Q3 2022 FRP Holdings Inc Earnings Call
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Good day, everyone and welcome to the FRP Holdings third quarter earnings conference call at.
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Please note. This call is being recorded and I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to John Baker, The second CEO and chairman of FRP Holdings. Please go ahead.
Good afternoon, and thanks for joining us today, I'm, John Baker, Chairman and CEO of FRP.
With me today are David.
This junior our President John Baker's a third our CFO , John Milton Our General Counsel.
David Yeah, the third.
Third our executive Vice President and John Klopfenstein, Our Chief Accounting Officer before I begin let me remind you that investors are cautioned that.
Any statements made on this call, which relate to the future are by their nature subject to risk and uncertainties that could cause actual results and events to differ materially from those indicated in such forward looking statements.
These include risks listed from time to time in our SEC filings included but not limited to our annual and quarterly reports, we have no obligation to revise or update any forward looking statements other than as imposed by law as a result of future events.
Or new information.
Listeners are cautioned not to place undue reliance on such forward looking statements.
This week, we issued two press releases.
One our quarterly results for the period ending September 32022.
And another announcing an agreement with Stewart investment company and MRP Realty.
The first press release contained our quarterly results and outlook, which were very encouraging revenues for the quarter were 9.294 million.
Up nine 7% from the same period last year.
Net income was 480000 up 36% from a year ago with increased rents and lower amortization charges moving the needle.
Net operating income, which is our main internal barometer of success with.
$17 million 970000 in the nine months ended in September 30.
32% year over year.
David will walk you through our operations in more detail in a moment.
The second press release announced an agreement with Stewart investment company.
Our longtime partner MRP and ourselves to combine our various properties and the Capitol Riverfront Buzzard point section of South Eastern Washington into a joint venture.
These 10 properties.
Three of which include dock 79, the Marin and our newly completed project verge.
Which just began leasing.
These projects are owned by MRP and ourselves.
There are three undeveloped properties owned entirely by FRP phases, three and four rather fund and the Vulcan ready mix plant and Buzzard point.
Final four are.
Stuart own parcels and buzzard point.
As we develop new projects.
<unk> P and MRP will control the design development and financing of the projects with FRP owning at least 40% of beach and MRP, 20%.
Stuart will have the right to retain 10% to 35% of the ownership of their properties.
And the right to buy 10% to 20% of FRP and MRP properties.
Stewart properties are scheduled to be developed one every four years through 2035.
The MRP FRP properties can be developed whenever we so choose.
The first deal.
We will include our purchase of Stewart phase one.
And Stuart purchase of 35% of our Marin and dock 79 projects, 20% excuse me 20%.
The bottom line is that these gen properties will have 3000 apartments.
And 3 million square feet of mixed used development, all of which were our contingent except for some right of ways.
And which comprise the entire southern entrance to the nation's capital.
FRP in conjunction with MRP will have control of when and if these are developed how they are developed and.
And how they are operated.
This is one of the hottest apartment market in the U S and by having control we can make sure their time, so as to maximize rents and absorption.
We can control the design and quality of the projects, which will give this neighborhood.
Uniformly high level of beauty and quality that will ensure its reputation.
By having MRP and Stuart co invest in these projects.
We retained the predominance of control.
And to the extent they invest.
We reduced the capital required by FRP.
Our people, especially David David Yeager third working with Arnold <unk> Porter.
Journeys have crafted a deal that is fair at all and which carefully outlines the rights of the parties in short, we all know where we stand.
And we all are excited about it.
This will transform FRP in a carefully controlled process over two to three decades, we believe it's truly a deal made in heaven.
Now if I could let me ask our president David <unk> to walk you through our ongoing projects.
Right.
Thank you John and good day to those on the call. This afternoon.
Relative to our in house industrial platform, where asset management net operating income for our in house operations was $693000 for Q3 of 22 versus $486000. The same period last year, an increase of 48.
1%.
The second of our two spec buildings that Hollander business Park.
Completed at the end of 2021, and collectively totaling a 145500 square feet became fully leased in the third quarter.
We expect full occupancy in the first quarter of 2023.
