Q3 2019 Earnings Call

Listen only mode at the conclusion of today's presentation, we will open the floor for questions.

Instructions will be given to the procedure to follow up you would like to ask a question. It's now my pleasure to turn todays conference over to John Baker, Sir you may begin.

Thank you and good morning, a this is John Baker, not chairman and CEO of FOP Holdings Inc.

With me today.

David Survey Junior our President John Baker, the third our CFO , John Milton, Our General Counsel, and John Klopfenstein, Our Chief Accounting Officer.

Let me caution does it.

You are on the called it any statements made today, which relate to the future or by their very nature subject to risk and uncertainties that could cause actual results or events to differ materially from those indicated in such forward looking statements. Additionally, I ask you to review the other risk listed in our FCC borrowings.

Including but not limited to our annual and quarterly reports.

Net income for the third quarter of 2000 might change was 2 million.

1000, or 20 cents per share down from 2 million drew out in 24000 or 22 cents for sure share in the same quarter of 2000 and they change.

As you May recall last year on May 21st 2018 to company completed the disposition of 40 industrial parcels and three additional land parcels to Blackstone for 347.2 million.

Since that time, we've sold a warehouse that was excluded from the original transaction to Blackstone for 11.7, and an office building for 8.9 million drew a third party.

We made this sale because year over year return on drawn a build and hold industrial business had declined and prices for such assets were at an all time high our job now is to redeploy those funds prudently and we're off to a good start.

Before I turn it over to David Wu way to walk you through the projects, we're working on I'd like to point out that our mining royalty properties continue to perform well.

Revenue was up 8.3% for the quarter and the initiation of royalties on our Fort Myers property should bolster this segment going forward.

This quarter marked to six consecutive quarter increase in mining revenues and the royalties collected in the first nine months or more than we collected in any year prior to 2017.

We've invested our cash and short term bonds money market funds and preferred equity on the American and Brian straight projects.

As of September 30, we have purchased 159282 shares in 2019 at an average price a $48.43 per share.

Net investment income, including realized gains on some bonds there were called or sold were $2.019 million for the core.

[laughter] now David would you please walk us through the projects we're working on the redeployed to proceed from the warehouse sale.

Thank you John and good day to those on the call. This morning.

John covered the highlights of the mining and royalties segment, let me jump into some of the ongoing activities and highlights for the quarter in our other business segments.

So with the second quarter dispositions of our assets that 15, no two Corey dry 70, 30 Dorsey Road for 11.7 billion at 8.9 billion, respectively behind US. The company has nearly completed the liquidation of its heritage properties that made up the asset management business segment.

The 43 buildings owned and operated by the company at the beginning of 2018.

All that remains in this particular business access.

For now is the company's multi tenanted home office building in Sparks, Marilyn and the bake in lot Jacksonville, Florida that at one time housed Florida Rock industries home office and now remains under lease to Vulcan materials.

Earlier this year subsequent to the purchase and they after an extensive rehabilitation process. The cranberry run business Park, and Harper County, Maryland, totaling 268000 square feet was transferred from the development business segment and as of the ended this quarter business Park was 26.1.

Percent occupied.

Also transferred from the development segment was our recently completed 94350 square feet speculative warehouse building in Baltimore City Marilyn during this quarter, we completed lease up to 100% and tenets are expected to occupy the building by the first quarter of 20 Twond.

Total revenues for this business segment were down for the quarter, 24.3% to $430000 with an operating loss of 100 hundred 60000 [noise].

This presents a negative variance of some $400000 over the same period last year due to a higher allocation of corporate expense.

And the sale of the previously mentioned suburban office building.

With respect to ongoing a new projects in our development business segment highlights would include one.

In January of this year, the first phase of our joint venture with John Thank John properties.

Shifting a four buildings totaling 100300 square feet of single storey office and small bay retail space in Baltimore County, Maryland was placed in service.

Quarters, and marketing leasing efforts have resulted in the project being 44% leased and occupied which is consistent with historic absorption and this submarket.

That completion this project will have 329000 square feet.

Office and retail space.

To our efforts continue before the appropriate governmental agencies seeking a planned unit development titles for 118 acre tract in Carroll County, Maryland.

Which has been next in the town of half instead, the project known as Hampstead overlooked calls for a combination of 250 single family and townhouse building lots.

Third there's an update to our land development ventures.

<unk> Park in Baltimore County, Maryland.

To start this off earlier this year, we received final approval of the development plan for 122 townhouses and for single family building laws.

Subsequently, we entered into a contract of say all with a homebuilder for all the lots upon receipt a record flat versus having to complete horizontal development into finished lots to.

