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

Good day, everyone, and welcome to today's FRP Holdings, Inc. 2024 4Q Earnings Call. [Operator Instructions] Please note, today's conference is being recorded. [Operator Instructions] It is now my pleasure to turn the conference over to Matt McNulty. Please go ahead.

Thank you, Marjorie. Good morning. I am Matt McNulty, Chief Financial Officer of FRP Holdings, Inc. And with me today are John Baker, III, our CEO; David deVilliers, III, our President and Chief Operating Officer; David deVilliers, Jr., our former longtime President and Senior Advisor; John D. Baker, II, our Chairman; John Milton, our Executive Vice President and General Counsel; and John Klopfenstein, our Chief Accounting Officer. First, let me run through a brief disclosure regarding forward-looking statements and non-GAAP measures used by the company. As a reminder, any statements on this call which relate to the future are, by their nature, subject to risks and uncertainties that could cause actual results and events to differ materially from those indicated in such forward-looking statements. These risks and uncertainties are listed in our SEC filings. We have no obligation to revise or update any forward-looking statements except as imposed by law as a result of future events or new information. To supplement the financial results presented in accordance with GAAP, FRP presents certain non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. The non-GAAP financial measures we reference in this call are net operating income, or NOI; and pro rata net operating income. FRP uses these non-GAAP financial measures 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 net operating income to GAAP net income, please refer to the segment titled Non-GAAP Financial Matters on Pages 14 and 15 of our most recent earnings release. Any reference to cap rates, asset values, per share values or the analysis of the estimated value of our assets net of debt and liabilities are for illustrative purposes only and is a reflection of how management views its various assets for purposes of informing management decisions and do not necessarily reflect the price that would be obtained upon a sale of the asset or the associated costs or tax liability. Now for our financial highlights, following our fourth quarter results. Net income for the fourth quarter decreased 41.7% to $1.68 million or $0.09 per share versus $2.88 million or $0.15 per share in the same period last year. Last year's fourth quarter included a onetime gain of $1.98 million related to the termination of a loan guarantee at the Bryant Street project. For the year, net income saw a 20.4% increase to $6.39 million or $0.34 per share versus $5.3 million or $0.28 per share last year due mainly to the improved results in our Multifamily segment. The company's pro rata share of NOI in the fourth quarter was up 21% to $9.1 million and year-to-date was up 26% to $38.1 million. The year-to-date pro rata NOI increase was mostly driven by the performance of our Multifamily segment due to improved results at all 6 of our stabilized projects in this segment versus the same period last year. These 6 Multifamily projects contributed an additional $4.6 million of pro rata NOI compared to last year. Versus last year, the mining segment contributed $2.7 million of additional NOI in the Industrial and Commercial segment, another $649,000. Over the last 3 years, we have grown pro rata NOI at a compound annual growth rate of 29.5% on a trailing 12-month basis. Earlier today, we posted to our website a brief slide show of financial highlights for the fourth quarter, which includes for illustrative purposes an estimated value of our real estate assets net of debt and liability. Our analysis yielded a per share value in the range of $34.63 to $39.22. In our last release for Q3, we changed the way we value the Mining Royalty asset stream from an EBITDA multiple to a cap rate valuation as management believes this methodology more appropriately reflects how these assets should be valued. Again, we provide this information to reflect how management views its various assets for the purpose of informing management decisions and do not necessarily reflect the price that will be obtained upon a sale of the asset or the associated cost or tax liability. I will now turn the call over to David for his report on operations. David?

