Tejon Ranch Co. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; unaudited consolidated results. Tejon Ranch is a land-development and agribusiness company with commercial/industrial real estate, resort/residential development, mineral resources, farming, and ranch operations. The company cautions that quarterly results are seasonal and are not indicative of full-year results.
Financial performance and condition
| Metric | Q1 2016 | Q1 2015 / comparison |
|---|---|---|
| Revenue | $12.953 million | $16.633 million; down 22% |
| Operating income | $0.183 million | $1.120 million |
| Net income | $1.195 million | $1.601 million |
| Net income attributable to common stockholders | $1.209 million; $0.06 per diluted share | $1.617 million; $0.08 per diluted share |
| Adjusted EBITDA (non-GAAP) | $4.014 million | $4.359 million |
| Operating cash flow | $(1.031) million | $1.744 million provided |
| Cash and marketable securities | $34.026 million | Down $0.719 million from year-end 2015 |
| Total debt | $76.153 million, including $2.000 million drawn on revolver | $74.215 million at year-end 2015 |
Operating margin was approximately 1.4%, versus 6.7% in Q1 2015. Cash and cash equivalents alone were $1.307 million. The company reported $28 million available under its $30 million revolving credit line and said it complied with its financial covenants, including the $20 million minimum liquid-assets requirement. Long-term debt was principally a $70 million term loan fixed at 4.11% through an interest-rate swap, plus a separate $4.153 million note at 4.25%. Stockholders’ equity was $292.204 million; total equity including noncontrolling interests was $331.864 million.
Capital expenditures were $5.667 million. Investing activities used $1.219 million, partly offset by $4.162 million of East Community Facilities District infrastructure reimbursements. Comprehensive loss attributable to common stockholders was $0.149 million, primarily reflecting a $2.276 million unrealized loss on the interest-rate swap, partly offset by tax benefits and available-for-sale security gains.
Material changes and operating drivers
- Farming revenue fell 60% to $1.221 million, mainly because almond revenue declined $1.592 million; the company sold less carryover crop and cited lower average prices. Farming recorded a $0.285 million segment loss versus $0.728 million income a year earlier.
- Mineral resources revenue decreased 14% to $8.740 million. Water sales were $7.791 million versus $8.993 million, reflecting delivery timing and lower delivered volume (5,954 versus 7,054 acre-feet). Oil royalties also declined: production was 74,950 versus 134,167 barrels, and average oil price was $22 versus $40 per barrel.
- Equity earnings from unconsolidated joint ventures increased 27% to $1.455 million, principally on improved TA/Petro results. Commercial/industrial revenue was $2.154 million, down 5%; the prior period included $0.209 million of outlet-center developer fees.
- Corporate expenses declined 13% to $3.003 million, mainly from lower professional-services and payroll costs. Ranch operations revenue declined 23%, partly due to drought-related grazing-lease provisions.
Outlook, risks, and contingencies
- Management expected lower 2016 oil royalty revenue and continued slowing oil production at prevailing prices. It also cited softer almond and pistachio prices, rising supplies, currency movements, and weaker foreign demand. No full-year earnings or revenue guidance was provided.
- Management described commercial leasing activity as continuing to grow, noted new Habit Burger and Baja Fresh leases and a new Shell station at TRCC, and reported a non-binding letter of intent with Majestic Realty to negotiate a joint venture for a proposed approximately 480,000-square-foot industrial building.
- Management estimated remaining-2016 investment of approximately $6.2 million for TRCC-East infrastructure, $4.3 million for Grapevine entitlements, $0.98 million for Mountain Village tract maps, $6.1 million for Centennial entitlements, up to $3.2 million for water assets and infrastructure, and approximately $1.5 million for farming assets. These are estimates, not commitments to complete all projects.
- Contractual obligations totaled $389.675 million, including $274.581 million of estimated future water payments; $8.240 million of water payments were due within one year. The company said it expected adequate operating cash flow and credit availability for the next 12 months, while noting that future financing is not assured.
- Water-related legal matters remain material to monitor: appeals were filed in the Antelope Valley groundwater adjudication; litigation concerning the Kern Water Bank requires a revised environmental review, with possible future operational curtailment not ruled out. The Supreme Court ruled for the company on March 28, 2016, resolving the Mountain Village land-title litigation.
- A $5.426 million standby letter of credit supports East CFD bonds and is contingent on the company failing to pay property taxes. The company also guaranteed $61.910 million of debt of Rockefeller joint ventures. The company said the letter of credit was not expected to be drawn and that other proceedings were not expected to have a material adverse effect.
- The company’s $5.181 million interest-rate-swap liability increased from $2.905 million at year-end, contributing to other comprehensive loss. Its warrants were delisted from NYSE MKT in February 2016 for failing a continued-listing market-value standard.
Important facts for investors to verify
- Whether lower water deliveries, oil royalties, and farming sales persist, and how seasonal crop revenue affects full-year results.
- Liquidity relative to the $20 million covenant threshold, planned development spending, and the timing of CFD reimbursements and credit-line use.
- Progress on TRCC leasing and the proposed Majestic Realty project, and entitlement timelines and costs for Grapevine, Centennial, and Mountain Village.
- Developments in groundwater and Kern Water Bank proceedings, long-term water-contract costs, and joint-venture debt guarantees.