UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to Commission file number: 1-07183
TEJON RANCH CO.
(Exact name of registrant as specified in its charter)
Delaware 77-0196136
(State or other jurisdiction of incorporation or organization.) (I.R.S. Employer Identification No.)
P.O. Box 1000, Tejon Ranch, California 93243
(Address of principal executive offices) (Zip Code)
(661) 248-3000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.50 par value
Trading symbol(s)
TRC
Name of each exchange on which registered
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Securities registered pursuant to Section 12(g) of the Act: None
Yes ☐
No
☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐
No
☒
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
Non-accelerated filer
☐
☒
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting
under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐
No
☒
The aggregate market value of registrant’s Common Stock, par value $.50 per share, held by persons other than those who may be deemed to be affiliates of registrant on June 30,
2020 was $377,594,813 based on the last reported sale price on the New York Stock Exchange as of the close of business on that date.
The number of the Company’s outstanding shares of Common Stock on February 28, 2021 was 26,285,692.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Stockholders relating to the directors and executive officers of the Company are incorporated by reference into
Part III.
TABLE OF CONTENTS
BUSINESS
RISK FACTORS
UNRESOLVED STAFF COMMENTS
PROPERTIES
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
SELECTED FINANCIAL DATA
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
CONTROLS AND PROCEDURES
OTHER INFORMATION
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
PRINCIPAL ACCOUNTANT FEES AND SERVICES
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
FORM 10-K SUMMARY
PART I
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
PART II
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
PART III
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
PART IV
ITEM 15.
ITEM 16.
SIGNATURES
ITEM 15(a)(1) - FINANCIAL STATEMENTS
ITEM 15(a)(2) - FINANCIAL STATEMENT SCHEDULES
2
3
4
26
32
33
36
36
37
37
37
38
59
61
61
61
61
61
61
61
61
62
62
63
63
63
67
70
70
Forward-Looking Statements
PART I
This annual report on Form 10-K contains forward-looking statements, including without limitation, statements regarding strategic alliances, the almond,
pistachio and grape industries, the future plantings of permanent crops, future yields, prices, and water availability for our crops and real estate
operations, future prices, production and demand for oil and other minerals, future development of our property, future revenue and income of our jointly-
owned travel plaza and other joint venture operations, potential losses to the Company as a result of pending environmental proceedings, the adequacy of
future cash flows to fund our operations, and of current assets and contracts to meet our water and other commitments, market value risks associated with
investment and risk management activities and with respect to inventory, accounts receivable and our own outstanding indebtedness, ongoing negotiations,
the uncertainties regarding the expected impact of COVID-19 on the Company, its customers, suppliers, global economic conditions, and other future
events and conditions. In some cases, these statements are identifiable through the use of words such as “anticipate,” “believe,” “estimate,” “expect,”
“intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “will,” “should,” “would,” “likely,” and similar expressions such as “in the process,”
“designed to,” or “envisioned to” In addition, any statements that refer to projections of our future financial performance, our anticipated growth, and
trends in our business and other characterizations of future events or circumstances are forward-looking statements. We caution you not to place undue
reliance on these forward-looking statements. These forward-looking statements are not a guarantee of future performance and are subject to assumptions
and involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of the
Company, or industry results, to differ materially from any future results, performance, or achievement implied by such forward-looking statements. These
risks, uncertainties and important factors include, but are not limited to, the impact of COVID-19 and the actions taken by governments, businesses, and
individuals in response to it, weather, market and economic forces, availability of financing for land development activities, and competition and success in
obtaining various governmental approvals and entitlements for land development activities. No assurance can be given that the actual future results will
not differ materially from the forward-looking statements that we make for a number of reasons including those described above and in Part I, Item 1A,
“Risk Factors” of this report.
As used in this annual report on Form 10-K, references to the “Company,” “Tejon,” “TRC,” “we,” “us,” and “our” refer to Tejon Ranch Co. and its
consolidated subsidiaries. The following discussion should be read in conjunction with the consolidated financial statements and the accompanying notes
appearing elsewhere in this annual report on Form 10-K.
3
ITEM 1. BUSINESS
Company Overview
We are a diversified real estate development and agribusiness company committed to responsibly using our land and resources to meet the housing,
employment, and lifestyle needs of Californians and create value for our shareholders. Current 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.
These activities are performed through our five reporting segments:
Our 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. We create value by securing entitlements for our 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 our land. We are involved in seven joint ventures that either own, develop, and/or operate real estate properties. We enter into joint
ventures as a means to facilitate the development of portions of our land.
The COVID-19 Pandemic
Our first priority with regard to the COVID-19 pandemic is to provide for the health and safety of our employees, customers, suppliers and others with
whom we partner. We are fully committed to continuing our essential business operations in this unprecedented environment, subject to appropriate risk
mitigation and safety practices. Employees are required to wear masks and maintain proper social distancing. The commercial real estate operations that we
and our joint ventures operate, are comprised of major national restaurant, retail and fuel brands that follow nationally accepted safety standards that help
mitigate the spread of COVID-19.
The U.S. and global economies continue to be affected by the COVID-19 pandemic. There are no reliable estimates of how long the pandemic will last or
how many more people will be affected by it, or its continued impact on our business. The return to normalcy is highly contingent on, among other things,
the wide spread dissemination and use of an effective vaccine, which is still in its very early stages of distribution. Additionally, the efficacy of current
vaccines on newer and potentially more lethal strains of COVID-19 is still being investigated by the scientific community and may also impact the return to
normalcy.
We operate in the State of California and our operations were initially subject to the "shelter-in-place" order issued by the California Governor in March
2020, in addition to orders set by Los Angeles and Kern County governments. The State of California took an extremely cautious approach in reopening
and even re-imposed statewide stay-at-home orders during the winter of 2020. On January 26, 2021, California lifted regional stay-at-home orders across
the state, returning the state to a system of county-by-county restrictions. Kern County and Los Angeles County are rated Purple, as of the date of this
report, and represents widespread COVID-19 transmission risk under California's Blueprint for a Safer Economy. Under such circumstances, our farming
and mineral resources segments have operated and may continue to operate as normal, while our retail outlets can currently operate at 25% capacity and
our restaurants can operate for take-out and outdoor dining only.
4
The actions taken by governments, other businesses, and individuals in response to the pandemic did have and will continue to have an impact our results
of operations and overall financial performance. In 2020, we evaluated our operations for expense reductions and cash savings by renegotiating contracts
and pricing with a significant portion of our vendors, and right sizing our labor needs. We will continue to monitor and evaluate our needs for expense
reduction throughout 2021.
Please see the "Results of Operations" by Segment in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations"
for further discussion of the impact of COVID-19 on our various reporting segments.
5
Business Objectives and Strategies
Our primary business objective is to maximize long-term shareholder value through the monetization of our land-based assets. A key element of our
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. Our mixed-use master planned residential developments have been approved to collectively include up to
35,278 housing units, and more than 35 million square feet of commercial space. We have obtained entitlements on Mountain Village at Tejon Ranch, or
MV, and the tentative tract map for the first four phases of residential development in MV has been approved, as well as the commercial site plan for the
first phase of commercial development in MV. Centennial, at Tejon Ranch, or Centennial, had entitlements approved in December 2018, and received
legislative approvals in April 2019 from the Los Angeles County Board of Supervisors. The Kern County Board of Supervisors unanimously reapproved
the Grapevine at Tejon Ranch project, or Grapevine in 2019. We are currently engaged in construction, commercial sales, and leasing at our fully
operational commercial/industrial center Tejon Ranch Commerce Center, or TRCC. In January 2021, the Kern County Board of Supervisors approved two
Conditional Use Permits, 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 8,000 square feet of community serving retail on the
ground floor of a portion of the residential buildings. All of these efforts are supported by diverse revenue streams generated from other operations
including: farming, mineral resources, and our various joint ventures.
6
7
Percentage of Total Revenue by Segment:
1,2
1. Real Estate includes equity in earnings of unconsolidated joint ventures.
2. Charts presented only include the segment revenues, other income components are excluded.
8
Note: Our Resort Residential reporting segment did not report revenues in the periods reported herein.
9
The following table shows the revenues from continuing operations, segment profits and identifiable assets of each of our continuing segments for the last
three years:
FINANCIAL INFORMATION ABOUT SEGMENTS
(Amounts in thousands of dollars)
2020
Year Ended December 31,
2019
2018
Revenues and Other Income
Real Estate—Commercial/Industrial
Mineral Resources
Farming
Ranch operations
Segment revenues
Investment income
Revenues and other income
Equity in earnings of unconsolidated joint ventures
Total revenues and other income
(1)
Segment Profits (Losses) and Net Income
Real Estate—Commercial/Industrial
Real Estate—Resort/Residential
Mineral Resources
Farming
Ranch operations
(2)
Segment profits
Gain on sale of real estate
Investment income
Other income (loss)
Corporate expenses
(Loss) income from operations before equity in earnings of unconsolidated joint
ventures
Equity in earnings of unconsolidated joint ventures
Income before income taxes
Income tax expense
Net (loss) income
Net loss attributable to non-controlling interest
Net (loss) income attributable to common stockholders
(3)
Identifiable Assets by Segment
Real estate—commercial/industrial
Real estate—resort/residential
Mineral Resources
Farming
Ranch operations
Corporate
Total assets
$
$
$
$
$
$
9,536 $
10,736
13,866
3,692
37,830
884
38,714
4,504
43,218 $
2,414 $
(1,612)
4,322
(1,237)
(1,204)
2,683
1,331
884
110
(9,430)
(4,422)
4,504
82
829
(747)
(7)
(740) $
73,317 $
297,052
57,797
38,090
2,442
67,651
536,349 $
16,792 $
9,791
19,331
3,609
49,523
1,239
50,762
16,575
67,337 $
3,831 $
(2,247)
3,973
4,080
(1,707)
7,930
—
1,239
(1,824)
(9,361)
(2,016)
16,575
14,559
3,980
10,579
(1)
10,580 $
76,814 $
286,801
55,049
41,258
2,624
76,876
539,422 $
8,970
14,395
18,563
3,691
45,619
1,344
46,963
3,834
50,797
2,724
(1,530)
8,172
2,535
(1,760)
10,141
—
1,344
(59)
(9,705)
1,721
3,834
5,555
1,320
4,235
(20)
4,255
65,929
273,620
54,144
40,835
2,973
91,547
529,048
(1) Refer to Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations for additional detail on segment revenues.
(2) Segment profits are revenues less operating expenses, excluding investment income and expense, corporate expenses, equity in earnings of unconsolidated joint ventures, and income taxes.
(3) Total Assets by Segment include both assets directly identified with those operations and an allocable share of jointly used assets. Corporate assets consist of cash and cash equivalents,
refundable and deferred income taxes, land, buildings, and improvements.
10
Real Estate Development Overview
Our real estate operations consist of the following activities: 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 88,000 vehicles per day through our 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 TRCC in Kern County, Centennial, a mixed-use master
planned community on our land in Los Angeles County, MV, a resort and residential community in Kern County, and Grapevine, a mixed-use master
planned community on our land in Kern County. TRCC includes developments east and west of Interstate 5 at TRCC-East and TRCC-West, respectively.
The chart below is a continuum of the real estate development process highlighting each project's current status and key milestones to be met in moving
through the real estate development process in California. During this process, we may experience delays arising from factors beyond our control. Such
factors include litigation and a changing regulatory environment.
11
Operating Segments
Real Estate - Commercial/Industrial
Our real estate commercial/industrial segment includes: planning, and permitting of land 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 and landscape maintenance fees. At the heart of our 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.
Nearly six million square feet of industrial, commercial and retail space has already been developed, including distribution centers for IKEA, Caterpillar,
Famous Footwear, L'Oreal, Camping World 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.
The U.S. Department of Commerce expanded the Foreign Trade Zone (FTZ) it previously granted, covering all the industrial sites within TRCC, an area
totaling 1,094 acres. The FTZ designation allows the user within the FTZ to secure the many benefits and cost reductions associated with streamlined
movement of goods in and out of the zone. This FTZ designation is further supplemented by the Economic Development Incentive Policy, or EDIP,
adopted by the Kern County Board of Supervisors. 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.
12
TRCC Residential:
On January 6, 2021, the Kern County Board of Supervisors approved two Conditional Use Permits (CUP) which will authorize development of multi-
family apartment uses within the Tejon Ranch Commerce Center. The approved CUP's 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 retail on the ground floor of a portion of the residential buildings. The development would be located on a 27-acre site located immediately
north of the Outlets at Tejon. The Company will allocate resources to this project during 2021 to advance this new project at TRCC, providing the much
needed housing for the thousands of employees currently working at the various distribution centers, retailers and fast-food restaurants at TRCC.
Construction:
We formed TRC-MRC 3, a joint venture with Majestic Realty Co., or Majestic, a Los Angeles-based commercial/industrial developer, to pursue the
development, construction, leasing, and management of a 579,040 square foot industrial building at TRCC-East in 2018. The construction of the industrial
building was completed in the fourth quarter of 2019, and the Company has leased 100% of the rentable space to two tenants.
Also in 2019, we completed construction of a 4,900 square foot multi-tenant retail building at TRCC-East. We contributed this multi-tenant building and
underlying land to our joint venture with TravelCenters of America Inc. In return for this land contribution, the Company received a priority distribution
right of $2.8 million from the joint venture. The joint venture opened this location for operations in 2020, operating several national brands including
Dunkin' Donuts, Jamba Juice, Charleys Philly Steaks, and Baskin Robbins.
The following is a summary of the Company's commercial, retail and industrial real estate developments as of December 31, 2020:
($ in thousands)
Project
Tejon Ranch Commerce Center
1
Less: Reimbursements from TRPFFA
TRCC Development Costs, net
Cost to Date
Estimated Cost to
Complete
Total Estimated Cost at
Completion
$
$
90,294 $
76,891
13,403 $
70,083 $
50,537
19,546 $
160,377
127,428
32,949
Estimated Completion
Date
TBD
TBD
1
The Tejon Ranch Public Facilities Financing Authority, or TRPFFA, is a joint powers authority formed by Kern County and Tejon-Castac Water District, or TCWD, to finance public infrastructure within the Company’s Kern County
developments. TRPFFA, through bond sales, will reimburse the Company for qualifying infrastructure costs at TRCC.
The following table summarizes total entitlements for TRCC as of December 31, 2020:
(in square feet)
Total entitlements received
Total entitlements used
Entitlements available
Industrial
19,300,941
5,296,669
14,004,272
13
Commercial Retail
956,309
637,695
318,614
14
Commercial/industrial real estate sales:
The logistics operators currently located within TRCC have demonstrated success in serving all of California and the western region of the United States,
and we are building from their success in our marketing efforts. We will continue to focus our marketing strategy for TRCC on the significant labor and
logistical benefits of our site, the pro-business approach of Kern County, and the success of the current tenants and owners within our development. Our
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 a number of decentralized smaller distribution centers. Operators located
within TRCC have demonstrated success through utilization of this model. With access to markets of over 40 million people for next-day delivery service,
they are also demonstrating success with e-commerce fulfillment.
We believe that our ability to provide fully-entitled, shovel-ready land parcels to support buildings of any size, can provide us with a potential marketing
advantage in the future. We continue our marketing efforts targeting industrial users in the Santa Clarita Valley of northern Los Angeles County, and the
northern part of the San Fernando Valley for whom we may be an attractive provider due to the limited availability of new product and high real estate
costs in these locations. Tenants in these geographic areas are typically users of smaller facilities, but often are looking to expand operations and cannot
find larger size buildings in these markets.
The commercial/industrial real estate sales market is highly competitive, with competition throughout California. The principal factors of competition in
this industry are price, availability of labor, proximity to the port complexes of Los Angeles and Long Beach and customer base. A potential disadvantage
to our development strategy is our distance from the ports of Los Angeles and Long Beach in comparison to the warehouses and distribution centers
located in the West Inland Empire.
Our most direct regional competitors are in the Inland Empire, a large industrial area located 60 miles east of Los Angeles, which continues its expansion
eastward beyond Riverside and San Bernardino into the Perris, Moreno Valley, and Beaumont regions of Southern California. We also face competition
within Northern Los Angeles, which is comprised of the San Fernando Valley and Santa Clarita Valley along with areas north of us in the San Joaquin
Valley of California. Strong demand for large distribution facilities is driving development farther east in search for large entitled parcels. As development
in the Inland Empire continues to move east and farther away from the ports, our distance from the ports is becoming less of a disadvantage.
During 2020, vacancy rates in the Inland Empire dropped to a historic low of 2.6% compared to 3.5% in 2019, with 2020 net absorption totaling
23,805,058 square feet. Asking rents continued to rise by 5.6% year-over-year. The Inland Empire industrial market has not been negatively impacted by
the ongoing COVID-19 pandemic. As lease rates increase in the Inland Empire, we often times have greater pricing advantages due to our lower land basis.
During 2020, vacancy rates in the northern Los Angeles industrial market, which includes the San Fernando Valley and Santa Clarita Valley, increased to
2.3%, compared to 1.4% in 2019. Rents have been increasing for the past seven years, and is forecasted to stabilize at the current level at $0.86 PSF NNN.
Industrial vacancy rates are expected to continue to drop, and industrial users seeking larger spaces are having to go further north into neighboring Kern
County and particularly, TRCC which has attracted increased attention as market conditions continue to tighten. In 2020, the Los Angeles and Long Beach
Port container traffic remained high at 14.69 million Twenty-Foot Equivalent Units, or TEU's compared to 14.57 million TEU in 2019. TEU is a measure
of a ship's cargo carrying capacity. The dimensions of one TEU are equal to that of a standard shipping container measuring 20 feet long by 8 feet tall.
Joint Ventures:
Our 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.
We are involved in three joint ventures with Majestic to develop, lease, manage, and/or acquire industrial buildings within TRCC. The three joint ventures
currently own and operate three industrial buildings occupying over 1.7 million rentable square feet.
At December 31, 2020, we were involved in two joint ventures with Rockefeller Development Group (RDG). The two joint ventures are: (1) 18-19 West
LLC, which owns 61.5 acres of land for future development within TRCC-West; and (2) TRCC/Rock Outlet Center LLC, which operates the Outlets at
Tejon. Our Five West Parcel, LLC joint venture with RDG was dissolved in the fourth quarter of 2020. In 2019, Five West Parcel, LLC sold the building
and land within the joint venture to a third party at a sales price of $29,088,000, recognizing a gain of $17,537,000. Our 18-19 West LLC joint venture
entered into a land purchase option agreement with the third-party that purchased the Five West building and land, to purchase lots 18 and 19
15
at a price of $13.8 million through the option period ending May 21, 2021. If the option is extended to November 21, 2021, the price increases to $15.2
million. The land option expires in the fourth quarter of 2021.
In conjunction with providing relief to certain tenants as a result of the COVID-19 pandemic, the TRCC/Rock Outlet Center has agreed to defer rent for
certain tenants due to the closure of the outlet center from March 20, 2020 through May 27, 2020. The following table sets forth information regarding the
minimum rents billed and deferred to-date at the TRCC/Rock Outlet Center property level for the year-ended December 31, 2020. TRCC/Rock Outlet
Center is continuing to work with tenants on temporary rent payment relief through rent deferrals. We continue to assess the probability of collecting
outstanding receivables related to the two tenants with whom we are currently in on-going negotiations. Management will continue to monitor each
negotiation diligently, and when determined collectability is not probable, will reserve accordingly.
($ in thousands, except number of tenants)
Rent Deferral Agreements
Rent Abatement Agreements
On-Going Deferral Negotiations
2
Tenants
1
Rent Billing
Rent Relief due to
COVID-19
Deferred Rent
Contractually
Due in 2020
Deferred Rent
Contractually Due
in 2021
8 $
17 $
2 $
27
977 $
1,413 $
269 $
2,659
$
$
217
575
—
792
24 $
3
N/A
— $
24
193
3
N/A
—
193
1
Amounts shown represent rent billing for tenants that had or are undergoing lease renegotiations as of the year-ended December 31, 2020. Of the total contractual rent billings of $2.7 million,
$0.8 million was subject to COVID-19 rent relief, while $1.9 million was contractually due as of December 31, 2020.
2
Excludes percentage rent tenants.
3
Not applicable for rent abatement.
Percentage of Rent Deferred or Abated
30 %
Leasing:
Within our commercial/industrial segment, we lease land to various types of tenants. We currently lease land to two auto service stations with convenience
stores, 13 fast-food operations, a full-service restaurants, a motel, an antique shop, and a post office.
In addition, the Company leases several microwave repeater locations, radio and cellular transmitter sites, fiber optic cable routes, and 32 acres of land to
Pastoria Energy Facility, L.L.C., or PEF, for an electric power plant.
In response to the COVID-19 pandemic, tenants began requesting various forms of rent relief beginning in March 2020 and although the requests range in
scope, the most common request is for a full or partial rent deferment for three months. During the twelve months ended December 31, 2020, the Company
has agreed to defer rent for certain tenants at TRCC, with the requirement that a significant amount of the deferred rent will be fully repaid in 2021. The
following table sets forth information regarding the minimum rents billed and deferred for the twelve months ended December 31, 2020.
($ in thousands, except for impacted tenants)
TRCC Leasing
Other Commercial Leases
Tenants
1
Rent Billing
Deferred Rent due to
COVID-19
Deferred Rent
Contractually Due in
2020
Deferred Rent
Contractually Due
in 2021
5 $
3
8 $
1,362 $
522 $
1,884 $
104
70
174
$
$
18 $
13
31 $
86
57
143
1
Amounts shown represent rent billing for tenants that had or are undergoing lease renegotiation for the twelve months ended December 31, 2020. Of the total contractual rent billings of $1.9
million, $0.2 million was subject to COVID-19 rent relief, while $1.7 million was contractually due as of December 31, 2020.
Percentage of Rent Deferred
9 %
16
The following table summarizes information with respect to lease expirations for our consolidated entities as of December 31, 2020.
Year of Lease Expiration
2021
2022
2023
2024
2025
2026
2027
2
2028
3
2029
2030
2031
Thereafter
1
Annualized Base Rent
$239
$383
$394
$—
$536
$259
$62
$14
$3,794
$—
$—
$341
1 - Annualized base rent is calculated as monthly base rent (cash basis) per the lease, as of the reporting period, multiplied by 12. Annualized base rent shown in thousands.
2 - This lease pertains to a communication lease that does not have defined rentable square feet.
3 - This amount includes 32 acres of the PEF ground lease.
Number of Expiring Leases
6
6
5
—
5
3
1
1
1
—
—
4
RSF of Expiring Leases
60,722
47,614
4,640
—
60,208
4,645
1,801
—
1,394,000
—
—
193,207
Percentage of Annual
Minimum Rent
3.97%
6.36%
6.54%
—%
8.90%
4.30%
1.03%
0.23%
63.00%
—%
—%
5.66%
For the year ended December 31, 2020, we had two lease renewals and three lease expirations. These expirations represented less than 5% of annualized
base rent.
Please refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for information regarding our 2020
commercial/industrial operating results.
17
Real Estate - Resort/Residential
Our resort/residential segment activities include land entitlement, land planning and pre-construction engineering, and land stewardship and conservation
activities. We have three major resort/residential communities within this segment:
• Mountain Village at Tejon Ranch
•
Centennial at Tejon Ranch
• Grapevine at Tejon Ranch
The entitlement process precedes the regulatory approvals necessary for land development and routinely takes several years to complete. The Conservation
Agreement we entered into with five major environmental organizations in 2008 is designed to minimize opposition from environmental groups to these
projects and eliminate or reduce the time spent in litigation once governmental approvals are received. Litigation by environmental and other special
interest groups have been a primary cause of delays and increased costs for real estate development projects in California. For discussion on legal matters
pertaining to our developments, see Note 14 (Commitments and Contingencies) of the Notes to Consolidated Financial Statements.
As we embark on our mixed-use master planned communities, we understand that it can take up to 25 years, or longer, to complete from commencement of
construction. The entitlement process for development of property in California is complex, lengthy (spanning multiple years) and costly, involving
numerous federal, state, and county regulatory approvals. We are unable to determine anticipated completion dates for our real estate development projects
with certainty because the time for completion is heavily dependent on the regulatory approvals necessary for land development. Also, as a real estate
developer, we are cognizant of the micro- and macro-economic factors that have a significant influence on the real estate sector. As a developer, one would
be at an economic disadvantage to bring product to market with no willing or able buyers. This ebb and flow of the economy also plays into the timing of
our completion date. Costs will also fluctuate over the life of these projects as a result of the cost of labor and raw materials and the timing of approvals and
other activity. The uncertainty of estimated costs to completion is compounded by the potential impact of inflation, which will fluctuate with the equally
uncertain completion dates for our projects.
18
19
Mountain Village at Tejon Ranch:
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, 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 December 2017.
We are working toward delivering the first phase of the 160,000 square foot commercial center that we call 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 of MV. In April 2018, we obtained commercial site plan approval from Kern County for the
first phase of the Farm Village consisting of 53,180 square feet.
MV is fully entitled and all necessary permits have been issued to begin development once the mapping process is complete. Timing of MV development in
the coming years will be dependent on the strength of both the economy and the residential real estate market. For 2021, we will focus on the completion of
the final map for the first phases of MV, consumer and market research studies and fine tuning of development business plans as well as defining the capital
funding sources for this development. As we complete the final map, we expect to begin exploring funding opportunities for the development of MV. 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
common stock.
Centennial at Tejon Ranch:
The Centennial development is a mixed-use master planned community development encompassing 12,323 acres of our land within Los Angeles County.
Centennial is entitled for 19,333 homes 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 we have a 92.85% ownership interest
as of December 31, 2020. Centennial is envisioned to be an ecologically friendly community that will achieve a jobs-housing balance.
In December 2018, the Los Angeles County Board of Supervisors took action to approve the Specific Plan and 30 year Development Agreement for
Centennial by a vote of 4-1. In April 2019, the Los Angeles County Board of Supervisors' affirmed their final approval of Centennial project. The
Company is working with the County of Los Angeles to address litigation filed in the Los Angeles Superior Court and is currently waiting for the Court's
decision.
In 2016, Lewis Investment Company withdrew from the joint venture. The surviving members (TRC, TRI Pointe Homes and CalAtlantic) absorbed the
equity of Lewis Investment Company based on their respective proportionate interest in the joint venture at the time of the withdrawal. In 2018, CalAtlantic
also withdrew from the joint venture. The surviving members (TRC and TRI Pointe Homes, Inc.) absorbed the equity of CalAtlantic based on their
respective proportionate interest in the joint venture at the time of the withdrawal. Both withdrawals were deemed an equity transaction between members
and had no earnings impact on the Company.
Grapevine at Tejon Ranch:
Grapevine is a mixed-use master planned community encompassing 8,010 acres of our 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. On December 6,
2016, the Kern County Board of Supervisors unanimously approved the Specific Plan and the Environmental Impact Report, or EIR, for the development
of the Grapevine community, which included approval for land use designation, zoning and a development agreement. On December 11, 2018, the Kern
County Superior Court ruled that portions of the EIR required corrections and ordered that the County rescind the Grapevine project approvals until a
supplemental environmental analysis addressing the corrections was completed. On December 10, 2019, the Kern County Board of Supervisors adopted the
supplemental re-circulated EIR prepared in response to the court ruling, and reapproved the development of Grapevine unanimously. On January 10, 2020,
an action was filed in Kern County Superior Court pursuant to CEQA against Kern County, concerning Kern County’s approval of the December 2019 re-
entitlement, including certification of the final EIR. On January 22, 2021 the court ruled in favor of the Company and Kern
20
County on all issues, and directed Kern County and the Company to prepare a final judgment reflecting its ruling in favor of the Company. See Note 14
(Commitments and Contingencies) of the Notes to Consolidated Financial Statement for further discussion.
The greatest competition for the Centennial and Grapevine communities will come from California developments in the Santa Clarita Valley, Lancaster,
Palmdale, and Bakersfield. The developments in these areas will be providing similar housing product as our developments. The principal factors of
competition in this industry are product segmentation, pricing of product, amenities offered, and location. We will attempt to differentiate our developments
through our unique setting, land planning and different product offerings. MV will compete generally for discretionary dollars that consumers will allocate
to recreational and residential homes.
The following is a summary of the Company's residential real estate developments as of December 31, 2020:
Community:
Location:
1
Project Status :
Entitlement Area (acres):
Housing Units:
2
Commercial Development (sqft) :
Open Areas (acres):
3
Costs to Date :
Mountain Village
Kern County
Entitled
26,417
3,450
160,000
21,335
$146,662
Grapevine
Kern County
Entitled
8,010
12,000
5,100,000
3,367
$36,815
Centennial
Los Angeles County
Entitled
12,323
19,333
10,100,000
5,624
$108,600
Resort
Residential
Total
46,750
34,783
15,360,000
30,326
$292,077
(1) Estimated completion anticipated to be 25 years, or longer, from commencement of construction. To-date construction has not begun.
(2) MV also has approval for up to 750 lodging units and 350,000 square feet of facilities in support of two 18-hole golf courses.
(3) Total estimated project costs are difficult to accurately forecast with any certainty at this time due to finalization of entitlement and mapping processes, as well as final engineering for the
developments, and capital funding structure selected. Dollars presented in thousands.
Mineral Resources
Mineral resources consist 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. We continue to look for opportunities to grow our mineral
resource revenues through expansion of leasing and encouraging new exploration. The management of our 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 our development projects. At the same time we are also evaluating opportunities as they arise for the purchase of additional water assets as we
have done in the past.
We receive our royalty interest in cash. Royalty rates are contractually defined and based on a percentage of production and are received in cash. Our
royalty revenues fluctuate based on changes in the market prices for oil, natural gas, and rock and aggregate product, the inevitable decline in production of
existing wells and quarries, and other factors affecting the third-party oil and natural gas exploration and production companies that operate on our lands
including the cost of development and production.
Estimates of oil and gas reserves on our properties are unknown to us. We do not make such estimates, and our lessees do not make information concerning
reserves available to us.
We lease certain portions of our land to oil companies for the exploration and production of oil and gas. We however do not engage in any oil exploration
or extraction activities. As of December 31, 2020, 10,332 acres were committed to producing oil and gas leases from which the operators produced and
sold approximately 114,567 barrels of oil and 207,000 MCF (each MCF being 1,000 cubic feet) of dry gas during 2020. Our share of production, based
upon average royalty rates during the last three years, has been 37, 78, and 89 barrels of oil per day for 2020, 2019, and 2018, respectively. There are 313
active oil wells located on the leased land as of December 31, 2020. Royalty rates on our leases averaged approximately 12% of oil production in 2020.
In 2020, social distancing and California's stay-at-home orders reduced the demand for oil and gasoline within California. The average price per barrel of
oil, at one point, decreased 25% from their December 31, 2019 levels. Oil pricing decreased as a result of a surplus of oil in the first half of 2020 impacting
the production levels of our lessees. The Company believes that pricing will slowly and gradually improve once consumers feel safe and the global
economy reopens, fully. However, it is very
21
difficult to predict when this will occur. Thus far in 2021, the price per barrel of oil is 22% higher than its December 31, 2020 level.
In July 2020, our largest oil royalty tenant, California Resources Corporation, or CRC, filed a voluntary petition for relief under Chapter 11 of the U.S.
Bankruptcy Code, intended to allow them to improve their liquidity and debt positions. While in bankruptcy CRC received permission from the courts to
allow them to pay lease and oil royalty obligations without interruption. CRC successfully emerged from bankruptcy in October 2020 and is once again
being traded on public markets. CRC reduced production in 2020 and we expect as prices improve that we will later in 2021 begin to see increases in
production levels. CRC has approved permits and drill sites on our land and has delayed the start of drilling as it evaluates the market. A positive aspect of
our lease with CRC is that the approved drill sites are in an area of the ranch where the development and production costs are moderate due to the depths
being drilled. CRC is current on all payments due to us through December 31, 2020.
We have 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 our property with a capacity of approximately 1,000,000 tons of cement per year.
The amount of payment that we receive under the lease is based upon shipments from the cement plant. In 2020, payments increased due to an increase in
production caused by an increase in regional construction. The term of this lease expires in 2026, but National has options to extend the term for successive
periods of 20 and 19 years. Proceedings under environmental laws relating to the cement plant are in process. The Company is indemnified by the current
and former tenants, and at this time, we have no cost related to the issues at the cement plant. See Item 3, “Legal Proceedings,” for a further discussion.
We also lease 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 royalty revenues we receive under these leases are based upon the amount of product produced at these sites.
Water sales opportunities for 2021 will depend on rain and snowfall volume along with California State Water Project, or SWP, allocations. As of
December 31, 2020, the 2021 SWP allocation is at 10% of contract amounts.
In August 2015, we entered into a water sale agreement with PEF, our current lessee under a power plant lease. PEF may purchase from us up to 3,500 acre
feet of water per year through July 2030, with an option to extend the term. PEF is under no obligation to purchase water from us in any year, but is
required to pay us an annual option payment equal to 30% of the maximum annual payment. The price of the water under the agreement is $1,279 per acre-
foot of annual water in 2020, subject to 3% annual increases for the duration of the lease agreement. The Company's commitments to sell this water can be
met through current water sources.
Farming Operations
In the San Joaquin Valley, we farm permanent crops including the following acreage: wine grapes— 835; almonds—2,281 (1,548 in production and 733
not in production); and pistachios—1,053. We manage the farming of alfalfa and forage mix on 626 acres in the Antelope Valley, and we periodically lease
720 acres of land that is used for the growing of vegetables but also can be used for the development of permanent crops such as almonds.
The Company's agribusiness operations are deemed essential and have been allowed to operate under California's COVID-19 orders. The Company
continues to provide its employees with face masks and safety training to promote a safe working environment. As of the December 31, 2020, COVID-19
has not had a measurable impact on the Company's farming operations.
We sell our farm commodities to several commercial buyers. As a producer of these commodities, we are in direct competition with other producers within
the United States, or U.S., and throughout the world. Prices we receive for our commodities are determined by total industry production and demand levels.
We attempt to improve price margins by producing high quality crops through proven cultural practices and by obtaining better prices through marketing
arrangements with handlers.
Nut and grape crop markets are particularly sensitive to the size of each year’s world crop and the demand for those crops. The industry continues to see
strong demand for almonds and pistachios but the continued increase in production has begun to negatively impact prices. Crop prices, especially almonds,
are also adversely affected by a strong U.S. dollar which makes U.S. exports more expensive and decreases demand for the products we produce. The U.S.
dollar weakened against the Chinese Yuan for most of 2020 as a result of the pandemic, making U.S. nut crops more attractive.
Sales of our grape crop typically occur in the third and fourth quarters of the calendar year. Sales of our 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. In 2020, we sold 40% of our grape crop to
one winery, 38% to a second winery and the remainder to two other
22
customers. These sales are under contracts ranging from one to eight years. In 2020, our almonds were sold to various commercial buyers, with the largest
buyer accounting for 29% of our crop. We sold pistachios to three customers with the largest accounting for 62% of our crop. We do not believe that we
would be adversely affected by the loss of any or all of these buyers because of the markets for these commodities, the large number of buyers that would
be available to us, and the fact that the prices for these commodities do not vary based on the identity of the buyer or the size of the contract.
For 2020, the almond industry had record production in excess of 3 billion pounds. The Company’s 2020 almond yields saw a small increase over 2019
levels as a result of putting into service two additional almond crop units. The mix of demand has been changed in the near term as a result of COVID-19
as more product is moving through wholesale markets and less through high end users such as restaurants. This temporary trend, along with the strong
2020 industry production, has negatively impacted pricing. Comparatively, the average price per pound for the 2020 almond crop is $2.02 per pound
compared to $2.82 per pound for the 2019 almond crop.
Although 2020 was an on production year for pistachios, unfavorable warm winter conditions adversely impacted our pistachio's blooms and yields.
Overall 2020 pistachio yields decreased 45% when compared to 2019 which was a down bearing year. In terms of pricing, our 2020 crop is selling for
$2.04 per pound compared to $1.98 in 2019. The impact of lower chill hours has impacted pistachio growers in the southern end of the San Joaquin Valley
in similar areas as to where we farm and lower production has been seen in these areas. Overall for California, production is up due to 2020 being an on
production year and chill hours being greater in growing areas to the north of our lands.
For wine grapes, yields deceased as a result of removing a 313-acre vineyard in 2020. Overall average pricing for wine grapes has increased slightly
because the remaining multi-year wine grape sales contracts have an overall higher price.
Weather conditions could impact the number of tree and vine dormant hours, which are integral to tree and vine growth. We will not know the impact of
current weather conditions on 2021 production until the early summer of 2021.
At this time the State Department of Water Resources has announced that the estimated water supply for 2021 will be at 10% of full entitlement. This
allocation is expected to change based upon winter storms. The current 10% allocation of SWP water alone is not enough for us to farm our crops, but our
additional water resources, such as groundwater and surface sources, and those of the water districts we are in, should allow us to have sufficient water for
our farming needs. It is too early in the year to determine the impact of 2021 water supplies and its impact on 2021 California crop production for almonds,
pistachios, and wine grapes. See discussion of water contract entitlement and long-term outlook for water supply under Item 2, “Properties.” Also see Note
6. (Long-Term Water Assets) of the Notes to Consolidated Financial Statements for additional information regarding our water assets.
Ranch Operations
Ranch operations consist of game management revenues and ancillary land uses such as grazing leases and filming. Within game management, we operate
our 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. We also sell individual hunting packages as well as
seasonal hunting memberships.
Approximately 256,000 acres are used for two grazing leases, which account for 43% of total revenues from ranch operations at December 31, 2020.
Ranch operations also includes Hunt at Tejon, which offers a wide variety of guided big game hunts, including trophy Rocky Mountain elk, deer, turkey
and wild pig. We offer guided hunts and memberships for both the Spring and Fall hunting seasons. At December 31, 2020, game management accounts for
37% of the total revenue from ranch operations.
In addition, the ranch operations segment is in charge of upkeep, maintenance, and security of all 270,000 acres of land.
General Environmental Regulation
Our operations are subject to federal, state, and local environmental laws and regulations including laws relating to water, air, solid waste, and hazardous
substances. Although we believe that we are in material compliance with these requirements, there can be no assurance that we will not incur costs,
penalties, and liabilities, including those relating to claims for damages to property or natural resources, resulting from our operations. Environmental
liabilities may also arise from claims asserted by adjacent landowners or other third parties. We also expect continued legislation and regulatory
development in the area of climate change and greenhouse gases. It is unclear as of this date how any such developments will affect our business.
Enactment of new environmental laws or regulations, or changes in existing laws or regulations or the interpretation of these laws or regulations, might
require expenditures in the future. We historically have not had material environmental liabilities.
23
Environmental Sustainability
Environmental stewardship, or sustainability, is one of Tejon Ranch Co.’s core values, along with quality and visionary innovation. This commitment to
sustainability manifests itself in many ways across the Company and its operations.
Climate Change
The Company maintains policies intended to both reduce its carbon footprint and proactively sequester, or capture and store, carbon.
•
•
•
•
Since 2008, the Company has voluntarily conserved 240,000 acres of its land covered by trees and other vegetation. A recent analysis conducted
for the Company by Dudek Environmental Service s determined that this acreage effectively sequesters 3.3 million tons of carbon. That equals the
volume of carbon produced in a single year by 2.5 million passenger vehicles-10% of California’s 2019 passenger vehicle fleet.
Solar power is used significantly within TRCC. For example, in 2019 the Company installed a solar covered parking structure at the Outlets at
Tejon. The structure covers 1.85 acres and is projected to offset 83% of the center’s electricity needs for shared spaces and produce 1,076,000
kWh of clean energy every year. In addition, the IKEA distribution center at TRCC features a 1.8 MW photovoltaic solar array covering 370,000
square feet of the warehouse’s rooftop. The system handles the power needs of IKEA’s distribution center and provides power into the electric grid
as well.
