Tejon Ranch Co. — Q1 2013 Form 10-Q
Business context and period. Unaudited results cover the three months ended March 31, 2013, compared with the same 2012 period. Tejon Ranch is a diversified land-development and agribusiness company with approximately 270,000 acres and four reportable segments: commercial/industrial real estate, resort/residential real estate, mineral resources, and farming. Management cautions that quarterly results are not indicative of full-year performance because farming is seasonal and real estate activity varies with transaction timing.
Financial results and liquidity
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Revenue | $9.760 million | $9.579 million |
| Operating income | $90,000 | $24,000 |
| Income before tax | $777,000 | $5,000 |
| Net income attributable to common stockholders | $615,000 | $275,000 |
| Basic and diluted EPS | $0.03 | $0.01 |
| Operating cash flow | $3.567 million | $(3.049) million |
| Capital expenditures | $3.718 million | $3.654 million |
Revenue increased about 2%; operating margin was approximately 0.9%, versus 0.3% a year earlier. Cash and cash equivalents were $4.283 million at March 31, while available-for-sale securities were $65.905 million; together, cash and securities totaled $70.188 million. Total assets were $330.572 million, total liabilities $21.583 million, and equity $308.989 million. Debt was $244,000, less than 1% of book capitalization. The $30 million revolving credit facility had no borrowings; it matures in October 2013 and is secured by farm acreage. The company reported compliance with its tangible-net-worth and liquid-assets covenants.
Changes and operating drivers
- Common-stockholder earnings rose to $615,000 from $275,000, principally reflecting higher farming income and a $768,000 year-over-year improvement in equity earnings from joint ventures. The improvement was partly offset by lower mineral revenues and higher income tax expense.
- Commercial/industrial revenue rose 27% to $2.722 million, including higher hunting and grazing lease revenue and Calpine percentage rent. Resort/residential revenue increased to $237,000; segment expenses fell significantly, partly due to a reversal of $485,000 of previously recognized stock-compensation expense after an executive’s departure.
- Mineral-resource revenue fell 27% to $2.866 million. Oil and gas revenue declined as production was down 20% and price per barrel down 4% year over year; the prior period also included revenue from new wells.
- Farming revenue increased 13% to $3.935 million. Higher almond prices and revenue more than offset lower pistachio revenue; almond pounds sold declined 27%, despite an approximately 85% year-over-year price increase.
- Corporate expenses increased 22% to $3.831 million, including higher consulting and charitable-donation costs. Joint-venture earnings improved, particularly from TA/Petro and the Rockefeller venture.
Outlook, risks, and contingencies
No formal earnings guidance was provided. Management estimated approximately $30 million of investment requirements for the remainder of 2013, including joint-venture contributions, TRCC-East infrastructure, vineyard development, Grapevine Development Area planning and entitlement, and recurring capital needs. The company hoped to secure tenant commitments for a proposed Outlet Center during Q2 2013, and expected at least $14 million of East CFD bond proceeds to reimburse infrastructure costs during 2013. Management said it believed available resources were adequate for expected cash needs, while noting future development may require additional financing and that financing may not be available on favorable terms.
- Development timing depends on market demand, financing, and governmental approvals. Management cited the company’s distance from the Port of Los Angeles as a potential competitive disadvantage, while noting improving Inland Empire vacancy and lease-rate trends.
- Crop prices and yields depend on worldwide crop sizes, weather, demand, and water availability. At quarter-end, $4.249 million of receivables was exposed to changing almond and pistachio prices.
- Water-related commitments include estimated minimum WRMWSD payments of $2.5 million annually through 2035, whether or not water is available or used. The Antelope Valley groundwater adjudication remains unresolved; the next trial phase was scheduled for May 2013. The filing says the ultimate effect on the company’s projects and lands cannot yet be determined.
- A $5.426 million standby letter of credit supports East CFD bonds and could be drawn if the company fails to pay property taxes; management believed it would not be drawn. The East CFD also had approximately $80.25 million of additional authorized bond capacity.
- Environmental cleanup and monitoring obligations relate to the National Cement leased property. The company said tenants indemnify it and it was not aware of noncompliance, but company exposure could arise if indemnitors do not perform. Other disclosed matters include water-bank litigation, whose potential adverse monetary outcome could not be estimated.
- Management identified no material changes to previously disclosed risk factors. It also stated disclosure controls were effective and there were no material changes in internal control over financial reporting.
Important facts for investors to verify
- Whether the $30 million anticipated 2013 investment program, the expected CFD reimbursements, and available liquidity remain consistent with subsequent filings.
- Renewal or replacement of the $30 million credit facility due to mature in October 2013, and continued covenant compliance.
- Progress and potential effects of the Antelope Valley groundwater case and water-bank litigation, plus the company’s long-term water supply and contractual payment obligations.
- Realized crop prices and collections on price-sensitive almond and pistachio receivables, alongside subsequent production and commodity-price trends.
- Development and entitlement milestones for TRCC, the Outlet Center, Grapevine, Centennial, and Tejon Mountain Village, including future joint-venture funding needs.