Q4 2024 FRP Holdings Inc Earnings Call
Speaker Change: [music].
Mhm.
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Speaker Change: Good day, everyone and welcome to today's FRP Holdings incorporated 'twenty 'twenty four for Q earnings call. At this time, all participants are in a listen only mode.
Speaker Change: 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 Star then the one key on your telephone keypad, you may withdraw yourself into the queue by pressing the star Cheeky. Please note today's conference is being recorded I will be standing by if you should need any assistance. It is now my pleasure to turn the conference.
Matt Mcnulty: Over to Matt Mcnulty. Please go ahead.
Matt Mcnulty: Thank you Margaret Good morning, I am Matt Mcnulty, Chief Financial Officer of FRP Holdings, Inc. And with me today are John Baker, our CEO.
Speaker Change: David Davila gave a third our president and Chief operating officer.
Speaker Change: David Bailey, our junior our former longtime president and now senior adviser John D. Baker to second our Chairman John Milton Our Executive Vice President General Counsel, and John Klopfenstein, Our Chief Accounting Officer.
Speaker Change: First let me run through a brief disclosure regarding forward looking statements and non-GAAP measures used by the company.
Speaker Change: As a reminder, any statements on this call relate to the future are by their nature subject to risks and uncertainties that could cause actual results or 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.
Speaker Change: To supplement the financial results presented in accordance with GAAP FRP present, certain non-GAAP financial measures within the meaning of regulation G promulgated by the Securities and Exchange Commission.
Speaker Change: non-GAAP financial measures referenced in this call our net operating income or NOI and pro rata net operating income.
Speaker Change: He uses these non-GAAP financial measures to analyze its operations and to monitor assess and identify meaningful trends in its operating and financial performance. This measure is not and should not be viewed as a substitute for GAAP financial measures are reconciled net operating income to GAAP net income. Please refer to this segment titled non-GAAP.
Speaker Change: Financial matters on pages, 14, and 15 of our most recent earnings release.
Speaker Change: Any reference to cap rates asset values per share values or the analysis of the estimated value of our assets net of debt and liabilities are for illustrative purposes, only and is a reflection of how management uses various assets for purposes of informing management decisions do not necessarily reflect the price that would be obtained.
Speaker Change: On a sale of the asset.
Speaker Change: What are the associated costs, our tax liability.
Speaker Change: Okay.
Speaker Change: Thanks.
Speaker Change: Now for our financial highlights.
Speaker Change: Following our fourth quarter results.
Speaker Change: Net income for the fourth quarter decreased 41, 7% to $1 $6 million to $8 million or <unk> <unk> per share versus $2 $88 million or <unk> 15 per share in the same period last year last year's fourth quarter included a one time gain of 1.98.
Speaker Change: Related to the termination of a loan guarantee at Devry <unk> III project for the year net income saw a 24% increase to $6 $3 9 million or <unk> 34 per share versus $5 3 million or <unk> 28 per share last year due mainly to the improved results at our multifamily segment.
Speaker Change: The company's pro rata share of NOI in the fourth quarter was up 21% to $9 $1 million and year to date was up 26% to $38 1 million.
Speaker Change: The year to date pro rata NOI increase was mostly driven by the performance of our multifamily segment due to improved results at all six of our stabilized projects in this segment versus the same period last year.
Speaker Change: Six multifamily projects contributed at contributed an additional $4 $6 million of pro rata NOI compared to last year.
Speaker Change: Versus last year at the mining segment contributed $2 7 million of additional NOI in the industrial and commercial segment. Another 649000.
Speaker Change: Over the last three years, we have grown pro rata NOI at a compound annual growth rate of 29, 5% on a trailing 12 month basis.
Speaker Change: Earlier today, we posted to our website a brief slide show financial highlights for the fourth quarter, which includes four less sugar purposes, an estimated value of our real estate assets net of debt and liabilities.
Speaker Change: Our analysis yielded a per share value in the range of $34 63 to $39 22.
Speaker Change: And our last release for Q3, 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 again, we provide this information to reflect how management views it as various assets for the purpose of informed.
Speaker Change: Management decisions.
David Davila: Do not necessarily reflect the price it will be obtained upon a sale of the asset or the associated costs or tax liability I will now turn the call over to David for his report on operations David.
David Davila: Thank you, Matt and good day to those on the call allow me to provide additional insight into the fourth quarter results of the company.
David Davila: Starting with our commercial and industrial segment. This segment consists of nine buildings totaling nearly 550000 square feet, which are mainly warehouses in the state of Maryland.
David Davila: Warner and 95, 6% of the buildings were occupied.
David Davila: Total revenues and NOI for the quarter totaled $1 3 million and 992000, respectively.
David Davila: A decrease of 11% and 15% over the same period last year.
David Davila: The decrease was due to a 50000 square foot tenant, which is 10% of this business segment defaulting on its lease obligations. We are currently in the eviction process and expect control of the space in Q2 2025.
David Davila: Moving on to the results of our mining and royalty business segment. This division consists of 16 mining locations predominantly located in Florida, and Georgia with one mine in Virginia.
David Davila: Total revenues and NOI for the quarter totaled $3 5 million and $3 $5 million, respectively, an increase of 19% and 34% over the same period last year.
David Davila: As for our multifamily segment. This business segment consists of 1827 apartments and over 125000 square feet of retail located in Washington, D C and South Carolina.
David Davila: At quarter end, the apartments were 92, 8% occupied and the retail space was 62, 6% occupied.
David Davila: Total revenues and NOI for the quarter were $14 1 million and $7.6 million respectively.
David Davila: <unk> share of revenues and NOI for the quarter totaled $8 2 million and $4 3 million respectively.
David Davila: This is a significant increase over prior quarters due to our Brian Street, and 408 Jackson multifamily joint ventures being included in this segment as of January 1st 2024, and the <unk> being included in this segment as of July one 2024.
David Davila: These three projects contributed $4 8 million and $2 2 million in revenue and NOI this quarter.
