Good morning. I'd like to welcome everyone to the FRP Holdings Q2 earnings conference call. Please be aware that each of your lines is in a listen-only mode. After the company's remarks, we will open the floor for questions. If you'd like to ask a question, please press the star key followed by the one key on your touch-tone phone. If you'd like to remove yourself from the questioning queue, please press star two. I would now like to turn the conference over to Chairman and CEO, John Baker. Mr. Baker, you may begin.
Thank you and good morning. I'm John Baker, and I'm Chairman and CEO of FRP Holdings, Inc. With me on the line today are David H. deVilliers, Jr., our President, David deVilliers III, our Executive VP, John D. Baker III, our CFO, John D. Klopfenstein, our Chief Accounting Officer, and John D. Milton Jr., our General Counsel. Before we begin this call, together with other statements and information publicly disseminated by us, this call contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Such statements reflect management's current views with respect to financial results related to future events and are based on assumptions and expectations that may not be realized and are inherently subject to risk and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, financial or otherwise, may differ, perhaps materially, from results discussed in such forward-looking statements. We have no obligation to revise or update such forward-looking statements other than imposed by law as a result of future events or new information. Investors are cautioned not to place undue reliance on such forward-looking statements. It is our pleasure to present to you the results of our Q2 and the six months ended June 30, 2022.
Net income for the quarter was $657,000, or $0.07 per share, versus $82,000 or $0.01 per share for the same period last year. Net income for the first half of 2022 was $1,329,000 or $0.14 per share versus $28,455,000 or $3.03 per share last year. As you recall, last year included a pre-tax write-up of $51.1 million on the remeasurement of our investment in The Maren, offset by a $10.3 million provision for taxes and $13 million attributable to non-controlling interests for a net write-up of $27.8 million.
The highlights of this quarter were continued strong royalty revenues, our highest Q2 and six-month results ever, strong occupancy at our Dock 79 and Maren and mixed-use projects, and 16% increase in net operating income for the quarter and 24% increase in NOI for the first half. The gains in NOI are important and reflect our strategy to redeploy the gains from our warehouse sale into mixed-use and other industrial assets. Our after-tax earnings are impacted by losses from projects that are in the startup phase, where they are expensing depreciation, interest, taxes, and marketing costs without the benefits of a stabilized rent roll. They include our Bryant Street project in D.C., our two warehouses in the Hollander Business Park in Baltimore, and Riverside in Greenville.
These projects with current year losses are progressing nicely, and they, along with the Verge project in D.C. and our second project in Greenville, 408 Jackson, will be next year's growth engines to our NOI. We're proud of our progress and appreciate your continued support. Now, let me turn it over to our President, David H. deVilliers III, to walk you through the details of our various projects. David?
Thank you, John, and good morning to those on the call today. Relative to our in-house industrial platform or asset management, one of the two speculative warehouses completed at the end of 2021, totaling 66,000 sq ft, is now fully leased and occupied as of this past week. The 101,750 sq ft, build-to-suit building that will cap off the final building of Hollander Business Park should be ready for its tenant to occupy the full building in the Q4 of this year. Cranberry Run Business Park, our renovated 268,000 sq ft multi-building warehouse park, became fully occupied in the Q1 of 2022. This park remains fully occupied and is performing ahead of original projections.
To strengthen our industrial pipeline, entitlements for the 55-acre parcel we purchased in Aberdeen, Maryland, adjacent to Cranberry Run Business Park in late 2020 are underway, and we expect the annexation process to be complete by year-end. Building designed to create up to 675,000 sq ft of warehouse product will follow early in 2023. Existing land leases for the storage of trailers on site help to offset our carrying and entitlement costs. We are hopeful we can begin construction here sometime in 2024. Finally, we have begun both entitlement procurement and building design to support an approximate 250,000 sq ft warehouse building on our 17-acre parcel in the Perryman industrial section of Harford County, Maryland, not too distant from our other assets in Aberdeen.
