By M. Marin

NYSE:TRC

READ THE FULL TRC RESEARCH REPORT

Company has indicated commitment to deliver value to shareholders

Tejon Ranch Company (NYSE:TRC) announced the appointment of Matthew Walker as its next president and CEO, effective March 31, 2025, when the outgoing CEO, Gregory Bielli, retires. Mr. Walker’s has extensive prior experience in the real estate space, having spent 24 years at Los Angeles-based private real estate firm Lowe Enterprises where he is currently an Executive Vice President and shareholder. According to TRC, he oversees Lowe’s hospitality and resort community platform. His prior real estate experience also includes resort and residential development, residential sales and marketing, master planned community entitlement and development, as well as resort value add investment and expansion. Prior to Lowe, he held various positions at several architectural firms. We note that in his remarks announcing the new CEO, TRC’s board chairman noted the company’s aim is “to monetize [its] landholdings… and drive shareholder value,” which we view positively.

This comes after TRC has been criticized by key shareholders in recent months for not delivering value to shareholders. After all, the company’s land holdings are strategically positioned to provide much needed industrial, commercial and residential space in the state. Now, we are optimistic that recent actions by the company could signal TRC’s improved commitment to monetizing its asset portfolio and delivering value to shareholders. These actions include naming new board members with diverse and extensive relevant experience and reaching a standstill agreement with one of its most vocal activist shareholders.

View recently named directors as a positive

Among the most significant recent steps the company has taken, we believe, have been the addition of four new members to its board. Denise Gammon, Kenneth Yee, Jeff McCall and Eric Speron will serve as directors on the Tejon Ranch board of directors. They have extensive board experience, including with companies involved in the real estate space, as well as in finance, law, accounting and real estate development.

TRC has increased the number of directors on its board and also filled the vacancy that occured once Geoffrey Stack retired on December 11, 2024. Collectively the new directors have experience in banking, finance, law, accounting, land and development of master planned communities, as well as general corporate operations. For example, Denise Gammon has more than 30 years of experience in various domestic real estate activities across 30 communities, including master planned communities and other development projects, and Eric Speron has a background in finance, with more than 22 years of financial management and advisory experience.

Importantly, the company has noted that the new directors are consistent with goals to, among other objectives, diversify the board and be “responsive to… investor relations engagement, including direct meetings and interaction with… investors,” among other company goals. This action on TRC management’s part is particularly notable, in our view, as we believe the results of the company’s latest annual shareholder meeting reflected rising investor sentiment that change is needed in order to optimize value for shareholders.

Also view standstill agreement with Nitor Capital as likely a positive outcome of their discussions about the company’s direction

Importantly, TRC apparently has also subsequently engaged with key shareholders to find ways to augment shareholder returns. In fact, Nitor Capital and the company have “engaged in various discussions and communications concerning the Company’s business, financial performance and other matters,” and subsequently reached a standstill agreement dated as of November 4, 2024.

According to the language of their agreement, it reflects their respective view that “it is in the best interests of the Company and its stockholders … to come to an agreement with respect to certain matters in respect of the Board of Directors of the Company …and certain other matters…”

View TRC proximity to LA as a significant positive – substantial need for industrial, warehouse & residential space in the area – and do not expect direct impact from current LA fires

Separately, in terms of the fires currently devastating Los Angeles, we note that the company’s land is located about 60 miles north of downtown Los Angeles and, therefore likely not directly impacted by the LA fires at this time. Nevertheless, there might be an indirect impact in terms of traffic to the TRCC and possibly some interruptions with logistics to and from the TRCC. Moreover, according to news outlets, parts of Kern County are also currently vulnerable to elevated fire risk.

In general, the proximity of TRC land holdings to LA, as well as to Bakersfield, is a significant positive, in our view. The substantial need for industrial, warehouse and residential space in the markets near TRC’s land assets underscores the attractiveness of TRC’s property, in our view, and that the location of the company’s land asset also makes it appealing as solutions to a broad range of real estate needs. TRCC is located in Kern County, which is experiencing a severe shortage of housing like much of the state, including of apartment units, and of logistics space.

Industrial vacancy rates are as low as 0.5% in the Los Angeles region, according to Courthouse News, which puts upward pressure on lease rates for warehouse space. In turn, this results in warehouse lease rates in LA county among the highest for metropolitan areas in North America. Given the state’s restrictive regulations around land development, it is easier to redevelop land that is already zoned for industrial use into warehouse space when existing leases expire than to convert retail space to industrial warehouses, as the latter is more likely to face challenges from municipalities.

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