Good day, everyone, and welcome to today's 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 this call may be recorded and it is now my pleasure to turn the call over to John Baker. Please go ahead.

Good morning. I'm John Baker III, the Chief Financial Officer and Treasurer of FRP Holdings. And with me today are David deVilliers, Jr., our President; 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 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 laws as a result of future events or new information. To supplement the financial results presented in accordance with the 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 measures referenced in this call is net operating income or NOI. FRP uses this non-GAAP financial measure to analyze its operations and/or 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 GAAP to net income, please refer to the segment titled non-GAAP financial measures on page 13 of our most recent earnings release. Now for financial highlights from the fourth quarter. Net income for the fourth quarter of 2022 was $2,756,000 or $0.29 per share versus a net loss of $592,000 or $0.06 per share in the same period last year. Net income for the fourth quarter compared to the previous year was impacted by $653,000 decrease in amortization expense, a $678,000 decrease in operational expense, $1.4 million increase in net…

Thank you, John, and good day to those on the call this morning. Today, I'd like to offer a bit of a slant on our financial results for this past quarter. So, our business segments are important silos in which to report and analyze the company. Operationally, we have some overlap and synergies that can be difficult to follow using the reportable business segments that John referenced in his opening remarks. So, allow me to shine a light on the day to day at FRP using a more operational perspective versus GAAP. Basically, we employ a four-pronged approach to our business since 2018 when we liquidated our legacy warehouse portfolio. In-house, which includes our industrial, commercial and land development platform, these properties are developed, managed and owned 100% by FRP. Then we have the mining and royalties. We have third-party joint ventures, which as the name implies, are projects developed in conjunction with third parties, where FRP is the major owner, but relies on third-party platforms to perform the lion's share of the entitlements, construction and the day to day operations. And fourth, lending ventures where we are the principal capital source for residential land development activities and sales. Relative to our in-house industrial platform, or Asset Management, increased occupancies and rental rates combined to produce a substantial increase in net operating income for these operations from a negative $268,000 in Q4 of 2021 to a positive of $902,000 for Q4 2022. Cranberry Run Business Park in Aberdeen, Maryland became fully occupied in the first quarter of 2022 and remains 100% occupied. The two spec buildings at Hollander Business Park, totaling some 145,000 square feet, completed in late December of 2021, along with our final warehouse of Hollander Business Park totaling 101,750 square feet, should all become fully occupied in…

Thank you, David. Not to put too fine a point on it, but 2022 was a big, big year for the company. Financially, in 2022, we saw meaningful increases across all operating segments, with every segment having its biggest year for revenue, operating profit and NOI since the asset sale in 2018. Operationally, in 2022, all of our Asset Management properties are fully leased. We finished construction and began lease up on the Verge and .408 Jackson. We secured permanent financing for Riverside. And we purchased a new Mining Royalty property, which is now our biggest royalty producer. Strategically, with our new partnership with Steuart and MRP, we have the ability to build something really, really special in one of the great cities of the world, 3 million square feet, 3,000 units, 150,000 square feet of retail, and all of that encompassing the south entrance of the nation's capital, that's a really amazing opportunity. And most importantly, we're now on track to diligently and deliberately put all of our cash and cash equivalents to work. The next 10 to 15 years are going to transform this company, but it all started in 2022. Now, at this point, we're happy to open up the call for any questions that any of you might have.

[Operator Instructions]. And our first question comes from Emerito Quintana from Numantia.

It's Emerito again from Spain. I am interested on the sale of your interest of the Maren and Dock 79 because, if I am correct, there was two mortgages of $190 million on both buildings. So, your net interest, I think it's more like $100 million, if I'm correct. So, the 20% is $20 million net of mortgages.

That's pretty close.

Pretty close. Okay. $44 million [ph], but $20 million net of mortgages.

Through FRP. Yeah.

And another question. What's the growth of the price per tonne of aggregates without the new acquisition?

If you removed the new acquisition from aggregate royalties, we still would have had a bigger year than last year. But it would have been like maybe 3%. And I'm just doing this off the top of my head from my recollection of looking at it, but it would have been more – not 16% more, like it was, but you still saw volume and some price growth even without the new acquisition.

And our next question comes from Bill Chen from Rhizome Partners.

