John Baker - Chairman and Chief Executive Officer David deVilliers - President John Milton - Chief Financial Officer John Klopfenstein - Treasurer and Chief Accounting Officer

Curtis Jensen - Robotti & Company Richard Carlson - RCS Asset Management Bill Chen - Rhizome Partners Robert Henderson - Rutabaga Capital Management

Thank you and good afternoon everyone. I am John Baker, Chairman and CEO of FRP Holdings, Inc.

And with me today on the call are David deVilliers, our President; John Milton, our CFO; and John Klopfenstein, our Treasurer and Chief Accounting Officer. Before we begin, let me remind you that any statements made today, which relate to the future are by their nature subject to risks and uncertainties that could actual results and events to differ materially from those indicated in such forward-looking statements.

These forward-looking statements are made as of today, based on management’s current expectations. And the company does not undertake an obligation to update such statements, whether as a result of new information, future events or otherwise.

Additional information regarding these and other risk factors maybe found in the company’s filings made from time-to-time with the Securities and Exchange Commission. Highlighting the results for our third quarter was the net income of $25,391,000 or $2.52 per share versus net income for the same 3 months last year of $1,957,000 or $0.20 per share.

Driving this dramatic increase was a gain on re-measurement of investment of $60.2 million in the Dock 79 real estate partnership in Washington DC. During the quarter, the project achieved stabilization or 90% plus occupancy of its apartments.

As a result of that, the company is now considered for accounting purposes to have control of the partnership without any transfer of consideration and is required to write up the value of the assets and liabilities to their fair market value. Previously, the Dock 79 joint venture was accounted for under the equity method.

On the consolidated statement of income, all the revenues and expenses of Dock 79 are reported as net income, including the amounts attributable to the company and our partner MRP Realty. The amount of new income attributable to our partners area, is clearly identified as non-controlling interest.

Looking past the dramatic impact of the re-measurement, there was significant progress made in other aspects of the company. Occupancy of our Asset Management segment was increased from 86.8% at the end of June to 91.3%, an increase of 4.5% in a single quarter.

In our Mining Royalty Lands segment, our tenant, Vulcan Materials Company, received the permits and began mining on our property in Fort Myers, Florida. While the revenues were not impactful in this quarter because of prepaid minimums royalties being recovered, they will begin to impact revenues beginning in the fourth quarter.

As important as are the royalties themselves, this mining will lead to the development of a large lake in a 105 1-acre developable lots at the conclusion of mining, which we estimate to be 8 to 10 years from now. Additionally, now that we are 96% leased and 95% occupied at Dock 79, the financial results will be meaningful going forward.

While the net income from this project may actually be negative as a result of the increased depreciation and amortization resulting from the re-measurement, the net operating income from the project will be significant. In the third quarter, the NOI from the project was $1,388,000 and that included limited revenues from the retail portion of the project, which will begin to kick in going forward into next year.

Given the substantial cash flow impact of this project to the company, we are excited about the future of the company in DC, as we look forward to developing 4 more projects along the Anacostia River in the next 10 years. Finally, as you know, we’ve worked hard to position ourselves to be able to convert to a real estate investment trust.

There is significant advantages and disadvantages to this structure. And we have decided to postpone our decision on this matter until there is clarity one way or the other as to future tax code revisions.

Presumably, that will be in 2018, but that’s not for us to say. In the meanwhile, and specifically in 2017, we will remain a C corporation.

Now if I could, let me turn it over to our President, David deVilliers, to walk you through our segments. David?

Thank you, John and good day to those on the call this afternoon. As John articulated in his opening remarks, we had a busy and I must say, a productive quarter in all of our business segments.

Relative to the Asset Management segment, total revenues from our building platform for the quarter just ended were up 3.5% to $7,578,000 over the same period last year, mainly due to higher reimbursements for operating expenses and higher straight-lined rents as a result of our increased building platform and increased occupancy. Net operating income, though, was mostly flat versus the same period last year at $5,614,000 due primarily to the straight-lining effect of new leases, with free rent periods that contained an unrealized rent component, which is excluded from the NOI calculation.