The Company has entered into a lease with Calpine Energy, a power generating company, for the development of a 600-acre industrial-sized solar
field. Located immediately adjacent to Calpine’s PEF, a natural gas and steam powered generating plant in the San Joaquin Valley portion of the
Ranch, the solar array is expected to produce approximately 100 MW of power once fully operational.
The Company’s three master planned mixed-use residential communities are also designed to make use of renewable energy sources:
◦ At Grapevine, 50% or more of its energy supply will be produced on site by renewable sources.
◦ All homes in Mountain Village will feature roof-top photovoltaic solar arrays.
◦ At Centennial, like Grapevine, at least 50% of the energy supply will be produced by on-site renewable sources.
Air Quality
•
The Company has contracted with the San Joaquin Valley Unified Air Pollution Control District (“SJVUAPCD”) to pre-mitigate air emissions
related to the Company’s current development at TRCC-East and future development at Mountain Village and Grapevine. As of 2020, the
SJVUAPCD had fully offset current air emissions at TRCC-East, as well as future emissions projected to occur at full build-out of the project.
• Nearly two decades ago, the Company helped establish and has continuously supported Valley Clean Air Now (“VCAN”), a non-profit, 501(c)(3)
public charity that advances quantifiable and voluntary solutions addressing air pollution in California’s San Joaquin Valley, a region with some of
the worst air quality and highest poverty levels in the United States. The Company continues to support VCAN in its mission to improve public
health and quality of life in disadvantaged communities located in the region.
◦ VCAN’s programs deliver $850 smog repair vouchers and $9,500 in down payment incentives to low-income residents in the region so
they can replace high-polluting vehicles with used plug-in or hybrid cars.
◦
In the past five years, VCAN has helped more than 35,000 households improve their vehicle emissions by completing over 20,000 smog
repairs and providing more than 26,000 smog repair vouchers. Additionally, VCAN’s vehicle replacement program has delivered more
than 2,000 plug-in electric vehicles. Based on pre- and post-repair emission capture readings, VCAN’s vehicle repair and replacement
work has generated 692 tons of oxides of nitrogen (also known as “NOx”), 71 tons of carbon monoxide, and 90 tons of hydro-carbon
emission reductions.
Water Conservation
• At TRCC-East, all water used for irrigation purposes is reclaimed water from the water treatment plant. Landscaping at the Outlets at Tejon
consists of drought-tolerant, native planting material.
•
•
Each of the Company’s master planned mixed-use residential communities will feature state-of-the-art water conservation measures, reclaimed
water for irrigation, stormwater capture, and drought-tolerant landscaping.
The Company’s agricultural operations use highly efficient drip irrigation to water its orchards and vineyards.
24
Customers
During 2020, our PEF power plant lease accounted for 12% of total revenues. In both 2019 and 2018, the PEF power plant lease generated 9% of our total
revenues. No other customer represents 5% or more of our revenues in 2020 and 2018.
Organization
Tejon Ranch Co. is a Delaware corporation incorporated in 1987 to succeed the business operated as a California corporation since 1936.
Employees
At December 31, 2020, we had 85 full-time employees. We believe that we have good relations with our employees. We have adopted a Compliance with
State and Federal Statutes, Rules and Regulations Reporting Policy that applies to all of our employees. Its receipt and review by each employee is
documented and verified quarterly. None of our employees are covered by a collective bargaining agreement.
Reports
We make available free of charge through our Internet website, www.tejonranch.com, our annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and amendments to these reports filed or to be furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934, as
amended, as soon as reasonably practicable after we electronically file such material with or furnish it to the SEC. We also make available on our website
our corporate governance guidelines, charters of our Board of Directors’ Committees (audit, compensation, nominating and corporate governance, and real
estate), and our Code of Business Conduct and Ethics for Directors, Officers, and Employees. These items are also available in printed copy upon request.
We intend to disclose in the future any amendments to our Code of Business Conduct and Ethics for Directors, Officers, and Employees, or waivers of such
provisions granted to executive officers and directors, on the web site within four business days following the date of such amendment or waiver. Any
document we file with the Securities and Exchange Commission, or SEC, may be inspected, without charge, at the SEC’s website: http://www.sec.gov.
Information about our Executive Officers
The following table shows each of our executive officers and the offices held as of March 3, 2021, the period the offices have been held, and the age of the
executive officer.
Name
Gregory S. Bielli
Allen E. Lyda
Hugh McMahon
Robert D. Velasquez
Office
President and Chief Executive Officer, Director
Executive Vice President and Chief Operating Officer
Executive Vice President, Real Estate
Senior Vice President, Chief Financial Officer
Held since
2013
2019
2014
2019
Age
60
63
54
54
A description of present and prior positions with us, and business experience is given below.
Mr. Bielli has been employed by the Company since September 2013. Mr. Bielli joined the Company as President and Chief Operating Officer and became
President and Chief Executive Officer on December 17, 2013. Prior to joining the Company, Mr. Bielli was President of Newland Communities' Western
Region, a diversified real estate company, and was responsible for overseeing management of all operational aspects of Newland's real estate projects in the
region. Mr. Bielli worked with Newland Communities from 2006 through August 2013.
Mr. Lyda has been employed by us since 1990, initially serving as Vice President, Finance and Treasurer. He was elected Assistant Secretary in 1995 and
Chief Financial Officer in 1999. Mr. Lyda was promoted to Senior Vice President in 2008, and Executive Vice President in 2012. Mr. Lyda's title was
subsequently changed in 2013 to Executive Vice President and Chief Financial Officer to more accurately describe the responsibilities of his office. On
January 1, 2019, he was appointed to the role of Chief Operating Officer and ceased serving as the Company's Chief Financial Officer.
Mr. McMahon joined the Company in November 2001 as Director of Financial Analysis. In 2008, Mr. McMahon became Vice President of
Commercial/Industrial Development and in December of 2014, was promoted to Senior Vice President of Commercial/Industrial Development and elected
as an officer of the Company. In 2015, he was promoted to Executive Vice President. Mr. McMahon's title was subsequently changed to Executive Vice
President, Real Estate.
25
Mr. Velasquez joined the Company as Vice President of Finance in 2014. Mr. Velasquez's title was subsequently changed, in 2015, to Vice President of
Finance and Chief Accounting Officer to more accurately describe the responsibilities of his office. Prior to joining the Company, Mr. Velasquez served as
an Executive Director at Ernst & Young in their audit and assurance practice section. Mr. Velasquez worked with Ernst & Young from 1999 through 2014.
Mr. Velasquez holds a B.S. in Business Administration – Option: Accounting from California State University, Los Angeles. Mr. Velasquez is a Certified
Public Accountant in the state of California. On January 1, 2018 he was promoted to Senior Vice President, Finance and Chief Accounting Officer. On
January 1, 2019, he was appointed Chief Financial Officer.
ITEM 1A. RISK FACTORS
The risks and uncertainties described below are not the only ones facing the Company. If any of the following risks occur, our business, financial condition,
results of operations or future prospects could be materially adversely affected. Our strategy, focused on more aggressive development of our land, involves
significant risk and could result in operating losses. The risks that we describe in our public filings are not the only risks that we face. Additional risks and
uncertainties not presently known to us, or that we currently consider immaterial, also may materially adversely affect our business, financial condition,
and results of operations. In addition, to the effects of the COVID-19 pandemic and resulting global disruptions on our business and operations discussed in
Item 7 of this Form 10-K and in the risk factors below, additional or unforeseen effects from the pandemic and the global economic climate may give rise
to or amplify many of these risks discussed below.
STRATEGIC RISKS
Strategic risk relates to the Company's future business plans and strategies, including the risks associated with the macro- and micro- environment in which
we operate, including the demand for our products and services, the success of investments in our real estate development, technology and public policy.
Adverse changes in economic conditions in markets where we conduct our operations and where prospective purchasers of our future homes and
commercial products live could reduce the demand for our products and, as a result, could adversely affect our business, results of operations, and
financial condition. Adverse changes in economic conditions in markets where we conduct our operations and where prospective purchasers of our real
estate products live have had and may in the future have a negative impact on our business. Adverse changes in employment levels, job growth, consumer
confidence, interest rates, and population growth, or an oversupply of product for sale or lease may reduce demand and depress prices and cause buyers to
cancel their purchase agreements. This, in turn, could adversely affect our results of operations and financial condition.
Higher interest rates and lack of available financing can have significant impacts on the real estate industry. Higher interest rates generally impact
the real estate industry by making it harder for buyers to qualify for financing, which can lead to a decrease in the demand for residential, commercial or
industrial sites. Any decrease in demand will negatively impact our proposed developments. Lack of available credit to finance real estate purchases can
also negatively impact demand. Any downturn in the economy or consumer confidence can also be expected to result in reduced housing demand and
slower industrial development, which would negatively impact the demand for land we are developing.
We are subject to various land use regulations and require governmental approvals and permits for our developments that could be denied. In
planning and developing our land, we are subject to various local, state, and federal statutes, ordinances, rules and regulations concerning zoning,
infrastructure design, subdivision of land, and construction. All of our new developments require amending existing general plan and zoning designations,
so it is possible that our entitlement applications could be denied. In addition, the zoning that ultimately is approved could include density provisions that
would limit the number of homes and other structures that could be built within the boundaries of a particular area, which could adversely impact the
financial returns from a given project. Many states, cities and counties (including neighboring Ventura County) have in the past approved various “slow
growth” or “urban limit line” measures. If that were to occur in the jurisdictions governing the Company’s land use, our future real estate development
activities could be significantly adversely affected.
Third-party litigation could increase the time and cost of our development efforts. The land use approval processes we must follow to ultimately
develop our projects have become increasingly complex. Moreover, the statutes, regulations and ordinances governing the approval processes provide third
parties the opportunity to challenge the proposed plans and approvals. As a result, the prospect of third-party challenges to planned real estate
developments provides additional uncertainties in real estate development planning and entitlements. Third-party challenges in the form of litigation could
result in denial of the right to develop, or would, by their nature, adversely affect the length of time and the cost required to obtain the necessary approvals.
In addition, adverse decisions arising from any litigation would increase the costs and length of time to obtain ultimate approval of a project and could
adversely affect the design, scope, plans and profitability of a project.
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We are subject to environmental regulations and opposition from environmental groups that could cause delays and increase the costs of our
development efforts or preclude such development entirely. Environmental laws that apply to a given site can vary greatly according to the site’s
location and condition, present and former uses of the site, and the presence or absence of sensitive elements like wetlands and endangered species. Federal
and state environmental laws also govern the construction and operation of our projects and require compliance with various environmental regulations,
including analysis of the environmental impact of our projects and evaluation of our reduction in the projects’ carbon footprint and greenhouse gas
emissions. Environmental laws and conditions may result in delays, cause us to incur additional costs for compliance, mitigation and processing land use
applications, or preclude development in specific areas. In addition, in California, third parties have the ability to file litigation challenging the approval of
a project which they usually do by alleging inadequate disclosure and mitigation of the environmental impacts of the project. Certain groups opposed to
development have made clear they intend to oppose our projects vigorously, so litigation challenging their approval is expected. Currently, the Centennial
entitlement approval has been opposed through litigation against the Company and Los Angeles County. At Grapevine, the issues most commonly cited in
opponents’ public comments include the poor air quality of the San Joaquin Valley air basin, potential impacts of projects on the California condor and
other species of concern, the potential for our lands to function as wildlife movement corridors, potential impacts of our projects on traffic and air quality in
Los Angeles County, emissions of greenhouse gases, water availability and criticism of proposed development in rural areas as being “sprawl.” In addition,
California has a specific statutory and regulatory scheme intended to reduce greenhouse gas emissions in the state and efforts to enact federal legislation to
address climate change concerns could require further reductions in our projects’ carbon footprint in the future.
Until final permits are received, litigation is complete, and final maps are received, we will have a limited inventory of real estate. Each of our four
current and planned real estate projects, TRCC, Centennial, MV, and Grapevine involve obtaining various governmental agency permits, overcoming
litigation, and receiving final maps from local jurisdictions. A delay in achieving these items could lead to additional costs related to these developments
and potentially lost opportunities for the sale of lots to developers and land users.
We are in competition with several other developments for customers and residents. Within our real estate activities, we are in direct competition for
customers with other industrial sites in Northern, Central, and Southern California. We are also in competition with other highway interchange locations
using Interstate 5 and State Route 99 for commercial leasing opportunities. Once they receive all necessary permits and approvals, Centennial and
Grapevine will ultimately compete with other residential housing options in the region, such as developments in the Santa Clarita Valley, Lancaster,
Palmdale, and Bakersfield. MV will compete generally for discretionary dollars that consumers will allocate to recreation and second homes, so its
competition will include a greater area and range of projects. Intense competition may decrease our sales and harm our results of operations.
Increases in taxes or government fees could increase our cost, and adverse changes in tax laws could reduce demand for homes in our future
residential communities. Increases in real estate taxes and other local government fees, such as fees imposed on developers to fund schools, open space,
and road improvements, could increase our costs and have an adverse effect on our operations. In addition, any changes to income tax laws that would
reduce or eliminate tax deductions or incentives to homeowners, such as a change limiting the deductibility of real estate taxes or interest on home
mortgages, could make housing less affordable or otherwise reduce the demand for housing, which in turn could reduce future sales.
Our developable land is concentrated entirely in California. All of our developable land is in California and our business is especially sensitive to the
economic conditions within California. Any adverse change in the economic climate of California, or our regions of that state, and any adverse change in
the political or regulatory climate of California, or the counties where our land is located could adversely affect our real estate development activities.
Ultimately, our ability to sell or lease lots may decline as a result of weak economic conditions or restrictive regulations.
We have in the past and may in the future encounter other risks that could impact our ability to develop our land. We have in the past and may in
the future encounter other difficulties in developing our land, including:
• Difficulty in securing adequate water resources for future developments;
• Natural risks, such as geological and soil problems, earthquakes, fire, heavy rains and flooding, and heavy winds;
•
•
•
•
Shortages of qualified trades people;
Reliance on local contractors, who may be inadequately capitalized;
Shortages of materials; and
Increases in the cost of materials.
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A prolonged downturn in the real estate market or instability in the mortgage and commercial real estate financing industry, could have an
adverse effect on our real estate business. Our residential housing projects, Centennial, MV, and Grapevine, are currently in the litigation phase,
permitting phase, or are fully entitled and waiting for development to begin. If a downturn in the real estate market or an instability in the mortgage and
commercial real estate financing industry exists at the time these projects move into their development and marketing phases, our resort/residential business
could be adversely affected. An excess supply of homes available due to foreclosures or the expectation of deflation in housing prices could also have a
negative impact on our ability to sell our inventory when it becomes available. The inability of potential commercial/industrial clients to get adequate
financing for the expansion of their businesses could lead to reduced lease revenues and sales of land within our industrial development.
OPERATIONAL RISKS
Operational risk relates to risks arising from external market factors that affect the operation of our businesses. It includes weather and other natural
conditions; regulatory requirements; information management and data protection and security, including cybersecurity; supply chain and business
disruption; and other risks, including human resources and reputation.
We are involved in a cyclical industry and are affected by changes in general and local economic conditions. The real estate development industry is
cyclical and is significantly affected by changes in general and local economic conditions, including:
•
Employment levels
• Availability of financing
•
•
Interest rates
Consumer confidence
• Demand for the developed product, whether residential or industrial
•
Supply of similar product, whether residential or industrial
The process of a project's development begins, and financial and other resources are committed long before a real estate project comes to market, which
could occur at a time when the real estate market is depressed. It is also possible in a rural area like ours that no market for the project will develop as
projected.
The inability of a client tenant to pay us rent adversely affects our business. Our commercial revenues are derived primarily from rental payments and
reimbursement of operating expenses under our leases. If our client tenants fail to make rental payments under their leases, our financial condition and cash
flows could be adversely affected.
Our inability to renew leases or re-lease space on favorable terms as leases expire may significantly affect our business. Some of our revenues are
derived from rental payments and reimbursement of operating expenses under our leases. If a client tenant experiences a downturn in its business or other
types of financial distress, it may be unable to make timely payments under its lease. Also, if our client tenants terminate early or decide not to renew their
leases, we may not be able to re-lease the space. Even if client tenants decide to renew or lease space, the terms of renewals or new leases, including the
cost of any tenant improvements, concessions, and lease commissions, may be less favorable to us than current lease terms. Consequently, we could
generate less cash flow from the affected properties than expected, which could negatively impact our business. We may have to divert cash flow generated
by other properties to meet our debt service payments, if any, or to pay other expenses related to owning the affected properties.
We may experience increased operating costs, which may reduce profitability to the extent that we are unable to pass those costs on to client
tenants. Our properties are subject to increases in operating expenses including insurance, property taxes, utilities, administrative costs, and other costs
associated with security, landscaping, and repairs and maintenance of our properties. We cannot be certain that our client tenants will be able to bear the full
burden of costs such as real estate taxes, insurance, utilities, common area and other expenses that we pass along through our leases, or that such increased
costs will not lead them, or other prospective client tenants, to seek space elsewhere. If operating expenses increase, the availability of other comparable
space in the markets we operate in may hinder or limit our ability to increase our rents, if operating expenses increase without a corresponding increase in
revenues, our profitability could diminish.
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From time to time we experience shortages or increased costs of labor and supplies or other circumstances beyond our control that cause delays or
increased costs within our industrial development, which can adversely affect our operating results. Our ability to develop our current industrial
development has in the past and may in the future be adversely affected by circumstances beyond our control including: work stoppages, labor disputes and
shortages of qualified trades people; changes in laws relating to union organizing activity; and shortages, delays in availability, or fluctuations in prices of
building materials. Any of these circumstances could give rise to delays in the start or completion of, or could increase the cost of, developing
infrastructure and buildings within our industrial development. If any of the above happens, our operating results could be harmed.
We are dependent on key personnel and the loss of one or more of those key personnel may materially and adversely affect our prospects. Our
future success depends, to a significant degree, on the efforts of our senior management. The loss of key personnel could materially and adversely affect
our results of operations, financial condition, or our ability to pursue land development. Our success will also depend in part on our ability to attract and
retain additional qualified management personnel.
Volatile oil and natural gas prices could adversely affect our cash flows and results of operations. Our cash flows and results of operations are
dependent in part on oil and natural gas prices, which are volatile. Oil and natural gas prices also impact the amount we receive for our mineral leases.
Moreover, oil and natural gas prices depend on factors we cannot control, such as: changes in foreign and domestic supply and demand for oil and natural
gas; weather; political conditions in other oil-producing countries, including the possibilities of insurgency or war in such areas; prices of foreign exports;
domestic and international drilling activity; price and availability of alternate fuel sources; the value of the U.S. dollar relative to other major currencies;
the level and effect of trading in commodity markets; and the effect of worldwide energy conservation measures and governmental regulations. Substantial
or extended decline in the price of oil and gas could have a negative impact on our business, liquidity, financial condition and results of operations.
Substantial or extended declines in future natural gas or crude oil prices could have an adverse effect on our future business, liquidity, financial condition
and results of operations.
Our reserves and production will decline from their current levels. The rate of production from oil and natural gas properties generally decline as
reserves are produced. Any decline in production or reserves could materially and adversely affect our future cash flow, liquidity and results of operations.
Water delivery and water availability continues to be a long-term concern within California. Any limitation of delivery of SWP water, limitations on
our ability to move our water resources, and the absence of available reliable alternatives during drought periods could potentially cause permanent damage
to orchards and vineyards and possibly impact future development opportunities.
Our future revenue and profitability related to our water resources will primarily be dependent on our ability to acquire and sell water assets. In light of the
fact that our water resources represent a portion of our overall business at present, our long-term profitability will be affected by various factors, including
the availability and timing of water resource acquisitions, regulatory approvals and permits associated with such acquisitions, transportation arrangements,
and changing technology. We may also encounter unforeseen technical or other difficulties which could result in cost increases with respect to our water
resources. Moreover, our profitability is significantly affected by changes in the market price of water. Future sales and prices of water may fluctuate
widely as demand is affected by climatic, economic, demographic and technological factors as well as the relative strength of the residential, commercial,
financial, and industrial real estate markets. The factors described above are not within our control.
Natural and man-made disasters, public health crises, political instability, and other potentially catastrophic events may have an adverse impact
on our business and operating results and could decrease the value of our assets. Natural and man-made disasters, public health crises, political
instability, and other potentially catastrophic events including terrorist attacks, particularly those that may cause a decline in global economic activity could
have a material adverse impact on our business, our operating results, and the market price of our common stock. Catastrophic events occurring anywhere
in the world may result in declining economic activity, which could reduce the demand for and the value of our properties. To the extent that catastrophic
events impact our client tenants, their businesses similarly could be adversely affected, including their ability to continue to honor their lease obligations.
Disruptions to the global economy can also impact demand for and the prices of our products, which could adversely affect our future cash flow and results
of operations.
Our results of operation have been and may continue to be adversely affected by the ongoing COVID-19 pandemic. In March 2020, the World
Health Organization declared the outbreak of COVID-19, a novel strain of coronavirus first identified in Wuhan, China in December 2019, a pandemic.
This outbreak, which has spread widely throughout the United States and nearly all other regions of the world, has prompted federal, state and local
governmental authorities in the United States to declare states of emergency and institute preventative measures to contain and/or mitigate the public health
effects. These
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preventative measures, which include quarantines, shelter-in-place orders and similar mandates that substantially restrict daily activities for many
individuals, as well as orders calling for the closure and/or curtailment of operations for many businesses, have caused and continue to cause significant
disruption to businesses in affected areas, as well as the financial markets both globally and in the United States, more broadly.
On a broader scale, we may also be materially and adversely affected by the disruptions to U.S. and local economies that result from the COVID-19
pandemic, including reduced consumer confidence, unemployment levels, inflation and fluctuating interest rates. The possibility of a prolonged recession
or economic downturn could result in, among other things, a decrease in demand and consumer goods; diminished value of our real estate investments,
including potential impairments.
Ultimately, the prolonged effects of the COVID-19 pandemic on our business and results of operation, which are highly uncertain and cannot be predicted,
will depend upon future developments, including the widespread acceptance and dissemination of vaccines amongst the broader population; the duration
and severity of existing social distancing and shelter-in-place orders even after vaccines are widespread and available; further mitigation strategies taken by
applicable government authorities; adequate treatments and the prevalence of widespread immunity to COVID-19; the impacts on our supply chain; the
health of our employees, service providers and trade partners; and the reactions of U.S. and global markets and their effects on consumer confidence and
spending. Such adverse effects, however, may also include decreases in: oil prices, commodity prices, and traffic, which our commerce center is highly
dependent on, which may continue to impact our 2021 results of operations.
Failure to maintain effective internal control over financial reporting could have a material adverse effect on our business, results of operations,
financial condition, and stock price. Pursuant to the Sarbanes-Oxley Act of 2002, we are required to provide a report by management on internal control
over financial reporting, including management’s assessment of the effectiveness of internal control. Changes to our business will necessitate ongoing
changes to our internal control systems and processes. Internal control over financial reporting may not prevent or detect misstatement because of its
inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Therefore, even effective internal
controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If we fail to maintain the
adequacy of our internal controls, including any failure to implement required new or improved controls, or if we experience difficulties in their
implementation, our business, results of operations, and financial condition could be materially harmed, and we could fail to meet our reporting obligations
and there could be a material adverse effect on our stock price.
Information technology failures and data security breaches could harm our business. We use information technology and other computer resources to
carry out important operational and marketing activities and to maintain our business records. These information technology systems are dependent upon
global communications providers, web browsers, telephone systems and other aspects of the Internet infrastructure that have experienced security breaches,
cyber-attacks, significant systems failures and electrical outages in the past. A material network breach in the security of our information technology
systems could include the theft of customer, employee or company data. The release of confidential information as a result of a security breach may also
lead to litigation or other proceedings against us by affected individuals or business partners, or by regulators, and the outcome of such proceedings, which
could include penalties or fines, could have a significant negative impact on our business. We may also be required to incur significant costs to protect
against damages caused by these information technology failures or security breaches in the future. However, we cannot provide assurance that a security
breach, cyber-attack, data theft or other significant systems failure will not occur in the future, and such occurrences could have a material and adverse
effect on our consolidated results of operations or financial position.
Increased cybersecurity requirements, vulnerabilities, threats and more sophisticated and targeted computer crime could pose a risk to our
systems, networks, products, solutions, services and data. Increased global cybersecurity vulnerabilities, threats and more sophisticated and targeted
cyber-related attacks pose a risk to our security and our customers', partners', suppliers' and third-party service providers' products, systems and networks
and the confidentiality, availability and integrity of the data. We remain potentially vulnerable to additional known or unknown threats despite our attempts
to mitigate these risks. We also may have access to sensitive, confidential or personal data or information that is subject to privacy and security laws,
regulations or customer-imposed controls. Our efforts to protect sensitive, confidential or personal data or information, may nonetheless leave us vulnerable
to material security breaches, theft, misplaced or lost data, programming errors, employee errors and/or malfeasance that could potentially lead to the
compromising of sensitive, confidential or personal data or information, improper use of our systems, software solutions or networks, unauthorized access,
use, disclosure, modification or destruction of information, production downtimes and operational disruptions. In addition, a cyber-related attack could
result in other negative consequences, including damage to our reputation or competitiveness, remediation or increased protection costs, litigation or
regulatory action. Additionally, violations of privacy or cybersecurity laws (including the recently-passed California Consumer Privacy Act), regulations or
standards increasingly lead to class-action and other types of litigation, which can result in substantial monetary judgments or settlements. Therefore, any
such security breaches could have a material adverse effect on us.
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Inflation can have a significant adverse effect on our operations. Inflation can have a major impact on our farming operations. The farming operations
are most affected by escalating costs, unpredictable revenues and very high irrigation water costs. High fixed water costs related to our farm lands will
continue to adversely affect earnings. Prices received for many of our products are dependent upon prevailing market conditions and commodity prices.
Therefore, it is difficult for us to accurately predict revenue, just as we cannot pass on cost increases caused by general inflation, except to the extent
reflected in market conditions and commodity prices.
Inflation can adversely impact our real estate operations, by increasing costs of material and labor as well as the cost of capital, which can impact operating
margins. In an inflationary environment, we may not be able to increase prices at the same pace as the increase in inflation, which would further erode
operating margins.
Government policies and regulations, particularly those affecting the agricultural sector and related industries, could adversely affect our
operations and profitability. Agricultural commodity production and trade flows are significantly affected by government policies and regulations.
Governmental policies affecting the agricultural industry, such as taxes, trade tariffs, duties, subsidies, import and export restrictions on commodities and
commodity products, can influence industry profitability, the planting of certain crops, the location and size of crop production, whether unprocessed or
processed commodity products are traded, and the volume and types of imports and exports. In addition, international trade disputes can adversely affect
trade flows by limiting or disrupting trade between countries or regions. Future governmental policies, regulations or actions affecting our industry may
adversely affect the supply of, demand for and prices of our products, restrict our ability to do business and cause our financial results to suffer.
FINANCIAL RISKS
Financial risk relates to our ability to meet financial obligations and mitigate exposure to broad market risks, including volatility in interest rates and
commodity prices; credit risk; and liquidity risk, including risk related to our credit ratings and our availability and cost of funding. Credit risk is the risk of
financial loss arising from a customer or counterparty failure to meet its contractual obligations. We face credit risk in our industrial businesses, as well as
in our investing and leasing activities and derivative financial instruments activities. Liquidity risk refers to the potential inability to meet contractual or
contingent financial obligations (whether on- or off-balance sheet) as they arise, and could potentially impact an institution’s financial condition or overall
safety and soundness.
Constriction of the credit markets or other adverse changes in capital market conditions could limit our ability to access capital and increase our
cost of capital. During past economic downturns, we relied principally on positive operating cash flow, cash and investments, and equity offerings to meet
current working capital needs, entitlement investment, and investment within our developments. Any slowdown in the economy could negatively impact
our access to credit markets and may limit our sources of liquidity in the future and potentially increase our costs of capital.
We regularly assess our projected capital requirements to fund future growth in our business, repay our debt obligations, and support our other general
corporate and operational needs, and we regularly evaluate our opportunities to raise additional capital. As market conditions permit, we may issue new
equity securities through the public capital markets, enter new joint ventures, or obtain additional bank financing to fund our projected capital requirements
or provide additional liquidity. Adverse changes in economic, or capital market conditions could negatively affect our business, liquidity and financial
results.
Our business model is very dependent on transactions with strategic partners. We may not be able to successfully (1) attract desirable strategic
partners; (2) complete agreements with strategic partners; and/or (3) manage relationships with strategic partners going forward, any of which
could adversely affect our business. A key to our development and value creation strategies has been the use of joint ventures and strategic relationships.
These joint venture partners bring development experience, industry expertise, financial resources, financing capabilities, brand recognition and credibility
or other competitive assets.
A complicating factor in any joint venture is that strategic partners may have economic or business interests or goals that are inconsistent with ours or that
are influenced by factors related to our business. These competing interests lead to the difficult challenges of successfully managing the relationship and
communication between strategic partners and monitoring the execution of the partnership plan. We may also be subject to adverse business consequences
if the market reputation or financial position of the strategic partner deteriorates. If we cannot successfully execute transactions with strategic partners, our
business could be adversely affected.
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Inability to comply with long-term debt covenants, restrictions or limitations could adversely affect our financial condition. Our ability to meet our
debt service and other obligations and the financial covenants under our credit facility will depend, in part, upon our future financial performance. Our
future results are subject to the risks and uncertainties described in this report. Our revenues and earnings vary with the level of general economic activity
in the markets we serve and the level of commodity prices related to our farming and mineral resource activities. The factors that affect our ability to
generate cash can also affect our ability to raise additional funds for these purposes through the addition of debt, the sale of equity, refinancing existing
debt, or the sale of assets.
Our credit facility contains financial covenants requiring the maintenance of a maximum total liabilities to tangible net worth not greater than .75 to 1 at
each quarter end, a debt service coverage ratio not less than 1.25 to 1.00, and a minimum level of liquidity of $20,000,000, including any unused portion of
our revolving credit facility. A failure to comply with these requirements could allow the lending bank to terminate the availability of funds under our
revolving credit facility and/or cause any outstanding borrowings to become due and payable prior to maturity.
Uncertainty relating to the LIBOR calculation process and potential phasing out of LIBOR in the future may adversely affect the value of any
outstanding debt instruments. National and international regulators and law enforcement agencies have conducted investigations into a number of rates
or indices known as “reference rates.” Actions by such regulators and law enforcement agencies may result in changes to the manner in which certain
reference rates are determined, their discontinuance, or the establishment of alternative reference rates. In particular, on July 27, 2017, the Chief Executive
of the U.K. Financial Conduct Authority (the “FCA”), which regulates LIBOR, announced that the FCA will no longer persuade or compel banks to submit
rates for the calculation of LIBOR after 2021. Such announcement indicates that the continuation of LIBOR on the current basis cannot and will not be
guaranteed after 2021. As a result, it appears highly likely that LIBOR will be discontinued or modified by 2023.
We have borrowing arrangements with financial institutions that calculate interest based on LIBOR. At this time, it is not possible to predict the effect that
these developments, any discontinuance, modification or other reforms to LIBOR or any other reference rate, or the establishment of alternative reference
rates may have on LIBOR, other benchmarks, or LIBOR-based debt instruments. Uncertainty as to the nature of such potential discontinuance,
modification, alternative reference rates or other reforms may materially adversely affect the trading market for securities linked to such benchmarks.
Furthermore, the use of alternative reference rates or other reforms could cause the interest rate calculated for the LIBOR-based debt instruments to be
materially different than expected. Lastly, we may need to renegotiate any credit agreements extending beyond 2021 that utilize LIBOR as a factor in
determining the interest rate to replace LIBOR with the new standard that is established. There is currently no definitive information regarding the future
utilization of LIBOR or of any particular replacement rate. As such, potential effect of any such event on our business, financial condition and results of
operations cannot yet be determined.
MARKET RISKS
Market risk relates to the functioning of the marketplace. Many factors affect market function: investor anticipation, shocks in other markets, and anything
that limits the efficient functioning of the marketplace. Market risks can affect the price of our Common Stock.
Only a limited market exists for our Common Stock, which could lead to price volatility. The limited trading market for our Common Stock may
cause fluctuations in the market value of our Common Stock to be exaggerated, leading to price volatility in excess of that which would occur in a more
active trading market of our Common Stock.
Concentrated ownership of our Common Stock creates a risk of sudden change in our share price. As of March 3, 2021, directors and members of
our executive management team beneficially owned or controlled approximately 21.6% of our Common Stock. Investors who purchase our Common Stock
may be subject to certain risks due to the concentrated ownership of our Common Stock. The sale by any of our large shareholders of a significant portion
of that shareholder’s holdings could have a material adverse effect on the market price of our Common Stock. In addition, the registration and sale of any
significant number of additional shares of our Common Stock will have the immediate effect of increasing the public float of our Common Stock and any
such increase may cause the market price of our Common Stock to decline or fluctuate significantly.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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ITEM 2. PROPERTIES
Land
Our approximately 270,000 acres include portions of the San Joaquin Valley, portions of the Tehachapi Mountains and portions of the western end of the
Antelope Valley. Each of our five reporting segments use various portions of this land. A number of key transportation and utility facilities cross our land,
including Interstate 5, California Highways 58, 138 and 223, the California Aqueduct (which brings water from Northern California), and various
transmission lines for electricity, oil, natural gas and communication systems. Our corporate offices are located on our property.
Approximately 247,000 acres of our land are located in Kern County, California. The Kern County general plan, or the “General Plan,” for this land
contemplates continued commercial, resource utilization, farming, grazing and other agricultural uses, as well as certain new developments and uses,
including residential and recreational facilities. While the General Plan is intended to provide guidelines for land use and development, it is subject to
amendment to accommodate changing circumstances and needs. We have three major master planned real estate projects in Kern County: MV, TRCC and
Grapevine.
The remainder of our land, approximately 23,000 acres, is in Los Angeles County. This area is accessible from Interstate 5 via Highway 138. Los Angeles
County has adopted general plan policies that contemplate future residential development of portions of this land, subject to further assessments of
environmental and infrastructure constraints. In 2019, the Los Angeles County Board of Supervisors' affirmed their final approval of Centennial, and now
the 19,333 residential units are fully entitled. See Item 1, “Business—Real Estate Development Overview.”
Portions of our land consist of mountainous terrain, much of which is not presently served by paved roads or by utility or water lines. Much of this property
is included within the Conservation Agreement we entered into with five of the major environmental organizations in June 2008. As we receive entitlement
approvals over the life span of our developments we will dedicate conservation easements on 145,000 acres of this land, which will preclude future
development of the land. This acreage includes many of the most environmentally sensitive areas of our property and is home to many plant and wildlife
species whose environments will remain undisturbed.
Any significant development on our currently undeveloped land would involve the construction of roads, utilities and other expensive infrastructure and
would have to be done in a manner that accommodates a number of environmental concerns, including endangered species, wetlands issues, and
greenhouse gas emissions. Accommodating these environmental concerns, could possibly limit development of portions of the land or result in substantial
delays or certain changes to the scope of development in order to obtain governmental approval.
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Water Operations
Our existing long-term water contracts with the Wheeler Ridge-Maricopa Water Storage District, or WRMWSD, provide for water entitlements and
deliveries from the SWP, to our agricultural and municipal/industrial operations in the San Joaquin Valley. The terms of these contracts extend to 2035.
Under the contracts, we are entitled to annual water for 5,496 acres of land, or 15,547 acre-feet of water subject to SWP allocations, which is adequate for
our present farming operations. It is assumed, that at the end of the current contract period all water contracts will be extended for approximately the same
amount of annual water.
In addition to the WRMWSD contract water entitlements, we have an additional water entitlement from the SWP sufficient to service a substantial amount
of future residential and/or commercial development in Kern County. TCWD, a local water district serving our land in the district and land we have sold in
TRCC, has 5,749 acre-feet of SWP entitlement (also called Table A amount), subject to SWP allocations. In addition, TCWD has 61,054 acre-feet of water
stored in Kern County water banks. Both the entitlement and the banked water are the subject of a long-term water supply contract extending to 2035
between TCWD and the Company. TCWD is the water supplier to TRCC, and will be the principal water supplier for any significant mixed-use
development in MV. TCWD will also be the water district that provides services to Grapevine.
We have a 150-acre water bank consisting of nine ponds on our land in southern Kern County. Water is pumped into these ponds and then percolates into
underground aquifers. Since 2006, we have banked 50,349 acre-feet of water from the Antelope Valley-East Kern Water Agency, or AVEK, which has been
pumped from the California aqueduct and is currently retained in this water bank. We anticipate adding additional water to the water bank in the future, as
water is available.
Over time we have also purchased water for our future use or sale. We have secured SWP entitlement under long-term SWP water contracts within the
Tulare Lake Basin Water Storage District and the Dudley-Ridge Water District, totaling 3,444 acre-feet of SWP entitlement annually, subject to SWP
allocations. These contracts extend through 2035. On November 6, 2013, the Company completed the acquisition of a water purchase agreement that will
allow and require the Company to purchase 6,693 acre-feet of water each year from the Nickel Family, LLC, or Nickel, through the Kern County Water
Agency.
The initial term of the water purchase agreement with Nickel runs through 2044 and includes a Company option to extend the contract for an additional 35
years. This contract allows us to purchase water each year. The purchase cost of water in 2020 was $793 per acre-foot. Purchase costs are subject to annual
cost increases based on the greater of the consumer price index and 3%, resulting in a 2021 purchase cost of $817 per acre-foot.
The water purchased will ultimately be used in the development of the Company’s land for commercial/industrial development, residential development,
and farming. Interim uses may include the sale of portions of this water to third party users on an annual basis until the water is fully used for the
Company’s internal uses.
During 2020, SWP allocations were 20% of contract levels, and WRMWSD was able to supply us with water from various sources that when combined
with our water sources provided sufficient water to meet our farming and real estate demands. In some years, there is also sufficient runoff from local
mountain streams to allow us to capture some of this water in reservoirs and utilize it to offset some of the SWP water. In years where the supply of water
is sufficient, both WRMWSD and TCWD are able to bank (percolate into underground aquifers) some of their excess supplies for future use. At this time,
Wheeler Ridge expects to be able to deliver our entire contract water entitlement in any year that the SWP allocations exceed 30% by drawing on its
ground water wells and water banking assets. Based on historical records of water availability, we do not believe we have material problems with our water
supply. However, if SWP allocations are less than 30% of our entitlement in any year, or if shortages continue for a sustained period of several years, then
WRMWSD may not be able to deliver 100% of our entitlement and we will have to rely on our own ground water sources, mountain stream runoff, water
transfer from other sources, and water banking assets to supply the needs of our farming and development activities. Water from these sources may be more
expensive than SWP water because of pumping costs and/or transfer costs. A 10% preliminary SWP water allocation has been made by the California
Department of Water Resources, or DWR, for 2021. The current 10% allocation of SWP water is not enough for us to farm our crops, but our additional
water resources, such as groundwater and surface sources, and those of the water districts we are in, should allow us to have sufficient water for our
farming needs for the next year.
All SWP water contracts require annual payments related to the fixed and variable costs of the SWP and each water district, whether or not water is used or
available. WRMWSD and TCWD contracts also establish a lien on benefited land.
34
Portions of our property also have available groundwater, which we believe would be sufficient to supply commercial development in the Interstate 5
corridor and support current agricultural operations. Ground water in the Antelope Valley Basin is the subject to an adjudication of the water basin that
limits groundwater pumping.
