FRP Holdings, Inc. (FRPH) Earnings Call Transcript & Summary

Good morning. My name is John Baker, Executive Chairman and Chief Executive Officer of FRP Holdings, Inc. and it is my pleasure to welcome all of you who have joined our annual meeting virtually. I will be acting as Chairman of the meeting, and I now call the meeting to order. Before proceeding to the business of the meeting, I would like to make certain introductions of individuals, all of whom are joining us virtually today. Our directors are: Charles E. Commander III; H. W. Mike Shad III; Martin E. "Hap" Stein, Jr; William H. Walton III; and Margaret Wetherbee. Our officers are David deVilliers, Jr, President; John Milton, Executive Vice President and General Counsel; John Klopfenstein, Controller and Chief Accounting Officer; and John D. Baker, III, Chief Financial Officer and Treasurer. Also with us are auditors, managing partner, Mike McCarthy, Allen Akins and Kate Haslam with the independent auditor firm of Hancock Askew & Company. Mr. John Milton will be acting as Secretary of the meeting today, Mr. Milton will now report on the mailing of the notice of this meeting and the presence of a quorum.

This meeting is held pursuant to a printed note that was mailed on or about March 20, 2020 to each shareholder of record as of the record date, which was March 11, 2020. On April 6, 2020, the company filed a Form 8-K announcing a change in the location of this meet due to public health concerns regarding the coronavirus COVID-19 pandemic, to be held in virtual format only by remote communication. The previously announced date and time of this meeting did not change. The company also filed a Form 8-K on April 24 of 2020, providing instruction on how to access the meeting and providing the rules of conduct for the meeting. A count of shares present immediately prior to the commencement of the meeting, indicates that 9,220,022 shares of the company's common stock were present or represented by proxy. This is 93.88% of the outstanding shares of common stock outstanding on the record date.

Thank you, John. I hereby declare a quorum to be present. Since a quorum is present, we will now proceed with the items of business. After the items of business have been addressed, I will answer any questions that were submitted prior to the commencement of this meeting and according -- accordance with the meetings rules for conduct. Additionally, after the conclusion of the meeting, we will open the floor for any remaining questions, which may be asked by using the raise hand function on the Zoom platform. While this meeting is virtual only, the company has designated the online format of this meeting to ensure to the extent practical that shareholders are afforded the same rights and opportunities to participate as you would at an in person meeting. The first proposal is to elect 6 directors to serve until the next annual meeting of shareholders. The nominees to serve as directors are John D. Baker II; Charles E. Commander III; H. W. Shad III; Martin E. Stein, Jr.; William H. Walton III; Margaret Wetherbee.

Mr. Chairman, I move that the proposed slate of directors be elected.

I second the motion.

The second proposal is to ratify the Audit Committee's selection of Hancock Askew & Co., LLP as the company's independent auditor for fiscal year 2020.

Mr. Chairman, I move that the Audit Committee's selection of Hancock Askew & Co., LLP as the company's independent auditor for the fiscal year 2020 be ratified.

I second the motion.

The third proposal is to hold an advisory vote on executive compensation. Under the say-on-pay legislation enacted by Congress, our proxy statement includes a separate nonbinding resolution to approve executive compensation. The Board believes our executive compensation program, as described in the proxy statement directly links executive compensation to our performance and aligns the interest of our executive officers with those of our shareholders.

Mr. Chairman, I move to approve on an advisory basis, the compensation of the named executive officers as disclosed in the company's proxy statement.

I second the motion.

There being no further proposals to come before this meeting, let's proceed with the voting on these proposals. If there is any shareholder who wishes to vote by voice, please raise your hand by using the raise hand function on the Zoom platform. [Voting]

For your information, John Milton and I are the proxies named in the proxy card. In our capacity as proxies, we will cast our vote in accordance with the written instructions received from the respective shareholders. I will now ask Dave deVilliers to present the President's report.