As I do the math for the cash that you have right now and I sat down and did a NAV calculation, a private market valuation for the company, and I know you guys said previously, when you buy back shares, you want to be stealing it, and this has to do with the fact that the aggregate business is such a good business and all these projects are working that they're leasing up, they're stabilizing, they're performing well. I'm kind of getting to a NAV that's in the high double digits, low triple digits and at where you trade at today if you were to buy back shares. I mean, that's my definition of stealing it, stealing shares. And also, I voiced this in the past in our conversations, I mean, I would just love to own more of the aggregate business in the waterfront. And then to the extent that we do buy back shares, to own more of this incredible aggregate business, which is nothing that I've seen anywhere in any of my other investments, I'm just saying from someone who owns a good chunk of – this is a meaningful position in my portfolio, I'm comfortable owning more of the aggregate business and the waterfront in DC and your Greenville projects, just letting you guys know that from one long-term shareholders perspective, I have no problem if we wind up – if every shareholder winds up owning more and more of the aggregate business. And I'll touch back offline, I'll share with some of the – how I come to my NAV analysis, what I think of private market valuation and why I think in the mid-50s, with a private market value of almost 100, why I think that's essentially the definition of stealing it when we buy back shares. And also, this observation also comes at just the cash balance is so high right now, and I've done a fairly exhaustive analysis on where the cash needs are and also what some of the stabilized assets will start to generate in terms of cash flow. So, take all that into consideration, I know this was long and winded, but this is something that I've been thinking about a lot and I've been paying a lot of attention to. And then, in terms of questions, I'm a little bit surprised, positive surprised by the fact that the Aberdeen station that there's – is there a contract? Or is that just a verbal agreement to buy those lots because given everything that we've been airing, I'm a little bit surprised that there is a buyer for all those lots rather than partial takedowns of those lots. Could you provide a little bit more detail there?

Bill, Dave deVilliers. Yeah, there's a contract to sale with a national homebuilder. They have supplied the $3.2 million non-refundable deposit. They're going to buy the lots down over a period of time, and there's a stipulated amount to each quarter. And of the 344 lots, there's about four or maybe even as many as five different types or price points. So even though it's a lot a lots, they're kind of broken down into five different types. So that'll enable them to draw down quicker. But this whole program is fully under contract, and so we're off to the races. I know that, as you say. homebuilding throughout the country is not the greatest and we certainly are watching it closely. But the interesting thing here is that the supply is virtually non-existent where we are. And so, the curve is in such great shape as it relates to demand over supply, that certainly does help us in this regard.

Has the company actually advanced any of the funding for this project yet? I don't think I saw any draw on the capital.

Yes, we have, after the quarter. The idea was the – some of it had had been advanced before the end of the year, about $1.5 million. We went through all of the entitlements – our borrower went through all of the entitlements, received record plat, which was a condition precedent to buying the raw land, which was done in early January.

On the warehouse project that may go – may start construction in Q2, I guess at this point, if we were going to build it, that would be a spec build, like what would give you the go or no-go on that project? I know the rents and the occupancies are fairly attractive right now. But I'd just like to understand what would be the decision to decide go or no-go on that project?

Well, first of all, we're not quite at the finish line with our entitlements and the county is going through a different sorts of protocols as to what the near future holds. So, some considerations there. But what we look for as we do a market study, the vacancies are very low right now. The rents have not moved down at all. Actually, they're flat and they actually ticked up a little bit for this type of a building. And actually, some of our construction costs for the first time – and I can't remember how long, some of those costs actually went down when we first bid the job out in October, some of the prices have down right after the first of the year. So we're going to look at it like we always do and decide whether we want to go forward with it in the second quarter or not. We don't want to wait too long because of the weather here. We don't want to be building this thing over the winter. So we'll see over the next 60 days as to the direction we want to take.

One last question. You mentioned that there's a trailer storage on that 600 square foot site. And industrial outdoor storage has kind of become a thing. It's always a thing, but I've become aware of it in the last year or two. Is there an opportunity given that we're sitting on 20,000 acres of land in Georgia and Florida on those pits to kind of set aside some of these parcels for industrial outdoor storage. Because there are sites where it is – large parcels of land for parking of trucks and service vehicles have become harder to come by. Is that an opportunity that the company is thinking about? Is there demand for them in those markets, in those 12 or 13 sites down in Georgia and Florida? And even in Manassas, right, is there some potential there?

Probably not on the mining sites, Bill, just because that kind of falls under the purview of our operating tenants, and I don't think they'd want a bunch of trailers and building equipment interfering with their ability to mine or get around the site.

Is there any sites where their mining is so far away? Because some of these sites are so big, like I understand it, if it's a 90 or 100 acre site, but some of these sites are 1,000 to 2,000 acres, and like, is there some opportunity where we could go to them and maybe it's like a revenue split or something where we're very far away from where they're actually actively mining? Or is that just too much of a headache for them?

