FRP Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 9, 2023

There are 4 speakers on the call.

Operator

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. Please note today's call will be recorded. And I will be standing by if you should need any assistance.

Operator

It is now my pleasure to turn the call over to John Baker. Please go ahead, sir.

Speaker 1

Good morning. I'm John Baker III, Chief Financial Officer and Treasurer of FRP Holdings. And with me today are David de Villiers, Jr, our President John Baker II, our Chairman and CEO John Milton, our Executive Vice President and General Counsel John Klopfenstein, our Chief Accounting Officer and David de Villiers III, 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.

Speaker 1

We have no obligation to revise or update any forward looking statements Accept as imposed by law as a result of future events or new information. To supplement the financial results presented in accordance with Generally Except at accounting principles, FRP presents certain non GAAP financial measures within the meaning of Regulation G promulgated by the The non GAAP financial measure referenced in this call is net operating income or NOI. FRP uses its non GAAP financial measure to analyze its operations and 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. During the call, net operating income to GAAP net income, please refer to the segment titled Non GAAP Financial Measures On Page 12 are our most recent earnings release.

Speaker 1

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 the sale of the asset or the associated costs of tax liability. Now for our financial highlights from the Q3. Net income for the 3rd quarter was 1.2 Net income for the Q3 of 2023 when compared to the previous year was impacted negatively by an increase of 1 point $35,000,000 in equity and loss of joint ventures, mostly from $856,000 in increased losses During the lease up of The Verge, our newest mixed use project on the DC Waterfront, as well as an increase in interest expense of $378,000 due to less capitalized interest. Net income was positively impacted by an increase in interest income of $1,510,000 from increased interest earned on cash equivalents and increased income on our lending ventures as well as improved revenues in all four segments. 3rd quarter pro rata NOI for all segments was $8,090,000 versus $6,240,000 in the same period last year for an increase of 29.5 percent.

Speaker 1

Net income for the 1st 9 months of 2023 was $2,420,000 or $0.26 versus $1,810,000 or $0.19 per share in the same period last year. The 1st 9 months of 2023 are positively impacted by an increase in revenues and $5,340,000 in equity and loss of joint venture compared to the same period last year as we lease up The Verge and 408 Jackson as well as an increase in management company and direct expense of $393,000 and an increase in interest expense of $1,040,000 offset by an increase in interest income of 5,000,000 The 1st 9 months of 2022 were also positively impacted by $733,000 in gain from property sales, which we did not repeat in the 1st 9 months of 2023. Revenue, operating profit, pro add NOI and net income all experienced Strong growth this quarter and for the year to date. Compared to the Q3 of 2022, we grew revenues by 14%, Operating profit by 56.6 percent, pro rata NOI by 29.5 percent And net income by 162.3 percent. For the 1st 9 months compared to last year, these metrics grew by 13.7%, 61.3%, 26.2% and 33.9%, respectively.

Speaker 1

Yesterday, we posted to our website a brief slideshow of financial highlights for the Q3 and 1st 9 months. For those who have not seen it, We are now including a net asset valuation. Our analysis yielded a per share value in the range of 69 point $0.24 to $78.76 I will now turn the call over to David for his report. David?

Speaker 2

Thank you, John, and good morning to those on the call today. Allow me to provide an operational on the Q3 results of the company. Starting with our Asset Management segment. Since the beginning of the year, Increased occupancy at our 3 industrial buildings at Hollander Business Park in Baltimore, Maryland as well as rent growth On renewals at Cranberry Business Park in Harford County, Maryland have produced a healthy lift to NOI. Net operating income for the Q3 of 2023 was $196,000 a 58.2% increase Over the same period last year, when the NOI was $693,000 At quarter's end, The asset management portfolio was 95.6 percent occupied on over 549,000 square feet of commercial product.

