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Edited Transcript of FRPH earnings conference call or presentation 5-Mar-20 2:00pm GMT

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Q4 2019 FRP Holdings Inc Earnings Call JACKSONVILLE Mar 27, 2020 (Thomson StreetEvents) -- Edited Transcript of FRP Holdings Inc earnings conference call or presentation Thursday, March 5, 2020 at 2:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * David H. deVilliers FRP Holdings, Inc. - President * John D. Baker FRP Holdings, Inc. - CFO & Treasurer ================================================================================ Conference Call Participants ================================================================================ * Stephen Farrell;Oppenheimer + Close, LLC;Associate ================================================================================ Presentation -------------------------------------------------------------------------------- John D. Baker, FRP Holdings, Inc. - CFO & Treasurer [1] -------------------------------------------------------------------------------- Good morning, and thank you for joining our investors conference call. I'm John Baker, Executive Chairman and CEO of FRP Holdings. And with me on the line are David deVilliers Jr., our President. And with me, in person, are John Baker III, our CFO; John Klopfenstein, our Chief Accounting Officer; and John Milton, our Corporate Counsel. As a reminder, investors are cautioned that any statements made on this call, which relate to the future are, by their nature, subject to risk and uncertainties that could cause the actual results and events to differ materially from those indicated in such forward-looking statements. Risk factors discussed in our SEC filings could also cause such differences and should be considered by the investors. Our net income for the fourth quarter of 2019 was $2,453,000 or $0.25 per share versus $706,000 or $0.07 per share in the same period last year. For the year, our earnings were $16,177,000 or $1.63 per share versus $124,472,000 or $12.32 per share in 2018. Both years included building sales, though, obviously, the warehouse sale to Blackstone in 2018 was much more significant. Some of the highlights of this past year were the purchase of 169,000 shares of our common stock at $48.51 per share, an expenditure of approximately $8.2 million; the beginning of construction of our Bryant Street mixed-use development in Washington, D.C.; the investment in the Half Street mixed-use joint venture with our longtime partner, MRP, this gives us yet another project in Anacostia Riverfront district in D.C.; the investment in the joint venture in Greenville, South Carolina to build 2 apartment projects in an opportunity zone; the record year in our Royalty Lands segment and our continued strong cash position, which stands at $164 million at year-end down from $188 million a year ago. This small decline is despite $84 million in investments in new buildings and joint ventures during the year and the $8.2 million share repurchase discussed above. Key reasons for the strong cash position were the sale of a warehouse and office building during the year, a $26 million tax refund as a result of our opportunity fund investments. And of course, the interest and gains in our bond portfolio. Let me now turn it over to our President, David deVilliers to get into more detail about the year. -------------------------------------------------------------------------------- David H. deVilliers, FRP Holdings, Inc. - President [2] -------------------------------------------------------------------------------- Thank you, John, and good day to those on the call this morning. Let me now add a bit of detail to the highlights provided by John in his opening remarks. As to our Asset Management business segment, with the disposition of our heritage properties at 1502 Quarry Drive and 7030 Dorsey Road earlier this, totaling $20.6 million. The company has nearly completed the liquidation of assets that made up the Asset Management business segment, just prior to the warehouse sale in May of 2018, leaving just the company's 33,000 square foot multi-tenanted home office building in Sparks, Maryland and the vacant lot in Jacksonville, Florida that at one time, house Florida Rock Industries' home office, but now remains under lease to Vulcan. In the first quarter of this year, we undertook a value adjust of an outdated industrial complex called the Cranberry Run Business park in Aberdeen, Maryland. We have substantially completed an extensive $2 million rehabilitation of the park and are now experiencing robust leasing inquiries. Cranberry Run totaling 268,000 square feet was transferred from the Development segment, and as of the end of the year, the project was 26.1% occupied. Also transferred from the Development segment was a recently completed 94,350 square foot speculative warehouse building at 1801 62nd Street in Baltimore City, Maryland. During this quarter, we completed lease-up to 100% and tenants have now occupied the building. Total revenues for this business segment were down for the quarter, 22.8% to $457,000, with an operating loss of $213,000. This presents a negative variance of some $474,000 over the same period last year. Through the several mitigating factors, including a higher allocation of corporate expense, the addition of the aforementioned Cranberry Run Business Park, the addition of the newly completed speculative warehouse at 62nd Street, and the elimination of operating profits from the sale of the 2 heritage properties at 