UNITHOLDERS Investor Presentation 2019 NEED FOR CHANGE AT POPE - - PowerPoint PPT Presentation
CONCERNED POPE RESOURCES UNITHOLDERS Investor Presentation 2019 NEED FOR CHANGE AT POPE Poor unit price performance CEO compensation not tied to performance Almost no open market unit purchase by CEO Failure (so far) to convert
Investor Presentation 2019
POOR UNIT PRICE PERFORMANCE
*Unadjusted unit price
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Concerned Pope Resources Unitholders | Investor Presentation 2019
10 20 30 40 50 60 70 80 90
01-JUL-14 01-JUL-15 01-JUL-16 01-JUL-17 01-JUL-18
THOMAS M. RINGO - CEO SINCE JUNE 01, 2014
10 20 30 40 50 60 70 80
DAVID L. NUNES – FORMER CEO (FROM JANUARY 2002 TO MAY 31, 2014)
CEO COMPENSATION NOT TIED TO PERFORMANCE
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50 100 150 200 250 300 350 400 450 2014 2015 2016 2017 2018
BASE SALARY
(In $ thousands) 2014 2015 2016 2017 2018 Base salary 225 325 366 395 400 Growth 13% 8% 1%
Concerned Pope Resources Unitholders | Investor Presentation 2019
ALMOST NO OPEN MARKET UNIT PURCHASES BY CEO
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Total number of units owned by Mr. Ringo 29,868 Open market purchase 7% Exercise of Options 30% Vesting of restricted units 63%
Concerned Pope Resources Unitholders | Investor Presentation 2019
Failure to convert Pope Resources to a C-Corp / REIT
FAILURE TO CONVERT POPE RESOURCES TO A C-CORP / REIT
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MLP structure
because the MLP structure has turned out to be a poor source of growth capital.
REIT.
Concerned Pope Resources Unitholders | Investor Presentation 2019
Investors face tax compliance challenges when investors own MLPs.
considered unrelated business income and is subject to its own tax (UBIT tax). Income from MLP distribution is treated as UBIT and is taxable. According to a Forbes article, the maximum tax rate of 39.6% is triggered at just $12,300 from MLP income.
INVESTORS DISLIKE THE TAX COMPLICATIONS OF POPE'S MLP STRUCTURE
8 Concerned Pope Resources Unitholders | Investor Presentation 2019
A Forbes article highlights the tax complications in MLP for retirement Accounts.
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POPE’S MLP MODEL SCARES INVESTOR WITH TAX COMPLICATION
Don’t Run Afoul Of Tax Rules With MLPs In Retirement Accounts However, using retirement funds to make MLP investments can lead to some very unpleasant tax consequences, which generally makes MLP investments somewhat unattractive for retirement account holders because of the high UBTI tax involved when the rules are triggered… The result is that each year many retirement account holders receive an unpleasant surprise in the mail when they receive a letter and completed IRS Form 990-T from their IRA custodian disclosing the UBTI tax bill due on the MLP investment… Triggering the UBTI tax is no laughing matter. The maximum tax rate of 39.6% is triggered at just $12,300. However, the UBTI/UBIT tax rules are not triggered if less than $1,000 of income is generated by the investment at issue… retirement account holders beware when thinking about an MLP investment for your retirement account….. https://www.forbes.com/sites/greatspeculations/2015/11/17/dont-run-afould-of-tax-rules-with-mlps-in-retirement-accounts/#57efd0873f77
Concerned Pope Resources Unitholders | Investor Presentation 2019
Articles that explains the tax complications faced by US investors and Canadian investors who invest in US MLP.
