Tejon Ranch Co. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Tejon Ranch is a diversified land-development and agribusiness company operating in commercial/industrial real estate, resort/residential development, mineral resources, farming, and ranch operations. Unless noted otherwise, figures below are in millions of dollars.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $14.962 | $13.513 | $42.654 | $28.601 |
| Operating income (loss) | $(1.215) | $(0.827) | $0.256 | $(5.373) |
| Net income (loss) | $0.226 | $0.384 | $1.987 | $(0.626) |
| Net income (loss) attributable to common stockholders | $0.219 | $0.398 | $1.986 | $(0.617) |
| Diluted EPS | $0.01 | $0.02 | $0.08 | $(0.02) |
Q3 operating margin was approximately -8.1%; nine-month operating margin was approximately 0.6%. For the first nine months, adjusted EBITDA, a non-GAAP measure, was $15.107 million versus $12.054 million in 2020.
- Revenue mix, nine months: commercial/industrial real estate $12.820 million; mineral resources $19.354 million; farming $7.612 million; ranch operations $2.868 million. Resort/residential development generated no revenue.
- Cash flow, nine months: operating activities used $1.916 million, compared with $7.588 million provided in 2020. Investing activities used $10.775 million; financing activities used $4.166 million. Cash, cash equivalents and restricted cash ended at $38.463 million.
- Liquidity: cash and marketable securities totaled $45.451 million at September 30, down from $57.690 million at year-end 2020. The $35 million revolving credit line was undrawn.
- Debt and capitalization: debt was $53.878 million, down from $57.078 million at December 31, 2020; equity was $451.449 million. Debt was 10.7% of total capitalization at book value. The main term loan’s rate is fixed at 4.16% through an interest-rate swap; the company reported compliance with its credit covenants.
- Balance sheet: total assets were $542.091 million and current assets were $61.764 million; current liabilities were $14.812 million.
Changes versus prior periods
- Nine-month revenue rose 49% and the company moved from a $0.617 million common-stockholder loss to $1.986 million of income. The improvement reflected higher water sales and a $5.679 million commercial land contribution to a joint venture, partly offset by lower farming results, reduced joint-venture earnings, and the absence of the 2020 building-sale gain.
- Mineral resources operating income increased to $7.029 million for nine months, from $4.036 million, mainly on water sales during a 5% State Water Project allocation and higher rock-aggregate royalties. Water sales were 13,199 acre-feet versus 4,625 acre-feet.
- Farming revenue fell 22% for nine months and its operating loss widened to $2.365 million from $1.211 million, chiefly due to lower pistachio insurance proceeds and crop-sales timing.
- Commercial/industrial operating income rose to $4.225 million from $1.440 million for nine months, primarily due to the land contribution. Q3 commercial/industrial operating income fell to $0.135 million from $0.684 million, reflecting lower power-plant lease revenues and higher costs.
- Equity in joint-venture earnings declined to $2.816 million from $3.629 million for nine months, including higher fuel and operating costs at Petro. Q3 joint-venture earnings increased to $1.510 million from $1.093 million as restaurants reopened and outlet-center performance improved.
Outlook, risks and notable items
- Management said results are seasonal and quarterly performance is not indicative of full-year results. Farming sales are concentrated in the third and fourth quarters; land sales, leasing and development depend on market conditions and timing. The filing provides no specific earnings or revenue guidance.
- Management expected adequate cash, operating cash flow and credit-line availability to fund operations over the next 12 months, but said future master-planned development will require additional capital, potentially through joint ventures, debt, asset sales or equity issuance.
- For the remainder of 2021, management expected labor shortages and shipping/container constraints to pressure farming activities and delay some crop sales. Construction-material cost increases were affecting the new TRCC-MRC 4 industrial building, whose completion was expected in 2022.
- Drought and water availability are key operating factors. Management said current water resources were sufficient for the next crop year and that water-sale opportunities could remain favorable into 2022. However, contractual future water payments totaled $266.116 million, including $12.474 million due within one year.
- Development projects face entitlement and litigation risks. Centennial litigation remained unresolved, with potential adverse monetary impact not estimable. The Grapevine re-entitlement challenge was resolved in the company’s favor, and the Tehachapi Uplands appeal was dismissed in October 2021. Other water-related litigation and appeals were also described.
- The company guaranteed $113.263 million of unconsolidated joint-venture debt; management did not expect the guarantees to be called. A $4.393 million standby letter of credit supports East CFD bonds and could be drawn if the company fails to pay property taxes.
- Other notable items: the company recorded $2.237 million of nine-month unrealized interest-rate-swap gain in other comprehensive income; the swap liability was $3.692 million. The company reported $674,000 of income-tax receivables. Disclosure controls were assessed as effective, and management reported no material change in internal control over financial reporting.
Important facts for investors to verify
- How much of the nine-month earnings improvement is repeatable, given the contribution from drought-driven water sales and the noncash land contribution to a joint venture.
- Crop-sales timing, farm labor and logistics constraints, realized crop prices, and the effects of drought and water allocations on both farming and water sales.
- Progress, funding requirements and legal outcomes for Centennial, Mountain Village and Grapevine, including potential future equity or debt financing.
- Joint-venture performance, debt guarantees and the ability of ventures to service their obligations, particularly amid higher fuel, construction and operating costs.
- Liquidity and covenant headroom as development spending continues, alongside the scale and timing of long-term water-payment obligations.