David Davila: At the same store comparison, which only includes dock Marin in Riverside FRP share of revenues and NOI for the quarter totaled $3 4 million and $2 1 million, respectively, an increase of 2% and 12, 2% over the same period last year.
David Davila: As stated in previous quarters, new deliveries in the D. C market will continue to put pressure on vacancies concessions and revenue growth in the foreseeable future.
David Davila: Management continues to be diligent and tenant retention and rental rates in the market. We are pleased to have renewal.
David Davila: Success rates over 60% with renewal rental rates trending over two 5% in Q4.
David Davila: Now on to the development segment.
David Davila: In terms of our commercial industrial development pipeline.
David Davila: 258000 square foot state of the art class a warehouse building in the Permian industrial sector of Harford County, Maryland is nearing completion.
Speaker Change: The cold temperatures and wintry precipitation that hit the mid Atlantic.
Speaker Change: Towards the end of the quarter and most of Q1 2025 has delayed final paving and concrete truck pad installation.
Speaker Change: We do expect shell completion in Q2, 2025, which will.
Speaker Change: And the asset moving from development to the industrial commercial segment. This will impact NOI negatively until it is occupied and stabilized where after the operating expenses can be passed through to tenants and receive rent revenue.
Speaker Change: Our 200000 square foot class a warehouse building in Lakeland, Florida, located along the I four corridor between Tampa, and Orlando, where FRP intends to be at 90% partner with Altman logistics properties as well into the construction drawing impairment stage, a construction loan and term sheet was executed in Q4.
Speaker Change: Final pricing is underway and we expect vertical construction to take place in Q2 2025.
Speaker Change: This project is estimated to cost some $141 per square foot with $9 Triple net rents.
Speaker Change: FRP in ALM and also partnered on a two building industrial project totaling over 182000 square feet in Broward County, Florida.
Speaker Change: The site is minutes from Port Everglades, and the Fort Lauderdale Hollywood International Airport with frontage on I 595, accessing the Florida Turnpike and 95, we are deep into the construction drawing impairment stage on this project as well our construction line in term sheet was executed in Q4.
Speaker Change: Final pricing is also underway and we expect vertical construction to take place in Q2 2025.
Speaker Change: Project is estimated to cost them $327 per square foot was $20 triple net rents.
Speaker Change: And Cecil County, Maryland, along the I 95 corridor, we are in the middle of pre development activities on a 170 acres of industrial land that will support a 900000 square foot distribution center.
Speaker Change: Offsite road improvements reforestation codes, and obtaining offsite wetland mitigation permits delayed our entitlement process and we now expect permits in early 2026.
Speaker Change: Finally, we are in the initial permitting stage for a 55 acre tract in Hartford County, Maryland.
Speaker Change: The intent is to obtain permits for four buildings totaling some 635000 square feet of industrial product.
Speaker Change: Existing land leases for the storage of trailers on site helped to offset our carrying an entitlement costs until we are ready to build we expect to submit our initial development plan in Q2, 2025, which puts us on track to have vertical construction permits in 2026.
Speaker Change: Completion of these industrial commercial development projects will add over $2 1 million square feet of additional industrial commercial product to our industrial platform growing the business segment from 550000 square feet to over $2 7 million square feet as stated in previous calls permitting.
Speaker Change: Constructing in leasing the Permian Lakeland Fort Lauderdale, and initial 212000 square foot building in Hartford County is our focus and goal over the next three years.
Speaker Change: These four buildings represent 850000 square feet of new industrial commercial product.
With a total project cost of $146 million.
Speaker Change: These projects represent some $8 7 million to $10 2 million and total NOI when stabilized.
Speaker Change: With FRP share of NOI, ranging from seven nine to $9 2 million.
Speaker Change: Turning to our principal capital source strategy or lending ventures.
Aberdeen overlook consists of 344 lots located on 110 acres in Aberdeen, Maryland.
Speaker Change: We have committed $31 1 million in funding.
Speaker Change: $26 5 million was drawn as of quarter end.
Speaker Change: And over $15 3 million in preferred interest and principal payments were received to date.
Speaker Change: National Homebuilder is under contract to purchase all the finished building lives by Q4 2027 <unk>.
Speaker Change: 100 of the 344 lots foreclosed upon and we expect to generate interest in profit of some $6 8 million.
Speaker Change: Resulting in a 22% profit on funds drawn.
Speaker Change: In closing we are excited about delivering our new 258000 square foot <unk> industrial warehouse and look forward to expanding our industrial footprint with <unk> logistics in South, Florida in 2025, with our Lakeland and Fort Lauderdale projects.
Speaker Change: With new construction starts and deliveries falling to pre pandemic norms, we expect market vacancies to top out in 2025, which should bode well for demand and rent growth as we deliver our new industrial projects.
Speaker Change: In 2025, we will have over 430000 square feet of vacant or rolling over space and our industrial commercial segment all located in Maryland.
Speaker Change: This has the potential to impact NOI in the short term at all.
Speaker Change: Allows us to re tenant these spaces under current market rates.
Speaker Change: <unk> NOI upon lease up in occupancy the average rental rate of the expiring industrial leases was $6 55 triple net.
Speaker Change: And we are hopeful most of our new rental rates, starting to 7% or greater.
Speaker Change: We expect short term sale for rates to remain stable for most of the year with a slight chance of a potential rate cut deep into Q4.
Speaker Change: With two floating rate loans that have the potential to be refinanced in 2026, we will watch the 10 year Treasury, which fell below four in a quarter. This week and the debt spreads to see if a more permanent and favorable debt structure is viable and accretive to our cash flow.
Speaker Change: Construction costs are entering a period of uncertainty as we await the impact of tariffs on steel lumber gypsum.
Speaker Change: It is our plan to continue to monitor these data points and make careful calculated and informed decisions.
John Baker: Thank you and I'll now turn the call over to John Baker, the third our CEO.
John Baker: Thank you David and good morning to all of us on the call.
