FRP Q4 2023 Earnings Call Transcript

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Provided by Quartr
March 7, 2024

Key Takeaways

  • FRP reported strong Q4 and full-year 2023 results, with Q4 net income of $2.88 million (up 4.3%) and pro rata NOI rising 20.6%, while FY revenues, operating profit, pro rata NOI and net income grew by 10.7%, 46.3%, 24.8% and 16.1%, respectively.
  • In its Industrial & Commercial segment, FRP achieved 95.6% occupancy and a 46.1% Q4 NOI increase, and is advancing three Maryland development projects plus a 50/50 JV with BBX Capital for a 215,000 sq ft warehouse in Florida.
  • The Multifamily portfolio maintained over 94% average occupancy at Dock 79, Marin and Riverside, delivered renewal rent increases, and is nearing stabilization on Bryant Street, Verge and 408 Jackson ahead of their transfer to operations.
  • Under its Principal Capital Lending program, FRP expects ~$4 million in interest and profits from Amber Ridge by Q2 and has committed $31.1 million to the Aberdeen Overlook residential development with NVR, already generating initial returns.
  • Management announced a 2-for-1 stock split to boost liquidity, published an estimated per-share NAV of $69.14–$77.58, plans ~$80 million of 2024 capex, and will continue opportunistic share buybacks while prioritizing development investments.
AI Generated. May Contain Errors.
Earnings Conference Call
FRP Q4 2023
00:00 / 00:00

There are 7 speakers on the call.

Operator

Good day, everyone, and welcome to today's FRP Holdings Incorporated 4th 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 this call is being recorded. I will be standing by if you should need any assistance.

Operator

It is now my pleasure to turn the conference over to Chief Financial Officer, John Baker III.

Speaker 1

Thank you, Madison. 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 and Vice Chairman John Milton, our Executive Vice President and General Counsel John Poppenstein, 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.

Speaker 1

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. To supplement the financial results presented in accordance with GAAP, 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 is net operating income or NOI. FRP uses uses this non GAAP financial measure to analyze its operations and to monitor, assess and identify meaningful trends in its operating financial performance.

Speaker 1

This measure is not and should not be viewed as a substitute for GAAP financial measures. To reconcile NOI GAAP net income, please refer to the segment titled Non GAAP Financial Measures on Pages 1213 of our most recent earnings release. 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 as a reflection of how management views its various assets for purposes of informing Now for our financial highlights from the 4th quarter. Now for our financial highlights from the Q4. Net income for the Q4 was $2,880,000 or 0.30 dollars per share versus $2,760,000 or $0.29 per share in the same period last year.

Speaker 1

Net income for the Q4 of 2023 when compared the previous year was impacted negatively by an increase of $879,000 in equity and loss of joint ventures, as well as an increase in interest expense of $188,000 due to less capitalized interest. Net income was positively impacted by an increase in interest income of $423,000 from increased interest earned on cash equivalents as well as improved revenues from our Industrial and Commercial segment. 4th quarter pro rata NOI for all segments was $7,550,000 versus $6,260,000 in the same period last year for an increase of 20.6 percent. Net income for 2023 was 5 point $3,000,000 or $0.56 per share. This is $4,570,000 or $0.48 per share in the same period last year.

Speaker 1

Fiscal year 2023 was positively impacted by an increase in revenues and profits in all four segments compared to 2022 and an increase in interest income of $5,420,000 from cash and cash equivalents as well as our lending ventures compared to last year. These were offset by an increase of 6 $220,000 in equity and loss of joint ventures 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 $553,000 and an increase interest expense of $1,200,000 2022 was also positively impacted by 874,000 dollars in gain from property sales, which we did not repeat in 2023. Revenue, operating profit, pro rata, NOI and net income all experienced strong growth. Income all experienced strong growth this quarter and for the year to date.

Speaker 1

Compared to the Q4 of 2022, we grew revenues by 2 point 6%, operating profit by 17.2%, pro rata NOI by 20.6% and net income by 7.8%. For fiscal year 2023 compared to last year, these metrics grew by 10.7%, 46.3%, 24.8% and 16.1%, respectively. Yesterday, we posted to our website a brief slideshow of financial highlights for

Speaker 2

the Q4 and fiscal year. For those

Speaker 1

who have not seen it, we are now publishing an estimated value of our assets and debt and liabilities. Are now associated with a per share value in the range of $69.14 to $77.58 I will now turn the call over to David for his report. David?

Speaker 2

Thank you, John, and good day to those on the call. Allow me to provide some operational highlights on the Q4 results of the company. First of all, a little housekeeping. We've renamed 2 of our business segments to better describe the assets in them. Asset Management has now become industrial commercial and stabilized joint ventures has become multifamily.

