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

Good morning. Thank you all for being here. We appreciate you taking the time. I'm John Baker, II, the Chief Executive Officer and Executive Chairman of FRP Holdings. And with me today are David deVilliers, our President; John Baker, III, our Chief Financial Officer; and David deVilliers, III, our Executive Vice President. If you'll bear with me, let me run through some of the boilerplate. As a reminder, any statements in this presentation, 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 as a result of future events or new information except as imposed by law. To supplement the financial results presented in accordance with GAAP, FRP presents certain non-GAAP financial measures within the purview of Regulation G of the Securities and Exchange Commission. The non-GAAP financial measure referenced in this presentation 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 NOI in the years referenced in this presentation to GAAP, please refer to the final slides in our presentation. So having warn you all of all these risks and uncertainties, let me welcome you, those of you who are here in-person, and those who are attending virtually to the FRP Holdings 2023 Investor Day. We appreciate your interest in our company and enjoy and benefit from your input. And so we look forward to the Q&A, and hope that you all will be able to stay. We have lunch afterwards. And then we'll take a quick tour next door to our main apartment building and go up top from there, and then you can see what our -- in-person, what our plans are for this area going forward. To begin with, I'd like to give you some background on our company. Really, our story, which I think is important to understand where FRP is today, how we got here, and where we're headed in the future because, really, all these pieces are connected. The origin of this company really goes back about 100 years ago with another company that I had a hand in running over the decades. That company was Florida Rock Industries, which started with a small sand plant in Interlachen, Florida that my father, Tom Baker, ran during the Great Depression. Over several decades in several generations of Baker's, we built it into a really amazing business that we sold to Vulcan Materials in 2007. This company, FRP Holdings, was a brainchild of my older brother, Ted Baker, who was running Florida Rock Industries at the time. In 1986, I mean, it's getting to be a long time ago, he realized, and as we all did, that we were not getting full value for all our assets in the market. I think, we were trading at a 7 P/E, and at that time, had 30,000 acres of land, and we said, we're just not being valued for that land. So he came up with the idea to spin off that land as well as a trucking company that we had into a separate public company, which has now become FRP Holdings. In 1988, 2 years after that spin-off, Florida Rock bought a company in Baltimore that had a real estate department. And we grab that real estate department from that aggregate company and put it here, including its then leader, David deVilliers, who along with he and his son are still the main cogs of this wheel, and we're glad to have them. Since 1988, FRPH has been a small, nimble, full-service real estate development organization with significant experience in property acquisition, development, and then finally, management. Our background is in ground-up development. We -- from land purchase, to entitlement, to construction, to lease up, through property management as owners. We rarely are merely a passive minority investor in real estate. We're not interested in simply being a capital provider to real estate development projects or a passive income recipient through investments in existing and long-established properties. While we don't, of course, rule anything out in the future, we like to have our focus be on where we can add value. We have a very strong balance sheet, which we see as fundamental to our strategy. We focus on real estate, soup to nuts, if you will pardon that term of art, from land purchase through ownership, and management of the final development, the timeline for our projects can take years, and in some cases, even decades to see through to an end. And the push and pull of the business cycles make it paramount for us to maintain a capital cushion to see these projects through. A strong balance sheet with a stable growing cash flows and a conservative approach to risk management is fundamental to who we are. We've been in the aggregates business for nearly a century now, and have run this real estate business for nearly 40 years. So while I won't say we've seen it all, we've seen a lot. And that experience informs our diligent approach. When Mr. deVilliers came on, starting in 1988, and for 30 years, we developed and operated a portfolio, which we eventually grew to 4.5 million square feet of industrial real estate. In 2018, we felt that the market was too hot, too expensive, cap rates were too low, and so we sold that portfolio for $347 million and that's where the modern history of this company really began. Our goal for the last 5 years has been to put that fresh capital to work in the form of new investments. And as you can see from the slides, we've done just that. Since the asset sale, we have invested in real estate, either through in-house development or investments in joint ventures, a total of over $319 million of equity in various projects. We now have 6 projects that we started -- in 2018, we had 305 apartment units in 1 building, this building that we sit in today. We now have 6 projects, with 1,827 in Washington, D.C. and Greenville, South Carolina. Since the asset sale, we have rebuilt our industrial portfolio to 8 buildings with 510,000 square feet, and are in various stages of development to build another 1.8 million square feet. We've grown NOI since the end of 2018 from $13.6 million to Q2 '23 annualized NOI of $29.2 million for a compound annual growth rate of 16.4%. Despite this steady stream of investment, our cash balance has not dramatically changed in the last 5 years. At the end of 2018, we had $187 million in cash and equivalents and midway through this year, we had $167 million. We came to you all last year with the announcement of our partnership with MRP and Steuart Investment Company to develop the Steuart Family parcels in the Capitol waterfront, along with our own Phases III and IV of Riverfront, Square 664 and Verge that we believe that would put the bulk of our cash to work over a 10- to 15-year period. Much has happened since that announcement last year. And because construction costs have skyrocketed, interest rates have gone up 500 basis points, we're going to put any plans for mixed-use construction in D.C. on temporary hold until rates soften, the rents rise and costs come in line with returns. We believe this speaks to what differentiates us from other real estate companies. We have a patient, long-term focus. We are not fee developers, and we're not going to develop just to develop. Management also has a significant investment in this company. Between the 4 of us, we own 18% of the company's outstanding shares. There is a very real alignment of interest with our shareholders because we're -- every bit has invested in this company as you are. A point of saying all this is to say, this is who we are. We patiently and carefully invest and develop properties because we intend to hold them and build value. And second, we still have a plan to continue to reinvest our cash position in new projects, which we will lay out for you in this presentation. I'll now turn the podium over to David deVilliers, Jr. for a brief overview of what we do, and how we do it. David?

