FRPH - FRP Holdings Inc

[Gopinath]

Anyone invested/interested in FRPH, used to be called 'Patriot holdings', coming up with a spin off by separating the transportation business and real estate business. On first look, the company looks interesting..

 

Transportaion Segment:

 

At September 30, 2014 the transportation segment operated a fleet of 486 tractors and 588 tank trailers plus 7 additional trucks that were being prepared for sale. The Company owns all of the tank

trailers and owns all of the tractors except for 47 leased tractors that were acquired from Pipeline Transportation and 3 tractors owned by owner-operators.

 

Real Estate segment:

 

At September 30, 2014, 89.6% of the total warehouse/office portfolio of approximately 3.5 million square feet was occupied. there are some significant developments are in place, especially the 1Msqft of development with JV with MRP known as RiverFront on the Anacostia in Washington, D.C in a 5.8 acre parcel of undeveloped real estate that fronts the Anacostia River and is adjacent to the Washington Nationals Baseball Park.

 

Reasons for separation is regular reasons like focus, autonomous etc. The one thing important is the company is under leveraged relative to their assets both in RE(under valued as most of them were bought long time ago) as well as in transport businesses. I thought bringing this to the forum would shed more light, allow some criticism.

 

(In thousands, except per share amounts)                                                                                      2013            2012          2011

Revenues:

Transportation ...                                                                                                                          $ 112,120        103,476    97,801

Mining royalty land ..............................................................................................    5,302            4,483        4,261

Developed property rentals ..................................................................................      22,352          19,555      18,044

Total revenues ................................................................................................... 139,774          127,514    120,106

Cost of operations:

Transportation ................................................................................................... 102,766          96,000      89,773

Mining royalty land .............................................................................................. 1,294              1,252        1,404

Developed property rentals ..................................................................................    14,019            15,070        13,145

Unallocated corporate .......................................................................................... 1,261              1,091          1,415

Total cost of operations .........................................................................................119,340          113,413      105,737

Operating profit:

Transportation ...9,354              7,476          8,028

Mining royalty land .............................................................................................. 4,008              3,231          2,857

Developed property rentals ..................................................................................  8,333                4,485          4,899

Unallocated corporate .......................................................................................... (1,261)            (1,091)        (1,415)

Total operating profit ............................................................................................ 20,434            14,101          14,369

 

[thepupil]

looked at it very briefly but passed because of management quality relative to apparent discount to NAV, though  gave it a very brief and shallow overview.

[hillfronter83]

looked at it very briefly but passed because of management quality relative to apparent discount to NAV, though  gave it a very brief and shallow overview.

 

Do you find anything specific negative about management quality? I looked at this briefly from balance sheet perspective. The real estate piece that will be spun off contains a royalty business that generates about $4 mil net income and a real estate business that I valued around $400 million. The remaining transportation business generates about $3 mil net income and about $11 mil EBITDA per year. The company has a market cap of $$378 mil and debt of $63 mil. So I also passed because there is not enough discount.

[Scudbucket]

Passed.  Some executives will remain at both companies after the spin.  Reason cited for the spin was to free management time and allow them to focus.  Those are at odds with me.

[Moht]

Think FRPH deserves a second look.

 

You've got office property that did $15 million in 2014 NOI. And aggregate mines that did $4.1M in NOI.  At a 6% cap rate, you're looking at $330 value.

 

Add in the Anacostia property, with potentially 1M sq ft of residential and commercial real estate.  At $200/sq ft, that's $111M.  Combine the two, that's $552M compared to today's EV of $397M.

 

Additional optionality:

1. Aggregate mines are sold.  Recent transactions at Plum Creek REIT occurred at $/per reserves.  FRPH has combined mined and unmined reserves of 429M tons.  Plum paid $0.61 per ton for 255M tonnes in 2013.  Call it $0.40 a ton at FRPH.  That's $171M.

2. REIT Conversion. 

3. Optionality in turning depleted mines into home sites, golf courses, commercial etc.

 

Not to mention, you've got owner operators here in the Baker family.  They own 30% of this thing.

 

 

 

 

[krazeenyc]

Here's a nice writeup on FRPH by Rhizome Partners.

FRP_Holding_Presentation__by_Rhizome_Partners_11-30-2015.pdf

[bizaro86]

Here's a nice writeup on FRPH by Rhizome Partners.

 

Thanks!

 

[thepupil]

Anyone know why is went up 16% yesterday / 25% in a month when real estate stocks went down. I can't find any news. Bought a little about month ago and feel like I've been rewarded for no real reason.

[whistlerbumps]

Not specific to FRPH but a lot of micro cap stocks went nuts for no reason on Fri so may have just been caught up in that wave....

[SugarRE]

The MF property in DC is done or close to done.

 

Does anyone have an estimate of the mining royalty lands?

 

I agree with Rihzome on the Asset Management assets.  I have a close friend who owns a comparable portfolio in the same market and her conservatively believes its worth $75 to 80psf.  He stated that FRPH has good locations and is well respected in the local market by tenants, other landlords, brokers, etc.

 

I'm still working on the development land but phase I should be up and close to stabilized and worth 450k a unit when stabilized.  I have not run the promote calc to see what falls to FRPH.

[Williams406]

FRP announced, along with earnings, a change of fiscal year and contribution of mining reserves to a separate subsidiary to pave the way for a REIT conversion if they choose.

 

http://frpholdings.com/assets/2017_Qtr_Ending_31_Dec_FRPH_transition_press_release.pdf

[BG2008]

This is the most important news!!  Bardo Brewing opened next to Dock79 in the Navy Yard in DC.  It's definitely a hipster millennial crowd with craft brewing on site plus dog parks. 

 

[Williams406]

BG2008 from the "2017 Best Idea" thread:

 

"Mine is still FRPH - The company trades at $44 and is worth $63 according to my estimate. Near term catalysts includes consolidation of the multi-family results into Q3 2017 financials.  The company has set up all the ground work to convert into a REIT pending Trumps tax legislation.  If corporate tax cuts pass through, then no REIT conversion.  If no corporate taxes, then will convert into REIT.  Win-win either way.  If converted will pay a $2.40 per share cash dividend.

 

Although the upside is no where near the Dec 2015 price of low $30, it's good to invest along good capital allocators and sleep well at night."

 

I assume that $2.40 "purging" dividend amount came from management? I'm working on NAV growth rate estimates over the next few years as the company builds out raw land inventory and develops phases II-IV of the DC property. Over the past six years, it looks like they converted 176 acres to 766k square feet of leased real estate per the annual meeting presentation. Looks like about 876k square feet potential left, though some of that is JV property. Depending on build-to-suit activity, it seems reasonable to think in 5-6 years the land inventory is all converted to leased space, sooner if a couple of big build-to-suit projects occur. Anacostia property could be developed before then (though perhaps not phase IV) and leased up and you're looking at a simpler, two-operating segment company or REIT.

 

This was an easy decision for me at $30 and picked up a lot. I'm trying to figure out how compelling it is from here.

 

406

[Gregmal]

Anyone still looking at this?

 

Aside from the known value, my perception is that a lot of anticipation was built into a potential REIT conversion that is now likely off the table should the GOP tax bill get passed. Started a position here today. Curious if others see anything else to the story other than the "now it's boring and doesn't have a catalyst" angle which is one of my favorite reasons for entering a position.

[BG2008]

No idea what the catalyst was earlier this year, but the stock is up $8/share or roughly 20% since early 2018.  It was presented during the MOI Global Best Ideas conference. 

[Williams406]

Good for performance, bad for adding to the position. Were you able to check out Jensen's presentation on FRP? Any interesting points?

[Spekulatius]

No idea what the catalyst was earlier this year, but the stock is up $8/share or roughly 20% since early 2018.  It was presented during the MOI Global Best Ideas conference.

Not great compared to the SPY, but great compared to Reits, which have gone to hell with rising interest rates and the retail malaise.

[BG2008]

No idea what the catalyst was earlier this year, but the stock is up $8/share or roughly 20% since early 2018.  It was presented during the MOI Global Best Ideas conference.

Not great compared to the SPY, but great compared to Reits, which have gone to hell with rising interest rates and the retail malaise.

 

Can't really complain about these results since early 2016.  SPY is not total return, SPY should be 4-5% higher due to dividends. 

[Williams406]

FRP Holdings selling their industrial RE portfolio. When the Bakers are selling, it's worth paying attention. They sold Florida Rock to Vulcan in early 2007. Last year, a private partnership, Bluegrass Materials, announced a pending transaction with Martin Marietta. The Bakers are aggregates guys--I'll be interested to see what they do here--this deal represents a massive amount of capital for the size of the company.

 

https://globenewswire.com/news-release/2018/03/22/1444764/0/en/FRP-Holdings-Inc-NASDAQ-FRPH-Announces-Contract-to-Sell-its-Industrial-Warehouse-Portfolio-to-Blackstone-for-358-9-Million.html

[Williams406]

Anyone still holding/looking at FRP on the board? Transformative sale announced last week.

[KJP]

Anyone still holding/looking at FRP on the board? Transformative sale announced last week.

 

I have followed it for several years and half looked at it again after the announcement.  I realize they may defer some taxes via 1031 exchanges, but do you have an estimate of the net proceeds they'll receive after taxes, mortgage payoff and transaction expenses? 

 

 

[Gregmal]

Anyone still holding/looking at FRP on the board? Transformative sale announced last week.

 

Reduced a couple days ago but still holding a decent sized position. My thoughts are that this quickly went from a no brainer to a great company at a fair price. Thus reducing position size to a more modest holding makes sense. That said it is still a great business with excellent management. One thing I've learned in the current market is that it's easy to run through(or out of) good ideas if you get too picky about valuations(how many people sold GOOG/AAPL/etc ages ago because they "got ahead" of themselves?). Given this is a company that following it's warehouse sale is also sitting on a massive cash position, I am more than comfortable owning their unique collection of assets while also having a free call option on what management can do(if anything) with the cash. This is much more optimal to me than just sitting on a pile of cash myself.

[Williams406]

Gregmal, I've come to appreciate this management team as well. Mostly intangible impressions from conference calls but also the willingness to sell a) Florida Rock, b) Bluegrass Materials, and c) the developed property portfolio. Competent and straightforward in communication. Clearly, the proposition has changed a lot for shareholders from $30-$40 to now in the low $60's. I think a gradual build-out of the industrial lots and the D.C. development will soak up some of the cash but I'd love to see them use FRP as a platform for aggregates purchases, especially if they can do a royalty deal or two in a downturn. That may be a long shot, but I can dream...We'll get a look at the post-close balance sheet fairly soon.

[Gregmal]

Results out today

 

https://seekingalpha.com/pr/17234702-frp-holdings-inc-nasdaq-frph-announces-results-second-quarter-six-months-ended-june-30-2018

 

This one just keeps getting better. And yea, over 300m in cash ready for deployment.

 

Love this line to: "The problem of what to do with the proceeds is a good one to have, but a problem nonetheless.  Selling when one believes valuations are at their peak also means having to deploy the proceeds when valuations are at their peak, which obviously we are loath to do.

 

If that means letting the cash earn interest for a few quarters, that is what we are prepared to do.  We are not going to wait forever to put this money to work, but this sale and its proceeds are too important an opportunity to waste, and as stewards of your capital, we are taking this moment very seriously.  "

 

Great to hear this kind of value awareness from guys in the RE business. Know way to many folks oblivious to this and foolishly rely on the never-changing attitude of "why would you pay taxes when you can just 1031 everything continuously".

[BG2008]

Can't believe it's trading at $67 now.  The Bakers and the CFO, John Milton Jr are definitely one of the best and most rational management teams that I have encountered during my investing career.