Open Thread: Valuation

A couple of readers have asked that I start up a valuation thread.  No wrong answers here if you’d like to add your thoughts.  I’d particularly like to hear how you handle asset valuation vs income from assets; I’ve seen a fair amount of double counting.

I’ll start with a quicky that I wrote after the Q: “I calculate the “non-sale” (no sale income included) EBTDA to be $73MM.  $73MM taxed at 20% = $58.4MM or $234MM/year.  20x = $4.67B.  30x = $7B.  Current mkt cap is $6.13B.  Implied multiple = 26x.  Again, very back of the envelope.”

 

White Looks to Make 5/22 a GO

SEC 14A

Full text below and at the link above.  White’s base position is defined as such: “We do not believe that the incumbent Trustees have the power under the Trust’s Declaration of Trust to unilaterally postpone or cancel the Special Meeting, as it has already been properly called and noticed. Such postponement or cancellation requires prior approval of the holders of Shares.”  

In short, White is going to jump in before the adjournment proceedure described by Blue and will attemp to force the Trustee election vote.

Hope you didn’t tear up those plane tickets.

 

ATTENTION TEXAS PACIFIC LAND TRUST INVESTORS!
May 10, 2019
Fellow Texas Pacific Land Trust Shareholder:
 
As you are aware, the incumbent Trustees of TPL have called and noticed a special meeting of shareholders to vote on the election of a new trustee.  The special meeting is scheduled to be held on May 22, 2019 at 10:00 a.m., Central Time, in Room 20502 of the offices of Sidley Austin LLP at 2021 McKinney Avenue, Suite 2000, Dallas, Texas 75201.
 
After two months of wasteful spending of TPL shareholders’ property in waging a proxy campaign in opposition to our nomination of Eric Oliver as trustee, the incumbent Trustees have resorted to a last-minute effort to delay the vote by recently announcing that on May 22, 2019 they intend to convene and immediately adjourn the special meeting until June 6, 2019.
 
We believe that only the shareholders have the power to effect any adjournment or other form of postponement or delay of the special meeting.
 
We will be present at the special meeting on May 22, 2019 with the WHITE proxy cards you have delivered to us, and intend to take any procedural steps required to bring to a vote the election of TPL’s third trustee, as required by TPL’s Declaration of Trust.  We encourage you to read the supplement to our proxy statement found on the reverse side of this letter for additional information.
 
We look forward to seeing many of you in Dallas at the special meeting on May 22, and thank you for your continuing support.
 
Sincerely,
HORIZON KINETICS LLC     SOFTVEST, L.P.     ART-FGT FAMILY PARTNERS

 

This is Supplement No. 1, dated May 10, 2019, to the Proxy Statement dated April 8, 2019 of SoftVest, L.P. and the other Participants named therein (the “Original Proxy Statement”).
 
The Trustees of Texas Pacific Land Trust (the “Trust”) have called and noticed a special meeting of holders of sub-share certificates of proprietary interest (“Shares”) to (1) elect a Trustee to fill the vacancy left by Mr. Maurice Meyer III (the “Trustee Proposal”) and (2) transact any other business that may properly come before such special meeting.  Such special meeting, as already called and noticed, will occur on May 22, 2019 at 10:00 a.m. Central Time in Room 20502 of the offices of Sidley Austin LLP at 2021 McKinney Avenue, Suite 2000, Dallas, TX 75201 (the “Special Meeting”).
 
On May 8, 2019, the incumbent Trustees announced that they intend to convene and then adjourn, without conducting any business, the Special Meeting, and reconvene on June 6, 2019.
 
The Participants (as defined in the Original Proxy Statement) believe that without the affirmative vote of a majority of Shares present in person or by proxy at the Special Meeting, the incumbent Trustees do not have the power under the Trust’s Declaration of Trust, dated February 1, 1888, to either adjourn or postpone the Special Meeting, or try in any manner to further delay or postpone a vote on the Election Proposal.
 