Depending on market dynamics, construction on this project could begin as early as Q1 of 2023. Completion of these two aforementioned land development projects, plus the build to suit warehouse currently under construction at Hollander, will add over 1 million sq ft of additional warehouse product to our industrial platform that when added to assets in operation at the Hollander Business Park and Cranberry Run, will total over 1.4 million sq ft. NOI for in-house operations was $650,000 for Q2 2022 versus $453,000 in the same quarter last year, an increase of 43.5%. As 2022 progresses, tenancy at the new buildings at Hollander and increased occupancy at the fully occupied Cranberry Run Business Park are providing a healthy lift to our NOI.
In our mining and royalty business segment, this division saw total revenues for the quarter of $2,883,000 versus $2,634,000 in the same period last year. As John mentioned in his opening remarks, this is record revenue for a Q2 in the mining and royalties business segment. NOI was $2,747,000, an increase of 9.9% over the same period last year, primarily due to the April purchase of the Blandford Quarry property in Lake County, Florida. Moving on to our third-party joint ventures. As of the end of June, our joint venture platform includes eight mixed-use projects in various stages of development and operation. Four are located in Washington, D.C., where MRP Realty is our joint venture partner.
These projects are Dock 79, The Maren, Bryant Street phase one, and Verge. Pre-leasing has begun at Verge, and we will be ready to welcome its first tenant in October of this year. Verge was 91% complete at quarter's end. We have two multi-family projects in Greenville, South Carolina, where Woodfield Development is our joint venture partner. The first project, Riverside, began lease-up of its 200 apartments one year ago this month and was 91% occupied as of the end of the quarter. .408 Jackson will be placed in service in the Q4 this year and was 94% complete as of the end of June. The projects that make up the balance of our third-party joint venture platform are Hickory Creek, and with Capital Square and an office retail project with St. John Properties.
Hickory Creek's 294 apartment units remained above 95% occupied for the first half of this year. While our joint venture with St. John that includes 72,000 sq ft of single-story office and 28,000 sq ft of retail remained 48% occupied at quarter's end. To summarize, relative to our third-party joint venture in mixed-use developments, Hickory Creek and Windlass Run notwithstanding, we are currently invested in six mixed-use multifamily retail projects totaling 1,827 apartment units with 125,750 sq ft of retail. At quarter end, four projects including Dock 79, The Maren, Riverside, and Bryant Street, totaling 1,256 apartments were in operation, of which 1,104 were occupied versus 646 occupied units at the same time last year.
81,000 sq ft of retail tenants were occupying their respective spaces versus 11,600 sq ft at the same time last year. The remaining 571 apartments and retail spaces currently under construction will be completed and ready for occupancy by year's end. FRP's share of the net operating income for these six projects was $3.05 million for the Q2 of 2022 versus $1.46 million in the Q2 of 2021. That's a 109% increase. Lending Ventures, our last leg on our operating stool. This is a program where we provide working capital toward the entitlement and horizontal development of single-family residential projects and ultimately a sale to national home builders.
The first of our two current projects is Amber Ridge in Prince George's County, Maryland, with a total commitment to this project of $18.5 million. The investment includes a charged 10% interest rate and a minimum preferred return of 20%, above which a profit-induced waterfall determines the final split of proceeds. Land development is complete and only final public infrastructure needs to be closed out to complete the horizontal development at Amber Ridge. Two national home builders are under contract to purchase all 187 lots. 99 lots have been taken down with $13.04 million return, including interest as of the end of the quarter. Our other current lending venture is called Presbyterian Homes. It's a 344-lot, 110-acre residential development project in Aberdeen, Maryland.
We plan to provide up to $31.1 million in funding under similar terms to Amber Ridge. Entitlements are underway, and their success are the conditions precedent to settling on this raw land. We have lapped the two-year mark on COVID-19. Despite the trauma that has befallen the world and many of those we know and love, FRP has been able to assist and accommodate our employees and tenants, every one of which has persevered and made it through. We have not lost a single long-term commercial tenant in our portfolio. This is a testament to the strength of our tenant base and our ability to shift and pivot where tenants have needed us to do so.
In March of 2020, when the world shut down, FRP maintained a portfolio of some 510,000 sq ft of operating industrial, office, and retail space and 599 apartments. As of June 2022, FRP had 660,000 sq ft of operating industrial, office, and retail space with another 415,000 sq ft due to deliver over the next 5 months, and 1,550 operating apartments with an additional 571 due to deliver in the next 90 days. It's safe to say FRP is in growth mode. We have never been more excited to share our story. Central to our growth and success is the solid financial foundation that enables us to capitalize on opportunities and to make hard decisions sometimes not to.
Thank you, and I'll now turn the call back to John.
Thank you, David. Let's now open the floor for any questions any of our investors may have.
At this time, we will open the floor for questions. If you would like to ask a question, please press the star key followed by the one key on your touch tone phone. Questions will be taken in the order in which they are received. If at any time you would like to remove yourself from the questioning queue, please press star two. Again, that is star one to ask a question. Again, that is star one if you have a question. Our first question comes from Curtis Jensen of Robotti & Company.
Good morning, fellas.
Good morning, Curtis. Hey.
Happy Friday.
Same to you. Likewise.
Got a few questions. One is on the mining royalties. If you were to exclude the acquisition, would the royalty revenues have been up, you know, kind of on a same store basis?
I think they would've been just under $100,000 below. We had last year, I wanna say Blandford was like the acquisition in the $300,000 dollar mark. Good thing we got it. Vulcan is actually mining at Fort Myers and in Northern Virginia on other properties, which obviously we don't like that much, but they have them and it's not that their business is falling off. Their business is strong.
Yeah. I guess you had a really nice bump in Q2 at Dock 79 and The Maren, you know, is that $3.5 million NOI kind of a good run rate for the rest of the year and kind of going out into next year, do you think? Is that a reasonable assumption?
Well, we hope so. Curtis, this is David deVilliers III. How are you?
Fine.
As you know, both Dock 79 and The Maren, but basically for the quarter, their NOIs were up about 16% for each one of them. We were able to grab some, you know, some pretty good increases, not only on the renewals, but in the trade outs, you know, where one tenant leaves and another one comes back.
Yeah.
We are maintaining some really strong occupancies in both of those buildings. I mean, we are over 95% average occupancy in both of those two. Bryant Street's coming along. It got hit really hard because of COVID. It's starting to kinda dig itself out. Occupancies are starting to go up. We were 78% occupied on the residential side by quarter's end, a little over 84% as of the beginning of the month. Things are hopefully moving in the right direction. Bryant Street was really hit because of COVID. There is nobody riding the Red Line that runs right by it. Washington still, everybody's pretty concerned about COVID even still.
Yeah. Okay. Are there any kind of extraordinary COVID-related expenses that you are incurring, you know, at these properties that you think are in the process of going away? I mean, to the staff or supplies or anything that you are.
It's waning. It's not over, but it's certainly been reduced.
Okay. Just a couple more and then I'll get out of the way. On these Lending Ventures, I mean, how are they developing relative to your original expectations and just kind of what's everything that is going on with mortgage rates and home builders generally and demand is up and down. How are things unfolding there relative to kind of your original expectations?
We have two, Curtis. Obviously, Amber Ridge is actually ahead of schedule and, you know, we hope it continues that way. It is ahead of schedule from the takedowns by the two home builders. We're at 107 as of the beginning of August, and that's substantially ahead of what the original expectations were.
One thing obviously to mention, not that it's not something that is really something we've all got our eyes on, is one of the big metrics that we look at in Prince George's County and also in Harford County, where the other one is. It's the supply and demand metric, whereby 5-7, maybe 9 months is the equilibrium where the breakpoint from, you know, supply to demand and vice versa.
Okay.
Both of these counties are less than one month of supply.
Okay.
Literally. Again, the Presbyterian Homes one, we're going through entitlements. The good thing there is we have got a piece of wholesale land that is under contract with our borrower, effectively. The entitlements are underway. Their success is a condition precedent to selling on the land. You know, we're gonna obviously take a look at where these things stand when that happens. There is a fully executed contract for sale that was just recently done with the national home builder, and they have a substantial deposit. Look, you know, we are all gonna look at this thing come the end of the year, and we're gonna then make sure that we're not making a, you know, a rash decision.
Yeah. It's a pretty good size commitment. Be curious to see how these things develop. I guess the last question is, there was, I guess, excess property at Brooksville that was sold with a nice gain. Can you remind me what the kind of proceeds were on that sale?
Probably pretty close to the gain, if I had to guess. I don't know off the top-
He says it with a smile. I'm gonna get off the blower here. I wanted to say Bill Chen did say hello, he couldn't be on the call today. Anyway, you guys have a great weekend. Thanks.