Thank you, Matt, and good day to those on the call. Allow me to provide additional insight into the fourth quarter results of the company. Starting with our Commercial & Industrial segment. This segment consists of 9 buildings, totaling nearly 550,000 square feet, which are mainly warehouses in the state of Maryland. At quarter end, 95.6% of the buildings were occupied. Total revenues and NOI for the quarter totaled $1.3 million and $992,000, respectively, a decrease of 11% and 15% over the same period last year. The decrease was due to a 50,000 square foot tenant, which is 10% of this business segment, defaulting on its lease obligations. We are currently in the eviction process and expect control of the space in Q2 2025. Moving on to the results of our Mining and Royalty business segment. This division consists of 16 mining locations, predominantly located in Florida and Georgia, with 1 mine in Virginia. Total revenues and NOI for the quarter totaled $3.5 million and $3.5 million, respectively, an increase of 19% and 34% over the same period last year. As for our Multifamily segment, this business segment consists of 1,827 apartments and over 125,000 square feet of retail located in Washington, D.C. and South Carolina. At quarter end, the apartments were 92.8% occupied and the retail space was 62.6% occupied. Total revenues and NOI for the quarter were $14.1 million and $7.6 million, respectively. FRP's share of revenues and NOI for the quarter totaled $8.2 million and $4.3 million, respectively. This is a significant increase over prior quarters due to our Bryant Street and .408 Jackson multifamily joint ventures we included in this segment as of January 1, 2024, and The Verge being included in this segment as of July 1, 2024. These 3 projects contributed $4.8 million and $2.2 million in revenue and NOI this quarter. As a same-store comparison, which only includes Dock, Maren and Riverside, FRP's share of revenues and NOI for the quarter totaled $3.4 million and $2.1 million, respectively, an increase of 2% and 12.2% over the same period last year. As stated in previous quarters, new deliveries in the D.C. market will continue to put pressure on vacancies, concessions and revenue growth in the foreseeable future. Management continues to be diligent in tenant retention and rental rates in the market. We are pleased to have renewal success rates over 60% with renewal rental rates trending over 2.5% in Q4. Now on to the Development segment. In terms of our commercial industrial development pipeline, our 258,000 square foot state-of-the-art Class A warehouse building in the Perryman industrial sector of Harford County, Maryland is nearing completion. The cold temperatures and wintery precipitation that hit the Mid-Atlantic toward the end of the quarter and most of Q1 2025 has delayed final paving and concrete truck pad installation. We do expect shell completion in Q2 2025, which will result in the asset moving from Development to the Industrial & Commercial segment. This will impact NOI negatively until it is occupied and stabilized, whereafter the operating expenses can be passed through to tenants and receive rent revenue. Our 200,000 square foot Class A warehouse building in Lakeland, Florida, located along the I-4 corridor between Tampa and Orlando, where FRP intends to be a 90% partner with Altman Logistics Properties, is well into the construction drawing and permit stage. A construction loan term sheet was executed in Q4. Final pricing is underway, and we expect vertical construction to take place in Q2, 2025. This project is estimated to cost some $141 per square foot with $9 triple-net rents. FRP and Altman also partnered on a 2-building industrial project totaling over 182,000 square feet in Broward County, Florida. The site is minutes from Port Everglades and the Fort Lauderdale-Hollywood International Airport, with frontage on I-595, accessing the Florida Turnpike and I-95. We are deep into the construction drilling and permit stage on this project as well. A construction loan term sheet was executed in Q4. Final pricing is also underway, and we expect vertical construction to take place in Q2 2025. The project is estimated to cost some $327 per square foot with $20 triple-net rents. In Cecil County, Maryland, along the I-95 corridor, we are in the middle of predevelopment activities on 170 acres of industrial land that will support a 900,000-square-foot distribution center. Off-site road improvements, reforestation codes and obtaining off-site wetland mitigation permits delayed our entitlement process, and we now expect permits in early 2026. Finally, we are in the initial permitting stage for a 55-acre track in Harford County, Maryland. The intent is to obtain permits for 4 buildings totaling some 635,000 square feet of industrial product. Existing land leases for the storage of trailers on-site helped to offset our carrying and entitlement costs until we are ready to build. We expect to submit our initial development plan in Q2 2025, which puts us on track to have vertical construction permits in 2026. Completion of these industrial commercial development projects will add over 2.1 million square feet of additional Industrial & Commercial product to our industrial platform, growing the business segment from 550,000 square feet to over 2.7 million square feet. As stated in previous calls, permitting, constructing and leasing the Perryman, Lakeland, Fort Lauderdale and initial 212,000 square foot building in Hartford County is our focus and goal over the next 3 years. These 4 buildings represent 850,000 square feet of new Industrial & Commercial product with a total project cost of $146 million. These projects represent some $8.7 million to $10.2 million in total NOI when stabilized with FRP's share of NOI ranging from $7.9 million to $9.2 million. Turning to our principal capital source strategy or lending ventures. Aberdeen Overlook consists of 344 lots located on 110 acres in Aberdeen, Maryland. We have committed $31.1 million in funding, $26.5 million was drawn as of quarter end, and over $15.3 million in preferred interest and principal payments were received to date. A national homebuilder is under contract to purchase all the finished building lots by Q4 2027. 100 of the 344 lots were closed upon. And we expect to generate interest and profit of some $6.8 million, resulting in a 22% profit on funds drawn. In closing, we are excited about delivering our new 258,000 square foot Perryman industrial warehouse and look forward to expanding our industrial footprint with Altman Logistics in South Florida in 2025 with our Lakeland and Fort Lauderdale projects. With new construction starts and deliveries falling to prepandemic norms, we expect market vacancies to top out in 2025, which should bode well for demand and rent growth as we deliver our new industrial projects. In 2025, we will have over 430,000 square feet of vacant or rolling-over space in our Industrial & Commercial segment, all located in Maryland. This has the potential to impact NOI in the short term that allows us to re-tenant these spaces under current market rates, bolstering NOI upon lease-up and occupancy. The average rental rate of the expiring industrial leases was $6.55 triple net, and we are hopeful most of our new rental rates start in the 7s or greater. We expect short-term SOFR rates to remain stable for most of the year with a slight chance of the potential rate cut deep into Q4 with 2 floating rate loans that have the potential to be refinanced in 2026. We will watch the 10-year treasury, which fell below 4.25% this week, and the debt spreads to see if a more permanent and favorable debt structure is viable and accretive to our cash flow. Construction costs are entering a period of uncertainty as we await the impact of tariffs on steel, lumber and gypsum. It is our plan to continue to monitor these data points to make careful, calculated and informed decisions. Thank you. And I'll now turn the call over to John Baker, III, our CEO.

