FRP Q3 2024 Earnings Report

FRP EPS Results

• Actual EPS: $0.07
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

FRP Revenue Results

• Actual Revenue: $10.63 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

FRP Announcement Details

• Quarter: Q3 2024
• Date: 11/6/2024
• Time: Before Market Opens
• Conference Call Date: Wednesday, November 6, 2024
• Conference Call Time: 4:00PM ET

FRP (NASDAQ:FRPH) is a real estate company headquartered in Jacksonville, Florida. The company owns, manages, and develops a diversified portfolio of properties, with activities focused primarily on the southeastern and Mid-Atlantic regions of the United States.

FRP Holdings operates through several real estate-oriented businesses. Its portfolio includes industrial and warehouse properties that are leased to commercial tenants, multifamily communities, and land and development projects. The company also owns properties associated with landfill operations and has interests in mining and mineral assets, including aggregate resources and related royalty arrangements.

The company traces its history to the Florida Rock organization and became an independent publicly traded company following the separation of Florida Rock Industries’ real estate and related assets. FRP Holdings continues to emphasize long-term ownership, development, and management of income-producing real estate and natural-resource properties. John D. Baker serves as the company’s chief executive officer.

FRP Q3 2024 Earnings Call Transcript

Key Takeaways

• FRP reported Q3 net income of $1.4 million (up 8% YoY) and 9M net income of $4.7 million (up 94% YoY), while pro rata NOI rose 39% in Q3 to $11.3 million and 28% YTD to $29 million, driven by multifamily, mining, and industrial segments.
• The multifamily segment saw improved results at six stabilized projects, adding $3.7 million of pro rata NOI YTD, with 91.9% apartment and 79.4% retail occupancy and same-store NOI growth of 6.5% despite DC market pressure.
• A one-time $1.9 million minimum royalty payment from a mining tenant for back production shortages substantially boosted Q3 NOI in the Mining and Royalty segment.
• FRP's robust industrial development pipeline includes a 258,000 sq ft warehouse in Maryland nearing completion and joint‐venture projects in Florida and Maryland totaling over 850,000 sq ft, with FRP’s $130 million CapEx share expected to yield 6–7% returns and $7.8–9.1 million in pro rata NOI.
• The company updated its mining royalty valuation to a cap rate methodology, estimating per-share asset value of $34.54–$39.15, and notes that Fed interest rate cuts and stabilized construction costs are positive, although rising vacancy and rental growth normalizing warrant monitoring.

Presentation

[Operator]

Please note this call is being recorded, and I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Matt McNulty, CFO of FRP.

[Matt McNulty, CFO at FRP Holdings Inc]

Thank you. Good afternoon. I am Matt McNulty, CFO of FRP Holdings Inc. With me today are John Baker III, our CEO, David deVilliers III, our COO, David deVilliers Jr., our President, John Baker II, our Chairman, John Milton, our Executive Vice President and General Counsel, and John Klopfenstein, our Chief Accounting Officer. First, a disclosure regarding forward-looking statements and Non-GAAP measures used by the company. 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. 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.

[Matt McNulty, CFO at FRP Holdings Inc]

To supplement the presentation of our GAAP financial results, FRP presents certain non-GAAP financial measures within the meaning of the SEC's Regulation G. The non-GAAP financial measures referenced in this call are net operating income, or NOI, and pro rata NOI. FRP uses these non-GAAP financial measures to analyze its operations and to monitor, assess, and identify meaningful trends in its operating and financial performance. This measure is not and should not be viewed as a substitute for GAAP financial measures. To reconcile NOI to GAAP net income, please refer to the segment titled Non-GAAP Financial Measures on pages 14 and 15 of our most recent earnings press release. Now, for certain financial highlights following our third quarter, net income for the third quarter increased 8% to $1.4 million, or $0.07 per share, versus $1.3 million, or $0.07 per share, in the same period last year.

[Matt McNulty, CFO at FRP Holdings Inc]

For the first nine months, net income saw a 94% increase to $4.7 million, or $0.25 per share, versus $2.4 million, or $0.13 per share, for the first nine months of last year. The company's pro rata share of NOI in the third quarter was up 39% to $11.3 million, and year-to-date was up 28% to $29 million. The year-to-date increase in NOI was mostly driven by the performance of our multifamily segment due to improved results at all six of our stabilized multifamily projects versus the same period last year. Year-to-date, these six multifamily projects contributed an additional $3.7 million of pro rata NOI, while the mining segment contributed an additional $1.8 million of NOI, and the industrial and commercial segment an additional $829,000 versus the first nine months of last year.