Thank you, John. Good morning, everyone. Thank you all for coming. That's kind of a tough act to follow. Thank you so much for filling in a lot of those blanks. I'll see if I can fill in just a few more. So what you see here. Today, I'm going to concentrate on our 4 development strategies. And as you can see them here, in-house, third-party joint ventures, obviously, the mining and royalty and lending ventures. In-house, which includes our industrial, commercial and land development platform. These properties are developed, managed and 100% owned by FRP, and are housed in the Development segment until the buildings receive a certificate of occupancy, and then they move over to our Asset Management program. The third-party joint ventures, which as the name implies, are projects developed in conjunction with third parties where FRP is the major owner but relies on its partner to perform much of the day-to-day operations. Like in-house, these properties are housed in the development section until they are completed and have maintained a 90% occupancy level for a period of 90 days before being moved to stabilized joint ventures. Mining and royalty lands, these are the heritage assets spun off to us by Florida Rock Industries in 1986, and are housed in the mining and royalty segment. Lending ventures, which is a program that is also housed in the development section, and is a strategy where we are the principal capital source for residential land development activities in Maryland, where raw land is transferred into finished building lots and sold to national homebuilders. We conduct these programs with a former Head of a National Homebuilder who resides in Baltimore, Maryland. So our mission is building value for stockholders. We develop assets to own and operate them, to generate cash flow and reinvest that cash flow in additional projects. How do we do it? We have a patient, flexible investment strategy designed to maximize NOI growth over the long term. We seek markets that provide strong economics and employment fundamentals. We deploy our expertise in ground-up development. We seek value-add acquisitions. Our strong balance sheet creates the ability to opportunistically take advantage of elevated markets and market dislocations to harvest cash flow. And we strive to achieve repeatable, strategic partnership approach to entering markets. This reduces risk and maximizes local experience and knowledge. It's our synergistic approach to partnering. In short, are we not stronger together than independently. What makes the market attractive. High barrier to entries, employment and population growth, strong and efficient transportation infrastructure, and demographic profile. Our geographic focus is primarily along the Eastern Seaboard, stretching from Northern Maryland through Washington, D.C. to Greenville, South Carolina, and finally, to the great state of Florida. Our in-house strategy includes all of our asset management platform, inclusive of 9 industrial buildings, 1 office building. And from our Development segment, several land parcels that house interim use tenants and/or produce ground rents. This is where we take the property from raw land through entitlements, vertical construction and finally, property management performed by internal personnel. After the warehouse sale in May of '18, by the end of that year, we had 2 office buildings and 1 recently completed spec house and several land parcels. As you can see from this slide, we have grown from less than 200,000 square feet to a bit over 548,000 square feet, with a 5-year pipeline of an additional 1.8 million square feet. Of note, during this period of time, we sold 2 buildings, totaling 157,000 square feet along the way. Our industrial platform is made up of 2 types of industrial buildings. One is the core type, which as this slide represents, our high-quality Class A institutional grade facilities designed to maximize flexibility. We underwrite these assets prior to construction at 7% return on cost. The buildings that you see in this slide come from several of the buildings that we built at a place called Hollander Business Park. Hollander Business Park was bought in 2008 at an auction, where I sat at the front door steps, and John Baker told me, I think we finally have Board approval, so now you can bid up to a certain amount of money. We built the buildings, sold several other buildings to Blackstone, sold another 1 to Cabot, then we decided we're not going to sell any more for the time being. And so this is a representation of the ones that we have today. The other type is Class B or value add. This type of asset carries a higher risk profile than Class A because of the need for extensive renovations to enable higher rents and operational efficiencies. We have -- we lever our experience and relationships to find these types of assets that usually are outside the focus of institutional money. Cranberry Business Park, which is shown here, is a 268,000 square foot, 5 building program, purchased in 2019. We bought the property for $6.4 million. We then proceeded to invest $3.4 million in the properties. Over the last 12-month period ending 6/30/23, this project produced a 15.8% return on that investment. Since the warehouse platform sale, revenues have grown from $3.5 million in 2018 to a forecasted $6.9 million based upon the annualization of our Q2 results for 2023, providing a CAGR of 14.4%. NOI has risen for the same period from $1.1 million to $3.9 million, providing a CAGR of 27.8%. Of note, the last 12 months ended 6/30, these assets generated 3.2 million square feet of NOI as these buildings were starting to lease up. From a capital investment standpoint, John alluded to earlier how much money we've put in back into the business. We have or will, by the end of this year, invested over $78 million in the in-house program since 2018. This is our industrial building pipeline, totaling approximately 1.8 million square feet. Based on acceptable market conditions, these buildings are being prepared for vertical construction over the next 5 years. These projects are located in what -- and different people call it different places. So I'm going to give a shout out to CBRE, and they estimate this submarket at a little over 106 million square foot submarket, that as of September 30 was 4.3% vacant. We call that the 95 North Industrial Corridor. So right now, we have, under construction today, a 259,000 square foot warehouse. We have another site that is -- we're going through the predevelopment process for a 900,000 square foot building. And then we have a third site that we have under design right now, 635,000 square feet in several different building styles, again, to maintain flexibility. When you add this pipeline of projects to our current buildings in service, our industrial platform will increase to a bit over 2.3 million square feet. Moving on to our third-party joint venture strategy. I have to say, this is probably one -- this is not a bad view, aerial view of the southern entrance to your and our nation's capital. I'll get into a little bit more of this in detail but I thought this is a pretty good place to introduce our third-party joint venture program. Apartment unit growth has gone from 305 units, this building you're sitting in, to 1,827 units in service, with another 1,000-plus in the queue for the next 5 years. Obviously, the development dynamics, including cost, interest rates, and supply/demand will have an effect on the timing of these new projects, but we are readying them for vertical construction. So when the time hits, they're ready to put a shovel in the ground and not go through a 1- or a 2-year process to get ready. Our commercial platform has risen from 14,000 square feet to 226,000 square feet, inclusive of a 72,000 square-foot single-story office component. Most of these retail programs are either sitting beneath the apartments or standing right next to them like they are one of our projects. We don't do strip centers. All the retailers, generally, is an amenity to our apartment program. So presentation describing our apartment retail platform would not be complete without some pictures of some of our properties. What you see here behind me is Dock 79, and the sister building next door, Maren, which you all will visit today, 569 units, with 21,000 square feet of first floor retail. As of September 30, both buildings were 94% occupied. This is a JV with our partner, MRP. I don't see any of our buddies here, they're probably out trying to figure out how to generate some more rents but MRP has been our partner here in D.C. since about 2011. Interestingly enough, in 2022, last year, John made reference to our Steuart Investment, we sold 20% of these properties to Steuart Investment Company. Another JV with MRP. This is called our Bryant Street Phase I in D.C., 2 stops north of Union Station on the red line, just 1 stop up from Gallaudet University. It's an opportunity zone development project. It's 487 apartments, and just under 92,000 square feet of retail. As you can see, the buildings are somewhat spread out. This is the Coda. This is residential. These 2 buildings are the residential. This is the Alamo Drafthouse program and the metro bar. So all of these properties take up about 5.5 acres of property, Phase II and beyond takes up another 7 acres. We have an option. We have a right but not an obligation to proceed further down that program at such time as we deem that's an appropriate thing to do. Moving on. This is a picture of our 408 Jackson building in Greenville, South Carolina. The name, 408, is actually 0.408 for the batting average of Shoeless Joe Jackson. We thought that we'd give a shout out to him. It sits right next to Fluor Field in Greenville, which is the farm team for Boston Red Sox. Well, we're kind of a little depressed here because some of us are from Baltimore. This past weekend wasn't that great for sports in Baltimore, but [ in any of that ]. So this is with Woodfield Development. Includes 227 apartments, and 4,300 square feet of retail. Here in the other project, which is called Riverside, down the street, has 200 apartments, for a current total of 427 apartments in Greenville, South Carolina. Of note, the velocity and market dynamics in Greenville have been quite encouraging. For example, the doors opened at 0.408 Jackson as of the end of the year or the beginning of January and as of the end of September, the project was 94% occupied, with little or no concessions given to the tenants. So revenues have grown in this platform from $6.8 million in 2018 to a forecasted $24.9 million based on the annualization of our Q2 results for 2023, providing a CAGR of 29.5%. NOI has risen for the same period, from $4.3 million to $12.8 million, providing a CAGR of 24.3%. Of note, 2 of our projects were still in lease-up mode as of 6/30, which keeps the annualization a bit conservative, resulting in an 82% annualized occupancy level as of year-end. From