John Baker: We've had a remarkable run of NOI growth over the last three years fueled.
John Baker: Fueled by developing and then occupying the remaining industrial parcels at our Hollander business Park, the lease up of three multifamily projects.
John Baker: And the continued success of our mining and royalties segment.
John Baker: As we mentioned in our earnings release yesterday.
John Baker: That level of growth is not sustainable.
John Baker: And we expect NOI in 2025 to remain flat if not slightly below 2024.
John Baker: We have vacancies in our industrial and commercial segment at our Cranberry business Park, and our new Chelsea buildings that will take time to fill and will have operating expenses that will negatively impact NOI compared to 2024.
Speaker Change: The mining and royalty segment is as strong as it has ever been with 2020 for NOI was positively impacted by a significant one time payment, which by its very nature is not repeatable.
Speaker Change: Our multifamily projects will find their NOI growth not through lease ups, but through increases on renewals and higher trade outs, which will be a challenge for our D. C assets as we compete with several new developments in our Submarkets.
Speaker Change: The real growth for our company in 2025, the investment taking place in our development segment as we look to deploy approximately $71 million and equity capital investments in 2025 that will bear fruit over the next five years and beyond.
Speaker Change: 2025 is where we begin delivering on average three new industrial assets every two years with a five year goal for doubling our industrial and commercial segment.
Speaker Change: From 800000 square feet with the addition of Chelsea to $1 6 million square feet.
Speaker Change: We will begin construction on our two industrial JV in Florida continue to entitle and permit our existing industrial pipeline to be shovel ready in 2026.
Speaker Change: In effort to augment that pipeline with the land purchase.
Speaker Change: Joint venture or potentially both.
Speaker Change: While our focus is industrial we will continue to develop multifamily assets as long as they meet our return thresholds in 2025, we anticipate moving forward with two multifamily developments in Florida, and South Carolina that would add 810 units.
Speaker Change: Estimated $6 million in NOI upon stabilization.
Speaker Change: Industrial has always been our bread and butter and.
Speaker Change: And we will continue to leverage our competitive advantage in that asset class.
Speaker Change: Where we have the most experience and control over.
But we believe multifamily joint ventures and growth markets partners, we know entrust represented useful hedge to our aggressive industrial development strategy.
Speaker Change: We'll now open the call to any questions that you might have.
Speaker Change: Thank you and as a reminder, ladies and gentlemen, if you would like to ask a question that is star one on your telephone keypad you may withdraw yourself from the queue at any time by pressing star two and again that is star one for a question, we'll pause for just a moment to allow the questions to enter the queue.
Speaker Change: While we wait for those questions, we'll take our first question from Stephen Farrell with Oppenheimer. Please go ahead.
Stephen Farrell: Good morning.
Stephen Farrell: Good morning, Steven.
Stephen Farrell: And just have a question if we can clarify.
Speaker Change: 71 million equity capital investment is that including both industrial and multifamily.
Stephen Farrell: Yes, that's everything.
Stephen Farrell: And then can you give a breakdown of.
Stephen Farrell: I guess the.
Speaker Change: Broward County.
Speaker Change: Our multifamily and then how much would be for existing and.
Speaker Change: Initially in the pipeline.
Dave: Sure Stephen This is Dave <unk>.
Speaker Change: Yeah.
Speaker Change: As it relates to our two Florida industrial projects Lakeland and signature.
Speaker Change: We also have two other projects that I spoke about.
Speaker Change: That industrial I'll call it pipeline and the two Florida buildings, we're looking to deploy about $21 million.
Speaker Change: In 2025.
Speaker Change: First for vertical construction of the of the Lakeland and signature, Florida projects as well as entitlements and permits for two other industrial properties.
Speaker Change: In terms of the multifamily.
Speaker Change: We have several projects in the pipeline one is in Estero, Florida one.
Speaker Change: One is in Greenville, South Carolina.
Speaker Change: And we also have two parcels in D C.
Speaker Change: More or less along the Anacostia River between the Soccer Stadium Nationals Baseball Stadium.
Speaker Change: Those projects represent the potential of $35 million of capital deployment.
Speaker Change: Two design permit.
Speaker Change: And if we elect to go vertical in 2025 vertical construction at our Estero, Florida, and Greenville, South Carolina project.
Speaker Change: Yeah.
Speaker Change: So that's a pretty big chunk of it some of the other stuff has to do with.
Speaker Change: Leasing capex of our existing portfolio.
Speaker Change: And then we have some additional dollars to further R. R.
Speaker Change: Our lands that were looking to sell to third party national Homebuilders.
Speaker Change: The new <unk>.
We do have our eyes set on new.
John Baker: Projects as John discussed, whether Thats a land purchase for.
Speaker Change: Potential JV or.
John Baker: Both.
John Baker:
John Baker: That number could be anywhere from.
John Baker: 10% to $25 million this year, if we can find it.
John Baker: And if we need to close on the land this year a lot of times, we're able to push.
John Baker: Land closing off.
John Baker: Till we get all of our entitlements, but we've allocated capital to close on the land that's what it takes.
John Baker: That's kind of a high level breakdown of those of those tranches to get up to the $71 million.
John Baker: No. That's a good breakdown. Thank you and for the acquisitions are you looking at.
John Baker: Maryland has it.
John Baker: Down in Florida is there any specific areas.
John Baker: Popping out.
John Baker: I would say that our focus is in the southeast.
John Baker: Sure.
John Baker: Maryland is our backyard right now, it's just harder to get entitlements.
John Baker: Hard to do business in Maryland in the southeast right now, but its our backyard and if there is an opportunity in Maryland that we like we'll take it.
John Baker: But we're definitely looking at the southeast given all of the.
John Baker: Just the drivers that are happening in the southeast right now.
John Baker: And do you think there is any potential to acquire an existing property, whether it's just an in distressed or someone looking to exit or Eric.
John Baker: Cap rates kind of away from what we would pay.
John Baker: Right now cap rates are away, we see a lot of stabilized assets that we can pick up.
