investments? Thanks.
spk12: Hey, Bill.
spk07: I believe we have in the ballpark of $80 million year mark for capital expenditures for 2024. And we obviously want to keep a pretty healthy capital cushion and we have plans beyond 2025. The stock price will obviously dictate the extent to which we make share repurchases. But in terms of a you know, any kind of meaningful, um, Sherry purchase program. Uh, you know, I think that we would, in terms of major, um, you know, blocks of capital, it's, it's, it's all going to go back into, um, to developing assets as opposed to Sherry purchases. Uh, we're going to nibble, um, opportunistically if we have a chance, but it's not going to be a meaningful amount compared to what we put into development.
spk06: Thank you. And then with respect to the aggregates assets, you said that you don't factor in the Second Life value into your NAV analysis. If you were to include that Second Life value. Can you provide any parameters around what you think an appropriate Second Life valuation would be for your assets?
spk07: Yeah, Bill, I think it's so nebulous given the timeline of those events. The two that come to mind are Fort Myers and Lake Louisa. Brooksville as well. And, you know, we're a long ways away from Fort Myers and Lake Aliza. I think that it would just be a pie-in-the-sky number. It's essentially raw land in terms of going through entitlements and zoning and permitting. Just if I were to give you a number, it wouldn't be based on anything in reality. So we have sort of nothing to base it on.
spk06: So right now, I just prefer not to guess. Is your comment around entitlements perhaps suggesting that there might not be as much land value as investors might think because the entitlement process – costs involved would be pretty significant relative to the second life value? Or is it just more that it's so far out in the future that you don't really want to make it? Okay. And then one last question, going back to the previous questioner. So this Martin Marietta transaction seemed like a very high multiple. And if you look at Martin Marietta stock and stocks of comparable companies. These companies are trading at very high valuations. You guys are clearly very opportunistic investors. Can you just comment on why you would continue to own these assets as opposed to monetizing them in what appears to be a pretty robust environment for these types of assets?
spk07: that's an interesting question um i think one uh if you look at you know the way that they've pushed price um just the accelerated um you know growth of our our income stream um as good as the the valuations are um I think we're going to take a bet on them outpacing the present value. And to Bill's point, slapping an EBITDA multiple on the royalty stream, that maybe that's not the appropriate way to look at it. And I don't know Vulcan or Martin or any of our other tenants' appetite for pouring money into reserves that they already control. I think everybody's kind of happy with the way things are. We certainly are. And just from an after-tax perspective, you know, if we had a $300 million transaction that we're desperate to make and maybe that would be a source of liquidity, but to just sell the asset and pay the taxes on it, that's certainly not the best use of, you know, the money we generate from those assets. Got it. And they are, they're also just, I mean, they have been, you know, $10 million a year with, you know, no debt on it is a tremendous cashflow engine to, to fuel debt-free development. So, you know, I think we're really happy with that income stream the way it is. Thanks so much. But, you know, if you want to pay Bill's valuation for him, we're all ears.
spk06: Well, it just seems to me that, you know, you don't know until you go out and hire a banker and run a process. And, you know, in an environment maybe like 12 to 24 months ago, you know, the likelihood of finding a good bid might have been not there, but, you know, the market has – it seems like the market's changing from my perspective, but maybe to your point, you know, they already control the assets, so what's the point? But you never know until you hire a banker.
spk07: Very true. I think we would know just given our relationship to – to Martin and Vulcan if they had an appetite for buying those assets, we'd probably hear about it. Assetula, the purchase of the Blanford property, we were able to accomplish that because of our relationship with Vulcan. And they, just as a policy, didn't want to put money into reserves that they already controlled. You are correct in that, you know, don't ask, don't get. But, you know, I think if they wanted to buy them, the second they want to buy them, we're going to hear about it.
spk06: Gotcha. Well, thank you for all the explanations. It was very helpful. Appreciate it.
spk07: Yeah, absolutely, Bill. And just to follow up on that real quick, for the last – 10 years um aggregates valuations on an EBITDA basis have been um you know historically high and so um two years ago if we you know we could have looked at it and said um you know Vulcan's trading it 20 times uh let's sell these things and obviously we would have foregone a really incredible growth in our royalty stream. We're long on the aggregates industry. It's in our blood. Unless something very seriously changes, we're going to continue to use that cash flow stream to fuel development.
spk01: It appears that we have no further questions at this time. I will now turn the program back over to our presenters for any additional or closing remarks.
spk07: Before we go, I just want to congratulate David DeVilliers Jr. on his election to the Board of Directors yesterday as its Vice Chairman. David has given his professional life to this company. He is the backbone of what this company has become and it's a well-deserved honor so i just want to congratulate him uh and i want to thank you all and we appreciate your continued uh investment and interest in the company uh and really appreciate all the questions you had so uh thank you and that concludes this call
Disclaimer