P.O. Box 1000
Tejon Ranch Company is a diversified, growth-oriented real estate development and agribusiness company committed to increasing shareholder value through creative development of its land holdings and maximizing its earnings.
The Tejon Ranch Company, at the southern end of California's Central Valley, is the largest and one of the oldest ranches in the state. The ranch itself is the largest contiguous parcel of land held in private hands in the state. Measuring approximately 270,000 square acres, it is one-third the area of Rhode Island and approximately the size of the city of Los Angeles. Tejon Ranch's close proximity to that city--Los Angeles is only 60 miles to the south&mdash well as its location on several key highways, including Interstate 5, make parts of its land ripe for lucrative commercial and residential development. In the latter half of the 1990s the company announced an ambitious 30-year real estate development plan, which includes land planning, real estate development, commercial sales and leasing, and income portfolio management. Tejon Ranch's other activities are those in which it has engaged for most of its existence: livestock, farming and resource management. At the end of 1999, it owned about 45,000 head of cattle; its permanent crops included 1,555 acres of wine grapes, 1985 acres of almond trees, 738 acres of pistachio trees, and 295 acres of walnut trees. Tejon Ranch's resource management activities encompass oil and mineral leases, a game management program that includes recreational hunting, the provision of locations for films, and a quarter horse breeding program. Its $55.9 million in 1999 revenues were an all-time high for the company.
19th Century Origins
The Tejon (pronounced 'TAY-yohn') Ranch traces its existence back to the late 18th century. Europeans first set foot on the land when the Spanish soldiers crossed the Tehachapi Mountains hunting for deserters. The name 'Tejon'--Spanish for 'badger'--was first reportedly used when troops found a dead badger in the entrance to a canyon in the area. In 1843 the Mexican government made grants for the land that became three ranches: Rancho los Alamos y Agua Caliente (Cottonwoods and Hot Water Ranch); Rancho el Tejon (Badger Ranch), Rancho de Castec (Eye Ranch). A fourth tract, Rancho la Liebre (Rabbit Ranch), was granted in 1846. Those four ranches would later be joined together to form the Tejon Ranch.
The Mexican-American War broke out during this time, and in 1848, following Mexico's defeat, the Treaty of Guadalupe Hidalgo gave California its independence; in 1850 it was admitted as the 31st state of the union. Despite pressure from eastern settlers to break up for homesteading some of the enormous spreads of lands granted earlier by Mexico, the U.S. government chose to respect the validity of those grants. As a consequence, tracts of California land that frequently measured 100,000 or more acres--like Tejon Ranch--were held by a few private owners.
Between 1855 and 1866, the four Tejon ranches were acquired by Edward Fitzgerald Beale. Beale was a colorful figure in California history: the naval officer who first announced the discovery of gold in California in 1848, the Superintendent of Indian Affairs in California and Nevada from 1852 to 1854, who established the first Indian reservation in the United States, and eventually, in 1876, the ambassador to the Austro-Hungarian Empire. Finally, in 1880, he retired to the Tejon Ranch and began raising cattle. Author/journalist Charles Nordhoff, who visited the ranch around that time, described it as the most impressive in all California.
When Beale died in the spring of 1893, the ranch passed into the hands of his son, Truxtun. The Beale family sold the Tejon Ranch in 1912 for about $3 million to a 70-member group of Southern California investors led by Los Angeles Times owner Harry Chandler and Moses Sherman, a wealthy Southern California land developer. Those investors and their heirs would retain control of Tejon Ranch until the late 1990s. The rights to the Ranch's 'Cross & Crescent' brand, which later served as the company's logo, were officially transferred to the new owners in 1917, five years after the purchase.
The new owners secured the necessary water entitlements and gave the spread over to cattle ranching and farming. Occasionally, more adventurous projects were undertaken, such as an attempt early on to raise ostriches. The venture proved more difficult than anticipated, however, and when the craze for ostrich plumes proved to be short-lived, the idea was given up.
