Q2 2022 FRP Holdings Inc Earnings Call
Good morning, I'd like to welcome everyone to the FRP Holdings second quarter earnings Conference call.
Please be aware that each of your lines is in a listen only mode.
After the company's remarks, we will open the floor for questions.
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I would now like to turn the conference over to Chairman and CEO , John Baker, Mr. Baker, you may begin.
Thank you and good morning, I'm, John Baker, and I'm, Chairman and CEO of FRP Holdings, Inc. And with me on the line today are David <unk> Junior our President David <unk>, our executive VP.
John Baker, the third our CFO , John Klopfenstein, our Chief Accounting Officer, and John Milton Our General Counsel.
Before we begin this call together with other statements and information publicly disseminated by us.
This call contains forward looking statements within the meaning of section 27, a of the Securities Act of 1933 and section 20 <unk> of the Securities Exchange Act of 19.
34.
Such statements reflect management's current views with respect to financial results related to future events and are based on assumptions and expectations and may not be realized and are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anti.
Future events, and actual results financial or otherwise may differ.
Perhaps materially from results discussed in such forward looking statements, we have no obligation to revise or update such forward looking statements other than imposed by law as a result of future events or new information.
Investors are cautioned not to place undue reliance on such forward looking statements.
It is our pleasure to present to you the results of our second quarter and the six months ended June .
June 32022.
Net income for the quarter was $657000 or <unk> seven per share versus 82000, or <unk> <unk> per share for the same period last year.
The net income for the first half of 2022 was EMEA and $3 29, or <unk> 14 per share versus $28 million.
455000, or $3.03 a share last year.
As you recall last year included a pre tax write up of $51 1 million on the re measurement of our investment in the Marin.
Offset by $10 three provision for taxes and $13 million attributable to Noncontrolling interest for a net write up of 27 8 million.
The highlights of this quarter were continued strong royalty revenues, our highest second quarter and six month results ever strong occupancy at our dock 79 in Marin and mixed use projects.
And 16% increase in net operating income for the quarter and 24% increase in <unk>.
For the first half.
The gains in NOI or importance and reflect our strategy to redeploy the gains from our warehouse sale in to make shoes and other industrial assets.
Our after tax earnings are impacted impacted by losses from projects that are in the startup phase where they are expensing depreciation interest taxes and marketing cost without the benefits of a stabilized rent roll.
They include our Brian Street project in D C.
Our two warehouses in the Hollander Industrial park in Baltimore and Riverside in Greenville.
These projects with current year losses are progressing nicely and they along with the verge project in D C and our second project in Greenville.
408, Jackson will be next year's growth engines to our NOI.
Sure.
We're proud of our progress and appreciate your continued support now let me turn it over to our President David <unk> to walk you through the details of our various projects David.
Thank you John and good morning to those on the call today.
Relative to our in house industrial platform, where asset management, one of the two speculative warehouses completed at the end of 2021 totaling 66000 square feet is now fully leased and occupied as of this past week.
The 101750 square foot.
To suit building that will cap off the final building, our Hollander business Park should be ready for its tenant to occupy the full building in the fourth quarter of this year.
Cranberry run business Park, our renovated 268000 square foot multi building warehouse park became fully occupied in the first quarter of 2022. This park remains fully occupied and is performing ahead of original.
Projections.
To strengthen our industrial pipeline entitlements for the 55 acre parcel we purchased in Aberdeen, Maryland adjacent to Cranberry run business Park in late 2020 are underway and we expect the annexation process to be complete by year end.
Building designed to create up to 675000 square feet of warehouse product will follow early in 2023.
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 sometime in 2024.
Finally, we have begun both entitlement procurement and building design to support an approximately 250000 square foot warehouse building on our 17 acre parcel in the pairing of <unk> industrial section of Harford County, Maryland.
Not too distant from our other assets in Aberdeen dips.
It depended on market dynamics construction on this project could begin as early as first quarter of 2023.
Completion of these two after bench in land development projects plus the build to suit warehouse currently under construction in Hollander will add over 1 million square feet of additional warehouse product to our industrial platform.
That when added to assets in operation Hollander business Park in Cranberry run will total over one 4 million square feet.
NOI for our in house operations was $650000 for Q2.
22 versus 453000 in the same quarter last year, an increase of 43, 5%.
