FRP - Earnings Call - Q3 2025

Executive Summary

• Q3 2025 results were mixed: total revenues rose 1.3% year over year to $10.78M, but net income fell 51% to $0.66M ($0.03 EPS) due to $1.28M of Altman Logistics acquisition-related expenses; adjusted net income increased 21% year over year to $1.64M, highlighting underlying strength.
• Pro rata NOI declined 16% to $9.52M on a tough comparison (prior-year $1.9M catch-up royalty); adjusted NOI ex the one-time payment improved modestly by $0.10M.
• Segment performance bifurcated: Mining royalties up 15% on higher tons and price, while Industrial/Commercial NOI fell 25% due to vacancies and new asset depreciation; Multifamily NOI decreased 3% on higher uncollectible revenue and opex at Maren.
• Strategic catalyst: the Altman Logistics platform acquisition adds experienced talent, increases ownership in Florida industrial projects to 100%, and positions FRPH to scale in supply-constrained markets with targeted mid-teens–20% project IRRs and fee/promote upside.

What Went Well and What Went Wrong

What Went Well

• Mining royalty revenues rose 15% year over year; royalty tons up 6.5% and revenue per ton up ~5%, driving higher operating profit before G&A (+$0.44M) despite the tough comp from a one-time payment last year.
• Improvement in equity losses from unconsolidated JVs (+$0.61M), with Bryant Street and BC Realty benefiting from higher revenues and lower variable-rate interest expense.
• Management framed 2025 as a “foundational year” with discipline on lease rates over occupancy: “A bad lease will be a headache for us for longer than the short-term pain of the vacancy”.
• Strategic expansion: “Through this acquisition, we now have the ability to do the same projects in-house or be the partner generating fees and equity… talent is going to be the only differentiator we can count on”.

What Went Wrong

• Industrial and Commercial NOI fell 25% on vacancies (eviction, expirations) and depreciation from the new Chelsea warehouse; occupancy was 48.6% including Chelsea (72.4% ex-Chelsea) versus 95.6% last year.
• Multifamily NOI down 3% quarter over quarter, primarily due to higher uncollectible revenue, increased operating costs, and property taxes at Maren; consolidated Multifamily operating profit before G&A fell $0.40M year over year.
• GAAP net income compressed 51% year over year due to $1.28M Altman acquisition expenses and higher operating expenses and property taxes; total operating profit declined $1.72M.

Transcript

Operator (participant)

Hey, everyone, and welcome to today's FRP Holdings Inc. 2025 3Q earnings 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. You may register to ask a question at any time by pressing Star one on your telephone keypad. Please note this call is being recorded. I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Matt McNulty, Chief Financial Officer of FRP. Please go ahead.

Matt McNulty (CFO)

Thank you. Good morning, and thank you for joining us on the call today. I am Matt McNulty, Chief Financial Officer of FRP Holdings Inc., and with me today are John Baker III, our CEO, John Baker II, our Chairman, David de Villiers III, our President and Chief Operating Officer, David de Villiers Jr., our Vice Chairman, John Milton, our Executive Vice President, Mark Levy, who will serve as our new Chief Investment Officer, and John Klopfenstein, our Chief Accounting Officer. Mark Levy came to us through our recent acquisition of Altman Logistics Properties, where he served as its President. First, let me run you through a brief disclosure regarding forward-looking statements and non-GAAP measures used by the company.

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. 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. The non-GAAP financial measures referenced in this call are net operating income, or NOI, and pro rata NOI. In this quarter, we provided an adjusted net income to adjust for the impact of one-time expenses of the Altman Logistics Properties acquisition, which is a material business combination, unlike our historical real estate acquisitions or joint ventures, where our expenses are capitalized.

We also provided adjusted net operating income to adjust for the impact of the one-time material royalty payment in the third quarter of 2024 to better depict the comparable results in both the quarter and year-to-date. Management believes these adjustments provide a more accurate comparison of our ongoing business operations and results over time due to the non-recurring material and unusual nature of these two specific items. FRP uses these non-GAAP financial measures to analyze its operations and to monitor, assess, and identify meaningful trends in our operating and financial performance. These measures are not and should not be viewed as a substitute for GAAP financial measures. To reconcile adjusted net income, net operating income, and adjusted net operating income to GAAP net income, please refer to our most recently filed 8-K. Now to the financial highlights from our third quarter results.

