Good day, everyone, and welcome to today's earnings conference call. At this time all participants are in a listen-only mode. [Operator Instructions]. Please note, this call may be recorded. It is now my pleasure to turn today's program over to John Baker III. Sir, please begin..

Good morning. I'm John Baker III, Chief Financial Officer and Treasurer of FRP Holdings. And with me today are David deVilliers, Jr., our President; John Baker II, our Chairman and CEO; John Milton, our Executive Vice President and General Counsel; John Koppenstein, 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 as 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 measure referenced in this call is net operating income, or 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 measures.

To reconcile GAAP to net income, please refer to the segment titled Non-GAAP Financial Measures on Pages 9 and 10 of our most recent earnings release. Now for our financial highlights from the first quarter. Net income for the first quarter was $565,000, or $0.06 per share versus $672,000, or $0.07 per share in the same period last year.

Net income for the first quarter compared to the previous year was impacted primarily by an increase of $2.21 million in equity and loss of joint venture from two projects in lease-up as well as a $733,000 gain last year from the sale of excess property in Brooksville, Florida.

First quarter pro rata NOI for all segments was $6,990,000 versus $5.18 million in the same period last year for an increase of 34.9%. David will touch on operations with greater depth and detail in his remarks, but I will briefly mention a few operational highlights.

Asset management increased revenues by 27.5% and NOI by 60.6% compared to the first quarter last year. Total revenues in the mining revenue segment increased 35.3% compared to the first quarter last year, and NOI in the first quarter of this year increased 37% over Q1 2022.

For the second quarter in a row, mining royalties experienced its highest revenue total ever for any quarter. This is the first quarter the segment has cleared $3 million in revenue, and the first time it has surpassed $11 million in revenue in any trailing 12-month period. Now if I could turn things over to David deVilliers, Jr.

to walk you through our segments in more detail.

David?.

Thank you, John, and good morning to those on the call. As I've done for the past few quarters, I'd like to provide you with a slightly different perspective on the results of the company from an operational standpoint. We report our business segments in dedicated silos, which are important in analyzing the company.

However, operationally, we have overlap and synergies that are difficult to follow using the business segments as reported. So departing from GAAP and employing a day-to-day look in FRP, let me offer the following.

The company's approach is four-pronged, and this has been the core of our business since mid-2018 when we liquidated our legacy warehouse portfolio. First, in-house asset management includes our industrial, commercial and land development platform. These properties are developed, managed and owned 100% by FRP.

Then of course, there's the mining and royalties.

Three is the third-party joint ventures, which, as the name implies, our projects developed in conjunction with third parties where FRP is the major owner but relies on seasoned and respected third-party operating partners to perform the lion's share of entitlements, construction and day-to-day operations.

And our last segment, lending ventures, where we are the principal capital source for residential land development activities.

Relative to our in-house industrial platform, or asset management, delivery and occupancy in our three buildings at Hollander Business Park, as well as rent growth on renewals at Cranberry, have produced a healthy lift to more than double the NOI for this period last year, with Q1 '23 NOI of $891,550 over Q1 '22 NOI of $308,777.

As of last month, our three buildings in Hollander are totaling 247,000 square feet are fully leased and occupied.

Cranberry Run Business Park, a renovated 268,000 square foot multi-tenanted building warehouse park in Aberdeen, Maryland, remains fully occupied in the first quarter of 2023, capping all five straight quarters of full occupancy at this location. Our industrial pipeline is strong, with three projects in the queue.

We completed annexation on a 55-acre tract of land in Aberdeen, adjacent to Cranberry Business Park, and we'll soon begin the building design create up to 609,000 square feet of warehouse product. Existing land leases for the storage of trailers on site helped to offset our carrying and entitlement costs.

We are hopeful we can be in construction there in 2025. In Northeast Maryland, along the I-95 corridor, we own 170 acres of industrial land that will ultimately support a 900,000 square foot distribution center. Redevelopment activities here are ongoing and, pending favorable market conditions, we expect to break ground as early as 2024.