Speaker 2

So relative to our industrial commercial business segment, we currently maintain 9 buildings in house, making up nearly 550,000 square feet, which are predominantly warehouses. At year end, we enjoyed 95.6 percent occupancy throughout this part of the portfolio. Full occupancy at our 3 industrial buildings Park in Baltimore, Maryland, as well as rent growth on renewals at Cranberry Business Park in Harford County, Maryland have helped lift the NOI to $1,170,000 for the quarter, a 46.1% increase over the same period last year. For the year, our $3,900,000 in NOI for this segment represents an increase of 1,230,000 or 46.2 percent over 2022. Moving on to the results of our Mining and Royalty Business segment.

Speaker 2

This business segment saw total revenues for the quarter of $2,900,000 nearly flat versus $2,900,000 in the same period last year. NOI in this segment was down $169,000 over the same period last year. However, NOI for the year was $11,720,199 versus $10,152,539 in 'twenty two, an increase of 15.4%. In the multifamily segment, Dock 79 in Marin with its 5 69 apartments had average occupancies of 96.4% 94.7%, respectively, for Q4 with all retail fully leased. Both projects enjoyed renewal success rates of 70% 61% respectively for the quarter, with DOC seeing a 1.6% rental rate increase on renewals and Marin, a 2.75% increase.

Speaker 2

Average occupancies for all of 2023 for Dock and Marin were 95.6% 94.36%, respectively. Riverside in Greenville, South Carolina with its 200 apartments was 94.5% occupied at quarter end with 53% of its tenants renewing and an average increase in net rental rate of 2.04%. Average occupancy for Q4 was 95.21% and year to date 94.51 percent. The company's share of 2023 pro rata NOI for this business segment was $8,100,000 including an $800,000 in pro rata NOI from Riverside. Although we saw rent growth in all three properties, higher collection balances and operating expenses caused NOIs to flatten year over year when you factor in the change in equity due to the tenant and covenants sale to the Stewart family at Dock and Marin at the end of 2022.

Speaker 2

In the Development segment, we engaged in several strategies in this segment, which we use to grow the business. These strategies included our industrial and commercial, multifamily and principal capital source lending. These strategies have grown the portfolio from 1 apartment project and 4 commercial buildings since liquidating our legacy warehouse portfolio in mid-twenty 18 to over 750,000 square feet of commercial industrial products, 1827 multifamily units and several land parcels capable of additional growth. Our industrial and commercial strategy consists of ground up development from properties that are acquired, developed, managed and in most cases, owned 100% by FRP and transferred from development to the industrial and commercial business segment when the shale buildings are complete. We currently have 3 projects in our industrial pipeline in various stages of development.

Speaker 2

During the Q2, we broke ground on the 259,000 square foot state of the art Class A warehouse building on our 17 acre site in the Perryman Industrial section of County, Maryland. This spec building is expected to deliver at the end of this year. In Northeast Maryland along the I-ninety five corridor, we're in the middle of pre development activities on our 178 acres of industrial land that will ultimately support a 900,000 square foot distribution center or smaller multiple buildings depending on the market at the time. Depending on favorable market conditions, we will be in a position to break down on this project as early as Q1 of 20 25. Finally, we are studying multiple conceptual designs for our 55 acres in Harford County, Maryland, adjacent to our existing Cranberry Run business park.

Speaker 2

Various configurations should yield from 6 to 700000 square feet, dependent on final design parameters and market demands. Existing land leases for the storage of trailers on-site help to off-site are carrying an entitlement cost on this property until we're ready to build, 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 projects to our industrial platform that when complete upon completion will result in our industrial commercial business segments consisting of over 2,350,000 square feet. Subsequent to year end, we finalized our first ever industrial joint venture with BBX Capital for the development of 215,000 Square Feet Warehouse on I-four Highway between Tampa and Orlando, Florida. Assuming favorable market conditions, we hope to begin construction here in Q4 this year.

Speaker 2

Also included in this strategy is a joint venture project, which is a fifty-fifty partnership with St. John's properties called Windless Run, which is part of a mixed use development in White Marsh, Maryland that includes 3,300 residential units and over 3,500,000 square feet of commercial space. Our project currently includes 100,000 square feet of single story office and retail in 4 buildings. At year end, Windlass was 87% leased and 78.3% occupied in the office product and 38.2% leased and 22.9% occupied on the retail side. Our second development strategy is multifamily, where apartment projects are developed in conjunction with 3rd parties, FRP is typically the majority owner and we share acquisition, development and asset management tasks with outside local market leaders who facilitate day to day operations.

Speaker 2

These properties are housed in the development section until they are completed and maintain a 90% occupancy level for a period of 90 days before being moved to the multifamily business segment. Currently, this strategy houses Bryant Street and Verge in Washington, DC and 4 O H accident in Greenville, South Carolina. Bryant Street consisting of 487 apartments and 91 1,000 Square Feet of Retail in 3 Different Buildings was 93.8 percent occupied and its retail components were 96.6 percent leased and 82.7% occupied at quarter's end. Overall, departments at Bryant Street averaged the renewal success rate of 65% and rental rate increases of 3.8% as of quarter end. This project will be transferred out of this strategy and development to the multifamily business segment the end of this quarter.

