TEJON RANCH CO

Previous wording

Our primary business objective is to maximize long-term shareholder value through the improvement and monetization of our land-based assets. A key element of our strategy is to entitle and then develop large-scale mixed-use master planned residential and commercial/industrial real estate development projects to serve the growing populations of Southern and Central California. Our mixed-use master planned residential developments include up to 35,278 housing units, and more than 35 million square feet of commercial space. We have obtained entitlements on MV and the first approved final map for the project consisting of 401 residential lots and parcels for hospitality, amenities, and public uses. Grapevine at Tejon Ranch, or Grapevine, has approved entitlements for 12,000 units and 5 million square feet of commercial development. Centennial at Tejon Ranch, or Centennial, had entitlements approved in 2019 by the Los Angeles County Board of Supervisors. These approvals were litigated in two lawsuits filed in Los Angeles County Superior Court in May 2019 and we have since worked on defending and addressing the ongoing litigation, including considering all options to address the Superior Court’s January 2022 decision and the Superior Court’s March 22, 2023 final judgment. On May 26, 2023, we filed a Notice of Appeal, thereby appealing the Superior Court’s decision to the Second District of the California Court of Appeal. On June 27, 2023, CBD/CNPS cross-appealed the Superior Court’s ruling. During the appeals process the Superior Court’s order of the rescission of project approvals has been placed on hold. See Note 11 (Commitments and Contingencies) of the Notes to Unaudited Consolidated Financial Statements for additional information regarding the Centennial litigation.

Current wording

Our mixed-use master planned residential developments include up to 35,278 housing units, and more than 35 million square feet of commercial space. We have obtained entitlements on MV and prevailed in litigation in 2012, and received the first approved final map for the project consisting of 401 residential lots and parcels for hospitality, amenities, and public uses. Grapevine at Tejon Ranch, or Grapevine, was reapproved unanimously by the Kern County Board of Supervisors in 2019 and prevailed in litigation in 2021. Centennial at Tejon Ranch, or Centennial, had entitlements approved in 2019 by the Los Angeles County Board of Supervisors. These approvals were litigated in two lawsuits filed in Los Angeles County Superior Court in May 2019 and we have since worked on defending and addressing the ongoing litigation, including considering all options to address the Superior Court’s January 2022 decision and the Superior Court’s March 22, 2023 final judgment. On May 26, 2023, we filed a Notice of Appeal, thereby appealing the Superior Court’s decision to the Second District of the California Court of Appeal. On June 27, 2023, CBD/CNPS cross-appealed the Superior Court’s ruling. Briefing at the Court of Appeal is complete and the Company is awaiting a hearing date. During the appeals process the Superior Court’s order of the rescission of project approvals has been placed on hold. See Note 11 (Commitments and Contingencies) of the Notes to Unaudited Consolidated Financial Statements for additional information regarding the Centennial litigation.

Previous wording

We are currently executing on value creation as we are engaged in construction, commercial sales, and leasing at our fully operational commercial/industrial center, TRCC. During the first quarter of 2024, we began construction of the first phase of a multi-family community, Terra Vista at Tejon, within TRCC. The development is located on a 22-acre site located immediately north of the Outlets at Tejon. In this first phase, we are developing 228 units of multi-family residences, in seven apartment buildings, as well as a clubhouse with pool and fitness facilities. The Conditional Use Permit approved by Kern County Board of Supervisors authorized up to a maximum of 495 multi-family residences to be constructed. Our goal is to deliver the first phase on budget and on time, and we are currently meeting both objectives. All of these efforts are supported by diverse revenue streams generated from other operations, including: farming, mineral resources, ranch operations, and our various joint ventures.

Current wording

We are currently executing on value creation as we are engaged in construction, commercial sales, and leasing at our fully operational mixed-use development, TRCC. During the first quarter of 2024, we began construction of the first phase of a multi-family community, Terra Vista at Tejon, within TRCC. The development is located on a 22-acre site located immediately north of the Outlets at Tejon. In this first phase, we are developing 228 units of multi-family residences, in seven apartment buildings, as well as a clubhouse with pool and fitness facilities. The Conditional Use Permit approved by Kern County Board of Supervisors authorized up to a maximum of 495 multi-family residences to be constructed. Our goal is to deliver the first phase on budget and on time, and we are currently meeting both objectives. All of these efforts are supported by diverse revenue streams generated from other operations, including: farming, mineral resources, ranch operations, and our various joint ventures.

Previous wording

At the heart of the commercial/industrial real estate development segment is TRCC, a 20 million square foot commercial/industrial development on Interstate 5 just north of the Los Angeles basin. Over eight million square feet of industrial, commercial and retail space has already been developed or is under development, including distribution centers for IKEA, Caterpillar, Nestlé, Famous Footwear, L'Oreal, Camping World, Sunrise Brands, Dollar General and RectorSeal. TRCC sits on both sides of Interstate 5, giving distributors immediate access to the west coast’s principal north-south goods movement corridor.

