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TRC: Obstacle to TRC Pursuing Development Goals Eliminated

10/12/2021

By M. Marin

NYSE:TRC

READ THE FULL TRC RESEARCH REPORT

Tejon Ranch Company (NYSE:TRC) announced recently that a federal court has upheld an earlier ruling in TRC’s favor regarding its development plans. Objections raised in a lawsuit filed by the Tucson, Arizona-based Center for Biological Diversity (CBD) challenging Kern County’s December 2019 re-approval for TRC to advance certain development plans at Tejon Ranch were rejected in December 2020. Earlier this month, a Court permanently dismissed an appeal in the case.

TRC is a real estate-development company that aims to monetize its land-based assets. The company has master planned mixed-use residential communities in various stages of development and other real estate projects in its pipeline. 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. Current revenue is derived from the Tejon Ranch Commercial Center (TRCC), farming and ranching, among other activities.

The company recently commenced construction of an industrial building at the TRCC that is planned to be roughly 630,000-square-feet. The company is developing this latest project with joint venture partner, Los Angeles-headquartered Majestic Realty, one of the country’s largest privately-held industrial developers, according to National Real Estate Investor magazine.

We view it as a positive that this project represents an expansion of an existing relationship between TRC and Majestic, which would seem to underscore Majestic’s positive view of the TRCC’s development prospects. Moreover, the project led to improved real estate results in 2Q21 that contributed to 2Q21 operating income of $2.5 million compared to an operating loss of $2.8 million in 2Q20. We believe it also highlights the underlying value of the company’s real estate holdings.

Real Estate Assets - Well-Situated & Convenient

Proximity to nearby cities makes the TRCC an attractive location for commercial, industrial and residential development. The site of the planned new building is roughly 39-acres fronting the I-5 (interstate 5) highway, one of the busiest land-based transportation routes for passengers and cargo. Moreover, the region is characterized by a severe housing shortage. Kern County has granted approvals that authorize TRC to develop up to 495 multi-family residences in thirteen apartment buildings just north of the Outlets at Tejon.

The company expects its development efforts to create both permanent and development-related jobs. The company’s real estate is located in an area that is characterized by higher than national average unemployment. At 10.0%, the Kern County unemployment rate during the month of August 2021 was significantly above the 5.2% U.S. national unemployment rate during the same period, according to data from the Bureau of Labor Statistics (BLS) and State of California Employment Development Department.

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