FRP Holdings (FRPH) Q3 2026 Earnings Call Transcript

DATE

Nov. 5, 2026

CALL PARTICIPANTS

• Chief Financial Officer - Matthew McNulty
• Chief Executive Officer - John Baker, III
• Chief Operating Officer - David deVilliers III
• Chief Investment Officer - Mark Levy
• Chairman - John Baker II
• Vice Chairman - David deVilliers, Jr.
• Executive Vice President - John Milton
• Chief Accounting Officer - John Klopfenstein

TAKEAWAYS

• Net Loss Per Share -- $0.06 for the first nine months of 2026, compared to a profit of $0.16 per share in the prior-year period, primarily due to lower interest income and higher administrative costs.
• Pro Rata Net Operating Income (NOI) -- $9.0 million for the third quarter, a 5% decrease from $9.5 million in the prior year, reflecting underperformance in the multifamily and industrial segments.
• Industrial Leasing Volume -- 126,682 square feet signed during the quarter, representing the most active leasing period since the second quarter of 2021.
• Maryland Industrial Occupancy -- 71.4% average across nine in-service buildings, down from 72.4% a year ago, though quarter-end occupancy improved to 74.3% following a new lease commencement.
• New Industrial Lease Revenue -- $1.1 million in annual property-level base rent, driven by new agreements in Maryland and Florida that are expected to begin paying rent in 2027.
• Industrial Renewal Revenue -- $488,000 in property-level annual base rent, secured through three renewals with starting rates 4.1% above prior rents.
• Development Pipeline Potential -- 1 million square feet of industrial space at Chelsea, Lakeland, Davie, and Camp Lake, which is estimated to generate $12 million in annual pro rata NOI at stabilization.
• Full Portfolio Stabilization Target -- $50 million in annualized pro rata NOI and $20 million in FFO, which management believes is achievable through the leasing of existing vacancies and completed developments.
• Multifamily Pro Rata NOI -- $4.0 million in the third quarter, a 12% decline from $4.6 million last year, as the segment faced pressure from higher operating expenses and increased concessions.
• Bryant Street Performance -- $1.4 million in pro rata NOI, a decrease of $273,000 from the prior year, accounting for more than half of the total multifamily segment decline.
• D.C. vs. Greenville Rental Rates -- 2.5% average renewal increases in Washington, D.C. assets, compared to 4.5% in Greenville, South Carolina, where occupancy remained above 95%.
• Mining Royalty NOI -- $4.1 million for the quarter, a 10% increase from $3.8 million last year, driven by favorable volume and pricing trends.
• Mining Volume and Pricing -- 6.9% increase in royalty tons and a 3.0% rise in revenue per ton, contributing to a total 12% increase in mining NOI through the first nine months of 2026.
• Fiscal 2026 Guidance -- $35.8 million in projected pro rata NOI and $15.6 million in FFO, representing a decline from $37.9 million in pro rata NOI in 2025.
• 2027 Financial Pressure -- $7.1 million in total projected pressure on FFO due to interest and operating costs from new deliveries, partially offset by $2.5 million in expected leasing and mining growth.
• General and Administrative (G&A) Expenses -- Increased $3.3 million over the first nine months of the year, reflecting higher personnel and integration costs following the Altman acquisition.
• Investment Income -- Decreased $3.0 million through nine months, resulting from lower interest on cash balances and a reduction in lending venture income on lower loan balances.
• Cash and Liquidity -- $73.2 million in cash and cash equivalents as of Sept. 30, with $37 million remaining available on a $50 million credit facility.
• Capital Expenditure Forecast -- $57 million planned across 2027 and 2028, including $36 million for the industrial portfolio and pipeline.
• Tax and Debt Obligations -- $20.5 million opportunity zone tax liability due in 2027 and $166 million in pro rata debt maturities reaching initial expiration over the next 24 months.

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RISKS

• Matthew McNulty stated, "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," noting the specific challenges impacting the Washington, D.C. market.
• Matthew McNulty warned that refinancings and extensions may require additional capital depending on property performance, lender requirements, and credit market conditions as a significant portion of the company's debt matures.

