Tejon Ranch Co 10-Q for FY2020 Q2

About this 10-Q

Headline figures

Tejon Ranch Co (TRC)

10-Q 2020-08-05 For: 2020-06-30

Added on April 11, 2026

Tejon Ranch Co filed this 10-Q on August 5, 2020, covering the quarter ended June 30, 2020 (FY2020 Q2).

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, $0.50 par value

New York Stock Exchange

Quarter ended June 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $4.78M; down 46.6% from $8.95M a year earlier
Net loss: $333K; compared with net income of $707K a year earlier
Diluted EPS: -$0.01; compared with $0.03 a year earlier

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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
	Yes	☒	No	☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
	Yes	☒	No	☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

	Large accelerated filer	☐	Accelerated filer		☒
	Non-accelerated filer	☐	Smaller reporting company		☒
			Emerging growth company		☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
	Yes	☐	No	☒



		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Unaudited Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2020 and 2019	3

	Unaudited Consolidated Statements of Comprehensive (Loss) Income for the Three and Six Months Ended June 30, 2020 and 2019	4

	Consolidated Balance Sheets as of June 30, 2020 (unaudited) and December 31, 2019	5

	Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019	6

	Unaudited Consolidated Statement of Changes in Equity and Noncontrolling Interests for the Three and Six Months Ended June 30, 2020 and 2019	8

	Notes to Unaudited Consolidated Financial Statements	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	51

Item 4.	Controls and Procedures	53

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	54

Item 1A.	Risk Factors	54

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54

Item 3.	Defaults Upon Senior Securities	54

Item 4.	Mine Safety Disclosures	54

Item 5.	Other Information	54

Item 6.	Exhibits	55

SIGNATURES		59



	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Revenues:
Real estate - commercial/industrial	$	2,114		$	6,595		$	4,434		$	9,421
Mineral resources	1,776			660			7,954			6,792
Farming	209			886			1,161			1,701
Ranch operations	676			805			1,539			1,694
Total revenues	4,775			8,946			15,088			19,608
Costs and Expenses:
Real estate - commercial/industrial	1,747			4,593			3,678			6,385
Real estate - resort/residential	326			642			952			1,290
Mineral resources	714			598			4,592			4,430
Farming	1,099			825			2,801			2,423
Ranch operations	1,178			1,393			2,584			2,743
Corporate expenses	2,494			2,290			5,027			4,764
Total expenses	7,558			10,341			19,634			22,035
Operating loss	(2,783		)	(1,395		)	(4,546		)	(2,427		)
Other Income:
Investment income	151			329			379			678
Gain on sale of real estate	1,333			—			1,333			—
Other income, net	(12		)	22			(4		)	48
Total other income	1,472			351			1,708			726
Loss from operations before equity in earnings of unconsolidated joint ventures	(1,311		)	(1,044		)	(2,838		)	(1,701		)
Equity in earnings of unconsolidated joint ventures, net	1,181			1,971			2,536			2,847
(Loss) income before income tax expense	(130		)	927			(302		)	1,146
Income tax expense	196			218			708			313
Net (loss) income	(326		)	709			(1,010		)	833
Net income attributable to non-controlling interest	7			2			5			7
Net (loss) income attributable to common stockholders	$	(333	)	$	707		$	(1,015	)	$	826
Net (loss) income per share attributable to common stockholders, basic	$	(0.01	)	$	0.03		$	(0.04	)	$	0.03
Net (loss) income per share attributable to common stockholders, diluted	$	(0.01	)	$	0.03		$	(0.04	)	$	0.03



	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Net (loss) income	$	(326	)	$	709		$	(1,010	)	$	833
Other comprehensive (loss) income:
Unrealized (loss) gain on available-for-sale securities	(11		)	182			58			384
Unrealized loss on interest rate swap	(366		)	(1,960		)	(4,325		)	(2,693		)
Other comprehensive loss before taxes	(377		)	(1,778		)	(4,267		)	(2,309		)
Benefit for income taxes related to other comprehensive income items	106			372			1,166			484
Other comprehensive loss	(271		)	(1,406		)	(3,101		)	(1,825		)
Comprehensive loss	(597		)	(697		)	(4,111		)	(992		)
Comprehensive income attributable to non-controlling interests	7			2			5			7
Comprehensive loss attributable to common stockholders	$	(604	)	$	(699	)	$	(4,116	)	$	(999	)



