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

Good morning. It's 11:01 on May 3. My name is John Baker, Executive Chairman and Chief Executive Officer of FRP Holdings, and it's my pleasure to welcome all of you who have joined our annual meeting virtually today. 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 who are present are Charles E. Commander III; H. W. Shad III; Martin E. Stein, Jr., William H. Walton III; and Margaret B. Wetherbee. Our key officers who are present are David deVilliers, Jr., our President; John D. Milton, Executive Vice President and General Counsel; John Klopfenstein, Controller and Chief Accounting Officer; and John D. Baker III, our Chief Financial Officer and Treasurer. Representing our independent auditors, Hancock Askew and co are managing partner: Mike McCarthy; Allen Akin; and Kate Haslam. 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 in the presence of a quorum.

This meeting is held pursuant to a printed notice that was mailed on or about March 31, 2021, to each shareholder of record as of the record date which was March 24, 2021. On April 22, 2021, the company filed a Form 8-K providing the rules of conduct for this meeting. A count of shares present immediately prior to the commencement of the meeting today indicates that 7,621,977 shares of the company's common stock were present or represented by proxy. This is 81.19% of the outstanding shares of common stock outstanding on the record date.

Thank you, John. I hear I 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 in accordance with the meeting's rules of 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 virtually only -- virtual-only, the company has designed the online format of this meeting to ensure to the extent practicable 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; and Margaret B. Wetherbee.

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

I second that motion.

The second proposal is to ratify the Audit Committee's selection of Hancock Askew and Company LLP as the company's independent auditor for fiscal year 2021.

Chairman, I move of the Audit Committee selection of Hancock Askew and Company LLP as the company's independent auditor for the fiscal year 2021 be ratified.

I second that motion.

The third proposal is the whole of advisory vote on executive compensation. Under the say-on-pay legislation acted 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 that 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 voice vote, please raise your hand by using the Raise Hand function on the Zoom platform. For your information, John Milton and I are proxies named in the proxy cohort and our capacities proxies, we will cast our vote in accordance with the written instructions received from the respective shareholders. I don't see any in-person voting, so we will now proceed to ask David deVilliers to present the President's report.

