Q3 2024 FRP Holdings Inc Earnings Call
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Speaker Change: Good day everyone and welcome to today's FRP Holdings Inc. third quarter 2024 earnings 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 may register to ask a question at any time by pressing the star and 1 on your telephone keypad You may withdraw yourself from the queue by pressing star 2
Speaker Change: 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 Matt McNulty, CFO of FRP.
Matt Mcnulty: Thank you.
Matt Mcnulty: Good afternoon. I am Matt McNulty, CFO of FRP Holdings Inc. With me today are John Baker III, our CEO, David deVilliers III, our COO, David deVilliers Jr., our president, John Baker II, our chairman.
Matt Mcnulty: John Milton, our Executive Vice President and General Counsel, and John Kloppenstein, our Chief Accounting Officer.
Matt Mcnulty: First, a disclosure regarding forward-looking statements and non-GAAP measures used by the company.
Matt Mcnulty: To supplement the presentation of our GAAP financial results, FRP presents certain non-GAAP financial measures.
Matt Mcnulty: within the meaning of the FTC's Regulation G.
Matt Mcnulty: The non-GAAP financial measures referenced in this call are Net Operating Income, or NOI, and Pro Rata NOI. FRP uses these non-GAAP financial measures to analyze its operations and to monitor, assess, and identify meaningful trends in its operating and financial performance.
Matt Mcnulty: This measure is not and should not be viewed as a substitute for GAAP financial measures.
To reconcile NOI to GAAP net income, please refer to the segment titled Non-GAAP Financial Measures on pages 14 and 15 of our most recent earnings press release. Now for certain financial highlights following our third quarter.
Matt Mcnulty: Net income for the third quarter increased 8% to $1.4 million, or $0.07 per share, versus $1.3 million, or $0.07 per share, in the same period last year.
Matt Mcnulty: For the first nine months, net income saw a 94% increase to $4.7 million.
or $0.25 per share versus $2.4 million or $0.13 per share for the first nine months of last year. The company's pro rata share of NOI in the third quarter was up 39% to $11.3 million.
and year-to-date was up 28% to $29 million. The year-to-date increase in NOI was mostly driven by the performance of our multifamily segment due to improved results at all six of our stabilized multifamily projects versus the same period last year.
Year-to-date, these six multifamily projects contributed an additional $3.7 million of ProRata NOI, while the mining segment contributed an additional $1.8 million of NOI.
Matt Mcnulty: and the industrial and commercial segment an additional $829,000 versus the first nine months of last year.
Matt Mcnulty: Over the last three years, we have grown ProRata NOI at a compound annual growth rate of 26.4% on a trailing 12-month basis.
Matt Mcnulty: In the third quarter, we exceeded that pace due mainly to a one-time $1.9 million minimum royalty payment received during the quarter.
This payment was a back payment for 24 months of additional minimums owed to us by the mining tenant after failing to meet a minimum production requirement in the lease.
Matt Mcnulty: Our analysis yielded a per share value in the range of $34.54 to $39.15.
Matt Mcnulty: In this most recent release, we changed the way we value the mining royalty asset stream from an EBITDA multiple to a cap rate valuation, as management believes this methodology more appropriately reflects how these assets should be valued.
Matt Mcnulty: Any reference to cap rates, asset values, per share values, or the estimated value of our assets, net of debt, and liabilities.
Matt Mcnulty: 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 costs or tax liability.
Speaker Change: I will now turn the call over to our COO, David deVilliers III, for his report on operations. David.
Speaker Change: Thank you, Matt, and good day to those on the call. Allow me to provide an operational perspective on the third quarter results of the company.
Speaker Change: Starting with our commercial and
Speaker Change: This segment consists of nine buildings totaling nearly 550,000 square feet, which are mainly warehouses in the state of Maryland.
Matt Mcnulty: At quarter end, 95.6% of the buildings were occupied.
Matt Mcnulty: Total revenues in NOI for the quarter totaled $1.5 million and $1.2 million respectively, an increase of 0.9% and 10.3% over the same period last year.
Matt Mcnulty: Moving on to the results of our mining
This division consists of 16 mining locations, predominantly located in Florida and Georgia, with one mine in Virginia.
Matt Mcnulty: Total revenues and NOI for the quarter totaled $3.2 million and $5.1 million respectively, an increase of 3.8% and 79.9% over the same period last year.
Matt Mcnulty: NOI for this quarter concluded a 1.9 million dollar one-time cash royalty received during the quarter that is straight-lined over the life of the agreement.
As for our multifamily segment, this business segment consists of 1,827 apartments and over 125,000 square feet of retail located in Washington DC and South Carolina.
Matt Mcnulty: At quarter end, the apartments were 91.9% occupied and the retail space was 79.4% occupied.
Matt Mcnulty: Total revenues and NOI for the quarter were $14.2 million and $8.2 million respectively.
Matt Mcnulty: FRP share of revenues in NOI for this quarter totaled $8.2 million and $4.7 million respectively.
Matt Mcnulty: This is a significant increase over prior quarters due to our Bryan Street and 408 Jackson joint ventures being included in this segment as of January 1st, 2024, and The Verge being included in this segment as of July 1st, 2024.
Matt Mcnulty: These three projects contributed $4.7 million and $2.5 million in revenue and NOI this quarter versus $3.6 million and $1.8 million in last year's third quarter.
Matt Mcnulty: As a same-store comparison, which only includes Dock, Marin, and Riverside, FRP share of revenues and NOI for the quarter totaled $3.5 million and $2.2 million, respectively.
Matt Mcnulty: an increase of 2.2% and 6.5% over the same period last year.
