Good day and welcome to the FRP Holdings Conference Call. At this time, I would like to turn the conference over to John Baker, Chairman and CEO. Please go ahead, sir..

My name is John Baker, and I’m Executive Chairman and CEO of FRP Holdings. With me today are David deVilliers, Jr., our President; John Milton, our Executive Vice President and General Counsel; John Klopfenstein, our Chief Accounting Officer; David deVilliers III, our Executive Vice President; and John Baker III, our CFO and Treasurer.

Thank you for joining us today, and we welcome you to our quarterly investors call. Before we begin, let me remind you that any statements made today, which relate to the future, or by their nature, subject to risks and uncertainties that could cause actual results and events to differ materially from those forward-looking statements.

I refer you to our SEC filings, which outline the risk inherent in our business and business model, and caution investors not to place undue influence on such forward-looking statements.

The quarter ending March 31, 2020, continued our efforts to redeploy the proceeds from our warehouse sale in the high-quality real estate projects, and additionally, to repurchase shares of the company in an opportunistic way. As to the latter, during the quarter, we purchased 82,491 shares of FRP stock at an average of $41.47 per share.

We believe this is well below its intrinsic value, even if you haircut valuations with the coronavirus’ fair of shares. During the quarter, our net income was $1.618 million or $0.15 per share versus $1.898 million or $0.19 per share in the first quarter of last year.

The shortfall was caused by the timing of stock compensation of $601,000 versus $29,000 a year ago. We changed from options to grants, and it cinched the full value of the grants in the quarter instead of over the life of the options. The value of the grants was the same as the Blackstone’s value of the options, only the immediate vesting’s changed.

Additionally, we incurred $183,000 of losses on our second Anacostia building, the Maren, due to pre-leasing efforts. That project came partially online at the end of the quarter. And as David deVilliers will explain, the pre-leasing efforts proved successful, even in this coronavirus environment.

Our aggregates operations were basically flat with a year ago, albeit, at very high levels. Revenues and profits were down, because we no longer receive double-minimum royalties from our Lake Louisa property because our tenant Cemex received final permits to begin mining in July 2018.

Most importantly, in the current economic situation, we retained high levels of liquidity. Our line of credit remains basically untouched at $20 million other than a few letters of credit outstanding, and our cash on hand and bond portfolio was roughly $160 million.

We’re scaling back on capital expenditures with the thought that this liquidity could allow us to gain some incredible opportunities if the economy doesn’t bounce back. And we don’t expect that it will immediately. We approved an additional $10 million in buybacks, but plan to be very opportunistic in deploying that authority.

Now, let me turn it over to David deVilliers to walk you through our real estate projects.

David?.

One, Phase 1 of our joint venture with St. John Properties, consisting of 4 buildings totaling 72,080 square feet of singlestory office and 27,950 square feet of small bay retail space in Baltimore County, Maryland, remained 44% occupied overall.

Our project in Hampstead, known as Hampstead Overlook, which is a residential program, received Concept Plan approval this spring for the 255 single-family and townhouse building lots, as proposed.

Three, as an update to our land development venture at Hyde Park in Baltimore County, Maryland, settlement is scheduled for some time in the second quarter of this year on the 122 townhouse and 4 single-family building lots that received record plat entitlement approval earlier this year.

Four, relative to our other residential development project called Amber Ridge located in Prince George’s County, Maryland, entitlements are currently being pursued and 2 national homebuilders are under contract to purchase all 187 lots after we complete the infrastructure development.

The first section of lots are scheduled to be turned over in the second quarter of 2021. Five, Phase 2 of our Riverfront on the Anacostia project in Washington, DC, now known as Maren, welcomed its first tenant in late March. This 14-story mixed-use development consists of 264 apartments and 6,900 square feet of first floor retail space.

As with Dock 79, this is a joint venture with MidAtlantic Realty Partners, or MRP, which FRP is the major partner. Maren was 95% complete as of March 31 and 17.1% leased as of May 4, with the 6 upper floors not yet available for occupancy.

Number six, the first phase of our mixed-use residential and retail development in Northeast Washington, known as Bryant Street was 53% complete as of March 31. Construction activities have slowed down a bit, but the project remains on time and budget.

The first of 4 buildings is scheduled for delivery in the fourth quarter of 2020, with the remaining 3 buildings expected to be complete in the fourth quarter of 2021. Phase 1 will consist of 487 apartments and 85,930 square feet of first floor and freestanding retail. Approximately 44,000 square feet of the retail is pre-leased.

This project is also running on time and within budget. This property is located in a designated opportunity zone, which allows us to defer a significant tax liability associated with the 2018 warehouse platform sale. This project is also a joint venture with MRP, where FRP is the major part.

Seven, in December of 2019, the company contributed $37.3 million of equity into a new joint venture agreement with MRP for the development of a mixed-use project, known as 1800 Half Street. The development is located in the Buzzard Point area of Washington, DC, less than half a mile down river from Dock 79 and Maren.