Good morning, everyone, and welcome to FRP's Virtual 2019 Annual Shareholders meeting and presentation. The presentation that will be displayed on your screen this morning will include the highlights of the year ended 2019. The results of the first quarter 2020, a quick summary and outlook, and then I'll turn the podium back over to John Baker. So for the year ended, the comparative metrics for the 12 months ended, revenues for the company were $23,756,000 versus $22,022,000 the same period last year. That's an increase of 7.9%. Operating profit was $5,756,000 for 2019 versus $1,962,000 in '18. The operating profit, the drivers were the performance of our mining and royalty segment, which had its best year ever. And Dock 79 as a result of the amortization of the intangible assets that dragged the operating profit down in 2018 for about $2.2 million. Net income from continuing operations was $8,882,000 versus $959,000 in the same period last year. Income was enhanced by a significant increase in our net investment income. Net income from our discontinued operations after tax was $6,856,000 versus $122,129,000 in 2018, which is the year of our warehouse platform sale. Net income after noncontrolling interest of our joint ventures, was $16,177,000 against $124,472,000 in '18. Net cash provided by operations for 2019 was $47,023,000 versus a negative $37,186,000 in 2018. The big swing here is the deferral of tax on our opportunity zone investments and some income tax refunds in 2019. On our asset side, the things to look at here are investment in joint ventures, about halfway down the page, which almost doubled from $88,884,000, up to $160,452,000. Our cash and cash equivalents and investments available for sale were reduced from a total of about $187,759,000 to $164,474,000. Important to note that assets of discontinued operations as of the end of the year were 0. Other miscellaneous was $2.6 million versus $11.9 million. Total assets for the company, $538,148,000, up 6.5% from the year before. On the liability side, total liabilities went up from $122,233,000 to $146,503,000. Probably the big thing to look at here is our deferred income tax which went from $27,981,000, up to $50,111,000. Total shareholders' equity was up 2.8% from $364,607,000 to $374,888,000. Common shares outstanding showed a reduction of about 1.5% from 9,000,969 shares at the end of '18 to 9,817,000 shares at the end of the year. The book value per common share showed a 4.4% increase year-over-year from $36.57 a share to $38.19 a share. A couple of other quick highlights. We invested $83.9 million into the business in 2019 as we continued our transformation. And we also repurchased 121,817 shares at an average price of $47.06 per share. The next slide here shows you pictures of the 4 business segments that make up our company. Asset Management, Mining and Royalty, stabilized joint ventures and development. In our Asset Management business segment, some highlights of the year. We sold 2 heritage properties. One was 7030 Dorsey Road, a 60 -- over 60,000 square foot office building. And 1502 Quarry Drive, which was the last of the assets that made up our warehouse platform that sold in May of 2018. These 2 properties, we deferred a gain of roughly $11.3 million or $3 million in taxes. We also added 2 new properties into this business segment over the year. Assets that now make up the business segment include the vacant lot at 21st Street in Jacksonville, Florida, which used to be the home of Florida Rock Industries and is now still under lease with Vulcan Materials through 2026. 34 Loveton, which is our office building in Baltimore. It's a 33,000 square foot multi-tenanted office building that's about 95% occupied at the moment. We added the Cranberry Run Business Park, which is an industrial -- a value-add industrial program and the Hollander 95 New Spec. Cranberry Business Park is a 5-building 268,000 square foot building, which was a value-add purchase. We bought the building empty, and we've completed almost a $2 million renovation by the end of the year. And when we complete, we look to have about $34.5 per square foot into this asset. Occupancy at the end of the year was 26.1%. And the interesting to note here, as this building or this asset needs to be 25% occupied to breakeven on the cost. The next addition to our asset management was the latest Hollander Business Park Spec building that we constructed, it's a Class A institutional grade building that's 94,350 square feet with a 32-foot clear ceiling height. It was completed in April and 100% leased and occupied by year-end. Total cost of construction was less than $84 per square foot. In the mining and royalty business segment, overview of that segment, we owned 13 properties totaling just about 15,000 acres. That does not include our Brooksville property totaling 4,280 acres, which is owned in a joint venture with our Vulcan Materials. 