As 2022 progresses tenancy at the new buildings at Hollinger and increased occupancy at the fully occupied Cranberry business Park are providing a healthy lift to our NOI.
In our mining and royalties.
Business segment. This division saw total revenues for the quarter of $2 million $883000 versus $2 million and 644000 on the same period last year.
As John mentioned in his opening remarks. This is record revenue for our second quarter in the mining and royalties business segment.
NOI was $2 million $747000, an increase of nine 9% over the same period last year, primarily due to the April purchase of the Blanford quarry property in Lake County, Florida.
Moving on to our third party joint ventures.
As of the end of June our joint venture platform includes eight mixed used projects in various stages of development and operation.
Four are located in Washington, D C, where MLP Realty is our joint venture partner.
These projects or dock 79.
Sorry.
Bryant Street Phase, one and burns.
Leasing has begun at large and we will be ready to welcome. Its first tenant in October of this year.
Origin was 91% complete at quarter's end.
We have two multifamily projects in Greenville, South Carolina.
Where what field development is our joint venture partner.
The first project Riverside began lease up of its 200 apartments, one year ago. This month and was 91% occupied as of we ended the quarter.
Worldwide Jackson will be placed in service in the fourth quarter. This year and was 94% complete as of the end of June the.
Projects that make up the balance of our third party joint venture.
That form our Hickory Creek.
With capital square.
Office retail project with St John properties.
Hickory Creek 294 apartment units remained above 95% occupied for the first half of this year, while our joint venture with St. John that includes 72000 feet of single story office and 28000 square feet of retail remains 48% occupied the quarters there.
So to summarize relative to our third party joint venture and mixed use developments Hickory Creek in windlass. Notwithstanding we're currently invested in six mixed use multifamily retail projects totaling 18, 127 apartment units with 102.
<unk> 5750 square feet of retail.
At quarter end for projects, including Dock 79, Marin Riverside and Brian Street.
Totaling 256 apartments were in operation of which 1100 four were occupied versus 646 occupied units at the same time last year.
And 81000 square feet of retail tenants were occupying their respective spaces versus.
11600 square feet at the same time last year.
The remaining 571 apartments and retail spaces currently under construction will be completed and ready for occupancy by year's end.
Frp's share of the net operating income for these six projects was $3 million $50000 for the second quarter of 2022 versus $1 million and 460000 in the second quarter of 2021, that's 109% increase.
Lending ventures, our last leg on our operating stool.
This is a program, where we provide working capital towards the entitlement in horizontal development of single family residential projects and ultimately a sale to national homebuilders.
The first of our two current projects is Amber ridge.
Prince Georges 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 determining the finals splitting proceeds.
Land development is complete and only.
Final public infrastructure needs to be close out to complete the horizontal development and Amber Ridge.
National Homebuilders are under contract to purchase all of 187 lots.
99 lots have been taken down.
With $13.04 million return, including interest as of the end of the quarter.
Our other current lending venture is called Presbyterian homes.
344 lot 110 acre residential development project in Aberdeen, Maryland.
We plan to provide up to $31 $1 million in funding under similar terms to Amber Ridge.
Entitlements are underway and their success are the conditions precedent to settling on this rural land.
So we have lapped the two year Mark when COVID-19, despite the trauma will fall in the world and many of those we know and love.
<unk> has been able to assist and accommodate our employees and tenants every one of which has persevered and made it through.
We have not lost a single long term commercial tenant in our portfolio. This is a testament to the strength of our tenant base and our ability to shift and pivot where tenants have needed us to do so.
In March of 2020, when the world shut down FRP maintain a portfolio of some 510000 square feet of operating industrial office and retail.
Space and 599 apartments.
As of June 2022, FRP had 660000 square feet of operating industrial office and retail space.
With another 415000 square feet due to deliver over the next five months.
And 550 operating apartments with an additional 571 due to deliver in the next 90 days.
So it's safe to say FRP is in growth mode.
We've never been more excited to share our story.
Central to our growth and success as the solid financial foundation that enables us to capitalize on opportunities.
And to make hard decisions, sometimes not too.
Thank you and I'll now turn the call back to John .
Thank you David let's let's now open the floor for any questions any of our investors may have.
At this time, we will open the floor for questions.
If you would like to ask a question. Please press the star key followed by the one key on your Touchtone phone questions.
Questions will be taken in the order in which they are received.