	June 30, 2020			December 31, 2019
	(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	21,975		$	27,106
Marketable securities - available-for-sale	27,323			39,084
Accounts receivable	2,860			9,950
Inventories	7,452			2,792
Prepaid expenses and other current assets	4,831			3,252
Total current assets	64,441			82,184
Real estate and improvements - held for lease, net	17,841			18,674
Real estate development (includes $106,494 at June 30, 2020 and $104,491 at December 31, 2019, attributable to Centennial Founders, LLC, Note 15)	305,558			297,581
Property and equipment, net	45,776			45,072
Investments in unconsolidated joint ventures	41,246			38,240
Net investment in water assets	56,457			54,155
Deferred tax assets	1,351			713
Other assets	2,500			2,803
TOTAL ASSETS	$	535,170		$	539,422

LIABILITIES AND EQUITY
Current Liabilities:
Trade accounts payable	$	4,031		$	6,145
Accrued liabilities and other	2,714			3,463
Deferred income	1,453			1,346
Current maturities of long-term debt	4,205			4,182
Total current liabilities	12,403			15,136
Long-term debt, less current portion	54,728			57,476
Long-term deferred gains	5,738			5,731
Other liabilities	19,324			15,455
Total liabilities	92,193			93,798
Commitments and contingencies
Equity:
Tejon Ranch Co. Stockholders’ Equity
Common stock, $.50 par value per share:
Authorized shares - 30,000,000
Issued and outstanding shares - 26,221,862 at June 30, 2020 and 26,096,797 at December 31, 2019	13,110			13,048
Additional paid-in capital	340,147			338,745
Accumulated other comprehensive loss	(9,872		)	(6,771		)
Retained earnings	84,212			85,227
Total Tejon Ranch Co. Stockholders’ Equity	427,597			430,249
Non-controlling interest	15,380			15,375
Total equity	442,977			445,624
TOTAL LIABILITIES AND EQUITY	$	535,170		$	539,422



Non-cash investing activities
Accrued capital expenditures included in current liabilities	$	562	$	3
Accrued long-term water assets included in current liabilities	$	254	$	—
Contribution to unconsolidated joint venture	$	—	$	5,854	¹
Long term deferred profit on land contribution	$	—	$	1,532	¹

¹In April 2019, the Company contributed land with a fair value of $5.9 million to TRC-MRC 3, LLC an unconsolidated joint venture formed to pursue the development, construction, leasing, and management of a 579,040 square foot industrial building on the Company's property at TRCC-East. The total cost of the land, inclusive of transaction costs was $2.9 million. The Company recognized $1.5 million in profit and deferred $1.5 million of profit after applying the five-step revenue recognition model in accordance with Accounting Standards Codification (ASC) Topic 606 — Revenue From Contracts With Customers and ASC Topic 323, Investments — Equity Method and Joint Ventures. Historically, cash outflows related to land development expenditures were accounted for within investing activities. For consistency, the Company will continue to classify cash outflows and cash inflows related to land development as investing activities.



	Common Stock Shares Outstanding		Common Stock			Additional Paid-In Capital			Accumulated Other Comprehensive (Loss) Income			Retained Earnings			Total Stockholders' Equity			Noncontrolling Interest		Total Equity
Balance, March 31, 2020	26,212,484		$	13,106		$	338,710		$	(9,601	)	$	84,545		$	426,760		$	15,373	$	442,133
Net (loss) income	—		—			—			—			(333		)	(333		)	7		(326		)
Other comprehensive loss	—		—			—			(271		)	—			(271		)	—		(271		)
Restricted stock issuance	10,562		5			(5		)	—			—			—			—		—
Stock compensation	—		—			1,457			—			—			1,457			—		1,457
Shares withheld for taxes and tax benefit of vested shares	(1,184	)	(1		)	(15		)	—			—			(16		)	—		(16		)
Balance, June 30, 2020	26,221,862		$	13,110		$	340,147		$	(9,872	)	$	84,212		$	427,597		$	15,380	$	442,977

