Business context and reporting period
Tejon Ranch Co. filed this unaudited Form 10-Q for the three months ended March 31, 2017. The company is a land-development and agribusiness company operating in commercial/industrial real estate, resort/residential development, mineral resources, farming and ranch operations. Results are seasonal and affected by the timing of real estate activity and crop sales; management cautions that first-quarter results are not indicative of full-year performance.
Financial results and liquidity
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Revenue | $5.702 million | $12.953 million |
| Operating income (loss) | $(3.756) million | $0.183 million |
| Net income (loss) attributable to common stockholders | $(1.902) million | $1.209 million |
| Diluted earnings (loss) per share | $(0.09) | $0.06 |
| Net cash used in operating activities | $(0.570) million | $(1.031) million |
| Net cash used in investing activities | $(4.040) million | $(1.219) million |
| Net cash provided by financing activities | $6.848 million | $1.627 million |
- Revenue fell 56%. Mineral resources revenue was $2.001 million versus $8.740 million, and farming revenue was $0.431 million versus $1.221 million.
- Cash and cash equivalents were $3.496 million at March 31; available-for-sale securities were $24.212 million. Management reported combined cash and securities of $27.708 million, plus $14 million available under the revolving credit line.
- Total debt was $88.929 million, including $16 million outstanding on the $30 million revolving line. Total equity was $333.165 million. The $68.598 million term note is hedged at a fixed 4.11%; the revolving line rate was 2.48% at quarter-end.
- Current assets were $42.568 million and current liabilities $28.195 million. The company reported compliance with its debt covenants, including a $20 million minimum liquid-assets requirement.
- Adjusted EBITDA, a non-GAAP measure, was $0.344 million versus $5.010 million. The company’s share of unconsolidated joint-venture earnings declined to $0.228 million from $1.455 million.
Material changes versus prior period
- Management attributed the revenue and earnings decline mainly to $6.573 million of reduced water-sales opportunities amid unusually high California rainfall and snow, and lower crop revenue, including deferred almond sales as the company awaited more favorable pricing.
- Water sales were $1.108 million versus $7.791 million. Farming’s operating loss widened to $0.892 million from $0.285 million.
- Joint-venture earnings decreased 84%, reflecting lower TA/Petro fuel margins and traffic, outlet-center tenant termination costs, and a loss at the newer TRC-MRC 2 venture.
- Debt increased from $81.567 million at December 31, 2016, principally as revolving-line borrowings rose by $8.3 million. Water assets increased to $47.702 million from $43.764 million.
Outlook, risks and contingencies
- No formal earnings guidance is provided. Management expects adequate operating cash flow and credit-line availability for the next 12 months, while noting substantial continuing investment needs and possible future reliance on additional debt, equity issuance or joint ventures.
- Planned remaining-2017 capital investments include approximately $8.091 million for TRCC-East infrastructure, $5.758 million for Grapevine, $4.597 million for Mountain Village, $6.857 million for Centennial, and up to $1 million for water assets and infrastructure. These are estimates, not commitments to spend the full amounts.
- Management says wet conditions reduced interim water-sale activity and may have limited almond pollination; crop yields and prices remained uncertain. Commodity prices, weather, water availability, development approvals, financing access and project timing are material risks.
- Estimated contractual obligations totaled $389.335 million, including $265.705 million of estimated water payments, largely due beyond five years. The company also disclosed $4.921 million of standby letter-of-credit exposure tied to East CFD bonds and guarantees on $81.423 million of unconsolidated joint-venture debt.
- Legal matters include a CEQA challenge to Grapevine approvals, appeals and further proceedings concerning the Antelope Valley groundwater adjudication, and pending Kern Water Bank litigation. The potential monetary impact of unresolved claims is not clear or estimable from the filing.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting. No material changes to previously disclosed risk factors were reported.
Investor facts to verify
- Whether water-market activity and crop sales recover, and how weather and commodity prices affect 2017 results.
- Actual capital spending, cash generation and revolving-line usage against management’s plans and covenant requirements.
- Progress, costs and outcomes of Grapevine, groundwater and Kern Water Bank legal proceedings and development approvals.
- Whether joint-venture earnings, tenant occupancy and project debt guarantees change materially.
- The timing and amount of long-term water-contract payments and the value and usability of reported water assets.