Tejon Ranch Stock

Tejon Ranch Co. operates as a diversified real estate development and agribusiness company.

The company’s operations consist of land planning and entitlement, land development, commercial land sales and leasing, leasing of land for mineral royalties, water asset management and sales, grazing leases, farming, and ranch operations.

The company’s prime asset is approximately 270,000 acres of contiguous, largely undeveloped land that, at its most southerly border, is 60 miles north of downtown Los Angeles and, at its most northerly border, is 15 miles east of Bakersfield. The company creates value by securing entitlements for its land, facilitating infrastructure development, strategic land planning, monetization of land through development and/or sales, and conservation in order to maximize the highest and best use for its land. The company is involved in eight joint ventures that either own, develop, and/or operate real estate properties. The company enters into joint ventures as a means to facilitate the development of portions of its land.

The company is executing on value creation as it is engaged in construction, commercial sales, and leasing at its commercial/industrial center Tejon Ranch Commerce Center, or TRCC. The Kern County Board of Supervisors approved a Conditional Use Permit, authorizing development of multi-family apartment uses within the Tejon Ranch Commerce Center, on a 27-acre site located immediately north of the Outlets at Tejon. This authorization allows the company to develop up to a maximum of 495 multi-family residences, in thirteen apartment buildings, as well as approximately 6,500 square feet of community amenity space and up to 8,000 square feet of community serving retail. All of these efforts are supported by diverse revenue streams generated from other operations, including farming, mineral resources, ranch operations, and its various joint ventures.

Real Estate Development

The company’s real estate operations consist of the following activities, such as real estate development, commercial land sales and leasing, land planning and entitlement, and conservation.

Interstate 5, one of the nation’s most heavily traveled freeways, brings in excess of 80,000 vehicles per day through the company’s land, which includes 16 miles of Interstate 5 frontage on each side of the freeway and the commercial land surrounding three interchanges. The strategic plan for real estate focuses on development opportunities along the Interstate 5 and Highway 138 corridors, which includes Tejon Ranch Commerce Center (TRCC) in Kern County; Centennial, a mixed-use master planned community on the company’s land in Los Angeles County; MV, a resort and residential community in Kern County; and Grapevine, a mixed-use master planned community on the company’s land in Kern County. TRCC includes developments east and west of Interstate 5 at TRCC-East and TRCC-West, respectively.

Segments

The company operates through five segments: Real Estate - Commercial/Industrial; Real Estate - Resort/Residential; Mineral Resources; Farming; and Ranch Operations.

Real Estate - Commercial/Industrial segment

A primary focus of the company is its real estate commercial/industrial segment that includes planning, and permitting of land held for development; construction of infrastructure; the construction of pre-leased buildings; the construction of buildings to be leased or sold; and the sale of land to third parties for their own development. The commercial/industrial segment also includes activities related to communications leases, a power plant lease, and landscape maintenance fees.

At the heart of the company’s real estate commercial/industrial segment is TRCC, a 20 million square foot commercial/industrial development on Interstate 5 just north of the Los Angeles basin. The Los Angeles industrial market is the largest in the country by most measures, sitting at the center of a 2 billion square-foot Southern California industrial market. It has been characterized by some of the highest asking rents and lowest vacancy rates of any market in the nation. The Ports of Los Angeles and Long Beach are the primary industrial drivers and are responsible for over 40% of all inbound containers into the U.S.

As of December 31, 2022, the company’s industrial portfolio, through its joint venture partnerships, consisted of 2.3 million square feet of gross leasable area, or GLA, and its TRCC commercial portfolio consisted of 620,907 square feet of GLA. As of December 31, 2022, the company’s industrial portfolio was 100% leased and its commercial portfolio was 89% leased. Substantially all of the company’s tenants are subject to net lease agreements. A net lease typically requires the tenant to be responsible for minimum monthly rent and property expenses, including property taxes, insurance, and maintenance.

Over eight million square feet of industrial, commercial, and retail space has been developed at TRCC, including distribution centers for IKEA, Caterpillar, Famous Footwear, L'Oreal, Camping World, Sunrise Brands, and Dollar General. TRCC sits on both sides of Interstate 5, giving distributors immediate access to the west coast’s principal north-south goods movement corridor.

TRCC has a Foreign Trade Zone, or FTZ, designation, of approximately 1,094 acres, which allows a user within the FTZ to secure the many benefits and cost reductions associated with streamlined movement of goods in and out of a trade zone. TRCC's attractiveness as a commercial/industrial location is further enhanced by the Economic Development Incentive Policy, or EDIP, adopted by the Kern County Board of Supervisors. The EDIP is aimed to expand and enhance the County's competitiveness by taking affirmative steps to attract new businesses and to encourage the growth and resilience of existing businesses. The EDIP provides incentives, such as assistance in obtaining state tax incentives, building supporting infrastructure, and workforce development.

