Good afternoon and good morning, everyone. This is Tyler Batory here from Oppenheimer. Thanks for joining us for our next session. We got Matt Walker. He's going to go through a presentation real quick, and then we'll have Q&A. I want to encourage everyone in the audience, if you do have questions, there should be a chat box on your screen, so you can put those in the box. You also can email me to Tyler.Batory@opco.com, and we'll be sure we get those handled. With that, I'm going to turn the floor over to Matt to go through the presentation.
Great. Thanks a lot, Tyler. Hi, my name is Matt Walker, and I am the President and CEO of the Tejon Ranch Company. Thanks to everyone for joining. In today's presentation, I'd like to introduce you to our company and connect the dots to the various parts of our business, from macro to micro, from the past to the future, to help clarify our overall business model and growth strategy. Let me start with my background. I'm a fifth-generation Californian. I'm an architect by training. And I've been at the company since early March, and I've been CEO since April 1st. Prior to joining Tejon, I spent the previous 24 years at Los Angeles-based Low Enterprises, where I managed the Master Plan Community Development business and our hospitality investment platform.
It was a great experience, and I was fortunate to work on a series of once-in-a-lifetime projects, both inside and outside of California. One of these was SunCadia. Over 20 years, SunCadia became the largest master plan community in the state of Washington. It's located about 75 miles east of Seattle, which is coincidentally the same distance that Tejon Ranch is from downtown Los Angeles. There are a lot of similarities between the two. That's a little bit about my background. Let's talk about the company and my vision for the future. As you know, we are a publicly traded company. Before I get into the meat of my presentation, I want to mention that some of our material includes forward-looking statements that are based on current expectations, estimates, and assumptions. Such statements aren't guarantees and are therefore subject to various risks and uncertainties.
As noted in the presentation, our annual report on Form 10-K and other publicly filed documents will provide more detailed information about these risks and uncertainties. With that out of the way, I'd like to start off by sharing some of my thoughts about what makes Tejon Ranch unique in the public equities market. Unlike a REIT, which owns a portfolio of discrete income-producing assets across some geographic market, our entire company is contained in one single property at one single location. That is our 270,000-acre ranch. Our one and only goal is to find any and every way to extract value out of our one single asset. It's no surprise that doing business in California can be extremely challenging. Our competitive advantage at Tejon Ranch is our proven ability in this challenging environment to secure valuable land use approvals for our master plan communities.
In the real estate industry, we call those approvals entitlements. In California in particular, we then defend those entitlements against litigation, which is part of the process and is typically related to the California Environmental Quality Act, or CEQA. That process can take years or even decades to achieve. Once we've obtained those approvals, we've created an immense amount of value for that land. In California, because of the regulatory environment, the barriers to entry for new master plan communities are incredibly high. However, those barriers create scarcity, and that scarcity drives tremendous value. Location is everything in the real estate industry. The ranch is in a very unique location in California at the northern edge of Los Angeles County and the southern edge of Kern County, with Interstate 5 running along our western edge of our property.
The 5 freeway is the primary north-south artery in the state, and there are 100,000 cars that pass through the ranch every day. Our unique location takes advantage of three major secular changes in California, which are driving our growth. The first is population migration. The population in Southern California is moving away from the crowded neighborhoods in central Los Angeles and out to the suburban periphery. Communities like Santa Clarita or Lancaster or Palmdale, they've seen huge population increases, and that growth is headed north. We also see large population increases in the southern San Joaquin Valley, places like Bakersfield, and that population is moving south. Tejon Ranch sits right smack in the middle of this path of migration. In fact, we couldn't be in a better location to capture the growth headed north and the growth headed south. Second, we're simply not building enough new homes in California.
The state estimates that there's a lack and a chronic housing shortage of 2.5 million homes, and that number is growing every year. The lack of new supply is driving prices higher, and the homes are becoming more affordable than ever. What this means is that there will be a tremendous sustained demand for the 35,000 homes that we are planning to build. Frankly, the market can't get them soon enough. Third, the way that goods and materials move from supplier to consumer has been changing dramatically, but in a way that directly impacts the ranch. The two largest ports in the country in terms of cargo tonnage are the Port of Los Angeles and the Port of Long Beach. Goods leave those ports, and they are distributed to industrial facilities throughout the region.