1930s-70s: Weathering Economic Downturns
On February 14, 1936 the Tejon Ranch Co. was incorporated as a California corporation, and 108,000 shares of stock were issued. That same year, oil was discovered on the ranch. That discovery enabled Tejon Ranch to weather difficult financial years in the 1940s and 1950s. Without those revenues, according to Jack Hunt, Tejon's president in the mid-1990s, Tejon would probably not have survived those years in its present form. (Tejon oil took on added significance after the Gulf War, and by 1993 the company had leased more than 9,000 acres to ARCO.) Tejon also leased land for mineral and rock extraction during this time.
In 1967 one of the company's lessees completed a state-of-the-art cement manufacturing plant with a capacity of 600,000 tons of cement per annum. The facility would be the source of significant royalties for Tejon and, in the 1980s, a source of a headache or two.
In the early 1970s, Tejon established a series of subsidiaries: Tejon Development Corp. and Tejon Agricultural Corp. were both founded in 1972, while Tejon Ranch Feedlot, Inc. was established the following year. In 1974 it added another subsidiary when for $1.27 million the company purchased Waterman-Loomis Co., a producer of alfalfa seed in Bakersfield, California. Tejon Ranch was first listed on the American Stock Exchange in 1973. In 1980, the company attempted to reincorporate under Delaware's jurisdiction but gave up the plan when it encountered difficulties registering a new stock offering related to the change with the Securities and Exchange Commission. Tejon was not able to reincorporate in Delaware until June 10, 1987, replacing the original California corporation.
Hard economic times--the result of overproduction, low prices and debt--overtook California farming, in particular the large agricultural companies, in 1985. To see its way through the crisis, Tejon Ranch underwent restructuring, buying out its limited partners. Using an option in its partnership agreement, Tejon was able to obtain interests from them, for which they had originally paid $18 million. As a result, John Hancock Mutual Life Insurance Co., one of Tejon's big lenders, put a moratorium on Tejon's outstanding debts. 'It let us continue to operate,' Cal Walters, the company's president at the time, told the San Diego Union-Tribune, adding 'If we hadn't [restructured], that option would not have been available to us.'
Despite the downturn in California agriculture, the stock of Tejon Ranch Co. went on a price rampage, increasing in value so much during 1985 and early 1986 that twice the American Stock Exchange froze trading in the company's shares. Tejon's price rose more than 25 points in less than a week in March 1985 and more than 38 points in a week in October. Stock which had sold for just under $100 per share in January 1985 was going for over $245 per share in December, and in January 1986 it would jump another 32 points. The speculation was fueled by the belief that Tejon was about to undertake the major commercial development of part of its vast land holdings.
New Uses for Old Land in the 1980s
As early as 1980 Tejon had announced its intention to begin developing its land at some indefinite point in the future, and the land's strategic location between Los Angeles, Bakersfield, and Edwards Air Force base made such development extremely lucrative. By February 1985, Tejon stock had jumped to $400 a share at which point the American Stock Exchange froze trading once again. Analysts explained that the stock's volatile behavior was rooted in its 'thin float'; more than 50 percent of the company's stock was held by the Times-Mirror Company, and other institutional investors. As a result, fewer than 630,000 shares were available for trading. To ease that shortage, in early February 1986, Tejon's directors approved a ten-for-one split of company stock.
Despite the split, market speculation in Tejon stock continued unabated into 1988. In response to another halt in trading by the Exchange, the company's president Jack Hunt announced that the company was considering the sale of a 'significant' part of Tejon's business. Two weeks later, it confirmed that it had sold its subsidiary, W-R Research Inc., for $20 million. W-R Research developed new varieties of alfalfa seed. By May 1990, the Los Angeles Times could report that Tejon was one of the best performing companies on Wall Street, with a 34.4 percent price to sales ratio nearly ten points higher than any other California company and a market value almost two hundred times higher than its book value.