John Baker: No.
John Baker: All at low four.
John Baker: Sure Hi for low five cap rates.
John Baker: A lot of them are training, 5% in place NOI.
John Baker:
John Baker: That just feels a little a little thing for us, but there's a lot of loans that were done 345 years ago as you know.
John Baker: In the high twos, and threes and Youre not getting that right now so we'll see if something pops up in the distressed market.
Speaker Change: And just to ask you about the tariffs how do you think that impacts or the flow of goods around Maryland and.
John Baker: What's the impact industrial there.
John Baker: No.
John Baker: If they stay in place and they're consistent I think it will have an impact.
John Baker: The two industrial buildings that we're looking to do in Florida.
We kind of have gotten ahead of that.
John Baker: And we're looking to move forward before the steel tariffs come in place. So those projects are unaffected.
John Baker: Tariffs remain in place in Canada.
John Baker: There are a lot of our lumber comes from.
John Baker: Some of these potential multifamily projects, we're going to have to take a look and just see let's.
John Baker: See where all that lands.
John Baker: So I think it's if they stay and they are consistent.
John Baker: It's going to have an impact more on the multifamily then on industrial in my mind.
John Baker: Oh, that's good thank you guys.
Speaker Change: And ladies and gentlemen that is star one for a question we will take our next question from Bill Chen with <unk> Partners. Please go ahead.
Bill Chen: Hey, guys.
Speaker Change: Hey, Bill Hey, Bill.
Bill Chen: Good morning.
Bill Chen: I was just wondering.
Speaker Change: We track the multifamily warehouse space fairly closely be poker brings but also like we just talked with a lot of <unk> out there.
Speaker Change: What are you guys underwriting to you too.
Speaker Change: New projects that.
Speaker Change: That you're looking to put.
Speaker Change: How the door this year.
Speaker Change: Can you go through by.
Speaker Change: If possible by multifamily by industrial and then the mucus segmented by geography as well just so that we get a sense of like.
Speaker Change: What are the Unlevered returns on these development projects.
Speaker Change: Yes.
Speaker Change: So yes, we do what we do put targets on each project and we do tend to try to look at the specific market to determine if the if that return rates should be higher or lower based on what we what we envision the cap rates being on the other side. So I would say just generally right now it's somewhere in the six 5% to 7%.
Speaker Change: Return on costs in the first year of stabilization.
Speaker Change: It's kind of kind of where we are.
Speaker Change: Obviously, we hope and we do underwrite.
Speaker Change: Conservatively, so we hope that when we get to the other side that we've had some cost savings Andrew or we get higher rents than we put in our model, but that's kind of a break line.
Speaker Change: Got you and is that is that is that six five to seven for both multifamily and industrials or is there a little bit of difference between the two asset class.
Speaker Change: I'd say it kind of moves between six and seven multifamily.
Speaker Change: Depending on where the project is.
Speaker Change: I think we were targeting somewhere around six and a quarter to six five.
Speaker Change: On the most recent one that we were looking at <unk>, probably actually have those numbers specifically that we had.
Speaker Change: We had targeted for woven.
Yes.
Speaker Change: Yes, no Matt.
Speaker Change: 100% correct I mean.
Speaker Change: <unk> is a big factor.
Speaker Change: The industrial building in southern Florida, sitting right outside Fort Lauderdale by the airport is probably one of the most.
Speaker Change: Resilient markets that debt.
Speaker Change: We do business and so that return on cost.
We can we can look to.
You can target something lower than a six and a half.
Speaker Change: Yes.
Speaker Change: Multifamily again, depending on where it is.
Speaker Change: So we're kind of targeting at $6 seven.
Speaker Change: 7%.
Speaker Change: Sterile BARDA in Greenville, South Carolina.
Speaker Change: Hum.
Speaker Change: I mean that six 5% to 7% range is a pretty good target once you get into these more resilient core markets.
Speaker Change: Maybe there is.
Speaker Change: There is an argument.
Speaker Change: For that six and a half.
Speaker Change: But if you get outside some of these core markets in the next exit up and.
Speaker Change: Yeah.
Speaker Change: That 7% is as more of the bullseye.
Speaker Change: Hum.
Speaker Change: Got you and that's a trend that number.
Speaker Change: That's trended.
Speaker Change: Let's try this okay.
Speaker Change: And trended in China that year, one its debut at stabilization.
Speaker Change: Hum.
Speaker Change: Just like to clarify what Youre are you baking in using today's right.
Speaker Change: And why.
Speaker Change: No.
Speaker Change: 3% annual rent increases between like when you put a shovel in the ground.
Speaker Change: Because these things take time to build is it take time to stabilize.
Speaker Change: They do and we constantly update it when we get into these things Bill.
Speaker Change: You take the current rental rate and we basically today.
Speaker Change: For industrial you've got a year of design and permitting.
Speaker Change: Got a year of construction, depending on the size of the building and market you've got another year.
Speaker Change: To get to kind of that that first year stabilization. So.
Speaker Change: So we do we take the current rental rate.
Speaker Change: We see what the historic trend and Escalations are we see what people are putting in their leases.
Speaker Change: When we make we make a decision we've seen extraordinary rent growth. So the historic curve, we don't believe in.
Speaker Change: So were kind of taken current rates and putting a two to two 5% escalator on that.
Speaker Change: Okay.
And you can argue if that's conservative or aggressive or or what but that's.
Speaker Change: That's what we do.
Speaker Change: Got you. Thank you for clarifying that.
Speaker Change: And also.
Speaker Change: Fr PS and this unique situation, where <unk> got a large cash holding we pay lot of attention to the market.
Speaker Change: The construction start has just fallen absolute falling off a cliff.
Speaker Change: And these projects that you're moving forward or are you finding yourself to be kind of the only game in town from a development perspective or are you.
Speaker Change: Yeah.
Speaker Change: If you could give us some color on if there were 10 projects previously what are you guys seeing or you're down to two three projects.
Speaker Change: Any commentary on.