[Matt McNulty, CFO at FRP Holdings Inc]

Over the last three years, we have grown pro rata NOI at a compound annual growth rate of 26.4% on a trailing 12-month basis. In the third quarter, we exceeded that pace due mainly to a one-time $1.9 million minimum royalty payment received during the quarter. This payment was a back payment for 24 months of additional minimums owed to us by the mining tenant after failing to meet a minimum production requirement in the lease. Earlier today, we posted to our website an updated presentation of financial highlights for the third quarter and year-to-date results, which includes an estimated value of our real estate assets net of debt and liabilities. Our analysis yielded a per-share value in the range of $34.54-$39.15.

[Matt McNulty, CFO at FRP Holdings Inc]

In this most recent release, we changed the way we value the mining royalty asset stream from an EBITDA multiple to a cap rate valuation as management believes this methodology more appropriately reflects how these assets should be valued. Any reference to cap rates, asset values, per-share values, or the estimated value of our assets net of debt and liabilities are for illustrative purposes only as a reflection of how management views its various assets for purposes of informing management decisions and do not necessarily reflect the price that would be obtained upon a sale of the asset or the associated costs or tax liability. I will now turn the call over to our COO, David deVilliers III, for his report on operations. David.

[David H. deVilliers III, COO at FRP Holdings Inc]

Thank you, Matt, and good day to those on the call. Allow me to provide an operational perspective on the third quarter results of the company. Starting with our commercial and industrial segment, this segment consists of nine buildings totaling nearly 550,000 sq ft, which are mainly warehouses in the state of Maryland. At quarter end, 95.6% of the buildings were occupied. Total revenues and NOI for the quarter totaled $1.5 million and $1.2 million, respectively, an increase of 0.9% and 10.3% over the same period last year. 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. Total revenues and NOI for the quarter totaled $3.2 million and $5.1 million, respectively, an increase of 3.8% and 79.9% over the same period last year.

[David H. deVilliers III, COO at FRP Holdings Inc]

NOI for this quarter included a $1.9 million one-time cash royalty received during the quarter that is straight-lined over the life of the agreement. As for our multifamily segment, this business segment consists of 1,827 apartments and over 125,000 sq ft of retail located in Washington, D.C., and South Carolina. At quarter end, the apartments were 91.9% occupied, and the retail space was 79.4% occupied. Total revenues and NOI for the quarter were $14.2 million and $8.2 million, respectively. FRP's share of revenues and NOI for this quarter totaled $8.2 million and $4.7 million, respectively. This is a significant increase over prior quarters due to our Bryant Street and 408 Jackson joint ventures being included in this segment as of January 1, 2024, and The Verge being included in this segment as of July 1, 2024.

[David H. deVilliers III, COO at FRP Holdings Inc]

These three projects contributed $4.7 million and $2.5 million in revenue and NOI this quarter versus $3.6 million and $1.8 million in last year's third quarter. As a same-store comparison, which only includes Dock, Maren, and Riverside, FRP's share of revenues and NOI for the quarter totaled $3.5 million and $2.2 million, respectively, an increase of 2.2% and 6.5% over the same period last year. New deliveries and existing supply in the DC market will continue to put pressure on vacancies and revenue growth for these DC assets in the foreseeable future. Management continues to be diligent in tenant retention and related rental rates in the market. As a result, we are pleased to have renewal success rates over 50%, with all renewal rental rates showing positive growth and a majority of our trade-out rental rates being positive as well. Now on to the development segment.

[David H. deVilliers III, COO at FRP Holdings Inc]

In terms of our commercial-industrial development pipeline, our 258,000 sq ft state-of-the-art Class A warehouse building in the Perryman Industrial Sector of Harford County, Maryland, is nearing completion and is expected to be delivered before year-end. Upon shell completion, this asset will be moved to the industrial-commercial segment and will impact NOI negatively until it is occupied and stabilized. Thereafter, the operating expenses can be passed through to the tenants. The project is estimated to cost some $116 per sq ft, exclusive of contingencies. Our 200,000 sq ft Class A warehouse building in Lakeland, Florida, located along the I-4 corridor between Tampa and Orlando, where FRP intends to be a 90% partner with BBX Logistics, is well into the entitlement stage. Permits for development should be in hand on or before Q1 2025. The project is estimated to cost some $141 per sq ft with contingencies.

