FRP Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 11, 2023

Key Takeaways

  • Strong financial growth: Q1 pro rata NOI rose 34.9% year-over-year to $6.99M, driven by robust performance across all segments.
  • Asset Management segment saw revenues increase 27.5% and NOI jump 60.6% compared to Q1 2022, led by higher deliveries and rent growth at key industrial parks.
  • Mining & Royalties recorded its highest quarterly revenue ever—up 35.3% to $3.28M—with NOI up 37% and trailing twelve-month royalties exceeding $11M for the first time.
  • Joint ventures’ seven mixed-use projects delivered a 14.9% increase in FRP’s share of NOI, supported by over 90% occupancy at flagship Washington, D.C., and Greenville developments.
  • Lending Ventures committed about $49.6M to two residential land developments with a minimum 20% preferred return, expecting lot take-downs to begin in Q4 2023.
AI Generated. May Contain Errors.
Earnings Conference Call
FRP Q1 2023
00:00 / 00:00

There are 4 speakers on the call.

Operator

Good day, everyone, and welcome to today's Earnings Conference Call. At this time, all participants are in a listen only mode. Later, you will have an opportunity to ask questions during the question and answer session. Please note this call may be recorded. It is now my pleasure to turn today's program over to John Baker III.

Operator

Sir, please begin.

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 Kaufenstein, 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, Except as imposed by law as a result of future events or new information. To supplement the financial results presented in accordance with Generally Accepted Accounting Principles, FRP presents certain non GAAP financial measures Within the meaning of Regulation G promulgated by the Securities and Exchange Commission. The non GAAP financial measure referenced in this call FRP uses its non GAAP financial measure 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. To reconcile GAAP to net operating income excuse me, to reconcile GAAP to net income, please refer So the segment titled Non GAAP Financial Measures on Pages 9 and 10 of our most recent earnings release.

Speaker 1

Now for our financial highlights from the Q4. Net income for the Q1 was $565,000 or 0 point 0 6 dollars per share versus $672,000 or $0.07 per share in the same period last year. Net income for the Q1 compared to the previous year was impacted primarily by an increase of $2,021,000 in equity and loss of joint venture from 2 projects and lease up As well as a $733,000 gain last year from the sale of excess Property in Brooksville, Florida. 1st quarter pro rata NOI for all segments was 6,990,000 versus $5,180,000 in the same period last year for an increase of 34.9%. David will touch on operations with greater depth and detail in his remarks, but I will briefly mention a few operational highlights.

Speaker 1

Asset Management increased revenues by 27.5 percent and NOI by 60.6% compared to the Q1 last year. Total revenues in the Mining Revenue segment increased 35.3% compared to the Q1 last year, And NOI in the Q1 of this year increased 37% over Q1 2022. For the 2nd quarter in a row, Mining royalties experienced its highest revenue total ever for any quarter. This is the Q1 this segment has cleared $3,000,000 revenue And the first time it has surpassed $11,000,000 in revenue in any trailing 12 month period. Now if I could turn things over to David Duvelier, Jr, to walk you through our segments in more detail.

Speaker 1

David?

Speaker 2

Thank you, John, And good morning to those on the call. As I've done for the past few quarters, I'd like to provide you with a slightly different on the results of the company from an operational standpoint. We report our business segments in dedicated silos, which are important in analyzing the company. However, operationally, we have overlap and synergies that are difficult to follow using the business segments as reported. So departing from GAAP and employing a day to day look in FRP, let me offer the following.

Speaker 2

The company's approach is 4 pronged, and this has been the core of our business since mid-twenty 18 when we liquidated our legacy warehouse portfolio. 1st, in house asset management includes our industrial, commercial and land development platform. These properties are developed, managed and owned 100% by FRP. Then of course, there's the mining and royalties. 3 is the 3rd party joint ventures, which is the name implies a project developed in conjunction with 3rd parties, FRP is the major owner that relies on seasoned and respected third party operating partners to perform the lion's share of entitlements, Construction and day to day operations.

