Terreno Realty Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Terreno owns and operates industrial real estate in six coastal U.S. markets and elected REIT status. At quarter-end it owned 258 buildings totaling approximately 15.8 million square feet, 45 improved land parcels and properties in development or redevelopment.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenues | $85.0 million | $74.7 million | +13.9% |
| Net income | $36.1 million | $23.3 million | +54.6% |
| Diluted EPS | $0.40 | $0.29 | +$0.11 |
| FFO per diluted share | $0.57 | $0.51 | +11.8% |
| Net cash from operations | $47.0 million | $38.8 million | +$8.2 million |
| Net cash used in investing | $48.6 million | $387.4 million | Lower outflow |
- Net operating income (NOI) was $64.1 million, up 14.0%; same-store NOI rose 7.1% to $57.8 million. Cash-basis same-store NOI increased 13.1% to $54.8 million.
- Cash and cash equivalents were $649.6 million at March 31, 2024, versus $165.4 million at year-end 2023. Total debt was $775.0 million gross ($771.8 million net of financing costs); net debt was $122.2 million.
- Debt was unsecured, with no revolving-credit-facility borrowings. Weighted-average debt interest rate was 4.0%; $100 million of notes mature in July 2024. The company reported covenant compliance and a $400 million revolver maturing in August 2025.
- Annualized base rent was $249.7 million. Buildings were 96.2% leased and improved land 94.6% leased. Weighted-average remaining lease term for buildings was 4.2 years.
Changes and notable items
- Revenue growth reflected higher rents on new and renewed leases and acquisitions. Cash rents on leases commencing in the quarter, covering approximately 0.7 million square feet and 3.3 acres, were 47.2% above prior rents.
- Same-store occupancy was 96.2%, down from 98.3% a year earlier. Management attributed the decline principally to vacancies at properties in New Jersey and California and acquired vacancy.
- Net income included a $5.7 million gain on a Seattle property sale; there were no property-sale gains in Q1 2023. Higher depreciation and amortization and G&A partly offset operating growth. Interest expense fell to $5.2 million from $7.4 million, primarily due to increased capitalized interest.
- Q1 property acquisitions totaled approximately $18.7 million; the company also sold one property for approximately $11.0 million. Development and redevelopment spending contributed to capital expenditures of $42.2 million, versus $21.8 million a year earlier.
- The company raised approximately $535.5 million net from equity issuance in Q1, including a March public offering and ATM sales. Shares issued and outstanding rose to 96.2 million from 87.5 million at year-end 2023.
Outlook, risks and subsequent events
- No formal earnings or FFO guidance is provided in the filing. Management expects average rents on 2024 expirations to exceed current rents, while cautioning that lease renewals, occupancy and achieved rents are uncertain.
- Development and redevelopment projects had total expected investment of approximately $696.7 million, including future-development land. Estimated stabilized cap rates and completion schedules are management estimates, not guaranteed outcomes.
- After quarter-end, Terreno acquired an Alexandria, Virginia property for approximately $84.3 million and a 28-building, 1.2-million-square-foot portfolio for approximately $364.5 million. Countyline Building 38 was completed and reported 100% leased; development of another 100%-pre-leased Countyline building began.
- Management cites risks including interest-rate changes, construction costs and delays, tenant defaults or non-renewals, vacancy and rent changes, property valuations, access to capital, and natural disasters. A 0.25% change in SOFR would affect annual interest expense by approximately $0.5 million on existing variable-rate borrowings, based on quarter-end balances.
- The board declared a $0.45 per-share dividend payable July 12, 2024. The company reported no material litigation and no material change to previously disclosed risk factors.
Investor facts to verify
- Whether the 2024 debt maturity of $100 million is refinanced or repaid and the resulting borrowing cost.
- Post-acquisition leverage, cash balances and share dilution following the April and May acquisitions.
- Leasing progress and occupancy recovery, particularly in markets and properties with newly reported vacancies.
- Delivery timing, total costs, pre-leasing and realized yields for development and redevelopment projects.
- Whether reported rent spreads and management’s expectations for 2024 expirations translate into sustained same-store cash NOI growth.