Speaker 2

Moving on to the results of our Mining and Royalty Business segment. This segment saw total revenues for the quarter of $3,082,000 versus $2,471,000 in the same period last year. NOI in this segment increased 21.4% over the same period last year to $2,837,000 As to stabilized joint ventures, Dock 79 in Marin with its 5 69 apartments had occupancies of 95.7% And 93.9 percent respectively at quarter's end with all retail fully leased. DOC and Marin enjoyed renewal success rates of 71% 60% respectfully for the quarter, With DOC seeing a 2.3% rental rate increase on renewals and Marin, a 3.2% increase. Average occupancies year to date for Dock and Marin were 94.2% and 96.1%, respectively.

Speaker 2

Riverside in Greenville, South Carolina with its 200 apartments was 91.5% occupied at quarter's end With 53% of its tenants renewing at an average increase in their rental rate of 8.56%. Average occupancy year to date was 94.2%. 3rd quarter pro rata NOI for this Business segment was over $2,000,000 including $231,000 in pro rata NOI from Riverside. Relative to our Development segment, we engage in 3 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.

Speaker 2

This 3 pronged strategy has effectively been the program since liquidating our legacy warehouse portfolio in mid-twenty 18. 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 3 projects in our industrial pipeline in various stages of development.

Speaker 2

During the second quarter, We broke ground on a 259,000 square foot state of the art Class A warehouse building on our 17 acre parcel In the Perryman Industrial section of Hartford County, Maryland. This spec building is expected to deliver in Q3 of next year. In Northeast Maryland, along the I-ninety five corridor, We are in the middle of pre development activities on 170 acres of industrial land that will ultimately support a 900,000 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.

Speaker 2

Our various configurations should yield from 600,000 to 700,000 square feet dependent on final design parameters and market demands. Existing land leases for the storage of trailers on-site Help to offside our carrying and entitlement costs until we are ready to build here, which could be as early as 2025. Completion of these 3 industrial development projects will add over 1,800,000 square feet of additional warehouse product to our industrial platform that upon completion will result in our asset management division consisting of over 2,350,000 square feet. Our second development strategy is our joint venture strategy, which as the name implies, our projects developed in conjunction with 3rd parties, Where FRP is typically the majority owner, but we share acquisition development and asset management risks with 3rd party local market leaders to facilitate day to day operations. These properties are housed in the development section until they are completed and have maintained a 90% occupancy level for a period of 90 days before being moved to the stabilized joint venture business segment.

Speaker 2

The lion's share of assets within our Development segment are currently within our joint venture strategy. These include Bryant Street and Verge in Washington, D. C. 408 Jackson in Greenville, South Carolina and our retail and office joint venture with St. John's Properties in Baltimore County, Maryland.

Speaker 2

Bryan Street consisting of 487 apartments in 3 different buildings was 94.5% occupied and its retail components were 95.9 percent leased and 79% occupied at quarter's end. Overall, the apartments at Bryan Street averaged renewal success rate of 68.4% and rental rate increases of 6.9% as of quarter end. Our newest project in the district, Verge, received its final certificate of occupancy in the Q1 and is 89.5 percent leased and 74.1 percent occupied with 45% of its 8,004 100 Square Feet of Retail spoken for as of the end of the quarter. Average occupancy for the quarter at Verage was 59.6% and year to date 35.1 percent. Thus, the reasoning behind the increase in equity and loss of joint ventures John mentioned in his opening remarks.

Speaker 2

0.408 Jackson, our 2nd mixed use project in Greenville is located downtown and shares the street and plaza with Fluor Field, home of the Greenville Drive, an affiliate of the Boston Red Sox. ROH Jackson was placed in service during the Q4 of 'twenty two and as of quarter end was 93.4 percent leased and 86.8% occupied as it marches steadily towards stabilization. Average occupancy for the quarter was 85.6 percent and year to date 48.9 percent, another reason for the increase in loss of joint ventures. Its retail component is fully leased and targeting a tenant opening date in early 2024. We're in the home stretch of lease up for all three of these joint ventures.

