FRP Holdings Inc

NASDAQ:FRPH

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Good day, everyone, and welcome to today's FRP Holdings, Incorporated Second Quarter 2024 Earnings Conference Call. [Operator Instructions]. Later, you will have the opportunity to ask questions during the question-and-answer session. [Operator Instructions]. Please note, this call is being recorded. [Operator Instructions]. It is now my pleasure to turn the conference over to CEO, John Baker, III. Please go ahead.

[John Baker, executive]

Thank you, Angela, and good afternoon. I'm John Baker, III, Chief Executive Officer of FRP Holdings, Inc. And with me today are David deVilliers, Jr., our President; John Baker, II, our Chairman; David deVilliers, III, our Chief Operating Officer; Matt McNulty, our Chief Financial Officer; and John Milton, our Executive Vice President and General Counsel.

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.

We have no obligation to revise or update any forward-looking statements except as imposed by law as a result of future events or new information. To supplement the financial results present -- presented in accordance with Generally Accepted Accounting Principles, FRP present certain non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. The non-GAAP financial measure referenced in this call is net operating income and pro rata net operating income.

FRP uses this non-GAAP financial measure to analyze its operations and to monitor, assess and identify meaningful trends in its operating and financial performance. This measure is not and should not be viewed as a substitute for GAAP financial measures. To reconcile NOI to GAAP net income, please refer to the segment titled Non-GAAP Financial Measures on Pages 9 and 10 of our most recent earnings release.

Any reference to cap rates, asset values, per share values or the analysis of the estimated value of our assets, net of debt and liabilities for illustrated purposes only as a reflection of how management views its various assets. For purposes of foreign management decisions and do not necessarily reflect the price that would be obtained upon the sale of an asset or the associated costs or tax liability.

Now for our financial highlights from the second quarter. Despite revenues and operating profit remaining largely flat, net income for the second quarter increased 242% to $2 million or $0.11 per share versus $598,000 or $0.03 per share in the same period last year. For the first 6 months, net income saw a 188% increase to $3.3 million or $0.18 per share versus $1.2 million for the first 6 months of last year.

This increase was driven partly by the improved performance during lease-ups of our most recent multifamily development in D.C., The Verge which drove down our equity in loss on joint ventures by $891,000 compared to the second quarter last year and $1.6 million compared to the first 6 months of last year.

The primary driver for the improvement in net income was the performance of our most recent lending venture Aberdeen Overlook. In the second quarter, Aberdeen Overlook generated $1.5 million and investment income compared to $560,000 in the second quarter last year from a previous lending venture project.

Year-to-date, the project has generated $2.1 million in investment income compared to $614,000 from our previous project through the first 6 months of last year. By providing a developer we know and trust with the money required to develop land for national homebuilders that are desperate for lots, these projects were not part of our core business strategy in the long term, have generated returns for our cash well in excess of treasuries without tapping into the time and energy of our management and employees.

Over the last 3 years, we have grown pro rata NOI at a compound annual growth rate of 21.6%. We maintained that pace in the second quarter and the first 6 months of this year. Pro rata NOI for the second quarter was $9.2 million, a 22% improvement over the second quarter of 2023.

For the first 6 months, pro rata NOI was $17.8 million a 22% increase over the same period last year. Primary drivers of this growth for the Multifamily segment and the Industrial and Commercial segment as our Mining Royalty NOI is more or less flat compared to last year.

Multifamily pro rata NOI increased by 84% this quarter compared to 2023 and 88% for the first 6 months compared to the same period last year. This growth is a result of the transfer to the Multifamily segment of our .408 Jackson asset in Greenville and Bryant Street in D.C. from the Development segment upon the stabilization of these assets when they reach 90% occupancy for 90 days.

Same-store NOI for Dock 79, and the Maren and Riverside is basically flat in the first 6 months compared to last year. NOI for Bryant Street and .408 Jackson compared to the second quarter last year when these projects part of the Development segment increased by 37.6% and 292%, respectively.

For the first 6 months, these projects increased 27.9% and 867% compared to the same period last year. These increases in NOI were the drivers from the Multifamily segment for the improvement we saw in overall pro rata NOI. The transfer of The Verge this segment upon stabilization in the third quarter of this year should only improve this segment's performance on an NOI basis.

Industrial and Commercial NOI increased by 41% in the second quarter to $1.19 million and by 44% in the first 6 months to $2.3 million compared to the same period last year.