They might consider it too much headache. Obviously, I never heard this asked and I think that's a really interesting suggestion. You probably only have the potential for it in sites closer to cities. In rural Florida, that might not be very robust business, but potentially outside of Atlanta, we'd have to just dig in and see what each site could support and then gauge our tenants' appetite for that kind of deal. And they probably wouldn't be gung-ho about it unless there was something in it for them. But 15% of something is better than 100% of nothing. So I think that's a really interesting suggestion.

One last question, if I may. The hurricane that went through Fort Myer, I think last time we talked, and that will likely lead to more mining out of the Fort Myers side, which means the lake will be – I guess, the lots will be ready, I guess, a little sooner than before. Are we still on, like, 2026, 2027 kind of timeline for those sites to be ready, for that phase one to be completed, and then those lots potentially being ready for sale.

That's when we expect them to be done mining with that phase. I don't really can say that the lots are going to be 100% ready by then. Vulcan is on pace to be done with that phase of the quarry. Even without the hurricane, they were mining that section of the quarry as fast as humanly possible. I think they want to be done with that side of that mine prior to construction on the Alico Road extension, which is connecting one part of Fort Myers to another and it's a huge priority for the county, and they don't want to have to be hauling rock across a road construction site if they don't have to. So, I think demand in that area was fairly robust even prior to the hurricane and obviously trying to get done before the road extension. They were going to rip through that as quick as they could. I think maybe the increased demand isn't going to move them along any faster, but it probably will affect price.

Our next question comes from Steven Thrill [ph] from Oppenheimer + Close.

I just have a few quick questions. You talked about occupancy rates at Bryant Street. Can you talk a little bit on how you juggle the rental rates versus getting heads in the apartments there?

Well, we operate through, obviously, our property manager's software programs, and those units are individually priced literally every day. So, pricing contains effectively in a 24 hour period. And that's kind of what we do. The idea – obviously, to your comment about heads in beds, when you first start out, also there's a lot of factors that go into it. One is the time of year, when we've opened up. For example, we opened up Verge in late November, couldn't ask for a worst time to open up just by virtue of the weather and that sort of thing. And so, that we were starting to put some discounts on the face rate for those. They're starting to come in to the building. We're starting to see some warm weather, the cherry blossoms are supposed to come out. And so, the rents are going to start running up and actually have started to run up a little bit. But it's a game that you play literally on a daily basis through a Yardi program.

And you talked about the seasonality there. So, Dock 79, the renewal rates were quite a bit lower than the Maren. Do you think that's something that will pick up as it gets warmer?

And when you say renewal rates, you mean that the numbers or the dollars?

The percentage. The renewal rates was 42% of expiring leases versus 62%.

Right. It just depends on the timing of what leases expire. We did have several people come in that are actually – were not going to other apartments. They're leaving DC or looking to buy a house or different reasons. We weren't losing them to the competition. And it's pretty cyclical. We usually try to run about 50% to 55% on a success rate in order to try to maximize the profitability of the units.

Steven, I think one factor that may explain to the discrepancy between Maren and Dock renewal rates is you think about when each building came online. Dock got the full force of rental freezes on renewals, whereas the Maren had been open for a year, maybe a year-and-a-half into COVID before renewables started becoming an issue. So I think part of it could be explained by Dock 79 tenants didn't have to worry about rent renewals, rent increases on renewals for a much longer period of time than any one at the Maren. And so, the Maren was probably a little bit closer to market. And I think there's some sticker shock for tenants as rents are market as opposed to frozen.

One last piece of that, too, is depending on which ones come up for renewal, if there are the affordable housing units, the people that are living there, in some cases, their income gets too high and they don't qualify for the affordable units and they've going to go. So that can play into a part as well.

And at the Verge, you mentioned offering some discounts, but rents are picking up. Where are they now kind of versus Dock 79 and also just in the Maren and then also just versus what your expectations are?

Well, let's see. First of all, The Maren is probably one of the more expensive units that we have, and then followed by Dock. Verge is running about right now probably about 10% less. The neighborhood is still under development more so than Dock and Maren. But we're pretty optimistic about where things are going, especially when the spring hits. But it's still a little bit too early to tell, considering the amount of people that we've got leased up and occupied. That'd be a better question to ask during the spring, we'll have a much better indication of where things are.

And when do you anticipate financing – permanent or temporary financing on the Verge? And what would that look like? And I have the same question with Bryant Street?

