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]. It is now my pleasure to turn the conference over to John Baker. Please go ahead..

Good afternoon. I'm John Baker, III, Chief Financial Officer and Treasurer of FRP Holdings.

And with me today are John Baker, II, our Chairman and CEO; David deVilliers, Jr., our President; John Milton, our Executive Vice President and General Counsel; John Klopfenstein, our Chief Accounting Officer; and David deVilliers, III, our Executive Vice President.

As a reminder, any statements on this call, which relate 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. These risks and uncertainties are listed in our SEC filings.

We have no obligation to revise or update any forward-looking statements except imposed by law as a result of future events or new information.

To supplement the financial results presented in accordance with generally accepted accounting principles, FRP presents certain non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. The non-GAAP financial measures referenced in this call is net operating income, NOI.

FRP uses this non-GAAP financial measure to analyze its operations and to monitor, assess, and identify meaningful trends in its operating and financial performance. This measure is not, and should not be viewed as, a substitute for GAAP financial measurements.

To reconcile GAAP to net income, please refer to the segment titled non-GAAP financial measures on Page 9 of our most recent earnings release. Before we begin, I would like to pay tribute to Ted Baker, our Founder, who we lost 2 weeks ago at the age of 87.

This company, along with Patriot Transportation were the brainchild of Ted when he was running Florida Rock Industries, and he served as Chairman of the 2 combined companies from their founding in 1986 until the spin-off in 2015.

He was so smart and generous and absolutely one of a kind and remain involved and interested in these businesses until the very end.

Because of this remarkable career in general spirit, this company is more or less a footnote and his incredible legacy of success in philanthropy, but we would be remiss if out paying tribute to someone who fully embodied the notion that is not the years in the life, but the life in the years.

The world is a much quieter place for us not being here and the silence is defining. In tribute to Ted, let me turn to our financial highlights from this quarter, which is what he would have cared about. Net income for the first quarter was $672,000 or $0.07 per share versus $28,373,000 or $3.03 per share in the same period last year.

This decrease in income is almost entirely attributable to the gain on remeasurement of The Maren in the same quarter last year. The remeasurement included a gain of $51.1 million, offset by a $10.3 million provision for taxes and $13 million attributable to noncontrolling interest.

Other items impacting this quarter's income were $316,000 of amortization expense related to the leases in place at the time of The Maren's consolidation and subsequent write-ups. $733,000 of gain associated with the sale of excess property in Brooksville as well as $477,000 decrease in interest income.

Some of this decrease is a result of lower interest income due to bond maturities and the fact that The Maren's permanent refinancing paid off our preferred loan to the joint venture, and so we are no longer receiving a return on that loan.

Net operating income for all segments, including noncontrolling interest, the first quarter was $5.7 million versus $4.2 million in the same period last year for an increase of 35%. This increase is primarily the result of additional net operating income from The Maren.

As we continue to complete construction lease up -- end of lease up of projects in our Development segment over the next 2 years, we expect NOI to increase, albeit in chunks in the manner in which the addition of The Maren impacted NOI. This is consistent with our plan to grow NOI substantially in the near future.

David will touch on operations with greater depth and detail in his remarks, but I will briefly mention a few operational highlights. So Dock 79 ended the reporting period with 95% occupancy, the fourth straight quarter, and that's the first time that's happened since 2018.

This quarter concludes the first full year of a stabilized and consolidated The Maren. And in that year, average residential occupancy was 94.92% which is all the more remarkable considering we stabilized when occupancy reached 90%, and The Maren didn't hit consistent occupancy above 95% until mid-July.

The demand for these assets dovetails nicely with the fact that this is the first quarter in which we have been able to raise rents on renewals since the district placed emergency COVID release measures in place in March of 2020. The rent increases on renewals did not take effect until mid-February.

But even with that headwind, we received a 2.32% increase on renewals at The Maren and a 4.69% increase at Dock 79. For the second year in a row, Mining Royalty had its best first quarter ever in terms of revenue.

This is particularly exciting because the day after the quarter ended, we closed an $11.6 million acquisition to our Mining Royalty segment. The property we purchased is under lease to Vulcan and is adjacent to our existing Mining Royalty property in Astatula, Florida.

This 1,500-acre property contains roughly 22.5 million tons of sand and generated $1.37 million of royalties in 2021 for its previous owners. $1.37 million is just under 15%, 14.55% of FRP's 2021 royalty revenue total. This is the first addition to our Mining Royalty segment since 2012. Now I'd like to turn things over to David deVilliers, Jr.

to walk you through our segments in more detail.