As a result, the Inland Empire is now the epicenter of industrial activity in the nation. On top of this, the rise of e-commerce has created even more demand for industrial space because E-commerce requires three times the industrial space of traditional retail. As the Inland Empire has expanded farther and farther from the ports, it's been limited by geographic boundaries, by mountains to the north and to the east, by the Pacific Ocean to the south and the west. The only practical place for industrial to expand with any meaningful scale has been to the northwest, along Interstate 5, right into the hands of Tejon Ranch. We've capitalized on being in this path of growth and have overseen the development of 7 million sq ft of new industrial space at the Tejon Ranch Commerce Center, or TRCC, and we're not even halfway built yet.
That growth has created thousands of jobs between the warehouses and the retail, jobs which, by the way, are looking for a place to live nearby, and now we're capitalizing on that. Combined, these three trends, population migration, housing shortage, and increased industrial demand have created an irreplaceable nexus of opportunity for people to work, to live, and to play, whether that's dining, shopping, or recreating, all right here on the ranch. These are the simple macro bets that form the foundation of our business strategy. Now that we've taken a look at the macro drivers of the business, let's understand the micro side. Just spending the last two months on the ranch, it's been immediately apparent to me just how interconnected the various parts are. What's more impressive is that the benefit of the interconnectedness is more than just a diversification of risk.
These parts form a highly symbiotic ecosystem. Let me explain. Let's take our farming operations. We've got wine grapes, almonds, pistachios, and as of a few weeks ago, 120,000 new olive trees. These crops play an important role supporting our extensive water contracts, whose ultimate benefit is to provide a reliable long-term source of water for 35,000 homes. Likewise, our grazing leases and our hunting operations are critical to supporting the ongoing upkeep and maintenance of our ranch, which is a big undertaking since the ranch is half the size of Rhode Island. We also have a number of leases, royalties, and commodity businesses, oil and gas, cement, solar, our water contracts, which, by the way, become increasingly valuable during times of drought, which is increasingly more frequent.
All of these parts of the business, they resemble what you might see in a land company or perhaps an ag or a timber company. These types of companies throw off lots of cash with high margins and allow us to maintain long-term optionality on our land. There is a second part of our business, which includes all of the operating assets in TRCC, industrial, retail, our outlets, and our new multifamily. Some we have developed with JD Partners, some we have developed ourselves. These are the REIT part of the business. Again, these are operating assets with stable, predictable cash flows. It is important to note that when you are developing these communities, one of the hardest things to do is to create the job base. We have been incredibly fortunate to start with the job base because that critical mass of thousands of on-site jobs will be driving the residential demand going forward.
Collectively, the land company part of the business and the REIT part of the business both support the master plan community development business, which is the source of our long-term growth. We're almost halfway through the build-out of our first master plan community, which is the Tejon Ranch Commerce Center. We have three more communities on the way. Let me share a few words on the genesis of the Tejon Ranch Commerce Center. In the mid-1990s, the company saw an opportunity to extract value from the land and evolve from an agricultural focus into a diversified real estate company. We recognized that the 100,000 cars per day along Interstate 5 showed huge potential for industrial expansion. From that realization came the idea for TRCC. The company understood that there was a shortage of large, deep industrial sites in the Inland Empire.
We envisioned a super regional distribution center with cross docks and ample parking that would offer a range of building sizes from 233,000 sq ft up to 1,700,000 sq ft. It was ideally located close to the ports of Los Angeles and Long Beach, proximate to the Port of Oakland, with easy access to Interstate 15 and points east. The entitlement process for the 1,450-acre site, including our successful litigation, took 10 years from start to finish. Today, our industrial center remains 100% occupied with international companies like IKEA and Nestlé. There have been 7 million sq ft of industrial developed so far, with 11 million sq ft still to go. TRCC began with a joint venture for a travel center that serves professional drivers and travelers.