Speaker Change: Competition for GC.
Speaker Change: General contractors are you seeing some.
Relief on the cost pressure at the past few years, we've seen absolutely witness at all cost cost inflation on the construction side, so any color on.
Speaker Change: And any of these events will be great.
Right now Youre, absolutely correct, I mean, new deliveries new starts.
Speaker Change: It has been a class.
Speaker Change: I think kind of in 2022, we were just on.
Speaker Change: Our new start delivery that was that was non sustainable and we're kind of back to pre pandemic norms in my mind.
Speaker Change: And it just feels different to gcs and to our vendors.
Speaker Change: So there it's not so much the material pricing, but they have come down on their fees.
Speaker Change: And then profit.
Speaker Change: We've been able to get very very.
Speaker Change: Aggressive.
Speaker Change: Numbers in fees and profits from our gcs.
Uh-huh.
Speaker Change: And I would say I think that.
Speaker Change: A lot of our competition.
Speaker Change: Went really really fast and.
Speaker Change: Right now they just they can't take that that jump.
Speaker Change: Weather.
Speaker Change: Their risk appetite or their balance sheet or I can't answer for them.
Speaker Change: So we see a great opportunity in the markets that we've targeted.
Speaker Change: The old in 2025, when a lot of people just arent.
Speaker Change: And being able to deliver in 2026.
Speaker Change: The one of the.
The only games in town one of the only new construction projects delivering and we think that's an advantage.
Speaker Change: No I agree with you I think I think that.
Speaker Change: It seems like the only people developing these days are.
Speaker Change: Large cap rates with very low leverage so they could issue unsecured bonds.
Speaker Change: Kind of what are the couple of like yours.
Okay. No. That's helpful would you say that the.
Speaker Change: Are you at pre pandemic.
Speaker Change: Levels or are you cottle for what are the markets you're in.
Speaker Change: At pre pandemic.
Speaker Change: Normal construction or are you guys actually below that at this point in your markets.
Speaker Change: I think.
Speaker Change: Yeah, that's an interesting question I'll just say.
Speaker Change: Over speak to industrial.
Speaker Change: Hum.
Speaker Change: Overall industrial pipeline.
Speaker Change: <unk>.
The report done.
Speaker Change: By Newmark.
Speaker Change: They said that at the end of Q4.
Speaker Change: The industrial kind of the pipeline declined to 322 million square feet.
Speaker Change: And that is lowest level of supply under construction since 2019.
Speaker Change: Okay.
Speaker Change: And they were saying that the pipeline is projected to fall to 2018 levels by the end of 2025.
Speaker Change: Yes, so I think we're kind of based on that and I kind of agree I feel like we're back into this.
Speaker Change: 2018 2019 level.
Speaker Change: And depending on what happens.
Speaker Change: With tariffs.
Speaker Change: And interest rates and in some other programs coming out of the White House.
Speaker Change: It's either going to.
Speaker Change: Yeah.
Speaker Change: Make it harder to start.
Speaker Change: Or.
Speaker Change: It may go the other way.
Speaker Change: Your Crystal ball is as good as Brian.
Speaker Change: Oh gosh.
Slash.
Speaker Change: To your question I think we're kind of in this that 2018 2019 period.
Speaker Change: Got you okay. Thank you for that I appreciate that.
Speaker Change: Going on the <unk>.
Speaker Change: Primary repositioning and then also on Chelsea a little bit.
Speaker Change: Yeah.
Speaker Change: On the retirement, Mark mentioned is like 400000 square foot of.
Speaker Change: Lease explorations.
Speaker Change: That all.
Speaker Change: I don't think Thats, all within Cranberry Thats, what hollander in there as well.
Is that correct.
Speaker Change: That's that is really all it's pretty much all in cranberry.
Speaker Change: Okay.
Speaker Change: And it's also the new <unk>.
Speaker Change: ALC building, a 258000 square feet.
Speaker Change: Okay got you.
Speaker Change: And.
Speaker Change: In the prepared remarks, you gave a blended.
Speaker Change: Right, but really those are really two different asset classes I think Chelsea based on my memory. If I'm correct way is really like a $9.
Speaker Change: Market it in cranberry than the older product and I'm, assuming can you just kind of breakdown.
Speaker Change: My understanding is when you bought Cranberry you guys kind of got a full assault and put some capex into it and it's generally kind of like a smaller business or like relatively right like as supposed to Chelsea is like a bigger.
Speaker Change: Just because of newer more class a so so my question. There is can you help us understand.
Speaker Change: No.
Speaker Change: One.
Speaker Change: One tenant.
Speaker Change: Getting affected in Cadbury, Utah.
Speaker Change: Can you talk about like what the market looked like to backfill that and then.
Speaker Change: Those leases.
Speaker Change: New.
Speaker Change: One like tenants want to move out how easy would it be how easier how difficult would be too.
Speaker Change: To backfill those spaces and then.
Speaker Change: What does the in place rent worldwide versus market.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Sure I would say that just to give you some history.
Speaker Change: When we bought cranberry.
Most of the leases, let's just say we are in the $4.
Speaker Change: Yeah.
Speaker Change: Most of those leases were in place.
Speaker Change: 345 years ago.
Speaker Change: They were all done prior to this great increase in rental rates.
Speaker Change: And I would say that.
Speaker Change: Most of the expiring leases at Cranberry.
Speaker Change: R M B.
Speaker Change: High fives low sixes.
Speaker Change: Mhm.
Speaker Change: To your point this is a mix of smaller tenants.
Speaker Change: Let's just bring it sub 25000 square feet, we do have some below 50000 square feet.
The most of them are kind of in that let's just say 25000 to 50000 square foot range.
Speaker Change: That market is really really good it's very strong.
Speaker Change: The bigger the two.
Speaker Change: 200 to 300 to 500 thousands that.
Speaker Change: That demand is way down.
Smaller sized tenants.
Speaker Change: It's strong it's out there.
Speaker Change: You know the market.
