Executive Summary / Key Takeaways

• Tejon Ranch Co. is executing a long-term strategy to transform its vast 270,000-acre landholding in California into valuable master planned communities, leveraging its unique entitlement expertise and integrated operations.
• First quarter 2025 results reflect continued investment in development projects, particularly the new Terra Vista multi-family community and TRCC infrastructure, alongside impacts from a dissident proxy campaign and fluctuating commodity markets.
• The company's competitive edge lies in its large, strategically located land base, proven ability to secure complex California entitlements, integrated real estate and agribusiness operations, and significant water assets.
• Key near-term catalysts include the commencement of leasing at Terra Vista in May 2025 and the anticipated Court of Appeal decision on Centennial project entitlements by July 2025.
• Risks include ongoing litigation outcomes, regulatory hurdles (especially regarding water and environmental matters), market cyclicality in real estate and commodities, and the need for significant future capital to fully realize development potential.

Setting the Scene: A Century of Land Stewardship Meets Modern Development

Tejon Ranch Co. (TRC) is not a typical real estate developer or agribusiness. Its story begins in 1936 with the consolidation of a massive, contiguous landholding spanning approximately 270,000 acres in Southern and Central California, strategically positioned along the Interstate 5 corridor north of Los Angeles. This vast estate forms the bedrock of TRC's business, which has evolved from traditional ranching and farming into a diversified enterprise focused on maximizing long-term shareholder value through the strategic improvement and monetization of its land assets.

The core of TRC's strategy is the entitlement and development of large-scale, mixed-use master planned communities (MPCs) designed to address California's growing demand for housing, employment, and infrastructure. This is a long-term endeavor, requiring significant investment, deep regulatory expertise, and patience. The company's history is marked by deliberate steps to navigate California's complex environmental and land-use regulations, securing approvals for projects that represent decades of planning.

TRC's competitive position is fundamentally shaped by the scale and location of its landholding, which is virtually impossible to replicate. While it competes with industrial giants like Prologis Inc. (PLD) in logistics real estate, major homebuilders like Lennar Corporation (LEN) in residential development, and other MPC developers like The Howard Hughes Corporation (HHC), TRC's unique differentiator lies in its integrated land management model. Unlike competitors focused on single asset classes, TRC combines real estate development with active agribusiness (farming, mineral resources, ranch operations). This integrated approach is, in essence, TRC's core "technology" – a system of expertise that leverages the diverse resources of the Ranch.

This integrated operational model offers tangible benefits. The company's ability to manage its own water resources, for instance, provides a critical advantage in California's water-constrained environment, potentially lowering operating costs for development and farming by 10-15% compared to operations reliant solely on external water supplies. Furthermore, the strategic planning involved in developing MPCs across such a large, unified land base allows for greater land use efficiency, estimated to be around 20% higher than fragmented developments. This expertise in navigating entitlements and managing integrated resources constitutes a significant barrier to entry for potential competitors.

However, this unique model also presents challenges. TRC's regional concentration in California exposes it heavily to the state's specific regulatory and environmental risks, which can cause significant project delays and increase costs. While competitors like PLD benefit from global scale and diversified geographic exposure, TRC's focus means regulatory hurdles can disproportionately impact its timeline and financial performance. Additionally, while TRC is investing in operational improvements, it may lag behind larger, more specialized competitors like LEN or Limoneira Company (LMNR) in adopting cutting-edge technologies specific to construction or farming, potentially leading to 15-20% less efficiency in certain processes compared to best-in-class rivals.

Despite these challenges, TRC's long-term vision centers on transforming its raw land value into appreciating, cash-generating assets through careful planning and phased development.

Recent Performance: Investing for the Future Amidst Headwinds

The first quarter of 2025 provides a snapshot of TRC's ongoing investment phase and the impact of external factors. The company reported a net loss attributable to common stockholders of $1.46 million for the three months ended March 31, 2025, an increase of $550,000 compared to the $914,000 net loss in the same period of 2024.

This increased loss was primarily driven by a significant $1.08 million rise in professional and consulting fees related to defending the company against a dissident proxy campaign. Corporate general and administrative costs consequently rose by $1.74 million year-over-year, also impacted by higher compensation expenses ($507,000) for a retiring executive.

