Well, good morning, everybody. My name is Nicholas Ortiz, I want to welcome our shareholders who have joined us here at Tejon Ranch in California. I'm Senior Vice President of Corporate Communications and Public Affairs. We're excited to hold this year's annual shareholders meeting of Tejon Ranch Company, both in person for you all, virtually for our shareholders who are participating online. For those of you that have joined us in person, I hope you agree that the best way to understand the ranch is to be here on site. We believe that this hybrid format, which allows our shareholders to attend, live or participate virtually, maximizes accessibility. Before we begin the official business of the day, I'd like to call your attention to a couple of logistical items.
First, want to make sure that you are all aware of the rules of conduct and the procedures set forth for the meeting. Those rules, along with the agenda for today's meeting, were made available to each shareholder on Tejon Ranch investor relations webpage, on the virtual shareholder meeting webpage, and we have printed copies available. A quick word about our question and answer process. For shareholders that are participating virtually, if you have questions you'd like to submit online, you can do so using the identified portal on the virtual meeting website, and they will be answered following adjournment of the meeting and after Mr. Walker's presentation.
For our shareholders attending in person, we ask you to hold questions until Q&A is opened after Mr. Walker's presentation. Just a reminder that to participate virtual, you had to register in advance. Presiding over today's meeting is our Board Chair, Mr. Norman Metcalfe. I'm going to turn it over to him now. Mr. Metcalfe.
Good morning, ladies and gentlemen, or good day, depending on where you're logging in from. On behalf of all the directors and management, we are glad to welcome those of you in person at the ranch and those of you attending virtually to the 2026 Annual Shareholders Meeting of the Tejon Ranch Co. I'm joined today by Matt Walker, President and Chief Executive Officer of the company. Also participating today is Mike Houston, Tejon's Senior Vice President, General Counsel, and Corporate Secretary, and you've already heard from Nick Ortiz. I will now introduce the company's directors and other officers who are in attendance to today's meeting. Directors Steve Betts, Greg Bielli, Andrew Dakos, Denise Gammon, Anthony Leggio, Jeff McCall, Eric Speron, Dan Tisch, Kenneth Yee.
I'm pleased to introduce the balance of the Tejon senior management team, Robert D. Velasquez, Senior Vice President, Chief Financial Officer, Chief Accounting Officer, and Assistant Secretary, and Hugh McMahon, Executive Vice President, Real Estate. I'd like to express my appreciation to our management team, and I know I speak for all directors in thanking them for their dedication and their performance. Also present for today's meeting is Melissa Mino, from Deloitte & Touche, the company's auditor, and Heather [audio distortion] of The Carideo Group has been appointed to act as the independent Inspector of Elections to examine and tabulate proxies and ballots at this meeting, and is attending the meeting.
This concludes our introductions. I will now call the meeting to order, and we will begin the business of the meeting. Broadridge has confirmed that the notice of annual shareholders and proxy statement were distributed on or about April 3rd, 2026, to all shareholders of record on the record date of March 19th, 2026. Mr. Houston, will you please report whether a quorum is present?
I'd be happy to do so, Mr. Chairman. There were 26,930,197 shares of common stock outstanding as of the record date. I've been advised by the Inspector of Elections that immediately prior to commencement of the meeting, a majority of the company's issued and outstanding shares are represented by proxy at today's meeting. A quorum is present, and the meeting is duly constituted, and the business of the meeting may proceed.
As indicated in the proxy statement, the items of business requiring a vote at this meeting are, number 1, the election of nine directors named in the proxy statement. Number 2, a proposal to approve an amendment to our restated certificate of incorporation to provide that certain shareholders the right to request a special meeting of shareholders. Number 3, a proposal to approve amendment to our restated certificate of incorporation to change the deadlines for shareholders to submit director nominations and other proposals for consideration at an annual meeting. Number 4, the ratification of the appointment of Deloitte & Touche as the company's independent registered public accounting firm for the fiscal year of 2026. Number 5, an advisory board vote to approve the executive compensation. Number 6, any other business that will be brought before shareholders.
With respect to the first proposal, all directors are subject to annual election for 1-year terms. The nine directors who have been nominated by the board of directors and who are candidates for re-election are Steven Betts, Gregory Bielli, Andrew Dakos, Denise Gammon, Anthony Leggio, Norman Metcalfe, Jeff McCall, Eric Speron, and Daniel Tisch. The restated certificate of incorporation and bylaws of the company require a shareholder who intends to nominate a person for election to the board to provide written notice thereof to the secretary by the date so indicated in the proxy statement. No such notice was received, I declare the nominations closed.
The second proposal before shareholders is to amend the company's restated certificate of incorporation and to provide shareholders owning at least 25% of the company's outstanding shares the right to request a special meeting of shareholders. Information on this proposal, which has been placed before this meeting by the board, was included in the proxy statement. The third proposal before shareholders is to amend the company's restated certificate of incorporation to change the deadlines for shareholders to submit director nominations and other proposals for consideration at an annual meeting of shareholders from 30-60 days to 90-120 days prior to the meeting date. Information on this proposal, which has been placed before this meeting, was included in the proxy statement.
The fourth proposal is the ratification of the appointment of Deloitte & Touche as the company's independent registered public accounting firm for the fiscal year 2026. The fifth proposal before shareholders is an advisory vote to approve named executive officer compensation. This concludes the presentation of proposals. If you have not previously voted or wish to change your vote, you may do so now by clicking on the voting link on the website or providing your ballot to our election inspectors. Any shareholder who has already voted and does not want to change their remote vote need not take any further action.