The Sustainable Groundwater Management Act, or SGMA, is a sustainable groundwater framework that became effective January 1, 2015. For the water
districts in which the Company participates in the San Joaquin Valley, Groundwater Sustainability Plans are to be developed by 2020 and 2022. Through
these plans it will have to be demonstrated to the satisfaction of the Department of Water Resources, that the basins are "sustainable" and in balance by
2040, which could ultimately lead to restrictions on the use of groundwater. The Company's Kern County agricultural lands and development lands are
located in the White Wolf Basin and the Castac Lake Basin, which are basins that are currently not over-drafted, so there is no anticipation at this time of
any restriction related to manageable uses of ground water. However, the Company's lands are in relatively good condition because of the diverse inventory
of surface water supplies and banked water that the Company has access to as mentioned above.
There have been many environmental challenges regarding the movement of SWP water through the Sacramento Delta. Operation of the Delta pumps are
of primary importance to the California water system because these pumps are part of the system that moves water from Northern California to Southern
California. Biological Opinions, or BiOps, issued by the U.S. Fish and Wildlife Service, or FWS, and National Marine Fisheries Service, or NMFS, in 2008
and 2009 contained restrictions on pumping from the Delta and were challenged in the courts by both water agencies and environmental groups, which
challenges were for the most part unsuccessful. Since then a number of developments have occurred that affect or potentially affect SWP supplies from the
Delta.
One development concerns the Coordinated Operation Agreement, or COA, that DWR and the Bureau of Reclamation, or the Bureau, which operates
pumps in the Delta to supply water to its Central Valley Project, or CVP, entered into in 1986. The COA governs the concurrent state and federal pumping
operations in the Delta. DWR and the Bureau renegotiated the COA in late 2018 to bring the COA up to date with various physical and legal changes that
occurred over the course of thirty years. The renegotiated COA has generally resulted in reduced deliveries to SWP contractors.
Another is DWR’s plan for construction of a facility to convey water through the Delta in the form of a tunnel system that would divert water at or near the
northern end of the Delta and convey the water underground via tunnel for delivery at or near the southern end of the Delta. Originally envisioned as a two-
tunnel system known as California WaterFix, that project was rescinded and has been replaced with a proposed downsized single-tunnel system referred to
as the Delta Conveyance Project, or DCP. As of January, 2020, DWR has begun the environmental review process for the DCP by issuance of a Notice of
Preparation of an EIR under CEQA, and DWR has been negotiating an agreement in principle with the SWP Contractors for terms of an amendment to the
SWP long-term water supply contracts that if approved would provide for addition of the DCP to the SWP. The DCP is intended to increase the amount of
water available for delivery through the Delta, particularly in wet years.
Another is the Reinitiation of Consultation on the Coordinated Long Term Operation of the Central Valley Project and State Water Project. This is a process
that DWR and the Bureau jointly requested in 2016. It has resulted in new federal FWS and NMFS BiOps under Federal Endangered Species Act, or ESA,
which are intended to enhance reliability of water available for pumping out of the Delta based on updated best available science. The State of California
has noticed its intent to file a legal challenge to the new BiOps, which are currently being challenged in court by various non-governmental organizations
under the ESA. Consequently, it is uncertain whether and when operations under the new BiOps will take effect.
Historic SWP restrictions on the right to use agricultural water entitlement for municipal purposes were removed in 1995. For this purpose, “municipal”
use includes residential and industrial use. Therefore, although only 2,000 of TCWD’s 5,749 acre-feet of entitlement are labeled for municipal use, there is
no practical restriction on TCWD’s ability to deliver the remaining water to residential or commercial/industrial developments.
Other Activities
TRPFFA is a joint powers authority formed by Kern County and TCWD to finance public infrastructure within the Company’s Kern County developments.
TRPFFA has created two Community Facilities Districts, or CFDs, the West CFD and the East CFD. The West CFD has placed liens on 420 acres of the
Company’s land to secure payment of special taxes related to $28,620,000 of bond debt sold by TRPFFA for TRCC-West. The East CFD has placed liens
on 1,931 acres of the Company’s land to secure payments of special taxes related to $75,965,000 of bond debt sold by TRPFFA for TRCC-East. At TRCC-
West, the West CFD has no additional bond debt approved for issuance. At TRCC-East, the East CFD has $44,035,000 of additional bond debt authorized
by TRPFFA. Proceeds from the sales of these bonds are to reimburse the Company for public infrastructure related to TRCC-East.
35
We paid $2,550,000 and $2,569,000 in special taxes related to the CFDs in 2020 and 2019, respectively. As development continues to occur at TRCC, new
owners of land and new lease tenants, through triple net leases, will bear an increasing portion of the assessed special tax. It is expected that we will have
special tax payments in 2021 of $2,473,000, but this could change in the future based on the amount of bonds outstanding within each CFD and the amount
of taxes paid by other owners and tenants. The assessment of each individual property sold or leased is not determinable at this time because it is based on
the current tax rate and the assessed value of the property at the time of sale or on its assessed value at the time it is leased to a third-party. Accordingly, the
Company is not required to recognize an obligation at December 31, 2020.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various legal matters arising out of its operations in the normal course of business. None of these matters are expected,
individually or in the aggregate, to have a material adverse effect on the Company.
For a discussion of legal proceedings, see Note 14 (Commitments and Contingencies) of the Notes to the Consolidated Financial Statements.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
36
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
PART II
Our Common Stock trades under the symbol TRC on the New York Stock Exchange.
As of February 28, 2021, there were 279 registered owners of record of our Common Stock.
No cash dividends were paid in 2020 or 2019 and at this time there is no intention of paying cash dividends in the future.
For information regarding equity compensation plans pursuant to Item 201(d) of Regulation S-K, please see Item 11, “Executive Compensation” and
Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this Form 10-K, below.
The annual stockholder performance graph will be provided separately in our annual report to stockholders.
ITEM 6. SELECTED FINANCIAL DATA
($ in thousands)
Total revenues, including investment and other income (loss)
(Loss) income from operations before equity in earnings of
unconsolidated joint ventures
Equity in earnings of unconsolidated joint ventures
Net (loss) income
Net (loss) attributable to noncontrolling interests
Net (loss) income attributable to common stockholders
Total assets
Long-term debt
Equity
Net (loss) income per share attributable to common
stockholders, diluted
2020
2019
2018
2017
2016
40,155 $
48,938 $
46,904 $
35,442 $
46,899
(4,422) $
4,504 $
(747) $
(7) $
(740) $
(2,016) $
16,575 $
10,579 $
(1) $
10,580 $
1,721 $
3,834 $
4,235 $
(20) $
4,255 $
(7,331) $
4,227 $
(1,821) $
(24) $
(1,797) $
(5,845)
7,098
757
(43)
800
536,349 $
539,422 $
529,048 $
518,199 $
439,541
57,078 $
61,897 $
65,915 $
69,959 $
73,867
445,331 $
445,624 $
434,672 $
426,810 $
334,709
(0.03) $
0.40 $
0.16 $
(0.08) $
0.04
$
$
$
$
$
$
$
$
$
$
37
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
See Part I, "Forward-Looking Statements" for our cautionary statement regarding forward-looking information.
This discussion and analysis is based on, should be read together with, and is qualified in its entirety by, the consolidated financial statements and notes
thereto included in Item 15(a)1 of this Form 10-K, beginning at page F-1. It also should be read in conjunction with the disclosure under “Forward-Looking
Statements” in Part 1 of this Form 10-K. When this report uses the words “we,” “us,” “our,” “Tejon,” “TRC,” and the “Company,” they refer to Tejon
Ranch Co. and its subsidiaries, unless the context otherwise requires. References herein to fiscal year refer to our fiscal years ended or ending December
31.
OVERVIEW
Our Business
We are a diversified real estate development and agribusiness company committed to responsibly using our land and resources to meet the housing,
employment, and lifestyle needs of Californians and to create value for our shareholders. In support of these objectives, we have been investing in land
planning and entitlement activities for new industrial and residential land developments and in infrastructure improvements within our active industrial
development. Our prime asset is approximately 270,000 acres of contiguous, largely undeveloped land that, at its most southerly border, is 60 miles north
of Los Angeles and, at its most northerly border, is 15 miles east of Bakersfield.
Our business model is designed to create value through the entitlement and development of land for commercial/industrial and resort/residential uses while
at the same time protecting significant portions of our land for conservation purposes. We operate our business near one of the country’s largest population
centers, which is expected to continue to grow well into the future.
We currently operate in five reporting segments: commercial/industrial real estate development; resort/residential real estate development; mineral
resources; farming; and ranch operations.
Our commercial/industrial real estate segment generates revenues from building, land lease activities, and land and building sales. The primary
commercial/industrial development is TRCC. The resort/residential real estate development segment is actively involved in the land entitlement and
development process internally and through a joint venture. Within our resort/residential segment, the three active mixed-use master plan developments are
MV, Centennial, and Grapevine. Our mineral resources segment generates revenues from oil and gas royalty leases, rock and aggregate mining leases, a
lease with National Cement and sales of water. The farming segment produces revenues from the sale of wine grapes, almonds, and pistachios. Lastly, the
ranch operation segment consists of game management revenues and ancillary land uses such as grazing leases and filming.
Financial Highlights
For 2020, net loss attributable to common stockholders was $747,000 compared to net income attributed to common stockholders of $10,580,000 in 2019.
Our commercial/industrial segment greatly influenced our 2020 operating results. Over the comparative period, commercial/industrial segment revenues
and results from our commercial joint ventures declined $7,256,000 and $12,071,000, respectively. The decline is primarily attributed to the fact that in
2019, there were several major real estate asset contributions and sales made by the Company to its joint ventures, as described below, that did not occur in
2020. From a joint venture operations standpoint, our share of TA/Petro operating results declined $3,088,000 after experiencing the effects of California's
stay-at-home orders and other social distancing initiatives. Those factors resulted in lower fuel volumes that led to lower fuel margins. Additionally,
TA/Petro had closed down its full service restaurants for most of the year as capacity limitations made operating economically unfeasible. Our farming
segment saw a $5,465,000 decline in revenues as a result of lower pistachio bonuses, pistachio yields, and a decline in almond pricing. Declines in
revenues were partially offset by lower commercial expense, as a result of reduced cost of sales of $5,839,000 and income taxes of $3,151,000.
Additionally, the Company benefited from recognizing a gain on sale of building and land of $1,331,000 along with experiencing a $1,934,000 reduction in
other expense primarily associated with the disposal of a wine grape vineyard in 2019.
For 2019, net income attributable to common stockholders was $10,580,000 compared to net income attributed to common stockholders of $4,255,000 in
2018. Over the comparative period, commercial/industrial segment revenues and results from our commercial joint ventures improved $7,822,000 and
$12,741,000, respectively. Improvements in commercial revenues were attributed to land and building contributions to two joint ventures, while our joint
ventures improved because of improved fuel and non-fuel margins within our TA/Petro joint venture along with recognizing a substantial gain stemming
from the sale
38
of the building and land previously held by our Five West Parcel joint venture. These improvements were offset by reduced mineral resources revenues of
$4,604,000 resulting from a lack of water sales opportunities due to the wet 2019 winter rain season, an increase in commercial/industrial expenses of
$6,715,000 as a result of land and building costs associated with the joint venture contributions discussed earlier, and a $1,765,000 increase in other losses
associated with the abandonment of a wine grape vineyard that will no longer be farmed and pension related expenses.
During 2021, we will continue to invest funds towards litigation defense, permits, and maps for our master plan mixed-use developments and for master
project infrastructure and vertical development within our active commercial and industrial development. Securing entitlements for our land is a long,
arduous process that can take several years and involves litigation. During the next few years, our net income will fluctuate from year-to-year based upon,
among other factors, commodity prices, production within our farming segment, the timing of land sales and the leasing of land and/or industrial space
within our industrial developments, and equity in earnings realized from our unconsolidated joint ventures.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations provides a narrative discussion of our results of operations.
It contains the results of operations for each operating segment of the business and is followed by a discussion of our financial position. It is useful to read
the business segment information in conjunction with Note 16 (Reporting Segments and Related Information) of the Notes to Consolidated Financial
Statements.
Critical Accounting Policies
The preparation of our consolidated financial statements in accordance with generally accepted accounting principles in the United States, or GAAP,
requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. We consider an accounting estimate to be critical if: (1) the accounting estimate requires us to make assumptions about
matters that were highly uncertain at the time the accounting estimate was made, and (2) changes in the estimates that are likely to occur from period to
period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or
results of operations. On an on-going basis, we evaluate our estimates, including those related to revenue recognition, impairment of long-lived assets,
capitalization of costs, allocation of costs related to land sales and leases, and stock compensation. We base our estimates on historical experience and on
various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the
carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different
assumptions or conditions.
Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board of Directors and
the Audit Committee has reviewed the foregoing disclosure. In addition, there are other items within our financial statements that require estimation, but
are not deemed critical as defined above. Changes in estimates used in these and other items could have a material impact on our financial statements. See
also Note 1 (Summary of Significant Accounting Policies) of the Notes to Consolidated Financial Statements, which discusses accounting policies that we
have selected from acceptable alternatives.
We believe the following critical accounting policies reflect our more significant judgments and estimates used in the preparation of the consolidated
financial statements:
Revenue Recognition – The Company’s revenue is primarily derived from lease revenue from our rental portfolio, royalty revenue from mineral leases,
sales of farm crops, sales of water, and land sales. Revenue from leases with rent concessions or fixed escalations is recognized on a straight-line basis over
the initial term of the related lease unless there is a considerable risk as to collectability. The financial terms of leases are contractually defined. Lease
revenue is not accrued when a tenant vacates the premises and ceases to make rent payments or files for bankruptcy. Royalty revenues are contractually
defined as to the percentage of royalty and are tied to production and market prices. Our royalty arrangements generally require payment on a monthly
basis with the payment based on the previous month’s activity. We accrue monthly royalty revenues based upon estimates and adjust to actual as we receive
payments.
From time to time the Company sells easements over its land. The easements are either in the form of rights of access granted for such things as utility
corridors or are in the form of conservation easements that generally require the Company to divest its rights to commercially develop a portion of its land,
but do not result in a change in ownership of the land or restrict the Company from continuing other revenue generating activities on the land. Sales of
easements are accounted for in accordance with the five-step model under Accounting Standards Codification Topic 606, or ASC 606. The five-step model
requires that we (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price,
including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the
respective performance obligations in the contract, and (v) recognize revenue when (or as) we satisfy the performance obligation. Since easements
generally do not impose any significant continuing
39
performance obligations on the Company, revenue from easement sales are generally recognized in the period the sale has closed and consideration has
been received.
In recognizing revenue from land sales, the Company follows ASC 606 to achieve the core principle that an entity recognizes revenue to depict the transfer
of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or
services. The adoption of ASC 606 on January 1, 2018 impacted our accounting for land sales. Upon the adoption of ASC 606, for any future land sales
with multiple performance obligations, the standard generally requires the Company to allocate the transaction price to the performance obligations in
proportion to their standalone selling prices (i.e., on a relative standalone selling price basis) not total costs.
At the time farm crops are harvested, contracted, and delivered to buyers and revenues can be estimated, revenues are recognized and any related
inventoried costs are expensed, which traditionally occurs during the third and fourth quarters of each year. It is not unusual for portions of our almond or
pistachio crop to be sold in the year following the harvest. Orchard (almond and pistachio) revenues are based upon the contract settlement price or
estimated selling price, whereas vineyard revenues are typically recognized at the contracted selling price. Estimated prices for orchard crops are based
upon the quoted estimate of what the final market price may be by marketers and handlers of the orchard crops. These market price estimates are updated
through the crop payment cycle as new information is received as to the final settlement price for the crop sold. These estimates are adjusted to actual upon
receipt of final payment for the crop. This method of recognizing revenues on the sale of orchard crops is a standard practice within the agribusiness
community.
Actual final crop selling prices are not determined for several months following the close of our fiscal year due to supply and demand fluctuations within
the orchard crop markets. Adjustments for differences between original estimates and actual revenues received are recorded during the period in which
such amounts become known.
Impairment of Long-Lived Assets – We evaluate our property and equipment and development projects for impairment on an ongoing basis. Our evaluation
for impairment involves an initial assessment of each real estate development to determine whether events or changes in circumstances exist that may
indicate that the carrying amounts of a real estate development are no longer recoverable. Possible indications of impairment may include events or
changes in circumstances affecting the entitlement process, government regulation, litigation, geographical demand for new housing, and market conditions
related to pricing of new homes. When events or changes in circumstances indicate that the carrying value of assets contained in our financial statements
may not be recoverable.
We make significant assumptions to evaluate each real estate development for possible indications of impairment. These assumptions include the
identification of appropriate and comparable market prices, the consideration of changes to legal factors or the business climate, and assumptions
surrounding continued positive cash flows and development costs. Considering that the planned development communities will be in a location that does
not currently have many comparable homes, the Company must make assumptions surrounding the expected ability to sell the real estate assets at a price
that is in excess of current accumulated costs. We use our internal forecasts and business plans to estimate future prices, absorption, production, and costs.
We develop our forecasts based on recent sales data, historical absorption and production data, input from marketing consultants, as well as discussions
with commercial real estate brokers and potential purchasers of our farming products.
The impairment calculation compares the carrying value of the asset to the asset’s estimated future cash flows (undiscounted). If the estimated future cash
flows are less than the carrying value of the asset, we calculate an impairment loss. The impairment loss calculation compares the carrying value of the
asset to the asset’s estimated fair value, which may be based on estimated future cash flows (discounted). We recognize an impairment loss equal to the
amount by which the asset’s carrying value exceeds the asset’s estimated fair value. If we recognize an impairment loss, the adjusted carrying amount of the
asset will be its new cost basis. For a depreciable long-lived asset, the new cost basis will be depreciated (amortized) over the remaining useful life of that
asset. Restoration of a previously recognized impairment loss is prohibited. If actual results are not consistent with our assumptions and judgments used in
estimating future cash flows and asset fair values, we may be exposed to impairment losses that could be material to our results of operations.
At this time, there are no assets within any of our reporting segments that we believe are at risk of being impaired due to market conditions nor have we
identified any impairment indicators.
We believe that the accounting estimate related to asset impairment is a critical accounting estimate because it is very susceptible to change from period to
period; it requires management to make assumptions about future prices, production, and costs, and the potential impact of a loss from impairment could be
material to our earnings. Management’s assumptions regarding future cash flows from real estate developments and farming operations have fluctuated in
the past due to changes in prices, absorption, production and costs and are expected to continue to do so in the future as market conditions change.
40
Capitalization of Costs - The Company capitalizes direct construction and development costs, including predevelopment costs, interest, property taxes,
insurance, and indirect project costs that are clearly associated with the acquisition, development, or construction of a project. Costs currently capitalized
that in the future would be related to any abandoned development opportunities will be written off if we determine such costs do not provide any future
benefits. Should development activity decrease, a portion of interest, property taxes, and insurance costs would no longer be eligible for capitalization, and
would be expensed as incurred.
Allocation of Costs Related to Land Sales and Leases – When we sell or lease land within one of our real estate developments, as we are currently doing
within TRCC, and we have not completed all infrastructure development related to the total project, we determine the appropriate costs of sales for the sold
land and the timing of recognition of the sale. In the calculation of cost of sales or allocations to leased land, we use estimates and forecasts to determine
total costs at completion of the development project. These estimates of final development costs can change as conditions in the market and costs of
construction change.
In preparing these estimates, we use internal budgets, forecasts, and engineering reports to help us estimate future costs related to infrastructure that has not
been completed. These estimates become more accurate as the development proceeds forward, due to historical cost numbers and to the continued
refinement of the development plan. These estimates are updated periodically throughout the year so that, at the ultimate completion of development, all
costs have been allocated. Any increases to our estimates in future years will negatively impact net profits and liquidity due to an increased need for funds
to complete development. If, however, this estimate decreases, net profits as well as liquidity will improve.
We believe that the estimates used related to cost of sales and allocations to leased land are critical accounting estimates and will become even more
significant as we continue to move forward as a real estate development company. The estimates used are very susceptible to change from period to period,
due to the fact that they require management to make assumptions about costs of construction, absorption of product, and timing of project completion, and
changes to these estimates could have a material impact on the recognition of profits from the sale of land within our developments.
Stock-Based Compensation - We apply the recognition and measurement principles of ASC 718, “Compensation – Stock Compensation” in accounting for
long-term stock-based incentive plans. Our stock-based compensation plans include both restricted stock units and restricted stock grants. We have not
issued any stock options to employees or directors since January 2003, and our 2020 financial statements do not reflect any compensation expenses for
stock options. All stock options issued in the past have been exercised or forfeited.
We make stock awards to employees based upon time-based criteria and through the achievement of performance-related objectives. Performance-related
objectives are either stratified into threshold, target, and maximum goals or based on the achievement of a milestone event. These stock awards are
currently being expensed over the expected vesting period based on each performance criterion. We make estimates as to the number of shares that will
actually be granted based upon estimated ranges of success in meeting the defined performance measures. If our estimates of performance shares vesting
were to change by 25%, stock compensation expense would increase or decrease by approximately $22,000 depending on whether the change in estimate
increased or decreased shares vesting. The Company also has performance share grants that contain both performance-based and market-based conditions.
Compensation cost for these awards is recognized based on either the achievement of the performance-based conditions, if they are considered probable, or
if they are not considered probable, on the achievement of the market-based condition. Failure to satisfy the threshold performance conditions will result in
the forfeiture of shares. Forfeiture of share awards with service conditions or performance-based restrictions results in a reversal of previously recognized
share-based compensation expense. For 2020, forfeiture of such awards would have resulted in a stock compensation savings of $1,334,000. Forfeiture of
share awards with market-based restrictions does not result in a reversal of previously recognized share-based compensation expense.
See Note 11. (Stock Compensation - Restricted Stock and Performance Share Grants), of the Notes to Consolidated Financial Statement for total 2020
stock compensation expense related to stock grants.
41
Fair Value Measurements – The Financial Accounting Standards Board's, or FASB, authoritative guidance for fair value measurements of certain financial
instruments defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Fair value is
defined as the exchange (exit) price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the
asset or liability in an orderly transaction between market participants on the measurement date. This guidance establishes a three-level hierarchy for fair
value measurements based upon the inputs to the valuation of an asset or liability. Observable inputs are those which can be easily seen by market
participants while unobservable inputs are generally developed internally, utilizing management’s estimates and assumptions:
•
•
•
Level 1 – Valuation is based on quoted prices in active markets for identical assets and liabilities.
Level 2 – Valuation is determined from quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar
instruments in markets that are not active, or by model-based techniques in which all significant inputs are observable in the market.
Level 3 – Valuation is derived from model-based techniques in which at least one significant input is unobservable and based on our own
estimates about the assumptions that market participants would use to value the asset or liability.
When available, we use quoted market prices in active markets to determine fair value. We consider the principal market and nonperformance risk
associated with our counterparties when determining the fair value measurement. Fair value measurements are used for marketable securities, investments
within the pension plan and hedging instruments.
Recent Accounting Pronouncements
For discussion of recent accounting pronouncements, see Note 1 (Summary of Significant Accounting Policies) of the Notes to Consolidated Financial
Statements.
Results of Operations by Segment
We evaluate the performance of our reporting segments separately to monitor the different factors affecting financial results. Each reporting segment is
subject to review and evaluation as we monitor current market conditions, market opportunities, and available resources. The performance of each
reporting segment is discussed below:
Real Estate – Commercial/Industrial
($ in thousands)
Commercial/industrial revenues
Pastoria Energy Facility Lease
TRCC Leasing
TRCC management fees and reimbursements
Commercial leases
Communication leases
Landscaping and other
Land sales
Total commercial revenues
Total commercial expenses
Operating income from commercial/industrial
2020 Operational Highlights:
2020
2019
2018
$
$
$
$
4,584 $
1,744
715
580
927
986
—
9,536 $
7,122 $
2,414 $
4,573 $
1,815
1,172
658
924
1,029
6,621
16,792 $
12,961 $
3,831 $
4,056
1,760
822
692
904
736
—
8,970
6,246
2,724
• During 2020, commercial/industrial segment revenues decreased $7,256,000, or 43%, from $16,792,000 in 2019 to $9,536,000. During 2020, the
Company did not have any land sales, which contributed $6,621,000 of the decrease. Additionally, management fees and reimbursements
decreased $457,000 primarily because there were no real estate construction projects in 2020.
•
Commercial/industrial real estate segment expenses decreased $5,839,000, or 45%, from $12,961,000 in 2019 to $7,122,000 in 2020. In the
absence of land sales, there was a $4,745,000 decrease in land cost of sales. The remainder of the decrease is attributed to lower fixed water
assessments from TCWD.
42
•
Please refer to Item 1, “Business – Real Estate Development Overview” for discussion over minimum rent deferrals that resulted from the
COVID-19 pandemic.
2019 Operational Highlights:
• During 2019, commercial/industrial segment revenues increased $7,822,000, or 87%, from $8,970,000 in 2018 to $16,792,000. The increase was
primarily attributable to revenues of $6,621,000 recognized as a result of asset contributions to unconsolidated joint ventures of 1) land, and 2)
land and building. We contributed 34.85 acres to TRC-MRC 3, with recognized revenues of $4,317,000, and a 4,900 square-foot multi-tenant
building and land to our TA/Petro joint venture, with recognized revenues of $2,303,000. Please refer to Note 17 (Investment in Unconsolidated
and Consolidated Joint Ventures) for additional discussion.
• Also contributing to the increase in commercial/industrial revenues was a $517,000 increase in PEF revenues which was primarily associated with
a catch-up of its 2018 spark spread revenues that were above original estimates.
•
Commercial/industrial real estate segment expenses increased $6,715,000, or 108%, from $6,246,000 in 2018 to $12,961,000 in 2019. During
2019, as a result of the two land and building contributions mentioned above, the Company recorded cost of land and building sale of $4,748,000.
Additionally, the Company also experienced an increase in fixed water assessments of $1,958,000.
For 2021, we expect the commercial/industrial segment to continue to experience costs, net of amounts capitalized, primarily related to professional service
fees, marketing costs, commissions, planning costs, and staffing costs as we continue to pursue development opportunities. These costs are expected to
remain consistent with current levels of expense with any variability in the future tied to specific absorption transactions in any given year. TCWD water
assessments may vary depending on water availability and its ability to sell water.
The actual timing and completion of development is difficult to predict due to the uncertainties of the market. Infrastructure development and marketing
activities and costs could continue over several years as we develop our land holdings. We will also continue to evaluate land resources to determine the
highest and best uses for our land holdings. Future sales of land are dependent on market circumstances and specific opportunities. Our goal in the future is
to increase land value and create future revenue growth through planning and development of commercial and industrial properties.
See Item 1, “Business – Real Estate Development Overview” for discussion of the market outlook for the next year.
Real Estate – Resort/Residential
Our resort/residential segment activities include defending entitlements, land planning and pre-construction engineering and conservation activities for our
Centennial, Grapevine, and MV projects.
We are in the preliminary stages of development; hence, no revenues are attributed to this segment for these reporting periods.
2020 Operational Highlights:
•
In 2020, resort/residential segment expenses decreased $635,000 to $1,612,000, or 28%, when compared to $2,247,000 in 2019. The decrease is
attributed to an $801,000 decrease in professional services as there were fewer strategic planning efforts in 2020. This decrease was partially offset
by a $171,000 increase in payroll and overhead costs, net of capitalization, as a result of right sizing initiatives and the issuance of performance
based stock compensation.
2019 Operational Highlights:
•
In 2019, resort/residential segment expenses increased $717,000 to $2,247,000, or 47%, when compared to $1,530,000 in 2018. The higher
expenses were attributable to an increase in professional services of $720,000 associated with strategic planning efforts.
The resort/residential segment will continue to incur costs in the future related to professional service fees, public relations costs, and staffing costs as we
continue forward with permitting activities for the above communities and continue to meet our obligations under the Conservation Agreement. We expect
these expenses to remain consistent with current years cost in the near term and only begin to increase as we move into the development phase of each
project in the future. The actual timing and completion of entitlement-related activities and the beginning of development is difficult to predict due to the
uncertainties of the approval process, the length of time related to litigation defense, and the status of the economy. We will also continue to
43
evaluate land resources to determine the highest and best use for our land holdings. Our long-term goal through this process is to increase the value of our
land and create future revenue opportunities through resort and residential development.
We are continuously monitoring the markets in order to identify the appropriate time in the future to begin infrastructure improvements and lot sales. Our
long-term business plan of developing the communities of MV, Centennial, and Grapevine remains unchanged. As home buyer trends change in California
to a more suburban orientation and the economy stabilizes, we believe the perception of land values will also begin to improve. Long-term macro
fundamentals, primarily California's population growth and household formation will also support housing demand in our region. California also has a
significant documented housing shortage, which we believe our communities will help ease as the population base within California continues to grow.
See Item 1, “Business – Real Estate Development Overview” for a further discussion of real estate development activities.
Mineral Resources
($ in thousands)
Mineral resources revenues
Oil and gas
Rock aggregate
Cement
Exploration leases
Water sales
Reimbursables and other
Total mineral resources revenues
Total mineral resources expenses
Operating income from mineral resources
Oil and gas
Oil production (barrels)
Average price per barrel
Blended royalty rate
Natural gas production (millions of cubic feet)
Average price per thousand cubic feet
Blended royalty rate
Water
Water sold in acre-feet
Average price per acre-feet
Cement
Tons sold
Average price per ton
Rock/Aggregate
Tons sold
Average price per ton
2020
2019
2018
$
$
$
$
654 $
1,407
2,214
100
5,909
452
10,736 $
6,414 $
4,322 $
1,842 $
1,467
1,908
101
3,997
476
9,791 $
5,818 $
3,973 $
2,278
1,143
1,695
102
9,142
35
14,395
6,223
8,172
2020
2019
2018
114,567
$46.00
11.7%
207,000
$1.06
11.7%
5,022
$1,177
220,000
$61.00
13.2%
312,000
$1.58
13.2%
4,482
$750
250,000
$67.00
13.4%
241,000
$0.76
13.4%
9,442
$968
1,253,000
$1.77
1,117,000
$1.71
1,154,000
$1.47
1,272,000
$1.11
1,283,000
$1.03
1,168,000
$0.98
Note: Differences between revenues calculated within this table and reported revenues within the previous table are attributed to rounding and the level of precision
presented on production units shown.
44
2020 Operational Highlights:
•
•
Revenues from our mineral resources segment increased $945,000, or 10%, to $10,736,000 in 2020 when compared to $9,791,000 in 2019. The
increase is attributed to a $1,912,000 increase in water sales. During 2019, the Company had an unfavorable water sales adjustment of $1,050,000
that was tied to an increase in SWP allocation levels, which adversely affected sales pricing. In 2020 however, SWP allocation levels were much
lower, which in turn improved pricing, resulting in additional water sales revenues. Lastly, there were 540 additional acre-feet of water sold during
2020 when compared to 2019.
There was an increase in cement royalties of $306,000 resulting from increased demand from the Company's tenant, National Cement as a result
of an increase in road infrastructure projects.
• Offsetting the favorable revenue increases was a $1,188,000 decrease in oil and gas royalties resulting from lower prices for much of 2020 and
lower demand driven by social distancing initiatives such as California's stay-at-home orders.
• Mineral resource expense increased $596,000, or 10%, to $6,414,000 in 2020 when compared to $5,818,000 in 2019. Of the $596,000 increase,
$469,000 is attributed to increased water cost of sales as a result of selling additional water. The remainder is attributed to an increase in property
taxes that occurred because of higher mineral assessments on the Company's land.
2019 Operational Highlights:
•
Revenues from our mineral resources segment decreased $4,604,000, or 32%, to $9,791,000 in 2019 when compared to $14,395,000 in 2018. This
decrease was primarily attributed to fewer water sale opportunities after the wet 2019 winter rain season which reduced revenues by $5,145,000 in
2019.
• Oil and gas royalties decreased $436,000 as a result of lower production driven by a lower price per barrel of oil overall for the year.
• Offsetting the revenue declines were increases in rock aggregate and cement royalties of $324,000 and $213,000, respectively, as a result of an
increase in regional construction.
• Mineral resource expense decreased $405,000, or 7%, to $5,818,000 in 2019 when compared to $6,223,000 in 2018, which is a direct result of the
reduced water sales previously discussed.
For further discussion of mineral resources operations, refer to Item 1 “Business—Mineral Resources.”
45
Farming
($ in thousands)
Farming revenues
Almonds
Pistachios
Wine grapes
Hay
Other
Total farming revenues
Total farming expenses
Operating Income from farming
($ in thousands)
ALMONDS (lbs.)
Current year crop
Prior crop years
Prior crop price adjustment
Signing bonus
Crop Insurance
1
Subtotal Almonds
PISTACHIOS (lbs.)
Current year crop
Prior crop years
Prior crop price adjustment
Crop Insurance
1
Subtotal Pistachios
WINE GRAPES (tons)
Current year crop
Crop Insurance
Subtotal Wine Grapes
Other
Hay
Other farming revenues
Total farming revenues
2020
2019
2018
$
$
$
$
5,021 $
5,636
2,589
419
201
13,866 $
15,103 $
(1,237) $
7,310 $
7,466
3,740
468
347
19,331 $
15,251 $
4,080 $
5,744
7,880
3,683
297
959
18,563
16,028
2,535
December 31, 2020
Quantity
2
Sold
Average
Price
Revenue
December 31, 2019
Quantity
2
Sold
Average
Price
Revenue
Change
Quantity
2
Sold
Average
Price
Revenue
$
$
$
$
$
$
4,207
783
—
31
—
5,021
932
25
890
3,789
5,636
2,589
—
2,589
$
419
201
$ 13,866
2,078 $
405 $
2.02
1.93
2,483 $
2.01
456 $
13
2.04
1.92
469 $
2.04
9 $ 287.67
9 $ 287.67
$
$
$
$
$
$
6,359
568
(61)
28
416
7,310
1,624
976
3,807
1,059
7,466
3,730
10
3,740
$
468
347
$ 19,331
2,252 $
227
2.82
2.50
2,479 $
2.79
819 $
558
1.98
1.75
1,377 $
1.89
14 $ 266.43
14 $ 266.43
$
$
$
$
$
$
$
$
(2,152)
215
61
3
(416)
(2,289)
(692)
(951)
(2,917)
2,730
(1,830)
(1,141)
(10)
(1,151)
(49)
(146)
(5,465)
(174) $
178
(0.80)
(0.57)
4 $
(0.78)
(363) $
(545)
0.06
0.17
(908) $
0.15
(5) $
21.24
(5) $
21.24
1
Average price calculation reflects sale of almond and pistachio crops during the calendar reported year exclusive of any price adjustments.
2
Almond and pistachio units are presented in thousands of pounds while wine grapes are presented in thousands of tons.
46
2020 Operational Highlights:
• During 2020, farming segment revenues decreased $5,465,000, or 28%, from $19,331,000 in 2019 to $13,866,000 in 2020. The factors
contributing to this decrease is as follow:
◦ Almond revenues decreased $2,289,000 as a result of lower pricing. California's 2020 almond crop yielded in excess of 3 billion pounds,
surpassing all previous production records. The increased yields were driven by favorable blooms along with new almond plantings
coming into production throughout California in recent years. The mix of demand has been changed in the near term as a result of
COVID-19 as more product is moving through wholesale markets and less through high end users such as restaurants. The global
demand for almonds remains as strong as it was prior to the pandemic, with India and China being the largest importer of California
almonds. Although COVID-19 disrupted international trade during its early onset, it ultimately had a sparing effect on the Company's
sales volumes. The aforementioned factors discussed are the primary drivers of the overall decline in pricing.
◦
Pistachio revenues decreased $1,830,000. Although 2020 was not a down bearing year for pistachios, the crop did not receive adequate
chilling hours as a result of the warm 2020 winter. Crops with inadequate chilling hours will have depressed yields and blooms. As a
hedge against below average production for its almond and pistachio crops, the Company purchases crop production insurance annually.
This insurance will pay for reduced production if crop production in the year falls below the insured levels. The Company filed a claim
with its insurance provider in order to recuperate a portion of the reduced production revenues as a result of lost production. The
insurance claim in the amount of $3,789,000 was collected during the fourth quarter.
◦ Wine grape revenues decreased $1,151,000 due to less production, which was the result of removing a 313 acre vineyard. The vineyard
was removed in 2020 as there was no longer interest for its fruit. The Company in late 2020 acquired a new sales contract for a different
variety of grapes, resulting in the development of a new vineyard, which will ultimately replace this lost revenue stream.
47
($ in thousands)
ALMONDS (lbs.)
Current year crop
Prior crop years
Prior crop price adjustment
Signing bonus
Crop Insurance
1
Subtotal Almonds
PISTACHIOS (lbs.)
Current year crop
Prior crop years
Prior crop price adjustment
Insurance
1
Subtotal Pistachios
WINE GRAPES (tons)
Current year crop
Insurance
Subtotal Wine Grapes
Other
Hay
Other farming revenues
Total farming revenues
December 31, 2019
Quantity
2
Sold
Average
Price
Revenue
December 31, 2018
Quantity
2
Sold
Average
Price
Revenue
Change
Quantity
2
Sold
Average
Price
Revenue
$
$
$
$
$
$
6,359
568
(61)
28
416
7,310
1,624
976
3,807
1,059
7,466
3,730
10
3,740
$
468
347
$ 19,331
2,252 $
227
2.82
2.50
2,479 $
2.79
819 $
558
1.98
1.75
1,377 $
1.89
14 $ 266.43
14 $ 266.43
$
$
$
$
$
$
$
4,476
1,234
—
34
—
5,744
7,251
518
111
—
7,880
3,683
—
3,683
$
297
959
$ 18,563
1,717 $
412 $
2.61
3.00
2,129 $
2.68
3,615 $
120
2.01
4.32
3,735 $
2.08
14 $ 263.07
14 $ 263.07
$
$
$
$
$
$
$
$
$
1,883
(666)
(61)
(6)
416
1,566
(5,627)
458
3,696
1,059
(414)
47
10
57
171
(612)
768
535 $
(185)
0.21
(0.50)
350 $
0.11
(2,796) $
438
(0.03)
(2.57)
(2,358) $
(0.19)
— $
3.36
— $
3.36
1
Average price calculation reflects sale of almond and pistachio crops during the calendar reported year exclusive of any price adjustments.
2
Almond and pistachio units are presented in thousands of pounds while wine grapes are presented in thousands of tons.
2019 Operational Highlights:
• During 2019, farming revenues increased $768,000, or 4%, from $18,563,000 in 2018 to $19,331,000 in 2019. When compared to 2018, almond
revenues increased by $1,566,000 primarily from improved 2019 almond crop yields, which increased the amount of inventory available for sale.
• Offsetting the increased almond sales were reductions in pistachio revenues of $414,000, which is a result of having lower yields during the 2019
down bearing cycle. Although the Company received insurance proceeds for the loss and a one-time price adjustment on the 2018 pistachio crop,
they were not enough to recuperate lost revenues. Also contributing to the decline in farming revenues were declines in other farming revenues of
$612,000 which were primarily a result of having fewer water use reimbursements from a farm land lease as a result of having fewer acres leased.
•
Farming expenses decreased $777,000, or 5%, to $15,251,000 when compared to $16,028,000 in 2018. The decrease was primarily attributed to
reductions in WRMWSD water holding costs of $1,642,000 as a result of the wet 2019 rain season offset by an increase in pruning costs of
$460,000, harvest costs of $313,000, and hulling costs of $281,000.
For further discussion of the farming operations, refer to Item 1 “Business—Farming Operations.”
48
Ranch Operations
($ in thousands)
Ranch operations revenue
2020
2019
2018
1
Game management and other
Grazing
2,020 $
1,589
Total ranch operations revenues
3,609 $
Total ranch operations expenses
5,316 $
Operating loss from ranch operations
(1,707) $
1
Game management and other revenues consist of revenues from hunting, filming, high desert hunt club (a premier upland bird hunting club), and other ancillary activities.
