By M. Marin
NYSE:TRC
READ THE FULL TRC RESEARCH REPORT
Region needs significantly more warehouse/distribution and residential space
A development project is underway that is expected to more than double the warehouse space available at Tejon Ranch Company’s (NYSE:TRC) Tejon Ranch Commerce Center (TRCC). Last month, the Tejon Ranch Public Facilities Financing Authority (TRPFFA) issued bonds to help finance the expansion. According to company filings, The Tejon Ranch Public Facilities Financing Authority is a joint powers authority formed by Kern County and the Tejon-Castac Water District via a Community Facilities District (CFD).
The TRCC industrial portfolio, through TRC’s JVs (joint ventures), is comprised of 2.8 million square feet of gross leasable area (GLA) and is 100% leased. However, TRCC comprises 7.1 million square feet of GLA in total, implying room for expansion. TRCC’s wholly owned and JV commercial portfolio comprises 620,907 square feet of GLA and is 95% leased.
Industrial vacancy rates in the Los Angeles region are low, which puts upward pressure on lease rates for warehouse space. Moreover, TRC has had a strong recent track record of pre-leasing planned new industrial space even before construction has begun. We believe this reflects the strength of market demand and the strategic location and building amenities at the TRCC, including access to a solid labor pool, according to management. For instance, Sunrise Brands, a California-based producer, distributor and retailer of branded (such as Rebecca Minkoff) and private-label apparel, leased an entire building before it was built. During construction, Sunrise took temporary space at TRCC and once it vacated that temporary space and relocated to its new TRCC building in January 2024, TRC signed a new lease with RectorSeal, a manufacturer and distributor of industrial components, for the space Sunrise had occupied. The company has also begun construction of a new distribution facility for Nestlé USA that will total more than 700,000 square feet at TRCC east.
High Statewide Need for Added Housing, Including for Employees of Local Businesses
Separately, with a significant need for added housing statewide, TRC is developing a multi-family residential complex adjacent to the Outlets at Tejon. Terra Vista at Tejon as TRCC will be a mixed-use master-planned community. The 495 units will consist of affordable studio, one, and two-bedroom apartment homes.
TRCC employees and others working nearby, as well as residents in south Bakersfield, the southern portion of Kern County, and the adjacent Mountain Communities, are expected to view Terra Vista at Tejon as convenient housing. Upon completion, Terra Vista at Tejon is expected to be the largest rental community in Kern County and is expected to provide housing for people working near the TRCC, including many employed at the TRCC itself.
The above-noted planned expansion of the TRCC industrial space is also expected to lead to new jobs, likely driving demand for convenient and affordable housing. In addition, the nearby Hard Rock Hotel and Casino Tejon complex underway is another factor likely to drive housing demand.
TRC has another opportunity to strengthen the executive leadership team
With the upcoming retirement of TRC’s CEO at year-end 2024, we would like to see Tejon Ranch bring in new talent that can steer the company on a path that creates sustainable value for shareholders. We viewed it positively in 2023 when Tejon Ranch appointed Brett Brown as its new CFO and see another opportunity for the company to improve the senior management team. We believe the company now has an opportunity to add a new CEO who also brings expertise and value to the executive leadership team and who also understands the benefit of greater interaction with public shareholders.
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