Due diligence is now complete and settlement is scheduled for sometime in the first quarter of 2020.

On our completion of the necessary engineering documents.

For the ended the second quarter, we became the principal capital source and another residential development project called Amber Ridge located in Prince George's County, Maryland.

Our commitment for this project is $18.5 million.

As with our Hyde Park venture the investment includes a charge, 10% interest rate and a minimum preferred return of 20% above which a profit induced waterfall determines the final split of proceeds.

Entitlements are currently being pursued in the national home builder is under contract to purchase a 134 of the anticipated 200 lots available upon completion of land development activities.

Next.

Construction continues in earnest on phase two of our rubber front on the Anacostia project in Washington DC.

Now known as the marriage.

This mixed use development will consist of 264 apartments, and 7900 square feet a first more retail.

The buildings on budget and slightly ahead of schedule.

And then we'll be ready to receive its first resident it mid 20 twond.

Like we did for phase one or dock 79 as its now no. This is a joint venture with mid Atlantic Realty Partners, where MSRP.

With more pay is the major excuse me F. RP is the major partner.

Next late last year, we entered into a joint venture agreement with them RP to develop the first phase of a mixed use residential and retail development.

Adjacent to the Red line Metro station in northeast, Washington D.C.

No one is Brian Street.

Yep, RP rebutted $32 million in common equity another $23 million in preferred equity to the joint venture.

Construction began in February of this year and the first a four buildings are scheduled for delivery in the fourth quarter of 2020.

The remaining three buildings expected to be complete in mid 2021.

This property is located in a designated opportunities zone, which allows us to defer a significant tax liability associated with last year's warehouse sale.

He is one will consist of 488 apartments 86000 square feet, a first floor and freestanding retail.

Approximately 44000 square feet or the retail is preleased.

We're encouraged that we're finding projects with strong potential for appropriate returns, but continued to be resolute to the fact that spending money is realized from the warehouse sale needs to be done carefully and prudently. It's also important to matches the investment and these projects, there's not consume all of the pros age.

Which provides a nice question Ross to absorb a potential death turned down in the economy. While also providing some dry powder showed an extraordinary investment come our way.

It's also important to mention that although we have utilized tax deferral acquisitions, such as opportunities don't purchases and 10 31 exchanges from proceeds generated by the warehouse platform sale, we're driven to these projects by the baseline economics to their potential development.

We will continue to make prudent investment decisions based not on temporary taxable contagious strategies alone.

But with a guiding principle of return on investment and value to shareholders.

Moving onto our stabilized joint ventures business segment.

In July we completed a parcel 10 31 like kind exchange with some of the funds from the earlier mentioned sales of the warehouse in suburban office building by investing $6 million.

Right, 26.649% Bentall beneficial interest in a Delaware statutory trust or D. S. T that owns a 294 unit garden style apartment community known secrete Creek.

Okay, then had to Rico County, Virginia.

The complex was constructed a 1984 and substantially renovated and 26 team.

The business plan calls for further rehabilitation the apartments generating value added rents prior to the selling the project after an appropriate hold period, we received monthly distributions from the operations of Nick recruit.

Relative to dock 79.

Previously known as Phase one a river front on the Anacostia project the average occupancy for the nine months just ended was 96.7%.

This past quarter, the retention rate was 63.51%.

And it had an average rental rate increase of 3.19%.

These metrics have exceeded our expectations and last year's performance for the same periods.

Keeping our eyes on resident retention maximizing rental rates and optimizing expenses continues to be our primary focus.

The retail component of dock 79, which totals approximately 14000 square feet remained at 76% occupied and 76% leased as of the ended the quarter.

The remaining retail space is being actively marker that but we are quite.

Selected us to vendor and use.

Full retail occupancy is expected in 20 twond.

The three existing restaurants have been well received.

Our experiencing high levels of traffic and related revenues bolstered this fall.

October baseball in a world series when by the Nationals just last week.

So as the chapter of your company continues to unfold our strategy remains to say.

We look to redeploy proceeds from the mate eight team sale of our warehouse platform into assets that allow management to exploit his knowledge and expertise I'm sure. You'll agree we have a lot of work to do.

Thank you and I'll now turn the call back to John .

Thanks, David and now, let's now open up the line to answer any questions any of you may have.

Thank you at this time, we will open the floor for questions. If you would like to ask your question. Please dial the Starkey followed by the one key on your Touchtone phone no question will be taken in order in which they receive if at any time, you would like to remove yourself and the question in queue simply dial start to again, if you would like to ask a question at this point. Please dial star one now.

The first question will come from Curtis Jensen with body and company. Please go ahead.