Speaker 2

Our newest project in the district, Verge, received its final certificate of occupancy in the Q1 of 2023 and is 90.7% leased and 85.8% occupied, with 45% of its 8,400 square feet of retail spoken for at the end of the year. Lease up of this property has gone well and average occupancy for the quarter at verge was 78.97%. 408 Jackson, our 2nd mixed use project in Greenville is located downtown and shares a street plaza with Floorfield, home of the Greenville Drive and affiliate of the Boston Red Sox. 408 Jackson was placed in service during the Q4 of 'twenty two and is as of quarter end was 95.2% leased and 93.4%

Speaker 1

occupied.

Speaker 2

Like Bryan Street, this project will be transferred to the multifamily business segment at the end of this quarter. Average occupancy for the quarter was 90.37%. Its 4,300 square feet of retail is fully leased and is targeting an opening date sometime this summer. We're in the home stretch of lease up for all 3 of these aforementioned joint venture properties. When they reach stabilization and are transferred to multifamily, that business segment will have 1827 apartments and 126,000 square feet of retail.

Speaker 2

Unlike a warehouse in the development segment, our multifamily assets are already in operation. So if you refer to the Development segment NOI on Page 13 of our press release, you will note that these assets generated over $5,460,000,000 in NOI in 2023 versus 2 $1,000,000 last year, inclusive of an aggregate loss in NOI of $611,000 at 408 and verge. Still another strategy within development is our principal capital source program. It's a program where among other lending strategies, we provide working capital towards 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. This strategy 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.

Speaker 2

The first of our 2 current projects is Amber Ridge and Prince George's County, Maryland.

Speaker 1

With a

Speaker 2

peak capital out of $12,800,000 all 187 lots have been transferred out to the homebuilders and a final development activity should wrap up sometime during the Q2 of this year. Completion of this project, interest income and profits should are expected to total $4,000,000 Our other current lending venture is called Presbyterian Homes, now Aberdeen Overlook, a 344 lot, 110 acre residential development project in Aberdeen, Maryland. We've committed $31,100,000 in funding under similar terms to Amber Ridge. $20,000,000 was drawn at the end of the year. National Homebuilders under contract to purchase all of the finished building lots.

Speaker 2

Horizontal construction has begun. The first 11 finished lots have been taken down and $4,500,000 in interest and principal has been returned to the company by year end. In closing, we remain pleased with the company's performance and are optimistic about growth opportunities. Challenges we have foreseen for a while came to roost in the final quarter of 'twenty three as we saw record setting residential rents begin to flatten with increased competition. The surplus of new apartments coming online in Washington DC over the next several quarters will directly compete with our Waterfront assets.

Speaker 2

Fortunately, 2 of these three assets are stabilized and we expect the 3rd to stabilize prior to additional significant competitive apartment deliveries in the latter part of 'twenty four and early 'twenty five. We've been well served by the confidence we have placed in our design, amenities and management teams, coupled with our careful and patient approach to development. Weathering markets and competition is not new to us. We stand on firm foundations and a steadfast belief that challenges to get opportunities. With a strong, dedicated and talented team in place, FRP will continue to grow its portfolio and in turn its revenue and profits through a steady, careful and well reasoned approach to the market.

Speaker 2

We look forward to building upon our successes and further cementing our place in the market. Thank you. And I'll now turn the call back to John.

Speaker 1

Thank you, David. As many of you saw in our subsequent event note in yesterday's earnings release, we announced a forward split of our common stock at a ratio of 2 post split shares for every 1 pre split share. As a thinly traded company with a small number of shareholders, we believe this has the potential to add some liquidity to our stock. At this point, we're happy to open it up to any questions that you might have.

Operator

We will take our first question from Curtis Jensen with Robotti Company.

Speaker 3

Hey, John. Thinking about Bryant Street and I don't are we still in a we don't have permanent financing on that?

Speaker 2

Correct.

Speaker 3

What's kind of the status there and where do you see that? Is it just a function of waiting till rates get a little more attractive

Speaker 4

or?

Speaker 1

David can speak to this. Go ahead, David.

Speaker 2

Yes, I'll take a swing at it, Curtis. Yes, part of it is getting the retail in and occupying and there is some free rent that you always go through in that side of the business. So that's where we're really waiting, which is hopefully will be sometime during this year. But obviously, we're operating under a floating interest rate and we're looking to hopefully see that the interest rates start to drop a bit and then we'll look to permanently finance that program. We obviously weren't in a position to do that when the construction loan came due, which is why we did the interim financing, which is also again, we are on a floating rate, but that's the main reason.