Balance, March 31, 2019	26,020,953		$	13,010		$	336,813		$	(5,276	)	$	74,766		$	419,313		$	15,381	$	434,694
Net income	—		—			—			—			707			707			2		709
Other comprehensive loss	—		—			—			(1,406		)	—			(1,406		)	—		(1,406		)
Restricted stock issuance	14,993		7			(7		)	—			—			—			—		—
Stock compensation	—		—			1,093			—			—			1,093			—		1,093
Shares withheld for taxes and tax benefit of vested shares	(2,544	)	—			(29		)	—			—			(29		)	—		(29		)
Balance, June 30, 2019	26,033,402		$	13,017		$	337,870		$	(6,682	)	$	75,473		$	419,678		$	15,383	$	435,061



($ in thousands)		June 30, 2020				December 31, 2019
Marketable Securities:	Fair Value Hierarchy	Cost		Fair Value		Cost		Fair Value
Certificates of deposit
with unrealized losses for less than 12 months		$	—	$	—	$	251	$	250
with unrealized losses for more than 12 months		—		—		—		—
with unrealized gains		1,799		1,815		1,799		1,806
Total Certificates of deposit	Level 1	1,799		1,815		2,050		2,056
U.S. Treasury and agency notes
with unrealized losses for less than 12 months		—		—		6,485		6,479
with unrealized losses for more than 12 months		—		—		—		—
with unrealized gains		14,630		14,688		14,413		14,434
Total U.S. Treasury and agency notes	Level 2	14,630		14,688		20,898		20,913
Corporate notes
with unrealized losses for less than 12 months		1,583		1,582		1,004		1,002
with unrealized losses for more than 12 months		—		—		—		—
with unrealized gains		7,202		7,233		13,082		13,106
Total Corporate notes	Level 2	8,785		8,815		14,086		14,108
Municipal notes
with unrealized losses for less than 12 months		—		—		—		—
with unrealized losses for more than 12 months		—		—		—		—
with unrealized gains		2,000		2,005		1,999		2,007
Total Municipal notes	Level 2	2,000		2,005		1,999		2,007
		$	27,214	$	27,323	$	39,033	$	39,084



	June 30, 2020		June 30, 2019
Acre-Feet Sold	4,625		4,445

Revenues	$	5,471	$	3,980
Cost of sales	3,264		3,194
Profit	$	2,207	$	786



	June 30, 2020		December 31, 2019
Banked water and water for future delivery	$	28,091	$	25,265
Transferable water	3,211		3,054
Total water held for future use at cost	$	31,302	$	28,319



	June 30, 2020					December 31, 2019
	Costs		Accumulated Depreciation			Costs		Accumulated Depreciation
Dudley-Ridge water rights	$	11,581	$	(4,584	)	$	11,581	$	(4,342	)
Nickel water rights	18,740		(4,283		)	18,740		(3,962		)
Tulare Lake Basin water rights	6,479		(2,778		)	6,479		(2,660		)
	$	36,800	$	(11,645	)	$	36,800	$	(10,964	)
Net cost of purchased water contracts	25,155					25,836
Total cost water held for future use	31,302					28,319
Net investments in water assets	$	56,457				$	54,155



(in acre-feet, unaudited)	June 30, 2020	December 31, 2019
Water held for future use
Company water bank	50,349	50,349
Transferable water	6,272	3,252
Total water held for future use	56,621	53,601
Purchased water contracts
Water Contracts (Dudley-Ridge, Nickel and Tulare)	10,137	10,137
WRMWSD - Contracts with the Company	15,547	15,547
TCWD - Contracts with the Company	5,749	5,749
TCWD - Banked water owned by the Company	61,054	60,555
Total purchased water contracts	92,487	91,988
Total water held for future use and purchased water contracts	149,108	145,589



