FRPH - FRP Holdings Inc

[KJP]

Some significant additional opportunity zone investments; still a big cash pile:  https://www.globenewswire.com/news-release/2020/03/04/1995300/0/en/FRP-Holdings-Inc-NASDAQ-FRPH-Announces-Results-for-the-Fourth-Quarter-and-Year-Ended-December-31-2019.html

 

Based on the commentary in the release, I would expect continued buybacks at current prices.

 

[Williams406]

I'm pretty happy buying in the mid-40's. Looks like management is willing to buy in the high 40's in small amounts. My ideal is they start building another Bluegrass Materials within FRP, but good quarry assets aren't often on the market. From the press release:

 

"And yet the asset that looms largest in the minds of management—our substantial cash holdings—remains by and large unchanged and presents us with the same challenges we faced a year ago.  We are actively pursuing different projects in which to put the money to use while remaining cautious and perhaps conservative in terms of the standard of quality of any project we consider.  Our most recent opportunity zone investments in DC and South Carolina speak to that.  But the $160 million that remains deserves a better home than fixed income, and so we are faced with a choice in investment philosophy: do we find a home for the money today that can generate a better return than investment-grade bonds, or do we sit pat and wait for something extraordinary?  We opted for the latter, and the shareholder patience required to execute it has not gone unappreciated by management.  Though our team is anxious to return your money to you in the form of new investments, the redeployment of our cash will be based on the amount of return we can generate rather than the amount of time that has passed since the asset sale."

[Gregmal]

I do think there’s starting to develop an interesting arbitrage for well capitalized real estate companies trading at poor valuations. One in which cash is available whether through organic earnings or cheap debt, that if wisely used to repurchase shares, can create a tremendous amount of value. With a 1% 10 year, a little bit and earnings, leveraged appropriately, can easily start to knock out big chunks of the share count. Hope to see more of that here.

[thepupil]

I do think there’s starting to develop an interesting arbitrage for well capitalized real estate companies trading at poor valuations. One in which cash is available whether through organic earnings or cheap debt, that if wisely used to repurchase shares, can create a tremendous amount of value. With a 1% 10 year, a little bit and earnings, leveraged appropriately, can easily start to knock out big chunks of the share count. Hope to see more of that here.

 

+1 either you’re right or we're on the precipice of a commercial real estate collapse.

 

the disconnect between public markets and private markets (both equity and debt financing) is as big as it has been in my less than illustrious 9 year career of wandering around this buy the dip bull market.

 

for anyone who thinks that is hyperbolic, I suggest you talk to some real estate private equity funds doing value add in 2nd or 3rd tier cities, getting their hands dirty and using loads of leverage. they do all that to create low quality assets for 5 or 6 or 7 caps...plenty of good quality assets to be had for that or wider with clean balance sheets in the public market, all yours for $1 of commision to IBKR.

 

it's amazing that a $220mm company can spend $1mm and do some press releases and change their chairman and it goes up 17%. the assets are the same today as they were yesterday. i understand and appreciate the importance of today's release...just shows you how nebulous it all is.

 

EDIT: I thought I was on the GRIF thread...oops...buying so much real estate i can't keep it all straight.

 

 

 

 

[Williams406]

At recent $30 share price, market cap just under $300 million. $160 million in cash. Quarry biz generated just over $9 million in royalty revenue last year. I don't think management would sell that business for less than $140 million. All the non-quarry real estate assets for free? Management bought back some shares, not aggressively, in the high $40's. I'm liking how this is shaping up.

[KJP]

At recent $30 share price, market cap just under $300 million. $160 million in cash. Quarry biz generated just over $9 million in royalty revenue last year. I don't think management would sell that business for less than $140 million. All the non-quarry real estate assets for free? Management bought back some shares, not aggressively, in the high $40's. I'm liking how this is shaping up.

 

I starting going through FRPH asset by asset and liability by liability against last night.  Not close to finishing, but here are some early notes:

 

1.  it's not $160 million in cash.  It's about ~$25 million cash and ~$135 million in ~60 unidentified (or have seen any breakdown of them yet) corporate bonds maturing from 2020 - 2022. 

2.  The debt on the balance sheet relates to DC apartment building and is non-recourse. 

3.  They have an off-balance sheet guarantee of up to $23 million on the Bryant Street development in DC.  I haven't found any other material off-balance sheet obligations yet, but haven't gone though all of the new JVs to see if they have additional funding obligations. 

 

 

[D33pV4lue]

At recent $30 share price, market cap just under $300 million. $160 million in cash. Quarry biz generated just over $9 million in royalty revenue last year. I don't think management would sell that business for less than $140 million. All the non-quarry real estate assets for free? Management bought back some shares, not aggressively, in the high $40's. I'm liking how this is shaping up.

 

I starting going through FRPH asset by asset and liability by liability against last night.  Not close to finishing, but here are some early notes:

 

1.  it's not $160 million in cash.  It's about ~$25 million cash and ~$135 million in ~60 unidentified (or have seen any breakdown of them yet) corporate bonds maturing from 2020 - 2022. 

2.  The debt on the balance sheet relates to DC apartment building and is non-recourse. 

3.  They have an off-balance sheet guarantee of up to $23 million on the Bryant Street development in DC.  I haven't found any other material off-balance sheet obligations yet, but haven't gone though all of the new JVs to see if they have additional funding obligations.