Now our JV includes two travel centers, and our gas stations and convenience stores sell over a million gallons of fuel per month. The restaurants that we built started gaining traction, and they expanded to more than 20 that we have today. We later added an outlet center with nearly 60 stores, and we sold several hotel pads to provide a hub for travelers. Today, the retail operates at 95% occupancy. Residential flowed naturally from the housing demand from the thousands of people who worked on site. This prompted our vision for Terra Vista, which will have 495 multifamily residences at full build-out. This month, we began delivering the first phase of 228 units. With Terra Vista, TRCC is transformed into a vibrant master plan community with full-time residents.
When you put all this together, Tejon Ranch's long-term value lies not only in its extraordinary land holdings, but in the strategic flywheel that we've been steadily building, where land use approvals unlock development opportunities, where industrial and retail growth generate jobs and fuel residential demand, and where residential development, in turn, attracts neighborhood retail and services. Together, these repeating cycles create sustained compounding land value. This flywheel has been in motion, creating value for many years at TRCC. A high priority for me in leading Tejon Ranch into the future is to leverage that momentum to fully unlock the economic potential of our remaining land assets for our shareholders. As I mentioned, we create value three ways. We talked about the land company part of our business, which are high-margin, low-cost fee streams.
We talked about the REIT portion of our business, which are recurring cash flow from operating assets that are stable and predictable. Third, we have our master plan community development business. This is where we create value in the land through our entitlements. Here, we're in the business of converting unentitled ranch land, which isn't worth very much. Through decades of effort, we convert that land into highly valuable master plan community land, which is worth potentially 5-10 times more than that ranch land is worth. We then improve that land with roads and utilities and infrastructure and amenities so that we're in the position to sell it to home builders and to developers or end users. That land is again worth 5-10 times more.
In total, we've created potentially 25-100x in value as a result of our entitlement and development process. And we've ultimately created these operating assets with stable, recurring, compounding cash flow. When you look at this over 25 years, you're able to harvest your investment, and you get this J curve effect in terms of accelerated compounded growth. As you can see from the chart at the bottom right, we've generated more than $110 million in cumulative cash flow from commercial and industrial development at TRCC, as reflected in our public securities filings. During that time, the price of our industrial land has increased almost 1,500% from $0.57 a sq ft to $9 a sq ft. On a price per acre basis, that's $25,000 an acre going to $400,000. That's the meaningful compounding.
We have one J curve in TRCC, but let's remember that we have multiple J curves in play, with TRCC supporting the value creation effort in our other communities. For me, it's about focusing on compounding long-term value instead of the finite short-term value. Yes, it takes patience, and I appreciate that it can be a hard business for the market to understand, but it's a winning strategy over the long term, and we're right at the inflection point. Let's put all the pieces together. Let's consider the recurring cash flow that comes out of TRCC with the industrial, the retail, and the outlets, and not factoring in any future contribution from our multifamily, which just opened this month. As I've said, this cash flow is stable and predictable.
We estimate that the net asset value from TRCC provides a meaningful measure of how our overall valuation can be understood, factoring in a range of calculated assumptions. This suggests that our market value is captured just in the NAV of our first activated master plan community. Now, the market tends to undervalue land until it's put to use and improved. However, I contend that especially in California, there is significant value for entitled land for 16,000 units and ongoing efforts to secure approvals on another 19,000, plus all of the commercial density. Let's say that unentitled ranch land is worth somewhere between $1,500-$10,000 an acre. With the right ag use and water rights, it might be worth two or three times more.
After that, after that land's entitled, it would sell anywhere from $260,000 an acre to $1.2 million an acre based on our financial disclosures of historical land sales at TRCC. You look at any number of public historical land comps for entitled but unimproved master plan community residential land here in Southern California or in the Southwest, and that would represent a significant increase in value. When I consider our 16,000 units, which are already entitled, I see a compelling long-term value proposition. Sure, it's incredibly difficult to get anything improved in California, but there are two ways to look at that. I take our 16,000 units, and for me, that's a moat the size of Manhattan for our long-term business. The scale of the approvals is massive, especially in a high-barrier state like California.
