Good day, everyone, and welcome to the FRP Holdings Third Quarter Earnings Conference Call. [Operator Instructions] Please note this call is being recorded, and I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to John Baker, II, CEO and Chairman of FRP Holdings. Please go ahead.

Good afternoon and thanks for joining us today. I'm John Baker, Chairman and CEO of FRP, and with me today are David deVilliers, Jr., our President; John Baker III, our CFO; John Milton, our General Counsel; David deVilliers III, our Executive Vice President; and John Klopfenstein, our Chief Accounting Officer. Before I begin, let me remind you that investors are cautioned that any statements made on this call, which relate to the future, are by their nature subject to risks and uncertainties that could cause actual results and events to differ materially from those indicated in such forward-looking statements. These include risks listed from time to time in our SEC filings, include, but not limited to, our annual and quarterly reports. We have no obligation to revise or update any forward-looking statements other than as imposed by law as a result of future events or new information. Listeners are cautioned not to place undue reliance on such forward-looking statements. This week we issued two press releases. One, our quarterly results for the period ending September 30, 2022, and another announcing an agreement with Steuart Investment Company and MRP Realty. The first press release contained our quarterly results and outlook, which were very encouraging. Revenues for the quarter were USD9.294 million, up 9.7% from the same period last year. Net income was USD480,000, up 36% from a year ago, with increased rents and lower amortization charges moving the needle. Net operating income, which is our main internal barometer of success, was USD17.970 million in the 9 months ended in September, up 32% year over year. David deVilliers will walk you through our operations in more detail in a moment. The second press release announced an agreement with Steuart Investment Company, our longtime partner MRP, and ourselves to combine our various properties…

Thank you, John, and good day to those on the call this afternoon. Relative to our in-house industrial platform, or Asset Management, net operating income for our in-house operations was USD693,000 for Q3 of '22 versus USD486,000 in the same period last year, an increase of 48.1%. The second of our 2 spec buildings at Hollander Business Park completed at the end of 2021 and collectively totaling 145,500 square feet became fully leased in the third quarter. We expect full occupancy in the first quarter of 2023. Supply chain issues notwithstanding, the 101,750 square foot build-to-suit warehouse building that will cap off the final building at Hollander Business Park should also be ready for its tenant to occupy in the first quarter 2023. Cranberry Run Business Park, our renovated 268,000 square-foot multi-building warehouse park in Aberdeen, Maryland became fully occupied in the first quarter of 2022. This park remains 100% occupied and is performing ahead of original projections. On the predevelopment front, we have 3 projects in the queue. This past quarter, we completed the annexation process of the 55-acre track in Harford County, Maryland, purchased in 2020. Building designed to create up to 675,000 square feet of warehouse product will follow in 2023. Existing land leases for the storage of trailers on-site helped to offset our carrying and entitlement costs. We are hopeful we can begin construction here in 2024. We are also knee-deep into the permitting process to support an approximate 250,000 square foot 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 Q2 2023. Finally, during this quarter, we completed the purchase of 170 acres of industrial land in…

Thank you, David. Let's now open it up for questions if we might.

[Operator Instructions] Our first question comes from Emerito Quintana of Numantia.

Can you hear me?

Yes, we can.

My name is Emerito Quintana, and I'm calling from Spain because our fund owns 1% of the shares of FRP Holdings, and I hope it will remain so for a long time. I would like to know how do you see the mining business in 10 years? What is your estimate of the growth of the price per ton of aggregates in the long term? And in the Florida quarries, how do you expect natural disasters such as hurricanes to affect the business in the long term?