Speaker 2

It's just getting the commercial side operating and a little bit of stabilization, then it will be a better time to go with the market also with hopefully interest rates starting to go down a bit towards the end of the year.

Speaker 3

When you say retail, is that mostly referring to the food court like the little

Speaker 5

food court?

Speaker 2

It's that part of it. Curtis, we have another say, call it, we've got 2 leases that are executed for about 8,000 square feet of the in line retail. They're under construction now. It took forever to get the building permits out of the district government agencies. So that's an issue we have and we have another one, let LOIs out for another one.

Speaker 2

So we're just trying to get all of that wrapped up. And again, we don't see a hurry right now because of the interest rates.

Speaker 3

And how do you how would you describe the verge is not I mean is it kind of meeting your expectations?

Speaker 2

For the most part, yes. There are significant units coming online towards the end of this year. And they have the positive they will ultimately have a positive effect on that area. We're no longer kind of out in the middle of nowhere because we will be a little bit more of the center of the donut as opposed to the outskirts because there's about 1400 units coming on that are further west, if you will, of the bridge than where we're located. So they all started right after COVID.

Speaker 2

And so there was a dearth of new projects that were that went under construction right after COVID. And of course, there was pretty there's pretty low interest rates at that time too. So they're up and going. The good thing is critical mass will help in some cases, but the interesting dynamic is there is nothing in the pipeline coming out after those 2 at the end of 'twenty four and early 'twenty five. We think we're in a pretty good place.

Speaker 1

Just to follow-up on what David is saying, permanent financing is obviously the ultimate goal, but that's only after we are able to grow the NOI to where we had envisioned it. I don't think we'd go out and seek permanent financing at the NOI that we're at right now. Our goal is to grow net operating income, increase the value of the property, so that by the time we get to the end of the opportunity zone, 10 year hold period, we've got a healthy asset with an appropriate amount of debt on it. And I mean, when I say appropriate, I mean the right amount, not too little, not too much. And the fact that we expect to get a good interest rate on it in a few years, It just speaks to that.

Speaker 1

That's a benefit. And anyway, I think between Bryant Street, Merge, Dock 79, Marin, the D. C. Market isn't where we want it to be, but we've got really, really good assets. We've got good people running them.

Speaker 1

There's a lot of supply that's come on, but it's not riverfront. It's not certainly not the quality of our assets. And we think in the long term, that's going to continue to benefit us.

Speaker 3

In your lending joint in your lending ventures, is the National Home Builder a publicly listed company? Have you named who the

Speaker 2

It's NVR.

Speaker 3

It's NVR. Okay.

Speaker 2

They were actually they had a soft opening for the Aberdeen Overlook property about 4 or 5 weeks ago. And as I said in the opening remarks, we transferred 11 lots out to them at the end of the year. We certainly have a pretty substantial deposit from them as well. And in their soft opening, they had over 400 people sign up for some of their different product. Now signing up and buying is a pretty good size difference distance between the lip and the cup, but it's a pretty favorable visual and it's a beautiful area and one that's kind of once again is in the center of the donut up in Aberdeen.

Speaker 2

Lot of construction is going on around them as it relates to retail. Large hospital has opened up and is doubling its size. So we're really excited about the potential for this Presbyterian Homes, which has now been entitled what now this is opening up Aberdeen Overlook.

Operator

We will take our next question from Stephen Farrell with Oppenheimer.

Speaker 5

Good morning. Good morning. Good morning, Steven. Just a quick follow-up on the DC market, are you currently offering concessions at the Marin and Dock 79?

Speaker 2

Small ones, if any. Again, we saw rent growth in DOC and Marin for the year. We had 2.8 percent renewal rent growth in DOC 79 and 4.21% rental growth in Marin. Trade outs in Marin were 1.9%. They weren't as good in Dock 79 because at the beginning of the year, Steve, in the 1st 2 or 3 months of 2023, we had a we replaced the manager on-site.

Speaker 2

We had lost a little bit of the occupancy. And so we wanted to get the heads back in the beds and that kind of eroded some of our potential profitability, which is why we did have a little bit, we had some concessions there. Everything is pretty much stabilized now and so we're in pretty good shape.

Speaker 5

And I might have missed this at the beginning, what were the biggest drivers in the operating expense growth at those two properties?

Speaker 2

They're across the board, probably one of the biggest ones in Marin was we had some utility issues and so that was pretty big. And the other two things, Stephen, one is the is security. DC, like any a lot of these towns, cities have had problems with security and we wanted to get out in front of the problems. So security was definitely higher there and also rent collections, we are slowly getting better because we were unable to generate the collection process because of COVID. COVID, they did not allow people to get thrown out.

Speaker 2

You couldn't go to court, couldn't do anything. And so there's an incredible overhang that is slowly starting to work its way through the system. It used to take up until sometime in the beginning of 'twenty three, it used to take over a year to start and complete the process of going through trying the collections and then ultimately evictions to get the properties back. Now it's down to about 7 months. So we're going in the right direction.

