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--the California "Mega-Park" Project

Tracking measurable success on preserving and connecting California's Parks & Wildlife Corridors

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Monday, April 21, 2008

Stock Speculator's Report says Tejon Ranch's Value Increasing

270,000 Acre Ranch Could Either Be the Sprawl that Connects L.A. to the Central Valley or a New National Park

Posted Fri Apr 11,

Posted By: Steven Ralston, CFA
Management is pursuing the real estate development of the 270,000-acre Tejon Ranch Company

(TRC) located in Southern California. The company’s three major development projects are the Tejon Industrial Complex, Tejon Mountain Village, and Centennial. As commercial, industrial, and residential entitlements are pursued, the stock’s valuation ought to expand significantly. The Buy rating is maintained. Since Tejon Ranch is in the early stages of developing 270,000 acres of largely undeveloped land, traditional valuation methods based on P/E, cash flow, or a dividend discount model are not appropriate. In addition, book value is distorted, making price-to-book inaccurate. The land is being held on the balance sheet at cost or $7.9 million ($29 per acre), since the land was acquired through Mexican grants in the 1840s. Despite the facts that Tejon’s three development projects comprise less than 10% of Tejon Ranch and approximately 130,000 acres may be set aside for environmental conservation and good stewardship, the stock should be valued on a price/acre basis. The stock’s valuation has moved up on a stair-step basis as development projects are being successfully pursued. Between 2000 and 2001, the stock traded between $1,400 and $900 per acre. Over the next two years, the valuation zone increased to $2,200 and $1,200. Over the last three years, the valuation range again increased to $3,800 and $2,300 per acre. Our target price is $65 per share based on a valuation of $3,800 per acre. We expect the value of land to significantly increase as further entitlement processes are completed, which involve state and county approval along with the expected subsequent law suits by environmental groups. As management succeeds in its vision of developing Tejon Ranch over the next 25 years, the valuation per acre should dramatically increase. Over the next few years, we expect the valuation to increase to $6,000 per acre as progress is made towards entitlements for Tejon Mountain Village and Centennial and as the Foreign Trade Zone area is expanded.

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