Tejon Ranch Co. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are to Q1 2020 unless otherwise stated. Tejon Ranch is a diversified California land, real estate development and agribusiness company operating across commercial/industrial real estate, resort/residential development, mineral resources, farming and ranch operations. Amounts below are in millions of dollars unless noted.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $11.054 | $10.313 |
| Operating loss | $(1.054) | $(1.763) |
| Net loss attributable to common stockholders | $(1.055) | $(0.682) |
| Loss per share, basic and diluted | $(0.04) | $(0.03) |
| Operating cash flow | $3.714 | $4.037 |
| Adjusted EBITDA, non-GAAP | $2.999 | $3.697 |
- Revenue increased 7.2%. Operating loss narrowed, but net loss attributable to common stockholders grew by $0.373 million, principally because equity earnings from unconsolidated joint ventures fell by $1.414 million, from $1.355 million of earnings to a $0.059 million loss.
- Operating margin was approximately negative 9.5% (operating loss divided by revenue), versus negative 17.1% in Q1 2020. Net margin attributable to common stockholders was approximately negative 9.5%, versus negative 6.6%.
- Mineral resources revenue rose 16% to $7.176 million, mainly on increased water sales. Farming revenue fell 36% to $0.607 million. Commercial/industrial revenue decreased 4% to $2.228 million; ranch operations revenue rose 21% to $1.043 million.
- Operating cash flow was positive, while investing activities used $11.679 million, including $5.218 million of real estate and equipment expenditures and $1.653 million invested in long-term water assets. Financing activities used $2.032 million, including $1.066 million of debt repayments.
- At March 31, cash and cash equivalents were $44.721 million and available-for-sale securities were $7.565 million, totaling $52.286 million. Total current assets were $63.933 million and current liabilities $15.564 million.
- Debt principal was $56.012 million, including a $53.881 million term loan and $2.131 million note; the revolving credit line had no balance and $35 million of capacity. Debt-to-total capitalization was 11.2%. The company reported compliance with its credit covenants.
- Total assets were $537.165 million and stockholders’ equity, including noncontrolling interests, was $446.148 million. Other comprehensive income of $1.580 million largely reflected a favorable change in the interest-rate swap’s fair value.
Material changes and management commentary
- The principal drag on earnings was the joint-venture result. Petro Travel Plaza Holdings’ contribution to Tejon’s equity earnings dropped to $0.146 million from $1.523 million, as higher fuel costs reduced fuel margins and restaurant capacity limits weighed on results.
- Water sales were 5,881 acre-feet versus 4,625 acre-feet. Water revenue increased to $6.252 million, but water cost of sales also rose, to $4.351 million from $3.024 million. Management attributed sales opportunities to dry conditions and a 5% State Water Project allocation.
- Lower payroll and overhead following 2020 cost-reduction measures helped reduce commercial/industrial and corporate expenses. The company said it would continue evaluating expense reductions.
- Management stated that, assuming COVID-19 impacts do not materially worsen, available cash, operating cash flows and credit-line capacity should be adequate for internal operations over the next 12 months. It expects to pursue additional funding for future development through possible joint ventures, debt or common-stock issuance; no earnings or revenue guidance was provided.
- For the remainder of 2021, planned investment included approximately $6.209 million for TRCC-East infrastructure, $3.487 million for farm development and equipment, and up to $7.667 million for planning, permitting, litigation and development at the master-planned communities.
Outlook, risks and contingencies
- Quarterly results are not considered indicative of full-year performance: agricultural revenues are seasonal, and real estate sales, leasing and development depend on timing and market conditions.
- Management cited continuing uncertainty from COVID-19, drought and water availability, crop yields and prices, oil and mineral markets, development financing, and the timing and success of approvals and entitlements. Warm winter conditions may reduce crop yields; management expected added water delivery costs and said it believed water resources were sufficient for requirements through 2021.
- Long-term contractual water payments totaled $269.117 million, including $10.194 million estimated for 2021. The company’s total contractual obligations were $354.252 million. These commitments are important to assess alongside the company’s development spending and liquidity.
- Significant development litigation remains. On April 5, 2021, after quarter-end, a court granted Climate Resolve’s petition concerning Centennial, requiring further analysis of greenhouse-gas mitigation and wildfire risk; CBD/CNPS’s petition was denied, and CBD sought reconsideration. The Grapevine court ruled for the company and county in January 2021, with final judgment entered March 22; an appeal remained possible. The Mountain Village condor-plan ruling was favorable to the company, but plaintiffs intended to appeal.
- The company had guaranteed $117.748 million of unconsolidated joint-venture debt, principally associated with Rockefeller and Majestic ventures. Management did not expect the guarantees to be called, but they are contingent exposures. A $4.393 million standby letter of credit supports East CFD bonds and would be drawn only if the company failed to pay property taxes.
- The Conservancy dispute concerns payments deposited into escrow; the company said it believed it had met its obligations and did not expect a material liability beyond defense costs, escrowed payments and possible plaintiffs’ costs. Other environmental, water-rights and development proceedings also remain, with some potential monetary outcomes not estimable.
Most important facts for investors to verify
- Whether water sales, water margins and the 5% State Water Project allocation persist, and how drought affects farming needs and costs.
- Whether joint-venture profitability recovers, particularly Petro’s fuel and restaurant operations, and whether the reported decline is temporary.
- Progress, timing, funding needs and litigation outcomes for Centennial, Grapevine and Mountain Village, including the post-quarter Centennial ruling.
- Liquidity against planned capital investment, long-term water-payment obligations, debt service and potential future financing or share issuance.
- Potential exposure under joint-venture debt guarantees and the outcome of the Conservancy and other legal disputes.