a capital investment standpoint, we have invested over $190 million in our third-party JV program since 2018. I lost my clip. Future projects in our joint venture platform. John mentioned earlier, the FRP, SIC, MRP, Steuart I, II, III and IV, these are -- it's interesting, and I would remiss if I didn't say this. We have a framework for this development. We spent 1.5 years at least, and I'm looking for one of my partners who you might meet later, David deVilliers, III, who was one -- who was the second member of the real estate department that FRP -- excuse me, FRI bought in '18, and he was 6. In any event, we have a framework for doing this. We have a right to do these, this program with Steuart but we do not have the obligation. FRP, SIC, MRP, Riverfront III and IV, which is the building next door. FRP/Woodfield, which is a Woven project, which is in South Carolina, 200 units. And then we have a joint venture with one of the top -- excuse me, commercial developers in Baltimore, Maryland, won develop -- the Developer of the Year Award from NAIOP in 2021, a gentleman and a good friend, Ed St. John. And that's Windlass II, III, and IV, which is an additional 229,000 square feet of office and retail. This pipeline stretches well beyond 5 years. But if and when all of this comes to fruition, we will add over 2,300 apartments to our existing platform of 1,827. This is a pretty good picture. Again, this shows, as you see -- you can see running from left to right, Audi Field, the soccer stadium. Our project, Verge. Square 664E, which is currently owned -- is owned by FRP, it was one of the legacy properties that we got from Florida Rock Industries -- actually, it isn't, we bought that property, that we did. And then we put the concrete plant that was here over there on 664E. And then moving from left to right, you see where Steuart Investments properties sit, SIC I, II, III and IV, then you have the oval moving to the right, Phases II and IV of Riverfront, Dock 79, Maren, and the Nationals Baseball Stadium directly behind us. Just a quick shot. This is the Steuart Phase 1 property that sits right to the right of Verge. It's a pretty big building. Houses about 450 apartments, and probably have some ground floor retail. We're going through the entitlement phase, as I said earlier, these projects, we want to get them to a shovel-ready program. We take a look at the market at that point. We take a look at the interest rates, we look at the market data. We get a guaranteed maximum price from a general contractor, and we look at each other and we go to our respective boards and say, is this a good deal? We either think it is or it isn't. We don't think it is. It goes back. It sits as a predevelopment program. It's developed, it's entitled. It's ready to go as soon as the market dictates those actions. Another one, Riverfront III and IV. You'll see on the right-hand side of this slide, the first 1 almost in the center is Maren, the one 1 the right is Dock. And these are schematics concepts of the 2 buildings of Phases III and IV. They're going to take about 550 apartments, plus or minus 600,000 square feet or about 300,000 square feet in each of the 2 buildings. Again, both of these 2 are going through the entitlement process. And if we're lucky, we might get finished that in about 18 months. I mentioned earlier the project in Greenville, South Carolina. This is our project that's in predevelopment with Woodfield Development in -- we call it Woven. It's a new project. We are currently underwriting, and that is including 214 apartments, and about 13,000 square feet of retail that could be ready for vertical construction in Q3 of 2024. This is our commercial office/retail program with St. John Properties in Baltimore, Maryland. It's in an excellent location, but as everyone knows, the asset classes are not the greatest at the moment. They are a single-story office, and they are a single-story retail. It's a very heavily traveled street. We didn't necessarily get a lot of cars on that picture but it's extremely well-traveled street in Baltimore, Maryland, Eastern Baltimore County. That's our Phase I, which is 100,000 square feet. The offices are in the back, and the retail is in the front. Moving on to our mining and royalties program. As I stated earlier, with the exception of 2 properties purchased in 2012 and 2022, these are the heritage assets spun off to us from Florida Rock Industries in 1986. So we got 14 properties totaling 15,000 acres, 13 in Florida and Georgia, 1 of them in Virginia. As of 12/31/22, indicated total reserves are just a little bit above 500 million tons. This segment provides a source of steady cash flows through royalties paid to us, most commonly as a percentage of tons [Audio Gap] times the annual price. Tons mined have gone up from just over 8 million in '18 to a little over 10.5 million in 2023. That's an estimated or forecasted amount or a CAGR of about 5.5%. Royalty revenue in '18 -- from '18 to '23, rose from $8.1 million to $13.1 million with a CAGR of 10%. NOI from '18 to '23 went from $8.2 million to -- all the way up to $12.5 million, and an 8.9% CAGR. The long-term growth in aggregates demand comes from infrastructure, public funding, federal state. You all probably also want to remember the 2021 Infrastructure Bill, the Inflation Reduction Bill that, for some reason, helps us out in aggregate sales. Nonresidential, private public funding and then residential private funding, single-family house, multifamily development, underbuilt housing stock in U.S., powerful demographic trends, lot going on that drags -- that moves this demand forward. This is a great slide. We call it the aggregate fundamentals. The graph shows an overall pricing in the U.S. going back 47 years. Pricing velocity has increased tremendously since 2004, '05, as permitting of new operations became more difficult. The chart at the bottom shows our specific aggregate numbers for sand and stone, excluding cement and calcium. These are -- these numbers down along here. I want you to note, even though 2006 remains the high point of 10,011,000 tons (sic) [ 10,011,565 ], that was the peak volume year. It's taken 17 years to get back to the volumes of the pre-2008 housing boom. But because of the pricing power of our tenants, the royalty income has almost doubled -- or actually more than doubled, excuse me. Operational highlights. So we have our in-house, third-party joint ventures, and mining and royalty platforms performed as a whole. How have they done? Revenues have grown from $18.5 million in 2018 to an annualized version of our Q2 results ending 6/30 to $44.9 million, providing a CAGR of 19.4%. Our NOI has grown from $13.6 million in 2018 to an annualized version of our Q2 results to $29.2 million, providing a CAGR of 16.4%. Still another development strategy. We focus on -- within our Development segment is a land development program we call lending ventures. This strategy is a great example of this company's entrepreneurial attitude and how we leverage our relationships in the Baltimore area to generate cash flow in a manner that might never occur to your traditional real estate company. Unlike our in-house, third-party joint ventures, and mining and royalty disciplines, this strategy is measured by interest income and profit versus revenue and NOI. Of note, this is a picture of our latest venture, Presbyterian, which is 110-acre property in Aberdeen, Maryland, that will ultimately have 342 lots, which -- let me explain a little bit as how this game works. We charge a 10% interest in all the money that goes out the door, and it's compounded monthly. We have a 20% IRR threshold. This is our waterfall profit sharing structure. If this project doesn't make it to 20%, our partner doesn't get any profits. He does get paid for management and then producing through a lot of these programs. We don't make 20%, he gets no profit. So then we move on to entitlement, land purchase. So we've got the land under contract in a wholesale value. We take the property through entitlement, and then we purchase the land when it's entitled. We then go to a contract of sale with the builder. We get a deposit, then the land development process starts. The game for us is to try to maintain a 50% to 55% peak capital as the target. And to hedge that, we use the builders deposits to keep our cash flow out. This development strategy is all about properly managing a managed discipline of capital outlays. Considering the fact that we've been developing and doing land development work now for almost 40 years, and some are that you're going to probably meet later, happens to have the same name, started his land development job when he was bolted on to a run away of [ 6 ]. So this is a picture of our Amber Ridge project, which shows the project is 50% complete. It's now about 95% complete and there's a small amount of cash remaining to be spent, and the remaining 12 lots of the total 187 lots are scheduled to be taken down by the national homebuilder prior to the end of the year. The interesting story about this is the first dollar of this property was taken down on March 14, 2020. I think, I remember what that day was on 15th of March 2020 is when the government shut down the country for COVID. Shown here are the 3 projects we've been a part of since the inception of this program in 2018. The first, Hyde Park was different than the other 2 as we sold that property at record plat, where when all the entitlements were accomplished. Property was under contract. We got the entitlements, we bought the property, we transferred it over to the builder. There's a little bit of cash involved between that came to us. This had a 29% IRR. So our partner shared in some of those profits. The next one, Amber Ridge. This -- there's an asterisk on there, you'll see under interest and profit. And this is a reminder that when the Amber Ridge project is completed, which should probably be at the end of this year, on or about 12/31 this year, interest and profit for this project is expected to total $4 million. The IRR is at 18% or will be. So that profit will come 100% to FRP. The peak capital for that project of Amber Ridge, we had committed $18.5 million to the project, the peak capital was 12 -- never got above $12.2 million. Our latest one, Presbyterian, as you can see here, just got started. But again, entitlements were completed in '22, the property was not purchased until February of '23. Now that the land development process is going, developer or builder profits, deposits are in hand. We have all 342 lots sold, and we're kind of off to the races. So there you have it. Thank you for the time. Sorry, I got a little wordy. I'll now turn this over to John Baker, III. Oh, before I go. I do have a shout out to a couple of our folks in the back of the room, Suzanne Mayle, our Controller; Brendan White; Todd Evans, these guys -- without these guys, and this one, this engine doesn't run too well. Thank you.

