Terreno Realty Corporation — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014; balance-sheet comparisons are to December 31, 2013. Terreno owns and operates industrial real estate in six coastal U.S. markets and is a REIT. At quarter-end, it owned 99 buildings totaling approximately 7.1 million square feet; the portfolio was 93.5% leased to 220 tenants.
Financial and operating results
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Total revenue | $15.8 million | $10.0 million |
| Net income | $1.8 million | $0.8 million |
| Net income available to common stockholders | $0.9 million; $0.04 per share | $(0.1) million; $(0.01) per share |
| Funds from operations (FFO), non-GAAP | $5.2 million; $0.21 per share | $2.6 million; $0.16 per share |
| Net operating income (NOI), non-GAAP | $11.0 million | $7.2 million |
| Same-store NOI, non-GAAP | $7.8 million | $7.1 million |
| Cash-basis same-store NOI, non-GAAP | $7.2 million | $6.5 million |
| Net cash from operating activities | $5.8 million | $1.9 million |
Revenue rose 57.6%; same-store NOI increased 8.7%, and same-store occupancy improved to 95.9% from 92.8%. The reported revenue growth primarily reflected acquisitions, with higher same-store occupancy and tenant reimbursements also contributing. Cash used in investing activities was $33.1 million, principally for acquisitions; financing provided $25.5 million. Cash and cash equivalents ended the quarter at $5.2 million, down from $7.0 million at year-end.
Total assets were $677.9 million. Total debt, including unamortized mortgage premiums, was $221.9 million, compared with $189.3 million at year-end; debt-to-total market capitalization was 29.9%, and debt plus preferred stock-to-market capitalization was 36.1%. The weighted-average debt interest rate was 3.1%. Floating-rate debt was 53.0% of total debt. The company reported compliance with credit-facility covenants.
Changes, outlook and notable matters
- Terreno acquired three buildings totaling 318,822 square feet for an aggregate initial investment of approximately $33.9 million. Acquisition activity contributed substantially to year-over-year revenue and expense growth.
- Management said it currently expects rents on average for leases expiring during the remaining nine months of 2014 to be at or above current rates, while cautioning that renewals, reletting and achievable rents are uncertain. The filing gives no formal earnings or FFO guidance.
- As of May 12, 2014, five property purchase contracts covered 494,726 square feet and approximately $53.2 million of purchase price; closing remained subject to conditions. Four additional properties were under non-binding letters of intent.
- In May, the company amended its credit facility, adding a $50 million seven-year term loan, extending existing facility maturities and making the facility unsecured. These were subsequent events, not quarter-end debt terms.
- Tenant Banah was in bankruptcy proceedings. A court-confirmed reorganization plan contemplated an amended lease and repayment of approximately $0.1 million of past-due rent, but finalization and performance were uncertain. The filing notes a possible one-time option for the successor entity to purchase the property for $20 million.
- Key risks include tenant default or nonrenewal, vacancy and rent declines, acquisition and financing access, interest-rate exposure, property valuation and environmental or natural-disaster risks. Northern New Jersey/New York City represented 34.4% of annualized base rent. No impairment charges were recorded in either comparative quarter; no material litigation was reported.
Important facts for investors to verify
- Whether occupancy and same-store NOI gains persist, and whether expiring leases renew at rents management anticipates.
- Acquisition closings, related capital needs, and the contribution and performance of recently acquired properties.
- Banah’s emergence from bankruptcy, execution and payment under any amended lease, and the status of the purchase option.
- Debt maturity and refinancing exposure, floating-rate sensitivity, covenant compliance, and the effects of the May 2014 facility amendment.
- Tenant and geographic concentration, particularly the Northern New Jersey/New York City exposure, and the effect of the common and preferred dividends on available cash.