Tejon Ranch Co. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with the three months ended March 31, 2023. Balance-sheet comparisons are with December 31, 2023. Amounts below are in millions unless otherwise stated.
Business context
Tejon Ranch is a diversified land, real estate development, and agribusiness company operating across commercial/industrial real estate, resort/residential development, mineral resources, farming, and ranch operations. Its principal asset is approximately 270,000 acres in California. The company is developing Tejon Ranch Commerce Center (TRCC) and pursuing longer-term master-planned projects, including Mountain Village, Grapevine, and Centennial.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Total revenue | $7.406 | $12.265; down 40% |
| Operating income (loss) | $(3.984) | $0.486 |
| Net income (loss) attributable to common stockholders | $(0.914) | $1.774 |
| Diluted earnings (loss) per share | $(0.03) | $0.07 |
| Adjusted EBITDA (non-GAAP) | $2.128 | $6.389 |
| Net cash provided by operating activities | $0.777 | $3.413 |
- Revenue declines were concentrated in mineral resources: segment revenue fell 64% to $2.489 million, primarily because heavy California rainfall reduced water-sale opportunities. Water-sale revenue fell from $5.099 million to $1.363 million.
- Commercial/industrial revenue increased 10% to $2.945 million; resort/residential development generated no revenue and incurred $1.561 million of expenses, up from $0.388 million. Farming revenue declined 27% to $0.865 million, and ranch operations revenue declined 26% to $1.107 million.
- Equity earnings from unconsolidated joint ventures were nearly unchanged at $1.513 million. Joint-venture NOI, a non-GAAP measure, increased to $8.852 million from $7.313 million.
- At March 31, cash and cash equivalents were $35.552 million and available-for-sale securities were $25.119 million, totaling $60.671 million. Total current assets were $74.663 million and current liabilities were $15.359 million.
- Revolving credit borrowings were $47.942 million, at a floating effective rate of 7.58%, with maturity in January 2029. The company reported $108.615 million of additional availability under its $160 million facility and compliance with its financial covenants. Debt was approximately 9.0% of total capitalization.
- Total assets were $581.631 million and total equity was $482.722 million. Investing activities provided $3.074 million, including marketable-security maturities and joint-venture distributions; capital expenditures were $8.112 million, and the company invested $5.248 million in water assets.
Material changes and management commentary
- The $2.688 million year-over-year decrease in net income was driven principally by lower mineral-resource results, especially water sales, and higher resort/residential professional-service and planning costs. A $0.942 million income-tax benefit partially offset these decreases; Q1 2023 had a $1.013 million tax expense.
- Management began construction in Q1 on the first phase of Terra Vista at Tejon, a planned 228-unit multifamily development at TRCC. The company expects approximately $40.074 million of remaining-2024 construction costs for this phase and $14.832 million for TRCC-East infrastructure.
- Management also expects up to $7.652 million in remaining-2024 planning, permitting, litigation/appeal, and development costs for Mountain Village, Centennial, and Grapevine, plus $1.222 million for farming investments. These are estimates, not earnings guidance.
- Management stated that it expects cash, securities, operating cash flow, joint-venture distributions, and credit availability to support operations over the next 12 months, but notes that further project development may require debt, joint-venture financing, asset sales, or equity issuance.
- Results are seasonal and timing-dependent; management cautions that Q1 results are not indicative of the full year. Farming revenue is typically weighted toward the third and fourth quarters.
Risks, contingencies, and unusual items
- Centennial litigation: A 2023 Superior Court judgment rescinded project approvals. The company and opponents appealed; the rescission order is on hold during the appeal. The financial value of a potentially adverse outcome cannot currently be estimated. The company has also agreed to specified greenhouse-gas and fire-protection measures under a settlement with Climate Resolve.
- Water commitments: Contractual future water payments were reported at $280.096 million. The company expects to pay $13.107 million in 2024 under water contracts and had paid $7.890 million through Q1. Water availability, allocations, cost increases, and California groundwater regulation could affect development and agricultural operations.
- Project funding and execution: Large planned investments, uncertain development timing, tighter capital markets, entitlement/permitting outcomes, and the potential need for additional financing create execution and liquidity risks.
- Other exposures: The company has a $3.358 million standby letter of credit connected with East CFD bonds; management believes it is unlikely to be drawn. Unconsolidated joint ventures had $225.2 million of debt; the company guarantees the Rock Outlet Center joint-venture loan, with an outstanding balance of $20.776 million, and certain Majestic joint-venture debt performance.
- Management reported no material changes to previously disclosed risk factors, no material changes in internal control over financial reporting, and effective disclosure controls and procedures.
Important facts for investors to verify
- Whether water sales and mineral-resource results recover as California weather and water availability change.
- Centennial appeal status, potential project timelines, and any resulting financial or development impact.
- Actual Terra Vista and TRCC spending versus estimates, and the timing and funding of broader development plans.
- Cash and securities availability, credit-facility headroom, floating-rate borrowing costs, and covenant compliance.
- Water-contract payment obligations and the extent to which water assets can support future operations and commitments.
- Seasonal crop revenue, crop prices, weather impacts, and the effect of labor and input-cost inflation.