 

Management was buying back at around 48. Q4 had the lowest number of purchases all year and for the most part the stock trading above $50. I think that shows good capital allocation practices they are not willing to just spend on buyback but are being decisive and picking up where they see value. I peg mining royalties at 170-180. At current prices, you get all of the real estate for free. Don't see how this isn't meaningfully higher in the future. Dock79 should be worth about 5-7 p/s and there are 4 phases. I could go on but I think it's pretty clear the value of all the properties is much higher.

 

[Gregmal]

This has held up better than probably any real estate company I follow, but what else is interesting is the volume. Been huge for FRP recently, and in a good way. Perhaps this one has earned its stripes with a few more folks than just us schmucks here.

[thepupil]

I've been a seller and that's after being a buyer in early march. facts and relative value changed quickly.

 

heavy development exposure, rock pit royalties that are worth a lot but are ultimately a royalty on collapsing construction volumes, highly levered Dock79 (non-recourse single asset as discussed).

 

bought cheaper, more liquid, more diversified (geographically and in terms of exposure to projects stuff with the proceeds. already up a lot on those, may rotate back to FRPH.

 

EQR in the low to mid $50's was a lot sexier than FRPH in the high $30's. do i want to own one or two buildings on the anacostia or like tens of thousands  high quality units. FRPH was a lot cheaper than blue chip REITs before the great collapse of march 2020 where share repurchases and cash helped FRPH hold up.

 

maybe i'll wander back to into more FRPH if all the more liquid blue-chippy stuff keeps surging.

 

[thepupil]

earnings are out.

 

surprised to the upside on the resilience of the mining royalties.

 

I maintain that this should trade lower than it does and yes I was buying at slightly higher prices 2 months ago.

 

think about what you want to own right now. do you want to own a company that has 2 material performing cash-flowing assets and a bunch of development in gentrify-ing parts of DC/ with some outer baltimore burbs thrown in for fun.

 

a) a royalty on construction / road repair (given the state of CRE and public finances, I'm not sure you can count on infrastructure stimulus to keep you going. this has held up well over this last q but I would expect volume to start to really drop. this is doing $8mm a year but I think there's risk of it going to $4-$6mm having studied the cyclicality of aggregates volumes  (for an unrelated thing).

 

b) a 92% occupied building that's in the "hip" but nevertheless more recently gentrified (and potentially subject to a decline in appeal if crime increases) part of DC (my Northwest burbs sheltered white-ness showing). this building is doing ~$7.2 million of NOI and has an $88 million loan against it at 4.125% that's $3.6 million of interest expense. it's interest only for the next 3 or so years then starts to amort at 360 months which will bring debt service to $4.2 million. So for the next few years, I see this spitting out about $3.6mm of cash flow after debt service of which FRPH owns $2.4 million since they only own 2/3. In the context of the market cap of $450 million that's not exactly pumping me up. at a 4.5 cap on $7.2 million, this is worth $47 million to FRPH. at a 6 cap on $6 million, it is worth $8 million. the multi-family REITs don't have that leverage/concentration. JBGS has been available for cheap as an 7-8 cap at various times in the past few months and has like 25% debt to EV, 1000's of units, land bank next to HQ2, just across the river from DC Waterfront, a superior platform at a better price with lower risk. yes Dock79's debt is long-term. EQR's is also at 8.9 year average maturity. by the way, I think that NOI includes Dock79's retail NOI, only 1/3 of the restaurants are open.

 

between those I think you have $6-10 million of cash going to FRPH folks, $160 million or so of cash/liquid stuff to deploy, and then a bunch of high risk development investments in what I would describe as somewhat marginal locations. Bryant Street area isn't wonderful (again my leafy suburb bias is showing), some Richmond apartments bought through a 1031 that any Johnny Real Estate Investor probably could have bought, more DC waterfront developments coming up [long term probably good, short to medium term...hmmm],

 

as Gregmal and I have discussed, there's a certain beauty in being small and simple, and having a pile of cash, but I just don't see the positive risk/reward asymmetry here given that state of the world.

 

I like and respect management a lot and the opportunity set on the cash trove is getting better, but I'm not sure if that offsets the negatives. the development exposure relative to regular old cash flowing assets and the leverage on dock 79 would make most REIT analysts head explode. as an owner of this in the past, I am not saying that's a bad thing, just pointing out what I think is relative value/disconnect.

 

 

[Gregmal]

Yea I am struggling a little with this one. I really like it. Across the board. The assets, the management; both to me, top notch.

 

But, despite trying, I cant really argue or find flaw in any of the points you've raised. They are entirely valid and make sense. The only items I can point to are perhaps the static nature of the cash, and the ongoing buybacks. The 82,000 shares repurchased is a BIG number for this company compared to anything we've seen previously. This would also explain the significant volume increases we've seen.

 

I've lightened up a tiny bit to reinvest in ESRT, but still hold the majority of my position. There's definitely less upside here than in other stuff, but I've also tried to keep in mind that it probably also carries significantly less risk than most of the other stuff I'd contemplate putting the proceeds into, given both the cash and the management. For me personally, to the extent that I continue to earn, ie make money, as a younger dude, I will need to deploy it somewhere. Patience with RE right now is probably prudent, and as such I am currently taking the approach of letting this one be and then as cash comes in deploying it in the stuff I would be tempted to sell this and buy. Or, if swapping things, staying on the same risk plane, ie conservative to conservative rather than being a pig and selling something like this to buy something of substantially higher risk in search of a home run.