In light of the foregoing, to the extent that a holder of Shares has returned or returns a WHITE proxy card that is signed, dated and either marked “FOR” the election of Eric Oliver or not marked with respect to the Trustee Proposal, the persons named as proxies on the WHITE proxy card will vote such proxies:
 
in opposition of any (1) proposal or motion presented at the Special Meeting by any person (including the Trustees) to adjourn the Special Meeting, or (2) other proposal or motion that may be submitted to a vote of the holders of Shares at the Special Meeting that has the effect of delaying holding a vote on the Trustee Proposal; and
in favor of any proposal or motion that may be presented at the Special Meeting to a vote of holders of Shares that facilitates the submission of the Trustee Proposal to a vote of holders of Shares on May 22, 2019.
 
We do not believe that the incumbent Trustees have the power under the Trust’s Declaration of Trust to unilaterally postpone or cancel the Special Meeting, as it has already been properly called and noticed. Such postponement or cancellation requires prior approval of the holders of Shares.

It is our intent to take any appropriate action to submit the Election Proposal to a vote of the holders of Shares present in person or by proxy at the Special Meeting on May 22, 2019.  In that regard, and depending on actions that may be attempted to be taken by the incumbent Trustees at the Special Meeting, we may bring one or more procedural proposals or motions at the Special Meeting to, among other things, vote against any purported adjournment of the Special Meeting that is effected without a valid vote of holders of Shares, continue the Special Meeting, and elect a person from among the holders of Shares present to preside the Special Meeting if the incumbent Trustees cease to be present at the Special Meeting or otherwise refuse to preside the Special Meeting.
 
As we have previously noted, the proxy statement filed by the Trust in connection with the Special Meeting states that for purposes of the Special Meeting there will be a quorum if the holders of a majority of the outstanding Shares are present in person or by proxy.  We do not, however, believe that there is any basis in the Declaration of Trust or applicable law for the proposition that there is a quorum requirement at the Special Meeting.

Meeting Delay Process + The General, He Wrote Himself a Letter

14A from Blue

This is how it happens:

6.         When and where will the Special Meeting take place?

The Special Meeting will be convened on May 22, 2019, at 10:00 a.m. Central Time in the offices of Sidley Austin LLP at 2021 McKinney Avenue, Suite 2000, Dallas, TX 75201, but will be adjourned—without conducting any further business or holding discussions related to the proposals to be voted upon—to be reconvened at 10:00 a.m. Central Time on June 6, 2019, at the same location.

7.         How does the adjournment process work?

After convening the Special Meeting on May 22, 2019, the Trust will immediately, and without conducting any further business or holding discussions related to the proposals to be voted upon, adjourn the meeting. This will preserve the record date of March 28, 2019, and ensures that Holders who have already voted are not required to submit another proxy card.

Also, General kept true to his promise of a three year term limit.

Trustees

Texas Pacific Land Trust.

1700 Pacific Avenue, Suite 2770

Dallas, TX 75201

Gentlemen:

If I should be elected as a Trustee of Texas Pacific Land Trust (the “Trust”) at the 2019 special meeting of shareholders, I hereby tender my resignation as a Trustee of the Trust effective on the third anniversary of such election.

Very truly yours,

Donald G. Cook

The Fine Print

Two items brought up by readers in the past 24 hours:

#1: White card lays down a footnote to make clear their opinion on where the vote stands.  We start with an excerpt from the letter that Barry and Norris sent to HK and Tessler:

While we were pleased to receive the recommendation from ISS yesterday, we understand that this will remain a close election.1

Here is the corresponding footnote.

1         SoftVest, L.P., Horizon Kinetics LLC and ART-FGT Family Partners disagree with this statement.

The dunking and trolling from both sides has been fun to watch.  Keep it up.

