FRPH - NASDAQ

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

Thank you, David. Not to put too fine a point on it, but 2022 was a big, big year for the company. Financially, in 2022, we saw meaningful increases across all operating segments, with every segment having its biggest year for revenue, operating profit and NOI since the asset sale in 2018. Operationally, in 2022, all of our Asset Management properties are fully leased. We finished construction and began lease up on the Verge and .408 Jackson. We secured permanent financing for Riverside. And we purchased a new Mining Royalty property, which is now our biggest royalty producer. Strategically, with our new partnership with Steuart and MRP, we have the ability to build something really, really special in one of the great cities of the world, 3 million square feet, 3,000 units, 150,000 square feet of retail, and all of that encompassing the south entrance of the nation's capital, that's a really amazing opportunity. And most importantly, we're now on track to diligently and deliberately put all of our cash and cash equivalents to work. The next 10 to 15 years are going to transform this company, but it all started in 2022. Now, at this point, we're happy to open up the call for any questions that any of you might have.

[Operator Instructions]. And our first question comes from Emerito Quintana from Numantia.

It's Emerito again from Spain. I am interested on the sale of your interest of the Maren and Dock 79 because, if I am correct, there was two mortgages of $190 million on both buildings. So, your net interest, I think it's more like $100 million, if I'm correct. So, the 20% is $20 million net of mortgages.

That's pretty close.

Pretty close. Okay. $44 million [ph], but $20 million net of mortgages.

Through FRP. Yeah.

And another question. What's the growth of the price per tonne of aggregates without the new acquisition?

If you removed the new acquisition from aggregate royalties, we still would have had a bigger year than last year. But it would have been like maybe 3%. And I'm just doing this off the top of my head from my recollection of looking at it, but it would have been more – not 16% more, like it was, but you still saw volume and some price growth even without the new acquisition.

And our next question comes from Bill Chen from Rhizome Partners.

Our next question comes from Steven Thrill [ph] from Oppenheimer + Close.

I just have a few quick questions. You talked about occupancy rates at Bryant Street. Can you talk a little bit on how you juggle the rental rates versus getting heads in the apartments there?

Well, we operate through, obviously, our property manager's software programs, and those units are individually priced literally every day. So, pricing contains effectively in a 24 hour period. And that's kind of what we do. The idea – obviously, to your comment about heads in beds, when you first start out, also there's a lot of factors that go into it. One is the time of year, when we've opened up. For example, we opened up Verge in late November, couldn't ask for a worst time to open up just by virtue of the weather and that sort of thing. And so, that we were starting to put some discounts on the face rate for those. They're starting to come in to the building. We're starting to see some warm weather, the cherry blossoms are supposed to come out. And so, the rents are going to start running up and actually have started to run up a little bit. But it's a game that you play literally on a daily basis through a Yardi program.

And you talked about the seasonality there. So, Dock 79, the renewal rates were quite a bit lower than the Maren. Do you think that's something that will pick up as it gets warmer?

And when you say renewal rates, you mean that the numbers or the dollars?

The percentage. The renewal rates was 42% of expiring leases versus 62%.

One last piece of that, too, is depending on which ones come up for renewal, if there are the affordable housing units, the people that are living there, in some cases, their income gets too high and they don't qualify for the affordable units and they've going to go. So that can play into a part as well.

And at the Verge, you mentioned offering some discounts, but rents are picking up. Where are they now kind of versus Dock 79 and also just in the Maren and then also just versus what your expectations are?

Well, let's see. First of all, The Maren is probably one of the more expensive units that we have, and then followed by Dock. Verge is running about right now probably about 10% less. The neighborhood is still under development more so than Dock and Maren. But we're pretty optimistic about where things are going, especially when the spring hits. But it's still a little bit too early to tell, considering the amount of people that we've got leased up and occupied. That'd be a better question to ask during the spring, we'll have a much better indication of where things are.

And when do you anticipate financing – permanent or temporary financing on the Verge? And what would that look like? And I have the same question with Bryant Street?