Hey, good morning Fellas.

Good morning.

I see that JBG bought a lot the first residences.

I think on the other side of the ballpark from Dock 79 is that you have any sense of what the cap rate was on that.

Well, that's kind of a kind of a comparable for dogs.

Right.

David do you have any.

And tell me what.

Little bit John I know it was in the it was in the in the mid fours.

Mid to low we're going to stop right.

And you know again, it's on the other side of the stadium. We have the you know we have the water and certain amenities that they don't have Ah, but it was a nice building.

Okay. All right are you I know, there's no the rental strength.

Rental rate, it's been pretty strong, but is there any concern about multi family and.

Capital River fraud, southwest D.C., I mean, I think I'd read something that said.

There are seven or 8000 units to be delivered over the next two or three years.

Does that give you any pause or is that you think that's sort of the.

He'd be Bobby.

Obviously, the cotton is what it is cars. It's I mean, the whole area is growing in becoming much more mature, which I think also helps you know the the the soccer Stadium you know is now up and running full steam.

They have to kind of get through some of those.

Issues and the bridge construction is causing a little bit of Ah.

Well its own issues I think is the does the whole area continues to mature.

I think it will take it'll take on a lot of up a lot of new apartments and they are under construction, we'll just have to the to see the Oh, how it works were a little conservative in our in our Ah under writing for American, but we really don't feel awfully good about the future down there.

Curtis I would say.

One one comment is that.

We are absolutely Stein by the occupancy and.

The first phase given that there is a major construction project, namely the Marin going going up 20 feet from.

A good number of the apartments and yet we're full so there's certainly demand, but if we all know yeah.

You can overpopulate, just about anything and we'll just have to see.

Yeah.

It's the just remind me I didn't know why that you reported for dock 79 and.

JV segment at that 1.8 million for that.

Quarter, that's for 100% of the JV I guess right.

That's correct.

And then I guess you had noted over the nine month period, there was an increase a bump.

A bump from retail did you did your lease out.

One of the stores or is it just kind a.

Well what accounts for that but just.

Third as we have not we still have one of the smallest retail space that so.

That is vacant and that's kind of bumps right up against the new Marin. So we've had a lot we've had a lot of interest there, but we want to kind of get the construction Dawn and open the place up I think we'll generate you know what the right a better type of tenet.

There when we get it opened up with the overage base. Most all that's coming from the overage rent we got from the three restaurants. They were very very successful this year.

So do you get that you get a share of the.

Yes, as well as a fair yes.

Correct.

Hopefully hopefully October was a good month, given the world series, [laughter], Oh, well, you'll you'll see when we report the next earnings [laughter], what what can you say anything about anything more about the DFT investment and you know terms the monthly distributions or.

Yeah, I know why those buildings and.

[laughter].

The idea of best investment one was for.

The 10 31 program.

And they.

Distributions have.

Perhaps have started it seems obviously we settled the property is about 97% occupied we are there about a month and a half ago.

Okay, and that's in the <unk> and the idea is that.

I guess a lot of the major renovation was done in 2016.

But at left a little bit of the of the easy stuff.

Ross to do kind of the low hanging fruit like new a new countertops, and some things like that and so they're generating some value added.

Rental increases and.

It's in a great area and world, they're looking to hold on to that property, probably somewhere four or five years, obviously it depends on the most opportune time yourself.

Yeah.

All right and they are question. It it's about a five cap rate something like that that we expect will.

Yeah.

The additional rent from the new renovations will just take the rents up and the net operating income up.

Over the next four or five years so.

There's some upside to that as well as the tax savings.

You know.

And you know barring any sort of storms or disruption on the mining side would you think that.

That 2 million of operating profit as a decent run rate for your.

Or is there any kind of seasonal effect, where you know.

Maybe this quarter strong in fourth quarter is a little softer or is it seasonal at all or is a decent sort of run rate business.

Well, it's a decent run rate to the business.

No. We do have one quarry in northern Virginia is it would definitely be affected by the <unk> the weather, Georgia can get some coal ball whether it too. So you wouldn't expect it with trail off a little bit in the winter, but not not in a big way of course.

The more important worry is that if you had a recession that occurred in the construction.

Activity slowed down, but so far we aren't seeing that.

Okay.

Alright, Thanks, a lot.

Thank you Curtis.

Thank you for the question as a reminder, if you have a question at this time, please dial star one.

Speakers I'm showing no further questions at this time.

Okay, well. Thank you all for joining US today, we look forward to updating your next quarter.

Thank you ladies and gentlemen. This concludes today's event you may now disconnect your lines.

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