Good morning, and thank you, David. I want to rewind for a second and revisit some of the slides that we showed you earlier. So as we've been saying, ad nauseam since 2018, our goal post asset sale, was to put all of those proceeds to work into new investments. You can see the year-by-year an asset class of our annual spend in new investments. So to some extent, we've accomplished that from 2018 to 2022, we've made $319 million in real estate investments, all of it in the form of equity investments in land development, construction and investments in joint ventures. On top of that, we've returned another $37.5 million to shareholders in the form of share repurchases. We've significantly grown our multifamily investments. We've restarted our industrial development business, and we've expanded into new markets with new partners. But we have barely dented our cash position, as we stated earlier. We've resisted the impulse to dividend the money back to shareholders. One, because, just the nature of double taxation, that's not really an efficient way to return money to shareholders. Two, it is our view that dividends are sort of the Bailiwick of a mature company with less growth opportunities and too much cash, and that definitely is not us. And because of conversations with so many of you that echo these sentiments, again, we've resisted that impulse to dividend the money back. Our partnership with Steuart Investment Company and MRP to fully develop the Capitol waterfront was supposed to be the answer to this problem. The means by which we would fully invest, with the exception of a capital cushion, the cash on our balance sheet. As our view, and the view of our partners that, at this time, it doesn't make sense to put this plan into action and proceed as planned on our original schedule with vertical construction. Construction costs and interest rates are just not where we want them. And the project doesn't make financial sense at this time. We're going to come back to it when interest rates soften and inflation materials is cooled. And there's also been a glut of apartment projects in D.C. after a COVID bottleneck. So it probably wouldn't hurt to let the market here settle momentarily. We truly believe in the long term, the D.C. and the Capitol waterfront specifically remains a really compelling place to pursue development. I mean you're here, look around you, it's beautiful. I don't think we could have asked for a better day to see the city. This is the best new market and arguably the most important city in the world. This is a town with steady, high-paying job growth, abundant entertainment options. It's a cultural Mecca, it's Washington, D.C. as good a market as you could hope for. It's just doesn't work right the second. So the question remains, how to spend the cash? We are putting money towards industrial products that are less capital and debt intensive than multifamily projects because we aren't dependent on debt to do industrial projects in the way that we are with multifamily. Demand for these assets remains high with less than 5% vacancy in our 95 North Industrial Market. And we are also in somewhat a unique position to fund these projects on an all-equity basis. So at a time when construction rates are extremely high and getting a construction loan at that rate might prevent others from entering into the market, we can. We're already in the process of building a 259,000 square foot building that will cost around $30 million to build, with approximately $20 million of it coming next year in 2024. We have earmarked another $30 million in 2024 for 2 new industrial land parcels that we are currently pursuing. We're moving as fast as we can on the industrial land adjacent Cranberry Business Park. As David referred to earlier, it's capable of supporting over 600,000 square feet of development, with a tentative start on construction in 2025. Rents in the submarket we concentrate on are tremendously high compared to historical numbers. It's both encouraging. And I guess, if you're pessimistic, you could say, maybe we're chasing an asset classes, peak has maybe come and gone. The low levels of industrial supply, the small percentage that rents represent in the overall supply chain, which is up 3% to 6% imply to us that there's still plenty of room for rent growth. And I think, Prologis estimates as much as 15%. We have a go, no go, start on multifamily project in Greenville in 2024, that's more flexible on where construction loan rates might be right now. And because of the cost of construction in that market relative to D.C. and the [indiscernible], rental rates, we feel a little more confident about pursuing a multifamily project there, again, depending on interest rates. In 2025, we will start construction on 1 and possibly 2 buildings at the property we have adjacent to Cranberry. We will, in all likelihood, execute the first purchase of the Steuart Parcel for approximately $40 million. And we may join up with an institutional capital partner at our Mechanics Valley site to develop the 900,000 square foot building that we have planned for there. If we can find a build-to-suit, we're going to do it all ourselves, which is about $85 million CapEx project, half of which would be funded by construction debt and -- so that's a $43 million equity spend spread across 2025 and 2026. We have another lending venture opportunity in suburban Baltimore, which, along with our current project in Aberdeen, we'll use around capital across 2024 and 2025. So it's a lot of information, I realize. Point being depending on how things shake out economically, we can invest as little as $80 million in 2024 and 2025, or as much as $180 million. If the stars align economically, we're going to be aggressive. If they don't, we're going to want the additional capital to play defense with our assets, repurchase shares, and potentially go out and find a undervalued or a distressed asset. So given the timeline for development, most of these investments that I've described won't translate into immediate NOI growth in the next 3 to 5 years. But with construction on a new warehouse this year and next year and the increased NOI from our multifamily projects that are currently in lease-up and soon to be stabilized, we expect to grow our proportionate share of NOI to $42 million by the end of 2028. So that brings me to an item of discussion that is of particular interest to a lot of our shareholders, it's net asset value. I think, a lot of you have your own version of this. Allow me a moment to walk you through how we see it. It is maybe the biggest cliche for public companies to tell you that they're undervalued. I'm going to walk you through our NAV. I think you'd be hard-pressed to present an argument that we're not actually undervalued. I'd be curious to see an argument that would suggest otherwise with this company. This is a very high level, some of the parts. If you'll forgive me, I'm going to get maybe more granular than people might find interesting. But pardon the extremely large print here. And we have paper copies here, I don't know if we have magnifying glasses. Again, I apologize for the small print. This is all the parts. So again, very granular. But I think it's important to hear from us, at least how we went about valuing this. This is a very, what I would describe, conservative net asset valuation. So the industrial assets, those are Cranberry and Hollander, simply put market cap rate from CBRE sort of a range of cap rates, and then added another 100 basis points for Cranberry as a Class B asset. The office and ground lease. The office is simple, just a suburban office cap rate on our 34 Loveton building. The ground lease is a little more, I guess, a little less obvious. We have 3 ground leases. It's our old Florida Rock Industries' home office in Jacksonville. The building is turned down. We get paid a ground lease by Vulcan there. The ground lease down the street at 664E for their ready-mix plant. And then we also get -- we collect rent for trailer storage at our cross property next to the Cranberry Business Park. This is simply a present value of the NOI from those leases and discounted back at 10%. Next are the stabilized JVs. Not particularly complicated is the NOI total from all the buildings, apply the cap rate to them, and then subtracted the debt and applied our ownership percentage to the remainder, not very complicated. Finally, you have our Mining Royalty NOI. I think, through several investor presentations, we've made the -- we have compared our assets to Vulcan and Martin Marietta. I simply took their EBITDA multiples for the last 6 months averaged and applied it to our NOI. So you have kind of a range of valuations between Martin and Vulcan's multiples. These are -- Vulcan is our largest tenant. Martin is the closest comp to them. I feel like pretty appropriate EBITDA multiple to place on our mining NOI. And we're not cherry picking here. The last 6 months, the NOI multiples are pretty consistent with what they -- those EBITDA multiples have been for years. Cash was pretty complicated to value, but managed to some proprietary black box technology, we came up with a value for that. So all of those are our income-producing assets and then our cash. And if you look at the per share value, it's a range of $45 to $52, which is pretty much in the ballpark of our share price. And what that tells me is that the market really only gives us credit for our income-producing assets. So you, as shareholders enjoy all of the development potential for essentially free. I'll move on to the Development pipeline. So under Development, the way that we valued our apartment assets that are underdeveloped, it's simply just our equity contribution, that is probably too conservative, but it's at least a valuation that everybody can understand and agree on. The next segment is our industrial land. That is the cross property adjacent to Cranberry Run, that's the Chelsea property that we have under development right now, and then Mechanics Valley, which will support 900,000 square feet, provided a range of values from the most conservative, which would be the purchase price. And then the top range is just management's informed opinion of what the -- value that land represents in a building cost per square foot. The next segment is future phases of Riverfront, that's Phases 3, Phases 4, 664E, these are parcels that we own outright, applied 2 values to those. One is the value that we contributed the land at per square foot to the Maren, and the next is what we purchased, the [indiscernible]. So those are two somewhat recent comps and probably somewhat conservative. The residential land that we have, that's our Brooksville JV, some lending ventures and investment that we made in Fort Myers with Woodfield, either value the land itself at basis, again, probably pretty conservative, or in the case of the lending ventures, just capital rent less received. And then finally, this is our loans that we've made to joint ventures, 1 for the Ed St. John joint venture, and then the other to the Alamo Drafthouse at Bryant Street. This is simply the principal balance on those loans. And then the very last piece is future liabilities. Those are the opportunities on taxes that we own in 2026, and that's just a present value of the $26.5 million that we own. Finally, you get an NAV in sort of a range from $68.30 per share to $78 per share. I'm sure you all have your own opinions and your own NAVs. But again, a very conservative net asset valuation, at the low end, you have a 25% current discount to NAV, and up to 40% on the high end. What do we do about it? Why am I telling you this? You know that the company is undervalued. What are we supposed to do about it? And one, we pound the table and tell everyone we can. At Investor Days show the market that they are essentially leaving money on the table and we aren't properly valued. That's 1 way to do it. The other is make the company as easy to value as possible. There are -- as you can see, a lot of moving parts to this company, and we perhaps haven't done the best job of keeping our shareholders abreast of every single moving part. We don't do 1 single thing. We do a lot of things. And maybe that makes us difficult to value providing a net asset valuation with all those moving parts, explaining them to shareholders. It's another way to make our company easier to value, and hopefully get somewhere in the ballpark of true valuation of our assets. And then the final thing we can do about it is very simple, but it is not easy. We are too small for probably a lot of people in the market to pay attention to. And the simple way to take care of that is continue to grow until we are too big to ignore. Simple, not easy. That's my portion of the presentation. And we'll turn it back over to our CEO.

