UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
For the quarterly period ended June 30, 2024
OR
For the transition period from to
Commission file number: 1-07183
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
(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 | Trading symbol(s) | Name of each exchange on which registered | ||||||||||||||||||
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. | |||||||||||||||||||||||
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). | |||||||||||||||||||||||
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. | |||||||||||||||||||||||
| Large accelerated filer | ☐ | Accelerated filer | ☐ | ||||||||||||||||||||
| ☒ | Smaller reporting company | ||||||||||||||||||||||
| Emerging growth company | |||||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ | |||||||||||||||||||||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No | |||||||||||||||||||||||
The number of the Company’s outstanding shares of Common Stock on July 31, 2024 was 26,814,680 .
TEJON RANCH CO. AND SUBSIDIARIES
TABLE OF CONTENTS
| Page | ||||||||
| PART I. | ||||||||
| Item 1. | ||||||||
Consolidated Balance Sheets as of June 30, 2024 (unaudited) and December 31, 2023 | ||||||||
Unaudited Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2024 and 2023 | ||||||||
Unaudited Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2024 and 2023 | ||||||||
Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2024 and 2023 | ||||||||
Unaudited Consolidated Statements of Changes in Equity for the Three and Six Months Ended June 30, 2024 and 2023 | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| PART II. | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 5. | ||||||||
| Item 6. | ||||||||
2
Glossary
| The following initialisms or acronyms may be used in this document and shall be defined as set forth below: | ||||||||
| AKIP | Advance Kern Incentive Program | |||||||
| ASC | Accounting Standards Codification | |||||||
| ASU | Accounting Standards Update | |||||||
| AVEK | Antelope Valley East Kern Water Agency | |||||||
| CFL | Centennial Founders, LLC | |||||||
| CBD | Center for Biological Diversity | |||||||
| CEQA | California Environmental Quality Act | |||||||
| CFD | Community Facilities District | |||||||
| CNPS | California Native Plant Society | |||||||
| EBITDA | Earnings Before Interest Taxes Depreciation and Amortization | |||||||
| EIR | Environmental Impact Report | |||||||
| FTZ | Foreign Trade Zone | |||||||
| GAAP | Generally Accepted Accounting Principles | |||||||
| GHG | Greenhouse Gas | |||||||
| MV | Mountain Village at Tejon Ranch | |||||||
| NOI | Net Operating Income | |||||||
| PEF | Pastoria Energy Facility, LLC | |||||||
RCL | Revolving Credit Line | |||||||
| RWA | Tejon Ranch Conservation and Land Use Agreement | |||||||
| SEC | Securities and Exchange Commission | |||||||
| SOFR | Secured Overnight Financing Rate | |||||||
| SWP | State Water Project | |||||||
| TCWD | Tejon-Castac Water District | |||||||
| TRCC | Tejon Ranch Commerce Center | |||||||
| TRPFFA | Tejon Ranch Public Facilities Financing Authority | |||||||
| WRMWSD | Wheeler Ridge Maricopa Water Storage District | |||||||
3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TEJON RANCH CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ in thousands, except per share data)
| June 30, 2024 | December 31, 2023 | ||||||||||
| (unaudited) | |||||||||||
| 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 $ | |||||||||||
| Property and equipment, net | |||||||||||
| Investments in unconsolidated joint ventures | |||||||||||
| Net investment in water assets | |||||||||||
| Other assets | |||||||||||
| TOTAL ASSETS | $ | $ | |||||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current Liabilities: | |||||||||||
| Trade accounts payable | $ | $ | |||||||||
| Accrued liabilities and other | |||||||||||
| Deferred income | |||||||||||
| Total current liabilities | |||||||||||
| Revolving line of credit | |||||||||||
| Long-term deferred gains | |||||||||||
| Deferred tax liability | |||||||||||
| Other liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (Note 11) | |||||||||||
| Equity: | |||||||||||
| Tejon Ranch Co. Stockholders’ Equity | |||||||||||
Common stock, $ | |||||||||||
Authorized shares - | |||||||||||
Issued and outstanding shares - | |||||||||||
| 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.
4
TEJON RANCH CO. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands, except per share amounts)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| 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 | ( | ( | ( | ( | |||||||||||||||||||
| Other Income (Loss): | |||||||||||||||||||||||
| Investment income | |||||||||||||||||||||||
| Other (loss) income, net | ( | ( | ( | ||||||||||||||||||||
| Total other income, net | |||||||||||||||||||||||
| Loss from operations before equity in earnings of unconsolidated joint ventures and income tax | ( | ( | ( | ( | |||||||||||||||||||
| Equity in earnings of unconsolidated joint ventures, net | |||||||||||||||||||||||
| (Loss) income before income tax | ( | ( | |||||||||||||||||||||
| Income tax (benefit) expense | ( | ( | |||||||||||||||||||||
| Net income | |||||||||||||||||||||||
| Net (loss) income attributable to non-controlling interest | ( | ( | ( | ||||||||||||||||||||
| Net income attributable to common stockholders | $ | $ | $ | $ | |||||||||||||||||||
| Net income per share attributable to common stockholders, basic | $ | $ | $ | $ | |||||||||||||||||||
| Net income per share attributable to common stockholders, diluted | $ | $ | $ | $ | |||||||||||||||||||
See accompanying notes.
5
TEJON RANCH CO. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||
| Unrealized gain (loss) on available-for-sale securities | ( | ( | |||||||||||||||||||||
| Unrealized gain on interest rate swap | |||||||||||||||||||||||
| Other comprehensive income (loss) before taxes | ( | ||||||||||||||||||||||
| Income tax (provision) benefit related to other comprehensive income items | ( | ( | |||||||||||||||||||||
| Other comprehensive income (loss) | ( | ||||||||||||||||||||||
| Comprehensive income | |||||||||||||||||||||||
| Comprehensive (loss) income attributable to non-controlling interests | ( | ( | ( | ||||||||||||||||||||
| Comprehensive income attributable to common stockholders | $ | $ | $ | $ | |||||||||||||||||||
See accompanying notes.
