Earnings Call Transcript - FRPH Q4 2021

John D. Baker, II, Chairman and CEO

Welcome to the FRP Holdings conference call where we will discuss the fourth quarter and year-end results for 2021. I'm John Baker, Chairman and CEO of FRP, joined by David deVilliers, Jr., our President; John Baker, III, our CFO; David deVilliers, III, Executive Vice President; John Klopfenstein, our Chief Accounting Officer; and John Milton. Before we start, I want to remind you that any future statements made during this call carry risks and uncertainties that could result in actual outcomes differing from the forward-looking statements shared. These risks are detailed in our SEC filings, including our annual and quarterly reports. We are not required to update any forward-looking statements except as legally mandated due to future events or new information. For the three months ending December 31, 2021, our revenues reached $8.399 million, up from $5.833 million in 2020. Our operating profit stood at $259,000 compared to $1.555 million last year, while our net income reflected a loss of $592,000, or $0.06 per share, contrasting with a profit of $1.493 million, or $0.16 per share, from the previous year. These results were influenced primarily by the inclusion of our second mixed-use project in Washington, D.C., The Maren, which was completed and stabilized early in the year, contributing to the revenue increase. Additionally, The Maren accounted for $659,000 in expenses due to the quarterly amortization of the fair value of leases established when this asset was recognized as part of a joint venture gain earlier in the year. Furthermore, we incurred $807,000 as a nonrefundable deposit for due diligence costs concerning a potential warehouse property, which is now regarded as less likely to proceed. Last year’s same quarter included a credit of $250,000 from settling an environmental claim related to our Anacostia property. We also experienced a decline in interest income of $651,000 due to bond maturities and the repayment of a preferred loan on The Maren joint venture following the building’s refinancing. For the entire year, our net income was $28.215 million or $3 per share, which included a $26 million gain from the remeasurement of The Maren’s value upon stabilization, as well as $8.240 million of operating profit from our mining royalties. These were offset by the aforementioned $807,000 in due diligence costs and deposits and by $3.899 million in amortization expenses related to The Maren’s lease values that were recognized during its stabilization. I will now hand it over to David deVilliers, Jr. to discuss our segments' performance.

