FRP Q2 2025 Earnings Call Transcript

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August 7, 2025

Key Takeaways

  • Negative Sentiment: Net income for Q2 fell 72% year-over-year to $0.6 million (or $0.03 per share) due to due-diligence legal expenses and lower interest income.
  • Positive Sentiment: Pro rata NOI rose 5% year-over-year to $9.7 million, led by higher contributions from the multifamily and mining royalty segments.
  • Negative Sentiment: The industrial & commercial segment saw a 51.5% drop in revenues and a 50% vacancy rate from lease expirations, tenant defaults, and a newly completed unleased warehouse building.
  • Positive Sentiment: The industrial development pipeline includes over 1.8 million square feet across Florida and Maryland joint ventures, which are expected to generate about $8 million of FRP’s share of annual NOI when stabilized.
  • Neutral Sentiment: The mining & royalty segment’s Q2 NOI surged over 20% year-over-year, but a one-time $2 million minimum lease payment in Q3 2024 will not repeat, potentially flattening segment growth later this year.
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Earnings Conference Call
FRP Q2 2025
00:00 / 00:00

There are 2 speakers on the call.

Operator

Good morning, and welcome to everyone on the call. I'm Matt McNulty, Chief Financial Officer of FRP Holdings Inc. And with me today are John Baker III, our CEO John Baker II, our Chairman David DeVillier III, our Chief Operating Officer David DeVillier Jr, our Vice Chairman John Milton, our Executive Vice President and John Kloppenstein, our Chief Accounting Officer. First, let me run you through a brief disclosure regarding forward looking statements and non GAAP measurements used by the company. As a reminder, any statements on this call, which relates 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.

Operator

These risks and uncertainties are listed in our SEC filings. To supplement the financial results presented in accordance with GAAP, FRP presents non GAAP financial measures within the meaning of 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 our operating and financial performance. This measure is not and should not be viewed as a substitute for GAAP financial measures.

Operator

To reconcile NOI to GAAP, please refer to our most recently filed 10 Q. Now for the financial highlights from our second quarter results. Net income for the second quarter decreased 72% to $600,000 or $03 per share versus $2,000,000 or $0.11 per share in the same period last year due primarily to due diligence related legal expenses and lower interest income. The company's pro rata share of NOI in the second quarter increased 5% year over year to 9,700,000.0 mostly driven by higher contributions from our multifamily and mining royalty segments. More specifically versus the year ago period, the multifamily segment contributed an additional $57,000 of NOI and the mining segment contributed an additional $637,000 of NOI.

Operator

It is worth noting that our industrial and commercial segment NOI decreased by $177,000 year over year due mainly to the vacancy and uncollectible revenue as a result of a tenant eviction in quarter Q1 and lease expirations during Q2. We anticipate that we will see relatively flat NOI during 2025 versus 2024 as we work to lease up our Chelsea project and replace vacancies at our Cranberry Industrial Park this year and into the 2026, whereafter we anticipate we will resume meaningful year over year NOI growth. I will now turn the call over to our Chief Operating Officer, David DeVillier, for his report on operations. David? Thank you, Matt, and good morning to those on the call this morning.

Operator

Allow me to provide additional insight into the second quarter results of the company. Starting with our commercial and industrial segment. This segment consists of 10 buildings totaling nearly 810,000 square feet, which are mainly warehouses in the state of Maryland. Total revenues and NOI for the quarter totaled $1,400,000 and $1,000,000 respectively, a decrease of 515% over the same period last year. The decrease was due to 64,000 square feet of tenant leases expiring in q two, fifty 7,000 square feet attributed to a tenant defaulting on its lease and the recent completion of our 258,000 square foot state of the art class a warehouse building in the Parriman Industrial sector of Harper Tommy Mallon, which was a 100% vacant in the quarter.

Operator

These vacancies total 50 of the business segment, and a focus to lease an increased occupancy is a priority. Moving on to the results of our mining and royalty business segment. The division consists of 16 minuteing locations, predominantly located in Florida and Georgia, with one minuteing in Virginia. Total revenues and NOI for the quarter totaled $3,600,000 and $3,700,000 respectively, an increase of 1221% over the same period last year. As for our multifamily segment, this business segment consists of eighteen twenty seven apartments and over a 125,000 square feet of retail located in Washington DC in Greenville, South Carolina.