Current wording

At the heart of the commercial/industrial real estate development segment is TRCC, a 20 million square foot mixed-use development on Interstate 5 just north of the Los Angeles basin. Over eight million square feet of industrial, commercial and retail space has already been developed or is under development, including distribution centers for IKEA, Caterpillar, Nestlé, Famous Footwear, L'Oreal, Camping World, Sunrise Brands, Dollar General and RectorSeal. TRCC sits on both sides of Interstate 5, giving distributors immediate access to the west coast’s principal north-south goods movement corridor.

Previous wording

During the six months ended June 30, 2024, our critical accounting policies have not changed since the filing of our Annual Report on Form 10-K for the year ended December 31, 2023. Please refer to that filing for a description of our critical accounting policies. Please also refer to Note 1 (Basis of Presentation) in the Notes to Unaudited Consolidated Financial Statements in this report for newly adopted accounting principles.

Current wording

During the nine months ended September 30, 2024, our critical accounting policies have not changed since the filing of our Annual Report on Form 10-K for the year ended December 31, 2023. Please refer to that filing for a description of our critical accounting policies. Please also refer to Note 1 (Basis of Presentation) in the Notes to Unaudited Consolidated Financial Statements in this report for a discussion regarding newly adopted accounting principles.

Previous wording

A potential disadvantage to our development strategy is our distance from the ports of Los Angeles and Long Beach in comparison to the warehouse/distribution centers located in the Inland Empire, a large industrial area located east of Los Angeles, which continues its expansion eastward beyond Riverside and San Bernardino, to include Perris, Moreno Valley, and Beaumont. As development in the Inland Empire continues to move east and farther away from the ports, the potential disadvantage of our distance from the ports is being mitigated. Demand for large distribution facilities is continuing to drive development farther east in a search for large, entitled parcels.

Current wording

A potential disadvantage to our development strategy is our distance from the ports of Los Angeles and Long Beach in comparison to the warehouse/distribution centers located in the Inland Empire, a large industrial area located east of Los Angeles, which continues its expansion eastward beyond Riverside and San Bernardino, to include Perris, Moreno Valley, and Beaumont. As development in the Inland Empire continues to move east and farther away from the ports, the potential disadvantage of our distance from the ports is being mitigated.

Previous wording

During the quarter ended June 30, 2024, vacancy rates in the Inland Empire continued to climb but at a much slower pace to 6.6%, while leasing activity posted a 24-month high of 11.4 million square feet and net absorption returned to positive territory at 6.5 million square feet. Average asking rents declined for the fourth consecutive quarter. The San Fernando Valley and Ventura County industrial markets continue to experience tight conditions. Vacancy increased marginally to 1.5% in San Fernando Valley and rose by 10 basis points to 2.2% in Ventura County, while overall net absorption was negative in both markets. Average asking rent saw a slight quarter-over-quarter decline in the San Fernando Valley, dropping by $0.05 to $1.68, and by $0.01 in Ventura County to $1.26. See below for the vacancy rates and average asking rent of Inland Empire, San Fernando Valley and Ventura County.

Current wording

During the quarter ended September 30, 2024, vacancy rates in the Inland Empire continued to climb but at a much slower pace to 6.7% as the construction pipeline posted its lowest quarterly total in eight years. Average asking rents declined for the fifth consecutive quarter. The San Fernando Valley and Ventura County industrial markets continue to experience tight conditions, with historically low vacancy and availability rates. Vacancy increased marginally to 1.9% in San Fernando Valley and remained unchanged at 2.2% in Ventura County, while overall net absorption was negative in both markets. Average asking rent experienced a slight quarter-over-quarter decline in the San Fernando Valley, dropping by $0.06 to $1.62, and by $0.09 in Ventura County to $1.17. See below for the vacancy rates and average asking rent of Inland Empire, San Fernando Valley and Ventura County.

Previous wording

Resort/residential real estate development segment expenses were $1,988,000 for the first six months of 2024, an increase of $1,276,000, or 179%, from $712,000 for the first six months of 2023. The increase was primarily attributable to an additional $1,197,000 of professional service fees and planning costs related to capital efforts tied to our master planned communities.

Current wording

Resort/residential real estate development segment expenses were $2,316,000 for the first nine months of 2024, an increase of $1,237,000, or 115%, from $1,079,000 for the first nine months of 2023. The increase was primarily attributable to an additional $1,250,000 of professional service fees and planning costs related to capital efforts tied to our master planned communities.

Previous wording

•Mineral resources segment expenses were $1,115,000 for the three months ended June 30, 2024, an increase of $190,000, or 21%, from $925,000 for the three months ended June 30, 2023. The increase was primarily associated with higher water cost of sales of $231,000 recognized during the quarter.

Current wording

•Mineral resources segment expenses were $1,812,000 for the three months ended September 30, 2024, a decrease of $188,000, or 9%, from $2,000,000 for the three months ended September 30, 2023. The decrease was primarily associated with lower property tax expense of $495,000, partially offset by higher water cost of sales of $297,000 recognized during the quarter.

