FRP Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 10, 2023

There are 5 speakers on the call.

Operator

Good day, everyone, and welcome to today's FRP Holdings Earnings Conference Call. At this time, all participants are in a listen only mode. Later, you will have an opportunity to ask questions during the question and answer session. Please note this call is being recorded and that I will be standing by should you need any assistance. It is now my pleasure to turn today's program over to John Baker.

Operator

Sir, please go ahead.

Speaker 1

Good morning. I'm John Baker III, Chief Financial Officer and Treasurer of FRP Holdings. And with me today are David de Villiers, Jr, Our President John Baker II, our Chairman and CEO John Milton, our Executive Vice President and General Counsel John Kaufenstein, our Chief Accounting Officer and David Davillion 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 And as indicated in such forward looking statements. These risks and uncertainties are listed in our SEC filings.

Speaker 1

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 financial results presented in accordance with GAAP, FRP presents certain non GAAP financial measures With the meaning of Regulation G promulgated by the Securities and Exchange Commission. The non GAAP financial measure referenced in this call It is net operating income or NOI. FRP uses this non GAAP financial measure to analyze its operations and to monitor, assess and identify This measure is not and should not be viewed as a substitute for GAAP financial measures. Dragonfiled GAAP to net income, please refer to the segment titled Non GAAP Financial Measures on Page 12 and 13 of our most recent earnings release.

Speaker 1

Now for our financial highlights from the 2nd quarter. Net income for the Q2 was $598,000 or $0.06 per share versus $657,000 or $0.07 per share in the same period last year. Q2 of 2023 when compared to the previous year was impacted primarily by an increase of $2,281,000 in equity and loss of joint ventures from 2 projects and lease up, an increase in management company $235,000 due to new hires and recruiting costs as well as an increase in interest expense of $390,000 offset by an increase in interest income By $2,500,000 First quarter pro rata NOI for all segments was $7,610,000 versus $6,550,000 in the same period last year For an increase of 16.3 percent. Net income for the 1st 6 months of 2023 was $1,160,000 or $0.12 per share versus $1,329,000 or $0.14 per share in the same period last year. The 1st 6 months of 2023 compared to the same period in 2022 were impacted by an increase in equity and loss of joint ventures of $4,300,000 as we leased up Converge and 408 Jackson, an increase in management company indirect expense of $300,000 An increase in interest expense of $658,000 offset by an increase in interest income of $3,489,000 The 1st 6 months of 2022 were also positively impacted by a $733,000 gain From property sales, which we did not repeat in the 1st 6 months of 2023.

Speaker 1

Revenue, operating profit and NOI are all experiencing strong Growth this quarter and for the year to date. Compared to the Q2 of 2022, we grew revenue by 11.1%, Operating profit by 33.9 percent and pro rata NOI by 16.3%. For the 1st 6 months compared to last year, These metrics grew by 13.5%, 63.9% and 24.5%, respectively. Yet net income has been more or less flat. The situation is not new to the company, but the product of development and lease up when equity and loss in joint ventures are at their highest and have a negative impact financially on our net income.

Speaker 1

This was the situation during previous lease ups and it is quite literally the cost of doing business. We count ourselves very fortunate that we have a shareholder base that understands the situation and is patient while we transition these products into stabilization and income production. I'll now turn the call over to David for his report. David?

Speaker 2

Thank you, John, and good morning to those in the call. As I have done for the last few quarters, I'd like to provide you with a perspective on the results of the company from an operational standpoint. We report our business segments in designated silos, which are important in analyzing the company. However, Operationally, we have overlap in synergies that are difficult to follow using the business segments as reported. So employing a day to day look at FRP, which we call our real estate operations, let me offer the following.

Speaker 2

Our real estate operations consist of a 4 pronged approach that has been the core of our business programming since mid-twenty 18 When we liquidated our legacy warehouse portfolio. 1, in house, which happens to be the same as our reported asset management business segment, Includes our industrial, commercial and land development platform. These properties are developed, managed and owned 100% by FRP 2, mining and royalties 3, 3rd party joint ventures, which is the name implies, The project is developed in conjunction with 3rd parties, where FRP is the major owner that relies on seasoned and respected third party operating partners to perform the lion's share of entitlements, construction and day to day operations and 4, Lending Ventures, Which we are the principal capital source for residential land development activities. Relative to our in house or asset management platform, Occupancy at our 3 buildings at Hollander Business Park since the beginning of the year as well as rent growth on renewals Cranberry have produced a healthy lift to our NOI. As of last month, our buildings in Hollander totaling 247,000 square feet are fully occupied, helping to lift 2nd quarter NOI for our in house properties to $834,000 versus 681,000 in the same period last year.

Speaker 2

This represents a 23.8% increase. Our industrial pipeline is strong with 3 projects in the queue. The 17 acre parcel in The Perryman Industrial Section of Harford County, Maryland, not too distant from our other assets in Aberdeen, received its building permit this week For our planned 259,000 Square Foot Warehouse Building, which based by current mark based upon current market conditions, We plan to commence construction this month. Predevelopment activities on our 170 Acre Tract in Northeast Maryland For ongoing and pending favorable market conditions, we could break ground as early as mid-twenty 24 On a 900,000 square foot distribution facility at this location. Finally, our 55 acre tract of land in Aberdeen, Maryland, adjacent to the Cranberry Run Business Park, is being designed with multiple options to deliver several buildings or a single large distribution center.

Speaker 2

Options include 600000 to 700000 square feet under roof depending on final design and market dynamics. Existing land leases for the storage of trailers on-site help to offset our carrying entitlement costs in this property. Depending on market demand, we could very well begin construction here in 2025 or 2026. Completion of these 3 aforementioned development projects will add over 1,900,000 square feet of additional warehouse product for industrial properties that when added to the assets already in operation will create over 2,350,000 square feet. Relative to Mining and Royalty, as John III stated in his opening remarks, our Mining and Royalty division saw revenues for the quarter of $3,264,000 versus $2,883,000 in the same period last year.

Speaker 2

This is record revenue for any quarter in the Mining and Royalty segment for the 2nd quarter in a row. NOI was $3,125,000 an increase of 14% over the same period last year. Moving on to our 3rd party joint ventures. Currently, we operate both underdevelopment and stabilized projects with 4 distinct partners: MRP, Stewart Investment Company, Woodfield and St. John Properties.

Speaker 2

The difference between underdevelopment and stabilized Being a sustained occupancy level of 90% for a minimum of 90 days. As of 6:30, our JV platform includes 6 excuse me, 7 mixed use projects. 6 mixed use residential projects totaling 1,827 Apartments and 198,000 Square Feet Retail And 1 mixed use office project totaling 72,000 square feet of single story office and 27,950 square feet of retail. Four mixed use residential projects are located in Washington, D. C, where MRP is our joint venture partner.

Speaker 2

Our neighboring projects, Dock 79 and Barron along the Anacostia River, where our partners include MRP Realty and most recently, Stewart Investment Company remains healthy with occupancies of 95.4% 94.3%, respectfully, at quarter's end, With all retail fully leased. Quarterly renewal success rates consist of a DOC 79% to 65.31% And Marin at 39.6 percent with rental rate increases of 3.74% and 6.6% Respectfully. Bryan Street, a multi building transit oriented mixed use project located on the wet lawn in Northeast, It contains 3 residential buildings as well as a movie theater, anchored retail building and a flexible outdoor platform Fully leads to a unique entertainment concept called Metro Bar. At the end of the second quarter, Bryant Street's 3 residential towers Totaling 478 residential units were 93% 93.2% occupied and its retail components We're 95.9 percent leased and 79% occupied. 67.25 percent of Expiring residential tenants renewed their lease with a combined average rental rate renewal increase 2.86 percent for the quarter.

Speaker 2

Our food hall, Bryan Street Market, opened in March and has seen early With 8 of 9 stalls leased and the first four tenants have opened for business. The grand opening for the Bryant Street market is The Alamo Draught House theater and entertainment venue continues to see greater revenues It has been enhanced by blockbuster films such as Mission Impossible, Oppenheimer and Barbie. Our 4th and newest mixed use residential project in the district, Verge, received its final certificate of occupancy in the 1st quarter And is showing strong performance at 68.6 percent leased and 43.3 percent occupied. A significant boost in leasing over the Q1 with nearly half or 45 percent of retail spoken for as of the end of June. In terms of velocity, we gained occupancy of 22 units per month on average during the Q2 at Burge.

Speaker 2

Moving on, our 2 projects in Greenville, South Carolina with Woodfield Development as our development partner are seeing great success. Riverside and its 200 apartments was 95.5 percent occupied and renewed 61.76 percent of expiring leases With rental rate increases of 11.96% for the 2nd quarter. 408 Jackson was placed in service during the Q4 of 'twenty two. And at quarter's end, its 227 apartments were 85.9 percent leased and 76.2 percent occupied. Another strong performer in lease up, 408 demonstrated a significant boost in occupancy over the Q2, averaging 29 units per month.

Speaker 2

Its retail component is fully leased and targeting an opening date in the Q4 this year. Relative to the 6 aforementioned next use residential joint venture projects, FRP's share of NOI 3,290,250 versus 3,000,000 49,948 in the same quarter last 7.9 percent increase. The last or 7th mixed use project that makes up our 3rd party JV division Is undertaken with St. John's Properties, a pioneer in flex and office development and former National Developer of the Year. With St.

Speaker 2

John, we're developing Windlass Run-in Baltimore County, Maryland that includes 72,080 Square Feet of Single Store Office And 27,950 Square Feet Retail. This project is now 62.79 percent leased And 48% occupied overall due to an increase in lease space over the 2nd quarter as a result of a new 12,000 square foot office space. NOI for this past quarter for this asset was $109,213 versus 102,400 over the same period last year or a 6.7% increase. Funding Ventures, the last leg of our operating stool. This is a program where we provide working capital toward the entitlement and Horizontal development of single family residential projects and ultimately a sale to National Home Builders.

Speaker 2

The first of our 2 current projects is Amber Ridge In PG County, Maryland, with a total commitment to this project of $18,500,000 The investment includes a charged 10% interest rate and a minimum preferred return of 20%, Above which, a profit in GSA waterfall determines the final split of proceeds. All the 23 of 187 lots have been taken down As of June 30, a $19,600,000 of principal interest and profits has been returned As of the end of the quarter, the final 23 units providing additional profits are on track to be taken down by year end. Our other current lending venture is called Presbyterian Homes, which is a 344 Lot, 110 Acre Residential Development Project in Aberdeen, Maryland. We've committed $31,100,000 in funding under similar terms The National Home Builder is under contract to purchase all the lots, which include 222 Townhomes and 122 single family dwellings. Horizontal construction has begun, and we expect the first lots to be taken down in Q4 this year.

Speaker 2

In closing, we are pleased with the company's performance this quarter. I would be remiss not to mention the headwinds facing us. In Washington, D. C, the volume of new apartment units being delivered is significant. We'll present a challenge for our leasing trains and could impact our rental rate expectations.

Speaker 2

Additionally, a rising interest rate environment presents challenges for construction material pricing and availability as well as affordable financing terms. A positive note, Competitive developers who may not be buttressed by a balance sheet like ours might not be able to obtain or have the available capital to construct projects Like our upcoming 259,000 Square Foot Warehouse Facility at Chelsea Road. We have flourished in a constantly changing environment Due in no small part to the strength of our financial foundation and the consistent efforts of our talented teams, We look forward to building upon our successes and finding new ways to explore our skills in the marketplace. Thank you. And I'll now turn the call back to John.

Speaker 1

Thank you, David. At this point, we're happy to open the call up to any questions you might

Operator

have. Thank All right. We'll move next to Stephen Farrell with Oppenheimer. Your line is open.

Speaker 3

Good morning. How are you?

Speaker 4

Good morning, Steve.

Speaker 3

First question Regarding your comments about the construction loans, what is the sensitivity of rental rates in relation to construction loans?

Speaker 2

I don't quite understand your question, Steven, John may

Speaker 3

In other words, with development on the sidelines, how do you see the restriction of new supply Affecting rental rates.

Speaker 2

Well, obviously, the all of the construction loans out there Are floating, right? So for example, year over year, these interest rates have gone up For us, between 3.5% 4%, the market is going to dictate what the rental rates We've talked about our rental rates have actually done pretty well and favored pretty well over the last 12 months, whether they're already there through trade outs and lease ups. I think where the big pull is going to come from, Stephen, is our buildings are done. And so we don't have to worry about what's happened with the increased construction costs and material pricing because that's behind us. So I think that's probably the big issue.

Speaker 2

And try to get out and start a new building with these kind of interest rates It's going to be very, very difficult, I think.

Speaker 3

And At what level do you think it does make sense either from a rent level and increase in rental rates or a cost perspective?

Speaker 2

Well, again, the rental rates are really not subject to anything other than the market. There is a lot of competition in DC, especially with a lot of the new units coming on. So that drives your rental rates. We look at the rental rate market for all of the competition every day. And so we raise and lower prices depending on The type of unit, the location of unit, so that kind of does its own thing.

Speaker 2

Interest rates, we can't control. Well, the only thing we can do is decide not to start something. But if interest rates continue to go up, obviously, they do have an impact on our operating cash flow.

Speaker 1

David, what would you say the interest rate on a typical construction loan would be today?

Speaker 2

Well, For example, the 3 that we have at Bryan Street, that's 7.4% as of June, The end of June. That's probably the biggest. We have another one at 7.2 and another one at 7 point So they've literally gone from the threes up to the sevens. And they usually run on a sofa, an average 30 day sofa And anywhere from 2.25 to 2.50 basis points. But anything coming out today, The new loans or the basis points are in the mid to high 3s.

Speaker 2

So it's another whole another interest Rate point with the new stuff rather than the existing.

Speaker 1

Yes. I think you'd have to see sustained Really high increases And rental rates in order to justify taking on that kind of construction loan to build.

Speaker 4

You do.

Speaker 2

Yes. For example, our Riverside property in South Carolina, we got almost a 12% increase in our rental rates For the second for the for all the tenants coming due in the Q2, that's a dramatic increase. But you need you're going to need some as John says, some sustained not to be that high, but you do need to have some pretty strong rent growth to be able to support these kind of interest rates.

Speaker 3

And longer term, maybe 2 to 3 years down the road, I think that Restricting the supply and development being on the sidelines would be beneficial to properties like Bryant Street and just Rental rates in general, do you think did you have a similar view? Yes, I think that

Speaker 1

will definitely help. And David, you can answer that.

Speaker 2

Well, it's interesting, Stephen. You're absolutely right. We do. There's going to be a slowdown in deliveries in 2025 and 2026 because of that. It takes basically 2 years to build these things.

Speaker 2

And the fascinating thing that's happened throughout the country is that during COVID, there wasn't a whole lot of construction. So It got ramped up late in the year and early in 2021, which has led to a lot of units coming online over the last 6 to 9 months, Causing a record number of units available in the market now. So as the project leaks up, then there's going to be The whole thing is going to change, and we think 2025 and 2026 could be great years for rental rate increases.

Speaker 3

And maybe I missed this in the call. Do you have an updated timeline for Development of Phase 1 of the Stewart deal, I know you just said now you'll need either big rent increases or Reduction in the rates on the construction loan, but do you foresee pushing it back Farther, maybe 2024 end of 2024, 2025, what are your thoughts on that?

Speaker 2

Well, we're still what the plan right now, Stephen, is we're going through the entitlement process, which takes a while. We want to get it ready, This should probably be sometime here in this quarter, the beginning of Q4. And then we'll take a look at the all of the metrics, right? Part of our deal and we usually don't go into these Thanks for that guaranteed maximum prices from our contractors and we have everything lined up, not to mention the fact it's A good construction loan. So I would doubt unless something changes dramatically that we would consider starting that In 'twenty three, not to mention the fact starting something in the winter in Washington is not very favorable from an efficiency standpoint.

Speaker 2

So I Probability says that we wouldn't get into that probably until sometime in 'twenty four if, again, if the market conditions dictate such a thing.

Speaker 3

And turning to industrial, we have starts are down and we're starting to see some Pressure on rents around the country. Is it similar as supply and demand dynamics around Baltimore?

Speaker 2

We not so much. The development is somewhat restricted. For example, where our Chelsea property is, which is the one that I mentioned earlier, which is getting literally ready to start this week, there's a moratorium on all this Construction in the area. So we're like the not only is it tough for certain people to spend that kind of money to build a building, They're not accepting any permit applications. So we're like the only game in town starting literally now And it will come on a year from now.

Speaker 2

And we're excited about that market because the vacancies are very low and the rental rates I've done very, very well. I mean, the vacancies are still well below the pre pandemic norms. It's a very tight market.

Speaker 3

And with the timing of the Phase 1 of Stuart being pushed back to Envision, Using cash to opportunistically invest in additional industrial properties or just developing the pipeline?

Speaker 2

We're always looking for value add, Stephen. For example, our Cranberry Run business part was that, which we've enjoyed some really strong results In that property over the last several quarters. We're always in the market for value add stuff, For sure. And if something comes along and it works and we've kind of not so doesn't require so much rehabilitation or refurbishment If the numbers work, we'd absolutely consider it.

Speaker 3

And have you seen any opportunities in Non development properties or maybe the seller might need liquidity or anything of that nature?

Speaker 2

We haven't yet. We're very particular in who we do business with. We've got a pretty strong Team of folks in MRP, Woodfield, St. John. And so we don't have We were very careful and as to being out in the market and looking for other platforms that would be in a joint venture Type of business, that would be a tough one.

Speaker 2

We're always looking. We look at properties every day In certain areas, obviously, throughout the North, the Southeast, North Carolina, South Carolina, we've got our eye on, obviously, because We've got projects in South Carolina. So yes, we're always we're looking in the banks that we've been dealing with and the lenders know Here we are and the fact that we're fairly strong from a balance sheet standpoint and we're good boots on the ground operators. So many of these people would develop properties before, and they were there's a lot of fee developers out there that would Build them and sell them and move on to the next one. But we've historically been pretty strong in managing these assets.

Speaker 2

So we bring a lot of We think we bring a lot to the table with our joint venture partners for sure.

Speaker 3

That's good. Thank you for taking my questions.

Speaker 1

Thank you,

Operator

Steven. And next we have Curtis Jensen with Robotti. Your line is open.

Speaker 4

Hey, good morning. I got cut off earlier. So it was my fault, but I apologize if I'm redundant here. I have a couple of questions. And the first one is sort of about presentation.

Speaker 4

Specifically when I go from the text Your text disclosure in the press release, kind of like the tables and it seems to me even get a little cloudier when Think about the GAAP accounting for all this, but let's just take an example, Bryant Street. Is Bryant Street considered Stabilized at this point? It's been 90 days above 90%.

Speaker 2

No, sir. It has not reached it yet. It will probably make it next quarter. It has to be we still got just because it's leased, it's got to be occupied And the residential is not quite there for 90 days, which is what kind of the market we put on it and the retail It's still having people move in, but it's close.

Speaker 4

So it's the when I go to the tables and I see the development segment And I see like the 3 months results of the lease revenue is 467,000 Is that Bryant Street's lease revenue your portion of Bryant Street or is there something else or is Bryant Street This revenue disclosed somewhere else. Good morning, Kirsten. This is Josh Bluffenstein. Our unconsolidated joint ventures,

Speaker 1

which includes Bryant Street, Bird, Riverside,

Speaker 4

all the

Speaker 1

Greenville, 4A Jackson, They're all unconsolidated. So from a GAAP perspective, our income statement, they don't run through revenue or expense. They all run through that one line on the income statement that you On the main page called Equity and Loss of Joint Ventures. But we are going to be filing our 10 Q today. And in the footnote About our joint ventures, you'll find a breakdown of each of those joint ventures' income statement showing the revenue and expense.

Speaker 4

Okay. So when I go into the tables in your press release and it's the development segment, that's not going to include Riverside or Bryant Street Or anything like that, anything that's like somewhere between development and stabilized and not

Speaker 1

It does And it won't include it won't be included in Stabilized Joint Ventures and revenue and expense either in the future once it stabilizes because Those aren't our revenues. They are Joint Venture Partners revenue. So you'll have to refer to the table I'm talking about in the footnotes.

Speaker 4

Okay. And then I guess for GAAP purposes, it will continue to be Show an equity and loss of joint or equity and joint ventures.

Speaker 1

That's exactly right. They will always be there.

Speaker 4

All right. So the only two things in your tables that are considered stabilized joint ventures are the Marin and DOC. So that's been consistent over time?

Speaker 1

That's correct. Riverside is not reflected in that table in revenues and expenses because of the gap treatment

Speaker 4

All right. I just hope you I mean it is I understand how you disclosed it as a Like Bryant Street is a mixed use joint venture between FRP and MRP, but It's not disclosed the same way. If I were a first time leader, I'd say, okay, I'm going to look under joint ventures. And then I go to the table and I say, oh, that's stabilized joint venture, but that's Anyway, it's a little bit confusing to me, and I've been around the company for 7 years. I guess the last We'll

Speaker 1

see if we can improve I'd say a disclosure in the future to highlight

Speaker 4

I only say it because the NOI from your Multifamily and mixed use is going to be coming bigger and bigger and bigger over the next couple of years. And then, of course, you've got a whole another stream of income coming on in asset management. Sorry. As from a place of trying to analyze the company, I'm going to have to go from kind of Book value, asset values, development kind of assets to income earning, Income producing properties and it's going to be harder to dissect all of this if there isn't some more disclosure About that, I think is Anyway, I don't want to hold us up on that. But on the verge, again, I apologize I'm being redundant here.

Speaker 4

Consistent with your heads and beds philosophy, as you're having to offer a lot of incentives to get people over there or Unusual incentives or is it just kind of you're pretty happy with it?

Speaker 2

We're actually pretty happy with it right now. As I said, we've been moving a lot of people in, and we actually did A temporary program with a group called Placemaker, which takes on which absolutely takes on 27 units as of June 1, and Then they lease them. They master lease effectively that way. So we're really And so that's 27 units that we would not have been able to get occupied that quick because they interestingly enough that They rent these spaces to professionals and that kind of thing for 30 a minimum of 30 days. And in fact, when they moved in, in June 1, they took all 27 units.

Speaker 2

We have them for a year, and we're wondering and that's We kind of do a sixty-forty split. We get 60% of the revenues and they get 40%. And the price is leasing up so quick, We're wondering if that was a great idea or not. But things are going very well at the BERS. But look, we are giving a 1 to 1.5 months concessions, which is not overly penal, but Once just like we did with Coda and that kind of thing, when you open these things up in December, The early months of the year and the late months of the year are not the best months to be opening up for lease.

Speaker 2

And now that we've come into the summer and to the fall, the rents are getting a little stronger as you can see. So But yes, we're so far, we're pretty happy with it. 1 of the concrete plants has come down. That was in Stuart's Pride. So we're looking to animate that area just to the right of verge.

Speaker 2

And of course, you've got The soccer stadium behind us, there's a lot of really good things going on over there. So we're pretty happy with it as of so far, so good.

Speaker 4

Would you maybe this is jumping the gun a little. You talked about an Analyst Day in October. Would you Anticipate sort of a mini property tour again? Yes. It would be part of our parcel of

Speaker 2

it. Yes. Yes.

Speaker 4

For sure. Circling back to Bryant Street for a second, did I hear there's still a construction loan on that or are you moving towards Mortgage, I mean, it's can a mortgage kind of come in under a 7.4 or whatever I heard David That is on the construction loan?

Speaker 2

Well, a permanent financing does. They usually come in about 150 basis points or more less than a construction loan. But we've still got some wood to chop at Bryant Obviously, the units, we showed average for the 4.87 units, the average renewal rate for the 3 buildings Average about 2.86%. It went from 1.8% all the way up to 4.2%. But So the residential side is starting to come into its own.

Speaker 2

Where we feel the success of that project is really going to be as Continues to mature is in the retail. And Alamo for as I mentioned, Alamo has done Their sales are way up over last year, which was I guess people still like the Barbie movies, but they've done very well. So we're happy there. Our in line retail, we have some new leases. They take a while to move the Kennett in.

Speaker 2

And so the animation of that area and a sense of place is not there yet. So it's not the greatest project right now, both From a lending standpoint and just from a remote, you'd walk around, it still needs to mature a little bit more. So we'll take a look at it at the beginning of 2024 and see how things go. I mean, we do have a we are looking at different options right now. We just haven't made a decision.

Speaker 4

Is there anything going on across the street? I know there was a site across the street from Bryant Street that There was potential for development. Is there any movement there or is it sort of

Speaker 2

That is close. So I

Speaker 4

can is it an industrial site of growth? It is. It is.

Speaker 2

It's a couple of industrial buildings, actually one of them has a basketball court on the roof, but it's owned by a development entity. I believe they're going through the entitlement process and So it takes a while. But like us at the Stewart property, we're going through the entitlement process. It takes time. And then if you see something that says you may want to change the use or whatever, then that adds more time.

Speaker 2

For example, our dock in Marin, We still have 2 more phases down there in Phase 3 and 4. We're going through a modification of that project It's going to take us about a year to change the use from office and hotel to residential. So it takes a while. But yes, to answer your question, there's some development pre development activity there

Speaker 4

across the street. And I guess I'll wrap up with one more question. It's kind of on the lending ventures. Is that is the vision there to kind of strictly limit it The homebuilders, and is there a point when you say let's wind it down or is this going to be an open ended Opportunistic lending vehicle with its where you've got dedicated personnel and how do you see it? Yes, Curtis.

Speaker 1

This was a great, great way to put money to use with A partner that David has had a relationship with for a long time going back. And when we had Post sale, a lot of cash on our balance sheet and no plans for it and Money market rates were roughly 0. This was a good way to get A good return on our money and a market and a product type that we're comfortable with. I think Going forward, as we plan to put more and more money into our own income producing Properties will be less likely to do a lending venture.

Speaker 4

Okay. I agree. I mean, I thought it was a Pretty interesting, way to deploy capital. I think you're getting good returns. It might be interesting if you have a page on that in your Analyst Day presentation to kind of summarize the ins and outs of the cash and the returns on that would be I guess it was an interesting thing to take advantage of homebuilders who wanted to stay asset light And didn't want to commit and had option sort of used options to develop properties in a way of thinking about it.

Speaker 2

Well, there's some other ways too. The intangible advantages of that is that when the world knows that we're looking for property, whether it's Residential or industrial, this gives us the ability to cast a wider net. For example, the property that we found at Chelsea where the buildings are going to go, those are 2 smaller properties that we put together. People know that we are active land developers. We've been doing it since the company opened in 1988.

Speaker 2

So it kind of keeps us out there in the market. That's another advantage that this brings. But we have been very, very selective On the choosing these properties, we really don't we usually don't even get unless we can buy them right, buy them wholesale and not even do that until the entitlements are there. So The risk is obviously is investing capital, but we obviously don't have any loans and we certainly don't borrow money on these. But So far, they've been very, very advantageous with IRRs 20% or above.

Speaker 2

So Well, we are, as John said, we're going to take a look at it and see where the money is best spent. If it's been at all and we're just invested, at least the returns right now on cash investments, I think are pretty good right now.

Speaker 4

Well, I'll just say keep up the good work. I'll look forward to seeing you guys in October. And I don't know why anybody would give their money to a private equity real estate to a point that can give it to you guys.

Speaker 1

Tell everyone you know that.

Speaker 2

Thank you, Curtis. That's a very kind

Speaker 4

That was

Operator

good. All right. And we have no further questions in queue. So I would like to turn the floor back over to our speakers for any additional or closing remarks.

Speaker 1

Thank you all for your maintained interest in the company. I'd just I'd like to offer a quick reminder. As Curtis referenced, we are holding an Investor Day on October 11, 2023, It's in DC at our DOC 79 property. The event will feature presentations from our executive management team. And For information on the event or RSVP, please email investordayfrpdev.com or check the Investor Relations section of our company's website.

Speaker 1

Thank you.

Operator

Thank you, ladies and gentlemen. This does conclude today's presentation. We appreciate your participation and you may disconnect at any time.

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Earnings Conference Call
FRP Q2 2023
00:00 / 00:00