The company needed to liquidate to satisfy bondholders who had financed much of its expansive railroad construction. Unfortunately for bondholders, most of those assets were in the form of barren land.
So the bondholders had a sweet idea. They packaged up the land totaling more than 4 million acres and created the Texas Pacific Land Trust. The trust had a basic operating requirement: slowly sell off the land and return the money to shareholders.
124 Years Later
Over the past 124 years the trust has done just that. It has sold more than 75% of its land holdings, while occasionally buying a little land adjacent to its current holdings. It has returned the money to shareholders in the form of dividends and share repurchases.
In a very “recent” change from plans, the trust has decided to slow its sales of land. Instead, being the largest private owner of Texas real estate, it will merely live off the royalties it now receives from oil and gas companies, and sell only a small fraction of its holdings each year. What little income it does generate, it pays out mostly through continued share repurchases.
From 2007 to 2012, the total shares outstanding dropped precipitously from 10.5 million shares to 9.1 million. The proportional value of each share, as measured in acreage, continues to increase. The trust cannot issue new shares by way of its own creation.
The rate of repurchases is an unknown. Royalty income is a wildcard, given that oil and gas royalties exist only as long as there is oil and gas to be brought to the ground. But the trust is all about repurchasing shares, just at an unknown pace, which means that…
In due time, the trust will have repurchased virtually of its existing shares, and whittled down some of its current land holdings. Should it continue to repurchase shares at a rate consistent with the repurchase schedule of the last 5 years, it will have only 1 share outstanding by 2050 or so.
I fully intend to be that shareholder.
You see, I have a bad habit of chasing crazy ideas. I buy lottery tickets at least 10 times a year. Nothing makes me happier than a single $1 Powerball ticket which just might, with extremely long-odds, provide me with more money than I could ever imagine.
Texas Pacific Land Trust is, to me, just like a lottery ticket. Its land is virtually worthless with the exception of a small portion that is happily situated above significant natural gas and oil deposits. Some 97 percent of its land is leased for cattle grazing at an eye-popping rate of less than 60 cents per acre, per year. Sixty cents per acre!
Because there is so much land – and because I had a spare $60 to “invest” – I just had to buy one share of the company.
The shaded areas in the following chart represent the 900,000+ acres that the Texas Pacific Land Trust owns:
I have no plans to sell this share. I have no plans to watch its price. Once per year I’ll look at the financials, make sure that the repurchases are outpacing asset sales, and sit back to collect my tiny .5% annual dividend yield while adjusting my expectations for how much future acreage I will own.
It’s not about the money. It’s about the dream. The American dream!
Forty years from now rapid repurchases might leave me with 50% ownership in 400,000 acres of worthless Texan desert.
Or maybe in 2032 the US Government will buy the remaining land from the trust to build a new nuclear test facility.
Perhaps Americans will find desert living to be the new and exciting thing and pay $5 per year to lease lame Texan desert for their mobile homes and RVs.
I absolutely do not. But what I do know is that I fully plan on owning this share forever. Short of a new world war that destroys the United States, this company will exist in perpetuity.
If in 40 years everything goes to plan, I’ll go to their headquarters, which is staffed with all of 9 people, and befriend every single one of them. I’ll hang out and play solitaire with them on their new super awesome year 2052 computers and we’ll joke about how, for the past many decades, every employee has been paid to do absolutely nothing.
What could you possibly do for 40 hours a week if your entire business is watching land…uh, sit there?
Investing for Fun, not Profit
I am by no means recommending this company as an investment. It is entirely unpredictable, and there is no way to know whether or not its assets have any value. That really isn’t the point. The point isn’t to turn $60 into a whole bunch of money.
The point is to have a huge laugh when I’m 62 years old. To look back and think that after having one beer too many, I purchased thousands of acres of Texan desert with $60 burning a hole in my pocket when I was 22 years old.
It’s a long shot. But why not? I’ve wasted $60 on much more ridiculous purchases, none of which could propel me into the top 20 list of American landowners.
I’m in for the long haul. I will own miles and miles of Texan desert.