Q1 2025 FRP Holdings Inc Earnings Call
Please stand by, we're about to begin.
Speaker Change: Good day everyone and welcome to the FRP Holdings Inc. 2025 First Quarter Earnings Call. At this time all participants are in a listen only mode, later there will be a question in the inter-session.
Speaker Change: You can queue for a question at any time by pressing the star key followed by the number one on your telephone keypad. You may remove yourself from the queue by pressing star two.
Speaker Change: Please be advised that today's call is being recorded. Should you require operator assistance, you may press star zero. I now like to turn the floor over to Matt McNulty, please go ahead.
Speaker Change: Thank you, Jamie. Good morning. I'm Matt McNulty, Chief Financial Officer of FRP Holdings Inc.
Speaker Change: and with me today are John Baker III, our CEO , David deVilliers III, our Chief Operating Officer, David deVilliers Jr.
Speaker Change: former president. John Baker, the second, our chairman. John Milton, our Executive Vice President and General Counsel, and John Clauffenstein, our Chief Accounting Officer.
Speaker Change: First, let me run through a brief disclosure regarding forward-looking statements and non-gab measurements used by the company.
Speaker Change: 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.
Speaker Change: These risks and uncertainties are listed in RSTC pylings. 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 generally accepted accounting principles FRP presents certain non-GAAP financial measures within the meeting of regulation G promulgated by the Securities and Exchange Commission
Speaker Change: The non-GAT financial measures referenced in this call are net operating income and pro-rata net operating income. FRP uses these non-GAT financial measures to analyze its operations and to monitor, assess, and identify meaningful trends in its operating and financial performance.
Speaker Change: This measure is not and should not be viewed as the Substitute for GAAP financial measures. To reconcile net operating income to GAAP net income, please refer to the segment titled non-GAAP financial matters in 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?
Speaker Change: All 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 cost of tax liability.
Now, for the financial highlights following our first quarter results.
Speaker Change: Net income for the first quarter increased 31.4% to $1.7 million or $0.9% per share versus $1.3 million or $0.7% per share in the same period last year.
Speaker Change: The company's pro-radity share of NOI in the first quarter increased 10% year-over-year to $9.4 million, mostly driven by higher contributions from our multi-family, development, and mining royalty segments.
Speaker Change: Versus last year, the multi-family segment contributed an additional $141,000 of NOI. The mining segment contributed an additional $524,000 of NOI. And the development segment, another 185,000 of NOI.
Speaker Change: It is worth noting that our industrial and commercial segment NOI decreased by $20,000 a year over year due to the vacancy and uncollectible revenue as a result of a tenant that was
Speaker Change: Meaningful new NOI over the next few years earlier today, we posted to our website a brief slide show financial highlights for the first quarter, which includes for illustrative purposes, an estimated value of our real estate assets net of debt and liabilities again, we provide this information to reflect how management views at various assets for the purpose of in form of management management.
Speaker Change: And do not necessarily reflect the price that would be obtained upon a sale of the asset what are the associated costs with tax liability.
Speaker Change: I'll now turn the call over to our CEO C O O. David did I leave the third for his report on operations David.
David: Thank you, Matt and good morning to those on the call allow me to provide additional insight into the first quarter results of the company.
David: 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 a.
David: At quarter end.
David: 85, 2% of the buildings were leased and occupied.
David: Total revenues and NOI for the quarter totaled $1 3 million and $1 1 million, respectively, a decrease of 7% and 2% over the same period last year.
David: The decrease was due to a 57000 square foot tenant, which is 10% of this business segment defaulting on its lease obligations and subsequent eviction in Q1 2025.
David: Moving on to the results of our mining royalty business segment.
David: This division consists of 16 mining locations predominantly located in Florida, and Georgia with one mine in Virginia total revenues and NOI for the quarter totaled $3 2 million and $3 3 million, respectively, an increase of 9% and 19% over the same period last year.
David: As for our multifamily segment. This business segment consists of 1827 apartments.
David: And over 125000 square feet of retail located in Washington, D C and South Carolina.
David: At quarter end, the apartments, where 94% occupied and the retail space with 74, 8% occupied.
David: Total revenues and NOI for the quarter were $14.3 million and 8 million respectively.
David: <unk> share of revenues NOI for the quarter totaled $8 3 million and $4 6 million respectively.
David: This is an increase over prior quarters due to the verge being included in this segment as of July one 2020 for.
