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..

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?.

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..

Thank you, David. Let’s now open the floor for any questions any of our investors may have..

[Operator Instructions] Our first question comes from Curtis Jensen of Robotti & Company..

I’ve got a few questions. One is on the mining royalties.

If you were to exclude the acquisition, would the royalty revenues have been up kind of on a same-store basis?.

I think they would have been just under $100,000 below. Late last year. I want to say, [Blandford] was like -- the acquisition was in the $300,000 dollar mark. So good thing we got it..

Vulcan is actually mining at Fort Myers and in Northern Virginia on other properties, which obviously, we don’t like that much, but they have them. And it’s not that their business is falling off. Their business is strong..

Yes. And I guess you had a really nice bump in Q2 at Dock and Maren.

And is that $3.5 million NOI kind of a good run rate for the rest of the year, and kind of going out into next year, do you think? Is that a reasonable assumption?.

Well, we hope so. Curtis, this is David deVilliers. Both Dock and Maren, basically for the quarter, their NOIs were up about 16% for each one of them. We were able to grab some pretty good increases, not only on the renewals, but in the trade outs, where 1 tenant leaves and another 1 comes back.

We’re maintaining some really strong occupancies in both of those buildings. I mean, we’re over 95% average occupancy in both of those 2. And Bryant Street is coming along. It got hit really hard because of COVID, and we’re starting -- and it’s starting to kind of dig itself out. Occupancies are starting to go up.

We were 78% occupied in the residential side by quarter’s end. We’re a little over 84% as of the beginning of the month. So things are hopefully moving in the right direction, but it was -- Bryant Street was really hit because of COVID. There’s nobody riding the red line that runs right by it.

[indiscernible] still everybody -- got everybody’s pretty concerned about COVID, even still..

Yes. Okay. Are there any kind of extraordinary COVID-related expenses that you were incurring at these properties that you think are in the process of going away? I mean, to your staff or supplies or anything that you’re....

It’s waning. It’s not over, but it’s certainly been reduced..

Okay. And then just a couple more, and then I’ll get out of the way.

On these home lending, homebuilder lending ventures, I mean, how are they developing relative to your original expectations? And just kind of what’s everything that’s going on -- with mortgage rates and homebuilders generally and demand is up and down, how are things unfolding there relative to kind of your original expectations?.

We have 2, Curtis. Obviously, Amber Ridge is actually ahead of schedule, and we hope it continues that way. But it is ahead of schedule from the takedowns by the 2 homebuilders. We’re at $107 million as of the beginning of August, and that’s substantially ahead of what the original expectations were.

And one thing obviously that I could mention, not that -- it’s not something that’s really -- something we’ve all got our eyes on, is one of the big metrics that we look at is that in Prince George’s County and also in Harford County, where the other one is, it’s the supply-demand metric whereby 5 to 7 -- 5 to maybe 9 months is like the equilibrium where you break point from supply to demand and vice versa.

And both of these counties are less than 1 month of supply, literally. But again, the Presbyterian Homes one, we’re going through entitlements, and the good thing there is we’ve got a piece of wholesale land that we have under -- that is under contract with our borrower effectively and all -- and the entitlements are underway.

And their success is a condition precedent to selling on the land. So we’re going to obviously take a look at where these things stand when that happens, but there is a fully executed contract of sale that was just recently done with the national homebuilder, and they have a substantial deposit.

But look, we’re all going to look at this thing come the end of the year, and we’re going to make sure that we’re not making a rash decision..

Yes. It’s a pretty good size commitment. So I’d be curious to see how these things develop. And I guess the last question is there was, I guess, excess property at Brooksville was sold with a nice gain.

Can you remind me what the kind of proceeds were on that sale?.

Probably pretty close to the gain, if I had to guess. But I don’t know..

[Operator Instructions] We’ll take our next question from Stephen Farrell of Oppenheimer..

I just have a few questions. I’ll be pretty quick here.

What are you seeing for a multifamily in D.C.? Are there opportunities at higher cap rates? Or are sellers kind of holding on? What’s the environment like there now?.

This is Dave deVilliers. The environment is pretty much still the same. Pretty low cap rates for some of these, for the Class A type of buildings. It’s still been fairly strong, from what we understand..

And then do you think you’re sort of reaching an inflection point in terms of supply in the market there? Or do you think there’s room to go?.

I think it depends on where you are, obviously, the different submarkets. For example, The Verge, which is our 344-unit apartment with 8,400 square feet of first floor retail will come online in, hopefully, in September, assuming we can continue to get furniture. But it’s the only building that’s coming online in that submarket.

There’s other places, obviously, where that might not be the case, but where we’re located, it’s -- we’re going to be the new kid on the block, and earn anybody that’s going to be there for a while..

But that -- correct me if I’m wrong, David, that area at Buzzard Point, that’s kind of the next footprint of development in the Anacostia submarket.

It’s not as built out as kind of the area directly around the ballpark, correct?.

It’s considered part of it, but that’s true. It is. But even around the ballpark area, there’s not a whole lot of new ones coming online. There’s one other one coming on over by the Navy Yard. But to answer the question, there’s not a dearth of product that’s coming online over the next 6 to 9 months..

And then within industrial, obviously, we’ve had Amazon sort of re-leasing warehouse in other markets.

Has that had any impact on the Baltimore market?.

Not on the buildings that we have, at least at this point. It remains to be seen, but this is a strong Baltimore and going up 95% has been and looks like it will continue to maintain a really strong basis. We’re not seeing any indications. As a matter of fact, the rents are going through the roof and have been.