David deVilliers, Jr., President

Thank you, John, and good day to everyone on the call this afternoon. I want to provide some insight into our operations today and elaborate on John's opening remarks. While our business segments are valuable for reporting and analysis, there are overlaps and synergies that can complicate understanding our overall operations. Therefore, let me highlight our daily activities at FRP. Since liquidating our legacy warehouse portfolio in 2018, we have adopted a four-pronged approach to our business. The first component is our in-house operations, which encompass our industrial, commercial, and land development platform. These properties are entirely developed, managed, and owned by FRP. The second component involves third-party joint ventures, where we partner with others on projects, maintaining major ownership while relying on external platforms for most daily operations. The third component remains mining and royalties, which has not changed. Lastly, the fourth component consists of our lending ventures, where we act as the primary capital source for residential land development activities. Regarding our in-house platform, in the third quarter of 2020, we sold a newly constructed and leased 94,000 square foot building at Hollander Business Park, realizing a gain of $3.8 million or $40 per square foot. Adjacent to that site, in the fourth quarter of 2021, we delivered two speculative warehouses totaling 145,540 square feet. One of these buildings, comprising 66,000 square feet, is now fully leased, with occupancy expected in the second quarter of this year. Additionally, in Q3 of 2021, we broke ground on a 101,750 square foot build-to-suit warehouse building, which will complete the final building at Hollander Business Park. We anticipate finishing it and providing occupancy to the tenant by year-end. As of the end of the year, Cranberry Business Park, our renovated 268,000 square foot multi-building warehouse park, was 100% leased and is on track to be fully operational in this quarter, the first quarter of 2022, up from 87.6% occupancy at the same time last year. To maintain our pipeline of industrial building pads, we have begun seeking entitlements for the 55-acre tract purchased in late 2020. We expect to complete this process later this year and are already working on building designs for 675,000 square feet of warehouse space. Current land leases for trailer storage will help offset our carrying and entitlement costs for this tract. We are optimistic about beginning construction here in 2023. Finally, in September 2021, we acquired another 17-acre parcel in an industrial area of Harford County, Maryland, close to the Cranberry Business Park. We have initiated both building design and initial entitlement work on this site, which has the potential to support up to 250,000 square feet of warehouse buildings. Depending on market conditions, construction on this project could start as early as Q3 2022. The completion of these two new projects, along with the build-to-suit warehouse under construction at Hollander, will add another 1 million square feet of warehouse space to our industrial in-house platform, bringing our total across Hollander Business Park and Cranberry Run to over 1.4 million square feet. Although the NOI for our in-house operations remained flat at $453,000 for Q4 2021 compared to $466,000 in Q4 2020, all new buildings that opened at the end of last year and those coming online this year should significantly boost our NOI in 2022. Relative to our mining and royalty operations, FRP owns over 15,000 acres of mining land leased to major aggregate companies that pay rent and royalties. When feasible, we convert the mining land to higher and better uses after its useful life as an aggregate facility ends. Our mining and royalty division generated total revenues of $2.267 million for the quarter, compared to $2.383 million for the same period last year. NOI was $2.137 million, down 3.7% or $83,000 compared to the same period last year, mainly due to the tenant temporarily relocating operations from our site in Manassas, Virginia for part of the year. Turning to our third-party joint ventures, we currently have relationships and manage both stabilized and development projects with three distinct partners: MRP, Woodfield, and St. John Properties, along with an investment in a Delaware Statutory Trust with Capital Square. As of December 31, our joint venture platform comprises eight mixed-use projects at various stages of development and operation, four of which are in Washington, D.C. with MRP as our joint venture partner. These projects include Dock 79, Maren, Bryant Street Phase 1, and Verge, with Verge set to be ready for tenants in the third quarter of this year. As of December 31, 786 of the 1,026 apartments in operation were leased, a significant increase from 564 units at the beginning of the year. We also have two mixed-use projects in Greenville, South Carolina, where Woodfield is our development partner. Riverside opened its 200 apartments for lease in August and was 49% occupied at the end of the year. 408 Jackson will be available in the third quarter of this year. The remaining projects in our third-party joint venture platform include Hickory Creek with Capital Square, which has 294 units that remained above 95% occupancy, and an office-retail project with St. John Properties that consists of 72,000 square feet of single-story office space and 27,850 square feet of retail, which had an occupancy of 46%. In summary, excluding Capital Square at Hickory Creek and St. John, we are invested in six projects totaling 1,827 apartment units and 127,000 square feet of retail. By the quarter's end, only Dock 79, Maren, Riverside, and Bryant Street, totaling 1,256 apartments, were operational, with 62,000 square feet of retail spaces occupied by tenants. The remaining apartments and retail units are expected to be completed and ready for occupancy in the next 12 months. Net operating income for these assets was $2.1 million for FRP in the fourth quarter of 2021 compared to $1.4 billion in the fourth quarter of 2020. Therefore, 2022 should be significant for the growth of our third-party joint venture program. The final part of our operations focuses on lending ventures, where we offer working capital for the approval and horizontal development of single-family residential projects, ultimately selling to national homebuilders. This year, we are developing a project called Amber Ridge with a total commitment of $18.5 million. Similar to our Hyde Park venture, which we concluded and sold in 2020, this investment features a charged interest rate and a minimum preferred return of 20%, with a profit-induced waterfall determining the final distribution of proceeds. The entitlements for Amber Ridge are complete, land development is in progress, and two national homebuilders are contracted to purchase all 187 lots. By the end of the year, 34 lots had been sold, returning $6.3 million as of December 31, including $1.3 million in interest income. As of the end of February, 51 lots had been sold. We are also launching a new project called Presbyterian Homes, a 344-lot, 110-acre development in Aberdeen, Maryland, with plans to provide up to $31.1 million in funding under similar terms as previous projects. The entitlements are currently underway as the conditions necessary for settling on the land. No discussion today is complete without a nod to COVID-19. We have touched a few times on the impact COVID has had on FRP and our customers. We have been very fortunate as a company, both in life and business, throughout this global pandemic. FRP has remained a healthy concern that has been able to continue to grow and prosper despite the significant challenges we've all faced. We know we are not immune to the effects of this terrible global disease, but we are getting very close to normal at FRP with our team back in the office and warm weather on the way. We remain at the ready to assist our tenants, navigate these ever-changing waters, and continue to grow our portfolio. As a business and a collection of professionals, we stand atop a solid foundation financially that uniquely enables us to both capitalize on opportunities and make hard decisions sometimes not to perform. It is this mission that has proven to insulate us from much of the troubles others have faced and is rooted and committed and focused on the fundamentals that guide how and where we are banking and maintaining investments. Thank you, and I'll now turn the call back to John.