David?.

Thank you, John, and good day to those on the call this afternoon. Relative to our in-house industrial platform or asset management, in December of 2021, we delivered 2 speculative warehouses, totaling 145,540 square feet.

One of the buildings totaling 66,000 square feet is now fully leased and 64% occupied with the balance scheduled for occupancy in the second quarter of this year. Also in Q3 of '21, we broke ground on 101,750 square foot building, which is a build-to-suit warehouse that will cap off the final building at Hollander Business Park.

We expect to complete interior fit-up and provide occupancy to this tenant by year-end. Cranberry Run Business Park, a renovated 268,000 square foot multi-building warehouse park became fully occupied in the first quarter of 2022, up from 87.6% leased and occupied over the same period last year.

The strength in our pipeline of industrial building pads, we are seeking entitlements for the 55-acre track we purchased in Aberdeen, Maryland, adjacent to the Cranberry Run Business Park in late 2020.

We expect the annexation process to be complete later this year, and upon annexation, we'll look to begin the building design to create up to 675,000 square feet of warehouse product. Existing land leases for the storage of trailers on-site helped to offsite our carrying and entitlement costs. We are hopeful we can begin construction here in 2024.

Finally, in September of 2021, we purchased another 17-acre parcel in the Perryman Industrial section of Harford County, Maryland, not too distant from our other assets in Aberdeen and have begun both building design and entitlement work to support an approximate 250,000 square foot warehouse building.

Depending on market dynamics, construction on this project could begin as early as Q1 '23. Completion of these 2 land development projects plus the build-to-suit warehouse currently in our construction at Hollander will add over 1 million square feet of additional warehouse product to our industrial platform.

That when added to the assets in operations at Hollander Business Park in Cranberry will total over 1.4 million square feet. NOI for our in-house operations was $308,777 for Q1 2022 versus $512,696 in Q1 of 2021. The reduction primarily the result of placing the new buildings and service without the tenant occupancy.

As the year progresses, the 2 new buildings at Hollander and increased occupancy at the fully occupied Cranberry Business Run Park should provide a healthy lift to our NOI for this segment in 2022. Mining and Royalty. This division saw total revenues for the quarter of $2.4 million versus $2.3 million in the same period last year.

As John mentioned, this is a record revenue for the first quarter in the Mining and Royalty segment. NOI was $2.291 million, an increase of $4.57 million over the same period last year in spite of a tenant temporarily shifting operations off our site Manassas, Virginia for part of the year. Moving on to our third-party joint ventures.

Currently, we operate both stabilized and development projects with 3 distinct development partners. MRP of Washington, D.C., Woodfield Development of North Carolina and St. John Properties of Baltimore, Maryland. The difference between development and stabilized being an initial occupancy level of 90% for a period of 90 days.

As of the end of the quarter, our joint venture platform includes 8 mixed-use projects in various stages of development and operations. 4 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.

Verge will be ready for occupancy in the third quarter of this year and was 79.5% complete at quarter's end.

Our two mixed projects in Greenville, South Carolina with Woodfield Development as our development partner saw excellent progress where Riverside opened its 200 apartments for lease in August of 2021 and was 72% occupied as of the end of the quarter, and 408 Jackson will be placed in service in the third quarter this year and was about 90% complete at the end of March.

Two additional 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 90% occupancy for the year, while our joint venture with St.

John Properties that include 72,000 square foot feet of single-story office and 27,950 square feet of retail was up slightly at 48% occupied at quarter's end.

So to summarize, relative to our third-party joint ventures in mixed-use developments, Hickory Creek and Windlass notwithstanding, we are currently invested in 6 mixed-use multifamily/retail projects, totaling 1,827 apartment units and 128,634 square feet of retail.

At quarter's end, 4 projects, including Dock 79, Maren, Riverside and Byrant Street, totaling 1,256 apartments were in operation, of which 978 of these apartments were occupied versus 530 occupied units at the same time last year.

74,000 square feet of retail tenants were occupying their respective spaces versus 10,762 square feet at the same time last year. The remaining 571 apartments in 2 projects and the related retail spaces currently under construction will be completed and ready for occupancy by the end of this year.

FRP's share of the NOI for these projects was $2.497 million for the first quarter of 2022 and $1.586 million in the first quarter of 2021.

