FRP - Q4 2023
March 7, 2024
Transcript
Operator (participant)
Good day, everyone, and welcome to today's FRP Holdings Incorporated fourth-quarter 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. You may register to ask a question at any time by pressing the star and one on your telephone keypad. You may withdraw yourself from the queue by pressing star and two. 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 Chief Financial Officer John Baker III.
John Baker III (CFO)
Thank you, Madison. Good morning. I am John Baker III, Chief Financial Officer and Treasurer of FRP Holdings. With me today are David deVilliers, Jr., our President and Vice Chairman, 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 law as a result of future events or new information.
To supplement the financial results presented in accordance with GAAP, FRP presents certain non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. The non-GAAP financial measure referenced in this call is net operating income, or NOI. FRP uses this non-GAAP financial measure to analyze its operations and to monitor, assess, and identify meaningful trends in its operating financial performance. This measure is not and should not be viewed as a substitute for GAAP financial measures. To reconcile NOI to GAAP net income, please refer to the segment titled "Non-GAAP Financial Measures" on pages 12 and 13 of our most recent earnings release.
Any reference to cap rates, asset values, per-share values, or the analysis of the estimated value of our assets net of debt and liabilities are for illustrative purposes only as a reflection of how management views its various assets for purposes of informing management decisions and do not necessarily reflect the price that would be obtained upon a sale of the asset or the associated costs or tax liability. Now for our financial highlights from the Q4. Net income for the Q4 was $2.88 million or $0.30 per share versus $2.76 million or $0.29 per share in the same period last year. Net income for the Q4 of 2023 when compared to the previous year was impacted negatively by an increase of $879,000 in equity and loss of joint ventures, as well as an increase in interest expense of $188,000 due to less capitalized interest.
Net income was positively impacted by an increase in interest income of $423,000 from increased interest earned on cash equivalents as well as improved revenues from our industrial and commercial segment. Q4 pro rata NOI for all segments was $7.55 million versus $6.26 million in the same period last year for an increase of 20.6%. Net income for 2023 was $5.3 million or $0.56 per share versus $4.57 million or $0.48 per share in the same period last year. Fiscal year 2023 was positively impacted by an increase in revenues and profits in all four segments compared to 2022 and an increase in interest income of $5.42 million from cash and cash equivalents as well as our lending ventures compared to last year. These were offset by an increase of $6.22 million in equity in losses of joint ventures compared to the same period last year.
As we lease up The Verge and 408 Jackson, as well as an increase in management company indirect expense of $553,000 and an increase in interest expense of $1.2 million. 2022 was also positively impacted by $874,000 in gain from property sales, which we did not repeat in 2023. Revenue, operating profit, pro rata NOI, and net income all experienced strong growth. Pardon me. I skipped a page. No, I didn't. I apologize. Revenue, operating profit, pro rata NOI, and net income all experienced strong growth this quarter and for the year to date. Compared to the Q4 of 2022, we grew revenues by 2.6%, operating profit by 17.2%, pro rata NOI by 20.6%, and net income by 7.8%. For fiscal year 2023 compared to last year, these metrics grew by 10.7%, 46.3%, 24.8%, and 16.1% respectively.
Yesterday, we posted to our website a brief slideshow of financial highlights for the Q4 and fiscal year. For those who have not seen it, we are now publishing an estimated value of our assets net of debt and liabilities. Our analysis yielded a per-share value in the range of $69.14-77.58. I will now turn the call over to David for his report. David?
David deVilliers Jr. (President and Vice Chairman)
Thank you, John. And good day to those on the call. Allow me to provide some operational highlights on the Q4 results of the company. First of all, a little housekeeping. We've renamed two of our business segments to better describe the assets in them. Asset management has now become industrial-commercial, and stabilized joint ventures has become multifamily. So relative to our industrial-commercial business segment, we currently maintain nine buildings in-house making up nearly 550,000 sq ft, which are predominantly warehouses. At year-end, we enjoyed 95.6% occupancy throughout this part of the portfolio. Full occupancy at our three industrial buildings at Hollander Business Park in Baltimore, Maryland, as well as rent growth on renewals at Cranberry Run Business Park in Harford County, Maryland, have helped lift the NOI to $1.17 million for the quarter, a 46.1% increase over the same period last year.
For the year, our $3.9 million in NOI for this segment represents an increase of $1.23 million or 46.2% over 2022. Moving on to the results of our mining and royalty business segment, this business segment saw total revenues for the quarter of $2.9 million, nearly flat versus $2.9 million in the same period last year. NOI in this segment was down $169,000 over the same period last year. However, NOI for the year was $11,720,199 versus $10,152,539 in 2022, an increase of 15.4%. In the multifamily segment, Dock 79 and Maren with its 569 apartments had average occupancies of 96.4% and 94.7% respectively for Q4 with all retail fully leased. Both projects enjoyed renewal success rates of 70% and 61% respectively for the quarter, with Dock seeing a 1.6% rental rate increase on renewals and Maren a 2.75% increase.