Speaker Change: Cause four sevens and depending on.
Speaker Change: Improvements in term and everything else that can move around.
Speaker Change: Given our base cranberry.
Speaker Change: We have the ability to go after tenants and backfill that space strongly and still make.
Speaker Change: A very very solid return given the basis of our project.
Speaker Change: But at the same time.
Speaker Change: We want market rents and.
Speaker Change: Yes.
Speaker Change: That's what we want so that's what we're going to go after.
Speaker Change: And it's going to it's going to take time, it's all one market.
Speaker Change: We're not going to get it all done in one year.
Speaker Change: Whatever.
Speaker Change: Two years there is no reason why we can't backfill that space.
Speaker Change: Get that Pam.
Speaker Change: Cranberry back to where it was with rental rate instead of the previous term rental rates.
Speaker Change: Mhm.
Mike: And then Mike.
Mike: What do you think that Occupancies number is going to get down to.
Mike: All right.
Mike: Help me understand like.
Mike: Is that right.
Mike: That's <unk> 268000 square foot you got one tenant which is type of sand you backfill that Budd.
Mike: Most of the expiring leases that are going to stay in place.
Mike: I don't imagine this massive move out all right and then.
Mike: Or is there or is that a different situation, where we expect to.
Mike: Most tenants move out and backfill that space.
Mike: We expect all of the tenants to leave and the reason why.
<unk> 57000 square feet defaulted on us, they're not coming back.
Mike: Okay.
Mike: That's.
Mike: That in and of itself will cake cranberry from 96% occupancy to 60% of occupancy.
Mike: Okay.
Mike: We have a another tenant that bill.
Mike: Our own building.
Mike: When that's done we fully expect them to leave.
Mike: Okay.
Mike: The other lease is a government contract, please and that government contract lease it was no longer valid so they're leaving.
Mike: And the other tenants have said that we're not renewing so we expect everyone to leave.
Mike: And we expect.
Mike: Occupancy.
Mike: To get very very low at cranberry.
Mike: Hopefully they all don't expire on the exact same date.
Mike: Grand Prairie is going to be a major major focus.
Mike: I see.
Mike:
Mike: Okay.
Mike: Wasn't it.
Mike: Yes.
Speaker Change: Is there something about the nature of the tenants there obviously.
Mike: Like.
Mike: Someone can pay right and that's one thing, but like is there something about the nature of that is it.
Mike: Essentially like a transitional asset type or.
Mike: Like is there I'm just trying to.
Mike: By that.
Mike:
Mike: <unk>.
Mike: I see this is.
Mike: That's fairly I won't say no.
Mike: Normal but.
Mike: We expect rollover.
Mike: And then Lisa.
Speaker Change: They happen to be one tenant wanted a three year I wanted a five one wanted to seven.
Speaker Change: It was very important to them and it just happened to kind of use leases lineup over 2025 and <unk>.
Speaker Change: Current quarter's of 2025.
Speaker Change: And it's kind of the nature of the.
Speaker Change: The industrial cycle.
Speaker Change:
Speaker Change: I think we are.
Speaker Change: You know, where we are cautiously optimistic about the rollover because now we're able to.
Speaker Change: Renew at market rents.
Speaker Change: Mhm.
Speaker Change: So we believe we believe in the product we believe in the size spaces that we have we really like where the market has gone.
Speaker Change: And look forward to.
Speaker Change: You know to re tenant in these spaces.
Speaker Change: At a much higher rental rate.
Speaker Change: Mhm mhm.
Speaker Change: Uh huh.
Speaker Change: And what about.
Speaker Change: What about Chelsea.
Speaker Change:
Speaker Change: Any color on like the leasing velocity there.
So that building because of the winter, we werent able to put the final coda paving down and we werent.
Speaker Change: <unk>.
Speaker Change: To finish the truck work.
Speaker Change: Hum.
Speaker Change: In Q4 of 2024 in Q1 of 2025 of those quarters.
Speaker Change: We typically don't expect.
Speaker Change: A lot of action.
Speaker Change: Our communication during those months.
Speaker Change: When the building is not done and Theres not a.
Speaker Change: Distinct delivery time.
Speaker Change: Yes.
Speaker Change: As we move into Q2.
Speaker Change: We do expect to have some paper trade hands and if.
Speaker Change: If we can.
Speaker Change: We can start getting some some velocity.
Speaker Change: But right now theres been some phone calls theres been some tours, there's kind of been people kicking tires. So.
Speaker Change: You've got some action, but it's all.
Speaker Change: It's all talk.
Speaker Change: We look forward.
Speaker Change: Getting some term sheets and being able to deliver we did get a permit for.
A tenant improvement build out that we have in hand that we just got.
Speaker Change: So if we have someone we hope that will accelerate.
Speaker Change: Our ability to get them in.
Speaker Change: Occupancy right.
Speaker Change: We're trying to decrease.
Speaker Change: That timeline.
Speaker Change: To do a deal to permit to construct and ultimately get them in.
Speaker Change: Mhm.
Speaker Change: Uh-huh.
Speaker Change: Mhm.
Speaker Change: Got you.
Speaker Change: On the.
Speaker Change: Multifamily I think you mentioned that you're moving forward with the project and kasha.
Speaker Change: Is that.
Phase three would be next to the Marin.
Speaker Change: So.
Speaker Change: We had two adjacent sites next to dock in Marin.
Speaker Change: Known as phase III is for.
Speaker Change: Yes those were.
Under our <unk>.
Speaker Change: Hotel and an office site.
Speaker Change: We made the decision a couple of years ago that hotel and office.
We're not two asset classes that we thought were the highest and best use on that site.
Speaker Change: So we parked on <unk>.
Speaker Change: Modifying our existing <unk>.
Speaker Change: Two.
Speaker Change: Get the zoning in place to do two multifamily developments there.
Speaker Change: We expect.
Speaker Change: To get the zoning approval in Q2 of 2025 of this year.
Speaker Change: Yes.
Speaker Change: And then we have.
