FRP Holdings, Inc. (NASDAQ:FRPH) Q3 2025 Earnings Call Transcript

FRP Holdings, Inc. (NASDAQ:FRPH) Q3 2025 Earnings Call Transcript November 7, 2025

Operator: Good day, everyone, and welcome to today’s FRP Holdings Inc. 2025 3Q Earnings Call. [Operator Instructions] Please note, this call is being recorded. [Operator Instructions] It is now my pleasure to turn the conference over to Matt McNulty, Chief Financial Officer of FRP. Please go ahead.

Matthew McNulty: 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 deVilliers III, our President and Chief Operating Officer; David deVilliers, 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 measurements 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 onetime expenses of the Altman Logistics acquisition, which is a material business combination unlike our historical real estate acquisitions or joint ventures where we expense — where our expenses are capitalized.

We also provided adjusted net operating income to adjust for the impact of the onetime material royalty payment in the third quarter of 2024 to better detect 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 nonrecurring material and unusual nature of these 2 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 in 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 onetime minimum royalty payment received in last year’s third quarter. Excluding last year’s onetime payment, adjusted NOI was up $104,000 in this quarter versus last year’s third quarter.

Q&A Session

I will now turn the call over to our President and Chief Operating Officer, David deVilliers III, for his report on operations. David?

David deVilliers: 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 square feet, 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% or 132,000 square feet and the addition of 258,000 square feet of new development space generated by our Chelsea building in Harford County, Maryland, which was 100% vacant in the quarter.

Combined, these vacancies totaled 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 1 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 nonrecurring $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 square feet 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 uncollectible revenue at Maren. The increase in revenue is the result of GAAP accounting, which again includes straight-line rents and uncollected 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 2 Central and South Florida industrial joint venture projects with Altman Logistics Partners, where FRP was a 90% and 80% owner are under construction. Following our acquisition of Altman Properties, FRP now owns these assets 100%. The projects are in Lakeland and Broward County, Florida, totaling over 382,000 square feet 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 2 buildings totaling over 375,000 square feet. 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 predevelopment activities on 170 acres of industrial land that will support a 900,000 square foot 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 4 buildings totaling some 635,000 square feet 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 square foot building pending market conditions in 2027. Completion of these aforementioned industrial projects will add over 1.8 million square feet of additional industrial commercial product to our platform. Our projects in Florida represent over 750,000 square feet 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 3 industrial buildings totaling 510,000 square feet 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 square feet 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 3 additional buildings totaling 725,000 square feet 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 homebuilder 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 Woven, 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 consists of 214 units and 13,500 square feet 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 Woven, 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 square feet of retail.

The project is expected to be ready for lease-up in late 2027. These 2 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 square feet of industrial space available to lease over the next 12 months, making leasing conditions an important factor now and over the next 12 to 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 square foot range.

While demand for over 100,000 square foot 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 square feet 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 [ 400,000 ] square feet of vacancy in Maryland and over 1.25 million square feet of Class A products 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: Thank you, Dave, and 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, where 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 square foot Class A redevelopment in Morris County and Logistics Center at Hamilton, which is a 170,800 square foot 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 facility along the I-4 corridor equidistant from Tampa and Orlando and Logistics Center at Delray is a 3-building just under 600,000 square foot logistics campus in Delray Beach, Florida. And finally, Logistics Center at 595 is a 182,773 square foot distribution facility in Southern Broward County that was converted from the 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 IRRs in the mid-teens to 20 plus prior to promote participation. In addition, FRP plans to retain full ownership of select assets, including Lakeland and Davie, 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: 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. But excluding the nonrecurring cash — nonrecurring catch-up payment in 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 was identified by management as a foundational year for future growth, just not necessarily a growth year. In the short term, leasing and occupancy — 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 had 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 3 industrial projects in Florida totaling 763,000 square feet 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. As 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 and generate fees or some of both.

And 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, but 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, you can feel free to call Mark. And any expansion into these industrial markets outside of our traditional Baltimore Sandbox would have to be done by 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 these 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: [Operator Instructions] We do have a question. We’ll go to the line of Ted Goins with Salem.

J. Goins: Thank you 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 Nat Stadium opened in 2008. And — it just seems to be a problem. You speak of the recovery issues around the Maren. I think maybe this is the same thing that Wall Street Journal was talking about in an article a week or 2 ago with Atlanta as a highlight. But could you put some color on what you all are seeing in that area and the impediments to development and your thoughts around when that might develop again? And I recollect that the transaction with Vulcan was coming up in 2026, which seems a lot closer today than it was a few years ago. And if you could speak to that as well.

David deVilliers: Sure. I will start in terms of the district market conditions. And you’ve 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 and you weren’t allowed to raise any rents. And that really materialized into an environment where tenants just stopped paying their landlords. And we really had no way of getting them out of our buildings. And there was also laws passed where we really couldn’t vet tenants. So we couldn’t do our due diligence where tenants paid or not paid historically. And if they didn’t pay, we couldn’t get them out. So 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. So you might have been 95%, 90% occupied, but that building was really only 80%, considering many of your tenants weren’t 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. So I think from a legal, eviction tenant landlord relations 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. And there are signs that things are changing. There was a number of buildings that were delivered around our buildings, large projects.

These projects are over 500 or 1,000 units being delivered. And there’s velocity there. They’re leasing them. They may not be at the rates that everyone likes, and there’s definitely concessions in the market to get these new supply deliveries filled and stabilized. But the velocity is there, the demand is there. And 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, and we need to make sure that people feel safe and want to be out in the environment, in the district. And 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.

And we’re starting to see it. We’re starting to see renewal rents move up. Trade-outs, as I mentioned, are still pretty flat negative because it’s tough to attract tenants into our buildings when new deliveries are given concessions. But it is turning. I feel that we are off the bottom of multifamily. But let’s see what the next couple of quarters say. And 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. And until we’re ready to develop that site, we’d love to have them there.

J. Goins: And how does the development of RFK move things along for you? Or is that just too far down the river?

David deVilliers: 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.

J. Goins: And 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. And that would offer a reverse commute to folks in the district near you. How is that developing?

David deVilliers: I would say this. I — we haven’t seen any real impact from that development.

J. Goins: Okay. And could you speak to Bryant Street? It seems to be getting a little bit of momentum and what you might be doing there that’s showing some green shoots?

David deVilliers: Yes. Bryant Street, again, we’re 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’re occupying, they’re paying, and we’re — and we see kind of the light at the end of the tunnel. Bryant Street is more or less stabilized now. And 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.

So 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 from — we’re more stable there than ever. And 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.

J. Goins: Again, I just want to say thanks for all your efforts. The efforts, the intentionality that you guys are putting forth are evident to all of us. And so thank you for that.

Operator: [Operator Instructions] 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.

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

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