Terreno Realty Corporation — 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011; filed February 22, 2012. The comparable 2010 period began February 16, 2010, when operations commenced, so year-over-year comparisons reflect both portfolio growth and a shorter prior-year operating period.
Business context
Terreno acquires, owns and operates industrial real estate in six coastal U.S. markets. At year-end it owned 47 buildings totaling approximately 3.4 million square feet, leased 92.5% to 72 tenants. The portfolio was concentrated in Northern New Jersey/New York, representing 45.5% of annualized base rent. YRC Worldwide was the largest tenant at 11.8% of annualized base rent. Terreno elected REIT taxation beginning in 2010.
Financial and operating results
| Metric | 2011 | 2010 comparison |
|---|---|---|
| Total revenue | $17.5 million | $4.0 million |
| Net loss available to common stockholders | $(3.7) million; $(0.41) per share | $(5.4) million; $(0.59) per share |
| FFO | $1.1 million; $0.12 per share | $(4.2) million; $(0.46) per share |
| Cash from operating activities | $2.1 million | $(2.0) million |
| Cash used in investing activities | $(105.9) million | $(116.6) million |
| Cash from financing activities | $49.7 million | $175.9 million |
Revenue growth primarily reflected acquisitions and a full year of operations. Property operating expenses were $6.3 million, depreciation and amortization $4.9 million, general and administrative expenses $5.4 million, acquisition costs $2.0 million, and interest expense $2.6 million. Fourth-quarter 2011 revenue was $5.6 million, net loss was $0.2 million, and FFO was $1.3 million; fourth-quarter 2010 revenue was $3.0 million, net loss $0.6 million, and FFO $0.2 million.
Terreno acquired 14 buildings totaling about 1.06 million square feet in 2011 for an aggregate investment of approximately $119.2 million. Occupancy rose from 70.6% at year-end 2010 to 92.5% at year-end 2011. It executed new or renewal leases for approximately 761,000 square feet in the fourth quarter.
Debt, liquidity and distributions
At December 31, 2011, total debt was $99.3 million, cash and cash equivalents were $3.2 million, total assets were $267.0 million, and stockholders’ equity was $159.0 million. Debt carried a 4.2% weighted average interest rate and had a 3.0-year weighted average maturity. Floating-rate debt was 61.5% of total debt. Reported interest coverage was 2.7x and total debt to adjusted EBITDA was 8.8x. Scheduled principal payments included $62.2 million in 2013, primarily the revolving facility and term loan.
In January 2012, Terreno completed a follow-on stock offering that raised approximately $54.7 million net; it used $41.0 million to repay revolving-credit borrowings. The revolving facility was amended to extend maturity to January 19, 2015, with one 12-month extension option, and to reduce the LIBOR margin range to 2.50%–3.50%. A subsequent $20.0 million non-recourse mortgage loan bears fixed interest at 3.79% and matures in 2019; part of its proceeds repaid the term loan. At year-end 2011, the company was in compliance with debt covenants.
Terreno declared dividends of $0.10 per share each quarter in 2011, or $0.40 for the year. The board authorized another $0.10-per-share dividend for April 2012. Distributions remain subject to board approval, cash generation, debt covenants and REIT requirements.
Outlook, risks and unusual items
- Management said industrial rents had generally stopped falling in its markets and were rising modestly in some cases, but expected broader rent growth to take time. It cited a growing set of acquisition opportunities and plans to expand assets, improve operating efficiency and pursue an investment-grade credit rating. No numerical earnings or acquisition guidance was provided.
- Key risks include tenant defaults or lease nonrenewals, rent and occupancy declines, reliance on acquisitions and external financing, interest-rate exposure, debt refinancing and covenant constraints, and concentration in industrial real estate and particular markets or tenants.
- Approximately 23.0% of rentable area and 19.3% of annualized base rent was scheduled to expire in 2013. The company also disclosed environmental, earthquake, flood and hurricane exposures; it reported no known significant or material environmental exposures at year-end.
- No property impairment charges were recorded in 2011 or the 2010 operating period. The company reported no material litigation and no material off-balance-sheet arrangements.
- Two Washington, D.C./Baltimore properties totaling approximately 135,000 square feet were under contract for about $12.8 million, subject to due diligence, closing conditions and lender consent.
- Auditors issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Important facts for investors to verify
- Whether the 2013 lease expirations are renewed or re-leased, and at what rents, given their material share of portfolio area and rent.
- Tenant credit and concentration, particularly YRC Worldwide and the two next-largest tenants, which together account for substantial rent.
- Post-year-end financing effects: repayment of revolving borrowings, the amended facility terms, the 2019 mortgage and the remaining term-loan balance and maturity.
- Whether acquisitions under contract closed, and whether future acquisitions can be funded without materially increasing leverage or diluting shareholders.
- Whether operating cash flow can support recurring capital needs and dividends; 2011 GAAP results remained loss-making despite positive FFO.