Speaker 2

But those are probably the 2 biggest reasons.

Speaker 5

And we saw with Bryan Street when you refinanced the construction loan, the bank required us to commit some more capital. And I'm seeing this trend continue, whether it's construction loans or permanent financing that banks are refinancing at 50% to 60% LTVs as opposed to 70%. And I think there's an opportunity to provide a GAAP financing to the borrowers so that they can maintain their debt and equity levels. And I know FRPH is not a lender, but if there was an opportunity to provide that GAAP financing along with the equity component, would you consider it?

Speaker 2

You mean to Bryan Street? No. But generally, I would say probably generally, I would probably say no. We've got a pretty strong development pipeline. We're focusing more on the industrial side in the near term, but we have some really good locations and some good projects in the multifamily side too.

Speaker 2

So we don't we want to maintain as much dry powder as we can. And so I don't see us and I certainly defer to John, but I don't see us going out and being mezzanine lenders or that kind of stuff. No, I think that Yes,

Speaker 1

you're absolutely right, David. I think we're going to use our equity to protect our own assets. But we'd have to get I think number 1, we are more than comfortable with the amount of exposure we have to the DC apartment marketplace right now. I don't think we're looking for additional exposure and we would have to get really, really smart on another asset or another marketplace before we did something like that. And I just don't think that's the best use of our time or money.

Speaker 1

But you're right, that is an interesting opportunity. That's just not I don't think we have the bandwidth to take on kind of an additional investment strategy.

Speaker 5

No, that's understandable. And with Amber Ridge, all the lots are sold. Is there any more interest or principal payments that will come in from that?

Speaker 2

Pretty much, no. It's we're just kind of wrapping it up. There's not a whole lot left, Stephen. There's some closing out of bonds and that kind of stuff before we can actually close the

Speaker 1

David, correct me if I'm wrong,

Speaker 2

but aren't there some funds that are

Speaker 1

going to be released? Because I think if I'm right, the overall

Speaker 6

expected

Speaker 2

return of capital

Speaker 1

and return of principal and interest and profit is $22,000,000 And right now, we've received 20 point $2,000,000

Speaker 2

Yes. There's from a cash standpoint, there's still roughly $700,000 that is we are holding as the lender to complete some of the remaining programs. And so we haven't finalized the actual interest in profit to FRP, but when the dust settles, we believe it's going to be about $4,000,000 in interest and profit we received from that project, which will probably be tallied out sometime in the 1st or second quarter.

Speaker 5

Thank you. Last question before I turn it over. The warehouse in Aberdeen, how much of the $30,000,000 development cost was funded in 2023?

Speaker 2

I think it was about $7,000,000 it would have been about $17,000,000 John, Kaye, are you there? Can you help me with that?

Speaker 1

16 is what I remember, but Yes, I was actually looking at the Amber Ridge issue. What was the question again?

Speaker 2

Chelsea, how much money have we put out in Chelsea? And I assume does that also include what we have in the land?

Speaker 1

It would. Yes, I'll pull it up. Is there in the meantime, is there another question?

Speaker 5

That's all I have. Thank you.

Speaker 2

Actually, Steve, let's see. Chelsea, Chelsea, Chelsea. No, I don't have any. Spec buildings, we spent we incurred in 23, about $9,000,000 Plus whatever we have.

Speaker 5

Plus the land gets to the 30?

Speaker 2

Yes.

Speaker 5

Okay. Great. Thank you very

Speaker 2

much. Sure.

Operator

We will take our next question from Bill Chen with Rizzo Partners.

Speaker 3

Hi, guys.

Speaker 2

Hi, Bill. Hi, Bill.

Speaker 4

Good to happy to join the call. Could you provide a little more detail on the Florida Industrial Joint Venture?

Speaker 2

Yes. I mean, it's we've always, again, take a little take a step back. We've always like we've done with the multifamily, Bill, we've always been we've been looking to expand our platform and our program and we've always felt the best way to do that was to find people and locations where the project was actually going to take place. And we found I've had a relationship with one of the people for 20 years. He moved back to Coral Gables, Florida.

Speaker 2

And anyway, they came to us late last year and said, look, we've got this project halfway between Orlando and Tampa, literally right on I-four, I mean, which is a main thoroughfare between the two areas. The market is very strong and it's a 215,000 square foot building that we're working on developing. And it looks like if things pencil out, we will look to start that building sometime in the Q3 of this year. There are strong boots on the ground, people like MRP, BBX Logistics is actually the name of our partner. They are a subsidiary of BBX Capital.

Speaker 2

They are a public company. They're a big slip public company, very strong financially. They've been around since the late 60s. So there is a very good synergy between the 2 companies culturally as well as personally.