David: <unk> contributed $1 4 million and 753000 in revenue and NOI this quarter.
David: At the same store comparison, which includes dock Marin Riverside poorly Jackson and Brian Street.
David: 40 share of revenues and NOI for the quarter totaled $6 9 million and $3 9 million, respectively. A revenue increase of 4% with NOI flat over the same period last year due primarily to higher operating expenses adopted married.
David: 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: Management continues to be diligent and tenant retention and rental rates in the market.
David: We were pleased to have renewal success rates, ranging from 47% to 75% with renewal rental rates trending over 2% on average in Q1.
David: Straight out rates were slightly negative at our Greenville, South Carolina properties, and we saw negative trade out rates at our D C properties.
David: Now on to the development segment.
David: In terms of.
David: Our commercial industrial development pipeline, our 258000 square foot, Steve the art class, a warehouse building and preparing an industrial sector of Harford County, Maryland is complete and ready to accept tenants beginning April 1st the asset will move from development to the industrial commercial segment.
David: This will impact NOI negatively until it is occupied and stabilized where after the operating expenses can be passed through to tenants and we can receive rent revenue.
David: F R P and Alt Min logistics partners entered into a joint venture partnership where FRP has a 90% owner.
David: 200000 square foot class a warehouse building in Lakeland, Florida.
David: The construction loan and general contractor agreements executed and vertical construction will take place in Q2 2025.
David: The project is estimated to cost some $141 per square foot.
David: With $9 Triple net rents.
David: FRP and often also partnering on a two building industrial project totaling over 182000 square feet in Broward County, Florida, where FRP is an 80% on a site is minutes from port Everglades in Fort Lauderdale Hollywood International Airport.
David: With frontage on I 95, accessing the Florida Turnpike and <unk> 95, we are deep into the construction drawing and permit stage on this project.
David: The construction loan and general contractor agreements are executed we expect vertical construction to take place in Q2 2025.
David: The project is estimated to cost them $327 per square foot was $20 triple net rents.
David: And Cecil County, Maryland, along the I 95 corridor, we are in the middle of pre development activities. When 170 acres of industrial land tell us support to 900000 square foot distribution center.
David: Offsite road improvements reforestation codes, and obtaining offsite wetland mitigation permits delayed our entitlement process and we expect permits in early 2026.
David: Finally.
David: We are in the initial permitting stage for a 55 acre tract Harford County, Maryland.
David: The intent is to obtain permits for four buildings totaling some 635000 square feet of industrial product.
David: Existing land leases for the storage of trailers on site help to offset our caring and entitlement costs until we are ready to build.
David: We expect to submit our initial development plan in Q2, 2025, which puts us on track to have vertical construction permits in 2026.
David: 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.
David: Yeah.
David: As stated in previous calls permitting constructing in leasing the pairing and Lakeland Fort Lauderdale.
David: And the initial 212000 square foot building in Hartford County is our focus and goal over the next three years. These four buildings represent over 850000 square feet of new industrial commercial product.
Steve: Total project cost of 146 million Steve.
Steve: Stabilized. These projects are expected to generate annual NOI between $8 7 million to $10 2 million as far as P share of NOI ranging from seven nine to $9 2 million.
Steve: Turning to our principal capital source strategy or lending ventures.
Steve: Aberdeen over a lucky consists of 344 lots located on the 110 acres in Aberdeen, Maryland.
Steve: We have committed $31 1 million in funding $26 6 million was drawn as of quarter end and over $19 1 million in preferred interest and principal payments were received to date.
Steve: Our national Homebuilders are under contract to purchase all of the finished building lots by Q4 of 2027.
Steve: 133.
Steve: The 344 lots for closed upon and we expect to generate interest in profits, if some 11.2 million, resulting in a 36% profit on funds drawn.
Steve: In closing.
Steve: Uncertainty around trade policy, the economy and financial markets has caused leasing activity to slow however, rental rates remained strong industrial space under construction has fallen below pre pandemic norms and we expect market vacancy is to top out in 2025, which should do well.
Steve: L for demand and rent growth as we deliver a new industrial projects.
Steve: In 2025 with the delivery of our 258000 square foot pairing them in warehouse, we will have over 430000 square feet of vacant or rolling over space and our industrial commercial segment. All located in Maryland. This has the potential to impact NOI in the short term, but will allow.
Steve: Alice to re tenant the spaces under current market rates bolstering NOI upon lease up in occupancy.
Steve: The average rental rate of the expiring industrial leases was $6.55 Triple net and we are hopeful most of our new rental rates start in the sevens or greater.
Steve: We expect short term still for rates to remain stable for most of the year with a slight chance of a potential rate cut deep into Q4.
Steve: We're able to take advantage of the treasury dip in March and locked in at 10 year permanent loan at a fixed six 4% interest rate on our two office buildings.
Steve: Brian Street, we will continue to watch the 10 year treasury and that spreads to see if a more permanent and favorable debt structure is viable and accretive to our cash flow.
Steve: It is our plan to continue to monitor these data points.
Steve: That's the impact tariffs may have on steel lumber gypsum and other construction products and make careful calculated.
Steve: Informed decisions moving forward.
John Baker: Thank you and I'll now turn the call over to John Baker is a third our CEO.
John Baker: Thank you David and good morning to those on the call.
John Baker: Last quarter, we use this call to caution investors to temper their expectations for NOI growth in 2025.
John Baker: We've been on a remarkable run fueled by new industrial projects.
John Baker: Well as the lease up of three multifamily projects. That's resulted in a 21% compound annual growth rate for NOI since 2021.
John Baker: Despite the positive first quarter results I E. A 32% increase in net income versus Q1, 2024, and a 10% increase in NOI compared to the same period last year same factors that led us to caution our investors are evident in our first quarter results.
John Baker: Most of the income and NOI growth came from increases in mining royalties.
John Baker: Interest income from our lending ventures and improved occupancy at the verge of project that was not yet stabilized in the first quarter last year.
John Baker: Industrial NOI is down compared to last year from vacancies at our Cranberry business Park.
John Baker: And we will take a further temporary hit when our newest spec industrial building is added to this segment in the second quarter.
John Baker: These buildings have real operating expenses that will negatively impact NOI until we get those spaces leases leased and occupied.
John Baker: Starting in the second quarter, our multifamily assets will have been stabilized for a full year. So the NOI bump where you experienced this quarter from the final bit of lease up at the verge will be difficult to achieve through organic same store growth, particularly as we compete with a number of new projects coming online and the Anacostia Submarket of D C.
John Baker: We are pleased with this quarters results, but I continue to caution of our shareholders to expect flat to slightly negative NOI results overall in 2025 since the temporary headwinds we're up against maybe two heavy lift for mining royalties to offset.
John Baker: Our focus in 2025 is to set the company up for our next stage of NOI growth we.
John Baker: We will do that in part by getting Cranberry and Chelsea fully occupied.
John Baker: But mostly I mean, putting money to work in new projects.
Speaker Change: As David mentioned, we have closed on the construction loans for both our industrial Jv's with Bvs and.
John Baker: Late breaking ground in the second quarter.
Speaker Change: We will continue entitlement work on our industrial pipeline in Maryland in order to be shovel ready in 2026, and we anticipate bolstering that pipeline with an additional land purchase and or JV. This year.
Speaker Change: We remain on track to deliver three new industrial assets every two years with the goal of doubling the size of our industrial segment over the next five years.
Speaker Change: As mentioned in last quarter, we anticipate beginning construction this year on two multifamily projects. The first one Greenville, and second outside Fort Myers, Florida.
Speaker Change: These two projects will add 810 units, an estimated $6 million in NOI upon stabilization.
Speaker Change: No CEO wants to pour water on a positive quarter, but we've never been a quarter to quarter company. Our focus is and has always been growing the value of the company over the long term our shift in strategy is essential to that and we expect 2025 to be the year of growing pains in that shift.
Speaker Change: We count ourselves extremely fortunate to have an investor base with the same long term view for capital appreciation that we do but we certainly don't take it for granted.
Speaker Change: Now I'll turn the call over to any questions that you might have.
Speaker Change: Thank you ladies and gentlemen at this time, if you would like to ask a question simply press star one on your telephone keypad.
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Speaker Change: Yeah.
Speaker Change: And once again that is star one to signal.
Speaker Change: It appears that we have no questions at this time I will turn the floor back over to management for any additional or closing comments.
Speaker Change: Okay.
Speaker Change: We appreciate your interest and investment in the company in.
Speaker Change: This concludes the call.
Speaker Change: Thank you once again, ladies and gentlemen that will conclude today's call. Thank you for your participation. You may disconnect at this time and have a wonderful rest of your day.
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