Exposes Company’s 20-year History of Negative Stockholder Returns under Leadership of Incumbent Board and Questionable Compensation Practices
Believes Net Asset Value of Company Exceeds
Plans to Withhold Support for Compensation Committee Chair
Fellow Stockholders,
As a long-term stockholder of
During its early days,
Our diligence over the past several years has led us to the following conclusion: the Company’s failure to deliver value to stockholders is simply unjustifiable. We believe much of the Company’s inability to provide stockholders with a return on their investment is the result of severely misaligned compensation incentives for senior management, speculative deployment of capital and failure to effectively communicate the value of the Company’s assets to the market.
Accepting the status quo at the Company is no longer tenable – stockholders have suffered long enough, and it is time for management and the Board to take immediate action to deliver value to stockholders. Due to the Company’s failure to present a clear and credible plan as to how stockholders will receive a return on their investment or how the Company plans to close the gap between its net asset value (NAV) and its share price, we intend to WITHHOLD our votes for Compensation Committee Chair
A Persistent Failure to Deliver Stockholder Value Over Any Relevant Time Period
When looking at the past 1-, 3-, 5-, 10- and 20-year periods, the numbers are clear: your investment is likely worth less today than the day you invested, even though there has been considerable appreciation in the value of the Company’s assets.
1-Year TSR | 3-Year TSR | 5-Year TSR | 10-Year TSR | 20-Year TSR | ||||||
Tejon Ranch | -16.92% | -5.67% | -15.37% | -50.71% | -56.17% |
Source: Bloomberg. Calculated as of market close on
Given the immense destruction of stockholder value that has persisted during their lengthy tenures, we question how the Board can justify the continued service of the directors we intend to withhold support from at the Annual Meeting: 81-year-old
What makes the Company’s performance even more vexing and inexcusable is that despite the quality of the Company’s assets, the strength of the balance sheet and the growing cash flows, the Board and management team have exhibited no urgency in providing any return to stockholders, the true owners of the Company (who have not even received a single dividend during this century). We are concerned that the incumbent directors are prioritizing their own interests and those of management over stockholders. In our view, change is clearly needed.
We Believe the Board Has Enriched Management While Stockholders Suffer
A board of directors has a fundamental obligation to implement appropriate compensation frameworks and incentives for management that align with a company's strategic goals and promote long-term value creation. Unfortunately, at
Under the current compensation program, because executives receive compensation based on target prices that reset every three years, executives are able to meet their targets without contributing to the long-term value of the Company. This is unacceptable in our view. Executives should be compensated based on continual long-term price appreciation, and the compensation tied to share price appreciation should no longer have “resets” (which is akin to an investment manager receiving a performance fee without a “high watermark”).
Presently, cash bonuses are tied to meeting Adjusted EBITDA budgets, which are set by the Company. Additionally, bonuses are paid when the Board approves development projects, when construction begins and once again when the projects are completed.2 Problematically, these bonuses are given irrespective of the eventual economics or performance of the projects, so it appears as if management receives bonuses for merely doing their job.
Furthermore, the current compensation program includes stock compensation that incentivizes management to “[c]omplete a capital raise of at least
These misaligned incentives have resulted in undeserved windfalls for Company executives. For example, during the past 10 years, while stockholder returns have been in the red, Chief Executive Officer
With the upcoming retirement of
We urge the Board to work diligently to reconfigure the compensation structure to ensure that management is properly incentivized to make decisions that benefit stockholders and drive meaningful growth. The current compensation scheme clearly is not working for stockholders.
Capital Allocation Missteps Have Harmed the Company and Investors
In addition to leading to abysmal returns for stockholders, we believe the current compensation structure has incentivized management to pursue master planned community (“MPC”) developments at great cost and significant dilution to stockholders.
While we can appreciate that aggressively pursuing all three MPC opportunities may have been a sound business strategy at a certain point in the Company’s history, the success of the Company and stockholder returns are no longer fully dependent on the eventual development of the MPCs. At this point, we believe it makes sense to aggressively pursue only the Grapevine MPC, which is already fully approved and adjacent to the
Since 2013, the majority of Tejon Ranch’s net capital spend has gone toward MPC capital expenditure, where nearly
We are deeply troubled that the lack of return on the Company’s capital investment has not caused the Company to reevaluate its strategy of investing its own capital in projects that lack clear, quantifiable demand and returns.
Tejon Ranch Has High-Caliber Assets and Tremendous Growth Potential with Improved Capital Deployment and Clearer Messaging
We firmly believe in the quality of the Company’s assets, their potential for continued appreciation and development, and that with the right leadership and strategy, substantial value can be unlocked for stockholders.
When adding the book value of the Company’s remaining 270,000 acres and the value of the Company’s water and farmland, we believe the total value of Tejon Ranch’s assets, net of all debt, presently exceeds
Further, the
Given the Company’s exceptional assets, robust balance sheet and growth potential, we simply cannot reconcile why management and the Board have not taken immediate action to remediate the large valuation disconnect.
The Company’s Leadership Must Face Accountability
While we have attempted to engage constructively with management and the Board in hopes of creating value for stockholders, the Company’s unwillingness to meaningfully engage with us has made clear that we cannot sit idly by as stockholder value continues to deteriorate. In our view, the Company’s leadership needs to immediately demonstrate a commitment to delivering value to stockholders, whether by returning capital to stockholders, taking steps to align executive compensation to stockholder returns or working diligently to properly convey the value of the Company's assets to the market.
It is our hope that the incumbent directors who have overseen the Company’s abysmal stock performance over nearly every relevant measurable period receive a wake-up call at the upcoming Annual Meeting where stockholders will have an opportunity to hold them accountable. We encourage our fellow stockholders to join
Sincerely,
About
THIS IS NOT A SOLICITATION OF AUTHORITY TO VOTE YOUR PROXY. DO NOT SEND US YOUR PROXY CARD. NITOR CAPITAL MANAGEMENT LLC IS NOT ASKING FOR YOUR PROXY CARD AND WILL NOT ACCEPT PROXY CARDS IF SENT. NITOR CAPITAL MANAGEMENT LLC IS NOT ABLE TO VOTE YOUR PROXY, NOR DOES THIS COMMUNICATION CONTEMPLATE SUCH AN EVENT.
Contact
dspier@nitorcapital.com
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1
2 Source: Company filings.
3 Source: Company filings.
4 Source: Company filings.
5 Source: Company filings.
6 Source: Company filings (numbers do not reflect G&A expenses).
7
8 Source:
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