John D. Baker, II, Chairman and CEO

Thank you, David. We'll now open the floor for any questions that any of you may have.

Curtis Jensen, Analyst

Can you hear me okay?

John D. Baker, II, Chairman and CEO

Yes.

Curtis Jensen, Analyst

A couple of things. I know you have a note on your operating expenses, including that nonrefundable deposit of $500,000. So are deposits of that size kind of the norm for that kind of project you were looking at?

David deVilliers, Jr., President

Well, this is David. This is a fairly large project where the purchase price of the land is about $7 million, approximately $6.5 million. We put the property under contract early in 2020 but decided not to proceed with the purchase until we felt comfortable. Therefore, the study period was quite lengthy. To navigate some of these challenges, we made deposits. Given the time we've spent and the numerous twists and turns, we thought of it as a 10% deposit, which would amount to $650,000 on the $6.5 million. So it's not completely unusual. The $500,000 deposit that became nonrefundable was essentially our safeguard against any potential issues with the purchase of this raw land. We prefer to take this approach in hopes of reaching a positive outcome, but we haven't achieved that yet.

Curtis Jensen, Analyst

So is this the 130 acres that seems like supposed to be warehouse space in Cecil County?

David deVilliers, Jr., President

Yes, sir. That can take up to 900,000 square feet, we believe.

Curtis Jensen, Analyst

And can you identify the issues? Or is it still kind of in negotiation? Or is it completely stalled?

David deVilliers, Jr., President

No, it's not. If you look at a raw land purchase, it resembles a large mosaic. This is a piece of land that requires water and sewer connections and faces various typical challenges. The water situation involves a partnership between a private water company and the local town that manages the wells. There are limited ways in which the private utility company can charge its users, and that is overseen by the Public Service Commission. There are numerous steps to navigate, which is taking an unusually long time, particularly during the COVID period. We cannot definitively state the costs because verbal communication isn't reliable; we need written confirmation to consider it valid. Thus, we haven't felt entirely comfortable to proceed.

John D. Baker, II, Chairman and CEO

But to answer your question, Curtis, it's still under negotiation. It's not dead.

Curtis Jensen, Analyst

On the royalties, I guess the Manassas situation is that it's a relatively small property with no minimums. Is that...

John D. Baker, II, Chairman and CEO

It's not a small property, but it does not have a meaningful minimum. You're correct in that, Curtis. And the pit is divided up between our property. And I think at one time, it was 2 others, but now it's just one other. And based on the mining plan, they moved between the 2 property owners. And so they should be coming back to our land this year. You make a good point. We would never enter into a lease without a minimum today. This was entered into 50 years ago, and it's just something we've inherited.

Curtis Jensen, Analyst

Yes. Do they give you much notice when they plan to move? And do they provide an explanation of what their mine plan will be, or do they just decide from one month to the next to change their equipment?

John D. Baker, II, Chairman and CEO

Their mine plan is, for lack of a better term, is sort of their business. And I don't think the person operating the quarry gives any thought to who owns which land. So we don't get any notice until we...

Curtis Jensen, Analyst

Got it. Regarding the breakout of the NOI reconciliation, there is a tax allocation showing a positive $2.4 million under mining royalties. However, under the segment, there is an operating profit of $8.2 million, while the NOI reconciliation shows $8.9 million. I'm trying to understand the difference and which figure is more representative of cash.

John D. Baker, II, Chairman and CEO

The cash, Curtis, would be the NOI schedule. Of course, NOI excludes overheads, and those are real cash expenses, so keep that in mind. But the difference between the $9 million number and the $8.2 million number would be other income. In this particular case, it's a gain on some property sales that we had.

Curtis Jensen, Analyst

Okay. Let me see. I think that will just about do. I have one last question on stabilized joint ventures. I couldn't quite tell if retail was full for Q4 at The Maren and Dock 79.

John D. Baker, II, Chairman and CEO

Go ahead, David.

David deVilliers, Jr., President

The Maren was fully leased, and the major tenant moved in December. We have also executed a lease for the remaining 24% at Dock, which is approximately 3,500 square feet. They are currently in the planning and permitting phase for that space, which is expected to open this summer. Thus, we are effectively 100% leased, although not entirely occupied.

Curtis Jensen, Analyst

And then are you allowed to raise rents at this point?

David deVilliers, Jr., President

We are now.

Curtis Jensen, Analyst

Okay. And part of your rent on the retail is point-of-sales percentage, right?

David deVilliers, Jr., President

Yes, sir. Over a certain amount.

Curtis Jensen, Analyst

Okay. All right. I assume if you got the retail full and assuming we don't cancel the baseball season and with the ability to raise some rent, that's definitely within your control.

David deVilliers, Jr., President

Correct. Yes.

Curtis Jensen, Analyst

Hopefully, the NOI will increase next year if everything remains the same this year.

David deVilliers, Jr., President

We hope so. D.C. is an interesting place to do business, especially in relation to COVID. The weather significantly impacts the success of these restaurants and the baseball season. Although we've already lost two games, we remain cautiously optimistic about the baseball season continuing.

Bill Chen, Analyst

I have several questions like Curtis, so I'll jump right in. The first question is about the consolidation. When Dock 79 and Maren stabilized, you consolidated the results and released a statement that revealed a GAAP gain reflecting the value created from the development. So, my question is, when Bryant Street stabilizes, which I think will be in 2022, will you consolidate the financials, or will it be a line item in equity earnings? Additionally, will you also disclose the GAAP gain so that the market can understand the value created from the development?

John Klopfenstein, Chief Accounting Officer

It's John Klopfenstein here. The reason that we recorded a gain upon the consolidation of Dock 79 and The Maren is because we had a provision in our joint venture agreement, which allowed us to force the sale of the property, basically put us in control of the joint venture, even though we shared other decisions equally. Bryant Street has no such clause because it's an opportunity zone. So we can't sell it anytime soon or don't prefer to sell anytime soon. So at this time, we don't anticipate consolidating Bryant Street. And so there will be no gain to record on the change in that status.

John D. Baker, II, Chairman and CEO

I would think, Bill, in response to your second question, that while we wouldn't assign a specific value to it, we would clearly outline what the NOI was in the project.

Bill Chen, Analyst

Got you. Well, I mean, we certainly appreciate that very much. And then, I guess, just to confirm, if my memory serves me correctly, I think we're at 50% of the interest. Is it that with the allocation to the JV partner that falls below 50% and then you don't consolidate that? Is that the main reason? Or...

John D. Baker, II, Chairman and CEO

Why we're not consolidating Bryant Street? Is that the question?

Bill Chen, Analyst

Yes, yes, yes.

John D. Baker, II, Chairman and CEO

It's primarily because we share all decisions equally. In other words, we cannot force any sort of transaction or any other major event without agreement with our partner.

Bill Chen, Analyst

What is that percentage?

John D. Baker, II, Chairman and CEO

Our percent is about 51%.

David deVilliers, Jr., President

I am looking at Dock 79 and The Maren, and I've typically observed a range of about 10%. For Dock 79, the owner share decreased from 80% to 66%, if I recall correctly, while for The Maren, it fell from 80% to 71%. This indicates a drop-off in owner share somewhere between 9% and 14%. We started at 51%, and I'm trying to calculate where we end up based on the economics of Dock 79 and The Maren.

Bill Chen, Analyst

David, do you have any comments on when the waterfall for Bryant Street occurs?

John D. Baker, II, Chairman and CEO

Bill, please go ahead, David.

David deVilliers, Jr., President

That would chase them around. I think the waterfall doesn't happen until the end of the opportunity zone period.

Bill Chen, Analyst

The end of the opportunity zone period?

David deVilliers, Jr., President

Yes. For some reason, if it fell down below 50%, we have the right to take it back up over 50%.

Bill Chen, Analyst

Okay. That's helpful. Does that mean that as long as we hold our property, we receive 50% of the distribution, which would be different than Dock 79 and The Maren?

David deVilliers, Jr., President

I don't know why it would be different, Bill. We get the distributions based on whatever the ownership interest is at the time.

Bill Chen, Analyst

No. I'm just saying you're saying all right. Maybe I'm misunderstanding the end of the opportunity zone period because I'm generally thinking 10 years out. Maybe you meant something different.

David deVilliers, Jr., President

Yes.

Bill Chen, Analyst

Okay. So we would have 50% ownership until the end of the 10-year period for the opportunity zone?

David deVilliers, Jr., President

Yes. Until the crystallization occurs, we will maintain what we initially had until that point happens.

John D. Baker, II, Chairman and CEO

The difference between the two, Bill, in this case would be that the waterfall for Dock 79 and The Maren was based on determining the value for the building, whereas this will be a traditional waterfall based on sale proceeds.

Bill Chen, Analyst

Got it. That's a 10-year timeline. I'm glad I asked because this is a bit better than I expected. I'm looking forward to stabilizing Bryant Street; it should be exciting. My second question is about Greenville. All the publicly traded multifamily properties recently reported double-digit rent growth. Are you experiencing similar results with the Greenville projects?

David deVilliers, Jr., President

We have two projects, Bill. One of them is Riverside, which opened in August. As of last week, it was 73% leased and over 60% occupied. We haven't offered any discounts on the face rent. The other project, 408 Jackson, will not be active until the summer. Overall, the performance has been very strong.

Bill Chen, Analyst

Got you. Yes. I'm noticing that some multifamily properties have been extremely successful. Could you revisit my earlier question about Bryant Street? You shared a leasing and occupancy figure at the end of 2021. Can you provide an update on that number as of the end of February?

John D. Baker, II, Chairman and CEO

I don't think we have those numbers in front of us, Bill. So I don't think we want to talk about them off the top of our heads.

Bill Chen, Analyst

My next question is about the renewal of Dock 79 and Maren. They have a renewal rate in the mid- to high 60s, which is approximately 10% to 15% higher than usual, if I recall correctly. What do you estimate the current rent to be? How much is it below market? It seems that tenants are inclined to stay because they believe they're getting a good deal.

David deVilliers, Jr., President

I think they're getting the same deal they had before. There are a couple of points to consider. Obviously, COVID has caused a lot of disruption there regarding apartment turnover and rent stability. Everything you can think of that benefits the tenant was present. The fact that they renewed at a specific rate remained unchanged. You could argue both sides: they were paying an above-market rate before and chose to pay it again, or they felt the rate was low and wanted to stay. It's difficult to draw any real conclusions about renewal trends due to the regulations imposed on landlords in D.C.

John D. Baker, II, Chairman and CEO

Yes, one thing to keep in mind is that we cannot increase rents for renewals. With a renewal rate of 55%, 60%, or 65%, that still means 35% are moving out, and new tenants are paying market rates. I can't specify what portion of our tenants are paying the same rent they were on March 1, 2020, but I doubt it's a large percentage. It's preferable to retain tenants because finding new ones is more costly. Any answer we provide would be mere speculation, but it's an important question. We are looking at how we can increase rates now that we have that opportunity. Our leasing agents adjust prices daily based on supply and demand, so once we identify a trend, likely by next quarter, we will have a clearer answer instead of just guessing.

Bill Chen, Analyst

I appreciate that. Moving on to the next question, regarding the Hollander spec building, based on the reports I've seen, market rent for that type of product is in the mid-$6 to $7 range. Is this consistent with what you are observing for the two spec buildings?

David deVilliers, Jr., President

Yes, it largely depends on examining the specifics. Often, what determines the rents is related to the tenant improvements. However, those rents appear to be within a reasonable range.

Bill Chen, Analyst

Okay. Yes. Let's see. Regarding the Phase 3 and Phase 4 for RiverFront, considering the current inflation and labor shortages, what do you estimate the cost would be today to replicate something like The Maren in Phase 3? How much higher would it be to build Phase 3 now?

David deVilliers, Jr., President

It's difficult to determine, Bill. As John mentioned, this is entirely speculative. Rates will fluctuate. Interestingly, we recently observed a decrease in steel prices on a warehouse project, which hasn't happened in some time. Costs would definitely be higher. You could estimate an increase anywhere from 10% to 15%, but it really depends on the timing and the specifics of what you're building. There are various factors that contribute to overall costs, such as the size of the apartments and the percentage of medium-income apartments required. A lot goes into assessing whether the total project is economically viable or not.

Bill Chen, Analyst

Do we need to set aside a portion towards affordable for Phase 3 and Phase 4?

David deVilliers, Jr., President

The zoning commission will require it. It's called inclusionary zoning. You had that up in New York.

Bill Chen, Analyst

Well, that figure is up to 30 to 35 percent. So...

David deVilliers, Jr., President

Not that high here. It's in the 10% range here.

Bill Chen, Analyst

10%. Would that be required on both or just one of those?

David deVilliers, Jr., President

Well, if they're both residential, the feeling is most likely. I mean the inclusionary zoning is not going to go away. If anything, it's going to grow a little bit, but we just don't know what it is yet. We're not in front of the zoning commission yet. We're not that deep into predevelopment. We're still trying to round out what the actual footprints are going to look like now that the bridge is almost complete.

Bill Chen, Analyst

That's helpful. For my final question, I'd like to hear your thoughts on the macroeconomic situation, particularly regarding inflation rates, interest rates, and cost inflation. How do these factors impact your overall perspective and relate to capital allocation, especially in terms of investing in projects or acquiring existing assets? I'd appreciate any insights you can share.

John D. Baker, II, Chairman and CEO

Bill, this is John. That's what you call a game-time decision. When you consider the cost of the building alongside the rental price trends, I understand you're thinking that if construction expenses rise, then new products will likely require higher rental rates. Ideally, we will see benefits from both our previous successes and new projects. However, free market dynamics can be unpredictable. We will need to reevaluate this before starting any new construction. Inflation presents a mixed bag for our business; while it drives rents up, it also impacts cap rates. Historically, mining royalties have exceeded inflation, which is positive. Rising interest rates pose challenges for any new financing we pursue, but I don’t believe these are particularly insightful observations.

Bill Chen, Analyst

On that thought, we received excellent rates when we refinanced Dock 79 and The Maren. What are your thoughts on the cost of debt today if we were to go to market and seek a similar mortgage for Bryant Street?

David deVilliers, Jr., President

I haven't really looked into it, Bill. Clearly, rates are starting to rise. We also tend to avoid excessive financing for these projects. We usually secure the best possible rates, but we haven't been actively seeking new opportunities. However, we do have some construction loans that will begin soon. Currently, all the construction loans we have left in Verge, Riverside, and .408 have several extensions. Therefore, we’re not in a position to look for new financing right now, but we will probably start next quarter just to check the market and see what rates we can find.

Bill Chen, Analyst

But I'm sure Bryant Street is probably the furthest along, or actually, Riverside might even be further along. I'm sure you're considering permanent financing solutions for Bryant Street.

David deVilliers, Jr., President

We'll start looking at both. I mean Bryant Street is a little bit more complicated because it's got retail and substantial amount of retail, which incidentally, is some 80-some percent leased out of 91,000 square feet. But it takes a while to get them in. It takes a while to get them financed. And Riverside doesn't have any retail. So Riverside will probably be a pretty easy one.

Stephen Farrell, Analyst

I have a quick question and a follow-up on what Bill was asking with Bryant Street in regards to the consolidation. Is there any restrictions to refinancing the construction loan, either prior to stabilization or just as long as it's opportunity investment?

David deVilliers, Jr., President

No, sir. There are no restrictions.

Stephen Farrell, Analyst

And what would that look like? Would any of the refinancing just stay with the properties? Or can it be distributed to the JV partners?

David deVilliers, Jr., President

There are definitely some restrictions related to opportunity zones. There might be some preferred equity involved that could be taken out. However, it's difficult to provide a definitive answer. I think certain actions are possible as long as they do not exceed a specific percentage of the original amount.

Stephen Farrell, Analyst

And you're leasing up pretty nice at the properties there. Is there a little bit of seasonality in the leasing compared to Dock and Maren?

David deVilliers, Jr., President

It's a matter of seasonality affecting the types of leases throughout the year. Historically, January, February, and December tend to be the least favorable months for leasing due to the weather and people's reluctance to move during that time. On the other hand, the end of the second quarter and all of the third quarter are the most favorable periods for leasing. We're looking forward to Verge becoming available hopefully in July. We were fortunate when the first building at Bryant Street opened in December during snowy weather, which made the circumstances challenging. Overall, leasing tends to be better in the spring, summer, and early fall compared to the current months.

Stephen Farrell, Analyst

And at the Chase 1A and 1B, are you offering any concessions there?

David deVilliers, Jr., President

Yes, we do. It's about a 17% concession coming in.

Stephen Farrell, Analyst

And I know you use the software and change prices frequently.

David deVilliers, Jr., President

Daily.

Stephen Farrell, Analyst

Is that kind of consistent with other properties in the area? And is it leasing up at a similar rate to those?

David deVilliers, Jr., President

Yes, we are definitely keeping pace with the other properties around us. In addition to adjusting rates daily, we also consider the different types of units. The algorithms are designed to adjust discounts if one unit is leasing faster than the others. This process occurs every day for all units. We are certainly maintaining our competitive position.

Stephen Farrell, Analyst

And at The Maren and Dock 79, what is your approach going to be for looking at raising rents versus occupancy?

David deVilliers, Jr., President

It's a game and more of an art than a science. When occupancy reaches around 94% to 95%, it raises the question of whether it's wise to push for slightly higher rents. However, we are confident in our team, as Kettler excels in this area. We have weekly leasing calls where we discuss strategies and decide on the best course of action.

Stephen Farrell, Analyst

And for the renewals, is there a limit on the amount of increase that you can do year-over-year? Or...