I don’t know that that’s going to stay, but it’s been amazing what the rental increases have been up and down 95%..

Stephen, I would say that Baltimore is heavily impacted by the deepening of the harbor. So it’s not all e-commerce driven. It’s driven by imports as well..

And just last question here.

How are you viewing the investment pipeline in terms of the capital allocation, when you’re penciling out your new growth opportunities? Are you comparing that to share repurchases, especially given where the stock is now?.

We are. We look at it, of course, all the time. Our philosophy on share repurchases is we want to steal the stock when we repurchase it. We would much rather grow the company if we’ve got good projects ahead of us. That’s more of our philosophy. But as you know, we had -- when we thought the prices are too low, we’re all in as far as buying it back..

Yes, I don’t -- it hasn’t really been a choice of one or the other that we’ve had to make. Since the asset sale, we’ve had money to use on share repurchases and money to invest in new projects. So it hasn’t been one or the other. It’s just been more of when we find a project that we like, we invest in it.

If we see that the share has fallen at such a discount that we’d be crazy not to repurchase, then we repurchase it. But I don’t think -- so far, those 2 things have not been competing with each other..

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

I’m able to make the call. I thought I couldn’t, but I was able to join the call. So good to hear from you guys. Got a couple of questions.

Do we have a plan to host an Investor Day and possibly give investors a tour of The Verge this year?.

We do not. I thought was that we would do those Investor Days every other year. I mean, that’s subject to change. If you all think it’s something we should do, we’re happy to do it. But I think given the size of our company, every couple of years is enough..

Okay. Well, let me [cat among] because I chat with some new investors. Let me chat with them and see -- because I think there are some that became shareholders this year that maybe appreciative, and maybe it could be like a scaled down event, but I’ll survey the interest and get back to you guys..

Thank you..

I don’t know if -- yes, no problem. It’s always a pleasure. And I don’t know if someone asked this earlier, but with Riverside, now that’s 97%. From a permanent financing perspective, I don’t know if someone asked this question earlier.

And also, how would that be treated on the income statement going forward?.

As far as the income statement goes, it will not be consolidated in our income statement or balance sheet like Dock 79 and Maren were, because it’s -- with Dock 79 and Maren, there was a control trigger where we had the ability to sell the building. And as a result, we could consolidate it and write it up. We don’t have that with Riverside.

That’s an opportunity zone and we’re....

We only own 40%..

Yes, and we only own 40%..

Are we going to be....

I was going to say, Bill, first of all, I think it’s 91% occupied. I wish it was 97%. And we have refinanced it..

Can you share what the amount of the interest rate was on that?.

David, can you -- do you have that?.

Yes, it was $32 million. It’s a $32 million 8-year loan, and it’s at a fixed rate of 4.92%..

Okay. Got you. Great. And I guess....

That was subsequent to the end of the quarter, just to be very clear about that..

That was subsequent to the end of the quarter. Okay. Got you.

And will we start receiving distribution from that? Like with that, I guess, from the cash flow statement, would that show up as a distribution line item on the cash flow statement going forward?.

The income from the property itself or from the refinancing?.

From Riverside?.

So the distributions for joint ventures that are making positive income will show up as cash flows from operations. So as soon as the property is turning to profit, then we’ll move to that area. In the meantime, it’s showing up in the investment section..

Got you. Okay. I mean, yes. I guess, like where I’m coming from is that there’s -- even though if it’s 40%, there’s a tremendous amount of value in those properties and the cash flow. And because it’s not consolidated, sometimes it may not show up, and we kind of talked about this before.

I think it’s just important for shareholders to understand how much cash flow -- how those properties are performing and how much cash flow is being distributed back to the parent company. Because from what I understand is that Riverside and likely Jackson, both of them are going to be pretty good projects.

And there’s a decent amount of cash flow that’s going to come from it. I think just making it easier for shareholders to understand those dynamics, I think, will help us understand the value that you’ve created and the recurring cash flow going forward. And my final question is on the on the $31 million land lot project.

Let’s say that if from inventory, market [indiscernible] goes higher, is there kind of optionality to -- I’m assuming that it won’t be drawn down in all in 1 lump sum, like it’s at stage.

Am I right in assuming that? Like is there some flexibility to respond to the market condition?.

Absolutely. Absolutely, Bill. We’re, needless to say, we’re watching that pretty closely. But no, if this thing goes forward, we have it set up to develop this thing in 7 different sections, and there’s a tremendous -- there’s a lot of different safeguards from a lending perspective. So we will watch that very, very closely.

The $31 million is total, but the peak capital doesn’t even get anywhere near that. Probably less than half of that..

Got you. I always trust that you guys have always put in the same cards, same number. That does not surprise me at all. My other comment will be on the share buyback. My suggestion to the management team and the Board will be that, I know historically where we bought back shares, and I don’t think it’s an either/or.

I think a mixed approach definitely works. And I would just suggest that there’s been a lot of value that’s been created since the asset sale in 2018, and a lot of these assets are starting to stabilize, which creates recurring cash flow. So my suggestion would be just, don’t be anchored to the price paid previously.

I think the net asset value, the intrinsic value of the company has gone up a lot since 2018 and 2020, since we lapped in a big buyback. So the target on that buyback price should be a floating target as we create more value.

So that’s my suggestion is to not be anchored to the previous price paid, because I think that as these assets continue to stabilize, the price that’s a steal has actually risen. And I’ll be happy to share my notes to compare if it’s interesting..

Thank you. We agree with you..

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..

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..

This concludes today’s call. Thank you for your participation. You may now disconnect..