These increases are the result of having burned through the rent abatement concession periods at 2 buildings at our Hollander Business Park. These assets are now generating real cash as opposed to the unrealized revenues that we recognize in the early phases of occupancy from straight lining rents for GAAP purposes.

Yesterday, we posted to our website a brief slide show of financial highlights for the first -- for the second quarter. For those who have not seen it, we are now publishing for illustrative purposes an estimated value of our real estate assets [indiscernible] debt and liabilities. Our analysis yielded a per share value in the range of $31.90 to $37.87.

We provide this information to reflect how management views its various assets for the purposes of informing management decisions that do not necessarily reflect prices be obtained upon a sale of the asset or the associated costs or tax liability. I will now turn the call over to our Chief Operating Officer, David deVilliers, III for his report. David?

[David deVilliers, executive]

Thank you, John, and good day to those on the call. Allow me to provide an operational perspective on the second quarter results of the company.

Starting with our Commercial & Industrial segment. This segment consists of 9 buildings totaling nearly 550,000 square feet, which are mainly warehouses in the state of Maryland. At quarter end, 95.6% of the buildings were occupied. Total revenues and NOI for the quarter totaled $1.4 million and $1.2 million, respectively, an increase of 2% and 41% over the same period last year.

The large variance between the revenue growth and NOI growth is due to several tenants beginning their lease term with rent abatement periods. GAAP requires the entire lease term to be straight-lined when calculating revenues. As a result, GAAP revenues are higher during the first half of the lease term than what is being received and the variance is more pronounced during a rent abatement period.

As stated above, NOI is a non-GAAP financial measure. NOI calculations back out the straight lining effects. As a result, 2023 NOI reflected the reduced rental payments and 2024 NOI reflected the full lease payments. This is why we saw a 41% NOI growth compared to a 2% revenue growth this quarter over the same period last year.

Moving on to the results of our Mining and Royalty Business segment. This division consists of 16 mining locations, predominantly located in Florida and Georgia with one mine in Virginia. Total revenues and NOI for the quarter totaled $3.2 million and $3 million, respectively, a decrease of 1% and 3% over the same period last year.

These decreases were primarily the result of a $277,000 reduction in royalties to resolve a 2023 over payment by our tenant at our Manassas quarry which overestimated our portion of production tons, which is shared with other property owners.

The outstanding balance of this overpayment credit is $53,000 which we expect will be exhausted in the first month of the third quarter of this year. As to our Multifamily segment, this business segment 1,483 apartments and over 117

[Audio Gap]

located in Washington, D.C. and South Carolina. At quarter end, the apartments were 92.6% occupied, and the retail space was 75.6% occupied.

Total revenues and NOI for the quarter were $11.9 million and $7 million, respectively. FRP's share of revenues and NOI for the quarter totaled $6.9 million and $4 million, respectively. This is a significant increase over prior quarters due to our Bryant Street and .408 Jackson joint ventures being included in this segment as of January 1, 2024, and adding $3.5 million of revenue and $1.9 million of NOI this quarter.

As a same-store comparison, which only included Dock, Maren, and Riverside, FRP's share of revenues and NOI for the quarter totaled $3.4 million and $2.1 million, respectively, a decrease of 0.9% and 3.7% over the same period last year. This is primarily the result of the average vacancy and average expenses increasing by 1% and less rental overage payments from our retail tenants this quarter as compared to 2023.

An abundance of supply in the D.C. market will continue to put pressure on vacancies and revenue growth in the foreseeable future, rising real estate taxes and insurance premiums may also remain a headwind for NOI growth, which increased to over 5.25% from a same-store perspective this quarter compared to 2023.

Management continues to be diligent and tenant retention and rental rates in the market. We are pleased to have renewal success rates over 60% with all renewal rental rates showing positive growth and a majority of our trade-out rental rates being positive as well.

Now on to the Development segment. This segment is where we acquire, entitle, develop and create new income-producing assets that are transferred into our commercial industrial and multifamily business segments. Upon reaching certain completion and occupancy benchmarks, the segment uses capital to entitle and develop lands and fund our vertical construction endeavors with the goal of turning our non-NOI-producing assets into NOI producing assets.

The segment also lends funds to prepare and develop lands for sale to national homebuilders in exchange for principal and interest payments and profit sharing. In terms of our Commercial and Industrial pipeline, our 258,000 square foot state-of-the-art Class A warehouse building in the [indiscernible] industrial sector of Harford County, Maryland, is nearing completion and is expected to be delivered on or before November 1 of this year.