By the way, what I definitely wouldn't do is to just sell off all that density for pennies on the dollar. I'd be chopping off all of those compounding J curves right before the inflection points. I've been in the institutional real estate investment industry for the past 25 years. I understand investor expectations. I'm in the business of astutely allocating capital to drive ROI. More than anything, I'm in the business of building things with a compelling investment thesis. It's clear to me that the market has been waiting for us to do just that. The land development business is a long game. That doesn't always translate well into a quarterly earnings environment. That's why we must keep the J curve in mind. What's important to realize is that we have been successful.
We have more than 16,000 residential units fully entitled and defended against litigation in California. That accomplishment has taken us 10, 15, 20 years. That is well within the same timeframe of other master plan communities in California. Take the Irvine Company or Rancho Mission Viejo in Orange County. Take what Five Point is doing in Valencia, just 30 mi to the south of us in the same growth corridor. All of those master plan communities took decades to go from the entitlement to defending against significant litigation risk to the ultimate sale of homes. In California, this land has real value. Let me be clear. We have four master plan communities. Three of them are entitled. One of them, TRCC, is halfway built out. One of them, Grapevine, is preparing for mapping and completing permits. And one of them, Mountain Village, already has 401 subdivided lots.
In Tejon Ranch, you have a new CEO who's ready to build on several decades of entitlement success and transform the company into the future. Yes, these are challenging times, and yes, there's a lot of noise out there. When you cut through it all and you look at the drivers of our long-term value and you look at the tailwinds that support our underlying business and the massive moat which supports our 16,000 approved residential units, I could not be more excited about the future. With that, I'm happy to take some questions.
Okay, great. Thank you for that. A lot of good detail there. We have about 15 minutes here for questions. Just a friendly reminder, if you have questions in the audience, feel free to put them in the chat box or you can email me.
I think the first thing that I'm going to ask here, I think there's a well-publicized proxy fight that's going on. I don't know if you want to make any general comments or address that more specifically.
Sure. Thanks for asking. Glad you asked. Yes, we're going through a contested election. We have what we believe is an opportunistic short-term shareholder who's taking advantage of our cumulative voting rules, and they're trying to put up three nominees on our board. After that, we don't really know because they've admitted they don't have a plan. Their candidates aren't qualified. They're overboarded, and ISS and Glass Lewis and Egan Jones all agree with us. From the little that they've said, and without any sincere dialogue, it wants to shut down most of our master plan community efforts.
Sounds like what they want to do is take away all that interconnected synergy that I just spoke about, all that R&D effort that goes into 25-year plans that have these huge upsides. They want to break all of our J curves and do it just before our inflection points. I am confident that if they sat down and truly tried to listen and understand our plan, they would come to similar conclusions about our solid growth strategy. That is what I will say about the contested election.
Okay. I know it is a sensitive topic, so I appreciate that detail and that commentary there. To take a step back, I mean, you have been at the company since early March. You have been CEO since April 1st.
I guess talk a little bit more about what attracted you to this opportunity, kind of how you're thinking about what you've learned a little bit more over the past month or so as you've been the CEO?
Sure. There are two primary things that attracted me to the opportunity. The first was the opportunity to work with a great team who cares deeply about the ranch, and they're committed to adding value any and every way they possibly can. The team here is outstanding. The second, when you look at the value creation opportunity, it's extraordinary. I mean, it's a phenomenal piece of land. It's a strategic location that's three hours from 20 million people, and there are just an endless number of opportunities for creating value.
The combination of those two things is what attracted me to come join the team here and lead Tejon Ranch into the future. I touched on some of the things that I initially observed when getting here. The complexity of the property and the way the pieces are all interconnected, you cannot really appreciate until you get involved. Alongside that are the incredible opportunities to create value in micro ways and macro ways. Finally, as I have gotten into understanding our master plan community efforts, I am really excited about the future. As I mentioned, I have been in this business for 25 years. I have developed master plan communities all over the country, including in California.