6
TEJON RANCH CO. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| Six Months Ended June 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Operating Activities | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash (used in) provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Amortization of discount of marketable securities | ( | ( | |||||||||
| Equity in earnings of unconsolidated joint ventures, net | ( | ( | |||||||||
| Non-cash retirement plan expense | |||||||||||
Profit from water sales1 | ( | ||||||||||
| (Gain) loss on sale of property plant and equipment | ( | ||||||||||
| Deferred income taxes | |||||||||||
| Stock compensation expense | |||||||||||
| Excess tax benefit from stock-based compensation | ( | ( | |||||||||
| Distribution of earnings from unconsolidated joint ventures | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Receivables, inventories, prepaids and other assets, net | ( | ( | |||||||||
| Current liabilities | ( | ||||||||||
| Net cash (used in) provided by operating activities | ( | ||||||||||
| Investing Activities | |||||||||||
| Maturities and sales of marketable securities | |||||||||||
| Funds invested in marketable securities | ( | ( | |||||||||
| Real estate and equipment expenditures | ( | ( | |||||||||
| Reimbursement proceeds from Community Facilities District | |||||||||||
| Proceeds from sale of property plant and equipment | |||||||||||
| Investment in unconsolidated joint ventures | ( | ||||||||||
| Distribution of equity from unconsolidated joint ventures | |||||||||||
Proceeds from water sales1 | |||||||||||
| Investments in water assets | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Financing Activities | |||||||||||
| Borrowings on line of credit | |||||||||||
| Repayments of long-term debt | ( | ||||||||||
| Taxes on vested stock grants | ( | ( | |||||||||
| Net cash provided by (used in) financing activities | ( | ||||||||||
| Increase (decrease) in cash, cash equivalents, and restricted cash | ( | ||||||||||
| Cash, cash equivalents, and restricted cash at beginning of period | |||||||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | $ | |||||||||
7
| Reconciliation to amounts on consolidated balance sheets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash (included in prepaid expenses and other current assets) | |||||||||||
| Total cash, cash equivalents, and restricted cash | $ | $ | |||||||||
| Supplemental cash flow information | |||||||||||
| Non-cash investing activities | |||||||||||
| Accrued capital expenditures included in current liabilities | $ | $ | |||||||||
| Accrued long-term water assets included in current liabilities | $ | $ | |||||||||
1In determining the classification of cash inflows and outflows related to water asset activity, the Company’s practices are supported by ASC Topic 230-10-45-22, which provides that “Certain cash receipts and payments have aspects of more than one class of cash flows…. If so, the appropriate classification shall depend on the activity that is likely to be the predominant source of cash flows for the item.” Also, at the 2006 American Institute of Certified Public Accountants Conference on Current SEC and PCAOB Developments, the SEC staff discussed that an entity should be consistent in how it classifies cash outflows and inflows related to an asset’s purchase and sale and noted that when cash flow classification is unclear, registrants must use judgment and analysis that considers the nature of the activity and the predominant source of cash flow for these items. Given the nature of our water assets and the aforementioned authoritative guidance, the Company estimates the appropriate classification of water assets purchased based on the timing of the sale of the water. Water purchased in prior periods that was classified as investing was sold for $ | |||||||||||
See accompanying notes.
8
TEJON RANCH CO. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except shares outstanding)
| Common Stock Shares Outstanding | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive (Loss) Income | Retained Earnings | Total Stockholders' Equity | Non-controlling Interest | Total Equity | ||||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2024 | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Restricted stock issuance | ( | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Stock compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2024 | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Restricted stock issuance | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||
| Stock compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2023 | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
See accompanying notes.
9
| Common Stock Shares Outstanding | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive (Loss) Income | Retained Earnings | Total Stockholders' Equity | Non-controlling Interest | Total Equity | ||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2023 | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Restricted stock issuance | ( | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Stock compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Shares withheld for taxes and tax benefit of vested shares | ( | ( | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2024 | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2022 | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Restricted stock issuance | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||
| Stock compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Shares withheld for taxes and tax benefit of vested shares | ( | ( | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2023 | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
See accompanying notes.
10
TEJON RANCH CO. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The summarized information of Tejon Ranch Co. and its subsidiaries (the Company or Tejon), provided pursuant to Part I, Item 1 of Form 10-Q, is unaudited and reflects all adjustments which are, in the opinion of the Company’s management, necessary for a fair statement of the results for the interim period. All such adjustments are of a normal, recurring nature. The Company has evaluated subsequent events through the date of issuance of its consolidated financial statements.
The periods ended June 30, 2024 and 2023 include the consolidation of CFL’s statements of operations within the resort/residential real estate development segment, statements of changes in equity, and statements of cash flows. The Company’s June 30, 2024 and December 31, 2023 balance sheets are presented on a consolidated basis, including the consolidation of CFL.
The Company has identified five reportable segments: commercial/industrial real estate development, resort/residential real estate development, mineral resources, farming, and ranch operations. Information for the Company’s reportable segments is presented in its Consolidated Statements of Operations. The Company’s reportable segments follow the same accounting policies used for the Company’s consolidated financial statements. The Company uses segment profit or loss and equity in earnings of unconsolidated joint ventures as the primary measures of profitability to evaluate operating performance and to allocate capital resources.