 

#2:  The following two statements can be found in the recently published 10-Q.  The two, when read together, indicate that the Trust didn’t repurchase any shares in all of April.  A few possibilities come to mind: 1) the Trust is somehow restricted on the stock due to the pending vote, 2) the Trust is dedicating marginal cash to PP&E, or 3) Trust management is avoiding further concentrating the ownership stakes of those that they consider dissidents.  Must be a pretty big deal to deviate from a capital return strategy that is decades/centuries in the making and we know the balance sheet is anything but cash poor.

Sub-share Certificates in Certificates of Proprietary Interest, par value $.03 1/3 each; outstanding 7,756,156 and 7,762,414 Sub-share Certificates as of March 31, 2019 and December 31, 2018, respectively

As of April 30, 2019, the Registrant had 7,756,156 Sub-share Certificates outstanding.

Trustees Try Strong-arm

5/8 Update from White Card

Lots going on in this one. White reacts to the vote being postponed and shares a letter from their pals John and Dave (who can’t be bothered to spell Tessler’s first name right).

White still wants to vote on 5/22. Will be interesting to see the HOW here.

On behalf of all shareholders as well as ourselves, we fully reserve the right to move forward with a vote on the election of a new trustee on May 22, 2019, as previously scheduled.

Trustees Barry and Norris write to HK and Tessler (but no Oliver) and show both an olive branch and a middle finger.

John and I will be both in New York this Friday and we believe we should use the opportunity to meet.

Even if you should be truly unconcerned about all the unanswered questions about Mr. Oliver’s experience and track record, you surely realize that your best case scenario means that you’d end up with only one out of three trustees.  Consequently, even if you’d prevail in the election contest, you could not achieve any of your ultimate goals without our cooperation until another vacancy opens up (and it may be another decade until that happens). 

Hostage Situation: Day 1

Meeting postponed

Management officially doesn’t give a shit about you.

It’s ironic that the General, Mr. Reformer, is allowing himself to be party to all of this.

100/100 on the troll meter below. The contempt for investors is obvious.

“We have heard very clearly from shareholders their desire for the Trust to provide greater transparency,” said Trustee David E. Barry. “In that light, we believe it is especially important for all shareholders to have the opportunity to fully review the Proxy Supplement.”

Q is Out

SEC Filing

Notes (no guarantee that any of this is right):

  • “Simple” balance sheets and ISs are a thing of the tax now as we have tax escrow, depreciated PP&E, and acquisition carrying values to navigate
  • Balance sheet at $405MM is 5.7x that of a year ago.  New property goes on BS at cost.  Old stuff has no accounting value.  Quickly getting on WB’s radar for its excellent price to book
  • Rude and crude water margin calculator shows margin expansion for the quarter. Again, this assumes all expense increases after ’16 are water related.  Certainly not perfect
  • I calculate the “non-sale” (no sale income included) EBTDA to be $73MM.  $73MM taxed at 20% = $58.4MM or $234MM/year.  20x = $4.67B.  30x = $7B.  Current mkt cap is $6.13B.  Implied multiple = 26x.  Again, very back of the envelope
  • The statement of cashflows seems kinda useless now as one has to immediately back out asset sales from CFO
  • Repurchases down 35% from first quarter last year.  Divs up 47%.  I don’t want dividends; I want my % stake increased
  • Water PP&E went from $62.9MM at year end to $71.6MM.  A total increase of $8.7MM.   Total buybacks in the quarter were $4.3MM
  • Fixed asset purchases of $9.3MM in Q1 (assuming mostly water equipment) are pretty close to my calculated $11MM in water EBTDA.  Fixed asset purchases don’t hit expense line.  How long does this last?  How long are the useful lives of water assets?
  • Legal and professional fees increased 175.6% to $1.8 million for the three months ended March 31, 2019 from $0.6 million for the comparable period of 2018. The increase in legal and professional fees for the three months ended March 31, 2019 compared to 2018 is principally due to increased legal and professional fees related to land transactions, new water agreements and proxy fees.”
    • Can we get a more granular breakout?
  • Compensation up 2.5x YoY

q1 analysis