It lies directly between our 2 acres site on the Anacostia, currently under lease by Vulcan and Audi Field, the home stadium of the DC United soccer team. This 10-story structure will have 344 apartments and 11,246 square feet of ground floor retail.

The project is a qualified opportunity zone investment and will defer just over $10 million in taxes associated with the 2018 warehouse platform sale.

During the first quarter of this year, the venture purchased the land and is currently in the process of demolishing the existing structure and making other preparations for the vertical construction that could start in the second or third quarter of this year.

Eight, also in December of 2019, we entered into 2 joint venture agreements with Woodfield Development, a new strategic partner, to invest in 2 separate and distinct development projects in Greenville, South Carolina. Woodfield has vast experience developing residential and mixed-use projects throughout the Southeast and Washington, DC.

The first project named Riverside is a 200-unit multifamily project, in which FRP has contributed $6.2 million in exchange for a 40% ownership interest. Construction began during the first quarter of this year and is expected to be complete in the third quarter of 2021. This is a qualified opportunity zone investment.

Our second project with Woodfield is a 227-unit mixed-use development titled.408 Jackson, a nod to Shoeless Joe Jackson rookie year batting average and to the fact that he actually lived on the site. In addition, this project is located adjacent to Greenville’s minor league baseball stadium, an affiliate of the Boston Red Sox.

This project will also include 4,700 square feet of retail space. FRP has received a 40% ownership position in this project in exchange for $9.7 million.

Closing on the property occurred at the end of April, construction is set to begin during the latter part of May, and the project should be ready to receive its first tenant in the second quarter of 2022. This project is also a qualified opportunity investment and along with Riverside, allows us to defer a total of $4.3 million in taxes.

Moving on to our Stabilized Joint Ventures business segment. Relative to Dock 79, net operating income for the quarter was $1.812 million, up 11.17% over the same period last year, with an average occupancy for the apartments of 93.52% for the period. This past quarter, the retention rate was 54% at an average rental increase of 1.46%.

Our success ratio slipped a bit this past quarter due to 3 tenants breaking their leases due to the furloughing of their jobs and 3 baseball players having to give up their apartments as a result of the delay in this year’s baseball season.

In addition, Washington, DC has frozen apartment renewal rent increases, which negates our ability to grow rent. However, we will continue to renew and sign tenants at their existing rates, deferring terms of occupancy to chasing rent growth.

The retail component of Dock 79, which totals 14,600 square feet, remain at 60 – 76% occupied and 76% leased as of the end of the quarter. However, our retail tenants have shut down as a result of the COVID-19 pandemic, with exception of one of the restaurants being partially opened for carryout only. All 3 tenants have sought forbearance of rent.

Our key guiding principle in this situation is maintaining open communication, while preserving our rights as landlord while we wait to see what the future holds for these businesses. The goal is to assist our existing tenant base and ultimately reopening where viable. Re-tenanting these retail spaces would be expensive and time consuming.

We partnered with these existing tenants because we believe in their concept and business plans, and we continue to do so. The remaining retail space had an executed Letter of Intent to lease prior to the COVID-19 breakout. Time will see how this pans out. Dock 79 is a joint venture between MRP, in which FRP is the majority owner.

Relative to the new asset introduced into this business segment in July of last year, the 294-unit Hickory Creek apartment complex in Richmond, Virginia, occupancies improved a bit in the first quarter of this year, with a 94.3% occupancy as of March 31, up from 92.9% in December.

The distribution was on time and for the anticipated amount of $83,000, representing a 5.65% after tax annualized rate of return. Our $6 million investment in this project is a part of the 1031 like-kind exchange. The complex was constructed in 1984 and substantially renovated in 2016.

The business plan calls for further refurbishments to the apartment interiors and exterior amenity spaces, and the increasing of rents prior to selling the project at a greater value after an appropriate hold period. COVID-19 is having an unprecedented impact on the world economy.

We are considered an essential business and continue to operate at full capacity, while heeding the guidance of the federal government and orders issued by the state and local authorities. Our offices at Loveton Circle are closed and all employees are set up to operate from their homes.

When required, our employees are physically distancing and employing other measures to ensure the protection of the folks with whom we interact with as we go about our business.

At the end of the first quarter, request for forbearance were limited to 4 tenants, the 3 retail tenants at Dock 79 and 1 small office tenant whose business focus is related to hotel services. To be sure, FRP is not unscathed by COVID-19. However, the retail tenants at Dock 79 represent a total of 6% of our entire portfolio’s net operating income.

The vast majority of our tenants continue to operate, but perhaps on revised schedules and conditions as they continue to pay rent as usual. At this point, we have been given no reason to expect this situation to change. We are mindful of the challenges that are facing our tenants, partners and employees every day.

