By M. Marin
NYSE:TRC
READ THE FULL TRC RESEARCH REPORT
Company proposed board members were approved, but by dwindling % of shareholders …
Tejon Ranch Company (NYSE:TRC) held its annual meeting of shareholders on May 14, 2024. The company proposed the reelection of eight directors and the approval of named executive officer compensation, among other proposals.
While TRC shareholders elected all directors proposed by the company, we believe the way the vote played out illustrates interesting changes in the view of a growing percentage of the shareholder body. As we indicated in a recent report, in advance of the meeting, one large shareholder, Nitor Capital Management (holds 1.75% of TRC shares), had issued a letter to Tejon Ranch stockholders announcing its intention to withhold support for four directors at the 2024 Annual Meeting.
According to the letter, Nitor Capital had planned to withhold support for:
➢ Compensation Committee Chairman Steven A. Betts
➢ Chairman of the Board Norman J. Metcalfe
➢ Real Estate Committee Chair Geoffrey L. Stack
➢ Nominating Committee Chair Michael H. Winer
➢ and to vote against approval of executive officer compensation
Significant shift in vote from 2023-24 likely illustrates growing issues with how company is managed
The 2023 and 2024 vote results for each director nominated by Tejon Ranch are presented below.
The percentage of votes withheld for the nominees that Nitor highlighted increased dramatically compared to the percentage of votes that abstained in 2023. For example, in 2023, some 6% of votes abstained from endorsing Steven Betts, the chairman of TRC’s Compensation Committee. By comparison, at the 2024 annual shareholder meeting, 32% – or roughly a third – of votes were withheld for his reappointment as a director. Similarly, shareholders representing 8% of votes abstained from endorsing Norman Metcalfe in 2023 and by 2024, that percentage had increased to 28%. The percentages increased by varying amounts for all of the eight directors that TRC had nominated.
We believe this indicates rising investor sentiment that change is needed within the company’s top management members. We also believe this has important implications for the search for a new CEO to replace the company’s outgoing CEO, Gregory Bielli. On March 20, 2024, Mr. Gregory Bielli announced his intention to retire as TRC CEO on December 31, 2024.
We believe TRC now has an opportunity now to strengthen its management team and improve its interaction with public shareholders and can use the upcoming retirement of the CEO, in our view, to make important positive changes. We believe the way the 2024 vote played out shows that a sufficient number of shareholders align with Nitor Capital in withholding support for the named directors and also in not endorsing the company’s compensation structure.
With the percentage of votes either abstaining or voting against approving named executive officer compensation from 9% in 2023 to a sizable 39% in 2024, shareholders have sent a clear message to the company, in our view. Following the shareholder vote, Nitor Capital issued another letter to shareholders commending fellow stockholders for “taking an important first step to hold the Board accountable…” Nitor also indicated that Glass Lewis, a well-known independent proxy advisory firm, had recommended that TRC shareholders vote against TRC’s say-on-pay proposal.
TRC has another opportunity to strengthen the executive leadership team
We believe these results could positively impact the CEO search. Trading volume in TRC shares has increased substantially over the last several days. This might possibly indicate the entrance of new potentially more active shareholders, we believe. As noted, TRC has until year-end 2024 to find a new CEO, although Gregory Bielli is expected to serve as a senior advisor to the company through 2025 to help enact a smooth transition. Many of the executives by Nitor have been placed on the search committee seeking a replacement for the CEO.
With the upcoming retirement of Mr. Bielli at year-end, Tejon Ranch could use the opportunity to bring in new talent that can steer the company on a path that creates sustainable value for shareholders. We viewed it positively when on May 5, 2023, Tejon Ranch appointed Brett Brown as its new CFO and see another opportunity for the company to improve the senior management team. Prior to joining TRC, Mr. Brown most recently was EVP, CFO and Treasurer at publicly traded Alexander & Baldwin in Hawaii. He has extensive real estate finance experience, with more than 30 years in public and private real estate companies, including REITS. We believe the company added value to its management team with his appointment and now has an opportunity to add a new CEO who also brings expertise and value to the executive leadership team.
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