Upon shell completion, this asset will be moved to the Industrial/Commercial segment and will impact NOI negatively until it is occupied and stabilized, with the operating expenses being passed through to the tenants.

Our 200,000 square foot Class A warehouse building in Lakeland, Florida, located along the I-4 Corridor between Tampa and Orlando is where FRP intends to be a 90% partner with BBX Logistics and as well into the entitlement stage, permits for the development should be in hand on or before Q1 2025.

FRP and BBX also focused on land that will support 2 Class A warehouse buildings in Broward County, Florida, totaling over 182,000 square feet. The site is minutes from Port Everglades and the Fort Lauderdale Hollywood International Airport with frontage on I-595, accessing the Florida Turnpike and I-95. The entitlement process is now underway and permits may be in hand by Q1 2025 as well.

In Cecil 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. We look to secure shift permits in Q2 of 2025.

Finally, we are in the initial permitting stage for a 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, which could be as early as 2025, pending favorable market conditions.

Completion of these industrial commercial development projects will add over 2.1 million square feet of additional industrial commercial product to our industrial platform, growing the business segment from 550,000 square feet to over 2.7 million square feet.

Over the next 3 to 5 years, we will focus on the permitting, construction and lease-up of the Perryman, Lakeland, Fort Lauderdale and 212,000 square foot building in Harford County. These 4 buildings represent over 850,000 square feet of new industrial commercial product, with a total project cost estimated at $142 million.

With 6% to 7% return on cost expectations upon stabilization, these projects represents some $8.5 million to $10 million in potential NOI. As to our Multifamily development pipeline, The Verge, our 344 residential unit project located in the district was 90.7% occupied at quarter end. Total revenues and NOI for the quarter were $2 million and $1.16 million, respectively.

FRP's share revenues in NOI for the quarter totaled $1.3 million and $710,000, respectively. While our development focus is currently weighted toward our industrial assets, we continue to watch market conditions and their impact on 4 multifamily projects in our Development segment pipeline located in Washington, D.C., Greenville, South Carolina and Astero, Florida. These projects represent over 1,200 apartments and 58,000 square feet of retail.

Turning to our principal capital source strategy or Lending Ventures. I have the following updates to our 2 current projects. Amber Ridge in Prince George's County, Maryland, consisting of 187 lots is completely sold out. Final development activity is to get off bonds are ongoing and upon completion of this project, interest income and profits are expected to total $3.9 million, a 21% profit on funds drawn.

Our second lending bench Presbyterian Homes, or Aberdeen Overlook consists of 344 lots located on 110 acres in Aberdeen, Maryland. We have committed for $31.1 million in funding, $24.6 million was drawn as of quarter end and over $12.7 million in preferred interest and principal payments have been received to date. A national homebuilder is under contract to purchase all the finished building lots by Q4 2027. 78 of the 344 lots were closed upon and we expect to generate at least a 20% internal rate of return and funds drawn upon completion of the project.

In closing, we are pleased with the entitlement progress being made upon several industrial land assets, particularly on our Lakeland and Fort Lauderdale projects in Florida. The renewal and trade-out rent growth within our multifamily at is encouraging and a key indicator of where we are on the supply and demand curve.

Interest rates and construction costs have appeared to stabilize. Interest rate spreads have eased and although new supply of apartments in the D.C. Waterfront submarket remains a headwind for rent growth, absorption and demand for apartments and warehouse space remain a bright spot.

As we look ahead, our focus remains on the margin between revenue and expense growth at our existing assets. Having a fundamentally sound capital stack with sensible construction financing terms and hyper-focused development, leasing and property management teams.

With several permits expected in 2025 and our efforts in the [indiscernible] entitlements to vertical due diligence through our cautious, patient and thorough vertical due diligence process. We will make informed and calculated decisions to wait or pull the trigger on vertical construction.

Thank you, and I'll now turn the call back to John.

[John Baker, executive]

Thank you, David. As we have said on several occasions, and you just heard in David's report, we are maintaining our strategy of focusing on industrial development and expanding our footprint on a square footage and regional basis.

In July, we closed on the purchase of the land for our industrial joint venture in Broward County, Florida for a total purchase price of $24.5 million. We also closed on the land for our other industrial JV in Lakeland, Florida last quarter for a total purchase price of $2.8 million. We expect to start construction on both projects on or before March of 2025.

We are nearly finished with shell construction of our 258,000 square foot industrial asset in Perryman, Maryland, with completion expected in the fourth quarter. These 3 projects totaling 649,000 square feet of new Class A industrial space represent an estimated $118 million in total CapEx and $72 million of equity capital, of which we account for $66.8 million.