And we strive to be a good steward of our stockholders faith as well as the trust and support of our business partners. COVID-19 marks a new beginning and will change the way we behave personally and professionally. But with all challenges comes opportunity. Thanks, and I’ll now turn the call back to John..

Thank you, David. I agree with David, we like these projects and we like the optionality that our cash and liquidity gives us. So let us now see if there are any questions..

At this time, we’ll open the floor for questions. [Operator Instructions] We’ll take our first question in queue. Caller, please identify yourself, proceed with your question..

Hi, guys. This is Steve Farrell calling from Oppenheimer and Close. Congratulations on a pretty strong quarter given the environment. I hope you’re staying safe and healthy..

Thank you..

My question is about the Maren.

Given the current environment and I know we don’t know when it will end, but do you have like an updated timeline on when you think that Maren will have similar occupancy levels as Dock 79?.

Well, it’s hard really to say. I mean, currently, we are operating somewhat related to our budget, which is somewhere around 15 units per month, and so far, so good. So it’s hard to say as we move forward..

Okay.

And you’ve continued to lease 15 units a month even in the past 2 months there?.

Yes, sir. We have..

Okay. And I don’t know if there are questions behind me, but I do have a few more if you don’t mind..

Sure..

Are you seeing more opportunities now to start deploying cash? And if so, which segment?.

I’m sorry, I didn’t quite hear the question..

I think there are plenty of opportunities to deploy the cash. I think we’re going to take a pause. Well, we’ve got several – big projects for us going on. And we want to let them get up and get settled and see how they lease up. Just being careful to protect the cash, of course, is one thing.

The other thing is, as – if this thing stretches out, and I believe it will, there will be some incredible opportunities. And the normal returns that we would expect to get from these projects could double or triple as you get a chance to pick up something that just can’t be supported by the existing owners.

So we’re going to go into opportunistic mode and watch and wait..

Great, thank you.

And, all right, when you’re looking at new opportunities, are you also factoring in right now the current price and considering being more aggressive with buybacks in lieu of the new opportunities?.

We have been. We have been. As I mentioned, we bought quite a bit of stock in the first quarter and have continued to do so. We just – yesterday at our Board meeting, we got additional authority to buy another $10 million of stock..

Great. Thank you for the information..

[Operator Instructions] And we’ll take our next question. Caller, please identify yourself and proceed with your question..

Hey, fellows. This is Curtis Jensen.

Can you hear me?.

Yes, sir..

Can you give us a sense of the demographic of the folks that are moving into the Maren? And then, also the economic – remind us of the economic split with MRP..

David?.

Sure. I’ll take that one. Good morning, Curtis. Dave deVilliers again..

Hi, David..

The demographics are, obviously, a little bit – probably more towards the millennial groups, Curtis. I’d say 25 to 35 are the majority of our – of the age limits of our tenants. That’s number one. To answer the second part of your question, our ownership interest in Dock 79 is 66%..

And at the Maren, is it the same JV or is it a separate JV?.

It’s a separate JV. And there’s a potential waterfall that could dilute FRP’s ownership a bit, but we – that doesn’t happen until we get to stabilization. At the moment, we have an 80% ownership interest in that project..

Okay. And then just thinking about, I think John alluded to a softening economy and potentially weaker employment trends.

Is there anything that kind of gives you pause about maybe the supply and demand fundamentals for DC multifamily?.

Everything gives us pause right now. We’d be crazy if we didn’t. What gives us optimism is the Amazon coming in Northern Virginia is well within reach of both Bryant Street by the Metro or certainly the Maren by Metro. Washington has its own ecosystem. It seems to grow and grow. And so, we’ve got lots of reasons for optimism.

A thought process you can engage in is that our NOIs were down about 15% in 2008 and 2009, or I should say, our partner, MRP’s NOIs on similar projects were down around 15% in that period. And so, if this goes on for a long time, we could see some deterioration as our tenants suffer. But so far, we have not seen it..

And would you be able to share any sort of the NOI hit from the retail at Dock 79?.

David?.

We don’t really know the extent, Curtis. I mean, obviously, how long it will be before they can open back up again. But everyone was – obviously, the retail guys closed down in mid-March. And so, if you look at the 3, it’s probably somewhere around $40,000 to $50,000 a month.

I think that – and so, if you figured that they would go through June, that’s 3 months. And then, you could think that there’s some sort of a phase-in of rents and operating expense reimbursement as they come back online. So it’s really kind of hard to say.

But if you look at Dock 79 as a whole, I believe that the retail component of our NOI is less than 10%..

Okay.

And last thing is, do you use an external manager for your fixed income? Or are you just kind of buying treasuries yourself?.

We use an external manager..

Okay. All right, thank you guys..

[Operator Instructions] Speakers, there are no more questions in queue at this time..

Well, thank all of you for joining us today. We appreciate your interest in the company. And we hope that you stay well. Thanks very much..