Supply chain issues, notwithstanding the 101750 square foot build to suit warehouse building that will cap off the final building at Hollander business Park should also be ready for its tenant to occupy in the first quarter of 2023.
Cranberry run business Park, our renovated 280, excuse me 268000 square foot multi bill.
Building warehouse Park in Aberdeen, Maryland became fully occupied in the first quarter of 2022. This park remains 100% occupied and is performing ahead of original projections.
On the pre development front, we have three projects in the queue.
This past quarter, we completed the annexation process of the 55 acre tract in Hartford County, Maryland purchased in 2020.
Building designed to create up to 675000 square feet of warehouse project product will come will follow in 2023.
Existing land leases for the storage of trailers onsite helped to offset our carrying an entitlement costs. We're hopeful we can begin construction here in 2024.
We are also knee deep into the permitting process to support an approximate 250000 square foot warehouse building on our 17 acre parcel in the parent <unk> industrial section of Harford County, Maryland.
Not too distant from our other assets in Aberdeen.
Founded on market dynamics construction on this project could begin as early as Q2 2023.
Finally during this quarter, we completed the purchase of 170 acres of industrial land in northeast Cecil County, Maryland.
This plot of ground will hold a 900000 square foot distribution warehouse initial pre development entitlements have begun and assuming favorable market conditions. We expect to construct this building in 'twenty four or 'twenty five.
Completion of these three aforementioned land development projects plus the build to suit warehouse due to deliver shortly at Highlander.
One 8 million square feet of additional warehouse project.
Product to our industrial platform that when added to the assets in operation and Hollander business Park in Cranberry will total over two 2 million square feet.
As we look towards 2023 increased occupancy at the new buildings at Hollander and the fully occupied Cranberry run business Park should provide a healthy lift to our NOI.
In our mining and Rollouts.
This segment as John mentioned in his opening remarks, our mining and royalty division saw revenues for the quarter of $2 billion and $471000 versus $2 million $250000 in the same period last year.
Net operating income was $2 million $336000, an increase of 10, three 4% over the same period last year.
Merrily due to the April purchase of the Blanford quarry property in Lake County, Florida.
Moving on to our third party joint ventures.
Currently we maintain both stabilized and projects under development with three distinct development partners.
MRP Realty.
Field development and St John's properties.
As of 930 <unk> to our joint venture platform includes seven mixed use and one office retail projects in various stages of development and operation.
<unk> projects are located in DC, where MRP is our joint venture partner.
These projects are dock 79, Marin, Brian Street Phase, one and verge.
Leasing is underway at verge and we welcome welcome its first tenant this month.
Verge was 97% complete at quarter's end.
Dock 79 in Marin maintained better than 95% occupancy for the quarter and the last retail suite at dock 79, and 45% of the 8500 square feet at verge became leased during the quarter.
Our transit oriented mixed use project, just north of Union station and DC, Brian Street Phase one saw its residential occupancy increased to 86, 7% and retail occupancy was 71, 4% as of September 30.
Our two mixed use projects in Greenville, South Carolina with Woodfield is our development partner saw excellent progress.
Riverside is 200 apartments, where one year old in August and the project was 92% occupied as of the end of the third quarter.
Riverside also became a stabilized asset in the third quarter defined as more than 90% occupied for more than 90 days.
<unk> 227 apartments will be placed in service before the end of the year.
And where 98, 6% complete at quarter's end.
It's 4500 39 square feet of retail is 100% pre leased.
Two additional projects that make up the balance of our current third party JV platform, our Hickory Creek.
Our DST or Delaware statutory trust in Richmond, Virginia, and in office retail project in Baltimore, Maryland with St. John's properties.
Hickory Creek 294 apartment units remained above 95% occupancy for the third quarter, while our JV with St. John that includes 72080 square feet of single story office, and 27950 square feet of retail remains 48% leased and <unk>.
<unk> at quarter's end.
As of September 35 projects, including Dock 79, Marin verge Riverside and broad Street totaled <unk> hundred departments in operation, which represents a 47% increase over the third quarter last year, when we had 1085 apartments.
In operation.
The remaining 227 apartments and retail spaces currently under construction will be completed and ready for occupancy by the end of this year.