For those of you voting for the election of directors, you may continue your votes by giving one nominee the number of votes equal to the number of shares you hold multiplied by nine, which is the number of directors to be elected, or you may distribute the same number of votes, that is the number of shares you hold multiplied by nine, as you see fit amongst the nominees. Let me give you a moment to vote. Thank you. Online and in person, the voting is now closed. We appreciate all of you participating in the 2026 proxy vote. We're going to take a brief pause for the inspector of elections to review any final votes that were cast and confer with the secretary. For those participating online, we ask you to stay logged in to the meeting website, and I will return in a moment.
Actually it says the poll's closed.
Good. Thank you. We're back. Mr. Houston, would you like to announce the preliminary results of balloting?
Yes, Mr. Chairman, I'd be happy to do that. Based on a preliminary count of ballots, I will report on the proposals placed before the shareholders as follows. Proposal 1, Directors Betts, Bielli, Dakos, Gammon, Leggio, Metcalfe, McCall, Speron, and Tisch have each received the requisite number of votes to be elected as a Director. Proposal 2, to amend the company's restated certificate of incorporation to provide certain shareholders the right to request special meetings of shareholders, has been approved.
Proposal 3, to amend the company's restated certificate of incorporation to change the deadlines for shareholders to submit director nominations and other proposals for consideration at an annual meeting of shareholders, has been approved. Proposal 4, Deloitte & Touche has been ratified as the company's independent registered public accounting firm for 2026. Proposal 5, the advisory vote for the executive officer compensation has been approved. As noted, the results of the proposals are preliminary, and once the inspector of elections issues her final report, the final results will be confirmed and announced in a Form 8-K filed with the SEC.
This concludes the formal business of the meeting. Therefore, I declare that the meeting is now adjourned.
Mr. Chairman, before we proceed, I would like to remind everyone that some of the statements made today regarding the company's plans, strategies, and expectations for the future are forward-looking statements. These statements are based on current estimates and forecasts and involve known and unknown risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied. You are all encouraged to review the forward-looking statements and risk factors section in our filings with the Securities and Exchange Commission, including the risk factors section of our annual report on Form 10-K for the fiscal year ended December 31st, 2025 for additional information. We do not undertake any obligation to update our forward-looking statements.
At this time, I would like to invite Mr. Walker to share with you the progress of the company's business plan and to answer any questions you may have.
I did.
[inaudible]
All right. Can you all hear me? Great. If you have a question, and you're remote, feel free to log on to the portal and insert the question onto the webpage. We'll be taking the questions once I finish my presentation. Hi, I'm Matt Walker. I'm the President and CEO of Tejon Ranch Company. Glad you all could join us today. For those of you who are here with us, thank you for coming. It's a beautiful day outside, and we're eager to show you the ranch. For those joining remotely, we welcome you as well. Today, we're going to try and paint as clear a picture as possible of the company. We also extend an open invitation to you all to come visit us in the future.
Seeing our assets in person, smelling our oak trees and the occasional scent of our cattle operations provides a far more vivid perspective than a 10-K does. Please know that you've been invited. Let's get started. Today, we're going to cover three topics. First, at the Tejon Ranch Company, the world is moving in our favor. Our strategy capitalizes on a few key trends. We'll touch on each of them. Second, we have a clear plan. That plan includes several tactical objectives necessary for our success. Third, we're making tangible progress on our commitments. Ultimately, it's all about results. We want to measure our progress, and we want to focus on disciplined growth and free cash flow. During my first year as CEO, I've learned as much as possible about our land. I've explored the vast corners of our territory, getting a few flat tires in the process.
I've seen our incredibly diverse wildlife. I've spent also some time at the Tejon Ranch Commerce Center, in our warehouses, in our retail outlets, in our travel centers. I've toured a 750 MW natural gas facility, limestone mines, a state-of-the-art cement plant, newly planted olive groves, and the most powerful water lift station in the world, all essentially within our boundaries. I've embraced small town living, which includes driving to the post office to pick up my mail and keeping an eye out for critters. I wear cowboy boots 100% more often than I used to, although not today. I've survived even the circle of life that are the Tejon Ranch's cool winters and in their warm summers. The one thing that I didn't prepare for was the music that's coming from the background.
The one thing that I didn't prepare for was the fog. I grew up in Northern California driving through the Tule fog, but that lasted for a few days at most. Here, after one of the wettest falls on record, Bakersfield was blanketed in a continuous fog for nearly a month. This winter, the Central Valley was so foggy that Tejon Ranch even made The Wall Street Journal. Sometimes the fog would make it up the Grapevine to headquarters, but for the most part, it was the valley that was socked in. Fortunately, the fog was good for our farming business, but for just about anything else, it was really difficult not being able to see, especially while driving. However, as the fog receded, we found that the Tejon Ranch Commerce Center, due to its elevation just above the valley floor, was this clear oasis.
Just one more reason for businesses to locate there. Why mention the fog? Well, the fog is a metaphor for our goal today, which is to escort you through the literal and the figurative fog that can sometimes envelop Tejon Ranch. We want to provide each of you with greater visibility into our business. Let the clearing begin. In my shareholder letter from last November, I talked about our company's four strategic pillars, income, growth, governance, and culture. The foundation of these pillars are the dual macro trends of sustained regional industrial demand and favorable demographics supporting residential growth. I'd like to start off today by sharing some tangible examples of how we're taking advantage of these trends to expand our revenue base and increase our cash flow.
To kick things off, I want to talk about our growth engine, TRCC, and the recovery of the industrial market over the past year. We're confident that the logistics rebound gives us a first-mover advantage to capture growing leasing demand. As a result, we're excited to report that we've broken ground on a new 510,000 sq ft industrial building, one that we affectionately call Building 1B. You'll see it on the tour. The development is part of our joint venture with Dedeaux Properties. We bought out the project at a favorable cost basis, and we expect construction to last about one year. The project speaks for the strong underlying fundamentals of TRCC. Industrial space throughout the park is 100% occupied. Unlike many of the submarkets, industrial rents here have been consistently increasing over the past several years.