Thank you, John. And thank you, David. Thank you all for bearing with us as we go through this. Before we open up the floor to questions, I just want to repound a few points real quickly that I think are important to understanding FRP. One is that our industrial land bank, we talked about the properties we've developed and the optionality of the Stewart partnership, in other words, we have the right to go build apartments when the time is right, but not the obligation. So the land bank and the optionality of the Stewart partner gives us the ability to pivot our development focus to what is currently a much more profitable game plan, and that is industrial development without leaving huge amounts of capital lying fallow in apartment lands that we own. Yes. Secondly, we spent $319 million to rebuild our portfolio, yet we nearly have the same amount of cash that we did 5 years ago. That's a strong testament to the cash generation power of this company, and a wonderful insurance policy as we navigate the normal ups and downs of the real estate market. And lastly, we have identified the markets and the projects for a development plan over the next 10 to 15 years that will dramatically grow our NOI and enhance the value of this company. So we've got a plan, we've got a machine, and we've got a focus. And we hope you all will enjoy the ride with us. And so now we're going to -- the 4 of us are going to sit up here and try to answer your questions as best we can. And then we'll have some lunch. And if you have time, we'll go take the tour and see what the landscape looks like in person around here. Thank you, guys. Appreciate you.

Okay. The floor is yours. I know Bill Chen doesn't have any questions. Yes?