2,097 $
1,595
3,692 $
4,896 $
(1,204) $
$
$
$
$
2,171
1,520
3,691
5,451
(1,760)
2020 Operational Highlights:
•
•
Revenues from ranch operations increased $83,000, or 2%, from $3,609,000 in 2019 to $3,692,000 in 2020, which is primarily attributed to an
increase in guided hunts of $121,000.
Ranch operations expenses decreased $420,000, or 8%, to $4,896,000 in 2020 from $5,316,000 in 2019. The decrease is primarily attributed to
reduced payroll and overhead expenses of $332,000 as a result of the Company's right sizing efforts. This segment also had notable decreases in
fuel costs and fees of $56,000 and $60,000, respectively.
2019 Operational Highlights:
•
•
Revenues from ranch operations decreased $82,000, or 2%, from $3,691,000 in 2018 to $3,609,000 in 2019. The decrease is primarily attributed
to reduced membership revenues of $143,000, partially offset by an increase in grazing lease revenues of $69,000.
Ranch operations expenses decreased $135,000, or 2%, to $5,316,000 in 2019 from $5,451,000 in 2018. The decrease was mainly attributed to
reduced payroll expense of $183,000, partially offset by an increase in repair and maintenance expense of $49,000.
Other Income
Total other income increased $2,910,000, or 497%, from a loss of $585,000 in 2019 to income of $2,325,000 in 2020. In 2019, the Company recognized
asset abandonment costs of $1,604,000, that was primarily related to a wine grape vineyard consisting of 313 acres. There were no similar abandonment
costs recorded in 2020. Also in 2020, the Company sold building and land that was previously operated by a fast food tenant to its joint venture, Petro
Travel Plaza LLC. The Company received a cash distribution of $2,000,000 from the joint venture, and realized a Gain on Sale of Real Estate of
$1,331,000. Offsetting these favorable variances in other income was a $355,000 decrease in investment income that resulted from not reinvesting maturing
securities in order to fund the Company's major development projects.
Total other income decreased $1,870,000, or 146%, from $1,285,000 in 2018 to a loss of $585,000 in 2019. This was mainly attributable to asset
abandonment costs of $1,604,000 that were overwhelmingly related to the abandonment of a wine grape vineyard, consisting of 313 acres, that will no
longer be farmed.
Corporate Expenses
Corporate general and administrative costs increased $69,000, or 0.7%, to $9,430,000 during 2020 when compared to $9,361,000 in 2019. The increase is
attributed to an $1,182,000 increase in stock compensation as a result of implementing a new performance stock compensation plan. This increase was
offset by a $546,000 decrease in payroll as a result of temporary cost cutting measures resulting from the COVID-19 pandemic, a $426,000 decrease in
professional services, and a $139,000 decrease in depreciation.
Corporate general and administrative costs decreased $344,000, or 3.5%, to $9,361,000 during 2019 when compared to $9,705,000 in 2018. The decrease
was primarily attributable to a decrease in depreciation and amortization of $231,000 and software licenses of $149,000.
49
Equity in Earnings of Unconsolidated Joint Ventures
Equity in earnings of unconsolidated joint ventures is an important and growing component of our commercial/industrial activities and in the future, equity
in earnings of unconsolidated joint ventures can become a significant part of our operations within the resort/residential segment. As we expand our current
ventures and add new joint ventures, these investments will become a growing revenue source for the Company.
($ in thousands)
Equity in earnings (loss)
Petro Travel Plaza Holdings LLC
Five West Parcel, LLC
18-19 West, LLC
TRCC/Rock Outlet Center, LLC
TRC-MRC 1, LLC
TRC-MRC 2, LLC
TRC-MRC 3, LLC
Equity in earnings of unconsolidated joint ventures, net
2020 Operational Highlights:
2020
2019
2018
$
$
5,722 $
(2)
(68)
(2,090)
64
678
200
4,504 $
8,810 $
9,119
(53)
(1,921)
46
575
(1)
16,575 $
5,803
389
(51)
(2,323)
(249)
265
—
3,834
During 2020, equity in earnings from unconsolidated joint ventures decreased $12,071,000, or 73%, to $4,504,000 when compared to $16,575,000 in 2019.
•
•
Five West Parcel, LLC's operating results declined $9,121,000 when compared to 2019 because the joint venture in 2020 was focused on
dissolution, which was completed in 2020. In 2019, the joint venture sold its building and land for $29,088,000, and recognized a gain of
$17,537,000. The Company was entitled to 50% of the gain in 2019, explaining the year-over-year variance.
There was a $3,088,000 decrease in our share of earnings from our TA/Petro joint venture. This joint venture was impacted by California's stay-at
home orders for most of 2020. As travelers were discouraged from travelling during the holidays, fuel sales volumes saw a 10% decline, causing a
22% decline in fuel margins. In addition, indoor dining restrictions forced the joint venture's full service restaurants to close which resulted in a
77% decline in revenues and a 78% decline in restaurant operating margins.
2019 Operational Highlights:
During 2019, equity in earnings from unconsolidated joint ventures increased $12,741,000 to $16,575,000 when compared to $3,834,000 in 2018.
•
•
Five West Parcel, LLC had the most significant increase in equity in earnings at $9,118,611, resulting from the gain on sale of a building and land
previously held by the joint venture. The joint venture had owned and leased a 606,000 square foot building, the joint venture's primary asset, to
Dollar General, and 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
at the joint venture level.
There was a $8,804,197 increase in our share of earnings from our TA/Petro joint venture. The improvement was mainly driven by a 38% increase
in fuel margins resulting from lower cost of fuel sales when compared to the prior year.
• Our share of the loss within the TRCC/Rock Outlet joint venture decreased $402,000 due to the continuing improvement in average sales per
vehicle. In addition, the joint venture also had less accelerated amortization on tenant allowances in 2019. The Outlets at Tejon is continually
identifying new and desirable tenants to better serve a wider demographic. In 2019, the Outlets at Tejon attracted new tenants such as The
Children's Place and Cosmetics Company Store.
50
Income Taxes
For the twelve months ended December 31, 2020, the Company's net income tax expense was $829,000 compared $3,980,000 for the twelve months ended
December 31, 2019. These represent effective income tax rates of approximately 1,011% and 27% for the twelve months ended December 31, 2020 and,
2019, respectively. Our effective income tax rate for the year ended December 31, 2020 was higher than the federal statutory rate in the United States, a
result of permanent differences arising from stock compensation and non-deductible compensation under Section 162(m) of the Tax Cuts and Jobs Act of
2017. The discrete item associated with stock grants was triggered when stock grants were issued to participants at a price less than the original grant price,
causing a deferred tax shortfall. The shortfall recognized during the year represents the reversal of excess deferred tax assets recognized in prior periods.
The recognition of the shortfall is not anticipated to have an impact on the Company's current income tax payable. As of December 31, 2020 and 2019 we
had an income tax receivable of $1,497,000 and $856,000, respectively.
As of December 31, 2020, we had net deferred tax liabilities of $925,000. Our largest deferred tax assets were made up of temporary differences related to
the capitalization of costs, pension adjustments, interest rate swap, and stock compensation. Deferred tax liabilities consist of depreciation, deferred gains,
joint venture differences, cost of sales adjustments, and straight-line rent. Due to the nature of most of our deferred tax assets, we believe they will be used
in future years and an allowance is not necessary.
The Company classifies interest and penalties incurred on tax payments as income tax expenses. The Company did not make any income tax payments in
2020 and $4,645,000 in 2019. The Company received refunds of $1,314,000 in 2020 and $1,345,000 in 2019.
For more detail, see Note 12. (Income Taxes), of the Notes to Consolidated Financial Statements, included this Annual Report on Form 10-K.
Liquidity and Capital Resources
Cash Flow and Liquidity
Our financial position allows us to pursue our strategies of land entitlement, development, and conservation. Accordingly, we have established well-defined
priorities for our available cash, including investing in core operating segments to achieve profitable future growth. We have historically funded our
operations with cash flows from operating activities, investment proceeds, and short-term borrowings from our bank credit facilities. In the past, we have
also issued common stock and used the proceeds for capital investment activities.
To enhance shareholder value, we will continue to make investments in our real estate segments to secure land entitlement approvals, build infrastructure
for our developments, ensure adequate future water supplies, and provide funds for general land development activities. Within our farming segment, we
will make investments as needed to improve efficiency and add capacity to its operations when it is profitable to do so.
Our cash and cash equivalents and marketable securities totaled approximately $58,091,000 at December 31, 2020, a decrease of $8,099,000, or 12%, from
the corresponding amount at the end of 2019.
The following table summarizes the cash flow activities for the following years ended December 31:
($ in thousands)
Operating activities
Investing activities
Financing activities
2020
2019
2018
$
$
$
15,481 $
19,778 $
(7,045) $
16,045 $
828 $
(5,675) $
14,354
(13,246)
(5,307)
Cash flows provided by operating activities are primarily dependent upon the rental rates of our leases, the collectability of rent and recovery of operating
expenses from our tenants, distributions from joint ventures, the success of our crops and commodity prices within our mineral resource segment. During
2020, our operations generated $15,481,000 in cash. A portion of these receipts came from distributions of $6,222,000 from our Five West Parcel, TA/Petro
and Majestic joint ventures, while another $5,427,000 came in the form of farming receivable collections.
During 2019, our operations provided $16,045,000 in cash primarily attributable to strong results from our commercial joint ventures. We received total
distributions of $15,381,000 from our Five West Parcel, TA/Petro and Majestic joint ventures.
51
During 2020, investing activities provided $19,778,000, which was largely attributed to marketable securities maturities of $41,843,000. The maturities
were used to fund capital expenditures of $22,259,000 that was primarily related to our real estate development. Of the $22,259,000, we spent $4,132,000
on general planning and final map preparation for Phase 1 of MV, $3,635,000 on litigation defense for Centennial, and $1,997,000 on re-entitlement and
litigation for Grapevine. At TRCC, we primarily used $7,128,000 to expand water infrastructure at TRCC and early entitlement efforts for TRCC
Residential. All real estate capital expenditures are inclusive of capitalized interest, payroll and overhead. Our mineral resources segment spent $3,568,000
to acquire water for use as needed and for our future residential developments. Lastly, our farming segment had cash outlays of $5,145,000 for developing
new almond orchards and replacing old farm equipment.
During 2019, investing activities provided $828,000 of cash, which was largely attributed to marketable securities maturities of $53,418,000,
reimbursements from the community financing district of $4,180,000, and distributions from our unconsolidated joint ventures of $3,457,000. Offsetting
the increase were investments in marketable securities of $28,219,000 and capital expenditures of $25,222,000. Of the $25,222,000, we spent $4,691,000
on planning and permitting for MV, $4,403,000 on the final approval of the specific plan for Centennial, and $3,717,000 on re-entitlement and litigation for
Grapevine. At TRCC, we used $8,690,000 on continued expansion of water infrastructure at TRCC and construction of a new multi-tenant building that
was subsequently contributed to our TA/Petro joint venture. All real estate capital expenditures are inclusive of capitalized interest, payroll and overhead.
Our farming segment had cash outlays of $3,362,000 for developing new almond orchards and replacing old farm equipment. Lastly, we purchased water
through our annual water contracts, using $3,686,000 and invested $3,100,000 into our unconsolidated joint ventures.
Our estimated capital investment for 2021 is primarily related to our real estate projects as it was in 2020. These estimated investments include
approximately $7,163,000 of infrastructure development at TRCC-East to support continued commercial retail and industrial development and expanding
water facilities to support future anticipated absorption. We are also investing approximately $4,465,000 to continue developing new almond orchards,
wine grape vineyards, and replacing old farming equipment. The farm investments are part of a long-term farm management program to redevelop
declining orchards and vineyards allowing the Company to maintain and improve future farm revenues. We expect to possibly invest up to $10,174,000 for
permitting activities, litigation defense, predevelopment activities and land planning design at MV, Centennial, and Grapevine during 2020. The timing of
these investments is dependent on our coordination efforts with Los Angeles County regarding litigation efforts for Centennial, finalizing litigation and
limited permitting activities for Grapevine, and final maps, civil engineering, land planning and design, for MV. Our plans also include $4,544,000 for
payment of annual water inventory and water related investments. We are also planning to potentially invest up to $386,000 in the normal replacement of
operating equipment, such as ranch equipment, and vehicles.
We capitalize interest cost as a cost of the project only during the period for which activities necessary to prepare an asset for its intended use are ongoing,
provided that expenditures for the asset have been made and interest cost has been incurred. Capitalized interest for the years ended December 31, 2020 and
2019, of $2,713,000 and $2,818,000, respectively, is classified in real estate development. We also capitalized payroll costs related to development, pre-
construction, and construction projects which aggregated $3,520,000 and $3,706,000 for the years ended December 31, 2020 and 2019, respectively.
Expenditures for repairs and maintenance are expensed as incurred.
During 2020, financing activities used $7,045,000, which is comprised of long-term debt repayments of $4,819,000 and tax payments on vested stock
grants of $2,226,000.
During 2019, financing activities used $5,675,000 primarily through repayments of long-term debt of $4,004,000 and tax payments on vested stock grants
of $1,671,000.
It is difficult to accurately predict cash flows due to the nature of our businesses and fluctuating economic conditions. Our earnings and cash flows will be
affected from period to period by the commodity nature of our farming and mineral operations, the timing of sales and leases of property within our
development projects, and the beginning of development within our residential projects. The timing of sales and leases within our development projects is
difficult to predict due to the time necessary to complete the development process and negotiate sales or lease contracts. Often, the timing aspect of land
development can lead to particular years or periods having more or less earnings than comparable periods. Based on our experience, we believe we will
have adequate cash flows, cash balances, and availability on our line of credit over the next twelve months to fund internal operations. As we move forward
with the completion of the litigation, permitting and engineering design for our master planned communities and prepare to move into the development
stage, we will need to secure additional funding through the issuance of equity and secure other forms of financing such as joint ventures and possibly debt
financing.
52
Capital Structure and Financial Condition
At December 31, 2020, total capitalization at book value was $502,213,000 consisting of $56,882,000 of debt, net of deferred financing costs, and
$445,331,000 of equity, resulting in a debt-to-total-capitalization ratio of approximately 11.3%, representing a decrease when compared to the debt-to-total-
capitalization ratio of 13.1% at December 31, 2019.
On October 13, 2014, the Company as borrower, entered into an Amended and Restated Credit Agreement, a Term Note and a Revolving Line of Credit
Note, with Wells Fargo, or collectively the Credit Facility. The Credit Facility added a $70,000,000 term loan, or Term Loan, to the then existing
$30,000,000 revolving line of credit, or RLC. In August 2019, the Company amended the Term Note (Amended Term Note) and extended its maturity to
June 2029 and amended the RLC to expand
the capacity from $30,000,000 to $35,000,000 and extend the maturity to October 2024.
The Amended Term Loan had an outstanding balance of $54,887,000 as of December 31, 2020 and an outstanding balance of $58,768,000 as of
December 31, 2019. The interest rate per annum applicable to the Amended Term Note is LIBOR (as defined in the Term Note) plus a margin of 170 basis
points. The interest rate for the Amended Term Note has been fixed at 4.16% through the use of an interest rate swap agreement. The Amended Term Note
requires monthly amortization payments, with the outstanding principal amount due June 5, 2029. The Amended Term Note is secured by the Company’s
farmland and farm assets, which include equipment, crops and crop receivables; the PEF power plant lease and lease site; and related accounts and other
rights to payment and inventory.
The RLC had no outstanding balance at December 31, 2020 and December 31, 2019. At the Company’s option, the interest rate on this line of credit can
float at 1.50% over a selected LIBOR rate or can be fixed at 1.50% above LIBOR for a fixed rate term. During the term of this RLC, the Company can
borrow at any time and partially or wholly repay any outstanding borrowings and then re-borrow, as necessary.
Any future borrowings under the RLC will be used for ongoing working capital requirements and other general corporate purposes. To maintain availability
of funds under the RLC, undrawn amounts under the RLC will accrue a commitment fee of 10 basis points per annum. The Company's ability to borrow
additional funds in the future under the RLC is subject to compliance with certain financial covenants and making certain representations and warranties,
which are typical in this type of borrowing arrangement.
The Amended Note and RLC, collectively the Amended Credit Facility, requires compliance with three financial covenants: (i) total liabilities divided by
tangible net worth not greater than 0.75 to 1.0 at each quarter end; (ii) a debt service coverage ratio not less than 1.25 to 1.00 as of each quarter end on a
rolling four quarter basis; and (iii) maintain liquid assets equal to or greater than $20,000,000, including availability on the RLC. At December 31, 2020
and December 31, 2019, the Company was in compliance with all financial covenants.
The Amended Credit Facility also contains customary negative covenants that limit the ability of the Company to, among other things, make capital
expenditures, incur indebtedness and issue guaranties, consummate certain assets sales, acquisitions or mergers, make investments, pay dividends or
repurchase stock, or incur liens on any assets.
The Amended Credit Facility contains customary events of default, including: failure to make required payments; failure to comply with terms of the
Amended Credit Facility; bankruptcy and insolvency; and a change in control without consent of the bank (which consent will not be unreasonably
withheld). The Amended Credit Facility contains other customary terms and conditions, including representations and warranties, which are typical for
credit facilities of this type.
We also have a $4,750,000 promissory note agreement with principal and interest due monthly. The interest rate on this promissory note is 4.25% per
annum, with principal and interest payments ending on September 1, 2028. The proceeds from this promissory note were used to eliminate debt that had
been previously used to provide long-term financing for a building being leased to Starbucks and provide additional working capital for future investment.
In March 2020, the Company made an additional payment of $687,000 that was applied to the principal of the note. Subsequent principal and interest
payments were reduced to $28,000 per month. The additional principal payment was tied to the release of collateral, which in April 2020 was contributed
to Petro Travel Plaza LLC. The balance of this long-term debt instrument included in "Notes payable" above approximates the fair value of the instrument.
The balance as of December 31, 2020 is $2,191,000.
Our current and future capital resource requirements will be provided primarily from current cash and marketable securities, cash flow from on-going
operations, distributions from joint ventures, proceeds from the sale of developed and undeveloped parcels, potential sales of assets, additional use of debt
or drawdowns against our line-of-credit, proceeds from the reimbursement of public infrastructure costs through CFD bond debt (described below under
“Off-Balance Sheet Arrangements”), and the issuance of common stock. In May 2019, we filed an updated shelf registration statement on Form S-3 that
went effective in May 2019. Under the shelf registration statement, we may offer and sell in the future one or more
53
offerings, common stock, preferred stock, debt securities, warrants or any combination of the foregoing. The shelf registration allows for efficient and
timely access to capital markets and when combined with our other potential funding sources just noted, provides us with a variety of capital funding
options that can then be used and appropriately matched to the funding needs of the Company.
As noted above, at December 31, 2020, we had $58,091,000 in cash and securities and as of the filing date of this Form 10-K, we had $35,000,000
available on credit lines to meet any short-term liquidity needs.
We continue to expect that substantial investments will be required in order to develop our land assets. In order to meet these capital requirements, we may
need to secure additional debt financing and continue to renew our existing credit facilities. In addition to debt financing, we will use other capital
alternatives such as joint ventures with financial partners, sales of assets, and the issuance of common stock. We will use a combination of the above
funding sources to properly match funding requirements with the assets or development project being funded. As we move into 2021, we will be evaluating
various options for funding the potential start of development projects. There is no assurance that we can obtain financing or that we can obtain financing at
favorable terms. We believe we have adequate capital resources to fund our cash needs and our capital investment requirements in the near-term as
described earlier in the cash flow and liquidity discussions.
Contractual Cash Obligations
The following table summarizes our contractual cash obligations and commercial commitments as of December 31, 2020, to be paid over the next five
years:
($ in thousands)
Contractual Obligations:
Estimated water payments
Long-term debt
Interest on long-term debt
Cash contract commitments
Defined Benefit Plan
SERP
Tejon Ranch Conservancy
Financing fees
Operating lease
Total contractual obligations
Total
Less than a year
1-3 years
3-5 years
More than 5
years
Payments Due by Period
$
$
276,146 $
57,078
12,905
4,866
4,378
5,233
800
163
32
361,601 $
10,194 $
4,295
2,281
2,657
299
527
800
163
21
21,237 $
21,314 $
9,170
4,005
1,138
666
1,038
—
—
11
37,342 $
22,613 $
10,016
3,204
—
843
1,040
—
—
—
37,716 $
222,025
33,597
3,415
1,071
2,570
2,628
—
—
—
265,306
The categories above include purchase obligations and other long-term liabilities reflected on our balance sheet under GAAP. A “purchase obligation” is
defined in Item 303(a)(5)(ii)(D) of Regulation S-K as “an agreement to purchase goods or services that is enforceable and legally binding the registrant that
specifies all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate
timing of the transaction.” Based on this definition, the table above includes only those contracts that include fixed or minimum obligations. It does not
include normal purchases, which are made in the ordinary course of business.
Our financial obligations to the Tejon Ranch Conservancy are prescribed in the Conservation Agreement. Our advances to the Tejon Ranch Conservancy
are dependent on the occurrence of certain events and their timing, and are therefore subject to change in amount and period. The amounts included above
are the minimum amounts we anticipate contributing through the year 2021, at which time our current contractual obligation terminates.
As discussed in Note 15 (Retirement Plans) of the Notes to Consolidated Financial Statements, we have long-term liabilities for deferred employee
compensation, including pension and supplemental retirement plans. Payments in the above table reflect estimates of future defined benefit plan
contributions from the Company to the plan trust, estimates of payments to employees from the plan trust, and estimates of future payments to employees
from the Company that are in the SERP program. During 2020, we made pension contributions of $165,000 and it is projected that we will make a similar
contribution in 2021.
54
Our cash contract commitments consist of contracts in various stages of completion related to infrastructure development within our industrial
developments and entitlement costs related to our industrial and residential development projects. Also, included in the cash contract commitments are
estimated fees earned during the second quarter of 2014 by a consultant, related to the entitlement of the Grapevine Development Area. The Company
exited a consulting contract during the second quarter of 2014 related to the Grapevine Development and is obligated to pay an earned incentive fee at the
time of successful receipt of litigated project entitlements and at a value measurement date five-years after entitlements have been achieved for Grapevine.
The final amount of the incentive fees will not be finalized until the future payment dates. The Company believes that net savings from exiting the contract
over this future time period will more than offset the incentive payment costs.
Estimated water payments include the Nickel water contract, which obligates us to purchase 6,693 acre-feet of water annually through 2044 and SWP
contracts with Wheeler Ridge Maricopa Water Storage District, Tejon-Castac Water District, Tulare Lake Basin Water Storage District, and Dudley-Ridge
Water Storage District. These contracts for the supply of future water run through 2035. Please refer to Note 6 (Long-Term Water Assets) of the Notes to
Consolidated Financial Statements for additional information regarding water assets.
55
Off-Balance Sheet Arrangements
The following table shows contingent obligations we have with respect to the CFDs.
($ in thousands)
Other Commercial Commitments:
Standby letter of credit
Total other commercial commitments
Total
Amount of Commitment Expiration Per Period
4 -5 Years
2 -3 Years
< 1 year
After 5 Years
$
$
4,468 $
4,468 $
4,468 $
4,468 $
— $
— $
— $
— $
—
—
The Tejon Ranch Public Facilities Financing Authority, or TRPFFA, is a joint powers authority formed by Kern County and TCWD to finance public
infrastructure within the Company’s Kern County developments. TRPFFA created two CFD's, the West CFD and the East CFD. The West CFD has placed
liens on 420 acres of the Company’s land to secure payment of special taxes related to $28,620,000 of bond debt sold by TRPFFA for TRCC-West. The
East CFD has placed liens on 1,931 acres of the Company’s land to secure payments of special taxes related to $75,965,000 of bond debt sold by TRPFFA
for TRCC-East. At TRCC-West, the West CFD has no additional bond debt approved for issuance. At TRCC-East, the East CFD has approximately
$44,035,000 of additional bond debt authorized by TRPFFA.
In connection with the sale of bonds there is a standby letter of credit for $4,468,000 related to the issuance of East CFD bonds. The standby letter of credit
is in place to provide additional credit enhancement and cover approximately two years' worth of interest on the outstanding bonds. This letter of credit will
not be drawn upon unless the Company, as the largest landowner in the CFD, fails to make its property tax payments. As development occurs within
TRCC-East there is a mechanism in the bond documents to reduce the amount of the letter of credit. The Company believes that the letter of credit will
never be drawn upon. This letter of credit is for a two-year period of time and will be renewed in two-year intervals as necessary. The annual cost related to
the letter of credit is approximately $68,000. The assessment of each individual property sold or leased within each CFD is not determinable at this time
because it is based on the current tax rate and the assessed value of the property at the time of sale or on its assessed value at the time it is leased to a third-
party. Accordingly, the Company is not required to recognize an obligation at December 31, 2020.
At December 31, 2020, aggregate outstanding debt of unconsolidated joint ventures was $133,775,000. We guarantee $118,484,000 of this debt, relating to
our joint ventures with Rockefeller and Majestic. Because of positive cash flow generation within the Rockefeller and Majestic joint ventures, we do not
expect the guarantee to ever be called upon. We do not provide a guarantee on the $15,291,000 of debt related to our joint venture with TA/Petro.
56
Non-GAAP Financial Measures
EBITDA represents earnings before interest, taxes, depreciation, and amortization, a non-GAAP financial measure, and is used by us and others as a
supplemental measure of performance. We use Adjusted EBITDA to assess the performance of our core operations, for financial and operational decision
making, and as a supplemental or additional means of evaluating period-to-period comparisons on a consistent basis. Adjusted EBITDA is calculated as
EBITDA, excluding stock compensation expense and asset abandonment charges. We believe Adjusted EBITDA provides investors relevant and useful
information because it permits investors to view income from our operations on an unleveraged basis before the effects of taxes, depreciation and
amortization, stock compensation expense, and abandonment charges. By excluding interest expense and income, EBITDA and Adjusted EBITDA allow
investors to measure our performance independent of our capital structure and indebtedness and, therefore, allow for a more meaningful comparison of our
performance to that of other companies, both in the real estate industry and in other industries. We believe that excluding charges related to share-based
compensation facilitates a comparison of our operations across periods and among other companies without the variances caused by different valuation
methodologies, the volatility of the expense (which depends on market forces outside our control), and the assumptions and the variety of award types that
a company can use. EBITDA and Adjusted EBITDA have limitations as measures of our performance. EBITDA and Adjusted EBITDA do not reflect our
historical cash expenditures or future cash requirements for capital expenditures or contractual commitments. While EBITDA and Adjusted EBITDA are
relevant and widely used measures of performance, they do not represent net income or cash flows from operations as defined by GAAP. Further, our
computation of EBITDA and Adjusted EBITDA may not be comparable to similar measures reported by other companies.
($ in thousands)
Net (loss) income
Net loss attributed to non-controlling interest
Interest, net
Consolidated interest income
Our share of interest expense from unconsolidated joint ventures
Total interest, net
Income tax expense
Depreciation and amortization
Consolidated
Our share of depreciation and amortization from unconsolidated joint ventures
Total depreciation and amortization
EBITDA
Stock compensation expense
Asset abandonment charges
Adjusted EBITDA
57
Year-Ended December 31,
2019
2020
2018
$
$
(747) $
(7)
10,579 $
(1)
(884)
1,902
1,018
829
4,938
4,419
9,357
10,464
4,494
—
14,958 $
(1,239)
2,785
1,546
3,980
5,036
4,135
9,171
25,277
3,198
1,604
30,079 $
4,235
(20)
(1,344)
2,519
1,175
1,320
5,424
4,328
9,752
16,502
3,248
—
19,750
Net operating income (NOI) is a non-GAAP financial measure calculated as operating income, the most directly comparable financial measure calculated
and presented in accordance with GAAP, excluding general and administrative expenses, interest expense, depreciation and amortization, and gain or loss
on sales of real estate. We believe NOI provides useful information to investors regarding our financial condition and results of operations because it
primarily reflects those income and expense items that are incurred at the property level. Therefore, we believe NOI is a useful measure for evaluating the
operating performance of our real estate assets.
($ in thousands)
Net operating income
Pastoria Energy Facility
TRCC
Communication leases
Other commercial leases
Total Commercial/Industrial net operating income
($ in thousands)
Commercial/Industrial operating income
Plus: Commercial/Industrial depreciation and amortization
Plus: General, administrative and other expenses
Less: Other revenues including land sales
Total Commercial/Industrial net operating income
2020
Year-Ended December 31,
2019
2018
4,576 $
1,290
911
557
7,334 $
4,573 $
1,488
912
650
7,623 $
2020
Year-Ended December 31,
2019
2018
2,414 $
486
6,137
(1,703)
7,334 $
3,831 $
517
11,907
(8,632)
7,623 $
4,056
1,439
894
670
7,059
2,724
651
5,241
(1,557)
7,059
$
$
$
$
The Company utilizes NOI of unconsolidated joint ventures as a measure of financial or operating performance that is not specifically defined by GAAP.
We believe NOI of unconsolidated joint ventures provides investors with additional information concerning operating performance of our unconsolidated
joint ventures. We also use this measure internally to monitor the operating performance of our unconsolidated joint ventures. Our computation of this non-
GAAP measure may not be the same as similar measures reported by other companies. This non-GAAP financial measure should not be considered as an
alternative to net income as a measure of the operating performance of our unconsolidated joint ventures or to cash flows computed in accordance with
GAAP as a measure of liquidity nor are they indicative of cash flows from operating and financial activities of our unconsolidated joint ventures.
The following schedule reconciles net income from unconsolidated joint ventures to NOI of unconsolidated joint ventures.
($ in thousands)
Net income of unconsolidated joint ventures
Plus: Interest expense of unconsolidated joint ventures
Operating income of unconsolidated joint ventures
Plus: Depreciation and amortization of unconsolidated joint ventures
Less: Gain on sale of asset
Net operating income of unconsolidated joint ventures
2020
Year-Ended December 31,
2019
2018
$
$
7,099 $
5,154
12,253
8,323
—
20,576 $
30,213 $
5,438
35,651
7,773
(17,537)
25,887 $
5,734
4,912
10,646
8,125
—
18,771
58
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact the financial position, results of operations, or cash flows of the Company due to adverse changes in
financial or commodity market prices or rates. We are exposed to market risk in the areas of interest rates and commodity prices.
Financial Market Risks
Our exposure to financial market risks includes changes to interest rates and credit risks related to marketable securities, interest rates related to our
outstanding indebtedness and trade receivables.
The primary objective of our investment activities is to preserve principal while at the same time maximizing yields and prudently managing risk. To
achieve this objective and limit interest rate exposure, we limit our investments to securities with a maturity of less than five years and an investment grade
rating from Moody’s or Standard and Poor’s. See Note 3 (Marketable Securities) of the Notes to Consolidated Financial Statements.
Our current RLC has no outstanding balance. The interest rate on the RLC can either float at 1.50% over a selected LIBOR rate or can be fixed at 1.50%
above LIBOR for a fixed term for a limited period of time and change only at maturity of the fixed rate portion. The floating rate and fixed rate options
within our RLC help us manage our interest rate exposure on any outstanding balances.
We are exposed to interest rate risk on our long-term debt. Long-term debt consists of two term loans, one for $54,887,000 and is tied to LIBOR plus a
margin of 1.70%. The interest rate for the term of this loan has been fixed through the use of an interest rate swap that fixed the rate at 4.16%. The
outstanding balance on the second term loan is $2,191,000 and has a fixed rate of 4.25%. We believe it is prudent at times to limit the variability of
floating-rate interest payments and have from time-to-time entered into interest rate swap arrangements to manage those fluctuations, as we did with the
Term Loan.
Market risk related to our farming inventories ultimately depends on the value of almonds, grapes, and pistachios at the time of payment or sale. Credit risk
related to our receivables depends upon the financial condition of our customers. Based on historical experience with our current customers and periodic
credit evaluations of our customers’ financial conditions, we believe our credit risk is minimal. Market risk related to our farming inventories is discussed
below in the section pertaining to commodity price exposure.
59
The following tables provide information about our financial instruments that are sensitive to changes in interest rates. The tables present our debt
obligations and marketable securities and their related weighted-average interest rates by expected maturity dates.
Interest Rate Sensitivity Financial Market Risks
Principal Amount by Expected Maturity
At December 31, 2020
(In thousands except percentage data)
Assets:
Marketable securities
Weighted average interest rate
Liabilities:
Long-term debt ($4.75M note)
Weighted average interest rate
Long-term debt ($70.0M note)
Weighted average interest rate
2021
$2,766
0.99%
$244
4.25%
$4,051
4.16%
2022
$—
—%
$254
4.25%
$4,221
4.16%
2023
$—
—%
$265
4.25%
$4,429
4.16%
2024
$—
—%
$277
4.25%
$4,624
4.16%
2025
Thereafter
Total
Fair Value
$—
—%
$289
4.25%
$4,825
4.16%
$—
—%
$862
4.25%
$32,737
4.16%
$2,766
0.99%
$2,191
4.25%
$54,887
4.16%
$2,771
$2,191
$54,887
Interest Rate Sensitivity Financial Market Risks
Principal Amount by Expected Maturity
At December 31, 2019
(In thousands except percentage data)
Assets:
Marketable securities
Weighted average interest rate
Liabilities:
Long-term debt ($4.75M note)
Weighted average interest rate
Long-term debt ($70.0M note)
Weighted average interest rate
2020
2021
$38,133
2.03%
$302
4.25%
$3,881
4.16%
$900
2.06%
$315
4.25%
$4,051
4.16%
2022
$—
—%
$328
4.25%
$4,221
4.16%
2023
$—
—%
$343
4.25%
$4,429
4.16%
2024
Thereafter
Total
Fair Value
$—
—%
$357
4.25%
$4,624
4.16%
$—
—%
$1,484
4.25%
$37,562
4.16%
$39,033
2.03%
$3,129
4.25%
$58,768
4.16%
$39,084
$3,129
$58,768
Our risk with regard to fluctuations in interest rates has decreased slightly related to marketable securities since these balances have decreased compared to
the prior year.
Commodity Price Exposure
As of December 31, 2020, we have exposure to adverse price fluctuations associated with certain inventories and accounts receivable. Farming inventories
consist of farming cultural and processing costs related to 2020 and 2019 crop production. The farming costs inventoried are recorded at actual costs
incurred. Historically, these costs have been recovered each year when that year’s crop harvest has been sold.
With respect to accounts receivable, the amount at risk relates primarily to farm crops. These receivables are recorded based on estimated final pricing. The
final price is generally not known for several months following the close of our fiscal year. Of the $4,592,000 in outstanding accounts receivable at
December 31, 2020, $646,000 or 14%, is at risk for changing prices. Of the amount at risk, $646,000 is attributable to pistachios.
60
The price estimated for recording accounts receivable for pistachios recorded at December 31, 2020 was $2.04 per pound, as compared to $1.98 per pound
at December 31, 2019. For each $0.01 change in the price per pound of pistachios, our receivable for pistachios increases or decreases by $3,200. Although
the final price per pound of pistachios (and therefore the extent of the risk) is not presently known, over the last three years prices have ranged from $1.98
to $2.04.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item is submitted in a separate section of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
(a)
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer, Chief Financial Officer and Controller, of the effectiveness of the design and operation of our disclosure controls
and procedures pursuant to Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective as of December 31,
2020 in ensuring that all information required in the reports we file or submit under the Exchange Act was accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure and
was recorded, processed, summarized and reported within the time period required by the rules and regulations of the SEC.
(b)
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of
Rule 13a-15 or Rule 15d-15 under the Exchange Act that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
See Management’s Report on Internal Control Over Financial Reporting and the Report of Independent Registered Public Accounting Firm On Internal
Control over Financial Reporting following ITEM 15(a)(2) - FINANCIAL STATEMENT SCHEDULES of this Form 10-K.
ITEM 9B. OTHER INFORMATION
TRC issued a press release on March 3, 2021 for the fourth-quarter and year-ended December 31, 2020 financial results.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information as to our Executive Officers is set forth in Part I, Item 1 of this Form 10-K under “Information about our Executive Officers.” The other
information required by this Item is incorporated by reference from the definitive proxy statement to be filed by us with the SEC with respect to our 2021
Annual Meeting of Stockholders and will be found under the captions “The Election of Directors,” “Code of Business Conduct and Ethics and Corporate
Governance Guidelines,” “Corporate Governance Matters” and, if applicable, “Delinquent Section 16(a) Reports.”
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item is incorporated by reference from the definitive proxy statement to be filed by us with the SEC with respect to our 2021
Annual Meeting of Stockholders and will be found under the captions “Compensation Discussion and Analysis,” and “Compensation Committee Report.”
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
(a) Security Ownership of Certain Beneficial Owners and Management.
61
Information required by this Item with respect to security ownership of certain beneficial owners and management is incorporated by reference from the
definitive proxy statement to be filed by us with the SEC with respect to our 2021 Annual Meeting of Stockholders and will be found under the caption
"Stock Ownership of Certain Beneficial Owners and Management."
(b) Securities Authorized for Issuance under Equity Compensation Plans.
The following table shows aggregated information as of December 31, 2020 with respect to all of our compensation plans under which our equity securities
were authorized for issuance. At December 31, 2020, we had, and we presently have, no other compensation contracts or arrangements for the issuance of
any such equity securities and there were then, and continue to be, no compensation plans, contracts or arrangements which were not approved by our
stockholders. More detailed information with respect to our compensation plans is included in Note 11 (Stock Compensation - Restricted Stock and
Performance Share Grants) of the Notes to Consolidated Financial Statements.
Equity
compensation plans
approved by
security holders *
Restricted stock
grants and restricted
stock units at target
goal achievement
Equity Compensation Plans Approved by Security Holders
Number of securities to be
issued upon exercise of
outstanding grants
(a)
840,307
Weighted-average
exercise price of
outstanding grants
(b)
Final price determined
at time of vesting
Number of securities remaining
available for future issuance
under equity compensation
plans (excluding securities
reflected in column (a))
(c)
513,214
* The Company does not use equity compensation plans that have not been approved by the security holders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information required by this Item is incorporated by reference from the definitive proxy statement to be filed by us with the SEC with respect to our 2021
Annual Meeting of Stockholders and will be found under the captions “Related Person Transactions” and “Corporate Governance Matters.”
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information required by this Item is incorporated by reference from the definitive proxy statement to be filed by us with the SEC with respect to our 2021
Annual Meeting of Stockholders and will be found under the caption "Independent Registered Public Accounting Firm."
62
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(a) Documents filed as part of this report:
1 Consolidated Financial Statements:
1.1 Management's Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets – Years Ended December 31, 2020 and 2019
Consolidated Statements of Operations - Years Ended December 31, 2020, 2019 and 2018
Consolidated Statements of Comprehensive Income (Loss) - Years Ended December 31, 2020, 2019 and 2018
Consolidated Statements of Equity - Years Ended December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows - Years Ended December 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
1.2
1.3
1.4
1.5
1.6
1.7
2 Supplemental Financial Statement Schedules:
None.