Net income for the third quarter decreased 51% to $700,000, or $0.03 per share, versus $1.4 million, or $0.07 per share, in the same period last year due largely to $1.3 million of expenses related to the Altman Logistics Properties acquisition, partially offset by higher mining royalties and improved results in equity and loss of joint ventures. Excluding the acquisition expenses this quarter, adjusted net income was up $281,000, or 21% over last year's third quarter. The company's pro rata share of NOI in the third quarter decreased 16% year-over-year to $9.5 million, primarily due to the one-time minimum royalty payment received in last year's third quarter. Excluding last year's one-time payment, adjusted NOI was up $104,000 in this quarter versus last year's third quarter. I will now turn the call over to our President and Chief Operating Officer, David de Villiers, III, for his report on operations. David.

David de Villiers III (President and COO)

Thank you, Matt, and good morning to those on the call. Allow me to provide additional insight into the third quarter results of the company. Starting with our commercial and industrial segment, this segment currently consists of 10 buildings totaling nearly 810,000 sq ft, which are mainly warehouses in the state of Maryland. Total revenues and NOI for the quarter totaled $1.2 million and $904,000, respectively, a decrease of 16% and 25% over the same period last year. The decrease was due to same-store occupancy reducing by 24%. For 132,000 sq ft and the addition of 258,000 sq ft of new development space. Generated by our Chelsea building in Harford County, Maryland, which was 100% vacant in the quarter. Combined, these vacancies total 51% of the business segment, and a focus to lease and increase occupancy is a priority.

Moving on to the results of our mining and royalty business segment, this division consists of 16 mining locations, predominantly located in Florida and Georgia, with one mine in Virginia. Total revenues and NOI for the quarter totaled $3.7 million and $3.8 million, respectively, an increase of 15% and a decrease of 26% over the same period last year. The decrease in NOI is the result of a non-recurring $1.9 million royalty payment in last year's third quarter. The disconnect between revenue and NOI is the result of GAAP accounting, with the revenues being straight-lined. As for our multifamily segment, this business segment consists of 1,827 apartments and over 125,000 sq ft of retail located in Washington, D.C., and Greenville, South Carolina. At quarter-end, 91% of the apartments were occupied, and 74% of the retail space was occupied.

Total revenues and NOI for the quarter were $14.6 million and $8.2 million, respectively. FRP's share of revenues and NOI for the quarter totaled $8.5 million and $8.2 million, respectively, a revenue increase of 2.9%, with NOI down 3.2% over the same period last year. The decrease in NOI was a result of higher operating costs, property taxes, and increased uncollectable revenue at Maren. The increase in revenue is the result of GAAP accounting, which again includes straight-line rents and uncollectable revenue that is due but which has not been paid. As stated in previous quarters, new deliveries in the D.C. market will continue to put pressure on vacancies, concessions, and revenue growth in the foreseeable future. We continue to have renewal success rates over 55%, with renewal rent increases averaging over 2.5%.

New lease trade-out rates are generally down to compete with new supply and strike a balance between revenue and occupancy. Management continues to be diligent in tenant retention and rental rates in the market. Now on to the development segment. In terms of our commercial industrial development pipeline, our two Central and South Florida industrial joint venture projects with Altman Logistics Properties, where FRP was a 90% and 80% owner, are under construction. Following our acquisition of Altman Logistics Properties, FRP now owns these assets 100%. The projects are in Lakeland and Broward County, Florida, totaling over 382,000 sq ft, and Shell completion is anticipated by summer 2026. Our Central Florida industrial joint venture with Strategic Real Estate Partners, where FRP is a 95% owner, is pending permits for two buildings totaling over 375,000 sq ft. The buildings are in Lake County, Florida, near Orlando, with options for investment in.

