By M. Marin
NYSE:TRC
READ THE FULL TRC RESEARCH REPORT
Potential upcoming catalysts include Terra Vista development…
Tejon Ranch Company (NYSE:TRC) has indicated that as it continues to pursue development and leasing opportunities within the TRCC and its JVs, it concurrently will continue to invest in its residential projects, including Mountain Village at Tejon Ranch, Centennial at Tejon Ranch and Grapevine at Tejon Ranch. We expect multiple potential upcoming catalysts for fundamentals and, in turn, potentially TRC shares. Among other potential catalysts, these include:
…First Terra Vista units at Tejon expected to be ready next month…
TRC is developing a multi-family residential complex, adjacent to the Outlets at Tejon that is expected to provide housing for people living nearby the TRCC, including many employed at the TRCC. According to local trade publications, the first 84 units of the initial stage of Terra Vista are expected to be ready for residency beginning in April 2025. Stage one consists of the 84 units, plus a pool, playground, dog park, and green and community spaces. Units range from a studio, to one bedroom, up to a two bedroom, with monthly rentals from $1,704 up to $2,200. The company targets completion of Phase 1 by September 2025.
California has some of the highest rental rates nationwide. 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. Management believes that its development plans fulfill important needs, including addressing the need for more housing in California, job creation and responsible development that is coordinated with conservationist goals. The planned expansion of the TRCC industrial space is also expected to lead to new jobs and, in turn, likely to drive demand for convenient and affordable housing.
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 also expected to value the convenience and affordability of Terra Vista at Tejon housing. Upon completion, Terra Vista at Tejon is expected to be the largest rental community in Kern County. Terra Vista at Tejon is expected to provide housing for people working near the TRCC, including many employed at the TRCC itself. TRCC comprises 6.4 million square feet of GLA (gross leasable area. The planned apartment development will help provide much-needed housing. As they expand, the Outlets at Tejon and the industrial space are also expected to lead to new jobs, likely driving demand for convenient and affordable housing.
Terra Vista at Tejon is expected to include a range of amenities, in addition to its proximity to nearby roadways and to the TRCC. While there is no immediately adjacent supermarket shopping currently, TRC has indicated plans to open a grocery store by the time Terra Vista Phase 1 opens. In addition, planned amenities will include a clubhouse with a pool, spa and fitness facilities, outdoor areas for entertaining and playing, a large park area connected to the Outlets at Tejon that will host community gatherings and events, among others. The apartment homes will also feature fiber optic connectivity for high-speed internet and streaming services. The first units are expected to become available in 2Q25.
Severe statewide shortage of residential property…
On the residential front, there is a severe statewide shortage of residential property. For example, in 2019, a report from the California Housing Partnership estimated that Kern County needed an additional 26,200+ affordable rental units to meet its housing shortage. In fact, development has lagged compared to many other areas within the state, with the slow pace of development exacerbating the housing shortage problem, particularly affordable housing.
Opening of nearby Hard Rock Casino likely further drives demand for affordable housing
Demand for housing is expected to increase with the opening of the nearby Hard Rock Hotel & Casino Tejon. That project is expected to create about 5,000 jobs and casino employees will need to find convenient and affordable housing.
In general, the proximity of TRC land holdings to LA, as well as to Bakersfield, is a significant positive, in our view, for residential, commercial / industrial development. The substantial need for industrial, warehouse and residential space in the markets near TRC’s land assets underscores the attractiveness of TRC’s property, in our view, and that the location of the company’s land asset also makes it appealing as solutions to a broad range of real estate needs. TRCC is located in Kern County, which is experiencing a severe shortage of housing like much of the state, including of apartment units, and of logistics space.
And high statewide need for more industrial space, with TRC proximity to LA viewed as a key positive
Industrial vacancy rates are as low as 0.5% in the Los Angeles region, according to Courthouse News, which puts upward pressure on lease rates for warehouse space. In turn, this results in warehouse lease rates in LA county among the highest for metropolitan areas in North America. Given the state’s restrictive regulations around land development, it is easier to redevelop land that is already zoned for industrial use into warehouse space when existing leases expire than to convert retail space to industrial warehouses, as the latter is more likely to face challenges from municipalities.
Incoming new CEO could be another catalyst
Separately, the appointment of Matthew Walker as its next president and CEO, effective March 31, 2025, when the outgoing CEO retires is another potential catalyst. Mr. Walker has extensive prior experience in the real estate space, having spent 24 years at Los Angeles-based private real estate firm Lowe Enterprises, where he is currently an Executive Vice President and shareholder. According to TRC, he oversees Lowe’s hospitality and resort community platform. His prior real estate experience also includes resort and residential development, residential sales and marketing, master planned community entitlement and development, as well as resort value add investment and expansion. Prior to Lowe, he held various positions at several architectural firms. We note that in his remarks announcing the new CEO, TRC’s board chairman noted the company’s aim is “to monetize [its] landholdings… and drive shareholder value,” which we view positively.
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