We have underwritten these assets at a 6% to 7% NOI yield on costs, but expect to outperform these conservative assumptions. I will now open the call up for any questions that you might have.

[Operator]

[Operator Instructions] We'll take our first question from Stephen Farrell with Oppenheimer Close.

[Stephen Farrell, analyst]

Just a quick question. With the 2 Florida development, the expected CapEx, $57 million and $28 million, does that include the purchase of land?

[David deVilliers, executive]

Yes, yes.

[Stephen Farrell, analyst]

And is there any particular reason why there's such a big discrepancy in the cost per square foot between the 2?

[David deVilliers, executive]

Yes. In Lakeland, Florida, rental rates, let's say, range from $750 to $950 in the Broward County, Fort Lauderdale site rental rates range from $18.50 and are coming up against $20 a square foot triple net and that well-heeled Broward County, Florida market land is just more expensive and rental rates are a heck a lot higher. So that's the driving difference.

[Stephen Farrell, analyst]

And even if I look at excluding the land though, it looks like the construction cost to develop is about $180 per square foot versus $125? Is there any construction related costs that are different?

[David deVilliers, executive]

A couple. The Lakeland building is a single building. It's a single 200,000 square foot building. There's just efficiencies when you build a single building versus 2, which is the -- we're going to build 2, 90,000 square foot buildings in the Fort Lauderdale site.

In Fort Lauderdale, there's some interesting site development costs. There are nuances to all these things. They may look the same, but there's always nuances that can move the cost around a little bit, particularly when it comes to the land development side of them.

[Stephen Farrell, analyst]

Okay. And for the Chelsea project, is there a lease in place for when construction is finished?

[David deVilliers, executive]

No, there is not.

[Stephen Farrell, analyst]

And do you anticipate having any issue filling that space?

[David deVilliers, executive]

No. Not at this time. I mean in the market, there's still a good demand. We feel we have a good product. Typically, it's rare for us to get buildings pre-leased before we really deliver them. This building really gets kind of put on the market in Q4 of this year. And once we put it on the market and people can drive to it, pavings in, and they can walk in it. That's typically when we start seeing a lot of activity. We've had some inquiries but no paper traded at this time.

[Stephen Farrell, analyst]

Okay. That's good. And just a quick question. On Dock 79 and Maren in the new chart on the second page of your release, it looks like renewal rates at the Dock were kind of outpacing Maren, the percentage increase, which has not happened recently. Is there any color you can provide on that?

[David deVilliers, executive]

I think that Dock for a while may have had some effects of Maren and now things are evening out and we're able to push rents at Dock more these days. Dock also has just lower rental rates to begin with, and more attractive. We'll have to see if it continues, I'd love it if Dock start seeing effective rents the same as Maren. I don't know if we'll get there, but -- that's kind of where we are right now.

[John Baker, executive]

Yes. I think, Stephen, I think, pretty consistently pushed high rental growth at Maren. And last year, a Dock we were trying to maintain occupancy and you didn't see the kind of rent growth on renewals that you had previously, and I think this is probably Dock just might catch up.

[Operator]

[Operator Instructions] We'll go next to Bill Chen with Rhizome Partners.

[Bill Chen, analyst]

I have a few questions, and I may jump around a little bit. Just a first quick question. On the pro rata NOI for Dock 79 and Maren, the effects of that JV transaction, that's beyond, right? There's no -- these are like-for-like numbers?

[David deVilliers, executive]

Correct.

[Bill Chen, analyst]

Okay. Got you. I guess like the drop in the NOI is due to slightly lower occupancy and maybe expenses growing faster? Is that the read?

[David deVilliers, executive]

It is for Q2 alone. Bill, year-to-date, they're even, Q2 is really the first quarter where we saw erosion.

[Bill Chen, analyst]

Okay. When you say erosion, are you talking occupancy? Or are you talking NOI like just one of which metric to talk about?

[David deVilliers, executive]

Both. So Q2 of 2024 compared to Q2 2023, we saw around 3.5% decrease in NOI and from a occupancy standpoint, the average occupancy in Q2 2024 was about 1% lower in 2023.

[Bill Chen, analyst]

Well, I mean, your good thing is the renewal rent growth is kind of better than what we're seeing in the Sunbelt. Generally, what we've been seeing is healthier rent trends in the DC Metro area. I see that, that's just the renewal. Is it -- do you know like what the new lease? I don't think you guys ever published that in the past. Like what we see in some of the bigger REITs is the renewals are usually positive and then the new leases tend to be slightly negative. Like is that what you're seeing as well?