The results of the period reported herein are not indicative of the results to be expected for the full year due to the seasonal nature of the Company’s agricultural activities, water activities, timing of real estate sales and leasing activities. Historically, the Company’s largest percentages of farming revenues are recognized during the third and fourth quarters of the fiscal year.
For further information and a summary of significant accounting policies, refer to the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
Financial Instruments
Certain financial instruments are carried on the consolidated balance sheets at cost or amortized cost basis, which approximates fair value due to their short-term and highly liquid nature. These instruments include cash and cash equivalents, restricted cash, time deposits, accounts receivable, security deposits held for customers, accounts payable, and other accrued liabilities. The fair value of the revolving line of credit also approximates its carrying value, as the interest rate is variable and approximates prevailing market interest rates for similar debt arrangements.
Restricted Cash
New Accounting Pronouncements and Climate Change Related Update by SEC Effective in Future Periods
Business Combinations - Joint Venture Formations
In August 2023, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2023-05, "Business Combinations - Joint Venture Formations." This ASU addresses the accounting for contributions made to a joint venture, upon formation, in a joint venture's separate financial statements. The pronouncement requires a joint venture to initially measure contributions at fair value upon formation, which is more relevant than the carrying amounts of the contributed net assets and would reduce equity method basis differences. The ASU is effective prospectively for all joint venture formations with a formation date on or after January 1, 2025. This pronouncement is not expected to have a material effect on our consolidated financial statements.
Segment Reporting
In November 2023, the FASB issued ASU No. 2023-07, "Segment Reporting - Improvements to Reportable Segment Disclosures". This ASU requires quarterly disclosure of segment expenses if they are (i) significant to the segment, (ii) regularly provided to the chief operating decision maker (“CODM”), and (iii) included in each reported measure of a segment’s profit or loss. In addition, this ASU requires an annual disclosure of the CODM’s title and a description of how the CODM uses the segment’s profit/loss measure to assess segment performance and to allocate resources. This ASU will be effective for the Company's annual report on Form 10-K beginning with the year ending December 31, 2024, and for subsequent quarterly and annual reports. The Company is currently in the process of evaluating the impact of this ASU on the Company's consolidated financial statements and footnote disclosures.
11
Income Taxes
In December 2023, the FASB issued ASU No. 2023-09, "Income Taxes (Topic740) - Improvements to Income Tax Disclosures". This ASU requires public business entities to disclose a tabular rate reconciliation of both percentages and reporting currency amounts on an annual basis. The ASU also requires disclosure of information on the amount of income taxes paid disaggregated by federal, state and foreign taxes. This ASU is effective for annual periods beginning after December 15, 2024. The pronouncement is not expected to have a material effect on our consolidated financial statements.
Adoption of Rules to Enhance and Standardize Climate-related Disclosures for Investors
On March 6, 2024, the SEC adopted final rules to require registrants to disclose certain climate-related information in registration statements and annual reports.
On April 4, 2024, the SEC issued an order staying the final rules pending completion of judicial review of the petitions challenging the final rules. The order does not amend the compliance dates contemplated by the final rules, which are applicable to the Company for fiscal years beginning with the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2027. We are currently evaluating the impact of our pending adoption of these requirements on our financial statement disclosures.
2. EQUITY
Earnings Per Share (EPS)
Basic net 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 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 Topic 260, “Earnings Per Share.”
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Weighted-average number of shares outstanding: | |||||||||||||||||||||||
| Common stock | |||||||||||||||||||||||
| Common stock equivalents | |||||||||||||||||||||||
| Diluted shares outstanding | |||||||||||||||||||||||
12
3. MARKETABLE SECURITIES
ASC Topic 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:
| ($ in thousands) | June 30, 2024 | December 31, 2023 | ||||||||||||||||||||||||
| Marketable Securities: | Fair Value Hierarchy | Cost | Fair Value | Cost | Fair Value | |||||||||||||||||||||
| Certificates of deposit | ||||||||||||||||||||||||||
| with unrealized losses for less than 12 months | $ | $ | $ | $ | ||||||||||||||||||||||
| with unrealized gains | ||||||||||||||||||||||||||
| Total Certificates of deposit | Level 1 | |||||||||||||||||||||||||
| U.S. Treasury and agency notes | ||||||||||||||||||||||||||
| with unrealized losses for less than 12 months | ||||||||||||||||||||||||||
| with unrealized gains | ||||||||||||||||||||||||||
| Total U.S. Treasury and agency notes | Level 2 | |||||||||||||||||||||||||
| Corporate notes | ||||||||||||||||||||||||||
| with unrealized losses for less than 12 months | ||||||||||||||||||||||||||
| with unrealized losses for more than 12 months | ||||||||||||||||||||||||||
| with unrealized gains | ||||||||||||||||||||||||||
| Total Corporate notes | Level 2 | |||||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
The Company uses 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 June 30, 2024, the Company has not recorded any credit losses.
As of June 30, 2024, the fair market value of investment securities was $27,000 below their cost basis. The Company’s gross unrealized holding gains equaled $0 and gross unrealized holding losses equaled $27,000 . For the three months ended June 30, 2024, the adjustment to accumulated other comprehensive loss reflected an increase in market value of $2,000 , including estimated taxes of $1,000 . For the six months ended June 30, 2024, the adjustment to accumulated other comprehensive loss reflected a decline in market value of $6,000 , including estimated taxes of $2,000 .
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. The accrued interest receivables balance totaled $101,000 as of June 30, 2024 and was included within the Prepaid expenses and other current assets line item of the Consolidated Balance Sheets. The Company elected not to measure an allowance for credit losses on accrued interest receivable, as an allowance on possible uncollectible accrued interest is not warranted.