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Again that is star one if you have a question.
Okay.
Our first question comes from Curtis Jensen of robots and company.
Hey, good morning Fellas.
Good morning, Charlie Curtis.
Happy Friday.
Okay.
Got a few questions. One is on the mining royalties if you were to exclude.
The acquisition with the royalty revenues have been up.
On a same store basis.
I think they would have been.
Just under 100000 below.
We had last year I want to say.
Planning for it was like the acquisition.
<unk> was in the 300000.
Dollar Mark so.
Good thing without it.
Market Vulcan is actually mining at Fort Myers and.
In Northern Virginia on other properties.
<unk>.
Which.
Obviously, we don't like that much but they have and.
It's not that their business has fallen off their business is strong.
Yes.
And then I guess you had a really nice bump in Q2 at dock in Marin.
Is that.
$3 5 million in NOI kind of a good run rate for the rest of the year.
And kind of going out into next year do you think is that.
A reasonable assumption.
Well, we hope so Curtis this is David <unk> how.
How are you.
Both both Bakken Marin.
But basically for the quarter their NOI is we're up about 16%.
For each one of them, we were able to grab some.
Some pretty good increases not only on the renewables, whether the trade outs were one tenant leaves and another one comes back.
Yes, we're maintaining some really strong occupancies at both of those buildings were over 95%.
Average occupancy on both of those two.
And Brian Street's coming along.
It got hit really hard because of Covid.
And we're starting to and it's starting to kind of dig itself out.
Occupancies are starting to go up.
So we were 78% occupied.
On the residential side by quarter's end.
We're little over 84% as of the beginning of the month.
So.
Things are hopefully moving in the right direction, but it was Brian Street, which was really hit because of course, there is no way riding the.
The Red line that runs right by it.
Washington, still everybody got everybody's pretty concerned about COVID-19 even still.
Yes.
Okay.
Are there any kind of extraordinary COVID-19 related expenses that youre incurring.
These properties that you think are in the process of going away I mean.
To your staff for supplies or anything that you are.
It's waning.
It's not over but it's certainly been reduced.
Okay.
And then just a couple more and then I'll get out of the way.
How is it means home lending homebuilder lending adventures Howard.
Or are they developing relative to your original expectations.
Just kind of what's everything.
Going on and with mortgage rates and homebuilders generally.
Demand is up and down what how are things.
Unfolding there relative to your kind of your original expectations.
We have to.
Curtis obviously Amber Ridge is actually ahead of schedule.
We hope it continues that way, but it is ahead of schedule from they take downs by the two <unk>.
Homebuilders, we're at 107.
As of the beginning of August and Thats.
Substantially ahead of what the original expectations were.
So.
And one thing obviously that dimension not this is not something thats really.
I think we've all got our eyes on is one of the big metrics that.
But we look at is in Prince George's County, and also in Hartford County, where the other one is it's the supply demand demand metric.
Whereby a 5% to seven five to maybe nine months is like.
The equilibrium, where your breakpoint from.
Supply to demand and vice versa.
And both of these counties are less than one month.
Supply literally.
So but again.
The Presbyterian homes one.
We're going through entitlements and the good thing. There is is we've got a piece of wholesale land.
That we have under that is under contract with our borrower effectively.
And all the entitlements are underway and their success is a condition precedent to selling on the land. So.
We're going to obviously.
Take a look at where these things stand when that happens, but there is a fully executed contract of sale that was just recently done with the national homebuilder and they have a substantial deposit.
But look.
We're all going to look at this thing come the end of the year and we're going to make sure that we're not making a rash decision.
Yes, it's a pretty pretty good size.
Commitment so.
Be curious to see how these things develop and I guess the last question is.
There was I guess excess property at Brooksville that was sold.
With a nice gain.
Can you remind me what the kind of proceeds were on that sale.
Probably pretty close to the game.
I had to guess.
But don't you said he thought he says.
Says with a smile.
Hi.
I'm going to get off the off the blower here, but I just wanted to say Bill Chen did say how low it couldnt be on the call today.
Anyway, you guys have a great weekend. Thanks.
Thank you Kurt.
Once again Thats star one to ask a question, we'll take our next question from Stephen Farrell of Oppenheimer.
Good morning.
Good morning, Steve.
And you said that your questions.
Pretty quick here, what are you seeing for multifamily in D C.
<unk> is at higher cap rates or are sellers kind of holding on what's the environment like there now.
While the environment.
This is Dave devault to environment for pretty.
Pretty much still the same pretty low cap rates for some of these for the class a type of buildings.
We still been thoroughly.
Still been fairly strong from what we understand.
And then do you think youre sort of reaching an inflection point in terms of supply in the market. There do you think theres room to go.
I think it depends on where you are obviously the different submarkets.
For example, the well.
Birds, which is R.
344 unit.
Apartment with 8400 square feet of first floor retail will come online.
And.
Hopefully in September .
Assuming assuming we can continue to get the furniture.
But it's the only building thats coming online.
That sub market.
There's other places, obviously where that might not be the case with where were located.
We're then we're going to be the new Kid on the block and there isn't anybody that's going to be there for a while.
Hum.
But correct.
Correct me, if I'm wrong, David that that area and buzzard point, that's kind of the next.
Footprint of development and the Anacostia Submarket, it's not as built out as.
Kind of.
The area directly around the ballpark correct.
It's considered part of it but that is true it is.
But even all even around the ballpark area, there's not a whole lot of new ones coming online Theres one other one coming on over about the Navy yard.
And to answer the question there is not a dearth of product Thats coming online over the next six to nine months.
Mhm.
Thank you and then within industrial I would just say, we've had Amazon sort of re leasing warehouse in other markets.
Has that had any impact in the Baltimore market.
Not on the buildings that we have.
At least at this point it remains to be seen but this is a strong.
No more than growing up 95 is that it has been and looks like it will continue to.
Maintain a really strong.
Our basis, we're not seeing any indications as a matter of fact that rents are going through the roof and half game.
I don't know that thats going to stay but it's been amazing.
The rental increases have been up and down 95.
Mhm.
Steve and I would say that.
Baltimore is heavily impacted.
The deepening of the harbor and.
Sure.
So it's not all e-commerce.
Driven it's driven by imports as well.
Thank you and then just last question here, how are you viewing the investment pipeline in terms of capital allocation.
Penciling out your new growth opportunities are you comparing that to share repurchases, especially given where the stock is now.
We are.
We look at it of course, all the time.
Our philosophy on share repurchases as we.
We want to steal the stock when we repurchased it.
Mitra, rather grow the company.
If we've got.
Good projects ahead of us.
Yes.
That's that's more of our philosophy, but as you know we have when we thought the prices are too low.
Our all in as far as buying it back yeah.
It Hasnt really been a.
A choice of one or the other that we've had to make.
Since the asset sale we've had.
Money to to use on share repurchases and money.
Invest in new projects. So it hasnt been one of the other it's just been more of a when we find a project that we like we invest in it.
We see that.
The shares falling at such a discount that.
Be crazy not to repurchase then.
The repurchases.
I don't think.
So far those two things have not been competing with each other.
Great.
Oh, that's good. Thank you guys. That's all I have.
Have a good day. Thank you.
Okay.
Thank you once again Thats star one to ask a question we will take our next question from Bill Chen Rhizome partners.
Yes.
Hey, guys.
Hey, Bill.
Yes.
I was.
I'm able to make the call I thought I'd put on but I was able to.
Joining the call so.
Good to hear from you guys.
Got a couple of questions.
We have a plan to host.
<unk> Investor day, and possibly give investors a toward the birds this year.
We do not.
I thought was that we would do those investor days every other year.
Okay.
I mean, that's that's.
Subject to change.
You all think it's something we should do.
Happy to do it but I think.
You have given the size of our company every couple of years is enough.
Okay.
Well, let me let me Cadam on.
Because I chat with.
I'll start with some new investors, let me, let me chat with them and see because I think I think there are some that became shareholders. This year that maybe may be appreciative and maybe it could be like a scaled down Nevada, but.
Sure.
Our survey.
Survey DN trace.
And get back to you guys.
Okay.
Yes.
Yes, no problem.
Always a pleasure.
In.
I don't know if someone asked this earlier, but with.
Reverse side now that 97%.
Has it.
From a permanent financing perspective, I don't know if someone asked this question earlier and also how would that be treated on the income statement going forward.
As far as the income statement goes.
Sure.
It will not be consolidated on.
And our income statement or balance sheet.
Yes.
<unk> nine in Marin were.
Because it's a dock.
Dock 79 in Marin there was a control trigger where we had the ability to sell the building and as a result of its good consolidator and write it up we don't have that with.
With Riverside.
That's an opportunity zone.
We only own 40%.
We own 40% or so.
Sure.
Well, we've got a fleet.
No go ahead Joe.
First of all I think it's 91% occupied.
Wish it was 97.
Okay.
And.
Sure.
We have refinanced.
Okay.
Can you share what the what the amount and the interest rate was on that.
David.
Yes, yes.
Yes, it was $32 million to.
To $32 million.
Eight year loan.
And it's a fixed rate of 492%.
Okay.
Gotcha.
Great and.
I guess.
At the end of the quarter just to be very clear about that.
That was subsequent to the end of quarter, Okay Gotcha.
And.
Well, we start receiving distributions from that like what that I guess from the cash flow statement.
Show up as a distribution line item on the cash flow statement going forward.
The.
The income from the.
The property itself or from the refinancing.
Riverside.
Okay.
River, so the distributions for Jeremy.
For joint ventures that are making positive income will show up as cash flows from operations. So as soon as the property is.
Turning to profit then they will move to that area anytime it's showing up in the investment section.
Got you okay.
Yes.
Yes, I guess I guess.
I guess, where I'm coming from is that.
There is there even though if it's 40% there is a tremendous amount of value in those properties and the cash flow and because of Rochus holiday to sometimes it may not show up in a week.
I will talk about this before.
Just as important to our shareholders.
How much cash flow.
Those properties are performing and how much cash flow is being distributed back to the parent company.
From what I understand is that Riverside and likewise Jackson Qualcomm is going to be.
Pretty pretty good projects.
And there is a decent amount of cash flow that would have come from it.
I think it just making it easier for shareholders to understand those dynamics I think I think will help help us understand that.
<unk> that you've created and the recurring cash flow going forward.
And what we see.
And my final question is on.
The.
On the 31 million, probably $1 million land lot project.
Let's say that.
Inventory market inquiry goes higher is there.
Kind of Optionality too.
Im assuming that it won't be drawn down and all in one lump sum bucket at stage am I right in assuming that like is there some flexibility to respond to the market condition.
Absolutely.
Absolutely.
<unk>.
Needless to say, we watch so we're watching that pretty closely but no.
If this thing goes forward.
We have it set up to do to develop this thing in seven different section. So there's and there's a tremendous a lot of different safeguards from a lending perspective. So we will watch that very very closely with $31 million as total, but the peak capital doesn't even get even anywhere near that probably had less than half of that.
Got you.
I always trusts that you got.
All of these things.
Okay.
Okay.
That does not surprise me at all.
Yes.
My other comment will be on the on the share buyback.
My suggestion to you to the management team and the board will be that.
I know historically, where we bought back shares.
And.
I don't think it.
Either or I think I think.
Mix approach works and I would just suggest that.
There's been a lot of value that's been created since the.
I think the asset sale in 2018 and a lot of these assets are starting to stabilize which create recurring cash flow. So my suggestion would be just.
<unk> anchor.
Previously I think I think the.
The net asset value the intrinsic value of the company has gone up a lot.
Since 2018 in 2020, we liked it a big buyback so.
Anthony the target on the buyback.
Sure sure.
Floating target as we create more value. So that my suggestion is to not be answered with previous price, probably because I think I think that as these.
Assets continue to stabilize.
Right that's correct.
Neil.
We actually have risen.
And I'll be happy to share my notes.
Sure.
Interesting.
Thank you.
We agree with you.
Yeah.
Thank you for your time, that's all the all the all the questions and commentary as I have.
Thank you Bill.
Thank you. It appears at this time, we have no further questions I'd like to turn the call back over to management for any additional or closing remarks.
Thank you all for those questions. We appreciate your interest in FRP.
And as you can see we are in a growth mode and a strong <unk>.
Group of industry segments and markets.
We're mindful of the impacts of inflation in a rising interest ratio. Therefore grateful for the strong balance sheet and positive cash flows from operations.
For your information, we put together an updated slide deck with financial highlights from this quarter, which you can find in the investors section of our website under investor presentations.
We plan to update this for you each financial period.
We look forward to talking to you again next quarter. Thanks, so much.
This concludes today's call. Thank you for your participation you may now disconnect.
Okay.
Okay.
Okay.
[music].