As it relates to our lending ventures, which is kind of the last leg of 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 in the final stages at Amber Ridge and 2 national homebuilders are under contract to purchase all 187 lots. 64 lots are sold with $9.6 million return in principal and interest as of 3/31. Our other current lending venture is called Presbyterian Homes, a new 344-lot, 110-acre residential development project in Aberdeen, Maryland.

We plan to provide $31 million in funding under similar terms to Amber Ridge. Entitlements are underway and their success are the conditions precedent to us settling on the raw land. COVID-19 has held our attention for the last 2 years. We remain fortunate relative to its limited impact on our company employees.

FRP has a healthy concern, and we're proud to have been able to continue to grow and prosper despite the challenges that have negatively affected some avenue. We are close to normal activity at FRP with our team back in the office and warmer weather on the doorstep.

We will continue to assist our tenants, navigate this new normal and look to grow our portfolio as market conditions allow. As a business, we stand on a solid financial foundation that enables us to capitalize on opportunities while also making the hard decisions sometimes not to. Thank you, and I'll now return the call back to John..

Thank you, David. Just to echo David's point about our financial position. Our cash and cash equivalents have remained the same for the last several quarters, more or less. We're working to put this money to use in income-producing projects for the purpose of growing NOI and cash flow. But for the time being, the cash remains a valuable safety net.

Now we are, at this point, happy to open up the call for any questions that any of you might have..

[Operator Instructions]. And we'll take our first question from Jason Cook, Private Investor..

The question I had was the valuation I just doing the quick math, it looks really attractive versus yield.

I'm just curious if you guys were kind of positioned well to purchase that asset as far as maybe not getting the most competitive situation with buying it? Just I'm trying to understand whether that was kind of market or not? Second question is just the noise we've seen in the e-commerce world and also the -- just curious if you changed your optimism at all around the industrial sector and continuing to grow out a new platform there..

Jason, to answer your first question, I can't speak to what the market was, but we were approached by the landowner and that was the price we negotiated and we're happy with it. And obviously, they must have been as well or they wouldn't have sold it..

And I'm happy to -- this is David deVilliers, I'm happy to answer the second question. Our warehouse -- most of the warehouses that we do and have are smaller. They are 80,000 to 100,000 square feet and not necessarily involved with an Amazon program.

For example, the 101,000 square foot building that we have under construction is a build-to-suit for a manufacturing company. We have all sorts of tenants. Obviously, e-commerce is an important part of the industrial platform. And the buildings that we have, have supported it to some extent.

But we have, at least at this stage, we don't have anything really large on the books. The one that we have at 600-and-some thousand square feet could easily be whacked up into 425,000 or 130,000 square foot buildings, and the market will dictate that action in 2023..

Yes, Jason, just to follow up on that. I think for a while, we were focused on the fact that we generated our highest IRR when we sold the buildings immediately. And I think we were focused on that and even stated that we weren't in the buy, develop and hold business.

But we don't need the cash, and it doesn't really matter what the IRR is if you can't reinvest that money immediately. And the IRR assumes that you have another investment of a similar return to invest in and with $160 million of cash, it's not the case. So we have always had a lot of faith in the industrial segment.

And I think that we're better off holding these assets particularly at this time..

We will take our next question from Curtis Jensen with Robotti & Company..

Can you hear me okay?.

Curtis, how are you?.

I'm doing all right. First of all, I'm sorry, for the Baker family's loss, and I guess the FRP family as well.

Just going back to the aggregates that purchase, is there -- can you talk about -- is there an expiration date on that lease?.

It extends past what the reserves would dictate..

Okay..

So they'll be -- they have a couple of renewal options. The specifics, I can't recall. But they -- unfortunately, it does not expire while they'll be mining. The terms that are in it right now are the terms that will be in it through the duration of the mining..

And Dave, would you characterize the kind of profitability is the same as your other operations?.

For sure. It will drop probably down to the bottom line. No cost to us except the acquisition costs. So this will -- all royalties will flow straight to the bottom line with -- and there might be some property taxes associated with it..

The taxes are very small, but the depletion, of course, will get the cost depletion number as we deplete down the basis of that property to more or less what residual property, we think, will be less. So that's a noncash tax deduction..

And can you characterize at all about the landowner, was it like a small private individual or kind of institutional or....

It was a family that had controlled that land for a long time, and they had their reasons for wanting to exit it and we got our reasons for wanting to enter it. So concerning adults..

There you go.

