FRP Holdings, Inc.
Q1 2019 Earnings Call Transcript

Published: 6 May 2019

[Operator:]

Excuse me, everyone, we now have John Baker, Executive Chairman and CEO of FRP Holdings, Inc., in conference [Operator Instructions]. I would now like to turn today's conference over to John Baker. Mr. Baker you may begin.

[John Baker II:]

Thank you, and good afternoon and thank you all for joining us today. As mentioned I'm John Baker, Executive Chairman and CEO of FRP Holdings. And with me today are David deVilliers, our President; John Milton, our Executive Vice President and General Counsel; John Baker III our CFO; and John Klopfenstein, our Chief Accounting Officer. Before we begin, let me remind you that any statements made on this call relating to the future are, by their nature, subject to risk and uncertainties that could cause the actual results and events to differ materially from those indicated in such forward-looking statements. Some of these risks are delineated in our SEC filings, including, but not limited to, our annual and quarterly reports. Those of you who have followed our company for a while will notice that the titles of some of our officers changed in my introduction. It's my pleasure to say that the Board appointed John Baker III, as our Chief Financial Officer today. John has trained under John Milton for the last three years and is well prepared to take on this new role. John Milton will assume the position of General Counsel, and will continue to be actively involved in the strategic and legal activities of the company. I'm also excited that our shareholders elected Margaret Weatherby to our Board. Her background in real estate matters as a lawyer will give us further perspective on our Board. During the quarter, we've continued to focus on redeploying the proceeds gained from the sale of our warehouse portfolio last year. We've viewed several projects, which we have decline and continue to look at others at the risk of repeating myself, we will be very cautious in any major redeployment. We believe that asset prices are very high, perhaps even at a peak and we only will engage where we see above average risk adjusted returns. I've been asked if we intend to institute a dividend as a way of sharing the proceeds with our shareholders. At this point in the real estate cycle, I would prefer not to begin a dividend program that locks us into regular and hopefully increasing payouts. We are mindful of the fact that we have committed to two very large projects Phase II of RiverFront, which we also call the Maren and Bryant Street. Construction of the Maren is scheduled to complete in 2020, followed by a year so of lease up. Bryant Street will be completed a year later. With two projects of this size coming to fruition within a year or so of each other, we think it is prudent to keep our liquidity and intact through that period unless just unmissable opportunity comes along. In the meanwhile, we intend to look after our shareholders by repurchasing our stock in an opportunistic way. Last quarter we bought 36,000 shares after buying well over 120,000 shares in the previous quarter. Looking to our results, net income in the first quarter was $1,898,000 or $0.19 a share, versus $0.16 a share a year ago. Of that $0.19, $0.01 came from discontinued operations. We expect to sell one of the office -- one of the three office buildings left in our portfolio and we'll continue for opportunities to sell or develop our permitted lots. Let me now turn it over to David deVilliers to walk you through our operations.

[David deVilliers:]

Thank you, John, and good day to those on the call this afternoon. As a follow up to John's opening remarks, we began this year a very different company than we were at the start of 2018. During the first quarter of 2019, we were busy on all fronts, initiating our strategy of redeploying our cash into potential future opportunities for the business. I'll provide greater detail as I get into highlights of the different business segments. After the sale of our warehouse platform, most of the asset management segment was reclassified to discontinued operations, leaving only three commercial properties and one recent value add industrial acquisition, called Cranberry Run, which we purchased this quarter for $6,411,000. Cranberry Run is a five building industrial park in Harford County, Maryland, totaling 268,000 square feet of industrial and flex space. The park is currently 26% leased and occupied and it is our plan to make substantial improvements totaling over $1.46 million for a total investment in this project of $29.35 per square foot, thereby increasing value and generating greater interest from the prospective tenants. Also during the quarter, we entered into a purchase and sale agreement to sell one of our suburban office buildings, 7030 Dorsey road in Anne Arundel Count, Maryland for $8.8 million, which is one of the three commercial properties remaining after the asset sale last May. The due diligence period for the purchaser has expired, and we expect to close in the second quarter of 2019. So total revenues in the asset management segment for the quarter were $641,000, up $60,000 or 10.3% over the same period last year. There was an operating loss of $66,000, down $322,000 compared to the same quarter last year, due to a higher allocation of corporate expenses and operating losses associated with the new Cranberry Run acquisition. Relative to the mining and royalty segment, total revenues were $2,229,000 versus $1,772,000, in the same period last year, an increase of 25.8%. Total operating profit in this segment was $2,001,000, an increase of $460,000 versus $1,541,000 or 29.9% in the same period last year. Among the reasons for this increase in revenue and operating profit is the contribution from our Ft. Myers quarry, the revenue from which now that mining has begun in earnest, was more than double the minimum royalty we have been receiving until recently. I might add this is the fifth straight quarter of increased revenues and operating profits for this business segment. With respect to land development construction, this business segment as of the beginning of 2019 was renamed the development, to more accurately describe our strategy going forward. Just as before this business segment is the main driver behind value creation, therefore it generates minimal revenues and incurs significant costs to accomplish its objectives. So with respect to ongoing and new projects, they include