U.S. Treasury and agency notes
The unrealized losses on the Company's investments in U.S. Treasury and agency notes at June 30, 2024 and December 31, 2023 were caused by relative changes in interest rates since the time of purchase and not changes in credit quality. The contractual cash flows for these securities are guaranteed by U.S. government agencies. As of June 30, 2024 and December 31, 2023, the Company did not intend to sell these securities and it is not more-likely-than-not that the Company would be required to sell these securities before recovery of their cost basis. Therefore, these investments did not require an ACL as of June 30, 2024 and December 31, 2023.
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Corporate notes
The unrealized losses on corporate notes are a function of changes in investment spreads and interest rate movements and not changes in credit quality. The Company expects to recover the entire amortized cost basis of these securities. As of June 30, 2024 and December 31, 2023, the Company did not intend to sell these securities and it is not more-likely-than-not the Company would be required to sell these securities before recovery of their cost basis. Therefore, these investments did not require an ACL as of June 30, 2024 and December 31, 2023.
The following tables summarize the maturities, at par, of marketable securities as of:
| June 30, 2024 | |||||||||||||||||
| ($ in thousands) | 2024 | 2025 | Total | ||||||||||||||
| U.S. Treasury and agency notes | $ | $ | $ | ||||||||||||||
| Corporate notes | |||||||||||||||||
| $ | $ | $ | |||||||||||||||
| December 31, 2023 | |||||||||||
| ($ in thousands) | 2024 | Total | |||||||||
| Certificates of deposit | $ | $ | |||||||||
| U.S. Treasury and agency notes | $ | ||||||||||
| Corporate notes | |||||||||||
| $ | $ | ||||||||||
The Company’s investments in corporate notes are with companies that have an investment grade rating from Standard & Poor’s as of June 30, 2024.
4. REAL ESTATE
Our accumulated real estate development costs by project consisted of the following:
| ($ in thousands) | June 30, 2024 | December 31, 2023 | |||||||||
| Real estate development | |||||||||||
| Mountain Village | $ | $ | |||||||||
| Centennial | |||||||||||
| Grapevine | |||||||||||
| Tejon Ranch Commerce Center | |||||||||||
| Real estate development | $ | $ | |||||||||
| Real estate and improvements - held for lease | |||||||||||
| Tejon Ranch Commerce Center | $ | $ | |||||||||
| Less accumulated depreciation | ( | ( | |||||||||
| Real estate and improvements - held for lease, net | $ | $ | |||||||||
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5. 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 County Water Banks.
The Company has secured 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 2024 is $957 per acre-foot. The purchase cost is subject to annual cost increases based on the greater of the Consumer Price Index or 3 %.
The water purchased above will ultimately be used in the development of the Company’s land for commercial/industrial real estate development, resort/residential real estate development, and farming. Interim uses may include the sale of portions of this water to third-party users on an annual basis until this water is fully allocated to Company uses, as just described.
Water revenues and cost of sales were as follows for the six months ended ($ in thousands):
| June 30, 2024 | June 30, 2023 | ||||||||||
| Acre-Feet Sold | |||||||||||
| Revenues | $ | $ | |||||||||
| Cost of sales | |||||||||||
| Profit | $ | $ | |||||||||
Costs assigned to water assets held for future use were as follows ($ in thousands):
| June 30, 2024 | December 31, 2023 | ||||||||||
| Banked water and water for future delivery | $ | $ | |||||||||
| Transferable water | |||||||||||
| Total water held for future use at cost | $ | $ | |||||||||
Intangible Water Assets
The Company’s carrying amounts of its purchased water contracts were as follows ($ in thousands):
| June 30, 2024 | December 31, 2023 | ||||||||||||||||||||||
| 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 of water held for future use | |||||||||||||||||||||||
| Net investments in water assets | $ | $ | |||||||||||||||||||||
15
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) | June 30, 2024 | December 31, 2023 | |||||||||
| Water held for future use | |||||||||||
| TCWD - Banked water owned by the Company | |||||||||||
| Company water bank | |||||||||||
| Transferable water | |||||||||||
| Recharged project water | |||||||||||
| Total water held for future use | |||||||||||
| Purchased water contracts | |||||||||||
| Water Contracts (Dudley-Ridge, Nickel and Tulare) | |||||||||||
| WRMWSD - Contracts with the Company | |||||||||||
| TCWD - Contracts with the Company | |||||||||||
| Total purchased water contracts | |||||||||||
| Total water held for future use and purchased water contracts | |||||||||||
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 by three additional five-year periods. 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 2024 is $1,298 per acre-foot of annual water, subject to 3 % annual increases over the life of the contract. The Water Supply Agreement contains other customary terms and conditions, including representations and warranties which are typical for agreements of this type. The Company's commitments to sell water can be met through current water assets.
6. ACCRUED LIABILITIES AND OTHER
Accrued liabilities and other consisted of the following:
| ($ in thousands) | June 30, 2024 | December 31, 2023 | |||||||||
| Accrued vacation | $ | $ | |||||||||
| Accrued paid personal leave | |||||||||||
| Accrued bonus | |||||||||||
| Accrued stock compensation expense | |||||||||||
| Other | |||||||||||
| $ | $ | ||||||||||
7. LINE OF CREDIT AND LONG-TERM DEBT
Debt consisted of the following:
| ($ in thousands) | June 30, 2024 | December 31, 2023 | |||||||||
Revolving line-of-credit1 | $ | $ | |||||||||
1The deferred loan costs for revolving line-of-credit as of June 30, 2024 and December 31, 2023 were recorded under the caption Other Assets on the Consolidated Balance Sheets. | |||||||||||
On November 17, 2023, the Company entered into a Credit Agreement with AgWest Farm Credit, PCA and certain other lenders. The Revolving Credit Facility provides TRC a RCL in the amount of $160,000,000 . The RCL requires interest only payments and has a maturity date of January 1, 2029. As of June 30, 2024, the outstanding balance under the RCL was $51,942,000 , and the interest rate was one-month term SOFR plus a margin of 2.25 % for an effective rate of 7.58 % at June 30, 2024.
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8. OTHER LIABILITIES
Other liabilities consisted of the following:
| ($ in thousands) | June 30, 2024 | December 31, 2023 | |||||||||
| Supplemental executive retirement plan liability (See Note 12) | $ | $ | |||||||||
| Excess joint venture distributions and other (See Note 14) | |||||||||||
| Total | $ | $ | |||||||||
9. 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 the grant date fair value 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 Condition Grants outstanding as of June 30, 2024:
| Performance Condition Grants | |||||
| Target performance | |||||
| Maximum performance | |||||
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 six months ended June 30, 2024:
| June 30, 2024 | |||||
| Stock grants outstanding beginning of period at target achievement | |||||
| New stock grants/additional shares due to achievement in excess of target | |||||
| Vested grants | ( | ||||
| Expired/forfeited grants | ( | ||||
| Stock grants outstanding end of period at target achievement | |||||
17
The following is a summary of the assumptions used to determine the fair value for the Company’s outstanding market-based Performance Condition Grants as of June 30, 2024:
| ($ in thousands except for share prices) | ||||||||||||||||||||||||||
| Grant date | 12/16/2021 | 03/17/2022 | 12/14/2022 | 06/16/2023 | ||||||||||||||||||||||
| Vesting end | 12/16/2024 | 03/17/2025 | 12/14/2025 | 12/31/2025 | ||||||||||||||||||||||
| Target share price to achieve award | $ | $ | $ | $ | ||||||||||||||||||||||
| Expected volatility | ||||||||||||||||||||||||||
| Risk-free interest rate | ||||||||||||||||||||||||||
| Simulated Monte Carlo share price | $ | $ | $ | $ | ||||||||||||||||||||||
| Shares granted | ||||||||||||||||||||||||||
| Total fair value of award | $ | $ | $ | $ | ||||||||||||||||||||||
| ($ in thousands except for share prices) | ||||||||||||||||||||||||||
| Grant date | 08/21/2023 | 12/16/2023 | 03/13/2024 | 03/13/2024 | ||||||||||||||||||||||
| Vesting end | 12/31/2025 | 12/31/2026 | 12/31/2024 | 03/22/2027 | ||||||||||||||||||||||
| Share price at target achievement | $ | $ | $ | $ | ||||||||||||||||||||||
| Expected volatility | ||||||||||||||||||||||||||
| Risk-free interest rate | ||||||||||||||||||||||||||
| Simulated Monte Carlo share price | $ | $ | $ | $ | ||||||||||||||||||||||
| Shares granted | ||||||||||||||||||||||||||
| Total fair value of award | $ | $ | $ | $ | ||||||||||||||||||||||
The unamortized cost associated with unvested stock grants and the weighted average period over which it is expected to be recognized as of June 30, 2024 were $5,866,000 and 14 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 and is expensed over the performance period if 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 number of awards probable of vesting and expenses the grant date fair value of such awards 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.
Cash-Settled Awards
Time-Based Cash-Settled Awards
On March 13, 2024, the Company granted 75,117 time-based cash-settled awards to the Chief Executive Officer that vest on December 31, 2024. These awards are classified as liabilities, measured at fair value on the date of grant, and remeasured at each reporting date, based on the Company’s share price. Compensation cost is amortized on a straight-line method over the remaining vesting period. As of June 30, 2024, $0.7 million of total unrecognized compensation cost is expected to be recognized on outstanding cash-settled awards over the remaining vesting period based on fair value as of June 30, 2024.
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Performance-Based Cash-Settled Awards
On March 13, 2024, the Company granted 14,867 performance condition grants, with market-based conditions, that are cash-settled awards to the Chief Executive Officer. These awards are classified as liabilities, measured at fair value on the date of grant, and remeasured at each reporting date based on a Monte Carlo model. Compensation cost is recognized in proportion to the completed requisite service period through December 31, 2024. The amount of awards earned ranges between 0 % and 200 % of the target amount depending upon performance achieved over the performance period commencing on the grant date and ending on the last day of the Company’s 2024 fiscal year, and settled in cash. The performance conditions of the award are achieved at a target share price of $17.58 . As of June 30, 2024, $0.1 million of total unrecognized compensation cost is expected to be recognized on outstanding performance-based cash-settled awards over the remaining performance period based on the fair value as of June 30, 2024.
On March 13, 2024, the Company granted 120,188 performance milestone cash-settled awards to the Chief Executive Officer. These awards are classified as liabilities, measured at fair value on the date of grant, and remeasured at each reporting date, based on the Company’s share price. Compensation cost is recognized based on an estimate of the probability of achieving the performance objective at the associated level of achievement in proportion to the completed requisite service period through December 31, 2024. The amount of awards earned for each milestone is either 0 % or 100 % of the target amount depending upon performance achieved over the performance period commencing on the grant date and ending on the last day of the Company’s 2024 fiscal year, and settled in cash. The performance conditions of the award are achieved based on established milestones. If such milestones are not met or become not probable of being met during the performance period, no compensation cost is recognized and any previously recognized compensation cost is reversed. As of June 30, 2024, $1.1 million of total unrecognized compensation cost is expected to be recognized on outstanding performance-based cash-settled awards over the remaining performance period based on the fair value and the estimated probability of achievement as of June 30, 2024.
Under the 2023 Stock Incentive Plan, each non-employee director, during the years presented, received all or a portion of his or her annual compensation in stock.