Thank you, David, and good morning to all of those on the call. We've had a remarkable run of NOI growth over the last 3 years, fueled by developing and then occupying the remaining industrial parcels at our Hollander Business Park, the lease-up of 3 multifamily projects and the continued success of our Mining & Royalty segment. As we mentioned in our earnings release yesterday, that level of growth is not sustainable. And we expect NOI in 2025 to remain flat, if not slightly below 2024. We have vacancies in our Industrial & Commercial segment at our Cranberry Business Park and our new Chelsea building, that will take time to fill and we'll have operating expenses that will negatively impact NOI compared to 2024. The Mining & Royalty segment is as strong as it has ever been. The 2024 NOI was positively impacted by a significant onetime payment, which by its very nature is not repeatable. Our multifamily projects will find their NOI growth not through lease-ups but through increases on renewals and higher trade-outs, which will be a challenge for our D.C. assets as we compete with several developments in our submarkets. The real growth for our company in 2025 is the investment taking place in our Development segment as we look to deploy approximately $71 million in equity capital investments in 2025 that will bear fruit over the next 5 years and beyond. 2025 is where we begin delivering on average 3 new industrial assets every 2 years with a 5-year goal for doubling our Industrial & Commercial segment from 800,000 square feet with the addition of Chelsea to 1.6 million square feet. We will begin construction on our 2 industrial JVs in Florida, continue to entitle and permit our existing industrial pipeline to be shovel-ready in 2026 in an effort to augment that pipeline with a land purchase, joint venture or potentially both. While our focus is industrial, we will continue to develop multifamily assets as long as they meet our return thresholds. In 2025, we anticipate moving forward with 2 multifamily developments in Florida and South Carolina that would add 810 units and an estimated $6 million in NOI upon stabilization. Industrial has always been our bread-and-butter, and we will continue to leverage our competitive advantage in that asset class, where we have the most experience and control over. But we believe multifamily joint ventures in growth markets, partners we know and trust, represent a useful hedge to our aggressive industrial development strategy. I will now open the call to any questions that you might have.

[Operator Instructions] We'll take our first question from Stephen Farrell with Oppenheimer.

I just have a question if we can clarify the $71 million in equity capital investment. Is that including both industrial and the multifamily?

Yes, that's everything.

And can you give a breakdown of, I guess, the Broward County, the multifamily? And then how much would be for existing and replenishing the pipeline?

