Tejon Ranch Co. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; filed March 6, 2024. This is an annual report, not a standalone Q4 filing. Tejon Ranch is a diversified California land, real estate development, farming and natural-resources company, with approximately 270,000 acres and five reporting segments.
Financial performance and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Segment revenues | $44.7 million | $79.2 million |
| Total revenues and other income, including investment income and JV earnings | $54.2 million | $87.6 million |
| Operating income (loss) | $(3.7) million | $13.7 million |
| Net income attributable to common stockholders | $3.3 million; $0.12 per diluted share | $15.8 million; $0.59 per diluted share |
| Operating cash flow | $13.7 million | $8.5 million |
| Cash and marketable securities at year-end | $64.5 million | $72.6 million |
| Debt at year-end | $47.9 million | $50.2 million |
The operating loss was approximately 8.3% of segment revenues. Net income included $6.9 million of equity earnings from unconsolidated joint ventures and $2.6 million of investment income. Cash and cash equivalents were $31.9 million, with $32.6 million of marketable securities. Investing activities used $14.0 million, including $21.3 million of capital expenditures; financing activities used $6.9 million.
The company replaced its prior bank facility with an unsecured $160 million revolving credit facility maturing January 1, 2029. It had drawn $47.9 million at year-end, at one-month SOFR plus 2.25% (7.59% effective at year-end); the company reported $108.6 million available on credit lines as of the filing date and compliance with all financial covenants. The facility requires interest-only payments and has a springing lien provision if certain covenants are breached. Book-value debt-to-total-capitalization was approximately 9.0%.
Material changes versus FY2022
- Segment revenues fell 44%, principally because the company had no commercial/industrial land sales in 2023, compared with three parcel sales totaling $29.8 million in 2022. Commercial/industrial segment profit declined to $3.7 million from $24.2 million.
- Mineral resources revenue declined 33% to $14.5 million, mainly because water sales fell to $8.0 million from $14.7 million. In 2023, the State Water Project allocation was 100%, limiting sales opportunities; the 2022 allocation was 5%.
- Farming revenue rose 7% to $14.0 million and the segment loss narrowed to $1.3 million from $6.8 million. Lower water-holding and utility costs helped, while crop pricing and crop mix affected revenue.
- Equity earnings from unconsolidated joint ventures fell 11% to $6.9 million, mainly due to lower fuel margins at the Petro travel-plaza venture. Higher investment income and lower income-tax expense partly offset weaker operating results.
- Operating cash flow increased to $13.7 million, primarily reflecting joint-venture distributions. Cash and marketable securities decreased by $8.1 million year over year.
Business outlook, risks and unusual items
- Development and spending: Management expects continued investment in TRCC, entitlements, infrastructure and farming. Its estimated 2024 investments include approximately $58.9 million at TRCC-East, including $42.5 million for Terra Vista’s first phase; up to $9.9 million for residential-project entitlement, permitting, predevelopment and litigation work; $6.7 million for water-related investments; $3.1 million for farm redevelopment; and $0.5 million for equipment. These are estimates, and development timing remains subject to approvals, litigation, market conditions and costs.
- Projects: Terra Vista at TRCC began construction in 2024; the first phase is planned for 228 apartments, with initial units expected in 2025. Centennial’s approvals were rescinded by a 2023 court judgment, which Tejon appealed; the order was placed on hold during the appeal. The monetary effect of an adverse outcome cannot be estimated from the filing. Mountain Village, Centennial and Grapevine have no residential construction underway.
- Water and agriculture: Management said the preliminary 2024 State Water Project allocation was 15% and sufficient for farming when combined with other supplies. Long-term water availability, rising water-contract costs, groundwater restrictions and drought remain risks. The company expects weak almond prices to persist until inventories decline, potentially after 2024; labor and input costs remain elevated.
- Debt and commitments: The company reported $288.0 million of contractual future water payments, including the Nickel contract, which requires annual purchases through 2044. Joint ventures had $208.0 million of outstanding debt; the company disclosed full guarantees on the $35.1 million TRC-MRC 5 construction loan and $20.9 million Rock Outlet Center loan. TRCC community-facilities-district taxes were $2.8 million in 2023, with approximately $2.8 million expected in 2024.
- Unusual item: Tejon terminated its interest-rate swap in October 2023 and received a $3.7 million cash settlement. The company reported no impairment loss on real estate development assets, which totaled $337.3 million.
- Other risks: Results can vary materially with land-sale timing, joint-venture distributions, commodity prices and crop yields. Development is exposed to California entitlement and environmental regulation, litigation, construction inflation, interest rates, tenant demand and competition. Management reported effective disclosure controls; the auditor issued an unqualified opinion on the financial statements.
Most important facts for investors to verify
- Whether the Centennial appeal preserves or restores project approvals, and the related timeline, costs and potential obligations.
- Progress, financing needs and leasing or occupancy assumptions for Terra Vista and TRCC’s remaining development plans.
- 2024 water allocations, actual water costs and any new restrictions under groundwater sustainability plans.
- Future land sales, operating cash flow and joint-venture distributions, particularly the performance of Petro and the guaranteed JV loans.
- Crop pricing, yields and input costs, and whether farming losses continue to narrow.
- Compliance with revolving-credit covenants and liquidity after planned capital spending and contractual water payments.