SUMMARY

FRP Holdings, Inc. (NASDAQ:FRPH) reported a decrease in quarterly pro rata net operating income as growth in its mining segment was offset by persistent performance challenges in its Washington, D.C. multifamily portfolio and increased administrative costs following the Altman acquisition. Management stated that the company is transitioning toward an operational phase focused on leasing approximately 1 million square feet of newly delivered industrial space to convert recent capital investments into recurring cash flow. The company indicated it will prioritize industrial stabilization and debt management over other capital allocation options to maintain financial flexibility for upcoming project completions, refinancings, and tax obligations.

• Mark Levy noted that industrial tenants are responding to a "continued narrowing of modern constructed supply" and a reduction in pending completions as construction starts have fallen significantly over the last two years.
• Management reported that the company's three merchant build projects in Florida and New Jersey are in the early stages of lease-up and are intended for monetization following stabilization to recycle proceeds into future opportunities.
• To accelerate rent commencement, Mark Levy stated the company is "proactively permitting and/or constructing generic tenant improvements" to allow tenants to occupy space sooner.
• The company is diversifying its industrial footprint beyond Maryland into the Sunbelt and New Jersey, which management believes reduces dependence on any single regional economy.
• John Baker III reported that management has purchased nearly 0.5 million shares of the company so far this year, citing confidence in the value creation expected upon stabilization of current assets.
• David deVilliers III indicated that the long-term vision is to build an industrial operating portfolio that generates the majority of the company's recurring earnings.

INDUSTRY GLOSSARY

• NOI (Net Operating Income): A financial metric used to assess the profitability of income-generating real estate, calculated as all revenue from the property minus all reasonably necessary operating expenses.
• FFO (Funds From Operations): A measure of the cash generated by a real estate investment trust or property company, typically adding depreciation and amortization back to earnings.
• Pro Rata: A method of calculating financial figures based on the company's specific percentage of ownership in various joint ventures and consolidated assets.
• Merchant Build: A strategy where a developer constructs a property with the intent to sell it shortly after stabilization rather than holding it for long-term income.
• Opportunity Zone: A federally designated area in the U.S. where certain investments may be eligible for preferential tax treatment.
• Basis Point: A unit of measure for interest rates and other percentages in finance, equal to one one-hundredth of one percentage point (0.01%).

Full Conference Call Transcript

Operator: Hello, Good morning, and welcome to the FRP Holdings Inc. Third Quarter 2026 Conference Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Matt McNulty, CFO. The floor is yours.

Matthew McNulty: 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 deVilliers 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 9 months ended September 30.

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 include 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 leased 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 9 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 3 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 stabilization. This is our focus for the foreseeable future, leasing what we have spent the last 2 years delivering. I will now turn the call over to our President and Chief Operating Officer, David deVilliers III, for his report. David?

David deVilliers: 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 9 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 3 tenancies for 5 years, securing approximately $488,000 in annual base rent and 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 2 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 4 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.

Leasing the vacancies at the Cranberry Business Park could contribute approximately $1 million more in annual recurring NOI and FFO at full occupancy. Our 3 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 Wogan in Greenville, South Carolina and Estero Phase I 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 9 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 3 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 30, 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 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 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 the 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: 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 core 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 a 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 observed tenant improvements taking 6 to 9 months to complete on average, which delays rent commencement after lease execution. It is also reasonable to assume rent concessions could add another 3 to 5 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 2 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 Sunbelt 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 L.A. 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 predevelopment 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 Baker: 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 payoffs. 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 of 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 to 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. The passion and belief about where we are headed is the reason why management has purchased nearly 0.5 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: [Operator Instructions] First question from Stephen Farrell with Oppenheimer.

Stephen Farrell: 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 paydowns from refinancing. Do you have like a potential impact or cash flow for the refinancings?

Matthew McNulty: I mean -- we don't know. The refinancings may or may not require capital when we get there. It just -- it depends on kind of how the -- as 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: 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 5-year and the unlevered yield and the cost of the developments, 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 the company or future developments in jeopardy. So what am I missing?

Matthew McNulty: 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 with that and the refinancings and the 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 where we -- 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: I was just going to add that the market is 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, we're basically in the low 7%, call it, 7% to 7.25% return on cost as sort of being our minimum threshold. So that's obviously got some significant spread against the 5-year, but that is sort of the discipline that we're bringing to any new opportunities is to really take advantage of the repricing that's happening, number one, and then solving for an untrended yield on cost that would be somewhere in the order of 200 plus over the 5-year.

John Baker: 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.

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

John Baker: 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.

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