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Beware the tax tribulations of U.S. MLPs
For Canadian investors, the tax treatment is quite different. Canadian investors in an MLP with U.S. assets are generally considered to be engaged in a business in the United States. The result is that the MLP will withhold 39.6 per cent tax on any distributions paid to non-resident, non-U.S. citizens. "That alone should give a Canadian taxpayer pause before investing directly in an MLP," says Jamie Golombek, managing director, tax and estate planning, with CIBC Wealth Strategies Group. https://www.theglobeandmail.com/globe-investor/investor- education/beware-the-tax-tribulations-of-us- mlps/article35128275/
Tax traps await master limited partnership investors
Investors are now realizing that those tax-free “dividends” are treated as a reduction in their cost
nearly eliminated. What makes that reduced basis even worse is the tax treatment of the gain upon sale. The sale of an MLP triggers a recapture of those deductions that allowed the distributions to be tax- free in the first place. Instead of a capital gain upon the sale of the MLP, that recaptured amount is taxed as ordinary income, and the cost can be significant. In extreme cases, the entire gain might be taxed as ordinary income. The trickiest part of this is that the recapture amount is unknown by the investor until it's reported on the K-1 issued in the year the MLP is sold. In general, the bigger the difference between the annual distributions and the income on the K-1, the more recapture income to recognize. However, the details needed to accurately calculate the recapture are unavailable to the investor.
Concerned Pope Resources Unitholders | Investor Presentation 2019
POPE’S MLP MODEL FAILS TO ATTRACT INSTITUTIONAL HOLDERS
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equities because institutional investors, such as pension funds, are not allowed to hold MLP units without incurring tax liability. Pension funds do not ordinarily pay taxes, so they tend to shy away from MLPs.
the market, so eliminating them reduces the potential demand for MLP units.
Concerned Pope Resources Unitholders | Investor Presentation 2019
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POPE’S MLP STRUCTURE HAS CAUSED INSTITUTIONAL INVESTORS TO AVOID INVESTING
Concerned Pope Resources Unitholders | Investor Presentation 2019
10 20 30 40 50 60 70 80 Pope Resources Weyerhaeuser CatchMark Timber Rayonier PotlatchDeltic
INSTITUTIONAL OWNERSHIP AS % OF TOTAL OWNERSHIP
13 Concerned Pope Resources Unitholders | Investor Presentation 2019
VANGUARD GROUP INC 12.8% BLACKROCK INC. 7.1% PRICE T ROWE ASSOCIATES INC 5.8% FIRST EAGLE INVESTMENT MANAGEMENT, LLC 5.7% STATE STREET CORP 4.1% INVESCO LTD. 3.2% CAPITAL WORLD INVESTORS 2.6% AMERICAN CENTURY COMPANIES INC 2.5% GEODE CAPITAL MANAGEMENT, LLC 1.5% NORTHERN TRUST CORP 1.4% TOTAL 46.7% VANGUARD GROUP INC 10.74% BLACKROCK INC. 7.64% DEPRINCE RACE & ZOLLO INC 6.39% PICTET ASSET MANAGEMENT LTD 6.33% RENAISSANCE TECHNOLOGIES LLC 5.44% RANGER GLOBAL REAL ESTATE ADVISORS, LLC 4.37% INVESTMENT COUNSELORS OF MARYLAND LLC 3.61% BANK OF MONTREAL 2.80% BANK OF AMERICA CORP 2.73% IMPAX ASSET MANAGEMENT GROUP PLC 2.04% STATE STREET CORP 1.92% REAL ESTATE MANAGEMENT SERVICES LLC 1.80% PEREGRINE CAPITAL MANAGEMENT LLC 1.67% RUSSELL INVESTMENTS GROUP, LTD. 1.56% DALTON GREINER