Q1 2022 FRP Holdings Inc Earnings Call
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Okay.
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Good day, everyone and welcome to today's earning conference call. At this time all participants are in a listen only mode. Later, you will have the opportunity to ask questions. During the question and answer session.
They registered to ask a question at any time by pressing the star and one on your Touchtone phone. Please note that this call maybe recorded.
I'll be standing by if you should need any assistance. It is now my pleasure to turn the conference over to John Baker. Please go ahead.
Good afternoon.
I'm, John Baker, the third Chief Financial Officer, and Treasurer of FRP Holdings and with me today are John Baker, The second our chairman and CEO , David Diveley, a junior our president.
John Milton our executive Vice President and General Counsel, John Klopfenstein, Our Chief Accounting Officer, and David Devault, you're the third 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 for Senate presented in accordance with generally accepted accounting principles of.
Of RP present, certain non-GAAP financial measures within the meaning of regulation G promulgated by the Securities and Exchange Commission. The non-GAAP financial measures referenced in this call is not an excuse me net operating income NOI.
FRP uses this non-GAAP financial measure to analyze its operations in a monitor assess and identifying meaningful trends and its operating and financial performance.
This measure is not and should not be viewed as a substitute for GAAP financial measurements.
To reconcile GAAP to net income please refer to the segment titled non-GAAP financial measures on page nine of our most recent earnings release.
Before we begin.
I would now like to pay tribute to Ted Baker, our founder who we lost two weeks ago with the age of 87.
This company along with Patriot transportation with the brainchild of Ted when he was running Florida rock Industries'.
And he served as chairman of the two combined companies from their founding in 1986 until the spin off in 2015.
He was so smart generous and absolutely one of a kind and remained involved and interested in these businesses until the very end.
Because of his remarkable career and generous spirit. This company is more or less a footnote an incredible legacy of success and philanthropy, but.
We would be remiss without paying tribute to someone who fully embody the notion that it's not the years on the life, but the life in the years.
The World is a much quieter plays for us not being here in the.
The silence.
<unk>.
Contribute to Ted let me turn to our financial highlights from this quarter, which is what he would've cared about.
Net income for the first quarter was 672000 or <unk> <unk> per share versus $28 million 373000, or $3 <unk> per share in the same period last year.
The decrease in income is almost entirely attributable to the gain on Remeasurement of the merit in the same quarter last year.
The Remeasurement included.
A gain of $51 1 million offset by a $10 $3 million provision for taxes and $13 million attributable to Noncontrolling interest.
Other items impacting this quarter's income were $316000 of amortization expense related to the leases in place at the time of the <unk> consolidation and subsequent write ups.
$733000 of gain associated with the sale of excess property in brooksville as well as a 477.
$1000 decrease in interest income some of this decrease is a result of lower interest income due to bond maturities and the fact that the mehrens permanent refinancing paid off our preferred loan to the joint venture and so we are no longer receiving a return on that loan.
Net operating income for all segments, including Noncontrolling interest.
The first quarter was $5 7 million versus $4 2 million in the same period last year for an increase of 35%.
This increase is primarily primarily the result of additional net operating income from the Marin.
As we continue to complete construction and lease up.
And the lease up of projects in our development segment over the next two years, we expect NOI to increase, albeit in chunks and the manner in which the addition of the Marin impacted NOI.
This is consistent with our plan to grow NOI substantially in the near future.
David will touch on operations with greater depth and detail in his remarks, but I will briefly mention a few operational highlights Dr.
<unk> 79 in the reporting period with 95% occupancy for the fourth straight quarter and Thats. The first time that's happened since 2018.
This quarter concludes the first full year of a stabilizing consolidated Marin and in that year average residential occupancy was 90, 492%.
Which is all the more remarkable considering we stabilized one occupancy reached 90% and the Marin Didnt hit consistent occupancy above 95% until mid July .
The demand for these assets dovetails nicely with the fact that this is the first quarter in.
In which we have been able to raise rents on renewals since the district place emergency Covid relief measures in place in March of 2020.
The rent increases on renewals did not take effect until mid February , but even with that headwind.
We received a $2 three 2% increase on renewals at the Marin and a $4 six 9% increase at dock 79.