Thank you.
Thanks, Curtis.
Once again, that's star one to ask a question. We will take our next question from Stephen Farrell of Oppenheimer.
Good morning.
Good morning, Stephen.
Hi.
I just have a few questions. I'll be pretty quick here. What are you seeing for a multifamily in D.C.? Are there opportunities at higher cap rates or are sellers kind of holding on? What's the environment like there now?
Well, this is Dave deVilliers III. The environment for is pretty much still the same. Pretty low cap rates for some of these for the Class A type of buildings. It's still been fairly, you know, still been fairly strong from what we understand.
Do you think you're sort of reaching an inflection point in terms of supply in the market there, or do you think there's room to go?
I think it depends on where you are. Obviously, you know, the different submarkets. For example, the Verge, which is our 344-unit apartment with 8,400 sq ft of first floor retail will come online in hopefully in September, assuming we can continue to get furniture. It's the only building that's coming online in that submarket. You know, there's other places, obviously, where that might not be the case, but where we're located is, we're gonna be the new kid on the block, and there isn't anybody that's gonna be there for a while.
Correct me if I'm wrong, David, that area in Buzzard Point, that's kind of the next footprint of development in the Anacostia sub-market, it's not as built out as, you know, kind of the area directly around the ballpark, correct?
It's considered part of it, but that's true. It is. Even around the ballpark area, there is not a whole lot of new ones coming online. There is one other one coming on over by the Navy Yard. To answer the question, there's not a, you know, a dearth of product that's coming online over the next, you know, 69 months.
Thank you. Within industrial, obviously, we've had the Amazon sort of re-leasing warehouse in other markets. Has that had any impact on the Baltimore market?
Not on the buildings that we have at least at this point. It remains to be seen, but this is a strong Baltimore and going up 95 has been and looks like it will continue to maintain a really strong basis. We are not seeing any indications. Matter of fact, the rents are going through the roof and have been. I don't know that that's gonna stay, but it's been amazing what the rental increases have been up and down 95.
Mm-hmm.
Stephen, I would say that Baltimore is heavily impacted by the deepening of the harbor and, so it's not all e-commerce driven. It's driven by imports as well.
Thank you. Just last question here. How are you doing the investment pipeline in terms of the capital allocation? You know, when you are penciling out, your new growth opportunities, are you comparing that to share repurchases, especially given where the stock is now?
We look at it of course all the time. Our philosophy on share repurchases is we wanna steal the stock when we repurchase it. We would much rather grow the company if we have got good projects ahead of us. That's more of our philosophy. As you know, when we thought the prices are too low, we're all in as far as buying it back.
Yeah. It hasn't really been a choice of one or the other that we've had to make, since the asset sale. We have had, you know, money to use on share repurchases and money to, you know, invest in new projects. It hasn't been one or the other. It's just been more of a when we find a project that we like, we invest in it. If we see that the, you know, the share is falling at such a discount that we'd be crazy not to repurchase, then we repurchase it. You know, I don't think so far those two things have not been competing with each other.
Well, that's good. Thank you, guys. That's all I have. Have a good weekend.
Thank you.
Thank you. Once again, that's star one to ask a question. We'll take our next question from Bill Chen of Rhizome Partners.
Mm-hmm.
Hey, guys.
Hey, Bill.
Hey, Bill.
Hi, Bill.
I'm able to make the call. I thought I couldn't, but I was able to join the call. Good to hear from you guys. Got a couple questions. Do we have a plan to host an investor day and possibly give investors a tour of the Verge this year?
We do not. Our thought was that we would do those investor days every other year.
Mm-hmm.
I mean, that's subject to change. If you all think it's something we should do, we're happy to do it. But I think, you know, given the size of our company, every couple of years is enough.
Okay. Well, let me chat among you know 'cause I chat with some new investors. Let me chat with them and see, 'cause I think there are some that became shareholders this year that may be appreciative, and maybe it could be like a scale-down event. You know, I'll survey the interest and get back to you guys.
Thanks.
I don't know if you
Thank you.
Yeah, no problem. Always a pleasure. I don't know if someone asked this earlier, but with Riverside, now that's 97%, has from a permanent financing perspective, I don't know if someone asked this question earlier. Also, how would that be treated on the income statement going forward?
