Q3 2023 FRP Holdings Inc Earnings Call
Your conference will begin momentarily.
[music].
Yeah.
Good day, everyone and welcome to today's FRP Holdings third quarter earnings Conference call.
At this time all participants are in a listen only mode.
Later, you will have the opportunity to ask questions. During the question and answer session you.
You May register to ask a question at any time by pressing star one on your telephone keypad.
You may remove yourself by pressing star two.
Please note today's call will be recorded and I will be standing by if you should need any assistance. It is now my pleasure to turn the call over to John Baker. Please go ahead Sir.
Good morning, I'm, John Baker, the third Chief Financial Officer, and Treasurer of FRP Holdings and with.
With me today are David <unk> Junior our President John Baker, the second our chairman and CEO John Milton.
Our executive Vice President and General Counsel, John Klopfenstein, Our Chief Accounting Officer, and David Devault 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 information.
To supplement the financial results presented in accordance with generally accepted accounting principles FRP present, certain non-GAAP financial measures within the meaning of regulation G promulgated by the Securities and Exchange Commission.
The non-GAAP financial measure referenced in this call is net operating income or NOI.
FRP uses this non-GAAP financial measure to analyze its operations and or monitor assess and identify meaningful trends in its operating and financial performance.
Measure is not and should not be viewed as a substitute for GAAP financial measures.
<unk> net operating income to GAAP net income please refer to this segment titled non-GAAP financial measures on the.
On page 12 of our most recent earnings release.
Any reference to net asset value analysis cap rates asset values and per share values are for illustrative purposes, only as a reflection of how management views its various assets for purposes of informing management decisions and do not necessarily reflect the price that would be obtained upon a sale of the asset or the associated.
Ross your tax liability.
Now.
For our financial highlights from the second from the third quarter.
Net income for the third quarter was $1, two 6 million or <unk> 13 per share versus 480000 or five cents per share in the same period last year.
Net income for the third quarter of 2023, when compared to the previous year impacted negatively by an increase of one point.
035 million in equity and loss of joint ventures, mostly from 856000 and increased losses during the lease up of diverse our newest mixed use project on the D C waterfront.
As well as an increase in interest expense of 378000 due to less capitalized interest.
Net income was positively impacted by an increase in interest income of 1.51 million from increased interest earned on cash equivalents and increased income on our lending ventures as well as improved revenues in all four segments.
Third quarter Pro rata NOI for all segments was 8.09 million versus $6. Two 4 million in the same period last year for an increase of 29, 5%.
Net income for the first nine months of 2023, with 2.42 million or <unk> 26 cents per share versus $1, eight 1 million or <unk> 19 per share in the same period last year.
The first nine months of 2023 were positively impacted by an increase in revenues and profits in all four segments compared to the same period in 2022.
Offset by an increase of 534 million in equity and loss of joint venture compared to the same period last year as we lease up the verge and faraway Jackson.
As well as an increase in management company indirect expense of 393000, and an increase in interest expense.
1.04 million offset by an increase.
And interest income of $5 million.
The first nine months of 2022 were also positively impacted by 733000 and gains from property sales, which we did not repeat in the first nine months of 2023.
Revenue operating profit pro rata NOI and net income all experienced strong growth this quarter and for the year to date.
Compared to the third quarter of 2022, we grew revenues by 14%.
Operating profit by 56, 6%.
Pro rata NOI by 29, 5% and net income by 162, 3%.
For the first nine months compared to last year. These metrics grew by 13, 7% 61, 3% 26, 2% and 33, 9% respectively.
Yesterday, we posted to our website a brief slide show financial highlights for the third quarter and first nine months.
For those who have not seen it we are now including a net asset valuation our analysis year to date per share value in the range of $69.24 to $78.76.
I'll now turn the call over to David for his report David.
Thank you John.
And good morning to those on the call today.
Allow me to provide an operational perspective on the third quarter results of the company.
Starting with our asset management segment.
Since the beginning of the year increased occupancy at our three industrial buildings at Howden Hollander business Park in Baltimore, Maryland, as well as rent growth on renewals of Cranberry business Park in Harford County, Maryland have produced a healthy lift to NOI.
Net operating income for the third quarter of 2023 was $1.096 million or 58, 2% increase over the same period last year when the NOI was $693000.
At quarters end, the asset management portfolio was 95, 6% occupied on over 549000 square feet of commercial product.