[Williams406]

thepupil,

 

I share your lack of enthusiasm for the current development portfolio. Being a capital provider for various multi-family projects wasn't what I had hoped for when the Blackstone deal was announced. What I wonder about is in your scenario where mining royalties drop to, on your low-end $4 million, which is right around their minimum contractual payments, what kind of aggregates assets around the SE become available in that kind of environment? I don't know the answer. But I believe FRP would like to allocate capital to that industry, it's just hard to do economically in good times. I can't think of many people I'd want shopping around for those kinds of assets on my behalf than John D. Baker II, provided he isn't trying to build a non-FRP-owned Bluegrass Materials II on the side.

 

Thanks for the Riverfront detail and comps to other multi-family options.

[thepupil]

Or, if swapping things, staying on the same risk plane, ie conservative to conservative rather than being a pig and selling something like this to buy something of substantially higher risk in search of a home run.

 

Understand the cash is there, but my point is that I think FRPH's real estate is actually some of the riskiest in everything I look at.

 

ALX is down about 9% today, almost to $1.3 billion.

FRPH down $420 million (not the the $450 I said above)

 

Let's remove cash from both. they have 31% cash and 38% cash

 

$1350 - $430mm (not including restricted cash) = $920 million for the equity in ALX's properties.

$420 - $160mm = $260 million for the equity in FRPH's properties.

 

What kind of levered cash flow do we get on the equity? and what's the sensitivity thereof?

ALX has ~$65 million of NOI from it's bloomberg lease that goes to 2028/9. and a $500 million mortgage that is currently at 1.6% (L+90), so you have $50mm+ flowing to the equity (5.5% on the $920 million)

ALX has $60 million or so of NYC retail NOI and another $600 million or so of 2-3% debt, something like $40-$50mm more to the equity. let's just use $40 million. $50mm + $40mm = $90mm = about 10% cash on cash for leases that are mostly very long term (costco, bloomberg, home depot, Ikea)

 

FRPH's recurring cash flow is not close to $26 million (10% on $260 million) and FRPH has a little retail exposure too at its main cash flowing property and I can assure you that Home Depot and Costco are going to pay their leases for longer than Dacha and the Salt Line.

 

FRPH is a barbell of cash in good people's hands and what I would consider to be marginal, levered assets, with development exposure.

ALX is a barbell of cash in VNO's hands (people will have different opinions) and very high quality assets leased out for 8-9+ years to investment grade tenants. 

 

Now 1 is in NYC and the other is in DC. people hate NYC because it's the hardest hit...but I'd point out that DC is ramping up in cases.

 

I think the repurchase is just FRPH returning capital in a tax efficient manner to management/family holders. I don't necessarily think it means the stock is a spectacular relative and absolute value.

 

anyways, per usual I'm getting repetitive.

[thepupil]

thepupil,

 

I share your lack of enthusiasm for the current development portfolio. Being a capital provider for various multi-family projects wasn't what I had hoped for when the Blackstone deal was announced. What I wonder about is in your scenario where mining royalties drop to, on your low-end $4 million, which is right around their minimum contractual payments, what kind of aggregates assets around the SE become available in that kind of environment? I don't know the answer. But I believe FRP would like to allocate capital to that industry, it's just hard to do economically in good times. I can't think of many people I'd want shopping around for those kinds of assets on my behalf than John D. Baker II, provided he isn't trying to build a non-FRP-owned Bluegrass Materials II on the side.

 

Thanks for the Riverfront detail and comps to other multi-family options.

 

the Baker family have a private equity vehicle that invests in aggregates in the southeast. FRPH does not necessarily have first dibs. I don't think it's necessarily correct to think aggregates acquisitions will occur through FRPH; they have mentioned it on prior calls which I have found puzzling given that one of the younger generation of bakers work for Vulcan (or Martin) and another runs Blue Water

 

EDIT: sorry, I read your post too quickly.

 

my point is that the Bakers do already have a Bluegrass II. it's called Blue Water Industries.

 

during the crisis they formed Bluegrass Materials with a PE firm:

https://www.lindsaygoldbergllc.com/wp-content/uploads/2019/04/Martin-Marietta-Announces-Acquisition-of-Bluegrass-Materials.pdf

https://www.jaxdailyrecord.com/article/bluegrass-materials-sold-in-dollar1-6-billion-deal

 

they are doing it all over again:

http://www.bluewaterindustries.com

https://regents.umich.edu/files/meetings/10-17/2017-10-IX-2.pdf

 

[bizaro86]

I like and own both ALX and FRPH. That said, I like DC exposure better than NYC exposure. There is a 100% chance imo of the federal govt growing as a result of this. And lobbying will likely become even more important. I think the DC metro area will have secular population growth for a long time, which is good for their MF assets. I also like the aggregate royalties the best of every asset owned by both companies - no exposure to op costs or capital costs of any kind.

 

I think there is a chance NYC office could be at least partially impaired if work from home/move to the burbs become a trend. Obviously the Bloomberg lease would still be money good.

 

By comparison, I doubt gravel is impaired. I can't imagine a situation where it gets replaced by something cheaper, because what would that be? Maybe if we stopped using roads or something?

[thepupil]

there's a VIC writeup out today, gets to NAV of $60 assuming $150-$200mm for the aggregates and assumes that the real estate developments will work out well. points out all the merits with which we are familiar (the great countercyclical management, the cash rich balance sheet, the shareholder friendliness, etc.)

