Terreno Realty Corporation — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Financial statements are unaudited. Terreno owns and operates industrial real estate in six coastal U.S. markets. At quarter-end, it owned 234 buildings totaling approximately 13.8 million square feet, 27 improved land parcels, and three properties under redevelopment.
Key financial results
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $53.3m | $45.7m | $104.0m | $90.9m |
| Net income | $17.4m | $30.7m | $33.6m | $43.6m |
| Diluted EPS | $0.25 | $0.45 | $0.48 | $0.64 |
| FFO per diluted share | $0.42 | $0.36 | $0.82 | $0.71 |
| Net cash from operations | Not stated for quarter | Not stated for quarter | $59.2m | $45.4m |
Q2 revenue increased 16.5%; net income fell 43.4%, primarily because Q2 2020 included a $17.8m gain on property sales, with no property sales in Q2 2021. Six-month revenue rose 14.4%, while net income declined 22.8% for the same reason. FFO, a non-GAAP measure, increased 16.7% per diluted share in Q2 and 15.5% for the six-month period.
Q2 net operating income (NOI) was $40.1m, up 18.7%; same-store NOI increased 13.7%. For the six months, NOI rose 15.4% and same-store NOI rose 11.9%. Cash-basis same-store NOI increased 12.4% in Q2 and 9.8% for the six months. These are non-GAAP measures. Portfolio building occupancy was 97.5% at June 30, versus 96.1% for the comparable same-store pool a year earlier; improved land occupancy was 98.0%.
Balance sheet, debt and liquidity
- Total assets were $2.254bn and stockholders’ equity was $1.702bn at June 30, 2021. Cash and cash equivalents were $40.0m; cash plus restricted cash was $42.7m.
- Debt principal was $450m ($448.2m net of deferred financing costs), with a 3.3% weighted-average interest rate. Debt-to-total investments in properties was 18.5%; debt-to-market capitalization was 9.0%; debt-to-adjusted EBITDA was 3.1x. The company reported covenant compliance.
- The $100m variable-rate term loan matures in January 2022; $50m of senior notes mature in September 2022. The $250m revolving facility had no outstanding balance. The company had no interest-rate cap at quarter-end; its prior cap expired in May 2021.
- Six-month cash flows: investing activities used $183.4m, principally for $160.0m of acquisitions; financing activities provided $59.1m. Dividends paid were $40.0m.
Operating developments and outlook
- Terreno acquired ten properties for approximately $167.7m in the first half, compared with four properties for approximately $41.1m in the comparable 2020 period. It had three redevelopment projects with approximately $91.6m expected total investment; estimated completion dates ranged from Q4 2021 to Q4 2022.
- Cash rents on new and renewed leases were approximately 21.1% above prior rents for 0.8m square feet commencing in Q2, and 19.7% above prior rents for 1.1m square feet commencing in the first half. Management expected 2021 expirations, representing 5.7% of portfolio annualized base rent, to re-lease or renew on average above current rents; this is an expectation, not a guarantee.
- After quarter-end, the company issued $150m of unsecured notes: $100m green notes at 2.41% due 2028 and $50m notes at 2.84% due 2031. It also acquired three properties for a combined approximately $56.8m and declared a $0.34-per-share dividend payable October 15, 2021.
- As of August 3, seven property purchase contracts totaled $107.1m; five non-binding letters of intent represented approximately $59.9m of potential purchases. Completion is not assured. No quantified earnings or FFO guidance is provided.
- Key stated risks include tenant defaults or non-renewals, vacancies and rental-rate changes, acquisition and redevelopment execution, access to capital and debt refinancing, interest-rate and LIBOR transition exposure, COVID-19 effects, property valuations, natural disasters, and maintaining REIT status. Management reported no material litigation, no material change to previously disclosed risk factors, and effective disclosure controls.
Important facts for investors to verify
- Whether rent growth and high occupancy persist as leases expire, including tenant retention and renewal outcomes.
- Execution, leasing, cost and timing of redevelopment projects and the contracted acquisition pipeline.
- Liquidity and refinancing plans for the January and September 2022 maturities, alongside the effect of unhedged variable-rate debt.
- Cash available for acquisitions, capital spending and dividends after the first-half acquisition outlay and subsequent note issuance.
- Underlying performance excluding the prior-year $17.8m property-sale gain, and the definitions and comparability of reported non-GAAP FFO, NOI and adjusted EBITDA.