Well, obviously, we'd like to go to permanent financing as quickly as we can because permanent financing is usually running about 150 basis points less than the floating construction loans. So, we're going to be going through that on Bryant Street, hopefully, when we get to be – to get a little bit further into the spring. The retail function has been curtailed by – as I said in my opening remarks, the DC government has been very, very, very difficult to work with as it relates to getting the tenant improvement permits, almost to the point where we're wondering whether they even want to have tenants in Washington, DC, but we're getting through it. And the supply chain issues with those type of specialty things that go into restaurants and tenant improvements have been tough as well. So, we'd like to get into Bryant probably sometime third quarter maybe. Verge, we've got 344 units. It's going to be a while before we get that placed to a point where it would be stabilized. So it's probably going to be running under that construction loan, at least through probably most of this year.

And last question on the residential side, the partners in South Carolina, what are they seeing in terms of the demand down there? And is there any additional opportunities that they've been coming across?

We've been looking at some. I think I mentioned that we've actually – I was there last week with them. We've got a couple of – our eyes on some things. We are, as I said, excited about that part of the country. As you can see from the two projects that we have, we leased – we're about 44%, 45% leased at .408 Jackson that we just opened up in December. The concessions have been virtually non-existent in both of those projects down there. So we're certainly bullish on the area and have our eyes open.

And last question. Bill kind of talked about the cash flows. Do you have a ballpark on the dollar value you're going to spend on development activities in 2023 between warehouses and the Steuart deal?

Well, I'll take a run at that first. It's John. I don't have my numbers here in front of me. But, obviously, one of the – nothing has to be done. We don't want to do anything just for the sake of doing it. For example, the warehouse that we have on the plan table, the 260,000 square foot warehouse, if we don't like the looks of the market, or for some reason something comes bump in the night and we don't feel like it's the right time, then we'll pass and just push it off. That's anywhere from $10 million to $17 million over the next 12 months. We also have phase one of the Steuart-MRP-FRP investment that will maybe shovel ready in the fourth quarter of this year. But based on interest rates and the construction costs, we don't know that that's going to be a viable project, at least in our minds, and that can slide as well. So it really depends on the market. We don't have to be building something just for the sake of building it. We've got plenty to do without it. So it all kind of depends on the economic winds over the next 6 to 12 months.

And with the Steuart partnership, you mentioned that, if the environment is not supportive, you can kind of delay that. There was a provision for building every four years. Is that something that's flexible?

Yes, very much.

You need to do due diligence every four years or break ground.

Well, when you get these permits or get these approvals, they're only good for a certain period of time. So it's kind of a push-pull. We had to use something kind of as a framework for which to create this program. It's so massive. Actually, so exciting. And we're all in this together. So Steuart is going to stay in as a partner, just like MRP and FRP. And nobody wants to go into a project unless they feel really good about it upfront. So kind of up to us, the partners, to determine when and if we want to start on that one.

And how that affects additional developments? Wouldn't that push back the second building or development?

Second building, I don't understand. What do you mean second building?

If we were going to Steuart phase two, does delaying for a year or so delay the timeline of everything?

Pushes everything back. Everything is fungible. There's no exact science to this. We will tie one project in with the next, if there's some overriding reason to do more than one at the same time, which I don't know what that is, but we're very flexible as to how and when we do this.

And our next question is a follow-up from Emerito Quintana from Numantia.

I was just wondering if you plan to make an Investor Day this year or maybe next year? And I'm also interested on Bill's question about your thoughts on fair value per share maybe because I'm also getting near $100 special on a very detailed sum of the parts.

Emerito, we are planning on doing an Investor Day and kind of details of that will come out in the next couple of months, but that was an opportunity that we really, really enjoyed. And I don't know if we're yet the size of a company that demands one every year, but I think every two years is about right for now. And that was a really special event and so much fun to present the properties firsthand to investors. And I don't think that's something we should pass up. So, short answer to your question, yes, we are planning on doing an investor day. We'll get the details out to y'all soon. And on your NAV analysis, very, very fortunate that our investors have the same faith in our assets that we do. We don't have a concerted share buyback plan right now. Obviously, we love the assets that we have. But whether it's a dividend or share buybacks, there's a plan for all this money, at least for now. And it's our belief, because we're a growing company, that the cash and cash equivalents that we have are best put to use in the form of new investments or as a capital cushion to protect the investments that we already have. We're going to continue to monitor it the same way y'all are. And if we come to the same conclusion that it's trading at such a steep discount that we can afford to bypass it, we might nibble here and there, but it's not going to be a steady, concerted plan to buy back shares.

It does appear that there are no further questions over the line at this time.

All right. Well, thank you guys so much for your interest in the company. We're going to get back to work to grow shareholder value.

This does conclude today's program. Thank you for your participation. You may disconnect at any time.