[David H. deVilliers III, COO at FRP Holdings Inc]

FRP and BBX also closed on land that will support two Class A warehouse buildings in Broward County, Florida, totaling over 182,000 sq ft. The site is minutes from Port Everglades and the Fort Lauderdale-Hollywood International Airport, with frontage on I-595 accessing the Florida Turnpike and I-95. The entitlement process is well underway, and permits may be in hand by Q1 2025. The project is estimated to cost some $318 per sq ft with contingencies. In Cecil County, Maryland, along the I-95 corridor, we are in the middle of permitting activities on 170 acres of industrial land that will support a 900,000 sq ft distribution center. We look to secure permits in Q3 of 2025. Finally, we are in the initial permitting stage for our 55-acre tract in Harford County, Maryland.

[David H. deVilliers III, COO at FRP Holdings Inc]

The intent is to obtain permits for four buildings totaling some 635,000 sq ft of industrial product, with construction of our first building in the park slated for 2026 pending favorable market conditions. The building totaling 212,000 sq ft with an estimated cost of some $133 per sq ft. Existing land leases for the storage of trailers on site help to offset our carrying and entitlement costs until we are ready to build. Over the next three-to-five years, we will focus on the permitting, construction, and lease-up of the Perryman, Lakeland, Fort Lauderdale, and the 212,000 sq ft building on our Harford County property. These four buildings represent over 850,000 sq ft of new industrial-commercial product, with an estimated total project cost of $145 million, of which FRP's share is $130 million.

[David H. deVilliers III, COO at FRP Holdings Inc]

With 6%-7% return on cost expectations upon stabilization, these projects represent some $7.8-$9.1 million in potential pro rata NOI. In closing, we are excited to bring online our 258,000 sq ft Perryman Industrial Building by year-end. This is our first industrial delivery since Q1 2023. Building permits for our Lakeland Joint Venture project should be in hand by year-end, with building permits for our Fort Lauderdale JV project coming in Q1 2025, followed by our 212,000 sq ft building in 2026. With the Federal Reserve lowering interest rates for the first time since 2020 and construction costs appearing to stabilize, there are some positive signals for developing our industrial and residential assets. However, industrial and multifamily vacancy rates are slightly up across all markets as a result of new deliveries that took place over the last two years, especially in the DC waterfront submarket.

[David H. deVilliers III, COO at FRP Holdings Inc]

Rental rate increases have decelerated and appear to be coming back to historical annual 3%-4% norms. It is our plan to continue to monitor these data points and see where we are in 2025. Thank you, and I'll turn the call over to John Baker III, our CEO.

[John D. Baker III, CEO at FRP Holdings Inc]

Thank you, David, and good afternoon to all those on the call. The 26.4% NOI compound annual growth rate that Matt referenced that we've achieved over the last three years is remarkable. It's also unsustainable. Our ratio of stabilized assets to projects under development is beginning to shift. So while we expect to continue to grow NOI both organically on the same store level and incrementally through future development, the rate at which we will grow NOI should moderate as earnings and cash flow growth increase with more stabilized projects. Though our NOI growth rate might taper on a percentage basis, we are by no means slowing down.

[John D. Baker III, CEO at FRP Holdings Inc]

As David spoke to, we have a healthy industrial development pipeline of joint ventures and 100% in-house projects, which in the immediate future will deliver three projects totaling 649,000 sq ft of new Class A industrial space and costing an estimated $118 million in total CapEx. Further interest rate cuts and stable construction costs make the prospect of multifamily development more palatable than it has been in some time. We will continue to monitor the fundamentals of that asset class, but at least for now, the lion's share of our development strategy remains focused on industrial. I will now open the call up for any questions you might have.

[Operator]

At this time, if you'd like to ask a question, please press the star and one on your telephone keypad. You may remove yourself from the queue at any time by pressing star two. Once again, that is star and one to ask a question. We will pause for a moment to allow questions to queue. And once again, that is star and one to ask a question. And I'm showing we have no questions in the queue at this time.

[John D. Baker III, CEO at FRP Holdings Inc]

Thank you all, and we appreciate your continued investment.

Participants

Executives

• David H. deVilliers III, COO
• Matt McNulty, CFO

Analysts

• John D. Baker III, CEO at FRP Holdings Inc