FRPH - FRP Holdings Inc

[BG2008]

Given the run that warehouses had in the last 2 years and how well that asset class has held up during the Pandemic, I guess the Baker did not top tick the portfolio sale to Blackstone this time around.  They got a price that no one in the public market thought was possible.  But it is probably worth 1.1-1.3x as much today as it did when they sold it.  But that is resulting.  I think the Baker are the type where they are not exactly looking to sell assets at all times.  But if they get a good bid, they are sellers. 

[KJP]

Q2 earnings:  http://frpholdings.com/assets/FRPH_Press_Release_q2_2020.pdf

 

Interesting disclosure at the very end of the release that on July 31 they sold their newly constructed and fully leased warehouse at Hollander Business Park in Maryland for $12.3 million, or $130/sq ft.

 

Also continued to repurchase (300k shares at average price of $41.41)

[Gregmal]

The 298k number is for 6 months. Backing out the 90k or whatever from Q1, this indicates they repurchased well over 200k shares in the quarter, if I read it correctly. That is massive for these guys.

[thepupil]

 

https://www.bisnow.com/washington-dc/news/retail/mrp-signs-brewery-at-new-building-next-to-nationals-park-105697

 

The District's craft beer scene continues to grow with a Northern Virginia brewery planning to open across the street from Nationals Park.  Solace Brewing Co. plans to open in The Maren, MRP Realty's new apartment building at 71 Potomac Ave. SE, Eat DC first reported on Twitter. MRP confirmed to Bisnow that the brewery signed a lease last month for 5,111 SF in the building. The brewery's first location opened in Sterling in 2017, and in June Solace opened another brewery in Falls Church in partnership with Eric and Ian Hilton. The brothers are also partnering on the new D.C. brewery, MRP said. Solace is known for its IPAs, including the Partly Cloudy, which has been distributed to D.C. bars. "We feel very fortunate in the midst of COVID to add the Hilton Brothers and Solace Brewing Company to our extraordinary F&B partners on the water at Dock 79 and Maren," MRP principal John Begert wrote in an emailed statement to Bisnow.  The deal continues the expansion of the brewery market in D.C, particularly in the ballpark area. Atlas Brew Works began serving to-go beers out of its new Half Street location in April and opened for indoor and outdoor seating in June. The neighborhood also has Bardo Brewing, which sits next door to the Maren building, and Bluejacket, at the corner of Fourth and Tingey streets SE. The news also comes one week after a popular New York brewery, Other Half Brewing Co., announced plans to open in Ivy City.  MRP began moving residents into the 264-unit Maren building in March. It is the second phase of the waterfront development that includes the Dock 79 building. The development has landed other retailers like Dacha, The Salt Line and All Purpose Pizzeria.

 

Read more at: https://www.bisnow.com/washington-dc/news/retail/mrp-signs-brewery-at-new-building-next-to-nationals-park-105697?utm_source=CopyShare&utm_medium=Browser

[Gregmal]

https://seekingalpha.com/pr/18071441-frp-holdings-inc-nasdaq-frph-announces-results-for-third-quarter-and-nine-months-ended

 

Another 80k shares bought back it looks like. Slow but steady it seems.

[thepupil]

- i was amazed they got the Maren which opened in the middle of March up to 70%+ occupancy. good outcome under the circumstances.

 

- covid is actually causing an SFR construction boom, contrary to my initial thinking on what would happen in a recession (in the early covid days), so agg royalties doing fine.

 

- i like JBGS more for my (mostly) DC development oriented RE play, but glad to see these guys holding up so far. 

 

 

[Gregmal]

Once upon a time, like half a decade ago there was talk here about a REIT conversion. It was canned upon news of favorable changes to the tax code. I love this boring as paint drying company but think its an ideal heavy weight for event driven investing due to what I perceive as a hard asset floor. Should(which if you know management the answer seems obvious) this revisit REIT conversion I estimate you get a nice quick $10-15 per share or so pop. Low risk event driven trade here with some strongly positioned MF assets and a beast of a royalty biz.