Operator

At quarter end, 94% of the apartments were occupied and 83% of the retail space was occupied. Total revenues and NOI for the quarter were $14,600,000 and $8,200,000 respectively. FRP share of revenues and NOI for the quarter totaled $8,500,000 and $4,700,000 respectively. This is an increase over prior quarters due to the Verge being included in this segment as of 07/01/2024. The Verge contributed $2,800,000 and 733,000 in revenue and NOI this quarter.

Operator

As a same store comparison, which includes Dock, Marin, Riverside, 408 Jackson and Bryant Street, FRP share of revenues and NOI for the quarter totaled 7,100,000 and $4,000,000 respectively, a revenue increase of 3.2% with NOI up 1% over the same period last year. As stated in previous quarters, new deliveries in the DC market will continue to put pressure on vacancies, concessions and revenue growth in the foreseeable future. However, we are seeing NOI growth in our Greenville, South Carolina properties, which hit 3% in Q2. Management continues to be diligent in tenant retention and rental rates in the market. We are pleased to have renewal success rates ranging from 52% to 75% with renewal rental rate increases trending over 3.6% on average in Q2.

Operator

Now on to the development segment. In terms of our commercial industrial development pipeline, our two industrial joint venture projects, where FRP is a majority partner with Altman Logistics Partners, are under construction. The projects are in Lakeland and Broward County, Florida, totaling over 382,000 square feet, and shell completion is anticipated by the summer twenty twenty six. On 07/23/2025, subsequent to quarter end, we entered into a new joint venture agreement with Strategic Real Estate Partners, a private industrial real estate development. We plan to break ground and develop over 375,000 square feet in two buildings in Lake County, Florida near Orlando with options for investment in additional industrial development on adjacent properties in the future.

Operator

We expect to break ground in Q3 with shell building completion expected in the 2026. In Cecil County, Maryland, along the I 95 Corridor, we are in the pre middle of predevelopment activities on a 170 acres of industrial land that will support a 900,000 square foot distribution center, Off-site road improvements, reforestation codes, and obtaining off-site wetland mitigation permits delayed our entitlement process, and we expect permits in early twenty twenty six with a focus on attracting a build to suit opportunity. Finally, we are in the initial permitting stage for our 55 acre track in Harper County, Maryland. The intent is to obtain permits for four buildings totaling some 635,000 square feet of industrial products. Existing land leases for the storage of trailers on-site help to offset our carrying and entitlement costs until we are ready to build.

Operator

We submitted our initial development plan during the quarter, which puts us on track to have vertical construction permits in 2026 and the potential to start a 212,000 square foot building, ending market conditions in 2027. Completion of these projects will add over 1,800,000 square feet of additional industrial commercial products to our platform. Our three joint venture projects in Florida represent over 75,000 square feet in new product alone that will be available for lease up in 2026. When stabilized, these projects are expected to generate annual NOI around $9,000,000 with FRP share of NOI just under $8,000,000 Turning to our principal capital source strategy or lending venture. Aberdeen Overlook consists of 344 lots located on a 110 acres in Aberdeen, Maryland.

Operator

We have committed 31,100,000.0 in funding. 27,000,000 was drawn as of quarter end and over 22,200,000.0 in preferred interest and principal payments were received to date. The National Home Builder is under contract to purchase all the finished building lots by q four twenty twenty seven. 160 of the three forty four lots were closed upon, and we expect to generate interest and profits of some $11,200,000 resulting in a 36% profit on funds drawn. In terms of our multifamily development pipeline, on May 30, we secured construction financing for our multifamily joint venture with Woodfield Development, known as Woven.

Operator

This is our third multifamily project in Greenville, South Carolina. This is an $87,800,000 project with 214 units and 13,500 square feet of ground floor retail that is eligible to receive South Carolina textile rehabilitation credits upon substantial completion and received special source credits equal to 50% of the real estate taxes for a period of twenty years. The project is expected to be ready for lease up in q four twenty twenty seven. In closing, uncertainty around trade policy, the economy, and financial markets has caused headwinds in leasing velocity. Firms are focused on existing supply chains and delaying leasing decisions until a clear path forward reveals itself.

Operator

However, rental rates remain strong. Industrial states under construction has fallen below pre pandemic norms. Market vacancies are expected to top out in the 2025 and hopefully some clarity on tariffs will be forthcoming, which should all bode well for demand and rent growth as we deliver our new industrial projects in 2026. With the delivery of our 258,000 square foot Perriman warehouse in the quarter, we have over 400,000 square feet of vacant space in our industrial commercial segment, all located in Maryland. This will impact NOI in the short term, but will allow us the opportunity to release space at the higher current market rates, bolstering NOI upon lease up and occupancy.