[David deVilliers, executive]

So at Dock and Riverside, we had positive trade-outs. And at Maren, it was -- the trade out was negative just under 2% about 1.8% in the negative.

[Bill Chen, analyst]

Got you. That's helpful. Jumping over to the warehouses. Can we assume Chelsea's kind of get about $9 in that per square foot? Is that a reasonable assumption?

[David deVilliers, executive]

A couple of things. I would say that we are out in the market at $10 for Chelsea. Where we land is going to be -- it's going to be an equation of how many improvements they want and plan the term and what type of annual escalations we get that average rate across that term is even better. But we're kind of looking at that year 1 rate. We're out in the market right now, $10.

[Bill Chen, analyst]

That's helpful. And what's the market vacancy in that submarket right now?

[David deVilliers, executive]

For our product type, I'd say it's -- don't hold me to this exact number. But I think we're at 5%.

[Bill Chen, analyst]

5%. Okay. So I mean it's not like before, but still very alky. The -- I think in one of the earlier filings, you had mentioned -- I don't know if it's an earnings call or filings. You have mentioned that you learned a lot from the commonly [ learned a lot ] from the Lending Venture and you're exploring ways to potentially apply that kind of to the 220 acres you have in Florida and Georgia.

Like if I remember firstly correctly, that's what you guys said or might have disclose that? And any update on any site or targets where we may -- we historically have thought of these parts as multi-decade assets when the land will be available to be monetized. So like any update on any near term [ on possession ] or just by near term, I mean, like within -- sorry, of turning them in to potentially homebuilding lots, et cetera, like -- any commentary on that would be helpful.

[John Baker, executive]

Yes, go ahead, David.

[David deVilliers, executive]

Bill, I was going to say at one of our quarries in Fort Myers, Lee County purchased land from us to put a major road through it, called Alico Road. That's going to cause -- that's going to cause probably some of the mining operations to stop there because you can't exactly bring large aggregate vehicles across a major highway.

And when stuff like that comes up, we look at it to see if there's a second life to see if we can do something with it. Near term, I don't think that's something near term. A lot has to happen for a major road to be built and water sewer zoning, but that's the type of stuff that we're just -- we're keeping an eye on. And if there's a way to squeeze some dollars at a property that otherwise is going to sit vacant. That's what we're going to do.

[John Baker, executive]

Yes, Bill, just to take you back on Dave said [ Vulcan ] is going to get every bit of limestone out of Fort Myers that there is to get prior to Alico Road being built, that's just too valuable to them. And so they are hustling to get that -- to get it mined so that they can get to the other side of the road and continue mining in like the second phase of that.

But -- those are -- I wouldn't say they're top of mind, but we certainly revisit them often and continue to talk internally about what development will look like there, but particularly that site, you're going to need -- you're going to bring in some utilities with that road to make it happen until that road is built, it's not going to be profitable to develop it, but we are going to make sure that we're ready to develop that stuff as soon as it's capable of being developed.

[Bill Chen, analyst]

I remember it was a time when the bridge, the [indiscernible] Duck, Low Bridge needed to be built in the '01 demo and it I thought man, it's going to take at least 15, 20 years. But that happen like in a much shorter time frame than I thought. So in Alico Road, is that -- building Alico Road, is that 3 years? Is that 5 years? Is that a 10-year like -- like help me understand like what kind of time frame are we talking about?

[John Baker, executive]

Yes, probably 2027, 2028, something like that.

[Bill Chen, analyst]

Okay. All right. Because in New York, when we say we're going to do something, we mean like 30 years later. So I just want to make sure that we're at the same page there.

[John Baker, executive]

It's a priority for the county. [indiscernible] is going to open up a lot for them. And it's -- I would say it's almost -- it's probably the county's top priority.

[Bill Chen, analyst]

That's helpful. Is -- am I thinking like too fast here because I've driven past Lake Louise years ago, this is like 8 years ago. And if I remember correctly, I like right by Disney where all these subdivisions are going up, like -- like is there any potential gap being sold to some home developer in the near term, meaning like 5, 10 years for those lots?

[John Baker, executive]

No. I think -- first of all, CEMEX is going to have to start mining, which hasn't happened yet. And I think they'd have to mine a pretty meaningful portion of the property just to get the kind of scale, you'd want to develop it, which we're going to be making good money while they're doing. And yea, that place is going to be the proverbial hole in the donut, even when we can go about developing the first phase of it.