Now is the time to capitalize on that momentum. Tenants will be attracted to our Class A state-of-the-art facility and to the many benefits of being located in TRCC, like our on-site apartments and a critical mass of retail, restaurants, and travel centers, all reinforcing each other and making this a highly desirable location for industrial users. Our joint venture also speaks to our thoughtful approach to capital allocation. We're proceeding under a 60/40 deal structure. We believe in the project. Our 60% co-investment provides us with long-term recurring cash flow. We've also been able to invest in more of the asset without making an increased cash allocation. It's really a win-win for the company. There have been a lot of new developments recently in the southern Central Valley, from Bakersfield to Tejon.
This includes the recent activity at TRCC with Building One, which I just mentioned, and Terra Vista, as well as the new Nestlé distribution facility which finished construction last year. By and large, the largest new development in the area has been the Tejon Indian Tribe's Hard Rock Casino Tejon. There are many positive aspects of the casino. Like Tejon Ranch Company, the Tejon Indian Tribe has made a huge long-term financial commitment to the valley of hundreds of millions of dollars. Since the casino opened last November, traffic at our outlets is up 22% and sales has increased 12%. In fact, we had the best sales month ever at our outlets last December. Our travel centers have seen similar trends. We believe that the casino, as well as our new Terra Vista apartments, have both contributed to this activity, the benefits are real.
For those of you who will be touring with us today, we'll be having lunch at the casino, you'll have a chance to see the facility firsthand. We also see the potential for expanding our relationship with the tribe, we believe that there are many opportunities for us to collaborate in the future. One of the stories that we've been telling over the past year is that not all of California is created equal. In fact, California's Central Valley, in which Tejon Ranch sits at its southernmost tip, is the growth region for all of California. If you look at the last 10 years, the Central Valley has led all of California when it comes to population growth and jobs growth. This is particularly the case for Kern County, where the majority of Tejon Ranch sits.
When you put this all together, strong demographic growth, expanding industrial and job space, and increased economic activity, residential investment is the next logical step. Accordingly, last year we completed Terra Vista, our first residential community. Our 228 apartments are now more than 70% leased as we just passed the one-year mark. We expect to reach stabilization within the next several months. Let me provide some commentary on Terra Vista's investment performance. First off, we developed Terra Vista under budget to an attractive basis of less than $300,000 per door and to a spec level that is at the upper end of the greater Bakersfield market. We found that the rental rates necessary to generate a steady absorption have proven to be lower than we originally expected.
We adjusted rental pricing early on and feel that we are currently priced appropriately for the market. The value of Terra Vista extends beyond its standalone property economics, which, while lower than expected, are improving. On-site housing is critical to the success of TRCC, and the growing bed base fuels organic growth in our operating assets. Terra Vista also drives land value premiums, particularly for industrial real estate, and that is accretive to the overall IRR for TRCC. Terra Vista, like the industrial and retail projects which preceded it, has been a pioneering effort for us, and as such, it requires patience. Terra Vista also supports our hypothesis that there is an underlying demand for single-family homes in a well-designed community like the one we've envisioned for Grapevine. What you see here is a bird's-eye view of Grapevine, a community plan for 10,000 homes.
We're working on the first phase in planning area 6-A on the screen in the bottom left, immediately adjacent to TRCC and within walking distance of the outlets. The project is entitled. We'll be going through the mapping process through Kern County later this year. I'd now like to take a step back and talk about our master-planned communities more generally. Sometimes it's difficult to identify the land of opportunity within the state of California. There are green shoots that the pendulum is swinging in our favor. The chorus of voices promoting affordability is creating a more favorable climate for legislative reform, including the reform of the California Environmental Quality Act. Tejon is on the front line helping to push for CEQA reform with its advocacy of the Building an Affordable California Act, a ballot initiative that we helped to author.
Where the initiative comes into play is at our Centennial, where we are actively proceeding with the re-entitlement of our 19,000 homes in northern L.A. County. The Building an Affordable California Act would help streamline the CEQA process and provide downside protection to help mitigate the risk of rescission. Our re-entitlement efforts at Centennial protect the company's investment in the asset and provide significant optionality for the future. As part of this process, we will be releasing the revised preliminary draft EIR to the public. The EIR addresses issues previously raised by the courts, and it sets the stage for our presentation of the project to the L.A. County Board of Supervisors later this year. Our two other master plan communities, Grapevine and Mountain Village, are already entitled and through litigation. Each of these has a 30-year development agreement, as we expect with Centennial.
Mountain Village is our 3,450 unit high-end resort community in the heart of the Ranch, just over the hills to the east where we are today. As I've reported before, we are currently in a capital raising process for Mountain Village. That process is expected to last next year. The only material discretionary cost being expended on Mountain Village are those which support the capital raising effort. We are open and flexible about how that process will unfold, but our goal is to minimize future capital allocations while providing access to long-term cash flow. There are two final trends that I'd like to highlight. First, we believe that the infrastructure around us will become increasingly important to our business. Tejon Ranch is well-positioned to take advantage of being a toll booth for the vast infrastructure network which passes through our property.
This includes roads and highways, water infrastructure, including the California Aqueduct, oil and gas, telecommunications and electrical lines, and much more. We are looking at all the ways in which this unique confluence can benefit our shareholders with a careful consideration of how we can align the cash flow potential with the capital requirements necessary to unlock that potential. A few weeks ago, we celebrated the completion of the Pastoria Solar Field on land that's leased by the company to Calpine and Constellation Energy. With the solar field, along with the natural gas facility and the new battery energy storage system, Calpine is leading the way to provide additional energy infrastructure to the region. Our ground lease with Calpine remains one of our largest single revenue sources, and this is a good example of how we leverage the infrastructure that passes through the ranch.