Matt Mcnulty: with all renewal rental rates showing positive growth and a majority of our trade-out rental rates being positive as well.
Matt Mcnulty: Now on to the development segment. In terms of our commercial industrial development pipeline, our 258,000 square feet state-of-the-art Class A warehouse building in the Perryman Industrial Sector, Harford County, Maryland is nearing completion and is expected to be delivered before year-end.
Matt Mcnulty: Upon shell completion, this asset will be moved to the industrial-commercial segment and will impact NOI negatively until it is occupied and stabilized.
Matt Mcnulty: Thereafter, the operating expenses can be passed through to the tenants.
Matt Mcnulty: The project is estimated to cost $116 per square foot, exclusive of contingencies.
Matt Mcnulty: Our 200,000 square foot Class A warehouse building in Lakeland, Florida, located along the I-4 corridor between Tampa and Orlando, where FRP intends to be a 90% partner with BBX Logistics, is well into the entitlement stage.
Matt Mcnulty: Permits for development should be in hand on or before Q1 2025.
Matt Mcnulty: The project is estimated to cost them $141 per square foot with contingencies.
Matt Mcnulty: FRP and BBX also closed on land that will support two Class A warehouse buildings in Broward County Florida totaling over 182,000 square feet.
Matt Mcnulty: The site is minutes from Port Everglades and the Fort Lauderdale-Hollywood International Airport with frontage on I-595, accessing the Florida Turnpike and I-95.
Matt Mcnulty: The entitlement process is well underway and permits may be in hand by Q1 2025.
Matt Mcnulty: The project is estimated to cost some $318 per square foot with contingencies.
Matt Mcnulty: In Cecil County, Maryland, along the I-95 corridor, we are in the middle of permitting activities on 170 acres of industrial land that will support a 900,000 square foot distribution center. We look to secure permits in Q3 of 2025.
Matt Mcnulty: Finally...
Matt Mcnulty: We are in the initial permitting stage for our 55-acre tract in Hartford County, Maryland.
Matt Mcnulty: The intent is to obtain permits for four buildings, totaling some 635,000 square feet of industrial product, with construction of our first building in the park slated for 2026, pending favorable market conditions.
Matt Mcnulty: The building totaled 212,000 square feet, with an estimated cost of some $133 per square foot.
Matt Mcnulty: Existing land leases for the storage of trailers on site help to offset our carrying and entitlement costs until we are ready to build.
Matt Mcnulty: Over the next three to five years, we will focus on the permitting, construction, and lease up of the Perryman, Lakeland, Fort Lauderdale, and the 212,000 square foot building on our Harford County property.
Matt Mcnulty: These four buildings represent over 850,000 square feet of new industrial commercial product with an estimated total project cost of $145 million of which FRP share is $130 million.
Matt Mcnulty: With six to seven percent return on cost expectations upon stabilization, these projects represent some 7.8 to 9.1 million dollars in potential pro rata NOI.
Matt Mcnulty: In closing, we are excited to bring online our 258,000 square foot Perryman Industrial Building by year-end. This is our first industrial delivery since Q1 2023.
Matt Mcnulty: Building permits for our Lakeland Joint Venture project should be in hand by year-end, with building permits for our Fort Lauderdale JV project coming in Q1 2025, followed by our 212,000 square foot building in 2026.
Matt Mcnulty: With the Federal Reserve lowering interest rates for the first time since 2020 and construction costs appearing to stabilize, there are some positive signals for developing our industrial and residential assets.
Matt Mcnulty: However, industrial and multifamily vacancy rates are slightly up across all markets as a result of new deliveries that took place over the last two years, especially in the D.C. waterfront submarket.
Matt Mcnulty: rental rate increases have decelerated and appear to be coming back to historical annual three to four percent norms.
Matt Mcnulty: It is our plan to continue to monitor these data points and see where we are in 2025.
Matt Mcnulty: Thank you and I'll turn the call over to John Baker III, our CEL.
Speaker Change: Thank you, David, and good afternoon to all those on the call.
Speaker Change: The 26.4% NOI compound annual growth rate that Matt referenced that we've achieved over the last three years is remarkable.
Matt Mcnulty: It's also unsustainable.
Matt Mcnulty: Our ratio of stabilized assets to projects under development is beginning to shift
Matt Mcnulty: So while we expect to continue to grow NOI both organically on a same store level and Incrementally through future development the rate at which we will grow NOI Should moderate as earnings and cash flow growth increase with more stabilized projects
Matt Mcnulty: Though our NOI growth rate might taper on a percentage basis, we are by no means slowing down.
Speaker Change: As David spoke to, we have a healthy industrial development pipeline of joint ventures and 100% in-house projects, which in the immediate future will deliver three projects totaling 649,000 square feet of new Class A industrial space.
Matt Mcnulty: costing an estimated $118 million in total CapEx.
Matt Mcnulty: Further interest rate cuts and stable construction costs make the prospect of multifamily development more palatable than it has been in some time.
Matt Mcnulty: We will continue to monitor the fundamentals of that ATT&CK class.
Matt Mcnulty: But at least for now, the lion's share of our development strategy remains focused on industrial.
Matt Mcnulty: I will now open the call up for any questions you might have.
Speaker Change: At this time, if you would like to ask a question, please press the star and 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2.
Matt Mcnulty: and John DeVilliers. Thank you.
Matt Mcnulty: And once again, that is star and one to ask a question.
Speaker Change: And I'm showing we have no questions in the queue at this time.
Matt Mcnulty: of course
Speaker Change: Thank you all and we appreciate your continued investment and interest in the company. That concludes the call.
Speaker Change: That concludes today's teleconference. Thank you for your participation. You may now disconnect.