Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Date

Thursday, August 7, 2025 at 9 a.m. ET

Call participants

  • Chief Executive Officer — John D. Baker III
  • Chief Operating Officer — David H. deVilliers
  • Chief Financial Officer — Matt

Need a quote from a Motley Fool analyst? Email [email protected]

Risks

  • CEO John D. Baker said, "the flattening of NOI we have talked about for 2025 will in all likelihood start in the second half of this year," referencing the absence of a non-recurring $2 million mining royalty payment that boosted Q3 2024 results.
  • Management cited uncertainty in trade policy and economic conditions as causing "headwinds in leasing velocity," pressuring lease-up rates.
  • High industrial and commercial vacancies—over 400,000 square feet—are expected to impact near-term NOI until occupancies improve.

Takeaways

  • Net income -- Decreased 72% to $600,000, or $0.03 per share, due to due diligence-related legal expenses and lower interest income.
  • Pro rata NOI -- Increased 5% to $9.7 million, largely from higher multifamily and mining royalty segment contributions.
  • Multifamily NOI growth -- Segment NOI up $57,000, supported by The Verge, which added $733,000 in NOI and $2.8 million in revenue this quarter.
  • Mining segment performance -- Mining royalty NOI up $637,000, totaling $3.7 million, reflecting a 21% increase; segment revenues rose 12% to $3.6 million.
  • Commercial and industrial segment NOI -- Fell 15% to $1 million on a 5% segment revenue decline, attributable to 64,000 square feet of expiring leases and a tenant default in Q1 and 100% vacancy at the new 258,000 square foot Perryman warehouse.
  • Vacancy rate—industrial/commercial segment -- Vacancies represent 50% of this segment's footprint, with over 400,000 square feet vacant, primarily due to recent project deliveries and lease expirations.
  • Multifamily occupancy -- Apartment occupancy ended at 94%, with retail occupancy at 83% within the segment's 1,827 units and 125,000 square feet of retail.
  • Same-store multifamily -- FRP's share of revenues grew 3.2% to $7.1 million, with NOI up 1% to $4 million, for properties including Dock, Maren, Riverside, 408 Jackson, and Bryant Street.
  • Rent and renewal metrics -- Renewal rates ranged from 52%-75% with average rental rate increases above 3.6% for multifamily units.
  • Development pipeline -- Over 1.8 million square feet of industrial and commercial additions under entitlement and construction, with two Florida JV projects (with Altman Logistics Partners) totaling 382,000 square feet targeted for shell completion by summer 2026 and a new JV (with Strategic Real Estate Partners) launching 375,000 square feet in Lake County, Florida.
  • Annualized NOI from new developments -- Stabilized NOI from new industrial JV projects expected at about $9 million, with FRP’s share just under $8 million upon lease-up.
  • Lending ventures -- Aberdeen Overlook, a land development lending project for 344 building lots in Maryland, $31.1 million total committed, $27 million drawn, $22.2 million repaid, and a projected $11.2 million interest/profit (36% profit on funds drawn); all lots expected to be purchased by Q4 2027.
  • Upcoming multifamily project -- Secured $87.8 million construction financing for "Woven" in Greenville, SC, a joint venture with Woodfield Development, featuring 214 units and 13,500 square feet of retail, with lease-up set for Q4 2027 and substantial tax credit incentives awarded.
  • Management guidance -- NOI is expected to be flat during 2025 due to the elevated vacancy and the impact of non-recurring revenue recognized in 2024; meaningful NOI growth is anticipated after project lease-ups in 2026.
  • Industrial lease-up strategy -- Current market rental rates for industrial leases exceed the expiring average of $6.55 triple net; management aims to re-lease vacant space at higher rates.
  • Legal expenses for business opportunity -- CEO John D. Baker stated, "we are pursuing a business opportunity and those legal expenses are related to it," explicitly denying a change in company strategy.

