Terreno Realty Corporation — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed February 10, 2021. The filing reports full-year results and selected fourth-quarter data. Terreno owns and operates infill industrial properties in six coastal U.S. markets and is a REIT.
Business context and portfolio
- At year-end, the portfolio comprised 222 buildings totaling approximately 13.2 million square feet, 25 improved-land parcels totaling 91.5 acres, and one property under redevelopment. Buildings were 97.8% leased and land parcels 98.6% leased, across 488 customers.
- Annualized base rent was approximately $151.9 million. Warehouse/distribution represented 82.0% of annualized base rent; no tenant accounted for more than 5.4%.
- Northern New Jersey/New York City represented 29.5% of annualized base rent, the largest market concentration. Weighted average remaining lease term was 4.5 years for buildings.
Financial and operating performance
| Metric | 2020 | Change versus 2019 |
|---|---|---|
| Total revenue | $186.9 million | +9.3% |
| Net income | $79.8 million | +43.7% |
| Net operating income (NOI) | $137.8 million | +8.6% |
| Same-store NOI | $118.7 million | +2.8% |
| Cash-basis same-store NOI | $118.3 million | +7.7%; +4.7% excluding termination fees |
| FFO attributable to common stockholders | $98.3 million; $1.44 diluted per share | +9.9% in FFO; +4.3% per diluted share |
| Net cash from operating activities | $101.1 million | Up from $94.7 million |
Net income growth substantially reflected $26.8 million of property-sale gains, compared with $9.4 million in 2019. Revenue growth also reflected acquisitions and rent increases. Same-store occupancy was 98.0% at year-end, versus 97.8% a year earlier. Rent on new and renewed leases commencing in 2020 was 22.1% higher on average than prior rents for the same space; this is a portfolio-wide reported comparison, not a forecast.
Fourth-quarter net income was $13.5 million, down 8.8% year over year; diluted FFO per share was $0.36, up 2.9%.
Debt, liquidity, and capital returns
- Year-end debt, net of deferred financing costs, was $459.1 million, down from $491.6 million. Debt-to-adjusted EBITDA was 3.5x, versus 4.1x; interest coverage was 7.8x and fixed-charge coverage was 7.1x.
- Cash and cash equivalents were $107.2 million. The $250 million revolving facility had no balance outstanding; $100 million was outstanding on the term loan. Weighted average interest rate on total debt was 3.3%.
- Scheduled principal maturities included $11.3 million in 2021, $150 million in 2022, and $100 million in 2024. The $11.3 million mortgage loan was repaid in January 2021. The company reported compliance with debt covenants at year-end.
- Operating cash flow of $101.1 million funded part of investment and distributions. Cash used in investing activities was $52.1 million; cash used in financing activities was $53.9 million.
- Quarterly common dividends rose from $0.24–$0.27 in 2019 to $0.27–$0.29 in 2020, or $1.12 per share for 2020. The board declared a $0.29-per-share dividend for payment in April 2021.
- Terreno issued approximately 1.20 million shares through its ATM program in 2020, raising $63.8 million net. The filing reports 68.4 million shares outstanding at year-end.
Material changes, outlook, and risks
- 2020 acquisitions totaled $100.4 million, including costs, versus $289.6 million in 2019. Property dispositions generated $73.5 million of aggregate sales proceeds and $26.8 million of gains. Two redevelopments totaling approximately 0.3 million square feet were completed; one further project was expected to complete in Q4 2021.
- Management described operating conditions in its markets as very good, expected rents on 2021 expirations to be above current rents, and anticipated 2021 acquisition volume to exceed 2020, potentially significantly. These are expectations, not guidance guarantees. New speculative development may moderate rent growth.
- As of February 8, 2021, rent deferrals had been granted to 62 tenants, representing 2.8% of annualized base rent; no rent abatements were granted. Fourteen tenants representing 0.4% of annualized base rent had defaulted on deferral repayments. COVID-related bad debt expense was approximately $3.0 million in 2020, including $1.3 million of straight-line rent reversals.
- A Belleville lease termination generated approximately $3.3 million of fee income, accompanied by a non-cash deferred-rent write-off reported at approximately $3.2–$3.4 million in different portions of the filing. Termination income contributed to reported cash-basis same-store growth.
- Leases representing 11.9% of annualized base rent were scheduled to expire in 2021. Principal risks include COVID-related tenant distress, lease renewal and re-leasing conditions, market concentration, interest-rate and LIBOR transition exposure, debt refinancing, environmental liabilities, and redevelopment execution.
- Six proposed acquisitions totaling approximately $123.8 million were under contract as of February 9, 2021, subject to due diligence and closing conditions. No material litigation or significant environmental exposure was reported. The auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether rent-deferral defaults, tenant credit quality, and COVID-related receivable reserves changed after the February 2021 disclosure.
- Actual leasing spreads and retention on 2021 expirations, compared with management’s expectation of higher rents.
- Completion, remaining costs, leasing, and realized returns for the redevelopment project; compare actual performance with its estimated 4.3% stabilized cap rate.
- Completion and pricing of the six contracted acquisitions and the company’s subsequent acquisition and disposition activity.
- Refinancing or repayment plans for the $100 million term loan and 2022 maturities, floating-rate exposure, and the transition of LIBOR-linked debt.
- The sustainability of dividend growth and per-share FFO growth, considering share issuance, termination-fee income, and property-sale gains.