3 Exhibits:
3.1
3.2
4.3
4.4
4.5
10.1
10.7
10.8
10.9
Restated Certificate of Incorporation
Amended and Restated Bylaws
Registration and Reimbursement Agreement
Description of Securities
Form of Indenture for Debt
Water Service Contract with Wheeler Ridge-Maricopa Water Storage District (without exhibits), amendments
originally filed under Item 11 to Registrant's Annual Report on Form 10-K
*Severance Agreement
*Director Compensation Plan
*Amended and Restated Non-Employee Director Stock Incentive Plan
10.9(1) *Stock Option Agreement Pursuant to the Non-Employee Director Stock Incentive Plan
10.10 *Amended and Restated 1998 Stock Incentive Plan
10.10(1) *Stock Option Agreement Pursuant to the 1998 Stock Incentive Plan
10.12 Ground Lease with Pastoria Energy Facility L.L.C.
10.15 Form of Securities Purchase Agreement
10.16 Form of Registration Rights Agreement
10.17 *2004 Stock Incentive Program
10.18 *Form of Restricted Stock Agreement for Directors
10.19 *Form of Restricted Stock Unit Agreement
10.23 Limited Liability Company Agreement of Tejon Mountain Village LLC
10.24 Tejon Ranch Conservation and Land Use Agreement
10.25 Second Amended and Restated Limited Liability Agreement of Centennial Founders, LLC
10.26 *Executive Employment Agreement - Allen E. Lyda
63
Page Number
71
72
73
76
77
78
79
80
82
FN 1
FN 2
FN 5
Filed herewith
FN 36
FN 6
FN 7
FN 7
FN 8
FN 7
FN 9
FN 7
FN 10
FN 11
FN 12
FN 13
FN 13
FN 13
FN 14
FN 15
FN 16
FN 17
10.27 Limited Liability Company Agreement of TRCC/Rock Outlet Center LLC
10.28 Warrant Agreement
10.29 Amendments to Limited Liability Company Agreement of Tejon Mountain Village LLC
10.30 Membership Interest Purchase Agreement - Tejon Mountain Village LLC
10.31 Amended and Restated Credit Agreement
10.32 Term Note
10.33 Revolving Line of Credit
10.34 Amendments to Lease Agreement with Pastoria Energy Facility L.L.C.
10.35 Water Supply Agreement with Pastoria Energy Facility L.L.C.
10.37 Limited Liability Company Agreement of TRC-MRC 2, LLC
10.38 Limited Liability Company Agreement of TRC-MRC 1, LLC
10.39 Centennial Founders, LLC Redemption and Withdrawal Agreement - Lewis Tejon Member
10.40 First Amendment to Second Amended and Restated Limited Liability Company Agreement of Centennial
Founders, LLC
10.41 Second Amendment to Second Amended and Restated Limited Liability Company Agreement of Centennial
Founders, LLC
10.42 Limited Liability Company Agreement of TRC-MRC 3, LLC
10.43 Fourth Amendment to Second Amended and Restated Limited Liability Company Agreement of Centennial
Founders, LLC
10.44 Centennial Founders, LLC Redemption and Withdrawal Agreement - CalAtlantic
10.45 Amended Revolving Line of Credit
10.46 Amended Term Note
10.47 Executive Severance Agreement - Executive Severance Agreement - Gregory S. Bielli S. Bielli
21 List of Subsidiaries of Registrant
23.1 Consent of Deloitte & Touche LLP, independent registered public accounting firm (Los Angeles, CA)
23.2 Consent of Ernst & Young Consent of Ernst & Young LLP, independent registered public accounting firm (Los
Angeles, CA), independent registered public accounting firm (Los Angeles, CA)
23.3 Consent of RSM US LLP, independent registered public accounting firm
31.1 Certification as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
99.1 Financial Statements of Petro Travel Plaza Holdings LLC
101.INS XBRL Instance Document.
101.SCH XBRL Taxonomy Extension Schema Document.
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB XBRL Taxonomy Extension Label Linkbase Document.
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.
* Management contract, compensatory plan or arrangement.
FN 18
FN 19
FN 20
FN 21
FN 22
FN 22
FN 22
FN 23
FN 24
FN 26
FN 27
FN 28
FN 29
FN 30
FN 31
FN 32
FN 33
FN 34
FN 35
FN 37
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
FN 1
FN 2
This document, filed with the Securities and Exchange Commission in Washington D.C. (file number 333-231032) as Exhibit 99.1 to
our Current Report on Form 8-K filed on May 26, 2020, is incorporated herein by reference.
This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 99.1 to our
Current Report on Form 8-K filed on May 26, 2020, is incorporated herein by reference.
64
FN 5
FN 6
FN 7
FN 8
FN 9
FN 10
FN 11
FN 12
FN 13
FN 14
FN 15
FN 16
FN 17
FN 18
FN 19
FN 20
FN 21
FN 22
FN 23
FN 24
This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 4.1 to our
Current Report on Form 8-K filed on December 20, 2005, is incorporated herein by reference.
This document, filed with the Securities and Exchange Commission in Washington D.C. (file number 1-7183) under Item 14 to our
Annual Report on Form 10-K for year ended December 31, 1994, is incorporated herein by reference. This Exhibit was not filed with
the Securities and Exchange Commission in an electronic format.
This document, filed with the Securities and Exchange Commission in Washington D.C. (file number 1-7183) under Item 14 to our
Annual Report on Form 10-K, for the period ending December 31, 1997, is incorporated herein by reference.
This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.9 to our
Annual Report on Form 10-K for the year ended December 31, 2008, is incorporated herein by reference.
This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.10 to our
Annual Report on Form 10-K for the year ended December 31, 2008, is incorporated herein by reference
This document filed with the Securities and Exchange Commission in Washington D.C. (file number 1-7183) as Exhibit 10.16 to our
Annual Report on Form 10-K for the year ended December 31, 2001, is incorporated herein by reference.
This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 4.1 to our
Current Report on Form 8-K filed on May 7, 2004, is incorporated herein by reference.
This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 4.2 to our
Current Report on Form 8-K filed on May 7, 2004, is incorporated herein by reference.
This document, filed with the Securities and Exchange Commission in Washington D.C. (file number 1-7183) as Exhibits 10.21-10.23
to our Annual Report on Form 10-K for the year ended December 31, 2004, is incorporated herein by reference.
This document, filed with the Securities and Exchange Commission in Washington D.C. (file number 1-7183) as Exhibit 10.24 to our
Current Report on Form 8-K filed on May 24, 2006, is incorporated herein by reference.
This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.28 to our
Current Report on Form 8-K filed on June 23, 2008, is incorporated herein by reference.
This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.25 to our
Quarterly Report on Form 10-Q for the period ending June 30, 2009, is incorporated herein by reference.
This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.26 to our
Quarterly Report on Form 10-Q for the period ending March 31, 2013, is incorporated herein by reference.
This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.27 to our
Current Report on Form 8-K filed on June 4, 2013, is incorporated herein by reference.
This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.1 to our
Current Report on Form 8-K filed on August 8, 2013, is incorporated herein by reference.
This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.29 to our
Amended Annual Report on Form 10-K/A for the year ended December 31, 2013, is incorporated herein by reference.
This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.30 to our
Current Report on Form 8-K filed on July 16, 2014, is incorporated herein by reference.
This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibits 10.31-10.33
to our Current Report on Form 8-K filed on October 17, 2014, is incorporated herein by reference.
This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.34 to our
Annual Report on Form 10-K for the year ended December 31, 2014, is incorporated herein by reference.
This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.35 to our
Quarterly Report on Form 10-Q for the period ending June 30, 2015, is incorporated herein by reference.
65
FN 26
FN 27
FN 28
FN 29
FN 30
FN 31
FN 32
FN 33
FN 34
FN 35
FN 36
FN 37
This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.37 to our
Quarterly Report on Form 10-Q for the period ending June 30, 2016, is incorporated herein by reference.
This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.38 to our
Quarterly Report on Form 10-Q for the period ending September 30, 2016, is incorporated herein by reference.
This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.39 to our
Annual Report on Form 10-K for the year ended December 31, 2016, is incorporated herein by reference.
This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.40 to our
Annual Report on Form 10-K for the year ended December 31, 2016, is incorporated herein by reference.
This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.41 to our
Annual Report on Form 10-K for the year ended December 31, 2016, is incorporated herein by reference.
This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.42 to our
Quarterly Report on Form 10-Q for the period ending September 30, 2018, is incorporated herein by reference.
This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.43 to our
Annual Report on Form 10-K for the year ended December 31, 2018, is incorporated herein by reference.
This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.44 to our
Annual Report on Form 10-K for the year ended December 31, 2018, is incorporated herein by reference.
This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.45 to our
Quarterly Report on Form 10-Q for the period ending September 30, 2019, is incorporated herein by reference.
This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.46 to our
Quarterly Report on Form 10-Q for the period ending September 30, 2019, is incorporated herein by reference.
This document, filed with the Securities and Exchange Commission in Washington D.C. (file number 333-231032) as Exhibit 4.6 to our
Registration Statement on Form S-3 filed on April 25, 2019, is incorporated herein by reference.
This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.47 to our
Annual Report on Form 10-K for the year ended December 31, 2019, is incorporated herein by reference.
(b) Exhibits. The exhibits being filed with this report are attached at the end of this report.
(c) Financial Statement Schedules - The response to this portion of Item 15 is submitted as a separate section of this report.
ITEM 16. FORM 10-K SUMMARY
Not applicable.
66
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
March 3, 2021
Date
March 3, 2021
Date
TEJON RANCH CO.
By:
/s/ Gregory S. Bielli
Gregory S. Bielli
President and Chief Executive Officer
(Principal Executive Officer)
By:
/s/ Robert D. Velasquez
Robert D. Velasquez
Senior Vice President of Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
67
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the date indicated.
Name
/s/ Steven A. Betts
Steven A. Betts
/s/ Gregory S. Bielli
Gregory S. Bielli
/s/ Jean Fuller
Jean Fuller
/s/ Anthony L. Leggio
Anthony L. Leggio
/s/ Norman Metcalfe
Norman Metcalfe
/s/ Frawn Morgan
Frawn Morgan
/s/ Geoffrey Stack
Geoffrey Stack
/s/ Daniel R. Tisch
Daniel R. Tisch
/s/ Michael H. Winer
Michael H. Winer
Capacity
Director
Director
Director
Director
Director
Director
Director
Director
Director
68
Date
March 3, 2021
March 3, 2021
March 3, 2021
March 3, 2021
March 3, 2021
March 3, 2021
March 3, 2021
March 3, 2021
March 3, 2021
Annual Report on Form 10-K
Item 8, Item 15(a) (1) and (2), (b) and (c)
List of Financial Statements and Financial Statement Schedules
Financial Statements
Certain Exhibits
Year Ended December 31, 2020
Tejon Ranch Co.
Tejon Ranch, California
69
Form 10-K - Item 15(a)(1) and (2)
Tejon Ranch Co. and Subsidiaries
Index to Financial Statements and Financial Statement Schedules
ITEM 15(a)(1) - FINANCIAL STATEMENTS
The following consolidated financial statements of Tejon Ranch Co. and subsidiaries are included in Item 8:
Management’s Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets - Years Ended December 31, 2020 and 2019
Consolidated Statements of Operations - Years Ended December 31, 2020, 2019, and 2018
Consolidated Statements of Comprehensive (Loss) Income - Years Ended December 31, 2020, 2019 and 2018
Consolidated Statements of Equity - Years Ended December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows - Years Ended December 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
Page
71
72
73
76
77
78
79
80
82
ITEM 15(a)(2) - FINANCIAL STATEMENT SCHEDULES
All schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
70
Management’s Report on Internal Control Over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment
of the effectiveness of internal control over financial reporting. As defined in Rule 13a-15(f) of the Exchange Act, internal control over financial reporting
is a process designed by, or supervised by, the Company’s principal executive and principal financial officers and effected by the Company’s board of
directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles.
The Company’s internal control over financial reporting is supported by written policies and procedures, that (1) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the Company are being made only in accordance with authorizations of the Company’s management and directors; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In connection with the preparation of the Company’s annual financial statements, under the supervision and with the participation of the Company’s
management, including its Chief Executive Officer and Chief Financial Officer, management of the Company has undertaken an assessment of the
effectiveness of the Company’s internal control over financial reporting as of December 31, 2020 based on criteria established in Internal Control –
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework), or COSO. Management’s
assessment included an evaluation of the design of the Company’s internal control over financial reporting and testing of the operational effectiveness of
the Company’s internal control over financial reporting.
Based on this assessment, management did not identify any material weakness in the Company’s internal control, and management has concluded that the
Company’s internal control over financial reporting was effective as of December 31, 2020.
Deloitte & Touche LLP, the independent registered public accounting firm that audited the Company’s financial statements included in this report, has
issued a report on the effectiveness of internal control over financial reporting, a copy of which follows.
71
Report of Independent Registered Public Accounting Firm
To the stockholders and the Board of Directors of Tejon Ranch Co.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Tejon Ranch Co. and subsidiaries (the “Company”) as of December 31, 2020, based on
criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated
financial statements as of and for the year ended December 31, 2020, of the Company and our report dated March 3, 2021, expressed an unqualified
opinion on those financial statements based on our audit and the report of the other auditors.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
Los Angeles, California
March 3, 2021
72
Report of Independent Registered Public Accounting Firm
To the stockholders and the Board of Directors of Tejon Ranch Co.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Tejon Ranch Co. and subsidiaries (the "Company") as of December 31, 2020 and 2019,
the related consolidated statements of operations, comprehensive (loss) income, equity, and cash flows, for each of the two years in the period ended
December 31, 2020, and the related notes (collectively referred to as the "financial statements"). In our opinion, based on our audits and the report of the
other auditors, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and
the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles
generally accepted in the United States of America.
We did not audit the financial statements of Petro Travel Plaza Holdings LLC (“Petro”), the Company's investment in which is accounted for by use of the
equity method. The accompanying financial statements of the Company include its equity investment in Petro of $23,358,000 and $23,636,000 as of
December 31, 2020 and 2019, respectively, and its equity earnings in Petro of $5,722,000 and $8,810,000, for the years ended December 31, 2020 and
2019, respectively. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the
amounts included for Petro, is based solely on the report of the other auditors.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's
internal control over financial reporting as of December 31, 2020, based on the criteria established in Internal Control — Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 3, 2021, expressed an unqualified opinion
on the Company's internal control over financial reporting based on our audit.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial
statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing
procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or
required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical
audit matter or on the accounts or disclosures to which it relates.
73
Real Estate— Real Estate Development - Refer to Notes 1, 5, 14, and 16 to the financial statements
Critical Audit Matter Description
The Company’s evaluation of real estate development for impairment involves an initial assessment of each real estate development to determine whether
events or changes in circumstances exist that may indicate that the carrying amounts of a real estate development are no longer recoverable. Possible
indications of impairment may include events or changes in circumstances affecting the entitlement process, government regulation, litigation, geographical
demand for new housing, and market conditions related to pricing of new homes. When events or changes in circumstances exist, the Company evaluates
the real estate development for impairment by comparing undiscounted future cash flows expected to be generated over the life of the real estate
development to the respective carrying amount. If the carrying amount of the real estate development exceeds the undiscounted future cash flows, an
analysis is performed to determine the fair value of the asset.
The Company makes significant assumptions to evaluate each real estate development for possible indications of impairment. These assumptions include
the identification of appropriate and comparable market prices, the consideration of changes to legal factors or the business climate, and assumptions
surrounding continued positive cash flows and development costs. Considering that the planned development communities will be in a location that does
not currently have many comparable homes, the Company must make assumptions surrounding the expected ability to sell the real estate assets at a price
that is in excess of current accumulated costs. In addition, the Company is currently involved in numerous litigation matters related to the entitlement of the
property and must continue to use judgment when evaluating the likelihood that these legal matters will be resolved and that the necessary entitlements will
be obtained. Changes in these assumptions could have a significant impact on the real estate development identified for further analysis and any
impairments identified could be material to the Company’s earnings. Further, the facts and circumstances utilized to make these assumptions may change
from period to period. For the year ended December 31, 2020, no impairment loss has been recognized on any real estate development.
We identified the determination of impairment indicators for real estate development as a critical audit matter due to the quantitative significance of real
estate development and because of the assumptions management makes when determining whether events or changes in circumstances have occurred
indicating that the carrying amounts of any real estate development may not be recoverable. This required a high degree of auditor judgment when
performing audit procedures to evaluate whether management appropriately identified impairment indicators.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the evaluation of real estate development for possible indications of impairment included the following, among others:
• We tested the effectiveness of the controls over management’s identification of possible circumstances that may indicate that the carrying amounts
of any real estate development is no longer recoverable, including controls over management’s evaluation of the entitlement process, government
regulation, litigation, geographical demand for new housing and market conditions related to pricing of new homes.
• We read and evaluated management’s documentation, including relevant accounting policies and information obtained by management from
outside sources.
• We evaluated management’s impairment analysis by:
◦
Testing the real estate development for possible indications of impairment, including searching for adverse asset-specific and/or market
conditions by reviewing publicly available information on home values and land values in the surrounding regions of the development,
periodicals and news information relating to the Southern California housing market, other independent market data, including
considerations of the demand for housing in the market and changes to comparable home prices
◦ We obtained letters from legal counsel and performed inquiries with the Company’s in-house legal counsel in order to evaluate any
changes in the status of the litigation matters affecting the development properties and the potential impact on the ability to recover the
accumulated costs, including any relevant government regulations and/or other matters impacting the entitlement process.
◦ Developing an independent expectation of impairment indicators and comparing such expectation to management’s analysis.
/s/ DELOITTE & TOUCHE LLP
Los Angeles, California
March 3, 2021
We have served as the Company's auditor since 2019.
74
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Tejon Ranch Co.
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of operations, comprehensive income, equity, and cash flows of Tejon Ranch Co. and
subsidiaries (the Company) for the year ended December 31, 2018, and the related notes (collectively referred to as the “consolidated financial
statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of the
Company for the year ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures
to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We served as the Company’s auditor from 1953 to 2019.
Los Angeles, California
March 1, 2019
75
Tejon Ranch Co. and Subsidiaries
Consolidated Balance Sheets
($ in thousands)
December 31
2020
2019
ASSETS
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 $108,600 at December 31, 2020 and $104,491 at December 31, 2019,
attributable to Centennial Founders, LLC, Note 17)
Property and equipment, net
Investments in unconsolidated joint ventures
Net investment in water assets
Deferred tax assets
Other assets
TOTAL ASSETS
LIABILITIES AND EQUITY
Current Liabilities:
Trade accounts payable
Accrued liabilities and other
Deferred income
Current maturities of long-term debt
Total current liabilities
Long-term debt, less current portion
Long-term deferred gains
Deferred tax liability
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 - 26,276,830 at December 31, 2020 and 26,096,797 at December
31, 2019
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Total Tejon Ranch Co. Stockholders’ Equity
Non-controlling interest
Total equity
TOTAL LIABILITIES AND EQUITY
See accompanying notes.
76
$
$
$
$
55,320 $
2,771
4,592
2,990
2,842
68,515
17,660
310,439
46,246
33,524
56,698
—
3,267
536,349 $
3,367 $
3,305
1,972
4,295
12,939
52,587
5,550
925
19,017
91,018
13,137
342,059
(9,720)
84,487
429,963
15,368
445,331
536,349 $
27,106
39,084
9,950
2,792
3,252
82,184
18,674
297,581
45,072
38,240
54,155
713
2,803
539,422
6,145
3,463
1,346
4,182
15,136
57,476
5,731
—
15,455
93,798
13,048
338,745
(6,771)
85,227
430,249
15,375
445,624
539,422
Tejon Ranch Co. and Subsidiaries
Consolidated Statements of Operations
($ in thousands, except per share amounts)
Year Ended December 31
2020
2019
2018
$
9,536 $
Revenues:
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 (loss):
Investment income
Gain on sale of real estate
Other income (loss)
Total other income (loss)
(Loss) income from operations before equity in earnings of unconsolidated joint ventures
Equity in earnings of unconsolidated joint ventures, net
Income before income taxes
Income tax expense
Net (loss) income
Net loss attributable to non-controlling interest
Net (loss) income attributable to common stockholders
Net (loss) income per share attributable to common stockholders, basic
Net (loss) income per share attributable to common stockholders, diluted
$
$
$
See accompanying notes.
77
10,736
13,866
3,692
37,830
7,122
1,612
6,414
15,103
4,896
9,430
44,577
(6,747)
884
1,331
110
2,325
(4,422)
4,504
82
829
(747)
(7)
(740) $
(0.03) $
(0.03) $
16,792 $
9,791
19,331
3,609
49,523
12,961
2,247
5,818
15,251
5,316
9,361
50,954
(1,431)
1,239
—
(1,824)
(585)
(2,016)
16,575
14,559
3,980
10,579
(1)
10,580 $
0.41 $
0.40 $
8,970
14,395
18,563
3,691
45,619
6,246
1,530
6,223
16,028
5,451
9,705
45,183
436
1,344
—
(59)
1,285
1,721
3,834
5,555
1,320
4,235
(20)
4,255
0.16
0.16
Tejon Ranch Co. and Subsidiaries
Consolidated Statements of Comprehensive (Loss) Income
($ in thousands)
Net (loss) income
Other comprehensive (loss) income:
Unrealized (loss) gain on available-for-sale securities
Benefit plan adjustments
SERP liability adjustments
Unrealized interest rate swap (loss) gain
Other comprehensive (loss) income before taxes
Benefit (provision) for income taxes related to other comprehensive income items
Other comprehensive (loss) income
Comprehensive (loss) income
Comprehensive loss attributable to non-controlling interests
Comprehensive (loss) income attributable to common stockholders
$
See accompanying notes.
78
Year Ended December 31
2019
2018
2020
$
(747) $
10,579 $
(46)
(215)
(622)
(3,213)
(4,096)
1,147
(2,949)
(3,696)
(7)
(3,689) $
440
135
(424)
(2,809)
(2,658)
744
(1,914)
8,665
(1)
8,666 $
4,235
(191)
(189)
(43)
988
565
(158)
407
4,642
(20)
4,662
Balance, December 31, 2017
Net income (loss)
Other comprehensive income
Restricted stock issuance
Stock compensation
Shares withheld for taxes and tax benefit of vested
shares
Rights offering, net
Centennial redemption of withdrawing member
interest
Balance, December 31, 2018
Net income (loss)
Other comprehensive loss
Restricted stock issuance
Stock compensation
Shares withheld for taxes and tax benefit of vested
shares
Balance, December 31, 2019
Net loss
Other comprehensive loss
Restricted stock issuance
Stock compensation
Shares withheld for taxes and tax benefit of vested
shares
Balance, December 31, 2020
Tejon Ranch Co. and Subsidiaries
Consolidated Statements of Equity
($ in thousands, except share information)
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Total
Stockholders'
Equity
Noncontrolling
Interest
(5,264) $70,392 $ 398,242 $
—
407
—
—
—
—
4,255
—
—
—
—
—
4,255
407
1
4,480
(1,095)
(166)
—
—
(4,857) $74,647 $ 419,296 $
13,172
—
(1,914)
—
—
10,580
—
—
10,580
(1,914)
—
3,958
—
—
(6,771) $85,227 $ 430,249 $
(1,671)
—
(2,949)
—
—
(740)
—
—
(740)
(2,949)
—
5,629
Total Equity
28,568 $ 426,810
4,235
407
1
4,480
(20)
—
—
—
—
—
(1,095)
(166)
—
(13,172)
15,376 $ 434,672
10,579
(1,914)
—
3,958
(1)
—
—
—
—
(1,671)
15,375 $ 445,624
(747)
(2,949)
—
5,629
(7)
—
—
—
—
—
(9,720) $84,487 $ 429,963 $
(2,226)
—
(2,226)
15,368 $ 445,331
Common
Common
Stock Shares
Outstanding
Stock
25,894,773 $12,947 $320,167 $
Additional
Paid-In
Capital
—
—
124,597
—
(47,290)
—
—
—
63
—
(24)
—
—
—
(62)
4,480
(1,071)
(166)
—
—
13,172
25,972,080 $12,986 $336,520 $
—
—
221,267
—
—
—
110
—
—
—
(110)
3,958
(96,550)
(48)
(1,623)
26,096,797 $13,048 $338,745 $
—
—
338,074
—
—
—
169
—
—
—
(169)
5,629
(158,041)
(80)
(2,146)
26,276,830 $13,137 $342,059 $
See accompanying notes.
79
Tejon Ranch Co. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
Twelve Months Ended December 31,
2019
2020
2018
Operating Activities
Net (loss) income
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
$
(747)
$
10,579
$
4,235
Depreciation and amortization
Amortization of premium (discount) on marketable securities
Equity in earnings of unconsolidated joint ventures, net
Non-cash retirement plan expense
(Gain) loss on sale of real estate/assets
Non-cash profits recognized from land contribution
Deferred income taxes
Stock compensation expense
Excess tax benefit of stock-based compensation
Non-cash write-off of leasing assets
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
Investing Activities
Maturities and sales of marketable securities
Purchase of marketable securities
Real estate and equipment expenditures
Reimbursement proceeds from Communities Facilities District
Proceeds from sale of real estate/assets
Investment in unconsolidated joint ventures
Distribution of equity from unconsolidated joint ventures
Investments in long-term water assets
Net cash provided by/(used) in investing activities
Financing Activities
Borrowings on line of credit
Repayments of line of credit
Repayments of long-term debt
Net proceeds from rights offering
Taxes on vested stock grants
Net cash used in financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
4,938
34
(4,504)
78
(1,339)
—
2,253
4,494
519
110
6,222
5,427
(2,004)
15,481
41,843
(5,610)
(22,259)
4,223
2,000
(2,160)
5,309
(3,568)
19,778
—
—
(4,819)
—
(2,226)
(7,045)
28,214
27,106
55,320
$
5,036
(94)
(16,575)
307
—
(2,146)
1,259
3,198
57
1,604
15,381
154
(2,715)
16,045
53,418
(28,219)
(25,222)
4,180
—
(3,100)
3,457
(3,686)
828
5,000
(5,000)
(4,004)
—
(1,671)
(5,675)
11,198
15,908
27,106
$
5,424
101
(3,834)
335
94
—
175
3,248
18
—
4,800
(2,888)
2,646
14,354
35,219
(28,392)
(22,580)
3,588
—
(52)
2,815
(3,844)
(13,246)
—
—
(4,046)
(166)
(1,095)
(5,307)
(4,199)
20,107
15,908
$
80
Non-cash investing activities
Accrued capital and water expenditures included in current liabilities
1
Contribution to unconsolidated joint venture
Long term deferred profit on land contribution
1
$
$
$
910
—
—
$
$
$
785
$
8,658 1 $
2,038 1 $
2,390
—
—
1
In 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 $2.8 million. The Company recognized $1.5 million in profit and deferred $1.5 million 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.
In December 2019, the Company contributed a newly constructed commercial multi-tenant building and underlying land with an aggregate fair value of $2.8 million to
TA/Petro, an unconsolidated joint venture. The total cost of the building construction and land was $2.0 million. The Company recognized $0.3 million in profit and
deferred $0.5 million 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.
See accompanying notes.
81
Tejon Ranch Co. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2020
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Tejon Ranch Co. (the Company and Tejon) is a diversified real estate development and agribusiness company committed to responsibly using its land and
resources to meet the housing, employment, and lifestyle needs of Californians. Current 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, and farming.
These activities are performed through five reporting segments:
•
•
Real Estate - Commercial/Industrial
Real Estate - Resort/Residential
• Mineral Resources
•
•
Farming
Ranch Operations
Tejon'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 sales, and conservation, in order to
maximize the highest and best use for its land.
The Company is involved in seven joint ventures that own, develop, and 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 also actively engaged in land planning, land entitlement, and conservation projects.
Any references to the number of acres, number of buildings, square footage, number of leases, occupancy, and any amounts derived from these values in
the notes to the consolidated financial statements are unaudited.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, and the accounts of all subsidiaries and investments in which a controlling
interest is held by the Company. All intercompany transactions have been eliminated in consolidation. The Company has evaluated subsequent events
through the date of issuance of the consolidated financial statements.
Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. The carrying amount
for cash equivalents approximates fair value.
Marketable Securities
The Company considers those investments not qualifying as cash equivalents, but which are readily marketable, to be marketable securities. The
Company's investment portfolio is comprised of fixed income debt securities, which are classified as current assets on the consolidated balance sheets. The
Company classifies all marketable securities as available-for-sale. These are stated at fair value with the unrealized gains (losses), net of tax, reported as a
component of accumulated other comprehensive income (loss) in the consolidated statements of equity.
82
Investments in Unconsolidated Joint Ventures
For joint ventures that the Company does not control, but over which it exercises significant influence, the Company uses the equity method of accounting.
The Company's judgment with regard to its level of influence or control of an entity involves consideration of various factors, including the form of its
ownership interest; its representation in the entity's governance; its ability to participate in policy-making decisions; and the rights of other investors to
participate in the decision-making process, to replace the Company as manager, and/or to liquidate the venture. These ventures are recorded at cost and
adjusted for equity in earnings (losses), contributions and distributions. Any difference between the carrying amount of these investments on the
Company’s balance sheet and the underlying equity in net assets on the joint venture’s balance sheet is adjusted as the related underlying assets are
depreciated, amortized, or sold. When the Company contributes land to a joint venture, it records the investment in the venture at fair value, regardless of
whether the other investors in the venture contribute cash or property.
The Company generally allocates income and loss from an unconsolidated joint venture based on the venture's distribution priorities, which may be
different from its stated ownership percentage.
The Company evaluates the recoverability of its investments in unconsolidated joint ventures in accordance with accounting standards for equity
investments by first reviewing each investment for any indicators of impairment. If indicators are present, the Company estimates the fair value of the
investment. If the carrying value of the investment is greater than the estimated fair value, management makes an assessment of whether the impairment is
“temporary” or “other-than-temporary.” In making this assessment, management considers the following: (1) the length of time and the extent to which fair
value has been less than cost, (2) the financial condition and near-term prospects of the entity, and (3) the Company’s intent and ability to retain its interest
long enough for a recovery in market value. If management concludes that the impairment is "other than temporary," the Company reduces the investment
to its estimated fair value.
Fair Values of Financial Instruments
The Company follows the Financial Accounting Standards Board's authoritative guidance for fair value measurements of certain financial instruments. The
guidance defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Fair value is defined
as the exchange (exit) price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants on the measurement date. This guidance establishes a three-level hierarchy for fair value
measurements based upon the inputs to the valuation of an asset or liability. Observable inputs are those which can be easily seen by market participants,
while unobservable inputs are generally developed internally, utilizing management’s estimates and assumptions:
•
•
•
Level 1 – Valuation is based on quoted prices in active markets for identical assets and liabilities.
Level 2 – Valuation is determined from quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar
instruments in markets that are not active, or by model-based techniques in which all significant inputs are observable in the market.
Level 3 – Valuation is derived from model-based techniques in which at least one significant input is unobservable and based on the Company's
own estimates about the assumptions that market participants would use to value the asset or liability.
When available, the Company uses quoted market prices in active markets to determine fair value. The Company considers the principal market and
nonperformance risk associated with counterparties when determining the fair value measurement. Fair value measurements are used on a recurring basis
for marketable securities, investments within the pension plan and hedging instruments, if any.
Interest Rate Swap Agreements
In October 2014, the Company entered into an interest rate swap agreement with Wells Fargo. In June, 2019, the Company amended the interest rate swap
agreement to continue to hedge the Company's exposure to interest rate risk from the Term Note, and the subsequent Amended Term Note. See Note 8
(Line of Credit and Long-Term Debt) and Note 10 (Interest Rate Swap) of the Notes to Consolidated Financial Statements for further detail regarding this
interest rate swap related to the Company's Credit Facility. The Company believes it is prudent at times to limit the variability of floating-rate interest
payments and in the past have entered into interest rate swaps to manage those fluctuations.
83
The Company recognizes interest rate swap agreements as either an asset or liability on the balance sheet at fair value. The accounting for changes in fair
value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, further,
on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the
hedging instrument, based on the hedged exposure, as a fair value hedge, a cash flow hedge, or a hedge of a net investment in a foreign operation. The
interest rate swap agreement is considered a cash flow hedge because it was designed to match the terms of the Term Loan, and the subsequent Amended
Term Loan, as a hedge of the exposure to variability in expected future cash flows. Hedge accounting generally provides for the matching of the timing of
gain or loss recognition on the hedging instrument with the recognition of the changes in the earnings effect of the hedged transactions in a cash flow
hedge. This interest rate swap agreement will be evaluated based on whether it is deemed highly effective in reducing exposure to variable interest rates.
The Company formally documents all relationships between interest rate swap agreements and hedged items, including the method for evaluating
effectiveness and the risk strategy. The Company makes an assessment at the inception of each interest rate swap agreement and on a quarterly basis to
determine whether these instruments are highly effective in offsetting changes in cash flows associated with the hedged items. If swaps qualify as highly
effective, the changes in the fair values of the derivatives used as hedges would be reflected in accumulated other comprehensive income, or AOCI.
Amounts classified in AOCI will be reclassified into earnings in the period during which the hedged transactions affect earnings. If swaps do not qualify as
highly effective, the changes in fair values of derivatives used as hedges would be reflected in earnings.
The fair value of each interest rate swap agreement is determined using widely accepted valuation techniques including discounted cash flow analyses on
the expected cash flows of each derivative. These analyses reflect the contractual terms of the derivatives, including the period to maturity, and use
observable market-based inputs, including interest rate curves and implied volatilities (also referred to as “significant other observable inputs”). The fair
value of interest rate swap agreements are determined using the market standard methodology of netting the discounted future fixed cash payments and the
discounted expected variable cash receipts. The variable cash receipts are based on an expectation of future interest rates (forward curves) derived from
observable market interest rate curves. The fair value calculation also includes an amount for risk of non-performance using “significant unobservable
inputs” such as estimates of current credit spreads to evaluate the likelihood of default, which the Company has determined to be insignificant to the overall
fair value of its interest rate swap agreement.
Variable Interest Entity
The Company evaluates all of its interests in VIEs for consolidation. When the Company's interests are determined to be variable interests, the Company
assesses whether the Company is deemed to be the primary beneficiary of the VIE. The primary beneficiary of a VIE is required to consolidate the VIE. A
primary beneficiary is defined as the party that has both (i) the power to direct the activities of the VIE that most significantly impact its economic
performance, and (ii) the obligation to absorb losses and the right to receive benefits from the VIE which could potentially be significant. The Company
considers its variable interests as well as any variable interests of related parties in making this determination. Where both of these factors are present, the
Company is deemed to be the primary beneficiary and consolidates the VIE. Where either one of these factors is not present, the Company is not the
primary beneficiary and does not consolidate the VIE.
To assess whether the Company has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, the
Company considers all facts and circumstances, including its role in establishing the VIE and its ongoing rights and responsibilities. This assessment
includes first, identifying the activities that most significantly impact the VIE’s economic performance; and second, identifying which party, if any, has
power over those activities. In general, the parties that make the most significant decisions affecting the VIE or have the right to unilaterally remove those
decision makers are deemed to have the power to direct the activities of a VIE.
To assess whether the Company has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be
significant to the VIE, the Company considers all economic interests, including debt and equity investments, servicing fees, and other arrangements
deemed to be variable interests in the VIE. This assessment requires that the Company apply judgment in determining whether these interests, in the
aggregate, are considered potentially significant to the VIE. Factors considered in assessing significance include: the design of the VIE, including its
capitalization structure; subordination of interests; payment priority; relative share of interests held across various classes within the VIE’s capital structure;
and the reasons why the interests are held by the Company.
As of December 31, 2020 and 2019, the Company had two VIEs. One was consolidated in the financial statements while the other was not. See Note 17
(Investment in Unconsolidated and Consolidated Joint Ventures) to the Notes to Consolidated Financial Statements for further discussion.
84
Credit Risk
The Company grants credit in the course of operations to co-ops, wineries, nut marketing companies, and lessees of the Company’s facilities. The
Company performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral.
Commercial revenues are derived primarily from lease rental payments and operating expense reimbursements. If client tenants fail to make rental
payments under their lease, the Company's financial condition, and cash flows could be adversely affected. The Company records an allowance for
doubtful accounts based on its judgment of a tenant’s creditworthiness, ability to pay and probability of collection. Accounts are written off when they are
deemed to be no longer collectible.
During both years ended December 31, 2020 and 2019, the Pastoria Energy Facility, L.L.C., or PEF power plant lease generated approximately 12% of
total revenues. The Company had no other customers account for 5% or more of total revenues from operations.
The Company maintains its cash and cash equivalents in federally insured financial institutions. The account balances at these institutions periodically
exceed FDIC insurance coverage and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage.
The Company believes that the risk is not significant.
Farm Inventories
Costs of bringing crops to harvest are inventoried when incurred. Such costs are expensed when the crops are sold. Expenses are computed and recognized
on an average cost per pound or per ton basis, as appropriate. Costs incurred during the current year related to the next year’s crop are inventoried and
carried in inventory until the matching crop is harvested and sold. Farm inventories held for sale are valued at the lower of cost (first-in, first-out method)
or market.
Property and Equipment
Property and equipment are stated on the basis of cost, except for land acquired upon organization in 1936, which is stated on the basis carried by the
Company’s predecessor. Depreciation is computed using the straight-line method over the estimated useful lives of the various assets. The Company's
property and equipment and their respective estimated useful lives are as follow:
($ in thousands)
Vineyards and orchards
Machinery, furniture fixtures and other equipment
Buildings and improvements
Land and land improvements
Development in process
Less: accumulated depreciation
December 31, 2020
December 31, 2019
56,612 $
19,882
8,819
7,807
4,817
97,937 $
(51,691)
46,246 $
52,853
17,688
8,819
7,731
6,908
93,999
(48,927)
45,072
Useful Life
20
3 - 10
10 - 27.5
15
$
$
$
85
Long-Term Water Assets
Long-term purchased water contracts are in place with the Tulare Lake Basin Water Storage District and the Dudley-Ridge Water Storage District. These
contracts provide the Company with the right to receive water over the term of the contracts that expire in 2035. The Company also purchased a contract
that allows and requires it to purchase 6,693 acre-feet of water each year from the Nickel Family LLC. The initial term of this contract runs through 2044.
The purchase price of these contracts is being amortized under the straight-line basis over their contractual lives. Water contracts with the Wheeler Ridge
Maricopa Water Storage District and the Tejon-Castac Water District are also in place, but were entered into with each district at inception and not
purchased later from third parties, and therefore do not have a related financial value on the books of the Company. As a result, there is no amortization
expense related to these contracts.
Vineyards and Orchards
Costs of planting and developing vineyards and orchards are capitalized until the crops become commercially productive. Interest costs and depreciation of
irrigation systems and trellis installations during the development stage are also capitalized. Revenues from crops earned during the development stage are
netted against development costs. Depreciation commences when the crops become commercially productive.
During the fourth quarter of 2019, the Company abandoned 313 acres of vineyards. As a result, the Company wrote off the $1,555,000 net book value
related to these vineyards and other farming related assets which were previously included in the Property and equipment, net, line item within the
Consolidated Balance Sheet. The $1,555,000 charge was recorded within the Other Income (Loss) line item within the Consolidated Statement of
Operations.
At the time farm crops are harvested, contracted, and delivered to buyers and revenues can be estimated, revenues are recognized and any related
inventoried costs are expensed, which traditionally occurs during the third and fourth quarters of each year. It is not unusual for portions of the Company's
almond or pistachio crop to be sold in the year following the harvest. Orchard (almond and pistachio) revenues are based upon the contract settlement price
or estimated selling price, whereas vineyard revenues are typically recognized at the contracted selling price. Estimated prices for orchard crops are based
upon the quoted estimate of what the final market price will be by marketers and handlers of the orchard crops. These market price estimates are updated
through the crop payment cycle as new information is received as to the final settlement price for the crop sold. These estimates are adjusted to actual upon
receipt of final payment for the crop. This method of recognizing revenues on the sale of orchard crops is a standard practice within the agribusiness
community. Adjustments for differences between estimates and actual revenues received are recorded during the period in which such amounts become
known. The net effect of these adjustments increased farming revenue by $890,000 in 2020, $3,746,000 in 2019, and $111,000 in 2018. The adjustment for
2020 includes a $890,000 increase for pistachio revenues and no change for almonds. The adjustment for 2019 includes a $3,807,000 increase for pistachio
revenues and a $61,000 decrease for almonds . The adjustment for 2018 is entirely related to pistachios.