 

the $200mm figure gets there with the future development land in Florida for the nice lots. It assumes that housing starts will do well given the general supply/demand dynamics for single family homes (which is obviously in a much better place than the last recession)

I am decently well versed in the quality of the aggregates asset and understand that its a no-cost royalty with minimum rents and positive residual value. I want to own that asset, it's a sexy asset.

 

But it is a cyclical asset. a royalty = price X volume and volumes are very cyclical.

Martin Marietta's 2010 10-K.

The 5.4% increase in 2010 in aggregates shipments over 2009 levels represented the Company’s first year of volume growth since 2005. Prior to 2010, the ongoing economic recession had resulted in unprecedented declines in aggregates shipments, as evidenced by United States aggregates consumption declining by almost 40% from peak volumes in 2006

 

The beauty of aggregates is you can't control volume, but you can [to a degree] control price if you are in good markets with good competitive dynamics. So revenue may not fall 40%, but I think it's likely to fall.

 

I am less bullish on the Fort Myers Land

 

I would direct you to slide 38 here:

http://frpholdings.com/assets/presentations/Sept_2019_investor_presentation.pdf

 

Note that the Fort Myers Lake property is east of the airport and well into the inland part of the Florida Coast. The story of Florida real estate is a slow gobbling of the muck/swampland moving from east to west (on the east coast) and west to east (on the west coast). the closer to Okeechobee you are the most marginal/least valuable and vice versa with the beach with Pahokee and Clewiston being the most extreme example as they are third world (playing basketball against them in high school was always interesting).

 

making the step from quarry to development, there to be supply/demand imbalance and for there to be population growth/generally good economy/movement of development away from the coast to the marginal land. In 2027, we will probably have all of those things and this may be a great development opportunity, but it is further inland than the last time around.

 

Miramor Lakes is 7 miles from the quarry that people are pointing out has high value residential development potential.

 

In Florida, 7 miles inland is a BIG difference. Take a drive down Alico Road and see what I mean (a necessary shout out to everyone's favorite Old Florida value trap citrus grove / hedge fund controlled agribusiness company is warranted). ALCO! 

 

Don't get me wrong, the land that is 7 miles closer to the coast on the big beautiful lake is valuable:

https://www.zillow.com/homedetails/17981-Via-Bellamare-Ln-Miromar-Lakes-FL-33913/67405013_zpid/

 

But you have to go through 7 miles of this to get from there to the promised land:

https://www.google.com/maps/@26.4934162,-81.7279813,3a,75y,271.08h,74.57t/data=!3m6!1e1!3m4!1snn-Jd1Mv93HBvNYZAc5a-Q!2e0!7i13312!8i6656

 

Here's 5 acres for sale for $70,000. It's 3.7 miles from the quarry in the east (worst) direction

https://www.zillow.com/homes/17370-Balfour-Ter-Fort-Myers,-FL,-33913_rb/66156144_zpid/

 

Here's 2.5 acres for sale for $193K. It's 0.8 miles from the quarry to the west (better) direction

https://www.zillow.com/homedetails/18531-Green-Meadow-Rd-Fort-Myers-FL-33913/66150341_zpid/

 

the 2000 acre Fort Myers land is rural land. it is a rock pit in between the above two in terms of boonies-ness. it may be lakefront property one day, but it's rattlesnake country now.

 

This is way too in the weeds, but when you are plugging $30-$50 million into your NAV for this land, I don't think you're being conservative. You are approaching Whitman/Berkowitz 2006 JOE math and no one wants that!

 

from the VIC writeup:

Then there is the land value once the quarry is depleted, a playbook that has been executed several times in the past. This segment has $40m stated book value, but the most promising/interesting land parcel is in Fort Myers, which mgmt. estimates to be up to 105 one-acre lake front residential lots ready by 2027. This is worth at least $30-50m discounted to today.

 

Likewise I think there is a big difference between Bryant Street and Dock79.

 

Bryant Street is at the Rhode Island Ave Brentwood metro stop on the border of Edgewood and Brentwood.

 

https://www.washingtonpost.com/realestate/in-dcs-brentwood-neighborhood-a-wave-of-development-challenges-deep-roots/2020/02/04/e3ed8e32-43b1-11ea-aa6a-083d01b3ed18_story.html

 

https://www.washingtonpost.com/realestate/where-we-live--edgewood-in-northeast-dc/2015/07/20/d690e582-2bd7-11e5-bd33-395c05608059_gallery.html

 

Again, DC's gentrification is all but inevitable and these are in the path of progress, but to the extent that stops or slows, I don't think FRPH will make money on those developments and possibly losses money on the equity/preferred equity. You make more money buying in an up and coming area, because you are taking more risk. it's an opportunity zone for a reason.

 

just thought I'd add a little more data / links to the above rant.

 

I want to own FRPH again and I think I'll get a chance to do so at a lower price. I could be wrong though and given the values elsewhere I'm okay with the risk I don't get a chance.

 

[BG2008]

there's a VIC writeup out today, gets to NAV of $60 assuming $150-$200mm for the aggregates and assumes that the real estate developments will work out well. points out all the merits with which we are familiar (the great countercyclical management, the cash rich balance sheet, the shareholder friendliness, etc.)

 

the $200mm figure gets there with the future development land in Florida for the nice lots. It assumes that housing starts will do well given the general supply/demand dynamics for single family homes (which is obviously in a much better place than the last recession)

I am decently well versed in the quality of the aggregates asset and understand that its a no-cost royalty with minimum rents and positive residual value. I want to own that asset, it's a sexy asset.