We ended this quarter with total occupied square feet of 3,637,236 square feet, an increase of 151,000 square feet or 4.3% over last year same quarter. Our occupancy level increased from the previous quarter ended June 30 to 91.3% from 86.8% and leased square footage from 90.9% on June 30 to 92% at the end of September.

As to same-store, the average annual occupancy for the quarter increased 30 basis points to 90.9% over the same quarter last year. And the corresponding NOI for the same period was down slightly to 3% to 5,296,000 from 5,470,000.

This decrease is primarily due to several large long-term single tenanted building vacancies, partially offset by income from temporary and the beginning months of new leases as well as higher common area and maintenance reimbursables from an increased and reimbursable operating costs. As to our mining and royalty segment, revenues declined for the quarter just ended over the same period last year by 12% or $251,000 to $1,786,000.

This is mainly due to decreases in tonnages sold at several locations because of weather and more normalized volumes at Keuka and Newberry Cement. Total operating profit in this segment was $1,637,000, a decrease of $229,000 versus $1,866,000 in the same period last year.

We do believe that volumes will revert back to previous higher levels in the foreseeable future as construction activity in Florida and Georgia continues to improve. With respect to our Land Development and Construction, this business segment is the main driver behind our growth.

Therefore, as I stated before, this segment generates minimal revenues, but incurs significant cost to accomplish its objectives. Capital expenditures for this quarter were over $2.8 million, most of which was attributable to the ongoing construction of our latest spec building at Patriot Business Park in Manassas, Virginia.

This is our final building in this park. In addition to the actual capital outlays, an extensive amount of time during the quarter was spent on many capital projects, including: one, working with our joint venture partner, MRP with ongoing leasing, marketing and upcoming refinancing strategies for Dock 79 for Phase 1 at RiverFront; two, the predevelopment activities for the next phase of RiverFront; three, the further refining of a PUD application for our Hampstead property to ultimately present it to the appropriate authorities.

The plan is to include several multifamily product types in order to maximize the assets profitability and expedite its disposition. Finally, we have been working with our other joint venture partner to refine and ultimately initiate construction of Phase 1 of our Windlass Run Business Park joint venture, which now includes four buildings, totaling 100,000 square feet of single-storey office and small bay retail space.

Groundbreaking for this exciting new project that will ultimately total over 329,000 square feet of single-storied office and small bay retail was in late August. Of further note, on our Dock 79 project, from an operational standpoint, as John mentioned in his opening remarks, as of September 30, Dock 79 was 96.4% leased and 95% occupied.

More importantly, as the first generation of leases expired over the quarter, the retention rate was in excess of 53% and at an average rental increase of 3.89%, both metrics of which were better than budgeted. In conclusion, we are working hard on backfilling some of our warehouse locations as a result of the inordinate amount of tenants that have vacated since the beginning of this fiscal year and continue to feel positive about the markets that we serve.

The velocity of our marketplace has been strong and barring something unforeseen, we believe it will remain for the foreseeable future. We also have a lot of exciting new projects in the queue and look forward to converting them into income production.

Thank you. And I will now turn the call back to John.

Thanks, David. Now if I may, we will open it up for questions.

Good afternoon, everybody.

Good afternoon.

Looking at Dock 79 and the numbers in the press release, is that – I think John said it, but the revenue for the quarter that’s 100% of the rental revenue, I guess?

It’s 100% of the revenue during the period.

During the period and FRP’s interest is – your economic interest is still 79% or 77% whatever it was?

As a result of the, we call it remeasurement, the partnership agreement had an incentive for the development partner, MRP and if they achieved certain financial results in terms of rents and stabilization and timing, then their interest could improve. And so as a result of that, their interest has improved to about 34% and ours is now about 66%.

