FRPH - Rhizome Partners - FRP Holdings: Trading At Large Discount To Intrinsic Value

• FRP Holdings continues to execute well.
• The private liquidation value of FRPH is much higher than the current stock price.
• YTD, FRPH stock price is up 4% versus the NAREIT All Equity Index.
• We believe FRP Holdings is trading at large discounts to its intrinsic value coming into 2022.

The following segment was excerpted from this fund letter .

FRP Holdings ( FRPH )

FRP Holdings continues to execute well. The city of Washington, D.C., removed the Covid rent freeze during the first quarter. Dock 79 renewed 72% of the leases, with an average rent increase of 4.7%. The Maren renewed 61% of the leases, with an average rent increase of 2.3%. Both buildings will benefit greatly from higher baseball game attendance this year. At the end of Q1, 65% of Bryant Street’s apartments and 82% of its commercial space were leased.

The Verge, at 1800 Half Street, is expected to be completed in the third quarter of 2022. Riverside in Greenville, SC, has likely reached stabilization, with over 90% leased as of this writing. Another multi-family development in Greenville, SC, .408 Jackson, will begin leasing in the third quarter of 2022. While the multi-family assets are performing well, higher interest rates will negatively impact the mortgage cash-out amount and lower the ongoing operating cash flow of the soon-to-be-stabilized assets.

This will lower our net asset value ((NAV)) estimates and we will continue to monitor private market pricing. Rest assured, the private liquidation value of FRP Holdings is still much higher than the current share price.

The aggregate business continues to perform well, and aggregate price increase percentages should be in the teens while expense increases will be minimal given the royalty structure. The aggregate business is ideally positioned to benefit from higher inflation. During the quarter, the company purchased a mining royalty property in Astatula, FL, for $11.6 million.

The new property consists of 1,549 acres adjacent to the company’s site in Astatula. It contains 22.5 million tons of sand reserves and generates almost 12% unlevered cash yield on day one. We estimate that the unlevered IRR will be around 14-15% over the lifetime due to price increases. This is an incredible acquisition and further demonstrates the deal-making savvy of the Baker family in the aggregate space.

Demand for single-family homes has cooled off significantly because of rising mortgage rates, which have reached 5-6%. FRP Holdings has already received $9.6 million back from its $16.2 million capital investment in the Amber Ridge lot project. The company has an additional $31 million commitment for a new lot-development project.

Given the sharply rising rates, these two projects are on our watch list. FRP Holdings’ warehouse portfolio continues to be well leased. Upon the completion of a new, fully leased, built-to-suit warehouse, FRP Holdings will have 91% occupancy in its warehouse portfolio of half a million square feet. The company has additional development parcels to bring the portfolio up to 1.4 million square feet.

Year to date, FRP Holdings’ share price is up 4% versus the NAREIT All Equity Index, which is down 19.2%. We believe this is because FRP Holdings traded at large discounts to its intrinsic value coming into 2022. As inflation becomes a more pressing issue, the investing public has found the company increasingly attractive.

Investors also appreciate that the Baker family is an extraordinary steward of the minority shareholders’ capital. FRP Holdings even found a loyal following in the investing community in Spain. Given that the euro has reached parity with the U.S. dollar, buying FRP Holdings in early 2022 would have generated a 20% gain—in euro terms—for the Spanish shareholders.

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

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