And I looked at the numbers. And essentially, what I get to is they spend about $2.5 billion for those two transactions, roughly, and they bought about $1 billion of reserves. And if I’m doing my math right, that pegs the value at about $2.50 for a ton of aggregate reserves and a lot of the markets are kind of similar, right? And if anything, maybe we can even go so far to say that FRP’s market, which is Georgia and Florida, which is probably growing even faster than some of those markets, which naturally kind of brings me to like some back of the envelope math, at $2.50 per ton of reserve times $500 million. Now I get it, like they bought the whole operation, right? They bought the operating company and the propco was the landco. And there’s two separate streams of cash flow.
But I think it’s fair to say that the FRPs royalty structure and the land ownership accounts for at least half of that, which will peg the value at $1.25 a ton of reserves. And if you do the math multiple by 500 million tons of reserve that like peg the aggregate business as something like at $750 million. I mean, I don’t know, like — I’m just kind of like — I’m just like trying to like figure out that’s probably on the high end. Like if you use an EBITDA multiple, but like you really got stripped out the DNA because there is no CapEx or the royalty structure. It’s kind of like peg it out pay 3x EBIT multiple is kind of what I get to you. Like I get to like a $400 million to $750 million valuation for the aggregate business owned by FRPH is kind of like — I’m wondering like if you guys have any thoughts on that?
Like if what I’m saying kind of makes sense or there’s some like subtle differences about those two deals that they just did that’s very, very dramatically different is assuming that the royalty structure plus the land ownership accounting for like 50% of a deal like that, like is that fair? So like — and also commentary color or feedback that you can provide on more years?
John Baker: Bill, I love your $750 million valuation. I’d say that’s definitely on the high end, but on your bullish approach to the aggregates industry. Obviously, have some insight into the Martin purchase of Bluewater Industries. I would venture to guess that they didn’t do it on a reserves basis, but more on an EBITDA basis. And that transaction is probably — I mean I don’t think they would have done it. Were it not accretive to their not an accretive transaction. And so if you look at their EBITDA multiples, it’s going to be somewhere in the ballpark of there or slightly below. And that’s — I think that’s probably an appropriate way to value it. You could make — this gets into sort of granularity, but the — the way you would value — probably a more appropriate way to value our royalty stream is to apply an EBITDA multiple to the revenue, not our NOI just because that revenue is — with my part of — their EBITDA, yes, we have to take into account costs and overhead, et cetera.
and that factors into our NOI. But I think that’s the appropriate way to look at it. A multiple is obviously a perpetuity so that taking into account your reserves. I don’t know that any operator values a transaction on a per reserve or per tonnage basis when they purchase — when they make a purchase. But the way that we have gone about valuing our reserve stream, does not take into account the second life of the mining lands. And so your mileage may vary on how you apply a value to the second life. So a lot of them are coming up and a lot of them are way off in the near-term future, but I could promise you that EBITDA multiple takes into account nothing like that. So put your own value on it, but you would be correct in thinking that the — using an EBITDA multiple would certainly undervalue the royalty and royalty lands.
Bill Chen: I mean like I was — I mean I’ve been a shareholder since 2015, and it’s been a lot of years. So I’ve seen what this royalty business has done. I mean it’s grown, it’s spit out cash flow, and there’s only been two acquisitions. There have been no CapEx in this business. There’s under $25 million of total acquisitions, one in 2012 and then the recent one asset, right? Versus like Martin Marietta has to replace the machinery that gets worn down, right? So I would argue that the right multiple is really like an EBITDA less CapEx number? Like what that number — and I want to like bring that out because that CapEx number could be like one third of the EBITDA for Vulcan or more Martin Marietta. So like if the CapEx is one third of EBITDA, then like your EBITDA multiple is really like you kind of get — you need to get to like an EBIT multiple or EBITDA less CapEx, like — so like the using EBITDA multiple is definitely too conservative, like a true apples-to-apple is really like a EBITDA less CapEx multiple because I haven’t seen any CapEx with FRP’s royalty structure, right, been a shareholder for nine years now.
So I just want to like kind of like get your thought on that, like if I’m looking at it the right way and at the end of the day…
John Baker: I think that’s an interesting way to think about it. And we would just need to kind of idle on that a little bit more. That’s insightful.
Bill Chen: Yes, yes. At the end of the day, what I’m trying to do is, I think real estate and new asset investing inherently has a lot of perks because a lot of times, the depreciation is like, is the real and not — and I’m trying to figure out owners earning, right? And what I’ve been very pleasantly surprised being a shareholder of your company is at the owners earning in this aggregate business has been way better than like any sort of BCF, any sort of like multiple — like it’s just like — it’s just consistently surprises me to the upside. And I think that like an EBITDA multiple just isn’t reflective in an EBITDA less CapEx or an EBIT multiple is like way more accurate of a measure. So just some proof of thought there.
