Tejon Ranch Co. — Q2 2022 Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2022. Unaudited results are consolidated and reported across commercial/industrial real estate, resort/residential real estate, mineral resources, farming, and ranch operations. Amounts below are in millions unless noted.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $9.3 | $16.6 | $30.3 | $27.7 |
| Operating income (loss) | $(2.3) | $2.5 | $2.9 | $1.5 |
| Net income (loss) attributable to common stockholders | $(0.7) | $2.8 | $3.6 | $1.8 |
| Basic and diluted EPS | $(0.03) | $0.11 | $0.14 | $0.07 |
- Q2 operating margin was approximately negative 25%; six-month operating margin was approximately 9.6%. Q2 revenue and operating results were depressed mainly by the absence of the prior-year land contribution and lower water sales in the quarter.
- For the first six months, operating income improved year over year, reflecting stronger commercial/industrial and mineral resources results. Equity earnings from unconsolidated joint ventures rose to $2.9 million from $1.3 million, primarily on improved Petro Travel Plaza performance.
- Six-month operating cash flow was $2.7 million, versus cash used of $1.1 million in 2021. Investing activities used $18.4 million and financing activities used $2.1 million. Cash and cash equivalents were $18.4 million at June 30; cash plus marketable securities totaled $45.5 million.
- At June 30, total assets were $548.3 million, current assets $62.1 million, and current liabilities $12.1 million. Notes payable were $50.9 million; the company reported a debt-to-total-capitalization ratio of approximately 9.9%. Stockholders’ equity was $448.9 million.
Material changes and business developments
- Q2 commercial/industrial revenue fell 70% year over year to $2.5 million, principally because there was no comparable land contribution/sale in 2022; 2021 included $5.7 million of land-sale revenue. Six-month segment operating income, however, increased 28% to $5.3 million.
- Six-month mineral resources revenue rose 10% to $16.1 million and segment operating income increased 23% to $6.5 million. Water sales revenue increased despite lower volumes, reflecting higher pricing; management said no further water sales were expected for the rest of 2022.
- Farming revenue increased, largely due to the timing of almond sales, but the six-month segment operating loss widened to $2.6 million. The company cited higher water, input, and labor costs.
- On June 30, the company refinanced its prior term debt with a $49.1 million Bank of America term note maturing in 2032. The stated fixed rate through a new swap is 4.62%. A new $45 million revolving credit facility had no borrowings at quarter-end.
- After quarter-end, in July 2022, the company sold 58 acres of industrial land at TRCC-East for gross consideration of $22 million.
Outlook, risks, and contingencies
- No specific full-year earnings guidance was provided. Management cautioned that quarterly results are not indicative of full-year performance because farming, water transactions, and real estate sales and leasing are seasonal or timing-dependent. Management expected adequate cash, securities, operating cash flows, and credit availability for the next 12 months, while noting that longer-term development may require additional debt, joint ventures, asset sales, or equity financing.
- Management planned further 2022 investment, including approximately $8.2 million for TRCC-East infrastructure and up to $4.7 million for land planning, permitting, litigation/appeals, and development at Mountain Village, Centennial, and Grapevine.
- Drought and a 5% State Water Project allocation may constrain water availability and raise farming costs. The filing also cites crop-yield uncertainty, labor and supply-chain constraints, and commodity-price exposure. Management believed water resources were sufficient for the next crop year.
- Centennial remains subject to litigation concerning project approvals and environmental review. A settlement with Climate Resolve includes net-zero greenhouse-gas commitments and fire-prevention measures; a separate court process involving CBD/CNPS remained pending, with potential monetary exposure not estimable.
- Long-term minimum water-payment obligations totaled approximately $277.3 million. The company also guaranteed approximately $139.3 million of unconsolidated joint-venture debt; management did not expect the guarantees to be called. A $4.4 million standby letter of credit supports East CFD bonds.
- The company reported compliance with its credit-facility financial covenants. Its risk factors were unchanged from the latest Form 10-K. Disclosure controls were assessed as effective, with no material change in internal control over financial reporting reported.
Important facts for investors to verify
- Timing and economics of the July $22 million TRCC-East land sale, including recognition of proceeds and related costs.
- Progress and leasing, construction, and financing milestones for TRCC projects, including the TRC-MRC 4 industrial building and proposed multifamily development.
- Resolution and potential financial or schedule effects of the Centennial litigation and settlement obligations.
- Water availability, contract-payment commitments, and the effect of drought and higher agricultural input costs on crop yields and margins.
- Future funding needs for master-planned developments and the terms and availability of debt, joint-venture, or equity financing.