The Almond Board of California has the authority to require producers of almonds to withhold a portion of their annual production from the marketplace
through a marketing order approved by the Secretary of Agriculture. At December 31, 2020, 2019, and 2018, no such withholding was mandated.
Common Stock Options and Grants
The Company accounts for stock incentive plans using the fair value method of accounting. The estimated fair value of the restricted stock grants and
restricted stock units are expensed over the expected vesting period. For performance-based grants the Company makes estimates of the number of shares
that will actually be granted based upon estimated ranges of success in meeting defined performance measures. Periodically, the Company updates its
estimates and reflects any changes to the estimate in the consolidated statements of operations.
Long-Lived Assets
On a quarterly basis, the Company reviews current activities and changes in the business conditions of all of its operating properties prior to and subsequent
to the end of each quarter to determine the existence of any triggering events requiring an impairment analysis. If triggering events are identified, the
Company reviews an estimate of the future undiscounted cash flows for the properties, including, if necessary, a probability-weighted approach if multiple
outcomes are under consideration.
86
Long-lived assets to be held and used, including rental properties, CIP, real estate held for development and intangibles, are individually evaluated for
impairment when conditions exist that may indicate that the carrying amount of a long-lived asset may not be recoverable. The carrying amount of a long-
lived asset to be held and used is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual
disposition of the asset. Impairment indicators or triggering events for long-lived assets to be held and used, including rental properties, CIP, real estate held
for development, and intangibles, are assessed by project and include significant fluctuations in estimated net operating income, occupancy changes,
significant near-term lease expirations, current and historical operating and/or cash flow losses, rental rates, and other market factors. The Company
assesses the expected undiscounted cash flows based upon numerous factors, including, but not limited to, available market information, current and
historical operating results, known trends, current market/economic conditions that may affect the property, and assumptions about the use of the asset,
including, if necessary, a probability-weighted approach if multiple outcomes are under consideration. Upon determination that an impairment has
occurred, a write-down is recognized to reduce the carrying amount to its estimated fair value.
In addition, the Company accounts for long-lived assets to be disposed of at the lower of their carrying amounts or fair value less selling and disposal costs.
As of December 31, 2020, management of the Company believes that none of its long-lived assets were impaired.
Revenue Recognition
The Company’s revenue is primarily derived from lease revenue from its rental portfolio, royalty revenue from mineral leases, sales of farm crops, sales of
water, and land sales. On January 1, 2018, the Company implemented ASU 2014-09 “Revenue with Contracts from Customers (Topic 606)" (ASC 606).
ASU 2014-09 supersedes all previous revenue recognition guidance, including industry-specific guidance. The Company recognizes revenue by following
the five-step model under ASC 606 to achieve the core principle that an entity recognizes revenue to depict the transfer of goods or services to customers at
an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The five-step model requires
that the Company (i) identifies the contract with the customer, (ii) identifies the performance obligations in the contract, (iii) determines the transaction
price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocates the transaction price to
the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation.
Sales of Real Estate
Upon adoption of ASC 606, the Company is required to allocate the transaction price, on land sales with multiple performance obligations, to the
performance obligations in proportion to their standalone selling prices (i.e., on a relative standalone selling price basis) and not total costs.
Sales of Easements
From time to time the Company sells easements over its land, and the easements are either in the form of rights of access granted for such things as utility
corridors or are in the form of conservation easements that generally require the Company to divest its rights to commercially develop a portion of its land,
but do not result in a change in ownership of the land or restrict the Company from continuing other revenue generating activities on the land. The
Company recognizes easement sales revenue by following the five-step model under ASC 606.
Allocation of Costs Related to Land Sales and Leases
When the Company sells land within one of its real estate developments and has not completed all infrastructure development related to the total project,
the Company estimates, at the time of sale, future costs of the development to determine the appropriate costs of sales for the sold land and the timing of
recognition of the sale. In the calculation of cost of sales or allocations to leased land, the Company uses estimates and forecasts to determine total costs at
completion of the development project. These estimates of final development costs can change as conditions in the market change and costs of construction
change.
Royalty Income
Royalty revenues are contractually defined as to the percentage of royalty and are tied to production and market prices. The Company’s royalty
arrangements generally require payment on a monthly basis with the payment based on the previous month’s activity. The Company accrues monthly
royalty revenues based upon estimates and adjusts to actual as the Company receives payments. The accounting of royalty income remains largely
unchanged upon implementation of ASC 606.
87
Rental Income
Rental income from leases is recognized on a straight-line basis over the respective lease terms. The Company classifies amounts currently recognized as
income, and amounts expected to be received in later years, as deferred rent in prepaid expenses and other current assets in the accompanying consolidated
balance sheets. Amounts received currently, but recognized as income in future years, are classified in accrued liabilities and other, and deferred income in
the accompanying consolidated balance sheets. The Company commences recognition of rental income at the date the property is ready for its intended use,
and the client tenant takes possession of or controls the physical use of the property.
During the term of each lease, the Company monitors the credit quality of its tenants by (i) reviewing the credit rating of tenants that are rated by a
nationally recognized credit rating agency, (ii) reviewing financial statements of the tenants that are publicly available or that are required to be delivered to
the Company pursuant to the applicable lease, (iii) monitoring news reports regarding its tenants and their respective businesses, and (iv) monitoring the
timeliness of lease payments. The Company has employees who are assigned the responsibility for assessing and monitoring the credit quality of its tenants
and any material changes in credit quality.
Environmental Expenditures
Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations and which do not contribute to current or future revenue generation are expensed. Liabilities are recorded when environmental
assessments and/or remedial efforts are probable, and the costs can be reasonably estimated. Generally, the timing of these accruals coincides with the
completion of a feasibility study or the Company’s commitment to a formal plan of action. No liabilities for environmental costs have been recorded at
December 31, 2020 and 2019.
Use of Estimates
The preparation of the Company’s consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the financial statement dates and the reported
amounts of revenue and expenses during the reporting period. Due to uncertainties inherent in the estimation process, it is reasonably possible that actual
results could differ from these estimates.
Recent Accounting Pronouncements
Lease Concessions Related to COVID-19 Pandemic
In April 2020, the Financial Accounting Standards Board, or FASB, issued a Staff Question-and-Answer, or Q&A, intending to reduce the operational
challenges and complexity of accounting for leases at a time when many businesses have been ordered to close or have seen their revenue drop due to the
effect of the COVID-19 pandemic. The FASB determined that it would be appropriate for entities to make a policy election regarding how to account for
lease concessions resulting directly from COVID-19. Rather than analyzing each lease contract individually, entities can elect to account for lease
concessions “as though the enforceable rights and obligations for those concessions existed, regardless of whether those enforceable rights and obligations
for the concessions explicitly exist in the contract.” Accordingly, entities that choose to apply the relief provided by the FASB can either (1) apply the
modification framework for these concessions in accordance with ASC Topic 840 or ASC Topic 842 as applicable or (2) account for the concessions as if
they were made under the enforceable rights included in the original agreement and are thus outside of the modification framework. In making this
election, an entity would not need to perform a lease-by-lease analysis to evaluate the enforceable rights and may instead simply treat the change as if the
enforceable rights were included or excluded in the original agreement. The election not to apply lease modification accounting is only available when total
cash flows resulting from the modified contract are “substantially the same or less” than the cash flows in the original contract.
The Company has elected to account for lease concessions outside of the modification framework based on the FASB Q&A. The COVID-19 pandemic has
resulted in tenant requests for rent relief, with a majority of the requests occurring in the second quarter. As of December 31, 2020, the Company reached
agreements with all of its commercial tenants on their respective rent deferral requests. For the twelve months ended December 31, 2020, the Company
retained 91% of rent billings and agreed to defer 9% of rent billings, or $174,000. Based on the terms of the agreements reached with the Company's
tenants, all deferred rent will be fully repaid by the end of 2021. The Company will account for the rent receivables as if no changes to the lease contract
were made, and the rent receivable for the deferral period will stay on the Company's Consolidated Balance Sheet until the rent is collected over the
passage of time.
88
Reference Rate Reform
In March 2020, the FASB issued Accounting Standards Update, or ASU No. 2020-04, "Facilitation of the Effects of Reference Rate Reform on Financial
Reporting", for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The pronouncement provides optional
expedients for a limited period of time to ease the potential burden of accounting for reference rate reform. Specifically, the ASU permits modification of
contracts within ASC Topic 470, Debt, to be accounted for by prospectively adjusting the effective interest rate when a contract is modified because of
reference rate reform. It also provides exceptions to the guidance in ASC Topic 815 related to changes to critical terms of a hedging relationship: the
change in reference rate will not result in de-designation of a hedging relationship if certain criteria are met. This guidance is effective for all entities as of
March 12, 2020 through December 31, 2022. The Company expects to utilize this optional guidance but do not expect it to have a material effect on the
consolidated financial statements.
New Accounting Pronouncements Adopted in 2020
Allowance for Credit Losses
In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments — Credit Losses (Topic 326)," changing the impairment model for most financial
instruments by requiring companies to recognize an allowance for expected losses, rather than incurred losses as required currently by the other-than-
temporary impairment model. The ASU will apply to most financial assets measured at amortized cost and certain other instruments, including trade and
other receivables, loans, available-for-sale and held-to-maturity debt securities, net investments in leases, and off-balance-sheet credit exposures.
In November 2019, the FASB issued ASU No. 2019-10, changing effective dates for the new standards to give implementation relief to certain types of
entities. The Company was required to adopt the new standards no later than January 1, 2023 according to ASU 2019-10, with early adoption allowed.
The Company adopted the new standards on January 1, 2020. The adoption did not have a material impact on the Company's consolidated financial
statements. The Company's accounts receivable balance is primarily composed of crop receivables. Based on the short-term nature of these contracts,
historical experience with current customers, periodic credit evaluations of the customers' financial conditions, the current economic environment and rent
deferrals negotiated with tenants the Company believes its credit risk is minimal. With regards to marketable securities, the Company limits its investment
to securities with investment grade ratings from Moody's or Standard and Poor's. As the Company does not have a current intent to sell securities and it is
more likely than not that the Company will not be required to sell securities before recovery of their amortized cost basis, no allowance for credit losses
was recorded.
Fair Value of Financial Instruments
In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure
Requirements for Fair Value Measurement." This ASU removes certain disclosure requirements related to the fair value hierarchy, such as the disclosure of
amounts and reasons for transfers between Level 1 and Level 2, and adds new disclosure requirements, such as the disclosure of the range and weighted
average of significant unobservable inputs used to develop Level 3 fair value measurement. The Company adopted the new standard on January 1, 2020,
and the adoption did not have a material impact on its consolidated financial statements, as the Company does not have financial instruments classified as
Level 3.
Retirement Benefits
In August 2018, the FASB issued ASU No. 2018-14, "Changes to the Disclosure Requirements for Defined Benefit Plans." This ASU removes certain
disclosure requirements, including the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic
benefit cost over the next fiscal year and the amount and timing of plan assets expected to be returned to the employer. This ASU also requires additional
disclosures for the weighted average interest crediting rates for cash balance plans and explanations for significant gains and losses related to changes in the
benefit plan obligation. This ASU is effective for fiscal years ending after December 15, 2020. The Company adopted the new standard on January 1, 2020,
and the adoption did not have a material impact on its consolidated financial statements and related disclosures.
89
2. EQUITY
Earnings Per Share (EPS)
Basic net (loss) income per share attributable to common stockholders is based upon the weighted-average number of shares of common stock outstanding
during the year. Diluted net (loss) income per share attributable to common stockholders is based upon the weighted-average number of shares of common
stock outstanding and the weighted-average number of shares outstanding assuming the issuance of common stock upon exercise of stock options, warrants
to purchase common stock, and the vesting of restricted stock grants per ASC 260, “Earnings Per Share.”
Weighted average number of shares outstanding:
Common stock
Common stock equivalents: stock options, grants
Diluted shares outstanding
3. MARKETABLE SECURITIES
Twelve Months Ended December 31,
2019
2018
2020
26,205,923
140,527
26,346,450
26,031,391
117,724
26,149,115
25,948,189
27,715
25,975,904
ASC 320 “Investments – Debt and Equity Securities” requires that an enterprise classify all debt securities as either held-to-maturity, trading or available-
for-sale. The Company has elected to classify its securities as available-for-sale and therefore is required to adjust securities to fair value at each reporting
date. All costs and both realized and unrealized gains and losses on securities are determined on a specific identification basis. The following is a summary
of available-for-sale securities at December 31:
($ in thousands)
Marketable Securities:
Certificates of deposit
with unrecognized losses for less than 12 months
with unrecognized gains
Total Certificates of deposit
U.S. Treasury and agency notes
with unrecognized losses for less than 12 months
with unrecognized gains
Total U.S. Treasury and agency notes
Corporate notes
with unrecognized losses for less than 12 months
with unrecognized gains
Total Corporate notes
Municipal notes
with unrecognized gains
Total Municipal notes
Fair Value
Hierarchy
Cost
Estimated Fair
Value
Cost
Estimated Fair
Value
2020
2019
Level 1
Level 2
Level 2
Level 2
$
— $
—
—
— $
—
—
251 $
1,799
2,050
—
801
801
708
1,257
1,965
—
—
—
803
803
707
1,261
1,968
—
—
6,485
14,413
20,898
1,004
13,082
14,086
1,999
1,999
250
1,806
2,056
6,479
14,434
20,913
1,002
13,106
14,108
2,007
2,007
$
2,766 $
2,771 $
39,033 $
39,084
The Company adopted ASU No. 2016-13, "Financial Instruments — Credit Losses (Topic 326)" on January 1, 2020 prospectively. Under ASC Topic 326-
30, the Company is now required to use an allowance approach when recognizing credit loss for available-for-sale debt securities, measured as the
difference between the security's amortized cost basis and the amount expected to be collected over the security's lifetime. Under this approach, at each
reporting date, the Company records impairment related to credit losses through earnings offset with an allowance for credit losses, or ACL. At
December 31, 2020 the Company has not recorded any credit losses.
90
At December 31, 2020, the fair market value of investment securities was $5,000 above the cost basis of securities. The Company’s gross unrealized
holding gains equal $6,000 and gross unrealized holding losses equal $1,000. As of December 31, 2020, the adjustment to accumulated other
comprehensive loss in consolidated equity for the temporary change in the value of securities reflects an increase in the market value of available-for-sale
securities of $46,000, which includes estimated taxes of $13,000.
The Company elected to exclude applicable accrued interest from both the fair value and the amortized cost basis of the available-for-sale debt securities,
and separately present the accrued interest receivable balance per ASC Topic 326-30-50-3A. The accrued interest receivables balance totaled $20,000 as of
December 31, 2020, and was included within the Prepaid expenses and other current assets line item of the Consolidated Balance Sheets. The Company
elected not to measure an allowance for credit losses on accrued interest receivable as an allowance on possible uncollectible accrued interest is not
warranted.
U.S. Treasury and agency notes
The unrealized losses on the Company's investments in U.S. Treasury and agency notes at December 31, 2019 were caused by relative changes in interest
rates since the time of purchase. The contractual cash flows for these securities are guaranteed by U.S. government agencies. The unrealized losses on these
debt security holdings are a function of changes in investment spreads and interest rate movements and not changes in credit quality. As of December 31,
2019, the Company did not intend to sell these securities and it is not more-likely-than-not that the Company would be required to sell these securities
before recovery of their cost basis. Therefore, these investments did not require an ACL as of December 31, 2019.
Corporate notes
The contractual terms of those investments do not permit the issuers to settle the securities at a price less than the amortized cost basis of the investments.
The unrealized losses on corporate notes are a function of changes in investment spreads and interest rate movements and not changes in credit quality. The
Company expects to recover the entire amortized cost basis of these securities. As of December 31, 2020 and December 31, 2019, the Company did not
intend to sell these securities and it is not more-likely-than-not that the Company would be required to sell these securities before recovery of their cost
basis. Therefore, these investments did not require an ACL as of December 31, 2020 and December 31, 2019.
The following tables summarize the maturities, at par, of marketable securities by year ($ in thousands):
December 31, 2020
U.S. Treasury and agency notes
Corporate notes
December 31, 2019
Certificates of deposit
U.S. Treasury and agency notes
Corporate notes
Municipal notes
2021
Total
$
$
801 $
1,950
2,751 $
801
1,950
2,751
2020
2021
Total
$
$
2,049 $
20,393
13,685
2,000
38,127 $
— $
502
400
—
902 $
2,049
20,895
14,085
2,000
39,029
The Company’s investments in corporate notes are with companies that have an investment grade rating from Standard & Poor’s.
4. INVENTORIES
Inventories consisted of the following at December 31:
($ in thousands)
Farming inventories
Other
2020
2019
$
$
2,636 $
354
2,990 $
2,444
348
2,792
Farming inventories consist of costs incurred during the current year related to next year’s crop along with unsold current year crop and farming chemicals.
91
5. REAL ESTATE
Real estate consisted of the following as of December 31:
($ in thousands)
Real estate development
Mountain Village
Centennial
Grapevine
Tejon Ranch Commerce Center
Real estate development
Real estate and improvements - held for lease, net
Tejon Ranch Commerce Center
Real estate and improvements - held for lease, net
Less accumulated depreciation
Real estate and improvements - held for lease, net
2020
2019
$
$
146,662 $
108,600
36,815
18,362
310,439
20,595
20,595
(2,935)
17,660 $
142,567
104,491
34,813
15,710
297,581
21,435
21,435
(2,761)
18,674
92
6. LONG-TERM WATER ASSETS
Long-term water assets consist of water and water contracts held for future use or sale. The water is held at cost, which includes the price paid for the water
and the cost to pump and deliver the water from the California aqueduct into the water bank. Water is currently held in a water bank on Company land in
southern Kern County and by TCWD in Kern Water Banks.
The Company has secured State Water Project, or SWP, entitlements under long-term SWP water contracts within the Tulare Lake Basin Water Storage
District and the Dudley-Ridge Water District, totaling 3,444 acre-feet of SWP entitlement annually, subject to SWP allocations. These contracts extend
through 2035 and have been transferred to AVEK for the Company's use in the Antelope Valley. In 2013, the Company acquired a contract to purchase
water that obligates the Company to purchase 6,693 acre-feet of water each year from the Nickel Family, LLC, or Nickel, a California limited liability
company that is located in Kern County.
The initial term of the water purchase agreement with Nickel runs to 2044 and includes a Company option to extend the contract for an additional 35 years.
The purchase cost of water in 2020 was $793 per acre-foot. The purchase cost is subject to annual cost increases based on the greater of the consumer price
index or 3%.
The water purchased above will ultimately be used in the development of the Company’s land for commercial/industrial real estate development,
resort/residential real estate development, and farming. Interim uses may include the sale of portions of this water to third party users on an annual basis
until this water is fully allocated to Company uses, as just described.
Water revenues and cost of sales were as follows as of December 31:
($ in thousands)
Acre-Feet Sold
Revenues
Cost of sales
Profit
2020
2019
2018
$
$
5,022
5,909 $
3,663
2,246 $
4,482
3,997 $
3,194
803 $
9,442
9,142
3,864
5,278
Costs assigned to water assets held for future use were as follows ($ in thousands):
Banked water and water for future delivery
Transferable water
Total water held for future use at cost
Intangible Water Assets
December 31, 2020
December 31, 2019
$
$
28,136 $
4,102
32,238 $
25,265
3,054
28,319
The Company's carrying amounts of its purchased water contracts were as follows ($ in thousands):
December 31, 2020
December 31, 2019
Costs
Accumulated
Depreciation
Costs
Accumulated
Depreciation
Dudley-Ridge water rights
Nickel water rights
Tulare Lake Basin water rights
Net cost of purchased water contracts
Total cost water held for future use
Net investments in water assets
$
$
$
11,581 $
18,740
6,479
36,800 $
24,460
32,238
56,698
93
(4,825) $
(4,605)
(2,910)
(12,340) $
$
11,581 $
18,740
6,479
36,800 $
25,836
28,319
54,155
(4,342)
(3,962)
(2,660)
(10,964)
Water contracts with the Wheeler Ridge Maricopa Water Storage District, or WRMWSD, and the Tejon-Castac Water District, or TCWD, are also in place,
but were entered into with each district at inception of the contract and not purchased later from third parties, and do not have a related financial value on
the books of the Company. Therefore, there is no amortization expense related to these contracts. Total water resources, including both recurring and one-
time usage are:
(in acre feet, unaudited)
Water held for future use
TCWD - Banked water owned by the Company
Company water bank
Transferable water
Total water held for future use
Purchased water contracts
Water Contracts (Dudley-Ridge, Nickel and Tulare)
WRMWSD - Contracts with Company
TCWD - Contracts with Company
Total purchased water contracts
Total water held for future use and purchased water contracts
December 31, 2020
December 31, 2019
61,054
50,349
5,638
117,041
10,137
15,547
5,749
31,433
148,474
60,555
50,349
3,252
114,156
10,137
15,547
5,749
31,433
145,589
Tejon Ranchcorp, or Ranchcorp, a wholly-owned subsidiary of Tejon Ranch Co., entered into a Water Supply Agreement with PEF in 2015. PEF is the
current lessee under the power plant lease. Pursuant to the Water Supply Agreement, PEF may purchase from Ranchcorp up to 3,500 acre-feet of water per
year from January 1, 2017 through July 31, 2030, with an option to extend the term. PEF is under no obligation to purchase water from Ranchcorp in any
year, but is required to pay Ranchcorp an annual option payment equal to 30% of the maximum annual payment. The price of the water under the Water
Supply Agreement for 2020 was $1,154 per acre-foot of annual water, subject to 3% annual increases over the life of the contract. The Water Supply
Agreement contains other customary terms and conditions, including representations and warranties, which are typical for agreements of this type. The
Company's commitments to sell water can be met through current water assets.
7. ACCRUED LIABILITIES AND OTHER
Accrued liabilities and other consisted of the following as of December 31:
($ in thousands)
Accrued vacation
Accrued paid personal leave
Accrued bonus
Other
8. LINE OF CREDIT AND LONG-TERM DEBT
Debt consisted of the following as of December 31:
($ in thousands)
Notes payable
Less: line-of-credit and current maturities of long-term debt
Less: deferred loan costs
Long-term debt, less current portion
94
$
$
$
$
2020
2019
736 $
399
1,658
512
3,305 $
2020
2019
57,078 $
(4,295)
(196)
52,587 $
799
419
1,700
545
3,463
61,897
(4,182)
(239)
57,476
The following table summarizes debt maturities, outstanding indebtedness, and respective principal maturities as of December 31,
($ in thousands)
1
Term Loan
$35 million RLOC
Promissory note
Total long-term debt
Stated Rate
L+1.70%
2
See below
4.25%
Effective
Rate
4.16%
2
See below
4.25%
Maturity
6/5/2029
10/5/2024
9/1/2028
2021
2022
2023
2024
2025
Thereafter
Total
$ 4,051 $ 4,221 $ 4,429 $ 4,624 $ 4,825 $
—
244
—
265
$ 4,295 $ 4,475 $ 4,694 $ 4,901 $ 5,114 $
—
289
—
254
—
277
32,737 $ 54,887
—
2,191
33,599 $ 57,078
—
862
1
The interest on the Term Loan is fixed by an interest rate swap agreement. Please see Footnote 10 for further discussion.
2
At the Company’s option, the interest rate on this line of credit can float at 1.50% over a selected LIBOR rate or can be fixed at 1.50% above LIBOR for a fixed rate
term.
9. OTHER LIABILITIES
Other liabilities consist of the following as of December 31:
($ in thousands)
Pension liability (See Note 15)
Interest rate swap liability (See Note 10)
Supplemental executive retirement plan liability (See Note 15)
1
Other
2020
2019
$
$
1,602 $
5,929
8,419
3,067
19,017 $
1,790
2,716
8,011
2,938
15,455
1
For two of joint ventures with Majestic Realty Co., excess distributions were made and are classified as a liability. See further disclosure in Note 17 (Investment In Unconsolidated and
Consolidated Joint Ventures).
For the captions presented in the table above, please refer to the respective Notes to Consolidated Financial Statements for further detail.
10. INTEREST RATE SWAP
In October 2014, the Company entered into an interest rate swap agreement to hedge cash flows tied to changes in the underlying floating interest rate tied
to LIBOR for the Term Loan as discussed in Note 8 (Line of Credit and Long-Term Debt) of the Notes to Consolidated Financial Statements. On June 21,
2019, the Company amended the interest rate swap agreement to continue to hedge a portion of its exposure to interest rate risk from the Term Note, and,
subsequently, the Amended Term Note. The original hedging relationship was de-designated, and the amended interest rate swap was re-designated
simultaneously. The amended interest rate swap qualified as an effective cash flow hedge at the initial assessment based upon a regression analysis and is
recorded at fair value.
During the quarter ended December 31, 2020, the interest rate swap agreement was deemed highly effective. Changes in fair value, including accrued
interest and adjustments for non-performance risk, that qualify as cash flow hedges are classified in AOCI. Amounts classified in AOCI are subsequently
reclassified into earnings in the period during which the hedged transactions affect earnings.
As of December 31, 2020, the fair value of the interest rate swap agreement was less than its cost basis and as such is recorded within Other Liabilities on
the Consolidated Balance Sheets. The Company had the following outstanding interest rate swap agreement designated as an interest rate cash flow hedge
as of ($ in thousands):
Effective Date
July 5, 2019
Maturity Date
June 5, 2029
Fair Value Hierarchy
Level 2
Weighted Average
Interest Pay Rate
4.16%
Fair Value
$(5,929)
Notional Amount
$54,887
December 31, 2020
Effective Date
July 5, 2019
Maturity Date
June 5, 2029
Fair Value Hierarchy
Level 2
Weighted Average
Interest Pay Rate
4.16%
Fair Value
$(2,716)
Notional Amount
$58,768
December 31, 2019
95
11. STOCK COMPENSATION - RESTRICTED STOCK AND PERFORMANCE SHARE GRANTS
The Company’s stock incentive plans provide for the making of awards to employees based upon a service condition or through the achievement of
performance-related objectives. The Company has issued three types of stock grant awards under these plans: restricted stock with service condition
vesting; performance share grants that only vest upon the achievement of specified performance conditions, such as corporate cash flow goals or share
price, or Performance Condition Grants; and performance share grants that include threshold, target, and maximum achievement levels based on the
achievement of specific performance measures, or Performance Milestone Grants. Performance Condition Grants with market-based conditions are based
on the achievement of a target share price. The share price used to calculate vesting for market-based awards is determined using a Monte Carlo simulation.
Failure to achieve the target share price will result in the forfeiture of shares. Forfeiture of share awards with service conditions or performance-based
restrictions will result in a reversal of previously recognized share-based compensation expense. Forfeiture of share awards with market-based restrictions
does not result in a reversal of previously recognized share-based compensation expense.
The following is a summary of the Company's performance share grants with performance conditions as of the year ended December 31, 2020:
Performance Share Grants with Performance Conditions
Threshold performance
Target performance
Maximum performance
62,416
575,596
992,745
The following is a summary of the Company’s stock grant activity, both time and performance unit grants, assuming target achievement for outstanding
performance grants for the following twelve-month periods ended:
Stock Grants Outstanding Beginning of the Year at Target Achievement
New Stock Grants/Additional shares due to achievement in excess of target
Vested Grants
Expired/Forfeited Grants
Stock Grants Outstanding at Target Achievement
409,373
797,364
(307,250)
(59,180)
840,307
538,599
160,471
(188,032)
(101,665)
409,373
536,860
97,529
(93,948)
(1,842)
538,599
December 31, 2020
December 31, 2019
December 31, 2018
96
The following is a summary of the assumptions used to determine the price for the Company's market-based Performance Condition Grants for the year
ended December 31, 2020:
($ in thousands except for share prices)
Grant date
Vesting end
Share price at target achievement
Expected volatility
Risk-free interest rate
Simulated Monte Carlo share price
Shares granted
Total fair value of award
December 12, 2019
December 31, 2022
$18.80
March 11, 2020
December 31, 2022
$16.36
17.28%
1.69%
$11.95
6,327
$76
18.21%
0.58%
$5.87
81,716
$480
The unamortized cost associated with unvested stock grants and the weighted-average period over which it is expected to be recognized as of December 31,
2020 was $7,567,000 and 22 months respectively. The fair value of restricted stock with time-based vesting features is based upon the Company’s share
price on the date of grant and is expensed over the service period. Fair value of performance grants that cliff vest based on the achievement of performance
conditions is based on the share price of the Company’s stock on the day of grant once the Company determines that it is probable that the award will vest.
This fair value is expensed over the service period applicable to these grants. For performance grants that contain a range of shares from zero to maximum
the Company determines, based on historic and projected results, the probability of (1) achieving the performance objective, and (2) the level of
achievement. Based on this information, the Company determines the fair value of the award and measure the expense over the service period related to
these grants. Because the ultimate vesting of all performance grants is tied to the achievement of a performance condition, the Company estimates whether
the performance condition will be met and over what period of time. Ultimately, the Company adjusts compensation cost according to the actual outcome
of the performance condition. Under the Non-Employee Director Stock Incentive Plan, or NDSI Plan, each non-employee director, during the years
presented, received his or her annual compensation in stock.
The following table summarizes stock compensation costs for the Company's 1998 Stock Incentive Plan, or the Employee 1998 Plan, and NDSI Plan for
the following periods:
Employee 1998 Plan ($ in thousands):
Expensed
Capitalized
NDSI Plan
December 31, 2020
December 31, 2019
December 31, 2018
4,060 $
1,135
5,195
434
5,629 $
2,667 $
760
3,427
531
3,958 $
2,564
1,232
3,796
684
4,480
$
$
97
12. INCOME TAXES
The Company accounts for income taxes using ASC 740, “Income Taxes” which is an asset and liability approach that requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of events that have been recognized differently in the financial statements and the tax
returns. The provision for income taxes consists of the following at December 31:
($ in thousands)
Total (benefit) provision:
Federal:
Current
Deferred
State:
Current
Deferred
2020
2019
2018
829 $
3,980 $
1,320
(852)
1,464
612
(21)
238
217
829 $
1,798
866
2,664
812
504
1,316
3,980 $
862
64
926
353
41
394
1,320
$
$
In March 2020, the Coronavirus Aid, Relief, and Economic Security Act was enacted, which includes a five year net operating loss carryback provision
which will enable the Company to benefit from certain losses. This provision applies to net operating losses occurring between December 31, 2017 and
January 1, 2021 and temporarily nullifies provisions within the Tax Cuts Jobs Act of 2017 that disallows net operating loss carrybacks. Under these
guidelines, the Company expects to receive a Federal tax refund of $1,021,000 once 2020 tax losses are carried back.
During 2018, the Company completed its analysis of the impacts of the U.S. Tax Reform and no additional expense was warranted. Other provisions of the
U.S. Tax Reform did not have a material effect on the effective tax rate for 2018.
In 2020, income tax provision expense primarily consisted of permanent differences related to Section 162(m) limitations and discrete tax expense
associated with stock compensation. The Section 162(m) compensation deduction limitations occurred as a result of changes in tax law arising from the
2017 Tax Cuts Jobs Act, which did not impact the Company until this year. The discrete item was triggered when stock grants were issued to participants at
a price less than the original grant price, causing a deferred tax shortfall. The shortfall recognized during the quarter represents the reversal of excess
deferred tax assets recognized in prior periods. The recognition of the shortfall is not anticipated to have an impact on the Company's current income tax
payable. A reconciliation of the provision for income taxes, with the amount computed by applying the statutory Federal income tax rate of 21% in 2020,
2019 and 2018 is as follows for the years ended December 31:
($ in thousands)
Income tax at statutory rate
State income taxes, net of Federal benefit
Excess stock compensation expense
Non-deductible compensation
Oil and mineral depletion
Refunds
Permanent differences
Other
Provision (benefit) for income taxes
Effective tax rate
2020
2019
2018
17
217
365
357
(101)
(78)
16
36
829
$
$
3,058
948
(57)
—
(131)
—
26
136
3,980
$
$
1,171
317
(20)
—
(134)
—
19
(33)
1,320
1,011.0 %
27.3 %
23.8 %
$
$
98
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities were as follows at
December 31:
($ in thousands)
Deferred income tax assets:
Accrued expenses
Deferred revenues
Capitalization of costs
Pension adjustment
Stock grant expense
State deferred taxes
Book deferred gains
Joint venture allocations
Provision for additional capitalized costs
Interest rate swap
Other
Total deferred income tax assets
Deferred income tax liabilities:
Deferred gains
Depreciation
Cost of sales allocations
Joint venture allocations
Straight line rent
Prepaid expenses
State deferred taxes
Other
Total deferred income tax liabilities
Net deferred income tax (liability) asset
Allowance for deferred tax assets
Net deferred taxes
2020
2019
$
$
$
$
$
$
322 $
557
1,661
2,921
2,211
—
1,034
587
699
1,769
209
11,970 $
490 $
3,533
872
6,592
548
340
383
137
12,895 $
(925) $
—
(925) $
349
370
1,843
2,883
2,500
116
1,176
533
699
810
39
11,318
490
2,892
872
5,070
590
333
208
150
10,605
713
—
713
Due to the nature of the Company's deferred tax assets, the Company believes they will be used through operations in future years and a valuation
allowance is not necessary.
The Company did not make any tax payments in 2020 and $4,645,000 in 2019. The Company received tax refunds of $1,314,000 and $1,345,000 in 2020
and 2019, respectively.
The Company evaluates its tax positions for all income tax items based on their technical merits to determine whether each position satisfies the “more
likely than not to be sustained upon examination” test. The tax benefits are then measured as the largest amount of benefit, determined on a cumulative
basis, that is “more likely than not” to be realized upon ultimate settlement. As a result of this evaluation, the Company determined there were no uncertain
tax positions that required recognition and measurement for the years ended December 31, 2020 and 2019 within the scope of ASC 740, "Income Taxes."
Tax years from 2017 to 2019 and 2016 to 2019 remain available for examination by the Federal and California State taxing authorities, respectively.
13. LEASES
The Company is a lessor of certain property pursuant to various lease agreements having terms ranging up to 30 years. The Company generates rental
income from right to use assets. The following is a summary of income from commercial rents included in commercial/industrial real estate revenues as of
December 31:
($ in thousands)
Base rent
Percentage rent
$
$
2020
2019
2018
6,471 $
949 $
99
6,554 $
1,024 $
6,444
621
Future minimum rental income on commercial, communication and right-of-way on non-cancelable leases as of December 31, 2020 ($ in thousands):
2021
2022
2023
2024
2025
Thereafter
$
6,461 $
5,637 $
5,279 $
5,144 $
4,946 $
16,664
14. COMMITMENTS AND CONTINGENCIES
The Company's land is subject to water contracts of which $10,194,000 is expected to be paid in 2021. These estimated water contract payments consist of
SWP, contracts with Wheeler Ridge Maricopa Water Storage District, TCWD, Tulare Lake Basin Water Storage District, Dudley-Ridge Water Storage
District and the Nickel water contract. The SWP contracts run through 2035 and the Nickel water contract runs through 2044, with an option to extend an
additional 35 years. As discussed in Note 6 (Long-Term Water Assets), the Company purchased the assignment of a contract to purchase water in late 2013.
The assigned water contract is with Nickel and obligates the Company to purchase 6,693 acre-feet of water annually through the term of the contract. The
Company's contractual obligation for future water payments was $276,146,000 as of December 31, 2020 .
The Company is obligated to make payments of approximately $800,000 during 2021 to the Tejon Ranch Conservancy as prescribed in the Conservation
Agreement that was entered into with five major environmental organizations in 2008. These advances to the Tejon Ranch Conservancy are dependent on
the occurrence of certain events and their timing, and are therefore subject to change in amount and period. These amounts paid will be capitalized in real
estate development for the Centennial, Grapevine and Mountain Village, or MV, projects.
The Company exited a consulting contract during the second quarter of 2014 related to the Grapevine Development and is obligated to pay an earned
incentive fee at the time of successful receipt of litigated project entitlements and at a value measurement date five years after litigated entitlements have
been achieved for Grapevine. The final amount of the incentive fees will not be finalized until the future payment dates. The Company believes that net
savings from exiting the contract over this future time period will more than offset the incentive payment costs.
The Tejon Ranch Public Facilities Financing Authority, or TRPFFA, is a joint powers authority formed by Kern County and TCWD to finance public
infrastructure within the Company’s Kern County developments. For the development of TRCC, TRPFFA has created two Community Facilities Districts,
or CFDs: the West CFD and the East CFD. The West CFD has placed liens on 420 acres of the Company’s land to secure payment of special taxes related
to $28,620,000 of bond debt sold by TRPFFA for TRCC-West. The East CFD has placed liens on 1,931 acres of the Company’s land to secure payments of
special taxes related to $75,965,000 of bond debt sold by TRPFFA for TRCC-East. At TRCC-West, the West CFD has no additional bond debt approved
for issuance. At TRCC-East, the East CFD has approximately $44,035,000 of additional bond debt authorized by TRPFFA that can be sold in the future.
In connection with the sale of bonds, there is a standby letter of credit for $4,468,000 related to the issuance of East CFD bonds. The standby letter of credit
is in place to provide additional credit enhancement and cover approximately two years' worth of interest on the outstanding bonds. This letter of credit will
not be drawn upon unless the Company, as the largest landowner in the CFD, fails to make its property tax payments. The Company believes that the letter
of credit will never be drawn upon. The letter of credit is for two years and will be renewed in two-year intervals as necessary. The annual cost related to
the letter of credit is approximately $68,000.
The Company is obligated, as a landowner in each CFD, to pay its share of the special taxes assessed each year. The secured lands include both the TRCC-
West and TRCC-East developments. Proceeds from the sale of West CFD bonds went to reimburse the Company for public infrastructure costs related to
the TRCC-West development. At December 31, 2020 there were no additional improvement funds remaining from both of the West CFD bonds and East
CFD bonds for reimbursement of public infrastructure costs during future years. During 2020, the Company paid approximately $2,550,000 in special
taxes. As development continues to occur at TRCC, new owners of land and new lease tenants, through triple net leases, will bear an increasing portion of
the assessed special tax. This amount could change in the future based on the amount of bonds outstanding and the amount of taxes paid by others. The
assessment of each individual property sold or leased is not determinable at this time because it is based on the current tax rate and the assessed value of the
property at the time of sale or on its assessed value at the time it is leased to a third-party. Accordingly, the Company is not required to recognize an
obligation at December 31, 2020.
100
Tehachapi Uplands Multiple Species Habitat Conservation Plan Approval
In July 2014, the Company received a copy of a Notice of Intent to Sue, dated July 17, 2014 indicating that the Center for Biological Diversity, or CBD, the
Wishtoyo Foundation and Dee Dominguez (collectively the TUMSHCP Plaintiffs) intended to initiate a lawsuit against the U.S. Fish and Wildlife Service,
or USFWS, challenging USFWS's approval of the Company's Tehachapi Uplands Multiple Species Habitat Conservation Plan, or TUMSHCP, and
USFWS's issuance of an Incidental Take Permit, or ITP, for the take of federally listed species. The TUMSHCP approval and ITP issuance by the USFWS
occurred in 2013. These approvals authorize, among other things, the removal of California condor habitat associated with the Company's potential future
development of MV.
On April 25, 2019, the TUMSHCP Plaintiffs filed suit against the USFWS in the U.S. District Court for the Central District of California in Los Angeles
(Case No. 2:19-CV-3322) (the TUMSHCP Suit). The Company was not initially named as a party in the TUMSHCP Suit and brought a motion to
intervene, which the court granted. The TUMSHCP Suit sought to invalidate the TUMSHCP as it pertains to the protection of the California condor (an
endangered species), as well as the ITP.