[John Baker II:]

Thank you, David. Appreciate you summing that up that way that's -- it's very helpful. I think at this point, we should go to any questions that any of you or all might have at this time.

[Operator:]

Thank you. At this time, we will open the floor for questions. [Operator Instructions] Our first question will come from Curtis Jensen with Robotti & Company.

[Curtis Jensen:]

Hey, good afternoon.

[John Baker II:]

Good afternoon, Curtis. Thanks for joining us.

[Curtis Jensen:]

Thanks. And just thinking about Fort Myers on the mining side, when did that -- that started in 2018 officially?

[John Baker II:]

It started in 2018. But for the first half of the year, we've been receiving minimums. And so we really never got enough royalties to exceed the minimum. So beginning in 2019 is when you really see the pop-up.

[Curtis Jensen:]

Or was it their tonnage there was 400,000. Is that just kind of the second half of the year?

[John Baker II:]

That's exactly right.

[Curtis Jensen:]

And any sense of what the tonnage might be in 2019?

[John Baker II:]

No, it's not up to us, unfortunately. If you did the arithmetic of how about how much time they have to mine it, and how many tons are there. You would expect 800,000 to 1 million, but that'll probably rise and fall with the market.

[Curtis Jensen:]

Yes. And is are there royalties kind of in line with your -- the corporate average last year was a buck in change or something or is that?

[John Baker II:]

Yeah, that's about right.

[Curtis Jensen:]

All right. And what about excluding kind of Fort Myers and excluding any natural disasters or anything, would you expect your volumes to be up this year just with at all the other locations?

[John Baker II:]

What we're seeing from Vulcan Materials, and Martin Marietta in their quarterly results is that the prices are going up 5% or 6% and the volumes are going up 1% or 2%. But that'll be, if homebuilding slows down that will go back some if it has an infrastructure program, it would shoot up so that's a cyclical business, but I think we're really in a good part of it right now.

[Curtis Jensen:]

Okay. And on the Dorsey Road property that was sold, maybe this is for David, I don't know, was there much in the way of NOI from that property? It was like two thirds leased or something?

[David deVilliers:]

Yes, that’s -- hang on Curtis, let me get that for you.

[John Baker II:]

It's scheduled for settlement while we're looking at, scheduled sometime at the end of June. And we have a pretty strong deposit that's actually gone hard. So I think it's probably going to go forward.

[David deVilliers:]

And I think the annualized NOI for that project is $500,000.

[Curtis Jensen:]

All right. And was there any update on the warehouse at Quarry Road?

[John Baker II:]

You mean the 1502 they're still going through the right of first refusal problems with the court system in the first quarter, we should find out pretty much any day what the what the future holds for that.

[Curtis Jensen:]

Okay. And, I guess, the last thing I'd say is and just my two sense, I'm not a pretty modest size shareholder. But, from where I sit, I think the idea of a dividend is not a great one. It's in my mind, kind of a second mortgage. The last thing you wanted a development business is a dividend. I'd rather see you guys do buybacks on an opportunistic basis and that's my $0.02.

[John Baker II:]

I like your $0.02. I've never thought of a dividend is being like a second mortgage. But I think it's a very good analogy in this case. And appreciate your comment.

[Curtis Jensen:]

All right, keep up the good work. Thank you.

[John Baker II:]

Thank you.

[Operator:]

[Operator Instructions] Mr. Baker there are no more questions at this time.

[John Baker II:]

Well, thank you all for joining us today. We appreciate your interest in FRP and we look forward to talking to you next quarter.

[Operator:]

Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect.