FRP Holdings Q3 2026 Earnings Call Transcript

FRP Holdings (NASDAQ:FRPH) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

FRP Holdings Inc. reported a net loss of $0.06 per share for the nine months ended September 30, due to lower interest on cash balances, increased G&A expenses from the Altman acquisition, and underperformance in their D.C. multifamily and industrial segments.

The company is focusing on leasing newly delivered warehouses, with approximately 1 million square feet of space available for lease-up, aiming for around $12 million in potential annual pro rata NOI at stabilization.

FRP Holdings has made significant progress in leasing, with the most active quarter since 2021, securing new leases and renewals that will contribute to future NOI and FFO.

The company expects to invest approximately $60 million in maintenance capital and development projects through 2028, while managing a $20.5 million Opportunity Zone tax liability due in 2027.

Management expressed confidence in their strategic expansion, emphasizing the potential growth in pro rata NOI to approximately $50 million at stabilization and highlighting their disciplined approach to new development opportunities.

Full Transcript

OPERATOR

Good morning and welcome to the FRP Holdings Inc. Third Quarter 2026 Conference Call. At this time, all participants are in a listen-only mode and we will open the floor for your questions after the presentation. If you wish to join the queue to ask a question at any time, you can press star one. Should you wish to remove yourself from the queue, press star two. We ask that you please limit yourself to one question. You may press star one again if you have a follow-up.

It is now my pleasure to turn the floor over to your host, Matt McNulty, CFO. The floor is yours.

Matt McNulty (Chief Financial Officer)

Good morning and thank you for joining us today. I apologize in advance for my voice, I’m battling a little head cold, but we’ll get through this. I’m Matt McNulty, Chief Financial Officer of FRP Holdings and with me as speakers today are John Baker III, our CEO, David De Villier III, our Chief Operating Officer, and Mark Levy, our Chief Investment Officer. Also joining us on the call are John Baker II, our Chairman, David deVilliers Jr., our Vice Chairman, John Milton, our Executive Vice President, and John Klopfenstein, our Chief Accounting Officer.

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. On this call, we may refer to non-GAAP financial measures including net operating income, or NOI, pro rata NOI, and funds from operations, or FFO.

We use these measures to assess operating performance and trends. They supplement our GAAP results and should be considered alongside them. Definitions and reconciliations are included in our published earnings materials. Yesterday, the company reported earnings for the nine months ended September 30th. We reported a net loss of $0.06 per share versus a profit of $0.16 per share in the prior year. The principal factors behind the year-over-year change: approximately $3 million of lower interest on lower cash balances as we have continued to invest our cash into our projects, plus less lending venture income on a lower loan balance; approximately $3 million of higher G&A following the Altman acquisition due to the added personnel we need to manage our current and future growth plans; approximately $1.5 million of underperformance in our D.C. multifamily assets as we have navigated headwinds created by new supply affecting our occupancy, delinquencies, and higher operating expenses; approximately $1 million of underperformance in our industrial and commercial segment driven by the loss of the Vulcan lease in Jacksonville in March of this year and the carry cost on the Chelsea warehouse that remains in lease-up.

These items were partially offset by approximately $1.3 million of improvement in our mining royalty stream and approximately $2.3 million of improvement in our development segment driven by the development fee revenue following the Altman acquisition and the absence of the transaction-related expenses we incurred in the first nine months of last year closing that deal. This fourth quarter marks a pivotal point in the company’s trajectory. We expect to deliver both our Lakeland and Davie warehouses this quarter, followed very soon thereafter by our Camp Lake warehouse outside Orlando, Florida. These three projects, together with our vacant Chelsea warehouse delivered in 2025, represent approximately 1 million square feet of first-generation space available for lease-up, representing approximately $12 million in potential annual pro rata NOI at stabilization.

This is our focus for the foreseeable future: leasing what we have spent the last two years delivering. I will now turn the call over to our President and Chief Operating Officer, David De Villier III, for his report. David.

David De Villier III (Chief Operating Officer)

Thank you, Matt, and good morning everyone. This was our most active leasing quarter since the second quarter of 2021. That is tangible progress toward our immediate priority: converting the investment we have already made into recurring earnings. Leasing these buildings and bringing them to full occupancy with rent-paying tenants is how we turn our industrial investment into recurring NOI. Our long-term vision is to build an industrial operating portfolio that generates the majority of FRP’s recurring earnings that is supported by multifamily, and mining development will continue to create opportunities for that growth.

Turning to our results for the quarter, I will cover leasing progress, the earnings opportunity, and the capital required. Across our nine in-service buildings in the same-store Maryland portfolio, excluding Chelsea, average occupancy was 71.4% compared with 72.4% a year ago. We signed approximately 127,000 square feet during the quarter, including 61,000 square feet of new leases, 60,000 square feet of renewals, and a small short-term extension.

We ended the quarter at 74.3%, and we have approximately 399,000 square feet that remains available for leasing in Maryland. This represents a significant earnings opportunity in buildings we already own. The new leases span Maryland and Florida with rents consistent with or above our underwriting and annual rent increases, and represent approximately $1.1 million in annual base rent plus operating expense reimbursements. They will generate NOI from vacant space and recover costs we currently absorb. The renewals extend three tenancies for five years, securing approximately $488,000 in annual base rent at starting rates 4.1% above the prior year rents, plus operating expense reimbursements.

These figures are at the property level before adjusting for FRP’s ownership. Signing a lease does not immediately produce cash rent. One new lease commenced in September of this year. We expect the two Florida leases to begin paying rent in 2027 after their free rent periods, and the renewals begin in April 2027. Tenant improvements and commissions also require capital before the full earnings contribution is realized. Turning to industrial development, Chelsea, Lakeland, Davie, and Camp Lake together represent approximately 1 million square feet. We expect Lakeland and Davie to be substantially complete in the fourth quarter of this year, followed by Camp Lake in the first quarter of 2027. As these empty buildings are completed, property operating costs and taxes affect NOI, and interest that was previously capitalized begins to affect FFO. These costs arrive before rental income fully offsets them at stabilization.

We estimate those four assets will generate approximately $12 million in annual recurring pro rata NOI and approximately $7 million in annual FFO, with timing dependent on leasing and rent commencement. The vacancies at Cranberry Business Park could contribute approximately $1 million more in annual recurring NOI and FFO at full occupancy. Our three merchant build projects in Delray, Florida and Hamilton and Parsippany, New Jersey total approximately 510,000 square feet, and we own a minority interest in each. They are in the early stages of lease-up. We intend to monetize them following stabilization and recycle the proceeds into future industrial opportunities.

Turning to multifamily, pro rata NOI was $4 million, down $542,000, or 12%, from a year ago. Average portfolio occupancy was 93% across 1,827 units. Bryant Street accounted for more than half of this decline, reflecting lower occupancy, higher operating expenses, and increased concessions. Performance across the D.C. portfolio remains mixed. Renewal rates increased an average of 2.5% in our D.C. assets, offset by trade-out decreases of some 10%. Greenville, South Carolina held average occupancy above 95%, with renewal rate increases averaging 4.5% and trade-outs at par.

Construction at Woven in Greenville, South Carolina and Estero Phase 1 in Florida continues, with substantial completion expected late in 2027. Multifamily remains an important source of recurring earnings and value. Our focus is improving operations and completing existing commitments as we build industrial scale. On mining royalties, mining generated $4.1 million of NOI in the quarter, up 10%, and $12 million through nine months, up 12%. It produces meaningful cash flow with limited incremental capital requirements, helping fund our industrial investment and providing financial flexibility through the development cycle.

Now to the earnings trajectory and some context before the numbers. From 2019 through 2024 our pro rata NOI grew from $14.2 million to $38.1 million. More recently, NOI has softened as multifamily performance weakened, industrial vacancy persisted, and completed developments began incurring costs ahead of rental income. Our investment in industrial creates an opportunity to grow earnings, but realizing that opportunity requires leasing and stabilization.

Our current full-year 2026 forecast is approximately $35.8 million of pro rata NOI and $15.6 million of FFO, compared with $37.9 million of pro rata NOI in 2025. For Lakeland, Davie, Camp Lake, and our three merchant projects, we expect approximately $2.1 million of property operating costs and taxes in 2027. After leasing offsets, including interest, the total effect on FFO is approximately $7.1 million. Leasing and mining growth together should offset approximately $2.5 million of that pressure on FFO across the assets we already own, and with the projected industrial growth due to leasing, we see the potential for approximately $50 million of annualized pro rata NOI and $20 million of FFO at stabilization. Achieving that requires additional leasing and occupancy and funding the remaining leasing costs. The timing of these estimates depends on how quickly we fill our buildings with tenants who are paying rent.

Turning to the balance sheet, at September 30th we held $73.2 million of cash, cash equivalents, and restricted cash. We had $12 million drawn under our $50 million credit facility with Wells Fargo, which funded the Woven bridge loan, and $37.0 million remained available. We expect to invest approximately $3 million in maintenance capital and projects under development through the remainder of 2026 and approximately $57 million across 2027 and 2028.

That includes $36 million to maintain, lease, and develop our existing industrial portfolio and pipeline, $14 million for our multifamily assets, and $7 million for second-life mining opportunities at Brooksville and Fort Myers. In addition, we have a $20.5 million Opportunity Zone tax liability coming due in 2027. Our Form 10-Q reports consolidated debt of approximately $231.7 million at September 30, including $53.6 million of variable-rate borrowings. After adjusting for our ownership in consolidated and unconsolidated ventures, the filing reports approximately $324.9 million of pro rata debt including the corporate credit facility. Over the next 24 months, loans representing approximately $166 million of FRP’s share have initial maturities. Extension options are subject to conditions.

Refinancings and extensions may require additional capital depending on property performance, lender requirements, credit market conditions, and our partners’ participation. We intend to use our balance sheet capacity to complete and stabilize the projects underway, satisfy our tax obligation, and preserve flexibility as we undertake our upcoming refinancings. In closing, our priorities are clear: bring signed leases through to occupancy and rent commencement, lease the remaining vacancy, and complete and stabilize the industrial projects underway. Alongside that, we need to improve multifamily performance and preserve the financial capacity to execute. This quarter’s leasing demonstrates progress. Our highest operating priority is to sustain that momentum and convert available space into recurring NOI while managing the remaining investments.

We will demonstrate that progress through higher occupancy, rent commencement, and operating results. With that, I’ll turn the call over to Mark.

Mark Levy (Chief Investment Officer)

Thanks, David, and good morning everyone. I’d like to start by putting this quarter’s progress into perspective. As David mentioned, the third quarter represented our strongest leasing performance in several years, an encouraging development that reflects both improving tenant activity and the changes we’ve made to our leasing efforts. Over the past several quarters, we’ve taken a highly disciplined, proactive approach to leasing by strengthening broker relationships, improving market intelligence, and bringing greater accountability to the process.

These changes include hiring a highly seasoned asset management team, streamlining internal decision making, using real-time data analytics at the deal and market levels, leveraging both internal resources and AI, and reforecasting quarter by quarter to ensure our underwriting reflects real-time market conditions. We have also completely changed our external market interface and created a universal, customer-centric program for how we present vacant space.

These measures have increased tour velocity and the speed in which we engage prospective tenants. Additionally, compared with the past, FRP is a much more geographically diverse company today than it has ever been. Our portfolio now extends beyond our traditional Maryland footprint into Florida and New Jersey, providing exposure to several distinct markets and tenant bases. We believe this diversification reduces our dependence on any single regional economy and positions us to benefit from different sources of tenant demand.

In our industrial portfolio from 2021 to 2023, we observed record-setting leasing activity in virtually all markets. Buildings were often delivered partially or fully pre-leased. This is an historical anomaly, as we typically assume buildings take between 15 and 18 months to lease. While we seek to outperform this benchmark, it nonetheless remains a normalized operating metric. We observe tenant improvements taking six to nine months to complete on average, which delays rent commencement after lease execution.

It is also reasonable to assume rent concessions could add another three to five months of rent commencement delay, depending on the market. To reduce this delay, we are proactively permitting and/or constructing generic tenant improvements which can be more easily modified as needed and allow a tenant to occupy sooner. Another important consideration is our cost basis. We acquired or developed our legacy industrial assets at costs that in many instances are below today’s replacement cost. That gives us flexibility to compete for tenants and to offer competitive terms while maintaining our internal return requirements. As we have reported previously, headwinds remain, including tariffs, higher transportation and labor costs, and elevated moving costs, namely the cost of constructing tenant improvements and installing fixtures and equipment.

However, tenants are seeing a continued narrowing of modern constructed supply and a significant reduction in pending completions as construction starts have fallen sharply over the last two years, driven by a range of issues from financing costs to entitlement challenges. This has led many tenants seeking more efficient, well-located space to make new commitments, driven by the need to accommodate automation and to seek more efficient warehousing layouts and configurations.

We have several examples of these drivers manifesting themselves in our leasing data in the preceding quarter. Last, we continue to build the foundation to deliver best-in-class industrial space with a focus on the Sun Belt and infill New Jersey proximate to the Port of New York and New Jersey, where container volumes remain strong and continue to erode market share from West Coast ports, primarily Los Angeles/Long Beach. We are therefore seeking new opportunities where we can create incremental value through entitlement, redevelopment, or repositioning and remain highly disciplined relative to cost basis.

This typically means longer pre-development periods and contract structures in which we close conditioned on entitlements being in place as well as having prearranged equity and debt financing commitments. These pursuits in no way distract from or diminish our primary focus on stabilizing our current portfolio. With that, I’ll turn it over to John.

John D. Baker III (Chief Executive Officer)

Thank you, Mark, and good morning to everyone on the call. I want to begin by thanking everyone who took the time to share their opinions with us on last quarter’s call. I mean this sincerely. It is a real privilege to report to a group of people who are as passionate about the company as we are. We are sensitive to how all of you must feel about where the stock price is right now, especially those of you who have been with us for years. We are expanding more aggressively than we ever have previously and the results of this growth will not materialize overnight.

The stock, in my opinion, reflects the growing pains associated with this expansion, but not the ultimate payoff. We set down this path because the opportunity was there, we have the balance sheet to support it, and most importantly because we know the value it will create upon stabilization. The assets we already own give us the potential to grow annual pro rata NOI to approximately $50 million at stabilization, roughly 40% above our current 2026 forecast.

Beyond that, we have put in place a best-in-class team that will allow us to scale, mitigate market risk by enlarging our geographic footprint, and produce additional sources of income in these geographies—build-to-suits, asset management, merchant and fee development opportunities—things that we never could have done before. In order to accomplish that, every dollar we have is either going into the investment capital required to make it happen or maintaining what we feel is a responsible capital cushion to protect the assets. Realize that stabilization and $50 million in NOI isn’t going to happen tomorrow, but the work needed to create that income is happening right now. This quarter of leasing, as everybody noted, was a big step in that direction. The entire team is focused and energized by the opportunity to keep that momentum going through the end of the year and into 2027.

But more importantly, we are beyond excited about the company we are on our way to becoming. We have the team and the assets, and we will continue to execute on the work in front of us in order to achieve it. Passion and belief about where we are headed is the reason why management has purchased nearly half a million shares so far this year. I don’t take your patience for granted, but I am asking for it because I know where we are headed and I want you to be with us when we get there.

I think we can open the call up for questions at this time.

OPERATOR

Thank you. The floor is now open for questions. If you wish to join the queue to ask a question at this time, please press star one. We do ask if listening on speakerphone today, please pick up your handset while asking your question to provide optimal sound quality. Once again, please press star one on your phone at this time to join the queue to ask a question. As a reminder, please limit yourself to one question and you may re-queue with additional questions.

Please hold a moment while we poll for questions. First question from Stephen Farrell with Oppenheimer. Please go ahead.

Stephen Farrell (Analyst)

Good morning.

Matt McNulty (Chief Financial Officer)

Morning, Stephen.

Stephen Farrell (Analyst)

Just looking at the development and CapEx pipeline, it looks like Opportunity Zone taxes are really the only big cash flow in ’27 and then potential pay downs from refinancing. Do you have like a potential impact or cash flow for the refinancings?

Matt McNulty (Chief Financial Officer)

Well, we don’t know. The refinancings may or may not require capital when we get there. It just depends on, kind of how David said, how the performance is and lender requirements to meet debt yield and other targets. So we just don’t know. We don’t know that we have any capital requirements of refinancings other than expenses, which—they are pretty expensive—but we don’t know if we’ll have to pay down principal.

Stephen Farrell (Analyst)

And then just a quick follow-up on that is, are we growing just to get bigger or because this is the best way to allocate capital? Because when I look at where the stock is trading and relative to the five-year and the unlevered yield and cost of the developments, to me it seems like buying back stock is the most attractive option right now. And I’m not saying take every dollar on the balance sheet and put it towards buybacks, but I don’t think a $5 million buyback puts the company or future developments in jeopardy.

So what am I missing?

Matt McNulty (Chief Financial Officer)

Well, I think in David’s section he laid it out the best. We’ve got $80 million or $70 million of cash and some $70 million of commitments just to complete what we’ve started. So the— and the refinancings and the OZ tax, we just, we don’t feel it’s a good time to return capital right now to shareholders. I know the stock price will tell you it is, but we’ve got to get through what we’ve started and get through 2028 and then we’ll see where we are at that point.

At that point we’ll have a lot more cash flow coming in. We don’t have actual commitments committed past that right now. And so that’s kind of our plan. Our plan is to finish what we started, keep a nice cushion, get through the refinancings, and get our buildings leased up and see where we are in 2029.

Mark Levy (Chief Investment Officer)

Yeah, I would be— I was just going to add that the market’s going through a pretty significant repricing right now, especially as it relates to land value. So when we look at new development from a return on cost perspective, you know, we’re basically in the low seven—call it 7 to 7¼—return on cost as sort of being our minimum threshold. So that’s obviously got some significant spread against the five-year. But that is sort of the discipline that we’re, you know, bringing to any new opportunities, is to really take advantage of the repricing that’s happening, number one.

And then, you know, solving for an untrended yield on cost that would be, you know, somewhere on the order of 200-plus over the five-year.

John D. Baker III (Chief Executive Officer)

And, Stephen, to kind of summarize some of the things that Matt and Mark have said and some of the comments that we heard previously, we recognize the math, and we’re not ruling repurchases out permanently. Our first call on capital today is the industrial portfolio. It is, and that is where we believe the return on the incremental dollar is highest. And because the buildings we have already paid for need leasing capital and the balance sheet needs to stay flexible for these refinancings that are coming up, that’s where our heads are at.

And as recurring earnings grow beyond our investment requirements and we take care of these refinancings and we feel that we have an appropriate cushion, we will 100% evaluate how best to return excess capital. But we would rather demonstrate the earnings first. We have got to demonstrate consistent, growing earnings first before we announce any type of policy.

Stephen Farrell (Analyst)

Thank you. That’s all I have.

Matt McNulty (Chief Financial Officer)

Thanks, Stephen.

OPERATOR

Thank you. We have no further questions in queue. I will turn the call back over for closing comments.

John D. Baker III (Chief Executive Officer)

Again, I just want to thank everybody for your continued interest in the company. And this concludes the call.

OPERATOR

Thank you. Ladies and gentlemen, this concludes your conference call for today. You may disconnect your phone lines and have a wonderful day. Thank you for your participation.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.