Emerito, it's nice to meet you, and we're proud to have you as a shareholder. The quarry business in Florida, of course, I have no idea what's going to happen over 10 years. But what we have seen is 2 things. One, the aggregates business throughout the United States has been growing well in excess of inflation even in today's high inflationary times at Vulcan, and Martin Marietta reported, I think, 11% or 12% increase in pricing this last quarter. It's an amazing time for that. With mortgage rates rising, you would expect the homebuilding segment of their business to slow down dramatically. And that, of course, could affect the pricing and certainly the growth of that business. But it's my belief that because rock is simply running out in Florida, it's hard to permit in Georgia and Virginia, that we will continue to see pricing escalate at greater-than-inflationary rates for a period of maybe up to 10 years, certainly for the next 5 years.

Okay. And the last one. I know you guys want to [steal] the stock when you can and be opportunistic with buybacks. But how do you see now the expected return of an eventual buyback?

Okay. We are carefully plotting the usage that we have going forward. And our preference is to invest in projects rather than to invest in our stock unless it just happens to be very low. And so especially with the Steuart joint venture, we will be very careful about buying stock in because we've got the need for that money going forward over the next 10 years. And so while I would never say we wouldn't buy it in, we will if tempted too badly. But I think the prudent thing for us is to keep a good bit of cash available for future projects.

We'll take our next question from Curtis Jensen of Robotti & Company.

Can you hear me okay?

Yes, sir.

I guess what strikes me about the Steuart announcement is, all of a sudden, you have control of this very large swath of property and you can -- it's almost as if you can create a master planned community at Buzzard Point, for example, where you could connect all these buildings architecturally and by resource and all those other things, it's pretty interesting. Is that dynamic at work? And then I guess, and you referred to it, I guess you'll be still -- I'm wondering, will these projects be done in serial fashion or parallel fashion where you'll have multiple projects going on? Or it'll just depend on the environment? I guess, that's my first question.

Well, I'll take a run at the first part, Curtis. It's David deVilliers. Obviously, this is an exciting program really for all of us. The thing that we really like about it, it's a little bit like what you just articulated. We can create a masterplan community there. And like I think I said in my remarks is that we have the ability to do things that individuals can't do. We can move properties around. We can come up with different types of development plans. We can combine lots. We can do all sorts of things because of the size and scope of this project. So yes, for all intents and purposes, it's a clean slate, and we can pretty much do whatever appropriate urban design that we come up with. We'll certainly have a lot of input from the Zoning Commission and the Office of Planning, but they're pretty excited about dealing with one set of owners as well. Relative to how they get developed, I think the market will dictate that action and just the logistics of development projects in different locations. For example, sometimes you want to build away from the water and then go towards it. But with the way we're going to design the program, we don't want to be having concrete trucks or something driving by any more buildings than we have to. So we control the development program for all intents and purposes. We do have a requirement to buy some of Steuart's properties, as John articulated, over 10 years. But the other ones we pretty much determine when we want to do them. Theoretically, you could be doing two projects at once. The market's going to dictate those actions as much as anything.

Okay. What happens in terms of, let's say, somebody [technical difficulty] or do you have this stipulated that the valuation is -- that's subject to a third-party appraisal on how that works?

I think you broke up, but I think you were saying, how do you determine what the value of the projects -- the land will be...

Is it a third-party appraisal type of thing?

Yes. We'll go through an appraisal process for all of the properties when they are shovel ready, not before. So when these projects are shovel ready, we can get them appraised, we -- we being the FRP-MRP; in the case of Steuart, the MRP-FRP people would get an appraisal, Steuart would get theirs. And if we didn't come within a certain percentage, then we get a third one. So it's an arm's length program, but the properties will be appraised when they're shovel-ready, not before. Also, whatever environmental issues are out there that gets reduced from the appraised process, which will be effectively for a clean parcel.

Okay. And then I'll wrap up here in a second. But I guess the specter of higher construction costs, higher borrowing costs has imposed some discipline on probably everybody. But I'm curious about with respect to Steuart whether you feel like you guys are getting married right now and probably for a pretty long time. Do you have a good philosophical alignment in terms of your outlook and how your approach is to life?

