NYSE:TRC

Zacks Small-Cap Research has initiated research coverage on Tejon Ranch Company (NYSE:TRC), a real estate-development company that targets maximizing shareholder value through monetization of its land-based assets; TRC’s principal asset is its extensive land holding located approximately 60 miles north of Los Angeles and 25 miles south of Bakersfield, California. With 425 square miles of contiguous property north of the Los Angeles basin, it is the largest contiguous property in California, formed from the consolidation of four Mexican land grants acquired in the 1850s and 1860s. TRC’s agribusiness unit generates recurring revenue that can help fund development efforts.

Proximity to major cities and nearby highways – Interstate 5, for instance – make the company’s property easily accessible. For instance, it takes about 75 minutes to travel the roughly 73 miles from the Tejon Ranch Commerce Centre (TRCC) to Los Angeles’ Union Station and about 45 miles, on average, to travel between TRCC and Santa Clarita. TRCC is a 20 million square foot commercial / industrial development that is on both sides of Interstate 5.

TRC Addresses LA Area Housing Shortage

Major nearby land asset where infrastructure is possible

Moreover, there is a shortage of housing that makes the Los Angeles basin significantly constrained by the lack of reasonably priced housing. By historical measures, new and used house inventory is virtually non-existent. Prices continue to increase, with no apparent end in sight. TRC is the only major area close to Los Angeles where infrastructure is possible and one of the few real estate development companies with room to spare. Moreover, other nearby areas such as the Bakersfield metropolitan region and Antelope Valley (which extends from northern Los Angeles County to the southeast portion of Kern County, California,) also lack available and affordable houses.

Positive Outlook on TRC Reflects Development Opportunity

Necessary entitlements have been secured

In 2019, Tejon Ranch received approval from both the Los Angeles Board of Supervisors and Kern County Board of Supervisors to proceed with planned residential sales within two major projects: Centennial and Mountain Village (MV). Centennial is positioned towards Antelope Valley and the east. MV is positioned towards the Los Angeles basin and the southeast. MV is fully entitled and all necessary permits have been issued to begin development once the mapping process is complete, depending on the strength of both the economy and the residential real estate market. TRC expects that in moving the project forward, funding opportunities for development of MV could come from a variety of sources, such as joint ventures with financial partners, debt financing, and/or the sale of rights.

TRC Also Has Recurring Operating Revenue

Moreover, we expect that commercial/industrial sales and leasing operations in the developed Commerce Center will provide cash flow for continued expansion of the TRCC. TRCC holds the leases for a number of distribution facilities for companies such as IKEA, Caterpillar Inc., Dollar General and others. Overall, TRC’s operating units also include monetizing mineral resources (water, oil/gas, cement and rock aggregate, among others), farming and ranch operations, as well as the commerce center.

TRC’s mineral resources unit, in most cases, does not own the minerals but receives a royalty payment based on sales. The farming division produces and sells high-profit crops such as almonds and pistachios, as well as wine grapes and hay, while Tejon Ranch operations leverage the property to generate revenue from cattle grazing leases and location filming, among other revenue producing activities. The Pastoria Energy facility, owned by Calpine, is located on the Tejon Ranch. It is a highly efficient combined cycle gas fired generating station that produces enough electricity to power all of Bakersfield, California. The facility generates revenue that is reasonably constant each year and is another potential source of funding for development activities.

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