| TEJON RANCH CO ITEM 1A RISK FACTORS The risks and uncertainties described below are not the only ones facing the Company |
| If any of the following risks actually occurs, our business, financial condition, results of operations or future prospects could be materially adversely affected |
| Our strategy, focused on more aggressive development of our land, involves significant risk and could result in operating losses |
| We are involved in a cyclical industry and are affected by changes in general and local economic conditions |
| The real estate development industry is cyclical and is significantly affected by changes in general and local economic conditions, including: • Employment levels • Availability of financing • Interest rates • Consumer confidence • Demand for the developed product, whether residential or industrial The process of development of a project begins and financial and other resources are committed long before a real estate project comes to market, which could occur at a time when the real estate market is depressed |
| It is also possible in a rural area like ours that no market for the project will develop as projected |
| Higher interest rates can have a significant impact on the real estate industry |
| Higher interest rates generally impact the real estate industry by making it harder for buyers to qualify for financing, which can lead to a decrease in the demand for residential, commercial or industrial sites |
| Any decrease in demand will negatively impact our proposed developments |
| Any downturn in the economy or consumer confidence can also be expected to result in reduced housing demand and slower industrial development, which would negatively impact the demand for land we are developing |
| We are subject to various land use regulations and require governmental approvals for our developments that could be denied |
| In planning and developing our land, we are subject to various local, state, and federal statutes, ordinances, rules and regulations concerning zoning, infrastructure design, subdivision of land, and construction |
| All of our new developments require amending existing general plan and zoning designations, so it is possible that our entitlement applications could be denied |
| In addition, the zoning that ultimately is approved could include density provisions that would limit the number of homes and other structures that could be built within the boundaries of a particular area, which would adversely impact the financial returns from a given project |
| The Los Angeles County Planning Department released a set of draft amendments to the Los Angeles County General Plan that would extend a planning overlay designation called “Sensitive Ecological Areas” to cover most of the footprint of the Centennial project |
| It is not clear at this early stage what chance this draft has of being adopted by the Los Angeles County Board of Supervisors or what its impact on Centennial would be, but if adopted it would likely involve additional processing time, studies, and findings by county officials, which could have an adverse impact similar to the density provisions described above and, at worst, could provide a pretext for denying the Centennial application |
| In addition, many states, cities and counties (including neighboring Ventura County) have in the past approved various “slow growth” or “urban limit line” measures |
| If that were to occur in the jurisdictions governing the Company’s land use, our future real estate development activities could be significantly adversely affected |
| 10 ______________________________________________________________________ Third-party litigation could increase the time and cost of our development efforts |
| The land use approval processes we must follow to ultimately develop our projects have become increasingly complex |
| Moreover, the statutes, regulations and ordinances governing the approval processes provide third parties the opportunity to challenge the proposed plans and approvals |
| As a result, the prospect of third-party challenges to planned real estate developments provides additional uncertainties in real estate development planning and entitlements |
| Third-party challenges in the form of litigation would, by their nature, adversely affect the length of time and the cost required to obtain the necessary approvals |
| In addition, adverse decisions arising from any litigation would increase the costs and length of time to obtain ultimate approval of a project and could adversely affect the design, scope, plans and profitability of a project |
| We are subject to environmental regulations and opposition from environmental groups that could cause delays and increase the costs of our development efforts or preclude such development entirely |
| Environmental laws that apply to a given site can vary greatly according to the site’s location and condition, present and former uses of the site, and the presence or absence of sensitive elements like wetlands and endangered species |
| Environmental laws and conditions may result in delays, cause us to incur additional costs for compliance, mitigation and processing land use applications, or preclude development in specific areas |
| In addition, in California, third parties have the ability to file litigation challenging the approval of a project, which they usually do by alleging inadequate disclosure and mitigation of the environmental impacts of the project |
| While we have worked with representatives of various environmental interests and wildlife agencies to minimize and mitigate the impacts of our planned projects, certain groups opposed to development have made clear they intend to oppose our projects vigorously, so litigation challenging their approval is expected |
| The issues most commonly cited in opponents’ public comments include the poor air quality of the San Joaquin Valley air basin, potential impacts of projects on the California condor and other species of concern, presumed removal of oak trees, the potential for our lands to function as wildlife movement corridors, potential impacts of our projects on traffic and air quality in Los Angeles County, and criticism of proposed development in rural areas as being “sprawl” |