Speaker Change: No.
Speaker Change: Two years of <unk>.
Speaker Change: Thailand, getting construction drawings to be able to.
Speaker Change: Being in a position to have the opportunity to go vertical there.
Speaker Change: Those are two sites that we're looking at we would probably start phase four first which is on the river and were slightly back to phase three that would be adjacent to Marin.
Speaker Change: Okay.
Speaker Change: It looks like the beer garden right.
Speaker Change: Yes.
Speaker Change: So what's that.
Speaker Change: The beer garden to cope or.
Speaker Change: Correct that would be the phase four site that we would start at.
Speaker Change: And so the capital.
Speaker Change: Do something capital has not gone out and played by that.
Speaker Change: Likely a 2007.
Speaker Change: With that.
Speaker Change: You know, it's going to be based on market conditions.
Speaker Change: What we see in our assets, but I can.
Speaker Change: That timing I can't I can't argue that that's too conservative or too aggressive.
Speaker Change: Gotcha Okay.
Speaker Change:
Speaker Change: Alright. Thanks.
Speaker Change: <unk>.
Greg: Hey, Greg I think I got I think I have like or.
Speaker Change: Thank you for addressing the questions I have.
Greg: Then if.
Greg: If I may.
Speaker Change: Obviously.
Speaker Change: I've got a shareholder at this point for 10 years I don't know John Bolton on the call, but I remember when I went down and met with John and the initial phone calls so this year of marks.
Speaker Change: My my decade, as a shareholder you talk to me.
Speaker Change: <unk>.
Track culturally very closely.
Speaker Change: Yeah.
Speaker Change: I. Appreciate you guys gave me the platform to voice by again.
Speaker Change: I would just like to leave with two comments one I think.
Speaker Change: We've been involved for a really long time, I think everyone probably has done a really good job. We think I think the candle or in the way that you communicate with shareholders is excellent.
Speaker Change: As is the feedback from all the shareholders.
Speaker Change: <unk>.
Speaker Change: Just keep pushing on the idea that.
Speaker Change: Especially in today's environment, where.
Speaker Change: Shareholder.
Speaker Change: Disaggregate the assets.
Speaker Change: Between the multifamily holdings in the industrials.
Speaker Change: And we kind of like get large cap pure plays that pay a nice dividend and <unk>.
Speaker Change: Maybe like not get to the same level of undervaluation.
Speaker Change: But.
Speaker Change: There was a time, where I think <unk> comp, we traded at a much lower margin.
Speaker Change: We get this scale.
Speaker Change: Some of the sum of the parts right, but I think today there.
Speaker Change: As companies out there like you could buy basket.
Speaker Change: Pik.
Speaker Change: Multifamily exposure kick here at Weyerhaeuser exposure and are you kind of like recreate the company.
Speaker Change: And there is a current yield that comes with it.
Speaker Change: And that is part of the frustration here from all the shareholders and then but also myself as a shareholder.
Speaker Change: There is there is.
Speaker Change: Hi.
Speaker Change: Okay.
Speaker Change: Just want to buyback any shares, but I think some sort of return of capital in.
Speaker Change: In the form of a dividend in the form of dividend will be helpful. I know you guys have a lot of iron.
Speaker Change: <unk>.
Speaker Change: You've got a lot of project wind up Theres, a lot of capital, but the company also.
Speaker Change: Cash flow a lot. It's grown you guys done a wonderful job growing the NOI.
Speaker Change: So I think the dividend, even though have you started out at 1%.
Speaker Change: At a 1% yield I think it's I think it demonstrates two shareholders that there is a plan and intention to return that capital and give us.
Speaker Change: Some yield right.
Speaker Change: Small 1% because.
Speaker Change: From a total return perspective, getting some current dividend helps and I think it will also solve another problem, which is the trading liquidity issue I think there are some shareholders, who just won't buy any won't buy a real estate company without any sorts of yield so.
Speaker Change: I will keep.
Speaker Change: Question for that because I think I think it's important and I think I think it's something that.
And I don't say this lightly.
Speaker Change: Would not have advocated this in <unk> in that 'twenty, one 'twenty two because there's a lot of buildings that were still stabilizing.
Speaker Change: There's still a lot of dollars going out the door, but I think we're at a point, where there is very high quality recurring NOI between them and these are some of the best multifamily buildings.
Speaker Change: And the aggregate royalty business as some of the best business I've seen I think the probably could afford to pay something small like a 1% dividend. So.
Speaker Change: I just want I know I've said this before but you know.
Speaker Change: I. Appreciate you guys gave me the platform to you.
Speaker Change: Kind of voice my in my opinion as a decade plus shareholder.
So I'll end it there, but the other the other comment that I just want to kind of mentioned is.
Speaker Change: I would also mention that.
Speaker Change: From a cap rate perspective.
Speaker Change: We've been tracking multifamily cap rates since the start of raising rates and we've seen a lot of the loss trends that we're seeing you know Blackstone deal we've seen the KKR Lamar.
Speaker Change: Scene.
Speaker Change: So we're seeing a lot of smaller deals.
Speaker Change: I would say that this portfolio Marin Dock 79, Brian Shea version Jackson, the breadth of assortment.
Speaker Change: Seeing all these assets will be exceptional in Greenville.
Speaker Change: I would say that you're probably too conservative with the cap rate.
Speaker Change: You mentioned earlier on the call that.
Speaker Change: On the acquisition side really it's in the high fours low fives and.
Speaker Change: I'm just like some to see like a high end of 564 for an asset of this quality that this young on the river, where people can't built more asset or what we what <unk> I think it's just a little bit too punitive.
Speaker Change: Because I've seen.
Speaker Change: I think there was a time when when people what will multifamily cap rates shake out at.
Speaker Change: We've had.
Speaker Change: Probably two years, we've seen some big deals we've seen some small deals and we talked to a lot of real estate GP and lateral sage <unk> will be very happy to buy.
Speaker Change: This portfolio, but 20 years older and paid like a 5% cap rate for it. So that's just that's just.