 

But it is a cyclical asset. a royalty = price X volume and volumes are very cyclical.

Martin Marietta's 2010 10-K.

The 5.4% increase in 2010 in aggregates shipments over 2009 levels represented the Company’s first year of volume growth since 2005. Prior to 2010, the ongoing economic recession had resulted in unprecedented declines in aggregates shipments, as evidenced by United States aggregates consumption declining by almost 40% from peak volumes in 2006

 

The beauty of aggregates is you can't control volume, but you can [to a degree] control price if you are in good markets with good competitive dynamics. So revenue may not fall 40%, but I think it's likely to fall.

 

I am less bullish on the Fort Myers Land

 

I would direct you to slide 28 here:

http://frpholdings.com/assets/presentations/Sept_2019_investor_presentation.pdf

 

Note that the Fort Myers Lake property is east of the airport and well into the inland part of the Florida Coast. The story of Florida real estate is a slow gobbling of the muck/swampland moving from east to west (on the east coast) and west to east (on the west coast). the closer to Okeechobee you are the most marginal/least valuable and vice versa with the beach with Pahokee and Clewiston being the most extreme example as they are third world (playing basketball against them in high school was always interesting).

 

making the step from quarry to development, there to be supply/demand imbalance and for there to be population growth/generally good economy/movement of development away from the coast to the marginal land. In 2027, we will probably have all of those things and this may be a great development opportunity, but it is further inland than the last time around.

 

Miramor Lakes is 7 miles from the quarry that people are pointing out has high value residential development potential.

 

In Florida, 7 miles inland is a BIG difference. Take a drive down Alico Road and see what I mean (a necessary shout out to everyone's favorite Old Florida value trap citrus grove / hedge fund controlled agribusiness company is warranted). ALCO! 

 

Don't get me wrong, the land that is 7 miles closer to the coast on the big beautiful lake is valuable:

https://www.zillow.com/homedetails/17981-Via-Bellamare-Ln-Miromar-Lakes-FL-33913/67405013_zpid/

 

But you have to go through 7 miles of this to get from there to the promised land:

https://www.google.com/maps/@26.4934162,-81.7279813,3a,75y,271.08h,74.57t/data=!3m6!1e1!3m4!1snn-Jd1Mv93HBvNYZAc5a-Q!2e0!7i13312!8i6656

 

This is way too in the weeds, but when you are plugging $30-$50 million into your NAV for this land, I don't think you're being conservative.

 

from the VIC writeup:

Then there is the land value once the quarry is depleted, a playbook that has been executed several times in the past. This segment has $40m stated book value, but the most promising/interesting land parcel is in Fort Myers, which mgmt. estimates to be up to 105 one-acre lake front residential lots ready by 2027. This is worth at least $30-50m discounted to today.

 

Likewise I think there is a big difference between Bryant Street and Dock79.

 

Bryant Street is at the Rhode Island Ave Brentwood metro stop on the border of Edgewood and Brentwood.

 

https://www.washingtonpost.com/realestate/in-dcs-brentwood-neighborhood-a-wave-of-development-challenges-deep-roots/2020/02/04/e3ed8e32-43b1-11ea-aa6a-083d01b3ed18_story.html

 

https://www.washingtonpost.com/realestate/where-we-live--edgewood-in-northeast-dc/2015/07/20/d690e582-2bd7-11e5-bd33-395c05608059_gallery.html

 

Again, DC's gentrification is all but inevitable and these are in the path of progress, but to the extent that stops or slows, I don't think FRPH will make money on those developments and possibly losses money on the equity/preferred equity. You make more money buying in an up and coming area, because you are taking more risk. it's an opportunity zone for a reason.

 

just thought I'd add a little more data / links to the above rant.

 

I want to own FRPH again and I think I'll get a chance to do so at a lower price. I could be wrong though and given the values elsewhere I'm okay with the risk I don't get a chance.

 

Come on Pupil, why do you have to crap on FRP Holdings?  :) I don't own much sold all of mine in the high $50s. 

[thepupil]

 

 

I wrote this to my family in December 2018

 

 

We have re-established a position in FRPH.

 

After we sold, I felt dumb since we sold @ $58-$60 and the stock went to $67.

 

Now the stock is at $44-$45 and is attractively priced.

 

The reason the stock can be cheap at $45 and expensive at $60 is that the company holds over $250 million of cash (it is a $450 million company).

 

For example let's say a company owns two assets

 

1) a $10 bill

2) a business.

 

If the company trades for $20, then we could say, "the market is valuing the total company at $20, $10 for the $10 bill and $10 for the business". But if the stock falls to $15, then we would say "the market is valuing the company at $15, $10 for the $10 bill and $5 for the business". So a 33% decline in the stock price leads to a 50% decline in implied value of the business (from $10 to $5). This is the situation with FRPH. The stock is down by about 25%, but the implied value for the assets outside of the cash are down to a greater degree.

 

Also, FRPH owns significant assets near the the Nats Ballpark in SE DC.

They built this apartment building on an old rock pit next to the ballpark. https://www.dock79.com/.

 

In building this, FRPH contributed land that was on their books for $4 million at an agreed upon value of $20 million. They partnered with a developer to build and manage the project and borrowed the rest of the money. Today it is estimated their 80% ownership of that apartment building is worth $50 million. From $4 million (an old abandoned rock pit in an industrial wasteland) to $50 million (80% of a 305 unit apartment building in gentrifying DC). Over the last 20 years, Southeast DC has transformed from where you would go to buy your crack rock if you were one of DC's many addicts (or your crushed rock if you were paving a road in DC), to a hip waterfront neighborhood where it costs $3,000 a month for an apartment.

