Earnings Transcript for FRPH - Q3 Fiscal Year 2023

Operator: Good day, everyone and welcome to today’s FRP Holdings Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. [Operator Instructions] Please note, today’s call will be recorded, and I will be standing by if you should need any assistance. It is now my pleasure to turn the call over to John Baker. Please go ahead, sir.

John Baker: Good morning. I’m John Baker, III, Chief Financial Officer and Treasurer of FRP Holdings. And with me today are David deVilliers, Jr., our President; John Baker, II, our Chairman and CEO; John Milton, our Executive Vice President and General Counsel; John Klopfenstein, our Chief Accounting Officer; and David deVilliers, III, our Executive Vice President. 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 the 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 Generally Accepted Accounting Principles, FRP presents certain non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. The non-GAAP financial measure referenced in this call 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 net operating income to GAAP net income, please refer to the segment titled Non-GAAP Financial Measures on Page 12 of our most recent earnings release. Any reference to net asset value analysis, cap rates, asset values and per share values are for illustrative purposes only as 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 the sale of the asset or the associated cost or tax liability. Now, for our financial highlights from the third quarter. Net income for the third quarter was $1.26 million or $0.13 per share versus $480,000 or $0.05 per share in the same period last year. Net income for the third quarter of 2023, when compared to the previous year, is impacted negatively by an increase of $1.035 million in equity and loss of joint ventures, mostly from $856,000 in increased losses during the lease-up of The Verge, our newest mixed-use project on the DC waterfront, as well as an increase in interest expense of $378,000 due to less capitalized interest. Net income was positively impacted by an increase in interest income of $1.51 million from increased interest earned on cash equivalents and increased income on our lending ventures as well as improved revenues in all four segments. Third quarter pro-rata NOI for all segments was $8.09 million versus $6.24 million in the same period last year, for an increase of 29.5%. Net income for the first nine months of 2023 was $2.42 million or $0.26 per share versus $1.81 million or $0.19 per share in the same period last year. The first nine months of 2023 were positively impacted by an increase in revenues and profits in all four segments compared to the same period in 2022, offset by an increase of $5.34 million in equity and loss of joint venture compared to the same period last year as we lease up The Verge and .408 Jackson as well as an increase in management company in direct expense of $393,000 and an increase in interest expense of $1.04 million, offset by an increase in interest income of $5 million. The first nine months of 2022 were also positively impacted by $733,000 in gain from property sales, which we did not repeat in the first nine months of 2023. Revenue, operating profit, pro rata NOI and net income all experienced strong growth this quarter and for the year-to-date. Compared to the third quarter of 2022, we grew revenues by 14%, operating profit by 56.6%, pro rata NOI by 29.5% and net income by 162.3%. For the first nine months compared to last year, these metrics grew by 13.7%, 61.3%, 26.2% and 33.9%, respectively. Yesterday, we posted to our website a brief slide show of financial highlights for the third quarter and first nine months. For those who have not seen it, we are now including a net asset valuation. Our analysis yielded a per share value in the range of $69.24 to $78.76. I will now turn the call over to David for his report. David?

David deVilliers: Thank you, John and good morning to those on the call today. Allow me to provide an operational perspective on the third quarter results of the company. Starting with our Asset Management segment. Since the beginning of the year, increased occupancy at our three industrial buildings at Hollander Business Park in Baltimore, Maryland as well as rent growth on renewals at Cranberry Business Park in Hartford County, Maryland have produced a healthy lift to NOI. Net operating income for the third quarter of 2023 was $1.096 million, a 58.2% increase over the same period last year, when the NOI was $693,000. At quarter’s end, the Asset Management portfolio was 95.6% occupied on over 549,000 square feet of commercial product. Moving on to the results of our Mining and Royalty business segment. This segment saw total revenues for the quarter of $3.082 million versus $2.471 million in the same period last year. NOI in this segment increased 21.4% over the same period last year to $2.837 million. As to Stabilized Joint Ventures, Dock 79 and Maren, with its 569 apartments had occupancies of 95.7% and 93.9%, respectively at quarter’s end, with all retail fully leased. Dock and Maren enjoyed renewal success rates of 71% and 60%, respectively for the quarter, with Dock seeing a 2.3% rental rate increase on renewals, and Maren a 3.2% increase. Average occupancies year-to-date for Dock and Maren were 94.2% and 96.1%, respectively. Riverside in Greenville, South Carolina, with its 200 apartments, was 91.5% occupied at quarter’s end, with 53% of its tenants renewing at an average increase in net rental rate of 8.56%. Average occupancy year-to-date was 94.2%. Third quarter pro-rata NOI for this business segment was over $2 million, including $231,000 in pro-rata NOI from Riverside. Relative to our Development segment, we engage in three strategies which we use to grow our business. These strategies are

John Baker: Thank you, David. At this point, we’re happy to open it up to any questions you might have.

Operator: [Operator Instructions] And Mr. Baker, at this time, I show no questions in queue.

John Baker: All right.

Operator: I’m sorry. We did just have one question queued. We’ll take our first question from Bill Chen with Rhizome Partners. Please go ahead.

Bill Chen: Hi, gentlemen. I don’t really have a question. I just want to give you some feedback that, thank you very much for hosting the Investor Day. And also the improved presentations and transparency, the NOI figures that you share on each individual asset makes it a lot easier for me to update my NAV estimate. So I don’t really have a lot of question. I think a lot of them were answered in the Investor Day. But again, I just want to thank you for providing all this additional transparency and disclosure. It makes my job a lot easier. That’s all.

David deVilliers: Thank you, Bill. That’s appreciated.

Bill Chen: Well I appreciate everyone in the company doing your job and doing it very well, and look forward to the next quarter’s earnings call. Thank you, gentlemen.

John Baker: Thank you.

David deVilliers: Thank you.

Bill Chen: Have a good day.

Operator: Thank you. [Operator Instructions] And we have no questions at this time.

John Baker: All right. With Bill’s question, it feeds right into my concluding remarks. I wanted to thank everyone who is present in person and virtually for attending our Investor Day in D.C. in October. That amount of face time with all of our investors is really invaluable. It’s an interesting and instructive experience to interact with our investors and see the company from a different perspective. If you have not seen our Investor Day presentation, a replay is available on the Investors segment of our website in the Investor Resources tab under Investor Day. Thank you, all and we appreciate your continued investment and interest in the company.

Operator: This does conclude today’s FRP Holdings third quarter conference call.