I'd also like to highlight some key trends in our minerals segment. What makes this particularly timely is that like the industrial and residential markets, the demand backdrop is again shifting in our favor. We believe that the sustained economic growth in the U.S. and the continued macroeconomic inflationary pressure will drive steady growth for our natural resources. This includes our valuable National Cement ground lease, our oil and gas leases, and our rock and aggregate agreements. Critically, our ground lease and royalty deal structure in our minerals segment requires minimal investment, resulting in high margins, near 100% incremental flow-through, and long-term option value. Now that I've talked about how the company is taking advantage of some key trends, I want to turn our focus to how we can implement our plan. At this stage, there's a lot of pressure to go faster.
Believe me, I'd much rather stand up here and report on what we've already achieved. At the end of the day, it's only the results that matter. At this point, what I can offer you is more clarity on our intentions and the series of tactical steps that we must complete to be successful. First off, we must focus squarely on our CapEx. Right now, CapEx consumes too much of our cash flow, especially our CapEx for investments, whose return of capital is many years away. Plain and simple, we need to more efficiently allocate our capital and be highly cognizant of our level of annual CapEx spend relative to our EBITDA levels. If we don't do this, we're going to have challenges in maintaining significant levels of cash, and it's going to be an even steeper uphill climb.
The foundation of our EBITDA stability is TRCC and our partnership with TA Petro, where we have capitalized on fuel sales and owning the exit. As a result, we have one of the highest performing fuel operations in the country. We had positive meetings with TA Petro a few weeks ago, and we have a growth plan to preserve our attractive gas margins, to raise our diesel margins, and to drive incremental non-fuel revenues. To assist in our decision-making efforts, we have looked at some of the more successful public land companies who have effectively managed their CapEx and their overall capital structure. This includes the Texas Pacific Land Corporation, Aztec Land and Cattle Company, the Keweenaw Land Association, Limited, Landbridge, and others. What these companies all have in common is an efficient deployment of capital. We have strived to better understand their successes and their failures.
We've also focused on how we're unique and how our specific constraints require a different approach. In addition, we've looked at other master-planned community public companies and how they've attempted to create shareholder value. To paraphrase Charlie Munger, "It's always cheaper to learn on other people's mistakes." To be clear, we must put more of our balance sheet to work and unlock the cash flow potential to our assets sooner. One such asset is our water portfolio. Over the past several decades, the company has accumulated water contracts and developed infrastructure to both serve our existing businesses and to support 35 units of planned housing. As a result, we have access to more than 127,000 acre-feet of water on our balance sheet, along with approximately 31,000 acre-feet of water per year under our water contract, subject to state allocation.
What we know is that water is only going to become a more precious resource here in California. An important priority for us is to invest in the infrastructure that allows us to put this water to work while we efficiently manage the carrying cost. This means moving it and monetizing it when conditions allow, and banking it when they don't. As I mentioned earlier, we need to expand our revenue base with additional layers of passive income from leasing and royalties on our land. This isn't easy, and the low-hanging fruit, both literally and figuratively, has already been picked. Given the infrastructure confluence, as well as our vast land holdings and our proximity to Southern California, we are optimistic that our R&D efforts in this direction will bear fruit. Calpine's new solar field is just one positive example of our expanding revenue base.
Moving forward, we need to increase the layering of high-margin revenue streams, both above and below the ground. Leveraging our land holdings also includes our commercial real estate business, where we must identify ways to advance our growth using less capital. The graphic behind me conveys our intention. This is a modified version of the chart that we presented last fall, which illustrates the opportunities that we're pursuing and our goal of producing the highest yield at the lowest capital investment. It's not just a question of whether we can be successful pursuing a given investment opportunity. It's also a question of how we as a public company can pursue a given investment opportunity in a way that grows earnings per share. Those are two very different concepts. We have to rethink traditional real estate deal structures and identify ways to implement our strategy which work for our shareholders.
The clearest way to do this is to take a less capital-intensive approach. Finally, throughout this entire process, we must remain engaged with our shareholders. Since I arrived here last March, we've worked hard to reach out to as many investors as possible for an open and constructive dialogue. We've told our story and listened to feedback. We've held an investor day in New York last fall. We started hosting quarterly earnings calls and taking your questions. Our annual meeting here today is all part of our effort to be more open. Out of this effort, we responded to what we heard and improved our governance. The company's board has reduced in size and eliminated the executive committee. These highlight our desire to be more agile and to reduce our overhead. Our updated executive compensation plan provides increased accountability among our officers.
We have also cascaded this structure down to the rest of our management team so that we are all aligned on focusing on generating share price appreciation. As part of our commitment to remain engaged to all of you, we want to provide a closer look at our roadmap and the progress against our milestones, all in the name of providing disciplined growth. Let me first go through some of our financials. To be perfectly frank, there's not a lot to celebrate when your net income is only $75,000. Some of that was impacted by the four and a half million dollars of non-recurring costs. What I will say is that these numbers are shockingly low, and I intend to change that. It's my duty. My compensation is driven by share price appreciation and adjusted EBITDA growth, I'm aligned with all of you.
Our adjusted EBITDA did increase 8% last year, and it's increased at a compounded 9% per year since 2022. That's all well and good, but we clearly need to do orders of magnitude better than that. There are signs of operational improvement. We increased revenue 20% year-over-year in our commercial and industrial segment, and 35% in farming, supported by an on-bearing year for pistachios. Commodity prices, however, were impacted by our mineral segment, and those revenues dropped 6% last year. Moving on to our balance sheet and cash flow. As you can see on the left, our total assets increased slightly to $630 million, while our total equity was about even at $490 million. Most of these changes relate to finishing our Terra Vista apartments.
