Land on the Brain (TRC):
worldnetdaily.com
Friday, August 24, 2001
Land on the Brain
By Bob Howard
© 2001 WorldNetDaily.com
In this dull and duller market, I still see value in certain sectors. As stated in previous columns, this year the raw-land stocks are doing very well as money continues to flow toward the single-family housing sector. In fact, I see evidence that people are taking money out of their stock accounts, and moving it further into real estate.
If you looked east of Los Angeles 30 years ago toward Riverside, you would have seen mostly orange groves and raw land. Today if you look in the same place, you will see vast tracts of single family housing developments.
For a similar situation, in the next 30 years, I suggest looking north of Los Angeles. Consider Tejon Ranch (NYSE: TRC) which owns about 270,000 acres of land that is 60 miles north of Los Angeles and stretches all the way to the Bakersfield area.
Ever hear of Martin Whitman? Mr. Whitman is a millionaire many times over and he recently retired from the mutual fund business, where for many years he ran (with great success) the "Third Avenue" family of funds.
But old habits die hard, and to that end in the last year Mr. Whitman has been a steady buy of Tejon Ranch stock for his personal account.
Recently it was announced he now owns around 4 million shares (of the 14.3 million) outstanding shares in Tejon. It is also noteworthy that Mr. Whitman has been buying other "land" stocks, but by far his biggest "bet" so far is Tejon.
Why? Well, let's take a closer look and try to put some (rough) value of what this land may be worth.
First of all, a lot of the land around Interstate 5 north of Los Angeles is sure to grow in value as commercial development is finally coming to this area. Recently Calpine (NYSE: CPN) announced they will be building a new power plant on Tejon land. Dermody Properties, a large commercial real estate developer recently announced they have formed a partnership with Tejon to build a 650,000-square-foot-distribution center on Tejon property at the Tejon Industrial Complex at I-5 and Highway 99. It is important to remember that Tejon owns large amounts of land around the freeway, on both sides.
Also significant are some recent deals Tejon has signed with some major homebuilders such as Pardee Construction and Lewis Homes. So, things are starting to heat up in the single-family housing area for Tejon land holdings.
Take a look at these rough figures, and you may begin to see what (savvy) investors like Martin Whitman see when they look at Tejon.
Projected value of only 161,000 of Tejon's 270,000 acres (these are my own figures and are in no way endorsed or suggested by anyone at Tejon Ranch, and I can, of course, make no guarantees):
Acres Cost per Acre Projected Value
1,000 $100K, commercial $100 million
30,000 $30K, residential $150 million
10,000 $15K, residential $150 million
20,000 $10K, residential $200 million
100,00 $1K, residentia) $100 million
Total Projected Value $700million
Current Tejon Market Cap $400 million
While Tejon currently trades around the $27 area, the true value may be closer to the $50 neighborhood, quite possibly even more than that.
One might want to ask when looking at Tejon, "Will all 270,000 acres ever be developed"? The answer is probably not, but what one must also remember is that these days Uncle Sam is most willing to swap land that a company like Tejon has for either cash or other land that Uncle Sam already owns. So to my way of thinking, all of this land is worth something.
I have also assigned no value to the mineral rights. Tejon's oil and gas rights might be insignificant, but the water rights could be a homerun. In water-starved California, the water rights that Tejon currently owns could easily be a significant number.
What I suspect Mr. Whitman has seen, (savvy value investor that he is) is that the market will soon realize the value of this land bonanza.
There could also be a large homebuilder interested in buying Tejon. The biggest problem developers face now is finding large tracts of land they can build on. From that perspective, Tejon may make a tempting target.
If you care to take a look at the Tejon Ranch chart you will notice the stock spends a whole lot of time going nowhere. But take a look at the TRC chart from 1985 to 1986 (another period where land prices surged) and you will see the TRC stock price rose 600 percent in less than 15 months.
I believe, but cannot guarantee, another period of land inflation is currently underway and that Tejon is severely undervalued below the $30 area.
Bob Howard has been in the stock market game for over 23 years. Since 1992 he has written the "Positive Patterns" newsletter, valued by money managers and stockbrokers for its take on long-term investments. Free samples of his newsletter are available by request. |