Average occupancies for all of 2023 for Dock and Maren were 95.6% and 94.36% respectively. Riverside in Greenville, South Carolina, with its 200 apartments, was 94.5% occupied at quarter-end with 53% of its tenants renewing and an average increase in their rental rate of 2.04%. Average occupancy for Q4 was 95.21% and year-to-date 94.51%. The company's share of 2023 pro rata NOI for this business segment was $8.1 million, including an $800,000 in pro rata NOI from Riverside. Although we saw rent growth in all three properties, higher collection balances and operating expenses caused NOIs to flatten year-over-year when you factor in the change in equity due to the tenant and common sale to the Stewart family at Dock and Maren at the end of 2022. In the development segment, we engaged in several strategies in this segment which we used to grow the business.
These strategies included our industrial and commercial, multifamily, and principal capital source lending. These strategies have grown the portfolio from one apartment project in four commercial buildings since liquidating our legacy warehouse portfolio in mid-2018 to over 750,000 sq ft of commercial industrial product, 1,827 multifamily units, and several land parcels capable of additional growth. Our industrial-commercial strategy consists of ground-up development from properties that are acquired, developed, managed, and in most cases, owned 100% by FRP and transferred from development to the industrial and commercial business segment when the shell buildings are complete. We currently have three projects in our industrial pipeline in various stages of development. During the Q2, we broke ground on a 259,000 sq ft state-of-the-art Class A warehouse building on our 17-acre site in the Perryman Industrial section of Harford County, Maryland.
This spec building is expected to deliver at the end of this year. In Northeast Maryland, along the I-95 corridor, we're in the middle of pre-development activities on our 178 acres of industrial land that will ultimately support a 900,000 sq ft distribution center or smaller multiple buildings depending on the market at the time. Depending on favorable market conditions, we will be in a position to break ground on this project as early as Q1 of 2025. Finally, we are studying multiple conceptual designs for our 55 acres in Harford County, Maryland, adjacent to our existing Cranberry Run Business Park. Various configurations should yield from 600,000-700,000 sq ft dependent on final design parameters and market demands. Existing land leases for the storage of trailers off-site are carrying an entitlement cost on this property until we're ready to build, which could be as early as 2025.
Completion of these three industrial development projects will add over 1.8 million sq ft of additional warehouse projects to our industrial platform that, upon completion, will result in our industrial-commercial business segment consisting of over 2.35 million sq ft. Subsequent to year-end, we finalized our first-ever industrial joint venture with BBX Capital for the development of 215,000 sq ft warehouse on I-4 Highway between Tampa and Orlando, Florida. Assuming favorable market conditions, we hope to begin construction here in Q4 this year. Also included in this strategy is a joint venture project which is a 50/50 partnership with St. John Properties called Windlass Run, which is part of a mixed-use development in White Marsh, Maryland that includes 3,300 residential units and over 3.5 million sq ft of commercial space. Our project currently includes 100,000 sq ft of single-story office and retail in four buildings.
At year-end, Windlass was 87% leased and 78.3% occupied in the office product and 38.2% leased and 22.9% occupied on the retail side. Our second development strategy is multifamily, where apartment projects are developed in conjunction with third parties. Our FRP is typically the majority owner, and we share acquisition, development, and asset management tasks with outside local market leaders who facilitate day-to-day operations. These properties are housed in the development section until they're completed and have maintained a 90% occupancy level for a period of 90 days before being moved to the multifamily business segment. Currently, this strategy houses Bryant Street and Verge in Washington, D.C., and 408 Jackson in Greenville, South Carolina. Bryant Street, consisting of 487 apartments and 91,000 sq ft of retail in three different buildings, was 93.8% occupied, and its retail components were 96.6% leased and 82.7% occupied at quarter-end.
Overall, the apartments at Bryant Street average a renewal success rate of 65% and rental rate increases of 3.8% as of quarter-end. This project will be transferred out of this strategy in development to the multifamily business segment the end of this quarter. Our newest project in the district, Verge, received its final certificate of occupancy in the Q1 of 2023 and is 90.7% leased and 85.8% occupied, with 45% of its 8,400 sq ft of retail spoken for at the end of the year. Lease-up of this property has gone well, and average occupancy for the quarter at Verge was 78.97%. 408 Jackson, our second mixed-use project in Greenville, is located downtown and shares a street plaza with Fluor Field, home of the Greenville Drive, an affiliate of the Boston Red Sox.
408 Jackson was placed in service during the Q4 of 2022 and, as of quarter-end, was 95.2% leased and 93.4% occupied. Like Bryant Street, this project will be transferred to the multifamily business segment at the end of this quarter. Average occupancy for the quarter was 90.37%. Its 4,300 sq ft of retail is fully leased and is targeting an opening date sometime this summer. We're in the home stretch of lease-up for all three of these aforementioned joint venture properties. When they reach stabilization and are transferred to multifamily, that business segment will have 1,827 apartments and 126,000 sq ft of retail. Unlike a warehouse in the development segment, our multifamily assets are already in operation.