As of year-end 2025, we have also drawn a total of $93.9 million on our line of credit, leaving $66 million of debt capacity. Finally, if you look at our recent history of 12-month trailing adjusted EBITDA, we've seen tepid but consistent growth from $21.4 million in 2023 to $25.3 million in 2025. In a nutshell, and preferably one from our orchard, what we need to do is more of the good things which drive EBITDA and less of the bad things which reduce it. This chart illustrates our efforts to continuously streamline our operations. We're not done yet, and we can never be done. We improved our EBITDA through cost discipline and revenue diversification.
Included in this was $2 million of annualized reduction from our staffing adjustment last October, which will be more fully realized this year. As I noted in our quarterly earnings call, our net income for the first quarter was up $1.6 million to last year and $1 million to 2024. 2026 is off to a better start. Salaries, property taxes, and professional services are our three largest expenditures. We've reduced our headcount, successfully challenged property taxes, and reduced our professional services costs related to audit and governance. We've also competitively rebid our third-party contracts. We're continuing to look for more ways to reduce these costs. As our board has become more agile, so too has our management team. With fewer people, we've instilled a stronger culture of empowerment with more ideas per person and greater ownership.
As I mentioned, we're in the early stages of our plan. We'll share more details as they become public, and we'll be as transparent as possible with all of you. We ask for your patience. Like I said before, we would much rather tell you about our actions than what's yet to be done. In my November shareholder letter, we laid out some of the intermediary milestones that we hope to achieve this year. The chart above shows how well we're performing against those commitments. We've been successful in providing enhanced supplemental financial information. Our board action reduced our board size, and we completed the additional TRCC investment with the groundbreaking on our new industrial building one quarter early. Far so good, but again, we're not done yet. As I reflect on my first full year as your CEO, I want to leave you with this.
I came here because I believe Tejon Ranch is one of the most extraordinary land positions in America. After a year of getting to know just about every corner of our property, flat tires and all, I still believe this now more than ever. We've been honest with you today about where we are and what still needs to be done. As I mentioned in my intro, we must rise above the fog. The trends are moving in our direction. Our plan is clear, and this team is focused and hungry. I firmly believe that those of us who work here at the ranch are custodians of this property and custodians of your capital. I want to thank you for that privilege and let you know that we understand our responsibility, and we're glad that you're along for the journey.
For those of you joining us virtually, I'd like to leave you with a virtual tour of the Ranch, showing you the diversity of our landscape and our asset base. For those of you who are here in person, I'd like to provide you with a preview of our tour that we're about to take. Think of this as your two-minute trailer with views of the Ranch that we can't get to, and from an aerial vantage point that is out of reach for all but our tallest shareholders. Without further ado, I present to you Soarin' Over California Tejon Style. All right, t hat concludes my formal presentation. We are now going to take some questions. Nick, you're going to moderate, so let's go ahead and get started.
All right. Do we have any questions? [audio distortion]
My name is Howard Leading. I've been a shareholder here since Jack Hunt. I'd like to point out something here. You know, we have a Bob Stine way. It's true that Stine did a whole lot of things. The fact of the matter is, so did Bielli. We ought to have a Bielli way. To talk about some of the things he's done, he did get the first housing here. Everyone remembers that. He got a lot of distribution centers. We probably gave the IKEA away at the beginning just to get one. Stine got the other distribution centers. More than anything else, he got the permits, w hich have been valuable. One of them he got was the permit for Tejon Mountain Village, which raises the question. We've put $150 million into it. Fair enough.
I think we should continue it. I think one day we should get this thing done. I'll bet that for us to get those first 401 home sites, we're going to have to recognize it's going to cost us $200 million. I'm wondering where we get the money for on that. I think we should go ahead with it. How we get the money, I don't know. I see a shift here in some of the things that the new president has said. He seems to be talking about building the Grapevine and putting housing in there before we build the homes into Tejon Mountain Village, and that might be right.
That may be the low-hanging fruit. That's not going to be the $200 billion to build the village. Can you give us some coloration as to how the Grapevine housing might develop? Is it joint venture partnerships? How much money are we looking to develop that property? Is that $50 million, or what do you think the figures would be? Something on that order. Thank you.
Thank you. Just to restate, if you didn't hear, you know, how would Grapevine be developed? Through which capital?
You bring up a lot of good thoughts. Let me say first that when we conceived of the three master-planned communities, Grapevine, Mountain Village, and Centennial, they were all designed with a unique positioning so that they could all conceivably be developed independently at the same time or at separate times. Moving ahead with Grapevine doesn't impact what we do with Mountain Village. Grapevine is a community that will largely serve as a bedroom community to Bakersfield. Bakersfield's a large and growing city with an average home price in the $400,000 range. Centennial would be a bedroom community serving northern Los Angeles County. Santa Clarita, the closest city, has an average home price of $800,000.
Mountain Village is a high-end resort community. It will draw its buyers from a larger geographic swath with you know, home prices in the millions of dollars. Let me just start off by saying each of their different positionings impacts their individuality. As I mentioned during my presentation, we are going through a capital raising process on Mountain Village. Mountain Village is fully entitled, and we've got a final map on the 400 lots, as you mentioned, and a preliminary map on about 700 lots. We are farthest along there. We are in the process of raising capital, and we hope that that would come to a conclusion next year.
Grapevine has not yet started a mapping process. We are in the process right now of working on a business plan, putting that in front of the board and also going through a process with Kern County so that mapping would start later this year. The way Grapevine could be developed any number of different ways. As I mentioned, consistent with a lot of the approaches that we've taken, what we own is the land. What makes us different is the land, and contributing the land into a joint venture so we're not putting up additional cash following the formation of that joint venture is our goal. That way we let our partners invest the capital, we contribute the land, then you go and develop a project together.