HARTMAN MAHER & COMPANY 1.34% WELLS FARGO & COMPANY 1.25% NORTHERN TRUST CORP 1.20% GEODE CAPITAL MANAGEMENT, LLC 1.15% TOTAL 63.97% VANGUARD GROUP INC 15.2% PRICE T ROWE ASSOCIATES INC 13.3% BLACKROCK INC. 10.2% JPMORGAN CHASE & COMPANY 6.9% RENAISSANCE TECHNOLOGIES LLC 3.1% STATE STREET CORP 2.6% CONFLUENCE INVESTMENT MANAGEMENT LLC 2.3% PICTET ASSET MANAGEMENT LTD 2.3% IMPAX ASSET MANAGEMENT GROUP PLC 2.1% INVESCO LTD. 1.9% FULLER & THALER ASSET MANAGEMENT, INC. 1.8% THIRD AVENUE MANAGEMENT LLC 1.6% MARATHON ASSET MANAGEMENT LLP 1.3% NORTHERN TRUST CORP 1.2% BANK OF NEW YORK MELLON CORP 1.2% GEODE CAPITAL MANAGEMENT, LLC 1.1% TOTAL 67.9%
POPE’S MLP MODEL FAILS TO ATTRACT INSTITUTIONAL HOLDERS
VANGUARD GROUP INC 14.8% BLACKROCK INC. 13.7% SOUTHEASTERN ASSET MANAGEMENT INC 7.4% WELLINGTON MANAGEMENT GROUP LLP 5.8% RENAISSANCE TECHNOLOGIES LLC 4.2% PICTET ASSET MANAGEMENT LTD 3.7% INVESCO LTD. 3.4% STATE STREET CORP 3.4% FMR LLC 3.0% NORTHERN TRUST CORP 2.3% PRICE T ROWE ASSOCIATES INC 2.1% BANK OF NEW YORK MELLON CORP 1.5% GEODE CAPITAL MANAGEMENT, LLC 1.3% BROWN ADVISORY INC 1.2% JPMORGAN CHASE & COMPANY 1.1% WESTWOOD HOLDINGS GROUP INC 1.1% FULLER & THALER ASSET MANAGEMENT, INC. 1.0% TOTAL 71.0%
investor who owns more than 1%.
POPE MARIA M 13.10% DAHL JAMES H 11.84% PICTET ASSET MANAGEMENT LTD 7.36%
POPE RESOURCES (POPE) Weyerhaeuser Corp. (WY) CatchMark Timber Trust, Inc. (CTT) Rayonier Inc. (RYN) PotlatchDeltic Corp. (PCH)
does not appeal to institutional investors. Limited appeal to institutional holders – "Pension funds and mutual funds tend to avoid publicly traded partnerships (PTP’s) based on tax considerations".
MLP structure keeps institutional investors at bay for decades! In spite of the acknowledging the problem, the Board of Directors resist the conversion to REIT or C-Corp to attract institutional investors.
POPE’S MLP MODEL FAILS TO ATTRACT INSTITUTIONAL HOLDERS
14 Concerned Pope Resources Unitholders | Investor Presentation 2019
MLP MARKET IS SHRINKING
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Number of MLPs are declining rapidly.
20 40 60 80 100 120 140 2015 2016 2017 2018
NUMBER OF MLPs OVER TIME
SOURCE: Goldman Sachs. Data as of 12/31/18
In 2018, CEO of an MLP company, NuStar Energy, expressed concern over the long-term viability of the MLP model.
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INDUSTRY EXPERT'S OPINION : MLP IS NOT A VIABLE MODEL
Through 2015, the MLP investor base was made up of primarily retail investors, but in 2016, many retail investors either declined to increase their positions or left the space entirely…. As retail investors exited the sector, there hasn't been any significant influx of new money, which has tightened MLP equity markets. MLPs with low coverage and high leverage have been effectively shut out of the MLP equity markets, and even MLPs perceived as 'healthy' have found it increasingly difficult to issue common equity. The combination of these factors- a market shift in fundamental valuation away from growth and back to low leverage/high coverage; the exodus of MLP retail investors; and the nearly frozen equity markets- have called the long-term viability of the MLP model into question.
https://seekingalpha.com/article/4144805-nustar-energys-ns-ceo-brad-barron-q4-2017-results-earnings-call-transcript?part=single
Concerned Pope Resources Unitholders | Investor Presentation 2019