Summary

FRP Holdings (FRPH 1.98%) reported substantial year-over-year declines in net income driven by increased legal expenses linked to a prospective business transaction and reduced interest income. Mining royalties provided the bulk of NOI growth, compensating for lower results in industrial and commercial properties, which experienced significant vacancy from new supply and tenant fallout. Execution on an expanded industrial and multifamily development pipeline, including new joint ventures in Florida and targeted lease-ups, underpins long-term growth with management expecting near-term NOI stagnation due to the lack of non-recurring payments in 2025. Fresh multifamily financing and progress on large industrial entitlements position the company to benefit when leasing conditions improve, though market and operational risks remain elevated in the near term.

  • Management executed a new industrial joint venture with Strategic Real Estate Partners to expand exposure in Central Florida and unlocked options for future adjacent site investments.
  • New deliveries in the D.C. multifamily market are applying downward pressure on revenue growth and rental concessions, while Greenville, South Carolina assets are experiencing NOI improvement.
  • Entitlement delays at the major Cecil County, Maryland project have pushed permit expectations to early 2026, with anticipated focus on securing a build-to-suit commitment.
  • Securing state and local tax credits for the Greenville "Woven" multifamily development enhances project economics over the next two decades.

Industry glossary

  • NOI (Net Operating Income): Total property revenue less operating expenses, before interest and taxes; a common measure of real estate segment performance.
  • Triple net lease (NNN): Lease structure where the tenant pays base rent plus all property taxes, insurance, and maintenance costs.
  • Entitlement: Securing legal and regulatory approvals necessary for property development or redevelopment prior to construction.
  • Shell completion: Stage in construction where the building's structure and exterior are finished, ready for tenant fit-out.

Full Conference Call Transcript

Now for the financial highlights from our second quarter results. Net income for the second quarter decreased 72% to $600,000 or $0.03 per share versus $2 million or $0.11 per share in the same period last year due primarily to due diligence-related legal expenses and lower interest income. The company's pro rata share of NOI in the second quarter increased 5% year-over-year to $9.7 million, mostly driven by higher contributions from our multifamily and mining royalty segments. More specifically, versus the year ago period, the multifamily segment contributed an additional $57,000 of NOI and the mining segment contributed an additional $637,000 of NOI.

It is worth noting that our Industrial and Commercial segment NOI decreased by $177,000 year-over-year due mainly to the vacancy and uncollectible revenue as a result of a tenant eviction in Q1 and lease expirations during Q2. We anticipate that we will see relatively flat NOI during 2025 versus 2024 as we work to lease up our Chelsea project and replace vacancies at our Cranberry Industrial Park this year and into the first half of 2026. whereafter we anticipate we will resume meaningful year-over-year NOI growth. I will now turn the call over to our Chief Operating Officer, David deVilliers, for his report on operations. David?

David H. deVilliers: Thank you, Matt, and good morning to those on the call this morning. Allow me to provide additional insight into the second quarter results of the company. Starting with our Commercial and Industrial segment. This segment consists of 10 buildings totaling nearly 810,000 square feet, which are mainly warehouses in the state of Maryland. Total revenues and NOI for the quarter totaled $1.4 million and $1 million, respectively, a decrease of 5% and 15% over the same period last year. The decrease was due to 64,000 square feet of tenant leases expiring in Q2.

57,000 square feet attributed to a tenant defaulting on its lease and the recent completion of our 258,000 square foot state-of-the-art Class A warehouse building in the Perryman industrial sector of Harford County, Maryland, which was 100% vacant in the quarter. These vacancies total 50% of the business segment and a focus to lease and increase occupancy is a priority. Moving on to the results of our Mining and Royalty business segment. The division consists of 16 mining locations, predominantly located in Florida and Georgia with 1 mine in Virginia. Total revenues and NOI for the quarter totaled $3.6 million and $3.7 million, respectively, an increase of 12% and 21% over the same period last year.

As for our Multifamily segment, this business segment consists of 1,827 apartments and over 125,000 square feet of retail located in Washington, D.C. and Greenville, South Carolina. At quarter end, 94% of the apartments were occupied and 83% of the retail space was occupied. Total revenues and NOI for the quarter were $14.6 million and $8.2 million, respectively. FRP's share of revenues and NOI for the quarter totaled $8.5 million and $4.7 million, respectively. This is an increase over prior quarters due to The Verge being included in this segment as of July 1, 2024. The Verge contributed $2.8 million and $733,000 in revenue and NOI this quarter.

