John Baker - Chairman and Chief Executive Officer David deVilliers - President John Milton - Chief Financial Officer John Klopfenstein - Chief Accounting Officer.

Curtis Jensen - Robotti & Company Robert Henderson - Rutabaga Capital Management Bill Chen - Rhizome Partners Curtis Jensen - Robotti & Company.

We now have John Baker, Chairman and CEO of FRP Holdings Incorporated in conference. [Operator Instructions] I would now like to turn today’s conference over to Mr. John Baker. Sir, you may begin..

Thank you and good afternoon. This is John Baker. And with me today are David deVilliers, President; John Milton, our CFO; and John Klopfenstein, our CAO. We welcome you to our second quarter earnings call for FRP Holdings Inc. Before we begin, let me remind you that we may make forward-looking statements during the course of this call.

Such statements reflect our current views with respect to financial results related to future events and are based on assumptions and expectations that may not be fully realized and are inherently subject to risks and uncertainties. Future events and actual results may differ from the results discussed in such forward-looking statements.

Please refer to our 10-Q and other documents filed with the SEC about the company for further information. As you all have seen from the press release, the revenues for the quarter were $9,360,000 million, up 1.3% versus the same period last year. Net income was $1.713 million or $0.17 per share versus $744,000 or $0.08 for last year’s June quarter.

There are two major movers in these numbers. First, last year we took a $2 million charge for environmental remediation to cover the estimated cleanup charges for Phase 2 of our Riverfront project on the Anacostia River in Washington, D.C. In this year’s June quarter, we took a $797,000 loss on Phase 1 of our Riverfront joint venture.

The loss came as a result of the expenses in depreciation during the lease up of Phase 1, which we call Dock 79. This is an apartment building and it reached stabilization shortly after the quarter, with over 90% of the units leased and occupied.

If you look through these two major items, our earnings and net operating income are basically flat with last year’s June quarter. As the loss of several major tenants dropped our occupancy rate to 86.8% and all set the earnings from two newly completed spec warehouses in the acquired Gilroy Road warehouse in Hunt Valley, Maryland.

Let me now turn the call over to our President, David deVilliers, who will walk you through the performance of our three segments and joint ventures..

Thank you, John and good day to those on the call this afternoon. I will now take you through our results for the quarter just ended June 30. As John articulated in his opening remarks, we had a busy quarter in all of our business segments.

Relative to the asset management segment, total revenues from our building platform for the quarter just ended, were up 3.9% to $7,194,000 over the same period last year mainly due to higher reimbursements for operating expenses.

Net operating income was down 1.3% or $73,000 over the same period last year to $5,412,000 due primarily to the several long-term, single tenant building vacancies offset by the Gilroy acquisition in July ‘16 and some substantial temporary leases.

We ended this quarter with total occupied square feet of 3,459,473 square feet, an increase of 139,582 square feet or 4.2% over last year’s same quarter. Our occupancy level at June 30, as John said earlier was 86.8%, down from 90.8% in the previous quarter and leased square footage was 90.9% versus 92.5% on December 31.

As the same-store average annual occupancy for the quarter increased 70 basis points to 91.1%, with the corresponding net operating income for the same period was down 4.7% to $5,232,000 from $5,492,000.

This decrease is primarily due to the several large long-term single tenant building vacancies partially offset by income from temporary leases and higher cam reimbursables from an increased and reimbursable operating expenses.

Of note, we spent $2.8 million in this business segment on tenant improvement construction dollars to prepare the 79,550 square foot spec building at Hollander and the 103,438 square foot building, which is at the middle of this month, both will be 100% occupied.

Relative to the mining and royalty segment, revenues were adjusted down for the quarter just ended over the same period last year by 11% or $226,000 to $1,833,000. This is due mainly to a temporary shift of mining activity away from the FRP site in Manassas, along with weather-related disruptions at our Tyroon location.

Total operating profit in this segment was $1,673,000, a decrease of $215,000 versus $1,888,000 in the same period last year. We do believe that volumes will go back to previous higher levels in the foreseeable future as construction activity in Florida and Georgia continues to improve.

And finally, to our land development and construction segment, as I previously stated, this segment is responsible for seeking opportunistic purchases of income-producing properties and managing in helping our non-income-producing assets into income production.

Thus, this segment generates minimal revenues, but incurs significant costs to accomplish these objectives. This business segment is the main driver behind our growth.

Although, capital expenditures were less than $1 million this quarter at $800,000, an extensive amount of time during the quarter was spent on capital projects, including one, entitlements for the next spec building totaling 96,000 square feet, at our Patriot Business Center; two, working with our joint venture partner, MRP with ongoing leasing and marketing strategies for Dock 79; three, predevelopment activities for the next phase of Riverfront or Phase 2; and four, the further refining of a PUD or plan unit development application to the appropriate authorities for our Hampstead property, which we had previously rezoned from industrial to residential, in order to maximize the asset’s profitability and expedite its disposition.

