Tejon Ranch Co. (TRC) is Incredibly Cheap
Further shareholder activism will likely unlock this value over time
Tejon is the largest contiguous landowner in California, owning about 270,000 acres about an hour north of Los Angeles.
Their founding dates all the way back to 1843 and from this time until relatively recently around the early 2000s they were a sleepy land bank monetizing their land holdings from farming, grazing, mineral rights, etc. Also, a little fun fact…the 2003 film, Jeepers Creepers 2, was primarily filmed on Tejon’s land. Kind of cool!
In the last 20 years they have transformed into a completely different company as they have developed a portion of their land holdings into a world class commerce center with retail, residential and industrial properties they own. And around 2020/2021 I believe their growth trajectory has inflected due to the income their properties are able to generate.
The catch is that they have an (in my opinion) entrenched chairman that the board can’t say anything but yes to, and they have made some horrendous capital allocation decisions in the past decade or so. The share price is essentially flat since 1985, and the current chairman and several other key personnel have been in place since 1998.
I came across this several months ago and did some high-level research and determined that unless the entrenched board members are replaced, there is no real catalyst here to unlock the value. There now is a potential catalyst on the horizon in the form of a prominent activist investor and I think there is a good chance of them prevailing at the upcoming mid-May election.
I’ll talk first on their assets and what this is potentially worth and then get into why I think the activist involved will prevail.
Tejon’s assets
In terms of Tejon’s income-producing assets, they have commercial real estate, mineral resources, farming, grazing, and ranch/ancillary. Farming/grazing/ranch generates a negligible amount of income, and farming has been slightly unprofitable the last 3 years so I’m valuing these segments at zero.
I’m also valuing their mineral resources segment at zero, although it is worth pointing out that this is likely not the case. The operating income from this has been between $3 million and $14 million since 2011 and they’ve never had a negative year. This is also on a GAAP basis net of depreciation/depletion. You’ll notice water sales essentially replaced O&G around 2014 and this has been their primary driver here.
Their stated reason for the decline in water sales over the past few years is from more precipitation in CA which therefore reduces the demand for their water. This segment will likely always be lumpy, but it is generating a good amount of cash for the company and is certainly not worth zero.
Developable land
The company has 3 tracts of entitled land that is to be developed into residential and commercial property. Mountain Village and Grapevine are in Kern County, north of Los Angeles County and much more business friendly. These are both essentially ready to commence horizontal and vertical development.
Their 3rd development is called Centennial and is in LA County. This one is hung up in litigation though as LA County is notoriously difficult to develop in.
At the end of 2009, the company had $86,553,000 sunk into these projects. By the end of 2024, they had $324,940,000 invested and have generated absolutely zero return on this. This is the major point of contention amongst those taking an activist role as this makes little sense. I’ll get into more on this later.
I’m valuing this at cost, although here is what they have entitled just for Mountain Village and Grapevine which could be worth multiples of this:
· 34,427 acres
· 15,450 residential units
· 5,260,000 sf of commercial space
· 750 hotel keys
Partnering with a prominent builder and successfully monetizing this over time is what makes the most sense to me as they could contribute the land and generate recurring income from lot sales. And since a lot of builders are adopting the land-light strategy, this would likely be attractive for them too as this land is sitting on Tejon’s balance sheet instead of theirs.
It seems very conservative to value this at cost, but based on my understanding of builders and how land banking works, they could likely generate a good amount of cash so long as this is attractive to a builder and they can partner with one. Therefore, it is highly unlikely that the actual value of this land is equal to their cost basis. I’d bet that it is much higher.
NOI-producing commercial real estate
Tejon’s magnum opus is their Tejon Ranch Commerce Center (TRCC), a 1,450 acre, 20 million sf commercial development that is already generating a substantial amount of cash on an ongoing basis. This has been under development for the past 15 or so years and the value has jumped a lot in the past 5 years. The value here is largely hidden, however as most of what they own is held in joint ventures and accounted for under the equity method on their financial statements. Here is a breakdown of this:
Here is a breakdown of the income-producing assets here:
· Travel centers – Tejon has partnered with a large travel center company and these have been here well over a decade and generate a substantial amount of cash for the company with seemingly no oversight as the managing member handles all elements of management.
· Industrial properties – There are several large (500k+ sf) industrial developments here leased to names such as IKEA, Dollar General, L’Oreal, and Camping World. There are also properties owned by 3rd parties such as Nestle and Caterpillar.
· Retail – Many prominent food brands lease retail space here too such as Arby’s, Chipotle, McDonald’s, Wendy’s, Burger King, Popeye’s, Dunkin Donuts, Starbucks, Subway, Taco Bell. And they have a large outlet center with many popular retail brands that operate out of there such as Adidas, Calvin Klein, Coach, Famous Footwear, Guess, H&M, Kate Spade, Nike, Psycho Bunny, Skechers, and Under Armour.
· Multifamily – a multi-phase multifamily development is underway with 228 units being delivered in phase 1, which appears to be occurring in H1 2025. The entire project is planned to be 495 units and this is at the heart of TRCC.
As mentioned, some of these properties are owned 100% by the company and are consolidated in their financials, but most of them are owned with partners through JVs and accounted for under the equity method.
I teased out the different JVs and their ability to generate revenue over the years. The delivery of the industrial properties over the past several years has been a big driver in growth here and my belief is that 2 of these are below market significantly and will be marked to market at some point in the near future as the other ones were. Here are the financials I’ve put together, meant to provide more insight into their JV income, which the company does a terrible job explaining.
Valuation
Their effective ownership of the $43,910,000 of NOI generated in 2024 is 57.65% which is $25,314,000. Add to that their $9,036,000 of NOI from their consolidated figures and we arrive at a total 2024 NOI of $34,350,000 for Tejon.
At a blended 6% cap rate, this is $572,500,000 or $21.34/share. This gives them no credit for the multifamily development, future land development on land they own, or the likely mark-to-market value of 2 of their large industrial properties they hold in JVs.
If we add the historical costs of getting those 3 residential communities entitled, the total value is about $890,000,000 or $33.16/share.
I believe this to be an ULTRA-conservative way to value this as there is no value given to anything but the entitled land at cost, and the income-generating real estate. I believe there is a clear case for this to be valued closer to $50/share or more if you were to dig into the estimated value per acre of their future developments, but since there is nothing solidified there I am going to focus on the real estate that is presently cash generative.
Present management and the terrible incentive structures in place
Needless to say, management is largely responsible for the disparity between the value of their holdings and the share price. I’ll highlight some of the goals that were tied to executive equity comp:
1. Begin construction of first phase of the multifamily development at TRCC by 4th quarter 2025. They will likely have the entire phase delivered by this time as they began construction in early 2024. This was a milestone with a bar set incredibly low.
2. Complete a $150 million capital raise for construction of phase 1 of Mountain Village (residential development). Couple issues here; first is that this has nothing to do with profitability or performance and rewards them solely for raising money. Second is that Mountain Village should be an afterthought and all their focus should be on TRCC and Grapevine (the resi development surrounding TRCC).
3. Get entitlements for Grapevine North. Yay, more entitlements of raw land that is much further away from monetization than other viable projects they could focus on.
And here are some goals tied to the executives’ 2024 cash bonuses:
1. Release of the Notice of Preparation on Centennial (the future development hung up in litigation with LA county) by the end of Q2 2024. Centennial is the furthest thing out from monetization yet they continue sinking money into it nonsensically.
2. Ensure that Los Angeles County Climate Action Plan (“CAP”) includes language acknowledging that Centennial substantially meets the CAP. *Facepalm*
3. Source one additional capital source for JV or Tejon-only development by end of Q4. They state that they received a letter from a bank with competitive terms in July 2024, meaning this objective was met. This is laughable that a bonus is tied to something that should be part of any real estate developer’s basic job description.
4. Ensure a TRPFFA bond sale by the end of the third quarter 2024. Again, raising money is a basic tenet of any real estate developer’s job description.
I didn’t cherry-pick any of these. This is an exhaustive list and of course all of them were met, which triggered large bonuses paid to them paid by the shareholders. Here are some interesting charts from their 2025 proxy materials showing the misalignment of interests between management and shareholders:
Gregory Bielli was their CEO for over a decade and oversaw all the cash allocated to entitlements instead of into things that would produce a return. In the prior 3 years he “earned” over $10 million in cash and equity incentives while the stock price has gone nowhere.
He retired and was replaced by a new CEO on 4/1/25. But if you thought the asinine incentives would not continue with the new CEO, you’re in for a treat! I’ll summarize the different incentives:
1. $200,000 in stock grants are tied to an increase in share price over the next few years. I would prefer to tie this to NOI, profitability or something such as that, but this is certainly better than anything I’ve outlined above.
2. $1,068,750 in cash bonuses and stock grants tied to continued employment. Not great.
3. $468,750 in stock grants tied to totally useless objectives that do nothing to increase shareholder value. Here’s an exhaustive list of the 4 objectives that I’ve summarized:
· Outreach and relationship building with elected officials. Again, this should be a basic function of a real estate developer.
· “One-on-one” contact with the top ten shareholders. What does this do to increase shareholder value?
· Review and comment on the Strategic Plan at the upcoming board meeting. “Hey board, the plan looks wonderful, you guys are all rock stars. Thanks for paying me lots of money to do nothing for shareholders.”
· Joining two boards with economic development/policy-making impacts. There just might be a few things I can think of that are higher priority than this.
These objectives are a joke and do nothing to increase shareholder value. They are also very subjective and open to interpretation as to what it means to accomplish them. Here’s a visual of the dollar weighting of these 3 different types of incentives:
Activism beginning in 2024
On 4/18/24, Nitor Capital Management sends a letter to Tejon shareholders that is filed with the SEC, appearing in Tejon’s filings. They urged shareholders to withhold support for four directors at the 2024 annual meeting. They send a condensed reiteration of this letter on 5/9/24 again urging shareholders to withhold support for those individuals.
And on 5/20/24 they send a third letter celebrating the fact that shareholders agreed with them. Here are the results from 2023 where no activism occurred, and 2024 after Nitor’s letters:
2023:
2024:
That is a huge swing that came simply from 2 letters sent pre-election. Nitor was active on X at this time and it seemed to have awoken a frustrated shareholder base when they began pointing out Tejon’s terrible practices.
The timeline of the fallout from these letters were:
11/1/24 – Geoffrey Stack resigns, he had been there since 1998 and was one of the people Nitor targeted.
11/4/24 – Nitor gets a board seat with the appointment of Eric Speron and a standstill agreement is signed between Tejon and Nitor until 2026.
12/6/24 – Allen Lyda (EVP, COO) resigns. He was there since 1990 and oversaw a lot of poor capital allocation decisions.
3/28/25 – Special Opportunities Fund, managed by Bulldog Investors initiates a proxy bid to put 3 people on the board which would replace 3 current board members.
2025 activism from Bulldog Investors
I’ll give a brief background summing up my view of who Bulldog Investors are. They were started in the early 1990’s by Phil Goldstein and a few years later in 1999 joined by Andy Dakos. Their bread and butter is targeting CEFs trading at a discount to NAV and using various means necessary (usually activism) to close the gap after they’ve built a position.
Phil seems to be laser-focused on CEF arbitrage while Andy seems to have helped broaden their focus a bit as he showed how the same thing can be done on real estate and other asset-heavy companies trading at discounts.
There is a YT video of them being interviewed around 2011 and they said that they had run 35 full-fledged proxy contests by that time. Another article from 2023 mentioned that by that time they had run 80.
My consensus after researching them and speaking with Andy Dakos on the phone in early April is that they are experienced and would not be running a proxy contest if they didn’t think they had a good chance of winning.
Nitor’s 2 letters caused a massive shift in voting when comparing the 2023 election results to 2024. If that came about from 2 letters without a solicitation of proxies, it likely indicates that there is a frustrated shareholder base that Bulldog can tap into to effect change.
Downside: they lose the election
If Tejon prevails and Bulldog is unable to elect their 3 directors, the assets remain just as valuable as they were before. The share price might dip, but it appears that this is nearing critical mass where eventually the entrenched board will be uprooted and replaced. Their assets have become too valuable in recent years and no longer is this a sleepy land company that can get away with questionable comp practices and terrible capital allocation decisions.
With more eyeballs on this due to the increased value of their assets, I see management either being forced to listen and respond to what shareholders want, or they will be replaced. Their increase in asset prices have outpaced the current management’s competence level and since they are incorporated in Delaware (activist friendly) someone should be able to replace the board soon, if it isn’t Bulldog.
Overall, I view this as an asset-heavy company with a potential near-term catalyst on the horizon that could unlock its value. Bulldog seems like a smart group and I believe they will prevail. But even if they do not, over the long-run it is likely someone initiates the change needed to close the price/value gap.
Update 7/8/25
Bulldog got one of their three nominees (Andy Dakos) elected to the board and the results were extremely close. While this was not the desired outcome, there is a clear mandate from shareholders that change is needed. Looking at the election results is evidence of this.
Proposal 4 was the most telling of them all, in my opinion. They were EXTREMELY close to having this proposal passed, which would have likely paved the way for them to lose control of the company as 10% of the shareholders could call meetings to effect change.
Tejon came out recently announcing they will host an investor day and will actively seek feedback from shareholders. My view stands that management must either shape up and begin taking action to close the price-value gap or they will be replaced soon.
With Nitor’s campaign in 2024 and Bulldog’s in 2025, there are now “data” in the form of the election results that show this is a frustrated shareholder base. I see two logical outcomes from this; 1) Management decides to be pragmatic and go along with this shareholder mandate in order to keep their jobs. Or 2) They continue acting like knuckleheads and continue getting proxied until they no longer have jobs.
I really don’t have a prediction on which outcome is more likely but my thesis is that Tejon’s assets will continue growing in value and they’ll be forced to change or lose their jobs. Either outcome is fine with me and depending on how this shakes out as we move forward, I may add to my position here.
If anyone wants to go deep on this one, here is the mind map I used to understand everything about this.
Important: This information is for general purposes only and is not financial advice. Always seek professional guidance for investment decisions. Any opinions expressed are solely those of the author.