Finally, our 17-acre parcel in the Perryman industrial section of Harford County, Maryland, not too distant from our other assets in Aberdeen, is moving through the entitlement process, and we expect the building permit to be issued shortly for a 259,000 square foot warehouse.

Depending on final market dynamics, construction on this project could begin as early as this summer.

Completion of these three land development projects, plus the recently delivered warehouse at Hollander, will add over 1.9 million square feet of additional warehouse product to our industrial platform that, when added to the assets already in operation at Hollander Business Park and Cranberry Run, will total over 2.35 million square foot.

Relative to our mining and royalty segment, our mining and royalty division saw total revenues for the quarter of $3,282,000 versus $2,425,000 in the same period last year. As John echoed in his opening remarks, this is record revenue for any quarter in the mining and royalty segment for the second quarter in a row.

NOI was $3,148,000, an increase of 37% over the same period last year. Moving on to our third party joint ventures. Currently, we operate both stabilized and development projects with three distinct partners, MRP, Woodfield, and St. John properties.

The difference between development and stabilized as it relates to our business segments being an initial occupancy level of 90% for a minimum of 90 days.

As of quarter-end, our JV platform includes seven mixed-use projects totaling 1,827 apartments, 72,000 square feet of 1-story office and 226,000 square feet of retail, all of which have completed construction. Four projects are located in Washington, D.C., where MRP Realty is our joint venture partner.

These include Dock 79, Maren, Bryant Phase 1, and our most recent completion, Verge.

In Washington, D.C., our neighboring projects, Dock 79 and Maren, where our partners include both MRP Realty and most recently, Stuart Investment Company, remain healthy, with occupancies of 93.4% and 93.2%, respectively, at quarter's end with all retail fully leased.

Our newest project in the District, Verge, received its final certificate of occupancy in the first quarter and was 32% leased and 24% occupied, with nearly half, or 45% of the retail spoken for at quarter's end.

Our final DC project is Bryant Street, a multi-building, transit-oriented mixed-use project located on the Red line in Northeast Washington, D.C.

Bryant Street contains two residential projects, Chase and Coda, as well as a movie theater anchored retail building and a flexible outdoor-use fully leased to a unique entertainment concept called metrobar.

At the end of the first quarter, Bryant Street's residential units were 90.8% occupied, and its retail components were 84.2% leased and 79% occupied.

A food hall, Bryant Street Market, which occupies about 10,000 square feet, opened in March and has seen early success with its first 4 tenants, including a visit last week by the President and Vice President of the United States in celebration of Cinco De Mayo. Moving on to South Carolina.

Our two projects in Greenville with Woodfield Development are seeing great success. Riverside, which sits on the Swamp Rabbit River Trail, a popular recreation corner in Greenville, opened its 200 apartments for lease in August of '21 and was 95% occupied as of the end of the first quarter.

408 Jackson, another mixed-use project, is located downtown and shares a street and plaza with Fluor Field, the stadium home of the Greenville Drive, which is an affiliate of the Boston Red Sox baseball team.

408 Jackson was placed in service during the fourth quarter of '22, and as of quarter end was 53% leased and 29% occupied, with its retail component fully leased and targeting opening by the fourth quarter of this year. The last project that makes up our third-party joint venture division was undertaken with St.

John's property, a pioneer in flex development and former National Developer of the Year. With St. John we are developing Windlass Run in Middle River, Maryland that includes 72,000 square feet of single-story office and 27,950 square feet of retail. This project continues to be 50.7% leased and 48% occupied.

So to summarize, relative to our third-party joint ventures, FRP's 52% ownership share of the NOI for these seven projects was $2,868,573 for first quarter '23 versus $2,496,129 in the same quarter last year. That's a 14.9% increase. Lastly, our lending investors segment.

