Zacks Small Cap Research – TRC: Positive Takeaways of Recent Meeting With Management – Earn Charter

By M. Marin



TRCC key location for north / south commercial traffic, business-friendly environment…

We recently met with the CFO of Tejon Ranch Company (NYSE:TRC) and present positive takeaways in this update. Reflecting its attractive location, FTZ-designation and other factors, the Tejon Ranch Commerce Center (TRCC) is seeing strong demand from multinational and national new and prospective industrial / commercial tenants, while the Outlets at Tejon is also adding new retail tenants and diversifying. As we have noted in previous reports, TRCC is located only about 60 miles north of Los Angeles and 25 miles south of Bakersfield, California, making it a strong option for logistics and distribution / warehouse needs, particularly as supply in the Los Angeles area is relatively scarce.

…Demand from multinational corporations has grown substantially; FTZ designation positive…

The strong lease activity TRCC continues to see on both existing area and space planned for development reflects this. For example, construction on a new distribution center for Nestlé USA recently began & new tenant RectorSeal is relocating from the LA area. TRC has finalized transactions on >2.5m sq ft of industrial space over the past 2-years at existing or under-development buildings, with significant pre-construction commitments for space. Leasing space even before construction has begun reflects the strength of market demand, scarcity of supply and the strategic location and building amenities at the TRCC, including access to a solid labor pool, according to management.

…Demand from retailers has also climbed …

In addition to strong demand for warehouse space, demand for retail footage at TRCC also remains solid and the company continues to add new stores to the Outlets at Tejon. Relatively recent additions to the Outlets at Tejon include Under Armour, which is a well-known distributor of branded athletic performance apparel, footwear, and accessories, U.S. Polo Association and Lacoste. K-Pop Star, another recent TRC outlets tenant, focuses on Korean pop culture merchandise. Other stores there include a Nike Factory Store, Calvin Klein and a Banana Republic Factory Store.

…and housing likely in strong demand, reflecting severe shortage of affordable housing …

The Terra Vista residential complex will offer affordable housing for employees at TRCC and the nearby Hard Rock Hotel & Casino Tejon project and others. The recent activity also underscore the value of Tejon Ranch’s underlying land assets for a broad range of activities, in our view. Reflecting the severe housing shortage in California generally and Kern County, this is likely to be much needed affordable housing.

As TRC moves forward on its development plans, the company concurrently continues to generate revenue from the income producing units in its operations. Recent activity underscore the value of Tejon Ranch’s underlying land assets for a broad range of activities, in our view, including the agricultural and mineral operations.

New credit facility enhances financial flexibility, potential for greater upside from developments…

Importantly, we believe securing a new $160 million credit facility in 4Q23 enhances TRC’s financial flexibility, in our view, including potentially enabling the company to capture greater upside potential from its development activities. Moreover, as the company moves forward on its development plans, TRC continues to generate revenue from the income-producing units in its operations, including activities at the Tejon Ranch Commerce Center (TRCC) and the minerals and agricultural businesses.

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