Amy Sparwasser/iStock via Getty Images

Amy Sparwasser/iStock via Getty Images

FRP Holdings (Nasdaq: NASDAQ:FRPH ) is an under-the-radar (last SA write-up was in 2017, ~5 years ago) $540m real estate holding company run by the shareholder-friendly Baker family (owns ~35% of the shares) who have proven themselves to be smart capital allocators. Although it is trading at ~100% of a conservatively estimated NAV, there are a ton of free options attached and NAV will most likely grow in the next few years. This is a good opportunity to invest in cash-flowing, hard-assets run by a smart management team.

FRP Holdings is a holding company engaged in various real estate businesses. The four business segments are:

In 2018, FRPH disposed of 40 industrial warehouse properties and 3 land parcels to Blackstone (BX) for $347.2 million. In 2019, FRPH sold another 2 industrial warehouse properties to Blackstone for $11.7 million. In 2020, they sold another property that they had acquired in 2019.

In short, management has shown that they are willing to sell properties at the right price, which has generated a lot of value for shareholders:

Well, everything is for sale, as you can- as you certainly know, from our past activities.

The main strategy now is to re-deploy the warehouse portfolio sales proceeds into asset classes across various business segments that will allow management to exploit its knowledge and expertise (including mixed-use properties, raw land, existing buildings and strategic partnerships in core markets with growth potential).

FRPH owns several properties (~15,000 acres) under lease for mining rents or royalties and an additional 4,280 acres through a JV with Vulcan Materials (VMC). All mining properties are located in Florida and Georgia (except 1 in Virginia).

FRPH owns and continuously monitors the "highest and best use" of parcels of land that are in various stages of development. The main strategy is to convert all the FRPH's non-income producing properties into income-producing properties through:

An example of a primary strategy has been to acquire, entitle, and ultimately develop commercial and industrial business parks providing 5-15 business pads which are then converted into warehouse or office buildings.

FRPH owns buildings held through lease through JVs. FRPH intends to transfer additional JVs from the Development Segment into this segment as they reach stabilization.

The Baker family owns ~35.6% of the company (CEO owns 14.8%, other members of the family own an additional 20.8%).

The mining segment is probably the easiest segment to value. The company basically just leases out the land to other companies and just collects checks based on the amount of rock/sand extracted from the ground. The total royalty revenues is defined by: volume x price.

This segment brings in ~$10m a year in revenue and with ~90% FCF margin, we get $9m in FCF.

A 25x multiple (or 4 cap rate) seems appropriate for this type of business, so $225m.

There are also an estimated 500m tons of reserves. For reference, 8.4m tons were extracted in 2020, so there are ~60 years of reserves at least.

On top of everything, there are two additional potential upsides:

Mining Properties Asset Value: $225m

Note: It's also worth noting that there has been a rent freeze in D.C. until the end of 2021, which was lifted January 2022. Also interesting to note that rents have been increasing in 2020/2021 despite the moratorium.

FRPH is a D.C.-centric multi-family real estate company (and royalty company) trading at a conservative 100 cents on the dollar. However, there are several catalysts on the horizon that will help boost NAV in the next few years. On top of that, management has proven themselves to be very capable and smart allocators of capital.

Based on the analysis above, I recommend taking a long position in FRPH.

This article was written by

Disclosure: I/we have a beneficial long position in the shares of FRPH either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.