Good morning. Thanks for [indiscernible].

Curtis, we've got a mic for you.

Is it on? Can you hear me? So I guess, I'm curious about the lending ventures. And the first question is, why aren't traditional lenders like banks involved in that, in doing what you're doing? Or are they involved? And is that your competition for lending to homebuilders? Why isn't there -- why are we able to get those kind of returns?

I guess, I'll take that, and David can certainly help. Obviously, there are banks that loan money for the lending ventures. One of the things that we think that we bring to the table is that we're land developers ourselves. We've been doing it for a long time. So when, and we know this, we will only do it with this particular gentleman who happens to have been the head of 2 national homebuilding companies over the last 20 years. So we developed a friendship. We've helped each other zone properties over the years. One of the things that we like about the lending ventures, which is a little bit of unusual pieces that we -- enables us to cast a wider net when we're looking for land. Brokers will say, well, we've got this piece of land, and we'll look at it and say, "Well, that's either good for residential or it's good for industrial." We bring this residential guy in. He can do a due diligence from a national homebuilder level. But relative to that, we think that we -- one of the things that we do is, we'll see these guys before that banks won't do. We'll spend some money of our own to do our own due diligence before we jump into it. I think that, again, there are other -- there are banks that do it. They usually require a lot of restrictions that we don't. We're a little bit quicker in making inspections. We're a little bit faster, easier to deal with. And we only do it if the property serves a particular purpose. If it's the center of a doughnut, we're not out here to try to make this a long-term program. We think it's a great cash management opportunity in particular places that are seasoned, but we aren't going to be spending a whole lot of time looking outside of the Baltimore anywhere else to do that.

And is this kind of enabled by the idea that a lot of homebuilders have migrated to an asset-light model, they don't want to own land, and so therefore, it works for them, seems to be working for you as well. Is that kind of what's going on?