I think we do, as good as you can with three different groups, but we all have the same endgame. We all are investing a pretty sizable amount of dollars into these projects. And what really determines the go forward is having a shovel-ready project that makes economic sense. We have to do all the design. We have to get a guaranteed maximum price from the general contractor. We have to get appropriate and acceptable financing. And obviously, the market would have to dictate that the cost of these projects would give us the appropriate return on cost. So I think our interests are definitely aligned in that regard.

But can you talk about or share what you think is first up in the queue?

Well, as I said in my opening remarks, we are partially through the predevelopment process on the first phase of this venture, which is on the Steuart's property, on 1 of the 4 phases of Steuart. And it's about 400-plus apartments, and I believe about 10,000 square feet of retail, then we're going through, I guess, the song and dance with the Office of Planning and ultimately the Zoning Commission. And so once we get approvals and the appropriate entitlements there, then we would move forward with the drawings and then off to the guaranteed maximum price, and then see what kind of financing is out there and what the market will dictate, and decide at that time whether we want to go forward or just sit back and wait.

Keep up to good work, guys.

[Operator Instructions] We'll take our next question from John Koller of Oppenheimer & Close.

My questions really are going to revolve around the pace at which you'll be developing and how you're thinking about capital allocation between what I consider a large number of balls in the air, so between the industrial, the next phase of Bryant Street, and now the new joint venture. And then that raises the question of what capital might you require? I know buybacks are probably not in the cards, which is fine. But it seems to me like you might actually need to raise capital depending on the pace at which you develop these. And I'm curious if you've considered that at all and how you think about that if it's necessary.

David, you want to take a crack at that?

Yes. Obviously, one of the things that we like about this program, at least with Steuart, and then I'll get back on the other ones, is that having these other partnerships, the other partners, it reduces the amount of equity that FRP would be putting into these projects. For example, when we did Dock 79, we started off at about 77% of the ownership and then at Maren it was 80%. And so now we're going to be at 40%, so the equity that is required is going to be less. It's still substantial, but obviously, it's going to be less. Another example would be Bryant Street, which is not in this [part] but in a different submarket, we have 61% of the ownership there. So one thing about the capital requirement, obviously, is that we will be putting up less money in equity. We do have an opportunity, if we so desire to add more because there might be a shortfall of anywhere from 10% to 15% of the equity. But going back to the question of how many balls you have up in the air. We are very conscious as to how our capital is utilized. And we want to make sure that there's enough dry powder in the bank to stand off pretty much anything that comes out there. So we're pretty darn conservative as it relates to how much money that we have invested at any one time. As an example, one of the interesting programs that came about as a result of this is this first phase of Steuart, they purchased 20% of our ownership in Dock and Maren. So we're using those proceeds, which is about USD20 million, and then some proceeds from another sale that came up to us after the third quarter to invest in that Steuart Phase 1. So the Board, in conjunction with ourselves like and probably more so, the Board has created a set of rails that we're going to have to stay inside of. And if we get outside of that, we have to either delay projects or maybe even sell something in order to come up with the additional capital.

Okay. So is it fair to assume then that this will be the primary focus? I would think Bryant Street and the new joint venture would occupy most of your time once you've got the industrial space lined up. I don't think -- maybe you would, I guess, still pursue development opportunities in industrial, or is that going to be less of a focus?

Well, as you can -- one of the things we've always been pretty successful in our industrial program. As a matter of fact, it got us to pretty much to where we're now when we sold all those apartments and industrial projects in 2018, and it gave us the seed money to take off in this new direction. But we're still involved in industrial. As we said, we have -- right now, all of our buildings that we have up, and even one of them that's not up, is fully leased and will be occupied in the first quarter of 2023. We have three -- we do have three development projects in the queue for industrial. And the idea there is when we get them shovel ready, which is the same condition that we would be in these joint ventures, we take a look at the market, we take a look at our capital, and we decide either to go forward or maybe to stand down or even consider a partner. It's not necessarily the time. For example, some of these big warehouses, the 675,000 square feet and the 900,000 square feet, we certainly may consider bringing a partner on, or we may not. The capital is -- and maintaining the appropriate debt to equity is very important to our Board and to us. And so we're pretty careful about protecting that cash and cash equivalents that we have.