For the second year in a row.
Mining royalties had its best first quarter ever in terms of revenue.
This is particularly exciting because the day after the quarter ended we closed an $11 $6 million acquisition to our mining royalty segment.
The property, we purchased is under lease to Vulcan and is adjacent to our existing mining royalty property and at an asset tool of Florida.
This 1500 acre property contains roughly $22 5 million tons of sand.
<unk> generated one $3 7 million in royalties in 2021 for its previous owners $137 million is.
Just under 15% 14, 5%.
Frp's 2021 royalty revenue total.
This is the first addition to our mining royalty segment since 2012.
Now if I could turn things over to David <unk> Junior to walk you through our segments in more detail David.
Thank you John and good day to those on the call. This afternoon.
Relative to our in house industrial platform or asset management.
In December of 2021, we delivered two speculative warehouses totaling 145540 square feet.
One of the buildings totaling 66000 square feet is now fully leased and 64% occupied with the balance scheduled for occupancy in the second quarter of this year.
Also in Q3 of 'twenty, one we broke ground on a 101750 square foot building.
Which is a build to suit warehouse that will cap off the final.
Building at Hollander business Park, we expect to complete interior fit out.
<unk> occupancy to this tenant by year end.
Cranberry run business for our renovated 268000 square foot multi building warehouse park became fully occupied in the first quarter of 2022 up from 87, 6% leased and occupied over the same period last year.
To strengthen our pipeline of industrial building pads, we are seeking entitlements for the 55 acre track that we purchased in Aberdeen, Maryland adjacent to the Cranberry run business Park in late 2020.
We expect the annexation process to be complete later this year and upon Avonex nation will look to begin the building designed to create up to 675000 square feet of warehouse product <unk>.
Existing land leases for the storage of trailers on site helped to Offsite are carrying an entitlement costs. We're hopeful we can begin construction here in 2024.
Finally in September of 2021, we purchased another 17 acre parcel in the Paramount industrial section of Orford gallon, Maryland, not too distant distant from our other assets in Aberdeen.
Begun both building design and entitlement work to support an approximate 250000 square foot warehouse building, depending on market dynamics construction on this project could begin as early as Q1 'twenty three.
Completion of these two land development projects plus the build to suit warehouse currently under construction at Hollander will add over 1 million square feet of additional warehouse product to our industrial platform.
That when added to the assets in operation at Hollander business Park in Cranberry will total over one 4 million square feet.
NOI for our in House operations was $308777 for Q1 2022 versus 512696 in Q1 of 2021 the reduction primarily the result of placing the new buildings in service without the tenant occupancy.
As the year progresses, the two new buildings with Hollander and increased occupancy at the fully occupied granberry business run park should provide a healthy lift to our NOI for this segment in 2022.
Mining and royalty.
This division saw total revenues for the quarter, a $2 4 million versus $2 three in the same period last year as John mentioned this is a record revenue for the first quarter in the mining and royalty segment.
NOI was 229 $1 million an increase of four point.
Seven over the same period last year in spite of a tenant temporarily shifting operations off our site in Manassas, Virginia for part of the year.
Moving on to our third party joint ventures.
Currently we operate both stabilized and development projects with three distinct development partners.
P of Washington DC.
Woodfield development, North Carolina, and St John's properties of Baltimore, Maryland.
The difference between development and stabilized being an initial occupancy level of 90% for a period of 90 days.
As of the end of the quarter, our joint venture platform includes eight mixed use projects in various stages of development and operation.
Four are located in Washington, DC, where MRP Realty is our joint venture partner these projects or dock 79 Marin.
<unk> Street phase, one and verge.
<unk> will be ready for occupancy in the third quarter of this year and was 79, 5% complete at quarter's end.
Our two projects.
In Greenville, South Carolina, with Woodfield development as our development partners saw excellent progress.
Riverside opened its 200 apartments release in August of 2021, and was 72% occupied as of the end of the quarter.
And for our Jackson will be placed in service in the third quarter of this year and was about 90% complete at the end of March.
Two additional projects that make up the balance of our third party joint venture platform, Our Hickory Creek with <unk> capital Square and in office retail project with St. John properties.
