Mohnish Pabrai on Inflation

Their leases with multinationals are typically in Euros with the usual 2-3% annual escalators. The leases in Turkish Lira are indexed to inflation in Turkey. Reysas’ borrowing currencies were not properly matched with their leases when we invested. This was one of the reasons the stock was under pressure. By mid-2020 they had refinanced across the board at significantly lower rates and perfectly matched their lease currencies. The warehouses have become a nice, recurring revenue business. I spent an afternoon kicking the tires and visited a number of Reysas warehouses in the pre-pandemic July of 2019. Needless to say, I was impressed. Over the years Reysas has spawned a number of new businesses that mostly tend to have strong recurring revenues – and it very quickly becomes the #1 player. It is the largest private rail freight operator in Turkey. All the trains are run by the government. Reysas rents the track, locomotives and drivers from the government and runs its own railcars. It owns three rail terminals and its trains carry freight between Turkey and Europe. Reysas still has a large trucking business, but is now allocating a lot more capital to rail versus trucks due to superior economics. New Tailwinds The Bosphorus strait separates the European sliver of Turkey from the Asian part. Until recently freight trains from Turkey’s Asian hinterlands were not allowed to use the Marmaray Tunnel under the Bosphorus strait.

Thus, even though the Reysas solar business has no long-term PPAs, it may end up being an even better business. Future electric rates are likely to grow with inflation while Reysas has already finished its solar outlays in older (and cheaper) Turkish Liras. Warehouse Redevelopment The oldest Reysas warehouses were built more than a quarter century ago. Some of the ones in Central Istanbul are now in highly desirable areas to live and one old warehouse is being torn down. A JV is planned with an apartment developer. This will take several years, but Reysas should net north of $40 million when the dust settles. Did I mention the market cap was $19 million when we invested? There are many more businesses within Reysas Logistics including vehicle inspections stations and forklift leasing. The Dovens told me that their capital allocation mindset is simple. They want their money back in three years or less. They said they preferred if it was one year or less. I have not found instances of dumb capital allocation by Egemen Doven or his dad. To the contrary, I find them very nimble and opportunistic. Most of their investments tend to have recurring revenue type characteristics. These are difficult to replicate franchises. So, while we bought a dollar bill for well under 10 cents, I am most excited about the increase in value of that dollar bill. I am more excited about the Dovens than the tangible assets in the business today.

If the answer is no, the business is simply skipped over. 2. Is this a great and predictable business? The definition of a great business would mean a business that has some of the following characteristics: • Recurring Revenue Streams (e.g. GEICO) • Ability to raise prices ahead of inflation (e.g. The Washington Post) • Some sort of Monopoly or Oligopy type market positioning (e.g. American Express) • Strong franchise/brand that gives it insulation from most competitors (e.g. Coca Cola) Most businesses do not have ANY of the above characteristics and some may just have one of the above. A business that has more than one of the above characteristics is, by definition, rare. If I find a great business then I ask the third, and more difficult, question: 3. Is it on sale at a price well below its Intrinsic Value(IV)?3

• The clients form a wonderful franchise with a large moat of water around it. They used to recruit at 3-4 schools a few years ago. Now it’s over a dozen of the best business schools. The recruiting engine is also a nice franchise. You send alums back to recruit and that another moat of water. • Raising Prices Ahead of Inflation. DTPI is run by a team that monitors key metrics very closely. They have healthy price increases to their clients every year – well ahead of inflation. Their clients know that rates will rise every year and DTPI has demonstrated strong pricing power in its model. I guess when you’re sick, you go to the best doctor and don’t try to haggle with them. DTPI clients recognize the value they bring and thus this business has a strong ability to raise prices ahead of inflation. • The business is in its infancy. It had a long ways to go before reaching anywhere close to saturation. 2. Was DTPI on sale at a price well below its Intrinsic Value(IV)? What was the Intrinsic Valueof DTPI on July 1, 1999? We know that the market value of DTPI on 7/1/99 was about $315 Million. I had extrapolated that if DTPI went into zero growth mode, they would drop 20-30% of revenue to the bottom line versus the 10-12% they were dropping today. They operate in a 50% gross margin environment and with a total squeeze, they could get upto 25-30% dropping to the bottom line. However, it was much better for shareholders to grow the business.