David deVilliers, Jr., President

No, there are no regulations other than the ones we establish ourselves. Typically, your renewal rate falls between 50% and 55%. If you are renewing at a rate higher than that, you may not be charging enough. Conversely, if it's lower, you might be trying to charge too much. Therefore, the ideal renewal range is usually around 50% to 55%.

Stephen Farrell, Analyst

It seems like Amber Ridge is gaining momentum in the units being sold. If we continue at this current rate, what do you anticipate the payout from Amber Ridge will be?

David deVilliers, Jr., President

We were at 34 at the end of the year and 51 at the end of February, which corresponds to the first quarter of 2022. We have a program with both builders to reduce the number of units on a quarterly basis, and they are progressing slightly ahead of schedule. With around 29 units per quarter, we still have a substantial amount left, but the pace has certainly exceeded our expectations. If we anticipated being in the range of 80 to 100 units this year, we believe we might surpass that. While we won't have everything sold, we will be significantly closer.

Stephen Farrell, Analyst

I understand you mentioned the warehouse deal that hasn't fully materialized. If that doesn't work out, do you think it will significantly impact your pipeline? How are you planning to address it if it doesn't go through?

David deVilliers, Jr., President

We aim to maintain a pipeline. Our industrial platform has been quite successful over the years. The Crouse property, covering 55 acres, can accommodate two buildings, with sizes of 600,000 and 75,000 square feet, or other variations. Our Chelsea property has a capacity of 250,000 square feet, which we haven't started yet. We are completely out at Hollander. We will be active in the market, but we want to avoid accumulating too many pipeline properties to prevent any overhang issues. We are always on the lookout for opportunities, even though they can be challenging to find. We have been bidding on many potential raw land programs and are careful in assessing what we consider an appropriate finished lot cost. At times, we may be overly conservative in our approach. The value of warehouse land has significantly increased over the last 18 months to 2 years, and while we are uncertain if this trend will continue, we remain vigilant in our search.

Stephen Farrell, Analyst

And in the surrounding areas there, do you think there's more room for capacity? And is there a lot of capacity coming on in the next year or 2?

David deVilliers, Jr., President

Not a lot, but a lot is a relative term. Currently, we have properties, one of which is 250,000 square feet, situated near larger properties exceeding 1 million square feet. We believe we can find a way to attract tenants since these large players are always seeking additional storage. In response to your question, there's not much vacancy in the markets we are serving, specifically along the 95 in the Northeast. At the end of the year, the vacancy rate was around 3%, which is quite low.

John D. Baker, II, Chairman and CEO

Well, thank you all for joining us today. We appreciate your interest in the company. 2021 was an important year for us. We stabilized The Maren, continued strong cash flows from our royalties, and we made a lot of progress in running out our newest mixed-use project in D.C. called Bryant Street and also Riverside in Greenville. Looking through the balance of this year, as David mentioned, the .408 Jackson and Greenville and The Verge in D.C. should be coming on late this summer or early in the fall. And they will be coming on quickly after we've made progress, hopefully, to close out Bryant. We'll have 3 new warehouses at Hollander and hopefully be well on our way. One of them, of course, is a build-to-suit, and the other 2, there's been a lot of velocity, and we're optimistic about those. So by year's end, we will have 7 mixed-use projects: 4 in D.C., 2 in Greenville and 1 in Richmond as well as the 3 warehouses and an office retail park in Baltimore. This is a dramatic transformation since our warehouse sale in 2018. And yet, we still have $160 million in cash to fund future growth and to provide a safety net in these crazy times. Thanks again. We look forward to talking to you next quarter. And I think a lot of these questions you all have asked will be much clearer as we get into summertime or late spring and seeing the velocity that goes on in the leasing and our ability to raise rents. I'm excited about the idea of opportunity to raise rents. Certainly, all over the country, they're going up like crazy. And I would hope D.C. would follow suit. But thank you all for joining us. I hope you have a great day.

Operator, Operator

And thank you, everyone. This does conclude today's call. You may now disconnect.