Moving on to the results of our mining and royalty business segment. This segment saw total revenues for the quarter of $3.082 million versus $2 million and $471000 in the same period last year.
In this segment increased 21, 4% over the same period last year to $2 million $837000.
As to stabilize joint ventures.
Dock 79 in Marin with its 569 apartments had occupancies of 95, 7% and 93, 9% respectively at quarter's end with all retail fully leased.
<unk> Marin enjoyed renewal success rates of 71% and 60% respectfully for the quarter with Doc seeing a two 3% rental rate increase on renewals in Marin a three 2% increase.
Average occupancies year to date for Dokken, Marin were 94, 2% and 96, 1% respectively.
Riverside in Greenville, South Carolina with its 200 apartments was 91, 5% occupied at quarter's end was 53% of its tenants renewing at an average increase in their rental rate of 8.56%.
Average occupancy year to date was 94, 2%.
Third quarter Pro rata NOI for this business segment was over $2 million, including $231000 in pro rata NOI from Riverside.
Relative to our development segment.
We engage in three strategies, which we use to grow our business.
These strategies are in house development and acquisition.
Joint venture acquisition and development and principal capital source lending.
This three pronged strategy has effectively been the program since liquidating our legacy warehouse portfolio in mid 2018.
Allow me to discuss each strategy and its impact on our business segments.
Our in house strategy includes industrial commercial and land development platforms.
These properties are acquired developed managed and owned 100% by FRP.
And transferred from development to the asset management business segment when construction is completed.
We have three projects in our industrial pipeline in various stages of development.
During the second quarter, we broke ground on the 259000 square foot state of the art class a warehouse building on our 17 acre parcel in the Peri men industrial section of Harford County, Maryland.
This spec building is expected to deliver in Q3 of next year.
And northeast, Maryland, along the I 95 corridor, we are in the middle of free development activities on 170 acres of industrial land that will ultimately support a 900000 square foot distribution center.
Pending favorable market conditions, we will be in a position to break ground as early as Q4 of 'twenty four.
Finally.
We are studying multiple concept designs for our 55 acre tract in Harford County, Maryland adjacent to the Cranberry run business Park.
Our various configurations should yield from 600000 to 700000 square feet dependent on final design parameters and market demands.
Existing land leases for the storage of trailers onsite helped to Offsite are carrying an entitlement costs until we are ready to build here, which could be as early as 2025.
Completion of these three industrial development projects will add over one 8 million square feet of additional warehouse product to our industrial platform that upon completion will result in our asset management division consisting of over 2.35 million square feet.
Our second development strategy is our joint venture strategy, which as the name implies a.
Ah projects developed in conjunction with third parties, where FRP is typically the majority owner, but we share acquisition development and asset management risks with third party local market leaders, who facilitate day to day operations.
These properties are house in the development section until they're completed and have maintained a 90% occupancy level for a period of 90 days before being moved to the stabilized joint venture business segment.
The lions share of assets within our development segment are currently within our joint venture strategy.
These include.
Brian Street, and birds in Washington D C.
408, Jackson in Greenville, South Carolina.
In our retail and office joint venture with St. John's properties in Baltimore County, Maryland.
Brian Street, consisting of 800, 487 apartments and three different buildings was 94, 5% occupied and its retail components were 95, 9% leased and 79% occupied at quarter's end.
Overall, the apartments at Brian Street average the renewal success rate of 68, 4% and rental rate increases of six 9% as of quarter end.
Our newest project in the district Birch received its final certificate of occupancy in the first quarter and is 89, 5% leased and 74 one.
1% occupied with 45% of its 8400 square feet of retail spoken for as of the end of the quarter.
Average occupancy for the quarter at birds was 59, 6% and year to date 35, 1%.
The reasoning behind the increase in equity and loss of joint Ventures, John mentioned in his opening remarks.
0.408, Jackson, our second mixed use project in Greenville is located downtown and shares of Street Plaza with floor field home of the Greenville drive an affiliate of the Boston Red Sox.
For OE Jackson was placed in service during the fourth quarter of 'twenty, two and as of quarter end was 93, 4% leased and 86, 8% occupied as it marches steadily towards stabilization average occupancy for the quarter was 85, 6% and year to date <unk>.
48, 9%.
Another reason for the increase in loss of joint ventures.
The retail component is fully leased and targeting a tenant opening date in early 2024.