There are many permutations of how we can develop Grapevine, and in other ways that can maximize the investment return and the phasing. We're working through those right now and hope to be able to share more details with you as those become available. It's an exciting time, and we do think that building on Grapevine will make TRCC and everything that's going down at the bottom of the hill that much more productive. We think you'll agree once we go on the tour.
Dave Zoraster, longtime stockholder. I have two questions regarding the mineral department or component. One, what is the status of National Cement's lease renewal? Two, is there any projection of the effect that the giant rise in drilling costs or prices nationwide is going to have on the income to the company?
We've got a long-term ground lease with National Cement, which does have an extension, a potential for that. We're nowhere near the end of that. They've got 50+ years of remaining limestone that they can quarry. They're going to be here for a very long time, and they are, as I mentioned, one of the largest profit centers in our company. You raise a good question on the impact of rising oil prices on our oil and gas leases. We talked about this a little bit at our board meeting yesterday. We're here in California, nothing is quite as simple. Let me provide a little bit of a backdrop.
As we all know, oil prices since the start of the Iran war have increased 50%. That has caused certain production to begin that wasn't viable when oil was at $60. With oil at $100, different things can happen. California is more constrained because of several reasons. There was initially a policy of shutting down oil fields. That happened. California imports 75% of its oil. They also passed what's called Senate Bill 1137, what that did is that created a 3,200 foot setback along all sensitive receptors.
An oil rig within a school or a house would be an example of that, b ecause of that, you are limited in what you can do. You can't expand the production. It limits you on maintenance. A number of our oil wells fall within that. We do have a number of oil wells that fall outside of that, and those rights and production fall to third parties. CRC is the largest of those. As has been reported elsewhere in Kern County, they are starting to increase production. While I wish I could say oil prices went up and it's going to be a gusher for us here, the impact is a little bit more, a little bit more complicated.
Thank you.
I have one question from a virtual participant. This is from Grover Wickersham. As longtime shareholders, we are extremely pleased with the accomplishments during the last year and are very supportive. Our comment as landholders in adjoining counties and long-term Californians is that there are huge changes pending that could enable TRC to capitalize on the planned community's investment. We would encourage other shareholders who are less supportive to be a little more patient. Our question, c an TRC begin to better monetize TRCC and capture more of the economics of commercial developments, and multifamily housing by making 100% owned investments and/or taking larger shares in joint ventures?
What I'll say about TRCC is that TRCC is the tip of our spear. It's the both the literal and the financial nucleus from which everything else emanates. We will develop TRCC based on market conditions. We felt that the market conditions were right to start the next industrial building a little more than one year after the Liberation Day tariffs upended the entire industrial industry. We did it because the fundamentals are sound. As I mentioned, we're at 100% occupancy, rents are rising, supply is way down, and there's a lot of leasing interest for users, particularly larger users, looking for industrial real estate.
As I also mentioned, the economics for multifamily development, you need to mature a little bit more in order for a second phase to begin. As rents increase, we hope that that possibility can occur. There are a number of ways that future capitalization on multifamily can occur. Among the ways would be another joint venture, and that can include an investor investing in phase I as well as the development portion of phase II. We look forward to continuing to build out TRCC. Those are just a couple of the ways. I would also be remiss if I didn't mention again, our TA Petro relationship, which has been hugely successful for us. There are several ways that we can increase our earnings from that partnership, and we are looking to capitalize on that in the coming quarters and years.
Hi. Good to see you.
Hey, David.
Morning. I've come to two of these meetings over the last few years. My question is, has there ever been any prioritization of assets and the returns? Are there no sacred cows among the assets that Tejon manages, which are many? Really our capital structure doesn't support managing all of the MPCs and the commerce center, and all the attractive opportunities that we have ahead of ourselves. You know, I know in my family we have a budget, and we allocate resources so that at the end of the day, there's something left over. For the last, I mean, cumulatively, Tejon from inception, whatever money you've earned through JVs, sales, rents, have been offset by spending for permits, entitlements, et cetera, whereby there's never been anything left for the shareholders. Is there a period of time or in your plan where that is going to change?
Yeah. You know, there's a prioritization of assets. If you look at the things which generate cash flow for us now, many of those are passive investments which don't require significant incremental cash flow. You look at our National Cement lease, you look at our TA Petro relationship, you look at all the other ground leases that we have. Those are front and center in terms of cash flow generators that don't require much investment. You are right, the master planned communities in particular require significant CapEx without any immediate return. I would like to think that we are approaching an inflection point on that. By that, I mean, we are not spending money on Mountain Village unless it helps us raise capital.
That's an example of, and if we can do that, we will then proceed, but use the capital on someone else's balance sheet, and not ours. For Centennial, in terms of prioritization, that's capital that we believe is prudent to spend to maintain the investment that we have and maintain the value of the Centennial property. An unentitled piece of Centennial land is worth a fraction of what it is with the entitlements. While it is painful to go through that process a second time, we believe it is the best route providing the most optionality for shareholders in the future.
Finally, we also believe that there is value both within Grapevine but also to the entire TRCC and southern San Joaquin Valley income-producing assets portion of our portfolio to advance, to advance Grapevine. We are being prudent about that, and like I mentioned before, our goal is to take that to a certain point where we can then bring in another partner at the most attractive terms, which means farther along than we are right now, so that we can then do what you are advocating. We are I think we're on the same page. It might just be a matter of timing, in terms of doing fewer things on our balance sheet.
You're right, the goal here is to start to produce higher earnings, start returning cash to our investors, and move forward on implementation in a much more efficient manner. Yo u know, again, I ask for your patience. I understand the challenges, and we are working to optimize the deployment of capital. And as I mentioned, we have to balance our CapEx spend with our EBITDA, and we need to maintain our cash levels, and we need to be very judicious in using debt.