Additional industrial development on adjacent properties in the future. We expect to break ground in Q4 on both buildings, with shell building completion expected in Q4 2026. In Cecil County, Maryland, along the I-95 corridor, we are in the middle of pre-development activities on 170 acres of industrial land that will support a 900,000 sq ft distribution center. Off-site road improvements, reforestation codes, and obtaining off-site wetland mitigation permits delayed our entitlement process, and we expect permits in early 2026, with a focus on attracting a build-to-suit opportunity. Finally, we are in the initial permitting stage for our 55-acre tract in Harford County, Maryland. The intent is to obtain permits for four buildings totaling some 635,000 sq ft of industrial product. Existing land leases for the storage of trailers help to offset our carrying and entitlement costs until we are ready to build.

We submitted our initial development plan during the quarter, which puts us on track to have vertical construction permits in late 2026 and the potential to start a 212,000 sq ft building pending market conditions in 2027. Completion of these aforementioned industrial projects will add over 1.8 million sq ft of additional industrial commercial product to our platform. Our projects in Florida represent over 750,000 sq ft that will be available for lease up in 2026. When stabilized, these projects alone are expected to generate annual NOI around $9 million, with FRP's share of NOI just over $8 million. Subsequent to the quarter-end, the company acquired the business operations and development pipeline of Altman Logistics Properties LLC. As discussed earlier, this allowed FRP to own 100% of the Lakeland and Broward County, Florida, projects.

The acquisition also included a minority interest in three industrial buildings totaling 510,000 sq ft in New Jersey and Florida, which are currently in various stages of development and all delivering in 2026. FRP expects to have up to $8 million invested in the 510,000 sq ft, with expectations of receiving over a 2x multiple on invested capital when the buildings are sold. The acquisition includes future development opportunities with the potential to develop three additional buildings totaling 725,000 sq ft in Florida. Turning to our principal capital source strategy, or lending ventures. Aberdeen Overlook consists of 344 lots located on 110 acres in Aberdeen, Maryland. We have committed $31.1 million in funding. $27.5 million was drawn as of quarter-end, and over $24.7 million in preferred interest and principal payments were received to date.

A National Home Builder is under contract to purchase all the finished building lots by Q4 2027. 180 of the 344 lots were closed upon, and we expect to generate interest and profits of some $11.2 million, resulting in a 36% profit on funds drawn. In terms of our multifamily development pipeline, our joint venture with Woodfield Development, known as Woolden, is under construction. FRP is the majority owner, and the project represents our third multifamily project in Greenville, South Carolina. Total project costs are estimated at $87 million and consist of 214 units and 13,500 sq ft of ground floor retail that is eligible to receive both South Carolina textile rehabilitation credits upon substantial completion and special source credits equal to 50% of the real estate taxes for a period of 20 years. The project is expected to be ready for lease up in Q4 2027.

In addition to Woolden, our multifamily joint venture in Estero, Florida, located between Fort Myers and Naples, where FRP holds a 16% minority interest, is under construction with Woodfield as well. Total project costs are estimated at $142 million and consist of 296 units and 28,745 sq ft of retail. The project is expected to be ready for lease up in late 2027. These two multifamily projects are expected to boost FRP's NOI by over $4 million following stabilization in 2029. In closing, FRP will have over 1.6 million sq ft of industrial space available to lease over the next 12 months, making leasing conditions an important factor now and over the next 12-24 months. Currently, the broader backdrop remains mixed. Continued uncertainty around trade policy and macroeconomic direction has extended decision cycles for many occupiers, particularly for larger blocks of space.

Even so, on-the-ground activity in our target submarkets is improving. In Maryland, we are seeing increased tour velocity, especially among tenants in the 25,000 sq ft range. While demand for over 100,000 sq ft product remains selective, mid-bay activity continues to demonstrate meaningful resilience. Industrial fundamentals remain constructive. Rents are holding firm. New construction has declined below pre-pandemic levels, creating a healthier balance between supply and demand. We expect market vacancy to peak in the fourth quarter of 2025, with improving policy clarity supporting renewed tenant momentum. As we bring new product online in 2026, our pipeline is well-positioned to benefit from tightening fundamentals and continued strength in well-located Class A logistics assets. Across our core markets, we are seeing signs of stabilization and early recovery. New Jersey.