Speaker 2

In our last segment, Lending Ventures, where we are the principal capital source for residential land development Relative to our in house industrial platform or asset management, delivery and occupancy at our 3 buildings The Hollander Business Park as well as rent growth on renewals at Cranberry produced a healthy lift to more than double the NOI for this period Last year, with Q1 'twenty three NLI of $891,550 over Q1 'twenty two NOI of both $308,077 As of last month, our 3 buildings in Hollander, totaling 247,000 square feet, Brandenburg and Ronde Business Park, a renovated 268,000 Square Foot Multi Tenant Building Warehouse Park in Aberdeen, Maryland remains fully occupied in the Q1 of 2023, capping off 5 straight quarters of full occupancy with this location. Our industrial pipeline is strong with 3 projects in the queue. We completed our ex agent on a 55 acre tract of land in Aberdeen adjacent to Cranberry Business Park, We'll soon begin to build a design for 8 up to 609,000 square feet of warehouse product. Existing land leases for the storage of trailers on-site have to offset our carrying and entitlement costs. We are hopeful we can begin construction there in 2025.

Speaker 2

In Northeast Maryland, along the I-ninety five Corridor, we have 170 Acres of Industrial Land that will ultimately support a 900,000 Redevelopment activities here are ongoing. And pending favorable market conditions, we expect Right ground as early as 2024. Finally, our 17 acre parcel in the Perryman Industrial Section of Rockford County, Maryland, Not to be distant from our other assets in Aberdeen, is moving through the entitlement process, and we expect a building permit to be issued shortly We're 259,000 square foot warehouse. Depending on final market dynamics, construction on this project can begin as early as this summer. Completion of these three land development projects, plus the recently delivered warehouse at Hollister, will add over 1.9 1,000,000 square feet of additional warehouse project product to our industrial platform that when added to the assets already in The Hollander Business Park and Cranberry Run will total over 2,350,000 square feet.

Speaker 2

Relative to our Mining and Royalty segment, our Mining and Royalty division saw total revenues for the quarter of 3,282,000 dollars versus $2,425,000 in the same period last year. As John echoed in his opening remarks, This is record revenue for any quarter in the Mining and Multi segment for the Q2 in a row. NOI was $3,148,000 an increase of 37% over the same period last year. Moving on to our 3rd party joint ventures. Currently, we operate from stabilized and development projects with 3 distinct partners, MRP, Woodfield and St.

Speaker 2

John Properties. The difference between development and stabilized As it relates to our business segments being an initial occupancy level of 90% for a minimum of 90 days. As of quarter end, our JV platform includes 7 mixed use projects totaling 1827 Apartments, 72,000 Square Feet of 1 Storey Office 226,000 Square Feet of Retail, all of which have completed construction. Four projects are located in Washington, D. C, where MRP Realty is our joint venture partner.

Speaker 2

These include Dock 79, Maren, Bryant, Phase 1 and our most recent completion, VERGE. In Washington, D. C, our neighboring projects, Dock 79 and Marin, Our partners include both MRP Realty and most recently, Stewart Investment Company, remain healthy with occupancies 93.4% and 93.2%, respectively, at quarter's end with all retail fully leased. Our newest project in the district, Burj, received its final certificate of occupancy in the Q1 and was 32% leased And 24% occupied with nearly half of 45% of the retail spoken for at quarter's end. Our final DC project is Fry Street, a multi building transit oriented mixed use project Located on the Red Line in Northeast Washington, D.

Speaker 2

C. Broad Street contains 2 residential projects, Chase and CODA, As well as a movie theater, accurate retail building and a flexible outdoor use fully leased towards a unique entertainment concept called Metro Bar. At the end of the Q1, Bryant Street's residential units were 90.8% occupied and its retail components We're 84.2 percent leased and 79% occupied. Our food home, Bryant Street Market, which occupies about 10,000 square feet, opened in March and has seen early success with its first four tenants, including a last visit last week by the President and Vice President of the United States in celebration of Cinco de Mayo. Moving on to South Carolina.

Speaker 2

Our 2 projects in Greenville with Woodfield Development are seeing great success. Riverside, which sits on the Swamp Rabbit River Trail, a popular recreation corridor in Greenville, Opened its 200 apartments for lease in August of 2021 and was 95% occupied as of the end of the Q1. 408 Jackson, another mixed use project, is located downtown and shares the street and plaza with Floor Field, The stadium home with the Greenville Drive, which is an affiliate of the Boston Red Sox baseball team. 408 Jackson was placed in service during the Q4 of 2022 and as of quarter end was 53% leased and 29% occupied With its retail component fully leased and targeting openings by the Q4 this year. The last project that makes up our 3rd party joint Venture division has undertaken the St.

