Executive Summary / Key Takeaways

• FRP Holdings (NASDAQ: FRPH) is executing a strategic pivot, leveraging its history in real estate and mining royalties to focus on developing a pipeline of industrial and multifamily assets aimed at long-term NOI growth and value creation.
• While Q1 2025 saw a 31% increase in net income and a 10% rise in pro rata NOI year-over-year, management cautions that 2025 is expected to be a year of "growing pains" with overall NOI projected to be flat to slightly negative due to temporary headwinds.
• Significant capital deployment is underway, with an estimated $71 million in equity investments planned for 2025 into new development projects, primarily industrial, setting the stage for future NOI expansion.
• The company faces near-term challenges including vacancy and operational costs associated with newly completed industrial space (Chelsea, Cranberry rollover), intense competition in the Washington D.C. multifamily market, and the absence of non-recurring mining income seen in 2024.
• The long-term investment thesis hinges on the successful execution and stabilization of the robust development pipeline, targeting a doubling of the industrial segment over the next five years and adding substantial NOI from new multifamily projects.

A Strategic Pivot: From Bedrock to Building Blocks

FRP Holdings traces its roots back to a 1986 spin-off from Florida Rock Industries, inheriting a portfolio of real estate assets that formed the foundation of its early operations, particularly in industrial and commercial properties and mining royalty lands. For decades, the company operated primarily as an owner and manager of these assets, alongside its unique mining royalty business. A pivotal moment arrived in 2018 with the strategic sale of its warehouse assets, a move described by management as a "significant liquidity event" that "sparked a massive transformation in the direction of the company." This divestiture provided the capital and impetus for FRP to reorient its strategy, shifting focus towards active real estate development and investment to unlock greater long-term value.

Today, FRP operates across four distinct segments: Industrial and Commercial, Mining Royalty Lands, Development, and Multifamily. This structure reflects its evolution from a passive asset holder to a dynamic developer and manager. The overarching strategy is clear: convert non-income producing land holdings and pursue new development opportunities to build a portfolio of high-quality, income-generating assets, either for long-term ownership or strategic joint ventures. This strategic pivot is central to the investment narrative, positioning FRP for a new phase of growth distinct from its historical profile.

Within the competitive landscape, FRP operates alongside larger, more specialized players. In the industrial sector, it competes with giants like Prologis (PLD), which boasts global scale and advanced technological integration leading to lower operating costs and faster property turnarounds. In multifamily, Equity Residential (EQR) presents a formidable competitor with its vast portfolio and tech-driven efficiency. Kimco Realty (KIM) and W. P. Carey (WPC) offer comparisons in commercial and net lease segments, highlighting FRP's more diversified, development-centric approach versus their specialized models. While FRP lacks the scale and technological sophistication of some larger rivals, leading to potentially higher operating costs in certain areas, its unique mining royalty segment provides a stable, high-margin income stream that differentiates it. Furthermore, management highlights FRP's operational execution and development expertise as key strengths, enabling potentially faster project completion cycles compared to some peers. The company's geographic concentration, primarily in the Mid-Atlantic and Southeast U.S., also presents a contrast to the broader diversification of global players like PLD, exposing FRP to regional market dynamics. Customer and supplier dynamics, such as tenant concentration in the mining segment and the impact of construction material costs, also play a role in its competitive positioning.

Navigating the Transition: Q1 Performance and Near-Term Headwinds

The first quarter of 2025 offered a mixed financial picture, reflecting the ongoing strategic transition and current market dynamics. Net income attributable to the company increased by a notable 31.4% to $1.71 million, or $0.09 per share, compared to $1.30 million, or $0.07 per share, in the same period last year. Pro rata Net Operating Income (NOI), a key metric for real estate companies that includes the company's share of unconsolidated joint ventures, also saw a healthy 10% year-over-year increase to $9.36 million.