Vacancy held flat for the first time in 10 quarters, with mid-bay product remaining exceptionally tight and the development pipeline near cycle lows. South Florida is among the strongest markets nationally, with Broward County vacancy remaining around 5%, with rent growth near 5%. Palm Beach is absorbing near-term deliveries, supported by enduring land scarcity and tenant demand. In Central Florida, market strength continues to bifurcate between bulk and mid-bay product. Our focus on mid-bay positions us to outperform. In Baltimore, leasing accelerated in Q3, with roughly 2.9 million sq ft executed and vacancy tightening to 7.4%. Modern logistics and manufacturing users continue to drive activity, supported by disciplined new supply and durable rent levels. Bottom line, we are operating in supply-constrained, high-barrier markets where modern infill logistics space continues to command strong tenant interest.

With deliveries aligned to improving fundamentals, we are positioned to capitalize on the next phase of industrial demand. We are leaning into the strength across our core logistics markets, with roughly 400 sq ft of vacancy in Maryland and over 1.25 million sq ft of Class A product scheduled to deliver in New Jersey and Florida in 2026. The backdrop is constructive. Vacancies are stabilizing and trending lower, and rents remain firm to rising. These conditions reinforce our confidence in achieving efficient lease up across our portfolio and driving strong value realization. Thank you, and I will now turn the call over to Mark Levy, our new Chief Investment Officer, who we hired in concert with closing on the Altman Logistics portfolio in October. Mark.

Mark Levy (CIO)

Thank you, David. Good morning. I'm pleased to join you today.

As Matt mentioned, I came to FRP following the company's acquisition of Altman Logistics Properties. I served as president from the inception of the company in 2001 through closing. My career has been dedicated to institutional industrial investment and development across the Eastern United States, including senior leadership roles at Duke Realty, Prologis, and Hilco Redevelopment Partners, with a focus on large-scale capital deployment and strategic market expansion. Our team brings deep expertise across development, acquisitions, entitlements, and leasing, with a strong track record executing complex projects in high-barrier, supply-constrained logistics markets. Our strategy is centered on creating durable value and generating superior risk-adjusted returns through targeted investment in infill supply-constrained locations, off-market and creatively structured opportunities, value creation through entitlement, redevelopment, and adaptive reuse, and disciplined execution and delivery of Class A logistics facilities. Limited new supply in our target markets continues to support pricing power and rent growth.

Against this backdrop, our pipeline is positioned to outperform as demand normalizes and absorption improves. In the Northeast, one of the most competitive industrial regions in the country, our development pipeline includes Logistics Center at Parsippany, which is a 140,000 sq ft Class A redevelopment in Morris County, and Logistics Center at Hamilton, which is a 170,800 sq ft Class A redevelopment in Hamilton Township, New Jersey. Both projects convert obsolete office assets into modern industrial facilities, demonstrating our ability to reposition underutilized real estate in core submarkets. In Florida, supported by sustained population growth and strong logistics demand, our pipeline spans Central and South Florida. Logistics Center at Lakeland is a 201,000 sq ft facility along the I-4 corridor, equidistant from Tampa and Orlando, and Logistics Center at Del Rey is a three-building, just under 600,000 sq ft logistics campus in Delray Beach, Florida.

Finally, Logistics Center at 595 is a 182,773 sq ft distribution facility in Southern Broward County that was converted from a legacy hospitality use. This property is located immediately adjacent to Port Everglades and the Hollywood Fort Lauderdale International Airport. As mentioned, the Altman platform historically operated as a merchant development program, earning fees and promote economics alongside institutional partners. FRP expects to continue this model for projects not wholly owned by the company, with property-level IORs in the mid-teens to 20% prior to promote participation. In addition, FRP plans to retain full ownership of select assets, including Lakeland and Davey, positioning the company to capture long-term value through stabilized cash flow and NAV growth. Across the portfolio, our discipline is consistent: invest in locations with immediate transportation connectivity, deep labor pools, significant supply constraints, and dense population centers.

These fundamentals support resilient demand, attractive development yields, and durable long-term value creation. I look forward to working with the FRP leadership team to advance our development pipeline, deepen our market relationships, and scale our logistics platform in a disciplined, value-accretive manner. With that, I'll turn it back to John.

John Baker III (CEO)

Thank you, Mark, and good morning to those on the call. As Matt touched on, third-quarter results, though down, are actually better than they appear at first blush. GAAP net income is down 51% for the quarter and 37% for the year, but adjusted for one unusual item, namely the legal costs associated with the Altman acquisition, adjusted net income is up 21% for the quarter and down 5% for the year. Pro rata net operating income was down 16% for the quarter and 2% for the year.

Excluding the non-recurring catch-up payment and mining royalties in the third quarter of last year, adjusted NOI is up 1% for the quarter and 5% for the year. This is a very long way of saying that results are where we expected them to be, which is to say, more or less flat compared to last year. 2025 is identified by management as a foundational year for future growth, just not necessarily a growth year. In the short term, leasing and occupying our industrial and commercial vacancies at current market rates is the simplest and fastest way to improve earnings and NOI. Our buildings have real operating costs that are offset by tenant reimbursements, and that's a problem only new leases and tenants will solve.

What we don't want to do is be so focused on occupancy that it comes at the expense of leasing these spaces for less than the value they should command. A bad lease will be a headache for us for longer than the short-term pain of the vacancy. In terms of setting the company up for our next phase of growth, as David mentioned, we have three industrial projects in Florida totaling 763,000 sq ft in various stages of development, all of which will be substantially complete in 2026. We are working to entitle all of the projects in our in-house development pipeline in Maryland to be shovel ready in 2026.

This does not mean we are starting these projects in 2026, but we want to be fully prepared to move on them if someone approaches us about developing any of these parcels ahead of where they fall in our spec development queue. Finally, and most importantly, as we laid out in our call last week, the acquisition of Altman Logistics is essential to our growth strategy. Mark just described, through this acquisition, we are now the general partner in developing industrial assets in some of the best industrial markets in the world. Through promotes and sales, we will generate a not insignificant amount of cash, which we can use to do entirely in-house projects or JVs where we are a larger partner with family offices or institutional money, generate fees, or some of both.

We now have a team in place to be opportunistic and flexible with how and where we decide to proceed. I said this on the call last week announcing the deal. At the risk of repeating myself, the finances of the deal are attractive, but I think the most important component of this acquisition is the people. Opening a new office and building a separate team would have been a full-time job and a risky one. If you're ever curious about what that's like, feel free to call Mark. Any expansion into these industrial markets outside of our traditional Baltimore sandbox would have to be done via joint ventures, which, while effective, is an expensive way to expand because of the development fees and the equity you give up on a successful project. Through this acquisition, we now have the ability to do.

The same projects in-house or be the partner generating fees and equity if we so choose. It simultaneously solves the problem of additional hires we would have had to make anyway with people plugged into the markets where we want to be. As I said last week, talent is going to be the only differentiator we can count on to deliver value to our investors. Through this acquisition, we have taken on a team with a proven track record that can identify growth markets, leverage contacts for off-market deals, control construction costs, and get a building occupied and stabilized quickly with quality tenants. Combining this team with the additional profits earned from these joint ventures on top of our own projects will be what drives this company's next decade of growth. I'll now turn the call over to any questions that you might have.

Operator (participant)

At this time, if you would like to ask a question, please press Star one on your telephone keypad. You may remove yourself from the queue at any time by pressing Star two. Once again, that is Star one to ask a question. We will pause for a moment to allow questions to queue. And once more, that is Star one if you'd like to ask a question. We do have a question. We'll go to the line of Ted Goins with Salem. Your line is open. Please go ahead.

Ted Goin (Analyst)

Thank you very much. Guys, thank y'all so much for all the discussion this morning and especially for all the energy that you're putting into this endeavor. I would love to talk about the difficult part of the business right now. Sorry for this. The Matt Stadium opened in 2008. It just seems to be a problem.

You speak of the recovery issues around the Maren. I think maybe this is the same thing the Wall Street Journal was talking about in an article a week or two ago with Atlanta as the highlight. Could you put some color on what y'all are seeing in that area and the impediments to development and your thoughts around when that might develop again? I recollect that, excuse me, the transaction with Vulcan was coming up in 2026, which seems a lot closer today than it was a few years ago. If you could speak to that as well.

John Baker III (CEO)

Sure. I will start in terms of the district market conditions. You have heard us talk about this before, but during the pandemic, a lot of, I would say, tenant protective laws were put in place where tenants were not allowed to be evicted.

You were not allowed to raise any rents. That really materialized into an environment where tenants just stopped paying their landlords. We really had no way of getting them out of our buildings. There were also laws passed where we really could not vet tenants, so we could not do our due diligence where tenants paid or not paid historically. If they did not pay, we could not get them out. Our delinquency rate was extremely high, not only ours but across the market. In Class A buildings, we were seeing 10%-12% of the tenants not paying. You might have been 95%-90% occupied, but that building was really only 80% because so many of your tenants were not paying. We are seeing that now subside. The district.

Has truly embraced the fact that this is an issue, and new laws continue to be passed to help landlords deal with tenants and protect rent-paying tenants as well. I think from a legal eviction, tenant-landlord relation side, things are changing and evolving. I think crime and security have been a focus as well down in the district, which also is helping to support more people coming out, more people using our ground floor retail. There are signs that things are changing. There were a number of buildings that were delivered around our buildings. Large projects. These projects are over 500 or 1,000 units being delivered. There is velocity there. They are leasing them. They may not be at the rates that everyone likes, and there are definitely concessions in the market to get these new supply deliveries filled and stabilized. The velocity is there, the demand's there.

I think we just need to strike a better balance between supply and demand, which we believe is coming. We need to get more of these, I would say, equal tenant-landlord laws in place. We need to make sure that people feel safe and want to be out in the environment in the district. All those things we have seen. We have seen change. We are moving away from the bottom. When it flips to a point where we feel development will pencil is when we start seeing gains at our existing multifamily buildings. We're starting to see it. We're starting to see renewal rents move up. Trade-offs, as I mentioned, are still pretty flat negative because it's tough to attract tenants into our buildings when new deliveries are giving concessions. It is turning. I feel that we are off the bottom of multifamily.

Let's see what the next couple of quarters say. In terms of the Vulcan lease, we are talking with them. We're in active communications with them, and we look forward to keeping them there. They're a great tenant. They provide concrete to our projects. Until we're ready to develop that site, we'd love to have them there.

Ted Goin (Analyst)

How does the development of RFK move things along for you, or is that just too far down the river?

John Baker III (CEO)

In my mind, it's too far down the river, but it's great to see government investment. I do think it's a little too far down, but it's always great to have that type of activity in and around where you are.

Ted Goin (Analyst)

Part of the notion a few years back was that Amazon was going to move forward in Pentagon City or wherever it is right near there.

That would offer a reverse commute to folks in the district near you. How is that developing?

John Baker III (CEO)

I would say this. We have not seen any real impact from that development.

Ted Goin (Analyst)

Okay. Could you speak to Bryant Street? It seems to be getting a little bit of momentum, and what y'all might be doing there that is showing some green shoots.

John Baker III (CEO)

At Bryant Street, again, we are dealing with some delinquency there. It is stable, and we have seen some small gains. We have seen gains in our rental rates, which is great. I think the biggest green shoot that we have seen is that our retail component, which is fairly large at Bryant Street, the tenants are in, they are occupying, they are paying, and we see kind of the light at the end of the tunnel. Bryant Street is more or less stabilized now.

With treasuries where they are, I think we will be in a place to get some good financing at some point, maybe not now, but potentially in the first half of 2026, and we would be able to lower our debt service to a point where our earnings are relevant. Bryant Street is a big project. The development of that area really got slowed down because of the pandemic. We're moving away from that. We're seeing rent growth. We're seeing our occupancy tick up. We're seeing delinquencies and concessions burn down. We're in a good, good place. We're more stable there than ever. I think that bodes well with getting the capital stack of equity and debt in a good place and start seeing some meaningful cash flow on the horizon.

Ted Goin (Analyst)

Again, I just want to say thanks for all your efforts.

Efforts, the intentionality that you guys are putting forth are evident to all of us. Thank you for that. Have a great afternoon.

Thanks, Ted.

Operator (participant)

As a reminder, it is Star one if you'd like to ask a question. It appears we have no further questions at this time. I will now turn the program back over to our presenters for any additional or closing remarks.

David de Villiers III (President and COO)

We appreciate your continued interest and investment in the company, and this concludes the call. Thank you.

Operator (participant)

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