Speaker 2

John's property, a pioneer in Flex Development and former National Developer of the Year, for St. John, we are developing winless run Middle River, Maryland that includes 72,000 Square feet of single storey office and 27,950 square feet of retail. This project continues to be 50.7 percent leased and 48 percent occupied. So to summarize, relative to our 3rd party joint ventures, FRP's 52 percent ownership share of the NOI for these 7 projects is $2,868,573 for Q1 of 'twenty three versus $3,625 in the same quarter last year. That's a 14.9% increase.

Speaker 2

Lastly, our Lending Investors segment, this last leg, our operating stool is a program where we provide working Capital towards the entitlement, horizontal development and future sale of single family residential Projects and ultimately sales to National Home Builders. The first of our 2 current projects is Amber Ridge In PG County, Maryland with the total commitment to this project of $18,500,000 The investment includes a charged 10% interest rate And a minimum preferred return of 20%, of which a profit induced waterfall determines the final split of proceeds. As of the end of the quarter, 144 lots have been taken down with the final 43 lots expected to be taken down by the end of Our other current lending measure is 12 Presbyterian Homes, 344 Lot, 110 Acre Residential Development Project in Arity, Maryland. We've committed $31,100,000 in funding Under similar terms to Amber Ridge. The National Home Builder is under contract to purchase all lots, which will include 2 22 terminals And 122 single family dwellings.

Speaker 2

Horizontal construction has begun, and we expect the first loss to be taken down in Q4 of 'twenty three. In closing, we are very pleased that the company has been able to continue to surpass itself in terms of earnings and adapt to difficult market conditions. We've flourished in a constantly changing environment, and we've been able to do so, thanks to the strength of our balance sheet and the consistent efforts of our Calgary team. We look forward to building upon our successes and finding new ways to capitalize on our unique position in the marketplace. Thank you, and I will turn it back to John.

Speaker 1

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

Operator

Thank And at this time, there are no questions in the queue. We just had one pop up from Stephen Farrell with Oppenheimer. Your line is open.

Speaker 3

Good morning. How are you?

Speaker 1

Good morning, Stephen.

Speaker 3

Good morning. Just a few quick questions here. In New York City, at least, we had a huge increase in apartment listings in March, and then we also saw A big increase in rents as well. Do you see a similar dynamic in DC? Maybe people Pushing back buying homes given the banking crisis and continuing to ramp?

Speaker 2

I can take a crack at that one. Basically, we have seen some pretty healthy increases And our rates both for renewals and also trade outs. As you can see, our occupancies have been pretty strong In the Washington, D. C. Area and also in Greenville, South Carolina.

Speaker 2

So obviously, homes have been With the interest rates going up the way they have, they're making some of these projects a little difficult as it relates to Not only building them, but selling them. So it will be interesting to see how it helps out the apartments.

Speaker 1

Yes. Steve, I think that Even when interest rates were low, it seemed like people in their late 20s 30s were Pushing off a home purchase just because interest payments were low and house prices were so high, the Down payment was, I think, hard for people to afford. And obviously, interest rates going up and home prices Staying kind of where they were only exacerbates that. So it seems like there's a total lack of supply And available houses, which we're hoping to capitalize on with our lending ventures. So, yes, I don't think Rising interest rates are a boost to people buying homes.

Speaker 3

That's good. Thank you. And you talked on the last call about So rents were at The Verge versus the Marin and it was running about 10% less. And I know that So the Q4 is not for seasonality, it's a bit slow there. Have you seen A pickup in rents there, do you have an update?

Speaker 2

As far as Marin goes, Marin is Probably the highest receiving the highest rent per square foot. We're also pretty well occupied there, of course, that's on the border. Burt's is actually seeing some pretty strong leasing activity now that we're coming into the strong leasing months. They're running obviously, our plan here is we've got a concrete plant next to us. It's closing up operations by A third party, so that's kind of helping reduce some of the traffic, not all of it.

Speaker 2

We're starting to see some pretty healthy tours and visits, and we're seeing the rents Starting to pop up a little bit. We think that they'll continue that way, but I think it's going to be Certainly less at the end of the day than what you see at Dock and Marin because it's not on the water just like those 2 are. So But we are seeing a ramp start in the job.

Speaker 3

And on the last call, you also mentioned Potentially starting a Phase 1 of the Stewart partnership in Q4. Do you have any kind of thoughts on Starting that project in the current environment?

