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    FRP Holdings Inc (FRPH)

    Q4 2023 Summary

    Published Feb 18, 2025, 5:22 PM UTC
    Initial Price$26.77October 1, 2023
    Final Price$31.44December 31, 2023
    Price Change$4.67
    % Change+17.44%

    What went well

    • FRP Holdings' mining and royalty business generates strong cash flows with minimal capital expenditures, enhancing profitability compared to peers with higher CapEx requirements. This suggests that traditional EBITDA multiples may undervalue the company.
    • The company is expanding into the high-growth Florida market with a new 215,000 square foot industrial development joint venture, where FRP Holdings holds an 80% to 90% ownership stake. This strategic expansion positions the company for enhanced future growth and returns.
    • FRP Holdings demonstrates prudent capital allocation, focusing on its strong development pipeline rather than pursuing potentially risky financing opportunities. This disciplined approach positions the company well for future growth and stability.

    What went wrong

    • The company may be foregoing potential opportunities by not engaging in gap financing or mezzanine lending, as they prefer to focus on their own development pipeline, potentially limiting growth in other areas.
    • Management is reluctant to sell assets even when market valuations are high, potentially missing out on maximizing shareholder value from their aggregates business. They stated that "if they wanted to buy them—the second they want to buy them, we're going to hear about it."
    • The company is targeting returns on new projects of above 6.5%, which may be considered low in current market conditions and could affect the profitability of future developments.

    Q&A Summary

    1. Aggregates Business Valuation and Potential Sale
      Q: What are your thoughts on valuing FRPH's aggregates business, and would you consider selling it given high market valuations?
      A: Management acknowledges the high valuation estimates but believes an EBITDA multiple is a more appropriate way to value the aggregates business. They are not planning to sell, expecting the income stream to outpace any present value from a sale. The business generates approximately $10 million a year with no debt , serving as a significant cash flow engine to fund development projects.

    2. Florida Industrial Joint Venture
      Q: Could you provide details on the Florida industrial joint venture, including ownership structure and expected returns?
      A: FRPH is partnering with BBX Logistics to develop a 215,000 square foot industrial building between Orlando and Tampa. FRPH will hold an 80-90% ownership stake, maintaining control of the asset. They aim for a return on cost above 6.5%, and possibly up to 8%, before starting the project.

    3. Capital Allocation and Share Repurchases
      Q: How are you allocating capital between development projects and share repurchases?
      A: Approximately $80 million is earmarked for capital expenditures in 2024. While the company may make opportunistic share repurchases, significant capital will be directed toward developing assets rather than large share buybacks.

    4. Cash Balance and Capital Expenditures
      Q: How much of your cash balance is available for discretionary investments?
      A: After allocating $80 million for capital expenditures in 2024, the company maintains a healthy capital cushion for plans beyond 2025. Discretionary investments like share repurchases will be considered opportunistically but are not a primary focus.

    5. Development Costs for Aberdeen Warehouse
      Q: How much was spent on development costs for the Aberdeen warehouse project in 2023?
      A: In 2023, approximately $9 million was incurred on speculative buildings for the Chelsea project, which includes the Aberdeen warehouse.

    6. Amber Ridge Project Completion
      Q: Are there any remaining funds to be released from the Amber Ridge project?
      A: Yes, there is still roughly $700,000 being held to complete remaining programs. The total interest and profit from the project is expected to be about $4 million, to be finalized in the first or second quarter.

    7. Decision Not to Provide Gap Financing
      Q: Would FRPH consider providing gap financing in the current lending environment?
      A: Management prefers to maintain dry powder and focus on their own development pipeline, particularly in industrial and multifamily projects. They do not plan to become mezzanine lenders or provide gap financing.

    8. Construction Costs and Timelines
      Q: Have contractor prices and timelines improved for your development projects?
      A: Yes, prices are coming down slightly, and timelines are improving, though not back to previous levels. These improvements are positively impacting current projects like the 259,000 square foot building under construction.

    9. Valuation of Second Life of Aggregate Assets
      Q: Can you provide parameters around the second-life valuation of your aggregate assets?
      A: Management considers it too speculative to assign a value to the second life of aggregate assets due to uncertainties with entitlements and long timelines. Any estimate would not be based on reality, so they prefer not to guess.

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