So if you refer to the development segment NOI on page 13 of our press release, you will note that these assets generated over $5.46 million in NOI in 2023 versus $2 million last year, inclusive of an aggregate loss in NOI of $611,000 at 408 and Verge. Still another strategy within development is our principal capital source program. It's a program where, among other lending strategies, we provide working capital towards the entitlement and horizontal development of residential land, which is pre-sold prior to the commencement of any infrastructure improvements and ultimately transferred to national home builders. This strategy includes a charged 10% interest rate and a minimum preferred return of 20% above which a profit-induced waterfall determines the final split of proceeds. The first of our two current projects is Amber Ridge in Prince George's County, Maryland.
With a peak capital out of $12.8 million, all 187 lots have been transferred out to the home builders, and a final development activity should wrap up sometime during the Q2 of this year. Completion of this project, interest, income, and profits are expected to total $4 million. Our other current lending venture is called Presbyterian Homes, now Aberdeen Overlook, a 344-lot, 110-acre residential development project in Aberdeen, Maryland. We've committed $31.1 million in funding under similar terms to Amber Ridge. $20 million was drawn at the end of the year. National home builders are under contract to purchase all of the finished building lots. Horizontal construction has begun. The first 11 finished lots have been taken down, and $4.5 million in interest and principal has been returned to the company by year-end. In closing, we remain pleased with the company's performance and are optimistic about growth opportunities.
Challenges we have foreseen for a while came to roost in the final quarter of 2023 as we saw record-setting residential rents begin to flatten with increased competition. The surplus of new apartments coming online in Washington, D.C., over the next several quarters will directly compete with our waterfront assets. Fortunately, two of these three assets are stabilized, and we expect the third to stabilize prior to additional significant competitive apartment deliveries in the latter part of 2024 and early 2025. We've been well-served by the confidence we have placed in our design, amenities, and management teams, coupled with our careful and patient approach to development. Weathering markets and competition is not new to us. We stand on firm foundations and a steadfast belief that challenges begin opportunities.
With a strong, dedicated, and talented team in place, FRP will continue to grow its portfolio and, in turn, its revenue and profits through a steady, careful, and well-reasoned approach to the market. We look forward to building upon our successes and further cementing our place in the market. Thank you, and I'll now turn the call back to John.
John Baker III (CFO)
Thank you, David. As many of you saw in our subsequent event note in yesterday's earnings release, we announced a forward split of our common stock at a ratio of 2 post-split shares for every 1 pre-split share. As a thinly traded company with a small number of shareholders, we believe this has the potential to add some liquidity to our stock. At this point, we're happy to open it up to any questions that you might have.
Operator (participant)
At this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may remove yourself from the queue at any time by pressing star two. Once again, that is star and one to ask a question. We will pause for a moment to allow questions to queue. We will take our first question from Curtis Jensen with Robotti & Company.
Curtis Jensen (Portfolio Manager)
Hey, good morning. Can you hear me okay?
David deVilliers Jr. (President and Vice Chairman)
Sure. Hey, Curtis. How are you?
John Baker III (CFO)
Good morning, Curtis.
Curtis Jensen (Portfolio Manager)
Hey, John. Thinking about Bryant Street, are we still in a we don't have permanent financing on that?
David deVilliers Jr. (President and Vice Chairman)
Correct.
Curtis Jensen (Portfolio Manager)
Yeah. What's kind of the status there, and where do you see that? Is it just a function of waiting till rates get a little more attractive, or?
John Baker III (CFO)
David can speak to this. Go ahead, David.
David deVilliers Jr. (President and Vice Chairman)
Yeah, I'll take a swing at it, Curtis. Yes. Part of it is getting the retail in and occupying, and there is some free rent that you always go through in that side of the business. So that's where we're really waiting, which hopefully will be sometime during this year. But obviously, we're operating under a floating interest rate, and we're looking to hopefully see that the interest rates start to drop a bit, and then we'll look to permanently finance that program. We obviously weren't in a position to do that when the construction loan came due, which is why we did the interim financing, which is also again, we are on a floating rate. But that's the main reason.
It's just getting the commercial side up operating and in a little bit of stabilization, then it'll be a better time to go at the market, also with hopefully interest rates starting to go down a bit towards the end of the year.
Curtis Jensen (Portfolio Manager)
When you say retail, is that mostly referring to the food court, like the little food vendors?
David deVilliers Jr. (President and Vice Chairman)
That's part of it, Curtis. We have another. Call it, we've got two leases that are executed for about 8,000 sq ft of the inline retail. They're under construction now. It took forever to get the building permits out of the district government agencies. So that's an issue. And we have another one. We've let LOIs out for another one. So we're just trying to get all of that wrapped up. And again, we don't see a hurry right now because of the interest rates.
Curtis Jensen (Portfolio Manager)
How would you describe The Verge as not? I mean, is it kind of meeting your expectations?
David deVilliers Jr. (President and Vice Chairman)
For the most part, yes. There are significant units coming online towards the end of this year. They will ultimately have a positive effect on that area. We're no longer kind of out in the middle of nowhere because we will be a little bit more of the center of the donut as opposed to the outskirts because there's about 1,400 units coming on that are further west, if you will, of the bridge than where we're located. They all started right after COVID. There was a dearth of new projects that went under construction right after COVID. Of course, there was pretty low interest rates at that time too. They're up and going. The good thing is critical mass will help in some cases.