Hickory Creek 294 apartment units remained above 90% occupancy for the year, while our joint venture with St. John properties that include 72000 square feet of single story office and 27950 square feet of retail was up slightly at 48% occupied at quarter.
Yes.
So to summarize relative to our third party joint ventures in mixed use developments Hickory Creek in windlass. Notwithstanding we are currently invested in six mixed use.
Multifamily slash retail projects totaling 827 apartment units and 128000 634 million square feet of retail.
At quarters end for projects, including Dock 79, Marin Riverside and Brian Street totaling 256 apartments were in operation of which 978 of these apartments were occupied versus 530 occupied unit.
At the same time last year.
74000 square feet of retail tenants, who are occupying their respective spaces versus 10762 square feet at the same time last year.
The remaining 571 apartments to projects and the related retail spaces currently under construction will be completed and ready for occupancy by the end of this year.
FRP share of the NOI for these projects was $2 million $497000 for the first quarter of 2022 and $1 million 586000 in the first quarter of 2021.
As it relates to our lending ventures, which is kind of the last leg of our operating store. This is a program, where we provide working capital towards the entitlement in horizontal development of single family residential projects and ultimately yesterday, although national homebuilders.
The first of our two current projects is Amber ridge.
In Prince George's County, Maryland, with a total commitment to this project of $18 5 million.
The investment includes a charged 10% interest rate and a minimum preferred return of 20% above which a profit induced waterfall determines the final split of proceeds.
Land development is in the final stages of Amber Ridge and two national Homebuilders are under contract to purchase all 187 lines 60.
64 lots are sold was $9 $6 million return in principal and interest as of.
$3 31.
Our other current lending venture is called Presbyterian homes.
New 30, 334, excuse me 344 lot 110 acre residential development project in Aberdeen, Maryland.
We plan to provide $31 million in funding under similar terms to Amber Ridge and.
Entitlements are underway and their success are the conditions precedent to us settling on the rollout.
COVID-19 has held our attention for the last two years, we remain fortunate relative to its limited impact on our company and employees. Therefore.
<unk> is a healthy concern and we're proud to have been able to continue to grow and prosper. Despite the challenges that are negatively affected somatic.
We're close to normal activity at FRP with our team back in the office and warmer weather on the doorstep we.
We'll continue to assist our tenants.
Navigate this new normal and look to grow our portfolio as market conditions allow.
Business, we stand on a solid financial foundation that enables us to capitalize on opportunities.
While also making the hard decisions, sometimes not too.
Thank you and I'll now return the call back to John .
Thank you David just to Echo David's point about our financial position.
Our cash and cash equivalents of remained the same for the last several quarters more or less.
We are working to put this money to use in the income producing projects for the purpose of growing NOI and cash flow, but for the time being the cash remains a valuable safety net.
Now we are at this point happy to open up the call for any questions that any of you might have.
Okay.
At this time, if you would like to ask a question. Please press star and one on your Touchtone phone you may remove yourself from the queue at any time by pressing the star into any questions and once again I'll start and wanted to ask a question, we'll pause for a moment to allow questions to queue.
And we will take our first question from Jason Cook.
With a private investor. Please go ahead.
Yes.
Yeah, Hey, guys. Thanks for the time today I just had two quick questions. The first it's great to see you guys pick up on other mining assets.
The question I had was the valuation I just doing the quick math it looks really attractive.
Digit yields.
Just curious if you guys were kind of positioned.
Positioned well to purchase that outfit as far as maybe not getting the most competitive situation with buying it just I'm trying to understand whether that was kind of market or not.
Second question is just the noise, we've seen in the E Commerce World and also the commentary we've seen from Amazon recently, just curious if you've changed your.
Optimism at all around the industrial sector and continuing to grow out a new platform. There. Thanks guys.
Thanks, Jason.
To answer your first question.
Ah.
I can't speak to what the market was but we were approached by the landowner and that was the price we negotiated and we are happy with it and.
They must have been as well or they wouldn't have sold it.
Okay.
And I am happy to this is David <unk> I'm happy to answer the second question.
Our warehouses are most of the warehouses that we do and have our smaller there are 80 to 100000 square feet and not necessarily involved with an Amazon program. For example, the 101000 square foot building that we have under construction is a build to suit for a manufacturing company.
We have all sorts of tenants, obviously E. Commerce is an important part of the industrial platform.
And the buildings that we have have supported it.
Im extent, but.
But we have at least at this stage, we don't have anything really large on the books. The one that we have at 600 and some thousand square feet could easily be whacked up into.
425, 130000 square foot buildings in the market will dictate that action in 2023.
Jason just to follow up on that.
I think for a while we were.
Sure.
Focused on the fact that we generated our highest IRR when we sold the buildings.
Mediately and I think we were were focused on that and even stated that we werent in the bi develop and hold business.
But.
We don't need the cash and it doesn't really matter what the IRR is if you can't reinvest that money immediately in the IRR assumes that you have another investment of a similar return to invest in and with $160 million cash that's not the case. So we have always had a lot of faith in that.
The industrial segment and.
I think that.
We're better off.
Holding these assets, particularly at this time.
Okay.
Operator can you see if we have any other questions. Please.
Yeah.
Okay.
I think we're at a typical.
Operator can you hear us.
Yes, we will take our next question.
From Chris Jensen with Rabbani <unk> Company. Your line is open.
Hey, good afternoon can you hear me okay.
Curtis how are you doing.
Alright, and first of all.
No sorry for the Baker family's loss.
And I guess.
The FRP family as well.
Just going back to the.
Aggregates.
That purchase is there.
Can you talk about is there an expiration date on that lease.
It extends past.
What the.
What the reserves.
Would would.
With dictate so there'll be a couple of renewal options the specifics.
Can't recall, but they.
Unfortunately, it does not expire while helping mining.
Terms that are in it right now or the terms that will be in it for the duration of the mining.
Would you characterize the kind of profitability is the same as your other.
Other operations.
For sure I don't drop right down to the bottom line is no no no cost to us except the acquisition cost. So this will.
All royalties will flow straight to the bottom line with.
I mean, there might be some property taxes associated with the taxes are very small, but the depletion of course, we will get the cost depletion number as we deplete down the basis of that property.
More or less the reserve what residual property, we think it will be less of that.
Okay noncash.
Tax deduction.
And can you characterize at all.
The landowner was like a small private individual or kind of institutional or.
It was a family that had control of that land for a long time and.
They.
<unk>.
They had their reasons for wanting.
The exited.
At <unk> for one and the Internet so consenting adults.
There you go.
I just wanted to confirm was the loan balance at Amber Ridge.
I know it was.
That said 16.2 had been drawn but was that the balance kind of at March 31.
No I think the balance I'm not.
Not.
Im not.
There.
Curtis, but I am thinking we've gotten about $9 million back.
So I think it's good.
Okay.
Was that was $8 9 million $8 9 million Curtis.
Alright, thank you.
And then.
Okay.
Great.
Broken up.
How are you guys thinking about construction cost inflation versus.
The uplift you might get in rents.
Whether it's industrial or multifamily.
Assuming.
The replacement cost of a number of your properties today is above what.
You paid two or three years ago.
Well Kurt is the good thing is that they're already the money has already been committed for all that we have and the properties are all under development and well within that.
Nearing the end of the completion of construction.
Same thing holds true for our warehouse, but.
As we say we look at.
The plan is to get these properties. These new properties in a position and even go as far as to get a building permit and then we will take a look at the market dynamics and determine whether it's the right thing to do.
When that time comps, which is what we all got to do so.
It's not really an issue to US right now and I don't think you'll ever be an issue it'll just be a question. Yes. Your existing projects I understand everything is baked in at this point, but I was just trying to think like.
Let's say you are looking at our multifamily thing in the next 12 months and we stay at kind of.
Elevated levels I guess the main the main offset you can get is that.
The rent profile might change upward so that you can justify higher.
Higher costs or just your return.
Profile goes down I guess, yes.
Yes, I mean I think.
If things Scott prohibitively expensive, we'd obviously.
<unk> long and hard at a project, whether it's land costs or construction cost if the.
Yes.
The purchase price.
