Press release·03/06/2025 20:53:45

Company Overview

Tejon Ranch Co. is a diversified real estate development and agribusiness company that owns and operates land in California. The company focuses on protecting significant portions of its land for conservation purposes while developing commercial, industrial, resort, and residential projects near one of the country’s largest population centers.

Tejon Ranch operates in five reporting segments: real estate - commercial/industrial; real estate - resort/residential; mineral resources; farming; and ranch operations. The commercial/industrial segment generates revenue from real estate leases and land/building sales, with the primary development being the Tejon Ranch Commerce Center (TRCC). The resort/residential segment is involved in land entitlement and pre-development efforts for projects like Centennial and Grapevine. The mineral resources segment produces revenue from oil, gas, rock, aggregate, and water sales. The farming segment grows and sells wine grapes, almonds, and pistachios. The ranch operations segment manages game, grazing leases, and other ancillary land uses.

Financial Highlights

In 2024, Tejon Ranch reported net income of $2.69 million, down from $3.27 million in 2023. The decrease was primarily due to lower operating income in the mineral resources and farming segments, partially offset by improved earnings from the company’s unconsolidated joint ventures.

The mineral resources segment saw a $2.68 million decrease in operating income due to limited water sales opportunities. The farming segment’s operating income fell by $2.32 million due to a lack of pistachio crop yield. These declines were partially offset by a $4.01 million increase in equity earnings from the company’s joint ventures, driven by better fuel margins and higher rental rates.

In 2023, net income was $3.27 million, down significantly from $15.81 million in 2022. This was mainly due to the absence of commercial/industrial land sales in 2023, which had contributed $20.45 million to segment operating profits in 2022. The mineral resources segment also saw a $2.79 million decrease in operating income due to limited water sales. These declines were partially offset by improved farming results and lower income tax expense.

Outlook and Investments

During 2025, Tejon Ranch plans to continue investing in vertical development at TRCC, including construction of a new multi-family apartment community called Terra Vista. The company will also invest in litigation defense, permits, and infrastructure for its master-planned resort and residential communities.

The company’s net income will fluctuate year-to-year based on factors like commodity prices, farming production, the timing of land sales and leases, and earnings from joint ventures. Securing entitlements for the company’s land is a long, complex process that can take several years and involve litigation.

Critical Accounting Estimates

Tejon Ranch has identified two critical accounting estimates:

1. Impairment of Long-Lived Assets, Real Estate Development: The company evaluates its real estate projects for impairment on an ongoing basis, considering factors like the entitlement process, government regulation, litigation, demand, and development costs. If estimated future cash flows are less than the asset’s carrying value, the company calculates an impairment loss.

2. Allocation of Costs Related to Land Sales and Leases: When selling or leasing land within its developments, Tejon Ranch uses estimates and forecasts to determine the appropriate costs of sales and the timing of recognition. These estimates can change as market conditions and construction costs evolve.

The company believes these estimates are critical because they are highly susceptible to change and can have a material impact on financial results.

Segment Performance

Real Estate - Commercial/Industrial This segment’s revenues increased 7% in 2024 to $12.55 million, driven by higher communication lease revenue. Expenses decreased 2% to $7.91 million due to lower property taxes. In 2023, revenues fell 71% to $11.76 million due to the absence of land sales, which had contributed $29.80 million in 2022. Expenses decreased 51% to $8.05 million, primarily from the lack of land sale costs.

Going forward, TRCC will continue to be the driver of new activity. Tejon Ranch expects to start construction on a new industrial building and continue developing the Terra Vista multi-family project. The company will also incur ongoing costs related to professional services, marketing, and planning for development opportunities.

Real Estate - Resort/Residential This segment did not generate any revenues in the reported periods, as the company is in the preliminary stages of development for projects like Centennial and Grapevine. Expenses increased 71% in 2024 to $2.62 million due to higher professional fees related to capital raising efforts. In 2023, expenses decreased 6% to $1.53 million.

Tejon Ranch will continue to incur costs for professional services, public relations, and staffing as it works through the permitting and pre-development activities for its resort and residential communities. The company will monitor market conditions to identify the appropriate time to begin infrastructure improvements and lot sales for these long-term projects.

Mineral Resources Mineral resources revenues decreased 30% in 2024 to $10.21 million, primarily due to lower water sales. Expenses fell 19% to $7.05 million, mainly from reduced water costs. In 2023, revenues declined 33% to $14.52 million, and expenses decreased 33% to $8.69 million, both due to limited water sales opportunities.

Going forward, the mineral resources segment’s performance will depend on commodity prices, production volumes, and the availability of water for sale.

Farming Farming revenues were relatively flat in 2024 at $13.93 million, as a $1.74 million increase in almond sales offset a $799,000 decline in pistachios and a $586,000 decrease in wine grapes. Expenses increased 15% to $17.55 million, primarily from higher water holding costs.

In 2023, farming revenues increased 7% to $13.95 million, driven by improved pistachio and almond sales. Expenses decreased 23% to $15.26 million due to lower water and utility costs.

The farming segment’s future performance will depend on crop yields, commodity prices, and water availability and costs.

Liquidity and Capital Resources

Tejon Ranch had $53.71 million in cash and securities at the end of 2024, down from $64.46 million in 2023. The company generated $14.31 million in cash from operations in 2024, up from $13.66 million in 2023.

Investing activities used $25.75 million in 2024, primarily for real estate development, farming investments, and water acquisitions. This was up from $14.00 million in 2023. Financing activities generated $18.79 million in 2024 through borrowings on the company’s line of credit, compared to $6.87 million used in 2023 for debt repayments.

Tejon Ranch estimates its capital investments for 2025 will be around $57 million, focused on real estate projects like the Terra Vista multi-family development, infrastructure at TRCC, and entitlement activities for its resort and residential communities. The company may need to secure additional financing through debt, joint ventures, or equity issuances as it moves forward with major development projects.

Debt and Financial Condition

At the end of 2024, Tejon Ranch had total capitalization of $555.90 million, consisting of $66.94 million in debt and $488.96 million in equity. The company’s debt-to-total-capitalization ratio was 12.0%, up from 9.0% at the end of 2023.

In 2023, the company entered into a new $160 million revolving credit facility with AgWest Farm Credit. The facility requires interest-only payments and has a maturity date of January 2029. Tejon Ranch must comply with certain financial covenants related to leverage, debt service coverage, and liquidity.

The company expects to fund its future capital needs through a combination of cash flow from operations, joint venture proceeds, asset sales, debt financing, and potential equity issuances. Tejon Ranch believes it has adequate capital resources to meet its near-term cash needs and investment requirements.

Conclusion

Tejon Ranch is a diversified real estate and agribusiness company that has faced some headwinds in recent years, with declines in net income due to factors like limited water sales and the absence of major land sales. However, the company continues to invest in the development of its commercial, industrial, resort, and residential projects, which it believes will drive future growth.

The company’s financial position remains strong, with ample liquidity and access to capital. As Tejon Ranch navigates the complex process of securing entitlements and moving its major projects forward, its financial performance will likely continue to fluctuate year-to-year. But the company’s long-term strategy of developing its substantial land holdings appears well-positioned to create value for shareholders over time.