This last leg of our operating stool is a program where we provide working capital towards the entitlement and horizontal development and future sale of single-family residential projects and, ultimately, sales to national homebuilders.

The first of our two current projects is Amber Ridge in PG 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%, of which a profit-induced waterfall determines the final split of proceeds.

Now, as of the end of the quarter, 144 lots have been taken down, with the final 43 lots expected to be taken down by the end of this year. Our other current lending investor is called Presbyterian Homes, 344-lot, 110-acre residential development project Aberdeen, Maryland. We have committed $31.1 million in funding under similar terms to Amber Ridge.

A national homebuilder is under contract to purchase all lots, which will include 222 townhomes and 122 single-family dwellings. Horizontal construction has begun, and we expect the first lots to be taken down in Q4 of '23.

In closing, we are very pleased that the company has been able to continue to surpass itself in terms of earnings and adapt to difficult market conditions. We flourished in a constantly changing environment, and we've been able to do so thanks to the strength of our balance sheet and the consistent efforts of our talented team.

We look forward to building upon our successes and finding new ways to capitalize on our unique position in the marketplace. Thank you, and I will turn it back to John..

Thank you, David. At this point, we are happy to open it up to any questions you may have..

[Operator Instructions] And at this time there are no questions in the queue -- we just had one pop-up from Stephen Farrell with Oppenheimer. Your line is open. .

Good morning. How are you? Just a few quick questions here. In New York City, at least, we had a huge increase in apartment listings in March, and then we also saw a big increase in rents, as well.

Did you see a similar dynamic in D.C., maybe people pushing back buying homes, given sort of the banking crisis and continuing to rent?.

I can take a crack at that one. Basically, we have seen some pretty healthy increases in our rates both for renewals and also trade-ins. And as you can see, our occupancies have been pretty strong in the Washington, D.C. area and also in Greenville, South Carolina.

So obviously, with the interest rates going up the way they have, it's making some of these projects a little difficult as it relates to not only building them but selling them. So it will be interesting to see how it helps out the apartments..

Yes, Steve, I think that even when interest rates were low, it seems like people in their late 20s and 30s were pushing off a home purchase just because interest payments were low and house prices were so high. The down payment was, I think, hard for people to afford.

And obviously, interest rates going up and home prices staying kind of where they were only exacerbate that. So it seems like there's a total lack of supply in available houses, which we're hoping to capitalize on with our lending ventures. So yes, I don't think rising interest rates are a boost to people buying homes..

That’s good. Thank you. And you talked on the last call that sort of where rents were at the Verge versus the Maran, and it was running about 10% less. And I know that Q4, for seasonality, it's a bit slow there.

Have you seen a pickup in rents there? Do you have an update?.

As far as Maren goes, Maren is probably receiving the highest rent per square foot. We're pretty well occupied there. Of course, that's on water. Verge is actually seeing some pretty strong leasing activity now that we're coming into the strong leasing months.

Obviously, our plan here is we've got a concrete plant next to us that's closing up operations by a third party, so that's kind of helping reduce some of the traffic, not all. We're starting to see some pretty healthy tours and visits, and we're seeing the rents starting to pop up a little bit. We think that they'll continue that way.

But I think it's going to be certainly less at the end of the day than what you see a dock in Maran, because it's not on the water, just like those two are. But we are seeing the rents starting to gel..

And on the last call, you also mentioned potentially starting the Phase I of the Steuart partnership in Q4.

Do you have any kind of thoughts on starting that project in the current environment?.

Well, obviously, there's some pretty strong headwinds to say that that's not going to happen, but we're still going through the due diligence process, which includes getting the property ready, what we call shovel-ready for development.

And that we'll probably be able to take a look at the appropriate modeling for that project sometime at the end of the third quarter and the beginning of the fourth quarter. But I would say that probably just the timing and certainly all of the economic winds not necessarily being the greatest that may get pushed off a quarter.