As a same-store comparison, which includes Dock, Maren, Riverside, 408 Jackson and Bryant Street, FRP's share of revenues and NOI for the quarter totaled $7.1 million and $4 million, respectively, a revenue increase of 3.2% with NOI up 1% over the same period last year. As stated in previous quarters, new deliveries in the D.C. market will continue to put pressure on vacancies, concessions and revenue growth in the foreseeable future. However, we are seeing NOI growth in our Greenville, South Carolina properties, which hit 3% in Q2. Management continues to be diligent in tenant retention and rental rates in the market.

We are pleased to have renewal success rates ranging from 52% to 75% with renewal rental rate increases trending over 3.6% on average in Q2. Now on to the Development segment. In terms of our commercial industrial development pipeline, our 2 industrial joint venture projects, where FRP is a majority partner with Altman Logistics Partners are under construction. The projects are in Lakeland and Broward County, Florida, totaling over 382,000 square feet and shell completion is anticipated by the summer 2026. On July 23, 2025, subsequent to quarter's end, we entered into a new joint venture agreement with Strategic Real Estate Partners, a private real estate development firm, which specializes in industrial real estate development.

We plan to break ground and develop over 375,000 square feet in 2 buildings in Lake County, Florida, near Orlando, with options for investment in additional industrial development on adjacent properties in the future. We expect to break ground in Q3 with shell building completion expected in the second half of 2026. In CecI'll County, Maryland, along the I-95 corridor, we are in the middle of predevelopment activities on 170 acres of industrial land that will support a 900,000 square foot distribution center. Off-site road improvements, reforestation codes and obtaining off-site wetland mitigation permits delayed our entitlement process, and we expect permits in early 2026 with a focus on attracting a build-to-suit opportunity.

Finally, we are in the initial permitting stage for our 55-acre track in Harford County, Maryland. The intent is to obtain permits for 4 buildings totaling some 635,000 square feet of industrial product. Existing land leases for the storage of trailers on site helped to offset our carrying and entitlement costs until we are ready to build. We submitted our initial development plan during the quarter, which puts us on track to have vertical construction permits in 2026 and the potential to start a 212,000 square foot building pending market conditions in 2027. Completion of these projects will add over 1.8 million square feet of additional industrial commercial product to our platform.

Our 3 joint venture projects in Florida represent over 75,000 square feet in new product alone that will be available for lease-up in 2026. When stabilized, these projects are expected to generate annual NOI around $9 million with FRP's share of NOI just under $8 million. Turning to our principal capital source strategy or lending ventures. Aberdeen Overlook consists of 344 lots located on 110 acres in Aberdeen, Maryland. We have committed $31.1 million in funding. $27 million was drawn as of quarter end and over $22.2 million in preferred interest and principal payments were received to date. The national homebuilder is under contract to purchase all the finished building lots by Q4 2027.

160 of the 344 lots were closed upon, and we expect to generate interest and profits of some $11.2 million, resulting in a 36% profit on funds drawn. In terms of our multifamily development pipeline, on May 30 of this year, we secured construction financing for our multifamily joint venture with Woodfield Development, known as Woven. This is our third multifamily project in Greenville, South Carolina. This is an $87.8 million project with 214 units and 13,500 square feet of ground floor retail that is eligible to receive South Carolina textile rehabilitation credits upon substantial completion and received special source credits equal to 50% of the real estate taxes for a period of 20 years.

The project is expected to be ready for lease-up in Q4 2027. In closing, uncertainty around trade policy, the economy and financial markets has caused headwinds in leasing velocity. Firms are focused on existing supply chains and delaying leasing decisions until a clear path forward reveals itself. However, rental rates remain strong, industrial space under construction has fallen below pre-pandemic norms Market vacancies are expected to top out in the second half of 2025 and hopefully, some clarity on tariffs will be forthcoming, which should all bode well for demand and rent growth as we deliver our new industrial projects in 2026.

With the delivery of our 258,000 square foot Perryman warehouse in the quarter, we have over 400,000 square feet of vacant space in our Industrial Commercial segment, all located in Maryland. This will impact NOI in the short term, but will allow us the opportunity to re-lease space at the higher current market rates, bolstering NOI upon lease-up and occupancy. The average rental rate of the expiring industrial leases was $6.55 triple net, and we are hopeful most of our new rental rates start in the 7s or greater.