But the interesting dynamic is there is nothing in the pipeline coming out after those two at the end of 2024 and early 2025. So I think we're in a pretty good we think we're in a pretty good place.
John Baker III (CFO)
Just to follow up on what David's saying, permanent financing is obviously the ultimate goal, but that's only after we are able to grow the NOI to where we had envisioned it. I don't think we'd go out and seek permanent financing at the NOI that we're at right now. Our goal is to grow net operating income, increase the value of the property so that by the time we get to the end of the opportunity zone, 10-year hold period, we've got a healthy asset with an appropriate amount of debt on it. And I mean, when I say appropriate, I mean the right amount, not too little, not too much. And the fact that we expect to get a good interest rate on it in a few years just speaks to that. That's a benefit.
Anyway, I think, yeah, between Bryant Street, Verge, Dock 79, Maren, the D.C. market isn't where we want it to be, but we've got really, really good assets. We've got good people running them. There's a lot of supply that's come on, but it's not riverfront. It's certainly not the quality of our assets. And we think in the long term, that's going to continue to benefit us.
Curtis Jensen (Portfolio Manager)
In your lending joint ventures, is the National Home Builder a publicly listed company? Have you named the counterpart?
David deVilliers Jr. (President and Vice Chairman)
It's NVR. It's NVR.
Curtis Jensen (Portfolio Manager)
Okay. Okay.
David deVilliers Jr. (President and Vice Chairman)
Actually, they had a soft opening for the Aberdeen Overlook property about four or five weeks ago. And as I said in the opening remarks, we transferred 11 lots out to them at the end of the year. And we certainly have a pretty substantial deposit from them as well. And in their soft opening, they had over 400 people sign up for some of their different products. Now, signing up and buying is a pretty good size difference distance between the lip and the cup, but it's a pretty favorable visual. And it's a beautiful area in one that's kind of, once again, is in the center of the donut, up in Aberdeen. A lot of construction is going on around them as it relates to retail. A large hospital has opened up and is doubling its size.
We're really excited about the potential for this Presbyterian Homes, which has now been entitled, now that it's opening up, Aberdeen Overlook.
Curtis Jensen (Portfolio Manager)
All right. I'll jump off. Thanks a lot, and keep up the good work.
David deVilliers Jr. (President and Vice Chairman)
Thank you, Curtis.
John Baker III (CFO)
Yeah. Thank you, Curtis.
Operator (participant)
We will take our next question from Stephen Farrell with Oppenheimer.
Stephen Farrell (Investment Management Associate)
Good morning.
David deVilliers Jr. (President and Vice Chairman)
Morning.
John Baker III (CFO)
Morning, Stephen.
Stephen Farrell (Investment Management Associate)
Just a quick follow-up on the D.C. market. Are you currently offering concessions at the Maren and Dock 79?
David deVilliers Jr. (President and Vice Chairman)
Small ones, if any. Again, we saw rent growth in Dock 79 and Maren for the year. We had 2.8% renewal rent growth in Dock 79 and 4.21% rental growth in Maren. Tradeouts in Maren were 1.9%. They weren't as good in Dock 79 because at the beginning of the year, Stephen, the first two or three months of 2023, we replaced the manager on site. We had lost a little bit of the occupancy, and so we wanted to get the heads back in the beds. And that kind of eroded some of our potential profitability, which is why we did have a little bit we had some concessions there. Everything's pretty much stabilized now, and so we're in pretty good shape.
Stephen Farrell (Investment Management Associate)
I might have missed this at the beginning. What were the biggest drivers in the operating expense growth at those two properties?
David deVilliers Jr. (President and Vice Chairman)
They're across the board. Probably one of the biggest ones in Maren was we had some utility issues, and so that was pretty big. And the other two things, Stephen, one is security. D.C., like a lot of these cities, have had problems with security, and we wanted to get out in front of the problem. So security was definitely higher there. And also, rent collections are slowly getting better because we were unable to generate the collection process because of COVID. COVID, they did not allow people to get thrown out. You couldn't go to court. You couldn't do anything. And so there's an incredible overhang that is slowly starting to work its way through the system.
It used to take up until sometime in the beginning of 2023, it used to take over a year to start and complete the process of going through trying to collections and then ultimately evictions to get the properties back. Now it's down to about seven months, so we're going in the right direction. But those are probably the two biggest reasons.
Stephen Farrell (Investment Management Associate)
We saw with Bryant Street when you refinanced the construction loan, the bank required us to commit some more capital. I'm seeing this trend continue, whether it's construction loans or permanent financing that banks are refinancing at 50%-60% LTVs as opposed to 70%. I think there's an opportunity to provide gap financing to the borrowers so that they can maintain their debt and equity levels. I know FRPH is not a lender, but if there was an opportunity to provide that gap financing along with an equity component, would you consider it?
David deVilliers Jr. (President and Vice Chairman)
You mean to Bryant Street?
Stephen Farrell (Investment Management Associate)
No, just in general. Just generally?
David deVilliers Jr. (President and Vice Chairman)
I would say probably generally, I would probably say no. We've got a pretty strong development pipeline. We're focusing more on the industrial side in the near term, but we have some really good locations and some good projects in the multifamily side too. So we want to maintain as much dry powder as we can. And so I don't see us and I certainly defer to John, but I don't see us going out and being mezzanine lenders or that kind of stuff.
John Baker III (CFO)
No. I think.
David deVilliers Jr. (President and Vice Chairman)
That's a little scary to us.
John Baker III (CFO)
Yeah. You're absolutely right, David. I think we're going to use our equity to protect our own assets, but we'd have to get, I think, number one, we are more than comfortable with the amount of exposure we have to the D.C. apartment marketplace right now. I don't think we're looking for additional exposure. And we would have to get really, really smart on another asset or another marketplace before we did something like that. And I just don't think that's the best use of our time or money. But you're right. That is an interesting opportunity. That's just not, I don't think we have the bandwidth to take on kind of an additional investment strategy.
Stephen Farrell (Investment Management Associate)
No, that's understandable. And with Amber Ridge, all the lots are sold. Is there any more interest or principal payments that will come in from that?
David deVilliers Jr. (President and Vice Chairman)
Pretty much, no. We're just kind of wrapping it up. There's not a whole lot left, Stephen. There's some closing out of bonds and that kind of stuff before we can actually close the book.
John Baker III (CFO)
David, correct me if I'm wrong, but aren't there some funds that are going to be released? Because I think, if I'm right, the overall expected return of capital and return of principal and interest and profit is $22 million. And right now, we've received $20.2 million.
David deVilliers Jr. (President and Vice Chairman)
Yeah. From a cash standpoint, there's still roughly $700,000 that we are holding as the lender to complete some of the remaining programs. So we haven't finalized the actual interest and profit to FRP, but when the dust settles, we believe it's going to be about $4 million in interest and profit we receive from that project, which will probably be tallied out sometime in the first or Q2.
Stephen Farrell (Investment Management Associate)
Good. Thank you. Last question before I turn it over. The warehouse in Aberdeen, how much of the $30 million development costs was funded in 2023?
David deVilliers Jr. (President and Vice Chairman)
I think it was about $7 million. It could have been about $17 million. John K., are you there? Can you help me with that?
John Baker III (CFO)
16 is what I remember, but. Yeah. I was actually looking at the Amber Ridge issue. What was the question again?
David deVilliers Jr. (President and Vice Chairman)
Chelsea. Chelsea, how much money have we put out in Chelsea? And I assume, does that also include what we have in the land?
John Baker III (CFO)
It would. Yeah. I'll pull it up. Meantime, is there another question?
Stephen Farrell (Investment Management Associate)
That's all I have. Thank you.
David deVilliers Jr. (President and Vice Chairman)
Actually, Stephen, let's see. Chelsea, Chelsea, Chelsea. No, I don't have it. Spec buildings, we incurred in 2023 about $9 million. Plus whatever we have in.
John Baker III (CFO)
And so plus the land gets to the 30?
David deVilliers Jr. (President and Vice Chairman)
Yep.
Stephen Farrell (Investment Management Associate)
Okay. Great. Thank you very much.
David deVilliers Jr. (President and Vice Chairman)
Sure.
Operator (participant)
Once again, if you would like to ask a question, please press star and one on your telephone keypad now. We will take our next question from Bill Chen with Rhizome Partners.
Bill Chen (Managing Partner)
Hey, guys.
David deVilliers Jr. (President and Vice Chairman)
Hey, Bill.
John Baker III (CFO)
Hey, Bill.
Bill Chen (Managing Partner)
Good to have you join the call. Could you provide a little more detail on the Florida industrial joint venture?
David deVilliers Jr. (President and Vice Chairman)
Yeah. I mean, we've always, again, take a step back. Like we've done with the multifamily, Bill, we've always been looking to expand our platform and our program, and we've always felt the best way to do that was to find people and locations where the project was actually going to take place. I've had a relationship with one of the people for 20 years. He moved back to Coral Gables, Florida. Anyway, they came to us late last year and said, "Look, we've got this project halfway between Orlando and Tampa, literally right on I-4." I mean, which is a main thoroughfare between the two areas. The market is very strong, and it's a 215,000 sq ft building that we're working on developing.
It looks like if things pencil out, we will look to start that building sometime in the Q3 of this year. But there's strong boots on the ground people like MRP. BBX Logistics is actually the name of our partner. They're a subsidiary of BBX Capital. They're a public company. They're a pink sheet public company. Very strong financially. They've been around since the late '60s. So there is a very good synergy between the two companies culturally as well as personally. So we're excited about this opportunity.
Bill Chen (Managing Partner)
Gotcha. And just so that, could you talk about kind of the relative mix of the equity ownership? I mean, would FRP be able to? Is this over 50%? Would this be another equity line item, or would this be consolidated? Could you talk about that a little bit?