We're in the homestretch of lease up for all three of these joint ventures, when they reach stabilization and are transferred to the stabilized joint ventures business segment. This segment will have 1800 and 27 apartments.
And 82000 square feet of retail.
Unlike a warehouse in the development section these are already assets in operation.
If you refer to the development segment NOI on page 12 of our most recent press release you will note. These assets have generated almost $4 million in NOI through the first nine months versus $1 9 million in the same period last year.
And when stabilized we'll increase the N L I or excuse me the revenues and NOI of our stabilized joint venture segment.
Our principal capital source strategy, the last leg of our three pronged development strategy is what we call lending bachelors.
It's a program, where we provide working capital towards the entitlement and horizontal development of residential land, which is pre sold prior to commencement of any infrastructure improvements and ultimately transferred to national 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 billion.
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.
175 of the 187 lots are sold with $19 4 million of preferred interest and principal returned as of the end of the quarter with the final 12 units expected to be taken down by Q1 24.
Completion of this project interest income and profits are expected to total $4 million.
Our other current lending venture is called Presbyterian halls.
The 344 lot 110 acre residential development project in Aberdeen, Maryland, we have committed $31 1 million in funding under similar terms to Amber Ridge a national homebuilders.
Purchase all of the finished building large which will include 222, Townhomes and 122 single family dwellings.
Horizontal construction has begun and we expect the first lots to be taken down in Q1, 'twenty 'twenty four.
In closing we remain pleased with the company's performance and are optimistic about growth opportunities.
<unk> are ahead.
As we encounter a surplus of new develop apartments coming online in Washington D. C. Over the next several quarters, which will directly compete with our waterfront assets.
Our confidence in design amenities.
And management teams.
Coupled with our careful and patient approach to development allows us to weather this competition on firmer foundations.
We continue in our belief the challenges we get opportunities.
With a strong dedicated and talented team in place F. R. P will continue to grow its portfolio and in turn its revenue and profits through a steady careful and well reasoned approach to the market.
We look forward to building upon our successes and finding new ways to exploit our skills in the industry. Thank you and I'll now turn the call back to John.
Okay.
Thank you David.
At this point, we're happy to open it up to any questions you might have.
At this time, if you would like to ask a question. Please press the star and one on your telephone keypad.
You may remove yourself at any time by pressing star two.
Once again, if you would like to ask a question. Please press star one.
We'll pause just a moment to allow questions to queue.
Again that star one to ask a question.
Okay.
And Mr. Baker at this time I show no questions in queue.
Alright.
I'm sorry.
We did just have one question queue, we will take our first question from Bill Chen with Rhizome partners. Please go ahead.
Hi, gentlemen.
I don't really have a question just wanted to.
Give you some feedback thank.
Thank you very much for hosting the Investor day and also the improve.
Presentations and transparency.
NOI figures that you share on each individual asset makes it a lot easier for me to update my NAV estimate.
So I don't really have a lot of question I think a lot of them were <unk>.
Or did the Investor day, but again just want to thank you for providing all this additional transparency and disclosure.
It makes my job a lot easier backhaul.
Thank you Bill.
Appreciate it.
Yes.
Appreciate you appreciate everyone couple you've done your job and doing it very well and look forward to next quarter's earnings call.
Thank you gentlemen.
Thank you. Thank you.
Okay great.
Have a good day.
Thank you one last reminder, if you would like to ask a question at this time, Please press star one.
And we have no questions at this time.
Yeah.
Alright, well Bill's question.
Feeds right into my concluding remarks, I wanted to thank everyone, who is present in person and virtually for attending our investor day in D. C. In October.
That amount of face time with with all of our investors is really invaluable.
It's an interesting and instructive experienced interact with our investors and see the company from a different perspective.
If you have not seen.
Our Investor Day presentation, a replay is available on the Investor segment of our website in the Investor resources tab under Investor Day.
Thank you all and we appreciate your continued investment and interest in the company.
Sure.
This does conclude today's FRP holdings third quarter conference call.
We appreciate your participation you may disconnect at any time.
Oh.
[music].
Okay.
Yeah.
[music].
Yes.
[music].
Hum.
[music].
Hum.
Uh-huh.
Okay.
[music].
Got it.
[music].
Yeah.
Okay.
[music].
Okay.
[music].
Uh huh.
[music].
Yes.
[music].
Okay.
[music].
Hello, Matt.
[music].