Well, obviously, we'd like to go to permanent financing as quickly as we can because permanent financing is usually running about 150 basis points less than the floating construction loans. So, we're going to be going through that on Bryant Street, hopefully, when we get to be – to get a little bit further into the spring. The retail function has been curtailed by – as I said in my opening remarks, the DC government has been very, very, very difficult to work with as it relates to getting the tenant improvement permits, almost to the point where we're wondering whether they even want to have tenants in Washington, DC, but we're getting through it. And the supply chain issues with those type of specialty things that go into restaurants and tenant improvements have been tough as well. So, we'd like to get into Bryant probably sometime third quarter maybe. Verge, we've got 344 units. It's going to be a while before we get that placed to a point where it would be stabilized. So it's probably going to be running under that construction loan, at least through probably most of this year.

And last question on the residential side, the partners in South Carolina, what are they seeing in terms of the demand down there? And is there any additional opportunities that they've been coming across?

We've been looking at some. I think I mentioned that we've actually – I was there last week with them. We've got a couple of – our eyes on some things. We are, as I said, excited about that part of the country. As you can see from the two projects that we have, we leased – we're about 44%, 45% leased at .408 Jackson that we just opened up in December. The concessions have been virtually non-existent in both of those projects down there. So we're certainly bullish on the area and have our eyes open.

And last question. Bill kind of talked about the cash flows. Do you have a ballpark on the dollar value you're going to spend on development activities in 2023 between warehouses and the Steuart deal?

Well, I'll take a run at that first. It's John. I don't have my numbers here in front of me. But, obviously, one of the – nothing has to be done. We don't want to do anything just for the sake of doing it. For example, the warehouse that we have on the plan table, the 260,000 square foot warehouse, if we don't like the looks of the market, or for some reason something comes bump in the night and we don't feel like it's the right time, then we'll pass and just push it off. That's anywhere from $10 million to $17 million over the next 12 months. We also have phase one of the Steuart-MRP-FRP investment that will maybe shovel ready in the fourth quarter of this year. But based on interest rates and the construction costs, we don't know that that's going to be a viable project, at least in our minds, and that can slide as well. So it really depends on the market. We don't have to be building something just for the sake of building it. We've got plenty to do without it. So it all kind of depends on the economic winds over the next 6 to 12 months.

And with the Steuart partnership, you mentioned that, if the environment is not supportive, you can kind of delay that. There was a provision for building every four years. Is that something that's flexible?

Yes, very much.

You need to do due diligence every four years or break ground.

Well, when you get these permits or get these approvals, they're only good for a certain period of time. So it's kind of a push-pull. We had to use something kind of as a framework for which to create this program. It's so massive. Actually, so exciting. And we're all in this together. So Steuart is going to stay in as a partner, just like MRP and FRP. And nobody wants to go into a project unless they feel really good about it upfront. So kind of up to us, the partners, to determine when and if we want to start on that one.

And how that affects additional developments? Wouldn't that push back the second building or development?

Pushes everything back. Everything is fungible. There's no exact science to this. We will tie one project in with the next, if there's some overriding reason to do more than one at the same time, which I don't know what that is, but we're very flexible as to how and when we do this.

And our next question is a follow-up from Emerito Quintana from Numantia.

I was just wondering if you plan to make an Investor Day this year or maybe next year? And I'm also interested on Bill's question about your thoughts on fair value per share maybe because I'm also getting near $100 special on a very detailed sum of the parts.

Emerito, we are planning on doing an Investor Day and kind of details of that will come out in the next couple of months, but that was an opportunity that we really, really enjoyed. And I don't know if we're yet the size of a company that demands one every year, but I think every two years is about right for now. And that was a really special event and so much fun to present the properties firsthand to investors. And I don't think that's something we should pass up. So, short answer to your question, yes, we are planning on doing an investor day. We'll get the details out to y'all soon. And on your NAV analysis, very, very fortunate that our investors have the same faith in our assets that we do. We don't have a concerted share buyback plan right now. Obviously, we love the assets that we have. But whether it's a dividend or share buybacks, there's a plan for all this money, at least for now. And it's our belief, because we're a growing company, that the cash and cash equivalents that we have are best put to use in the form of new investments or as a capital cushion to protect the investments that we already have. We're going to continue to monitor it the same way y'all are. And if we come to the same conclusion that it's trading at such a steep discount that we can afford to bypass it, we might nibble here and there, but it's not going to be a steady, concerted plan to buy back shares.

It does appear that there are no further questions over the line at this time.

All right. Well, thank you guys so much for your interest in the company. We're going to get back to work to grow shareholder value.