The primary allegations in the TUMSHCP Suit are that California condors or their habitat are “Traditional Cultural Properties” within the meaning of the
National Historic Preservation Act (NHPA), that the USFWS failed to take into account the impact of the TUMSHCP and ITP on these “Traditional
Cultural Properties” and failed to adequately consult with affected Native American tribes or their representatives with respect to these “Traditional
Cultural Properties.”
Management considers the allegations in the TUMSHCP Suit to be beyond the scope of the law and regulations referenced in the TUMSHCP Suit, and
believes that the issues raised by the TUMSHCP Plaintiffs were adequately addressed by USFWS during the consultation process with Native American
tribes. The Company has supported USFWS's efforts to vigorously defend this matter during the course of this litigation.
In a December 18, 2019 ruling, the court ordered that the parties proceed to bring motions for summary judgment on the question of whether the USFWS
correctly determined that the California condor is not a “Traditional Cultural Property” under the NHPA. In response to this order, both the TUMSCHP
Plaintiffs and the USFWS and the Company filed cross-motions for summary judgment.
On December 4, 2020 the court issued an order denying, in its entirety, the TUMSHCP Plaintiffs’ motions for summary judgment and granted, in their
entirety, USFWS and the Company’s motions for summary judgment. On December 18, 2020, the Company brought a motion to recover attorneys’ fees
and costs, as the prevailing party, against the TUMSCHP Plaintiffs. On February 2, 2021, the court denied the fee motion. Following the court’s ruling on
the fee motion, on February 2, 2021, Plaintiff’s notified the court of its intent to appeal the court’s ruling on its claims. The Ninth Circuit Court of Appeal
has issued a preliminary briefing schedule that requires opening and responsory briefs to be filed in April and May 2021. The appeal will be heard by the
court following briefing, and the court will rule following the hearing.
National Cement
The Company leases land to National Cement Company of California Inc., or National, for the purpose of manufacturing Portland cement from limestone
deposits on the leased acreage. The California Regional Water Quality Control Board, or RWQCB, for the Lahontan Region issued orders in the late 1990s
with respect to environmental conditions on the property currently leased to National.
The Company's former tenant Lafarge Corporation, or Lafarge, and current tenant National, continue to remediate these environmental conditions
consistent with the RWQCB orders.
The Company is not aware of any failure by Lafarge or National to comply with directives of the RWQCB. Under current and prior leases, National and
Lafarge are obligated to indemnify the Company for costs and liabilities arising out of their use of the leased premises. The remediation of environmental
conditions is included within the scope of the National or Lafarge indemnity obligations. If the Company were required to remediate the environmental
conditions at its own cost, it is unlikely that the amount of any such expenditure by the Company would be material and there is no reasonable likelihood of
continuing risk from this matter.
101
Antelope Valley Groundwater Cases
On November 29, 2004, a conglomerate of public water suppliers filed a cross-complaint in the Los Angeles Superior Court against landowners and others
with interest in the groundwater basin within the Antelope Valley (including the Company) seeking a judicial determination of the rights to groundwater
within the Antelope Valley basin, including the groundwater underlying the Company’s land near the Centennial project. Four phases of a multi-phase trial
have been completed. Upon completion of the third phase, the court ruled that the groundwater basin was in overdraft and established a current total
sustainable yield. The fourth phase of trial occurred in the first half of 2013 and resulted in confirmation of each party’s groundwater pumping for 2011 and
2012. The fifth phase of the trial commenced in February 2014 and concerned 1) whether the United States has a federal reserved water right to basin
groundwater, and 2) the rights to return flows from imported water. The court heard evidence on the federal reserved right but continued the trial on the
return flow issues while most of the parties to the adjudication discussed a settlement, including rights to return flows. In February 2015, more than 140
parties representing more than 99% of the current water use within the adjudication boundary agreed to a settlement. On March 4, 2015, the settling parties,
including Tejon, submitted a Stipulation for Entry of Judgment and Physical Solution to the court for approval. On December 23, 2015, the court entered
judgment approving the Stipulation for Entry of Judgment and Physical Solution, or the Judgment. The Company’s water supply plan for the Centennial
project anticipated reliance on, among other sources, a certain quantity of groundwater underlying the Company’s lands in the Antelope Valley. The
Company’s allocation in the Judgment is consistent with that amount. Prior to the Judgment becoming final, on February 19 and 22, 2016, several parties,
including the Willis Class, Phelan Pinon Hills Community Services District (Phelan), and Charles Tapia (Tapia) filed notices of appeal from the Judgment
(collectively, the Phelan Appeal). The Appeal has been transferred from the Fourth Appellate District of California to the Fifth Appellate District. Appellate
briefing is complete.
On November 9, 2020, the court heard oral argument on the Phelan appeal. On December 9, 2020, the Fifth District Court of Appeal affirmed the Judgment
as to the Phelan Appeal. The decision became final in January.
The Willis Class appeal is scheduled for oral argument in February 2021, and decision will be made within 90 days thereafter. Oral argument on the Tapia
appeal is scheduled for March 10, 2021. Following oral argument, the court will likely take the matters under submission and issue one or more opinions
within 90 days thereafter. Notwithstanding the appeals, the parties, with assistance from the court, have established the Watermaster Board, hired the
Watermaster Engineer and Watermaster Legal Counsel, and begun administering the physical solution consistent with the Judgment.
Summary and Status of Kern Water Bank Lawsuits
On June 3, 2010, the Central Delta and South Delta Water Agencies and several environmental groups, including CBD, collectively, the Central Delta
Petitioners, filed a complaint in the Sacramento County Superior Court, or the Central Delta Action, against the California Department of Water Resources,
or DWR, Kern County Water Agency, or KCWA, and a number of “real parties in interest,” including the Company and TCWD. The lawsuit challenges
certain amendments to the SWP contracts that were originally approved in 1995, known as the Monterey Amendments. The Central Delta Petitioners
sought to invalidate the DWR's approval of the Monterey Amendments and also the 2010 environmental impact report, or 2010 EIR, regarding the
Monterey Amendments prepared pursuant to the California Environmental Quality Act, or CEQA, pertaining to the Kern Water Bank, or KWB. Pursuant to
the Monterey Amendments, DWR transferred approximately 20,000 acres in Kern County owned by DWR, or KWB property, to the KCWA.
A separate but parallel lawsuit, or Central Delta II, was also filed by the Central Delta Petitioners in Kern County Superior Court on July 2, 2010, against
KCWA, also naming the Company and TCWD as real parties in interest. Central Delta II challenged the validity of the transfer of the KWB property from
the KCWA to the Kern Water Bank Authority, or KWBA. The petitioners in this case alleged that (i) the transfer of the KWB property by KCWA to the
KWBA was an unconstitutional gift of public funds, and (ii) the consideration for the transfer of the KWB property to the KWBA was unconscionable and
illusory. This case has been stayed pending the outcome of the Central Delta Action.
In addition, another lawsuit was filed in Kern County Superior Court on June 3, 2010, by two districts adjacent to the KWB, namely Rosedale Rio Bravo
and Buena Vista Water Storage Districts (collectively, the Rosedale Petitioners), asserting that the 2010 EIR did not adequately evaluate potential impacts
arising from operations of the KWB, or Rosedale Action, but this lawsuit did not name the Company: it only named TCWD. TCWD has a contract right for
water stored in the KWB and rights to recharge and withdraw water. This lawsuit was later moved to the Sacramento County Superior Court.
In the Central Delta Action and Rosedale Action, the trial courts concluded that the 2010 EIR for the Monterey Amendments was insufficient with regard
to the EIR's evaluation of the potential impacts of the operation of the KWB, particularly on groundwater and water quality, and ruled that DWR was
required to prepare a remedial EIR (which is further described below). In the Central Delta Action, the trial court also concluded that the challenges to
DWR’s 1995 approval of the Monterey Amendments were barred by statutes of limitations and laches. The Central Delta Petitioners appealed the
Sacramento County Superior Court Judgment, and certain real parties filed a cross-appeal. No party appealed the Kern County Superior Court Judgment in
the Rosedale Action.
102
On November 24, 2014, the Sacramento County Superior Court in the Central Delta Action issued a writ of mandate, or 2014 Writ, that required DWR to
prepare a revised EIR (described herein as the 2016 EIR because it was certified in 2016) regarding the Monterey Amendments evaluating the potential
operational impacts of the KWB. The 2014 Writ, as revised by the court, required DWR to certify the 2016 EIR and file the response to the 2014 Writ by
September 28, 2016. On September 20, 2016, the Director of DWR (a) certified the 2016 EIR prepared by DWR as in compliance with CEQA, (b) adopted
findings, a statement of overriding considerations, and a mitigation, monitoring and reporting program as required by CEQA, (c) made a new finding
pertaining to carrying out the Monterey Amendments through continued use and operation of the KWB by the KWBA, and (d) caused a notice of
determination to be filed with the Office of Planning and Resources of the State of California on September 22, 2016. On September 28, 2016, DWR filed
with the Sacramento County Superior Court its return to the 2014 Writ in the Central Delta Action.
On October 21, 2016, the Central Delta Petitioners and a new party, the Center for Food Safety (CFS) (collectively, the CFS Petitioners), filed a new
lawsuit in Sacramento County Superior Court, (the CFS Action), against DWR and naming a number of real parties in interest, including KWBA and
TCWD (but not including the Company). The CFS Action challenges DWR’s (i) certification of the 2016 EIR, (ii) compliance with the 2014 Writ and
CEQA, and (iii) finding concerning the continued use and operation of the KWB by KWBA. On October 2, 2017, the Sacramento County Superior Court
issued a ruling that the court shall deny the CFS petition and shall discharge the 2014 Writ. The CFS Petitioners appealed the Sacramento County Superior
Court judgment denying the CFS petition. The Third Appellate District of the Court of Appeal granted DWR’s motion to consolidate the CFS Action
appeal for hearing with the pending appeals in the Central Delta Action. Briefing on all of the appeals and cross-appeals is now complete. At this time, the
Company anticipates having a ruling from the Court of Appeal on these consolidated appeals of the CFS Action and the Central Delta Action sometime in
2021, but there is a possibility that the court’s hearing and disposition of the pending appeals could be delayed by the closure of the courts in response to
the COVID-19 pandemic. To the extent there may be an adverse outcome of the claims still pending as described above, the monetary value cannot be
estimated at this time
Grapevine
On December 6, 2016, the Kern County Board of Supervisors unanimously granted entitlement approval for the Grapevine project. On January 5, 2017, the
CBD and CFS, filed an action in Kern County Superior Court pursuant to CEQA against Kern County and the Kern County Board of Supervisors, or
collectively, the County, concerning the County’s granting of the 2016 approvals for the Grapevine project, including certification of the final EIR (the
2017 Action). The Company was named as a real party in interest in the 2017 Action. The 2017 Action alleged that the County failed to properly follow the
procedures and requirements of CEQA, including failure to identify, analyze and mitigate impacts to air quality, greenhouse gas emissions, biological
resources, traffic, water supply and hydrology, growth inducing impacts, failure to adequately consider project alternatives and to provide support for the
County’s findings and statement of overriding considerations in adopting the EIR and failure to adequately describe the environmental setting and project
description. Petitioners sought to invalidate the County’s approval of the project and the environmental approvals and require the Company and the County
to revise the environmental documentation.
On July 27, 2018, the court held a hearing on the petitioners’ claims in the 2017 Action. At that hearing, the court rejected all of petitioners’ claims raised
in the litigation, except petitioners’ claims that (i) the project description was inadequate and (ii) such inadequacy resulted in aspects of certain
environmental impacts being improperly analyzed. As to the claims described in “(i)” and “(ii)” in the foregoing sentence, the court determined that the
EIR was inadequate. In that regard, the court determined the Grapevine project description contained in the EIR allowed development to occur in the time
and manner determined by the real parties in interest and, as a consequence, such development flexibility could result in the project’s internal capture rate,
or ICR, of the percent of vehicle trips remaining within the project actually being lower than the projected ICR levels used in the EIR and that lower ICR
levels warranted supplemental traffic, air quality, greenhouse gas emissions, noise, public health and growth inducing impact analyses.
On December 11, 2018, the court in the 2017 Action ruled that portions of the EIR required corrections and supplemental environmental analysis and
ordered that the County rescind the Grapevine project approvals until such supplemental environmental analysis was completed. The court issued a final
judgment consistent with its ruling on February 15, 2019 and, on March 12, 2019, the County rescinded the Grapevine project approvals.
Following the County’s rescission of the Grapevine project approvals, the Company filed new applications to re-entitle the Grapevine project (the re-
entitlement). The re-entitlement application involved processing project approvals that were substantively similar to the Grapevine project that was
unanimously approved by the Kern County Board of Supervisors in December 2016. As part of the re-entitlement, supplemental environmental analysis
was prepared to address the court’s ruling in the 2017 Action. Following a public comment and review period, the Kern County Planning Commission held
a hearing on November 14, 2019 and unanimously recommended to the Kern County Board of Supervisors that it approve the re-entitlement of the
Grapevine project. On December 10, 2019, the Kern County Board of Supervisors held a hearing and after considering the supplemental environmental
analysis and material presented at the hearing unanimously voted to approve the re-entitlement
103
of the Grapevine project. On January 9, 2020, the County filed a Supplemental and Final Return to Preemptory Writ of Mandate to inform the court of the
re-entitlement in a manner that the County and the Company believes is compliant with the court’s February 15, 2019 final judgment in the 2017 Action.
Concurrently, the County and the Company filed a Motion for Order Discharging Writ of Mandate, which requests that the court determine that the re-
entitlement complies with the court’s February 15, 2019 final judgment in the 2017 Action (the Motion for Order to Discharge 2017 Writ of Mandate). A
hearing was held on February 14, 2020 for this motion and is further summarized below.
On January 10, 2020, CBD filed a new and separate action in Kern County Superior Court pursuant to CEQA against the County, concerning the County’s
approval of the December 2019 re-entitlement, including certification of the final EIR (the 2020 Action). The Company is named as real party in interest in
the 2020 Action. The 2020 Action alleges that the County failed to properly follow the procedures and requirements of CEQA with respect to the re-
entitlement of the Grapevine project, including failure to identify, analyze and mitigate impacts to air quality, greenhouse gas emissions, biological
resources, public health, and traffic, and failed to provide support for the County’s findings and statement of overriding considerations in adopting the EIR.
CBD seeks to invalidate the County’s approval of the re-entitlement, the environmental approvals for the re-entitlement and require the Company and the
County to revise the environmental documentation. The Company intends to vigorously defend the re-entitlement of the Grapevine project against claims
made in the 2020 Action. On January 22, 2020, the Company and County filed a demurrer and motion to strike the claims in the 2020 Action on the basis
that the claims brought by CBD must be resolved by the court in the 2017 action, pursuant to the final judgment issued in the 2017 Action. The Company
and County’s motion described in the previous sentence also included an alternative request that the court consolidate CBD’s claims in the 2020 Action
with its disposition of any remaining matters relating to the 2017 Action. A hearing on these motions filed in the 2020 Action and on the Motion for Order
Discharging Writ of Mandate (described above and relating to the 2017 Action) was held on February 14, 2020. At the hearing, the court granted the
Company and County’s request to consolidate the 2020 Action with its adjudication of the Company and County’s compliance with the writ of mandate
issued by the Court in the 2017 Action. The court denied, without prejudice, the Company’s and County’s motion to discharge the writ in the 2017 Action
and their demurrer and motion to strike the claims in the 2020 Action, but the court further ruled that the Company and County could re-assert these
arguments at a later date once additional evidence was before the court.
On January 22, 2021 the court conducted a hearing on the 2020 Action and the Motion for Order to Discharge 2017 Writ of Mandate. At the January 22nd
hearing, the court ruled in favor of the Company and the County on all issues: (1) granting the County’s Motion for Order to Discharge the 2017 Writ of
Mandate and (2) rejecting each and every claim made by CDB in the 2020 Action. The court has directed the County and Company to prepare a final
judgment reflecting its ruling in favor of the Company. Following the entry of a final judgment, any party may appeal the court’s decision.
Centennial
On April 30, 2019, the Los Angeles County Board of Supervisors granted final entitlement approval for the Centennial project. On May 15, 2019, Climate
Resolve filed an action in Los Angeles Superior Court (the Climate Resolve Action) pursuant to CEQA and the California Planning and Zoning Law
against the County of Los Angeles and the Los Angeles County Board of Supervisors (collectively, LA County) concerning LA County’s granting of
approvals for the Centennial project, including certification of the final environmental impact report and related findings (Centennial EIR); approval of
associated general plan amendments; adoption of associated zoning; adoption of the Centennial Specific Plan; approval of a subdivision map for financing
purposes; and adoption of a development agreement, among other approvals (collectively, the Centennial Approvals). Separately, on May 28, 2019, CBD
and the California Native Plant Society (CNPS) filed an action in Los Angeles County Superior Court (the CBD/CNPS Action) against LA County; like the
Climate Resolve Action, the CBD/CNPS Action also challenges the Centennial Approvals. The Company, its wholly owned subsidiary Tejon Ranchcorp,
and Centennial Founders, LLC are named as real parties-in-interest in both the Climate Resolve Action and the CBD/CNPS Action.
The Climate Resolve Action and the CBD/CNPS Action collectively allege that LA County failed to properly follow the procedures and requirements of
CEQA and the California Planning and Zoning Law. The Climate Resolve Action and the CBD/CNPS Action have been deemed “related” and have been
consolidated for adjudication before the judge presiding over the Climate Resolve Action. The Climate Resolve Action and CBD/CNPS Action seek to
invalidate the Centennial Approvals and require LA County to revise the environmental documentation related to the Centennial project. The court held
three consolidated hearings for the CBD/CNPS Action and Climate Resolve Action on September 30, 2020, November 13, 2020 and January 8, 2021, but
has not yet issued a ruling or judgment.
Conservancy Litigation
On December 2, 2020, conservation groups filed an action against the Company in Kern County Superior Court, alleging that, beginning October 1, 2020,
the Company breached its obligation under the Tejon Ranch Conservation and Land Use Agreement (“RWA”) by failing to make advance payments for Q4
2020 to the Tejon Ranch Conservancy (“Conservancy”) – a non-profit organization created under the RWA to oversee conservation of the protected lands at
Tejon Ranch.
104
As permitted by the RWA, the Company deposited the advance payments to the Conservancy into a third-party escrow pending a determination of the
Company’s rights under the RWA.
At December 31, 2020 the Company believes it has performed all its obligations under the RWA and has withheld the escrowed payments based on the
self-dealing, conflicts of interest and violations of the terms of the RWA performed by the non-Company members of the board of directors of the
Conservancy and representatives of signatories to the RWA. The Company will vigorously defend the action and does not believe that the resolution of this
proceeding will result in a liability to the Company beyond the costs of suit and the Company’s escrow deposits which are included in the Company’s
annual budgets.
Proceedings Incidental to Business
From time to time, the Company is involved in other proceedings incidental to its business, including actions relating to employee claims, real estate
disputes, contractor disputes and grievance hearings before labor regulatory agencies.
The outcome of these other proceedings is not predictable. However, based on current circumstances, the Company does not believe that the ultimate
resolution of these other proceedings will have a material adverse effect on the Company's financial position, results of operations or cash flows either
individually or in the aggregate.
15. RETIREMENT PLANS
The Company sponsors a defined benefit retirement plan, or Benefit Plan, that covers eligible employees hired prior to February 1, 2007. The benefits are
based on years of service and the employee’s five-year final average salary. The accounting for the defined benefit plan requires the use of assumptions and
estimates in order to calculate periodic benefit cost and the value of the plan's assets and benefit obligation. These assumptions include discount rates,
investment returns, and projected salary increases, amongst others. The discount rates used in valuing the plan's benefits obligations were determined with
reference to high quality corporate and government bonds that are appropriately matched to the duration of the plan's obligation.
Contributions are intended to provide for benefits attributable to service both to date and expected to be provided in the future. The Company funds the
plan in accordance with the Employee Retirement Income Security Act of 1974, or ERISA.
The following table sets forth changes in the plan's net benefit obligation and accumulated benefit information as of December 31:
($ in thousands)
Change in benefit obligation - Pension
Benefit obligation at beginning of year
Interest cost
Actuarial (gain)/assumption changes
Benefits paid
Benefit obligation and accumulated benefit obligation at end of year
Change in Plan Assets
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contribution
Benefits/expenses paid
Fair value of plan assets at end of year
Funded status - liability
Amounts recorded in equity
Net actuarial loss
Total amount recorded
Amount recorded, net taxes
105
2020
2019
$
$
$
$
$
$
$
$
10,710 $
338
1,248
(259)
12,037 $
8,920 $
1,609
165
(259)
10,435 $
(1,602) $
3,242 $
3,242 $
2,335 $
9,406
389
1,161
(246)
10,710
7,258
1,744
165
(247)
8,920
(1,790)
3,027
3,027
2,180
Other changes in plan assets and benefit obligations recognized in other comprehensive income include the following as of December 31:
($ in thousands)
Net loss (gain)
Recognition of net actuarial loss
Total changes
Changes, net of taxes
2020
2019
$
$
$
282 $
(67)
215 $
155 $
The Company expects to recognize the following amounts as a component of net periodic pension costs during the next fiscal year:
Expected return on plan assets
Interest cost
Amortization of net gain/(loss)
Net periodic pension benefit/(cost)
$
$
(60)
(75)
(135)
(97)
752
(291)
(73)
388
At December 31, 2020 and 2019, the Company had a long-term pension liability. For 2021, the Company is estimating that contributions to the pension
plan will be approximately $165,000.
Based on actuarial estimates, it is expected that annual benefit payments from the pension trust will be as follows:
2021
2022
2023
2024
2025
Thereafter
$
299 $
304 $
362 $
372 $
471 $
2,570
Plan assets consist of equity, debt and short-term money market investment funds. The Benefit Plan’s current investment policy changed during the third
quarter of 2018. The new policy is an investment strategy in which the primary focus is to minimize the volatility of the funding ratio. This objective will
result in a prescribed asset mix between "return seeking" assets (e.g. stocks) and a bond portfolio (e.g., long duration bonds) according to a pre-determined
customized investment strategy based on the Plan's Funded Status as the primary input. This path will be used as a reference point as to the mix of assets,
which by design will de-emphasize the return seeking portion as funded status improves. At December 31, 2020, the investment mix was approximately
65% equity, 34% debt, and 1% money market funds. At December 31, 2019, the investment mix was approximately 66% equity, 33% debt and 1% money
market funds. Equity investments consist of a combination of individual equity securities plus value funds, growth funds, large cap funds and international
stock funds. Debt investments consist of U.S. Treasury securities and investment grade corporate debt. The weighted-average discount rate used in
determining the periodic pension cost is 2.45% in 2020 and 3.20% in 2019. The expected long-term rate of return on plan assets is 7.3% in 2020 and 7.3%
in 2019. The long-term rate of return on plan assets is based on the historical returns within the plan and expectations for future returns. See the following
table for fair value hierarchy by investment type at December 31:
($ in thousands)
Pension Plan Assets:
Cash and Cash Equivalents
Collective Funds
Fair value of plan assets
Fair Value Hierarchy
2020
2019
Level 1
Level 2
$
$
70 $
10,365
10,435 $
Total pension and retirement expense was as follows for each of the years ended December 31:
($ in thousands)
Cost components:
Service cost
Interest cost
Expected return on plan assets
Net amortization and deferral
Settlement recognition
Total net periodic pension earnings/(cost)
2020
2019
2018
— $
(338)
643
(68)
—
237 $
— $
(389)
522
(75)
—
58 $
$
$
106
48
8,872
8,920
—
(365)
585
(64)
—
156
The Company has a Supplemental Executive Retirement Plan, or SERP, to restore to executives designated by the Compensation Committee of the Board
of Directors the full benefits under the pension plan that would otherwise be restricted by certain limitations now imposed under the Internal Revenue
Code. The SERP is currently unfunded.
The following SERP benefit information is as of December 31:
($ in thousands)
Change in benefit obligation - SERP
Benefit obligation at beginning of year
Interest cost
Actuarial gain/assumption changes
Benefits paid
Curtailments
Benefit obligation and accumulated benefit obligation at end of year
Funded status - liability
($ in thousands)
Amounts recorded in stockholders’ equity
Net actuarial loss (gain)
Total amount recorded
Amount recorded, net taxes
2020
2019
8,011 $
229
708
(529)
—
8,419 $
(8,419) $
2020
2019
3,024 $
3,024 $
2,178 $
7,750
303
486
(528)
—
8,011
(8,011)
2,402
2,402
1,730
$
$
$
$
$
$
Other changes in benefit obligations recognized in other comprehensive income for 2020 and 2019 included the following components:
($ in thousands)
Net (gain) loss
Recognition of net actuarial gain or (loss)
Total changes
Changes, net of taxes
2020
2019
$
$
$
708 $
(86)
622 $
448 $
The Company expects to recognize the following amounts as a component of net periodic pension costs during the next fiscal year ($ in thousands):
Interest cost
Amortization of net (gain)/loss
Net periodic pension earnings/(cost)
$
$
486
(62)
424
305
(163)
(125)
(288)
Based on actuarial estimates, it is expected that annual SERP benefit payments will be as follows ($ in thousands):
2021
2022
2023
2024
2025
Thereafter
$
527 $
522 $
516 $
483 $
557 $
2,628
The weighted-average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of projected benefits
obligation was 2.00% and 0.0% for 2020, 2.95% and 0.0% for 2019, and 4.05% and 0.00% for 2018. Total pension and retirement expense was as follows
for each of the years ended December 31:
($ in thousands)
Cost components:
Interest cost
Net amortization and other
Total net periodic pension earnings/(cost)
2020
2019
2018
$
$
(229) $
(86)
(315) $
(303) $
(62)
(365) $
(268)
(223)
(491)
107
16. REPORTING SEGMENTS AND RELATED INFORMATION
The Company currently operates five reporting segments: commercial/industrial real estate development, resort/residential real estate development, mineral
resources, farming, and ranch operations. For further details of the revenue components within each reporting segment, see Results of Operations by
Segment in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations".
Information pertaining to operating results of the Company's reporting segments are as follows for each of the years ended December 31:
($ in thousands)
Revenues
Real estate—commercial/industrial
Mineral resources
Farming
Ranch operations
Segment revenues
Equity in unconsolidated joint ventures, net
Gain on sale of real estate
Investment income
Total revenues and other income
Segment Profits (Losses)
Real estate—commercial/industrial
Real estate—resort/residential
Mineral resources
Farming
Ranch operations
Segment profits
(1)
Equity in unconsolidated joint ventures, net
Gain on sale of real estate
Investment income
Other income
Corporate expenses
Income from operations before income taxes
2020
2019
2018
$
9,536 $
10,736
13,866
3,692
37,830
4,504
1,331
884
44,549
2,414
(1,612)
4,322
(1,237)
(1,204)
2,683
4,504
1,331
884
110
(9,430)
$
82 $
16,792 $
9,791
19,331
3,609
49,523
16,575
—
1,239
67,337
3,831
(2,247)
3,973
4,080
(1,707)
7,930
16,575
—
1,239
(1,824)
(9,361)
14,559 $
8,970
14,395
18,563
3,691
45,619
3,834
—
1,344
50,738
2,724
(1,530)
8,172
2,535
(1,760)
10,141
3,834
—
1,344
(59)
(9,705)
5,555
(1)
Segment profits are revenues less operating expenses, excluding investment income and expense, corporate expenses, equity in earnings of unconsolidated joint ventures, and income taxes.
Real estate - Commercial/Industrial
Commercial revenue consists of land and building leases to tenants at the Company's commercial retail and industrial developments, base and percentage
rents from the PEF power plant lease, communication tower rents, land sales, and payments from easement leases. In 2020, the Company sold building and
land, previously belonging to this segment, that was previously operated by a fast food tenant to its joint venture, Petro Travel Plaza LLC. The Company
received a cash distribution of $2,000,000 from the joint venture, and realized a Gain on Sale of Real Estate of $1,331,000.
108
The following table summarizes revenues, expenses and operating income from this segment for each of the years ended December 31:
($ in thousands)
Commercial revenues
Equity in earnings of unconsolidated joint ventures
Commercial revenues and equity in earnings of unconsolidated joint ventures
Commercial expenses
Operating results from commercial and unconsolidated joint ventures
2020
2019
2018
$
$
$
9,536 $
4,504
14,040 $
7,122
6,918 $
16,792 $
16,575
33,367 $
12,961
20,406 $
8,970
3,834
12,804
6,246
6,558
The resort/residential real estate development segment is actively involved in the land entitlement and development process internally and through joint
venture entities. The segment produced losses of $1,612,000, $2,247,000, and $1,530,000 during the years ended December 31, 2020, 2019, and 2018,
respectively.
The mineral resources segment receives oil and mineral royalties from the exploration and development companies that extract or mine the natural
resources from the Company's land along with revenue from water sales. The following table summarizes revenues, expenses and operating results from
this segment for each of the years ended December 31:
($ in thousands)
Mineral resources revenues
Mineral resources expenses
Operating results from mineral resources
2020
2019
2018
$
$
$
10,736 $
6,414 $
4,322 $
9,791 $
5,818 $
3,973 $
14,395
6,223
8,172
The farming segment produces revenues from the sale of wine grapes, almonds, pistachios and hay. The following table summarizes revenues, expenses
and operating results from this segment for each of the years ended December 31:
($ in thousands)
Farming revenues
Farming expenses
Operating results from farming
2020
2019
2018
$
$
$
13,866 $
15,103 $
(1,237) $
19,331 $
15,251 $
4,080 $
18,563
16,028
2,535
Ranch operations consists of game management revenues and ancillary land uses such as grazing leases and filming. The following table summarizes
revenues, expenses and operating results from this segment for each of the years ended December 31:
($ in thousands)
Ranch operations revenues
Ranch operations expenses
Operating results from ranch operations
2020
2019
2018
$
$
$
3,692 $
4,896 $
(1,204) $
3,609 $
5,316 $
(1,707) $
3,691
5,451
(1,760)
109
Information pertaining to assets of the Company’s reporting segments is as follows for each of the years ended December 31:
($ in thousands)
Real estate - commercial/industrial
Real estate - resort/residential
Mineral resources
Farming
Ranch operations
Corporate
Total
Real estate - commercial/industrial
Real estate - resort/residential
Mineral resources
Farming
Ranch operations
Corporate
Total
Real estate - commercial/industrial
Real estate - resort/residential
Mineral resources
Farming
Ranch operations
Corporate
Total
Identifiable
Assets
Depreciation and
Amortization
Capital
Expenditures
2020
2019
2018
$
$
$
$
$
$
73,317 $
297,052
57,797
38,090
2,442
67,651
536,349 $
76,814 $
286,801
55,049
41,258
2,624
76,876
539,422 $
65,929 $
273,620
54,144
40,835
2,973
91,547
529,048 $
486 $
39
1,384
1,989
482
558
4,938 $
517 $
51
1,371
1,909
526
662
5,036 $
651 $
58
1,372
1,897
536
910
5,424 $
7,128
9,764
25
5,145
91
106
22,259
8,690
12,811
37
3,362
213
109
25,222
5,225
13,459
171
3,166
102
457
22,580
Identifiable assets by segment include both assets directly identified with those operations and an allocable share of jointly used assets. Corporate assets
consist primarily of cash and cash equivalents, marketable securities, deferred income taxes, and land and buildings. Land is valued at cost for acquisitions
since 1936. Land acquired in 1936, upon organization of the Company, is stated on the basis carried by the Company’s predecessor.
17. INVESTMENT IN UNCONSOLIDATED AND CONSOLIDATED JOINT VENTURES
The Company maintains investments in joint ventures. The Company accounts for its investments in unconsolidated joint ventures using the equity method
of accounting unless the venture is a variable interest entity, or VIE, and meets the requirements for consolidation. The Company’s investment in its
unconsolidated joint ventures at December 31, 2020 was $33,524,000. The equity in the income of the unconsolidated joint ventures was $4,504,000 for
the twelve months ended December 31, 2020. The unconsolidated joint ventures have not been consolidated as of December 31, 2020, because the
Company does not control the investments. The Company’s current joint ventures are as follows:
•
Petro Travel Plaza Holdings LLC – TA/Petro is an unconsolidated joint venture with TravelCenters of America Inc. for the development and
management of travel plazas and convenience stores. The Company has 50% voting rights and shares 60% of profit and losses in this joint venture. It
houses multiple commercial eating establishments as well as diesel and gasoline operations in TRCC. The Company does not control the investment
due to it having only 50% voting rights, and because the partner in the joint venture is the managing partner and performs all of the day-to-day
operations and has significant decision-making authority regarding key business components such as fuel inventory and pricing at the facility. At
December 31, 2020, the Company had an equity investment balance of $23,358,000 in this joint venture.
◦ 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 $1,331,000 under ASC 610-20, "Other Income – Gains
and Losses from the Derecognition of Nonfinancial Assets."
110
◦
In December 2019, the Company completed the shell and core of a new 4,900 square foot multi-tenant building at TRCC-East, with a fair
value of $2,805,000, and contributed the building and land to TA/Petro. The contribution met the criteria of a sale under ASC Topic 606,
"Revenue from Contracts with Customers." As such, the Company recognized profit of $334,000 and deferred $501,000 of profit in
accordance with ASC Topic 323, "Investment - Equity Method and Joint Ventures" on the date the assets were contributed.
• Majestic Realty Co. – Majestic Realty Co., or Majestic, is a privately-held developer and owner of master planned business parks in the United
States. The Company partnered with Majestic to form three 50/50 joint ventures to acquire, develop, manage, and operate industrial real estate at
TRCC. The partners have equal voting rights and equally share in the profit and loss of the joint venture. The Company and Majestic guarantee the
performance of all outstanding debt. At December 31, 2020, the Company's investment in these joint ventures was $1,753,000, which includes an
outside basis.
◦
◦
◦
In November 2018, TRC-MRC 3, LLC was 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. TRC-MRC 3, LLC qualified as a VIE from inception, but the Company is
not the primary beneficiary therefore does not consolidate TRC-MRC 3, LLC in its financial statements. The construction of the building was
completed in the fourth quarter of 2019, and the Company has leased 100% of the rentable space to two tenants. In March 2019, the joint
venture entered into a promissory note with a financial institution to finance the construction of the building. The note matures on May 1,
2030 and had an outstanding principal balance of $35,785,000 as of December 31, 2020. On April 1, 2019, the Company contributed land
with a fair value of $5,854,000 to TRC-MRC 3, LLC in accordance with the limited liability agreement. The land contribution met the criteria
of a land sale under ASC Topic 606, "Revenue from Contracts with Customers." As such, the Company recognized profit of $1,537,000 and
deferred $1,537,000 of profit in accordance with ASC Topic 323, "Investment - Equity Method and Joint Ventures" on the date the land was
contributed. The Company's investment in this joint venture was $1,753,000 as of December 31, 2020.
In August 2016, the Company partnered with Majestic to form TRC-MRC 2, LLC to acquire, lease, and maintain a fully occupied warehouse
at TRCC-West. The partnership acquired the 651,909 square foot building for $24,773,000 and was largely financed through a promissory
note guaranteed by both partners. The promissory note was refinanced on June 1, 2018 with a $25,240,000 promissory note. The note matures
on July 1, 2028, and currently has an outstanding principal balance of $23,869,000. Since inception, the Company has received excess
distributions resulting in a deficit balance of $1,867,000. In accordance with the applicable accounting guidance, these excess distributions are
reclassified to the liabilities section of the consolidated balance sheet. The Company will continue to record its equity in the net income as a
debit to the investment account, and if it becomes positive, it will again be shown as an asset on the consolidated balance sheet. If it becomes
obvious that any excess distribution may not be returned (upon joint venture liquidation or otherwise), the Company will recognize any
balance classified as a liability as income.
In September 2016, TRC-MRC 1, LLC was formed to develop and operate an approximately 480,480 square foot industrial building at
TRCC-East. The joint venture completed construction of the building during the third quarter of 2017. Since inception of the joint venture, the
Company has received excess distributions resulting in a deficit balance of $1,194,000. In accordance with the applicable accounting
guidance, these excess distributions are reclassified to the liabilities section of the consolidated balance sheet. The Company will continue to
record its equity in the net income as a debit to the investment account, and if it becomes positive, it will again be shown as an asset on the
consolidated balance sheet. If it becomes obvious that any excess distribution may not be returned (upon joint venture liquidation or
otherwise), the Company will recognize any balance classified as a liability as income. The joint venture refinanced its construction loan in
December 2018 with a mortgage loan. The original principal balance of the mortgage loan was $25,030,000, of which $23,985,000 was
outstanding at December 31, 2020.
•
Rockefeller Joint Ventures – The Company has two joint ventures with Rockefeller Group Development Corporation or Rockefeller as of
December 31, 2020. At December 31, 2020, the Company’s combined equity investment balance in these joint ventures was $8,413,000.
◦
The first joint venture, 18-19 West LLC, was formed in August 2009 through the contribution of 61.5 acres of land by the Company, which is
being held for future development. This joint venture is part of an agreement for the potential development of up to 500 acres of land in
TRCC that are tied to Foreign Trade Zone designation. The Company owns a 50% interest in this joint ventures, and the joint ventures is
being accounted for under the equity method due to both members having significant participating rights in the management of the ventures.
111
▪
The Company's 18-19 West LLC joint venture has a purchase option in place with the third-party who purchased the Five West
building and land (noted below) to purchase lots 18 and 19 at a price of $13.8 million through the option period ending May 21,
2021. If the option is extended to November 21, 2021, the price increases to $15.2 million. The land option expires in the fourth
quarter of 2021.
◦
◦
The Company was a member of the Five West Parcel LLC joint venture, which owned and leased a 606,000 square foot building, the joint
venture's primary asset, to Dollar General. 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. This joint venture was dissolved
during the fourth quarter of 2020.
The second joint venture is the TRCC/Rock Outlet Center LLC joint venture that was formed during the second quarter of 2013 to develop,
own, and manage a net leasable 326,000 square foot outlet center on land at TRCC-East. The cost of the outlet center was approximately
$87,000,000 and was funded through a construction loan for up to 60% of the costs and the remaining 40% was through equity contributions
from the two members. The Company controls 50% of the voting interests of TRCC/Rock Outlet Center LLC; thus, it does not control by
voting interest alone. The Company is the named managing member. The managing member's responsibilities relate to the routine day-to-day
activities of TRCC/Rock Outlet Center LLC. However, all operating decisions during the development period and ongoing operations,
including the setting and monitoring of the budget, leasing, marketing, financing and selection of the contractor for any construction, are
jointly made by both members of the joint venture. Therefore, the Company concluded that both members have significant participating rights
that are sufficient to overcome the presumption of the Company controlling the joint venture through it being named the managing member.
Therefore, the investment in TRCC/Rock Outlet Center LLC is being accounted for under the equity method. The TRCC/Rock Outlet Center
LLC joint venture has a term note with a financial institution that matures on September 5, 2021. As of December 31, 2020, the outstanding
balance of the term note was $34,845,000. The Company and Rockefeller guarantee the performance of the debt.
•
Centennial Founders, LLC – Centennial Founders, LLC, or CFL, is a joint venture that was initially formed with TRI Pointe Homes, Lewis Investment
Company and CalAtlantic to pursue the entitlement and development of land that the Company owns in Los Angeles County. Based on the Second
Amended and Restated Limited Company Agreement of CFL and the change in control and funding that resulted from the amended agreement, CFL
qualified as a VIE, beginning in the third quarter of 2009, and the Company was determined to be the primary beneficiary. As a result, CFL has been
consolidated into the financial statements beginning in that quarter. The remaining partners have retained a noncontrolling interest in the joint venture.