And I just want to confirm with the loan balance at Amber Ridge, and I know it's a $16.2 million had been drawn, but was that the balance kind of at March 31?.

No. I think the balance -- I'm not there, Curtis, but I'm thinking we've gotten about $9 million back. So I think the balance....

That was $8.9 million..

$8.9 million, Curtis..

All right. And then how are you guys thinking about construction cost inflation versus the uplift you might get in rents, whether it's industrial or multifamily? And I'm assuming the replacement cost of a number of your properties today is above what you paid 2 to 3 years ago..

Well, Curtis, the good thing is that they're already -- the money has already been committed for all that we have and the properties are all under development and well within -- and nearing the end of completion of construction. Same thing holds true for our warehouse.

But as we say, we look at what the plan is to get these properties, these new properties in a position and even go as far as to get a building permit. And then we'll take a look at the market dynamics and determine whether it's the right thing to do when that time comes, which is what we always do.

So it's not really an issue to us right now, and I don't think it will ever be an issue, it will just be a question..

Yes, your existing projects, I understand everything is baked in at this point. But I was just trying to think like let's say you were looking at a multifamily thing in the next 12 months, and we stay at kind of elevated levels.

I guess the main offset you can get is that the rent profile might change upwards so that you can justify higher costs or just your return profile goes down, I guess..

Yes. I mean, I think if things got prohibitively expensive, we'd obviously look long and hard at a project, whether it's land costs or construction costs, if the purchase price is beyond what we think is our ability to generate a return on. I mean that's how recessions start. You just can't generate the return on what you put into it.

So I mean, that's a factor that goes into every decision we make regardless of the -- where we are in a market cycle..

What -- any sense of what is kind of happening to cap rates on stabilized high-quality multifamily and obviously, interest rates have gone up significantly in the last few months, and I don't know if that's backing up into sort of cap rates. And I mean I haven't seen anything really recent from like CBRE or Jones Lang or anything or Colliers.

But I mean, would you expect that -- I mean, could you, for example, foresee cap rates on your multifamily converging with a 10-year treasury?.

I think you have to expect it. I mean your insight is the same as mine, but I haven't seen any cap rate data. David can speak to that probably with greater intelligence than what I just said..

Not intelligence, but thank you, John. I just think it's -- so far, properties that we are continually getting people to ask us what we want to do with the properties and so forth and so on. We've been looking at financing Riverside project down in South Carolina because it's been so successful.

And the market is what the market is, but as of right now, we're not seeing a whole lot of change. I mean there's a lot of money out there still chasing really good product. And so it's just a question of what the market dynamics will be as we move forward..

All right. Last question. Given what's happened in kind of the capital markets, things are unsettled and maybe even dislocating mortgage market, at least on the resi side is probably a little different.

Would you see more lending opportunities like to homebuilders for those kinds of projects? Or it's what's happening in the market kind of given you thoughts about being involved with the homebuilders and residential construction at this point?.

Right now, right now, Curtis, I mean we have these 2 projects, the first one the builders are committed to and NBR, as an example, is taking lots down right now even today at a much rapider pace than they were going to in the fall. So I don't know. Again, I think it comes down to market dynamics and the location of these markets.

We are very, very selective in where we go. We don't want to be a pioneering program. We want to be the hole in the doughnut. And that's kind of one of the prerequisites to these.

And as I mentioned in my narrative, when we go look to buy these lands, we're buying these lands at wholesale prices, but we've entitled them which will turn them into retail prices.

So there may be a dynamic there where the value -- total value changes, but we're coming in at an awfully low point to start, and we would never start any of the actual horizontal or land development work until we got contracts from homebuilders with significant deposits.

Otherwise, we would just sit there with effectively a wholesale value lot at the time with entitlements that bring some value to it..

And Curtis, just to follow-up on what David was saying. This has been a great program for us and one that was born out of the fact that we had a lot of cash on hand and didn't have anything to do with it for a while.

And I think it really speaks David's relationships in the Baltimore area and how he was able to leverage that into this kind of venture and it speaks to kind of the benefits of being a smaller and more nimble company that we could shift into something like this.

But we are not going to be in the lot business, the residential lot business for -- in perpetuity that's all I can say about it. This has been a great use of cash for the time being, but it's not -- this is not a permanent part of our business..

We'll take our next question from Stephen Farrell at Oppenheimer + Close..

Can you hear me?.

Yes, hey, Stephen..

I just have a few quick questions. The leasing at Riverside is coming along very strong and the second project is almost complete.