Well, it is. One of the things -- a lot of things that you read in the newspapers are kind of holistic. They talk about the national homebuilding and the national supply and demand. Baltimore, interestingly enough, has a whole lot more demand than they have supply. So that's why we've been able to find a property that's made sense to us. And the government has actually helped us out because they've become so restrictive and so long in creating the entitlement process. A lot of properties or a lot of developers have kind of given up because it takes a lot of time to do it unless you have a pretty good idea of how to do it. So one, supply and demand opportunities in Maryland have been incredible. And then the -- obviously, bode by the banks or not the banks, but the different government agencies really being restrictive and allowing for future development.

And then just -- I'll do 1 more, and then I'll pass it on. We had a banking crisis in the first quarter in this country. Capital was flying around. You are sitting on a lot of cash. And if I don't ask this question, Bill Channel will probably ask a question about it. What was happening to your cash? Was it at banks? Were you worried about your deposits, which are obviously over the guarantees? And where were they invested in treasuries? And just a comment on that.

We moved really quickly to make sure that all of our -- I mean, the bulk of our cash or cash equivalents and those are interest-bearing treasuries. Our operating cash, which we had in bank accounts, we quickly moved to make sure they were below FDIC limits. So that's -- that was our response to that.

And I think the NAV analysis is too conservative. And I can easily get $100 per share NAV myself, even in this environment. But I understand the conservatism. And I think you could do 2 more things to address the NAV discount. One is share buybacks, as you have done in the past. And the other thing is 1 problem that maybe I have in Spain because I have diversification limits on my fund. And I can't give you more capital at the maximum. You maybe have $6 million. It's an 8%, it's the first position of my fund. And I have seen recently, Brookfield made a distribution of the asset manager. So they -- it's just like an IPO or maybe they distributed 25% of the asset manager. So now there are 2 stocks, both in the stock market, the Brookfield Corporation at the Brookfield Asset Management. So now I can have more exposure to both of the companies. And I don't know if it's possible to do the same with the quarry business. I would like you to have control of the 2 of the companies and the capital allocation strategy because you are honest and patient and disciplined, and you are aligned with us. And maybe it's difficult or it's impossible to do that idea, but I would like to give you even more money to be partners.

We appreciate that sentiment.

I think -- I mean -- so to answer your question of why we probably wouldn't spin off the aggregate royalty business, capital allocation standards in Spain, notwithstanding. Having a separate public company for the aggregate royalties would, I think, you'd have double listing fees, double administrative requirements from separate companies. I think probably, our main concern would be that, again, you're taking a small company that's undervalued and creating an even smaller company that is probably, despite how easy it is to value, we'd also remain under value. And I think that would open us up to potential takeover bid, somebody could buy something that is extremely easy to value at less than market rate. I don't think [indiscernible] being what they are, we wouldn't necessarily be obligated to accept the fighting off. Takeover bids would just require time and money that is very easily avoidable.

And I would say, in addition to that, $10 million or $11 million of pretty steady cash flow is a nice for him to have.

Yes, for the current business. Yes?

A lot has changed beyond your control since you signed the agreement with Stewart. I was wondering, if you can just -- you're transparent on how you're thinking about things as things are evolving here. But just -- are they in sync with you on future development? And how you kind of see that partnership evolving in the future?

Well, I can take a stab at it. By the way, excuse me, a shout out to John Baker, [ Michael Meyer], our partners from MRP in the back. John and I started taking this walk about 11 years ago down in this area. But what we have created here is a framework for a very large what could be complicated development. And the initial plan was to create a program that said, the Stewarts, you can come in and become parts of MRP and FRP. So we'll give you the opportunity to buy 20% of up to, no more, and that was in the framework of our Dock and Maren. Can also do that at Verge, but there's opportunity zone issues, they'd have to wait there. They then -- we said, okay, we want to be fair to all sides, to the MRP people, to the SIC people and the FRP people. So we created a program that said, we'll pick a lot. We created 1 of the lots, it was subdivided. And off we've gone in the entitlement process. That entitlement process is extremely complicated. It's time consuming. The MRP guys have done a fantastic job in designing these buildings. If there was 1 particular part of what FRP was not very good at, we're not apartment developers, MRP is. So we went to Stewart, open book. This is what we're going to do. We're going to spend -- FRP and MRP are going to spend the money to entitle this property. You don't have to do that. We now have a date where we have to buy the property. How do you buy the property? Property gets appraised, third-party appraisals, the buyers, the sellers get appraisals, and then you decide what the property is valued. Then you take a look at it from an environmental point. How do you know that the property is environmentally sensitive or not? The purchase price is decided, and then we determine we take it back off, and we look at what we believe that the environmental costs are going to be. We did that here at Dock and Maren, where we said, okay, any incremental increase to go from a clean property to a dirty one doesn't come off the purchase price in our particular instance, we paid into that program. In the Stewart process, it will get reduced from the land value. Again, everything is completely transparent, wide open. One of the things that determines the go, no go is, a -- ultimately, the cost of the land. We have a complete -- take it completely through the entitlement process, all the way through up to and including a guaranteed maximum price from a general contractor that's bid at least 3 times. Then comes the market study, the due diligence. Is it supply and demand right. And then finally, one of the big things we're all talking about today, the capital markets. What do we do about the construction loan? Do all of those pieces, when they come together, and then there's always usually a piece where there might be an additional requirement for capital. We have the right, not the obligation, to provide additional capital. Same thing holds true. MRP has a lot of friends and family that they've done work with. So they would bring the capital in that way. So again, this whole project has to be ready to go. If it's not, then we take a step back, which is what we've done right now. We were supposed to start -- we were supposed to actually settle on this property in October. And we had an ability to move that to February. We moved it around 9 months. It's now July, and then November. So we've just shifted everything around, hasn't stopped the process. We're going through the entitlements as if it never stopped. But this way, everybody is transparent. The simple most important thing that we strive for, as I said in -- as we said in our presentation, synergistic approach to development, stronger than the independent parts. MRP brings something incredible to the table, SIC brings something, so does FRP. If it works right, the way we believe it will, we think it's going to be a wonderful trip to take down to Phases 2, 3, 4 of Stewart. Eventually, over a period of time, that will ultimately be controlled by the market. This group of 3 different companies could wind up with most, if not all, the land on both sides of the Anacostia -- the bridge that comes across the Anacostia.