Operator

The average rental rate of the expiring industrial leases was $6.55 triple net, and we are hopeful most of our new rental rates start in the sevens or greater. It is our plan to continue to monitor markets, assess the impact of tariff uncertainty, focus on leasing of our existing industrial space and manage the delivery of new industrial product for Liza in 2026. Thank you, and I will now turn the call over to John Baker III, our CEO. Thank you, David, and good morning to all of those on the call. For the last few quarters, we have cautioned investors to temper their expectations regarding our NOI growth.

Operator

The pace at which we are growing would have been difficult to maintain under the best of circumstances, but the pivot in asset classes we were focusing on developing also led us to believe NOI would be flat, if not slightly negative during the time it would take us to lease up the first building in our industrial development growth strategy. Results through the 2025 are not inconsistent with those expectations, but also are more favorable than we might have expected. We are certainly not growing NOI at the same rate we've seen in the last four years, but we have also not yet experienced the contraction in NOI we anticipated and won investors might be a possibility. Q2 saw a 5% increase in pro rata NOI compared to last year, and we have grown our pro rata NOI by 7% through the first half of the year compared to the same period last year. We have seen nominal growth in our multifamily NOI, but almost all of our NOI growth is a result of increases in our mining and royalties NOI, which is up 21% in Q2 twenty twenty five compared to 2024 and 20% for the first six months.

Operator

The performance of this segment has been enough to offset NOI decreases in our Industrial segment associated with the loss of our tenants at our Cranberry Business Park and operating expenses of our new Chelsea building during the time it takes to get that asset occupied. Looking forward to the rest of the year, I still believe we will have our work cut out for us to match twenty twenty four's NOI numbers. If you recall, in Q3 twenty twenty four, the company experienced a massive infusion of NOI in the Mining and Loyalty segment due to a onetime minimum payment, which added $2,000,000 in unrealized revenue in the segment's NOI. The straight line across the life of the lease for GAAP revenue purposes, from an NOI perspective, this payment happened all at once and is clearly not going to repeat in the third quarter of this year. The shortfall is unlikely to be made up through any increases in sales and price.

Operator

Given that mining royalties has been the driver of NOI growth this year and the segment is unlikely to match its NOI numbers from Q3 due to a nonrepeatable event, the flattening of NOI we have talked about for 2025 will not likely start in the second half of this year. I clearly take no joy in putting a negative spin on another positive quarter. But as I have said countless times, we are not a quarter to quarter company. Our goal this year is to lay out the groundwork for future NOI growth by filling our vacancies, executing the projects we currently have under construction to our very high standards and putting money to work in new projects. Specifically, the team is staying on track to deliver our two industrial JVs in Lakeland and Broward County, Florida by the end of Q2 twenty twenty six, continuing to entitle our industrial pipeline in Maryland so that all projects are shovel ready next year, and finally, our latest industrial joint venture to develop two warehouses totaling 377,892 square feet in Minnie Ola, Florida just outside of Orlando.

Operator

This is another step in both our shift and focus to industrial as well as further expansion of our development footprint and the means we use to achieve this expansion on our way to doubling the size of our industrial portfolio by 2,030. I will now turn the call over to any questions that you might have.

Speaker 1

And once more, that is star and one for your questions. We'll take a question from David Foley with Esterbrook Capital Management. Your line is open.

Operator

Good morning. How are you guys doing today? Hey, David. Good morning, Dave. How are you?

Operator

Good. Thank you. Quick question. It looks like in in the quarter, you spent a fair amount of money on legal for you refer to a a a a potential new investment. I I know you probably can't speak too much about that.

Operator

But is that a shift in strategy of what you're doing in terms of perhaps looking at something that's a little larger to go and buy? Or is that sort of a a a a process type thing? Or or what's sort of the thinking around that, I guess? Thank you. David, it's not a shift in strategy, and you just kind of hit the nail on the head in terms of what we can and can't talk about.

Operator

All we can say at this time is that we are pursuing a business opportunity, and those legal expenses are related to it. Okay. Seems like a big one. Your word. Thanks.

Speaker 1

Once more, that is star and one. We'll pause another moment to allow questions to queue. And it does appear that there are no further questions at this time.

Operator

Alright. Well, we appreciate all those who joined us on the call and listening after the fact. And, obviously, appreciate your continued interest and investment in the company, and we conclude the call at this time.

Speaker 1

This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful afternoon.

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