Tejon Ranch Co. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2018. Unaudited consolidated financial statements; amounts below are in millions unless otherwise noted. Tejon Ranch is a diversified land-development and agribusiness company operating across commercial/industrial real estate, resort/residential development, mineral resources, farming, and ranch operations, with approximately 270,000 acres of land.
Financial performance
| Metric | Q2 2018 | Q2 2017 | First half 2018 | First half 2017 |
|---|---|---|---|---|
| Revenue | $5.070 | $5.963 | $18.539 | $11.665 |
| Operating loss | $(2.349) | $(2.055) | $(0.804) | $(5.617) |
| Net income (loss) attributable to common stockholders | $(0.997) | $(0.176) | $0.460 | $(2.078) |
| Basic and diluted EPS | $(0.04) | $(0.01) | $0.02 | $(0.10) |
| Operating cash flow | Not presented for quarter | Not presented for quarter | $4.558 | $(1.642) |
Q2 revenue declined 15%, mainly because farming revenue fell $0.959 million as prior-year carryover almond and pistachio sales were lower. For the first half, revenue increased 59%, primarily due to water sales and higher oil royalties. The company sold 7,442 acre-feet of water for $7.992 million in the first half, compared with 939 acre-feet in the prior-year period.
First-half mineral resources segment profit rose to $5.805 million from $1.667 million, while farming reported a $1.292 million loss versus a $0.650 million loss. Equity earnings from unconsolidated joint ventures declined 54% to $0.819 million; management cited weaker fuel margins at TA/Petro and accelerated amortization associated with vacated outlet-center tenant space, partly offset by improved results at TRC-MRC 2.
Financial position and liquidity
- At June 30, cash and cash equivalents were $10.611 million and available-for-sale marketable securities were $69.952 million, totaling $80.563 million, down from $90.975 million at year-end 2017.
- Total debt was $67.926 million, down from $69.959 million at December 31, 2017. The $30 million revolving credit line was undrawn, leaving $30 million available. The term loan balance was $64.277 million; its interest rate was fixed at 4.11% through a swap. The revolving facility matures in September 2019; the term loan’s final principal is due October 2024.
- The company reported compliance with its credit covenants, including a minimum $20 million liquid-assets requirement. It reported $429.595 million in total equity and a 13.7% long-term debt-to-total-capitalization ratio.
- First-half investing cash outflow was $10.792 million, including $10.386 million of real estate and equipment expenditures and $2.659 million invested in long-term water assets. Financing cash outflow was $3.262 million, primarily debt repayments and taxes on vested stock grants. Cash decreased $9.496 million over the period.
- Management stated that existing cash, securities, operating cash flow and credit-line availability should fund near-term needs, but additional capital may be required as development advances. The filing lists $357.227 million of contractual obligations, including estimated future water payments of $253.795 million.
Outlook, risks and notable items
- No formal earnings guidance was provided. Management cautioned that quarterly results are not indicative of full-year results: farming revenue is typically concentrated in the third and fourth quarters, and real estate activity depends on market conditions and project timing.
- Management expected only limited water-sale opportunities for the remainder of 2018. It estimated remaining-2018 capital investment of approximately $5.387 million at TRCC-East, $2.322 million for Grapevine, $3.832 million for Mountain Village, and $3.788 million for Centennial.
- Management cited uncertainty around crop yields, commodity prices and international trade. China raised tariffs on U.S. pistachio and almond imports to 45% and 50%, respectively; the company said the effect on market prices could not be estimated.
- On July 27, 2018, after quarter-end, a court hearing on Grapevine litigation rejected most petitioner claims but found the project description and related impact analysis inadequate in certain respects. A further hearing on remedies, including whether approvals could be invalidated, was set for February 15, 2019. The filing does not quantify any potential financial impact.
- Appeals remain pending in Antelope Valley groundwater and Kern Water Bank litigation; the company said the monetary value of a possible adverse outcome could not be estimated. It also disclosed a $4.921 million standby letter of credit related to East CFD bonds and guarantees on $104.259 million of unconsolidated joint-venture debt; management did not expect the guarantees to be called.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. Revenue recognition and lease accounting standards were adopted or under evaluation; adoption of the revenue standard did not materially change reported amounts.
Most important facts for investors to verify
- Whether water-sale volumes and margins can be sustained, given management’s expectation of limited further opportunities in 2018.
- Crop yields, realized almond and pistachio prices, and the effects of tariffs and other trade disruptions.
- Progress and potential remedies in Grapevine litigation, and developments in the groundwater and Kern Water Bank appeals.
- Development spending, funding needs and liquidity relative to the company’s substantial long-term water-payment and other contractual commitments.
- Performance of joint ventures, especially fuel margins at TA/Petro and leasing progress at the outlet center and industrial properties.