Tejon Ranch Co.
Annual Report 2015

Plain-text annual report

T E J O N R A N C H C O . a n n u a l r e p o r t 2 0 1 5 b u i l d i n g a f o u n d a t i o n b u i l d i n g a f o u n d a t i o n The word Foundation carries significant weight at Tejon Ranch. In a business sense, it is frequently used to describe the underlying reasons for a com- pany’s existence or the core values behind its operation. In construction, it is used to describe the base of concrete and steel upon which a structure is built. For the majestic oak trees that cover our land, their long deep roots serve as their foundation. In all these cases, it’s vitally important that the foundation be solid and strong. T E J O N R A N C H C O . a n n u a l r e p o r t 2 0 1 5 T O O U R V A L U E D S H A R E H O L D E R S At Tejon Ranch Co., we’ve built a foundation on our unparalleled assets, our long-term strategy and our experienced, dedicated team. We believe our foun- dation is solid, and strongly believe that it will be the basis for the creation of meaningful shareholder value over the long term. Tejon Ranch Co. owns a unique, valuable property – 270,000 acres of superbly located prime California real estate – with a legacy spanning nearly two centuries. The Ranch is an asset that cannot be replicated and represents a unique, long- term investment opportunity. It is strategically and geographically positioned to capitalize on California’s real estate market, with growth opportunities coming from both Southern California and the central and northern reaches of the state. Tejon Ranch’s rich resources, including prime farming and grazing land, mineral deposits, oil and gas, extensive water rights, the intellectual property emanating from its historic brand, and it’s unparalleled natural beauty, form the foundation for diverse revenue streams, led by future residential, commercial and industrial real estate development. All of this leads to increased shareholder value. Having reserved up to 240,000 acres of the property for environmental conservation, the Company has ensured that Tejon Ranch’s natural beauty will endure for future residents, and the Company’s relationships with local governments and the community are strong and growing. p a g e 1 T E J O N R A N C H C O . a n n u a l r e p o r t 2 0 1 5 b u i l d i n g o n o u r m o m e n t u m The development and monetization of such an array of assets require a compre- hensive strategy and consistent execution. Our strategy has been, and continues to be, to focus on real estate development, particularly the development of large scale residential and mixed use communities, which represent the most significant growth opportunity for the Company. These communities: Centennial at Tejon Ranch, Mountain Village at Tejon Ranch and Grapevine at Tejon Ranch, will provide our Company with a pipeline of long-term real estate projects. As I reflect on 2015, and the meaningful progress we made in executing our overall strategy, I would describe the year as one in which we built upon our strong foun- dation and enhanced our potential for growth, both near term and long term. Perhaps the most significant milestone as it relates to near-term impact is the Board’s approval of the detailed business plan that will guide the ultimate devel- opment and marketing of Mountain Village at Tejon Ranch, and its decision to move forward with the processing of tentative tract maps for the initial phases of the community. Preparing tract maps—both tentative and then final maps— is the last regulatory hurdle that must be cleared before construction can begin. The process itself requires us to prepare a series of specific reports and studies, in addition to engineering and systems design. We are well underway with the effort, which is expected to take about two years to complete. The tentative tract maps will be reviewed and are ultimately required to be approved by the Kern County Planning Commission. Engaging in this process sends a clear signal that we are ready, willing and able to bring Mountain Village to market—as market conditions warrant— and have a clear path to execution. We reached another important milestone in 2015 when the Los Angeles County Board of Supervisors approved a new Antelope Valley Plan, which provides the land use designations and zoning we need for our large-scale community, Centennial at Tejon Ranch. The next step is to submit a Specific Plan and circulate an environ- mental impact report. We are working diligently on both and are targeting the end p a g e 2 mountain village at tejon ranch The Company is in the midst of preparing tract maps for its premiere residential/ resort community. Finalizing tract maps is the last regulatory step that must be taken before construction can begin. tejon ranch