Dear Fellow Shareholders:
As the vote to elect a new trustee approaches on June 6 in Dallas I wanted to reach out to shareholders again to share some of my perspectives, not only as a fellow shareholder of the Trust, but as an investor who has invested all over the world the past forty years. Much of my international experiences have been directed toward sovereign debt, infrastructure, and Energy. For the past 20 years, all of my investing has been in the U.S. and in the past ten years, almost all of my focus has been in the Energy sector. The most important issues have always been intrinsic value, governance, and leadership integrity.
We believe that TPL survives and has prospered because it has been managed well, because it has been protected by the Trust . . . we see no reason to deviate from a proven path . . . We are concerned that dissension in management may impair this wonderful asset.
My first investment as a young man with Rotan, Mosle, (an energy investment bank from Houston), was in Burma Oil & Gas (US OTC), which at the time I bought it in 1977 sold for 77 cents/share. All reports at the time indicated the company was headed for bankruptcy but my own research indicated that the problem was a dispute with the Indonesian government over LNG export fees and that a simple reconciliation would be in the best interest of all parties. The dispute was, in fact, resolved and the stock recovered to $7 where I sold it. I was feeling very clever only to see a couple of years later that the price eventually reached $40. That was my first real lesson in being patient.
I first bought shares of Texas Pacific Land Trust in 1980 after learning about it and two other asset rich companies, Florida East Coast and Newhall Land and Farming from Mr. B. F. Pitman in Texas. Mr. Pitman had been a real estate investor in the Florida boom in the 1920’s. During that boom he told me his net worth had increased from $2 to $2 million. I was thereby hooked into wanting to be an investor. He told me to buy TPL and in a few years, we would be the last two shareholders, sitting on some valuable real estate.
I did buy what I could, but I have to say that I did not hold it long enough. It never seemed to move, or so I thought, and I gave up. Again, I was impatient. I did, however, learn some lessons about value, and discovered what I thought was a gem (no one I knew had heard of it). It was called Berkshire Hathaway. I bought 6 shares at about $850/share, all I could afford. This one did move and I sold it after a year or so for more than a 1000 point gain. Again, I was feeling pretty smart. Years later, I try not to think the missed profits because that stock now sells for $305,000/sh. I thought I needed the money when I sold years ago. But now I realize, I didn’t really need the money, I was just impatient. It seems that much of investing is doing good research, buying something of value, and being patient.
We investors in Texas Pacific Land Trust own a unique asset. Based on what is happening in the international energy market and especially the Permian Basin (where all of TPLs assets are located), I anticipate that TPL will be one of the main beneficiaries. Now is the time to keep your perspective about Texas Pacific Land Trust, and to be patient with the management and with the story. We investors need to be very careful not to push TPL into a corner that might harm our prospects as shareholders. In my estimation, and despite some slow dissemination of information, the management of TPL has been excellent for a very long time and has always shown the highest level of integrity.
In reading the voluminous material generated by this proxy contest, TPL management seems to be addressing each and every concern to the extent that the Trust allows. Even changing the trust to a corporation is now on the table through shareholder concerns. That will be a long process and management has openly pledged to look at the possibility. It is not the first time the subject has come up among the trustees, by the way, and so it seems like all concerns are being addressed. It is also not something that we should want to rush into. Shareholders would do well to keep in mind TPL’s stock performance over time.
Some of the rhetoric in the proxy fight claims that TPL was just lucky to have all this land. The dissent group’s glib innuendo is that management has done little other than show up. It is unclear to me why the dissidents choose this line of attack. In my mind, nothing could be further from the truth. Nothing is more important than management – or more clearly – management integrity.
In the beginning, in 1881, the Trust started in bankruptcy. The management before, even though they failed financially, earned the title to 3,500,000 acres of land, being organized to build a railroad. Managers at the time were not dealt a royal flush because they were given a lot of land in West Texas. No, they had to manage the assets just as the managers today have to manage oil being discovered on the land. I believe TPL survives and has prospered because it has been managed well, because it has been protected by the Trust, and because we were lucky.
ISS, better known as Special Situations Reports, has studied both sides of this proxy contest and recommend we vote for TPL management’s nominee, Gen. Don Cook. I think this is an important signal to shareholders that given the governance issues that are in need of discussion (and maybe modernized), Gen. Cook seems far better qualified to carry out those duties than the dissidents’ nominee who has not previously served on a public company board of directors. Even though that dissident nominee has the support of the largest holder Horizon Kinetics, I do not understand the rationale to advance their candidate.
The proxy material outlines the dissident nominee’s repeated suggestions to the Trustees that the Trust convert to an MPL or to a corporation. To answer his questions, the Trust apparently spent a lot of time and money. All professional opinions the Trust sought seemed to go against the dissident’s suggestions. This seems to me to have been very responsive to shareholders, but raises concerns that the dissident nominee’s past suggestions may be an indication of the possible disruptions he would bring to the future workings of the Trust.
So, as a professional investor with forty years’ experience, I see no reason to deviate from a proven path the current management has put the Trust on. It is especially important at a time when I anticipate rapid growth in earnings for the Trust will occur in the next 3-4 years. The management seems to understand that shareholders would like more information from the Trust, an annual shareholders meeting, dedicated investor relations personnel and a thorough airing of the governance issues.
We cannot afford dissension and distraction in managing this wonderful asset.
Dana McGinnis, CIO
***Certain statements in this letter constitute “forward-looking statements.” These statements are made on the basis of the views of Dana McGinnis and assumptions regarding future events and performance as of the time the statements are made. Actual results may differ materially from those expressed or implied in this letter. Such differences may result from changes in investment theses or due to market forces outside the control of TPL.