But we think is our ability to generate a return on I mean, that's that's a recession start.
You just can't generate the return on which put unto itself.
That's it.
That's a factor that goes into.
Every decision, we make regardless of.
Where we are in a market cycle.
What.
Any sense of what is kind of happening.
To cap rates on stabilized.
High quality multifamily and obviously interest rates have gone up.
Significantly in the last few months.
Fair enough, that's backing up into sort of cap rates and I haven't seen anything really recent from.
CBRE or Jones, Lang or anything or colliers or.
But I mean would you expect that.
Could you for example for see cap rates on your multifamily converging with.
10 year Treasury.
Yeah.
I think you'd have to fix.
Expect it.
Yes.
Your insight is the same as mine, but I haven't seen any cap rate data.
David can can speak to that probably with with greater intelligence.
But I just did it.
Not not intelligence, but Shawn I just think it is.
So far <unk> properties.
We are continually getting peak.
People ask us what we want to do with the properties and so forth and so on we've been looking at financing Riverside project down in South Carolina, because it's been so successful and the market what the market is but as of right now we're not seeing a whole lot of a whole lot of change.
There's a lot of money out there still chasing really good product and so this is the question of what the market dynamics will be as we move forward.
Alright, and last last question.
Given what's happened in kind of the capital markets things are unsettled and maybe even dislocating.
Mortgage market at least on the resi side is probably a little different.
Yes.
Would you see more lending opportunities like to homebuilders for those kinds of projects.
Is what is what's happening in the market kind of given you pause about.
Being involved with the home homebuilders.
Residential construction at this point.
Right now.
Right now Curtis will be not.
We have these two projects. The first one the builders are committed to and VR. As an example is taking lots down right now even today in a much rapid pace and they were going to in the fall.
So I don't know.
Again, I think it comes down to market dynamics and the location of these these markets. We are very very selective in where we go we don't want to be a pioneering program, we want to be the hollander Donuts and Thats kind of one of the prerequisites to these and as I mentioned in my in my.
Narrative.
When we got to look to buy these lands were buying these lands and wholesale prices, but we are entitle them to which will turn them into retail prices. So there may be a dynamic there where the where the where the value total value changes, but we're coming in an awfully low point to start and we would never.
Start any of the actual horizontal Orlando development work until we've got.
Contracts from homebuilders with significant deposits otherwise, we would just sit there with effectively.
A wholesale valued lot at the time with the entitlements that breached some value to it.
Hey, Curtis just to follow up on what David was saying.
This has been a great program for us and one that was born out of the fact that we had a lot of cash on hand and yes.
And didn't have.
Anything.
To do with it.
For a while and I think it really speaks to.
David's relationships in that Baltimore area, and how you're able to leverage that into this kind of venture and it speaks to kind of the benefits of being a smaller more nimble company that we could shift into something like this but.
We are not going to be in the <unk>.
<unk> business.
The residential lot business for in perpetuity.
Thats.
That's really all I can say that this has been a great use of cash for.
For the time being but it's not this is not a permanent part of our business.
Great Alright.
Alright, that's all I had thanks, thanks again.
Thank you.
Our next question from Stephen Ju.
Your line is open.
Good afternoon can you hear me.
Yeah, Hey, Steven Yes.
How are you.
A few quick questions.
The leasing at River said, it's coming along very strong in the second project is almost complete.
Our working relationship with Woodfield Ben.
Ben talks about additional JV is there any other projects.
The relationship has been great so far.
We think they are best in class.
As well as the other partners that we have.
There is.
We like South Carolina, we liked the sunbelt, we like wood field.
Again, we're always looking but the each project has to stand on its own.
Okay, and so you have been actively looking you're just having the info.
There are many great opportunities.
Is it just we're always actively we're always actively looking.
But they we have an attractiveness to make matrix that we go through and.
<unk>.
We're always looking.
Yes.
We don't have anything we've committed to.
Yet otherwise you would know about it.
Yes, Okay, great and then.
Rich.
The waterfall split is that based on what is the return on that base the cost of developing the homes is how much would you say how much money that we receive and win.
Profit and interest received and it depends on when we get all of the funds when all of the funds come in then we determine what the waterfall is at that time.
