Terreno Realty Corporation — Q1 2020 Form 10-Q
Business context and period. This unaudited quarterly report covers the three months ended March 31, 2020. Terreno owns and operates industrial real estate in six coastal U.S. markets and elected REIT status. At quarter-end, it owned 219 buildings totaling approximately 13.4 million square feet, 21 improved land parcels, and four properties under redevelopment. Building occupancy was 97.8%; improved-land occupancy was 96.7%.
Financial results and position
| Metric | Q1 2020 | Q1 2019 / prior period |
|---|---|---|
| Total revenue | $45.1 million | $40.9 million; up 10.4% |
| Net income | $12.9 million | $15.5 million; down 17.2% |
| Net income available to common stockholders | $12.8 million; $0.19 per diluted share | $15.4 million; $0.25 per diluted share |
| Funds from operations (FFO), diluted | $0.35 per share | $0.35 per share; total FFO rose 11.5% to $23.8 million |
| Net operating income (NOI) | $33.2 million; up 10.0% | $30.2 million |
| Same-store NOI | $29.8 million; up 1.5% | $29.3 million |
| Cash-basis same-store NOI | $29.0 million; up 4.5% | $27.7 million |
| Net cash from operating activities | $22.2 million | $19.8 million |
| Cash and cash equivalents | $69.7 million | $110.1 million at December 31, 2019 |
| Debt, net of financing costs | $459.0 million | $491.6 million at December 31, 2019 |
Q1 investing cash outflow was $36.2 million and financing cash outflow was $28.7 million. Cash and restricted cash declined by $42.7 million during the quarter. The decline included $32.7 million of mortgage repayments and $18.2 million of dividends paid, partly offset by $22.5 million of net ATM share proceeds. The company reported a 3.6% weighted-average debt interest rate; its revolving credit facility had no borrowings outstanding. Debt-to-total market capitalization was 11.6%, and debt-to-annualized Adjusted EBITDA was 3.8x.
Changes versus the prior comparable period
- Revenue growth reflected acquisitions and higher rental revenue on new and renewed leases. Same-store NOI increased 1.5%; cash-basis same-store NOI increased 4.5%.
- Net income fell despite higher revenue and NOI, primarily because Q1 2019 included a $4.5 million property-sale gain, while Q1 2020 had none. Q1 2020 also included lower interest and other income.
- Diluted FFO per share was unchanged at $0.35; total FFO increased 11.5%, with growth partly offset by a higher weighted-average share count.
- Debt declined from year-end, principally following repayment of a $32.6 million mortgage loan in January. Cash also decreased materially from year-end.
Outlook, risks and notable items
- COVID-19 and rent collection: Management said the pandemic’s impact was not predictable and that leasing activity had slowed, potentially reducing revenue versus normal conditions. As of May 1, Terreno had collected 84% of April rent in cash and applied security deposits to another 11%. Tenants representing 6.5% of annualized base rent had requested deferrals or abatements; the company had granted deferrals representing 2.0% of annualized base rent and granted no abatements at that date. Further deferrals could be agreed.
- The company reversed approximately $0.5 million of straight-line rent receivables in Q1 because future contractual payments from certain tenants were not considered probable.
- Terreno reported no debt maturities for the remainder of 2020, an $11.6 million mortgage maturing in April 2021, and $100 million of term-loan principal and $50 million of senior notes maturing in 2022. Management described the balance sheet as well positioned, citing cash and unused revolving capacity; this assessment is subject to pandemic-related uncertainty.
- Four redevelopment projects were expected to deliver approximately 0.5 million square feet, with total expected investment of $111.9 million and estimated completion dates from Q2 2020 through Q3 2021. These estimates and projected stabilized returns are not guarantees.
- Three Washington, D.C.-area properties, with approximately 340,000 square feet, were classified as held for sale at a proposed $54.0 million price, subject to closing conditions. A Seattle-area acquisition for $5.7 million was under contract as of May 5; after quarter-end, the company acquired a separate 2.8-acre parcel in Kent, Washington for approximately $4.5 million.
- The board declared a $0.27-per-share dividend payable July 14, 2020. Q1 dividends were also $0.27 per share.
- Management identified risks including tenant defaults or bankruptcies, lower collections, slower leasing and re-leasing, reduced access to capital, construction delays, interest-rate exposure, and the potential effects of COVID-19 on operations and tenants. The company was in compliance with debt covenants at March 31, 2020 and reported effective disclosure controls.
Key facts for investors to verify
- Subsequent rent collections, tenant deferral agreements, and any additional rent receivable reversals or credit losses.
- Whether the proposed $54.0 million property sale closes, and the timing and economics of the contracted acquisition and redevelopment projects.
- Progress on 2021 and 2022 debt maturities, refinancing plans, and available liquidity if operating cash flows or capital markets weaken.
- Whether leasing spreads, occupancy, and same-store NOI remain resilient as leases expire and the pandemic affects tenants and leasing markets.
- The filing provides no formal numerical earnings or FFO guidance; investors should distinguish management’s stated expectations from guaranteed outcomes.