FRP Holdings, Inc. (FRPH) on Q2 2022 Results - Earnings Call Transcript
Operator: Good morning. I’d like to welcome everyone to the FRP Holdings Second Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Chairman and CEO, John Baker. Mr. Baker, you may begin.
John Baker: Thank you, and good morning. I’m John Baker, and I’m Chairman and CEO of FRP Holdings, Inc. And with me on the line today are David deVilliers, Jr., our President; David deVilliers III, our Executive VP; John Baker III, our CFO; John Klopfenstein, our Chief Accounting Officer; and John Milton, our General Counsel. Before we begin this call, together with other statements and information publicly disseminated by us, this call contains forward-looking statements within the meeting of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements reflect management’s current views with respect to financial results related to future events and are based on assumptions and expectations that may not be realized and are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, financial or otherwise, may differ, perhaps materially, from results discussed in such forward-looking statements. We have no obligation to revise or update such forward-looking statements other than imposed by law as a result of future events or new information. Investors are cautioned not to place undue reliance on such forward-looking statements. It is our pleasure to present to you the results of our second quarter and the 6 months ended June 30, 2022. Net income for the quarter was $657,000 or $0.07 per share versus $82,000 or $0.01 per share for the same period last year. The net income for the first half of 2022 was $1.329 million or $0.14 per share versus $28,455,000 or $3.03 a share last year. As you recall, last year included a pretax write-up of $51.1 million on the remeasurement of our investment in The Maren, offset by a 10.3% provision for taxes and $13 million attributable to noncontrolling interest for a net write-up of $27.8 million. The highlights of this quarter were continued strong royalty revenues, our highest second quarter and 6-month results ever, strong occupancy at our Dock 79 in Maren and mixed-use projects and 16% increase in net operating income for the quarter and 24% increase in NOI for the first half. The gains in NOI are important and reflect our strategy to redeploy the gains from our warehouse sale into mixed use and other industrial assets. Our after-tax earnings are impacted by losses from projects that are in the start-up phase where they are experiencing depreciation, interest, taxes and marketing costs without the benefits of a stabilized rent roll. They include our Bryant Street project in D.C., our 2 warehouses in the Hollander industrial park in Baltimore and Riverside in Greenville. These projects with current year losses are progressing nicely, and they, along with The Verge project in D.C. and our second project in Greenville, .408 Jackson, will be next year’s growth engines to our NOI. We’re proud of our progress and appreciate your continued support. Now let me turn it over to our President, David deVilliers, to walk you through the details of our various projects. David?
David deVilliers Jr.: Thank you, John, and good morning to those on the call today. Relative to our in-house industrial platform or asset management, 1 of the 2 speculative warehouses completed at the end of 2021, totaling 66,000 square feet, is now fully leased and occupied as of this past week. The 101,750 square foot build-to-suit building that will cap off the final building in Hollander Business Park should be ready for its tenant to occupy the full building in the fourth quarter of this year. Cranberry Run Business Park, our renovated 268,000 square foot multi-building warehouse park, became fully occupied in the first quarter of 2022. This park remains fully occupied and is performing ahead of original projections. The strength in our industrial pipeline, entitlements for the 55-acre parcel we purchased in Aberdeen, Maryland adjacent to Cranberry Run Business Park in late 2020, are underway, and we expect the annexation process to be complete by year-end. Building designed to create up to 675,000 square feet of warehouse product will follow early in 2023. Existing land leases for the storage of trailers on-site helped to offset our carrying and entitlement costs. We are hopeful we can begin construction here sometime in 2024. Finally, we have begun both entitlement procurement and building design to support an approximate 250,000 square foot warehouse building on our 17-acre parcel in the Perryman industrial section of Harford County, Maryland, not too distant from our other assets in Aberdeen. Depending on market dynamics, construction on this project could begin as early as first quarter of 2023. Completion of these 2 aforementioned land development projects plus the build-to-suit warehouse currently under construction in Hollander will add over 1 million square feet of additional warehouse products to our industrial platform that, when added to assets in operation at the Hollander Business Park and Cranberry Run, will total over 1.4 million square feet. NOI for in-house operations was $650,000 for Q2 ‘22 versus $453,000 in the same quarter last year, an increase of 43.5%. As 2022 progresses, tenancy at the new buildings at Hollander and increased occupancy at the fully occupied Cranberry Run Business Park are providing a healthy lift to our NOI. In our Mining Royalty business segment, this division saw total revenues for the quarter of $2,883,000 versus $2,634,000 in the same period last year. As John mentioned in his opening remarks, this is record revenue for a second quarter in the Mining Royalties business segment. NOI was $2,747,000, an increase of 9.9% over the same period last year primarily due to the April purchase of the Blandford [ph] quarry property in Lake County, Florida. Moving