Speaker Change: Some thought that I wanted to leave.
Speaker Change: Hopefully what I have no further questions I want to thank everyone for full year.
Speaker Change: For fighting the fight in for being very upfront in.
Speaker Change: Canada.
Speaker Change: Our holders I appreciate that.
Speaker Change: Yes Bill.
Speaker Change: Thank you for all of that.
Speaker Change: The comment on your.
Speaker Change: Your last point the cap rates in our.
Some of the parts analysis are.
Speaker Change: Okay.
Speaker Change: Really for illustrative purposes, we have no intention to.
Speaker Change: To sell anything right now and so.
Speaker Change: Whatever the cap rate is.
It's really not important since we're going to hold onto the assets and we would love you to be correct and our estimate to be conservative whenever.
Speaker Change: We come around.
To selling them, but right now.
Speaker Change: What we're focused on the NOI and cash flows in.
Speaker Change: And growing those so.
Speaker Change: If cap rates stay at the level that you think they are then the assets are only going to occur.
Speaker Change: Accumulating value.
Speaker Change: <unk>.
Speaker Change: Thank you for for all of your your insight.
Speaker Change: And Ah.
Speaker Change: Opinions and commentary.
Speaker Change: <unk> 10 year anniversary.
Speaker Change: Well thank you.
Speaker Change: Sure.
Speaker Change: It's been it's been a wonderful experience.
Speaker Change: If I allow like I, just want to give some some a little bit more feedback on the cap rates.
Speaker Change: No.
Speaker Change: I like.
Speaker Change: I think I communicate to everyone.
Speaker Change: Hopefully one day my kids just hurt my shares in this company I think everyone's complex I don't think it that way.
Speaker Change: I think that.
Speaker Change: Part of the issue is just that.
Speaker Change: I kind of joke sometimes.
Speaker Change: On paid IR for the company because a lot of a lot of prospective shareholders reached out to me. They know that I'm knowledgeable about the company and whatnot and I think when they see a comp we publish a math I know that theres no attention that you're selling that and I would say I remember, having a conversation with David.
Speaker Change: The second.
Speaker Change: And he told me that.
Speaker Change: When you've got a building like that on the river and you've got that view that they want to build any more in front of you. Thank you.
Speaker Change: You just you build out once we just sit on your butt alright.
Speaker Change: Which like I totally agree with like my family owned stuff for 2030 years.
Speaker Change: Never sold any of it so totally agree that there is there is no intention of selling any of this.
Speaker Change: I think where I'm getting at is that when a prospective shareholder winter new shareholders will look at this and they see the stock trade at where trade that and they've seen the company put out a NAV.
Speaker Change: In that.
Speaker Change: 30, 35 to $39 range.
Speaker Change: They kind of just throw up their hands and say Oh this.
Speaker Change: This isn't cheap enough, there's not enough of a discount in Q2 private liquidation value. So it's not that you are or aren't going to sell those assets I think that I think that.
Speaker Change: No I don't think that.
Speaker Change: [laughter] from our company communication perspective.
Speaker Change: The company Delphi expectation for being conservative.
Speaker Change: And.
Speaker Change: I think I think that again I keep praising company for being very fourth prostate candidate I, just think that a a NAV value.
Speaker Change: That best approximate Michael Weil.
Speaker Change: Market arm's length transaction.
Speaker Change: Is the.
The best II for shareholders.
Speaker Change: Because.
Speaker Change: I think I think of a warm Rob we're all in it together in that from a trading liquidity perspective from a price discovery perspective as everyone. The Cup we work diligently.
Speaker Change: Diligently to build value over time.
Speaker Change: Hopefully some of that discount to NAV shrinks overtime and it sets up this site beautiful compounding from okay, right, but I think that.
Speaker Change: If you now.
Speaker Change: 60 bps.
Speaker Change: And multifamily 60 bps and cap rate Delta and multifamily is a really big deal. So.
Speaker Change: So that's where I'm coming from that's where I think that and then like just like.
Speaker Change: You have that right.
<unk> 910 years left on that 3% mortgage.
Speaker Change: As a huge asset so I'm not saying the aggressive I'm, just saying that I think getting that too.
Speaker Change: Two two best approximate market.
Speaker Change: As the company continues to grow as the company continues to add value.
Speaker Change: Grow NOI and you guys are all doing the right thing.
Speaker Change: But I think that.
Speaker Change: Letting shareholders.
Speaker Change: Not everyone's like kind of probably myself put a lot of work on a couple of years I've seen a lot of these assets, but not every shareholder we will do that level diligence and then I think that when we have an app that is.
Speaker Change: Thats approximate what our fair market is.
Speaker Change: It's a good starting point for people then they could draw down into it and then thats that creates a mechanism for how that discount shrinks over time. So that's that's kind of.
Speaker Change: My feedback to you.
Speaker Change: What was and I wouldn't want you I wouldn't want to comp wages. So any of these assets in todays interest rate environment.
Bill Chen: Yes, Bill I think Thats very fair point.
Bill Chen: I understand your point and I will do my job to go in.
Bill Chen: Dig deepen in the cap rates, we're using using current transactions and brokers to see if there is any room for adjustment on any any particular markets or assets.
Bill Chen: Thank you for that.
Bill Chen: Last thing, we're going to do is be aggressive but.
Bill Chen: To be overly conservative doesn't help either so let me let me just do a little digging in.
Bill Chen: And make some changes if theyre warranted.
Speaker Change: Thank you for that I appreciate it okay. Thanks, Bill we appreciate all your feedback.
Bill Chen: Okay.
Speaker Change: I'd now like to turn the call back over to our speakers for any final or closing remarks.
Speaker Change: Thank you for your continued interest in the company in.
Speaker Change: This concludes the call.
Speaker Change: Thank you and ladies and gentlemen that does conclude today's presentation. We appreciate for your participation you may hang up at any time.
Speaker Change: Okay.
Speaker Change: [music].