I really believe that what we can create here can be one of the great places to live and to work and to play that there is here in the country. I'm excited.
Let's dig into the business a little bit more and some follow-up questions. I actually got a question from the audience here that I'll start out with. You have four master plan communities. Three are entitled. One is 50% built out. One of the communities that's entitled is Mountain Village. I think you mentioned there's a number of lots approved for residential. Just talk a little bit more about the process for starting construction there and when we might start to see a little bit more movement in terms of development on that one specifically.
Sure. As I mentioned, as you reiterated, Mountain Village is fully entitled.
It's gone through a litigation process. We've gone through a tentative map process, and we actually have a final map and subdivided lots on 401 lots. We are the farthest along with that master plan community. My goal and objective and priority moving forward is to work to capitalize that and then move through the final permitting process and the building permit process, and then break ground and build the infrastructure that is necessary to bring water and power to the sites, put roads and utilities and amenities in, and then start selling residential real estate. There will be a hospitality component as part of that. I look forward to drawing on my two decades of hospitality experience to help make that a phenomenal place.
I'm sure we have some folks on the line that are from California.
There's probably a lot of others that are not from California. Talk a little bit more about the permitting backdrop, the entitlement process. Why is it so challenging? Why is it so difficult in California? Speak to your experience. You've been in this business for a number of years. How that's a competitive advantage for your company in terms of dealing with the process in California.
Sure. I mean, you have it right. California is a very challenging land use entitlement process. It really is driven by CEQA, and the bar for challenging approvals under CEQA is very, very low. We've been very fortunate to have and to develop strong support at the local and community and county level. You look at our master plan communities in Kern County, which would be the Tejon Ranch Commerce Center and Grapevine and Mountain Village.
We've had outstanding support from the county supervisors there. We're also in the process of getting the entitlements on Grapevine, which sits in Los Angeles County. Los Angeles County is a different environment than Kern County, but we have not had any county supervisors there vote against us. I think that says a lot in today's environment that we've got support from both sides of the aisle. It is not really an issue with the county and the public jurisdictions. It is managing our way through this entitlement process. We've been successful. We've been successful at three out of the four master plan communities. We're still working through Centennial. As I mentioned, we've got 16,000 units of density approved. That is a lot of real estate that we've got to focus on. We are doing that. We are doing just that. It is a long process.
In addition to just obtaining your entitlements, you have to go through extensive permitting through state and federal agencies. We're at various stages throughout our projects in doing that. We're excited for the future.
Let me just dip in on this point a little bit more. I mean, in terms of navigating this process, both at the company and both your experience, I mean, how much of a competitive advantage is that? Because I would imagine it's fairly complex. Again, you mentioned how much time it takes. I imagine there's a lot of heavy lifting that's going on behind the scenes to get the necessary approvals to move forward.
It really has been. There's an art and there's a science to it. On the art side, we have developed extremely deep and extensive relationships at all levels of the state and with all the major stakeholders.
You have to get people to trust you and to explain to them that you've got a plan that is beneficial to as many people as possible. My predecessor, Greg Bielli, as CEO, has been extraordinary in his ability to get those approvals and work with all the relevant parties. I've been fortunate to have continuity in the CEO role as I've started off. My experience working in projects from Coachella Valley to San Diego to Los Angeles County to the Sierra Nevadas has been really, really helpful. Just understanding all the jurisdictions and the different rules that make California different. At the end of the day, you need to find out what's important to your stakeholders and have your communities address those issues. You've got to be patient, and you've got to be in for the long haul, which we are.
Having a long-term perspective to weather the ups and downs is very important.
In terms of some of the real estate, I think, on the industrial side of things, go there first. I think you talked about some of the shortage of industrial space in the Inland Empire and why that is potentially a competitive advantage. Just talk a little bit more about the demands that you are seeing on the industrial side of things. I guess more broadly, too, just interested in some of the general macro or the general economic factors that are impacting the industrial side specifically?
