FRP Holdings, Inc.

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.

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.

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.