7030 Dorsey Road and 1502 Quarry Drive earlier this year. In our Mining and Royalties segment, total revenues were $2,274,000 versus $2,187,000 in the same period last year. Total operating profit in this segment was $2,039,000, an increase of $89,000 versus the $1,950,000 in the same period last year. Among the reasons for this increase in revenue and operating profit is the contribution from our Fort Myers Quarry. The revenue from which, now that mining has begun in earnest, was nearly double the minimum royalty we have been receiving until recently. This quarter marked the seventh consecutive quarter of increases in mining royalty revenue compared to the same period year before and represents the segment's best year in terms of financial performance. With respect to ongoing and new projects in the Development segment highlights would include: One, in January of this year, Phase 1 of our joint venture with St. John Properties, consisting of 4 buildings totaling 72,000 square feet of single-story office and 29,900 -- excuse me, 27,900 square feet of small retail space in Baltimore County, Maryland, was placed in service. At year-end, marketing efforts have resulted in the office buildings being 61.5% leased and occupied. The retail buildings are still seeking tenants. The project is 44% leased and occupied overall. At completion, this project will have 329,000 square feet of office and retail space. Two, earlier this year, we received non-appealable rezoning from industrial to residential for our project in Hampstead, Maryland, known as Hampstead Overlook. Our efforts have continued before the appropriate governmental agencies seeking planned unit development entitlements with 118-acre tract in Carol County, Maryland, which has been annexed into the town of Hampstead. We are optimistic that 2020 will be the year of substantial progress towards our goal. Project calls through a combination of 250 single-family and townhouse building lots. Three, as an update to our land development venture at Hyde Park in Baltimore County, Maryland, earlier this year, we received final approval of the development plan for 122 townhouses and 4 single-family building lots. Subsequently, we entered into a contract of sale with a homebuilder for all of the lots upon receipt of record [plan] versus having to complete horizontal development creates a finished lots. Entitlements are now complete, and settlement is scheduled for some time in the second quarter of 2020. Four, at the end of the second quarter, we became the principal capital source in another residential development project called Amber Ridge, located in Prince George's County, Maryland. Our total commitment for this project is $18.5 million. As with Hyde Park, 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 the proceeds. Entitlements are currently being pursued and 2 national homebuilders are under contract to purchase all of the lots after we complete the infrastructure development. Five, Phase 2 of our Riverfront on the Anacostia project in Washington, D.C., now known as Maren, [Technical Difficulty] leave its first tenant Technical Difficulty . This mixed-use development consists of 264 apartments and 6,900 square feet of first floor retail. As with Phase 1 or Dock 79, as it's now known, this is a joint venture with MidAtlantic Realty Partners or MRP, in which FRP is the major partner. Six, at the end of 2018, we entered into a joint venture agreement with MRP to develop the first phase of a mixed-use residential and retail development project adjacent to the Red Line Metro Station in Northeast Washington, D.C., known as Bryant Street. FRP contributed $32 million in common equity and another $23 million in preferred equity to the joint venture. Construction began in February of 2019, and the project was 46% complete at the end of the year. The first of 4 buildings is scheduled for delivery in the fourth quarter of this coming year 2020, with the remaining 3 buildings expected to be complete in the fourth quarter of 2021. This property is located in a designated opportunity zone, which allows us to defer a significant tax liability associated with 2018's warehouse platform sale. Phase 1 will consist of 487 apartments and 85,930 square feet of first floor and freestanding retail. Approximately 44,000 square feet of retail is preleased. Item 7. In December 2019, the company contributed $37.3 million in equity into another joint venture with MRP for the development of a mixed-use project known as 1800 Half Street. Development is located in the Buzzard Point area of Washington, D.C. less than half a mile downriver from Dock 79 and Maren. It lies directly between our 2-acre site on the Anacostia, currently under leased by Vulcan and Audi Field, the home stadium of the DC United Soccer team. The 10-story structure will consist of 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 2018 warehouse platform sale. Eight, finally, to close out 2019, we entered into 2 joint venture agreements with Woodfield Development, a new strategic partner to invest in 2 distinct development projects in Greenville, South Carolina. Woodfield has best experience developing residential and mixed-use projects throughout the Southeast and Washington, D.C. Our first joint venture called Riverside is a 200-unit multifamily project in which FRP has contributed $6.2 million in exchange for a 40% ownership interest. Construction begins this quarter and is expected to be complete in the third quarter of 2021. This is also a qualified opportunity zone investment. Our second joint venture with Woodfield is a 227-unit multifamily development entitled .408 Jackson, and not the Shoeless Joe Jackson, and adjacent to Greenville's Minor League Baseball Stadium. 