Breaking down the Q1 performance reveals the drivers and the emerging headwinds:

• Multifamily Segment: Pro rata NOI increased by 3.1% to $4.63 million (including The Verge in both periods for comparability). This growth was primarily attributed to improved occupancy at The Verge, which recently stabilized and moved into this segment. However, consolidated operating profit before GA for the wholly-owned multifamily JVs (Dock 79, The Maren) decreased by 16.5% due to higher operating expenses, including increased utilities from colder weather and a water leak, as well as higher repairs and maintenance costs. Management noted that this quarter's occupancy-driven growth is likely the last significant bump from recent stabilizations, and future growth will depend on same-store performance, which is expected to be flat to slightly negative due to intense competition from new deliveries in the Washington D.C. market. Renewal success rates ranged from 47% to 75% with average rental rate increases over 2%, but trade-out rates were slightly negative in DC and Greenville properties.
• Mining Royalty Lands Segment: NOI surged by 19.0% to $3.28 million. This increase was driven by higher revenues, partly due to a decrease in unrealized revenues resulting from the straight-lining of temporarily higher minimum royalty payments for GAAP purposes. While royalty tons were down 10% at one location, royalty revenue per ton increased by 7% (excluding a prior year overpayment adjustment). This segment continues to provide a high-margin, stable cash flow base.
• Industrial and Commercial Segment: This segment experienced a decrease in NOI of 1.7% to $1.14 million. The decline was primarily attributed to a tenant default and eviction at Cranberry Business Park, resulting in vacancy and a write-off of uncollectible revenue and deferred leasing commissions. This highlights a key operational challenge in the near term.
• Development Segment: While revenues remained relatively flat, operating profit before GA increased significantly, partly due to lower professional fees. More importantly, this segment is the focal point for future growth, representing significant capital deployment rather than immediate income generation.
• Consolidated Financials: Net investment income decreased by $222,000, mainly due to lower earnings on cash equivalents, partially offset by increased income from lending ventures driven by higher residential lot sales. Interest expense decreased due to increased interest capitalization on a larger pipeline of development projects. General and administrative expenses rose, primarily due to overlapping compensation related to the executive succession plan. Equity in loss of joint ventures improved by $988,000, reflecting better results from unconsolidated JVs, particularly improved occupancy at The Verge and higher revenues/lower variable interest expense at Bryant Street and BC Realty.

Liquidity remains robust, with $142.93 million in cash and cash equivalents as of March 31, 2025. The company's $35 million Wells Fargo (WFC) revolving credit facility had no debt outstanding, with $34.45 million available for borrowing (net of letters of credit). Recent financing activities include securing floating-rate construction/stabilization loans for the Lakeland ($16 million) and Davie ($31.9 million) industrial joint ventures in March 2025, and securing a fixed-rate permanent loan on two office buildings. The company's debt covenants would have permitted up to $108 million in dividends as of quarter-end, but management's focus remains on reinvesting capital into the development pipeline.

Building the Future: Pipeline, Outlook, and Strategic Intent

Despite the positive Q1 results, management explicitly cautioned investors to temper expectations for overall NOI growth in 2025, forecasting flat to slightly negative performance. This outlook is grounded in the anticipated temporary headwinds: the operational drag from vacant or newly completed industrial space (including the recently transferred Chelsea warehouse), the competitive pressures in the multifamily market limiting same-store growth, and the non-recurrence of the one-time mining payment from 2024.

However, this near-term moderation in NOI growth is viewed as a necessary phase for setting the stage for the "next stage of NOI growth." The core of FRP's strategy for 2025 and beyond is aggressive investment in its development pipeline. The company plans to deploy an estimated $71 million in equity capital investments in 2025 alone, with a total of $153 million planned beyond 2025 for projects currently in the pipeline. This capital will be funded through existing cash, operations, property sales, JV distributions, and borrowings.

The development pipeline is heavily weighted towards industrial assets, leveraging what management views as FRP's "bread-and-butter" and a competitive advantage. Key industrial projects include:

• The 258,000 sq ft Chelsea warehouse (Harford County, MD), recently completed and moving to the Industrial segment for lease-up.
• A 200,000 sq ft Class A warehouse in Lakeland, FL (90% FRP ownership), with vertical construction anticipated in Q2 2025.
• A two-building, 182,000 sq ft industrial project in Broward County, FL (80% FRP ownership), also anticipating vertical construction in Q2 2025.
• A 900,000 sq ft distribution center project in Cecil County, MD, with permits expected in early 2026.
• A 55-acre tract in Harford County, MD, targeting 635,000 sq ft across four buildings, with initial development plan submission in Q2 2025 and vertical construction permits expected in 2026.

Collectively, the four most immediate industrial projects (Chelsea, Lakeland, Broward County, initial Harford County building) represent over 850,000 square feet of new product with an estimated total project cost of $146 million ($130 million FRP share). Management targets a 6% to 7% NOI yield on cost for these projects upon stabilization, translating to an estimated $7.9 million to $9.2 million in FRP's share of annual NOI. The long-term goal is to deliver three new industrial assets every two years, aiming to double the size of the industrial segment over the next five years.

While industrial is the primary focus, FRP also plans to move forward with multifamily developments that meet its return thresholds, viewing them as a "useful hedge." Two such projects are anticipated to begin construction in 2025: one in Greenville, SC, and another outside Ft. Myers, FL. These are expected to add 810 units and an estimated $6 million in NOI upon stabilization. The Anacostia Phase III and IV projects in Washington D.C. are also moving through the entitlement process, with zoning approval expected in Q2 2025, positioning them for potential vertical construction in the future, market conditions permitting.

The lending ventures, such as Aberdeen Overlook, also contribute to the development strategy by providing income and leveraging expertise. Aberdeen Overlook is expected to generate interest and profits of some $11.2 million (36% profit on funds drawn) from the sale of residential lots to a national homebuilder by Q4 2027.

Management's outlook is predicated on market conditions, including expectations for industrial market vacancies to top out in 2025, which should support demand and rent growth as new supply delivers. They anticipate short-term interest rates remaining stable for most of 2025. However, they are closely monitoring potential risks, including the impact of tariffs on construction costs and continued competition in key markets.

Risks and Considerations

Investing in FRP Holdings involves navigating several key risks inherent in the real estate development and ownership business:

• Execution Risk: The successful realization of the investment thesis depends heavily on the timely and on-budget execution of the extensive development pipeline. Delays in entitlements, permitting, or construction, as experienced in Cecil County, could impact timelines and costs.
• Lease-Up Risk: New properties, once completed, must be successfully leased at projected rates. The current environment of slowing leasing activity and increased market vacancies, particularly in the industrial segment and the competitive DC multifamily market, poses a risk to achieving stabilization targets and expected NOI yields. The significant expected tenant rollover at Cranberry Business Park presents a specific challenge requiring successful re-tenanting efforts.
• Market Conditions: General economic conditions, interest rate volatility, inflation, and specific market supply/demand dynamics can impact property values, rental rates, development costs, and the availability and cost of financing. Uncertainty around trade policy and tariffs adds a layer of risk to construction costs.
• Tenant Concentration/Defaults: While diversified across segments, the mining segment has a concentration risk with a few key tenants. Defaults, as seen in the industrial segment, can immediately impact revenues and require time and cost to resolve and re-tenant.
• Joint Venture Dependency: A significant portion of the development pipeline and stabilized multifamily assets are held in joint ventures. Success depends on effective partnership management and alignment of interests.

Conclusion

FRP Holdings is in a transformative phase, strategically pivoting towards becoming a more active real estate developer to drive long-term value creation. While the historical foundation in mining royalties provides a stable base, the future growth narrative is firmly centered on the successful execution of a substantial development pipeline, particularly in the industrial sector. The near-term outlook for overall NOI is tempered by operational headwinds from new developments and market competition, signaling that 2025 is a year of investment and transition rather than immediate outsized earnings growth.

The investment thesis rests on management's ability to navigate these challenges, effectively deploy capital into the identified projects, and successfully lease and stabilize the new assets at targeted returns. The potential doubling of the industrial segment and the addition of significant multifamily NOI upon stabilization represent compelling long-term growth drivers. Investors should focus on the progress of the development pipeline, lease-up velocity in new and vacant spaces, and management's ability to control costs and manage risks in the current market environment. The strategic shift is clear; the coming years will demonstrate its full impact on FRP's financial profile and shareholder value.