FRP Holdings, Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Financial Highlights: Net income for the second quarter decreased 72% to $600,000 or $0.03 per share due to due diligence-related legal expenses and lower interest income. Pro rata share of NOI increased 5% YOY to $9.7 million, mostly from multifamily and mining royalty segments.
• Commercial and Industrial: 10 buildings totaling nearly 810,000 sq ft, revenues and NOI down due to lease expirations, defaults, and vacancies. Focus on leasing to increase occupancy.
• Mining and Royalty: 16 mining locations, revenues and NOI up 12% and 21% YOY respectively.
• Multifamily: 94% apartment occupancy, 83% retail occupancy. The Verge contributed since July 1, 2024. Same-store comparison showed revenue increase of 3.2% and NOI up 1% YOY.
• Development Segment: Industrial joint venture projects under construction in Florida; predevelopment in Maryland for a 900,000 sq ft distribution center; initial permitting in Harford County for 635,000 sq ft of industrial product. 3 joint venture projects in Florida expected to generate annual NOI around $9 million with FRP's share under $8 million.
• Capital Sources: Aberdeen Overlook with $31.1 million committed, $27 million drawn, expecting $11.2 million in interest and profits. Multifamily joint venture in Greenville, South Carolina secured construction financing.

Segment Performance

• Commercial and Industrial Segment: Total revenues and NOI for the quarter totaled $1.4 million and $1 million, respectively, a decrease of 5% and 15% over the same period last year. This was due to 64,000 sq ft of tenant leases expiring, 57,000 sq ft from a tenant default, and a newly completed 258,000 sq ft warehouse being vacant. Revenue contribution percentage not explicitly stated but relevant to the overall business.
• Mining and Royalty Segment: Total revenues and NOI for the quarter totaled $3.6 million and $3.7 million, respectively, an increase of 12% and 21% over the same period last year. Driven by higher contributions from the mining locations in Florida, Georgia, and Virginia.
• Multifamily Segment: Consists of 1,827 apartments and over 125,000 sq ft of retail. At quarter end, 94% of apartments were occupied and 83% of retail space was occupied. Total revenues and NOI were $14.6 million and $8.2 million, respectively, with FRP's share being $8.5 million and $4.7 million. The Verge contributed $2.8 million in revenue and $733,000 in NOI this quarter.

Guidance

• Anticipate relatively flat NOI in 2025 vs 2024 as they work to lease up Chelsea project and replace vacancies at Cranberry Industrial Park, with resumption of meaningful year-over-year NOI growth in 2026.
• Mining royalty segment unlikely to repeat Q3 2024's one-time minimum payment, so NOI flattening expected in the second half of 2025.
• Goal to lay groundwork for future NOI growth by filling vacancies, executing current construction projects, and moving forward with new joint ventures to expand industrial portfolio.

Risks

• Uncertainty around trade policy, the economy, and financial markets causing headwinds in leasing velocity.
• Delays in permitting for development projects such as off-site road improvements, reforestation codes, and wetland mitigation permits affecting entitlement processes.

Question and Answer

Q: A quick question. It looked like in the quarter, you spent a fair amount of money on legal for -- you referred to a potential new investment. I know you probably can't speak too much about that. But is that a shift in strategy of what you're doing in terms of perhaps looking at something that's a little larger to go and buy? Or is that sort of a process type thing? Or what's sort of the thinking around that, I guess?

A: Dave, it's not a shift in strategy, and you have kind of hit the nail on the head in terms of what we can and can't talk about. All we can say at this time is that we are pursuing a business opportunity and those legal expenses are related to it.