[Williams406]

Haven't looked at this thread in a while. Gregmal, thepupil...I gotta start seeing new people. REIT conversion may well be back on the table for FRP. Most of their recent investments require a 10-year holding period due to Opportunity zone rules. Since tabling the REIT conversion, they've said they will no longer be in the business of holding real estate long term, but plans are made for changing and the Bakers have a habit of mixing things up in unexpected ways. Another thing to consider with FRP is growth. From the 2020 shareholder letter: "FRP entered 2020 with one building and 305 units and we will exit 2021 with seven buildings and 1,256 units...two more projects and 671 units will follow in 2022." Maren, phase two of their DC, Anacostia development was nearing stabilization at year end--almost certainly there as I speak. Expect a non-recourse loan/cash out soon. They claim that leased up a lot faster than they planned under pre-covid expectations.

 

 

[D33pV4lue]

Not sure if they would decide to convert to a REIT.  Bakers own a large chunk of the company and since you cannot deduct interest future developments would require equity sales. Management doesn't strike me as the type that would embrace that.  REIT conversion to me would seam to come at an intersection in the business when management can't continue to provide value and the properties are throwing off cash. I don't think FRPH is at that stage yet. Still opportunities to add value through flipping industrial properties and bring current developments to market. Personally I don't care for a quick $10-$15 pop with NAV substantially higher than current price I'm happy to keep accumulating on the dips and waiting for the next asset sale.... but that's just personal opinion. 

Maren filled up quickly internal projections were ~12-15 leases per month and they were doing double that at March-June. Should be 90% occupied and move over to stablized segment. 

[Gregmal]

Yea they've got options for sure. On an absolute basis this is pretty appealing here. I've been trying(slowly) to convert most of my JBGS position into more FRPH. Volume is not your friend here. 

[thepupil]

yea, i mean, it's almost like there are a lot of people quietly buying and no one is selling.

but everyone buying is obviously a fellow value schmuck who won't pay >$51, so until more information is given, stalemate. 

 

Edited April 29, 2021 by thepupil

[BG2008]

Don't you guys have better stuff to invest in?  The G&A alone is $6.5mm a year.  Put a 6% cap rate on it and you got to take $108mm off the valuation.  That alone is $11-12 a share.  Probably not worth your time.  These guys sold the warehouse and sat on a bunch of cash.  Look at how well warehouses have done in 2020 and they are sucking their thumbs and don't have any distressed deals to invest in.  If they held the warehouse, it is probably worth $450mm now with lower cap rate and retained cash.  You need Diamond Hands not Sandy Hands.      

[Gregmal]

I need people like them to balance out people like me.

I did some rebalancing/am currently in the process of rebalancing a bit, but recently this, PCYO, BRK combined are like 75% allocation. Yea I'm margined so its really less in terms of the overall holdings, but still, outfits like the above guys make investing easy. Take super conservative shit and ride it like there's no tomorrow as long as the margin of safety persists. 

[BG2008]

Gregmal, 

Buy some 20% or even 30% OTM puts on BRK.  That way you will not be margin called.  Your margin cost is probably 1-2% and the put will likely be another 1-2%.  Yeah, it is a drag, but it solves your margin call risk.  

[BG2008]

I don't know what I am talking about. So I am going to go back to reading and learning.  Nice chatting with you Greg.   

[Gregmal]

Haha yea you're probably right. There's a bit of a blessing to having margin rates so low. I just like to be a little more adventurous because lets be honest, BRK, PCYO, FRPH, MSG entities, throw in INDT....pretty freakin boring and conservative most of the time. Gotta live a little. 

I also think, if BRK falls 30%, whats happening to the ARKs? And then go down that rabbit hole. 

Cheers. 

[Spekulatius]

Diamond hands after a 20% Market decline:

[Gregmal]

Ha in my head I think of seeing a 20% decline and smile thinking of the Bakers and Old Man Buffett running buybacks at 10% annual clips. Whereas on same said 20% decline I see the ARKs, and can't help but think it correlates to noted slowdowns/disruptions/concentration lapses with postal workers, plumbers, Foot Locker sales reps, and Dominos delivery boys(or girls/its)...

[BG2008]

On 5/1/2021 at 4:08 PM, Gregmal said:

Ha in my head I think of seeing a 20% decline and smile thinking of the Bakers and Old Man Buffett running buybacks at 10% annual clips. Whereas on same said 20% decline I see the ARKs, and can't help but think it correlates to noted slowdowns/disruptions/concentration lapses with postal workers, plumbers, Foot Locker sales reps, and Dominos delivery boys(or girls/its)...

Who bought back more shares in 2020?  FRPH or BRK? 

Edited May 3, 2021 by BG2008

[Gregmal]

1 hour ago, BG2008 said:

Who bought back more shares in 2020?  FRPH or BRK? 