| Until governmental entitlements are received, we will have a limited inventory of real estate |
| Each of our four current and planned real estate projects, the TIC – West and East, Centennial and TMV, involve obtaining governmental entitlements |
| A delay in obtaining governmental entitlements could lead to additional costs related to these developments and potentially lost opportunities for the sale of lots to developers and land users |
| We are in competition with several other developments for customers and residents |
| Within our real estate activities, we are in direct competition for customers with other industrial sites in Northern, Central, and Southern California |
| We are also in competition with other highway interchange locations using Interstate 5 and State Route 99 for commercial leasing opportunities |
| Centennial ultimately would compete with other residential housing options in the region, such as developments in the Santa Clarita Valley, Lancaster, Palmdale, and Bakersfield |
| TMV will compete generally for discretionary dollars that consumers will allocate to recreation and second homes, so its competition will include a greater area and range of projects |
| Negotiations regarding the development of the planned Tejon Mountain Village community may not be successful |
| Our subsidiary, Tejon Ranchcorp, has entered into a non-binding Letter of Intent with DMB Associates Inc |
| that sets forth the principal terms of a proposed joint venture operating agreement 11 ______________________________________________________________________ to be entered into between the parties relating to the entitlement and development of TMV However, a binding commitment with respect to the transaction contemplated by the Letter of Intent would result only from completion of the due diligence period and the negotiation and execution of a joint venture operating agreement, which negotiation has only recently commenced and may not be successful |
| Our developable land is concentrated entirely in California |
| All of our developable land is in California |
| Any adverse change in the economic climate of California, or our region of that state, and any adverse change in the political or regulatory climate of California, or the counties where our land is located could adversely affect our real estate development activities |
| Ultimately, our ability to sell or lease lots may decline as a result of weak economic conditions or restrictive regulations |
| We are dependent on key personnel and the loss of one or more of those key personnel may materially and adversely affect our prospects |
| We currently depend heavily on the services of Robert A Stine, our President and Chief Executive Officer, and a number of other key management personnel |
| Stine’s services or that of other key personnel could materially and adversely affect our results of operations, financial condition, or our ability to pursue land development |
| Our success will also depend in part on our ability to attract and retain additional qualified management personnel |
| Competition for such personnel is strong in the real estate and land development industry and we may not be successful in attracting or retaining the personnel we require |
| Only a limited market exists for our Common Stock which could lead to price volatility |
| The limited trading market for our Common Stock may cause fluctuations in the market value of our Common Stock to be exaggerated, leading to price volatility in excess of that which would occur in a more active trading market of our Common Stock |
| Concentrated ownership of our Common Stock creates a risk of sudden change in our share price |
| As of March 10, 2006, directors and members of our executive management team beneficially owned or controlled approximately 31prca of our Common Stock |
| Investors who purchase our Common Stock may be subject to certain risks due to the concentrated ownership of our Common Stock |
| The sale by any of our large shareholders of a significant portion of that shareholder’s holdings could have a material adverse effect on the market price of our Common Stock |
| In addition, the registration of any significant amount of additional shares of our Common Stock will have the immediate effect of increasing the public float of our Common Stock and any such increase may cause the market price of our Common Stock to decline or fluctuate significantly |
| Inflation can have a significant adverse effect on our operations |
| Inflation can have a major impact on our farming operations |
| The farming operations are most affected by escalating costs and unpredictable revenues (due to an oversupply of certain crops) and very high irrigation water costs |
| High fixed water costs related to our farm lands will continue to adversely affect earnings |
| Prices received for many of our products are dependent upon prevailing market conditions and commodity prices |
| Therefore, it is difficult for us to accurately predict revenue, just as we cannot pass on cost increases caused by general inflation, except to the extent reflected in market conditions and commodity prices |
| 12 ______________________________________________________________________ Within our real estate operations, our lease portfolio is protected to some extent from inflation, since percentage rent clauses and Consumer Price Index increases in our leases tend to adjust rental receipts for inflation |
| We may encounter other risks that could impact our ability to develop our land |
| We may also encounter other difficulties in developing our land, including: • Natural risks, such as geological and soil problems, earthquakes, heavy rains and flooding and heavy winds; • Shortages of qualified trades people; • Reliance on local contractors, who may be inadequately capitalized; • Shortages of materials; and • Increases in the cost of certain materials |