When the California real estate market took a downturn in 1990, and the development of Tejon's land was no longer such a profitable prospect, the stock suffered. The company was in the fourth year of a serious drought which forced it that year to reduce its cattle herd from 14,000 to 6,000 head. By the time the 1991 season rolled around, Tejon's agricultural operations had been severely impacted as well, and it appeared that because of state cutbacks in water supplies, the company would not have access to sufficient water to produce full crops, a likelihood that signaled significant losses in revenues. Indeed, in August 1991, Tejon reported its second quarter profits had dropped 65 percent from the previous year; in November 1991 it reported an 87 percent decline in profits from 1990.
In October 1991, the artist Christo, who gained international renown by literally wrapping public edifices such as the Pont Neuf in Paris and later the Reichstag in Berlin, used Tejon Ranch lands for an art installation entitled 'The Umbrellas.' As part of the project, which had been in planning stages since 1987, Christo erected on the land 1,760 large, bright yellow umbrellas, each weighing some 448 pounds, along a 19 mile stretch of rugged hillsides. They were exhibited there for three weeks. Tejon agreed to allow its land to be used for 'The Umbrellas' after being assured by Christo--and sponsors of his earlier work--that the work or its preparations would not damage the ecology of the ranch. 'Our questions had been only with his methods, not his art,' a Tejon Ranch lawyer told the Christian Science Monitor, noting, 'Since then we have become his fans.' Another set of umbrellas, set up in the hills north of Tokyo Japan, were opened at the same time as those on Tejon Ranch. The entire cost of the project, estimated at over $26 million, was borne by the artist. Christo's work gave Tejon Ranch, a company known to few in California, much less the rest of the country, a higher media profile.
In the early 1990s, Tejon Ranch became embroiled in a controversy surrounding the presence of the cement factory that long leased ranch land. The National Cement Co. plant was licensed to burn hazardous liquid waste, which it did as part of its cement production process. In 1991, after the plant's federal and state operating permits expired, area residents mounted a protest to block new ones from being issued. Independently of the protest, Tejon refused to co-sign National's application for new permits. Because it could not vouch for the accuracy of National's claims on its permit applications, Tejon would not share responsibility for the cement company's actions. Federal law required the owner of the land on which such a site operated to co-sign for all permits, and as a result, the Environmental Protection Agency (EPA) refused to issue them. State officials then attempted to persuade the EPA to reconsider its ruling, because National was the only facility in California licensed to incinerate hazardous liquid waste. Without it the state would be forced to dispose of such waste in scarce landfills. To extricate itself from the controversy, Tejon considered taking the unprecedented step of selling the land outright to National Cement. In August 1994, a federal judge granted National Cement permission to continue burning hazardous waste in its manufacturing processes while the EPA order to cease burning was appealed. The fight dragged for years thereafter in the courts.
In 1995 Tejon suffered again at the hands of the unpredictable weather brought on by global warming. Sustained winds, blowing in excess of 100 miles an hour toppled some 200 acres of Tejon almond orchards. The loss amounted to about 23 percent of the company's producing almond trees, which accounted for three percent of Tejon's total revenues in 1994. As a result of the storms, Tejon's net income for 1995 was $1.28 million lower than the previous year.
Development Plans in the 1990s
The most important development of the 1990s for Tejon Ranch, by far, was its decision after years of consideration to plunge headfirst into commercial development of its land. The momentous step had been rumored for years, rumors fueled by the company's own public statements. In October 1980, Tejon had announced plans for a community consisting of houses and condominiums, together with a retirement village, but did not offer a timetable for the plan. That remained the case in 1990, when other developers were eyeing land around the ranch. Whether the fault lay with its management team or its corporate owners was unclear; whatever the case, its touch-and-go attitude toward land development won Tejon Ranch a reputation as an extremely cautious company.
In 1992 Tejon seemed to confirm this view of itself when company president Jack Hunt told the San Francisco Chronicle: 'We are managing the asset for the long haul only. The fact that such a big ranch so close to L.A. still exists is a miracle. ... That's largely because the [ownership] group does not depend on the ranch to survive. They have a big sense of stewardship, and they don't have to pull value out of the ranch.' In 1993 real estate analysts believed that between the faltering Southern California real estate market and Tejon's indecision, decades would pass before anything was built on the company's land.
By 1997, however, a great deal had changed back at the ranch. In March 1995, Jack Hunt, Tejon's president and CEO of nine years, resigned to take over King Ranch in Texas. He was replaced a year later by Robert A. Stine, a San Diego real estate developer, who was given the go-ahead to move Tejon Ranch Co. aggressively toward development. Stine immediately replaced more than half of the company's directors with individuals with backgrounds in land development. In July 1997, the Times-Mirror Company, a publishing company which held the largest single block of Tejon stock--31 percent--sold its four million shares to Third Avenue Trust and Carl Marks Management Co. Barron's later reported that the selling price was $13.50 a share, well below the stock's current market price.
At the end of 1997, Tejon made public the first of its plans for developing its property. The first project was called the Tejon Industrial Complex, which was to cover an 350 acre area along its Interstate 5 frontage, the main traffic corridor between Los Angeles and San Francisco. Later plans included the development of a tourist attraction along the highway and a city built for a population of 20,000. The complex would consist of industrial buildings, warehouses, and other commercial structures to service the 50,000 motor vehicles that traveled daily through the Tejon Pass on I-5. Tejon entered a joint venture with Petro Shopping Centers, a company that built and operated highway travel plazas throughout the United States. The Petro Travel Plaza, a 51-acre development at the Tejon Industrial Complex, was the first development project in Tejon's Five Year Plan. Completed in 1999 at a cost of about $25 million, the Petro Travel Plaza was one of the largest in California, consisting of a movie theater and laundry for truckers, showers, a hairstyling salon, ice cream parlor, mercantile store, Internet-access area, and a shoe shine stand, in addition to the obligatory gas station and convenience mart.
Perhaps nothing illustrated Tejon's new direction so well as its sale to Northrop Grumman Corp. for $4.25 million of a site it had leased to the aircraft giant for nearly 20 years. The company's inviolable policy in previous years had been that it would not sell ranch land. With the Northrop-Grumann sale in the summer of 1998, the new management explicitly separated itself from that old policy and showed itself willing to chisel off pieces of Tejon's California empire.
Tejon's plans to move aggressively into real estate led the company to move its stock off the American Stock Exchange. Beginning July 28, 1999, it was traded on the New York Stock Exchange. The changeover was taken to give the company better access to the nation's capital markets, to ease some of the volatile fluctuation in price that the stock had experienced on the American Stock Exchange, and because most publicly traded real estate developers list on the New York Stock Exchange.
Tejon's results for 1999 seemed to confirm the wisdom of the company's new direction. Its $55.9 million in revenues were a record high, up from $48 million in 1998. 1999 was also the third year of increasing revenues--the three years Stine was at the helm. It was also the culmination of a year that saw not only the opening of the Petro Travel Plaza but also the beginning of a partnership with three national home building companies to build a 4,000-acre residential community in north Los Angeles county; a letter of agreement with Enron North America to develop a major power plant on Tejon Ranch to serve the new real estate developments; and a deal with Qwest Communications to route that company's fiber optic network through Tejon Ranch.
Principal Subsidiaries: Tejon Ranchcorp and its subsidiaries Laval Farms Corporation and Laval Agricultural Company; Tejon Marketing Company; Tejon Ranch Feedlot, Inc.; White Wolf Corporation; Tejon Development Corporation; Tejon Industrial Corporation; Champion Feedlot Trading Corp.; Liebre East Texas, Inc.; Tejon Almond Growers, LLC; Pastoria Power Project LLC; Eastquads 3820 LLC; Eastquads 3826 LLC; Eastquads 3832 LLC; RSF 6051 LLC; Tejon Cattle Feeders LLC.
Principal Competitors: Bartlett and Company; King Ranch, Inc.; Koch Industries, Inc.