Previous wording

•Mineral resources segment revenues were $4,521,000 for the first six months of 2024, a decrease of $3,991,000, or 47%, from $8,512,000 for the first six months of 2023. The reduction in revenues was primarily attributable to a decline in water sales revenue of $3,439,000 due to back-to-back above average rainfall years in California, which severely limited water sales opportunities. Reimbursable revenues also decreased $767,000 due to a mineral resources tax reassessment for this segment.

Current wording

•Mineral resources segment revenues were $7,687,000 for the first nine months of 2024, a decrease of $3,943,000, or 34%, from $11,630,000 for the first nine months of 2023. The reduction in revenues was primarily attributable to a decline in water sales revenue of $3,355,000 due to back-to-back above average rainfall years in California, which severely limited water sales opportunities. Reimbursable revenues also decreased $766,000 due to a mineral resources tax reassessment for this segment.

Previous wording

•Mineral resources segment expenses were $3,231,000 for the first six months of 2024, a decrease of $1,760,000, or 35%, when compared to the same period in 2023. The decrease was primarily due to lower water cost of sales recognized of $1,394,000, and a decrease in property tax expense of $488,000 when compared to the previous year.

Current wording

•Mineral resources segment expenses were $5,043,000 for the first nine months of 2024, a decrease of $1,948,000, or 28%, when compared to the same period in 2023. The decrease was primarily due to lower water cost of sales recognized of $1,097,000, and a decrease in property tax expense of $738,000 when compared to the previous period.

Previous wording

•Farming segment revenues were $1,007,000 for the first six months of 2024, a decrease of $1,203,000, or 54%, from $2,210,000 during the same period in 2023. Almond sales revenue fell by $832,000 due to lower units sold in the current year. The Company sold 381,000 and 914,000 pounds of almonds during the first six months ended June 30, 2024 and 2023, respectively. Other revenues decreased by $227,000 which was attributable to less farm water sold. Additionally, hay sales revenue decreased by $109,000 due to lower sales volume.

Current wording

•Farming segment revenues were $4,249,000 for the first nine months of 2024, a decrease of $603,000, or 12%, from $4,852,000 during the same period in 2023. The decrease was primarily due to a decrease in wine grapes sales revenue of $620,000 due to lower units sold in the current year. Additionally, hay sales revenue decreased by $124,000, or 65%, due to lower crop sales volume.

Previous wording

Weather conditions can also impact the number of tree and vine dormant hours, which are integral to tree and vine growth. Farmers in California faced a warm winter negatively impacting dormant hours, which can impact production especially within pistachios. Late winter and early spring rainstorms impacted the timing of various farming activities such as pesticide sprays, any impact to production will not be known until later in the summer. In addition, higher cultural costs and a reduced bloom cycle with highly compromised bee flight hours created more adversity for farmers. The abundant rain and snow have vastly improved the water situation this year for farmers, while shipping logistics continue to improve.

Current wording

Weather conditions can also impact the number of tree and vine dormant hours, which are integral to tree and vine growth. Farmers in California faced a warm winter negatively impacting dormant hours primarily related to pistachios, which can impact production within pistachios. In addition, late spring rains negatively impacted 2024 grape production as the rains occurred during the grape bloom. The timing of the rains also increased cultural costs within grapes to fight higher levels of mildew in the vineyards.

Previous wording

Labor costs, both internal and through labor contractors, continue to increase and the Company expects this trend to continue over the near future. The Company utilizes external labor contractors, as necessary, for large projects, such as pruning and harvesting, as a way to manage our labor needs. From a broader inflationary standpoint, the Company is seeing, and will continue to see, an increase in production costs, most notably chemicals such as herbicides and pesticides, and fuel costs.

Current wording

Labor costs, both internal and through labor contractors, continue to increase and the Company expects this trend to continue over the near future. The Company utilizes external labor contractors, as necessary, for large projects, such as pruning and harvesting, as a way to manage our labor needs. From a broader inflationary standpoint, the Company continues to expect an increase in production costs, most notably chemicals such as herbicides and pesticides, and fuel costs.

Previous wording

•Ranch operations revenues were $965,000 for the three months ended June 30, 2024, an increase of $125,000, or 15%, from $840,000 for the same period in 2023. The increase was attributable to higher grazing lease revenues of $80,000 and an increase in game management and other revenue of $45,000 primarily related to higher membership revenue and filming location revenues.

Current wording

•Ranch operations revenues were $1,446,000 for the three months ended September 30, 2024, an increase of $394,000, or 37%, from $1,052,000 for the same period in 2023. The increase was attributable to an increase in grazing lease revenues of $262,000 and an increase in game management and other revenue of $132,000, primarily related to higher filming location revenues.