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I will.
Thank you.
All right. Thanks, Matt. Something you said in answer Howard's question floored me a little because I've been a shareholder since about 1985 on and off, quite on now, representing a number of shares. The words, "We're working on a business plan to present to the board," I've heard that before for decades.
It floored me because of that. I don't know, you've only been here a year. I mean, you had to get your arms around the whole thing, but that's sort of what the story of Tejon has been for most of that. Working on a plan. We get one, we go to the courts, they defeat us, then we don't hear about it, excuse me, as a shareholder for a couple of years. It's painful to have an asset like this sit. It'd be great. It's beautiful. I mean, those shots were amazing. I mean, beauty doesn't sell in this case. We have to do something with it. I feel like we move way too slow, even though it is a slow process, putting together a business plan to get to the board.
That thing that should, in my opinion, have been a top priority so things can move forward because the board has been slow and the actions have been slow. My apologies for starting out with negativity, but it just isn't moving. I'd say since 1985 is fairly patient, so I think I have the right to say that, and I'll ask for a response in a minute. I'm curious, we built these apartments, now there's going to be more. Have we thought of the needs of those apartment dwellers that being in that apartment complex, that there's ample things that they would need on an ongoing basis? That is a question.
I'll take that one first. That one's a little easier. Yeah. When we designed the apartment, which was before my time, we wanted to make sure that we developed a high quality environment that was in a admittedly pioneering location. If you're going to get people to rent in the apartments, half an hour outside of Bakersfield, you need to provide a good place for them to be. I think you'll agree when you see it. The clubhouse is great. We've got a pool amenity. We've worked really hard on soft programming, both to help increase our lease renewals, which are starting right now. I think we've got a great product there that meets the needs of those apartment dwellers.
We survey them early and often to find out what's important to them and have gotten good feedback that they like what we've provided. That's what I'd say about the apartments. A couple things on your other comment. I guess first off, you should know that the unfortunate reality in California is that it's going to take a couple tries sometimes to get projects approved. TRCC, where we're reaping the benefits of the approvals that we obtained, that were challenged, that were litigated, that were reobtained, are now coming to bear. Anything that you see that is producing cash flow now went through that hard process.
We're going through that same process at Centennial, which again, is painful, but we hope we're closer to the end than the beginning. I explained where we're at with Mountain Village. Let me clarify my comment on the business plan for Grapevine because I don't want it to be misinterpreted that we're starting from scratch or that we're You know, what I mean by take a business plan to the Board. We, as We on the management side have the authority to proceed under a certain set of terms. There's a, and for Grapevine, in order to proceed with a significant capital allocation to take us on the final step of mapping, which requires $7 million, that requires Board approval.
In order to get board approval, you need to present, you know, a plan. It's not the original business plan. We're, you know, we're probably two or three or four versions of that business plan, constantly evolving, you know, the plan and the programming and talking to builders and talking to other potential groups on how we might make this successful. T hat version and that plan that will then lead to a mapping process is where we are. A gain, it's not the first, it's not the first draft. It's just evolving the plan so that we can complete mapping, do the horizontal work, get homes sold, lots sold to builders, get homes built, and get people in those homes.
This is a land company with a master-planned community component. Those components do take many years to activate. As I said, I am looking at ways that we can do that more efficiently so that we recover capital sooner in the process than later because it's a very capital intensive process. Y ou know, I wanted to just clarify that comment.
I recognize that it is a process, but sometimes there's paralysis from overanalysis. I know it is a to a process, and courts are tough.
Yeah
Just a couple of other things.
Yeah. By the way, I'll also just say, we're not going to move forward on a project that doesn't make financial sense.
These are not I mean, it takes a lot of work to get things to work. You know, it's not just a rubber stamp and nor should it be.
Yeah.
Right? For the shareholders. Have you guys looked into possibilities of something in the amusement area? Obviously, there's more traffic. There's going to be kids, there's going to be families, and JV-ing with some kind of an amusement group would be a go-to, another reason to come to this area since there's already other reasons to come here.
Sure. We've looked at a lot of different uses down at TRCC, things in that general genre. Yes, we've looked at things both in the past and currently. I think that we've approached different groups in the past. I think with the casino coming online, the addition, you know, the visitation that you've got that you're seeing there, hopefully groups that might have thought that we were too far out before will now find reason to reconsider. It's one option that we're looking to exploit.
Just last comment. Just last one. If based on what the gentleman there asked about our capital structure, would it make sense to find a company that has deep connections with building in this, you know, in the environment that California creates, and perhaps put the company in a position to be sold to a group that can develop it faster to give everybody a better return? That's it.
I mean, that's Sure. That's a different way of, I think, agreeing with our general philosophy of contributing land to a venture or having another group implement something where we get an economic advantage. Like I said, there are lots of ways to skin the cat, whether you're selling land, leasing land, doing a license agreement, joint venturing. There are a lot of ways to do that. Bringing other groups in to do the implementation, whether that's a builder taking down a super pad or finished lots or anything in between, we're looking at all that.
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I mean, we look at all offers for everything. If the right offer came, we would consider it. Again, whether that is a finished lot or the entire company. You know, we're not actively marketing the company for sale.
Thank you.
Hi, I'm David Speer from Lakeshore Capital. First off, I just want to say I think we're all very fortunate for this day and for Matt. I mean, I've gotten to know Matt over the last year, and I've become quite fond of, you know, his leadership and the role he's had in the company. I have a question and a comment per se. There's a lot of narrative that was discussed, and a lot of information that was greatly appreciated. I think it's important as a shareholder and for shareholders and for everyone at this table to understand that there is already a lot of value at this company. I mean, I think we have anywhere from $25 million-$30 million of recurring income as we speak. No further development is required.