So that’s what’s reflected in the non-controlling interest income portion of the 19. That’s like that 34% or whatever.

Correct.

Okay. What’s the status of like the Salt Line and the other retail there at Phase 1?

Salt Line has been up and operating for about 3 months. It’s doing extremely well relative to their budget.

So they are the only one that’s actually operating at the current time. The other ones – the other are under construction.

There is a fair amount of tenant improvement work that has to be done and the rest of them, they are looking to open up sometime after the first of the year and probably try to coordinate with the opening of the baseball season in early March.

Okay. What’s your view – go ahead.

Curtis, we have got leases on 3 of the 4 retail spaces. And there is a good deal of free rent in those spaces.

So as far as having an impact on net operating income, it will be well in the next year before we start getting anything from these retail spaces.

Can you share what a stabilized rental stream would look like assuming you had 100% leased in the retail side or just ballpark it?

Well, I think the appraisers have used and this is their numbers, David, correct me if I am wrong, that the stabilized retail income will be just under $700,000 a year?

That’s correct. That’s correct, John.

Okay. What’s kind of a good cash NOI margin on a multifamily building, like Phase 1, I mean, is 65% a reasonable number or I mean, what’s…

Well, Curtis, what we have – again, what the appraiser came up with was about 67% or 68% of NOI stabilization. So we have got roughly $10 million of rents.

So your number is pretty good.

And how does the partnership with MRP – and then I will turn it over in a minute. I just have couple of more questions.

The partnership with MRP on kind of like Phases 2 through 4 and is it the same deal? I mean, there is a different LLC set up and so forth there?

Phase 2 is the same. Phase 3 and Phase 4 have not been negotiated.

Okay.

MRP has no interest in 3 and 4 at this time.

Okay. And what – is there any update on the Douglass Bridge in terms of anything the city is doing or the status of development, appropriation of funds or anything like that?

Curtis, apparently, the contractor has been named. It’s supposedly a design-build program.

So, things should start to happen in the field probably sometime after the first of the calendar year.

Okay, great. And then just last thing on the mining side given you had some normalization at a couple of locations and Fort Myers is ramping up a little, how do you think about kind of budget, royalties budget for going out the next year assuming no hurricanes or other exogenous events?

Well, it’s hard to speculate, but what we do expect is that the Fort Myers quarry, by being up and operating, will add about $400,000 to $500,000 of additional revenue through the stream from what we have at this time. So, on an annual basis, if you just took what we end up with this year and add it $400,000, $500,000, you would have this good estimate as we have today.

Okay. Alright, thanks a lot.

On the Dock 79 segment, again, for the quarter, the $2,357,000, did you say that’s gross before your partners’ interest, is that correct?

Yes.

Okay. And the – and since depreciation is greater than revenue, so this is not going to have an operating profit for sure for quite a while it appears?

It will not have operating profit, but it will have NOI.

NOI. Why it will have NOI?

Go ahead, I am sorry.

Because NOI is a cash measure, whereas net operating profit is – includes the...

The depreciation.

The depreciation.

Exactly. Did you – you didn’t release the balance sheet, so I guess it will be in your 10-Q.

Can you tell us the new value for Dock 79 that you carry in the books?

The appraiser gave us a value of $149.2 million for the land, the building and the leases in place.

Okay. So it’s kind of a cap rate of pretty low number.

I guess it’s the state of affairs there that has huge demand. Those are the only two questions, I have.

Thank you very much.

Thank you, Richard.

Hi, guys.

Good afternoon, Bill.

I got a few questions. I was wondering on Fort Myers, you have mentioned that, that will finish mining in 8 to 10 years.

When can we, I guess, maybe just one question about many different parts is, what’s the estimated time look like? When we could monetize that asset, the 105 acres and I am assuming that we will sell that in a wholesale transaction to a builder and then just so that I can better understand what that transaction look like in the future?