Sure, Stephen. This is Dave deVilliers. As it relates to our 2 Florida industrial projects, Lakeland and Signature, we also have 2 other projects that I spoke about. That industrial, I'll call it, pipeline, the 2 Florida buildings, we're looking to deploy about $21 million in 2025, both for vertical construction of the Lakeland and Signature Florida projects as well as entitlements and permits for our 2 other industrial properties. In terms of the multifamily, we have several projects in the pipeline. One is in Estero, Florida; one is in Greenville, South Carolina. And we also have 2 parcels in D.C., more or less along the Anacostia River between the soccer stadium, The Nationals baseball stadium. Those projects represent the potential of $35 million of capital deployment to design, permit, and if we elect to go vertical in 2025, vertical construction at our Estero, Florida and Greenville, South Carolina project. So that's a pretty big chunk of it. Some of the other stuff has to do with leasing CapEx of our existing portfolio. And then we have some additional dollars to further our land that we're looking to sell to third-party national homebuilders. The new -- we do have our eyes set on new projects, as John discussed, whether that's a land purchase or a potential JV or both. That number could be anywhere from $10 million to $25 million this year, if we can find it, and if we need to close on the land this year. A lot of times, we're able to push land closing off until we get all of our entitlements, but we've allocated capital to close on the land, if that's what it takes. That's kind of a high-level breakdown of those tranches to get up to the $71 million.

No, that's a good breakdown. And for the acquisitions, are you looking around Maryland? Is it down in Florida? Is there any specific areas that are popping out?

I would say that our focus is in the Southeast. Maryland is our backyard. Right now, it's just harder to get entitlements. It's harder to do business in Maryland in the Southeast right now, but it's our backyard. And if there's an opportunity in Maryland that we like, we'll take it. But we're definitely looking at the Southeast given all the -- just the drivers that are happening in the Southeast right now.

And do you think there's any potential to acquire an existing property, whether it's just in distress or someone looking to exit? Or are cap rates kind of away from what we would pay?

I mean, right now, cap rates are away. We see a lot of stabilized assets that we can pick up, call it, low-4 or high-4, low-5 cap rates. A lot of them are trading 5% in-place NOI. That just feels a little thin for us. But there's a lot of loans that were done 3, 4, 5 years ago, as you know, in the high 2s and 3s, and we're not getting that right now. So we'll see if something pops up in the distressed market.

And just to ask about the tariffs, how do you think that impacts sort of the flow of goods around Maryland? And what's the impact to industrial there?

I -- if they stay in place and they're consistent, I think it will have an impact. The 2 industrial buildings that we're looking to do in Florida, we kind of have gotten ahead of that. And we're looking to move forward before the steel tariffs come in place. So those projects are unaffected. If tariffs remain in place in Canada, where a lot of our lumber comes from, some of these potential multifamily projects, we're going to have to take a look and see where all that lands. So I think if they stay and they're consistent, it's going to have an impact more on the multifamily than on industrial, in my mind.

[Operator Instructions] We'll take our next question from Bill Chen with Rhizome Partners.

I was just wondering -- we track the multifamily warehouse space fairly closely via like D3, but also like we just talk with a lot of GPs out there. What are you guys underwriting to these new projects that you're looking to put dollars out the door this year? Can you go through by, if possible, by multifamily and by industrial and then if you could segment it by geography as well, just so that we get a sense for like what are the unlevered returns on these development projects?

Yes. So I can -- so yes, we do put targets on each project, and we do tend to try to look at a specific market to determine if that return rate should be higher or lower based on what we envision the cap rates being on the other side. So I would say, just generally, right now, it's somewhere in the 6.5% to 7% return on cost in the first year of stabilization on trend is kind of where we are. Obviously, we hope and we do underwrite conservatively. So we hope that when we get to the other side that we've had some cost savings and/or we get higher rents than we put in the model, but that's kind of our break line.

Got you. And is that 6.5% to 7% for both multifamily and industrials? Or is there a little bit of difference between the 2 asset class?

I'd say it kind of moves between 6% and 7% multifamily, depending on where the project is. I think we were targeting somewhere around 6.25% to 6.5% on the most recent one that we were looking at. D3, you probably actually had those numbers specifically that we had targeted for woven and...

Yes. No, Matt, you're 100% correct. I mean location is a big factor. The industrial building in Florida sitting right outside Fort Lauderdale by the airport is probably one of the most resilient markets that we do business in. So that return on cost, we can look to -- you could target something lower than a 6.5%. Multifamily, again, depending on where it is, we're kind of targeting that 6.5%, 7% in Estero, Florida and in Greenville, South Carolina. I mean that 6.5% to 7% range is a pretty good target. Once you get into these more resilient core markets, maybe -- there's an argument for that 6.5%. But if you get outside some of these core markets and the next exit up and you -- that 7% is more of the bull's eye.

Got you. And that's an untrended number?

That's trended.

That's trended, okay.

Trended in kind of that year 1, at stabilization.

I mean, I would just like to clarify, like are you baking in like -- you're using today's rent or are you like baking in like a 2%, 3% like annual rent increases between like when you put a shovel on the ground, if you like, when it -- because these things like take time to build as it takes time to stabilize?

They do, and we constantly update it. And when we get into these things, Bill, I mean your -- you take the current rental rate, and we basically say -- for Industrial, you've got a year of design and permitting. You got a year of construction. And depending on the size of the building and market, you've got another year to get to kind of that first year of stabilization. So we take kind of the current rental rate, we see what the historic trend in escalations are. We see what people are putting in their leases, and we make a decision. We've seen extraordinary rent growth. So the historic curve, we don't believe in. So we're kind of taking current rates and putting a 2% to 2.5% escalator on that. And you can argue if that's conservative or aggressive or what, but that's what we do.

Got you. And also, FRP is in this unique situation where you got a large cash holding. We paid a lot of attention to the market and the construction spark has fallen -- just absolutely fallen off the cliff. And these projects that you're moving forward with, are you finding yourself to be kind of the only game in town from a development perspective? Or are -- like if you could you give us some color on -- if there were 10 projects previously, what are you guys seeing? Are you down to 2, 3 projects? Any commentary on competition for GC, general contractors? Are you seeing some relief on the cost pressure? The past few years, we've seen absolutely relentless cost inflation on the construction side. So any color on any of these that I just mentioned would be great.

Right. No, you're absolutely correct. I mean new deliveries, new starts, it has been a cliff. I think kind of in 2022, we were just on a new start delivery that was not sustainable. And we're kind of back to the prepandemic norms, in my mind. And it just feels different to GCs and to our vendors. So there is not so much material pricing, but they have come down on their fees and then profit. We've been able to get very, very aggressive numbers and fees and profits from our GCs. And I would say this: I think that a lot of our competition went really, really fast. And right now, they just -- they can't take that jump. Whether it's their risk appetite or their balance sheet or -- I can't answer for them. So we see a great opportunity in the markets that we have targeted to build in 2025 when a lot of people just aren't and being able to deliver in 2026 and be one of the only games in town, one of the only new construction projects delivering. And we think that is an advantage.

No, I agree with you. I think that -- it seems like the people developing these days are large cap REITs with very low leverage so they could issue unsecured bonds and kind of one-off companies like yours. That's helpful. Would you say that the -- are you at prepandemic levels? Or are you kind of below -- like are the markets you're in, are they at prepandemic normal construction? Or are you guys actually below that at this point in your markets?

I think -- that's an interesting question. I'll just say from overall -- I'll speak to industrial. From an overall industrial pipeline, I was a report done by Newmark. And they kind of said that at the end of Q4, the industrial kind of the pipe declined to 322 million square feet. And that is the lowest level of supply under construction since 2019. And they were saying that the pipeline is projected to fall to 2018 levels by the end of 2025. So I think we kind of -- based on that, and I kind of agree, I feel like we're back in this 2018-2019 level. And depending on what happens with tariffs and interest rates and some other programs currently at the White House, it's either going to make it harder to start or it may go the other way. Your crystal ball is as good as mine. But to answer your question, I think we're kind of in that 2018-2019 period.

Okay. I appreciate that. Going on the Cranberry repositioning and then also on Chelsea a little bit, on the prepared remarks, you mentioned there's like 400,000 square foot of lease expirations. Is that all -- I don't think that's all within Cranberry, that's with Hollander in there as well, right? Is that correct?

That is really all -- it's pretty much all in Cranberry, and it's also the new Chelsea building, the 258,000 square feet.

And in the prepared remarks, you gave a blended rate. But really, I mean, those of are doing 2 different asset classes. I think Chelsea, based on my memory, if I remember correctly is really like a $9 market and then Cranberry is the old product. And I'm assuming -- can you just kind of break down like -- my understanding is when you bought Cranberry, you guys kind of got it for a song, put some CapEx into it and it's generally kind of all the business or like relatively, right? Like so and Chelsea like a bigger -- just like a newer Class A. So my question there is, can you help us understand -- we learned about the one tenant getting evicted in Cranberry. Can you talk about like what the market looks like to backfill that? And then when those leases renew, one, like if the tenants want to move out, how easy would it be? How easy would it be to backfill those spaces? And what the in-place rent looks like versus markets?

Sure. i would say that, just to give you some history, when we bought Cranberry, most of the leases -- let's just say were in the $4 and most of those leases were in place 3, 4, 5 years ago. And they were all done prior to this great increase in rental rates. And I would say, most of the expiring leases at Cranberry are in the high 5s, low 6s. And to your point, this is a mix of smaller tenants. Let's just say it's sub-25,000 square feet. We do have some below 50,000 square feet. But most of them are kind of in that, let's just say, 25,000, 50,000 square foot range. That market is really, really good. It's very strong. It's these bigger tenants, the 200,000 to 300,000 to 500,000, that demand is way down. But the smaller-sized tenants, it's strong. It's out there. The market calls for 7s and depending on improvements in terms and everything else, that can move around. In our base at Cranberry, we have the ability to go after tenants and backfill that space strongly and still make a very, very solid return given the basis of our project. But at the same time, we want market rents, and that's what we want. So that's what we're going to go after. And it's going to take time. It's all one market. We're not going to get it all done in 1 year. But over the next 2 years, there's no reason why we can't backfill that space, get that Cranberry back to where it was with rental rates at the previous term rental rates.

And is hard -- like what do you think that occupancy number is going to get down to? I mean like if you can help me understand like, is that -- like that's -- Cranberry is 268,000 square foot. You got 1 tenant, which is 10%. Okay, you backfill that, but are most of the expiring leases that are like stay in place? Like I don't imagine this like massive move out of all the tenants, right? Like and then -- or is there -- or is that a different situation where we expect to -- most tenants to move out and back to less space?

We expect all of the tenants to leave, and the reason why -- 57,000 square feet defaulted on us, they're not coming back. That's -- that in and of itself will take Cranberry from 96% occupancy to 60% occupancy. We have another tenant that built their own building. And when that's done, we fully expect them to leave. The other lease is a government contract lease, and that government contract lease is no longer valid. So they're leaving. And the other tenants have said that we're not renewing. We expect everyone to leave, and we expect the occupancy to get very, very low at Cranberry. Hopefully, they all don't expire on the exact same date. Cranberry is going to be a major, major focus.

I see. Okay. That's -- I wasn't expecting that. I mean, is there something about the nature of the tenants there? I mean, obviously, the -- like somewhat campaign rent, that's one thing. But like is there something like the nature of that? Is it like intentionally like the transitional asset type? Or like is there -- I'm just kind of a little surprised by that.

I see this as fairly -- I won't say normal, but we expect rollover. And then they happened to be just one tenant wanted a 3-year, one a wanted a 5, one wanted a 7 and is very important to them, and it just happened to -- kind of these leases line up over 2025, in different quarters of 2025. And it's kind of the nature of the industrial cycle. I think we're cautiously optimistic about the rollover because now we're able to renew at market rents. We believe in the product. We believe in the size spaces that we have. We really like where the market has gone and look forward to retenanting these spaces at a much higher rental rate.

And what about Chelsea? How's -- any color around like the leasing velocity there?

So that building, because of the winter, we weren't able to put the final coat of paving down, and we weren't ready to finish the truck work. And Q4 of 2024 and Q1 of 2025, those quarters, we don't expect a lot of action or communication during those months, especially when the building is not done and there's not a distinct delivery time. As we move into Q2, we do expect to have some paper trade hands and see if we can start getting some velocity. But right now, there's been some phone calls, there's been some tours, there's kind of been people kicking tires. So you've got some action, but it's all talk. We look forward to getting some term sheets and being able to deliver. We did get a permit for a tenant improvement build-out that we have in hand that we just got so if we have someone, we hope that will accelerate our ability to get them in and occupied. We're trying to decrease that time line to do a deal, to permit, to construct, and ultimately, get them in.

That's really helpful. On the multifamily, I think you mentioned that you're moving forward with the project on Anacostia. Is that Phase 3, what would be next to The Maren?

So we had 2 adjacent sites next to Dock and Maren going on Phase 3 and Phase 4. Those were under our PUD hotel and an office site. We made the decision a couple of years ago that hotel and office were not 2 asset classes that we thought were the highest and best use on that site. So we embarked on modifying our existing PUD to get the zoning in place to do 2 multifamily developments there. We expect to get that zoning approval in Q2 of 2025, this year. And then we have 2 years of entitling, getting construction drawings to be able to be in a position to have the opportunity to go vertical there. And those are 2 sites that we're looking at. We would probably start Phase 4 first, which is on the river and work our way slightly back to Phase 3 that would be adjacent to Maren.

Okay. So that's a Beer Garden right there, right?

Sorry, what's that?

That's a Beer Garden, The Cove or...

Correct. That would be the Phase 4 site that we would start at.

Got you. And so the capital, if you do something, the capital is not going out in '25? That's likely in '27 when you go forward with that?

It's going to be based on market conditions and what we see in our assets. But I can't -- that timing, I can't argue that that's too conservative or too aggressive.

Got you. Okay. All right. I think I got -- I think I have all -- and then if I may, I obviously have been a shareholder at this point for 10 years. I don't know if John Milton is on the call, but I remember when I went down and met with John and the initial phone call. So this year marks like my decade as a shareholder company, and I track the company very closely. I appreciate you guys give me the platform to voice my opinion. I would just like to leave with 2 comments. One, I think that we've been involved for a really long time. I think everyone in the company has done a really good job. I think the candor and the way that you communicate with shareholders is excellent as is the feedback from all the shareholders. I do want -- just keep pushing on the idea that, especially in today's environment where a shareholder could kind of disaggregate the assets between the multifamily holdings and the industrials. And we kind of like get large-cap pure plays that pay a nice dividend and maybe like not get to the same level of undervaluation. But there was a time where I think FRP, the company traded at a much lower -- much bigger discount than the sum of the parts, right? But I think today, there's companies out there like you buy a basket of a -- pick your multifamily exposure, pick your warehouse exposure, and then you kind of like recreate the company. And there's a current yield that comes with it. And that is part of the frustration from other shareholders and then -- but also myself as a shareholder, where there's -- I'm okay if the company doesn't want to buy back any shares, but I think some sort of return of capital in the form of dividend would be helpful. I know you guys have a lot of iron, like you got a lot of projects lined up. There's a lot of capital, but the company also is cash flowing a lot. It's grown. You guys have done a wonderful job growing the NOI. So I think a dividend, even if you started out at 1% -- at a 1% yield, I think it's -- I think it demonstrates to shareholders that there is a plan and intention to return that capital and give us some yield, right, even if it's a small 1%. Because from a total return perspective, getting some current dividend out, and I think it will also solve another problem, which is the trading liquidity issue. I think there are some shareholders who just won't buy any -- won't buy a real estate company without any sort of yield. So I will keep pushing for that because I think it's important. I think it's something that -- and I don't say this lightly, I would not have advocated this in the '21-'22 because there's a lot of buildings that were still stabilizing. There's still a lot of dollars going out the door. But I think we're at a point where there's very high-quality recurring NOI between them. And these are some of the best multifamily buildings, and the aggregate royalty business is some of the best business I've seen. I think the company could afford to pay something small like a 1% dividend. So I just want -- I know I've said this before, but I appreciate you guys giving me the platform to kind of voice my opinion as a decade-plus shareholder. So I'll end it there. But the other comment that I just want to kind of mention is I would also mention that from a cap rate perspective, we've been tracking multifamily cap rates since the fed started raising rates. And we've seen a lot of deals trend that. We've seen the Blackstone deal. We've seen the KKR and Lennar deal. We've seen -- we've also seen a lot of smaller deals. I would say that this portfolio of Maren, Dock 79, Byrant Street, Verge and Jackson and Riverside and -- I've seen all these assets with the exception of Greenville. I would say that you're probably too conservative with the cap rate. As you mentioned earlier on the call that on the acquisition side, really, it's in the high 4s, low 5s. And I'm just like -- some to see like the high end of 5%, 6% or an asset of this quality that are this young on the river where people can't build more except for what we -- what FRP owns, I think it's just a little bit too punitive because I've seen -- I think there was a time when people -- what were multifamily cap rates shake out at. But I think we've had probably 2 years, we've seen some big deals, we've seen some small deals. And we talk to a lot of real estate GP. And a lot of real estate GPs would be very happy to buy this portfolio but 20 years older and pay like a 5% cap rate for it. So that's just some thought that I want to leave the company with. I have no further questions. I want to thank everyone for your -- for fighting the fight and for being very upfront and candid with the shareholders. I appreciate that.