Sure. I think I covered pretty well the macro story that we have for industrial. We have got an outstanding site that provides us with scale that has allowed us to develop a world-class industrial complex. Our proximity puts us closer to Northern California.
It's a cut down on transportation cost, and it's really convenient to get onto Interstate 15 and head east from there. The industrial business has changed dramatically. Following COVID, there was a huge run-up in new supply in the Inland Empire and most of metropolitan Los Angeles. We've been very fortunate because we control most of the remaining land. We can control the build-out and the development of new supply. We've been very careful to see that we aren't overbuilt. That's one of the reasons why our industrial is 100% occupied right now. I'd be remiss if I didn't talk about the impact of tariffs right now. It's definitely caused uncertainty in the overall industrial investment market. During times like these, we really do rely upon our competitive advantages. I mentioned we've got a strategic location, a world-class facility.
We think our value proposition for tenants and for people looking to do build-assistance is really attractive. We have very attractive industrial labor costs in Kern County. We also are a designated foreign trade zone. What that allows us to do, if tenants opt into it, and we have had some who have, is to opt into a program that allows them to defer and in some cases reduce the overall impact of the tariffs. We think that all of those are some of the reasons why we have been able to be successful with blue-chip tenants and partners like IKEA and Nestlé. Finally, I will say that we have been pleasantly surprised at the amount of rental inquiries that we have had in the current environment. We think we have one of the most competitive logistics platforms in California.
I guess at the end of the day, I'm focused on skating to where the puck's going to be, not where it is. We're looking forward. To expand on that a little bit more, the inquiries that you've received more recently, have those picked up perhaps because of the tariff side of things? Are people or some potential partners looking to move away from the Inland Empire? I'm just trying to get a sense of kind of what the inbound demand potentially is looking like. I think most people who are inquiring are taking a much longer-term view of what's going on. You're coming to TRCC because you see the value of this strategic location for the Western region, right? Whether that's California, whether that's the entire West Coast, whether that's the entire western portion of the United States.
These aren't decisions about what's going to happen in the next six months. I think that's part of the reason why we continue to see inquiries as we move forward. Switching gears to the residential side of things, just trying to think longer-term about potential demand. I think it's been pretty well publicized, and you talked about it too, in terms of the housing shortage, housing shortage in the country overall, certainly housing shortage in California. In terms of the potential demand for residential where you're building, are there any specific drivers? I don't know if there's any sort of additional development that might drive some extra demands. Are you thinking it's more people relocating or just can't find a place that's affordable to live in other areas of California that might choose to live kind of where you're building?
I guess I'd put residential demand on a spectrum, right? At one end of the spectrum are people looking for a multifamily apartment, right? Those people want convenience to where they want to work. They want access to on-site amenities, and they want a place where they can build and grow and hopefully move up into something new. We're addressing that with our Terra Vista apartments. We think over the long term, the people that move into our apartments today will hopefully be buying a home from us into the future. Beyond that, for our master plan communities, it's a macro play. I mean, the numbers are daunting, right? We are so undersupplied in terms of new residential supply. We really can't get the residential out there fast enough.
Yes, there's demand as demand moves from Los Angeles County to the northwest and as areas like Santa Clarita, Lancaster, Palmdale get more and more built out, people are looking for what's next and how can I find a place to live? How can I do it at any scale? Because again, unless we build more housing, prices are going to continue to rise. We believe that we can be an attractive alternative for people in the future, whether that's people expanding to the northwest from LA. As I mentioned also, there's growth in the San Joaquin Valley and people looking for the next community in south of Bakersfield. What we ultimately have to offer people is to own a piece of the ranch.
We have, I mean, as spectacular a set of natural amenities as you are going to find, certainly any place within a metropolitan area of the scale of Los Angeles. We think we have a lot to offer. All right. We are right up against it in terms of time. Matt, I want to thank you for joining us. I want to thank everyone in the audience as well and enjoy the rest of the day. Great. Thanks a lot, Tyler. Thanks to everyone.