FRP share of the net operating income for these five projects was $3 million $315000 for the third quarter of 2022.
This is $1.931 million in the third quarter of 2021, a 72% increase.
So to summarize relative to our current third party joint ventures, and mixed use development Hickory Creek and winless. Notwithstanding we are currently invested in six mixed use multifamily retail projects totaling 827 apartments, and 126000 square feet of retail.
Finally, as opposed script to our third party joint venture program and it has some additional commentary on John's opening remarks.
With our newly panned agreement with the Stewart investment company and our existing partners of 10 plus years MRP reality, we have a generational opportunity to create a unique waterfront destination among multiple projects all.
All controlled by a single ownership group.
With the freedom to pursue alternate development plans that individual development cannot consider.
The new partnership will add some 2000 apartments, and approximately 2 million square feet of mixed unit mixed use development to the existing 913 apartments and 900000 square feet, we already have in southeast Washington.
Together the parcels represent over a quarter mile of uninterrupted waterfront, along the Anacostia River at this.
Southern entrance to our nation's capital.
Redevelopment activities on phase one conceptually plan for 400, plus apartments, and 10000 square feet of retail located on one of the four parcels that Stuart brings to the venture has commenced and we anticipate a shovel ready project sometime in 2023.
And our lending ventures, our current lending venture project Amber Ridge, and PG County, Maryland is winding down.
The total committed.
This project is $18 $5 million.
The investment includes a charged interest rate and a minimum preferred return of 20% above which a profit induced waterfall determines the final split of proceeds.
As of September 30, the horizontal development is complete.
124, the total 187 lots all of which are under contract to sale to national Homebuilders have been taken down with $15 $5 million inclusive of interest have been returned to FRP as of $930 22.
In March of 2020, when the world shut down FRP maintained a portfolio of 500000 square feet of operating industrial office and retail space and 599 apartments.
As of September of 2022.
FRP had 660000 square feet of operating industrial office and retail space.
<unk> thousand 894 operating apartment units with an additional 227 apartments and 101000 square feet of industrial due to deliver in the next 90 days.
This does not speak to our additional development pipeline, which is formidable and the industrial and mixed use residential categories.
This is a period of tremendous growth for FRP and it is a story, we are eager and proud to share none of this growth or breadth of opportunity would be possible without the solid financial foundation that separates us from much of the competition enables us to both capitalize on great projects and sometimes make hard decisions dock too.
Thank you and I'll now turn it back to John .
Yeah.
Thank you David.
Now open it up for questions if we might.
Thank you at this time, if you would like to ask a question. Please press star one on your Touchtone phone.
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Our first question comes from retail Cantona of New media.
Hi, guys can.
Can you hear me, yes, we can thank you.
Okay.
Maybe talk intent.
I'm, calling from the Spain, because our fund owns 1% of the share herself.
<unk> Holdings and I hope we do.
We remain so for the time.
I would like to know how would you see the mining.
You mean business in 10 years, what is your estimate of the growth of the price of oil.
The price per ton of aggregates in the long term.
And in.
In the Florida queries, So do you expect and Thats, what the SaaS tests, such as hurricanes to affect the business in the long term.
<unk>.
It's nice to meet you in.
We're proud to have you as a shareholder.
<unk>.
The core business in Florida.
Of course.
I have no idea, what's going to happen over 10 years, but what we have seen is two things one.
The aggregates business throughout the United States.
Sure.
It's been growing well in excess of inflation, even in today's high inflationary.
<unk>.
<unk>.
Vulcan and Martin Marietta reported I think 11 or 12% increase in pricing.
This last quarter.
It's an amazing time for that.
Sure.
With mortgage rates rising.
You would expect the homebuilding.
<unk>.
Segment of their business to slow down dramatically and that of course could affect.
The.
The pricing and certainly the growth.
That business, but it's.
It's my belief that because rock is simply running out in Florida.
It's hard to permit in Georgia and Virginia.
We will continue to see pricing escalate at greater than.
Inflationary.
Right.
For a period of maybe up to 10 years certainly for the next five years.
Okay.
Okay. Thank you.
The last one.