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. Construction is set to begin in the second quarter of 2020. And should be complete in the second quarter of 2022. Again, this is also a qualified opportunity investment and along with Riverside, will allow us to defer a total of $4.3 million in taxes. Moving on to our stabilized joint Ventures business segment. In July of 2019, we completed a partial 1031 like-kind exchange by investing $6 million for a 26.65 beneficial interest in Delaware Statutory Trust or DST that owns a 294-unit garden-style apartment community known as Hickory Creek located in Henrico County, Virginia. This complex was constructed in 1984 and substantially renovated in 2016. The business plan calls for further rehabilitation departments, generating value-added rents prior to selling the project after an appropriate hold period. We received monthly distributions from operations at Hickory Creek. We received $123,000 for the year, commencing in August. Relative to Dock 79, the average occupancy for the quarter was 95.1%. This past quarter the retention rate was 63.08% at an average rental increase of 2.67%. Net operating income for the quarter was $1,821,000, a 7.14% increase over the same period last year. Keeping our eyes on resident retention, maximizing rental rates and optimizing expenses continues to be our primary focus. The retail component of Dock 79, which totals 14,700 square feet remained at 76% occupied and 76% leased as of the end of the quarter. The remaining retail space is being actively marketed, but we are being quite selective as to vendor use. Full retail occupancy is expected in 2020. Dock 79 was also a joint venture between MRP and FRP, in which FRP is the major partner with 66% ownership position. So as the next chapter of your company continues to unfold, our strategy remains the same. We are constantly in search of opportunities to redeploy proceeds from the sales of our heritage properties in asset classes that will allow management to exploit its knowledge and expertise. To that end, we continue to pursue raw land purchase opportunities to fuel our speculative industrial development pipeline. We will seek out undervalued existing assets in need of repositioning for future strategic disposition. And we will continue to search for best-in-class strategic partnerships with carefully raising investments. We made significant strides in 2019, investing over $83.9 million in the business. I'll be leaving $164 million at the bank, and we hope to continue the course in 2020. Thank you, and I'll now turn the call back to John. -------------------------------------------------------------------------------- John D. Baker, FRP Holdings, Inc. - CFO & Treasurer [3] -------------------------------------------------------------------------------- Thank you, David. We would now be glad to entertain any questions that any of our investors may have. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question will be from Steve Farrell with Oppenheimer. -------------------------------------------------------------------------------- Stephen Farrell;Oppenheimer + Close, LLC;Associate, [2] -------------------------------------------------------------------------------- Just a question about the 2 new qualified opportunity zones. And I see that they're both multifamily, is that just sort of where you see value right now? Or a overall trend of where do you think the business will go? -------------------------------------------------------------------------------- John D. Baker, FRP Holdings, Inc. - CFO & Treasurer [3] -------------------------------------------------------------------------------- I think it is absolutely both of those, Steve. We think that apartment buildings present one of the best opportunities to grow value through development. And we particularly like the ones in Greenville because it is a really growing market. There's a lot of job growth and the demographics seem to just play out perfectly for it. The opportunity zone aspect really is a sad benefit, but we like the business model of the apartments and that is the reason for our investment. We'll continue to develop warehouses where we can find either ones that we can improve like the Cranberry Ridge one or whether it's new ones that we buy the land and develop or use existing properties that we have. We have a few lots left -- left over from our own Management segment that we will eventually develop. But I would say the apartments and the industrial will be the predominant investment. -------------------------------------------------------------------------------- Operator [4] -------------------------------------------------------------------------------- (Operator Instructions) All right. I'm showing no further questions in the queue at this time. -------------------------------------------------------------------------------- John D. Baker, FRP Holdings, Inc. - CFO & Treasurer [5] -------------------------------------------------------------------------------- Well, thank you. We appreciate everybody's calling in this morning and your interest in FRP. We look forward to talking to you next quarter. -------------------------------------------------------------------------------- Operator [6] -------------------------------------------------------------------------------- Thank you. Ladies and gentlemen, this concludes today's teleconference. You may now disconnect.