Thank you, John, and welcome to FRP Holdings second and hopefully, its last virtual annual meeting. So for the highlights for the year, I'm happy to report that we had a solid year in 2020 in spite of all the headwinds. Although revenues were flat, net operating income was up 1.6%, and our net income from continuing operations after tax and noncontrolling interest was up 33% to $11.722 million. Earnings per share diluted were $1.32 versus $1.63 in 2019. When you eliminate the $0.69 from the final disposition of assets from the warehouse platform sale in 2019 and factor in the buyback of some 510,000 shares during the year, earnings per share were up 40% to $21 million -- excuse me. Please. Capital deployed over the year, leading the way, totaling about $49.388 million. Leading the way was the stock repurchases, I just mentioned, of some $21 million, followed by land development of some $12 million which included a $10.5 million land purchase, followed, #3, by lending ventures of some $10.6 million. So balance sheet excerpts. Okay. So our total assets remained roughly the same. There was a swing in investments available for sale and cash equivalents. We had a sale of bonds that matured and cash into money market funds. We wound up with just a little over $149 million in cash and short-term investments. Total liabilities were up slightly due to a $6 million increase in deferred income tax. Common shares outstanding were reduced by 4.6% to 9,364,000 shares. Book value increased 2.8% to $39.26 per common share. Moving on to our business segments. Our Asset Management segment which owns leases and manages industrial and commercial properties. As of December 2020, this segment was made up of 3 assets: one, the vacant lot at 21st Street in Jacksonville, Florida, under leased to Vulcan through 2026; the Loveton Center office building, which is a 33,000 square foot multi-tenanted suburban office building that houses the Baltimore management team, this building was 95.1% occupied as of 3/31/21; and the third asset, our Cranberry Business Park, which is a $5 billion -- 5 industrial buildings totaling 268,000 square feet. This is a value-add purchase that we did substantial renovation, too. As of 3/31 21, this building was 87.6% occupied. Some other highlights of the Asset Management. We sold the Lakeside -- remaining lot at Lakeside Business Park and a fully occupied Hollander spec building shortly after it was completed for a total of $15 million -- of $15.8 million, generating a gain on sales of some $5.7 million. Another highlight, our Cranberry year-over-year NOI was $732,000 for 2020 versus $146,000 in 2019. In our Mining and Royalty business segment. A quick overview there were 13 properties totaling 15,000 acres, of which 12 properties are in Florida and Georgia, one in Virginia. As of 12/31, the total reserves were a little over 506 million tons. Some highlights. The revenue was $9.4 million. Year-over-year increase was about 0.41%. The tonnage, excluding our Brooksville property was 8.4 million tons, and that's 2.4% better than the previous year. This is the highest revenue total in business history. Since 2015, this business segment has achieved a compounded annual growth rate in revenues of over 8%. Also during the year, we increased several leases on their rental minimums. This next slide shows the 13 properties, their size, the tenant, lease termination and other pertinent information, including renewal options, minimum royalties, et cetera. This slide, along with the entire presentation, will be downloaded at FRP's website after the meeting. So rather than taking you through all of this information on this slide, I invite you to visit www.frpdev.com and peruse our completely revamped website. As for this presentation, please click the Investor tab, scroll down to Investor Presentation and go to 2021 Annual Shareholder Meeting. Some other highlights in our Mining and Royalty segment, we've 2 property sales for a gross sale price of $4.7 million with a gain on sale of $3.6 million. Relative to our Stabilized Joint Ventures business segment, as of 12/31/2020, this segment was comprised of 2 assets. The first, Phase 1 of our Riverfront project on the Anacostia River. It was our first joint venture with MRP. It consists of 305 apartments, 14,600 square feet of retail. The second asset is our Hickory Creek investment, it's a suburban apartment complex in Richmond, Virginia. It houses 294 apartments. Some highlights of our joint of these 2 properties, of all of the FRP's assets, Dock 79 was the most affected by the pandemic. Frozen rent increases and ability to evict nonpaying tenants, closing of our 3 retail tenants completely for over 3 months, et cetera. So with all of that, our average occupancy for the year was 93.1%, down 2% over the previous year. Our renewals were 57% and a slight increase in those renewals because the government froze all increases for renewal tenants. The retail remained at 76% leased, and 76% occupied and our NOI dropped 7.2% to $4.3 million, and that is our 66% ownership in that property. We had a full year at Hickory Creek this year which is why there's a disparity between the year-over-year when we got our planned 5.65% return on our investment. Subsequent to 12/31, the lights have begun to glow more brighter as vaccinations begin to be the norm and herd immunity is hopefully on the horizon. At Dock, we have a signed LOI for the last suite. They're due to take occupancy sometime this summer. We completed the retail COVID work around for our 3 tenants. As of the end of April, Dock 79 was 95.4% occupied, and all 3 restaurants are fully operational outside, albeit still at less than 50% inside. We also were fortunate to refinance the Dock 79 permanent mortgage at a 3.03% interest rate which is down from the previous interest rate of 4.125%. Now we welcome Maren to the first -- to the Stabilized Joint Ventures in the first quarter of 2021. The Maren is our second joint venture with MRP and sits directly adjacent to Dock 79. It's 264 apartments, 6,900 square feet of retail. We received final certificate of occupancy in April and 90% occupied at the end of February 2021. That's less than a year when the property leased up during pandemic. During the first quarter of 2021, we refinanced the construction loan to a 12-year interest-only permanent loan like Dock 79 at the same interest rate of 3.03%. As of 4/29, Maren was 93.3% occupied and is now consolidated into FRP's balance sheet for the first quarter of 2021. On to our Development segment. This business segment fuels the growth of our company. As you can see we have been quite busy redeploying some of the funds generated from the sale of our warehouse platform in 2018 and completing such in 2019. During 2020, We had 5 mixed-use joint venture projects under various stages of construction, including 10 buildings totaling 1,522 apartments and 109,000 square feet of first floor retail. With the first quarter completion and stabilization of Maren, the next ongoing mixed-use joint venture, also with MRP, is Bryant Street, located just 2 stops north of Union Station in D.C. on the red line. This is a 4-building complex totaling 487 apartments and 85,930 square feet of retail. This is an opportunity zone investment. The first of 4 buildings, Coda, was completed and opened to receive tenants on January 1, 2021. As of April 30, that building was 53% leased and 32% occupied. As of 3/31, Bryant Street Phase 1 was 94% complete as a whole. We have 2 ongoing joint venture projects in Greenville, South Carolina with Woodfield development. The first is Riverside, which is a 3-building complex totaling 200 apartments, sandwiched between 2 third-party retail centers that, last week when we were there, were packed with customers. Riverside is located within 1.5 miles from Downtown, Greenville. As of 3/31, this project was 73% complete. 