David deVilliers Jr. (President and Vice Chairman)
We're going to be the controlling ownership interest. We're probably going to be because, again, we are holders, and these guys are sellers. So we would rather be buying, take a number, 10%-20% of their ownership at retail and keeping our 80% or 90% at wholesale as opposed to getting so much into our partners that it would add a lot of money to the basis of our property. So we're kind of treading water in that direction.
Bill Chen (Managing Partner)
Let me just clarify that. FRP will be the controlling holder in this project where we'll wind up with 80%-90% ownership. Is that correct?
David deVilliers Jr. (President and Vice Chairman)
Yep.
Bill Chen (Managing Partner)
Okay. I guess their role is to be boots on the ground, almost like the actual developer. They're doing the work. Is that kind of nature of the relationship?
David deVilliers Jr. (President and Vice Chairman)
Yes. But we will be actively involved. I mean, again, we've been in the industrial business for over 30-some years, and so they're going to lean on us for the design. We certainly have done enough of these. They have, to some extent, too. And so we think it's a really good relationship and a good balance.
Bill Chen (Managing Partner)
Gotcha. Okay. Thank you for that. I mean, if you don't mind, if I probe, what are we underwriting potential stabilized, unlevered yield on a project like this?
David deVilliers Jr. (President and Vice Chairman)
We haven't decided, but it's going to be on a straight return-on-cost basis. It's got to be above 6.5%, or we won't start it.
Bill Chen (Managing Partner)
Okay. Okay. Okay. That's very helpful. And I mean, is there a possibility in the Maryland during the investor day, we you guys have provided that a lot of those Maryland projects could potentially come in at an unlevered yield of 8 or even above 8? Is there potential for this project to kind of hit those kind of numbers?
David deVilliers Jr. (President and Vice Chairman)
Sure. We hope so.
Bill Chen (Managing Partner)
Okay.
David deVilliers Jr. (President and Vice Chairman)
The market is big, and it's strong, and there's little vacancy. So you've been in it, you understand the way the game's played, and we don't start these things unless we feel pretty good about the shovel-ready condition. We're not required to do anything. We want to get to the point, get the contractors ready, get the numbers, get a guaranteed maximum price, look at the market, all of the above.
Bill Chen (Managing Partner)
Speaking of contractors, have you seen that the GC world kind of call it capacity, call it just slack, whatever you want to call it, just get a little bit better from a development perspective?
David deVilliers Jr. (President and Vice Chairman)
If you're saying, are their prices getting tighter? Is that your question?
Bill Chen (Managing Partner)
The prices getting better, timelines improving, whatever you may be, or just costs coming down, being able to move faster, more willing to work with you, etc.
David deVilliers Jr. (President and Vice Chairman)
All of your comments and thank you for that, Bill. All those comments are positive. Yes. As you know, we have a 259,000 sq ft building under construction now. Now, we're building that in-house, effectively on our subcontracts. But from that standpoint, we're seeing pricing come down a little bit. We're seeing timeframes coming down to some extent. They're not back to where they were, but they're getting better.
Bill Chen (Managing Partner)
Gotcha. Gotcha. I appreciate the feedback on that. I have a big question I'll save for later, but I just want to provide some commentary. I think that I want to thank the team for splitting the stock. I know that we really no one's really going to wind up owning more shares, but I think that I really do think that it will improve liquidity as just the absolute share price goes lower and the bid-ask in terms of absolute kind of pennies could get a little tighter. I think that will help with the trading. So thank you for taking the initiative to take that action. I think it really demonstrates to the shareholders that you guys are thoughtful. You guys are thinking about that. And I also just want to commend the company for the share buyback. I've said this many times before.
I think buying back at $54 is a great price, especially in light of the recent transaction that I'll talk about. But I think that even at today's price in the low 60s, I think it's still a great use of capital. I know there's a lot of a lot of the cash is earmarked for a lot of projects. But I think we're also at a point where the company's generating a lot of cash. So I will always be a cheerleader for more share buybacks. So I want to really commend you guys for doing the share buyback, and I'm just nudging that more share buyback will always be better, which so my final question is sort of Martin Marietta recently announced the deal to two transactions, Blue Water Industries, and there's one other transaction.
I looked at the numbers, and essentially, what I get to is they spent about $2.5 billion for those two transactions, roughly, and they bought about $1 billion of reserves. And if I'm doing my math right, that pegs the value at about $2.50 for a ton of aggregate reserves. And a lot of the markets are kind of similar, right? And if anything, maybe we can even go so far to say that FRP's market, which is Georgia and Florida, which is probably growing even faster than some of those markets, which naturally kind of brings me to some back-of-the-envelope math. At $2.50 per ton of reserves times 500 million now, I get it. They bought the whole operation, right? They bought the operating company, and the PropCo was the LandCo, and there's two separate streams of cash flow.
But I think it's fair to say that the FRP's royalty structure and the land ownership accounts for at least half of that, which would peg the value at $1.25 a ton of reserves. And if you do the math, multiply by 500 million tons of reserve, that pegs the aggregate business at something at $750 million. I mean, I don't know if we get I'm just kind of like I'm just trying to figure out that's probably on the high end. If you use the EBITDA multiple, but you really got to strip out the D&A because there is no CapEx or the royalty structure, it kind of pegs it at a 22-23x EBIT multiple is kind of what I get to.