Performance Condition Grants
Below threshold performance	—
Threshold performance	67,713
Target performance	621,515
Maximum performance	1,063,367



	June 30, 2020
Stock Grants Outstanding Beginning of Period at Target Achievement	409,373
New Stock Grants/Additional Shares due to Achievement in Excess of Target	777,970
Vested Grants	(224,441	)
Expired/Forfeited Grants	—
Stock Grants Outstanding End of Period at Target Achievement	962,902



($ in thousands)	June 30, 2020		December 31, 2019
Accrued vacation	$	789	$	799
Accrued paid personal leave	401		419
Accrued bonus	1,132		1,700
Other	392		545
	$	2,714	$	3,463



($ in thousands)	June 30, 2020		December 31, 2019
Pension liability (Note 13)	$	1,691	$	1,790
Interest rate swap liability (Note 10)	7,041		2,716
Supplemental executive retirement plan liability (Note 13)	7,904		8,011
Excess joint venture distributions and other	2,688		2,938
Total	$	19,324	$	15,455



($ in thousands except for share prices)
Grant date	December 12, 2019	March 11, 2020
Vesting end	December 31, 2022	December 31, 2022
Share price at target achievement	$18.80	$16.36

Expected volatility	17.28%	18.21%
Risk-free interest rate	1.69%	0.58%

Simulated Monte Carlo share price	$11.95	$5.87
Shares granted	6,327	81,716
Total fair value of award	$76	$480



($ in thousands)	Six Months Ended June 30,
Employee Plan:	2020		2019
Expensed	$	2,179	$	1,311
Capitalized	649		633
	2,828		1,944
NDSI Plan - Expensed	220		281
Total Stock Compensation Costs	$	3,048	$	2,225



June 30, 2020
Effective Date	Maturity Date	Fair Value Hierarchy	Weighted Average Interest Pay Rate	Fair Value	Notional Amount
July 5, 2019	June 5, 2029	Level 2	4.16%	$(7,041)	$56,842


◦	On April 17, 2020, the Company sold the land and a building formerly leased to a tenant operating a fast food restaurant, to Petro. The Company received cash proceeds of $2,000,000 from Petro, and realized a gain of $1,333,000 under ASC 610-20, "Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets."


•	Rockefeller Joint Ventures – The Company has three joint ventures with Rockefeller Group Development Corporation, or Rockefeller. At June 30, 2020, the Company’s combined equity investment balance in these three joint ventures was $8,547,000.


◦	Two joint ventures are for the development of buildings on approximately 91 acres of land and are part of an agreement for the potential development of up to 500 acres of land in TRCC. The Company owns a 50% interest in each of the joint ventures.


▪	The Five West Parcel LLC joint venture owned and leased a 606,000 square foot building, the joint venture's primary asset, to Dollar General until the building was sold to a third party in November 2019 for a purchase price of $29,088,000, realizing a gain of $17,537,000. The outstanding term loan of the joint venture was paid off upon the sale.



	June 30, 2020										December 31, 2019
	Joint Venture								TRC		Joint Venture								TRC
($ in thousands)	Assets		Debt			Equity			Equity		Assets		Debt			Equity			Equity
Petro Travel Plaza Holdings, LLC	$	81,774	$	(15,225	)	$	65,030		$	26,618	$	77,835	$	(15,287	)	$	60,061		$	23,636
Five West Parcel, LLC	666		—			666			149		694		—			648			140
18-19 West, LLC	4,665		—			4,415			1,637		4,849		—			4,600			1,730
TRCC/Rock Outlet Center, LLC	68,244		(38,027		)	29,649			6,761		69,459		(38,909		)	29,688			6,781
TRC-MRC 1, LLC	28,589		(24,267		)	3,599			—		28,673		(24,542		)	3,623			—
TRC-MRC 2, LLC	20,171		(24,165		)	(8,776		)	—		20,026		(24,455		)	(7,094		)	—
TRC-MRC 3, LLC	42,625		(35,785		)	6,308			6,081		37,292		(28,061		)	6,052			5,953
Total	$	246,734	$	(137,469	)	$	100,891		$	41,246	$	238,828	$	(131,254	)	$	97,578		$	38,240