Okay. And then just really quick. The last one I have, I guess, is on Bryant Street. You're reaching a point where you may get stabilization soon; hopefully, very soon. And I'm curious what the timeline is for the next phase and how large that might be. I know you only developed a small portion of it.

Well, it's interesting. We have a ways to go before we feel good about going forward with the next phase. This is a transit-oriented program. And the transit-oriented side got destroyed by COVID and everyone is still tried to dig out. We want to make sure that the retail is up and fully operating. We still have it 71% leased and occupied, but we want to make sure that it stays that way and grows to 90%. We're at 80-some percent in the 3 residential buildings. So we're going in the right direction, but we still have a ways to go before we would really feel comfortable with moving on with either Phase 2 or 3. And as it relates to Phase 2, preliminary plans show approximately 200 apartments, which would be bolted on to the side of a property that we already -- that we don't have yet, but we have an open option to buy the remaining property that would make up the whole. So we don't have a gun to our head as to whenever we have to buy that property. In fact, the owner of that property is one of our partners. So we can pretty much decide at the appropriate time when Phase 2 would happen, but it's all a matter of what we believe is the right use for our capital and how much we spend.

Okay. And then -- this is the last question, I promise. Are you under any timelines being in Opportunity Zone where you have to get something additional completed? Or is that [indiscernible] requirement?

No. We're done with that. We're just -- we've got to pay taxes in '27 and we got to hold it till '29. That's really all we have to do.

[Operator Instructions] We'll take our next question from Bill Chen of Rhizome Partners.

Can you guys hear me?

Yes, sir.

I'm driving on the highway, so -- but my main question, I haven't had a chance to digest the press release, but my main question is, the cash on the balance sheet, I believe that's mostly in Treasuries right now. What's the breakdown of the maturity date on that? And as rates have gone up significantly since last time, are we able to take the mature amounts and reinvest that like 1/4 or 1/2 right now in the less than 12 months. Could you give me some color on that?

Bill, it's John Klopfenstein here. So we've got all the cash invested in Treasuries, as you said, the vast majority of it is in 6-month Treasuries, and we've got some that are coming mature every week or 2. So just this week, we've invested at 4.6% for 6 months. So that's our go-forward plan.

Got you. That's great to hear. I thought I read in the disclosure that you have some duration that goes out to as long as 2 years. Like is there like -- is there -- how much of it is like longer than 1 year?

We did do -- early on, we did USD48 million of 2-year Treasuries and those now are set to mature at the end of 2023. Everything else is 6-month Treasuries that's maturing on a biweekly basis, more or less.

And at this time, it appears we have no further questions in queue. I will now turn the floor back over to Mr. Baker for any additional or closing remarks.

Thank you, all, again, for joining us. I really do believe this is a historic moment in the development of our company, which will allow us to add more -- some really immense value by building projects in a slow, and well-timed basis in this great market for decades. And I'd like to comment about -- it sounds like we've got a lot of balls in the air. We're trying -- we have been very meticulous about laying out the timing of these projects, phasing them, whether it's industrial, whether it's mixed use. And we feel very good about our ability over a long period of time to do that without raising money or certainly without getting in trouble. We all know the world has a funny way of changing quickly, and we want to make sure that we have, a, the cash reserves to change with it if it does change, especially in a negative fashion. And you can be assured that while we are enamored by the fact that we can grow this company in an amazing way over a 10- to 15-year period, that's not what -- we're not going to get in a hurry that would ever put us in a financial bind. That's rule number one around here. So I appreciate you all's interest. I think we're all for a good ride, and I look forward to talking to you next quarter.

This concludes today's conference call. We thank you for your participation. You may disconnect at any time.