 

FRPH has 4 more development sites on the waterfront of Southeast DC. Furthermore, Crystal City Virginia (where Amazon recently announced they are sending 25,000 $150K paying jobs) is a 10 minute drive across the bridge. The value of the DC waterfront development pipeline is significant. Over the next 5-10 years, FRPH will attempt to replicate the success of Dock79 and will generally only contribute low cost basis land and a small amount of cash; they will utilize development partners and non-recourse financing for the rest.

 

While I don't think round two of FRPH will be as profitable or as quickly profitable as round one, I have high confidence we will make money and that there is a low probability of permanent loss.

 

Since then, the incremental capital allocation has been in aggressive development, we have seen a recession with 15% unemployment develop, and the stock is unchanged.

 

The relative value proposition has worsened.

 

Maybe I’m just a short term oriented piker  though.

 

 

[Gregmal]

Yea same for me, kind of as you guys. I started buying in Nov/Dec 2018, got really lucky selling and yes, actually did nail a lot at $67.25. My reasons for selling were somewhat lucky. I recall a bunch of folks, myself included, just being really excited about the recent developments and management sounding really, really good on one of the calls. After stepping back a bit and reading through my notes, I gut feeling'ed a determination that this had run the cycle, from boring and unloved to now quite loved, and that my estimates of a $70 NAV meant it was time to move on. I did however not hesitate to start rebuying in the low 50's. And continue up until recently. Average rebuy basis probably around $47.

 

Ultimately how I feel about it sways, largely due to uncertainty of recent events. If you put a $65 NAV on this, it fails to stand out against almost all of the alternatives. To me, its better managed than all of the alternatives, but isn't quite as cheap. Do I then enter the rabbit hole of quality vs valuation? I dont know. I dont think this applies as much to real estate as it does other businesses. I dont think its very easy to fuck up real estate unless you overpay for assets, dramatically, and consistently. Thats not a risk here IMO. At least with development, your risk is typically very well compensated and these guys also typically limit their exposure to spec projects.

 

Anyway, I've recently been drawn to JOE. Probably worthy of another thread, but they've come a long way over the past half decade and seem both well run and well positioned financially to make some noise.

 

 

[thepupil]

if anyone wants to really get a feel for where the Ft. Myers Quarry is I suggest this blog post which details the long and sad history of Lehigh Acres. the writer has strong opinions about urban planning and the sustainability or lack thereof of suburbs, but it is nevertheless helpful context if you want to get in the weeds on that quarry's development potential.

 

the google maps at the beginning of the blog shows the competing narrative of this plot of land:

 

It is either "just south of Lehigh Acres", which is basically Subprime Foreclosure, USA, where the median income is $30K. Lehigh Ranch is an endless sprawl of empty, poorly paved and unpaved roads with $4,000 lots; a monument to classic Florida development/speculation. It's Glengarry Glen Ross type of real estate.

https://www.strongtowns.org/journal/2016/8/17/suburban-poverty-boomtown-lehigh-acres-florida

 

Or it's 7 miles east of Miromar Lakes, where there are million dollar lakefront land plots.

https://miromarlakes.com

 

I think that this quarry is unlikely to become a Miromar Lakes due to its distance from everything else and its proximity to the undesirable demographics of Lehigh Acres.

 

This is not incredibly material to FRPH, unless you are doing what the VIC author is doing and plugging in the positive residual value on this quarry as a $50mm component of your NAV. I think it's far safer and more realistic to value that asset as a rock pit and nothing more.

 

This segment has $40m stated book value, but the most promising/interesting land parcel is in Fort Myers, which mgmt. estimates to be up to 105 one-acre lake front residential lots ready by 2027. This is worth at least $30-50m discounted to today. So this segment should be worth $200m or $20/share.

 

On a $390mm market cap, that extra $30-$50mm adds a layer of extra sweetness to the story. Time will tell.

 

 

[BG2008]

if anyone wants to really get a feel for where the Ft. Myers Quarry is I suggest this blog post which details the long and sad history of Lehigh Acres. the writer has strong opinions about urban planning and the sustainability or lack thereof of suburbs, but it is nevertheless helpful context if you want to get in the weeds on that quarry's development potential.

 

the google maps at the beginning of the blog shows the competing narrative of this plot of land:

 

It is either "just south of Lehigh Acres", which is basically Subprime Foreclosure, USA, where the median income is $30K. Lehigh Ranch is an endless sprawl of empty, poorly paved and unpaved roads with $4,000 lots; a monument to classic Florida development/speculation. It's Glengarry Glen Ross type of real estate.

https://www.strongtowns.org/journal/2016/8/17/suburban-poverty-boomtown-lehigh-acres-florida

 

Or it's 7 miles east of Miromar Lakes, where there are million dollar lakefront land plots.

https://miromarlakes.com

 

I think that this quarry is unlikely to become a Miromar Lakes due to its distance from everything else and its proximity to the undesirable demographics of Lehigh Acres.

 

This is not incredibly material to FRPH, unless you are doing what the VIC author is doing and plugging in the positive residual value on this quarry as a $50mm component of your NAV. I think it's far safer and more realistic to value that asset as a rock pit and nothing more.