With an IRR off of.
The principal balance that we've.
Provided as an IRI David.
Yep.
Okay.
Only questions I had shortcomings.
Im sorry to hear about the loss, but im sure.
<unk> two <unk>.
Thanks, Jim.
Thank you.
Once again to ask a question please.
Please press star one on your Touchtone phone, we will take our next question is from Bill Chen with Rhizome partners. Please go ahead.
Hum.
Hi, guys.
Thanks, Paul.
Alright.
I wanted to start out by saying please accept my deepest condolences on the loss.
FRP means a lot to me because it was largely.
<unk>.
So someone those homey.
Got it.
E.
David David John Milton.
As a whole one the whole people so.
And also just wanted to say that's a heck of a eulogy.
It's Ed.
One day, where someone will write a.
We'll get you relate that for me so.
I just wanted to start out by saying that.
And.
Couple of questions.
On the.
Given that.
Good.
The one year treasuries.
About two almost 2% right now any kind of interest I know that the cash is always going into projects and then coming out of projects, but is there any interest in putting that cash into six months 12 months.
Treasuries.
At todays 12 month treasury rate, that's about $2 million of interest.
From a year.
Yes.
You're right on.
Pointing your your intuition.
If it's good but it's at least the same as ours.
And we had been invested in bonds and as they rolled off the money market rates were just.
Basically nothing and then as we saw the.
The two year and then the six month treasury rates increase.
Obviously, we wanted to get something.
More than.
Sure.
Few basis points for our money so.
We've been looking at our capital needs and flattering our treasury investments accordingly, so we are generating.
More interest income.
Off of.
These treasury purchases than than we had been getting.
When we were just in money markets. So.
Sure.
Yes.
I Hope you are happy with that.
Yes no.
Certainly.
It's.
I think like a 12 month duration or some sort of a ladder.
We use of capital I think even going out to two years is fine I think.
I think my general view is that in a risk off environment, where we can put that capital to work.
But historically.
The treasuries do better so.
So I'm glad that you guys are already on top of it.
And already allocating it into a ladder so that's fantastic.
<unk>.
My other question will be I'll keep my questions today.
And I remember in 2020.
<unk>.
You have mentioned that.
Kind of right around this time in 2021, the well look a lot more uncertain than it does today.
That youre looking to deploy capital into kind of a double digit cap rate opportunities if the market got really choppy.
Dave.
Ed.
And.
And I think the market cap rates got really tied in Guadeloupe opportunities went away.
On the are you guys starting to see.
Any opportunity.
That are starting to call.
Arriving from from the increase in rates.
If I'm, just a little bit more volatility in the markets.
I'll start bill.
<unk> hope you're well.
I think it's probably a little bit too soon.
No that we're that we're always looking and we obviously have the capital available to move pretty quickly as John had said were pretty nimble, but we haven't seen anything yet.
Thank you for the color.
And.
My final question would just be on the on the warehouse.
Houses.
Is there a thought on preferring.
Two.
Built build to suits or more kind of.
Mission critical Tenex.
I have been inside some warehouses, where the tenant has a heavy capex and it doesn't make sense for them to move any thoughts on that.
I think we have a we have a build to suit currently under construction.
And David can speak to a little more color on that.
I think we love build to suits under the right circumstances.
But they have to be the right circumstances.
Yes.
John spot on I mean, when we get involved in build to suits. The buildings have to to not only serve to serve Austin, our future use as well because these build to suits are not purchase.
Programs they are long term lease programs.
So the design of the shell and that sort of thing is something that has to be flexible just because you have a single tenant at a 100000 square foot building. If they left we could take that building all the way down to 10 10000 square foot units. So we build these buildings for the long term and the flexibility and we don't get too heavy into.
And to using our dollars for their tenant improvements will give them a specific amount and that's all we're going to gamble.
Yes.
Well. Thank you that's all the questions I have two here.
Thanks, Bill Thank you Bill.
It appears we have no further questions at this time.
Alright, thank you so much for.
Your continued support and interest in this company and.
We will talk to you all soon thank you.
This does conclude today's program. Thank you for your participation you may disconnect at any time.
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