Bill, thank you for all of that. Just to comment on your last point. The cap rates in our sum-of-the-parts analysis are really for illustrative purposes. We have no intention to sell anything right now. And so whatever the cap rate is, is it's really not important since we're going to hold on to the assets. And we would love you to be correct in our estimate to be conservative whenever we come around to selling them. But right now, the -- what we're focused on are the NOI and cash flows and growing those. So if cap rates stay at the level that you think they are, then the assets are only going to accumulate in value. And thank you for all of your insight and opinions and commentary.

Happy 10-year anniversary to you.

Well, thank you. It's been a wonderful experience. If I allow -- like I just want to give some -- a little bit more feedback on the cap rates. I -- like I think I communicate to everyone that, hopefully, one day, my kids just inherit my shares in this company. I think everyone in the company kind of thinks that way. I think that part of the issue is just that -- I kind of joke that sometimes I'm unpaid IR for the company because a lot of prospective shareholders, reach out to me. They know that I'm knowledgeable about company and whatnot. And I think when they see a company publish a NAV, I know that there's no intention of you selling that. And I would say -- I remember having a conversation with David deVilliers, II, and he told me that, when you got a building like that on the river and you've got that view that no one could build any more in front of you, you just -- you build that once and you just sit on your butt, right, which like I fully agree with -- like my family owns stuff for 20, 30 years, and we never sold any of it. So I totally agree that there's no intention of selling any of this. I think what I'm getting at is that when a prospective shareholder, when a new shareholder look at this, and they see the stock trade at where it trades at and they've seen a company put out a NAV in that $35 to $39 range, they kind of just throw up their hands and say, "Well, this isn't cheap enough. There's not enough of a discount to private liquidation value." So it's not that you are or aren't going to sell those assets. I think that -- I don't think that -- I mean from a company communication perspective, the company definitely has a reputation for being conservative. And I think that -- again, like I keep praising the company being very forthright and candid. I just think that a NAV value that best approximate like a real market arm's-length transaction is the best tool for shareholders. Because I think of a long run, we're all in it together in that from a trading liquidity perspective, from a price discovery perspective, as everyone 8in the company work diligently to build value over time, hopefully, some of that discount in that shrinks over time and it sets up this beautiful compounding from today, right? But I think that if like the 60 bps in multifamily, 60 bps in cap rate delta in multifamily is a really big deal. So that's where I'm coming from. That's where I think that -- and then like if you just like you have that great still take 9 or 10 years left on that 3% mortgage, that's a huge assets. So I'm not saying be aggressive. I'm just saying that, I think getting that NAV to best approximate market as the company continues to grow, as the company continues to add value, grow NOI -- and you guys are all doing the right thing. But I think that letting shareholders -- I mean not everyone is -- like I kind of pride myself with doing a lot of work on the company, right? I've seen a lot of these assets. But not every shareholder will do that level diligence. And then I think that when we haven't had that is that is -- best approximate what a fair market is, it's a good starting point for people, then it control down into it. And then that creates a mechanism for how that discount shrinks over time. So that's kind of my feedback to what was explained. And I wouldn't want you -- I wouldn't want the company to sell any of these assets in today's interest rate environment.

Yes. Bill, I think that's a very fair point. I think I understand your point, and I will do my job to go and dig deep into the cap rates we're using current transactions to brokers to see if there's any room for adjustment on any particular markets or assets. Last thing we're going to do is be aggressive, but to be overly conservative doesn't help either. So let me just do a little digging in with the team here and make some changes if they're warranted. Thanks, Bill. We appreciate all your feedback.

I'd now like to turn the call back over to our speakers for any final or closing remarks.

Thank you for your continued interest in the company, and this concludes the call.

Thank you. And ladies and gentlemen, that does conclude today's presentation. We appreciate for your participation. You may hang up at any time .