Centennial Founders, LLC	$	97,529	$	—		$	97,135		***		$	96,415	$	—		$	96,143		***

*** Centennial Founders, LLC is consolidated within the Company's financial statements.


•	Our joint venture with TravelCenters of America, or TA/Petro, owns and operates two travel and truck stop facilities, and also operates five separate gas stations with convenience stores and fast food restaurants within TRCC-West and TRCC-East.


•	Three joint ventures with Rockefeller Development Group, or Rockefeller:


◦	Five West Parcel LLC owned a 606,000 square foot building in TRCC-West that was fully leased. In 2019, Five West Parcel sold the building and land to a third party;


◦	TRCC/Rock Outlet Center LLC operates the Outlets at Tejon, a net leasable 326,000 square foot shopping experience in TRCC-East;


•	Three joint ventures with Majestic Realty Co., or Majestic, to develop, manage, and operate industrial buildings within TRCC:


◦	TRC-MRC 1, LLC was formed to develop and operate a 480,480 square foot industrial building in TRCC-East, which was completed during 2017 and is fully leased;


◦	TRC-MRC 2, LLC owns a 651,909 square foot building in TRCC-West that is fully leased; and


◦	TRC-MRC 3, LLC was formed to pursue the development, construction, leasing and management of a 579,040 square foot industrial building in TRCC-East. The construction of the building was completed in the fourth quarter of 2019 and is fully leased.



	Three Months Ended June 30,				Change
($ in thousands)	2020		2019		$			%
Commercial/industrial revenues
Pastoria Energy Facility	$	931	$	934	$	(3	)	—	%
TRCC Leasing	418		416		2			—	%
TRCC management fees and reimbursements	140		359		(219		)	(61	)%
Commercial leases	127		152		(25		)	(16	)%
Communication leases	245		226		19			8	%
Landscaping and other	253		195		58			30	%
Land sale	—		4,313		(4,313		)	(100	)%
Total commercial/industrial revenues	$	2,114	$	6,595	$	(4,481	)	(68	)%
Total commercial/industrial expenses	$	1,747	$	4,593	$	(2,846	)	(62	)%
Operating income from commercial/industrial	$	367	$	2,002	$	(1,635	)	(82	)%


•	Commercial/industrial real estate development segment revenues were $2,114,000 for the three months ended June 30, 2020, a decrease of $4,481,000, or 68%, from $6,595,000 for the three months ended June 30, 2019. Unlike in 2019, we did not have land sale revenues and construction management fees opportunities associated with our TRC-MRC 3 joint venture in 2020, which primarily drove the decline.



($ in thousands, except for impacted tenants)	Impacted Tenants	Contractual Rent Billing¹		Deferred Rent due to COVID-19			Deferred Rent to be Collected in 2020		Deferred Rent to be Collected in 2021
TRCC Leasing	5	$	312	$	44		$	5	$	39
Other Commercial Leases	3	125		18			7		11
	8	$	437	$	62		$	12	$	50

Percentage of Rent Deferred				14		%

¹Amounts shown represent contractual rent for all tenants for the three months ended June 30, 2020, regardless of whether or not a tenant has requested a rent deferral.


•	Over the next several years, we expect to explore funding opportunities for the future development of our projects. Such funding opportunities could come from a variety of sources, such as joint ventures with financial partners, debt financing, or the Company’s issuance of additional common stock.


•	Mineral resources segment expenses were $714,000 for the three months ended June 30, 2020, an increase of $116,000 or 19%, from $598,000 for the three months ended June 30, 2019. Increases in water transmission costs and property taxes were the main drivers of this increase.


•	Farming segment revenues were $209,000 for the three months ended June 30, 2020, a decrease of $677,000, or 76%, from $886,000 during the same period in 2019. The changes are primarily attributed to: