Terreno Realty Corporation — Q2 2012 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2012. Terreno acquires and operates industrial properties in six major U.S. coastal markets. At quarter-end, it owned 54 buildings totaling approximately 4.2 million square feet and was 91.3% leased.
Financial performance and condition
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Total revenue | $7.6 million | $3.8 million | $14.2 million | $7.1 million |
| Net income (loss) | $257,000 | ($2.0 million) | ($10,000) | ($3.3 million) |
| FFO | $2.1 million | ($944,000) | $3.6 million | ($1.3 million) |
| FFO per common share | $0.16 | ($0.10) | $0.28 | ($0.14) |
| NOI | $5.5 million | $2.3 million | $10.2 million | $4.2 million |
| Operating cash flow | Not stated by quarter | $3.3 million | ($1.5 million) |
- Q2 NOI was approximately 72% of total revenue; six-month NOI was approximately 72% of revenue. These are calculated ratios, not separately reported margins.
- Same-store NOI increased 45.1% in Q2 and 37.9% for the six months. Same-store occupancy at quarter-end rose to 92.7% from 69.1% a year earlier.
- At June 30, total assets were $351.4 million, total liabilities $140.1 million, and stockholders’ equity $211.4 million. Cash and cash equivalents were $4.7 million; restricted cash was $4.3 million.
- Debt totaled $129.4 million, including $22.0 million under the revolver, $10.1 million under the term loan, and $97.4 million of mortgages. Weighted-average debt interest rate was 4.0%; 24.8% of debt was floating-rate. Debt was 37.5% of property investment book value and 38.9% of total market capitalization.
- Six-month interest coverage was 3.6x, using Adjusted EBITDA divided by interest expense; total debt to annualized Adjusted EBITDA was 7.7x. The company reported compliance with debt covenants.
- Common dividends declared were $0.12 per share for Q2 and $0.22 per share for the first six months, versus $0.10 and $0.20, respectively, in 2011.
Changes versus the prior comparable period
- Q2 revenue more than doubled, up 101.8%; six-month revenue rose 99.1%. Growth reflected acquisitions and higher same-store occupancy.
- Q2 net results improved from a $2.0 million loss to $257,000 income; the six-month loss narrowed to $10,000 from $3.3 million.
- Interest expense rose 140.5% in Q2 and 155.8% for the six months, primarily due to mortgage debt and borrowings associated with acquisitions. Depreciation and amortization also increased substantially as the portfolio expanded.
- Terreno acquired seven buildings totaling approximately 775,898 square feet for an aggregate initial investment of $74.8 million in the first half. Property operating expenses increased, but same-store operating expenses declined.
Outlook, financing, risks, and unusual items
- No specific earnings, revenue, occupancy, or acquisition guidance was provided. Management expects to fund near-term liquidity needs through operating cash flow, existing cash, and, if needed, revolver borrowings; future growth may use mortgages, loans, equity and property dispositions.
- Management’s long-term financing objectives include debt plus preferred-stock liquidation preference below 40% of enterprise value, fixed-charge coverage above 2.0x, and floating-rate debt below 20% of total debt. Floating-rate debt was 24.8% at quarter-end.
- The revolver was increased from $80 million to $100 million in June, with potential expansion to $150 million subject to lender approval and availability. Its maturity is January 2015, with a conditional one-year extension. The $10.1 million term loan matures in February 2013, subject to a conditional six-month extension.
- Two new fixed-rate, non-recourse mortgages were entered into during 2012: $20.1 million at 3.79% and $39.8 million at 3.65%. Total mortgage debt was $97.4 million, at a 4.3% weighted-average fixed rate.
- After quarter-end, the company issued 1.84 million shares of 7.75% Series A preferred stock, netting approximately $44.3 million, and used the proceeds to reduce revolver borrowings. It also acquired six buildings for approximately $55.7 million. These transactions were subsequent events and are not included in June 30 balances.
- Q2 included approximately $0.8 million of straight-line rental revenue associated with contractual rent abatements; the comparable six-month amount was approximately $1.5 million. No impairment charges were recorded in the periods presented.
- As of August 7, the company had acquisition contracts for properties with a stated purchase price of $19.0 million and assumed debt of $9.7 million, subject to due diligence, closing conditions and lender consent. It also had a conditional agreement to sell a Los Angeles property for approximately $17.2 million.
- Key disclosed risks include tenant default or non-renewal, vacancy and rent pressure, concentration in markets and tenants, acquisition and financing access, interest-rate increases, property valuation and impairment, and maintaining REIT status. Ten tenants accounted for 56.1% of six-month rental revenue; Northern New Jersey/New York City represented 38.7% of annualized base rent.
- Management reported effective disclosure controls, no material litigation known, and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether acquisitions and rising occupancy translate into sustainable cash rent and same-store cash NOI; reported same-store NOI included straight-line rent and lease-intangible amortization.
- Revolver availability under borrowing-base limits and covenants, and the company’s plan for the 2013 term-loan maturity and 2015 revolver maturity.
- Tenant and geographic concentration, lease expirations, and the ability to renew or replace tenants without lower rents or extended vacancy.
- Completion and financing of the contracted purchases and sale, and the effects of the subsequent preferred offering and acquisitions on leverage, distributions and per-share results.
- The filing reports $129.4 million of balance-sheet debt, while its contractual-obligations table lists $106.9 million of debt; investors should reconcile the differing presentation and scope.