The following table summarizes stock compensation costs for the Company's 2023 Stock Incentive Plan, 1998 Stock Incentive Plan, and the prior Non-Employee Director Stock Incentive Plan for the following periods:
| ($ in thousands) | Six Months Ended June 30, | ||||||||||
| Employee: | 2024 | 2023 | |||||||||
| Expensed | $ | $ | |||||||||
| Capitalized | |||||||||||
| Director: | |||||||||||
| Total Stock Compensation Costs | $ | $ | |||||||||
10. INCOME TAXES
The Company’s provision for income taxes as of June 30, 2024 has been calculated by applying an estimate of the annual effective tax rate for the full year to “ordinary” income or loss (pre-tax income or loss excluding unusual or infrequently occurring discrete items). For the six months ended June 30, 2024, the Company’s income tax benefit was $2,118,000 compared to income tax expense of $1,404,000 for the six months ended June 30, 2023. Effective tax rates were 102 % and 41 % for the six months ended June 30, 2024 and 2023, respectively. As of June 30, 2024, the Company had income taxes receivable of $3,646,000 . The Company classifies interest and penalties incurred on tax payments as income tax expense.
For the six months ended June 30, 2024, the Company’s effective tax rate was above statutory tax rates as a result of permanent differences related to Section 162(m) limitations. Section 162(m) compensation deduction limitations occurred as a result of changes in tax law arising from the 2017 Tax Cuts and Jobs Act.
11. COMMITMENTS AND CONTINGENCIES
Water Contracts
The Company has secured water contracts that are encumbered by the Company's land. These water contracts require minimum annual payments, for which $13,824,000 is expected to be paid in 2024. In the first six months of 2024, the Company paid $10,126,000 for this water. These estimated water contract payments consist of SWP contracts with WRMWSD, TCWD, Tulare Lake Basin, Dudley-Ridge, 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. Contractual obligations for future water payments were $289,010,000 as of June 30, 2024.
19
Contracts
The Company exited a consulting contract during the second quarter of 2014 related to the Grapevine Development, or Grapevine project, and is obligated to pay an earned incentive fee at the time of its 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 fee will not be determined until the future payment dates. As of June 30, 2024, the Company believes the net savings resulting from exiting the contract during this future time period will more than offset the incentive payment costs.
Community Facilities Districts
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 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 $19,540,000 of outstanding 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 $72,055,000 of outstanding 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 as of June 30, 2024.
In connection with the sale of the bonds, there is a standby letter of credit for $3,358,000 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 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 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 $67,000 .
As a landowner in each CFD, the Company is obligated 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. As of June 30, 2024, there were no additional improvement funds remaining from the West CFD bonds. There are $7,284,000 of additional improvement funds remaining within the East CFD bonds for reimbursement of public infrastructure costs during future years. On July 25, 2024, TRPFFA sold bonds which will provide approximately $25,000,000 of improvement funds for the reimbursement of public infrastructure costs at TRCC-East. During fiscal 2024, the Company expects to pay approximately $2,803,000 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 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 was not required to recognize an obligation on June 30, 2024.
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 EIR 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, the CBD and the 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 CFL 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, while not consolidated under court rules or the rules of civil procedure, the Los Angeles Superior Court judge (or Court) trying both cases determined during early trial management conferences to hold one set of hearings and issue one ruling on the matters as part of the adjudication. 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 hearings for the CBD/CNPS Action and Climate Resolve Action on September 30, 2020, November 13, 2020, and January 8, 2021.
20
On April 5, 2021, the Court issued its decision denying the petition for writ of mandate by CBD/CNPS and granting the petition for writ of mandate filed by Climate Resolve. In granting Climate Resolve’s petition, the Court found three specific areas where the EIR for the project was lacking. The Court ruled that California’s Cap-and-Trade Program cannot be used as a compliance pathway for mitigating GHG impacts for the project and therefore further ruled that additional analysis will be required related to all feasible mitigation of GHG impacts. The Court also found that the EIR must provide additional analysis and explanation of how wildland fire risk on lands outside of the project site, posed by on-site ignition sources, is mitigated to less than significant. On April 19, 2021, CBD filed a motion for reconsideration with the Court on the denial of their petition for writ of mandate to be granted prevailing party status in its case based on the Court's conclusions in the Climate Resolve Action (“Motion for Reconsideration”). The hearing on the Motion for Reconsideration originally scheduled for August 13, 2021 was rescheduled to December 1, 2021 and further rescheduled as noted below.
On November 30, 2021, the Company, together with Ranchcorp and CFL, entered into a Settlement Agreement with Climate Resolve. Pursuant to the Settlement Agreement, the Company has agreed as stated and obligated in the Settlement Agreement: (1) to make Centennial a net zero GHG emissions project through various on-site and off-site measures including, but not limited to, installing electric vehicle chargers and establishing and funding incentive programs for the purchase of electric vehicles; (2) to fund certain on-site and off-site fire protection and prevention measures; and (3) to provide annual public reports and create an organization to monitor progress towards these commitments. The foregoing is only a summary of the material terms of the Settlement Agreement and does not purport to be a complete description of the rights and obligations of the parties thereunder and is qualified in its entirety by reference to the Settlement Agreement. In exchange, Climate Resolve filed a request for dismissal of the Climate Resolve Action with prejudice from the Court. On December 3, 2021, the Court granted and entered Climate Resolve’s dismissal with prejudice concluding the Climate Resolve Action. On December 1, 2021, the Court continued CBD/CNPS Motion for Reconsideration to January 14, 2022, directing CBD/CNPS to evaluate the Settlement Agreement reached in the Climate Resolve Action to address issues surrounding remedies should CBD be granted prevailing party status in its case based on the Court’s conclusions in the Climate Resolve Action, and to evaluate the potential to settle or otherwise address CBD’s objections to the Centennial project. To that end, the Company met and conferred twice on January 4, 2022 and January 20, 2022. On January 14, 2022, the Court heard CBD/CNPS' Motion for Reconsideration and issued its decision granting CBD/CNPS prevailing party status based on the Court’s conclusions in the Climate Resolve Action.
The Court set a tentative hearing date of February 25, 2022 concerning the entry of final judgment and awarding of appropriate remedies, which was continued several times in 2022 either on the Court's own motion or at the request of the parties and was ultimately set for hearing on October 26, 2022. At the October 26th hearing, the Court agreed to: (a) hear the Company’s Motion for Reconsideration as to the successful challenges Climate Resolve prevailed upon within the Climate Resolve Action and ordered the Parties to appear on December 14, 2022 to hear the Company’s Motion for Reconsideration and (b) rule on the entry of final judgment and setting of remedies at a February 17, 2023 hearing date.
At the December 14, 2022 hearing, the Court denied the Company’s Motion for Reconsideration (finding that the Company’s motion failed to support the statutory elements necessary to prevail on such motion). At the February 17, 2023 hearing, the Court took into submission the Parties’ legal briefs and oral arguments. On March 22, 2023, the Court decided in favor of CBD/CNPS when the Judge signed CBD/CNPS’s proposed form of judgment, which included a full rescission of the Centennial project approvals previously issued by Los Angeles County. On May 26, 2023, the Company filed a Notice of Appeal with the Superior Court, thereby appealing the Superior Court’s decision to the Second District of the California Court of Appeal. On June 27, 2023, CBD/CNPS cross-appealed the Superior Court’s ruling. During the appeal process the Superior Court’s order of the rescission of project approvals have been placed on hold.
As the Company’s options to reinstate the project approvals remain pending, the monetary value of any adverse decision, if any, cannot be estimated at this time.
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 believes that the ultimate resolution of these other proceedings will not have a material adverse effect on the Company’s financial position, results of operations or cash flows, either individually or in the aggregate.
12. 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. 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 (ERISA). In April 2017, the Company froze the Benefit Plan as it relates to future benefit accruals for participants. The Company expects to contribute $165,000 to the Benefit Plan in 2024.
21
Benefit Plan assets consist of equity, debt and short-term money market investment funds. The Benefit Plan’s current investment policy changed during the third quarter of 2018. The policy's strategy seeks to minimize the volatility of the funding ratio. This objective will result in a prescribed asset mix between "return seeking" assets (e.g., stocks) and a bond portfolio (e.g., long duration bonds) according to a pre-determined customized investment strategy based on the Benefit Plan's funded status as the primary input. This path will be used as a reference point as to the mix of assets, which by design will de-emphasize the return seeking portion as the funded status improves. At June 30, 2024, the investment mixes were approximately at 99 % debt and 1 % money market funds. At December 31, 2023, the investment mixes were approximately 99 % debt, and 1 % money market funds. The weighted-average discount rate used in determining the periodic pension cost is 4.85 5.00
Total pension and retirement earnings for the Benefit Plan was as follows:
| Six Months Ended June 30, | |||||||||||
| ($ in thousands) | 2024 | 2023 | |||||||||
| (Cost)/earnings components: | |||||||||||
| Interest cost | $ | ( | $ | ( | |||||||
| Expected return on plan assets | |||||||||||
| Net amortization and deferral | ( | ( | |||||||||
| Total net periodic pension cost | $ | ( | $ | ( | |||||||
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. In April 2017, the Company froze the SERP plan as it relates to the accrual of additional benefits.
The pension and retirement expense for the SERP was as follows:
| Six Months Ended June 30, | |||||||||||
| ($ in thousands) | 2024 | 2023 | |||||||||
| Cost components: | |||||||||||
| Interest cost | $ | ( | $ | ( | |||||||
| Net amortization and other | ( | ( | |||||||||
| Total net periodic pension cost | $ | ( | $ | ( | |||||||
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13. 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 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Real Estate - Commercial/Industrial Development
Commercial/Industrial real estate development segment revenues consist of leases of land and/or building space 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. Refer to Note 14 (Investment in Unconsolidated and Consolidated Joint Ventures) for discussion of unconsolidated joint ventures.
The following table summarizes revenues, expenses and operating income from this segment for the periods ended:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| ($ in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Commercial/industrial revenues | $ | $ | $ | $ | |||||||||||||||||||
| Equity in earnings of unconsolidated joint ventures | |||||||||||||||||||||||
| Commercial/industrial revenues and equity in earnings of unconsolidated joint ventures | |||||||||||||||||||||||
| Commercial/industrial expenses | |||||||||||||||||||||||
| Operating results from commercial/industrial and unconsolidated joint ventures | $ | $ | $ | $ | |||||||||||||||||||
Real Estate - Resort/Residential Development
The Resort/Residential real estate development segment is actively involved in pursuing land entitlement and development processes both internally and through joint ventures. The segment incurs costs and expenses related to land management activities on land held for future development, but currently generates no revenue. The segment generated losses of $427,000 and $324,000 for the three months ended June 30, 2024 and 2023, respectively. The segment generated losses of $1,988,000 and $712,000 for the six months ended June 30, 2024 and 2023, respectively.
Mineral Resources
The Mineral Resources segment revenues include water sales and oil and mineral royalties from exploration and development companies that extract or mine natural resources from the Company's land. The following table summarizes revenues, expenses and operating results from this segment for the periods ended:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| ($ in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Mineral resources revenues | $ | $ | $ | $ | |||||||||||||||||||
| Mineral resources expenses | |||||||||||||||||||||||
| Operating results from mineral resources | $ | $ | $ | $ | |||||||||||||||||||
Farming
The Farming segment revenues include the sale of almonds, pistachios, wine grapes, and hay. The following table summarizes revenues, expenses and operating results from this segment for the periods ended:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| ($ in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Farming revenues | $ | $ | $ | $ | |||||||||||||||||||
| Farming expenses | |||||||||||||||||||||||
| Operating results from farming | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
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Ranch Operations
The Ranch Operations segment consists of game management revenues and ancillary land uses, such as grazing leases and on-location filming. The following table summarizes revenues, expenses and operating results from this segment for the periods ended:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| ($ in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Ranch operations revenues | $ | $ | $ | $ | |||||||||||||||||||
| Ranch operations expenses | |||||||||||||||||||||||
| Operating results from ranch operations | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
14. 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 as of June 30, 2024 was $32,134,000 . The equity in the income of unconsolidated joint ventures was $4,282,000 for the six months ended June 30, 2024. The unconsolidated joint ventures have not been consolidated as of June 30, 2024, 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. The Company's investment in this joint venture was $22,589,000 as of June 30, 2024.
•Majestic Realty Co. – Majestic Realty Co., or Majestic, is a privately-held developer and owner of industrial and commercial properties throughout the United States. The Company partnered with Majestic to form five active 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. For those investments in a deficit position, in accordance with the applicable accounting guidance, the Company reclassified excess distributions to Other Liabilities within the Consolidated Balance Sheets. The Company expects to continue to record equity in earnings as a debit to the investment account and if it were to become positive, the Company would reclassify the liability to an asset. If it becomes obvious that any excess distribution may not be returned (upon joint venture liquidation or otherwise), the Company will immediately recognize the liability as income.
•On March 29, 2022, TRC-MRC 5 LLC was formed to pursue the development, construction, lease-up, and management of an approximately 446,400 square foot industrial building located within TRCC-East. The construction of the building was completed in the fourth quarter of 2023, and the joint venture has leased 100 % of the rentable space. The joint venture refinanced the construction loan in February 2024 with a promissory note. The note matures on February 3, 2035, and had an outstanding balance of $53,170,000 as of June 30, 2024. Since its inception, the Company has received excess distributions resulting in a deficit balance in its investment of $1,439,000 .
•On March 25, 2021, TRC-MRC 4 LLC was formed to pursue the development, construction, lease-up, and management of a 629,274 square foot industrial building located within TRCC-East. The construction of the building was completed in the fourth quarter of 2022, and the joint venture has leased 100 % of the rentable space. The joint venture refinanced its construction loan in March 2023 with a promissory note. The note matures on March 1, 2033, and had an outstanding balance of $61,361,000 as of June 30, 2024. Since its inception, the Company has received excess distributions resulting in a deficit balance in its investment of $6,135,000 .
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•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 it does not consolidate TRC-MRC 3, LLC in its financial statements. The construction of the building was completed in 2019, and the joint venture 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 $33,179,000 as of June 30, 2024. The Company's investment in this joint venture was $234,000 as of June 30, 2024.
•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. The promissory note was refinanced on June 1, 2018 with a $25,240,000 promissory note. The note matures on July 3, 2028 and had an outstanding principal balance of $21,591,000 as of June 30, 2024. The building was 100 % leased as of June 30, 2024. Since its inception, the Company has received excess distributions resulting in a deficit balance in its investment of $848,000 .
•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 in 2017. The joint venture refinanced its construction loan in December 2018 with a mortgage loan. The original balance of the mortgage loan was $25,030,000 , of which $21,811,000 was outstanding as of June 30, 2024. Since inception of the joint venture, the Company has received excess distributions resulting in a deficit balance in its investment of $1,340,000 .
•TRCC/Rock Outlet Center LLC – This joint venture was formed in 2013 with Rockefeller Group Development Corporation, or Rockefeller to develop, own, and manage a net leasable 326,000 square foot outlet center on land at TRCC-East. At June 30, 2024, the Company’s equity investment balance in this joint venture was $9,311,000 . The Company controls 50 % of the voting interests of TRCC/Rock Outlet Center LLC; thus, it does not control the joint venture 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. On August 16, 2023, the TRCC/Rock Outlet Center LLC joint venture successfully extended the maturity date of its term note with a financial institution from May 31, 2024 to June 30, 2025. In connection with the loan extension, the joint venture also reduced the outstanding amount by $6,000,000 . As of June 30, 2024, the outstanding balance of the term note was $20,702,000 . The Company and Rockefeller guarantee the performance of the debt.
•Centennial Founders, LLC – CFL is a joint venture with TRI Pointe Homes to pursue the entitlement and development of land that the Company owns in Los Angeles County. As of June 30, 2024, the Company owned 93.57 % of CFL.
The Company’s investment balance in each of its unconsolidated joint ventures differs from its capital accounts in the respective joint ventures. The variance represents the difference between the cost basis of assets contributed by the Company and the agreed upon fair value of those assets.
Unaudited condensed statements of operations for the three and six months ended June 30, 2024 and 2023 and condensed balance sheet information of the Company’s unconsolidated joint ventures as of June 30, 2024 and December 31, 2023 are as follows:
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| Three Months Ended June 30, | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||||||||||
| Joint Venture | TRC | ||||||||||||||||||||||||||||||||||
| ($ in thousands) | Revenues | Earnings (Loss) | Equity in Earnings (Loss) | ||||||||||||||||||||||||||||||||
| Petro Travel Plaza Holdings, LLC | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
TRCC/Rock Outlet Center, LLC1 | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| TRC-MRC 1, LLC | |||||||||||||||||||||||||||||||||||