It is our plan to continue to monitor markets, assess the impacts of tariff uncertainty, focus on leasing of our existing industrial space and manage the delivery of new industrial product for lease-up in 2026. Thank you. And I will now turn the call over to John Baker III, our CEO.

John D. Baker: Thank you, David, and good morning to all of those on the call. For the last 2 quarters, we have cautioned investors to temper their expectations regarding our NOI growth. The pace at which we are growing would have been difficult to maintain under the best of circumstances, but the pivot in asset classes we were focusing on developing also led us to believe NOI would be flat, if not slightly negative during the time it would take us to lease up the first building in our industrial development growth strategy. Results through the first half of 2025 are not inconsistent with those expectations. but also are more favorable than we might have expected.

We are certainly not growing NOI at the same rate we've seen in the last 4 years, but we have also not yet experienced the contraction in NOI we anticipated and war investors might be a possibility. Q2 saw a 5% increase in pro rata NOI compared to last year, and we have grown our pro rata NOI by 7% through the first half of the year compared to the same period last year. We have seen nominal growth in our multifamily NOI, but almost all of our NOI growth is a result of increases in our mining and royalties NOI, which is up 21% in Q2 2025 compared to 2024 and 20% for the first 6 months.

The performance of this segment has been enough to offset NOI decreases in our Industrial segment associated with the loss of our tenants at our Cranberry Business Park and the operating expenses of our new Chelsea building during the time it takes to get that asset occupied. Looking forward to the rest of the year, I still believe we will have our work cut out for us to match 2024's NOI numbers. If you recall, in Q3 2024, the company experienced a massive infusion of NOI in the Mining and Royalty segment due to a onetime minimum payment, which added $2 million in unrealized revenue in the segment's NOI.

This straight line across the life of the lease for GAAP revenue purposes. From an NOI perspective, this payment happened all at once and it's clearly not going to repeat in the third quarter of this year. The shortfall is unlikely to be made up through any increases in sales and price. Given that mining royalties has been the driver of NOI growth this year and the segment is unlikely to match its NOI numbers from Q3 due to a non-repeatable event, the flattening of NOI we have talked about for 2025 will in all likelihood start in the second half of this year. I clearly take no joy in putting a negative spend on another positive quarter.

But as I have said countless times, we are not a quarter- to-quarter company. Our goal this year is to lay out the groundwork for future NOI growth by filling our vacancies, executing the projects we currently have under construction to our very high standards and putting money to work in new projects. Specifically, this means staying on track to deliver our 2 industrial JVs in Lakeland and Broward County, Florida, by the end of Q2 2026, continuing to entitle our industrial pipeline in Maryland so that all projects are shovel-ready next year. And finally, our latest industrial joint venture to develop 2 warehouses totaling 377,892 square feet in Minneola, Florida, just outside of Orlando.

This is another step in both our shift in focus to industrial as well as further expansion of our development footprint and the means we use to achieve this expansion on our way to doubling the size of our industrial portfolio by 2030. I will now turn the call over to any questions that you might have.

Operator: [Operator Instructions] We'll take a question from David Foley with Estabrook Capital Management.

David Patrick Foley: A quick question. It looked like in the quarter, you spent a fair amount of money on legal for -- you referred to a potential new investment. I know you probably can't speak too much about that. But is that a shift in strategy of what you're doing in terms of perhaps looking at something that's a little larger to go and buy? Or is that sort of a process type thing? Or what's sort of the thinking around that, I guess?

John D. Baker: Dave, it's not a shift in strategy, and you have kind of hit the nail on the head in terms of what we can and can't talk about. All we can say at this time is that we are pursuing a business opportunity and those legal expenses are related to it.

David Patrick Foley: Okay. It seems like a big one.

David H. deVilliers: Your words.

Operator: [Operator Instructions] And it does appear that there are no further questions at this time.

John D. Baker: All right. Well, we appreciate all those who joined us on the call and listening after the fact and obviously, appreciate your continued interest and investment in the company, and we conclude the call at this time.

Operator: This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful afternoon.