 

This segment has $40m stated book value, but the most promising/interesting land parcel is in Fort Myers, which mgmt. estimates to be up to 105 one-acre lake front residential lots ready by 2027. This is worth at least $30-50m discounted to today. So this segment should be worth $200m or $20/share.

 

On a $390mm market cap, that extra $30-$50mm adds a layer of extra sweetness to the story. Time will tell.

 

Shots fired!

 

As a rock pit, this is $5 PV into some $3-4mm.  I'll take the other side of that wager!!  Florida is just weird.  I was talking to someone once and I was telling them about CTO's land in Daytona Beach.  I stayed down there near the beach and I quickly realize that houses go for $50k and people literally have holes in their roofs as they can't afford to fix the hurricane damages.  This tainted my value of CTO's land parcels.  What's funny is that Margaritaville winded up being one of the most successful age restricted development.  Well, there are lots of retired seniors who are active and like to booze and take Viagra or at least that's what I have heard.  The one key takeaway that I learned about Florida real estate is that you will undoubted have some shitty locations right next to great locations.  Let's not forget that the deal with Vulcan is that Vulcan will mine the rocks and create a whole new "lake" and "shoreline."  The land has a certain kind of mineral that turns the water aqua blue. So if you are a HNW guy from NY, NJ, CT, or CA and you are just sick and tired of the blue state politics, you can buy an one acre lot and build your $3-4mm mansion and get access to that aqua blue lake water.  In 8 years time, this dynamic will likely be more prominent if I have to bet.  Is the eye sore too much to drive through LeHigh Acre for people who live in $3-4mm mansion?

 

Maybe some Florida residents can enlighten us here.  For now, I'll leave you with this clip, cue evil laugh.

 

 

 

[BG2008]

if anyone wants to really get a feel for where the Ft. Myers Quarry is I suggest this blog post which details the long and sad history of Lehigh Acres. the writer has strong opinions about urban planning and the sustainability or lack thereof of suburbs, but it is nevertheless helpful context if you want to get in the weeds on that quarry's development potential.

 

the google maps at the beginning of the blog shows the competing narrative of this plot of land:

 

It is either "just south of Lehigh Acres", which is basically Subprime Foreclosure, USA, where the median income is $30K. Lehigh Ranch is an endless sprawl of empty, poorly paved and unpaved roads with $4,000 lots; a monument to classic Florida development/speculation. It's Glengarry Glen Ross type of real estate.

https://www.strongtowns.org/journal/2016/8/17/suburban-poverty-boomtown-lehigh-acres-florida

 

Or it's 7 miles east of Miromar Lakes, where there are million dollar lakefront land plots.

https://miromarlakes.com

 

I think that this quarry is unlikely to become a Miromar Lakes due to its distance from everything else and its proximity to the undesirable demographics of Lehigh Acres.

 

This is not incredibly material to FRPH, unless you are doing what the VIC author is doing and plugging in the positive residual value on this quarry as a $50mm component of your NAV. I think it's far safer and more realistic to value that asset as a rock pit and nothing more.

 

This segment has $40m stated book value, but the most promising/interesting land parcel is in Fort Myers, which mgmt. estimates to be up to 105 one-acre lake front residential lots ready by 2027. This is worth at least $30-50m discounted to today. So this segment should be worth $200m or $20/share.

 

On a $390mm market cap, that extra $30-$50mm adds a layer of extra sweetness to the story. Time will tell.

 

Shots fired!

 

As a rock pit, this is $5 PV into some $3-4mm.  I'll take the other side of that wager!!  Florida is just weird.  I was talking to someone once and I was telling them about CTO's land in Daytona Beach.  I stayed down there near the beach and I quickly realize that houses go for $50k and people literally have holes in their roofs as they can't afford to fix the hurricane damages.  This tainted my value of CTO's land parcels.  What's funny is that Margaritaville winded up being one of the most successful age restricted development.  Well, there are lots of retired seniors who are active and like to booze and take Viagra or at least that's what I have heard.  The one key takeaway that I learned about Florida real estate is that you will undoubted have some shitty locations right next to great locations.  Let's not forget that the deal with Vulcan is that Vulcan will mine the rocks and create a whole new "lake" and "shoreline."  The land has a certain kind of mineral that turns the water aqua blue. So if you are a HNW guy from NY, NJ, CT, or CA and you are just sick and tired of the blue state politics, you can buy an one acre lot and build your $3-4mm mansion and get access to that aqua blue lake water.  In 8 years time, this dynamic will likely be more prominent if I have to bet.  Is the eye sore too much to drive through LeHigh Acre for people who live in $3-4mm mansion?

 

Maybe some Florida residents can enlighten us here.  For now, I'll leave you with this clip, cue evil laugh.

 

 

Also, if the Bakers are buying back stock, shouldn't that be enough of an indication?  From my experience, they have been 100% honest with me and the surprises tend to be positive.  Okay, BG2008, shut up and tell people that FRP Holdings sucks so that you can buy stock at $30-35 again!!!

[thepupil]

I grew up in Florida and my parents live there, but not this specific area.

 

Any Ft Myers folks here?

 

it is definitely possible this becomes a highly desirable neighborhood, and as that blog points out there are gated communities that are being successfully developed very close to the Lehigh Acres wasteland.