Speaker 4

Could you talk about kind of the relative mix of the equity ownership? And then would FRP be able to is this over 50% like would this be another equity line item or would this be like consolidated like could you talk about that a little bit?

Speaker 2

We're going to be the controlling ownership interest. We're probably going to be because again, we are holders and these guys are sellers. So we would rather be buying, take a number, 10% to 20% of their ownership at retail and holding and keeping our 80% or 90% at wholesale, as opposed to getting so much into our partners that it would be would add a lot of money to the basis of our properties. So we're kind of treading water in that direction.

Speaker 4

Let me just clarify that. FRP will be the controlling holder in this project where we'll wind up with 80% to 90% ownership. Is that correct?

Speaker 1

Yes.

Speaker 4

Okay. And I guess like their role is to be boots on the ground, almost like the actual developer, they're doing the work. Is that kind of nature of the relationship?

Speaker 2

Yes. So we will be actively involved. I mean, again, we've been in the industrial business for over 30 some years. And so they're going to be leaning on us for the design. We certainly have done enough of these.

Speaker 2

They have to some extent too. And so I think it's a really good relationship and a good balance.

Speaker 4

Got you. Okay. Thank you for that. And I mean, if you don't mind, if I probe like, what are we underwriting potential like stabilized unlevered yield on a project like this?

Speaker 2

We haven't decided, but it's been above on a straight return on cost basis. It's got to be above 6.5% or we won't start it.

Speaker 4

Okay. Okay. That's very helpful. And I mean, is there a possibility, like in the Maryland, within the Investor Day, we you guys have provided that a lot of those Maryland projects could potentially come in at an unlevered yield of 8 or even above 8. Like, is there potential for this project to kind of hit those kind of numbers?

Speaker 2

Sure. We hope so. The market is big and it's strong and there's little vacancy. So you've been in understand the way the game is played and we don't go we don't start these things unless we feel pretty good about the shovel ready condition. We're not required to do anything.

Speaker 2

We're just we want to get to the point, get the contractors ready, get the numbers, get a guaranteed maximum price, look at the market, all of the above.

Speaker 4

Speaking of contractors, have you seen that the GC world kind of like, call it capacity, call it just slack, whatever you want to call it, just get a little bit better from like a development perspective?

Speaker 2

If you're saying are there prices getting tighter? Is that your question?

Speaker 4

The price is getting better, timelines improving, whatever you may be or just cost coming down, being able to move faster, more willing to work with you, etcetera?

Speaker 2

All of your comments and thank you for that, Bill. All those comments are positive, Yes. As you know, we have a 259,000 square foot building under construction now. When we we're building that in house effectively on our subcontracts. So we have but from that standpoint, we're seeing pricing come down a little bit.

Speaker 2

We're seeing timeframes coming down. To some extent, they're not back to where they were, but they're getting better.

Speaker 4

Got you. I appreciate the feedback on that. I have a big question I'll save for later, but I just want to provide some commentary. I think that I want to thank the team for splitting the stock. I know that we really no one's really going to wind owning more shares, but I think that I really do think that it will improve liquidity as just the absolute share price goes lower and the bid ask in terms of absolute kind of pennies could get a little tighter.

Speaker 4

I think that will help with the trading. So thank you for taking the initiative to take that action. I think it really demonstrates to the shareholders that you guys are thoughtful, you guys are thinking about that. And I also just want to commend the company for the share buyback. I've said this many times before, I think buying back at $54 is a great price, especially in light of the recent transaction that I'll talk about.

Speaker 4

But I think that even at today's price, in the low 60s, I think it's still a great use of capital. I know there's a lot of the cash is earmarked for a lot of projects. But I think we're also at a point where the company is generating a lot of cash. So I will always be a cheerleader for more share buybacks. So I want to really commend you guys for doing the share buyback and I'm just nudging that it's more share buyback will always be better and which so my final question is sort of the we Mar Marietta the

Speaker 1

deal to

Speaker 4

2 transactions, Bluewater Industries, and there's one other transaction. And I looked at the numbers and essentially what I get to is they spend about $2,500,000,000 for those 2 transactions roughly and they bought about $1,000,000,000 of reserves. And if I'm doing my math right, that pegs the value at about $2.50 for a ton of aggregate reserves and a lot of the markets are kind of similar, right? And if anything, maybe we can even go so far to say that FRP's market, which is Georgia and Florida, which is probably growing even faster than some of those markets, which like naturally kind of brings me to like some back of the envelope math. At $2.50 per ton of reserve times $500,500,000 Now I get it like they bought the whole operation, right?