Off the top of my head, I wanna say its close but BRK probably got more as a % of outstanding. However, get this...

The Bakers definitely executed it better. There is also a very noted difference in liquidity and trading for BRK and FRP. Big Daddy Buff shit the bed in March/April/May...but recovered nicely. Meanwhile FRP was cranking buybacks the whole way and especially during all the pandemonium. The mid 30s prints weren't "real" or lasting here, so $40 or so was basically the floor and the Bakers got a good chunk of that. On top of that, BRK definitely had some effected businesses, but RE had the most uncertainty out of anything not airlines or cruise related...no problem for the Bakers...and yea they did this just to show off: 

Lease-up commenced in earnest in the second week of March 2020, and the building received its final certificate of occupancy at the end of September 2020.  At the end of the quarter, the Maren’s residential units were 87.02% leased, and 82.44% occupied.

 

 

Edited May 3, 2021 by Gregmal

[BG2008]

On 4/29/2021 at 10:03 AM, Gregmal said:

Yea they've got options for sure. On an absolute basis this is pretty appealing here. I've been trying(slowly) to convert most of my JBGS position into more FRPH. Volume is not your friend here. 

Greg, 

With the great call again. 

Net income for the first quarter of 2021 was $28,373,000 or $3.03 per share versus $1,618,000 or $.16 per share in the same period last year. The first quarter of 2021 was impacted by the following items: • Gain of $51.1 million on the remeasurement of investment in The Maren real estate partnership, which is included in Income before income taxes. This gain on remeasurement is mitigated by a $10.3 million provision for taxes and $13.0 attributable to noncontrolling interest.

https://www.frpdev.com/wp-content/uploads/2021/05/FRPH_PressRelease_Q1_2021.pdf

[BG2008]

On 5/1/2021 at 1:33 PM, Spekulatius said:

Diamond hands after a 20% Market decline:

Gravel hands beats all other hands

[Gregmal]

Yea....IMO this is set to go and still easily one of the better risk/reward setups out there. 2020 brought most companies to their knees. The Bakers made 2020 get on its knees and give a ........

So with that said, why does this trade at (still) $15-20 per share discount to NAV? Mid-high 60s looks like a cinch.

[thepupil]

since we're talking about FRPH now, I have made this my 2nd largest position, around 15% after selling out completely in 2020. I bought aggressively starting in March, once learning of the Maren's lease-up and refi of both Dock79/Maren to 12 year IO at 3.0%. 

In 2020 I sold because

a) large cash position was a drag when stuff was cheapening up and i worried the cash would be needed to shore up developments if they went bad. opportunities are fewer now, cash doesn't bother me as much. and the developments are doing very well and are providing cash rather than consuming it. 

b) I mistakenly viewed covid from a recession framework and thought agg volumes would collapse. this was totally wrong and the royalty could not be a better asset for the environment (sunbelt/inflation/home prices/infrastructure). 

c) I didn't want my risk to be in 2-4 buildings/developments if we went into a multi-year recession. I had worries about the Maren lease up and Bryant Street (I now only worry about Bryant Street). 

I think almost every reason I sold has been proven wrong and in fact they've drastically outperformed fundamental expectations. 

a 15% position is not risky if one likes the governance/management because really you have 1/3 in cash, 1/3 in developments, 1/3 in rocks royalties. I find myself wondering if I should be bigger, but I temper it and remind myself that these things take time and that 1/3 of the asset base earns 0% (but decreases the risk of the 2/3).

I think there's a chance this re-rates, but also think there's a chance this lingers for 3 years and just build NAV and we feel like chumps making 7%/year or whatever. I'm okay with that, but obviously wouldn't mind a quick spike to $80. 

It's cheap because it's an illiquid, family controlled, multi-subsidiary, subscale company that does things public markets don't love. I'm not sure if that changes, but we're building value with every new lease and royalty check. 

I probably like share repurchases as a use of cash less than you all, but I'm weird. 

Pupil dream end game: tax free spin-off of royalty co into some kind of REIT / LP pass through, sell all non-DC developments, take JBGS stock for remainco (when JBGS is $50-60 in 5 years)

 

Edited May 3, 2021 by thepupil

[BG2008]

Pupil, 

Care to explain that last point of why you don't like share repurchases?  Keep it subscale?  People won't care if they keep buying back shares?  Trading volume?  Float?