12 of these properties are in Florida and Georgia and one is in Virginia. Total estimated reserves on these properties were estimated at little greater than 500 million tons as of 12/31/19. Financial highlights for the mining and royalty. It's -- as I said in the beginning of my presentation, 2019 was the best year ever in terms of profitability for the -- for this business segment. Revenues were up 16% year-over-year and $9,438,000 versus $8,139,000. The tonnage was up 6.4% at 8,000,564 (sic) [ 8,564,000 ] tons versus 8,000,046 (sic) [ 8,046,000 ] tons last year. It's interesting to note that this is the largest of tonnage sold since 2007, and second ever. And the first place is 2007, and like I said, 8,000,965 (sic) [ 8,965,000 ] tons. Operating profit year-over-year, up 16.9% at $8,521,000 versus $7,290,000. On to our Stabilized Joint Ventures business segment, that consists of our Dock 79 mixed-use development in Washington, D.C. It's our joint venture with MRP, consists of 305 apartments, 14,600 square feet of retail. And this building was stabilized at 90% in July 2017. A new addition to the stabilized joint venture program is our Hickory Creek apartment complex located in Richmond, Virginia. It was $6 million, effectively, a 1031 investment consists of 294 apartments that was purchased in July of 2019. We have a 26.6% beneficial interest in this program. It's a value-add apartment complex. The idea is basically, you renovate the low hanging fruit such as carpeting, we placed some vanity tops, that sort of thing, increase rents. And then sell probably in the neighborhood of 3 to 5 years. Our annual distribution is clocked at about 5.65% after tax. Highlights from a financial standpoint for Dock 79, as of year-end in December 2019, we were 93.8% occupied and the average annual occupancy was 95.5% versus 91% -- excuse me, 95.1% at the end of December in '18. And an average annual occupancy of 94.8%. Our success for renewals for 2019 was 60.7%, with an increase of 2.8% against the 58.4% and a 3.3% increase. Retail stayed the same at 76% occupied and leased. Our operating profits for our ownership interest, which is 66%, was $1.375 million versus the negative $614,000 in December of '18. Hickory Creek, our apartment building complex that was purchased in July, we received $123,000 through the end of the year versus 0 in 2018. On to our Development, business segment. This is the main driver behind our growth and value creation, generates minimal revenues, but we invested $83.9 million in 2019 towards future value creation for the company. Our ongoing Maren, which is the Phase 2 of the Anacostia properties, is 264 apartments, it's 6,900 square feet of gross square footage of retail. The building is on time and within budget, and we opened in April 1. This is $113,000 -- excuse me, $113 million project and FRP's equity is about $22.4 million or about 80% ownership in the property. This is a picture of the Maren taken in late February as it sits along the Anacostia with Dock 79 directly to its last. Ongoing Bryant Street, is a 4-building complex. It's also a joint venture with MRP in Washington, D.C., Phase 1 consists of 487 apartments and 85,930 square feet of retail. It's of note, 44% of this -- 44,000 square feet of this retail is pre-leased. This is a $205 million project, whereby FRP has $55 million invested in common and preferred equity. It's an opportunity zone program, and as of the end of the year was 46% complete. Bryant Street is Phase 1, like I said, of a larger project that we have the opportunity to stay on with. It could be a 3 to 4 phase project. You'll see the areas of future phases kind of off to the left. The total property that is outlined here is a little over 12 acres. Phase 1 is about 5.5 acres. When complete, the entire project could hold 1,450 apartments and a little over 250,000 square feet in retail. One of our new projects at the end of December '19, we were able to invest in 3 new opportunity zone projects at the end of the year, and our investment totaled about $53 million of qualified opportunity funds. New Riverside is one of those new investments. It's in Greenville, South Carolina. It's a joint venture with Woodfield Investments, which is a new partner that we're excited to be a partnership with. Our investment is $6.2 million in this particular asset for 40% ownership. And like I said, it's in the opportunity zone. This is a 200 unit multifamily project. We look to -- we actually started this project in the first quarter of 2020, and we look to be -- receive our first tenant in the third quarter of 2021. This project defers about $1.7 million in taxes, and it's 1.5 miles from Downtown Greenville. Location map. I know this is a bit confusing, but the site is shown in the middle in yellow. There's a large retail component just to its south. The property sits on what they call the swamp rabbit trail that leads all the way into Greenville, the town of Greenville, which is up on the top left-hand corner of your slide. Another new development, the second of the 3 in December is called .408 Jackson. It's also in Greenville, South Carolina. It's also a joint venture with Woodfield. And it's a $9.7 million investment for a 40% ownership. Again, it's an opportunity zone project. Consists of 227 apartments and a small retail component of 47 -- excuse me, 4,700 square feet of retail. This building -- well, actually didn't get started in the first quarter. It's probably closer to May. We're getting ready to start now, and that's due to be ready to receive its first tenant in the first quarter '22. We look to defer about $2.6 million in taxes, and this project is also about 1 mile from Downtown. The site is pretty interesting. You'll see the star over top the existing building that used to have a GSA tenant there, which is now gone. Just above the top part of the star is a little house that you can't see, and that was the original house where Shoeless Joe Jackson, grew up, which is kind of why we named this project, .408 Jackson for you baseball fans, that was Shoeless Joe's batting average. The baseball field across the Street is for the -- I believe it's the Boston Red Sox farm team. And the street that connects our project to that will be closed off and will be a promenade of retail shops on both sides. The next to the last of the 3 investments we made in December is now in -- we're back in D.C. with MRP. It's 344 apartments, 11,246 square feet of retail. It's a $37 million investment on our part for about 60% ownership. Again, an opportunity zone property that we should be able to defer about $10 million in taxes. This property looks to start vertical construction sometime in the second quarter of 2020. The ground, the joint venture purchased the land and is doing some cleanup on the property, demolishing the existing buildings. The first tenant would be -- would look to take occupancy in the second quarter of 2022. From a location standpoint, this is a picture, an aerial of the southeast of Washington, D.C. 664E there at the bottom is our, what we call Phase 5 of Riverfront, but for now, it is leased to Vulcan Materials as a concrete plant, and that goes all the way from the water's edge back to Half Street which is the new joint venture with MRP. And you see the new Audi soccer field in the background that is up and they're playing soccer games there now. Off the right of your property, there's a hill pad and some other properties. Those properties are owned by Steuart family, Steuart Investments. We've had some preliminary conversations with them about possible joint ventures down the road. So a product analysis of these mixed-use programs, the Maren, Bryant Street, Riverside, .408 Jackson and Half Street, the number of units across the top of the page basically totaled 1,522 units. There's a small component of retail, as you can see throughout the projects, with the exception of Bryant Street, which is larger. But it's important to look at the first units delivered a row with The Maren in April of 2020, Bryant Street in February of 2021, Riverside, of course, in a different market in May of 2021, .408 Jackson, 2022 and Half Street in April of 2022. So they're significantly pushed out between now and the end of 2022. Rental rates go from a low of $1.64 per square foot in the river side all the way up to a high in 2022 of $3.84. Interesting slide here. This is our -- the makeup of the cost of these projects across the total. Total cost across the top and in the yellow column at the end, the total cost of these projects is $556.2 million. The debt on these projects, construction loans are $340.7 million. Equity is $215.5 million, and we own 62% of all of those boxes. Next. One of our other joint venture relationships is Windlass Phase 1. It's a joint venture with a large private developer, St. John Properties. It's Phase 1 of a 329,000 square foot program. We built offices and a small area of retail. The occupancy for the office at the end of the year was 61%, and the small area retail was not occupied. This is a picture of the Windlass joint venture as a whole. Phase 1 is outlined in yellow and the balance of the buildings for phases 2, 3 and, however, are off to your left and behind. The picture to the right of the street coming in is a large apartment complex that is 95% occupied at the moment. Moving on to the first quarter ended 3/31 '20. This is a picture of the Maren and our Dock 79 in the background. And in the foreground is the infamous new Frederick Douglass Bridge with the 2 arches installed, and that is the bridge closest to your vision and the one behind it is the one that's going to come out. That's scheduled to come out in the spring of 2021. So some highlights for the first quarter. Revenues were $5,783,000 versus 570 -- excuse me, $5,714,000 same period last year. Operating profit was $794,000 versus $1,355,000. And the reason for that is that the timing of some stock compensation expense of about $600,000 made the difference there. Net income from discontinued operations, I won't say at long last, but it was 0. And in the same period last year was $86,000. Net income after noncontrolling interest, $1,618,000 versus $1,898,000 in the same period last year. Cash provided by operations, $3,983,000 versus $3,250,000 same period last year. On the Asset Management business segment, revenues were $652,000 versus $641,000. Operating profit was a negative $131,000 against a negative $66,000. It's really difficult to compare the quarter-over-quarter metrics here because the assets are completely different in this segment year-over-year. Of note, the Cranberry Business Park, which was a new addition to the asset management for this year was 54% leased at quarter's end versus 26.1% at year's end. Next. Mining and Royalty, revenues were actually down 2% from $2,229,000 in March of '19 to $2,185,000 in 2020. This past year, the tonnage was 1.9 million against 2 million tons. The operating profit was $1.9 million versus $2 million. The primary reason for the slight decrease in the performance is that we are no longer receiving double minimums at our Lake Louisa property. Because our tenant finally received its final permits and began mining the property sometime in July of 2019. Stabilized Joint Ventures, the residential program is certainly holding up well. Our occupancy as of March 31, 2020, was 93.4% against 94.8% in 2019. Retail is the same at 76%. The success of our renewals was 57.9% an increase of 2.4% against the 60.9% success rate and 2.6% increase. We do have a cease on the increases as a result of the COVID-19, we are not allowed to show any increases for new tenants -- or excuse me, for tenants renewing. That started in March 11, and we'll go through till whenever the government allows us to offer increases again. Operating profit for our percentage was $335,000 against a number of $246,000 in March of '19. Hickory Creek's first -- the quarter's contribution was $83,000. Again, on an annualized basis, it's about 5.7% of our -- of $6.2 million, I believe, investment in that property. In the Development section, ongoing joint ventures. As I said, the Maren opened basically for business in the last couple of days of March, we call it 4/1/20. It is as of May 4, we were 17.1% leased. And we were 4.2% occupied as of May 4. We look to move about 15 to 18 tenants in, in May with the same number scheduled to move in, in June. Bryant Street, construction was about 53% complete, and construction is ongoing as it was not required to cease due to the COVID-19 virus. Riverside construction began in earnest of March 1. That's our property down in Greenville, South Carolina. .408 Jackson, actually, construction is not going to start there until 5/1/20. We were in the process of relocating a tenant that started back in March but actual construction or vertical construction is going to commence right around probably this week or next. 1800 Half Street construction is currently scheduled to start in the second quarter of this year. The property has been bought. The existing tenants of the old warehouse building have been removed and destruction of that building is going to start happening next week. The Windlass office is still at 61%, and the retail is still at 0%. Our lending ventures, Hyde Park is the property in Baltimore County, Maryland, that has 129 dwelling units scheduled -- a scheduled settlement for those lots is anticipated actually in the next 2 weeks. And so we are cautiously optimistic that, that will happen. Amber Ridge is one of the newer ones that we have. That's 187 dwelling units. That property is at peak Prince George's County, Maryland. All of the entitlements, the drawings and everything are in with the county, which is good. Because the county had shut down all permit applications or entitlement programs. So we're in the queue. And when it opens back up again, there's going to be a rush at the door. This property so far, some value engineering has been done. Construction pricing is helping us as they begin to start going back to work in this summer, and we found about a 10% amount of funds that we can add to the contingency, which is about $1 million. And again, this property already has contracts with some deposits in place for all 187 units with 2 separate builders. Next. Remaining assets, Hollander 95 has industrial properties available that we can still build 230,000 square feet. We're looking to do a probably 150,000 square feet in 2020 with the balance in 2023. Windlass joint venture still has 2 to 4 phases left. The Hampstead residential has 255 units, which we are going through and actually received concept plan approval for our PUD in the first quarter of this year. Riverfront phases 3 and 4. We're going to start predevelopment on that this year because the existing bridge is going to start coming down in 2021. Square 664E, as I said and showed you in the pictures earlier, is the property that we have under lease with Vulcan Materials. Mining and Royalties, we have second life properties there. The Brooksville joint venture with Vulcan is -- the timing of that is still be determined. And our Fort Myers property is scheduled for a fairly substantial amount of building lots after 2028. So a little summary and outlook. Again, we look to build by partner and build this business in this company by partnering with best-in-class teams and their respective asset class. This past year, we went through a pretty good betting program with our new partner Woodside -- Woodfield Investments. We're excited about that relationship so far. They come very well, highly recommended, and we like them as people so far, and they've been very accommodating. But we're just getting started. A big program that we offer is an active engagement with properties and partners, contributing our operating expertise and connections to add value. So I wouldn't be -- I have to say something about the COVID-19 program. So what I'd like to do first, next slide, please, is show what happens. Here, our net operating income as a percentage, 48% of our net operating income comes from Mining and Royalty. 37% of it comes from the joint venture residential. 9% comes from our asset management, which is industrial and a small office. And a small portion of retail is 6%. And as we know, the retail component are taking significant hits. That 6% is directly related to the 3 tenants at Dock 79 in Washington, D.C. So just in closing, I would tell you that the COVID-19 is having an unprecedented impact on the world economy. We are considered an essential business and continue to operate at full capacity while heading the guidance of the federal government and orders issued by the state and local authorities. Our offices at Loveton Circle are closed, and all employees are set up to operate from their homes. When required, our employees are physically distancing and employing other measures to ensure their protection from the folks with whom they interact with as everyone goes about their business. At the end of the first quarter, requests for forbearance of rental obligations were limited to 4 tenants. 3 retail restaurants at Dock 79 and 1 small office tenant whose business focus is related to hotel services. To be sure, FRP is not unscathed by COVID-19, however, by way of illustration, the retail tenants at Dock 79 represent a total of 6% of the entire portfolio's net operating income. The vast majority of our tenants to continue to operate, though perhaps on revised schedules and conditions, and they continue to pay rent as usual. At this point, we have been given no reason to expect this situation to change. We are mindful of the challenges that are facing our tenants, partners and employees every day, and we strive to be a good steward of our stockholders' faith as well as the trust and support of our business partners. COVID-19 marks a new beginning and will change the way we behave personally and professionally, but with all challenges come opportunity. Thank you, and I'll now turn the podium back over to John Baker, our Chairman.

Thank you, Mr. deVilliers for your report. Since there were no questions submitted prior to the meeting, I will go directly to the results of the vote. All of the nominees have been elected to serve as directors until the next annual meeting of shareholders. The Audit Committee's selection of Hancock Askew as the company's independent auditor has been ratified and compensation of the named executive officers as disclosed in the proxy statement has been approved on an advisory basis. There being no further business to come before this meeting, I declare the meeting adjourned. I will now open the floor for any remaining questions, which may be asked by using the raise hand function on the Zoom platform. There do not appear to be any questions. Thank you for joining us today. We appreciate your interest in our company and your support. Have a great day.