Joe you want to still just talk when you can be opportunistic.
But how do you see now.
Please turn off uneven.
Hi, Marc Thank you.
Okay.
We are carefully.
Clotting.
The usage that we have going forward.
Sure.
<unk>.
Our preference is to invest in projects rather than to invest in our stock unless it's just happens to be very low and so.
<unk>.
Especially with this store joint venture.
<unk>.
We will be very careful about buying stock in.
Because we've got the need for that money going forward over the next 10 years and so.
I would never say, we wouldn't buy it and we will.
Tempted too badly.
But.
I think the prudent thing for us is to keep.
Al.
Our good better cash available for future projects.
Okay. Thank you very much.
Thank you we will take our next question from Curtis Jensen of ROE body and company.
Good afternoon can you hear me, Okay, yes, sorry, yes.
Afternoon Curtis.
I guess.
What strikes me about the Stewart.
Announcement is I mean, all of a sudden you have.
Control of this very large swath of property.
And you can.
Almost as if you can create a master planned community.
At Buzzard point.
For example were.
I mean, you could connect all these buildings architecturally and resource.
All those other things that's a pretty interesting.
Is that kind of.
Dynamic at work and then.
Yes.
Referred to it.
I guess, you'll be still I'm.
I'm wondering what these projects be done in serial fashion or.
Kind of parallel fashion, where you have multiple projects going on or is it just kind of depend on the environment.
Yes, that's my first question.
Well I'll take a run at the first part.
Curtis how are you David Deville Yay.
Obviously this is an exciting.
Program really for all of us.
The thing that we really like about it is a little bit like what you just articulated.
We can create a master plan community there.
I think I said in my remarks is that we.
The ability to do things that individual's can't do I mean, we can move properties around we can come up with different types of development plans. We can combine lots we can.
Do all sorts of things.
Cause of the size and scope of this project.
Oh, Yeah, that's for all intensive purposes, it's a clean slate and we can pretty much do whatever appropriate.
Urban design that we come up with we will certainly have a lot of input from the zoning Commission and the opposite planning, but they're pretty excited about dealing with one set of owners as well as well.
Relative to how they get developed I think the market will dictate that action and just.
The logistics of development.
Jackson and different locations for example, sometimes you want to build away from the water and then and then go towards it but with the way we're going to design a program that really we don't want to be having concrete trucks or something driving by any more buildings that we have to so we control the development.
Graham for all intents and purposes, we do have a requirement to buy some of Stuart's properties as John articulated over 10 years, but the other ones.
Months determine when we want to do on theoretically you could be doing two projects once the.
The market is going to dictate those actions as much as anything.
Okay, well I think what happens in terms of let's say somebody wants.
Do you have.
Stipulated that the valuation is that.
Subject to a third party appraisal.
It works.
I think you broke up but I think youre, saying, how do you determine what the value of the projects.
And we will be yes.
Is it a third a third party appraisal type of thing yes, Yes, we will go through an appraisal process for all of the properties when they are shovel ready not before.
So when these projects are shovel ready.
We can get them appraised, we being the FRP MRP in the case of Stuart the MRP MRP people would get an appraisal Stewart would get there and if we didnt come within a certain percentage then we'd get a third one.
It's a.
It's at arm's length program, but the properties will be appraised when they're shovel ready not before and also whatever environmental issues are out there that gets reduced from the appraised process, which will be effectively for a claim parcel.
Okay and then.
I'll wrap up here in a second but I guess.
The specter of higher construction costs higher borrowing cost has imposed some discipline on.
Probably everybody, but I'm kind of curious about.
With respect to Stuart whether you feel like you guys are getting married right now and probably for a pretty long time.
Do you have a good philosophical alignment.
In terms of.
Outlook, and how you youre approaches to life.
I think we do as good as you can with three different groups, but we all have the same.
And game, we all are investing assert pretty sizable amount of dollars into these projects and what really determines the go forward is having a shovel ready project that makes economic sense.
We have to do all the design, we have to get a guaranteed maximum price from the general contractor we have to get.
Appropriate and acceptable financing and obviously the market would have to dictate that.
The cost of these projects would give us the appropriate return on costs. So I think our interests are.
We are definitely aligned in that regard.
What do you can you can you.
Talk about our share what you think is.
First up in the queue.
Well as I.
As I said in my opening remarks, we are partially through the pre development process on the first phase of this venture which is on the Stewart.
<unk> 40 on one of the four phases of Stuart.
And it's about.
400, plus apartments, and I believe about 10000 square feet of retail and were going through the.
No.
I guess, the song and dance with the ops planning and ultimately the zoning Commission.
And so once we get approvals in the appropriate entitlements. There then we would move forward with the drawings.
And then off to the guaranteed maximum price and then and then see what kind of financing is out there and what the market.
We will dictate and decide at that time, whether we want to go forward or just sit back and wait.
Great Alright, well. Thank you very much keep up the good work guys. Thank.
Thank you thank you Charles.
Thank you as a reminder, if you would like to ask a question. Please press star one at this time.
We will take our next question from John Koller of Oppenheimer and close.
Good afternoon, gentlemen, hope you're well.
Same to you. Thank you.
My question is really are going to.
Revolve around the pace at which you'll be developing and how youre thinking about capital allocation between.
What I consider a large number of balls in the air so between the industrial the next phase of Bryant Street.
And now the new joint venture.
And then that sort of raises the question of what kind of capital might you require I know buybacks are probably not in the cards, which is fine, but it seems to me like you might actually need to raise capital.
Depending on the pace at which you you develop these and I'm curious if you've considered that at all and.
How you think about that if its necessary.
David do you want to take a crack at that.
Yeah.
Obviously, one of the things that we like about this.
This program at least with Stewart, and then I'll get back in the other ones is that.
Having these other partnership the other partners it reduces the amount.
Amount of equity that FRP would be putting into this projects for example, when we did.
Doc.
79, we started off at about 77% of the ownership and then burn it was 80%.
And so now we're going to be.
At 40% so the equity.
Required is going to be less there's still substantial but obviously, it's going to be less. Another example would be Bryant Street, which is not at this part but in a different submarket, we have 61% ownership there.
No.
One thing about the capital requirement. Obviously is is that we will be.
Putting up less money in equity, we do have an opportunity if we so desire to add more because there might be a shortfall of anywhere from 10% to 15%.
The equity, but going back to the question of.
How many balls you have up in the air week.
We are very conscious.
So how are our capital is utilized.
We want to make sure that there's enough dry powder in the bag to <unk>.
Stand off pretty much anything that comes out there so were pretty darn conservative as it relates to how much money that we have invested at any one time.
As an example, one of the.
One of the interesting programs that came about as a result of this is this first phase of Stewart they purchased.
80% of our ownership in dock and marriage. So we're using those proceeds which was about $20 million and then some proceeds from another sale.
It came up to us after the third quarter to two <unk>.
Vast and that Stuart phase one.
So the board in.
<unk> with ourselves and probably more so the board has created a set of rails that we're going to have to stay inside of them. If we get outside of that we have to come either delayed projects are or maybe even sell something in order to come up with the additional capital.
Okay. So is it fair to assume then that this will be the primary focus I mean, I would think Brian Street, and the new joint venture with <unk>.
Occupy most of your time once you've.
You've got the industrial space lined up I don't think maybe you would I guess.
Still pursue development opportunities in industrial or is that going to be less of a focus.
Well as you can one of the things we've always been pretty successful in our industrial program as a matter of fact that got us pretty much to where we are now when we sold all of those apartments.
Industrial projects in 2018, and it kind of gave us the seed money to take off in this new direction, so, but we're still involved in industrial.
As we said we have right now.
All of our buildings that we have up and even one of them is not up is fully leased and will be occupied in the first quarter of.
2023, we have three.
We do have three development projects in the queue.
For industrial and the idea there is to is when we get them shovel ready, which is the same condition that we would be in these joint ventures.
Take a look at the market, we take a look at our capital and we decide either to go forward or maybe to stand down or even consider a partner.
It's not necessarily the time for example, some of these big.
Warehouses the.
675 in the 900.
Certainly may consider bringing a partner or we may not but capital is maintaining the appropriate.
<unk>.
Debt to equity is very important to our board into Austin, So we're pretty careful about.
Protecting that cash and cash equivalents that we have.
Okay, and then just really quick.
The last one I have and I guess is on Brian Street.
And a point, where you may get stabilization soon hopefully very soon.
And I'm curious what the timeline is.
For the next phase and how large that might be I know you only developed a small portion of it.
Well, it's interesting we have we have a ways to go before we feel good about going forward with the next phase.
This is a transit oriented program and the transit oriented side.
Destroyed by Covid and everyone's still trying to dig out.
We want to make sure that the retail is up and fully operating we still have at 71% leased and occupied but we want to make sure that it stays that way and grows to the 90%.
We're at 80 some percent.
In the three.
Residential building so.
Going into right direction, but we still have a ways to go before we would really feel comfortable.
Moving on with either phase, two or three and as it relates to phase two.
Preliminary plans show approximately 200 apartments, which would be kind of bolted on to the side of <unk>.
The property that we already that we don't have yet, but we have an open option to buy the remaining property that would make up the whole.
So we don't have.
Gun to our head as to whenever we have to buy that property. In fact, the owner of that property is one of our partners. So we can we can pretty much decided at the appropriate time when phase two would happen, but it's all a matter of what we believe is the right use for our capital and how much we spend.
Okay and then.
This is the last question I promise is that are.
Are you under any timelines being an opportunity zone, where you have to get something additional completed.
Or is that.
You had out either requirement okay.
We're done with that we're just we've got to pay taxes in 2007, and we got a hold it into 'twenty nine.
Really all we have to do.
Thanks, So much yes, sir thank you.
Thank you again Thats star one to ask a question we will take our next question from Bill Chen of Rhizome partners.
Hey, guys can you guys here.
Yes.
Arriving on the highway so.
My main question I Havent had a chance to digest the press release, but my main question is.
The cash on the balance sheet I believe that most of us treasuries right now.
The breakdown on the maturity date on that end.
And as rates have gone up significantly since last time we.
I will too.
Well take them mature amount and kind of reinvest that why.
Or I guess, one quarter or one out right now in the less than 12 months could you give me some color on that.
Hi, Bill it's John Klopfenstein here say, we've got all the all the cash invested in treasuries as you as you said the vast majority of it is in six months treasuries and we've got some.
That are there.
They're coming mature every week or two so just this week, we've invested at four 6% for six months. So that's our that's our go forward plans.
Gotcha.
It's great to hear.
I read in the disclosures that you have some duration that goes out to you.
As long as two years like is there like is there how much of it is longer than one year.
Did we did too.
Early on we did $48 million as two year treasuries and those now.
Set to mature at the end of 2023.
Everything else is six month treasuries that are maturing.
Biweekly basis more or less.
Got you got you okay. Thank you for that color really appreciate it. Thank you guys.
That's all the question I am.
Bill.
Thank you and at this time. It appears we have no further questions in queue I will now turn the floor back over to Mr. Baker for any additional or closing remarks.
Thank you all again for joining us.
I really do believe this is a historic.
Moment in the development of our company, which will allow us to add more.
<unk>.
Some really a match value by building projects and a slow and well time basis.
In this great market for decades.
<unk>.
Yes.
I like to comment about it sounds like you've got a lot of balls in the air.
We're trying.
We have been very.
Meticulous about laying out the.
<unk>.
Timing of these projects phasing them, whether it's industrial whether it's.
Meg shoes, and we feel very good about our ability over a long period of time to do that without raising money or certainly without getting in trouble.
We all know the world has a funny way of changing quickly and we want to make sure that we have a the cash reserves to change with it.
Does.
<unk>, especially in a negative fashion.
And.
You can be assured that.
Wow.
We are enamored by the fact that we can grow this company.
In an amazing way over a 10 to 15 year period.
Desktop, what we're not going to get in a hurry that would ever put us in a financial.
<unk>.
Yes.
Rule number one around here so.
I appreciate your interest.
I think we're all for a good ride and I look forward to talking to you next quarter.
This concludes today's conference call we thank.
Thank you for your participation you may disconnect at any time.
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