TRC: Large Land Sale Post-2Q22, Debt Maturities Extended

By M. Marin

NYSE:TRC

READ THE FULL TRC RESEARCH REPORT

Land sales lumpy from quarter to quarter; second largest land sale completed in 3Q22

Tejon Ranch Company (NYSE:TRC) is a real estate-development company that targets maximizing shareholder value by monetizing its land-based assets located near Los Angeles and Bakersfield, CA. Housing demand and need for the need for increased supply chain warehouse and distribution infrastructure in this region is high. At the same time, the availability of Class A properties is limited. TRC continues to move forward with its development plans.

TRC reported 2Q22 results this week. Comps were difficult against 2Q21, when TRC contributed land to its TRC-MRC 4 joint venture, which resulted in $5.7 million in land sales revenues. By comparison, the company had no land sales in 2Q22 and, as a result of the transaction in last year’s 2Q, Commercial/industrial real estate development segment revenues fell about 70% year-over-year.

Subsequently in 3Q22, the company consummated a 58-acre land sale to a large multinational corporation for $22.0 million. This land sale represents the company’s second largest industrial land sale to a third-party to-date in terms of size. The timing of land sales can fluctuate greatly from quarter to quarter.

Strengthening financial flexibility; extending maturities

TRC had cash & securities of about $45.5 million and nothing outstanding under its revolving credit line, as of June 30, 2022. TRC recently replaced its existing term loan and revolver. The new term loan provides a principal amount of $49.1 million and a maturity date of June 28, 2032 compared to the prior term note that was set to mature in June 2029. The prior revolver was set to expire in October 2024. TRC replaced it with a larger facility that is set to expire in June 2032.

The company also intends to leverage funding from partners and debt financing and/or the sale of rights, among other financial resources. Moreover, TRC’s agribusiness and commerce business units are operational and generate recurring revenue.

Real Estate – Conveniently Located for Commercial, industrial & Residential Use

TRC is advancing its real estate development plans. Design and engineering work is proceeding for the company’s multi-family residential complex adjacent to the Outlets at Tejon, which consists of up to 495 apartments. Like much of the state of California, Kern County is experiencing a severe shortage of housing, including of apartment units. The project is also expected to drive traffic at the TRCC retail outlets and throughout the overall TRCC.

The company also currently has a 629k square foot industrial building under construction; completion is expected in 3Q22. The Class A industrial building is being designed for single- or multi-tenant use and will be constructed on a speculative basis. The JV partners believe the market for Class A space is highly competitive, reflecting limited inventory.

TRC believes the TRCC represents a substantially more cost economical option compared to other properties in the L.A. basin. Moreover, management also believes interest in TRCC has increased as a result of changing views of warehousing safety stock, as a result of disruptions to much of the general supply chain during the pandemic.

Expanded relationship with Majestic a positive

These projects are being constructed with a joint venture partner, Los Angeles-headquartered Majestic Realty. Majestic Realty is one of the country’s largest privately-held industrial developers. The JVs represent extensions of an existing JV relationship, which would seem to underscore Majestic’s positive view of TRCC’s development prospects. TRC and Majestic have formed six 50/50 joint ventures to acquire, develop, manage, and operate industrial real estate at TRCC.

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