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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: in-house development and acquisition; joint venture acquisition and development; and principal capital source lending. This three-pronged strategy has effectively been the program since liquidating our legacy warehouse portfolio in mid-2018. Allow me to discuss each strategy and its impact on our business segments. Our in-house strategy includes industrial, commercial and land development platforms. These properties are acquired, developed, managed and owned 100% by FRP and transferred from Development to the Asset Management business segment when construction is completed.

We have three projects in our industrial pipeline in various stages of development. During the second quarter, we broke ground on a 259,000 square foot state-of-the-art Class A warehouse building on our 17-acre parcel in the Perryman industrial section of Hartford County, Maryland. This spec building is expected to deliver in Q3 of next year. In Northeast Maryland, along the I-95 corridor, we are in the middle of free development activities on 170 acres of industrial land that will ultimately support a 900,000 square foot distribution center. Pending favorable market conditions, we will be in a position to break ground as early as Q4 of ‘24. Finally, we are studying multiple concept designs for our 55-acre tract in Hartford County, Maryland, adjacent to the Cranberry Run Business Park.

Our various configurations should yield from 600,000 to 700,000 square feet, dependent on final design parameters and market demands. Existing land leases for the storage of trailers on-site helped to offset our carrying and entitlement costs until we are ready to build here, which could be as early as 2025. Completion of these three industrial development projects will add over 1.8 million square feet of additional warehouse product to our industrial platform that upon completion will result in our Asset Management division consisting of over 2.35 million square feet. Our second development strategy is our joint venture strategy, which, as the name implies, are projects developed in conjunction with third-parties where FRP is typically the majority owner, but we share acquisition, development and asset management risks with third-party local market leaders who facilitate day-to-day operations.

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 the Stabilized Joint Venture business segment. The lion’s share of assets within our Development segment are currently within our joint venture strategy. These include Bryant Street and Verge in Washington, D.C., .408 Jackson in Greenville, South Carolina, and our retail and office joint venture with St. John’s Properties in Baltimore County, Maryland. Bryant Street consisting of 487 apartments in three different buildings, was 94.5% occupied and its retail components were 95.9% leased and 79% occupied at quarter’s end. Overall, the apartments at Bryant Street averaged a renewal success rate of 68.4% and rental rate increases of 6.9% as of quarter end.

Our newest project in the district, Verge, received its final certificate of occupancy in the first quarter and is 89.5% leased and 74.1% occupied, with 45% of its 8,400 square feet of retail spoken for as of the end of the quarter. Average occupancy for the quarter at Verge was 59.6%, and year-to-date, 35.1%. Thus, the reasoning behind the increase in equity and loss of joint ventures John mentioned in his opening remarks. .408 Jackson, our second mixed-use project in Greenville, is located downtown and shares the street and plaza with Fluor Field, home of the Greenville Drive, an affiliate of the Boston Red Sox. .408 Jackson was placed in service during the fourth quarter of ‘22, and as of quarter end was 93.4% leased and 86.8% occupied as it marches steadily towards stabilization.

Average occupancy for the quarter was 85.6%, and year-to-date, 48.9%, another reason for the increase in loss of joint ventures. Its retail component is fully leased and targeting a tenant opening date in early 2024. We’re in the home stretch of lease-up for all three of these joint ventures. When they reach stabilization and are transferred to the Stabilized Joint Ventures business segment, the segment will have 1,827 apartments and 82,000 square feet of retail. Unlike a warehouse in the Development section, these are already assets in operation. If you refer to the Development segment NOI on Page 12 of our most recent press release, you will note these assets have generated almost $4 million in NOI through the first nine months versus $1.9 million in the same period last year.

And when stabilized, will increase the – or excuse me, the revenues and NOI of our Stabilized Joint Venture segment. Our principal capital source strategy, the last leg of our three-pronged development strategy, is what we call lending ventures. It’s a program where we provide working capital toward the entitlement and horizontal development of residential land, which is pre-sold prior to commencement of any infrastructure improvements and ultimately transferred to National Homebuilders. 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.

175 of the 187 lots are sold, with $19.4 million of preferred interest and principal returned as of the end of the quarter, with the final 12 units expected to be taken down by Q1 ‘24. Upon completion of this project, interest income and profits are expected to total $4 million. Our other current lending ventures is called Presbyterian Homes, a 344-lot, 110-acre residential development project in Aberdeen, Maryland. We have committed $31.1 million in funding under similar terms to Amber Ridge. The National Homebuilder [technical difficulty] purchased all of the finished building lots, which will include 222 townhomes and 122 single-family dwellings. Horizontal construction has begun, and we expect the first lots to be taken down in Q1 of 2024.

In closing, we remain pleased with the company’s performance and are optimistic about growth opportunities. Challenges are ahead as we encounter a surplus of new developed apartments coming online in Washington, D.C. over the next several quarters, which will directly compete with our waterfront assets. Our confidence in design, amenities and management teams, coupled with our careful and patient approach to development, allows us to weather this competition on firm foundations. We continue in our belief that challenges beget opportunities. With a strong dedicated and talented team in place, FRP will continue to grow its portfolio. And, in turn, its revenue and profits through a steady, careful and well-reasoned approach to the market. We look forward to building upon our successes and finding new ways to exploit our skills in the industry.

Thank you, and I’ll now turn the call back to John.

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.

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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.