By M. Marin
NYSE:TRC
READ THE FULL TRC RESEARCH REPORT
Believe shareholders have sent a clear message to the company that change is needed
Tejon Ranch Company (NYSE:TRC) will hold its annual shareholder meeting is tomorrow. A shareholder group consisting of Special Opportunities Fund and its investment advisor Bulldog Investors has sent a separate proxy statement to shareholders putting forth three nominees for board seats. TRC has urged its shareholders to vote “FOR” ONLY Tejon’s ten director nominees. Regardless of the outcome of the shareholder vote, we believe shareholders have sent a clear message to the company that change is needed. TRC has been criticized by key shareholders in recent months for not delivering value to shareholders. After all, the company’s land holdings are strategically positioned to provide much needed industrial, commercial and residential space in the state.
A new CEO is in place concurrent with the message from shareholders. Moreover, TRC board’s nominees are all current directors and, with four exceptions, all have been directors for years. Dense Gammon, Jeffrey McCall, Eric Speron, and Kenneth Yee are relatively new to the TRC board. They were elected by the board on November 4, 2024, to fill vacancies created when the board increased its size to 11 directors from eight previously and when former director Geoffrey L. Stack retired.
That the new directors collectively have experience in banking, finance, law, accounting, land and development of master planned communities, as well as general corporate operations we view as a positive. For example, Denise Gammon has more than 30 years of experience in various domestic real estate activities across 30 communities, including master planned communities and other development projects, and Eric Speron has a background in finance, with more than 22 years of financial management and advisory experience. The company noted at the time of their appointment to the board that the new directors are consistent with goals to, among other objectives, diversify the board and be “responsive to… investor relations engagement, including direct meetings and interaction with… investors,” among other company goals.
Another shareholder, PFS Trust, also notes that TRC, which does not hold quarterly conference calls, needs to improve both transparency and shareholder communication and engagement. TRC has indicated plans to host investor events to improve communication with shareholders. We would view quarterly conference calls as another positive.
Terra Vista Initial Development Stage Completed and rental of first units…
We also view Terra Vista initial opening as a positive. Terra Vista, a multi-family residential complex adjacent to the Outlets at Tejon under development is expected to provide housing for people living nearby the TRCC, including many employed at the TRCC and the Hard Rock Hotel & Casino Tejon once it is completed. Stage one consists of the 84 units that recently became ready for residency, plus a pool, playground, dog park, and green and community spaces.
California has some of the highest rental rates nationwide. Terra Vista at Tejon as TRCC will be a mixed-use master-planned community. The 495 units will consist of affordable studio, one-, and two-bedroom apartment homes. Management believes that its development plans fulfill important needs, including addressing the need for more housing in California, job creation and responsible development that is coordinated with conservationist goals. The planned expansion of the TRCC industrial space is also expected to lead to new jobs and, in turn, likely to drive demand for convenient and affordable housing.
As recurring rental / leasing revenue grow, expect lower Q/Q fluctuations
The company expects net income likely will continue to fluctuate from year-to-year reflecting fluctuations in commodity prices and in prices and production in its farming and mineral resources segments, as well as the timing of land sales and leasing in its commercial developments, among other factors. Over time, however, as recurring monthly rental and leasing receipts comprise a growing component of the company’s total revenue and earnings, we would expect this to help smooth out the fluctuations as the company continues to pursue development and leasing opportunities within the TRCC and its JVs, it concurrently will continue to invest in its residential projects, including Mountain Village at Tejon Ranch, Centennial at Tejon Ranch and Grapevine at Tejon Ranch.
In 1Q25, for example, Farming segment revenue was $1.6 million, up nearly 80% compared to $0.9 million in 1Q24 due to improved almond prices and more crops available for sale. Ranch segment revenue was $1.3 million, compared to $1.1 million in 1Q24. Quarter to quarter, results from the Farming and Ranching segments that rely heavily on exogenous factors such as weather, crop price fluctuations and other factors can lead to lumpiness in results.
However, with the first units from Terra Vista available and additional development underway, we expect Terra Vista to create predictable recurring revenue streams over time that can help offset the lumpiness of results from the Farming and Ranching segments that rely heavily on exogenous factors noted above.
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