So Phase 1 or Dock 79 began pre-leasing activity in May of 2016. And as of June 30, the residential units are 88% occupied and 92% leased. And 4 of the 5 retail suites or 80% leased with 1 unit opening this past quarter and the rest scheduled for the spring of 2018.

As John articulated earlier, this project is currently above pro forma in effective rents and leasing absorption with residential stabilization of 90% obtained in late July. Of note, Phase 1 results for this quarter produced operating losses and depreciation that resulted in an equity loss in a joint venture of approximately $797,000.

Last fiscal year, we finalized our joint venture agreement for the development of our remaining acreage at Windlass Run Business Park.

During the most recent period, the venture has been going through the final stages of obtaining the entitlements for our multi-building business park, consisting of approximately 329,000 square feet of single storey office space.

Land development and ultimately, the commencement of the first phase of vertical construction apparently 90,000 square feet, is on schedule to begin in the fall of this year.

In conclusion, we still have some backfilling to do at some of our warehouse locations, as a result of the inordinate amount of tenants that have vacated over the last 8 months, but are making positive inroads towards higher occupancies prior to year end.

The velocity of our marketplace has been strong and borrowing something unforeseen, we believe it will remain that way for the foreseeable future. We also have a lot of exciting new projects in the queue and look forward to converting them into income production. Thank you. I will I’ll now turn the call back to John..

Thanks, David. First, let me comment on the lost tenants. In each case, these were long-term tenants who left us because of changes in their business. In our history, we have never had that kind of an impact in a quarter and we expect to recover quickly. As of this moment, lease space is now over 90% and we are seeing a lot of additional interest.

The tenant loss did impact our gross trajectory, but it should be short lived and temporary. Our mining revenue has dropped for the first time since a recession. Two of the three impacted quarries should recover immediately. The other Lake Sand is simply out of reserves.

This will be more than replaced, beginning in the December quarter, when bulk of material starts mining and paying royalties at our Fort Myers quarry. That quarry had been in the permitting process for years and only paying a minimum royalty. This substantially increases actual mining gets underway.

At our Riverfront project in D.C., we took a loss during the lease-up period of about $800,000 this quarter. And I expect that even after we have achieved full occupancy, there will be book losses, though much smaller.

This understates the success of the project however, because net operating income should be over $5 million per year from this project. Lastly, we continue to evaluate whether to convert from a C corp to a real estate investment trust.

As we have mentioned, we have changed our physical year and created a non-reach subsidiary for our mining royalties to meet the technical requirements of the conversion. At this point, we are waiting to see if our government chooses to lower the corporate taxes this year. The coming of REIT has one big advantage.

It allows our shareholders to receive our earnings as dividends free of corporate taxes. It also has a lot of burdens; one is that we must dividend out all of the earnings the company has made over its entire history, which is in excess of $120 million.

While this dividend will likely be 80% stock dividend and 20% cash, it will require us to increase our debt load to pay out these funds. Furthermore, going forward, we would be required to payout 90% of our net income.

While again the good news is there is no double taxation of those dividends, the bad news is that it will not give us the liquidity from the earnings to grow like we have in the past. Simply put, if the tax rates would have dropped substantially, the advantages of the REIT are overshadowed by the negatives. Therefore, we are going to watch and wait.

If it looks like, there will be a cut, we might even delay the decision passed our year end. If not, we will probably make our decision public in early November. Now, let me turn it over back to you, to see if there are any questions that you may have for any of us. Thank you..

At this time we will open the floor for questions. [Operator Instructions] Our first question comes from Curtis Jensen with Robotti & Company..

Hi, good afternoon..

Good morning Curtis..

Did I hear that NOI from Dock 79 is expected to be more than $5 million annually?.

Yes..

And would it – does that mean, it could have been more than $6 million?.

It could be….

Is that only referring to the residential portion or does that include the retail as well?.

That includes everything..

Okay.

And as far as Phase 2, I guess what you call it the [indiscernible] 71, are you – how is the financing looking for that, I mean are the banks sort of playing ball here or they have been a little tougher on loan to values and I mean are they getting nervous about sort of the development in DC or what or how are they?.

Let me give David deVilliers to answer it, he is in the middle of that right now..

Hi Curtis, how are you. I would say that the lending community is certainly still very interested in quality type of projects. And we would like to think and I believe that they do as well, that this is one of those quality type of projects that they would be interested in.

We are all cautiously optimistic about the near future and certainly, far more optimistic about the long-term. So we are pretty excited about the near future and the ability to finance this program going forward..

And did you say is it possible you break ground before year end?.

Doubtful, probably again, there is a lot of things that have to happen, but we have tentatively pended in for some time first quarter of ‘18. But that’s really market driven as much as anything..