Speaker 4

They bought the operating company and the propco was the landco and there is 2 separate streams of cash flow. But I think it's fair to say that the FRP's royalty structure and the land ownership accounts for at least half of that, which will take the value at $1.25 a ton of reserves. And if you do the math, multiply by 500,000,000 tons of reserve, that like peg the aggregate business as something like at $750,000,000 I mean, I don't know like if we get like I'm just kind of like I'm just like trying to figure out that's probably on the high end, like if you use the EBITDA multiple, but like you really got to strip out the D and A because there is no CapEx or the royalty structure. It kind of like pegs it at a 22x, 23x EBIT multiple is kind of what I get to you. Like I get to like a $400,000,000 to $750,000,000 valuation for the aggregate business owned by FRPH is kind of like I'm wondering like if you guys have any thoughts on that, like if what I'm saying kind of makes sense or were there some subtle differences about those 2 deals that they just did that that's very, very dramatically different is assuming that the royalty structure plus the land ownership accounting for like 50 percent of a deal like that, like is that fair?

Speaker 4

So like any thoughts or commentary, color, feedback that you can provide on all yours?

Speaker 1

Hey, Bill. I love your $750,000,000 valuation. I'd say that's definitely on the high end, but I applaud your bullish approach to the aggregates industry. I obviously have some insight into the Martin purchase of Bluewater Industries. I would venture to guess that they didn't do it on a reserves basis, but more on an EBITDA basis.

Speaker 1

And that transaction is probably I mean, I don't think they would have done it were it not accretive to their were it not an accretive transaction. And so if you look at their EBITDA multiples, it's going to be somewhere in the ballpark of there or slightly below. And that's I think that's probably an appropriate way to value it. You could make this gets into sort of granularity, but stream is to apply an EBITDA multiple to the revenue, not our NOI, just because that revenue is It's my part of their EBITDA.

Speaker 4

Yes.

Speaker 1

We have to take into account costs and overhead, etcetera. And that factors into the into our NOI. But I think that's the appropriate way to look at it. A multiple is obviously a perpetuity, so that takes into account your reserves. I don't know that any operator values a transaction on a per reserve or a tonnage basis when they purchase when they make a purchase.

Speaker 1

But the way that we have gone about valuing our reserve stream does not take into account the second life of the mining lands. And so your mileage may vary on how you apply a value to the 2nd life. So a lot of them are coming up and a lot of them are way off in the near term future. But I can promise you that EBITDA multiple takes into account nothing like that. So put your own value on it, but you would be correct in thinking that the using an EBITDA multiple would certainly undervalue the royalty and royalty lands.

Speaker 4

I mean like I was I mean, I've been a shareholder since 2015 and it's been a lot of years. So I've seen what this loyalty business have done. I mean, it's grown, it's spit out cash flow and there's only been 2 acquisitions, there's been no CapEx to this business. There's on the $25,000,000 of total acquisitions, 1 in 2012 and then the recent one, Assitura, right, versus like Martin Marietta has to replace the machinery that gets worn down, right? So, I would argue that the right multiple is really like an EBITDA less CapEx number, like what that number and I want like bring that up because that CapEx number could be like a third of the EBITDA for Vulcan or Marietta.

Speaker 4

So like if the CapEx is a third of EBITDA, then like your EBITDA multiple is really like you can kind of get to you need to get to like an EBIT multiple or EBITDA less CapEx like so like the using the EBITDA multiple is definitely too conservative, like a true apples to apples, really like a EBITDA less CapEx multiple because I haven't seen any CapEx with FRP's royalty structure, right? Since I've been a shareholder for 9 years now. So I just want to like kind of like get your thought on that, if I'm looking at it the right way and at the end

Speaker 1

of the year No, I think that's an interesting way to think about it. And we would just need to kind of noodle on that a little bit more. Insightful.

Speaker 4

Yes. At the end of the day, what I'm trying to do is, I think real estate and real asset investing inherently has a lot of quirks because a lot of times the depreciation is like, is it real, is it not? And at the end of the day, I'm trying to figure out owners earning, right? And what I've been very pleasantly surprised being a shareholder in your company is that the owners earning in this Agate business has been way better than like any sort of BCF, any sort of like multiple like it just consistently surprises me to the upside. And I think that like an EBITDA multiple just isn't reflective and an EBITDA less CapEx or an EBIT multiple is like way more accurate of a measure.

Speaker 4

So just some proof of thought there.

Speaker 2

Thank you for that, Bill. We appreciate obviously, we appreciate all of your thought. And it's and hopefully, we can continue to stay the course and continue to build on the relationship.

Speaker 4

Yes, yes. I'm not going anywhere guys. I'm not going anywhere. You guys will have to deal with me for a long time.

Speaker 2

Well, that's a great problem for us to have.

Speaker 4

I mean, it creates a minor problem that I won't sell anything, so there's no liquidity in the stock.

Speaker 2

Well, look, we appreciate all that you've given out of your loyalty and your support and your

Operator

We will take our next question from Bill Ratner, Private Investor.