On November 30, 2016, CFL and Lewis entered a Redemption and Withdrawal Agreement, whereby Lewis irrevocably and unconditionally withdrew
as a member of CFL, and CFL redeemed Lewis' entire interest for no consideration. As a result, the noncontrolling interest balance was reduced by
$11,039,000. On December 31, 2018, CFL and CalAtlantic entered a Redemption and Withdrawal Agreement, whereby CalAtlantic irrevocably and
unconditionally withdrew as a member of CFL, and CFL redeemed CalAtlantic's entire interest for no consideration. As a result, the noncontrolling
interest balance was reduced by $13,172,000. At December 31, 2020, the Company owned 92.85% of CFL.
The Company’s investment balance in its unconsolidated joint ventures differs from its respective capital accounts in the respective joint ventures. The
differential represents the difference between the cost basis of assets contributed by the Company and the agreed upon contribution value of the assets
contributed.
112
Condensed balance sheet information and statement of operations of the Company’s unconsolidated joint ventures are as follows:
Balance Sheet Information as of December 31:
Petro Travel Plaza Holdings LLC $
Five West Parcel, LLC
18-19 West, LLC
TRCC/Rock Outlet Center, LLC
TRC-MRC 1, LLC
TRC-MRC 2, LLC
TRC-MRC 3, LLC
Total
Centennial Founders, LLC
$
$
Assets
2020
2019
77,516 $
—
4,733
65,475
26,502
20,191
38,502
232,919 $
77,835 $
694
4,849
69,459
28,673
20,026
37,292
238,828 $
Joint Venture
Borrowings
2020
(15,291) $
—
—
(34,845)
(23,985)
(23,869)
(35,785)
(133,775) $
2019
(15,287) $
—
—
(38,909)
(24,542)
(24,455)
(28,061)
(131,254) $
Equity
2020
2019
59,597 $
—
4,483
29,608
2,059
(7,741)
(2,001)
86,005 $
60,061 $
648
4,600
29,688
3,623
(7,094)
6,052
97,578 $
TRC
Investment In
2020
23,358 $
—
1,672
6,741
—
—
1,753
33,524 $
2019
23,636
140
1,730
6,781
—
—
5,953
38,240
98,898 $
96,415 $
— $
— $
98,565 $
96,143
Consolidated
Condensed Statement of Operations Information as of December 31:
2020
Revenues
2019
2018
2020
Earnings(Loss)
2019
2018
Joint Venture
TRC
Equity in Earnings (Loss)
2019
2018
2020
Petro Travel Plaza
Holdings LLC
Five West Parcel, LLC
18-19 West, LLC
TRCC/Rock Outlet Center,
1
LLC
TRC-MRC 1, LLC
2
TRC-MRC 2, LLC
TRC-MRC 3, LLC
$
$
$
86,331 $
—
6
117,708 $
2,648
15
119,083 $
2,731
13
9,536 $
(6)
(136)
14,684 $
18,239
(107)
9,672 $
778
(102)
5,722 $
(2)
(68)
8,810 $
9,119
(53)
5,495
3,123
4,087
4,032 $
103,074 $
6,278
3,067
4,023
6,418
1,323
3,981
(4,180)
129
1,357
(3,843)
91
1,151
— $
133,739 $
— $
133,549 $
399 $
7,099 $
(2) $
30,213 $
(4,645)
(498)
529
— $
5,734 $
(2,090)
64
678
200 $
4,504 $
(1,921)
46
575
(1) $
16,575 $
5,803
389
(51)
(2,323)
(249)
265
—
3,834
Centennial Founders, LLC $
419 $
469 $
297 $
(103) $
(20) $
(249)
Consolidated
(1) Revenues for TRCC/Rock Outlet Center are presented net of non-cash tenant allowance amortization of $1.3 million, $1.7 million, and $1.7 million for the years ended December 31, 2020,
2019 and 2018, respectively.
(2) Earnings for TRC-MRC2, LLC include non-cash amortization of purchase accounting adjustments related to in-place leases of $0.0 million, $0.2 million and $0.8 million for the years ended
December 31, 2020, 2019 and 2018, respectively.
18. RELATED PARTY TRANSACTIONS
TCWD is a not-for-profit governmental entity, organized on December 28, 1965, pursuant to Division 13 of the Water Code, State of California. TCWD is
a landowner voting district, which requires an elector, or voter, to be an owner of land located within the district. TCWD was organized to provide the
water needs for future municipal and industrial development. The Company is the largest landowner and taxpayer within TCWD. The Company has a
water service contract with TCWD that entitles it to receive all of TCWD’s State Water Project entitlement and all of TCWD’s banked water. TCWD is also
entitled to make assessments of all taxpayers within the district, to the extent funds are required to cover expenses and to charge water users within the
district for the use of water. From time to time, the Company transacts with TCWD in the ordinary course of business.
113
The Company has water contracts with WRMWSD for SWP water deliveries to its agricultural and municipal/industrial operations in the San Joaquin
Valley. The terms of these contracts extend to 2035. Under the contracts, the Company is entitled to annual water for 5,496 acres of land, or 5,749 acre-feet
of water subject to SWP allocations. In December 2019, the Company's Executive Vice President and Chief Operating Officer became one of nine directors
at WRMWSD. As of December 31, 2020 and December 31, 2019, the Company paid $5,181,000 and $3,299,000 for these water contracts and related
costs, respectively.
19. UNAUDITED QUARTERLY OPERATING RESULTS
The following is a tabulation of unaudited quarterly operating results for the years indicated:
($ in thousands, except
per share)
2020
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2019
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Total
1
Revenue
Segment
Profit
(Loss)
Net Income
(Loss)
Net Income (Loss)
attributable to Common
Stockholders
Net Income
(Loss) Per Share
Net Income (Loss), Per Share
attributable to Common
2
Stockholders
$
$
$
$
10,541 $
4,926
13,968
9,279
38,714 $
11,011 $
9,275
9,951
20,525
50,762 $
770 $
(289)
1,294
908
2,683 $
1,442 $
895
(708)
6,301
7,930 $
(684) $
(326)
384
(121)
(747) $
124 $
709
37
9,709
10,579 $
(682) $
(333)
398
(123)
(740)
119 $
707
47
9,707
10,580
(0.03) $
(0.01)
0.02
—
— $
0.03
—
0.37
(0.03)
(0.01)
0.02
—
—
0.03
—
0.37
(1) Includes investment income.
(2) Net income (loss) per share on a diluted basis. Quarterly rounding of per share amounts can result in a variance from the reported annual amount. The fourth quarter 2019 amount includes
gain realized by Five West Parcel LLC joint venture on building sale (see Note 17).
114
Exhibit 4.4
The following is a summary of the material terms of our capital stock. You are strongly encouraged, however, to read our restated certificate of
incorporation, bylaws and other agreements, copies of which are available from us upon request. Please also refer to “Where You Can Find Additional
Information” to find out where copies of these documents may be obtained.
DESCRIPTION OF SECURITIES
General
The following description of our capital stock and provisions of our restated certificate of incorporation and bylaws are summaries and are
qualified by reference to the restated certificate of incorporation and the bylaws currently in effect. Copies of these documents have been filed with the
SEC.
Our authorized capital stock consists of 5,000,000 shares of preferred stock, of which no shares are outstanding, and 30,000,000 shares of
common stock, of which 20,703,838 shares were outstanding on March 14, 2016, held by 307 holders of record.
Common Stock
The holders of common stock vote cumulatively when electing directors and are entitled to one vote per share on all other matters. The board of
directors presently consists of three classes of directors based on when their terms expire. Each class is elected every three years to a three-year term.
Because only a portion of the total number of directors is elected each year, a greater number of shares is required to ensure the ability to elect a specific
number of directors using cumulative voting than would be required if the entire Board were elected each year.
Holders of common stock are entitled to receive ratably such dividends as may be declared by the board of directors out of funds legally
available therefore. In the event of liquidation, dissolution or winding up of the Company holders of common stock are entitled to share ratably in all assets
remaining after payment of liabilities and satisfaction of any preferential rights of the holders of the preferred stock. Holders of common stock have no
preemptive, subscription or conversion rights. There are no redemption or sinking fund provisions, and there is no liability for further calls or assessments
by the Company.
Preferred Stock
The Board has the authority to issue 5,000,000 shares of preferred stock in one or more series with dividend rights, conversion rights, voting
rights, redemption terms, liquidation preferences and other rights or preferences that could be senior to those of holders of common stock. There are no
shares of preferred stock outstanding.
Anti-Takeover Provisions
We are subject to Section 203 of the DGCL. Subject to certain exceptions, Section 203 prevents a publicly held Delaware corporation from
engaging in a “business combination” with any “interested stockholder” for three years following the date that the person became an interested stockholder,
unless the interested stockholder attained such status with the approval of our board of directors or unless the business combination is approved in a
prescribed manner. A “business combination” includes, among other things, a merger or consolidation involving us, and the interested stockholder and the
sale of more than 10% of our assets. In general, an “interested stockholder” is any entity or person beneficially owning 15% or more of our outstanding
voting stock and any entity or person affiliated with or controlling or controlled by such entity or person. The restrictions contained in Section 203 are not
applicable to any of our existing stockholders.
In addition, our restated certificate of incorporation and bylaws include a number of provisions that may have the effect of discouraging persons
from pursuing non-negotiated takeover attempts. These provisions include:
•
•
•
a classified Board;
a requirement that directors may only be removed for cause and only by an affirmative vote of the holders of a majority of the
Company’s voting stock; and
the elimination of the ability of stockholders to call special meetings and to act without a meeting.
Subject to the exceptions set forth below, certain business combinations involving a “Related Person” require the approval of the holders of at
least 80% of the outstanding shares entitled to vote generally in the election of directors (which we refer to as
Exhibit 4.4
“voting shares”) and the approval of the holders of a majority of the voting shares not owned beneficially by the Related Person. The 80% voting
requirement does not apply if:
•
•
•
the terms of the business combination meet certain fairness standards set forth in our restated certificate of incorporation;
the business combination is approved by the holders of a majority of the voting shares not owned beneficially by the Related
Person; and
all other affirmative voting requirements imposed by applicable law or our restated certificate of incorporation are met.
Alternatively, the business combination can be approved by a majority of the Continuing Directors and such other vote as may be required by
law or by our restated certificate of incorporation.
“Related Person” means any person, entity or group that beneficially owns five percent or more of the outstanding voting stock (subject to
certain exceptions) and affiliates and associates of any such person, entity or group.
“Continuing Director” means, as to any Related Person:
•
•
a member of the board of directors who was a director of our company’s predecessor prior to June 9, 1987 or thereafter became a
director of our company prior to the time the Related Person became a Related Person; and
any successor of such a director who is recommended by a majority of such directors then on the Board.
However, to be a Continuing Director as to any Related Person, the director must not be the Related Person or an affiliate of the Related Person.
LIST OF SUBSIDIARIES OF REGISTRANT
EXHIBIT 21
(21) Subsidiaries of Registrant
A. Registrant: Tejon Ranch Co.
B. Subsidiaries of Registrant
a. Tejon Ranchcorp, 100% owned by Registrant.
b. Laval Agricultural Company, formerly Tejon Farming Company.
c. Tejon Ranch Feedlot, Inc.
d. White Wolf Corporation.
e. Tejon Development Corporation.
f. Tejon Industrial Corp.
g. Tejon Energy LLC.
h. Centennial Founders LLC, Delaware limited liability company, 84% owned by Tejon Ranchcorp.
i. Tejon Hounds, LLC.
j. Tejon Mountain Village, LLC., Delaware limited liability company.
k. Tejon Ranch Wine Company, LLC.
m. TRCC - West One, LLC.
C. Each of the aforesaid subsidiaries is included in Registrant's Consolidated Financial Statements, set forth in answer to Item 15(a)(1) hereof.
D. Each of the aforesaid subsidiaries (a) is a corporation unless otherwise stated, (b) was organized and incorporated or filed under the laws of the State
of California unless otherwise stated, and (c) has 100% of its common stock (if a corporation) or membership interest (if a limited liability company)
owned by Tejon Ranchcorp unless otherwise stated.
E. Each of the aforesaid subsidiaries does business under its name, as shown. Registrant also does business under the name Tejon Ranch Company. Tejon
Ranchcorp also does business under the names Tejon Ranch Company, Tejon Ranch, Grapevine Center, Grapevine Press, High Desert Hunt Club and Laval
Farms. Laval Agricultural Company does business also under the names Laval Farms and Tejon Ranch. Tejon Industrial Corp. also does business under the
name Tejon Ranch Commerce Center and Tejon Industrial Complex.
EXHIBIT 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
(1) Registration Statement (Form S-8 No. 333-210500) relating to the Amended and Restated 1998 Stock Incentive Plan and
Amended and Restated Non-Employee Director Stock Incentive Plan of Tejon Ranch Co.,
(2) Registration Statement (Form S-8 No. 333-152804) relating to the Amended and Restated 1998 Stock Incentive Plan of
Tejon Ranch Co.,
(3) Registration Statement (Form S-8 No. 333-68869) relating to the 1998 Stock Incentive Plan and Non-Employee Director
Stock Incentive Plan of Tejon Ranch Co.,
(4) Registration Statement (Form S-8 No. 333-70128) relating to the 1998 Stock Incentive Plan of Tejon Ranch Co.,
(5) Registration Statement (Form S-8 No. 333-113887) relating to the Tejon Ranch Nonqualified Deferred Compensation
Plan of Tejon Ranch Co., and
(6) Registration Statement (Form S-3 No. 333-231032) of Tejon Ranch Co.,
of our reports dated March 3, 2021, relating to the financial statements of Tejon Ranch Co. and subsidiaries and the effectiveness Tejon
Ranch Co. and subsidiaries’ internal control over the financial reporting appearing in this Annual Report on Form 10-K for the year ended
December 31, 2020.
/s/ DELOITTE & TOUCHE LLP
Los Angeles, California
March 3, 2021
EXHIBIT 23.2
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
(1) Registration Statement (Form S-8 No. 333-210500) pertaining to the Amended and Restated 1998 Stock Incentive Plan and
Amended and Restated Non-Employee Director Stock Incentive Plan of Tejon Ranch Co.,
(2) Registration Statement (Form S-8 No. 333-152804) pertaining to the Amended and Restated 1998 Stock Incentive Plan of Tejon
Ranch Co.,
(3) Registration Statement (Form S-8 No. 333-68869) pertaining to the 1998 Stock Incentive Plan and Non-Employee Director Stock
Incentive Plan of Tejon Ranch Co.,
(4) Registration Statement (Form S-8 No. 333-70128) pertaining to the 1998 Stock Incentive Plan of Tejon Ranch Co.,
(5) Registration Statement (Form S-8 No. 333-113887) pertaining to the Tejon Ranch Nonqualified Deferred Compensation Plan of
Tejon Ranch Co., and
(6) Registration Statement (Form S-3 No. 333-231032) of Tejon Ranch Co.;
of our report dated March 1, 2019, with respect to the consolidated financial statements of Tejon Ranch Co. and Subsidiaries included in this
Annual Report (Form 10-K) for the year ended December 31, 2020.
/s/ Ernst & Young LLP
Los Angeles, California
March 2, 2021
EXHIBIT 23.3
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-210500, 333-152804, 333-68869, 333-70128, 333-
113887) and the Registration Statement and related Prospectus on Form S-3 (No. 333-231032) of Tejon Ranch Co. of our report dated March 2, 2021,
relating to the consolidated financial statements of Petro Travel Plaza Holdings LLC, appearing in this Annual Report on Form 10-K for the year ended
December 31, 2020.
/s/ RSM US LLP
Cleveland, Ohio
March 2, 2021
EXHIBIT 31.1
Certification of Chief Executive Officer Pursuant to
Securities Exchange Act Rules 13a-14(a) and 15d-14(a)
as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Gregory S. Bielli, certify that:
1.
I have reviewed this annual report on Form 10-K of Tejon Ranch Co.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15(d)-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Dated: March 3, 2021
/s/ Gregory S. Bielli
Gregory S. Bielli
Chief Executive Officer
EXHIBIT 31.2
Certification of Chief Financial Officer Pursuant to
Securities Exchange Act Rules 13a-14(a) and 15d-14(a)
as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Robert D. Velasquez, certify that:
1.
I have reviewed this annual report on Form 10-K of Tejon Ranch Co.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15(d)-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Dated: March 3, 2021
/s/ Robert D. Velasquez
Robert D. Velasquez
Chief Financial Officer
EXHIBIT 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Each of the undersigned hereby certifies, in his capacity as an officer of Tejon Ranch Co. (the “Company”), for purposes of 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his own knowledge:
•
•
The Annual Report of the Company on Form 10-K for the period ended December 31, 2020 fully complies with the requirements of Section 13(a)
of the Securities Exchange Act of 1934; and
The information contained in such report fairly presents, in all material respects, the financial condition and results of operation of the Company.
A signed original of this written statement required by Section 906 has been provided to Tejon Ranch Co. and will be retained by Tejon Ranch Co., and
furnished to the Securities and Exchange Commission or its staff upon request.
Dated: March 3, 2021
/s/ Gregory S. Bielli
Gregory S. Bielli
Chief Executive Officer
/s/ Robert D. Velasquez
Robert D. Velasquez
Chief Financial Officer
Petro Travel Plaza Holdings LLC
Consolidated Financial Statements
For the Years Ended December 31, 2020, 2019 and 2018
Report of Independent Registered Public Accounting Firm
To the Members
Petro Travel Plaza Holdings LLC
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Petro Travel Plaza Holdings LLC (the Company) as of December 31, 2020 and 2019,
the related consolidated statements of income, cash flows and changes in members’ capital for each of the three years in the period ended December 31,
2020, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present
fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of
America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States
of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose
of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated
to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially
challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ RSM US LLP
We have served as the Company's auditor since 2015.
Cleveland, Ohio
March 2, 2021
1
PETRO TRAVEL PLAZA HOLDINGS LLC
CONSOLIDATED BALANCE SHEETS
(in thousands)
Assets
December 31,
2020
2019
Current assets:
Cash
Inventory
Due from affiliate, net
Other current assets
Total current assets
Property and equipment, net
Other noncurrent assets
Total assets
Liabilities and Members' Capital
Current liabilities:
Accrued expenses and other current liabilities
Total current liabilities
Long term debt, net
Other noncurrent liabilities
Total liabilities
Members' capital
$
$
$
10,914 $
2,233
1,240
193
14,580
62,629
307
77,516 $
2,309 $
2,309
14,844
766
17,919
59,597
Total liabilities and members' capital
$
77,516 $
12,259
2,409
4,560
143
19,371
58,321
143
77,835
1,602
1,602
15,287
885
17,774
60,061
77,835
The accompanying notes are an integral part of these consolidated financial statements.
2
PETRO TRAVEL PLAZA HOLDINGS LLC
CONSOLIDATED STATEMENTS OF INCOME
(in thousands)
Revenues:
Fuel
Nonfuel
Total revenues
Costs and expenses:
Cost of goods sold (excluding depreciation and amortization):
Fuel
Nonfuel
Total cost of goods sold
Operating expense
Depreciation and amortization expense
Total costs and expenses
Operating income
Interest expense, net
Net income
2020
Year Ended December 31,
2019
2018
$
58,271 $
28,060
86,331
84,184 $
33,524
117,708
85,871
33,212
119,083
43,986
10,834
54,820
19,032
2,561
76,413
9,918
382
65,940
12,754
78,694
21,209
2,475
72,658
12,703
85,361
20,872
2,560
102,378
108,793
15,330
646
10,290
618
9,672
$
9,536 $
14,684 $
The accompanying notes are an integral part of these consolidated financial statements.
3
PETRO TRAVEL PLAZA HOLDINGS LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization expense
Debt issuance costs
Increase (decrease) from changes in:
Inventory
Other current assets
Due to/from affiliate, net
Accrued expenses and other current liabilities
Other, net
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property and equipment
Net cash used in investing activities
Cash flows from financing activities:
Distributions to members
Net cash used in financing activities
Net (decrease) increase in cash
Cash, beginning of period
Cash, end of period
Supplemental cash flow information:
Interest paid during the period
2020
Year Ended December 31,
2019
2018
$
9,536 $
14,684 $
9,672
2,561
4
176
(50)
3,320
122
(163)
15,506
(6,851)
(6,851)
(10,000)
(10,000)
(1,345)
12,259
10,914 $
2,475
4
—
(100)
(2,592)
33
15
14,519
(3,749)
(3,749)
(6,000)
(6,000)
4,770
7,489
12,259 $
2,560
4
18
6
(957)
(4)
15
11,314
(3,097)
(3,097)
(8,000)
(8,000)
217
7,272
7,489
394 $
652 $
615
$
$
The accompanying notes are an integral part of these consolidated financial statements.
4
PETRO TRAVEL PLAZA HOLDINGS LLC
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' CAPITAL
(in thousands)
Balance, December 31, 2017
Net income
Distributions to members
Balance, December 31, 2018
Net income
Distributions to members
Balance, December 31, 2019
Net income
Distributions to members
Balance, December 31, 2020
Members'
Capital
49,705
9,672
(8,000)
51,377
14,684
(6,000)
60,061
9,536
(10,000)
59,597
$
$
The accompanying notes are an integral part of these consolidated financial statements.
5
PETRO TRAVEL PLAZA HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020, 2019 AND 2018
(in thousands)
(1) Summary of Significant Accounting Policies
General Information and Basis of Presentation
Petro Travel Plaza Holdings LLC (the "Company"), a Delaware limited liability company, was formed on October 8, 2008, by Tejon Development
Corporation, a California corporation ("Tejon"), and TA Operating LLC, a Delaware limited liability company ("TA"). The Company has two wholly
owned subsidiaries: Petro Travel Plaza LLC ("PTP") and East Travel Plaza LLC ("ETP"), each of which is a California limited liability company. The
Company's Limited Liability Company Operating Agreement, as amended, ("the Operating Agreement") limits each members' liability to the fullest extent
permitted by law. Pursuant to the terms of the Operating Agreement, TA manages the Company's operations and is responsible for the administrative,
accounting and tax functions of the Company.
The Company has two travel centers, three convenience stores with retail gasoline stations and one standalone restaurant in Southern California, which
we refer to collectively as the locations. One travel center and two convenience stores, owned by PTP, operate under the Petro brand and Goasis brand,
respectively, and one travel center and one convenience store owned by ETP, operate under the TravelCenters of America brand and Goasis brand,
respectively. The one standalone restaurant, owned by ETP, operates under the Black Bear Diner brand. The travel centers offer a broad range of products
and services, including diesel fuel and gasoline, as well as nonfuel products and services such as truck repair and maintenance services, full service
restaurants, quick service restaurants ("QSRs") and various customer amenities, such as showers, weigh scales, a truck wash and laundry facilities. The
convenience stores offer gasoline as well as a variety of nonfuel products and services, including coffee, groceries, some fresh foods, and, in one store, a
QSR.
The members and their interests in the Company are as follows:
Members
Tejon
TA
60.0 %
40.0 %
In any fiscal year, the Company's profits or losses and distributions, if any, shall be allocated 60.0% to Tejon and 40.0% to TA pursuant to the terms of
the Operating Agreement.
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, PTP and ETP, after eliminating
intercompany transactions, profits and balances. The preparation of financial statements in conformity with U.S. generally accepted accounting principles
("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
In March 2020, the World Health Organization and the U.S. Health and Human Services Secretary declared the outbreak of the novel coronavirus
("COVID-19") as a public health emergency in the United States in response to the outbreak, which continues to spread throughout the United States. As a
result, during 2020, certain of the restaurants in the Company's locations had temporarily closed or were limiting the services offered to its customers. As of
December 31, 2020, the Company's two travel centers and three convenience stores had reopened, some with limited services, and the standalone restaurant
remained temporarily closed. The Company cannot reasonably estimate the length or severity of this pandemic or its impact on the Company's future
financial results at this time.
The Company has evaluated subsequent events through March 2, 2021, which date represents the date the financial statements were available to be
issued.
6
PETRO TRAVEL PLAZA HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020, 2019 AND 2018
(in thousands)
Significant Accounting Policies
Inventory
Inventory is stated at the lower of cost or net realizable value. The Company determines cost principally on the weighted average cost method. The
Company maintains reserves for the estimated amounts of obsolete and excess inventory. These estimates are based on unit sales histories and on hand
inventory quantities, known market trends for inventory items and assumptions regarding factors such as future inventory needs, their ability and the
related cost to return items to their suppliers and ability to sell inventory at a discount when necessary.
Property and Equipment
Property and equipment are recorded at historical cost. Depreciation and amortization expense are provided using the straight line method over the
estimated useful lives of the respective assets. Repairs and maintenance are charged to expense as incurred and amounted to $872, $912 and $853 for the
years ended December 31, 2020, 2019 and 2018, respectively. Renewals and betterments are capitalized. The cost and related accumulated depreciation of
property and equipment sold, replaced or otherwise disposed is removed from the related accounts. Gains or losses on disposal of property and equipment
are credited or charged to depreciation and amortization expense in the accompanying consolidated statements of income.
Impairment of Long Lived Assets
The Company reviews definite lived assets for indicators of impairment during each reporting period. During 2020, the Company included the
COVID-19 pandemic and its impact on the Company's operations in its analyses. The Company recognizes impairment charges when (a) the carrying value
of a long lived asset or asset group to be held and used in the business is not recoverable and exceeds its fair value and (b) when the carrying value of a
long lived asset or asset group to be disposed of exceeds the estimated fair value of the asset less the estimated cost to sell the asset. The Company's
estimates of fair value are based on its estimates of likely market participant assumptions, including projected operating results and the discount rate used
to measure the present value of projected future cash flows. The Company uses a number of assumptions and methods in preparing valuations underlying
impairment tests including estimates of future cash flows and discount rate, and in some instances may obtain third party appraisals. The Company
recognizes such impairment charges in the period during which the circumstances surrounding an asset or asset group to be held and used have changed
such that the carrying value is no longer recoverable, or during which a commitment to a plan to dispose of the asset or asset group is made. The Company
performs an impairment analysis for substantially all of its property and equipment at the individual site level because that is the lowest level of asset and
liability groupings for which the cash flows are largely independent of the cash flows of other assets and liabilities. During 2020, the Company did not
record any impairment charges related to its long lived assets.
Environmental Liabilities and Expenditures
The Company records the expense of remediation charges and penalties when the obligation to remediate is probable and the amount of associated
costs is reasonably determinable. The Company includes remediation expenses within operating expense in the accompanying consolidated statements of
income. Generally, the timing of remediation expense recognized coincides with the completion of a feasibility study or the commitment to a formal plan of
action. Accrued liabilities related to environmental matters are recorded on an undiscounted basis because of the uncertainty associated with the timing of
the related future payments.
7
PETRO TRAVEL PLAZA HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020, 2019 AND 2018
(in thousands)
Asset Retirement Obligations
Asset retirement costs are capitalized as part of the cost of the related long lived asset and such costs are allocated to expense using a systematic and
rational method. To date, these costs relate to the Company's obligation to remove underground storage tanks ("USTs") used to store fuel and motor oil. The
Company records a liability for the fair value of an asset retirement obligation with a corresponding increase to the carrying value of the related long lived
asset at the time a UST is installed. The Company amortizes the amount added to property and equipment and recognizes accretion expense in connection
with the discounted liability over the remaining life of the respective UST, which is included in depreciation and amortization expense in the accompanying
consolidated statements of income. The Company bases the estimated liability on its historical experiences in removing these assets, estimated useful lives,
external estimates as to the cost to remove the assets in the future and regulatory or contractual requirements. Revisions to the liability could occur due to
changes in estimated removal costs, or asset useful lives or if new regulations regarding the removal of such tanks are enacted. An asset retirement
obligation of $215 and $196 was recorded as a noncurrent liability as of December 31, 2020 and 2019, respectively.
Self Insurance Accruals
For insurance programs for which the Company pays deductibles and for which the Company is partially self insured up to certain stop loss amounts,
the Company establishes accruals for both estimated losses on known claims and potential claims incurred but not reported, based on claims histories and
using actuarial methods. In the Company's consolidated balance sheets, the accrual for self insurance costs is included in other noncurrent liabilities, with
the amount estimated to be expended within the subsequent 12 months included in accrued expenses and other current liabilities.
Revenue Recognition
The Company's revenues consist of fuel and nonfuel revenues. See Note 2 for more information about the Company's revenues.
Advertising and Promotion Expense
Costs incurred in connection with advertising and promotions are expensed as incurred. Advertising and promotion expenses, which are included in
operating expense in the accompanying consolidated statements of income, were $322, $414 and $400 for the years ended December 31, 2020, 2019 and
2018, respectively.
Income Taxes
The Company is not subject to federal or state income taxes. Results of operations are allocated to the members in accordance with the provisions of
the Operating Agreement and reported by each member on its federal and state income tax returns. The taxable income or loss allocated to the members in
any one year generally varies substantially from income or loss for financial reporting purposes due to differences between the periods in which such items
are reported for financial reporting and income tax purposes.
Comprehensive Income (Loss)
As of December 31, 2020, the Company had no comprehensive income or loss, other than the net income disclosed in the consolidated statements of
income.
(2) Revenues
The Company recognizes revenues based on the consideration specified in the contract with the customer, excluding any sales incentives (such as
customer loyalty programs and customer rebates) and amounts collected on behalf of third parties (such as sales and excise taxes). The majority of the
Company's revenues are generated at the point of sale in its retail locations.
Fuel Revenues. The Company recognizes fuel revenues and the related costs at the time of sale to customers at its locations. The Company sells diesel
fuel and gasoline to its customers at prices that it establishes daily or are indexed to market prices and reset daily. The Company sells diesel fuel under
pricing arrangements with certain customers.
8
PETRO TRAVEL PLAZA HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020, 2019 AND 2018
(in thousands)
Nonfuel Revenues. The Company recognizes nonfuel revenues and the related costs at the time of sale to customers at its locations. The Company sells
a variety of nonfuel products and services at stated retail prices in its travel centers, standalone convenience stores and standalone restaurant, as well as
through its Road Squad® program. Truck repair and maintenance goods or services may be sold at discounted pricing under pricing arrangements with
certain customers, some of which include rebates payable to the customer after the end of the period.
Other. Sales incentives and other promotional activities that the Company recognizes as a reduction to revenue include, but are not limited to, the
following:
•
•
Customer Loyalty Program. The Company offers travel center trucking customers the option to participate in TA's customer loyalty program. The
customer loyalty program provides customers with the right to earn loyalty awards on qualifying purchases that can be used for discounts on
future purchases of goods or services. The Company applies a relative standalone selling price approach to its outstanding loyalty awards whereby
a portion of each sale attributable to the loyalty awards earned is deferred and will be recognized as revenue in the category in which the loyalty
awards are redeemed upon the redemption or expiration of the loyalty awards. Significant judgment is required to determine the standalone selling
price for loyalty awards. Assumptions used in determining the standalone selling price include the historic redemption rate and the use of a
weighted average selling price for fuel to calculate the revenues attributable to the loyalty awards.
Customer Discounts and Rebates. TA enters into agreements with certain customers on behalf of the Company in which it agrees to provide
discounts on fuel and/or truck service purchases, some of which are structured as rebates payable to the customer after the end of the period. The
Company recognizes the cost of discounts against, and in the same period as, the revenues that generated the discounts earned.
Disaggregation of Revenues
The Company disaggregates its revenues based on the type of good or service provided to the customer, or by fuel revenues and nonfuel revenues, in
its consolidated statements of income. The Company's locations use similar processes to sell similar products and services.
Contract Liabilities
The Company's contract liabilities, which are presented in its consolidated balance sheets in other current liabilities, primarily include deferred revenue
related to rebates payable to customers and other deferred revenues. Contract liabilities were $2 and $7 as of December 31, 2020 and 2019, respectively.
(3) Inventory
Inventory as of December 31, 2020 and 2019, consisted of the following:
Nonfuel products
Fuel products
Total inventory
December 31,
2020
2019
$
$
1,791 $
442
2,233 $
1,950
459
2,409
9
PETRO TRAVEL PLAZA HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020, 2019 AND 2018
(in thousands)
(4) Property and Equipment
Property and equipment, net, as of December 31, 2020 and 2019, consisted of the following:
Land and improvements
Buildings and improvements
Machinery, equipment and furniture
Construction in progress
Leasehold improvements
Property and equipment, at cost
Less: accumulated depreciation and amortization
Property and equipment, net
Estimated Useful
Lives (years)
December 31,
2020
2019
10-40
3-15
$
$
39,434 $
38,818
15,753
751
44
94,800
32,171
62,629 $
Depreciation expense for the years ended December 31, 2020, 2019 and 2018 was $2,543, $2,456 and $2,573, respectively.
(5) Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities as of December 31, 2020 and 2019, consisted of the following:
Taxes payable, other than income taxes
Long term debt, current portion
Self insurance accrual, current portion
Accrued capital expenditures
Accrued utilities
Accrued interest
Environmental accrual, current portion
Other
Total accrued expenses and other current liabilities
(6) Long Term Debt, net
Long term debt, net as of December 31, 2020 and 2019, consisted of the following:
Note payable to a bank
Less: debt issuance costs
Total long term debt, net
10
$
$
$
$
37,671
34,610
14,213
1,524
—
88,018
29,697
58,321
795
—
297
24
96
26
14
350
1,602
December 31,
2020
2019
692 $
447
362
359
72
16
16
345
2,309 $
December 31,
2020
2019
14,884 $
40
14,844 $
15,331
44
15,287
PETRO TRAVEL PLAZA HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020, 2019 AND 2018
(in thousands)
The Company has a credit agreement with a bank that was amended in July 2016 to, among other things, extend the maturity date, with the first
minimum principal payment of $447 due in 2021 and $767 due in 2022, 2023, 2024 and 2025, and decrease the interest rate on the debt to LIBOR plus
1.95%, payable monthly. The credit agreement includes certain financial covenants, with which the Company was in compliance with at December 31,
2020. At December 31, 2020, the interest rate was 2.09%. The Company's weighted average interest rates for the years ended December 31, 2020, 2019
and 2018 were 2.48%, 4.18% and 3.97%, respectively. The debt is secured by the Company's real property.
Debt Issuance Costs
Debt issuance costs are presented on the consolidated balance sheets as a reduction of long term debt, net and for the years ended December 31, 2020
and 2019, were $40 and $44, net of accumulated amortization of debt issuance costs of $17 and $13, respectively. The Company estimates it will recognize
future amortization of debt issuance costs of $4 in each of the years 2021, 2022, 2023, 2024 and 2025.
(7) Leasing Transactions
As of December 31, 2020, the Company had one vehicle under a finance lease. As of December 31, 2020, the Company's finance lease assets,
liabilities and expenses were immaterial to its consolidated financial statements. Finance lease assets were included in other noncurrent assets, with the
corresponding current and noncurrent finance lease liabilities included in other current liabilities and other noncurrent liabilities, respectively, in its
consolidated balance sheet. Amortization of finance lease assets and interest of financing lease liabilities are included in depreciation and amortization
expense and interest expense, net, respectively, on its statement of income.
(8) Related Party Transactions
TA Operating LLC
Pursuant to the terms of the Operating Agreement, TA provides cash management services to PTP, including the collection of accounts receivable.
Accounts receivable are periodically transferred to TA for collection and any amounts for which PTP has not received payment from TA are reflected as
due from affiliate, net in the accompanying consolidated balance sheets. Amounts due from affiliate, net as of December 31, 2020 and 2019, were $1,240
and $4,560, respectively. Pursuant to the terms of the Operating Agreement, TA manages the locations and is responsible for the administrative, accounting
and tax functions of the Company. TA receives a management fee for providing these services, which may not be commensurate with the cost of these
services were the Company to perform these internally or obtain them from an unrelated third party. The Company paid management fees to TA in the
amount of $1,506, $849 and $1,562 for the years ended December 31, 2020, 2019 and 2018, respectively, which fees are included in operating expense in
the accompanying consolidated statements of income. In August 2016, the Company amended the Operating Agreement to include, among other things,
construction of a QSR by TA on the property of an existing travel center. The Company has agreed to pay TA a construction management fee equal to 2.0%
of hard costs of the construction of the QSR. TA opened the QSR on February 13, 2017. In November 2016, the Company further amended the Operating
Agreement to, among other things, (a) increase the annual management fee to $1,300 effective January 1, 2017, with annual increases equal to the lesser of
(i) the increase in the Customer Price Index, or (ii) 2.5% and (b) include any additional new builds or significant renovation projects in the construction
management fee. In November 2019, the Company further amended the Operating Agreement to, among other things, increase the annual management fee
by $100. In addition to management services and staffing provided by TA, the Operating Agreement grants the Company the right to use all of TA's names,
trade names, trademarks and logos to the extent required in the operation of the Company's travel centers and convenience stores.
11
PETRO TRAVEL PLAZA HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020, 2019 AND 2018
(in thousands)
TA purchases fuel and nonfuel products on the Company's behalf. In December 2019, the U.S. government retroactively reinstated the federal
biodiesel blenders' tax credit for 2018 and 2019, as well as approved the federal biodiesel blenders' tax credit through 2022. As a result, the Company
benefited from a $1,868 reduction to its fuel cost of goods sold in the year ended December 31, 2019, which is included in due from affiliate, net in the
accompanying consolidated balance sheets as of December 31, 2019. For the years 2020 through 2022, the benefit of the federal biodiesel blenders' tax
credit will be included in the price TA pays for biodiesel. As of December 31, 2020, all of the federal biodiesel blenders' tax credit that was recognized in
2019 has been collected. In 2020, the Company benefited from a $1,848 reduction in its fuel cost of goods sold in the year ended December 31, 2020.
The employees operating the Company's travel centers, convenience stores and standalone restaurant are TA employees. In addition to the management
fees described above, the Company reimbursed TA for wages and benefits related to these employees that aggregated $9,394, $10,719 and $10,198 for the
years ended December 31, 2020, 2019 and 2018, respectively. These reimbursements were recorded in operating expense in the accompanying
consolidated statements of income.
Tejon Development Corporation
In April 2020, the Company purchased from Tejon, a building and parcel of land for $2,000. In December 2019, the Company purchased from Tejon, a
newly developed building and a parcel of land for $2,814. The Company accounted for these transactions as asset acquisitions.
(9) Contingencies
The Company is involved from time to time in various legal and administrative proceedings, including tax audits, and threatened legal and
administrative proceedings incidental to the ordinary course of business, none of which is expected, individually or in the aggregate, to have a material
adverse effect on the Company's business, financial condition, results of operations or cash flows.
The Company's operations and properties are subject to extensive federal and state legislation, regulations, and requirements relating to environmental
matters. The Company uses USTs to store petroleum products and motor oil. Statutory and regulatory requirements for UST systems include requirements
for tank construction, integrity testing, leak detection and monitoring, overfill and spill control and mandate corrective action in case of a release from a
UST into the environment. The Company is also subject to regulation relating to vapor recovery and discharges into the water. Management believes that
the Company's USTs are currently in compliance in all material respects with applicable environmental legislation, regulations and requirements.
Accruals for environmental matters are recorded in operating expense when it is probable that a liability has been incurred and the amount of the
liability can be reasonably estimated. From time to time the Company has received, and in the future likely will receive, notices of alleged violations of
environmental laws or otherwise has become or will become aware of the need to undertake corrective actions to comply with environmental laws at its
properties. Investigatory and remedial actions were, and regularly are, undertaken with respect to releases of hazardous substances. The Company had an
accrual for environmental matters of $23 and $21 as of December 31, 2020 and 2019, respectively, which was presented in the accompanying consolidated
balance sheets in other noncurrent liabilities, with the amount estimated to be expended within the subsequent 12 months in accrued expenses and other
current liabilities. Accruals are periodically evaluated and updated as information regarding the nature of the clean up work is obtained. In light of the
Company's business and the quantity of petroleum products that it handles, there can be no assurance that currently unidentified hazardous substance
contamination does not exist or that liability will not be imposed in the future in materially different amounts than those the Company has recorded. See
Note 1 for a discussion of the Company's accounting policies relating to environmental matters.
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