Okay.

And you kind of look a little further out, I guess Phase 3 and 4, is there any need to put capital into or do anything on that land before the bridge gets changes and all that stuff?.

No sir, the entitlements that we have are for Phases 3 and 4 as well..

Okay.

So just sit and then, when the bridge went out and if the bridge moves, you will start to think about, what to do there I guess?.

Correct..

Okay, alright.

And then I guess the construction loan on Dock 79, has that been refinanced or in process still?.

We are in the process still..

Okay, alright, great. I think that’s all I had. Thank you..

Thank you, Curtis..

Our next question comes from Robert Henderson with Rutabaga Capital Management..

Hi.

On Phase 1 of Dock 79, as you just mentioned, if you look out on more like a 5-year to 10-year time horizon for that building, is it more likely to be a sale of the building, is that possible and/or was just a conversion to condominiums and make more economic sense, looking out in that time horizon?.

We have not considered positively the conversion to condos. At this point, our thinking is that it makes a lot more sense to build Phase 2. So that we have Phase 1 and Phase 2 together and then at that point, we will assess the market to see whether it makes sense to sell one or both of them.

We could very well end up holding them for 10 years, but it’s we are going to play the cards as it will..

Okay, thank you..

[Operator Instructions] Our next question comes from Bill Chen with Rhizome Partners. Bill your line is live..

Yes. Hi, sorry I was on the other wire [ph].

John, just want to confirm you said that as of now the warehouse before was 90% leased, did I hear that correct?.

Yes..

Okay, got it.

And with regards to Lake Sand, given that the reserves are depleted, if Vulcan does not elect you the mass [ph] in CapEx, what we do with that property, the reserve or what do we with any of the properties, if the reserves are completely exhausted?.

Well those are two very different questions. Lake Sand as I recall and John Milton, you chime in I think, we will still receive a minimum royalty on that property, because they have, while they are not mining on our land, they are mining on other lands and their plant is on our property. So we get a minimum royalty of $100,000 or so a year.

That particular property, when they cease to use it, well it will be just a really nice pretty place to go to be quite, because it’s is in the middle of the green swamp and I would say, un-developable. We will look at it of course, but that’s one I wouldn’t look for as having a next life. It still has 3 million tons of reserves on it.

It’s just hard for them to get it at this point. So we will have to see.

Many of our other properties are very different from that and the Fort Myers property that I alluded to earlier, when Vulcan finishes mining that you will certainly have a 105 permitted state lots overlooking a lake that’s probably a mile across, in a very active park of Southwest Florida and that’s worth, that might be worth a ton of money.

So, while both of them are seeing their end of their life come at some point, one is very developable, the other is not..

Yes, that’s very helpful. A couple of questions regarding the Waterfront project, so from the press release, my understanding is that, we have to decide whether to sell that asset or at some point we have to make a payment to cash out MRPs.

Is that correct?.

The way it goes is once we hit stabilization we will be happier to decide whether we are going to sell the property and everybody takes their proceeds or we don’t cash out MRP, we actually just adjust their interest in the property based on our agreement and the incentives they have in that for leasing it up.

So, that’s a decision that will be made over the next year. Our inclination of course at this point is to keep the property, but we have got to work through that with our partner and see if we can turn the agreement over what the value is..

Got it. So we basically have a 1 year timeline to see if we don’t sell it’s an adjustment, almost like a – kind of like in the partnership you would just, how much we own, how much they own in that sense.

Is that correct?.

Yes. You are right on the money..

Got it. And if I could venture your guess and I am assuming that based on the agreement that you filed years ago, with MRP, I am assuming we made that adjustment given there promote and how this project gets started out. I am assuming that we wind up only roughly two-third and they own up wanting only one-third.

Am I in the right ballpark?.

You are right in the right ballpark..

Okay. It’s literally right by the ballpark.

Any update on what the total loans outstanding on the Dock 79 project is? And I am assuming that’s non-recourse, alright?.

Yes, currently, we borrowed through construction, I think we got $82 million available, we used $79 million and we have got a couple of million that we are going to have to use to do tenant fix-ups on the retail. So we are about a $1 million under our loan at this point, it looks like..

Got it. Got it. And by the way the restaurant looks fantastic I was down there about a few weeks ago having dinner there. So, great job on that development..

Thank you..

Yes, I think those are all my questions..

Thank you, Bill..

Well, thank you..

Our next question comes from Curtis Jensen with Robotti & Company..

Hey, fellows. My question was answered. Thanks..

Okay, great..

I think there are no further questions in the queue at this time. I would now like to turn the call back over to John Baker..

Thank you all for your interest in our company. We appreciate you calling in and look forward to talking to you next quarter..

Thank you. Ladies and gentlemen, this concludes today’s teleconference. You may now disconnect..