408 Jackson is our other project with Woodfield and is located a bit less than 1 mile from downtown. It will have 227 apartments and 4,700 square feet of retail. As of 3/31, this project was 37% complete and is expected to receive its first tenant in the first quarter of 2022. On to our most recent joint venture which is back in the District of Columbia, also with MRP, is known as 1800 Half Street. This project broke ground in the third quarter of 2020. As of 3/31, the project was 16% complete out of the ground with expected completion in Q2 of 2022. Here is an aerial of the Southeast part of the District of Columbia. You can see the arches of the new Frederick Douglass Bridge, just below the Dock Maren label. Notice the close proximity of Half Street to Dock to Maren to Phases 3 and 4 Riverfront and Square 664A. This is the southern entrance to the nation's capital. So the total financial commitment to these 5 projects, including Maren, Bryant, Riverside, 408 Jackson and Half Street, the total commitment is $552 million, of which $218 million is equity and $334 million is debt. FRP has a weighted average ownership in these projects of 62%. FRP's equity is $151 million, which consists of cash, land contribution and preferred interest. Our portion of the construction debt is $214 million. Including Dock 79 and its 305 units, we will exit 2021 with 9 buildings totaling 1,256 completed apartment units. Two more projects totaling the 571 apartment units will come online in 2022. Still another ongoing joint venture is the one we have with St. John Properties in Baltimore County, Maryland. This is a 50-50 partnership. The first phase has suffered from the pandemic, predominantly due to its asset class being office and retail. As of 3/31, the 72,000 square feet of office was 61% occupied, and the 28,000 square feet of retail was 8.8% occupied. This is an illustrative site plan of the total Windlass joint venture that in completion will have 329,000 square feet of office and retail. In addition to our joint venture projects, we have been busy with our in-house industrial development program. We have 2 new warehouses under construction totaling 145,750 square feet. These buildings are expected to be complete in the third quarter of this year. These new buildings are located directly next to the one we sold in 2020 at Hollander Business Park. Since we only have 1 industrial building lot remaining, we were fortunate to find and subsequently purchased the Krause property. This is a 55-acre parcel which was purchased in the fourth quarter for $10.5 million. It's located in Harford County, Maryland and surrounds our Cranberry Business Park. Concept plans show 2 buildings totaling approximately 675,000 square feet. In our Lending Ventures platform, the first ever of our lending ventures was Hyde Park, in which we were the capital source behind the development of 129 residential lots. In 2020, we sold all of the lots to a regional homebuilder and upon receipt of the final $300,000 in the second or third quarter this year, we will have enjoyed a $1 million profit on a $3.5 million investment. Our second lending venture is Amber Ridge, this is an $18.5 million commitment, and the project consists of 187 townhouse lots. The first round of these lots is scheduled for the fourth quarter of 2021. All lots are under contract for sale. Future development. We have Hollander Industrial, 1 lot left at Hollander that can take 101,750 square foot building. We have now Prowse Industrial, the 675,000 square feet, which looks to start if we're -- if we can get through the entitlements by that time in 2023. We still have the Windlass joint ventures, the remaining is 230 square feet of office and retail. We have the Hampstead Residential parcel which is 255 units. We have Riverfront Phases 3 and 4 which will hold about 500,000 square feet of mixed-use, and we have Square 664A, which is currently the concrete plant that is leased to Vulcan Materials. In the Mining and Royalty section, we have 2 properties that right now have second lives. It's the Brooksville joint venture which is 4,280 acres with master zoning in place for some 5,800 residential mixed-use units. We also have Fort Myers approved in place for 105 1-acre waterfront residential lots when mining has been completed. Just as we are happy to put 2020 behind us, we're equally excited about what awaits us in 2021 and beyond. We are very fortunate that our assets responded in the way they did to the pandemic. We continue to believe we can build value by partnering with best-in-class teams in excellent markets. It also helps to have the luxury of substantial cash reserves to help weather any short-term disruptions. We have a note here that deals with the non-GAAP financial measures. I won't go through the next slides with you. Once again, you can see those on the website after the meeting. Again, finally, I want to personally thank my fellow officers for their work efforts this past year and to the Board members for their faith and support. And we'll now turn the podium or screen, as the case may be, back to our Executive Chairman, Mr. John Baker, II. John?

Thank you, David. A lot going on here. And as you all will recall, we pretty much started with a blank sheet of paper after selling our warehouse portfolio a couple of years ago, and I think we're making great progress in repopulating our portfolio. There were no questions submitted in advanced, so we will proceed to announce 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 the meeting, I declare the meeting adjourned. I will now open the floor for any questions which may be asked by using the Raise Hand function on the Zoom platform. You can access this feature by clicking the icon label Participants at the bottom center of your computer or phone screen and clicking the button labeled Raise Hand at the bottom left side of the window. If you're using a computer, you may access this function by using the alt+Y keyboard shortcut to raise or lower your hand on a Windows device. On the Mac, you can use the option+Y shortcut to do the same thing. So are there any questions? I'm not seeing any. And I would just wrap up the discussion today by thanking all of you all for your interest in FRP. We're excited about our progress, and I think we're in the process of really building a really neat company. Thank you so much, and have a great day.