 

I just want people to understand the bet they're making. When I buy real estate (via the public stock market), I like to drive to it on the Google street view and I think if you take a drive down Alico Road, you may get incrementally less excited about those $1mm lakefront lots. Unfortunately google street view stops a little early, but you can see all the rock pit trucks entering/exiting the quarry which is kind of cool (I'm really fun at parties, I swear). But maybe everyone will flee the dense city to the beautiful lakefront lots of the former Vulcan quarry as they did at Miromar.

 

I do struggle with my perhaps biased perspective of FRPH's assets and their purchase of the stock. I want to like and own FRPH again and their purchasing of the stock, should inspire confidence, but I need to see the value myself. The management obviously know the assets better than my dumb ass. In the end, the $3.5mm (and more to come) of stock they purchased in Q1 just doesn't offset what I see as the issues.

 

A company can repurchase stock for many reasons other than it being cheap, including

 

1. offset stock comp, which is not zero at FRPH

2. return capital to shareholders in a more tax efficient way than dividends

 

I think the Bakers are honest and the management is good. I am not trying to imply anything other than that and they are saying the stock is cheap, so that probably carries far more weight than my rambling about the 2027 outlook of a plot of land in Southwest Florida.

 

[thepupil]

https://www.bisnow.com/washington-dc/news/multifamily/developer-who-has-completed-2-apartment-buildings-during-pandemic-says-leasing-has-been-robust-104668#ath

 

Positive spin re Maren / DC Waterfront

[thepupil]

 

D.C. developers have continued breaking ground on new projects as they expect the market will recover by the time they deliver, but some apartment buildings that have completed construction and begun moving residents in during the coronavirus pandemic appear to be performing well. Bisnow/Jon Banister MRP's The Maren and Dock 79 buildings, photographed May 2 from the South Capitol Street bridge. MRP Realty completed two apartment developments in Capitol Riverfront and Shaw in March and April, and founding principal Bob Murphy said he has been surprised at the lease-up pace thus far. He says this success has strengthened his bullish attitude on the market as he looks to break ground on new projects. The developer  began moving residents into The Maren, a 264-unit building across from Nationals Park and next to MRP's Dock 79 building, March 16. In April, MRP began moving residents into The Wren, the developer's 433-unit, Whole Foods-anchored project at 965 Florida Ave. NW in Shaw.  "Delivering units now you'd think would be pretty horrific," Murphy said Tuesday on a Bisnow webinar. "But we've seen really robust leasing at those projects ... We were all surprised by how good the leasing was." Bisnow MRP Realty's Bob Murphy on Bisnow's Town Hall webinar. MRP works with third-party property managers including Bozzuto, Kettler and Greystar to lease up its apartment projects. Murphy said the teams have taken sanitary precautions to move people in safely during the pandemic, such as requiring everyone to wear masks, frequently cleaning its dedicated move-in elevators and using Bluetooth technology to open doors without physical contact.  "It has been pretty smooth," Murphy said of the move-in process.  MRP also has at least two apartment projects under construction, Bryant Street and Washington Gateway in Northeast D.C. And it is preparing to break ground in the coming weeks on a new project at 1800 Half St. SW on Buzzard Point. "We remain pretty bullish about the D.C Metro area and we remain bullish about our development pipeline," Murphy said.  Murphy said the leasing success of its two newly delivered projects has given him confidence in MRP's ability to lease up the projects it has under construction and planned to break ground soon. Even though the coronavirus has created an economic downturn, he said the D.C. market is poised to outperform the rest of the nation.  "I'm not afraid of starting a project today and delivering two years from now," Murphy said. "Having been through four downturns in D.C., each time the federal government spends money, that stimulates the economy, and the D.C. Metro area does better relative to major MSAs."  Bisnow/Jon Banister The Wren development in Shaw, photographed April 25. Murphy said MRP is also seeing a reduction in construction costs as it sources materials for its Buzzard Point project, another factor that makes breaking ground more appealing. And he expects banks will be more cautious on construction loans, leading to an overall slowdown in development that could reduce competition in the market.  "Right now, it's much more difficult to get a construction loan," Murphy said. "Developers always want to build, and construction lenders tend to be the governor. I think you're going to see less starts this year, for certain, and the ones that do get done are going to be really good operators and they're going to pay more for their debt." As he looks ahead in MRP's development pipeline, Murphy said he is focusing more on affordable housing than he did in the past. The developer has about 1,000 units of planned affordable housing and about 3,000 units of market-rate multifamily.  He said he expects less of a slowdown in affordable housing development than market-rate construction because of the differences in how the projects are capitalized, with affordable projects receiving more government support. A market-rate project slowdown could still result in fewer affordable housing units though, as the projects each include Inclusionary Zoning units.  "I do think, for market-rate housing with IZ, starts will be more difficult in the second half of the year into the first quarter of next year," Murphy said. "Affordable housing is a little bit different because the capitalization is different. It will be impacted, but not as significant as market-rate." Murphy is also focused on the reopening of MRP's office buildings, and he participated in Mayor Muriel Bowser's ReOpen DC advisory group as part of the real estate committee. He said he sat on an office subcommittee of that real estate committee that planned how to safely bring workers back to the city's offices.  "Not every office building is the same," Murphy said. "It's about how do you socially distance, how do you use the elevator, what can you do with the mechanical systems to bring in additional air and improve your filtration."

 

Read more at: https://www.bisnow.com/washington-dc/news/multifamily/developer-who-has-completed-2-apartment-buildings-during-pandemic-says-leasing-has-been-robust-104668?utm_source=CopyShare&utm_medium=Browser