How is the working relationship with Woodfield then? Has there been talks about additional JVs or any other projects?.

The relationship has been great so far. We think they're best in class as well as the other partners that we have. We like South Carolina. We like the Sun Belt. We like Woodfield. And again, we're always looking, but each project has to stand on its own..

Okay. So you have been actively looking and you just haven't found any great opportunities? Or has it just....

We're always actively looking, but they -- we have an attractive matrix that we go through. And we're always looking..

Yes. We don't have anything we have committed to yet. Otherwise, you would know about it..

Yes. Okay.

And then with Amber Ridge, the waterfall split, is that based -- what is the return on that base of the cost of developing the homes?.

Nope, it's how much how much money that we receive and when. It's profit and the interest received and it depends on when we get all the funds, when all the funds come in, then we determine what the waterfall is at that time..

It's an IRR off of the principal balance that we've provided.

Isn't that right, David?.

Yes..

[Operator Instructions]. We'll take our next question from Bill Chen with Rhizome Partners..

I just want to start out -- I want to start out by saying, please accept my deepest condolence for your loss. FRP means a lot to me because it is my largest position. So it's done wonders for me. And I daunt you know that they could be Emily and David and Joe Hilton. You guys are the all wonderful people.

So -- and also, I just want to say that's a heck of an eulogy for Ted. Wonder if there was someone to write an obituary like that for me. So I just want to start out by saying that. And a couple of questions.

On the -- given that the 1-year treasury is at about -- almost 2% right now, any kind of interest, I know that the cash has always gone into projects and then coming out of projects.

But is there any interest in putting that cash into 6-month or 12-month treasuries? At today's 12-month treasury rate, I mean, that's about $2 million of interest income a year..

Yes, Bill, you're right on point and your intuition is -- I don't know if it's good, but it's at least the same as ours. We have -- we had been invested in bonds. And as they rolled off the money market rates were just basically nothing.

And then as we saw the 2-year and then the 6 months' treasury rates increase, obviously, we wanted to get something more than a few basis points for our money. So we've been looking at our capital needs and laddering our treasury investments accordingly.

So we are generating more interest income off of these treasury purchases than we had been getting when we were just in money markets. So I hope you're happy with that. I know I am..

Yes. No. I mean yes, no. I mean it is certainly -- I think like a 12-month duration was some sort of later, and then that's perfectly use of capital. I think even going out to 2 years is fine. I think my general view is that in a risk-off environment where we could put that capital to work that historically, the treasuries do better.

So I'm glad that you guys are already on top of it and already allocating it into a ladder. So that's fantastic. The -- my other question will be I'll keep my questions short today.

I remember in 2020, you have mentioned that kind of right around this time in 2020 when the world looked a lot more uncertain than it does today, that you're looking to deploy capital into kind of double-digit cap rate opportunities if the market got really choppy and then the Fed did what it did.

And I think the market cap rates got really tight and a lot of those opportunities went away.

On the -- are you guys starting to see any opportunities that are starting to kind of arise from the increase in rates from just a little bit more volatility in the market?.

I'll start, Bill, David deVilliers, I hope you're well. I think it's probably a little bit too soon. People know that we're always looking, and we obviously have the capital available to move pretty quickly. As John had said, we're pretty nimble, but we haven't seen anything yet..

And my final question would just be on the warehouses. Is there a thought on preferring to develop those build-to-suits or more kind of mission-critical tenants. I've been inside some warehouses where the tenant has invested heavy CapEx and it doesn't make sense for them to move.

Any thoughts on that?.

I think we have a build-to-suit currently under construction, and David can speak to a little more color on that. We love build-to-suits under the right circumstances, but that has to be the right circumstances..

That's -- yes. John spot on. I mean when we get involved in build-to-suits, the buildings have to not only serve, they have to serve us in our future use as well because these build-to-suits are not purchase programs, they're long-term lease programs.

And so the design or the shell and that sort of thing is something that has to be flexible just because you have a single tenant in a 100,000 square foot building, if they left, we could take that building all the way down to 10 10,000 square foot units. So we build these buildings for the long term and the flexibility.

And we don't get too heavy into using our dollars for their tenant improvements. We'll give them a specific amount, and that's all we're going to give them..

It appears that we have no further questions at this time..

All right. Well, thank you so much for your continued support and interest in this company, and we will talk to you all soon. Thank you..

This does conclude today's program. Thank you for your participation. You may disconnect at any time..