Speaker 2

When they reach stabilization and are transferred to the stabilized joint ventures business segment, The segment will have 1827 Apartments and 82,000 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 $4,000,000 in NOI through the 1st 9 months versus $1,900,000 in the same period last year. And when stabilized, we'll increase the NOI or excuse me, the revenues and NOI of our stabilized joint venture segment. Our principal capital source strategy, the last leg of our 3 pronged development strategy It's what we call lending ventures.

Speaker 2

It's a program where we provide working capital toward the entitlement and horizontal development of residential land, which is pre sold prior to commencement of any infrastructure improvements and ultimately transferred to National Home Builders. The first of our 2 current projects is Amber Ridge in Prince George's County, Maryland, with a total commitment to this project of $18,500,000 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 $19,400,000 of preferred interest and principal return as of The end of the quarter with the final 12 units expected to be taken down by Q1 2024. Upon completion of this project, interest income and profits are expected to total $4,000,000 Our other current lending venture is called Presbyterian Homes, a 344 Lot, 110 Acre Residential Development Project in Aberdeen, Maryland. We have committed $31,100,000 in funding under similar terms to Amber Ridge.

Speaker 2

A national homebuilder has purchased all of the finished building lots, which will include 2 22 townhomes and 122 single family dwellings. Horizontal construction has begun and we expect the first lots be taken down in Q1 of 2024. In closing, we remain pleased with the company's performance and are optimistic about growth opportunities. Challenges are ahead as we encounter a surplus of new developed Apartments coming online in Washington, D. C.

Speaker 2

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 firm foundations. We continue in our belief that challenges beget opportunities. With a strong, dedicated and talented team in place, FRP will continue to grow its portfolio And in turn, it's 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.

Speaker 2

Thank you. And I'll now turn the call back to John.

Speaker 1

Thank you, David. At this point, we're happy to open it up to any questions you might have.

Operator

We'll take our first question from Bill Chen with the Rizome Partners. Please go ahead.

Speaker 3

Hi, gentlemen. I don't really have a question. Just want I'll give you some feedback that thank you very much for hosting the Investor Day and also the improved Presentations and transparency, the 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 questions. I think a lot of them were answered in the Investor Day, but again, just want to thank you for providing all this additional transparency and disclosure.

Speaker 3

It makes my job a lot easier. That's all.

Speaker 1

Thank you, Bill. Thank you, Bill.

Speaker 2

That's appreciated.

Speaker 3

Well, I appreciate everyone in company doing your job and doing it very well. And Look forward to the next quarter's earnings call. Thank you, gentlemen.

Speaker 1

Thank you.

Speaker 3

Have a good day.

Operator

Thank you.

Speaker 1

All right. Well, Phil'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 DC in October. That amount of face time If you have not seen our Investor Day presentation, a replay is available on the

Operator

This does conclude today's FRP Holdings Third Quarter Conference Call. We appreciate your participation. You may disconnect at any time. On behalf of our client, I would like to thank you for joining us. This concludes our program.

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Key Takeaways

  • Robust Q3 growth: Revenues rose 14%, operating profit by 56.6%, pro rata NOI by 29.5% to $8.09 million, and net income surged 162.3% year-over-year.
  • High asset occupancy: The asset management portfolio was 95.6% occupied across 549,000 sq ft, delivering a 58.2% increase in segment NOI.
  • Development pipeline expansion: FRP is advancing three industrial projects totaling 1.8 million sq ft—including a 259,000 sq ft warehouse due Q3 2024—and aims to grow its industrial platform to over 2.35 million sq ft.
  • Mixed-use joint ventures: Verge and 408 Jackson are 89.5% and 93.4% leased respectively, and full stabilization will add 1,827 apartments and 82,000 sq ft of retail to the portfolio.
  • Lending ventures momentum: In Amber Ridge and Presbyterian Homes, 175 of 187 lots are sold with $19.4 million in preferred interest and principal returns, and first lot take-downs are expected in Q1 2024, targeting $4 million in total interest and profit.
A.I. generated. May contain errors.
Earnings Conference Call
FRP Q3 2023
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