Speaker 2

Well, obviously, there's some pretty strong headwinds to say that that's not going to happen, but We're still going through the due diligence process, which includes getting the property ready for what we call shovel ready for development. And that will probably be able to take a look at the appropriate modeling for that project sometime at the end of the Q3 and the beginning of Q4. But I would say that probably just the timing and certainly all of the economic wins, not necessarily being the greatest that may Get pushed off a quarter. We're still kind of in the process of looking at that. But we certainly don't want to start a building too late in Even if the market does dictate the right kind of actions because it causes too much it causes too much extra cost Because of the weather, that kind of thing gets started too late in the year.

Speaker 2

So I would say probably would be closer to the Q1 Or maybe in the Q2 of 2024. Hard to tell at this point, more news after the next quarter.

Speaker 1

Yes. Stephen, I don't know if you kind of remember the optionality The deal we have with the Stewarts, but it can either go 1 of 4 ways. And the first is The best possible way, which is we do our due diligence, we do our planning and entitlement, and then Everybody wants to move ahead and we pay the stewards for the land and then they reinvest that money And the project and we're all good to go. And then the second option is we want to go and they don't. And in that case, they're obligated to sell us the land and we go out and do it ourselves.

Speaker 1

3rd option is We don't want to move forward and they do. And in that case, they pay us back for our due diligence and planning efforts and they And then the 4th option is we don't like the way The market is looking at the time that we need to make a decision and we all just sit tight. And I think we're somewhere between the first option and the 4th option. If interest rates Looks like they're going to stay flat or go down, then we'll probably feel a lot better about it. Construction costs go down, we'll probably feel a lot better about it.

Speaker 1

If everything stays really expensive, I think we'll probably Sit tight because this is a gigantic building, over 400 units, and It's closer to the verge in terms of rents than it is to Marin, just by virtue of its location. And We're not just going to flip a coin and say, hope it works out. This is a big deal, and this is the first step in a really important partnership, and we want it to be Successful, and we're going to give it every opportunity it can to succeed.

Speaker 3

That's a good color. Thank you. And if no one else is on, I'll keep going here. With the moratorium in Hartford County, do you think this will affect future developments? And will More restrictions on industrial and then around Baltimore moving forward?

Speaker 2

Well, right now, it was a bit of a surprise to everyone when the account executive came in and Place a moratorium on all industrial development for 180 days. And then as it started to work its way through the commission, It's reduced to somewhat. For example, we're grandfathered because our project, that's the 259,000 Square Foot Building that I mentioned in my opening remarks. We had already received what they call site plan approval, so that was grandfathered in. So we're allowed to go forward.

Speaker 2

And as I said, we're looking to get a building permit here shortly. Market conditions, we're doing market studies now to See how things are. Vacancy right now is very low in this part of The world and so we'll have to we're still taking a look at it. The moratorium is for 90 days With the ability to extend it for another 90. And I just think that everyone's trying to figure out These big buildings, what properties should be zoned industrial and what should what properties might not be, And that's what they're going through.

Speaker 2

I think we'll find out some more, but we like the idea of the fact that we're not going to have a whole Competition because we're the last one to get a new permit.

Speaker 1

And David, none of Our other properties in our pipeline are in that county. So it won't be an issue with those at least Thanks for how much, Dan.

Speaker 2

That's pretty much correct.

Speaker 3

And well, you had the $1,000 to $259,000 which is fine, but isn't there One other to 54 Acres, would that be projected to it?

Speaker 2

Yes. That's the Krausz property. That's going to add actually to the town of Aberdeen, which separates that out from the other projects. So We're not part of that moratorium at this point. And again, that property, as I say, we're really not ready to move forward on that Part of the property was in the town of Aberdeen, part of it was out.

Speaker 2

So we annexed the entire parcel in, so that kind of puts us in Our position as it relates to the improvement process, but we still have a ways to go to get the entitlements done On that property, so we weren't we really weren't even planning regardless of this quote moratorium to starting anything near probably until 2025. The good thing about that property is we lease a lot of it out to trailer storage, which gives us a pretty healthy return We now want our initial investment while we're waiting.

Speaker 3

And just last question. Do you have an updated figure and just ballpark a dollar value on what you'll spend for Development activities for the rest of 2023?

Speaker 1

I think the projected CapEx number that we have And our sent queue is 89,000,000. 83,000,000.

Operator

All right. And we have no further questions at this time.

Speaker 1

All right. Well, I want to thank everybody for their interest in the company, and we're going to get back to work and keep building shareholder value. Thank you.

Operator

Thank you, ladies and gentlemen. This does conclude today's call and we appreciate your participation. You may disconnect at any time.

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