Terreno Realty Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless stated otherwise. Terreno is a REIT focused on industrial properties in six coastal U.S. markets. At quarter-end, it owned 256 buildings totaling approximately 15.1 million square feet and 37 improved-land parcels.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / prior date |
|---|---|---|
| Total revenue | $64.0 million | $50.7 million; up 26.3% |
| Net income | $19.7 million | $16.3 million; up 20.9% |
| Net income per diluted share | $0.26 | $0.24 |
| FFO per diluted share | $0.46 | $0.40 |
| Net operating income (NOI) | $47.2 million | $37.2 million; up 26.8% |
| Same-store NOI | $38.6 million | $35.5 million; up 9.0% |
| Cash-basis same-store NOI | $36.5 million | $32.7 million; up 11.6% |
| Operating cash flow | $28.0 million | $26.2 million |
| Cash and cash equivalents | $106.3 million | $204.4 million at Dec. 31, 2021 |
| Total debt, principal | $725.0 million | Unchanged from Dec. 31, 2021 |
Property operating expenses rose 24.9% to $16.9 million; depreciation and amortization rose 31.7% to $15.0 million; general and administrative expense rose 34.8% to $7.5 million. Interest expense increased 22.6% to $5.1 million, primarily reflecting senior notes issued in 2021. Revenue growth reflected acquisitions, higher occupancy, and new and renewed leases. Cash rents on approximately 0.7 million square feet of leases commencing in the quarter were 34.8% above prior rents.
Quarter-end building occupancy was 96.9% and improved-land occupancy was 94.9%. Same-store building occupancy was 98.4%, versus 97.4% a year earlier. Tenant retention was 47.7%. The quarterly common dividend was $0.34 per share; the board declared another $0.34 dividend payable July 14, 2022.
Liquidity, debt and cash flow
Net cash used in investing was $96.8 million, including $68.1 million for acquisitions and approximately $28.8 million for capital improvements. Financing used $26.5 million, primarily reflecting $25.6 million in dividends. Cash and restricted cash declined by $95.3 million during the quarter.
Debt was unsecured, with a 3.0% weighted-average interest rate and a 5.7-year weighted-average maturity. The $250 million revolving facility had no borrowings outstanding; the company also had a $100 million variable-rate term loan. Debt-to-total market capitalization was 11.4%, and debt-to-Adjusted EBITDA was 4.2x. The company reported covenant compliance and a BBB issuer rating with stable outlook from Fitch. A $50 million senior note maturity falls in September 2022.
Material developments, outlook and risks
- Terreno acquired two industrial properties during Q1 for a reported purchase price of approximately $86.2 million. Four redevelopment projects had expected total investment of $144.4 million; 84% of their projected space was pre-leased. Management estimated a 4.4% weighted-average stabilized cap rate, which is an estimate, not a performance guarantee.
- A contract to sell an 18-building New Jersey property for $110.4 million was pending at March 31. The sale closed May 2, 2022; its reported net book value was approximately $30.6 million. The filing does not state the final accounting gain or tax impact in the supplied text.
- As of May 3, 2022, the company had contracts to acquire ten properties for approximately $177.7 million, subject to due diligence and closing conditions, plus non-binding letters of intent for three properties totaling approximately $108.4 million.
- Management said it expected 2022 expiring leases, representing 6.1% of portfolio annualized base rent, to renew or re-lease on average above current rents. This is an expectation, not formal earnings guidance; the filing provides no quantified earnings or FFO forecast.
- Inflation is increasing construction and operating costs; tenant expense recoveries and lease rent escalators partly mitigate exposure. Other stated risks include tenant defaults or non-renewals, vacancy and rental-rate changes, higher interest rates, refinancing, property valuations, redevelopment execution, and the LIBOR transition. The $100 million variable-rate term loan was uncapped at quarter-end; management estimated a 0.25% LIBOR move would change annual interest expense by about $0.3 million.
- The company reported no material litigation, no material change to previously disclosed risk factors, and no material change in internal control over financial reporting. Disclosure controls were deemed effective.
Investor verification points
- Track the September 2022 $50 million note maturity and any refinancing, repayment, or related funding costs.
- Confirm closing and investment returns for the contracted acquisitions and redevelopment projects, including actual costs, leasing and stabilized performance.
- Review the post-quarter property sale’s recognized gain, tax consequences, and use of proceeds.
- Monitor occupancy, tenant retention, lease expirations, and whether rent increases translate into sustained same-store cash NOI growth.
- Assess liquidity after acquisitions, redevelopment spending and dividends, and the effects of higher rates and transition from LIBOR on floating-rate debt.