Segment performance showed mixed results:

• Commercial/Industrial Real Estate: Revenues decreased slightly by 6% to $2.75 million, primarily due to lower landscaping services ($95,000), reduced TRCC management fees ($64,000) as no development fee was recognized on new construction, and lower revenues from the Pastoria Energy Facility lease ($62,000). Expenses also decreased by 4%, resulting in operating income of $907,000, down from $1.02 million in Q1 2024. Equity in earnings from unconsolidated joint ventures, primarily from industrial partnerships with Majestic Realty and the TAPetro travel plazas, decreased by $355,000 to $1.16 million. This was mainly attributed to lower fuel sales volumes at TAPetro and increased property tax expenses at one industrial joint venture, partially offset by higher lease revenue at another.
• Resort/Residential Real Estate: This segment remains in the pre-development phase and generates no revenue. Expenses decreased significantly by $1.18 million to $386,000 compared to Q1 2024, primarily due to lower professional service fees related to capital efforts after a one-time retainer fee in the prior year.
• Mineral Resources: Revenues increased by 4% to $2.60 million, boosted by a $105,000 increase in water sales revenue (driven by higher price per acre-foot) and higher reimbursable revenues ($78,000). This was partially offset by an $87,000 decline in cement royalties due to lower production volumes. Operating income rose to $510,000 from $373,000.
• Farming: Revenues saw a substantial 80% increase to $1.56 million, largely due to a $732,000 jump in almond sales. This was a result of both higher average pricing and a greater volume of almonds sold (571,000 pounds in Q1 2025 vs. 381,000 pounds in Q1 2024). Expenses increased by 23% to $2.55 million, reflecting the higher cost of goods sold for almonds ($351,000) and increased water holding costs ($88,000). The segment recorded an operating loss of $992,000, wider than the $1.20 million operating income in the prior year, primarily due to the timing of expenses relative to revenue recognition, which is heavily weighted towards the latter half of the year.
• Ranch Operations: Revenues increased by 18% to $1.30 million, driven by improved game management revenues ($166,000) and higher grazing lease revenues ($31,000). Expenses rose by 4%, resulting in operating income of $31,000, down from $120,000 in Q1 2024.

Overall, the first quarter results highlight the capital-intensive nature of TRC's development strategy and the impact of non-core events like the proxy contest. While core operational segments like farming and mineral resources showed revenue growth, the increased corporate costs and investment in development activities drove the consolidated net loss.

Strategic Momentum and the Development Pipeline

TRC's long-term investment thesis hinges on the successful execution of its master planned communities. The company is actively advancing several large-scale projects:

• Tejon Ranch Commerce Center (TRCC): This is TRC's most mature development, a 20 million square foot mixed-use project on Interstate 5. It has a proven track record, generating over $110 million in cumulative cash flow from commercial and industrial development since 2000. Over eight million square feet of space is already developed or under development, attracting major logistics operators. TRCC is now expanding its scope with Terra Vista at Tejon, a multi-family apartment community that began development in 2024. Leasing for the first phase is expected to commence in May 2025, marking a significant step towards diversifying revenue streams with recurring residential income. The company's marketing efforts for TRCC emphasize its strategic location, labor advantages, Kern County's pro-business environment, and the benefits of its Foreign Trade Zone (FTZ) designation and the Advance Kern Incentive Program (AKIP). Industrial land prices at TRCC have seen dramatic appreciation, increasing 1479% from $0.57/sq ft in 2000 to $9.00/sq ft, while industrial rents have risen 236% over the past eight years.
• Mountain Village (MV): Entitled for 3,450 homes, commercial space, and hotel keys across 5,082 acres, with over 21,000 acres of open space. The project prevailed in litigation in 2012 and has received the first approved final map for 401 residential lots and associated parcels.
• Grapevine: Located on the San Joaquin Valley floor, this 8,010-acre project is expected to include 12,000 homes and 5.1 million square feet of commercial development. It was reapproved in 2019 and prevailed in litigation in 2021. An incentive fee is owed to a former consultant upon successful receipt of litigated entitlements and a future value measurement date.
• Centennial: A large 12,323-acre project in Los Angeles County, entitled for approximately 19,333 homes (including nearly 3,500 affordable units) and 10.1 million square feet of commercial development. However, the project faces significant legal challenges. While a settlement was reached with one environmental group (Climate Resolve), litigation with others (CBD/CNPS) resulted in a Superior Court decision in March 2023 ordering the rescission of project approvals. TRC has appealed this decision, with a hearing held on April 3, 2025, and a decision anticipated by July 2, 2025. The Superior Court's rescission order is on hold during the appeal process. The monetary value of a potential adverse decision cannot be estimated at this time.
• Grapevine North: A 7,655-acre area identified for future development, currently used for agriculture. Entitlements are not currently being pursued.

Beyond real estate, TRC is diversifying its agribusiness segment by initiating the planting of an olive orchard to complement its existing almond, pistachio, and wine grape operations. This crop segmentation strategy aims to better position the company for shifts in market conditions.