We're still kind of in the process of looking at that. But we certainly don't want to start building too late in the fall even if the market does dictate the right kind of actions because it causes too much of extra cost because of the weather, and that kind of thing gets started too late in the year.

So I would say it probably would be closer to the first quarter or maybe even second quarter of '24. Hard to tell at this point. More news after the next quarter..

Yes, Stephen, I don't know if you kind of remember the optionality of the deal we have with the Steuarts, but it can either go 1 of 4 ways.

And the first is the best possible way, which is we do our due diligence, we do our planning and entitlement, and then everybody wants to move ahead, and we pay the Steuarts for the land, and then they reinvest that money into the project, and we're all good to go. And then the second option is we want to go and they don't.

And in that case, they're obligated to sell us the land, and we go out and do it ourselves. Third option is we don't want to move forward and they do. And in that case, they pay us back for our due diligence and planning efforts, and they go on their way.

And then the fourth option is we don't like the way the market is looking at the time that we needed to make a decision, and we all just sit tight. And I think we're somewhere between the first option and the fourth option. If interest rates look like they're going to stay flat or go down, then we'll probably feel a lot better about it.

Construction costs go down, we'll probably feel a lot better about it. If everything stays really expensive, I think we'll probably sit tight, because this is a gigantic building, over 400 units, and it's closer to the Verge in terms of rents than it is to Maren just by virtue of its location.

And we're not just going to flip a coin and say hope it works out. This is a big deal, and this is the first step in a really important partnership. And we want it to be successful, and we're going to give it every opportunity it can to succeed..

That’s a good color. Thank you. And I guess, if no one else is on, I'll keep going here.

With the moratorium in Harford Candy, do you think this will affect future developments? And will there be more restrictions on industrial in and around Baltimore, moving forward?.

Well, right now, it was a bit of a surprise to everyone when the county executive came in and placed a moratorium on all industrial development for 180 days. And then it started to work its way through the commission, it's reduced it somewhat.

For example, we are grandfathered because our project, that's the 259,000 square foot building that I mentioned in my opening remarks, we had already received what I call site plan approval, so that was grandfathered in. So we're allowed to go forward and, as I said, we're looking to get a building permit here shortly.

Market conditions, we're doing market studies now to see how things are. Vacancy right now is very low in this part of the world, and so we're still taking a look at it. The moratorium is for 90 days with the ability to extend it for another 90.

And I just think that everyone's trying to figure out, with these big buildings, what properties should be zoned industrial and what properties might not be. And that's what they're going through. I think we'll find out some more.

But we like the idea of the fact that we're not going to have a whole lot of competition because we're the last one to get a new permit..

And David, none of our other properties in our pipeline are in that county, so it won't be an issue with those, at least as things currently stand..

That's pretty much correct..

And well, you had the one, the 259,000, which is signed, but isn't there one other, the 54 acres? Would that be subject to it?.

Yes. That's the Crouse property. That's been annexed into the town of Aberdeen, which separate that out from the other projects. So we're not part of that moratorium at this point. And again, that property is I stayed, and we're really not ready to move forward on that property for probably at least another year. We spent a lot of time annexing it.

Part of the property was in the town of Aberdeen, part of it was at. So we annexed the entire parcel in, so that kind of puts us in a better position as it relates to the improvement process, but we still have a ways to go to get the entitlements done on that property.

So we really weren't even planning, regardless of this quote moratorium; to starting anything there probably until '25. The good thing about that property is we lease a lot of it out for trailer storage, which gives us pretty healthy returns on our initial investment while we're waiting..

And just the last question.

Do you have an updated figure on, just ballpark, a dollar value on what you'll spend for development activities for the rest of '23?.

Think the projected CapEx number that we have in our 10-Q is $83 million..

All right. Thank you. [Operator Instructions] And we have no further questions at this time..

All right. Well, I want to thank everybody for their interest in the company, and we're going to get back to work and keep building shareholder value. Thank you..