commerce center The Outlets at Tejon is energizing new retail development at the Tejon Ranch Commerce Center. This Pieology Pizzeria represents just one of the many new establishments that have opened adjacent to the outlet center. T E J O N R A N C H C O . a n n u a l r e p o r t 2 0 1 5 of 2016 for approval by Los Angeles County. The County controls the eventual timeline, but we are working cooperatively together toward the 2016 goal. The Specific Plan submitted for Centennial calls for 19,333 residential units and about 10.1 million square feet of commercial space. On the Kern County side of the ranch, we are aiming to have our large-scale community—Grapevine at Tejon Ranch—approved by the Board of Supervisors in 2016. The County will be circulating the environmental impact report for Grapevine and then scheduling meetings before the Planning Commission and then the Supervisors. The plan presented to the County is for 12,000 - 14,000 residential units and 5.1 million square feet of commercial development. In 2015 we also advanced our strategy at the Tejon Ranch Commerce Center (TRCC). As we anticipated, the Outlets at Tejon, which opened on the east side of TRCC in 2014, is proving to be a catalyst for increased traffic, revenue and new busi- ness opportunities. The growing level of traffic exiting from Interstate 5 is driving significant increases in volume at our TA/Petro joint venture. Our share in earnings from the JV were up 29% in 2015 compared to 2014. Three new quick-serve food offerings opened adjacent to the outlets in 2015, a Carl’s Jr., Starbucks and Pieology Pizzeria, and two more—a Habit Burger and Baja Fresh—will open in the second quarter of this year. All are generating new lease revenue for the Company. In addition, the Board approved the expansion of our portfolio of industrial buildings at TRCC, authorizing the 2016 construction of a 250,000 square foot spec building. While most of the buildings and pads at TRCC are designed to accommodate larger users like distribution centers, an analysis of the nearby Santa Clarita/San Fernando Valley market indicates there is a real opportunity for build- ings with a smaller footprint. Available space in that market is almost non-existent and the real demand is in the 50,000 to 100,000 square foot range. The new spec building at TRCC will be divisible and can house multiple users. This is another example of the Company taking concrete steps to monetize its assets. p a g e 5 T E J O N R A N C H C O . a n n u a l r e p o r t 2 0 1 5 w e l l p o s i t i o n e d f o r 2 0 1 6 a n d b e y o n d The diversity of our business operations enables us to invest the cash flow gener- ated from other operations, including farming, mineral resources and our various joint ventures, into the entitlement and future development efforts of our resi- dential communities. While we expect to engage capital partners to mitigate risk once we begin development of our residential communities, having the ability to fund the entitlement of the communities through existing cash flow and/or future equity events is a distinct advantage. In addition, we have been deepening the bench to ensure we have the internal capabilities to manage the Company’s transformation into a fully integrated real estate development business. We have an exciting opportunity to take the raw land at our disposal and develop it into a monetizable real estate asset, and we have the right team in place to execute on our strategy. In California, there are a number of steps in the real estate development process, some driven by law and regulation, others by what’s become common practice in the state. It’s also important to understand that most of the steps are consecutive in that you cannot proceed to the next step without completing the prior, though in certain instances they can be concurrent. That said, California’s complex, costly and time-consuming regulations create a high barrier to entry, and therefore also play to our advantage. There are a limited number of locations in California where large-scale real estate development can take place and a limited number of players who can engage in the activity at this scale. Tejon Ranch is one of the select locations in the state where large-scale residential development can and will occur, and our Company is one of the few with the ability to capitalize on this increasingly rare opportunity. p a g e 6 foundation for growth Just as the advent of spring signals a time for new growth, Tejon Ranch Co. is at an exciting inflexion point. We believe we have the assets, the strategy and the team to drive meaningful shareholder value over the long term. T E J O N R A N C H C O . a n n u a l r e p o r t 2 0 1 5 s t e p s t o d e v e l o p m e n t Here are the steps one must go