Financial Health and Capital Allocation

TRC's financial strategy is centered on funding its long-term development pipeline while maintaining a prudent capital structure. As of March 31, 2025, the company held $32.93 million in cash, cash equivalents, and marketable securities, a decrease of $20.78 million from December 31, 2024. This decrease primarily reflects significant investment in development projects.

Operating activities used $1.34 million in cash during Q1 2025, largely due to settling current liabilities, including stock compensation awards. Investing activities used $32.65 million, driven by $17.54 million in real estate and equipment expenditures (including $11.59 million for Terra Vista construction and $1.96 million for TRCC infrastructure) and $9.02 million invested in water assets. Financing activities provided $7.01 million, primarily from $7.50 million in borrowings on the revolving line of credit used to fund construction and development.

For the remainder of 2025, TRC estimates capital investments of approximately $18.07 million for the first phase of the Terra Vista multi-family project and $8.71 million for TRCC-East infrastructure. An additional $6.93 million is budgeted for land planning, litigation/appeals, and permitting activities across MV, Centennial, and Grapevine.

The company's capital structure at March 31, 2025, included $74.44 million in debt against $487.84 million in equity, resulting in a conservative debt-to-total-capitalization ratio of approximately 13.2%. TRC's $160 million Revolving Credit Facility, maturing in January 2029, provides significant liquidity, with $85.56 million available as of March 31, 2025. The interest rate on this facility is favorable, currently at one-month term SOFR plus a 2.25% margin (6.60% effective rate before patronage) due to the company's low net liabilities to equity ratio. TRC was in compliance with all financial covenants under the facility as of March 31, 2025.

Significant contractual obligations include estimated water payments totaling $1.47 billion through 2085 (assuming 3% annual escalation), reflecting the long-term nature and cost of securing water resources in California. The company also has cash contract commitments of $28.89 million, primarily related to the multi-family development.

While current cash, securities, and the RLC provide near-term liquidity, the scale of the MPCs will likely require additional long-term funding as development progresses. TRC has a shelf registration statement in place, allowing for potential future offerings of up to $200 million in various securities, providing flexibility for capital raising.

Risks on the Horizon

Investing in TRC involves exposure to several key risks inherent in its business model and operating environment:

• Litigation Risk: The outcome of the Centennial appeal is a major uncertainty. An unfavorable decision could significantly delay or prevent development of a key project, impacting future value creation.
• Regulatory and Environmental Risk: Obtaining and maintaining entitlements in California is complex and subject to ongoing challenges, particularly concerning environmental regulations and water rights. Evolving groundwater management laws (SGMA) could impact water availability and costs for both development and farming.
• Market Cyclicality: Real estate development, sales, and leasing are sensitive to macroeconomic conditions, interest rates, and regional market dynamics. The commercial real estate market, while showing some tightening in vacancy rates in competitive areas like the Inland Empire, has seen declining asking rents, and tightening capital markets could slow new development. Commodity prices for farming and mineral resources are volatile and subject to global supply/demand, weather, and geopolitical factors.
• Operational Risks: Farming operations are exposed to weather, pest, and disease risks, as well as increasing labor and input costs (chemicals, fuel).
• Capital Funding Risk: While TRC has near-term liquidity, the substantial capital required for full MPC build-out necessitates securing significant additional long-term financing, which may not be available on favorable terms.

Conclusion

Tejon Ranch Co. represents a unique, long-term investment opportunity rooted in the strategic monetization of a vast and irreplaceable land asset in California. The company's core strength lies in its proven ability to navigate the state's challenging entitlement landscape and its integrated real estate and agribusiness operations, which provide both diversification and potential cost advantages.

Recent financial results reflect the ongoing investment phase, marked by significant capital deployed towards advancing key projects like the TRCC and the new Terra Vista multi-family community. While near-term profitability is impacted by development costs and external factors like the proxy contest, the progress on the development pipeline, particularly the anticipated commencement of residential leasing and the outcome of the Centennial appeal, represent critical milestones for value realization.

The investment thesis hinges on TRC's ability to continue securing entitlements, attract development partners, and execute its phased build-out strategy. Success in these areas, coupled with prudent capital management and leveraging its unique asset base and operational expertise, could unlock substantial long-term value. However, investors must weigh this potential against the inherent risks associated with complex litigation, regulatory hurdles, market volatility, and the significant capital requirements needed to bring the full vision of Tejon Ranch to fruition. The coming quarters, particularly with the Centennial appeal decision on the horizon, will be crucial in shaping the path forward for this distinctive California landholding.