Previous wording

•Ranch operations revenues were $2,072,000 for the first six months of 2024, a decrease of $260,000, or 11%, from $2,332,000 for the same period in 2023. The decrease was primarily attributable to lower filming location revenues of $488,000, partially offset by an increase in grazing lease revenue of $160,000.

Current wording

•Ranch operations revenues were $3,518,000 for the first nine months of 2024, an increase of $134,000, or 4%, from $3,384,000 for the same period in 2023. The increase was primarily attributable to an increase in grazing lease revenue of $422,000, partially offset by a decrease in revenue recognized for game management due to lower filming location revenues.

Previous wording

•Ranch operations expenses were $2,488,000 for the first six months of 2024, a decrease of $180,000, or 7%, from $2,668,000 for the same period in 2023. This decrease was primarily attributable to the savings in payroll and compensation expense of $145,000.

Current wording

•Ranch operations expenses were $3,711,000 for the first nine months of 2024, a decrease of $153,000, or 4%, from $3,864,000 for the same period in 2023. This decrease was primarily attributable to a decrease in payroll and compensation expense of $156,000.

Previous wording

Corporate general and administrative costs were $3,357,000 for the three months ended June 30, 2024, an increase of $1,135,000, or 51%, from $2,222,000 for the same period in 2023. The increase was primarily attributable to higher stock compensation expense of $1,009,000 over the comparative period.

Current wording

Corporate general and administrative costs were $2,945,000 for the three months ended September 30, 2024, an increase of $630,000, or 27%, from $2,315,000 for the same period in 2023. The increase was primarily attributable to higher stock compensation expense of $922,000 over the comparative period, partially offset by lower bonus expense of $198,000.

Previous wording

Corporate general and administrative costs were $5,849,000 for the first six months of 2024, an increase of $1,340,000, or 30%, from $4,509,000 for the same period in 2023. We experienced a $979,000 increase in stock compensation expense and a $262,000 increase in professional service fees related to ongoing CEO search during the first six months ended June 30, 2024.

Current wording

Corporate general and administrative costs were $8,794,000 for the first nine months of 2024, an increase of $1,970,000, or 29%, from $6,824,000 for the same period in 2023. The increase was primarily due to a $1,717,000 increase in stock compensation expense during the first nine months ended September 30, 2024.

Previous wording

Total other income was $559,000 for the three months ended June 30, 2024, a decrease of $28,000 from $587,000 for the same period in 2023.

Current wording

Total other income was $459,000 for the three months ended September 30, 2024, a decrease of $211,000 from $670,000 for the same period in 2023, primarily due to lower investment income as a result of a reduction in marketable securities.

Previous wording

Total other income was $1,174,000 for the six months ended June 30, 2024, a decrease of $203,000, from $1,377,000 for the same period in 2023. The decrease was primarily attributable to the $426,000 employee retention credit received during the first quarter of 2023, which did not reoccur in 2024. Partially offsetting this decrease was an increase in investment income of $240,000 resulting from higher interest rates over the comparative periods.

Current wording

Total other income was $1,633,000 for the nine months ended September 30, 2024, a decrease of $414,000, from $2,047,000 for the same period in 2023. The decrease was primarily attributable to the $426,000 employee retention credit received during the first quarter of 2023, which did not reoccur in 2024.

Previous wording

•Equity in earnings were $4,282,000 for the six months ended June 30, 2024, an increase of $827,000, or 24%, from $3,455,000 during the same period in 2023. The biggest driver was the TRCC/Rock Outlet Center joint venture, which was over 90% occupied as of June 30, 2024. Rental revenue for this joint venture increased by $509,000 in the first six months of 2024 over the comparative period. Equity in earnings for our TRC-MRC LLC joint ventures increased due to higher rental rates or rental escalations, except for a decrease in TRC-MRC 1 LLC earnings caused by an increase of repair cost from storm damage of $225,000 over the prior year period, these costs are partially offset by insurance reimbursements of $150,000.

Current wording

•Equity in earnings were $7,611,000 for the nine months ended September 30, 2024, an increase of $2,995,000, or 65%, from $4,616,000 during the same period in 2023. The primary driver of the increase was the increase in equity in earnings recorded for Petro Travel Plaza Holdings, LLC as a result of higher fuel margins. Equity in earnings for our TRC-MRC LLC joint ventures increased due to higher rental rates or rental escalations, except for a decrease in TRC-MRC 1 LLC equity in earnings due to an increase of repair costs from storm damage over the prior year period, partially offset by related insurance reimbursements, and the new revenue stream generated by the completed industrial building of the TRC-MRC5 joint venture. Additionally, equity in loss from TRCC/Rock Outlet Center joint venture decreased by $126,000 compared to the prior period, and the Outlet Center was over 90% occupied as of September 30, 2024.

Previous wording

For the six months ended June 30, 2024, we had an income tax benefit of $2,118,000 compared to income tax expense of $1,404,000 for the six months ended June 30, 2023. The effective tax rates approximated 102% and 41% for the six months ended June 30, 2024 and 2023, respectively. As of June 30, 2024, the Company had income taxes receivable of $3,646,000. We classify interest and penalties incurred on tax payments as income tax expenses. Our effective tax rates were higher than statutory rates primarily because of permanent differences related to Section 162(m). The Section 162(m) compensation deduction limitations occurred due to changes in tax law arising from the 2017 Tax Cuts and Jobs Act.

Current wording

For the nine months ended September 30, 2024, we had an income tax benefit of $286,000 compared to income tax expense of $3,619,000 for the nine months ended September 30, 2023. The effective tax rates approximated 14% and 68% for the nine months ended September 30, 2024 and 2023, respectively. As of September 30, 2024, the Company had income taxes receivable of $1,814,000. We classify interest and penalties incurred on tax payments as income tax expenses. Our effective tax rates differ from statutory rates primarily because of permanent differences related to Internal Revenue Code Section 162(m). The Internal Revenue Code Section 162(m) compensation deduction limitations occurred due to changes in tax law arising from the 2017 Tax Cuts and Jobs Act.

Previous wording

Our cash, cash equivalents and marketable securities totaled approximately $49,565,000 as of June 30, 2024, a decrease of $14,898,000 from $64,463,000 as of December 31, 2023.

Current wording

Our cash, cash equivalents and marketable securities totaled approximately $41,261,000 as of September 30, 2024, a decrease of $23,202,000 from $64,463,000 as of December 31, 2023.

Previous wording

The following table shows our cash flow activities for the six months ended June 30,

Current wording

The following table shows our cash flow activities for the nine months ended September 30,

Previous wording

During the first six months of 2023, our operations provided $1,169,000 primarily as a result of distributions of earnings from unconsolidated joint ventures and net income from operations.

Current wording

During the first nine months of 2023, our operations provided $14,750,000 primarily as a result of distributions of earnings from unconsolidated joint ventures.

Previous wording

During the first six months of 2024, investing activities used $1,643,000. We made capital expenditures, inclusive of capitalized interest and payroll (exclusive of stock compensation), of $22,077,000, which included predevelopment activities for our master planned communities, $1,256,000 consisting of permitting efforts for MV, $696,000 consisting of permitting efforts for Grapevine, and costs related to litigation defense for Centennial of $2,148,000. At TRCC, we spent $6,768,000 ofconstruction cost on Terra Visa at Tejon and $6,998,000 on infrastructure improvements at TRCC-East. Within our farming segment, we spent $3,317,000, which included cultural costs for orchards currently classified as under development and replacement of machinery and equipment. Additionally, we used $5,066,000 to acquire water assets. We had marketable securities of $76,869,000 that matured, and we reinvested $60,500,000. Lastly, we received proceeds of $5,811,000 from joint venture distributions and reimbursements of $3,309,000 from a Community Facilities District.

Current wording

We made capital expenditures, inclusive of capitalized interest and payroll (exclusive of stock compensation), of $40,995,000, which included predevelopment activities for our master planned communities; $2,088,000 consisting of permitting efforts for MV; $1,014,000 consisting of permitting efforts for Grapevine; and costs related to litigation defense for Centennial of $3,110,000. At TRCC, we spent $16,750,000 ofconstruction cost on Terra Visa at Tejon and $12,341,000 on infrastructure improvements at TRCC-East. Within our farming segment, we spent $4,531,000, which included cultural costs for orchards currently classified as under development and replacement of machinery and equipment. Additionally, we used $4,616,000 to acquire water assets. We had marketable securities of $85,769,000 that matured, and we reinvested $66,640,000. Lastly, we received proceeds of $5,783,000 from joint venture distributions and reimbursements of $3,309,000 from a Community Facilities District.

Previous wording

During the first six months of 2023, investing activities used $9,480,000. We made capital expenditures, inclusive of capitalized interest and payroll (exclusive of stock compensation), of $10,188,000, which included predevelopment activities for our master planned communities; $1,006,000 consisting of permitting efforts for MV; $664,000 consisting of permitting efforts for Grapevine; and costs related to litigation defense for Centennial of $1,628,000. At TRCC, we spent $3,667,000 on infrastructure improvements at TRCC-East. Within our farming segment, we spent $2,738,000, which includes cultural costs for orchards currently classified as under development and replacing machinery and equipment. Lastly, we used $4,666,000 to acquire water assets. We had marketable securities of $53,038,000 that matured, and we reinvested $58,930,000. Lastly, we received proceeds of $10,692,000 and $1,324,000 from joint venture distributions, and water sales, respectively.

Current wording

During the first nine months of 2023, investing activities used $6,805,000. We made capital expenditures, inclusive of capitalized interest and payroll (exclusive of stock compensation), of $13,513,000, which includes predevelopment activities for our master planned communities; $1,444,000 consisting of permitting efforts for MV; $907,000 consisting of permitting efforts for Grapevine; and costs related to litigation defense for Centennial of $2,123,000. At TRCC, we spent $4,492,000 on infrastructure improvements at TRCC-East. Within our farming segment, we spent $3,983,000, which includes cultural costs for orchards currently classified as under development and replacing machinery and equipment. Additionally, we used $6,070,000 to acquire water assets. We had marketable securities of $91,831,000 that matured, and we reinvested $87,272,000. We contributed $3,750,000 into our unconsolidated joint ventures during the period. Lastly, we received proceeds of $10,645,200, and $1,324,000 from joint venture distributions, and water sales, respectively.

Previous wording

Our estimated capital investment, inclusive of capitalized interest and payroll, for the remainder of 2024 is primarily related to our real estate projects. These estimated investments include approximately $26,562,000 of construction costs for the Terra Vista at Tejon multi-family project phase 1 development and $13,192,000 of infrastructure development at TRCC-East to support the continued commercial retail and industrial development, water treatment system improvements, and expansion of the wastewater treatment plant for future anticipated absorption. We also expect to invest up to $4,336,000 for land planning, litigation/appeals, federal and state agency permitting activities, and development activities at MV, Centennial, and Grapevine during the remainder of 2024.

Current wording

Our estimated capital investment, inclusive of capitalized interest and payroll, for the remainder of 2024 is primarily related to our real estate projects. These estimated investments include approximately $11,488,000 of construction costs for the Terra Vista at Tejon multi-family project phase 1 development and $4,016,000 of infrastructure development at TRCC-East to support the continued commercial retail and industrial development, water treatment system improvements, and expansion of the wastewater treatment plant for future anticipated absorption. We also expect to invest up to $2,307,000 for land planning, litigation/appeals, federal and state agency permitting activities, and development activities at MV, Centennial, and Grapevine during the remainder of 2024.

Previous wording

We capitalize interest cost as a cost of the project only during the period for which activities necessary to prepare an asset for its intended use are ongoing, provided expenditures for the asset have been made and interest cost has been incurred. Capitalized interest for the six months ended June 30, 2024 and 2023, was $2,009,000 and $1,210,000, respectively, and is classified within real estate development. We also capitalized payroll costs related to development, pre-construction, and construction projects, which aggregated $1,493,000 and $1,258,000 for the six months ended June 30, 2024 and 2023, respectively. Expenditures for repairs and maintenance are expensed as incurred.

Current wording

We capitalize interest cost as a cost of the project only during the period for which activities necessary to prepare an asset for its intended use are ongoing, provided expenditures for the asset have been made and interest cost has been incurred. Capitalized interest for the nine months ended September 30, 2024 and 2023, was $3,175,000 and $1,828,000, respectively, and is classified within real estate development. We also capitalized payroll costs related to development, pre-construction, and construction projects, which aggregated $2,179,000 and $1,744,000 for the nine months ended September 30, 2024 and 2023, respectively. Expenditures for repairs and maintenance are expensed as incurred.

Previous wording

During the first six months of 2024, financing activities provided $3,794,000, which was attributable to borrowings on the line of credit of $4,000,000, partially offset by the tax payments on vested share grants of $206,000.

Current wording

During the first nine months of 2024, financing activities provided $11,794,000, which was attributable to borrowings on the line of credit of $12,000,000 to fund construction projects and other ongoing development such as Terra Vista and TRCC infrastructure, partially offset by the tax payments on vested share grants of $206,000.

Previous wording

During the first six months of 2023, financing activities used $3,466,000, which was attributable to long-term debt service of $872,000, and tax payments on vested share grants of $2,594,000.

Current wording

During the first nine months of 2023, financing activities used $3,915,000, which was attributable to long-term debt service of $1,321,000, and tax payments on vested share grants of $2,594,000.

Previous wording

At June 30, 2024, total capitalization at book value was $536,525,000, consisting of $51,942,000 of debt and $484,583,000 of equity, resulting in a debt-to-total-capitalization ratio of approximately 9.7%.

Current wording

At September 30, 2024, total capitalization at book value was $543,625,000, consisting of $59,942,000 of debt and $483,683,000 of equity, resulting in a debt-to-total-capitalization ratio of approximately 11.0%.

Previous wording

On November 17, 2023, we entered into a Credit Agreement with AgWest Farm Credit, PCA, as administrative agent and letter of credit intermediary (Administrative Agent), and certain other lenders (the Credit Agreement Lenders), collectively, the Revolving Credit Facility. The Revolving Credit Facility provides TRC with (i) a revolving credit line (RCL) in the amount of $160,000,000 and (ii) the option for TRC to utilize a letter of credit sub-facility in the amount of $15,000,000 (LOC Sub-Facility). The LOC Sub-Facility is part of, and not in addition to, the RCL. As further summarized below, the RCL requires interest only payments and has a maturity date of January 1, 2029.

Current wording

On November 17, 2023, we entered into a Credit Agreement with AgWest Farm Credit, PCA, as administrative agent and letter of credit intermediary (Administrative Agent), and certain other lenders, collectively, the Revolving Credit Facility. The Revolving Credit Facility provides TRC with (i) a revolving credit line (RCL) in the amount of $160,000,000 and (ii) the option for TRC to utilize a letter of credit sub-facility in the amount of $15,000,000 (LOC Sub-Facility). The LOC Sub-Facility is part of, and not in addition to, the RCL. As further summarized below, the RCL requires interest only payments and has a maturity date of January 1, 2029.

Previous wording

Upon closing of the Revolving Credit Facility, funds from the RCL were used to pay off and close out the existing Bank of America, N.A. Term Note and Revolving Line of Credit Note. The amount of this pay off was $47,078,564 plus accrued interest and fees on the Bank of America Term Note. We evaluated the debt exchange under Accounting Standards Codification (ASC) 470 and determined that the exchange should be treated as a debt extinguishment. Future borrowings under the Revolving Credit Facility will be used for ongoing working capital requirements, including to fund future construction projects, farming and ranching operations, and other general corporate purposes.

Current wording

Upon closing of the Revolving Credit Facility, funds from the RCL were used to pay off and close out the existing Bank of America, N.A. Term Note (the Bank of America Term Note) and Revolving Line of Credit Note. The amount of this pay off was $47,078,564 plus accrued interest and fees on the Bank of America Term Note. We evaluated the debt exchange under Accounting Standards Codification (ASC) 470 and determined that the exchange should be treated as a debt extinguishment. Future borrowings under the Revolving Credit Facility will be used for ongoing working capital requirements, including to fund future construction projects, farming and ranching operations, and other general corporate purposes.

Previous wording

We had a strong liquidity position at June 30, 2024 with $49,565,000 in cash and securities and $104,615,000 available on our RLC to meet any short-term liquidity needs. See Note 3 (Marketable Securities) and Note 7 (Line of Credit and Long-Term Debt) of the Notes to Unaudited Consolidated Financial Statements for more information.

Current wording

We had a strong liquidity position at September 30, 2024 with $41,261,000 in cash and securities and $100,058,000 available on our RLC to meet any short-term liquidity needs. See Note 3 (Marketable Securities) and Note 7 (Line of Credit and Long-Term Debt) of the Notes to Unaudited Consolidated Financial Statements for more information.

Previous wording

Our cash contract commitments consist of contracts in various stages of completion related to infrastructure development within our industrial and multi-family developments and entitlement costs related to our industrial and residential development projects. Also, included in the cash contract commitments are estimated fees earned in 2014 by a consultant, related to the entitlement of the Grapevine Development Area. We exited a consulting contract in 2014 related to the Grapevine Development and are obligated to pay an earned incentive fee at the time of successful receipt of all project permits and entitlements and at a value measurement date five-years after entitlements have been achieved for Grapevine. The final amount of the incentive fees will not be finalized until the future payment dates. We believe that net savings from exiting the contract over this future time period will more than offset the incentive payment costs.

Current wording

Our cash contract commitments consist of contracts in various stages of completion related to infrastructure development within our industrial and multi-family developments and entitlement costs related to our industrial and residential development projects. Also, included in the cash contract commitments are estimated fees earned in 2014 by a consultant, related to the entitlement of the Grapevine Development Area. We exited a consulting contract in 2014 related to the Grapevine Development and are obligated to pay an earned incentive fee at the time of successful receipt of all project permits and entitlements and at a value measurement date five-years after project permits have been achieved for Grapevine. The final amount of the incentive fees will not be finalized until the future payment dates. We believe that net savings from exiting the contract over this future time period will more than offset the incentive payment costs.

Previous wording

As discussed in Note 12 (Retirement Plans) of the Notes to Unaudited Consolidated Financial Statements, we have long-term liabilities for deferred employee compensation, including pension and supplemental retirement plans. Payments in the above table reflect estimates of future defined benefit plan contributions from us to the plan trust, estimates of payments to employees from the plan trust, and estimates of future payments to employees from us that are in the SERP program. We expect to contribute $165,000 to our defined benefit plan in the second half of 2024.

Current wording

As discussed in Note 12 (Retirement Plans) of the Notes to Unaudited Consolidated Financial Statements, we have long-term liabilities for deferred employee compensation, including pension and supplemental retirement plans. Payments in the above table reflect estimates of future defined benefit plan contributions from us to the plan trust, estimates of payments to employees from the plan trust, and estimates of future payments to employees from us that are in the SERP program. We expect to contribute $165,000 to our defined benefit plan in the fourth quarter of 2024.

Previous wording

TRPFFA is a joint powers authority formed by Kern County and TCWD to finance public infrastructure within our Kern County developments. TRPFFA created two CFDs, the West CFD and the East CFD. The West CFD has placed liens on 420 acres of our land to secure payment of special taxes related to $19,540,000 of bond debt sold by TRPFFA for TRCC-West. The East CFD has placed liens on 1,931 acres of our land to secure payments of special taxes related to $72,055,000 of bond debt sold by TRPFFA for TRCC-East. At TRCC-West, the West CFD has no additional bond debt approved for issuance. At TRCC-East, the East CFD has approximately $44,035,000 of additional bond debt authorized by TRPFFA.

Current wording

TRPFFA is a joint powers authority formed by Kern County and TCWD to finance public infrastructure within our Kern County developments. TRPFFA created two CFDs, the West CFD and the East CFD. The West CFD has placed liens on 420 acres of our land to secure payment of special taxes related to $19,540,000 of bond debt sold by TRPFFA for TRCC-West. The East CFD has placed liens on 1,931 acres of our land to secure payments of special taxes related to $95,660,000 of bond debt sold by TRPFFA for TRCC-East. At TRCC-West, the West CFD has no additional bond debt approved for issuance. At TRCC-East, the East CFD has approximately $18,605,000 of additional bond debt authorized by TRPFFA.

Previous wording

As of June 30, 2024, aggregate outstanding debt of unconsolidated joint ventures was $223,988,000; $20,702,000 is attributable to the loan for TRCC/Rock Outlet joint venture. This loan is 100% guaranteed at June 30, 2024. All other outstanding debt attributed to our joint ventures have met their respective debt covenants, hence not subject to an effective guarantee at June 30, 2024. We do not provide a guarantee on the $12,174,000 of debt related to our joint venture with TA/Petro.

Current wording

As of September 30, 2024, aggregate outstanding debt of unconsolidated joint ventures was $222,746,000; $20,626,000 was attributable to the loan for TRCC/Rock Outlet joint venture. This loan was 100% guaranteed at September 30, 2024. All other outstanding debt attributed to our joint ventures have met their respective debt covenants, and hence were not subject to an effective guarantee at September 30, 2024. We do not provide a guarantee on the $11,984,000 of debt related to our joint venture with TA/Petro.

Previous wording

EBITDA represents earnings before interest, taxes, depreciation, and amortization, a non-GAAP financial measure, and is used by us and others as a supplemental measure of performance. We use Adjusted EBITDA to assess the performance of our core operations, for financial and operational decision making, and as a supplemental or additional means of evaluating period-to-period comparisons on a consistent basis. Adjusted EBITDA is calculated as EBITDA, excluding stock compensation expense. We believe Adjusted EBITDA provides investors relevant and useful information because it permits investors to view income from our operations on an unleveraged basis, before the effects of taxes, depreciation and amortization, and stock compensation expense. By excluding interest expense and income, EBITDA and Adjusted EBITDA allow investors to measure our performance independent of our capital structure and indebtedness and, therefore, allow for a more meaningful comparison of our performance to that of other companies, both in the real estate industry and in other industries. We believe that excluding charges related to share-based compensation facilitates a comparison of our operations across periods and among other companies without the variances caused by different valuation methodologies, the volatility of the expense (which depends on market forces outside our control), and the assumptions and the variety of award types that a company can use. EBITDA and Adjusted EBITDA have limitations as measures of our performance. EBITDA and Adjusted EBITDA do not reflect our historical cash expenditures or future cash requirements for capital expenditures or contractual commitments. While EBITDA and Adjusted EBITDA are relevant and widely used measures of performance, they do not represent net income or cash flows from operations as defined by GAAP. Further, our computation of EBITDA and Adjusted EBITDA may not be comparable to similar measures reported by other companies.

Current wording

EBITDA represents earnings before interest, taxes, depreciation, and amortization, a non-GAAP financial measure, and is used by us and others as a supplemental measure of performance. We use Adjusted EBITDA to assess the performance of our core operations, for financial and operational decision making, and as a supplemental or additional means of evaluating period-to-period comparisons on a consistent basis. Adjusted EBITDA is calculated as EBITDA, excluding stock compensation expense. We believe Adjusted EBITDA provides investors relevant and useful information because it permits investors to view income from our operations on an unleveraged basis, before the effects of taxes, depreciation and amortization, and stock compensation expense. By excluding interest expense and income, EBITDA and Adjusted EBITDA allow investors to measure our performance independent of our capital structure and indebtedness and, therefore, allow for a more meaningful comparison of our performance to that of other companies, both in the real estate industry and in other industries. We believe that excluding charges related to share-based compensation facilitates a comparison of our operations across periods and among other companies without the variances caused by different valuation methodologies, the volatility of the expense (which depends on market forces outside our control), and the assumptions and the variety of award types that a company can use. EBITDA and Adjusted EBITDA have limitations as measures of our performance. EBITDA and Adjusted EBITDA do not reflect our historical cash expenditures or future cash requirements for capital expenditures or contractual commitments. While EBITDA and Adjusted EBITDA are relevant and widely used measures of performance, they do not represent net (loss) income or cash flows from operations as defined by GAAP. Further, our computation of EBITDA and Adjusted EBITDA may not be comparable to similar measures reported by other companies.