Speaker 6

Hi. I was just wondering if you could flesh out a bit the cash balance. How much of that is earmarked for capital versus what is essentially freely available for things like share repurchases and other discretionary

Speaker 1

in the ballpark of $80,000,000 earmarked for capital expenditures for 2024. And we obviously want to keep a pretty healthy capital cushion and we have plans beyond 2025. The stock price will obviously dictate the extent to which we make share repurchases. But in terms of any kind of meaningful share repurchase program, I think that we would in terms of major blocks of capital, it's all going to go back into the developing assets as opposed to share repurchases. We're going to nibble opportunistically if we have the chance, but it's not going to be a meaningful amount compared to what we put into development.

Speaker 6

Thank you. And then with respect to the aggregates assets, you said that you don't factor in the 2nd life value into your NAV analysis. If you were to include that Second Life value, can you provide any parameters around what you think an appropriate second life valuation would be for your assets?

Speaker 1

Yes, Bill, I think that's it's so nebulous given the timeline of those events. The 2 that come to mind are Fort Myers and Lake Louisa, Brooksville as well. And we're a long ways away from Fort Myers and Lake Louisa. Yes, I think that it would just be a pie in the sky number. It's essentially raw land.

Speaker 1

And so in terms of going through entitlements and zoning and permitting, just if I were to give you a number, it wouldn't be based on anything in reality. So we have sort of nothing to base it on. So right now, we just prefer not to guess.

Speaker 6

Is your comment around entitlements perhaps suggesting that there might not be as much land value as investors might think, because the entitlement process, the costs involved would be pretty significant relative to the 2nd life value? Or is it just more that it's so far out in the future

Speaker 1

that it's a lot of make

Speaker 2

sense? Yes. Okay.

Speaker 6

And then one last question, going back to the previous questioner. So this Martin Marietta transaction seemed like a very high multiple. And if you look at Martin Marietta stock and stocks of comparable companies, these companies are trading at very high valuations. You guys are clearly very opportunistic investors. Can you just comment on why you would continue to own these assets as opposed to monetizing them in what appears to be a pretty robust environment for these types of assets?

Speaker 1

That's an interesting question. I think one, if you look at the way that they've pushed price, just the accelerated growth of our income stream. As good as the valuations are, I think we're going to take a bet on them outpacing the present value. And to Bill's point, slapping an EBITDA multiple on the royalty stream, that maybe that's not the appropriate way to look at it. And I don't know Vulcan or Martin or any of our other tenants' appetite for pouring money into reserves that they already control.

Speaker 1

I think everybody is kind of happy with the way things are. We certainly are. And just from an after tax perspective, if we had a $300,000,000 transaction that we're desperate to make, Maybe that would be a source of liquidity, but to just sell the asset and pay the taxes on it, that's certainly not the best use of the money we generate from those assets. Assets. Got it.

Speaker 1

Thank you. And they are also just I mean, they have been $10,000,000 a year with no debt on it is a tremendous cash flow engine to fuel debt redevelopment. So I think we're really happy with that income stream the way it is. Thanks so much. But if you want to pay bills valuation for them, we're all ears.

Speaker 6

Well, it just seems to me that you don't know until you go out and hire a banker and run a process. And in an environment maybe like 12 to 24 months ago, the likelihood of finding a good bid might have been not there, but the market has it seems like the market changed from my perspective, but maybe to your point, they already control the assets. So what's the point? But you never know until you hire a banker.

Speaker 1

Very true. I think we would know just given our relationship to Martin and Vulcan if they had an appetite for buying those assets, we'd probably hear about it. Astatula, the purchase of the Blandford property, we were able to accomplish that because of our relationship with Vulcan and they just as a policy didn't want to put money into reserves that they already controlled. You are correct in that, you don't ask, don't get, but I think if they wanted to buy them the second they want to buy, we're going to hear about it. Got you.

Speaker 1

Well, thank

Speaker 6

you for all the explanations. It was very helpful.

Speaker 1

Appreciate it. Yes, absolutely, Bill. And just to follow-up on that real quick. For the last 10 years, aggregates valuations on an EBITDA basis have been historically high. And so 2 years ago, if we could have looked at it and said, bulk and straighten it 20 times, let's sell these things.

Speaker 1

And obviously, we would have foregone a really incredible growth in our royalty stream. So we're long on the aggregates industry. It's in our blood. Unless something very seriously changes, we're going to continue to use that cash flow stream to fuel development.

Operator

It appears that we have no further questions at this time. I will now turn the program back over to our presenters for any additional or closing remarks.

Speaker 1

Before we go, I just want to congratulate David de Villiers Jr. On his election to the Board of Directors yesterday as its Vice Chairman. David has given his professional life to this company. He is the backbone of what this company has become and it's a well deserved honor. So I just want to congratulate him.

Speaker 1

And I want to thank you all. We appreciate your continued investment and interest in the company and really appreciate all the questions you had. So thank you and that concludes this call.

Operator

This does conclude today's program.

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