As far as the income statement goes, it will not be consolidated into our income statement or balance sheet.
Okay
You know, like Dock 79 and The Maren were. With Dock 79 and The Maren, there was a control trigger where we had the ability to sell the building, and as a result, we could consolidate it and write it up. We don't have that with Riverside. That's an Opportunity Zone, and we're
We only own 40%.
Yeah, we only own 40%, so.
Yeah, got you.
Are we gonna be-
I was gonna say, Bill, it's first of all, I think it's 91% occupied, not. I wish it was 97%.
Okay.
We have refinanced it.
Okay. Can you share what the amount and the interest rate was on that?
David, do you get that?
Yes, it was $32 million. It's a $32 million eight-year loan, and it's at a fixed rate of 4.92%.
Okay. Got you. Great. I guess, like
That was up 6 points at the end of the quarter, just to be very clear about that.
That was up six points at the end of quarter. Okay, got you. Will we start receiving distribution from that? Like, would that, I guess, from the cash flow statement, would that show up as a distribution line item on a cash flow statement going forward?
The income from the property itself or from the refinancing?
From Riverside.
The Riverside. The distributions for joint ventures that are making positive income will show up as cash flows from operations. As soon as the property is turning a profit, then it'll move to that area. Meantime, it's showing up in the investment section.
Got you. Okay. I mean, where I'm coming from is that, you know, even though if it's 40%, there's a tremendous amount of value in those properties and the cash flow, and because it's not consolidated, sometimes it may not show up. We kind of talked about this before. I think it's just, you know, important for shareholders to understand how much cash flow, you know, how those properties are performing and how much cash flow is being distributed back to the parent company. Because from what I understand is that Riverside and 408 Jackson, both of them gonna be, you know, pretty, pretty good projects.
There is, you know, a decent amount of cash flow that will come from it. I think, you know, just making it easier for shareholders to understand those dynamics, I think, will help us understand the value that you created and the recurring cash flow going forward. Let me see. My final question is on the $31 million land lot project. Let's say that if some market inventory goes higher, is there kind of optionality? I'm assuming that it won't be drawn down all in one lump sum, like it's staged. Am I right in assuming that? Like, is there some flexibility to respond to the market condition?
Absolutely, Bill. We are needless to say watching that pretty closely. No, if this thing goes forward, we have it set up to develop this thing in seven different sections. There are a lot of different safeguards from a lending perspective. We'll watch that very, very closely. The $31 million is total, but the peak capital doesn't even get anywhere near that, probably less than half of that.
Got you. I always trust that you guys have always put in safeguards. You know. That does not surprise me at all. You know. My other comment would be on the share buyback. You know, my suggestion to the management team and the board would be that, you know, I know historically when we bought back shares. I don't think it's an either/or. I think, you know, a mixed approach definitely works. I would just suggest that, you know, there's been a lot of value that's been created since the, you know, since the asset sale in 2018. A lot of these assets have started to stabilize, which creates recurring cash flow.
My suggestion would be just, you know, don't be anchored to the price paid previously. I think the net asset value, the intrinsic value of the company has gone up a lot, you know, since 2018 and 2020, you know, we last did a big buyback. If the target on that buyback price should be a floating target as we create more value. You know, that's my suggestion is to not be anchored to the previous price paid because I think that as these assets continue to stabilize, the price that is still has actually risen. I'll be happy to share my notes, you know, just to compare if you're interested.
Thank you.
Mm-hmm.
We agree with you.
That's, you know, thank you for your time. That's all the, you know, questions and comments I have.
Thank you, Bill.
Thank you. It appears at this time we have no further questions. I'd like to turn the call back over to management for any additional or closing remarks.
Well, thank you all for those questions. We appreciate your interest in FRP. As you can see, we're in a growth mode in a strong group of industry segments and markets. We're mindful of the impacts of inflation and of rising interest rates, and therefore grateful for the strong balance sheet and positive cash flows from operations. For your information, we have put together an updated slide deck with financial highlights from this quarter, which you can find in the Investors section of our website under Investor Presentations. We plan to update this for you each financial period, and we look forward to talking to you again next quarter. Thanks so much.
This concludes today's call. Thank you for your participation. You may now disconnect.