I think your assumption is right, but that’s a long time from now and we will figure out about – road needs to be built and other development done before you could actually sell the lots as finished lots. My expectation is if it was today we would want to sell it wholesale and not do it ourselves, but that’s a long time from now.

Got it. Okay.

That’s – on the potential – actually going back to that on that Fort Myer, any sense in terms of if we have to build roads and put all the infrastructure in place, what that cost would be, like obviously, just some sort of ballpark range would be helpful?

Yes. Well, we don’t have that.

Yes, okay. I will move on.

On the re-conversion – I know the rules to convert into really this 90% of taxable income number. So really two parts, one, what’s our cash tax today and then if we do convert it to a REIT, kind of any sense of how much we have to pay out?

Well, first of all, the tax rate won’t – the tax rate that will apply after we convert to a REIT will be whatever the investor’s tax rate is at the time, because the investors will be paying the tax on the income. We are required to distribute 90% of taxable income.

Yes. So what I am trying to say – what I am trying to figure out there is that, we have lot of depreciation that – the way how I understand is that we have a lot of depreciation that should shield a lot of the taxable income.

So, what I am trying to figure out is, if we do elect to become a REIT, it is probably not 90% of that NOI, it is probably – it’s 90% of some number net of depreciation. Do we have any understanding of what that figure is approximately?

Bill, we haven’t gotten there yet. We would do that if we decide to make the REIT election, but we are staying a C-corp at this point in time and we are running our budget numbers based on that.

And Bill, just to elaborate a little bit, if you think about it, our net income today pre-tax, ex the royalties is what we would be paying out. And as you read, we converted the royalties stream so that sum of that would be ground rents, so not all the royalties would be retained.

So like you say, it’s pre-tax income, which includes depreciation and amortization, plus probably two-thirds of the royalties would be paid out.

I think you pay out – you would not pay out the majority of the royalties.

You would not.

You would retain those they would be taxed in the corporate structure. They actually ask you to pay it you would pay out the ground rent portion of the royalties, which would be about 20% of the royalties.

You are right. I am sorry.

Yes. But we are not there yet.

Okay, yes. And then is the cash tax that we are paying today about the same number as what we are provisioning on a GAAP basis for income tax or it’s like is that a number that’s available?

Well, if you look at the cash flow statement, Bill, you can see what our deferred tax liability is versus our actual income tax expense. And in the recent year or so, we have paid much less tax than what our tax expenses have been, primarily because of the bonus depreciation on some of the new buildings, including Dock 79 that we have placed into service.

But historically, over the long-term, our built-in tax depreciation would be fairly similar.

Okay, okay. Got it.

That’s very helpful. And a question on – really, I have two more questions, hopefully, we can go through them.

On the Asset Management side, I understand that we have a lot of kind of free rents that we need to get through before they turn into cash NOIs. Anyway you can help me think about what run-rate would be either on a quarterly basis or an annual basis if we go through these free rent phase and get into a actually cash flowing phase?

Bill, that’s too speculative to answer. We haven’t projected that, I am sorry.

But again, we are just budgeting going forward and it would be just as severely impacted by our success rate at re-leasing some of these vacant space today.

Got it. Okay.

And then the last question is regard to royalty, in 2016, was there some excess volumes in some of our locations that we don’t have in 2017? I am just – and along that business, in the long run, I am just trying to see if – trying to understand if there was some sort of higher than usual volume last year versus this year?

And the answer to that is, yes, a little bit in Manassas, a little bit in Keuka and at Newberry.

Okay. Those are all my questions.

Thank you.

Good afternoon. The number you gave earlier, the appraiser’s number for Dock 79 of 149.2, does that refer to Phase 1 or does that refer to the current value of Phase 1 through 4?

No, that’s just Phase 1.

Okay, good. Thank you.

Okay. Well, thank you all for joining us.

We appreciate your interest in FRP. And we look forward to talking to you next quarter.