Friday, April 27, 2007

A Rich Man's Game and a Tejon Ranch (TRC) Update

Ted Turner has been on a buying spree. He now owns 2 million. Archie Aldis "Red" Emmerson is not far behind, at 1.72 million, while the Irving family has 1.2 million. We are not talking about shares of AOL, but rather something much more valuable. Acres of land. There was an excellent article in this past Wednesday's Wall Street Journal entitled "It's the Only Thing That Lasts", which discussed the growing trend of the wealthy accumulating open space across the country. Included was a list of the top ten land owning families, of which we mentioned the top three.

If you think land acquisition is a rich man's game (Ted Turner's latest was 65000 Nebraska acres he bought for $19 million in 2005), you'd be right. However, if you are not in Ted Turner's league, there are other ways to gain exposure to land, a topic we frequently write about here at Cheap Stocks.

Tejon Ranch Continues in Anonymity
Tejon Ranch, owner of 270,000 of contiguous California land 60 miles north of Los Angeles, continues to prosper in relative silence. The company, whose revenue is
from a mix of farming and real estate operations, is beginning to lean more toward the latter.

And a beautiful 270,000 acres it is. That's the equivalent to 400 square miles, or an area 20 by 20 miles, which includes parts of the San Joaquin Valley, Tehachapi Mountains, and Antelope Valley. About 90 percent or 247,000 acres are located in Kern County, the balance in Los Angeles County, where Tejon is currently making plans for a master planned community on 11,700 acres.

As Tejon moves forward to develop some of the land, it is important to note that the company plans on preserving as many as 100,000 acres through a partnership with The Trust for Public Land. While the company will pursue funds in order to preserve this land, it remains to be seen exactly what that will translate to financially.

The Financials
Revenue for 2006 was $28.4 million, up 8 percent from 2005s $26.4 million. Net loss was $2.7 million in 2006, down from 2005s net income of $1.5 million. It bears noting that investment income was significant in both years relative to the bottom line ($3 million in 2006, $2.6 million in 2005). Revenue from real estate operations was $16 million in 2006, up from $13 million the prior year, and represented more than half of revenue for the first time, a trend the company expects to continue, and grow, as TRC focuses more on land development.

The Balance Sheet
Tejon ended the year with $78 million in cash and short term marketable securities (or about $5 per share), and just $417 thousand in long term debt. The balance sheet remains extremely strong with $159 million in total assets and just $10 million in total liabilities.

Enterprise Value/Acre
Long time readers know that any Cheap Stocks posting regarding real estate holdings is not complete without the EV/acre calculation we are fond of. With a current EV of $729 million, and 270,000 acres, that equates to an EV/acre of $2700. We don't believe that $2700/acre is a reasonable assumption for the land that will be preserved, but that not withstanding, Tejon still appears reasonably cheap.

Major Holders
Legendary value investor Marty Whitman's Third Avenue Management continues it's love affair with Tejon Ranch, and now owns 26.5% of the company. Michael Winer of Third Avenue also has a seat on the Board of Directors. Rounding out the list of institutions with large stakes, Wesley Capital Management owns 13.3%, and FMR Corp, parent of Fidelity, owns 5.85%.

A Candidate to go Private?
Last but not least, we'll end with this interesting fact. Tejon Ranch has just 444 shareholders of record. That's not all that far from the magic 300 required to delist, and essentially go private, a topic we've covered before in our Cheap Stocks research. While we can't imagine Third Avenue being a proponent of the GPT transaction that allows companies to continue trading on the pink sheets after delisting, stranger things have happened. Given Tejon Ranch's low profile, and relatively small public float, we're not sure of the advantages to remaining public.

Company; Tejon Ranch
Ticker: TRC
Price: $49.51
Mkt Cap: $831 million
Shares Out: 16.79 million

*The author has a position in TRC. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.


Anonymous said...

444 shareholders of record. My shares are in a brokerage account at Fidelity, so I'm not a shareholder of record, correct? If that's so there are many more actual shareholders than shareholders of record.

clyde said...

That is correct. Your shares are held in "street name" at Fidelity, and they are the shareholder of record. So, there are more actual shareholders than 444.