I get to a $400 million-$750 million valuation for the aggregate business owned by FRPH. Is kind of like, I'm wondering if you guys have any thoughts on that, if what I'm saying kind of makes sense, or are there some subtle differences about those two deals that they just did that's very, very dramatically different. Is assuming that the royalty structure plus the land ownership accounting for 50% of a deal like that, is that fair? So any sort of commentary, color, feedback that you can provide, I'm all yours.
John Baker III (CFO)
Hey, Bill. I love your $750 million valuation. I'd say that's definitely on the high end, but I applaud your bullish approach to the aggregate industry. Obviously, I have some insight into the Martin purchase of Blue Water Industries. I would venture to guess that they didn't do it on a reserves basis, but more on an EBITDA basis. And that transaction is probably, I mean, I don't think they would have done it were it not accretive to their were it not an accretive transaction. And so if you look at their EBITDA multiples, it's going to be somewhere in the ballpark of there or slightly below. And I think that's probably an appropriate way to value it.
You could make this get into sort of granularity, but the way you would value probably a more appropriate way to value our royalty stream is to apply an EBITDA multiple to the revenue, not our NOI, just because that revenue would be part of their EBITDA. Yeah. We have to take into account costs and overhead, etc., and that factors into our NOI. But I think that's the appropriate way to look at it. A multiple is obviously a perpetuity, so that takes into account your reserves. I don't know that any operator values a transaction on a per-reserve or reserve-tonnage basis when they purchase when they make a purchase. But the way that we have gone about valuing our reserve stream does not take into account the second life of the mining land.
Your mileage may vary on how you apply a value to the second life. A lot of them are coming up, and a lot of them are way off in the near-term future. I could promise you that EBITDA multiple takes into account nothing like that. Put your own value on it, but you would be correct in thinking that using an EBITDA multiple would certainly undervalue the royalty and royalty lands.
Bill Chen (Managing Partner)
I mean, I've been a shareholder since 2015, and it's been a lot of years. So I've seen what this royalty business has done. I mean, it's grown. It's spit out cash flow, and there's only been 2 acquisitions. There's been no CapEx to this business. There's under $25 million of total acquisitions, 1 in 2012 and then the recent one, Astatula, right, versus Martin Marietta has to replace the machinery that gets worn down, right? So I would argue that the right multiple is really an EBITDA-less CapEx number, what that number and I want to bring that up because that CapEx number could be a third of the EBITDA for Vulcan or Martin Marietta.
So if the CapEx is a third of EBITDA, then your EBITDA multiple is really you kind of get to you need to get to an EBIT multiple or EBITDA-less CapEx. So using an EBITDA multiple is definitely too conservative. A true apples-to-apples is really an EBITDA-less CapEx multiple because I haven't seen any CapEx with FRP's royalty structure, right, since I've been a shareholder for nine years now. So I just want to kind of get your thought on that, if I'm looking at it the right way. And at the end of the day.
John Baker III (CFO)
No, I think that's an interesting way to think about it. We would just need to kind of nibble on that a little bit more. That's insightful.
Bill Chen (Managing Partner)
Yeah. Yeah. At the end of the day, what I'm trying to do is I think real estate and real asset investing inherently has a lot of quirks because a lot of times, the appreciation is a real is a not. And at the end of the day, I'm trying to figure out owner's earning, right? And what I've been very pleasantly surprised, being a shareholder in your company, is that the owner's earning in this aggregate business has been way better than any sort of DCF, any sort of multiple. It's just like it just consistently surprises me to the upside. And I think that an EBITDA multiple just isn't reflective, and an EBITDA-less CapEx or an EBIT multiple is way more accurate of a measure. So just some food for thought there.
David deVilliers Jr. (President and Vice Chairman)
Thank you for that, Bill. Obviously, we appreciate all of your thought, and hopefully, we can continue to stay the course and continue to build on the relationship.
Bill Chen (Managing Partner)
Yeah. Yeah. I'm not going anywhere, guys. I'm not going anywhere. You guys will have to deal with me for a long time, so.
David deVilliers Jr. (President and Vice Chairman)
Well, that's a great problem for us to have.
Bill Chen (Managing Partner)
I mean, it creates a minor problem that I won't sell anything, so there's no liquidity in the stock.
David deVilliers Jr. (President and Vice Chairman)
Well, look, we appreciate all that your loyalty and your support and your candor. We really do.
Bill Chen (Managing Partner)
Yeah. Thank you, Bill.
I appreciate everything you guys do, and that's all the questions and comments I have.
David deVilliers Jr. (President and Vice Chairman)
Okey-doke.
Bill Chen (Managing Partner)
Okay. Yep.
Operator (participant)
We will take our next question from Bill Ratner, private investor.
Bill Ratner (Private Investor)
Hi. I was just wondering if you could flesh out a bit the cash balance. How much of that is earmarked for capital versus what is essentially freely available for things like share repurchases and other discretionary types of investments? Thanks.