And it's -- it is within kind of this overall concept plan in Lake County, called Wellness Wy. Everybody knows development is coming there. It's just going to be a little bit before we do, but I think that whatever you -- however long you have to wait the demand for land down there as well exceeding inflation. So I don't think we're losing any money by sitting tight. We're going to be generating income as [indiscernible].

[Bill Chen, analyst]

Well, I mean it's not a bad thing to let everything else appreciate and get build out, right. Like you're already holding on that. So that's -- is there a reason why that CEMEX, I mean it's unbelievable because it was a year ago when I drove across actually maybe 9 now, but CEMEX still hasn't started. Like what's -- any time line on when they may start mining that?

[John Baker, executive]

I don't know, they know they own it, have a lease on it. And I think kind of the biggest hurdle to them getting in there in mining was they were required to extend some county roads at their expense. That was part of getting permits. And they do have other assets in that area.

And so maybe the -- it's not as if they were immediately running out of reserves, and they could supply their -- the ready-mix operations with what they already had. -- they will mine it eventually. I know that we are happy to collect the minimum royalty payments in the meantime.

That's another product that the price is exceeding the inflation. So again, I don't think we're losing any money by them not mining it.

[Bill Chen, analyst]

The site in Jacksonville, I know I'm jumping around a little bit, but I just have all these thoughts in my head. The site in Jacksonville, that's now vacant site. Could that potentially be a warehouse?

[John Baker, executive]

I don't know about a warehouse, but I think it could be -- it could definitely be like equipment storage. Yes, nothing we have to worry about like immediately, but I think there's 2 or 3 years left on that lease, as we kind of get to a year or 6 months out, I think that when we'll start exploring kind of its next phase, but it will not sit there vacant.

[Bill Chen, analyst]

Okay. And like how big of -- how many square foot could be built on that site?

[John Baker, executive]

I don't know about it's viability as a future industrial asset. So it would -- I think equipment storage, at least for the time being, is it best use.

[Bill Chen, analyst]

Got you. And I don't think I have more questions, but I just kind of want to leave the management team with a thought I've been tracking the company I've been a shareholder for 9 years since 2015, 2014 and 2015, so maybe 10 years now. And I track the cash flow, track the NOI and I think that the management team and Board should start thinking about initiating a dividend.

I know there's a lot of projects in the pipeline I know you guys do a great job putting that capital to work. But I think that I also know that because I've been a shareholder for 9, 10 years, and I know your intentions, but that's not necessarily the case for a casual shareholder or prospective shareholder and I think they're -- I know you guys went out and hired really good IR team. I know that you guys are trying to increase visibility.

So in today's environment, when you could get 4% 2-year treasury, 5% in the 6-month treasury and then the Mid-America is paying almost a 4% yield. I think that there is competitively the company could be helped by initiating a 1% dividend because most of the capital could still be allocated, and then that would be maybe just $5 million a year. I did some math before jumping on the call. I think we're going to be running at over $40 million of NOI once Chelsea gets leased on The Verge gets consolidated and a lot of these assets don't have debt on there, [indiscernible] very minimal.

There's still a lot of cash on the balance sheet. So I think that initiating a 1% dividend will be good. It will bring. I think more important than anything else is signals, it signals to the casual shareholder and the prospective shareholder that there is an intention to return some of the capital to shareholders eventually.

And I think if you start at 1%, you could have that dividend easily grow 10% the year and even 15% a year. And they will still be very, very affordable because the NOI has grown so quickly and you're starting off at a very low base at a very low amount.

So that's something to think about sometimes on these earnings calls, I'd like to use the calls to kind of express some of the my thoughts and a lot of it comes from talking to other shareholders and other prospective shareholders who kind of have worked us up. And I think it will also help with the trading liquidity, which is kind of a perpetual issue that the company deal with. So it's not a question, it's more of sharing some of the feedbacks that I have when I talk to other shareholders.

[David deVilliers, executive]

No, Bill, it's really good feedback. And I'd be lying if I said that it's not something that we've -- an idea that we believe bounce around. So I appreciate you sharing that.

[Bill Chen, analyst]

Well, thank you, and I'm glad that it's been thought around internally, and I have no further questions.

[Operator]

It appears we have no further questions at this time. I will now turn the program back over to our presenters for any additional or closing remarks.

[John Baker, executive]

Thank you all, and we, of course, appreciate your continued investment and interest in the company. Thanks. Bye.

[Operator]

This does conclude today's program. Thank you for your participation. You may disconnect at any time.