through in California to transform raw land into a monetizable real estate asset. s Entitlement: Creating the plan, preparing the environmental impact report and then gaining approval of both by the local governing body—City Council or County Board of Supervisors. s Securing state and federal permits: Various state and federal agencies have jurisdiction over all or part of the project and one must obtain necessary permits in order to begin construction. Some of the agencies include the State Department of Fish and Wildlife, the Regional Water Quality Control Board, the US Fish and Wildlife Service, and the US Army Corps of Engineers, among others. s Tract maps: Final detailed maps showing exact locations of all lots and engi- neering and systems infrastructure, including water and sewer. s Weather the inevitable delays: When you’re executing your strategy within a highly regulated framework, such as you encounter working in real estate devel- opment in California, you must anticipate and be prepared for natural delays – including those resulting from litigation. We are at an exciting inflexion point for the Company, and look forward to shar- ing our continued progress with our shareholders and the investment community. We believe in our assets, our strategy to monetize those assets and in the high- quality team we’ve assembled to continue the execution of that strategy to drive meaningful shareholder value over the long term. Thank you for your continued confidence as we build upon this strong founda- tion for our next phase of growth. Greg Bielli President & CEO p a g e 9 an irreplaceable asset Tejon Ranch Co. owns a unique, valuable property – 270,000 acres of superbly located prime California real estate—an asset that cannot be replicated and which represents a long-term investment opportunity. F I N A N C I A L H I G H L I G H T S T E J O N R A N C H C O . a n n u a l r e p o r t 2 0 1 5 c o n s o l i d a t e d b a l a n c e s h e e t s ($ in thousands) A s s e t s Current Assets: Cash and cash equivalents Marketable securities - available-for-sale Accounts receivable Inventories Prepaid expenses and other current assets Total current assets Real estate and improvements - held for lease, net Real estate development (includes $84,194 at December 31, 2015 and $77,131 at December 31, 2014) Property and equipment, net Investments in unconsolidated joint ventures Long-term water assets Deferred tax assets Other assets Total Assets L i a b i l i t i e s a n d E q u i t y Current Liabilities: Trade accounts payable Accrued liabilities and other Income taxes payable Deferred income Revolving line of credit Current maturities of long-term debt Total current liabilities Long-term debt, less current portion Long-term deferred gains Other liabilities Total liabilities Commitments and contingencies Equity: Tejon Ranch Co. Stockholders’ Equity Common stock, $0.50 par value per share: Authorized shares - 30,000,000 Issued and outstanding shares - 20,688,154 at December 31, 2015 and 20,636,478 at December 31, 2014 Additional paid-in capital Accumulated other comprehensive loss Retained earnings Total Tejon Ranch Co. Stockholders’ Equity Non-controlling interest Total equity Total Liability and Equities p a g e 1 2 $ 2015 1,930 32,815 6,511 3,517 4,120 48,893 21,942 235,466 44,469 30,680 43,806 4,659 2,004 $ 431,919 $ 3,252 3,492 1,237 1,525 — 815 10,321 73,223 3,816 13,251 100,611 December 31 2014 $ 5,638 42,140 8,506 4,098 4,456 64,838 20,226 219,654 43,094 32,604 45,349 4,576 1,582 $ 431,923 $ 3,347 2,774 1,703 1,164 6,850 244 16,082 74,023 3,683 13,802 107,590 10,344 216,803 (6,902) 71,389 291,634 39,674 331,308 431,919 $ 10,318 212,763 (6,899) 68,439 284,621 39,712 324,333 $ 431,923 T E J O N R A N C H C O . a n n u a l r e p o r t 2 0 1 5 c o n s o l i d a t e d s t a t e m e n t s o f o p e r a t i o n ($ in thousands, except per share amounts) R e v e n u e s : Real estate - commercial/industrial Mineral resources Farming Ranch operations Total revenues Costs and Expenses: Real estate - commercial/industrial Real estate - resort/residential Mineral resources Farming Ranch operations Corporate expenses Total expenses Operating (loss) income Other Income: Investment income Other income Total other income (Loss) income from operations before equity in earnings of unconsolidated joint ventures Equity in earnings of unconsolidated joint ventures, net Income before income tax expense Income tax expense Net income Net (loss) income attributable to non-controlling interest Net income attributable to common stockholders Net income per share attributable to common stockholders, basic Net income per share attributable to common stockholders, diluted 2015 8,272 15,116 23,836 3,923 51,147 6,694 2,349 7,396 18,984 6,112 12,808 54,343 (3,196) 528 381 909 (2,287) 6,324 4,037 1,125 2,912 (38) 2,950 0.14 0.14 $ $ $ $ Year Ended December 31 2013 2014 $ $ $ $ 7,845 16,255 23,435 3,534 51,069 7,206 2,608 6,418 16,250 5,998 10,646 49,126 1,943 696 526 1,222 3,165 5,294 8,459 2,697 5,762 107 5,655 0.27 0.27 $ $ $ $ 7,455 10,242 23,610 3,693 45,000 6,853 2,231 1,277 15,926 6,049 11,826 44,162 838 941 404 1,345 2,183 4,006 6,189 2,086 4,103 (62) 4,165 0.21 0.20 c o n s o l i d a t e d s t a t e m e n t s o f c o m p r e h e n s i v e i n c o m e ( l o s s ) ($ in thousands) Net income Other comprehensive income/(loss): Unrealized loss on available for sale securities Benefit plan adjustments Benefit plan reclassification for losses included in net income SERP liability adjustments Unrealized interest rate swap gains/(losses) Other comprehensive (loss) income before taxes Benefit (provision) for income taxes related to other comprehensive loss items Other comprehensive (loss) income Comprehensive income Comprehensive (loss) income attributable to non-controlling interests Comprehensive income attributable to common stockholders p a g e 1 3 2015 2,912 $ $ Year Ended December 31 2013 4,103 2014 5,762 $ (188) (1,301) 536 234 678 (41) 38 (3) 2,909 (38) 2,947 $ (208) (3,168) 407 (1,003) (2,227) (6,199) 2,644 (3,555) 2,207 107 2,100 $ (348) 2,218 — 1,098 — 2,968 (1,183) 1,785 5,888 (62) 5,950 $ Total Equity 308,259 4,103 1,785 211 — 9,370 1,223 39,667 (62) — — — — — T E J O N R A N C H C O . a n n u a l r e p o r t 2 0 1 5 c o n s o l i d a t e d s t a t e m e n t s o f e q u i t y Common Stock Shares Outstanding Additional Accumulated Other Paid-In Comprehensive Capital Income (Loss) Common Stock Total Retained Stockholders’ Equity Earnings Non- controlling Interest 20,085,865 10,043 198,117 (5,118) — 1,785 65,550 4,165 — 268,592 4,165 1,785 ($ in thousands, except share information) Ba lanc e, Decembe r 31, 201 2 Net income Other comprehensive income Exercise of stock options and related tax benefit of $3 Restricted stock issuance Common stock issued for water purchase Stock compensation Shares withheld for taxes and 7,567 391,555 251,876 4 196 126 207 (196) 9,244 1,223 tax benefit of vested shares (173,840) (87) (4,677) — — — — — Warrants issued as — — — — 211 — 9,370 1,223 — (4,764) — (4,764) dividends (3,000,000 warrants) — — 6,930 — (6,930) — — — Ba lanc e, Decembe r 31, 201 3 Net income Other comprehensive income Restricted stock issuance Stock compensation Shares withheld for taxes and tax benefit of vested shares Warrants exercised Ba lanc e, Decembe r 31, 201 4 Net income Other comprehensive loss Restricted stock issuance Stock compensation Shares withheld for taxes and tax benefit of vested shares Modified share-based awards Balance, December 31, 2015 20,563,023 — — 94,014 10,282 — — 47 210,848 — — (47) 2,564 (20,559) (11) (603) 1 (3,333) — (3,555) — — (11) — 62,785 5,655 — — — 280,582 5,655 (3,555) — 2,564 — (1) (625) — 39,605 107 — — — — — 20,636,478 — — 85,584 $ 10,318 — — 43 $ 212,763 — — (43) 3,922 $ (6,899) — (3) — — $ 68,439 2,950 — — — $ 284,621 2,950 (3) — 3,922 $ 39,712 (38) — — — 320,187 5,762 (3,555) — 2,564 (625) — $ 324,333 2,912 (3) — 3,922 (33,908) (17) 20,688,154 $ 10,344 $ (904) 1,065 216,803 $ — (6,902) $ — 71,389 $ (921) 1,065 291,634 $ — — 39,674 $ (921) 1,065 331,308 p a g e 1 4 T E J O N R A N C H C O . a n n u a l r e p o r t 2 0 1 5 c o n s o l i d a t e d s t a t e m e n t s o f c a s h f l o w s ($ in thousands) O p e r a t i n g A c t i v i t i e s Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Amortization of premium/discount of marketable securities Equity in earnings Non-cash retirement plan expense Gain on sale of real estate/assets Deferred income taxes Stock compensation expense Distribution of earnings from unconsolidated joint ventures Changes in operating assets and liabilities: Receivables, inventories, prepaids and other assets, net Current liabilities, net Net cash provided by operating activities I n v e s t i n g A c t i v i t i e s Maturities and sales of marketable securities Funds invested in marketable securities Real estate and equipment expenditures Reimbursement of outlet center costs Reimbursement proceeds from Communities Facilities District Proceeds from sale of real estate/assets Investment in unconsolidated joint ventures Purchase of partner interest in TMV LLC Distribution of equity from unconsolidated joint ventures Investments in long-term water assets Other Net cash used in investing activities F i n a n c i n g A c t i v i t i e s Borrowings of line of credit Repayments of line of credit Borrowings of long-term debt Repayments of long-term debt Proceeds from exercise of stock options Taxes on vested stock grants Net cash (used in) provided by financing activities (Decrease) increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year S u p p l e m e n t a l C a s h F l o w I n f o r m a t i o n Increase in construction in progress attributable to the reclassification of equity in investment of TMV LLC Accrued capital expenditures included in current liabilities Taxes paid (net of refunds) Common stock issued for water purchase 2015 Year Ended December 31 2013 2014 $ 2,912 $ 5,762 $ 4,103 5,090 555 (6,324) 997 (95) (120) 3,757 7,200 2,733 263 16,968 24,157 (15,574) (28,048) — 4,971 796 (52) — 1,100 — (11) (12,661) 17,540 (24,390) — (244) — (921) (8,015) (3,708) 5,638 1,930 — 329 1,817 — $ $ $ $ $ 4,871 769 (5,294) 164 — 112 3,534 — 2,291 1,009 13,218 20,844 (8,525) (24,775) — — — (9,656) (70,000) — (480) — (92,592) 31,050 (24,200) 70,000 (244) — (625) 75,981 (3,393) 9,031 5,638 44,950 1,096 (2,384) — $ $ $ $ $ 4,226 879 (4,006) 865 (46) (8) 929 — 3,712 (1,118) 9,536 29,779 (21,392) (21,558) 512 17,809 — (3,415) — 1,000 (9,635) (711) (7,611) — — 4,750 (310) 211 (4,764) (113) 1,812 7,219 9,031 — 2,058 15 9,370 $ $ $ $ $ p a g e 1 5 T E J O N R A N C H C O . a n n u a l r e p o r t 2 0 1 5 The following graph is a comparison of cumulative total shareowner returns for the Company, the Dow Jones Equity Market Index, and the Dow Jones Real Estate Index for the period shown. comparison of five year cumulative total returns 250.00 200.00 s r a l l o d 150.00 100.00 50.00 12.31.10 12.30.11 12.30.12 12.30.13 12.30.14 12.31.15 tejon ranch dj equity mkt dj real estate - Assumes $100 invested on December 31, 2010 - Total return assumes reinvestment of dividends - Fiscal year ending December 31 tejon ranch dj equity mkt dj real estate 2011 -11.14% 1.07% 6.05% 2012 14.71% 16.38% 18.91% 2013 30.91% 33.47% 1.79% 2014 -19.86% 12.48% 27.24% 2015 -35.00% 0.44% 2.14% The stock price performance depicted in the above graph is not necessarily indicative of future price performance. The Performance Graph will not be deemed to be incorporated by reference in any filing by the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, except where the Company specifically incorporates the Performance Graph by reference. The Dow Jones Real Estate Index, for the most part, includes companies which have revenues substantially greater than those of the Company. The Company is unaware of any industry or line-of-business index that is more nearly comparable. quarter First Second Third Fourth high $29.74 $27.10 $28.00 $24.28 2015 low $23.57 $23.84 $21.50 $18.12 high $36.98 $35.23 $33.08 $31.44 2014 low $32.14 $29.54 $27.95 $27.86 As of March 1, 2016, there were 307 registered owners of record of our Common Stock. p a g e 1 6 Geoffrey L. Stack Managing Director, SARES-REGIS Group Real Estate Development and Management Daniel R. Tisch Managing Member, TowerView LLC Investment Management Frederick C. Tuomi Chief Executive Officer, Colony Starwood Homes Michael H. Winer Portfolio Manager, Third Avenue Management LLC Investment Management e x e c u t i v e o f f i c e r s Gregory S. Bielli President and Chief Executive Officer Allen E. Lyda Executive Vice President, Chief Financial Officer and Assistant Secretary Hugh F. McMahon Executive Vice President, Commercial and Industrial Real Estate Joseph N. Rentfro Executive Vice President, Real Estate Dennis J. Atkinson Senior Vice President, Agriculture Robert D. Velasquez Vice President of Finance, Chief Accounting Officer d i r e c t o r s Norman Metcalfe Chairman of the Board, Tejon Ranch Co. Real Estate and Investments Robert A. Alter President, Seaview Investors, LLC Steven A. Betts Real Estate and Investments Gregory S. Bielli President and Chief Executive Officer, Tejon Ranch Co. John L. Goolsby Private Investments and Real Estate Anthony L. Leggio President, Bolthouse Properties LLC Real Estate Development and Management c o r p o r a t e d i r e c t o r y Corporate Office Stock Transfer Agent & Registrar Form 10-k Tejon Ranch Company Post Office Box 1000 4436 Lebec Road Tejon Ranch, California 93243 Telephone: (661) 248-3000 Securities Listing Tejon Ranch Company Common Stock is listed on the New York Stock Exchange under the ticker symbol: TRC Computershare Shareowner Services LLC 480 Washington Boulevard Jersey City, NJ 07310-1900 Telephone: (877) 898-2101 A copy of this report and the Company’s Annual Report to the Securities and Exchange Commission on Form 10-k, with- out exhibits, will be provided without charge to any stockholder submitting a written or electronic request to Investor Relations: Auditors Ernst & Young LLP Barry Zoeller Vice President, Corporate Communications & Investor Relations bzoeller@tejonranch.com Tejon Ranch Company Post Office Box 1000 Tejon Ranch, California 93243 w w w. t e j o n r a n c h . c o m 

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