Construction

In March 2022, the company formed TRC-MRC 5 LLC, a joint venture with Majestic Realty Co., or Majestic, a Los Angeles-based commercial industrial developer, to pursue the development, construction, lease-up, and management of an approximately 446,400 square foot industrial building located within TRCC-East. Construction began in 2023 with completion expected later this year. A lease has been secured, in advance of construction, for the entirety of this space by Sunrise Brands, a leading designer, producer, distributor, and retailer of both branded and private-label apparel.

Construction on the 629,274 square foot industrial building owned by TRC-MRC 4 LLC was completed in the fourth quarter of 2022, and the company has leased 100% of the rentable space.

Land Sales

During 2022, the company sold three land parcels, consisted of 98.2 acres.

Investments

Leasing

Within the company’s commercial/industrial segment, it leases land to various types of tenants. The company leases land to two auto service stations with convenience stores, 13 fast-food operations, a motel, an antique shop, and a post office.

In addition, the company leases several microwave repeater locations, radio and cellular transmitter sites, fiber optic cable routes, and 32 acres of land to Pastoria Energy Facility, L.L.C., or PEF, for an electric power plant.

Joint Ventures

The company uses joint ventures to advance its development projects at TRCC. This allows the company to combine its resources with other real estate companies and gain greater access to capital, share in the risks of real estate developments and share in the operating expenses. More importantly, it allows the company to better manage the deployment of its capital and increase its leasing portfolio.

The company’s joint venture with TA/Petro owns and operates two travel and truck stop facilities, restaurants, and five separate gas stations with convenience stores within TRCC-West and TRCC-East.

The company is involved in five joint ventures with Majestic to develop, lease, manage, and/or acquire industrial buildings within TRCC. These joint ventures operate four fully leased industrial buildings occupying over 2.3 million rentable square feet, and have a 446,400 square foot industrial building under construction.

The company is involved in one joint venture with Rockefeller Development Group, or RDG, as of December 31, 2022. The TRCC/Rock Outlet Center LLC operates the Outlets at Tejon. The company’s previous joint venture with RDG, the 18-19 joint venture, sold its land to a third-party during the fourth quarter of 2021 for $15.2 million, and was dissolved in 2022.

TRCC Residential

In 2021, the Kern County Board of Supervisors approved a Conditional Use Permit (CUP) which authorizes the development of a multi-family apartment complex within the TRCC. The approved CUP authorize the company to develop up to a maximum of 495 multi-family residences, in thirteen apartment buildings, as well as approximately 6,500 square feet of community amenity space and 8,000 square feet of community serving retail, collectively known as TRCC Residential. TRCC Residential will be located on a 27-acre site located immediately north of the Outlets at Tejon. TRCC Residential will be the first residential community at TRCC and for the company, providing an ideal housing option for the thousands of employees working at the various distribution centers, retailers and fast-food restaurants at TRCC.

In February 2022, the company formed TRC-MRC Multi I, LLC with Majestic for the development, leasing and management of this multi-family residential community. As of December 31, 2022, the company controlled the joint venture and has consolidated its assets within the Consolidated Balance Sheet. In January 2023, the company and Majestic entered into a Membership Interest Purchase Agreement, formalizing the purchase of Majestic's interest in this joint venture. The project is in its final planning and design phases.

The company’s marketing efforts target industrial users in the Santa Clarita Valley of northern Los Angeles County, and the northern part of the San Fernando Valley. The company is targeting larger users in the Inland Empire that are looking to relocate to lower their operating costs.

Real Estate - Resort/Residential segment

The company’s resort/residential segment activities include land entitlement, land planning and pre-construction engineering, and land stewardship and conservation activities. The company has three major resort/residential communities within this segment, such as Mountain Village at Tejon Ranch; Centennial at Tejon Ranch; and Grapevine at Tejon Ranch.

Mountain Village at Tejon Ranch (MV)

MV is planned to be an exclusive, low-density, resort-based community that will provide its owners and guests with a wide variety of recreational opportunities, lodging and spa facilities, putting greens, a range of housing options, and other exclusive services and amenities that are designed to distinguish MV as the resort community of choice for the Southern California market. MV encompasses 26,417 acres, including 5,082 acres for a mixed-use master planned community to include housing, lodging, retail, and commercial components. MV is entitled for 3,450 homes, 160,000 square feet of commercial development, 750 hotel keys, and 21,335 acres of open space. The first tentative tract map for the project, which includes 752 residential lots, was approved by Kern County in 2017. The first final map for the project consisting of 401 residential lots and parcels for hospitality, amenities, and public uses was approved by Kern County in December 2021.

The commercial component of the project is the 160,000 square foot commercial center that the company calls Farm Village. Farm Village will serve as the commercial center and community gathering place for MV residents and visitors, as well as the gateway to MV. Farm Village will include fresh culinary offerings, artisan markets, boutique lodging, and an array of trails, gardens, and agriculture that will be intertwined to create the most unique, relaxing and edutaining experience while fulfilling the needs of residents and visitors of MV. In 2018, the company obtained commercial site plan approval from Kern County for the first phase of the Farm Village consisting of 53,180 square feet.

Centennial at Tejon Ranch

The Centennial development is a mixed-use master planned community development encompassing 12,323 acres of the company’s land within Los Angeles County. Centennial is entitled for 19,333 housing units, including nearly 3,500 affordable units, and 10.1 million square feet of commercial development. Centennial will incorporate business districts, schools, retail and entertainment centers, medical facilities and other commercial office and light industrial businesses that, when complete, will create a substantial number of jobs. The project is being developed by Centennial Founders, LLC, a consolidated joint venture in which the company has a 93.27% ownership interest as of December 31, 2022. Centennial is envisioned to be an ecologically friendly community that will achieve a jobs-housing balance. In November 2021, the company and Centennial entered into a Settlement Agreement with Climate Resolve.

Grapevine at Tejon Ranch

Grapevine is a mixed-use master planned community encompassing 8,010 acres of the company’s lands within Kern County located on the San Joaquin Valley floor, adjacent to TRCC. Grapevine is entitled for 12,000 homes, 5.1 million square feet for commercial development, and more than 3,367 acres of open space and parks. The 4,643 acres designated for mixed-use development will include housing, retail, commercial, and industrial components.

Mineral Resources segment

The company’s mineral resources segment consists of oil and gas royalties, rock and aggregate royalties, royalties from a cement operation leased to National Cement Company of California, Inc., or National, and the management of water assets and water infrastructure. The company continues to look for opportunities to grow its mineral resource revenues through expansion of leasing and encouraging new exploration. The management of the company’s water assets consists of the evaluation of near-term highest and best uses, which can include the sale of water on a temporary basis, the use of water for internal purposes, and the storage of water for future use in the company’s development projects. At the same time the company is also evaluating opportunities as they arise for the purchase of additional water assets as it has done in the past.

The company leases certain portions of its land to oil companies for the exploration and production of oil and gas. The company does not engage in any oil exploration or extraction activities. As of December 31, 2022, 10,332 acres were committed to producing oil and gas leases from which the operators produced and sold approximately 92,788 barrels of oil and 57,000 MCF (each MCF being 1,000 cubic feet) of dry gas during 2022.

The company has approximately 2,000 acres under lease to National, for the purpose of manufacturing Portland cement from limestone deposits found on the leased acreage. National owns and operates a cement manufacturing plant on the company’s property with a production capacity in excess of 1,000,000 tons of cement per year. The term of this lease expires in 2026, however National has options to extend the lease until 2095.

The company also leases 521 acres to Granite Construction and Griffith Construction for the mining of rock and aggregate product that is used in construction of roads and bridges. The Granite site has reached its economic life and will undergo restoration activities during 2023.

In 2015, the company entered into a water sale agreement with PEF, its lessee under a power plant lease. PEF may purchase from the company up to 3,500 acre feet of water per year through July 2030, with an option to extend the term.

Farming Operations segment

In the San Joaquin Valley, the company farms permanent crops, including the following acreage, such as wine grapes— 1,036 (849 in production and 187 under development); almonds—2,235 (1,487 in production and 748 under development); and pistachios—932 (all in production). The company manages the farming of alfalfa and forage mix on 626 acres in the Antelope Valley, and the company periodically lease 530 acres of land that is used for the growing of vegetables which can also be used for the development of permanent crops, such as almonds.

Sales of the company’s grape crop typically occur in the third and fourth quarters (year ended December 2022) of the calendar year. Sales of the company’s pistachio and almond crops also typically occur in the third and fourth quarters of the calendar year, but can occur up to a year or more after each crop is harvested.

Ranch Operations segment

The company’s ranch operations segment consists of game management revenues and ancillary land uses, such as grazing leases and filming. Within game management, the company operates its High Desert Hunt Club, a premier upland bird hunting club. The High Desert Hunt Club offers over 6,400 acres and 35 hunting fields, each field providing different terrain and challenges. The hunting season runs from mid-October through March. The company also sells individual hunting packages, as well as seasonal hunting memberships.

Approximately 256,000 acres are used for two grazing leases, which account for 29% of total revenues from ranch operations as of December 31, 2022.

Game management offers a wide variety of guided big game hunts, including trophy Rocky Mountain elk, deer, turkey and wild pig. The company offers guided hunts and memberships for both the Spring and Fall hunting seasons. As of December 31, 2022, game management accounted for 42% of the total revenue from ranch operations.

In addition, the Ranch Operations segment manages, and includes the expenses for the upkeep, maintenance, and security of all 270,000 acres of land.

Strategy

A key element of the company’s strategy is to entitle and then develop large-scale mixed-use master planned residential and commercial/industrial real estate projects to serve the growing populations of Southern and Central California.

The company’s strategy fits within the logistics model that many companies are using, which favors large, centralized distribution facilities which have been strategically located to maximize the balance of inbound and outbound efficiencies, rather than several decentralized smaller distribution centers.

Customers

The company’s PEF power plant lease accounted for 6% of total revenues in 2022.

History

Tejon Ranch Co. was founded in 1843. The company, a Delaware corporation, was incorporated in 1987.