Yes. Partnership agreements are as important when everything is going great. It's when things get sideways that the partnership agreement is really important. And David, and particularly, David III, did an incredible job crafting an agreement that basically aligned everyone's incentives. If we were going to go purchase the Stewart land after doing all the predevelopment work and an appraisal gave it a depressed valuation that obviously would reflect market conditions that we might not want to build in, and they wouldn't want to sell it at that depressed rate. So the important thing was to craft an agreement where everybody -- incentives were aligned so that when it was time to go forward, we were all ready to go forward.

And to get it back to basics, they are solid people and great partners, and we're trying to be as straightforward and honest as we can be about it. And they have been -- they're big boys and they get it. It's not much fun to go, develop a project that's got -- is underwritten to make 5% or 6%, and then borrow money at 8% or 9% to finance it. That's the height of lunacy. So that's -- they get that.

And this is the land they recently purchased and are trying to flip. I mean, these are their families assets going back generation. So they were careful about who they chose as a partner, and they're going to be careful about developing them. And this is -- every bit as big a deal to us. It's a huge investment and a huge opportunity, and we don't have to move forward right now. So we're not going to. And when it's ready, we will. It is such an amazing area and an amazing opportunity to dominate this whole Capital Waterfront area, and to waste that opportunity would just be beyond tragic.

Did we miss anything? .

No, you all are good.

No, we're all in alignment. I think it's 3 great, great companies, great teams all coming together with a vision of creating something really, really special at the southern entrance of the nation's capital. And we've had our hiccups along the way. Everyone stood up, honest, transparent. So we're all in alignment right now.

I'm sorry if I maybe missed an answer here. I think earlier, there was a 2-part question on buybacks and spin-off, and the discussion went into spin-off. Is there more background on why not doing buybacks with the cash balance?

We were really aggressive about buybacks 2019, 2020 because the share price was really, really low. And share price rebounded. We just -- we really only want to buy it when we don't have a plan for the money and when we can steal it. And we -- while buying back our own assets, we prefer to put the money into new assets. I think, we're going to do a consistent with small level of buybacks each quarter going forward. But I think that it's management's feeling. As much as we love our current assets, we want to grow the company and use the money to do that.

Let me flip that question on its head. I think you guys trade well below $1 million a day of volume. A bit challenging for any fund of any size. Look, I think many of us here maybe consider ourselves value investors, we love this NAV discount, but let's say, overnight, this Investor Day, achieved what I was hoping to do. Stock went to 100. That'd be sad because now all these people are exiting the stock because they are value investors, and it's no longer discount rate. Real estate is a game of time, which you consider issuing equity, growing, if you saw attractive opportunities becoming a larger company, increasing daily trading volume. Is that at all in discussion of creating that unlocked? Do we want to be a company that's large enough that's an index, in REIT index, et cetera, bring in additional volume? Is that ever something that you could see being as part of FRP?

I don't -- only growing the company just to achieve volume has ever -- has been part of our growth strategy. I think, equity is probably the most expensive way to finance growth. And right now, we have the cash to grow and between what we have on our balance sheet and what we generate each year, I think we can accomplish everything that we have planned, which is -- goes out 10 years. I think potentially, if they were just a series of incredible opportunities that aren't on our -- that aren't in our plans right now came along, we might consider issuing equity to achieve those. I think you probably use debt first, and then pay it off with cash flows from whatever, if there was a rock where you were buying and you could generate the cash flows to pay off the debt really quick. Equity is just such an expensive way. It comes at your expense, and it comes at our expense to grow the company. I think, unless everyone in this room agreed to take down all the equity and hate to dilute our current shareholders.

But in a $100.

Yes, $100, if that's all right. That we hadn't thought about that much lately.

My eyes aren't great. But looking at this document, from what I can tell, I don't see any sort of line items specifically for Fort Myers. I'm imagining, first of all, that, that is embedded in the -- kind of in the mining business? Am I correct in that?

I mean there is no residual value of the land in the mining assets. It's purely a valuation of a royalty stream. For Myers, it's a piece of raw land. It doesn't really have any entitlements on it. It is an incredible opportunity that we're going to take advantage of. But then, we'll be done mining for several years. The Alico Road extension that is going to make that development possible is accounting for in 3, 4, 5 years, and whether the county puts the water and sewer power infrastructure in place with that road extension or wait for development to bring it to our site is an open question. It's just such a kind of speculative valuation you would put on it, I think that that's a bonus for you all.

Okay. Sounds good.

I think Brooksville is the same. We have at least a valuation on there for Brooksville at the basis, but what it might sell for is...

So the way to think about it might be that the second life value of some of these aggregate quarries is additional option value that may play out at some point in the future, you'll work towards it, but you can't put it in here from a conservative perspective.

Correct. I mean there's Brooksville, Fort Myers, likey there is probably potentially the most valuable piece of land that we own, 1,200 acres [indiscernible] corridor that [indiscernible] will all be above the water table. And then you want to talk about a hole in the donut, that is going to be a real hole in the donut. You could potentially develop it as the mining phases go through, so that you don't have to wait until 20 years to develop the whole thing. But that is a wildly valuable land corridor and will be an extremely valuable second-life mining royalty property.

I don't think that we're going to get through this without me asking some questions. Well, I want to start by thanking everybody for putting this together. And something I was going to talk -- ask about what you guys created the map. So thank you very much for that. Although I agree with a lot of other gentlemen in here that, I think this is quite conservative. I kind of want to hear -- are you guys getting phone calls for distressed deals? People know -- you're public, you got the cash. Are we -- I mean, I would love to pick up another Hollander for $1.3 million that -- I calculate the equity return on them. That's going to be like 20x, 30x equity return on that, right? Like minimal probably, right? So I would love to see other pickup like that. Like are you...

You want another '08?

What's that?

Do you want another '08 to make it possible?

No, but like, knowing your balance sheet and how you guys manage everything, I actually don't mind it like being an FRP shareholder. But that makes sense.