on to our third-party joint ventures. As of the end of June, our joint venture platform includes 8 mixed-use projects in various stages of development and operation. Four are located in Washington, D.C., where MRP Realty is our joint venture partner. These projects are Dock 79, Maren, Bryant Street Phase 1 and Verge. Pre-leasing has begun at Verge, and we will be ready to welcome its first tenant in October of this year. Verge was 91% complete at quarter’s end. We have 2 multifamily projects in Greenville, South Carolina, where Woodfield Development is our joint venture partner. The first project, Riverside, began lease-up of its 200 apartments 1 year ago this month and was 91% occupied as of the end of the quarter. .408 Jackson will be placed in service in the fourth quarter this year and was 94% complete as of the end of June. The projects that make up the balance of our third-party joint venture platform are Hickory Creek with Capital Square and an office retail project with St. John Properties. Hickory Creek’s 294 apartment units remained above 95% occupied for the first half of this year, while our joint venture with St. John that includes 72,000 feet of single-story office and 28,000 square feet of retail remained 48% occupied at quarter’s end. So to summarize, relative to our third-party joint venture and mixed-use developments, Hickory Creek and Windlass notwithstanding, we are currently invested in 6 mixed-use multifamily retail projects totaling 1,827 apartment units with 125,750 square feet of retail. At quarter end, 4 projects, including Dock 79, Maren, Riverside and Bryant Street, totaling 1,256 apartments, were in operation, of which 1,104 were occupied versus 646 occupied units at the same time last year, and 81,000 square feet of retail tenants were occupying their respective spaces versus 11,600 square feet at the same time last year. The remaining 571 apartments and retail spaces currently under construction will be completed and ready for occupancy by year’s end. FRP’s share of the net operating income for these 6 projects was $3,050,000 for the second quarter of 2022 versus $1,460,000 in the second quarter of 2021. That’s a 109% increase. Lending ventures, our last leg on our operating stool, this is a program where we provide working capital toward the entitlement and horizontal development of single-family residential projects and, ultimately, a sale to national homebuilders. The first of our 2 current projects is Amber Ridge in Prince George’s County, Maryland, with a total commitment to this project of $18.5 million. The investment includes a charged 10% interest rate and a minimum preferred return of 20%, above which a profit-induced waterfall determines the final split of proceeds. Land development is complete and only final public infrastructure needs to be closed out to complete the horizontal development at Amber Ridge. Two national homebuilders are under contract to purchase all 187 lots. 99 lots have been taken down with $13.04 million return, including interest, as of the end of the quarter. Our other current lending venture is called Presbyterian Homes. It’s a 344-lot 110-acre residential development project in Aberdeen, Maryland. We plan to provide up to $31.1 million in funding under similar terms to Amber Ridge. Entitlements are underway, and their success are the conditions precedent to settling on this roll in. So we have lapped the 2-year mark on COVID-19. Despite the trauma that is with all in the world and many of those we know and love, FRP has been able to assist and accommodate our employees and tenants, every one of which has persevered and made it through. We have not lost a single long-term commercial tenant in our portfolio. This is a testament to the strength of our tenant base and our ability to shift and pivot where tenants have needed us to do so. In March of 2020, when the world shut down, FRP maintained a portfolio of some 510,000 square feet of operating industrial, office and retail space and 599 apartments. As of June 2022, FRP had 660,000 square feet of operating industrial office and retail space, with another [115,000] square feet due to deliver over the next 5 months, and 1,550 operating apartments with an additional 571 due to deliver in the next 90 days. So it’s safe to say FRP is in growth mode. We’ve never been more excited to share our story. Central to our growth and success is the solid financial foundation that enables us to capitalize on opportunities and to make hard decisions sometimes [not to]. Thank you, and I’ll now turn the call back to John.
John Baker: Thank you, David. Let’s now open the floor for any questions any of our investors may have.
Operator: [Operator Instructions] Our first question comes from Curtis Jensen of Robotti & Company.
Operator: [Operator Instructions] We’ll take our next question from Stephen Farrell of Oppenheimer.
Operator: [Operator Instructions] We’ll take our next question from Bill Chen of Rhizome Partners.
Operator: Thank you. It appears at this time we have no further questions. I’d like to turn the call back over to management for any additional or closing remarks.
John Baker: Well, thank you all for those questions. We appreciate your interest in FRP. And as you can see, we’re in a growth mode in a strong group of industry segments and markets. We’re mindful of the impacts of inflation and the rising interest rates and are, therefore, grateful for the strong balance sheet and positive cash flows from operations. For your information, we put together an updated slide deck with financial highlights from this quarter, which you can find in the Investors section of our website under Investor Presentations. We plan to update this for you each financial period, and we look forward to talking to you again next quarter. Thanks so much.
Operator: This concludes today’s call. Thank you for your participation. You may now disconnect.