John Baker III (CFO)
Hey, Bill. I believe we have in the ballpark of $80 million earmarked for capital expenditures for 2024. We obviously want to keep a pretty healthy capital cushion, and we have plans beyond 2025. The stock price will obviously dictate the extent to which we make share repurchases. But in terms of any kind of meaningful share repurchase program, I think that we would in terms of major blocks of capital, it's all going to go back into developing assets as opposed to share repurchases. We're going to nibble opportunistically if we have a chance, but it's not going to be a meaningful amount compared to what we put into development.
Bill Ratner (Private Investor)
Thank you. And then with respect to the aggregate assets, you said that you don't factor in the second life value into your NAV analysis. If you were to include that second life value, can you provide any parameters around what you think an appropriate second life valuation would be for your assets?
John Baker III (CFO)
Yeah, Bill, I think it's so nebulous given the timeline of those events. The two that come to mind are Fort Myers and Lake Eliza, Brooksville as well. We're a long ways away from Fort Myers and Lake Eliza. Yeah, I think that it would just be a pie-in-the-sky number. It's essentially raw land. And so in terms of going through entitlements and zoning and permitting, just if I were to give you a number, it wouldn't be based on anything in reality. So we have sort of nothing to base it on. So right now, I just prefer not to guess.
Bill Ratner (Private Investor)
Is your comment around entitlements perhaps suggesting that there might not be as much land value as investors might think because the entitlement process, the costs involved, would be pretty significant relative to the second life value? Or is it just more that it's so far out in the future that it doesn't really make sense?
John Baker III (CFO)
It's a lot of bills. Yeah. Yeah. Yeah. Yeah. Yeah.
Bill Ratner (Private Investor)
Okay. And then one last question, going back to the previous questioner. So this Martin Marietta transaction seemed like a very high multiple. And if you look at Martin Marietta stock and stocks of comparable companies, these companies are trading at very high valuations. You guys are clearly very opportunistic investors. Can you just comment on why you would continue to own these assets as opposed to monetizing them in what appears to be a pretty robust environment for these types of assets?
John Baker III (CFO)
That's an interesting question. I think, one, if you look at the way that they've pushed price, just the accelerated growth of our income stream, as good as the valuations are, I think we're going to take a bet on them outpacing the present value. And to Bill's point, slapping an EBITDA multiple on the royalty stream, maybe that's not the appropriate way to look at it. And I don't know Vulcan or Martin or any of our others tend to have an appetite for pouring money into reserves that they already control. I think everybody's kind of happy with the way things are. We certainly are. And just from an after-tax perspective, if we had a $300 million transaction that we're desperate to make, maybe that would be a source of liquidity.
But to just sell the asset and pay the taxes on it, that's certainly not the best use of the money we generate from those assets.
Bill Ratner (Private Investor)
Got it. Thank you for that.
John Baker III (CFO)
They're also just a, I mean, they have been $10 million a year with no debt on it. It is a tremendous cash flow engine to fuel debt-free development. So I think we're really happy with that income stream the way it is.
Bill Ratner (Private Investor)
Thanks so much.
John Baker III (CFO)
But if you want to pay Bill's valuation for them, we're all ears.
Bill Ratner (Private Investor)
Well, it just seems to me that you don't know until you go out and hire a banker and run a process. And in an environment maybe 12-24 months ago, the likelihood of finding a good bid might have been not there. But the market has it seems like the market changed from my perspective. But maybe to your point, they already control the assets, so what's the point? But you never know until you hire a banker.
John Baker III (CFO)
Very true. I think we would know just given our relationship to Martin and Vulcan, if they had an appetite for buying those assets, we'd probably hear about it. Astatula, the purchase of the Blandford property, we were able to accomplish that because of our relationship with Vulcan. And they, just as a policy, didn't want to put money into reserves that they already controlled. You are correct in that you don't ask, don't get. But I think if they wanted to buy them, the second they want to buy them, we're going to hear about it.
Bill Ratner (Private Investor)
Gotcha. Well, thank you for all the explanations. It was very helpful. Appreciate it.
John Baker III (CFO)
Yeah, absolutely, Bill. Just to follow up on that real quick, for the last 10 years, aggregate valuations on an EBITDA basis have been historically high. So two years ago, if we could have looked at it and said, "Vulcan's trading at 20x. Let's sell these things," then obviously, we would have foregone a really incredible growth in our royalty stream. So we're long on the aggregates industry. It's in our blood. Unless something very seriously changes, we're going to continue to use that cash flow stream to fuel development.
Operator (participant)
It appears that 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.
John Baker III (CFO)
Before we go, I just want to congratulate David deVilliers, Jr., on his election to the board of directors yesterday as its Vice Chairman. David has given his professional life to this company. He is the backbone of what this company has become, and it's a well-deserved honor. So I just want to congratulate him. And I want to thank you all. We appreciate your continued investment and interest in the company and really appreciate all the questions you had. So thank you, and that concludes this call.
Operator (participant)
This does conclude today's program. Thank you for your participation. You may disconnect at any time.