We're looking at a, you know, tangible solution to the problems that many have raised here. I don't necessarily see how master plans, how approvals really address the issue, which is we have $25 million-$30 million of income that's just not getting to the bottom line. This past quarter, I believe we had $5 million of cash flow, our debt went up and our cash balance went down. I think from a shareholder return perspective, the goal is not to get assets approved, it's to make money, right? It's for the stock to go up. My question is, h ow do we address that issue of the $25 million-$30 million of income that's there, but not getting to the bottom line?
Shouldn't that be the core focus of everyone at this table and as the CEO, not on getting new entitlements, new approvals of using our asset base, using our capital, using our professionals to really figure out that problem and come up with a solution to get that to the bottom line into the pockets of shareholders?
I mean, in some ways, David, I couldn't agree with you more, right? I hope what you've seen today shows an emphasis in terms of prioritization on those parts of the business which are generating cash flow. I wanted to emphasize them both to show how important they are and also to show the growth opportunity. I also agreed with you and when I said we need to manage our CapEx, and we need to do more of the things which generate EBITDA and less of the things which take away from EBITDA. I t's not black or white and all or nothing.
I think we need to do those, and we need to find smarter ways to be in the master-planned community business so that the collective weight of that business doesn't depress earnings. That is the balancing act that we're going through in an effort to try to grow in an effort to try to grow the business. I'm with you, and we are working on it.
Just to be more tangible. When I look at it is I see interest expense that's being capitalized. I see farming, and I see what, of the three expenses when I talked about that $25 million-$30 million not hitting the bottom line, that's what's getting in the way of it. Going back to it is, shouldn't there be a focus on how to address those three issues where I don't see how a approval or joint venture of a development, yes, maybe it eats into and starts absorbing some of those water costs, but how that necessarily addresses those three issues?
Whether it's a question or a comment, I think if we look at those three issues of interest expense, farming, and water, then I look at this quarter, I think we invested another $1.7 million back into farming, and we still had the water costs, still the interest expense. I look at it as for all of us to make money here, if we can address if there's a solution, if there's a way to use our asset base to figure out how do we get rid of that debt, how do we get rid of the farm losses, and how do we get rid of the water costs, which is, you know, anywhere from $6 million-$7 million a year burning in our pocket.
If we can come up with a solution that addresses those three issues, I think we all are going to be incredibly successful, and we're going to be coming back here hopefully next year, but, you know, maybe two years, but hopefully next year really very happy and proud of what we've accomplished. I think those issues have to be addressed and solved. Matt, I really do appreciate it because I think you've done a great job so far, and I hope, everyone sitting around this table can enable you and support you to coming to a solution sooner rather than later to those problems. I really appreciate it.
Thanks, David. I'll just say this. We had a board meeting yesterday, the three things that you mentioned, farming, water, and debt, were all big topics of discussion. I'll just leave it at that. We are working to find solutions for each of those.
Hi, Matt. Jim Barrett. My wife and I have been also long-term shareholders.
Great.
Could you talk about the financing of Mountain Village? The final mapping, as I recall, was done, two to three years ago. Has it been macroeconomic factors, a general lack of interest by JV partners, the possibility that you and potential investors haven't been able to come to terms in terms of what percentage is owned by Tejon and what is owned by the other party? Can you give us some transparency as what the challenges have been in terms of getting a Mountain Village off the ground?
Sure. I mean, it's a challenge to begin with. It's a challenging endeavor. I don't want to underestimate that. Depending on the time, the time in the market, yes, there have been macroeconomic challenges. You're always dealing with the capital markets' supply and demand of opportunities, and when those get capitalized. Yes, we have gone through a process in the past, and that has brought groups to the table, and that has brought proposals to the table that weren't palatable or economically favorable for the company or its shareholders. If we're going to do a transaction, it needs to be accretive to the return.
I mean, I believe that with my background in the Master-Planned Community space, specifically, capitalizing and developing luxury master-planned resort communities like Mountain Village, that there's, you know, there's some blend of art and science to it. There's some blend of rationalizing the quantitative components, as well as, you know, providing a sense of romance and wonder, because these, you know, in order to get even the most rational investor interested.
I do believe that the storytelling component of conveying what that community can be, and it could be one of the great resort communities in the country, of which I've spent 25 years studying, learning from the successes, going through the failures myself and observing others on things that people do right and things that folks do wrong. There's an art to getting it right. I feel like I can get it right. I wish I could be more You know, it's not just, it's not just one thing. I do believe that doing it again, under, you know, my watch with the right timing and the right outreach will elicit a different result.
If it doesn't, we'll have to look at other options. It's worth it to the company because the long-term value creation is significant. Oh. Great questions online, Robert. That concludes my presentation and the Q&A. Now we're going to get ready for the tour. The b us is here. The bus is here. Yes, i t's out front. It is out front. As we wrap up, what I'm going to leave you with, we have a filming business that is a small portion of our ranch operations segment. We've been pretty fortunate to have some great commercials, music videos, feature films filmed on the property.
We've got a looping set of some of those to show you as we gather up and head out. Again, I want to thank everyone for coming here to the ranch. We were excited. As I've told many of you, it was easy to say yes. It was hard to then deliver. It took a team of us to know that, okay, so I guess we really are going to have everyone show up at the ranch. I want to thank the team here at Tejon and many of the people who are not here in the room for all the hard work. It's going to be a great tour. You'll have a lot of fun.
You'll get to meet a few other people that will be telling the story. I'm tired of hearing me talk, so you'll get to hear from them. We'll be able to tell you the story as we go through each of the different points. I'm going to move on to, you can take a look at some of our commercials and videos as we gather our things and head out. Again, thank you all for coming.